Brand renewal Large parts of the organisation were involved in a strategy process in 2012 for the development of a new brand platform and strategy. The renewed brand was launched in December.
Gjensidige now launches a web-based annual report on www.gjensidige.no/reporting. The annual report 2012 will not be printed.
Financial calendar 25 April General meeting 26 April Ex dividend date 7 May Q1-result 16 July Q2-result 22 October Q3-result
Passionate enthusiast of the year The phrase ‘passionate enthusiasm’ is an expression of Gjensidige’s internal identity and culture, and the title of ‘Passionate enthusiast of the year 2012’ was awarded following a nomination process among employees.
Partnership agreement with DNT In December 2012, Gjensidige signed a strategic collaboration agreement with the Norwegian Trekking Association (DNT), which with its 246,000 members represents an attractive customer group. Gjensidige and DNT have concurrent values, with the focus on health.
Gjensidige recorded a profit before tax of NOK 5.6 billion in 2012, corresponding to a return on equity before tax of 23.8 per cent. The Board proposes a dividend of NOK 3.4 billion, corresponding to 80.0 per cent of the profit after tax and NOK 6.85 per share.
NOK billion 2 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 3
Earned premiums, general insurance NOK million 17,797.3 17,548.1 17,063.3 15,660.4 15,481.9 Other operating income NOK million 1,720.4 1,833.4 1,727.5 1,010.3 989.5 Net income from investments NOK million 3,055.8 2,375.6 2,748.2 2,788.0 (258.7) Claims incurred, general insurance NOK million (12,437.7) (13,249.3) (13,456.6) (12,071.0) (11,983.8) Other claims incurred, losses etc. NOK million (1,150.0) (987.9) (743.0) (390.3) (393.3) Operating expenses, general insurance NOK million (2,751.8) (2,877.9) (2,810.4) (2,771.5) (2,638.3) Other operating expenses NOK million (600.4) (994.6) (1,274.9) (1,059.2) (890.1)
Profit for the year NOK million 4,280.1 2,747.9 2,950.4 2,304.8 252.3 Underwriting result, general insurance 1 NOK million 2,607.8 1,421.0 796.3 817.9 859.8 Run-off results, general insurance 2 NOK million 342.0 366.3 301.1 310.2 417.3
Provisions for unearned premiums, gross NOK million 10,141.6 9,531.4 9,078.3 7,671.7 6,760.9 Claims provisions, gross NOK million 29,562.3 29,961.6 28,339.3 25,857.2 25,561.5
Average age, Gjensidige Forsikring Years 44.3 44.4 44.4 44.6 45.1 Average amount spent on skills development per employee
Participation in a training programme Days 6,200 4,500 6,200 3,231 4,756
Employees per countryEmployees per country Employees per business areaEmployees per business area 2,158 Norway 471 Denmark 435 Baltics 99 Sweden 2,983 General insurance 124 Retail Bank 56 Pension and Savings 4 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 5
Gjensidige Annual Report 2012 I 76 I Gjensidige annual report 2012
The profit for the year of NOK 5.6 billion before tax expence was the best we have ever achieved. A good insurance result and a combined ratio for general insurance operations of 85.3 are testament to good operations in all parts of the Group.
Unique relations with customers Gjensidige was established by the customers. They continue to be our biggest owner through the customer-governed Gjensidige Foundation, which passes dividends further as customer dividend to our general insurance customers in Norway. This is a unique model in the Nordic insurance market that gives us an important competitive advantage.
Our new logo and visual profile are adapted to a digital age and communicate that it shall be safe and simple – even pleasant – to be a customer with us.
The online and mobile phone self-service solutions are examples of some of the many measures we implement in order to rationalise, automate and simplify processes – for customers and our own staff. In addition to increasing loyalty and satisfaction among customers, the improvements strengthen our basis for remaining one of Europe’s most profitable insurance companies.
Culture and know-how Products and services in banking and finance are relatively similar. That is why we focus on what cannot be copied: the know-how, experience and passionate enthusiasm we have developed through our nearly 200-year history. In the end, these are the factors that make employees satisfied, keen to develop their skills and motivated to deliver what the Gjensidige brand promises: a customer- oriented, unique Gjensidige Experience. Our customers shall feel that we know them, care about them, make things easy for them and help them.
Throughout 2012, we focused on good customer experiences and continuous improvement in all parts of the business. The year was also characterised by a mild winter, very little extreme weather and few large losses. In total, this contributed to record-strong results for Gjensidige.
Gjensidige’s activities are divided into six segments, as illustrated in the figure on the next page, in addition to the asset management unit, which manages the Group’s investment portfolio.
Targets and strategy Gjensidige’s overall target is to be the most customer-oriented general insurance company in the Nordic region, based on profitable operations and a leading position in this market.
Optimal customer and risk selection Automated, system-driven customer selection, tariff development and underwriting shall be a competitive advantage for Gjensidige.
Cost efficiency Gjensidige shall be among the most efficient companies in the industry.
The business strategy provides opportunities for profitable growth along two axes: • geographic expansion in the Nordic region and the Baltics within general insurance
The Commercial Norway segment offers a wide range of general insurance products and pension and savings products. Gjensidige is market leader in the commercial market, and the majority of the customer portfolio consists of small and medium -sized enterprises and agricultural customers. As many as 96 per cent of the customers are served directly by Gjensidige.
Distribution earned premiums 28.0% Property 27.8% Accident and health 15.3% Motor 7.8% Agriculture 5.6% Liability 4.5% Marine 0.9% Other
Targets and strategy Gjensidige’s goal is to be one of the leading insurance companies in the Baltic states. The market is relatively immature, and a significant proportion of both the private and the commercial segment is still uninsured. We expect solid growth in step with the general economic situation and the standard of living improving. In the short term, focus will bework on rationalisation and streamlining distribution and more efficient claims handling. The segment shall support the Group targets.
Market share Sweden Distribution earned premiums 28.8% Other 20.2% Tryg 17.5% Topdanmark 12.5% Codan 9.7% Alm Brand 5.8% If 5.5% Gjensidige 29.5% Länsförsäkringar 19.3% Other 18.5% If 16.2% Trygg-Hansa 15.4% Folksam 1.1% Gjensidige 12 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 13
Gjensidige Bank is an online bank that mainly targets the Norwegian private market. The bank offers day-to-day banking services, loans secured by mortgage, and consumer financing, and shall contribute to selling a wider range of products to Norwegian general insurance customers.
The year 2012 Investment- and pension advisors have in 2012 worked systematically with selling to existing insurance customers through the distribution channels of Private Norway and Commercial Norway, and 85 per cent of the customers are general insurance customers as well. The result increase was satisfying despite substantial reservations made for higher life expectancy and disability risk.
A new law on group occupational pension and the pertaining transitional rules provide opportunities for growth in the Norwegian pension market in the years ahead.
The year 2012 The focus on growth and quality in the lending portfolio as well as changes in the organisational structure contributed to a positive trend in profitability 2012. At the end of the year, 46 per cent of the customers were also general insurance customers. Customer satisfaction is good, and the bank’s customer centre was rated second best in the Norwegian banking sector by Confex/See You.
...of the customers are also general insurance customers 14 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 15
Source: Finance Norway. Assets under management per Q3 2012 * Unit linked
The Group’s investment portfolio includes all investment funds in the Group except for investment funds in the Pension and Savings segment and the Retail Bank segment. A great part of the management is outsourced to external managers, while the investment function concentrates on asset allocation, risk management and the selection of managers. Direct property investments are made via the wholly owned property company Oslo Areal.
At the end of 2012, the investment portfolio totalled NOK 56.3 billion. The financial result was NOK 3.0 billion, which corre sponded to a return on financial assets of 5.4 per cent.
The purpose of the investment portfolio is primarily to cover the actuarial liabilities and to achieve the Group target return on equity. At the end of 2012, the portfolio totalled NOK 56.3 billion.
Equity NOK million 25,617.7 23,228.6 23 137.8 Return on equity – annualised 2 % 23.8 15.9 14.4 Equity per share NOK 51.2 46.5 46.3
Earned premiums. net of reinsurance Private NOK million 8,131.1 8,082.8 7,719.9 Commercial NOK million 5,411.4 5,411.9 5,401.0 Nordic NOK million 3,630.4 3,635.0 3,453.1 Baltic NOK million 436.9 395.8 459.3 Eliminations NOK million 187.5 22.6 30.0 Total NOK million 17,797.3 17,548.1 17,063.3 Loss ratio 7
Additional information 18 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 19
Retail Bank Gross lending, addition in the period NOK million 2,305.2 899.5 2,543.9 Deposits, addition in the period NOK million 1,804.2 656.2 2,569.6 Gross lending, at the end of the period NOK million 17,324.3 15,019.0 14,119.5 Deposits at the end of the period NOK million 11,580.5 9,776.2 9,120.0 Deposit-to-loan ratio at the end of the period 14 % 66.8 65.1 64.6 Net interest income in per cent 15 % 2.52 2.71 2.88 Write-downs and losses in per cent, annualised16 0.43 0.65 0.84 Cost/income ratio17 62.8 65.7 68.0 Customers at the end of the period Number 95,726 98,183 89,594 Customers with insurance agreement at the end of the period Number 44,205 47,396 43,764 1. Return on financial assets = net financial income in per cent of average finanscial assets including property, excluding Pension and Savings and Retail Bank 2 Return on equity, annualised = profit before tax expense for the period/average equity for the period 3 Capital adequacy ratio = net subordinated capital/risk-weighted calculation basis, calculated on the basis of NGAAP for the Group. The result of the period is not included in the calculation for the quarters, with the exception of fourth quarter. 4 The solvency margin is calculated at the company level and in accordance with the rules of the Financial Supervisory Authority of Norway. The result of the period is not included in the calculation for the quarters, with the exception of fourth quarter. 5 Earnings per share in the period = the shareholders’ share of the profit or loss for the period/average number of outstanding shares in the period 6 Premiums, net of reinsurance = gross premiums written, net of reinsurance/gross premiums written (general insurance) 7 Loss ratio = claims incurred etc./earned premiums 8 Cost ratio = operating expenses/earned premiums 9 Combined ratio = loss ratio + cost ratio 10 Combined ratio discounted = combined ratio if claims provisions had been discounted 11 Profit margin savings, in per cent = management income/average assets under management, savings 12 Recognised return on the paid-up policy portfolio, in per cent = realised return of the portfolio 13 Value-adjusted return on the paid-up policy portfolio, in per cent = total return of the portfolio 14 Deposit-to-loan ratio = deposits as a per centage of gross lending 15 Net interest income in per cent, annualised = net interest income/average total assets 16 Write-downs and losses in per cent, annualised = write-downs and losses/average gross lending 17 Cost/income ratio = operating expenses/total income 18 Capital adequacy = primary capital/basis of calculation for credit risk, market risk and operational risk 18 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 19
In addition to paying a cash dividend, Gjensidige will also consider buying back shares as a means of increasing the total shareholder return. For more information, see page 27 or www.gjensidige.no/ir.
The Gjensidige share yielded a total return of 21.1 per cent in 2012. At the end of 2012, Gjensidige had about 42,000 shareholders and was the seventh largest company listed on Oslo Stock Exchange. Earnings per share was NOK 8.56, and the Board has proposed a dividend of NOK 6.85 per share.
20 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 21
The 20 largest shareholders as of 31 December 2012 1 Per cent 3 DWS Investments 2.5 4 Skagen Fondene 1.7 5 Thornburg Inv. Mgmt. 1.1 6 People’s Bank of China 1.1 8 Greenlight Capital 1.1 11 DNB Asset Management 0.6 13 Danske Capital 0.5 14 BNP Paribas 0.5 1 The list of shareholders is based on an analysis of the register of shareholders in the Norwegian Central
Geographical distribution shareholders as of 31.12.2012 47% Norway 20% Rest of Europe 14% UK 14% USA 5% Other
For more detailed information about governing bodies and/or the General Meeting, see page 29 and/or www.gjensidige.no/ir.
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.
The Board has adopted guidelines setting out goals and limits for the Company’s commitment to social responsibility, including guidelines for socially responsible investments. The guidelines are available at www.gjensidige.no/konsern.
The main points of the guidelines are that Gjensidige shall 1. Contribute to a safer society 2. Respect human rights 3. Respect labour rights 4. Combat corruption and financial irregularities 5. Minimise the impact on the environment and climate
Selected quantitative goals have been adopted for socially responsible operations in relation to customers, suppliers, employees and the environment. The goals and goal achievement are presented in the table on page 24.
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 making home visits to 40,000 houses. A joint project with the City of Oslo and the Oslo Fire and Rescue Department targeting elderly people living at home was continued in 2012. We also contributed to the development and marketing of educational material on fire prevention for schools.
Gjensidige contributed to almost 700 newspaper articles and radio and TV reports on the prevention of losses and injuries in 2012.
Respecting human rights Gjensidige only has operations in Scandinavia and the Baltics, where there is strong respect for human rights. The Company’s investment portfolio shall comply with internationally recognised guidelines for socially responsible investments (SRI).
This is followed up through quarterly reviews of the SRI follow-up and through contact with advisers as concrete concerns arise. Four meetings have been held during the year. It was decided to exclude six companies in 2012, so that the number of excluded companies was 70 at the end of the year.
Combating corruption Gjensidige has zero tolerance for corruption, and this is governed by stringent rules and close follow-up. We have established a gift register where all gifts, regardless of value, must be registered. There are strict rules for giving gifts to business associates and for bringing them to events that can be perceived as greasing. The rules and how they are practised are well known among employees and are available on the intranet and in e-learning courses. The strong awareness of this means that initiatives that may be in breach of the regulations are stopped at an early stage.
All material purchases must be quality assured by the Corporate Procurement department. The department was involved in 240 procurements in 2012. Most agreements are the result of competitive tendering carried out in accordance with adopted guidelines. All suppliers must sign a self-declaration on corporate social responsibility.
A project will be initiated in 2013 for the purpose of clarifying whether it is possible to improve the procurement procedures and implement even stronger prevention and uncover more breaches of the rules.
The environment and climate The Group’s operations result in minimal pollution of the natural environment. The Group’s environmental measures focus on energy efficiency, reduced travelling through increased use of video conferencing, standardised duplex printing for printers/photocopiers and responsible waste management.
As far as the Board is aware, there are no products containing PCB in Gjensidige’s buildings and properties.
22 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 23
Average amount spent on training (NOK) 16,400 19,400 17,500 20,400 Average retirement age (years) 61.6 62.5
Suppliers Fair competition/ anti-corruption Control Continued Taxes and fees – VAT registered, no illegal labour
* Figures for 2012 based on the Board’s recommendation. ** Figures for 2012 not directly comparable with 2011 figures 24 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 25
This statement is part of the Company’s annual report and it applies to the accounting period 2012. The statement is based on the structure set out in the Act and the main elements in the Code of Practice issued by the Norwegian Corporate Governance Board.
The Board bases its corporate governance on: • Optimising the Company’s assets in a long-term perspective • Equal treatment of all shareholders • Equal and assured access to reliable, relevant and up-to-date information about the Company’s business.
Statement on corporate governance in accordance with the Norwegian Accounting Act
6. The report gives an account of the composition of the Board, the corporate assembly, the Supervisory Board, the control committee and the Board’s select committees. The main elements in the currently applicable instructions and guidelines for these bodies are described in sections 8 and 9 of the statement.
1. Statement on corporate governance Corporate governance is subject to an annual evaluation and discussion by the Board. The Board discussed and prepared this statement at a meeting on 13 February 2013 and adopted it at a meeting on 6 March 2013. Gjensidige’s compliance with the individual sections is also described.
The formal requirements for this statement follow from the Norwegian Accounting Act section 3-3b and Oslo Børs’s requirement that listed companies must comply with or explain deviations from the Norwegian Code of Practice for Corporate Governance as last amended on 20 December 2012. The Code of Practice is available at www.nues.no.
Core values and social responsibility Gjensidige’s core values lie in its core business operations: a social mission to create value for society by safeguarding life, health and assets through relieving customers of risk. Gjensidige therefore has an important social responsibility through its expertise in the prevention of loss. This benefits society as a whole within commercially responsible limits.
On this basis, the Board has stipulated guidelines for ethics and social responsibility. Gjensidige’s commitment shall be further developed on the basis of the expertise that it accumulates through conducting its core business.
Our internal control systems include the Company’s core values and guidelines for ethics and social responsibility. A dedicated ethics suggestion box has been established for reporting relevant matters. Effective notification procedures have also been established to ensure that whistle-blowers are protected and that matters that are raised receive relevant follow-up.
The Group’s efforts in relation to the working environment, equal opportunities and integration are described in more detail in the Board’s report.
Deviations from the Code of Practice: None 2. The business Operations Pursuant to its Article of Associations, Gjensidige can engage in direct and indirect general and life insurance operations, including taking on pure risk insurance with a duration of no more than one year in the area of life insurance, owning companies that engage in general insurance, life insurance, banking, financing and securities 26 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 27
activities, taking on risk insurance and reinsurance in general and life insurance to the extent permitted by law, and other related business.
Gjensidige’s overriding goal is to be the most customer-oriented general insurance company in the Nordic region, based on profitable operations and a leading position in this market.
The Company’s business strategy provides opportunities for profitable growth, organic or structural, along two axes: • geographic expansion in the Nordic region and the Baltics in general insurance • product expansion in Norway in banking, pension and savings
Gjensidige’s internal risk-based capital model shall ensure that the allocation of capital takes capital costs into account. This enables the management to assess the relationship between risk in investment and insurance operations, while ensuring that the pricing of the insurance products reflects capital costs and the long-term profitability requirements.
Deviations from the Code of Practice: None 3. Equity and dividends Equity The Gjensidige Group’s equity amounted to NOK 25.6 billion (IFRS) at the end of 2012. The capital adequacy was 16.8 per cent (for the group), and the solvency margin was 545.1 per cent (for Gjensidige Forsikring ASA). Both capital adequacy and the solvency margin have been adjusted to take account of the Board’s proposed dividend for the 2012 financial year. The statutory capital adequacy requirement is eight per cent.
