Storebrand showed its support for the Norwegian Cancer Society and Norwegian Breast Cancer Association’s annual “Pink Ribbon Campaign” by lighting up its new head office in Lysaker in pink.
Storebrand and the Norwegian Cancer Society sign a main partner agreement.
Children’s super insurance, which combines child insurance and treatment insurance, is launched.
• 1814 Following the split from Denmark, management of the fire insurance scheme is transferred to Christiania, as the capital of Norway was called at that time. The scheme is later converted in 1913 into a public sector company called Norges Brannkasse.
• 1867 The P&C insurance company Norden is established as a competitor to Storebrand.
• 1925 Storebrand changes its name in its articles of association from Christiania Almindelige Forsikrings-Aksjeselskap (renamed in 1915) to Christiania Almindelige ForsikringsAksjeselskap Storebrand. This name is kept until 1971.
• 1963 Storebrand acquires Norske Fortuna. Brage and Fram merge to become the country’s largest life insurance company.
• 1984 Norske Folk and Norges Brannkasse market themselves as a single entity under the name UNI Forsikring.
• 2007 Storebrand acquires SPP, the Swedish life insurance and pensions provider, from Handelsbanken and forms the leading life insurance and pensions provider in the Nordic region.
• 2008 On 15 September the investment bank Lehman Brothers announces it will declare bankruptcy. Its bankruptcy adds further impetus to the financial crisis in the USA, which spreads to the global financial markets. The New York Stock Exchange (Dow Jones DJIA) fell by 34% and the Oslo Stock Exchange by 54% in 2008.
Storebrand P&C More than half of our customers bought their insurance online Storebrand P&C offers standard property and casualty insurance products in the Norwegian retail market. The company was launched in autumn 2006. With cost-effective distribution and an extremely customer friendly online solution, the company has quickly established its position as a competitive insurer, offering peace of mind at low prices.
Storebrand Life Insurance aims to be Norway’s most respected and customeroriented life insurance company by offering customers the most attractive products, the best advice and the best customer service.
Key figures (NOK million) 2008 2007 Pre-tax profit 33 235 Gross lending 39,035 37,096 Customer deposits 18,291 17,470
2 Owned 50% by Storebrand ASA1 Owned by Storebrand Life Insurance
Key figures (NOK million) 2008 2007 Pre-tax profit Norwegian life insurance activities 337 1,622 Net inflow of pension transfers 2,475 4,086 Total premium income (excl. premium reserves transfers) 16,304 16,578 Assets under management (excl. SPP) 188,508 188,996 Solency margin 160% 136%
Group result before tax 1 (NOK million) -1,716 2,020 1,585 1,453 2,571
Qualified for Dow Jones Sustainability Index Qualified Qualified Qualified Qualified Qualified
Figures for 2004–2007 have not been translated for the financial statement layouts used for 2008. 1 Total for Storebrand Norway and SPP (sick leave for Storebrand Norway in 2008 was 4 percent).2 Total for Storebrand Norway and SPP.3 Storebrand has committed NOK 191 million to microfinance, of which 66 percent of the capital, i.e. NOK 127 million, is invested.4 Applies to head office, Filipstad Brygge 1, Oslo, Norway.5
Financial consequences The Storebrand Group’s result for 2008 is weaker than normal. This is primarily due to the fact that actual returns, as a consequence of the negative returns in the equities markets and heavy falls in the value of bonds, were lower than the customers’ guaranteed interest. The risk in the balance sheet was substantially lower at the close of the year than it was at the start of the year. This was a result of active risk management and a heavy reduction in the proportion of the balance sheet invested in equities.
Norway, and Storebrand has also successfully entered the P&C insurance market. This year - after three years of operations - our P&C
Investments is proceeding as planned. After several years of weak returns compared with its competitors, SPP was in 2008 one of
Storebrand’s earnings are based upon the efficient and reliable execution of this task, however the company also assumes financial risks at the same time. Good controls and management of risk are a prerequisite for being able to achieve Storebrand’s financial objectives and ensuring the financial strength to withstand and limit losses.
The key contributions companies can make are profitability and measures associated with their core activities. As a financial institution Storebrand can have the greatest influence through the way it invests its customers’ savings. With NOK 373 billion under management we have a significant opportunity to encourage other companies to act sustainably.
Dialogue and active ownership Storebrand’s approach to active ownership is largely based on maintaining a dialogue with listed companies. We maintain contact with the companies via our own analysts and portfolio managers, or by working with other investors and external asset managers.
In addition to this, companies in high-risk industries are analysed to identify the ones in which the corporate responsibility work is
The “Responsibility guaranteed ” label was designed for those funds in which
We are a major owner in the Norwegian market and are therefore also in a strong position with respect to Norwegian businesses. Storebrand’s portfolio managers have a great deal of contact with the companies we invest in and also use the opportunities this presents to exert our influence with respect to corporate governance. The Norwegian equities department holds around 150 meetings a year, and also participates in joint presentations.
If our requirements are not met, we ask the managers to exercise active ownership themselves by contacting excluded companies. We also work with other investors to persuade managers, e.g. via the UN Principles for Responsible Investments (UNPRI) 2.
One manager has since divested in companies at Storebrand’s request, while five managers have themselves contacted companies that are in breach. We are talking to a further six managers, while we are still awaiting a response concerning the breaches from one manager.
Western Sahara breaches international law because Western Sahara is a “Non-Self-Governing Territory”.
Initiative (NMI) in cooperation with other private actors and the Norwegian development authorities. The fund aims to become one of the world’s largest microcredit funds with total assets of more than NOK 600 million.
There is no easy answer to how sustainable development can be achieved. Challenges such as climate change, poverty and corruption require that business contribute. They also require that companies, authorities and
Main features The Storebrand group is made up of four business areas: life insurance, P&C insurance, asset management and banking. The group’s head office is located in Oslo and a nationwide network of offices has been established in
Falling interest rates in the last half of 2008 in combination with falling equity markets have reduced our risk-carrying ability. Storebrand has carried out measures for limiting the consequences of this. Primarily through the exercise of active risk management, which continually reduced the portfolio of equities throughout 2008, but also through adjustments of investments in bonds in the category of loans and receivables that will provide a regular booked return in the future significantly above the interest rate guarantee, as well as by reclassification of the category “hold to maturity”.
SPP, dissolution of bonds in the “hold to maturity ” category at Storebrand Life Insurance and good returns in the portfolios in consequence of decreasing interest rates. Earnings per share comprised minus NOK 4.97 in 2008 and were NOK 7.95 in 2007, based on the average number of shares outstanding.
Individual products that were provided by the company prior to the entry into force of the act can be continued in accordance with the profit rules that applied prior to 2008, and Storebrand intends to continue managing these assets in accordance with this regime. In other words, the company may take a maximum of 35 percent of the total profit and must cover any possible deficit for these products.
BIRGITTE NIELSEN (44), Partner, JMI Invest II AS. Board Member for Storebrand ASA since 2005.
2,137 million in 2008 compared to NOK 7,887 in 2007. The additional statutory reserves were reduced in total by NOK 2,386 million in 2008, of which draws to cover yields lower than the guaranteed interest in the customer portfolios comprises NOK 2,241 million. Both the administrative result and the risk result show improvements in comparison with the prior year. The transition to the new insurance act has brought about an income in the
that absorbs the effects of negative returns for most of the insurance contracts. The contracts that do not have CB do however affect the financial result negatively, in the form of increased reserves. In order to limit the effect of the increased reserves on the financial result, SPP has its own security reserve programme. During the course of the year, the security reserve programme has given a positive contribution to the result of
Storebrand Bank Group achieved an operating profit before loan losses of NOK
Net commission and other income showed an increase. The operating costs comprised 77 percent of the total operating revenues for the year compared with 70 percent in 2007. The increase is due to businesses acquired during 2008. The bank bought 80 percent of Hadrian Utvikling AS in 2008 as well as increasing its ownership stake in Ring
AS is marked by high fixed and volume-based revenues. At the same time, the company has managed to maintain its volume in a difficult market. Earnings-based revenues are higher than in 2007 in consequence of good earnings results within individual areas. The administration revenues from hedge fund and private equity investments have gone down slightly in comparison with 2007, due to the trend in the market in 2008.
696 million in 2007. The income from investments in subsidiaries amounted to NOK 147 million, which represents a fall of NOK 525 million compared with 2007 and net incomes from financial assets at fair value have increased by NOK 22 million, comprising NOK
233 million. Group projects have contributed to an increase in operating expenses of NOK
Storebrand in 2008. In recent years there has been an increasing transition from defined benefits based to defined contribution based pension schemes. The consideration involving more predictable costs is most important for companies that carry out such a conversion. The retail market in 2008 has been marked by declines in individual life insurance savings, due to increasing interest rate levels throughout the year having made bank savings more attractive. The new scheme for individual pension savings with tax deductions,
In total, more than 10,000 agreements were sold in the market, with Storebrand gaining a market share of approximately 13 percent.
SIGuRDuR EINARSSON (48), Board Member for Storebrand ASA from January 2008 to March 2009.
Previous positions: 1997–2003: CEO, Kaupthing Bank• 1996–1997: Deputy CEO, Kaupthing Bank • 1994–1996: Managing Director. Capital Markets, Kaupthing Bank • 1988, Assistant Director International Dept. and Finance Dept., Islandsbanki hf. (now Glitnir banki hf.) • 1982–1988: Various positions, Finance Dept. and International Dept., Den Danske Bank • 1993–1997: University Lecturer, University of Iceland. Positions of trust: Board Member, various subsidiaries of Kaupthing Bank • Board Member for Norvestia • 1996–1997, Deputy Chairman, Iceland Stock Exchange.
