Directors report Corporate Governance Management Storebrand ASA Board Storebrand’s corporate bodies
STOREBRAND ASA Profit and loss account Statement of total comprehensive income Statement of financial position Reconciliation of group equity Cash flow analysis Notes
Following the split from Denmark, management of the fire insurance scheme is transferred to Christiania, as the capital of Norway was called at that time. In 1913 the scheme is converted into a public sector company called Norges Brannkasse.
Storebrand’s owners establish Idun, the first privately owned life insurance company in Norway.
A new group organisation is presented in June. Nordic units and distinguishing between business in growth and business with guarantees are key elements.
New regulatory framework for private occupational pensions in Norway is introduced on 1 January. New maximum rates for defined contribution pensions are significantly higher. The new higher savings rates are well received by the corporate customers.
In April, the Financial Supervisory Authority of Norway issued guidelines for longevity reserve strengthening. Storebrand needs to strengthen its reserves by NOK 12.4 billion overall. At the end of 2014, a total of NOK 6.2 billion has been allocated.
The Act on paid-up policies with investment options entered into force on 1 September. For many of Storebrand’s 400,000 paid-up policy customers, the new rules will make a better pension possible, because more long-term management of the pension assets will result in higher expected pension payments.
Storebrand has identified three sustainability trends that are becoming increasingly important for our investments
The Storebrand Group is the Nordic region’s leading supplier of life insurance and pension, and delivers a comprehensive range of products to individuals, companies, municipalities and public enterprises. The Group consists of the following business areas: Savings, Guaranteed Pension, Insurance and Other. The Storebrand Group also consists of Customer Areas Norway and Sweden, which are the sales and marketing units in the two countries. The Group’s main office is in Lysaker, Oslo.
At the end of 2014, there were 2,232 employees in the Group, compared with 2,138 at the start of the year. Women represent 52 per cent of our employees. The average age of our employees is 40. The average term of service is 9 years. All employees of Storebrand are treated equally, regardless of age, gender, disability, religious beliefs, cultural background or sexual orientation.
In April, the Financial Supervisory Authority of Norway issued guidelines for the longevity reserve strengthening. The life insurance companies must set aside more money in the lifelong guaranteed pension schemes because the longevity of Norwegians is increasing. Storebrand requires overall to strengthen its reserves by NOK 12.4 billion. At the end of 2014, a total of NOK 6.2 billion has been allocated.
Storebrand won two new pension fund customers, the Municipality of Bærum and the Municipality of Tromsø, with NOK 7 billion in assets under management combined. Later in the year we also won the pension fund of the Municipality of Asker, with close to NOK 2 billion in assets under management.
Storebrand Asset Management surpassed NOK 500 billion in assets under management for the first time. The growth is driven by good sales, excess return on the portfolios and positive financial markets.
In December, Statoil and Storebrand signed a letter of intent to provide defined contribution pensions to all of Statoil’s 13,400 employees who have more than 15 years left until retirement age. This is by far the largest single defined contribution pension contract in the market.
The cost programme has been carried out in accordance with the goal of NOK 400 million in lower costs during the period 2012-2014. The operating costs for 2014 declined 2 per cent compared with the previous year. In spite of the falling interest rates, the Solvency II margin is estimated to be a robust 148 per cent at the end of the year.
Storebrand delivered a group result of 3,032 million for 2014, up from NOK 2,938 million for 2013. How would you describe Storebrand’s financial results in the year that has passed? We reported a good profit for 2014, with continued strong growth in defined contribution pensions and a good return to our customers in the corporate market. We are seeing strong interest in pensions and paidup policies with investment choice among our retail customers. In addition, reduced costs and forceful Solvency II adaptation are important keywords for the year that has passed.
If I had to point out something in particular, it would be the good asset management results, where we surpassed NOK 500 billion in assets under management during the year. I am impressed by how we have successfully combined growth, efficiency improvement and the achievement of results during the period. In 2015, I would like to see even greater growth in insurance.
This, in combination with the fact that we have reduced our cost base considerably in recent years, is the long-term solution for the challenge related to the low interest rate level.
In addition, we have built up a portfolio of bonds with a long term to maturity that we will hold until maturity. This currently represents almost half of our guaranteed portfolio, and we can obtain a good return from this over the next 6-7 years. This gives us extra security with regard to interest rate guarantees and the need to strengthen reserves due to the increasing longevity of the population.
Over time, we will have to refinance portions of the portfolio at lower levels than before, but this is completely manageable as long as it takes place at the same time as a larger portion of the balance sheet shifts towards products without guaranteed interest rates.
After many years of uncertainty, it is now clear that the new European solvency regulations for the life insurance companies, Solvency II, will be introduced in Norway in 2016. How important has it been to finally have a clarification concerning this? A clear regulatory framework is a prerequisite for our business, which lives off of delivering a good, long-term return. We have waited several years for a final clarification concerning Solvency II, and now we know the scale that will be used to assess us.
A higher life expectancy in the population is a challenge for the life insurance companies, which have to set aside more money to cover additional years of pension payments. This spring, the Financial Supervisory Authority of Norway announced that the companies will be given seven years to set aside enough money for this. This is significantly shorter than what the industry has argued for earlier. What do you think about this? We accept what the supervisory authority decides, even though we would like to have had more time. We have been through a period of strong result generation and good opportunities to build up buffers in the Group, which means that we have been able to strengthen reserves at an early point in time. Of our total required strengthening of reserves of NOK 12.4 billion, we have already set aside NOK 6.2 billion at the end of 2014. This is a level that we are comfortable with.
Now that the legislation has finally allowed investment choice, I think that it is important for us as a leading pension provider to actually offer this to our customers. A consequence of this is the fact that we are willing to put our equity on the table in order to give everyone this opportunity. I myself have a paid-up policy from a prior employer, and I was never in doubt about choosing investment options.
You have repeatedly criticised the current rules for the management of paid-up policies, with an annual guarantee that forces the suppliers to manage long-term money in a short-term manner. What expectations do you have for the authorities doing something about the regulations for guaranteed paid-up policies? For those who have quite a few years before retirement age, policies with investment choice are a very good solution. We know at the same time that most of the paid-up policy holders are over 50 years of age and have a short period of time until retirement or are already retired. They are locked into a product with an unreasonable regulatory framework in relation to the new solvency regulations, and no one benefits from this.
In the autumn of 2014, Storebrand published the figures for its capital situation under the coming Solvency II regulations for the first time. At the end of the 3rd quarter of 2014, the company had a solvency ratio of approximately 125. What targets have you set for the solvency ratio in connection with the introduction of Solvency II in 2016? We have an expressed target of a level of 130 per cent from 2016. When the results were published for year-end 2014, the Solvency II margin was 148 per cent. We are expecting a development in our business, including the effects of transitional rules, which would indicate that we should exceed our target of 130 per cent in 2016.
There is nevertheless no escaping from the fact that enduring low interest rates is challenging for the life insurance companies. Even if the regulatory solvency ratio up until 2016 is not very sensitive to interest rate fluctuations, this will affect the solvency ratio without transitional rules.
Is this the end of defined benefit pensions in the private sector? No, defined benefit pensions in the private sector will be with us for a long time to come. Many companies have closed defined benefit schemes, where the number of members decline for each year that passes, but where it will still take 15-20 years before the defined benefit scheme is phased completely out.
as seamless as possible. We have unique experience and competence here, and that is probably one of the primary reasons why we are winning in the battle for pension customers.
You have repeatedly sought better schemes for private pension savings. The Government has also stated that this is something they want to do something about. Were you disappointed when this was not mentioned in the government budget? I find it to be unreasonable that the level of the company’s pension scheme determines how much of a tax allowance or not applies to your savings. If you are employed in a company with a minimum contribution rate of 2 per cent, then you should have an opportunity to fill up the rest yourself. Norway is practically the only country in Europe that does not have a proper scheme for tax-motivated private pension savings. We will continue to stress the importance of this: Individuals have been given more responsibility for their own pension, now they also need the tools required to influence their pension.
We understand at the same time that the Government would like to look at this in the context of the broader ongoing discussion on taxation. With the Scheel Committee’s report on the table, we expect the Government to follow up on their declaration and propose more concrete solutions for private pension savings in the government budget for 2016.
Having said this, it does not in any way mark the end of cost efficiency improvement. On the contrary: Now there is a continuous efficiency improvement process that is carried out, and we have set new goals to ensure that we reach our target of a cost/income level of 60.
Storebrand has qualified as the only financial company in the world for a place on the Dow Jones Sustainability Index for 15 years in a row. What does work with sustainability mean to you? There is all reason to be very proud of what we have achieved in this area, but we should not rest on our laurels. We will continue to invest more in companies that are financially healthy and sound, have good internal practices and are well-positioned to meet the challenges of the future. This is closely associated with the fact that we invest money with a very long time horizon. The money that is saved for pensions today will often not be used until after 40-50 years, and we are dependent then on being invested in companies that deliver good results and returns over many years.
Sustainable development is development that meets current needs, without being at the expense of opportunities for future generations to satisfy their needs. For Storebrand, sustainability is a matter of our own long-term outlook and security for our customers. As a provider of pension saving solutions, it is essential that we are able to take a long-term perspective and generate a return for our customers, without making a negative impact on the world in which our customers will retire.
SUSTAINABILITY: AN INTEGRAL PART OF OUR CORE OPERATIONS At Storebrand, sustainability is fully integrated into everything we do. This means that in addition to financial parameters, we also take consideration of the social and environmental aspects of all decisions made within the Group. All business areas and departments are responsible for integrating relevant sustainability issues into their activities, helping reduce their footprint, and increasing our benefit to society.
CUSTOMER IN FOCUS As a provider of pension savings, we must be able to apply a long-term perspective to our thinking and actions. We have been working with sustainable investments for almost 20 years, and our strategy covers all investment classes. This is important in order to reduce the risk in our investments and for the customer to be able to feel assured that the investments live up to international norms and rules. We also focus on the selection of companies that have managed to adapt and see the opportunities that sustainable products provide. Ethical and responsible advisory services for customers are of utmost importance at Storebrand. All financial advisers are trained in advisory service ethics and other relevant subjects every year to ensure that customers receive advice that secures their interests.
HR has a sharp focus on equal opportunities, development of talent, job satisfaction and a good working environment, and every department works to reduce our environmental footprint by constantly focusing on resource use. We offset our emissions arising from travel and energy consumption through the purchase of certified emission allowances.
DIALOGUE WITH THE OUTSIDE WORLD We have an impact on our society, and our society has an impact on us. Our sustainability work relies on a close dialogue with key players in society. The dialogue is partly achieved through our annual discussions with players on sustainability matters. We are active in key sustainability organisations like UNEP FI, Norsif, Swesif and the Swedish Sustainable Value Creation collaborative project for investors. Storebrand is also a member of Swedish Leadership for Sustainable Development (SLSD) together with over 20 of Sweden’s largest listed companies. The network is coordinated by the SLSD, and its aim is to develop specific projects and models for work on sustainable development. In 2014, Storebrand/SPP facilitated an anti-corruption workshop together with the network and contributed to an anti-corruption working group.
COMMUNITY ENGAGEMENT The Group’s commitment to local communities has manifested itself in the You Can competition. Grants are awarded annually to projects or associations that require a small amount of money to start or develop an idea that can make the world a better place. Storebrand also supports the annual charitable “TV-aksjonen” campaign. This year the support went to Norwegian People’s Aid and the organisation’s projects to secure clean and readily accessible water in developing countries.
Novo Nordisk has entered into a strategic partnership to reach out with diabetes treatment in, for example, Bangladesh. The training of health personnel has both improved the quality of the treatment and made the patient’s everyday life easier, while strengthening the company’s position and contributing to higher sales at the same time. It is companies like this that Storebrand would like to invest more in.
Another example from the list is BMW, which has been among the best companies in its industry in Storebrand’s sustainability analyses. BMW work systematically to adapt their products to the needs resulting from increased urbanisation, stricter regulations and the consumers’ desires for better and more sustainable products.
AN IMPORTANT JOB As a pension provider, Storebrand has one main task: Generating a good, long-term return for our customers. Sustainability is profitable for our customers and contributes to a better world at the same time. Therefore sustainability is integrated across all our management services. It just makes good business sense.
Since the establishment of new palm oil plantations is regarded as the greatest driving force behind the clearing of tropical forests, Storebrand only wants to invest in companies that are leading the industry in a more sustainable direction. In 2013, work started on a major study aimed in particular at palm oil plantations, because we saw that this was an industry with an unfortunate combination of high risk and poor practices. Our conclusion, after having taken a closer look at the operations of the plantation owners in our investment universe, was to exclude all the companies except one from January 2014.
Storebrand is not seeking to eliminate palm oil or similar products. Our goal is to influence changes in the companies’ practices, and GAR is an example of this being possible. Storebrand would like to support the positive development in this area, because we believe that it is in the best interests of our customers.
In addition to the fact that Storebrand conducts analyses sector by sector, we also conduct thematic analyses, such as palm oil, to exclude companies that we do not want to invest in. By excluding companies we do not believe in, we reduce the level of risk in our customers’ portfolios. In order to ensure a good return, we increase instead our investments in future-oriented companies, and help at the same time to influence the world in a more sustainable direction. Green bonds are a good example of this type of investment.
Green bonds are still a relatively new form of investment, and there is not any international certification system yet. Therefore it is a prerequisite that all green bonds that Storebrand buys have been quality assured by an independent third party such as CICERO or DNV GL.
global development bank with an AAA rating from the credit rating agencies Standard & Poors, Moody’s, Fitch and Japan Credit Rating Agency. The bank lends out money to infrastructure projects for water, sewage and renewable energy.
Green bonds are in accordance with Storebrand /SPP’s goal of contributing towards a greener and more sustainable development. Strong growth in the market is expected to continue, and whenever there are good issuers and quality assured projects, Storebrand/SPP will continue to expand its portfolio.
Storebrand was also represented at the Norwegian governments hearing on the Government Pension Fund Global’s investments in coal companies. Storebrand explained how it had worked in connection with our own coal exclusions, why we thought this was an important investment decision, what limits we had set, and how we planned to develop the strategy further.
In 2014, the Storebrand Group introduced sustainability labelling for both internally and externally managed funds. The labelling was initially launched in Sweden for SPP’s funds platform, and there are plans for a launch in Norway early in 2015.
If we do not have adequate data to assess the fund’s sustainability level, we use the average for funds of a similar type and investment style. Funds with financial instruments that are not included in the rating system are labelled N/A. Sustainability analysis of companies is a continuous process, and the companies’ rating and the sustainability level of the funds is updated on a quarterly basis.
Storebrand has taken an important step towards making a complex area easier for the customers to understand and value with sustainability labelling. Consumers have long been able to buy groceries and electronics based on environmental criteria. Now they can also base their investment choices on sustainability. This is good for Storebrand, good for the financial sector and undoubtedly good for a more sustainable development of our society.
Storebrand analysis team provides companies in our portfolios with a sustainability score from 0-100. This makes it easier for our investment managers to choose the companies that will be the best investment choices for a good pension.
Prevention and detection of fraud, money laundering, and corruption Partially maintained Partially maintained Maintained
Volume sustainability fund – - Storebrand Trippel Smart - Global Topp 1001 1074 NOK million 1856 NOK million 850 NOK million
Head office: Energy consumption Water consumption Waste – rate of recycling 185 kWh/m2 0,33 m3/m2 169 kWh/ m2 0,34 m3/m2
Managed properties: Energy consumption Water consumption Waste – rate of recycling 215 kWh/m2 0,43 m3/m2
Sustainability is a long term issue. Therefore Storebrand has supported our two-year goals with long-term five-year goals. The following targets have been set for the main areas within the Group’s long-term commitments to sustainability:
Volume Sustainability fund - Storebrand Trippel Smart - SPP Global Topp 100 2,000 NOK mill
Number of dialogues with companies on violations of the Minimum standard 44 41
Number of external managers contacted about violations of the Minimum standard 18 10
Number of included companies 36 33 1) New calcuation method , please refer to definiton on www.storebrand.no/site/stb.nsf/pages/rapportering.html 2) Standardized method of assessment, applies to Norway Retail only.
