Most sustainable – again. Storebrand is again included on the list of the 100 most sustainable companies in the world.
Storebrand launches separate cancer insurance. The Norwegian Cancer Society will receive NOK 100 for every policy sold.
The Norwegian Customer Barometer shows that Storebrand has the most satisfied mandatory occupational pension customers.
Storebrand Life Insurance offers a wide range of products for occupational pensions, individual pension savings, life insurance and health insurance for companies, public sector entities and private individuals. Storebrand Life Insurance’s branch in Sweden offers occupational pension products based on Norwegian law in the Swedish market.
Storebrand Life Insurance’s objective is to be the most respected and customer focused life insurance company in Norway by offering its customers the most attractive products and the best advice and customer service.
Storebrand Investments offers a complete asset management concept with a clear socially responsible investment profile for institutional investors and the retail market. Asset management products include discretionary management, specialist products and mutual funds. Storebrand Investments ’ objective is to be the preferred asset manager for long-term savings and pension assets.
Storebrand Bank offers traditional banking services such as accounts and lending in the retail market, as well as project financing for selected corporate customers. The bank is a commercial bank with total assets of NOK 42 billion. The bank aims to actively recruit new customers to Storebrand by offering ‘no-fees’ banking for routine banking services.
Storebrand Skadeforsikring offers standard property and casualty insurance products in the Norwegian retail market. The company was launched in autumn 2006. With cost-effective distribution and an extremely customerfriendly online solution, the company has quickly established its position as a competitive insurer, offering peace of mind at low prices.
Pre-tax profit1 189 2 217 1 SPP profit had no effect on Storebrand’s profit and loss account in 2007.
At the close of 2007, the Storebrand group had 2,219 employees compared with 1,455 at the start of the year. 600 of these are employed in SPP.
The average Storebrand employee is 42 years old and has worked for us for 10 years. The group employs virtually equal numbers of men and women.
Storebrand strives for diversity. All Storebrand employees are treated equally, regardless of gender, age, disability, religious beliefs, cultural differences or sexual orientation.
The asset management business increased the amount of assets under management from NOK 217 billion to NOK 227 billion, the group has gained 9,155 new active retail banking customers, and during the year it gained 13,8947 new P&C insurance customers. The number of customers with three or more products in Storebrand has quadrupled
Major projects have been completed as planned. Our extensive project in connection with the new life insurance act was delivered as intended. The Storebrand Competitiveness project has covered 43 departments through 21 projects and realised productivity gains of 24 per cent. The group’s most important development goal is satisfied customers and once again Storebrand has the market’s most content occupational pension customers.
Establishing accounts for and servicing the more than 16,000 corporate customers we acquired through the mandatory occupational pension schemes has also been successful, as evident by Storebrand’s number one ranking in customer satisfaction surveys in this market as well.
At the same time, our role as a socially responsible player was confirmed by Storebrand being named on the World Economic
The SPP acquisition creates a significant basis for synergies and increased value creation. The integration work is well underway, and the announced objectives of increased earnings, lower cost consumption, and better utilisation of the group’s total capital have been confirmed. At the same time, the expansion of the group intensifies the need for operational efficiency and coordination across the companies and departments. The ongoing Storebrand Competitiveness project has already been initiated in SPP. The goal of 20 per cent increased productivity in all of the important processes in the group remains.
SPP supplies Storebrand with 33 130 new corporate customers and 553 500 retail customers. The total premium volume increases by 44 per cent and total assets under management grows by 73 per cent to NOK
Sweden is without doubt the Nordic region’s largest market for occupational pensions.
Storebrand was the winner in the transfer market for occupational pension schemes in 2007.
Oslo 1947. Callisthenics at work Callisthenics have been part of the working day in Storebrand ever since 1944. The photo shows Storebrand’s typists exercising to gramophone music. Photo: Aktuell / Scanpix 1767–1919: Roots
• 1814 Following the split from Denmark, management of the fire insurance scheme is transferred to Christiania, as the capital of Norway was known at that time. The scheme is later converted in 1913 into a public sector company called Norges Brannkasse.
• 1917 Seven existing life insurance companies jointly establish Norske Folk as a life insurance company. Idun is one of the initiative takers.
• 1963 Storebrand and Idun are the first insurance companies to move into their new premises in the restored Vest-Vika. Later, Brage-Fram and Norske Folk follow their lead and move into the district further down the road.
Storebrand acquires Norske Fortuna. Brage and Fram merge to become BrageFram Livs og Pensjonsforsikring A/S and becomes the country’s largest life insurance company.
• 1982 The Norden Group and Storebrand agree to merge with effect from 1983.
• 1990 Storebrand and UNI Forsikring agree to merge, and the merger receives regulatory approval in January 1991.
• 1992 UNI Storebrand’s negotiations with Skandia on establishing a major Norwegian -led, Nordic company fail to reach agreement.
• 2007 Storebrand acquires SPP, the Swedish life insurance and pensions provider, from Handelsbanken and becomes the leading life insurance and pensions provider in the Nordic region.
Figures for 2003 are historic NGAAP figures, while the figures for 2004–2007 are prepared in accordance with IFRS.
Calculation is based on average number of shares outstanding.1 Calculation is based on profit for the year adjusted for the year’s legally required post-tax allocations to security reserves etc. for P&C insurance and the share of profit due to minority 2 interests. In terms of the number of shares before the share issue, the dividend is equivalent to NOK 2.18 per share. 3
latory regimes and similar products across the Nordic region, as well as Europe, which makes cross-country synergies more visible and easier to realise, especially within the growing markets for defined contribution and unit linked pension products; the advantages of long-term economics •
ing from geographic diversification of the portfolio, which is encouraged in Solvency
Expansion into a highly attractive growth market in Sweden The Nordic life insurance and pension market has historically enjoyed high growth with a growth rate for total premium income of 8 per cent2 over the last 10 years (1997–2006), and 10 per cent within the occupational pension segment.
The Swedish life insurance market has a growth rate for total premium income of 9 per cent over the last 20 years3.The growth within the occupational pensions segment has been even higher, with 13 per cent average annual premium income growth between 1998 and 20074. The total competitive market in 2007 is estimated at SEK 139 billion (NOK
On 3 September 2007, Storebrand entered into an agreement with Handelsbanken for the acquisition of SPP and related companies, including the asset management business of SPP Fonder. The transaction was closed 21 December 2007. SPP is a leading Swedish life insurance and occupational pension provider.
Source: National Insurance associations 1 CAGR = Gjennomsnittlig årlig vekstrate 2 CAGR for 1997-2005 på grunn av manglende data for 2006 8% CAGR
CAGR- Compounded Annual Growth Rate 1 2007 figures for Norway are preliminary 2 2007 growth figures are estimates based on quarterly statistics from the Swedish Insurance Federation 3 CAGR 1997–2006
117 billion) based on premium income5. The key drivers behind this growth have been, among others, demographic changes, growth in employment, changes in the regulatory framework and high wage growth.
Good strategic fit between Storebrand and SPP The acquisition provides an opportunity to capitalise on the complementary skills and experience of the two groups.
ence in the competitive pensions transfer market in Norway will assist SPP when the
Swedish market opens up for transfers of occupational pensions (expected in May 2008).
liability management policies to improve returns to customers and owners, and lower asset management expenses.
The history of the two companies is similar and both are significant participants in their domestic markets for occupational pensions.
Storebrand and SPP have co-operated with each other previously when founding Euroben and were co-owners of Nordben. Storebrand expects the similarities between the two businesses to result in a smooth integration.
SPP Business Description SPP is a leading Swedish life insurance and pension provider with a 10.1 per cent market share in the competitive Swedish occupational pensions market in 2007. SPP has a leading position in the conventional occupational pension segment with a 12.6 per cent market share and in the tick-the-box market with a 6.3 per cent market share. In addition, SPP
SPP is the only company represented within all products and service areas in the Swedish market with both unit linked, traditional insurance with guaranteed interest rate, and defined benefit products. SPP’s key products are defined contribution pensions, defined benefit pensions, unit linked pensions and occupational health insurance products (disability insurance).
As at 31 December 2007, the SPP Business had AuM of SEK 152 billion (NOK 128 billion), of which SEK 93 billion (NOK 78 billion) were traditional life assets, SEK 31 billion (NOK 26 billion) were unit linked assets and SEK 28 billion (NOK 24 billion) were in PPM (premium pension) and other mutual funds (excluding unit linked). PPM is part of the Swedish public old-age pension system.
Source:1 Handelsbanken/SPP based on statistics from Sveriges Försäkringsförbund (The Swedish Insurance Federation). Compound average annual2 Source: Handelsbanken/SPP based on statistics from Svenska Försäkringsföreningen (The Swedish Insurance Association). Compound average annual3 2007 growth figures are estimates based on quarterly statistics from Sveriges Försäkringsförbund (The Swedish Insurance Association).4 Source: Handelsbanken/SPP based on statistics from Sveriges Försäkringsförbund (The Swedish Insurance Federation).5 Source: Handelsbanken/SPP based on statistics from Sveriges Försäkringsförbund (The Swedish Insurance Federation).6 Source: Handelsbanken/SPP based on statistics from Sveriges Konmuner och Landsting.7 Source for market shares in this paragraph: Handelsbanken/SPP based on statistics from Sveriges Försäkringsförbund (The Swedish Insurance Federation).8
This year’s corporate responsibility article covers some of the highlights of 2007 as well as our primary focus areas for 2008. For more comprehensive information please see the group’s 2007-2008 Corporate Responsibility
Corporate responsibility in SPP When Storebrand acquired SPP, the Swedish life insurance and pensions provider, it adjusted its vision: Storebrand shall be the leading and most respected institution in the Nordic market for long-term savings and insurance.
During 2008, we will systematically integrate the work on corporate responsibility in SPP
Organising Corporate Responsibility Storebrand’s focus on corporate responsibility has been further strengthened now that this area is directly represented in the executive management. This will enable the Executive Vice President, Corporate Responsibility, to contribute to all important discussions in the group. It signals increased strategic focus and strengthens the basis for further work in this area.
Responsible investments Storebrand started its work on responsible investments in 1995. We are now one of the leading companies globally in this area.
All our funds and pension portfolios are subject to comprehensive corporate responsibility criteria. We call these our group standard for responsible investments (see figure next page). As of 1 January 2008, 91 companies were excluded for unacceptable activities or engagements, or contributing to unacceptable activities, in relation to the group standard. The objective is not to exclude companies, but to promote more sustainable business practices. In our experience, the return on investments has not been negatively affected by the restrictions concerning investment options to which our portfolio managers are subject.
As a responsible and inclusive company, we have therefore established a Diversity Committee. This systematic work on diversity is intended to ensure the company can reach new customer groups and provide a better service to a steadily more diverse population.
New Health and Safety concept Storebrand wants to motivate and inspire its customers and employees to create health promoting and inclusive workplaces. If we, together with many of our customers, work towards the same goal this will help reduce sick leave, fewer people will be occupationally disabled, and the average age of retirement may increase. Fewer people will be on state benefits, value creation in society will increase, and social costs may fall significantly.
Measures availability of customer/employee portal between 07:00 and 01:00.1 The target was new in 2006 and has been adjusted because it proved unrealistic and inappropriate to deal with all complaints within 3 weeks.2 Return compared to the Morgan Stanley Capital International World Index, annualised, last 5 years.3 The goal is reduced from 80% to 70% as this is deemed more realistic. 4 The survey is only conducted every other year. 5 Includes both self-certified and doctor-certified sick leave.6 Long-term target of 4% is maintained, but with an interim 2-year target of 4.8%.7 Only applies to properties with EOS (energy monitoring system, 14 of 19 properties).8 There are some uncertainties linked to this number as it is the first time Storebrand reports on air travel9 There are some uncertainties linked to this number as it is the first time Storebrand estimates our carbon footprint10
We measure our performance by Status 2006 Status 2007 Target 2008
Percentage of post-tax group profit distributed as dividend 29.3% 27% > 30%
Customers Percentage of problem-free customer enquiries via internet1 97% 98.2% 98%
Proportion of tel. calls answered within 20 sec. (customer centre) 81% 73% 80%
Proportion of tel. calls answered within 20 sec. (main switchboard) 91% 91% 90%
Employees Percentage of management positions held by women 38% 37% 40%
Percentage of employees satisfied with personal development opportunities - 60% 70%4
Illness absence as an average annual percentage6 5.1% 4.6% Max 4.8% (4%)7
Financial support for charitable organisations and other measures for society as a whole
Energy consumption (head office) Reduced by 14% Reduced by 15.8% Reduce by 5%
Storebrand has purchased UN certified carbon emission credits from a wind power project in Satara and Supa in the Indian state of Maharashtra in order to become climate neutral.
The project consists of windmills connected to an electricity supply grid that supplies the state with renewable electricity, which in turn reduces the need for fossil fuels. The project thus helps to reduce emissions of climate gases.
product for our corporate customers in the private and public sectors. In order to reach more customers we developed our HSE provision in 2007 to also include network groups and experience sharing conferences, as well as seminars and consulting services. We have also commenced a HSE partnership with the Confederation of Norwegian Enterprise
(NUES) presented Storebrand with the award for best reporting on corporate governance for its 2006 Annual Report. Storebrand has been a driving force behind the development of the corporate governance principles that apply to Norwegian companies.
The Norwegian Cancer Society – our new principal partner Working with non-profit organisations has been a mainstay of Storebrand’s sponsorship strategy for many years. During 2007, we arranged many joint events with the Norwegian
Christmas gifts to good causes rather than receive a gift from the group themselves.
Cross. The organisations presented specific projects they wanted support for during the
Christmas season. All of the employees had an opportunity to decide which organisation they wanted to support. NOK 300,000 was thus distributed to the organisations based on the percentage of people who nominated each organisation.
Environmental classification of cars In June, we developed and launched, in partnership with the environmental foundation GRIP, a unique environmental and safety classification system for all types of cars.
Storebrand is thus the first company in Norway to apply the EU environmental standards for the classification of cars. Consumers can test their own cars on www.storebrand.no.
Norwegian Ministry of the Environment. We have thus committed ourselves to estimating our carbon footprint and to implement measures, and in the next phase wholly or partly compensate for our own emissions through the voluntary purchase of climate quotas.
certified climate quotas (certified emissions reductions – CER) equivalent to our direct emissions as early as from 2008, which makes Storebrand the first climate neutral financial institution in the Nordic region (see fact box).
The Storebrand group is made up of four business areas: life insurance,
P&C insurance, asset management and banking. The group’s head office is located in Oslo and a nationwide network of offices has been established in Norway. It has in addition established life insurance, asset management and health insurance activities in Sweden. Following the acquisition of the Swedish life insurance and pensions provider SPP in
December 2007, Storebrand is now the Nordic region’s leading provider of life insurance and pensions. Storebrand offers a comprehensive range of products to retail customers, corporate customers, municipalities and the public sector.
Storebrand started selling P&C insurance one year ago and has since then gained more than 16,000 retail customers. 59% of the customers bought their policies online and in 2008 the company will start selling standardised corporate products to defined target groups.
Developments in the financial markets are of great importance to Storebrand and 2007 was characterised by volatile stock markets. There were also major movements in the fixed income markets in 2007. In the first half of the year interest rates increased, but fell in the second half of the year, especially in the USA. This turbulence has continued into 2008.
The operating profit generated by Storebrand Livsforsikring AS (Storebrand Life Insurance) before distribution between customers and the owner was NOK 4,138 million compared with NOK 5,175 million in 2006.
215 million. The one-time effect was due to a write-back of an earlier expense booked against equity pursuant to IFRS and linked to pension costs included in the allocation of profit model in the life insurance company. The group’s 50% interest in Storebrand Helseforsikring provided a profit of NOK 13 million, which is an improvement of NOK 7 million compared with 2006. The total profit for the life insurance business was thus NOK 1,635 million in 2007.
Storebrand Bank Group achieved an operating profit before loan losses of NOK 157 million in 2007 compared with NOK 143 million in 2006. Loan and guarantee losses and write-downs represented a net write-back of
income ratio experienced a positive development, driven by the bank’s efficiency measures.
Other: In addition to the profit reported from Storebrand Skade and
In accordance with Norwegian accounting legislation, the Board confirms that the company meets the requirements for producing the accounts on the basis of a going concern assumption.
Business areas Life insurance: Good results from the management of customers’ assets are the most important element for profitability with respect to savings related products. The company achieved a good booked return in 2007.
Net gains on securities amounting to NOK 4,278 million were achieved in 2007 compared with NOK 3,402 million in 2006.
A new insurance act came into effect on 1 January 2008. The new act entails extensive changes for the insurance sector and Storebrand has worked intensively to ensure it is as well equipped as possible for this restructuring. The objective of the new insurance act is to achieve greater predictability and transparency in the pricing of pension products, and to create a clearer difference between the customers’ and the companies’
own assets. The general rule in the new legislation is that prices shall be set with final effect and paid in advance.