Work has been done in 2008 on four subprojects connected with the integration of
• The Risk Management Project has worked with the conversion to Storebrand’s risk management model with the aim of increasing the return and reducing the hedge costs at SPP.
AS in 2008 and has gained access through this subsidiary to a new, long-term source of funding that reduces the bank’s liquidity risk to a significant degree. At the end of 2008, bonds with pre-emptive rights were issued with a booked value of NOK 11.3 billion.
Kapitalforvaltning AS manages a full spectrum of savings and investment products for the product companies within the group. In addition, Storebrand Kapitalforvaltning AS offers active management to a broad selection of larger investors. A separate large customer department with highly qualified investment consultants serves institutional customers. In consultation with the customers, customised investment strategies are formulated adapted to the financial objectives, the investment time horizon and risk profile of the customer. During the course of 2008 the company has built up further resources connected with the evaluation of external administrators and for direct investments in power and alternative energy.
Absolute returns were poor in 2008, however the core products within Norwegian equity management nevertheless achieved a higher return than their reference indexes. Portfolios and funds with elements of credit risks performed poorly in 2008 in consequence of volatility in the credit markets.
Storebrand poses strict corporate responsibility requirements of the companies it invests in and is one of the few asset managers in
The allocation of financial assets follows the company’s investment policy. The investment strategy establishes guidelines and frameworks for the company’s risk management, credit exposure, counterparty exposure,
Insurance has conducted solvency-based risk management and thus significantly reduced the weighting of equities in customer investment portfolios. Adjustments have been performed to the bond portfolios in that papers that were classified in the category of “hold to maturity” have been reclassified to be encompassed by the market valuation principle.
SPP is to a large extent exposed to the same types of risk as Storebrand Life Insurance, however the terms contained in the insurance products are somewhat different. SPP
offers insurance products with a guaranteed return on received premiums and mutual fund products in which the customer bears the financial risk. SPP’s defined benefit products also include inflation adjustment and parts of the portfolio are thus subject to inflation risk.
This affects the assets on the balance sheet as well as the risk management.
This means that latent deficits could arise with respect to certain customers. The company makes provisions in the accounts to meet these and monitors the ongoing risk including by using “Value at Risk” measurements.
In order to manage the exposure to various types of market risk the company established a framework for allocations to risk-bearing assets through its investment strategy, with associated risk management that is practised on an ongoing basis. The risk management is exercised by adjusting the customers’ portfolios and the company’s own assets. This could involve changes in the allocation of risk-bearing assets or utilising derivatives. The company’s investment policy also includes limits and guidelines for credit and counterparty risk. Liquidity risk is estimated by a significant portion of the financial investments being placed in market listed securities with good liquidity.
The volume of non-performing and lossexposed loans totalled NOK 710 million, 1.8 percent of gross lending. In 2007 the volume was NOK 448 million, 1.2 percent of gross lending. There has been an increase of NOK
a total of NOK 350 million. During the course of 2008, individual write-downs increased by a net of NOK 15 million, with regard being paid to determinations made during the period. The group write-downs have increased by a net of NOK 30 million. Net expensing of losses on lending and guarantees comprised NOK 122 million in 2008.
Oslo Reinsurance Company ASA has been in run-off since 1994. The company’s risk exposure has reduced significantly over this period. The level of reserves is determined by actuarial principles.
The capital adequacy in its banking activities should be more than 10 percent and the solvency margin in the life insurance company should be at least 150 percent. Storebrand
Previous positions: 2002–: Head of Project Committee for Authorisations, FNH • 1998–1999: Market Director, Sparebank1 Livsforsikring • 1978–1998: Various positions, Storebrand Livsforsikring • 1990–2006: Lecturer and author, BI Centre for Financial Training and the Insurance Academy. Positions of trust: 2007–: Chairman of the Board, Boligstiftelsen Ungdomsboliger in Asker • 2007–: Board Member, Asker and Bærum Housing Cooperative • 2007–: Member, Board for Banking, Insurance and Finance Studies.
took out a loan of EUR 580 million in connection with the acquisition of SPP. The loan was repaid in 2008 when Storebrand Life
Storebrand ASA and through an expansion of established loan frameworks. Storebrand ASA
For many years, Storeand has been involved with different international organisations advocating more sustainable development within the business community. Storebrand is active and support the work of organisations such as World Business Council for Sustainable Development (www.wbcsd.org), UNEP
Previous positions: 2002–2007: CEO of Sveriges Försäkringsförbund and Försäkringsbranschens Arbetsgivarorganisation • 1996–2002: Legal Director for Financial Council and Head of Financial Market Department, Ministry of Finance • 1994: Legal Director, Swedish Ministry of Finance • 1993: Assistant Undersecretary, Swedish Ministry of Finance 1988: Legal Consultant, Swedish Ministry of Justice • 1987: Research Secretary, Swedish Department of Labour Positions of trust: 2007– July 2007: Invik AB • 2002-2007: Larmtjänst AB, Chairman • 2002-2007: Trafikförsäkringsföreningen, Chairman 2003 • 2002-2007: Lernia AB • 1999 -2002: Akademiska Hus AB • 1996–1999: Posten Sverige AB • 1994–1998: SAQ AB • 1993–1999: Swedish Securities Register Centre, VPC AB, Chairman 1998.
Below follows the results within the environmental area, while more comprehensive information is available at: www.storebrand.no/samfunnsansvar and on page 10 and 39 in the annual report.
A programme has been carried out aimed at young employees – the Young Professionals
Storebrand is fully committed to increasing the number of women in senior management. In 2008, 50 percent of the members of the Board of Storebrand ASA were women, compared with 44 percent in 2007. A total of
Norwegian Financial Services Association’s management training programme for women, contributing two candidates. The company poses requirements for working relationships with recruitment bureaus to the effect that both genders must be represented as final candidates for management positions.
of senior employees who want to continue working after they have turned 65 years old.
training during working hours for seniors, a subsidises personnel restaurant, a fresh and present concept including bicycling to work and stairway contests.
Member to succeed Knut G. Heje who had been a Board Member since 2000. Annika
Board of Representatives: Stein Erik Hagen and Margareth Øvrum retired from the Board of Representatives.
During periods with uncertainty in the financial markets, Storebrand will intensify the work of rationalising operations and ensuring good profitability through reducing levels of expenditures. Storebrand has worked for a number of years in a goal-oriented manner to rationalise its operations through streamlining the working processes in the company.
The goals for the rationalisation programme have been validated by the business volume having increased without corresponding growth in costs. In the future, increased efficiency will be used to a greater extent to reduce the absolute level of costs in both the
There is an increased awareness within society of Storebrand’s most important area of effort – pensions. This is being driven to a large extent by the many changes that have been carried out and that are being proposed for the pension system. During 2008 in particular discussions concerning the early retirement pension scheme (AFP) and the introduction of individual pension saving in
Storebrand’s vision is to become the leading and most respected Nordic business partner for long-term savings and insurance. The group’s financial goals, which were adjusted in connection with the acquisition of SPP, remain firmly in place.
Based on Storebrand’s result, the equity situation and the dividend policy, the Board of
Storebrand ASA proposes to the annual general meeting that no dividends be disbursed for 2008.
The annual general meeting held on 23 April 2008 granted a mandate to the Board to buy back up to 10% of its own shares. Storebrand has not exercised this mandate. As of 31
NOK 32.99 per share. 40 percent of employees participated and purchased a total of 448,320 shares. In addition a long-term incentive scheme was established in 2008 for the group’s management team and other senior employees. In connection the establishment of this, the previously withheld bonuses earned in 2007 and before have been paid. The net payment, less tax, was in its entirety spent on purchasing shares with a lock-in period of 3 years. A total of 238,140 shares were purchased under this scheme.
Trading in the Storebrand share Almost 749 million Storebrand shares were traded in 2008, 39 percent more than in 2007. The value of shares traded in 2008 was NOK 25,138 million, down from NOK
Compliance As one of the country’s leading financial institutions, Storebrand is dependent on maintaining an orderly relationship with the financial markets and supervisory authorities. The company therefore places particular emphasis on ensuring that its routines and guidelines satisfy the formal requirements imposed by the authorities on securities trading. In connection with this, the company has produced internal guidelines on insider trading and own account trading based on current legislation and regulations. The company has its own compliance
Dividend for the accounting year 0 1.20 1.80 4.00 7.00 0.80
No. of ordinary shares at 31.12 (1,000 shares) 449,910 449,910 249,819 258,526 278,181 278,070
All interim reports, press releases and presen tations of interim reports are published on the Storebrand website: www.storebrand.no.
stipulate that it is the holding company of a financial institution and its objective is to manage its equity interests in the group in compliance with the relevant legislation.
The Articles of Association are available in their entirety on the group’s website: www.storebrand.no.
The Norwegian Code of Practice for Corporate Governance addresses the following major topics: Storebrand meets the requirements of the Norwegian Code of Practice for Corporate Governance: 1) Implementation and reporting on corporate governance √
Shareholder matters (CoP sections 3,4 and 5) The Board continually monitors the company ’s capital adequacy in light of its objectives, strategy and risk profile. The Board has established a clear and consistent dividend policy. The decision on payment of a dividend is made by the Annual General Meeting
Storebrand has no specific restrictions on ownership of shares or voting rights in the company other than the restrictions imposed by the Financial Institutions Act. All shares have equal rights, and are freely negotiable.