26 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 27
Gjensidige shall have a competitive dividend policy compared with comparable investments. In determining the size of the annual dividend, consideration shall be given to the Group’s capital needs, both present and future, and the Group’s objectives and strategic plans.
Unless the capital need indicates otherwise, the Board’s goal is that between 50 and 80 per cent of the group profit for the year after tax expense is distributed as dividend. In addition to paying a cash dividend, Gjensidige will also consider buying back shares as a means of increasing the total shareholder return.
Gjensidige paid a dividend of NOK 2.3 billion for the 2011 financial year, corresponding to 83% of the profit after tax expense.
• Authorisation to purchase own shares in the market with a nominal value of up to NOK 50,000,000. The authorisation is valid until the next annual general meeting, no longer, however, than until 30 June 2013. It can only be used for cancellation through a capital reduction, cf. the Public Limited Liability Companies Act section 12-1 or before this date as consideration for the acquisition of businesses. The reason for the authorisation is to enable the Board to utilise the mechanisms provided by the Public Limited Liability Companies Act in relation to the distribution of capital to the Company’s shareholders. Buying back own shares will also be an important method for continuous adaptation to an appropriate capital structure. A binding agreement has been entered into with the Gjensidige Foundation that ensures that the Gjensidige Foundation’s percentage ownership interest is not changed if the Board decides to use the authorisation. The authorisation was not used in 2012.
Existing shareholders have pre-emption rights when new shares are issued. With the approval of at least two-thirds of the total number of votes represented at the general meeting, the general meeting can decide to set aside the pre-emption rights. Grounds must be stated for any proposal to set aside pre-emption rights.
All board members and members of management shall immediately notify the Board if they, directly or indirectly, have an interest in a transaction or agreement that the Company is considering. This applies even if the board member is deemed to be disqualified from consideration of the matter. The provision is laid down in the rules of procedure for the Board. The objective is to avoid harming the Company’s reputation in connection with investments where there may be circumstances that can be perceived as an unfortunate close involvement, or a close relationship between the Company and a board member or the executive management.
The general meting is open to all shareholders. The annual general meeting shall be held every year before the end of May.
• The case documents shall be sufficiently detailed to provide a basis for considering the matters raised.
• Shareholders who wish to attend the general meeting must notify the Company in writing at least five days before the meeting. The registration deadline is based on practical considerations in connection with the organisation of the general meeting.
• In connection with the general meeting election, it will be possible to vote for one candidate at a time.
• The general manager, 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.
• Pursuant to the Articles of Association, the general meeting will be chaired by the chair of the Supervisory Board, or by the deputy chair, or, if they are both absent, by the Chairman of the Board or another person designated by the Board.
• Shareholders may be represented by proxy. The notice of the meeting will contain more detailed information about the procedure for representation by proxy, including an authorisation form. In addition, a person will be appointed to vote by proxy on behalf of shareholders.
Members of the Board are present at the general meeting. The Chairman of the Board and the general manager are normally present to answer questions.
Deviations from the Code of Practice: Pursuant to the Code of Practice, the Board, the nomination committee and the auditor should be present at the general meeting. Based on the matters that have been submitted to the general meeting for consideration, it has not been necessary so far for the whole Board to attend. The Chairman of the Board, the nomination committee and the CEO are always present to answer any questions, however.
At present, Gjensidige’s nomination committee consists of five members, including the chair of the Supervisory Board. All members are independent of the Board and other executive management. Three of the members are also members of the Supervisory Board, including the chair of the Supervisory Board. Pursuant to the Company’s Articles of Association, the Gjensidige Foundation should be represented by at least two members on the nomination committee, and this recommendation was followed in 2012.
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 nomination committee shall propose candidates – with the exception of the employee representatives – for: • the Supervisory Board • the general meeting’s proposals for the election of a chair and deputy chair 30 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 31
• the Supervisory Board’s election of a chair and deputy chair • the Board, including the Chairman of the Board • the control committee, including the chair of the committee • the nomination committee and the chair of the committee • the auditor
A reasoned recommendation with relevant personal details shall be enclosed with the notice of the election meeting to which the nomination is submitted.
Further information about shareholders’ right to submit input to the nomination committee is available at www.gjensidige.no/investor.
The Supervisory Board’s independence The Supervisory Board has a diverse composition, and the majority of the members are independent of special interests (directly, indirectly or through employment) in the Company. Seven of the fourteen shareholder-elected representatives are independent of the Gjensidige Foundation.
Composition of the Board The Board of Gjensidige shall consist of ten members, three of whom shall be 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.
30 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 31
The Board of Gjensidige shall have a broad composition. In the rules of procedure for the nomination committee, the general meeting sets out the following guidelines for the nomination committee’s work: • The nomination committee shall emphasise that all proposed candidates have the necessary experience, qualifications and capacity to carry out the duties of the office in a satisfactory manner.
Board members’ shareholdings Nine of the board members own shares in the Company; see the overview in the table above. The board members follow the general rules concerning primary insiders, but they have all voluntarily accepted and informed their closely related parties that trading in the Gjensidige share or derivative instruments will only take place within a reasonable time frame after submission of the quarterly report, and such that trading can take place on the basis of identical information about the Company and the Company’s financial position.
They may be held in the form of phone meetings. A total of eight board meetings were held in 2012, one of which was a two-day strategy meeting.
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 auditor’s fee. The committee held seven meetings in 2012.
As of 31 December 2012, the audit committee consisted of the following members: • Hans-Erik F Andersson • Per Arne Bjørge • Kjetil Kristensen • Gisele Marchand • Gunnar Mjåtvedt
As of 31 December 2012, the remuneration committee consisted of the following members: • Inge K Hansen • Trond Vegard Andersen • Marit Skjærstad
32 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 33
The Board’s impartiality The Group’s rules of procedure for the Board regulate matters concerning board members’ impartiality. A board member is disqualified from participating in considering or deciding matters that are of such great importance to the board member or his/her related parties that the he or she must be deemed to have a direct or indirect personal or financial interest in the matter. The same applies to the general manager. Board members are also disqualified when other special circumstances could undermine trust in their motives for participating in deciding a matter.
The Board shall approve agreements between the Company and a board member or the general manager. The Board shall also approve agreements between the Company and a third party in which a board member or the general manager must be deemed to have a particular interest.
Deviations from the Code of Practice: None 10. Risk management and internal control The Board focuses on risk management and internal control, and this is an integral part of the Board’s systematic work. The Board has adopted a policy for risk management and internal control. Among other things, the document describes the main principles for risk management and internal control, in addition to describing the division of responsibility. The document is available at www.gjensidige.no/konsern.
The CEO’s responsibilities: • The CEO shall ensure that Gjensidige’s risk management and internal control are implemented, documented, monitored and followed up in an adequate manner.
The CEO shall issue instructions and guidelines for how the Group’s risk management and internal control shall be carried out in practice and establish expedient control processes and functions.
Centralised risk control functions have been established that are independent of business operations; Compliance, and Risk and Capital Management. In addition, the internal audit function serves as an additional, independent control level that reports directly to the Board.
Financial reporting and financial management Among other things, the CFO is responsible for asset management, risk and capital management, the actuary function, the planning process and financial performance. The Executive Vice President of Group Staff/general services is responsible for financial reporting, among other things. This organisation is intended to ensure independence between the leading premise setter for profit performance and those who report the results.
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As part of the Board’s above-mentioned annual review of the Group’s risk areas and internal control, an evaluation is also carried out of risk and control in the financial reporting process, and whether measures are necessary.
The remuneration of individual board members is described on page 125 of the annual report. The amount of the remuneration reflects the Board’s responsibility, expertise, time spent and the complexity of the business. In addition, board members are paid a separate fee for participating in the Board’s audit committee and remuneration committee.
Deviations from the Code of Practice: None 12. Remuneration of the executive management The Group has established a remuneration system that applies to all employees. The system is intended to ensure that Gjensidige attracts and retains employees who perform, develop, learn and share. The remuneration shall be competitive, but the Group shall not be a wage leader. Employees are expected to see the remuneration and benefits offered by the Group as an overall whole. The Group’s remuneration systems shall be open and performance-based, so that they, as far as possible, are perceived as being fair and predictable. The remuneration that is paid shall correspond to the agreed performance.
Variable pay shall be performance-based without being a risk driver, and it shall reflect the results and contributions of both the company, the division, the department and the individual employee. Other remuneration elements offered shall be regarded as attractive by both new and existing employees. There is a ceiling on all variable remuneration.
36 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 37
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/investor.
The Company shall publish correct, clear, relevant and supplementary information about the Group’s historical results, operations, strategy and outlook. The information shall be consistent over time.
Gjensidige has published all relevant ownership information about the Group at www.gjensidige.no/investor. 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 stakeholders. The presentations will also be made available at www.gjensidige.no/investor via webcast.
A capital market day will normally be held every other year, or when deemed expedient to keep the market up-to-date on the Group’s development, goals and strategies.
In conversations with the bidder and in its other actions, the Board shall endeavour to safeguard the interests of the Company and the shareholders as a whole. The Board shall ensure that all the Company’s shareholders are treated equally and kept up-to-date about relevant matters relating to the bid in an appropriate manner.
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A number of regular meetings are held between the external auditor and the Company ’s governing bodies during the course of the year: The auditor presents the main elements in the audit plan to the audit committee on an annual basis. In addition, the audit committee considers the auditor’s assessment of internal control in relation to financial reporting. The auditor attends board meetings when the annual accounts are considered.
The auditor shall not under any circumstances carry out advisory tasks or other services if this can affect or give rise to doubt about the auditor’s independence and objectivity. Nor shall the auditor act in a way that entails a risk that he will have to revise the result of his own advisory services or other services, or that entails a risk that he will perform functions that are part of the Group’s internal decision-making process.
The audit committee shall also monitor the auditor’s independence, including what services other than auditing the auditor has provided. The breakdown between the auditor’s fee and consultancy fees for 2012 is described in Note 17 to the annual report. The Supervisory Board approves the auditor’s fee. Information will be provided about the auditor’s fee broken down into auditing and other services at the meeting.
Supervisory Board Chairman Bjørn Iversen Deputy Chairman Hilde Myrberg Benedikte Bettina Bjørn Knud Daugaard Randi Dille Marit Frogner Geir Holtet Arne G. Krog Stephen Adler Petersen John Ove Ottestad Lilly T. Stakkeland Christina Stray Even Søfteland Terje Wold
Deputy Members 1. Siv Dammyr 2. Guri Mette Brådt Karlsrud Carl-Johan Andersson
The Group’s general insurance operations achieved a significant improvement in profitability in 2012 compared with 2011. The development was due to a positive development in premiums combined with an unusually low claims frequency, especially in motor and property insurance, than can be regarded as a normal level. This was primarily due to a mild winter with no significant periods of frost. There were also few major weather-related events in 2012. Measures aimed at retaining customers and good customer selection, new and more precise tariffs and multi- channel distribution also contributed to the increase in profitability. The Board is satisfied that the Group achieved its financial targets also in 2012.
The Board proposes that an ordinary dividend of NOK 3.4 billion is distributed, corresponding to 80.0 per cent of profit after tax and NOK 6.85 per share. Also for 2012, it is proposed that the Gjensidige Foundation’s dividend from Gjensidige, after deduction of costs, is distributed to Gjensidige’s general insurance customers in Norway.
Operations Gjensidige Forsikring ASA’s (Gjensidige Forsikring) head office is in Lysaker outside Oslo. 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 and other related services. Gjensidige Forsikring is the parent company of the Gjensidige Group (Gjensidige).
Targets and strategies Gjensidige’s overall target is to be the most customer-oriented general insurance company in the Nordic region, based on profitable operations and a leading position in this market.
The business strategy provides opportunities for profitable growth along two axes: • geographic expansion in the Nordic region and the Baltics within general insurance • product expansion in Norway within bank, pension and savings.
The geographic expansion shall contribute to economies of scale, diversification of risk and increased competitiveness. A broad range of financial products in Norway shall ensure stronger relations-based loyalty among customers.
In addition to focusing on organic growth in the time ahead, Gjensidige will also consider acquiring businesses that can contribute to realising the Group’s strategy in Norway, the Nordic region and the Baltics. A precondition for acquisition is that the business can support the Group’s return on equity requirement within three years of the acquisition. The insurance activity must also be able to deliver results that satisfy the Group’s combined ratio target within two to three years.
Financial targets The Group’s overall long-term financial target is a return on equity of 15 per cent before tax expense. The Group’s return on equity before tax expense was 23.8 per cent (15.9) in 2012.
Chairman of the Board of Gjensidige since 2008. He has previously held positions such as senior manager of Statoil and CEO of Aker Kværner.
Number of shares in Gjensidige Forsikring ASA (including shares, if any, held by closely related parties): 12,253 (last change 10 December 2012)
The Group shall have a capitalisation that ensures an A rating from Standard & Poor’s. Gjensidige has substantial capital buffers in relation to internal risk models, statutory capital adequacy requirements and the A rating requirement. The Group’s A rating was last confirmed in August 2012.
The goal for the Group is that between 50 and 80 per cent of the profit for the year after tax expense is distributed as dividend. The dividend policy and the Board’s proposal for dividend for the 2012 financial year are commented on in more detail in the section on allocation of the profit before other income and expenses on page 67.
The Bank and Pension and Savings segments are still under development. The segments shall support the Group’s long-term target of a return on equity of 15 per cent before tax expense. The bank shall have capital adequacy of at least 12 per cent.
Multi-channel distribution More efficient distribution by telephone or online, with a high degree of freedom of choice for customers.
Surveys show that people who own many Gjensidige products are our most satisfied customers. Further development of the loyalty and organisation customer
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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 2012 as well, with a market share of 25.3 per cent of an overall market of NOK 48.3 billion, down from 26.3 per cent in 2011. (Source: Finance Norway – FNO.) The change is mainly due to competition combined with strategic customer selection, which is in line with the strategy of prioritising profitability over growth.
The company had a market share of 22.8 per cent in the private market at the end of 2012. The market share in the commercial market was 30.8 per cent. This includes the agricultural market, where the market share seen in isolation was 72.4 per cent of a total market of NOK 1.3 billion.
The market shares in Denmark and Sweden were 5.5 per cent (based on the most recent statistics from the Danish Insurance Association as of 31 December 2011) and 1.1 per cent, respectively (source: Insurance Sweden, statistics as of 31 December 2012).
Distribution Norway Gjensidige has approximately 751.000 customers in the private segment and approximately 164.000 in the commercial segment in Norway. Distribution mainly takes place via own distribution network or via agents and dealers/partners. Only 4 per cent of Gjensidige’s Norwegian commercial customers (18 per cent of the premium volume) are served indirectly through brokers.
Both the private and the commercial segment 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.
The division of roles between the different channels has been changed and made more clear in recent years. Sales centres (outbound call centres) focus on new sales, while the customer centres (incoming call centre) deal with customers who contact Gjensidige for purchases, changes or advice. Of 36 local branch offices, 20 have been upgraded to financial offices that offer advisory services in insurance, banking, pensions and savings. The customers are offered products and services via a single point of contact, which is easier for the customers and increases the possibility of increased sales of a wider range of products.
view of their own products and can manage their own customer account, for example by reporting a claim or making changes to a fund. Approximately 16 per cent of sales to private customers are now initiated at gjensidige.no. It is expected that this distribution channel will continue to see strong growth. Customer service staff contribute to an increased degree of self-service by actively referring customers to the portal.
Nordic The Nykredit group provides general insurance on behalf of Gjensidige to both the private and the commercial market in Denmark. The strategic collaboration on distribution represents considerable potential for Gjensidige.
Information technology Efficient processing and utilisation of information is becoming an increasingly important competitive advantage in the insurance industry. Gjensidige is in a good position through a joint Nordic ICT platform, where all products and customer data are available on the same system platform. It is also used by the banking, pension and savings businesses. The system gives a high degree of flexibility and ensures a uniform customer experience across channels, at the same time as it is cost-efficient because maintenance is carried out in one place. 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 also a good basis for automation of the claims handling processes. The potential is considerable. Every year, around 350,000 frequency claims are reported in Gjensidige’s Norwegian business. One out of six claims handling processes relating to these claims are currently automated. In the long term, it should be possible to automate almost 80 per cent of the most common claims settlements.
Appointed to the Board of Gjensidige in 2009. Mr. Andersen is CEO of Fredrikstad Energi AS (FEAS).
Number of shares in Gjensidige Forsikring ASA (including shares, if any, held by closely related parties): 1,778 (last change 10 December 2012)
Record-high customer satisfaction Gjensidige’s measurement of the level of satisfaction among its customers in Norway shows considerable progress in the private and commercial segments. The annual survey includes almost 5,000 customers in insurance, banking, pensions and savings, and the results were the best since the measurements were introduced in 2009. Further improvement of customer satisfaction is among the Group’s main goals for 2013 as well.
Gjensidige won several customer service awards in 2012, including winning the Insurance category in Norway’s biggest customer centre test, the ‘Best i Test’ Customer Service Award. This is Norway’s biggest blind test of customer centres based on 25 calls to 90 of the biggest customer centres in Norway in 15 selected industries.
Member of the Board of Gjensidige since 2008. Mr. Andersson is an advisor and has previously been managing director of Skandia Insurance Company Ltd, the Nordic manager for Marsh & McLennan and Executive Director of Mercantile & General Re.
Chairman of the board of Erik Penser Bankaktiebolag and Canvisa AB and a board member of Cision AB.
and since autumn 2012, customers have been able to track their own claims online. Online sales and sales by mobile phone continue to increase.
