Styret i Gjensidige Forsikring ASA fastsatte årsregnskapet og årsberetning for 2012 i styremøte onsdag 6. mars 2013. Årsregnskapet ble fastsatt uten endringer fra det foreløpige årsregnskapet som ble offentliggjort 14. februar 2013.
Årsrapport Årsregnskap og årsberetning for 2012 følger vedlagt, og er også publisert på www.gjensidige.no/rapportering. Fullstendig årsrapport for 2012 publiseres på www.gjensidige.no/rapportering 22. mars 2013.
Financial targets Gjensidige delivered on the financial targets for 2014. Going forward, Gjensidige targets a cost ratio of around 15 % and a combined ratio of 90-93 %. The Group also has an ROE target of >15 % after tax.
“Bra bruktbil” Gjensidige developed several value-adding services to make life easier for our customers in their daily lives. One of them is a digital self-service application guiding car buyers to a more secure second-hand purchase. Nearly 100,000 downloaded the service during the first few months after launch.
Subordinated debt In September, Gjensidige issued a subordinated loan of NOK 1.2 billion. The debt replaced equity and was part of a strategy to optimise the Group’s capital structure.
A good balance between efficient operations and renewal, profitable growth and good service contributed to a good profit performance and record customer satisfaction in 2014.
About the reporting Gjensidige publishes a web-based annual report on www.gjensidige.no/reporting. The annual report 2014 will not be printed.
Share dividend During the year, dividends of NOK 8.4 billion were distributed to the shareholders, of which NOK 3.4 billion was based on the 2013 profits and
Capital markets day The Group held its first capital markets day, focusing on topics such as customer orientation, business operations and strategic priorities.
Competence and management development Gjensidige’s Customer and Brand School delivered 7,400 course days during the year. The school is an important tool for skills and management development. 1,280 employees participated in courses and training during 2014. The school also develops e-learning programs.
Dec 2010 July 2011 Dec 2011 July 2012 Dec 2012 July 2013 July 2014Dec 2013 Dec 2014 * Dividend reinvested ** Non-weighted average in local currency for Tryg, Topdanmark, Sampo and Alm.Brand.
Profit for the year NOK million 4,189.6 3,670.6 4 ,280.1 2,747.9 2,950.4
8 Solvency margin is solvency margin capital in per cent of solvency margin minimum requirement, where solvency margin minimum requirement is a measure of the inherent risk in the insurance related liabilities (in Gjensidige Forsikring ASA).
Turnover of employees, Gjensidige Forsikring % 8.7 8.7 9.7 16.6 11.6
Number of employees in the Group Persons 3,525 3,377 3,377 3,163 3,116
Looking ahead to 2018 During the year, we adopted a new strategic plan for the period up to 2018. The main features of the plan were presented at the Company’s first capital market day. Changes in consumer behaviour and new technology both necessitate and enable further development of our distribution models, solutions and services. Customers should get the Gjensidige Experience through their channel of choice, and we are working on getting more customers to accept electronic communication. We must be relevant to our customers, both before and after a claim arises.
From 2015, our target is to achieve a return on equity of 15 per cent after tax expense. Several measures were implemented in 2014 to optimise Gjensidige’s capital position. Adaptations in preparation for the implementation of the new capital regulations, Solvency II, in 2016 will continue to be given high attention.
Our ambition of being the most customer- oriented general insurance company in the Nordic region still applies. Developing good technological solutions will be important to ensure efficient work processes in the operation and to be able to give our customers good and swift service. Training and competence-raising measures for managers and staff, the recruitment of new expertise and sharing best practice across divisions and national boundaries will be even more important in the time ahead.
A capacity for change has characterised Gjensidige for almost 200 years. We both adapt to and are a driving force for change. Going forward, we will take both small and big steps to further develop our leading position in Norway and continue to strengthen our basis for profitable growth in Denmark, Sweden and the Baltic states. As an analytically- driven company, we are concerned with measuring the effect of our investments and strategic efforts. Our customers’ opinions matter the most. As in previous years, we will make continuous i mprovements based on feedback from our customers. Gjensidige’s vision is also our most important promise to our customers: We shall know the customer best and care the most.
Gjensidige is market leader in the Norwegian general insurance market, where the Group has very high brand recognition and preference. Gjensidige was the leading player in Norwegian non-marine general insurance in 2014 as well, and has a solid position for further growth in the Nordic countries and Baltic states.
Gjensidige is working systematically to become the most customer-oriented general insurer in the Nordic countries. It is a bold ambition, and a continuous focus on the customer experience in all channels and in connection with all incidents is fundamental to achieving it. The customer perspective shall also form the basis for the Group’s efficiency and improvement agenda. This way, Gjensidige intends to strengthen its position as the most cost-efficient general insurance company in the Nordic region, without compromising on customer orientation.
• Changes in technology and customer behaviour mean that even closer cooperation is required between the channels. For example, more and more customers expect to be served via call centres while also having contact with us online.
