Storebrand Life Insurance 28 Storebrand Investments 34 Storebrand Bank 38 Non-life Insurance 42
Average number of ordinary shares (000’s) 277 927 277 715 277 554 277 464 277 209
Dividend per ordinary share (NOK) 0.80 1.10 1.00 *) Calculation is based on profit adjusted for legally required post-tax allocations to security reserves etc. for non-life insurance for the year.
The Ministry of Finance approves the merger of Storebrand Bank and Finansbanken, completing the formalities for the merger to proceed.
Mar> The German research institute Oekom Research publishes a report on the quality of corporate social responsibility practices at European insurance companies. Storebrand is recognised as one of the leading companies in Europe.
Apr> Storebrand and MMI carry out a nationwide survey of savings and insurance. 3,500 Norwegians answer questions on their personal finances.
Jun> Storebrand is awarded the ‘Equality’ prize by the Norwegian organisation Management, Equality and Diversity. The prize recognises the high proportion of women in Storebrand’s boards and management, the diversity in its recruiting and its commitment to staff training.
Sep> Storebrand achieves one of the targets in its corporate social responsibility action plan when it becomes one of five Norwegian companies included in the Dow Jones Sustainability World Index for 2004.
Storebrand is a leading player in the markets for long-term savings and life insurance. The group consists of three business areas; lifeinsurance, asset management and banking, representing a comprehensive product range for private individuals, companies, municipalities and independent public sector entities. On 11 February 2004 Storebrand signed an agreement to sell its shareholding in If.
Storebrand Life Insurance offers a wide range of pension and insurance products to companies, public sector entities and private individuals. New areas of focus for Storebrand Life Insurance include defined contribution pensions for the corporate market, pension schemes for Norwegian municipalities and independent public sector entities, and health insurance products. In addition the company will continue to build on its strong position for traditional group pension schemes in the corporate market and individual pension savings products for the retail market.
Storebrand Bank is a modern and ambitious commercial bank with total assets of NOK 25.5 billion. The bank’s objective is to build a more powerful presence in the Norwegian banking market through closer collaboration with the other parts of the Storebrand group.
79% of the mutual funds offered by Storebrand produced a better return before management fees than their benchmark in 2003.
Group life policies3) 4 000 Employees of companies, public sector entities and other organisations 348 000
Number of employees 129 Total assets under management NOK 158.8 billion External assets under management NOK 42.5 billion Market share – mutual funds 10.3% Number of mutual funds offered 57 Number of mutual funds customers 85 280
Storebrand Bank shall be seen as a bank that is easy to relate to, with competitive products and prices. The bank will principally target the retail market, but will also serve selected corporate customers and investors in Oslo and the surrounding areas.
1) Paid-up policies in respect of previous membership of a group pension scheme (does not include those now drawing pension benefits).
2) Pensions in payment includes those receiving retirement, disability and deferred pensions in respect of all group pension schemes, including individual policies for early leavers.
3) Group life insurance policies providing a single payment in the event of death or disability.
Storebrand can look back on a year of real improvement in performance. Measures implemented have had the intended results, and conditions in the financial markets have improved.
Norwegian financial sector for over 240 years. The life insurance business dates back to 1861, and following the recent sale of
Storebrand has a strong position in this market. This provides a good foundation for profitable growth. Storebrand’s future development will be built on three main pillars: clear objectives, satisfied customers and highly motivated employees.
Clear objectives. Storebrand’s role is to help build personal financial security, helping our customers to plan for the expected and protect against the unexpected. Our vision is to be the leading and most respected institution in the Norwegian market for long-term savings and life insurance. All business areas will work towards clear and ambitious targets over the next three years, and detailed action plans provide the basis to monitor performance and measures implemented.
Until very recently municipal pension schemes in Norway were subject to regulations that restricted free competition. Municipal pension schemes represent a large market that is expected to grow by around 15% annually. As an experienced partner for
People need to save more, and we expect to see a shift towards long-term savings products such as personal pensions and equity-based savings products. Building capital through home ownership will also continue to play an important role.
The Norwegian population in general does not have sufficient insurance. One example of this is that fewer than 10% of
Norwegian children under 18 years of age have the benefit of insurance cover against disability or illness, while over 80% of
Respect plays a central role in Storebrand’s vision. Respect must be earned, not claimed or developed in isolation, and it will be up to our customers to determine how well we succeed.
Life Insurance was the first life insurance company in Norway to apply ethical criteria to its investment management, and this is an integrated part of Storebrand’s commitment to corporate social responsibility.
Highly motivated employees. Storebrand is one of the leading knowledge-based companies in Norway, and our employees are the most important factor in value creation. Around 70% of employees have higher education qualifications, and on average they have worked for the company for 11 years.
Storebrand, but what you can contribute. To help ensure employees have the same opportunities, Storebrand has developed programs in areas such as equality and the role of older employees. We strive to stimulate diversity, recognising that most problems are multi-dimensional and best understood when looked at from different perspectives. We recognise our responsibility as an employer to be willing, flexible and able to meet our employees’ individual needs.
“IN ORDER TO SUCCEED, HIGH ETHICAL STANDARDS AND UNDERSTANDING THE NEEDS OF EVERY INDIVIDUAL MUST BE JUST AS IMPORTANT AS PROFESSIONAL EXPERTISE.“
Storebrand is made up of three business areas in the Norwegian market: Storebrand Life Insurance, Storebrand Investments and
Storebrand. However the Board believes that the improvement reported by the company also clearly reflects the implementation of improvement measures and active management of investment risk. The merger of Finansbanken ASA and Storebrand
Increased sales activity and greater emphasis on customers and communication with customers have also had a positive effect.
The sale represents a significant step forwards in Storebrand’s strategy of focusing its activities on long-term savings and life insurance.
Life insurance: 2003 was a good year for Storebrand’s life insurance activities in terms of both earnings and sales. Virtually all areas met their sales targets. Storebrand Livsforsikring AS
(Storebrand Life Insurance) strengthened its market position in important areas and achieved a market share of 28% in terms of customers’ assets under management. In the corporate market, sales of defined contribution pension schemes doubled relative to 2002. Transfers of business between companies also showed a positive trend for Storebrand, with a net inflow of premium reserves totalling NOK 1,493 million.
Life Insurance achieved a satisfactory investment return. The book return was 7.2% and the value-adjusted return was 8.8%.
Storebrand Fondsforsikring produced a good performance for sales of defined contribution group pension products and for
Fondskonto Link, its new unit linked product for the retail market. However the company reported a loss for the year of NOK
36 million, which is not satisfactory, and reflects the fact that overall business volume is still at a low level. The company had a market share of 18% in terms of customers’ funds under management as at year end 2003. Storebrand’s 50% interest in Storebrand Helseforsikring produced a profit of NOK 3 million for 2003. This represents an improvement of NOK 13 million from 2002.
Asset management: Storebrand Investments reported improved profitability in 2003. Pre-tax profit of NOK 22 million represented an improvement of NOK 35 million from 2002. The figures for both years are affected by non-recurring items, and after adjusting for this 2003 shows an improvement of NOK 25 million.
New business was moderate in 2003, with gradually increasing interest in equity investments from customers as the year progressed. Net new business amounted to NOK 3.0 billion. Total assets under management increased by NOK 19 billion to reach
Banking: The merger of the two banks was implemented as planned, and has created significant synergy benefits and extensive cost savings. The bank group reported a profit for 2003 of NOK 103 million before loan loss provisions. The pro forma profit for 2002 before loan loss provisions was NOK 30 million. The bank recognised losses and additional provisions on lending and guarantees of NOK 174 million and a loss on securities held as fixed assets of NOK 38 million. The pre-tax result for the year was therefore a loss of NOK 109 million as compared to a pro forma loss of NOK 448 million in 2002.
John Giverholt (52) Chief Financial Officer, Ferd AS Master of Business Administration, State Authorised Public Accountant Member of the Board’s Audit Committee
Storebrand Bank) was valued at NOK 422 million in the consolidated accounts at 31 December 2003. In view of the weak earnings reported by Storebrand Bank, the Board has considered whether there is any need to write down goodwill in respect of Storebrand Bank. However the Board expects to see a major improvement in the bank’s earnings over future years, and has therefore concluded that no write-down is necessary.
416 million as compared to a loss of NOK 42 million in 2002.
324 million in 2003 as compared to a loss of NOK 244 million for 2002. Storebrand’s share in Fair Forsikring’s results represented a loss of NOK 22 million for 2003. Run-off activities generated a profit of NOK 46 million.
Storebrand is exposed to risk in respect of its insurance activities, investment risk in respect of its asset allocation, liquidity risk and operational risk. Continuous active risk management is a central and integrated feature of the group’s activities and organisation.
The total risk capital of the life insurance activities increased by
NOK 4.2 billion in 2003. The company’s risk capital is made up of the market value adjustment fund, additional statutory reserves, core capital in excess of the statutory minimum and accrued earnings. Policyholders’ additional statutory reserves increased by a net NOK 360 million to NOK 3.4 billion. In addition to
these figures, the portfolio of bonds held to maturity showed an unrealised gain of NOK 3.4 billion at the close of 2003.
