Content: Key Figures Group page 2 Main Events of 2001 page 3 Storebrand at a Glance page 4 In the words of the CEO page 8 Report of the Board of Directors page 12
Corporate Social Responsibility page 40 Corporate Governance page 42 Shareholder Matters page 46
Accounts: Storebrand ASA page 50 Storebrand Group page 52 Cash Flow Analysis page 54 Storebrand Livsforsikring Group page 56 Notes to the Accounts - Contents page 57 Audit Report for 2001 page 58 Notes to the Accounts of Storebrand ASA page 61 Notes to the Accounts of the Storebrand Group page 70 N GAAP and US GAAP page 83 International Accounting Standard page 84
Storebrand Group Companies page 85 Terms and Expressions page 86 Storebrand´s Executive Management page 88 Addresses page 89
Storebrand made pension and insurance payments of over NOK 5 billion in 2002. This is one of the figures that underline the importance of the group's activities, not just for private individuals and companies but for society as a whole. We help ensure that our customers enjoy a more secure future by meeting their needs for financial predictability and independence.
Dividend per ordinary share excl. extraordinary items**) -3.73 -4.15 1.67 3.54 1.98
The most extensive court hearing of a labour market dispute ever seen in Norway commences. Proceedings are brought against 11 municipalities because they have chosen to transfer their pension schemes from KLP to private companies.
Following the decision by DnB on 29 June to cancel the integration agreement, Storebrand’s Board of Directors votes unanimously on 30 June to abandon the merger negotiations.
In parallell with new falls in the equity markets, the group's life insurance company makes major changes to its investment portfolio in order to protect its buffer capital.
In response to the results of the major pensions and savings survey carried out earlier in the year, Storebrand arranges 24 customer seminars around the country with a particular focus on pension arrangements for employees.
Storebrand Life Insurance is a leading pensions and life insurance company, with a 29%
share of the Norwegian market measured in terms of customers' funds under management. The company’s main areas of focus are pensions, life insurance and health insurance products for private individuals, corporate customers, Norwegian municipalities and independent public sector entities.
Storebrand Investments manages assets totalling NOK 140 billion for pension funds, private and public sector institutions, private individuals and the Storebrand group companies. Storebrand offers discretionary asset management services, a wide range of
Norwegian and international mutual funds and investment products with a particular focus on socially responsible investment (SRI)
Storebrand Bank has been responsible since 2000 for the Storebrand group's distribution, customer service and marketing of financial products and services to the retail market.
Finansbanken is a specialist bank for high net worth individuals and selected segments of the corporate market.
Storebrand Group Storebrand is a leading player in the markets for savings and life insurance. We have a strong position in life, pensions and health insurance as well as in banking services and asset management. Storebrand has an ownership interest in non-life insurance through its shareholding in If Skadeförsäkring.
In addition the company strengthened its position in new areas, including the market for public sector pensions and the health insurance market.
NOK 4 billion, despite a weak market for new investment. 68% of the discretionary portfolios outperformed the relevant benchmark indices, while 33 of Storebrand’s 57 mutual funds produced a return before management fees better than their benchmark return.
It was decided in November 2002 that the two banks should be merged. By bringing together its banking activities into a single unit Storebrand will create a stronger and more efficient banking operation, with total assets of approximately NOK 29 billion and some 75 000 customers. Creating a new bank and ensuring closer collaboration with other parts of the Storebrand group will give
Insurance achieves its objectives are its high level of technical expertise, low cost base, active risk management and the high quality of its asset management.
Number of mutual funds offered 57 1) External funds under management: Mutual funds 12.1 billion. Discretionary portfolios (including If) 21.6 billion.
Storebrand Investments offers a complete asset management concept based on active management using a specialised investment process. Storebrand's internationally competitive specialist products and its leading position for socially responsible investment will make Storebrand Investments the preferred asset manager in Norway, whilst also attracting international asset management mandates.
2) Includes both defined benefit and defined contribution pension schemes as well as pension schemes for public sector entities and other organisations.
4) Pensions in payment includes those receiving retirement, disability and deferred pensions in respect of all group pension schemes, including individual policies for early leavers.
Employees of companies, public sector entities and other organisations 202 522
Last year was a period in which we concentrated on the factors over which we have control, and we worked determinedly on creating a stronger foundation for the company's future development. This included securing the financial strength that is needed to face uncertain market conditions, and we closed the year with a satisfactory risk bearing capacity for the group. This was due in no small part to a systematic focus on risk management throughout the year. Our financial condition makes it possible to retain higher-risk assets in our portfolio in order to participate in a future market upturn.
We have also intensified our focus on developing a performanceoriented corporate culture that works closely with its customers.
It proved necessary to focus the group's activities in response to changing market conditions, targeting greater efficiency and cost savings. We have further concentrated on the core activities and have according to the announced cost reduction programme reduced costs by NOK 160 million in total over the course of 2002.
Internal surveys demonstrate that we have succeeded in maintaining this dialogue in Storebrand. The survey results also give us important feedback for our continuing commitment to maintaining and developing a stronger and forward-looking corporate culture.
Storebrand made for this new product area, and we set up 247 new defined contribution pension schemes in 2002 as compared to 101 new schemes in 2001.
Storebrand's ambition is to be a leading player in the markets for savings and life insurance. We strive to build greater financial security for our customers and create value for our shareholders by having highly skilled employees and offering the best products in the market. Storebrand made pension and insurance payments of more than NOK 5 billion in 2002. This figure underlines Storebrand’s significance and the responsibility we share with our customers for their life situation, health and financial future.
Norwegian parliament has introduced more favourable tax treatment for this type of insurance.
Storebrand will continue to press for a level playing field of effective competition for the municipality pension market, which represents some NOK 120 billion of premium reserves. We also have high expectations for the work of the Pension Commission appointed by the government. The Commission's findings may well lead to growth in the Norwegian pensions market in a number of areas, including the question of funding the earnings-related element of the state pension and looking at the possibility of individual choice for the management of personal fund entitlements.
Storebrand's asset management activities are responsible for funds under management totalling NOK 140 billion, of which the investments of our own life insurance activities account for some
Over recent years Storebrand itself has gone through a turbulent period of weak results as well as acquisition and merger processes.
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.
Insuring our children’s future Only 10 % of Norwegian children are covered by insurance for the serious financial consequences of illness and disability that might affect their future working life. There is a clear need for families and their children to make better insurance arrangements to protect their financial future. Storebrand offers a broad range of products that focus on family needs, and is the only company to offer child insurance that includes an annual disability pension.
The persistent turbulent conditions seen in financial markets have had a particularly adverse effect on the earnings of life insurance companies and fund management companies, and the Storebrand
Group's accounting results for 2002 are very weak. However despite a weak year for sales of savings products to the retail market, both for life insurance and mutual fund products, Storebrand has strengthened its position in a number of important areas. The group has reduced its sensitivity to continuing weak market conditions through its strong focus on risk management. In order to pave the way for stronger future profitability, the Board placed particular emphasis in 2002 on internal measures to improve efficiency and cut costs. A decision was taken in Autumn 2002 to merge
Storebrand ASA took over the shareholding in If previously held by
Storebrand maintained its strong market position in most of areas of its life insurance activities in 2002 and the company strengthened its position in new areas of activity, including the market for public sector pensions and the health insurance market. Sales of health insurance grew strongly in 2002, and the change to exempt premium payments for company health insurance schemes from tax and employer’s social security contributions is expected to encourage further sales growth in 2003. Around half of companies that do not already operate an occupational pension scheme now choose defined contribution pension arrangements. Storebrand has enjoyed success in this market. The turbulent conditions seen in financial markets caused sales of savings products to the retail market to be weaker than expected.
NOK 1 253 million. The equivalent figure for 2001 was a loss of
NOK 422 million. The overall results of the life insurance company comprise three elements, namely interest result, risk result and administration result. The relative investment return achieved was satisfactory, and was 18 basis points over the benchmark return.