AGM by post, sent out no later than 14 days before the AGM. The notice calling the meeting includes supporting papers for all resolutions that will be considered by the meeting, including the candidates nominated by the
All shareholders are entitled to attend general meetings, and arrangements are also made for proxy voting. Shareholders can only exercise their formal rights through the general meeting. Norwegian law does not permit shareholders to exercise their rights through what is known as ”written consent” (formal group action outside the general meeting).
Election Committee (CoP section 7) Storebrand ASA’s Articles of Association regulate the company’s Election Committee, which has four members. In accordance with the provisions of the Articles of Association approved by the AGM, the chairman of the
The Election Committee is independent of the company’s Board and management, and its composition aims to ensure broad representation of shareholder interests. The Election
on the Board’s proposal for the annual report and accounts, electing the six shareholder nominated directors, including the Chairman, to the Board of Directors, determining the fees paid to the directors, issuing the mandate for the work of the Control Committee and considering reports from the Control
Board of Storebrand ASA satisfies the requirements concerning the independence of the
Committee for consideration in their work on candidates for the Board.
Board committees (CoP section 9) The Board has established a Remuneration
The Remuneration Committee monitors the remuneration of the group’s senior managers, and assists the Board in setting terms and conditions for the group’s CEO. The Committee also plays a key role in preparing the
is a legal requirement, and has five members elected by the AGM. The committee is independent of the company’s Board and management. Members are elected for a two-year term of office. The Control Committee is responsible for ensuring that the entire group conducts its activities in a prudent and proper manner. Particular attention is paid to close collaboration with the control committees of the group companies. The committee ensures that the group adheres to all relevant legislation and regulations, and that it operates in accordance with the Articles of Association and resolutions passed by the group’s corporate bodies. The committee is entitled to look into any matter, and has access to all relevant documentation and information. The committee has the power to demand information from any employee and any member of the company’s corporate bodies. The Control Committee met 10 times in 2008 and submitted a report on its work to the Board of Representatives on 11 March 2008. Storebrand Life Insurance, Storebrand
P&C and Storebrand ASA have identical control committees. Storebrand Bank has its own control committee.
Financial Officer is the Chairman of the Board of the P&C insurance company. The acquisition of SPP Livsforsikring was completed on 21 December 2007. As a consequence of this, a new group management model was introduced with effect from 14 January 2008
Board. In addition, in order to ensure continuity of expertise in key positions, all the members of the executive management team are subject to a written agreement to give six months’ notice of termination of employment. Information on the executive management team can be found on page 36. The group’s management and monitoring of the business areas takes place largely through the subsidiaries’ board meetings, executive management meetings, business reviews and process reviews.
The Board of Storebrand has adopted guidelines for risk management, risk control and compliance functions.
Risk evaluation and internal control reporting form an integral part of the strategy and planning process. The management teams work actively to identify areas of risk and measures to promote the company’s strategy and objectives. This work is summarised in an internal control report submitted to the
Storebrand Compass, provides management and the Board with monthly reports on financial and operational performance relative to approved targets. The system highlights parameters that fall short of targets so that appropriate measures can be implemented.
of the notes to the accounts. Members of the Board are encouraged to hold shares in the company.
All reporting is based on the principle of openness and takes into account the need for the equal treatment of all participants in the securities markets, and the rules concerning good stock exchange practice.
Further information on Storebrand’s Corporate Governance can be found on www.
3. EGIL THOMPSON (44), Executive Vice President, Corporate Communications. Master of Science in Political Science, University of Oslo. 1999-2000 Deputy Director, Corporate Communications, Storebrand ASA. 1994-1999 journalist and head of editorial staff Aftenposten. 1990-1994 journalist, NTB.
7. SArAh MCPhee (54), Executive Vice President, Life and Pensions, Sweden, CEO SPP. MA Stanford University. BSc Economics Handelshögskolan Stockholm. BA Wesleyan University. 2004-2008 Executive Vice President and CIO, AMF Pension. 2001-2004 Head of ALM and Risk Management, Fourth AP-Fund. 1998-2001 Director of Credit and Risk, GE Capital Nordic. 1992-1998 Group Risk Control, Svenska Handelsbanken. 1986-1992, Director, Financial Services, PwC.
8. LARS AA. LøDDESøL (44), Executive Vice President, Life and Pension Norway, Managing Director, Storebrand Life Insurance. Master of General Business, Norwegian School of Management (BI). MBA, Thunderbird (AGSIM), USA. 2004-2007 Executive Vice President, Corporate Life. 2001-2004 Executive Vice President, Finance Director, Storebrand ASA. 1994-2001 Vice President, Citibank International plc. 1990-1994 Asst. Treasurer, Scandinavian Airlines Systems.
Policyholder's funds included accrued profit 164,017 165,120 153,710 140,383 125,560 - of which funds with guaranteed returns 154,963 150,433 146,346 134,664 121,084
Retail mortgages as proportion of total lending 67% 64% 54% 55% 55%
Volume of non-performing and loss-exposed loans 710 448 533 754 909
Storebrand’s vision clearly expresses its longterm goal of succeeding in what it regards as its geographical core area - the Nordic market. At the same time the group still wants to be a “respected institution”. This means its goals must be attained by continuing to improve customer satisfaction through competent, motivated staff and by taking its corporate responsibilities seriously.
Implementation of the new corporate structure in November 2008 was one important way of ensuring this customer-oriented focus within the aforementioned areas.
The introduction of extensive changes to the regulatory framework for finance and insurance companies is of major significance for
The corporate responsibility unit’s new areas of responsibility are ethics, notification and combating financial crime.
Highlights include increased investment in microfinancing, new procurement guidelines, establishing our own code of conduct, launching an online eco-driving course and new climate criteria for investments, as well as implementing a group standard for responsible investments that also covers SPP’s customer funds. In total this helped to strengthen
Norwegian employees believe Storebrand is a great place to work. In the finance industry a group’s results depend on its employees’
One important goal in 2008 was to develop and implement a group code of conduct.
“Taking corporate responsibility” is one of the group’s six principles. The employees’
One of them is to have the most satisfied customers in the industry, a goal we have attained in the corporate market. Our goal is to maintain this position. However, the retail customer result showed a weak decline from 65 percent in 2007 to 63 percent in 2008.
New procurement guidelines were adopted in autumn 2008 and these will continue to be implemented in 2009. Environmental and corporate responsibility is assigned a minimum 20 percent weighing in all types of purchasing. Furthermore, companies excluded from the group’s investments based on the code of conduct for responsible investments do not become new suppliers. Established suppliers will be granted a one-year transitional period in which to satisfy the new guidelines.
The new head office in Lysaker will be ready in December 2009. This will be a low energy, sustainable building. All purchasing and investments relating to the new head office must comply with the new purchasing guidelines. One new goal for 2009-2010 is to attain Miljøfyrtårn certification for the head office, and achieve energy class B, which corresponds to a theoretical consumption of a maximum of 125 kWt/m2 per year. We will also begin the work on preparing all the buildings we administer for energy marking.
Group structure and management reporting The chart below shows the legal structure of the group’s main subsidiaries: Storebrand ASA
In addition to the presentation of consolidated profit and loss accounts on page 64, the group result can be analysed by business area as shown on the following page. The life insurance figures include Storebrand Livsforsikring AS (including subsidiaries, among these Nordben Life & Pension Insurance Co.
The group reported a result for the year before tax of minus NOK 1,716 million in 2008 compared to NOK 2,029 million in 2007.
Capital situation Storebrand focuses strongly on the active management of its equity and borrowings over time. This is tailored to the business’
financial risk and capital requirements. The composition of its business areas and their growth are important drivers of the group’s capital requirements. The goal of its capital management is to ensure an effective capital structure and preserve an appropriate balance between internal goals in relation to regulatory and ratings-based requirements.
The group’s long-term targets are a solvency margin of at least 150 percent in the life insurance business and a capital ratio of at least 10 percent in its banking activities.
The Storebrand Life Insurance group’s solvency margin at year-end 2008 was 160
NOK 20 million. Storebrand ASA owned 4.6 million of its own shares at year-end 2008.
Sweden with the acquisition of SPP. Losses carried forward cannot be utilised across national borders. The Swedish business will be assessed on an independent basis with respect to tax. SPP was purchased by a
Increasing transition to defined contribution pensions in the occupational pensions market
With the introduction of mandatory occupational pensions (OTP) in 2006, when around 700,000 employees received occupational pensions, a majority of employees in the private sector are now covered by defined contribution-based occupational pension schemes.
The last few years have been characterised by an increasing transition from defined benefits-based pensions to defined contribution -based pensions. The most important factor for companies that implement this restructuring is more predictable costs.
However, in terms of the value of accumulated pension assets in the schemes, defined benefits schemes will continue to dominate for the foreseeable future.
Work on improving the efficiency of customer service and settlement systems continued in 2008. The goal is to improve efficiency by more than 20 percent in all these units.
Storebrand since 2006. Lean methodology will enable SPP to improve and develop the company’s relationships with customers and external partners, and thus achieve improved productivity, quality and customer satisfaction.
The goal is an even stronger sales culture, better local cooperation, increased sales and better profitability in the group’s physical distribution. The new joint corporate and retail markets sales structure enters into force no later than 1 March 2009.