9) Retail customers, Result 2013 is revised to use yearly average and not Q4 result 10) Some companies are excluded based on more than one criterion
ABOUT SUSTAINABILITY REPORTING Storebrand has published environmental and corporate social responsibility reports since 1995, integrated into the Group’s annual report since 2008. Storebrand uses the Global Reporting Initiative (GRI4) guidelines as a tool for reporting on sustainability. Our reporting practice is essentially in accordance with GRI’s reporting principles and satisfies level Core. Storebrand desires transparency and requires compliance and quality in its sustainability work. The results have therefore been reviewed and certified by Deloitte AS. This increases the credibility of the reporting and data, and also engenders greater internal confidence that the information has been collected, analyzed, and the quality assured in a proper manner.
Storebrand ASA is one of the largest companies listed on Oslo Børs measured by the number of shareholders. The company has shareholders from almost all the municipalities in Norway and from 44 countries In terms of market capitalisation, Storebrand was the 16th largest company on Oslo Børs at the end of 2014.
Every year since 1996 Storebrand ASA has given its employees an opportunity to purchase shares in the company through a share purchase scheme. The purpose of the scheme is to involve the employees more closely in the company’s value creation. In March 2014 each employee was given the opportunity to buy between 211 and 1124 shares in Storebrand at a price of NOK 35.58 per share. Around 14 per cent of the employees participated and subscribed for a total of 305,481 shares.
Trading volume for shares in Storebrand A total of 546 million shares in Storebrand were traded in 2014, which is a reduction of 4 per cent from 2013. The trading volume in monetary terms totalled NOK 19,123 million in 2014, an increase from NOK 17,067 million in 2013. In monetary terms Storebrand was the 16th most traded share on Oslo Børs in 2014. In relation to the average total number of shares, the turnover rate for shares in Storebrand was 121.4 per cent.
Storebrand generated a total return (including dividends) of -23 per cent in 2014. During the corresponding period, the Oslo Børs OSEBX index rose 5 per cent, while the European insurance index Beinsur showed a return of 9 per cent for the corresponding period.
Storebrand has one class of shares, each share carrying one vote. The company holds its AGM each year by the end of June. Shareholders who wish to attend the general meeting must notify the company no later than 4:00 p.m. three business days before the general meeting. Shareholders who do not give notice of attendance before the deadline expires will be able to attend the general meeting, but not vote.
20 largest shareholders as of 31 December 2014 Account Number of shares % Country 1 Folketrygdfondet Ordinær 44,418,277 9.87 NOR
Storebrand aims at the same time to manage the portion of the business that consists of pension savings with guaranteed interest rates in the Guaranteed Pension segment. This area is in a long-term decline. Companies are requesting products with guaranteed interest rates to a lesser extent, and these products are capital-intensive for the life insurance companies during periods of low interest rates. The Group’s first priority in this area is to ensure the accrual of pensions for our customers by means of robust systems for risk-taking, while the company actively adapts to the new European solvency regulations, Solvency II.
The year 2014 has been marked by strong competition in Storebrand’s markets, a positive equity market, a challengingly low interest rate level and the clarification of important regulatory issues. Storebrand’s response has been to continue to work at being the best provider of pension savings, in combination with further capital efficiency improvements and cost reductions.
GROWTH IN SAVINGS AND INSURANCE Corporates and their current and former employees are the Group’s main target group. In the corporate market, the Group has maintained its position as the market leader for defined contribution pensions in Norway, a position that was strengthened further when Storebrand signed a letter of intent with Statoil ASA in December. This is the largest defined contribution agreement in the market, in which Storebrand will provide a defined contribution pension for Statoil’s employees. In addition to the acquisition of new customers, many of our existing corporate customers have chosen to take advantage of the opportunity that was introduced in 2014 to increase the contribution rates for their employees’ pension savings.
MANAGEMENT OF GUARANTEED PENSION Strengthening of longevity reserves on schedule Storebrand reported a need to strengthen its reserves by a total of NOK 12.4 billion based on the decision by the Financial Supervisory Au-
The company started strengthening the reserves in the accounts in 2011. In 2012, 2013 and 2014, Storebrand set aside as much as possible of its financial and risk profits. It must also be expected that during the period in which the reserves are being built-up, all available profit will be set aside for strengthening reserves. A total of NOK 2.3 billion was set aside for 2014. Both the risk result and the risk equalisation reserve may be used to strengthen the longevity reserves. The risk equalisation reserve has not been used to strengthen the reserves in 2014, and NOK 0.1 billion less has been allocated to the risk equalisation reserve due to the fact that the risk result for the year has been used to strengthen the reserves. The required strengthening of reserves for group pensions is estimated to be NOK 6.2 billion or around 4 per cent of the premium reserves as at 31 December 2014. Read more about the strengthening of reserves by Storebrand Life Insurance in Note 3.
Greater clarity in the regulations The regulations that are adopted by the EU and Norwegian authorities are of great importance to Storebrand. Additional clarifications have been made in 2014 with regard to the introduction of Solvency II, strengthening of reserves for the new mortality basis and the regulations for occupational pensions and disability pensions in Norway. The changes and consequences for Storebrand are described from page 33.
The Storebrand Group prepares its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS). Storebrand’s business is divided into the following segments: Savings, Insurance, Guaranteed Pension and Other.
Savings has been defined as a growth area for the Group. The result for the segment was 44 per cent higher in 20142. The earnings growth is driven by higher assets under management and good sales.
Throughout 2014, fee and administration income for Guaranteed Pension has performed consistent with the fact that a large part of the portfolio is mature and in long-term decline. It is expected that the contribution to the result will decline over time.
SAVINGS The Savings business area includes products for retirement savings with no interest rate guarantees. The business area consists of defined contribution pensions in Norway and Sweden, asset management and retail banking products.
Total fee and administration income increased by 14 per cent from 2013 to 2014, which is approximately the same growth level as the previous year. Adjusted for non-recurring effects related to pension costs in both 2014 and 2013, the nominal cost level remains more or less unchanged over the last year. Higher distribution costs and increasing volume-related costs in accordance with the growth increased the costs, while the measures implemented to improve efficiency and realise savings linked to the Group’s cost programme have reduced the cost level4.
Defined contribution pensions continue to show strong growth due to a steadily rising number of companies choosing to convert from defined benefit schemes to defined contribution-based schemes. This is increasing both the number of members and the current premium payments and management volume in the defined contribution-based pension schemes in both Norway and Sweden. In addition, rising equity markets contribute to further growth through solid returns on the premium reserves. The combined growth in customer assets for the Group’s defined contribution pension products was 23 per cent in 2014, compared with the previous year.
3) Adjusted for the positive non-recurring effects related to pensions in 2014 and pensions in 2013. Without adjustment for these effects, the increase would be 56 per cent.
4) The Group’s transition from a defined benefit to defined contribution pension scheme for its own employees resulted in a positive non-recurring effect on costs in the amount of NOK 187 million in the segment for 2014.
The asset management business increased its assets under management by NOK 47 billion in 2014. This growth is primarily attributed to good new sales, particularly in the Swedish fund business, as well as a good return on the customer assets. At year end assets under management amounted to NOK 535 billion, comprising mutual funds and funds-in-funds, as well as individual portfolios for insurance companies, pension funds, municipalities, institutional investors and investment companies. For assets under management, see the graph above.
INSURANCE Insurance has responsibility for the Group’s risk products in Norway and Sweden5. The unit provides health insurance in the Norwegian and Swedish corporate and retail markets, P&C insurance and personal risk products in the Norwegian retail market and employee-related and pension-related insurance in the Norwegian and Swedish corporate markets.
The Insurance result was NOK 502 million (NOK 631 million) for the year with an overall combined ratio of 84 per cent (79 per cent in 2013). The insurance premiums increased by 2.7 per cent in 2014. The claims ratio is at a satisfactory level, the increase over the previous year is due to the dissolution of reserves in Sweden in 2013. The costs were reduced by 2 per cent compared with the previous year6. The underlying profitability and efficiency is good and shows a satisfactory development. The Group result before amortisation was NOK 675 million for the year (NOK 774 million in 2013).
The combined risk result is stable with a claims ratio of 71 per cent (64 per cent in 2013). A higher than normal number of new incidents of disability during the year gave a weaker risk result for the life risk products in Norway and Sweden. For the P&C insurance portfolio, the underlying risk performance improved and the portfolio reported good results. The claims frequency is lower than previous years, but the average claim is stable. The overall natural perils result was NOK -0.9 million, which is offset by the good underlying risk performance.
The cost percentage was 13 per cent for the year (15 per cent in 2013). Like the previous year, changes to the pension scheme for the Storebrand Group’s own employees had a positive effect on the costs. This year the change is linked to the transition from defined benefit to defined contribution schemes and amounts to NOK 120 million, while last year, when the pension regulations were amended, the effect was NOK 55 million. Adjusted for this non-recurring effect, the cost percentage would be 16 per cent in 2014 (16 per cent in 2013). To strengthen the level of competitiveness and improve cost effectiveness, an active effort is being made to increase the degree of automation, digitisation and sourcing of services, as well as the utilisation of the economies of scale provided by increased volume.
The investment portfolio of Insurance in Norway amounts to NOK 5.7 billion, which is primarily invested in fixed income securities with a short to medium duration. The booked return for the quarter has been weak. Some of the insurance reserves in this area are co-invested with the group portfolio. This is attributed to the fact that a significant portion of the cover provided is legally under Storebrand Livsforsikring AS. By being co-invested with the group portfolio, over time the return on financial assets will be greater than what would have been achieved in a short-term fixed income portfolio. The return on financial assets for the full year is good as a result of the lower interest rates and good financial markets.
Balance sheet and market trends In the fourth quarter, Storebrand signed a major agreement with Akademikerne (Federation of Norwegian Professional Associations) to provide insurance for 11 out of 13 of the federation’s organisations. The agreement encompasses approximately 110,000 members, and it ensures that Storebrand will have a solid position in the organisational market. The contract entered into force on 1 January 2015 and will make a positive contribution to future growth.
Storebrand Insurance offers a broad range of products to the retail market in Norway, as well as the corporate market in both Norway and Sweden. Profitability in the market is still considered good in general, but competition is increasing. We see this in particular in the employee insurance, where there are many participants in the market. Total annual premiums at the end of 2014 amounted to NOK 3.7 billion, NOK 1.4 billion of which is from the retail market and NOK 2.3 billion of which is from the corporate market.
The corporate market is generally a mature market. Health insurance, which is still a market with strong growth, is an exception. Measured by premiums written, Storebrand is one of the market leaders in health insurance. With regard to other employee insurance segments, Storebrand is one of several large companies. For risk cover in connection with defined contribution pensions in Norway, growth is expected in future that is driven by conversions from defined benefit to defined contribution pensions. Changes in the regulatory framework may result in changes in the future premium volume. In Sweden, the disability trend has been downward for a long period of time, which has led to reduced premiums in general. As a response to this and to strengthen competitiveness, the disability premium in SPP was reduced by 30 per cent in the first quarter.
GUARANTEED PENSION The Guaranteed Pension business area includes long-term pension savings products that give customers a guaranteed rate of return. The business area covers defined benefit pensions in Norway and Sweden, paid-up policies and individual capital and pension insurance.
Fee and administration income has performed throughout 2014 consistent with the fact that a large part of the portfolio is mature and in long-term decline. The income was NOK 1,842 in 2014, which represents a reduction of 8.5 per cent compared with the previous year. The reduction in income is attributed, for example, to the fact that public sector insured solutions are being discontinued in Norway. A total of approximately NOK 21 billion was transferred out, including transfers completed early in 2015. After this, NOK 2.7 billion in reserves remains in public sector occupational pension schemes.
The result from net profit sharing is generated by the Swedish business and amounted to NOK 61 million for 2014, compared with NOK 373 million for 2013. In 2014, the new mortality assumptions and adjusted estimates for future costs in the portfolio have a negative effect on the profit sharing result. This entailed overall a reduction in the result due to the allocated deferred capital contributions of NOK 253 million. The Financial Supervisory Authority of Norway determined in March 2013 that a new mortality tariffs would be introduced for group pension insurance in life insurance companies and pension funds effective from 1 January 2014. This requires increased premiums and higher insurance technical reserves to cover future liabilities. In April 2014, the final guidelines for the escalation plans were clarified. The Norwegian business is therefore prioritising the build-up of buffers and reserves instead of profit sharing between customers and owners. In 2014, NOK 2,282 million of the profit from the financial and risk results was allocated to strengthen the longevity reserves.
Balance sheet and market trends Customer reserves for guaranteed pensions totalled NOK 264 billion at the end of 2014, which corresponds to the level at the start of the year. Transfers from guaranteed pensions have amounted to NOK 14.2 billion in 2014, compared with NOK 9.0 billion in the previous year. The transfers took place primarily in the first and third quarters in connection with the fact that Storebrand discontinued public sector occupational pension insurance in Norway. From the fourth quarter of 2014, the customers were given an offer to convert from paid-up policies to paid-up policies with investment options, and insurance reserves of NOK 0.9 billion were converted by the end of 2014. Premium income from guaranteed pensions was NOK 9.9 billion in 2014. This represents a decline of close to 10 per cent, compared with 2013. The majority of products are closed for new business and the customers’ choices about transferring from guaranteed to non-guaranteed products are in line with the Group’s strategy.
Customer buffers as a % of customer portfolios at SPP 11.7% 15.1%
The profit for Other activities was NOK 236 million for 2014, compared with NOK 119 million for 2013. This increase can primarily be explained by the non-recurring effect related to the change to the pension agreement for the Group’s own employees. Fee and administration income was weaker due to discontinuation of the business bank.
CAPITAL SITUATION Storebrand pays particular attention to the levels of equity and loans in the Group, which are continually and systematically optimised. The level is adjusted for the financial risk and capital requirements. The growth and composition of business segments are important driving forces behind the need for capital. The purpose of capital management is to ensure an efficient capital structure and ensure an appropriate balance between internal goals and regulatory requirements. The Group’s target is to achieve a solvency margin ratio in accordance with Solvency II of at least 130 per cent. Storebrand Livsforsikring AS also aims to achieve an A level rating. The Group’s parent company has established a target to achieve a net debt-equity ratio of zero over time. Storebrand ASA has only one class of share. All shares have equal rights and are freely negotiable. The company is not aware of the existence of agreements between shareholders that limit rights to sell shares or to exercise related voting rights.
The Storebrand Life Insurance Group’s solvency margin (Solvency I) declined from 176 per cent to 175 per cent at the end of the year. Falling interest rates and the exclusion of a subordinated loan of SEK 700 has made a negative contribution. A fall in the interest rate level increases the insurance liabilities in the solvency calculations. The valuation principles used in solvency calculations at a national level are applied in the Group calculations. The Swedish Financial Supervisory Authority decided on 5 December to withdraw permission to include a subordinated loan of SEK 700 million in the solvency capital. Storebrand has appealed this decision to the Administrative Court of Appeals in Sweden. Until a final decision has been made, the loan cannot be included as primary capital. If Storebrand is successful, the solvency margin will be strengthened by approximately 5 percentage points. The profit for the year and higher additional statutory reserves had a positive effect on the solvency margin. The Solvency II solvency regulations will be introduced in 2016. The measures implemented, such as risk reduction, strengthening of longevity reserves and changed technical insurance assumptions throughout 2014, make the company more robust in relation to the future solvency regulations. For 2014, the Solvency II margin is estimated to be 148 per cent, including the current interpretation of the transitional rules.
At the end of 2014, the Storebrand Bank Group had pure core capital adequacy of 13.3 per cent, and a capital adequacy of 15.0 per cent. The Bank Group therefore meets the new legal requirements for capital adequacy including buffer capital requirements.
The Storebrand Group’s capital adequacy ratio was 13 per cent. The core (tier I) capital ratio was 10.3 per cent as at 31 December 2014.
Storebrand ASA had total liquid assets amounting to NOK 1.7 billion at the end of 2014 and also has an unused credit facility of EUR 240 million. The credit facility was renegotiated in December 2014 and will remain in effect until December 2019. Storebrand ASA (the holding company) had total interest bearing liabilities that amounted to NOK 3.1 billion at the end of the year. The first maturity date for the bond loans is in 2016. During the year, the company redeemed bond loans totalling NOK 837 million and issued a new five-year bond loan of NOK 500 million. Storebrand ASA’s debt is normally refinanced well before maturity.
For insurance and pension products, Storebrand receives payment from companies and individuals to assume the risk that various insured events will occur. For pension products, it is necessary to assume financial market risk to create a return on pension assets. The banking business entails a risk of loan losses. In all parts of the business, operational risk arises due to errors that can inflict losses on customers and/or costs on Storebrand.
The majority of Storebrand’s risk is from liabilities related to the products. The Group’s activities consist of three business areas with very different result and risk drivers: Guaranteed Pension, Savings and Insurance.
