Storebrand’s life insurance business area Storebrand is the leading supplier in the Norwegian life insurance, pensions and savings market. The group’s life insurance activities are well placed for continuing growth, particularly in areas such as unit linked products, personal risk insurance and defined contribution occupational pension schemes, with particular focus on products for the public sector and sales of individual products to employees of companies that use Storebrand for their pension schemes.
Finansbanken Finansbanken is a specialist bank for high net worth individuals and selected segments of the corporate market. The bank has re-focused its activities into two main business units: Finansbanken and Finansbanken Forvaltning.
Storebrand is one of the largest asset managers in Norway. This business area manages assets for pension schemes, private and public sector institutions, private individuals and the Storebrand group companies. It offers discretionary asset management services, a wide range of Norwegian and international mutual securities funds through Storebrand Fondene and Delphi Fondsforvaltning and real estate management through Storebrand Eiendom.
Finansbanken Group ■ Deposits NOK 7.4 bn ■ Gross lending NOK 17.3 bn ■ No. of banking customers 11,578 1. Customers may be included in the figures for several products 2. External funds under management: Mutual Fund assets NOK 14.3 bn. Discretionary asset management (inc. If) NOK 22.9 bn 3. Mutual funds customers: Storebrand Fondene 92,060, Delphi Fondene 5,000 4. Includes loans made by Storebrand Livsforsikring
Operating profit -1 837 4 475 5 347 1 888 4 982 Group profit -1 430 523 1 166 603 1 185 Total assets 152 214 156 744 149 647 126 531 114 517 Equity capital 9 605 10 533 10 113 6 421 7 406 Solvency capital *) 10 548 11 312 11 226 9 658 9 448 No. of employees (full time equivalents) 1 473 1 478 1 636 4 001 3 736 Capital adequacy ratio (%) 12.9% 12.7% 14.0% 13.4% 14.4%
Key figures per share Average number of ordinary shares (1.000’s) 277 554 277 464 277 209 277 079 276 766
***) Calculation base for 1999 has been adjusted for post-tax capital gain on sale of non-life insurance and extraordinary items.
March ■ Storebrand introduces environmental and social screening criteria for the management of life insurance policyholders’ savings and pension assets.
October ■ The plan to establish a new joint operation with Sampo is terminated. Despite strong support from Storebrand’s shareholders, board of directors, management and employees the offer did not receive the 90% acceptance required by Sampo and the Norwegian authorities.
December ■ 26 Norwegian municipalities decide to transfer their pension schemes from KLP to private sector insurance companies. Six municipalities, representing premium reserves of NOK 858 million, select Storebrand.
Storebrand, which has its head office in Oslo, is a leading financial group in the markets for life, pensions and health insurance as well as banking services and asset management and has interests in non-life insurance through its shareholding in If Skadeförsäkring.
Storebrand’s financial results for 2001 were very weak. This was principally the result of the sharp fall seen in international equity markets and the consequent reduction in inflows to longterm savings products. If Skadeförsäkring, in which Storebrand held a 44 percent interest in 2001, was hit by weak stock market conditions, higher claims payments and the need to strengthen its reserves, and the group’s investment in If Skadeförsäkring accordingly represented a significant charge to the results for 2001. In addition Finansbanken substantially increased its loan loss provisions for anticipated future losses on its loan portfolio.
However Storebrand developed and strengthened its core business activities in a number of areas in 2001. The group launched a number of new products and business concepts. These included defined contribution pension products, international personal risk products, systems for managing employee benefits, financial advisory services, specialised securities funds and private banking.
Financial Results The group profit showed a loss of NOK 1,430 million for 2001, as compared to a profit of NOK 523 million in 2001. The results reported by the group are not considered to be satisfactory.
The embedded value of Storebrand Livsforsikring was NOK 7.4 billion at the close of 2001 as compared to NOK 7.7 billion at the close of 2000. These figures demonstrate that the long-term value of the insurance company is relatively little affected by weaker results in a single year.
Other life insurance activities: Storebrand’s other life insurance activities principally comprise the group’s expansion in the areas of defined contribution pension schemes, unit linked products, health insurance and pan-Scandinavian life insurance products. These new activities show strong growth and sound development, but their total contribution to profit was negative in 2001. The results achieved were in line with the business plans for these activities.
Asset Management Storebrand Kapitalforvaltning and Storebrand Fondene reported a combined pre-tax profit of NOK 14 million for 2001 as compared to NOK 67 million for 2000. Weak conditions in the equity markets were responsible for much of the fall in profit. A combination of lower market values and reduced inflows to savings products caused a reduction in funds under management from NOK 151 billion to NOK 145 billion.
Investment) mandates to Storebrand, representing a breakthrough for business with the municipalities sector. Distribution agreements for Storebrand’s SRI funds in the French and Australian markets serve to demonstrate that these products are internationally competitive. A new Private Equity Fund launched in the Swedish market was well received. In addition Storebrand Investments will be the first Norwegian fund manager to apply tactical asset allocation to the management of assets for the Norwegian Government Petroleum Fund.
Storebrand Bank Storebrand Bank is the group’s primary distribution channel for sales of savings and life insurance products to the retail market. Sales were weak in 2001, causing a reduction in commission income earned from product suppliers. The Storebrand Bank Group reported a pre-tax loss of NOK 43 million for 2001 as compared to a profit of NOK 52 million for the previous year. The loss after tax for the year was NOK 11 million.
Storebrand Skadeforsikring reported a pre-tax loss of NOK 426 million for 2001 as compared to a profit of NOK 300 million for 2000. The operating loss for the Storebrand Skadeforsikring group in 2001 was NOK 705 million as compared to a loss of NOK 36 million for 2000. The poor results reported for 2001 were caused by weak underwriting results and low financial income at If Skadeförsäkring.
In November 2001 the shareholders of If Skadeförsäkring entered into an agreement with Sampo to merge Sampo’s non-life insurance activities with If Skadeförsäkring. This will cause Storebrand Skadeforsikring’s interest in If Skadeförsäkring to fall from 44 percent to 22.47 percent.
The group’s objective in formulating its investment policy is to achieve the best possible return for customers and owners over time whilst controlling risk to an acceptable level. An acceptable level of risk implies that exposure to risk will be incurred in a managed and efficient manner within specified limits. Investment policy therefore pays particular attention to spreading investment across classes of assets that are not closely
In addition to the work involved in setting formal investment policies, Storebrand attaches great importance to the continual process of risk management through the year. The asset management company is responsible for ensuring that risk exposure is within the approved limits at all times, and monitors investment exposure on a daily basis. The Board reviews reports of investment risk exposure throughout the group on a quarterly basis.
The Board of Storebrand ASA. From top left: Arild Thoresen, Leiv L. Nergaard (chairman), Halvor Stenstadvold, Harald Tyrdal, Nina Seiersten, Rune Bjerke, Knut G. Heje, Brit K. S. Rugland and Rune Eikeland.
Personnel and Organisation Employment in the group totalled 1,473 full time equivalent positions at the end of 2001 as compared to 1,478 at the start of the year. The average age of the group’s employees is 41, with an average length of service of 10 years. This reflects the well-balanced composition of the group’s staffing, which strives to maximise the contribution of both experienced and younger members of staff. Considerable importance is attached to maintaining a good working environment. Internal surveys of employee satisfaction are carried out several times each year in order to provide an indication of the views of employees, motivating factors and any necessary or possible areas for improvement. The employees’ representatives participate in the forums required by the group’s corporate employment agreement, and regular meetings are held between staff representatives and the company’s management.
Corporate Social Responsibility and Environmental Issues Over the course of 2001 Storebrand implemented the action plan for Corporate Social Responsibility that it established in 2000. The action plan relates to 10 areas of activity that cover a range from the use environmental and social criteria in asset management through to specific measures in respect of environmental issues, business ethics, sponsorship of good causes and a commitment to personnel development and training.
Application of Storebrand ASA’s Result for the Year Storebrand ASA recorded a loss for the year of NOK 80 million. The established dividend policy approved by the Board states that the company
will endeavour to ensure stable growth in dividend per share over time. Moreover the dividend policy is to contribute to giving shareholders a competitive return, whilst also ensuring that the company maintains an optimal capital structure. The dividend to shareholders will normally be in the order of 15-30 percent of profit after tax.
Board of Representatives and Board of Directors Two of the members elected by shareholders, Halvor Stenstadvold and Harald Tyrdal, left the Board of Representatives in 2001 and were replaced by Margareth Øvrum and Inger Lise Gjørv. Amongst the members of the Board of Representatives elected by employees, Ann Jeanette Magnussen and Anne Sofie Oseid left the Board of Representatives in 2001, and were replaced by Astrid Olive Aanerud and Jostein Lindgren.
