Gjensidige delivered a record-strong result in 2012. Increased customer orientation in combination with more precise pricing of insurance risk and more efficient distribution contributed positively. In addition, the weather in 2012 was especially benign for Nordic general insurance, which resulted in an extraordinary low claims frequency.
40,000 ”Aksjon boligbrann” As in previous years, Gjensidige took part in the ‘Aksjon Boligbrann’ fire prevention campaign and made house calls to approximately 40,000 households.
Unique model gives customer dividend In May, NOK 1.4 billion was passed on from the Gjensidige Foundation as customer dividend to Gjensidige’s general insurance customers in Norway. This corresponded to close to 11 per cent of premiums paid in 2011.
Best customer service centers in Norway For the second year in a row Gjensidige won an important award for best call center in the Norwegian insurance industry.
Reporting travel claims online As from 2012 customers can report travel claims online or by mobile phone. In the second half-year 2012, one out of three travel claims were reported online or by mobile phone.
Preventive work Extensive training for young drivers and refresher courses for the elderly are among the preventive measures that received focus in 2012.
Record-high customer satisfaction Gjensidige’s measurement of the level of satisfaction among its customers in Norway shows considerable progress in the private and commercial segments. The results were the best since the measurements were introduced in 2009.
Total equity and liabilities NOK million 94,207.1 88,491.9 84,106.8 74,868.9 65,551.4
Solvency margin capital 7 NOK million 16,288.6 15,179.3 15,712.1 17,127.0 15,409.3
Return on financial assets (ROI) 10 % 5.4 4.4 5.2 5.5 (0.6)
Health, safety and the environment 2012 2011 2010 2009 2008 Sickness absence, Gjensidige Forsikring Norway % 5.1 4.6 5.2 5.0 3.8
Turnover of employees, Gjensidige Forsikring % 9.7 16.6 11.6 11.4 12.6
«In 2012, we took new steps towards becoming – and being perceived as – the most customeroriented company in the Nordic general insurance industry.»
A clearer brand Relations with customers are also an important part of the brand strategy that was developed in 2012. It reaffirms our vision of knowing the customer best and caring the most. Customer needs shall serve as a guiding principle for our behaviour, products and services.
It’s good to be prepared ‘It is good to be prepared’ is our message to our customers. I believe it’s also a good description of how we meet the challenges and opportunities we face. We have a robust financial position, a clear strategy, a customer-oriented brand and motivated employees. We are ready to develop Gjensidige further.
Gjensidige is one of the strongest brands in Norway, and in 2012 a new brand platform was launched to contribute to achieving the target of being the most customer-oriented company in the Nordic general insurance industry. It is based on our vision: We shall know the customer best and care the most. We endeavour to create as much value as possible for customers, owners and society through continuous improvement, simplification and automation of products and processes.
The target is based on three group-wide, strategic pillars: Customer orientation It is Gjensidige’s goal to set a new industry standard for customer service and support. The Gjensidige Experience defines principles for customer service and shall ensure loyalty and satisfaction.
The distribution is based on earned premium, excluding other income and eliminations.
Income per segment 42.3% General Insurance Private Norway 28.1% General Insurance Commercial Norway 18.9% General Insurance Nordic 4.9% Retail Bank 3.5% Pension and Savings 2.3% General Insurance Baltic
Group Return on equity before tax >15 per cent 23.8 per cent Rating Maintain A rating from S&P A rating confirmed in August Dividend 50–80 per cent of annual profit after tax 80 per cent
General Insurance Combined ratio 90–93 per cent 85.3 per cent Cost ratio 15 per cent within 2015 15.5 per cent
Retail Bank Return on equity before tax Support the Group target 8.7 per cent Capital adequacy > 12 per cent 13.6 per cent
The distribution is based on earned premiums /income, excluding corporate center and other income and eleminations.
8 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 9
The year 2012 Customer orientation and initiatives for customer retention was the main priorities in the Private Norway segment throughout 2012. New tariffs and better customer- and risk selection at the same time contributed to increased quality in the customer portfolio, increased profitability and increased competitiveness. The development in number of customers was the best since 2006, and number of customers at the end of 2012 was practically unchanged compared with the previous turn of the year. Customer satisfaction was at its best since the surveys started in 2009.
The year 2012 Greater cost-efficiency and improvement in profitability were high on the agenda in 2012, and the implementation of the multi-channel distribution model and new tariffs made important contributions to a higher level of activity and the positive profitability trend. In order to strengthen customer orientation, solutions have been established that lead to a higher level of detail relating to the customer’s risk profile. At the same time, the selfservice solutions have been further developed and automated processes have resulted in better customer experiences and increased efficiency.
Targets and strategy Further simplification and automation shall, together with a continued focus on optimal risk-pricing, contribute to a more forward-looking and simpler Gjensidige, where improved customer experiences and more efficient service processes will be important elements in supporting the Group targets and secure continued strong competitiveness in the Norwegian commercial market going forward.
The Private Norway segment offers a wide range of general insurance products in addition to banking, savings and investment products through own distribution network. With loyal customers and a strong brand Gjensidige has a leading postion in the private insurance market.
customers customers 10 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 11
Market shares 25.4% Other 23.4% If 22.8% Gjensidige 15.6% Tryg 12.6% SpareBank1
Market shares 30.8% Gjensidige 27.9% If 22.3% Other 14.2% Tryg 4.8% SpareBank1
Source: Finance Norway, based on earned premiums 2012 10 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 11
The Nordic segment includes the Group’s operations in the Danish and Swedish private and commercial markets. In addition Gjensidige has a leading position in the Scandinavian municipal market. Gjensidige has a scalable business model in the Nordics.
Gjensidige’s Baltic operations provide general insurance products to the private and commercial markets in Latvia, Lithuania and Estonia. The Baltics is still an immature insurance market, and Gjensidige has an exciting position for future growth.
The year 2012 Measures aimed at improving profitability and capitalisation on Nordic group functions were key issues in the Nordic segment in 2012. Portfolio restructuring and repricing, mainly in the commercial portfolio in Denmark and the municipal portfolio in Sweden, contributed to better quality in the portfolios and a satisfactory profitability trend.
Targets and strategy Gjensidige has established a scalable business model for future growth outside Norway. The presence in the Nordic countries shall contribute to economies of scale, diversification of risk and increased competitiveness. The segment shall support the Group targets, and starting implementation of new tariffs and facilitating increased degree of self-service will be high on the agenda in 2013.
38.8% Property 31.4% Motor 19.5% Accident and health 5.3% Agriculture 4.3% Liability 0.7% Other
Distribution earned premiums 62.0% Motor 15.7% Property 14.7% Accident and health 4.4% Liability 3.2% Other
Source: Svensk Försäkring, based on earned premiums 2012 24.5% Other 22.4% Codan 14.4% If 13.4% Ergo 11.5% BTA 7.8% Gjensidige 6.0% Seesam
Pension and Savings is a growth area for Gjensidige in Norway. The segment shall contribute to sales of a wide range of products to Norwegian general insurance customers by offering various pension and savings products, mainly to the commercial market.
Targets and strategy Pension and Savings is a growth area that shall support the Norwegian general insurance operations by contributing to a wider range of products for existing general insurance customers in Norway, and thereby strengthening customer relations and loyalty.
Targets and strategy Gjensidige Bank shall support the Norwegian general insurance operations by helping to provide a wider range of products to existing general insurance customers in Norway, and thereby strengthening customer relations and loyalty. The bank will continue the work on customer-friendly online banking services and a broader range of products via financial advisory services through Gjensidige’s office network.
Deposits Lending 14 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 15
5.4%... ...return on financial assets 16 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 17
Match portfolio 3.9 3.9 4.0 1,236.0 1,183.5 1,175.4 Associated companies 9.3 9.8 12.3 441.5 431.6 488.7 Free portfolio 7.0 3.8 5.5 1,327.6 716.1 1,040.5 Financial profit/loss on the investment portfolio 5.4 4.4 5.2 3,005.1 2,331.3 2,704.6 Net income from investments 3,055.8 2,375.6 2,748.2 16 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 17
Share capital Number of outstanding shares at the end of the period Number 500,000,000 500,000,000 500,000,000 The period’s earning per share (basic and diluted) 5 NOK 8.56 5.50 5.90
General insurance Market share non-marine insurance Norway (Finance Norway) % 25.3 26.3 28.1 Gross premium written Private NOK million 8,318.8 8,216.9 8,031.7 Commercial NOK million 5,709.8 5,658.1 5,682.7 Nordic NOK million 3,881.2 3,807.3 3,357.1 Baltic NOK million 473.0 429.5 395.2 Corporate Centre/reinsurance 176.5 Total NOK million 18,559.3 18,111.9 17,466.8
Pension and Savings Assets under management, pension, additions in the period NOK million 2,219.9 1,514.9 2,303.8 Assets under management, savings, additions in the period NOK million 511.3 3,861.5 4,016.6 Assets under management, pension at the end of the period NOK million 10,408.8 8,188.9 6,674.1 of which the group policy portfolio NOK million 3,163.8 2,620.6 2,146.0 Assets under management savings at the end of the period NOK million 10,070.0 9,558.7 5,697.2 Profit margin savings in per cent 11 % 0.29 0.41 0.61 Recognised return on paid-up policies portfolio 12 % 4.76 5.33 5.29 Value adjusted return on paid-up policies portfolio 13 % 4.77 4.96 5.10 Number of customers (pension) at the end of the period Number 105,112 80,796 66,468 Number of customers (savings) at the end of the period Number 4,805 5,145 5,479 Customers (pension) with insurance agreements at the end of the period Number 89,345 68,677 56,498 Customers (savings) with insurance agreements at the end of the period Number 3,604 4,219 4,493
Gjensidige shall maintain an open dialogue with all stakeholders and complies with the Oslo Stock Exchange’s code of practice for reporting IR information. Established guidelines for investor relations can be found on www.gjensidige.no/ir
Dividend and dividend policy Unless the capital need indicates otherwise, the Board’s target is that between 50 and 80 per cent of the profit after tax for the year will be distributed as dividend.
The customer dividend for 2011 represented close to 11 per cent of premiums paid. Also for 2012, it is proposed that the Gjensidige Foundation’s dividend from Gjensidige, after deduction of costs, is distributed to Gjensidige’s general insurance customers in Norway.
Ownership The 20 largest owners hold a total of 80.6 per cent of the shares in Gjensidige. The Gjensidige Foundation is the largest owner, with a holding of 62.2 per cent.
In its Articles of Association, the Gjensidige Foundation has stipulated to have an ownership in Gjensidige of at least 60 per cent, and shall contribute to stable ownership and predictability. The Foundation expresses a willingness to consider reducing the holding in the event of any acquisitions or capital increases that are in accordance with Gjensidige’s overall strategy.
General Meeting The next ordinary General Meeting will be held at 17.00 on 25 April 2013 on Gjensidige’s premises at Lysaker, Drammensveien 288, Oslo.
Contributing to a safer society Through its operations, Gjensidige has built considerable expertise in loss prevention. This knowledge shall, as far as possible, benefit society at large. In 2012, we collaborated with the Norwegian Council for Road Safety on a public awareness project targeting apprentices. We supported participation in the ‘65+’ refresher course for elderly drivers, and we participated in the debate on transport and communication with the demand that investments in safe roads be given higher priority.
In 2012, as in previous years, Gjensidige has been represented on a number of councils, committees and boards that work on fire prevention.
Respecting labour rights Gjensidige shall be a health-promoting workplace where all employees are given opportunities for professional development and competence-raising. The Company spent NOK 21,400 per employee on competence-raising measures in 2012. Other matters relating to personnel are described on pages 64-67.
The practice of cash settlements in connection with claims payments in the Baltics was discontinued in 2012, to reduce the risk of irregularities.
The number of ‘paper-free’ customers who receive documents electronically increased by nine per cent in 2012 as a result of targeted efforts. The reported consumption of paper increased due to a larger share of the company being accounted for. Office space use was reduced by 4.1 per cent, which contributes to lower energy consumption and resource use in general.
Gjensidige’s head office at Sollerud was certified as an Eco-Lighthouse in 2008. The goal of certifying all branch offices that have more than 30 employees was achieved in spring 2011. Recertification of branch offices that are already Eco- Lighthouses takes place on a continuous basis. Gjensidige has worked for many years to learn more about climate change and the consequences it may entail. Gjensidige conducted an extensive survey in 2012 on the municipalities’ ability to handle increasing precipitation.
Value creation and resource use Owners Return on equity before tax 15.9% 23.8% > 15% >15%
Environment Energy consumption in MWh 12.8 12.1 12.0 11.5 CO2 emission in tonnes 2,658 2,569 2,525 2,450 Square metres in use 66,500 63,754 63,200 60,754 Offices certified as Eco Lighthouses 11 11 11 11
Female managers 41% 40% Increase Increase Sickness absence Gjensidige Forsikring Norway
Ethics Employees Policies, measures regarding impartiality, bribery and ethics Control Continued
Human rigths Asset management The Group’s own financial investments follow international rules for “Socially responsible investments (SRI)”.
The statement on corporate governance follows the structure set out in the Act.
Reference is made to this statement. 4. The main elements in the systems for internal control and risk management relating to financial reporting processes are described in section 10 of the statement.
5. The Company’s Articles of Association do not contain provisions that in full or in part expand on or deviate from the provisions of the Public Limited Liability Companies Act chapter 5.
24 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 25
The Board’s report on corporate governance in Gjensidige Forsikring ASA is available at www.gjensidige.no/investor.
Traffic and fire are especially important areas in which the Company’s expertise in loss prevention can help to save lives and assets. Other important areas are awareness -raising campaigns aimed at combating fraud and other crime, and efforts to promote physical and mental health in the population. Our efforts in the area of social responsibility will therefore be concentrated on loss prevention in the broadest sense.
Our work on social responsibility is described in more detail on page 22-23 in the annual report and at www.gjensidige.no/konsern. Quantitative goals have been adopted for socially responsible operations in relation to owners, customers, employees and the environment. The goals and goal achievement are presented in the table on page 24 of the annual report.
The Company’s financial investments shall comply with generally accepted guidelines for socially responsible investments (SRI). The Company shall not itself invest in individual securities in companies that fail to meet the requirements relating to human rights, labour rights, the environment, corruption or weapons production. When investing in funds administered by others and where the Company does not decide the framework conditions, the Company shall endeavour to ensure that the Company’s criteria are complied with.
Objectives and main strategies The Board assesses the Company’s strategy in June every year and adopts the strategy and short and long-term ambitions in autumn.
The Group has defined competence-raising as being business-critical. Gjensidige therefore focuses on targeted management and employee development, expedient remuneration models and systematic competence-raising in order to retain, develop and attract capable employees and managers.
Purpose The Company’s object is set out in its Articles of Association; see www.gjensidige. no/investor. The objects are to meet the security needs of its policyholders by offering competitive insurance products and other related services.
The Group’s capital needs must be assessed on the basis of different perspectives. The Board places emphasis on the following perspectives: • Statutory requirements from the authorities (capital adequacy and solvency margin) • The rating agencies’ requirements for own funds required in order to maintain the target rating • Requirements for own funds based on internal risk models.
The rating requirement is currently the most binding of the three, and the Group has excess capital in relation to this. The excess capital supports the adopted dividend policy, allows freedom of action and covers, among other things, the uncertainty in relation to the consequences for capital of the new solvency regulations (Solvency II) and the market opportunities that will be triggered as a result of the more stringent capital requirements.
Dividend The Board has adopted a dividend policy that forms the basis for the dividend proposals submitted to the general meeting.
The proposed dividend for the 2012 financial year is NOK 3.4 billion, or 80 per cent of the profit after tax expense. The Board’s proposal for the distribution of dividend for the 2012 financial year is explained in more detail in the directors’ report.
Authorisations granted to the Board Gjensidige’s annual general meeting has granted the following authorisations to the Board: • Authorisation to purchase own shares in the market with a total nominal value of up to NOK 1,000,000. The authorisation is valid until the next annual general meeting, no longer, however, than until 30 June 2013. It can only be used for the sale and transfer of shares to employees of the Gjensidige Group as part of the Group’s share savings programme. The minimum and maximum amounts that can be paid per share are NOK 20 and NOK 200, respectively. The purpose of this initiative is to promote a good business culture and loyalty by making employees part-owners in the Company. The authorisation has been used to purchase 113,336 shares for use in the share savings programme.
When the Board proposes new authorisations to the general meeting, they shall, in the same way as the existing authorisations, be limited to defined purposes and be valid during the period until the next annual general meeting.
At the general meeting, each share carries one vote, unless otherwise stipulated by law or other public decision.
The general meeting is conducted in accordance with the Code of Practice: • The Articles of Association stipulate that three weeks’ notice must be given. The notice of the meeting and case documents will be made available on the Group’s website www.gjensidige.no/investor. The shareholders may none theless demand that the case documents be sent by post free of charge. The minutes will be published at www.gjensidige.no/investor as soon as they are available.
28 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 29
More information about the use of proxy and shareholders’ right to have matters considered by the general meeting are provided in the notice of the meeting and at www.gjensidige.no/investor.
7. Nomination committee Gjensidige has laid down in the Articles of Association that the Company shall have a nomination committee consisting of four to six members elected by the general meeting. The chair of the Supervisory Board is a permanent member if he or she has not already been elected by the general meeting. The chair and members of the nomination committee are elected by the general meeting every year.
As of 31 December 2012, the nomination committee consisted of the following members: • Bjørn Iversen (chair) • Jan Eyolf Brustad • John Ove Ottestad • Benedikte Bettina Bjørn • Beate Bredesen
Two representatives elected by and from among the employee members of the Supervisory Board shall take part in the nomination committee’s work on preparing the election of the Chairman of the Board and the chair and deputy chair of the Supervisory Board.
Rules of procedure for the nomination committee’s work have been drawn up and adopted by the general meeting. The rules of procedure are available at www.gjensidige.no/investor.
Deviations from the Code of Practice: None 8. Supervisory Board and Board, composition and independence Composition of the Supervisory Board The Supervisory Board of Gjensidige consists of 21 members or a higher number divisible by three. The employee representatives are elected for two years at a time, while the remaining representatives are elected for one year. The chair and deputy chair of the Supervisory Board are elected by the Supervisory Board for one year.
Pursuant to the Financial Institutions Act section 2d-3 fourth paragraph, up to a third of the members of the Supervisory Board and the Board of Gjensidige may be employee representatives. In 2011, the Supervisory Board adopted guidelines for its own work. The guidelines are available at www.gjensidige.no/investor.
Today, 43 per cent of the shareholder-elected members of the Board are women. For a more detailed presentation of the board members, see pages 43 to 68 in the annual report and on the Company’s website www.gjensidige.no/group.
Deviations from the Code of Practice: None 9. The work of the Board The work of the Board follows a fixed annual plan and is conducted in accordance with established rules of procedure. The rules of procedure are available at www.gjensidige.no/konsern. They provide more detailed rules about the work of the Board and how it handles matters, including what matters shall be considered by the Board, rules concerning notices of meetings and the conducting of meetings. The Board has also issued rules of procedure for the general manager, which regulate the internal division of responsibility and tasks.
The Board holds regular physical board meetings and eight meetings every year. Additional meetings may be held depending on matters at hand and the situation.
The committee shall prepare items for the Board. It is primarily responsible for: • Drafting proposals for and following up compliance with the Group’s guidelines and framework for remuneration • Annually preparing and proposing the remuneration of the CEO • Annually drafting proposals for the CEO’s scorecard • Acting as adviser to the CEO in connection with the annual assessment of the remuneration of other executive management • Drafting proposals for principles and a declaration concerning the stipulation of pay and other remuneration for the executive management, employees and officers of the Company who have duties that are of material importance to the Company’s risk exposure, and other employees and officers with control tasks
The committee is an advisory body to the Board. It held one meeting in 2012.
Individual board members are obliged to ensure they are not disqualified from considering a matter. In cases of doubt, the matter shall be presented to the Chairman of the Board. The Chairman of the Board shall present cases of doubt relating to his or her own impartiality to the whole Board.