Storebrand Bank: The bank has standard procedures for reviewing its lending, and all new lending is approved in accordance with the bank’s credit approval policy. The bank monitors its credit risk through a specially developed risk classification system. Although economic conditions in Norway remained weak in 2003, the overall risk associated with the bank’s lending portfolio showed an improvement. This can be seen both by a reduction in the incidence of default and by a shift in the portfolio towards retail and mortgage lending.
The Board considers the group’s capital situation to be satisfactory relative to its risk profile and rating. The group’s equity increased by NOK 860 million over the course of 2003, and amounted to NOK 9,396 million at year-end. The minimum capital ratio requirement imposed by the authorities is 8%.
The group’s capital ratio was 14.9% at 31 December 2003, with a core capital ratio of 9.9%
Storebrand ASA had total liquid assets of NOK 0.9 billion at the close of 2003, and also has available an undrawn long-term credit facility of EUR 225 million. During the course of 2003 the company repaid a bond loan of NOK 1 billion. The company reduced its overall borrowing from NOK 3.7 billion to NOK 2.8 billion over the course of 2003.
Employment in the group totalled 1,263 full time equivalent positions at the end of 2003 as compared to 1,337 at the start of the year. The average age of the group’s employees is 41.6 years, with an average length of service of 10.6 years. All
Rune Eikeland (42) Regional manager, Retail Distribution Norwegian Military Academy and Authorised Financial Adviser Employee representative
Nina E. Smeby (38) Principal employee representative Employee representative Member of the Board’s Remuneration Committee
Storebrand Annual Report 2003 reduce absence due to illness, reduce the incidence of disability and long-term illness and increase the average age at which employees retire. In spring 2003 Storebrand signed an expanded agreement with the National Insurance authorities. The new concept includes recognition by Storebrand for those of its 5,500 corporate customers who have already signed up to the ‘More inclusive working life’ program or do so in the future.
Absence due to illness for the group as a whole totalled 4.6% in 2003 as compared to 4.1% in 2002. There was some increase in long-term illness, but short-term and medium-term absence was little changed. Storebrand did not incur any reported personal injuries, damage to property or accidents of any significance in 2003.
The group’s commitment to corporate social responsibility represents a continuous process of monitoring and improvement.
Storebrand’s environmental impact. The consumption of energy and paper, waste and transport represent the main features of Storebrand’s direct impact on the external environment.
capacitors with new fittings without PCB content. The cooling systems installed make use of seawater in order to reduce energy consumption. In order to reduce paper consumption the company runs an internal program to encourage more careful use of paper. All material amounts of waste are sorted by type.
Board is subject to a specific mandate. The Board has established two advisory committees on remuneration and internal audit. Rune Bjerke and Harald Tyrdal left the Board in 2003 after having been members since 2000. Mette K. Johnsen and
Vigmostad left the Board of Representatives in 2003. Two members elected by shareholders, Eli Sætersmoen and Arvid
Representatives in 2003. Trond Berg-Andreassen, who was previously a deputy representative for the members elected by shareholders was elected as a full member of the Board of Representatives. There were no changes to the membership of the Control Committee in 2003.
A comprehensive and active approach to risk management and the implementation of improvement measures in all business areas have, in combination with improving conditions in financial markets, resulted in improved earnings in 2003.
Storebrand will continue to pay close attention to risk management and the implementation of measures to improve profitability, and the group is well prepared to cope with any return of more difficult conditions in financial markets in the future.
Storebrand’s core markets are long-term savings and life insurance. This sector of the financial market is expected to show considerable growth in the future as a result of demographic trends and greater interest in and awareness of pensions and other personal finance issues. The report published by the
Norwegian Pensions Commission has served to increase interest in the pensions debate.
Storebrand will continue to improve the company’s strong position in the market for long-term savings and life insurance, with the ambition to be the leading and most respected institution in Norway in this market.
Storebrand ASA recorded a profit for the year of NOK 378.3 million. The dividend policy approved by the Board states that the company will endeavour to ensure stable growth in dividend per share over time. Moreover, the dividend policy shall give shareholders a competitive return and contribute towards optimising the company’s capital structure. The company has also stated that dividend to shareholders will normally be in the order of 15–30% of profit after tax. The Board proposes that the profit for the year be applied as follows: Amounts in NOK million: To other equity 155.8
financial security: when it's time to retire Group pension schemes are becoming an ever more important factor in employment. New opportunities have opened up now that companies can choose between defined benefit and defined contribution schemes. At the same time the debate over the future of the national insurance system has put the spotlight on group pension schemes as a way to ensure a more comfortable retirement for employees.
The group reported a strong improvement in its performance in 2003, both in terms of financial earnings and underlying operations. At the close of 2003 Storebrand is a financially sound group, well positioned in the attractive market for long-term savings and life insurance and with a banking operation focused on the retail market and selected segments of the corporate market.
Stable return, active risk management, protect and grow risk capital. Strong and stable financial return is important for the life insurance company’s profitability and competitive position. Storebrand Life Insurance started 2003 with a significantly changed asset profile. This ensured that the company could protect a significant proportion of its risk capital while at the same time locking in around 40% of its investment portfolio at relatively high interest rates. Over the course of 2003 risk capital grew by NOK 4.2 billion to NOK 8.9 billion, and the investment return generated for the year was sufficient to provide a sound profit for both policyholders and the owner.
Storebrand launched defined contribution pension products in 2001. By the start of 2004 almost 20,000 employees were members of defined contribution pension schemes run by
Storebrand is improving its position in the traditional pension market as well as for new pension products.
Improved quality in loan book. Storebrand Bank has focused on protecting the value of its lending portfolio and building down its weaker lending exposure, achieving a reduction in corporate loans outstanding. Total volume of non-performing and lossexposed loans was reduced by NOK 645 million in 2003.
Stronger position in the growing savings market Net transfers of customers and sales of savings products
The group sold a number of non-core investments in 2003, including Euroben, Finansbanken Formuesforvaltning, parts of Adviso and some smaller real estate investments.
The following table provides key figures underlining the progress the group made in 2003: Profitability and shareholder value 2003 2002 Change
Consolidated capital ratio – Group (%) 14.9 16.0 -1.1 *) Cost increase in 2003 mainly caused by increased sales and management costs due to strong sales and good relative return.
Additionally it will be important for Storebrand Bank that the work on protecting the value of its lending portfolio and building down the weaker aspects of the portfolio continues.
Risk management for life insurance. Risk exposure in respect of the group’s life insurance activities is concerned with the balance between investing policyholders' assets until they are paid as benefits and the contractual commitments that
Life insurance policies are long-term commitments, and there are risks associated with the assumptions made about life expectancy and disability. There is therefore a risk that the premiums paid by customers and the investment returns achieved may not be sufficient to meet future payments.
Risk exposure is monitored by using stress tests that estimate the possible loss in the event of extreme market movements.
Storebrand ensures that it meets all the regulatory requirements, such as capital ratio and solvency capital ratio, by a comfortable margin. The Board of Directors approves limits for these ratios and other measures of risk. The life insurance company monitors its risk exposure and reports on this to management on a daily basis.
This shows that hedging reduces the probability of the annual return falling below 3%.
Storebrand assumes risk in the ordinary course of its business activities. Good risk management and the control of risk exposure are essential to the group's profitability and to ensuring that the group has the financial strength to withstand adverse developments and limit the losses these may cause. Risk management is integrated throughout Storebrand's activities and organisation and is recognised as a core competency.
cal axis for various levels of return on the horizontal access.
Credit risk in banking. Storebrand places great importance on maintaining close relationships with its corporate banking customers and monitoring credit risk closely. Storebrand Bank has policies in place for routine reviews of its credit exposure.
The group's work on CSR is closely monitored, and the process of continuous improvement set out in the 2003–2004 action plan plays a central role in Storebrand’s management processes.
Storebrand’s commitment to CSR involves a range of measures right across the group's activities. One example is that Storebrand was the first financial institution in Norway to commit itself to the "More inclusive working life" scheme promoted by the
However the most extensive aspect of Storebrand’s commitment to CSR is its involvement in socially responsible investment (SRI).
Storebrand Life Insurance was the first life insurance company in Norway to introduce SRI criteria for the management of its policyholders’ assets. All the life insurance company's equity portfolios are now subject to SRI criteria, representing 56.4%
Participation in international organisations that promote sustainable development helps to bring new expertise to Storebrand’s work on CSR. Storebrand’s nternational involvement is principally through the United Nations’ environmental organisation UNEP
In addition Storebrand has signed up to the Global Compact’s nine principles for sustainable development, and is a member of Transparency International Norway.
Storebrand's commitment to corporate social responsibility (CSR) represents a long-term strategy that is firmly anchored in the company's corporate vision and values. Recognising our corporate social responsibility means that we strive to base the strategy and management of our activities on a combination of financial, social and environmental factors.
We measure our performance on: Status 2002 Status 2003 1. BUILDING FINANCIAL WORTH
Society Financial support for charitable organisations etc. NOK 3.8 million NOK 3.8 million
Premises Customer satisfaction with environmental aspects of management Storebrand Eiendom’s premises management (Scale 1–7) 4.6 5.0
Progress on the CSR Action Plan is assessed every six months, and the following tables present the results of the assessment carried out at year-end 2003. The information summarised in the table shows that progress is being made, although further improvement is needed in some areas. Measures will be put in place for areas that do not yet show satisfactory progress.
It should be noted that the figures for absence due to illness are not entirely comparable due to a change in record-keeping methods that has caused an increase in reported absence.