The ambitions for customer orientation and efficiency are high. They both require a continued focus on information as a strategic resource. The work on achieving good data quality, efficient data collection processes, availability, reporting and analysis shall be strengthened.
Without motivated managers and employees who possess the right expertise and attitudes the strategic ambitions cannot be realised. A higher pace of change – not least as regards technology and customer behaviour – means that a transition is needed from traditional training-based competence-raising measures to a dynamic learning culture driven by individual managers and employees. Competence-sharing shall increasingly take place through data- driven work processes, and an overall understanding created through internal rotation of managers and staff.
Return on equity >15 per cent before tax 23.3 per cent before tax >15 per cent after tax as from 2015
Cost ratio 15 per cent within 2015 15.0 per cent ~15 per cent
Outlook and priorities Continuous work is being done in the Private segment on measures aimed at retaining customers and improving the quality of all customer processes. Improved availability, simplification of products and processes, and a higher proportion of self-service are prioritised in order to support the Group’s financial targets and improve customer orientation.
Outlook and priorities Continuous focus on delivering the best customer experience in combination with analytically-driven business processes and efficient operation will help to ensure that the company is forward-looking and customer-oriented. Further development of the pricing models and methodology for risk management and selection will ensure continued good profitability and compe titiveness in the commercial market. The multi-channel model contributes to cost-efficient distribution through analytically- driven CRM activities.
Established companies offering a broad range of products, challengers to the established industry structure and competition for market shares from individual players mean that there is still pressure on prices in some parts of the market.
General Insurance Private The Private segment offers a wide range of insurance products and services in the Norwegian private market. The products are sold through own distribution network. With loyal customers and a strong brand Gjensidige has a leading position in the private insurance market.
Distribution earned premiums 25.5 % Accident and health 4.0 % Marine/cargo
Gjensidiges baltiske virksomhet selger skadeforsikringsprodukter til privat- og næringslivsmarkedet i Latvia, Litauen og Estlan 12 I Gjensidige Annual Report 2014
Highlights 2014 Continuous strengthening of the distribution collaboration with the Nykredit group and integration activities relating to the acquisitions of Gouda Reiseforsikring and Solid were important priorities in 2014. Continued focus on portfolio restructuring and repricing contributed to maintaining good quality in the portfolios and a satisfactory underlying profitability development.
Outlook and priorities The Nordic operations 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. With normalisation of the Danish property market, organic growth is expected to be slightly above market growth. The implementation of new tariffs and steps to achieve a higher proportion of self-service will be prioritised in 2015 as well. Continued focus will be on work on integrating and capitalising on business synergies in connection with portfolio acquisitions and the distribution collaboration with Nykredit.
Highlights 2014 Profitability is given priority in a market with considerable price competition. Targeted efforts to rationalise operations and the restructuring and repricing of portfolios were emphasised in 2014. The development in earned premiums was negatively affected by the loss of a large commercial customer.
Market shares Denmark 30.3 % Länsförsäkringar 15.7 % Trygg-Hansa 9.7 % Alm Brand
Source: The Danish Insurance Association, based on gross premiums earned 4th quarter 2013
Outlook and priorities Gjensidige Bank shall primarily underpin the Norwegian general insurance business by contributing to a wider product range being available to existing general insurance customers in Norway.
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 2014, the portfolio totalled NOK 56.5 billion.
The Group’s investment portfolio includes all investment funds in the Group except for investment funds in the Pension and Savings and Retail Bank segments. A large part of the management is out sourced to external managers, while the Group’s 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 2014 the investment portfolio totalled NOK 56.5 billion. The financial result was NOK 2.4 billion, which corresponds to a return on financial assets of 4.3 per cent.