The new Insurance Activities Act and regulations came into force on 1 January 2008. The new Act entails considerable changes for life insurance companies. Storebrand has worked intensively to strengthen its competitiveness by taking advantage of the opportunities that have opened up. The overall objective of the new legislation is to make the pricing of insurance products more predictable and transparent, and to create a clearer distinction between the assets of insurance companies and their policyholders. The central principle of the new regulations requires that premiums must be fixed with final effect and paid in advance.
and the investment risk of the portfolio the pension assets are invested in determine the price customers pay for their guaranteed return. The basis for pricing the guaranteed return is the risk to which the available equity is exposed. A group pension customer can choose an investment profile with low equity exposure, which normally results in a lower risk of losses and lower expected return. A higher level of exposure to equities would normally result in a higher expected return, but also a higher price for the guaranteed return. A higher return will over time reduce the customer’s pension costs. Under the new Act, a shortfall in the return on the customer’s policy can be met from additional statutory reserves, and the new rules allow greater flexibility in building up the level of additional statutory reserves.
The new act allows group pension customers to choose a special investment portfolio to invest their assets in. These customers will have greater freedom of choice. They can choose between standardised risk profiles, or are almost free to choose investments within the limits that follow at any given time from the act and regulations. The customer can thus define their investment policy almost as if the management was taking place via a pension fund.
The new Insurance Activities Act means the profit linked to the return risk and insurance risk goes to the customer in the case of group defined benefits pensions and newly established guaranteed individual products.
Premiums must be calculated for one year at a time and paid in advance, unless payment by instalments has been agreed.
The customer will receive any surplus from the risk result achieved on the insurance cover, while the insurance company is in principle responsible for meeting any deficit vis-à-vis the risk result. There is, however, provision for up to half of any risk surplus on a particular line of insurance to be held in a risk equalisation fund. Deficits from the risk elements can be met out of the risk equalisation fund before the insurance company is required to contribute from its own equity.
The investment result arises from the difference between the recognised return and the guaranteed return on insurance contracts. The average guaranteed interest rate on the insurance contracts was 3.5 percent, unchanged from 2007. The investment result amounted to minus NOK 2,137 million in 2008 compared to NOK 7,887 million in 2007.
Interest rates also fell substantially in 2008, both short-term and long-term rates. Longterm rates were up in the first two quarters of the year, but then fell back significantly and were at year-end 2008 substantially lower than at the start of the year. This resulted in good returns on papers with interest risk in 2008. Short-term rates also climbed in the first two quarters of the year. NIBOR rates were very high in Q3 due to the crisis in the world’s credit markets, with an accompanying drought in the interbank market.
The investment result was affected by previously unrecognised extra values being recognised through a reclassification of parts of the bonds portfolio at amortised cost to bonds at fair value. The reclassification of the “hold to maturity” portfolio resulted in an improved return of around NOK 1.8 billion, including improvement of the profit for the owner of around NOK 0.6 billion.
Total premium income, excluding transferred premium reserves in Storebrand Life Insurance, amounted to NOK 16.3 billion (NOK 16.6 billion)
in 2008, a decrease of 2 percent. This reduction was due to the aforementioned situation concerning traditional individual products.
NOK 37 million were signed in the public sector in 2008 compared to NOK 18 million in 2007. The individual branches experienced a fall in APE. The good sales of guaranteed return accounts from the first six months of the year declined and some of the investment has already been withdrawn from the product, which results in a low total for new premiums for contracts in effect at year-end 2008.
The profit allocated to the owner is generated via four primary product areas with different earnings structures, as well as the return on the company portfolio.
Up to 50 percent of the risk result for group pensions and paid-up policies can be set-aside in the risk equalisation fund to cover any future negative risk result. NOK 120 million was set aside in the risk equalisation fund in 2008: NOK 112 million was set aside for group retail and NOK 8 million for paid-up policies.
Individual endowment insurance and pension insurance with profit sharing and paid-up policies with modified profit sharing contributed to a net negative result allocated to the owner of NOK 220 million in 2008 due to a lack of additional statutory reserves in some contracts.
The company portfolio delivered a result, excluding subsidiaries, of minus NOK 59 million in 2008. The return on investment assets was 3.0 percent in 2008. The return from bonds was negative in the first six months of the year due to climbing interest rates, while in the second half it was positive due to falling market interest rates. Losses on equities and credit had a negative effect on the return result in the first three quarters of the year. The interest costs for Storebrand Life
The result from subsidiaries was satisfactory during the quarter with the exception of Storebrand Finansielle Rådgivere (SFR), which is still affected by the turbulence in the financial and savings markets. SFR worked to reduce its costs base throughout 2008, and the restructuring process that started in Q3 has been completed. In Q4 it was decided that the regional systems for the corporate market and the retail market would be amalgamated, which will substantially reduce the costs base of SFR and Storebrand Life Insurance. As part of this reorganisation it was decided to carry out a new restructuring process in SFR and
for customer portfolios with a guaranteed return was 5.2 percent at year-end 2008. The exposure in the company portfolio was 2.5 percent. Total equity exposure at year-end 2007 was 26 percent.
A new funds structure developed in close cooperation with Storebrand was introduced during the year. The range of funds is based on selected and well-defined categories. Each category contains high performing funds with varying investment principles. SPP continuously monitors the funds’ development. Funds that do not meet the quality requirements are replaced.
SPP launched eleven new funds from market leading external administrators in 2008.
NOK 102 million in 2007. The administration result was affected by reduced income due to a reduction in assets under management over the year. During Q4 the positive return broke the negative trend in 2008 and contributed to an increase in assets under management. Costs also developed satisfactorily during 2008, but have been affected by integration and separation costs. The administration result is paid to the owner in full.
287 million compared to NOK 185 million in 2007. The risk result can be volatile because of changes in the illness result. The release of illness reserves during the whole of 2008 made a positive contribution to the result.
340 million compared to minus NOK 377 million in 2007. The positive result was due to good returns in some customer portfolios, which resulted in profit sharing of NOK 177 million.
buffer capital) amounted to NOK 7.5 billion at year-end 2008. The improved method for assessing insurance liabilities introduced in
This spreads risk and increases our capacity to withstand market downturns.
SPP’s total return on traditional insurance was 2.9 percent in the premium specific portfolio and 0.6 percent in the benefits specific portfolio. A capital weighted average is recognised for the three management portfolios in the premium specific portfolio.
At year-end 2008 SPP transferred its asset management from Handelsbanken to Storebrand Investments in Norway.
Storebrand ASA owns 50 percent, achieved a group result of NOK 6 million in 2008 compared to NOK 27 million in 2007. The company offers treatment insurance in the corporate and retail markets. Premium income for health insurance products increased from NOK 198.8 million in 2007 to NOK 245 million in 2008, an increase of 23 percent. Of the growth in premium income for own account, the percentagewise increase was greatest in Norway.
Total shareholder surplus at market value 8,431 comprising - Free surplus 882 - Required capital 7,550
Two changes to the model were introduced in 2008, which result in changes to MCEV
The second change in the model from 2007 is the projection of the yield curve. The new model introduced into SPP in December 2007 was also used in MCEV. Given these changes to the calculation model the previously published MCEV is reduced by minus NOK 3.4 billion to NOK 26.5 billion.
The reduction in EV from 31 December 2007 to 31 December 2008 amounted to NOK 5.2 billion, excluding dividends and other capital transfers. This represents a return of minus 20 percent on adjusted EV.
from Handelsbanken and integration into Storebrand lowers the result because the calculation method for MCEV takes into account all separation costs but omits future synergies.
The MCEV result was affected by the financial instability. Falls in equities markets in 2008 reduced the buffer capital in the life insurance business. At the same time lower interest rates and increased volatility in the market reduced the value of expected future earnings. In total changes to the macroeconomic factors made a negative contribution of
PVFP including look-through in 2007, restated 2007 and 2008 of respectively 4,156, 4,148 and 4,022.1 Includes IFRS shareholders’ equity less intangible assets for businesses not included in the MCEV analysis Storebrand Asset Management tangible equity adjusted to avoid double 2 counting. Based on 444,6m shares for 2007, 445,3m shares for 2008.3
Storebrand Investments’ goal is to be the preferred manager for long-term savings and pension assets. Storebrand Investments utilises its expertise from managing the life insurance companies’ assets to produce investment solutions within traditional funds, guarantee products and alternative products such as private equity and infrastructure, and offers these as standalone productions to external customers. The company had
10% proportionate decrease in lapse rates 23,564 522 2% 449 54 14%
Required capital equal to minimum level of solvency capital 23,090 49 0% 415 19 5%
Storebrand Investments manages a full range of savings and investment products, including actively and passively managed mutual funds and money market and bond funds, real estate funds, infrastructure funds, funds of funds structures within private equity and hedge funds, guaranteed life products and standalone hedge funds. The company’s product range allows it to offer attractive products in any market conditions. The financial crisis and market falls increased the focus on low risk products, and demand for government bond funds and guaranteed life saving has been high in relation to other products.
Norway. Tax-stimulated savings re-emerged in 2008 with Individual Pensions Savings with tax deductions (IPS), and the company was active in the development of new IPS
Storebrand’s strong positions within the municipalities, pension funds and organisations segments were sustained in 2008. These customers will continue to be important and good customer service is emphasised. The traditional customers are and have proved to be, not least in 2008, important sources of stable annual income.