What can employers do? Employment forms the basis for society’s prosperity. The fact that one in five of the working population does not work because of illness, disability or related reasons is a major problem for society. It is also a cost problem for companies, and not least a problem for the people who are excluded from working life.
Storebrand offers a concept to encourage more of its 5,000 corporate customers to sign up for the “More inclusive working life” scheme. Through its partnership with the National
y y e ar s y 74 years y y e ar s y 79 years
Storebrand also operates the co-ordinated consultation and advice service (CCA). CCA was first launched in 1997 in collaboration with the Omnia hospital, and provides a service to employees on sick leave with muscular or skeletal problems or undiagnosed complaints. One of the current problems with the public health service is that it takes too long to complete investigations and identify conditions so that treatment can commence. The CCA scheme arranges the necessary investigations in a much shorter time.
Ability to work however is not just about personal health. It is also important to ensure that people retain their expertise and continue to learn new skills – regardless of age.
Commission wants to see greater financial incentives for people to retire later. However whether or not people want to work longer depends on factors other than just money. Research carried out by the Fafo
Access to employment. There is little point in being able and willing to work if employers are unwilling to employ older workers. The Fafo research found that one in three people who had retired early would have liked to work for a few years more if this alternative had been available. However it seems that when companies reorganise and shed staff it has become more socially acceptable to rely on early retirement rather than compulsory redundancies.
Access to employment is a particularly important question for people with impaired abilities. An important sub-target for the
Shared respnsibility. In conclusion it is clear that if we are to encourage more people to stay in work longer as the Pension
2003 was a successful year for Storebrand’s life insurance business. At the same time as strengthening its position through higher sales of traditional pension and life insurance products, the company also continued to expand in new product areas such as defined contribution pensions, public sector pension schemes and health insurance. The Norwegian pensions market is changing rapidly, and the imminent reform of the state pension system will create new market opportunities and challenges. Storebrand Life Insurance intends to build on its already strong position through increased focus on customer information, financial advice and attractive products.
Annuity Long-term savings with a guaranteed return or investment in mutual funds (produces a regular income).
Endowment policy Flexible long-term savings with a guaranteed return or investment in mutual funds (produces a single payment at maturity).
Long traditions. Storebrand can trace the origins of its life insurance activities back to 1861. Almost 5,000 companies with over 230,000 employees rely on Storebrand for their group pension schemes. In addition almost 130,000 Norwegians have private pension policies with Storebrand. Around 190,000 pensioners who arranged private policies or are members of company pension schemes currently receive pensions from Storebrand.
creates both opportunities and challenges for pension providers. Storebrand expects that greater public awareness of the need to build savings will lead to significant growth in pension savings in the private sector. This will place particular demands on Storebrand’s product development and the expansion of its financial advisory services in a growing market.
Strengthened distribution to the retail market. The debate on the future of pensions in Norway is making people more aware not only of the need to save for their retirement but also of the benefits of life insurance and health insurance. The overall level of life insurance and health insurance cover in Norway is still low, and Storebrand will continue its targeted development in these areas.
Best-ever sales of life insurance savings products. 2003 was the best year ever for Storebrand’s sales of life insurance savings products to the retail market (individual endowment policies). Premiums received on existing and new insurance policies totalled approximately NOK 3 billion. Both direct sales and sales through external channels contributed to this strong growth. The low level of interest rates was the main reason for increased interest in life insurance savings products. In addition
Storebrand’s targeted commitment to this market meant that it was well positioned to cope with increased demand for savingsrelated products when interest rates started to fall. Storebrand expects sales of savings products to the retail market to remain strong while interest rates remain at their current low levels.
Sales of risk insurance products with no savings element were somewhat weaker than expected as a result of the strong emphasis on savings-related products in the second half of the year. Sales of unit linked products were also weaker than expected. This was to some extent expected in the wake of the falls seen in stock markets in 2001 and 2002. Sales of unit linked products should recover in 2004, helped both by the launch of Storebrand’s new product Fondskonto Link and by sustained improvement in stock markets.
Very strong sales to the corporate market. Defined contribution pension schemes represent an increasing proportion of sales to the corporate market, and more than doubled relative to 2002. The increasing trend for companies to switch from defined benefit to defined contribution schemes, together with the further growth expected in sales of pension schemes to companies that currently have no pension arrangements, point to good prospects for 2004.
Municipalities on the sidelines. 2003 was an election year for Norwegian municipalities, but despite the extensive changes in political representation that took place a total of 26 municipalities made the decision to review their contracts with KLP.
Act aimed at creating greater and fairer competition for the management of municipal pension schemes. The legislation was passed in December 2003 and comes into force with effect from 2004. This legislation does not include changes to the public sector transfer agreement. This means that in practice insurance companies are still at a disadvantage when competing for the pension business of independent state entities and health authorities. The necessary changes to the transfer agreement are expected during the first half of 2004.
Storebrand Life Insurance completed its three-year program to strengthen disability reserves with a final allocation of NOK
Premium income and transfers. Storebrand Life Insurance’s total premium income for 2003 (excluding policy transfers), was
Premium income from retail market life insurance savings products totalled NOK 3,520 million in 2003, an increase of 208%
3,173 million for the year. The net inflow for group pension business was NOK 1,622 million. Life insurance business as a whole produced a net inflow of NOK 1,493 million in 2003.
Additional statutory reserves are conditionally allocated policyholders ’ funds that act as buffer capital to absorb fluctuations in the investment portfolio. These reserves were strengthened by NOK 470 million in 2003 to stand at NOK 3,393 million at the start of 2004.
Risk result. The risk result for 2003 was NOK 198 million as compared to NOK 194 million in 2002. The overall increase of
NOK 4 million reflects increases of NOK 62 million for group pensions and NOK 10 million for non-life insurance and falls of NOK 38 million for individual endowment policies and NOK
While Storebrand reported very strong sales in 2003, the ratio of operating costs to average policyholders’ funds was higher than in 2002 at 0.96%. An important factor behind this increase is the higher sales costs incurred in the first year of a life insurance policy. In terms of costs relative to average policyholders ’ funds, Storebrand achieved a continuous improvement in 1999–2001 from 0.96% in 1999 to 0.94% in 2000 and 0.88% in 2001. The equivalent figure for 2002 was 0.92%.
Storebrand has worked hard over recent years to reduce its operating costs. A salary freeze for senior and middle managers and the suspension of individual salary appraisals for employees contributed to the reduction in costs achieved in 2003. Measures have been implemented to pave the way for further cost savings in 2004.
Analysis of results – explanatory notes. Interest result is the difference between the booked return and the guaranteed return on policies. The average guaranteed return on insurance policies in 2003 was 3.8%. Risk result arises as a consequence of the incidence of mortality and disability during the period differing from that assumed for the premium tariffs.
allocated to the company’s owner plus the value of unrestricted equity. Calculations of embedded value are based on international standards and are used as an analytical tool for the valuation of life insurance companies. The embedded value of Storebrand Life Insurance and Storebrand Fondsforsikring was NOK 8,357 million at the close of 2003. This represents an increase of NOK 912 million from 2002.
Dividend paid, net of equity paid in, was NOK 349 million, giving a total increase in embedded value of NOK 1,261 million.
Increased exposure to equities. Storebrand Life Insurance made some moderate changes to its investment portfolio over the course of 2003. In accordance with the risk management principles described in a separate section of this annual report
(see page 20–21) the portfolio’s exposure to equities was increased from 9% to 13%. A hedging program was in place for the equity portfolio in 2003 and into 2004 to ensure that buffer capital is not affected to an unnecessarily large extent in the event of a sudden and sharp fall in share prices.
A large proportion of the company’s unrealised gains on bonds arise from the hold to maturity portfolio of government and government guaranteed bonds. The hold to maturity portfolio represented approximately 38% of total investment assets at the close of 2003. The hold to maturity profile has an average duration of around 5 years and an average effective yield of 6.1% on book value. This high stable return generated by the hold to maturity portfolio ensures that the expected return of
Storebrand Life insurance is relatively robust to a continued low level of interest rates.
EMBEDDED VALUE (NOK bn.) for Storebrand Life Insurance and Storebrand Fondsforsikring
Group Group Individual Individual pension life endowment pension Non-life Totalt Totalt Totalt
Change in premium reserve/sec. fund -1 007.8 -1.4 -0.9 0.3 -1 009.8 -241.1 -25.2
Write-back of additional statutory reserves 4.7 6.5 9.9 21.1 1 011.6 407.6
Policyholders' share of profit 1 838.9 a) Adjusted to show analysis of results as if subsidiaries were recognised in the accounts by the gross method rather than the equity method. b) Includes: Security reserve, subordinated loan capital, book equity and liability items.
Upturn in global equity markets. Historically low interest rates. After three years of decline, stock markets rallied at the start of the second quarter of 2003. The Oslo market gained 48.4% in 2003, while the world index closed the year 27.8%
The overall size of the Norwegian asset management market is estimated at in excess of NOK 300 billion (excluding life insurance company investments). The majority of these assets are managed by institutional investors with their own asset management functions and are not open to competition. However fund managers compete for tens of billions of assets every year.
Storebrand Investments has for many years managed active risk mandates separately from general market exposure. Experience suggests that most investors will achieve a better balance of risk and reward if management responsibility for investment portfolios is spread across several risk mandates in unrelated markets.
