CONTENT: PAGE: Key Figures Group 2 Main Events of 2003 3 Storebrand at a Glance 4 In the Words of the CEO 8 Report of the Board of Directors 10 Highlights Financial Performance and Business Development 18 Financial Risk Management 20 Corporate Social Responsibility 22 Increasing the Pension age – a Shared Responsibility 26
Storebrand has been a major player in Norwegian insurance and finance since 1767. After a challenging period of weak stock market conditions and restructuring, Storebrand today has a strong financial foundation as an independent company. With basis in our well-defined corporate values, commitment to corporate social responsibility and strong corporate culture Storebrand aims to play a defining role in developing tomorrow's market for long-term savings and life insurance.
No. of employees (full time equivalents) 1 263 1 337 1 473 1 478 1 636
Jan> Storebrand Life Insurance introduces stricter social responsibility criteria for its equity portfolio. Storebrand Investments awards its ’best in class’ recognition to companies that qualify for investment by Storebrand Principle Funds.
After a prolonged period of falling prices and turbulence since autumn 2000, equity markets begin to turn upwards. From March to December share prices on the Oslo Stock Exchange rise by around 70%.
May> Storebrand Helse celebrates its fifth anniversary. The company has grown from 9 to 40 employees and has built a position as market leader with over 50% share of the Norwegian health insurance market. Storebrand Helse also reports a quarterly profit for the first time.
Storebrand launches a new plan for corporate social responsibility. The plan covers all the group's activities and sets commercial, social and environmental targets for Storebrand's activities.
The Norwegian National Insurance Administration and Storebrand sign a collaboration agreement aimed at reducing sick leave amongst Storebrand’s corporate customers.
Aug> The Irish insurance company Euroben, jointly owned by Storebrand and the Swedish company SPP, is sold to Handelsbanken.
Storebrand Bank is upgraded by Moody’s as a result of gaining control of its loan loss development and completing the merger of Finansbanken and Storebrand Bank.
Storebrand Life Insurance sets a new record in sales of endowment policies in the retail market. 2003 premium income of NOK 2.9 billion was four times higher than in 2002.
In autumn 2003 the Norwegian government proposes changes to insurance legislation in order to encourage fairer and greater competition for the management of municipal pension schemes. The legislation is approved in December and comes into effect from 2004.
Storebrand Life Insurance has an overall share of 28% of the Norwegian market measured in terms of customers' funds under management. The company increased its market share in most areas in 2003. In order to strengthen its market position further, the company is working systematically to improve the quality and perception of its customer service and to further improve the advisory expertise of its employees. In addition Storebrand will strive at all times to offer customers attractive products for long-term savings and life insurance.
Storebrand’s banking activities, previously carried out through the two banks Storebrand Bank AS and Finansbanken ASA, were brought together as Storebrand Bank ASA from 1 January 2003. Through this merger Storebrand has created a stronger and more efficient banking operation.
All of Storebrand’s marketing, customer service and sales of financial products and services to the retail market is carried out by a separate business unit within Storebrand Bank. While this unit is legally part of the bank, it has its own management for operational purposes.
Storebrand Investments manages assets totalling NOK 159 billion in mutual funds and client portfolios. The company offers a complete asset management concept with a clear socially responsible investment profile for Norwegian and international institutional investors and the Norwegian retail market. Asset management solutions include discretionary management of Norwegian and international securities, global specialist products with a target absolute return and cost-effective management of market risk.
At the close of 2003 Storebrand Investments had a 10.3% share of the Norwegian mutual funds market and a 12.4% market share for equity funds. Net inflows from new and existing customers in 2003 amounted to NOK 908 million, and at 31 December 2003 Storebrand Fondene managed assets of NOK 15.1 billion in Norwegian registered mutual funds.
Number of employees *) 1 273 Life insurance policyholders’ funds NOK 112.9 billion Other funds under management NOK 45.9 billion Total assets of the group’s banking activities NOK 25.5 billion *) Incl. subsidiaries and 42 employees in Storebrand ASA
Number of employees *) 653 Funds under management (incl. unit linked products) NOK 112.9 billion Group pension schemes 7 890
Employees of companies, public sector entities and other organisations 231 000 Individual policies – early leavers from group pension schemes1) 256 000 Pensions in payment2) 145 000
By focusing on selected investment areas and developing our specialist expertise in the major asset management functions, Storebrand Investments shall be the preferred asset manager for long-term savings and pension assets.
Number of employees (incl. employees in Retail Distribution) 427 Number of customers: Storebrand Bank 68 000 Total assets NOK 25.5 billion Gross lending NOK 22.7 billion Customer deposits NOK 12.4 billion
4) All policies with private individuals including unit linked and health insurance (but excluding annuities and pensions in payment).
financial security: when it's time to enjoy life The average working life is shrinking and people are living longer. At the same time people have higher expectations for an enjoyable and active retirement. These trends are encouraging people to pay greater attention to saving towards a larger pension than they can expect from the state system alone.
Storebrand has re-established its financial strength and improved efficiency. Customer numbers are growing, and market conditions are satisfactory.
Demographic trends in Norway and the western world create a need for greater saving. State pension schemes are facing increasing pressures from an ageing population, making saving for retirement all the more important. Currently around 43% of employees in the Norwegian private sector are members of group pension schemes provided by their employers, and we expect this proportion to increase. Storebrand’s objective is to win a growing proportion of the Norwegian group pension market.
Norwegian municipalities, with a leading position in the private sector group pension market, it is our ambition to increase
Swedish children are insured. We are also seeing rapid growth in the health insurance market in Norway.
Consumers often find the market for savings and personal insurance products complicated and confusing. This creates a need for simplification, and makes access to good financial advice all the more important. Storebrand sets high standards for the qualifications of its financial advisers, and invests heavily in targeted training programs. Our objective is to strengthen our position in the retail market going forward.
It is not who you are or who you know that matters at
Our effectiveness depends on working relationships based on mutual respect and open, honest dialogue. We have to be result orientated, and it is important that individual members of staff both achieve their objectives and work as a team to ensure good results. It is even more important that there is good collaboration across the group, so that individual skills and resources are used in a flexible and focused way.
The markets in which we operate develop quickly, and our employees face frequent changes. Ability and willingness to manage change is therefore dependent on employees feeling secure and confident in their employment.
The value platform that underpins the group’s management, activities, and our relationships with customers, colleagues and others should be reflected in everything we do, and with every
Our employees represent over 12,000 years of Storebrand experience, and feedback from the annual employee satisfaction survey is important for organisational development. The 2003 survey showed that 97% of employees are proud to work for the company, providing a strong foundation for the future development of a competitive Storebrand.
Storebrand’s sales of life insurance savings products to the retail market were at an all-time high in 2003, and transfers of corporate business between companies produced a net inflow to Storebrand. Moreover, Storebrand reduced its exposure to areas no longer defined as core activities through the sale and liquidation of some smaller group companies, the run-down of the commercial lending portfolio and the payment of an extraordinary dividend by Storebrand Skadeforsikring.
Sampo Oyj for the sale of all Storebrand’s shares in If Skadeforsikring to Sampo. The transaction values Storebrand’s shareholding at NOK 5.2 billion. The sale of Storebrand’s shares is conditional on approval by the relevant authorities, and will be completed as soon as approval is obtained. The transaction is expected to generate a pre-tax profit of NOK 1.4 billion on the basis of the book value of the shares at 31 December 2003.
Earnings performance: Storebrand achieved an improved group profit of NOK 894 million in 2003 as compared to a loss of NOK 1,701 million in 2002. Operating profit was NOK 2,711 million as compared to a loss of NOK 2,713 million in the previous year. Earnings per share for 2003 was NOK 2.67 as compared to a loss per share of NOK 3.73 in 2002. Storebrand’s risk bearing capacity strengthened significantly over the course of 2003. The Board confirms that the accounts have been prepared in accordance with the going concern assumption as required by Section 3–3 of the Accounting Act.
Low interest rates have encouraged greater interest in the retail market for life insurance savings products. Storebrand was well positioned for sales of savings products when interest rates fell, and achieved record sales in this segment in 2003 with total premium income for individual endowment policies of NOK 2.9 billion. Sales of risk insurance products with no savings element were somewhat weaker than expected as a result of the strong emphasis on savings related products in the second half of the year. Sales of unit linked products were also somewhat weaker than expected. Storebrand Helseforsikring again reported increased sales of health insurance products in 2003, with a 63% increase in premium income.
2,653 million, as compared to a loss of NOK 1,253 million in 2002. The profit allocated to policyholders of NOK 1,839 million included NOK 470 million allocated to additional statutory reserves. The profit to the owner amounted to NOK 835 million as compared to a loss of NOK 241 million in 2002. Storebrand
If the unrealised gain on bonds held to maturity is included, the return for the year increases to 11.2%.
The company achieved a risk result in line with 2002, but the administration result was somewhat lower. This was mainly due to strong sales causing higher sales costs, as well as higher performance-related investment management fees as a result of investment returns exceeding the comparable benchmark indices.
The improvement in earnings reflects good investment returns on portfolios with earnings-related fees and lower operating costs. Performance-related salary costs were higher than in 2002.
NOK 159 billion at the close of 2003. Storebrand Investments has for many years been a leading player in the operation of back-office functions together with related functions such as control routines and investment reporting. Storebrand intends to make use of the market advantage this represents by offering back-office functions as a separate product.
Net interest margin fell over the course of the year, mainly as a result of lower lending volumes and falling interest rates combined with a shift in lending towards a lower risk profile. The net interest margin for the year was 1.85% of average total assets. Non-interest operating income showed an improvement, particularly as a result of higher sales of life insurance savings products. The gross value of customer lending fell by NOK 3.2 billion to stand at NOK 22.7 billion at year-end. The reduction in lending was in the corporate portfolio, and reflects the bank’s focus on reducing its total credit risk.
Grace Reksten Skaugen (50) Consultant Master of Business Administration and Ph.D. Member of the Board’s Audit Committee
Mette K. Johnsen (59) Assistant Vice President Finance, Wallenius Wilhelmsen Lines AS Master of Business Administration
If showed a significant improvement in profitability in 2003. This was principally due to strong underwriting results and a better investment return than in 2002. The improvement in underwriting results reflects the effect of the extensive improvement measures the company has implemented. Changes to premiums, measures to reduce claims paid and cost savings have been the major elements in this process. The combined ratio for 2003 was 100.9%, an improvement of 5.2 percentage points.