Investment Operation Services) was established in 2006 as part of the focus on trading and settlement services to further strengthen strong customer relationships. The potential here is regarded as substantial and this focus will also continue in 2009.
Storebrand Investments. The introduction of the new insurance act on 1 January 2008 made the management on behalf of Storebrand Life
Preparations were also made in 2008 to take over SPP’s portfolio. The preparations and take over went according to plan and Storebrand Investments took over management of
Storebrand Investments’ market share in Norwegian registered securities funds was 7.9 percent at year-end 2008, which is less than in 2007. The assets under management in
• Group internal • Real estate (group internal) • External discretionary • Mutural funds • SPP
• Rolling 12 months costs • Rolling 12 months income • Rolling 12 months cost/income ratio 1 Includes net financial income and profit before tax from Storebrand Eiendom (12 months rolling)
The Storebrand Bank Group’s profit before tax was NOK 33 million in 2008 compared to
NOK 235 million in 2007. The total lending portfolio increased from NOK 37.1 billion in 2007 to NOK 39.0 billion in 2008.
(NOK 360 million), equivalent to 77 percent of total operating income in 2008 compared to 69.7 percent in 2007. Banking’s (Storebrand Bank ASA and Storebrand Kredittforetak AS) operating expenses are still developing positively. Efficiency measures were implemented in both the retail and corporate customer areas in banking in 2008. Banking’s
The bank focused heavily on developments in important lending commitments within the retail and corporate segments in autumn 2008. Developments in the market and the uncertainty in the housing and property market increase the risk of losses in the portfolio somewhat. The volume of non-performing and loss-exposed loans with identified impairment amounted to NOK 190 million at year-end 2008, and the total non-performing and loss-exposed loans volume amounted to
Storebrand Bank group’s total assets increased in line with the growth in its lending portfolio throughout the year and amounted to NOK 45.6 billion as of 31 December 2008.
The bank has a balanced and appropriate funding structure, and bases its funding on ordinary customer deposits, issuing securities and borrowing in the Norwegian and international capital markets. At year-end 2008, the bank had available unused committed credit facilities equivalent to EUR 400 million.
Storebrand Bank group’s net primary capital amounted to NOK 2.7 billion at year-end 2008. This represents a capital adequacy of 10.8 percent and a core capital adequacy of 8.1 percent. Storebrand Bank ASA had sound capital adequacy and liquidity at year-end 2008.
“smart choice for the modern customer” will be sustained and developed further through product development and improved customer processes.
Group contributions and dividends consist of the direct return on capital invested in subsidiaries. In 2008, this amounted to NOK 672 million. Pursuant to IFRS, group contributions and dividends are recognised as income in the year they are approved by the annual general meeting. This means that group contributions and dividends recognised as income in 2008 come from the profit from the subsidiaries in 2007. NOK 268 million was recognised as income in 2008 from Storebrand Life Insurance, compared with NOK 885 million in 2007.
Storebrand Skadeforsikring won the most media price tests in 2008. Among other things, the company won two out of three surveys of insurance prices in the Norwegian newspaper Dagbladet.
Growth in Life company’s premium income exclusive transfers, last year (NOK million) -274 3,509 -3,737 984 Potential for improvement
Transfer of pension business (NOK million) 2,834 1,056 5,260 712 Very good
Investment return III. Storebrand’s ranking in terms of Investment return III versus SpareBank 1, Nordea, Vital and KLP as of Q4 2008. 1 Norwegian Financial Services Association (FNH) and Norwegian Mutual Fund Association (VFF) statistics as of Q3 2008. 2 Equity/combination funds, Unit Linked and Annuity/IPA weighted by total market sales volumes. The figures for 2008 are based on FNH/VFF statistics as of Q2 and Q3. 3 Scale from 0–100 showing whether corporate customers are satisfied with product delivery, whether we meet their expectations and their experience of Storebrand relative to our competitors.4 Both retail and corporate customers. Measures number of new customers. 5
Financial risk management Storebrand’s key role in society is to preserve financial value on behalf of our customers until a later point in time. The assets under management should grow in a way that means the resulting payment provides adequate purchasing power. Storebrand earns money from the effective and safe exercising of this role, but also assumes financial risk in the ordinary course of its core business activities. Good risk management and control of risk exposure are essential in attaining the group’s financial goals and ensuring that the group has the financial strength to withstand adverse developments and limit the losses these may cause.
Storebrand’s investment policy establishes guidelines for the composition of the financial assets with the objective of achieving the highest possible return on customers’ pension assets until they are paid as benefits. The objective is to achieve the highest possible return for customers, pensioners and owners in the long-term at the same time as the risk of losses is limited in the short-term and long-term. Storebrand assumes risk in the ordinary course of its business activities. Risk management is practised in order to achieve the outlined goal in a controlled manner.
This is evaluated in the light of the guaranteed annual return, the long-term pension liabilities and the company’s risk capital financed by policyholders and the owner.
This measurement of risk is called coherent and is thus suitable for comparing the risk in Storebrand’s Norwegian and Swedish business.
The expected return on the investment portfolio is calculated on the basis of asset allocation and the expected return on asset classes. This is based on historic return, expected risk premiums for shares and other risky assets, as well as forward prices, i.e.
“Risk-based Supervision”. In case of the asset portfolio with investment choice, any guaranteed interest rate is linked to the valueadjusted return. The portfolio thus does have an eligible market value adjustment reserve element as part of its risk capital. On the other hand, the guarantee period is extended to five years unlike the collective portfolio and customers can choose to pay in a special buffer provision. The risk management is designed to reflect these differences, including interest rate sensitivity and allocations to risky assets.
The income of Storebrand’s life insurance companies is linked to the statutorily defined income model that applies to the various product areas and policy portfolios. Following the introduction of the new act relating to insurance activities three different models apply to Norwegian activities involving return guarantees: the old model applies to the existing individual portfolio which, in broad terms, involves an upper limit of contributions to the owner of 35 percent of the profit. Modified profit sharing has been introduced for the paid-up policies portfolio that limits the contribution to the owner to 20 percent of the result that exceeds the guaranteed interest, and for the majority of the portfolio, advance pricing has been introduced for the guaranteed interest premium, administration premium and biometric risk.
For Norwegian life insurance companies, the annual guaranteed interest rate included in long-term insurance contracts creates a number of challenges with respect to interest rate risk. In the short-term, the most apparent risk is that the company’s investments will fall in value if bond prices are reduced by an increase in interest rates. In the longer term, however, a low level of interest rates could make fulfilling the guaranteed interest rate on existing contracts a challenge. There is a risk that over time this could result in the company’s profit and the customers’ return weakening and insufficient risk capacity to build up risk capital and provide adequate pension savings. Low interest rates are the most challenging scenario in the long-term, for both the Norwegian and the Swedish activities. However, it is necessary to weigh the available measures against this risk scenario against the short-term risk that the annual guaranteed interest rate represents. It is also worth mentioning that customers are exposed to a risk of increasing inflation given that their pension savings must sustain their purchasing power. The employer of the future pensioner bears the risk from increased inflation associated with the largest volume products in Storebrand because increased pay inflation results in increased premiums demands. Nonetheless, Storebrand’s investment strategy takes this asset allocation into account.
Storebrand’s responsible investment criteria and require painstaking work. Storebrand continually develops its investment portfolio to include such new alternative asset classes. The assessment of such asset classes as attractive is carefully weighed against the requirement they be negotiable. In line with the applicable regulations, Storebrand specifically assesses this.
In short, Solvency II will require the market value of insurers’ liabilities to be assessed via discounting using the current risk-free interest rate applicable at any time with the relevant period for the insurance policies. The assets and liabilities will be subjected to a common stress test and the result of this will provide information about the risk situation in the companies, and indications concerning the reserves needed and the capitalisation of the companies. Introducing such a regime in Norway involves challenges related to the limited size of the Norwegian government bond market, the weak correlation between
Norwegian and foreign interest rates, the relationship to the new Insurance Activities
A separate team is responsible for managing market risk. This team’s duties include currency hedging, programme trading, hedging transactions, SRI criteria and liquidity transactions. This structure permits more efficient use of resources and greater control over active risk positions in the group’s investment portfolio.
Liquidity risk refers to the risk that the bank is not able to meet all its financial liabilities as they fall due for payment. Storebrand
Bank maintains sufficient liquidity to support balance sheet growth and to repay funding and deposits as they mature. The bank manages its liquidity position on the basis of rolling short-term, medium term and longterm liquidity gaps that show the mismatch between expected inward and outward cash flows on the balance sheet date.
Bank ASA also maintains relationships with a number of international banks, ensuring access to the international capital market and providing greater diversity in the group’s funding.
Market risk is the risk that unexpected and adverse movements in interest or exchange rates reduce the value of the bank’s assets.
Storebrand Bank manages its exposure to interest rate risk so that net interest rate exposure is low. All instruments with an interest rate fixing period in excess of six months are subject to a specific hedging policy for economic risk. Moreover, interest rate hedging transactions must be structured so that they do not have a material accounting effect. For exchange rate risk, it is the policy of the bank to fully hedge all exposures arising in connection with foreign currency investments, lending and borrowing. Hedging is primarily done through rolling foreign exchange forward contracts.