For Storebrand the risk for non-guaranteed pensions is primarily related to future income and cost changes. There is therefore an indirect market risk, because negative investment returns will reduce future income, without a corresponding reduction in costs. Income is also reduced if customers choose to transfer or if increased competition results in more cost pressure. Market risk and exit risk are therefore the main risks for non-guaranteed pensions. There is also a risk linked to the fact that Storebrand’s costs may increase.
The asset management business offers active and passive management and the management of fund-in-fund structures for the customer‘s account and risk. Operational risk, including compliance risk, are regarded as the greatest risk factors.
The most important risk factors for the banking activities are credit risk and liquidity risk. Practically the entire lending portfolio to private individuals is secured by a mortgage on real estate.
GUARANTEED PENSION The Guaranteed Pension business area encompasses individual defined contribution (IF) and group defined benefit pensions (KF) in Sweden, and defined benefit occupational pensions (YTP), including paid-up policies and traditional individual pension products, in Norway. The greatest risks are financial market risk and life expectancy risk.
In Norway, greater interest rate sensitivity from the investments will give increased risk that the return for the year is below the guarantee. Risk management must therefore balance the risk of the profit for the year being negatively affected by an increase in interest rates with the
Even if falling interest rates are positive for the investment return in the short term due to price appreciation for bonds, it is negative in the long term because it reduces the probability of achieving a return higher than the guarantee. Long-term interest rates have fallen a great deal throughout 2014, both in Norway and Sweden. In Sweden, short-term interest rates have fallen greatly. The central banks in both Norway and Sweden have indicated that interest rates will be kept low throughout 2015.
The fall in interest rates has increased the risk that the return in future years will be lower than the interest rate guarantee. In Norway, the effect will be dampened in the coming years by a large proportion of amortised cost portfolios that will greatly benefit from securities purchased at interest rate levels higher than the current levels.
Over time the risk associated with long life can be reduced by changing the products. In Sweden a large portion of the portfolios have life-long disbursements with the accompanying risk of increasing lifespan, but the customer can make other choices. For many customers changing to time-limited disbursements or disbursement protection may provide greater benefit, at the same time as risk is reduced for Storebrand. In Norway, it is expected that some of the existing corporate customers with a defined benefit pension scheme will chose a defined contribution pension scheme with time-limited disbursements, and this will reduce the longevity risk linked to future premiums.
The assets in Storebrand ASA and the company portfolios are invested at low risk, primarily in short-term interest-bearing securities with a high credit rating.
Lending to commercial enterprises will be discontinued and is being downscaled. The lending volume on its own balance sheet has been reduced, at the same time as the relative credit risk has increased somewhat as a result of loans with the highest credit quality being syndicated to Storebrand Life Insurance.
CHANGING REGULATIONS The regulations that are adopted by the authorities are of great importance to Storebrand. Additional clarifications have been made in 2014 with regard to the introduction of Solvency II, reserve strengthening for the new mortality basis K2013 and the regulations for occupational pensions in Norway.
In the autumn of 2014, the Financial Supervisory Authority of Norway announced its recommendations for the use of the permanent measures and transitional rules in the Omnibus II Directive to facilitate adaptation to Solvency II for products with long guarantees. The directive recommends a yield curve spread to discount insurance liabilities (volatility adjustment) and a transitional period of up to 16 years with regard to the valuation of insurance liabilities. This transitional rule entails that an increase in the insurance liabilities as a result of Solvency II can be phased in on a linear basis over a period of maximum 16 years. This transitional rule should ease the transition to Solvency II for companies with long-term guaranteed annual returns, and it will have a significantly positive effect on paid-up policies.
The Ministry of Finance sent a letter on 27 March 2014 to the Financial Supervisory Authority of Norway, which concluded that the reserve strengthening could not take place on a “joint and several” basis. This means that using the surplus of one contract to strengthen the reserves of other contracts cannot be permitted. The company’s contribution of at least 20 per cent shall be added at the contract level. At the same time, the Ministry opened up the possibility of escalation plans with a duration longer than the five years that was established by the Financial Supervisory Authority of Norway earlier.
Maximum technical interest rate for life insurance On 26 June, the Financial Supervisory Authority of Norway decided to reduce the maximum technical interest rate for life insurance from 2.5 per cent to 2 per cent. This change was made effective from 1 January 2015 and entails that new premiums from this point in time shall be set based on the new interest rate basis.
New Occupational Pensions Act and higher maximum limits for defined contribution pensions The legislation governing occupational pensions in Norway has undergone a series of amendments in order to adapt them to the National Insurance reform. The Occupational Pensions Act entered into force on 1 January 2014. The new Act allows for a defined contribution hybrid product. At the same time, the maximum contribution rates for defined contribution pensions were increased to the same level as in the Occupational Pensions Act, i.e. 7 per cent of salaries up to 12 G (G = National Insurance base amount) with the option of a supplement of up to 25.1 per cent of salaries between 7.1 G and 12 G in order to compensate for the fact that the National Insurance Scheme does not give any pension entitlement for incomes in excess of 7.1 G.
The Banking Law Commission has been given a mandate to study whether it is desirable and possible to establish a form of defined benefit group retirement pension, adapted to the new age accrual in the National Insurance scheme. The report from this study will be submitted to the Ministry of Finance in early 2015.
The new disability product will give entitlement to a disability pension regardless of earnings after the period of service, as opposed to the current regulations. Upon resignation and termination of employment, the right to a paid-up policy with disability benefits will be cancelled unless this is agreed.
The National Insurance Scheme’s disability benefit constitutes 66 per cent of income up to 6 G. The Ministry of Finance proposes that company -paid disability pensions can also account for up to 3 per cent of employment income up to 12 G, in addition to a supplement of 0.25 G limited to 6 per cent of the member’s pay basis. As in the National Insurance scheme, it introduces curtailment if the disabled person has earned income over 0.4 G. In addition, it is planned that prior accrued rights, both from the public sector and the private sector, will be coordinated with the new disability pension.
Parties in working life are studying occupational pension schemes Norsk Industri (Federation of Norwegian Industries) and Fellesforbundet (Norwegian United Federation of Trade Unions) agreed during the main bargaining period to study various issues related to the employees’ influence over their occupational pension schemes. This applies to co-determination with respect to the investment and management of the assets, how accrued pensions will be protected when changing jobs, consequences for already established schemes, and the possibility for employees to save on their own on an individual basis. Virke (Enterprise Federation of Norway) and Handel og Kontor (Union of Employees in Commerce and Offices) will conduct a corresponding study.
Paid-up policies with investment choice The regulations that allow customers to convert guaranteed paid-up policies to policies with investment choice entered into force on 1 September 2014.
The authorities require that paid-up policies are fully reserved for the new mortality basis before they can be converted to paid-up policies with investment choice. Rules have been stipulated for the use of a so-called technical interest rate of up to 3 per cent for the calculation of the annual payments from paid-up policies with investment options (applies also to hybrids in accordance with the new Occupational Pensions Act). This provides more attractive payment profiles, with higher payments during the first years, compared with the original proposal. Rules concerning information and advisory services have been stipulated. The financial industry has also prepared an industry agreement for advisory services in connection with conversion to paid-up policies with investment choice.
Storebrand allowed the conversion of guaranteed paid-up policies to policies with investment choice from 15 October, and it is the only company to offer investment choice for all employed paid-up policy customers.
Act on Financial Undertakings and Financial Groups The Ministry of Finance introduced a bill for a new Act on Financial Undertakings and Financial Groups on 20 June 2014. The Storting is expected to consider and adopt this bill in January of 2015. (Business and industry policy will reconcile this item when the Act has been adopted by the Stortinget)
The bill entails a comprehensive structural reorganisation of much of Norway’s financial legislation. It also implements the new Solvency II regulations in Norwegian law. Substantive changes are also proposed to rules on the use of names by financial undertakings, banks’ obligations regarding the handling of cash, the organisation of customer service and the handling of customer information in financial groups. In addition the bill proposes repealing the current requirements regarding supervisory boards and control committees. The rules on outsourcing were implemented on 1 July 2014.
The Storebrand Group has worked systematically and purposefully on sustainability for almost 20 years. Sustainability is both one of Storebrand’s six customer promises and one of the Group’s three principal messages. This illustrates how highly we prioritise this work. Storebrand strengthened this focus further in 2014. The aim is to ensure that our corporate and retail customers perceive sustainability to be a differentiating factor.
Global trends such as population growth and the scarcity of resources, growth in emerging economies and demand for sustainable products will increasingly have an impact on business and industry in the future. We believe that the companies that create business opportunities by solving global and local social problems will be the winners of the future.
SUSTAINABLE OPERATIONS The Group makes high demands on the companies we invest in, and we make the same demands on ourself and our suppliers. Knowledge of what sustainability areas are the most important to Storebrand is a prerequisite for being able to make high relevant demands. In 2014, Storebrand conducted a materiality analysis, the purpose of which was to obtain a picture of what subjects are material to Storebrand. The analysis identified the following materialities: industry distrust, climate change, corruption and financial crime, as well as overexploitation of natural resources. The analysis will impact Storebrand’s sustainability strategy, priorities and consumption of resources in the years to come. Indicators and targets in the sustainability scorecard 2015-16 will also be based on the analysis.
By making sustainability a clear requirement in our selection of suppliers, Storebrand will contribute to more numerous and better sustainable products. We are a member of the Swan eco-label’s purchaser club. Companies that are exclusively on the investment side will also be automatically disqualified as suppliers to the Group. In connection with procurement processes, Storebrand has had a number of conversations on sustainability with relevant suppliers, in which we expressed clear expectations of an improvement potential.
Our ethical rules are an important tool in our daily operation, and are followed up every year through training and monitoring. Management teams at all levels of the Group discuss ethical dilemmas and review the rules at least annually. How well the rules are complied with is followed up by an ethics indicator, which is reported and quantified annually in the Group’s sustainability scorecard.
The Group’s rules relating to anti-corruption, notification and work against internal fraud are included in the ethical rules and apply to all employees and consultants that work for Storebrand. A notification channel has been established that connects directly to an external partner if the employee wishes to send notification anonymously. Information on notification routines is available to all employees on the Group intranet.
SUSTAINABLE INVESTMENTS Storebrand has a significant influence through its investments in thousands of companies in all sectors and regions of the world. We believe that sustainability is about investing in companies that are positioned for major opportunities inherent to a transition to a green economy. Our sustainability team continuously analyses 2,400 companies and assigns a sustainability rating ranging from 0 to 100. This rating is available to the managers and used to calculate the sustainability level for both internal and external funds.
As part of the effort to make sustainability close and relevant for our customers, Storebrand launched the sustainability labelling of funds in the Group’s Swedish funds platform in 2014. The labelling of funds is based on Storebrand’s own sustainability rating of 2,400 companies, and it should make it easier for our customers to make sustainable fund choices. This will also be launched in Norway early in 2015.
The following areas are covered by the Storebrand standard: • Human rights, workers’ rights and international law • Corruption and financial crime • Serious climate and environmental damage • Controversial weapons: land mines, cluster munitions and nuclear weapons • Tobacco • We also exclude the companies that are the worst performers in relation to sustainability and climate measures in high-risk industries. • As at 31 December 2014, 171 companies have been excluded from investment.
We want to be available and open to everyone and during the year we have met many upper secondary school students, contributed to a number of project assignments in Norwegian, Swedish and international universities as well as contributed to research. We are active in key sustainability organisations, such as UNEP FI, Norsif, Swesif and the Swedish investment collaboration, Sustainable Value Creation. In addition, Storebrand is a member of Swedish Leadership for Sustainable Development (SLSD) together with over 20 of Sweden’s largest listed companies. The network is coordinated by the SLSD, and its aim is to develop specific projects and models for work on sustainable development.
• All of the Storebrand Group’s self-managed assets are subject to the Storebrand Standard, a minimum standard for sustainable investments, as defined by the executive management.
• Storebrand shall have a transparent management structure in accordance with national and international corporate governance standards.
The company seeks to ensure equal treatment and opportunities for all the internal and external recruitment and development processes. The head office in Lysaker is a universal design building.
The employees’ confidence in their immediate superior and assessment of cooperation in the organisation has increased throughout the year, from an already high level.
No injuries to people, property damage, or accidents were reported in the Storebrand Group in 2014.
ETHICS AND TRUST Trust is the lifeblood of Storebrand. We must maintain order in our own house. The company sets strict requirements concerning high ethical standards for the Group’s employees. The Group has a common code of ethics that is available on our intranet in three languages. Notification routines, brochures, anonymous postbox, dilemma bank, question and answer summaries and presentations are all available to employees on the intranet. Every year all the managers must confirm in writing that they have discussed ethics and ethical dilemmas, information security, financial crime and HES in departmental meetings.
SKILLS A high level of skill is one of Storebrand’s most important factors for success, and it forms the foundation for renewed growth. At Storebrand, skills are synonymous with the ability that each individual employee has to perform and manage certain tasks and situations. This ability is based on knowledge and experience, skills, motivation and personality. Storebrand’s core expertise should be pensions, sustainable savings and customer orientation.
The company’s vision, customer promises and core values constitute the heart of company culture. In conjunction they contribute to underpinning customer orientation for both managers and employees.
Storebrand’s executive management and Board of Directors review Storebrand’s corporate governance policies annually. Storebrand established principles for corporate governance in 1998. Storebrand reports on the policies and practice for corporate governance in accordance with section 3-3b of the Norwegian Accounting Act and the Norwegian Code of Practice for Corporate Governance of 30 October 2014. For further information on Storebrand’s corporate governance, reference is made to a separate article on page 47 of the annual report.
The Board carried out an evaluation in 2014, in which the executive management participated. A total of eleven board meetings were held in 2014. The work of the Board is regulated by special rules of procedure for the Board. The Board has established two advisory committees: the Compensation Committee and Audit Committee.
During 2014 the following changes to the membership of Storebrand’s corporate bodies took place: Board of Directors of Storebrand ASA: Jon Arnt Jacobsen and Kirsti Valborgland (employee representative) have retired from the Board. Martin Skancke and Arne Fredrik Håstein (employee representative) have been elected as new members.
Helge Leiro Baastad, Tore Eugen Kvalheim, Karen Helene Ulltveit-Moe, Terje Andersen, Mats Gottschalk (alternate member), Lars Tronsgaard (alternate member), Tor Haugom (employee representative), Per-Erik Hauge (employee representative) and Joachim Ales (employee representative ) have retired from the Board of Representatives. Control Committee: Re-election.
Nomination Committee: Harald Espedal has been elected as a new member. Helge Leiro Baastad retired from the Nomination Committee. The Board wishes to thank the retiring members of the Board of Directors and Board of Representatives for their valuable contributions to the Group.
EARNINGS PERFORMANCE Earnings performance Storebrand has a strategy of pursuing growth in non-guaranteed products, where the results are less affected by short-term fluctuations in the financial markets. In 2014, premium income from non-guaranteed products was greater than the premium income from guaranteed products for the first time. Growth in defined contribution schemes is expected to continue as a result of new customers, wage adjustments and the possibility of higher savings rates in Norway.
Interest rates have fallen throughout 2014 and the 10-year swap rate is at historically low levels in both Norway and Sweden. The interest rate level has continued to fall in January as a result of the expansive monetary policy in Europe. Storebrand has adapted to the lower interest rates through building up buffer capital, risk reduction on the investment side and changes to the products. The solvency level improved during the period, which shows that the Group is robust in relation to low interest rates in the long term. The level of the annual interest rate guarantee will decline over time. In the long term, enduring low interest rates are challenging for insurance companies that have to cover an annual interest rate guarantee.
Storebrand is in a period of major regulatory and market-related changes in the pension area. Sales have been good and the customers have received a good return on their pension assets. Storebrand has implemented a cost programme over recent years that has reduced the Group’s annual costs by NOK 400 million. Cost reductions and adaptations in the business have established a good foundation for profitable growth in the future.
Storebrand ASA is the holding company in the Storebrand Group, and the accounts have been prepared in accordance with the Norwegian Accounting Act, generally accepted accounting policies in Norway, and the Norwegian Regulations relating to annual accounts, etc. for insurance companies. Storebrand ASA reported a profit before tax of NOK 351 million in 2014, compared with NOK 377 million in 2013. Group contributions from investments in subsidiaries amounted to NOK 490 million, compared with NOK 626 million in 2013. The operating costs in 2014 were NOK 38 million, which is lower than normal and attributed to an income of NOK 48 million from the change in the pension scheme.
