The Board of Gjensidige Forsikring ASA determined the Annual Accounts and the Board’s Report for 2013 in a board meeting Wednesday 12 March 2014. The Annual Accounts were determined without changes to the preliminary Annual Accounts published on 5 February 2014.
Gjensidige’s object is to create value for society through safeguarding life, health and assets and by relieving customers of risk. Gjensidige shall ensure that the Group’s experience and expertise in the prevention of loss benefits society at large. Ethical, social and environmental considerations are integrated in day-to-day operations and in relations with the Group’s stakeholders
Selected quantitative goals have been adopted for socially responsible operations in relation to owners, customers, employees and the environment. The goals and goal achievement are presented in table on page 29.
Most insurance policies are designed to motivate the customer to avoid losses, both through incentives to reduce risk and through the customer having to carry some of the financial risk if something happens.
The price customers pay for their insurance is normally strongly affected by the financial risk the customer represents. The customers will often be able to influence this through their choice of house, car and other assets. The customer’s behaviour and claims history will also affect the premium. We reward a number of security measures by giving a discount on the insurance premium. Examples of measures that trigger a discount are burglar alarms, inspections of electrical systems in buildings, the installation of equipment that reduces the risk of water damage in buildings, and tracking systems for cars.
Young drivers are especially at risk of being involved in accidents. Gjensidige therefore has several measures targeting this group in particular. In Norway, young drivers get a discount on their insurance policy if they have practised driving with an accompanying driver to a sufficient extent. When they reach the age of 23, customers who have driven claim-free for the past year or longer will be paid an amount by Gjensidige as a reward. The longer the claim-free period, the bigger the reward.
Through our operations, we have acquired considerable expertise in loss prevention. This knowledge shall as far as possible be used for the benefit of the society at large.
In 2013, we collaborated with the Norwegian Council for Road Safety on a public awareness project targeting apprentices. We supported participation in the ‘65+’ refresher course for elderly drivers, and we participated in the transport debate and called for investments in safe roads to be given higher priority. We advocated giving the financial industry an opportunity to part-finance road projects, in order to contribute to projects being carried out sooner and more efficiently. We also collaborate with other insurance companies on road safety through the industry organisation Finance Norway.
Together with the Norwegian Fire Protection Association, the Directorate for Civil Protection and Emergency Planning (DSB) and local fire brigades, we organised the ‘Aksjon Boligbrann’ fire prevention campaign, which involved visiting 40,000 homes in autumn 2013. A collaborative project with the City of Oslo and the Oslo Fire and Rescue Department targeting elderly people living at home was con22 I Gjensidige Annual Report 2013
Last year, as in previous years, Gjensidige was represented on a number of councils, committees and boards that work on fire prevention.
In 2013, Gjensidige contributed to 1,050 stories in newspapers, radio and TV all over Norway, focusing on loss prevention.
In Denmark, Gjensidige supports the organisation PRIMO Danmark, which promotes work on risk management among managers of municipal and public agencies. We also support the association Danske Risikorådgivere (‘Danish risk advisers’), and every year, we award the title ‘Risk Manager of the Year’ to a municipality that has achieved good results in loss prevention. Gjensidige has contributed to establishing the network Den Trygge Kommune/The Safe Local Community, which promotes increased safety in residential areas, local communities and municipalities.
Respecting human rights Our operational activities consist of insurance operations in Scandinavia and the Baltic states, and banking and pension and savings operations in Norway. Our banking operations only target customers in the private market.
We manage substantial assets both for our own account and on behalf of our customers. As a result, we invest in shares and other securities. Our investment portfolio shall comply with internationally recognised guidelines for socially responsible investments (SRI).
When investing in discretionary portfolios (portfolios where we invest in individual securities ourselves ), we will not invest in companies that violate the ethical criteria.
When investing in funds managed by others and where Gjensidige does not decide the framework conditions, Gjensidige shall endeavour to ensure that Gjensidige’s criteria are complied with. This is followed up through quarterly reviews of the SRI follow-up and through contact with advisers about specific concerns.
All employees shall have equal opportunities for development, irrespective of gender, ethnicity or other distinguishing characteristics.
The Group had a total of 3,377 employees at the end of 2013, 53 per cent men and 47 per cent women.
Each employee decides whether he or she wishes to be a member of a trade union. The cooperation between the Company’s management and the employees’ trade unions is systematic and good, and it is based on a well-established structure with regular meetings of various committees. Rules have been adopted for what processes and decisions employee representatives shall be involved in. Employee representatives are paid by the Company.
The Group’s Board had ten members in 2013, four of whom are women. Of the seven representatives who were not elected by and from among the employees, three are women.
The Senior Group Management was unchanged in 2013 and consisted of three women and seven men.
Through these programmes, the participants practise conduct that supports our vision and brand, and the school is therefore an important tool in the development of our corporate culture. Together with a strong, systematic focus on management development, the Gjensidige Customer and Brand School contributes to strengthening Gjensidige’s reputation as an attractive employer.
These efforts are having a positive effect on work quality and work effort, internal motivation and job satisfaction. In addition, several in-house surveys have been carried out that show a clear connection between sales training, customer satisfaction, sales and a reduction in the loss of customers.
The Gjensidige Customer and Brand School had 8,903 course days in 2013, compared with 6,200 in 2012. The number of exams passed by sales personnel, managers and claims handlers in Norway, Sweden and Denmark was 504. Almost 1,300 employees participated in courses organised by the Gjensidige Customer and Brand School in 2013.
Active development and training are an important part of employees’ day-to-day work, and time is devoted to this on a regular basis. Gjensidige’s staff also participate in external courses and training programmes.
E-learning has been an important part of Gjensidige’s strategy for customer-oriented training since 1991, and it also helps with the implementation of new work processes and improvement processes, the use of new ICT solutions etc. A strong focus on e-learning in the time ahead will be an important element if Gjensidige is to achieve its ambitious competence-raising goals. In 2013, the staff have completed and passed 9,500 e-learning courses, divided between 94 titles.
Customised management development programmes have been developed for groups of managers with different experience backgrounds, from newly employed managers to the senior management group. In addition to the individual programmes, programmes have been created with a view to developing management teams, change expertise and communication skills.
In 2013, Gjensidige and the supplier Aditro developed a new system for reporting sickness absence – Nordic Reporting. From 2014, this system will mean that we have a uniform, quality-assured system for reporting absence in Norway, Sweden and Denmark. The system will also be a good tool for the prevention and follow-up of absence.
In 2013, the Gjensidige Customer and Brand School took over responsibility for the statutory training in the Working Environment Act and HSE for all managers with personnel responsibility. All new managers in Norway are now automatically called on to take these courses, which are organised together with Stamina Helse. The arrangement will be expanded to also cover Denmark and Sweden.
Three separate ‘Pandora’ projects were implemented in 2013. They are sickness presence projects at the individual level: two in the Private division and one in Claims/ICT. These projects have produced excellent results in relation to the sickness presence factor in these areas, and we will look into the possibility of continuing this type of project in 2014.
No work accidents that have caused personal injuries or material damage occurred in 2013.
In Norway, Denmark and Sweden, Gjensidige cooperates closely with the corporate health service, and with NAV in Norway, in relevant areas. The systematic HSE work includes annual safety rounds, risk assessments of the HSE work and internal HSE audits. Working environment issues are also a topic in the annual employee satisfaction survey.
Efforts are made to ensure that all employees in the whole Group are given equal opportunities for personal and professional development, and that everyone is treated equally regardless of gender, age, ethnic origin and functional ability. Recruitment and HSE procedures ensure compli-
Pay statistics are prepared to bring to light any wage disparities on the basis of gender, age, ethnic origin or impaired functional ability for the same work or work of equivalent value. Any nonconformities will be followed up by actions.
All large office buildings are of universal design, with the exception of some offices in older buildings.
Senior policy Gjensidige has an active senior policy that aims to get as many employees as possible to work until the age of 67. The Company’s senior policy measures in Norway are adapted to changes that occur as a result of the pension reform. The measures include individual agreements to work 90 per cent on full pay between the ages of 59 and 62 for employees who need a lighter workload, one extra week ’s holiday from the age of 60 and full or partial early-retirement pension (AFP) or reduced working hours from the age of 62.
Combating corruption Gjensidige’s internal regulations state that the Com pany has zero tolerance for corruption and facilita tion payments. Giving and receiving bribes is prohibited.
The same applies to gifts that can be regarded as improper. The rules apply to managers and employees at all levels of the Company, also in countries that are not covered by Norwegian law. Special rules have been stipulated for employees with responsibility for relations with customers and suppliers.
In 2013, Gjensidige introduced new guidelines for the start-up of processes and signing of supplier agreements. From May 2013, all new agreements must be signed by an executive vice president
The Group’s environmental measures focus on energy efficiency, reduced travel through increased use of video conferences, standardised duplex printing for printers/photocopiers and responsible waste management.
Gjensidige has worked for many years to learn more about climate change and the consequences it may have. Research reports show that climate change is likely to lead to more precipitation and more precipitation-related claims. This will affect Gjensidige, our customers and society at large. We played an active part in the debate about how society can prepare for the consequences of climate change in 2013 as well.
Skills upgrading per employee 3 NOK 13,200 NOK 15,800 NOK 14,200 NOK 19,300
This statement follows from the Norwegian Accounting Act Section 3-3b and Oslo Børs’s requirement that listed companies must report on corporate governance and explain any deviations from the Norwegian Code of Practice for Corporate Governance as last amended on 21 December 2012.
Company’s corporate governance. 4. The main elements in the systems for internal control and risk management relating to financial reporting processes are described in section 10 of the statement.
5. The Company’s Articles of Association do not contain provisions that in whole or in part expand on or deviate from the provisions of the Public Limited Liability Companies Act chapter 5.
Social responsibility shall be practised in line with society’s expectations of Gjensidige’s role in society.
Traffic and fire are especially important areas in which the Company’s expertise in loss pre ven tion can help to save lives and assets. Other important 30 I Gjensidige Annual Report 2013
areas are awareness-raising campaigns aimed at combating fraud and other crime, and efforts to promote physical and mental health in the population. Our efforts in the area of social responsibility will therefore be concentrated on loss prevention in the broadest sense.
Gjensidige’s goal is to become the most customeroriented general insurance company in the Nordic region, based on profitable operations and a leading position.
Simplification and self-service solutions, in connection with sales, administration and claims settlement, shall contribute to increased customer satisfaction and increased productivity for the Company.
Gjensidige has launched a number of initiatives to improve communication with the customers, with particular focus on the possibilities offered by digital communication for communicating a more relevant and targeted message.
Efficient operations Cost-efficient operations are a precondition for a competitive and profitable insurance business. Gjensidige continues to invest in technology and in the training of its employees in order to support the goal of increased productivity both in the business areas and in staff functions.
Analysis-based customer and risk selection As far as possible, Gjensidige wishes to give customers advice on their insurance policies and offer coverage based on each customer’s individual needs and risk assessment. New distribution channels, self-service solutions and individualisation require new and more fine-meshed tariffs. Analytical pricing and customer and risk selection will be decisive for Gjensidige’s competitiveness and value proposition to both its customers and owners.
Gjensidige’s business strategy is based on the idea that sustainable value creation and competitiveness can be created through a good corporate culture with the focus on leadership and on the development of skills and expertise.
Gjensidige’s brand and reputation are of considerable value and are what makes the Company stand out in a market characterised by homogeneous products and complexity for many customers.
Dividend policy for financial year 2013 Unless the capital need indicates otherwise, the Board’s goal has been that between 50 and 80 per cent of the group profit for the year after tax expense will be distributed as dividend. In addition to paying a cash dividend, Gjensidige has considered buying back shares as a means of increasing the total shareholder return.
– Authorisation to purchase own shares in the market with a nominal value of up to NOK
In cases where the Board decides to issue new shares and the pre-emption rights are set aside on the basis of an authorisation, the grounds will be
disclosed in a stock exchange announcement in connection with the share issue.
The general meeting is conducted in accordance with the Code of Practice: – The Articles of Association stipulate that three weeks’ notice must be given. The notice of the meeting and case documents will be made available on the Group’s website www. gjensidige.no/konsern. Shareholders may nonetheless demand that the case documents be sent to them by post free of charge. The minutes will be published at www.gjensidige.no/ konsern as soon as they are available.
– In connection with elections at the general meeting, it will be possible to vote for one candidate at a time.
– The CEO, the Chairman of the Board, the Chair of the Supervisory Board and the Chair of the Nomination Committee are required to be present unless this is obviously unnecessary or they have valid grounds for not attending.
– In 2013, Gjensidige introduced a system whereby advance electronic voting is possible before the general meeting. Voting in advance can be done via the Company’s website www. gjensidige.no, and via VPS Investor Services.
7. Nomination committee Gjensidige has decided in its Articles of Association that the Company shall have a nomination committee consisting of four to six members elected by the general meeting. The Chair of the Supervisory Board is a permanent member if he or she has not already been elected by the general meeting. The chair and members of the nomination committee are elected by the general meeting every year.
The nomination committee shall contribute to the election of competent, committed officers who focus on value creation. Together, the officers of the Company shall be capable of challenging and inspiring the management in the areas in which the Company does business.
– the Supervisory Board’s election of a Chair and Deputy Chair
The nomination committee wishes to ensure that the shareholders’ views are taken into account
Rules of procedure for the nomination committee’s work have been drawn up and adopted by the general meeting. The rules of procedure are available at www.gjensidige.no/konsern.
Further information about shareholders’ right to submit proposals to the nomination committee is available at www.gjensidige.no/konsern.
Composition of the Board The Board of Gjensidige shall consist of ten members, three of whom are elected by the employees. It is required by law that the board of a financial institution is elected by its Supervisory Board. The shareholder-elected board members are elected for one year at a time. The Chairman of the Board is directly elected by the Supervisory Board. Board members elected by and from among the employees are elected for two years at time, but in such a way that at least one member is up for election every year.
Today, 43 per cent of the shareholder-elected members of the Board are women. For a more detailed presentation of the board members, see pages 47 to 67 in the annual report and the Company’s website www.gjensidige.no/konsern.
The Board’s independence No member of the Company’s general management is a member of the Board. All shareholder -elected board members are independent of executive personnel. Three of the shareholder -elected board members represent the Gjensidige Foundation. The other board members are independent of the principal shareholder. All board members are independent of important business associates.
Deviations from the Code of Practice: None 9. The work of the Board The work of the Board follows a fixed annual plan and is conducted in accordance with established rules of procedure. The rules of procedure are available at www.gjensidige.no/konsern. They set out more detailed rules for the work of the Board and how it handles matters, including what matters shall be considered by the Board, rules concerning notices of meetings and the conducting of meetings. The Board has also issued instructions for the CEO, which regulate the internal division of responsibility and tasks.
The audit committee The audit committee is a preparatory and advisory select committee that consists of board members elected by the Board. The audit committee is tasked with preparing the Board’s follow-up of the financial reporting process and improving the Board’s follow-up of the Group, among other things by contributing to thorough and independent consideration by the Board of matters relating to financial reporting. The committee shall also monitor the systems for internal control and risk management, as well as the Company’s internal audit function. The committee is also in continuous contact with the Company’s elected auditor about the auditing of the annual accounts, and it assesses and monitors the auditor’s independence, cf. the Auditors Act chapter 4. The committee shall state its opinion on the election of the auditor and the
As of 31 December 2013, the audit committee consisted of the following members: – Hans-Erik F. Andersson, chair – Per Arne Bjørge – Kjetil Kristensen – Gisele Marchand – Gunnar Mjåtvedt
As of 31 December 2013, the remuneration committee consisted of the following members: – Inge K Hansen, chair – Trond Vegard Andersen – Marit Skjærstad
The main purpose of risk management and internal control is to provide reasonable assurance of goal attainment through the following methods: • Goal-oriented, efficient and expedient operations
• Reliable internal and external reporting • Compliance with laws and regulations, and internal regulations.
The Compliance function is independent in relation to operations, and it identifies, assesses, advises on, monitors and reports on the Group’s compliance risk. Assessing compliance risk is part of the Group’s annual risk assessment process.
Group Audit is an independent, objective confirmatory and advisory function that shall contribute to the organisation achieving its goals. The manager of Group Audit is appointed and dismissed by the Board and submits reports on the Group’s risk management and internal control to the Board and the CEO at least once a year. The Board approves resources and plans for Group Audit annually. The Group Audit Director reports quarterly to the Board and the CEO on the results of the audit work. The audit work is carried out in accordance with international internal auditing standards (IIA).
As of 31 December 2013, the control committee consisted of the following members: • Sven Iver Steen, chair • Liselotte Aune Lee
Rules of procedure for the control committee’s work have been drawn up and adopted by the general meeting. The rules of procedure are available at www.gjensidige.no/konsern.
The Gjensidige Group publishes four interim reports in addition to the ordinary annual accounts. The accounts shall meet the requirements in laws and regulations and be prepared in accordance with adopted accounting principles.
Deadlines for publishing are stipulated by the Board. The tasks that are carried out in the concluding phase are set out in a schedule that specifies the person responsible and the deadline for ensuring timely reporting. The schedule is reviewed prior to each quarter to ensure that any new circumstances are identified and that the schedule continues to be expedient.
able to carry out timely closing of the accounts without there being material errors in the consolidated and company accounts. This involves fields such as IFRS, NGAAP and the Annual Accounts Regulations for Insurance Companies etc. We participate actively in various industry organisations for banks and life and general insurance companies where topical issues are discussed.
The Board’s guidelines for stipulating the remuneration of the senior group management and executive personnel meet the requirements of the Regulations relating to remuneration systems in financial institutions of 1 December 2010.
Deviations from the Code of Practice: None 13. Information and communication Gjensidige shall maintain an open dialogue with all stakeholders. Shareholders, potential investors and other financial market players shall have simultaneous access to correct, clear, relevant and supplementary information about the Group’s strategies and financial targets, financial development and financial position. The Board has adopted guidelines for the reporting of financial information and other information in the form of an IR policy. The guidelines are available at www.gjensidige.no/konsern /investorinformasjon.
Gjensidige has published all relevant ownership information about the Group at www.gjensidige. no/konsern.
This is the most important means of providing identical, simultaneous and relevant information to all parties. A financial calendar is also published on the website, containing dates for the announcement of financial information and information about the Company’s general meetings.
In connection with quarterly financial reporting, open presentations will be held for investors, analysts and other stakeholders. The presentations will also be made available at www.gjensidige.no/ konsern via webcast.
A capital market day shall be held when it is considered expedient in order to keep the market updated about the Group’s development, goals and strategies. No capital market days were held in 2013.
Guidelines have nonetheless been adopted for corporate takeovers. These guidelines ensure that all shareholders’ interests are attended to, and they contribute to equal treatment of shareholders.
In order to safeguard the shareholders’ interests, the Board shall consider whether to initiate processes that trigger competing bids in a manner that safeguards the shareholders’ interests.
Deputy Members 1. Siv Dammyr 2. Guri Mette Brådt Karlsrud 3. Sigurd Syrdal Carl-Johan Anderson (Nordic)
Control Committee Sven Iver Steen, chair Hallvard Strømme Lise Lotte Aune Lee Vigdis Myhre Næsseth (deputy member)
Representatives for the employees members of the Supervisory Board who participate in the nomination committee’s work of nominating the Chairman of the Board: Jon Aniksdal Elisabeth Katai Knudsen 44 I Gjensidige Annual Report 2013
Profitability was weaker than in 2012 as a result of a more normal weather situation throughout 2013. Earned premiums showed a solid increase from the year before, and the number of customers at the end of the year was on a par with the number at the end of 2012. The financial result was good despite a substantial impairment loss on the investment in Storebrand. The contribution to profits from the Retail Bank and from Pension and Savings increased significantly from 2012. The Board is satisfied that the Group achieved its financial targets in 2013 as well.