Note 4: Consequences of new insurance act for life insurance 75
Profit and Loss Account Storebrand Group 1 January - 31 December
Financial assets at fair value: - Shares and other equity participations 30, 31, 39 1,078.3 - Bonds and other fixed-income securities 30, 31, 40 23,968.3
Financial assets at fair value: - Shares and other equity participations 30,31,39 52,760.4 - Bonds and other fixed-income securities 30,31,40 154,702.4
Erik Haug Hansen Knut Dyre Haug Ann-Mari Gjøstein Annika Lundius Idar Kreutzer Chief Executive Officer
Financial liabilities: - Liabilities to financial institutions 42,44 3,064.5 - Deposits from banking customers 42,44 17,469.6
Payments - employees, pensions, employees national security contributions, etc -1,792.3 -1,283.8
Net receipts/payments - sale/purchase of property and fixed assets, etc -106.0 -108.4
Cash and cash equivalent assets at start of the period for sold and new companies -9.3 8,016.5
Cash and cash equivalent assets at start of the period 25,559.7 13,216.0
Tangible fixed assets The group’s tangible fixed assets comprise equipment, fixtures and fittings, vehicles, IT systems and properties used by the group for its own activities.
Held for sale financial assets are measured at fair value on the balance sheet date. Changes in fair value are recognised in the profit and loss account.
• the financial assets form part of a portfolio that is managed and reported on a fair value basis.
Available for sale Financial assets are classified as available for sale if they are non-derivative financial assets that are classified as available for sale or are not classified as a) loans and receivables, b) hold to maturity investments, or c) financial assets at fair value through profit or loss.
Hedging of net investments Hedging of net investments in foreign businesses is recognised in the accounts in the same was as cash flow hedging. Gains and losses with respect to the hedging instrument that relates to the effective part of the hedging is recognised
Storebrand utilises the rules concerning the hedging of net investments with respect to the investments in SPP and is recognised in the following way: Changes in the fair value of a derivate earmarked as a hedging instrument are included directly in equity to the extent the hedging is effective. Otherwise the change in fair value is recognised in the profit and loss account. Once the hedging instrument no longer fulfils the criteria for hedge accounting, expires or is sold, is ended or is exercised, the hedge accounting ceases. Accumulated gains or losses that are included in equity are kept there until the shares are disposed of.
The premium reserve includes reserve amounts for future administration costs for all lines of insurance including settlement costs (administration reserve). In the case of paid-up policies, the present value of all future administration costs is provided in full in the premium reserve. In the case of policies with future premium payments, deduction is made for the proportion of future administration costs expected to be financed by future premium receipts.
Additional statutory reserves The company is allowed to make additional statutory allocations to the insurance fund in order to ensure the solidity of its life insurance business. The maximum additional statutory reserve is set at the difference between the premium reserve calculated on the basis of a guaranteed return on policies outstanding, and the premium reserve calculated on the basis of the actual guaranteed return in the policies. Kredittilsynet (the Financial Supervisory Authority of Norway) has specified a limit for the additional statutory reserves that apply to each policy defined as the premium reserve for the policy multiplied by twice the basic interest rate for the policy.
The company is allowed to apply a higher multiple of the basic interest rate than that defined by Kredittilsynet. The allocation to additional statutory reserves is a
Insurance obligations special investments portfolio The insurance reserves allocated to cover obligations associated with the value of the special investments portfolio must always equal the value of the investments portfolio assigned to the contract. The proportion of profit in the risk result is included . The company is not exposed to investment risk versus customer assets since the customers are not guaranteed a minimum return. The only exception is in the event of death when the beneficiaries are paid back the amount originally paid-in for annuity insurance.
A normal rate is fixed for other cash flows. This is the sum of the long-term inflation assumptions, real interest rate and risk premium.
The properties are valued on the basis of the following effective required rate of return as per 31 December 2008 (including 2.5% inflation): Segement Required rate of return %
Profit elements pursuant to the new insurance act A brief description of how the profit has to be distributed pursuant to the new life insurance act is provided below.
The return (value adjusted) in the company portfolio will hereafter be transferred to equity. Furthermore, the owner’s profit will also be affected by the following products: Products without profit sharing: The entire profit (booked) is allocated to the owner.
Products with investment choice without a guaranteed interest rate (Unit Linked): The risk result and the administration result are allocated in their entirety to the owner; the financial result (value adjusted) is in its entirety allocated to the customer.
Based on the expected duration of the insurance policies the included VIF will be amortised over a period of 20 years. This intangible value will be evaluated in connection with the pertinent insurance policies taking into account whether or not the total values are adequate to meet the pertinent insurance liabilities, cf. the adequacy test in IFRS 4 - Insurance policies.
Goodwill amounts to around NOK 691 million and is a residual item. The preliminary analysis included around NOK 887 million of goodwill. Goodwill is not amortised. Instead it is subjected to regular write-down tests. Goodwill includes, among other things, expected synergies, extra sales opportunities, the employees’ competence, the potential for new customers, and intangible values associated with customers in which the values cannot be assessed reliably.
Below follows a description of the groups of “Financial assets at fair value” with references to whether the various types of securities are valued on the basis of quoted prices and/or observable assumptions, or whether they are valued on the basis of unobservable assumptions.
Compared with 2007 the uncertainty associated with the valuations is higher for securities priced on the basis of unobservable assumptions. These securities are discussed in more detail below with references to the type of security and the valuation method.
In Storebrand’s opinion the valuation represents the best estimate of the market values of the securities.
Shares and units The shares valued using models based on unobservable assumptions primarily include all Norwegian and foreign listed equity investments in forestry companies. The equity investments are valued on the basis of value-adjusted equity reported by external sources.
In the case of direct private equity investments, the valuation is based on either recently conducted transactions or a model in which a company that is in continuous operation is assessed by comparing the key figures with equivalent listed companies or groups of equivalent listed companies. The value is reduced by a liquidity discount, which can vary from investment to investment. Companies that are in a start up phase, have undergone previous expansions, or which are undergoing structural changes for some other reasons that make them harder to price in relation to a reference group will be valued at the lowest of costs and estimated value, where the estimated value is apparent from a variance analysis vis-à-vis its plans.
Financial risk In traditional insurance with guaranteed interest, the insurance company bears the risk of the policyholder not achieving the guaranteed return on paid premiums. Profit sharing becomes relevant in SPP if the total return exceeds the guaranteed yield. In the case of some products a certain degree of consolidation, i.e. the assets are greater than the current value of the liabilities by a certain percentage, is required for profit sharing. For other products the contract’s customer buffer must be intact in order for profit sharing to represent a net income for the owner. If a contract has a so-called net deferred capital contribution from equity, any distribution of profit sharing will increase this. Since changes in net deferred capital contribution are recognised in the profit and loss account, profit sharing in such contracts has no net result. In the case of savings in unit-linked insurance, the policyholder accepts the entire financial risk, whereas in the case of asset management the company is exposed to market risk, liquidity risk, credit risk and operational risk. Falling equity markets and large interest rate movements in particular generate financial risk. These could result in a transfer of capital to the customers’ contracts from the company’s equity to customers’ assets. If an insurance contract with SPP has less earned capital that what is expected to be adequate given the applicable interest rate, an equity contribution is allocated that reflects this deficit. This allocation is recognised in the profit and loss account and called the net deferred capital contribution. SPP’s financial risk management counters this effect by making investments that counter the changes in the net deferred capital contribution that could occur in different scenarios. SPP uses financial derivatives in the company portfolio and the customer portfolio to achieve this. The company thus continuously carries out integrated asset and liability management.
Products with profit sharing Products with profit sharing consist of individual endowment insurance (excl. life accounts without profit sharing), individual pensions, Sweden and paid up policies incl. association group..
Banking The banking business consists of the areas corporate, retail, markets and real eststae broking.
Tax effect of: - realised/unrealised shares/AIO -1,631.5 1,086.9 - write-down of deferred tax assets 2,024.1 -805.7
Calculation of deferred tax assets and deferred tax on temporary differences and losses carried forward: NOK million 2008 2007
Value of business-in-force, the difference between market value and book value of the insurance liabilities in SPP.1
In the acquisition analysis for SPP, a significant part of the purchase price was allocated to the extra value associated with the insurance contracts, in addition to other intangible assets and goodwill. Negative developments in the equity markets have affected the results from SPP in 2008. During the third quarter, computations were performed of the extra value associated with the acquisition in which the volatility of the markets was taken into regard. Based upon these calculations, a write-.down of NOK 2.5 billion was undertaken during the third quarter of 2008 in connection with capitalised extra values of acquired insurance contracts. In the calculations concerned, increased market volatility has produced a negative effect for built-in options and guarantees connected with the purchased insurance contracts. Any possible future reduction in market volatility may bring about a reversal of the write-down.
Revaluation fund closing balance 47.7 44.6 1 Properties for own use, also see note 25.
The company is obliged to have an occupational pension scheme pursuant to the Act relating to Mandatory Occupational Pensions.
SPP The pension plan for employees in SPP follows the plan for bank employees in Sweden. The ordinary retirement age is 65 in accordance with the pension agreement between the Employer’s Association of the Swedish Banking Institutions (BAO) and the Union of Finance Sector Employees and between BAO and SACO (the Swedish Confederation of Professional Associations). The amount is 10 percent of the annual salary up to 7.5 income base amounts. The retirement pension is 65 percent of the annual salary for the portion of salary between 7.5–20 income base amounts, and 32.5 percent of annual salary between 20–30 income base amounts. No retirement pension is paid for the portion of salary in excess of 30 income base amounts.