Introduction programme for new board members Relevant information about the Company and the work of the Board is made available to new board members on the Company’s web-based portal for board members. An introduction programme for new board members is also under development. New board members will, by meeting key members of the management, be given an introduction to the organisation and running of the Company. The introduction programme will start up in spring 2013.
The main purpose of risk management and internal control is to provide reasonable assurance of goal attainment through the following methods: • Goal-oriented, efficient and expedient operations • Reliable internal and external reporting • Compliance with laws and regulations, and internal regulations.
The Board carries out an annual review of the Group’s most important risk areas and its internal control. The Board also receives quarterly reports on the risk situation in the Group. The division of responsibility between the Board and the CEO is as follows: The Board’s responsibilities: • The Board has overall responsibility for ensuring that Gjensidige has established expedient, effective processes for risk management and internal control in accordance with recognised frameworks.
• The Board shall ensure that such processes are satisfactorily established, implemented and followed up, among other things by considering reports prepared by the Compliance function and the risk management function that are submitted to the Board by the CEO and the internal audit function as direct reports to the Board.
The Compliance function is independent in relation to the operations and it identifies, assesses, advises on, monitors and reports on the Group’s compliance risk. Assessing compliance risk is part of the Group’s annual risk assessment process.
Group Auditing is an independent, objective confirmatory and advisory function that shall contribute to the organisation achieving its goals. The Group Auditing Manager is appointed and dismissed by the Board and submits reports on the Group’s risk management and internal control to the Board and the CEO at least once a year. The Board approves resources and plans for Group Auditing annually. The Chief Audit Executive reports quarterly to the Board and the CEO on the results of the audit work. The audit work is carried out in accordance with international internal audit standards (IIA). The Group’s risk control functions are organised on the basis of the principle of three lines of defence.
As of 31 December 2012, the control committee consisted of the following members: • Sven Iver Steen • Hallvar Strømme • Liselotte Aune Lee • Vigdis Myhre Næsseth (attending deputy member)
The Gjensidige Group publishes four interim accounts in addition to the ordinary annual accounts. The accounts shall meet requirements in laws and regulations and be prepared in accordance with adopted accounting principles.
Deadlines for publishing are stipulated by the Board. The duties that are carried out in the concluding phase are set out in a schedule that specifies the person responsible and the deadline for ensuring timely reporting. The schedule is reviewed prior to each quarter to ensure that any new circumstances are identified and that the schedule continues to be expedient.
Group accounts are prepared every month and reported to the Board on a monthly basis, with comments on and explanations of each business segment. In this connection, Group Accounts cooperates with the Actuary function, Group Performance Management, reinsurance and the controllers in the business areas on quality assurance of figures and comments. The insurance provisions are assessed monthly by the Actuary function and annually by an external actuary. Accounting items that entail a varying degree of discretionary judgement and assessment are reviewed and documented in advance of the quarterly closing of accounts. Discretionary items are reviewed by the Board’s audit committee at quarterly meetings. The audit committee also considers the quarterly accounts, company accounts and group accounts. The processes are identical for the Group and the parent company. The annual accounts are adopted by the respective general meetings.
The Group has established a planning process for financial management whereby the CEO, the CFO and the Chief Performance Officer meet with business and support areas at least every quarter and review financial performance and goal achievement as well as events that affect future development. Among other things, they assess risks relating to financial reporting, in both the short and long term. The senior group management reviews monthly financial reporting, including developments in profit/loss and balance sheet items, goal achievement, the forecast for the year, risk assessment and analysis of and comments on results in business and support areas.
The Group is concerned with ensuring that processes relating to financial reporting and financial management are carried out by personnel with the right expertise for the different tasks. Professional updating in the form of self-studies, courses and continuing education takes place on the basis of the needs and complexity of the position in question. The goal is that the Group shall have sufficient expertise and resources at all times to be able to carry out timely closing of the accounts without there being material errors in the group and company accounts. This involves fields such as IFRS, NGAAP, the Annual Accounts Regulations for Insurance Companies etc. We participate actively in various industry organisations for banks and life and general insurance companies where topical issues are discussed.
11. Remuneration of the Board The nomination committee proposes the remuneration of the Board, which is decided by the Supervisory Board. This remuneration is not based on the Group’s performance, and none of the board members has share options issued by the Company.
Guidelines for remuneration and career development shall be linked to achievement of the Group’s strategic and financial goals and core values, and both quantitative and qualitative targets shall be taken into consideration. The measurement criteria shall promote the desired corporate culture and long-term value creation, and, as far as possible, take actual capital costs into account. The re muneration system shall contribute to promoting and providing incentives for good risk management, prevent excessive risk-taking and contribute to avoiding conflicts of interest. A fixed basic salary shall be the main element of the overall remuneration, which also consists of variable pay, insurance policies and payments in kind. Variable pay shall be used to reward achievements that exceed expec tations, where both results and behaviour in the form of compliance with core values, brand and management principles will be assessed.
The remuneration of the CEO is stipulated by the Board on the basis of an overall assessment that takes into account Gjensidige’s remuneration scheme and market salary for corresponding positions. The fixed salary is assessed and stipulated annually on the basis of wage growth in society in general and in the financial industry in particular. Variable remuneration relating to Gjensidige’s performance is decided on the basis of the past two years’ performance. Half of the variable remuneration is in the form of a promise of shares in Gjensidige Forsikring ASA, one third of which are allocated in each of the following three years.
Remuneration of the senior group management is stipulated by the CEO, in accordance with limits discussed with the remuneration committee and on the basis of guidelines issued by the Board. Correspondingly, the Group’s guidelines are used as the basis for other executive personnel and employees who can materially influence risk.
The overall remuneration is decided on the basis of the need to offer competitive terms in the various business areas. It shall contribute to attracting and retaining executive personnel with the desired expertise and experience who promote the Group’s core values and development. The individual variable pay may amount to up to 30 per cent of the annual salary including holiday pay. Variable pay is not included in the pension basis.
The guidelines are submitted to the general meeting as a separate item in accordance with the Public Limited Liability Companies Act section 16-6 a).
The Company has a dedicated IR (investor relation) function that has a central place in the Company’s management, and which ensures that there is regular contact with the Company’s shareholders, potential investors, analysts and the financial market. The goal is that the Company’s information work shall be in accordance with best practice at all times.
Deviations from the Code of Practice: None 14. Corporate takeovers Guidelines have been adopted for corporate takeovers. These guidelines ensure that all shareholders’ interests are attended to and contribute to equal treatment of shareholders.
The Board shall not attempt to prevent bids being made, and, as a rule, it shall seek to facilitate the implementation of bids that may be in the interest of the shareholders. The Board shall not take actions as described in the Securities Trading Act section 6-17 without obtaining instructions from the general meeting in this context. The Company shall not use authorisations to issue shares to prevent a bid.
In order to safeguard the shareholders’ interests, the Board shall consider whether to initiate processes that trigger competing bids in a manner that is in the shareholders ’ interests.
As a rule, the Company shall engage the services of an independent legal adviser and an independent financial adviser in the work of assessing a submitted or notified serious bid. These advisers cannot represent the Company’s shareholders in connection with the transaction.
Deviations from the Code of Practice: None 15. External auditor An external auditor is elected by the Supervisory Board in accordance with a recommendation from the Company’s nomination committee. The external auditor normally performs an interim audit every autumn in addition to auditing the annual accounts. The interim audit focuses on the Company’s internal control relating to the presentation of the accounts. The accounting department will have regular contact with the auditor throughout the year to discuss the result of the external auditor’s work, consequences of new laws and regulations etc.
At least one meeting is held every year between the Board and the auditor, and between the audit committee and the auditor, at which the general manager and other executive personnel are not present. The elected auditor shall attend meetings of the Company’s control committee at least twice a year.
The Board has adopted a policy and guidelines for relations with the elected auditor. At least every five years, several accounting companies will normally be invited to tender for the contract for the statutory auditing.
Deviations from the Code of Practice: None 38 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 39
Nominated by the employees Kjell Johnny Andersen Jon Aniksdal Ellen Kristin Enger Elisabeth Katai Knudsen Susanne Baden Weltz Lasse Wold Roger Warud
Control Committee Sven Iver Steen, Chairmain Hallvard Strømme Lise Lotte Aune Lee Vigdis Myhre Næsseth (Deputy member)
Nomination Committee Bjørn Iversen, Chairman, (Chairman Gjensidige Foundation) Jan Eyolf Brustad, (Chairman of the nomination committee in Gjensidige Foundation) John Ove Ottestad Benedikte Bettina Bjørn Beate Bredesen
Gjensidige is one of the leading general insurance companies in the Nordic region, and the biggest Norwegian-owned general insurance player in the Norwegian, Danish, Swedish and Baltic markets. The general insurance operations include general insurance and accident and health insurance. The proportion of earned premiums from the Norwegian part of the business amounted to 76 per cent in 2012. The Norwegian general insurance operations also include life insurance, which is pure risk insurance with a duration of no more than one year. Group life insurance is the biggest product in this category.
In the private market, the Group offers motor, property, accident and health insurance and other insurance products such as travel and leisure insurance. The commercial segments, which also include municipalities, municipal undertakings and the agricultural market, offer insurance products relating to motor vehicles, property, accident and health, liability, agriculture and marine/transport.
The Gjensidige Group recorded a record-strong profit before tax of NOK 5,6 billion in 2012, up from NOK 3,6 billion in 2011. The increase was due to a significant improvement in the development of general insurance operations, in addition to a higher return on financial assets in 2012 than in 2011.
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The Group’s other focus areas are primarily intended to support its core activities through a range of relations-building products and services within banking, pension and savings to Norwegian general insurance customers. A diversified product portfolio enables Gjensidige to capitalise on the value of its existing customer base and distribution platform. At the end of 2012, 85 per cent of the pension and savings customers and 46 per cent of the bank customers also had general insurance policies in Gjensidige.
The Group has defined competence-enhancement as being business-critical. Gjensidige therefore focuses on targeted management and employee development, expedient remuneration models and systematic enhancement of competence in order to retain, develop and attract capable employees and managers.
Chairman of the Board of NorSun AS and Bertel O Steen AS, and Deputy Chairman of Hydro.
Mr. Hansen is a graduate from the Norwegian School of Economics and Business Administration (NHH).
Inge K. Hansen was named Chairman of the Year in 2012 for his role as Chairman in Gjensidige Forsikring ASA.
For general insurance operations, the Group’s target is an annual combined ratio of between 90 and 93 over time. The target shall be supported by each general insurance segment. The combined ratio for the general insurance operations was 85.3 per cent (91.9) in 2012. The Group’s target cost ratio is 15 per cent by 2015. The cost ratio for 2012 was 15.5 (16.4) per cent.
Simplification and automation programme Product simplification, rationalisation of work processes and self-service customer solutions.
Analytical CRM Sophisticated analyses and utilisation of customer data to ensure targeted offers and advice to the right customer at the right time.
The brand initiative New brand strategy, new visual profile, new communication concept and new customer portals developed on the basis of customer needs. Strong focus on management development and culture-building measures in the organisation.
Customer orientation Customer orientation is the core of Gjensidige’s strategic positioning. It is rooted in the Group’s vision: ‘We shall know the customer best and care the most’. The brand platform, which was further developed in 2012, defines the Gjensidige Experience as the Group’s framework for customer orientation. Customer satisfaction is measured systematically, at group level and down to the individual employee level, and improvement measures are implemented continuously. User-friendly self-service solutions are being developed to enable customers to buy and change insurance policies, seek advice and report claims both online and by mobile phone. At the same time, internal work processes and new tools are being developed to ensure further efficiency in serving customers. Our customers shall feel that Gjensidige is involved in the lives of people and enterprises, both before and after a claim arises, which is reflected in the communication concept ‘It is good to be prepared’.
Member of Gjensidige’s Board as an employee representative since 2008. Customer adviser in Gjensidige, and an employee representative in the Finance Sector Union.
Number of shares in Gjensidige Forsikring ASA (including shares, if any, held by closely related parties): 785 (last change 10 December 2012)
programmes, a new office concept focusing on financial advisory services and a number of other measures aimed at retaining customers shall further strengthen existing customer relations.
Market position A strong brand, experience, competence, extensive data and an analytical approach to customer and risk selection and market activities represent important competitive advantages in a market characterised by increasingly tough competition.
In the Baltic general insurance market, Gjensidige had a market share of 7.8 per cent in 2012 (source: Insurance Supervisory Commission of the Republic of Lithuania; Latvian Insurers Association; Statistics Estonia).
The market share within group pension was 8.3 per cent, while the market share within defined contribution pension was 9.3 per cent. The market share within the transfer market for private pension was 23.8 per cent and 19.0 per cent for group pension as of third quarter 2012. (Source: Finance Norway)
In the Danish commercial market, sales are conducted in cooperation with brokers and own insurers in the market for small and medium-sized customers and agricultural customers. Distribution in the municipal market is conducted either directly or through brokers. The market is primarily based on competitive tenders.
The Baltics The most important distribution channels in the Baltics are direct sales and sales through insurance agents and brokers. The importance of online sales as a distribution channel continues to increase in the Baltic market. Increased sales via the internet and call centres are being prioritised in order to achieve more efficient operations in the time ahead.
Gjensidige is also positioned for product deliveries adapted to different distribution channels, both in Norway and in the rest of the Nordic countries. Distribution largely takes place through agents and business partners such as shops, car dealers and banks that wish to expand their product range with insurance products under their own label (‘white label’).
Chairman of the Board of all the subsidiaries of FEAS, and board member of Værste AS (district development in Fredrikstad).
State authorized public accountant and holds an MBA from the Norwegian School of Economics and Business Administration (NHH).
Andersen stands for election to the board in 2013 46 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 47
weather-related events. The loss ratio in 2012 was therefore lower than one would normally expect within Nordic general insurance.
Brand renewal A large part of the organisation was involved in a strategy process in 2012 for the development of a new brand platform and strategy. The goal of the brand renewal is to help Gjensidige to achieve the position as the most customer- oriented company in the Nordic general insurance industry. The phrase ‘passionate enthusiasm’ was chosen as an expression of Gjensidige’s internal identity and culture, and the title of ‘Passionate enthusiast of the year 2012’ was awarded following a nomination process among employees. The Gjensidige Experience forms the basis for the new brand platform and serves as guiding principles for behaviour, deliveries and communication. Our customers shall feel that we know them, care about them, make things easy for them and help them.
Gjensidige launched its new logo and visual profile, a new communication concept and a new customer portal in Norway in December 2012. In addition, a new tablet bank solution was launched for Gjensidige Bank. The new Watchman logo and the visual profile are adapted to digital channels and shall communicate Gjensidige’s involvement in the lives of people and enterprises, before and after a claim arises. The new visual profile will be implemented in Norway, Denmark and Sweden in 2013, and in the Baltics in 2014. The new customer portal will be launched in Denmark and Sweden in the first half-year 2013.
Partnership agreement with the Norwegian Trekking Association In December 2012, Gjensidige signed a strategic collaboration agreement with the Norwegian Trekking Association (DNT), which gives access to a highly attractive customer group of 246,000 members. Gjensidige and DNT have concurrent values, with the focus on health.
Simplification, automation and self-service The group programme develops activities intended to simplify and automate work processes, introduce new work tools for staff and develop self-service solutions for customers. The programme shall contribute to the realisation of Gjensidige’s financial targets and its ambition to set a new standard for customer service in the Nordic region.
New work processes and tools were implemented in large parts of the organisation in 2012. The roll-out of new user interfaces for sales, distribution and claims personnel in Norway has already had positive effects. The number of points of contact with customers in Commercial Norway has increased considerably. Access to better decision support and faster access to customer data mean that the customers will receive faster and better service.
Gjensidige launched a solution in 2012 that enables customers to report travel claims online or by mobile phone. In many cases, the claim is processed automatically, without the involvement of claims handlers. In the second half-year 2012, one out of three travel claims were reported online or by mobile phone. In addition, the processing of four out of five car window claims was fully automated. Twenty-five per cent more claims were settled within 24 hours compared with the year before,
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Micro tariffing The micro tariffing project is a group-wide programme that aims to ensure optimal pricing of risk. New, more sophisticated tariffs have been implemented in large parts of the Private Norway segment in recent years, and this has had a documented positive effect on the loss ratio. By the end of 2012, new tariffs had been implemented for several product groups in the Commercial Norway segment as well, and positive effects are expected to materialise in the future. The implementation of new tariffs will also be initiated in the Nordic segment in 2013. The tariff rating project is part of the work on achieving the target of an annual combined ratio over time of 90–93.
Gjensidiges Arbejdsskadeforsikring In April 2012, the general meeting approved the merger agreement between Gjensidige Forsikring ASA and its Danish subsidiary Gjensidiges Arbejdsskadeforsikring A/S. The reason given for the merger was to achieve more rational and efficient operation, and it will not in itself affect the Group’s financial position. The Financial Supervisory Authority of Norway gave its positive recommendation to the Ministry of Finance. The Ministry of Finance had yet to give Gjensidige Forsikring ASA the necessary licence to carry out the merger at the turn of the year. For technical reasons, the merger could therefore not be carried out with effect from the turn of the year. On 5 March 2013 the company received acceptance from the authorities to merge the companies. The Board intends to submit the merger proposal again.
The share The Gjensidige share yielded a total return (including dividend) for the shareholders of 21.1 per cent in 2012. On 10 December, the Gjensidige Foundation distributed bonus shares for the second and last time to private shareholders who bought shares in connection with the company being listed on the stock exchange in 2010 and kept them for two years. In total, approximately three million bonus shares were distributed to around 40,000 shareholders. The shareholders who had kept their shares throughout the two-year period thus achieved almost double the value of their initial investment.
Norwegian pension legislation Amendments to the Act relating to company pension schemes, which provides opportunities for unit-linked paid-up policies, were adopted in December 2012. The effective date for the act has been postponed pending the Banking Law Commission ’s work on a new law on group occupational pension insurance and new tariffs that take account of a fall in the mortality rate. Once the law enters into force, Gjensidige will be able to offer unit-linked paid-up policies to interested customers.
The Banking Law Commission submitted Norwegian Official Report (NOU) 2013:3 in January 2013, which describes the rules that apply to the transition from defined benefit pension schemes to the new group occupational pension insurance (hybrid). The report proposes a transitional period of three years. The Commission also proposes higher maximum rates for defined contribution pension schemes so that they enjoy equal status as the new group occupational pension insurance. Gjensidige will consider offering the product, but awaits such a decision to see what the enterprises do and the actual profitability potential of the product. It is likely that several enterprises will convert their defined benefit schemes into defined contribution occupational pension schemes, a product that Gjensidige has successfully offered and that will continue to be the most important pension product offered by the Group. Entry into force is scheduled for 2014.
Occupational injuries in Norway The Government wishes to change the current occupational injury scheme and has proposed that a government agency be established to process occupational injury cases. Gjensidige has yet to adopt a position on the proposal since there is a risk that a government agency could lead to more bureaucracy and longer processing times for our customers – without corresponding benefits.
The tax expense was NOK 1,353.5 million (899.5), corresponding to an effective tax rate of 24.0 per cent (24.7). Among other things, the effective tax rate was affected by realised and unrealised gains on equity investments in the EEA and the profit/loss from associated companies. The profit after tax expense was NOK 4,280.1 million (2,747.9), corresponding to NOK 8.56 (5.50) per share (basic and diluted).
Key figures general insurance 1 Large losses in excess of NOK 30.0 million are charged to the Corporate Centre, while claims incurred of less than NOK 30.0 million are charged to the segment in which the large losses occurred. The segment Baltics has a retention level of euro 0.5 million. Large losses allocated to the Corporate Centre amounted to NOK 111.8 million (89.1) in 2012 . Moreover, accounting items related to written reinsurance and reinstatement premium are included.
2 Underwriting result general insurance = earned premiums - claims incurred etc. - operating expenses 3 Excluding return on financial assets in Pension and Savings and Retail Bank. 4 Health care services is included in Other items in 2011. 5 Loss ratio = claims incurred etc./earned premiums 6 Cost ratio = insurance-related operating expenses/earned premiums 7 Combined ratio = loss ratio + cost ratio
Expenses for research and development have not been charged to income in Gjensidige’s consolidated accounts in 2012 or 2011. Nor have such expenses been capitalised during these two financial years. The parent company has continued its
A district university college graduate and is a qualified auditor. He has also completed AFF’s management programme and graduated from the Bank Academy.