Preventive work Gjensidige has a long-standing tradition of working systematically on loss prevention, especially in relation to traffic and fire. The company is engaged in research, public awareness campaigns, training and control measures. Extensive training for young drivers and refresher courses for the elderly are among the measures that received focus in 2012. As in previous years, Gjensidige took part in the ‘Aksjon Boligbrann’ fire prevention campaign and made house calls to approximately 40,000 households. We collaborate with, among others, the Norwegian Council for Road Safety, the Norwegian Fire Protection Association, the Directorate for Civil Protection and Emergency Planning (DSB) and local fire brigades. Interaction with the media is also crucial if we are to reach a wide audience with preventive information.
Changes in framework conditions Solvency II Gjensidige continued its work in 2012 in preparation for the Solvency II regulations.
Solvency II sets new requirements for the calculation of capital requirements, requirements for risk management and reporting of the risk and capital situation in European insurance companies. The regulations are still under development. There is still considerable uncertainty relating to when Solvency II will be implemented, but it is now assumed that it will be implemented in Norway with effect from 1 January 2016. The Group has considered what preparations should be made in order to meet the new Solvency II requirements. Gjensidige is well positioned to meet the new requirements, but additional measures will be implemented in the period until Solvency II enters into force. Changes are being made to ensure comprehensive risk 48 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 49
management that is well integrated with other management processes. The Board was kept up-to-date in 2012 on relevant matters concerning Solvency II. Gjensidige aims to apply for approval of an internal model for parts of the business to calculate the regulatory capital requirement under Solvency II. Since 2004, Gjensidige has worked on developing a so-called ALM (Asset Liability Management) model that is used in its capital management. This model is being further developed both in scope and areas of use. The new regulations are expected to entail requirements for a higher capitalisation level than under Solvency I. In Norway, the insurance companies have also been subject to the banks’ capital adequacy regulations. In general, the requirements for good risk management will become more stringent, and the requirements for reporting to the authorities and the market will help to highlight the Company’s value creation. Gjensidige intends to use the upcoming legislative amendments in a constructive manner to further strengthen overall risk management in the Group.
Gender-neutral tariffs A decision by the European Court of Justice will lead to requirements for gender neutrality for a greater area of application than what follows from applicable Norwegian legislation. For Norwegian private customers, there is already a requirement for gender neutrality in the stipulation of premiums for general insurance products, such as motor insurance. Exceptions have been made for accident and health insurance products such as disability insurance, life insurance etc., however. The change will take effect once the authorities have adopted the necessary amendments to the Norwegian regulations to adapt them to the ECJ judgment. Gjensidige is prepared to adapt to amended regulations in the area.
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Profit/loss The Group recorded a profit before tax expense of NOK 5,633.5 million (3,647.4) in 2012. The profit from general insurance operations measured by the underwriting result was NOK 2,607.8 million (1,421.0). For the investment portfolio, the return on financial assets was 5.4 per cent (4.4) or NOK 3,005.1 million (2,331.3).
The increase in the profit before tax expense is primarily due to a significant improvement in general insurance operations in both Norway and the Nordic countries. Positive growth in earned premiums combined with a mild winter without prolonged periods of frost or large weather-related events resulted in a significantly lower loss ratio than in 2011.
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 2012 seen as a whole, the combined ratio on a discounted basis would have been 81.7, compared with 85.3 in relation to the recognised nominal amount.
General Insurance Private Norway 1,639.0 1,185.7 General Insurance Commercial Norway 830.7 394.4 General Insurance Nordic 489.2 75.6 General Insurance Baltics 18.9 3.0 Corporate Centre/costs related to owner (281.6) (165.9) Corporate Centre/re insurance 1 (88.5) (71.9) Underwriting result general insurance 2 2,607.8 1,421.0
Pension and Savings 18.3 15.1 Retail Bank 113.0 66.8 Return on financial assets 3 3,005.1 2,331.3 Amortisation and impairment losses of excess value – intangible assets (126.9) (181.5)
Board member of the Gjensidige Foundation, Chairman of the Board of Borgund Invest AS, Tanux Shipping KS, Tanux Shipping AS, Havskjer AS og Havstål AS, and board member of 3D Perception AS.
In addition to testing the capital in relation to statutory requirements, a calculation is carried out quarterly of the risk-based economic capital requirement and the requirements for maintaining an A rating from Standard and Poor’s. The risk-based calculation of the economic capital requirement is performed using the Group’s internal risk model, which is based on an economic valuation of assets and liabilities. Available capital in excess of this amount constitutes the Group’s excess capital. To arrive at the final excess capital, a deduction is made for the higher of the estimated additional capital required to maintain the current rating and to meet the statutory capital adequacy requirements. At the end of 2012, the excess capital was calculated at NOK 5.3 billion, after deduction the Board’s dividend proposal for the financial year 2012. The increase in excess capital since the third quarter is mainly due to retained earnings and a slight increase in equity as a result of the transition to the yield curve for covered bonds as the basis for calculating the Group’s pension commitments.
The net cash flow from investment activities mainly consists of payments made/ received on the acquisition of subsidiaries and associated companies, owner- occupied property, plant and equipment, plus dividend from associated companies. The net cash flow from investment activities was negative in the amount of NOK 235.2 million in 2012 (positive: 350.1).
The net cash flow from financing activities mainly consists of payments made/ received relating to external borrowings and the payment of dividend to sharehold-
ers. The net cash flow from financing activities was negative in the amount of NOK 2,339.0 million (negative: 2,448.2) in 2012. For 2012, the net cash flow was mainly affected by the payment of dividend of NOK 2,274.7 million and an increase in the bank’s lending volume.
The segments Private Norway The Private Norway segment offers a wide range of insurance products and services in the Norwegian private market, including insurance relating to motor vehicles, property, travel and accident and health.
Customer orientation and initiatives for customer retention was the main priorities in the Private Norway segment throughout 2012. New tariffs and better customer- and risk selection at the same time contributed to increased quality in the customer portfolio, increased profitability and increased competitiveness. The development in number of customers was the best since 2006, and number of customers at the end of 2012 was practically unchanged compared with the previous turn of the year.
Profit performance The underwriting result for 2012 was NOK 1,639.0 million (1,185.7). The combined ratio was 79.8 (85.3). The main reason for the improvement in the underwriting result was a reduction in claims incurred, mainly due to a benign weather situation, at the same time as lower operating expenses and higher premiums also made a positive contribution. New tariffs and increased use of pricing on a micro-segment basis resulted in a general improvement in risk selection and profitability.
Earned premiums amounted to NOK 8,131.1 million (8,082.8). The breakdown insurance agreement with the Norwegian Automobile Federation (NAF) expired at the turn of the year 2011/2012. Recognised premiums for this agreement amounted to NOK 208 million in 2011. Adjusted for this, earned premiums increased by 3.3 per cent in 2012. The positive development was mainly due to higher premiums. The development in the number of customers in 2012 was significantly better than in 2011, and net loss of customers was limited. The competitiveness is deemed to be good, and measures are continuously being implemented to further strengthening of selling power and retain profitable customers.
Claims incurred amounted to NOK 5,409.6 million (5,670.9). The loss ratio was 66.5 (70.2). The proportion of winter-related claims and extreme weather was significantly lower in 2012 than in 2011, and the claims trend for the property product therefore showed a substantial improvement. The claims level for motor, leisure and accident and health insurance was also lower compared with 2011.
Amortisation and impairment losses of excess value – intangible assets (9,5) (9,5)
Targets, strategy and outlook The Private Norway segment is characterised by a broad focus on customer retention and improved quality in all customer processes. Better access, simplification of products and processes and increased degree of self-service solutions is prioritized to underpin the Group financial targets and become leading on 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 perceived as good.
Commercial Norway The segment provides general insurance products in the areas of liability, property, agriculture, accident and health and motor insurance plus in marine/transport.
Greater cost-efficiency and improvement in profitability were high on the agenda in 2012, and the implementation of the multi-channel distribution model and new tariffs made important contributions to a higher level of activity and the positive profitability trend. In order to strengthen customer orientation, solutions have been established that lead to a higher level of detail relating to the customer’s risk profile. At the same time, the self-service solutions have been further developed to become a natural part of the customer dialogue from they receive an offer and welcome to advice and renewal. Automated processes have resulted in better customer experiences and increased efficiency.
Claims incurred amounted to NOK 3,918.1 million (4,283.4), which corresponded to a loss ratio of 72.4 (79.1). Fewer winter-related and large weather -related claims 52 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 53
had a positive effect on claims incurred. New tariffs, systematic risk management and better customer selection made a positive contribution to the profitability of all product groups.
Profit performance The underwriting result was NOK 489.2 million (75.6), corresponding to a combined ratio of 86.5 (97.9). This improvement is largely due to improved risk selection and pricing, the absence of large weather-related claims and an increase in run-off gains.
relatively high losses of customers as a result of the portfolio restructuring and price measures that were implemented. Based on a profitability assessment, it was decided during the second quarter to reduce the exposure to the municipal market in Sweden. Some loss of customers is still expected in the portfolio, although increased sales activity is expected to partly compensate for this.
Claims incurred amounted to NOK 2,550.7 million (2,933.3). This resulted in a loss ratio of 70.3 (80.7). Exchange rate effects had a positive effect corresponding to NOK 80.3 million. A substantial run-off gain also made a positive contribution. Adjusted for this, the positive development was the result of better risk pricing and -selection and a more favourable weather situation than in 2011.
Earned premiums 3,630.4 3,635.0 Claims incurred etc. (2,550.7) (2,933.3) Operating expenses (590.6) (626.1)
Amortisation and impairment losses of excess value – intangible assets (112.8) (142.0) Large losses 1 149.6 132.4 Run-off gains/(-losses) 2 234.6 160.8 1 Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre.
Targets, strategy and outlook Gjensidige has established a scalable model for future growth outside Norway. The Nordic presence shall contribute to economies of scale, diversification of risk and increased competitiveness. The Nordic general insurance markets are relatively consolidated, but Gjensidige expects that it will be possible to grow selectively through a patient, rational approach to new opportunities for growth. With a normalisation of the Danish property market, we expect organic growth slightly above market growth. The segment shall support the Group targets and starting implementation of new tariffs and facilitating increased degree of self-service will be high on the agenda in 2013, in addition to implementation of the new brand strategy.
Appointed to the Board of Gjensidige in 2010. Ms. Marchand is President and CEO of Eksportfinans ASA.
Earned premiums 436.9 395.8 Claims incurred etc. (292.6) (270.7) Operating expenses (125.4) (122.2)
Amortisation and impairment losses of excess value – intangible assets (4.7) (5.5)
Large losses 1 6.1 3.9 Run-off gains/(-losses) 2 20.4 19.8 1 Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 0.5 million euro per event are charged to the Corporate Centre.
Targets, strategy and outlook Gjensidige’s goal is to be one of the leading insurance companies in the Baltic states. The market is relatively immature, and a significant proportion of both the private and the commercial segment is still uninsured. We expect solid growth in step with the general economic situation and the standard of living improving. In the short term, the focus will be on rationalisation and streamlining distribution and more efficient claims handling. The segment shall support the Group targets.
million (7.1), was allocated to a buffer for higher life expectancy. The profit for 2011 included a VAT reimbursement for payment transfer services of NOK 9.1 million. There was an improvement in the underlying profit for 2012 compared with 2011, largely as a result of growth in the customer portfolio in the pension operations.
Assets under management in the pension operations increased by NOK 2,219.9 million (1,514.9). The increase was the result of the transfer of portfolios from external distributors, current pension contributions and new sales. At year end 2012, the pension capital totalled NOK 10,408.8 million (8,188.9). The group policy portfolio accounted for NOK 3,163.8 million (2,620.6) of this amount.
Earned premiums 680.7 532.7 Claims incurred etc. (574.9) (438.0) Operating expenses (122.8) (104.3) Underwriting result (17.1) (9.6)
A new law on group occupational pension and the pertaining transitional rules provide opportunities for growth in the Norwegian pension market in the years ahead. The new rules will probably mean that more enterprises will convert their defined benefit schemes into defined contribution occupational pension schemes, at the same time as the contribution rates will rise. As Gjensidige is a specialist in defined contribution occupational pension, these are products that suit the Company’s product range well. Moreover, the market for the new hybrid products can provide new opportunities.
Annualised net interest in relation to average assets under management amounted to 2.52 per cent (2.71). This reduction was largely due to increased interest expenses, in addition to a higher proportion of loans being secured by a residential mortgage than in 2011. Increased volume in the loan portfolio compensated for the reduction in income resulting from the decrease in the interest margin. The rating of covered bonds issued by Gjensidige Bank Boligkreditt AS had a positive effect on financing costs for covered bonds issued during the fourth quarter.
An employee representative to the Board of Gjensidige since 2007. He is Gjensidige’s senior employee representative. Mr. Mjåtvedt’s background is in sales and management, and he has nearly 20 years experience in the insurance sector.
Number of shares in Gjensidige Forsikring ASA (including shares, if any, held by closely related parties): 2,486(last change 10 December 2012)
Net interest income 442.9 430.8 Net commission income and other income 44.8 39.0
Match portfolio The match portfolio amounted to NOK 33.5 billion (29.5). The portfolio yielded a return of 3.9 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 1,046.8 million (382.1) at year end.
Geographic distribution �xed income instruments in free portfolio at the end of 2012 Geographic distribution �xed income instruments in free portfolio at the end of 2012
Finance income for the investment portfolio 5.4 4.4 3,005.1 2,331.3 56,296.0 54,486.7
Finance income in Pension and Savings and banking 50.8 44.3 Net income from investments 3,055.8 2,375.6 1) The item includes discounting effects of the insurance liabilities in Denmark and a mismatch between interest-rate adjustments on the liability side in Denmark and the interest-rate hedging.
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The average duration of the match portfolio was 3.5 years, while the average term to maturity for corresponding insurance debt was 3.7 years. The distribution of counterparty risk and credit rating is shown in the charts below. Of the securities without an official credit rating, 19.0 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.
Free portfolio The free portfolio amounted to NOK 17.7 billion (20.5) at the end of 2012. The return was 7.0 per cent (3.8).
Fixed-income instruments The fixed-income instruments in the free portfolio amounted to NOK 9.1 billion (11.3) and yielded a return of 6.9 per cent (2.4). High yield bonds yielded a particularly good return. The general interest rate level in the period was stable to falling, while the credit margins were reduced.
The average duration in the portfolio was approximately 1.9 years at the end of the period. The distribution of counterparty risk and credit rating is shown in the charts on page 11 and 12. Of the securities without an official rating, 7.4 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.
The geographical breakdown of the fixed-income instruments in the free portfolio is shown in the chart below. Bond investments in the PIIGS countries through funds amounted to NOK 76.1 million at the end of the period.
The portfolio is concentrated in office properties in Oslo, but it also includes office properties in other Norwegian cities and one office building in Copenhagen. In addition, a small part of the portfolio is invested in international property funds.
The portfolios of fixed income securities have not been exposed to loss as a result of bankruptcies among debtors in 2012. The international part of the investment portfolio is almost fully currency-hedged.
Risk factors Risk is defined as the possibility of an event affecting the Group’s goal attainment in a positive or negative way. In order to understand and manage risk, an assessment is therefore carried out of both the probability of the event occurring and its consequences. Through the Group’s risk management and internal control, a structure has been established that identifies, assesses, communicates and manages risk in a systematic manner throughout the Group. The risk assessment process is integrated with the Group’s budget and business plan process.
In the insurance market, Gjensidige is challenged by both established Norwegian financial players and new companies. Loss of business combined with reduced profitability in the insurance operations will have a negative effect on the return on capital and other key figures. Emphasis is therefore placed on Gjensidige’s ability to quickly adapt to consumers’ wishes for new service channels, and its ability to utilise modern technology and support systems in an efficient manner. Continuous efforts are made to develop new, customer-adapted products and service solutions, at the same time as the organisation, processes and value chains are reviewed and standardised to reduce costs and achieve greater efficiency.
Member of the Board of Gjensidige from 2012. She is self employed, and has previously been CFO of Aker Verdal, managing director of Aker FDV and managing director of CleanTech Mid- Norway.
Member of the board Gjensidigestiftelsen, Innherred Renovasjon and chair of Visit Innherred.
Holds a master’s degree in economics from The Norwegian Business School BI.
Number of shares in Gjensidige Forsikring ASA (including shares, if any, held by closely related parties): 2,794.
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managers based on the Group’s business and brand strategy. Performance-based remuneration models have been introduced for groups of employees, as well as individual scorecards. Systematic work is being carried out on culture and management development and on firmly establishing requirements and expectations of managers and employees.
Insurance risk The insurance risk relating to large individual losses or events is managed through authorisations and guidelines for ordinary operations. Clear guidelines have been established for the insurance policies that can be taken out. The risk of an unsatisfactory premium level is monitored on a continuous basis by the product and actuary department, and increasingly precise methods for pricing are being developed.
The Board’s stipulation of strategic allocations of assets and a dynamic risk management model set limits that enable risk to be adjusted to changed macroeconomic assumptions. The follow-up of price, interest rate and currency risk partly takes place 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. For more detailed information about financial risk and stress tests, see Note 3 to the consolidated annual accounts.
The Board has considered the risk of losses on loans, guarantee liabilities and other receivables, and necessary provisions have been made in the accounts.
have been established for conducting risk assessments, and the Board evaluates the annual status as part of the established internal control system. An independent Compliance function has been established to help the Group avoid official sanctions, financial losses or a loss of reputation as a result of failure to comply with statutes, regulations and standards. The Compliance function identifies, assesses, advises on, monitors and reports on the Group’s risk of failing to comply with statutes, regulations and internal guidelines.
Ethical issues are discussed at training courses for new employees and they are also discussed regularly by management groups and at department meetings. This is intended to reduce the risk of breaches of procedures and guidelines, while also contributing to a good working environment. Employees have also signed a personal data discipline statement relating to the use of the Group’s information and IT systems.
On behalf of the Board, Gjensidige’s internal audit function has been assigned the role of monitoring and assessing whether the risk management and internal control system function as intended.