However the investment return for 2002 was low in absolute terms due to the persistent turbulence and falling prices seen in the financial markets. The realised investment return for the year was 2.7%, and therefore fell short of the guaranteed return to policyholders which is on average 3.8%. This shortfall was met from additional statutory reserves. The risk result was somewhat weaker than in 2001. The administration result was broadly in
Other life insurance activities: Storebrand’s other life insurance activities principally comprise the group’s activities in the areas of unit linked products, defined contribution pension schemes, health insurance and pan-Scandinavian life insurance products. These new activities reported sound growth and business development, but as expected their total contribution to profit was negative in 2002.
Net new inflows to Storebrand’s mutual funds were very strong by comparison with the group's competitors. Storebrand attracted net new inflows of NOK 2 260 million, while other fund management companies suffered an overall net outflow. This helped to increase Storebrand’s market share from 10.1% to 10.8% over the course of 2002.
Storebrand Bank: The Storebrand Bank group reported a pre-tax loss of NOK 39 million in 2002 as compared to a loss of NOK 43 million for the previous year. Normal operations in isolation reported an improvement from 2001. After adjusting the reported losses for the effect of the sale of Storebrand Finans and writedowns of shares held as fixed assets, 2002 showed an improvement of NOK 131 million from 2001. Net interest income was higher in 2002, but commission income was lower as a result of weaker sales volumes for savings products and a reduction in the value of funds under management. Storebrand Bank focused strongly in 2002 on realising the benefits of the improvement measures previously approved as well as introducing new measures to improve efficiency. In addition to the approved merger, the bank has decided to pay particular attention to sales and customer service for the retail market.
Storebrand’s non-life insurance activities in 2002 comprised a 22.47% interest in If and a 100% interest in Oslo Reinsurance
Storebrand Skadeforsikring group reported a consolidated pre-tax profit of NOK 10 million for the year as compared to a loss of
NOK 769 million for the previous year. Underwriting results improved, principally as a result of measures implemented in If in respect of premiums and costs over the course of 2002. If's combined ratio was 106.1% in 2002 as compared to 113.1%
The group’s overall exposure to investment risk is determined by the allocation of capital between different classes of assets such as bonds, real estate, shares etc. The group's strategic asset allocation is determined annually by the boards of the individual group companies, and is set out in the companies’ investment policy statements. The companies’ investment policies will also cover appropriate procedures for risk management, position limits for foreign exchange risk, guidelines for the use of derivative instruments and limits for credit risk in various rating classes.
banks’ boards. The group’s asset management activities incur credit exposure to counterparties, and this is managed by establishing a credit limit for each counterparty based on credit rating agency classifications supplemented by in-house analysis.
Internal control and reporting forms an integrated part of the company 's strategic planning and budgeting process. Critical operational risk exposure is identified and evaluated, and any improvements found necessary in control mechanisms and other routines are implemented and reported on a company by company basis. A summary of internal control and reporting and measures implemented is submitted for review by the Board of Directors annually. The internal audit function produces quarterly reports for the Board of Directors.
The group’s equity capital fell by NOK 1 081 million to NOK 8 536 million in 2002. Storebrand ASA had distributable reserves of NOK
Storebrand ASA issued a Euro 160 million exchangeable bond in the international bond market. This strengthened Storebrand’s liquidity, and extended the maturity profile of its borrowings. An exchangeable bond is a convertible loan which gives investors the right to exchange the principal amount to shares in a company other than the issuer, in this case Orkla ASA.
Storebrand ASA had total liquid assets of NOK 1.9 billion at the close of 2002, and also has available an un-drawn long-term credit facility of EUR 225 million.
The turbulent conditions seen in 2002 has increased focus on the company's financial condition. Storebrand Livsforsikring is rated A- and A2 (negative outlook) by Standard & Poor’s and
is rated BBB- by Standard & Poor’s. Fitch Ratings has rated
Employment in the group totalled 1 337 full time equivalent positions at the end of 2002 as compared to 1 473 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. All Storebrand employees are treated equally, regardless of gender, age, disability, faith, cultural differences or sexual orientation. The composition of the group's staff is well balanced, with a good mixture of both experienced and younger members of staff of both sexes. The group strives to increase the number of women in management positions, and the proportion of female managers has increased from 25% to 36% over the period 1999-2002. Storebrand has participated for many years in the Administrative Research Fund's mentor program for female staff, and all management development programs are required to have an equal composition of male and female participants.
with their employment. This represents an improvement from the previous survey carried out in 1999 (91%). The survey also generated valuable input from employees on areas of possible improvement, and these issues will receive attention.
‘More inclusive working life’. Storebrand’s objective in formalising this arrangement is to direct further focus on the company's systematic program of work in the areas of health, working environment and safety, with particular focus on issues that affect the work environment, absence due to illness and policies for older employees. Absence due to illness for the group as a whole totalled 3.9% in 2002 as compared to 3.6% in 2001. No personal injuries, damage to property or accidents of any significance were reported in 2002.
Storebrand’s environmental impact: Storebrand’s impact on the external environment relates principally to consumption of energy and paper, waste and transport. The company is committed to reducing its impact on the environment. A reduction in the consumption of energy and materials will not only reduce the environmental impact but will also permit cost savings.
Storebrand’s head offices are heated solely by remote heating and recycled heat, and this energy consumption therefore does not generate any direct CO2 emissions. The cooling systems make use of seawater in order to reduce energy consumption. In order to reduce paper consumption the company runs an internal program to encourage more careful use of paper. The facilities available for two-sided copying and printing have been improved as equipment has been replaced. All material amounts of waste are sorted by type. Used electronic equipment is either reused or sent for recycling.
The Board has on a number of occasions reviewed its own working methods and the processes involved in preparing for and conducting board meetings. The Board carried out a review of its work in 2002. The Board has established two advisory committees on remuneration and internal audit in order to make the work of the
In addition Harriet Hagan, Christen Sveaas and Barbara Thoralfsson were elected as new members of the Board of Representatives.
Finn Jebsen was elected as a new deputy member of the Board of Representatives. There were no changes to the membership of the Control Committee in 2002. The Board of Directors wish to thank all the retiring members of the Board of Directors and
Nina E. Smeby (employee elected representative) Manager Bank Products Storebrand Bank
Rune Eikeland (employee elected representative) Regional Manager Retail Distribution, Storebrand Bank
Factors such as the need for increased pensions saving for an ageing population, the introduction of new products and changes in the Norwegian pensions system will create exciting new opportunities for the group going forward.
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 shall contribute to ensuring that shareholders receive a competitive return, whilst also ensuring that the company maintains an optimal capital structure. The company has also stated that dividend to shareholders will normally be in the order of 15-30% of profit after tax.
In view of the weak results reported for 2002 and the established dividend policy, the Board has decided not to recommend a dividend in respect of the 2002 accounting year. The loss for the year of NOK 73.7 million will be applied against other equity.
Storebrand Life is the largest private sector company in the Norwegian life insurance market, with a market share of 29% in terms of policyholders’ funds under management. The company’s main areas of focus are pensions, life insurance and health insurance products for private individuals, corporate customers and public sector entities.
Storebrand maintained its market position in most of these areas in 2002. In addition the company strengthened its position in new areas of activity, including the market for public sector pensions and the health insurance market.
In addition almost 100 000 Norwegians have private pension policies with Storebrand. Around 170 000 pensioners who arranged private policies or are members of company pension schemes currently receive pensions from Storebrand.
The company expects to generate increasing profitability from growth in sales of life insurance products to the retail market through both in-house and external sales channels. The market offers good potential for sales of products such as child insurance, health insurance and critical illness cover. Sales of health insurance grew strongly in 2002, and the change to more favourable tax treatment for company health insurance schemes for employees is expected to encourage further sales growth in 2003.
Storebrand Life Insurance's objective is to increase the proportion of employees of the group's corporate customers that also use
Storebrand for their personal insurance needs, and it collaborates closely with other companies in the group to develop products and customer services for this market.
Premiums written for group pension insurance increased by 4%, and premium reserves transferred were 46% higher than in 2001.
The group enjoyed a high level of activity in its corporate market area in 2002, with particularly strong growth in sales to the small business segment. Storebrand arranged 247 new defined contribution pension schemes in 2002 as compared to 101 new schemes in 2001.