Life insurance activities: The company’s exposure to investment risk is determined by the allocation of its assets between classes of asset with different risk profiles. The Board approves an Investment Policy on strategic asset allocation annually, which establishes guidelines for the active management of investment risk, including limits and guidelines for credit and counterparty exposure, foreign exchange risk and the use of derivatives. The objective of active risk management is to maintain sound risk bearing capacity and to continuously adjust financial risk exposure to the company’s solidity while creating the potential for a good investment return.
In respect of exposure to technical insurance risk, the life insurance company uses tariffs that are notified to the authorities.
In 2003 Storebrand completed a three-year program to strengthen disability reserves. Over the course of the program the life company has strengthened its disability reserves by NOK 1.8 billion in total, of which NOK 1 billion was allocated in 2003.
Loan losses and new loan loss provisions totalled NOK 174 million in 2003 as compared to NOK 412 million pro forma in 2002. The volume of loss exposed and defaulted exposures totalled NOK 1.7 billion, representing a reduction of NOK 0.6 billion over the course of the year. Total specific and general loan loss provisions amounted to NOK 0.8 billion, representing a provisioning ratio of 49% as compared to 35% in 2002. The majority of lending is to the retail market, secured by mortgages with a loan to value ratio below 80%.
Bank and other companies in the group, and continuously monitors liquidity relative to internal limits. In addition committed credit facilities have been established with other banks which the group companies can draw on if necessary.
The group’s capital base, which is made up of equity, subordinated loan capital, the market value adjustment reserve and statutory additional reserves in the life insurance company, amounted to NOK 17.6 billion at 31 December 2003 as compared to NOK 14.6 billion at the end of the previous year.
At the close of 2003 Storebrand Life Insurance was rated A- and
Bank was rated Baa2 by Moody’s and Storebrand ASA was rated
Storebrand employees are treated equally, regardless of gender, age, disability, faith, cultural differences or sexual orientation.
The composition of the group’s staff is well balanced, with a good mixture of both experienced and younger members of staff of both sexes. The group has a target for 40% of management positions to be filled by female staff by 2005. The proportion of female managers increased from 25% to 37% over the period 1999–2003. Storebrand has participated for many years in the Administrative Research Fund’s mentor program for female staff, and all management development programs are required to have an equal composition of male and female participants.
The group pays particular attention to its policy on older employees. Storebrand has for many years placed great importance on management and staff training, and runs a number of programs in this respect. Storebrand carried out an internal survey of employee satisfaction in December 2003 that showed that 95.3% of employees were happy with their employment.
On 15 February 2002 Storebrand became the first company in the financial sector to enter into a collaboration agreement with the Norwegian National Insurance authorities on a program for a ‘More inclusive working life’. This arrangement is intended to
The company is committed to reducing its impact on the environment. Approximately 95% of Storebrand’s office premises in Oslo use district heating. 50% of the heating supplied is produced by waste incineration and bio-generation plants. Storebrand intends to replace all light fittings in its buildings that use PCB
John Giverholt were elected as new members. CVs are available at www.storebrand.no/ir.
The Board of Directors wishes to thank the retiring members of the Board of Directors and the Board of Representatives for the valuable contribution they have made to the company.
Over the last few years Storebrand has made significant changes to its activities in response to the fluctuating conditions seen in equity and fixed-income markets. As a result the group now has a lower risk exposure and has maintained satisfactory solidity, liquidity and capital adequacy.
Insurance system, employers’ pension schemes and personal savings, is not sufficient to provide the standard of living the population expects to enjoy in retirement. The Commission’s focus on employers’ pensions will benefit the life insurance industry, and we expect to see further growth in the group pension market. In parallel with the shortfall in savings, the overall level of life insurance currently in force is not sufficient to meet the needs of individuals and their dependants in the event of illness, disability or death. Nationwide surveys carried out by Storebrand have confirmed that growth can be expected in long-term savings and life insurance.
The table at the bottom provides a summary of some important factors for Storebrand to succeed in achieving satisfactory growth and profitability. Storebrand is working systematically to ensure the satisfactory development of these success factors. The following paragraphs provide a description of major measures implemented in 2003.
Storebrand. In 2003 a handful of major industrial groups decided to convert their pension arrangements from defined benefit to defined contribution schemes, and this trend is expected to continue. In parallel with these developments, Storebrand’s performance in the market for transfers of traditional defined benefit pension schemes has improved. A positive net inflow of premium reserves in 2003 of NOK 1.6 billion demonstrates that
Distribution unit worked to improve sales efficiency in 2003 by fine-tuning the organisation and its expertise, finding more efficient work processes, and introducing and monitoring clear objectives. Sales results improved in 2003, and the year saw an all-time high for sales of life insurance savings products to the retail market.
Cost saving measures implemented. Measures to reduce the cost base and improve cost efficiency continued throughout 2003. Storebrand Bank has realised synergies as a result of the merger, with a 15% reduction in total cost base compared to 2002. The measures implemented by the bank will generate further savings in 2004. The holding company and Storebrand
The group has also worked actively to reduce exposure and increase profitability for non-core activities. Storebrand Skadeforsikring paid an extraordinary dividend of NOK 250 million,
After two years of weak results Storebrand reported a marked improvement in earnings in 2003. The main factors behind this improvement were the positive development seen in financial markets and profit enhancing measures implemented. Below follows a brief description highlighting the group’s financial performance and business development.
Strong and stable investment return Investment return and growth in risk capital
Take advantage of the shortfall in life insurance cover Development in premium income
Improved profitability and quality of bank’s balance sheet Volume of non-performing loans and (risk adjusted) net interest income >
If has carried out an extensive two-year turnaround operation aimed at improving profitability. The company's financial condition at the close of 2003 confirms the success of this operation, and If reported a sound underwriting result for 2003 with a combined ratio of 100.9%. Storebrand entered into an agreement in February 2004 for the sale of its shareholding in If.
Premiums and net transfers – Life (NOK bn) 11.6 8.6 +3.0
Storebrand concentrates its activities on the market for longterm savings and life insurance. Long-term saving is to a large extent linked to pension savings, and this market is seeing substantial changes and strong growth. Interest in group pension schemes is growing as a result of public focus on pension savings and the fact that 57% of private sector employees do not have group pension schemes today. Traditionally these have been defined benefit schemes, but since the introduction of defined contribution schemes in 2001, many small and medium sized businesses have chosen this product. Several larger companies have also chosen defined contribution pension schemes in 2003. Storebrand expects defined contribution and defined benefit schemes to co-exist for many years going forward. In the public sector the opening up of the market for municipal pension schemes will provide considerable growth opportunities for Storebrand. Storebrand also expects personal savings to increase in the years to come as a result of demographic changes and the need for pension savings to supplement the state pension scheme. Storebrand offers a broad range of life insurance, mutual funds, bank and structured savings products.
Storebrand also aims to grow the risk area of its life insurance business. Personal risk insurance products provide various forms of cover for illness, disability or death. The Norwegian market currently buys relatively little personal risk insurance, but the 60% increase in premiums for Storebrand’s health insurance products in 2003 demonstrate that this type of cover is becoming increasingly popular.
In order to offer retail customers a satisfactory overall range of financial products and services, Storebrand Bank provides standardised banking products such as accounts, residential mortgages and card products. The bank's objective is to build a stronger market position, limiting its corporate market exposure to selected segments.
The earnings reported by Storebrand for 2003 show that the group has taken a major step towards satisfactory profitability.
However if the group is to generate acceptable sustained profitability, it is essential that satisfactory progress is seen for the success factors described above. The areas in the group that reported modest profitability in 2003 are all dependent on the group taking advantage of the growth expected in long-term savings over the coming years: Storebrand Investments and
The group's other business areas generated satisfactory profitability in 2003. In the future Storebrand will concentrate on maintaining profit margins and continuing growth in sales of traditional life insurance products.
Storebrand has to its policyholders. As an example, all savingsrelated life insurance policies are guaranteed a minimum annual return, currently 3.8% on average. This places particular demands on how the life insurance company allocates its investments between asset classes such as shares, bonds and real estate.
The aim of risk management is to achieve the highest possible return for customers and the owner in the long term at an acceptable risk level. The risk exposure of the investment portfolio is continuously monitored with the help of a range of statistical tools and tests. For instance, "Conditional Value at Risk" is used as a method for calculating the potential for loss in the investment portfolio on a one-year horizon, for a given proability. The method also takes into account the size of the worst-case losses. The risk of loss is evaluated in the light of the guaranteed annual return.
The chart below illustrates the relationship between booked investment return, profit allocated to the owner and the effect of hedging programmes in respect of the composition of the investment portfolio in 2004. The blue bell curve in the chart shows the distribution of possible investment return. The peak of the curve shows the most likely outcome, equivalent to an expected return of around 6% for 2004. The curve also shows that with the current investment portfolio the annual return will typically fluctuate between 3% and 9%. The red bell curve shows the same distribution including the effect of hedging.
The allocation of profit to the owner is subject to a 35% maximum. Because of this limitation the curve rises steeply for investment returns between the minimum guaranteed return of 3.8% and a return of just over 5%. At higher returns Storebrand will limit the proportion of profit allocated to the owner in accordance with the profit allocation model communicated to the market. If the investment return is lower than the guaranteed annual return the difference is met from risk capital. The average guaranteed annual return of 3.8% will fall in the years to come.
Storebrand takes an active approach to the management of a large portion of its assets. This means that its fund managers are allowed a degree of freedom in managing investments with the objective of producing a better return than the general market. Changes have been made to the organisational structure of the group's asset management activities in order to improve active risk management. A number of specialist teams have been created, each of which works solely with active asset management in defined areas such as European corporate bonds, Norwegian short-term debt instruments and bonds, socially responsible investments, Norwegian shares and tactical asset allocation. Each specialist team is subject to limits in the form of a risk budget, and the risk exposure and investment profile of each team is continuously monitored. In addition the co-variance of the teams’ exposure is monitored relative to limits on maximum total risk exposure. A separate team is responsible for managing market risk, including duties such as currency hedging, program trading, hedging transactions and liquidity transactions. The new structure permits more efficient use of resources and greater control over the active risk in the group's investment portfolio.