A description of the company’s work on social responsibility is available on page 22-24 in the annual report.
Pollution of the external environment due to the company’s operations is limited. As far as the Board is aware, there are no products containing PCB in Gjensidige’s buildings and properties.
The gender distribution in Gjensidige Forsikring Norway at the end of 2012 was 53.5 per cent men and 46.5 per cent women. The corresponding figures for the Group were 47.3 per cent women and 52.7 per cent men. The proportion of women increased slightly in relation to 2011 (46.0 per cent women). In 2012, 211 new employees were hired in the Norwegian part of the business, excluding employees in acquired or merged businesses. Of the new employees, 116 are men and 95 women, with an average age of 33.8. In the same period, 191 employees left the Company (79 women and 112 men, average age of 42.9), which gives a staff turnover rate of 9.7 per cent for the Norwegian part of the business.
64 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 65
From the turn of the year, the senior group management consists of three women and seven men. The percentage of women on the Board was 40 per cent at the end of 2012 (four out of ten), unchanged from 2011. Among the representatives who are not elected by and from among the employees, the percentage of women was 43 per cent (three out of seven). Of the 212 managers in Gjensidige Forsikring Norway, 39.6 per cent were women, compared with 40.8 per cent women managers at the end of 2011. Of the Group’s total of 272 managers (excluding the senior group management), 38 per cent were women and 62 per cent men.
In the Private Norway segment, the exam for sales personnel also leads to approval pursuant to Finance Norway’s (FNO) scheme. The school also holds corresponding in-house exams for claims handlers in the Commercial Norway segment to ensure that all employees who have contact with customers have a high level of exper tise. Since it started in spring 2009, a total of 1,400 managers and employees have passed exams at the school.
Chairman of the boards of Furnes-Hamjern SCC AS, BoligPartner AS, Østlandsforskning AS, Øyhovden Invest AS, Ervod Production & Distribution AS, Hamar Troll AS, board member in Mesta AS, Scana Industrier ASA, Munck Cranes AS, HRR Miljø AS, Randers Jernstøperi AS and Hamarregionen Utvikling AS among others.
Systematic work on health, safety and the working environment (HSE) Systematic work on HSE is fully integrated in the organisation, and the working environment is a regular topic at management meetings. Gjensidige Forsikring Norway is an Inclusive Workplace (IW) enterprise and has placed particular emphasis on the prevention and follow-up of sickness absence.
Diversity and discrimination Gjensidige Norway continued to pursue the sub-goals in the Inclusive Workplace (IW) Agreement in 2012, and integration and diversity are deeply entrenched in the organisation.
Efforts are made to ensure that all employees 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 compliance with the Anti-discrimination and Accessibility Act.
Gjensidige Norway cooperates with NAV on job training and pay subsidies for people who have been unemployed, and it has had several employees on job training programmes through such schemes in 2012.
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 are adapted to changes that occur as a result of the pension reform. The measures include individual agreements to work 90 per cent with 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.
Outlook Gjensidige’s financial targets remain unchanged, and profitability is prioritised over growth. Over time, the annual combined ratio shall be within the corridor 90–93. The Group’s competitiveness is regarded as good, and a lot of attention has been devoted to the work of implementing measures and investments that will put the Company in a position to meet customers’ future needs and service requirements.
The macroeconomic situation with regard to the Norwegian general insurance business is still regarded as good, and there are signs of improvement in the Danish market. The Baltic economies are also developing positively.
The established pension, savings and banking operations will over time strengthen the position of the Group and create basis for growth in Norway.
There is still great uncertainty about the international economic situation, and several of the major economies are experiencing financial challenges. This creates uncertainty for Gjensidige as well. The continued low interest rates are seen as a particular challenge. Gjensidige has a robust investment strategy, however, while the Group is financially sound and has a high proportion of its business in the Norwegian general insurance market.
There is still uncertainty attached to the changed framework conditions for the financial sector in Norway and internationally. The Solvency II regulations are now not expected to be implemented in Norway until 2016. New Norwegian pension legislation is scheduled to enter into force in 2014.
Gjensidige has substantial capital buffers in relation to internal risk models, statutory capital adequacy requirements and the target rating. The Board considers the Group’s capital situation and financial strength to be good.
66 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 67
Allocation of the profit before other income and expenses The Group’s profit after tax expense amounted to NOK 4,280.1 million. The Board has adopted a dividend policy that forms the basis for the dividend proposals submitted to the general meeting. Gjensidige shall have a competitive dividend policy in relation to comparable investments. When determining the size of the annual dividend, consideration shall be given to the Group’s capital needs, including capital adequacy requirements, and its goals and strategic plans. Unless the capital need indicates otherwise, the Board’s goal is that between 50 and 80 per cent of the profit for the year after tax expense is distributed as dividend.
The Board proposes that an ordinary dividend of NOK 3,425 million be distributed for the 2012 financial year, corresponding to 80.0 per cent of the profit after tax expense and NOK 6.85 per share. On account of the Group’s strong capital situation, the Board proposes a distribution at the high end of the stipulated range of 50–80 per cent of the Group’s profit after tax expense. Part of the increase in nominal dividend from 2011 is due to a strong insurance result as a result of a more favourable frequency level, especially in motor and property insurance, than can be regarded as a normal level.
Other components of income and expense as presented in the income statement are not included in the allocation of profit. After allocation of the profit after other components of income and expense, the parent company’s distributable equity amounts to NOK 14,061.0 million.
Kjetil Kristensen Gisele Marchand Gunnar Mjåtvedt Mari T. Skjærstad Mette Rostad
68 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 69
Assets Goodwill 5 2,267.7 2,374.8 Other intangible assets 5 1,123.3 1,201.7 Deferred tax assets 16 4.1 7.4 Investments in associates 6 5,036.1 4,478.2 Owner-occupied property 7 90.5 270.7 Plant and equipment 7 163.0 238.4 Investment properties 8 4,626.7 5,248.1
Financial assets Financial derivatives 9 326.2 547.4 Shares and similar interests 9, 12 4,321.2 4,021.7 Bonds and other securities with fixed income 9 19,884.2 19,747.1 Bonds held to maturity 9 9,263.7 11,693.4 Loans and receivables 9 32,396.5 24,456.5 Assets in life insurance with investment options 10 7,189.7 5,542.1 Reinsurance deposits 0.6 0.8 Reinsurers' share of insurance-related liabilities in general insurance, gross 13 673.4 1,022.8 Receivables related to direct operations and reinsurance 10 4,112.7 3,791.1 Other receivables 10 314.9 227.6 Prepaid expenses and earned, not received income 10 81.2 108.9 Cash and cash equivalents 11, 25 2,331.5 3,513.3 Total assets 94,207.1 88,491.9
Equity and liabilities Equity Share capital 999.9 999.9 Premium reserve 1,430.0 1,430.0 Other equity 23,187.8 20,798.7 Total equity 1 25,617.7 23,228.6
Provision for liabilities Provision for unearned premiums, gross 13 10,141.6 9,531.4 Claims provision, gross 13 29,562.3 29,961.6 Other technical provisions 13 136.6 126.9 Pension liabilities 14 137.5 951.6 Other provisions 15 134.0 174.9
Financial liabilities Financial derivatives 9 49.4 69.4 Deposits from and liabilities to customers 9, 15 11,580.5 9,776.2 Interest-bearing liabilities 9, 15 5,355.5 5,263.4 Other liabilities 9, 15 978.0 1,172.6 Current tax 16 1,367.5 950.3 Deferred tax liabilities 16 1,267.5 1,003.6 Liabilities related to direct insurance 9, 15 406.0 477.1 Liabilities in life insurance with investment options 15 7,189.7 5,542.1 Accrued expenses and deferred income 9, 15 283.3 262.2 Total liabilities 68,589.4 65,263.4 Total equity and liabilities 94,207.1 88,491.9
Gisele Marchand Gunnar Mjåtvedt Mari T. Skjærstad Mette Rostad Helge Leiro Baastad CEO
Gjensidige Insurance Group 72 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 73
Net receipts/payments on sale/aquisition of owner-occupied property, plant and equipment (101.3) (56.9)
Gjensidige Insurance Group 74 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 75
Reporting entity Gjensidige Forsikring ASA is a publicly listed company domiciled in Norway. The company’s head office is located at Drammensveien 288, Oslo, Norway. The consolidated financial statements of the Gjensidige Insurance Group (the Group) as at and for the year ended 31 December 2012 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.
Basis of preparation Statement of compliance The consolidated financial statements have been prepared in accordance with IFRSs endorsed by EU, and interpretations that should be adopted as of 31 December 2012, and additional disclosure requirements in accordance with the Norwegian Financial Reporting Regulations for Insurance Companies (FOR 1998-12-16 nr 1241) pursuant to the Norwegian Accounting Act.
Standards that can influence accounting principles • IFRS 9 Financial Instruments, issued in November 2009 and
October 2010, is expected to enter into force on 1 January 2015. This is the first phase of the International Accounting Standards Board’s (IASB) three-phase project aimed at replacing IAS 39. It concerns the classification and measurement of financial assets and liabilities. 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. Phases two and three concern impairment losses and hedge accounting, respectively. The standard is still under preparation and is not yet completed. Our preliminary assessment is that the standard can result in the reclassification of financial instruments in the consolidated financial statements.
• Based on our preliminary assessments and on the basis of Gjensidige’s current operations, IFRS 13 Fair Value Measurements, which enters into force on 1 January 2013, will not have a material effect.
If the fair value, after a reassessment of the Group’s share in the net fair value of identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess amount is recognized immediately in profit or loss.
Foreign operations Foreign operations that have other functional currencies are translated to NOK by translating the income statement at average exchange rates for the period of activity, and by translating the balance sheet at exchange rates at the reporting date. Exchange differences are recognized as a separate component of equity. On disposal of the foreign operation, the cumulative amount of the exchange difference recognized in other comprehensive income relating to that foreign operation is recognized in profit of loss, when the gain or loss on disposal is recognized.
Gjensidige may engage in refurbishment, major upgrades or new property projects. The costs for these are recognized using the same principles as for an acquired asset.
Amortisation Intangible assets, other than goodwill is amortised on a straight-line basis over the estimated useful life, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows • customer relationships 10 years • trademarks 10 years • internally developed software 5–8 years • other intangible assets 5–10 years
Recoverable amount is the greater of the fair value less costs to sell and value in use. In assessing value in use, estimated future cash flows are discounted to present value using a pre-tax discount rate that reflects the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets generating cash inflows that are largely independent of cash inflows from other assets or groups of assets (cash-generating unit). Goodwill is allocated to the cash-generating unit expecting to benefit from the business combination.
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 r eported). Based on experience and the development of the portfolio, a statistical model is prepared to calculate the scope of postreported 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.
The technical provisions related to the unit linked contracts are determined by the market value of the financial assets. The unit linked contracts portfolio is not exposed to investment risk related to the customer assets since the customers are not guaranteed any
The banking operation has established a liquidity portfolio which is continuously measured and reported at fair value. The bank has a goal of having low interest rate risk and plans and manages the interest rate risk so that one aggregates fixed-rate positions on both deposits, loans and placements in a model, and then use interest rate swaps to balance out potential remaining risk. Interest rate swaps are measured at fair value, and in order to avoid inconsistent measurement, bonds and certificates with fixed interest-rates subject to interest rate hedging are measured at fair value.
Investments held to maturity Investments held to maturity are non-derivative financial assets with payments that are fixed or which can be determined in addition to a fixed maturity date, in which a business has intentions and ability to hold to maturity with the exception of • those that the business designates as at fair value through profit or loss at initial recognition • those that meet the definition of loans and receivables
Hedge accounting is applied on the largest branches and subsidiaries. Gains and losses on the hedging instrument relating to the effective portion of the hedge are recognized in other comprehensive income, while any gains or losses relating to the ineffective portion are recognized in profit or loss. If subsidiaries are disposed of, the cumulative value of such gains and losses recognized in other comprehensive income is transferred to profit or loss. Where hedge accounting is not implemented, this implies a divergent treatment of the hedged object and the hedge instrument used.
Financial liabilities at amortised cost Financial liabilites are measured at amortised cost using the effective interest method. When the time horizon of the financial liability ’s due time is quite near in time the nominal interest rate is used when measuring amortised cost.
If there is objective evidence that the asset is impaired, impairment loss are calculated as the difference between the carrying amount of the asset and the present value of estimated future cash flows discounted at the original effective interest rate.
Impairment losses are reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized.
Available for sale For financial assets available for sale, an assessment to whether the assets are impaired is carried out quarterly.
If a decline in fair value of an available-for-sale financial asset, compared to cost, is significant or has lasted longer than nine months, the cumulative loss, measured as the difference between the historical cost and current fair value, less impairment loss on that financial asset that previously has been recognized in profit or loss, is removed from equity and recognized in profit or loss even though the financial asset has not been derecognized.
Gjensidige Insurance Group 80 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 81
Transactions with affiliated companies The Fire Mutuals operates as agents on behalf of Gjensidige. For these services commission is paid. The Fire Mutuals are also independent insurance companies with fire and natural damage on their own account. Gjensidige delivers support for this insurance operation. For handling this, and to reinsure the Fire Mutuals’ fire insurance Gjensidige receives payment based on arm’s length distance. The same applies to other services delivered to the Fire Mutuals.
A total of 113,336 (257,175) shares at an average share price of NOK 75.59 (64.13) have in 2012 been acquired to be used in Gjensidige's share savings scheme. Of this 91,041 (205,434) shares have been transferred to employees, at the same price, but with a discount in the form of a contribution, see note 27. In addition 17,251 (17,969) bonus shares have been allocated to employees in Sweden and Denmark from Gjensidige’s own shares. Thus, the increase in own shares throughout the year amounts to 5,044 (33,722).
Actuarial gains/losses pension Actuarial gains/losses pension consists of gains/losses occurring by changing the actuarial assumptions used when calculating pension liability.
As at 31 December NOK 6.85 per ordinary share (4.55) 3,425.0 2,275.0 1 Proposed dividend for 2012 is not recognized at the reporting time, and it does not have any tax consequences.
Investment properties Fair value is based on market prices and generally accepted valuation models where there are no market prices. A key parameter of the valuation is the long-term required rate of return for the individual property. A further description of the real estate price risk and a sensitivity analysis of investment properties are given in note 8.
Financial assets and liabilities The fair value of financial assets and liabilities that are not traded in an active market (such as unlisted shares) is determined by means of generally accepted valuation methods. These valuation methods are based primarily on the market conditions at the reporting date. See note 9.
Loans and receivables For financial assets that are not measured at fair value, it is assessed whether there is objective evidence that there has been a reduction in the value of a financial asset or a group of financial assets on each reporting date. See note 10.
Gjensidige Insurance Group 84 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 85 3. Management of insurance and financial risk
General insurance is Gjensidige’s core business and constitutes the major part of operations and risks in the Group, through Gjensidige Forsikring in Norway and its branches and subsidiaries in Sweden, Denmark and the Baltic. Gjensidige also offers pension, investment and savings products through the subsidiaries Gjensidige Pensjonsforsikring (GPF) and Gjensidige Investeringsrådgivning (GIR). In addition, Gjensidige offers banking services through Gjensidige Bank.
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 definedcontribution 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.
The �gure shows principal operational subsidiaries and branches in Gjensidige * Gjensidiges Arbejdsskadeforsikring A/S and Nykredit Forsikring A/S are owned by Gjensidige Forsikring ASA, but run by the Danish branch
Gjensidige Insurance Group 84 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 85
Group risk committee 1. line Risk management and internal control 3. line Audit risk management and internal control system, report to the Board
Risk Management 2. line Assess, evaluate and advice, quality assurance, quanti�cation/ aggregation of risk
Capital management The core function of insurance is the transfer of risk, and the Group is exposed to risk in both its insurance and investment operations. Identification, measurement and management of risk are essential parts of the operations. Any insurance company must adapt its risk exposure to its capital base. On the other hand, solvency capital, or equity, has a cost. A key objective of capital management is to balance these two aspects. Gjensidige’s overall capital management objectives are to ensure that the capitalization of the Group can sustain an adverse outcome without creating a financially distressed situation and that the Group’s capital is used in the most efficient way.
For the Group, the rating requirements are most binding. Gjensidige Forsikring’s target financial strength rating is ‘A’ (single A) from Standard & Poor’s or the equivalent from another rating institution. This target has been achieved by actual rating of ‘A’ (Stable) from Standard & Poor’s (unchanged since 1999, last updated on 16 July 2012). The rating is subject to an annual review. Standard & Poor’s rating model is used as an approximation of the capital requirements from this perspective, even though a number of other factors also play an important role in determining the Group’s rating. Based on data as at 31 December 2012, the excess capital relative to the targeted A rating is estimated at NOK 5,371.5 million. Gjensidige Bank ASA has its own rating of BBB+ from Standard & Poor’s (first time rated 21 September 2012) while covered bonds issued by Gjensidige Bank Boligkreditt is rated AA+ (also first time rated 21 September 2012).
Table 1 – Capital in excess of legal requirements per company NOK million 2012 2011 Requirement
Gjensidige Forsikring 11,576.6 10,633.4 Capital adequacy (8 %) Gjensidiges Arbejdsskadeforsikring 200.6 174.9 Indvidual solvency test
Nykredit Forsikring 90.5 117.8 Indvidual solvency test Gjensidige Baltic 159.3 175.1 Solvency I requirement (100 %) Gjensidige Bank Holding Group 559.3 583.7 Capital adequacy (8 %)
Gjensidige Pensjon og Sparing Holding Group 211.5 349.4 Capital adequacy (8 %)
The solvency margin in Gjensidige Baltic does not include the profit for the year until the completion of the auditing of the financial statement for 2012. In Denmark, an individual solvency calculation was introduced as an adaptation to the upcoming Solvency II regulations. Gjensidige Forsikring ASA and all subsidiaries met all regulatory capital requirements during 2012.