However the parties to the national employment tariff for municipality employees, the Norwegian Association of Local and
Employees, decided that this exemption did not satisfy the requirements of the national agreement. As a result of this, only four municipalities made the decision to cancel their contracts with KLP. Two of these, Narvik and Båtsfjord, representing total premium reserves of around NOK 550 million, chose to transfer their pension schemes to Storebrand. Storebrand has agreed to meet the costs of these two municipalities in the event of any further legal proceedings. The Norwegian government has stated that new regulations will be introduced in 2003 to ensure a level playing field for competition in the municipal pension market.
Sales of life insurance products with no savings element did not grow as strongly as expected in 2002. The company has carried out further research to provide the basis for a more targeted approach to sales of such life insurance products in 2003.
The company's total premium income was NOK 8 916 million representing a 5% increase from premium income of NOK 8 506 million in 2001.
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 2002 was not sufficient to meet the guaranteed minimum return,
Storebrand Life Insurance’s performance in 2002 was stronger than that of its competitors. Realised investment return was 2.7% for the year, with a value adjusted return on current assets of 1.9%. If bonds held as fixed assets are included in the figures, the value adjusted return rises to 2.6%.
The life insurance company's risk bearing capacity was satisfactory at the close of 2002. The solvency margin was 161%, well within EU requirements. The company's capital ratio was 18.4%
Realised (booked) return is the total of fixed financial income and how much profit and loss has been realised in the securities portfolio, together with value adjustments in the real estate portfolio. Value adjusted return is the sum of realised return and changes in the market value adjustment reserve. Whilst realised return will normally be relatively stable as a result of current financial income, value adjusted return will vary in line with changes in market value.
Storebrand again kept costs under close focus in 2002, and this included freezing the salaries of senior and middle management.
Storebrand achieved a continuous improvement in costs from 0.96% in 1999 to 0.94% in 2000 and 0.88% in 2001. The equivalent figure for 2002 was 0.92%. The life company will continue to pay close attention to costs in 2003.
Portfolios (NOK million) % Market value % Exposure Market value Exposure
The EmbV of Storebrand Life Insurance and Storebrand Fondsforsikring (Storebrand Fund Management) was NOK 7.4 billion at the close of 2002. This represents a reduction of NOK 0.1 billion from 2001.
The Norwegian stock market fell by over 30% in 2002. Global equity markets as measured by the Morgan Stanley MSCI global index fell by almost 40% in 2002, and the cumulative fall since 1999 is over 50% in NOK terms. One has to look back more than 70 years to find a similar dramatic and sustained fall in share prices.
Additional statutary reserves, equivalent to one year’s guaranteed interest Market value adjustment reserve Ajusted core capital margin Retained earnings
Write-back of additional statutory reserves 715.9 69.9 225.8 1 011.6 407.6
Policyholders' share of profit 3 951.4 a) Adjusted to show analysis of results as if subsidiaries were recognised in the accounts by the gross method rather than the equity method. b) Includes: Security reserves, subordinated debt capital, book equity and liability items.
Investments' investment process and where Storebrand has a natural competitive advantage through the knowledge of its employees and its regional and industrial expertise.
Inflows to mutual funds and the profitability of asset management are highly correlated to global equity market performance, as the chart on the following page shows.
Global equity markets fell by 38.1% in 2002 measured in NOK.
Market conditions prompted a change in product mix for both the retail and institutional markets. Customers showed an increasing preference for fixed income products, and these typically carry lower management fees. It is increasingly common for institutional investors to engage consultants to help them select the most cost-effective solutions. This leads to more demanding requirements for customised portfolios, new risk management systems and a higher level of service. This in turn puts further pressure on profit margins in the asset management industry. These trends represent a real cost challenge, particularly for smaller asset management operations.
NOK 4 billion, but falling equity market meant that the total value of assets under management fell from NOK 145 billion to NOK
Storebrand's asset management activities produced an overall profit before tax and non-recurring items of NOK 5.5 million in 2002. After deducting non-recurring items of NOK 18 million related to restructuring measures, the pre-tax loss for the year
The weaker earnings reported for 2002 reflect the sharp falls seen in equity markets and the low level of net savings inflows to equity funds.
Storebrand Alternative Investments, pre-tax loss for 2002 was NOK 16 million.
Investment return is becoming an ever more important competitive factor. International surveys demonstrate that virtually all new investment in retail market funds goes to the funds with the highest rankings, i.e. four or five star rankings by Morningstar or
Storebrand Investments: Quarterly pre-tax profit/loss (NOK million) Morgan Stanley World Index (left axis) Quarterly net inflows to mutual funds (right axis)
that an investment return 0.1 percentage points higher than the competition leads to a 1 percentage point higher market share.
Storebrand Investments produced a better than benchmark return on 9 of the 11 portfolios it manages for Storebrand Life
Insurance, and the overall return was 0.23% better than the benchmark return. The investment return on equity investments was particularly strong for the Norwegian and Asian portfolios, and Norwegian bond and money market portfolio also made a positive contribution. The areas which underperformed relative to the benchmark were principally tactical allocation positions in
Standard & Poor's has ranked all funds registered for sale in Norway, and the summary on the previous page shows results for
Storebrand’s funds as at 27 December 2002. 54% of Storebrand’s funds are in the four or five star categories, as compared to 30%
This fund aims to deliver a high absolute return, with limited volatility and only moderate correlation with traditional asset classes.
Allokering’, in 2002. This fund actively allocates its investments between equity and fixed income markets, and the fund managers monitor a variety of markets in order to invest where they believe the best return is to be had at any one time.
Storebrand Investments introduced automated processes in 2002 that have permitted cost savings while also reducing the frequency of errors. The improved operational efficiency this represents positions the company as the most efficient operation organisation in the Norwegian asset management market. Operations staff numbers were reduced from 68 to 52 from 1 November 2001, and further improvements in efficiency are in the pipeline.
Storebrand Investments' success in automating its transaction processes has created the basis for a new area of business.
The company is working with selected customers to evaluate the possibility of taking over their operational functions. This would represent a new business area using existing infrastructure.
The Storebrand Principle Funds product group has proven to be internationally competitive, and these funds are now distributed in France, Australia, Sweden and Great Britain.
The merger will take place in March 2003, but with accounting effect from 1 January 2003.
The new bank will be known as Storebrand Bank ASA. The
Finansbanken brand will continue to be used for some customer segments. The merger will realise significant cost savings, amongst others by integrating functions and reducing staff numbers.
The merger will bring Storebrand’s banking strategy more closely into line with the group's overall strategic direction. Storebrand
Since 2000 Storebrand Bank has operated a separate unit responsible for the Storebrand group's sales and customer services for the retail market. This unit functions as a shared distribution platform for all the group's product companies, ensuring a co-ordinated marketing strategy and presenting a unified face for the group's contacts with its customers.
At the end of 2002 Storebrand Bank employed around 140 financial advisers located at customer centres and offices around
Internet banking service and a customer telephone service centre staffed by 35 advisers.
Finansbanken is a specialist bank for high net worth individuals and selected segments of the corporate market. Finansbanken offers specialist expertise in lending and project financing, principally for the real estate market, as well as products and services for wealth management.
Storebrand has a strong position in several product areas of the retail market. The group has a 31% market share for traditional life insurance, and a 27% share for unit linked products.
Storebrand attracted net inflows of NOK 696 million to its equity funds in 2002 as compared to the outflow of NOK 1 725 million seen for the market as a whole.
Finansbanken finances both owners and tenants in the commercial and residential property markets, principally in the Oslo and
Akershus region. This centrally located area of Norway saw a drop in turnover in the residential property market in 2002, but demand is expected to remain stable in 2003.
The commercial property market saw a sharp fall in rental levels in 2002. Sales turnover also fell, but there is still good demand for top-quality properties.
The general view in the commercial property market is that the major part of the correction in rent levels is now over. However the rental market is expected to remain uncertain until the economy returns to a faster pace of growth.
The Storebrand Bank group reported a pre-tax loss for the year of
Non-interest income principally comprises commission income from the distribution of life insurance, unit linked, mutual fund products and structured products. The drop in commission earned from sales of savings products reflects lower sales volumes and a reduction in the value of funds under management caused by the falling equity markets. The bank made significant savings in its personnel, IT and marketing costs over the course of 2002.
Net interest margin improved from 1.49% in 2001 to 1.65% in 2002. This improvement mainly reflects increased margins on lending and current accounts, and was partly offset by a drop in income from lower sales of structured products.