BARBARA ROSE MILIAN THORALFSSON (49), Director, Fleming Invest AS. MBA, Graduate School of Business, Columbia University, New York. 2001­2005 CEO, NetCom AS. 1995­2001 CEO, Midelfart & Co. AS. 1998­1995 EVP Sales and Marketing, Midelfart & Co AS. 1987­1988 Product Manager, AS Denofa and Lilleborg Fabrikker. 1984­1987 Product Manager, General Foods Corp., New York. 1983 marketing, Pepsi Cola Company, New York. 1981­1983 marketing assistant, General Foods Corp., New York. 2006­ board member, SCA AB. 2006­ board member, Storebrand ASA. 2006­ board member, Norfolier AS. 2006­ board member, Tandberg ASA. 2005­ board member, Stokke AS. 2005­ council member, SOS Barnebyer. 2005­ board member, Fleming Invest AS. 2003­ board member and member of audit committee, Electrolux AB. 2002­ board member, Rieber & Søn ASA. 2000­2005 member of Board of Representatives, Storebrand ASA.
This can be seen from the substantial growth in both volumes and the number of customers. The lending portfolio increased from NOK 31.2 billion to NOK 37.1 billion in 2007. The positive growth in the number of customers experienced by the bank after it became a ‘no-fees’ bank in 2005 continued in 2007.
Storebrand Bank has developed its good position within the property segment for corporate customers. A new strategy has been developed for the area. The main goal of this strategy is to expand the range of products for the customers in order to increase the proportion of non-balance sheet driven income. Storebrand Bank wants to be a complete provider of financial services to property investors in key districts. Storebrand Markets was established as a new business area in 2007 to ensure there is sufficient strength behind the property venture. The business area has been built from a combination of existing business within foreign currency, stockbroking and structured savings products. Storebrand Bank ASA has acquired Hadrian
Næringsmegling and established a small corporate team with competence in business property in order to offer a more complete range of services.
Bank ASA launched the Storebrand Eiendomsfond (a real estate mutual fund) in 2005 and Storebrand Optimér in 2006 (a product that combines
SIGuRDuR EINARSSON (48), Executive Chairman, Kaupthing Bank. Master’s degree in Economics (Cand. Polit.), University of Copenhagen. 1994, Authorised Securities Dealer in the European Economic Area (EEA). 1997­2003, CEO, Kaupthing Bank. 1996­1997, Deputy Managing Director, Kaupthing Bank. 1994­1996, Executive Director, Capital Markets, Kaupthing Bank. 1988, Deputy to the Director of the International Department and Deputy to the Director of the Treasury Department, Islandsbanki hf. (now Glitnir banki hf.). 1982­1988, various positions, International Department and Financial Department, Den Danske Bank. 1993­1997, assistant professor, University of Iceland. Board member, various subsidiaries of Kaupthing Bank. Board member in Norvestia and Storebrand ASA. 1996­1997, Vice Chairman, Iceland Stock Exchange equity and real estate investments in a single portfolio). The funds performed well in 2007.
Asset management: At the end of 2007, Storebrand Investments was managing NOK 227 billion in mutual funds and individual portfolios for insurance companies, pension funds, municipalities, institutional investors and retail customers.
Property and casualty insurance: Storebrand Skadeforsikring was re-established in the autumn of 2006. The new business area provides standard P&C insurance products in the retail market. Apart from the new business, Storebrand Skadeforsikring bears fronting responsibility for the risk associated with policies taken out before the transfer of the
P&C insurance business to If in 1999 and the run-off of its own reinsurance business and managing other companies’ run-off business through a subsidiary, Oslo Reinsurance Company. The retail P&C insurance market continues to be characterised by satisfactory profitability. However, in the company’s opinion the competition was somewhat tougher in 2007.
Storebrand Skadeforsikring has helped to set a new standard for online sales solutions within P&C insurance, and more players are now offering new and improved solutions in this area. It is anticipated that the proportion of online sales will increase dramatically in the years ahead. 2007 was a year characterised by strong growth in Storebrand Skadeforsikring.
The annual premium increased from NOK 8 million to NOK 121 million. It is anticipated that the growth will continue in 2008 and that the annual premium will more than double during the course of the year. At the same time as there has been significant growth, the company has focused on profitable growth. So far the development in claims suggests that the company is well positioned to succeed in this area. A claims ratio of 70% in the new business is regarded as satisfactory during the start-up phase.
results in a summary of risks and pertinent improvement measures. This summary is presented to and dealt with by the Board.
A significant proportion of savings-related life insurance products incorporate a guaranteed minimum annual return, currently just over 3.5%
This places particular demands on how the life insurance company allocates its investments between securities and other assets, and on the quality of the company’s risk management. Rising interest rates over the course of 2007 have helped to strengthen the life insurance company’s risk-bearing capacity. The company has invested a significant part of its financial fixed assets in bonds classified as ‘hold to maturity’, which generate a running yield in excess of 5%.
The total risk capital of the life insurance company declined by NOK 1.3 billion in 2007. Additional statutory reserves increased by NOK 0.2 billion while the market value adjustment reserve was reduced by NOK 2 billion.
On 1 January 2006, SPP was restructured such that the company assumed some of the financial risk the customers previously bore. This means that latent deficits could arise with respect to certain customers.
Additional statutory reserves Market value adjustment reserve Adjustment core capital margin Profit accrued
Risk capital as % of policyholders’ funds excluding additional statury reserves 8.9 bn 11.1 bn 15.5 bn 16.8 bn 13.6 bn
CAMILLA M. GRIEG (44), CEO, Grieg Shipping Group AS. Authorised Financial Analyst (AFA), NHHK/NFF. 1989 MBA, University of San Francisco. 1986 Cand. Mag., University of Bergen. 1998­2006 CEO, Grieg Shipping AS. 1995­1998 director, Grieg Shipping AS. 1993­1995 corporate market analyst, Star Shipping. 1990­1993, financial analyst, Bergen Fonds AS. 2007­ Chairman of the Board, Bergen Shipowning Association. Board member, Grieg Shipping Group AS, Star Shipping AS, Grieg Maturitas AS, GCRieber AS, Storebrand ASA. 2005­2006, board member, Rieber Shipping AS. 2000­2005, board member, Serac AS
In order to manage the exposure to various types of market risk the company stipulates a reference portfolio in its investment policy and the pertinent ongoing risk management that is practised. The risk management is exercised by adjusting the customers’ portfolios and the company’s own assets. This could involve changes in the allocation of risk-bearing assets or utilising derivatives. The company’s investment policy also includes limits and guidelines for credit and counterparty risk. Liquidity risk is estimated by a significant portion of the financial investments being placed in listed securities with good liquidity.
The bank has standard procedures for reviewing its lending and all new lending is approved in accordance with the bank’s credit policy. The bank monitors its credit risk through a risk classification system. Lending to corporate customers over a certain limit requires the approval of a credit committee chaired by the CEO, or by the bank’s Board. Credit risk is monitored through a risk classification system that ranks each customer by ability to pay, financial situation and collateral.
Oslo Reinsurance Company ASA has been in run-off since 1994. The company ’s risk exposure has reduced significantly over this period. The level of reserves is determined by actuarial principles.
In 2000, Storebrand Skadeforsikring AS transferred all its run-off landbased Norwegian non-life insurance and all direct marine insurance to If through a 100% reinsurance arrangement. The result is that the company has retained fronting responsibility for run-off business, but has no commercial responsibility unless If becomes insolvent. This risk is therefore limited to a credit exposure to If. If has a Standard & Poor’s rating of
Capital situation The level of equity and debt in the company is managed relative to financial risk and capital requirements in the business. The goal of capital management is to ensure an effective capital structure and preserve an appropriate balance between internal goals in relation to the statutory and rating companies’ requirements. The group has set long-term targets
HALVOR STENSTADVOLD (63), independent advisor. MSc Political Science, University of Oslo. 1996­2006 member of Orkla’s executive management, 1988­1996 various management positions Orkla ASA. 1981­1984 Parliamentary Secretary Ministry of Consumer affairs and Government Administration. 1979­1988 Bank manager, Kreditkas­ sen, Oslo. 1975­1979 Deputy Mayor and later Mayor of the Municipality of Bærum. 1974­1979 consultant, The Federation of Norwegian Industries. 1972­1974 assistant lecturer, University of Oslo. 2002­ board member, Statkraft Group. 2000­ board member, Storebrand ASA. 2005­2007 Chairman of the Board, The Oslo Stock Exchange (Chairman from 2006).1994­2000 Chairman of the Executive Board, The Research Council of Norway, 1994­2000 member of Board of Represen­ tatives, Storebrand ASA. 1986­1990 Chairman of the Board of NRK
There has been a reduction in the solvency margin in the life insurance company due to the acquisition of SPP and the consolidation effects that follow from the acquisition. The solvency margin in SPP was 178% at the end of 2007. Storebrand Livsforsikring AS also has a goal of maintaining an A rating, which was achieved at the end of 2007. The holding company aims to have a net debt ratio of zero over the longer term.
Storebrand ASA bought back 1.0 million of its own shares in 2007 at a total cost of NOK 93 million. The company sold 236,300 shares as part of the company’s share purchase programme for employees, raising a total of NOK 15 million. Storebrand ASA held 5.3 million of its own shares at the close of 2007. In connection with the acquisition of SPP, Storebrand
NOK 8,670 million. 200,090,786 shares were issued at a subscription price of NOK 45 per share. The group’s equity increased by NOK 10,431 million during the course of 2007 and amounted to NOK 19,421 million at the end of the year.
The group’s capital base, which consists of equity, subordinated loan capital, the market value adjustment reserve and additional statutory reserves, amounted to NOK 34.1 billion as per 31 December 2007 compared with NOK 24.1 billion at the end of 2006. The group’s total capital base, including SPP’s ‘conditional bonuses’, as per 31 December 2007 amounted to NOK 47.8 million. The group’s capital adequacy was 9.2% as per 31
At the close of 2007, Storebrand Livsforsikring AS was rated A and A2 respectively by Standard & Poor’s and Moody’s. Storebrand ASA was rated BBB+ and Baa2 respectively by Standard & Poor’s and Moody’s.
and Storebrand ASA in connection with the acquisition of SPP, however the rating outlooks were changed from stable to negative. Moody’s rating has a stable outlook.
The 2007-2008 Corporate Social Responsibility Report describes the work done to achieve the goals we have set for ourselves (see se www.storebrand. no/samfunnsansvar). Some of the highlights in 2007, including the status of the around 40 goals we have set ourselves, are described in the article on corporate responsibility on page 14.
ANN-MARI GJøSTEIN (45), employee elected. Senior employee representative. Market Economist, BI Norwegian School of Management. 2001­2007, training manager and course consultant, Storebrand Bank. 1997­2001, financial advisor and funds advisor DnB. 2007­ board member, Storebrand ASA.
foundation GRIP, a unique environmental and safety classification system for all types of cars. Storebrand is thus the first company in Norway to comply with the EU environmental standard for the classification of cars. Storebrand became the first financial institution to sign up to the
Human resources and organisation: Employment in the group, after the acquisition of SPP, totalled 2,219 employees at the end of the year compared with 1,455 at the start of the year. Employment is virtually equally split between male and female employees. The average age of the group’s employees is 42, with an average length of service of 10 years. All Storebrand employees are treated equally, regardless of gender, age, disability, religious beliefs, cultural differences or sexual orientation.
the Young Professionals Programme (YPP). A significant increase in competence has been achieved within professional training. Our professional employees have, due to statutory changes within financial advice (MiFID)
Storebrand implemented targeted measures in the period to encourage more women to take on management responsibility. This included the company’s active participation in an external mentoring programme for female staff. 43% of the participants in internal development programmes were women. In 2006, the group participated in Futura, the Norwegian
KNuT DyRE HAuG (52), employee elected. Assistant Director, Retail Market, Storebrand Life Insurance. Officer’s Training School, authorised insurance advisor. 2000­ Storebrand Life Insurance. 1998­1999 Markets Director, Sparebank1 Livsforsikring. 1978­1998 various positions, Storebrand Life Insurance. 1990­2006 lecturer and author, BI Banking & Finance and BI Insurance. 2002­ head of project committee for authorisa­ tions, FNH. 2007­, Chairman of the Board, Boligstiftelsen Ungdomsboliger in Asker. 2007­ board member, Asker and Bærum housing cooperative. 2007­ member, Board for Banking, Insurance and Finance Studies.
employees to see. This can also be used by employees to anonymously communicate concerns directly to the Board of Directors.
Sick leave: Storebrand has systematically worked to reduce sick leave over many years, and the group has participated in the ‘Inclusive workplace ’ scheme since 2002. Sick leave in the group in 2007 was 4.6%
compared with 5.1% in 2006. The target for 2008 is a sick leave rate of 4%. Internal guidelines, “If you fall ill”, have been produced to support this work.
Elin Korvald, Henrik O. Madsen and Einar Gaustad were elected as new deputy members.
The Board wishes to thank the retiring members of the Board of Representatives, the Election Committee and the Control Committee for the valuable contributions they have made to the company.
Nordic region in particular, affect the financial markets, employment rates and income levels in the retail and corporate markets. These will in turn affect interest rates and share prices, the number of members in pension schemes, and the amount of money available for savings in society as
Storebrand’s vision is to be the Nordic region’s leading and most respected partner within long-term savings and insurance. The group’s financial goals have been adjusted as a consequence of the acquisition of SPP.
adopted a new dividend policy with an increased distribution ratio. The new dividend policy is as follows: “The dividend policy shall contribute towards providing shareholders with a competitive return and optimising the company’s capital structure. The dividend to shareholders will normally represent more than 35% of the full-year profit after tax, but before amortisation costs. The Board wishes to have a dividend policy with a long-term horizon, and will aim for stable year-on-year growth in dividend per share.”
NOK 1.20 per share, excluding the company’s holding of bought back shares, equivalent to NOK 534 million. The proposed dividend is based on the number of shares prior to the acquisition of SPP and the associated rights issue, since the acquisition took place at the end of 2007.
Distributable reserves amounted to NOK 3,728 million as per 31 December 2007.
(OSE) with the ticker code STB. Storebrand ASA’s share capital at the start of 2007 was NOK 1,249 million. In connection with the acquisition of SPP, the company’s extraordinary general meeting held on 24
October 2007 voted to conduct a rights issue of 200,090,786 new shares. Following the issue the share capital on 31 December 2007 amounted to NOK 2,249.5 million made up of 449,909,891 shares each with a par value of NOK 5.
measured by the number of shareholders. The company has shareholders from almost all the municipalities in Norway and from 41 countries. In terms of market capitalisation, Storebrand was the 12th largest company listed on the OSE at the close of 2007.
Share purchase arrangements for employees Every year since 1996 Storebrand ASA has given its employees an opportunity to purchase shares in the company through a share purchase scheme. The objective of the scheme is to involve employees more closely in the company’s value creation. Employees were also offered an opportunity to purchase shares in Storebrand in 2007. In
Share price development The Storebrand share produced a total return (including dividend) of -13% over the course of 2007. The OSE benchmark index (OSEBX)
Dividend policy Based on the company’s dividend policy, the Board of Storebrand ASA
The Board of Directors of Storebrand ASA has approved a new dividend policy that envisages distributing a higher proportion of earnings. The new dividend policy is as follows: “The dividend policy shall contribute towards giving shareholders a competitive return and towards optimising the company’s capital structure. The dividend to shareholders will normally represent over 35% of the full-year profit after tax, but before amortisation costs. The Board wishes to have a dividend policy with a long-term horizon, and will aim for stable yearon -year growth in dividend per share.”
RISK adjustment (Only relevant for Norwegian shareholders) RISK amounts for shares in Storebrand ASA: As at RISK amount NOK As at RISK amount NOK
When shares are sold, the opening value/purchase price of the shares will be adjusted by the total of the RISK amounts during the period of ownership. An overview and summary of RISK-values together with selected historical acquisition values can be found at www.storebrand.no/ir.
particular emphasis on ensuring that its routines and guidelines satisfy the formal requirements imposed by the authorities on securities trading. In with connection this, the company has produced internal guidelines on trading in the company’s shares by insiders based on current legislation and regulations. The company has its own compliance system to ensure that the guidelines are followed.
Shareholders who do not give notice of attendance will be able to attend, but not vote.
No. of ordinary shares at 31.12. (1,000) 449 910 249 819 258 526 278 181 278 070
24 April : Ex dividend 30 April : 1st quarter results 2008 12 August: 2nd quarter results 2008 20 October: 3rd quarter results 2008
In order to strengthen Storebrand’s work on corporate governance further, a special Corporate Governance Committee was established in 2006. The committee is responsible for ensuring good corporate governance practice across the Storebrand group.