Number of shares in Gjensidige Forsikring ASA (including any shares owned by closely-related parties): 10,458 (last changed on 10 December 2012)
collaboration with the Norwegian Computing Centre and SFI (Statistics for Innovation ), under which projects relating to risk assessment and data analysis are being implemented.
Balance sheet and capital base The Group’s balance sheet total at the end of 2012 was NOK 94,207.1 million (88,491.9). This increase was mainly attributable to growth in the Banking and Pension and Savings segments. Gjensidige’s equity amounted to NOK 25,617.7 million (23,228.6) as of 31 December 2012.
Return on equity before tax expense was 23.8 per cent (15.9). The capital adequacy was 16.8 per cent (16.2), and the solvency margin was 545.1 per cent (535.2). Both capital adequacy and the solvency margin have been adjusted to take account of the Board’s proposed dividend for 2012. The statutory capital adequacy requirement is eight per cent.
Off-balance sheet commitments and derivatives As part of the Group’s investment activities, an agreement has been entered into for the investment of up to NOK 1,158.3 million in various private equity investments and real estate funds, in addition to the amounts recognised in the balance sheet. In order to increase the effectiveness of capital and risk management, the Group enters into financial derivative contracts on a regular basis. They are described in more detail in the notes to the accounts.
Cash flow The net cash flow from operational activities mainly consists of payments in the form of premiums and net payments/disbursements in connection with sales of investment assets, plus payments in the form of claims settlement costs, purchases of reinsurance, administration expenses and tax.
The net cash flow from operational activities was NOK 1,407.7 million (2,720.1) in 2012. The gap between the operating profit and the operational cash flow is due to the nature of the business. An integral part of insurance companies’ operations is to invest received insurance premiums in financial assets, which means that cash flows relating to the management of such assets are included in the operational cash flow.
Mr. Kristensen has been an employee representative to the Board of Gjensidige since 2008. Senior customer adviser in Gjensidige.
Mr. Kristensen is also the senior employee representative for the Private Division.
Number of shares in Gjensidige Forsikring ASA (including shares, if any, held by closely related parties):526 (last change 10 December 2012)
Kristensen stands for election to the board of directors in 2013.
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Operating expenses amounted to NOK 1,082.5 million (1,226.2). The cost ratio was 13.3 (15.2). The new distribution strategy communicated in the fourth quarter 2011 and the pertaining restructuring of the office channel resulted in a reduction of approximately NOK 20.0 million in staffing and office expenses compared with the corresponding period in 2011.
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Earned premiums 8,131.1 8,082.8 Claims incurred etc. (5,409.6) (5,670.9) Operating expenses (1,082.5) (1,226.2)
Large losses 1 32.7 15.0 Run-off gains/(-losses) 2 67.6 114.5 1 Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre.
Profit performance The underwriting result for 2012 was NOK 830.7 million (394.4). The combined ratio was 84.6 (92.7). The improvement was due to a combination of an improved risk profile and fewer winter-related and large weather-related claims. The nominal operating expenses were lower in 2012 than in 2011.
Operating expenses amounted to NOK 662.6 million (734.1). The cost ratio was 12.2 (13.6). The segment had continuous focus on cost-efficient operation and rationalisation measures throughout 2012.
Earned premiums 5,411.4 5,411.9 Claims incurred etc. (3,918.1) (4,283.4) Operating expenses (662.6) (734.1)
2 Run-off gains/(-losses) = changes in estimates from earlier periods 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio
Targets, strategy and outlook The Norwegian commercial market is characterised by a great number of players. Established companies offering a broader range of products, new companies and competition for market shares lead to continued pressure on prices in the market. Further simplification and automation shall, together with a continued focus on optimal risk-pricing, contribute to a more forward-looking and simpler Gjensidige, where improved customer experiences and more efficient service processes will be important elements in supporting the Group targets and secure continued strong competitiveness in the Norwegian commercial market going forward.
Nordic The segment includes the Group’s operations in the Danish and Swedish private and commercial markets. The area also includes general insurance products to municipalities and municipal undertakings in Scandinavia. From and including 2013 the commercial portfolio and the rest of the municipal portfolio in Sweden, in addition to the municipal portfolio in Norway, will be allocated to the segment Commercial Norway.
Measures aimed at improving profitability and capitalisation on Nordic group functions were key issues in the Nordic segment in 2012. Portfolio restructuring and repricing, mainly in the commercial portfolio in Denmark and the municipal portfolio in Sweden, contributed to better quality in the portfolios and a satisfactory profitability trend.
Earned premiums amounted to NOK 3,630.4 million (3,635.0). Exchange rate effects had a negative impact corresponding to NOK 103.4 million. In 2011, reinsurance costs in the amount of NOK 65.5 million relating to reinstatement were charged to earned premiums. The underlying business developed positively despite 54 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 55
Operating expenses amounted to NOK 590.6 million (626.1). The cost ratio was 16.3 (17.2). Changes in exchange rates accounted for NOK 18.9 million of the nominal reduction in expenses.
The Baltics Gjensidige’s Baltic operations provide general insurance products to the private and commercial markets in Latvia, Lithuania and Estonia. The target customers are people with medium to high income in the private market and medium- sized enterprises in the commercial market.
Continuous focus on more efficient operations has contributed to increased profitability in 2012.
Profit performance The underwriting result for 2012 was NOK 18.9 million (3.0). The Combined ratio was 95.7 (99.2). The profit performance in the period was affected by a growth in premiums, a major fire loss and more medium-sized claims.
Board member and chair of the audit committee in i Selvaag Bolig ASA and board member in Eiendomsspar AS, Victoria Eiendom AS og Flyktningehjelpen. and board member of the Norwegian Refugee Council.
Number of shares in Gjensidige Forsikring ASA: 1,481 (including shares, if any, held by closely related parties) (last change 10 December 2012)
Ms. Marchand stands for election to the board in 2013 54 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 55
Earned premiums amounted to NOK 436.9 million (395.8). The development in earned premiums was especially positive within accident and health and property, primarily due to an improved trend in the Baltic insurance markets. Several measures are being implemented to strengthen growth in the Baltic countries, including increasing skills among sales personnel.
The nominal operating expenses amounted to NOK 125.4 million (122.2), corresponding to a cost ratio of 28.7 per cent (30.9).
In 2012 a satisfying result increase was achieved despite substantial reservations made for higher life expectancy and disability risk. As much as 85 per cent of the customers were also general insurance customers.
Profit performance The profit before tax expense was NOK 18.3 million (15.1). NOK 15.7 million was charged to profit/loss due to a strengthening of claims provisions for disability risk related to different pension products. In addition, the owner’s share of the return on financial assets in excess of the interest guarantee, amounting to NOK 5.6 56 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 57
Earned premiums in 2012 amounted to NOK 680.7 million (532.7). The increase was due to an increase in the customer portfolio and non-recurring effects in connection with the transfer of portfolios fromexternal distributors.
The management income in the savings operations was NOK 28.3 million (31.3) in 2012, corresponding to a profit margin of 0.29 per cent (0.41). The reduction in the margin was due to an increasing proportion of fixed-income products in the portfolio, and some loss of customers in the private market.
Operating expenses totalled NOK 170.4 million (151.6). Of this amount, NOK 122.8 million (104.3) was related to the insurance operations. Corrected for the above-mentioned VAT reimbursement of NOK 9.1 million, the increased expenses were largely due to higher sales commission.
The recognised return on the paid-up policy portfolio was 4.76 per cent (5.33) in 2012. The reduction was mainly due to greater realisation of gains in 2011 relating to equity and high yield funds. The annual average interest-rate guarantee is 3.6 per cent.
Assets under management in the savings operations increased by NOK 511.3 million in 2012 (3,861.5). The increase was due to an infusion of capital and positive market development. Assets under management for the savings operations totalled NOK 10,070.0 million (9,558.7) at year end.
The total assets under management increased by NOK 2,731.2 million 5,376.4), amounting to NOK 20,478.9 million (17,747.7) at year end 2012.
Management income 28.3 31.3 Net financial income 18.0 18.7 Other income 36.7 22.0 Other expenses (47.6) (47.3) Profit/(loss) before tax expense 18.3 15.1
Run-off gains/(-losses) 1 (15.7) Profit margin savings, in per cent 2 0.29 0.41 Recognised return on the paid-up policy portfolio, in per cent 3 4.76 5.33 Value-adjusted return on the paid-up policy portfolio, in per cent 4 4.77 4.96 1 Run-off gains/(-losses) = estimatavvik fra tidligere perioder 2 Fortjenestemargin sparing, i prosent = forvaltningsinntekter/gjennomsnittlig kapital til forvaltning, sparing 3 Bokført avkastning fripoliseporteføljen, i prosent = realisert avkastning på porteføljen 4 Verdijustert avkastning fripoliseporteføljen, i prosent = total avkastning på porteføljen
Targets, strategy and outlook Pension and Savings is a growth area that shall support the Norwegian general insur56 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 57
ance operations by contributing to a wider range of products for existing general insurance customers in Norway, and thereby strengthening customer relations and loyalty.
Retail Bank Gjensidige Bank is an online bank that mainly targets the Norwegian private market. The bank offers day-to-day banking services, loans secured by mortgage and consumer financing.
The focus on growth and quality in the lending portfolio as well as changes in the organisational structure contributed to a positive profitability trend in 2012. At the end of 2012, 46 per cent of the customers in the bank also were general insurance customers.
Profit performance The profit before tax expense was NOK 113.0 million (66.8). The positive development was largely due to an increase in customer-related income and reduced write-downs and losses.
Net interest income amounted to NOK 442.9 million (430.8). Increased volume in the loan portfolio compensated for the lower interest margin. Net commission income and other income amounted to NOK 44.8 million (39.0). The increase is largely due to customer-related commission income.
Operating expenses amounted to NOK 306.4 million (308.9). In 2011, non- recurring expenses were charged to income relating to organisational changes and the termination of the agreement for the purchase of services from Sparebanken Sogn og Fjordane. The underlying expenses increased somewhat in 2012 as a result of business growth. The cost ratio was 62.8 per cent (65.7).
The bank expensed NOK 68.4 million (94.2) in write-downs and losses. An improvement in defaults and receipts from customers was the reason for the positive development compared with 2011. Annualised write-downs and losses as a percentage of average gross lending amounted to 0.43 per cent (0.65). This reduction was largely due to a good development in the loan portfolio, in addition to a higher proportion of loans being secured by a residential mortgage than in 2011. The weighted average loan-to-asset value ratio 1 was estimated to be 61.6 per cent for the mortgage portfolio.
Gross lendings increased by 15.3 per cent and amounted to NOK 17,324.3 million (15,019.0) at the end of the period. Deposits increased by 18.5 per cent and amounted to NOK 11,580.5 million (9,776.2) at the end of the period. The depositto -loan ratio was 66.8 per cent (65.1).
Operating expenses (306.4) (308.9) Write-downs and losses (68.4) (94.2) Profit/(loss) before tax expense 113.0 66.8
Net interest income in per cent, annualised 1 2.52 2.71 Write-downs and losses in per cent, annualised 2 0.43 0.65 Cost/income ratio 3 62.8 65.7 Capital adequacy 4 13.6 15.0 1 Net interest income in per cent, annualised = net interest income/average total assets 2 Write-downs and losses in per cent, annualised = write-downs and losses/average gross lending 3 Cost/income ratio = operating expenses/total income 4 Capital adequacy = primary capital/basis of calculation for credit risk, market risk and operational risk
Targets, strategy and outlook As for Pension and Savings, Gjensidige Bank shall also support the Norwegian general insurance operations by contributing to a wider range of products for existing general insurance customers in Norway, and thereby strengthening customer relations and loyalty. The bank will continue the work on customer- friendly online banking services and a broader range of products via financial advisory services through Gjensidige’s office network.
The positive trend in profitability and customer relations is expected to continue in 2013, mainly driven by a continued positive development in the day-to-day banking services.
Management of financial assets and properties The Group’s investment portfolio includes all investment funds in the Group except for investment funds in Pension and Savings and Banking. Large parts of the management are outsourced to external managers, while the Company’s investment function concentrates on asset allocation, risk management and the selection of managers. Direct property investments are made via the wholly owned property company Oslo Areal.
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Bonds at amortised cost 5.0 4.9 1,001.2 896.6 21,346.3 18,407.8 Current bonds 1 1.5 2.0 113.9 158.7 7,648.9 7,458.1
The geographical distribution of the match portfolio is shown below. Direct bond investments in what are known as the PIIGS countries amounted to NOK 195.5 million at the end of the period. They consist of Spanish government -guaranteed bonds issued by credit institutions. These bond investments were part of the portfolio of bonds valued at amortised cost. No impairment losses have been recognised for these bonds during the period.
Equity portfolio The total equity exposure at the end of the period (including private equity, but excluding associated companies) was NOK 2.9 billion (2.1). The return on current equities was 8.5 per cent (a negative return of 14.9). This included the profit from derivatives used for hedging purposes. The return on private equity was 16.7 per cent (14.5).
Property portfolio At the end of the period, the property portfolio amounted to NOK 4.9 billion (5.8). The property portfolio yielded a return of 5.0 per cent (6.7). The return on directly owned properties was good, while the return on property funds was negative. The general required rate of return in connection with the valuation of the properties was 6.6 per cent (6.6). The individual valuations resulted in a small net increase in value in the fourth quarter of NOK 3.8 million. External valuations of the properties were carried out at the end of the fourth quarter.
Associated companies Associated companies amounted to NOK 5.0 billion (4.5) at the end of the period. The shareholding in Storebrand was recognised in the amount of NOK 3,750.6 60 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 61
million. The corresponding figure for the investment in SpareBank1 SR-Bank was NOK 1,250.6 million. The return on associated companies was 9.3 per cent (9.8), which corresponds to NOK 441.5 million (431.6). Of this amount, NOK 295.4 million was Gjensidige’s share of Storebrand’s profit in 2012, including the amortisation of excess value and estimate deviations from earlier periods. Gjensidige’s share of Sparebanken1 SR-Bank’s profit in 2012 amounted to NOK 141.1 million, including the amortisation of excess value and estimate deviations from earlier periods.
Risk management is based on specified goals and strategies and the limits on risk exposure stipulated by the Board. Responsibility for good risk management and internal control primarily rests with the first-line management, the CEO and all managers and employees in the operational units, who carry out their work in accordance with the authorisations, instructions and guidelines that apply to each of them. A risk management function has been established at group level. It is responsible for monitoring the Group’s risk management system and for maintaining an overview of the risks that the Group is or may be exposed to. The risk management function shall ensure that the senior group management and the Board have sufficient information about the Group’s risk profile at all times. The Group has a moderate risk profile whereby, in the Board’s view, no individual events will be capable of seriously harming the Company’s financial position.
The Board stipulates annual limits for the Group’s reinsurance programme. The limits are decided on the basis of the need to protect the equity against loss events over and above an amount deemed to be justifiable, and of the need to reduce fluctuations in earnings. The insurance risk is deemed to be moderate based on the reinsurance coverage the Group has purchased. The reinsurance programme is described in more detail in Note 3 to the consolidated annual accounts.
The Group’s actuarial function carries out calculations and assessments of the actuarial provisions and develops and maintains adequate models and methods for estimating losses that have occurred but that have not yet been reported to the Group. There is a considerable inherent risk of the provisions being inadequate, but the Group works continuously to improve actuarial methods, and external actuaries are used from time to time to conduct independent reviews of the provisions.
Financial risk Gjensidige had NOK 56.3 billion in financial investments in the insurance operations as of 31 December 2012. The counter entry in the balance sheet are the actuarial liabilities and equity. The investments mainly consisted of interest-bearing investments, property, shares and holdings in associated companies. The value of the investments can be affected by changes in macroeconomic factors.
Limits have been defined for the necessary access to liquid assets. They are taken into account in the strategic allocation of assets. The liquidity risk is considered to be very low. The Group is exposed to credit risk through investments in the bond and money market and through lendings. The Board has set limits for the credit operations. Credit losses have been insignificant to date. Outstanding claims against the Group’s reinsurers may also represent a considerable credit risk. Counterparty risk in the reinsurance market is continuously assessed. The Group’s reinsurers shall at least have a Standard & Poor’s A rating or equivalent from one of the other reputable rating companies.
Operational risk Operational risk is the risk of losses due to weaknesses or faults in processes and systems, errors made by employees, or external events. In order to reduce the risk, emphasis has been placed on having well-defined and clear lines of reporting and a clear division of responsibility in the organisation of the business. Set procedures 62 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 63
Corporate governance Good corporate governance is a priority for the Board. The Board has based the Group’s corporate governance on the Norwegian Code of Practice for Corporate Governance dated 23 October 2012, and it complies with the Code of Practice and subsequent amendments to it in all areas. A more detailed account of how Gjensidige complies with the Code of Practice and the Norwegian Accounting Act’s requirements for reporting on corporate governance is included on pages 24-39 of the annual report and in a separate document that is available on the Group’s website www.gjensidige.no/group.
Corporate social responsibility and the environment Gjensidige shall be a socially responsible company engaging positively in the society above what is demanded through legislation and other rules. The Board in Gjensidige has adopted guidelines for social responsibility. The guidelines are available at www.gjensidige.no/group.
Human resources Demographics and equal opportunity The Group had 3,163 employees at the end of 2012, 1,978 of whom work in the Norwegian general insurance operations.
The average age in the Norwegian part of the parent company was 44.3 as of 31 December 2012, compared with 44.4 at the end of 2011. Average seniority was 12.0 years, compared with 12.2 in 2011.
The cooperation between the employer and the employee organisations was also good in 2012. The Cooperation and Working Environment Committee held regular meetings.
The school provides competence-raising courses in Norway, Denmark and Sweden. The programmes are customised to Gjensidige’s core competence areas: claims settlement, sales and management. Through the training, the participants practice conduct that supports Gjensidige’s vision and brand, and the school is therefore an important tool in the development of Gjensidige’s corporate culture. Together with a strong, systematic focus on management development, the Gjensidige Customer and Brand School contributes to strengthening Gjensidige’s reputation as an attractive employer.
The Gjensidige Customer and Brand School had 6,200 course days in 2012, compared with 4,500 in 2011. The number of exams passed by sales personnel and claims handlers was 304. In Denmark, 120 employees passed exams in 2012. Gjensidige’s staff also participate in external courses and training programmes.
Number of shares in Gjensidige Forsikring ASA (including shares, if any, held by closely related parties): None (last change 10 December 2010)
Customised management development programmes have been developed for groups of managers with different experience backgrounds, from newly employed managers to the senior management group. In addition to the individual programmes, programmes have been developed with the intention of developing management teams, change expertise and communication skills. In 2013, the Gjensidige Customer and Brand School will further expand by offering new training programmes in project management, a new programme for middle managers, and training in new work and cooperation methods closely linked to effective use of new technology.
At the end of 2012, the 12-month rolling rate of absence with a doctor’s certificate was 4.2 per cent in the Norwegian part of the business, compared with 4.6 per cent in 2011. Total sickness absence in the Norwegian part of the business at year end 2012 was 5.1 per cent, compared with 5.5 per cent in 2011.
The total sickness absence has decreased by 11.2 per cent during the course of 2012. Absence with a doctor’s certificate declined by 14.5 per cent in the same period. Sickness absence in the Private Norway division developed in a very positive direction. A project was initiated in cooperation with the corporate health service involving follow-up of sickness absence at the individual level, which yielded good results. The project will be continued in 2013. There have been no injuries or accidents resulting in damage on persons or material.
A project has also been initiated to find joint Nordic solutions in the HSE area. Gjensidige Norway cooperates closely with the corporate health service and the Norwegian Labour and Welfare Administration (NAV) in relevant areas. The systematic work on HSE includes annual health and safety inspections, risk assessments and internal HSE audits.
Pay statistics are prepared to bring to light any wage disparities on the basis of gender, age, ethnic origin or impaired functionality for the same work or work of equivalent value. Any nonconformities will be followed up by actions.