Storebrand investments now uses a new tool for allocating risk quotas which makes it possible to advise customers on how to allocate their portfolio to make best use of their risk limits.
For many private investors the return they achieve is mainly dependent on making the right allocation between different asset classes and avoiding losses. However few private individuals follow the capital markets closely, and Storebrand
Storebrand Investment's asset management philosophy is based on separating the management of general market exposure from investment managers’ active position taking. Ideally the amount of position taking would be based solely on the skill of the individual investment manager.
Socially responsible investments. Storebrand Investments has added a further dimension to traditional investment research by taking into account environmental and corporate social responsibility (CSR) factors. This reflects the philosophy that investing in companies that respect the environment and take CSR seriously will produce a competitive investment return.
Investments is competitive, but this requires cost efficient operations and competitive investment results. Institutional investors’ increased use of advisers and consultants when choosing asset managers has led to a much greater use of specific mandates rather than giving overall management responsibility to a single manager. This also serves to increase the scope for competition from well-known international firms.
It is therefore essential that the investment performance generated by our managers is internationally competitive over time.
One example of the international standard of product quality that Storebrand Investments offers is the Storebrand Japan fund which recently gained five-star ratings from Morningstar in Norway and Sweden on the basis of its risk-adjusted return over the last three years. This makes the fund one of just three
Investments produced a better return for 2003 than the comparable benchmark indices (before deducting management fees).
The package of services offered focuses on supporting trading and settlement, and therefore includes securities settlement, unit holder administration and monitoring adherence to investment mandates, as well as processing transactions together with accounting and reporting. The package offers clients a complete trading and settlement functions independent of the investment manager or managers responsible for managing assets.
NOK 35 million reflects good investment returns on portfolios with performance-based fees and a lower overall cost base.
This reflects the positive effect that rising markets have on both new business and overall asset management volumes.
The earnings reported for 2002 and 2003 included non-recurring costs of NOK 18 million and NOK 9 million respectively.
Storebrand won new mandates from pension schemes to manage both global and Norwegian equity portfolios. As equity markets recovered, sentiment towards equity investments improved, and equity funds attracted a net inflow of NOK 3.6 billion in the second half of 2003 as compared to a net outflow of NOK 2.4 billion in the same period of 2002. Storebrand's market share of mutual funds was 10.3% as compared to 10.8% in 2002. Investment portfolios’ exposure to equities increased from 12% to 17% over the course of 2003. In addition the promotion of specialist products with higher margins helped to increase the earnings potential of the asset management activities.
Of the 9 portfolios managed for Storebrand Life Insurance, 7 produced a better return than benchmark, representing total additional income of NOK 300 million. The main contribution came from global equity investments and short-term money market placements.
Focus on profitable growth. Storebrand Investments produced significantly stronger earnings and growth in business volumes in 2003. In addition asset management products attracted renewed interest as result of the equity market upturn and low interest rates. Storebrand Investments will continue to pursue its policy of specialisation in order to meet customers'
Measures to improve efficiency will continue, and this together with the growth in business volume expected in 2004 will contribute to further improvements in earnings.
On 1 January 2003 the group’s two banking activities were merged into a single bank. Integrating these businesses brings
As part of its continuing development the bank aims to simplify the range of products and services it offers. The combined operation has a greater focus on the retail banking market, while continuing to serve selected segments of the corporate market, principally real estate financing in Oslo and the surrounding region.
Challenger in the retail market. Storebrand Bank competes with traditional banks in the retail market, and has a relatively small market share of lending, accounts, card services and payments. The retail banking market is dominated by large players with extensive branch networks, but this is now changing as a result of new distribution channels for banking services and consolidation of the banking market. These trends make it possible for smaller players to improve their position in the market.
Banking products play a central role in attracting customers to the wider range of products offered by Storebrand, and are also important for developing customer relationships. Offering banking services at competitive prices encourages greater customer interest in Storebrand. These features support Storebrand’s objective of being the leading player in the market for longterm savings and life insurance.
Niche bank for the corporate market. Storebrand Bank is a niche bank for selected segments of the corporate market. The bank’s objective is to be a reliable business partner for its customers, with a particular emphasis on real estate financing. The bank’s corporate lending department represents a continuation of the corporate banking activities previously carried out by
Finansbanken, serving selected corporate customers as well as some larger private borrowers. The department offers specialist expertise for financing real estate projects, and aims to increase its portfolio at a moderate rate from its current level.
The department’s principal responsibility is to manage and develop the lending relationships that form part of the bank’s long-term strategy for the corporate market. Existing exposures not considered strategic are managed separately from the other business in the corporate portfolio to ensure maximum focus on protecting the bank’s position and reducing its exposure.
Distribution, which is responsible for the Storebrand group’s sales and customer service for the retail market. The unit represents a shared distribution platform for all the group’s products, and co-ordinates the Storebrand marketing strategy to ensure a unified profile towards retail customers.
The Retail Distribution unit implemented measures in 2003 to improve the effectiveness of the group’s sales. This involved reorganising and streamlining the support operation and introducing a performance monitoring process for the sales operation.
% age of average total assets 1.85 % 1.96 % -5.6 % *) Pro forma
Net interest income amounted to NOK 492.7 million, equivalent to a net interest margin calculated on average total assets of 1.85%. Net interest income fell in 2003 mainly as a result of lower lending volumes and a shift in lending towards a lower risk profile and higher proportion of residential mortgage lending.
Non-interest income showed an improvement at NOK 319.2 million, helped in particular by higher sales of life insurance savings products.
Gross customer lending fell over the course of 2003 by NOK
The bank has reduced its exposure to shipping by 41%, to real estate by 19% and to other corporate sectors by 35%.
Total assets fell in 2003 in line with the reduction in the lending portfolio. The deposit to loan ratio was 54% at the end of 2003, representing an improvement of three percentage points over the course of the year. The bank has a balanced funding structure, basing its funding on customer deposits, issuing securities and borrowing in the Norwegian and international markets. At the close of the year the bank had available undrawn committed credit facilities totalling NOK 3.55 billion. Total assets amounted to NOK 25.5 billion at year-end.
Non-performing loans, loan losses and assets repossessed. The volume of non-performing loans fell in 2003.
1,717 million at the close of the year, of which interest is no longer accrued on NOK 1,275 million. This represents an overall reduction of NOK 644 million from the start of the year.
The net value of non-performing and loss-exposed loans after specific loan loss provisions amounted to NOK 1,189 million at year end, equivalent to 5.44% of net lending.
Primary capital and capital adequacy. Storebrand Bank group's primary capital amounted to NOK 2,077.2 million at the close of 2003, and the parent bank had primary capital of NOK
Skandia entered into an agreement to establish If, and both groups transferred their non-life insurance activities into If. This caused a change in the role of Storebrand Skade from being an operational non-life company principally active in the Norwegian market to becoming the owner of a 44% interest in the largest
Sampo’s non-life insurance activities were merged into If from 2 January 2002. This strengthened the position of If, making it by far the largest Nordic non-life insurance company.
Shareholder structure of If at 31 December 2003: Company Ownership interest (%)
Fair operates a non-life insurance business for the retail market in Denmark. The company was incorporated in November 1998.
Storebrand Skadeforsikring AS operates the group's remaining run-off business (non-life insurance and reinsurance run-off), including the ownership of Oslo Re. Oslo Re is principally involved in the run-off of its own reinsurance business and managing run-off business for other companies.
If's results in 2002 were characterised by an improvement in the underwriting result. If reported an operating profit of SEK 2,702 million for 2003 as compared to an operating loss of SEK 2,080 million for 2002. The combined ratio was 100.9% in 2003 as compared to 106.1% in 2002. The improvement in underwriting result reflects the measures implemented in respect of premiums and costs, as well as a flattening-off in claims paid. All business areas showed an improvement. However run-off losses (claims arising from losses in earlier years) had a negative effect on the year’s earnings. The investment return achieved in 2003 was 4.6%. This is a significant improvement from the investment return of 2.1% reported for 2002.
Operating profit for Storebrand Skade amounted to NOK 60 million, as compared to NOK 20 million in 2002. The increase is principally due to the receipt of dividend/group contribution of NOK 35 million from Oslo Reinsurance Company. Oslo Re reported an operating profit of NOK 21 million in 2003, representing an increase of NOK 4 million from 2002. This was mainly due to better technical insurance results. Total technical reserves were reduced by NOK 37 million to stand at NOK 386 million at the close of 2003.
NOK 22 million, representing an improvement of NOK 13 million from 2002. The improvement at Fair is due to better underwriting results thanks to higher premium income, lower claims and lower costs.
The strategy and planning process is carried out annually, and produces a rolling three-year plan with targets, strategies and economic forecasts. The Board of Directors of Storebrand ASA
Control Committee. It can approve major organisational changes and is otherwise entitled to make recommendations to the
Board of Directors on any matter. The Board of Representatives met four times in 2003.
The Board carried out an appraisal of its work in 2003 in which
Storebrand’s Executive Management also participated. The results were made available to the Election Committee. Details of Board members’ remuneration, loans and shareholdings can be found in notes 4 and 16.
Audit Committee. The Remuneration Committee monitors the remuneration of the group’s senior managers, and assists the
Board in setting terms and conditions for the CEO. The Audit
Committee reviews and evaluates the group’s financial and operational reporting, risk management and control and
As a large stock exchange listed company that plays an important role in Norway’s economy and society, Storebrand is committed to building good relationships with its stakeholders. The following presents Storebrand’s approach to corporate governance.
auditing. The committees prepare matters for consideration, but decisions are made by the Board.