Financial result from the investment portfolio 4.3 4.3 5.4 2,426.3 2,480.9 3,005.1
Group Return on financial assets 1 % 4.3 4.3 5.4 Equity NOK million 21,656.8 26,287.8 25,617.7 Return on equity 2 % 23.3 18.3 23.8 Equity per share NOK 43.3 52.6 51.2 Capital adequacy ratio 3 % 18.1 13.4 16.8 Solvency margin capital Gjensidige Forsikring 4 NOK million 8,953.6 12,905.2 16,288.6 Solvency margin Gjensidige Forsikring 5 % 366.5 423.8 545.1
Share capital Issued shares at the end of the period Number 500,000,000 500,000,000 500,000,000 Earnings per share in the period, basis and diluted 6 NOK 8.38 7.34 8.56
General insurance Market share non-marine insurance Norway (Finance Norway) % 25.2 25.2 25.2
Private % 80.0 83.3 80.8 Commercial % 84.5 85.9 85.0 Nordic % 87.6 89.7 82.1 Baltics % 99.9 93.0 95.7 Total % 86.0 89.2 85.3 Combined ratio discounted 11 % 83.4 85.9 81.7
Pension and Savings Assets under management pension, at the end of the period NOK million 17,196.3 13,953.8 10,408.8 of which the group policy portfolio NOK million 4,186.8 3,553.2 3,163.8 Assets under management savings, at the end of the period NOK million 15,018.2 11,896.4 10,070.0 Operating margin 12 % 5.43 11.89 0.19 Recognized return on paid-up policy portfolio 13 % 4.63 4.57 4.76 Value-adjusted return on paid-up policy portfolio 14 % 4.63 4.67 4.77 Customers with insurance agreements at the end of the period % 84.6 84.6 84.6 Return on equity 2 % 7.8 9.7 3.2
Retail Bank Gross lending, addition in the period NOK million 3,352.6 6,869.7 2,305.2 Deposits, addition in the period NOK million 1,765.1 3,357.8 1,804.2 Gross lending, at the end of the period NOK million 27,546.5 24,193.9 17,324.3 Deposits at the end of the period NOK million 16,703.4 14,938.3 11,580.5 Deposit-to-loan ratio at the end of the period 15 % 60.6 61.7 66.8 Net interest margin 16 % 2.17 2.42 2.52 Write-downs and losses 17 % 0.20 0.32 0.43 Cost/income ratio 18 % 54.0 56.9 62.8 Customers with insurance agreement at the end of the period % 45.7 44.6 46.2 Capital adequacy 19 % 15.9 14.6 13.6 Core capital adequacy 20 % 14.1 14.6 13.6 1 Return on financial assets = net financial income in per cent of average financial assets including property, excluding Pension and Savings and Retail Bank 2 Return on equity = 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. This year’s capital adequacy ratio is adjusted for the Board’s proposed dividend for the financial year 2014.
5 Solvency margin is solvency margin capital in per cent of solvency margin minimum requirement, where solvency margin minimum requirement is a measure of the inherent risk in the insurance related liabilities (in Gjensidige Forsikring ASA).
Gjensidige shall maintain an open dialogue with all stakeholders and complies with the Oslo Børs Code of Practice for IR. Established guidelines for investor relations can be found on www.gjensidige.no/ir
Every quarter, the results and business operations are discussed in meetings with analysts and in vestors. As a main principle, investor relations is always present at these meetings, possibly in addition to the CEO and/or CFO or other relevant senior management from the company.
Dividend and dividend policy From 2014 Gjensidige targets high and stable nominal dividends, over time a minimum of 70 per cent of the profit after tax. When determining the size of the dividend, the expected future capital need will be taken into account. Over time, Gjensidige will also pay out excess capital above the targeted capitalisation.
Customer dividend The Gjensidige Foundation, the largest shareholder in Gjensidige, distributes the share dividend they receive from Gjensidige, to their members; Gjensidige’s general insurance customers in Norway. This concerns dividend relating to the underlying operations, whereas dividend related to distribution of excess capital will be managed by the Gjensidige Foundation.
The Gjensidige Foundation manages the ownership of Gjensidige on behalf of Gjensidige’s general insurance customers in Norway. The Foundation has an ownership policy that focuses on high value creation over time, and expects a competitive dividend.
General Meeting The next ordinary General Meeting will be held at Gjensidige’s offices in Schweigaards gate 21, Oslo, on 23 April 2015, at 17:00 CET.
Gjensidige’s corporate social responsibility policy is based on our role as one of the biggest insurance companies in the Nordic region with significant engage ment in investment activities with a global focus.
In the same way as all the other strategic areas in Gjensidige, selected quantitative targets have been set for socially responsible operations in relation to customers, suppliers, employees and the environment. Targets and target attainment are described in more detail in the table on page 30.
The Company’s operations are described in more detail on page 8. Our strategy, financial targets and key figures are described on page 8 and 9, respectively. Asset management is described on page 16, and our policy for socially responsible investments (SRI) is described below.
run-up to Christmas every year in order to get people involved and raise money for a Christmas celebration for disadvantaged people.
Our core business – insurance – gives customers security by reducing or removing negative financial consequences of damage, injuries and accidents. This is an important welfare need in modern societies. It is nonetheless better for the customer, the insurance company and society as a whole to prevent such events occurring. Loss prevention is therefore a natural and important part of Gjensidige’s core activities and corporate social responsibility.
Most insurance policies are designed to motivate the customer to avoid losses, both through incen tives to reduce risk and through the customer having to carry some of the financial risk themselves.
• When they reach the age of 23, customers who have driven claim-free for the past year or longer will be paid an amount as a reward. The longer the claim-free period, the bigger the reward.
We also work on several other individual projects aimed at improving traffic safety: • Cooperation with the Norwegian Council for
Fire is something that severely affects our cus tomers, both financially and, not least, person ally. 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 in autumn 2014. It involved visiting 40,000 homes. We also contributed to the development and marketing of educational material on fire prevention for schools. So far, Gjensidige has contributed to teaching more than 100,000 children about fire prevention.