A significant proportion of the bank's total lending to corporate customers is linked to real estate in Oslo and the surrounding area. Storebrand follows economic conditions and the real estate market in this region very closely.
Lending to corporate customers over a certain limit requires the approval of a credit committee chaired by the bank's managing director or by the Board of Directors. Credit risk is monitored through the bank's risk classification system, which ranks individual customers by ability to pay, financial condition and collateral. The risk classification system estimates the likelihood of a borrower becoming insolvent (ability to pay/financial condition)
and the likely percentage loss in the event of insolvency (collateral ). Multiplying these two probabilities with the total exposure produces an estimate of expected future loss. All loans on the bank's watch list are reviewed quarterly in respect both of the condition of the borrower and collateral, and of the steps to be taken. Most of the exposures that are in default or loss-exposed are among the older exposures in the portfolio. Over the last two years the bank has significantly upgraded its lending policies and credit approval procedures.
Separate credit approval processes are used for lending to retail customers. Retail lending is assessed on the basis of credit scoring, combined with individual evaluation of the borrower's ability to repay. The majority of lending is to retail customers, secured by mortgages with loan to value ratios not exceeding 80%.
The Basle Committee has proposed changes to the regulations for calculating minimum capital requirements for banks from 2007. Storebrand has initiated a project to evaluate what changes this will require. The proposed new regulations will involve changes to Storebrand’s internal systems for calculating and monitoring credit risk and operational risk.
Liquidity risk. 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 a 90-day liquidity gap that shows the mismatch between expected inward and outward cash flows at the balance sheet date. Storebrand has established good liquidity buffers in Storebrand Bank and other group copmanies, and continuously monitors these liquidity reserves against internal limits. In addition, committed lines of credit have been arranged from other banks that can be used if necessary. Storebrand maintains relationships with a number of international banks, ensuring access to the international capital market and providing greater diversity in the group's funding.
This describes the group's strategy and its main areas of focus.
The CSR Action Plan and the program of work it sets out support the company's vision of being the leading and most respected institution in the Norwegian market for long-term savings and life insurance. Working on the CSR Action Plan helps to give employees and management a broader perspective and encourages greater commitment and motivation as well as building skills. Storebrand's commitment to CSR helps to give the Storebrand brand a distinct message, and addresses issues of importance to our customers.
Surveys carried out among both customers and employees show that Storebrand’s focus on CSR is recognised as meaningful and important. An employee satisfaction survey carried out in autumn 2003 found that 96% of employees consider it valuable that Storebrand seeks to play a leading role in CSR. External surveys carried out at the same time showed that 80% of respondents think it important for companies to demonstrate a commitment to CSR.
Storebrands work on CSR started with a commitment to the environment. The first environmental report was published in 1995, and gradually the perspective was broadened to also include social and economic factors.
Storebrand Life Insurance has committed itself to providing the best possible customer service.
The German research institute Oekom Research has published a report on the quality of CSR practices at European insurance companies. Storebrand is recognised as one of the leading companies in Europe in terms of the proportion of total investment that is subject to SRI criteria.
Storebrand has made significant contributions to charitable work over the past decade, and currently collaborates with the Norwegian Red Cross and the MOT Foundation. The collaboration agreements with these charities both provide financial assistance and establish a platform for internal and external measures to promote their work.
The environmental measures implemented by Storebrand for its own activities principally relate to the management of its real estate holdings, and the standards applied to suppliers.
Storebrand as one of the top three companies in Norway for equality issues in 2003, commenting that: ”Storebrand is recognised in particular for its strong commitment to improving the representation of female staff in management roles and for its documented strategy on diversity.”
Inclusion in the Dow Jones Sustainability Index and FTSE4Good Included Included
Customer satisfaction retail market (Score from 1–100) 59 New survey 2004
Employees and Absence due to illness (record-keeping changed in 2003) 3.6% 4.6%
Customer satisfaction with co-ordinated consultation and advice service (Scale 1–5) 4.7 No new survey
Keeping our own Head office energy consumption per m2 266 kwh/m2 304 kwh/m2 house in order Living Forest certification In place In place
Storebrand's CSR Action Plan 2003–2004 was awarded a prize in 2003 for the best reporting on sustainability issues. The jury awarding the prize commented that: ”The report is very thorough and describes the main aspects of the company's activities, namely life insurance and asset management. Many international financial institutions have established specialised ethical funds, but Storebrand instead applies elements of these criteria to all its investment activities.
The detailed reporting on socially responsible investment did not preclude providing information on other activities such as real estate and office management. Storebrand reports on its progress with a comprehensive range of measures in the environmental area. The Storebrand report stands out as a model of its kind when compared with the quality of
Storebrand Annual Report 2003page 24 side 24 financial security: if the unexpected happens Most people insure the things they own, but underestimate the need to insure themselves and their family. Many people have little real understanding of the financial reality they would face in the event of serious illness, disability or chronic medical problems. Increasing awareness of these issues will create greater demand for insurance products that protect people's future financial security.
The central conclusion of the Pension Commission’s report is that we must stay in employment to a greater age than is currently the case. The average actual retirement age, including people who take disability pensions, is now 58. It is very much the exception for anyone to still be in work by the official retirement age of 67. Given that the population is also living significantly longer, it should come as no surprise that the cost of providing pensions is growing rapidly.
People are working for fewer years not only because of the lower retirement age, but also because they stay in higher education longer and start their working life later. These changes in working life, combined with increasing life expectancy and other demographic trends, mean that a shrinking working population has to support a growing retired population. When the
Norwegian state pension was first introduced in 1967 there were 3.9 people in work for every old-age pensioner or disability pensioner. The ratio has now fallen to 2.6, and forecasts suggest a further reduction to 1.6 people in work for every pensioner by 2050.
The most efficient way of making the pension system more sustainable is for everyone to stay in work longer. This will increase the number of people in work despite the trend of an ageing population, increase contributions to the national insurance system, and give individuals a better opportunity to make their own savings for retirement over a longer period of paid employment.
It is clearly not possible for everyone to retire early and still expect a good pension income – unless the working population is prepared to save significantly more than is currently the case.
Three factors determine whether we can actually work to a greater age: We must retain our ability to work, we must want to work and, not least, we must have access to employment.
Ability to work. If people are to stay healthy, it is important that their work does not cause health problems. Storebrand, as a provider of life insurance and savings products, seeks to collaborate with its corporate customers in this area. Working together with the Norwegian National Insurance Administration,
“Work and the income it generates form the foundation for our prosperity”, writes the Norwegian Pension Commission. It is therefore essential to consider changes that make it financially attractive to work to a greater age. However it is not enough just to make staying in work attractive in financial terms, employers must also ensure that people have the opportunity to stay in work and that this is attractive.
THE AVERAGE WORKING LIFE HAS SHORTENED APPRECIABLY SINCE STATE PENSIONS WERE INTRODUCED.
National Insurance Administration and Omnia is to contribute to reducing sick leave and the incidence of disability among the employees of its corporate customers.
Institute of Applied Social Science shows that the single most important reason for people choosing to stay in work until they are 67 is the social relationships they enjoy at work. Key factors to maintaining motivation are that people get on well with their colleagues, have an interesting job and feel appreciated by their employer. The same research showed that a quarter of people taking early retirement chose to leave because they did not find their work enjoyable or worthwhile.
A combination of attractive employment and financial incentives to stay in employment longer will help to increase the average pension age.
A further approach to encouraging people to want to work longer is to offer greater flexibility to combine part-time work and retirement. The Pension Commission included this in its proposals on pension reform, and employers need to work towards making this a real alternative in the future.
“More inclusive working life” program is to help ensure that more people with impaired ability are able to find employment. There are currently some 300,000 people with impaired ability in Norway, and making use of the skills offered by those interested in employment is a major challenge. It is also important that employers help ensure access to work for those that can contribute – even if only at a reduced level.
Commission recommends, we need to do more than simply create financial incentives. Employers must also play their part by creating a working environment that makes it both possible and attractive for people to stay in their jobs longer. And as employees we must come to accept that retirement age will no longer be inversely linked to life expectancy.
Employer’s defined benefit pension Agreed retirement pension linked to final salary. Guaranteed annual return.
Employer’s defined contribution pension Agreed annual savings contribution to a retirement pension. Investment in mutual funds.
Individual pension agreement (IPA) Savings contributions to a retirement pension with either a guaranteed annual return or investment in mutual funds.
Death 1) Annual pension or one-off payment to widow/widower/partner and/or children.
Medical treatment 1) Guarantee of medical treatment within 28 days and payment of cost of treatment.
Respected and customer focused. Storebrand Life Insurance’s core areas are pensions and life insurance. The company’s objective is to be recognised by its customers as the most respected and customer focused life insurance provider in Norway.
In order to achieve this objective, Storebrand will continue to work systematically to improve the quality of its customer service and further develop the expertise of its staff as financial advisers. In addition Storebrand will ensure that it always offers its customers attractive products for long-term savings and life insurance.
Pensions Commission published its recommendations for the reform of the pension system on 13 January 2004. The debate on how a sustainable pension system should be structured is expected to continue throughout 2004. A central issue is the question of pensions for the almost 900,000 private sector employees who are currently not members of a group pension scheme.
The focus on individuals’ savings – whether through personal savings products or membership of a group pension scheme –
Storebrand expects the current debate on the pension system and the question of whether to make it compulsory for employers to provide pensions will make the pension issue a more important part of collective wage bargaining. There is also a clear trend in the group pensions market for an increasing number of trade bodies and associations to negotiate standardised pension schemes with insurance providers for the benefit of their member firms. At the start of 2004 Storebrand Life
Insurance managed pensions for 2,200 private sector companies with 111,000 employees through such trade association arrangements.
Strong growth in defined contribution pensions. 2003 saw a definite change in the market for defined contribution pensions.
Storebrand Helseforsikring again reported increased sales of health insurance products in 2003. Following an increase in premium income of 64% in 2002, the company reported a further 63% increase in 2003. Storebrand expects strong sales of health insurance products to continue in 2004.