The Group is in a situation where it needs to strengthen its reserves for higher life expectancy and adapt to new European solvency regulations. The Board has accordingly decided to propose to the Annual General Meeting that no dividend be paid and that the net profit for 2014 be allocated to other equity.
The statement below describes how Storebrand complies with the 15 sections of the Code of Practice.
1. IMPLEMENTATION AND REPORTING ON CORPORATE GOVERNANCE (NO DEVIATIONS FROM THE CODE OF PRACTICE) The Board of Directors of Storebrand ASA has decided that the company will comply with the Norwegian Code of Practice for Corporate Governance and discusses compliance with the Code of Practice in the Board of Directors’ Report on page 43. Storebrand complies with the Code of Practice without any significant exceptions. One minor deviation has been accounted for below under section 3.
Storebrand’s corporate values are described through its vision and core values. Combined they provide a common direction and goals for Storebrand. The vision describes the enterprise’s goals and ambitions. The three core values characterise what Storebrand stands for as a company. Further discussion and clarification of Storebrand’s corporate values may be found on the Group’s website.
2. BUSINESS (NO DEVIATIONS FROM THE CODE OF PRACTICE) Storebrand ASA is the parent company in a financial group. The company’s statutory object is to manage its equity interests in Storebrand in compliance with the current legislation. Storebrand’s main business areas comprise savings, insurance and guaranteed pensions. The full text of the Articles of Association may be found on the Group’s website at www.storebrand.no.
The market is kept informed of Storebrand’s goals and strategies through quarterly result presentations and other thematic presentations, such as the Capital Markets Days. The latter event was held on 26 November 2014. You can read more about the company’s goals and main strategies on page 23.
3. EQUITY AND DIVIDENDS (DEVIATION FROM THE CODE OF PRACTICE) The Group’s Board of Directors continually monitors the company’s capital solidity in light of its goals, strategy and risk profile. You can read more about Storebrand’s capital situation and solvency on page 35 of the Board of Directors’ Report. The Board has adopted a dividend policy that states that the dividend paid to shareholders shall normally amount to at least 35 per cent of the profit for the year after tax, but before amortisation costs. The dividend shall be adjusted such that Storebrand is assured the right capital structure. The dividend is set by the General Meeting, based on a proposal put forward by the Group’s Board of Directors. The General Meeting may, by simple majority, authorise the Board of Directors to distribute a dividend pursuant to Amendments to Section 8-1, second paragraph of the Norwegian Public Limited Companies Act (entered into force on 1 July 2014). This shall be based on the annual financial statements adopted by the General Meeting. This authorisation may not be granted for a period longer than until the next Annual General Meeting. In addition, the authorisation shall be based on the adopted dividend policy. The General Meeting will not be requested to provide such authorisation in 2015. Read more about Storebrand’s dividend policy on page 20.
At the same General Meeting, the Group’s Board of Directors was authorised to buy back shares for a maximum value of NOK 224,954,945. The total holdings of treasury shares must, however, never exceed 10 per cent of the share capital. The buyback of treasury shares may be a tool for the distribution of surplus capital to shareholders in addition to dividends. In addition, each year Storebrand ASA sells shares to employees from its own holdings in connection with the share purchase scheme and longterm incentive schemes for employees of Storebrand. Accordingly, it is appropriate to authorise the Board of Directors to buy shares in the market to cover the aforementioned needs or any other needs. The authorisation is valid until the next Annual General Meeting.
4. EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH CLOSE ASSOCIATES (NO DEVIATIONS FROM THE CODE OF PRACTICE) Storebrand ASA has only one class of shares. Storebrand has no specific restrictions on the ownership of shares or voting rights beyond the restrictions imposed by the Financial Institutions Act. The management and Board of Directors of Storebrand focus strongly on the equal treatment of shareholders through their work.
The general competence rules for board members and executive personnel may be found in the rules of procedure for the Board of Storebrand ASA, rules of procedure for the boards of subsidiaries, instructions for the CEO and the Group’s code of ethics. Board members must inform the company if they have direct or indirect material interests in an agreement concluded by one of the companies in the Storebrand Group. The Board shall ensure that an independent third party assesses the value of transactions that are not insubstantial in nature. Furthermore, the rules of procedure for the Board stipulate that no board member may participate in discussions or a decision concerning matters that are of such material importance to them or a close associate that the member must be regarded as having a conspicuous personal or special financial interest in the matter. Each board member has a responsibility to continuously assess whether or not such a situation exists. Transactions with close associates involving Storebrand’s employees and other officers of the Group are regulated by Storebrand’s code of ethics. Employees shall on their own initiative immediately report conflicts of interest that may arise to their immediate superior as soon as they become aware of such a situation. In general, an employee is defined as disqualified if circumstances exist that could result in others questioning the person’s impartiality in relation to matters other than Storebrand’s interests.
The Articles of Association were amended at the 2011 Annual General Meeting to allow shareholders to vote in advance by means of electronic communication, cf. section 5-8b of the Norwegian Public Limited Companies Act. The arrangement gives the shareholders an opportunity to vote without being represented at the General Meeting. As many shareholders as possible are thus allowed to exert an influence on the company by exercising their voting rights.
Storebrand’s Articles of Association stipulate that the chairman of the Board of Representatives shall chair the General Meeting. The Chairman of the Board, at least one representative from the Nomination Committee and the external auditor must attend the General Meeting. The CEO, executive management team and the Group Legal Director participate from the management. General Meeting minutes are available on the Group’s website.
Control Committee Certain companies in the Storebrand Group are legally required to have a Control Committee. Storebrand ASA, Storebrand Livsforsikring AS, Storebrand Forsikring AS, Storebrand Bank ASA and Storebrand Boligkreditt AS share a committee, which consists of five members and an alternate member, all of which are elected by the General Meeting. The alternate member attends all the Control Committee meetings. The composition of the committee is identical for Storebrand ASA and all of the aforementioned subsidiaries or group companies. The committee is independent of the respective boards and management of the companies. The term of office is two years. The Control Committee is responsible for ensuring that Storebrand conducts its activities in a prudent and proper manner, and this includes ensuring that the group complies with all current legislation and regulations, the companies’ Articles of Association and resolutions adopted by decision-making bodies. The committee is entitled to look into any matter at Storebrand and has access to any relevant documentation and information. The committee has the power to demand information from any employee and any member of the governing bodies. The committee held nine meetings in 2014 and reports semi-annually on the committee ’s work to the Board of Representatives, most recently in September 2014.
A legislative amendment is expected in 2015 that will make the control committee requirement optional. Storebrand will conduct a detailed evaluation of the possible discontinuation of the Control Committee as a result of the legislative amendment.
The Articles of Association stipulate that the Nomination Committee should work in accordance with the rules of procedure adopted by the General Meeting. The Nomination Committee’s rules of procedure were adopted at the 2010 Annual General Meeting. In accordance with the rules of procedure, the Nomination Committee shall focus, for example, on the following when preparing nominations for representatives
The Nomination Committee held 16 meetings in 2014. In the spring of 2014, the Committee nominated candidates for new members of the Board of Representatives, Control Committee, Nomination Committee and boards of the relevant group companies. In the autumn of 2014, the Nomination Committee started work on the elections that are to be held by the General Meeting and Board of Representatives in the spring of 2015.
8. CORPORATE ASSEMBLY AND BOARD OF DIRECTORS: COMPOSITION AND INDEPENDENCE (NO DEVIATIONS FROM THE CODE OF PRACTICE) The Board of Representatives elects the Board’s members and supervises the management of the company by the Board and CEO. Storebrand is legally required to have a corporate assembly – the Board of Representatives. It has 18 members, 12 of whom are elected by the General Meeting and six by the Group’s employees. Members are elected for a two-year term, so that half the members are up for election each year. It is a statutory requirement that the members elected by the General Meeting shall reflect the company’s stakeholders, customer structure and function in society. The company ’s shareholders are broadly represented through the elections that are held.
A legislative amendment is expected in 2015 that will eliminate the board of representatives requirement and make it optional in the form of establishing a so-called corporate assembly. Storebrand will conduct a detailed evaluation of the possible discontinuation of the Board of Representatives and subsequent establishment of a corporate assembly.
The final agenda is fixed in consultation with the Chairman of the Board. Time is set aside at each board meeting to evaluate the meeting without the management present. The Board is entitled to appoint external advisers to help it with its work whenever it deems this necessary. The Board has also drawn up instructions for the CEO.
Storebrand ASA’s Board has drawn up instructions for Storebrand’s subsidiaries that are to ensure that they implement and comply with the Group’s management and control policies and guidelines.
Storebrand’s corporate responsibility guidelines summarise how corporate responsibility is an integral part of Storebrand’s management and control processes for investments, product development, purchasing, employee monitoring and internal operations. Storebrand ’s corporate sustainability goals are adopted by the Board, and the sustainability scorecard is followed up by the Group’s executive management team Storebrand also complies with the GRI (Global Reporting Initiative) international reporting standard. The results are audited by Storebrand’s external auditor, see the auditor’s report on page 159. For the 16th year in a row, Storebrand qualified for the international Dow Jones Sustainability Index, which includes the top 10 per cent most sustainable companies within all industries on a global basis.
Storebrand’s financial and operational goals are defined annually in a board-approved business plan. The business plan builds on separate decisions on risk strategy and investment strategies, and includes three-year financial forecasts, budgets and action plans. The Board of Directors receives ongoing reports on the status of the strategy implementation.
Storebrand Compass is the company’s monitoring tool, and it provides comprehensive reports for management and the Board concerning financial and operational targets. In addition, the Board of Directors receives risk reports from the risk management function, which monitors the development of key figures for risk, solidity, etc.
CRO and employees with control functions related to risk management, internal control and compliance only have fixed salaries.
Storebrand’s consolidated financial statements are prepared by the Consolidated Financial Statements unit, which reports to the Group’s CFO. Key executives in the Consolidated Financial Statements unit receive a fixed annual remuneration that is not affected by Storebrand’s financial earnings. The work involved in the preparation of the financial statements is organised in such a way that the Consolidated Financial Statements unit does not carry out valuations of investment assets. Instead it exercises a control function in relation to the accounting processes of the group companies.
A series of risk assessment and control measures have been established in connection with the preparation of the financial statements. Specific reporting instructions are drawn up each quarter and communicated to the subsidiaries. Internal meetings are held prior to the subsidiaries’ reporting, as well as meetings in which the external auditor participates, to identify risk factors and measures linked to significant accounting items or other factors. Corresponding quarterly meetings are also held with various specialist areas in Storebrand that play an important role in the assessment and appraisal of insurance obligations, investment properties and financial instruments, including lending. These meetings particularly focus on any changes in the market, specific situations relating to individual investments, transactions and operational factors, etc.
Monthly and quarterly operating reports are prepared in which the results by business area and product area are analysed and assessed against set budgets. Particular attention is paid to analysing the development of the financial results, risk results and administration results. The operating reports are reconciled against other financial reporting. Otherwise, continuous reconciliation of specialist systems, etc. takes place against the accounting system.
The remuneration consists of fixed salaries, bonuses, pension schemes and other fringe benefits deemed to be natural in a financial group. The aim of the remuneration is to motivate greater efforts to ensure longterm value creation and resource utilisation in the company. In the opinion of the Board the overall remuneration shall be competitive, but not leading. An annual assessment is carried out based on external market data to ensure remuneration is adequate in relation to equivalent positions in the market.
Storebrand has chosen to only pay fixed salaries to employees for whom control functions make up a large part of their duties. This is to ensure independence in the execution of the control functions. For other executive personnel and employees who influence the company’s risk, as defined by the authorities, the most important objectives of the bonus model are for the bonuses to guide their actions so that they are generally commensurate with the owners’ long-term interests, promote good management and control of the company’s risk, counteract high levels of risk-taking, and act as an incentive for long-term value creation and contribution towards good profitability.
Specific goals are set annually for how the company’s creation of value shall finance bonuses. The financing is calculated based on the creation of value over the last two years and the value creation target is based on the risk-adjusted result. The bonuses awarded are also determined by the unit’s and individual’s results in addition to the creation of value. The units’ results are measured by means of a scorecard, which incorporates both quantitative and qualitative goals, and these goals are both financial and operational. The employees’ performance is followed up by a special monitoring system, in which performance is measured in relation to both the execution of individual action plans and compliance with Storebrand’s core values. The unit’s scorecard and the individual’s action plan are directly linked to the strategy adopted by the Board. This helps to further strengthen agreement between the owners and the management.
For Norwegian executive personnel half of the awarded bonus is paid in cash, while the remaining half is converted to a number of synthetic shares based on a weighted average price before payment. The number of shares is registered in a share bank and will remain there for three years. Actual shares are not purchased. At the end of the period an amount corresponding to the market price of the shares awarded is paid. Half of the amount paid (after tax) from the share bank is used to purchase actual shares in Storebrand with a lock-in period of 3 years. No payments are made from the share bank until the end of the 3-year period, even if the employee withdraws from the scheme or leaves the company.
14. TAKEOVERS (NO DEVIATIONS FROM THE CODE OF PRACTICE) The Board of Directors has prepared guidelines for how to act in the event of a possible takeover bid for the company. These guidelines are based on the Board of Directors ensuring the transparency of the process and that all the shareholders are treated equally and given an opportunity to evaluate the bid that has been made. It follows from the guidelines that the Board of Directors will evaluate the bid and issue a statement on the Board’s opinion of the bid, in addition to obtaining a valuation from an independent expert. Moreover, the Board will in the event of any takeover bid seek whenever possible to maximise the shareholders’ assets. The guidelines cover the situation before and after a bid is made.
STATEMENT IN ACCORDANCE WITH SECTION 3-3B, SECOND PARAGRAPH OF THE NORWEGIAN ACCOUNTING ACT A summary of the matters that Storebrand is to report on in accordance with Section 3-3b, second paragraph of the Norwegian Accounting Act follow here. The points follow the numbering used in the provision.
2 The Norwegian Corporate Governance Board’s Code of Practice is available at www.nues.no.
4 A description of the main elements of Storebrand’s systems for internal control and risk management related to the financial reporting process is discussed in section 10 above.
5 Provisions in the Articles of Association that refer to the provisions in chapter 5 of the Norwegian Public Limited Companies Act with regard to the general meeting are discussed in section 6 above.
Løddesøl has worked for the Storebrand Group since 2001, including Managing Director at Storebrand Livsforsikring AS, Deputy Managing Director at Storebrand Bank ASA, and Group Finance Director. Løddesøl previously worked for Citibank and SAS.
Kamark started working at the Storebrand Group in the autumn of 2012. He previously worked for the SAS Group as Chief Commercial Officer, and held other executive positions.
Grefstad has worked for the Storebrand Group since 1994. His roles have included Group CFO, Head of the sales and marketing unit, and Managing Director at Storebrand Livsforsikring AS. Grefstad previously worked as an external auditor for Arthur Andersen.
Hansén has worked at the Storebrand Group since 2006, primarily as Investment Director at SPP. He previously worked at Alfred Berg and Svenska Handelsbanken.
Hodnesdal has worked for the Storebrand Group since 1996. She began as a corporate trainee, and has extensive experience as an executive in the areas of strategy, business development, P&C insurance, and life and pension insurance.
Magnus’ previous roles include Executive Vice President at Schibsted ASA and Partner at McKinsey & Co.
He is Chairman of the Boards of Hafslund ASA and bMenu A/S, Board Member of Aschehoug, Kristian Gerhard Jebsens Gruppen, SAS Group AB, Harvard Business Publishing, WeVideo Inc., and the foundations Kristian Gerhard Jebsen and Active Against Cancer.
Ingerø is a Board Member of Opplysningen 1881 AS and Sporveien i Oslo AS.
Dahlen has previously been a consultant for Kelkoo and Norsk Tipping. COO at Kelkoo/ Yahoo London, VP Marketplace at Yahoo Europe, London, Regional Manager at Kelkoo Stockholm, Country Manager at Kelkoo Stockholm, VP International Operations at Kelkoo Paris and Manager at PricewaterhouseCoopers.
Stenstadvold is Chairman of the Board of SOS Barnebyer and the Henie Onstad Art Centre, as well as a Board Member of Navamedic ASA, Statkraft SF and Statskraft AS, Kongsberg Automotive ASA, SOS USA and SOS International.
Håstein has previously worked as product manager for Delphi Funds, key account manager in Storebrand Asset Management, senior financial advisor in Fokus Bank AS and financial advisor/senior financial advisor in Storebrand Livsforsikring AS.