Responsible investments Our investment activities are globally oriented, and we invest in countries where respecting human rights is not a matter of course. By doing so, we risk be coming part-owner of companies that contribute to violating human rights through their production of goods and services or their treatment of employees, suppliers, the local community or other interest groups.
The cooperation between the Company’s manage ment and the employees’ trade unions is syste matic and good, and it is based on a well- established structure, where various committees meet regularly. Rules have been adopted for what pro cesses and decisions employee representatives shall be involved in. Employee representatives are paid by the Company.
At year end 2014, the number of women and men among our employees was almost exactly the same.
Three of the Senior Group Management’s ten members were women, one of whom was on maternity leave from July 2014. A male acting executive vice president was appointed from the same date.
In addition to the Senior Group Management, the Group had 465 employees in executive positions in 2014. Of these, 41 per cent were women and 59 per cent men.
A family-friendly company By law, parents are entitled to paid leave in connection with childbirth in all the countries where Gjensidige has employees. The duration of the leave varies from 4 months in Latvia to 16 months in Sweden.
The Gjensidige Customer and Brand School had 7,419 course days in 2014. The number of tests passed by sales personnel, managers and claims handlers in Norway, Sweden and Denmark was 1,300. Almost 1,280 employees participated in courses organised by the Gjensidige Customer and Brand School in 2014.
In all, we spent NOK 17,500 per employee on competence-raising measures in 2014, compared with NOK 15,800 in 2013.
In 2014, an employer branding strategy was developed that aims to contribute to talent re cruitment. We make targeted efforts to highlight Gjensidige as an employer through digital channels. Every year, we carry out a systematic process to map internal ‘successors’ and talents.
We therefore work on preventing and following up sickness absence, measures for seniors aimed at encouraging older employees to continue working until retirement age, and making arrangements for employees with disabilities.
The work stations of all new employees are in spected as soon as possible by a physiotherapist or an ergonomist, if practically possible. The purpose of this is to adapt the work station with a view to avoiding repetitive strain injuries and to provide information about the prevention of health problems.
Special adaptation procedures have been adopted for employees who have health problems that are aggravated by computer work or who wish to prevent such problems arising. The Company has not been notified of any repetitive strain injuries in 2014. Sickness absence was 4.5 per cent in Norway, Denmark and Sweden in 2014. Our goal is to reduce the absence to 4 per cent, which we think is am bitious.
Working environment issues are also a topic in the annual employee satisfaction survey.
Ethical operations Gjensidige shall have a corporate culture where each individual employee exercises good judgement and is able to handle difficult challenges that may arise. Our value creation shall take place in accordance with our ethical guidelines.
Gjensidige’s internal regulations state that the Company has zero tolerance for corruption, greasing, facilitation payments and anything resembling corruption. The regulations consist of instructions and a group policy adopted by the Board. Group policies
Other measures that, together with the regulations, make up our anti-corruption programme include: • Risk assessments • Internal control • Anti-corruption manual • Whistleblowing procedures • Procedures for handling nonconformities and violations • Dilemma training • E-learning
The programme gives a detailed description of what is meant by corruption, examples of accep table and unacceptable behaviour, and assignments intended to contribute to reflection on difficult situations.
All managers are responsible for establishing procedures and processes in their area of responsibility in order to prevent and uncover irregularities and fraudulent acts, including corruption. The Group’s Compliance function is tasked with uncovering corruption and it is responsible for investigating concrete cases where improper conduct is sus pected. The Compliance function shall also contribute to establishing and developing procedures and processes that can prevent and uncover such matters.
The Senior Group Management has overriding responsibility for the processing of personal data and internal control relating thereto. Other managers are responsible for ensuring that employees who have access to personal data have the compe tence and other qualifications required to be able to comply with the regulations and protect the customer’s personal data.
The Group has data protection officers for insur ance, banking, and savings and pensions, respec tively. The data protection officers have an independent role and are in contact with the Norwegian Data Protection Agency and with customers and em ployees who have enquiries about personal data. They also have an internal control function.
The requirements for information security are re vised at least once a year. Risk assessments relating to personal data shall be carried out on a regular basis, as part of the Company’s ordinary internal control process, and in connection with any change that can affect security.
Whistleblowing Employees are encouraged to report matters warranting criticism and matters they perceive as ethically dubious. Everyone has a duty to report criminal matters, or if life or health is at risk. A poster with instructions on the procedure for whistleblowing is easily accessible on our intranet site. Whistleblowing is facilitated through an electronic mailbox for reporting irregularities and a mailbox for reporting ethics-related matters.
Companies that provide services in connection with claims payments for damaged buildings in Norway must be qualified in Startbank. Startbank is a register of suppliers that is used by purchasers in the fields of building, construction, public ad ministration, insurance and real estate. This ensures that qualified suppliers are law-abiding and that competition takes place on equal terms.