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. The internal risk based criteria is thus slightly changed compared to last year.
Using the internal model, with the definition of internal capital as stated above, the internal capital requirement for the insurance group was set at NOK 10,700 million at the end of 2012, compared to NOK 11,600 million at the end of 2011. Excess capital above the internal capital requirement is NOK 11,300 million.
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.
Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered. Unexpected rise in inflation rate will also have negative effect on claims and benefit payments. Gjensidige writes general insurance in Norway, Sweden, Denmark and the Baltics. General insurance in these countries have a lot of similarities. The description of risks to the insurance business is, with a few exceptions, common for the Group. In case of significant deviations between the countries, these are commented separately.
The frequency and severity of claims can be affected by several factors. The different factors will depend on the products, or lines of business (LOB) considered.
An increase in the frequency of claims can be due to seasonal effects and more sustainable effects. During the winter season snow and cold weather will cause an increase in the frequency of claims in Motor insurance. In Property insurance cold winter will cause an increase in the frequency of claims due to frozen water pipes and increased use of electrical power and open fire places for heating of the houses. More permanent shifts in the level of frequency of claims may occur due to e.g. change of customer behaviour and new types of claims. The effect on the profitability of a permanent change in the level of the frequency of claims will be high. In Motor insurance in Norway, for example, an increase of one percentage point in the level of the frequency of claims will increase the loss ratio by approximately four percentage points.
The severity of claims is affected by several factors. In some LOBs, with relatively few claims, the severity may be heavily influenced by large claims. The number of incurred large claims during a year varies significantly from one year to another. This is typically for the commercial market. In most LOBs the underlying development of the severity of claims is influenced by inflation.
Premiums, deductibles and elements in the conditions may be changed at the yearly renewal of policies. Insurance companies have the right to reject the payment of a fraudulent claim. Gjensidige has the right not to renew individual policies in cases of insurance fraud, and in some instances legislation or policy conditions give the company the right to terminate or not to renew individual policies in cases where special reasons indicate that such termination is reasonable. In cases where a claim has been paid, Gjensidige is entitled to pursue any third parties liable for the damage, for payment of some or all costs (recourse claim). The underwriting policy and guidelines in all companies are within the Group’s approved risk level.
The Gjensidige Group still has its concentration in the Norwegian general insurance market, with operations in other Nordic countries and the Baltic.
Table 3a – Gross premiums written per line of business, Gjensidige Group
Fire and other damage to property 6,772.4 32.6 % 6,834.5 34.0 %
Accident and health - others/default 2,538.3 14.4 % 2,501.8 14.5 %
Subsidiaries are reinsured by Gjensidige Forsikring ASA and the subsidiaries ’ reinsurance exposure is included in the outwards reinsurance programme for the Group.
The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified (RBNS), where information about the claim is available. There may be cases where certain claims may not be apparent to the insured until many years after the event that gave rise to the claims.
In estimating the liability for the cost of reported claims not yet paid, Gjensidige considers any information available from claims reports, loss adjusters, medical certificates and information about the costs of settling claims with similar characteristics in previous periods. All claims are assessed on a case-by-case basis by a claims handler. Claims with potential for distortive effects of their development are handled separately and projected to their ultimate by an additional provision (e.g. bodily injury claims in Motor insurance). Where possible, Gjensidige adopts multiple techniques to estimate the required level of provision. This provides a greater understanding of the trends inherent in the experience being projected. The projections given by the various methodologies also assist in estimating the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year. The development of the estimate of ultimate claim cost for claims incurred in a given year is presented in tables 6a and b. This gives an indication of the accuracy of Gjensidige’s estimation techniques for claims payments.
The risks associated with insurance contracts are complex and subject to a number of variables that complicate quantitative sensitivity analysis.
The provisions related to reported claims are assessed individually by a claims-handler and registered into the claims system. The development of provisions for notified claims is supervised by the claims
Calculation of claims provisions are based on empirical data, where the basis is the development of claims cost over time. This includes development both for reported claims (RBNS provisions) and incurred, but not reported claims (IBNR provisions). Based on experience and the development of the portfolio statistical models are prepared to calculate the claims provisions. The fit of the model is measured by looking at the deviation between earlier post-reported claims and those estimated by the model.
The key statistical methods used are • Chain ladder methods, which use historical data to estimate the proportions of the paid and incurred to date of the ultimate claim costs.
During the last years Gjensidige has had processes where external actuarial firms have calculated 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.
Change in severity of claims (+10 %) Private Norway 522.9 552.9 Commercial Norway 391.8 428.3 Total Gjensidige Forsikring ASA 914.7 981.2
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.
Gjensidige Insurance Group 90 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 91
Interest risk is a significant risk factor associated with Workers’ Compensation business in Denmark. This risk is an expression for loss/profit due to changes in market rates. There is both interest and inflation risk associated with the liabilities (technical provisions). The risk is hedged by use of interest and inflation swaps.
Gross Estimated claims cost At the end of the accident year 9,476.3 10,266.3 10,523.1 11,627.6 11,700.2 12,216.8 12,362.5 11,901.1 13,928.7 14,951.9 12,885.5 - Nine years later 9,533.1 10,234.4 - Ten years later 9,492.7
Gjensidige Insurance Group 92 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 93
The challenge for this type of business will be to get customers to pay in a sufficient risk premium to build up provisions ample enough to meet future liabilities. When an insurance event does occur it is by no means automatic that any shortfall in the claims provision may be covered by additional insurance premiums from the healthy population. For the portfolio of paid-up policies the uncertain factor will be that the premium provisions will prove to be insufficient to cover the benefits covered under the policies.
The largest insurance risk that Gjensidige Pensjonsforsikring AS faces is if actual pension payments exceed the amount set aside to meet its agreed insurance liabilities. This would occur in the event of a higher than anticipated rise in the level of disability among those insured, a rise in the level of mortality among those insured parties with coverage for dependants, or a longer than anticipated lifespan for those receiving retirement pensions. It would also occur if a majority of claimants had agreed pension sums that were higher than the average pension sum in the insurance portfolio.
Table 7a – Number of members and contracts 2012 Number of members Number of contracts
Compulsory occupational pensions 68,965 16,444 Other defined contribution pensions 49,218 8,976 Total 118,183 25,420
Compulsory occupational pensions 62.063 15.535 Other defined contribution pensions 40.145 7.474 Total 102.208 23.009
The products’ mortality risk relates largely to benefits payable to surviving dependants in connection with defined contribution schemes, i.e. surviving spouse, domestic partner or child pensions. Surviving dependants benefits relate largely to contribution schemes where planned contributions exceed the statutory two per cent minimum for compulsory occupational pensions. Surviving dependants benefits deriving from paid-up policies also represent an area of exposure, but with a clearly lower sum per insured party. Surviving dependants benefits under defined contribution pension schemes generally have a limited payment period, while the vast majority of surviving dependants benefits under paid-up policies are payable for as long as the beneficiary lives (lifelong).
The insurance risk as at 31 December 2012 is considered to be satisfactory, and efforts are made to alleviate any uncertainty surrounding cases not yet reported through claims provisions. The company has a reinsurance arrangement with Gjensidige Forsikring ASA which provides satisfactory coverage in the event of major fluctuations. Gjensidige Forsikring ASA has a substantial portfolio involving both individual and group personal risk with disability risk, and close collaboration with specialists in this company will make it possible to identify significant changes in disability trends both in society at large and among the insured population.
The number of claims has increased during the last years, and the aggregated claims information is considered to be satisfactory for preparation of a new model for calculation of claims provisions. The model has been supplied with claims data for “comparable products ” in Gjensidige Forsikring ASA. The results from the new model calculations show that the claims provisions for some of the earliest risk years are not sufficient, and the claims provisions have been increased in the reports with NOK 58.8 million as at 31 December 2012.
Insurance risk in connection with longevity risk is, as already mentioned, under evaluation by the work on a new calculation basis, called K2013. The transition to a new calculation basis will lead to need for increased premium provisions, financed by reduction of profit for the financial and insurance risks for the company. This has been carried out for the insurance years 2011 and 2012 according to approval by the Financial Supervisory Authority of Norway, and will most likely also be done for 2013.
Actual amounts paid out for mortality and disability in 2012 amounted to NOK 39 million. Claims provisions (IBNR) at the end of 2012 totalled NOK 302 million, accounting for 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
Gjensidige Insurance Group 92 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 93 liabilities (premium provision), and totalled NOK 263 million, or 47 per cent of the overall provisions.
The agreements with companies are, moreover, of a one year duration, such that the risk premium can be amended at each annual renewal. Overall, this provides a sound financial foundation, with limited likelihood that the accumulated premiums and claims provisions will be insufficient to meet future liabilities. Since the portfolio is still not very large, the bulk of the annual risk premium goes into the claims provision. After some time each year’s risk will be assessed with respect to insurance events and anticipated claims patterns.
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 2012, results in an increase in the necessary premium reserve in the order of NOK 60 million.
Gjensidige Insurance Group 94 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 95 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 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.
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 42 million with a disability rate of 25 per cent in the first year and 15 per cent in subsequent years.
Gjensidige’s reinsurance programme primarily consists of non- proportional reinsurance. The maximum retention level for the Group was NOK 320 million in 2012, increased from NOK 250 million in 2011. As a general rule, Gjensidige purchases reinsurance to limit any single claim or event per insurance product to NOK 100 million; for some products Gjensidige purchases reinsurance coverage which will reduce the retention level further. 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 2012. 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.
Equity price risk is defined as a loss in value resulting from a fall in equity prices. This is analogous to real-estate price risk. See amounts below in the stress test and sensitivity analysis. Interestrate risk is defined as the loss in value resulting from a change in interest rates and is viewed both from the asset-only perspective and in relation to the interest-rate sensitivity of the liabilities. The Board sets a limit of NOK 500 million on the interest-rate risk in the total fixed-income portfolio (excluding bonds at amortized cost and the swaps in Gjensidiges Arbejdsskadeforsikring) for 2012 (given a 100 basis points shift in the yield curve) for the general insurance operations. Asset liability risk is limited to NOK 345 million, or a duration mismatch of maximum one year.
Liquidity risk is defined as the inability to meet payments at due date, or the need to realize investments at a high cost to meet payments. The Board has set minimum limits for the amount of assets to be realized without undue transaction costs within various time frames. The liquid buffer, shall after these criteria be at least NOK 4,000 million.
The table below gives the main overview of the asset allocation for the insurance business at year-end 2012 and 2011. The asset allocation is divided in a match portfolio to cover insurance liabilities, and a free portfolio which can be viewed as the invested equity of the Group. The item associated companies are the stakes in Storebrand and SpareBank1 SR-Bank. The actual allocation will vary throughout the year and follow movements in the market, tactical allocation and risk situation.
3 Investments in internationally diversified funds externally managed. 4 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige
Tabell 9 –TVaR utilization of risk limits in the liquid part of the free portfolio
Stress testing is performed on the value of the investment assets relative to the market, credit, interest rate and foreign-exchange risk as well as to negative scenarios for the insurance activities measured relative to the buffer capital (defined as capital in excess of legal minimum requirements) and reported regularly to the Board.
The large capital surplus was representative for the situation throughout the year, although the precise figures will vary along with changes in asset allocation and year-to-date profit. A rule for management actions with escalation to CEO or Board is implemented if total decrease in value/buffer capital is above predefined levels.
Hedgefund and private equity 25 % drop (416.6) Currency 12 % change towards NOK (29.7) Creditspread Spread widening (362.2) Total undiversified market risk (2,061.6) Diversification effect 567.8 Total market risk (1,493.9) Claims provision (536.7) Catastrophe (320.0) Storebrand and SpareBank1 SR-bank Internal model (2,393.1) Result subsidiaries (GPS and Bank) 10 % drop in ROE (73.7) Total insurance risk (3,323.5) Diversification effect market/insurance risk 1,151.0
Hedgefund and private equity 25 % drop (454.7) Currency 12 % change towards NOK 23.1 Creditspread Spread widening (400.6) Total undiversified market risk (2,040.2) Diversification effect 333.1 Total market risk (1,707.1) Claims provision (552.5) Catastrophe (185.0) Storebrand and SpareBank1 SR-bank Internal model (2,059.0) Result subsidiaries (GPS and Bank) 10 % drop in ROE (116.8) Total insurance risk (2,913.3) Diversification effect market/insurance risk 1,062.4
Storebrand ASA 3,750.6 Sparebank1 SR-Bank 1,250.6 Spotify 101.4 Statoil ASA 44.8 SOS International A/S 41.5 Total five largest 5,188.8 Total equities 7,951.5
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 SpareBank1 SR-Bank were recognized as an associated company as at 31 December 2012 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 2011. As previously mentioned, this was attributed to an increase in the shareholdings.
Table 13a – Largest private equity funds 2012 NOK million 31.12.2012
Gjensidige Insurance Group 96 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 97
Table 13b – Largest private equity funds 2011 NOK million 31.12.2011
HitecVision Private Equity V LP 173.2 FSN Capital II LP 132.5 HitecVision Private Equity IV LP 116.7 Altor Fund II LP 78.5 Northzone V KS 68.8 Total five largest 569.6 Total private equity 1,293.4
Within the Group’s insurance companies, overall exposure to inter estrate 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 interest-rate 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 table below shows the maturity profile of the Group’s fixed- income portfolio. It does not include the above-mentioned swap agreements, which have a limited carrying amount, but instead the actual fixed-income portfolio in Gjensidiges Arbejdsskadeforsikring.
Table 14 –Maturity profile (number of years) fixed income portfolio NOK million 31.12.2012 31.12.2011
Duration mismatch ALM versus limit 1 year 30,658.1 3.8 34,343.6 3.5 0.2
Gjensidige Insurance Group 98 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 99
Duration mismatch ALM versus limit 1 year 30,607.6 3.6 29,951.2 3.3 (0.4)
Table 17 – Largest real estate investments NOK million 31.12.2012 31.12.2011 Total ten largest properties 3,412.4 3,810.0 Total property 4,914.7 5,753.9
Foreign-exchange risk is defined as the financial loss resulting from a fluctuation in exchange rates. Generally, foreign-exchange risk in the investment portfolio is hedged close to 100 per cent, within permitted limit of +/- ten per cent per currency, except for smaller mandates where active currency management is included.
The Group underwrites insurance in the Scandinavian and Baltic countries, so it has insurance liabilities in these currencies. The foreign -exchange risk at both the group and company levels is generally hedged by matching technical provisions with investments in the corresponding currency. In Gjensidige Baltic, there are investments in EUR-denominated interest-bearing papers that are not equivalent to liabilities in EUR.
A ten per cent strengthening of NOK against all other currencies will reduce equity by about NOK 24.7 million (increasee by 19.3). Since the conversion effect related to subsidiaries is recognized in other compre hensive 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 33.8 million (86.1).
Currency transactions are performed within strictly defined limits and are employed in both the ordinary management and to hedge financial instruments. The table below shows both gross and net positions. Currency hedging (not including the hedging of investments in subsidiaries) is done by means of forwards or swaps, and currency position is monitored continuously against exposure limits per currency.
Gjensidige Insurance Group 98 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 99 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.
Risk by 100 bps change in credit spread 2.9 (1,213.3) (1,250.0)
Risk by 100 bps change in credit spread 2.4 (967.3) (1,100.0)
The following tables show the allocation of the fixed-income portfolio by rating category at year-end in 2012 and 2011.
AAA 10,775.7 9,035.4 AA 6,596.8 9,723.1 A 15,488.4 11,453.4 BBB 5,196.0 5,534.3 BB 575.2 775.7 B 578.1 636.4 CCC or lower 189.1 215.2 Not rated 3,034.0 3,418.5 Total 42,433.3 40,791.9
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 Kapitalforvaltning. The following tables show the largest issuers as at 31 December 2012 and 31 December 2011, respectively.
Nordea Bank AB 2,900.0 DnB ASA 2,442.2 Danske Bank A/S 2,074.0 Nykredit Realkredit A/S 2,028.9 Kongeriket Norge 1,640.9 Statkraft AS 1,369.6 Lloyds Bank Covered 1,060.9 Realkredit Danmark A/S 840.6 Svenska Handelsbanken AB 803.2 Citigroup 795.1 Total ten largest 15,955.3 Total fixed income portfolio 42,433.3
Gjensidige Insurance Group 100 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 101
Figure 9a – Potential credit exposure reinsurance per rating category 2012
OECD-bonds with less than 5 years to maturity 1,359.7 Covered bonds 739.8 Total 7,422.5 4,000.0 3,422.5
Bank deposits 1,385.2 Money market instruments 4,772.4 Bonds and certificates coupons with maturity less than 6 months 306.7
The portfolios are stress tested in accordance with the recommendations from the Finanstilsynet to measure whether the company can tolerate a given decline in value. The paid-up policy portfolio amounted to NOK 2,590,8 million as at 31 December 2012 with an average guaranteed interest rate of 3.6 per cent. The other group policy portfolio amounted to NOK 575.3 million, whereas the company portfolio had NOK 427.0 million in financial assets.
Table 28 – Sensitivity fixed-income and equity portfolio, Gjensidige Pensjonsforsikring NOK million 31.12.2012 31.12.2011 100 bps parallell shift up (0.2) (0.1) 10 % drop in equity prices (0.9) (1.0)
BB 0.2 B 3.8 CCC or lower Not rated 956.3 870.4
The Board sets the overall framework for the bank’s credit risk appetite through its credit strategy and policy.
Secured lending mainly includes loans and credits secured by property. In secured lending the majority of the portfolio is secured within 80 per cent loans to property value.
The bank uses application score models based on internal and external data of a customer for decisions relating to customer’s application for a loan. In addition the bank uses behavior score models which predict the probability of default based primarily on the customer’s credit behavior with the bank. The behavior score models are used for decisions related to top-ups, collections, group provisioning and other portfolio management decisions.