Pension assets are based on the financial investments held by Storebrand Livsforsikring and SPP composed of as of 31.12: Storebrand SPP
Actuarial assumptions: Standardised assumptions on mortality and other demographic factors as produced by the Norwegian Financial Services Association. Average employee turnover rate of 2–3% of entire workforce. The disability table was developed by Storebrand Livsforsikring AS.
Net pension liability at 31.12: Discounted current value of defined benefit pension liabilities 4,289.1 3,676.7 3,559.8 3,257.8
Pension assets in SPP are included in the group portfolio and amount to NOK 292.5 million.
Guidelines for the fixing of salary and other remuneration for senior employees in Storebrand Storebrand aims to base remuneration on competitive and stimulating principles that help to attract, develop and retain highly qualified staff. The aim is for total remuneration to move towards a lower proportion of fixed salary and a higher proportion of bonus over time. The salaries of senior employees are fixed on the basis of a position’s responsibilities and complexity. Regular comparisons are made with corresponding positions in the market in order to adjust the pay level to the market. Storebrand does not wish to be a pay leader in relation to the sector.
The bonus system The Storebrand group’s bonus scheme, which is offered in addition to basic pay, is a performance-related bonus scheme linked to the group’s valuebased management system. The value creation of the group finances the overall amount of the bonus, but the employees’ performance determines how large a proportion of the financed bonus is awarded. The bonus entitlement is credited to a bonus account. The amount credited to the bonus bank is exposed 50 percent to Storebrand’s share price and 50 percent to the bank interest rate paid respectively. 1/3 of the balance on the bonus account is paid each year. A long-term incentive scheme has been established for members of the group’s management team and some other senior employees, with the exception of the CEO. In this scheme half of the paid bonus must be spent on purchasing Storebrand shares at market prices. These shares are subject to a lock-in period of 3 years, meaning that the participants’ holding will, given reasonable assumptions, amount to around one year’s salary in a 3–5 year perspective. The establishment of the long-term incentive scheme is described in the last section “The senior employee remuneration policy practised in 2008”.
NOK million Ownership interest Acquisition cost Balance sheet value at 1.1 Additions/ disposals Share of profit
The following amounts are included in the profit and loss account:: NOK million 2008 2007
From investments in property funds, minus NOK 352 million has been included in the profit and loss accounts. The amount includes a fall in value of NOK 420 million.
Interest income from financial instruments not at fair value totalled NOK 2 747.2 million in 2008 (compared with NOK 1 861.3 million in 2007).1 Interest expense from financial instruments not at fair value totalled NOK 2 395.8 million in 2008 (compared with NOK 1 506.4 million in 2007).2
Total bonds, bond funds and other fixed-income securities 13,125.3 123.9 - of which FVO (fair value option) 15,567.1 -714.1
Booked value of bonds pledged as collateral for the bank's lending from Norges Bank 3,087.6 2,461.1
At the time of the reclassification the portfolio was booked at NOK 31,331 million. At the same point in time the fair value amounted to NOK 33,363 million. The excess value of NOK 2,032 million was recognised directly against equity. As per 31 December 2008, the change in value amounted to a total of NOK 1,779 million. The hold-to-maturity portfolio has been included as part of the customer assets in Storebrand Livsforsikring AS. The corresponding change in value associated with the insurance-related liabilities was recognised directly against equity, cf. IFRS 4. The increase due to change in values has increased the booked return to customers. This has directly and indirectly resulted in reduced use of owner’s capital (by about NOK 0.6 billion) to meet the running interest rate guarantee.
Commercial paper, bonds and bond funds, fair value 16,731.8 152,300.1 169,031.9 9,055.2 583.6 178,670.7 113,452.6
Unlike gross nominal volume, the calculation of net nominal volume also takes into account which direction of market risk exposure the instrument represents by differentiating between long (asset) positions and short (liability) positions. A long position in an equity derivative produces a gain in value if the share price increases.
Figures for average gross nominal volume are based on daily calculations of gross nominal volume.
The loan agreements contain standard covenants. Storebrand was in compliance with all relevant terms in 2008.
Category of issuer or guarantor Fair value Fair value Fair value Fair value Fair value Fair value
Commercial services and real estate operations 14,520,5 359,1 898,6 15,778,2 10,776,6 328,8 -117,5 211,3 - Grouped write-downs -88,3 -88,3
Commercial services and real estate operations 10,780,9 361,2 695,4 11,837,5 10,396,3 65,3 -26,2 39,1 - Grouped write-downs -58,1 -58,1
The division into customer groups is based upon Statistics Norway’s standard for sector and business groupings. The placement of the individual customer is determined by the customer’s primary enterprise.
NOK million 0–6 months 6–12 months 1–3 years 3–5 years over 5 years Total value Booked value
SPP SPP practices currency hedging to a certain extent with respect to its international investments. In the case of equities the currency hedging will be between 50% and 100%, and for other classes actively hedges the major part of its foreign currency risk.
Storebrand Livsforsikring AS The stress tests have been done for all investment profiles and the effects of each stress test reduce or increase the expected return for each profile. For the negative stress tests (equities down, interest up and property down) the return in some individual profiles fall under the guarantee. The buffer situation for each contract will then determine how much equity capital the company will possibly have to use if the return stays at this level for 2009. Beyond the need for utilising equity capital to cover returns below the guarantee, it is changes in the profit sharing for paid-up policies and for the profiles with old individual contracts, as well as returns and interest expenses in the company portfolio that affect the expected result for 2009 to the greatest extent.
All changes in market value do not affect the financial result of SPP. The part of a change in market value that affects the result is the part that cannot be offset against the conditional bonus.
The note concerns the following companies: Storebrand Livsforsikring AS, SPP, Storebrand Bank, Storebrand Skadeforsikring and Storebrand ASA.
Profit and loss items applied directly to equity: Change in pension experience adjustments -494.7 -494.7 -494.7
The group has set long-term targets for the capital ratio of its banking activities to be 10 percent and the life insurance solvency margin to be at least 150 percent. In general, the equity of the group is managed without material restrictions if the capital requirements are met and the respective legal entities have adequate solidity. Transfer of capital from foreign legal entities is possible with the consent of local supervisory authorities. Under the approval connected with the acquisition of the SPP Group, conditions were stipulated to the effect that if the core capital adequacy for the Storebrand ASA Group and for the Storebrand Livsforsikring AS Group at the end of 2007 and 2008 is not at least 6 percent or the solvency margin is not at least 150 percent, then Kredittilsynet may set conditions to limit the disbursement of dividends from Storebrand ASA and Storebrand Livsforsikring AS.
In the event of any possible negative risk return, Storebrand will first make use of the risk equalisation fund where such is possible. A possible negative risk result during years in which no risk equalisation fund exists will be charged against the equity capital.
Fully paid-up policies and continuation insurance policies originating from private group pension schemes have what is designated as a modified profit sharing model. Profits to the owner consist of up to 0.60 percent of the customer fund (given that there is room for it in the return beyond the guaranteed interest). The owner’s share of the profit is as per the governing rules limited to a ceiling of 20 percent. Storebrand can set aside up to 50% of the results for biometric risks in the risk equalisation fund. Storebrand’s intention is to set aside the maximum for the risk equalisation fund during those years where such is possible. In the event of any possible negative risk results in years where the risk equalisation fund is empty, the investment result can be charged if the return permits such. If the risk equalisation fund or the return is not sufficient, the negative risk result is charged against the equity capital.
For the old individual products, the earlier Insurance Activities Act is followed. The profit is as a point of departure distributed between customers and owners as per the company’s internal profit sharing model. The profit to the owner consists of two main elements, up to 0.40 percent of the customer fund (given that there is room for such in the return beyond the guaranteed interest). The owners’ share of the profit is as per the applicable rules limited to a ceiling of 35 percent.
The relatively poor return in 2008 has caused the company to have used NOK 2.2 billion of the additional statutory reserves. After this, the company has additional statutory reserves of NOK 3.4 billion, which correspond to just under 0.7 year’s worth of the guaranteed interest. Storebrand has as its goal to have additional statutory reserves corresponding to at least one year’s worth of the interest guarantee. This means that Storebrand is intending to build up the additional statutory reserves in the coming years.
Net annual risk premium for an insured sum of NOK 100 000. For disability pensions, the premium for an annual disability pension of NOK 10 000 which is disbursed until 67 years of age is attained.
For individual insurance, the premiums for life and accident cover are based on tariffs produced by insurance companies on the basis of their shared experience: namely T1984 for endowment insurance and R1963 for pensions insurance. Disability premiums are based on the company’s own experience, and were last amended in 2002.
Basic interest rate Kredittilsynet sets the highest basic interest rate permitted for new policies and for new members/new accrual of benefits in group pension insurance. The highest basic interest rate for new policies was set at 3 percent in 1993 and subsequently reduced in 2005 to 2.75 percent for policies entered into after 1 January 2006. The highest basic interest rate for new members/new accrual of benefits in group pension insurance was reduced from 4 percent to 3 percent with effect from renewals in 2004.
The above table includes the premium reserve, deposit reserve and pensioners’ surplus reserve with 3 percent and additional statutory reserves with 0 percent.
The total average guaranteed interest rate for all lines of insurance comprised 3.52 percent in 2008, the same as in 2007. The guaranteed interest rate must be delivered on an annual basis. If the company’s investment return in a year is lower than the guaranteed interest rate, current legislation permits the equivalent of up to one year’s guaranteed return for the individual policy to be covered by transfers from the policy’s additional statutory reserves. Any negative return must be met from the company’s equity.