Courses are held at regular intervals for members of the Board and other corporate bodies as part of a program to improve and develop their expertise.
General Meeting. The company’s employees elect an observer to the committee, who participates as a full member in making recommendations for the election of the Chairman of the Board of Directors. The Election Committee is responsible for recommending remuneration and proposing candidates for election to the Board of Representatives, the Board of Directors, the
A formal mandate for internal audit was approved in 2003, based on current legislation, regulations and international standards.
Internal guidelines. Storebrand has produced guidelines on business ethics and share trading by employees and insiders.
Storebrand’s intranet provides rules and guidance on information security, disaster contingency planning, money-laundering and financial crime.
Share capital and shares. Shares in Storebrand ASA are quoted on the Oslo Stock Exchange (OSE). Share capital at the start of 2003 was NOK 1,389.0 million. Following a new issue of shares to employees in March 2003, share capital at 31 December 2003 amounted to NOK 1,390.4 million, made up of 278,070,522 shares each with a face value of NOK 5. The company does not own any of its own shares and has not issued any options that could dilute share capital.
Storebrand ASA is the fifth largest company listed on the OSE
December 2003. The 20 largest shareholders own 164,596,108 shares in total, representing 59% of the share capital.
JP Morgan Chase Bank Client (NOM*) GBR 5 684 825 2.04
The Northern Trust Co (NOM*) GBR 1 786 535 0.64 *) Client account
Share purchase arrangements for employees. A mandate has been granted by each AGM since 1996 to involve employees more closely in value creation through employee share issues.
In March 2003 employees were offered 350 ordinary shares at a price of NOK 16.72 per share. Almost 55% of employees participated, and 268,100 shares were subscribed. Note 16 provides information on shares held by senior management.
Foreign ownership. The EEA Agreement gives Norwegian and foreign investors equal rights to purchase shares. As at 31 December 2003 total foreign ownership amounted to 44.2%, as compared to 32.2% at the end of 2002.
26.00 at 31 Dec 2002. The highest and lowest prices seen during 2003 were NOK 43.60 and NOK 20.50. The price on 31
approved a dividend policy in 1999 that seeks to provide a competitive return to shareholders whilst also ensuring that the company maintains an optimal capital structure. The dividend will normally be in the order of 15–30% of profit after tax. The
Board intends to operate the policy with a long-term view, and will endeavour to ensure stable growth in dividend.
Based on the company’s dividend policy and earnings reported for 2003, the Board of Storebrand ASA recommends that the
Annual General Meeting approve a dividend of NOK 223 million for 2003, equivalent to NOK 0.80 per share.
Compliance. As one of the country’s leading financial institutions, Storebrand is dependent on maintaining an orderly relationship with the financial markets and supervisory authorities.
Investor Relations. Storebrand places great importance on comprehensive and efficient communication with financial markets. Maintaining a continuous dialogue with shareholders, investors and analysts both in Norway and internationally is an important priority. The group has a separate investor relations unit responsible for establishing and co-ordinating contact with analysts, the stock exchange, shareholders, investor and others.
All interim reports, press releases and presentations of interim reports can be found at www.storebrand.no/ir.
Shareholders’ contact with the company. Shareholders should generally contact the administrator of their share account with queries and notice of changes. Storebrand’s own shareholders’ office can also provide guidance and information
Total equity capital and liabilities 11 599.9 12 122.1 11 173.6
Insurance premiums for own account 13 805.6 10 170.1 9 579.3
Interest and related income – banking 21 1 803.9 2 599.5 2 671.2
To/from additional statutory reserves – life insurance -448.9 1 011.7 407.6
Shares and other equity investments – long term holdings 29 36.9 37.2 35.5
Other long term financial assets 32, 33 536.4 953.1 1 107.5
Storebrand ASA Storebrand Group NOK million 2003 2002 2001 2003 2002 2001 Cash flow from operational activities
Interest, commissions and fees received from customers 454.4 1 430.8 1 525.0 Interest, commissions and fees paid to customers -19.1 -34.5 -42.6 Payments to third parties for goods and services -57.5 -139.5 -44.0 -2 652.6 977.5 -521.7 Payments to employees, pensioners, employment taxes etc. -123.6 -119.1 -146.3 -1 135.3 -1 213.1 -1 230.1
Net cash flow from operational activities for the year -405.3 -680.8 -283.2 9 315.3 2 158.0 -2 430.6
Respective Responsibilities of the Directors and Auditors. We have audited the annual financial statements of Storebrand ASA as of 31 December 2003, showing a profit of NOK 378.3 million for the parent company and a profit of NOK 789.6 million for the group. We have also audited the information in the Board of Directors’ Report concerning the financial statements, the going concern assumption and the proposal to apply the profit for the year. The financial statements comprise the balance sheet, the statements of income and cash flows, the accompanying notes and the group accounts. These financial statements are the responsibility of the company's Board of Directors and Chief Executive Officer. Our responsibility is to express an opinion on these financial statements and on the other information according to the requirements of the Norwegian Act on Auditing and Auditors.
Basis of Opinion. We have conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and good auditing practice in Norway. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a sample basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and good accounting practice an audit also comprises a review of the management of the Company's financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion.
• the company’s management has fulfilled its duty to produce proper and clearly set out registration and documentation of accounting information in accordance with the law and good accounting practice
Expenses arising from financial assets -7 278.7 -18 496.8 -17 465.6
Shares and other equity investments 19 093.4 10 692.3 22 060.4
Insuranse related reserves for own account 108 901.6 99 238.9 99 326.0
Insurance fund reserves for own account 118 951.7 107 841.1 108 019.3 *The full annual report for the Storebrand Livsforsikring Group can be found at: www.storebrand.no/ir.
Note 16: Senior executives, non-executive officers and other related parties page 65
Note 35: Deposits from customers and liabilities to other financial institutions page 77
The group accounts of Storebrand ASA have been prepared in accordance with the Accounting Act and regulations for the annual accounts of insurance companies, banks and investment firms. The regulations and valuation rules for the annual accounts of insurance companies are applied to the group's insurance activities, the regulations for the accounts of banks are applied to the group's banking activities, the accounting principles for the accounts of investment firms are applied to the group's asset management activities and the general provisions of the Accounting Act are applied to all other activities. The presentation of the accounts and the information provided in the notes are based on the requirements set out in the Accounting Act and adapted for the group's activities in order to provide the best possible picture of the group's overall activities.
GENERAL Consolidation. The Storebrand Group is made up of companies involved in life insurance, non-life insurance, asset management, banking and other activities.
The group accounts consolidate Storebrand ASA and all subsidiaries where Storebrand ASA exercises control directly or indirectly through a long-term ownership interest and owns more than 50%.
Investments in companies of strategic importance where Storebrand owns between 20% and 50% of the voting capital and exercises significant influence (associated companies), are consolidated in accordance with the equity method. In the case of investments in jointly controlled companies that are separate legal entities, the proportional consolidation method of accounting is applied.
Consolidation of subsidiaries. Elimination of shares in subsidiaries is based on the acquisition method, where capitalised value of shares in subsidiaries is eliminated against equity capital in the subsidiaries. Any excess value/deficit at the time of acquisition is allocated to the assets/liabilities in question. Any excess value not directly related to a specific item is classified as goodwill. Goodwill is depreciated in the consolidated accounts over the expected commercial life, which will not normally be longer than 20 years.
Elimination of internal transactions. Internal receivables and payables, internal profits and losses, interest and dividends, etc. between group companies are eliminated in the consolidated accounts. Gains and losses on internal sales to/from Storebrand Livsforsikring AS are not eliminated as the profit of the life company is to be divided between customers and shareholders.
Minority interests. Minority interests’ share of the profit is stated after tax in the profit and loss account. This means that all items in the profit and loss account include minority interests. Minority interests are shown in the balance sheet as a separate item under the heading of equity capital.
Tax. The tax charge in the profit and loss account consists of tax payable and changes in deferred tax and deferred tax assets. Tax payable is calculated on the basis of taxable profit for the year.
Properties and real estate. Real estate owned by Storebrand Livsforsikring AS. The method used to value properties and real estate in the accounts differs as between the life insurance business and the group’s other businesses. The group's life insurance activities value properties and real estate at market value in accordance with Ministry of Finance guidelines. Any changes in valuation are recognised to profit and loss. Normal financial deprecation is not applied to real estate. The entry in the accounts for properties and real estate includes all types of assets, including real estate assets held through a separate limited company or through a Norwegian partnership (ANS). The accounting principle for property and real estate is that reality should take precedence over form. For the purposes of the life insurance company, these holdings are investments in property and real estate in the same way as directly owned property and real estate assets.
Properties and real estate held by other companies in the group. Ordinary depreciation is applied to properties and real estate held by other companies in the group.
Tangible and intangible fixed assets. Tangible and intangible fixed assets are valued at historic cost reduced by accumulated depreciation and write-downs. Fixed assets are reviewed in respect of the need to write down their value at the end of each accounting period if indicators suggest there may have been a fall in their value. The value of an asset is written down if realisable value is lower than book value. The realisable value is equivalent to value in use calculated with the help of budget figures and discounted cash flows, unless the net sales value of the asset is higher.
