The 2019 annual report is an integrated report based on the framework of IIRC – the International Integrated Reporting Council. The report was prepared in accordance with the Global Reporting Initiative’s - GRI’s - core principles and Oslo Børs’s recommendation for sustainability reporting. In the report, you can read about how we work to create value in the short and long term for our customers, owners, employees and society at large, and how sustainability is integrated in our operations. We have chosen to use the integrated reporting framework because we believe it gives a good presentation of Gjensidige and our value creation. The report is published in digital format only and is available at www.gjensidige.no.
The requirements of the Board’s report are covered in various chapters throughout the integrated report. For complete overview, see “Appendix 1 - Checklist GRI and the Board’s report”.
In case of any discrepancies, the Norwegian version of the annual report shall prevail.
Table of contents We are Gjensidige 3 The year that passed 4 About this report 7 Table of contents 8 Key figures and alternative performance measures 9 Sustainability and capacity for change 12 Good. Better. Sustainable. 14 Our mission and vision – goals and strategies 17 Who we are 18 The customer in focus 18 Gjensidige’s targets 20 Gjensidige’s strategy 22 Our business model – this is how we create value 27 Gjensidige’s business model 28 Creating value for our stakeholders 31 How Gjensidige contributes to the UN Sustainable Development Goals 31 Damage prevention – the most sustainable approach 33 Solid position in an attractive market – we have loyal customers 34 Our markets 36 Our insurance segments 37 Our asset management 41 Good management and control – we are serious about our responsibility 44 Good risk understanding and management are vital to long-term value creation 46 Code of Conduct 49 Corporate governance 52 Risk – the core of the business 56 Our customer promise – It’s all about the Gjensidige experience 62 Customer Promise 64 Our organisation – we create safety to foster new thinking 66 Senior Group Management 68 Our core values 71 Engaged employees 73 Our social commitment – the world is more than Gjensidige 76 Our social commitment 78 Our climate and environmental commitment 80 Our commitment to our suppliers 82 Our commitment to our owners and creditors 83 Value created in 2019 84 A safer society 86 Reducing carbon intensity 92 Socially responsible investments 96 Statement concerning the annual accounts 98 Strategy and outlook 109 Financial statements and notes 111 Declaration form the Board and CEO 206 Auditor’s report 207 Appendix 1 – Checklist GRI and Board’s report 212 Appendix 2 – Description of rating and who we support 213
Key figures and alternative performance measures 1 Defined as an alternative performance measure (APM). APMs are described at www.gjensidige.no/reporting in a document named APMs Gjensidige Forsikring Group 2019.
Nordic general insurance2 19 % 7 % 435 % 1 Dividend reinvested 2 Non-weighted average in local currency for Tryg, Topdanmark, Sampo and Alm. Brand 12.25.. …NOK per share in proposed dividend
Employees Number of employees in the Group Persons 3,674 3,893 3,834 4,005 3,908 Gender distribution men/women Per cent 53/ 47 52/ 48 52/ 48 53/ 47 52/ 48 Gender distribution men/women in executive positions Per cent 62/ 38 63/ 37 63/ 37 64/ 36 63/ 37 Number of course days Days 5,255 5,982 6,960 7,487 5,524 Turnover of employees, Gjensidige Forsikring Per cent 11.1 12.4 15.3 9.7 9.6 Sickness absence, Gjensidige Forsikring Per cent 3.9 3.8 3.9 3.9 4.1 Ratio between average pay and executive mgmt. pay 6 Per cent 22 22
Customers Digital customers 7 Per cent 77 73 70 65 60 Digital claims settlements 8 Per cent 73 63 Customer satisfaction (CSI) Point 78 78
Socially responsible investments Companies excluded Number 103 91 89 85 80 1 Defined as an alternative performance measure (APM). APMs are described at www.gjensidige.no/reporting in a document named APMs Gjensidige Forsikring Group 2019. 2 The investment portfolio includes all assets in the Group, except Pension. 3 Scope 1: Direct emissions from company cars. Scope 2: Emissions from energy consumption see page 95. 4 Scope 3: Emissions from travel and transport, 5 Scope 3: Emissions from claims processes, material consumption and waste, see page 93 5 CO2-intensity: CO2-emissions in tonnes from claims handling processes, divided by earned premiums in NOK million from general insurance. 6 Norway, Sweden and Denmark. 7 The private segment. 8 The private and commercial segment.
A sustainable strategy Sustainable operations are a precondition for long-term value creation. Sustainability is therefore an integral part of our strategy. Gjensidige has endorsed the UN Global Compact’s principles for sustainable operations, and we endeavour to run our business in accordance with the UN’s precautionary approach. We have singled out 5 of the 17 Sustainable Development Goals as particularly relevant for Gjensidige, but our operations support most of the goals. By working to achieve these goals, we will contribute to the green transition, in line with Finance Norway’s ‘Roadmap for green competitiveness in the financial sector’.
Gjensidige’s sustainability work includes both financial, environmental and social factors as well as corporate governance. Gjensidige’s operations shall make a difference in three main areas in particular: We shall contribute to a safer society, reduced carbon intensity and socially responsible investments.
Value creation for our customers, employees, owners and society at large Gjensidige shall offer first-class products and solutions that provide a sense of security for our customers and that there is high willingness to pay for. Good cost control shall ensure that the Company uses as little of society’s resources as possible, and good risk and capital management shall ensure that the Company does not accumulate more capital than it needs in order to be a sound, stable and predictable insurance provider.
This way, Gjensidige will achieve an attractive return for its owners, the best solutions for its customers, a developing workplace for its employees and a more sustainable society.
Among other things, we have adjusted our prices and terms for products that have generated too low profitability. In addition, the weather in 2019 was more normal than the extreme weather we had in 2018.
Strategic priorities In order to maintain and strengthen Gjensidige’s competitiveness, it is decisive that we manage to further develop the Group’s analytical capacity and expertise. We have therefore started work on implementing a new core system and new technological infrastructure as well as more sophisticated tariffs and CRM. This will lead to better processes, increased efficiency and greater flexibility, which will allow us to respond to market changes and ensure the best possible products and services for our customers at all times. It will also create opportunities for a broader value proposition, alone or in alliance with other insurance providers, thereby further enabling us to help our customers lead safe, problem-free lives.
Gjensidige Bank and Nordea In March 2019, Nordea took over Gjensidige Bank. As part of the agreement with Nordea, we entered into cooperation on the cross distribution of services in Norway. This will give Nordea’s customers access to Gjensidige’s wide range of insurance services, and our customers access to Nordea’s banking services. The distribution agreement initially applied to private customers only but was quickly expanded to include commercial customers. Gjensidige and Nordea’s offices have now been co-located several places in the country, to the benefit of our customers. The partnership has got off to a highly promising start, characterised by mutual loyalty and a commitment to apply a flexible approach to meeting challenges. I am certain that we will reap even greater benefits from the partnership going forward.
As a general insurance company, however, damage prevention is our single most important contribution to the green transition. Gjensidige has been committed to damage prevention for more than 200 years, and will give even higher priority to this work going forward.
Climate and environmental challenges give rise to new risks and opportunities for the insurance industry. Integrating sustainable solutions into our core activities and strategy is vital to value creation in the long term.
Gjensidige defines sustainability in line with the UN Sustainable Development Goals. This means that Gjensidige’s activities shall help to strike a balance between climate and environmental considerations, social conditions, good corporate governance and finances, to ensure that future generations have the same ability to meet their needs as we do today.
Gjensidige shall be a leading general insurance company with business in the Nordic and Baltics. A high degree of customer orientation shall be combined with cost efficient operations. Sustainable choices and solutions are a precondition for long term value creation. Mergers, acquisitions and strategic alliances will complement organic growth and help the Group deliver on strategic goals. Profitability shall still be prioritised ahead of growth.
Our mission We secure lives, health and assets in a sustainable manner.
Our vision We shall know the customer best and care the most.
Gjensidige’s targets The Board has adopted targets to ensure that Gjensidige meets its obligations to the Company’s stakeholders. The board has adopted both sustainability targets and financial targets.
A safer society The most important thing we can do to contribute to a safer society is to work on damage prevention activities. Sustainable products shall reflect customer needs, and we shall use our know-how and expertise to put the right price on insurable risks. We shall be a problem-solver that provides our customers with relevant services. We shall utilise the damage prevention opportunities technology and digitalisation present. Insurance is very important to society and therefore subject to strict regulation. Good corporate governance is decisive to achieving our goals.
For our own operations, our ambition is to be climate neutral by 2030.
Socially responsible investments Gjensidige shall help to ensure that the transition to a zero emission-society is a smooth as possible. Our investments shall be in accordance with the Board’s ESG policy (our policy for sustainable operations, of which investments are a part). Furthermore, the investments shall comply with the company’s SRI-policy and strategy to ensure that the investments are in accordance with Gjensidige’s ethical profile, and as far as possible in accordance with the UN Principles for Responsible Investments (PRI).
 Development of a process for automating development, monitoring and updating of tariff models. This presupposes increased analytical capacity, standardisation and automation of pricing processes and a gradual development of more sophisticated tariff models. The new tariff models can be updated significantly quicker than before.
 Increasing the proportion of digital claims reports and straight-through claims processing in Norway and, in the longer term, in Denmark, Sweden and the Baltics. This will be made possible with the help of standardisation, digital claims forms and algorithms built into our core system. Digitalisation and automation of claims handling processes contribute to good customer experiences and increased cost efficiency.
 Reducing claims incurred through better control of repair methods and selection of suppliers, and reducing fraud, as well as cutting costs through increased automation.
 Increased urbanisation provides opportunities for new value propositions, but also leads to environmental threats and changed insurance needs.
In the strategy period, we will pay special attention to and be alert to the development of new business models, for example related to open platforms and sharing of data, vertical integration, and more comprehensive risk relief.
Customer orientation Gjensidige shall be characterised by having the best customer experiences in the industry. Customer needs shall form the basis for Gjensidige’s development of products, services and solutions, and relevance shall characterise all contact with customers.
Efficient operations Continuous improvement and rationalisation of all processes creates room for investment to ensure future flexibility, agility and competitiveness. Efficient omni/multi-channel distribution and digital solutions are fundamental preconditions for succeeding and are given high priority. A proactive approach to climate and environmental challenges, including through more damage prevention and more reuse/circular economy in claims processes, combined with a higher degree of automation, shall help us to achieve our goals of higher profitability and lower carbon intensity.
Brand platform Gjensidige operates in a trust-based industry where the importance of a strong brand is expected to increase further. Customer orientation shall be a clearly differentiating advantage of the Gjensidige brand. Solutions will be developed based on the customer perspective, with the focus on simplification and increased value for the customer.
Technology platform Scenario analytics confirm the need for continuing to give priority to investments in technology and data. This will not only reduce the costs of today’s core system, but also ensure improved functionality and agility to provide for a more flexible partner integration and product modularity. To achieve this, we need to continuously improve our core processes and make investments to ensure future flexibility and agility. The launch of next generation tariffs and CRM and investments in a new core system and IT infrastructure are important in order to succeed in becoming an analytics-driven company.
Corporate social responsibility/sustainability Sustainable choices and solutions are a precondition for longterm value creation. Gjensidige’s business model is based on relevant expertise and efficient risk assessment systems that permeate all our activities, from optimal risk selection and pricing to capital and asset management. Sales, advisory and claims processes shall be characterised by a focus on damage prevention and sustainable solutions in products and claims processes that contribute to reuse and the circular economy. The investment portfolio shall be managed responsibly in accordance with the UN Global Compact principles, monitored in accordance with recognised ESG requirements and, as far as expedient, comply with the UN Principles for Responsible Investments.
Strategy towards 2025 We expect that the business model and the market players will be broadly the same in the period up until 2025. Gjensidige has different positions and preconditions for further growth and development in the segments. We will implement best practices across segments where natural and expedient. Profitability will be prioritised over growth.
Our corporate strategy is about maintaining and cultivating our close relationship to the customers through direct contact. We aim to achieve greater relevance and create sales opportunities by offering our customers a broader value proposition than ever before – in terms of both services and products, alone or in partnership with other providers. Our goal is to become an even better and more relevant partner for our customers – a problem-solver with a stronger focus on damage prevention – and thereby further strengthening ownership of the customer relationship.
Improvement and development agendas Going forward, Gjensidige must safeguard and strengthen its current business model, market position and profitability level, at the same time as the Group develops its strategic flexibility and manoeuvrability to be able to meet future challenges and possibilities. We must create room for development, testing and learning. This must take place through continuous improvement and more efficient operations.
Our overriding goal for the Private segment is to exceed expectations through customer-oriented development and by refining our role as a damage-preventing problem-solver. Deep insight, stronger value propositions and partnerships are important preconditions for achieving this goal.
In Denmark, the focus will be on continued growth and a stronger market position, especially for home insurance in the private market and health insurance in the commercial market. In the Baltics, we will continue to focus on more efficient operations combined with growth in a market that is expected to grow more than the Nordic market. In Sweden, measures to achieve improved profitability and a stronger market position will continue.
Structural growth Gjensidige shall take a proactive and disciplined approach to structural growth opportunities through acquisitions/mergers/strategic alliances that complement its core activities and contribute to its ability to follow through. The Group’s growth matrix remains in place: increased scale in general insurance in the Nordic region and the Baltics, and a broad range of services in the financial sector in Norway. At the same time, we must develop strategic alliances with providers who can give us further insight into security-related needs, changes in customer behaviour and new technological opportunities.
We understand what insurances and services our customers need to feel safe – and we aim to calculate the right tariffs based on the risks we accept. Efficient distribution and loyal customers are important preconditions for good operations. Damage prevention and sustainability are key drivers in all our undertakings.
Relational capital – no one lives for himself alone Lasting customer relationships and an outstanding reputation are dependent on good relations with both customers and society at large. Strong relationships with suppliers and partners are also essential to ensure sustainable decisions and claims settlements.
Financial capital Financial capital is spent on claims payments to customers and suppliers after a loss event. The employees receive a salary, and the taxes we pay benefit society. We generate a return on the equity through profitable operations. In addition, we pay dividends to our owners and indirectly to our customers via the customer dividend model. Gjensidige’s robustness creates a sense of security for its customers and owners. • Return on equity: 28.2 per cent (22.6 per cent excluding gain on sale of Gjensidige Bank)
• Proposed share dividend for 2019 to our owners: NOK 6,125.0 million
• Customer loyalty (customer retention): 90 per cent in Norway, 80 per cent outside Norway
Gjensidige creates value by understanding its customers’ need for insurance products and services that create a sense of security. We do this by understanding the risk customers face and by calculating how much to charge for taking over this risk. Gjensidige’s business model is based on a good understanding of society, and of what can be insured. Over a long period of time, we have built relevant expertise and efficient risk assessment systems, covering everything from risk selection and pricing to capital and asset management. Our sales, advice and claims processes shall contribute to claims prevention and sustainable solutions in the event of claims settlement. Utilising opportunities for reuse and the circular economy will be given greater focus. The investment portfolio shall be managed responsibly in accordance with the UN Global Compact principles.
Our core processes Gjensidige’s business model is based on an integrated value chain that includes the development and production of financial services and products, a high degree of direct distribution, service and customer dialogue, and efficient claims settlements. Digitalisation and an analytical approach characterise activities throughout the value chain. Distribution in cooperation with our partners is an important part of the business model, especially in Denmark and Sweden.
The ability to analyse large quantities of customer data and translate the analysis into insight is vital to competitiveness in general insurance. We use advanced data analytics in all areas of the insurance operation, including product development, pricing and underwriting, marketing and sales and claims processing. We have made efforts to strengthen and improve analysis in all these areas in recent years. New tools, such as artificial intelligence and machine learning, are important aspects in this work.
Our core processes are exercised within the framework of the Company’s strategy, Code of Conduct and compliance, and aim to create value for our stakeholders. Each element of the core processes is described below, with a reference to the SDGs considered in each process: Risk management Risk assessment and correct pricing are a fundamental condition for sustainable insurance operations. Thanks to our long history and large customer base, we can use our extensive experience to calculate the risk of different losses. Risk analyses are based on large quantities of data, highly competent employees and system values built over a long period. This forms the basis for rational use of capital, the design of competitive products and advice that contributes to claims prevention for both our customers and society at large. By their nature, losses have a negative impact on the environment, since resources are needed to repair or replace the loss. Gjensidige therefore has a strong focus on claims prevention work and thereby helps to prevent insurance events and reduce the impact on the environment. Read more about overarching risk management in the chapter “Risk - the core of the business”.
In the Baltics, distribution takes place through our own distribution channels, partnerships and brokers. The tendency is that direct sales are increasing.
Gjensidige has a range of digital services and digitalisation activities. We work continuously to increase the proportion of ‘paperless’ customers, meaning customers who choose to receive information from us through digital channels instead of on paper. With the exception of information that is required by law to be distributed on paper, paperless customers receive all documentation and other information by email, text messages or by logging into our web portal. Digital customer communication improves the customer experience and helps to reduce costs and paper consumption.
Digital diversity is important, and all user groups should be able to benefit from the services we offer to the market. It should be easy to reach Gjensidige despite different preconditions and disabilities. We therefore work systematically on meeting the requirements set out in the WCAG 2.0 standard, which provides guidelines on the universal design of web content.
Customers Dialogue with our customers is an important means of reaching our ambition to become the most customer-oriented general insurance company in the Nordic countries. We communicate with our customers and create value through:  Damage prevention measures  Relevant products/services  Efficient claims settlements  Digital solutions
Employees Engaged and motivated employees are important to our profitability, and we have different forums that give us an insight into their ideas and concerns. Value is created through dialogue on:  Labour rights  Competence and career development  HSE  Data protection  Diversity  Employee surveys
Suppliers Good cooperation with our suppliers is decisive if we are to reach our goals. We create value by exercising transparency in connection with competitive tenders, setting requirements and following up compliance:  Fair competition  Waste handling  Corruption/money laundering  HSE  Reuse
Society at large Insurance is an important social benefit and significant factor in safeguarding economic stability. We safeguard the interests of society through:  Paying direct and indirect taxes  Damage prevention  Influencing the authorities  Environmental and climate measures  Anti-corruption and money laundering  Sponsorship and donations
Risk and materiality assessment for Gjensidige’s stakeholders The assessment of relevant topics is based on what topics the stakeholders consider important and the consequences for Gjensidige if we fail to meet their expectations in regard to the environment, social issues and economy. The results of the risk and materiality assessment to our sustainability efforts have been compiled in the table below, where topics of great significance to both stakeholders and Gjensidige are placed in the top right-hand corner. Topics that are less important to
How Gjensidige contributes to the UN Sustainable Development Goals The 17 UN Sustainable Development Goals (SDGs) and the 169 targets are ambitious and call for a global effort to make the world a better place, focusing on the climate and the environment, social conditions and the economy. Through its activities, Gjensidige shall implement measures that promote the SDGs, and have a particular focus on the goals that are most relevant to an insurance company.
Gjensidige will help to halve the number of deaths and injuries caused by road traffic accidents.
11 Sustainable Cities and Communities, targets 11.5, 11a, and 11b Gjensidige shall by 2030 contribute to significantly reducing the number of deaths and the number of people affected by disasters, including water-related disasters, and help to reduce the direct economic losses relative to global gross domestic product that follow from such disasters.
Gjensidige shall support positive economic, social and environmental links between urban, peri-urban and rural areas by strengthening national and regional development planning.
13 Climate Action, targets 13.1, 13.2 and 13.3 Gjensidige shall contribute to strengthening resilience and adaptive capacity to climate-related hazards and natural disasters, including providing insurance claims data to the authorities to ensure better measures are instigated to combat climate change and planning at the national level.
Road safety Young drivers are especially at risk of being involved in accidents. Gjensidige therefore has several measures targeting this group. In Norway, we give an insurance discount to young people who have practised driving with an accompanying driver for a sufficient number of kilometres. When they reach the age of 23, customers who have driven claim-free for the past year or longer will receive a sum of money as a reward. The longer the claim-free period, the bigger the reward. We collaborate with the Norwegian Council for Road Safety (Trygg Trafikk) on awareness-raising campaigns in upper secondary schools several places in Norway. #ErDuSikker? is a traffic safety competition for upper secondary schools. We collaborate with other insurance companies on road safety through the industry organisation Finance Norway. In Estonia, Gjensidige contributes to improving road safety through an annual campaign that encourages pedestrians to wear reflectors.