Vareberg has his own consulting business. His previous positions have included CEO at Sparebank1 SR-Bank, Group Director at Statoil ASA and CEO at Agro Fellesslakteri.
Life expectancy increases by 12 minutes per hour. Our commitment lasts a lifetime.
To responsibly manage our customers’ pension, we must invest in those companies who recognize that the world is changing and that adapts to these changes. We believe that the companies that manage to do more, for more people, with less use of resources, will be the best investment for the future. This can provide higher expected long-term returns
Profit and loss account Statement of total comprehensive income Statement of financial position Reconciliation of Group’s equity Cash flow analysis
BUSINESS AND RISK NOTES Note 1 Corporate information and accounting policies Note 2 Important accounting estimates and discretionary judgements Note 3 Building-up reserves for long life expectancy for Storebrand Life Insurance Note 4 Result allocation - guaranteed pension Note 5 Segment reporting Note 6 Risk management and internal control Note 7 Insurance risk Note 8 Financial market risks Note 9 Liquidity risk Note 10 Lending and counterparty risk Note 11 Currency exposure Note 12 Credit exposure Note 13 Risk concentration Note 14 Valuation of financial instruments and real estate
PROFIT AND LOSS ACCOUNT NOTES Note 15 Premium income Note 16 Net interest income - banking activities Note 17 Net income analysed by class of financial instrument Note 18 Net income from real estate Note 19 Other income Note 20 Insurance claims for own account Note 21 Changes in insurance liabilities – life insurance Note 22 Change in buffer capital Note 23 Losses from lending and reversals of previous losses Note 24 Operating costs and number of employees Note 25 Pensions costs and pension liabilities Note 26 Remuneration to senior employees and elected officers of the company Note 27 Remuneration paid to auditors Note 28 Other costs Note 29 Interest expenses Note 30 Tax
STATEMENT OF FINANCIAL POSITION NOTES Note 31 Immaterielle eieIntangible assets Note 32 Tangible fixed assets Note 33 Tangible fixed assets - operational leasing Note 34 Investments in other companies Note 35 Classification of financial assets and liabilities Note 36 Bonds at amortised cost Note 37 Lendings to customers Note 38 Reinsurer’s share of technical reserves Note 39 Real estate Note 40 Biological assets Note 41 Accounts receivable and other short-term receivables Note 42 Equities and units to fair value
OTHER NOTES Note 49 Hedge accounting Note 50 Collateral Note 51 Contingent liabilities Note 52 Securities lending and buy-back guarantees Note 53 Capital adequacy and solvency requirements Note 54 Information about close associates
Net income from financial assets and real estate for the company: - equities and other units at fair value 17 17 8 - bonds and other fixed-income securities at fair value 17 774 417 - financial derivatives at fair value 17 -208 22 - bonds at amortised cost 17 90 59 - profit from investments in associated companies/joint controlled operation 34 40 89
Storebrand Group Profit and Loss Account 1 January - 31 December
Tax on other result elements not to be classified to profit/loss 80 104
Total other result elements not to be classified to profit/loss -245 -236
Total other result elements that may be classified to profit/loss 137 840
Total comprehensive income attributable to: Majority's share of total comprehensive income 1,950 2,564
Financial assets at amortised cost: - Bonds held-to-maturity 10,35,36 347 222
Financial assets at amortised cost: Real estate at fair value 8,39 21,963 20,856 25,504
Financial assets at fair value: - Bonds and other fixed-income securities 8,10,14,35,43 157,576 155,074 157,839
2) Includes undistributable funds in the risk equalisation fund amounting to NOK 829 million and security reserves amounting NOK 270 million.
3) In consequence of the changes to the principles, the comparative figures have been restated. See further information in note 1 Accounting policies.
Net receipts/payments - sale/purchase of property and fixed assets -4 -6
Net receits/payments - purchase/capitalization of associated companies and joint ventures 131 407
Storebrand ASA is a Norwegian public limited company that is listed on the Oslo Stock Exchange. The consolidated financial statements for 2014 were approved by the Board of Directors on 10 February 2015.
The asset side of the Group’s statement of financial position comprises, for the most part, financial instruments and investment properties. Investment properties are recognised at fair value. A large majority of the financial instruments are measured at fair value (the fair value option is used), whilst other financial instruments that are included in the categories Loans and receivables and Held to maturity are measured at amortised cost. Financial instruments valued at amortised cost are largely related to Norwegian pension liabilities with guaranteed interest rates. In addition, the majority of loans are valued at amortised cost. Capitalised intangible assets, which mainly comprise excess value relating to insurance contracts upon a business combination, are also recognised on the balance sheet. This excess value is recognised at historical cost less annual amortisation and write-down.
USE OF ESTIMATES IN PREPARING THE ANNUAL FINANCIAL STATEMENTS. The preparation of the annual financial statements in accordance with IFRS requires the management to make judgements, estimates and assumptions that affect assets, liabilities, revenue, expenses, the notes to the financial statements and information on potential liabilities. Actual amounts may differ from these estimates. See note 2 for further information.
There are new and amended accounting standards that came into effect on 1 January 2014, and Storebrand has implemented
IFRS 10 – CONSOLIDATED FINANCIAL STATEMENTS IFRS 10 replaces the parts of IAS 27 that address consolidated financial statements and include in addition companies for special purposes that were previously addressed in SIC-12.
IFRS 11 – JOINT ARRANGEMENTS In accordance with IFRS 11, the equity method will be used for the consolidation of joint ventures. With consolidation using the equity method, the result after tax is included on one line, and this brings about an altered content for the Group result before tax and tax expense in relation to consolidation using the proportionate consolidation method. This has resulted in a change in the consolidation of Storebrand Helseforsikring AS, which was previously consolidated using the proportionate consolidation method.
IFRS 12 – DISCLOSURE OF INTERESTS IN OTHER ENTITIES IFRS 12 applies to entities that have interests in subsidiaries, joint ventures and associates. This standard replaces the disclosure requirements that previously followed from IAS 27, IAS 28 and IAS 31.
Lending to customers at amortised cost 33,637 -1,289 32,348 35,306 -1,241 34,065
Bonds and other fixed-income securities 23,485 -191 23,294 21,496 -184 21,312
Changes to other accounting standards There are also other amendments to the IFRS regulations with effect from or that can voluntarily be applied from 1 January 2014, but which have not had any significant effect on the consolidated financial statements.
IFRS 4, Phase II. A new Exposure Draft (ED) was published in June 2014. A new standard will probably be ready in 2015. It is uncertain when this will be implemented. We assume that the standard will not be implemented until 2018 at the earliest.
• The cash flows are discounted by an interest rate that reflects the cash flows’ risk
No new accounting standards that will have a significant impact on Storebrand’s consolidated financial statements are expected to be implemented in 2015.
The consolidated financial statements combine Storebrand ASA and companies where Storebrand ASA has a controlling interest. A controlling influence is normally achieved when the Group owns, either directly or indirectly, more than 50 per cent of the shares in the company and the Group is in a position to exercise actual control over the company. Minority interests are included in the Group’s equity, unless there are options or other conditions that entail that minority interests are assessed as liabilities.
Elimination of internal transactions Internal receivables and payables, internal gains and losses, interest, dividends and similar between companies in the Group are eliminated in the consolidated financial statements. Transactions between customer portfolios and the life insurance company ’s or other Group unit portfolios are not eliminated in the consolidated accounts. Pursuant to the life insurance regulations, transactions with customer portfolios are based on the arm’s length principle.
The acquisition method is applied when accounting for acquisition of businesses. The acquisition cost is measured at fair value plus any costs directly attributable to the acquisition. Any expenses relating to the issuing of shares are not included in the acquisition cost, but are charged to equity.
When making investments, including purchasing investment properties, a decision is made as to whether the purchase constitutes acquisition of a business pursuant to IFRS 3. When these purchases are not regarded as an acquisition of a business, the acquisition method pursuant to IFRS 3 Business combinations is not applied, and therefore a determination is not made of any added value and a provision is not allocated for deferred tax as would have occurred in a business combination.
INCOME FROM PROPERTIES AND FINANCIAL ASSETS Income from properties and financial assets are described in Sections 10 and 11.
when acquiring a business, excess values that cannot be allocated to identified assets or liabilities at the date of the acquisition is classified as goodwill on the statement of financial position. Goodwill is valued at acquisition cost on the date of the acquisition. Goodwill arising from the acquisition of subsidiaries is classified as an intangible asset.
Group. The cost of the asset must also be measured reliably. The value of an intangible asset is tested for impairment when there are indications that its value has been impaired. In other respects intangible assets are subject to write-downs and reversals of write-downs in the same manner as described for tangible fixed assets.
9. LIABILITY ADEQUACY TEST FOR INSURANCE LIABILITIES AND RELATED EXCESS VALUES
When insurance contracts are purchased as part of a business combination, the insurance liabilities are recognised on the basis of the underlying company’s accounting policies. Excess value linked to these liabilities, often referred to as the value of business in-force (VIF), is recognised as an asset. A liability adequacy test must be conducted of the insurance liability, including VIF, according to IFRS 4 Insurance Contracts, every time the financial statements are presented. The test conducted in Storebrand’s consolidated financial statements looks at the calculated present values of cash flows to the contract issuer, often mention as the embedded value. The liability adequacy test was carried out prior to the implementation of IFRS.
Investment properties primarily consist of centrally located office buildings, shopping centres and logistics buildings. Properties leased to tenants outside the Group are classified as investment properties. In the case of properties partly occupied by the
RECOGNITION AND DERECOGNITION Financial assets and liabilities are included in the statement of financial position from such time Storebrand becomes party to the instrument’s contractual terms and conditions. Normal purchases and sales of financial instruments are recorded on the
Financial assets are derecognised when the contractual right to the cash flow from the financial asset expires, or when the company transfers the financial asset to another party in a transaction by which all, or virtually all, the risk and reward associated with ownership of the asset is transferred.
IMPAIRMENT OF FINANCIAL ASSETS For financial assets carried at amortised cost, an assessment is made on each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired.
• Financial assets at fair value through profit or loss in accordance with the fair value option (FVO)
HELD FOR TRADING A financial asset is held for trading if: • it has been acquired principally for the purpose of selling or repurchasing it in the near term, is part of a portfolio of identified financial instruments that are managed together and there is evidence of a recent actual pattern of short-term profit-taking, or
AT FAIR VALUE THROUGH PROFIT OR LOSS IN ACCORDANCE WITH THE FAIR VALUE OPTION (FVO) A significant proportion of Storebrand’s financial instruments are classified in the category fair value through profit or loss because: • such classification reduces the mismatch in the measurement or recognition that would otherwise arise as a result of the different rules for measuring assets and liabilities, or
The accounting is the same for the group held for trading (the instruments are assessed at the fair value and changes in value are listed on the income statement).
INVESTMENTS HELD TO MATURITY Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity and that a company has the intention and ability to hold to maturity, with the exclusion of: • assets that are designated in initial recognition as assets at fair value through profit or loss, and
DEFINITION OF A DERIVATIVE A derivative is a financial instrument or other contract within the scope of IAS 39, with all three of the following characteristics: • its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable (sometimes called the ‘underlying’)
FAIR VALUE HEDGING Storebrand uses fair value hedging, where the items hedged are financial assets and financial liabilities measured at amortised cost. Derivatives are recognised at fair value through profit or loss or are included in total comprehensive income. Changes in the value of the hedged item that relate to the hedged risk are applied to the book value of the item and are recognised through profit or loss.
HEDGING OF NET INVESTMENTS Hedging of net investments in foreign businesses is recognised in the accounts in the same way as cash flow hedging. Gains and losses on the hedging instrument that relate to the effective part of the hedging are recognised through total comprehen-
sive income, while gains and losses that relate to the ineffective part are recognised immediately in the accounts in the profit and loss account. The total loss or gain in equity is recognised in the profit and loss account when the foreign business is sold or wound up.
Subsequent to initial recognition, all financial liabilities are primarily measured at amortised cost using an effective interest method.
The accounting standard IFRS 4 Insurance Contracts addresses the accounting treatment of insurance contracts. The Storebrand Group’s insurance contracts fall within the scope of this standard. IFRS 4 is meant to be a temporary standard and it allows the use of non-uniform principles for the treatment of insurance contracts in consolidated financial statements. In the consolidated accounts the technical insurance reserves in the respective subsidiaries, calculated on the basis of the individual countries’ particular laws, are included. This also applies to insurance contracts acquired via business combinations. In such cases, positive excess values, cf. IFRS 4 no. 31b), are capitalised as intangible assets.
CHANGES IN INSURANCE LIABILITIES These comprise premium savings that are taken to income under premium income and that are paid under claims. This item also includes guaranteed returns on the premium reserve and the premium fund, as well as returns to customers beyond the guarantees.
The premium reserve is calculated using the same assumptions as those used to calculate premiums for the individual insurance contracts, i.e. assumptions about mortality and disability rates, interest rates and costs. In addition, the provisions are increased due to expected increased life expectancy. Premium tariffs are based on the observed level of mortality and disability in the population with the addition of security margins that include expected future developments in this respect.
A substantial proportion of the Norwegian insurance contracts have a 1-year interest guarantee, meaning that the guaranteed return must be achieved every year. In Sweden guaranteed rates are used to derive guaranteed benefits but there are no annual interest rate guarantees.
TRANSFERS OF PREMIUM RESERVES, ETC. (TRANSFERS) Transfers of premium reserves resulting from transfers of policies between insurance companies are recorded in the profit and loss account as net premiums for own account in the case of reserves received and claims for own account in the case of reserves paid out. The recognition of cost/income takes place at the date the insured risk is ceded. The premium reserve in the insurance liabilities is reduced / increased on the same date. The premium reserve transferred includes the policy’s share of additional statutory reserves, the market value adjustment reserve, conditional bonus and the profit for the year. Transferred additional reserves are not shown as part of premium income, but are reported separately as changes in insurance liabilities.
Transferred amounts are classified as current receivables or liabilities until the transfer takes place.
ADDITIONAL STATUTORY RESERVES The company is allowed to make allocations to the additional statutory reserves to ensure the solvency of its life insurance business. These additional reserves are distributed among the contracts and can be used to cover a negative interest result up to the interest rate guarantee. In the event that the company does not achieve a return that equals the basic interest rate in any given year, the allocation can be reversed from the contract to enable the company to meet interest rate guarantee.
PREMIUM FUND, DEPOSIT RESERVE AND PENSIONERS’ SURPLUS FUND The premium fund contains premiums prepaid by policyholders as a result of taxation regulations for individual and group pension insurance and allocated profit shares. Credits and withdrawals are not recognised through the profit and loss account but are taken directly to the statement of financial position.
The pensioners’ surplus fund comprises surplus assigned to the premium reserve in respect of pensions in group payments.
The fund is applied each year as a single premium payment to secure additional benefits for pensioners.
AS are allocated to/reversed from the market value adjustment reserve in the statement of financial position assuming the portfolio has a net unrealised excess value. The portion of the current year’s net unrealised gains / losses on financial current assets denominated in foreign currencies that can be attributed to fluctuations in exchange rates is not transferred to the market value adjustment reserve. Similarly, the change in the value of the hedging instrument is not transferred to the market value adjustment reserve, but is charged directly to the profit and loss account. The foreign exchange fluctuations associated with investments denominated in foreign currencies are largely hedged through foreign exchange contracts on a portfolio basis. Pursuant to accounting standard for insurance contracts (IFRS 4) the market value adjustment reserve is shown as a liability.
LIFE INSURANCE RESERVES Since 2009, SPP has used a cash flow model for the calculation of insurance liabilities with interest rate guarantees. The model discounts cash flows by observed swap interest rates for terms up to 10 years, which is the longest term for which the liquidity of the Swedish swap market is considered adequate. A normed interest rate is determined as the sum of the long-term assumptions for inflation (2 per cent), real rate of interest (2 per cent) and term premium (0.5 per cent) – based on assessments made by actors such as the Swedish central bank Riksbanken and the National Institute of Economic Research. For cash flows longer than 20 years, an interest rate is used that is based on the normed interest rate, but adjusted by 25% of the difference between the normed 10-years interest rate (4.0%) and the higher of the 10-year government bond or swap interest rate. For cash flows between 10 and 20 years, discount rates are interpolated linearly. For the annual report and accounts for 2014, the 20-year rate has been set at 3.8 per cent.