All material procurements are ordered electronically. As far as possible, all suppliers shall use elec tronic invoicing. Documents relating to invitations to tender, negotiations and agreements are stored electronically. Competitive tender procedures are carried out with the help of online portals.
The use of electronic tools ensures that all pro cesses are documented and verifiable, and this prevents irregularities.
The assets we insure, such as cars, buildings and companies, will cause pollution to a varying extent. Sensible risk-pricing will often have a favourable environmental profile, in the sense that large objects that are demanding in terms of resources have a higher insurance premium than less de manding objects.
Gjensidige works continuously to increase the number of ‘paperless customers’ who receive documents electronically. Digital customer communication improves the customer experience and contributes to reducing costs and paper consumption. The total consumption of paper was reduced in 2014.
All our 11 Norwegian branch offices that have more than 30 employees are now certified EcoLighthouses. This means that they use an environmental management system for the handling and reduction of materials consumption, waste, energy and transport.
As far as the Board is aware, there are no products containing PCB in Gjensidige’s buildings and properties. The Company has not caused illegal emissions and has not been involved in disputes relating to environmental emissions.
In 2014 the use of office space, energy consumption and estimated emissions of CO2 were reduced con siderably when we moved in to new and energy efficient main offices in Norway.
Dividend based on the profit for the year NOK million 3,400 2,950
Dividend based on distribution of excess capital NOK million 5,000** 0
Number of excluded companies Numbers 80 85 Not relevant * Ratio for 2013 calculated based on the dividend related to the underlying operations, and adjusted for the write-down of the investment in Storebrand. Ratio for 2014 based on the Board’s proposal for dividend.
*** No target was set for customer satisfaction at Group level for 2014.
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 The statement on corporate governance follows the structure set out in the Act.
1. The Company complies with the Norwegian Code of Practice for Corporate Governance.
Core values and social responsibility Gjensidige’s core values lie in its core business operations – a social mission to safeguard life, health and assets through relieving customers of financial risk and providing assistance when there is a risk of loss or a claim has arisen. Gjensidige also displays important social responsibility through contributing its expertise in the prevention of loss. This benefits society as a whole within commercially respon sible limits.
Traffic and fire are especially important areas in which the Company’s expertise in loss prevention can help to save lives and assets. Other important areas are awareness-raising campaigns aimed at combating fraud and other crime, and efforts to promote physical and mental health in the population. Our efforts in the area of social responsibility will therefore be concentrated on loss prevention in the broadest sense.
Deviations from the Code of Practice: None 2. The business Operations Pursuant to its Articles 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 activities, taking over risk insurance and reinsurance in general and life insurance to the extent permitted by law, and other related business.
Vision and goals Gjensidige’s vision is to know the customer best and care the most. Our mission is to safeguard life, health and assets, which has been the Company’s value basis for almost two hundred years.
Gjensidige’s goal is to become the most customer- oriented general insurance company in the Nordic region, based on profitable operations and a leading position.
The Group’s goal is to be the most customer- oriented general insurance company in the Nordic region. It is a bold ambition, and a continuous focus on the customer experience in all channels and in connection with all incidents is fundamental to achieving it. The customer perspective shall also form the basis for the Group’s rationalisation and improvement agenda. This way, Gjensidige intends to strengthen its position as the most cost-efficient general insurance company in the Nordic region, without compromising on customer orientation.
Further development of seamless multi-channel distribution and a shift in focus from products to services are crucial to realising the Group’s customer orientation ambition. • Changes in technology and customer behaviour mean that even closer cooperation is required between the channels. For example, more and more customers expect to be served via call centres while also having contact with us online.
• A good understanding of the customers’ everyday processes is fundamental to be able to develop new services that are perceived as supportive and relevant for the customers.
tran sition is needed from traditional training-based competence-raising measures to a dynamic learning culture driven by individual managers and employees. Competence-sharing shall increasingly take place through data-driven work processes, and an overall understanding created through internal rotation of managers and staff.
The strategic role that Gjensidige Bank and Gjensidige Pensjon og Sparing play is important in relation to Gjensidige’s overall position in the Norwegian market. Gjensidige Bank sets the agenda for innovation, competitiveness, marketing and technology in the motor and property markets. In the commercial market, we play a clear role as a competitive, profitable supplier of smart solutions for defined contribution pensions through Gjensidige Pensjon og Sparing. Exclusive customer solutions and concepts, in both the private and commercial markets, will continue to be important.
Dividend In October 2013, the Board adopted a new dividend policy that applies from the 2014 financial year. Gjensidige’s goal is to distribute high, stable dividend to its shareholders. It is the Board’s goal that, over time, at least 70 per cent of the profit after tax expense will be distributed as dividend. When determining the size of the dividend, consideration will be given to expected future capital needs.