Specific loss provisions are intended to cover calculable losses on facilities which are identified as exposed to the risk of loss at the balance sheet date. In the event that a borrower becomes insolvent, enters into a composition with its creditors or is wound up, the value of any collateral security forms the basis for estimating possible losses. In other cases of default the borrower’s financial situation, including the borrower’s capacity to service indebtedness, and the value of collateral security form the basis for estimating possible losses. A facility is defined as being in default if 90 days have passed since the facility went into arrears or an unauthorised overdraft arose and the arrears or overdraft have not been remedied, or if the borrower is subject to winding up or a composition with creditors. The possibility of loss is also considered when other
factors such as weak liquidity, excessive gearing or weak earnings, or the value of collateral security, suggest that there is a risk of loss, with specific loan loss provisions established accordingly.
SECURITIES Shares held as fixed assets. Investments in shares in subsidiaries and associated companies are recorded in the companies’ accounts at cost price less any write-down of value. The need for any writedown is assessed at the end of each accounting period in the same way as for other fixed assets. Shares in other companies where the investment is of a long-term and strategic nature are treated in the same way. Storebrand Livsforsikring AS applies the equity method of accounting to investments in subsidiaries and associated companies in accordance with the regulations for the annual accounts of insurance companies.
Bonds and short-term debt instruments held as current assets. Bonds and short-term debt instruments held as current financial assets are booked at market value, which is the last known traded price. In the case of securities where no traded price is available, a price is calculated on the basis of the yield curve for the particular sector.
Changes in value caused by changes in the level of interest rates are treated as unrealised gains or losses.
Financial derivatives are recognised as current assets and valued at market value. Storebrand undertakes routine mark-to-market valuations of all derivatives. Valuation is based on actual market values in a liquid market where these are available. If no market price is available, market value is calculated on the basis of the market price of the underlying instrument by using mathematical models generally accepted for pricing such instruments.
In the group’s banking activities, only financial derivatives entered into in respect of proprietary trading (the trading portfolio) are valued at market value.
Equity and interest rate futures. Futures contracts (including equity futures) are reconciled daily on the basis of the previous day’s market prices. Changes in the values of futures contracts are recorded in the accounts as they occur as realised profit or loss.
Interest rate and asset swaps. Interest income and expense arising from interest rate and asset swaps are accrued continuously. Current assets are booked at market value.
STOREBRAND ASA Dividends and group contribution. The cost method of accounting is used to arrive at the value of subsidiaries in the parent company accounts. The main income of Storebrand ASA is the return on capital invested in subsidiaries. In the company’s accounts group contributions and dividends received in respect of these investments are therefore recorded as operating income. This treatment can only be applied to income earned by subsidiaries during Storebrand’s ownership. Otherwise receipts are recognised as equity transactions, and the value of the investment in the subsidiary is reduced by the amount of group contribution or dividend received.
LIFE INSURANCE Premium income for own account. Premiums for own account comprise premium amounts which fall due during the year, transfers of premium reserve and premiums on reinsurance ceded. Accrual of premiums earned is made through allocations to the premium reserve in the insurance reserve.
Claims for own account. Claims for own account comprise claims settlements paid out, including reinsurance assumed, premium reserves transferred from other companies, reinsurance ceded and changes in claims reserves. Claims not settled or paid out are allocated for in the premium reserve of the insurance fund.
Income and expenses of financial assets and the market value adjustment reserve. The income and expenses arising from financial assets reflect both realised items and changes in unrealised value. Unrealised gains are applied to a market value adjustment reserve and do not affect profit and loss. Financial expenses include the administration costs associated with the financial activities.
Additional statutory reserves in the insurance fund. Additional statutory reserves are a conditional reserve allocated to policyholders, which is booked to the profit and loss account as a mandatory reserve allocation. The maximum additional statutory reserve is set as the difference between the premium reserve, calculated on the basis of a 3.5% guaranteed return, and the actual guaranteed return in the contracts. In addition maximum limits apply in respect of individual contracts. Additional statutory reserves may be applied to meet any shortfall between actual return and the guaranteed return.
It is possible to increase the fund by 50% above the minimum allocation. In special situations the Financial Supervisory Authority of Norway may permit all or part of the fund’s surplus to cover a fall in the value of securities. In the accounts the entire fund is shown as a mandatory fund.
UNIT LINKED/DEFINED CONTRIBUTION PENSIONS Unit Linked and defined contribution pension products are sold through Storebrand Fondsforsikring AS. Financial assets are booked at market value. The level of technical reserves required in respect of such contracts is determined by the market value of the financial assets. The company is not exposed to any investment risk on customers’ funds since it does not guarantee any minimum return, except in the event of death when the deceased’s estate is entitled to a refund of premiums paid for annuity insurance.
Group contribution received from Storebrand Skadeforsikring AS *) 671.6 Storebrand Livsforsikring AS 200.0 Storebrand Kapitalforvaltning ASA 20.1
Dividend received from Storebrand Skadeforsikring AS 83.8 267.8 Storebrand Livsforsikring AS 230.0 Storebrand Alternative Investment ASA (for 2002) 2.9 *) Group contribution/dividend booked directly against equity 250.0 99.6 396.4
Ordinary wages and salaries 35.6 51.1 37.7 Employer's social security contributions 8.3 14.2 13.7
Økonomiske forutsetninger: pension cost deviation at 31.12.03 Return on pension fund 8.0% 7.0% Discount rate 7.0% 6.5% Annual earnings growth 3.0% 3.0% Expected adjustment of Social Security Fund's base amount (G) 3.0% 3.0% Annual pension increase 2.5% 2.0%
Actuarial assumptions: – Standardised assumptions on mortality/morbidity and other demographic factors as produced by the Association of Norwegian Insurance
The calculations apply to 38 full time equivalent positions and 2,402 pensioners.
Estimated effect of future salary growth -468.0 -62.5 -530.5 -503.2 -197.8
Estimated employer's social security contributions in respect of the pension liability shown in the balance sheet amount to NOK 35.4 million and is included in the balance sheet under 'Reserves for other risks and costs'.
Other taxable benefits 181 211 125 Pension cost **) 380 341 223
Tax payable -71.4 -Tax allowances carried forward 336.7 Tax on group contribution paid 265.3 Change in deferred tax 17.1 318.0 -173.6
Registered Share No. of shares Par value Interest Book NOK million office capital (1 000) NOK in % value Subsidiaries
Storebrand Felix kurs og konferansesenter AS Oslo 1.0 1 1 000 100.0% 8.0
If Skadeförsäkring Holding AB Sweden 22.47% 3 213.0 *) Merged with Compensation Management AS in 2003 with accounting continuity. **) Storebrand Bank AS and Finansbanken ASA merged with accounting effect from 1 January 2003.
The merger was carried out with accounting continuity. ***) Dividend of NOK 250 million was received in 2003, and applied directly to the balance sheet as an equity capital transaction. ****) 74.9% held by Storebrand Livsforsikring AS. Minority interests amount to 0.2%.
Other Norwegian shares Norwegian shares and other equity investments 412.3 373.5
Forward FX contracts – equities 0.2 Total shares and other current asset investments 459.8 380.7 Of which listed Norwegian shares 373.5 Of which listed international shares
Short-term debt instruments Bonds Total Acquisition Market Acquisition Market Acquisition Market
Short-term debt instruments and bonds held as current assets 432.6 435.2 44.7 44.7 477.3 479.9 Of which listed 279.6 3.4 283.0 Denominated in NOK 435.2 44.7 479.9 *) Convertible bonds issued by Storebrand Bank ASA.
The principal amount of the bond issue and the fixed rate interest payments, both denominated in EUR, have been converted through a swap transaction to a floating rate loan denominated in Norwegian krone. The foreign exchange risk arising on any premium in the event of cash redemption of the loan at final maturity has been hedged by the purchase of a EUR call option. If bonds are converted to Orkla shares, the swap transaction will in itself represent a EUR position. This possible position risk has been hedged by purchasing a EUR put option. The loan is valued at the current exchange rate. Both the swap transaction and the currency options are booked at actual value in the balance sheet, and any changes in actual value are recognised to the profit and loss account.
Depreciation for the year -1.0 -8.8 Book value at 31.12 32.3 32.2
Straight line depreciation periods for operating assets are as follows: Equipment and inventory: 4 years Motor cars: 5 years Computer systems: 3 years
Profit for the year 378.3 378.3 -73.7 -80.0 Tax on equity transaction 70.0 70.0 Allocated to dividend -222.5 -222.5 *) 278,070,522 shares of nominal value NOK 5.
**) Share capital was increased by 268,100 shares through a private placement with employees. The subscription price was NOK 16.72 per share. In accordance with the accounting circular issued by the Oslo Stock Exchange, this issue is booked at market value.