There were no changes in the composition of the Board of Directors or Control Committee in 2001.
The Board of Directors would like to express its appreciation to the members retiring from the
Future Prospects Storebrand’s core activities concentrate on longterm savings, asset management and personal risk products. A combination of very turbulent market conditions and a temporary fall in longterm savings made 2001 a demanding year for the group. Storebrand maintained its position in a weak market, and is well positioned for the strong growth it expects to see in its markets.
Storebrand can trace its roots back to 1767, with the Storebrand name and brand first appearing in 1850. Those of us who work for Storebrand today are the custodians of a business with a long history and a strong sense of tradition. Throughout all these years the basis for value creation at Storebrand has been a readiness and ability to meet the challenges of new situations and make the changes necessary for the company to move forward.
The Norwegian financial sector has, in line with international trends, seen considerable changes over recent years. This has placed new and increasing demands on all the players in our market. Storebrand has responded promptly to these changes by reinforcing its historically strong position for life and pension insurance while at the same time focusing on the growing market for managing the savings and assets of Norwegian private individuals, companies and organisations. The group has achieved its leading position through organic growth, extensive investment in its core activities and through acquisitions. Businesses that no longer fit with the strategy have been spun off, sold or discontinued.
Storebrand’s results for 2001 were weak, and we did not achieve our targets for value creation for shareholders. Falling prices in stock markets around the world reduced the return on our investments, and lower sales of mutual funds and other equity-linked savings products to the retail market caused a drop in commission income. Moreover a continuing high level of insurance claims in Nordic countries caused weak results at If, the Nordic non-life insurance company of which Storebrand is a part owner.
Profitable growth Corporate pensions represent the largest and most important product area for Storebrand, and this segment provides a stable and competitive return. The scale of our business, our experience and expertise all combine to give Storebrand a very strong competitive position in this market. The accelerating pace of technological change contributes to increasingly important economies of scale, whilst our local presence creates an additional dimension of competitive advantage.
These factors will help to ensure that Storebrand maintains its strong position in this market.
The introduction of defined contribution pension schemes for Norwegian companies in 2001 opened up new markets. Storebrand has completed a major program of investments in order to take a leading position in this new sector of the pensions market.
Norwegian municipalities are expected to make a particularly important contribution to growth in the Norwegian pensions market now that the management of municipality pension schemes is fully open to competition. In addition there are still some 900,000 private sector employees with no occupational pension. The municipality market alone represents some NOK 120 billion in premium reserves.
The Norwegian government appointed a commission in 2001 to propose changes to the Norwegian national pension system. It is widely expected that the commission’s recommendations will stimulate further growth in the Norwegian pension insurance market in a number of areas. Particularly important will be the introduction of a funded element of the national pension system and the opportunity for individuals to make their own investment decisions along the lines already introduced in Sweden.
Most Norwegians take greater care to insure their homes and belongings, cars and holiday homes than to arrange insurance for their children and close family. By way of example only
Storebrand believes that the winning players in this market must be able to offer a combination of strong and stable investment returns, good risk management systems and first-rate asset allocation expertise as well as a social and ethical approach to asset management. Storebrand has developed a leading position for Socially Responsible Investing (SRI). This has helped us to strengthen our competitive position in Norway as well as creating a basis for international growth. We intend to meet the challenge of competition from major international asset managers by concentrating on a selected number of specialist niches within the asset management operation. In addition to strengthening our competitiveness, these areas of specialist expertise will help to improve profitability by differentiating our products from the standard investment products that will come under ever-increasing margin pressure.
A new competitive landscape The banking and finance market is no different from any other – the long- term winners will be those companies best able to understand customer requirements and to meet their needs in the most cost-effective way. Traditional parameters such as investment return and cost ratios will continue to be important. In parallel with this our corporate customers are becoming increasingly aware of the importance of pension as a tool for their human resources policy. As employers face the challenges created by increased labour force mobility, their choice of pension provider will increasingly be decided by new competitive parameters such as flexibility and choice, as well as the support of good communications systems and specific products.
Storebrand’s long experience and tradition equip the group to face these challenges. We have built strong technical expertise over many years, and more recently we have invested heavily in developing new systems platforms and communications channels. The result is that we can offer our customers a uniquely flexible range of products and services. We are, for example, very proud that our internet banking service has been voted best internet bank in Norway for three years in succession.
Employees play a key role Our ability to recruit, train and retain skilled employees forms the foundation for Storebrand’s success over many years in maintaining a leading position in the Norwegian financial sector.
The group’s guidelines for business ethics supplement our core corporate values, and meetings were held for all the group’s managers in 2001 to evaluate and discuss the whole issue of business ethics. The guidelines are in place to ensure that the behaviour of everyone in the group demonstrates integrity and objectivity, and that we take care to avoid any actions that might weaken confidence in Storebrand.
Storebrand Livsforsikring is the oldest and largest life insurance company in Norway. The company’s activities are principally concentrated in the areas of pensions and savings, personal risk insurance, distribution and pension funds. The company currently has some 8,000 corporate customers and 300,000 retail customers. Sales of products to the retail market are principally made through Storebrand Bank. 27 of the 50 largest Norwegian companies are customers of Storebrand, and eight out of ten of the very largest companies have a customer relationship with us. The company’s products and services for pension funds are delivered through the subsidiary companies Aktuar Consult, Storebrand Pensjonstjenester and Aktuarsystemer. Sales and customerservice are co-ordinated with the other wholly and partly owned liferelated companies in the group, namely Storebrand Fondsforsikring,
Strategy Storebrand has identified defined contribution pensions, personal risk insurance and the public sector as its three main areas for future growth. Defined contribution pensions were first introduced in the Norwegian market in 2001. An increasing number of companies that did not previously operate a pension scheme are now making use of this new opportunity, and we therefore expect continuing growth for defined contribution pensions in 2002. The Norwegian trade unions are expected to place particular emphasis on pension arrangements in the annual round of wage negotiations this year, and this may further encourage this trend. Storebrand Livsforsikring believes that the market for personal risk insurance offers considerable opportunities. It is, for example, clearly food for thought that only one out of ten Norwegian children have any form of insurance, whilst nine out of ten Swedish children are insured. We intend to test a number of new products and service concepts for the retail market in 2002. There is considerable scope to offer advice and individual risk products to employees of companies that use Storebrand for their pension arrangements, and the Wincome concept gives us a strong foothold in this market. These efforts are expected to produce good results in 2002. The company’s public sector activities enjoyed a successful year in 2001, especially for sales to municipalities. This is an area of sound insurance risk. The key factors for Storebrand’s continuing success in the municipality sector are good investment return, supplementary pension products and related communication systems.
■ High returns reduce pension costs over time. ■ Risk result shows how much the company is paying for the insurance element of its pension scheme in relation to the payments made by the pension supplier.
■ Low costs give a high net investment return and therefore reduce pension costs. Good customer service ensures that a high level of service is delivered at low cost.
Modern pension schemes therefore need good systems to give employees a better understanding of their pension benefits. Pensions information distributed to employees must be easy to understand and attractively presented, and networkbased solutions are needed to give employees easy access to additional information on their employee benefits.
The difficult weeks following the terrorist attacks in the USA on 11 September last year were a real test of the life insurance company’s risk management skills. Storebrand managed the situation throughout the autumn without having to call on its owners for more capital.
A further important reason for Storebrand Livsforsikring ’s ability to manage its way through the equity market crisis of the autumn was that the company had already reduced the exposure of policyholders funds to equities from 30 percent to 22 percent as part of its risk management over the first six months of the year. This gave Storebrand a lower proportionate equity exposure than many of its competitors in the dramatic days following 11 September. Storebrand was able to maintain its equity exposure at 22 percent throughout the autumn, and was not forced to sell shares when the market was at a low point. This proved to be particularly important when the equity market turned upwards on 21 September.
Storebrand’s expertise in managing investment return, risk and regulatory requirements at times of sharp fluctuations in risk-bearing capacity is a central feature of our entire operation. Our ability to focus on creating long-term value within an acceptable risk profile designed for each customer is the trademark of the service Storebrand offers for the retail and corporate markets.
Storebrand Livsforsikring’s risk bearing capacity at the start of 2002 was satisfactory.
■ Risk bearing capacity remains satisfactory. ■ Realised investment return was 3.6 percent in 2001, with a value adjusted return of 1.5 percent. ■ Storebrand is by far the largest life insurance company in Norway in terms of policyholders’ funds, with a market share of around 30 percent at the close of 2001.