Adopted dividend for 2013 It was decided that a total dividend of NOK 8.4 billion was to be distributed for the 2013 financial year, corresponding to NOK 16.80 per share. NOK 12.80 per share of this dividend was decided by the general meeting in April, broken down into NOK 6.80 per share relating to the Group’s profit after tax expense and NOK 6.00 to the distribution of excess capital. In October, based on an authorisation granted by the general meeting to the Board, the Board then decided to distribute a further NOK 4.00 per share in excess capital.
Authorisations granted to the Board Gjensidige’s annual general meeting granted the following authorisations to the Board in 2014: - Authorisation to purchase own shares in the market with a total nominal value of up to NOK 1,000,000. The authorisation is valid until the next general meeting, no longer, however, than until 30 June 2015. It can only be used for sale and transfer to employees of the Gjensidige Group as part of the Group’s share savings programme as approved by the Board or to executive personnel in accordance with the remuneration regulations and the pay policy adopted by the Board. The minimum and maximum amounts that can be paid per share are NOK 20 and NOK 200, respectively. The purpose of this measure is to promote a good business culture and loyalty by making employees part-owners in the Company. The authorisation was used to buy shares in 2014. The authorisation was considered as a separate item at the Company’s annual general meeting.
dend policy. It gives the Company flexibility and will mean that the Company can distribute additional dividends without having to call an extraordinary general meeting. The authorisation was used in connection with the distribution of excess capital. The authorisation was considered as a separate item at the Company’s annual general meeting. The authorisation was used in 2014 in connection with the distribution of excess capital.
When the Board proposes new authorisations to the general meeting, they shall, in the same way as the existing authorisations, be considered as separate items at the Company’s annual general meeting, be limited to defined purposes and be valid during the period until the next annual general meeting.
The shares in the Company are freely negotiable pursuant to the Articles of Association. Gjensidige is a Norwegian financial institution. Norwegian framework legislation contains general licensing provi sions that apply to all Norwegian financial institutions in connection with large acquisitions of shares (ten per cent or more).
- 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.
- If necessary, and if the nature of the matter so requires, the whole Board and the whole nomination committee will be present at the meeting.
- Shareholders can vote electronically in advance before the general meeting. Voting in advance can be done via the Company’s website www.gjensidige.no/ir, and via VPS Investor Services.
More information about the use of proxy and shareholders ’ right to have matters considered by the general meeting is provided in the notice of the meeting and at www.gjensidige.no/group.
Board, the chair of the nomination committee, the Company’s auditor and the CEO are always present to answer any questions, however.
Rules of procedure for the nomination committee ’s work have been drawn up and adopted by the general meeting. The rules of procedure are available at www.gjensidige.no/group/ .
Deviations from the Code of Practice: None 8. Supervisory Board and Board, composition and independence Composition of the Supervisory Board The Supervisory Board of Gjensidige consists of 21 members or a higher number divisible by three. The employee representatives are elected for two years at a time, while the remaining representatives are elected for one year. The Chair and Deputy Chair of the Supervisory Board are elected by the Supervisory Board for one year.
Pursuant to the Financial Institutions Act Section 2d-3 fourth paragraph, up to a third of the members of the Supervisory Board and the Board of Gjensidige may be employee representatives from the Gjensidige Foundation. In 2011, the Supervisory Board adopted guidelines for its own work. The guidelines are available at www.gjensidige.no/group/ .
Today, 43 per cent of the shareholder-elected members of the Board are women. For a more detailed presentation of the board members, see pages 47 to 65 in the annual report and the Company’s website www.gjensidige.no/group/.
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.
• Acting as adviser to the CEO in connection with the annual assessment of the remuneration of other executive personnel
As of 31 December 2014, the remuneration committee consisted of the following members: - Inge K. Hansen (chair) - Trond Vegard Andersen - Tine Gottlob Wollebekk
Deviations from the Code of Practice: None 38 I Gjensidige Annual Report 2014
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 group 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/group/
The CEO’s responsibilities: • The CEO shall ensure that Gjensidige’s risk manage ment and internal control are implemented, documented, monitored and followed up in a satisfactory 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.
The Department for Risk and Capital Management is responsible for monitoring the overall risk situation and the framework for risk management, including internal control and the quantification and aggregation of risk.
The Group’s risk control functions are organised on the basis of the principle of three lines of defence.
Rules of procedure for the control committee’s work have been drawn up and adopted by the general meeting. The rules of procedure are available at www.gjensidige.no/group.
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 of whether measures are necessary.
Deviations from the Code of Practice: None 11. Remuneration of the Board The nomination committee proposes the remuneration of the Board, which is decided by the Supervisory Board. This remuneration is not dependent on the Group’s performance, and none of the board members have share options issued by the Company.
The remuneration of individual board members is described on page 128 of the annual report. The amount of the remuneration reflects the Board’s responsibility, expertise, time consumption 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.
As a rule, board members or companies with which they are associated shall not take on specific assignments for the Company in addition to their office as board member. If such assignments nonetheless arise, the whole Board shall be informed of this. No such assignments were carried out in 2014, and no fees have therefore been paid to board members over and above the fee they receive as members of the Board.