Research collaborations In order to ensure that our products and customer service maintain a high international level at all times, we collaborate with research institutions on innovation. In the period from 2015 to 2022, we are participating in a research collaboration with, among others, the University of Oslo, the University of Bergen and the Norwegian Computing Centre on several projects that we expect to give us new insight into topics relating to the processing of large data volumes (big data). Examples include risk pricing, forecast and trend analyses and insurance fraud.
We have entered into collaborations with the construction company Norgesbygg and the research institute SINTEF Community on the development of construction systems and processes that will enable climate adaptation of residential buildings. The aim is to understand the need for making people’s houses more robust to withstand the changes in weather that are predicted.
Solid position in an attractive market – we have loyal customers
The general insurance market is relatively mature in the Nordic countries, and in a growth phase in the Baltics. Gjensidige is a market leader in Norway, and we have a good platform for growth in Denmark, Sweden and the Baltics.
The Nordic general insurance market is characterised by high customer loyalty to companies with well-established brands and strong partnership structures. A high degree of direct distribution combined with high customer loyalty and efficient operations lead to low cost ratios and create entry barriers for new players.
There is considerable competition in all countries in the region. The competitive situation has been relatively stable the last few years. The markets are relatively consolidated, except in Denmark, where the competitive situation is more fragmented. We face competition mainly from large traditional general insurance companies and bancassurance companies. Most of the large players are companies with general insurance as their core activity, and they are largely based on integrated value chains. The smaller companies include banks, life insurance companies and pure general insurance companies.
In most of the countries, the private market consists of four or five large players and a number of small or medium-sized companies. The commercial market is generally more concentrated than the private market. Size and scale are becoming increasingly important in order to succeed in the insurance industry. This is driven by the need for meeting increased regulatory complexity, creating room for strategic investments and investments in technology, attracting the best qualified candidates, increased diversification and positioning to be the preferred alliance partner.
The general insurance operations include both property insurance and accident and health insurance. The Norwegian general insurance operations also include life insurance, which is pure risk insurance with a duration of up to one year, largely group life insurance.
The Group’s investment portfolio includes all investment funds in the Group, except for investment funds in the Pension segment. A large part of the asset management is outsourced to external managers, while the Group’s investment function concentrates on asset allocation, risk management and the selection of managers. Direct property investments take place via the company Oslo Areal, in which Gjensidige has an ownership interest of 50 per cent.
The investment portfolio consists of two parts: a match portfolio and a free portfolio. The match portfolio is intended to correspond to the Group’s technical provisions. It is invested in fixed-income instruments whose duration is adapted to match the technical provisions.
The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and risk capacity, and the Group’s risk appetite at all times.
There are several different approaches to socially responsible investments, and this chapter describes Gjensidige’s approach in more detail. Gjensidige believes that companies that incorporate ESG in their investment strategy have better prospects of profitability because they have a better understanding of risk management and market developments than other companies.
How we choose and follow up our investments Gjensidige endorses and has signed • The UN Global Compact: a framework that guides
Gjensidige’s assessments in relation to SRI and CSR in the investment area.
• The Carbon Disclosure Project (CDP) as an Investor Signatory to support companies’ reporting of their environmental impact and the strategies and measures they use to reduce carbon emissions.
The Group’s Chief Investment Officer (CIO) is responsible for ensuring compliance with the policy and guidelines. Gjensidige demands that all investments comply with conventions on human rights, environmental harm and economic crime. We have hired the consultancy firm Sustainalytics to carry out ethical screening of companies. Sustainalytics’ findings, together with information from other external sources, form the basis for the exclusion of and dialogue with companies in Gjensidige’s investment universe.
One member of the capital management team is responsible for reviewing and compiling all information from the external consultants and other external sources in connection with preparation of Gjensidige’s exclusion list. This employee draws up a recommendation to the CIO and the Chief Risk Officer (CRO), who together make a final decision on whether to exclude companies or take them off the exclusion list. Companies that commit serious or systematic violations of Gjensidige’s Code of Conduct and fail to take satisfactory steps to correct their conduct shall be placed on the list of excluded companies.
When a company has been excluded, it must be immediately removed from the internally managed portfolio, unless the company has substantiated a plan to rectify the circumstances leading to exclusion. If excluded companies are part of externally managed portfolios, we will enter into dialogue with the manager about exclusion and/or follow-up of the company. We only enter into agreements with investment managers who have appropriate guidelines and an investment history based on ESG. This is a very important criteria in the selection of external managers.
If excluded companies nonetheless appear in externally managed funds, the manager will be asked to explain the situation. Managers who are unable to provide a satisfactory explanation within a reasonable time or who fail to demonstrate willingness to satisfy Gjensidige’s Code of Conduct criteria will not be given new investment mandates. Gjensidige’s CIO decides in each case whether the violation is severe enough for existing investments to be terminated. Gjensidige considers good relations with external managers to be very important, as this can give us greater influence on underlying companies than we can achieve directly. This must be seen in light of the structure of the investment portfolio, where the majority of the funds are under external management and only a small proportion are direct investments. The SRI work is summed up by the table below.
The BREEAM NOR environmental classification system is used for new buildings, complete renovations and partially for buildings in use
Through Oslo Areal, Gjensidige invests in environmental buildings and locations, in public transport hubs in particular. Energy labelling of all buildings.
Proponent for changing investment mandates and individual investments that are not in accordance with Gjensidige’s SRI policy.
Emissions from investment activities In line with our own internal sustainability targets and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the United Nations Environmental Programme Financial Initiative (UNEP FI), Gjensidige wishes to measure and report on greenhouse gas emissions from its investment portfolio. Measurement and reporting of emissions will give us information about the source of the emissions and where Gjensidige can direct efforts to reduce its climate footprint. In the long term, this can be used to evaluate the effect of Gjensidige’s internal work in the ESG area.
Gjensidige makes active efforts to encourage investment managers and companies to improve their reporting of emissions. The goal is to be able to disclose emission data for the whole portfolio in the 2020 annual report.
Financial consequences of climate risk Financial climate risk is about how climate change can lead to unforeseen changes in financial assets. In its reports, the TCFD encourages financial institutions to report on climate risk. The task force has drawn up a framework that identifies three risk categories in which Gjensidige will follow up its exposure.
The biggest financial climate risk for Gjensidige’s investment portfolio is assumed to arise in the transition to a low-emission society where climate regulation, more stringent emission requirements, a different cost situation and changes in market preferences can affect the value of investments. The breakdown of sector exposure is described in the chapter “Socially responsible investments”.
Changes in value arising from physical damage/injury as a result of climate change, both acute and chronic.
Sectors with high greenhouse gas emissions may face challenges relating to policies and regulation, for example from higher emission costs. At the same time, support may be granted for competing technologies. This will represent a risk for owners of fossil energy, among others.
Financial risk relating to financial liability / claims for compensation for losses due to climate change.
An underlying company that is held accountable for its negative environmental impact, for example through a climate lawsuit, may face major claims for compensation, which may negatively affect the value of the company.
Good risk understanding and management are vital to long-term value creation
The established governance structure applies to finances, the environment, social conditions and compliance with laws and regulations. The governance structure is described in more detail in the chapter “Corporate governance”, in Note 3 to the accounts and in the chapter “Risk – the core of the business”.
The remuneration of executive personnel is linked to value creation over time, reflects responsibilities and expertise and is based on measureable outcomes. This is described in more detail in Note 8 to the accounts and in the Board of Directors’ statement on corporate governance.
The handling of risk is at the core of our business. We have robust frameworks and routines to ensure that we only accept risk that we understand, at a scale that we can handle. Our ethical guidelines shall ensure that we keep well within the norms that the society expect.
Gisele Marchand Chair Gisele Marchand (1958) was elected Chair of the Board in 2018 and has been a member of Gjensidige’s Board of Directors since 2010. She is Chair of the Remuneration Committee and a member of the Risk Committee.
Marchand holds an MBA from Copenhagen Business School. Marchand is a board member and Chair of the Audit Committee in Norgesgruppen ASA and Chair of the Board of Norgesgruppen Finans Holding AS. She is also member of the Board of Selvaag Bolig ASA, where she is a member of the Remuneration Committee. She is a board member of Eiendomsspar AS, Victoria Eiendom AS, Scatec Solar ASA and Chair of the Board of Boligbygg Oslo KF. She is a member of the Nomination committee of Entra Eiendom AS. She has also previously been a member of a number of other boards, including in Norske Skog ASA and Oslo Børs AS.
Marchand has previously been CEO of the law firm Haavind AS, Eksportfinans ASA, the Norwegian Public Service Pension Fund, Bates Group and Executive Vice President at Den norske Bank, with responsibility for retail and commercial customers in Norway. Marchand has considerable management experience from the finance industry, as well as good insurance competencies due to her serving at the board of Gjensidige for a number of years.
Eivind Elnan Board member Eivind Elnan (1974) has been a member of Gjensidige’s Board of Directors since 2017. Elnan has a master’s degree (sivilingeniør) in Industrial Economics and Technology Management from the Norwegian University of Science and Technology (NTNU).
Eivind Elnan is independent of key employees and main business partners.
Elnan is up for re-election to the Board in 2020. Number of shares in Gjensidige: See Note 8.
John Giverholt Board member John Giverholt (1952) has been a member of Gjensidige’s Board of Directors since 2016. He holds an MBA from the University of Manchester and the exam for stateauthorised public accountants from the Norwegian School of Economics (NHH).
Giverholt has considerable management experience from the finance industry, as well as considerable experience within economic management, and qualifications within auditing and accounting.
Giverholt is up for re-election to the Board in 2020. Number of shares in Gjensidige: See Note 8.
He is Chair of the Board and General Manager of PAB Consulting AS and Chair of the Board of Borgund Invest AS, Havskjer AS and Havskår AS. Bjørge is a member of the board of Gjensidigestiftelsen, 3D Perception AS, Sørsida Utvikling AS and Tafjord Kraft AS. Bjørge’s previous experience includes a period as bank manager at Kreditkassen (Nordea) and work as an auditor.
Bjørge is up for re-election to the Board in 2020. Number of shares in Gjensidige: See Note 8.
Krag is up for re-election in 2020. Number of shares in Gjensidige: See Note 8.
Gunnar Mjåtvedt Board member Gunnar Mjåtvedt (1960) has been an employee representative of Gjensidige’s Board of Directors since 2007.
Mjåtvedt took the natural science specialisation at upper secondary school, and is a certified insurance adviser in life insurance and pension. Mjåtvedt is the Group’s chief union representative.Mjåtvedt has previously been head of sales and marketing, an insurance agent and a senior consultant, and has almost 30 years’ experience from the insurance industry.
Mjåtvedt is up for re-election to the Board in 2020. Number of shares in Gjensidige: See Note 8.
Nafstad holds a degree in economics and business administration (Siviløkonom) from BI Norwegian Business School. She holds several directorships in Equinor’s international subsidiaries. In 2017 she was elected deputy member of Gjensidige- stiftelsen’s General Meeting. Nafstad is the VP of Finance and Control at Equinor. She has previously held several senior positions at Equinor (formerly Statoil), Norsk Hydro, Saga Petroleum and the Ministry of Petroleum and Energy. Nafstad has broad experience from the oil and energy industry, as well as financial competencies and thorough experience as a manager.
Nafstad is up for re-election to the Board in 2020. Number of shares in Gjensidige: See Note 8.
Seljeseth is an ADB candidate/IT from Oslo Computer College (Datahøgskolen i Oslo) and holds a degree in mathematics/informatics from the University of Oslo. Seljeseth is chair of the board of GnT AS, and a member of the board of Headhunter, Adevinta ASA, TX Markets and Videocation.NO AS. He works on analytics for the Tinius Foundation, and has previously been EVP for Products and Technology and Marketplaces at Schibsted. He has also been CEO of FINN.no and held various positions at Aftenposten AS and Telenor Media AS. Seljeseth has considerable experience and competencies within technology and digitilisation.
Terje Seljeseth is independent of key employees, main business partners and the major shareholder.
Seljeseth is up for re-election in 2020. Number of shares in Gjensidige: See Note 8.
Kronholm Sjøberg has studied at Copenhagen Business School, among other places, and has a master’s degree in Mediation and Conflict Management from Copenhagen University’s Faculty of Law.Kronholm Sjøberg previously held various positions in the Group, including as a consultant in Nykredit Forsikring’s ownership transfer department.
Gjensidiges Code of Conduct Gjensidige is completely dependent on the trust of our surroundings to carry out our social mission, namely safeguarding lives, health and assets. Ethics are essential in this context.
We depend on the trust of our customers, suppliers, the authorities, shareholders and society at large to be able to run our business. The Company’s Code of Conduct shall ensure that all employees act in a way that maintains trust in the Company. All Gjensidige’s activities must stand up to public scrutiny.
The data protection officers are an internal control function. They are in contact with the Norwegian Data Protection Authority, and with customers and employees who have queries concerning the processing of personal data.
The policy guides the groups control system for information security, which is based on the ISO/IEC 2700x standard. The purpose is to protect the company’s information values and information about customers against unauthorised and unintended use, to maintain customer trust company reputation and competitiveness in the best way possible. The Group Security department is organised under Organisation, HR and Security, and is the premise setter and checkpoint for information security. The operational IT-security administration is conducted by an IT-security department. The security policy is available to all employees on the intranet, and checks are carried out to ensure that all employees have read and understood the requirements.
Complaints handling Gjensidige has established a complaints system whereby customer complaints can be considered at three levels.
3. The third level is the Norwegian Financial Services Complaints Board (Finansklagenemnda), which is a joint complaints board for the whole insurance industry that comprises representatives of the consumer authorities, the financial industry and independent experts. The composition ensures that the independent representatives decide the outcome of cases in which the consumer authorities and the financial industry disagree.
Notification channel Gjensidige shall have a low threshold for reporting unpleasant matters. Employees who wish to raise such matters can contact their manager, the HR department, their HSE manager, an employee representative or the safety delegate. Everyone has a duty to report criminal matters, or situations where life or health is at risk. A poster with instructions on procedures for whistleblowing is easily accessible on our intranet site.
We have established notification channels in all countries we operate in, apart from Sweden where the legislation is different and notification must take place through a manager. In Norway, whistleblowing is facilitated through two electronic mailboxes: • An internal mailbox for reporting ethics-related matters. • An external mailbox for reporting irregularities and malpractices.
Whistleblowers are protected by law and the Company’s internal regulations, and employees who report such matters shall not be subjected to reprisals. Notifications addressed to the external mailbox are in principle anonymous, unless the whistleblower chooses to give their name. Employees may submit notifications to this mailbox anonymously, as may customers, suppliers and other external stakeholders.
Preventive activities include clear definitions and rules, clear authorisations, risk mapping, training and information material.
Control and detection include audits, compliance, notification/whistleblowing, reporting and internal investigation. Follow-up and sanctions take place in accordance with policies and instructions, and are decided by HR and, ultimately, the CEO. The programme gives a detailed description of what is meant by corruption, examples of acceptable and unacceptable behaviour, and assignments intended to contribute to reflection on difficult situations.
It is not permitted to accept gifts worth more than NOK 500. Regardless of the gift’s value, it must not be accepted if it means that the employee’s partiality or independence can be placed in doubt. All gifts and hospitality activities must be registered in the Company’s gift and hospitality register.
All managers are responsible for establishing procedures and processes in their area of responsibility in order to prevent and uncover irregularities and fraudulent acts, including corruption. The Internal Investigation Unit is tasked with uncovering corruption, and it is responsible for investigating concrete cases where improper conduct is suspected. The unit shall also contribute to establishing and developing procedures and processes that can prevent and uncover such matters.
All customers are checked against sanction lists and lists of politically exposed persons. The risk assessment may result in more extensive customer due diligence measures. Customer service staff are subject to clear guidelines for when such measures shall be initiated, and how to handle a situation when it arises. If measures fail to clarify the situation, the Company will carry out more detailed investigations in order to clarify whether the transaction can be carried out. The investigations are carried out by the Company’s investigation department, which comprises employees who have previously worked in the police force and have expertise in and experience of investigation. In cases where there is a sufficiently strong suspicion of money laundering or financing of terrorism, Gjensidige will report the matter as a suspicious transaction to the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (Økokrim). If money laundering or financing of terrorism can be substantiated, the Company will not enter into the insurance contract or settle the claim, to the extent that such sanctions are permitted by law.
Gjensidige’s solvency and capital needs are, in principle, defined by the rules adopted by the authorities. The standard requirements that have been adopted are based on average figures. The Board would like solvency and capital requirements to be defined in relation to Gjensidige’s actual exposure at all times, and it has therefore invested considerable resources in the Group’s own internal model, which provides continuous, qualified information about solvency and capital needs. The model has been approved by the Financial Supervisory Authority of Norway, and it gives the Board a good, relevant basis for making decisions in the areas it covers. The Board has also decided that Gjensidige shall meet the requirements for an A-rating, which also has implications for its final solvency and capital decisions.
6. General meetings The Board considers the General Meeting to be an important arena for all shareholders.
The Board has noted that the Code of Practice recommends that it should be made possible to vote for individual candidates to the Board and Nomination Committee. Elections are demanding in financial undertakings, partly because of official suitability requirements and partly because of the requirements of the Board’s combined expertise, i.e. to ensure a functioning board with broad expertise. For Gjensidige, where one shareholder owns more than 60% of the shares, it is not the formal election itself at the general meeting that represents a challenge, but the preparations for the election. The Board has noted that elections require an extensive process. All shareholders can submit proposals for candidates, and the Nomination Committee contacts the biggest shareholders in writing. All submitted views are taken into account. The Board considers this work to be very important to the Company’s business, position and further development.
Deviation: The Code of Practice recommends that it should be made possible to vote for individual candidates to the Board and Nomination Committee. Elections are demanding in financial undertakings, partly because of official suitability requirements and partly because of the requirements of the Board’s combined expertise. The election is therefore organised such that the General Meeting votes on the Nomination Committee’s overall recommendation.
7. Nomination Committee The Company has a Nomination Committee, as provided for in the Articles of Association, comprising four to six members. The General Meeting elects the chair and members, and stipulates the committee’s remuneration.
9. The work of the Board The Board plans nine pre-arranged board meetings per year, including at least one two-day strategy seminar. One extraordinary meeting was also held electronically in 2019. Good and efficient procedures have been established for extraordinary board meetings.
The accounting department has established processes for good internal control, and focuses on having the right expertise and sufficient resources to be able to prepare the accounts and other statutory reporting in accordance with the applicable laws and regulations. The reporting of deviations and other established systematic reporting gives the Board insight into the processes and status.
The Board’s report on CSR and sustainability is integrated in this report. Consideration for society at large is an integral part of Gjensidige’s strategy and a precondition for long-term value creation.
11. Remuneration of the Board The remuneration of the Board is determined by the general assembly by proposal from the nomination committee and is described in Note 8.
13. Information and communications The Board has adopted an IR policy for the Company’s reporting of financial and other investor information. It is based on openness and takes into account the requirement for equal treatment of shareholders and other stakeholders in the securities market. The IR policy is published at www.gjensidige.no. The IR policy also regulates the Company’s contact with shareholders.
14. Corporate takeovers Guidelines have been adopted for how the Board shall respond to any takeover bids. The guidelines are in accordance with the Code of Practice.
The Board points out that Gjensidigestiftelsen owns more than 60 per cent of the shares, and that a takeover bid process would therefore be unusual. However, the Board is prepared to engage in such dialogue out of consideration for the shareholders as a whole, and to take part in value-creating discussions with any parties with interesting value propositions.
The second line of defence consists of centralised control functions: the Risk Management, Group Security, Compliance and Actuarial functions. The functions organise and follow up the implementation of expedient risk management principles in the first line of defence.
These control functions are also responsible for organising and ensuring comprehensive and ongoing risk assessments and follow-up. The Group’s second-line functions are independent of its operational activities and submit their reports directly to the CEO and the Board or sub committees of the Board.
Read more about the governance structure in Note 3 to the financial accounts.
Risk strategy and risk management Gjensidige is exposed to different types of risk: • Strategic risk / business risk: the risk of loss due to the inability to establish or carry out business plans and strategies, make decisions, allocate resources or respond to external changes.
Risk is managed by identifying, assessing and handling the most important strategic and business risks. Global trends and scenarios are identified and assessed in terms of how they might impact competition and framework conditions, as a part of the company’s strategy process. An emerging riskprocess is carried out, in order to identify and monitor potentially emerging risk.
Risk assessment process for strategic and business risk and measures are monitored and reported to the management and board.
Monitoring and assessments of underwriting results and insurance risk, seen in relation to prognoses, are a vital, integrated part of the day-to-day management of the business. Reporting of results and prognoses, as well as separate risk reporting, regularly takes place to the management and Board. The Chief Actuary prepares reports on the technical provisions. The independent Actuarial function carries out control tasks in relation to technical provisions. The Actuarial function also carries out an assessment of insurance contracts taken out and issues a statement on the reinsurance programme. The assessments are documented in the independent Actuarial function’s report.
The investment strategy is approved by the Board and sets limits for the allocation of investment assets. The investment strategy defines several risk limitations, both at the aggregate level and by different types of risks and investments, for the purpose of achieving a diversified investment portfolio. The investment portfolio consists of two parts: a match portfolio and a free portfolio. The match portfolio, which is intended to correspond to the Group’s technical provisions, is invested in fixed-income instruments whose duration and currency are adapted to match the technical provisions. A dynamic risk management model has been established that provides the necessary framework for adapting risk in the event of changes in market conditions and/or a weak development in financial income. The investments are also subject to continuous monitoring in accordance with our SRI policy. The liquidity policy sets limits for necessary access to liquid assets.
Climate risk is a central part of Gjensidige’s sustainability strategy. The climate strategy comprises the following focus areas: • Increasing our knowledge about the consequences of climate change for our private and commercial customers, suppliers and society at large, and using our knowledge to develop targeted damage prevention measures.
• Investing in knowledge and competence-building for our staff and customers and ensuring that our financial investments are socially responsible.
The expected increase in the scope of natural disasters as a result of environmental and climate change is addressed in our activities, such as the development of products, financial planning, pricing, rebuilding and damage prevention measures. Environmental and climate change affects risk assessments and the pricing of insurance, and the effects of extreme weather and changes in risk exposure are assessed on a continuous basis, based on experience, expert assessments and prognoses. Good risk selection and the right pricing is decisive for financial strength and profitability.
Gjensidige shall help its customers to make sustainable lowrisk choices, for example the construction of new buildings. This means lower insurance premiums for our customers and beneficial consequences for the environment, customers and Gjensidige.
Gjensidige shall acquire more knowledge about the climate and environmental consequences to ensure that our customer dialogue creates confidence in the market and that we are perceived as the most sustainable insurance company.
The Board has adopted an ambition to reduce our own and claims-related carbon intensity relative to earned premiums, year by year.
The climate risk in our investment portfolio is described in the chapters “Our asset management” and “Socially responsible investments”.
In accordance with the Task Force on Climate-related Financial Disclosures (TCFD) we distinguish between physical risks, transition risks and liability risks.
Company has taken out reinsurance for natural disaster claims, Gjensidige’s losses relating to such claims will be very limited.
Gjensidige can be both directly and indirectly affected by transition risk. Gjensidige can be directly affected through changed insurance risk, for example if customers make material changes to internal processes relating to energy efficiency, the use of materials or more environmentally friendly means of transport. Indirectly, Gjensidige can be affected through official regulations or consumer demands that lead to material changes in certain industries.
A potential example of a type of transition risk that can have a direct impact on insurance is the introduction of far more stringent technical requirements and regulations for the erection of buildings, for example relating to energy efficiency. This will raise the level of compensation relating to reinstatement of buildings. Experience of previous changes in regulations indicates that this takes place over time, enabling the Company to consider and take this into account in its pricing and design of insurance policies.
How Gjensidige’s investment strategy is followed up is described in the chapter “Our asset management”.
Going forward, the circular economy is expected to become a more important principle in society. It is assumed that it is desirable for resources to remain a part of the economy for as long as possible. This will be achieved by reducing the use of raw materials, waste, emissions and energy consumption to a minimum. Gjensidige will contribute to the circular economy by reducing its carbon footprint, both its own footprint and the footprint generated by the claims settlement processes. One example is the increased use of used parts in connection with the repair of vehicles.
The risk of liability insurance, in the form of liability in damages for inadequate climate measures, is deemed to be somewhat lower than transition risks and physical risks. In its core activities, Gjensidige contributes to direct greenhouse gas emissions to a very limited degree. Given Gjensidige’s exposure in the Commercial segment, including through relatively limited sums insured, it is considered less probable that our liability risk portfolio will be materially affected in the foreseeable future. In capital management liability risk is considered as part of investment analysis.
Security requirements for specific target groups (including HR, Corporate Procurement, Technology and Infrastructure, Sales and Claims, Investor Relations, M&A, Capital Management)
Our commitment to each customer is among the defining elements of our business, and so it has been for more than 200 years. By keeping our promises, making things simple, and ensuring that the customer is happy, we deliver the Gjensidige experience over and over again – so that the customer keeps choosing us.
Read more about what we achieved in 2019, in the chapter “Safer society”.
Our starting point is strong. We have unusually satisfied customers and high customer loyalty, especially in Norway, where our reputation is number one in the industry, and among the strongest independent of industry. We keep currently record of the company and our sales people, and improvement measures are carried through on the basis of feedback from the customers. Gjensidige has defined clear goals for customer satisfaction. Achievement of goals impacts bonus to key employees, and collective bonus to all coworkers.
Going forward we will work on measures to further strengthen customer satisfaction and loyalty, and to attract new customers. User friendly self-service solutions has become an ever more important precondition for delivering good customer experiences. Both private and commercial customers prefer to an increasing degree to buy insurances and make claims digitally. The development of market leading self-service solutions that require digitalisation, standardisation and automation therefore have, and will have, very high priority.
The background for the model is that Gjensidige was established as a company owned by customers. Today, the customers’ interests are safeguarded by Gjensidigestiftelsen, the largest shareholder in Gjensidige with an ownership interest of 62.2 per cent. The Foundation passes on its share dividend from Gjensidige’s profit for the year to Gjensidige’s general insurance customers in Norway who were still customers at the time of the Foundation’s annual general meeting. The Foundation is managed by customers in that representatives to the Annual general meeting are elected by and from among the Gjensidige customers. This gives customers a chance to influence Gjensidigestiftelsen’s substantial distribution of donations to contribute to a safer society. Since 2010, the foundation has distributed NOK 2.5 billion to causes within safety and health.
Our core values are: Create a sense of security. Apply new thinking. Go for it. The core values are meant to aid us in shaping a culture that lets us face the future proactively.
Amdal joined Gjensidige as Finance Director in 2002, and has since served as Chief Risk Officer and Head of Capital Management and M&A. Before joining Gjensidige, he held various management positions with If, Storebrand and Kværner. Amdal holds an MSc EBA degree (siviløkonom) from the Norwegian School of Economics (NHH).
He joined Gjensidige in 2003 and has held various senior management positions in the Group, most recently as head of Commercial, Claims and the Swedish division. He has previously held various leading positions in the Norwegian Armed Forces. Austin studied at the Norwegian Military Academy, holds a Master of Science (MSc) degree from BI Norwegian Business School and an MBA from the Norwegian School of Economics (NHH).
Lars G Bjerklund (1971) has been Executive Vice President of the Commercial division since 1 September 2018.
Cin joined Gjensidige in 2006 as a trainee. She has previously held several senior positions in the Group in the Private, Corporate Development, Strategy and M&A and Claims divisions, and most recently as Director of CRM and Digital Channels in the Commercial division. She holds an MSc in Industrial Economics and Technology Management (sivilingeniør) from the Norwegian University of Science and Technology (NTNU) and Karlsruhe University in Germany.
Janne Flessum (1971) has been Executive Vice President of Communication and Shared Services since 1 March 2018. She joined Gjensidige as Head of Investor Relations in 2011, and took over responsibility for M&A and Capital Management in 2016.
Flessum holds an MBA degree (siviløkonom) from BI Norwegian Business School.
Mats C Gottschalk (1977) has been Executive Vice President of the Danish division since 1 September 2018.
Engaged employees Our commitment to the customer has created good customer experiences and sound results. This is a key characteristic of Gjensidige and a distinctive feature of the organisation and the Company’s culture.
In order to be able to give our customers the help they need, our employees undergo thorough training in ethics, data protection, information security, knowledge of our products and management training at our own school. In Gjensidige we treat customers with trust and respect, provide professional and ethically sound advice based on necessary qualifications and knowledge of the customer’s situation.
An ever larger part of the learning takes place by use of digital tools combined with physical meetings. The use of podcasts and video meetings helps us reach larger groups more efficiently. The active use of e-learning and global learning portals like for instance Udemy provides targeted competence improvement based on competence needs in each division.
Talent development It is important to Gjensidige to attract and retain skilled employees. The People Review enables senior managers to follow up developments in the talent pool for experts and managers. Internal mobility is facilitated for the purpose of broadening the employees’ range of qualifications and specialised knowledge. We have also established an internal mentoring programme as a supplement to the personal growth and development of individual employees and managers. The programme will help us to retain critical expertise, promote Gjensidige’s culture and contribute to internal career development across divisions and business areas. Customised management development programmes have been developed for groups of managers with different experience backgrounds, from newly appointed managers to the senior group management. Gjensidige is highlighted as an attractive employer, both through digital channels and activities at relevant educational institutions, such as stands and presentations to students. In accordance with our employer branding strategy, we have established an internship scheme where students work for us for a whole academic year in order to gain relevant work experience. The work is intended to be relevant for their studies by putting theory into practice. Every year, we organise the Gjensidige Day at Gjensidige’s head office, which offers a varied programme for students.
Cooperation with educational institutions We have entered into a strategic partnership agreement with BI Norwegian Business School that gives us exposure to students and the possibility of participating in different events in BI’s locations all over the country. We also sponsor BI’s master’s degree programme in business analytics. Gjensidige has also entered into an agreement with the Norwegian School of Economics (NHH) to be a strategic partner for NHH’s research programme Digital Innovation for Growth, which starts in autumn 2020. The agreement includes an obligation to provide staff who can contribute their expertise.
Equal opportunity Gjensidige has had a strong focus on gender balance and increasing the percentage of women in senior positions. There is zero tolerance of all forms of discrimination. Wage growth for women and men is continuously measured and followed up. Any unexplained differences that are identified receive special follow-up.
In our experience, improvement measures relating to employee engagement have the greatest effect when employees are closely involved in the work. Going forward, we will focus on ensuring that employees feel that they are listened to now that they give feedback more frequently than before. Special measures are followed up for entities that deviate significantly from the goal of employee engagement and job satisfaction.
Work engagement is included in the follow-up and performance evaluation of all employees, including the senior group management.
People review Two People reviews are conducted every year, where top managements success in leadership, competence development, diversity (including equal opportunities and equal pay) and strategic staff planning is followed up. Financial and sustainability targets are followed up in the Business review, which is also carried out by the CEO twice a year.
information about the prevention of health problems. Special procedures have been adopted for employees who have or wish to prevent such problems arising. The HSE work is monitored through audits and followed up internally by employees with special responsibility for HSE. All incidents that can represent a risk must be reported in the Company’s nonconformity system. Independent audits are held in Norway, Sweden and Denmark to ensure that working conditions are satisfactory. Working environment issues are integrated in the annual HSE survey to identify matters requiring special attention. All managers review the survey with their staff in cooperation with the HR department. Each department defines an action plan that is followed up by the respective managers, and departmental HSE risk analyses are carried out.
IW enterprise Gjensidige shall be an inclusive workplace for all employees. We are an Inclusive Workplace (IW) enterprise and cooperate with the Norwegian Labour and Welfare Administration (NAV) on job training for people who, for various reasons, have been unemployed. NAV pays subsidies for employees who suffer from chronic illnesses but who still manage to work. Gjensidige has a range of measures and a special programme for entities with a high level of sickness absence. Our ‘Focus projects’ have had a great impact, leading to reduced sickness absence and greater employee satisfaction. Gjensidige has measures in place that help to ensure that older employees can continue working until they reach retirement age. The measures vary between countries. Examples of measures include the possibility of reduced working hours and extra holidays. All our big office buildings are universally designed in order to accommodate employees with disabilities.
Whistleblowing Reporting procedures are in place for employees who experience discrimination. Notices are discussed by the equality and discrimination committee.
Read more about our efforts in 2019 in the chapter “A safer society”.
Sponsorships Gjensidige is a proud sponsor of sports, and through our cooperation agreements we wish to show the joy and the many positive aspects of taking part in sports. That way we hope to motivate as many as possible to be physically active. We support sports both at the elite level and at ordinary levels, and we work with sponsor objects that have a good reputation and share our values. As part of every sponsor agreement projects with different targets are established. The targets shall be valuable for the society, promote health, or foster activity and recruitment among young people. Sponsorships are important to Gjensidige also in that they ensure valuable profiling and evoke positive associations of the company, as well as help build internal culture and pride among our employees.
We use our sponsorships to create activities for children and young people, so that we help to recruit new athletes and promote a healthier lifestyle. For the last few years, we have organised a project called ‘Minihåndballjentene’ that have been very popular. The project target children between the ages of 9 and 12, and it entails that a number of girls are selected as mascots for the national handball team. The national team members mentor their mascots throughout the year and attend practice sessions with the mascot’s teams. It is highly motivating for the children, and their parents, who often do voluntary work for the team, to meet top players this way. The age group was chosen because figures from the Handball Association show that many children drop out of the sport when they reach their early teens. The projects are considered an important contribution to the Handball Association seeing a rise in recruitment.
Cooperation with the Norwegian Cancer Society Our main partnership agreement entails a strategic cooperation with the Norwegian Cancer Society. For Gjensidige, the agreement gives us the possibility to develop unique preventive services together, for example services that help to prevent cancer, or that can ease the situation for those affected and their next of kin. This is important, as cancer is the most widespread disease in Norway. About one in three Norwegians will be diagnosed with cancer before they turn 75.
Gjensidigestiftelsen Gjensidige’s social commitment in Norway must be seen in conjunction with Gjensidigestiftelsen, our biggest owner. The Foundation makes substantial donations that are funded by the return on the capital that was freed up in connection with Gjensidige Forsikring being listed on the stock exchange in 2010.
Gjensidigestiftelsen aims to contribute to a safer society and is particularly concerned with preventive measures and activities for children and young people throughout Norway.
Scope 2: Energy-efficient buildings decisive in the choice of premises We make systematic efforts to reduce our impact on the natural environment by limiting our consumption of energy. All our premises are rented, and energy efficiency measures have been established, including switching to LED lighting, making industrial control systems more efficient, replacing windows, replacing old electric panel heaters etc. Energy efficiency is a focus area when choosing premises for our operations, and our head office in Schweigaardsgate 21 holds a BREEAMNOR Excellent certificate.
Certified Eco-Lighthouse In order to ensure that we impact the environment as little as possible, all our 11 Norwegian offices that have more than 30 employees are certified EcoLighthouses. Eco-Lighthouse is a national environmental certification scheme run by the Eco-Lighthouse Foundation. The foundation was established by key organisations in the private and public sector.
The offices that are certified Eco-Lighthouses use an environmental management system for the handling and reduction of materials consumption, waste, energy consumption and transport. An environmental report is prepared annually that documents the status of implemented environmental measures and action plans for the coming year. The offices must be recertified every three years. It is an extensive process that is carried out by an environmental team at the office in question in cooperation with an external adviser certified by the Eco-Lighthouse Foundation. Annual reporting and regular recertification ensure that our offices live up to the highest standards for environmentally friendly operations.
Sustainable claims settlements Although we are strongly focused on helping customers avoid damage, it is hard to avoid them ever happening. When a damage has occured, Gjensidige shall help reduce the CO2 footprint annually in the claims handling processes. This entails sustainable terms in our products and good cooperation with our suppliers.
Environmentally friendly building and household contents insurance When a loss is reported, we make sure that our customers feel safe and well-informed about the choices recommended. Gjensidige also has extensive networks of local assessors in every country, who help to assess the extent of damage. In the repairing of the damage or replacing the loss, materials are chosen based on the environmental requirements, social factors and financial durability. Local assessors and appraisals as well as using web-based reporting including among other things photo, texts and robotics, reduces the need to travel, both for customers and assessors. Gjensidige cooperates with suppliers and industry organisations to find new, sustainable solutions for repairing wet rooms in a manner that is best for the customer and the environment, including reducing waste and transport. In Sweden, we cooperate with Godsinlösen (GIAB). GIAB promotes the circular economy by collecting damaged items from insurance companies and repairing them, thus contributing to reuse. This enables us to contribute to increasing durability and saving the environment.
Europe’s most expensive parts and the lowest percentage of reusing of used parts); • promote greater environmental responsibility by reusing used car parts.
The material consumption models shall be evaluated annually to ensure that they continue to provide the best estimate of material consumption in the claims process.
The following materials are included in the carbon accounts for claims handling: • Glass • Steel • Aluminium • Plastics • Batteries • Reuse of car parts based on estimates • Use of new car parts produce equivalent amounts of waste to be recycled • Waste following condemnations assumed to be recycled to materials like glass, aluminium and steel. • Cars that are condemned are compensated by money. In order to reach a theoretically correct consumption of materials for Gjensidige, we have assumed, based on the public registration system (TFF) that 28 per cent of condemned cars are replaced with new cars.
We have applied 2019 as the base year for the calculations
Materials in the carbon accounts for claims handling include among others: • Wood • Gypsum • Isolation • Paint • Plastics • Electronics
• Ensure that products delivered to Gjensidige are of high environmental quality.
Gjensidige has established cooperation with an external certification provider to monitor suppliers’ compliance with environmental, social responsibility, ethics and sustainable procurement requirements. The suppliers are required to answer questions about the environment, employment conditions, ethics and requirements of subcontractors. The companies are then given a score and feedback on points for improvement. Gjensidige will use this tool to monitor compliance with supplier requirements. Read more about the follow up of our suppliers on page 97.
Each quarter, we meet with analysts and investors to discuss results and business operations. A member of Gjensidige’s Investor Relations team usually attends these meetings, possibly together with the CEO and/or the CFO, or another relevant executive from the Company.
We shall arrange for the financial market players to have sufficient basis of information to assess the value of the group by simultaneous access to identical, correct, clear and relevant information at all times. The information shall be consistent and balanced. As a main rule we do not publish concrete guiding for the groups future financial results.
Return on the Gjensidige share The Gjensidige share yielded a total return for the shareholders of 43 per cent in 2019. The Oslo Stock Exchange recorded a total return of 17 per cent during the same period. Since the Company was listed on the stock exchange in December 2010, the Gjensidige share has yielded a total return of 486 per cent. The average number of shares traded daily on The Oslo Stock Exchange was around 500,000 in 2019, and the share is among the 25 most liquid shares listed on the stock exchange. In addition, a substantial number of shares are traded in other marketplaces.
Dividend and dividend policy Gjensidige pursues a shareholder-friendly capital and dividend policy, and the Gjensidige share is and should be a dividend-paying share. Gjensidige’s goal is to distribute high and stable nominal dividends to shareholders, and a pay-out ratio over time of at least 80 per cent of profit after tax expense. The result is adjusted for any gain/loss on the sale of assets. When determining the size of the dividend, consideration will be given to expected future capital needs. Over time, Gjensidige will also pay out excess capital.
The Board has proposed that a dividend of NOK 6,125.0 million be distributed for the 2019 financial year. This corresponds to a NOK 7.25 regular dividend per share and a NOK 5.00 special dividend per share. The dividend for the 2019 financial year will be adopted by the General Meeting on 26 March 2020. The approved dividend will be distributed to those registered as shareholders on the date of the general meeting.
The Gjensidige share will be traded ex dividend on 27 March 2020, the record date will be 30 March 2020 and the dividend will be disbursed on 7 April 2020.
Gjensidigestiftelsen’s share of the dividend amounts to NOK 3.8 billion. Pursuant to the Foundation’s statutes, the regular dividend will be passed on to Gjensidige’s general insurance customers in Norway. The customer dividend is adopted by the Foundation’s General Meeting in May.
1 The list of shareholders is based on an analysis of the register of shareholders in the Norwegian Central Depository (VPS) as at 31 December 2019, carried out by Orient Capital Ltd. The analysis maps the owners behind the nominee accounts. There is no guarantee that the list is correct.