In order to underpin Gjensidige’s long-term financial targets, strategic group programmes for correct pricing of risk, simplification, automation and self-service solutions have been initiated in recent years. Together with the relaunching of the Gjensidige brand in December 2012, these initiatives will strengthen the basis for future growth and help to position Gjensidige as the most customer-oriented general insurance company in the Nordic region.
There was still strong competition in the Norwegian general insurance market in 2012. The small insurance companies have gradually increased their market shares by establishing operations in niches in the market, partly through aggressive pricing. At the same time, several of the established financial players have established their own general insurance companies. Gjensidige’s competitiveness was good in 2012. Measures that have been implemented in recent years mean that Gjensidige is in a good position to meet this competition also in the future. Organic growth is expected to be in line with the growth in GDP over time, and increases in premiums are currently on a par with the expected underlying claims inflation.
Considerable uncertainty is associated with the assessment of future developments, but, in the Board’s opinion, the Group is well-equipped to meet the competition in the years ahead.
Events after the balance sheet date No significant events have occurred after the end of the period.
It is proposed that the parent company’s profit before other components of income and expense of NOK 3,875.7 million be allocated as follows: NOK million
Dividend 3,425.0 Transferred from undistributable reserves 183.5 Transferred to other distributable equity 634.3 Allocated 3,875.7
The Board has decided to give employees of Gjensidige Forsikring ASA a collective bonus corresponding to NOK 30,000 including holiday pay per full-time employee. The bonus is based on the combined ratio achieved and on the development in the portfolio and in customer satisfaction in 2012.
The Board also wishes to thank all employees for their efforts and contribution to Gjensidige’s strong results in 2012.
Notes 2 Use of estimates ...................................................................83 3 Management of insurance and financial risk ..........................84 4 Segment information ..........................................................104 5 Intangible assets .................................................................105 6 Shares in associates ............................................................ 107 7 Owner-occupied property, plant and equipment .................108 8 Investment property ...........................................................109 9 Financial assets and liabilities ..............................................110 10 Loans and receivables .........................................................113 11 Cash and cash equivalents .................................................. 114 12 Shares and similar interests .................................................115 13 Insurance-related liabilities and reinsurers’ share ..................118 15 Provisions and other liabilities ..............................................122 18 Salaries and remuneration ...................................................125 19 Net income from investments .............................................129 20 Contingent liabilities ...........................................................130 21 Related party transactions ..................................................130 22 Events after the balance sheet date ....................................133 23 Capital ratio ........................................................................134 24 Solvency margin ..................................................................135 25 Restricted funds ..................................................................135 27 Share-based payment .........................................................136 28 Earnings per share ...............................................................137
Notes 2 Use of estimates ................................................................. 151 3 Management of insurance and financial risk ........................ 151 4 Premiums and claims etc. in general insurance .................... 152 5 Intangible assets .................................................................154 6 Shares in subsidiaries and associates ...................................156 7 Owner-occupied property, plant and equipment .................157 8 Investment property ...........................................................159 9 Financial assets and liabilities ..............................................160 10 Loans and receivables .........................................................163 11 Cash and cash equivalents ..................................................163 12 Shares and similar interests .................................................164 13 Insurance-related liabilities and reinsurers’ share .................. 167 15 Provisions and other liabilities .............................................. 171 18 Salaries and remuneration ................................................... 174 19 Net income from investments ............................................. 178 21 Related party transactions .................................................. 179 22 Events after the balance sheet date .................................... 182 23 Capital ratio ........................................................................183 24 Solvency margin ..................................................................184 25 Restricted funds ..................................................................184 27 Share-based payment .........................................................185
Net changes in fair value on investments (incl. property) (301.2) (112.2)
Amortisation and impairment losses of excess value - intangible assets (126.9) (181.5)
Gjensidige Insurance Group 70 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 71
Inge K. Hansen Gunnhild H. Andersen Trond Vegard Andersen Hans-Erik F. Andersson Per Arne Bjørge Kjetil Kristensen Chairman
NOK million Share capital Own shares Premium reserve Other paid in equity
Cash and cash equivalents at the start of the period 3,513.3 2,889.9
• Based on our preliminary assessments and on the basis of Gjensidige’s current operations, neither IFRS 10 Consolidated Financial Statements nor IFRS 11 Joint Arrangements, which enter into force on 1 January 2013, will have a material effect.
• Based on our preliminary assessments and on the basis of Gjensidige’s current operations, IAS 19 Employee Benefits, which enters into force on 1 January 2013, will not have a material effect.
Standards that will affect disclosure requirements • Several amendments to IFRS 7 Disclosure – Financial Instruments with different commencement dates, and to IFRS 12 Disclosure of Interests in Other Entities, which enters into force on 1 January 2013, will entail additional disclosure requirements for us.
Based on our preliminary assessments and on the basis of Gjensidige’s current operations, other amendments to standards and interpretation statements will not have a material effect.
Functional and presentation currency The consolidated financial statements are presented in NOK. Gjensidige Forsikring has three functional currencies: Norwegian, Swedish and Danish kroner. All financial information is presented in NOK, unless otherwise stated.
Segment reporting According to IFRS 8, the operating segments are determined based on the Group’s internal organisational management structure and the internal financial reporting structure to the chief operating decision maker. In Gjensidige Insurance Group the Senior Group Management is responsible for evaluating and following up the performance of the segments and is considered the chief operating decision maker within the meaning of IFRS 8. Gjensidige reports on six operating segments, which are independently managed by managers responsible for the respective segments depending on the products and services offered, distribution and settlement channels, brands and customer profiles. Identification of the segments is based on the existence of segment managers who report directly to the Senior Group Management/CEO and who are responsible for the performance of the segment under their charge. Based on this Gjensidige reports the following operating segments • General insurance Private Norway • General insurance Commercial Norway • General insurance Nordic • General insurance Baltics • Pension and Savings • Retail Bank
Consolidation policies Subsidiaries Subsidiaries are entities in which Gjensidige Forsikring has a controlling influence, which will apply to companies where Gjensidige Forsikring owns more than 50 per cent of the voting shares, either directly or indirectly through subsidiaries. The subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of the subsidiaries have been changed when necessary, to align them with the policies adopted by the Group.
Business combinations Business combinations are accounted for by applying the purchase method. The cost of the business combination is the fair value at the date of exchange of assets acquired, liabilities incurred and equity instruments issued by the Group, in exchange for control of the acquired company, and any expenses directly attributable to the business combination.
Earned premiums from general insurance Insurance premiums are recognized over the term of the policy. Earned premiums from general insurance consist of gross premiums written and ceded reinsurance premiums.
Commission income from various customer services is recognized depending on the nature of the commission. Charges are recognized as income when the services have been delivered or when a significant proportion have been completed. Charges that are received for services provided are recognized as income in the period in which the service was performed. Commissions received as payment for various services is recognized as income when the service has been performed. Commission expenses are transaction based, and are recognized in the period in which the service was received.
Claims incurred Claims incurred consist of gross paid claims less reinsurers’ share, in addition to a change in provision for claims, gross, also less reinsurers ’ share. Direct and indirect claims processing costs are included in claims incurred. The claims incurred contain run-off gains/ losses on previous years’ claims provisions.
Exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form a part of the net investment in the foreign operation and are recognized in other comprehensive income.
Subsequent costs are recognized in the asset’s carrying amount when it is probable that the future economic benefits associated with the asset will flow to the Group, and the cost of the asset can be measured reliably. If the subsequent cost is a replacement cost for part of an item of owner-occupied property, plant and equipment, the cost is capitalized and the carrying amount of what has been replaced is derecognized. Repairs and maintenances are recognized in profit or loss in the period in which they are incurred.
Each component of owner-occupied property, plant and equipment are depreciated using the straight-line method over estimated useful life. Land is not depreciated. The estimated useful lives for the current and comparative periods are as follows • owner-occupied property 10-50 years • plant and equipment 3-5 years
Gjensidige Insurance Group 78 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 79
Other intangible assets Other intangible assets which consist of customer relationships, trademarks, internally developed software and other intangible assets that are acquired separately or as a group are recognized at historical cost less accumulated amortisation and accumulated impairment losses. New intangible assets are capitalized only if future economic benefits associated with the asset are probable and the cost of the asset can be measured reliably.
Gjensidige Insurance Group 78 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 79 return. In addition there is a portfolio of annuity contracts which have an average 3.6 per cent annually guaranteed return on assets.
At fair value through profit or loss Financial assets and liabilities are classified at fair value through profit or loss if they are held for trading or are designated as such upon initial recognition. All financial assets and liabilities can be designated at fair value through profit or loss if • the classification reduces a mismatch in measurement or recognition that would have arisen otherwise as a result of different rules for the measurement of assets and liabilities
Available for sale Financial assets available for sale are non-derivative financial assets that have been recognized initially in this category, or are not recog nized initially in any other category. Subsequent to initial recognition financial assets in this category are measured at fair value, and gain or loss is recognized in other comprehensive income except for impairment losses, which are recognized in profit or loss.
The category financial derivatives comprises the classes financial derivatives at fair value through profit or loss and financial derivatives used as hedge accounting.
Impairment of financial assets Loans, receivables and investments held to maturity For financial assets that are not measured at fair value, an assessment of whether there is objective evidence that there has been a reduction in the value of a financial asset or group of assets is made on each reporting date. Objective evidence might be information about credit report alerts, defaults, issuer or borrower suffering significant financial difficulties, bankruptcy or observable data indicating that there is a measurable reduction in future cash flows from a group of financial assets, even though the reduction cannot yet be linked to an individual asset.
The defined contribution plan is a post-employment benefit plan under which Gjensidige pays fixed contributions into a separate entity and there is no legal or constructive obligation to pay further amounts. Obligatory contributions are recognized as employee benefit expenses in profit or loss when they are due.
Gjensidige Insurance Group 82 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 83
At the end of the year the number of own shares was 65,799 (60,755).
Premium reserve Premium reserve consists of paid in capital and can be used to cover losses.
Gjensidige Insurance Group 82 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 83 2. Use of estimates The preparation of the financial statements under IFRS and the application of the adopted accounting policies require that manage ment make assessments, prepare estimates and apply assumptions that affect the carrying amounts of assets and liabilities, income and expenses. The estimates and the associated assumptions are based on experience and other factors that are assessed as being justifiable based on the underlying conditions. Actual figures may deviate from these estimates. The estimates and associated prerequisites are reviewed regularly. Changes in accounting estimates are recognized in the period the estimates are revised if the change only affects this period, or both in the period the estimates change and in future periods if the changes affect both the existing and future periods.
Plant and equipment, owner-occupied property and intangible assets Plant and equipment, owner-occupied property and intangible assets are assessed annually to ensure that the depreciation method and the depreciation period used are in accordance with useful life. The same applies to residual value. Impairment losses will be recognized if impairment exists. An ongoing assessment of these assets is made in the same manner as investment properties.
Insurance products are divided in general into two main categories; lines with short or long settlement periods. The settlement period is defined as the length of time that passes after a loss or injury occurs (date of loss) until the claim is reported and then paid and settled. Short-tail lines are e.g. property insurance, while long-tail lines primarily involve accident and health insurances. The uncertainty in short-tail lines of business is linked primarily to the size of the loss.
In 2012, Gjensidige has changed the method it uses to stipulate the discount rate for pension liabilities. This calculation was previously based on the government bond yield, while a covered bond yield is now used. This change has been implemented because there is now deemed to be a deep market for corporate bonds with a long term to maturity. The consequence of using the covered bond yield as the basis for the calculation of gross pension liabilities is a significant reduction in net pension liabilities. The actuarial gain that reduces the pension liabilities amounts to NOK 637.3 million, most of which is due to the transition to basing the estimate on the covered bond yield.
Overview Management of risk is an integrated part of the daily operations in Gjensidige. Identification, assessment, management and control of the risk exposure as well as analyses of the effects of potential strategic decisions on the risk profile is an essential part of the operations to ensure that the level of risk-taking is in keeping with the approved risk appetite and to enhance value creation.
An overall management of risks ensures that risks are assessed and handled in a consistent way throughout the Group. Risk management in Gjensidige has two main objectives. First, the risk exposure should not exceed capacity. Secondly a comprehensive risk management should help create value for customers and owners.
The basis of insurance is transfer of risk, from the insured to the insurer. Gjensidige receives insurance premiums from a large number of policy holders and commits to compensate in case a loss occurs. Naturally, insurance risk is a major component of risk for the Group. Insurance premiums are received in advance and set aside in order to cover future claims. The actuarial provisions combined with the Company’s equity are invested, and consequently the Group is exposed to market and credit risk as well.
The group CEO is responsible for the overall risk management in the Group. The Group’s risk management committee, chaired by the group CEO, has a supervisory role with regard to the Group’s total risk situation and an advisory role to the group CEO with regard to risk management. The responsibility to help prepare for the risk management committee’s work and to facilitate the Group’s internal control processes is delegated to the Chief Risk Officer. Likewise, the Head of Group Compliance, which reports on professional matters to the group CEO, is responsible for the Group’s process for preventing and detecting compliance risk pursuant to laws and regulations as well as internal policies and instructions. The responsibility for the ongoing risk management is delegated to the responsible line managers in their respective areas. Gjensidige has centralized risk control functions, such as risk management, compliance and actuarial functions. Moreover, the Group has an independent internal audit function, which monitors risk management and internal control to ensure that they function properly and which reports directly to the Board.
The responsibility for the execution of investments for the insurance operations is vested in the organization of the CFO. The function for monitoring and reporting financial returns and compliance of limits in investment management of the insurance business reports to the Executive Vice President, Group Staff/General Services in order to ensure an independent follow-up. In addition, the Chief Risk Officer has an independent line of reporting to the Group’s risk management committee.
Gjensidige’s minimum capitalization is determined on the basis of the strictest of three criteria: regulatory requirements, rating requirements and internal risk-based requirements. In the calculations of excess capital, consideration was given to an assumed dividend of NOK 3,425.0 million for the 2012 financial year, which reduces the excess capital equivalently from all three perspectives. The Group has a very strong capitalization from all three of these perspectives.
Insurance operations and banking business are subject to capital requirements specified by the authorities. Capital adequacy and solvency positions are reported for the Group and subsidiaries to the financial supervisory authorities. In accordance with capital adequacy rules (BIS rules) as at 31 December 2012 the excess capital was NOK 8,333.8 million, equivalent to a capital adequacy ratio of 16.8 per cent. As associated companies, the stakes in Storebrand and SpareBank1 SR-Bank are consolidated in the calculation of capital adequacy. The Group’s excess capital above the solvency margin requirements was NOK 11,264.2 million as at 31 December 2012. The stake in Storebrand is consolidated in this calculation.
Gjensidige has, over several years, been developing an internal stochastic simulation model for its insurance operations, based on state-of-the-art modeling technology. The model is customized to Gjensidige’s risk profile and provides fully stochastic simulations of both insurance and investment operations. This model is a key tool for aggregated risk measurement and capital management as it provides an overview of the aggregated risk profile. The main areas of use of the internal model are • Overall risk profile and capital need, both presently and during the planning period • Capital allocation to lines of business and products • Capital consequences of asset allocation • Requirements for and optimization of reinsurance
Insurance risk The risk under any insurance contract is the probability that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and must therefore be estimated.
Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability around the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected by a change in any subset of the portfolio. Gjensidige has developed its steering documents for insurance risk to diversify the types of insurance risks and within each of these categories to achieve a sufficiently large population of risks to reduce the fluctuation of the expected outcome.
Gjensidige Insurance Group 86 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 87
Growth in severity of claims may be driven by the development of consumer price index (CPI), salary increases, social inflation and the price for material and services purchased with claims settlement. In Property insurance the inflation will consist of CPI and an increase in building costs, which in the past has been slightly higher than CPI. For accident and health the insurance policies are divided into two main groups, one with fixed sum insured and another part were the compensation is adjusted by a public/government index (in Norway: ‘G’ - The basic amount for national insurance). This is for instance the case in Workers’ Compensation. The Group writes Workers’ Compensation in Norway and Denmark. The regulation for this LOB is quite different in these countries. In Norway Workers’ Compensation covers both accident and diseases, while in Denmark diseases are covered by a governmental body. The compensation in Norway is exclusively restricted to lump sums, while in Denmark the compensation is both lump sums and annuity payments. Annuity payments are calculated according to assumptions about mortality, interest rate and retirement age. For bodily injuries the severity of claims is also influenced by court awards, which tend to increase the compensation more than the general inflation. This is also a significant factor, due to the long period typically required to settle these cases.
Accident and health - workers' compensation 1,068.3 5.1 % 1,052.6 5.2 %
Accident and health - workers' compensation 693.3 3.9 % 749.2 4.3 %
Fire and other damage to property 6,245.0 35.5 % 6,288.4 36.5 %
The reinsurance programme for the Gjensidige Group, primarily non-proportional reinsurance, is based on calculated exposure, claims history and capitalisation. The limits for the reinsurance programme for each year are set by the Board. In Norway the exposure to natural perils is limited through Gjensidige’s compulsory
Gjensidige Insurance Group 88 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 89 membership in the Norwegian Natural perils pool. Insurance risk is deemed to be moderate with the reinsurance cover the Group has in place.
Insurance contracts are often classified as risks that are short-tail and risks that are long-tail. Short-tail risk is characterized by that the period between the occurrences, reporting and final settlement of claims is short. Long-tail risk is the opposite. The period between the occurrence, reporting and settlement of claims is long. In Property and Motor insurance (excluding bodily injury claims) the claims are reported soon after occurrence, while for Accident and health insurance the claims may be reported several years after the occurrence and settled several years after they were reported. The provisions for IBNR for short-tail risks are relatively small, while for long-tail risks the provisions for IBNR may constitute a substantial part of the total loss provision.
The duration (average time between the date of loss until the claim is finally settled) differs significantly between the types of risk considered. Long duration will increase the company’s exposure to inflation. In Motor insurance, physical damage, the duration is less than one year, while in Motor bodily injury claims the average duration is almost eight years. In Property insurance the average duration is one to two years, in Workers’ Compensation in Norway the average duration is six years. In Group life insurance the duration differs significantly between death and disability coverage. Workers’ Compensation in Denmark has a particularly long duration due to the annuity part. For the other line of businesses (LOBs) in Gjensidige’s Nordic branches and subsidiaries the duration is in line with the similar LOBs in Norway. In the Baltic the duration is significantly shorter due to few bodily injury claims.
• Expected loss ratio methods (Bornhuetter-Ferguson), which use Gjensidige’s expectation of the loss ratio for a line of business in the estimation of future claims payments.
• Methods where “Chain ladder” and “Expected loss ratio” methods are used in combination. One advantage in the use of these methods is that more weight can be given to experience data when the run-off development of the actual claim year has become more stable.
Such reasons include • Economical, legal and social trends and social inflation
(e.g. a shift in court awards) • Changes in the mix of insurance contracts incepted • The impact of large losses
IBNR provisions and provisions for outstanding claims are initially estimated at a gross level, and a separate calculation is carried out to estimate the size of reinsurance recoveries. Gjensidige purchases almost exclusively excess of loss reinsurance contracts with sufficiently high retentions for only relatively few, large claims to be recoverable.
Underwriting risk is the risk that an insurer does not charge premiums appropriate for the insurance contracts. The pricing processes for the different insurance products involve estimates of future frequency and severity of claims, based on statistics from internal and external sources. Even if the underwriting criteria are adequate and the premium calculations are performed on a good statistical basis, the claims cost may deviate from the expected level, due to large claims, natural catastrophes etc.
Change in CR (1 %- point) Private Norway 81.3 80.8 Commercial Norway 54.1 54.1
Change in loss frequency (1 %-point) Private Norway 604.8 631.3 Commercial Norway 1,097.3 976.6 Total Gjensidige Forsikring ASA 1,702.1 1,608.0
Net of reinsurance Estimated claims cost At the end of the accident year 8,940.6 10,019.0 10,406.1 11,159.1 11,597.2 11,975.9 12,211.4 11,877.7 13,463.3 13,904.1 12,685.9 - Nine years later 8,990.8 9,988.6 - Ten years later 8,950.9
The purpose of insurance is to meet the desire of the customer (insured party) to safeguard against an unexpected, arbitrary loss deriving from an unforeseen event. In respect of the products offered by Gjensidige Pensjonsforsikring AS, these events are primarily incapacity for work and death with ensuing loss of income for the insured or their surviving dependants, alternatively that the insured should live a long life with the consequent risk that their pension savings will not last their entire lives.