Operations Gjensidige Forsikring ASA (Gjensidige Forsikring) is a Nordic general insurance company with its head office in Oslo in Norway. The object of the business is to safeguard life, health and assets for customers in the private and commercial markets by offering competitive insurance products. In Norway the product offering also includes relation-building products within banking, pension and savings. Gjensidige Forsikring is the parent company of the Gjensidige Group (Gjensidige).
Gjensidige is the leading general insurance company in Norway, and it is the biggest Norwegian-owned general insurance company in the Nordic countries and the Baltic states. This is Gjensidige’s defined market areas. The general insurance operations include general 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. Group life insurance is the biggest product in this category.
Gjensidige’s business model is based on an integrated value chain that includes the production of financial services and products, a high degree of direct distribution and customer dialogue, and efficient claims settlements.
User-friendly self-service solutions are being developed to enable customers to buy and change insurance policies, seek advice and report claims online
and by mobile phone. At the same time, internal work processes and new tools are being developed in order to ensure further rationalisation of customer service. Gjensidige is involved in businesses and people’s lives, both before and after a claim arises, which is reflected in the communication concept ‘It is good to be prepared’.
Market position Gjensidige is market leader in the Norwegian general insurance market, where the Group has very high brand recognition and brand strength. Gjensidige was the biggest player in Norwegian non-marine general insurance in 2013 as well, with a market share of 25.4 per cent of an overall market of NOK 50.3 billion, up from 25,3 per cent in 2012. (Source: Finance Norway). For the first time for several years, Gjensidige’s market share increased in 2013, which confirms Gjensidige’s good competitiveness seen in light of the fact that the Group prioritises profitability over growth.
The Company had a market share of 23.0 per cent in the private market at the end of 2013. The market share in the commercial market was 30.7 per cent. This includes the agricultural market, where the market share seen in isolation was 69.7 per cent of a total market of NOK 1.2 billion.
The market shares in Denmark and Sweden were 5.6 per cent (based on the most recent statistics from the Danish Insurance Association as of 31 December 2012) and 1.3 per cent, respectively (source: Insurance Sweden as of 31 December 2013).
Distribution Norway Gjensidige has approximately 750,000 customers in the Private segment and more than 160,000 customers in the Commercial segment in Norway. Distribution mainly takes place via own distribution network or via agents and dealers/partners. Only 3 per cent of Gjensidige’s Norwegian commercial customers (18 per cent of the premium volume) are served indirectly through brokers.
The Private and Commercial segments both distribute products and services through a combination of telephony, the internet and local branch offices. The customers can choose their point of contact and the service they want, and they shall experience the same quality and service regardless of channel. The multi-channel model contributes to both good customer experiences and cost-efficient distribution.
In the Danish commercial market, sales are made in cooperation with brokers in addition to call centres and dedicated underwriters in the market for small and medium-sized customers and agricultural customers.
Gjensidige is also positioned to deliver products adapted to other distribution channels, both in Norway and in the other Nordic countries. Distribution is then mainly through agents and business partners such as shops, car dealers and banks that wish to expand their product range with insurance products under their own label (‘white label’).
A flexible service architecture enables use of functionality from the core system and information from the customer system for self-service solutions, internal user interfaces and other support systems, and in the work on optimal customer and risk selection and tariff setting.
Gjensidige’s ICT platform is a good basis for automation and standardisation of business processes. It also has great potential in relation to the focus area analysis-based insurance, meaning targeted sales, support and pricing based on the analysis of large amounts of data.
As of 31 December 2013, Andersen held 785 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties.
Two portfolio acquisitions In 2013, Gjensidige acquired Gouda Travel Insurance with a premium volume of approximately NOK 290 million divided between the three Scandinavian countries. The acquisition underpins the strategy of structural, profitable growth in the Nordic region. The acquisition had accounting effect from 1 November 2013.
Inspection report from the Norwegian Data Protection Agency In 2013, Gjensidige received an inspection report from the Norwegian Data Protection Agency that states that aspects of the Group’s handling of personal data in connection with investigations of possible insurance fraud warrant criticism. Gjensidige does not agree with the Agency’s conclusions, but has, with one exception, nonetheless chosen not to appeal the decision. Measures have been initiated to meet the Agency’s requirements by 1 March 2014 . Gjensidige appealed the part of the decision that concerned the use of investigation methods. Gjensidige believes it is in society’s interest that observation can be used in special cases where insurance fraud is suspected.
By capitalisation target is meant capitalisation that is adapted to Gjensidige’s strategic targets and appetite for risk at all times. The Group shall maintain its financial freedom of action while exercising stringent capital discipline.
The capitalisation target will be based on the most binding capital requirement plus a technical buffer and a strategic buffer to ensure financial flexibility in relation to - changed framework conditions - organic growth and minor acquisitions that are not financed by retained earnings - stabilisation of dividend over time
At year end, the strategic buffer amounted to NOK 2.1 billion, after a deduction for the Board’s dividend proposal.
The customer dividend model will be continued and further strengthened Gjensidige’s biggest owner, the Gjensidige Foundation, has decided that dividend from Gjensidige related to underlying operations, shall be paid to Gjensidige’s general insurance customers in Norway as customer dividend. The Gjensidige Foundation also decided in 2013 that dividend from Gjensidige related to deployment of excess capital shall be managed by the Foundation, among other things with a view to
He is CEO of Fredrikstad Energi AS (FEAS), Chairman of the Board of all the subsidiaries of FEAS, a board member of Værste AS and an elected member to the General Meeting of the Gjensidige Foundation.
He is a state-authorised public accountant and holds an MBA from the Norwegian School of Economics (NHH).
As of 31 December 2013, Andersen held 1,778 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties.
Changes in framework conditions Solvency II Work on preparing for the Solvency II regulations has been prioritised in 2013 as well. The regulations set new requirements for European insurance companies in relation to the calculation of capital requirements, requirements for risk management and reporting on the risk and capital situation.
The Solvency II regulations are still under development, but the main lines are clear. They are expected to be implemented from 1 January 2016, but transitional rules will apply in important areas from as early as 1 January 2014. They include a requirement for an advance dialogue with the Financial Supervisory Authority about the approval of an internal model for calculating capital requirements. The transitional rules will also include requirements for risk management, the implementation of risk and capital assessments (ORSA-Own Risk and Solvency Assessment) and reporting requirements.
The Group is well prepared for the regulatory changes and will continue to adapt to the new regulations. Gjensidige plans to apply for approval of an internal model for calculating the regulatory capital requirement pursuant to Solvency II for parts of its operations. Gjensidige’s internal model has been developed since 2004 and it is becoming increasingly important in the Group’s risk and capital management.
The new regulations are expected to entail require ments for a higher capitalisation level than under Solvency I
Amendments to the Act relating to Company Pension Schemes, which provides for unit-linked paid-up policies, have been distributed for consultation, and are
Among other things, he studied economics, statistics and business law at Stockholm University, and has completed the INSEAD Executive Programme.
As of 31 December 2013, Andersson held 1,778 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties.
not expected to enter into force until spring 2014 at the earliest. The authorities propose that the paid-up policies be fully provisioned in relation to the new mortality table before the conversion. If this is adopted, the conversion rate is expected to be lower than previously assumed until the paid-up policies have been fully provisioned (2018). Gjensidige will not offer this product until the final legislation is in place.
Return on equity before tax >15 per cent 18.3 per cent
Among other things, Bjørge has previously been a bank director with Kredittkassen and lead auditor with Fiskernes Bank.
As of 31 December 2013, Bjørge held 10,542 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties.
Profit/loss The Group recorded a profit before tax expense of NOK 4,574.1 million (5,633.5). The profit from general insurance operations measured by the underwriting result was NOK 2,019.6 million (2,607.8). For the investment portfolio, the return on financial assets was 4.3 per cent (5.4), corresponding to NOK 2,480.9 million (3,005.1).
Satisfactory underlying profitability in the portfolio contributed to a good underwriting result in 2013. The decline in profits from 2012 was primarily
General insurance Private 1,305.5 1,439.1 General insurance Commercial 992.9 1,012.6 General insurance Nordic 342.3 519.9 General insurance Baltics 35.7 18.9 Corporate Centre/costs related to owner (299.4) (294.3) Corporate Centre/reinsurance 1 (357.4) (88.5) Underwriting result general insurance 2 2,019.6 2,607.8
Run-off gains/(losses) 5 299.6 342.0 1 Large losses in excess of NOK 30.0 million are charged to the Corporate Centre, while claims of less than
NOK 30.0 million are charged to the segment in which the large losses occured. The segment Baltics has a retention level of EUR 0.5 million. Large losses allocated to the Corporate Centre amounted to NOK 373.6 million (111.8) in 2013. Moreover, accounting items related to written reinsurance and reinstatement premium are included.
2 Underwriting result general insurance = earned premiums - claims incurred etc. - operating expenses 3 Excluding return on financial assets in Pension and Savings and Retail Bank. 4 Large losses = loss events in excess of NOK 10.0 million. 5 Run-off gains/(losses) = changes in estimates from earlier periods. Reserving is based on best estimate, and expected run-off result over time is zero.
6 Loss ratio = claims incurred etc./earned premiums 7 Cost ratio = insurance related operating expenses/earned premiums 8 Combined ratio = loss ratio + cost ratio due to major weather-related events and a more normal development for frequency claims.
With the exception of claims provisions relating to the Danish workers’ compensation portfolio, Gjensidige’s claims provisions are recognised at nominal value (not discounted). In preparation for expected changes in IFRS and the introduction of Solvency II, Gjensidige has, with effect from the second quarter 2010, calculated but not recognised the effect on the combined ratio of discounting the claims provisions. For 2013 seen as a whole, the combined ratio on a discounted basis would have been 85.9, compared with 89.2 in relation to the recognised nominal amount.
Expenses for research and development have not been charged to income in Gjensidige’s consolidated accounts in 2013 or 2012. Nor have such expenses been capitalised during these two financial years. The parent company has continued its collaboration with the Norwegian Computing Centre and SFI (Statistics for Innovation), which are carrying out projects relating to risk assessment and data analysis.
The return on equity before tax expense was 18.3 per cent (23.8). The capital adequacy was 13.4 per cent (16.8), and the solvency margin was 421.8 per cent (545.1). Both capital adequacy and the solvency margin have been adjusted to take account of the Board’s dividend proposal for the 2013 financial year. The statutory capital adequacy requirement is eight per cent.
Off-balance sheet commitments and derivatives As part of the Group’s investment activities, an agreement has been entered into for the investment of up to NOK 1,100.6 million in various private equity investments and real estate funds, in addition to the amounts recognised in the balance sheet. In order to increase the effectiveness of its capital and risk management, the Group enters into financial derivative contracts on a regular basis. They are described in more detail in the notes to the accounts.
The net cash flow from operational activities was negative in the amount of NOK 1,127.7 million (1,407.7) in 2013. The negative cash flow can largely be explained by a strong increase in lendings from the bank. There is a large positive cash flow from the insurance operations. The difference between the operating profit and the operational cash flow is due to the nature of the business. An integral part of insurance companies’ operations is to invest received insurance premiums in financial assets, which means that cash flows relating to the management of such assets are included in the operational cash flow.
The net cash flow from financing activities mainly consists of payments made/received relating to external debt financing and the payment of dividend to shareholders. The net cash flow from financing activities was NOK 837.2 million (negative 2,339.0) in 2013.
He has an education in IT and economics from Finnmark University College.
The segments The operations in Gjensidige are divided into six segments, in addition to management of the investment portfolio. The following is a summary of results and outlook for each segment. It is emphasised that there is always considerable uncertainty attached to the assessment of future developments.
Customer orientation and measures aimed at retaining customers were again the main priorities in the segment in 2013. At the same time, improved customer and risk selection contributed to continued improved quality in the customer portfolio, good profitability and good competitiveness. The development in the number of customers was the best since 2006.
Profit performance The underwriting result for 2013 was NOK 1,305.5 million (1,439.1). The combined ratio was 83.3 (80.8). The main reason for the decline in the underwriting result was an increase in claims incurred.
Claims incurred amounted to NOK 5,466.5 million (5,051.7). The loss ratio was 70.1 (67.4). The property product in particular recorded a higher loss ratio than the year before due to more water damage claims early in the year and some large fires and damage caused by precipitation in the third quarter. The total claims incurred were within the bounds of what can normally be expected, while the claims development in 2012 was particularly favourable.
Outlook and priorities The Private segment is particularly focused on efforts to retain customers and improve the quality of all customer processes. Improved availability, simplification of products and processes and a higher proportion of self-service are prioritised in order to support the Group’s financial targets and improve customer orientation.
The competition from established players continues to be strong, and small niche companies are active. Gjensidige’s competitiveness in the Norwegian private market is regarded as good.
Amortisation and impairment losses of excess value – intangible assets (9.5) (9.5)
General Insurance Commercial The segment offers general insurance products in the areas of liability, property, agriculture, accident and health, and motor insurance, plus in coastal, aquaculture and transport insurance. In 2013, the Swedish commercial and municipal portfolio and the Norwegian municipal portfolio were moved from the Nordic to the Commercial segment.
Work processes in the distribution model were simplified in 2013 and this contributed to improved profitability in the segment. In order to increase customer orientation, solutions were established that produce more detailed risk profiles for customers. The self-service solutions were further developed to become a natural part of the customer dialogue from customers receiving an offer and being welcomed to advice and renewal. Increased automation and greater focus on servicing concepts further improved the customer experience and led to improved efficiency in the organisation.
Profit performance The underwriting result amounted to NOK 992.9 million (1,012.6) in 2013. The combined ratio was 85.9 (85.0). The reduction in the underwriting result was largely due to increased claims incurred.
Earned premiums increased to NOK 7,021.8 million (6,764.8). Both the Norwegian and Swedish commercial portfolios showed a positive develop-
Run-off gains/(losses) 2 120.2 75.2 1 Large losses = loss event in excess of NOK 10.0 million.
Claims incurred amounted to NOK 5,207.6 million (4.943.1), which corresponds to a loss ratio of 74.2 (73.1). The effect of a favourable claims development in accident and health and property insurance was counteracted by a weaker claims development in agriculture insurance. A higher proportion of weather-related claims and large losses in agriculture also had a negative effect on claims incurred compared with 2012.
Claims incurred amounted to NOK 2,417.0 million (1,883.6). Of the increase NOK 83.5 million was due to changes in the exchange rate. The loss ratio was 72.7 (64.7). The higher loss ratio was mainly due to substantially lower run-off gains, a higher proportion of weather-related claims and a change in the composition of the portfolio, resulting in a higher proportion of accident and health products.
Run-off gains/(losses) 2 130.8 221.8 1 Large losses = loss event in excess of NOK 10.0 million.
Earned premiums amounted to NOK 510.8 million (436.9). Of the increase NOK 17.5 million was due to changes in the exchange rate. Earned premiums in accident and health and motor insurance developed particularly well.
The nominal operating expenses amounted to NOK 132.5 million (125.4). Of the increase NOK 5.0 million was due to changes in the exchange rate. The cost ratio was 25.9 (28.7).
Amortisation and impairment losses of excess value – intangible assets (4.8) (4.7)
Run-off gains/(losses) 2 10.0 20.4 1 Large losses = loss event in excess of NOK 10.0 million.
The increase in profit in 2013 was very satisfactory despite provisions being made for higher life expectancy and disability. 85 per cent of the customers were also general insurance customers.
Financial income amounted to NOK 25.3 million (18.0). This includes the return on the group policy portfolio and corporate portfolio. The reason for the growth was a higher return on the corporate portfolio as a result of reinvestments and growth in the rest of the group policy portfolio. The company’s share of the financial profit on the paid-up policy portfolio was allocated in its entirety as a provision for higher life expectancy.
At the end of the period, the assets under management in the pension operations amounted to NOK 13,953.8 million (10,408.8). The group policy portfolio accounted for NOK 3,553.2 million (3,163.8) of this amount.
The recognised return on the paid-up policy portfolio was 4.57 per cent (4.76) in the period. The average annual interest guarantee is 3.6 per cent
Assets under management for the savings operations amounted to NOK 11,896.4 million (10,070.0) at the end of 2013.
The total assets under management increased by NOK 5,371.3 million (2,731.2), amounting to NOK 25,850.2 million (20,478.9) at the end of 2013.
Earned premiums 904.0 680.7 Claims incurred etc. (779.7) (574.9) Net insurance revenue 124.4 105.8 Management income etc. 82.2 65.0 Operating expenses (182.0) (170.4) Net operating income 24.6 0.3 Net financial income 25.3 18.0 Profit/(loss) before tax expense 49.9 18.3
1 Run-off gains/(losses) = changes in estimates from earlier periods 2 Operating margin = net operating income/(net insurance revenue + management income etc.) 3 Recognized return on the paid-up policy portfolio = realised return of the portfolio 4 Value-adjusted return on the paid-up policy portfolio = total return of the portfolio
Increased maximum rates in the Act relating to Defined Contribution Pensions, combined with the absence of transitional rules relating to the new act on group occupational pensions, are expected to lead to a higher rate of conversion from defined benefit to defined contribution pension plans. This will increase the market for occupational pensions in which the company has specialised.
The growth in lendings was very good throughout 2013, driven by competitive lending terms, especially in the second and third quarters. The bank launched a new product for car financing through car dealers in 2013. At year end, 45 per cent of the bank’s customers were also general insurance customers.
Profit performance Profit before tax expense was NOK 191.0 million (113.0). The positive development was primarily due to an increase in net interest income as a result of volume growth. Efficient operations and somewhat lower write-downs and losses also contributed to the positive development.
Gross lendings increased by 39.7 per cent and amounted to NOK 24,193.9 million (17,324.3) at the end of the year. The bank experienced particularly good growth in lendings in the second and third quarters. Deposits increased by 29.0 per cent and amounted to NOK 14,938.3 million (11,580.5) at the end of the year. The deposit-to-loan ratio was 61.7 per cent (66.8). Access to external financing is good.
As a result of growth and new capital requirements from 1 July, the bank received a total of NOK 341.0 million in new equity from the parent company during 2013.
Management of financial assets and properties The Group’s investment portfolio includes all investment funds in the Group except for invest ment funds in the Pension and Savings and Retail Bank segments. A large part of the management is outsourced to external managers, while the Group’s investment function concentrates on asset allocation, risk management and the selection of managers.
At the end of 2013, the investment portfolio totalled NOK 58,148.2 million (56,296.0). The financial result was NOK 2,480.9 million (3,005.1), which corresponds to a return on financial assets of 4.3 per cent (5.4). The contribution from current equities was significantly higher than in 2012, while the contribution from other bonds was considerably lower as a result of higher interest rates. The return was also affected by the impairment loss recognised on the investment in Storebrand in the first quarter.
Match portfolio The match portfolio amounted to NOK 33.2 billion (33.5). The portfolio yielded a return of 3.6 per cent (3.9) excluding changes in the value of the part of the portfolio recognised at amortised cost. Unrealised excess value from bonds valued at amortised cost amounted to NOK 1,032.5 million (1,046.8) at year end.
The average duration of the match portfolio was 3.5 years, the same as the average term to maturity for corresponding insurance debt. The distribution of counterparty risk and credit rating is
shown in the charts on page 63. Of the securities without an official credit rating, 22.1 per cent were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or government-guaranteed companies. Bonds with a coupon that is adjusted on the basis of the Norwegian consumer price index accounted for 13.0 per cent of the match portfolio.