Stock Exchange make it compulsory for listed companies to issue an annual statement of practice in accordance with the Norwegian Code of Practice for Corporate Governance.
IMPLEMENTING AND REPORTING THE GROuP’S OBJECTIVES, STRATEGIES AND VALuES (CoP sections 1 and 2) The Articles of Association of Storebrand ASA stipulate that it is the holding company of a financial institution and its objective is to manage its equity interests in the group in compliance with the relevant legislation. The Articles of Association are available in their entirety on the group’s website: www.storebrand.no.
The full text of the Norwegian Code of Practice for Corporate Governance is available on the Oslo Stock Exchange's website: www.oslobors.no/ob/cg. Storebrand meets the requirements of the Norwegian Code of Practice for Corporate Governance. Deviations from the Code of Practice – neither the law nor the Articles of Association require that a Deputy Chairman of the Board of Storebrand ASA be elected.
SHAREHOLDER MATTERS (CoP sections 3, 4 and 5) The Board continually monitors the company’s capital adequacy in the light of its objectives, strategy and risk profile. The Board has established a clear and consistent dividend policy. The decision on payment of a dividend is made by the Annual General Meeting (AGM), based on a proposal put forward by the Board. Storebrand ASA has only one class of shares, and Norwegian legislation does not permit shareholders to accumulate votes from one matter in order to cast additional votes for another matter (cumulative voting). Storebrand has no specific restrictions on ownership of shares or voting rights in the company other than the restrictions imposed by the Financial Institutions Act. All shares have equal rights, and are freely negotiable. The Articles of Association do not impose any limitations on the negotiability of Storebrand shares.
Deviations from sections 3,4 and 5 of the Code of Practice: None
Election Committee (CoP section 7) Storebrand ASA’s Articles of Association regulate the company’s
Election Committee, which has four members. In accordance with the provisions of the Articles of Association approved by the AGM, the chairman of the Board of Representatives is a permanent member of the Election Committee and its chairman. The other members are elected by the AGM. 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. The
Election Committee is not directly elected to this position by the AGM.
Board of Representatives (CoP section 8) The Board of Representatives in Storebrand ASA is a legal requirement, and has 18 members, of which 12 are elected by the AGM
It is a statutory requirement that the members elected by the AGM
From 2008 it will be proposed that the company’s Articles of Association be amended such that the members of the Board are elected for a one-year term of office. Six members are elected by the Board of Representatives after considering recommendations made by the
Election Committee. Three members are elected by and from the employees. The Chief Executive Officer of Storebrand ASA (the group’s
CEO) is not a member of the Board. None of the members elected by the Board of Representatives have any employment, professional or consultancy relationship with the group other than their appointment to the Board. CVs for the members of the Board are provided on pages 18–26 and on the group’s website. The Board of Storebrand
The work of the Board of Directors (CoP section 9) The Board meets at least nine times each year. In 2007, the Board held 21 meetings and one Board conference. The attendance records of individual Board members can be found on the group’s website.
Chairman based on the approved schedule for the year and a list of matters carried forward from previous meetings. Time is made available at every second Board meeting to discuss matters without the management present. The Board is entitled to appoint external advisers whenever it considers this necessary.
The Board conducts an annual appraisal of its work, which is made available to the Election Committee for consideration in their work on candidates for the Board.
Board committees (CoP section 9) The Board has established a Remuneration Committee and an Audit
Committee. Each comprises two shareholder elected and one employee elected Board member. This helps to ensure thorough and independent attention to matters such as financial reporting and the remuneration of senior employees. The committees assist the Board by preparing matters for consideration, but decisions are taken by the entire Board. Both committees are able to hold meetings and consider matters without involvement from the company’s management.
The Audit Committee assists the Board by reviewing, evaluating and where necessary proposing appropriate measures in respect of the group’s overall controls, financial and operational reporting, risk management and internal and external auditing. The Audit Committee held six meetings in 2007. The external and internal auditors participate in the meetings.
Chairman or because the Chairman is unable to participate in a particular matter, the Board considers it sensible and appropriate to elect one of its members as chairman of the meeting in question as required.
Storebrand Skadeforsikring and Storebrand ASA have identical control committees. Storebrand Bank has its own control committee
Storebrand ASA’s CEO is the chairman of the boards of Storebrand
Bank and Storebrand Investments are drawn from the group’s senior employees, employee representatives, and external members with expertise relevant to the business of the company in question.
In addition to its own controlling bodies and external audit, the group is subject to statutory supervision by Kredittilsynet (the Financial
Supervisory Authority of Norway). Kredittilsynet is responsible for supervising financial institutions to ensure that they operate in a prudent and proper manner in accordance with legislation, business objectives and the Articles of Association. Kredittilsynet supervises all of Storebrand’s activities.
The external auditor is elected by the AGM, and is responsible for the financial audit of the group. The external auditor issues the audit report concerning the annual accounts, performs a limited audit of the interim accounts, attends the Board meetings that approve the quarterly interim accounts, all meetings of the Control Committee, and attends meetings of the Audit Committee as appropriate. 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 is evaluated every year by the Board’s Audit Committee.
Annual programs for internal audit work are determined by the boards of the group companies, based on the auditor’s recommendations and a risk assessment carried out by the group’s senior management.
Deloitte has been elected by Storebrand ASA’s AGM as the company’s external auditor. The Board of Storebrand ASA has appointed KPMG as the company’s internal auditor. The other companies in the group use the same external and internal auditors as Storebrand ASA.
Each business area carries out an annual strategy and planning process used to produce a rolling three-year plan for the group, including detailed targets, strategies and budgets. The Board of Storebrand
Risk evaluation and internal control reporting form an integral part of the strategy and planning process. The management teams work actively to identify areas of risk and measures to promote the company ’s strategy and objectives. This work is summarised in an internal control report submitted to the Audit’s Committee and the boards.
Storebrand’s management reporting system, Storebrand Compass, provides management and the Board with monthly reports on financial and operational performance relative to approved targets.
Internal guidelines have been established for share trading by employees and insiders. The Storebrand group’s Intranet also provides both rules and practical guidance on the security of information, contingency planning, money laundering and financial crime.
Business ethics and “whistle blowing” Storebrand has established ethical rules for the group and its employees. Business ethics and ethical dilemmas are a standard feature of seminars for all new employees, and are discussed annually by all departments. Employees can seek advice anonymously from a business ethics page on the Storebrand Intranet, and can refer any concerns directly to the chairman of Storebrand ASA’s Audit Committee.
(Group) and 15 (ASA) of the notes to the accounts. Members of the
Deviations from sections 11 and 12 of the Code of Practice: None
Other matters As one of the largest investors in the Norwegian stock market, Storebrand has considerable potential influence over listed companies, and pays great attention to exercising its ownership on the basis of straightforward and consistent ownership principles. Storebrand applies the Norwegian Code of Practice for Corporate Governance in this role, which represent a natural extension of the principles it first established in 1998. Storebrand has issued guidelines with respect to employees holding non-executive appointments in companies outside the group. The guidelines include restrictions on the number of such appointments any employee may hold.
Further information on Storebrand’s Corporate Governance can be found on www.storebrand.no/ir, including information on members of
Storebrand’s corporate bodies, the company’s Articles of Association and further information on its ownership principles as an investor.
GöRAN HOLGERSON (47), Executive Vice President, SPP, Managing Director, SPP. A­Levels, Bromma Gymnasium. 2006–2007 Head of Busi­ ness Area SPP and Deputy Managing Director, SPP, 2003–2006 Manag­ ing Director, SPP, 2002–2004 Integration Director, Handelsbanken Life and SPP, 1998–2002 Deputy Managing Director, Handelsbanken Life with responsibility for conversion to a plc.
MAALFRID BRATH (42), Executive Vice President, Business Development. State Authorised Accountant, Norwegian School of Economics and Business Administration (NHH) and Master of General Business, Norwegian School of Management (BI), 2004–2007 Executive Vice President, Retail Market, Storebrand, 2002–2004 Executive Vice Presi­ dent, Storebrand Private Sector Distribution, 1999–2002 Senior Vice President, Storebrand Livsforsikring AS, 1997–2002 Managing Director, Storebrand Fondsforsikring AS, 1995–1996 Vice President, Internal Audit, Storebrand ASA, 1989–1995 Arthur Andersen & Co.
HANS AASNæS (44), Executive Vice President, Long Term Savings and Asset Management, Managing Director, Storebrand Investments. Agronomist, Agricultural University of Norway, Advanced Studies Busi­ ness Analysis, Norwegian School of Economics and Business Adminis­ tration (NHH), Authorised Financial Analyst (AFA), programme for Ex­ ecutive development (IMD), 2001–2005 Investment Director, Storebrand Investments, 1994–2001 Head of Norwegian and International Equities, Storebrand Investments, 1990–1994 Derivatives Specialist, Orkla Finans.
This report provides an account of the Storebrand group’s financial performance and business development in 2007 set against the background of historical performance and the trends apparent at the start of 2008. The strategic background for the acquisition of SPP can be found in a separate article earlier in this report.
Operating costs at % of policyholders' funds2 excl. SPP 1.21% 1.10% 1.10% 0.96% 1.00%
Loan loss provisions as % of non-performing and loss-exposed loans 68% 81% 64% 62% 49%
Of which funds under management for external clients 57 661 54 800 49 700 25 400 38 500
Figures for 2004-2007 are based on IFRS. Figures for 2003 are based on NGAAP. Post-tax profit/ (Opening equity – provision for dividend – 50% of own shares pruchased during the year)1 2007 includes 14 basis points and 2005 includes 10 basis points of non-recurring costs in respect of pensions2 Including net financial income and other income.3
The group’s strategic development The overall strategy has been expanded to include Nordic life insurance and pensions. With SPP as an integrated part of the business, the Storebrand group’s vision has changed to: “Storebrand´s objective is to be the leading and most respected institution in the
This vision indicates that Storebrand’s long-term ambition is to be a leading Nordic player within the group’s core areas.
At the same time, the group is determined to be a “respected institution ”. This means that the growth targets will be attained by continuing the work on customer satisfaction with competent, motivated staff and by taking its corporate responsibilities seriously.
Storebrand has positioned itself in recent years to meet these challenges, and to take advantage of the new opportunities the market offers. The overall strategy has remained the same and within our core activities our attention has been focused on the following areas: • Satisfactory financial situation
• The corporate responsibility profile of the products and the group
Solvency II: In 2007, the draft EU framework directive for Solvency II
was presented to the European Parliament and the Council of Europe by the European Commission. The implementation date is expected to be 2012 at the earliest. However, companies that wish to use internal models to assess the capital required to operate their business should have a system like this up and running a few years prior to the implementation of all the regulations. One of the key principles of
presented and dealt with in the Norwegian parliament, before the summer of 2008. Storebrand has actively worked with the political parties in this case and was represented on the Banking Law Commission ’s working group (“Think Tank”) which drafted the new act.
The opening up of the transfer market for occupational pensions in Sweden: In 2007, the Swedish government allowed certain occupational pension schemes to be transferred between players in the market. However, because of a fear of tax leaks to other countries, the ability to transfer was stopped until the tax authorities had come up with satisfactory solutions. In December 2007, the authorities reported that satisfactory reporting routines had been established and that the transfer of contributions-based occupational pensions would be permitted from May 2008. Storebrand expects the competition dynamic in the Swedish occupational pension market to be significantly affected, which SPP will target aggressively.
Insurance group’s balance sheet as per 31 December 2007 is Storebrand Holding AB’s balance sheet with the consolidation of underlying companies.
Strong group profit. The group reported a profit of NOK 2,020 million for 2007 compared to NOK 1,585 million in 2006. Earnings per share, based on the average number of shares outstanding, amounted to NOK 7.95 in 2007 and NOK 6.03 in 2006. Further information about the individual business areas can be found on pages 41–55.
Bank’s capital adequacy was 10.5 per cent and was thus above the internal target of 10 per cent.
The table below shows the development in key capital figures for the group: Storebrand's capital situation – key figures 2007 2006 2005 2004 2003
NOK 534 million. The dividend has been proposed on the basis of the number of shares prior to the acquisition and accompanying share issue, which took place at the end of the 2007. Seen in relation to the number of shares prior to the issue the dividend is equivalent to
Storebrand ASA repurchased 1 million of its own shares in 2007 at an average price of NOK 92.88 per share, representing a total cost of NOK 93 million. The shares were purchased through the stock exchange over eight trading days. The company sold 236,300 shares in connection with the share purchase scheme for employees, raising a total of NOK 15 million.
per cent of its own shares until the annual general meeting in 2008.
EEA area. According to the taxation exemption principle, gains and dividends from such shares are not taxable, and similarly losses on such shares are not tax deductible. Given the group’s sizeable tax losses carried forward and the low tax rate expected for the life insurance activities in normal financial market conditions, it is unlikely that
NOK 12 billion and tax allowances was NOK 1.4 billion. Tax allowances can be carried forward for 10 years, but expire if not used within this period. The deferred tax asset is recognised in the balance sheet when it is likely that the companies in the group will in the future have a sufficient taxable basis to utilise the tax asset. The basis for the deferred tax asset has been written down by more than NOK 12 billion in the annual accounts for 2007, and this is due to the uncertainty about whether future taxable income will reach a level that will allow the tax losses carried forward to be used. The consolidated accounts contain a net deferred tax asset of NOK 0.4 billion, which was due to a deferred tax asset arising in connection with the acquisition of SPP.
Storebrand has acquired a major business in Sweden with the acquisition of SPP. The losses carried forward cannot be utilised across national borders and the Swedish business will be assessed on an independent basis when it comes to tax. SPP was purchased by a
Swedish holding company financed by both equity and a subordinated loan. The tax rate and payable tax in the Swedish business will be affected by the interest costs of the loan in the holding company, the organisation of the asset management business and the amortisation of intangible assets. It is expected that the tax costs for the Swedish business will be limited.
INFORMATION ABOuT THE BuSINESS AREAS Life insurance activities Acquisition of SPP
SPP is a leading Swedish life insurance and occupational pensions provider. SPP provides unit-linked products, traditional insurance and defined benefit pension products, as well as advice services that cover occupational pensions and insurance, and administration solutions for municipalities and other organisations. With the acquisition of SPP, Storebrand will create the leading life insurance and pensions provider in the Nordic region with proforma premium income for 2007 amounting to NOK 27 billion. Storebrand has a two-year option to take-over Handelsbanken’s remaining occupational pension business in Handelsbanken Liv, and has signed a three-year agreement to be the exclusive provider of occupational pensions in Handelsbanken’s network of branches.
SPP group as per 31 December 2007. The acquisition therefore has no effect on the profit in 2007.
The trends within the Nordic and European markets for life and pension insurance reinforce the basis for establishing transnational activities. The harmonisation of general conditions and products make the transnational synergies clearer and easier to realise.
In addition, the new regulations result in capital synergies from geographic diversification. Concrete effects have been defined in a number of areas that entail that Storebrand and SPP can benefit from each other’s strengths and experience. For example, SPP will be able to draw on Storebrand’s long experience in the pensions transfer market when the Swedish market is expected to permit the transfer of pension schemes in the spring of 2008. SPP’s product scale and long experience from the provision of unit-linked products will benefit
The strong position will be developed further. Storebrand Life Insurance is one of the leading companies in Norway for pensions and life insurance products for private individuals, companies and public sector bodies. The company has a market share of 29 per cent in terms of policyholders’ funds in the Norwegian life insurance market.
This market is expected to grow significantly, and Storebrand intends to develop its position by delivering customer-oriented and attractive product solutions.
Group pension insurance represents the major part of activities as measured in terms of both policyholders’ funds and profit to the owner. Group pension insurance accounted for 76 per cent of
The last few years have been characterised by an increasing transition from defined benefit based pension to defined contributions based pensions. The most important factor for companies that implement this restructuring is more predictable costs.
The market for paid-up policies is set to grow strongly in future years because of the introduction of mandatory employers’ pensions and increasing numbers of companies switching from defined benefit to defined contribution schemes. Paid-up policies are individual insurance policies that are issued when a group defined benefit scheme is wound up or when an employee leaves a company with a defined benefit scheme. This market is expected to become more competitive, and has attracted new participants. Storebrand intends to respond aggressively to this competition, offering a competitive product and long experience in managing pension assets to ensure financial security for the customer. In recent years, Storebrand has made significant savings in the cost of managing paid-up policies through improved efficiency.
Work on improving the efficiency of customer service and settlement systems continued in 2007. The objective of this program is to address efficiency in all units before the start of 2009. The target is to improve efficiency by more than 20 per cent in all these units.
Improvements of over 30 per cent have already been achieved in some of the business processes. Improving efficiency also plays a role in ensuring that the company can cope with growth in the company while at the same time improving customer satisfaction.