The remuneration of the CEO is stipulated by the Board on the basis of an overall assessment that takes into account Gjensidige’s remuneration system and the market salary for corresponding positions. 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 remuneration linked to Gjensidige’s performance is decided on the basis of the past two years’ performance. Individual variable pay, including holiday pay, may amount to up to 50 per cent of the annual salary. Half of the variable remuneration is in the form of a promise of shares in Gjensidige Forsikring ASA, one third of which are allocated in each of the following three years.
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. Correspondingly, the Group’s guidelines are used as the basis for other executive personnel and em ployees who can materially influence risk.
Gjensidige has published all relevant ownership information about the Group at www.gjensidige.no/ir.
The Company held a capital market day on 25 November 2014 in London.
As a rule, the Company shall engage the services of an independent legal adviser and an independent financial adviser in the work of assessing a submitted or notified serious bid. These advisers cannot represent the Company’s shareholders in connection with the transaction. Grounds shall be stated for the experts’ valuation.
The auditor shall under no circumstances carry out advisory tasks or other services if this could affect or give rise to doubts about the auditor’s independence and objectivity. Nor shall the auditor act in a manner that entails a risk that he/she will have to audit the result of his/her own advisory services or other services, or that entails a risk that he/she will perform functions that are part of the Group’s internal decision-making process.
Deputy Members 1. Ivar Kvinlaug 2. Nils Ragnar Myhra 3. Hanne Rønneberg 4. Bjørnar Kleiven
Representatives for the employees members of the Supervisory Board who participate in the nomination committee’s work of nominating the Chairman of the Board: Kjell Johnny Andersen Jon Aniksdal 44 I Gjensidige Annual Report 2014
The result in 2014 was one of the best Gjensidige has ever recorded. The profit after tax expense was NOK 4.2 billion, corresponding to NOK 8.38 per share.
The underwriting result increased by more than 40 per cent from 2013, ending at NOK 2.9 billion. The result was positively influenced by a solid growth of 8.8 per cent in premiums and a good underlying frequency claims development, among other things as a result of good customer and risk selection and risk pricing, and a favourable weather situation. A lower proportion of large losses and higher run-off gains also made a positive contribution to the im provement in the result. The financial result was NOK 2.4 billion, which is on a par with the result in 2013. The Retail Bank and Pension and Savings also made a positive contribution to the good profit performance by the Group. The Board is satisfied that the Group delivered on its financial targets in 2014 as well.
The Gjensidige Foundation’s share of the total dividend amounts to NOK 1.8 billion. The board of the Gjensidige Foundation has proposed that the dividend, after a deduction for expenses, be distributed to Gjensidige’s general insurance customers in Norway.
User-friendly self-service solutions are being developed to enable customers to buy and change insurance policies, seek advice and report claims online and by mobile phone. At the same time, internal work processes and new tools are being developed in order to ensure further rationalisation of customer service. Gjensidige is involved in businesses’ and people’s lives, both before and after a claim arises, which, among other things, is reflected in the communication concept ’It is good to be prepared’.
Customer satisfaction has developed very positively in recent years. Surveys show that people who have had a claim or who have many Gjensidige products are the most satisfied customers. Further development of loyalty and affinity programmes, further digitalisation of customer communication and the development of value added services are among the measures that are expected to further enhance existing good customer relations going forward.
The market share for group unit-linked defined contribution pensions was 9.2 per cent and for individual unit-linked pensions it was 9.1 per cent. The market share for transferred defined contribution pension agreements was 11.8 per cent. The corresponding market share for private pension assets was 8.0 per cent. (Source: Finance Norway, third quarter 2014).
Commercial segment in Norway. An own distribution network is largely responsible for sales and ad visory services, but agents and dealers are also used in some cases. Gjensidige has central cooperation agree ments with several large national trade unions and interest organisations. These agreements give members of the organisations advantages as customers of Gjensidige. Three per cent of Gjensidige’s commercial customers in Norway (18 per cent of the premium volume) are served indirectly through brokers.
Both the Private and Commercial segments distribute products and services through a combination of telephony, web-based solutions 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.
at gjensidige.no, almost 50 per cent of customers use the internet at one or several points in the sales process and roughly a quarter of frequency claims are reported online. Gjensidige Bank and the general insurance business are cooperating more and more closely in the Norwegian private market. Digital solutions have been developed that make it simple for car dealers to offer financing and insurance products to their customers, and products and concepts are being developed that target younger customers in particular. Gjensidige Pensjon og Sparing cooperates closely with the Commercial segment on the distribution of pension and savings products to small and medium-sized enterprises in Norway.
Baltics The most important distribution channels in the Baltic states are direct sales and sales through insurance agents and brokers. The importance of online sales as a distribution channel continues to increase in the Baltic market. In order to further rationalise operations, priority is being given to increasing online sales and sales via call centres.