The EmbV of Storebrand Livsforsikring and Storebrand Fondsforsikring was NOK 7.7 billion at the close of 2001. This represents a reduction of NOK 0.4 billion from the previous year, due principally to the lower level of investment return reported for 2001. The value of new business written was almost unchanged at NOK 166 million for 2001 as compared to NOK 168 million for 2000.
made it necessary for Storebrand to release additional statutory reserves to meet the shortfall on the return guaranteed policyholders for the first time in the company’s history.
The operating result for 2001 was a loss of NOK 422 million, as compared to an operating profit of NOK 4,789 million for 2000.
Storebrand Livsforsikring’s total premium income amounted to NOK 8,506 million. This represents an increase of 7 percent from premium income of NOK 7,950 million in 2000.
Risk result was a surplus of NOK 238 million in 2001 as compared to a surplus of NOK 159 million in 2000. The improvement is largely due to group life products, where the risk result improved from a deficit of NOK 39 million in 2000 to a surplus of NOK 42 million. In addition both individual capital and pension insurance products produced better risk results. However increased disability claims caused a reduction of NOK 48 million in the risk result for collective pension insurance.
The increasing internationalisation of corporate customers leads to greater demands for international insurance solutions. Storebrand received all the necessary approvals in 2001 for the start-up of the Euroben operation in Dublin, with branches in Norway and Sweden. The company is fully operational and has already written business for its first customers.
Public sector 2001 saw major changes in the Norwegian public sector pension market. A total of 26 municipalities transferred their pension schemes away from KLP to private insurance companies. Initially 73 municipalities indicated that they would take their schemes away from KLP, but 47 of these subsequently decided to stay with KLP. However almost half of these municipalities have indicated that they intend to carry out a new evaluation of a possible change of pension supplier in 2002. Experience also suggests that other municipalities will now seek to evaluate pension suppliers other than KLP. There is therefore every reason to expect that a significant number of municipalities will decide to transfer their pension schemes away from KLP during the course of this year.
At the start of 2002, pension arrangements for 20 percent of Norwegian municipalities and 40 percent of their employees are placed with life insurance companies or managed through the
Health insurance reported very strong sales in 2001, the third year since the launch of this new business. Sales were circa 41 percent higher in 2001, and Storebrand expects further growth in both the Norwegian and Swedish markets in 2002. The limited capacity available in the public health service and the emergence of an increasing number of competitors have served to expand the overall health insurance market. Storebrand has particularly high expectations for sales of health insurance to the corporate market.
Use of additional statutory reserves/allocation of profit Additional statutory reserves are conditionally allocated policyholders’ funds that act as buffer capital to absorb fluctuations in the investment portfolio. Since the investment return in 2001 was not sufficient to meet the guaranteed minimum return, Storebrand has released NOK 408 million of additional statutory reserves to meet the shortfall. The remaining additional statutory reserves constitute more than one year guaranteed minimum return. Since Storebrand did not produce an operating profit in 2001, there is no surplus to allocate between the company’s owner and policyholders. Policyholders will receive the guaranteed return, whilst the owner will not receive any allocation from operations in 2001 and will incur a deficit of NOK 17 million.
Administration result shows the difference between the costs assumed for the premium tariffs and actual operating costs.
Additional statuory reserves equivalent to 1 year’s interest guarantee *) ASR: Additional statutory reserves
In 2001 a new organization structure was implemented, which will strengthen the cost efficiency and at the same time build a fundation for further profitablility through creative strategy and product development. The activities of Storebrand Investments are characterised by a focus on disciplined and pro-active asset management, highly skilled risk management and the development of specialist investment products that creates added value for our customers.
Global equity markets fell by 15.9 percent in 2001 (Morgan Stanley MSCI global index). This was the second successive year of falling share prices.
Storebrand Investments offers a number of products where investment returns do not fluctuate in line with the equity markets. Total portfolio risk and volatility can be significantly reduced by investing part of a portfolio in products that have little correlation with share prices. Corporate bond funds represent an attractive alternative in this respect, and offer a better expected return than government bonds. Moreover, customers can determine the risk they are prepared to accept by selecting the level of credit risk involved.
Investments in non-listed companies, normally termed private equity, represent another alternative. The key concept for successful private equity investments are risk diversification, a long-term horizon and higher returns. Private equity investments typically carry a high level of risk on the individual investments, but this is offset to some extent by the ability of equity investors to take a controlling ownership position and exercise influence on the company’s development. Private equity investments offers low volatility, and can represent a counter-cyclical balance to investments in listed companies.
Fixed income securities offer good risk-adjusted return 2001 demonstrated the importance of risk diversification. Norwegian fixed-income and money market funds produced a positive return of between 5 percent and 7 percent at a time when share prices fell sharply. By way of comparison Storebrand’s global bond portfolio and its European corporate bond fund produced returns of 8.7 percent and 10.8 percent respectively. Statistics for the last 13 years show that bonds issued by international governments and financial institutions offer a particularly attractive balance of risk and reward.
Storebrand Investments has invested heavily in developing its expertise in corporate bonds over recent years, and will launch a new European corporate bond fund in the first half of 2002.
The average age of the Norwegian population will continue to increase over time, reflecting increased life expectancy and a relatively low birth rate. This trend has, combined with growth in personal wealth, created increased interest in long-term and pensions savings. Mutual funds represent an attractive alternative in this respect. Storebrand Investments intends to stay at the leading edge of this development and offer customers the right products at the right time.
Changes in Norwegian taxation in 2001 put defined contribution pensions on a par with traditional defined benefit pensions. This has opened the way for an increasing number of employees to benefit from occupational pensions. Customers can now choose whether pensions savings should be in the form of life insurance products or investments in mutual funds, and can play an active role in the management of their own pensions savings. Attractive mutual fund products and a professional standard of advice are key concepts for our strong focus on long-term savings.
Storebrand Global with capital protection Storebrand launched a global equity fund with capital protection in February 2001, and the strong demand it attracted demonstrates the need for this kind of product. The new fund attracted NOK 180 million in its first ten months. Storebrand uses hedging instruments to guarantee a maximum loss of capital invested of 5 percent. This represents a sound alternative for many customers when markets are volatile, ideally as part of a broadlybased portfolio.
Increased focus on industry-specific funds is partly a response to increased investor interest, but also reflects the view that certain industries offer particularly attractive long-term trends, known as ‘mega trends’. For example the rapid development of digital technology is a mega trend that explains the boom period for IT and telecommunications companies from 1997 to 2000. This particular rally proved to be just too strong, and was followed by a sharp correction. However, Storebrand still believes that increasing use of technology & digital communications will be a major factor in the future. Telecommunications remains a preferred strategic area, and the Storebrand Telecommunications fund was launched in April 2001.
The energy sector has scope for both earnings growth and further industrial consolidation - two important conditions for an attractive investment return. In addition the energy sector is not cyclically linked to most other sectors. The low degree of cyclical correlation with sectors such as technology, telecommunications and consumer-related companies makes energy funds a useful stabilising factor in a broadly based portfolio. Storebrand Investments launched the Storebrand Energy fund in Autumn 2001.
Increased welfare and higher living standards cause people to live longer. This in turn creates increasing demand for health services. Storebrand Investments launched a health sector fund in 2000. We chose to co-operate on this fund with one of the world’s best asset managers for health related shares (Wellington) rather than build up specific in-house expertise. This represents a good example of our intention to concentrate in-house resources to areas, such as telecommunications and energy, where we can develop and distribute internationally competitive specialist products.
Increased specialisation for interest-bearing securities The trend for increasing specialisation also affects interest-bearing securities. There is a clear move away from the traditional approach of managing government bonds with a focus on portfolio duration, to a greater focus on portfolios with varied credit risk. Storebrand Investments has followed these developments closely, and introduced corporate bonds as a separate asset management product in 2001. An ethical corporate bond fund, the European Principle Bond Fund was launched in 2001, and a European corporate bond fund will be launched in the first quarter of 2002.
There is increasing demand for ethical and environmentally responsible investment, both from private individuals and institutional customers such as public and private sector pension funds. Many customers want to know that their investments are not supporting businesses that conflict with their basic ethical views. In 2001 the Swedish government made it compulsory for the seven funds that invest Swedish national pension assets to include ethical and environmental considerations in their investment strategies, subject to the proviso that this should not reduce the overall return. In July 2000 the United Kingdom introduced legislation that requires pension funds to state whether they apply ethical criteria. The French government introduced three new laws in 2001 that require various market players to disclose whether they apply ethical criteria.