The total contribution of profit from the life insurance activities to group profit pursuant to IFRS amounted to NOK 1,635 million in 2007 compared with NOK 1,198 million in 2006. The following table shows the breakdown of this profit contribution between the life insurance business areas.
Storebrand Life Insurance. This is followed by the financial results of
To(-)/from(+) owner's equity: -net return on share capital1 672 579 491 -risk margin earned by owner's equity 50 49 47
Includes: Security reserve, subordinated loan capital, book equity and liability items1
stated, the following comments apply to accounting figures prepared in accordance with Norwegian accounting legislation and accounting regulations for insurance companies.
Good operating result and profit for owner: Operating profit for 2007 was NOK 4,138 million compared with a profit of NOK 5,175 million in 2006. The profit allocated to policyholders was NOK 2,797 million (including NOK 400 million allocated to additional statutory reserves ) and the profit to the owner was NOK 1,365 million. The good result for policyholders means that pensions currently in payment and fully paid-up pension policies will be adjusted. NOK 152 million of the owner’s profit comes from risk coverage products not subject to profit sharing compared with NOK 135 million in 2006. In addition, insurance products with investment choice generated a loss of
After IFRS effects of NOK 258 million, the Storebrand Life Insurance group produced a pre-tax profit in 2007 of NOK 1,623 million. The profit was affected by a one-time effect of NOK 215 million that was due to a write-back of an earlier expense booked against equity pursuant to IFRS and linked to pension costs included in the allocation of profit model in the life insurance company. The profit is equivalent to a 28 per cent return on equity for Storebrand Life Insurance in 2007, which is somewhat better than the return on equity in 2006 and 2005.
Pensions sold well in the corporate market and reported but yet to be recognised transfers amount to NOK 3.1 billion. The retail market experienced good sales of pension, savings and risk products.
Storebrand Life Insurance produced a satisfactory investment return in 2007. The booked investment return for 2006 was 8.9 per cent compared with 7.1 per cent for 2006. The value-adjusted return on current asset investments was 7.3 per cent compared with 8.3 per cent in 2006. The value-adjusted return including financial fixed assets was 6.6 per cent in 2007 compared with 6.5 per cent in 2006.
Risk result: The risk result for 2007 was NOK 244 million compared with NOK 220 million in 2006. The increase of NOK 24 million relates to the improved results for the individual sectors as a whole and for the public sector group pensions. The P&C insurance sectors were at around the same level as the year before, while there was a small reduction for retail market group pension insurance and group life insurance.
Costs: The administration result showed a loss of NOK 669 million, which represents a deterioration of NOK 118 million from 2006. The administration result for products with profit sharing amounted to minus NOK 359 million.
Additional statutory reserves strengthened: Additional statutory reserves are conditionally allocated policyholders’ funds that act as risk capital to absorb price fluctuations in the investment portfolio.
5,757 million at the end of 2007. This combined with the strength of risk management systems ensures that Storebrand Life Insurance is again well equipped to generate a good investment return in 2008.
Market value adjustment reserve Additional statutory reserves Adjusted core capital margin Profit accrued
Risk capital in NOK mill. and % of customers’ funds excl. additional statutory reserves: 8,9 bn 11,1 bn 15,5 bn 16,8 bn 13,6 bn
Including NOK 0.6 billion of additional statutory reserves in excess of one year’s interest 1 guarantee.
The proportion of the portfolio invested in international bonds held as current assets was somewhat lower than the target allocation throughout 2007, reflecting the low level of international interest rates at the start of the year. The increases in interest rates seen
both in Norway and internationally in 2007, with the exception of the
USA, caused a fall in the value of bonds in the short-term. Over the long-term, rising interest rates will lead to an increased return from the investment portfolio and increase the company’s risk bearing capacity. The money market portfolio responds relatively quickly to increases in short-term interest rates. In total, the company’s money market and bond investments are robust with respect to changes in interest rates.
A smaller proportion of the company’s unrealised gains on bonds comes from the portfolio of government and government guaranteed bonds held to maturity. The hold to maturity portfolio represented 22 per cent of total investment assets at the close of 2007, with an average duration of around 4 years and an average effective yield in excess of 5.4 per cent of booked value.
The allocation of assets to real estate increased over the course of 2007 from around 13 to 15.6 per cent. The value of the real estate portfolio was written up by NOK 2,975 million in 2007, partly due to an increase in the value of the portfolio and partly against the background of inflation adjustment.
The administration result was SEK 118 million in 2007 compared with
SEK 45 million in 2006. This was due to an increase in costs associated with marketing and consultancy help, among other things. The risk result for 2007 was SEK 217 million compared with SEK 352 million in 2006. The reduction since 2006 is explained by a lower result from sickness insurance due to the reduced premiums at the start of 2007.
The risk result also includes value changes in allocations for sickness insurance. Changes in the market value due to increased interest rates also contributed to the lower result compared with 2006. The administration and risk result are recognised in their entirety as the owner’s pursuant to the profit sharing model in SPP.
The total return in SPP’s investment portfolio was 0.4 per cent in 2007 compared with 6.8 per cent in 2006. In total, the owner’s share of the financial result was a loss of SEK 435 million for 2007. The market trend in the fourth quarter combined with the portfolio and hedging structure in SPP contributed to the negative result. The new investment strategy and portfolio structure is designed to neutralise the effects of an equivalent market trend in the future.
Other result elements amounted to SEK 289 million for 2007 compared with SEK 238 million for 2006. This result consists of the return on equity, costs of subordinated loans, and write-downs with respect to intangible assets.
Premium income saw an improvement in 2007 and increased by 7 per cent from 2006 to SEK 8,561 million. New policies increased by
The solvency margin at the end of 2007 was 178 per cent. The fall from 310 per cent from the end of the previous year was primarily due to the payment of extraordinary dividends to Handelsbanken during the year. The insurance reserves for traditional business were distributed as follows: 66 per cent of the assets in interest-bearing securities and the remainder primarily in Swedish and international equities.
Financial results for other life insurance activities Storebrand Helseforsikring AS: Storebrand Helseforsikring, in which Storebrand ASA owns 50 per cent, reported an operating profit of NOK 25 million for 2007 compared with NOK 17 million in 2006.
EV – Market Consistent Embedded Value This section provides information on the disclosure of the embedded value (EV) 2007 for Storebrand Life Group. It includes business written in Storebrand Livsforsikring AS (SBL) and the recently acquired
An EV is an actuarially determined estimate of the value of the company excluding any value attributable to future new business.
other factors, some of which are determined by economic conditions and financial markets. Storebrand has published a separate EV report with more detailed information. Storebrand’s EV report is developed in collaboration with the actuarial firm Tillinghast and in accordance with the principles of the CFO Forum.
Overview of results. The results in this section are presented in
NOK. An exchange rate of 0.84 has been applied to amounts in SEK
As an effect of the holding company structure in Sweden, whereby part of the profits can be transferred to the group as a tax-free group contribution, it is currently expected that the effective tax rate for profits arising in
The movement from 31 December 2006 to 31 December 2007 shows
The interest on opening value only represents the unwinding of the risk-free rate used to discount future profits, and is applied to the restated EV at 31 December 2006 (after look-through).
Present value of future profits 8 614 10 813 13 831 16 864 7 392 24 256
Operating variances and assumption changes mainly relate to the following: Within non participating business changes in expenses and charges have a negative effect, while shareholder margin on fee based business has increased due to change in reserving bases.
The net effect of this is an increase in EV of NOK 0.7 billion. Overall decrement experience in group pension business has been better than expected with a positive impact of NOK 0.4 billion on the EV.
effect of NOK 1.2 billion. In aggregate, the impact of these effects is an increase in the EV of only NOK 42 million.
NOK 1.0 billion has been retained in the shareholder capital and NOK
The increase of the EV of NOK 0.9 billion only reflects the higher assumed look-through profits induced by the business of SBL.
Value of new business (VNB). As SPP was acquired close to end-ofyear, no separate analysis has been performed on the value of new business.
The value of new business shown below relates only to the new business written in SBL.
EV sensitivities: NOK million Total MCEV Change Change in % Value of new business2 Change Change in %
4. Equity and property market values -10% 27 724 -2 216 -7.4% 404 -98 -19.6%
Change in market value of unit funds not considered1 Value of new business for SBL only2
New Norwegian life insurance legislation The new Insurance Activities Act and regulations came into force on 1 January 2008. The new Act will entail considerable changes for the life insurance companies. Storebrand has worked intensively to strengthen its competitiveness by taking advantage of the opportunities that have been opened up. The overall objective of the new legislation is to make the pricing of insurance products more predictable and transparent, and to create a clearer distinction between the assets of the insurance company and its policyholders. The central principle of the new regulations requires that premiums must be fixed with final effect and paid in advance.
Policies with a low interest rate guarantee and high risk capital (additional statutory reserves and unrealised gains) may therefore be able to maintain a higher exposure to equities in their portfolio at the same price as similar policies that have a higher level of guaranteed interest or lower buffer capital. The basis for pricing the interest rate guarantee is the risk to which the available equity is exposed. A customer can choose an investment profile with a low equity exposure and therefore lower risk of losses, though this may also result in a lower expected return. A higher exposure to equities would result in a higher expected return and higher contributions to the premium fund, but also a higher price for the interest rate guarantee. Under the new act, a shortfall in the return on the customer’s policy can be met from its additional statutory reserves, and the new rules allow greater flexibility in building up the level of additional statutory reserves.
Corporate customers that choose a special investment portfolio will have greater freedom of choice. They can choose between standardised risk profiles or almost freely choose investments within the limits that follow at any given time from the act and regulations. The corporate customers can thus define their investment policy almost as if the management was taking place via a pension fund.
The regulations governing guaranteed returns over a number of years provide greater room for reaching agreements between the customers and the company, meaning one can, among other things, agree that the customer will assume a greater portion of the risk in return for a reduced premium.
In the case of old and new paid-up policies, a modified profit sharing regime has been introduced, which means that the company can retain 20 per cent of the profit, which here is made up of the sum of the interest and risk results from the paid-up policies. The modified profit sharing model means that any negative risk result will be deducted from the customer’s interest profit. In addition, the company receives all of the return on capital in the balance sheet that does not belong to the customers.
Individual products that were provided by the company prior to the coming into force of the act can be continued in accordance with the profit rules that applied prior to 2008, and Storebrand intends to continue managing these assets in accordance with this regime.
Risk premium: The corporate customer will receive any surplus from the risk result achieved on insurance cover for death, disability and dependants in the pension policy, but the insurance company will itself be responsible in principle for meeting any deficit vis-à-vis the risk result. There is, however, provision for up to half of any risk surplus on a particular
Premium for pension scheme administration: Administration costs must be charged in advance every year with final effect for the corporate customer. The insurance company must then meet any deficit in the administration result, and similarly any surplus is retained by the company. Where a policy’s assets are managed in the investment trust portfolio, the price of asset management must also be shown as a separate element of the overall charge.
Storebrand Investments offers a complete asset management concept that includes discretionary portfolio management of Norwegian and international securities, global special products with absolute return targets, as well as effective management of market risk. Today,
Storebrand Investments’ objective is to be the preferred manager for long-term savings and pension assets. It will achieve this by continuing to develop its current asset management concept, extending into specialised investment areas and developing particular expertise in major asset management functions. The company had NOK 227 billion of assets under management at the close of 2007. This is made up of discretionary portfolios and mutual funds marketed under the brand names Storebrand and Delphi.
Attractive products: Storebrand Investments offers a full range of savings and investment products, from equity and bond funds for personal saving to advanced specialist funds for professional investors. All the funds that Storebrand manages itself are subject to guidelines concerning corporate responsibility and are managed by a well-established team of investment managers consisting of managers with extensive experience. In 2007, Delphi Verden (World) was ranked as the best global equity fund measured by return. The purpose of the fund is to achieve the highest possible return by utilising the whole world as its investment universe. The fund’s investment strategy is based on trend analyses. The fund has a cutting edge investment strategy that focuses on the sectors that are considered the best at any given time.
Over the course of 2007, the company has developed several new products to meet the needs of its customers. Guaranteed savings products have particularly been in focus due to the new insurance law. Storebrand Garantikonto was launched on 4 January 2008 and guarantees the customer a minimum return on paid in funds.
ments’ system platform for management carried out by the customer itself or other external managers during the year.
Automation: Storebrand Investments constantly strives to simplify its procedures, and standardise and automate its work processes from investment decisions through to settlement, control and reporting.
More than 2,600 companies are monitored continuously and, as per 31 December 2007, 87 companies have been excluded pursuant to the Storebrand’s group standard for corporate responsibility criteria.
Income: The company’s income primarily comes from management fees, fixed and performance-based, and sales commission. Total income fell by 17 per cent compared with 2006. The primary explanation for this is the low level of performance-based income. Performance -based fees were lower than 2006 and this fall can be ascribed to the relatively low return in discretionary portfolios. A significant increase in assets under management has contributed to an increase in fixed and volume based fees of NOK 47 million. This constitutes an increase of 18 per cent compared with the year before. Storebrand
Costs: Total costs fell by 8 per cent compared with 2006. This reduction can primarily be ascribed to lower result-based costs that are largely associated with the performance-based income. The operating costs rose by 3 per cent, which is equivalent to NOK 6 million.
The increase in costs was largely due to items that are driven by the increase in assets under management. Systematic and focused work has successfully helped the company improve the operating margin.
A modern bank: Storebrand Bank ASA’s objective is to be the “the smart choice for the modern customer”. The bank aims to be seen as a bank that is easy to relate to, with popular products at competitive prices. The banking group has total assets of NOK 41.9 billion and 215 employees.
for residential mortgage lending. This resulted in significant growth in both business volumes and customer numbers. The lending portfolio increased from NOK 31.2 billion in 2006 to NOK 37.1 billion in 2007.
41.9 billion. The quality of the total lending portfolio at the end of the year was good.
Storebrand Markets: Storebrand Markets was established as a new business area in 2007 to ensure sufficient strength behind the property venture, increase the range of products and thus increase other non-balance sheet driven income. The business area includes the product areas currency, stockbroking and structured savings products, as well as commercial real estate brokering through Hadrian Eiendom
AS. In addition to this comes corporate finance advice with a focus on business property. In February 2008, Storebrand Bank ASA started offering online share trading.
The Storebrand Bank group reported a profit before loan losses of
Loan and guarantee losses and write-downs represented a net writeback of NOK 78.2 million (net write-back of NOK 47 million in 2006).
413.2 million (NOK 418.8 million). Net interest income as a percentage of average total assets amounted to 1.07 per cent (1.32 per cent) in 2007. Net interest income showed a falling trend in 2007, mainly due to pressure on margins, credit instability and increased competition in the lending market.
Net fee and commission income/other operating income: Net fee and commission income amounted to NOK 57.9 million in 2007, compared with NOK 31.9 million in 2006. The increase results from the successful launch of new savings products. Other operating income amounted to NOK 45.9 million, compared with NOK 46.8 million in 2006.
(NOK 354.5 million), equivalent to 69.7 per cent of total operating income compared with 71.3 per cent in 2006. The underlying cost/
The volume of non-performing and loss-exposed loans with identified impairment amounted at the end of 2007 to NOK 297.2 million
identified was NOK 151.2 million (NOK 109.0 million) of which NOK 44 million related to customers with outstanding amounts of less than
NOK 1,000. The net volume of non-performing and loss-exposed loans (after individual write-downs) amounted at the end of 2007 to NOK 201.3 million (NOK 172.7 million). Gross non-performing and loss-exposed loans represented 1.2 per cent of gross lending (1.7 per cent) at the close of the year. The reduction reflects the reduced level of risk in the lending portfolio.
58.1 million (NOK 73.3 million): equivalent to 0.16 per cent (0.24 per cent) of gross lending. The bank updated its model for calculating grouped write-downs during 2007. Today’s model is based on the bank’s own classification and takes more account of macroeconomic factors than before.
Development in non-performing and loss exposed loans and provisioning ratio 2Q
Storebrand Bank group’s net primary capital amounted to NOK 2.7 billion at the close of 2007. This represents a capital adequacy of 10.5 per cent and a core capital adequacy of 7.9 per cent. Storebrand Bank
Supervisory Authority of Norway for IRB status at a later point in time.
The adaptation to Basel II entails major investments in systems and models as well as organisational changes and changes to central business processes, but will result in significant business gains.
Storebrand Bank ASA has been granted a licence to establish Storebrand Kredittforetak AS, which will issue bonds with pre-emptive rights. This is important with respect to both the competition situation and liquidity management.