In autumn 2003, following two further debates in parliament and a report by the Banking Act Commission, the Norwegian government finally proposed changes to the Insurance Activities
Many municipalities have deferred a decision on changing their pension provider in view of the anticipated conversion of KLP
into a joint stock company. However six municipalities decided to transfer their pension schemes away from KLP with effect from 2004. Two of these, Nøtterøy and Ørskog, elected to transfer to Storebrand, which now has 26 municipalities as customers. In addition 20 independent state entities decided to transfer their pension schemes to Storebrand. These transfers represent a total of NOK 425 million of premium reserves.
999 million in 2003. Over the course of the program disability reserves have been strengthened by NOK 1.8 billion in total.
The inflow of premium reserves to Storebrand from transfers of group pension business between companies was very satisfactory in 2003. Storebrand Life Insurance recorded its highest ever gross inflow of group pension premium reserves at NOK
The booked investment return for 2003 was 7.2%, representing a marked improvement from the return of 2.7% reported for 2002. The value-adjusted return on current asset investments was 8.8% as compared to 1.9% in 2002. The value-adjusted return including bonds held to maturity was 11.2% in 2003 as compared to 2.6% in 2002. At the close of 2003 unrealised gains on current asset investments totalled NOK 1,690 million, while unrealised gains on hold to maturity bonds totalled NOK
3,394 million. The overall increase in the market value adjustment reserve in 2003 was NOK 1,690 million.
The life insurance company’s risk bearing capacity was satisfactory at the close of 2003. The solvency margin was 159% and the company’s capital ratio was 15.7%.
30 million for individual pension policies. The risk result for group life insurance business was unchanged from 2002.
Embedded value is based on the best possible forecast of the expected post-tax profits from existing business that will be
The value of new business written was NOK 250 million as compared to NOK 173 million in 2002. The value created of rolling existing business forward, based on the embedded value model’s assumtions, was NOK 628 million. The remainder of the increase in embedded value can principally be attributed to a higher than expected return on Storebrand Life Insurance’s assets and the shift from interest rate to equity funds at
The proportion of the portfolio invested in current asset bonds remained low throughout 2003 and into 2004. This reflects the expectation that long-term interest rates will rise to more normal levels in due course, and the proportion held in money market instruments is therefore relatively high. With effect from mid2004 part of the money market holdings are hedged against producing a return below the minimum guaranteed to policyholders. The money market portfolio will respond relatively quickly if short-term interest rates begin to rise. In total the company’s money market and bond investments are well positioned for an economic upturn and higher interest rates.
– of which transferred to premium reserve -117.0 -9.6 -126.6 -161.5 -217.3
To(-)/from(+) owner's equity: -net return on share capital -333.7 -0.40% of policyholders' funds -414.3 -risk margin earned by owner's equity -46.2
Further details can be found in Storebrand Livsfrosikring AS’s Annual Report, available at www.storebrand.no/ir
Storebrand Kapitalforvaltning (Storebrand Investments) offers a complete asset management concept with a clear socially responsible investment profile for Norwegian and international institutional investors and the Norwegian retail market. Asset management solutions include active management of Norwegian and international securities, global specialist products with a target absolute return and cost-effective management of market risk.
By focusing on selected investment areas and developing our specialist expertise in the major asset management functions, Storebrand Investments shall be the preferred asset manager for long-term savings and pension assets. Storebrand Investments manages assets totalling NOK 159 billion in mutual funds and client portfolios.
higher in NOK terms. 2003 also saw interest rates fall to historically low levels, with the Norwegian central bank's sight deposit rate at 2.25% at year-end.
Market demand for new products. Following the prolonged stock market decline, many investors had only limited exposure to equities at the start of 2003. As interest rates are now very low, an increasing number of investors are faced with the dilemma of how to achieve sufficient returns to meet their long-term commitments while at the same time protecting their assets against short-term fluctuations.
In response to these demands, Storebrand Investments has developed new asset management products for both institutional and retail investors that make it possible to benefit from rising markets but with a limited risk of loss if markets fall.
Investments has therefore launched an active asset allocation fund known as Storebrand Aktiv Allokering. Since the start of 2003 more than 1,100 customers have chosen to invest in this fund and assets under management totalled NOK 161 million at year-end.
Specialisation. The traditional approach to asset management typically combines general market exposure and actively managed risk positions, with one investment manager responsible for both. The amount of active risk management is normally dependent on the size of the portfolio.
The investment objective for the active risk mandates is to generate an internationally competitive return that is higher than the risk free rate, while the objective of general market exposure mandates is to realise risk premiums through precise and cost-effective index tracking.
The difference between the two objectives illustrates the need for different expertise and the value of greater specialisation.
Storebrand Investments has recognised this by centralising tasks such as global index tracking, currency management and liquidity management into a dedicated front office team, while the responsibility for active position taking is allocated to separate teams specialising in the various investment areas.
Storebrand Investments is the only asset manager in Norway with a separate investment research function dedicated solely to analysing environmental and CSR factors.
Japan funds with five stars in the Norwegian market out of 51 funds in this category, while in Sweden it is one of just two
Japan funds with five stars out of 76 funds in total. In both
Norway and Sweden, Storebrand Japan started 2004 as the best-performing fund in terms of investment return over the past three years. Japanese funds offered in Norway and Sweden include funds managed by firms from all over the world.
Continuing focus on operational efficiency, combined with a commitment to quality at all stages of the value chain, has made it possible for Storebrand Investments to make use of its competitive advantage by offering trading and settlement services to external clients under the name Scandinavian Investment
In practical terms this development reflects the need for back office processes to benefit from synergies, economies of scale and quality assurance. These benefits have so far only been available to larger institutions. The level of investment in expertise and infrastructure is very high, but by offering services on a "plug and play" basis to other Scandinavian investment managers greater synergies can be achieved.
Storebrand's asset management activities produced an overall pre-tax profit of NOK 22 million in 2003 as compared to a loss of NOK 13 million in 2002. The year-on-year improvement of
Storebrand Alternative 1) Storebrand Investments includes the companies Storebrand Kapitalforvaltning ASA and Storebrand Kapitalforvaltning Holding AS.
2) Delphi Fondsforvaltning is included in Storebrand Fondene from 01.01.2002. 3) After adjusting for minority interests in Storebrand Alternative Investments, pre-tax profit for 2003 was NOK 21 million.
More cost efficient operations. The strategy of specialisation has helped prioritise resources, and has thus played an important role in improving the profitability of Storebrand’s asset management activities. It has also permitted a reduction in total headcount, and since the start of 2002 employee numbers have reduced from 162 to 127 with no adverse effect on product quality and the pace of innovation.
Moreover specialisation has made it possible to separate areas where the value drivers are scale and efficiency from areas where investment performance is the most important success factor.
Adjusting for non-recurring items, total operating costs in 2003 were NOK 5 million lower than in 2002. However it should be noted that costs in 2003 were affected by higher performance related wage costs as a result of the strong investment results achieved. If performance-related salary costs are also excluded from the comparison, the underlying cost base shows a reduction of NOK 25 million or 11% between 2002 and 2003.
Increase in assets under management. Assets under management increased by NOK 19 billion to NOK 159 billion at the close of 2003. The year was characterised by consolidation and caution among investors, although interest in equity investments did show a gradual improvement. The net total inflow of new assets under management amounted to NOK 3 billion.
In the institutional market Storebrand Investments attracted 30 new customers in 2003, mainly Norwegian municipalities.
Storebrand carries out its banking activities through Storebrand Bank ASA, a modern and ambitious commercial bank with assets of NOK 25.5 billion. Storebrand Bank’s objective is to be a competitive player with a strong presence in the Norwegian banking market.
Storebrand’s banking strategy more closely into line with the group’s overall strategic direction. The merger has realised cost savings by rationalising operational functions and systems. This has produced more efficient operations and a reduction in the bank’s headcount.
Storebrand Bank’s corporate vision is to be a modern and reliable bank for the retail banking market and for selected segments of the corporate market. The bank will be easy to relate to with attractive products and prices.
Following the merger, Storebrand Bank has built its profile in the market by offering competitive terms on lending and savings products. In addition the bank has reinforced its position for equity-based savings products. The bank is working systematically to improve its internal processes in order to ensure that it can offer customers even more efficient and flexible service.
Storebrand Bank’s strongest customer base is among property developers and owners in the commercial and residential property markets in Oslo and the surrounding area, and the bank intends to strengthen its position in these markets.
(pro forma loss of NOK 411.8 million in 2002). In addition the bank incurred losses on securities held as fixed assets totalling
NOK 38.3 million, principally as a result of the sale of
Finansbanken Forvaltning AS and Finansbanken Plasseringsrådgivning ASA. The pre-tax result for 2003 was a loss of NOK
109.0 million, and after a tax write-back of NOK 63.1 million the group reported a net loss of NOK 45.9 million (pro forma loss of NOK 352.9 million in 2002).
Finansbanken Plasseringsrådgivning ASA were wound up. The restructuring, including the disposal, represented a pre-tax loss of NOK 35.4 million, but also realised a taxable loss for
Storebrand Bank. The overall post-tax accounting effect was therefore a gain of NOK 6.4 million.
3,154 million, equivalent to 12%. The reduction was mainly in corporate lending, and reflects the steps taken by the bank to reduce its overall credit risk.
Losses and increases in provisions for loans and guarantees amounted to NOK 173.8 million in 2003. Specific loan loss provisions totalled NOK 527.9 million at year-end. In addition the bank’s general loan loss provisions totalled NOK 313 million, equivalent to 1.4% of gross lending.
The bank held repossessed assets totalling NOK 169.4 million at 31 December 2003.
for the parent bank) and a core capital ratio of 9.8% (10.4% for the parent bank). The capital ratio improved over the course of the year due to a reduction in total lending and the shift from corporate to residential mortgage lending.
Despite reporting a loss for the year, Storebrand Bank achieved marked improvements in 2003 in the form of lower costs and greater sales efficiency. The lending portfolio developed positively, the volume of non-performing loans fell, and the bank significantly reduced its exposure to high-risk segments.