For the portfolio of paid-up policies there is also interest rate risk, related to the average guaranteed minimum annual rate of return. The average guaranteed minimum annual rate of return in the portfolio is 3.6 per cent. The company also utilises a discount rate for the premium provision for reported disability claims. The discount rate is the maximum guaranteed annual rate of return at the time when the person is confirmed to be disabled. Interest rate risk is discussed in more detail in the paragraph Management of financial risk.
In the portfolios concerned recognized theories and methods for calculating probability are used to work out the premium necessary to meet future liabilities. Furthermore, the insurance industry’s own methods for calculating provisions will also be employed for large portfolios to ensure good estimates of future liabilities. During the start-up period of smaller portfolios it will be sufficient, and necessary due to the lack of data, to employ simplified methods for calculating provisions.
Gross Estimated claims cost At the end of the accident year 8,732.8 9,728.2 9,742.6 10,840.7 10,882.3 11,592.6 11,585.1 11,081.2 12,964.4 13,761.8 12,023.3 - Nine years later 8,687.4 9,676.0 - Ten years later 8,653.7
Net of reinsurance Estimated claims cost At the end of the accident year 8,197.1 9,481.0 9,625.6 10,482.4 10,779.3 11,351.8 11,439.1 11,068.1 12,507.1 12,721.6 11,824.1 - Nine years later 8,145.0 9,430.3 - Ten years later 8,111.9
The tables below shows the number of members and contracts divided between compulsory occupational pensions and other defined contribution pensions.
Table 7b – Number of members and contracts 2011 Number of members Number of contracts
Since most contracts are based on the regulations for defined contribution schemes under which on-account payments over a ten year period after retirement age has been reached are so far the most common arrangement, the company has a very small exposure to longevity risk in respect of its ordinary occupational pensions. Most of the paid-up pensions that are transferred to the company pay a lifelong retirement pension, and are thus subject to longevity risk. The risk tariff for this coverage has up to now been computed using the industry-wide calculation basis (K2005), including safety margins as directed by the Financial Supervisory Authority of Norway. The Financial Supervisory Authority of Norway has notified a revision of the calculation basis, based on a joint work by the trade organisation Finance Norway (FNO) and the Financial Supervisory Authority. At the introduction of the new tariff there will be granted a transition period to adapt the provisions to the new calculation basis.
For paid-up policies there is in addition a guaranteed minimum annual rate of return amounting to 3.6 per cent at the end of 2012. The guaranteed minimum annual rate of return has been at an unchanged level during the last years.
Both insurance payouts, premium provisions and claims provisions have increased in recent years, and will continue to do so in the years ahead. This can be ascribed to continued strong growth in the insured population and a disproportionately large percentage increase in the number of risk years, since relatively few years have passed since the start-up of the company. The number of retirement pensioners is expected to remain low, with small benefit payments. Benefit payments will come either from the defined pension’s savings account or from the premium reserve from paid-up policies and individual, funded pensions transferred from other companies.
Gjensidige Pensjonsforsikring AS has been in operation for seven years, which is a relatively short period compared with other pension insurance providers. Although the portfolio is clearly growing the number of insurance events remains small. The number of disability claims has risen through 2012, which was expected. Experience so far shows a higher level of disability risk than originally anticipated at the start-up of the company and at the time when the risk products were introduced in the market. Premiums have therefore been increased during the last two years. The rise in premiums is largest for risk associated with the paying in of contributions (contribution exemption), with the biggest increase for the youngest insured parties. To this must also be added the increase due to the fact that highest calculation rate has now been reduced from 2.75 to 2.5 per cent. In addition, the claims provisions have been increased for most of the risk years based on data from the new calculation model for claims provisions.
The vast majority of the mortality risk coverage relates to members of occupational pension schemes, which include a surviving spouse, domestic partner or child pension entitlement. The risk period is limited to the member’s term of employment, expiring at the latest when the individual reaches the age of 67. No information relating to the member’s family situation is obtained when the policy is taken out. The premium is therefore calculated using assumptions with respect to mortality, civil status, number of children, as well as their stated age and gender. For Gjensidige Pensjonsforsikring AS these calculations are based on the industry-wide standard K2005, which has been developed jointly with the trade organisation Finance Norway.
Since these pension schemes are company-related, it is assumed that the time between an insurance event occurring, in this case death, until the company is notified will be relatively short.
The issue of longevity, which will affect only paid-up policyholders out of the company’s future pensioners, primarily retirement pensioners, is inversely proportional to the mortality rate of those insured in relation to the aforementioned surviving dependants’ benefits. In this case the company’s risk is that the pensioners that have agreed lifelong pensions live longer than anticipated. In this case, too, the K2005 basis for mortality rate is employed, but now with survival probability and safety margins “the other way”. Furthermore, the Financial Supervisory Authority of Norway has imposed additional safety margins with respect to this risk. The adequacy of these margins is assessed continually through industry-wide mortality analyses.
Empirical figures for the Norwegian population published by Statistics Norway, and the industry’s own empirical figures for the insured population show that average life expectancy continues to rise. This trend means that the safety margins originally included in the basis for calculation have been eliminated. Through the trade organisation Finance Norway the insurance industry has prepared a new calculation basis, based on Statistics Norway’s three alternative scenarios for future adjustments due to longevity. The calculation basis is going to be used for Solvency II calculations of “best estimate” and for the company’s new premium tariff. Based on the report the Financial Supervisory Authority of Norway has given guidelines for minimum premium tariff. The premium tariff is based on a method with “dynamic mortality”, with conditions of continued reduction in mortality rates during the insurance period for the policy, and this is assumed to be a solid basis for future calculations of premium provisions. In 2012 Gjensidige Pensjonsforsikring AS recognized a 4.76 per cent return on its paid-up policy portfolio, which provided a net financial income of NOK 33 million. The company has sought and obtained the Financial Supervisory Authority of Norway’s permission to set aside this income for the coming increase in the paid-up policy claims provision that a new basis for calculation will require. This transaction precludes use of the opportunity available in the regulations for modified profit-sharing to keep back up to 20 per cent of net financial income for the owner, and results in a reduction of up to NOK 6 million in the owner’s profit. The calculated risk profit of the year has been added to the provisions from previous years; the sum is NOK 77 million, to meet the challenge of longevity risk in the portfolio of paid-up policies.
Disability risk relates to disability pensions and/or exemptions from paying in the agreed annual contribution to a pension scheme. Benefits cease at the latest when the individual reaches normal retirement age, which is normally 67 years. Any disability claims will be filed only after an uninterrupted period of sick leave lasting 12 months. Risk exposure will therefore depend on the agreed pension sum and the total time remaining until retirement age. Although in
In 2012, as already mentioned above, there has been done new model calculations of expected risk results per insurance year. Each year’s risk is being assessed with respect to the reported insurance events and anticipated claims patterns. Since most of the disability risk in question is linked to company-related pension schemes, it is assumed that the time between an insurance event occurring, in this case a disability that has lasted longer than 12 months, until the company is notified will be relatively short.
Figure 6 shows the overall cash flow for the company’s insurance liabilities. In addition, it shows the increase in liabilities ascribable to the aforementioned stress factors, i.e. ten per cent reduced mortality (increased longevity) and disability risk (25 per cent in the first year and 15 per cent in the remaining years).
Reinsurance Gjensidige purchases reinsurance to protect the Group’s equity capital and reinsurance is thus a capital management tool. The Group’s established models and methodologies for evaluation of the internal risk based capital allocation are also used to analyze and purchase reinsurance. The maximum retention is set by the Board, and the Reinsurance department is responsible for purchasing and follow-up of reinsurance activities.
Gjensidige Insurance Group 94 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 95
Credit risk is defined as the loss arising from an issuer defaulting on its obligations or because of increased risk premiums for bonds with credit risk. Credit risk is managed both via credit lines for named counterparties, from lines based on official credit ratings and from diversification requirements on mandates for corporate bonds. Credit spread risk is limited to NOK 1,250 million in 2012, given a spread increase of 100 basis points. Credit risk in relation to reinsurance is handled through minimum rating requirements for Gjensidige’s reinsurance companies and close follow-up of receivables.
There has not been any material changes in Gjensidige in the handling of financial risks during 2012. The investment strategy and other risk management policies are approved by the Board in each company, but are closely coordinated with the parent company’s overarching policies. The general rule is that the asset allocation in the subsidiaries in general insurance will only be used to ensure the technical reserves against interest and foreign-exchange risk with excess funds invested in interest-bearing securities with low risk. Exposures to market risk are recognized in the balance sheet of Gjensidige Forsikring ASA. This is done in order to improve the efficiency of the investment management and capitalization in the Group.
2 The item consist of total investment grade, high yield and current bonds. Investment grade and high yield are investments in internationally diversified funds externally managed.
Denmark, and lendings, paid-in capital in Gjensidige Pensjonskasse and hedge funds.
This stress test based on figures at year-end is shown below (group figures). The capital buffer here is relative to the capital adequacy requirement for the Gjensidige Group, which is calculated according to Norwegian GAAP. Interest rate risk and credit spread risk in the stress test are calculated exclusive of bonds at amortised cost. For purposes of capital adequacy, Gjensidige’s stakes in Storebrand and SpareBank1 SR-Bank are consolidated so that any decline in the share price of these enterprises will not affect the capital buffer as long as there is no impairment on the assets. This impairment risk is reflected in the stress test. Changes to Storebrand and Sparebank1 SR-Bank and claim provisions are modeled through Gjensidige’s internal model. Catastrophe risk includes losses on reassurance receivables, exposure to natural catastrophes and possible credit risk
Total decrease in value of stress test (3,666.3) Buffer capital 8,333.8 Capital/surplus in stress scenario 4,667.3
In 2012, Gjensidige’s equity portfolio was increased from the previous year. The largest exposures are to Storebrand and SpareBank1 SR-Bank. The concentration risk is shown in the table below. The majority of the geographic exposure is to Norwegian shares.
Storebrand ASA 3,454.2 Sparebank1 SR-Bank 992.5 Spring Energy Norway AS 48.4 Via Travel Group 47.2 Spotify 42.3 Total five largest 4,584.6 Total equities 6,548.2
NOK million 31.12.2012 31.12.2011 10 per cent drop in equity prices (140.5) (77.7)
HitecVision Private Equity V LP 137.0 HitecVision Private Equity IV LP 132.1 Northzone V KS 124.8 Altor Fund II LP 76.9 Norvestor V LP 71.5 Total five largest 542.3 Total private equity 1,432.0
In addition to the invested amounts, Gjensidige had committed capital, not invested, amounting to NOK 1,120.3 million as at 31 December 2012.
Furthermore, the interest-rate sensitivity of the fixed income portfolio is shown in the table below. This table does not include the amortized cost portfolio, and the effect of the swap agreements in Gjensidiges Arbejdsskadeforsikring have not been included either because they have a reciprocal effect on the liabilities. The effect on profits and equity is the same, and tax effects have been disregarded.
NOK million 31.12.2012 31.12.2011 100 bps parallell shift up (254.9) (241.6)
The following graph shows the expected payout pattern for the Group’s premium and claims provisions at year-end 2012 and 2011 respectively. Approximately one third of the provisions are expected to be paid out within one year.
The match portfolio will match these cash flows, with a maximum duration mismatch of one year and a maximum net interest rate sensitivity of NOK 345 million. The table below shows the estimated duration of discounted liabilities versus the match portfolio as at 30 November.
Real estate constitutes a significant part of the portfolio of Gjensidige Forsikring. The motivation for investing in real estate is primarily that it enhances the risk-adjusted return of the asset portfolio, through an expected rate of return that lies between bonds and equities, and that there is a modest correlation to both of them.
The Group owns most of its properties directly, although a small part of the portfolio is invested in property funds outside of Norway. In addition to the amounts invested through funds, an additional NOK 38.0 million is committed, but not called upon. The management of the directly owned real estate portfolio is carried out in the wholly owned subsidiary Oslo Areal. The portfolio consists both of property for own use and investment properties. The real estate portfolio has its largest concentration in offices in the Oslo area, but also has offices in other major cities in Norway as well as one property in Denmark. Exposure to real estate has been reduced as a consequence of portfolio optimization and sales of properties in Oslo Areal.
Hedge fund is a common term for funds that invest in most types of asset classes with few limitations on the use of derivatives, shorting or leverage in order to earn a return that is partly independent of (has a low correlation with) traditional market indices. Gjensidige utilizes hedge funds to gain exposure to active risk in the individual asset classes and to allocation risk between the individual asset classes and/or risk premiums. Both fund-of-funds and individual funds are used. The fund-of-fund manager will perform the selection and follow -up of the underlying hedge funds, thus reducing operational risk.
Sector EuroPower Fund Class A EUR 88.5 Sector Healthcare - A USD 83.2 Winton Futures Fund - Lead Series 14.1 Sector Speculare IV Fund Class A USD (alle x Ferd) 13.6 Sector Maritime Investment Class A 13.6 Total five largest 212.9 Total hedge funds 234.5
Winton Futures Fund- Lead Series 191.4 The Winton Evolution Fund 181.2 Sector EuroPower Fund Class A EUR 78.4 Sector Speculare IV Fund Class A USD (alle x Ferd) 19.8 Sector Maritime Investment Class A 15.5 Total five largest 470.8 Total hedge funds 525.2
The parent company hedges its investments, but not future income, in subsidiaries against foreign-exchange risk. For Gjensidige Baltic, the hedging is performed in EUR while a similar amount of Gjensidige Baltic’s interest-bearing papers are invested in EUR. The results of the hedging are recognized in the income statement while the change of value in the hedged object is recognized in other comprehensive income. In the Danish branch and the subsidiaries Nykredit Forsikring and Gjensidiges Arbejdsskadeforsikring, hedge accounting is employed where only the inefficient part of the hedging is recognized in the income statement. This gives a more consistent accounting of hedging and the hedged object. The hedging is carried out with currency swaps, where the amount is adjusted quarterly.
Gjensidige is exposed to credit risk, i.e. the risk that a counterparty is not able or willing to settle its liability at due date or the risk that the credit spreads will increase (credit risk premium). The Group is
For investments, risk limits are set for credit risk in several ways. As a point of departure there is a credit limit on designated counterparties. For issuers with an official credit rating from a recognized rating agency, this is generally utilized as a criterion. The list of credit limits is approved by the CFO and employed for all separate mandates and for derivative counterparties. In addition, the boardapproved asset allocation sets limits on global bonds, both bonds with high financial strength ratings (investment grade) and other bonds (high yield). Additionally, there is a maximum limit for credit duration measured as a one per cent change in credit spreads that include all fixed income assets in the balance sheet. This limit was NOK 1,250 million in 2012.The Group’s total fixed-income portfolio of NOK 42,433.3 million as at 31 December 2012 (including the amortized cost portfolio, other bonds, certificates and deposits) consisted of NOK 5,686.4 million issued by government sector entities and NOK 36,746,9 million by non-public entities. The majority of the latter category was financial institutions. The distribution is shown in the table below.
Table 22a – Fixed-income portfolio per rating category NOK million 31.12.2012 31.12.2011
AAA 10,775.7 9,035.4 AA 4,800.2 8,040.8 A 12,441.8 9,401.6 BBB 1,471.8 1,264.5 BB 575.2 684.0 B 578.1 636.4 CCC or lower 189.1 215.2 Not rated 11,601.4 11,514.1 Total 42,433.3 40,791.9
The overview of the largest issuers also includes the fixed-income portfolio for GPF and Gjensidige Bank because the individual counter party risk is monitored at group level. Total fixed-income portfolio is only for general insurance.
Nykredit Realkredit A/S 1,980.3 DnB NOR ASA 1,591.5 Kongeriket Norge 1,547.0 Svenska Handelsbanken AB 1,429.7 Skandinaviska Enskilda Banken 1,379.5 Danske Bank A/S 1,372.5 Citigroup 742.7 Barclays Bank London 709.6 J.P. Morgan Chase & Co. 644.3 Sparebanken Nord-Norge 630.1 Total ten largest 12,027.4 Total fixed income portfolio 40,791.9
The table below presents the age distributions of the receivables arising out of direct insurance operations and of the reinsurance receivables.
Table 24 – Age distribution receivables insurance NOK million Direct insurance Reinsurance
Installments not due 3,449.1 43.2 <35 days 374.6 35-90 days 138.7 > 90 days 101.9 5.1 Total 4,064.4 48.3
Table 25 – Reinsurance receivables and reinsurers’ share of claims provisions
For most general insurers, the liquidity risk is quite limited. Premium income is paid up front, and claims are paid out at a later stage. Future payments are not based on contractual payment dates, but rather when claims occur and how long the claims handling lasts. See the expected payout pattern presented in previous figure. Liquidity risk in Gjensidige Bank is described separately.
For a going concern, this will result in a positive net cash flow under normal circumstances. Large net outflows will normally arise only from acquisitions or recapitalization of subsidiaries. In case of a large claim or catastrophic event, the payments will take place some time after the event, and the reinsurers will cover most of the amount within a short time after the payments have been made to the claimants. In an extreme scenario, reinsurers could fail to honor their obligations after such a catastrophic event.
Based on this kind of scenario, the Board has set a liquidity requirement for 2012 of at least NOK 4,000 million in the most liquid funds, defined as deposits in banks, covered bonds (OMF), bonds and certificates issued by OECD countries or guaranteed by these countries and money market instruments with a rating of A or better and with a due date within six months. The current allocation meets these requirements. The table below shows the classification used and the amounts as at 31 December 2012 and 2011 for Gjensidige Forsikring ASA.
Bank deposits 1,075.8 Money market instruments 3,908.8 Bonds and certificates coupons with maturity less than 6 months 338.4
OECD-bonds with less than 5 years to maurity 1,279.8 Covered bonds 535.0 Total 8,279.0 4,000.0 4,279.0
Management of financial risk – Gjensidige Pensjonsforsikring Gjensidige Pensjonsforsikring (GPF) has a separate guidelines for asset management and investment strategy approved by the Board, which specifies targets and limits for and the organization of the investment management activities. A separate investment committee with representatives from GPF, Gjensidige Investeringsrådgivning (GIR) and the Group’s investment and capital management departments gives advice to the CEO on matters pertaining to asset and risk management. The portfolio management is outsourced to GIR. Asset manager selection and asset allocation is based on advice from the Group’s investment centre.
GPF has separate strategies for the funds in each portfolio, the unitlinked, paid-up policy, other group policy and company portfolios. GPF does not bear investment risk for the unit-linked portfolio. Both positive and negative returns are passed on in full to the customers. The other portfolios expose the Company’s equity to risk. For the company and other group policy portfolios, little risk is taken, the funds are mainly invested in bank deposits and fixed-income instruments with high creditworthiness. The company portfolio is financed by the Company’s equity and in addition to bank deposits also includes a small trading portfolio to support incoming and/or outgoing capital in the customer portfolios. The other group portfolio is funded by premium reserves, claims provisions for unreported and/or unsettled claims and the risk equalization fund. The paid-up policies give a minimum guaranteed interest to the customers at the same time as the customers receive a percentage of any excess return above this amount. Therefore, for the paid-up policy portfolio, the objectives are to be able to offer the customers a competitive return over a period of time at the same time as the risk relative to strain on equity is kept at a targeted low level.
Table 27 – Asset allocation excluding the unit-linked portfolio, Gjensidige Pensjonsforsikring
Bank deposits 632.1 355.1 Bonds held to maturity 397.4 513.5 Loan and receivables 2,448.8 2,007.7 Current bonds 7.8 13.3 Equities 9.4 12.3 Other 1.4 Total 3,593.2 2,961.3
The asset allocation of GPF, excluding the unit-linked portfolio, amounted to NOK 3,593,2 million as of 31 December 2012. This is mainly invested in fixed income instruments and bank deposits, but also contains a small share of equities from the trading portfolio of GPF.