The following table shows the profit before tax of Storebrand ASA in
Group contributions and dividends consist of the return on capital invested in subsidiaries. In 2007, these were on a par with the level in 2006. Pursuant to IFRS, group contributions and dividends are recognised as income in the year they are approved by the annual general meeting. This means that group contributions and dividends recognised as income in 2007 comes from the profit from the subsidiaries in 2006. NOK 885 million was recognised in income in 2007 from
Net financial items were positive in 2007, and were 36 per cent higher than the year before. This was principally due to gains from the sale of shares, as well as unrealised share price gains on the shares the company owns in Oslo Børs VPS Holding ASA.
The new business area, which started up at the end of 2006, has been well received in the market. During 2007, the number of customers grew from 2,044 to 15,938 and the annual premium represented by the portfolio increased from NOK 8 million to NOK 121 million.
Norwegian newspaper, Aftenposten, on 20 February 2007 and 21 May 2007.
Monitoring value drivers – Storebrand’s value-based management system Storebrand’s strategic planning process brings together targets, action plans, reporting and employee remuneration, as described in the article on corporate governance on pages 31–35.
Financial risk management Storebrand assumes financial risk in the ordinary course of its core business activities. Good risk management and control of risk exposure is essential in order to attain the group’s financial goals and ensure that the group has the financial strength to withstand adverse developments and limit the losses these may cause.
Storebrand’s investment policy establishes guidelines for the composition of the financial assets with the objective of achieving the highest possible return on customers’ pension assets until they are paid as benefits. The objective is to achieve the highest possible return for customers, pensioners and owners in the long-term.
the outlined goal in a controlled manner. The dominant risk factor in
The investment portfolio is subject to a range of quantitative and qualitative limits, and risk is measured and monitored continuously using a range of reports, models and tests. For instance, “Conditional
This is based on historic return, expected risk premium and forward prices. Expected return on the portfolios for the next few years is calculated to be between 6 per cent and 7 per cent. Continuous active risk management, together with hedging transactions, reduce the likelihood of a low investment return. If investment return is insufficient to meet the guaranteed interest rate in Norway or market movements are such that the current value of the pension liabilities in
Sweden increase, the shortfall will be met by using buffer capital built up from previous surpluses. The owner is responsible for meeting any remaining shortfall if the built up buffer capital is insufficient. The average guaranteed interest rate in Norway and Sweden is expected to fall in future years since new contracts are subject to a lower guaranteed interest rate than the average of the current portfolio. The guaranteed rate on new contracts in Norway and Sweden is 2.75 per cent and 2.5 per cent, respectively.
Ranking of life company's investment return relative to selected competitors (1–5)1 3 2 3 Room for improvement
Growth in SBL premium income excl. transfers, last year (NOK million) 3 509 -3 737 984 Very good
Transfer of pension business (NOK million) 1056 5 260 712 Very good
Customer satisfaction – Norsk Kundebarometer Survey4 70 70 67 Very good
Investment return III. Storebrand's ranking in terms of Investment return III vs. SpareBank 1, Nordea, Vital and KLP as at Q4 2007.1 Norwegian Financial Services Association and Norwegian Mutual Fund Association statistics at Q3 2007.2 Equity/combination funds, Unit Linked and Annuity/IPA weighted by total market sales volumes.3 Scale from 0–100 showing whether corporate customers are satisfied with product delivery, whether we meet their expectations and their experience of Storebrand relative to our 4 competitors. Both retail and corporate customers. Measures number of new customers5 New value driver, monthly measurement, carried out by TNS Gallup. Preference stated as a percentage share of those who would choose Storebrand (prefer) within five areas (average of 6 these five areas): banking, life insurance, P&C insurance, pension saving and direct fund saving.
As part of the risk management, Storebrand continuously monitors that all statutory requirements, such as, for example, capital adequacy, solvency margins and the traffic light tests in Sweden, are met with a satisfactory margin. The Board adopts limits for these and other risk goals for the company. Monitoring, management reports and reporting the risk in the life insurance companies to the authorities takes place periodically and on a daily basis if necessary.
Financial markets can fluctuate dramatically in a short space of time and thus affect the company’s risk exposure. Storebrand continually manages its risk exposure to keep it within limits approved by the
Board of Directors in several ways. Firstly, considerable importance is attached to building up sufficient risk capital to absorb losses.
Secondly, risk exposure is diversified as much as possible by investing in assets that are not expected to cause losses at the same time.
portfolio belongs. Fourthly, financial hedging instruments, such as options and forward exchange contracts, are used. This combination permits good control of the life insurance company’s total exposure to financial risk. The principles apply to both the Norwegian and the
Modified profit sharing has been introduced for the paid-up policies portfolio that limits the contribution to the owner to 20 per cent of the result that exceeds the guaranteed interest, and for the majority of the portfolio, advance pricing has been introduced for the guaranteed interest premium, administration premium and biometric risk. In the case of the Swedish activities in SPP, a profit sharing model has been established in which 10 per cent of the entire return belongs to the owner, assuming that this exceeds the return guaranteed for the individual policy.
For Norwegian life insurance companies, the annual guaranteed interest rate included in long-term insurance policies creates a number of challenges with respect to interest rate risk. In the short-term, the most apparent risk is that the company’s investments will fall in value if bond prices are reduced by an increase in interest rates. In the longer term, however, a low level of interest rates could make fulfilling the guaranteed interest rate on existing contracts a challenge. There is a risk that over time this could result in the company’s profit and the customers’ return weakening and insufficient risk capacity to build up risk capital and provide adequate pension savings. Falling interest rates are the most challenging scenario in the long-term, for both the Norwegian and the Swedish activities. However, it is necessary to weigh measures against this risk scenario against the short-term risk that the annual guaranteed interest rate represents. It is also worth
mentioning that customers’ are exposed to a risk of increasing inflation given that their pension savings must sustain their purchasing power.
The company pays great attention to closely evaluating investment opportunities that offer a higher return, but these are balanced against the risk of losses and falls in the value of such investments.
Moreover, Storebrand believe that some exposure to emerging markets though both interest and equity investments is sensible. All such investments present challenges in relation to Storebrand’s socially responsible investment criteria and require painstaking work. Storebrand continually develops its investment portfolio to include such new alternative asset classes.
A separate team is responsible for managing market risk. This team’s duties include currency hedging, programme trading, hedging transactions, SRI criteria and liquidity transactions. This structure permits the more efficient use of resources and greater control over active risk positions in the group’s investment portfolio
Lending to corporate customers over a certain limit requires the approval of a credit committee chaired by the bank’s managing director, or from the bank’s Board. Credit risk is monitored through a risk classification system that ranks each customer by ability to pay, financial condition and collateral. All loans on the bank’s watch list are reviewed at least quarterly in respect of the condition of the borrower and collateral, and of the steps being taken to protect the bank’s position. The total risk in the portfolio has been falling strongly in recent years and the proportion of long-term repayment loans within 80 per cent of the valuation of the collateral has increased significantly.
Storebrand Bank has established good liquidity buffers, and continuously monitors liquidity reserves against internal limits. Committed credit lines from other banks are also available to the bank if necessary. Storebrand Bank ASA also maintains relationships with a number of international banks, ensuring access to the international capital market and providing greater diversity in the group’s funding.
Overall risk management for the group In recent years, Storebrand has invested significant resources in developing a framework for effective and comprehensive management of the group’s overall risk. Methods and modelling systems have been developed for the life insurance activities in Norway and Sweden that handle risk management and reporting based on integrated balance sheet management. This allows the liabilities and assets of the life insurance company to be evaluated in relation to changes in exogenous variables such as interest rate levels, and take into account the established management principles for handling financial risk. The models are used for reporting European Embedded Value. In 2007, they were developed further into methods that are used consistently in the market and with respect to the implementation of the new act relating to insurance activities in Norway. The framework enables consistent calculations and analyses, and facilitates integrated management of the risk, capital and value in the business. Correspondingly, in connection with the Basel II regulations the banking business has developed methods and systems for identifying and managing risk in the group.
The work on developing the framework for comprehensive risk management in the group forms part of the continuous development of Storebrand’s value-based management system, and improves the basis for making decisions concerning the management of the group.
Note 4: Remuneration of the Chief Executive Officer and elected officers of the company 116
Note 12: Remuneration of senior employees and elected officers of the company 81
Net Income from investment properties 16 4 387.5 1 997.5 885.7
Insurance claims for own account -17 669.3 -14 493.0 -10 823.1
To/from market value adjustment reserve 38 2 036.0 -2 027.3 -1 150.1
Profit/loss from ordinary activities before tax 2 028.9 1 585.1 1 463.4
Average number of shares as basis for calculation (million) 251.5 248.0 258.6
Profit and Loss Account Storebrand Group 1 January – 31 December
Reinsurers' share of technical reserves 38 1 501.3 1 828.3 2 401.9
Net claims and benefits paid – reinsurance -0.2 5 051.0 -3.9
Interest, commission and fees received from customers 2 179.5 1 388.0 1 229.9
Interest, commission and fees paid to customers -1 725.2 -927.8 -651.9
Net receipts/payments – lending to customers -6 185.1 -6 025.3 -3 055.5
Net receipts – discretionary asset management and funds management 363.4 369.3
Net receipts/payments on sale/purchase of fixed assets etc. -108.4 -104.1 -40.9
Receipts from taking up term loans 4 596.1 1.3 1 578.2
Receipts from issue of bond loans and other long term funding 2 006.2 1 462.3 3 007.6
Net cash flow from financing activities 14 947.3 -756.1 1 599.7
Net cash flow for the period 4 336.5 7 447.3 -1 189.1
Net movement in cash and cash equivalent assets 4 336.5 7 447.3 -1 189.1
Cash and cash equivalent assets at start of the period 13 216.0 5 768.7 6 957.8
Cash and bank deposits at the end of the period 25 569.0 13 216.0 5 768.7
Total revenue and costs for the period 20.6 311.1 1 790.7 2 101.8 3.1 2 125.5
Basic principles The consolidated accounts of Storebrand ASA are prepared in accordance with the EU-approved International Financial Reporting Standards (IFRS) and accompanying interpretations, as well as the other Norwegian obligations to disclose that follow from the Accounting Act, the Stock Exchange Regulations and the stock exchange's rules. The accounts are prepared in accordance with the historic cost principle, with the exception of: • Investment properties which are valued at fair value • Properties which are valued at fair value • Financial instruments which are valued at fair value
The acquisition method of accounting is used to account for the purchase of subsidiaries. Investments in associated companies (normally investments of between 20 per cent and 50 per cent of the associated companies’ equity capital) where the company exercises significant influence are consolidated in accordance with the equity method. Interests in joint ventures are consolidated in accordance with the proportional consolidation method, i.e. by including the proportion of revenue, costs, assets and liabilities in the appropriate lines in the accounts.
Presentation currency and currency convertion of foreign companies The group’s presentation currency and functional currency is the Norwegian krone (NOK). Foreign companies included in the group that use a different functional currency are translated to NOK by converting the profit and loss account at the average exchange rate for the accounting year and converting the balance sheet at the exchange rate at close of the accounting year. Any convertion differences are booked directly to equity.
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. Transactions between Storebrand Livsforsikring AS and other units in the group that affect the profit sharing between customers and owners of the life insurance company are not eliminated.
Consolidation of fund investments In the consolidated accounts, fund investments are consolidated if they are considered to be of particular importance for Storebrand’s investment needs and Storebrand holds more than 50 per cent of the units in the fund and in addition is the fund manager.
Segment reporting The group is organised into life insurance activities, banking activities, asset management activities and other activities, which include P&C insurance. Segment information is presented for both business areas and geographic areas. Business areas are the group’s primary reporting segments. Financial information in respect of these segments is presented in note 3.
Properties used for the group’s own activities are valued at written up value less accumulated depreciation and write-downs. The fair value of these properties is tested annually in the same way as described for investment properties. Increases in the value of properties used for the group’s own activities are not recognised in the profit and loss account but are recognised as a change in the revaluation reserve that forms part of equity. Any write-down of the value of such a property is first applied to the revaluation reserve for increases in the value of the property in question. If the write-down exceeds the revaluation reserve for the property, the excess is recognised in the profit and loss account.
Straight-line depreciation is applied over the following periods: Properties 15–50 years
The depreciation period and the method of depreciation are reviewed annually to ensure that the method and period used correspond with the financial lifetime of the asset in question. This also applies to the disposal value. Properties are split into components if different parts have different periods of expected commercial life. The depreciation period and method of depreciation are evaluated separately for each component.
Investment properties are valued at fair value. Fair value is assessed on each reporting date. Changes in value are recognised in the profit and loss account. Each investment property is valued separately by discounting the future net income stream by the appropriate yield requirement for the investment in question. The net income stream takes into account current and future loss of income due to vacancy, essential investment and an estimate of future changes in market rent. The yield requirement is determined on the basis of the expected future risk-free interest rate plus an individually determined risk premium dependent on the rental situation and the location and standard of the property. Valuation is also compared against observed market prices.
Intangible assets Intangible assets with limited useable lifetimes are valued at acquisition cost reduced by accumulated depreciation and any write-downs. The depreciation period and the method of depreciation are reviewed annually. New intangible assets are only capitalised if it can be demonstrated that it is likely that the group will gain future commercial benefit that is directly applicable to the asset in question. In addition, it must be possible to estimate the cost price of the asset reliably. The value of an intangible asset is tested for impairment if there are indications of a fall in its value; otherwise intangible assets are subject to write-downs and reversals of write-downs in the same manner described for tangible fixed assets.
Goodwill is not amortised, but is tested annually for impairment. If the relevant discounted cash flow is lower than the book value, goodwill is written down to fair value. Write-downs of goodwill are never reversed, even if there is information in future periods that the impairment no longer exists or is of a lesser amount. Gains or losses on the sales of companies in the group include the goodwill related to the company in question.
The effect of differences between assumptions and actual experience (experience adjustments) and changes in assumptions are applied directly to equity. The effect of changes to the pension scheme are recognised in the profit and loss account as they are incurred, unless the change is conditional on future accrual of pension entitlement. In such a case, the effect is amortised linearly over the time until the entitlement is fully earned. Employer’s social security contributions are included in pension liability and in experience adjustments shown in equity.
Tax The tax charge in the profit and loss account consists of tax payable for the accounting year and changes in deferred tax. Deferred tax and deferred tax assets are calculated on the basis of differences between accounting and tax values of assets and liabilities. Deferred tax assets are recorded in the balance sheet to the extent it is considered likely that the companies in the group will have sufficient taxable profit in the future to make use of the tax asset.
Accounting for insurance business The accounting standard IFRS 4 addresses the accounting treatment of insurance policies. The Storebrand group’s insurance policies fall within the scope of the standard. The accounting reserves required in respect of insurance policies are the subject of specific Norwegian legislation and are in accordance with IFRS 4.
Profit allocated to insurance policyholders The guaranteed yield on the premium reserve and on the premium fund is recognised in the profit and loss account as part of the item ‘changes in insurance reserves’. Other profit allocated to customers is shown under the item ‘funds transferred to policyholders’.
The company is permitted to apply a higher multiple of the basic interest rate than that defined by Kredittilsynet. The allocation to additional statutory reserves is a conditional allocation to policyholders that is recognised in the profit and loss account as a statutory reserve and accordingly reduces net profit. Additional statutory reserves can be used to meet a shortfall in the guaranteed return. This is shown in the profit and loss account after the technical (insurance ) result as amounts released from additional statutory reserves to meet the shortfall in guaranteed return. The amount released cannot exceed the equivalent of one year’s interest rate guarantee.
Security reserve The security reserve is a statutory reserve to cover unexpected insurance risks. The calculations are made by an actuary in accordance with regulations published by Kredittilsynet. It is possible to increase the reserve by 50 per cent above the minimum allocation. In special situations Kredittilsynet may permit all or part of the reserve be used to cover a fall in the value of bonds or of shares classified as current assets. In the accounts the entire reserve is shown as a mandatory reserve.
Assumptions concerning expenses are product specific and largely reflect the percentage-wise expenses that are extracted. The assumptions concerning tax vary on the basis of when the policy was signed and are based on the tax rate that applied at the time. Assumptions concerning tax and expenses reduce the added guaranteed interest.
Reserves for unfixed insurance instances: The reserves for claims that have been incurred 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. Unestablished insurance instances are insurance instances that have not been reported yet, but which, using statistical methods, are calculated to have been incurred (IBNR). The claims processing reserve is the calculated operating costs that the company incurs to adjust the unadjusted claims.
The company maintains the following reserves: Reserve for unearned premium for own account concerns ongoing policies that are in force at the time the accounts were closed.
The insurance companies in the group are subject to their own specific legal requirements for technical insurance reserves, including administration reserves, security reserves, and guarantee reserves. In Storebrand's consolidated accounts, which are prepared in accordance with IFRS, security reserves with high security margin natural disaster fund, administration reserve and guarantee reserves are not treated as liabilities.
Definition of fair value Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, independent parties in an arm’s length transaction. For financial assets that are listed on a stock exchange or another regulated market place, fair value is determined as the bid price on the last trading day up to and including the balance sheet date, and in the case of an asset that is to be acquired or a liability that is held, the offer price.
The fair value of loans, which is recognised at amortised cost, is estimated on the basis of the current market rate of interest on similar lending. Write-downs of loans are taken into account both in the amortised cost and when estimating fair value. When estimating the fair value of a loan, consideration is also given to the development of the associated credit risk in general.
Classification and measurement of financial assets and liabilities Financial assets are classified into one of the following categories: • available for sale • at fair value through profit or loss in accordance with the fair value option
At fair value in the profit and loss account in accordance with the fair value option Upon first recognition, any financial asset or liability can be classified at fair value in the profit and loss account if it is the case that: – such classification reduces a mismatch that would otherwise have occurred in measurement or recognition as a result of different rules for measurement of assets and liabilities - the financial assets form part of a portfolio that is managed and reported on a fair value basis
The accounting treatment is equivalent to that for available for sale assets.
Hold to maturity investments Hold to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the company has the intention and ability to hold to maturity, with the exclusion of: – assets that are designated at inception as assets at fair value in the profit and loss account – assets that are defined as loans and receivables.
Once the hedging instrument no longer fulfils the criteria for hedge accounting, expires or is sold, is ended or is exercised, the hedge accounting ceases. Accumulated gains or losses that are included in equity are kept there until the planned transaction takes place. If the hedging object is a non-financial asset or liability, earlier losses/gains are included in the equity transferred to the value recognised in the balance sheet for the asset or liability. In other cases the amount that is included in the equity is transferred to the profit and loss account during the same period in which the hedging object affects the result.
Hedging of net investments Hedging of net investments in foreign businesses is recognised in the accounts in the same was as cash flow hedging. Gains and losses with respect to the hedging instrument that relates to the effective part of the hedging is recognised directly against equity, while gains and losses that relate to the ineffective part are recognised in the accounts in the profit and loss account immediately.
The total loss or gain in equity is recognised in the profit and loss account when the foreign business is sold or run-off.
Storebrand utilises the rules concerning the hedging of net investments concerning equity investments in Storebrand Holding AB.
Market value adjustment reserve Net unrealised gains/losses for the current year on financial assets at fair value are applied to the market value adjustment reserve in the balance sheet and are therefore not included in the profit for the year. If the total portfolio of financial current assets shows a cumulative unrealised loss, this loss is charged to the profit and loss account. If specific financial current assets are considered to have suffered a permanent loss in value, the change in value of the financial asset in question is charged to profit and loss. The market value adjustment reserve applies only to Storebrand Life Insurance. In accordance with the accounting standard for insurance policies (IFRS 4) the market value adjustment reserve is shown as a liability.
Structured products Storebrand Bank has issued equity index linked bonds. These products principally comprise the issue of a bond and the sale of an equity index option. At the time of issue, the equity index option is measured at fair value since the option is a derivative that is not closely related to the bond issue. The bonds issued are simultaneously measured at amortised cost. No gain is recognised in respect of structured gains at the time of issue (‹day 1 gains›).
Commercial paper/Bonds The accounting treatment applied is the same as for structured products.
Investment properties Investment properties are valued on the basis of a long-term yield requirement specific to the property in question. Market yield requirements were obtained from two external market actors in Q4 2007. The overall return is made up of the direct yield earned and increases in value. A small change in the yield requirement has a relatively large effect on the calculated value. Every property has been valued individually using internal calculation models as per 31 December 2007. In the work on valuations we refer to Investment Property Databank LTD, which produces statistical information that covers real estate worth over NOK 70 billion in Norway. These statistics thus provide a very good basis for the valuation of the property portfolio.
Fair value of financial instruments The fair value of financial instruments that are not traded in an active market (for example unlisted derivatives, shares and bonds) is determined by using valuation techniques. There will be some uncertainty about whether the value used reflects the best estimate of fair value vis-à-vis all securities that are valued on the basis of sources other than observable market prices. This uncertainty is normally very limited for the majority of the securities in which Storebrand invests. For parts of the securitised bonds there is more uncertainty associated with the establishment of the fair value than for other financial instruments in which fair value is established with the help of valuation methods. Storebrand utilises prices from external price suppliers or prices directly from the investment banks in those cases the price suppliers do not supply prices when valuing securitised bonds. For that part of the securitised bonds that lie in international bonds, valuations are also obtained from managers.
Financial assets – impairment In the case of financial assets that are not recognised at fair value, consideration is given on each balance sheet date as to whether there are objective signs that the value of a financial asset or a group of financial assets is impaired.
The company's premium tariffs do not include any assumptions on inflation or voluntary termination/transfers. In 2008, new premium and reserves tariffs are being introduced that take account of the increased life expectancy among insured parties that has been observed in recent years. The complete conversion has not been carried out yet, and the effect of the tariff change therefore cannot be quantified accurately, but on the basis of interim calculations the premium reserves were strengthened by NOK 3.3 billion as per 31 December 2007. The company also manages its exposure to insurance risk through its reinsurance program. A significant proportion of the company's insurance liabilities are subject to an annual interest guarantee. If the company produces a return lower than the guaranteed interest rate, up to one year's guaranteed interest can be met out of additional statutory reserves. The company maintains additional statutory reserves in excess of one year's guaranteed interest.
Storebrand changed its accounting principles for the accounting recognition of actuarial gains and losses (experience adjustments) in 2006, and such adjustments are now applied directly to equity. Prior to this change, experience adjustments were amortised over the average remaining period for accrual of pensions entitlement to the extent that the effect exceeded 10 per cent of the higher of either pension liability or pension assets. For further information, see note 11.
The intangible assets acquired in addition to VIF represent goodwill totalling NOK 900 million, as well as other intangible assets of NOK 1 billion in the form of brand names, customer lists, etc. Goodwill is not amortised. Instead it is subjected to regular testing for impairment. In the case of other intangible assets, the amortisation period is calculated by referring to future earnings and linear amortisation of around 10 years has been used. Intangible assets are included at their gross value with deferred tax. Changes can be expected in the acquisition analysis in 2008, as the work on identifying positive/ negative adjustments to values was not completed at the time the annual accounts were finalised.
In the acquisition analysis VIF is classified as intangible assets 1 The purchase sum was paid in cash
Proforma profit and loss account 2007 for Storebrand including SPP A proforma profit and loss account has been prepared below in connection with Storebrand’s acquisition of SPP, including subsidiaries as well as other units included in the acquisition of SPP.
Inflow of assets to insurance customers within life insurance -2 797 -309 -3 106
More information about proforma, assumptions and adjustments: 1. An average conversion rate for converting from Swedish SEK to Norwegian NOK of 0.8667 was used, based on exchange rates from Norges Bank.
Notes Storebrand Group 3. The item Other also includes a write-back of individual amortisation costs in SPP, as well as increased costs associated with VAT based on interim estimates.
6. Storebrand Holding AB was financed with both equity and a subordinated loan of SEK 8.2 billion. A reduced tax cost of net NOK 158 million has been estimated for the Storebrand group for 2007. The reduced tax costs will be affected by the interest costs, organisation of the asset management activities, and the amortisation of intangible assets, etc. This is an interim calculation.
7. It is assumed that the currency exposure associated with the investment in SPP and issued loans was hedged using relevant derivatives. It is assumed that hedge accounting was used.
9. It is assumed that no effects associated with the results from SPP or items associated with the acquisition and financing have affected the life insurance customers’ profits (including the market value adjustment reserve) in Storebrand Livsforsikring AS.
Aqusition of Hadrian Eiendom Storebrand Bank ASA has purchased 90.9% of the shares in Hadrian Eiendom AS, a commercial real estate broker and advisor. The purchase price for the shares was NOK 46.9 million.
Revenue from other group companies1 125 117 88 4 2 1
Revenue from other group companies 1 Storebrand Investments manages financial assets for other group companies. Asset management fees are made up of a fixed management fee and a performance-related fee. Performance-related fees apply to the portfolios qualifying for such fees at any given time. Storebrand Life Insurance earns revenue from other group companies for sales and management of products. These services are priced on commercial terms.
Products without profit sharing This segment comprises defined contribution pensions and related risk cover, individual insurance with investment choice, and annually renewable products including group life insurance, health insurance, child insurance, industrial injuries and others.
Banking The banking business includes the following areas: Corporate: The segment contains loans to and deposits from corporate customers of Storebrand Bank principally relating to business property developers and property investors. The associated company Seilduksgagten 25/31 AS is included in the Corporate segment. The bank’s interest is 50% and the loss for 2007 was NOK 0.5 million. Retail: Deposits from and loans to retail customers, including credit cards. Lending is principally residential mortgage lending. The bank›s interest in Evoco Financial Production UAB in Lithuania amounts to 50%, and is included in the Retail segment. The ownership interest is booked as a jointly controlled business. The loss for 2007 amounted to NOK 0.2 million. Markets: This is a new business area from and including Q3 2007 and will also include newly started business in line with the bank›s licences pursuant to the Securities Trading Act. The area also contain all structured products, real estate investment funds and the savings product Storebrand Optimér, which were previously reported under the Savings segment, and the stockbrokering business, which was previously a separate segment. The area also includes Hadrian Eiendom AS in which the bank had 90.9% interest at the end of 2007. Real estate broking: This segment solely comprises Ring Eiendomsmegling AS, in which the bank had a 70% interest at the close of 2007.
Asset management Asset management company. Manages assets in mutual securities funds and client portfolios for insurance companies, pension funds, municipalities, institutional investors and retail customers.
Operating costs as a % of policyholders' funds 1.2% 1.1% 1.1%
Total fee and commission income from financial instruments not at fair value totalled NOK 39.4 million in 2007. Total fee and commission expenses on financial instruments not at fair value totalled NOK 23.3 million in 2007.
Tax effect of: - write-down of deferred tax assets -805.7 -1 667.3 -1 138.6
Total tax increasing temporary differences 7 329.8 2 314.1 3 136.0
Total losses and allowances carried forward -13 384.8 -10 049.0 -7 039.0
Basis for net deferred tax/tax assets -11 555.4 -10 604.8 -6 657.8
Write-down of basis for deferred tax assets 12 969.2 10 281.4 6 299.2
Booked in the balance sheet: Deferred tax assets 234.9 207.0 290.0
Deferred tax assets have been written down as a result of uncertainty as to whether future taxable income will be sufficient for all losses carried forward to be used for business in Norway. The primary reason behind this is the exemption from taxation for share dividends and gains/losses on shares in the EEA area, and it is expected that the group will continued to derive income from such investments in future years. Allowances carried forward date from the years 1998–2003, and must be used within 10 years. Deferred tax has arisen in Sweden due to the acquisition of SPP.
Additions in the period: Acquired through mergers, acquisitions, etc 30.7 989.6 7 714.9 907.1 9 642.3 0.5
Accumulated depreciation and write-downs closing balance -96.3 -6.6 -274.4 -298.2 -675.4 -8.6 -177.4
Minimum future payments on operational leases for fixed assets are as follows: NOK million Minimum lease payment less than 1 year Minimum lease payment 1–5 years Minimum lease payment greater than 5 years
Assets leased in by company relate to leasing of cars and copying machines, and leases of office premises. Assets leased out by the company relate to office premises in Oslo and Bergen. Lease contracts for cars are normally for 36 months. Lease contracts for copying machines expire in 2012 and 2010. Lease contracts for office premises and leasing out offices in Aker Brygge (Oslo) expire first half of 2008. Other leases on office premises are for 3–7 years with options for renewal.
Storebrand Employees are insured through a defined benefit pension equivalent to 70 per cent of pensionable salary at the time of retirement. The ordinary retirement age is 65. Staff pensions are provided by a group pension scheme with Storebrand Livsforsikring AS. Pension payments from this scheme come into effect from the pension age, which is 67 for employees and 65 for underwriters. Pension payments to employees between 65 and 67 are paid directly by the company. The pension terms follow from the pension decisions in the Storebrand group.
The company is obliged to have an occupational pension scheme pursuant to the Act relating to Mandatory Occupational Pensions. The company›s pension scheme satisfies the requirements of this act.
SPP The pension plan for employees in SPP follows the plan for bank employees in Sweden. The ordinary retirement age is 65 in accordance with the pension agreement between the Employer’s Association of the Swedish Banking Institutions (BAO) and the Union of Finance Sector Employees and between BAO and SACO (the Swedish Confederation of Professional Associations). The amount is 10 per cent of the annual salary up to 7.5 income base amounts. The retirement pension is 65 per cent of the annual salary for the portion of salary between 7.5–20 income base amounts, and 32.5 per cent of annual salary between 20–30 income base amounts. No retirement pension is paid for the portion of salary in excess of 30 income base amounts.
Pension assets as fair value -2 759.8 -2 747.3 -2 599.4
Present value of the uninsured pension benefit obligations including employer's NI contributions 558.1 454.3 495.4
Equity in the group in 2007 was positively affected by a net amount of NOK 215 million. This was due to the write back of previous expenses because these expenses were actually included in the profit sharing model in Storebrand Livsforsikring AS in which the charge against the group›s equity was less than had been charged.
Net pension cost recognised in the period including provision for employer's NI contributions 124.4 111.6 88.9
The table shows the percentage asset allocation of pension assets managed by Storebrand Livsforsikring and SPP at year-end. The book (realised) investment return on assets managed by Storebrand Livsforsikring was 8.9% in 2007, 7.1% in 2006 and 6.9% in 2005.
Net pension cost booked to profit and loss account in the period 143.5 84.5 74.6
Main assumptions used when calculating net pension liability at 31.12.: For Storebrand For SPP
Actuarial assumptions: Standardised assumptions on mortality/disability and other demographic factors as produced by the Norwegian Financial Services Association. Average employee turnover rate of 2–3% of entire workforce.
Net pension liability at 31.12.: Discounted current value of defined benefit pension liabilities 3 676.7 3 559.8 3 257.8
Comprises company car, telephone, insurance, concessionary interest rate, other contractual benefits and compensation on termination of employment.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. 2 Accounting Act § 7-26). Outstanding at 31.12.2007. Senior executives are contractually entitled to performance related bonuses related to the group›s value-based management system. The group’s 3 value creation finances the overall amount of the bonus, but individual performance determines what proportion of the bonus is allocated. The bonus allocated to an individual is credited to a bonus account, and 1/3 of the balance on the bonus account is paid each year. When the bonus accounts were introduced, Storebrand created an initial deposit. If the employee leaves the company, the positive amount of the initial deposit will be retained by Storebrand. The balance of the bonus account is exposed 50% to Storebrand›s share price and 50% to the best interest rate paid by Storebrand Bank. Over time the balances in the ”share bank“ and ”interest bank“ will grow separately. The return on the 4 ”share bank“ shows the annual gain in value of the individual›s bonus account caused by the performance of the Storebrand share price in 2007 adjusted for dividend. Directors5 ' fees from Storebrand ASA and Storebrand Livsforsikring AS.
The Board's Remuneration Committee The Board of Storebrand ASA has had a special Remuneration Committee since 2000. The Remuneration Committee is tasked with providing recommendations to the Board concerning all matters to do with the company's remuneration of the CEO. The Committee shall remain informed about and suggest guidelines for the fixing of remuneration for senior employees in the group. In addition the Committee is the advisory body for the CEO in relation to remuneration regimes that cover all senior employees, including Storebrand's bonus system and pension scheme.
The senior employee remuneration policy practised in 2007 In 2007, senior employee remuneration in Storebrand was fixed according to the guidelines described above. None of the group’s executive management received pay increases during the ordinary pay adjustment.
No loans have been made to any member of the Control Committee. Loans to members of the Board of Representatives total NOK 8.1 million.
The remuneration paid to auditors was as follows (excl. VAT): Other reporting duties 3.5 0.2 0.7
Other non-audit services primarily relate to agreed inspection services in connection with Storebrand›s acquisition of SPP Livforsäkring and associated companies. Of the 1 amount approximately NOK 1.3 million was fees to Deloitte in Sweden and Denmark.
Nordben Life and Pension Insurance Co. Ltd. 7 108.0 6 417.0
Nordben Life and Pension Insurance Co. Ltd. 6 804.8 6 165.1
NOK million Ownership interest Acquisition cost Balance sheet value at 1.1 Additions/ disposals
Nordben Life and Pension Insurance Co. Ltd1 75% 29.5 75.8 -82.2 6.4
Joint ventures are businesses the group operates together with external parties.
The consolidated accounts include the following companies with the amounts shown: Revenue
Counter indemnity of Oslo Reinsurance Company ASA , which is 100% owned by Storebrand Skadeforsikring AS.1 16 Investment properties
Change in fair value of investment properties 2 952.8 907.2 36.6
Shopping centres (including parking and storage) 9 504.2 7 312.0 5 464.1 1 518.0 4.0 390 078 99.1
The group entered into commitments in 2007 to purchase properties for NOK 167 million, but completion of these contracts and transfer of risk does not take place until 2008.