* Figures adjusted to exclude the impact of Storebrand Finans and Acta on the profit & loss account.
323.2 million, equivalent to a negative return on equity of 24.7%.
the overall credit risk in its lending portfolio. Gross lending to customers amounted to NOK 14 326 million at 31 December 2002.
Total assets reduced over the course of the year in line with the reduction in lending. The ratio of deposits to lending was 40%.
The bank has a well-balanced funding structure based on customer deposits, the issue of securities, money market borrowings in Norway and deposits from the international interbank market.
The bank has available un-drawn committed credit facilities equivalent to NOK 2 187 million. Total assets amounted to
1 647 million, and the parent bank had a capital base of NOK
for the parent bank) and a core capital ratio of 8.3% (9.1% for the parent bank). Finansbanken ASA carried out a private placement of shares with Storebrand ASA in September 2002, raising
Gross non-performing and problem loans totalled NOK 2 242 million at the close of the year, of which interest is no longer accrued on NOK 1 019 million. The net value of non-performing and problem loans after specific loan loss provisions of NOK
Storebrand Bank implemented a comprehensive program of measures in the second half of 2001, and as a consequence of this the bank's headcount reduced significantly over the course of 2002. This related principally to staff in the business support areas, but there was also some reduction in the number of financial advisers. Total employee numbers at Storebrand Bank fell by 62 over the course of 2002 to 384 at 31 December. The measures implemented helped to reduce costs at Storebrand Bank AS
by a total of NOK 137 million between 2001 and 2002.
Finansbanken's Norwegian activities had around 130 employees at year-end as compared to some 175 at the close of 2001.
Storebrand Bank offers a broad range of products, and this makes it possible to change the sales focus in order to offset a drop in income caused by weak conditions in the savings markets. This led to a change in emphasis in 2002 towards sales of savings products with a guaranteed return and personal risk insurance products.
The continuing work on improving the lending portfolio combined with adverse market conditions made it necessary to significantly increase loan loss provisions in order to reduce uncertainty in the portfolio.
Great efforts were made in 2002 to realise the plans made in 2001. In addition a number of new initiatives were launched over the course of the year to bring about further improvements in efficiency and to give a better match between costs and reduced levels of income.
The most important measures were to merge Storebrand Bank with Finansbanken, and to strengthen the unit responsible for retail sales and customer service. The merger of the two banks will create a more powerful position for Storebrand in the banking market and will realise significant cost savings.
The sales and customer service unit is responsible for all the group's sales and customer service activities for the retail market.
This unit includes Storebrand’s financial advisers and its customer centres, as well as sales support and marketing functions.
NOK 250 million as compared to a loss of NOK 767 million in 2001. The year's results were not satisfactory, but show significant improvement from 2001. This reflects stronger earnings in If,
If's results in 2002 (100% according to Swedish accounting principles ) were characterised by an improvement in the underwriting result but a weak financial return. If reported an operating loss of
Main features • Marked improvement in earnings for 2002. • Operating loss of NOK 250 million as compared to a loss of NOK 767 million in 2001. • If's combined ratio improved from 113.1% (pro forma) in 2001 to 106.1% in 2002.
Sweden and Norway. The company has also focused on improving operational efficiency, and this is reflected in unchanged costs in nominal terms between 2001 and 2002. The investment return achieved in 2002 was 2.1%, reflecting weak conditions in the financial markets. The company reduced the risk profile of its investment portfolio over the course of 2002, and by the end of the year just under 10% of the total portfolio was invested in equities.
Other operating profit for Storebrand Skadeforsikring AS amounted to NOK 20 million, down from NOK 64 million in 2001. This was principally due to lower holdings of financial assets in 2002.
SEK million/S GAAP 2002 2001 2001 *) Pro forma figures include Sampo’s non-life insurance activities as merged into If from 02.01.2002.
The group's work in this area started in 1995 with an environmental report, and was subsequently expanded into a corporate social responsibility action plan for 2000-2002. The experience gained from implementing this plan and the results achieved formed the basis for a new action plan for 2003-2004.
We believe that by giving various stakeholder groups better insight into our main areas of business and our results and procedures we can help to create greater openness on corporate social responsibility in the financial sector. We are keen to encourage an active dialogue with stakeholder groups, and this gives us feedback and new ideas on what they expect of us and what we might do differently. This dialogue takes place in part through surveys and discussion groups, and in part through informal dialogue and discussions.
In order to gather ideas and comments for the 2003-2004 action plan we invited representatives of various stakeholder groups to a full-day conference in Autumn 2002 for a discussion of issues in the areas of health, business ethics, social responsibility and the environment. The conference theme was "Storebrand’s corporate social responsibility - are we heading in the right direction?" and the discussions provided valuable feedback and input that we used when preparing our new action plan.
We have achieved our objective, which included developing a specific set of criteria to identify investments that Storebrand Life Insurance will not consider holding. The life company's direct shareholdings and its entire European interest-bearing portfolio had been screened against these criteria by the end of 2001. The exclusion of unacceptable investments has not had any adverse effect on investment return, and customer feedback has been positive. Work will continue in this area in 2003, and this will include the introduction of additional criteria for Storebrand Life Insurance’s portfolio selection.
Storebrand does not intend to offer similar arrangements to other humanitarian causes for the moment.
Storebrand's commitment to corporate social responsibility represents a long-term strategy that is firmly anchored in the company's corporate vision and values. Recognising our corporate social responsibility means that we strive to base the strategy and management of our activities on a combination of financial, social and environmental factors.
Positive effects have included an improvement in the internal environment and a reduction in resource utilisation. These environmental measures will continue for the period of the new action plan.
Storebrand's customer base shows the same general trend for a higher incidence of disability as is seen for society as a whole. The steps taken to help reduce the number of our customers' employees that become disabled have been positively received. New solutions will be developed in the areas of more inclusive working life, preventative health measures and improved quality of life.
The targets set for absence due to illness were achieved: 3.6% in 2002, 3.6% in 2001, and 3.5% in 2000. This is clearly better than comparable businesses achieve, and figures from the Norwegian
‘More inclusive working life’ with the Norwegian Social Insurance authorities in 2002 and produced a new HSE handbook. Further measures will be introduced in this area over the course of the new plan period.
Our training program has been evaluated with good results, and 94% of employees say that they are satisfied with Storebrand as their employer. The range of training currently available is to be expanded, and we intend to introduce more specific targets in a number of areas for the new action plan period. This will include new targets for the percentage of management positions held by female staff as well as for employee satisfaction. In 2004 all managers will be appraised in respect of the aspects of the corporate social responsibility action plan for which they are responsible.
Storebrand's group management guidelines require all managers to address the subject of business ethics with their teams at least once a year, and training courses in handling ethical dilemmas have been held for all managers.
campaign. We organise joint activities which bring employees and customers together with the organisations we sponsor, and this both enthuses employees and reinforces the value of our sponsorship. We hope to involve employees and customers to an even greater extent in the new period of the action plan.
Executive Officer is a council member. As part of its commitment to the WBCSD, Storebrand has played an active role in the working groups Young Managers Team and Sustainability in the Financial
The Chief Executive is not a member of the Board. None of the members elected by the Board of Representatives have any employment, professional or consultancy relationship with the group other than their appointment to the Board. CVs for the members of the Board can be found at www.storebrand.com.
The Board has on a number of occasions reviewed its own working methods and the processes involved in preparing for and conducting board meetings. The Board carried out a Board appraisal for 2002, and Storebrand's executive management also participated in this process. As in previous years a course was held in 2002 for new members of Storebrand’s corporate bodies as part of a program of work intended to develop the expertise of the members of the Board and other corporate bodies.
The members of the Board and its committees receive a fixed annual fee. Details of remuneration, loans and shareholdings can be found in notes 4 and 16.
Audit Committee. Each committee is made up of three members of the Board. The Remuneration Committee monitors the remuneration arrangements for the group's senior managers, and assists the Board in setting the terms and conditions of the
Managing Director. The Remuneration Committee held four meetings in 2002. The Audit Committee assists the Board by reviewing, evaluating and where necessary proposing appropriate measures in respect of the group's overall controls, financial and operational reporting, risk management and control and both internal and external auditing. The Audit Committee held six meetings in 2002. This committee assists the Board by preparing matters for consideration, but decisions on such matters are taken by the entire Board.