Fixed-income instruments The fixed-income instruments in the free portfolio amounted to NOK 9.6 billion (9.1) and yielded a return of 4.0 per cent (6.9). Investment grade bonds and money market instruments in particular yielded a poorer return as a result of higher interest rates, while high yield and convertible bonds yielded a good return in 2013 as well.
1 Geographical distribution is related to issuers and does not reflect the actual currency exposure.
Net income from investments 2,538.1 3,055.8 1 The item includes the discounting effects of insurance obligations in Denmark and mismatch between interest rate adjustments on the liability side in Denmark, versus the interest rate hedge. 2 The item consist of total investment grade, high yield and current bonds. Investment grade and high yield are investments in internationally diversified funds externally managed. 3 Investments in internationally diversified funds externally managed.
4 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Danmark, and lendings, paid-in capital in Gjensidige Pensjonskasse and hedge funds.
Geographic distribution �xed income instruments in free portfolio at the end of 2013 Geographic distribution �xed income instruments in free portfolio at the end of 2013
Geographic distribution match portfolio at the end of 2013 Geographic distribution match portfolio at the end of 2013 48.6% Norway 6.1% Sweden 28.6% Denmark 2.5% USA 6.2% UK 1.9% Baltics 6.1% Other
Financial assets and properties 47.3% Norway 4.9% Sweden 2.8% USA 17.7% UK 5.4% Baltics 21.9% Other
Risk management is based on specified goals and strategies and the limits on risk exposure stipulated by the Board. Responsibility for good risk management and internal control primarily rests with the first-line management, the CEO and all managers and employees in the operational units, who carry out their work in accordance with the authorisations, instructions and guidelines that apply to each of them. A Risk Management function has been established at group level. It is responsible for monitoring the Group’s risk management system and for maintaining an overview of the risks that the Group is or may be exposed to. The Risk Management function shall ensure that the senior group management and the Board have sufficient information about the Group’s risk profile at all times. The Group has a moderate risk profile whereby, in the Board’s view, no individual events will be capable of seriously harming the Company’s financial position.
Strategic risk Gjensidige’s strategy is monitored continuously in relation to changes in performance, developments in the market and competition, and changes in framework conditions. Factors that have been identified as critical to the Company’s goal attainment are monitored particularly closely. To ensure that Gjensidige is ahead of developments, strategic risk is managed through continuous monitoring of competitors and the market, and through product development and planning processes.
The Board’s adoption of strategic allocations of assets and a dynamic risk management model define limits that make it possible to rapidly adjust risk to changed macroeconomic assumptions. Price, interest rate and currency risk is partly followed up through stress tests, where the buffer capital must be sufficient at all times to be able to withstand sharp simultaneous falls in share and bond prices.
Corporate governance Good corporate governance is a priority for the Board. The Board has based the Group’s corporate governance on the Norwegian Code of Practice for Corporate Governance dated 23 October 2012, and has adapted to the Code of Practice and subsequent amendments in all areas. A more detailed account of how Gjensidige complies with the Code of Practice and the Norwegian Accounting Act’s requirements for reporting on corporate governance is included on pages 30-43 of the annual report and in a separate document that is available on the Group’s website www.gjensidige.
Outlook In October 2013, Gjensidige communicated a target return on equity after tax expense of 15 per cent with effect from and including 2015. Gjensidige’s profitability targets for its general insurance operations remain unchanged. Over time, the annual combined ratio shall be within the corridor 90–93.
She is self-employed, a board member of Gjensidigestiftelsen and of Innherred Renovasjon, and Chair of the Board of Visit Innherred.
Uncertainty about the international economic situation, combined with financial challenges in several key economies, remains a source of uncertainty for Gjensidige as well. Gjensidige has a robust investment strategy, however. It is financially sound and has a high proportion of its business in the Norwegian general insurance market.
The macroeconomic situation with respect to the Norwegian general insurance operations is still regarded as good. The Danish property market is improving, and the Baltic economies continue to show positive development. There is still uncertainty relating to changed framework conditions for the financial sector in Norway and internationally. The Solvency II regulations are expected to be implemented in Norway in 2016. New Norwegian pension legislation entered into force on 1 January 2014.
The Group has substantial capital buffers in relation to internal risk models, statutory capital adequacy requirements and its target rating. Based on a financial assessment, Gjensidige has decided to increase the Group’s retention level relating to weather-related events from NOK 100 to NOK 200 million with effect from and including 2014. By weather-related events is meant storms, floods, avalanches/landslides etc. The rest of the reinsurance programme is largely unchanged. The Board considers the Group’s capital situation and financial strength to be good.
Events after the balance sheet date On 26 February 2014 Gjensidige sold the holding in Storebrand. Accounting gain from the transaction was around NOK 115 million. Following the completion of the sale, Gjensidige will not hold any shares in Storebrand. Besides this there are no significant events that have occurred after the end of the period.
The Board proposes that a total dividend of NOK 6,400 million be distributed for the 2013 financial year, corresponding to NOK 12.80 per share. Of this amount, NOK 6.80 per share is proposed on the basis of the profit for the year after tax expense and the current dividend policy. The calculation basis has been adjusted for the effect of the impairment loss of NOK 611 million on the investment in Storebrand in the first quarter. The remaining NOK 6.00 per share can be ascribed to the distribution of excess capital in accordance with the new capital strategy as communicated on 22 October 2013.
A new dividend policy applies with effect from the 2014 accounting year, as described on page 33.
She is a partner in the law firm Johnsrud Skjærstad & Co AS, chair of the board of, inter alia, Mesta AS, BoligPartner AS, Østlandsforskning AS, Øyhovden Invest AS,
Hamarregionen Næringsforum, Ervod Production & Distribution AS, and Hamar Troll AS, and a board member of, inter alia, Furnes Hamjern SCC AS, Munck Cranes AS, HRR Miljø AS and Randers Jernstøperi AS.
As of 31 December 2013, Skjærstad held 0 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties.
It is proposed that the parent company’s profit before other components of income and expense of NOK 3,160.7 million be allocated as follows: NOK million
Inge K. Hansen Gunnhild H. Andersen Trond Vegard Andersen Hans-Erik F. Andersson Per Arne Bjørge Chairman
Consolidated income statement .................................70 Consolidated statement of comprehensive income ......71 Consolidated statement of financial position ...............72 Consolidated statement of changes in equity ..............73 Consolidated statement of cash flows ......................... 74 Accounting policies .....................................................75
Operating income Earned premiums from general insurance 18,736.9 17,797.3 Earned premiums from pension 904.0 680.7 Interest income etc. from banking operations 1,135.0 949.7 Other income including eliminations 108.5 90.0
Operating expenses Operating expenses from general insurance (2,857.8) (2,751.8) Operating expenses from pension (182.0) (170.4) Operating expenses from banking operations (341.3) (306.4) Other operating expenses (10.4) 3.3 Amortisation and impairment losses of excess value - intangible assets (161.7) (126.9)
Total expenses (18,848.5) (16,940.0) Profit/(loss) for the year before tax expense 4 4,574.1 5,633.5
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurements of the net defined benefit liability/asset 19.6 637.3 Share of other comprehensive income from associates 102.2 (19.8) Tax on items that are not reclassified to profit or loss 12.5 (178.5)
Total items that are not reclassified subsequently to profit or loss 134.3 439.1
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 450.8 (187.4) Share of exchange differences from associates 128.7 13.1 Exchange differences from hedging of foreign operations (376.0) 161.2 Tax on items that may be reclassified to profit or loss 85.3 (45.1)
Financial assets Financial derivatives 8 219.9 326.2 Shares and similar interests 8, 12 6,023.4 4,321.2 Bonds and other securities with fixed income 8 22,398.0 19,884.2 Bonds held to maturity 8 5,211.3 9,263.7 Loans and receivables 8, 10 42,692.4 32,396.5 Assets in life insurance with investment options 8 10,330.6 7,189.7 Reinsurance deposits 0.8 0.6 Reinsurers' share of insurance-related liabilities in general insurance, gross 13 727.9 673.4 Receivables related to direct operations and reinsurance 10 4,290.5 4,112.7 Other receivables 10 509.2 314.9 Prepaid expenses and earned, not received income 10 153.3 81.2 Cash and cash equivalents 11, 25 2,729.4 2,331.5
Financial liabilities Financial derivatives 8 347.0 49.4 Deposits from and liabilities to customers 8, 15 14,938.3 11,580.5 Interest-bearing liabilities 8, 15 9,771.6 5,355.5 Other liabilities 8, 15 952.2 978.0 Current tax 16 726.4 1,367.5 Deferred tax liabilities 16 1,340.6 1,267.5 Liabilities related to direct insurance 8, 15 654.8 406.0 Liabilities in life insurance with investment options 15 10,330.6 7,189.7 Accrued expenses and deferred income 8, 15 384.1 283.3
Gisele Marchand Gunnar Mjåtvedt Mari T. Skjærstad Mette Rostad Helge Leiro Baastad Konsernsjef
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations (187.6) 0.2 (187.4) Share of exchange differences from foreign operations 13.1 13.1 Exchange differences from hedging of foreign operations 161.2 161.2 Tax on items that may be reclassified to profit or loss (45.1) Total items that may be reclassified subsequently to profit or loss (71.5) 0.2 13.1 (58.2)
Own shares (0.0) (2.2) (2.2) Paid dividend (2,274.7) (2,274.7) Equity-settled share-based payment transactions 5.2 5.2 1.1.-31.12.2013 Profit/(loss) for the year 3,670.6 3,670.6
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 451.2 (0.4) 450.8 Share of exchange differences from associates 128.7 128.7 Exchange differences from hedging of foreign operations (376.0) (376.0) Tax on items that may be reclassified to profit or loss 85.3 Total items that may be reclassified subsequently to profit or loss 160.5 (0.4) 128.7 288.8
Cash flow from operating activities Premiums paid, net of reinsurance 23,080.0 20,523.3 Claims paid, net of reinsurance (13,554.2) (13,257.2) Net payment of loans to customers (6,869.7) (2,305.2) Net payment of deposits from customers 3,357.8 1,804.2 Payment of interest from customers 1,073.0 896.0 Payment of interest to customers (369.3) (320.6) Net receipts/payments on premium reserve transfers (472.4) (61.0) Net receipts/payments from financial assets (2,534.1) (2,714.8) Net receipts/payments from properties 234.8 223.1 Net receipts/payments from sale/acquisition of investment property (135.7) 861.0 Operating expenses paid, including commissions (3,639.2) (3,400.9) Taxes paid (1,338.5) (869.8) Net other receipts/payments 39.9 29.7
Cash flow from financing activities Payment of dividend (3,424.5) (2,274.7) Net receipts/payments on loans to credit institutions 4,433.5 92.9 Net receipts/payments on other short-term liabilities (13.5) 8.2 Net receipts/payments on interest on funding activities (153.1) (163.2) Net receipts/payments on sale/acquisition of own shares (5.3) (2.2)
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 Insurance Group (the Group) as at and for the year ended 31 December 2013 comprise Gjensidige Forsikring ASA and its subsidiaries and the Group’s interests in associates. The activities of the Group consist of general insurance, pension and savings and banking. The Group does business in Norway, Sweden, Denmark, Latvia, Lithuania and Estonia.
The nature and the effects of the changes are explained below.
There have been no other significant accounting policy changes in 2013 compared to the annual financial statements for 2012.
New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these consolidated financial statements. Those that may be relevant to Gjensidige are set out below. Gjensidige does not plan to adopt these standards early.
IFRS 10 Consolidated Financial Statements (2011) As a result of IFRS 10 (2011), Gjensidige will change its accounting policy for determining whether it has control over and consequently whether it consolidates other entities. IFRS 10 (2011) introduces a new control model that focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power to affect those returns. The change is not expected to have a material impact on Gjensidige's financial statements.
Functional and presentation currency The consolidated financial statements are presented in NOK. The mother company and the different branches have respectively Norwegian, Swedish and Danish krones and Lithuanian litas, Latvian lat and Estonian kroon as functional currency. As of 1 January 2014 Latvia has changed currency from lat to euro. All financial information is presented in NOK, unless otherwise stated.
Segment reporting According to IFRS 8, the operating segments are determined based on the Group’s internal organisational management structure and the internal financial reporting structure to the chief operating decision maker. In Gjensidige Insurance Group the Senior Group Management is responsible for evaluating and following up the performance of the segments and is considered the chief operating decision maker within the meaning of IFRS 8. Gjensidige reports on six operating segments, which are independently managed by managers responsible for the respective segments depending on the products and services offered, distribution and settlement channels, brands and customer profiles. Identification of the segments is based on the existence of segment managers who report directly to the Senior Group Management /CEO and who are responsible for the performance of the segment under their charge. Based on this Gjensidige reports the following operating segments
Transactions eliminated on consolidation Intra-group balances and transactions, and unrealized income and expenses arising from intra-group transactions, are eliminated in the consolidated financial statements. Unrealized gains arising from transactions with equity accounted companies are eliminated against the investment to the extent of the Group’s interest. Unrealized losses are eliminated in the same way, but only to the extent that there is no evidence of impairment.
Recognition of revenue and expenses Operating income and operating expenses consist of income and expenses in relation to the business in the different business areas, see below.
Financial expenses consist of interest expenses on loans that are not part of the banking operations, realized losses related to financial assets, change in fair value of financial assets at fair value through profit or loss, recognized impairment on financial assets and recognized loss on financial derivatives. All expenses related to loans are recognized in profit or loss using the effective interest method.
Goodwill arising on the acquisition of a foreign operation and fair value adjustments of the carrying amount of assets and liabilities arising on the acquisition of the foreign operation are treated as assets and liabilities of the foreign operation.
• owner-occupied property 10-50 years • plant and equipment 3-5 years
Claims provision, gross The claims provision comprise provisions for anticipated future claims payments in respect of claims incurred, but not fully settled at the reporting date. These include both claims that have been reported to the company (RBNS – reported but not settled) and those that have not yet been reported (IBNR – incurred but not reported). The provisions related to reported claims are assessed individually by the Claims Department, while the IBNR provisions are calculated based on empirical data for the time it takes from a loss or claim occurring (date of loss) until it is reported (date reported). Based on experience and the development of the portfolio, a statistical model is prepared to calculate the scope of post-reported claims. The appropriateness of the model is measured by calculating the deviation between earlier post-reported claims and post-reported claims estimated by the model.
Claims provisions are not normally discounted. For contracts in Denmark with annuity payments over a long horizon, discounting is performed. IFRS 4 permits the use of different policies within the Group in this area.
Recognition and derecognition Financial assets and liabilities are recognized when Gjensidige becomes a party to the instrument’s contractual terms. Initial recognition is at fair value. For instruments that are not derivatives or measured at fair value through profit or loss, transaction expenses that are directly attributable to the acquisition or issuance of the financial asset or the financial liability, are included. Normally initial recognition will be equal to the transaction price. Subsequent to initial recognition the instruments are measured as described below.
Transaction expenses are recognized in profit or loss when they incur. Financial assets at fair value through profit or loss are measured at fair value at the reporting date. Changes in fair value are recognized in profit or loss.
Transaction expenses are recognized in profit or loss when they incur. Subsequent to initial recognition financial derivatives are measured at fair value and changes in fair value are recognized in profit or loss.
The bank uses fair value hedging on interest rate risk. Changes in the fair value of the hedged object dedicated to the hedged risk, is adjusting the hedged objects carrying amount and is recognized in profit or loss.
Gjensidige annual report 2013 | 81 amount of the asset and the present value of estimated future cash flows discounted at the original effective interest rate.
Dividend Dividend from investments is recognized when the Group has an unconditional right to receive the dividend. Proposed dividend is recognized as a liability from the point in time when the General Meeting approves the payment of the dividend.
The defined benefit plan is a post-employment benefit plan that entitles employees to contractual future pension benefits. Pension liabilities are determined on the basis of linear earning and using assumptions of length of service, discount rate, future return on plan assets, future growth in wages, pensions and social security benefits from the National Insurance, and estimates for mortality and staff turnover, etc.
Plan assets are measured at fair value, and are deducted from pension liabilities in the net pension liabilities in the balance sheet. Any surplus is recognized if it is likely that the surplus can be used.
See note 27 for a further description of the Group’s share-based payment arrangements.
Identified functions that are categorized as core activities will be charged out with a reasonable mark up or alternatively at market price if identifiable, comparable prices exist.
84 | Gjensidige annual report 2013 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 recognized 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.
The accounting policies that are used by Gjensidige in which the assessments, estimates and prerequisites may deviate significantly from the actual results are discussed below.
Insurance-related liabilities Use of estimates in calculation of insurance-related liabilities is primarily applicable for claims provisions.
Gjensidige annual report 2013 | 85 3. Management of insurance and financial risk Overview Management of risk is an integrated part of the daily operations in Gjensidige. Identification, assessment, management and control of the risk exposure as well as analyses of the effects of potential strategic decisions on the risk profile is an essential part of the operations to ensure that the level of risk-taking is in keeping with the approved risk appetite and to enhance value creation.
An overall management of risks ensures that risks are assessed and handled in a consistent way throughout the Group.
In the areas of pension, savings and investment advice, there will be insurance and financial risk in the subsidiary Gjensidige Pensjonsforsikring (GPF). Within the commercial market GPF offers defined-contribution occupational pensions with related risk coverage such as disability insurance, disability pension and child and spouse pensions. In addition GPF manages funds related to paid-up policy portfolios. Within the private market GPF offers life and pension products and pure risk products such as disability pension. Mortality and disability risks are the two main insurance risks within GPF, whereas the greatest financial risk is related to the guaranteed ­return for the paid-up policies.
Given the division of the operations into operative and reporting segments, the Group has chosen to also divide the information in this note according to the business areas general insurance, life insurance/savings and banking, with the exception of certain contexts where it has been natural to present these areas as one. For the description of the management of financial risk within the general insurance operations the focus is on the Group’s total general insurance operations and separate tables have not been set up for Gjensidige Forsikring ASA. This reflects the way in which the financial risk is managed.
The group CEO is responsible for the overall risk management in the Group. The Group’s risk committee, chaired by the group CEO, has a supervisory role with regard to the Group’s total risk situation and an advisory role to the group CEO with regard to risk management. The responsibility to help prepare for the risk committee’s work and to facilitate the Group’s internal control processes is delegated to the Chief Risk Officer. Likewise, Chief Compliance Officer, which reports on professional matters to the group CEO, is responsible for the Group’s process for preventing and detecting compliance risk pursuant to laws and regulations as well as internal policies and instructions. The responsibility for the ongoing risk management is delegated to the responsible line managers in their respective areas. Gjensidige has centralized risk control functions, such as risk management, compliance and actuarial functions. Moreover, the Group has an independent internal audit function, which monitors risk management and internal control to ensure that they function properly and which reports directly to the Board.
The responsibility for the execution of investments for the insurance operations is vested in the organization of the CFO. The function for monitoring and reporting financial returns and compliance investment risk limits reports to the Executive Vice President, Group Staff/General Services in order to ensure an independent follow-up. In addition, the Chief Risk Officer has an independent line of reporting to the CEO.
Figure 3 – The management system is organized with three lines of defence
Gjensidige’s minimum capitalization is determined on the basis of the strictest of three criteria: regulatory requirements, rating requirements and internal risk-based requirements. For all three, board-approved buffers are in place for management purposes. In the calculations of excess capital, consideration was given to an assumed dividend of NOK 3,400.0 million for the 2013 on the basis of the profit after tax and 3,000.0 million in distribution of excess capital, which reduces the excess capital equivalently from all three perspectives. The Group has a strong capitalization from all three of these perspectives.