DEVELOPMENT OF NON-PERFORMING LOANS AND LOANS ON WHICH INTEREST IS NO LONGER ACCRUED
Storebrand’s involvement in non-life insurance comprises the activities of Storebrand Skadeforsikring AS (Storebrand Skade), If Skadeförsäkring AB (If) and Fair Forsikring (Fair). Storebrand ASA owns 100%, 22.47% and 50% respectively of the share capital of these companies. Storebrand Skade owns 100% of Oslo Reinsurance Company ASA (Oslo Re).
Storebrand Skadeforsikring AS sold its ownership interest in If to Storebrand ASA in the fourth quarter of 2002.
On 11 February 2004 the Board of Storebrand ASA signed an agreement with Sampo Oyj for the sale of all Storebrand’s shares in If Skadeforsikring. The transaction values Storebrand’s shareholding at NOK 5.2 billion. The sale of Storebrand’s shares is conditional on approval by the relevant authorities, and will be completed as soon as approval is obtained.
Fair has built up a noticable presence in the Danish market over a relatively short time, and is growing strongly.
Storebrand's ownership interest in If is recognised in the accounts in accordance with the equity method of accounting, and the shareholding in Fair is recognised on the proportional consolidation method.
Statutory security reserves were reduced further in 2003, releasing NOK 68 million to profit and loss. These reserves amounted to NOK 216 million at the close of 2003.
An integrated management system. The management system is intended to ensure a clear relationship between targets and actions at all levels of the group, and the overall objective of creating value for shareholders. The system provides the basis for the work of the Board of Directors and executive management in planning, monitoring and managing the group’s activities
is involved throughout, and risk evaluation and internal control reporting also form an integrated part of the process.
Storebrand has developed a management reporting system known as Storebrand Kompass to provide senior management and the Board of Directors with monthly reports on financial and operational performance. The system highlights parameters that fall short of targets so that measures can be implemented.
Meeting no later than the end of June each year. The Notice calling the meeting includes supporting papers for all resolutions to be considered by the meeting. All shareholders are entitled to attend general meetings, and arrangements are also made for proxy voting.
There are no restrictions on ownership of shares or voting rights in the company other than the general Norwegian restrictions on the ownership of shares in financial institutions, now harmonised with EEA regulations.
Board of Representatives. The Board of Representatives has 30 members, of which 20 are elected by the General Meeting and 10 by the group’s employees. Members are each elected for a two-year term of office. The duties of the Board of
General Meeting and electing six of the nine board members, including the chairman. The Board of Representatives also determines the mandate for, and considers reports from, the
Board of Directors. The most important tasks of the Board of Directors include appointing the CEO and approving strategy and profit targets. The Board of Directors of Storebrand ASA
has nine members, each elected for a two-year term of office.
The CEO is not a member of the Board. None of the members elected by the Board of Representatives have any employment, professional or consultancy relationship with the group other than their appointment to the Board. CVs for the members of the Board can be found at www.storebrand.no/ir.
The Board meets at least nine times each year. In 2003 the Board held 16 meetings and one Board conference. The work of the
Board is subject to a specific mandate. In order to ensure sound and well considered decisions, meetings of the Board are, so far as possible, well prepared with all members participating in the decision making process. The agenda for each meeting is set by the Chairman based on an approved schedule for the year.
Control Committee. The Control Committee has five members elected by the General Meeting, each for a two-year term of office.
Election Committee. Storebrand’s Articles of Association regulate the company’s Election Committee. The Election Committee has four members, and is chaired by the Chairman of the Board of Representatives. The other members are elected by the
Internal management bodies. The CEO of Storebrand ASA is the chairman of the board for each business area. The boards of these companies also include internal and external members with particular qualifications relevant to the business in question. The Executive Management is responsible for implementing strategy, group profitability, and ensuring optimal allocation of resources. The Executive Management team’s CVs can be found on page 84. Storebrand has established cross-business area committees and group policies in respect of accounting, finance and risk management, information, branding, IT, human resources and legal support functions.
Other. As one of the largest investors in the Norwegian stock market, Storebrand has considerable potential influence over listed companies in which it is a shareholder. Storebrand’s web site at www.storebrand.no/ir provides information on the ownership principles it employs.
Storebrand’s articles of association and details of the membership of the group’s corporate bodies can be found at www.storebrand.no/ir.
Shareholders. Changes to the Norwegian regulations on the control of ownership in financial institutions came into force on 1
by number of shareholders. The company has shareholders from 44 countries. Storebrand’s ownership structure is characterised by a large number of minor shareholders (61% own 100 shares or less). The company had 39,480 shareholders at 31
JP Morgan Chase Bank Fidelity L. (NOM*) USA 6 787 500 2.44
On 29 April 2003 the AGM granted a mandate to increase share capital by up to NOK 3 million through one or more issues for cash. This mandate is valid until the 2004 AGM.
The RISK amounts for shares in Storebrand ASA have been set as follows: As at RISK amount NOK As at RISK amount NOK
The RISK amount as at 1 January 2004 is estimated at minus
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 this connection the company has produced internal guidelines for trading in the company’s shares by insiders based on current legislation and regulations. The company has its own compliance system to ensure that the guidelines are followed.
Shares and participations in group companies 6 8 723.5 8 972.8 7 418.2
Insurance claims for own account -8 295.2 -8 803.5 -9 647.2
Change in insurance reserves – life insurance -9 862.0 -3 423.3 -2 115.8
Interest and related expense – banking 21 -1 311.2 -1 996.7 -2 047.8
Changes in security reserve etc. – non-life insurance 66.1 199.2 278.8
Shares are not subject to dilution (no options or other financial instruments have been issued).
Net loans to and claims on customers 34 23 327.1 26 160.4 29 140.6
Shares and other equity investments 29 19 514.3 11 301.9 22 972.5
Prepaid expenses and accrued income 2 008.1 2 504.5 1 872.7
Liabilities to other financial institutions 35 3 211.3 4 290.6 4 350.7
Deposits from and due to customers 35 12 362.4 13 198.9 13 900.2
Premiums received – insurance assumed 3.9 13.2 11.3 Premiums paid – reinsurance -5.0 -92.3 -14.8 Claims and benefits paid – direct insurance -5 979.9 -6 395.4 -7 447.3 Claims settlement from reinsurance in respect of claims and benefits paid -2.9 115.7 170.1
Net cash flow from operational activities -405.3 -680.8 -283.2 9 315.3 2 158.0 -2 430.8
Cash flow from investment activities Receipts from loans to and claims on other financial institutions -269.6 -102.3 -147.6 Receipts on claims previously written off 2.7 409.6 656.7
Receipts from sales of shares and other equity investments 553.4 14.5 20 075.5 64 724.2 40 009.6 Payments for purchase of shares and other equity investments -100.7 -240.0 -1 227.8 -27 818.7 -63 903.4 -41 987.9 Receipts from sales of bonds 697.3 520.6 529.8 50 461.9 55 494.8 30 660.3 Payments on purchase of bonds -342.8 -859.2 -683.2 -46 930.1 -65 269.9 -36 330.5 Receipts on sale of short-term debt instruments 4 928.4 5 874.3 3 197.3 5 217.6 9 295.8 4 828.1 Payments on purchase of short-term debt instruments -4 302.6 -5 894.0 -3 877.6 -4 341.0 -7 792.3 -5 681.8 Receipts on sale of real estate 31.7 31.7 -189.7 Payments on purchase of real estate -2.2 233.6 -2.2 Net cash movement on purchase/sale of other securities 21.4 23.2 7.2 -169.9 18.5 -1.6 Net payments on purchase of fixed assets etc. -5.7 18.3 2.8 -8.4 7.1 -164.8 Net cash flow from investment activities 1 480.4 -542.3 -2 053.7 -7 331.8 1 998.8 216.9
Cash flow from financing activities Net deposits from customers -837.3 -1 098.7 -504.5 Net deposits from Norges Bank and other financial institutions -1 079.3 619.3 55.6 Repayment of long term lending -1 063.1 -1 432.9 -130.7 -1 063.4 -1 432.9 -192.6 Receipts from taking up term loans 2 732.5 500.0 2 753.3 732.5 Receipts from issue of short-term debt instruments/loans 3 055.8 5 338.6 Repayment of short-term debt instruments/loans -1 002.6 -5 038.8 -5 787.9 Receipts from issue of subordinated loans 86.5 Repayment of subordinated loans -102.9 -964.8 Receipts from issue of bond loans and other long term funding -111.5 1 437.3 906.4 Repayment of bond loans and other long term funding 391.9 910.3 Receipts from issue of new capital 4.5 5.8 5.8 4.5 5.8 5.8 Receipts from issue of other capital 117.1 Payments on redemption of share capital 2.0 Dividend/group contribution payments -644.1 -5.1 -305.3 Receipts/payments of group contribution/dividend 2 598.7 Net cash flow from financing activities -1 058.6 1 193.9 2 329.7 -4 086.1 -269.8 1 362.5
Net cash flow for the period 16.5 -29.2 -7.2 -2 102.6 3 887.0 -851.3
Write-down of fixed assets 133.6 323.0 136.7 Other non-cash items 2 681.5 25.7 645.5 Difference between booked pension cost and payments/
Opinion. In our opinion, • the financial statements are prepared in accordance with the law and regulations and present the financial position of the company and of the group as of 31 December 2003 and the results of its operations and its cash flows for the year then ended, in accordance with good accounting practice in Norway
The Control Committee of Storebrand ASA has reviewed the Board of Directors’ proposed Annual Report and Accounts for 2003 for the Storebrand Group.
With reference to the auditor’s report of 17 February 2004 the Control Committee recommends that the Annual Report and Accounts proposed be adopted as the Annual Report and Accounts of Storebrand ASA and Storebrand Group for 2003.
The Board of Directors’ proposal for the Annual Report and Accounts, together with the Auditor’s report and the Control Committee’s statement have, in the manner required by law, been presented to the Board of Representatives. The Board of Representatives recommends that the Annual General Meeting approve the Board of Directors proposal for the Annual Report and Accounts of Storebrand ASA and the Storebrand Group.