Tabell 31 – Payments overdue NOK million 31.12.2012 31.12.2011 10-30 days 349.9 176.2 30-90 days 86.4 82.0 Over 90 days 263.7 243.7 Total 700.0 501.9
Fixed interest rate loans and deposits are also a market risk and are included in the limits as defined above.
The bank measures the market risk using a Value at Risk analysis in the bank’s total risk model. As at 31 December 2012 the capital provisions for interest rate risk was NOK 9.5 million.
Concentration risk is the risk of losses due to the bank having large parts of its lending tied to single actors or to limited geographic or business areas. The concentration risk is managed using the bank’s risk frameworks, and is measured and evaluated through annual stress tests/scenario analyses in the credit area.
The Liquidity risk because of a lack of liquidity is handled through having sufficient liquid assets to cover the liabilities that come to maturity. The bank shall have available a 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 months months years More than 5 years Without maturity Total
Financial derivatives - net settlement (negative figures yield net payment) (0.4) (1.5) (3.7) (5.6)
Gjensidige is a broad supplier of general insurance products to retail customers in Norway. The company is a market leader in motor and veichle insurance and accident and health insurance, and it also has a solid position in other types of private insurances.
Gjensidige is a complete provider of general and life insurance products for Norwegian businesses. The company has a strong position in the market segment for small and medium-sized enterprises, and it is the clear market leader in accident and health insurances.
Gjensidige offers general insurance products to retail and commercial customers in Sweden and Denmark. In both countries the operations are run under the Gjensidige brand.
The Danish operations are the Group’s centre of expertise for insurances to municipalities and other public sector entities in Norway, Sweden and Denmark, under the KommuneForsikring brand.
Gjensidige’s Baltic branch offers insurance products to retail and commercial customers in Latvia, Lithuania and Estonia. Motor insurance is the most widespread insurance product in these markets.
Gjensidige offers a broad range of pension, investment and savings products for both the private and commercial market in Norway. The products offered include among others occupational pensions, fund pensions, paid-up policies and fund savings.
Gjensidige Bank is a nationwide Internet bank aimed at the private, affinity group and agricultural markets in Norway. The bank offers traditional banking products adapted to electronic distribution.
Gjensidige Insurance Group 104 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 105 5. Intangible assets
Cost As at 1 January 2011 2,867.6 855.7 146.0 789.7 266.3 4,925.3 Additions 1.7 0.8 26.9 36.0 65.4 Additions from internal development 145.5 145.5 Disposals (214.2) (40.4) (10.8) (131.4) (8.6) (405.4)
Carrying amount As at 1 January 2011 2,580.7 634.6 68.1 416.0 230.9 3,930.2 As at 31 December 2011 2,374.8 531.1 50.9 389.6 230.0 3,576.4
Cost As at 1 January 2012 2,650.8 813.0 135.7 830.6 292.6 4,722.7 Additions 37.3 37.3 Additions through business combinations 61.7 29.1 0.7 6.9 98.4 Additions from internal development 109.1 109.1 Disposals (122.3) (63.4) (185.7)
Amortisation recognized during the year (76.7) (10.0) (132.6) (34.1) (253.3) 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) (596.7) (92.3) (1,343.2)
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 IT-software, including adjustment of standard systems, are capitalized as intangible assets. Amortization is included in the accounting line Expenses.
The group has had a few minor business combinations during 2012. None of the intangible assets have undetermined useful lives. In 2011 a technical impairment of goodwill in Oslo Areal has been conducted.
Gjensidige Insurance Group 106 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 107
Impairment testing of goodwill The carrying amount of goodwill in the Group as at 31 December 2012 is NOK 2,267.7 million. This is primarily related to acquisitions/ mergers of different subsidiaries/portfolios in the period 2006 to 2012. See table.
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 expected CR level is both in the growth period and when estimating the terminal value considered to be from 85.4 to 96.9.
There has been no impairment losses of goodwill or other intangible assets in 2012.
Budgets/prognoses and the period for which the cash flows are projected
The discount rate is before tax, and is composed of a risk-free interest rate, a risk premium and a market beta. The risk-free rate is equivalent to a ten-year interest rate on government bonds in the respective countries where the subsidiaries and branches operate in. In addition a risk premium of 6.0 percentage point in Denmark and Sweden and 6.5 percentage points in the Baltic has been added.
The excess values associated with the acquisition 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. The models are especially sensitive to deviations from expected CR. See table.
Discount rate Growth reduced by 2 % compared to CR increases by All circumstances Sensitivity table increase by 1 % expected next 3 years 2 % next 3 years occur simultanously
Need for impairment app. NOK 7 million No need for impairment No need for impairment Need for impairment app. NOK 7 million
Nykredit Forsikring Need for impairment app. NOK 178 million No need for impairment No need for impairment Need for impairment app. NOK 236 million Gjensidige Forsikring, Swedish branch No need for impairment No need for impairment No need for impairment No need for impairment
Gjensidige Insurance Group 106 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 107 6. Shares in associates
For the whole company 2011 Storebrand ASA 401,442.0 18,777.0 382,665.0 38,225.0 681.0 307.2 3 404.2 SpareBank1 SR-bank 131,142.0 9,757.0 121,385.0 3,267.0 1,081.0 118.4 843.0 Bilskadeinstituttet AS 5.0 4.7 0.3 1.3 0.1 (0.1) N/A
Botrygt Prinsegården AS (liquidated in 2011) N/A N/A N/A N/A N/A N/A N/A
The investment in SpareBank1 SR-Bank is classified as investments in an associate and is accounted for according to the 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 SpareBank1 SR-Bank 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 also owns bonds issued by SpareBank1 SR-Bank. The carrying amount of these bonds is NOK 420.9 million.
2 Share of profit/(loss) is adjusted for Gjensidige's net excess values and accounting policies.
Gjensidige Insurance Group 108 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 109
Cost As at 1 January 2011 360.6 841.7 1,202.2 Additions 66.6 66.6 Disposals (28.5) (151.7) (180.2) Exchange differences 0.1 0.1 As at 31 December 2011 332.1 756.6 1,088.7 Uncompleted projects 32.6 32.6 As at 31 December 2011, including uncompleted projects 332.1 789.2 1,121.3
Statement of financial position As at 1 January 5,248.1 5,900.3 Additions 71.9 140.9 Additions from subsequent expenditure 4.0 Additions through business combinations 651.0 12.0 Disposals (1,303.3) (892.7) Net gains/(losses) from fair value adjustments (197.8) 83.5 Transfer from owner-occupied property 167.5 Exchange differences (10.7)
The adoption of the above parameters implies a significant level of judgement. Emphasis is put on this judgement being consistent with that observed in the market and that the judgement is applied consistently from period to period. There are contractual commitments regarding development of investment properties amounting to NOK 312.0 (39.0) million.
Yield is determined based on a normal required rate of return adjusted for the location of the property, type, technical standard and the contracts. The normal required rate of return is determined from the required rate of return that can be derived from transactions in the market, and expectations of interest level and risk adjustment. The market rent is determined from existing contracts on the property and comparable properties, observations from contractual negotiations, requests for offers and information from realtors and Eiendomsverdi’s database.
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 49.4 49.4 69.4 69.4
Interest-bearing liabilities 15 5,355.5 5,380.1 4,955.2 4,930.2 Other liabilities 15 978.2 978.2 1,172.6 1,172.6 Liabilities related to direct insurance 15 406.0 406.0 477.1 477.1 Accrued expenses and deferred income 15 283.3 283.3 262.2 262.2 Total financial liabilities 18,652.9 18,677.5 17,021.0 16,996.0 Gain/(loss) not recognized in profit or loss 598.0 218.9
Below the different valuation levels and which financial assets/ liabilities are included in the respective levels are accounted for.
Gjensidige Insurance Group 110 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 111
Sensitivity financial assets level three The sensitivity analysis for financial assets valued based on non-observable market data show the gain/loss of realistic and plausible market scenarios. A decrease in value of ten per cent is considered a realistic and plausible market scenario for both shares and similar interests and for bonds and other fixed income securities that are included in level three in the valuation hierarchy.
Gjensidige Insurance Group 112 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 113
Shares and similar interests 1 Decrease in value 10 % 185.9 Bonds and other fixed income securities Decrease in value 10 % 2.7 Total 188.6
Valuation hierarchy 2011 The table shows a valuation hierarchy where financial assets/liabilities measured at fair value through profit or loss are divided into three levels based on the method of valuation
Amount of net realised/ unrealised gains recognized in profit or loss that are attributable to instruments held as at
Shares and similar interests 1 1,772.8 215.0 260.4 (63.7) (231.8) 1,952.8 205.0 Bonds and other fixed income securities 8.5 15.3 24.0 Total 1,781.4 230.3 260.4 (63.7) (231.8) 1,976.7 205.0
Mortgage loans 14,488.9 12,459.6 Bonds classified as loans and receivables 14,928.8 9,235.9 Other loans 378.9 401.2 Impairment to fair value (8.0) (16.3) Subordinated loans 9.1 8.5 Provision for impairment losses (304.4) (193.7) Loans for consumer goods 2,903.3 2,561.4 Total loans and receivables 32,396.5 24,456.5
Hedge accounting 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.
Gjensidige Arbejdsskadeforsikring A/S Currency-related contracts - hedging instruments 686.7 (3.1) (0.5) Hedging object 687.2
Gjensidige Insurance Group 114 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 115
Cash and bank deposits are cash and bank deposits available for day to day business. Deposits with financial institutions consist of shortterm currency deposits and other short-term credit deposits.
Other foreign shares IShares FTSE A50 China Index ETF 106.4 Csetf On S&P 500 101.7 Pacific Drilling SA 10.7 Investor AB 9.6 A.P Moeller - Maersk A/S 8.1 Stolt Nielsen Ltd. 7.9 Volvo AB 7.7 Alm. Brand A/S 6.9 Securitas AB 6.3 Royal Caribbean Cruises Ltd. 4.7 Other foreign shares 0.1 Total other foreign shares 270.1
Total shares and similar interests owned by Gjensidige Forsikring ASA 4,304.7
Shares and similar interests owned by other group companies Shares and similar interests owned by Gjensidige Pensjonsforsikring AS 8.8 Shares and similar interests owned by Gjensidige Bank ASA 2.1 Shares and similar interests owned by Nykredit Forsikring A/S 5.3 Shares and similar interests owned by Gjensidige Baltic AAS 0.3 Total shares and similar interests owned by other group companies 16.5
Gjensidige Insurance Group 118 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 119
Claims reported and claims handling costs 12,949.6 13,457.4 Claims incurred, but not reported 16,612.7 16,504.1 Total claims provision, gross 29,562.3 29,961.6
Claims reported and claims handling costs 12,372.9 12,616.0 Claims incurred, but not reported 16,535.5 16,338.0 Total claims provision, net of reinsurance 28,908.4 28,954.0
Claims and claims handling costs Claims reported and claims handling costs 13,457.4 (841.4) 12,616.0 13,765.0 (362.4) 13,402.6
Claims incurred, but not reported 16,504.1 (166.1) 16,338.0 14,574.4 (97.0) 14,477.3
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 Total as at 31 December 29,562.3 (653.9) 28,908.4 29,961.6 (1,007.5) 28,954.0
Provisions for unearned premiums, gross, short-term insurances As at 1 January 9,531.4 (15.2) 9,516.2 9,078.3 (27.6) 9,050.7 Increase in the period 19,025.4 (499.5) 18,525.9 18,602.9 (916.6) 17,686.3 Earned in the period (18,346.3) 495.1 (17,851.3) (18,148.6) 928.2 (17,220.4)
Discounted claims provision, gross - Gjensidiges Arbejdsskadeforsikring A/S 3,781.0 3,960.9 Undiscounted claims provision, gross - Gjensidiges Arbejdsskadeforsikring A/S 4,517.0 5,011.9
Amount recognized as expense for the defined contribution plan is NOK 104.2 million (96.2). The amounts include premium to Fellesordningen for LO/NHO, see below.
The group expects to contribute NOK 142.3 million to the defined benefit plan in 2013 (128.4).
The discount rate in 2012 was 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 pension payments is 3.06 per cent in year 5, 3.73 per cent in year 10, 4.20 per cent in year 15, 4.88 per 14. Pension
Gjensidige Insurance Group 120 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 121 cent in year 30 and 5.16 per cent in year 50. The discount rate was previously based on the ten-year government bond yield, adjusted for the term to maturity of the pension commitments.
The discount rate is the assumption that has the largest impact on the value of the pension liability. Salary increases, pension increases and change in social security base amount are based on historical observations and expected future inflation. Due to an average age of above 50 years on employees in the defined benefit plan the salary increase does not contain a career addition, and determined salary increase can therefore be lower than in the market in general. The decreasing salary trend applied for 2012 gives an average salary increase of 2.6 per cent (2.7).
Contractual pension (AFP) The liability to pay own risk according to the former arrangement is accounted for as a business specific defined benefit plan. Own risk are still to be paid until the pension liability is fulfilled for the company ’s own early retirees choosing the former AFP plan. Pension l iability for former employees that have chosen to retire before 1 January 2011 is fulfilled as originally planned until everybody has reached 67 years. Hence there will not be a settlement for this group of employees.
Present value of the defined benefit obligation As at 1 January 3,041.0 2,783.4 Correction of the opening balance 80.1 Current service cost 56.2 62.8 Employers' national insurance contributions of current service cost 7.9 8.2 Interest cost 82.0 96.8 Actuarial gains and losses (543.7) 295.7 Benefits paid (141.7) (144.5) Employers' national insurance contributions of benefits paid (28.0) (17.7) Past service costs (1.0) Business combinations (122.8) Foreign currency exchange rate changes (2.3) (0.2)
Fair value of plan assets As at 1 January 2,089.4 2,160.2 Expected return on plan assets 93.6 98.8 Actuarial gains and losses 94.5 (52.2) Contributions by the employer 167.2 82.6 Benefits paid (82.6) (82.4) Employers' national insurance contributions of benefits paid (28.0) (17.7) Business combinations (99.9)
The expense is recognized in the following line items in the income statement Insurance-related adm. expenses including provisions for received reinsurance and sales expenses 52.5 68.3
Actuarial gains and losses recognized in other comprehensive income Cumulative amount as at 1 January (2,476.1) (2,124.0) Recognised during the period 637.3 (339.8) Disposed companies (13.3) Exchange rate differences 0.2 1.0 Cumulative amount as at 31 December (1,838.6) (2,476.1)
Employers national insurance contributions 14.10 % 14.10 % Staff turnover before/after 40 years Decreasing Decreasing Probability of AFP early retirement N/A N/A
Sensitivity mortality mortality rate rate adjustment adjustment 2012 Change in pension benefits accrued during the year (3.8 %) 2.8 % (14.5 %) 18.3 % 15.6 % (13.0 %)
Historical information Present value of the defined benefit obligation 2,471.5 3,041.0 2,783.4 2,765.6 3,100.7 The fair value of the plan assets (2,334.0) (2,089.4) (2,160.2) (2,080.7) (1,858.1)
Gjensidige Insurance Group 122 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 123 15. Provisions and other liabilites
Restructuring cost 1 57.2 70.0 Other provisions 76.8 104.9 Total other provisions for liabilities 134.0 174.9
Liabilities in life insurance with investment options 7,189.7 5,542.1 Total liabilities in life insurance with investment options 7,189.7 5,542.1
Restructuring cost 1 Provisions as at 1 January 70.0 54.7 New provisions 25.8 50.0 Reversal of provisions (7.0) Provisions used during the year (31.6) (34.7) Provision as at 31 December 57.2 70.0 1 The restructuring and distribution strategy for the private marked was finished in 2012 and there has been a reversal of provision of NOK 7.0 million. In association with the ongoing effeciency improvement measure of the segment Commercial Norway started in 2010, a new provision of NOK 10.0 million is recognized. In 2012 it has been decided to recognize a provision of NOK 9.0 million regarding effenciency improvment in department Motor and Property Claims. These processes have been communicated to all business areas involved.
Specification of tax expense Tax payable (1,253.9) (845.3) Correction previous years 27.0 (35.4) Change in deferred tax (126.5) (18.8) Total tax expense (1,353.5) (899.5)
Gjensidige Insurance Group 122 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 123
Tax effect of Tax rate different from 28 % and change in tax rate 8.1 5.5 Valuation allowance and reversal of loss carried forward in subsidiaries 3.1 Dividend received 44.4 344.1 Tax exempted income and expenses 10.2 (319.3) Associates 123.6 120.5 Impairment loss on goodwill and recognition of negative goodwill (5.4) Non tax-deductible expenses (3.9) (7.8) Consequence of tax relief decision 14.4 16.5 Correction previous years 27.0 (35.4)
Later or no due date 8.0 4.5 Total loss and dividend tax deduction carried forward 8.0 4.5
Change in deferred tax Deferred tax liabilities as at 1 January 996.2 1 075.1 Change in deferred tax recognized in profit or loss 126.5 18.8
Gjensidige Insurance Group 124 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 125
Tax recognized in other comprehensive income Deferred tax, pensions (178.5) 95.2 Deferred tax, hedge accounting 1.4 (6.8) Tax payable, hedge accounting (46.5) 1.4 Total tax recognized in other comprehensive income (223.6) 89.8
In connection with the conversion of Gjensidige Forsikring BA to a public limited company the Ministry of Finance has consented to an exemption from capital gains taxation on the transfer of business to the newly formed public limited company under certain conditions. The consequences of the tax relief decision have been incorporated into the tax expense and tax liabilities from the fourth quarter 2010. The tax relief decision involves greater complexity and discretionary assessments, which entails a greater degree of uncertainty with respect to the tax expense and tax liabilities until all the effects have ultimately been evaluated by the tax authorities.