(12,5 % / 8 %) Gjensidige Pensjon og Sparing Holding Group
The internal risk based capital requirement is determined in the Group’s capital management policy, which is approved by the Board. It is defined as the capital that is necessary in order to have a probability of 99.5 per cent of not using up all capital measured over one year, including all of the general insurance group’s assets and liabilities and without counting the expected profit performance during the period as available capital. A buffer of 20 per cent is added on top of this requirement. In this context both profit/loss and available capital are measured according to economic principles, even if these may deviate from the accounting policies, in keeping with the proposals that have been made for the Solvency II regulations. Among other things, this means that actuarial reserves are assessed at the discounted value instead of at recognized (nominal) value.
Gjensidige has, over several years, been developing an internal stochastic simulation model for its insurance operations, based on state-of-the-art modeling technology. The model is customized to Gjensidige’s risk profile and provides fully stochastic simulations of both insurance and investment operations. This model is a key tool for aggregated risk measurement and capital management as it provides an overview of the aggregated risk profile. The main areas of use of the internal model are
• Overall risk profile and capital need, both presently and during the planning period
Insurance risk The risk under any insurance contract is the probability that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and must therefore be estimated. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency and/or severity of claims and benefits are greater than estimated. Insurance events are random, and the actual number and amount of claims and benefits will vary from year to year from the level calculated using statistical techniques.
The Group has an overall underwriting policy, approved by the Board in Gjensidige Forsikring ASA, with more detailed underwriting guidelines for each of the product segments, supported by strictly defined authorisation rules.
Pension and savings 3,030.8 13.4 % 2,194.5 10.6 % Corporate Center- /reinsurance
Total 22,662.2 100.0 % 20,753.8 100.0 % Total Gjensidige Forsikring ASA 18,964.7 83.7 % 17,608.8 84.8 %
Motor, other classes 3,183.4 16.8 % 3,313.8 18.8 % Marine, aviation and transport
There are several variables that affect the amount and timing of cash flows from the insurance contracts. These variables mainly relate to the characteristics of the different types of risks covered and the applied risk management procedures. The compensation paid is according to the terms specified in the insurance contract. Compensation for claims with respect of bodily injuries are calculated as the present value of lost earnings, rehabilitation expenses and other expenses that the injured party will incur as a result of the accident or disease. In most cases in Norway, and also in the other countries where Gjensidige operates, personal injury claims are paid as a lump-sum. An exception from this is Workers’ Compensation claims in Denmark, where claims may be paid as annuity payments. The calculations for those claims will include information about the severity of the loss, mortality rates, the number of years until retirement age and assumptions about future social welfare inflation. Mortality rates are from tables approved by the supervisory authorities.
Liability insurance contracts are also subject to the emergence of new types of latent claims, but no allowance is included for this at the balance sheet date.
• Expected loss ratio methods (e.g. Bornhuetter-Ferguson), which use Gjensidige’s expectation of the loss ratio for a line of business in the estimation of future claims payments.
• Economical, legal and social trends and social inflation ­ (e.g. a shift in court awards)
Gjensidige has regular processes where external actuarial firms calculate best estimates of the technical provisions. This is done to get a second opinion of the level of the provision from independent, recognized actuarial firms. The deviation between the internal and external estimates of the claims provisions has been within normal range for calculations of this type.
Gjensidige Forsikring ASA and its subsidiaries have detailed underwriting guidelines, intended to ensure good quality in the assessment and quantification of insured risks, define risk types and limits for sums insured that may be accepted, thus ensure control of the risk exposure in the insurance portfolio.
Sensitivity analysis – provision risk The estimation of technical provisions for an insurance portfolio represents an approximation of future cash flow for the claims payments, and there will always be an element of uncertainty in such calculations. Provision risks relate to this kind of uncertainty. The uncertainty depends on the nature of the risk. Risk with a short duration is less exposed to changes that will affect the future payments. Bodily injury claims are on the other hand very sensitive regarding changes in e.g. inflation and court awards. The effect of court awards are taken into account as soon as they are known. In cases when a judgement is not yet final and legally binding, the effect on the loss provision is based on a probability weighted estimate of the possible outcomes.
Inflation is an underlying risk in most insurance products. The effect will be different, depending on the characteristics of each product and the terms and conditions that apply for the claims settlement. For LOBs with nominal long-tailed provisions the effect of a one percentage point increase in inflation will be significant, proportional to the average duration (in number of years).
The sensitivity analysis shows the effect of a change in inflation rate of one percentage point on the claim provision. The calculations do not include the effect of inflation swap.
At the end of the accident year 10,514.8 10,796.0 11,942.6 11,986.9 12,481.3 12,626.2 12,179.5 14,299.9 15,256.2 13,182.5 13,993.7 - Ten years later 10,438.9
Estimated claims cost At the end of the accident year 10,257.0 10,673.4 11,419.2 11,877.8 12,223.8 12,467.7 12,152.8 13,820.4 14,145.4 12,701.9 13,608.9 - Ten years later 10,182.6
Gross Estimated claims cost At the end of the accident year 10,243.8 10,481.1 11,603.2 11,548.4 12,112.8 12,107.5 11,580.0 13,498.7 14,167.5 12,332.9 13,973.5 - Ten years later 10,176.6
For the portfolio of paid-up policies there is also interest rate risk, related to the average guaranteed minimum annual rate of return. The average guaranteed minimum annual rate of return in the portfolio is 3.6 per cent, unchanged from 2012. The company also utilises a discount rate for the premium provision for reported disability claims. The discount rate is the maximum guaranteed annual rate of return at the time when the person is confirmed to be disabled. Interest rate risk is discussed in more detail in the paragraph Management of financial risk.
In the portfolios concerned recognized theories and methods for calculating probability are used to work out the premium necessary to meet future liabilities. Furthermore, the insurance industry ’s own methods for calculating provisions will also be employed for large portfolios to ensure good estimates of future liabilities. During the start-up period of smaller portfolios it will be sufficient, and necessary due to the lack of data, to employ simplified methods for calculating provisions.
The largest insurance risk that Gjensidige Pensjonsforsikring AS faces is if actual pension payments exceed the amount set aside
The tables below show the number of members and contracts divided between compulsory occupational pensions and other defined contribution pensions.
For paid-up policies there is in addition a guaranteed minimum annual rate of return amounting to 3.6 per cent at the end of 2013, unchanged from 2012. The guaranteed minimum annual rate of return has been at an unchanged level during the last years.
Actual amounts paid out for mortality and disability in 2013 amounted to NOK 44 million (39 million). Claims provisions (IBNR) at the end of 2013 totaled NOK 417 million (302 million), accounting for 54 per cent (53 per cent) of the overall provisions for the company’s risk policies. Provisions for reported and settled claims equal the expected cash value of future liabilities (premium provision), and totaled NOK 353 million (263 million), or 46 per cent (47 per cent) of the overall provisions.
Insurance payouts, premium provisions and claims provisions are still showing increase as expected, based on continued growth in the insured population and an increase in the number of risk years. The number of retirement pensioners is expected to remain low, with small benefit payments. Benefit payments will come either from the defined pension’s savings account or from the premium reserve from paid-up policies and individual, funded pensions transferred from other companies.
Pension insurance sensitivity analysis Gjensidige Pensjonsforsikring AS has been in operation for eight years, which is a relatively short period compared with other pension insurance providers. Although the portfolio is clearly growing the number of insurance events remains small. The number of disability claims has risen through 2013, which was expected. Experience so far shows a higher level of disability risk than originally anticipated at the start-up of the company and at the time when the risk products were introduced in the market. Premiums have therefore been increased during the last couple of years. The rise in premiums is largest for risk associated with the paying in of contributions (contribution exemption), with the biggest increase for the youngest insured parties. To this must also be added the increase due to the fact that highest calculation rate has been reduced from 2.75 to 2.5 per cent. In addition, the claims provisions have been increased for most of the risk years based on data from the new calculation model for claims provisions.
Sensitivity for this portion of the portfolio will therefore be proportional to the factor selected for the claims provision, compared with the year’s risk premium.
As part of the preparatory work for the introduction of Solvency II, Gjensidige Pensjonsforsikring AS in the autumn 2010 took part for the first time in the authorities’ Quantitative Impact Studies (QIS). The company took part in QIS5. When assessing the various “stress situations”, it is primarily reduced mortality and thereby the longevity issue that will be of material importance for insurance risk. Furthermore, each quarter stress reports are sent to the Financial Supervisory Authority of Norway, so-called “risk-based supervision”. A 10 per cent reduction in the mortality rate, which is the stress factor employed in the study for the third quarter 2013, results in an increase in the necessary premium reserve in the order of NOK 60 million.
The number of paid-up policyholders who are in receipt of a retirement pension today is otherwise still low, and will remain so for the next few years.
Disability risk Disability risk relates to disability pensions and/or exemptions from paying in the agreed annual contribution to a pension scheme. Benefits cease at the latest when the individual reaches normal retirement age, which is normally 67 years. Any disability claims will be filed only after an uninterrupted period of sick leave lasting 12 months. Risk exposure will therefore depend on the agreed pension sum and the total time remaining until retirement age. Although in these cases Gjensidige Pensjonsforsikring AS employs some of the assumptions from the K2005 basis for calculation, it rests primarily on its own disability tables based on recently updated Norwegian disability statistics. The tables have been drawn up in close collaboration with Gjensidige Forsikring ASA, which has a substantial portfolio involving disability risk, and take into consideration differences between disability rates in the population at large and those in an insured population. Insured populations are generally subject to one or other forms of risk assessment or restricted terms in connection with the assumption of a disability risk. For occupational pension schemes companies are also divided
96 | Gjensidige annual report 2013 into different risk categories depending on the nature of their businesses and other relevant claims history for the individual company. Customers who take out individual disability pension insurance are subject to ordinary rules regarding individual risk assessment based on the insured party’s statement of health.
As already mention above, new model calculations of expected risk results per insurance year were performed in 2012. Each year’s risk is being assessed with respect to the reported insurance events and anticipated claims patterns. Since most of the disability risk in question is linked to company-related pension schemes, it is assumed that the time between an insurance event occurring, in this case a disability that has lasted longer than 12 months, until the company is notified will be relatively short.
For policies where the insured has filed a claim on the basis of disability, and a disability pension or exemption from agreed contributions has been granted, a premium provision will be made to cover the cash value of future liabilities until the agreed termination age (retirement age) or the insured recovers their functional capacity. The latter is dealt with by means of a “reactivation deduction” in the premium provision. Sensitivity in the disability claims provision will primarily relate to this assumption. In this context mortality rate assumptions are of less importance. Calculations show that the claims provision must increase by around NOK 38 million (42 million calculated per 2012) with a disability rate of 25 per cent in the first year and 15 per cent in subsequent years.
Figure 7 shows how the amounts saved in connection with funded agreements will be paid out in the coming years, based on an assumed retirement age of 62 and a ten year payment period.
Reinsurance Gjensidige purchases reinsurance to protect the Group’s equity capital and reinsurance is a capital management tool. The Group’s established models and methodologies for evaluation of the internal risk based capital allocation are used to analyse and purchase reinsurance. The maximum retention is set by the Board. The Reinsurance department is responsible for purchasing and follow-up of reinsurance activities.
Gjensidige’s reinsurance programme consists of non-proportional reinsurance. The maximum retention level for the Group was NOK 360 million in 2013, increased from NOK 320 million in 2012. As a general rule, Gjensidige purchases reinsurance to limit any single claim or claim event per insurance product to NOK 100 million. For some industries Gjensidige purchases reinsurance coverage which will reduce the retention level under 100 million. Decisions concerning the reinsurance programme are based on analysis of exposure, claims history, model simulations and Gjensidige’s capitalisation.
In Norway the exposure to natural perils disasters is handled through the compulsory membership in the Norwegian Natural Perils Pool. Through this arrangement, Gjensidige is exposed to the market share of the total claims for the Norwegian market as a whole. On behalf of its members the pool has its own reinsurance programme in place, which further reduces the risk exposure. Gjensidige participates as a reinsurer for about 25 per cent on the pool’s programme in 2013, unchanged from last year. This exposure is included in the outward reinsurance programme, resulting in synergy effects, economies of scale and diversification in Gjensidige’s reinsurance programme. In Gjensidige’s other geographies natural perils claims are included in the ordinary property reinsurance covers. An event resulting in claims in several countries where Gjensidige has its business will be aggregated into one event in respect of reinsurance.
Management of financial risk – general insurance operations Financial risk is a collective term for various types of risk related to financial assets. The different types of financial risk are described in greater detail below. Operational risk is monitored and controlled as well, and requirements for operational risk management are included in the guidelines for asset management approved by the Board.
There have not been material changes in Gjensidige in the handling of financial risks during 2013. The investment strategy and other risk management policies are approved by the Board in each company, but are closely coordinated with the parent company’s overarching policies. The general rule is that the asset allocation in the subsidiaries in general insurance will only be used to ledge the technical reserves against interest and foreign-exchange risk with excess funds invested in interest-bearing securities with low risk. Exposures to market risk are taken in the balance sheet of
Match portfolio total 33,237.9 57.2 % 33,523.6 59.5 % Associated companies 4,772.0 8.2 % 5,036.1 8.9 %
Table 9 –TVaR utilization of risk limits in the liquid part of the free portfolio 31.12.2013 31.12.2012 NOK million Risk Limit Risk Limit
Finally, the risk in the subsidiaries outside general insurance (Gjensidige Pension and Savings, Gjensidige Bank) are included by assuming a reduction of ten percentage points in their return on equity and including the losses that this may entail.
To illustrate the sensitivity of the equity portfolio to a fall in equity prices, the table below shows the effect of a possible scenario. The figures show the effect on equity, but do not take into account taxation effects. Consideration is given to the fact that Storebrand and SpareBank 1 SR-Bank ASA were recognized as an associated company as at 31 December 2013 so that a drop of ten per cent in the share price will not result in an impairment of the value in the balance sheet, and the items are excluded from the sensitivity calculation. As shown in the table, the sensitivity is increased since 2012. As previously mentioned, this was attributed to an increase in the shareholdings.
Table 12 – Sensitivity analysis equity portfolio 10 per cent drop in equity prices (230.4) (140.5)
Interest-rate risk Within the Group’s insurance companies, overall exposure to interest-rate risk will be reduced by matching a portfolio of fixed income instruments to the overall duration and the payout pattern of the insurance liabilities. Since the insurance liabilities are generally not discounted in the balance sheet, this implies that from an accounting perspective insurance liabilities will be exposed to changes in inflation (but not directly to interest rates). An economic perspective, however, argues for hedging interestrate risk, because the present value of the provisions will be exposed to changes in the real interest rate. From an accounting perspective, the risk from choosing this hedging strategy is reduced, because a major part of the bond portfolio is recognized at amortized cost. Furthermore from an economic perspective the inflation risk is partly reduced since a part of these bonds carries a coupon linked to the development of the consumer price index.
The match portfolio will match these cash flows, with a maximum duration mismatch of one year and a maximum net interest rate sensitivity of NOK 345 million. The table below shows the estimated duration of discounted liabilities versus the match portfolio as at 30 November 2013.
The Group owns most of its properties directly, although a small part of the portfolio is invested in property funds outside of Norway. In addition to the amounts invested through funds, an additional NOK 13.5 million is committed, but not called upon. The management of the directly owned real estate portfolio is carried out in the wholly owned subsidiary Oslo Areal. The portfolio consists both of property for own use and investment properties. The real estate portfolio has its largest concentration in offices in the Oslo area, but also has offices in other major cities in Norway as well as one property in Denmark. Exposure to real estate has been increased slightly during the year.
Hedge fund Hedge fund is a common term for funds that invest in most types of asset classes with few limitations on the use of derivatives, shorting or leverage in order to earn a return that is partly independent of (has a low correlation with) traditional market indices. Gjensidige utilizes hedge funds to gain exposure to active risk in the individual asset classes and to allocation risk between the individual asset classes and/or risk premiums. Both fund-of-funds and individual funds are used. The fund-of-fund manager will perform the selection and follow-up of the underlying hedge funds, thus reducing operational risk.
A ten per cent strengthening of NOK against all other currencies will decrease equity by about NOK 21.7 million (decrease by 24.7). Since the conversion effect related to subsidiaries is recognized in other comprehensive income, whereas the currency hedging for Gjensidige Baltic is recognized in the income statement, the effect on profit or loss will be positive and amount to NOK 23.6 million (33.8).
Credit risk Gjensidige is exposed to credit risk, i.e. the risk that a counterparty is not able or willing to settle its liability at due date or the risk that the credit spreads will increase (credit risk premium). The Group is primarily exposed to credit risk in the investments in the insurance companies, and through receivables from the insurance customers and reinsurers. Credit risk in Gjensidige Bank will be covered in a separate section.
Table 22b – Fixed-income portfolio per rating category, internal rating include
A large part of the Norwegian fixed-income portfolio consists of issuers without a rating from an official rating company. However, the asset managers and brokerages conduct their own internal rating, assigning rating categories in the same way as the rating companies. For completeness, the second table includes the allocation also using the internal rating of Gjensidige’s main asset manager, Storebrand Asset Management. The following tables show the largest issuers as at 31 December 2013 and 31 December 2012, respectively.
Credit risk in the insurance operation The table below presents the age distributions of the receivables arising out of direct insurance operations and of the reinsurance receivables.
Figure 9a – Potential credit exposure reinsurance per rating category 2013
The following table provides an overview of the breakdown of reinsurance receivables and the reinsurers’ share of outstanding claims per rating category. The exposure in the not-rated category primarily relates to run-off business and is broken down among a number of counterparties. The companies in run-off do not have a rating anymore.
For a going concern, this will result in a positive net cash flow under normal circumstances. Large net outflows will normally arise only from acquisitions or recapitalization of subsidiaries. In case of a large claim or catastrophic event, the payments will take place some time after the event, and the reinsurers will cover most of the amount within a short time after the payments have been made to the claimants. In an extreme scenario, reinsurers could fail to honour their obligations after such a catastrophic event.
Based on this kind of scenario, the Board has set a liquidity requirement for 2013 of at least NOK 4,000 million in the most liquid assets, defined as deposits in banks, covered bonds (OMF), bonds and certificates issued by OECD countries or guaranteed by these countries and money market instruments with a rating of A or better and with a due date within six months. The current allocation meets these requirements. The table below shows the classification used and the amounts as at 31 December 2013 and 2012 for Gjensidige Forsikring ASA.
Management of financial risk – Gjensidige Pensjonsforsikring Gjensidige Pensjonsforsikring (GPF) has separate guidelines for asset management and investment strategy approved by the Board, which specifies targets and limits for and the organization of the investment management activities. A separate investment committee with representatives from GPF, Gjensidige Investeringsrådgivning (GIR) and the Group’s investment and capital management departments advice the CEO on matters pertaining to asset and risk management. The portfolio management is outsourced to GIR. Asset manager selection and asset allocation is based on advice from the Group’s investment centre.
Gjensidige annual report 2013 | 103 company can tolerate a given decline in value. The paid-up policy portfolio amounted to NOK 2,786.6 million as at 31 December 2013 with an average guaranteed interest rate of 3.6 per cent. The other group policy portfolio amounted to NOK 827.3 million, whereas the company portfolio had NOK 444.1 million in financial assets.
The investment portfolio of GPF, excluding the unit-linked portfolio, amounted to NOK 4,058.0 million as of 31 December 2013. This is mainly invested in fixed income instruments and bank deposits, but also contains a small share of equities from the trading portfolio of GPF.