CLAIM RESERVES The reserves for incurred insurance events consist of reserves for disability pensions, both those reported but not settled and the ones incurred but not reported (IBNR), and reserves for claim handling expenses. When assessing the reserves for disability pensions, a risk-free market interest rate is used, which takes into account future indexation where applicable.
The Norwegian AFP scheme is regarded as a defined-benefit scheme, but there is insufficient quantitative information to be able to estimate reliable accounting obligations and costs.
Actuarial gains and losses and the effects of changes in assumptions are recognised in total comprehensive income in the income statement for the period in which they occur. Items previously recognised in total comprehensive income are not reclassified. The effects of changes in the pension scheme are recognised on an ongoing basis, unless the changes are conditional upon accrued future pension entitlements, The effects are apportioned on a straight line basis until the entitlement has been fully earned. The employer’s National Insurance contributions are included as part of the pension liability and are included in the actuarial gains/losses shown in total comprehensive income.
The Group has insured and uninsured pension schemes. The insured scheme in Norway is managed by the Group. Employees who resign before reaching retirement age or leave the scheme will be issued ordinary paid-up policies. The paid-up policies that are included in technical insurance reserves are assessed in accordance with accounting standard IFRS 4.
Properties used for the Group’s own activities are recorded at appreciated value less accumulated depreciation and writedowns. The fair value of these properties is tested annually in the same way as described for investment properties. The increase in value for buildings used by the Group for its own activities is recognised through total comprehensive income. Any write-down of the value of such a property is first applied to the revaluation reserve for increases in the value of the property in question. If the write-down exceeds the revaluation reserve for the property in question, the excess is expensed over the profit and loss account.
Group’s investment properties. These properties are primarily found in the Norwegian life company’s customer portfolio and in companies that are owned by Storebrand Eiendom Holding AS, which in turn is directly owned by Storebrand Livsforsikring
A lease is classified as a financial lease agreement if it mainly transfers the risk and rewards incident to ownership. Other leases are classified as operating leases. Storebrand has no financial lease agreements.
Pursuant to IAS 41, investments in forestry are considered biological assets. Biological assets are assessed at fair value, which is defined based on alternative fair value estimates, or the present value of expected net cash flows. Changes in the value of biological assets are recognised in the profit and loss account. Ownership rights to biological assets are recognised at the point in time when the purchase agreement is signed. Annual income and expenses are calculated for forestry and outlying fields.
Storebrand Group has share-based remuneration for key personnel. Valuation is made on the basis of recognised valuation models adjusted to the characteristics of the actual options. The value determined on the date of the allocation is accrued in the income statement over the option’s vesting period with a corresponding increase in equity. The amount is recognised as an expense and is adjusted to reflect the actual number of share options earned. The vesting period is the period of time from when the scheme is established until the options are fully vested.
In preparing the Group’s financial statements the management are required to make judgements, estimates and assumptions of uncertain amounts. The estimates and underlying assumptions are reviewed on an ongoing basis, and they are based on historical experience and expectations of future events and represent the management’s best judgement at the time the financial statements were prepared.Actual results may differ from these estimates.
contracts in the Swedish activities is also included. This asset is related to Storebrand’s acquisition of SPP (acquisition of a business ). There are several factors that may have an impact on the size of the insurance liabilities including VIF, such as biometric factors relating to higher life expectancy, future returns and invalidity, as well as the development of future costs and legal aspects, such as amendments to legislation and judgments handed down in court cases, etc. In the long term, a low interest rate will represent a challenge for insurance contracts with a guaranteed interest rate and, together with a reduced customer buffer, may have an impact on the amount recorded that is linked to the insurance contracts. The Norwegian insurance contracts with guaranteed interest rates are discounted at the premium calculation rate (around 3.3 per cent on average). For the Swedish insurance liabilities with a guaranteed interest rate, the discount is based on an estimated swap yield curve, where portions of the yield curve are not liquid. The non-liquid portion of the yield curve has been estimated based on long-term expectations regarding real interest rates and inflation.
In accordance with the accounting standard IFRS 4 Insurance Contracts, the insurance liabilities that are included shall be adequate and a liability adequacy test shall be performed. The Norwegian insurance liabilities are calculated in accordance with special Norwegian rules, including the Insurance Activity Act and regulations. For the Norwegian life insurance liabilities a test is performed at an general overall level by conducting an analysis based on the Norwegian premium reserve principles.
Value analysis. This test was also performed for the introduction of IFRS.
Upon the acquisition of the Swedish insurance group SPP, excess value related to the value of the SPP Group’s insurance contracts was capitalised, while the SPP Group’s recognised insurance reserves were maintained in Storebrand’s consolidated financial statements. These excess values (Value of business in-force) are tested for their adequacy together with the associated capitalised selling costs and insurance liabilities. The test is satisfied if the recognised liabilities in the financial statements are greater than or equal to the net liabilities valued at an estimated market value, including the expected owner’s profit. In this test, the embedded value calculations and IAS 37 are taken into account. A key element of this assessment involves calculating future profit margins using embedded value calculations. Embedded value calculations will be affected by, among other things, volatility in the financial markets, interest rate expectations and the amount of buffer capital. Storebrand satisfies the adequacy tests for 2014, and they have thus no impact on the results in the financial statements for 2014. There will be uncertainty related to the valuation of these capitalised values and the value of related technical insurance reserves.
In the Norwegian life insurance activities, a significant share of the insurance contracts have annual interest rate guarantees.
There are also insurance contracts without an interest guarantee in the life insurance activities in which customers bear the return guarantee. Changes in estimates and valuations may entail a change in the return on the associated customer portfolios.
The recognition of such value changes does not directly affect the owner’s result.
Key elements included in valuations that require professional judgement are: • Market rent and vacancy trends
See also note 14 in which the valuation of financial instruments at fair value is described in more detail.
The assumptions must be realistic, mutually consistent and up to date as they should be based on a cohesive set of estimates about future financial performance. The Group has both insured and uninsured pension schemes (direct pensions). There will be uncertainty associated with these estimates.
DEFERRED TAX The consolidated accounts contain significant temporary differences between the values of assets for accounting purposes and for tax purposes. The current Norwegian tax regulations have been applied when calculating deferred tax in the Norwegian business. This will apply, for example, in particular to investments in foreign companies assessed as partnerships and investments in property. The actual income tax expense will also depend on the form in which the underlying assets will be realised, including whether there will be future input and share transactions. There are also different tax rules between companies that are part of the Norwegian business, whereby the Norwegian tax exemption method does not apply for life insurance companies. Calculations of deferred tax and tax expenses are based on estimates. Actual figures may differ from estimates.
On 2 April 2014 the Norwegian Financial Supervisory Authority published guidelines for escalation plans for provisions for long life, based on a letter from the Norwegian Ministry of Finance dated 27 March 2014. Guidelines for strenghtening longevity longevity reserves
• The insurance companies should contribute at least 20 per cent of the increase in reserves. Allocations shall be made to every contract. • The strengthening of reserves must as a minimum be linear over the course of the escalation period.
In April 2014 Storebrand applied to the Financial Supervisory Authority of Norway for a seven-year escalation plan to cover the strengthening of reserves required as a result of the introduction of the new mortality basis.
In addition the authorities have stipulated that conversion of paid-up policies into paid-up policies with investment options must be done on full reserves, i.e. that the reserves for paid-up policies must be fully built up before the paid-up policies can be converted. Storebrand has decided that deficient reserves can be boosted by contracts where the owner wishes to convert to a policy with investment options and the contract has inadequate reserves prior to the expiry of the seven-year escalation plan. Since the launch of paid-up policies with investment options in the fourth quarter of 2014, Storebrand has injected approximately NOK 31 million in connection with conversion.
When transfering a group pension insurance contract to another pension plan, the insurance cash value of the contract shall as a minimum correspond to the level in the escalation plan that the ceding company will have achieved at the time of transition.
Both the risk result and the risk equalisation reserve may be used to strengthen the longevity reserves. The risk equalisation reserve has not been used to strengthen the reserves in 2014, and NOK 0.1 billion less has been allocated to the risk equalisation reserve due to the fact that the risk result for the year has been used to strengthen the reserves. The required strengthening of reserves for group pensions is estimated to be NOK 6.2 billion or around 4 per cent of the premium reserves as at 31
It is expected that a minimum of 20 per cent, corresponding to NOK 2.5 billion, of the total required strenghtening of reserves shall be covered by the owner. It is assumed that some of this will be funded through the loss of profit for paid-up policies during the reserve strengthening period with the present profit sharing model (20 per cent to the owner). The size of the owner’s contribution depends on the length of the escalation plan, principles for building up the reserves, as well as the return and risk surpluses during the escalation period, and the pension scheme’s portion of the build-up of reserves may thus exceed 20 per cent of the reserve strengthening requirement.
PRICE OF RETURN GUARANTEE AND PROFIT RISK (FEE INCOMES) – STOREBRAND LIVSFORSIKRING The return guarantee in group pension insurance with a return guarantee must be priced upfront. The level of the return guarantee, the size of the buffer capital (additional statutory reserves and unrealised gains), and the investment risk of the portfolio in which the pensions assets are invested determine the price that the customer pays for the return guarantee. Return guarantees are priced on the basis of the risk to which the equity is exposed. The insurance company bears all the downside risk and must carry reserves against the policy if the buffer reserves are insufficient or unavailable.
In recent years Storebrand has had group pension contracts with an agreement on own investment portfolios of up to five years. By 1 January 2014 all such agreements had been terminated without renewal.
ADMINISTRATION RESULT The administration result is the difference between the premiums paid by customers pursuant to the tariff and the company’s actual operating costs. The income consists of fees based on the size of customer assets, premium volumes or numbers in the form of unit prices. Among other things, operating expenses consist of personnel costs, return fees, marketing expenses, commissions and IT costs.
SPP LIFE INSURANCE The administration result is in its entirety passed on to the shareholders.
PROFIT SHARING Storebrand Livsforsikring A modified profit-sharing regime was introduced for old and new individual contracts that have left group pension insurance policies (paid-up policies), which allows the company to retain up to 20 per cent of the profit from returns after any allocations to additional statutory reserves. The modified profit-sharing model means that any negative risk result can be deducted from the customers’ interest profit before sharing, if it is not covered by the risk equalisation fund.
The guaranteed liability is calculated on a monthly basis. If the guaranteed liability for a single policy exceeds the policy’s insurance capital, the difference is reserved in form of at so called deferred capital contribution. At the time of the retirement the insurance capital is compared to the policy’s guaranteed value and any deficit is financed in form of a realised capital contribution. Capital contribution are even realised when in case the insurance capital during the pay-out period no longer is sufficient to finance the policy’s guaranteed benefit. Changes in the deferred capital contribution are included in the financial result.
have been transferred from the Guaranteed Pension segment to Insurance. The result for these products will beginning 1 January 2014 be reported under Insurance. In addition, new the accounting standards IFRS 10 and IFRS 11 have been implemented, which is described in further detail in note 1 Accounting policies. Figures for previous periods have been restated, see the table with reworked comparative figures at the bottom of the note.
SAVINGS Consists of products that include long-term saving for retirement with no interest rate guarantees. The business area consists of defined contribution pensions in Norway and Sweden, asset management and retail banking products.
INSURANCE Insurance has responsibility for the Group’s risk products in Norway and Sweden. The unit provides treatment insurance in the
Norwegian and Swedish corporate and retail markets, P&C insurance and personal risk products in the Norwegian and Swedish retail markets and employee-related and pension-related insurance in the Norwegian and Swedish corporate markets.
OTHER Under the “Other” category, the result from Storebrand ASA and the result from the company’s portfolios in Storebrand Livsforsikring and SPP are reported. In addition, this includes, among other things, lending to commercial enterprises by Storebrand
RECONCILIATION WITH THE OFFICIAL PROFIT AND LOSS ACCOUNTS The results in the segments are reconciled against the Group result before amortisation and write-downs of intangible assets.
The consolidated income statement includes gross income and gross costs linked to both the insurance customers and owners.
In addition the savings elements are included in premium income and in costs related to insurance. The various segments are
to a large extent followed up in the follow-up of net profit margins, including follow-up of risk and administration results. The result lines that are used in segment reporting will therefore not be identical with the result lines in the corporate profit and loss account.
Result before profit sharing and loan losses 987 616 675 774 1,404 1,003
GEOGRAPHICAL PRESENCE The Storebrand Group are represented in the following countries: Segment/Country Norway Sweden Lithuania Ireland Guernsey Latvia
Note 07 reports on the actual risk levels, and perform a forward-looking assessment of the risk situation.
Managers at all levels in the company are responsible for risk management within their own area of responsibility. Good risk management requires targeted work on objectives, strategies and action plans, identification and assessment of risks, documentation of processes and routines, prioritisation and implementation of improvement measures, and good communication, information and reporting
INDEPENDENT CONTROL FUNCTIONS The boards of Storebrand ASA and relevant subsidiaries are responsible for ensuring that independent control functions are in place for risk management (Chief Risk Officer), compliance, for valuation of the insurance liabilities (Actuary) and for the bank’s lending. The independent control functions are organised directly under the companies’ managing director and report to the respective company’s board.
Functionally, the independent control functions are affiliated with the Group CRO, which is organised directly under the CEO and reports to the board of directors of Storebrand ASA. The Group CRO shall ensure that all significant risks are identified, measured and appropriately reported. The Group CRO function shall be actively involved in the development of the Group’s ¬risk strategy and maintain a holistic view of the company’s risk¬ exposure. This includes responsibility for ensuring compliance with the relevant regulations for risk management and the consolidated companies’ operations.
The risk of long life expectancy is the greatest insurance risk in the Group. Other risks include risk of disability and risk of mortality. The life insurance risks are: 1. Long life expectancy – The risk of erroneously estimating life expectancy and future pension payments. Historical developments have shown that an increasing number of people attain retirement age and live longer as pensioners than was previously the case. There is a great deal of uncertainty surrounding future mortality development. In the event of longer life expectancy beyond that assumed in the premium tariffs, the owner could risk higher charges on the owner’s result in order to cover necessary statutory provisions.
In the Guaranteed Pensions segment, the Group has a significant insurance risk relating to long life expectancy for group and individual insurance agreements. In addition, there is an insurance risk associated with disability and pensions left to spouses and/or children. The disability coverage in Guaranteed Pensions is primarily sold together with a retirement pension. The risk of mortality is low in Guaranteed Pensions when viewed in relation to other risks. SPP has the possibility to change future premiums, reducing the risk significantly. In Norway it is also possible to change the future premiums of group policies, but only for new accumulation, entailing reduced risk.
In the Savings segment the Group has a low insurance risk.
In the Insurance segment the Group has a life insurance risk associated with disability and death. In addition, there are insurance risks associated with occupational injury, critical illness, cancer insurance, child insurance, accident insurance and health insurance. For occupational injury, the risk is first and foremost potential errors in the assessment of the level of provisions, because the number of claim years can be up to 25 years. The risk within critical illness, cancer, accident and health insurance is consid-
Guaranteed pensions 3. Group defined-benefit pensions are guaranteed pension benefits as a percentage of the final salary from a specified age for as long as the insured person lives. Alternatively, it can be agreed that the pension will end at a specified age. The product is offered within the private sector. Cover that can be linked includes retirement and survivor pensions. In addition, there can be a link to a group disability pension in Norway.
4. Paid-up policies are individual contracts with accrued rights that are issued upon withdrawal from or termination of group defined-benefit pension agreements. In Norway, holders of a paid-up policy can choose to convert their paid-up policy to a paid-up policy without a guarantee and with investment options (paid-up policy with investment options).
Guaranteed pensions 2. Individual allocated annuity or pension insurance provides guaranteed payments for as long as the insured person lives.
Alternatively, it can be agreed that the pension will end at a specified age. Premiums or payments may be waived in the event of disability. The product can be linked to disability pensions.
Insurance 5. Individual P&C insurance contracts are individual contracts with lump-sum payments in the event of critical illness, cancer insurance, child insurance or accident insurance.
A new lifetime tariff (K2013) has been developed for group insurance. The tariff is based on three elements: Initial mortality, safety margin and future increase in life expectancy. Initial mortality is determined on the basis of actual mortality in the insurance portfolio in the period 2005–2009. The safety margin will take into account the difference in mortality based on income, random variation in mortality and the company’s margins. The future increase in life expectancy entails that the projected life expectancy is also dependent on the year of birth. Today’s 50-year-olds are not expected to live as long as 50-year-olds in 20 years’ time. This
factor is referred to as dynamic improvement in life expectancy. K2013 will thus be a dynamic tariff.
Insurance Tariffs for group life insurance and certain risk insurances within group pensions also depend on the industry or occupation, in addition to age and gender. Group life insurance also applies tariffs based on claims experience. The company’s standard tariff for group life insurance, both for life and disability cover, is based on the company’s own experience. With effect from 2015, gender-neutral premiums for individual life insurance contracts will be incorporate into the Insurance Activity Act. From December 2014, Storebrand has priced new individual endowment policies without taking gender into account. In other words, gender will not be considered when calculating the premium.
When writing individual risk cover, the customer is subject to a health questionnaire. The result of the health check is reflected in the level of premium quoted. When arranging group policies with risk cover, all employees of small companies are subject to a health questionnaire, while for companies with many employees, a declaration of fitness for work is required. Underwriting also takes into account the company’s industrial category, sector and sickness record.
The company also manages its insurance risk through international pooling. This implies that multinational corporate customers can equalise the results between the various units internationally. Pooling is offered for group life and risk cover within group defined-benefit and defined-contribution pensions.
RISK RESULT The table below specifies the risk result for the largest entities in the Group and also states the effect of reinsurance and pooling on the result.
Market risk means changes in the value of assets as a result of unexpected volatility or changes in prices on the financial markets. It also refers to the risk that the value of the insurance liability develops differently to that of the assets.
For guaranteed customer portfolios, the risk is affected by changes in the interest rate level. Falling interest rates are positive for the investment return in the short term due to price appreciation for bonds, but negative in the long term because it reduces the probability of achieving a return higher than the guarantee. Long-term interest rates have fallen a great deal throughout 2014, both in Norway and Sweden. In Sweden, short-term interest rates have also fallen significantly. The central banks in both Norway and Sweden have indicated that interest rates will be kept low throughout 2015. The fall in interest rates has increased the risk that the return in future years will be lower than the interest rate guarantee. Paid-up policies have a particularly high risk in a low interest rate scenario, because there are very limited opportunities for changing the price or terms. In Norway, the effect of low interest rates is reduced by a large proportion of hold-to-maturity portfolios that will benefit from securities purchased at interest rate levels higher than the current levels.
The most significant market risks facing guaranteed customer portfolios are linked to equity risk, interest rate risk, credit risk and property price risk. In Norway most of the credit risk is linked to securities, which are carried at amortised cost. This reduces the risk to the company’s profit significantly. Equity risk is managed by means of dynamic risk management, the objectives of which are to maintain good risk-bearing capacity and to adjust the financial risk to the company’s financial strength. By exercising this type of risk management, Storebrand expects to create good returns both on an annual basis and over time.
The percentage distribution of the insurance reserves by the various basic annual interest rates as at 31 December is as follows: Interest rate 2014 2013
To achieve adequate returns it is necessary to take an investment risk (market risk). This is primarily done by investing in equities, property and credit bonds. It is possible to reduce market risk in the short term, but then the probability of achieving the necessary level of return is reduced. The risk management must balance these considerations, including the effect on the required rate of return from the required build-up of reserves. Dynamic risk management of the equity allocation is also utilised.
SPP LIFE INSURANCE The guaranteed interest rate is determined by the insurance company and is used when calculating the premium and the guaranteed benefit. The guaranteed interest rate does not entail that there is an annual minimum guarantee for the return as is the case in Norway.
SPP bears the risk of achieving a return equal to the guaranteed interest on the policyholders’ assets over time and that the level of the contracts’ assets is greater than the present value of the insurance liabilities. Profit sharing becomes relevant in SPP if the return exceeds the guaranteed yield. The contracts’ buffer capital must be intact in order for profit sharing to represent a net income for the owner. In the case of some products, a certain degree of consolidation, i.e. that the assets are greater than the present value of the liabilities by a certain percentage, is required in order for the owner to receive profit-sharing income.
If the assets linked to an insurance contract in the company are smaller than the market value of the liability, an equity contribution is allocated that reflects this shortfall. This is termed a deferred capital contribution (DCC) and changes in its size are recognised in the profit and loss account as they occur. When the contracts’ assets exceed the present value of the liabilities, a buffer, which is termed the conditional bonus, is established. Changes in this customer buffer are not recognised in the profit and loss account.
Because it is the immediate market changes that are calculated, dynamic risk management will not affect the outcome. If it is assumed that the market changes occur over a period of time, then dynamic risk management would reduce the effect of the negative outcomes to some extent.
Based on the stress test, Storebrand Life Insurance has an overall market risk of NOK 8.5 billion, while the buffer capital totals NOK 9.2 billion. The buffer capital consists of additional statutory reserves that can be used for 2015, the market value adjustment reserve and the unrealised gain reserve in the company portfolio.
The stress tests were carried out on all investment profiles with a guaranteed return and the effect of each stress changes the expected return in each profile. The buffer situation for the individual contracts will determine if all or portions of the fall in value will affect the financial result. Only the portion of the fall in value that cannot be settled against the surpluses that the customers have already accrued will be charged to the result. In addition, the reduced profit sharing or loss of the indexing fees may affect the financial result.
Other businesses The other companies in the Storebrand Life Insurance Group are not included in the sensitivity analysis, as there is little market risk in these areas. The assets of these companies are invested with little or no allocation to high-risk assets, and the products do not entail a direct risk for the company as a result of price fluctuations in the capital market.
Lending commitments 31 31 1) Of which the minority interests in Storebrand Eiendomsfond KS amount to NOK 3,167 million. See also note 49. In the case of perpetual subordinated loans the cash flow is calculated through to the first call date.
Credit facilities Storebrand ASA has an unused credit facility of EUR 240 million.
Facilities for Storebrand Boligkreditt AS Storebrand Bank have two overdraft facilities with Storebrand Boligkreditt AS. One of the agreements is used for general operations, such as the acquisition of home mortgages from Storebrand Bank. The other agreement may be used for repayment of interest and principal on bonds with pre-emptive rights and related derivatives.
Sale and operation of real estate 7,434 86 36 7,556 10 10
Total lending to and receivables from customers 2013 37,145 277 4,061 41,484 111 356 70 397
The average weighted loan-to-value ratio (LVR) for retail market loans is approximately 54 per cent for home loans, and just over 90 per cent of the home loans are within an 80 per cent LVR. About 97 per cent are within a 90 per cent LVR. About 55 per cent of the home loans are within a 60 per cent LVR. The portfolio is considered to have a low credit risk.
Loans are deemed to be non-performing when a credit line is overdrawn for more than 90 days and when a down payment loan is in arrears of more than 90 days and the amount is at least NOK 2,000.
(NOK million) Net in balance sheet Net sales in currency in NOK
BANKING BUSINESS: Storebrand Bank ASA hedges net balance sheet items by means of forward contracts.
The maximum limits for credit exposure to individual counterparties and for overall credit exposure to rating categories are set by the boards of the individual companies in the Group. Particular attention is paid to ensuring diversification of credit exposure in order to avoid concentrating credit exposure on any particular debtors or sectors. Changes in the credit standing of debtors are monitored and followed up. Thus far, the Group has used published credit ratings wherever possible, supplemented by the company’s own credit evaluation when there are no published ratings.
Bonds and derivatives are presented below by rating and lending by customer groups.
Of which bank deposits in bond funds, managed by Storebrand 1 096 1 096
Total bank deposits excluding bank deposits in bond funds 2014 181 4 870 3 523 40 56 8 671
For the life insurance businesses, the greatest risks are largely the same in Norway and Sweden. The market risk will depend significantly on global circumstances that influence the investment portfolios in all businesses. The insurance risk may be different for the various companies, and longevity in particular can be influenced by universal trends.
The financial market and investment risks are largely related to the customer portfolios in the life insurance business. The risk associated with a negative outcome in the financial market is described and quantified in note 8, financial market risk. The banking business has little direct exposure to risk types other than credit, however a negative market for Norwegian commercial property, which the life insurance business is exposed to, would increase the risk of default and loss for corporate market loans in the banking business.
In the asset management business, the principal risk is operational risk in the form of behaviour that can trigger claims and/or impact on reputation. Since the asset management business is the principal manager of the insurance businesses, errors in asset management could result in errors in the insurance businesses.
Bonds classified as loans and receivables 77,727 77,727 71,313 67,019 66,971
VALUATION OF FINANCIAL INSTRUMENTS AND PROPERTIES AT FAIR VALUE The Group conducts a comprehensive process to ensure that financial instruments are valued as closely as possible to their market value. Publicly listed financial instruments are valued on the basis of the official closing price on stock exchanges, supplied by Reuters and Bloomberg. Fund units are generally valued at the updated official NAV prices when such prices exist. Bonds are generally valued based on prices obtained from Reuters and Bloomberg. Bonds that are not regularly quoted will normally be valued using recognised theoretical models. The latter is particularly applicable to bonds denominated in Norwegian kroner. Discount rates composed of the swap rates plus a credit premium are used as a basis for these types of valuations. The credit premium will often be specific to the issuer, and will normally be based on a consensus of credit spreads quoted by a selected brokerage firm.
The Group carries out continual checks to safeguard the quality of market data that has been collected from external sources. These types of checks will generally involve comparing multiple sources as well as controlling and assessing the likelihood of unusual changes. The Group categorises financial instruments valued at fair value on three different levels, which are described in more detail below. The levels express the differing degrees of liquidity and different measurement methods used. The company has established valuation models to gather information from a wide range of well-informed sources with a view to minimising the uncertainty of valuations.
Total bonds and other fixed-income securities 2013 27 270 149 429 1 669 178 368
Real Estate: Liabilities: Liabilities to financial institutions 1) 997 1) Includes lending to customers/liabilities to financial institutions classified at fair value through profit and loss
Net gains/losses on financial instruments 460 2,327 149 20 34 -54 3
LEVEL 3: FINANCIAL INSTRUMENTS VALUED ON THE BASIS OF INFORMATION THAT IS NOT OBSERVABLE IN ACCORDANCE WITH LEVEL 2 Equities classified as level 3 encompass investments in primarily unlisted/private companies. These include investments in forestry, real estate, microfinance and infrastructure. Private equity is generally classified as level 3 through direct investments or investments in funds.
Private equity The majority of Storebrand’s private equity investments are investments in private equity funds. The Group also has a number of direct investments. Private equity investments are considered long-term investments where Storebrand expects to benefit by its involvement through the duration of the projects. The investments in private equity funds are stated on the basis of the values reported by the funds. Most private equity funds report on a quarterly basis, while a few report less often. For investments where Storebrand has not received an updated valuation by the time the annual financial statements are closed, the last valuation received will be used and adjusted for cash flows and any market effects during the period from the last valuation up to the reporting date. These market effects are estimated on the basis of the type of valuations made of the companies in the underlying funds; the financial performance of relevant indexes, adjusted for the estimated beta between the relevant company and the relevant index.
In the case of investments in which Storebrand participates as a co-investor together with a leading investor that conducts a valuation, and no recent transactions exist, Storebrand will use this value after it has been quality assured. In the case of investments for which Storebrand has not received an up-to-date valuation as at 31 December from a leading investor by the time the annual financial statements are closed, the previous valuation is used and adjusted for any market effects during the period from the last valuation up to the reporting date. In those cases where no valuation is available from a leading investor in the syndicate, a separate valuation will be made, as described above.
Property funds Indirect real estate investments are primarily investments in funds with underlying real estate investments where Storebrand’s intention is to own the investments throughout the fund’s lifetime. Real estate funds are valued on the basis of information received from the individual fund manager.
Most managers’ report on a quarterly basis and the most common method used by the individual fund managers is an external quarterly valuation of the fund’s assets. This involves the manager calculating a net asset value (NAV). Funds often report NAV with a quarter’s delay in relation to the preparation of Storebrand’s financial statements. In order to take account of the changes in value in the last quarter, preliminary estimates by the fund companies are used.
The required rate of return is divided into the following elements: Risk-free interest Risk premium, adjusted for: - Type of property - Location - Structural standard - Environmental standard - Duration of contract - Quality of tenant - Other factors such as transactions and perception in the market, vacancy and general knowledge about the market and the individual property.
In SPP appraisals are obtained for all of the wholly owned property investments.
Other fund units Large portions of the portfolio are priced using comparable listed companies, while smaller portions of the portfolio are listed. The valuation of the private equity portfolio will thus be sensitive to fluctuations in global equity markets. The private equity portfolio has an estimated Beta relative to the MSCI World (Net – currency hedged to NOK) of around 0.5.
Real Estate The sensitivity assessment for properties includes both investments properties and owner occupied properties. The valuation of property is particularly sensitive to a change in the required rate of return and the expected future cash flow. A change of 0.25 per cent in the required rate of return when everything else remains unchanged will result in a change in the value of Storebrand’s property portfolio of approximately 4.5 per cent. About 25 per cent of the property’s cash flow is linked to lease contracts that have been entered into. This entails that the changes in the uncertain parts of the cash flow of 1 per cent will mean a change in value of 0.75 per cent.
Interest and similar costs from liabilities to financial institutions -8 -34
INTEREST COSTS AND VALUE CHANGES ON BORROWING AT FAIR VALUE (FVO): (NOK million) 2014 2013
Profit on equities and units 767 8,848 11,137 20,751 17 20,735 16,780
Profit on bonds and other fixed-income securities at fair value 3,684 2,715 3,891 10,290 774 9,516 3,360
Total gains and losses on financial assets at fair value 5,015 5,305 19,184 29,505 583 28,922 16,563 - of which FVO (fair value option) 4,419 11,590 15,046 31,056 103 20,140
Operating costs (including maintenance and repairs) relating to real estate that have provided rent income during the period 2) -282 -318
Traditional individual life and pension Storebrand Life Insurance -1 838 -2 826
Of which premium reserve transferred to company -17 176 -10 889 1) Individual life and disability, property and caualty insurance 2) Group life, workers comp. And health insurance
Other changes in premium reserves customer funds with guaranteed return 11,842 -2,082 -3,295 94 6,560 14,738
Change in insurance liabilities - life insurance -2,874 -1,658 -16,979 94 -21,417 -12,369
Realised losses on loans where no provisions have previously been made -1 -3
Write-downs/income recognition for lending and guarantees for the period -74 -11
On 28 October 2014 the Board of Directors of Storebrand ASA decided to change the pension scheme for its own employees from a defined-benefit to a defined-contribution plan with effect from 1 January 2015. Up until 31 December 2014, Storebrand in Norway has had both a defined-contribution and a defined-benefit scheme. The defined-benefit scheme was closed to new members from 1 January 2011, and a defined-contribution scheme was established from the same point in time. In connection with the transition to a defined-contribution pension the employees will be issued with a traditional paid-up policy for the rights accrued in the guaranteed pension scheme. This has been taken into account in the pension liabilities at 31 December 2014. There are certain obligations related to people on sick leave and partially disabled employees for whom the defined-benefit scheme will continue to apply for a period.
For the defined-contribution scheme up until 31 December 2014 the saving rates were 5 per cent of salary between 1 and 6 G, 8 per cent of salary between 6 and 12 G, plus a defined-contribution scheme funded through operations that amounts to 20 per cent of the contribution basis for salaries above 12 G per year. From 1 January 2013 Storebrand has been a member of the AFP contractual early retirement pension scheme. The private AFP pension scheme shall be accounted for as a defined-benefit multi-employer scheme and is financed through annual premiums that are set at a per cent of salary between 1 and 7.1 G. There is no reliable information available for recognition of the new liability in the statement of financial position. Storebrand employees in Norway who were born before 1 January 1956 can choose between drawing a contractual early retirement pension (AFP) or retiring at the age of 65 and receiving a direct pension from the company until they reach the age of 67. Payment of AFP is lifelong, and employees can choose to receive an AFP pension from the age of 62 and still continue to work. Storebrand’s direct pension scheme with payment between the age of 65 and 67 has been discontinued for other employees.