A variety of SRI funds (Socially Responsible Investments) A starting point for many investors looking at socially responsible investment (SRI) is to exclude the most unattractive companies or sectors. At the other end of the scale are funds that only invest in companies which make a direct environmental contribution, such as wind generator energy producers. Storebrand’s SRI funds invest in most sectors, but select the companies in each sector that make most efficient use of resources and operate in the most socially responsible way. This contributes to sustainable development by ensuring that capital is directed towards the companies with the most sustainable policies.
A world-class analytical model Our customers want to be sure that our funds are invested in accordance with the appropriate environmental and social criteria. Storebrand Investments started environmentally responsible investment in 1995, and has developed comprehensive analytical tools to identify the best companies. We use detailed analysis to identify the top 30 percent of companies in the sectors where we invest. The high quality of our analytical methods has been confirmed by an external survey carried out by Miljöeko and Sustain Ability for MISTRA, an independent environmental foundation established by the Swedish government. The survey recognised Storebrand as one of the three best companies in the world for socially responsible investment.
Main features of 2001: ■ Profit of NOK 14 million following weak conditions in equity markets.
Storebrand’s market share of equity funds strengthened further in 2001, and including Delphi Fondsforvaltning the group had a market share of 13% per cent at year-end.
New product range - Delphi Storebrand Investments acquired Delphi Fondsforvaltning from Finansbanken with effect from 1 January 2002. This acquisition strengthens Storebrand Investments asset management team, and creates a broader product range. Delphi will continue its independent investment philosophy and market profile. This will give Storebrand Investments two investment environments with different characters and style, and customers will benefit from a wider product range.
The asset management group’s total revenues showed a 17% fall in 2001 as compared to an increase of 25% in the previous year.
The overall return on the Storebrand Livsforsikring (life insurance) investment portfolio was 1.51%, in line with the benchmark return.
Storebrand Investments acts for a number of customers on a performance-related fee basis. In 2000 Storebrand Investments produced a return on the life company’s assets 0.39% better than the benchmark return, but in 2001 the outcome was 0.07% below the benchmark return. The relatively weaker performance in 2001 is reflected in earnings. The falls seen in equity markets caused a reduction in the total value of assets under management, and weaker inflows of new funds were not sufficient to compensate for the fall in value of the existing portfolio.
The under-performance of the fixed-income sub-portfolios is largely due to the negative contribution of Norwegian and global bonds as a result of the interest rate fluctuations seen from 11 September to the end of the year. The Norwegian money market portfolio outperformed the benchmark thanks to a correct view on Norwegian interest rates, whilst the positive relative performance on the Euro Credit portfolio was largely due to good choices of particular interest-bearing securities.
Real estate Storebrand is one of the largest private real estate investors in Norway. The total value of the real estate portfolio amounts to NOK 11.3 billion, representing 733,000 sq. m. of property owned by Storebrand Livsforsikring AS.
Storebrand continued the process of strategically re-focusing its real estate portfolio in 2001.
This involves concentrating the portfolio on firstclass centrally located office premises in the Oslo region and on larger shopping centres. The current strategy represents a low level of risk in respect of the overall property portfolio.
Office properties are managed by Storebrand Eiendom AS, while shopping centre properties are managed by Steen & Strøm ASA, and marketed as part of the Steen & Strøm chain.
The real estate portfolio produced a total return of 12.4% in 2001 including capital gains and revaluations totalling 4.5%.
Storebrand Bank Storebrand Bank AS was established in 1996 as a direct banking operation. All of the Storebrand group's distribution activities for the retail market (except for
Private Banking) were integrated into Storebrand Bank in 2000 in order to provide a unified and comprehensive advisory service. Storebrand Bank offers the services of some 180 personal financial advisers located at 20 local financial centres and 42 satellite offices, and is also represented by 20 tied agents.
Strategy Storebrand Bank has built a strong position in the market for long-term savings and personal risk products, and this is reflected in its corporate mission: Storebrand Bank intends to be a leading supplier of personal independent financial advice to customers with savings and a need to secure their future financial position.
Increasing numbers stand to benefit from financial advice Norwegian households are becoming wealthier year by year. Figures from Statistics Norway show that private households have enjoyed an increase in wealth of around 13% per annum over the last five years. These figures demonstrate rapid growth in sectors of the population with high incomes and growing wealth. These trends are accompanied by an increase in the average age of the population, with more and more people in the age groups where savings become particularly important.
The financial sector has responded to these changes by developing an ever-increasing range of financial products. This creates greater need for good financial advice, and increasing uncertainty over the future prospects for public sector pensions and other welfare provision make this all the more important. The turbulent conditions seen in financial markets over the recent past have also underlined the need for sound financial advice.
■ Financial advice based on a comprehensive review of the customer’s total financial situation to develop a financial plan for the customer’s specific needs and personal situation. ■ Primary focus on increasing the ’share of wallet’ through cross selling and additional products for retail customers with high income and/or wealth.
Financial advice helps customers to appreciate the value of changes to their current arrangements.
We work with the Norwegian School of Management (BI) to run a program of certification for the bank’s advisers. This provides extensive training in personal financial planning, financial advice, financial theory, products and systems. The training program leads to a formal qualification, and represents a stamp of quality assurance for our financial advisers. Storebrand Bank is the only Norwegian financial institution to use this form of certification.
Advisory services put the customer in a position to make profitable changes.
■ The Storebrand Student program provides a range of products and advantageous prices specifically designed for students.
All customers of Storebrand Bank are assured full access to the bank’s products and services through financial advisers, telephone call centres and the Internet. We place great importance on offering a comprehensive service and providing customers with a full overview of their relationship with Storebrand.
From development to operation Storebrand Bank has carried out an extensive program of investment over the last couple of years to develop its range of services and establish its position as the leading Advisory Bank. The majority of this task is complete, and the main focus is now shifting to the normal operation of the systems. The benefits of this investment will be seen over the next 2-3 years, and Storebrand Bank expects this to make a significant contribution to its results in the future.
Market position Storebrand Bank currently serves approximately 353,000 customers, of which 256,000 are customers for life insurance, 90,000 for mutual funds and 60,000 use the group’s banking services. Storebrand has a strong market position in a number of product areas, with a 32% share of the market for life insurance and a 20% share of the unitlinked market. Storebrand Fondene’s position in the market for equity funds at the close of 2001 showed a market share of 35% of net inflows and 9% of assets under management. Storebrand has an 8% share of the market for structured products.
Financial results The Storebrand Bank group reported a loss for the year of NOK 11.1 million in 2001. Operating result showed a loss of NOK 22.0 million in 2001. The parent company Storebrand Bank AS reported a profit for the year of NOK 20.6 million. Storebrand Finans contributed a profit for the year including the gain on the sale of its activities of NOK 121.1 million. Storebrand Bank's share in the results of Bertel O. Steen Finans was a loss of NOK 0.5 million.
The last two years have been a period of extensive development for Storebrand Bank aimed at creating a position as the leading Advisory Bank. Significant amounts have been invested in building up the bank's advisory concept by developing state of the art tools and support systems for financial advice, as well as training and certification of financial advisers and refurbishing the bank's local financial centres.
Increasing the productivity of the financial adviser sales force represents an important factor for the bank's future success. Improved advisory expertise and the support of good advice systems will bring about a significant improvement in the productivity of each financial adviser in terms of sales of savings and personal risk products in 2002. Financial advisers will place greater emphasis on personal risk insurance in response to the considerable demand for cover in this under-insured market. Personal risk insurance also represents an important non-cyclical product for the bank.
Stronger relationships Sales through the personal financial advice function are more expensive than normal customer service sales due to higher personnel costs and more demanding requirements for expertise and support systems. The basis for a profitable
advisory bank strategy is principally found in the value of creating stronger and more broadly based relationships with customers. The objective is to create added value by securing a major increase in the proportion of each customer's financial transactions that are carried out through Storebrand Bank. The most important factor in achieving this will be the performance of the financial adviser and the relationship of confidence he or she builds with the customer through preparing and monitoring the customer's financial plan. Steps have been taken to restructure the remuneration structure for financial advisers to give greater incentives for attracting a larger proportion of each customer’s business and building long-term relationships.
The customers managed by the bank’s local financial advisers represent the greatest potential for future business, and there is considerable scope to expand these existing customer relationships. Storebrand Bank is currently only awarded around 15% of the financial assets of the average customer managed by its financial advisers, and it intends to increase this proportion very significantly.
Storebrand Bank made further improvements to its Internet service in 2001, and offers one of the best Internet banking services in Norway. The bank also invested in automating its back-office function and electronic processing systems. Additions were made to the product range in 2001, including the introduction of hedge fund bonds and customer loyalty programs to encourage customers to concentrate more of their business through Storebrand Bank. We are also working continuously on developing the range of products and services we offer for more affluent customers.