Premiums and reserves for pension entitlements earned in 2008 in group pension insurance are calculated on the basis of a 3 percent basic interest rate.
Sufficiency test: SPP is required by IFRS 4 to carry out a sufficiency test to ensure that the company has sufficient margins in the various constituent elements that make up the company’s reserves. IFRS permits two alternative methods for the sufficiency test. Where a company has an established form of analysis that demonstrate the margins in the various constituent elements, Section 16 of the standard allows this analysis to continue to be used to demonstrate that the test is satisfied. Where a company has not established such analysis, it is required to discount future cash flows to present value in accordance with IAS37.
Consists of natural disaster pool and the Norwegian Motor Insurance Association.1 This consists of liabilities for insurance subscribed to before the transfer of the insurance enterprise to If in 1999 for agreements that were not renewed by If. This liability has 2 been reinsured in its entirety at If. The Financial Supervisory Authority of Norway.3
Claims reserve 1,643.9 1,865.9 - of which RBNS 568.2 1,028.5 - of which IBNR 1,075.9 837.3
The net pension cost for the period consists of the sum of pension liabilities accrued in the period (current service cost), the interest charge on the calculated liability and the expected return on pension fund assets.
Foreign currency Current assets and liabilities are translated at the exchange rate on the balance sheet date. Shares held as fixed assets are translated at the exchange rate on the date of acquisition.
Financial instruments Investments in shares in subsidiaries and associated companies are valued at cost price less any write-down of value. The need for any write-down is assessed at the end of each accounting period in the same way as for other fixed assets.
Other shares and interests are valued at their fair value. Where the share or interest in question is listed on a stock exchange or other regulated market, fair value is determined as the bid price on the last trading day immediately prior to or on the date of the balance sheet.
Bonds and other fixed income securities Financial assets and liabilities are included in the balance sheet from the time Storebrand becomes party to the instrument’s contractual terms and conditions. Normal purchases and sales of financial instruments are booked on the transaction date. When a financial asset or a financial liability is first recognised in the accounts, it is valued at fair value plus, in the case of a financial asset or a financial liability that is not a financial asset or a financial liability at fair value in the profit and loss account, transaction costs directly related to the acquisition or issue of the financial asset or the financial liability.
Net pension liability at 1 Jan including provision for employer's social security contributions 1,957.1 2,114.4
Expected premiums to be paid in (pension assets) in 2009: NOK 36 million.
Pension assets are based on the financial investments held by Storebrand Life Insurance which had the following composition as at 31 Dec
Net pension cost recognised in the profit and loss account during the period
Actuarial assumptions: Standardised assumptions on mortality and other demographic factors as produced by the Norwegian Financial Services. Association. Average employee turnover rate of 2-3% of entire workforce. The disability table was produced by Storebrand Life Insurance.
The Control Committee covers all the Norwegian companies in the group which are required to have a control committee. except for Storebrand Bank ASA and Storebrand 3 Kredittforetak AS which have their own control committees. For further information on senior employees. the Board of Directors and the Control Committee. see note 17 to the accounts of the Storebrand Group. The chairman of the board received remuneration of NOK 490,000 and the board members NOK 270,000. If the number of meetings exceeds 11, a meeting allowance of NOK 4 5,000 is paid to the chairman and NOK 4,000 to the board members. The chairman of the Control Committee received remuneration of NOK 230,000 and other members of the Control Committee NOK 180,000. If the number of meetings exceeds 8, the same a meeting allowance is paid as for the board.
Senior employees in Storebrand can. in addition to their fixed salary. receive remuneration in the form of an annual bonus. participation in the group’s group pension scheme. usual benefits in the form of free newspapers. telephone. company car scheme. and other personal benefits. Senior employees may also be entitled to an arrangement in which their salary is paid after the end of their employment. This guarantees salary less other income for a specific period of up to 24 months after the end of their employment.
Management remuneration policy practised in 2008 Executive management remuneration in Storebrand in 2008 was fixed in accordance with the guidelines described above. On 10 June 2008. the Board of Storebrand agreed a long-term incentive scheme for senior employees (LTI) pursuant to the AGM’s decision of 23 April 2008. The scheme applies to the group management team and other selected key personnel. Upon the establishment of this long-term incentive scheme the group management team and some other senior employees received a contribution from the company for the initial purchase of shares during 2008 with a lock-in period of 3 years. The contribution corresponded to an amount the individual scheme participant himself/herself paid in. Because no bonuses were awarded for 2008 the further escalation of the scheme will commence in 2010.
Tax effect of: - gains on shares 1.3 42.9 - write-down of deferred tax assets 11.5 4.8
Changed name from Storebrand Alternative Investments AS. Storebrand ASA has made a group contribution of NOK 25 million as a capital injection.1 Changed name from Storebrand Kapitalforvaltning AS.2 74.9% is owned by Storebrand Livsforsikring AS. The minority interest amounts to 0.2%.3 08 Shares and other equity investments
NOK million Net in balance sheet Net sales in foreign currency in NOK
Storebrand ASA has a loan of EUR 70 million that has been given as a subordinated loan to Storebrand Livsforsikring AS with the same amount.
Allocated to dividend -533.6 449.909.891 shares with a nominal value of NOK 5.1 686.460 of our own shares were used in 2008 which were sold to our own employees. Holding of own shares as per 31 Dec 2008 was 4.577.240. 2 14 Bonds issued and bank loans
The summary shows the number of shares owned by the individual, as well as his or her close family and companies 1 where the individual, as well as his or her close family exercises significant influence (cf. Accounting Act 7-26).
Subordinated loan to Storebrand Livsforsikring AS of EUR 70 million. The lender has the right to repay the loan with 5 days notice, and 1 the loan is subject to an interest rate of 3 months EURIBOR + 2.5%.
Storebrand ASA has pledged a guarantee to the Institute of London Underwriters (ILU) for Oslo Reinsurance Company ASA’s obligations vis-à-vis the correct fulfilment of insurance contracts the company has signed through ILU. Storebrand ASA has regress against Oslo Reinsurance Company ASA for any payments. The underlying liabilities the guarantees apply for have essentially been settled.
We have audited the annual financial statements of Storebrand ASA as of 31 December 2008, showing a loss of NOK 13,6 million for the parent company and a loss of NOK 2.220,7 million for the group. We have also audited the information in the Board of Directors’ report concerning the financial statements, the going concern assumption and the proposal for the coverage of the loss. The annual financial statements comprise the parent company’s financial statements and the group accounts. The parent company’s financial statements comprise the balance sheet, the statements of income and cash flows, and the accompanying notes. The rules of the Norwegian Accounting Act and generally accepted accounting practice in Norway have been applied to prepare the parent company’s financial statements. The group accounts comprise the balance sheet, the statements of income and cash flows, the statement of recognized income and expense and the accompanying notes.
International Financial Reporting Standards as adopted by the EU have been applied to prepare the group account. These financial statements are the responsibility of the Company’s Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on other information according to the requirements of the Norwegian Act on Auditing and Auditors.
Status of action plan for corporate responsibility 2007–2008 and new targets for 2009–2010
We measure our performance by Status 2007 Target 2008 Status 2008 Target 2009–2010
Total capital adequacy ratio of Storebrand Bank 10.5% > 10% 10.8% > 10%
Percentage of tel. calls answered within 20 sec. (switchboard) 91% 90% 88% 90%
Proportion who are aware of what the ethical guidelines mean in their daily work 5
Environmental measures within P&C insurance Started Produced Environmental and safety classification of cars. Online eco-driving course.
Based on an assessment of materiality and risks, our work included analytical procedures and interviews with management and employees responsible for the subject matters, as well as a review on a sample basis of supporting evidence.
Hence, the Company has obtained solid experience in such reporting and related stakeholder dialogue. As appears from the table on page 142–143 the Company transparently discloses future targets and the Company also strives for continual improvement of relevance and value of the Status of Action Plan for Corporate Responsibility and related reporting – both in terms of the selection of aspects, indicators and how such indicators are measured. In particular, we noted that the calculation of CO2 emission is based on general benchmarks, as stated in Reporting Practice, which results in a conservative and relatively high figure for CO2 emission. Efforts on future reduction and reporting of
Individual life insurance where the annuity/pension amount is paid in instalments from an agreed age during the life of the insured. Such insurance can be extended to include spouse, child and disability pensions.
The result arising from the incidence of mortality and/or disability during a period deviating from the assumptions used for the premium tariffs.
Premiums for all insurances policies signed during the course of the accounting year. The agreement falls partly within and partly outside the accounting year.
The true interest rate calculated when all borrowing costs are expressed as an annual payment of interest in arrears. In calculating the
Total interest income less total interest expense. Often expressed as a percentage of average total assets (net interest margin).
Interest rate options can be related to either bond yields or money market rates. The purchase of interest rate options related to bonds
to buy or sell bonds at a pre-determined price. Interest rate options can be used as a flexible instrument for the management of both long and short-term interest rate exposure.
Storebrand Helseforsikring AS Filipstad Brygge 1 P. O. Box 1382 Vika N-0114 Oslo, Norway www.storebrandhelse.no
Storebrand Helseforsikring AS Swedish branch Rålambsvägen 17, 14tr, DN huset P. O. Box 34242 S-100 26 Stockholm, Sweden www.dkvhalsa.se