Board of Representatives The Board of Representatives has 30 members, of which 20 are elected by the General Meeting and 10 by the group's employees.
As a large stock exchange listed company that plays an important role in Norway’s economy and society as a whole, Storebrand is committed to creating good relationships between its shareholders, corporate bodies, management, and other interested parties that are affected by the group's activities such as customers and lenders, as well as with the interests that reflect its wider social context. The following paragraphs provide an account of the major features of Storebrand's approach to corporate governance. Information on the company's interaction with our shareholders can be found in ‘Shareholder Matters’ on page 46. Information on our interaction with other interest groups can be found in ‘Corporate social responsibility’ on page 40. Storebrand's policy as an investor in listed companies is described below.
CONTROL FUNCTIONS page 43Corporate Governance for the work of the Control Committee and considers reports from the Control Committee. The Board of Representatives is entitled to make recommendations to the Board of Directors on any matter that it sees fit.
Act stipulates that no party may own or vote for more than 10%
of the company's shares, and that no party may cast votes for more than 20% of the shares represented at a general meeting, cf. Article 2-7 of Storebrand ASA's Articles of Association. The
General Meeting has granted a mandate to the Board of Directors to increase the company's share capital by up to NOK 3 million through one or more share issues placed with employees of the company. This mandate is valid until the date of the next Annual
General Meeting. The Board does not have any mandate from a general meeting to buy back the company's own shares.
Storebrand has entered into an agreement with Ernst & Young for the purchase of internal audit services for the group. The Chief
Financial Controller of Storebrand ASA co-ordinates and monitors the work carried out by the internal audit function. The Board approves an annual program of work for the internal audit function based on the auditors' recommendations and a risk assessment carried out by the companies' management teams. The internal auditor reports to the Board on a quarterly basis.
The Norwegian Banking, Insurance and Securities Commission has a statutory duty to ensure that a financial institution operates in a prudent and satisfactory manner in accordance with legislation, the purpose of the institution’s incorporation, its business objectives and articles of association. The Commission supervises all the activities carried out by the Storebrand group.
(life insurance, asset management and banking). The boards of the subsidiaries also include other members of Storebrand’s senior management and external members with expertise of particular relevance to the subsidiary in question. The group’s management and control of these business areas is largely exercised through meetings of the boards of the subsidiary companies.
of Storebrand ASA, the managing directors responsible for the group's major business areas including retail market sales and the executive vice presidents responsible for financial control and legal affairs. The Executive Committee is responsible for the group's strategic positioning and overall profitability and for ensuring optimal allocation of resources across the group's various activities. In addition group-wide forums within finance and risk management, corporate relations, human resources, IT, corporate communications and brand, legal affairs, financial planning and control, and strategic projects, under the management of the executive vice presidents, are responsible for making optimal use of the group’s expertise and maintaining a concerted effort on major business processes in the group.
An integrated management system It has been the tradition to use accounting figures as the principal tool for managing and monitoring business activities. In 1995 Storebrand adopted an integrated approach to financial and operational value drivers for the management and monitoring of the group's activities. This approach has been further developed to form the value based management system currently used, which also plays a central role in monitoring employee performance and determining remuneration on an individual basis.
The management system is intended to ensure a clear relationship between actions and targets at all levels of the group, with the overall objective of creating value for shareholders. The integrated management system provides the basis for the work of the Board of Directors and executive management in planning, monitoring and managing the group's activities. The system is constructed around a balanced scorecard with the four dimensions of finance, customers, internal processes and learning & growth reflecting the group's short-term and long-term value creation objectives.
Risk evaluation and internal control reporting form an integrated part of the planning process. The management teams responsible for each business area are actively involved in recognising areas of risk and identifying measures to reduce risk. This process is summarised in an internal audit report that is reviewed by the
Employee appraisal and remuneration The appraisal and remuneration of all Storebrand employees forms an integrated part of the value-based management system, and is designed to support the successful implementation of the overall strategy agreed. In the same way that targets are set for
Storebrand as a whole and for each business area, each department and its individual staff members have clear targets that are consistent with and support the company's overall objectives.
The personal scorecard plays a central role in employee appraisal, and also provides the basis for bonus payments. All employees are eligible for bonus payments, which represent remuneration over and above normal salary and other employee benefits.
Storebrand’s bonus arrangements seek to promote two basic principles: bonus payments must be linked to the company's value creation, and entitlement to bonus is determined by individual performance. Each individual's performance relative to the targets set out in the personal scorecards provides the basis for a bonus, but bonuses can only be paid if value creation is higher than a set minimum level. Value creation in excess of target is rewarded with increased bonuses.
Customers Are we meeting customer requirements for accessibility, service and quality?
As one of the largest investors in the Norwegian stock market,
Storebrand has considerable potential influence over the development of the listed companies in which it is a shareholder. This represents an important responsibility, and makes it very important that Storebrand exercises its influence in a predictable and well-considered manner. Storebrand aims to exercise its ownership interest to promote consensus between the wishes and views of the owners (shareholders) of a company and the work of its management and board of directors. The values which Storebrand wishes to encourage include openness, transparency and equal treatment for all shareholders.
Governance Guidelines and Eierforum’s 10 rules can be found at www.storebrand.no/IR.
>> Conflicts of interest. Storebrand believes that listed companies should conduct themselves in a manner which demonstrates their commitment to reducing any possibility for conflicts of interest to a minimum, including a policy of equal treatment and full openness with all shareholders.
All the above issues are taken into account when Storebrand evaluates a company, and they have an effect on our investment postition in the company’s shares. Storebrand’s objective is to foster agreement on shared values in relation to both short-term and long-term value creation. It therefore seeks to contribute to improvements in this respect and maintains active contact with the companies in which it invests.
The various types of active involvement in question may be grouped as follows: >> Dialogue with company management and company visits.
Storebrand holds a significant ownership interest. Around 150 visits to Norwegian companies are made every year.
Storebrand to collaborate with other shareholders in a company in order to ensure that important changes take place.
funds and mandates. These companies are analysed on the basis of environmental and social responsibility criteria, and feedback is provided to the companies on their performance relative to other companies in the same industrial sector. The intention is to contribute to continuing improvement in this area, both for the companies that already follow best practice and for those that do not yet fully satisfy these criteria.
>> Investigations. In certain specific instances Storebrand will either carry out its own investigation or arrange for an independent investigation to be carried out.
The company does not own any of its own shares and has not issued any options that could lead to dilution of the outstanding share capital.
No single investor is permitted, without the approval of the authorities, to hold more than 10% of the shares in a Norwegian financial institution. However, it is expected that the Norwegian regulations on ownership restrictions will be revised and harmonised with EEA legislation during the course of 2003.
The EEA Agreement gives Norwegian and foreign investors equal rights to purchase shares. As at 31 December 2002 total foreign ownership amounted to 32.2% as compared to 37.1% at the end of 2001.
Storebrand’s share price on 31 December 2001 was NOK 52. The high and low prices seen during 2002 were NOK 57.00 and NOK
The Board of Directors of Storebrand ASA approved a dividend policy for Storebrand in 1999. The policy seeks to ensure that shareholders receive 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% of profit after tax. The Board intends to operate the policy with a long-term view, and will endeavour to ensure stable growth in dividend per share over time.
RISK amount when calculating the taxable gain or loss. The RISK
amount is calculated annually and is related to the change in retained capital for the year. Foreign shareholders are subject to the tax regulations of their own domicile and are not affected by the Norwegian RISK regulations.