The accounting interest-rate risk in GPF’s assets is extremely limited because bonds are classified as bonds held to maturity and loans and receivables, and the remaining fixed-income instruments are of short duration. GPF also has a small exposure to equity risk through a minor investment in equities in the trading portfolio.
Table 29 – Fixed-income portfolio per rating, Gjensidige Pensjonsforsikring NOK million 2012 2011
Management of credit and financial risk – Gjensidige Bank The banking business is exposed to credit risk in its loan portfolio and in addition liquidity and interest-rate risk from any mismatches of maturity and time of repricing between assets and liabilities. The bank is also exposed to credit risk in connection with placement in securities. The bank does not invest in equity instruments, nor does it have any foreign currency positions. The Board of Gjensidige Bank approves the Company’s credit policy and lending regulations. A credit strategy is approved annually, as well as limits for market and liquidity risk.
Risk areas are continuously monitored. Statistical models as well as the standard formulae from the capital adequacy directive are used to calculate capital needs. The capital need is calculated over the strategy horizon in the current strategy plan, included in the ICAAP document, and capital adequacy is reported to the Board quarterly.
Credit risk is the risk of loss that the bank faces arising from a borrower ’s failure to repay a loan or credit, or to meet their contractual obligation to the bank. The bank’s credit risk originates from its loans and credits to consumers as a result of its lending operations in Norway.
Credit risk in the bank's liquidity portfolio is assessed as low.
The table below shows the portfolio and provisions as of 31 December 2012 and 31 December 2011 segmented by the risk classes.
NOK million Gross lending Guarantees Total off balance commitments Individual provisions
The Board has specified limits on the bank’s exposure to interest rate risk. The limit for the interest rate risk under one year is a negative exposure of up to 500 milli years (MY). A limit is also provided for interest rate risks for all time periods plus/minus 300 MY. The bank’s maximum exposure to interest rate risk is 500 MY. Interest rate risk under three months is reported but does not enter into the risk framework. This means that when the limit is fully utilized, the maximum loss for the bank at one percentage point change in the yield curve will be NOK 5 million. Utilization of this limit is reported monthly to the Board.
As at 31 December 2012 the bank has a negative interest rate exposure in the three months to one year interval of 26 MY. The net accumulated interest rate exposure over three months is a positive 423 MY as at 31 December 2012.
Gjensidige Insurance Group 102 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 103
As at 31 December 2012 the portfolio is geographically diverse, with the greatest lending in the most populous areas of the country. The largest loan is about NOK 9.8 million. The exposure related to the ten largest loans (limit) is about NOK 87.4 million. In the case of the banks liquidity reserves are mainly placed in securities issued by the Norwegian government and Norwegian covered bonds (OMF).
Liquidity risk is the risk of the bank not being able to meet its debt obligations when due and/or not being able to finance a growth in its assets without incurring a substantial increase in costs in the form of a loss of value on assets that must be realised or in the form of especially expensive financing. The Bank has established guidelines and risk limits for liquidity risk, as well as for the liquidity reserve, stable long term financing and contingency plans in case of an extraordinary liquidity need. Through stress testing relating probability and consequence for such an event, the viability of the risk limits are assessed and found in accordance with risk tolerances.
It is distinguished between two types of liquidity risk • Incident with a risk where the bank is not able to meet the limits for liquidity risk without a significant deterioration of the Bank's earnings as a result of, among other downgraded credit rating.
• Incident with a risk where the bank is not able to meet its payment obligations as a result of lack of access to external financing.
As at 31 December 2012 the liquidity requirement was NOK 1,889.7 million and the actual liquidity reserve was NOK 2,213.9 million composed of NOK 86.6 million in deposits and NOK 2,127.3 million in bonds, securities and money market funds. NOK 944.0 million of this were investments in covered bonds issued by Gjensidige Bank Boligkreditt AS (eliminated in the consolidated accounts) that were have not been utilised in the swap arrangement with Norges Bank. The liquidity reserves are mainly realisable within a few days and the liquidity holdings are sufficient to meet payments due on debts for 20 months. Stress tests have also been completed demonstrating the bank’s requirements for a liquidity reserve based on future scenarios of recession and financial crisis.
Debt to credit institutions 3.0 221.2 224.2 Deposits from and liabilities to customers 10,422.1 756.1 420.5 11,598.8 Debt incurred through the issue of securities 9.3 431.6 692.7 3,600.9 872.2 5,606.8 Loan approvals and unused drawing rights 3,945.7 3,945.7 Derivatives - gross outflows 1 0.2 0.4 12.4 17.6 30.6 Total liabilities 14,377.3 1,191.2 1,346.8 3,618.5 872.2 21,406.1
Financial derivatives - net settlement (negative figures yield net payment) (4.4) (2.4) (6.8)
Gjensidige Insurance Group 104 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 105
The group has six reportable segments, as described below, which offers different products and services within different geographical areas. The Group CEO holds regular meetings with its reporting managers concerning performance management, which focuses on future measures to ensure performance and deliveries.
Description of the segments income and expenses Segment income is defined as earned premiums for general insurance, earned premiums, management income and other income for Pension and Savings and interest and credit commission income and other income for Retail Bank.
Segment income – group 2 - Claims, interest expenses, loss etc.
Segment result/profit/(loss) before tax expense 1 Eliminations etc. consist of internal eliminations and other income and expenses not directly attributable to one single segment and large losses of NOK 118.8 million (89.1). In addition income and expenses from the subsidiary Hjelp24 AS which was sold in 2011.
2 There is no significant income between the segments at this level in 2012 and 2011.
As at 31 December 2011 2,650.8 813.0 135.7 830.6 292.6 4,722.7 Uncompleted projects 93.2 93.2 As at 31 December 2011, including uncompleted projects 2,650.8 813.0 135.7 923.8 292.6 4,815.9
As at 31 December 2012 2,487.2 801.5 129.8 901.7 282.8 4,603.0 Uncompleted projects 131.3 131.3 As at 31 December 2012, including uncompleted projects 2,487.2 801.5 129.8 1,033.0 282.8 4,734.2
The growth rate is considered to be 3,0 per cent. This is based on the following assumptions Long-term real BNP-growth 2-3 % Long-term expected inflation 2-3 % Total nominal expected growth 4-6 %
Each of the units is considered to be separate cash-generating units. In Oslo Areal each underlying property is defined as a cash-generating unit, and goodwill related to Oslo Areal occurs as a consequence of provision for deferred tax on temporary differences (tax amortization benefit). Goodwill in Gjensidige Bank is established through the purchase of Citibank’s Norwegian portfolio of consumer loans.
Recoverable amount for the cash flow generating unit is determined based on an assessment of the utility value. The utility value is based on a discounting of future cash flows, with a relevant discount rate that takes into account maturity and risk
The projection of cash flows is based on budgets for the next four years reviewed by the management and approved by the Board of Directors. In the period after 2016 an annual growth of three per cent has been projected until 2021. The terminal value is calculated in 2021. The growth is grounded in the fact that the companies are small and with a solid parent company, which gives them good chances of increasing market shares. The cash flows are estimated to a normal level before a terminal value is calculated. Gjensidige normally has a ten-year horizon
Gjensidige Baltic No need for impairment No need for impairment No need for impairment No need for impairment
Storebrand ASA Oslo 24.3 % 4,604.4 3,750.6 4,604.4 3,454.2 SpareBank1 SR-Bank Stavanger 10.4 % 1,022.2 1,250.6 866.4 992.5 Bilskadeinstituttet AS Oslo 29.5 % 0.4 1.5 0.4 1.4 Vervet AS including subordinated loan 1 Tromsø 25.0 % 32.3 2.2 32.3 2.2 FDC A/S Ballerup, Denmark 33.3 % 5.2 31.2 5.2 28.0 Total shares in associates 5,664.5 5,036.1 5,508.7 4,478.2
Additional information Profit/ Profit/(loss) Share of NOK million Assets Equity Liabilities Revenues (loss) recognized 2 stock value
For the whole company 2012 Storebrand ASA 420,182.0 19,936.0 400,246.0 52,479.0 1,012.0 295.4 2,935.7 SpareBank1 SR-Bank 141,543.0 12,637.0 128,906.0 3,786.0 1,361.0 141.1 985.2 Bilskadeinstituttet AS 5.2 5.0 0.2 1.5 0.2 0.1 N/A
1 Subordinated loan of NOK 24.0 million is included in cost.
Carrying amount As at 1 January 2011 318.5 345.1 663.6 As at 31 December 2011 270.7 238.4 509.1
Cost As at 1 January 2012 332.1 756.6 1,088.7 Transfered to investment property (208.3) (208.3)
As at 31 December 2012 123.0 519.3 642.4 Uncompleted projects 0.1 35.2 35.4 As at 31 December 2012, including uncompleted projects 123.1 554.6 677.7
Exchange differences 0.1 2.6 2.7 At at 31 December 2012 (32.7) (391.6) (424.3)
Carrying amount As at 1 January 2012 270.7 238.4 509.1 As at 31 December 2012 90.5 163.0 253.4
Depreciation method Straight-line Straight-line Useful life (years) 10-50 3-5 1 Plant and equipment consist mainly of machinery, vehicles, fixtures and furniture. 2 In 2011, an impairment loss of NOK 28.8 million on an owner-occupied property was recognized. The new value of the property was determined by using the Group's internal valuation model, cf.
³ In 2012, an impairment loss of a total of NOK 8.0 million on three owner-occupied properties was recognized. The new value of the properties was determined by using the Group's internal valuation model, cf. note 8. The valuations was not based on observeable market prices or recent transactions. The carrying amount of the properties before the impairment was NOK 199.2 million.
Market value of land and owner-occupied property 99.6 282.6 Carrying amount of land and owner-occupied property 90.5 270.7 Excess value beyond carrying amount 9.2 11.9
Gjensidige Insurance Group 108 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 109 8. Investment properties
There are no loans with collateral in investment properties in 2011 or 2012.
NOK million Market rent reduced by 10 % Market rent as at 31.12.2012 Market rent increased by 10 %
Yield increases by 0.25 percentage point 4,035.0 4,437.4 4,845.9 Yield 6.50 per cent 4,204.8 4,624.4 5,050.4 Yield decreases by 0.25 percentage point 4,394.5 4,833.6 5,279.6
The table below shows how the sensitivity of the yield and the market rent affects the value of the property portfolio, as it stands as at 31 December 2012.
The Gjensidige Insurance Group carries investment properties at fair value. Investment properties consist of commercial properties that are rented to tenants outside the Group, or are acquired in accordance with the company's capital management strategy. Properties used by Group companies are classified as owner-occupied property, see note 7. In properties that are both rented to tenants outside the Group and that are used by the Group's own business, the parts held for rent that can be sectioned are classified as investment property.
The investment properties are mainly located in Oslo and the surrounding area, as well as Drammen, Fredrikstad and Stavanger. In addition, the Group has one investment property in Denmark. The average rental period is 4.8 years and the portfolio of investment properties includes principally offices.
The Group's valuation model values each property separately. Valuation model relies on a semi-annually in arrears cash flow method. The most important inputs are yield, market rent, contractual rent, potentially vacant premises, the properties' long-term normalised operating costs and any investment requirements. The method maps all incomes and all expenses in a given investment horizon so that net the cash flow is given yearly for each property. Thereafter, the present value is calculated using this cash flow based on real yield adjusted for expected inflation. Present value of the cash flow and present value of the remaining value compose the cash flow value of the property, and this is considered as the market value.
Gjensidige Insurance Group 110 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 111 9. Financial assets and liabilities
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 287.7 287.7 511.0 511.0 Financial derivatives subject to hedge accounting 38.5 38.5 36.4 36.4
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 10 14,928.8 15,403.6 9,235.9 9,106.2 Loans 10 17,467.7 17,478.0 15,220.6 15,220.6 Receivables related to direct operations and reinsurance 10 4,112.7 4,111.7 3,791.1 3,791.1 Other receivables 10 314.9 311.8 227.6 227.6 Prepaid expenses and earned, not received income 10 81.2 67.1 108.9 108.9 Cash and cash equivalents 11, 25 2,331.5 2,331.5 3,513.3 3,513.3
Deposits from and liabilities to customers, bank 15 11,580.5 11,580.5 9,776.2 9,776.2
The following financial assets/liabilities are classified as level one in the valuation hierarchy • Listed shares • Norwegian government/government backed bonds and other fixed income securities • Exchange traded funds (ETF)
The following financial assets/liabilities are classified as level two in the valuation hierarchy • Currency futures, equity options, forward rate agreements and currency swaps, in which fair value is derived from the value of underlying instruments. These derivatives are valued using common valuation techniques for derivatives (option pricing models etc.).
When neither quoted prices in active markets nor observable market data is available, the fair value of financial assets/liabilities is estimated based on valuation techniques which are based on non-observable market data.
A financial asset/liability is considered valued based on non-observable market data if fair value is estimated without being based on quoted prices in active markets or observable market data. Financial assets/liabilities valued based on non-observable market data are classified as level three in the valuation hierarchy.
The following financial assets are classified as level three in the valuation hierarchy • Unlisted private equity-investments. The private equity investments that are not organized as funds are valued using cash flow analysis, price multiples and recent market transactions. The private equity investments that are organized as funds are valued based on NAV values (Net Asset Value) as reported by the fund administrators in accordance with IPEV guidelines (International Private Equity and Venture capital Valuation) set out by the Equity Venture Capital Association. The NAV values are estimated by the fund administrators by using the valuation techniques best suited to estimate fair value, given the actual circumstances of each underlying investment. Because of late reporting from the funds, the NAV values from the previous quarterly reporting are used in estimating fair value. These values are then adjusted for known events since the last reporting date. The typical known event is the increase/decrease in value on listed shares owned by a fund.
• Gjensidige’s paid-in capital in Gjensidige Pensjonskasse. The paidin capital is valued at nominal value.
Valuation hierarchy 2012 The table shows a valuation hierarchy where financial assets/liabilities measured at fair value through profit or loss are divided into three levels based on the method of valuation
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 209.7 2,252.2 1,859.3 4,321.2 Bonds and other fixed income securities 9,951.3 9,906.1 26.8 19,884.2
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 49.4 49.4
Shares and similar interests 1 1,952.8 169.0 335.5 (173.3) (150.4) (274.2) 1,859.3 12.1 Bonds and other fixed income securities 24.0 2.3 0.6 26.8 2.3 Total 1,976.7 171.3 336.1 (173.3) (150.4) (274.2) 1,886.1 14.4 1 In 2012, we received pricing information for an equity fund more frequently, which caused its transfer from level 3 to level 2.
Reconciliation of financial assets valued based on non-observable market data (level 3) 2011
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 419.1 91.9 511.0 Financial derivatives subject to hedge accounting 36.4 36.4
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 69.4 69.4
Financial liabilities at fair value through profit or loss, initial recognition Interest-bearing liabilities at fair value through profit or loss 308.2 308.2
Sensitivity of financial assets valued based on non-observable market data (Level 3) 2011
Shares and similar interests 1 Decrease in value 10 % 19.,3 Bonds and other fixed income securities Decrease in value 10 % 2.4 Total 197.7
Gjensidige Insurance Group 112 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 113 10. Loans and receivables
Assets in life insurance with investment options 7,189.7 5,542.1 Total assets in life insurance with investment options 7,189.7 5,542.1
Market value as at 31.12.12 Inefficiency recognized in profit or loss
Gjensidige Forsikring, Danish branch Currency-related contracts - hedging instruments 961.5 1.1 (0.7)
Nykredit Forsikring A/S Currency-related contracts - hedging instruments 1,138.8 (1.1) 0.1 Hedging object 1,140.5
Mortgage loans consist mainly of loans from the Gjensidige Bank Group, which primarily target the private segment.
Of other loans NOK 197.7 million are interest-free loans to agricultural customers. The loans are in their entirety intended for installment of fire detection systems with these customers. There is no mortgage attached to the loans, and the terms varies from two years to over 20 years. Gjensidige Forsikring has not offered this type of loan to its customers since 2008. The default rate is 1.31 per cent at year end (1.69). Discounting has been conducted in order to take into account the fact that the loans are non-interest-bearing. The discount rate used is 4.66 per cent. Included in other loans are also NOK 180.5 million in loans given with regard to sale of subsidiaries.
Receivables in relation with property 2.2 6.0 Receivables in relation with asset management 116.4 74.8 Other receivables and assets 196.3 146.8 Total other receivables 314.9 227.6
Earned, not received interest income 65.8 44.8 Other prepaid expenses and earned, not received income 15.5 64.1 Total prepaid expenses and earned, not received income 81.2 108.9
Note 3 table 24 shows the age distribution of these receivables.
A considerable amount of receivables in relation with asset management as at 31 December 2012 is short-term receivables in relation with sale of securities.
Deposits with financial institutions 484.8 408.6 Cash and bank deposits 1,846.7 3,104.7 Total cash and cash equivalents 2,331.5 3,513.3
Weighted average rate for interest earned on cash, bank deposits and deposits with financial institutions is approximately 2.6 per cent (2.4).
Gjensidige Insurance Group 114 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 115 12. Shares and similar interests
Equity funds Storebrand Global Indeks I 697.6 Capital Intl Emerging Mkt-I $ 274.2 DnB NOR Globalspar II 0.2 Total equity funds 972.0
Total shares and similar interests owned by the Gjensidige Insurance Group 4,321.2
Other insurance-related provisions 136.6 126.9 Total insurance-related liabilities, gross 39,840.5 39,619.9
Short-term insurance contracts, reinsurers' share Reinsurers' share of unearned premiums, gross 19.5 15.2 Claims reported and claims handling costs 576.7 841.4 Claims incurred, but not reported 77.2 166.1 Total reinsurers' share of claims provision, gross 653.9 1,007.5
Short-term insurance contracts, net of reinsurance Provision for unearned premiums 10,122.1 9,516.2
Claims paid, prior year claims (7,059.3) 914.0 (6,145.3) (7,005.8) 445.6 (6,560.2)
Increase in liabilities Arising from current year claims 13,331.1 (743.0) 12,588.0 14,928.4 (1,681.7) 13,246.7 - of this paid (6 ,128.9) 381.8 (5,747.1) (6,204.1) 688.3 (5,515.8) Arising from prior year claims (run-off) (129.4) (196.8) (326.2) (364.9) (1.4) (366.3) Other changes, including effects from discounting (182.8) (182.8) 288.9 288.9 Exchange differences (391.4) 15.9 (375.5) (20.2) 1.0 (19.2)
The claims provisions shall cover future claims payments. The claims provisions for Gjensidiges Arbejdsskadeforsikring A/S are converted to present value (discounted), whereas other provisions are undiscounted.
The reason why the claims provisions for Gjensidiges Arbejdsskadeforsikring A/S are discounted is that this portfolio consists exclusively of Danish workers’ compensation business with very long payment flows and substantial future interest income.
The plan also includes disability pension and spouse and child’s pension subject to specific rules.
Contribution to the defined contribution plan is recognized as an expense in the financial year in which the contribution is paid.
A dynamic mortality model which takes into consideration expected development in duration of life is used. The models assumptions are tested regularly, latest in the fall of 2012. This model yields a higher expected duration of life than K2005 which are used by many other parties.
The new AFP scheme is not an early-retirement scheme, but a lifelong benefit. The scheme is a defined benefit multi-enterprise scheme. In the Group’s view, it does not have sufficient information yet about the breakdown of pension expenses, pension liabilities and pension assets in the scheme to enable reliable measurement in a balanced cost-benefit assessment. The Group therefore treats the scheme for accounting purposes as a defined contribution scheme in which premiums are expensed as they are paid. No provision is made for the liabilities in the accounts. Premiums paid in 2012 are included in the cost of contributions to the defined contribution pension scheme and amount to NOK 15.0 million. The way Fellesordningen has organised the financing structure relating to the new AFP scheme, invoiced premiums are expected to increase in the years ahead. If, or when, sufficient data are made available for calculations to be made, it cannot be ruled out that the commitment that must be recognized will be substantial.
