Effecter” is incorporated by private subscription. The company is referred to as
Storebrand acquires Norske Fortuna. Brage and Fram merge to become the country’s largest life insurance company. Storebrand and Idun move into their own new premises in the restored Vest-Vika area of Oslo.
“the link” as an easily recognisable trademark. The formal name of the holding company is changed to A/S Storebrand-gruppen.
The company changes its name to Storebrand ASA and establishes Storebrand
Storebrand, Skandia and Pohjola consolidate their P&C insurance activities in the new Nordic, Swedish registered company,
Storebrand responds to the challenge with its new product, Storebrand Folkepensjon.
Handelsbanken and forms the leading life insurance and pensions provider in the
Storebrand emerges from the financial crisis in good shape. Storebrand works hard to prepare both employees and customers for the new pensions reform which comes into effect on 1 January 2011.
The debt crisis and uncertainty in the eurozone are causing considerable anxiety and turbulence in the financial markets.
Six customer promises, a new position and adjusted core values are also introduced.
Services Association. Odd Arild Grefstad is appointed as the new CEO.
New regulations for private occupational pension in Norway are adopted in 2013, and will enter into force on 01.01.2014.
• Updated information about your pension and the opportunities you have to affect your own saving for retirement
At Storebrand we work to give our customers the opportunity for a Better pension. For us, pension is a matter of helping companies to find the solutions that suite them, and enable the individual to see the opportunities that are available. In addition to saving solutions we also include risk solutions as a part of achieving a Better pension - security for the occurrence of the unexpected though good risk coverage.
We consider it to be our responsibility to enable companies and individuals to make the best choices. Our knowledge of pensions and financial expertise, in conjunction with our focus on the customer's needs inform these efforts. We work to create sustainable solutions and ensuring that we have industryleading digital tools that enable our costumers to communicate with us in an easy and straightforward manner. We believe that these combined measures give our customers the opportunity for a Better pension.
We have launched three different customer concepts that will make it easier to find information, products and services that meet the companies' and their employees requirements.
1.8 million people have a customer relationship with Storebrand. Our vision is to serve them so well that we are "Recommended by our customers".
Storebrand has made life a little easier for customers with a defined-contribution pension plan thanks to its new
Storebrand has been in the limelight throughout the year for its sustainability work and was consistently ranked among the leaders in several of the world's main sustainability indexes.
Once again, Storebrand was voted environmental purchaser of the year. In its explanation, the jury said: "The winner has submitted a comprehensive purchasing report. The company uses a large proportion of ecologically sound Swanlabelled consumables and office supplies, they have implemented
Swan-labelled cleaning in all of their locations, and they were one of the first companies to set requirements to the cleaning industry. They were thus pioneers in a process that has now resulted in major cleaning companies ensuring they are certified with the official Nordic
Pension Figures provides an estimate of the total pension an individual can expect to receive from the National Insurance scheme, from employers and from their own private pension savings for the first 15 years of their retirement.
Storebrand Pensjonstjenester will provide the pension system, manage membership administration and be in charge of pension payments, as well as providing accounting services to the
Health Authority's newly created pension fund. This new pension fund will have 56,000 members and total assets of NOK 14 billion.
Storebrand Fondene AS's total assets have passed NOK 100 billion. The main growth drivers have been a shift to fund-based management and increasing volumes from defined-contribution pensions.
Pensions Act that comes into effect on 1 January 2014. The new Act introduces a number of changes. The Act largely implements the proposals recommended by the Banking Law
In December, the new government announced that they intend to raise the maximum rates for defined-contribution pensions from 1 January 2014 to the level proposed for the new occupational pension product. This means that it will be possible for people to save up to 7 per cent of their salary up to 12 x the National Insurance basic amount "G", and will allow additional contributions of 18.1 percent of salary between 7.1 and 12 "G".
We also had to make better use of our existing position in the corporate market through our own loyalty programmes for the employees in the companies. The entire process has gone very quickly – the road from strategy to implementation has been short.
You mention "powerful and drastic measures ": Shortly after you took over as the
CEO, in the summer of 2012, you launched an extensive cost programme with the aim of cutting the annual cost base by NOK
Any changes related to paid-up policies are important to the industry and Storebrand. I am thinking then especially about paid-up policies with investment options, which will be a very good alternative to guaranteed paid-up policies.
One of the main reasons for earnings growth is the solid profit from the large pension portfolio with a guaranteed return. These are the products that the industry, pending the implementation of
It is correct that a major portion of the earnings today is linked to the portfolio with a guarantee, and this is directly attributed to the fact that this is where most of the assets lie. Today, almost 70 per cent of the assets in Storebrand are linked to guaranteed products.
Storebrand gained a lot of attention in the media, both in Norway and abroad, in connection with its decision to withdraw from 19 companies with exposure to coal and oil sands last year. How important is work on sustainable investments to you?
DNA, and it is something that I’m passionate about. This has been one of our main priorities for almost two decades, and today we are a world leader in this field.
In our analysis, we collect a large volume of information on 2,500 listed companies, and we score them based on 100 different indicators and compare and rank them to determine what companies are the best and which are the weakest when it comes to sustainability. Our aim is to invest in the most sustainable companies, because we expect that they will give the best results for our customers, society and the future.
Last summer Storebrand implemented major changes to the Group's organisation and management. What was the background for this?
Therefore, we made several changes to the Group's organisation last summer.
It has also been our aim to create a better integrated Nordic organisation, where we make better use of our resources across the national borders. With the exception of the customer areas, all the areas and functions should be Nordic.
We have reduced the number of vertical levels of the organisation from seven to five. We have created a flatter organisation, and we have 12 per cent fewer managers now than before we started the reorganisation. In addition, we have gained a lot of dynamics through the introduction of new managers, and there has been a movement of employees through the announcement of modified positions in the organisation.
I feel that we have renewed ourselves during a period when our number of employees is declining. This is very important, because if anything is required in such a situation, it is a willingness to change, tempo and the capacity to execute. And
2013 was marked by uncertainty surrounding the regulatory framework, but now it looks like more of the pieces are starting to fall into place, with a new occupational pension product in the private sector and increased savings rates for defined contribution pensions. How important have these clarifications been?
This does not mean that everyone should choose paid up policies with investment options. However, there is no doubt that guaranteed paid-up policies, with their current regulatory framework, will yield a return corresponding to the guarantee, but no more than that either. This means in practice that customers will lock their money in at a guaranteed low return – in our portfolio this return is approximately 3.5 per cent on average.
You have yourself pointed out the need for better private pension schemes for private pension savings. What is a good scheme in your eyes?
It would be best if schemes are established with greater flexibility to participate in what we call "salary exchange", which means saving portions of one's gross salary through the company's pension scheme.
Storebrand has a stated aim to be the best company for pension savings. What are you doing specifically to satisfy this aim?
Norway, we are the only one that has pensions as our primary focus. All our competitors in the market are bank-owned systems. I think that it means something to our customers as well as the company's focus that everything we do concerns
We must manage to make pensions easy for everyone. Our work on our pension calculator, which gives individuals the opportunity to get an overview of their future pension and savings needs, is an example of this. We must help people find answers to key questions: How much do you have, how much do you need and how much must you save?
"Sustainability and the principles of UN global compact is part of Storebrand's DNA, and it is something that I’m passionate about."
The regulatory framework for occupational pensions is changing. Comprehensive effort is being made to adapt the Norwegian occupational pension regulation to the pension reform, the principles for the new Norwegian National Insurance, and new european solvency regulations (Solvency II). New hybrid products and maximum savings rates in definedcontribution pension became available on 1 January 2014.
The maximum limits for saving in the hybrid product are 7 per cent of salaries up to 7.11 G and 25.1 per cent of salaries between 7.1 and 12 G. The Storting has decided that the costs of the pension schemes shall be kept outside the maximum limits for saving.
The intended predictability, a benefit level of 66 per cent of the final salary, is therefore not real.
By individualising the National Insurance, where contributions are based on all years of salary, and where disbursements are adjusted for life expectancy, each person must adapt by either working more years or making their own saving arrangements.
Rules that allow individuals to convert their paid-up policy into investment options are expected to enter into force in early 2014.
With appropriate long-term management of pension funds, the return may offer better pension disbursements than the original paid-up policy. Each person will also be freer to choose a disbursement profile that is adapted to their needs.
LONG TERM MANAGEMENT OF SAVINGS A large majority of Norwegian employees already have defined-contribution pension schemes with individual investment options. As the new Occupational Pensions
Most people with a defined-contribution pension scheme currently have a balanced profile for their pension saving, with half of the holdings in shares and half in fixed income securities. Very few people take advantage of the opportunity to change their risk profile, even though young employees in particular would benefit greatly from an even higher proportion of shares in their savings.
This saving profile will also provide the basis for Storebrand's paid-up policy with investment option offering. The ability to take equity risk and thus achieve a higher expected pension for the customer over time is significantly better in these products, where the rules allow optimisation based on the consideration of a longterm return, like the Norwegian sovereign wealth fund, instead of meeting annual return guarantees.
COLLECTIVE OCCUPATIONAL PENSION Where pension saving is intended to secure a retirement income, disability coverage secures income for the part of life where the person works. The new National
G. No benefits will be granted for income above this amount. The taxation will also change so that disability benefits are taxed in the same way as regular earned income.
Employers can secure their employees through a collective scheme linked to occupational pension. The Banking Law Commission has presented a NOU (2013:12)
It is now being circulated for consultation. The proposal means that a company can insure its employees with a general supplement of 10 per cent to the National
The new private sector disability pension has been proposed as pure risk coverage, where no reduction is made for lack of years of service. Employees' earned income may therefore be secured from the first day of work. The risk based product will not include the earning of paid-up policies.
Illustration 3: Storebrand Recommended Pension 27 years 52 years 67 years
D is ab ili ty c o ve ra ge in p e r ce n t o f sa la ry
Storebrand’s ambition is to be the best provider of pension savings. The group offers a broad range of products within life insurance, property and casualty insurance, asset management and banking, to companies, public sector entities and private individuals. The group is divided into the segments Savings, Insurance, Guaranteed pension and Other.
Savings (non-guaranteed) comprises of non-guaranteed Defined Contribution in Norway and Sweden, Asset Management and Bank products to the retail market.
Result before amortisation and tax 492 417 285 1) Health insurance is owned 50 per cent each by Storebrand ASA and Munich Health.
The business area covers defined benefit pensions in Norway and Sweden, paid-up policies and individual capital and pension insurance.
Buffer capital in % of customer reserves SPP 15.1% 11.9% 10.0%
The result for Storebrand ASA is reported under Other, as well as the result for smaller subsidiaries and the company portfolios of
Storebrand Life Insurance and SPP. In addition, the results associated with lending to commercial enterprises by Storebrand Bank and the activities at BenCo are reported in this segment.
Storebrand's goal is to be the leader in sustainability in the
At Storebrand, sustainability is fully integrated into our core operations. 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 ecological footprint, and increasing our benefit to society.
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.
Our ethical rules are an important tool in our daily operation, and are followed up every year through training and monitoring. We also monitor and follow up work against financial crime and corruption.
We want to be transparent, and we are therefore reporting sustainability data to a number of sustainability indices, including the Carbon Disclosure Project, the Dow
ILO's core conventions and the UN Convention against Corruption. We have also signed the UN's Principles for Responsible
A guiding star for our work is the vision of a sustainable world in 2050 which we developed and supported several years ago, in collaboration with many other large companies within the framework of the
Conference in Warsaw in November, two leading representatives of Storebrand wrote an open letter to the ministers of the environment in Norway and Sweden, presenting the financial sector's wish list in advance of the conference. This received great attention during the discussions.
Storebrand has cooperated with the Norwegian Cancer Society in the fight against cancer for a number of years. In Sweden,
SPP has cooperated with Fryshuset, which supports vulnerable children and young people, since 2011. This cooperation has, for example, contributed to increasing young people's knowledge and understanding of personal finance and the importance of long-term savings.
The Group's commitment to local communities has manifested itself in the You Can scholarship. 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 qualified for the 15th year in a row for the Dow Jones Sustainability Index, as one of the ten per cent most sustainable companies in the world. Storebrand has also qualified for the TSE4Good and
Sustainability is integrated into Storebrand's assessments, our vision, our core values and our promises to customers. The following guidelines are fundamental to our work: • The Group's ambition is to contribute to solving society's problems and to create sustainable development locally and globally through its products and services.
• Sustainability must run through our development of new financial products and services, and must be fully integrated with our asset management.
• The Group will have a transparent management structure in accordance with national and international corporate governance standards.
• Storebrand's goal is to be the leader in sustainability in the Nordic region, and one of the foremost companies in the world in the area of sustainable investments.
• All of the Storebrand Group's selfmanaged assets are subject to the
Throughout 2013, the green transition has occupied an important place on the agenda of the financial industry. The focus is no longer just on niche investments in renewable energy, but rather on how the international financial sector as a whole manages climate risk. When the British organisation, the Carbon Tracker Initiative, presented its analysis of the carbon bubble, it was a catalyst for discussions on the valuation and pricing of listed companies.
We have also defined a NOK 2,000 million target for assets under management in our flagship sustainability funds, Storebrand
Trippel Smart and SPP Topp 100 during the same period. As of 31 December 2013, the amount was NOK 1,074 million.