Profit expected The Advisory Bank concept will help to improve the margins earned by the bank on its business volumes over time. The provision of advisory services will generate income through sales of the Partner program and by generating sales of packaged products with higher margins. The monthly fee charged for the Partner program includes payment for the Financial Plan service. The Fondskonto product, which allows customers to easily transfer their savings between Storebrand's own funds and funds provided by seven external fund managers, is also now in place.
Strategy Affluent individuals represent a rapidly growing group in the population, and this creates strong demand for a professional financial partner capable of assisting the wealthy individual. Finansbanken’s objective is to be the leading financial services provider for this segment through its focus on private banking. We aim to use our expertise to deliver the best choice of investment and financing solutions for each customer.
Finansbanken Forvaltning aims to be the leading Norwegian private bank. Finansbanken has made significant changes to its corporate structure and financial advice concept in order to achieve this aim. The Group has established a focused asset management operation to provide the basis for a skilled financial advice service, and has expanded and strengthened the range and scope of its advisory products. The overall result is that customers are now offered a complete range of financial services specifically tailored for their individual requirements.
Project finance - a Finansbanken speciality Real estate financing is a main area of activity for Finansbanken, principally for real estate developments in the Oslo region. We help our customers to compete for attractive projects by offering a high level of customer service, flexibility and rapid decision-making. The bank has developed close customer relationships and a thorough knowledge of this specialist market over many years, and this strengthens its ability to operate as an experienced adviser. Existing customers account for almost 80% of the bank’s new real estate lending.
Securities financing, with particular focus on securities trading accounts, is also a main area of business for the bank. Finansbanken offers products and services for professional investors trading in shares listed on the main list of the Oslo stock exchange (Oslo Børs). The bank uses an advanced portfolio monitoring system to support its highly-skilled operations in this area, and this has ensured that securities financing is both an attractive product for customers and an area of controlled risk for the bank. Finansbanken has incurred only insignificant losses on securities financing since this product was launched in the late 1980s.
Shipping was formerly a third area of focus for the bank, and accounted for more than 30% of total lending in 1999. The bank reviewed its strategy for ship financing in 2001, and is now actively reducing this portfolio. The bank’s future shipping strategy will be based on a support role for the private banking activities.
Finansbanken has developed an attractive customer base over a number of years through the systematic development of its main areas of focus and other areas of business with retail and corporate customers. This provides the foundation for Finansbanken and Storebrand’s focus on private banking. Finansbanken and Finansbanken Forvaltning share the same ambition to further improve the level of service offered to customers by developing attractive financial products and financial advisory services.
Main features of 2001 ■ Work on re-focusing shipping lending ahead of plan.
■ Profit before loan losses and provisions for the Finansbanken Group of NOK 228.3 million, with a loss of NOK 73.7 million after loan losses. ■ Finansbanken ASA, Private Banking and Finansbanken Denmark employ 223 staff in total.
Financial analysis The Finansbanken ASA Group produced a profit before loan losses and provisions for 2001 of NOK 228.3 million (NOK 312.7 million in 2000) equivalent to 1.13% of average total assets for the year. Loan losses and provisions amounted to NOK 302.1 million (NOK 294.9 million), giving a loss for the year of NOK 73.7 million (profit of NOK 17.8 million) after loan losses and provisions. After writing back tax provision of NOK 7.6 million, the Group reports a post-tax loss of NOK 66.1 million (profit of NOK 4.5 million ) equivalent to a negative return on equity of 4.8%. A significant increase in loan loss provisions in the second quarter caused a loss for the year as a whole, but the bank reported a profit for the first, third and fourth quarters.
Profit and loss account Net interest income amounted to NOK 447.2 million in 2001 (NOK 401.1 million), equivalent to an interest margin of 2.21% (2.28%) of average total assets. Net interest income increased over the course of the year, rising from NOK 103.6 million in the first quarter to NOK 113.7 million in the fourth quarter. Net interest income as a percentage of average total assets also showed an increase, due in part to a fall in interest rates.
Balance sheet Lending to customers showed modest growth in 2001 of NOK 392.6 million, equivalent to 2.3%. Increased lending mainly relates to retail customers and financial investors as part of the bank's focus on Private Banking. As noted above, the bank is reducing its exposure to shipping, and the shipping loan portfolio decreased by NOK 940 million to NOK 3,239 million in 2001. This reduction puts the bank ahead of budget for the task of refocusing its shipping portfolio. Gross customer lending at 31 December 2001 was NOK 17,317 million.
Capital base and capital adequacy The Group's capital base at the close of 2001 amounted to NOK 1,769.6 million, and the parent bank had a capital base of NOK 1,956.3 million. This represents a capital ratio of 10.66% (12.12% for the parent bank) and a core capital ratio of 7.38% (8.75% for the parent bank). Core capital increased by a net NOK 141 million in 2001. Finansbanken ASA carried out a private placement of shares with Storebrand ASA in March 2001, raising NOK 200 million.
Specific loan loss provisions amounted to net NOK 165.6 million in 2001 (NOK 235 million). In addition general loan loss provisions were established for a limited number of shipping customers totalling NOK 136.5 million. No change was made to the normal general loan loss provision in 2001. Total general loan loss
Central banks and financial institutions 777 1 255 522 Net customer lending 16 691 16 470 12 222 Securities 1 364 1 497 778 Other assets 870 875 407
At the end of 2001 the bank held repossessed assets totalling NOK 58.9 million (NOK 43 million ) in respect of two lending relationships in the areas of shipping and real estate. The bank did not acquire any new repossessed assets in 2001, and the figures reported relate solely to changes in respect of these two lending relationships.
Storebrand’s involvement in non-life insurance comprises the activities of Storebrand Skadeforsikring AS (Storebrand Skade) and Fair Financial Ireland Ltd. (Fair). Storebrand ASA owns 100% and 50% respectively of the share capital of these companies. Storebrand Skade’s main business is its shareholding in If (44% in 2001) and a 100% percent shareholding in Oslo Reinsurance Company ASA (Oslo Re).
In 1999 Storebrand and Skandia entered into an agreement to establish If, and both groups transferred their non-life insurance activities into If. This caused a change in the role of Storebrand Skade from being an operational non-life insurance company principally active in the Norwegian market to becoming the owner of a 44% interest in the largest Nordic non-life insurance company.
This will strengthen the position of If, making it by far the largest Nordic non-life insurance company. The company will have a 24% share of the nordic market and 8,000 employees. The following table shows the shareholding structure of If before and after the merger with Sampo Skade.
Storebrand Skade’s other activities produced an operating profit of NOK 64 million as compared to NOK 175 million in 2000. The reduction in operating profit reflects a sharp fall in the company’s financial assets in 2001 following the payment of group contribution to Storebrand ASA.
*) Pro forma figures include Sampo’s non-life insurance activities as included in If from 2.1.2002.
**) Investment result includes the actual investment result for If and an estimate of the return on the portfolio transferred from Sampo Skade. Aggregate return was 2.5%.
In 2001 every employee was given the opportunity to buy 175 ordinary shares at a calculated subscription price of NOK 35.50 per share. Approximately 50% of the employees took advantage of this offer, and a total of 133,000 shares were subscribed.
The company’s ownership structure still shows a disproportionate number of shareholders with small numbers of shares in that 64% of all shareholders own 100 shares or less. The company had a total of 37,717 shareholders at 31 December 2001 as compared to 38,575 at 31 December 2000.
Storebrand ASA still has one of the largest numbers of shareholders of all companies listed on Oslo Stock Exchange. The company has shareholders from all the municipalities in Norway and from 38 foreign countries
As one of the country’s leading financial institutions, Storebrand is dependent on maintaining an orderly relationship with the financial markets and control authorities. The company therefore places particular emphasis on ensuring that routi-
The dividend to shareholders will normally be in the order of 15-30% of profit after tax. The Board intends to operate the company’s dividend policy with a view to the longer term, and will endeavour to ensure stable growth in dividend per share over time.
However in view of the weak results reported for 2001, the Board has decided to recommend to the Annual General Meeting be held on 24 April 2002 that no dividend be paid in respect of the 2001 accounting year.
Financial income and financial expenses Interest income from securities 42.3 17.7 58.6 Other interest income 49.1 22.8 37.2
Gain on sale of securities 31.8 31.7 60.3 Unrealised gain on securities 34.9 101.4 Other financial income 2.7 1.1
Storebrand ASA Profit and Loss Account 1 January - 31 December
Properties and real estate 10 63.4 61.3 59.0 Shares and participations in group companies 6 7 418.2 7 217.0 6 660.0 Shares and other equity investments - long term holdings 7 1.5 7.0
Insurance premiums for own account 9 579.3 9 595.9 10 529.5 Interest and related income - banking 20 2 671.2 2 270.2 923.4
Net profit from non-life insurance 301.6 From (to) market value adjustment reserve 2 154.2 5 598.2 -5 868.4
Shares and other equity investments - long term holdings 29 35.5 36.0 43.7
Other long term financial assets 32,33 4 320.5 4 525.0 2 617.9 Shares and other equity investments 29 22 972.5 36 287.6 38 705.3
Prepaid expenses and accrued income 1 872.7 2 129.2 1 896.8
Total equity capital and liabilities 152 214.4 156 744.1 149 647.2
Claims and benefits paid - direct insurance -7 447.3 -6 528.8 -13 633.2 Claims settlement from reinsurance in respect of claims and benefits paid 170.1 31.4 806.4
Cash flow from investment activities Receipts from loans to and claims on other financial institutions -146.9 -126.6 200.8 Receipts on claims previously written off 0.7 7.4
Receipts from sales of shares and other equity investments 207.0 803.1 35 976.8 26 235.5 18 824.5 Payments for purchase of shares and other equity investments -1227.8 -814.0 -2 566.1 -26 758.3 -33 666.9 -22 883.5 Receipts from sales of bonds 529.8 1 939.0 2 205.6 39 537.3 37 291.0 23 561.4 Payments on purchase of bonds -683.2 -1 760.0 -1 447.2 -38 590.1 -35 694.3 -32 514.1 Receipts on sale of certificates 3197.3 670.0 1 701.0 32 691.9 20 610.5 22 875.9 Payments on purchase of certificates -3877.6 -538.0 -1 818.4 -40 752.8 -22 951.0 -23 078.1 Receipts on sale of real estate 20.7 118.0 170.4 885.1 Payments on purchase of real estate -2.2 -2.4 -41.0 -41.9 -839.2 -2 358.2 Net cash movement on purchase/sale of other securities 7.2 279.0 -216.7 40.7 214.4 Net payments on purchase of fixed assets etc. 2.8 -92.3 -95.2 -155.4 -46.7 -3.2
Net cash flow from investment activities -2 053.7 -111.7 -1 237.5 -61.1 -13 780.7 -15 420.6
Cash flow from financing activities Deposits from customers 18 285.2 20 610.4 10 861.4
Net cash flow for the period -7.2 -197.4 139.2 -831.8 1 709.4 -1 887.7
Cash and cash equivalent assets at the end of the period 121.8 129.0 326.4 4 017.8 5 321.2 3 226.2
RECONCILIATION: Tax paid in the period -78.8 2.2 -8.7 Gains/losses on sale of fixed assets 1.7 -0.1
Difference between booked pension cost and payments/receipts to pension scheme -51.7 -0.5 -56.7 -55.6 Items classified as investment or financing activities 325.1 -2 648.2 -1818.2 349.0 46.8 -352.7
Net cash flow from operational activities for the year -283.2 -398.9 -260.7 -4 395.8 7 131.8 9 035.0
Auditors’ report for 2001 *) Respective Responsibilities of the Directors and Auditors We have audited the annual financial statements of Storebrand ASA as of 31 December 2001, showing a loss of NOK 80.0 million for the parent company and a loss of NOK 952.0 million for the group. We have also audited the information in the Board of Directors ’ Report concerning the financial statements, the going concern assumption and the proposal to settle the loss for the year. The financial statements comprise the balance sheet, the statements of income and cash flows, the accompanying notes and the group accounts. These financial statements are the responsibility of the company's Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on the other information according to the requirements of the Norwegian Act on Auditing and Auditors.
Basis of Opinion We have conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and good auditing practice in Norway. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and good accounting practice an audit also comprises a review of the management of the Company's financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion.
Opinion In our opinion, • the financial statements are prepared in accordance with the law and regulations and present the financial position of the Company and of the Group as of 31 December 2001 and the results of its operations and its cash flows for the year then ended, in accordance with good accounting practice in Norway.
• the information in the Board of Directors' report concerning the financial statements, the going concern assumption, and the proposal to settle the loss for the year are consistent with the financial statements and comply with the law and regulations.
With reference to the auditor's report of 19 February 2002 the Control Committee recommends that the Annual Accounts proposed be adopted as the Annual Accounts of Storebrand ASA and the Storebrand Group for 2001.
Board of Representatives' Statement – 2001 The Board of Directors' proposal for the Annual Report and Accounts, together with the Auditor's report and the Control Committee's statement have, in the manner required by law, been presented to the Board of Representatives. The Board of Representatives recommends that the Annual General Meeting approve the Board of Directors proposal for the Annual Report and Accounts of Storebrand ASA and the Storebrand Group.
Jens P. Heyerdahl d.y. Deputy Chairman of the Board of Representatives
Change in insurance reserves for own account -1 905.4 -1 194.3 -4 828.8
Total insurance related operating costs for own account -751.9 -784.6 -755.3
Transfer to insurance fund: premium reserve 0.0 -1 618.7 -1 867.9 Transfer to insurance fund: premium/pension adjustment fund 0.0 -1 881.8 -2 465.0
Receivables due from/securities issued by group companies 58.5 97.4 135.6 Shares and other equity investments - long term holdings 72.8 67.4 69.4
Insurance fund reserves for own account 99 201.0 99 984.8 97 024.8
Note 15: Senior executives, non-executive officers and other connected parties 61
Note 21: Losses and provisions for losses on loans, guarantees etc. 65
Consolidation principles The Storebrand Group is made up of companies in life insurance, non-life insurance, asset management, banking and other activities.
The group accounts consolidate Storebrand ASA and all subsidiaries where Storebrand ASA directly or indirectly owns more than 50%.
Investments considered to be of strategic importance where the group owns between 20% and 50% of the voting capital (associated companies), are consolidated in accordance with the equity method. This implies in general terms that the ownership interest is recognised in the accounts in line with the consolidation principles described in this section, but is presented as a single line in both the profit and loss account and balance sheet (‘single line consolidation’).
In the case of investments in jointly controlled companies which are separate legal entities, the equity method accounting or the proportional consolidation method of accounting are applied. The proportional consolidation method is used for jointly controlled companies which are not separate legal entities. The application of the proportional consolidation method leads to the inclusion in the parent company accounts of a proportionate share of assets, debt, income and expense.
Consolidation of subsidiaries Elimination of shares in subsidiaries is based on the purchase value method, where the capitalised value of shares in subsidiaries is eliminated against the equity capital in the subsidiaries. Any excess value/deficit is booked direct to the assets/liabilities in question and depreciated/taken as income in line with these. Any excess value which is not directly related to a specific item is classified as goodwill.
Elimination of internal transactions Internal receivables and payables, internal profits and losses, interest and dividends, etc. between group companies are eliminated in the consolidated accounts.
Minority interests are shown in the balance sheet as a separate item.
Tax payable is calculated on the basis of the taxable profit for the year. Deferred tax/tax assets are calculated on the basis of timing differences between accounting and tax values as well as the tax effects of losses and unused allowances carried forward.
Pension costs The net pension cost for the period is included under ‘salary and personnel costs’ and consists of the sum of pension liabilities accrued in the period, the interest charge on the estimated liability and the expected return on the pension funds.
Method of valuation The company routinely monitors the value of the properties that it owns. The properties are valued individually by discounting estimated future net income streams by a rate corresponding to the yield requirement for the relevant property. The net income stream takes into account existing and future losses of income as a result of vacancy, necessary investments and an assessment of the future development in market rents. The yield requirement is based on the expected future riskfree interest rate and an individually determined risk premium, dependent on the letting situation and the building’s location and standard.
Other real estate Ordinary depreciation is applied to real estate in the other businesses in the Group. Investment properties are valued on a portfolio approach. Where there is a permanent fall in value, the book value of the property is written down.
Specific loss provisions are intended to cover calculable losses on facilities which are identified as exposed to the risk of loss at the balance sheet date. In the event that a borrower becomes insolvent, enters into a composition with its creditors or is wound up, the value of any collateral security forms the basis for estimating possible losses. In other cases of default the borrower’s financial situation, including the capacity to service indebtedness, and the value of collateral security form the basis for estimating possible losses. A facility is defined as being in default if 90 days have passed since the facility went into arrears or an unauthorised overdraft arose and the arrears or overdraft have not been remedied, or if the borrower is subject to winding up or a composition with creditors. The possibility of loss is also considered when other conditions affecting the borrower such as weak liquidity, excessive gearing or weak earnings, or the value of collateral security, suggest that there is a risk of loss. The specific loan loss provisions considered necessary are established accordingly.