The transition to new AFP arrangement is accounted for as a negative past service cost of NOK 96.6 million and is recognized as income in 2010.
Amount recognized in the balance sheet Present value of unfunded plans 435.6 505.6 Present value of funded plans 2,036.0 2,535.4 Present value of the defined benefit obligation 2,471.5 3,041.0 Fair value of plan assets (2,334.0) (2,089.4) Net defined benefit obligation 137.5 951.6 Net pension liability in the balance sheet 137.5 951.6
Pension expense recognized in profit or loss Current service cost 56.2 62.8 Interest cost 82.0 96.8 Expected return on plan assets (93.6) (98.8) Past service cost (1.0) Employers' national insurance contributions 7.9 8.5 Total defined benefit pension cost 52.5 68.3
2011 Change in pension benefits accrued during the year (17.3 %) 22.6 % 18.8 % (15.0 %)
Deposits from and liabilities to customers without maturity date 11,065.7 9,391.6 Deposits from and liabilities to customers with maturity date 514.8 384.6 Deposits from and liabilities to customers, bank 11,580.5 9,776.2
Liabilities to credit institutions, bank 513.1 Liabilities to bond debt, bank 5,355.5 4,750.3 Total interest-bearing liabilities 5,355.5 5,263.4
Outstanding accounts Fire Mutuals 18.6 165.0 Accounts payable 133.1 125.3 Liabilities in relation with properties 64.2 54.0 Liabilities in relation with asset management 8.8 Liabilities to public authorities 361.2 364.0 Other liabilities 400.9 455.4 Total other liabilities 978.0 1 172.6
Liabilities related to direct insurance 353.4 253.7 Liabilities related to reinsurance 52.6 223.4 Total liabilities related to insurance 406.0 477.1
Liabilities to public authorities 20.2 22.5 Other accrued expenses and deferred income 263.2 239.8 Total accrued expenses and deferred income 283.3 262.2
Deferred tax liabilities and deferred tax assets are offset when there is a legally enforceable right to offset those assets/liabilities and when deferred tax liabilities/ deferred tax assets relate to the same fiscal authority. The amounts offset are as follows
Taxable temporary differences Properties 1,542.7 1,794.7 Shares, bonds and other securities 143.1 189.2 Profit and loss account 555.6 378.5 Security provisions etc. 3,095.7 3,048.5 Total taxable temporary differences 5,337.1 5,410.9
Deferred tax liabilities/(deferred tax assets) 1,263.4 996.2 Of this non-assessed deferred tax assets 4.1 7.4 Deferred tax liabilities 1,267.5 1,003.6
Reconciliation of tax expense Profit before tax 5,633.5 3,647.4 Estimated tax of profit before tax expense (28 %) (1,577.4) (1,021.3)
Total tax expense (1,353.5) (899.5) Effective rate of income tax 24.0 % 24.7 %
Hedge accounting (1.4) 6.8 Companies sold and purchased (34.6) (1.9) Exchange differences (5.1) 2.0 Other changes 3.3 (9.4)
Depreciation and value adjustments (note 5 and note 7), excl. depreciation on properties 317.5 417.7 Employee benefit expenses (note 18) 1,821.4 1,933.0 Fee for customer representatives 5.8 4.5 Software costs 380.5 365.0 Auditor’s fee (incl. VAT) 10.7 13.2 Consultants’ and lawyers’ fees 121.1 132.6 Commissions 546.6 636.2 Other expenses 148.6 370.2 Total operating expenses 3,352.3 3,872.5
The CEO’s salary and other benefits are stipulated by the Board of Directors on the basis of an overall assessment that takes into account Gjensidige’s remuneration scheme and market salary for corresponding positions.
Jørgen Inge Ringdal, Executive Vice President 2,306.4 245.5 204.6 654.7 360.5 4,248 4,540 9,951 2
Bjørn Asp, Executive Vice President 8 2,121.9 294.2 212.1 413.2 1 497.8 3.55 % 20.02.2025 5,166 5,204 4,827 3
Mats C. Gottschalk, Executive Vice President 2,399.2 5.6 156.0 182.0 15.2 192 192 2,769 3
With exception from one more employee, there is no severance pay arrange ments for executive personnel who leave their position in Gjensidige.
5 The fee includes fee for subsidiaries. 6 For staff representatives only remuneration for the current position is stated.
Trond Delbekk (1.1.11-30.9.11), Executive Vice President 2,136.7 543.6 157.2 300.2 3
Sigurd Austin (20.6.11-31.12.11) 1, Executive Vice President 915.8 131.2 21.1 297.6 1,727 3
Kaare Østgaard (20.6.11-31.12.11) 1, Executive Vice President 1,059.7 136.0 21.4 384.8 1,727 3
Per Andersen (1.1.11-31.5.11) 9.0 Per Engebreth Askilsrud (1.1.11-31.5.11) 9.0 Laila S. Dahlen (1.01.11-31.5.11) 9.0 Knud Peder Daugaard (1.1.11-31.5.11) 14.0 Ingun M. Leikvoll (1.1.11-31.5.11) 9.0 Sissel Johanne Monsvold (1.1.11-31.5.11) 9.0 Wenche Teigland (1.1.11-31.5.11) 21.8 Per Gunnar Skorge (1.1.11-31.5.11) Marianne Bø Engebretsen (1.1.11-31.5.11), staff representative 7 9.0
Control committee 5 Sven Iver Steen, Chairman 343,5 0,5 1.630 Hallvard Strømme 172,5 Lieslotte Aune Lee 176,3 Vigdis Myhre Næsseth, Deputy 111,5
In addition 27 representatives from the company/Fire Mutuals/organisations/employees (including eight deputies).
7 For staff representatives only remuneration for the current position is stated. 8 Everyone has pension plans, benefit or contribution based.
Owner-occupied properties Rental income from owner-occupied properties 13.8 21.1 Net gains/(losses) from sale of owner-occupied properties 2.1 (1.7) Administration expenses related to owner-occupied properties (9.9) (14.2) Impairment owner-occupied properties (3.4) (28.8) Total net income and gains/(losses) from owner-occupied properties 2.7 (23.5)
Total net income and gains/(losses) from financial assets at fair value through profit or loss, designated 1,540.1 1,186.7
Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 513.1 684.3 Unrealised gains/(losses) from bonds held to maturity (3.4) 5.1 Realised gains/(losses) from bonds held to maturity (23.0) Impairment bonds held to maturity (40.0) Net gains/(losses) from changes in exchange rates on bonds held to maturity (6.6) 0.1 Total net income and gains/(losses) from bonds held to maturity 503.1 626.4
Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 569.5 370.6 Net gains/(losses) from loans and receivables (2.0) (0.4) Net gains/(losses) from changes in exchange rates on loans and receivables (2.0) (61.4) Total net income and gains/(losses) from loans and receivables 565.6 308.8
Net income and gains/(losses) from financial liabilities at amortised cost Net gains/(losses) from financial liabilities at amortised cost 0.6 Total net income and gains/(losses) from financial liabilities at amortised cost 0.6
Guarantees and committed capital Gross guarantees 0.1 0.1 Committed capital, not paid 1,158.3 746.0 21. Related party transactions Overview of related parties Gjensidige Forsikring ASA is the Group's parent company. As at 31 December 2012 the following companies are regarded related parties.
Subsidiaries Byggeriet Forsikringsservice A/S Copenhagen, Denmark 100.0 % Gjensidiges Arbejdsskadeforsikring A/S Copenhagen, Denmark 100.0 % Gjensidige Baltic AAS Riga, Latvia 100.0 % Gjensidige Bank Holding AS Oslo, Norway 100.0 % Gjensidige Norge AS Oslo, Norway 100.0 % Gjensidige Pensjon og Sparing Holding AS Oslo, Norway 100.0 % Glitne Invest AS (liquidated in 2012) Oslo, Norway 100.0 % Lokal Forsikring AS Oslo, Norway 100.0 % Nykredit Forsikring A/S Copenhagen, Denmark 100.0 % Oslo Areal AS Oslo, Norway 100.0 % Samtrygd Eigedom AS Førde, Norway 100.0 % Strandtorget Eiendom AS Oslo, Norway 100.0 % Tennant Holding AB Stockholm, Sweden 100.0 %
Specifications Interest income and expenses from financial assets and liabilities not recognized at fair value through profit or loss Interest income from financial assets not recognized at fair value through profit or loss 1,134.0 1,044.3 Interest expenses from financial assets not recognized at fair value through profit or loss (223.6) (87.8)
Specification of other financially related income and expenses not recognized in net income from investments Commission arising from the investment of assets on behalf of individuals 28.3 31.3 1 Net other financial income/(expenses) include financial income and expenses not attributable to individual classes of financial assets or liabilities, and financial administration costs.
Income statement The table below shows transactions with related parties recognized in the income statement.
Income and losses from investments in subsiduaries and associates The table below shows a summary of contributions/dividends from/to subsidiaries as well as other gains and losses.
Group contributions Gjensidige Bank ASA (owned by Gjensidige Bank Holding AS) 74.1 Gjensidige Pensjon og Sparing Holding AS 0.4 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 22.4 111.5 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding AS) 3.4 Gjensidige Fondene AS (owned by Gjensidige Pensjon og Sparing Holding AS) 4.8 0.4 Glitne Invest AS (received group contribution in 2012 relates to change in received group contribution for 2011) 4.5 36.2 Oslo Areal AS (given group contribution in 2012 relates to change in received group contribution for 2011) 60.0 1.9 273.4 Strandtorget Eiendom AS 0.1 Tennant Assuranse AS (owned by Lokal Forsikring AS) 6.0
Intercompany non-interest bearing debts and receivables within the group Byggeriet Forsikringsservice A/S 22.2 Gjensidiges Arbejdsskadeforsikring A/S 18.5 1.0 Gjensidige Bank ASA (owned by Gjensidige Bank Holding AS) 1.1 2.5 Gjensidige Fondene AS (owned by Gjensidige Pensjon og Sparing Holding AS) 4.8 0.1 Gjensidige Pensjon og Sparing Holding AS 1.1 0.6 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 26.9 107.3 Gjensidige Investeringsrådgivning ASA (owned by Gjensidige Pensjon og Sparing Holding AS) 4.2 0.7 Gjensidigestiftelsen 0.9 0.4 Glitne Invest AS (liquidated in 2012) 36.2 Nykredit Forsikring A/S 38.8 63.4 19.3 Oslo Areal AS 107.8 273.3 Tennant Assuranse AS (owned by Lokal Forsikring AS) 2.7 4.1 2.8 Tennant Assurance AB (owned by Tennant Försäkringsaktiebolag AB) 6.0 Samtrygd Eigedom AS 1.7 Total intercompany non-interest bearing debts and receivables group 224.1 8.8 380.6 134.6
Tax effects 850.9 842.5 Equity NGAAP 20,597.6 19,350.4 Hybrid capital in associates, proportion 432.8 432.8 Effect of guarantee scheme provision and Natural perils fund (3,011.4) (3,040.4)
Deferred tax assets (4.1) (7.4) Other intangible assets (1,123.3) (1,201.7) Investment properties, unrealised gains, proportion (92.0) (158.4) Reinsurance provision, minimum requirement (11.5) (4.5)
Primary capital 16,010.4 14,569.5 Primary capital in other financial institutions (108.5) (108.5) Net primary capital (A) 15,901.9 14,461.0
Assets with 0 % risk weight 3,929.6 6,097.6 Assets with 10 % risk weight 2,554.7 1,859.8 Assets with 20 % risk weight 36,182.0 34,159.9 Assets with 35 % risk weight 13,555.5 11,714.5 Assets with 50 % risk weight 2,040.9 1,148.9 Assets with 100 % risk weight 30,354.6 28,942.5 Assets with 150 % risk weight 1,868.3 437.5
Weighted reinvestment cost derivatives 93.2 24.5 Primary capital in other financial institutions (108.5) (108.5) Loss provisions (231.0) (187.6)
Net primary capital 15,901.9 14,461.0 Proportion of security provision 1,100.7 1,100.6 Proportion of Natural perils fund (up to 25 % of the Natural perils fund is included) 599.8 615.7 Solvency margin capital 17,602.5 16,177.3 Solvency margin minimum requirement 6,338.3 6,084.4 In excess of requirement 11,264.2 10,092.9
State Street Bank And Trust Co. Nominee 10,490,815 2.10 % Clearstream Banking S.A. Nominee 7,578,554 1.52 % State Street Bank And Trust Co. Nominee 7,171,114 1.43 %
Skagen Global Ii 1,996,324 0.40 % Skandinaviska Enskilda Banken Nominee 1,744,331 0.35 % Jpmorgan Chase Bank Nominee 1,725,073 0.35 % Klp Aksje Norge Indeks Vpf 1,519,108 0.30 % The Bank Of New York Mellon Nominee 1,397,761 0.28 % Jpmorgan Chase Bank Nominee 1,316,033 0.26 % Number of shares 20 largest shareholders 395,542,046 79.11 % Total number of shares 500,000,000 100.00 %
The fair value at the grant date is measured based on the market price. The amount is recognized as payroll expenses at grant date. No specific company-related or market-related entitlement criteria apply to the shares, but the Company may carry out a reassessment based on greater negative events and/or developments. The expected allocation is set to 100 per cent. The value of the cash- settled share is adjusted at each reporting period based on the share price at this time.
Share-based remuneration for key personnel in 2012 6.6 Share savings programme for employees in 2012 2.0 Share buying programme for employees in 2011 0.9 Total expenses (note 17) 8.5 0.9
Earnings per share (NOK) 8.56 5.50 Earnings per share (NOK), diluted 8.56 5.50 1 Holdings of own shares are not included in the calculations of the number of shares.
Outstanding 1 January Granted during the period 47,555 44,366 Forfeited during the period Cancelled during the period Exercised during the period Expired during the period
Insurance-related administration expenses incl. commissions for received reinsurance and sales expenses 4, 17 (2,563.9) (2,647.1)
138 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 139
Allocated return on investments transferred to the technical accounts (491.8) (720.6)
Reinsurers' share of provision for unearned premiums, gross 13 19.1 13.1
142 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 143
Net receipts/payments on sale/aquisition of owner-occupied property, plant and equipment (73.3) 21.0
Effect of exchange rate changes on cash and cash equivalents (3.0) 0.4
Cash and cash equivalents at the start of the period 1,453.7 775.5
Cash and cash equivalents at the end of the period 1,202.6 1,453.7
Reporting entity Gjensidige Forsikring ASA is a publicly listed company domiciled in Norway. The company’s head office is located at Drammensveien 288, Oslo, Norway. The activities of the company consist of general insurance. The company does business in Norway, Sweden and Denmark.
October 2010, is expected to enter into force on 1 January 2015. This is the first phase of the International Accounting Standards Board’s (IASB) three-phase project aimed at replacing IAS 39. It concerns the classification and measurement of financial assets and liabilities. Financial assets will be classified as either valued at fair value or at amortised cost, depending on how they are managed and on what contractual cash flow characteristics they have. Phases two and three concern impairment losses and hedge accounting, respectively. The standard is still under preparation and is not yet completed. Our preliminary assessment is that the standard can result in the reclassification of financial instruments in the financial statements.
• Based on our preliminary assessments and on the basis of Gjensidige’s current operations, neither IFRS 10 Consolidated Financial Statements nor IFRS 11 Joint Arrangements, which enter into force on 1 January 2013, will have a material effect on our accounting items.
Functional and presentation currency The financial statements are presented in NOK. Gjensidige Forsikring has three functional currencies: Norwegian, Swedish and Danish kroner. All financial information is presented in NOK, unless otherwise stated.
Subsidiaries and associated companies Subsidiaries and associated companies are recognized using the cost method.
Claims incurred in general insurance Claims incurred consist of gross paid claims less reinsurers’ share, in addition to a change in gross provision for claims, also less re insurers ’ share. Direct and indirect claims processing costs are included in claims incurred. The claims incurred contain run-off gains/ losses on previous years’ claims provisions.
Financial expenses consist of interest expenses on loans, realised losses related to financial assets, change in fair value of financial assets at fair value through profit or loss, recognized impairment on financial assets and recognized loss on financial derivatives. All expenses related to loans are recognized in profit or loss using the effective interest method.
Foreign branch Foreign branches that have other functional currencies are translated to NOK by translating the income statement at average exchange rates for the period of activity, and by translating the balance sheet at exchange rates at the reporting date. Exchange differences are recognized as a separate component of equity. On disposal of the foreign operation, the cumulative amount of the exchange difference recognized in other comprehensive income relating to that foreign branch is recognized in profit of loss, when the gain or loss on disposal is recognized.
Exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form a part of the net investment in the foreign branch and are recognized in other comprehensive income.
Items of owner-occupied property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the item. In cases where equipment or significant items have different useful lives, they are accounted for as separate components.
146 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 147 not used in production, deliveries of goods and services, or for administrative purposes.
Intangible assets Goodwill Goodwill acquired in acquisition of portfolios represents cost price of the acquisition in excess of the company’s share of the net fair value of identifiable assets, liabilities and contingent liabilities in the acquired portfolio at the time of acquisition. Goodwill is recognized initially at cost and subse quently measured at cost less accumulated impairment losses.
Impairment losses are recognized in profit or loss if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to the carrying amount of goodwill and then proportionally to the carrying amount of each asset in the cash-generating unit. Previously recognized impairment losses are reversed if the prerequisites for impairment losses are no longer present. Impairment losses will only be reversed if the recoverable amount does not exceed the amount that would have been the carrying amount at the time of the reversal if the impairment loss had not been recognized.
Claims provision, gross The claims provision comprise provisions for anticipated future claims payments in respect of claims incurred, but not fully settled at the reporting date. These include both claims that have been reported to the company (RBNS – reported but not settled) and those
146 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 147 that have not yet been reported (IBNR – incurred but not reported). The provisions related to reported claims are assessed individually by the Claims Department, while the IBNR provisions are calculated based on empirical data for the time it takes from a loss or claim occurring (date of loss) until it is reported (date reported). Based on experience and the development of the portfolio, a statistical model is prepared to calculate the scope of post-reported claims. The appropriateness of the model is measured by calculating the deviation between earlier post-reported claims and post-reported claims estimated by the model.
Financial instruments Financial instruments are classified in one of the following categories • at fair value through profit or loss • available for sale • investments held to maturity • loans and receivables • financial derivatives • financial liabilities at amortised cost
148 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 149 purposes and for hedging of other balance sheet items. Any trading of financial derivatives is subject to strict limitations.
148 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 149
Transactions with affiliated companies The Fire Mutuals operates as agents on behalf of Gjensidige Forsikring. For these services commission is paid. The Fire Mutuals are also independent insurance companies with fire and natural damage on their own account. For handling this and to reinsure the Fire Mutuals’ fire insurance Gjensidige receives payment based on arm’s length distance. The same applies to other services delivered to the Fire Mutuals.
At the end of the year the number of own shares was 65.799 (60,755).
150 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 151 2. Use of estimates The preparation of the financial statements under IFRS and the application of the adopted accounting policies require that management make assessments, prepare estimates and apply assumptions that affect the carrying amounts of assets and liabilities, income and expenses. The estimates and the associated assumptions are based on experience and other factors that are assessed as being justifiable based on the underlying conditions. Actual figures may deviate from these estimates. The estimates and associated prerequisites are reviewed regularly. Changes in accounting estimates are recognized in the period the estimates are revised if the change only affects this period, or both in the period the estimates change and in future periods if the changes affect both the existing and future periods.
152 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 153 4. Premiums and claims etc. in general insurance 1 The Financial Supervisory Authority of Norway.
Small craft and pleasure craft Accident Travel Other private Total private
Incurred previous years (1.3) 56.7 28.5 28.2 (12.6) 26.3 26.0 6.9 102.1 Gross claims incurred (1,556.8) (2,917.0) (1,310.9) (1,606.1) (129.6) (294.4) (280.1) (118.9) (5,296.8)
Technical provisions Provision for unearned premiums, gross 1,142.9 2,200.7 985.1 1,215.6 89.0 268.6 220.1 81.6 4,002.9 Claims provision, gross 1,183.1 5,616.4 4,880.6 735.8 85.0 2,396.1 145.7 27.6 9,453.9 Gross loss liability 1,070.7 3,948.8 3,431.5 517.3 80.5 2,104.1 138.2 23.0 7,365.3
Provision for unearned premiums Claims provision NOK million Gross Net of reinsurance Gross Net of reinsurance
152 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 153 1 The Financial Supervisory Authority of Norway.