The statutory capital adequacy requirement is 8%. The capital adequacy is calculated according to the principles used in the company accounts, and not pursuant to IFRS.
Net gains/losses on disposal of shares, other equity investments and equity derivatives 3 431.5 3 628.9 4 149.3
Net unrealised gains/losses on shares and other equity investments -3 644.4 1 680.8 2 643.7
Total shares and other equity investments 658.0 6 057.5 7 439.9 - of which FVO (fair value option) 823.1 6 066.0 7 509.9
Net gains/losses on disposal of fixed-income securities and interest rate derivatives -560.1 -348.0 27.8
Net gains/losses on disposal of financial derivatives 4 223.7 66.0 -390.5
Net income and gains from financial assets at fair value 5 430.9 8 087.0 7 405.4 - of which FVO (fair value option) 462.4 7 566.0 9 644.6
Interest income from bonds held to maturity 1 595.0 1 739.9 1 879.7
Realised losses on loans where provisions have previously been made -59.6 -17.2 -81.9
Realised losses on loans where no provisions have previously been made -1.0 -6.2 -0.9
Income recognised interest on loans for which write-downs have been made 4.0 7.5 15.3
Losses realised in the period for which individual write-downs have previously been made -59.6 -17.2 -81.9
Grouped write-downs of loans, guarantees etc. at 1.1. 73.3 89.2 115.7
Grouped write-downs of loans, guarantees, etc at 31.12. 58.1 73.3 89.2 21 Classification of financial assets and liabilities
Bonds and other fixed-income securities 12 919.7 27 460.4 7 963.8 104 061.8 152 405.7
Other current liabilities 6 406.1 22 Fair value of financial assets and liabilities
Life insurance assets with investment choice 39 083.4 39 083.4 7 364.1 7 364.1 5 719.4 5 719.4
Financial liabilities: Liabilities to financial institutions, amortised cost 3 064.5 3 034.7 2 786.0 2 786.0 1 464.6 1 464.4
Subordinated loan capital, amortised cost 5 213.8 5 191.9 3 711.7 3 786.9 3 524.9 3 615.3
Booked value of bonds pledged as collateral for the bank's lending from Norges Bank 2 461.1 1 698.6 1 703.1
Undrawn amounts of committed lending facilities 2 241.9 1 687.4 1 285.7
Book value at 31.12.1 Amounts are included in the accounts in the item “Net interest income”.2 Fair value for hedge accounting is calculated on the basis of the original spread, which takes into accounting amortisation, commission income and costs, as well as option 3 costs in connection with structured products.
Hedging effectiveness is measured on the basis of a 2% interest rate shock at the level of the individual security. In future periods, hedging effectiveness will be measured using the simplified Dollar Offset method for calculating both prospective and retrospective effectiveness.
Storebrand Life Insurance In 2007, Storebrand used hedge accounting in connection with the acquisition of SPP. Cash flow hedging of the currency risk associated with Storebrand’s expected acquisition of SPP amounting to SEK 16.4 billion was booked from 11 December. The hedge accounting ceased on 20 December when the transaction was concluded. The spot element in forward exchange agreements was used as the hedging instrument and the effective share of the hedging instruments, amounting to NOK 20 million, which was recognised in equity during the hedging period, and upon the cessation of the hedge accounting charged against equity and reduced goodwill.
NOK million Nominal value Acquisition cost Book value Fair value Book value Fair value Book value Fair value
Other bonds at amortised cost 12 886.8 12 930.4 12 919.7 12 447.8 13 176.5 13 086.4 9 259.5 9 898.9
Other fund units outside EEA 17 888.5 18 047.6 18 047.6 4 435.9 4 435.9 2 810.5 2 810.5
Commercial paper, bonds and bond funds, fair value 12 920.2 97 862.5 110 782.8 819.5 423.3 112 025.6 50 782.7 57 539.3
Direct investments in bonds and commercial paper 12 920.3 97 862.5 110 782.7 51.2 423.3 111 257.2 49 638.2
Indirect investments in commercial paper and bonds through funds managed by Storebrand 50.9 -1 872.3 -1 821.4 -1 821.4 -3 095.2
The above amount includes investments in Portfolio Bond (Euroben Ltd., Ireland) of NOK 4,363.1 million. These assets will be transferred to Handelsbanken in 2008. The transfer is conditional on a licence.
Nominal volume Financial derivative contracts are related to underlying amounts which are not capitalised in the balance sheet. In order to quantify a derivative position, reference is made to underlying concepts such as nominal principal, nominal volume, etc. Nominal volume is arrived at differently for different classes of derivatives, and gives an indication of the size of the position and risk the derivative creates. Gross nominal volume principally indicates the size of the exposure, whilst net nominal volume gives an 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. A long position in an equity derivative produces a gain in value if the share price increases. For interest rate derivatives, a long position produces a gain if interest rates fall, as is the case for bonds. A long position in a currency derivative produces a gain if the currency strengthens against the NOK. Figures for average gross nominal volume are based on daily calculations of gross nominal volume.
Investments in credit derivatives relates only to indirect investments in securities funds managed by Storebrand Investments. The above table includes net positions in indirect investments.
Subordinated loan 2002-2012, call 2007 NOK 3 months NIBOR + 2% 100.0 100.0
Subordinated loan 2003-2013, call 2008 NOK 3 months NIBOR + 2.25% 54.5 100.0 100.0
Subordinated loan 2005-2015, call 2010 NOK 3 months NIBOR + 0.70% 175.0 175.0 175.0
Subordinated loan 2007 - 2012, call 2012 NOK 3 months NIBOR + 1.65% 150.0
Loans and deposits from credit institutions with notice or fixed term 3 061.6 2 777.1 1 388.1
Own issued bonds: SEK FRN April 2007 – October 2009, 3 months STIBOR + 0.10 845.5 845.5
EUR FRN May 2007 – November 2008, 3 months EURIBOR + 0.10 3 582.5 3 582.5
NOK FRN June 2005 – June 2008, 3 months NIBOR + 0.12 1 500.0 1 500.2
NOK Fixed rate January 2007 – June 2010, 5.00% 750.0 750.7
Other bond issues (equity index bonds + hedge fund bonds) 1 594.6 1 522.0
Total holding of bonds and commercial paper 23 457.6 23 327.9 33 Further information on financial risk
Liquidity risk Storebrand has established good liquidity buffers in the group companies, and continuously monitors liquidity reserves against internal limits. Committed credit lines from banks have also been established that the companies can draw on if necessary. Storebrand Bank manages its liquidity position on the basis of a rolling liquidity gap and long-term funding indicators. The liquidity gap measures liquidity in excess of the minimum requirement over the next 90 days. The minimum requirement takes into account all deposit maturities and an exceptional outflow of customer deposits at 25% annually. Long-term funding indicators are calculated in accordance with the Kredittilsynet’s guidelines, and show the mismatch between expected future inward and outward cash flows. Storebrand Life Insurance has NOK 11 billion invested in the money market and can therefore meet claims of an equivalent amount at short notice. In addition, the company has sizeable investments in bonds, equities and other liquid investments that can be liquidated if required.
an unexpected simultaneous increase in interest rates of 1 percentage point internationally and 2 percentage points in Norway, combined with a sharp fall in share prices and property values. Market risk is monitored continuously using a range of statistical tools and tests. For instance, Storebrand uses ‘Conditional Value at Risk’ as a method for calculating the potential for loss for the investment portfolio on a one-year horizon for a given probability. This method also takes into account the size of worst-case losses. Storebrand Life Insurance is contractually committed to guarantee an annual return for all its savings customers, currently around 3.5% on overage. The guaranteed annual return places particular demands on how the capital is invested in different securities and assets. Following the introduction of the new Insurance Activities Act, Storebrand Life Insurance’s company assets and customer assets have been spilt. The investment strategy and thus the market risk for the different sub-portfolios in Storebrand Life Insurance are tailored to the risk tolerances Storebrand Life Insurance applies to the various products, policies and the company’s primary capital. Given the current investment portfolio, the annual return will normally fluctuate between 2% and 11%. Smaller portions of the portfolio are invested in profiles with somewhat lower and somewhat higher market risk. The share capital is invested such that it is exposed to a low level of risk, but is exposed to assets and instruments that mean it can also keep pace with the growth in the customer funds due to returns and inflation. Active risk management and hedging transactions reduce the likelihood of a low investment return. If investment return is not sufficient to meet the guaranteed interest rate, the shortfall will be met by using risk capital built up from previous surpluses. The owner is responsible for meeting any shortfall that cannot be covered from risk capital. The average guaranteed interest rate is expected to fall in future years. New contracts include a guaranteed interest rate of 2.75%. Under current legislation and regulations, the technical insurance reserves that Storebrand Life Insurance is required to hold are not affected by changes in market interest rates. Storebrand Bank manages its interest rate risk through swap agreements to minimise the effect of a change in interest rates on its deposits and lending. It is Storebrand’s policy to fully hedge currency risks associated with international investments. Currency position limits are set for investment management to ensure effective practical implementation of currency hedging. Currency hedging is mainly carried out through rolling short-term forward foreign exchange contracts.
Credit risk Maximum limits for credit exposure to individual debtors and for overall credit exposure to rating categories for Storebrand Life Insurance and other companies in the group are set by the board. Particular attention is paid to ensuring diversification of credit exposure to avoid concentrating credit exposure on any particular debtors or sectors. Storebrand Investments monitors changes in the credit standing of debtors. Storebrand uses published credit ratings wherever possible, supplemented by the company’s own credit evaluation where there are no published ratings. All credit approvals by Storebrand Bank over a certain limit require the approval of a credit committee chaired by the bank’s managing director, or by the bank’s board of directors. Credit risk is monitored through a risk classification system that ranks each customer by ability to pay, financial condition and collateral. The risk classification system estimates the likelihood of a borrower defaulting (ability to pay/financial condition) and the likely loss given default (collateral). All loans on the bank’s watch list are reviewed at least quarterly in respect of the condition of the borrower and collateral, and of the steps being taken to protect the bank’s position. Retail lending is assessed on the basis of credit scoring, combined with case-by-case evaluation of the borrower’s ability to repay. Lending is principally secured by charges over residential property or structured products.
Financial risk In traditional insurance with guaranteed interest, the insurance company bears the risk of the policyholder not achieving the guaranteed return on paid premiums. If the total return exceeds the guaranteed yield, the return is allocated such that the policyholder receives 90 per cent and SPP 10 per cent. In the case of savings in unit-linked insurance, the policyholder accepts the entire financial risk, whereas in the case of asset management the company is exposed to market risk, liquidity risk, credit risk and operational risk. Falling equity markets and falling interest rates in particular generate financial risk since these could result in a transfer of capital from the company’s equity to customers’ assets in the event of large market movements. If an insurance contract with SPP has less earned capital than what is expected to be adequate given the applicable interest rate, an equity contribution is allocated that reflects this deficit. This allocation is recognised in the profit and loss account and called the net deferred capital contribution. SPP’s financial risk management counters this effect by making investments that counter the changes in the net deferred capital contribution that could occur in different scenarios. SPP uses financial derivatives in the company portfolio and the customer portfolio to achieve this. The company thus continuously carries out integrated asset and liability management.
Credit risk Credit risk is the risk that a counterparty is unable to meet his obligations. Creditworthiness is determined using both internal and external credit checks. Placements in fixed-income securities with a lower rating than “BBB” require the approval of the Board. The determination is made to avoid having too great a concentration on individual issuers. The group has framework agreements with all counterparties to reduce their risk with respect to outstanding derivative transactions. These regulate how collateral against changes in market values, calculated on a daily basis, should be pledged placed.
Rating classes are based on Standard & Poor’s ratings. NIG = Non-Investment Grade
Loans in default and loss-exposed lending 448.3 448.3 -247.1 -4.4 196.9 173.8 357.0
Loans in default and loss-exposed loans with identified impairment 297.2 423.7 641.1
Fair value of loans in default and loans past maturity not written down in Storebrand Bank ASA
Loans in default without identified impairment, overdue more than 90 days
Fair value loans in default and loans past maturity not written down 2005
Analysis by sector and industry: Commercial services and real estate operations 13 687.5 12 253.2 9 013.1 35 Liquidity risk
No contractual maturity date Up to 1 month 1–3 months 3 months –1 year 1–5 years
Bonds and other fixed-income securities1 3 715.5 2 363.7 8 335.0 8 163.2 45 804.4 43 210.6 111 592.3
Residual contractual period provides only limited information on the company’s liquidity risk since the majority of investment assets can be realised in the secondary market earlier than expiry of the contractual period. Other short term liabilities of NOK 21.2 billion are due within one year.
Bonds and other fixed-income securities2 3 715.5 10 240.6 28 364.4 6 982.9 27 034.2 35 254.7 111 592.3
Total short-term holdings of financial assets 0.4 -32.9 9.9 -36.2 -926.4 -3 774.6 -4 759.7
Total long-term holdings of financial assets 2.6 -8.9 -9.1 -627.1 -1 041.1 -1 683.5
NOK million Net balance sheet value Net sales in currency in NOK Of which SPP in NOK
Reinsurers' share of technical insurance reserves 1 501.3 1 501.3 1 828.3 2 401.9
Receivables in respect of insurance policies 2.0 2.0 0.3 32.1 36.4 64.9 69.1 - of which premium income received in advance 676.8 0.1 52.0 17.8 61.8 808.5 807.9 780.6
Premium and claims reserves – non-life 1 998.8 1 998.8 2 297.3 2 998.5
Life insurance: The item ‘Reserves – life insurance’ includes NOK 7.9 billion that the company assumes will be paid as claims or benefits (excluding repurchase and payment) in 2008 by Storebrand Livsforsikring AS and 3.6 billion by SPP.
+ Guaranteed interest rate/unit linked return 5 570.1 353.4 157.6 6 081.1 6 081.1 5 605.1 5 447.0
Gains/losses – bonds held to maturity1 40.0 1 096.6 3 573.4 -1 056.6 -2 476.8 -639.0
Unrealised gains on hold to maturity bonds are not included in the accounts.1
The major part of insurance liabilities at year-end relate to the run-off business of Oslo Reinsurance Company and Storebrand Skadeforsikring. Premium, and claims reserves for 2005 include NOK 169 million in respect of Fair Forsikring, which was sold in 2006.
Group pension insurance – public sector 2 585 5 812 1 867
Life insurance – profit sharing between policyholders and the owner Storebrand Life Insurance offers both products subject to profit sharing with policyholders and products not subject to profit sharing. Products not subject to profit-sharing are defined contribution pensions, personal insurance policies with investment choice, group life insurance, annual risk policies (including non-life cover) in the life account, and annual policies in connection with group pension insurance that do not include entitlement to paid-up value. The profit or loss earned on these products is entirely for the account of the owner.
For products subject to profit sharing, the profit is in principle allocated between policyholders and the owner in accordance with the company’s internal profit-sharing model. The profit to the owner is made of three elements: net return on the company’s equity, a return of up to 0.40 per cent of policyholders ’ funds (subject to investment return being sufficiently higher than the guaranteed return to permit this) and a risk margin of 12 per cent of actual risk premium (subject to the risk surplus being sufficient to permit this). Under current legislation, the owner’s share of profit cannot exceed 35 per cent.
Profit-sharing model - net return on the company’s equity1 672 579 491 - 0.40 per cent of policyholders' funds 613 567 521 - products not subject to profit-sharing 100 58 159
In the short-term the company has built up the level of additional statutory reserves to an amount equivalent to the guaranteed return for one year, which corresponds to the short-term target. On 21 January 2008, the Ministry of Finance circulated proposed amendments to the regulations for comment. These permit differentiated allocation to additional statutory reserves such that policies without additional statutory reserves can be built up to 1 per cent of the premium reserve without other policies needing to build up additional statutory reserves. Storebrand assumes that this limit may be raised to 2 per cent as a result of the comments process and has suggested that NOK 325 million be allocated in order to build up policies with lower statutory additional reserves to a level of a minimum of 2 per cent of the premium reserve, in addition it is proposed that NOK 75 million be allocated and distributed over all policies. If the limit is not raised to 2 per cent, the excess allocation will also be distributed over all policies. The additional statutory reserves pursuant to this would amount to NOK 5,757 million, or around 4.0 per cent of the premium reserve.
Life cover, individual endowment insurance 122 324 1 416 61 162 711
Critical illness, non-smoker, individual 171 515 1 804 171 515 1 804
Life cover, group pension insurance 48 146 743 23 77 403
Tariffs for group life insurance and certain risk insurances within group pensions also depend on industry/occupation in addition to age and gender. Group life insurance also applies tariffs based on claims experience.
The company’s tariffs do not involve any assumptions about inflation or voluntary termination/transfers.