Table 28 – Sensitivity fixed-income and equity portfolio, Gjensidige Pensjonsforsikring 100 bps parallel shift up (0.6) (0.2)
Models for monitoring credit risk The bank uses application score models based on internal and external customer data for decisions relating to customer’s application for a loan. In addition the bank uses behaviour score models which predict the probability of default for decisions related to topups, collections, group provisioning and other portfolio management decisions.
With the help of these score models the lending portfolios in the bank are grouped into several risk categories starting from the best (lowest) risk to the highest (worst) risk segments based on their probability of default. These risk categorizations are done mainly to assist in various credit decisions. These are then further grouped into three main risk classes: Low risk, Medium risk and High risk which is used for the bank's monthly portfolio monitoring, reporting and follow-up of the customer base.
The weighted average portfolio loan to value is estimated at 64.4 per cent for the portfolio secured against property. This is estimated based on the exposure at the reporting date as a ratio of the property value as estimated at loan approval, including any higher priority pledge(s).
The table below shows the portfolio and provisions as of 31 December 2013 and 31 December 2012 segmented by the risk classes.
Interest rate risk arises when the bank’s assets and liabilities have different remaining fixed-rate period. The interest rate risk is managed by adopting fixed interest rate periods on assets and liabilities. In addition derivatives are used for hedging. Fixed interest assets and liabilities in million multiplied by the remaining interest rate period is being used to measure interest rate risk exposure. This is known as milli years (MY).
As at 31 December 2013 the bank has a negative interest rate exposure in the three months to one year interval of 158 MY. The net accumulated interest rate exposure over three months is a negative 35 MY as at 31 December 2013.
By investing in solid securities with limited maturity with expectations that the value is less exposed to changes in credit spread the bank limits its spread risk on its assets. The marked value on the banks bonds varies with changes in the credit spreads. As a result of general market conditions and upgrade of the banks rating the credit spread for funding in 2013 has decreased.
Gjensidige Bank ASA does not have currency or share risk. Gjensidige Bank ASA does not have market risk under Pillar 1 because the bank does not have a trading portfolio.
As at 31 December 2013 the portfolio is geographically diverse, with the greatest lending in the most populous areas of the country. The largest loan is about NOK 12.9 million. The exposure related to the ten largest loans (limit) is about NOK 103.4 million. The bank's liquidity reserves are mainly placed in securities issued by the Norwegian government and Norwegian covered bonds (OMF).
Departmental managers within the various operational areas are responsible for identifying, limiting and controlling the operational risks within their respective areas. Operational risks are identified and communicated via the bank's internal procedures that are tested regularly. Follow-up of the internal control lies with the Internal Control Responsible.
The bank uses the basis method for reporting of operational risk.
Liquidity risk Liquidity risk is the risk of the bank not being able to meet its debt obligations when due and/or not being able to finance growth of in its assets without incurring a substantial increase in costs.
The bank's finance strategy set by the Board provides guidelines and limits on managing the bank's liquidity risk. The bank has established guidelines and risk limits for liquidity risk, as well as for the liquidity reserve, stable long term financing and contingency plans in case of an extraordinary liquidity need. Stress tests are being used to test the resistance of the bank's liquidity situation.
The Liquidity risk because of a lack of access to liquidity is handled through having sufficient liquid assets to cover the liabilities that come to maturity. The bank shall have liquidity reserve (buffer) in short-term deposits, liquid securities and/or committed credit facilities that in an acute liquidity freeze in the market leads to appropriate time to implement the necessary measures.
NOK million < 1 month 1-3 months 1-5 years More than 5 years Without maturity Total
Debt incurred through the issue of securities 12.6 35.5 1,251.8 6,338.4 3,319.7
Loan approvals and unused drawing rights 4,915.1 470.7 Financial derivatives - net settlement (negative figures yield net payment)
Debt incurred through the issue of securities 9.3 431.6 692.7 3,600.9 872.2
Description of the segments General Insurance Private The General Insurance Private segment offers a wide range of insurance products and services in the Norwegian private market, including insurance relating to motor veichles, property, travel/leisure and accident and health.
General Insurance Baltics Gjensidige’s Baltic operations offer general insurance products to the private and commercial markets in Latvia, Lithuania and Estonia. The target customers are people with medium to high income in the private market, and small and medium-sized enterprises in the commercial market.
Retail Bank Gjensidige Bank’s business is geared towards the private market in Norway. The bank offers a full range of day-to-day banking services, mortgages, savings products and car and consumer financing.
Segment income – group 2 - Claims, interest expenses, loss etc. (5,466.5) (5,051.7) (5,207.6) (4,943.1) (2,417.0) (1,883.6) (342.5) (292.6) (779.7) (574.9) (656.0) (575.1) (425.9) (266.8) (15,295.3) (13,587.7)
Segment result/profit/(loss) before tax expense 1,305.5 1,439.1 992.9 1,012.6 342.3 519.9 35.7 18.9 49.9 18.3 191.0 113.0 1,656.8 2,511.7 4,574.1 5,633.5 1 Eliminations etc. consist of internal eliminations and other income and expenses not directly attributable to one single segment and large losses of NOK 373.6 million (111.8). 2 There is no significant income between the segments at this level in 2013 and 2012.
Amortisation and impairment losses As at 1 January 2012 (276.0) (281.9) (84.8) (534.2) (62.6) (1,239.5) Amortisations (76.7) (10.0) (132.6) (34.1) (253.4) Disposals 51.3 62.3 113.6 Exchange differences 5.2 14.4 4.2 7.8 4.3 36.0 As at 31 December 2012 (219.4) (344.2) (90.6) (596.8) (92.3) (1,343.2)
Carrying amount As at 1 January 2012 2,374.8 531.1 50.9 389.6 230.0 3,576.4 As at 31 December 2012 2,267.7 457.3 39.2 436.2 190.5 3,391.0
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. Internally developed software is developed for use in the insurance business. External and internal assistance used in relation with implementation or substantial upgrade of software, including adjustment of standard systems, are capitalized as intangible assets. Amortization is included in the accounting line Expenses.
Impairment testing of goodwill The carrying amount of goodwill in the Group as at 31 December 2013 is NOK 2.562.2 million. See table.
Each of the units is considered to be separate cash-generating units. In Oslo Areal each underlying property is defined as a cashgenerating unit, and goodwill related to Oslo Areal occurs as a consequence of provision for deferred tax on temporary differences (tax amortization benefit). Goodwill in Gjensidige Bank is established through the purchase of Citibank’s Norwegian portfolio of consumer loans.
The annual assessment of impairment losses was carried out in the third quarter of 2013. An indication assessment was also carried out in the other quarters in order to assess whether new circumstances calls for new impairment testing of goodwill.
There has been no impairment losses of goodwill, but trademark was written down with 29,7 million nok in third quarter 2013.
Budgets/prognoses and the period for which the cash flows are projected The projection of cash flows is based on budgets for the next four years reviewed by the management and approved by the Board of Directors. In the period after 2017 an annual growth of three per cent has been projected until 2022. The terminal value is calculated in 2022. The growth is grounded in the fact that the companies are small and with a solid parent company, which gives them good chances of increasing market shares. The cash flows are estimated to a normal level before a terminal value is calculated.
Gjensidige normally has a ten-year horizon on its models, as the company is in a growth phase and a shorter period will not give a correct view of expected cash flows.
The management method As far as possible, the management has sought to document the assumptions upon which the models are based through external information. External information is first and foremost used in the assessment of discount rate and exchange rates. When it comes to future cash flows, the management has also considered the degree of historical achievement of budgets. If expected budgeted results are not achieved, the management has conducted a deviation analysis. These deviation analyses are reviewed by the Board of Directors of the respective subsidiaries, as well as the management in Gjensidige Forsikring.
Growth rate The growth rate is considered to be 3.0 per cent. This is based on the following assumptions
Sensitivity analysis key assumptions The excess values associated with the acquisitions are based on different key assumptions. If these assumptions change significantly from what they are expected to be in the impairment models, a need for impairment may arise. See table.
Growth reduced by 2% compared to expected next 3 years CR increases by 2% next 3 years All circumstances occur simultaneously
Need for impairment app. NOK 72 million No need for impairment No need for impairment Need for impairment app. NOK 95 million
Gjensidige Baltic No need for impairment No need for impairment No need for impairment No need for impairment 1 Merged with Gjensidige Forsikring, Dansish branch from 1 January 2013.
Storebrand ASA Oslo 20.1% 3,805.2 3,306.3 4,604.4 3,750.6 SpareBank 1 SR-Bank ASA Stavanger 10.4% 1,022.2 1,423.0 1,022.2 1,250.6 Bilskadeinstituttet AS Oslo 29.5% 0.4 1.5 0.4 1.5 Vervet AS including subordinated loan 1 Tromsø 25.0% 35.3 5.2 32.3 2.2 FDC A/S Ballerup, Denmark 33.3% 5.2 36.1 5.2 31.3 1 Subordinated loan of NOK 24.0 million is included in cost.
SpareBank 1 SR-Bank ASA 156,985.0 14,056.0 142,929.0 4,498.0 1,860.0 179.0 1,595.6 Bilskadeinstituttet AS 5.5 5.2 0.3 2.3 0.1 N/A Vervet AS 114.9 18.8 96.1 0.5 N/A FDC A/S 153.3 81.4 71.9 337.7 0.9 0.5 N/A
The investment in SpareBank 1 SR-Bank ASA is classified as investments in an associate and is carried at equity method. Gjensidige Forsikring ASA owns 10.4 per cent of the equity in the bank, and has not, based solely on the interest held alone, significant influence. However, the company is represented in both the board in SpareBank 1 SR-Bank ASA and the nomination committee. This gives Gjensidige Forsikring ASA significant influence and thus the opportunity to participate in the financial and operational decisions of the bank.
Gjensidige Forsikring ASA, including subsidiaries, also owns bonds issued by SpareBank 1 SR-Bank ASA. The carrying amount of these bonds is NOK 101.4 million.
110 | Gjensidige annual report 2013 7. Owner-occupied property, plant and equipment
Depreciation and impairment losses As at 1 January 2012 (61.4) (550.8) (612.3) Depreciation for the year (4.3) (63.4) (67.7) Disposals 40.9 220.0 261.0 Impairment losses recognized during the period 2 (8.0) (8.0) Exchange differences 0.1 2.6 2.7
As at 31 December 2013 330.7 484.9 815.6 Uncompleted projects 136.1 136.1
As at 31 December 2013, including uncompleted projects 330.7 621.0 951.7
Depreciation and impairment losses As at 1 January 2013 (32.7) (391.6) (424.3) Depreciation for the year (9.3) (44.2) (53.5) Disposals 71.4 71.4 Exchange differences (0.4) (7.2) (7.6)
2 In 2012, an impairment loss of a total of NOK 8.0 million on three different owner-occupied properties was recognized. The new value of the properties was determined by using the Group's internal valuation model, cf. note 9. The valuations were not based on observable market prices or recent transactions. The carrying amount of the properties before the impairment was NOK 199.2 million.
Gjensidige annual report 2013 | 111 8. Financial assets and liabilities Fair value Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in an orderly transaction between market participants at the measurements date.
The following financial assets/liabilities are classified as level one in the valuation hierarchy Listed shares Norwegian government/government backed bonds and other fixed income securities Exchange traded funds
Sensitivity financial assets level three The sensitivity analysis for financial assets that are valued on the basis of non-observable market data shows the effect on profits of realiztic and plausible market outcomes. General market downturns or a worsening of the outlook can affect expectations of future cash flows or the applied multiples, which in turn will lead to a reduction in value. A fall in value of ten per cent is deemed to be a realiztic and plausible market outcome for both equities and units and bonds and other securities with a fixed return that are included in level three of the valuation hierarchy.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 219.9 219.9 287.7 287.7 Financial derivatives subject to hedge accounting 38.5 38.5
Financial assets held to maturity Bonds held to maturity 5,211.3 5,447.7 9,263.7 9,419.3
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 10 18,441.3 19,399.1 14,928.8 15,403.6 Loans 10 24,251.1 24,262.4 17,467.7 17,478.0 Receivables related to direct operations and reinsurance 10 4,290.5 4,290.5 4,112.7 4,111.7 Other receivables 10 509.2 509.2 314.9 311.8 Prepaid expenses and earned, not received income 10 153.3 153.3 81.2 67.1 Cash and cash equivalents 11, 25 2,729.4 2,729.4 2,331.5 2,331.5
Financial liabilities at fair value through profit or loss, initial recognition Interest-bearing liabilities at fair value through profit or loss 15
Financial assets at amortised cost Bonds held to maturity 532.6 4,915.1 5,447.7 Bonds and other fixed income securities classified as loans and receivables 228.3 19,169.8 1.0 19,399.1 Loans 24,262.4 24,262.4
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 151.6 136.1 287.7 Financial derivatives subject to hedge accounting 38.5 38.5
Bonds and other fixed income securities 26.8 16.2 0.4 (42.2) 1.2 1 In 2013, we received pricing information for an equity fund less frequently, which caused its transfer from level 2 to level 3.
Sensitivity of financial assets valued based on non-observable market data (level 3) 2013
Bonds and other fixed income securities 24.0 2.3 0.6 26.8 2.3 1 In 2012, we received pricing information for an equity fund more frequently, which caused its transfer from level 3 to level 2.
Shares and similar interests Decrease in value 10% 185.9 Bonds and other fixed income securities Decrease in value 10% 2.7
Hedge accounting Net investment in the foreign operation Gjensidige Forsikring utilizes hedge accounting of currency exchange differences of the net investment in the foreign operation. The net investment is hedged through designated currency-related contracts that are renewed every quarter at a principal equal to the value of the investment. In this way, the hedging efficiency is measured per hedging object. The credit risk associated with the hedging derivatives is within the limits of Gjensidige's credit policy.
Fair value hedging The bank utilizes fair value hedge accounting to manage its interest rate risk. Hedging is performed to prevent from valuation variations of issued fixed rate obligations due to changes in the rate level. Interest rate swaps designed as hedging instruments are measured at fair value through profit or loss. The changes in fair value for the hedging object linked to the hedged risk are accounted as addition or deduction to the carrying value and in profit or loss. Interest rates swaps are renewed every quarter.
The investment properties are mainly located in Oslo and the surrounding area, as well as Drammen, Fredrikstad and Stavanger. In addition, the Group has one investment property in Denmark. The average rental period is 5.3 years and the portfolio of investment properties includes principally offices.
The Group's valuation model is developed by the subsidiary Oslo Areal AS over multiple years. The valuation model has been used both in the quarterly financial statements and at year end. In addition, by half year and year end independent valuations from external advisors are gathered for selected parts of the portfolio. The assumptions in the model are reconciled against external observable property transactions.
The Group's valuation model values each property separately. The valuation model relies on a semi-annually in arrears cash flow method. The most important inputs are yield, market rent, contractual rent, potentially vacant premises, the properties' longterm normalized operating costs and any investment requirements.
The method maps all incomes and all expenses in a given investment horizon so that the net cash flow is given yearly for each property. Thereafter, the present value is calculated using this cash flow based on real yield adjusted for expected inflation. The present value of the cash flow and the present value of the remaining value compose the cash flow value of the property, and this is considered as the market value, as it would appear in an orderly transaction between market participants at the measurement date under current market conditions.
Determination of parameters implies a significant level of judgment. Emphasis is put on this judgment being consistent with that observed in the market and that the judgment is applied consistently from period to period. The table below shows how the sensitivity of the yield and the market rent affects the value of the portfolio, as it stands as at 31 December 2013.
There are no loans with collateral in investments properties in 2012 or 2013.
NOK million Market rent reduced by 10% Market rent as at 31.12.2013 Market rent increased by 10% Yield increases by 0.25 percentage point 4,084.2 4,461.8 4,839.4 Yield 6.50 per cent 4,248.5 4,644.3 5,035.4 Yield decreases by 0.25 percentage point 4,426.4 4,837.0 5,247.5
Loans and receivables Mortgage loans 21,059.3 14,488.9 Bonds classified as loans and receivables 18,441.3 14,928.8 Other loans 377.3 378.9 Impairment to fair value (2.6) (8.0) Subordinated loans 9.3 9.1 Provision for impairment losses (328.0) (304.4) Loans for consumer goods 3,135.8 2,903.3
Other receivables Receivables in relation with property 38.0 2.2 Receivables in relation with asset management 262.1 116.4 Other receivables and assets 209.0 196.3
Prepaid expenses and earned, not received income Earned, not received interest income 122.5 65.8 Other prepaid expenses and earned, not received income 30.8 15.5
Total prepaid expenses and earned, not received income 153.3 81.2 Mortgage loans consist mainly of loans from the Gjensidige Bank Group, which primarily target the private segment.
Included in other loans are also NOK 214.9 (180.5) million in loans given with regard to sale of subsidiaries.
Gjensidige considers the credit and liquidity risk associated with policyholders to be small, since the outstanding amount per policyholder is relatively small. Provisions for potentially irrecoverable amounts have been made.
A considerable amount of receivables in relation with asset management as at 31 December 2013 is short-term receivables in relation with sale of securities.
Shares and similar interests owned by other group companies Shares and similar interests owned by Gjensidige Pensjonsforsikring AS 0.7 Shares and similar interests owned by Nykredit Forsikring A/S 6.0 Shares and similar interests owned by Gjensidige Baltic AAS 0.3 Total shares and similar interests owned by other group companies 7.0
Total shares and similar interests owned by the Gjensidige Insurance Group 6,023.4
Insurance-related liabilities, reinsurers' share Reinsurers' share of unearned premiums, gross 16.0 19.5
Insurance-related liabilities net of reinsurance Premium reserve in life insurance 3,064.6 2,797.9 Provision for unearned premiums from general insurance 7,968.6 7,324.1
Claims reported and claims handling costs 14,111.7 12,372.9 Claims incurred, but not reported 16,926.1 16,535.5
Claims and claims handling costs Claims reported and claims handling costs 12,949.6 (576.7) 12,372.9 13,457.4 (841.4) 12,616.0 Claims incurred, but not reported 16,612.7 (77.2) 16,535.5 16,504.1 (166.1) 16,338.0
Acquisitions through business combinations 77.8 77.8 161.5 (18.2) 143.3 Claims paid, prior year claims (5,839.0) 329.9 (5,509.1) (7,059.3) 914.0 (6,145.3)
Provisions for unearned premiums in general insurance As at 1 January 7,343.7 (19.5) 7,324.1 7,132.0 (15.2) 7,116.7 Additions through acquisitions 124.3 124.3 Increase in the period 19,628.3 (567.3) 19,061.0 18,554.7 (481.2) 18,073.4 Release in the period (19,307.7) 570.8 (18,736.9) (18,274.1) 476.8 (17,797.3) Exchange differences 196.1 196.1 (68.9) 0.1 (68.7)
NOK million 2013 2012 Discounted claims provision, gross - Gjensidige's workers' compensation insurance in Denmark 4,138.8 3,781.0 Undiscounted claims provision, gross - Gjensidige's workers' compensation insurance in Denmark 5,203.0 4,517.0
The claims provisions shall cover future claims payments. The claims provisions for Gjensidige’s workers’ compensation insurance in Denmark are converted to present value (discounted), whereas other provisions are undiscounted.
The difference between the estimated pension liability and the estimated value of pension assets as of the previous financial year and the actuarial pension liability and the fair value of the pension assets as of the beginning of the year is recognized under Other comprehensive income. In the calculation for 2013, this difference amounted to slightly less than NOK 20 million. In 2012, it was largely the increased discount rate as a result of the transition to using the covered bond yield that had a positive effect on equity in the amount of more than NOK 600 million.
The pension liabilities will increase by approximately 13 per cent in the event of a parallel shift in the whole yield curve (an interest rate fall) of minus one per cent. The value will fall approximately 10 per cent in the event of an increase in the interest rate.