Cost As at 1 January 2011 1,035.6 342.4 51.8 406.7 934.4 2,770.9 Additions 228.7 85.3 10.0 1.2 325.1 Additions from internal development 137.4 137.4 Disposals (126.0) (881.2) (1,007.2)
Impairment testing of goodwill The carrying amount of goodwill in the company as at 31 December 2012 is NOK 1,110.0 million. Of this NOK 160.7 million is related to Gjensidige Forsikring ASA, Swedish branch’s acquisition of the insurance portfolio from the subsidiary Tennant Försäkringsaktiebolag AB at 1 October 2009 and NOK 820.6 million related to Gjensidige Forsikring ASA, Danish branch’s acquisition of insurance portfolio from Fair Forsikring A/S and KommuneForsikring A/S 1 January 2010 and from Nykredit Forsikring A/S from 1 October 2010. NOK 128.7 million is connected to the merger between Gjensidige Forsikring ASA and Tennant Försäkringsaktiebolag, which merged from 1 January 2011. The branches are independent cash-generating units.
The annual assessment of impairment losses was carried out in the third quarter of 2012. There has also been carried out indication assessments during other quarters in order to assess whether there is new evidence that calls for a new impairment assessment.
The projection of cash flows is based on budgets for the next four years reviewed by the management and approved by the Board of Directors. In the period after 2016 an annual growth of three per cent has been projected until 2021. The terminal value is calculated in 2021. The growth is grounded in the fact that the companies are small and with a solid parent company, which gives them good chances of increasing market shares. The cash flows are estimated to a normal level before a terminal value is calculated. Gjensidige normally has a ten-year horizon on its models, as the company is in a growth phase and a shorter period will not give a correct view of expected cash flows.
The discount rate is before tax, and is composed of a risk-free interest rate, a risk premium and a market beta. The risk-free rate is equivalent to a ten-year interest rate on government bonds in the respective countries where the subsidiaries and branches operate in. In addition a risk premium of 6.0 percentage point in Denmark and Sweden.
The excess values associated with the acquisition are based on different key assumptions. If these assumptions change significantly from what they are expected to be in the impairment models, a need for impairment may arise. See table.
Long-term real BNP growth 2-3% Long-term expected inflation 2-3% Total nominal growth expectations 4-6%
Growth reduced by 2% compared to expected next 3 years CR increased by 2% de neste 3 årene All circumstances accur simultaneously
Need for impairment, app. NOK 78 milion No need for impairment No need for impairment Need for impairment, app. NOK 152 milion Gjensidige Forsikring, Swedish branch No need for impairment No need for impairment No need for impairment No need for impairment
Gjensidige Baltic No need for impairment No need for impairment No need for impairment No need for impairment No need for impairment
156 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 157 1 Subordinated loan of NOK 24.0 million is included in cost.
Subsidiaries Gjensidige Bank Holding AS Oslo 100% 1,590.4 1,491.7 1,590.4 1,491.7 Gjensidige Norge AS Oslo 100% 195.7 1.1 195.7 1.1 Gjensidige Pensjon og Sparing Holding AS Oslo 100% 739.8 739.8 842.4 842.4 Glitne Invest AS (liquidated in 2012) Oslo 100% 340.1 340.1 Oslo Areal AS Oslo 100% 1,828.8 1,828.8 4,938.1 4,938.1 Gjensidige Baltic AAS Riga 100% 351.5 347.8 351.5 347.8 Samtrygd Eigedom AS Førde 100% 6.9 6.9 6.9 6.9 Strandtorget Drift AS (liquidated in 2012) Oslo 100% 0.4 0.4 Strandtorget Eiendom AS Oslo 100% 0.2 0.2 0.2 0.2 Tennant Holding AB Stockholm 100% 103.9 10.2 103.9 10.2 Lokal Forsikring AS Oslo 100% 31.4 31.4 Gjensidiges Arbejdsskadeforsikring A/S Copenhagen 100% 770.2 770.2 770.2 770.2 Nykredit Forsikring A/S Copenhagen 100% 1,625.1 1,485.6 1,625.1 1,625.1 Byggeriets Forsikringsservice AS Copenhagen 100% 23.0 23.0 Total shares in subsidiaries 7,267.0 6,736.9 10,765.0 10,374.4
Samtrygd Eigedom AS 6.2 6.2 0.2 N/A Strandtorget Drift AS (0.1) (0.1) N/A Strandtorget Eiendom AS 0.1 0.1 N/A
Associates - additional information NOK million Assets Equity Liabilities Revenues 2 Profit/(loss)
For the whole company 2012 Storebrand ASA 420,182.0 19,936.0 400,246.0 52,479.0 1,021.0 3,404.2 SpareBank 1 SR-Bank 141,543.0 12,637.0 128,906.0 3,786.0 1,361.0 843.0 Bilskadeinstituttet AS 5.0 4.7 0.3 1.3 0.1 N/A
For the whole company 2011 Storebrand ASA 401,442.0 18,777.0 382,665.0 38,225.0 681.0 3,404.2 SpareBank 1 SR-Bank 131,142.0 9,757.0 121,385.0 3,267.0 1,081.0 843.0 Bilskadeinstituttet AS 5.0 4.7 0.3 1.3 0.1 N/A
Total associates 532,704.6 28,556.7 504,146.4 41,493.4 1,762.1 2 Operating income. For companies where financial income is operating income, financial income is included. For other companies financial income is not included.
158 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 159
Depreciation for the year (3.9) (60.8) (64.7) Disposals 219.2 219.2 Impairment losses recognized during the period (3.4) (3.4) Exchange differences 1.4 1.4 As at 31 December 2012 (29.0) (355.0) (384.0)
Depreciation method Straight-line Straight-line Useful life (years) 10-50 3-5 1 Plant and equipment consist mainly of machinery, vehicles, fixtures and furniture.
The market value of owner-occupied property exceeds the carry ing amount as shown below. For plant and equipment there is no material difference between the carrying amount and the market value. Some equipment, such as furniture, is fully depreciated, but still in use.
158 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 159 8. Investment properties NOK million 2012 2011
Gjensidige Forsikring has no investment properties for leasing or classified as available for sale.
NOK million Yield Average market rent Average contractual rent Average value per sqm
NOK million Market rent reduced by 10 % Market rent as at
Yield increases by 0.25 percentage point 154.7 173.4 192.4 Yield 6.90 per cent 162.9 182.2 201.8 Yield decreases by 0.25 percentage point 171.9 192.0 212.4
Gjensidige Forsikring carries investment properties at fair value. Investment properties consist of commercial properties that are rented to tenants outside the Group, or are aquired in accordance with the company's capital management strategy. Properties used by Group companies are classified as owner-occupied property, see note 7. In properties that are both rented to tenants outside the Group and that are used by the Group's own business, the parts held for rent that can be sectioned are classified as investment property.
The Group's valuation model values each property separately. Valuation model relies on a semi-annually in arrears cash flow method. The most important inputs are yield, market rent, contractual rent, potentially vacant premises, the properties' long-term normalised operating costs and any investment requirements. The method maps all incomes and all expenses in a given investment horizon (usually ten years) so that net the cash flow is given yearly for each property. Thereafter, the present value is calculated using this cash flow based on real yield adjusted for expected inflation. Present value of the cash flow and present value of the remaining value compose the cash flow value of the property, and this is considered as the market value.
Yield is determined based on a normal required rate of return adjusted for the location of the property, type, technical standard and the contracts. The normal required rate of return is determined from the required rate of return that can be derived from transactions in the market, and expectations of interest level and risk adjustment. The market rent is determined from existing contracts on the property and comparable properties, observations from contractual negotiations, requests for offers and information from realtors and Eiendomsverdi's database.
For 2012 the following parameters have been used in the valuation of investment property, which yield the following average value per square meter.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 123.0 123.0 104.8 104.8 Financial derivatives subject to hedge accounting 38.5 38.5 10.9 10.9
Liabilities related to direct insurance and reinsurance 289.2 289.2 436.6 436.6 Accrued expenses and deferred income 15 191.5 191.5 178.5 178.5 Liabilities within the group 21 11.0 11.0 134.6 134.6 Total financial liabilities 1,346.1 1,346.1 1,774.8 1,774.8 Gain/(loss) not recognized in profit or loss 522.8 222.0
Quoted prices in active markets are considered the best estimate of an asset/liability’s fair value. A financial asset/liability is considered valued based on quoted prices in active markets if fair value is estimated based on easily and regularly available prices and these prices represent actual and regularly occurring transactions at arm’s length distance. Financial assets/liabilities valued based on quoted prices in active markets are classified as level one in the valuation hierarchy.
160 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 161
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 45.3 45.3
• Equity funds, bond funds, hedge funds and combination funds, in which fair value is estimated based on the fair value of the underlying investments of the funds.
Sensitivity financial assets level three The sensitivity analysis for financial assets valued based on non- observable market data show the gain/loss of realistic and plausible market scenarios. A decrease in value of ten per cent is considered a realistic and plausible market scenario for both shares and similar interests and for bonds and other fixed income securities that are included in level three in the valuation hierarchy.
Total 1,921.0 188.7 336.1 (135.2) (150.4) (274.2) 1,885.9 31.8 1 In 2012, we received pricing information for an equity fund more frequently, which causes its transfer from level 3 to level 2.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 104.8 104.8 Financial derivatives subject to hedge accounting 10.9 10.9
Shares and similar interests 1,690.9 208.5 260.4 (13.5) (231.8) 1,914.5 186.3 Bonds and other fixed income securities 8.5 (2.2) 6.5 (2.2)
Shares and similar interests Decrease in value 10 % 191,4 Bonds and other fixed income securities Decrease in value 10 % 0,6 Total 192,1
Market value as at 31.12.12 Inefficiency recognized in profit or loss Asset Liability
Gjensidige Forsikring, Danish branch Currency-related contracts - hedging instruments 961.5 1.1 (0.7) Hedging object 1,011.3
162 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 163 10. Loans and receivables
Subordinated loans Convexa VIII AS 0.6 0.6 0.6 Norinnova Invest 0.6 0.6 0.6 0.6 0.8 0.8 Vervet AS 1 24.0 24.0 24.0 24.0 Total subordinated loans 25.2 24.6 25.2 24.6 1.4 0.8
Of other loans NOK 197.7 million are interest-free loans to agricultural customers. The loans are in their entirety intended for installment of fire detection systems with these customers. There is no mortgage attached to the loans, and the terms varies from two years to over 20 years. Gjensidige Forsikring has not offered this type of loan to its customers since 2008. The default rate is 1.31 per cent at year end, compared to 1.69 per cent in 2011. Discounting has been conducted in order to take into account the fact that the loans are non-interest-bearing. The discount rate used is 4.66 per cent. Included in other loans are also NOK 180,5 million in loans given with regard to sale of subsidiaries.
Provision for impairment losses Provision for impairment losses as at 1 January 5.9 6.2 Change in provision for impairment losses for the period (1.4) (0.3) Provision for impairment losses as at 31 December 4.5 5.9
Intercompany SOS International 28.2 24.6 Other receivables 58.1 51.5 Total other receivables 185.5 137.5
Other Norwegian shares Statoil ASA 44.8 Norsk Hydro ASA 24.1 Norwegian Property 19.8 Yara International ASA 17.9 Orkla ASA 12.2 Petroleum Geo-Services ASA 11.0 Aker Solutions ASA 9.5 Solstad Offshore ASA 8.8 Bonheur ASA 8.2 Telenor ASA 7.0 Atea AS 6.9 Marine Harvest ASA 6.8 Kongsberg Gruppen ASA 6.1 EVRY ASA 5.7 Total other Norwegian shares 188.9
Private equity investments HitecVision Private Equity V LP 137.0 HitecVision Private Equity IV LP 132.1 Northzone V KS 124.8 Altor Fund II LP 76.9 Norvestor V LP 71.5 Argentum Secondary II 56.9 Energy Ventures III LP 52.4 Argentum Secondary III 52.0 Partners Group European Buyout 2005 (A) LP 48.7 HitecVision Asset Solution KS 46.5 Energy Ventures II B IS 42.1 SOS International A/S 41.3
Real estate fund CEREP III 123.9 CEREP II 37.9 La Salle 35.5 Total real estate funds 197.2
Combination funds FORTIS L FUND-BD CONV WRLD-I 851.9 Total combination funds 851.9
Short-term insurance contracts, gross Provision for unearned premiums, gross 6,681.0 6,497.8
Short-term insurance contracts, reinsurers' share Reinsurers' share of unearned premiums, gross 19.1 13.1
Claims reported and claims handling costs 550.0 817.1 Claims incurred, but not reported 62.7 143.3 Total reinsurers' share of claims provision, gross 612.6 960.4
Other insurance-related provisions 2,518.7 2,527.5 Total insurance-related liabilities, net of reinsurance 33,773.6 33,532.9
Increase in liabilities Arising from current year claims 12,164.6 (199.2) 11,965.5 13,882.8 (1,046.0) 12,836.8 - of this paid (5,985.6) 10.4 (5,975.2) (6,035.3) 245.7 (5,789.7) Arising from prior year claims (run-off) (37.0) (169.0) (206.0) (260.1) (9.8) (270.0)
In Gjensidige Forsikring the employees are given contributions in accordance with the limits for tax-free contributions, at the time being five per cent of salary from 1 to 6 times the social security base amount and eight per cent from 6 to 12 times the social security base amount.
Pension liabilities are measured at the present value of future pension benefits that for accounting purposes are considered as accrued at the reporting date. Future pension benefits are calculated on the basis of expected salary at the time of retirement. Estimated liability at the reporting date is used when measuring accrued pension liability. Plan assets are measured at fair value. For the valuation of pension funds, estimated value at the reporting date is used. Net pension liability is the difference between the present value of the pension liability and the fair value of the plan assets. A provision is recognized for employers' national insurance contributions in periods of underfunding. Net pension liability is presented in the balance sheet under the line Pension liabilities.
Difference between estimated pension liability and estimated value of plan assets as at last financial year and estimated pension liability and fair value of plan assets as at the beginning of this year is recognized in other comprehensive income.
In the calculation for 2011 the negative effect on equity of more than NOK 300 million was due to the reduced discount rate. In 2012, the positive effect on equity of more than NOK 600 million was mainly due to the increased discount rate as a result of a transition to use priority bonds rate.
The company expects to contribute NOK 141.0 million to the defined benefit plan in 2013 (127.8).
Contractual pension (AFP) The liability to pay own risk according to the former arrangement is accounted for as a business specific defined benefit plan. Own risk are still to be paid until the pension liability is fulfilled for the company’s own early retirees choosing the former AFP plan. Pension liability for former employees that have chosen to retire before 1 January 2011 is fulfilled as originally planned until everybody has reached 67 years. Hence there will not be a settlement for this group of employees.
168 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 169
Present value of the defined benefit obligation As at 1 January 2 991.9 2 626.4 Correction of the opening balance 76.9 Current service cost 53.9 55.3 Employers' national insurance contributions of current service cost 7.6 7.5 Interest cost 80.6 93.4 Actuarial gains and losses (531.0) 281.2 Benefits paid (141.7) (142.8) Employers' national insurance contributions of benefits paid (27.7) (17.6) Foreign currency exchange rate changes (2.3) (0.2)
Amount recognized in the balance sheet Present value of unfunded plans 410.6 477.3 Present value of funded plans 2 020.8 2 514.6 Present value of the defined benefit obligation 2 431.3 2 991.9 Fair value of plan assets (2 317.4) (2 075.9) Net pension liability 113.9 916.0 Net pension liability in the balance sheet 113.9 916.0
Fair value of plan assets As at 1 January 2 075.9 2 040.8 Expected return on plan assets 93.0 95.8 Actuarial gains and losses 93.7 (52.7) Contributions by the employer 165.1 81.9 Benefits paid (82.6) (82.4) Employers' national insurance contributions of benefits paid (27.7) (17.6) Business combinations 10.1 As at 31 December 2 317.4 2 075.9
Pension expense recognized in profit or loss Current service cost 53.9 55.3 Interest cost 80.6 93.4 Expected return on plan assets (93.0) (95.8) Employers' national insurance contributions 7.6 7.5 Total defined benefit pension cost 49.0 60.3
The expense is recognized in the following line items in the income statement Insurance-related adm. expenses including provisions for received reinsurance and sales expenses 49.0 60.3
Actuarial gains and losses recognized in other comprehensive income Cumulative amount as at 1 January (2 448.5) (2 108.9) Business combinations (2.8)
Exchange rate differences (0.4) 0.3 Cumulative amount as at 31 December (1 825.1) (2 448.5)
170 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 171
170 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 171 15. Provisions and other liabilities
Outstanding accounts Fire Mutuals 18.6 165.0 Accounts payable 124.8 115.5 Liabilities in relation with properties 10.0 4.9 Liabilities in relation with asset management 8.9 Liabilities to public authorities 351.2 333.3 Other liabilities 304.8 329.5 Total other liabilities 809.5 957.2
Accrued personell costs to public authorities 15.6 15.7 Other accrued expenses and deferred income 175.8 162.9 Total other accrued expenses and deferred income 191.5 178.5
Deductible temporary differences Loans and receivables (65.9) (80.6) Provisions for liabilities (59.1) (97.4) Pension liabilities (42.4) (933.4) Total deductible temporary differences (167.5) (1,111.4)
Hedge accounting 0.3 2.0 Exchange differences (0.1) (2.0) Other changes 1.9 Deferred tax liabilites/(deferred tax assets) as at 31 December 199.6 (75.6)
Deferred tax liabilities and deferred tax assets Deferred tax liabilities and deferred tax assets are offset when there is a legally enforceable right to offset those assets/liabilities and when deferred tax liabilities/deferred tax assets relate to the same fiscal authority. The amounts offset are as follows: Taxable temporary differences Properties, tangible and intangible assets 182.4 293.1 Shares, bonds and other securities 143.9 173.8 Profit and loss account 554.1 374.6 Total taxable temporary differences 880.5 841.4
172 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 173 17. Expenses
Depreciation and value adjustments (note 5 and 7), excl. depreciation properties 204.9 232.0 Employee benefit expenses (note 18) 1,649.9 1,572.5 Fee for customer representatives 4.7 3.8 Software costs 326.9 316.7 Auditor’s fee (incl. VAT) 6.1 6.7 Consultants’ and lawyers’ fees 106.6 101.3 Commissions 376.0 448.5 Other expenses (111.3) 372.0 Allocation of indirect claims handling cost from insurance-related administration expenses to claims (406.3) Total insurance-related operating expenses incl. commissions for received reinsurance and sales expenses 2,563.9 2,647.1
Social security cost 261.4 247.9 Pension cost - defined benefit plan (note 14 incl. employers national insurance contribution) 99.6 85.0 Pension cost - defined contribution plan (note 14 incl. employers national insurance contributions) 49.0 60.3
Insurance-related administration expenses incl. commissions for received reinsurance and sales expenses
174 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 175 18. Salaries and remuneration
The Board's statement on the stipulation of pay and other remuneration Gjensidige’s remuneration policy
The Group has established a remuneration system that applies to all employees. The system shall secure that Gjensidige attracts and keeps colleagues who performs, develops, learns and shares. The remuneration shall be competitive, but the Group shall not be a wage leader. Employees are expected to see the remuneration and benefits offered by the Group as an overall whole. The Group’s remuneration systems shall be open and performance-based, so that they, as far as possible, are perceived as being fair and predictable. The remuneration that is paid shall correspond to the agreed performance.
The Board has established a remuneration committee consisting of three members: the Chairman of the Board and two board members.
The remuneration committee shall prepare matters for consideration by the Board of Directors. It is primarily responsible for • Drafting proposals for and following up compliance with the
The CEO’s salary and other benefits are stipulated by the Board on the basis of an overall assessment that takes into account Gjensidige’s remuneration scheme and market salary for corresponding positions.