Depreciation and value adjustments (note 5 and note 7) 8.1 33.4 Employee benefit expenses (note 18) 14.2 13.5 Software costs 0.5 0.4 Auditor’s fee (incl. VAT) 0.8 1.0 Consultants’ and lawyers’ fees 2.6 2.5 Other expenses 153,3 141.9 Total expenses related to investments 179,5 192.6
Auditor's fee (incl. VAT) Statutory audit 6.0 6.1 Other non-assurance services 4.7 7.4 Tax consultant services 0.9 0.7 Total auditor's fee (incl. VAT) 11.5 14.2
Employee benefit expenses Wages and salaries 1,381.2 1,482.1 Social security cost 289.1 299.0 Pension cost - defined contribution plan (note 15 incl. social security cost) 104.2 96.2 Pension cost - defined benefit plan (note 15 incl. social security cost) 52.5 68.3 Stock purchase offering for employees 8.5 0.9 Total employee benefit expenses 1,835.6 1,946.5
Gjensidige Insurance Group 124 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 125 18. Salaries and remuneration
The remuneration committee shall prepare matters for consideration by the Board. It is primarily responsible for • Drafting proposals for and following up compliance with the
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, management principles and customer satisfaction.
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 ratio, the business unit in question and an evaluation of the person in question’s personal contribution, including an overall assessment relating to compliance with the Group’s vision,
Gjensidige Insurance Group 126 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 127
Rights earned in the financial year according to defined benefit pension plan 7
Kim Rud-Petersen, Executive Vice President 2,129.5 217.1 144.4 452.4 227.6 2,867 2,867 2,983
Hege Yli Melhus, Executive Vice President 2,132.3 261.6 149.9 172.1 369.4 4,536 4,652 2,836 3
The Board 5 values, ethical guidelines, management principles and customer satisfaction. Half of the variable remuneration is in the form of a promise of shares in Gjensidige Forsikring ASA, one third of which are released in each of the following three years. Restricted variable remuneration that has not yet been disbursed may be reduced if subsequent results and developments indicate that it was based on incorrect assumptions.
Of the variable pay earned in 2013 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.
In accordance with the guidelines, two employees in the finance department have been offered up to 50 per cent variable pay. The Board confirms that the guidelines on the remuneration of executive personnel for 2012 set out in last year’s statement have been complied with.
Tor Magne Lønnum (1.1.11-31.5.11), Deputy CEO 2,483.4 1,884.5 152.7 257.0 3
Gjensidige Insurance Group 128 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 129
Rights earned in the financial year according to defined benefit pension plan 8
Bjørn Iversen, Chairman 195,0 1,5 816 Kirsten Indgjerd Værdal, Deputy Chairman 55,5 464
9 Bonus shares in the share saving's programme for employees. See note 27 for terms and further description of the scheme.
Net income and gains/(losses) from investments in subsidiaries and associated companies Net income from associated companies 441.5 431.6 Net gains/(losses) from sale of subsidiaries 115.4 Total net income and gains/(losses) from investments in subsidiaries and associated companies 441.5 547.0
Net income and gains/(losses) from buildings and other real estate Investment properties Rental income from investment properties, excl. unrealised gains/(losses) 321.1 398.7 Net revaluation investment properties 26.0 83.5 Net gains/(losses) from sale of investment properties 24.4 11.7 Administration expenses related to investment properties (86.6) (90.7) Total net income and gains/(losses) from investment properties 284.9 403.2
Bonds and other fixed-income securities Net interest income/(expenses) from bonds and other fixed-income-securities 403.0 425.7 Unrealised gains/(losses) from bonds and other fixed-income securities (113.7) 257.5 Net realised gains/(losses) from bonds and other fixed-income securities 277.4 79.3 Total net income and gains/(losses)from bonds and other fixed-income securities 566.7 762.5
Derivatives Net interest income/(expenses) from derivatives 40.0 51.2 Unrealised gains/(losses) from derivatives (179.3) 71.4 Net realised gains/(losses) from derivatives 684.8 419.0 Total net income and gains/(losses)from derivatives 545.5 541.6
Net other financial income/(expenses) 1 (130.5) (105.3) Discounting of claims provision classified as interest expense (67.8) (114.7) Change in discount rate claims provision (84.3) (453.0) Total net income from investments 3,055.8 2,375.6 19. Net income from investments
Gjensidige Insurance Group 130 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 131 20. Contingent liabilities NOK million 2012 2011
As part of its ongoing financial management, the Company has undertaken to invest up to NOK 1,158.3 million (746.0) 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 totalled NOK 1,629.2 million (1,514.9) at the end of the year.
There are contractual commitments regarding development of investment properties amounting to NOK 312.0 million (39.0). The commitment falls due during the period from 2013 to December 2014.
Gjensidige Insurance Group 130 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 131
Loans to related parties As at 31 December 2012 employees have loans in Gjensidige Bank amounting to NOK 941.7 million (1,082.6). The loans are offered on normal commercial conditions.
Gjensidige Insurance Group 132 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 133
Gjensidige Insurance Group 132 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 133 22. Events after the balance sheet date
No significant events have occured after the end of the period.
Gjensidige Insurance Group 134 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 135
Subordinated loans in associates, proportion 1,448.7 1,502.1 45 % of investment properties, unrealised gains, proportion 41.4 71.3 Additional capital 1,490.1 1,573.3
Other non-weighted assets Goodwill 2,267.7 2,374.8 Deferred tax assets 4.1 7.4 Other intangible assets 1,123.3 1,201.7 Derivatives 326.2 547.4
Assets with 0 % risk weight 0.0 0.0 Assets with 10 % risk weight 255.5 186.0 Assets with 20 % risk weight 7,236.4 6,832.0 Assets with 35 % risk weight 4,744.4 4,100.1 Assets with 50 % risk weight 1,020.4 574.4 Assets with 100 % risk weight 30,354.6 28,942.5 Assets with 150 % risk weight 2,802.5 656.3 Net basis of calculation for institutions reporting in accordance with Basel II and which are not distributed according to risk weight 48,434.0 48,085.4
Risk weighted calculation base (B) 94,601.6 89,105.0 Capital ratio (A/B) 16.8 % 16.2 %
Gjensidige Insurance Group 134 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 135 24. Solvency margin NOK million 2012 2011
Restricted bank deposits Source-deductible tax accounts 74.2 69.7 Securities placed as security for insurance operations 0.6 13.8 Deposits placed as security for insurance operations 0.1 8.3 Total restricted bank deposits 74.8 91.8
State Street Bank And Trust Co. Nominee 4,708,492 0.94 % Goldman Sachs & Co - Equity Nominee 4,417,501 0.88 % State Street Bank And Trust Co. Nominee 2,911,032 0.58 % State Street Bank And Trust Co Nominee 2,748,199 0.55 % State Street Bank And Trust Co. Nominee 2,548,327 0.51 % The Northern Trust Co. Nominee 2,341,554 0.47 % The Bank Of New York Mellon Nominee 2,150,112 0.43 %
With effect from 2011 Gjensidige established equity-settled sharebased payment for the group management and more explicitly defined executive personnel.
Gjensidige Insurance Group 136 I Gjensidige Annual Report 2012 Gjensidige Annual Report 2012 I 137 28. Earnings per share
Outstanding 1 January 50,747 Granted during the period 22,546 51,184 Forfeited during the period Cancelled during the period (2,375) (437) Exercised during the period Expired during the period
Bonus shares granted in the 2012 financial year had a weighted average fair value of NOK 59.10 (52.27) at the time of allocation. The fair value is calculated based on the market value of the share at the time of allocation.
The number of and weighted average exercise price for shares in the remuneration scheme are
Allocated return on investments transferred from the non-technical accounts 491.8 720.6
Actuarial gains and losses on defined benefit plans - employee benefits 623.8 (337.1)
140 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 141
Total reinsurers' share of insurance-related liabilites in general insurance, gross 631.7 973.5
Changes in accounting policies There are no changes in accounting policies in 2012.
The following International Financial Reporting Standards (IFRS) and interpretation statements have been published up until 6 March 2013, without them having entered into force or having been implemented early.
Standards that will affect disclosure requirements • Several amendments to IFRS 7 Disclosure – Financial Instruments with different commencement dates, and to IFRS 12 Disclosure of Interests in Other Entities, which enters into force on 1 January 2013 will entail additional disclosure requirements for us.
Basis of measurement The financial statements have been prepared based on the historical cost principle with the following exceptions • derivatives are measured at fair value • financial instruments at fair value through profit or loss are measured at fair value • financial assets available for sale are measured at fair value • investment properties are measured at fair value
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 two operating segments, General insurance Private Norway and General insurance Commercial Norway, 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. In addition the company comprises a Swedish and Danish branch that is reported as a part of the segment Nordic in the consolidated financial statements.
144 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 145
Allocated return on investments The allocated return on investments is calculated based on the average of the technical provisions throughout the year. The average yield on government bonds with three years remaining until maturity is used for the calculation. The Financial Supervisory Authority of Norway has calculated the average technical yield for 2012 and 2011 to be 1.4 per cent and 2.3 per cent, respectively. The allocated return on investments is transferred from the non- technical account to the technical account.
Net income from investments Financial income consist of interest income on financial investments, dividend received, realised gains related to financial assets, change in fair value of financial assets at fair value through profit or loss, and gains on financial derivatives. Interest income is recognized in profit or loss using the effective interest method.
Exchange differences arising on retranslations are recognized in profit or loss.
Investment properties Investment properties are properties held either to earn rental income or for capital appreciation, or for both. These properties are
• internally developed software 5–8 years • other intangible assets 5–10 years
Impairment of non-financial assets Indicators of impairment of the carrying amount of tangible and intangible assets are assessed at each reporting date. If such indicators exist, then recoverable amount of an assets or a cash generating unit is estimated. Indicators that are assessed as significant by the Group and might trigger testing for an impairment loss are as follows • significant reduction in earnings in relation to historical or expected future earnings • significant changes in the Group’s use of assets or overall strategy for the business • significant negative trends for the industry or economy • other external and internal indicators
Recoverable amount is the greater of the fair value less costs to sell and value in use. In assessing value in use, estimated future cash flows are discounted to present value using a pre-tax discount rate that reflects the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets generating cash inflows that are largely independent of cash inflows from other assets or groups of assets (cash-generating unit). Goodwill is allocated to the cash-generating unit expecting to benefit from the acquisition.
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 insurancerelated liabilities in general insurance, gross. The reinsurers’ share is less expected losses on claims based on objective evidence of impairment losses.
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 the initial recognition value will be equal to the transaction price. Subsequent to initial recognition the instruments are measured as described below.
The category loans and receivables comprises the classes loans, receivables related to direct operations and reinsurance, other receivables, prepaid expenses and earned, not received income, cash and cash equivalents, bonds and other fixed income securities classified as loans and receivables and receivables within the Group.
Financial derivatives Financial derivatives are used in the management of exposure to equities, bonds and foreign exchange in order to achieve the desired level of risk and return. The instruments are used both for trading
Financial liabilities at amortised cost Financial liabilites are measured at amortised cost using the effective interest method. When the time horizon of the financial liability’s due time is quite near in time the nominal interest rate is used when measuring amortised cost.
Provisions Provisions are recognized when the company has a legal or constructive obligation as a result of a past event, it is probable that this will entail the payment or transfer of other assets to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
Share-based payment The fair value of share-based payment arrangements allocated to employees is at the time of allocation recognized as personnel costs, with a corresponding increase in equity. Share-based payment arrangements which are recovered immediately are recog nized as expenses at the time of allocation. Vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognized shall be based on the number of equity instruments that eventually vest. Non-vesting conditions are reflected in the measurement of fair value, and no adjustment of the amount recognized as expenses is done upon failing to meet such conditions.
Deferred tax Deferred tax is determined based on differences between the carrying amount and the amounts used for taxation purposes, of assets and liabilities at the reporting date. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that they can be offset by future taxable income. If deferred tax arises in connection with the initial recognition of a liability or asset acquired in a transaction that is not a business combination, and it does not affect the financial or taxable profit or loss at the time of the transaction, then it will not be recognized.
150 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 151
Own shares In the column for own shares in the statement of changes in equity the nominal value of the company’s holdings of own shares is presented. Amounts paid in that exceeds the nominal value is charged to other equity so that the cost of own shares reduces the Group’s equity.
Other paid in equity Other paid in equity consists of wage costs that are recognized in profit and loss as a result of the share purchase program for employees.
Other earned equity Other earned equity consists of this year’s and previous year’s retained earnings that are not disposed to other purposes and includes provisions for compulsory restricted funds (Natural perils fund, guarantee scheme).
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.
As at 31 December NOK 6.85 per ordinary share (4.55) 3,425.0 2,275.0
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.
Gross premiums earned 2,204.3 4,288.3 1,916.4 2,371.9 213.1 452.0 464.2 181.4 7,803.3 Gross claims incurred (1,556.8) (2,917.0) (1,310.9) (1,606.1) (129.6) (294.4) (280.1) (118.9) (5,296.8)
Pool arrangements Norwegian Natural perils fund 99.7 99.7 221.7 112.1 Norwegian Occupational Injury Insurers' Bureau 39.0 39.0 Norwegian Motor Insurers' Bureau 33.6 33.6 Norwegian Pharmapool 2.6 2.6 Total pool arrangements 99.7 99.7 296.9 187.3
Gross premiums earned 194.7 194.7 797.6 211.3 1,008.9 248.6 17,388.2 Gross claims incurred 7.6 (150.2) 3.0 (139.6) (555.1) (151.8) (706.9) (366.2) (12,127.7)
Technical provisions Provision for unearned premiums, gross 16.2 16.2 98.8 6,681.0 Claims provision, gross 8.8 225.0 32.3 266.1 552.6 552.6 306.9 25,205.8 Gross loss liability 8.8 209.0 32.3 250.1 552.6 552.6 341.2 21,809.1
154 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 155 5. Intangible assets
As at 31 December 2011 1,262.0 426.5 61.6 419.1 53.0 2,222.2 Uncompleted projects 92.9 92.9 As at 31 December 2011, including uncompleted projects 1,262.0 426.5 61.6 511.9 53.0 2,315.1
Carrying amount As at 1 January 2011 1,035.6 306.8 44.4 262.6 45.3 1,694.7 As at 31 December 2011 1,162.0 324.7 42.4 282.9 39.1 1,851.1
Cost As at 1 January 2012 1,262.0 426.5 61.6 419.1 53.0 2,222.2 Additions 23.9 23.9 Additions from internal development 109.1 109.1 Disposals (57.0) (57.0)
Amortisation recognized during the period (36.1) (8.1) (94.3) (5.6) (144.2) Disposals 62.3 62.3 Exchange differences 3.9 1.0 2.1 0.9 7.8 As at 31 December 2012 (100.0) (134.1) (26.3) (259.0) (18.6) (537.9)
Carrying amount As at 1 January 2012 1,162.0 324.7 42.4 282.9 39.1 1,851.1 As at 31 December 2012 1,110.0 273.8 32.4 346.5 31.4 1,794.0
The company’s intangible assets are either acquired or internally developed. Goodwill, customer relationships 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 developed software is developed for use in the insurance business. External and internal assistance is used in relation with implementation or substantial upgrade of IT-software, including adjustment of standard systems, are capitalized as intangible assets. Amortisation is included in Insurance-related administration expenses including commissions for received reinsurance and sales expenses.
154 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 155
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.
The growth rate is considered to be 3,0 per cent. This is based on the following assumptions: Based on an overall assessment the management has nevertheless chosen to use a 3.0 per cent growth expectation, as this is considered to be more in line with market expectations.
Growth reduced by 2% compared to expected next 3 years CR increased by 2% de neste 3 årene All circumstances accur simultaneously Exchange rate reduced by 10%
Need for impairment, app. NOK 104 milion. No need for impairment No need for impairment Need for impairment, app. NOK 104 milion Need for impairment, app. NOK 41 million
In Gjensidige Forsikring ASA investments in subsidiaries are accounted for at cost. The cost was 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. In addition the values are sensitive to exchange rate changes. See tables.
Associates Storebrand ASA Oslo 24,3 % 4,604.4 2,567.4 4,604.4 2,567.4 SpareBank1 SR-Bank Stavanger 10,3 % 1,022.2 1,022.2 866.4 866.4 Bilskadeinstituttet AS Oslo 29,5 % 0.4 0.4 0.4 0.4 Vervet AS including subordinated loan 1 Tromsø 25% 32.3 2.5 32.3 2.5 Total shares in associates 5,659.3 3,592.5 5,503.5 3,436.7
Gjensidige Norge AS 0.1 0.1 N/A Gjensidige Pensjon og Sparing Holding (group) 11,008.1 483.7 10,524.4 680.7 12.2 N/A Glitne Invest (group - liquidated in 2012) 74.2 60.6 N/A
Gjensidige Norge AS 1.1 1.1 N/A Gjensidige Pensjon og Sparing Holding (group) 8,876.0 587.3 8,288.7 532.7 44.5 N/A
Samtrygd Eigedom AS 1.4 1.4 N/A Strandtorget Drift AS 6.2 6.2 N/A Strandtorget Eiendom AS 2.5 0.5 N/A
The investment in SpareBank1 SR-Bank is classified as investments in an associate and is carried at cost. 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 SpareBank1 SR-Bank 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.
Cost As at 1 January 2011 144.8 678.8 823.5 Additions through merger 5.4 5.4 Additions 55.8 55.8 Disposals (28.5) (28.0) (56.5) Exchange differences (0.1) (0.1) As at 31 December 2011 116.3 711.8 828.0 Uncompleted projects 32.6 32.6 As at 31 December 2011, including uncompleted projects 116.3 744.4 860.7
Additions through merger (3.4) (3.4) Depreciation for the year (4.5) (74.6) (79.1)
Cost As at 1 January 2012 116.3 711.8 828.0 Transferred to investment property (2.2) (2.2) Additions through merger (5.2) (5.2)
Market value of land and owner-occupied property 99.6 106.4 Carrying amount of land and owner-occupied property 84.6 94.5 Excess value beyond carrying amount 15.1 11.9
Statement of financial position As at 1 January 896.6 1,102.5 Additions from subsequent expenditure 12.4 4.0 Disposals (508.3) (266.9) Net gains/(losses) from fair value adjustments (220.8) 57.0 Transfer from owner-occupied property 2.3 As at 31 December 182.2 896.6
The adoption of the above parameters implies a significant level of judgement. Emphasis is put on this judgement being consistent with that observed in the market and that the judgement is applied consistently from period to period. There are contractual commitments regarding development of investment properties amounting to approximately NOK 6.0 (1.0) million.