No information has become available in 2013 to indicate that GAP07 should be changed. There is uncertainty about how life expectancy will develop, especially for men. The Financial Supervisory Authority of Norway has adopted separate minimum requirements for life expectancy prices (K2013) for pension plans. These requirements concern the minimum price a life insurance company or pension fund shall charge to insure benefits. These minimum prices thus affect the size of the contributions that must be made towards the annual earnings and for the minimum requirement for pension assets.
Minimum requirement for the level of pension assets The pension assets must meet certain minimum requirements defined in Norwegian laws, regulations and in orders issued by the Financial Supervisory Authority of Norway.
In 2013, Gjensidige Pensjonskasse has been ordered to use a life expectancy assumption that deviates significantly from the life expectancy assumptions used pursuant to IAS 19. This requirement increases the minimum requirement for pension assets. Gjensidige expects this minimum requirement to remain unchanged in the years ahead.
Interest cost 98.9 82.0 Actuarial gains and losses 23.2 (543.7) Benefits paid (136.7) (141.7) Employers' national insurance contributions of benefits paid (7.2) (28.0) Foreign currency exchange rate changes 5.1 (2.3)
Amount recognized in the balance sheet Present value of unfunded plans 440.5 435.6 Present value of funded plans 2,060.9 2,036.0
Net defined benefit obligation 109.8 137.5 Net pension liability in the balance sheet 109.8 137.5
Pension expense recognized in profit or loss Current service cost 40.8 56.2 Interest cost 98.9 82.0 Interest income (99.2) (93.6) Employers' national insurance contributions 5.7 7.9
Actuarial assumptions Discount rate 4.10% 4.20% Future salary increases 2.60% 2.60% Change in social security base amount 4.00% 4.00% Future pension increases 2.50% 2.50%
Other specifications Amount recognized as expense for the defined contribution plan 107.9 89.2 Amount recognized as expense for Fellesordningen LO/NHO 18.0 15.0 Expected contribution to Fellesordningen LO/NHO next year 18.4 Expected contribution to the defined benefit plan for the next year 30.5 142.3
Other provisions and liabilities Restructuring cost1 25.4 57.2 Other provisions 138.9 76.8
Other liabilities Outstanding accounts Fire Mutuals 16.9 18.6 Accounts payable 167.8 133.1 Liabilities in relation with properties 39.1 64.2 Liabilities to public authorities 372.1 361.2 Other liabilities 356.3 400.9
Provision as at 31 December 25.4 57.2 1 There has not been new provisions for restructuring or reorganization project in 2013. In 2012, a provision of 9.0 million to the Motor and Property Claims was deposited. This provision is reversed as needed restructuring was carried out through natural attrition.
Deductible temporary differences Plant and equipment and intangible assets (360.2) (542.7) Loans and receivables (91.7) (66.5) Provisions for liabilities (88.1) (74.3) Pension liabilities (92.9) (134.4) Claims provision (3.7) (3.1) Other deductible temporary differences 22.8 28.4
Total deductible temporary differences (613.8) (792.7) Loss carried forward (11.3) (8.0)
Total tax expense (903.5) (1,353.5) Effective rate of income tax 19.8 % 24.0 %
Loss and dividend tax deduction carried forward 2014 2015 2016 2017 2018 Later or no due date 11.3 8.0
Change in deferred tax Deferred tax liabilities as at 1 January 1,263.4 996.2 Change in deferred tax recognized in profit or loss 138.4 126.5
Change in deferred tax recognized directly in the balance sheet Pensions 23.7 178.5 Hedge accounting (29.3) (1.4) Companies sold and purchased (33.0) (34.6) Exchange differences 7.5 (5.1) Other changes (35.0) 3.3
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 shall 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 performancebased, 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.
The fixed salary is assessed and stipulated annually on the basis of the wage growth in society in general and in the financial industry in particular. Variable pay (bonus) is decided by the Board on the basis of agreed goals and deliveries. It can amount to up to 50 per cent of the fixed salary including holiday pay. Variable pay is not included in the pension basis. The assessment takes into account the enterprise’s overall performance targets for return on equity and combined ratio, and an evaluation of the CEO’s personal contribution to the Group’s development and results, compliance with the Group’s vision, values, ethical guidelines and management principles.
The fixed salary is assessed and stipulated annually on the basis of wage growth in society in general and in the financial industry in particular. Variable pay (bonus) can be paid to executive personnel on the basis of concrete performance measurements in defined target areas and a discretionary assessment stipulated in scorecards and derived from the Group’s strategies and goals. The assessment takes into account a combination of the enterprise’s overall performance targets for return on equity and combined
Remuneration of executive personnel with supervisory tasks The remuneration of executive personnel with supervisory tasks shall be independent of the performance of the business area they are in charge of.
Binding guidelines for shares, subscription rights etc. for the upcoming financial year Of the variable pay earned in 2014 by the CEO and other employees covered by the Regulations relating to remuneration in financial institutions, 50 per cent of the gross earned variable pay 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.
The Board has decided to continue the Group’s share savings programme for employees in 2014. The CEO and executive personnel are entitled to take part in the programme on a par with other Gjensidige employees. Under the current programme, employees can save through deductions from their salary for the purchase of shares in Gjensidige Forsikring ASA for up to NOK 75,000 per year. Purchases take place quarterly following publication of the results. A discount of 20 per cent of the purchase price is offered, limited upwards to NOK 1,500. For those who keep the shares and are still employed in the Group, one bonus share is awarded for each share they have owned for more than two years.
Rights earned in the financial year according to defined benefit pension plan6
Sigurd Austin, Executive Vice President 2,400.5 341.2 225.9 471.6 114.1 3,914 1,278 6,940 2,618 3 Kaare Østgaard, Executive Vice President 2,401.4 341.2 212.0 616.8 114.1 4,114 1,278 7,332 4,190 3
The senior group management Helge Leiro Baastad, CEO 4,429.5 725.2 250.0 1,468.0 17.9 12,974 13,266 20,143 2
Bjørn Asp, Executive Vice President 8 2,121.9 294.2 194.2 17.9 1,497.8 3.55% 20.02.2025 5,166 5,204 4,827 3
Inge K. Hansen, Chairman 454.5 1.5 12,253 Randi B. Sætershagen (1.1.12 - 29.5.12) 1 254.8
Trond V. Andersen 236.0 1.5 54.7 5.35% 20.08.2014 1,778 Hans-Erik Andersson 329.2 1,778 Mari T. Skjærstad 236.0 1.5 Gisele Marchand 334.2 1.5 1,481 Gunnhild H. Andersen, staff representative 6 230.0 785
Tore Vågsmyr, staff representative 6 655 Inger-Lise Bratsberg, staff representative (23.11.12 - 31.12.12) 1,6 1,952
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 Annual fee of NOK ten thousand. In addition fee as Chairman of the Nominating committee. 5 The fee includes fee for subsidiaries. 6 For staff representatives only remuneration for the current position is stated. 7 Everyone in the senior group management except for one has pension plans, benefit or contribution based. 8 Bjørn Asp has retired and is as of 1.1.2013 not a part of the senior group management. Therefore he has no retained pension benefits. 9 Including bonus shares in the share saving's programme for employees. See note 27 for terms and further description of the scheme.
Gjensidige annual report 2013 | 133 19. Net income from investments
Total net income and gains/(losses) from investments in subsidiaries and associated companies 192.7 441.5
Total net income and gains/(losses) from buildings and other real estate 351.5 287.5
Total net income and gains/(losses) from bonds and other fixed-income securities 453.2 566.7
Derivatives Net interest income/(expenses) from derivatives 52.7 40.0 Unrealized gains/(losses) from derivatives (297.5) (179.3) Realized gains/(losses) from derivatives (534.5) 684.8
Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 414.8 513.1 Unrealized gains/(losses) from bonds held to maturity (1.0) (3.4) Realized gains/(losses) from bonds held to maturity (11.2) Net gains/(losses) from changes in exchange rates on bonds held to maturity (6.6)
Total net income and gains/(losses) from bonds held to maturity 402.6 503.1
Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 699.6 569.5 Net gains/(losses) from loans and receivables 3.5 (2.0) Net gains/(losses) from changes in exchange rates on loans and receivables 11.7 (2.0)
Interest income and expenses from financial assets and liabilities not recognized at fair value through profit or loss Interest income from financial assets not recognized at fair value through profit or loss 1,115.7 1,134.0 Interest expenses from financial assets not recognized at fair value through profit or loss (282.6) (223.6)
Specification of other financially related income and expenses not recognized in net income from investments
Commission arising from the investment of assets on behalf of individuals 33.1 28.3 1 Net other financial income/(expenses) include financial income and expenses not attributable to individual classes of financial assets or liabilities, and financial administration costs.
As part of its ongoing financial management, the Company has undertaken to invest up to NOK 1,100.6 million (1,158.3) in various private equity and real estate investments, over and above amounts recognized in the balance sheet. Investments in private equity and real estate funds totaled NOK 1,829.3 million (1,629.2) at the end of the year.
Overview Gjensidige Forsikring ASA is the Group's parent company. As at 31 December 2013 the following companies are regarded related parties.
Associates Bilskadeinstituttet AS Oslo, Norway 29.5% SpareBank 1 SR-Bank ASA 1 Stavanger, Norway 10.4% Storebrand ASA Oslo, Norway 20.1% Vervet AS Tromsø, Norway 25.0%
Gross premiums written Gjensidiges Arbejdsskadeforsikring A/S 23.9 Gjensidige Baltic AAS 11.8 10.5 Gjensidige Pensjonsforsikring AS (eid av Gjensidige Pensjon og Sparing Holding AS) 1.3 0.2 Nykredit Forsikring A/S 794.9 794.6
Administration expenses Byggeriet Forsikringsservice A/S 16.1 Gjensidige Bank ASA owned by Gjensidige Bank Holding AS) 28.9 27.8 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding AS) 5.2 6.7
Gjensidige Pensjon og Sparing Holding AS 8.3 9.6 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 37.9 36.6 Gjensidige Fondene AS (owned by Gjensidige Pensjon og Sparing Holding AS) 0.3 Gjensidigestiftelsen 12.8 20.9 Glitne Invest AS (liquidated in 2012) 0.2 Nordisk Forsikrings Service AS 22.2 Nykredit Forsikring A/S 86.1 75.7 Oslo Areal AS 0.3 1.3 0.2 2.0 Tennant Assuranse AS 17.9 17.7
Loans As at 31 December 2013 employees have loans in Gjensidige Bank amounting to NOK 1,352.2 million (941.7), The loans are offered on normal commercial conditions,
Gjensidige Fondene AS (owned by Gjensidige Pensjon og Sparing Holding AS) 4.8 Glitne Invest AS (received group contribution 2012 relates to change in received group contribution for 2011) 4.5
Lokal Forsikring AS 0.0 Oslo Areal AS (given group contribution 2012 relates to change in received group contribution for 2011) 75.0 58.1
Dividends Gjensidige Baltic AAS 75.1 Gjensidige Norge AS 1.0 Nykredit Forsikring A/S 99.8 126.8 Oslo Areal AS 30.0 SpareBank 1 SR-Bank ASA 39.7 31.1
Total gains and losses in connection with sale, liquidation and impairment losses 35.3 611.0 237.8 139.5
22. Events after the balance sheet date Gjensidige sold on 26 February 2014 the holding in Storebrand ASA. Accounting gain from the transaction was around NOK 115 million in the consolidated accounts. Following the completion of the sale, Gjensidige will not hold any shares in Storebrand ASA. Besides this there are no significant events that have occurred after the end of the period.
Equity 26,287.8 25,617.7 Security provision (2,764.9) (2,446.1) Dividend (6,400.0) (3,425.0) Tax effects 903.8 850.9
Assets with 0 % risk weight 5,306.5 3,929.6 Assets with 10 % risk weight 2,608.3 2,554.7 Assets with 20 % risk weight 37,652.9 36,182.0 Assets with 35 % risk weight 20,012.3 13,555.5 Assets with 50 % risk weight 1,633.3 2,040.9 Assets with 100 % risk weight 36,094.5 30,354.6 Assets with 150 % risk weight 1,713.1 1,868.3
Other non-weighted assets Goodwill 2,562.2 2,267.7 Deferred tax assets 5.0 4.1 Other intangible assets 1,138.2 1,123.3 Derivatives 219.9 326.2
Weighted reinvestment cost derivatives 61.1 93.2 Primary capital in other financial institutions (108.5) (108.5) Loss provisions 321.4 (231.0)
Risk weighted calculation base (B) 96,610.5 94,601.6 Capital ratio (A/B) 13.4 % 16.8 % FSAN minimum requirement 8.0 % 8.0 % FSAN minimum requirement (C) 7,728.8 7,568.1
Solvency margin capital 14,607.6 17,602.5 Solvency margin minimum requirement 5,873.9 6,338.3
Restricted bank deposits Source-deductible tax accounts 76.3 74.2 Securities placed as security for insurance operations 0.6 Deposits placed as security for insurance operations 0.1
Gjensidigestiftelsen 311,200,657 62.24% Folketrygdfondet 23,460,604 4.69% State Street Bank And Trust Co. Nominee 13,592,786 2.72% Clearstream Banking S.A. Nominee 7,900,382 1.58% State Street Bank & Trust Company Nominee 5,277,204 1.06% State Street Bank & Trust Co. Nominee 4,318,987 0.86% State Street Bank And Trust Co Nominee 2,927,963 0.59% Verdipapirfondet Dnb Norge (Iv) 2,836,120 0.57% Skandinaviska Enskilda Banken Ab Nominee 2,763,010 0.55% State Street Bank And Trust Co. Nominee 2,664,111 0.53% State Street Bank And Trust Co. Nominee 2,514,903 0.50% Bnye/Bordoli Jonathan Bryan Y) 2,055,637 0.41% Danske Invest Norske Instit. Ii. 2,040,640 0.41% The Bank Of New York Mellon (Luxembourg) Nominee 2,027,769 0.41% Odin Norge 2,008,905 0.40% Standard Life Assurance Limited 1,819,398 0.36% J.P. Morgan Chase Bank N.A. London Nominee 1,760,367 0.35% Klp Aksje Norge Indeks Vpf 1,682,057 0.34% Citibank, N.A. Nominee 1,647,258 0.33% J.P. Morgan Chase Bank N.A. London Nominee 1,645,621 0.33%
Weighted average share price (NOK) 89.83 68.25 95.19 75.62 Expected turnover N/A N/A 10% 10% Expected sale N/A N/A 5% 5% Lock-in period (years) 3 3 2 2 Expected dividend (NOK per share) 1 5.41 6.98 5.41 6.98 1 The expected return is based on the Group's actual profit/loss after tax expense as of the third quarter, grossed up to a full year, plus the maximum distribution of dividend corresponding to 80 per cent of the profit after tax expense. This was carried out as a technical calculation because the Company's forecast for the fourth quarter result was not available at the time the calculations were carried out.
Share-based remuneration for key personnel 8.6 6.6 Share savings programme for employees 3.3 2.0
The number of bonus shares Outstanding 1 January 70,918 50,747 Granted during the period 37,634 22,546 Released during the period (43,383) Cancelled during the period (3,408) (2,375) Forfeited during the period (4,274) Exercised during the period Expired during the period
The number of shares Outstanding 1 January 47,555 44,366 Granted during the period 41,093 38,298 47,555 44,366 Forfeited during the period (15,980) (14,905) Cancelled during the period Exercised during the period Expired during the period Modification dividend during the period 5,211 4,990
Weighted average number of diluted shares share-based payment 142,445 78,519 Weighted average number of shares, diluted 1 500,060,691 500,009,125
Earnings per share (NOK), basis 7.34 8.56 Earnings per share (NOK), diluted 7.34 8.56 1 Holdings of own shares are not included in the calculations of the number of shares.
Insurance-related operating expenses Insurance-related administration expenses incl. commissions for received reinsurance and sales expenses 4, 17 (2,750.2) (2,563.9)
Allocated return on investments transferred to the technical accounts (651.7) (491.8) Other income 19.8 4.0 Other expenses 17 (8.0) (3.8)
Total items that may be reclassified subsequently to profit or loss 69.5 (17.9)
Investments Buildings and other real estate Investment properties 9 177.3 182.2 Owner-occupied property 7 84.4 84.6 Subsidiaries and associates Shares in subsidiaries 6 6,376.4 6,736.9 Shares in associates 6 3,149.8 3,592.5 Interest bearing receivables within the group 21 2,365.9 2,398.5 Financial assets measured at amortised cost Bonds held to maturity 8 4,567.0 8,521.2 Loans and receivables 8, 10 15,004.1 12,849.3 Financial assets measured at fair value Shares and similar interests (incl. shares and similar interests measured at cost) 8, 12 6,016.4 4,304.7 Bonds and other fixed-income securities 8 19,646.8 13,096.3 Financial derivatives 8 216.8 161.5 Reinsurance deposits 643.9 400.6
Receivables Receivables related to direct operations 8 4,073.5 3,818.6 Receivables related to reinsurance 8 31.1 45.7 Receivables within the group 21 164.9 224.1 Other receivables 10 359.5 185.5
Paid in equity Share capital 1,000.0 1,000.0 Own shares (0.1) (0.1) Share premium 1,430.0 1,430.0 Other paid in equity 17.1 11.3
Retained equity Funds etc. Natural perils fund provision 2,215.5 2,399.2 Guarantee scheme provision 582.4 612.2 Other retained earnings 11,038.3 14,061.0
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset 623.8 623.8 Tax on items that are not reclassified to profit or loss (174.7) (174.7) Total items that are not reclassified subsequently to profit or loss 449.2 449.2
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations (56.0) (0.4) (56.4) Exchange differences from hedging of foreign operations 53.5 53.5 Tax on items that may be reclassified to profit or loss (15.0) (15.0) Total items that may be reclassified subsequently to profit or loss (17.5) (0.4) (17.9)
Own shares (0.0) (2.3) (2.3) Accrued dividend (3,425.0) (3,425.0) Equity-settled share-based payment transactions 3.7 3.7
Cash and cash equivalents at the start of the period 1,202.6 1,453.7 Cash and cash equivalents at the end of the period 1,002.2 1,202.6
• IFRS 13 Fair Value Measurements • Presentation of Items of Other Comprehensive Income
Under IAS 19 (2011), Gjensidige determines the net interest expense /income on the net defined benefit liability/asset for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability/asset, taking into account any changes in the net defined benefit liability/asset during the period as a result of contributions and benefit payments.
Previously, Gjensidige determined interest income on plan assets based on their long-term rate of expected return. The change did not have a material impact on Gjensidige's financial statements.
IFRS 9 (2009) contains two primary measurement categories for financial assets: amortised cost and fair value. Financial assets will be classified as either valued at fair value or at amortised cost, depending on how they are managed and on what contractual cash flow characteristics they have. IFRS 9 (2010) introduces a new requirement in respect of financial liabilities designated under the fair value option to generally present fair value changes that are attributable to the liability's credit risk in OCI rather than in profit or loss. IFRS 9 (2013) introduces new requirements for hedge accounting that align hedge accounting more closely with risk management. The mandatory effective date of IFRS 9 is not specified, but will be determined when the outstanding phases are finalized. Our preliminary assessment is that the standard is expected to have an impact on Gjensidige's financial statements.
Financial expenses consist of interest expenses on loans, realized losses related to financial assets, change in fair value of financial assets at fair value through profit or loss, recognized impairment on financial assets and recognized loss on financial derivatives. All expenses related to loans are recognized in profit or loss using the effective interest method.