Change in insurance reserves for own account -9 353.9 -3 333.1 -1 905.4
fund to meet the interest guarantee shortfall 21.1 1 011.7 407.6
Bonds and other securities – fixed yield 20 084.4 14 346.2 28 102.4
Note 4: Remuneration of Chief Executive Officer and elected officers of the company page 60
Note 6: Parent company's shares in subsidiaries and associated companies page 61
Translation of foreign companies. The profit and loss accounts of foreign companies are translated to NOK at the average exchange rates for the year, whilst balance sheets are translated at the rate ruling at year end. Any translation differences are posted against unrestricted equity.
Pension costs. The net pension cost for the period consists of the sum of pension liabilities accrued in the period, the interest charge on the estimated liability and the expected return on the pension funds. Prepaid pensions is the difference between the actual value of pension funds and the present value of estimated pension liabilities, and is booked as a long-term asset in the balance sheet. Correspondingly a long-term liability arises in the accounts when the pension liability is greater than the pension funds. A distinction is made between insured and uninsured schemes. The uninsured scheme will always be entered as a liability since it does not have a pension fund. The effects of changes in assumptions, deviations between calculated and estimated pension liabilities and the difference between the expected and actual return achieved on pension funds are charged to profit and loss over the remaining period for pension accrual or the expected remaining life once the cumulative effect exceeds 10% of the higher of either the pension liability or pension funds at the start of the year (the ‘corridor approach’).
Method of establishing market value. Properties are individually valued by discounting estimated future net income streams by a rate corresponding to the yield requirement for the relevant property. The net income stream takes into account existing and future losses of income as a result of vacancy, necessary investments and an assessment of the future development in market rents. The yield requirement is based on the expected future risk-free interest rate and an individually determined risk premium, dependent on the letting situation and the building’s location and standard.
Loans. Loans advanced are valued at nominal value in the balance sheet, reduced by provisions for losses calculated in accordance with the Ministry of Finance regulations.
General loss provisions are booked to cover losses which, due to matters existing on the balance sheet date, must be expected to occur on facilities which have not been identified and valued in accordance with the rules for specific loss provisions. The provisions are made on the basis of past experience and sector data and by applying a risk classification system, which appraises the borrower and the value of any collateral security.
When a review of a facility in default identifies the need for a specific loan loss provision to be established and the collateral security available is insufficient to cover interest and commission due, the accrual of interest, commissions and fees in respect of the facility ceases. In addition all interest, commissions and fees in respect of the facility recognised to income but not paid are reversed. If a specific loan loss provision is established for a facility not in default, consideration is given to whether accrual of interest, commissions and fees should be stopped.
When a loan previously classified as bad or doubtful is brought back into good order, interest which has accrued but not been recognised to profit and loss is recognised as interest income and specific loan loss provisions in respect of the loan are reversed. Properties repossessed in respect of loans in default are valued at their estimated realisable value, but not higher than the principal outstanding plus unpaid interest. Any gains or losses upon sale, or any write-down as a result of a fall in value of such properties, are recognised as part of loan losses.
Equity index bonds. The issue of equity index bonds comprises three elements: the issue of a bond loan, the issue of a call option related to a stock exchange index and the purchase of an option to fully hedge the option element of the index bond. The bond loan and the option agreements are entered into simultaneously. The discount on the bond element is amortised up to nominal value in the period to maturity as an interest expense. The option premium paid on the option bought plus commission paid are recognised to profit and loss in part at the date of issue and the balance is amortised over the life of the bonds issued. Options are shown as gross amounts under the headings “other assets” and “other liabilities” in the balance sheet on the basis of market value at 31 December.
Bonds held to maturity. Bonds owned by Storebrand Livsforsikring AS that are classified as hold to maturity are managed in accordance with the Ministry of Finance guidelines. Such bonds are booked at cost price at the time of purchase. Premiums/ discounts in relation to par value are amortised over the bonds’ remaining term and recorded in the profit and loss account as an interest element. Bonds in default are valued in line with the Ministry of Finance guidelines for loans.
In the group’s banking and asset management activities, bonds held as current assets not intended for short-term trading are valued as a single portfolio at the lowest of purchase cost and market value.
Zero-coupon securities. The discount on zero-coupon securities is amortised as interest income over the period to maturity. The discount is recognised in the profit and loss account together with coupon interest as income from other financial assets and is included in the balance sheet together with the investment in question.
Financial derivatives. Financial derivatives form an integrated part of Storebrand’s management of the risk and return profile of its equity and bond portfolios.
The various categories of financial derivatives are described in ‘Terms and Expressions’ on page 82.
Subordinated loans are also hedged through forward foreign exchange transactions. The accounting treatment is the same as that for currency hedging of financial current assets. Subordinated loans which have interest rates fixed for long periods are also hedged against interest rate movements through interest rate swaps. The market value surplus to the interest accrued on interest rate swaps used to hedge a subordinated loan is not capitalised in the accounts, nor is any premium or discount on the subordinated loan.
FRA – Forward rate agreements. Forward rate agreements (FRA) are valued at market value and are settled on the first day of the period which is the subject of the agreement.
Foreign exchange. Hedged balance sheet items are recorded at the exchange rate prevailing on the balance sheet date. The currency risk arising from foreign investments and currency denominated debt is largely hedged by forward foreign exchange contracts.
Liquid assets, receivables and liabilities are converted at the exchange rate prevailing on the balance sheet date. Any other balance sheet items are recorded at the exchange rate prevailing at the acquisition date.
Transfer to premium reserves. Premium reserves in the insurance fund transferred between insurance companies are booked to the profit and loss account at the date of risk transfer. The year’s mandatory allocations to the premium reserve are reduced accordingly. The premium reserve transferred also includes the policy’s share in the year’s realised and unrealised profit.
The following assumptions were used in 2003: Reflected in Reflected in
Companies. – Average employee turnover rate of 2–3% of entire workforce. – Linear earnings profile
NOK million scheme scheme Total Total Total Pension liabilities accrued for the year -8.6 -7.0 -15.6 -19.9 -25.7
Expected return on pension funds 160.5 160.5 168.9 183.2 Effect of changed assumptions booked to P&L -3.1 -3.1 -0.1 -0.9
Pension funds at market value 2 094.0 2 094.0 2 201.7 2 396.1
Effect of changed assumptions not booked to P&L 257.4 6.9 264.3 Change in deviation caused by changed assumptions at 31.12 0.3 5.6 5.9 221.6 46.2 Net liability in the balance sheet 551.8 -251.0 300.8 222.0 155.5
NOTE 4: Remuneration of the Chief Executive Officer and elected officers of the company
Board of Representatives 572 726 569 Control Committee ***) 793 764 814 Chairman of the Board 330 500 300 Board of Directors including the Chairman 1 715 2 255 1 660 Auditor's fees for audit and related control functions 1 786 2 621 2 017 Auditor's fees for consultancy services 1 510 9 000 3 000 *) Includes in 2003 NOK 265,000 in back pay for previous years. **) Pension cost relates to accrual for the year. ***) 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 Oslo Reinsurance Company ASA which have their own Control Committees.
The terms of employment for Idar Kreutzer, Chief Executive Officer of Storebrand ASA, provide a guarantee of 24 months' salary following the expiry of the normal notice period. All forms of work-related income from other sources, including consultancy assignments, will be deducted from such payments. Kreutzer is entitled to a cash bonus scheme based on the performance of Storebrand’s share price (see note 16) and a performance-related bonus based on the group’s ordinary bonus scheme. The cash bonus scheme was cancelled in its entirety in February 2004 at the request of the CEO. Payments under the ordinary bonus scheme are payable in three instalments. The group’s value creation finances the overall amount of the bonus, but individual performance determines allocation. Kreutzer's individual bonus entitlement is credited to a bonus account, and 1/3 of the balance on the bonus account is paid each year. The payment in 2004 is estimated at NOK 0.75 million. Kreutzer is a member of the Storebrand pension scheme on normal terms including retirement at age 65. The discounted present value of his pension entitlement amounts to NOK 4.2 million, made up of NOK 0.5 million in the insured scheme and NOK 3.7 million in the uninsured scheme. These amounts represent the liability of the insured and uninsured scheme calculated on a linear basis using the financial assumptions specified in the accounts (cf. note 24).
Profit before tax 361.2 -391.7 71.3 +Prior year dividend from subsidiaries 267.8 530.6 -Current year dividend from subsidiaries -313.8 -267.8 +/-RISK on shares realised -63.0
Pre-paid pensions 551.8 509.4 479.6 Profit and loss account 10.0 12.5 10.5 Other 5.1 Total tax increasing timing differences 562.2 657.3 860.1
Accrued pension liabilities -251.0 -287.3 -324.1 Other -2.1 Total tax reducing timing differences -360.9 -418.5 -512.8 Net timing differences before losses carried forward 201.3 238.8 347.3 Losses carried forward -366.7 -626.8 Allowances carried forward -661.3 -127.6 -123.6 Capitalised to balance sheet 396.4 Net tax increasing/(reducing) timing differences -826.7 -515.6 620.1 Deferred tax/Deferred tax assets (net) *) -231.5 -144.4 173.6 *) Changes in deferred tax arising from equity transactions are applied directly to the balance sheet and not through the profit and loss account. These amount to NOK 70 million.
Reconciliation of tax charge and ordinary profit Pre-tax profit 361.2 -391.7 71.3 Expected tax at nominal rate (28%) -101.1 109.7 -20.0 Tax effect of dividends received from subsidiaries 87.9 75.0 Tax effect of permanent differences -1.4 21.2 -0.2 Tax adjustment for previous years 9.7 108.4 Tax effect of capitalisation -136.3 Tax effect of RISK on shares realised 17.6 Tax allowances on shares 4.5 3.7 5.1
Storebrand Kapitalforvaltning Holding AS Oslo 50.0 50 1 000 100.0% 140.0
NOTE 7: Shares and other equity investments No. of Acquisition Market
International shares and fund units Vovi-Beteilungs (Neiv) (Germany) 13 7.5 1.5 Head Insurance Investors L.P. 91 36.4 3.5 Other international 3.6 1.9
Amount Currency rate NOK million NOK Currency amount gain/loss Fair Financial Ireland plc 149.0 DKK 132.4 -3.2 If Skadeförsäkring Holding AB *) 122.5 EUR 14.6 16.0 *) Loan is currency hedged.
NOK million cost value cost value cost value By debtor type
In March 2002 Storebrand ASA issued a EUR 160 million exchangeable bond with a fixed EUR coupon of 2.25%. The bond was issued at par. Each EUR 1 000 bond carries the right of conversion to 43.54 shares in Orkla ASA. The bonds are repayable on 8 March 2006 at a price of 105.81 assuming the holder has not exercised the right to convert to Orkla shares at an earlier date. For Storebrand ASA the exchangeable bond represents a combination of a bond and the issue of a call option on Orkla shares. The option is covered partly by Storebrand ASA's own holding of Orkla shares and the balance is covered by the purchase of two call options on Orkla shares from Storebrand Livsforsikring AS and an external third party. Both at the time the bonds were issued and on subsequent reporting dates the value of the call option issued and the bonds issued are calculated separately. The difference between the original value of the bonds issued and the contractual redemption price in March 2006 will be amortised as interest expense over the period of the loan. The loan is recognised in the balance sheet at the amortised value. Both the call option issued and the call options purchased are valued at actual value calculated using generally accepted methods for this type of instrument. A fall in the price of the Orkla share in isolation represents a gain on the call option issued. The accumulated value of any such gain is limited to the value of the option when first issued. Save for this, the call option does not represent a hedge against losses on the holding of Orkla shares. An increase in the price of the Orkla share in isolation represents a loss on the call option issued which will be matched by a gain on the company's holding of Orkla shares and on the call options purchased.
Maturity nominal on currency Acquisition Book NOK million date value options cost value Current assets
EUR/NOK put option purchased 06.03.06 1 342.6 7.685 23.6 11.8 EUR/NOK call option purchased 06.03.06 108.2 8.3 4.4 4.7
Liabilities Option issued: EUR – Orkla shares 08.03.06 1 038.0 84.8 27.0
NOK million 2003 Received from the issue 1 232.5 -Option purchased -84.8 Acquisition cost 1 147.7 Amortisert 70.0 Unrealised currency change 114.5
NOTE 11: Financial derivatives Nominal volume Credit equivalent Acquisition Market NOK million Gross Average Net amount cost value Current assets
Liabilities Option issued: EUR – Orkla shares 1 038.0 896.9 -1 038.0 84.8 27.0 *) Included in the balance sheet under shares, see note 7. **) Actual value including accrued interest.
Real cars, NOK million estate inventory Acquisition cost at 01.01 64.6 283.4 Accumulated depreciation -2.2 -248.2 Book value at 01.01 62.4 35.3 Additions 6.1
Share Share Other Equity NOK million capital *) premium equity 2003 2002 2001
John Giverholt 0 Grace Reksten Skaugen 13 000 *) The summary shows the number of shares owed by the individual, as well as his or her close family and companies where the individual exercises significant influence (cf. Accounting Act 7–26).
***) AN = Level payment loan, SE = Instalment loan, final payment. ****) Senior employees are contractually entitled to performance related bonuses related to the group's value-based management system.
In the event of termination of employment in certain defined circumstances, such as receiving notice from the company, senior employees are entitled to guaranteed income/salary for periods that vary from 18–24 months after the normal notice period. The remuneration of senior management in the form of salary and employment benefits totalled NOK 29.7 million. The discounted present value of the pension entitlements of senior management amounts to NOK 37.9 million, made up of NOK 3.8 million in the insured scheme and NOK 34.1 million in the un-insured scheme. These amounts represent the liability of the insured and uninsured scheme calculated on a linear basis using the financial assumptions specified in the accounts (cf. note 24). If a member of the senior management leaves the company before the normal retirement age, the pension liability of the uninsured scheme for the individual ceases.
*****) Idar Kreutzer was entitled to a cash bonus scheme participation at 31 December 2003 of 560,000 units representing the difference between the actual Storebrand share price at a future date and the allocation price. The allocation price for 500,000 units allocated on his appointment as CEO was fixed by reference to the closing share price on Oslo Børs over the week before his appointment on 22 December 2000 (NOK 59.33) and is adjusted monthly on the 1st of every month with a cost of capital of 10% per annum less any dividend for the period. The allocation price for the 500,000 units at 31 December 2003 was therefore NOK 77.64. These units can be exercised between 1 January 2004 and 31 December 2004 or at the settlement date of any earlier acquisition, merger etc. The allocation price for the other 60,000 units allocated on 22 May 2002 is the volume weighted average of the closing share price on Oslo Børs for the last two weeks of 2001, 2002 and 2003 with 20 000 units allocated to each year and is adjusted monthly on the 1st of every month with a cost of capital of 10%. The allocation price at 31 December 2003 was NOK 62.36, NOK 29.13 and NOK 42.66 for the units which saw their price fixed at the end of 2001, 2002 and 2003 respectively. Exercise of these units can take place in 2005, 2006 and 2007 with 20,000 units allocated to each year. Details of the CEO's salary and remuneration can be found in note 4. Idar Kreutzer’s cash bonus scheme described above was cancelled in February 2004 at the initiative of the CEO himself.
No loans have been made to any member of the Control Committee. Loans to members of the Board of Representatives total NOK 5.6 million.
Balance sheet items: Subordinated loans to jointly controlled/associated companies 271.5 235.7 142.2 Net accounts payable and receivable (short-term, incl. group contribution) 529.9 18.0 1 095.0
NOTE 17: No. of employees/Full time equivalent positions 2003 No. of employees at 31.12 42 No. of full time equivalent positions at 31.12 42 Average number of employees 39
Policyholders' funds incl. accrued profit 108 760 99 108 99 201
Funds under mgmt. for external clients ***) (incl. If) 42 500 33 700 37 200 Storebrand Skadeforsikring – key figures for If Key figures for If
Share of results from If on the equity method 324 -244 -769 *) I: Realised financial income including revaluations (positive or negative) of real estate. II: As Investment yield I but including change in unrealised gains on financial current assets.
**) 2001–2002 pro forma. ***) Funds and exernal customers’ discretionary portfolios.
Costs arising from properties and real estate *) -153.4 -135.6 -130.4 -153.4 -135.6 -130.6 Valuation adjustments – shares -499.6 -499.6 Valuation adjustments – interest bearing instruments 334.2 270.2 -30.9 Write-down of real estate -95.3 -257.1 -81.5 -95.3 -257.1 -81.5 Loss on sale of shares -6 188.8 -10 087.8 -13 298.4 -6 503.4 -10 343.0 -13 778.6 Loss on sale of interest bearing instruments -674.1 -6 669.1 -1 653.1 -684.3 -6 679.8 -1 663.6
Administration costs are included in the line for operating costs in the group accounts.
Interest and related income on loans to/deposits with credit institutions 56.7 69.8 46.8 Interest and related income on loans to/claims on customers 1 575.9 2 261.7 2 262.4 Interest and related income from short-term debt instruments, bonds and other interest bearing securities 158.7 138.7 192.3 Other interest and related income 12.6 129.3 169.6 Total interest and related income 1 803.9 2 599.5 2 671.1 Interest and related expense on liabilities to credit institutions -159.9 -179.2 -168.6 Interest and related expense on deposits from and liabilities to customers -686.8 -1 003.3 -932.2 Interest and related expense on securities issued -411.5 -645.8 -746.2 Interest and related expense on subordinated loan capital -30.0 -38.7 -42.8 Other interest and related expense -23.0 -129.7 -158.0 Total interest and related expense -1 311.2 -1 996.7 -2 047.8 Net interest and commission income 492.7 602.8 623.3 *) Pro forma
Actuarial assumptions – Standardised assumptions on mortality/morbidity and other demographic factors as produced by the Association of Norwegian Insurance Companies – Average employee turnover rate of 2–3% of entire workforce – Linear earnings profile
The calculations apply to 1 327 full time equivalent positions and 2 402 pensioners. Net accrued pension costs are shown in the table below: Net pensions costs 2003 Uninsured
Insured scheme 2002 2001 NOK million scheme Ordinary Total Total Total Pension liabilities accrued for the year -45.7 -21.5 -67.2 -74.2 -73.3
Calculated liability Shown below is a reconciliation of the estimated pension liabilities, and the pension funds held in respect of these, to the liability booked in the balance sheet: Net pension liability 2003 Insured Uninsured 2002 2001
Market value of pension funds 2 577.6 41.5 2 619.1 2 655.3 2 748.2 Net estimated pension liability/surplus 289.9 -417.1 -127.2 -100.3 -34.3
The composition of pension fund assets is based on the Storebrand Life Insurance portfolio of financial instruments, which had the following composition at 31.12: Properties and real estate 9% 10% Hold to maturity bonds 37% 39% Secured and other lending 1% 1% Shares and other equity investments 17% 10%
Calculation of deferred tax assets and deferred tax Tax increasing timing differences
Reconciliation of tax charge and ordinary profit Pre-tax profit 959.7 -1 501.8 -1 151.0 Expected tax at nominal rate (28%) -268.7 420.5 322.3 Tax effect of RISK on shares sold 78.0 42.0 35.1 Tax effect on dividends received 53.3 53.2 50.7 Tax effect of associated companies 4.9 -56.9 -215.7 Tax effect of permanent differences/capitalisation/other -36.7 153.1 7.0
Losses carried forward NOK million Beløp Storebrand ASA 366.7 Storebrand Livsforsikring AS 42.8 Storebrand Fondsforsikring AS 101.6 Storebrand Bank ASA 374.4 Storebrand Skadeforsikring AS 2 369.1 Storebrand Kapitalforvaltning Holding AS 33.3 Storebrand Helseforsikring AS 45.5 Storebrand Leieforvaltning AS 11.6 Storebrand Felix kurs og konferanse AS 4.8
Acc. Balance Depreci- Balance DepreciAcquisition depreciation sheet Additions/ ation for sheet ation
Equipment, cars Straight line depreciation is applied over NOK million Real estate and inventory the following periods for operating assets: Purchase cost at 01.01 8 780.7 569.4 Equipment and inventory: 4 years Accumulated depreciation -56.5 -443.7 Motor cars: 5 years Accumulated write-downs -2.1 IT systems: 3 years Accumulated upward revaluations 1 290.3
No. of Acquisition Market NOK million shares/units Interest cost value Norges Handels og Sjøfartstidene 59 094 5.13% 12.0 50.2
Total shares and other equity investments – international 13 061.8 13 405.6 Forward foreign exchange contracts – shares -103.6
Total shares and other equity investments (current assets) 18 098.1 19 514.3 Of which listed Norwegian shares 4 670.8 Of which listed international shares 10 755.9
By currency: Total short-term debt instruments and bonds excluding forward foreign exchange contracts 18 562.0 18 721.1 22 466.1 22 387.2 41 028.1 41 108.3
Of which listed securities 33 267.0 Modified duration 4.62 Average effective yield 6.08 4.41
Nominal volume Financial derivative contracts are related to underlying amounts which are not capitalised in the balance sheet. In order to quantify a derivative position, reference is made to underlying concepts such as nominal principal, nominal volume, etc. Nominal volume is arrived at differently for different classes of derivative, and gives an indication of the size of the position and risk the derivative creates. Gross nominal volume principally indicates the size of the exposure, whilst net nominal volume gives an indication of the risk exposure. However nominal volume is not a measure which necessarily provides a comparison of the risk represented by different types of derivatives.