The RISK amount as at 1 January 2003 is estimated as NOK
Shareholders should generally contact the administrator of their own share account with queries and notice of changes such as, for example, a change of address. Storebrand’s own shareholders’
Interest and related income - banking 21 2 599.5 2 671.2 2 270.2
Insurance claims for own account -8 803.5 -9 647.2 -10 326.5
Change in insurance reserves - life insurance -3 423.3 -2 115.8 -1 821.5
Interest and related expense - banking 21 -1 996.7 -2 047.8 -1 691.3
Other long term financial assets 32,33 953.1 1 107.5 1 490.3
Shares and other equity investments 29 11 301.9 22 972.5 36 287.6
Prepaid expenses and accrued income 2 504.5 1 872.7 2 129.3
Interest, commission and fees received from customers 1 430.8 1 525.0 2 528.2 Interest, commission and fees paid to customers -34.5 -42.6 -1 371.6 Payments to third parties for goods and services -139.5 -44.0 -24.9 977.5 -521.7 -872.8 Payments to employees, pensions, employment taxes etc. -119.1 -146.3 -218.9 -1 213.1 -1 230.1 -1 019.4
Net cash flow from operational activities -680.8 -283.2 -398.9 2 158.0 -2 430.8 7 130.2
Receipts from sales of shares and other equity investments 14.5 207.0 24 215.0 35 976.8 25 639.4 Payments for purchase of shares and other equity investments -240.0 -1 227.8 -814.0 -14 956.8 -26 758.3 -31 914.8 Receipts from sales of bonds 520.6 529.8 1 939.0 66 580.0 39 572.5 37 654.4 Payments on purchase of bonds -859.2 -683.2 -1 760.0 -65 162.0 -38 591.0 -36 007.1 Receipts on sale of short-term debt instruments 5 874.3 3 197.3 670.0 60 955.7 32 691.9 19 579.5 Payments on purchase of short-term debt instruments -5 894.0 -3 877.6 -538.0 -70 575.7 -40 801.9 -21 670.6
Net cash movement on purchase/sale of other securities 23.2 7.2 279.0 252.1 -216.7 319.9 Net payments on purchase of fixed assets etc. 18.3 2.8 -92.3 7.1 -164.8 -43.8 Net cash flow from investment activities -542.3 -2 053.7 -111.7 1 722.3 -85.1 -12 654.6
Net cash flow for the period -29.2 -7.2 -197.4 3 887.0 -851.3 1 687.4
RECONCILIATION: Tax paid in the period 4.0 -78.2 2.2 Gains/losses on sale of fixed assets 0.5 1.7
as of 31 December 2002, showing a loss of NOK 73.7 million for the parent company and a loss of NOK 892.4 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 Chief Executive Officer. Our responsibility is to express an opinion on these financial statements and on the other information according to the requirements of the
• 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.
The Control Committee of Storebrand ASA has reviewed the Board of Directors' proposed Annual Report and Accounts for 2002 for the Storebrand Group.
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
The Board of Representatives raises no objections to the Board's proposal regarding the allocation of the result for the year of
Transfer from additional statutory reserves in the policyholders' fund to meet the interest guarantee shortfall 1 011.7 407.6
Total insurance related reserves for own account 99 238.9 99 326.0 100 576.6
Note 4: Remuneration of Chief Executive Officer and elected officials of the company s. 62
The group accounts of Storebrand ASA for 2002 have been prepared in accordance with the Accounting Act and the appropriate regulations for the annual accounts of insurance companies, banks and investment firms. The regulations and valuation rules for the annual accounts of insurance companies are applied to the group's insurance activities, the regulations for the accounts of banks are applied to the group's banking activities, the accounting principles for the accounts of investment firms are applied to the group's asset management activities and the general provisions of the
Consolidation principles The Storebrand Group is made up of companies in life insurance, nonlife insurance, asset management, banking and other activities.
In the case of investments in jointly controlled companies which are separate legal entities, either the equity method accounting or the proportional consolidation method of accounting is 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 acqusition method, where the capitalised value of shares in subsidiaries is eliminated against the equity capital in the subsidiaries. Any excess value/deficit is booked directly 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. Goodwill is valued at actual value on the basis of is expected lifetime, which will not normally be longer than 20 years.
at the average exchange rates for the year, whilst the balance sheets are translated at the rate ruling at the end of the year. Any translation differences are posted against unrestricted equity.
Livsforsikring AS are not eliminated due to the fact that the profit of the life company is to be divided between customers and shareholders.
Minority interests In the profit and loss account, the minority interests’ share of the profit after tax is stated. This means that all items in the profit and loss account include minority interests. Minority interests are shown in the balance sheet as a separate item under the heading of equity capital.
Pension costs The net pension cost for the period consists of the sum of pension liabilities accrued in the period, the interest charge on the estimated liability and the expected return on the pension funds.
The effects of changes in assumptions, deviations between calculated and estimated pension liabilities and the difference between the expected and actual return achieved on pension funds are charged to profit and loss over the remaining period for pension accrual or the expected remaining life once the cumulative effect exceeds 10% of the higher of either the pension liability or pension funds at the start of the year (the
Properties and real estate Real estate directly owned by Storebrand Livsforsikring AS.
Method of establishing market value 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
Properties and real estate held by other companies in the group Ordinary depreciation is applied to properties and real estate held by other companies in the group.
Realised losses on facilities are losses which are considered to be final.
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
Bonds held as current assets Bonds held as current financial assets are booked at market value, which is the last known traded price. In the case of securities where no traded price is available, a price is calculated on the basis of the yield curve for the particular sector. In the group’s banking activities, shares held as current assets that are not intended for short-term trading are valued as a single portfolio at the lowest of purchase cost and market value.
Financial derivatives Financial derivatives form an integrated part of Storebrand’s management of the risk and return profile of share and bond portfolios.
Financial derivatives are recognised as current assets and are valued at market value. Storebrand undertakes routine mark-to-market valuations of all derivatives. Valuation is based on actual market values where these are available in a liquid market. If no market price is directly available, market value is calculated on the basis of the market price of the underlying instrument by using mathematical models generally accepted for pricing such instruments.
Share, foreign exchange and interest rate options Option premiums are capitalised at market value when an option is purchased or sold. Options are realised when they expire, are exercised or are closed out by a matching and opposite transaction.
Equity futures and interest rate futures Futures contracts (including equity 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 Storebrand Livsforsikring AS but do affect the profit available for allocation between customers and the shareholder. Profit or loss arising from active currency positions are applied to the market value adjustment reserve.
Foreign exchange Hedged balance sheet items are recorded at the exchange rate prevailing on the date of the balance sheet. The currency risk arising from foreign investments and currency denominated debt is largely hedged by forward foreign exchange contracts.
Income and expenses of financial assets and the market value adjustment reserve The income and expenses arising from financial assets reflect both realised items and changes in unrealised value. Such unrealised gains are applied to a market value adjustment reserve and do not affect profit and loss. Financial expenses include the administration costs associated with the financial activities.
Transfer to 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.
Market value adjustment reserve The value of the market value adjustment fund is equivalent to unrealised gains on financial current assets. Unrealised gains or losses on foreign exchange contracts are not transferred to the market value adjust-
Additional statutory reserves in the insurance fund Additional statutory reserves are a conditional reserve, allocated to policyholders, which is booked to the profit and loss account as a mandatory reserve allocation. The maximum additional statutory reserve is set at the difference between the premium reserve, calculated on the basis of a 3.5% guaranteed return, and the actual guaranteed return in the contracts. In addition maximum limits apply in respect of individual contracts. Additional statutory reserves may be applied to meet any shortfall between actual return and the guaranteed return.
Premium fund/pension adjustment fund in the insurance fund The premium fund contains premiums prepaid by policyholders on individual and group pension insurance as a result of taxation regulations.
The pension adjustment fund consists of payments from policyholders on group pension insurance also resulting from taxation regulations.
The fund is to be applied in payments of future benefit increases to pensioners.
Securities Commission may permit 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.
Estimated effect of future salary growth -431.3 -71.9 -503.2 -197.8 -206.5
Pension funds at market value 2 201.7 2 201.7 2 396.1 2 427.5
Further information of the Storebrand pension scheme and accounting treatment for pensions can be found in note 24. Estimated employer's social security contributions in respect of the pension liability shown in the balance sheet amounts to NOK 38.0 million and is included as part of the "Reserves for other risks and costs" item in the balance sheet. The calculations relate to 40 employees and 2 455 pensioners.