When an evaluation of a facility in default identifies the need for a specific loan loss provision to be established and the collateral security available is insufficient to cover interest and commission due, the accrual of interest, commissions and fees in respect of the facility ceases. In addition all interest, commissions and fees recognised to income in respect of the facility for the current year are reversed. When an evaluation of a facility not in default nonetheless identifies the need for a specific loan loss provision to be established, consideration is given to ceasing the accrual of interest, commissions and fees.
Properties repossessed in respect of loans in default are valued at their estimated realisable value. Any gains or losses upon sale, or any writedown as result of a fall in value of such properties, are recognised as part of loan losses.
Equity index bonds The issue of equity index bonds comprises three elements: the issue of a bond loan, the issue of a call option related to a stock exchange index and the purchase of an option to fully hedge the option element of the index bond. The bond loan and the option agreements are entered into simultaneously. The discount on the bond loan element is amortised up to nominal value in the period to maturity as an interest expense. The option premium received on the option issued and the option premium paid on the option bought are recorded gross. The difference between premium paid and received and the amount of commission paid is recognised to profit and loss at the date of issue.
Shares held as fixed assets Investments in shares in subsidiaries and in associated companies are considered as fixed assets where the investment is of a long term and strategic nature. A corresponding classification is made for strategic investments in shares.
Shares held as current assets Shares which are held as financial current assets are booked at market value. Market value is determined as the closing price on the Oslo Stock Exchange on the last trading day of the year, and the market price (last traded/bid price) in the case of shares listed on foreign stock exchanges. The market value of shares in other companies is determined on the basis of an evaluation of the information available.
Bonds to be held to maturity Bonds classified as to be held until maturity are managed in accordance with the Banking, Insurance and Securities Commission’s guidelines. Such bonds are booked at cost price at the time of purchase. Premiums /discounts in relation to par value are amortised over the bonds’ remaining term and recorded in the profit and loss account as an interest element.
In the group’s banking activities, only financial directives entered into in respect of proprietary trading (the trading portfolio) are valued at market value.
The various categories of financial derivative are described in ‘Terms and Expressions’ on page 78.
Stock futures and interest rate futures Futures contracts (including stock futures) are reconciled daily on the basis of the previous day’s market prices. Changes in the values of futures contracts are recorded in the accounts as they occur as realised profit or loss.
Unrealised gains or losses recognised to profit and loss do not affect the market value adjustment reserve in the life insurance companies. Changes in the value of forward foreign exchange contracts in respect of any active currency positions do affect the market value adjustment reserve.
Foreign exchange contracts are valued at the exchange rate prevailing on the date of the balance sheet.
Premiums for own account Premiums for own account comprise premium amounts which fall due during the year, transfers of premium reserve and premiums on reinsurance ceded. Accrual of premiums earned is made through allocations to premium reserve in the insurance reserve.
Income and expenses of financial assets - Market value adjustment reserve The income and expenses arising from financial assets reflect both realised items and changes in unrealised value. Unrealised additional value is applied to a market value adjustment reserve and does not affect profit and loss. Financial expenses include the administration costs associated with the financial activities.
Transfer of premium reserves Transferred premium reserves in the insurance fund on the transfer of policies between insurance companies are booked to the profit and loss account at the date the risk is transferred. The year’s mandatory allocations to the premium reserve are correspondingly reduced. In addition, the premium reserve transferred includes the policy’s share in the year’s realised and unrealised profit.
It is possible to increase the fund by 50% above the minimum allocation. In special situations the Banking, Insurance and Securities Commission may give permission that all or part of the fund be used to cover a fall in the value of securities. In the accounts the entire fund is shown as a mandatory fund.
UNIT LINKED Unit linked products are sold through Storebrand Fondsforsikring AS. Financial assets are recorded at market value. The level of technical reserves required in respect of such contracts is determined by the market value of the financial assets. The financial risk associated with such investments is borne by the policyholder.
STOREBRAND ASA: DIVIDENDS AND GROUP CONTRIBUTION The cost method of accounting is used to arrive at the value of subsidiaries in the parent company accounts. The main income of Storebrand ASA is the return on capital invested in subsidiaries. In the company’s accounts group contributions and dividends received in respect of these investments are therefore recorded as ordinary operating income. This treatment can only be applied to income earned by the subsidiaries during the period of Storebrand ’s ownership. When this is not the case receipts are recognised as equity transactions, and this implies that the value of the investment in the subsidiary is reduced by the amount of group contribution or dividend received.
Estimated effect of future salary growth -171.6 -26.2 -197.8 -206.5 -32.8
Effect of changed assumptions not booked to P&L -9.8 53.8 2.2 46.2 -94.6 14.2
Notes Storebrand ASA Note 1: Group contributions and dividends from subsidiaries
Ordinary wages and salaries 37.7 92.8 287.1 Employer's social security contributions 13.7 25.3 59.0
Fair Financial Ireland plc. Danmark DKK 250 125 50.0% 0.0 Euroben Life & Pension Ltd. Irland EUR 1 634 50.0% 75.0 *) 74.9% held by Storebrand Livsforsikring AS. Minority interests amount to 0.2%.
+Prior year dividend from subsidiaries 530.6 0.8 0.8 -Current year dividend from subsidiaries -530.6 -0.8 -Non-taxable group contribution -647.9
Tax base for the year 1 202.6 1 608.6 475.9 - Tax losses carried forward -428.5
Idar Kreutzer, Chief Executive Officer, received salary and other benefits totalling NOK 2.8 million in 2001. His terms of employment provide a guarantee of 24 months' salary following the expiry of the normal notice period. All forms of work-related income from other sources, including consultancy assignments, will be deducted from such payments. Kreutzer is entitled to a bonus scheme based on the performance of Storebrand’s share price (see note 15) and he is a member of the Storebrand pension scheme on normal terms.
Of which listed Norwegian shares 628.4 Of which listed foreign shares 0.0
Accrued pension liabilities 324.1 365.2 -41.1 Profit and loss account 10.5 13.1 2.6
Deferred tax (change applied to profit and loss) 173.6 0.0 22.4 0.0 -151.3
*) No single investor is permitted to hold more than 10% of the shares of a financial institution. However banks may, with the approval of the authorities, hold more than 10% in their capacity as a manager of assets.
No. of shares No. of Loan Interest rate Repaymt. owned *) bonus units NOK 1,000 at 31.12.01 basis****)
Board of Directors Leiv L. Nergaard 4 000 Halvor Stenstadvold 93 Brit Kristin Sæbø Rugland ******) 24 047 Knut G. Heie
Harald Tyrdal 100 *) The summary shows the number of shares owed by the individual, as well as his or her close family and companies where the individual exercises significant influence (cf. Accounting Act 7-26).
Storebrand ASA has given the following guarantees: 1) Institute of London Underwriters (ILU) GBP No specified amount 0 2) Norges Bank NOK No specified amount 0 1) Counter indemnity of Oslo Reinsurance Company ASA (formerly UNI Storebrand International Insurance AS). 2) Guarantee issued 1998 in respect of management of the Norwegian Government Petroleum Fund.
Control committee Nils Erik Lie 0 Brit Seim Jahre 0 Sverre Bjørnstad 2 816 Harald Moen 322 Carl Graff-Wang 0 Jon Ansteinsson 4 334
Note 15: Senior executives, non-executive officers and other connected parties (continued)
Explanatory note: Life insurance comprises: Storebrand Livsforsikring Group, Storebrand Fondsforsikring AS, Storebrand Helseforsikring AS, Storebrand Systemutvikling AS and Euroben Asset management comprises: Storebrand Kapitalforvaltning ASA, Storebrand Fondene AS and Storebrand Kapitalforvaltning Holding AS.