By providing advice to our customers and society at large, we shall help to increase knowledge about sustainability and damage prevention.
• Contribute to at least 1,000 media reports on damage prevention per year.
What we have achieved • Conducted 11,500 risk checks in 2019 • High relevance score at www.gjensidige.no/godtforberedt with a total of 1,803,228 page views.
• 2,728 press releases that have created engagement and debate about important damage prevention topics such as life, health and assets.
Experience” to enable our customer advisers to give good, sustainable advice.
By the end of 2025, we will have made it possible for customers to make sustainable choices within the established product areas motor, property, leisure, and accident and health.
What we have achieved • We have a broad range of products that directly and indirectly have an environmental and social profile included in the terms.
• Launched online psychologist service, Lifekeys. • Coverage for bee colonies (bees and bee-hives)
under household contents insurance for all customers involved in beekeeping and honey production on a non-professional basis.
New measures going forward • Further develop sponsorship agreements with sports associations to give disadvantaged children and young people an opportunity to take part in activities.
What we have achieved • The Financial Services Complaints Board received fewer complaints from Gjensidige customers than in 2018
New measures going forward • Further develop risk assessment of customers/objects in relation to climate risk (physical, liability and transition risks) (UW).
We have conducted approximately 15,000 electrical inspections with thermal imaging in the past five years, and rectified thousands of faults and defects in agricultural electrical systems. Electrical inspections are deemed to be our most important instrument for reducing the number of fires in agriculture. Gjensidige has granted considerable funds annually, and has, in cooperation with the Norwegian Famers’ Union, reimbursed individual farmers’ expenses for documented improvement work.
Focus on loss reduction in the media Gjensidige has traditionally contributed to many media reports on damage prevention, with the greatest impact in Norway and Denmark.
Well prepared – digital advice on damage prevention Gjensidige has a dedicated web page called Godtforberedt.no that produces about 500 articles that are distributed to approximately 1.5 million readers. We get several millions page views and tens of thousands of positive feedback messages from the public on the advice they receive on the page. The total number of views for godtforberedt.no was 1.8 million in 2019. A relevance score of 97 per cent is very high, and indicates that readers consider the content to be of high quality and relevance.
• Insurance for farmed animals and plant cultures. The health of domestic animals and farmed animals in Norway is in a unique position, and the use of antibiotics is lowest in Europe. The World Health Organization has highlighted antibiotic resistance as one of the most serious challenges facing the world’s population. Limiting the use of antibiotics is an important health measure, which is supported by the insurance product.
Online doctor: Customers can have a video consultation with a doctor by means of an app on their mobile phone. This solution saves customers time and transport expenses.
• Eyr: Online Doctor is a service whereby customers can receive medical assistance on their mobile phone without having to visit their regular GP.
• SOS International: Round-the-clock service that customers can phone when their public health centre or doctor’s surgery is closed.
Effect of our efforts – engaged employees We wish to develop an organisation in which diversity characterises our activities and generates new ideas and perspectives in the work to achieve a more sustainable society. We want our employees to be engaged and motivated, and we encourage them to give feedback on what works well and what areas could be improved, in our annual employee satisfaction survey. Read more about our work in ‘Engaged employees’.
Two meetings of the Diversity and Inclusion committee (formerly Equality committee) were held to give employees an opportunity to influence the work. Other measures to raise awareness of diversity in 2019 included: • A Diversity Day event to raise awareness among employees and managers about the importance of diversity to value creation.
• We have entered into a cooperation agreement with NAV to ensure that people with gaps in their CVs are considered for vacancies with us. We also have placements and temporary positions for participants on job creation programmes through NAV, and permanent employees who receive subsidies.
• We have initiated a collaboration with the Norwegian Olympic and Paralympic Committee on temporary positions (20 per cent of full-time) for athletes.
Sickness absence in the Group was 3.9 per cent in 2019 (4 per cent in 2018). We give high priority to giving our employees good working conditions, and conducted a total of • 6 Healtcare, security and environment (HSE) audits in 2019; 2 in Norway, 2 in Sweden and 2 in Denmark • Number of reported potential occupational injuries: 20 • All new managers took part in courses on HSE in
• We had 24 students in the internship scheme in Norway in 2019, compared with 22 in 2018. In Denmark we engaged 100 students as part of their educations and 1 in Sweden.
• A trial project called ‘Summertech’ was carried out in 2019, which was an employer branding initiative aimed at increasing the attractiveness of technical and analytical positions. Summertech gives 5–7 students an opportunity to prepare a prototype through the Sprint Method, a five-day process for coming up with a solution to a genuine problem in the organisation. The project was a collaboration with the trade union Tekna and the Norwegian Cancer Society, both partners of Gjensidige. The project was a success and will become an annual event.
• The proportion of organised employees was 59 per cent in Norway and 50 per cent in Denmark.
Effect of our efforts – social commitment The level of activity was also high in 2019 in terms of our social commitment both as a sponsor and in other arenas. Our activities are described in the chapter ‘Our social commitment’.
Since 1991, we have been the main sponsor of the Norwegian women’s national handball team. Since 2017, we have also been the main partner of the Norwegian Confederation of Sports (NIF) / Olympiatoppen and its 15 individual sport federations, and we have sponsorship agreements with the Norwegian Ice Hockey Association, the Norwegian Swimming Federation and the Norwegian Athletics Association.
In Sweden, we are the main sponsor of the Swedish Tennis Association, the Swedish Handball Association and the Swedish Ice Hockey Association, including the men’s national ice hockey team, nicknamed ‘Tre Kronor’.
In Denmark, we are the title sponsor of the top division in women’s football, Gjensidige Kvindeliga.
The employees decided to give the Christmas donation for 2019 to the Norwegian Cancer Society.
A total of 225 employees joined famous athletes in the Holmenkollstafetten running event in support of the fight against cancer in 2019.
A sustainability council was established in 2019, chaired by the Sustainability Director. The purpose is to ensure that climate risks are understood and monitored throughout the Group.
Local taxes paid (NOK Millions) Taxes per country Paid tax Employer’s tax
• Comparable statistics are not available for Sweden and Denmark, partly because of different statistics procedures and partly because of low market shares. We consider the number of complaints to be acceptable also in these countries, but constantly work to reduce the number nonetheless.
Reducing carbon intensity We have set ambitious goals for our sustainability work and are working on measures to reduce our own climate footprint and ensure more sustainable claim settlements.
• Implemented tools for supplier follow-up of sustainability requirements and compliance with the Global Compact principles.
• Reviews of the 20 biggest suppliers representing 36 per cent of total procurements.
What we have achieved: • Certified as an Eco-Lighthouse in Norway. • Partnership with food waste initiative (‘Kutt matsvinn’) in our canteens. • Reduced air travel for employees in Denmark and Sweden, while slight increase in Norway. • Recycling of 80 per cent of computers in accordance with agreement with subcontractor.
• The percentage of ‘paperless’ customers was 77 per cent at the end of 2019 (73 per cent in 2018). • Share of digital sale in Private Norway: 16.4 per cent • Share of digitally reported claims in Norway: 73 per cent
• Further develop our digital solutions pursuant to diversity and universal design requirements.
• Further develop our digital advisory services to ensure efficient customer service, and self-service solutions to improve customer experiences and increase efficiency.
Effect of our measures – Sustainable claims settlements Claims are settled either in the form of cash compensation or by repairing the damage with the help of our suppliers, which involves the consumption of materials and where we as a company become liable for the residual value. Our claims expenses also include elements of recourse (compensation from others when we settle a claim on behalf of our customers, but where others are liable for the loss). Sustainable claims settlements mean that we shall ensure a higher degree of reuse and promote the circular economy, but also contribute to good working conditions among our suppliers.
We will continue to develop our models for consumption of materials and use these climate accounts to continue working on selecting materials that help to reduce the CO2e of our claims processes.
Tonnes CO2e/ NOK million earned premiums 1 Scope 3 – other indirect emissions: Claims-related carbon intensity; see description of methods on page 81
Reduce claims-related carbon intensity1 relative to earned premiums year by year.
Climate accounts, claims processes – emissions for each country and scope
Scope 3 Material consumption per product Unit Norway Sweden Denmark Total
Scope 3 Waste in claims processes Unit Norway Sweden Denmark Total
Waste from damages resulting from water and fire are handled with the assistance of our partners, with strict requirements as to compliance with environmental regulation.
New suppliers are required to produce a self-declaration stating that they comply with the 10 UN Global Compact Principles for sustainable business operations.
Effect of our environmental measures and CO2e emissions The Company has company cars that in 2019 contributed 307 tonnes of CO2e. The Group’s energy consumption in 2019 was 10,172 MWh. Most of our energy consumption is related to lighting, heating and computers. The energy carriers are electricity, which in Norway is almost exclusively based on hydropower, and district heating, which is largely based on waste incineration. No Guarantees of Origin were purchased for electricity. Approximately 59 per cent of the electricity was consumed in Norway.
Climate accounts emissions, for each country and scope, excl. claims processes Direct emissions
Number of employees Number of employees 1,945 265 724 740 3,674
Applied DEFRA (2019) Greenhouse gas reporting: conversion factors 2019. Department for Business, Energy & Industrial Strategy, and NVE (2018) Electricity disclosure 2018. The Norwegian Directorate of Water Resources and Energy. Material consumption and waste from claims processes in the Baltics is not included. IEA GHG-codes have been used for electricity consumption outside of Norway.
Digital transformation As in 2018 Gjensidige was named the most digital Norwegian Insurance company by the consulting company BearingPoint. This is the 4th year in a row that BearingPoint publishes the study «Digital leaders of Norway». The study analyses the digital maturity of 75 leading Norwegian companies, from a customer perspective. The study is based on 250 criteria divided in to four digital categories: digital marketing, digital product experiences, internet shopping and digital customer service.
All investments will, as far as practically possible, be screened for breaches of our SRI policy, which is based on the UN Global Compact principles and the Inhumane Weapons Convention. All breaches must be followed up.
New measures going forward • Greater focus on external fund managers’
Effect of our efforts In 2019, it was decided to exclude 36 companies from Gjensidige’s investment portfolio, while 24 previously excluded companies were removed from the exclusion list. Three of the companies were removed from the list due to mergers and acquisitions, and the merged companies were subsequently excluded. The remaining companies were removed from the list due to changes in behaviour following pressure from investors, authorities and other stakeholders. At year-end 2019, a total of 103 companies had been excluded, compared with 91 companies at the start of the year. They break down as follows based on the reason for exclusion (a company can be excluded for several reasons): Labour standards Corruption Human rights The environment
Work has been conducted throughout the year to include an ESG assessment in all internal credit analyses. The work has previously focused on the ESG elements that had the greatest impact on our assessment of risk, emphasising corporate governance in particular. Now, all elements of ESG are assessed in each individual analysis. This means that climate risk affects all credit analyses carried out internally in Gjensidige.
Transition risk is considered to be highest in the oil and gas industry and parts of the electric utility industry. Oil and gas related business makes up 0.8 percent of the investment portfolio. In addition some 40 per cent of unquoted share investments are related to the oil and gas sector. The total exposure towards the sector is therefore some 1.7 per cent of the investment portfolio. In the category ‘electric utilities’, which makes up 8 per cent of the portfolio, Gjensidige is largely invested in bonds in Norwegian hydropower plants. We assume the climate risk associated with these plants to be considerably lower than in the rest of the sector. Transition risk will also depend on how quickly alternative backstop technologies, legislation and regulations develop.
There is considerable uncertainty attached to these assessments, which are purely qualitative. In future reports, Gjensidige will endeavor to improve the qualitative assessment of financial climate risk by including scenario analyses. This will enable us to assess the effect of greenhouse gas concentrations in the atmosphere on Gjensidige’s financial assets under different scenarios. Work is also being carried out to define quantitative targets for financial risk to support the qualitative assessment. This will make it possible to single out the positive opportunities associated with downside risks and more easily define degrees of risk exposure.
Carbon emissions from investment activities By the end of 2019 there are still a considerable lack of data on carbon emissions. Less than 58 per cent of the companies in our share portfolio report emissions, and there is not available data for a sufficient amount of companies. This is especially challenging for bonds and unquoted investments. Gjensidige does not want to report information only for a narrow and unrepresentative part of the portfolio. Thus we will not report such figures before at least 75 per cent of the respective asset class is covered. When it comes to property investments Oslo Areal reports according to the GHG protocol. The last available reported emissions were 2,253 tonnes, or 13.2 kg/m2 (figures for 2018, regarding properties owned for the whole year). The property portfolio of Oslo Areal makes up 9 per cent of Gjensidige’s total investment portfolio. Gjensidige is actively seeking to influence fund managers and companies to improve reporting routines in this area. The goal is to report emissions for the whole portfolio in the annual report for 2020.
• Oslo Areal actively follows up the ten immediate measures of the property sector’s roadmap towards 2050. Among other things, the company has assessed uses for the properties’ roofs. Relevant measures include bee-hives and solar energy systems.
Statement concerning the annual accounts Gjensidige reports consolidated financial information pursuant to International Financial Reporting Standards (IFRS). In accordance with the requirements of Norwegian accounting legislation, the Board confirms that the requirements for the going concern assumption have been met and that the annual accounts have been prepared on this basis. The preparation of the accounts and application of the chosen accounting principles involve using assessments and estimates and necessitate the application of assumptions that affect the carrying amount of assets and liabilities, income and expenses. The estimates and the pertaining assumptions are based on experience and other factors. The uncertainty associated with this means that the actual figures may deviate from the estimates. Insurance liabilities in particular are associated with this type of uncertainty.
The profit from general insurance operations measured by the underwriting result was NOK 4,036.4 million (3,605.8), corresponding to a combined ratio of 83.6 (85.0).
The return on financial assets was 4.1 per cent (1.5) or NOK 2,306.4 million (820.9).
The tax expense amounted to NOK 1,197.6 million (883.5), resulting in an effective tax rate of 15.4 per cent (20.7). The effective tax rate was impacted by the sale of shares in Gjensidige Bank and other realised and unrealised gains and losses on equity investments in the EEA.
The profit after tax expense from continuing and discontinued operations was NOK 6,593.8 million (3,716.4) and the corresponding earnings per share were NOK 13.19 (7.44).
Earned premiums in the Private segment increased by 1.3 per cent. The underwriting result increased due to improvement in the underlying profitability of the motor insurance line and more favourable weather conditions.
Earned premiums in the Commercial segment increased by 7.4 per cent due to increased prices, which together with an improved underlying frequency loss ratio that was partly due to more favourable weather conditions, led to an increase in underwriting results.
The Pension segment generated a higher profit for the full year, driven by a growing customer portfolio and increased assets under management.
Gjensidige Bank was recorded as a discontinued operation until the closing of the sale on 1 March 2019. The profit after tax expense in the first two months of the year was NOK 37.6 million (334.9 for 2018).
The result for the full year 2019 increased significantly compared with 2018, driven by gains on the sale of Gjensidige Bank, higher returns on financial assets, successful pricing measures, solid renewals, better weather conditions in Norway and good progress outside Norway. The Board proposes a dividend of NOK 12.25 per share, consisting of a regular dividend of NOK 7.25 and a special dividend of NOK 5.00.
New core system Gjensidige is in the process of developing a new core system for general insurance. A new joint group core system will provide better opportunities for the business segments to share best practices, to develop new products and price models more quickly, and will make it easier to establish ecosystems of products and services in cooperation with other players. The new core system will also help to increase costefficiency and secure our competitiveness also in the longer term. The investment in the new core system is expected to be managed in line with the current cost ratio target.
We started implementation in Denmark in 2019, and we expect the system to be taken into use there towards the end of 2020.
Unique customer dividend model in Norway The arrangement whereby Gjensidige’s biggest owner, Gjensidigestiftelsen, pays dividend to our customers, is unique. Every year since the Company was listed on the stock exchange, Gjensidige has paid customer dividend to its Norwegian general insurance customers based on how much they pay in insurance premiums. During this period, customers have received an annual amount corresponding to 11–16 per cent of their premium. We measure customers’ awareness of the customer dividend on an ongoing basis. At year-end 2019, 87 per cent of customers were aware of the customer dividend model and more than 74 per cent stated that the model contributed to their wanting to continue as customers. Awareness of the customer dividend system among potential customers was 61 per cent.
In April 2019, a dividend of NOK 3,550.0 million was distributed based on the profit for 2018, in line with a dividend policy that aims for a high and stable nominal dividend. The Board proposes a dividend of NOK 6,125.0 million for the 2019 financial year. This corresponds to NOK 7.25 per share in dividend based on the profit for 2019, and NOK 5.00 per share representing the distribution of excess capital.
Simplified structure Nykredit and Mølholm were merged with Gjensidige Forsikring with accounting effect from 1 January 2019, and are now part of Gjensidige’s Danish branch. This has resulted in a simplified structure and enables more cost-effective operations.
Good cooperation with partners Gjensidige has many years’ experience of partnership agreements. Distribution in cooperation with our partners is an important part of the business model in all the Group’s geographic locations and segments. Our partnership agreements are usually structured so that the customer dialogue takes place directly with Gjensidige. Gjensidige works closely with its strategic partners, and good management of partnership agreements will be given priority also in the time ahead.
In the commercial segment, Gjensidige has a number of organisational and chain agreements with industry associations and individual companies. The agreement with the Norwegian Famers’ Union was renewed in 2019, continuing a partnership that has lasted for more than 60 years.
Profit performance Group NOK millions 2019 2018 General Insurance Private 2,025.1 1,934.8
Amortisation and impairment losses of excess value – intangible assets (256.4) (264.6)
Underlying frequency loss ratio 1 67.8% 64.9% Cost ratio 1 14.7% 15.2%
The solvency margins are calculated net of the NOK 6,125.0 million kroner in dividend proposed by the Board.
1 Regulatory approved partial internal model 2 Partial internal model with own calibration
The net cash flow from operational activities was negative in the amount of NOK 1,235.7 million (negative 1,891.7) in 2019. The negative cash flow in 2019 can largely be ascribed to settlements for financial securities. Similar explanation for the cash flow in 2018 is a considerable decline in deposits from customers in banking operations.
The net cash flow from financing activities mainly consists of payments made/received in connection with external debt financing and the payment of dividend to shareholders. The net cash flow from financing activities in 2019 was negative NOK 4,002.0 million (2,492.5). The negative cash flow in 2019 is due to payment of dividend. The dividend in 2018 was on the same size, but higher loans from financial institutions in the banking operations was considerably higher than the dividend.
All annual financial targets were met in 2019: Return on equity was 28.2 per cent. Excluding the 1.6 billion in gains on the sale of Gjensidige Bank, return on equity was 22.6 per cent – both higher than the target.
The full-year cost ratio was 14.7 per cent. Adjusted for the Baltics segment, it was 14.0 per cent
Gjensidige has a solid capital position with a year-end 2019 solvency margin at 206 per cent, adjusted for the proposed dividend of NOK 6,125.0 million.
The main measures to achieve the target are centered around analytics, digitalisation and automation of customer interaction and processes. This will lead to improved CRM, tariffs, sales effectiveness, which in turn will result in more satisfied customers, improved competitiveness and a lower cost level.
Operational targets are important to improve the competitive position and ensure future profitability for Gjensidige.
Sales effectiveness increased significantly during 2019, with all segments showing improvement. The positive trend in Private mentioned above was the main driver of the increase, although all segments recorded higher sales effectiveness. Outside Norway, lower distribution cost was the main driver of improved sales effectiveness.
The share of automated tariffs increased as further products and insurance covers were included in this new methodology, allowing for significantly faster response to changing market dynamics. The largest insurance products in Norway were included by year-end 2019. Efforts will continue to add all products relevant for tariffs in the methodology within 2022.
Operating expenses amounted to NOK 1,164.7 million (1,106.9) The cost ratio was 13.1 (12.6).
Loss ratio 1 64.0% 65.3% Underlying frequency loss ratio 1 68.9% 72.6% Cost ratio 1 13.1% 12.6% Combined ratio 1 77.2% 77.9%
Operating expenses amounted to NOK 825.7 million (872.3), corresponding to a cost ratio of 10.1 (11.5) The decrease was mainly due to higher earned premiums and continued efficient operations.