NOTE 15: Shareholders 20 largest shareholders Holding in % Folketrygdfondet 9.98 Skandia Life Insuranse 9.96 Orkla ASA 9.94 State Street Bank & Co. (NOM) 4.38 Den norske Bank ASA 3.98 Fidelity Funds-Europe 3.40 Ferd Invest 2.56 JPMorgan Chase Bank Fidelity L. (NOM) 2.44 JPMorgan Chase Bank Client (NOM) 2.04 Bank of New York, Brussels 1.79 Vital Forsikring ASA 1.46 Euroclear Bank S.A. (NOM) 1.05 Gjensidige NOR Sparebank 0.92 DnB Norge 0.84 Fidelity Funds-Nordic 0.77 Verdipapirfondet Avanse 0.77 PGGM (Fiduciary) Citibank, N.A. 0.75 Mellon Bank AS (NOM) 0.74 Odin Norge 0.70 The Northern Trust Co (NOM) 0.64 Foreign ownership 44.2%
No. of shares No. of bonus Loans Interest rate Repaymt. owned *) units **) NOK 1 000 at 31.12.03 basis ***)
Board of Directors Leiv L. Nergaard 20 000 Halvor Stenstadvold 3 593 Knut G. Heje 8 500
**) The Storebrand Group has a cash bonus scheme for key managers which is linked to the share price development of the Storebrand share. The bonus, which can be paid out no earlier than 2 or 3 years after it is awarded, is calculated as the difference between market share price and the contract share price of NOK 60, and is paid out in cash. The bonus scheme has defined periods in which it can be exercised, and expires no later than 2009. No further awards are made under this scheme.
Nils Erik Lie 0 Margrethe Øvrum 0 Brit Seim Jahre 0 Arvid Grundekjøn 0 Sverre Bjørnstad 2 816 Brit Hoel 0 Harald Moen 322 Harriet Hagan 2 000 Carl Graff-Wang 0 Christen Sveaas 0 Jon Ansteinsson 4 334 Barbara Rose Milian Thoralfsson 0
Profit and loss account items: Group contribution from subsidiaries 220.1 1 068.0 Dividends from subsidiaries 316.7 267.8 Purchase and sale of services (net) 13.4 5.9 1.0
Storebrand ASA has issued the following guarantees: Currency Terms Accounts provision 1) Institute of London Underwriters (ILU) GBP No specified amount 0 1) Counter indemnity of Oslo Reinsurance Company ASA (formerly UNI Storebrand International Insurance AS).
Investment yield II *) 8.8% 1.9% 1.5% Capital ratio (Storebrand Life group) 15.7% 18.4% 12.0% Operating costs as % of policyholders' funds 0.96% 0.92% 0.88% Storebrand Fondsforsikring Premiums for own account 455 1 071 974
Income from group and associated companies 2.1 5.6 7.7 2.1 5.6 7.7 Income from properties and real estate 775.5 950.7 942.2 775.5 950.7 943.1 Interest income – bonds & short-term debt instruments 4 577.4 3 842.3 3 851.7 4 648.5 3 881.2 3 909.2
Reversal of valuation adjustments – shares 499.6 501.2 77.7 Reversal of valuation adjustments – interest bearing instruments -334.2 2.0 0.7 -331.1 31.8 0.7 Gains on sale of shares 6 364.7 8 131.7 9 976.4 6 377.5 8 142.8 10 077.6 Gains on sale of fixed-income securities 2 225.6 5 928.8 2 504.4 2 270.2 5 931.4 2 547.9
Total income from financial assets 16 519.0 20 381.6 18 903.4 17 656.2 20 713.3 19 280.2
Unrealised loss on interest bearing instruments -55.9 118.4 -78.9 -63.1 110.2
Change in specific loan loss provisions for the period 23.7 178.3 -3.4 Change in general loan loss provisions for the period 0.7 -1.7 136.9 Realised losses on loans where specific provision has previously been made 147.6 90.5 147.0 Realised losses on loans where no specific provision has previously been made -0.5 145.4 12.3 Recovery of loan losses realised previously -1.2 -0.7 -23.5 Loan losses and provisions for the period 170.3 411.8 269.3 *) Pro forma
Ordinary wage and salary expense 299.2 266.8 210.6 776.6 860.2 815.9
Pension expense (incl. employers' social security contributions.) 27.4 22.6 10.9 60.9 59.9 50.4 *) Operating cost of Storebrand Livsforsikring AS NOK 995 million.
Auditors' fees for group companies Audit fees and other control functions NOK 12.2 million. Fees for advisory services NOK 3.5 million.
Staff pensions are provided by a group pension scheme, primarily with Storebrand Livsforsikring AS, in accordance with the rules on private occupational pension schemes. Pensions are payable at pension age which is 67 for employees and 65 for underwriters. The ordinary retirement age is 65, and a pension equivalent to 70% of pensionable salary becomes payable on retirement. Pension benefits form a part of the standard terms applicable to employment by Storebrand ASA. Early retirees are defined as those who retire before reaching age 65.
The changed assumptions affect pension liabilities at 31 December 2003. The effect of the changes is shown in the deviation not applied to profit and loss account at 31 December 2003. However the changes do not affect the pension cost or the amortisation of the deviation booked in 2003. The following assumptions were used in the calculations for 2003: Reflected in Reflected in Financial assumptions pension cost deviation at 31.12.03 Return on pension fund 8.0% 7.0% Discount rate 7.0% 6.5% Annual earnings growth 3.0% 3.0% Expected adjustment of Social Security Fund's base amount (G) 3.0% 3.0% Annual pension increase 2.5% 2.0%
Expected return on pension funds 196.7 196.7 201.5 209.8 Effect of changes to the pension scheme -0.1 -0.1 -0.2 *) In addition employers' contributions on pension cost of NOK 3.5 million were charged to profit and loss in 2003.
Estimated effect of future salary growth -584.1 -115.2 -699.2 -595.2 -309.2
Deviations from estimates not applied to profit and loss *) 325.9 -27.5 298.5 232.9 92.7 Change in deviation caused by changed assumptions at 31.12 19.1 13.2 32.3 2.1 Scheme changes not applied to profit and loss **) 2.0 0.1 2.0 Net pension liability as shown in the balance sheet 636.8 -431.3 205.5 134.8 58.4 *) Deviations from estimates are booked against the "corridor" in accordance with Norwegian Accounting Standards and amounts in excess of the corridor are recognised to profit and loss over the remaining period for accrual of pension rights (cf. Accounting Principles). **) The effect of scheme changes is applied over the average remaining period of accrual for pension benefits. Estimated employer's social security contributions in respect of the pension liability shown in the balance sheet amounts to NOK 57.3 million and is included in the balance sheet under 'Reserves for other risks and costs'.
Short-term debt instruments 15% 21% Other short-term financial assets 3% 5%
Total tax increasing timing differences 4 544.3 4 860.6 5 240.7
Accrued pension liabilities -409.9 -456.3 -481.6 Profit and loss account -0.6 -4.7 -5.8
Total tax reducing the timing differences -1 060.7 -2 332.3 -3 598.1 Net timing differences before losses carried forward 3 483.6 2 528.4 1 642.6
Capitalised to balance sheet 548.2 Not eligible for capitalisation 39.3 10.1 Net tax increasing/(reducing) timing differences -1 288.2 -2 323.9 -182.4 Deferred tax/Deferred tax assets (net) *) -360.7 -650.7 -51.4 *) Deferred tax arising from translation differences on investments in foreign companies is applied directly to equity and totals NOK 110 million.
NOK million cost 01.01 01.01 value 01.01 disposals the year value 31.12 period *)
*) Depreciation of goodwill over 20 years is based on a long-term earnings perspective and the companies’ strategic importance to
Market Ave. rent Term of Percentage NOK million value per sq. m. lease Sq.m. let Office premises (incl. commercial premises, parking and storage) 4 525.7 1 392 5.3 257 579 93.8% Shopping centres (incl. parking and storage) 4 733.2 1 305 3.0 312 838 97.9%
Total for Storebrand Life Insurance 9 651.0 614 322 Other companies 48.2
Ownership structure: Directly owned 4 345.2 Property company (AS) 4 733.3 Property partnership (ANS) 572.5
Depreciation for the year -1.3 -41.2 Write-downs/revaluations for the year 3.7 -1.0
No. of Acquisition Market NOK million shares/units Interest cost value Shares and other equity investments (fixed assets) Intre AS 34.7 34.7 Other shares and participations held long-term 2.2 2.2 Total shares and other equity investments (fixed assets) 36.9 36.9 Norwegian banking and finance shares Acta 1 000 000 0.45% 1.8 2.2
Forward foreign exchange contracts 33.3 33.3 Total short-term debt instruments and bonds including forward foreign exchange contracts 18 562.0 18 721.1 22 466.0 22 420.5 41 028.0 41 141.6
Liabilities EUR option sold – Orkla shares 1 038.0 896.9 -1 038.0 84.8 27.0
Salary account holders (private individuals) 1 446.8 14 226.9 2.5 15 676.2 15 928.4 16 277.5
NOTE 35: Deposits from customers and liabilities to other financial institutions
Total liabilities from securities issued 6 853.3 7 895.9 10 435.7
Norben Life and Pension Insurance Co. Ltd. 25% 31.0 45.6 13.1 58.7
Delphi SMB II AS 100% 1.0 1.0 -1.0 If Skadeforsäkring Holding AB 22.47% 4 354.9 3 196.1 391.1 324.3 3 911.5 -7.9 590.5
Paid in capital and retained earnings at 01.01 8 534.5 9 616.7 10 544.8 Profit for the year 789.6 -892.4 -951.6 Allocated for dividend -222.5 Share issue (net proceeds) 5.5 5.9 5.8
NOK million Borrower NOK Currency amount rate Maturity gain/loss 2003–2023, 6 mndr. EURIBOR +2.20%, call 2008, 2013 SB Life 1 541.4 EUR 186 4.40% 2023*)
1999–2009, 3 mndr. EURIBOR +0.75%, call 2004 SB Life 1 127.5 EUR 135 2.92% 2009 Total Storebrand Livsforsikring 2 668.9 -82.1 2000–2010 USD 10 mill, Libor +1.3%, call 2005 SB Bank 66.8 USD 10 2.60% 29.09.10 2000–2010, 3 mndr. NIBOR 1.3%, call 2005 SB Bank 110.0 NOK 5.00% 29.05.10 2000–2012, 3 mndr. NIBOR 2.0%, call 2007 SB Bank 100.0 NOK 9.00% 29.05.12 2003–2013, NIBOR + 2.25%, call 2008 SB Bank 100.0 NOK 7.00% 23.02.13 Total Storebrand Bank 411.8 *) Counts as perpetual subordinated debt for capital adequacy purposes.