Long positions and short positions A long (asset) position in an equity derivative produces a gain in value if the share price increases. For interest rate derivatives, a long position produces a gain if interest rates fall, as is the case for bonds. A long position in a currency derivative produces a gain if the currency strengthens against the NOK. The gap between long and short positions is taken into account in calculating the total net nominal volume, whereas total gross nominal volume takes no account of whether a position is long or short.
Long Short Net FX fwd. Net position NOK million positions positions position contracts in currency in NOK Current asset portfolios
Salary account holders (private individuals) 7 260.2 7 635.9 7 455.7
Other changes in equity capital -0.4 -1.0 18.0 Equity capital excluding minority interests 9 394.9 8 534.5 9 616.7
Minority interests at 01.01 1.1 Minority interests' share of profit 0.9 2.5 Dividend received/provided -0.9 -1.4 Minority interests at 31.12 1.1 1.1
NOK million insurance insurance insurance insurance insurance 2003 2002 2001 Premium reserve 74 801.3 300.7 7 024.9 21 756.5 103 883.4 93 700.7 90 256.1
Book value of assets pledged as security for loans etc. 1 560.8 1 286.5 1 226.0 Residual commitment to subscribe capital to limited partnerships 1 011.4 995.0 1 200.0 Other contingent liabilities 1.3
When If acquired Sampo's non-life insurance business, an agreement was entered into in respect of the run-off activities which were transferred from Storebrand and Skandia when If was first established. The agreement states that any losses in this portfolio will be split in accordance with the former equity shares, which was 44% for Storebrand as opposed to the present 22.47%. The agreement expires after 5 years and is limited to NOK 142.8 million in the case of Storebrand. As at 31 December 2003, Storebrand Skadeforsikring AS has recognised a charge of NOK 70.8 million in respect of this agreement.
Profit for the year Life Insurance – N GAAP 613.6 -149.6 34.7 Effect of estimated adjustments for US GAAP: Contract acquisition costs -196.2 -45.7 -101.0 Real estate -116.8 376.3 -619.3 Securities -458.7 384.3 90.7 Allocation of US GAAP differences to policyholders 521.6 -487.7 431.2 Tax effect of US GAAP adjustments 70.0 -63.6 55.5
DESCRIPTION OF THE DIFFERENCES BETWEEN N GAAP AND US GAAP Capitalised contract acquisition costs. Under N GAAP all costs and expenses directly or indirectly incurred in originating new insurance contracts and renewing existing policies are charged to expenses as they are incurred.
Under US GAAP these costs are capitalised and charged to expenses against the future incomes with which they are associated.
Under US GAAP real estate is carried at historic cost and is depreciated over its expected useful life (subject to a maximum of 50 years). Impairment provisions are evaluated on an individual property basis, but no upward revaluations are permitted.
Financial instruments .Under N GAAP interest bearing securities, shares and financial derivatives are carried at market value.
Unrealised changes in value are transferred to a market value adjustment reserve, but changes in unrealised value arising from the exchange rate at the balance sheet date are recognised to profit and loss. The market value adjustment reserve can never have a negative value. Unrealised losses are recognised to profit and loss on the basis of write-downs carried out on a portfolio basis.
In the case of N GAAP, bonds already in Storebrand’s ownership that are subsequently classified as “hold to maturity” are valued at the lower of historic cost and market value at the time of the reclassification. Under US GAAP amortisation of any premium or discount would continue after such re-classification.
Life insurance policyholders’ participation in profits and equity movements. Storebrand Livsforsikring AS allocates pre-tax profit between policyholders and shareholders. Norwegian legislation requires that a minimum of 65% of profit shall be allocated to policyholders, whilst the allocation to owners is limited to a maximum of 35% to cover capital accumulation, dividend payments and tax.
Under US GAAP, “available for sale” investments that are subject to FAS 115 give rise to a difference between market value and amortised cost in the case of interest bearing securities or between market value and historic cost in the case of equities, these differences are booked directly to equity. Norwegian legislation requires that 75% of any such unrealised gains be allocated to policyholders when policies mature or are transferred. The same percentage is used under US GAAP for allocations to policyholders’ funds.
Dividends. Under US GAAP a dividend/group contribution is deducted from equity only when distribution is formally approved.
The European Parliament has decided that all listed companies in the European Union and the countries of the European Economic Area must produce consolidated accounts in accordance with International Financial Reporting Standards (IFRS) with effect from the 2005 accounting year. A commission was set up in Norway to review the current Accounting Act and make proposals on changes to the Act in the light of the changes in international reporting standards. The Commission has now published its report (NOU 2003:23), and proposes that companies that are not stock exchange listed should also be permitted to produce their consolidated accounts in accordance with IFRS. However the unconsolidated accounts of both listed and unlisted companies must be produced in accordance with Norwegian accounting legislation and Norwegian accounting standards, and companies will not be permitted to follow IFRS for these accounts. The Ministry of Finance is expected to make changes to the regulations on the annual accounts of insurance companies and banks, and this will have an effect on the consolidated accounts of the group companies that produce their accounts in accordance with these regulations.
d) Business Combinations. IFRS 1, which deals with the transition to IFRS, allows companies not to restate mergers and acquisitions carried out before the transition to IFRS. The Storebrand group will follow this principle. IASB has issued a consultation document on a new standard for Business Combinations. This includes a proposal that goodwill should not be depreciated, but reviewed annually to consider whether any write-downs are required. Moreover restructuring provisions would no longer be permitted unless the acquiring company already had such commitments at the date of acquisition. IASB is expected to issue the new standard in Q1 2004.
e) Pensions. The transition rules (IFRS 1) make it possible to apply deviations from estimates that have not previously been recognised to the profit and loss account directly against equity at transition.
The timetable issued by IASB provides for several standards to be issued in H1 2004 that will be compulsory for the 2005 accounting year. There is also some uncertainty as to whether the EU parliament will approve IAS 39 in its current form. It is therefore not possible to provide complete information at this time on all the differences that may have an effect on the group’s accounts.
*) Storebrand ASA owns 24.9% directly and Storebrand's total interest is 99.8%.
Earnings per ordinary share: The calculation of earnings per ordinary share is based on profit after tax adjusted for changes in statutory security reserves etc. in respect of non-life insurance. These statutory reserves include security, reinsurance and administration reserves, as well as the guarantee reserve.
The number of shares used in the calculation is taken as the average number of ordinary shares in issue over the course of the year. In case of new issues of shares, the new shares are included from the date of subscription.
Tier 2 capital: Tier 2 capital is part of primary capital and consists of subordinated loan capital. In order to be eligible as primary capital, Tier 2 capital cannot exceed Tier 1 capital.
Perpetual subordinated loan capital, together with other Tier 2 capital, cannot exceed 100% of Tier 1 capital, whilst dated subordinated loan capital cannot exceed 50% of Tier 1 capital.
Annuity/pension insurance: 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.
Average yield: Average yield is an expression for the average return the company has obtained on the policyholders' fund during the year. Average yield should be seen as a gross yield before deducting costs, and is accordingly not comparable with the interest return reported by other financial institutions.
Operating profit: Operating profit from the year's operations including the share due to insurance customers.
Authority of Norway. Value-adjusted return on capital shows the total of realised income from financial assets, changes in the value of real estate and the year's change in unrealised gains or losses, expressed as a percentage of the year’s average total assets at market value.
Interest rate option: Interest rate options can be related to either bond yields or money market rates. The purchase of interest rate options related to bonds (also known as bond options) confers a right (but not an obligation) 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.
State Authorized Accountant, Norwegian School of Economics and Business Administration, (NHH) Authorized Finance Analyst (AFA)
Maalfrid Brath (38) Head of Storebrand Group Retail Distribution State Authorized Accountant, Norwegian School of Economics and Business Administration, (NHH) Master of General Business, Norwegian School of Management (BI)
Accounts: Storebrand ASA 48 Storebrand Group 50 Cash Flow Analysis 52 Auditors’ Report for 2003 53 Storebrand Livsforsikring Group 54 Contents – Notes to the Accounts 55 Accounting Principles 56 Notes to the Accounts of Storebrand ASA 59 Notes to the Accounts of Storebrand Group 67 N GAAP and US GAAP 79 International Accounting Standards 80
Financial calender 2004: 28 Apr Annual General Meeting 29 Apr Ex dividend 12 May 1st quarter results 18 Aug 2nd quarter results 03 Nov 3rd quarter results
Finansbanken A/S Danish branch office Lautrupsgate 7 Kalkbrænderihavnen DK-2100 Copenhagen Ø Denmark www.finansbanken.dk
Storebrand Kapitalforvaltning ASA Swedish branch office Engelbrektsplan 2 P O Box 5541 S-114 85 Stockholm Sweden www.storebrand.se
Storebrand Helseforsikring AS Swedish branch office Rålambsvägen 17 S-10026 Stockholm Sweden Tel: +46 86196200 www.storebrandhalsa.com
Head Office: Storebrand Filipstad Brygge 1 P O Box 1380 Vika N-0114 Oslo Norway
OTHER GROUP COMPANIES: Storebrand OMSLAG 03 ENG 23-03-04 17:12 Side 2
C o n ce p t an d d e sig n : CO