Earned premiums 8,164.1 7,603.3 Claims incurred etc. (5,608.6) (5,182.8) Operating expenses (825.7) (872.3)
General insurance Denmark The underwriting result was NOK 599.3 million (434.5). The increase was mainly driven by a lower underlying frequency loss ratio. The combined ratio was 87.9 (91.1).
Earned premiums amounted to NOK 4,960.1 million (4,904.6). Measured in local currency, earned premiums decreased by 1.2 per cent, as a result of price increases and re-underwriting for the commercial lines and for selected private lines.
Loss ratio 1 73.4% 76.8% Underlying frequency loss ratio 1 75.4% 79.1% Cost ratio 1 14.5% 14.4% Combined ratio 1 87.9% 91.1%
General insurance Sweden The underwriting result was NOK 75.9 million (78.2). The decrease in the underwriting result was mainly driven by lower earned premiums partly offset by an improved underlying frequency loss ratio. The combined ratio was 94.6 (95.0).
Claims incurred amounted to NOK 1,058.6 million (1,231.7). The loss ratio was 75.3 (78.5), positively impacted by a 3.2 percentage point improvement in the underlying frequency loss ratio. The improvement was a consequence of ongoing price increases and efforts to improve risk selection in both the private and commercial portfolios.
Operating expenses increased to NOK 271.3 million (259.3). The cost ratio was 19.3 per cent (16.5), impacted by lower earned premiums.
Run-off gains/(losses) 1 31.6 64.7 Earned premiums in local currency (SEK) 1 1,511.0 1,675.6
Loss ratio 1 75.3% 78.5% Underlying frequency loss ratio 1 77.5% 80.7% Cost ratio 1 19.3% 16.5% Combined ratio 1 94.6% 95.0%
Operating expenses amounted to NOK 337.3 million (334.4). The cost ratio was 29.9 (31.0). The improvement was mainly due to ongoing restructuring and cost-saving initiatives, focusing on operational efficiency.
Loss ratio 1 64.7% 62.7% Underlying frequency loss ratio 1 67.8% 64.9% Cost ratio 1 29.9% 31.0% Combined ratio 1 94.6% 93.7%
Pension The profit before tax expense was NOK 196.9 million (166.6). The increase was driven by higher operating income.
Administration fees increased to NOK 152.3 million (144.4), driven by a growing customer portfolio. Insurance income increased to NOK 111.4 million (72.6), driven by a higher risk result, portfolio growth and lower costs related to reinsurance. Management income increased to NOK 167.2 million (150.5) as a result of growth in assets under management.
Net financial income, including returns on both the group policy portfolio and the corporate portfolio, amounted to NOK 41.5 million (40.2).
Operating margin 1 36.05% 34.41% Recognised return on the paid-up policy portfolio 2 4.34% 5.61% Value-adjusted return on the paid1 Defined as an alternative performance measure (APM). APMs are described at www.gjensidige.no/reporting in a document named APMs Gjensidige Forsikring Group 2019. 2 Recognised return on the paid-up policy portfolio = realised return on the portfolio 3 Value-adjusted return on the paid-up policy portfolio = total return on the portfolio
Bank (discontinued operation) Gjensidige Bank was reported as discontinued operation until closing of the sale 1. March 2019. The profit after tax expenses for the first two months of the year was NOK 37.6 million (334.9 for 2018). See note 25 for further details.
Management of financial assets and properties The Group’s investment portfolio includes all investment funds in the Group, except for investment funds in the Pension segment. The investment portfolio is split into two parts: a match portfolio and a free portfolio. The match portfolio is intended to correspond to the Group’s technical provisions. It is invested in fixed-income instruments that match the duration and currency of the technical provisions. The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in conjunction with the Group’s capitalisation and risk capacity, as well as the Group’s risk appetite at all times. Results from the use of derivatives for tactical and risk management purposes are assigned to the respective asset classes. Currency risk in the investment portfolio is generally hedged close to 100 per cent, within a permitted range of +/- 10 per cent per currency.
At the end of the period, the investment portfolio totalled NOK 59.1 billion (52.8). The financial result for the year was NOK 2,306.4 million (820.9), which corresponds to a return on total assets of 4.1 per cent (1.5).
Match portfolio The match portfolio amounted to NOK 34.1 billion (34.5). The portfolio yielded a return of 2.8 per cent (2.0), excluding changes in the value of the bonds recognised at amortised cost.
Bonds recognised at amortised cost amounted to NOK 14.9 billion (15.7). Unrealised excess value amounted to NOK 0.5 billion (0.8) at the end of the period. The reinvestment rate for new investments in the portfolio of bonds held at amortised cost was approximately 3.0 per cent on average in the fourth quarter, while the running yield on the portfolio of bonds held at amortised cost was 3.6 per cent at the end of the period. The average duration of the match portfolio was 3.5 years. The average term to maturity for the corresponding insurance liabilities was 3.8 years.
The geographical distribution1 of the match portfolio is shown in the chart on the next page.
1 The geographical distribution is related to issuers and does not reflect actual currency exposure.
Fixed-income instruments The fixed-income instruments in the free portfolio amounted to NOK 14.2 billion (8.8), of which money market investments, including cash, accounted for NOK 6.8 billion (3.7). The rest of the portfolio was invested in Norwegian government bonds and international bonds (investment grade, high yield and convertible bonds). The total fixed-income portfolio yielded a return of 4.4 per cent (negative 0.2). A fall in interest rates and lower credit spreads were the main drivers of the positive returns. At the end of the period, the average duration in the portfolio was approximately 3.4 years. The distribution of counterparty risk and credit rating is shown in the charts on this page. Securities without an official credit rating amounted to NOK 3.5 billion (1.3). Of these securities, 10.1 per cent (6.0) were issued by Norwegian savings banks, while the remainder were mostly issued by industry and municipalities. The geographical distribution1 of the fixed-income instruments in the free portfolio is shown in the chart on this page.
Equity portfolio The total equity exposure at the end of the period was NOK 4.3 billion (3.8), of which NOK 3.0 billion (2.5) consisted of current equities and NOK 1.2 billion (1.3) of PE funds. The return on current equities was 15.6 per cent (negative 6.4). PE funds generated a return of 6.9 per cent (14.8).
Return in per cent Result Carrying amount 31.12 Financial assets and properties
Net income from investments 3,860.3 830.2 1 There was a profit of NOK 151.1 in the fourth quarter due to early redemption of an inflation linked secured bond. 2 The item includes discounting effects of the insurance liabilities in Denmark and Sweden, and a mismatch between interest rate adjustments on the liability side in Denmark and the corresponding interest rate hedge. Investments include mortgage, sovereign and corporate bonds, investment grade bond funds and loan funds containing secured debt. 3 The item includes investment grade, emerging markets and current bonds. Investment grade and emerging market bonds are investments in internationally diversified funds that are externally managed. 4 Investments in internationally diversified funds that are externally managed. 5 Investments mainly in internationally diversified funds that are externally managed. The equity risk exposure is reduced by NOK 369.9 million due to derivatives. 6 The item includes currency hedging related to Gjensidige Sweden and Gjensidige Denmark, lending, paid-in capital in Gjensidige Pensjonskasse, profit/loss effects from a total return swap with Gjensidige Pensjonskasse, hedge funds and finance-related expenses. 7 Defined as an alternative performance measure (APM). APMs are described at www.gjensidige.no/reporting in a document named APMs Gjensidige Forsikring Group 2019.
The purpose of the ‘own pension account’ scheme is to give employees a better overview of and knowledge about their own pension. The scheme will probably enter into force on 1 January 2021.
Gjensidige’s capitalisation is adapted at all times to the Group’s adopted strategic goals and appetite for risk. The Group shall maintain its financial freedom of action in parallel with strong capital discipline that supports the Group’s targeted return on equity.
It is proposed that the parent company’s profit before other components of income and expense of NOK 7,460.3 million be allocated as follows: NOK million
The Board has decided to pay employees of Gjensidige Forsikring ASA a collective bonus corresponding to NOK 28.500 including holiday pay, per full-time employee. The bonus is based on the underwriting result, market share development and customer satisfaction. In addition, the Board has applied a discretionary assessment of the organisation, engagement, competency and the year end result relative to the dividend policy. The Board wishes to thank each individual employee for their contribution to Gjensidige’s results in 2019.
Strategy and outlook The Group’s annual financial and solvency targets for the period 2019 through 2022 are as follows:  Combined ratio between 86 and 89 per cent (undiscounted)  Corresponding to 90 to 93 per cent given zero run-off gains  Average annual run-off gains of approximately NOK 1 billion are still expected through 2022  Cost ratio <15 per cent  Solvency margin based on the Partial Internal Model (both the regulatory approved model and the model with internal calibration) between 150 and 200 per cent  To support an ‘A’ rating, stable regular dividends over time, financial flexibility for smaller acquisitions and organic growth not financed through retained earnings, as well as providing a buffer for regulatory changes.
Geopolitical uncertainty, low interest rates and financial challenges in several key economies reflect an uncertain economic situation. The macroeconomic outlook in the Nordic region and the outlook for Gjensidige’s operations are still regarded as good.
Organic growth is expected to be in line with nominal GDP growth in Gjensidige’s market areas in the Nordic and Baltic countries over time. In addition, profitable growth will be achieved by pursuing a disciplined acquisition strategy, as has been done successfully in the past.
In the next few years it is expected that Gjensidige’s business model and the market participants will broadly stay the same. Gjensidige has different positions and preconditions for further growth and development in the segments. Best practices will be implemented across segments where natural and expedient. Profitability will be prioritised over growth.
Continued investments in technology and data are key to reducing cost and achieving enhanced functionality and flexibility. This is necessary to enable a more flexible partner integration and product modularity. The launch of next generation tariffs and CRM and investments in a new core system and IT infrastructure are important in order to succeed in becoming an analytics-driven company. This will result in better customer experiences, more efficient operations and create sufficient capacity for innovation. Gjensidige has started the process of developing and configuring its new core IT system. The investment is expected to be handled within the current cost ratio target, and will be made step-by-step, starting with Denmark.
Notes 2. Use of estimates 178 3. Risk and capital management 179 4. Premiums and claims etc in general insurance 179 5. Shares in subsidiaries and joint ventures 180 6. Net income from investments 182 8. Salaries and remuneration 184 11. Goodwill and intangible assets 191 12. Owner-occupied and right-of-use property, plant and equipment 13. Financial assets and liabilities 195 14. Shares and similar interests 198 15. Loans and receivables 199 16. Insurance-related liabilities and reinsurers’ share 200 19. Provisions and other liabilities 202 20. Related party transactions 203 22. Share-based payment 204 23. Events after the balance sheet date 205
Net income from investments Results from investments in associates and joint ventures 5 309.2 291.8 Interest income and dividend etc. from financial assets 965.9 1,032.2 Net changes in fair value on investments (incl. property) 1,453.7 (502.8) Net realised gain and loss on investments 1,282.9 129.8 Expenses related to investments and interest expenses (151.3) (120.8) Total net income from investments 6 3,860.3 830.2
Operating expenses Operating expenses from general insurance (3,635.4) (3,655.9) Operating expenses from pension (275.6) (241.0) Other operating expenses (46.2) (40.6) Amortisation and impairment losses of excess value - intangible assets (256.4) (264.6) Total operating expenses 7 (4,213.6) (4,202.1)
Financial assets Interest-bearing receivables from joint venture 5, 13 2,401.4 2,513.1 Financial derivatives 13 934.1 577.9 Shares and similar interests 13, 14 6,551.6 5,134.9 Bonds and other securities with fixed income 13 30,992.4 26,374.8 Bonds held to maturity 13 210.7 391.5 Loans and receivables 13, 15 19,963.3 20,477.9 Assets in life insurance with investment options 13 29,989.4 23,909.5 Receivables related to direct operations and reinsurance 13 7,097.6 6,784.7 Other receivables 13, 15 1,192.0 1,081.7 Cash and cash equivalents 13 2,419.5 2,363.3
Other assets Deferred tax assets 9 21.2 13.1 Reinsurers' share of insurance-related liabilities in general insurance, gross 16 1,072.5 926.9 Prepaid expenses and earned, not received income 53.2 81.7
Equity Share capital 1,000.0 999.9 Share premium 1,430.0 1,430.0 Natural perils capital 2,676.3 2,491.1 Guarantee scheme provision 676.3 653.9 Perpetual Tier 1 capital Gjensidige Bank (held for sale) 444.8 Other equity 20,409.0 17,824.9 Total equity attributable to owners of the company 26,191.6 23,844.7 Non-controlling interests 0.6 0.5 Total equity 17 26,192.2 23,845.2
Other liabilities Pension liabilities 10 610.6 562.4 Lease liability 12 1,125.1 Other provisions 19 297.3 319.3 Current tax 9 1,046.1 638.8 Deferred tax liabilities 9 1,168.6 1,093.0 Accrued expenses and deferred income 19 422.0 403.3
Equity as at 31.12.2017 attributable to owners of the company 1,000.0 (0.0) 1,430.0 48.2 1,369.4 602.0 (1,936.7) 21,172.2 23,685.1
Transactions with owners of the company Own shares 0.0 (10.9) (11.0) Paid dividend (3,549.9) (3,549.9) Equity-settled share-based payment transactions 7.9 7.9 Perpetual Tier 1 capital 75.4 (0.6) 74.7 Perpetual Tier 1 capital - interest paid (46.9) (46.9) Net effect of purchase of non-contolling interests (7.2) (7.2) Total transactions with owners of the company (0.0) 7.9 28.4 (3,568.6) (3,532.3)
Cash and cash equivalents at the start of the year 2,839.9 2,685.2 Cash and cash equivalents at the end of the year 2,419.5 2,839.9 Net cash flow (420.4) 154.6
Specification of cash and cash equivalents Deposits with central banks 53.9 Cash and deposits with credit institutions ¹ 2,419.5 2,786.0 Total cash and cash equivalents 2,419.5 2,839.9
¹ Including source-deductible tax account 82.6 91.7 hereof source-deductible tax account from discontinued operations 6.2
Specification of cash and cash equivalents from discontinued operations Deposits with central banks 53.9 Cash and deposits with credit institutions 422.6 Total cash and cash equivalents from discontinued operations 476.6
Specification of cash and cash equivalents from continuing operations Cash and deposits with credit institutions 2,419.5 2,363.3 Total cash and cash equivalents from continuing operations 2,419.5 2,363.3
Cash flow from discontinued operations Net cash flow from operating activities (7.0) (6,162.0) Net cash flow from investing activities (318.8) (28.3) Net cash flow from financing activities (150.8) 6,236.8 Total cash flow from discontinued operations (476.6) 46.5
Notes 1. Accounting policies Reporting entity Gjensidige Forsikring ASA is a publicly listed company domiciled in Norway. The company’s head office is located at Schweigaardsgate 21, Oslo, Norway. The consolidated financial statements of the Gjensidige Forsikring Group (Gjensidige) as at and for the year ended 31 December 2019 comprise Gjensidige Forsikring ASA and its subsidiaries and Gjensidige’s interests in associates and joint ventures. The activities of Gjensidige consist of general insurance and pension. Gjensidige does business in Norway, Sweden, Denmark, Latvia, Lithuania and Estonia.
The accounting policies applied in the consolidated financial statements are described below. The policies are used consistently throughout Gjensidige with the exception of one difference that is permitted in accordance with IFRS 4 about insurance contracts. See description under the section Claims provision, gross.
Basis of preparation Statement of compliance The consolidated financial statements have been prepared in accordance with IFRSs endorsed by EU, and interpretations that should be adopted as of 31 December 2019, Norwegian disclosure requirements as set out in the Accounting Act as at 31 December 2019 and additional disclosure requirements in accordance with the Norwegian Financial Reporting Regulations for Non-Life Insurance Companies (FOR 2015-12-18-1775) pursuant to the Norwegian Accounting Act.
New standards adopted IFRS 16 Leases (2016) Gjensidige implemented IFRS 16 with effect from 1 January 2019.
The implementation effects were as following: • Right-of-use assets in the statement of financial position increased by MNOK 1,223.9
• Lease liability in the statement of financial position increased by MNOK 1,304.5
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (2016) The amendments to IFRS 4 permit entities that predominantly undertake insurance activities the option to defer the effective date of IFRS 9 until 1 January 2021. The effect of such a deferral is that the entities concerned may continue to report under the existing standard, IAS 39 Financial Instruments. In addition, the insurance sector of a financial conglomerate is allowed to defer the application of IFRS 9 until 1 January 2021, where all of the following conditions are met: • no financial instruments are transferred between the insurance sector and any other sector of the financial conglomerate other than financial instruments that are measured at fair value with changes in fair value recognised through the profit of loss account by both sectors involved in such transfers; • the financial conglomerate states in the consolidated financial statements which insurance entities in the group are applying IAS 39; • disclosures requested by IFRS 7 are provided separately for the insurance sector applying IAS 39 and for the rest of the group applying IFRS 9.
IFRS 17 requires a general measurement model based on the following “building blocks”: • probability-weighted estimates of future cash flows, an adjustment to reflect the time value of money and the financial risks associated with those future cash flows, and a risk adjustment for non-financial risk.
Consolidation policies Subsidiaries Subsidiaries are entities controlled by Gjensidige Forsikring. Gjensidige Forsikring controls an investee when it is exposed, or has the rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. If the Group has the majority of voting rights in an entity, the entity is presumably a subsidiary of the Group. The Group evaluates all relevant facts and circumstances in order to evaluate whether the Group has control of the entity in which it is invested. Among other things, ownership, voting rights, ownership structure and relative strengths, as well as options controlled by the Group and shareholder agreements or other agreements.
Gross premiums written include all amounts Gjensidige has received or is owed for insurance contracts where the insurance period starts before the end of the accounting period. At the end of the period provisions are recorded, and premiums written that relate to subsequent periods are adjusted for.
Depreciation Each component of owner-occupied property, plant and equipment are depreciated using the straight-line method over estimated useful life. Land, leisure houses and cottages are not depreciated. The estimated useful lives for the current and comparative periods are as follows, with technical installations having the highest depreciation rate
The lease liability is initially measured at the present value of the lease payments for the right to use the underlying asset during the lease term. The lease term represents the non-cancellable period of the lease, together with periods covered by an option to extend the lease when Gjensidige is reasonably certain to exercise this option, and periods covered by an option to terminate the lease if Gjensidige is reasonably certain not to exercise that option.
Development expenditures (both internally and externally generated) is capitalized only if the development expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and Gjensidige intends to and has sufficient resources to complete the development and to use or sell the asset.
The category loans and receivables comprises the classes loans, receivables related to direct operations and reinsurance, other receivables, cash and cash equivalents and obligations classified as loans and receivables.
Financial derivatives Financial derivatives are used in the management of exposure to equities, bonds and foreign exchange in order to achieve the desired level of risk and return. The instruments are used both for trading purposes and for hedging of other balance sheet items. Any trading of financial derivatives is subject to strict limitations.
Definition of fair value Subsequent to initial recognition, investments at fair value through profit or loss are measured at the amount each asset/liability can be settled to in an orderly transaction between market participants at the measurements date.
Impairment losses are reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. The reversal shall not result in the carrying amount of the financial asset exceeding the amount of the amortised cost if the impairment had not been recognised at the time the
Related party transactions Intra-group balances and transactions are eliminated in preparing the consolidated financial statements.
Transactions with affiliated companies The Fire Mutuals operate as agents on behalf of Gjensidige. For these services commission is paid. The Fire Mutuals are also independent insurance companies with fire and natural damage on their own account. Gjensidige provides various services to support this insurance operation. For these services and to reinsure the Fire Mutuals’ fire insurance Gjensidige receives payment based on arm’s length distance.
Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset must be available for immediate sale in its present condition. The management must be committed to a plan to sell the asset, which is expected to qualify for recognition as a completed sale within one year from the date of classification.
2. Use of estimates The preparation of the financial statements under IFRS and the application of the adopted accounting policies require that management make assessments, prepare estimates and apply assumptions that affect the carrying amounts of assets and liabilities, income and expenses. The estimates and the associated assumptions are based on experience and other factors that are assessed as being justifiable based on the underlying conditions. Actual figures may deviate from these estimates. The estimates and associated prerequisites are reviewed regularly. Changes in accounting estimates are recognised in the period the estimates are revised if the change only affects this period, or both in the period the estimates change and in future periods if the changes affect both the existing and future periods.
In this note, the risk management system will be described first. Then the different risks and management of these risks will be described. Finally, the capital requirement for these risks and the capital management will be described.
Risk management system The risk management system is organised with three lines of defence.
Figure 2 – The risk management system is organised with three lines of defence
Each employee and leader have a responsibility for risk management and internal control. This is the first line of defence. There are established procedures and guidelines that must be followed, and risk management and internal control is therefore performed as a part of all employee’s daily work. Some control functions such as risk-, compliance- and security coordinators, data privacy officer, anti-money laundry officer and quality functions reviewing distribution and claims handling are also organized as a part of line management and strengthens the first line’s responsibility for risk management and internal control.
The third line of defence is the group’s internal audit function, which monitors that the risk management and internal control system. The audit function reports directly to the Board of Gjensidige Forsikring ASA.
Operational Management 1st line Exercises risk management and internal control 2nd line Identifies, assesses, quantifies, monitors and reports on risk. Provides advice and guidance
The Board has the overall responsibility for ensuring that the level of risk-taking in the Group is satisfactory relative to the Group’s financial strength and willingness to take risks. The board has adopted a risk appetite statement that covers the most important types of risks. This entails ensuring that necessary governing documents and procedures are in place. Laws and regulation are to be followed. The work with the risk management and internal control is to be appropriately organized, documented and reported.
Gjensidige Forsikring ASA has established strategies, policies and more detailed guidelines, routines and authorisation rules for main risk areas. Group policies are subject to approval by the Board of each company within the Group based on local legislation.
The cost of reported claims not yet paid (RBNS) is estimated by a claims handler for each individual claim and is based on relevant information available from claims reports, loss adjusters, medical certificates and information about the costs of settling claims with similar characteristics in previous periods. The key statistical methods used for calculating claims provisions for claims incurred but not yet reported (IBNR) are: • Chain ladder methods, which use historical data to estimate the proportions of the paid and incurred to date of the ultimate claim costs.
The methods used will depend on the line of business and the time period of data available. Some methods assume that future claim development will follow the same pattern as historical claims. There are reasons why this may not always be the case, and it may be necessary to modify model parameters. The reasons why historical claims not necessarily project the future can be: • Economic, legal and social trends and social inflation (e.g. a shift in court awards)
IBNR provisions and provisions for outstanding claims are initially estimated at a gross level, and a separate calculation is carried out to estimate the size of reinsurance recoveries.
Growth in severity of claims may, for example, be driven by the development of consumer price index (CPI) and salary increases. In Property insurance, the severity of claims will be influenced by inflation and specifically by increased building costs, which in the past has been slightly higher than CPI. For accident and health, the insurance policies are divided into two main groups, one with fixed sum insured and another part where the compensation is adjusted in accordance with a public/government index (in Norway: ‘G’ - the basic amount in the National Insurance Scheme). This is the case in Workers’ Compensation, for instance. The Group writes Workers’ Compensation insurance in Norway and Denmark. The regulation of this line of business is quite different in these countries. In Norway Workers’ Compensation covers both accident and diseases, while in Denmark diseases are covered by a governmental body. The compensation in Norway is exclusively in the form of lump sums, while in Denmark the compensation consists of both lump sums and annuity payments. Annuity payments are calculated on the basis of assumptions about mortality, interest rate and retirement age. For bodily injuries, the severity of claims is also influenced by court awards, which tend to increase the compensation more than the general inflation. This is also a significant factor, due to the long period typically required to settle these cases.
Net of reinsurance Estimated claims cost At the end of the accident year 12,517.6 14,250.2 14,946.4 13,231.7 14,573.2 14,776.6 12,790.6 13,604.3 14,338.9 15,716.2 14,407.8 - One year later 12,465.2 14,144.3 15,131.0 13,174.3 14,420.6 14,410.7 12,764.0 13,852.5 14,188.3 15,681.9 - Two years later 12,307.3 14,174.9 15,230.0 13,111.4 14,336.5 14,297.1 12,677.0 13,828.8 14,111.9 - Three years later 12,318.7 14,094.9 15,106.2 12,937.1 14,145.2 14,247.5 12,741.2 13,922.6 - Four years later 12,168.0 14,011.6 14,901.1 12,756.5 14,032.6 14,193.9 12,722.3 - Five years later 12,105.2 13,900.5 14,782.0 12,638.6 13,923.2 14,108.9 - Six years later 12,060.8 13,777.1 14,636.0 12,453.2 13,799.8 - Seven years later 11,922.5 13,662.1 14,487.6 12,421.9 - Eight years later 11,868.7 13,440.9 14,414.3 - Nine years later 11,672.2 13,419.9 - Ten years later 11,618.0
Lapse risk Lapse risk is defined as the risk of a change in value caused by deviations from the actual rate of policy lapses from their expected rates, i.e. an increase in the level of customers leaving the company. Gjensidige considers lapse risk to be limited for non-life and health insurance business, as the main effect of higher lapse rates will be a reduction in future profit.
Risk exposure Reserve risk and premium risk are both material risks. Lapse risk contributes only marginally to the total risk exposure for both the Gjensidige Forsikring Group and Gjensidige Forsikring ASA. For reserve risk, most of the claims provisions and related risk exposure are related to lines of business exposed to personal
Risk concentration Gjensidige’s general insurance portfolio is largest in Norway, but Gjensidige also has a significant part of its general insurance business in Denmark, Sweden and the Baltics.
Assistance 1,150.9 4.3% 1,100.0 4.3% Health insurance 1,486.9 5.6% 1,485.0 5.8% Other non-life insurance 1,304.9 4.9% 1,284.5 5.0% Non-proportional non-
Fire and other damage to property insurance 8,766.7 35.5% 8,410.3 36.2%
Managing insurance risk Management of insurance risk is described in chapter “Good management and control – we are serious about our responsibility” and subchapter “Risk – the core of the business”.
Gjensidige’s capitalization. As a general requirement, all reinsurers need to be rated ‘A-’or better by Standard & Poor’s (or the equivalent from other rating agencies) when entering into a contract with Gjensidige.
Expense risk Expense risk is the risk of actual expenses being higher than expected. The risk is related to the administration result which is the expected administration income minus the expected expenses for the whole lifetime of the products that fall within the contract boundary. Expense risk is larger in Solvency II aspects, because the contract boundary is longer. For some products, the company cannot increase the administration fee if the expenses increase (e.g. guaranteed paid-up policies). For other products, the company can increase the administration fee for the future and thereby reduce the losses.
Risk concentration Life insurance consists of policies in the Norwegian market. The portfolio derives mainly from employees of small and mediumsized commercial customers in the whole country, and the risk concentration is considered limited.
Gjensidige Forsikring Group invested to help achieve the Group's overall profitability goals, with a controlled downside risk.
Table 5 – Asset allocation general insurance millions Per cent NOK
Match portfolio Money market 4,818.7 8.2% 4,917.9 9.3% Bonds at amortised cost 14,916.1 25.3% 15,698.5 29.7% Current bonds 1 14,327.1 24.3% 13,892.5 26.3% Match portfolio total 34,062.0 57.7% 34,508.9 65.3%
Free portfolio Money market 6,812.3 11.5% 3,703.2 7.0% Other bonds 2 4,552.9 7.7% 3,912.7 7.4% High Yield bonds 3 1,101.8 1.9% 436.1 0.8% Convertible bonds 3 1,725.3 2.9% 713.8 1.4% Current equities 4 3,047.3 5.2% 2,466.2 4.7% PE-funds 1,232.3 2.1% 1,346.6 2.5% Properties 5 4,803.9 8.1% 4,608.8 8.7% Other 6 1,716.8 2.9% 1,119.6 2.1% Free portfolio total 24,992.4 42.3% 18,307.1 34.7% Investment portfolio total 59,054.4 100.0% 52,816.0 100.0%
Money market 1,325.6 1,309.7 Bank deposits 142.2 225.5 Bonds held to maturity 30.6 Loan and receivables 5,246.3 4,962.3 Current bonds 249.9 155.4 Equities 6.3 67.2 Properties 958.2 908.5 Total 7,928.5 7,659.2
Risk exposure Within market risk the largest risks are spread risk and equity risk for Gjensidige Forsikring Group and Gjensidige Forsikring ASA. Holdings in related undertakings are in general treated as equity risk in Gjensidige Forsikring ASA, while the risk is fully consolidated for Gjensidige Forsikring Group. Consequently, equity risk is greatest for Gjensidige Forsikring ASA. The investments in property through Oslo Areal AS contribute to property risk. There is also some currency risk, while the interest rate risk and concentration risk have a small contribution to the total risk exposure.
AAA 29.5% 32.8% 29.4% 30.2% AA 13.3% 11.9% 14.2% 12.5% A 20.1% 16.0% 18.2% 14.6% BBB 10.6% 11.4% 10.1% 11.4% BB B CCC or lower Not rated 26.5% 28.0% 28.2% 31.3% Total 100.0% 100.0% 100.0% 100.0%
The motivation for investing in real estate is primarily that it enhances the risk-adjusted return, through an expected rate of
Gjensidige Forsikring Group underwrites insurance in the Scandinavian and Baltic countries, and thus has insurance liabilities in the corresponding currencies. The foreign exchange risk, at both group and company level, is generally hedged by matching technical provisions with investments in the corresponding currency. Generally, foreign exchange risk in the investment portfolio is hedged close to 100 per cent, within a permitted limit of +/- ten per cent per currency, except for smaller mandates with active currency management.
Liquidity risk Liquidity risk is defined as the inability to meet payments when due, or by the need to realise investments at a high cost to meet payments. For most general insurers, liquidity risk is quite limited. Premium income is paid up front, and claims are paid out at a later stage. Future payments are not based on contractual payment dates, but rather on when claims arise and how long the claims handling takes. This will result in a positive net cash flow under normal circumstances. Large net outflows would generally only arise as a result of acquisitions or the recapitalisation of subsidiaries. In addition, liquidity needs may arise in connection with margin payments for financial instruments. In the event of a large claim or catastrophic event, the payments will take place sometime after the event, and the reinsurers will cover most of the cost within a short time of the payments having been made to the claimants. In an extreme scenario, reinsurers could fail to honour their obligations after a catastrophic event.
For both the Gjensidige Forsikring Group and Gjensidige Forsikring ASA sector concentration of fixed-income securities are regulated by the guidelines for credit exposure, which is a part of the Group Credit policy. The guidelines define a number of industry sectors together with allocation limits to each sector in order to ensure diversification in the total portfolio. The current allocation of fixed-income securities meets the guidelines requirement.
Geographical concentrations of fixed-income securities in the match portfolios of the Gjensidige Forsikring Group and Gjensidige Forsikring ASA are mainly proportional to the amount of technical provisions in the various countries, in which business is conducted.
Hedging interest rate exposure in Denmark Interest rate risk is a significant risk factor associated with the Workers’ Compensation business in Denmark due to the high volume and duration of technical provisions related to the product. Most of the interest rate risk exposure in insurance liabilities is hedged using interest rate swaps. The advantage of using interest rate swaps in contrast to bonds is that instruments with desired duration are available in the Danish swap market, but not in the bond market.
Risk sensitivity Sensitivity analysis is performed at the Gjensidige Group level. The sensitivity analysis shows the effect in the accounts of different predefined scenarios. The corresponding figures are changed to also show the effect in the accounts. As the effects are on the values in the accounts, assets measured at amortized cost are disregarded. The unrealized excess value will be affected by changes in the interest rate and/or the credit spread. The following assumptions are made for the different risk drivers: • Equities: It is assumed that the market value of equities decreases with 10 per cent. It includes stress on all equities including hedge funds and private equity.
Equity down 10% (475.0) (370.0) Interest rate up 100 bps (384.4) (199.5) Spread level up 100 bps (707.5) (631.7) Properties down 10% (593.2) (569.5)
Operational risk Operational risk is the risk of economic losses and/or loss of reputation due to weaknesses or faults in processes and systems, errors made by employees, or external events.
Management of strategic risk and business risk is described in chapter “Good management and control – we are serious about our responsibility” and subchapter “Risk – the core of the business”.
Climate risk Climate risk is risk related to changes in climate. Management of climate risk and business risk is described in chapter “Good management and control – we are serious about our responsibility” and subchapter “Risk – the core of the business”.
The target zone for the solvency margin is between 150 per cent and 200 per cent, changed from between 135 per cent and 200 per cent last year. This target applies to both the regulatory approved model (legal perspective) and the model with its own calibration (own partial internal model). Solvency margin levels shall support an A-rating from Standard & Poor's, stabilize regular dividends over time, ensure financial flexibility for smaller acquisitions and organic growth that is not funded through retained earnings, and provide a buffer against regulatory changes.
The Group’s solvency margins at the end of 2019 were calculated to be: • 206 per cent based on Gjensidige’s approved partial internal model
The figures are adjusted according to proposed dividend of NOK 6.125 billion.
Claims provisions for non-life and health insurance 27,693.3 23,873.8 (3,819.6) 28,769.8 24,110.2 (4,659.6)
Premium provisions for non-life and health insurance 10,080.3 2,537.8 (7,542.5) 9,475.1 1,952.1 (7,522.9)
Claims provisions for non-life and health insurance are discounted in Solvency II, while the claims provisions (except claims provisions for workers’ compensation product in Denmark and motor vehicle liability insurance in Sweden) are undiscounted in the accounting figures. The claims provision in Silvency II does not include planned run-off gains, as the accounting claims provisions. All other assumptions for Solvency II purposes are identical with the accounting assumptions.
Eligible capital Eligible capital to meet the Solvency Capital Requirement is the difference between assets and liabilities.
Table 12 – Eligible capital to cover the Solvency Capital Requirement
Basic own funds 21,855.1 18,761.1 21,261.9 21,899.5 Own funds of other financial sectors 4,904.0
Table 13 – Eligible own funds to meet the Solvency Capital Requirement, split by tiers
Total eligible own funds to meet SCR 21,855.1 23,665.1 21,261.9 21,899.5
The minimum consolidated group SCR is the sum of the minimum capital requirement of the judicial entities belonging to the group. The minimum consolidated capital requirement for Gjensidige Forsikring Group is NOK 4,997.0 million, which constitute 47 per cent of the SCR.
Gjensidige Forsikring Group 11,230.2 9,622.8 Gjensidige Forsikring ASA 11,561.0 12,565.3 Nykredit Forsikring A/S 196.0 ADB Gjensidige 166.4 93.7 Gjensidige Pensjonsforsikring AS 769.0 707.8 Gjensidige Bank Group 233.2 Mølholm Forsikring A/S 93.6
There are some restrictions on Gjensidige Forsikring ASA’s and Gjensidige Pensjonsforsikring’s ability to access or use the Group’s assets, as well as settling its obligations. Group contributions added together with dividends must not exceed justifiable payment of dividend based on a company’s financial strength and operations. Distributions from insurance companies must be within profit for the year. If it is desired to distribute more
Regulatory uncertainty related to Solvency II There is still some uncertainty regarding how the guarantee scheme should be treated under Solvency II. The FSA argues that the guarantee scheme should be considered as a liability under Solvency II. Gjensidige is of the opinion that the high level of domestic deposits which are actually equity elements should be treated as eligible solvency capital. The company will continue to pursue a regulatory framework in line with this. Until a final clarification is reached, the guarantee scheme provision is treated as a liability under Solvency II. A hearing from the FSA, dated 31st of January 2018, suggests a change in the guarantee scheme that may lead to an increase of about 70 million kroners in the guarantee scheme This can potentially have a negative effect on the capital. Based on this, the uncertainty in eligible own funds with respect to the guarantee scheme is of size NOK (0,1) to 0,5 billion kroners.
EIOPA has suggested several changes in the calculation of the capital requirement and eligible own funds. These changes are not expected to have any major impact on the capital position of Gjensidige based on Gjensidige’s current balance sheet.
The stress test is performed on a monthly basis for the Gjensidige Forsikring Group, including Gjensidige Pensjonsforsiking AS.
Market risk (2,598.2) Insurance risk (life and non-life) Expected loss CR > 100 (559.0) Capital, Gjensidige Bank ICAAP (192.0)
Effect on surplus capital Available capital before stress 23,665.1 Capital requirement before stress 14,042.4 Surplus without buffer before stress 9,622.8 Surplus without buffer after stress 7,108.5 Solvency ratio after stress 152.0% Solvency ratio before stress 168.5%
• Insurance risk: For non-life and health insurance business the stress is based on 3 per cent annual increase in combined ratio. For life insurance business the stress is based on 20 per cent annual increase in disability.
• Tax effect: A loss equal to the stress scenario results in a tax benefit that will have a positive effect.
The following assumptions applied in the stress test for 2018: • The equity risk stress is 17 per cent. It includes stress on all equities including hedge funds and private equity
• Interest rate risk is calculated on a 50 bps change in the interest rates. It includes effect on both assets and liabilities. The interest rate scenario is the strictest of an interest rate increase or decrease
Gjensidige Forsikring Group 4. Segment information The group has six reportable segments, as described below, which offers different products and services within different geographical areas. The Groups reportable segments are identified based on the Group’s internal reporting. The Group CEO holds regular meetings with its reporting managers for the different segments, concerning performance management, which focuses on future measures to ensure performance and deliveries.
General insurance is the Group’s core activity. General insurance is divided into five segments, mainly based on the customer’s geographical placement. Other operational segments deliver products and services mainly to customers in Norway.
General Insurance Commercial The Commercial segment offers a wide range of general insurance products to the commercial, agriculture and municipality markets in Norway, including insurances related to motor, property, accident, health, coastal and marine/transport.
General Insurance Sweden In Sweden, the Group offers insurance related to the private, commercial and municipality markets, including insurances related to motor, property, accident and health and liability.
General Insurance Baltics Gjensidige’s Baltic operations provide general insurance products to the private and commercial markets in Latvia, Lithuania and Estonia, including insurances related to motor, property and accident/health.
Pension Gjensidige Pensjonsforsikring shall contribute to sales of a wide range of products to general insurance customers in Norway by offering pension and savings products, mainly to the Norwegian commercial market. The pension products include defined contribution pensions and related risk for disability and death, private pension savings and individual disability pensions.
Description of the segment’s income and expenses Segment income is defined as earned premiums for general insurance and administration fees, insurance income and management income etc. for Pension.
Associates Malling & Co Eiendomsfond IS ¹ Oslo, Norway 26.9 % 792.3 958.2 792.3 908.5
Joint ventures Oslo Areal AS Oslo, Norway 50.0% 1,086.9 2,360.4 1,086.9 2,051.2
¹ In addition, the Investment option portfolio in Gjensidige Pensjonsforsikring AS holds a 36.2 % share in the fund.
Statement of financial position - items Current assets 30.7 38.0 Fixed assets 10,788.1 10,230.4 Cash and cash equivalents 35.3 62.2 Other liabilities 1,330.4 1,201.8 Liabilities to related parties 4,803.0 5,026.2 Equity 4,720.8 4,102.5
Net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures Net gains/(losses) from sale of subsidiaries, associated companies and joint ventures 1,889.5 291.8 Total net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures 1,889.5 291.8
Net income and gains/(losses) from buildings and other real estate Owner-occupied properties Net gains/(losses) from sale of owner-occupied properties 0.1 0.2 Total net income and gains/(losses) from owner-occupied properties 0.1 0.2
Total net income and gains/(losses) from buildings and other real estate 0.1 0.2
Bonds and other fixed-income securities Net interest income/(expenses) from bonds and other fixed-income-securities 277.4 221.8 Unrealised gains/(losses) from bonds and other fixed-income securities 343.8 11.2 Realised gains/(losses) from bonds and other fixed-income securities 177.1 70.3 Total net income and gains/(losses) from bonds and other fixed-income securities 798.3 303.3
Derivatives Net interest income/(expenses) from derivatives 30.6 35.2 Unrealised gains/(losses) from derivatives 506.2 (312.3) Realised gains/(losses) from derivatives (854.1) (251.6) Total net income and gains/(losses) from derivatives (317.2) (528.7)
Total net income and gains/(losses) from financial assets at fair value through profit or loss, designated upon initial recognition 1,428.3 (112.7)
Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 2.7 29.3 Unrealised gains/(losses) from bonds held to maturity (1.7) Realised gains/(losses) from bonds held to maturity (1.1) (0.5) Total net income and gains/(losses) from bonds held to maturity 1.6 27.0
Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 617.5 708.0 Net gains/(losses) from loans and receivables 228.3 (3.4) Net gains/(losses) from changes in exchange rates on loans and receivables 5.6 0.8 Total net income and gains/(losses) from loans and receivables 851.4 705.4
Net other financial income/(expenses) 1 (29.3) (20.1) Discounting of claims provision classified as interest expense (33.2) (71.6) Change in discount rate claims provision (198.1) 53.1
Employee benefit expenses Wages and salaries 2,188.1 2,174.6 Social security cost 506.3 515.6 Pension cost - defined contribution plan (note 10) 209.0 206.8 Pension cost - multi-employer plan (AFP) (note 10) 23.6 22.2 Pension cost - defined benefit plan (note 10) 52.0 51.7 Share-based payment (note 22) 13.1 11.5 Total employee benefit expenses 2,992.1 2,982.3
Gjensidige Forsikring Group 8. Salaries and remuneration The average number of employees in the Group was 3,740 (3,633).
The Board’s statement on the stipulation of pay and other remuneration Gjensidige’s remuneration policy The Group has established a remuneration system that applies to all employees. The system is meant to secure that Gjensidige attracts and keeps colleagues who performs, develops, learns and shares. The remuneration shall be competitive, but the Group shall not be a wage leader. Employees are expected to see the remuneration and benefits offered by the Group as an overall whole. The Group’s remuneration systems shall be open and performance-based, so that they, as far as possible, are perceived as being fair and predictable. The remuneration that is paid shall correspond to the agreed performance.
Guidelines for remuneration and career development shall be linked to achievement of the Group’s strategic and financial goals and core values, and both quantitative and qualitative targets shall be taken into consideration. The measurement criteria shall promote the desired corporate culture and longterm value creation, and, as far as possible, take actual capital costs into account. The remuneration system shall contribute to promoting and providing incentives for good risk management, prevent excessive risk-taking and contribute to avoiding conflicts of interest. A fixed basic salary shall be the main element of the overall remuneration, which also consists of variable remuneration, pension, insurance and payments in kind. Variable remuneration shall be used to reward performances that is agreed through performance agreements or that exceeds expectations, where both results and behaviour in form of compliance with the core values, brand and management principles are to be assessed.
Gjensidige Forsikring Group as the basis for other executive personnel and employees who can materially influence risk.
The retirement age for some members of the senior group management is 62, the others have a retirement age of 70. Of the current members of the senior group management, six are members of the closed Norwegian defined-benefit pension scheme. Given the full earnings period, they are entitled to a pension of 70 per cent of final salary at the full vesting period of 30 years at age 67. Four members are part of the Company’s defined-contribution pension scheme. The Company continues a previously agreed individual pension agreement for one member of the senior group management.
In accordance with practice in Denmark and the Baltic, there are certain individual agreements on severance pay in connection with resignation in Gjensidige Forsikring ASA in Denmark and the Baltic.
Binding guidelines for shares, subscription rights etc. for the upcoming financial year Of the variable remuneration earned in 2019 by the CEO and other employees covered by the Regulations relating to remuneration in financial institutions, 50 per cent of the gross earned variable remuneration will be given in the form of a promise of shares in Gjensidige Forsikring ASA. One third of the shares will be released in each of the following three years.
Report on executive remuneration in the preceding financial year In accordance with the guidelines, one employee in the finance department has been offered up to 50 per cent variable remuneration.
Kaare Østgaard, Executive Vice President 2,966.6 465.1 222.0 854.5 468.8 2,595 2,587 4,838 16,718 3
Rights earned in the financial year acc. to pension plan 5
Jostein Amdal, Executive Vice President 3,085.8 382.9 168.3 569.3 382.1 2,579 366 3,183 14,761
Lars Gøran Bjerklund, Executive Vice President (1.9.18-31.12.18) 1, 11 956.8 38.4 91.6 250.7 38.4
John Giverholt 8 363.5 5.1 3,500 Per Arne Bjørge 7, 8 442.5 6.0 10,542 Eivind Elnan 8 290.7 9.6 2,200 Hilde Merete Nafstad 8 368.3 5.1 2,946 Vibeke Krag (5.4.18-31.12.18) 1, 8 186.4 1.7 1,500 Terje Seljeseth (5.4.18-31.12.18) 1, 8 170.2 1.7 Gunnar Mjåtvedt, staff representative 4, 8 392.2 2,208 Anne Marie Nyhammer, staff representative 4 283.0 Lotte Kronholm Sjøberg, staff representative 4, 8 346.0 5.1 752 1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 4 For staff representatives only remuneration for the current position is stated. 5 Everyone in the senior group management has pension plans, benefit or contribution based. 6 Including bonus shares in the share saving's programme for employees. See note 22 for terms and further description of the scheme. 7 Remuneration includes remuneration as Chairman in the Audit Committee honoured with NOK 155 thousand for 2018. 8 Remuneration includes remuneration in other committees. 9 Hege Yli Melhus Ask's remuneration is presented until her resignation 31 August 2018. 10 Kim Rud-Petersen resigned from his position 31 August 2018. End-pay is agreed to amount to NOK 9,129 thousand. 11 Borrower in Gjensidige Bank ASA with NOK 2,516.7 thousand outstanding. Applicable terms are 2.19% interest for housing credit and 2.55% for top-up loan. Maturity date for top-up loan is 20.9.2030. 12 Borrower in Gjensidige Bank ASA with NOK 3,105.2 thousand outstanding. Applicable terms are 2.19% interest and loan maturity as at 28.11.2023.
Specification of tax expense Tax payable (1,174.4) (821.2) Correction previous years 74.9 (27.2) Change in deferred tax (98.1) (35.1) Total tax expense (1,197.6) (883.5)
Net deferred tax liabilities 1,147.5 1,079.9 Of this non-assessed deferred tax assets 21.2 13.1 Deferred tax liabilities 1,168.6 1,093.0
Reconciliation of tax expense Profit before tax expense 7,753.8 4,265.0 Estimated tax of profit before tax expense (25%) (1,938.4) (1,066.3)
Tax effect of Different tax rate in foreign subsidiaries 6.9 10.6 Valuation allowance and reversal of loss carried forward in subsidiaries 2.8 (1.6) Dividend received 1.8 1.2 Tax exempted income and expenses 573.9 165.4 Tax on interest on Perpetual Tier 1 capital 12.8 Associates and joint ventures 77.3 64.0 Non-tax-deductible expenses (9.6) (29.6) Correction previous years 74.9 (27.2) Total tax expense (1,197.6) (883.5) Effective rate of income tax 15.4% 20.7%
Change in deferred tax recognised in other comprehensive income and directly in the balance sheet Pensions (29.3) (12.7) Companies sold and purchased 19.3 Exchange rate differences (0.4) (1.2)
10. Pension Gjensidige Forsikring is required to have an occupational pension plan pursuant to the Norwegian Act relating to Mandatory Occupational Pensions. The Company’s pension plans meet the requirements of the Act. Gjensidige has both defined contribution and defined benefit plans for its employees. The defined benefit plan has been placed in a separate pension fund and is closed to new employees. New employees become members of the defined contribution pension plan.
Gjensidige Forsikring’s branches and some of its subsidiaries have a defined contribution pension plan corresponding to the plan in Gjensidige Forsikring in Norway. Description of the plan Together with benefits from the National Insurance scheme and any paid-up policies from former employment relationships, the retirement pension amounts to approximately 70 per cent of the final salary, given a full earning period of 30 years. The retirement age is 70, but it is 65 for underwriters. The defined benefit plan is a post-employment benefit plan that entitles employees to contractual future pension benefits. Disability pension, spouse/cohabitant pension and child’s pension are also included in the plan subject to more detailed rules. In addition, Gjensidige has pension liabilities to some employees over and above the ordinary group pension agreement. This applies to employees with a lower retirement age, employees who earn more than 12 times the National Insurance basic amount (G) and supplementary pensions. The ordinary retirement pension is a funded plan where the employer contributes by paying into the pension assets. Pension over and above the ordinary group pension agreement is an unfunded plan that is paid for through operations.
Private collective pension (AFP) As a member of Finance Norway, Gjensidige has a collective (AFP) pension agreement for its employees. AFP is a defined benefit scheme funded jointly by many employers. The administrator of the pension plan has not presented calculations that allocate the pension assets or liabilities in the plans to the individual member enterprises. Gjensidige therefore recognises the plan as a defined contribution plan. If the administrator of the AFP plan presents such allocation figures, this could result in the plan being recognised as a defined benefit plan. It is difficult, however, to arrive at an allocation key that is acceptable to Gjensidige. An allocation key based on the Gjensidige’s share of total annual pay will not be acceptable since such a key is too simple and will not adequately reflect the financial liabilities.
Interest cost 59.8 15.1 75.0 55.6 13.3 68.8 Actuarial gains and losses 146.5 62.5 209.0 (59.1) 25.0 (34.2) Benefits paid (112.9) (34.5) (147.4) (99.2) (36.7) (135.9) Employers' national insurance contributions of benefits paid (26.9) (6.3) (33.2) (0.2) (6.7) (6.9)
Amount recognised in the balance sheet Present value of the defined benefit obligation 2,102.7 610.6 2,713.3 2,057.2 562.4 2,619.6 Fair value of plan assets (2,347.0) (2,347.0) (2,213.8) (2,213.8) Net defined benefit obligation/(benefit asset) (244.2) 610.6 366.3 (156.6) 562.4 405.8
Fair value of plan assets As at 1 January 2,213.8 2,213.8 2,371.8 2,371.8 Interest income 64.5 64.5 60.9 60.9 Return beyond interest income 41.0 41.0 (116.9) (116.9) Contributions by the employer 167.5 6.3 173.9 1.5 6.7 8.2 Benefits paid (112.9) (112.9) (99.2) (99.2) Employers' national insurance contributions of benefits paid (26.9) (6.3) (33.2) (0.2) (6.7) (6.9)
Discontinued operations (4.0) (4.0) As at 31 December 2,347.0 2,347.0 2,213.8 2,213.8
The expense is recognised in the following line in the income statement Total operating expenses 25.2 26.8 52.0 25.2 26.5 51.7
Remeasurement of the net defined benefit liability/asset recognised in other comprehensive income Cumulative amount as at 1 January (2,691.7) (2,641.1) Return on plan assets 41.0 (116.9) Changes in demographic assumptions (134.4) (24.6) Changes in financial assumptions (74.6) 58.8 The effect of the asset ceiling 50.9 32.0 Other changes 6.0 Exchange rate differences 0.1 Cumulative amount as at 31 December (2,802.9) (2,691.7)
Amortisation and impairment losses As at 1 January 2018 (263.2) (1,054.7) (898.3) (494.5) (2,710.6) Amortisation continuing operations (128.7) (231.0) (148.2) (507.8) Disposals/reclassifications 164.6 9.9 174.5 Exchange differences (0.5) (7.4) (1.8) (5.1) (14.8) As at 31 December 2018 (263.7) (1,190.8) (966.4) (637.9) (3,058.7)
Amortisation and impairment losses As at 1 January 2019 (263.7) (1,190.8) (966.4) (637.9) (3,058.7) Amortisation (155.1) (290.3) (101.6) (547.1) Disposals/reclassifications 493.1 57.6 584.6 Exchange differences 1.5 7.0 2.4 7.0 17.9 As at 31 December 2019 (262.2) (1,305.1) (761.2) (674.9) (3,003.3)
The Group’s intangible assets are either acquired or internally developed. Goodwill, customer relationships, trademarks and parts of other intangible assets are all acquired through business combinations and are a result of a purchase price allocation of initial cost of the acquisition. Software is developed for use in the insurance business.
Impairment testing goodwill The carrying amount of goodwill in the Group as at 31 December 2019 is NOK 3,554.6 million.
Recoverable amount for the cash-generating units is determined based on an assessment of the value in use. The value in use is based on a discounting of future cash flows, with a relevant discount rate that takes into account maturity and risk.
Budgets/prognoses and the period for which the cash flows are projected The projection of cash flows is based on budget and forecast for the next five years reviewed by the management and approved by the Board of Directors. The growth in this 5-year period is higher than the long-term growth expectancy. In the period after 2023 a lower annual growth has been used than in the budget period to arrive at a normal level before a terminal value is calculated. The terminal value is calculated in 2028. Gjensidige normally has a ten-year horizon on its models, as the acquired companies are in a growth phase and a shorter period will give a less correct view of expected cash flows. The long-term growth rate beyond the board approved plan, is no higher than the longterm growth in the market for the respective cash generating units.
Level of combined ratio (CR) The expected CR level is both in the growth period and when estimating the terminal value considered to be from 89.0 to 93.0.
Gjensidige Forsikring, Danish branch 84.4-90.0% 90.0% Nykredit portfolio 85.0-89.0% 89.0% Mølholm portfolio 92,3-94,1 % 93,0 % Gjensidige Forsikring, Swedish branch 91.0-97.4 % 91.0 %
Growth rate in terminal value calculation The growth rate is determined to 2.5 per cent in Scandinavia and 3.0 per cent in Baltics. This is the same growth as in 2018.
Discount rate The discount rate is before tax, and is composed of a risk-free interest rate, a risk premium and a market beta. As a rate specific to the asset is not directly available in the market, a rate with similar characteristics is used to estimate the discount rate. To determine the discount rate, we use the capital value model. The risk-free rate is equivalent to a ten-year interest rate on government bonds in the respective countries where the subsidiaries and branches operate in and in addition a risk premium is added. The risk premium varies so that the discount rate is 6.5 per cent for all companies. This corresponds to the discount rate of the group and is reduced from 7,5 per cent in 2018. The group’s discount rate represents the group’s assumption of risk and is the same independent of country. Country-risk has been adjusted directly in the cash flow of all units.
Sensitivity analysis to key assumptions The excess values related to the acquisitions are based on different key assumptions. If these assumptions change significantly from expected in the impairment models, a need for impairment may arise. See table.
Gjensidige Forsikring, Danish branch Need for impairment app. NOK 408 million
Gjensidige Forsikring Group 12. Owner-occupied and right-of-use property, plant and equipment
Depreciation and impairment losses As at 1 January 2018 (0.4) (316.1) (316.5) Depreciation continuing operations (0.2) (51.8) (52.0) Disposals 0.1 23.0 23.2 Exchange differences (0.2) (0.2) As at 31 December 2018 (0.5) (345.1) (345.6)
Carrying amount As at 1 January 2018 31.8 258.4 290.1 As at 31 December 2018 31.7 220.1 251.9
Summary of the lease liability in the financial statements At initial application 1 January 2019 1,304.5 Change in lease liability 33.3 New lease liabilities recognized in the year (47.7) Paid instalment (Cash flow) (161.6) Paid interest (Cash flow) (32.2) Accrued interest (Profit and loss) 32.2 Exchange rate differences (Other comprehensive income) (3.5) As at 31 December 2019 1,125.1
Expenses related to short-term contracts (including short-term low value contracts) 2.6
Expenses related to low value contracts (excluding short-term low value contracts) 0.9
Undiscounted lease liability and maturity of cash flows Less than 1 year 195.9 1-2 years 188.3 2-3 years 172.6 3-4 years 153.113 4-5 years 126.419 More than 5 years 397.379 Total undiscounted lease liability as at 31 December 2019 1233.719
The following financial assets are classified as level one in the valuation hierarchy: • Listed shares • Norwegian government/government backed bonds and other fixed income securities • Exchange traded funds (ETF)
Valuation based on non-observable market data When neither quoted prices in active markets nor observable market data is available, the fair value of financial assets/liabilities is estimated based on valuation techniques which are based on non-observable market data.
The following financial assets are classified as level three in the valuation hierarchy: • Unlisted private equity investments. The private equity investments that are not organized as funds are valued using cash flow analysis, price multiples and recent market transactions. The private equity investments that are organized as funds are valued based on NAV (Net Asset Value) as reported by the fund administrators in accordance with IPEV guidelines (International Private Equity and Venture Capital Valuation. Because of late reporting from the funds, the NAV from the previous quarterly reporting is used in estimating fair value. The NAV is then assessed for discretionary adjustments based on objective events since the last reporting date. Objective events may be the development in underlying values of listed companies since the last reporting, changes in regulations or substantial market movements.
Financial assets at fair value through profit or loss, designated upon initial recognition Shares and similar interests 14 6,551.6 6,551.6 5,134.9 5,134.9 Bonds and other fixed income securities 30,992.4 30,992.4 26,374.8 26,374.8 Shares and similar interests in life insurance with investment options 25,792.8 25,792.8 20,627.2 20,627.2 Bonds and other fixed income securities in life insurance with investment options 4,196.5 4,196.5 3,282.3 3,282.3
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 15 19,951.8 20,598.9 20,303.7 21,176.9 Loans 2,410.8 2,410.8 2,687.3 2,687.3 Receivables related to direct operations and reinsurance 7,097.6 7,097.6 6,784.7 6,784.7 Other receivables 15 1,192.0 1,192.0 1,081.7 1,081.7 Cash and cash equivalents 2,419.5 2,419.5 2,363.3 2,363.3
Financial liabilities at fair value through profit or loss, designated upon initial recognition Interest-bearing liabilities at fair value through profit or loss Debt in life insurance with investment options 29,989.4 29,989.4 23,909.5 23,909.5
Financial liabilities at amortised cost Subordinated debt 18 1,498.4 1,505.9 1,498.0 1,487.5 Other financial liabilities 19 2,735.4 2,735.4 2,838.4 2,838.4 Liabilities related to direct insurance and reinsurance 709.4 709.4 1,174.5 1,174.5
Financial liabilities at amortised cost Subordinated debt 1,505.9 1,505.9 1 Investments in funds have been reclassified from level 1 to level 2 in the valuation hierarchy in 2019
Financial assets at fair value through profit or loss, designated upon initial recognition Shares and similar interests 122.0 3,653.8 1,359.1 5,134.9 Bonds and other fixed income securities 13,193.2 12,402.9 778.7 26,374.8 Shares and similar interests in life insurance with investment options 20,610.0 17.3 20,627.2 Bonds and other fixed income securities in life insurance with investment options 3,268.1 14.1 3,282.3
Financial assets at amortised cost Bonds held to maturity 255.7 136.8 392.5 Bonds and other fixed income securities classified as loans and receivables 21,173.0 3.8 21,176.9 Loans 2,687.3 2,687.3
Shares and similar interests 1,359.1 (41.9) 178.5 (189.4) 1,306.3 (42.8) Bonds and other fixed income securities 778.7 89.2 (155.4) (3.9) 708.6 Loans at fair value (1.7) 3.8 2.2 Total 2,137.8 47.3 178.5 (346.5) 3.8 (3.9) 2,017.1 (42.8)
Shares and similar interests 2,211.8 96.6 126.4 (164.1) (911.7) 1,359.1 70.1 Bonds and other fixed income securities 904.3 60.7 (187.6) 1.3 778.7 0.0 Total 3,116.2 157.4 126.4 (351.7) (911.7) 1.3 2,137.8 70.1
Gjensidige Forsikring Group 14. Shares and similar interests NOK millions Organisation number Type of fund 31.12.2019
Gjensidige Forsikring ASA Norwegian financial shares and primary capital certificates SpareBank 1 BV 944 521 836 9.8 SpareBank 1 Østlandet 920 426 530 8.5 SpareBank 1 Ringerike Hadeland 937 889 275 7.8 Sparebanken Vest 832 554 332 5.7 SpareBank 1 SMN 937 901 003 4.5 DNB ASA 981 276 957 1.6 Sogn Sparebank 837 897 912 0.5 Total Norwegian financial shares and primary capital certificates 38.4
Other shares SOS International A/S 55.7 Sector Asset Management AS 887 139 342 15.9 Bonheur ASA 830 357 432 10.9 Aker ASA 886 581 432 7.6 Norsk Hydro ASA 914 778 271 7.5 Entra ASA 999 296 432 7.3 Scalepoint Technologies Limited 7.1 Helgeland Invest AS 939 150 234 6.7 Paydrive AB 6.1 Equinor ASA 923 609 016 4.8 Lerøy Seafood Group ASA 975 350 940 4.7 Drilling Company of 1972 4.7 Yara International ASA 986 228 608 4.2 Nordic Credit Rating AS 917 685 991 3.7 Tun Media AS 982 519 985 3.7 Kongsberg Gruppen ASA 943 753 709 2.7 Svenska Handelsbanken AB 2.7 Quantafuel AS 915 119 484 2.6 Midvest I A 991 773 754 2.5 Nordea Bank Abp 2.5 Wallenius Wilhelmsen ASA 995 216 604 2.3 Scatec Solar ASA 990 918 546 2.3 Norinnova AS 957 915 035 2.1 Other shares 15.4 Total other shares 185.4
Shares and similar interests owned by branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 6.6 Total shares and similar interests owned by branches 6.6
Total shares and similar interests owned by Gjensidige Forsikring ASA 6,545.3
Other receivables Receivables in relation with asset management 918.6 803.4 Other receivables and assets 273.4 278.3 Total other receivables 1,192.0 1,081.7
Claims and claims handling costs Claims reported and claims handling costs 13,835.4 (374.6) 13,460.8 14,136.9 (781.3) 13,355.5 Claims incurred, but not reported 15,520.4 (163.8) 15,356.6 17,185.8 (1.1) 17,184.7 Total as at 1 January 29,355.8 (538.4) 28,817.4 31,322.7 (782.4) 30,540.2
Increase in liabilities Arising from current year claims 21,429.8 (306.3) 21,123.6 21,301.5 (302.5) 20,999.0 - of this paid (13,975.2) 225.2 (13,750.0) (12,170.1) (70.8) (12,241.0) Arising from prior year claims (run-off) (1,252.1) (111.1) (1,363.2) (2,338.9) (18.0) (2,356.9) Other changes, including effects from discounting 231.4 231.4 13.5 13.5 Transfer of pension savings 2 (2,143.7) (20.3) (2,164.0) (1,266.8) (22.2) (1,288.9) Exchange differences (110.0) 16.2 (93.9) (20.4) 22.6 2.2 Total as at 31 December 28,164.9 (615.5) 27,549.4 29,355.8 (538.4) 28,817.4
Provisions for unearned premiums in general insurance As at 1 January 10,051.0 (42.4) 10,008.6 9,961.4 (45.0) 9,916.5 Increase in the period 25,858.1 (596.8) 25,261.3 24,877.7 (724.1) 24,153.6 Release in the period (25,371.9) 721.5 (24,650.4) (24,779.3) 726.5 (24,052.8) Exchange differences (38.1) (37.1) (75.2) (8.7) 0.1 (8.6) Total as at 31 December 10,499.1 45.2 10,544.3 10,051.0 (42.4) 10,008.6 1 For own account. 2 According to new Norwegian Financial Reporting Regulations for Life Insurance Companies, claims provision is reclassified to premium reserve.
Other paid-in capital Other paid in equity consists of wage costs that are recognised in profit and loss as a result of the share purchase program for employees.
Exchange differences Exchange differences consist of exchange differences that occur when converting foreign subsidiaries and branches, and when converting liabilities that hedge the company’s net investment in foreign subsidiaries and branches.
Natural perils capital All insurance companies that take out fire insurance in Norway are obliged under Norwegian law to be a member of the Norwegian Natural Perils Pool. Objects in Norway and Svalbard that are insured against fire damage are also insured against natural damage, if the damage to the thing in question is not covered by other insurance. Natural peril is defined as claim in direct relation to natural hazard, such as landslide, storm, flood, storm surge, earthquake or eruption. It is the individual insurance company that is the insurer, ie issues insurance certificates, settles and has direct contact with the customers. The Natural Perils Pool administers the equalization between the companies. Natural perils capital is capital that can only be used to cover claims for natural damage, but which in an insolvent situation can also be used to cover other obligations.
NOK millions 2019 2018 As at 31 December NOK 7.25 kroner (7.10) based on profit for the year 1 3,625.0 3,550.0
Principal, NOK millions 1,000 Currency NOK Issue date 8.9.2016 Maturity date Perpetual First call date 8.9.2021 Interest rate NIBOR 3M + 3.60%
Restructuring costs 1 Provisions as at 1 January 128.3 117.0 New provisions 13.8 91.2 Reversal of provisions 0.0 (4.4) Provisions used during the year (67.6) (74.4) Exchange rate differences (0.1) (1.1) Provision as at 31 December 74.4 128.3 1 In 2019, NOK 13.8 million is allocated to restructuring provision, due to a decision of changes in Denmark and Baltic. The processes have been communicated to all entities affected by the changes. 2 Other provisions are various bonus schemes.
Non-interest-bearing receivables and liabilities 7.1 56.7 339.6 101.9 Interest-bearing receivables and liabilities 2,401.4 2,513.1 Reinsurance deposits, premiums and claims provision 86.7 1,094.7 1,164.6
Total balances 2,519.5 176.0 4,058.4 1,291.8 2 Gjensidige Forsikring ASA is a sponsor of Gjensidige Pensjonskasse and has contributed with funds equivalent to NOK 111.0 million.
Guarantees and committed capital Committed capital, not paid 590.5 702.2 Credit facility Oslo Areal 1,598.6 1,486.9
Gjensidige Forsikring has granted a loan to Oslo Areal amounting to NOK 2.4 billion (2.5) at year end. The loan is interest-bearing and total loan limit is NOK 4.0 billion. Gjensidige Forsikring is liable externally for any insurance claim arising in the cooperating mutual fire insurers' fire insurance operations. According to the agreement with Gjensidige Pensjonskasse the return, if not sufficient to cover the pension plans guaranteed interest rate, should be covered from the premium fund or through contribution from Gjensidige Forsikring.
Fair value measurement The fair value of the shares allocated through the share-based payment for executive personnel and the cash to cover the tax obligations is calculated on the basis of the share price at grant date. The amount is recognised immediately. Fair value of the bonus shares allocated through the share savings program is calculated on the basis of the share price at grant date, taking into account the likelihood of the employee still being employed after two years and that he/she has not sold his/her shares during the same two-year period. The amount is recognised during the vesting period which is two years.
Profit/(loss) for the year for continuing and discontinued operations 6,593.7 3,717.6 Profit/(loss) for the year for continuing operations 6,556.1 3,382.7
Weighted average number of shares 1 499,983,151 499,978,103 Weighted average number of diluted shares share-based payment 110,456 119,756 Weighted average number of shares, diluted 1 500,093,607 500,097,859
25. Discontinued operations On 2 July 2018 Gjensidige Forsikring ASA entered into a share purchase agreement with Nordea for the sale of Gjensidige Bank ASA. The agreed purchase price was NOK 5.6 billion, subject to certain adjustments based on the performance of the bank until closing of the transaction. Closing of the transaction took place 1 March 2019. Gjensidige Forsikring Group recorded a gain of approximately NOK 1.6 billion upon closing of the transaction while Gjensidige Forsikring ASA recorded a gain of approximately NOK 3.1 billion.
Earnings per share from discontinued operations, NOK (basic and diluted) 0.08 0.67
Financial position Cash and claims from central banks 53.9 Net loans and receivables to credit institutions 422.6 Net loans and receivables to customers 51,253.0 Sertificates, bonds etc. 5,746.7 Other assets 422.5 Total assets 57,898.8
Premiums etc. Earned premiums, gross 4 24,236.4 23,105.9 Ceded reinsurance premiums (712.9) (715.9) Total earned premiums, net of reinsurance 23,523.5 22,389.9
Insurance-related operating expenses Insurance-related administration expenses incl. commissions for received reinsurance and sales expenses 7 (3,544.5) (3,558.6)
Other comprehensive income Other comprehensive income that are not reclassified to profit or loss Changes in estimates related to defined benefit plans 10 (116.4) (49.4) Tax on other comprehensive income that are not reclassified to profit or loss 9 29.1 12.3 Total other comprehensive income that are not reclassified to profit or loss (87.3) (37.0)
Investments Buildings and other real estate Owner-occupied property 12 28.5 28.5 Right-of-use property 12 966.7 Subsidiaries and associates Shares in subsidiaries 5 2,063.8 3,832.7 Shares in subsidiaries, held for sale 5 2,461.5 Shares in associates and joint ventures 5 1,086.9 1,086.9 Interest-bearing receivables on subsidiaries and joint ventures 13, 20 2,401.4 2,513.1 Financial assets measured at amortised cost Bonds held to maturity 13 105.8 Loans and receivables 13, 15 14,714.8 15,471.3 Financial assets measured at fair value Shares and similar interests (incl. shares and similar interests measured at cost) 13, 14 6,545.3 5,061.4 Bonds and other fixed-income securities 13 28,446.3 22,152.3 Subordinated loans 13 2.2 44.3 Financial derivatives 13 934.1 577.9 Other investments 13 111.0 111.0 Reinsurance deposits 1,094.7 Total investments 57,301.0 54,541.4
Prepaid expenses and earned, not received income Other prepaid expenses and earned, not received income 37.7 46.2 Total prepaid expenses and earned, not received income 37.7 46.2
Liabilities Liabilities related to direct insurance 13 380.9 381.5 Liabilities related to reinsurance 13 46.1 40.9 Financial derivatives 13 641.0 869.9 Accrued dividend 6,125.0 3,550.0 Other liabilities 12, 13, 19 3,711.2 2,766.0 Liabilities to subsidiaries and associates 13, 20 56.7 104.9 Total liabilities 10,960.9 7,713.3
Accrued expenses and deferred income Other accrued expenses and deferred income 13, 19 354.2 332.3 Total accrued expenses and deferred income 354.2 332.3
Comprehensive income Profit/(loss) before components of other comprehensive income 35.0 2,999.5 3,034.5
Total other comprehensive income 0.1 2.4 (37.0) (34.5) Comprehensive income 0.1 35.0 2.4 (37.0) 2,999.5 3,000.0
Transactions with the owners of the company Own shares (0.0) (10.9) (11.0) Accrued and paid dividend (3,549.9) (3,549.9) Equity-settled share-based payment transactions 7.6 7.6 Perpetual Tier 1 capital 0.6 (0.6) Perpetual Tier 1 capital - interest paid (34.9) (34.9)
Transactions with the owners of the company Own shares 0.0 (9.2) (9.2) Accrued and paid dividend (6,124.9) (6,124.9) Equity-settled share-based payment transactions 9.2 9.2 Perpetual Tier 1 capital 0.6 (0.6) Perpetual Tier 1 capital - interest paid (50.1) (50.1)
Cash flow from operating activities Premiums paid, net of reinsurance 24,472.9 23,228.8 Claims paid, net of reinsurance (18,080.4) (17,918.9) Net receipts/payments from financial assets (3,708.6) 2,935.6 Operating expenses paid, including commissions (3,180.4) (2,988.5) Taxes paid (711.3) (1,099.7) Net cash flow from operating activities (1,207.8) 4,157.3
Cash flow from investing activities Net receipts/payments from sale/acquisition of subsidiaries, associates and joint ventures 5,576.1 (28.4) Net receipts/payments on sale/acquisition of owner-occupied property, plant and equipment and intangible assets (397.1) (325.7)
Cash and cash equivalents at the start of the year 1,656.4 1,625.0 Adjustment to cash and cash equivalents at the start of the year due to merger 100.5 Cash and cash equivalents at the end of the year ¹ 1,796.1 1,656.4 Net cash flow 39.2 31.4
Basis of preparation Statement of compliance The financial statements have been prepared in accordance with the Norwegian Accounting Act and Norwegian Financial Reporting Regulations for Non-Life Insurance Companies (FOR2015 -12-18-1775). The Norwegian Financial Reporting Regulations for Insurance Companies is to a great extent based on IFRSs endorsed by EU, and interpretations.
Impairment provisions according to IFRS 9 shall be measured using an expected loss model, instead of an incurred loss model as in IAS 39. The impairment rules in IFRS 9 will be applicable to all financial assets measured at amortised cost and interest rate instruments at fair value through other comprehensive income. In addition, loan commitments, financial guarantee contracts and lease receivables are within the scope of the standard. The measurement of the provision for expected credit losses on financial assets depends on whether the credit risk has increased significantly since initial recognition. At initial recognition and if the credit risk has not increased significantly, the provision shall equal 12-month expected credit losses. If the credit risk has increased significantly, the provision shall equal lifetime expected credit losses. This dual approach replaces today’s collective impairment model.
Gjensidige is an insurance company and has therefore decided to make use of this exception.
Insurance revenue, insurance service expenses and insurance finance income of expenses will be presented separately in the income statement. The standard will have an effect on the group’s financial statements, significantly changing the measurement and presentation of income and expenses. Calculations are carried out to determine the effects this will have on the financial statements.
Insurance-related operating expenses Insurance-related operating expenses consist of insurancerelated administration expenses including commissions for received reinsurance and sales expenses, less received commissions for ceded reinsurance and profit share.
Net income from investments Financial income consists of interest income on financial investments, dividend received, realised gains related to financial assets, change in fair value of financial assets at fair value through profit or loss, and gains on financial derivatives. Interest income on interest rate instruments is recognised in profit or loss using the effective interest method.
capitalized only if future economic benefits associated with the asset are probable and the cost of the asset can be measured reliably.
Claims provisions contain an element that is to cover administrative expenses incurred in settling claims.
At fair value through profit or loss Financial assets and liabilities are classified at fair value through profit or loss if they are held for trading or are designated as
such upon initial recognition. All financial assets and liabilities can be designated at fair value through profit or loss if
Deferred tax liabilities are recognised for temporary differences resulting from investments in subsidiaries and associates, except in cases where Gjensidige is able to control the reversal of temporary differences, and it is probable that the temporary difference will not be reversed in foreseeable future. Deferred tax assets that arise from deductible temporary differences for such investments are only recognised to the extent that it is probable
The provider of intra-group services, that are not considered core activities, will as a main rule, allocate its incurred net costs (all costs included) based on a Cos Plus method, which includes direct and indirect costs, as well as a mark-up for profit.
Transactions with affiliated companies The Fire Mutuals operate as agents on behalf of Gjensidige Forsikring. For these services commission is paid. The Fire Mutuals are also independent insurance companies with fire and natural damage on their own account. Gjensidige provides various services to support this insurance business. For these services and to reinsure the Fire Mutuals’ fire insurance, Gjensidige receives payment based on arm’s length distance.
Since Gjensidige Bank represented a separate and significant business in Gjensidige, Gjensidige Bank was presented as a discontinued operation. See note 25 in the group’s financial statement for further information.
3. Risk and capital management For information about insurance and financial risk please refer to note 3 in the consolidated financial statements that cover both Gjensidige Forsikring ASA and Gjensidige Forsikring Group.
Gross - accepted non-proportional reinsurance Reinsurers' share (0.4) (0.4) (9.4) (703.0) (0.4) Net 1,078.5 1,267.2 885.0 2,663.2 4,855.5 296.3 8,063.7 832.8 1,129.9 1,283.0 1,486.9
Gross - accepted non-proportional reinsurance Reinsurers' share (0.4) (0.4) (9.0) (699.2) (0.4) Net 1,062.2 1,247.7 875.6 2,694.9 4,666.0 295.0 7,898.4 794.1 1,105.1 1,268.4 1,471.9
Claims incurred Gross - direct business and accepted proportional reinsurance (816.0) (710.0) (536.0) (995.0) (3,540.0) (283.0) (6,133.0) (550.0) (796.0) (1,062.0) (1,134.0)
Gross claims incurred (816.0) (710.0) (536.0) (995.0) (3,540.0) (283.0) (6,133.0) (550.0) (796.0) (1,062.0) (1,134.0) Incurred during the year (829.7) (890.3) (688.9) (1,786.5) (3,498.7) (283.2) (6,203.6) (557.5) (795.6) (1,153.0) (1,094.3) Incurred previous years 13.3 179.8 153.2 791.2 (41.7) (0.2) 70.1 7.2 (0.2) 91.4 (39.9)
Provision for unearned premiums, gross 320.0 471.0 241.0 1,168.0 2,416.0 39.0 3,934.0 282.0 471.0 325.0 336.0
Premiums earned Gross - direct business and accepted proportional reinsurance 24,088.5 Gross – accepted non-proportional reinsurance 4.1 16.5 1.6 125.7 148.0 Reinsurers' share (3.5) (712.9) Net 4.1 16.5 1.6 122.3 23,523.5
Claims incurred Gross - direct business and accepted proportional reinsurance (16,557.2) Gross – accepted non-proportional reinsurance (20.3) (14.4) (1.2) (69.4) (105.3) Reinsurers' share 1.6 2.6 412.6 Net (20.3) (12.8) (1.2) (66.8) (16,249.9)
Breakdown of revenue by geographical area Gross premium written direct business 17,986.3 1,512.5 5,986.1 5. Shares in subsidiaries and joint ventures
Försäkringshuset Amb & Rosèn AB Stockholm, Sweden 100% 7.4 4.4 7.4 7.4
Shares in subsidiaries, held for sale (see note 25 in Gjensidige Forsikring Group's financial statement) Gjensidige Bank ASA Oslo, Norway 100% 2,461.5 2,461.5
Subsidiaries, held for sale - additional information Gjensidige Bank ASA (group) 57,898.8 4,384.4 53,514.4 1,744.6 334.9
Gjensidige and Oslo AMF Pensionsforsäkring (AMF) owns Oslo Areal AS as a joint venture (50/50), as each party has rights to its share of the net assets of the arrangement. The parties will make joint investments in the Norwegian real estate market through Oslo Areal. The investment is recognised at cost of NOK
Net income and gains/(losses) from financial assets at fair value through profit or loss, designated upon initial recognition Shares and similar interests Dividend income 6.7 5.1 Unrealised gains/(losses) from shares and similar interests 656.5 (323.9) Net realised gains/(losses) from shares and similar interests 284.0 431.5 Total net income and gains/(losses) from shares and similar interests 947.2 112.7
Derivatives Net interest income/(expenses) from derivatives 30.6 35.2 Unrealised gains/(losses) from derivatives 506.2 (312.3) Net realised gains/(losses) from derivatives (854.1) (251.6) Total net income and gains/(losses) from derivatives (317.2) (528.7)
Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 0.5 24.3 Total net income and gains/(losses) from bonds held to maturity 0.5 24.3
Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 606.3 703.1 Net gains/(losses) from loans and receivables 228.3 (3.4) Net gains/(losses) from changes in exchange rates on loans and receivables 5.6 0.8 Total net income and gains/(losses) from loans and receivables 840.2 700.4
Auditor's fee (incl. VAT) Statutory audit 3.5 2.4 Other assurance services 0.1 0.0 Other non-assurance services 0.7 0.9 Tax consultant services 0.6 0.2 Total auditor's fee (incl. VAT) 4.9 3.4 1 Other expenses include cost reductions for Gjensidige Forsikring ASA regarding duties performed for subsidiaries and cost allocations to claims and finance.
8. Salaries and remuneration The average number of employees in the company was 2,890 (2,839).
Variable remuneration relating to Gjensidige’s performance is decided on the basis of the past two years’ performance. Half of the variable remuneration is paid in the form of a promise of shares in Gjensidige Forsikring ASA, 1/3 of which will be released in each of the following three years. Restricted variable remuneration that has not yet been disbursed may be reduced if subsequent results and developments indicate that it was based on incorrect assumptions. The CEO does not receive performance-based benefits over and above the abovementioned bonus but may receive payments in kind such as a company car and the coverage of costs for electronic communication. Payments in kind shall be related to the CEO’s function in the Group, and otherwise be in line with market practice.
None of the executive personnel with supervisory tasks currently has variable bonus schemes. The fixed salary is based on the Group’s general principles of competitively, but not leading wages.
Mats C. Gottschalk, Executive Vice President 5 4,589.0 921.5 159.7 478.8 643.4 2,739 3,372 5,893 18,117 3
Jostein Amdal, Executive Vice President 3,537.2 557.7 169.7 650.1 566.5 3,182 1,185 5,180 15,935 Janne Merethe Flessum, Executive Vice President 2,530.2 399.7 169.6 279.6 401.0 1,868 95 1,969 4,349 Aysegul Cin, Executive Vice President 5 2,524.9 560.1 151.5 185.3 360.1 707 707 1,489 Lars Gøran Bjerklund, Executive Vice President 2,756.7 435.3 277.7 274.0 421.0 847 847
The senior group management Helge Leiro Baastad, CEO 5,197.2 1,016.1 169.9 1,577.0 1,015.3 6,768 9,021 15,363 55,300 2