Note 4: Remuneration of Chief Executive Officer and elected officials of the company
Board of Directors incl. Chairman of the Board 2 255 1 660 1 418
Auditor's fees for audit and related control functions 2 621 2 017 1 205
Tax base for the year -626.8 1 202.7 1 608.6 - Tax losses carried forward
Tax base for calculation of tax payable for the year -626.8 1 202.7 1 608.6
Tax payable -336.7 -450.4 - Tax allowances carried forward 336.7 318.7
**) 74.9% held by Storebrand Livsforsikring AS. Minority interests amount to 0.2%.
If Skadefõrsãkring Holding AB *) 106.2 EUR 14.6 0.4 *) The loan has been hedged for currency risks
For Storebrand ASA the exchangeable bond represents a combination of a bond and the issue of a call option on Orkla shares. The option is covered partly (54%) by Storebrand ASA's own holding of Orkla shares and the balance is covered by the purchase of a call option on
Option issued: EUR - Orkla shares 822.1 961.4 -822.1 84.8 39.6 *) Included in the balance sheet under shares and bonds, see notes 7 and 9.
Other 219.5 *) Share capital was increased by 122 100 shares through a private placement with employees. The subscription price was NOK 40 per share. In accordance with the accounting circular issued by Oslo Børs, this issue is booked at market value.
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 third party assets.
***) AN = Level payment loan, SE - Instalment loan, final payment ****) Senior employees are contractually entitled to performance related bonuses related to the group's value-based management system. In the event of termination of employment in certain defined circumstances, such as receiving notice from the company, senior employees are entitled to guaranteed income/salary for periods that vary from 18-24 months after the normal notice period.
December 2004 or at the settlement date of any earlier acquisition, merger etc. The allocation price for the other 60 000 units is the volume weighted average of the closing share price on Oslo Børs for the last two weeks of 2001, 2002 and 2003 with 20 000 units allocated to each year. The allocation price as per 31.12.02 was NOK 56.69 and NOK 26.48 for the units which saw their price fixed at the end of 2001 and 2002 respectively. Exercise of these units can take place in 2005, 2006 and 2007 with 20 000 units allocated to each year. Details of the Managing Director's salary and remuneration can be found at note 4.
Ole M. Klette 0 *) Total of 27 500 000 shares held through Canica AS (10 000 000) and Steen & Strøm ASA (17 500 000)
No loans are outstanding to members of the Control Committee. Loans totalling NOK 6.5 million have been extended to members of the
Profit and loss account items: Group contribution from subsidiaries 1 068.0 1 268.0
Purchased 22.47% of the share capital of If Skadeförsäkring Holding AB from Storebrand Skadeforsikring AS for NOK 3 213 million.
**) Guarantee issued 1998 in respect of management of the Norwegian Government Petroleum Fund.
Holding and Storebrand Alternative Investments. Figures for Finansbanken include Storebrand ASA's write down of goodwill. Non-life insurance comprises: Storebrand Skadeforsikring, If Skadeförsäkring and Fair Forsikring. Other includes: Storebrand ASA, Adviso, netting and other companies. Other items - life insurance refers to changes in the market value adjustment reserve and profit allocated to insurance customers.
Gains on sale of shares 8 131.7 9 976.4 13 748.2 8 142.8 10 077.6 14 381.7
Loss on sale of shares -10 087.8 -13 298.4 -9 925.3 -10 343.0 -13 778.6 -9 994.4
Interest and related income on loans to/deposits with credit institutions 0.5 5.5 2.4 69.3 41.3 59.1 69.8 46.8 61.5
Total interest and related income 1 099.4 1 058.5 876.5 1 500.1 1 612.6 1 393.7 2 599.5 2 671.1 2 270.2
Interest and related expense on deposits from and liabilities to customers -427.8 -404.3 -307.8 -575.5 -527.9 -409.7 -1 003.3 -932.2 -717.5
Other interest and related expenses -113.0 -145.9 -222.2 -16.7 -12.1 -35.8 -129.7 -158.0 -258.0
Change in unspecified loan loss provisions for the period 6.1 -7.8 -1.7 136.9 56.4
Note 23: Operating costs SB Life SB Bank Finansbanken Other Storebrand Group
- Expected adjustment of Social Security Fund's base amount (G) 3.0%
The calculations apply to 1 481 employees and 2 463 pensioners.
Shown below is a reconciliation of the estimated pension liabilities, and the pension funds held in respect of these, to the liability booked in the balance sheet: Net pensions liability 2002
Estimated effect of future salary growth -496.1 -99.2 -595.2 -309.2 -336.1
**) The effect of scheme changes is applied over the average remaining period of accrual for pension benefits. Estimated employer's social security contributions in respect of the pension liability shown in the balance sheet amounts to NOK 57.8 million and is included in the balance sheet under 'Reserves for other risks and costs'.
Finansbanken Plasseringsrådgivning AS 13.8 -5.2 8.6 -8.6 *) Depreciation of goodwill over 20 years is based on a long-term earnings perspective and the strategic importance of the companies for
Office premises (inc. commercial premises, parking and storage) 4 779.0 1 503 5.2 275 804 91.6%
NOK million estate inventory Total for operating assets: Purchase cost as at 1 January 9 998.9 603.4 10 602.2 Equipment
Written down in the year -241.5 -241.5 and inventory: 4 years
Disposals at purchase cost -1 317.0 -55.0 -1 372.0 systems: 3 years
Revaluation/write-down for the year and reversals of same -161.8 -16.2 -178.0
Total shares and other equity investments - Norwegian 4 678.3 4 510.5
Total shares and other equity investments - international 7 817.6 6 446.8
Other holdings through securities funds -57.5 -59.5 104.9 90.1 47.4 30.6
The average figures are based on daily calculations of gross nominal volume.
Credit equivalent amounts are intended to give a measure of the credit risk associated with financial derivatives. In general the credit risk is seen as being limited, since either stock exchange listed and cleared contracts or contracts with well known financial institutions are employed. Credit equivalent values represent the weighted volume of currency and interest rate agreements for the purposes of capital adequacy calculations, where gross nominal volume is taken into account.
Total liabilities to other financial institutions 587.5 3 703.1 4 290.6 4 350.7 4 280.5
Total liabilities created by securities issued 3 866.6 4 029.3 7 895.9 10 435.7 9 008.6
If Skadeforsäkring Holding AB **) 22.47% 4 354.9 3 042.3 336.0 -182.2 3 196.1 -618.5 598.3 *) Sold in 2002 **) Ownership interest reduced from 44% to 22.47% through Sampo's entry into the company. Goodwill is written off over 20 years on a long-term earnings perspective. The profit and loss account includes NOK 61.5 million in loss on the run-off activities, see note 40.
Paid in capital and retained earnings at 1 January 9 616.7 10 544.8 10 125.7
Total equity capital at 31 December 8 535.6 9 616.7 10 544.8
Subordinated loan 1998-2023 SB Life 1 449.7 USD 200 2.75% 2013 -79.7
Subordinated perpetual convertible bond 1995, 8.5% coupon Finansbanken 9.0 NOK 8.50%
Subordinated loan 1998-2008, 6 m. NIBOR + 1.05% Finansbanken 91.0 NOK 8.03% 06.03.03 *) Currency position has been hedged, re. note 33.
Premium and pension adjustment fund 5 067.3 341.4 1.3 5 410.0 7 621.5 10 282.3
Book value of assets pledged as security for loans etc. 1 286.5 1 226.0 1 517.3
When Sampo joined If in January 2002, an agreement was entered into in respect of the run-off activities which were transferred from
NOK million Group Group Group banken SB ASA 2002 2001 2000
RECONCILIATION OF NET INCOME AND EQUITY BETWEEN N GAAP AND US GAAP FOR THE GROUP’S LIFE INSURANCE ACTIVITIES The annual accounts have been prepared in accordance with Norwegian Generally Accepted Accounting Principles (N GAAP). The following tables provide a reconciliation between net income and shareholders’ equity in accordance with N GAAP and the same figures as they would be reported in accordance with United States Generally Accepted Accounting Principles (US GAAP) and show where the differences arise. The figures presented apply only to the group’s life insurance activities, which comprise Storebrand Livsforsikring AS, Storebrand Fondsforsikring AS and Euroben Life & Pension Ltd (50 %), which started writing new business in 2001.
Real estate Under N GAAP real estate is booked at market value with changes in market value recognised in the profit and loss account, and no depreciation is applied. Under US GAAP real estate is carried at historic cost and is depreciated over its expected useful life (subject to a maximum of 50 years). Impairment provisions are evaluated on an individual property basis, but no upward revaluations are permitted.