Subsequent costs Subsequent costs are recognized in the asset’s carrying amount when it is probable that the future economic benefits associated with the asset will flow to the Group, and the cost of the asset can be measured reliably. If the subsequent cost is a replacement cost for part of an item of owner-occupied property, plant and equipment, the cost is capitalized and the carrying amount of what has been replaced is derecognized. Repairs and maintenances are recognized in profit or loss in the period in which they are incurred.
Investment properties are measured initially at cost, i.e. the purchase price including directly attributable expenses associated with the purchase. Investment properties are not depreciated.
Intangible assets Goodwill Goodwill acquired in acquisition of portfolios represents cost price of the acquisition in excess of the company’s share of the net fair value of identifiable assets, liabilities and contingent liabilities in the acquired portfolio at the time of acquisition. Goodwill is recognized initially at cost and subsequently measured at cost less accumulated impairment losses.
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 the Group intends to and has sufficient resources to complete the development and to use or sell the asset.
Adequacy test A yearly adequacy test is performed to verify that the level of the provisions is sufficient compared to the company’s liabilities. Current estimates for future claims payments for the company’s insurance liabilities at the reporting date, as well as related cash flows, are used to perform the test. This includes both claims incurred before the reporting date (claims provisions) and claims that will occur from the reporting date until the next annual renewal (premium provisions). Any negative discrepancy between the original provision and the liability adequacy test will entail provision for insufficient premium level.
Reinsurers’ share of insurance-related liabilities in general insurance, gross Reinsurers’ share of insurance-related liabilities in general insurance, gross is classified as an asset in the balance sheet. Reinsurers ’ share of provision for unearned premiums, gross and reinsurers ’ share of claims provision, gross are included in reinsurers’ share of insurance-related liabilities in general ­insurance, gross. The reinsurers’ share is less expected losses on claims based on objective evidence of impairment losses.
Financial assets are derecognized when the contractual rights to cash flows from the financial asset expire, or when the Group transfers the financial asset in a transaction where all or practically all the risk and rewards related to ownership of the assets are transferred.
The category financial derivatives comprise the classes financial derivatives at fair value through profit or loss.
The category financial liabilities at amortised cost comprises the classes other liabilities, liabilities related to direct insurance and reinsurance, accrued expenses and deferred income and liabilities within the Group.
Impairment losses recognized in profit or loss are not reversed through profit or loss, but in other comprehensive income.
Dividend Dividend from investments is recognized when the company has an unconditional right to receive the dividend. Proposed dividend is recognized as a liability in accordance with the Accounting Act and Regulations on Simplified Application of International Accounting Standards (FOR 2008-01-21 nr. 57). This implies that dividend reduces equity in the fiscal year the dividend provision relates to.
Deferred tax liabilities are recognized for temporary differences resulting from investments in subsidiaries and associates, except in cases where the Group 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 recognized to the extent that it is probable that there will be sufficient taxable income to utilise the asset from the temporary difference, and they are expected to reverse in the foreseeable future.
Natural perils fund Operating profit/loss from the compulsory natural perils insurance shall be adjusted against a Natural perils fund. The provision can only be used for claims related to natural perils. Natural peril is defined as claim in direct relation to natural hazard, such as landslide, storm, flood, storm surge, earthquake or eruption.
Gjensidige annual report 2013 | 155 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 recognized 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.
3. Management of insurance and financial risk 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 Insurance Group.
156 | Gjensidige annual report 2013 4. Premiums and claims etc. in general insurance
Underwriting result Gross premiums written 2,382.0 4,524.8 2,063.3 2,461.4 209.3 459.2 568.2 200.3 8,343.8
Gross premiums earned 2,324.0 4,428.2 2,042.4 2,385.8 210.2 454.0 547.7 189.8 8,153.9 Gross claims incurred (1,706.2) (3,024.2) (1,356.1) (1,668.1) (125.5) (303.5) (370.5) (117.1) (5,647.0) Operating expenses gross (360.3) (691.5) (325.8) (365.7) (36.0) (66.3) (109.5) (31.6) (1,295.2)
Gross claims incurred Incurred during the year (1,726.3) (3,060.4) (1,405.3) (1,655.1) (116.1) (319.6) (358.6) (122.8) (5,703.9) Incurred previous years 20.2 36.3 49.2 (12.9) (9.4) 16.1 (11.8) 5.7 56.9
Technical provisions Provision for unearned premiums, gross 1,204.8 2,327.9 1,024.3 1,303.6 88.2 288.4 366.5 90.0 4,365.8
Security provision 1,293.5 FSAN 1 minimum requirement 1,293.5 1 The Financial Supervisory Authority of Norway.
Pool arrangements Norwegian Natural perils fund 105.8 105.8 390.7 341.4 Norwegian Occupational Injury Insurers' Bureau 38.4 38.4 Norwegian Motor Insurers' Bureau 41.0 41.0 Norwegian Pharmapool 1.6 1.6
Technical provisions Provision for unearned premiums, gross 583.9 722.4 451.5 162.5 289.0 184.6 184.6 59.2 49.1 13.2 20.2 77.5 1.5 490.0 2,837.7
Claims provision, gross 1,046.7 1,770.6 1,315.2 1,121.9 193.3 868.1 5,688.2 1,943.1 85.5 21.4 13.2 4,205.4 44.7 2,263.4 19,265.5 Gross loss liability 1,207.8 2,043.1 786.7 671.1 115.6 756.5 4,171.7 1,063.8 85.0 15.3 13.0 4,205.4 44.7 2,263.4 16,656.4
Underwriting result Gross premiums written 189.4 189.4 788.6 187.2 975.8 267.4 18,964.7
Technical provisions Provision for unearned premiums, gross 15.8 15.8 105.8 7,325.1
Claims provision, gross 8.4 175.2 33.2 216.8 832.6 832.6 492.9 31,046.8 Gross loss liability 8.4 174.3 33.2 215.9 832.6 832.6 492.9 26,789.1
Security provision 32.8 120.7 2,764.9 FSAN 1 minimum requirement 32.8 120.7 2,764.9 1 The Financial Supervisory Authority of Norway.
Amortisation and impairment losses As at 1 January 2013 (100.0) (134.1) (26.3) (259.0) (18.6) (537.9) Additions through merger (10.5) (4.8) (8.5) (6.7) (30.5) Amortisations (46.5) (8.7) (93.1) (3.9) (152.3) Disposals/reclassifications (9.1) 52.0 141.1 18.6 202.5 Impairment losses recognized in profit or loss (29.7) (29.7) Exchange differences (17.2) (2.6) (11.7) (1.2) (32.6)
The company has had a few minor business combinations during 2013. None of the intangible assets have undetermined useful lives.
Goodwill Gjensidige Forsikring, Danish branch 935.1 820.6 Gjensidige's workers' compensation insurance in Denmark 1 105.3
The annual assessment of impairment losses was carried out in the third quarter of 2013. There has also been carried out indication assessments during other quarters in order to assess whether there is new evidence that calls for a new impairment assessment.
Growth reduced by 2% compared to expected next 3 years CR increases by 2% next 3 years All circumstances occur simultaneously Gjensidige Forsikring, Danish branch
Need for impairment app. NOK 198 million No need for impairment No need for impairment Need for impairment app. NOK 322 million Gjensidige’s workers’ compensation in Denmark
next 3 years All 3 circumstances occur simultaneously Exchange rate reduced
Nykredit Forsikring Need for impairment, app. NOK 212 million No need for impairment No need for impairment Need for impairment, app. NOK 290 million Need for impairment, app. NOK 71 million
Lokal Forsikring No need for impairment No need for impairment No need for impairment No need for impairment No need for impairment
Gjensidige Bank Holding AS Oslo 100% 1,931.4 1,832.7 1,590.4 1,491.7 Gjensidige Norge AS Oslo 100% 195.7 1.2 195.7 1.1 Gjensidige Pensjon og Sparing Holding AS Oslo 100% 739.8 741.0 739.8 739.8 Oslo Areal AS Oslo 100% 1,828.8 1,828.8 1,828.8 1,828.8 Gjensidige Baltic AAS Riga 100% 351.5 347.8 351.5 347.8 Samtrygd Eigedom AS Førde 100% 6.9 6.9 6.9 6.9 Strandtorget Eiendom AS Oslo 100% 0.2 0.2 Tennant Holding AB (merged 2013) Stockholm 100% 103.9 10.2 Lokal Forsikring AS Oslo 100% 31.4 31.4 31.4 31.4 Gjensidiges Arbejdsskadeforsikring A/S (merged 2013) Copenhagen 100% 770.2 770.2 Nykredit Forsikring A/S Copenhagen 100% 1,625.1 1,485.6 1,625.1 1,485.6 Byggeriets Forsikringsservice AS Copenhagen 100% 35.4 35.4 23.0 23.0 Nordisk Forsikrings Service AS Copenhagen 100% 65.5 65.5
SpareBank 1 SR-Bank ASA Stavanger 10.4% 1,022.2 1,022.2 1,022.2 1,022.2 Bilskadeinstituttet AS Oslo 29.5% 0.4 0.4 0.4 0.4 Vervet AS including subordinated loan 2 Tromsø 25.0% 35.3 5.5 32.3 2.5 1 The sale amount on sale of 4.2 per cent was NOK 660.0 million and was received in cash. The gain on the sale was NOK 209.6 million.
2 Subordinated loan of NOK 24.0 million is included in cost.
Gjensidige Bank Holding (group) 26,778.7 1,856.6 24,922.0 532.8 137.7 N/A Gjensidige Norge AS 0.1 0.1 0.0 0.0 (0.0) N/A Gjensidige Pensjon og Sparing Holding (group) 14,676.4 536.1 14,140.3 904.0 35.0 N/A Oslo Areal AS 4,928.5 2,016.0 2,912.5 280.4 194.2 N/A Gjensidige Baltic AAS 856.6 349.7 506.8 510.8 48.3 N/A Samtrygd Eigedom AS 6.3 6.2 0.1 0.2 (0.1) N/A Strandtorget Drift AS 0.0 0.0 N/A Lokal Forsikring (group) 43.9 40.0 4.0 0.2 0.8 N/A Nykredit Forsikring A/S 1,440.2 817.6 622.6 (3.0) N/A Byggeriets Forsikringsservice AS 6.0 0.5 5.5 16.1 (1.3) N/A Nordisk Forsikrings Service AS 96.3 39.9 56.4 22.2 8.4 N/A
Storebrand ASA 450,381.0 22,514.0 427,867.0 52,875.0 1,976.0 3,428.4 SpareBank 1 SR-Bank ASA 156,985.0 14,056.0 142,929.0 4,498.0 1,860.0 1,595.6 Bilskadeinstituttet AS 5.5 5.2 0.3 2.3 0.1 N/A Vervet AS 99.5 3.1 96.4 0.8 0.1 N/A
Storebrand ASA 420,182.0 19,936.0 400,246.0 52,479.0 1,021.0 3,404.2 SpareBank 1 SR-Bank ASA 141,543.0 12,637.0 128,906.0 3,786.0 1,361.0 843.0 Bilskadeinstituttet AS 5.0 4.7 0.3 1.3 0.1 N/A Vervet AS 115.6 18.0 96.1 0.1 N/A
3 Operating income. For companies where financial income is operating income, financial income is included. For other companies financial income is not included.
Cost As at 1 January 2012 116.3 711.8 828.0 Transferred to investment property (2.2) (2.2) Additions through business combinations (5.2) (5.2) Additions 31.9 31.9 Disposals (0.6) (257.5) (258.0) Exchange differences (2.5) (2.5)
As at 1 January 2012 (21.7) (514.8) (536.5) Depreciation for the year (3.9) (60.8) (64.7) Disposals 219.2 219.2 Impairment losses recognized during the period (3.4) (3.4) Exchange differences 1.4 1.4
As at 1 January 2013 (29.0) (355.0) (384.0) Depreciation for the year (3.7) (41.6) (45.3) Disposals 64.9 64.9 Exchange differences (3.9) (3.9)
Market value of land and owner-occupied property 99.4 99.6 Carrying amount of land and owner-occupied property 84.4 84.6
Each component of owner-occupied property, plant and equipment are depreciated using the straight-line method over estimated useful life. Land is not depreciated. Estimated useful life for the period and comparable periods are between ten and 50 years for property, with technical installations having the highest depreciation rate, and between three and five years for plant and equipment.
Gjensidige annual report 2013 | 163 8. Financial assets and liabilities Fair value Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in an orderly transaction between market participants at the measurements date.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 216.8 216.8 123.0 123.0 Financial derivatives subject to hedge accounting 38.5 38.5
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 12 6,016.4 6,016.4 4,304.7 4,304.7 Bonds and other fixed income securities 19,646.8 19,646.8 13,096.3 13,096.3
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 10 14,629.7 15,446.6 12,480.0 12,870.3 Loans 10 374.4 374.4 369.2 369.2 Receivables related to direct operations and reinsurance 4,104.6 4,104.6 3,864.3 3,862.3 Receivables from Group companies 21 2,530.9 2,530.9 2,622.6 2,622.6 Other receivables 10 359.5 359.5 185.5 184.5 Prepaid expenses and earned, not received income 12.6 12.6 5.6 5.6 Cash and cash equivalents 11, 25 1,002.2 1,002.2 1,202.6 1,202.6
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 142.2 103.0 245.2 Financial derivatives subject to hedge accounting 76.3 76.3
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 195.4 2,250.1 1,859.1 4,304.7 Bonds and other fixed income securities 3,751.8 9,317.7 26.8 13,096.3
unrealized gains recognized in profit or loss Purchases Sales Settle- ments
Bonds and other fixed income securities 6.5 19.7 0.6 26.8 19.7 1 In 2012, we received pricing information for an equity fund more frequently, which caused its transfer from level 3 to level 2.
Gjensidige Forsikring owns no investment properties outside of Norway. The average rental period is 5.4 years, and the portfolio of investment properties includes offices.
Determination of parameters implies a significant level of judgment. Emphasis is put on this judgment being consistent with that observed in the market and that the judgment is applied consistently from period to period. The table below shows how the sensitivity of the yield and the market rent affects the value of the portfolio, as it stands at 31 December 2013.
Statement of financial position As at 1 January 182.2 896.6 Additions 3.3 12.4 Disposals (508.3) Net gains/(losses) from fair value adjustments (8.2) (220.8) Transfer from owner-occupied property 2.3
Loans and receivables Mortgage loans 1.2 1.7 Bonds classified as loans and receivables 14,629.7 12,480.0 Other loans 377.2 378.7 Impairment to fair value (2.6) (8.0) Subordinated loans 2.2 1.4 Provision for impairment losses (3.6) (4.5)
Subordinated loans Midvest I 0.6 0.6 0.6 Midvest II 0.4 0.4 0.4 Convexa VIIII AS 0.6 0.6 0.6 Norinnova Invest 1.2 0.6 1.2 0.6 1.2 0.8 Vervet AS 1 24.0 24.0 24.0 24.0 Total subordinated loans 26.2 25.2 26.2 25.2 2.2 1.4 1 Vervet AS is 25 per cent owned by Gjensidige Forsikring and is classified as receivables from associates. The subordinated loan was recognized as impairment loss of associates in 2008. Interest accrued only on Midvest I og Midvest II.
Provision for impairment losses Provision for impairment losses as at 1 January 4.5 5.9 Change in provision for impairment losses for the period (0.9) (1.4)
Of other loans NOK 158.9 (197.9) million are loans given to agricultural customers. The loans are in their entirety intended for installment of fire detection systems with these customers. There is no mortgage attached to the loans, and the terms vary from one year to over 20 years. Gjensidige Forsikring has not offered this type of loan to its customers since 2008. The default rate is 1.08 (1.31) per cent at year end. Discounting has been conducted in order to take into account the fact that the loans are noninterest -bearing. The discount rate used is 4.66 per cent.
Gjensidige annual report 2013 | 169 12. Shares and similar interests
Equity funds Storebrand Global Indeks I 963.9 INVESTEC GS GLOBAL EQTY-I$ 487.1 Capital Intl Emerging Mkt-I $ 208.0 Fisher Emerging Markets Equity Fund USD 144.7 Storebrand Norge 103.2 Danske Invest Norske Aksjer Institusjon I 101.1
Teknoinvest VIII C IS 8.2 Scalepoint Technologies Limited 6.9 Sector Asset Management AS 6.9 Teknoinvest VIII KS (inkl. Teknoinv. VIII (GP) KS) 6.3 NPEP Triton IV IS 5.6 Convexa Capital VIII AS - klasse B 5.5 Procuritas Capital Investor V 5.0 Viking Venture AS 4.4 Fjord Invest AS 4.2 Helgeland Invest 4.0 Tun Media (Landbrukets Medieselskap AS) 3.7 BTV Investeringsfond AS 3.0 Norchip AS 2.5 Rogaland Kunnskapsinvest 2.5 NPEP NeoMed V IS 2.5 Nord II IS 2.4 Convexa Capital IV - -B-aksjer 2.2 Norinnova 2.1 Midvest I A 2.1 Northzone VII L:P 1.6 Såkorninvest Sør 1.5 Midvest II A 1.3 CapMan Buyout X 1.3 Norinnova Invest AS 1.3 Other private equity investments 5.6
Shares and similar interests owned by branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 2.3
Gjensidige annual report 2013 | 171 13. Insurance-related liabilities and reinsurers' share
Insurance-related liabilities, reinsurers' share Reinsurers' share of unearned premiums, gross 15.5 19.1
Insurance-related liabilities, net of reinsurance Provision for unearned premiums 7,309.6 6,661.8
Claims reported and claims handling costs 13,661.1 10,845.8 Claims incurred, but not reported 16,691.2 13,747.4
Acquisitions through business combinations 77.8 77.8 161.5 (18.2) 143.3 Additions through merger 3,781.0 (23.2) 3,757.8 Claims paid, prior year claims (5,782.5) 326.9 (5,455.6) (6,430.4) 692.8 (5,737.6) Increase in liabilities Arising from current year claims 13,973.5 (384.8) 13,588.6 12,164.6 (199.2) 11,965.5 - of this paid (6,578.0) 4.6 (6,573.3) (5,985.6) 10.4 (5,975.2) Arising from prior year claims (run-off) (308.2) 43.0 (265.2) (37.0) (169.0) (206.0) Other changes, including efefcts from discounting (214.2) (214.2) Exchange differences 891.6 (47.9) 843.7 (148.4) 30.9 (117.5)
NOK million 2013 2012 Discounted claims provision, gross - Gjensidige's workers' compensation insurance in Denmark (merged 1 January 2013) 4,138.8 Undiscounted claims provision, gross - Gjensidige's workers' compensations insurance (merged 1 January 2013) 5,203.0
Actuarial assumptions The discount rate is based on a yield curve stipulated on the basis of the covered bond yield. The discount rate is based on observed interest approximately ten years ahead. The market’s long-term view of the interest rate level is estimated on the basis of the required real interest rate, inflation and future credit risk. An interpolation has been made in the period between the observed interest and long-term market expectations. A discount curve has thus been calculated for each year in which pensions will be disbursed. The discount rate for a pension payment in year 5 is 3.03 per cent (3.06), 3.92 per cent (3.73) in year 10, 4.41 per cent (4.20) in year 15, 4.68 per cent (4.88) in year 30, and 4.79 per cent (5.16) in year 50.
Gjensidige’s pension assets are invested in Gjensidige Pensjonskasse. Gjensidige’s pension assets are managed as an investment
Interest rate risk The pension assets’ exposure to interest rate risk is deemed to be moderate because the market value-weighted duration is 4.1 years. The portfolio value will fall by approximately NOK 100 million in the event of a parallel shift in the yield curve of plus one percentage point. The value will increase correspondingly in the event of a fall in the interest rate.