The pension plan for employees in SPP follows the plan for bank employees in Sweden. The ordinary retirement age is 65 in accordance with the pension agreement between the Employer’s Association of the Swedish Banking Institutions (BAO) and the trade unions that are part of BTP. The amount is 10 per cent of the annual salary up to 7.5 times the basic income amount, which was SEK 56,900 in 2014 and will be SEK 58,100 in 2015, 65 per cent of the annual salary in the interval from 7.5 to 20, and 32.5 per cent in the interval from 20 to 30. No retirement pension is paid for the portion of salary in excess of 30 times the “basic income amount”. Full pension entitlement is reached after 30 years of membership in the pension scheme. In addition to the defined-benefit part, the BTP plan has a smaller defined-contribution component. Here the employees can decide themselves how assets are to be invested (traditional insurance or unit-linked insurance). The defined-contribution part is 2 per cent of the annual salary. The retirement age for SPP’s CEO is 62 years. The CEO is also covered by a defined-contribution pension plan, whereby the company pays 35 per cent of the CEO’s fixed salary in pension premiums. In addition, he has a predefined pension plan with a lifelong pension of 16.25 per cent of the fixed salary in the interval from 30 to 50 times the “basic income amount”. The retirement pension from age 62 to 65 amounts to 65 per cent of the fixed salary, limited to a maximum of SEK 4,045,000. The pension terms comply otherwise with the pension agreement between BAO and the Union of Financial Sector Employees or SACO, respectively (BTP plan). The company secures its pension liabilities through the payment of insurance premiums during the employment period.
CHANGES IN THE NET DEFINED BENEFIT PENSION LIABILITIES IN THE PERIOD
"Net pension cost recognised in profit and loss account in the period” -530 -125
Expected annual increase in social security pensions 3.0% 3.5% 3.0% 3.0%
Mortality table K2013BE K2013BE DUS14 DUS06 1) A discount rate of 2.5 per cent p.a. has been used for portions of the Norwegian companies
Storebrand has applied the covered bond rate at 31 December 2014 as the discount rate. Based on the market and volume development observed, the Norwegian covered bond market must be perceived as a deep market in relation to the provisions in IAS 19, in the opinion of Storebrand.
In 2013 Storebrand (Norway) amended the pension rules in the collective schemes for employees and former employees of the
company. The change entailed that pensions in payment no longer have a provision concerning annual adjustment by a minimum of 80 per cent of the change in the consumer price index.
Specific company conditions including expected direct wage growth are taken into account when determining the financial assumptions. ACTUARIAL ASSUMPTIONS: In Norway standardised assumptions on rates of mortality and disability as well as other demographic factors are prepared by Finance Norway. With effect from 2014 a new mortality basis, K2013, has been introduced for group pension insurance in life insurance companies and pension funds. Storebrand has used the mortality table K2013BE (best estimate) in the actuarial calculations at 31 December 2014.
Staffan Hansén 748 3,393 1) Paid-up policies related to guaranteed pension scheme for salaries below 12G issued on 1 January 2015.
3) Estimated gain for Storebrand before value of compensation related to transition to defined contribution pensions. This is calculated as the
Anne Grete Steinkjer 239 1 800 1) The summary shows the number of shares owned by the individual, as well as his or her close family and companies where the individual exercises significant influence, cf. the Accounting 2) The Control Committee covers all the Norwegian companies in the Group which are required to have a control committee.
Financial remuneration should be designed to: 1. Help strengthen our customer orientation and safeguarding the customer’s overall needs with a view to avoiding conflicts of interest. 2. Stimulate internal cooperation and continuous improvement in order to create a performance culture 3. Contribute to focused efforts on the part of the employees 4. Ensure that the Group’s strategy and plans provide the basis for the goals and requirements set for the employees’ performance. 5. Is based on long-term thinking, balanced goal-oriented management and real value creation 6. Ensure that remuneration is based on an assessment of the individual’s results and compliance with the core principles
The salaries of executive personnel are determined based on the position’s responsibilities and level of complexity. Regular comparisons are made with corresponding positions in the market in order to adjust the pay level to the market. Storebrand does not wish to be a pay leader in relation to the industry.
The Group’s executive management team and executive personnel who have a significant influence on the company’s risk have exclusively a fixed salary. Other employees may be awarded a discretionary bonus of 5-15 per cent in addition to their fixed salary.
In connection with the transition from defined-benefit to defined-contribution schemes, compensation schemes were established for employees who were estimated to have a poorer position after the change. These schemes provide monthly additional savings for employees for a maximum of 36 months. Additional savings are taxed as wage income.
In the opinion of the Board of Directors, this has positive effects on the company and the shareholders, given the structure of the scheme and the size of each executive vice president’s portfolio of shares in Storebrand ASA.
Total interest expenses 1) -597 -576 1) Interest expenses for Storebrand Bank are included in net interest income for banking enterprises.
1) The effective tax rate is influenced by the fact that the Group has operations in various countries with tax rates that are different from Norway
(27 per cent). In addition, the income tax expense is also influenced by tax effects relating to previous years.
The equity includes a risk equalisation reserve that can only be used to cover a negative risk result. Tax deductions related to the build-up of this reserve
Intangible assets and excess value on purchased insurance contracts Intangible assets
Accumulated depreciation and write-downs 01.01 -126 -340 -340 -4,910 -319 -6,035 -4,790
Currency differences on converting foreign units -4 -5 -82 -91 -487
Acc. depreciation and write-downs 31.12 -163 -335 -363 -5,309 -305 -6,474 -6,035 1) Value of business-in-force, the difference between market value and book value of the insurance liabilities in SPP.
INTANGIBLE ASSETS LINKED TO ACQUISITION OF SPP Storebrand Livsforsikring AS acquired SPP Livförsäkring AB and its subsidiaries in 2007. The majority of the intangible assets associated with SPP comprise the value of in-force business (VIF), for which a separate liability adequacy test has been performed in accordance with the requirements of IFRS 4. In order to determine whether goodwill and other intangible assets associated with SPP have suffered an impairment in value, estimates are made of the recoverable amount for the relevant cash-flow generating units. Recoverable amounts are established by calculating the enterprise’s utility value. SPP is regarded as a single cash flow generating unit, and the development of future administration results, risk results and financial results for SPP will affect its utility value. In calculating the utility value, budgets and forecasts approved by the Board for the next three years have been used.
Accumulated depreciation and write-downs closing balance -154 -60 2 -211 -232
Minimum future payments on operational leases for fixed assets are as follows
The lease regarding office buildings have a remaining duration from 2015 until 2019 for buildings in Norway with an optional renewal and a remaining duration from 2015 to 2023 for buildings in Sweden.
In the Group’s financial statements, securities funds in which Storebrand has an ownership percentage of around 40 per cent or more, and which are also managed by management companies within the Storebrand Group, are consolidated 100 per cent on the balance sheet. Minority ownership interests in consolidated securities funds are shown on one line for assets and correspondingly on one line for liabilities. In consequence of other investors in the funds being able to request redemption of their ownership interests from the respective funds, such are deemed to be minority interests that are classified as liabilities in
Voting rights as a percentage of the total number of shares 10% 3% 10%
Multi-storey car parks in Oslo 691 671 7.9 2.0 27,393 100%
2) The real estate are valued on the bsis of the following effective required rate of return (including 2.5 per cent inflation): 3) All of the properties in Sweden are appraised externally. This appraisal is based on the required rates of return in the market.
5) The minority interests of Storebrand Eiendomsfond Norge KS represent NOK 3,230.6 million of this amount.
Allocation by company and customers: Properties for own use - company 68 66
Allocation by company and customers: Accounts receivable and other short-term receivables - company 1,575 1,833
Allocation by company and customers: Bonds and other fixed-income securities - company 26,699 23,294
Bonds and other fixed-income securities - customers with guarantee 130,784 131,198
Bonds and other fixed-income securities - customers without guarantee 26,792 23,877
Financial derivatives are related to underlying amounts which are not recognised in the statement of financial position. In order to quantify the scope of the derivatives, reference is made to amounts described as the underlying nominal principal, nominal volume, etc. Nominal volume is arrived at differently for different classes of derivatives, and provides some indication of the size of the position and risk the derivative presents.
Gross nominal volume principally indicates the size of the exposure, whilst net nominal volume provides some indication of the risk exposure. However , nominal volume is not a measure which necessarily provides a comparison of the risk represented by different types of derivatives. Unlike gross nominal volume, the calculation of net nominal volume also takes into account which direction of market risk exposure the instrument represents by differentiating between long (asset) positions and short
The excess value of bonds valued at amortised cost totalled NOK 13.364 million at the end of the 4th quarter, an increase of 8.204 million since the turn of the year.The excess value of bonds at amortised cost is not included in the financial statements.
Insurance claims for own account -14,419 -2,968 -3,344 -1,838 -745 -23,315 -7,666 -2,659 -10,324 -1,640 -35,279 1) Including personal risk and employee insurance of the Insurance segment.
Total market value adjustment reserves at fair value 5,814 3,823 1,992 2,796
Claims reserve 411 370 - fo which RBNS 211 180 - of which IBNR 199 190
Other current liabilities 809 923 1) As of January 2014 the partisipants are able to claim redemption on a yearly basis.
The redemption amounts to 98,75 % of VEK. See note 9
In 2014, Storebrand utilised cash flow hedging for the currency risk linked to Storebrand’s net investment in SPP. 3 month rolling currency derivatives were used in which the spot element in these is used as the hedging instrument. The effective share of hedging instruments is recognised in total profit. The net investment in SPP is partly hedged and therefore the expectation is that future hedge effectiveness will be around 100 per cent. HEDGING INSTRUMENT/HEDGED ITEM
Book value of bonds pledged as collateral for the bank's lending from Norges Bank 651 1,499
Securities pledged as collateral are linked to lending access in Norges Bank for which, pursuant to the regulations, the loans must be fully guaranteed with collateral in interest-bearing securities and/or the bank’s deposits in Norges bank. Storebrand Bank ASA has none F-loan in Norges Bank as per 31.12.2014.
Of total loans of NOK 28.4 billion , NOK 14.3 billion has been mortgaged in connection with the issuing of covered bonds (covered bond rate) in Storebrand Boligkreditt AS.
Storebrand Group companies are engaged in extensive activities in Norway and abroad and may become a party in legal disputes.
Change in solvency capital for insurance in relation to primary capital
Surplus solvency capital 9,195 8,886 1) Corresponding figures are not changed
Internal transactions between group companies are eliminated in the consolidated financial statements, with the exception of transactions between the customer portfolio in Storebrand Livsforsikring AS and other units in the Group. See note 1 Accounting Policies for further information.
Net income and gains from financial instruments: - bonds and other fixed-income securities 3 45 49 - financial derivatives/other financial instruments 3 6 -14
Investments in trading portfolio: - bonds and other fixed-income securities 9,11 1,635 1,757 - financial derivatives/other financial instruments 10,11,14 31 33
(NOK million) Share capital1 Own shares Share premium Other equity Total equity
2) In 2014, 305 481 shares were sold to our own employees. Holding of own shares 31. December 2014 was 2 410 792.
INVESTMENTS IN SUBSIDIARIES, DIVIDENDS AND GROUP CONTRIBUTIONS In the company’s accounts, investments in subsidiaries and associated companies are valued at the acquisition cost less any write-downs. The need to write down is assessed at the end of each accounting period. Storebrand ASA’s primary income is the return on capital invested in subsidiaries. Group contributions and dividends received in respect of these investments are therefore recorded as ordinary operating income. Proposed and approved dividends and group contributions from subsidiaries at the end of the year are recognised in the financial statements of Storebrand ASA as income in that financial year.
FINANCIAL INSTRUMENTS Equities and units Equities and units are valued at fair value. For securities listed on an exchange or other regulated market, fair value is determined as the bid price on the last trading day immediately prior to or on the balance sheet date.
Bonds and other fixed income securities are recognised at fair value.
ACCOUNTING TREATMENT OF DERIVATIVES AS HEDGING Fair value hedging Storebrand uses fair value hedging, and the hedged items are fixed rate funding measured at amortised cost. Derivatives that fall within this category are recognised at fair value through profit or loss. Changes in the value of the hedged item that relate to the hedged risk are applied to the book value of the item and recognised through profit or loss.
Net income from bonds and other fixed income securities 54 1 10 45 49
Net income and gains from financial assets at fair value 54 1 -3 52 35
For the uninsured insurance liabilities for salaries over 12 G, employees have been offered cash release of the accrued rights, payable at the beginning of 2015, with the exception of executive management employees, who will receive payments spread over five years. These uninsured insurance liabilities were included in the statement of financial position at 31 December 2014. There are also defined-benefit liabilities in the statement of financial position related to direct pensions for certain former employees and former board members.
The new defined-contribution scheme that comes into effect from 1 January 2015 has the following components and premiums: - Saving starts from the first krone of salary - Savings rate of 7 per cent of salary from 0 to 12 G (the National Insurance basic amount “G” is NOK 88,370 at 31 December 2014) - In addition 13 per cent of salary between 7.1 and 12 G is saved - Savings rate for salary over 12 G is 20 per cent
Net pension liabilities in the statement of financial position 168 156
BOOKED IN THE STATEMENT OF FINANCIAL POSITION: (NOK million) 2014 2013
CHANGES IN THE NET DEFINED BENEFITS PENSION LIABILITIES IN THE PERIOD: (NOK million) 2014 2013
MAIN ASSUMPTIONS USED WHEN CALCULATING NET PENSION LIABILITY AS PER 31.12.
1) A discount rate of 2.5 per cent has been used for portions of the pension liabilities.
3) Pension costs include accrual for the year. See also the description of the pension scheme in note 5, and greater specification in note 26 under the
5) The Control Committee covers all the Norwegian companies in the group which are required to have a control committee.
Storebrand Bank ASA1 Oslo 100% 2,285 2,546 Storebrand Asset Management AS2 Oslo 100% 595 534
Interest rate swaps1 1,000 31 31 1) Used for hedge accounting, also see note 16
The rating classes are based on Standard & Poors’s, NIG = Non-investment grade
Straight line depreciation periods for tangible fixed assets are as follows
Total bond and bank loans2 3,128 3,476 1) Loans with fixed rates are hedged by interest swaps, which are booked at fair value through profit and loss. Changes in values of loans that can be related to the hedged risk are included in the carrying amount and included in the result.
May Helene Moldenhauger 1) The summary shows the number of shares owned by the individual, as well as his or her immediate family and companies where the individual exercises significant influence, confer the Accounting Act, Section 7-26.
Statement of financial position items: Subordinated loans to group companies 17 17
In the best judgment of the Board and the CEO, the annual financial statements for 2014 have been prepared in accordance with applicable accounting standards, and the information in the financial statements provides a fair and true picture of the parent company’s and Group’s assets, liabilities, financial standing and results as a whole as at 31 December 2014. In the best judgment of the Board and the CEO, the annual report provides a fair and true overview of important events during the accounting period and their effects on the annual financial statements for Storebrand ASA and the Storebrand Group. In the best judgement of the Board and the CEO, the descriptions of the most important elements of risk and uncertainty that the group faces in the next accounting period, and a description of related parties’ material transactions, also provide a true and fair view.
Storebrand ASA Statement of the Control Commitee and the Board of Representatives for 2014
At its meeting on 24 February 2015, the Control Committee of Storebrand ASA examined the annual accounts as proposed by the Board (consisting of the parent and consolidated financial statements) and the 2014 annual report for Storebrand ASA.
With reference to the auditor’s report of 10 February 2015, the Control Committee finds that the proposed annual report and accounts can be adopted as Storebrand ASA’s annual report and accounts for 2014.
The Board of Representatives recommends that Annual General Meeting approve the Board’s annual report and accounts of Storebrand ASA and the Storebrand Group.
The Board of Representatives has no further comments to the Board’s proposal regarding the allocation of the profit for the year of Storebrand ASA.
A capital requirement is calculated for credit risk, market risk and operational risk. The individual asset items and off-balance-sheet items are a assigned a risk weight based on the estimated risk they represent.
Reserves for the compensation of reported, but not yet settled claims.
for the group portfolio (group and individual products without investment choice) less the guaranteed return.
Derivatives require less capital than is the case for traditional financial instruments, such as equities 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.
Interest rate swaps/asset swaps are agreements between two-parties to exchange interest rate terms for a specified period. This is normally an agreement to exchange fixed rate payments for floating rate. This instrument is used to manage or change the interest rate risk.
Org. number 556734-9815 556892-4830 556045-7581 556397-8922 556401-8599 556401-8524 556801-1802 556594-9517 556801-1802
STOREBRAND ASA STOREBRAND LIVSFORSIKRING AS Storebrand Holding AB SPP Spar AB SPP Konsult AB SPP Fonder AB SPP Liv Fondförsäkring AB SPP Livförsäkring AB SPP Fastigheter AB SPP Varumärkes AB Storebrand Eiendom AS Storebrand Fastigheter AB Storebrand Eiendom Holding AS Storebrand Realinvesteringer AS Storebrand Finansiell Rådgivning AS Aktuar Systemer AS Storebrand Pensjonstjenester AS Foran Real Estate, SIA1