Financial instruments Under N GAAP interest bearing securities, shares and financial derivatives are carried at market value. Unrealised changes in value are transferred to a market value adjustment reserve, but changes in unrealised value arising from the exchange rate at the balance sheet date are recognised to profit and loss. The market value adjustment reserve can never have a negative value. Unrealised losses are recognised to profit and loss on the basis of write-downs carried out on a portfolio basis.
Under US GAAP where "available for sale" investments which are subject to FAS 115 give rise to a difference between market value and amortised cost in the case of interest bearing securities or between market value and historic cost in the case of equities, these differences are booked directly to equity. Norwegian legislation requires that 75% of any such unrealised gains be allocated to policyholders when policies mature or are transferred. The same percentage is used under US GAAP for allocations to policyholders' funds.
Deferred tax Deferred tax has been calculated at 28% on the difference between N GAAP and US GAAP.
PROFIT FOR THE YEAR - Life insurance - N GAAP -149.6 34.7 711.0 Effect of estimated adjustments for US GAAP: Contract acquisition costs -45.7 -101.0 -11.9 Real estate 376.3 -619.3 -238.9 Securities 384.3 90.7 264.3 Allocation of US GAAP differences to policyholders -487.7 431.2 -1.7 Tax effect of US GAAP adjustments -63.6 55.5 -3.3
Reconciliation of shareholders’ equity between N GAAP and US GAAP NOK million 2002 2001 Life insurance activities - shareholders’ capital - N GAAP 3 240.0 3 389.8 Effect of estimated adjustments for US GAAP: Contract acquisition costs 1 405.1 1 450.8 Real estate -2 297.0 -2 673.3 Securities 126.0 -104.9 Allocation of P&L adjustments to policyholders 504.8 886.0 Market value adjustment for securities -58.6 1 054.3 Life insurance policyholders’ share of mark to market 44.0 - 790.7 Tax effect of US GAAP adjustments 230.2 308.8
LIFE INSURANCE - SHAREHOLDERS’ EQUITY - US GAAP 3 194.5 3 520.8
Storebrand currently produces annual accounts for the holding company and consolidated annual accounts for the Storebrand group in accordance with the Norwegian Accounting Act and Norwegian accounting standards. The European Parliament has decided that all listed companies in the European Union and the countries of the
European Economic Area must produce consolidated accounts in accordance with International Financial Reporting Standards (IFRS)
with effect from 2005. A commission has been set up in Norway to review the current Accounting Act, including the implications of the introduction of IFRS. There is as yet no decision on whether the commission will recommend that IFRS should be applied to all
There are currently two IAS accounting standards for financial instruments: IAS 32 Financial Instruments: Disclosure and
International Accounting Standards Board (IASB) issued consultation papers in 2002 on proposed changes to IAS 32 and IAS 39, and it is expected that revised standards will be issued during the second half of 2003. The transition to using IAS 39 and IAS 32 in 2005 is expected to represent an extensive implementation task for the companies involved.
There are currently no IAS accounting standards for the treatment of insurance contracts. The IASB has launched a two-phase project in this area. Phase 1 will consider how the current IFRS standards shall be applied to companies that issue insurance contracts, the definition of insurance contracts and the implications of the restriction on making provisions that do not satisfy the criteria for treatment as liabilities in accordance with the IAS framework. It is currently intended that the accounting standards resulting from Phase 1 of the project will be published in the first half of 2004. Phase 2 will not be completed before the transition to IFRS in 2005. This phase of the project will work on producing new accounting standards for the accounting valuation of insurance contracts, and this is expected to represent significant changes to current accounting principles. Early indications are that the IASB project will move in the direction of valuing insurance contracts on a balance sheetoriented model whereby assets and liabilities are revalued at every balance sheet date and changes in value are recognised to the profit and loss account. This will mean that traditional accrual items will disappear from the balance sheet, and a greater proportion of the earnings element will be recognised to income at an earlier time. Insurance company accounts prepared on the basis of this type of accounting model are expected to show greater earnings volatility.
Storebrand initiated an in-house project in 2002 to ensure that it will be able to produce group accounts in accordance with IFRS
Storebrand Livsforsikring AS 100.0% Storebrand Eiendom AS 100.0% Storebrand Pensjonstjenester AS 100.0% Aktuar Consult AS 100.0% Aktuar Systemer AS 100.0% Scanvik Corporation 100.0% Storebrand Kjøpesenter Holding AS 100.0% Storebrand Nybygg AS 100.0% Storebrand Systemutvikling AS 100.0% Hoffsvn. AS 100.0% Norben Life and Pension Insurance Co. Ltd. 25.0% AS Værdalsbruket *) 74.9%
Storebrand Kapitalforvaltning Holding AS 100.0% Storebrand Kapitalforvaltning ASA 100.0% Storebrand Fondene AS 100.0% Storebrand Luxembourg S.A. 99.8% Storebrand International Private Equity AB 100.0%
If Skadeförsäkring Holding AB 22.47% Storebrand Helseforsikring AS 50.0% Fair Financial Ireland plc. 50.0% Euroben Life & Pension A 50.0%
Storebrand Leieforvaltning AS 100.0% Storebrand Felix kurs- og konferansesenter AS 100.0% Storebrand ITI AS 100.0% Adviso AS 36.5% Storebrand Alternative Investment ASA 56.0% Compensation Management AS 100.0%
Subordinated loan capital: Subordinated loan capital is loan capital which ranks after all other debt.
Tier 2 capital: Tier 2 capital is part of primary capital and consists of subordinated loan capital. In order to be eligible as primary capital, Tier 2 capital cannot exceed Tier 1 capital. Perpetual subordinated loan capital, together with other Tier 2 capital, cannot exceed 100% of Tier 1 capital, whilst subordinated loan capital which is not perpetual cannot exceed 50% of Tier 1 capital. To be fully eligible as primary capital, the remaining term must be at least five years. If the remaining term is less, the eligible portion is reduced by 20% for each year.
Group life insurance: Group life insurance in which an insured sum is payable on the death of a member of the group. Such insurance can be extended to cover disability insurance.
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 Norwegian Banking, Insurance and Securities
Real rate of interest: The return produced after allowing for actual or expected inflation.
Financial derivatives The term financial derivatives embraces a wide range of financial instruments for which the current value and future price movements are determined by shares, bonds, foreign currencies or other traditional financial instruments. Derivatives require less capital than is the case for traditional financial instruments such as shares and bonds, and are used as a flexible and cost effective supplement to traditional instruments in portfolio management. Financial derivatives can be used to hedge against unwanted financial risks, or to create a desired risk exposure in place of using traditional financial instruments.
The sale of a currency option implies the equivalent one-sided obligation. Foreign exchange options are used for currency hedging purposes in the same way as forward foreign exchange contracts.
Foreign exchange swaps: A foreign exchange swap is made up of two transactions: a spot transaction entered into at the start of the swap period to buy or sell a currency and a forward foreign exchange contract to reverse the initial spot transaction at a pre-determined exchange rate. Foreign exchange swaps are used for currency hedging purposes in the same way as forward foreign exchange contracts
Forward Rate Agreements (FRA): 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.
Human Resources Erik Råd Herlofsen Executive Vice President *) Kai G. Henriksen was Managing Director of Storebrand Bank AS and a member of the Executive Committee prior to the merger of the two banks.
Head Office: Filipstad Brygge 1 P O Box 1380 Vika N-0114 Oslo Norway www.storebrand.no www.storebrand.com
Banking, savings and mutual funds customer centre: +47 810 00 888 Life and pensions customer service: +47 810 00 888 Health insurance customer service: +47 800 83 313
Storebrand Kapitalforvaltning ASA Swedish Branch Office Engelbrektsplan 2 P O Box 5541 S-114 85 Stockholm Sweden www.storebrand.se
Associated companies: If Skadeforsikring Lysaker Torg 35 P O Box 240 N-1326 Lysaker Norway Non-life insurance customer service: +47 980 02 400 www.if.no
Europeiske Reiseforsikring P O Box 1374 Vika Haakon VIIs gt. 6 N-0114 Oslo Norway www.europeiske.no
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