Investment Bank (EIB), which was the largest climate bond issued in Swedish kroner in 2013. A share of our customers pensions will thus be invested in renewable energy and energy efficiency projects, which are smart for the climate and pay attractive returns. Storebrands forestry investments in the Nordics, North-America and Africa also contribute to a reduction of greenhouse gases in the atmosphere.
To ensure that our customers' savings are managed in the most sustainable manner possible, it is also necessary to reduce exposure to businesses that make a negative contribution. We therefore divest from companies that we believe are high risk–
either through their core activities or due to lack of management and control. As of 31 December 2013, there was a total of 176 such companies.
A key component of this work is reducing exposure to fossil fuels: • In the Oil and Gas sector, 13 coal mining companies have been excluded
• In the Oil and Gas sector, the six largest oil sands companies have been excluded
Our main task is to secure long-term returns for our customers. Thus, we work systematically to increase our investments in assets that contribute to more sustainable development, while at the same time reducing the exposure to high risk companies. As an active owner, we engage in diaologue with several hundred listed companies on issues related to corporate governance, environmental management, anti-corruption and human rights. This work is of utmost importance in ensuring that the companies act in accordance with the interests of the owners. In 2013, we were in dialogue with 44 companies regarding sustainability risks, and we have seen significant improvements with four of these companies.
Børs (Oslo Stock Exchange) with the ticker code STB. Storebrand ASA's share capital at the start of 2013 was NOK 2,249.5 million.
Storebrand ASA is one of the largest companies listed on Oslo Børs measured by number of shareholders. The company has shareholders from almost all the municipalities in Norway and from 43 countries. In terms of market capitalisation, Storebrand was the 15th largest company on Oslo Børs at the end of 2013.
Since 1996 Storebrand ASA has given its employees an opportunity to purchase shares in the company. The purpose of the scheme is to involve the employees more closely in the company's value creation. In
March 2013 each employee was given the opportunity to buy between 81 and 1637 shares in Storebrand at a price of NOK
As at 31 December 2013 total foreign ownership amounted to 53.7 per cent, compared with 50.0 per cent at the end of 2012.
Rules on taxation of dividends and gains on shares held by private individuals are referred to as the “shareholder model”.
Dividends, less a standard deduction, are taxable, currently at a rate of 28 per cent. If shares are sold, any unused standard deduction can be deducted from the gain on the sale. The standard deduction is calculated on the basis of the cost price of the share multiplied by the average three-month interest rate on treasury bills, which is effectively a risk-free rate of interest. The interest rate for calculating deductions in 2013 has been set at 1.1 per cent.
As one of the country’s leading financial institutions, Storebrand is dependent on maintaining an orderly relationship with the financial markets and supervisory authorities. The company therefore places particular emphasis on ensuring that its routines and guidelines satisfy the formal requirements imposed by the authorities on securities trading. In this context the company has prepared internal guidelines for insider trading and own account trading based on the current legislation and regulations. The company has its own compliance system to ensure that the guidelines are observed.
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.
Storebrand Group's strategy is two-pronged. The Group shall be the best at savings for pensions and at the same time effectively manage the part of business operations that consists of pension savings with guaranteed interest rates. In June the Group launched a new customer- and market-adapted group organisation that is designed to support the strategy. The overall objectives of the organisation are to separate growing businesses and businesses with guarantees, strengthen our customer orientation, establish Nordic areas of responsibility and ensure a simple organisation with fewer deliveries and a significantly lower cost level.
One of the Group's customer promises is that all of our products and relationships shall be sustainable. During 2013 these efforts have been further strengthened with the aim of developing sustainable investments as a differentiating factor. The Group garnered significant attention in both domestic and international media when in June it became known that Storebrand had excluded 19 coal and oil sands companies from all investments.
In Sweden SPP Fonder grew to become the fifth largest fund company in 2013, with growing market shares within pension insurance and fund savings for institutional clients and private individuals. In Norway Storebrand retains its market-leading position within private occupational pensions. Premium income from non-guaranteed products is rising. In the work of being best at saving for pensions the focus on Storebrand Pension Figures plays a key role in Norway. Storebrand's website, storebrand.no, enables customers to gather all their pension assets in one place and calculate how much pension they will receive, how much they would like and how they can bridge the gap and thereby increase their pension amount.
Storebrand has assembled all products that include long-term saving for retirement, where customers have a guaranteed return or performance on the savings funds into the unit Guaranteed pensions. Storebrand has NOK 264 billion in guaranteed reserves as of 31
The Board has set a target for the cost programme to reduce Group costs by a total of NOK 400 million. Accordingly, the costs for 2014 shall not exceed NOK 3.5 billion.
Guaranteed Pensions represent approximately 75 per cent of the balance sheet, and is a business area that will be gradually scaled down. However it is important to maintain earnings from these products during a transitional phase. In 2013 the results have been bolstered due to price rises relating to the guaranteed interest rate premium, but also from a good return on indexing fees and profit sharing, primarily for guaranteed products in Sweden.
The Storebrand Group prepares its consolidated financial statements in accordance with the EU approved International Financial Reporting Standards (IFRS). The financial statements of the parent company, Storebrand ASA, are prepared pursuant to Norwegian accounting law. IFRS are not applied to the company‘s financial statements.
Property sales executed during 2013 have led to a reduction in the tax-increasing temporary differences connected with these properties. This gives a low tax cost in 2013.
The profit for Savings totalled NOK 670 million in 2013, an increase of 133 per cent compared with 2012. The improvement in profit is due to a combination of earnings growth in all parts of the business, improved margins in banking and cost-reducing measures.
Savings consists of products that include savings for pensions without guaranteed interest rates. The area includes defined contribution pensions in Norway and Sweden, asset management and bank products to private individuals.
The asset management business area provides a full range of savings and investment products for institutional, external and internal customers in both Norway and Sweden, as well as securities funds for the retail market. Of the actively managed equity and combination funds and portfolios, as many as 88 per cent delivered a better return than their benchmark index. All the fixed-income funds beat their reference indexes in 2013. The investment portfolios have achieved a solid total additional return of NOK 3.2 billion in 2013.
Premium income for non-guaranteed life insurance-related saving amounts to NOK 9.7 billion in 2013, an increase of 8 per cent compared with 2012. Both the Norwegian and Swedish businesses have a positive cumulative net inflow of transfers in 2013 of around NOK
In the Norwegian market, Storebrand is the market leader in defined contribution schemes, with around 30 per cent of the market.
Premium growth within occupational pensions was 17 per cent for Storebrand in 2013. There is strong competition in the market for defined contribution pensions. Storebrand expects that this will persist in consequence of the significant dynamic in the market, driven by factors that include changes in the regulations for occupational pensions. From 2014 a significant increase will be introduced to the companies' maximum limits for employees savings in defined contribution pensions. The increased limits are expected to give further growth in the Norwegian premium reserves for defined contribution pensions in the future. On 1 January 2014 the new occupational pension act came into force. It allows for the sale of so-called hybrid products. Storebrand is continuously assessing whether the company will offer these products, based on dialogue with the customers.
In the Swedish market SPP's market share for new subscriptions to unit linked insurance within the Other occupational pensions segment is nearly 15 per cent. Premium growth within unit linked insurance was 17 per cent in 2013. This means that SPP is the third largest enterprise in this market, measured by new sales. SPP's sales of unit linked insurance show an increase of 50 per cent from 2012, and it is the company's internal sales channels that have recorded the greatest increases. SPP was selected in 2013 to be one of several suppliers to the largest pension platform in Sweden (the ITP Plan) and activities to increase customer contact have been commenced in connection with this.
For the asset management business, assets under management increased by NOK 45 billion in 2013. A total of NOK 18 billion of the increase has been due to the strengthening of the Swedish krona, whereas the growth in general has been driven by good financial markets, additional returns and new sales. At year-end assets under management amounted to NOK 487 billion, comprising mutual funds, funds-in-funds, individual portfolios for fund management companies, insurance companies, pension funds, municipalities, institutional investors and investment companies. For assets under management, see the graph on the next page.
The Insurance result was NOK 357 million (NOK 267 million) for the year with an overall combined ratio of 88 per cent (90 per cent). The
Insurance result reflects a good underlying risk performance in the portfolio combined with efficient operations within the organisation.
The unit continued to grow steadily with a 14 per cent increase in premium income compared with the previous year.
The profit before amortisation was NOK 492 million (NOK 417 million) for the year, which represents an improvement of NOK 75 million from 2012. Insurance's financial performance was good throughout the year.
The year has been marked by significant variability in the weather, starting with a mild and stable winter in Southern Norway, followed by a period of heavy rainfall in Eastern Norway. The last months of the year have been characterised by several storms. Total natural perils in 2013 amounted to NOK 9 million but is offset by the good underlying risk performance. The P&C insurance portfolio has both a lower frequency and average claim than in previous years.
Storebrand Insurance offers a broad range of products to the retail and corporate markets. Profitability in the market remains good, but competition is perceived to be growing in the retail market particularly within the P&C insurance segment. Additionally, in the larger tender competitions the price pressures are high and it is challenging to maintain the level of profitability. Total annual premiums at the end of 2013 amounted to NOK 3.2 billion, NOK 1.3 billion of which is from the retail market and NOK 1.9 billion of which is from the corporate market. The greatest growth in 2013 was within the retail market where efforts aimed at employees in the corporate relationship have given a good effect.
Storebrand has an established position in the retail market for personal insurance and a challenger position for P&C insurance (motor vehicle and property). Growth in personal insurance is stable and in accordance with the general market growth. The sale of P&C insurance is still increasing and takes place primarily through direct channels. This contributes to a cost-effective distribution model.
Customers' demand for product solutions that cover a selection of health and personal insurance, as well as disability coverage, is expected to increase. This is driven by the desire of companies to reduce sick leave, increase job satisfaction and reduce overall insurance costs.
New subscriptions for guaranteed pensions have been closed for most products, however premium payments and the accumulation of returns for existing customers is leading to a moderate increase in reserves. Work is actively being done to inform customers of the consequences of converting to non-guaranteed saving, both in the Norwegian and Swedish businesses.
Overall revenue growth in 2013 is significantly above the expected future trend, viewed in light of the fact that a large part of the portfolio is mature and reducing over the long-term. Clarifications within the occupational pension regulations in the Norwegian market will likely mean that more customers choose to transfer to defined contribution-based pension schemes.
P250) has contributed to the income statement through profit sharing. Furthermore, good value performance in the defined benefit-based portfolios in SPP led to the company calculating an indexing fee. . The indexing fee totalled NOK 153 million for the year. Amendments to the deferred capital contribution (DCC) have also made a positive contribution to the profit figures. The Norwegian business is prioritising the build-up of buffers and reserves for the higher expected life expectancy, instead of profit sharing between clients and owners.
Customer reserves for guaranteed pensions comprise as at the fourth quarter NOK 264 billion, representing growth during the last 12 months of 1.5 per cent.
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.
The operating expenses have been reduced by NOK 205 million from 2012, of which NOK 119 million is attributed to a positive non-recurring effect related to the amended pension plan for own employees. An additional factor is that costs have been reduced due to workforce reductions within the Corporate market in the bank. Cost measures in the Group have also reduced the costs in Storebrand
For Storebrand the change in framework conditions is important. During 2013 important clarifications for the Group have been made in several areas. Further clarifications are expected during 2014.
The result for Storebrand ASA is reported under Other, as well as the result for the company portfolios and smaller subsidiaries.. In addition, the result associated with lending to commercial enterprises by Storebrand Bank and the activities at BenCo are also included.
Solvency II is a set of rules covering solvency that will apply to all insurance companies in the EEA area. It now seems clear that final adoption in the EU Parliament will take place in early 2014, and that the regulations will be introduced beginning in 2016. Transitional rules are being introduced that allow for the difference between the value of insurance liabilities under Solvency II and Solvency I at the time of transition to be used to increase the solvency capital. The transitional period may be up to 16 years, during which the contribution to increased solvency capital is phased out on a straight-line basis. The transitional rules may be applied to parts of the business.
The European supervisory authority (EIOPA) has introduced formal requirements for preparations for Solvency II with effect from 1 January 2014. This involves the requirements in Solvency II for business management and controls (pillar 1) being phased in, including requirements for self-assessment of risk and solvency (ORSA), and that parts of the reporting requirements to the supervisory authorities (pillar 3) be introduced and reported on annually as at 31 December 2014, with reporting to the Financial Supervisory Authority of Norway in week 22 of 2015. The capital requirements (pillar 2) and the reporting requirements for the market will not apply before formal Solvency II implementation in 2016.
In March 2013 the Financial Supervisory Authority of Norway presented a new mortality basis for group pension insurance, K2013. The new mortality basis is dynamic, i.e. it incorporates expectations for additional growth in life expectancy. K2013 is therefore regarded as being more robust than K2005, which is a static tariff. K2013 is applicable from 1 January 2014.
The new occupational pension act allows for a new hybrid product in the Norwegian market. The hybrid product is adapted to the new
National Insurance. It is based on all-years accrual, annual contributions to pension holdings, mortality inheritance, flexible pension from the age of 62, and longevity adjustment. Different regulation mechanisms are now possible. Pension holdings may be regulated according to the national salary growth (according to the National Insurance Basic Amount – G), the company's salary growth or actual returns. The product may also have an annual zero guarantee or individual investment option. The schemes may be time-limited, with disbursements until a minimum age of 80, or lifelong.
The rules regarding defined contribution pensions have also changed. From 1 January 2014 the maximum frameworks for saving for a defined contribution pension have been set to 7 per cent of income between 1 and 7.1 G and 25.1 per cent of income between 7.1 and 12 G. This means that as much can be saved in a defined contribution scheme pursuant to the defined contribution pensions act as in a hybrid scheme pursuant to the occupational pension act.
Authority of Norway for consultation. The following is proposed here: • The requirement that paid-up policies that are converted to investment options must have a full build-up of reserves to K2013. The companies may use equity for this purpose. The companies may choose whether such a build-up of reserves (beyond what follows from the escalation plan) will take place, but there must exist objective criteria for what customers are given and not given such an offer.
• The opportunity to use a technical, non-guaranteed calculation interest rate when determining the annual pension benefits from the paid-up policy with investment options. It gives a more appropriate disbursement profile, avoiding disbursements that are too low in the early years and strong growth in the disbursements with rising age.
The proposal has been distributed for consultation until 6 March 2014. The proposal is an adaptation to the National Insurance scheme where disability benefits are amended from 2015. The new disability product will give the right to a disability pension without curtailment after the period of service. As a result of this, as a general rule paid-up policy rights related to a disability pension will not be earned either. However the proposal allows for companies that wish for such accrual of paid-up policy to be able to choose it.
National Insurance disability benefit constitutes 66 % of income up to 6 G. The Banking Law Commission proposes that disability pension may constitute up to 10 per cent of earned income up to 12 G. In addition, the company may insure up to 66 % of income between 6 and 12 G. As in the National Insurance scheme it introduces curtailment for 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.
In Sweden work is also being undertaken on a report that will look into proposals for how the MiFID II directive should be incorporated into Swedish legislation. It is expected that this will lead to reductions for insurance agents paid by commission in the Swedish market.
and Solvency II into Swedish legislation that will affect capital adequacy requirements for the occupational pension providers.
The company’s total risk picture is monitored continuously, using tools such as the supervisory authorities' Risk-based Supervision (RBT)
Through the insurance business Storebrand has the risk of there being more and/or bigger insurance disbursements than anticipated.
Both Storebrand's customers and Storebrand as a company have risks associated with financial market performance, particularly for the pension products. The banking business is exposed to credit risk. In the new organisation the Group's business activities are divided into three principal areas with very different risk and result drivers: Guaranteed Pensions, Saving and Insurance.
Interest rate risk is in a special position because changes in interest rates also affect the value of the insurance liability. Since pension disbursements may be many years in the future, the insurance liability is particularly sensitive to changes in interest rates. Risk management shall reduce this risk by undertaking investments with a corresponding level of interest rate sensitivity. In Sweden management of interest rate risk is based on this principle, but primarily targets the financial result. The yield curves in the financial accounts and the solvency accounts are based on different principles. The transition to a common yield curve for financial and solvency accounts in SPP
will reduce the interest rate risk, and this will be regarded as part of the adaptation to Solvency II. From 2014 the solvency yield curve in
January 2016 will draw more attention to the interest rate risk in the solvency calculation.
The bulk of guaranteed pension agreements have lifelong disbursements. These give higher disbursements if life span increases more than expected. In principle this risk can be reduced by buying reinsurance. In practice, reinsurance of long life risk is not available on acceptable terms. Dynamic tariffs, that include a trend for increased lifespan, are the most important risk management tools. This has been introduced in Sweden and will be introduced in Norway from 2014 for YTP and paid-up policies.
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 the proposal for new occupational pension products (hybrid) entails that the lifetime risk is limited to the disbursement period. It is also expected that some of the current defined benefit customers will choose defined contribution pensions with time-limited disbursements.
Norway and Sweden, supplemental pension solutions, asset management and bank products to private individuals.
For Storebrand the risk for non-guaranteed pensions is primarily related to future income and cost changes. This is therefore an indirect market risk, because negative investment returns will reduce future incomes. Incomes are also reduced if the customer chooses to leave. Market risk and exit risk are therefore the main risks for non-guaranteed pensions. There is also a risk that costs may increase.
In 2013 the return has been very favourable for non-guaranteed pensions due to strong equity markets.
Its market risk is low since investments in securities are restricted to investing surplus liquidity. Its own investments are in Norwegian government papers. However, the company‘s results are indirectly affected by developments in the securities markets, primarily through fees being linked to the market value of assets under management. Some equity funds, like Delphi Global, also have performance-related management fees. Higher management fees are charged if the fund beats the benchmark index in a calendar year. If the fund loses against the benchmark index, lower management fees are charged. Furthermore, a weak return can affect the customers‘ capacity
The risk in Storebrand Bank is closely monitored in accordance with guidelines for risk management and internal control that have been approved by the Board. The bank's appetite for risk is expressed through the risk strategy, which is designed to support the goals of the business. Policy documents stating the measurement parameters are prepared for each form of risk defined in the guidelines. Developments in these parameters are followed up through risk reporting to the Bank's board.
The most important risk factors for the banking activities are credit risk and liquidity risk. The bank group is also exposed to operational risk, compliance risk and financial market risk to some extent.
Compliance is monitored closely and the bank group seeks to reduce operational risk through systematic risk reviews of all of the bank's activities. These are carried out at least quarterly and when projects start or special events occur.
Insurance includes Storebrand Forsikring AS and Storebrand Helseforsikring AS and one-year risk covers written by Storebrand Livsforsikring and SPP.
The largest exposures relate to property fires and contents, third party liability for motor, personal risk in group life, and occupational
injury and disability pensions. To reduce the risk in these areas, Storebrand has entered into reinsurance contracts with sound reinsurers.
(waiting periods) have affected the risk. There is also coverage that provides payment in the event of death.
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 goal is to achieve a solvency margin ratio for the life insurance business of more than 150 per cent. Storebrand Livsforsikring AS also aims to achieve an A level rating. The Group's parent company has established a goal to achieve a net debt-equity ratio of zero over time.
II. The valuation principles used in solvency calculations at a national level are applied in the Group calculations.
At the end of 2013, the Storebrand Bank Group had pure core capital adequacy of 12.8 per cent, and a capital adequacy of 13.6 per cent. The Bank Group therefore meets the new legal requirements for capital adequacy including buffer capital requirements.
Storebrand ASA had total liquid assets amounting to NOK 1.8 billion at the end of 2013 and also has an unused credit facility of EUR 240 million. Storebrand ASA (the holding company) had total interest bearing liabilities that amounted to NOK 3.5 billion at the end of the year. Storebrand ASA has a NOK 837 million bond that matures in 2014 and in 2013 redeemed a NOK 479 million bond, bought back a total of NOK 263 million bonds, and issued new bonds worth NOK 750 million. Storebrand ASA's debt is normally refinanced well before maturity.
Storebrand has signed the UN's principles for responsible business operation, the Global Compact. These principles provide a foundation for our sustainability guidelines. We support the UN's human rights conventions, the UN's environmental conventions, the ILO's core conventions and the UN Convention against Corruption. We have also signed the UN principles for Responsible Investment (PRI) and the
UN Principles for Sustainable Insurance (PSI). Both these sets of principles underpin our sustainability strategy.
The Group makes high demands on the companies we invest in, and we make the same demands on ourself and our suppliers. By making sustainability a clear requirement in our selection of suppliers we play a role in the development of more numerous and better sustainable products. We are a member of the Swan eco-label's purchaser club. In 2013 we received the Swan Award as Best Purchaser.
The Storebrand Group's capital adequacy ratio was 13.1 per cent. The core (tier I) capital ratio was 10.1 per cent as per 31 December 2013.
Storebrand Livsforsikring AS, Storebrand ASA, Storebrand Bank ASA and Storebrand Boligkreditt AS had the same rating from Moody’s and Standard & Poor’s respectively that they had at the end of the preceding year. However due to the new lifetime tariff, the future prospects for the ratings relating to Storebrand Livsforsikring and Storebrand ASA were changed from stable to negative in March.
Every department works to minimise our environmental footprint by focusing on resource use. The emissions we still cause, arising from travel and energy use, are offset through the purchase of UN-certified emission reductions.
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. In 2013 an internal analysis of Storebrand's anti-corruption work was conducted. The analysis uncovered a need to further develop the existing systems. This includes an expanded risk analysis of the Group to ensure efficient resource use and risk-adapted training that will be conducted in 2014.
HR is responsible for Group employees being familiar with and aware of what the ethical rules mean in colleagues' day-to-day work, through measures such as e-learning, dilemma training, group work, and the question and answer service on the intranet. The ethical rules support the Group's corporate values, which should form the basis of employee appraisals. The HR director has the overall responsibility for the ethical rules.
Storebrand's minimum standard for sustainable investments applies to all Storebrand's own funds and pension portfolios. The requirements apply to both equities and bonds, in Norway and internationally.
• As at 31 December 2013 176 companies are excluded from investments.
Active ownership is exercised to influence companies in the direction of sustainability and to get to grips with challenges related to global environmental, social and governance (ESG) trends.
Insurance, by its nature, is an instrument of a sustainable society, in that it provides financial security to customers if an accident were to occur. Storebrand Insurance works with sustainability across two dimensions, through beneficial pricing when the customers show sustainable attitudes and behaviours and by developing products and concepts intended to prevent injury, disability and health problems.
For example a company that is working well in the areas of health, environment and safety will be rewarded in the form of a lower price on personal insurance. In this way we want to stimulate sustainability in our customers' operations.
Storebrand wants to focus in particular on the prevention of injury, disability and health problems. Insurance concepts that actively help employees who become ill to return to work more quickly and thereby reduce the risk of permanent disability are positive for the individual, the insurance company and society. An important instrument in this context is health insurance where we can quickly establish dialogue with the employee and consider courses of treatment to ensure expeditious return to work.
Storebrand Forsikring aims to be the natural choice for customers when they are thinking about sustainability. We shall strengthen our customer communication and raise the visibility of work that is currently being undertaken, both in relation to prevention of injuries and product development. We will show customers what opportunities they have to choose socially responsible alternatives within insurance as well. We will carry this out by emphasising what customers can do, through both large and small measures, to contribute to a continued sustainable society in the future. Our aim is to help to change customers' behaviour, which in turn contributes to increased sustainability within environmental, social and financial matters.
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. Each year we arrange a dialogue with stakeholders in which we answer questions and receive feedback on what is expected of us and our work on sustainability.
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 Sustainable Value Creation collaborative project for investors.
The main channel for dialogue with the outside world is social media. Both Twitter and Facebook are important channels for feedback from relevant communities, and for availability for dialogue and questions.
• The Group will combine profitable operations with social, ethical and environmental goals and activities.
• We will actively seek to prevent any activities that are harmful to society and criminal acts in connection with our operations.
• Storebrand's goal is to be a leader in sustainability in the Nordic region, and one of the foremost companies in the world in the area of sustainable investments.
Storebrand works purposefully to strengthen the trend and attain an equal distribution between women and men in all areas and at all levels of the company. The company has participated in the project "Battle of the Numbers" with both Norwegian and Swedish participants. The aim of the project has been to create the conditions for diversity by increasing the proportion of women in operational management positions.
Due to the recruitment freeze, staffing reductions and restructuring processes during 2013 the age composition has changed and the average age has risen from 41 to 43. The average term of service is 6 years.Storebrand has 2,138 members of staff in the Group at yearend. This is a reduction of 112 employees in comparison with the start of the year.
Group will take a leading position within sustainability. The results show a continued high level of trust for the immediate manager and good collaboration in the organisation.
The Group's sick leave rate has been stable for several years. The sick leave rate for the Group as a whole in 2013 was 3.5 per cent: it was 3.9 per cent in Norway, 2.7 per cent in SPP and 2.8 per cent in Storebrand Baltic. Storebrand Norway has been an "inclusive workplace" (IA)
Employees at the head office in Norway can work out in the spinning room, weights room and in a separate sports hall during working hours. More than 60 per cent of employees in Norway are members of Storebrand Sport. All employees in Sweden are members of SPP
Leisure, where they have access to subsidised exercise and wellness. Like in the head office in Norway, employees have access to a training facility with a variety of activities and organised training.
Storebrand's executive management and Board of Directors review Storebrand's corporate governance policies annually. Storebrand established corporate governance policies in 1998. Storebrand reports on the Group's 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 (most recently amended on 23 October 2012). For further information on Storebrand's corporate governance and a statement of company management in accordance with section 3-3b of the Norwegian Accounting Act, refer to a separate description on page 48 of the annual report.
The Board carried out an evaluation in 2013, in which the executive management participated. A total of 13 board meetings and one board seminar on Solvency II were held in 2013. 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.
Board of Representatives: Anne Lise Aukner (previously substitute member) was elected as a new member. Morten Fon stepped down from the Board of Representatives.
Low interest rates are challenging for insurance companies that have to cover an annual interest rate guarantee. The interest rates increased in 2013, while credit spreads for bonds narrowed. There are still investment opportunities in the bond market with an expected return that exceeds the interest rate guarantee. Storebrand has a strategy of pursuing growth in products where the results are less affected by short-term fluctuations in the financial markets. Financial performance will also be impacted by the future changes in the regulations for Norwegian occupational pensions and how the customers will choose to adapt to these changes. Growth is still expected in Storebrand's core markets, driven by low unemployment and good wage growth.
Storebrand's results will in the period from 2014 include a minimum 20 per cent cost related to the reserving for higher life expectancy.
The Banking Law Commission published its report NOU 2013:12 Disability Pensions in Private Pension Schemes on 4 December 2013. The deadline for the submission of comments is 6 March. It is expected that new regulations will enter into force from 2015, at the same time as new disability benefits will be introduced to the National Insurance Scheme.
On 25 November, the Ministry of Finance distributed a memorandum on paid-up policies with investment choice from the Financial Supervisory Authority of Norway for comments until 17 January 2014. It is proposed here that the paid-up policies should have full reserves in accordance with K2013 before they can be converted to policies with investment choice. The Financial Supervisory Authority of Norway also proposes regulatory provisions that require the pension fund to give the paid-up policy holder written examples illustrating how great a return a given investment portfolio for a given age group must at least have in order to achieve certain pension benefits. It is expected that the statutory amendments that will allow paid-up policies with investment choice will enter into force by the end of 2014.
For defined benefit occupational pensions that have already been earned, the introduction of K2013 entails the need to build up reserves of approximately NOK 12.5 billion for Storebrand (approximately 8 per cent of the premium reserve). A build-up period will be permitted, which should, in the opinion of the Financial Supervisory Authority of Norway, not exceed five years from the start in 2014. At present, the transitional rules are unclear, however it will be permitted to use customer surpluses to cover increased reserves combined with a minimum coverage of 20 per cent from the company. The size of the owner's contribution is dependent on the length of the build-up plan, principles for building up reserves and the financial and risk profit during the build-up period, and the pension fund's share of the build-up of reserves can thus exceed 20 per cent of the reserves required. This will probably be clarified in the guidelines for the build-up plans that were announced by the Financial Supervisory Authority of Norway as being available early in 2014.
During the period from 2011 to 2012, a total of NOK 4.3 billion has been set aside for the future build-up of reserves from customer surpluses. NOK 0.5 billion will be set aside for 2013. NOK 0.5 billion has been used to build up reserves on contracts transferring out of
Storebrand in 2013 and January 2014. The Group also has other buffers and reserves that may be utilised to build up reserves, depending upon the final regulations.
The annual accounts of Storebrand ASA have been prepared based on the going concern principle.
Group contributions from investments in subsidiaries amounted to NOK 626 million, a NOK 406 million increase compared with 2012. Net financial items include a write-down of the shares in Storebrand Bank ASA of NOK 137 million. Operating expenses in 2013 show a positive figure of NOK 6 million, this is attributed to a non-recurring income of NOK 116 million relating to a change in the pension plan scheme.
Storebrand's corporate governance principles have been laid down in accordance with the Norwegian Code of Practice for Corporate Governance. The management and the Board of Directors of Storebrand conduct an annual review of Storebrand's adopted corporate governance policies and compliance therewith. Storebrand reports in accordance with section 3-3b of the Norwegian Accounting Act and the Norwegian Code of Practice for Corporate Governance.
The Board of Directors (the Board) has decided that the company will comply with the Norwegian Code of Practice and discusses compliance with the Code of
Code of Practice without any significant exceptions. One minor deviation has been accounted for below under section 3.
Storebrand’s corporate values are described in the Group's vision and core values.
Combined they provide the Group with a common direction and goals. The vision describes the Group’s goals and ambitions. The three core values characterise what Storebrand stands for as a company.
Group has worked with sustainability systematically and in a goal-oriented manner for almost 20 years, and this work is based on the Group’s vision and core values.
Responsible Investment. See the separate article in the annual report on page 18.
Group in 2013, and this survey showed that on a scale of 0-100, employees gave an average score of 93 when asked whether they had a clear picture of the importance of the ethical guidelines in their day-to-day work.
Days. You can read more about the company ’s goals and main strategies on page 22.
The Board 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 39 of the Board of
Storebrand ASA would like to have various tools available for its efforts to maintain an optimal capital structure for the Group.
At the 2013 Annual General Meeting, the Board was granted authorisation to increase the share capital through issuing new shares for a total maximum value of
Board of Directors may decide to waive the shareholders’ preferential rights to subscribe for new shares in accordance with the authorisation. This authorisation may be used for one or more new issues. The authorisation is valid until the next Annual
Board was authorised to buy back shares for a maximum value of NOK 224,954,945.
Storebrand ASA sells shares to employees from its own holdings in connection with the share purchase scheme and longterm incentive schemes for employees in the Group. It is accordingly appropriate to authorise the Board 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.
Otherwise, there are no provisions in Storebrand 's Articles of Association that regulate the buyback or issuance of shares.
Board’s authorisations to increase the share capital and buy back shares are not completely limited to defined purposes. No provisions have been made for the General
Meeting to vote on each individual purpose to be covered by the authorisations.
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 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 Group’s companies.
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.
The share capital has not been increased in 2013, but an authorisation has been granted to increase the share capital, cf.
Act that the annual accounts, directors' report, auditor's report, Board of Representatives ' statement and the Board's statement on the remuneration of executive personnel shall be sent to all shareholders no later than one week prior to the Annual General
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
Annual General Meeting and thus enables as many shareholders as possible to exert an influence on the company by exercising their voting rights.
Annual General Meeting, and it is also possible to vote by proxy. Provisions have been made so that the proxy form is linked to each individual item to be considered, and we will seek whenever possible to design the form so that it allows voting for candidates who are to be elected. The voting rules for the Annual General Meeting allow separate votes for each member of the various bodies. Further information about voting in advance, use of proxies and shareholders ’ rights to have matters discussed at the Annual General Meeting is available in the notice of the Annual General Meeting and on Storebrand’s website.
Nomination Committee and the external auditor must attend the Annual General
• Any matters listed on the agenda enclosed with the notice of the meeting.
Decisions are generally made on the basis of an ordinary majority. Pursuant to
Storebrand is legally required to have a Control Committee. Storebrand ASA,
Storebrand Boligkreditt AS share a committee, which consists of five members and an alternate member, all of which are elected by the Annual General Meeting. The alternate member attends all the Control
Committee meetings. The composition of the committee is identical for Storebrand
The Storebrand Group believes a good working partnership with the Control Committee is important.
Storebrand ASA’s Articles of Association regulate the Nomination Committee, which consists of four members and an observer elected by the employees. The chairman of the Nomination Committee and the other members are elected by the Annual
Chairman of the Board, as well as in other contexts where this would be natural pursuant to an invitation from the chairman of the committee.
Storebrand does not have any written provisions concerning the rotation of Nomination Committee members. The Articles of
Committee should work in accordance with the rules of procedure adopted by the
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 for the companies' governing and controlling bodies: competence, experience, capacity, gender distribution, independence and the interests of the community of shareholders.
More information about the members has been published on the Group’s website. The
The Nomination Committee held seven meetings in 2013, and prepared, for example, nominations for the election of new members to the Board of Representatives,
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 Annual
Board’s proposed annual report and financial statements, electing between five and seven shareholder-elected board members, including the Chairman of the Board, fixing the remuneration paid to board members, prescribing the rules of procedure for the
Board of Representatives is entitled to make recommendations to the Board on any matter.
The Articles of Association stipulate that between five and seven board members shall be elected by the Board of Representatives based on nominations from the
Directors. After the ordinary election of board members in May 2013, the Board of
None of the members elected by the Board of Representatives have any employment, professional or consultancy relationship with the Group beyond their appointment to the Board of Directors. The backgrounds of the individual board members are described on page 60 of the annual report and on the Group’s website. The composition of the Board satisfies the independence requirements set forth in the Code of
Board shall stay informed about Storebrand ’s financial position and development, and it shall ensure that the company's value creation and profitability are safeguarded in the best possible manner on behalf of the owners. The Board shall also ensure that the activities are subjected to adequate control and ensure that the Group has adequate capital based on the scope of, and risks associated with, its activities.
The attendance records of individual board members are provided in the overview of the governing and controlling bodies on page 60. The work of the Board is regulated by special rules of procedure for the Board, which are reviewed annually. In order to ensure sound and well-considered decisions, importance is attached to ensuring that meetings of the Board are well prepared so that all the members can participate in the decision-making process. The Board prepares an annual schedule for its meetings and the topics it will consider. The agenda for the next board meeting is normally pre-
Storebrand ASA’s Board has drawn up general policies and guidelines for management and control. These policies deal with the
CEO’s areas of responsibility are defined in the rules of procedure for the Board and instructions for the CEO, respectively.
Storebrand ASA’s Board has drawn up instructions for the Group’s subsidiaries that are to ensure that they implement and comply with the Group’s management and control policies and guidelines.
Group is subject to statutory supervision in the countries where it has operations that require a licence, including the Financial
Supervisory Authority of Norway, as well as its own supervisory bodies and external auditor.
Storebrand’s stakeholders. The system is based on a balanced scorecard, which reflects both short-term and long-term value creation in the Group.
The Group's financial and operational goals are defined annually in a board-approved business plan. The business plan builds on separate decisions on the Group's risk strategy, investment strategies, and business areas and includes three-year financial forecasts, budgets and action plans. The
Board of Directors receives ongoing reports on the status of the strategy implementation.
Risk assessment forms part of the managerial responsibilities in the organisation.
The purpose of this is to identify, assess and manage risks that can hamper a unit’s ability to achieve its goals. Developments in the financial markets are important risk factors in relation to the Group’s earnings and solvency position. In addition to assessing the effects of sudden shifts in the equity markets or interest rates (stress tests), scenario analysis is used to estimate the effect of various sequences of events in the financial markets on the Group’s financial performance and solvency. This is important input for the Board’s general discussion about risk appetite and risk allocation.
CRO function is responsible for supporting the Board and group management team with respect to the establishment of a risk strategy and operationalisation of the setting of limits and risk monitoring across the Group's business areas. In addition, this function is responsible for managing the value-based management system, coordinating the financial planning process, and the management's risk assessment and internal control reporting.
The Group has a common internal audit function, which conducts an independent review of the robustness of the management model. The internal audit function’s instructions and annual plan are determined by the Board pursuant to the current legislation, regulations and international standards. The internal audit function produces quarterly reports for the boards of the respective group companies and the
The CFO, CRO and employees with control functions related to risk management, internal control and compliance only have fixed salaries.
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 the Group’s financial earnings.
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 the Group 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. Valuations associated with significant accounting items and any changes to policies, etc., are described in a separate document (Valuation Items Memo). The
Monthly and quarterly operating reports are prepared in which the results per 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.
Board’s annual remuneration on the basis of the recommendations of the Nomination
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'
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.
The "target bonus" shall account for 20-40 per cent of the fixed salary. The bonus awarded for a given year is subject to a fixed ceiling and cannot exceed 90 per cent of the fixed salary. More detailed information about the remuneration of executive personnel may be found in notes 25 (Group)
General Meeting. The Group's financial calendar is published on the Internet and in the company's annual report. Financial information is published in the quarterly
and annual reports, as described under section 10 – Financial information and the
The Board of Directors has prepared guidelines for how to act in the event of a possible takeover bid for the company.
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 bidseek whenever possible to maximise the shareholders’ assets. The guidelines cover the situation before and after a bid is made.
The external auditor is elected by the Annual General Meeting and is responsible for the financial auditing of the Group. The external auditor issues an auditor’s report in connection with the annual financial statements and conducts limited audits of the interim financial statements. The external auditor attends board meetings in which interim financial statements are reviewed, all meetings of the Control Committee, and all meetings of the Audit Committee, unless the items on the agenda do not require the presence of the auditor. In 2007, the
Board decided that the external auditor must rotate the partner responsible for the audit assignment every seven years. The external auditor’s work and independence are evaluated every year by the Board’s
Audit Committee. Deloitte has been elected by Storebrand ASA’s Annual General Meeting as the company’s external auditor. The other companies in the Group use the same auditor as Storebrand ASA.
Further information on Storebrand’s corporate governance can be found at www.storebrand.no > About Storebrand >
A summary of the matters that Storebrand is to report on in accordance with Section 3-3b, second paragraph of the Norwegian
5. Provisions in the Articles of Association that refer to the provisions in chapter 5 of the Norwegian Public Limited
”I am very satisfied with the pension scheme and that Storebrand sends feedback on how my pension is doing. It is great that I can go in to my account and obtain an overview of the pension and insurance policies.” Storebrand Fordel customer
Your pension savings is one of the best employee benefits given to you by your employer. Yet many employees are not familiar with what pension plan they have.
Through the customer programme Storebrand Fordel we inform and teach the employees more about pension. At storebrand.no/fordel the employee will find the company's own website. The website provides an overview of the benefits that the employee has, information and pension news and what tricks and tips the employee can use to influence their own pension.
Storebrand and positions on the board of the Norwegian Financial Services Association for the last ten years.
She began as a corporate trainee, and has extensive experience as an executive in the areas of strategy, business development,
Manager at PricewaterhouseCoopers. Dahlen is chairman of the board of Eiendomsprofil AS
at Statoil ASA. Jacobsen has held various positions at Den norske
Studies (BI), member of the Professional Council for Financial Education in Europe, Manager of the Project to Coordinate
Bank ASA as a project manager at the Product and Development department, process owner at the Development department, and senior consultant at the Credit
"Over 700,000 Norwegians have now found their pension figures and by this started to build an overview of their pension." Storebrand's pension calculator, December 2013
Net income from financial assets and real estate for the customers: - equities and other units at fair value 16 16,772 6,487 - bonds and other fixed-income securities at fair value 16 2,942 9,351 - financial derivatives at fair value 16 -3,598 772 - net income from bonds at amortised cost 16 3,526 3,712 - net interest income lending 130 111 - net income from real estate 16 907 679 - result from investments in associated companies 33 29 48
Profit/loss for the year due to: Majority's share of profit 1,971 1,006
Average number of shares as basis for calculation (million) 447.1 446.7
Storebrand Group Statement of total comprehensive income 1 January - 31 December
Total other result elements that may be classified to profit/loss 840 -103
Financial assets at fair value: - Equities and other units 8,13,35,42 82 53 - Bonds and other fixed-income securities 8,10,13,35,43 23,485 21,496
Financial assets at amortised cost: - Bonds held to maturity 10,35,36 14,773 10,496
Financial assets at fair value: - Equities and other units 8,13,35,42 92,615 72,166 - Bonds and other fixed-income securities 8,10,13,35,43 165,071 164,208
2) Includes undistributable funds in the risk equalisation fund amounting to NOK 776 million and security reserves amounting NOK 259 million.
The own shares column shows the nominal values of the holding of own shares. The amount paid in excess of the equity's nominal value is booked as a reduction in other equity, such that the entire cost price for own shares is deducted from the Group's equity. A
positive amount on the "own shares" line is due to own shares being used in the shares scheme for employees.
Net cash flow from financial assets and banking customers 11,002 2,117
Net receipts/payments - lending to and claims from other financial institutions -1,470 -3,521
Net cash flow for the period 675 -640 - of which net cash flow in the period before financial assets and banking customers -10,327 -2,757
Cash and cash equivalents at start of the period for new companies -25
Cash and cash equivalents at the end of the period1 4,229 3,552 1) Consist of: Lending to financial institutions 152 255
Includes cash flows for holdings in group companies and tangible fixed assets.
Financing activities include cash flows for equity, subordinated loans and other borrowing that helps fund the Group's activities. Payments of interest on borrowing and payments of share dividends to shareholders are financial activities.
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 recognised 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 recognised 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 cost less an annual amortisation and write-down.
The liabilities side of the Group's balance sheet comprises, for the most part, financial instruments (liabilities) and provisions relating to future pension and insurance payments (technical insurance reserves). With the exception of derivatives that are measured at fair value, the majority of the financial liabilities are stated at amortised cost. Technical insurance reserves must be adequate and cover liabilities relating to issued insurance contracts. Various methods and principles are used when assessing the reserves for different insurance contracts. A considerable part of the insurance liabilities relate to insurance contracts with interest guarantees. Recognised liabilities relating to Norwegian insurance contracts with interest guarantees are discounted at the premium calculation rate. Recognised liabilities relating to Swedish insurance contracts with interest guarantees are discounted at markets rates. In the case of unit-linked insurance contracts, reserves for the savings element in the contracts will correspond to the value of related asset portfolios. Due to the fact that the customers' assets in the life insurance business (guaranteed pension) have historically yielded a return that has exceeded the increased value in guaranteed insurance liabilities, the excess amount has been set aside as customer buffers (liabilities), including in the form of additional provisions, value adjustment reserve and conditional bonus.
Storebrand ASA is a Norwegian public limited company that is listed on the Oslo Stock Exchange. The consolidated financial statements for 2013 were approved by the Board of Directors on 11 February 2014.
Storebrand ASA's consolidated financial statements are presented using EU-approved International Financial Reporting Standards (IFRS)
No significant changes have been made to the accounting policies in 2013.
Comprehensive Income has been changed in 2013. The Statement specifies the items: • items that in subsequent periods will be reclassified to the profit or loss when certain conditions are met,
This amendment has not had any significant effect on the consolidated financial statements.
IFRS 13 Fair value measurement has been applicable in 2013 and has entailed an expanded disclosure requirement in the notes associated with accounting information on fair values. Furthermore, amendments have been made to IAS 19R Pensions for own employees which entail additional requirements for the disclosure of gross revenue and cost items.
Phase II. A new Exposure Draft (ED) was released in June 2013. A potential standard will most likely be ready in 2015. It is uncertain when this will be implemented, but 2017 and 2018 can be alternatives, since due to the considerable expected implementation work for the companies an implementation period of three years is expected (prior periods must be restated).
It is assumed that the standard will most likely require that the recognised value of insurance contracts shall consist of the following components: • Probability weighted estimate of future contributions and payments related to the contracts
Another important standard for Storebrand's consolidated financial statements will be IFRS9 Financial Instruments. Among other things, the standard deals with classification of financial instruments (use of fair value and amortised cost) and rules for writing down financial instruments. The applicable date is not set.
In 2014 the following new standards will have an effect on the consolidated financial statements: IFRS 10 Consolidated Financial Statements, and IFRS11 Joint Arrangements. A larger share of the Group's investments is expected to be consolidated due to IFRS 10 and it is also expected that jointly-controlled companies will be recognised in accordance with the equity method instead of being recognised in accordance with the proportionate consolidation method. The incorporation of these standards is not expected to involve major changes with regard to the Group's equity or result.
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.
Storebrand Livsforsikring AS, Storebrand Asset Management AS, Storebrand Bank ASA and Storebrand Forsikring AS are significant subsidiaries owned directly by Storebrand ASA. Storebrand Livsforsikring AS also owns the Swedish holding company Storebrand Holding
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.
Group exercises significant influence are consolidated in accordance with the equity method. Interests in joint ventures are consolidated in accordance with the proportionate consolidation method, which includes the share of revenues, expenses, assets and liabilities in the appropriate lines in the financial statements.
9. ARTICLES OF ASSOCIATION. ADEQUACY TEST FOR INSURANCE LIABILITIES AND RELATED EXCESS VALUES
(VIF), is recognised as an asset. A liability adequacy test must be conducted of the insurance liability, including VIF, pursuant to IFRS 4, 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 called the embedded value. The liability adequacy test was carried out prior to the implementation of IFRS.
Investment properties are valued at fair value Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
When a financial asset or a financial liability is initially recognised in the financial statements, it is valued at fair value. Initial recognition includes transaction costs directly related to the acquisition or issue of the financial asset or the financial liability if it is not a financial asset or a financial liability at fair value in profit or loss.
Subsequent to initial recognition, held-to-maturity investments, loans and receivables as well as financial liabilities not at fair value in profit or loss, are measured at amortised cost using the effective interest method. The calculation of the effective interest rate involves estimating all cash flows and all contractual terms of the financial instruments (for example early repayment, call options and equivalent options). The calculation includes all fees and margins paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Refer to the definition of fair value in section 9. The fair value of financial assets listed on a stock exchange or on another regulated market in which regular trading takes place is determined as the bid price on the last trading day up to and including the reporting date.
For financial assets carried at amortised cost, an assessment is made at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired.
discounted at the financial asset's original effective interest rate (i.e. the effective interest rate calculated at initial recognition).
The amount of the loss is recognised in profit or loss.
Financial assets are classified into one of the following categories: • Financial assets held for trading
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 of 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 that
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
Loans and receivables are carried at amortised cost using the effective interest method. The category is used in the Norwegian life insurance business in relation to insurance contracts with interest rate guarantees and in the banking business.
Financial assets are classified as available for sale if they are non-derivative financial assets that are designated as available for sale or are not classified as a) loans and receivables, b) investments held to maturity, or c) financial assets at fair value through profit or loss.
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’)
Some of the Group's insurance contracts contain embedded derivatives such as interest rate guarantees. These insurance contracts do not follow the accounting standard IAS39 Financial Instruments, but follow the accounting standard IFR34 Insurance Contracts, and the embedded derivatives are not continually assessed at fair value.
Storebrand uses fair value hedging, where the items hedged are financial assets and financial liabilities measured at amortised cost.
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 recorded directly through total comprehensive income
The total loss or gain in equity is recognised in the profit and loss account when the foreign business is sold or wound up.
Pursuant to IFRS 4, the technical insurance reserves must be adequate. When assessing the adequacy associated with recognised acquired insurance contracts, including pertinent capitalised intangible assets, reference must also be made to IAS 37 Provisions,
Premium reserve represents the present value of the company’s total insurance liabilities, including future administration costs in accordance with the individual insurance contracts, after deducting the present value of agreed future premiums. In the case of individual account policies with flexible premium payments, the total policy value is included in the premium reserve. The premium reserve is equivalent to 100 per cent of the guaranteed surrender/transfer value of insurance contracts prior to any fees for early surrender/transfer and the policies’ share of the market value adjustment reserve.
A substantial proportion of the Norwegian insurance contracts have a 1-year interest guarantee, meaning that the guaranteed return must be achieved every year. On the other hand, a substantial proportion of the Swedish insurance contracts have a guaranteed return up to the time of the pension payments.
This comprises amounts reserved for claims either occurred but not yet reported or reported but not yet settled (IBNR and RBNS).
The reserve only covers amounts which might have been paid in the accounting year had the claim been settled.
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, the conditional bonus and the year’s profit. 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 / liabilities until the transfer takes place.
The company is allowed to make additional statutory allocations to the insurance reserves in order to ensure the solvency of its life insurance business. The maximum additional statutory provision is set as the difference between the premium reserve calculated on the basis of a guaranteed return on policies outstanding, and the premium reserve calculated based on the actual guaranteed return in the policies. The Financial Supervisory Authority of Norway has specified a limit for the additional statutory reserves that applies to each policy. This is defined as the premium reserve for the policy multiplied by twice the guaranteed rate for the policy.
However, the company is allowed to apply a higher multiple of the basic interest rate than that defined by the Financial Supervisory
statutory reserves. The amount released cannot exceed the equivalent of one year’s interest rate guarantee.
The supplementary provision to cover the company’s liability pursuant to section 11-1, fourth paragraph, of the Companies Pension Act shall equal the difference between the capitalised value of the company’s liabilities vis-à-vis the insured, calculated pursuant to section 9-16 of the Insurance Act and the value of the investment portfolio.
Based on the expected increase in life expectancy, a new mortality basis will be introduced from and including 1.1.2014 which will significantly increase the need for reserves. An escalation period will be permitted, which should not exceed five years from the start in 2014 in the opinion of the Financial Supervisory Authority of Norway. At present, the transition rules are unclear, however it will be permitted to use customer surplus returns to cover increased reserves combined with a minimum coverage of 20 per cent from the shareholders.
The details of the plans for building-up the reserves have yet to be established and these will have an effect on the pension schemes'
The conditional bonus arises when the value of customer assets is higher than the present value of the liabilities, and thus covers the portion of the insurance capital that is not guaranteed. In the case of contracts where customer assets are lower than liabilities, the
ANNUAL REPORT 2013 owners’ result is charged via deferred capital contribution allocations. The conditional bonus and deferred capital contribution are recognised on the same line in the statement of financial position.
Storebrand Group has country-specific pension schemes for its employees. With effect from 1 January 2011, the Storebrand Group in
In Sweden, SPP, has agreed, in accordance with the Finance Companies' Service Pension Plan (BTP Plan), predefined collective pension plans for its employees. A predefined pension implies that an employee is guaranteed a certain pension based on the pay scale at the time of retirement on termination of the employment.
Pension costs and pension obligations for defined benefit pension schemes are determined using a linear accrual formula and expected final salary as the basis for the entitlements, based on assumptions about the discount rate, future salary increases, pensions and
From and including 31 December 2012, a discount rate derived from high quality corporate bonds has been used as the discount rate.
Government bond rates were used earlier. See note 24 for further details.
Properties used for the Group’s own activities are recorded at appreciated value less accumulated depreciation and write-downs. 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 other 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.
The write-downs period and method are reviewed annually to ensure that the method and period being used both correspond to the useful economic life of the asset. The disposal value is similarly reviewed. Properties are split into components if different parts have different useful economic lives. The depreciation period and method of depreciation are evaluated separately for each component.
IAS 12 Income Taxes. Tax is recognised in the income statement, except to the extent that it relates to items recognised directly through total comprehensive income (OCI). Deferred tax and deferred tax assets are calculated on the differences between accounting and tax values of assets and liabilities.
Deferred tax is calculated on the basis of the Group's tax loss carryforwards, deductible temporary differences and taxable temporary differences. The Group's tax-increasing temporary differences also include temporary differences linked to the 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 AS. Even though these property companies are included in the customer portfolio and can be sold virtually free of tax, the tax-increasing temporary differences linked to the underlying properties which are also included in the Norwegian tax group, are included in the Group's temporary differences where provisions have been made for deferred tax. See also section 6 above which concerns business combinations.
A lease is classified as a finance lease if it transfers substantially the risk and rewards incident to ownership. Other leases are classified as operating leases. Storebrand has no financial lease agreements.
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 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.
In Storebrand's life insurance activities, a change in the estimates related to insurance reserves, financial instruments or investment properties allocated to life insurance customers will not necessarily affect the owner's result, but a change in the estimates and valuations may affect the owner's result. A key factor will be whether the assets of the life insurance customers, including the return for the year, exceed the guaranteed liabilities.
The Financial Supervisory Authority of Norway has decided to introduce a new mortality basis, (K2013), for group pension insurance in life insurance companies and pension funds with effect from 2014. Under certain conditions, the building-up of reserves for new tariffs during a time-limited period can be charged to the running return in the customer portfolios. However, the owner's equity will also be charged. Any deficient future return in connection with this may increase the reduction in the owner's future profit. There will be uncertainty relating to future returns and to the owner's future charge. See note 3 for further information about this.
ed fund – conditional bonus (buffer capital). Changes in estimates and valuations may entail a change in the return on the customer portfolios. Depending on the size of any impairment in value, such impairment may be offset by a reduction in the conditional bonus, so that the effect on the owner's result may be limited. If the value of the individual insurance contract is higher than the associated customer assets, the owner will have to cover the deficient capital.
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.
• Discount rates for both certain and uncertain cash flows, as well as residual value
There will be some uncertainty associated with the pricing of financial instruments, particularly instruments that are not priced in an active market. This is particularly true for the types of securities priced on the basis of non-observable assumptions, and for these investments various valuation techniques are applied in order to fix fair value. These include private equity investments, investments in foreign properties, and other financial instruments where theoretical models are used in pricing. Any changes to the assumptions could affect recognised amounts. The majority of such financial instruments are included in the customer portfolio.
In 2013, there was growing uncertainty regarding the pricing of Storebrand Bank's fixed-rate loans recorded at fair value in which there is a large variation in the interest rate conditions offered by banks, while the demand for fixed-rate loans has decreased. As a result, it has been more difficult to find observable conditions.
Reference is also made to note 13 in which the valuation of financial instruments at fair value is described in more detail.
Financial instruments valued at amortised cost are assessed on the reporting date to see whether there is any objective evidence that a financial asset or group of financial assets is impaired.
The present value of pension obligations depends upon the financial and demographic assumptions used in the calculation. 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 secured and unsecured pension schemes (direct pensions). The operating arrangements are primarily related to pensions for salaries over 12G and early retirement pensions. The pension liability calculations are undertaken by actuaries.
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. The 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 could differ from estimates.
The companies in the Storebrand Group operate an extensive business in Norway and abroad, and may become a party to litigations.
Supervisory Authority of Norway stated that expected increases in life expectancy are a challenge for life insurance companies and pension funds. This requires increased premiums and higher insurance technical reserves so as to have sufficient funds to cover future liabilities.
The new lifetime tariff will significantly increase the need for reserves and an escalation period will be permitted. The escalation period shall apply from 2014 and the Financial Supervisory Authority of Norway is of the view that this should not have a duration of more than five years. This allows for customer surpluses to be used to cover the increased provision requirements, but the Financial Supervisory Authority of Norway states that “a minimum of 20 per cent of the total requirement for the building-up of reserves should be covered by pension funds.”
The required build-up of reserves for group pensions is estimated to be NOK 12.7 billion or around 8 per cent of the premium reserves as of 31.12.2013. Taking into consideration contracts that have given notice of transfer as of 31.12.2013, the required reserves are NOK
12.5 billion. The company started a build-up of reserves in the accounts from and including 2011. In 2012 and 2013 Storebrand set aside as much as possible of its profits from financial and risk. It must also be expected that during the period in which reserves are built-up, all available profit will be set aside for building-up reserves. As of 31.12.2013, NOK 4.5 billion has been set aside.
It has previously been a requirement that contracts must be fully reserved upon transition. The Ministry of Finance decided in October that the transition value shall follow the escalation plan. If more has been set aside, this shall follow with the transition.
On 26 November 2013, the Financial Supervisory Authority of Norway sent a letter to Finance Norway which stated that the aim was to prepare guidelines for escalation at the start of 2014. The letter is a follow-up to the Financial Supervisory Authority of Norway's letter of 8 March 2013 to all life insurance companies and pension funds concerning a new mortality basis for group pension insurance,
The profit and loss account for Storebrand includes result elements relating to both customers and owners. There is a description of the content of profit generation from guaranteed pensions in the segment note (note 5) below.
PRICE OF RETURN GUARANTEE AND PROFIT RISK (FEE INCOMES) - STOREBRAND LIFE INSURANCE
The return guarantees in group pension insurance with a return guarantee must be priced upfront. The level of the return guarantee, 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 determines the price that the customer pays for his or her return guarantee. Return guarantees are priced on the basis of the risk to which the equity is exposed. Group pension customers can choose an investment profile with a low propor-
tion of equities, which normally results in a lower risk of losses and lower expected return. A larger proportion of equities will normally result in a higher expected return, but also a higher price for the return guarantee. The insurance company bears all the downside risk, and must carry reserves against the policy if the buffer reserves are insufficient or unavailable.
The administration result line includes all products apart from traditional individual products with profit sharing.
A modified profit sharing regime was introduced for old and new individual policies that have left group pension insurance policies
The guaranteed liability is continuously monitored. If the guaranteed liability is higher than the value of assets, a provision must be made in the form of a deferred capital contribution. If the assets are lower than the guaranteed liability when the insurance payments start, the company supplies capital up to the guaranteed value in the form of a realised capital contribution. Changes in the deferred capital contribution are included in the financial result.
Insurance is responsible for the Group's risk products. The unit provides treatment insurance in the Norwegian and Swedish corporate and retail markets, P&C insurance and personal risk products in the Norwegian retail market and employee- and pension-related insurances in the Norwegian corporate market.
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, the result associated with lending to commercial enterprises by
Result before profit sharing and loan losses 118 63 2,519 1,508
Group pre-tax profit 108 62 2,194 1,559 1) Write-downs and amortization of intangible assets are included in Storebrand Group
Storebrand’s income is dependent on external factors that are associated with uncertainty. The most important external risk factors are the development of the capital markets and changes in life expectancy in the Norwegian and Swedish populations. Certain internal operational factors can also result in losses, e.g. errors in the management of the customers’ assets.
• Good risk management and internal control are characterised by good communication and information between all levels in the organisation and adequate control measures. Examples are internal regulations, descriptions of routines, instructions and authorisations, technological protection, certifications, votes, management reporting, and business methods (contracts, insurance, currency hedging etc.).
As the second line of defence, the CRO, compliance and actuarial functions shall support the board and management's responsibility with processes for: 1. Identifying, measuring, controlling and reporting risks (CRO).
The boards of Storebrand ASA and the subsidiaries are responsible for there being second line of defence risk and control functions adapted to the types of businesses in the respective companies (consideration of proportionality). Guidelines for the functions are included in the guiding documents that are stipulated by the respective boards. The managing directors of the Group companies are responsible for establishing functions within their respective companies in cooperation with the Group CRO. The principal model is that the second line of defence risk and control functions in the subsidiaries are functionally affiliated with the Group CRO. The functions shall be able to report directly to the respective boards and may only be terminated after the approval of the board.
The Group CRO reports to the CEO, independent of the members of the Group management. The board of Storebrand ASA stipulates guidelines for the responsibility and duties of the function.
FURTHER INFORMATION ABOUT THE MANAGEMENT OF THE FINANCIAL MARKET RISK IN CERTAIN AREAS
Below follows a description of the special situation concerning risk management of life insurance linked to the relationship between customers and the owner.
The composition of the financial assets is determined by the company’s investment strategy. The investment strategy establishes guidelines and limits for the company’s risk management, credit exposure, counterparty exposure, currency risk, the use of derivatives, and requirements regarding the liquidity in the asset portfolio. The objectives of this dynamic risk management 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, the company expects to create good returns both for individual years and over time. However, financial risks are assumed in order to achieve returns in excess of the interest rate guarantee, primarily by means of equities, corporate bonds and alternative investments.
Given the current investment portfolio and dynamic risk management strategy, the annual return for the main product groups will normally fluctuate between 2 per cent and 6 per cent. Smaller portions of the portfolio are invested in profiles with somewhat lower and somewhat higher market risk. Dynamic risk management and hedging transactions reduce the likelihood of a low investment return. If the investment return is not sufficient to meet the guaranteed interest rate, the shortfall will be met by using risk capital built up from previous years' surpluses. Risk capital primarily consists of unrealised gains, additional statutory reserves and conditional bonuses. The owner is responsible for meeting any shortfall that cannot be covered. The share capital is invested with a low market risk. The financial risk related to contracts in the unit-link and defined contribution pension product categories is borne by the insured person himself/
• continuous implementation of risk management measures in the customer portfolio through dynamic risk management
The risk of long life expectancy is the greatest insurance risk in the Group. There are also 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 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.
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 considered to be very low based on the volume and underlying volatility of the products. Within P&C insurance, the risk of house fire and personal injury for motor vehicle insurance constitute the main risks.
Savings 1. Group defined contribution pensions are pensions where the premium is stated as a percentage of pay, while the payments depend on the actual added return.
2. Pension capital certificates are individual contracts with accrued rights that are issued upon withdrawal from or termination of group defined contribution pension agreements.
Insurance 5. Group life consists of group contracts that are offered in Norway with lump sum payments in the event of death or disability.
Savings 1. Individual unit linked insurance is endowment insurance or allocated annuity in which the customer bears the financial risk. Related coverage can be linked in the event of death.
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.
The development in results in recent years has revealed a need for strengthening the premium reserves as they relate to long life expectancy for Norwegian group defined benefit pensions, including paid-up policies. The need for reserves applies in general to products that involve a guaranteed benefit, but the impact varies depending on the product composition and characteristics, as well as amendments to regulations, as a result of the pension reform, for example.
In the case of group pension insurance in Norway, the premiums for traditional retirement and survivor coverage follow the industry tariff K2005 until and including 31.12.2013 and from 2014 will follow the new industry tariff, K2013. Premiums for disability pensions are based on the company’s own experience. Expense premiums are determined annually with a view to securing full cover for the next year’s expected costs.
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.
The table below specifies the risk result in the various legal entities and also states the effect of reinsurance and pooling on the result.
Market risk is the risk of incurring losses on open positions in financial instruments due to changes in market variables and/or market conditions within a specified time horizon. Therefore, market risk is the risk of price changes in the financial markets, including changes in interest rates, and in the currency, equity, property or commodity markets, affecting the value of the company’s financial instruments. Storebrand continuously monitors market risk using a range of evaluation methods. The potential for losses in the investment portfolio on a one-year horizon is calculated and the portfolios are stress tested pursuant to the statutorily defined stress tests as well as internal models.
The Financial Supervisory Authority of Norway sets the highest basic interest rate permitted for new policies and for new members/new accrual of benefits in group pension insurance. The highest basic interest rate for new policies was set at 3 per cent in 1993 and subsequently reduced to 2.75 per cent for policies entered into after 1 January 2006. The highest basic interest rate for new members/new accrual of benefits in group pension insurance was reduced from 4 per cent to 3 per cent with effect from annual renewals in 2004. The basic interest rate has been set at 2.5 per cent for new contracts from 2011. The Financial Supervisory Authority of Norway proposed a reduction in the basic interest rate to 2.0 per cent from 1.1.2014, however the Ministry of Finance decided to keep the basic interest rate unchanged at 2.5 per cent. The basic interest rate is the annual guaranteed return to the customers.
The guaranteed interest rate is determined by the insurance company. The guaranteed interest rate 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 equivalent to that in Norway.
To achieve adequate returns it is necessary to take an investment risk (market risk).This is primarily done by investing in shares, 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 percentage is also utilised.
Interest rate risk is in a special position because changes in interest rates also affect the value of the insurance liability. Since pension disbursements may be many years in the future, the insurance liability is particularly sensitive to changes in interest rates. Risk management shall reduce this risk by undertaking investments with a corresponding level of interest rate sensitivity. In Sweden, management of interest rate risk is based on this principle which entails that the financial result has a low interest rate risk. However, because the solvency accounts are based on a different yield curve, an interest rate risk relating to solvency then arises.
In Norway, greater interest rate sensitivity from the investments will give increased risk that the return is below the guarantee. The risk management must therefore balance the risk of the profit for the year (interest rate increase) with the reinvestment risk if interest rates fall below the guarantee in the future. Bonds at amortised cost are an important risk management tool.
There is a low market risk for the insurance area because the majority of investments are in short-term fixed-interest securities with a high credit rating.
one stress after the other for the year as a whole. The analysis was done with immediate individual stresses, i.e. a class of assets experiences a day with sharp market fluctuations, and the associated effect on the result.
The stresses were applied individually, but the overall market risk has used the correlations between the stresses, and thus it is less than the sum of the individual stresses. In addition to the negative result effect for the owner, the expected building up of buffer capital will, to a substantial degree, fall away in the negative stress tests. In the case of the positive stress tests, greater building up of buffer capital is also assumed, in addition to the positive result effects for the owner in the form of the market value adjustment reserve, additional statutory reserves and conditional bonuses.
The effect on the result of products without a guaranteed return, primarily defined-contribution pensions and unit linked, are not included in the analysis. For these products, the customers bear the market risk and the effect of a falling market on the owner's result will be very limited.
Changes in market risk that arise during the course of 1 year and the buffer capital's coverage of the market risks will be as presented below, based on the statement of financial position as at 31.12.2013: STOREBRAND LIFE INSURANCE
The agreed maturity provides limited information on the company's liquidity risk, since the vast majority of the investment assets can be realised faster in the secondary market than the agreed maturity indicates.
The note that shows the effect on the result/equity shows the effect on the financial result excluding profit sharing. Not all changes in market value affect the financial result. The part of the market value change that affects the result is the part that cannot be offset against the profit already earned by the customers (conditional bonuses).
Liquidity risk is the risk that the company will not have sufficient liquidity to meet its payment obligations when they fall due, or that the company will not be able to sell securities at acceptable prices. Storebrand Life Insurance’s and SPP’s insurance liabilities are longterm and are usually known long before they fall due, but a solid liquidity buffer is still important for withstanding unforeseen events.