Financial income and expenses from investment properties is shown in note 19.
Gjensidige Forsikring's own valuation model has been used both in the quarterly financial statements and at year end. In addition, two independent external advisors were brought in to value selected parts of the portfolio at year end. From 2011 onwards, Gjensidige Forsikring has used a new valuation model. This new model had no effect on financial statements in 2011.
160 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 161 9. Financial assets and liabilities
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 12 4,304.7 4,304.7 3,466.2 3,466.2 Bonds and other fixed income securities 13,096.3 13,096.3 13,292.2 13,292.2
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 10 12,480.0 12,870.3 7,227.8 7,117.3 Loans 10 369.2 369.2 224.0 224.0 Receivables related to direct operations and reinsurance 10 3,864.3 3,862.3 3,632.0 3,632.0 Receivables from Group companies 21 2,622.6 2,622.6 380.6 380.6 Other receivables 10 185.5 184.5 137.5 137.5 Prepaid expenses and earned, not received income 10 5.6 5.6 47.1 47.1 Cash and cash equivalents 11, 25 1,202.6 1,202.6 1,453.7 1,453.7
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 45.3 45.3 67.9 67.9
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 (EFT)
Valuation hierarchy 2012 The table under shows a valuation hierarchy where financial assets/ liabilities measured at fair value through profit or loss are divided into three levels based on the method of valuation.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 123.0 123.0 Financial derivatives subject to hedge accounting 38.5 38.5
Amount of net realised/ unrealised gains recognized in profit or loss that are attributable to instruments held as at 31.12.2012
162 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 163
Shares and similar interests Decrease in value 10 % 185.9 Bonds and other fixed income securities Decrease in value 10 % 2.7 Total 188.6
Verdsettelseshierarki 2011 The table under shows a valuation hierarchy where financial assets/ liabilities measured at fair value through profit or loss are divided into three levels based on the method of valuation. NOK million
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 201.0 1,350.8 1,914.5 3,466.2 Bonds and other fixed income securities 3,316.9 9,968.8 6.5 13,292.2
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 67.9 67.9
Sensitivity of financial assets valued based on non-observable market data (level 3) 2011
Hedge accounting 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.
Mortgage loans 1.7 1.9 Bonds classified as loans and receivables 12,480.0 7,227.8 Other loans 378.7 243.5 Impairment to fair value (8.0) (16.3) Subordinated loans 1.4 0.8 Provision for impairment losses (4.5) (5.9) Total loans and receivables 12,849.3 7,451.8
Beyond the liabilities that arise from insurance contracts, the company has not issued guarantees for which provisions have been made.
1 Vervet AS is 25 per cent owned by Gjensidige Forsikring and is is classified as receivables from associates. The subordinated loan was recognized as impairment loss of associates in 2008. Interest accrued only on Convexa VIII AS.
Weighted average rate for interest earned on cash and bank deposits is approximately 2.6 per cent (2.4).
164 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 165 12. Shares and similar interests
164 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 165
Private equity investments (cont.) Northzone IV KS 39.5 FSN Capital II LP 36.2 Verdane Capital VI KS 34.3 Viking Venture III DIS 32.1 Energy Ventures II KS 31.7 BaltCap PEF LP 29.9 LGT Crown European Private Equity PLC 27.5 CapMan BO IX LP 23.8 Norvestor IV LP 22.7 Partners Group Direct Investments 2006 LP 21.6 Verdane Capital VII KS 19.7 Norvestor VI LP 18.8 Viking Venture II AS 18.6 Nordic PEP 1 IS (Altor fund III) 17.4 Northzone VI L.P. 15.6 NeoMed Innovation IV LP 12.7 Verdane Capital V B KS 12.0 Convexa Capital VIII AS - klasse B 11.4 HitecVision VI LP 9.2 Viking Venture II B IS 8.1 Teknoinvest VIII B DIS 8.0 Teknoinvest VIII KS (inkl. Teknoinv. VIII (GP) KS) 7.8 Sector Asset Management AS 6.9 Energy Ventures IV LP 6.4 Scalepoint Technologies Ltd. 6.1 Axcel IV 5.9 Nordic Additonal Funding Programme IS 5.8 Viking Venture AS 4.4 Fjord Invest AS 4.2 Helgeland Invest 4.0 Convexa Capital IV - -B-aksjer 3.7 Tun Media (Landbrukets Medieselskap AS) 3.7 Procuritas Capital Investor V 3.6 BTV Investeringsfond AS 3.0 Teknoinvest VIII C IS 2.7 Norchip AS 2.5 Rogaland Kunnskapsinvest 2.5 Norinnova 2.1 Midvest I A 2.1 Berger Eiendom 1.7 Såkorninvest Sør 1.5 Convexa Capital IV - -C-aksjer 1.5 Nord II IS 1.4 Midvest II A 1.3 Norinnova Invest AS 1.3 Other private equity investments 5.3 Total private equity investments 1,424.3
Shares and similar interests owned by branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 2.0 Total shares and similar interests owned by branches 2.0
166 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 167
Claims reported and claims handling costs 11,395.7 12,104.8 Claims incurred, but not reported 13,810.1 13,376.3 Total claims provision, gross 25,205.8 25,481.1
Other insurance-related provisions 2,518.7 2,527.5 Total insurance-related liabilities, gross 34,405.4 34,506.4
Short-term insurance contracts, net of reinsurance Provision for unearned premiums 6,661.8 6,484.7
Claims reported and claims handling costs 10,845.8 11,287.7 Claims incurred, but not reported 13,747.4 13,233.0 Total claims provision, net of reinsurance 24,593.1 24,520.7
Claims and claims handling costs Claims reported and claims handling costs 12,104.8 (817.1) 11,287.7 12,254.5 (386.1) 11,868.3
Claims incurred, but not reported 13,376.3 (143.3) 13,233.0 11,803.0 (26.7) 11,776.3
Claims paid, prior year claims (6,430.4) 692.8 (5,737.6) (6,355.7) 272.2 (6,083.5)
Claims reported and claims handling costs 11,395.7 (550.0) 10,845.8 12,104.8 (817.1) 11,287.7 Claims incurred, but not reported 13,810.1 (62.7) 13,747.4 13,376.3 (143.3) 13,233.0 Total as at 31 December 25,205.8 (612.6) 24,593.1 25,481.1 (960.4) 24,520.7
Provisions for unearned premiums, gross, short-term insurances As at 1 January 6,497.8 (13.1) 6,484.7 6,406.7 (22.2) 6,384.5 Additions through acquisitions 92.1 92.1 Increase in the period 17,294.4 (477.0) 16,817.4 16,906.9 (512.4) 16,394.4 Earned in the period (17,078.4) 471.5 (16,606.9) (16,907.1) 521.6 (16,385.5)
The defined benefit plan is a closed arrangement. New employees become members of the defined contribution plan.
Defined contribution plan Defined contribution plan is a private pension plan which is a supplement to the National Insurance. Contributions from the pension plan come in addition to retirement pension from the National Insurance. The retirement age is 67 years.
Amount recognized as expense for the defined contribution plan is NOK 99.6 million (85.0). The amounts include premium to Fellesordningen for LO/NHO, see below.
Defined benefit plan The retirement pension together with contributions from the National Insurance and taken into consideration paid-up policies, constitutes about 70 per cent of salary at retirement age, provided a completed contribution time of 30 years. The retirement age is 67 years, while as for the underwriters a retirement age of 65 years applies.
Expected rates of return on plan assets are based on current asset allocations. Expected return is determined in conjunction with external advisers and takes into account both current and future market expectations when these are available and historical returns. The actual return on plan assets amounted to 9.3 per cent in 2012 (3.3).
The discount rate in 2012 was 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 pension payments is 3.06 per cent in year 5, 3.73 per cent in year 10, 4.20 per cent in year 15, 4.88 per cent in year 30 and 5.16 per cent in year 50. The discount rate was previously based on the ten-year government bond yield, adjusted for the term to maturity of the pension commitments.
The new AFP scheme is not an early-retirement scheme, but a lifelong benefit. The scheme is a defined benefit multi-enterprise scheme. In the Group’s view, it does not have sufficient information yet about the breakdown of pension expenses, pension liabilities and pension assets in the scheme to enable reliable measurement in a balanced cost-benefit assessment. The Group therefore treats the scheme for accounting purposes as a defined contribution scheme in which premiums are expensed as they are paid. No provision is made for the liability in the accounts. Premiums paid in 2012 are included in the cost of contributions to the defined contribution pension scheme and amount to NOK 13.9 million. The way Fellesordningen has organised the financing structure relating to the new AFP scheme, invoiced premiums are expected to increase in the years ahead. If, or when, sufficient data are made available for calculations to be made, it cannot be ruled out that the commitment that must be recognized will be substantial.
The transition to new AFP arrangement is accounted for as a negative past service cost of NOK 87.7 million and is recognized as income in 2010.
2011 Change in pension benefits accrued during the year (17.3 %) 22.7 % 19.0 % (15.2 %)
Provision as at 1 January 70.0 54.7 New provisions 25.8 50.0 Reversal of provisions (7.0) Provisions used during the year (31.6) (34.7) Provision as at 31 December 57.2 70.0 1 The restructuring and distribution strategy for the private market was finished in 2012 and there has been a reversal of provision of NOK 7.0 million. In association with the ongoing effeciency improvement measure of the segment Commercial Norway started in 2010, there has been decided to make a new provision of NOK 10.0 million. In 2012 it has been decided to make a provision of NOK 9.0 million regarding efficiency improvement in department Motor and Property Claims. These processes have been communicated to all business areas involved.
172 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 173
Change in deferred tax Deferred tax liabilities as at 1 January (75.6) (18.4) Merged company 13.2 Change in deferred tax recognized in profit or loss 100.3 22.0
Tax recognized in other comprehensive income Deferred tax, pensions (174.7) 94.4 Deferred tax, hedge accounting (0.3) (2.0) Tax payable, hedge accounting (14.7) 1.3 Total tax recognized in other comprehensive income (189.6) 93.6
Specification of tax expense Tax payable (1,201.6) (828.4) Correction previous years 28.5 (20.8) Change in deferred tax (100.3) (22.0) Total tax expense (1,273.4) (871.2)
Of which sales expenses Employee benefit expenses 643.9 674.6 Commission 290.3 324.7 Other sales expenses 404.5 451.7 Total sales expenses 1,338.7 1,451.0
Commodity costs and other expenses 3.8 11.1 Total other expenses 3.8 11.1
Other specifications Administration expenses related to financial assets, excl. interest expenses, incl. administration expenses properties Depreciation and value adjustments (note 5 and note 7) 3.9 4.6 Other expenses 115.7 93.8 Total administration expenses related to financial assets, excl. interest expenses, incl. administration expenses properties 119.7 98.4
Auditor's fee (incl. VAT) Statutory audit 2.1 2.0 Other non-assurance services 3.3 4.3 Tax consultant services 0.7 0.5 Total auditor's fee (incl. VAT) 6.1 6.7
Variable pay shall be performance-based without being a risk driver, and shall reflect the results and contributions on company, division, department and individual level. Other elements of compensation offered should be considered attractive from both new and existing employees.
The CEO has a period of notice of six months, and is not entitled to severance pay if he leaves the Company earlier.
Remuneration of the senior group management is stipulated by the CEO, in accordance with limits discussed with the remuneration committee and on the basis of guidelines issued by the Board of Directors. Correspondingly, the Group’s guidelines are used as the basis for other executive personnel and employees who can materially influence risk.
The retirement age for members of the senior group management is as a main rule 62, but one member of the group management has a retirement age of 70, in accordance with the national labour legislation. Of the current members of the senior group management, four are members of the closed Norwegian defined-benefit pension scheme. Given the full earnings period, they are entitled to a pension of 70 per cent of final salary. Five members are part of the Company’s defined-contribution pension scheme. The Company continues a previously agreed individual pension agreement for one member of the senior group management.
Members of the senior group management have a period of notice of six months. One of the members has an agreement of up to 12 months payment if the person concerned has been given notice. Other members of the senior group management have no such agreements of severance pay or payment of pay after termination of employment.
The remuneration of executive personnel with supervisory tasks shall be independent of the performance of the business area they are in charge of.
Bjørn Asp, Executive Vice President 8 2,121.9 294.2 212.1 413.2 1,497.8 3.55 % 20.02.2025 5,166 5,204 4,827 3
Cecilie Ditlev-Simonsen, Executive Vice President 1,968.7 47.1 154.0 177.6 68.7 573 865 1,688 3
Sigurd Austin, Executive Vice President 2,256.8 233.4 176.2 392.9 304.6 3,836 3,836 1,952 3
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.
Jørgen Inge Ringdal, Executive Vice President 2,232.4 471.8 202.2 822.1 20.2 292 8,743 2
Bjørn Iversen, Chairman 195.0 1.5 816 Kirsten Indgjerd Værdal, Deputy Chairman 55.5 464
Owner-occupied properties Rental income from owner-occupied properties 6.2 7.9 Net gains/(losses) from sale of owner-occupied properties 2.1 (1.7) Administration expenses related to owner-occupied properties (5.2) (7.1) Impairment owner-occupied properties (3.4) Total net income and gains/(losses) from owner-occupied properties (0.3) (0.9) Total net income and gains/(losses) from buildings 41.0 121.4
Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 492.4 664.0 Unrealised gains/(losses) from bonds held to maturity (3.4) 5.1 Realised gains/(losses) from bonds held to maturity (23.0) Impairment bonds held to maturity (40.0) Net gains/(losses) from changes in exchange rates on bonds held to maturity (6.6) 0.1 Total net income and gains/(losses) from bonds held to maturity 482.3 606.1
Specifications 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 1,079.3 972.0 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.
178 I Gjensidige annual report 2012 Gjensidige annual report 2012 I 179 20. Contingent liabilities NOK million 2012 2011
21. Related party transactions Overview of related parties Gjensidige Forsikring ASA is the Group's parent company. As at 31 December 2012 the following companies are regarded related parties.
Other related parties Fire Mutuals All over the country, Norway Gjensidige Pensjonskasse Oslo, Norway 94.7 %
Administration expenses Gjensidige Bank ASA (owned by Gjensidige Bank Holding AS) 27.8 27.6 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding AS) 6.7 7.5 Gjensidige Pensjon og Sparing Holding AS 9.6 10.0 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 36.6 35.1 Gjensidige Fondene AS (owned by Gjensidige Pensjon og Sparing Holding AS) 0.3 0.5 Glitne Invest AS (liquidated in 2012) 0.2 0.5 Hjelp24 AS (formerly owned by Glitne Invest AS, sold in 2011) 5.2 Nykredit Forsikring A/S 75.7 109.4 Oslo Areal AS 0.2 2.0 0.2 Tennant Assuranse AS (owned by Lokal Forsikring AS) 17.7 21.4 Tennant Holding AB 8.3
Loans to related parties As at 31 December 2012 employees have loans in Gjensidige Bank ASA amounting to NOK 941.7 million (1,082.6). The loans are offered on normal commercial conditions.
Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 0.2 0.1 Nykredit Forsikring A/S 794.6 808.3
Dividends Gjensidige Baltic AAS 22.9 Gjensidige Norge AS 1.0 Nykredit Forsikring A/S 126.8 55.5 Oslo Areal AS 30.0 SpareBank1 SR-Bank ASA 31.1 57.0 Storebrand ASA 120.4 Tennant Holding AB 27.3
Total gains and losses in connection with liquidation and impairment losses on subsidiaries and associates 237.8 139.5 227.8
Total income and losses from investments in subsiduaries and associates 517.4 146.2 672.7 339.8
Equity 19,513.6 18,630.1 Effect of guarantee scheme provision and Natural perils fund (3,011.4) (3,040.3)
Primary capital 14,696.6 13,571.4 Primary capital in other financial institutions (108.5) (108.5) Net primary capital (A) 14,588.1 13,462.9
Other non-weighted assets Goodwill 1,110.0 1,162.0 Deferred tax assets 75.6 Other intangible assets 684.0 689.1 Derivatives 161.5 115.7
Assets with 0 % risk weight 0.0 0.0 Assets with 10 % risk weight 177.0 128.7 Assets with 20 % risk weight 4,047.2 4,119.5 Assets with 35 % risk weight 0.2 0.2 Assets with 50 % risk weight 958.3 535.3 Assets with 100 % risk weight 30,258.0 30,492.1 Assets with 150 % risk weight 2,265.2 177.5 Total risk weighted assets 37,705.8 35,453.3
Risk weighted calculation base (B) 37,643.9 35,369.3 Capital ratio (A/B) 38.8 % 38.1 %
Net primary capital 14,588.1 13,462.9 Proportion of security provision 1,100.7 1,100.6 Proportion of Natural perils fund (up to 25 % of the Natural perils fund is included) 599.8 615.7 Solvency margin capital 16,288.6 15,179.3 Solvency margin minimum requirement 2,988.3 2,836.3 In excess of requirement 13,300.3 12,343.0
As described in the Board’s statement on the stipulation of pay and other remuneration in note 18, half of the variable remuneration is paid in the form of shares in Gjensidige Forsikring ASA, one third of which can be sold in each of the following three years. Of this, rather on the big side 50 per cent is distributed as equity and only just 50 per cent is distributed as cash in order to pay tax liabilities (net of tax settlement).
No bonuses in the form of shares were awarded to executive personnel in 2011.