The following table shows the proportions of insurance fund reserves at 31 December 2007 relating to policies with various basic annual interest rates: The above table includes the premium reserve, deposit reserve and pensioners’ surplus reserve with 3 per cent and additional statutory reserves with 0%.
The total average guaranteed interest rate for all lines of insurance has decreased from 3.83 per cent in 2000 to 3.52 per cent in 2007. The guaranteed interest rate must be delivered on an annual basis. If the company’s investment return in a year is lower than the guaranteed interest rate, current legislation permits the equivalent of up to one year’s guaranteed return for the individual policy to be covered by transfers from the policy’s additional statutory reserves. Any negative return must be met from the company’s equity.
Premiums and reserves for pension entitlements earned in 2007 in group pension insurance are calculated on the basis of a 3 per cent basic interest rate.
Insurance risk: Most of the company’s lines of insurance include cover for disability through either a disability pension, exemptions from premiums or one-off payments. Individual policies and group life policies also include life cover. Group pension insurance also provides widow or widower’s pensions with payment commencing on the death of the insured.
In terms of death benefits, increasing life expectancy will affect future expected payments and reserves, although reserves are currently considered to be sufficient.
Risk management – Storebrand Life Insurance: Evaluation of insurance risk (underwriting): 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 the premium quoted. When arranging group policies with risk cover, all employees of small companies are subject to a health check, while for companies with a substantial number of employees Storebrand requires declarations of fitness for work. Underwriting also takes into account the company’s industrial category, sector and sickness record.
Property and casualty insurance Premiums written by the newly established P&C business in 2007 totalled NOK 118.2 million. Of this, the premium earned was NOK 66.6 million and the cost of claims in 2007 was NOK 46.0 million. No premiums were received in respect of the run-off business which is 100 per cent reinsured by If.
Risk exposure and insurance risk – Storebrand Skadeforsikring AS The main risk for the newly established P&C business is that it will initially have a small portfolio to absorb claims. This can mean that single large claims may have a disproportionate impact on profit. The largest claims will typically arise from liability and motor insurance. In order to offset this risk, Storebrand has arranged reinsurance with a deductible of NOK 5 million per loss and unlimited capacity. In addition, the risk exposure arising from travel insurance may increase sharply in the event of possible catastrophes such as the tsunami in South East Asia in 2004. Travel insurance is therefore now also included in the group’s catastrophe reinsurance. We will monitor this portfolio carefully in 2008, and may consider laying off cumulative risk with reinsurers. In 2008, XL cover has been taken out that is intended to cover claims in all sectors apart from liability. This involves an excess amount of NOK 5 million. The cover has a capacity of NOK 25 million.
In 2000, Storebrand Skadeforsikring transferred all its run-off land-based Norwegian non-life insurance and all direct marine insurance to If through a 100 per cent reinsurance arrangement. The result is that the company has retained fronting responsibility, but has no commercial responsibility for the business transferred unless If becomes insolvent. This risk is therefore limited to a credit exposure to If. If has a Standard & Poor’s rating of ’A’, which suggests that this represents a very limited risk exposure for Storebrand.
In 2007, Oslo Reinsurance Company received authorisation for a Scheme of Arrangement (SoA) in English law. This means that all of the company’s creditors, with some exceptions, should have sent their claims to the company by the end of December 2007. With the help of a process described in the SoA documents it will be determined how much the company must pay to its individual creditors. During the course of 2008, Oslo Reinsurance Company will thus have paid its share of the majority of the claims and the remainder will be individual portfolios or possibly individual creditors that it was inappropriate to include in the SoA process.
SPP insurance risks The company’s risk with respect to savings in life insurance partly comes from investment yield from assets under management and partly from the policyholders’ life and health. The uncertainty surrounding the policyholders’ life and health is called insurance risk and can be divided into the following main categories: • death – payment to the policyholder’s surviving relatives • pension – payment for as long as the policyholder lives • disability – payment in the event of illness or occupational disability
A policy often contains a combination of the three different insurance risks. In a mutual life insurance company it is the insurance group that is responsible for these risks since in this case the policyholder fulfils the role of both owner and customer. In a private limited company like SPP it is not the policyholders who are liable for the risk result, but the company.
The future is unpredictable as far as disability insurance is concerned. Changes in new incidences of disability are taking place much faster than changes in mortality/life expectancy. One of the reasons for this is the problems involved with determining the causes of and the degree of disability on the ground. The quickly increasing level of disability in the first few years of 2000 resulted in premium increases within the sector. Many insurance companies were doubtful about offering voluntary disability cover in the future. However, since 2005 the number of disability incidences has fallen in a more balanced trend that resulted in SPP reducing the risk premiums for disability cover. This resulted in a lower risk result for 2007.
The insurance risk constitutes a significant proportion of the total capital requirement that results from the stress test. In total the stress test affects the risk result in the amount of SEK 120 million. With an expected risk result of approx. SEK 200 million, this means that the majority of the risk result will thus be consumed if the basis for the stress test should become a reality. The stress tests are based on a 1:200 scenario, or a confidence level of 99.5 per cent.
The survival result consists of the added mortality cross subsidy that is added to the policy according to the basis for calculating the premium less the assets that are released by a death. If the sum of the added mortality cross subsidy and the sum of the released assets are equally large, the risk result will be zero. If more people die than expected, the risk result will be positive. On the other hand if fewer die, the risk result will be negative.
Definitions of the various part results The administration result is the difference between the fees charged for the policies to cover the company’s administration costs and the actual administration costs. The fees can be based on the policy’s capital, premium or number. The administration result is for the account of the company.
Payments to third parties for goods and services -114.8 -92.1 -143.6
Dividends and group contribution In the company’s unconsolidated accounts, investments in subsidiaries and associated companies are valued at acquisition cost reduced by any writedowns. The main income of Storebrand ASA is the return on capital invested in subsidiaries. Group contributions and dividends received in respect of these investments are therefore recorded as operating income. Proposed and approved dividends and group contributions from subsidiaries are recognised in the unconsolidated accounts of Storebrand ASA as income in the accounting year.
The effect of differences between assumptions and actual experience (experience adjustments) and changes in assumptions is amortised over the remaining period for accrual of pensions entitlement to the extent that it exceeds 10% of the higher of either the pension liability or pension assets (corridor approach).
Lending Lending in the balance sheet is recognised at nominal value and converted to the exchange rate on the balance sheet day.
Employer's social security contributions -1.5 -5.4 -4.8 03 Pension costs and pension liabilities
Employees are insured through a defined benefit pension equivalent to 70 per cent of pensionable salary at the time of retirement. The ordinary retirement age is 65. Staff pensions are provided by a group pension scheme with Storebrand Livsforsikring AS. Pension payments from this scheme come into effect from the pension age, which is 67 for employees and 65 for underwriters. Pension payments to employees between 65 and 67 are paid directly by the company. The pension terms follow from the pension decisions in the Storebrand group.
The company is obliged to have an occupational pension scheme pursuant to the Act relating to Mandatory Occupational Pensions. The company's pension scheme satisfies the requirements of this act.
Reconciliation of pension assets and liabilities in the balance sheet: Present value of insured pension benefit obligations inc. employer's social security payments 1 753.5 1 914.4 1 905.0
Present value of uninsured pension benefit obligations including employment taxes 203.2 200.0 223.7
Experience adjustments not applied to profit and loss -64.5 -171.3 -137.8
Booked in the balance sheet: Reconciliation to show the change in defined benefit pension liability in the period: Net pension liability at 1.1. including provision for employment taxes 2 114.4 2 128.6 2 205.5
Pension assets are based on the financial investments held by Storebrand Livsforsikring which had the following composition as at 31.12.: Properties and real estate 13% 11% 10%
The table shows the percentage asset allocation of pension assets managed by Storebrand Livsforsikring AS at year-end. The book (realised) investment return on assets managed by Storebrand Livsforsikring AS was 8.9% in 2007, 7.1% in 2006 and 6.9% in 2005.
Net pension cost recognised in the profit and loss account during the period -18.2 -12.1 -13.4
Main assumptions used when calculating net pension liability at 31.12.: Financial assumptions: Expected return on pension fund assets in the period 5.8% 5.6% 6.0%
Actuarial assumptions: Standardised assumptions on mortality/disability and other demographic factors as produced by the Norwegian Financial Services Association. Average employee turnover rate of 2-3% of entire workforce.
04 Remuneration of the Chief Executive Officer and elected officers of the company
Board of Directors including the Chairman 2 466 2 360 2 075
Pension expenses relate to accrual for the year.1 The Control Committee covers all the Norwegian companies in the group which are required to have a control committee, except for Storebrand Bank ASA and Oslo Reinsurance 2 Company ASA which have their own control committees. For further information on senior employees, the Board of Directors and the Control Committee, see note 12 to the accounts of the Storebrand Group. Other non-audit services primarily relate to agreed inspection services in connection with Storebrand’s acquisition of SPP Livförsäkring and associated companies. Of the 3 amount approximately NOK 1.3 million was fees to Deloitte in Sweden and Denmark.
ON THE FIXING OF THE SALARY AND OTHER REMUNERATION FOR SENIOR EMPLOYEES
Guidelines for the fixing of salary and other remuneration for senior employees in Storebrand Storebrand aims to base remuneration on competitive and stimulating principles that help to attract, develop and retain highly qualified staff. The aim is for total remuneration to move towards a lower proportion of fixed salary and a higher proportion of bonus over time. The salaries of senior employees are fixed on the basis of a position's responsibilities and 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 fixed pay in the sector.
Senior employees in Storebrand can, in addition to their fixed salary, receive remuneration in the form of an annual bonus, participation in the group's group pension scheme, usual benefits in the form of free newspapers, telephone, company car scheme, and other personal benefits. Senior employees may also be entitled to an arrangement in which their salary is paid after the end of their employment. This guarantees salary less other income for a specific period of up to 24 months after the end of their employment.
The bonus system The Storebrand group's bonus scheme, which is offered in addition to basic pay, is a performance-related bonus scheme linked to the group's value-based management system. The value creation of the group finances the overall amount of the bonus, but the employees' performance determines how large a proportion of the financed bonus is awarded. The bonus entitlement is credited to a bonus account. The amount credited to the bonus bank is exposed 50 per cent to Storebrand's share price and 50 per cent to the bank interest rate paid. 1/3 of the balance on the bonus account is paid each year.
Idar Kreutzer is Chief Executive Officer of Storebrand ASA and Storebrand Livsforsikring AS, and the figures provided in the notes are for total remuneration from the group. He is entitled to 24 months' salary following the expiry of the normal notice period. All forms of work-related income from other sources, including consultancy assignments, will be deducted from such payments. Kreutzer is entitled to a performance-related bonus based on the group’s ordinary bonus scheme which is linked to the group's value-based management system. The group’s value creation finances the overall amount of the bonus, but individual performance determines allocation. Kreutzer's individual bonus entitlement is credited to a bonus account, and 1/3 of the balance on the bonus account is paid each year. The amount credited to the bonus bank is exposed 50% to Storebrand's share price and 50% to the best interest rate paid by Storebrand Bank.
The CEO is a member of the Storebrand pension scheme. The discounted present value of his pension entitlement amounts to NOK 10.3 05 Tax
Storebrand Alternative Investments AS1. 2 Oslo 2.0 101 11 100.0% 38.2
74.9% is owned by Storebrand Livsforsikring AS. The minority interest amounts to 0.2%.3 07 Shares and other equity investments
Bonds and other fixed-income securities 257.6 1 059.3 58.9 1 375.9
Up to 1 month 1–3 months 3 months – 1 year 1–5 years
No agreed interest fixing period Up to 1 month 1–3 months 3 months – 1 year 1–5 years
Bonds and other fixed-income securities 257.6 1 059.3 58.9 1 375.8
Period to next interest rate fixing for financial liabilities NOK million
Total short-term holdings of financial assets -0.1 -1.1 -2.4 -3.8 -3.9 -11.2
Total quantified interest rate sensitivity 2007 2.5 -8.4 -2.4 -3.8 -3.9 -16.0
Currency risk Storebrand ASA has a deposit and a loan in the same currency. This is for EUR 580 million.
Straight line depreciation periods for operating assets are as follows: Equipment, fixtures and fittings: 4 years
Over/under provision for dividend -0.4 -0.4 11.3 17.0 449,909,891 shares with a nominal value of NOK 5 each.1 A share issue was conducted and registered in December 2007 in which 200,090,786 shares were issued. The subscription price was2 NOK 45 per share, and the issue costs of NOK 333.7 million were deducted form the share premium reserve.3 In 2007, 1,000,000 of the company4 's own shares were bought back, and of these 236,300 were sold to employees. As per 31 December 2007, the company held 5,263,700 of its own shares. The shares were bought back in order to maintain the correct capital structure for the group and because it was advantageous for shareholders. No divided has been set aside for the company5 's holdings of its own shares.
Interest expense on bonds issued and other loans -114.1 -77.1 -53.0
Storebrand ASA has an undrawn committed credit facility of EUR 225 million 14 Shareholders 20 largest shareholders
State Street Bank & Trust 2.61 Foreign ownership of total shares 75.7 %
The summary shows the number of shares owned by the individual, as well as his or her close family and com-1 panies where the individual, as well as his or her close family exercises significant influence (cf. Accounting Act 7-26).
Profit and loss account items: Group contribution and dividends from subsidiaries 672.2 1 036.2 1 026.5
We have conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and generally accepted auditing practice in Norway, including standards on auditing adopted by Den norske Revisorforening. These auditing standards require 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 test 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 generally accepted auditing 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.
At its meeting on 26 February 2008, the Control Committee of
With reference to the auditor’s report of 12 February 2008, the
The Board of Directors’ proposed annual report and accounts, together with the Auditor’s report and the Control Committee’s statement have, in the manner required by law, been presented to the Board of Representatives. The Board of Representatives recommends that the Annual
As of 31.12.2007, Storebrand Livsforsikring AS owned 40% of UNI Norden Personforsäkring AB. The company has since been wound up. As of 31.12.2007, Storebrand ASA owned 100% of Storebrand Felix kurs- og konferansesenter AS. The company was sold in January 2008.
SPP Livförsäkring AB owns 50% and Storebrand Livsforsikring AS owns 25%1 Storebrand ASA owns 24.9% and Storebrand2 's total ownership share is 99.8%. The company was converted to a limited company as per 22.01.2008.3
Equity capital: Equity capital consists of share capital subscribed and accrued earnings. Share capital subscribed is recorded as share capital and share premium reserve. Accrued earnings are recorded as other equity.
Primary capital: Primary capital is capital eligible to fulfil the capital requirements under the authorities’ regulations. Primary capital may comprise Tier 1 capital and Tier 2 capital.
Tier 1 capital: Tier 1 capital is part of primary capital and consists of equity capital less the minimum requirement for reinsurance provisions in P&C insurance, goodwill, other intangible assets and net prepaid pensions.
Average yield: Average yield is an expression for the average return the company has obtained on the policyholders’ fund during the year. Average yield should be seen as a gross yield before deducting costs, and is accordingly not comparable with the interest return reported by other financial institutions. Average yield is calculated in accordance with rules set by Kredittilsynet.
F.o.a.: Abbreviation for the term ‘for own account’, i.e. before additions/deductions for reinsurance.
Incurred claims: The sum of total claims amount for losses incurred in the period regardless of whether or not they have been reported to the company and any changes in losses which occurred in earlier periods.
Premiums earned: This is accrual accounting for premiums written and constitutes the premium for that part of the policy’s agreement period that falls within the accounting year.
Preferably expressed as a nominal rate less the rate of inflation.
Interest rate options: Interest rate options can be related to either bond yields or money market rates. The purchase of interest rate options related to bonds
DKV Hälsa Swedish branch office of Storebrand Helseforsikring AS Rålambsvägen 17, 14th floor, DN Huset P O Box 34242 S-100 26 Stockholm Sweden www.storebrandhalsa.com
Other group companies:Head office: Branch offices in Norway (incl. insurance agents) Tromsø, Harstad, Narvik, Fauske, Bodø, Finnsnes, Mo i Rana, Namsos, Steinkjer, Trondheim, Orkanger, Kristiansund, Molde, Ålesund, Ulsteinvik, Isdalstø, Nyborg, Bergen, Stord, Husnes, Førde, Haugesund, Stavanger, Sandnes, Flekkefjord, Mandal, Kristiansand, Arendal, Gjerstad, Porsgrunn, Larvik, Bø, Sandefjord, Tønsberg, Drammen, Asker, Sandvika, Lysaker, Oslo, Hokksund, Hønefoss, Gjøvik, Hamar, Lillehammer, Jessheim, Skjetten, Ski, Haslum, Sarpsborg, Fredrikstad.
Branch offices in Sweden Umeå, Sundsvall, Stockholm, Ørebro, Linköping, Gøteborg, Malmø.
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