The concluded loan agreements contain standard covenants. In 2013, Storebrand Bank ASA and Storebrand Boligkreditt AS met all terms and conditions with respect to concluded loan agreements. In accordance with the loan programme in Storebrand Boligkreditt AS, the company's overcollateralisation requirement is satisfied 109.5 per cent.
Storebrand Bank has 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. At all times, the size of the available credit facility should cover the interest and repayment of bonds with pre-emptive rights for the coming 12 months.
Category of issuer or guarantor AAA AA A BBB NIG Total
Total bank deposits excluding bank deposits excluding bank deposits in bond funds 2013
Sale and operation of real estate 9,326 181 237 9,744 287 39 249
The division into customer groups is based on Statistics Norway's standard for sector and business grouping. The placement of the individual customer is determined by the customer's primary business.
Loans to the corporate market constitute about one-third of the loan portfolio. Loans to the retail market constitute about two-thirds of the portfolio.
Furthermore, we have approximately NOK 435 million in undrawn credit lines and just under NOK 280 million in guarantees. The portfolios ' collateral is for the most part in commercial properties.
The average weighted loan-to-value ratio (LVR) for retail market loans is approximately 55 per cent for home loans, and approximately 94 per cent of the home loans are within an 80 per cent LVR. About 98 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.
For the life insurance businesses, the greatest risks are largely the same for 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 long life in particular can be influenced by universal trends.
2013:3), measures were proposed for better adaptation to Solvency II. The Ministry of Finance did not follow this up in its bill Prop. 199L
Insurance scheme. In connection with this work, the Ministry will assess whether there is a need for additional rules for the transition between the pension schemes.
On 4 December 2013 the Banking Law Commission delivered NOU 2013:12 "Disability pension in private occupational pension schemes".
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.
MNOK 20 or more. Movements from level 1 to level 2 reflect reduced sales value in the relevant equities in the last measuring period. On the other hand, movements from level 2 to level 1 indicate increased sales value in the relevant equities in the last measuring period.
The value of fixed-rate loans is determined by agreed cash flows discounted over the remaining fixed-rate period at a discount rate that is adjusted for an estimate of the market's margin requirements. No negative development in the borrower's ability to repay, or negative development in underlying collateral securities has been observed.
LEVEL 1: FINANCIAL INSTRUMENTS VALUED ON THE BASIS OF QUOTED PRICES FOR IDENTICAL ASSETS IN ACTIVE MARKETS
Level 2 includes shares or equivalent equity instruments for which market prices are available, but where the volume of transactions is too limited to fulfil the criteria in level 1. Shares in this level will normally have been traded during the last month. Bonds and equivalent instruments are generally classified in this level. Moreover, interest rate and foreign exchange swaps, non-standardised interest rate and foreign exchange derivatives are classified as level 2. Fund investments, with the exception of private equity funds, are generally classified as level 2, and encompass equity, interest rate, and hedge funds.
The external valuations are based on models that include non-observable assumptions. Besides the external valuations that have been conducted as of 31 December 2013, the equity investments are stated on the basis of value adjusted equity reported by external sources.
Storebrand has not received an up-to-date valuation as of 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.
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.
Office buildings in Norway: When calculating fair value, Storebrand uses an internal cash flow model. Net cash flows for the individual property are discounted by an individual required rate of return. A future income and expense picture for the first 10 years has been estimated for the office properties and a final value has been calculated for the end of the 10th year based on market rent and normal operating costs for the property.
In the net income stream, consideration has been made to existing and future loss of income due to vacancy, necessary investments and an assessment of the future development in the market rent. Storebrand has an average occupancy rate in the office property portfolio of 92-99 per cent. The majority of contracts have a duration of five or ten years. The cash flows from these lease agreements
(contractual rent) are included in the valuations. To estimate the long-term, future non-contractual rental incomes, a forecasting model has been developed. The model is based on historical observations in Dagens Næringsliv's property index (adjusted by CPI) and market estimates. A long-term, time-weighted average of the annual observations is calculated in which the oldest observations are weighted with the lowest importance. For non-contractual rent in the short-term, the current rental prices and market situation are used.
The valuation of indirect property investments will be sensitive to a change in the required rate of return and the expected future cash flow. The indirect property investments are leveraged structures. The portfolio is leveraged 54 per cent on average.
Increase/decrease in fair value per 31.12.2013 NOK Million -151.4 NOK Million 155.9
Shopping centres in Norway: For the shopping centres, the value of the properties is calculated based on a market-related yield. In instances in which there is knowledge of significant changes in the expected cash flow in future years, this is taken into consideration in the valuation.
Forestry investments are characterised by, among other things, very long cash flow periods. There can be some uncertainty associated with future cash flows due to future income and costs growth, even though these assumptions are based on recognised sources.
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.
BONDS AT AMORTISED COST: As a main rule, the fair value for the bonds is based on the 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 write-down test that was carried out has not resulted in the need for any write-downs in 2013.
LIABILITIES ESTABLISHED BY ISSUING SECURITIES FOR STOREBRAND ASA: The bonds are either valued based on our theoretical models, with an issuer-specific credit spread over swap rates and valued based on registered trades, or prices quoted by brokers.
Debt raised by issuance of securities 17,228 17,228 18,249 17,000 18,033
Fixed income and similar income from lending to and receivables from customers 1,443 1,436
Profit on equities and units 897 3,039 12,844 16,780 8 16,772 6,488
Total income real estate 948 712 1) Of which real estate for own use 141 74 2) Of which real estate for own use -24 -4
Other revenue from companies other than banking and insurance 378 452
Allocation by company and customers: Total income from real estate 948 712
The table below shows the anticipated compensation payments (excluding repurchase and payment).
Of which premium reserve transferred to company -10,889 -4,366 1) Individual life and disability, property and caualty insurance 2) Group life, workers comp. And health insurance 3) DC disability risk result Norwegian line of business
Other changes in premium reserves customer funds with guaranteed return 6,584 68 8,153 261 15,065 771
NOTE 22 - LOSSES FROM LENDINGS AND REVERSAL OF PREVIOUS LOSSES
Realised losses on loans where provisions have previously been made -78 -9
From 1 January 2013 Storebrand has been included in the AFP contractual pension scheme. The private AFP contractual pension scheme shall be accounted for as a defined-benefit multi-purpose scheme and is financed through annual premiums that are determined to be one per cent of salary between 1 and 7.1 G. There is no information available for recognising the new liability in the statement of financial position.
The pension for employees aged between 65 and 67 years old and pensions linked to salaries over 12 G are paid out directly from the companies and apply to both members of the defined contribution scheme and the defined benefit scheme. A guarantee has been granted for earned pensions on salaries over 12 G for employees retiring before the age of 65. The pension conditions are determined by the pension regulations. Storebrand is obliged to have an occupational pension scheme pursuant to the Act relating to mandatory occupational pensions.
The company's pension scheme satisfies the requirements of the Act. All the members of the pension schemes have an associated survivor's and disability cover.
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
56,900 in 2014, 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 part. As to this part, 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.
Net pension cost recognised in profit and loss account in the period -124 284
The table shows the percentage asset allocation of pension assets at year-end managed by Storebrand Life Insurance.
Expected return on pension fund assets in the period 4.0% 4.0% 4.0% 3.5%
Expected annual increase in pensions in payment 0.1% 1.5% 2.0.% 2.0%
Board in in January 2014 in which use of the covered bond rate as the discount rate was discussed.
The actuarial assumptions in Sweden follow the industry's mutual mortality table DUS06 adjusted for corporate differences. The average employee turnover rate is estimated to be 4 per cent p.a.
Storebrand's risk associated with the pension scheme relates to the changes in the financial and actuarial assumptions that must be used in the calculations and the actual return on the pension funds. The pension liabilities are particularly sensitive to changes in the discount rate.
The following estimates are based on facts and circumstances as of 31 December 2013 and are calculated for each individual when all other assumptions are kept constant.
The period's net pension costs -22% 30% 16% -13% 4-5% -4-5%
4) 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 Act, Section 7-26.
6) The Control Committee covers all the Norwegian companies in the Group which are required to have a control committee.
ANNUAL REPORT 2013 1. ADVISORY GUIDELINES FOR THE COMING FINANCIAL YEAR
2. BINDING GUIDELINES FOR SHARES, SUBSCRIPTION RIGHTS, OPTIONS, ETC. FOR THE COMING 2014 FINANCIAL YEAR
The other executive employees have a bonus scheme linked to value creation in the Group, in the unit and through the performances of individual employees.
special monitoring system. The unit's result and individual target attainment are weighted equally.
Over time the target bonus for senior employees should be between 20 and 40 per cent of their fixed salary. The maximum target attainment for funding and allocation is 150 per cent, respectively. Senior employees' bonus entitlements are calculated using the following formula: Target bonus level x Funding result x Allocation result
In special circumstances, the Board of Directors may decide to completely eliminate or partially reduce the number of shares in the share bank. Such circumstances may include when it is subsequently proven that the employee or entity did not fulfil the result criteria, or when the entity's or Group's financial position has drastically weakened.
The Company shall arrange and pay for an ordinary group pension insurance for all employees from the date of employment and in accordance with the applicable pension rules at any given time.
Deductions are made to the severance pay for all work-related income, including fees from the provision of services, offices held, etc.
The severance pay corresponds to the pensionable salary at the end of the employment, excluding any bonus schemes. The CEO is entitled to 24 months of severance pay. Other executive vice presidents are entitled to 18 months of severance pay.
3. STATEMENT ON THE SENIOR EMPLOYEE REMUNERATION POLICY IN THE PREVIOUS FINANCIAL YEAR
The senior employee remuneration policy established for 2013 has been observed. The annual independent assessment of the guidelines and the practising of these guidelines in connection with bonuses for the 2013 qualifying year and with payment in 2014, are carried out in the first six months of 2014.
4. STATEMENT CONCERNING THE EFFECTS OF SHARE-BASED REMUNERATION AGREEMENTS ON THE COMPANY AND SHAREHOLDERS
In accordance with the guidelines above, half of the amount paid from the share bank shall be used to purchase shares in Storebrand
Senior employees thereby have up to 6 years of withheld bonus and substantial exposure to the company's share price.
In the opinion of the Board, this does not have any negative effect on the company and the shareholders, given the structure of the scheme and the size of each Group director's portfolio of shares in Storebrand ASA.
Total interest expenses1 -576 -680 1) Interest expenses for Storebrand Bank are included in net interest income for banking enterprises.
The Group's tax-increasing temporary differences also include temporary differences linked to the Group's investment properties. These properties are for the most part recorded in the Norwegian life insurance company's customer portfolios and recorded in the accounts of Storebrand Eiendom Holding AS (SEH), which is owned by Storebrand Livsforsikring AS. If these companies were to be sold, they could be disposed of practically tax-free. The tax-increasing temporary differences related to the difference between the fair value and taxable value of investment properties that have arisen during the period of ownership (around
1) The effective tax rate for 2013 is affected by certain factors that are not related to the result for 2013.
The tax cost is also influenced by tax effects relating to previous years.
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 relvant cash-flow generating units. Recoverable amounts are established by calculating the enterprise's utility value. The development of future administration results, risk results and financial results for SPP will affect its utility value. In calculating the utility value, the management have made use of budgets and forecasts approved by the Board for the next three years.
The required rate of return to equity is calculated based on the capital asset pricing model (CAPM). Long-term risk-free interest is set at the
NOK 300 million and were of the view that the valuation and key assumptions used represent a reasonable level that takes into consideration the uncertainty of the figures.
Goodwill relating to the acquisition of Hadrian Eiendom has been written down by NOK 11 million based on the impairment test carried out as
Value of business in force SPP 20 years 5% Straight line 4,442
MINIMUM FUTURE PAYMENTS ON OPERATIONAL LEASES FOR FIXED ASSETS ARE AS FOLLOWS
Joint Ventures are businesses the Group operates together with external partners.
Total bonds at amortised cost 64,785 65,429 66,971 71,313 56,703 60,962
Sales: No further sales has been agreed on in Storebrand/SPP in addition to the figures that has been finalised and included in the financial statements as of 31 December 2013
Multi-storey car parks in Oslo 671 650 7,9 3 27,393 100%
Allocation by company and customers: Properties for own use - company 66 58
Bonds and other fixed-income securities - customers with guarantee 131,198 142,313
Bonds and other fixed-income securities - customers without guarantee 33,874 21,895
The effective yield for each security is calculated using the observed market price. Calculated effective yields are weighted to give an average effective yield on the basis of each security's share of the total interest rate sensitivity.
The Royal Bank Of Scotland PLC 29 34 -5 15 -9 -11
Total net currency positions 2012 14,466 1) SEK 2,9 billion are related to SPP/Benco 2) Equity and bond funds denominated in NOK with foreign currency exposurein i.a. EUR and USD NOK 34 billion.
The company hedges most of the foreign exchange risk in the customer portfolios on an ongoing basis. Foreign exchange risk exists primarily as a result of investments in international securities, as well as subordinated loans in a foreign currency to a certain extent.
Change in exchange rates 1) Including personal risk and employee insurance of the Insurance segment.
By gross liability is meant the company's expected future compensation payments for insurance claims that occurred on the date the financial statements were closed, however were not settled.