Group Group Personal Annuity/ pension life endowment pension Non-life Total Total Total
Premium and pension adjustment fund 4 820.8 304.5 5 125.3 5 408.8 7 621.5
RECONCILIATION OF NET INCOME AND EQUITY BETWEEN N GAAP AND US GAAP FOR THE GROUP’S LIFE INSURACNE ACTIVITES The annual accounts have been prepared in accordance with Norwegian Generally Accepted Accounting Principles (N GAAP). The following tables provide a reconciliation between net income and shareholders’ equity in accordance with N GAAP and the same figures as they would be reported in accordance with United States Generally Accepted Accounting Principles (US GAAP) and show where the differences arise. The figures presented apply only to the group’s life insurance activities, which comprise Storebrand Livsforsikring AS and Storebrand Fondsforsikring AS.
Profit for the year Life Insurance – US GAAP 433.5 14.0 -108.1
Effect of estimated adjustments for US GAAP: Contract acquisition costs 1 208.9 1 405.1 Real estate -2 413.8 -2 297.0 Securities -197.5 126.0 Allocation of P&L adjustments to policyholders 920.0 504.8 Market value adjustment for securities 1 945.1 -58.6 Life insurance policyholders’ share of mark value adjustments -1 453.7 44.0 Tax effect of US GAAP adjustments 329.3 230.2 Dividend 374.0
Shareholders’ equity Life Insurance – US GAAP 4 178.7 3 194.5
Real estate. Under N GAAP real estate is booked at market value with changes in market value recognised in the profit and loss account, and no depreciation is applied.
Under US GAAP listed interest bearing securities are carried at market value with any premium or discount being amortised over the remaining maturity. Equities classified as “available for sale” are carried at market value. Differences between market value and the amortised value of interest bearing securities/historic cost of equities are applied directly to equity. Financial derivatives are carried at market value and changes in value are recognised to profit and loss. Gains and losses in respect of the foreign exchange element of hedged securities which are defined as “available for sale” are recognised to profit and loss in the same period as the hedging contract cf. FAS 133.
US GAAP would also apply a minimum allocation of 65% to the differences in profit which arise between N GAAP and US GAAP which are of a timing nature and affect measurement of the profit available for distribution between policyholders and owners. For the Unit linked activities of Storebrand Fondsforsikring AS these differences are allocated in full to profit and equity.
Deferred tax. Deferred tax has been calculated at 28% on the difference between N GAAP and US GAAP.
Storebrand has launched a project to prepare for the implementation of the IFRS standards. The project has completed the task of identifying the differences between the accounting principles used at present and the IAS/IFRS standards as currently defined. The project will move into an implementation phase in 2004, where the central activities will be the production of opening balances at 1 January 2004 in accordance with IFRS, restating 2004 quarterly interim accounts to provide comparable figures for 2005 and making the necessary changes to the systems that generate accounting reports. The project will also monitor the work of the International Accounting Standards Board (IASB) and implement new and amended accounting standards as they are introduced.
The main differences identified between current accounting principles and IFRS/IAS as currently defined. The following paragraphs provide brief information on certain areas where there are differences between Norwegian accounting practice and IFRS (not complete or exhaustive).
a) Insurance contracts. There are currently no IAS accounting standards for the treatment of insurance contracts. IASB has launched a two-phase project in this area. A consultation document issued in July 2003 on Phase I allows insurance companies to largely continue with current accounting principles until the Phase II standard comes into force. The Phase II standard is expected to be issued in 2006. Based on information available it will lead to major changes in accounting principles for insurance contracts, including a requirement that insurance liabilities and insurance assets are booked at actual value. This could lead to greater volatility in the earnings reported by the Storebrand group. The consultation document for Phase I includes a ban on what are known as catastrophe and smoothing reserves, and this could mean that certain reserves currently held by Norwegian insurance companies such as the security reserves for life insurance and non-life insurance would no longer be permitted. It is also unclear whether the market value adjustment reserve for life insurance would continue. The transition to IFRS would also, on the basis of the Phase I consultation document, require additional information in the notes to the accounts. As IASB has not yet reached any final decision on new standards, the information on likely changes must be regarded as provisional.
b) Financial instruments. The IAS standards IAS 39 and IAS 32 currently address the accounting standards for financial instruments and the related requirements for information in the notes to the accounts. The transition to IFRS will lead to financial instruments being booked at market value to a greater extent. Moreover the group may have to consider recognising its lending at amortised cost which would require changing Storebrand Bank’s lending system. IAS 39 includes comprehensive requirements that must be met in order for hedge accounting to apply. These rules address both the effectiveness of the hedge and its documentation. A consultation document on overall hedging of interest rate risk was issued in September 2003, and an agreed standard is expected in Q1 2004. Storebrand has not yet made any decision on whether to use the hedge accounting rules of IAS 39. There are no requirements to publish comparable historic figures when implementing IAS 39 and IAS 32, so the transition date for implementing the standards would be 1 January 2005.
This will mean that Storebrand Life Insurance will be able to book most of the real estate it owns at actual value in its unconsolidated accounts, with the exception of properties occupied by the company. All real estate can be booked at actual value in the consolidated accounts, but upward revaluations of properties occupied by group companies will not be taken through the profit and loss account unless the Ministry of Finance issues specific regulations for life insurance companies in this respect. Storebrand Life Insurance currently carries all real estate holdings at values close to actual value in accordance with the current Ministry of Finance regulations, with any change in value taken through the profit and loss account.
The Storebrand group will follow this principle. There are certain differences between the current Norwegian accounting standard for pensions and IAS 19, affecting matters such as the treatment of changes to the pension plan that affect accrued pension entitlements. These differences may cause a change in the book value of pension liabilities at transition.
Administration result: The difference between actual costs and those assumed for the premium tariffs.
Average yield is calculated in accordance with rules set by the
Cost ratio: Operating costs as a percentage of average customer funds.
Return on capital: Return on capital shows net realised income from financial assets and changes in the value of real estate, expressed as a percentage of the years average total assets in accordance with rules set by the Financial Supervisory
Annual percentage rate (APR): The true interest rate calculated when all borrowing costs are expressed as an annual payment of interest in arrears. In calculating the APR allowance must be made for whether interest is paid in advance or arrears, the number of interest periods during the year and all fees and commissions.
Instalment loan: An instalment loan is a loan on which the borrower makes regular partial repayments of principal in equal amounts throughout the repayment period. The borrower pays the sum of a fixed instalment amount and a reducing interest amount at each instalment date. Payments accordingly reduce over the life of the loan assuming a fixed interest rate.
The term financial derivatives embraces a wide range of financial instruments for which the current value and future price movements are determined by equities, bonds, foreign currencies or other traditional financial instruments. Derivatives require less capital than is the case for traditional financial instruments such as equities and bonds, and are used as a flexible and cost effective supplement to traditional instruments in portfolio management. Financial derivatives can be used to hedge against unwanted financial risks, or to create a desired risk exposure in place of using traditional financial instruments.
Basis swaps: A basis swap is an agreement to exchange principle and interest rate terms in a foreign currency. At the maturity of the contract, the principal and interest rate terms are exchanged back to the original currency. Basis swaps are used for hedging subordinated loans.
Foreign exchange options: A foreign exchange option confers a right (but not an obligation) to buy or sell a currency at a predetermined exchange rate. Foreign exchange options are used for hedging subordinated loans.
Interest rate swaps/Asset swaps: Interest rate swaps/asset swaps are agreements between two parties to exchange interest rate terms for a specified period. This is normally an agreement to exchange floating rate payments for fixed rate payments, and this instrument is used in the management of long term interest rate risk.
Stock futures (stock index futures): Stock futures contracts can be related to individual shares, but are normally related to stock market indices. Stock futures contracts are standardised futures contracts which are exchange traded and are subject to established clearing arrangements. Profits and losses on futures contracts are recognised daily, and are settled on the following day.
CONTENT: PAGE: Key Figures Group 2 Main Events of 2003 3 Storebrand at a Glance 4 In the Words of the CEO 8 Report of the Board of Directors 10 Highlights Financial Performance and Business Development 18 Financial Risk Managment 20 Corporate Social Responsibility 22 Increasing the Pension age – a Shared Responsibility 26
Storebrand Group companies 81 Terms and Expressions 82 Storebrand’s Management Structure 84 Addresses 85
Storebrand Investments UK 46 Queen Anne's Gate London SW1H 9AU United Kingdom
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