Change in specific loan loss provisions for the period 0.7 22.7 -19.3 4.1 -125.8 8.1 Change in general loan loss provisions for the period -0.6 -0.4 -136.5 -137.5 -55.2 23.9 Realised losses on loans where specific provision has previously been made -11.0 -136.0 -147.0 -89.6 -16.1 Realised losses on loans where no specific provision has previously been made -0.2 -1.2 -11.1 -12.5 -22.0 -2.6 Recovery of loan losses realised previously 0.6 22.7 0.7 24.0 48.1 31.4
Loan losses and provisions for the period 0.5 32.8 -302.2 -268.9 -244.5 44.7
Interest and related expense on liabilities to credit institutions -20.8 -23.4 -13.4 -147.8 -208.8 -35.7 -168.6 -232.2 -49.1 Interest and related expense on deposits from and liabilities to customers -404.3 -307.8 -273.2 -527.9 -409.7 -122.4 -932.2 -717.5 -395.6 Interest and related expense on securities issued -311.5 -145.3 -90.7 -434.7 -308.4 -94.0 -746.2 -453.7 -184.7 Interest and related expense on subordinated loan capital -42.8 -29.9 -6.7 -42.8 -29.9 -6.7 Other interest and related expense -145.9 -222.2 -17.2 -12.1 -35.8 -22.4 -158.0 -258.0 -39.6
Costs arising from properties and real estate *) -130.4 -72.1 -134.5 -130.6 -57.1 -121.1 Valuation adjustments - shares -35.0 -35.6 Valuation adjustments - interest bearing instruments -30.9 Write-down of real estate -81.5 -393.6 -163.8 -81.5 -393.6 -163.8 Loss on sale of shares -13 298.4 -9 925.3 -4 202.5 -13 778.6 -9 994.4 -4 206.8 Loss on sale of interest bearing instruments -1 653.1 -4 314.6 -3 166.7 -1 663.6 -4 332.7 -3 166.9
Total costs of financial assets -17 465.6 -20 588.3 -7 943.7 -18 210.8 -21 592.3 -7 730.7
Staff pensions are provided by a group pension scheme, primarily with Storebrand Livsforsikring AS in accordance with the rules on private occupational pension schemes. Pensions are payable at pension age which is 67 for executives and 65 for underwriters. The ordinary retirement age is 65, and a retirement pension equivalent to 70% of pensionable salary becomes payable on retirement.
Pension benefits form a part of the group collective employment terms applicable to employment by Storebrand ASA. Early retirees are defined as those who retire before reaching 65 years of age.
Pension costs and pension liabilities are treated for accounting purposes in accordance with the accounting standards for pension costs issued by the Norwegian Accounting Standards Board (see also Accounting principles). Both insured and uninsured schemes are treated as defined benefit plans.The following assumptions have been used in the calculations: Financial assumptions – Return on pension fund 8.0% – Discount rate 7.0% – Annual earnings growth 3.0% – Expected adjustment of
The calculations apply to 1,359 employees and 2,483 pensioners. Net accrued pension costs are shown in the table below.
Ordinary wage and salary expenses 256.7 223.4 132.7 203.1 815.9 841.0 837.7
In addition Finansbanken has capitalised NOK 4 million in respect of its brand-name.
Estimated effect of future salary growth -260.2 -49.0 -309.2 -336.1 -114.8
Deviations from estimates not applied to profit and loss 93.4 -2.9 2.2 92.7 -109.6 45.5
Net pension liability as shown in the balance sheet 536.9 -392.2 -86.4 58.3 -15.9 -188.3 *) Deviations from estimate are booked against the "corridor" in accordance with Norwegian Accounting Standards and amounts in excess of the corridor are recognised to profit and loss over the remaining period for accrual of pension rights (cf. Accounting Principles). Estimated employer's social security contributions in respect of the pension liability shown in the balance sheet amounts to NOK 60.5 million and is included in the balance sheet under 'Reserves for other risks and costs'.
Geographic location Office premises (inc. commercial premises, parking and storage) 6 105.1 1 405 5.3 356 519 99.7% Shopping centres (inc. parking and storage) 4 757.5 1 228 3.0 332 938 99.0%
Storebrand WGA Health Care 1 777 1.8 1.9 Other fund units 0.8 0.8
Total shares and other equity investments - Norwegian 8 468.4 8 987.8
Analysis by currency: *) differs from balance sheet figure due to fund units not invested in securities but held in bank or settlement accounts.
Total shares and other equity investments (current assets) 22 117.9 22 972.5
Note 32: Financial derivatives The concepts applied in the following tables are set out in the following section.
Bonds held to maturity - Norwegian - Of which listed securities Average effective yield 6.42 %
Nominal volume Credit Acquisition Market Gross Average Net equivalent cost value
Recognised to P&L in 2001 -759.4 -10.0 -769.4 Return of capital 429.7 429.7 Currency translation 10.9 10.9
Total liabilities to other financial institutions 300.0 4 050.7 4 350.7 4 280.5 3 116.8
Goodwill depreciation - Finansbanken -16.4 Allocated for dividend -305.3 -277.4 Accumulated result of Fair before consolidation -77.5 Share issue (net proceeds) 5.8 5.8 14.6 Other capital movements 18.4 92.0 -9.1
Financial instruments Under N GAAP interest bearing securities, shares and financial derivatives are carried at market value. Unrealised changes in value are transferred to a market value adjustment reserve, but changes in unrealised value arising from the exchange rate at the balance sheet date are recognised to income.
Earnings per ordinary share: The calculation of earnings per ordinary share is based on profit after tax adjusted for changes in statutory security reserves etc. in respect of non-life insurance. These statutory reserves include security, reinsurance and administration reserves, as well as the guarantee reserve. The total number of shares used in the calculation is taken as the average number of ordinary shares in issue over the course of the year. In the event of new issues of shares, the new shares are included from the date of subscription.
Equity capital: Equity capital consists of share capital subscribed and accrued earnings. Share capital subscribed is recorded as share capital and share premium reserve. Accrued earnings are recorded as a reserve for valuation differences and other equity.
Return on capital: Return on capital shows net realised income from financial assets and changes in the value of real estate expressed as a percentage of the average of the company 's total assets over the year in accordance with rules set by the Banking, Insurance and Securities Commission. The value-adjusted return on capital shows the total of realised income from financial
Terms and expressions assets, changes in the value of real estate and the year's change in unrealised gains expressed as a percentage of the average of the company's total assets over the year at market value.
Risk result: The result arising from the incidence of mortality and/or disability during a period deviating from the assumptions used for the premium tariffs.
Unit linked: Life insurance offering investment choice where by the customer can influence the level of risk and return by selecting in which funds assets are to be invested.
Forward Rate Agreements: Forward Rate Agreements (FRA) are agreements to pay or receive the difference between an agreed fixed rate of interest and the actual rate for a fixed future period of time. This difference is settled at the start of the future interest period. FRA contracts are particularly appropriate to the management of short-term interest rate exposure.
Interest rate swaps: Interest rate swaps are agreements between two parties to exchange interest rate terms for a specified period. This is normally an agreement to exchange floating rate payments for fixed rate payments, and this instrument is used in the management of long term interest rate risk.
Share options: The purchase of share options confers a right (but not an obligation) to buy or sell shares at a pre-determined price. Share options may be related to stock market indices as well as to specific individual stocks. The sale of share options implies the equivalent onesided obligation. In the main exchange traded and cleared options are used.
Storebrand Livsforsikring AS 100.0 % NOK 1 361.2 Storebrand Eiendom AS 100.0 % NOK 1.0 Storebrand Pensjonstjenester AS 100.0 % NOK 3.7 Aktuar Consult AS 100.0 % NOK 1.5 Aktuar Systemer AS 100.0 % NOK 4.1 Scanvik Corporation 100.0 % USD 8.0 Storebrand Kjøpesenter Holding AS 100.0 % NOK 14.0 Storebrand Nybygg AS 100.0 % NOK 112.0 Hoffsvn. AS 100.0 % NOK 0.1 Norben Life and Pension Insurance Co. Ltd. 25.0 % NOK 63.6 AS Værdalsbruket *) 74.9 % NOK 4.8
Storebrand Helseforsikring AS 50.0 % NOK 30.4 Fair Financial Ireland plc. 50.0 % DKK 250.0 Euroben Life & Pension Ltd. 50.0 % EUR 1.0
Storebrand Leieforvaltning AS 100.0 % NOK 10.0 Storebrand Felix kurs- og konferansesenter AS 100.0 % NOK 1.0 Storebrand ITI AS 100.0 % NOK 0.1 Adviso AS 36.5 % NOK 20.5 Storebrand Systemutvikling AS 100.0 % NOK 5.0 Assist Group AS 99.3 % NOK 40.6 Compensation Management AS 100.0 % NOK 12.5 *) Storebrand ASA owns 24.9% and Storebrand's total interest is 99.8%.
Group companies: Finansbanken ASA Stortingsgt. 8 P O Box 817 Sentrum N-0104 Oslo Tel: +47 22 47 40 00 www.finansbanken.no
Finansbanken Forvaltning AS Stortingsgt. 8 P O Box 267 Sentrum N-0103 Oslo www.finansbanken.no
Europeiske Reiseforsikring Haakon VIIs gt. 6 P O Box 1374 Vika N-0114 Oslo www.europeiske.no
Adviso AS Filipstad Brygge 1 P O Box 1375 Vika N-0114 Oslo www.adviso.no
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