Claims reserve 390 339 - fo which RBNS 180 122 - of which IBNR 210 201
The redemption amounts to 98,75 % of VEK. See note 9.
Storebrand uses fair value hedging for interest risk. The hedged items are financial assets and financial liabilities measured at amortised cost. Derivatives are recognised at fair value over profit or loss . Changes in the value of the hedged item that can be attributed to the hedged risk are adjusted in the book value of the hedged item and reconised in the income statement.
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
Loans in Storebrand Boligkreditt AS are security for covered bonds (covered bond rate) issued in the company and these assets are therefore mortgaged through the bondholder's preferential right to the security holding in the company. Storebrand Boligkreditt AS has over-collateralisation (OC) of 26 per cent, however committed OC is 9.5 per cent. Storebrand Boligkreditt AS therefore has security that is NOK 2 billion more than what is committed in the loan programme.
Storebrand Luxembourg SA (Storebrand) is being sued by the bankruptcy estate of Kaupthing Bank HF with a demand for payment of USD
USD 11,000,000 issued by Kaupthing Bank HF (US48632FAC59), which was performed by Storebrand Active Credit Fund in September 2008.
The complainant submits that Kaupthing Bank HF was the real or final buyer of the bonds and that this is therefore a case of forced repayment of a debt that can be reversed. It is assumed that the case will be subject to a legal substantive discussion at the earliest in 1st quarter 2014. No provisions have been made relating to this lawsuit.
Transferred financial assets consist of swap agreements with the state through the Ministry of Finance concerning the posting of financial collateral (see note 51). The swap agreements are entered into through auctions that are administrated by Norges Bank. In the swap arrangement, the state sells treasury bills to the bank through a time-restricted swap for covered bonds. The bank can either keep the treasury bill and receive payment from the state when the bill falls due for repayment, or it may sell the treasury bill in the market.
Primary capital may consist of core capital and supplementary capital. According to the Regulations for calculating primary capital, core capital is significantly different from shareholders' equity in the accounts. The table below shows a reconciliation of core capital relative to equity. Issued hybrid tier 1 capital may account for 15 per cent of the core (tier 1) capital, while any amount exceeding 15 per cent may be included in the tier 2 capital. The core capital will be adjusted for the valuations that are used as the basis for credit calculations at a national level for foreign companies. (§4, 7th paragraph of the Regulations concerning capital adequacy.) For Storebrand Holding AB
The standard method is used for credit risk and market risk, and the basic method for operational risk. New capital requirements for banks came into force on 1 July 2013. The overall requirements for core tier 1 capital and equity and subordinated loan capital are 9 and 12.5 per cent respectively as of 1 July 2013, and 10 and 13.5 per cent respectively as of 1 July 2014. Additionally, it has been indicated that a counter-cyclical capital buffer of up to 2.5 percent core tier 1 capital will be introduced from the second half of 2014. Insurance companies in the Group are included in the capital adequacy of a capital requirement under the Basel I regulations.
In a cross-sectoral financial group, the sum of primary capital and other solvency margin capital, covers the sum of the solvency margin requirement for insurance operations and primary capital requirements for credit institutions and securities business. In the solvency margin requirement used for the insurance companies, this requirement is calculated as 4 per cent of gross insurance fund. This applies to both Norwegian and Swedish operations. In Sweden, the requirement also includes 1 per cent of the conditional bonus and 0.1-0.3 per cent of mortality risk in the insurance funds. The solvency margin capital for insurance differs slightly from the primary
Net income and gains from financial instruments: - bonds and other fixed-income securities 3 49 67 - financial derivatives/other financial instruments 3 -14 13
Investments in trading portfolio: - bonds and other fixed-income securities 10,12 1 757 1 754 - financial derivatives/other financial instruments 11,12,16 33 52
Net receipts/payments - sale/purchase of property and fixed assets -119 315
Cash and cash equivalents at the end of the period 37 48
Storebrand ASA is a holding company with subsidiaries in the fields of insurance, banking and asset management. The layout plan in the
Regulations relating to annual financial statements etc. for insurance companies has not been used. A layout plan that complies with the Norwegian Accounting Act has been used.
In the company’s accounts, investments in subsidiaries and associated companies are valued at the acquisition cost less any write-downs.
A prerequisite for recognition is that this is income earned by a subsidiary that Storebrand owns. Otherwise, this is recorded as an equity transaction. This means that the ownership interest in the subsidiary is reduced by dividends or group contributions that are received.
The company uses the Norwegian standard for pensions accounting NRS 6, which permits the use of IAS 19 Employee Benefits.
As of 31 December 2013 an interest rate derived from high quality corporate bonds is used as the discount rate. See note 5 for further details.
Current assets and liabilities are translated at the exchange rate on the balance sheet date. Shares held as fixed assets are translated at the exchange rate on the date of acquisition.
Investments in subsidiaries and associated companies are valued at cost less any write-down of value. The need to write down is assessed at the end of each accounting period.
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 transaction date.
Financial derivatives are recognised at fair value. The fair value of such derivatives is classified as either an asset or a liability with changes in fair value through profit or loss.
NOTE 3 - NET INCOME FOR VARIOUS CLASSES OF FINANCIAL INSTRUMENTS
– of which FVO (Fair Value Option) 44 -8 13 49 66
Other benefits -9 -7 1) See the spesification in note 5
Storebrand's employees in Norway have both a defined contribution pension scheme and a defined benefit pension scheme that have been established in Storebrand Livsforsikring AS. From 1 January 2011 the defined benefit scheme was closed to new members. At the same date a defined contribution pension scheme was established. The contribution based scheme applies to all new employees from 1 January 2011 and to those who chose to transfer from a defined benefit to a defined contribution pension arrangement. In the case of the defined contribution scheme, the cost is equal to the period's contribution to the employees' pension savings, which amounts to 5 per cent of the contribution basis between 1G and 6G (G = National Insurance Scheme basic amount as at 31 December 2013, amounting to NOK 85,245), plus 8 per cent of the contribution basis between 6G and 12G, as well as the defined-contribution scheme that is funded from operations that annually comprises 20 per cent of the contribution basis for salaries over 12G. The contributions are deposited in the employees' pension accounts each month. The future pension depends upon the amount of the contributions and the return on pension savings
The employees who are members of the defined benefit pension scheme have the right to 70 percent of the pensionable salary on the date of retirement when calculated benefits from the National Insurance are included. Full pension entitlement is reached after 30 years of membership in the pension scheme. The cost for the period shows the employees' accrued future pension entitlements during the financial year.
All the members of the pension schemes have an associated survivor's and disability cover.
Net pension liabilities in the statement of financial position 156 3
CHANGES IN THE NET DEFINED BENEFITS PENSION LIABILITIES IN THE PERIOD: NOK million 2013 2012
BOOKED IN THE STATEMENT OF FINANCIAL POSITION: NOK million 2013 2012
WHICH ARE COMPOSED OF AS PER 31.12.: NOK million 2013 2012
Booked returns on assets managed by Storebrand Life Insurance were: 3.3% 5.8%
Net pension cost booked to profit and loss accounts in the period -114 -7
1) Odd Arild Grefstad is the CEO of Storebrand ASA and the amount stated in the note is the total remuneration from the Group. He has a guaranteed salary for 24 months after the ordinary period of notice. All work-related income including consulting assignments will be deducted.
For further information on senior employees, the Board of Directors, the Control Committee and the Board’s statement on fixing the salary and other remuneration of senior employees, see note 25 in the Storebrand Group.
Net deferred tax asset/liability in the statement of financial position 458 472 - of which changes in deferred tax assets recognised in the balance sheet 82 -25
Tax effect of: dividends received 4 permanent differences 105 -25 change in tax rules -17 capitalisation/write-down of deferred tax assets -82 -128
Amounts that can, but are not presented net in the balance sheet
Total derivatives 2012 1) Used for hedge accounting, also see note 16
Own shares bought back2 1) 449 909 891 shares with a nominal value of NOK 5.
Holding of own shares 31 December 2013 was 2 716 273
Total bond and bank loans2 3,476 3,492 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.
2) Loans are booked at amortised cost and include earned not due interest.
May Helene Moldenhauger 275 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.
Profit and loss account items: Group contributions and dividends from subsidiaries 626 220
Storebrand ASA and the Storebrand Group – Declaration by the members of the Board and the CEO
On this date, the Board of Directors and the Chief Executive Officer have considered and approved the annual report and annual financial statements for Storebrand ASA and the Storebrand Group for the 2013 financial year and as at 31 December 2013 (2013 Annual Report).
The consolidated financial statements have been prepared in accordance with the EU-approved International Financial Reporting Standards (IFRS) and the associated interpretations, as well as the other disclosure obligations stipulated in the Norwegian Accounting Act that must be applied as at 31 December 2013. The annual financial statements for the parent company have been prepared in accordance with the Norwegian Accounting Act, Norwegian Regulations relating to annual accounts, etc. for insurance companies and the additional requirements in the Norwegian Securities Trading Act. The annual report for the Group and parent company complies with the requirements of the Norwegian Accounting Act and Norwegian Accounting Standard no. 16 as at 31 December 2013.
In the best judgment of the Board and the CEO, the annual financial statements for 2013 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 2013. 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 2013
At its meeting on 25 February 2014, the Control Committee of Storebrand ASA examined the annual accounts as proposed by the Board
The annual financial statements as proposed by the Board, the Board's report, the auditor's report and the Control Committee's statement have been submitted to the Board of Representatives, in the manner prescribed by the law.
The Board of Representatives recommends that Annual General Meeting approve the Board's annual report and accounts of Storebrand
Prevention and detection of fraud, money laundering, and corruption Maintained Partially maintained Maintained
Employee job satisfaction 69 of 100 points 69 of 100 points 71 of 100 points
Air travel (individual flights)9 4.6 individual flights/FTE 4.4 individual flights/FTE Stable level
Waste – rate of recycling 234 kWh/m2 0.44 m3/m2 215 kWh/m2 0.43 m3/m2
Storebrand has signed the UN Global Compact on responsible business practices. The principles encompass human rights, labour standards, and environment and anti-corruption standards. We support the UN Principles for Responsible Investment (PRI) and the UN
Principles for Sustainable Insurance (PSI). Storebrand has been a driving force behind the development of the World Business Council for
Sustainable Developments Vision 2050, and we are thus working towards a world in 2050 where "9 billion people are living well within the resource limits of the planet". Our sustainability work is regulated by guidelines that are revised annually and adopted by the Board of Storebrand ASA.
ANNUAL REPORT 2013 1) Some companies are excluded for more than one cirterion.
Number of dialogues with companies on violations of the Minimum standard 44 51
Two out of three customers should experience the deliverance of the 3rd customer promise.
Subordinated loan capital forms part of the tier 2 capital for capital adequacy calculations.
Average remaining term to maturity of the cash flow from interest-bearing securities. The modified duration is calculated based on the duration and expresses the sensitivity to the underlying interest rate changes.
Paid-in capital includes share capital, share premium reserve and other paidin capital. Retained earnings include other equity and reserves.
The earnings per share are calculated as the majority interest's share of the profit after tax divided by the number of shares. The number of shares included in the calculation is the average number of shares outstanding over the course of the year. If new shares are issued, the shares will be included from the date of payment.
Core (tier 1) capital is part of the primary capital and consists of the equity less the minimum requirement for reinsurance provisions in P&C insurance, goodwill, other intangible assets, net prepaid pensions, 50 per cent of any capital adequacy reserve, and cross-ownership deductions in other financial institutions.
Tier 2 capital is part of the primary capital and consists of subordinated loan capital and the portion of the hybrid tier 1 capital that is not counted as core (tier 1) capital. There is a 50 per cent deduction for any capital adequacy reserve and deduction for cross-ownership in other financial institutions. In order to be eligible as primary capital, tier 2 capital cannot exceed core (tier 1) capital. Perpetual subordinated loan capital, together with other tier 2 capital, cannot exceed 100 per cent of core (tier 1) capital, while dated subordinated loan capital cannot exceed 50 per cent of core (tier 1) capital. To be fully eligible as primary capital, the remaining term must be at least five years. If the remaining term is less, the eligible portion is reduced by 20 per cent per annum.
Solvency II is a common set of European regulatory requirements for the insurance industry. Under Solvency II, the size of the capital requirement will be determined by the amount of risk the company is exposed to.
In group defined contribution pensions the premium is stated as a percentage of pay, while the payments are unknown. The customer bears all the financial risk during the saving period.
Alternatively, it can be agreed that the pension will end at a specified age.
In addition, there is the net return on the company capital, which consists of equity and subordinated loans. Any returns -based fees for asset management are included in the financial result.
For a more detailed description of the technical insurance reserves and accrual accounting for premiums and compensation, see note 1 – accounting for the insurance business, pages 79-82.
Primary capital as in capital adequacy plus 50 per cent of additional statutory reserves and risk equalisation fund, plus 55 per cent of the lower limit for the contingency funds in P&C insurance.
The true interest rate calculated when all borrowing costs are expressed as an annual payment of interest in arrears.
In calculating the APR, allowance must be made for whether interest is paid in advance or arrears, the number of interest periods per annum, and all the fees and commissions.
A cross currency swap is an agreement to exchange principal and interest rate terms in different currencies. At the maturity of the contract, the principal and interest rate terms are exchanged back to the original currency. Cross currency swaps are used, for example, to hedge returns in a specific currency or to hedge foreign currency exposure.