The pension liabilities are exposed to interest rate risk. The discount rate is composed of market interest rates for ten years, while, from year 20, it is based on long-term equilibrium interest rates, and between year ten and year 20, it is interpolated linearly between market interest rates and long-term equilibrium interest rates. A shift in the market interest rates will thereby directly affect the value of the cash flows until year ten and then have a falling effect for the next ten years. From year 20, the market interest rates will only have a marginal effect.
The pension liabilities will increase by approximately 13 per cent in the event of a parallel shift in the whole yield curve (an interest rate fall) of minus one percentage point. The value will fall approximately 10 per cent in the event of an increase in the interest rate.
Stock market risk Over the year, the pension fund has been exposed to stock market risk through unit trusts and purchase options. The exposure was 5.1 per cent at the end of the year. The pension assets have low exposure to the stock market. The greatest stock market risk is deemed to be the risk of a fall in the stock market.
Currency risk All investments in foreign fixed-income funds are currency hedged. Investments have been made in currency-hedged funds. Foreign equity investments shall as a rule be currency hedged. Amounts due to the pension assets in Norwegian kroner shall at all times correspond to at least 70 per cent of the actuarial provisions. At year end, approximately one per cent of the pension assets were exposed to currency risk.
Life expectancy and disability The life expectancy assumptions are based on the table GAP07 developed by Gabler AS, a firm of actuarial consultants. This table has been used since 31 December 2007. The assumptions on which the table is based are systematically followed up every year. The table is unbiased and dynamic, so that life expectancy is improved every year.
Real wage growth is estimated for Norway and is largely based on macroeconomic projections. The prevailing consensus in macroeconomic circles is that it should be in the range of 1.5 to 2 per cent. The average for the last 20 years has been 1.9 per cent.
In the long term, inflation will be in the range of 2 to 2.5 per cent. Norges Bank has an inflation target of 2.5 per cent.
Collective pension (AFP) As a member of Finance Norway, Gjensidige has a collective (AFP) pension agreement for its employees. AFP is a defined benefit plan that is financed jointly by very 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 recognizes the plan as a defined contribution plan.
Current service cost 39.6 53.9 Interest cost 97.2 80.6 Interest income (98.5) (93.0) Employers' national insurance contributions 5.6 7.6
Other specifications Amount recognized as expense for the defined contribution plan 101.6 85.7 Amount recognized as expense for Fellesordningen LO/NHO 16.7 13.9 Expected contribution to Fellesordningen LO/NHO next year 17.1 Expected contribution to the defined benefit plan for the next year 29.9 141.0
Historical information Present value of the defined benefit obligation 2,465.1 2,431.3 2,991.9 2,626.4 2,528.4 The fair value of the plan assets 2,378.1 2,317.4 2,075.9 2,040.8 1,953.3
Other liabilities Outstanding accounts Fire Mutuals 16.9 18.6 Accounts payable 145.1 124.8 Liabilities in relation with properties 3.3 10.0 Liabilities to public authorities 364.8 351.2 Other liabilities 303.7 304.4
Other accrued expenses and deferred income Accrued personnel costs to public authorities 18.3 15.6 Other accrued expenses and deferred income 219.5 175.8
Provision as at 1 January 57.2 70.0 New provisions 25.8 Reversal of provisions (9.0) (7.0) Provisions used during the year (22.8) (31.6)
Deferred tax liabilities and deferred tax assets are offset when there is a legally enforceable right to offset those assets/liabilities and when deferred tax liabilities/deferred tax assets relate to the same fiscal authority. The amounts offset are as follows: Taxable temporary differences Property, plant and equipment and intangible assets 453.1 182.4 Shares, bonds and other securities 166.9 143.9 Profit and loss account 355.7 554.1
Deductible temporary differences Loans and receivables (91.1) (65.9) Provisions for liabilities (79.2) (59.1) Pension liabilities (17.8) (42.4)
Reconciliation of tax expense Profit before tax 3,827.5 5,149.1 Estimated tax of profit before tax expense (28%) (1,071.7) (1,441.7)
Tax effect of Dividend received 57.8 123.4 Tax exempted income and expenses 243.2 3.7 Non tax-deductible expenses 10.2 (1.6) Consequence of tax relief decision 14.4 Change in tax rate (6.8) Correction previous years 100.5 28.5
Change in deferred tax Deferred tax liabilities as at 1 January 199.6 (75.6) Merged company 15.2 Change in deferred tax recognized in profit or loss 29.5 100.3
Tax recognized in other comprehensive income Deffered tax pensions (5.4) (174.7) Change in tax rate on pensions previously included in other comprehensive income (18.1) Deferred tax on hedge accounting 18.0 (0.3) Tax payable on hedge accounting 47.3 (14.7) Tax payable on exchange rate differences (20.0) Other changes 36.2
Total insurance-related operating expenses incl. commissions for received reinsurance and sales expenses 2,750.2 2,563.8
Of which sales expenses Employee benefit expenses 621.0 643.9 Commission 333.7 290.3 Other sales expenses 465.1 404.5
Auditor's fee (incl. VAT) Statutory audit 2.6 2.1 Other non-assurance services 2.3 3.3 Tax consultant services 0.6 0.7
Administration expenses related to financial assets, excl. interest expenses, incl. administration expenses properties
Depreciation and value adjustments (note 5 and note 7) 3.7 3.9 Other expenses 138.4 115.7 Total administration expenses related to financial assets, excl. interest expenses, incl. administration expenses properties 142.1 119.6 1 Other expenses include cost reductions for Gjensidige Forsikring ASA in connection with duties performed for subsidiaries and costallocations to claims and finance.
Decision-making process The Board has established a remuneration committee consisting of three members: the Chairman of the Board and two board members.
• Drafting proposals for and following up compliance with the Group’s guidelines and framework for remuneration
The retirement age of the CEO is 62. It is possible to step down after reaching the age of 60 if the Board or CEO so wishes. The CEO has pension rights pursuant to Gjensidige’s closed definedbenefit pension scheme. Pursuant to the CEO’s employment contract, he is entitled to a pension corresponding to 100 per cent of his annual salary on retirement at the age of 62, which is then reduced in steps to 70 per cent upon reaching the age of 67. On retirement at the age of 60, a corresponding agreed reduction applies from 100 per cent upon retirement to 70 per cent upon reaching the age of 67. From the age of 67, the pension is calculated on the basis of the Company’s ordinary entitlement earning period of 30 years and is 70 per cent of the fixed salary with a full earning period. Company car arrangements and other benefits are retained until the age of 67.
The CEO has a period of notice of six months, and is not entitled to severance pay if he leaves the Company.
With exception from one employee, there is no severance pay arrangements for executive personnel who leave their position in Gjensidige.
Variable pay (bonus) for executive personnel with supervisory functions is based on a discretionary assessment of the contribution of the unit in question measured by scorecards, in addition to their personal contribution. Half of the variable remuneration is paid in the form of shares in Gjensidige Forsikring ASA, one third of which will be released in each of the following three years. An upper ceiling of 30 per cent of annual salary including holiday pay applies to the payment of bonuses. After consulting with the remuneration committee, the CEO may make exceptions for special positions if this is necessary in order to be able to offer competitive terms.
The Board have decided to continue the Group’s share savings programme for employees in 2014. The CEO and executive personnel are entitled to take part in the programme on a par with other Gjensidige employees. Under the current programme, employees can save through deductions from their salary for the purchase of shares in Gjensidige Forsikring ASA for up to NOK 75,000 per year. Purchases take place quarterly following publication of the results. A discount of 20 per cent of the purchase price is offered, limited upwards to NOK 1,500. For those who keep the shares and are still employed in the Group, one bonus share is awarded for each share they have owned for more than two years.
Kim Rud-Petersen, Executive Vice President 2,298.4 404.5 167.4 482.8 84.8 4,075 944 6,427 3,636
Cecilie Ditlev-Simonsen, Executive Vice President 2,124.9 307.8 158.0 172.7 45.7 3,681 439 4,381 2,789 3
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 Annual fee of NOK 89 thousand for Chairman and NOK 22 thousand for Deputy Chairman. In addition fee as Chairman of the Nominating committee. 5 For staff representatives only remuneration for the current position is stated. 6 Everyone in the senior group management except for one has pension plans, benefit or contribution based. 7 Including bonus shares in the share saving's programme for employees. See note 27 for terms and further description of the scheme. 8 Participation in the Audit Committee is remunerated with NOK 127.5 thousand for 2013. 9 Participation in the Audit Committee is remunerated with NOK 88.8 thousand for 2013.
Hege Yli Melhus, Executive Vice President 2,132.3 261.6 149.9 172.1 4,536 4,652 2,836 3
Catharina Hellerud, Executive Vice President 2,522.1 273.6 157.7 176.6 1.5 4,760 5,052 4,350 3
Kaare Østgaard, Executive Vice President 2,280.4 233.4 155.9 516.3 17.9 4,028 4,028 2,721 3
Mats C. Gottschalk, Executive Vice President 2,399.2 5.6 156.0 182.0 192 192 2,769 3
Inge K. Hansen, Chairman 454.5 1.5 12,253 Randi B. Sætershagen (1.1.12-29.5.12) 1 254.8 Trond V. Andersen 236.0 1.5 54.7 5.35% 20.08.2014 1,778 Hans-Erik Andersson 329.2 1,778 Mari T. Skjærstad 236.0 1.5 Gisele Marchand 334.2 1.5 1,481 Gunnhild H. Andersen, staff representative 6 230.0 785
Kjetil Kristensen, staff representative 6 276.5 526 Gunnar Mjåtvedt, staff representative 6 358.2 2,486 Per Arne Bjørge 251.3 1.5 10,542 Mette Rostad (29.5.12-31.12.12) 1 80.0 1.5 2,794
Gjensidige annual report 2013 | 183 19. Net income from investments
Owner-occupied properties Rental income from owner-occupied properties 7.1 6.2 Net gains/(losses) from sale of owner-occupied properties 2.1 Administration expenses related to owner-occupied properties (5.0) (5.2) Impairment owner-occupied properties (3.4)
Total net income and gains/(losses) from buildings and other real estate 7.3 41.0
Total net income and gains/(losses) from bonds and other fixed-income securities 432.2 440.9
Derivatives Net interest income/(expenses) from derivatives 52.7 (14.8) Unrealized gains/(losses) from derivatives (355.1) 81.6 Realized gains/(losses) from derivatives (620.6) 522.1
Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 396.2 492.4 Unrealized gains/(losses) from bonds held to maturity (1.0) (3.4) Realized gains/(losses) from bonds held to maturity (11.2) Net gains/(losses) from changes in exchange rates on bonds held to maturity (6.6)
Total net income and gains/(losses) from loans and receivables 768.2 583.0
Guarantees and committed capital Gross guarantees 0.1 0.1 Committed capital, not paid 1,100.6 1,158.3
The timing of the outflow of capital is dependent on when the funds are making capital calls from their investors. Average remaining operating time for the funds, based on fair value, is slightly above five years (five) and seven years (seven) in average including option for extension.
There are contractual obligations to tenants for renovating of NOK 0.5 million (6.0).
1 In addition Gjensidige owns bonds in SpareBank 1 SR-Bank ASA amounting to NOK 96.1 (420.9) million measured at carrying value.
Transactions Income statement The table below shows transactions with related parties recognized in the income statement.
Gross premiums written Gjensidiges Arbejdsskadeforsikring A/S 23.9 Gjensidige Baltic AAS 11.8 10.5 Gjensidige Pensjonsforsikring AS (eid av Gjensidige Pensjon og Sparing Holding AS) 1.3 0.2 Nykredit Forsikring A/S 794.9 794.6 2013 2012
Gross paid claims Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 1.0 43.1 Gjensidige Baltic AAS 3.5 5.0 Nykredit Forsikring A/S 591.2 538.0
Group contributions Gjensidige Norge AS 0.0 Gjensidige Pensjon og Sparing Holding AS 1.6 0.4 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 1 (22.4) 22.4 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding AS) 3.4
Total gains and losses in connection with sale, liquidation and impairment losses 209.6 237.8 139.5
Intercompany non-interest bearing debts and receivables Byggeriet Forsikringsservice A/S 2.7 22.2 Gjensidiges Arbejdsskadeforsikring A/S 18.5 Gjensidige Baltic AAS 1.6 Gjensidige Bank ASA (owned by Gjensidige Bank Holding AS) 1.1 1.1 Gjensidige Fondene AS (owned by Gjensidige Pensjon og Sparing Holding AS) 4.8 Gjensidige Norge AS 0.0 Gjensidige Pensjon og Sparing Holding AS 3.8 1.6 1.1 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 9.5 0.1 26.9 Gjensidige Investeringsrådgivning ASA (owned by Gjensidige Pensjon og Sparing Holding AS) 0.4 4.2
Gjensidigestiftelsen 0.9 0.9 Nordisk Forsikrings Service AS 37.4 65.8 Nykredit Forsikring A/S 30.3 84.9 38.8 Oslo Areal AS 75.0 107.8 Tennant Assuranse AS (owned by Lokal Forsikring AS) 2.3 1.5 2.7 4.1
Total intercompany non-interest bearing debts and receivables 164.9 153.9 224.1 8.8
Intercompany interest bearing debts and receivables Oslo Areal AS 2,365.9 2,323.6 Gjensidige Bank Boligkreditt AS (owned by Gjensidige Bank AS) 75.0
22. Events after the balance sheet date Gjensidige sold on 26 February 2014 the holding in Storebrand. Accounting gain from the transaction was around NOK 115 million in the consolidated accounts. Following the completion of the sale, Gjensidige will not hold any shares in Storebrand. Besides this there are no significant events that have occurred after the end of the period.
Assets with 0% risk weight 5,240.1 2,748.4 Assets with 10% risk weight 1,694.5 1,770.0 Assets with 20% risk weight 23,489.1 20,235.9 Assets with 35% risk weight 0.5 0.5 Assets with 50% risk weight 1,422.7 1,916.5 Assets with 100% risk weight 31,070.3 30,258.0 Assets with 150% risk weight 1,712.6 1,510.1
Other non-weighted assets Goodwill 1,388.7 1,110.0 Other intangible assets 763.0 684.0 Derivatives 216.8 161.5
Risk weighted calculation base (B) 39,170.7 37,643.9 Capital ratio (A/B) 28.6% 38.8% FSAN minimum requirement 8.0% 8.0% FSAN minimum requirement (C) 3,133.7 3,011.5
Net primary capital 11,213.5 14,588.1 Proportion of security provision 1,244.2 1,100.7 Proportion of Natural perils fund (up to 25 % of the Natural perils fund is included) 553.9 599.8 Deduction due to discounting effects (106.4)
Solvency margin capital 12,905.2 16,288.6 Solvency margin minimum requirement 3,045.2 2,988.3
In excess of requirement 9,860.0 13,300.3 Solvency margin capital in per cent of requirement 423.8% 545.1%
Gjensidigestiftelsen 311,200,657 62.24% Folketrygdfondet 23,460,604 4.69% State Street Bank And Trust Co. Nominee 13,592,786 2.72% Clearstream Banking S.A. Nominee 7,900,382 1.58% State Street Bank & Trust Company Nominee 5,277,204 1.06% State Street Bank & Trust Co. Nominee 4,318,987 0.86% State Street Bank And Trust Co Nominee 2,927,963 0.59% Verdipapirfondet Dnb Norge (Iv) 2,836,120 0.57% Skandinaviska Enskilda Banken Ab Nominee 2,763,010 0.55% State Street Bank And Trust Co. Nominee 2,664,111 0.53% State Street Bank And Trust Co. Nominee 2,514,903 0.50% Bnye/Bordoli Jonathan Bryan Y) 2,055,637 0.41% Danske Invest Norske Instit. Ii. 2,040,640 0.41% The Bank Of New York Mellon (Luxembourg) Nominee 2,027.769 0.41% Odin Norge 2,008.905 0.40% Standard Life Assurance Limited 1,819,398 0.36% J.P. Morgan Chase Bank N.A. London Nominee 1,760,367 0.35% Klp Aksje Norge Indeks Vpf 1,682,057 0.34% Citibank, N.A. Nominee 1,647,258 0.33% J.P. Morgan Chase Bank N.A. London Nominee 1,645,621 0.33%
Number of shares 20 largest shareholders 396,144,379 79.23% Total number of shares 500,000,000 100.00%
Gjensidige annual report 2013 | 189 27. Share-based payment Description of the share-based payment arrangements As at 31 December 2013, Gjensidige has the following share-based payment arrangements: Share-based remuneration for executive personnel with settlement in equity and cash (remuneration scheme) Gjensidige has established equity-settled share-based payment for the group management and more explicitly defined executive personnel.
Equity-settled share savings program for employees Gjensidige has established a share savings programme for employees of the Group with the exception of employees of Gjensidige Baltic. All employees are given an opportunity to save an annual amount of up to NOK 75,000. Saving take the form of fixed deductions from salary that is used to buy shares four times a year. The employees are offered a discount in the form of a contribution of 20 per cent, limited upwards to NOK 1,500 kroner per year, which corresponds to the maximum tax-exempt discount. Employees will receive one bonus share for every four shares they have owned for more than two years, provided that they are still employed by the Company or have become retired.
Fair value measurement The fair value of the shares allocated through the share-based payment for executive personnel is calculated on the basis of the share price at grant date. The amount is recognized immediately. The cash-settled share is adjusted consecutively based on the share price at the reporting time.
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 recognized during the vesting period which is two years.
The number of bonus shares Outstanding 1 January 66,006 46,543 Granted during the period 35,551 21,574 Movement to/(from) during the period (635) Released during the period (39,755) Cancelled during the period (3,082) (2,111) Forfeited during the period (4,162) Exercised during the period Expired during the period
Outstanding 31 December 53,923 66,006 Exercisable 31 December 0 0 Average remaining life of outstanding bonus shares 1.12 1.09 Weighted average fair value of bonus shares granted 79.30 59.10 Weighted average share price of bonus shares released during the period 111.70
Weighted average share price of shares released during the period 89.24 Fair value of shares granted that are to be settled in cash 115.70 79.40 2 The fair value is calculated based on the market value of the share at the time of allocation.
Today, the Board and the CEO have considered and approved the Board’s Report and the Annual Accounts for Gjensidige Forsikring ASA, the Group and the parent company, for the calendar year 2013 and as per 31 December 2013.
To the best of our knowledge: • the annual accounts for 2013 for the Group and the parent company have been prepared in accordance with current accounting standards • the information in the accounts gives a true and fair view of the Group’s and the parent company’s assets, liabilities and financial position and results as a whole as per 31 December 2013
KPMG AS, a Norwegian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Offices in: Oslo Alta Arendal Bergen Bodø Elverum Finnsnes Grimstad Hamar
Report on the Financial Statements We have audited the accompanying financial statements of Gjensidige Forsikring ASA, which comprise the financial statements of the parent company Gjensidige Forsikring ASA and the consolidated financial statements of Gjensidige Forsikring ASA and its subsidiaries. The parent company’s financial statements comprise the statement of financial position as at 31 December 2013, the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. The consolidated financial statements comprise the consolidated statement of financial position as at 31 December 2013, and the income statement and the statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.
Opinion on the consolidated financial statements In our opinion, the consolidated financial statements are prepared in accordance with the law and regulations and give a true and fair view of the financial position of Gjensidige Forsikring ASA and its subsidiaries as at 31 December 2013, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU, and in addition, the further disclosure requirements as required by the regulations concerning annual accounts for insurance companies under provisions of the Norwegian Accounting Act.
Opinion on Accounting Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Information», it is our opinion that the management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway.