History In brief and key figures 2015 Highlights Interview with CEO Climate challenge Sustainable management of pension funds Scorecard for sustainability Shareholder matters
STOREBRAND ASA Profit and loss account Statement of total comprehensive income Statement of financial position Statement of changes in equity Cash flow analysis Notes
On 4 May 1847, the P&C insurance company ”Christiania Almindelige Brand-forsikrings-Selskab for Varer og Effecter” is incorporated by private subscription. The company is referred to as Storebrand.
Storebrand consolidates its position as market leader in pension and sign new contracts on defined contribution to major players such as NHO and NRK. In January 2015 the agreement with Statoil entered into force to deliver defined contribution to its employees.
In November Storebrand signs a strategic partnership with the US IT company Cognizant, which simultaneously acquires 66 percent of Storebrand Baltic. The partnership will lay the foundation for an even more customer-oriented development of the Group's IT solutions.
Storebrand’s history can be traced back to 1767. The company has supplied occupational pension to Norwegian employees since 1917, the same year that Storebrand’s fully-owned subsidiary SPP was established in Sweden. Storebrand Bank ASA was established in 1996. In 2006, P&C insurance was relaunched as an offering to the retail market customers and selected parts of the corporate market.
Storebrand’s ambition is to be the best at saving for pensions. Our most important customers are corporates, employees and former employees with pensions from Storebrand. We will supply sustainable solutions adapted to the customers’ individual situation through market and customer concepts, so that each person receives a better pension.
Storebrand named as the world's 20th most sustainable company by Corporate Knights in conjunction with the World Economic Forum in Davos. Swedish Söderberg & Partners marks Storebrand/SPP best in its report on sustainable mutual funds, and a report by The Future in Our Hands highlights Storebrand as a market leader in sustainable savings.
Storebrand has signed Montreal Carbon Pledge, an international initiative ahead of the climate summit in Paris in December 2015. This means that the Group must estimate the fossil footprint of all private equity funds and making information available to everyone. In June Storebrand received the award "Best Use of ESG" (Enviroment, Social, Governance) in the Nordics from Institutional Investor.
For the 16th year in a row, Storebrand has gained a place on the Dow Jones Sustainability Index. Dow Jones emphasizes the companies' ability to manage sustainability trends in a way that strengthens their long-term profitability, and Storebrand is one of 15 companies worldwide that have been qualified to index every year since its inception in 1999.
In 2015, there have been many major pension agreements out for tender, and we have won a majority of them. The pension agreement with the Confederation of Norwegian Enterprise (NHO) was the largest. I think that we have been very successful in stepping on both the gas and brakes in our business. In our non-guaranteed business, we are stepping on the gas and growing. We are at the same time braking in the guaranteed business in a good way.”
Storebrand delivered a Group result before amortisation and reserve strengthening of NOK 1,762 million for 2015, down from NOK 3,423 million for 2014. How would you describe Storebrand's financial results in the year that has passed? “The 2015 results have been marked by many non-recurring effects, such as an extraordinary strengthening of reserves for increased longevity. The margins in the guaranteed business have been falling for a long time due to low interest rates and longevity reserve strengthening. Therefore it is incredibly important that we have good, profitable growth in our non-guaranteed business.
What results are you the most and least satisfied with? “I am the most satisfied with strong growth and good profitability in our non-guaranteed business, with premium income growth of 25 per cent for defined contribution pensions and unit linked insurance in Norway and Sweden.
I am the least satisfied with the fact that the paid-up policy problem remains unsolved. Both the customers and we are suffering under rigid rules, which force us to manage long-term pension money in a short-term manner.
Solvency II consists of regulations that provide important incentives for management of the life portfolios. The old regulations did not take how the pension assets were invested into consideration. Now there are different risk weightings for the various asset classes. If you take more risk, then you must provide more equity. This is the right way to go. One can of course discuss the level and transitional rules, but it is the right direction.”
policies increased from NOK 80 to 95 billion, in other words, three times as much. Investment options do in other words not solve the paid-up policy problem. It may also be said that we are expecting significantly lower conversion in the future, since most of the interested paid-up policy customers have already converted to investment options.”
How can the paid-up policy problem be solved? “All common sense dictates that something must be done about the requirements for annual guarantees to make the management of the guaranteed products better for the customers. I still have faith that this is something the authorities will be looking at, but very little has happened so far. Replacing the guaranteed annual return with a final guarantee and introducing a flexible buffer fund would help a lot. It would create better economics for the paid-up policy product – both for the customers and life insurance companies.”
The argument against a final guarantee has been that the transfer market did not function, since a paid-up policy could be inadequately reserved during certain periods and can then not be transferred. “Yes, I have heard that, but it is not a very weighty argument. Paid-up policies can regardless not be transferred today – there are no companies that will accept a paid-up policy that has not been fully reserved and has in addition a high annual interest rate guarantee. In Sweden, however, there is a final guarantee scheme and a functioning transfer market at the same time.
As a company, we can sweat through annual guarantees and low interest rates, but it is not very favourable for our paid-up policy customers – who are losing purchasing power every year.”
The Ministry of Labour and Social Affairs has announced that public service pensions will be changed and adapted to the pension reform. Is it possible that
Storebrand will be a provider of a new public service pension? “We are carefully following the developments and are ready to enter and create competition in this market if provisions are made for such. We are already a major actor in the market for pension funds for the local authorities in Norway. And we are one of two pension providers that have already introduced a hybrid pension variant. The hybrid model, with lifelong disbursements and opportunities for wage inflation adjustment, may be a good solution for the public sector.”
The shift from guaranteed to non-guaranteed business continues while the customers’ needs and habits are also changing at the same time. This past year Storebrand has changed the corporate organisation, while parts of the Group have been undergoing restructuring. Can you tell us something about the reason for this? “The reason for the changes is to make it easier to become and remain a customer of Storebrand. You should feel like you are a single customer of Storebrand even if you have several products. This summer we took therefore a new step in customer orientation by establishing comprehensive customer service and product areas. The changes will pave the way for a better customer experience and greater profitability.”
“Increased competition and lower margins mean that we must streamline our organisation. We have communicated a cost/ income target level of below 60, and we are currently at 59.6. This autumn we therefore announced a restructuring of our sales and marketing organisation – Customer Area Norway – and we have reduced the workforce by 65 full-time equivalents. There will also be a need for workforce reductions in other parts of the Group in 2016. These are demanding processes for those involved, but completely necessary in order to be competitive in the future as well.”
Storebrand has qualified as the only financial company in the world for a place on the Dow Jones Sustainability Index for 16 years in a row. What does work on sustainability mean to you? “Sustainability is part of Storebrand's DNA, and it is something that I am very proud of. We will be celebrating 250 years in business in 2017, and that is an occasion we must mark properly. The idea on which Storebrand was founded was to solve one of society’s challenges – the fact that Norwegians did not have any safety net if their house burned down. Today, the challenge is to distribute a lifetime income so that you will have something to live on during the last 20-30 years of your life – and that you are insured during this time. Our business is based on solving important social challenges, and trust is our lifeblood. We manage pension funds for 50-60 years – and our customers must trust that we will be here in 50 years. With such a long horizon, we are dependent on the world developing in a sustainable direction. Therefore, we attach a great deal of importance to investing all of our customers’ pension funds of NOK 571 billion in sustainable companies.
My dream is that as consumers we become just as concerned about the content of our pension savings as we are of the origin labelling of meat and sustainable coffee.”
This affects Storebrand, and Storebrand has implemented measures for reporting on climate impact, handling climate-related risk, safeguarding climate-related opportunities and influencing the financial sector in a positive direction.
Mark Carney points out that transparency and the publication of reports is one of the ways forward to handle this risk, and this is supported by many initiatives that are relevant to Storebrand. In Sweden, one is looking, for example, into the possibility of forcing fund companies, fund markets and others to disclose sustainability information at the fund level, and a large number of small and medium-sized companies will be required to report on sustainability. Storebrand has reported on climate impact since 2008, and we have published sustainability reports since 1995.
Storebrand's commitment is about helping to solve the challenges of the future on behalf of the customers. We are contributing our experience and professionalism in all of our roles. As an investor, we are creating value through our sustainability analysis. Storebrand’s most important goal as a pension provider is for our customers to receive the best possible pension when they become pensioners. Many of our customers will not be taking this step until 30 to 40 years. A long-term perspective is thus essential to good management. When we look at how society has developed over time, there are many things to be satisfied with. Increased longevity, a better standard of living, and a rapid development of health services have marked many countries.
Storebrand will influence and cooperate with the finance sector, which is one of the most important individual factors associated with adaptation. Climate change is the greatest political and economic challenge in history, and we have very little time. Little time to develop solutions, implement them and reverse an emission trend that has existed for 200 years. Storebrand will thus be in the forefront of this work. We will inspire others, safeguard our customers’ pensions and play an active role in safeguarding our common future.
The year 2015 was the year of the major climate conference in Paris, COP21. Storebrand took up the global challenge by participating in two important measures that focused on understanding and reducing climate impact and investments.
COP21 Storebrand was involved in the climate conference in Paris. Storebrand presented its methods for adapting its product range to higher value creation and a lower climate impact.
MONTREAL PLEDGE In 2015, Storebrand signed the Montreal Pledge. Our signature entails that Storebrand has undertaken to calculate the carbon footprint of its equity funds and publish the results. We are doing this together with many other leading finance actors.
Storebrand supports the use of carbon footprints in spite of the fact that the calculation methods and data quality suffer from teething problems. The carbon footprint is an important complement to Storebrand’s comprehensive and extensive sustainability analysis of the entire assets under management. The carbon footprint illustrates a snapshot of the emissions from a particular company, and Storebrand’s comprehensive analysis shows a picture of the future emissions from the same company. Both analyses are part of our efforts to reduce the climate impact of our investments.
CARBON FOOTPRINT The indicators are calculated for 30 equity funds and their respective indices. In addition, the Carbon Footprint, is calculated for five equity portfolios.
PORTFOLIO DECARBONISATION COALITION In 2015, Storebrand became a member of the Portfolio Decarbonisation Coalition. This was also an initiative taken by the United Nations Environment Programme Finance Initiative (UNEP FI). Membership in the group entails not only that Storebrand undertakes to publish the carbon footprint of equity investments, but also to reduce it. In 2015, Storebrand also implemented two additional measures to reduce the climate impact and create value for its pension customers. Storebrand increased the sustainability level for the entire equities portion of the guaranteed management and also sold an additional 23 coal-producing companies. Storebrand reduced its annual estimated carbon footprint by approximately 350,000 tonnes of carbon dioxide.
CARBON DISCLOSURE PROJECT AND THE SWEDISH MINISTRY OF FINANCE Storebrand has reported to the Carbon Disclosure Project (CDP) for a long time, but we are also cooperating with the organisation as an investor. Together with CDP, Storebrand seeks as an owner to increase carbon reporting from major listed companies. Increased reporting gives Storebrand and other investors a better basis for assessing assets and is one of the key elements for handling the climate crisis in the financial sector. Storebrand also contributed during the year to a study headed by the Ministry of Finance in Sweden, the purpose of which was to increase sustainability and climate reporting at the fund level to the end customer.
The carbon footprint we nevertheless contribute to is compensated for through purchasing emission allowances in a high-quality project in Kenya: Wildlife Works Kasigua corridor. This is a project within the framework of Redd+ that aims to protect important forests in developing countries, forests that absorb the amount of carbon dioxide that is equivalent to the emission allowance.
Storebrand has chosen to compensate for emissions through Redd+, since logging corresponds to approximately 20 per cent of the global greenhouse gas emissions. This is more than the global transport sector.
Redd+ not only provides carbon compensation, but also several other positive effects for the local communities where the projects exist. The Wildlife Works Kasigua corridor ( has protected the survival of species and created employment opportunities for the local population, for example.
As a finance company and major investor, Storebrand has an important role to play. With 20 years of experience in sustainable investments, Storebrand has been in the forefront of adapting its portfolios to climate risk. If the world is to achieve the two degree target, energy production with substantial greenhouse gas emissions will no longer be competitive, and thus a poor investment financially. Our sustainability analysis and the actions we take encompass the entire assets under management, which totalled over NOK 570 billion at the end of the 4th quarter of 2015.
Therefore, we have identified the most carbon-exposed companies, primarily those engaged in oil sands and coal, and excluded them from our investments. In addition, we have focused our attention on the other part of the climate equation. Rain forests, which are often referred as the lungs of the world, are being logged at breakneck speed. Forests absorb CO2 from the atmosphere, and if they disappear, the temperature will rise more rapidly and the weather patterns will change. We have identified palm oil plantations as one of the greatest causes of deforestation and exclude those who do not operate sustainably.
Avoiding climate risk is necessary in order to safeguard our customers’ money. However, if we want to make the money grow quickly, we must also take advantage of the climate opportunities. Storebrand has integrated climate in its sustainability rating of 2,500 companies, and we are actively looking for companies that deliver innovative and sustainable products. New types of investment, such as green bonds, are experiencing significant growth and help channel money towards climate-friendly solutions.
Two-thirds of the identified fossil energy reserves cannot be used if the world is to achieve the two degree target, according to the IEA. With the high CO2 emissions related to the combustion of coal, it is natural that the world shift away from this form of energy. Due to regulations, requirements for increased energy efficiency, decentralisation production of power and competition from newer and cleaner sources of energy, the outlook for companies with significant coal revenues is poor.
OIL SANDS EXCLUSIONS Storebrand finds oil sands to be problematic with regard to the emission of greenhouse gases, consumption of water, emission of chemicals, loss of biological diversity, problems associated with restoration of the areas after production ends, as well as fundamental human rights. In our opinion, the challenges are so great that it will not be possible to engage in these operations in a sustainable manner.
Comparisons between oil sands and other oil production show that the climate impact from oil sands production is far higher than conventional oil production.
Since Storebrand reduced its exposure to oil sands as early as in 2013, there have also been strong financial arguments against oil sands. As recently as in November 2014, Carbon Tracker published a report estimating that 92 per cent of the future oil sands production will require USD 80/bbl to break even, and even a higher assumed market price in order to be approved. Without speculating in future oil prices, it will be difficult to justify the majority of oil sands production financially with a lower oil price.
PALM OIL EXCLUSIONS The use of palm oil in food and other consumables has been strongly criticised over a long period of time. In Norway, the focus has primarily been on the negative health effect of palm oil in foodstuffs.
With climate issues as our most important challenge, the rainforest is a key factor in counteracting the accumulation of CO2 in the atmosphere, and palm oil production contributes strongly to deforestation of rainforest. The main argument is a desire to reduce exposure to activities that are a significant contributor to climate change in order to avoid risk in the investment portfolio. The risk is two-fold: a changed regulatory framework for the industry can result in companies loosing their licence to operate, in addition to a shift in demand towards palm oil that is produced based on sustainable principles. This exists to a very limited extent today.
GREEN BONDS Storebrand is one of the largest investors in Europe in so-called green bonds, a new financial instrument that enables the lender to not only choose who will be able to borrow money, but also what the money will be used for. Green bonds offer the same financial terms as ordinary bonds, but they have the added dimension of contributing to a green transition.
Green bonds encompass projects that are typically in the areas of renewable energy, energy efficiency (including efficient buildings), sustainable waste management, sustainable property development (including forestry and agriculture), preservation of biological diversity, low-emission transport, water treatment and the supply of drinking water. Green bonds should – as a rule – include a third-party assessment.
Storebrand's ambition is that the portfolio of green bonds will result in genuine improvements, i.e. has a clearly positive effect on the environment and society, and exhibit good financial quality at the same time. Storebrand will conduct an annual review of the portfolio 's holdings to ensure that the reporting is in accordance with our quality requirements. Both financial reporting and impact reporting will be assessed by the investment team and sustainability analysts, respectively.
IMPACT INVESTING Storebrand/SPP has invested over NOK 400 million in developing markets in sectors such as microfinance, agriculture and health. The aim of the investments is to achieve a competitive return for our customers and contribute at the same time to a sustainable development in impoverished countries. This strategy focuses on finding profitable companies in fast-growing sectors that contribute to solving social and environmental problems, in areas such as women's access to financial services, health care for persons with low to medium income and transitioning to sustainable agriculture.
In addition to ordinary financial reporting, we follow up and report on these investments based on social factors to ensure that our investments reach the right target group. This reporting takes place on an annual basis in cooperation with the external managers. The factors that are measured, include gender distribution, geographic distribution and how much we contribute to various productive sectors in the local economy. In addition, we measure the percentage of our external managers who have signed the UNPR.
The majority of our private customers are placed by default in the pension portfolio we call “Recommended Pension”. Now we have moved almost half of the equity exposure in these funds in a more sustainable direction. The way we do this is by optimising the largest holding, an index fund, with sustainability as the recommended parameter. We use our ESG analysis as the basis and optimise the portfolio based on the ESG analysis. In practice, this means that we manage to create an index fund that scores significantly higher on sustainability and has a significantly lower carbon footprint, which is good for both our customers and the planet.
In the Swedish market, Storebrand is seeing increased interest from savers with regard to sustainable savings. Customers have in general become more aware, and they make more sustainable choices on a daily basis. The sale of ecological foods increased, for example, by 38 per cent in 2014, and the forecasts state that we will be seeing an increasingly this year as well. Making a conscious decision on savings will become an increasing obvious choice as awareness grows. Seven out of ten stated in an opinion poll conducted by Clint/WWD that they want to have their savings and pension money in a portfolio with sustainable investments.
Sustainable Investments are going to be more important in the future than today.
Sustainable Investments are going to be equally important in the future as it is today.
Customers experience that all our relationships, solutions and measures are sustainable2 53 of 100 points 53 of 100 points 60 of 100 points
Storebrand Anbefalt Pensjon – Sustainability rating Equity3 n/a 3.79% points above market average
Equity: Aggregated sustainability rating n/a 68 of 100 points 70 of 100 points
Employee job satisfaction 71 of 100 points 71 of 100 points 72 of 100 points
Employees awareness and support of Storebrands work on sustainability 85% 85% 86%
3) New indicator 4) Result 2014 is changed due to results from main office in Sweden is included in the scorecard from 2015.
5) Externally managed and Own property is reported as one under Real estate starting in 2015.
Shares in Storebrand are listed on Oslo Børs (Oslo Stock Exchange) with the ticker code STB. Storebrand ASA's share capital at the start of 2015 was NOK 2,249.5 million. The company has 449,909,899 shares with a par value of NOK 5. As at 31/12/2015 the company owned 2,062 721 of its own shares, which corresponds to 0.46 per cent of the total share capital. The company has not issued any options that can dilute the existing share capital.
As at 31 December 2015, total foreign ownership amounted to 64.55 per cent, compared with 62.7 per cent at the end of 2014.
The Board has established as a target that Storebrand shall adapt to the changes in the European solvency regulations without raising new equity. The target is a Solvency II margin of at least 130 per cent, including the use of transitional rules. We will report on this target throughout 2016. The Board is maintaining a distribution target in a normal situation of more than 35 per cent of the result after tax, but before amortisation costs. The dividend policy states that dividends shall be adjusted such that the Group is assured the right capital structure.
Average daily turnover (1000s of hsares) 2,820 2,185 2,286 3,511 2,481 2,357
Dividend per ordinary share (NOK) 0 0 0 0 0 1.1
20 largest shareholders as of 31 December 2015 Account Number of shares % Country
J.P. Morgan Chase Ba A/C US Resident Non 13,799,450 3.13 NOR
J.P. Morgan Bank LUX JPML SA RE CLT Frank Nominee 12,129,027 2.10 USA
The Bank of New York BNY Mellon Nominee 9,759,108 1.91 SWE
DnB NOR MARKETS, AKS DNB Bank ASA Nominee 8,555,926 1.66 GBR
State Street BANK AN A/C Client Omnibus F 7,664,955 1.65 USA
J.P. Morgan Chase Ba European Resident OM Nominee 6,402,357 1.26 GBR
Norway 35% Great Britian 20% U.S.A. 18% Finland 7% Sweden 4% Others 16%
Storebrand aims to be the best provider of pension savings. The Group offers products within life insurance, property and casualty insurance, asset management and banking to private individuals, companies and public sector entities. The Group is divided into the segments Savings, Insurance, Guaranteed Pension and Other.
Storebrand's strategy is twofold. Firstly, the Group aims to create profitable growth in the Savings and Insurance segments by providing good sustainable pension and insurance schemes for companies in Norway and Sweden. The employees of our corporate customers are offered digital and customer-centric products within savings, insurance and banking. Our philosophy is simple. We are successful when customers recommend us. Therefore, the follow-up of feedback from customers is one of the Group's core tasks.
In Sweden, SPP has a strong challenger role, and it has taken important steps in 2015 to make its work with sustainability more visible as a factor that distinguishes SPP from its competitors. The SPP brand has grown stronger, and the sales of unit linked pension savings to companies is increasing.
A minimum of 20 per cent or NOK 2.5 billion of the total required strengthening of the reserves will be covered by the owner. The company started to strengthen the reserves in its accounts in 2011. From 2012 to 2015, Storebrand set aside as much as possible of its financial and risk profits. During the period, Storebrand set aside NOK 2.2 billion in equity contributions, NOK 1.4 billion of which was set aside directly from equity, while NOK 0.8 billion was from lost profit sharing for paid-up policies. In addition, NOK 0.8 billion was set aside from the risk equalization reserve.
Storebrand expects that the direct impact on results for increased longevity has been completed and that the remaining reserve strengthening will be covered by the surplus return, risk surplus and the elimination of profit sharing. For more information on the strengthening of reserves for increased longevity refer to Storebrand Life Insurance in Note 3.
In a period of low interest rates and strengthening of reserves for higher projected life expectancy, lower earnings within group pensions are expected. At the same time the bulk of the business is being shifted from guaranteed pensions to unit linked savings. Storebrand has succeeded in its goal to adapt to changes in the European solvency regulations without raising new equity. The target of a Solvency II margin of greater than 130 per cent, including the use of transitional rules, has been achieved. We will report on this target throughout 2016 as well. Storebrand has successfully entered Solvency II without raising new equity, and has a strong solvency position of 168 percent, and 124 percent without transitional rules. The solvency margin without transitional rules is expected to increase further in 2016 due to profits, active risk management, and other measures. After several years of Solvency II implementation and reserve strengthening for longevity, it is the opinion of the Board that the company is in a normalized situation. At the same time, falling interest rates and volatile financial markets negatively affect the solvency margin and increase the risk of managing guaranteed reserves. There is approximately NOK 2 billion left of longevity reserve strengthening, to be covered from excess investment return. After an overall assessment, the Board proposes that no dividend is paid for 2015, but plan to pay dividend for 2016.
The Board is maintaining a distribution target in a normal situation of more than 35 per cent of the result after tax, but before amortisation costs. The dividend policy states that dividends shall be adjusted such that the Group is assured the right capital structure.
The Storebrand Group prepares its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS). Storebrand's business is divided into the following segments: Savings, Insurance, Guaranteed Pension and Other.
The Group had taxable accounting income of NOK 1,821 million in 2015. Storebrand has reduced the exposure to property in its customer portfolios in recent years. In order to enhance the efficiency of the operations and improve the risk management for the remaining property exposure, Storebrand Eiendom Holding AS was dissolved in December 2015. The taxable loss on the dissolution of the company entails in isolation a taxable accounting income of approximately NOK 1.7 billion. In December 2015, the Storting agreed to reduce the company tax rate from 27 to 25 per cent with effect from 1 January 2016. Therefore, 25 per cent is used when recognising deferred tax/tax assets. Combined, this gives a group result after tax of NOK 1,382 million (NOK 2,085 million) for the full year.
Throughout 2015, fee and administration income in the Guaranteed Pension segment has performed consistent with the fact that a large part of the portfolio is mature and in long-term decline. It is expected that the contribution to the result will decline over time. NOK 1,764 million was charged to the result for the use of equity for longevity reserves for higher expected longevity. A shift in the discount rate and other changes in the prerequisites for the Swedish business had a negative impact of NOK 265 million on the result.
Financial performance in the Other segment is marked by the fact that the bank’s corporate market portfolio is being discontinued. The return on the company portfolios has been affected by the low interest rate level. In addition, NOK 171 million has been recognised in the financial result as the minority interest's share of the gain in connection with the sale of property.
SAVINGS Savings consists of products that encompass savings for pensions, without interest rate guarantees. The business area consists of defined contribution pensions in Norway and Sweden, asset management and retail banking products.
1) There was a positive impact of NOK 187 million on the cost line in 2014 due to a change in the pension scheme for its own employees.
Storebrand Bank's retail market is a direct bank that offers a wide spectrum of banking services to the retail market. Increased competition and weakened lending margins have reduced the net interest income throughout the year. The lending portfolio grew by NOK 2.4 billion, while the deposit portfolio declined by NOK 1.1 billion. The lending portfolio consists primarily of low-risk home mortgages.
Balance sheet and market trends Premium income amounted to NOK 12.3 billion in 2015, which is NOK 2.4 billion higher than in 2014. Net migration is significantly higher than in 2014 and amounted to NOK 2.8 billion. While migration in Norway improved significantly, the Swedish business made a negative contribution due to higher transfers out and less conversion from products with a guarantee to products with investment choice. Total reserves for non-guaranteed life insurance-related savings have grown by 22 per cent over 2014.
In the Norwegian market, Storebrand maintained its position as the market leader for defined contribution schemes, with around 34 per cent of the market. Premium growth for defined contribution occupational pensions was 32 per cent in 2015. The growth is driven by good sales to new customers and sales of higher savings rates, in addition to growth from wage adjustments. There is strong competition in the market for defined contribution pensions, and Storebrand expects that this will continue as a result of the significant dynamics in the market. Storebrand has launched a hybrid product on the market and regards this product as important with respect to positioning in relation to the changes that are taking place in public service pensions.
New sales remain at approximately the same level as the previous year. In 2013, SPP was chosen to be one of several suppliers in the largest pension platform in Sweden (DC scheme), and it initiated activities that have had a positive effect in 2015.
The asset management business increased its assets under management by NOK 37 billion in 2015. This growth is primarily attributed to good new sales, particularly in the Swedish fund business, as well as a good return on the customer assets. At year end assets under management amounted to NOK 571 billion, comprising mutual funds and funds-in-funds, as well as individual portfolios for insurance companies, pension funds, municipalities, institutional investors and investment companies. For assets under management, see the graph above.
3) Adjusted for the negative non-recurring effects related to reorganisation in 2015 and positive non-recurring effects related to pensions in 2014.
The corporate market is generally a more mature market. Health insurance, which is still a market with good growth, is an exception. Measured by premiums written, Storebrand is one of the market leaders in health insurance. For risk cover in connection with defined contribution pensions in Norway, future growth is expected to be driven by conversions from defined benefit to defined contribution pensions. The new regulations, which entered into force on 1 January 2016, will entail a somewhat lower premium volume in the future. In Sweden, the disability trend has been downward for a long period of time, which has led to reduced premiums in general.
In the fourth quarter of 2015, operating costs were impacted by restructuring costs of NOK 41 million, while changes in Storebrand's pension scheme entailed a cost reduction of NOK 210 million in the same quarter of 2014. Adjusted for these two effects, the costs have declined in 2015, compared with the previous year.
The Norwegian business is prioritising the build-up of buffers and reserves instead of profit sharing between customers and owners. Allocations have been made for the estimated future direct use of equity and the risk equalisation reserve related to longevity reserve strengthening at the end of 2015. This gives an overall reserve strengthening cost of minus NOK 1,764 million for 2015. In addition, NOK 292 million has been set aside in lost profit sharing from paid-up policies. This is the owner's share of the surplus return in excess of the interest rate guarantee that has been used to strengthen the reserves for increased longevity.
Customer buffers as a % of customer portfolios at Storebrand 5.8% 6.6%
Customer buffers as a % of customer portfolios at SPP 7.6% 11.7%
OTHER RESULTS The result for Storebrand ASA is reported under Other, as well as the result for the company portfolios and small subsidiaries 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. Group eliminations are reported in a separate table below.
The result before amortisation for the Other segment activities was NOK -75 million for 2015, compared with NOK 193 million for 2014. The reason for the decline in the fee and administration income in 2015 is primarily linked to discontinuation of corporate banking.
In addition, NOK 171 million has been recognised in the financial result as the minority interest's share of the gain in connection with the sale of property.
CAPITAL SITUATION Storebrand pays particular attention to the levels of equity and loans in the Group on a continued and systematic basis. The level is adjusted for the financial risk and capital requirements. The growth and composition of business segments are important driving forces behind the need for capital. The purpose of capital management is to ensure an efficient capital structure and ensure an appropriate balance between internal goals and regulatory requirements. The Group's target is to achieve a solvency margin ratio in accordance with Solvency II of at least 130 per cent. Storebrand Livsforsikring AS also aims to achieve an A level rating. The Group's parent company has established a target to achieve a net debt-equity ratio of zero over time. Storebrand ASA has only one class of share. All shares have equal rights and are freely negotiable. The company is not aware of the existence of agreements between shareholders that limit rights to sell shares or to exercise related voting rights.
Capital adequacy and the core (tier 1) capital ratio for the Storebrand Group at the end of the year were 14.3 per cent and 11.9 per cent, respectively. In accordance with the new solvency rules for financial groups, Storebrand ASA (holding) will no longer be subject to the capital adequacy regulations from 31 January 2016, and Storebrand ASA will then only report Solvency II for the Group.
Storebrand ASA (holding) held liquid assets of NOK 2.4 billion at the end of the year. Liquid assets consist primarily of short-term fixed income securities. Storebrand ASA's (holding) total interest-bearing liabilities were NOK 3.3 billion at the end of the year. This corresponds to a net debt-equity ratio of 4.8 per cent. The next maturity date for bond debt is in April 2016. In 2015, Storebrand redeemed outstanding bond debt with a total nominal value of NOK 671 million and raised a new 3-year senior unsecured bank loan of NOK 800 million. During the first half of 2016 it is expected internal dividends of NOK 436 million from subsidiaries. The liquidity situation in the holding company is materially strengthened in the last five years, and the company has a robust liquidity buffer.
RISK Storebrand's business is to assume and manage various risks in a deliberate, controlled and responsible manner, concerning both the customers and the owners.
adequate payment for assuming risk in relation to defined rates of return.
As a business requiring a license, the Storebrand Group and the individual companies are subject to supervision by the Financial Supervisory Authority of Norway. Risk management must satisfy the formal requirements pursuant to legislation and other regulations. The level of risk-taking shall be in accordance with the regulatory requirements and other needs of customers, shareholders, lenders, rating companies, etc. Undesired incidents shall be limited.
From 1 January 2016, the Group and the Group's insurance companies are subject to the Solvency II regulations, which expand and formalise the requirements for risk management. In Norway, the regulations are laid down in the Act on Financial Undertakings and Financial Groups and the Solvency II Regulations.
INSURANCE Insurance consists of risk products and property and casualty insurance. The price can normally be changed on an annual basis if there are any changes in the risk situation.
The greatest risk is the disability risk. Storebrand has the risk of there being more disability cases than expected and/or that fewer disabled persons are fit to work again (reactivation). The restructuring of disability cover in Norway's National Insurance Scheme from 1 January 2016 will give better cover from the National Insurance Scheme for new incidents of disability. All else being equal, this will reduce the scope of Storebrand's disability risk in the future. Storebrand also provides cover with death benefits, but Storebrand's risk from this is very limited. Storebrand's disability cover can generally be priced on an annual basis.
GUARANTEED PENSION Guaranteed Pension comprises savings and pension products with guaranteed interest rates in Norway and Sweden. The greatest risks are financial market risk and life expectancy risk.
A common feature of the products is that Storebrand guarantees a minimum return. In Norway, the return must exceed the guarantee in each year, while in Sweden it is sufficient to achieve the guaranteed return as an average. In Sweden, new premiums have a 0.5 per cent guarantee, whereas existing reserves have up to a 5.2 per cent guarantee. In Norway, new premiums are taken in with a 2.0 per cent guarantee,
A new mortality tariff was introduced for defined benefit pensions and paid-up policies from 2014. For the existing reserves, the Financial Supervisory Authority of Norway has approved a seven-year escalation plan, and customer returns exceeding the guarantee can contribute to reserve strengthening. During the escalation period, it gives an increase in risk that may be compared with increasing the interest rate guarantee. Storebrand's contribution must be at least 20 per cent of the overall reserve strengthening.
Interest rate risk is in a special position because changes in interest rates also affect the value of the insurance liability under Solvency II. Since pension disbursements may be many years in the future, the insurance liabilities are particularly sensitive to changes in interest rates, and they should ideally be balanced with the interest rate sensitivity of the investments. It is not possible to eliminate the interest rate risk in Norway, but accounting at amortised cost makes it possible to reduce the risk associated with the solvency position without increasing the risk from the annual guarantee. In Sweden, there is better agreement between the interest rate sensitivity of assets and liabilities.
Paid-up policies have a particularly high risk in a low interest rate scenario, because there are very limited opportunities for changing the price or terms. The size of the paid-up policy portfolio will increase in the coming years, since the companies are eliminating defined benefit schemes. In the autumn of 2014, customers were allowed to choose to convert paid-up policies to paid-up policies with investment choice. Storebrand has offered the product since October 2014, and, up until the end of 2015, approximately NOK 5 billion has been converted. It is a prerequisite that the paid-up policy is fully reserved upon conversion, and any reserve shortfalls are covered by Storebrand. Upon conversion to a paid-up policy with investment choice the financial market performance risk passes to the customer, but, for many customers, this will give a higher expected return and thus larger pension payments. In around half of the guaranteed portfolio in Sweden, the customers have an option to switch to a product without a guaranteed annual return.
The assets in Storebrand ASA and the company portfolios are invested at low risk, primarily in short-term interest-bearing securities with a high credit rating. Lending to commercial enterprises in Storebrand Bank will be discontinued and is being downscaled. The concentration risk in the portfolio will increase when the portfolio is discontinued.
EUROPEAN REGULATIONS Solvency II The Norwegian authorities have implemented the Omnibus II Directive, which allows both permanent measures and transitional rules in Norwegian law. The companies can apply a yield curve spread to discount insurance liabilities (volatility adjustment). A transitional period of 16 years has also been allowed for the valuation of insurance liabilities. This entails that an increase in the insurance liabilities as a result of Solvency II will be phased in on a linear basis over a period of maximum 16 years. The regulations allow the companies to use the transitional scheme only for individual portfolios (uniform risk groups). However, a "floor rule" has also been introduced, which entails that the Solvency II reserves cannot be lower during the transitional period than the technical insurance reserves pursuant to the Insurance Activity Act.
Regjeringen vil arbeide videre med: • Value-added tax on fee-based services. • Property and casualty insurance: A solution is outlined in which value-added tax is based on the difference between premium income and claims payments. • Life insurance: It is considered more challenging to introduce value-added tax on life insurance. It is pointed out that no other country has included life insurance in the value-added tax system. Reference is made to the fact that in the continuing work, a distinction must be established between property and casualty insurance, which is to be subject to value-added tax, and other types of insurance, such as life insurance, which are not to be included in the value-added tax obligation. • Tax on margin income, such as interest rate margins.
The Government aims to put forward a proposal to the Storting in connection with the 2017 budget at the earliest. However, it is pointed out in the report that a great deal of work remains before a proposal can be circulated for consultation and put forward to the Storting.
Disability pension in private occupational pension schemes The Norwegian Parliament has adopted new rules for disability pensions in the occupational pension schemes in the private sector. The rules will enter into force on 1 January 2016, and there will be a one-year transitional arrangement.
The new disability product gives entitlement to a disability pension regardless of earnings after the period of service, as opposed to the current regulations. Upon resignation and termination of employment, the right to a paid-up policy with disability benefits will be cancelled unless this is agreed.
The National Insurance Scheme's disability benefit constitutes 66 per cent of income up to 6 G (G = National Insurance basic amount). The Ministry of Finance proposes that company-paid disability pensions can also account for up to 3 per cent of earned income up to 12 G, with an optional supplement of up to 0.25 G. The company may also insure up to 66 per cent of income between 6 and 12 G, where the National Insurance Scheme does not provide cover. 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.
Parties in working life are studying occupational pension schemes During the wage settlement in 2014, the Federation of Norwegian Industries (NHO) and the Norwegian United Federation of Trade Unions (LO) agreed to study certain aspects of occupational pensions. The Enterprise Federation of Norway and Union of Employees in Commerce and Offices (also LO) agreed on an identical study mandate. Based on the Defined Contribution Pensions Act, the parties were, among other things, to study the employees' right of co-determination over the investment and management of pension assets, maintenance of pension accrual in connection with changing jobs, and the employees' opportunity to make contributions to their own pensions on an individual basis.
Public service pensions The Ministry of Labour and Social Affairs published on 18 December 2015 a report that proposed possible models for a new occupational pension in the public sector. The goal was to establish a transition for occupational pension schemes in the public sector that is based on the principles of the pension reform, such as all-years accrual, flexible pensions and longevity adjustments.
The proposal is a lifelong net scheme, without coordination with the National Insurance Scheme's retirement pension, with gender-neutral premiums. The report has not proposed much in the way of transitional rules and an early retirement option (Public Sector AFP).
This will be a topic in the coming collective wage negotiations in the public sector, perhaps as early as 2016.
SWEDISH REGULATIONS Ban on commissions The Securities Market Report on the Implementation of MiFID II in Swedish Law (SOU 2015:2) proposed a comprehensive ban on receiving payments/commissions from parties other than the consumer for advisory services in connection with investments and portfolio management. This has been justified by the fact that if parties other than the consumer have paid for the service, it can be questioned whether the advisory services are independent and in the best interest of the consumer. The Swedish Financial Supervisory Authority states in its report of 3 February 2016, "A Necessary Step for Improving Savings" proposed a total ban on all types of commissions. It is expected that a bill will be introduced to the Swedish Parliament in 2016.
The report "Occupational Pensions – Act on Safeguarding Pension Commitments and Taxation Rules (SOU 2015:68)" proposes to change and modernise certain rules related to the taxation, transfer, amalgamation and payment of pensions. The report also discusses the taxation of life insurance companies, and whether the taxation should be shifted from a standardised investment income tax to ordinary taxation of profit. However, it is proposed that the taxation of life insurance companies should be studied further in a separate report.
The consultation period ended recently, and it has been proposed that it enter into force from 1 January 2017. It is not clear when the authorities will publish the report on the taxation of life insurance companies that has been announced.
The Storebrand Group has worked systematically and purposefully on sustainability for almost 20 years. Our sustainability work originated in asset management, where sustainability is currently a fundamental pillar of Storebrand's investment strategy. Sustainability is one of Storebrand 's six customer promises and one of the Group's three principal messages. Storebrand strengthened this focus further in 2015.
STRATEGIC FOCUS As a leading pension provider in the Nordics Storebrand has a long term perspective on sustainability. Storebrand believes that to prioritize sustainability in the pension portfolios give good returns for both customers and shareholders.
In 2016, Storebrand will develop its work further, as well as its fundamental strategy for sustainability, guidelines for sustainability and scorecard for sustainability to reduce the environmental and climate footprint and increase the benefit of sustainability.
By making sustainability a clear requirement in our selection of suppliers, Storebrand will contribute to more numerous and better sustainable products. Companies that are exclusively on the investment side will also be automatically disqualified as suppliers to the Group. In connection with procurement processes, Storebrand has had a number of conversations on sustainability with relevant suppliers, in which we expressed clear expectations of an improvement potential.
MANAGEMENT AND ORGANISATION OF SUSTAINABILITY WORK Storebrand's sustainability work is governed by sustainability guidelines and followed up through the sustainability scorecard.
Early in 2015, Storebrand revised its sustainability scorecard to include key products for Storebrand in Sweden and Norway. The aim is to increase the sustainability level of various forms of investment. Storebrand's influence is greatest through the investment of pension assets in other companies.
REPORTING AND TRANSPARENCY In 2015, the Group implemented several measures to increase transparency and reporting on sustainability to stakeholders and customers. In addition to the existing reporting, Storebrand disclosed in 2015 what companies have been excluded from our investments based on our analysis of sustainability and Storebrand's standard for sustainable investments.
The Group has published environmental reports since 1995, and sustainability reports based on the tripartite bottom line (finances, corporate social responsibility and the environment) since 1999. The sustainability reporting has been an integral part of the annual report and audited by an independent party since 2008. Storebrand follows the guidelines of the Global Reporting Initiative (GRI G4 guidelines) for reporting. The sustainability scorecard, in the same manner as additional reporting, such as materiality analyses and information on the current sustainability, is included in Storebrand's annual report and our website (www.storebrand.no). In 2015, Storebrand started work on the development of reports on the carbon footprint of the Group's investments. Quarterly reporting was implemented from the third quarter of 2015.
We want to be transparent, and submit annual reports to a number of sustainability indices, including the Carbon Disclosure Project, Dow Jones Sustainability Index (DJSI), Vigeo and Sustainalytics. In 2015, Storebrand was one of 16 companies in the world who have been a DJSI World member since the start for 16 years in a row.
On the Corporate Knights Inc. list of the 100 most sustainable companies in the world, Storebrand is number 24 and is thus ranked as one of the world's most sustainable insurance companies.
The rating is available at the fondstorget website in Norway and Sweden as an aid to help our customers select sustainable funds.
The following areas are covered by the Storebrand standard: • Human rights, workers' rights and international law • Corruption and financial crime • Serious climate and environmental damage • Controversial weapons: land mines, cluster munitions and nuclear weapons • Tobacco • We also exclude the companies that are the worst performers in relation to sustainability and climate measures in high-risk industries. • As at 31 December 2015, 180 companies have been excluded from investment.
Storebrand Insurance shall strengthen our customer communication and raise the visibility of work that is currently being undertaken, both in relation to the 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 sustainable society. Our aim is for our customers to have a more sustainable behaviour with respect to social and financial matters, as well as the environment.
In 2015, 40 per cent of Storebrand ASA's board members were women. The proportion of women on the subsidiaries' boards is 49 per cent and in the executive management it is 25 per cent.
ANNUAL EMPLOYEE SURVEY (MTI) Storebrand conducts an employee survey every year. The results from the survey shows, in general, that Storebrand scores above average for the industry. The Group sees a clear connection between the employees' commitment and high job satisfaction, which results in better customer experiences and satisfaction.
ABSENCE DUE TO ILLNESS The Group's absence due to illness rate has been stable at a low level for many years or declined somewhat. This trend is continuing. The absence due to illness rate for the Group as a whole in 2015 was 3.3 per cent: it was 3.8 per cent in Norway, 3.1 per cent in SPP and 1.6 per cent in Storebrand Baltic. Storebrand Norway has been an "inclusive workplace" (IA) company since 2002, and the Group's managers have over the years built up good routines for following up sick employees. All managers with Norwegian employees must complete a mandatory HSE course, in which part of the training involves following up illnesses.
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. 65 per cent of the employees in Norway are members of Storebrand Sport. In Sweden, all the employees are members of SPP Leisure, where everyone has 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 organized training.
No injuries to people, property damage, or accidents were reported in the Storebrand Group in 2015.
ETHICS AND TRUST Trust is the lifeblood of Storebrand, and we work systemically to live up to high ethical standards. We must maintain order in our own house. The company sets strict requirements concerning high ethical standards for the Group's employees. The Group has a common code of ethics that is available on our intranet in three languages. Notification routines, brochures, anonymous postbox, dilemma bank, question and answer summaries and presentations are all available to employees on the intranet, so that awareness of and reflection on the subject is high on everyone's agenda. Every year all the managers must confirm in writing that they have discussed ethics and ethical dilemmas, information security, financial crime and HSE in departmental meetings.
Employees take the company's e-learning course on ethics. In 2015, 252 employees took the course, and 311 took the anti-corruption course. A total of 1,815 employees have taken this ethics course. The Group also has a mandatory ethics course for managers, which includes money laundering and corruption. A total of 10 such courses were held in 2015. Managers work with dilemmas taken from everyday life at Storebrand. The company's authorised financial advisers complete a specially tailored training programme. Small e-learning modules in ethics are also sent on an ongoing basis to employees throughout the year.
SKILLS A high level of skill is one of Storebrand's most important factors for success, and it forms the foundation for renewed growth. At Storebrand, skills are synonymous with the ability that each individual employee has to perform and manage certain tasks and situations. This ability is based on knowledge and experience, skills, motivation and personality. Storebrand's core expertise should be pensions, sustainable savings and customer orientation.
Board of Representatives: Hans Henrik Klouman, Håkon Reistad Fure and Cathrine Kjenner Forsland (formerly an alternate employee representative ) were elected as new members. Tone M. Reierselmoen and Kari Birkeland (employee representative) were elected as new alternates.
Håkon R. Fure and May Helene Moldenhauer (employee representative) resigned from the Board of Representatives. In connection with the
implementation of new financial undertaking in 2016 the Board of representatives is suggested discontinued. A decision will be made at the Annual General Meeting in 2016.
New regulations for disability pensions The disability pension rules for private occupational pension schemes adapted to the new National Insurance Scheme and entered into force on 1 January 2016. Companies have been given one year to adapt their pension plans to the new scheme.
RISK MANAGEMENT Storebrand is exposed to several types of risk through its business areas. Trends in interest rates and the property and equity markets are deemed to be the most significant risk factors that can affect the Group's result. Over time, it is important to be able to deliver a return that exceeds the interest rate guarantees of the products. Risk management has therefore high priority in the management of the Group. In addition, the disability and life expectancy trends are key risks. The risk associated with the business is described in greater detail in a separate section earlier in the report.
FINANCIAL PERFORMANCE AND RISK Storebrand is the market leader for the sale of pension solutions to Norwegian businesses. Storebrand achieved particularly good growth in the sales of defined contribution pensions in 2015, and it is the clear market leader now with a market share of 34 per cent. The market for defined contribution pensions is growing and an increasing number of companies are choosing to increase pension savings for their employees. Defined contribution plans are the dominant solution for pension savings in Norway, and the growth here is expected to continue. Storebrand also has a strong challenger role for the sale of pension schemes to Swedish businesses with a market share of 11 per cent.
Storebrand achieved good customer growth in the retail market in 2015, and the Group gained around 26,400 net new customers during the year. In particular, the loyalty programme for employees of companies that have a pension scheme with Storebrand contributes to growth in P&C insurance and banking products. Sales and advisory services for retail customers who are saving for a pension with Storebrand will be an important area of focus in the future.
Many businesses are choosing to convert old defined benefit schemes to defined contribution schemes, which entails the issuance of paid-up policies that reduce the Group's earnings. Some of the companies choose to continue the defined benefit schemes for older employees, and the discontinuation of these schemes will therefore take place gradually over a longer period of time. Storebrand is in a period of strengthening the longevity reserves for the defined benefit schemes and paid-up policies, and the result will therefore be charged a minimum of 20 per cent of the costs related to reserve strengthening. Storebrand charged the remaining estimated direct equity contribution for reserve strengthening to the results in 2015. The final amount will, among other things, depend on risk results and returns on the customer portfolios. The strengthening of reserves for higher projected life expectancy is described in further detail in the introduction and in Note [x]. The disability and life expectancy trend are key risk to the Group.
Storebrand ASA reported a profit before tax of NOK 333 million in 2015, compared with NOK 351 million in 2014. Group contributions from investments in subsidiaries amounted to NOK 519 million, compared with NOK 490 million in 2014. The operating costs for 2015 are higher than in 2014, and this is attributed to income in 2014 from a change in the pension scheme.
Storebrand has successfully entered Solvency II without raising new equity, and has a strong solvency position of 168 percent, and 124 percent without transitional rules. The solvency margin without transitional rules is expected to increase further in 2016 due to profits, active risk management, and other measures. After several years of Solvency II implementation and reserve strengthening for longevity, it is the opinion of the Board that the company is in a normalized situation. At the same time, falling interest rates and volatile financial markets negatively affect the solvency margin and increase the risk of managing guaranteed reserves. There is approximately NOK 2 billion left of longevity reserve strengthening, to be covered from excess investment return. After an overall assessment, the Board accordingly decided to propose to the Annual General Meeting that no dividend be paid and that the net profit for 2015 be allocated to other equity.
Storebrand’s corporate values are described through its vision and core values. Combined they provide a common direction and goals for Storebrand. The vision describes the enterprise's goals and ambitions. The three core values characterise what Storebrand stands for as a company. Further discussion and clarification of Storebrand’s corporate values may be found on the Group’s website.
Storebrand has its own code of ethics. Guidelines for whistle-blowing, social events, combating corruption, etc. have also been established.
2. BUSINESS (NO DEVIATIONS FROM THE CODE OF PRACTICE) Storebrand ASA is the parent company in a financial group, and its statutory object is to manage its equity interests in Storebrand’s subsidiaries in compliance with the current legislation. Storebrand's main business areas comprise savings, insurance and guaranteed pensions. The full text of the Articles of Association may be found on the Group’s website at www.storebrand.no.
The market is kept informed of Storebrand's goals and strategies through quarterly investor presentations and other specialised presentations. You can read more about the company’s goals and main strategies on page 25.
Storebrand ASA would like to have various tools available for its efforts to maintain an optimal capital structure for Storebrand. At the 2015 Annual General Meeting, the Group's Board of Directors was granted authorisation to increase the share capital through issuing new shares for a total maximum value of NOK 224,954,945. This authorisation may be used for the acquisition of businesses in consideration for new shares or increasing the share capital by other means. The Group's Board of Directors may decide to waive the shareholders’ preferential rights to subscribe for new shares in accordance with the authorisation. The authorisation may be used for one or more new issues. The authorisation is valid until the next Annual General Meeting.
Board shall ensure that an independent third party assesses the value of transactions that are not insubstantial in nature. Furthermore, the rules of procedure for the Board stipulate that no board member may participate in discussions or a decision concerning matters that are of such material importance to them or a close associate that the member must be regarded as having a conspicuous personal or special financial interest in the matter. Each board member has a responsibility to continuously assess whether or not such a situation exists. Transactions with close associates involving Storebrand's employees and other officers of the Group are regulated by Storebrand’s code of ethics. Employees shall on their own initiative immediately report conflicts of interest that may arise to their immediate superior as soon as they become aware of such a situation. In general, an employee is defined as disqualified if circumstances exist that could result in others questioning the person’s impartiality in relation to matters other than Storebrand's interests.
Storebrand’s Articles of Association stipulate that the chairman of the Board of Representatives shall chair the Annual General Meeting. The Chairman of the Board, at least one representative from the Nomination Committee and the external auditor must
attend the Annual General Meeting. The CEO, executive management team and the Group Legal Director participate from the management. General Meeting minutes are available on the Group’s website.
Control Committee At the Annual General Meeting in 2015, it was resolved to disband the Control Committee from the point in time when the new Act on Financial Undertakings and Financial Groups enters into force. The Act entered into force on 1 January 2016, whereupon the Control Committee was disbanded.
The Articles of Association stipulate that the Nomination Committee should work in accordance with the rules of procedure adopted by the General Meeting. The Nomination Committee's rules of procedure were adopted at the 2015 Annual General Meeting. In accordance with the rules of procedure, the Nomination Committee shall, for example, give attention to 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.
An attempt is made to adapt the remuneration of the members of the Nomination Committee to the nature of the tasks and time spent on committee work.
The Nomination Committee held eight meetings in 2015. In the spring of 2015, the Committee nominated candidates for new members of the Board of Representatives, Control Committee, Nomination Committee and boards of the relevant group companies. In the autumn of 2015, the Nomination Committee started work on the elections that are to be held by the General Meeting (and any existing Board of Representatives) in the spring of 2016.
None of the members elected by the Board of Representatives have any employment, professional or consultancy relationship with Storebrand 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 of Directors satisfies the independence requirements set forth in the Code of Practice. There are few instances of disqualification during the consideration of matters by the Board. The Board’s assessment of each board member’s independence is commented on in the overview of governing and controlling bodies on page 62. An overview of the number of shares in Storebrand ASA owned by members of governing bodies as at 31 December 2015 is included in the notes to the financial statements for Storebrand ASA (Information on related parties) on page 138. None of the board members have held office for more than ten years.
Board committees The Board of Directors has established three sub-committees in the form of a Compensation Committee, Audit Committee and Risk Committee. The committees consist of three to four board members, two to three shareholder-elected board members and one-employee elected board member. This helps ensure thorough and independent consideration of matters that concern internal control, financial reporting and the remuneration of executive personnel. The committees are preparatory and advisory working committees and assist the Board with the preparation of items for consideration. Decisions are made, however, by the full Board. The committees are able to hold meetings and consider matters on their own initiative without the involvement of the company’s management.
The Audit Committee assists the Board by reviewing, evaluating and, where necessary, proposing appropriate measures with respect to the Group’s overall controls, financial and operational reporting, risk management /control, and internal and external auditing. The Audit Committee has held seven meetings in 2015, including a joint meeting with the Risk Committee. The external and internal auditors participate in the meetings. The majority of the Committee’s members are independent of the company. The Board of Directors has found that it is appropriate to have a combined Remuneration Committee for all of Storebrand.
Storebrand’s sustainability guidelines summarise how the work is an integral part of Storebrand’s overarching objectives and management and control processes. The guidelines encompass all parts of Storebrand 's business activities, including investing, product development, purchasing, follow-up of employees and internal operations. Storebrand’s sustainability goals are adopted by the Group's Board of Directors, and the sustainability scorecard is followed up by the Group's executive management team semi-annually. Storebrand also complies with the international reporting standard GRI (Global Reporting Initiative, version G4) and uses integrated reporting. The results are audited by Storebrand’s external auditor, see the auditor's report on page 158. For the 17th year in a row, Storebrand qualified for the international Dow Jones Sustainability Index, which includes the top 10 per cent most sustainable companies within all industries on a global basis.
Storebrand's financial and operational goals are defined annually in a board-approved business plan. The business plan builds on separate decisions on risk strategy and investment strategies, and includes three-year financial forecasts, budgets and action plans. The Board of Directors receives ongoing reports on the status of the strategy implementation. Storebrand Compass is the company’s monitoring tool, and it provides comprehensive reports for management and the Board concerning financial and operational targets. In addition, the Board of Directors receives risk reports from the risk management function, which monitors the development of key figures for risk, solidity, etc.
The Board’s Audit Committee conducts a preparatory review of interim financial statements and annual financial statements, focusing in particular on the discretional valuations and estimations that have been made prior to consideration by the Board.
11. REMUNERATION OF THE BOARD OF DIRECTORS (NO DEVIATIONS FROM THE CODE OF PRACTICE) The General Meeting fixes the Board’s remuneration annually on the basis of the recommendations of the Nomination Committee. The fees paid to the members of the Board are not linked to earnings, option schemes or similar arrangements. Members of the Board and Board Committees do not receive incentive-based remuneration; instead they receive a fixed annual compensation, either per year or per meeting the member attends, or a combination of such remuneration. The shareholder-elected members of the Board do not participate in the company’s pension schemes. None of the shareholder-elected members of the Board carry out any duties for the company beyond their appointment to the Board. More detailed information on the compensation, loans and shareholdings may be found in notes 119 (Group) and 147 (ASA). Board members are encouraged to hold shares in the company.
12. REMUNERATION OF EXECUTIVE PERSONNEL (NO DEVIATIONS FROM THE CODE OF PRACTICE) The Board determines the structure of the remuneration of executive personnel at Storebrand, and a statement on the fixing of remuneration (executive remuneration statement) is presented to the General Meeting. The executive remuneration statement shall clearly specify which guidelines
Storebrand shall have an incentive model that supports the Group's strategy, with emphasis on the customer's interests and long-term perspective, an ambitious model of cooperation, as well as transparency that enhances the Storebrand's reputation. Storebrand will therefore largely emphasise fixed salaries as an instrument of financial compensation, and make use of variable remuneration only to a limited extent. The Group’s executive personnel, as defined in detail in the regulatory framework, receive only a fixed salary. The Group's executive management team use a percentage of their fixed salaries to purchase shares in Storebrand with a lock-in period of three years. This is to clarify that the Group's top management act in accordance with the long-term interests of the owners.
The employees' performance is followed up by a special monitoring system. The unit's and individual's action plans are directly linked to the strategy adopted by the Board of Directors. This helps to further strengthen agreement between the owners and the management.
More detailed information about the remuneration of executive personnel may be found in notes 119 (Group) and 147 (ASA) and in the Board's statement on the fixing of salaries and other remuneration to executive personnel, which is included in the notice of the General Meeting and available at www.storebrand.no. Executive personnel are encouraged to hold shares in Storebrand ASA, even beyond the lock-in period.
13. INFORMATION AND COMMUNICATIONS (NO DEVIATIONS FROM THE CODE OF PRACTICE) The Board has issued guidelines for the company’s reporting of financial and other information and for contact with shareholders other than through the General Meeting. Storebrand's reporting with regard to sustainable investments goes beyond the statutory requirements. Storebrand'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 Storebrand’s accounting process. Any documentation that is published will be available on the company's website. All reporting is based on the principle of transparency and takes into account the need for the equal treatment of all participants in the securities markets and the rules concerning good stock exchange practice. Further information may be found on page 22. Storebrand has its own guidelines for handling insider information, see also section 10 – Management and control, above.
15. AUDITOR (NO DEVIATIONS FROM THE CODE OF PRACTICE) The external auditor is elected by the General Meeting and is responsible for the financial auditing. 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 General Meeting as the company’s external auditor. The other companies in Storebrand use the same auditor as Storebrand ASA.
rate governance can be found at www.storebrand. no > About Storebrand > Facts on Storebrand, where we have also published an overview of the members of Storebrand’s governing and controlling bodies, CVs for the members of Storebrand ASA's Board of Directors, the Articles of Association, and ownership policies.
Grefstad has worked for the Storebrand Group since 1994. His Roles have included Group CFO; Head of sales and marketing unit, and Managing Director of Storebrand Livsforsikring AS. Grefstad previously worked as an external auditor for Arthur Andersen.
Skaaret joined the Storebrand Group in the autumn of 2012. She previously held the roles of Managing Director at Lindorff Group AB, Country Manager at Ikano Bank SE, Senior Vice President at DNB, and Financial Services Officer at Bank of America.
Kamark started working in the Storebrand Group in the autumn of 2012. He previously worked for the SAS Group as Chief Commercial Officer, and held other executive positions.
Holmgren has worked for the Storebrand Group since 1997 in executive roles in the area of life and pension insurance. He has long experience with business policy issues through roles at Storebrand and positions on the board of the Norwegian Financial Services Association for the last ten years.
Hansén has worked at the Storebrand Group since 2006, primarily as Investment Director at SPP. He also managed Storebrand Asset Management and Storebrand Bank. He previously worked at Alfred Berg and Svenska Handelsbanken.
He is Chairman of the Boards of Hafslund ASA and BMenu A/S, Board Member of Aschehoug, Kristian Gerhard Jebsens Gruppen, SAS Group AB, Harvard Business Publishing, WeVideo Inc., and the foundations Kristian Gerhard Jebsen and Active Against Cancer.
His previous positions include Special Advisor in Storebrand, Head of Asset Management Department of the Norwegian Ministry of Finance, Director General at the office of the Prime Minister and Head of the Domestic Policy Department and Advisor in McKinsey& Co Chairman of Principles of Responsible Investments (PRI) and Fronteer Solutions AS. Chairman of Kommunalbanken AS, Norfund and BeCuriou Private Travel.
Orgland's previous roles include Director at DnB as well as several leader positions within DnB.
He is Chairman of the Board of the Housing Foundation Youth Housing in Asker, a Board Member of Asker and Bærum Housing Cooperative, member of the Council for Banking, Insurance and Finance Studies (BI) , member of the Professional Council for Financial Education in Europe, Manager of the Project to Coordinate Competence in the Financial Services Industry and deputy on the Asker municipal council.
Lysø is a Board member of Heidenreich Holding AS and Board Chairman of Lyssen AS.
DEPUTY MEMBERS (ELECTED BY SHAREHOLDERS) Per Otto Dyb Joakim Gjersøe Tone M. Reierselmoen
MEMBERS (ELECTED BY SHAREHOLDERS) Laila S. Dahlen Håkon Reistad Fure Gyrid Skalleberg Ingerø Nils Are Karstad Lysø Karin Bing Orgland Martin Skancke
Profit and loss account Statement of total comprehensive income Statement of financial position Statement of changes in equity Cash flow analysis
BUSINESS AND RISK NOTES Note 1 Corporate information and accounting policies Note 2 Important accounting estimates and discretionary judgements Note 3 Strengthening longevity reserves for Storebrand Livsforsikring AS Note 4 Result allocation - guaranteed pension Note 5 Segment reporting Note 6 Risk management and internal control Note 7 Insurance risk Note 8 Financial market risks Note 9 Liquidity risk Note 10 Lending and counterparty risk derivatives Note 11 Credit exposure Note 12 Risk concentration Note 13 Valuation of financial instruments and real estate
PROFIT AND LOSS ACCOUNT NOTES Note 14 Premium income Note 15 Net interest income - banking activities Note 16 Net income analysed by class of financial instrument Note 17 Net income from real estate Note 18 Other income Note 19 Insurance claims Note 20 Changes in insurance liabilities – life insurance Note 21 Change in buffer capital Note 22 Losses from lending Note 23 Operating costs and number of employees Note 24 Pensions costs and pension liabilities Note 25 Remuneration to senior employees and elected officers of the company Note 26 Remuneration paid to auditors Note 27 Other costs Note 28 Tax
Proft and loss account Statement of Financial Position Reconciliation of equity Cash flow ananlysis
Declaration by member of th Board and the CEO Independent auditor's report Statement of The Board of Representatives
Net income from financial assets and real estate for the customers: - equities and other units at fair value 16 7,072 20,735 - bonds and other fixed-income securities at fair value 16 4,426 9,516 - financial derivatives at fair value 16 -5,179 -1,328 - bonds at amortised cost 16 4,083 3,784 - interest income lending 108 171 - profit from investments in associated companies 31 134 25
Profit/loss for the year due to: Share of profit for the period - shareholders 1,178 2,063
Average number of shares as basis for calculation (million) 447.6 447.4
Tax on other result elements not to be classified to profit/loss 49 80
Tax on other result elements that may be classified to profit/loss 2 -1
Financial assets at fair value: - Equities and other units 8,13,32,37 114 109 - Bonds and other fixed-income securities 8,10,13,32,38 29,123 26,699 - Lending to customers 1,215 989
Total comprehensive income for the period 133 1,817 1,950 26 1,976
Equity transactions with owners: Hybrid capital classified as equity3 2 2 226 228
Purchase of minority interests -25 -25 1) 449,909,891 shares with a nominal value of NOK 5.
2) Includes undistributable funds in the risk equalisation fund amounting to NOK 161 million and security reserves amounting NOK 294 million.
3) Storebrand Bank ASA has two hybrid tier 1 capital bonds that were issued in 2013 and 2014 for NOK 150m and NOK 75m, respectively. The instruments are perpetual, but the bank can repay the capital at given times, not before 5 years after issuance at the earliest. The interest rate on the loans is adjustable plus a margin of 3.30% and 3.95%, respectively. The instruments are included in the core (tier 1) capital and are hybrid capital instruments in accordance with Section 3a of the Calculation Regulations. Storebrand Bank ASA has the right to not pay interest to the investors. These hybrid tier 1 capital bonds are included as hybrid capital within the Group’s equity as of the 2nd quarter 2015. Interest after tax is not included in the income statement, but is presented directly in the equity. Accrued interest is included in the hybrid capital.
Receipts - interest, commission and fees from customers 1 101 1 352
Net cash flow from operations before financial assets and banking customers -2 145 -10 461
Net cash flow from financial assets and banking customers -141 18 116
Net receits/payments - sale/purchase of associated companies and joint ventures -257 131
Net receipts/payments - lending to and claims from other financial institutions 396 -1 002
Cash and cash equivalents at start of the period 5 473 4 213
FINANCING ACTIVITIES 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.
Storebrand ASA is a Norwegian public limited company that is listed on the Oslo Stock Exchange. The consolidated financial statements for 2015 were approved by the Board of Directors of Storebrand ASA on 16 February 2016.
The Storebrand Group offers a comprehensive range of insurance and asset management services, as well as securities, banking and investment services, to private individuals, companies, municipalities, and the public sector. The Storebrand Group consists of the business areas Guaranteed Pensions, Savings, Insurance and Other. The Group's head office is located at Professor Kohts vei 9, in Lysaker, Norway.
The asset side of the Group's statement of financial position comprises, for the most part, financial instruments and investment properties.
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 reserves, value adjustment reserve and conditional bonus.
Storebrand ASA's consolidated financial statements are presented using EU-approved International Financial Reporting Standards (IFRS) and related interpretations, as well as other Norwegian disclosure requirements laid down in legislation and regulations.
USE OF ESTIMATES IN PREPARING THE ANNUAL FINANCIAL STATEMENTS The preparation of the annual financial statements in accordance with IFRS requires the management to make judgements, estimates and assumptions that affect assets, liabilities, revenue, expenses, the notes to the financial statements and information on potential liabilities. Actual amounts may differ from these estimates. See Note 2 for further information.
NEW STANDARDS AND CHANGES IN STANDARDS THAT HAVE NOT COME INTO EFFECT IASB has been working for several years on a new accounting standard for insurance contracts, which is often referred to as IFRS 4 Phase II. A possible new standard will probably be ready in 2020, but this is uncertain. It is assumed that the standard will 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 • The cash flows are discounted by an interest rate that reflects the risk of the cash flows • A supplement is added for the risk margin • When entering into a contract, the expected profit is also set aside as a liability. This is recognised as income over the duration of the contract (provided that the contract is not considered to be a loss contract on the issuing date).
IFRS 9 Financial Instruments is another important standard for Storebrand's consolidated financial statements. Among other things, the standard deals with classification of financial instruments (use of fair value and amortised cost) and rules for the measurement and writedown of financial instruments. It can be expected that this standard will enter into force as of 2018, but it is also possible that this standard will not apply to the insurance-dominated group until IFRS 4 Phase 2 enters into force.
No new accounting standards that will have a significant impact on Storebrand's consolidated financial statements are expected to be implemented in 2016.
Investments in associated companies (normally investments of between 20 per cent and 50 per cent of the company's equity) in which the Group exercises significant influence are consolidated in accordance with the equity method. Investments in joint ventures are recognised in accordance with the equity method.
Storebrand consolidates certain funds in the Group’s statement of financial position when the requirement for control pursuant to IFRS 10 has been met. This encompasses funds in which Storebrand has an ownership interest of approximately 40 per cent or more, which are managed by companies in the Storebrand Group. In the Group's accounts, such funds are consolidated fully in the statement of financial position, and the minority ownership interests are shown on a line for assets and on a corresponding line for liabilities. Other investors in the relevant funds are considered to be minority interests, since they can demand redemption of their ownership interests, and the are classified as liabilities in the consolidated financial statements of Storebrand.
portfolios are not eliminated in the consolidated accounts. Pursuant to the life insurance regulations, transactions with customer portfolios are carried out a fair value.
The acquisition method is applied when accounting for acquisition of businesses. The consideration is measured at fair value. The direct acquisition expenses are recognised when they arise, when the exception of expenses related to raising debt or equity (new issues).
PREMIUM INCOME Net premium income includes the year's premiums written (including savings elements), premium reserves transferred and ceded reinsurance. Annual premiums are generally accrued on a straight-line basis over the coverage period. Fees for issuing Norwegian interest guarantees and profit element risk are included in the premium income and are recognised correspondingly as premium income.
INCOME FROM PROPERTIES AND FINANCIAL ASSETS Income from properties and financial assets is described in Sections 10 and 11.
Goodwill is not amortised, instead it is tested for impairment. Goodwill is reviewed for impairment if there are indications that its value has become impaired. The review is conducted at least annually and determines the recoverable amount of goodwill.
Goodwill arising from the acquisition of interests in associated companies is included in investments in associated companies, and tested annually for impairment in the assessment of book value.
11-1. GENERAL POLICIES AND DEFINITIONS Recognition and derecognition Financial assets and liabilities are included in the statement of financial position from such time Storebrand becomes party to the instrument 's contractual terms and conditions. Ordinary purchases and sales of financial instruments are recognised on the transaction date. 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/liability if it is not a financial asset/liability at fair value through profit or loss.
Financial liabilities are derecognised in the statement of financial position when they cease to exist, i.e. once the contractual liability has been fulfilled, cancelled or has expired.
Definition of fair value 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.
If a market for a financial instrument is not active, fair value is determined by using valuation techniques. Such valuation techniques make use of recent arm's length market transactions between independent, unrelated, and well informed parties where available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, and options pricing models. If a valuation technique is in common use by participants in the market and this method has proved to provide reliable estimates of prices actually achieved in market transactions, this method is used.
FINANCIAL ASSETS ARE CLASSIFIED INTO ONE OF THE FOLLOWING CATEGORIES: • Financial assets held for trading • Financial assets at fair value through profit or loss in accordance with the fair value option (FVO) • Financial assets held to maturity • Financial assets, loans and receivables
INVESTMENTS HELD TO MATURITY Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity and that a company has the intention and ability to hold to maturity, with the exclusion of: • assets that are designated in initial recognition as assets at fair value through profit or loss, and • assets that are defined as loans and receivables.
DEFINITION OF A DERIVATIVE A derivative is a financial instrument or other contract within the scope of IAS 39, with all three of the following characteristics: • its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable (sometimes called the 'underlying') • it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors • it is settled at a future date.
ACCOUNTING TREATMENT OF DERIVATIVES THAT ARE NOT HEDGING Derivatives that do not meet the criteria for hedge accounting are recognised as financial instruments held for trading. The fair value of such derivatives is classified as either an asset or a liability with changes in fair value through profit or loss.
HEDGING OF NET INVESTMENTS Hedging of net investments in foreign businesses is recognised in the accounts in the same way as cash flow hedging. Gains and losses on the hedging instrument that relate to the effective part of the hedging are recognised through total comprehensive income, while gains and losses that relate to the ineffective part are recognised immediately in the accounts in the profit and loss account. The total loss or gain in equity is recognised in the profit and loss account when the foreign business is sold or wound up.
COMBINED FAIR VALUE AND CASH FLOW HEDGING Some borrowing in foreign currency is hedged by means of hedging instruments (derivatives). The cash flows in the hedged item coincide with the cash flows of the hedging instruments. Derivatives are recognised at fair value. Hedge accounting is carried out by dividing the hedge into fair value hedging of the interest and a cash flow hedging of the margin. Net changes in the value of the cash flow hedge are recognised in the Statement of Total Comprehensive Income.
Selling costs Selling costs in the Norwegian life insurance business are expensed, whilst in the Swedish subsidiaries selling costs are recorded in the statement of financial position and amortised.
PREMIUM FUND, DEPOSIT RESERVE AND PENSIONERS' SURPLUS FUND The premium fund contains premiums prepaid by policyholders as a result of taxation regulations for individual and group pension insurance and allocated profit shares. Credits and withdrawals are not recognised through the profit and loss account but are taken directly to the statement of financial position.
The pensioners' surplus fund comprises surplus assigned to the premium reserve in respect of pensions in group payments. The fund is applied each year as a single premium payment to secure additional benefits for pensioners.
RISK EQUALISATION RESERVE Up to 50 per cent of the risk result for group pensions and paid-up policies can be allocated to the risk equalisation fund to cover any future negative risk result. The risk equalisation reserve is not considered to be a liability according to IFRS and is included as part of the equity (undistributable equity). See Note 3, for further information on the use of the risk equalisation reserve to strengthen the longevity reserves.
The discount rate used is essentially calculated by the same methods used for calculation of the discount rate under Solvency II: • For terms to maturity up to 10 years, the discount rate is determined based on the quoted swap interest rates, adjusted for both credit risk (credit adjustment) and illiquidity (volatility adjustment). The credit and volatility adjustment is based on the most recently available values that are published by EIOPA. The adjustments used as at 31 December 2015 amount to -10 bp for credit adjustment and 6 bp for volatility adjustments. • For terms to maturity in excess of 20 years, a long-term forward price is determined based on the sum of the long-term assumptions for inflation and real interest rates. The long-term assumptions are based on information from independent Swedish institutions, such as the Swedish central bank Riksbanken and the National Institute of Economic Research. As at 31 December 2015, the long-term inflation and long-term real interest rate assumptions were 2.0 per cent and 2.2 per cent, respectively. • For terms to maturity ranging from 10 to 20 years, interpolated forward interest rates are used to ensure a smooth transition from the most recent liquid market interest rate (at the 10-year point) to the long-term forward interest rate. As at 31 December 2015, the interpolation was carried out by means of the so-called Smith-Wilson model.
RESERVES FOR UNDETERMINED INSURANCE EVENTS The reserves for incurred insurance events consist of reserves for disability pensions, established claims, unestablished claims and claims processing reserves. When assessing the reserves for disability pensions, a risk-free market interest rate is used, which takes into account future index adjustment of the payments. In addition, provisions are made for calculated claims that have been incurred but not reported (IBNR).
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.
Equipment and fittings are measured at acquisition cost less accumulated depreciation and any write-downs.
The write-down 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 measured then separately for each component.
The value of a tangible fixed asset is tested when there are indications that its value has been impaired. Any impairment losses are charged to the income statement as the difference between the carrying value and the recoverable amount. The recoverable amount is the greater of the fair value less costs of sale and the value in use. On each reporting date a determination is made as to whether to reverse previous impairment losses on non-financial assets
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 holding companies, 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.
The statement of cash flows is prepared using the direct method and shows cash flows grouped by sources and use. Cash is defined as cash, receivables from central banks and receivables from credit institutions with no agreed period of notice. The statement of cash flows is classified according to operating, investing and financing activities.
Pursuant to IAS 41, investments in forestry are measures as biological assets. Biological assets are measured at fair value, which is defined based on alternative fair value estimates, or the present value of expected net cash flows. Changes in the value of biological assets are recognised in the profit and loss account. Ownership rights to biological assets are recognised at the point in time when the purchase agreement is signed. Annual income and expenses are calculated for forestry and outlying fields.
Storebrand Group has share-based remuneration for key personnel. Valuation is made on the basis of recognised valuation models adjusted to the characteristics of the actual options. The value determined on the date of the allocation is accrued in the income statement over the option's vesting period with a corresponding increase in equity. The amount is recognised as an expense and is adjusted to reflect the actual number of share options earned. The vesting period is the period of time from when the scheme is established until the options are fully vested.
LIFE INSURANCE IN GENERAL In the consolidated accounts, insurance liabilities with a guaranteed interest rate are included, but using different principles in the Norwegian and the Swedish activities. An immaterial asset (value of business in-force – VIF) linked to the insurance contracts in the Swedish activities is also included. This asset relates to Storebrand's purchase of SPP (acquisition of a business). There are several factors that may have an impact on the size of the insurance liabilities including VIF, such as biometric factors relating to higher life expectancy, future returns and invalidity, as well as the development of future costs and legal aspects, such as amendments to legislation and judgments handed down in court cases, etc. In the long term, a low interest rate will represent a challenge for insurance contracts with a guaranteed interest rate and, together with a reduced customer buffer, may have an impact on the amount recorded that is linked to the insurance contracts. The Norwegian insurance contracts with guaranteed interest rates are discounted at the premium calculation rate (around 3.3 per cent on average). The Swedish insurance liabilities with guaranteed interest rates have been discounted by a yield curve that coincides with the Solvency II yield curve, see Section 12.3 in Note 1 for changes in estimates. In 2015, new cost assumptions and a new yield curve adapted to Solvency II were introduced in the models. This has had an impact of minus NOK 265m on the profit sharing result.
In accordance with the accounting standard IFRS 4 Insurance Contracts, the insurance liabilities that are included shall be adequate and a liability adequacy test shall be performed. The Norwegian insurance liabilities are calculated in accordance with special Norwegian rules, including the Insurance Activity Act and regulations. For the Norwegian life insurance liabilities a test is performed at an general overall level by conducting an analysis based on the Norwegian premium reserve principles. The established analysis is based on the assumptions that apply correspondingly to the calculation of embedded value, in which the company uses the best estimates for the future basic elements based on the current experience. The test entails then that the company analyses the current margins between the assumptions used as a basis for reserves and the assumptions in the Embedded Value analysis. This test was also performed for the introduction of IFRS.
In Storebrand's life insurance activities, a change in the estimates related to technical 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. This will apply in particular to the guaranteed Norwegian obligations that are being built up to meet increased life expectancy in the future. Read more about this in Note 3.
In the Norwegian life insurance activities, a significant share of the insurance contracts have annual interest rate guarantees. 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 market value adjustment reserve and additional statutory reserves, so that the effect on the owner's result may be limited. Correspondingly, increases in values could, to a large extent, increase the size of such funds.
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. However, a change in the estimates related to risk cover (disability and death) will affect the owner's result.
INVESTMENT PROPERTIES Investment properties are measured at fair value The commercial real estate market in Norway is not particularly liquid, nor is it transparent. Uncertainty will be linked to the valuations, and they require exercise of professional judgement, especially in periods with turbulent finance markets.
Key elements included in valuations that require exercising judgement are: • Market rent and vacancy trends • Quality and duration of rental income • Owners' costs • Technical standard and any need for upgrading • Discount rates for both certain and uncertain cash flows, as well as residual value
FINANCIAL INSTRUMENTS AT AMORTISED COST Financial instruments valued at amortised cost are measured on the reporting date to see whether there is any objective evidence that a financial asset or group of financial assets is impaired.
A certain degree of judgement must be used in assessing whether impairment has occurred and the amount of the impairment loss. Uncertainty grows when there is turmoil in financial markets. The assessments include credit, market and liquidity risk. Changes in assumptions for these factors will affect an assessment of whether impairment is indicated. There will thus be uncertainty concerning the recognised amounts of individual and group write-downs. This will apply to provisions relating to loans in the private and the corporate markets and to bonds that are measured at amortised cost.
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 to customer portfolios in life insurance companies. Calculation of deferred tax assets, deferred tax liabilities and the income tax expense is based on the interpretation of rules and estimates. Actual figures may differ from estimates.
CONTINGENT LIABILITIES The companies in the Storebrand Group operate an extensive business in Norway and abroad, and may become a party to litigations. Contingent liabilities are measured in each case and will be based on legal considerations.
In general, approval has been granted to use up to seven years to complete the strengthening of reserves through the application of profit and direct equity contributions. The maximum reserve strengthening period is from 1 January 2014 to 1 January 2021. For contracts that are or will be fully reserved during the escalation period, the remaining equity contributions must be paid within three years and not later than 1 January 2021. For contracts that have been transferred to a new provider of public sector occupational pension schemes with termination of risk from the end of 2013, Storebrand has provided the remaining equity contribution to the contract immediately. The risk result will be used in its entirety for strengthening the longevity reserves for contracts that are not fully reserved.
Of the financial and risk profit for group pensions for the year, NOK 1,954m has been used to strengthen the longevity reserves for group pensions.
• Public sector defined benefit pensions: Setting aside provisions for the estimated future direct use of equity was completed in the 2nd quarter and totalled NOK 50 million for the full year. • Private sector defined benefit pensions: Provisions set aside for the estimated future direct use of equity during the reserve strengthening period totalled NOK 780 million for the full year. • Paid-up policies: Provisions set aside for the estimated future direct use of equity and charges to the risk equalisation reserve during the reserve strengthening period totalled NOK 934 million for the year, NOK 776 million of which was from the risk equalisation reserve and NOK 158 million of which was from other equity.
The table below shows total use of the risk equalisation reserve and equity contributions (both directly and through lost profit sharing) as at 31 December 2015.
Indirect contribution from equity (lost profit sharing paid-up policies) 776 776
• Direct equity contributions: Charged to equity (20 per cent share of the escalation plan). • Indirect equity contributions: Share of the financial profit for paid-up policies (20 per cent share of the escalation plan) that could have been transferred to the owner and is included as part of the reserve. • Direct contributions from the risk equalisation reserve: Reduction of the risk equalisation reserve (undistributable equity) that is part of the reserve. • Indirect contributions from the risk equalisation reserve: Share of the risk surplus from contracts with inadequate reserves that would have normally been transferred to the risk equalisation reserve.
SENSITIVITY In the estimate for the direct use of equity, an average booked return of 4.5 per cent has been assumed. It is expected that the remaining use of equity will be covered through the lost profit sharing from paid-up policies. A higher booked return will to a limited extent reduce the expected direct use of equity, since the largest portion is required to use equity. The lower booked return will at the same time lead to an increased direct use of equity. A 0.5 percentage point reduction in the annual expected booked return will increase the direct use of equity by approximately NOK 400 million. The probability of the direct use of equity exceeding NOK 400 million is estimated at approximately 25 per cent.
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, the size of the buffer capital (additional statutory reserves and unrealised gains), and the investment risk of the portfolio in which the pensions assets are invested determine the price that the customer pays for his or her return guarantee. Return guarantees are priced on the basis of the risk to which the equity is exposed. The insurance company bears all the downside risk and must carry reserves against the policy if the buffer reserves are insufficient or unavailable.
STOREBRAND LIFE INSURANCE The administration result line includes all products apart from traditional individual products with profit sharing.
SPP PENSION & INSURANCE The administration result for all insurance products is paid to or charged to the result allocated to owners.
STOREBRAND LIFE INSURANCE In the case of group defined benefit pensions and paid-up policies, any positive risk¬ result passes to the customers, while any deficit in the risk result must, in principle, be covered by the insurance company. However, up to half of any risk profit on a particular line of insurance may be retained in a risk equalisation fund. A deficit due to risk elements can be covered by the risk equalisation fund. The risk equalisation fund can, as a maximum, amount to 150 per cent of the total annual risk premium. The risk equalisation fund is classified as equity in the balance sheet. After the introduction of the new mortality tariff in 2013 (K2013), the need for increased reserves was identified, some of which can be covered by the risk equalisation fund, see Note 3.
The risk result is paid to the owners in its entirety for all insurance products.
CHANGES IN SEGMENTS Storebrand has made minor changes related to segment reporting in 2015. Figures for previous periods have been reworked, see the table with reworked comparative figures at the bottom of the note.
SAVINGS Consists of products that include long-term saving for retirement with no interest rate guarantees. The area includes defined contribution pensions in Norway and Sweden, asset management and bank products for private individuals.
INSURANCE Insurance has responsibility for the Group's risk products in Norway and Sweden. The unit provides treatment insurance in the Norwegian and Swedish corporate and retail markets, P&C insurance and personal risk products in the Norwegian and Swedish retail markets and employee-related and pension-related insurance in the Norwegian and Swedish corporate markets.
Group pre-tax profit -438 2,601 1) Amortization of intangible assets are included in Storebrand Group
In 2015 a total of NOK 776 million has been used from the risk equalisation reserve for the strengthening of longevity reserves. A
The Storebrand Group are represented in the following countries: NOK million Norway Sweden Lithuania Ireland Guernsey
Buffer capital in % of customer reserves Storebrand Life Group1 5.8% 6.6%
Continuous monitoring and active risk management are therefore core areas of the Group's activities and organisation. The basis for risk management is laid down in the Board's annual review of the strategy and planning process, which sets the risk appetite, risk targets and overriding risk limits for the operations. In Storebrand Group, responsibility for risk management and internal control is an integral part of management responsibility.
Officer), for compliance with the regulations (Compliance Function), for ensuring the insurance liabilities are calculated correctly (Actuary Function) and for the bank's lending. The functions have been established for both the Storebrand Group (the Group) and all of the companies requiring a licence. The independent control functions are organised directly under the companies' managing director and report to the respective company's board.
The internal audit function is organised directly under the Board and shall provide the boards of the relevant consolidated companies with confirmation concerning the appropriateness and effectiveness of the company's risk management, including how well the various lines of defence are working.
The insurance risk in Norway is largely standardised between the contracts in the same industry as a result of detailed regulation from the authorities. In Sweden, the framework conditions for insurance contracts entail major differences between the contracts within the same industry.
The risk of long life expectancy is the greatest insurance risk in the Group. Other risks include the risk of disability and risk of mortality.
The life insurance risks are: 1. Long life expectancy – The risk of erroneously estimating life expectancy and future pension payments. Historical developments have shown that an increasing number of people attain retirement age and live longer as pensioners than was previously the case. There is a great deal of uncertainty surrounding future mortality development. In the event of longer life expectancy beyond that assumed in the premium tariffs, the owner could risk higher charges on the owner's result in order to cover necessary statutory provisions.
In the Guaranteed Pensions segment, the Group has a significant insurance risk relating to long life expectancy for group and individual insurance agreements. In addition, there is an insurance risk associated with disability and pensions left to spouses and/or children. The disability coverage in Guaranteed Pensions is primarily sold together with a retirement pension. The risk of mortality is low in Guaranteed Pensions when viewed in relation to other risks. In SPP it is possible to change the future premiums, reducing the risk significantly.
In Norway it is also possible to change the future premiums of group policies, but only for new accumulation, entailing reduced risk.
In the Insurance segment, the Group has an insurance risk associated with disability and death. In addition, there are insurance risks associated with occupational injury, critical illness, cancer insurance, child insurance, accident insurance and health insurance. For occupational injury, the risk is first and foremost potential errors in the assessment of the level of provisions, because the number of claim years can be up to 25 years. The risk within critical illness, cancer, accident and health insurance is considered to be limited 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.
Guaranteed pensions 3. Group defined-benefit pensions are guaranteed pension benefits as a percentage of the final salary from a specified age for as long as the insured person lives. Alternatively, it can be agreed that the pension will end at a specified age. The product is offered within the private sector. Cover options that can be chosen include retirement, disability (including premium/contribution waivers) and survivor pensions. Paid-up policies (Sweden only) remain in the group contract.
INDIVIDUAL CONTRACTS Savings 1. Individual unit-linked insurance is endowment insurance or allocated annuity in which the customer bears the financial risk. Related cover can be linked in the event of death.
RISK PREMIUMS AND TARIFFS Guaranteed pensions There was a need to strengthen 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.
A new mortality tariff for group insurance (K2013) was developed in 2014. The tariff is based on three elements: Initial mortality, safety margin and future increase in life expectancy. Initial mortality is determined on the basis of actual mortality in the insurance portfolio in the period 2005–2009. The safety margin will take into account the difference in mortality based on income, random variation in mortality and the company's margins. The future increase in life expectancy entails that the projected life expectancy is also dependent on the year of birth. Today's 50-year-olds are not expected to live as long as 50-year-olds in 20 years' time. This factor is referred to as dynamic improvement in life expectancy. K2013 is thus a dynamic tariff.
For P&C insurance (occupational injury, property and motor vehicle) the tariffs are based on the company's own experiences.
When writing individual risk cover, the customer is subject to a health check. The result of the health check is reflected in the level of premium quoted. When arranging group policies with risk cover, all employees of small companies are subject to a health check, while for companies with many employees a declaration of fitness for work is required. Underwriting also takes into account the company's industrial category, sector and sickness record.
Risk result The table below specifies the risk result for the largest entities in the Group and also states the effect of reinsurance and pooling on the result.
Market risk means changes in the value of assets as a result of unexpected volatility or changes in prices on the financial markets.
It also refers to the risk that the value of the insurance liability develops differently to that of the assets.
For the life insurance companies, the financial assets are invested in a variety of sub-portfolios. Market risk affects Storebrand's income and profit differently in the different portfolios. There are three main types of sub-portfolio: company portfolios, customer portfolios without a guarantee (unit linked insurance) and customer portfolios with a guarantee.
The market risk in customer portfolios without a guarantee is at the customers' risk and expense, meaning Storebrand is not directly affected by changes in value. Nevertheless, changes in value do affect Storebrand's profit indirectly. Income is based largely on the size
The composition of the financial assets within each sub-portfolio is determined by the company's investment strategy. The investment strategy also establishes guidelines and limits for the company's risk management, credit exposure, counterparty exposure, currency risk, use of derivatives, and requirements regarding liquidity.
The table above shows the currency positions as at 31 December 2015. Currency exposure is associated primarily with the life insurance business.
STOREBRAND LIFE INSURANCE The annual guaranteed return to the customers follows the basic interest rate. In 2015, new premiums were taken in with a basic interest rate of 2.0, and pensions were adjusted upwards with a basic interest rate of 0.5 per cent.
The percentage distribution of the insurance reserves by the various basic annual interest rates as at 31 December is as follows: INTEREST RATE
There is no interest rate guarantee for premium funds, defined-contribution funds, pensioners' surplus funds and additional statutory reserves.
The interest rate guarantee must be fulfilled on an annual basis. If the company's investment return in any given year is lower than the guaranteed interest rate, the equivalent of up to one year's guaranteed return for the individual policy can be covered by transfers from the policy's additional statutory reserves.
A new mortality tariff (K2013) has been introduced for group pensions and paid-up policies from 2014. For the existing reserves, the
Financial Supervisory Authority of Norway has approved a seven-year escalation plan, and customer returns exceeding the guarantee can contribute to reserve strengthening. During the escalation period, it gives an increase in risk that may be compared with increasing the interest rate guarantee. At least 20 per cent of the individual customer's building up of reserves must be covered by Storebrand.
To achieve adequate returns, it is necessary to take an investment risk. This is primarily done by investing in shares, property and corporate 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.
SPP PENSION & INSURANCE The guaranteed interest rate is determined by the insurance company and is used when calculating the premium and the guaranteed benefit. The guaranteed interest rate does not entail that there is an annual minimum guarantee for the return as is the case in Norway.
SPP bears the risk of achieving a return equal to the guaranteed interest on the policyholders' assets over time and that the level of the contracts' assets is greater than the present value of the insurance liabilities. For individual defined contribution pensions (IF), SPP
In the Swedish operations management of interest rate risk is based on the principle that the interest rate risk from assets shall correspond to the interest rate risk from the insurance liabilities.
The stresses have been applied to the company portfolio and guaranteed customer portfolios as at 31 December 2015. Unit linked insurance without a guaranteed annual return is not included in the analysis. For these products, the customers bear the market risk and the effect of a falling market will not directly affect the buffer capital or result.
The amount of stress is the same that is used for Risk-Based Supervision (RBS), the official reporting tool of the Financial Supervisory
Authority of Norway. The stresses include a 20 per cent fall in shares, 12 per cent fall in property, 12 per cent appreciation in currency and a fall in corporate bonds based on the ratings and duration. For interest rates, the stresses include both an increase and fall of 150 basis points, where the most negative is used.
OTHER OPERATIONS The other companies in the Storebrand Life Insurance Group are not included in the sensitivity analysis, as there is little market risk in these areas. The equity of these companies is invested with little or no allocation to high-risk assets, and the products do not entail a direct risk for the company as a result of price fluctuations in the capital market.
Liquidity risk is one of the most important risk factors for the banking business, and the regulations stipulate requirements for liquidity management and liquidity indicators. The guidelines for liquidity risk specify the principles for liquidity management, minimum liquidity reserves and financing indicators for measuring liquidity risk. In addition to this, an annual funding strategy and funding plan are being drawn up that set out the overall limits for the bank's funding activities.
In addition to clear strategies and the risk management of liquidity reserves in each subsidiary, the Group's holding company has established a liquidity buffer. The development of the liquid holdings is continuously monitored at the Group level in relation to internal limits.
NOK million months months years years > 5 years Total value Book value
Lending commitments 1,981 1,981 1) Liabilities for which repayment may be demanded immediately are included in the 0-6 month column.
2) In the case of perpetual subordinated loans the cash flow is calculated through to the first call date.
In accordance with the loan programme in Storebrand Boligkreditt AS, the company's overcollateralisation requirement is satisfied at 109.5 per cent.
Other service providers 697 2 698 - Individual write-downs -63 -63
Total lending to and receivables from customers 2014 33,147 90 3,844 37,081 77 76 33 120
LENDING As a result of group priorities regarding use of capital at Storebrand and a strategic assessment of the future direction of the Group, the Corporate Market segment at the bank is no longer prioritised as a core activity, and will be run down and eventually wound up.
The weighted average loan-to-value ratio for retail market loans is approximately 58 per cent on home loans. Over 84 per cent of home loans have a loan to value ratio within 80 per cent and approximately 97 per cent are within a 90 per cent loan to value ratio. About 49 per cent of the home loans are within a 60 per cent LVR. The portfolio is regarded as having a low to moderate credit risk in accordance with the bank's risk appetite.
The maximum limits for credit exposure to individual counterparties and for overall credit exposure to rating categories are set by the boards of the individual companies in the Group. Particular attention is paid to ensuring diversification of credit exposure in order to avoid concentrating credit exposure on any particular debtors or sectors. Changes in the credit standing of debtors are monitored and followed up. Thus far, the Group has used published credit ratings wherever possible, supplemented by the company's own credit evaluation.
BONDS AND OTHER FIXED-INCOME SECURITIES AT FAIR VALUE Category by issuer or guarantor
Government and government guaranteed bonds 40,945 13,611 346 478 118 55,497
Mortgage and asset backed securities 26,119 2,713 945 498 2,993 33,267
Of which derivatives in bond funds, managed by Storebrand 102 7 109
Of which bank deposits in bond funds, managed by Storebrand 495 495
Total bank deposits excluding bank deposits in bond funds 2015 189 4,750 2,222 1 40 58 7,259
Total bank deposits excluding bank deposits in bond funds 2014 181 4,870 3,523 40 56 8,671
Most of the risk for the Storebrand Group relates to the guaranteed pension products in the life insurance companies. These risks are consolidated in the Storebrand Life Insurance Group, which includes the Storebrand Livsforsikring AS, SPP Livförsäkring AB and the business in Ireland and Guernsey (BenCo). Other companies directly owned by Storebrand ASA that are exposed to significant risks are Storebrand Forsikring AS, Storebrand Helseforsikring AS, Storebrand Asset Management AS and Storebrand Bank ASA.
In the life insurance businesses, most of the risk is taken on behalf of the customers. The total risk must therefore be viewed in connection with the extent to which a negative outcome affects the owner. For other companies, the entire risk will affect the owner.
institutions and liabilities established by the issuing of securities is based on valuation techniques. The valuation techniques use yield curves and credit spreads from external suppliers, with, however, the exception of loans which are valued using spreads for equivalent new loans.
Loans to and due from financial institutions 123 123 207 123 207
Bonds classified as loans and receivables 85,540 85,540 77,727 76,888 67,019
The Group carries out continual checks to safeguard the quality of market data that has been collected from external sources. These types of checks will generally involve comparing multiple sources as well as controlling and assessing the likelihood of unusual changes.
LEVEL 2: FINANCIAL INSTRUMENTS VALUED ON THE BASIS OF OBSERVABLE MARKET INFORMATION NOT COVERED BY LEVEL 1 This category encompasses financial instruments that are valued on the basis of market information that can be directly observable or indirectly observable. Market information that is indirectly observable means that the prices can be derived from observable related 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, as well as 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.
Fund units Of the fund units, its is primarily private equity investments and property funds that represent the majority at level 3. Moreover, there are also some other types of funds, such as infrastructure funds and microfinance funds here. The majority of Storebrand’s private equity investments are investments in private equity funds. These fund investments are valued based on the value reported by the funds. Most of the funds report on a quarterly basis, while a few report less often. For investments where Storebrand has not received an updated valuation by the time the annual financial statements are closed, the last valuation received will be used and adjusted for cash flows and any market effects during the period from the last valuation up to the reporting date. The market effect is estimated on the basis of the type of valuations made of the companies in the underlying funds; the financial performance of relevant indexes, adjusted for the estimated beta between the relevant company and the relevant index.
Financial and corporate bonds Among the bonds at level 3, we find microfinance investments structured as loans. They are measured at amortised cost. In addition, we also find a few private equity investments organised as loans here, and they are valued correspondingly as private equity and described otherwise under fund units. There is also a bond issued by Amagerbanken that is in default, and it is assumed that this will be paid out as communicated by Norsk Tillitsmann.
An individual required rate of return is determined for each property. The required rate of return is viewed in connection with the related cash flow for the property. The knowledge available about the market's required rate of return, including transactions and appraisals, is used when determining the cash flow.
External appraisals: A methodical approach is taken to a selection of properties that are to be appraised each quarter so that all properties are appraised at least every three years. In 2015, appraisals were obtained for all the properties in Storebrand's property portfolio in Norway.
In SPP, appraisals are obtained for all of the wholly owned property investments.
Bonds and other fixed-income securities - Government and government guaranteed bonds 27,897 23,221 51,117 56,213 - Mortage and asset backed securities 48,000 48,000 45,194
Total bonds and other fixed-income securities 2014 36,435 147,501 339 184,275
Derivatives: - of which derivatives with a positive market value 4,703 4,703 6,457 - of which derivatives with a negative market value -3,351 -3,351 -4,826
Movements from level 1 to level 2 reflect reduced sales value in the relevant equities and bonds in the last measuring period. On the other hand, movements from level 2 to level 1 indicate increased sales value in the relevant equities and bonds in the last measuring period.
Net gains/losses on financial instruments 197 1,515 80 -7 41 1,583 183
EQUITIES It is primarily investments in forests that are classified under equity at level 3. 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. Nonetheless, valuations of forestry investments will be particularly sensitive to the discount rate used in the estimate. The company bases its valuation on external valuations. These utilise an estimated market-related required rate of return. As a reasonable alternative assumption with regard to the required rate of return used, a change in the discount rate of 0.25 per cent would result in an estimated change of around 4.27 per cent in value, depending on the maturity of the forest and other factors.
REAL ESTATE FUND 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 58 per cent on average.
CREDIT BONDS Level 3 financial and corporate bonds include microfinance funds, private equity debt funds and convertible bonds. They are not priced by a discount rate as bonds normally are, and therefore these investments are included in the same sensitivity test as private equity.
Of which premium reserve transferred to company 1,835 2,434 1) Individual life and disability, property and caualty insurance 2) Group life, workers comp. And health insurance
Total net interest income Bank 377 462 1) Interest costs for other companies are included in the line "Interest expenses" in the Profit and Loss
Note 16 - Net income analysed by class of financial instrument
Profit on equities and units 538 7,657 -1,118 7,076 5 7,072 20,751
Profit on bonds and other fixed-income securities at fair value 2,673 4,051 -2,291 4,433 7 4,426 10,290
Total gains and losses on financial assets at fair value 3,884 8,116 -5,542 6,458 139 6,319 29,505 - of which FVO (fair value option) 3,181 11,687 -3,385 11,483 -14 11,497 31,056
Net income lendings and accounts receivable 3,194 292 3,486 89 3,397 3,196
Allocation by company and customers: Total income from real estate 2,701 1,674 3) In one of the property companies in the Norwegian business there is a minority interest of less than 10 per cent, and the majority interest is included in the customer portfolio of the Norwegian life insurance company.
The minority interest is included in the Group’s income statement, statement of financial position and equity, and this minority interest's share of the profit is attributed to a gain related to investment properties.
Of which premium reserve transferred to company -6,698 -17,176 1) Individual life and disability, property and caualty insurance 2) Group life, workers comp. And health insurance
The overview shows the development in the estimate for occurred insurance claims over time and the remaining claims reserve.
Other changes in premium reserves customer funds with guaranteed return1 6,564 1,417 1,882 83 9,946 6,560
Realised losses on loans where provisions have previously been made -138
Realised losses on loans where no provisions have previously been made -16 -1
Write-downs/income recognition for lending and guarantees for the period -58 -74 1) Losses from lendings related to the customer portfolio are included in the line Net interest income lending -13
All members of the pension schemes have associated survivor's and disability cover that is accounted for as a defined benefit pension scheme. There are also defined benefit liabilities in the statement of financial position related to direct pensions for certain former employees and former board members
Employees and former employees who had had a salary in excess of 12G (G = National Insurance Scheme basic amount) until 31 December 2014 were offered a cash redemption option for their accrued rights with payment at the start of 2015. For employees who were a part of the executive management team, these payments were distributed over 5 years.
BTP. The amount is 10 per cent of the annual salary up to 7.5 times the basic income amount, which was SEK 58 100 in 2015 and will be SEK 59 300 in 2016, 65 per cent of the annual salary in the interval from 7.5 to 20, and 32.5 per cent in the interval from 20 to 30. No retirement pension is paid for the portion of salary in excess of 30 times the "basic income amount". Full pension entitlement is reached after 30 years of membership in the pension scheme. In addition to the defined-benefit part, the BTP plan has a smaller defined-contribution component. Here the employees can decide themselves how assets are to be invested (traditional insurance or unit-linked insurance). The defined-contribution part is 2 per cent of the annual salary. The retirement age for SPP's CEO is 62 years. The CEO is also covered by a defined-contribution pension plan, whereby the company pays 35 per cent of the CEO's fixed salary in pension premiums. In addition, he has a predefined pension plan with a lifelong pension of 16.25 per cent of the fixed salary in the interval from 30 to 50 times the "basic income amount". The retirement pension from age 62 to 65 amounts to 65 per cent of the fixed salary, limited to a maximum of SEK 4,045,000. The pension terms comply otherwise with the pension agreement between BAO and the Union of Financial Sector Employees or SACO, respectively (BTP plan). The company secures its pension liabilities through the payment of insurance premiums during the employment period.
The pension for the employees of Nordben Life and Pension Insurance Company LTD and Euroben Life and Pension LTD is covered by a defined-contribution scheme. In addition, the employees of Nordben are covered by a lump sum upon death during their period of service.
Net pension liabilities recognised in statement of financial position 465 555
Actuarial loss (gain) - change in other financial assumptions -8 -139
The average employee turnover rate is 2–3 per cent for the entire workforce as a whole, and falling turnover with increasing age is assumed. The actuarial assumptions in Sweden follow the industry's mutual mortality table DUS14 adjusted for corporate differences. The average employee turnover rate is estimated to be 4 per cent p.a.
SENSITIVITY ANALYSIS PENSION CALCULATIONS 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. A reduction of the discount rate will in isolation entail an increase in pension liabilities. For the Norwegian companies that have converted to defined contribution pensions as of 1 January 2015, the sensitivity has not been calculated, and the figures below illustrate the sensitivity for the Swedish companies.
Note 25 - Remuneration to senior employees and elected officers of the company
Tone Margrethe Reierselmoen 244 1,734 317 1) The summary shows the number of shares owned by the individual, as well as his or her close family and companies where the individual exercises significant influence, cf. the Accounting Act, Section 7-26.
2) The Control Committee covers all the Norwegian companies in the Group which are required to have a control committee.
The Board of Directors of Storebrand ASA has had a dedicated Compensation Committee since 2000. The Compensation Committee is tasked with making a recommendation to the Board of Directors concerning all matters regarding the company’s remuneration of its Chief Executive Officer. The Committee is responsible for keeping itself informed and proposing guidelines for the fixing of remuneration to executive personnel in the Group. The Committee is also an advisory body to the CEO with respect to remuneration regimes that cover all employees in the Storebrand Group, including Storebrand’s bonus system and pension scheme. The Compensation Committee satisfies the follow-up requirements set forth in the remuneration schemes.
The salaries of executive personnel are determined based on the position's responsibilities and level of complexity. Regular comparisons are made with corresponding positions in the market in order to adjust the pay level to the market. Storebrand does not wish to be a pay leader in relation to the industry.
For the Group's executive management team, the estimated cash value of the pension rights for salaries in excess of 12G that had already been earned prior to the change will be paid out over a period of five years. The payment period is fixed regardless of whether the employee leaves the company before the end of this period.
Severance pay The Chief Executive Officer and executive vice presidents are entitled to severance pay if their contracts are terminated by the Company. Entitlement to a severance package is also available if the employee decides to leave the company due to substantial changes in the organisation, or equivalent circumstances, which result in the individual being unable to naturally continue in his position. If the employment is brought to an end due to a gross breach of duty or other material non-performance of the employment contract, the provisions in this section do not apply.
Deductions are made to the severance package for all work-related income, including fees from the provision of services, offices held, etc. The severance package corresponds to the pensionable salary at the end of 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 EXECUTIVE EMPLOYEE REMUNERATION POLICY DURING THE PREVIOUS FINANCIAL YEAR The executive employee remuneration policy established for 2015 has been observed. The annual independent assessment of the guidelines and the practising of these guidelines in connection with bonuses to be paid in 2016 will be carried out during the first half of 2016.
4. STATEMENT ON THE EFFECTS OF SHARE-BASED REMUNERATION AGREEMENTS ON THE COMPANY AND THE SHAREHOLDERS A proportion of the executive management's fixed salary will be linked to the purchase of physical STB shares with a lock-in period of three years. The purchase of shares will take place once a year.
In the opinion of the Board of Directors, this has a positive effect on the company and the shareholders, given the structure of the scheme and the size of each executive vice president's portfolio of shares in Storebrand ASA.
Tax-free group contribution 12 recognition/write-down of tax assets 152 13 change in tax rate -73
The effective tax rate is also affected by the fact that the Group has operations in countries with tax rates that are different from Norway (27 per cent).
Deferred tax 200 1,228 1) 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 holding companies, which in turn is owned by
Note 29 - Intangible assets and excess value on purchased insurance contracts
Currency differences on converting foreign units -1 -542 -57 -600 -91
In calculating the utility value, the management have made use of budgets and forecasts approved by the Board for the next three years (2016 to 2018). The management has made assessments for the period from 2019 to 2024, and the annual growth for each element in the income statement has been estimated. The primary drivers of improved long-term results will be the return on total assets, underlying inflation and wage growth in the market (which drive premium growth). The utility value is calculated using a required rate of return after tax of 7.1 per cent. The required rate of return is calculated based on the risk-free interest rate and added to a premium that reflects the risk of the business..
There will be uncertainty related to the assumptions that have been made in the valuation. The value will be affected by the assumptions for the interest rate margin, expected losses on lending, growth parameters and capital requirements, as well as what required rate of return is assumed, etc. It is pointed out that the aim of the calculations is to ensure adequate reliability that the utility value, cf. IAS 36, is not lower than the recognised value in the accounts. Simulation with reasonable, as well as conservative, assumptions indicates a value for the investment that justifies the book value.
NOK million Useful economic life Depr. rate Depr. method Book value 2015
IFRS 10 establishes a model for evaluating control that will apply to all companies, and the content of the control concept has changed in IFRS 10 in relation to IAS 27 and will entail an increased degree of assessment of units that are controlled by the company. Control exists when the investor has power over the investment object and possesses the right to variable yields from the investment object and simultaneously possesses the power and possibility to steer activities in the investment object that affect the yield. In the Group's financial statements, securities funds in which Storebrand has an ownership percentage of around 40 per cent or more, and which are also managed by management companies within the Storebrand Group, are consolidated 100 per cent on the balance sheet. Minority ownership interests in consolidated securities funds are shown on one line for assets and correspondingly on one line for liabilities. In consequence of other investors in the funds being able to request redemption of their ownership interests from the respective funds, such are deemed to be minority interests that are classified as liabilities in Storebrand's consolidated financial statements.
3) The average duration of the leases has been calculated proportionately based on the value of the individulal properties.
4) Storebrand Eiendomsfond Norge KS is derecognized with NOK 4 927 million i 2015
Allocation by company and customers: Accounts receivable and other short-term receivables - company 2,999 1,522
NOMINAL VOLUME Financial derivatives are related to underlying amounts which are not recognised in the statement of financial position. In order to quantify the scope of the derivatives, reference is made to amounts described as the underlying nominal principal, nominal volume, etc. Nominal volume is arrived at differently for different classes of derivatives, and provides some indication of the size of the position and risk the derivative presents.
Gross nominal volume principally indicates the size of the exposure, whilst net nominal volume provides some indication of the risk exposure. However , nominal volume is not a measure which necessarily provides a comparison of the risk represented by different types of derivatives. Unlike gross nominal volume, the calculation of net nominal volume also takes into account which direction of market risk exposure the instrument represents by differentiating between long (asset) positions and short (liability) positions.
The excess value of bonds at amortised cost is not included in the financial statements.
CURRENCY HEDGING OF NET INVESTMENT IN SPP In 2015, Storebrand utilised cash flow hedging for the currency risk linked to Storebrand’s net investment in SPP. 3 month rolling currency derivatives were used in which the spot element in these is used as the hedging instrument. The effective share of hedging instruments is recognised in total profit. The net investment in SPP is partly hedged and therefore the expectation is that future hedge effectiveness will be around 100 per cent.
Book value of bonds pledged as collateral for the bank's lending from Norges Bank 651 651
Guarantees principally concern payment guarantees and contract guarantees. Guarantees principally concern payment guarantees and contract guarantees.
Transferred bonds that are included in buyback agreements (repos) are not derecognised, since all the risk and return on the securities is retained by Storebrand Bank ASA.
Overall requirements for core capital and primary capital for companies covered by CRD IV are 11 and 14.5 percent respectively as of 30 June 2015 through the introductin of countercyclical capital buffer by 1 percent. Insurance companies in the Group are included in the capital adequacy with a capital requirement under the Basel I regulations.
Net income and gains from financial instruments: - bonds and other fixed-income securities 3 33 45 - financial derivatives/other financial instruments 3 -4 6
Lysaker, 16 February 2016 Board of Directors of Storebrand ASA Translation - not to be signed
Employee share2 -12 -12 1) 449 909 891 shares with a nominal value of NOK 5.
2) In 2015, 348 071 shares were sold to our own employees. Holding of own shares 31. December 2015 was 2 062 721.
Cash and cash equivalents at start of the period 82 37
USE OF ESTIMATES AND DISCRETIONARY ASSUMPTIONS In preparing the annual financial statements, Storebrand has made assumptions and used estimates that affect the reported value of assets, liabilities, revenues, costs, as well as the information provided on contingent liabilities. Future events may cause these estimates to change. Such changes will be recognised in the financial statements when there is a sufficient basis for using new estimates. The most important estimates and assessments are related to the valuation of the company's subsidiaries and the assumptions used for pension calculations.
PROFIT AND LOSS ACCOUNT AND STATEMENT OF FINANCIAL POSITION 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 custom layout plan has been used.
PENSION LIABILITIES FOR COMPANY'S OWN EMPLOYEES 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 National Insurance benefits, future returns on pension plan assets as well as actuarial estimates of mortality, disability and voluntary early leavers.
Bonds and other fixed income securities Bonds and other fixed income securities are included i the statement of financial position from such time the company becomes party to the instrument's contractual terms and conditions. Ordinary purchases and sales of financial instruments are recognised on the transaction date. 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/liability.
Note 3 - Net income for various classes of financial instruments
Net income and gains from financial assets at fair value 51 -6 -15 29 52
Net pension liabilities in the statement of financial position 157 168
BOOKED IN THE STATEMENT OF FINANCIAL POSITION: NOK million 2015 2014
Expected premium payments are estimated to be NOK 1 million and the payments from operations are estimated to be NOK 14 million in 2016.
Booked returns on assets managed by Storebrand Life Insurance were: 5.4% 5.4%
ACTUARIAL ASSUMPTIONS: In Norway standardised assumptions on rates of mortality and disability as well as other demographic factors are prepared by Finance Norway. With effect from 2014 a new mortality basis, K2013, has been introduced for group pension insurance in life insurance companies and pension funds. Storebrand has used the mortality table K2013BE (best estimate) in the actuarial calculations at 31 December 2015.
3) Pension costs include accrual for the year. See also the description of the pension scheme in note 5.
Net deferred tax asset/liability in the statement of financial position 317 400 -of which changes in deferred tax assets recognised in the balance sheet -1 19
Interest rate swaps1 580 28 28 1) Used for hedge accounting, also see note 14
INTEREST RATE RISK Storebrand ASA has both interest-bearing securities and interest-bearing debt. A change in interest rates will have a limited effect on the company's equity.
Total bond and bank loans3 3,261 3,128 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.
Profit and loss account items: Group contributions and dividends from subsidiaries 519 490
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 2015 financial year and as at 31 December 2015 (2015 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 2015. 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 2015.
The capital requirement is 8 per cent of the calculation basis for credit risk, market risk and operational risk.
insurance, goodwill, other intangible assets, net prepaid pensions, 50 per cent of any capital adequacy reserve, and cross-ownership deductions in other financial institutions. The core (tier 1) capital will be adjusted for the valuations that are used as the basis for credit calculations at a national level for foreign companies.
For Storebrand Holding AB this will entail an adjustment of SPP AB’s estimated insurance liabilities for which a different yield curve is used for credit assessment than is used in the financial accounts. 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.
Solvency II is a common set of European regulatory requirements for the insurance industry. Under Solvency
The financial result consists of the net financial income from financial assets
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.
The risk result consists of premiums the company charges to cover insurance risks less the actual costs in the form of insurance reserves and payments for insured events such as death, pensions, disability and accidents.
Abbreviation for the term “for own account“, i.e. before additions/deductions for reinsurance.
Total interest income less total interest expense. Often expressed as a percentage of average total assets.
to buy or sell shares at a pre-determined price. Share options may be related to stock market indices as well as to specific individual stocks.
A cross currency swap is an agreement to exchange principal and interest rate terms in different currencies.
FRAs are agreements to pay or receive the difference between an agreed fixed rate of interest and the actual rate for a fixed amount and period of time. This difference is settled at the start of the future interest period. FRA contracts are particularly appropriate for the management of short-term interest rate exposure.
Interest rate options can be related to either bond yields or money market rates. The purchase of interest rate options related to bonds (also known as bond options) confers a right (but not an obligation) to buy or sell bonds at a pre-determined price. Interest rate options can be used as a flexible instrument for the management of both long and short-term interest rate exposure.
Norsk Pensjon AS Benco Insurance Holding BV Euroben Life & Pension Ltd Nordben Life & Pension Insurance Co. Ltd
STOREBRAND ASSET MANAGEMENT AS Storebrand Luxembourg S.A SPP Fonder AB Storebrand Fastigheter AB
Org. number 556734-9815 556045-7581 556892-4830 556401-8599 556801-1802 556883-1340 556594-9517 556397-8922 556801-1802