Further digitalisation of business and customer processes continued in 2014 and this will have high priority going forward. New technology is providing more and more opportunities to collect and utilise market and customer data and assess risk. External communication is being increasingly adapted to the individual customers, thereby ensuring that Gjensidige can help customers with their everyday problems. IT systems together with data play a key role in managing sales activities. Common user interfaces for customer advisers in all parts of the business contribute to efficient work processes and to ensuring that customers get equally good service regardless of which channel they choose for their dialogue with Gjensidige. New and better functionality is continuously being implemented for customers who want to use online self-service solutions, and in 2015 the Company will open a new contact centre that will contribute to a common service standard across channels and organisational entities.
Gunnhild H. Andersen (1949) has been a member of Gjensidige’s Board as an employee representative since 2008. She is a customer adviser in Gjensidige, an employee representative in the Finance Sector Union and the senior employee representative for the Claims/ IT department.
Among other things, Andersen has previously held positions as a customer adviser and claims handling consultant in Gjensidige, and has been secretary at AL Gartnerhallen. She was educated at Lunner municipal commercial college.
ment in 2014. Satisfactory control of customer and risk selection and risk pricing contributed to good competitiveness throughout the year. The implementation of new tariffs continued in the Nordic countries in 2104, at the same time as the established tariffs in Norway are being continuously developed and im proved. In addition, the efficiency of the distribution channels was further increased as a result of targeted activity management and continued digitalisation of work and customer processes.
Increased sales of a wider range of products and new value added services In Norway, banking, pension and savings products are offered to general insurance customers as part of the efforts to increase the product range and the number of products individual customers buy. Gjensidige cooperates closely with the motor trade and, through a unique solution for the sale of car financing and car insurance, Gjensidige is fast be coming the motor trade’s preferred partner. In 2014, this resulted in substantial growth in the number of new car insurance policies and financing solu tions, and Gjensidige was the biggest car insurer in the market.
Several value added services were developed in 2014 in order to contribute to greater customer loyalty and preference. They included a digital advisory service for buyers of second-hand cars and a digital travel in surance app that can be downloaded to mobile phones. At the turn of the year, Gjensidige launched its own app that makes it simple for young drivers to register practice driving and that can later entitle them to a discount on car insurance.
In addition, an agreement was signed with Villaägarne (the Swedish Homeowners Association) in Sweden, which has 300,000 members. This agreement will help to ensure that Gjensidige has access to a larger proportion of the Swedish private market.
number of niche products that strengthen the product platform in the Swedish private market.
The holding in Storebrand was sold at the beginning of 2014, and in autumn 2014, Gjensidige carried out a dated subordinated bond issue in the amount of NOK 1.2 billion. These measures helped to make it possible to distribute excess capital corresponding to NOK 5.0 billion to the owners in 2014.
Financial and operational targets towards 2018 Gjensidige’s strategy reflects the Company’s belief in customer orientation, a down-to-earth business culture and analytically-driven core operations. The Group’s goal is to be the most customer-oriented general insurance company in the Nordic region.
Moreover, new operational targets for the period up to 2018 were presented at the Capital Market Day in November: • Customer satisfaction: 77 (74.8 in 2014)
• Proportion of customers who consent to electronic communication: 75 per cent (57 per cent in 2014)
The Group is well-prepared for the regulatory changes. During 2015, Gjensidige plans to apply for approval of an internal model for calculating the regulatory capital requirement for parts of its operations. Gjensidige’s internal model provides the best picture of the Group’s risk profile. If approval of the internal model is given, Gjensidige’s regulatory capital requirement will be lower than if the standard formula was used. There is still some uncertainty about how the calculation of capital requirements and qualifying capital will take place under the new rules. For Gjensidige, the most important uncertainties are related to whether or not the natural perils fund and the guarantee provisions can be included as qualifying capital, and to possible tax consequences of the transi-
tion to the Solvency II principles. These issues are expected to be clarified in 2015.
The new regulations are expected to entail requirements for a higher capitalisation level than under Solvency I and the current capital adequacy regula tions. The requirements will ensure good risk management in general, and the reporting to the authorities and the market could make a positive contribution to highlighting the Company’s value creation. Gjensidige wishes to make active use of the upcoming legislative amendments to further strengthen overall risk management in the Group.
In the Financial Supervisory Authority’s assessment, the natural perils fund and the guarantee scheme provision are not part of the solvency capital. In Gjensidige’s opinion, special Norwegian provisions that are actually an equity element must be treated as solvency capital. Together with other insurance companies in Norway, the Company will endeavour to ensure that the Ministry of Finance’s final decision is in line with this view. In Proposition No 125L concerning the financial undertakings act, the Ministry stated that the natural perils fund and the guarantee scheme will be dealt with as a separate matter.
The A rating from Standard & Poor’s is the most binding capital requirement for Gjensidige. This is also expected to be the case after the Solvency II Directive enters into force. There is still considerable regulatory uncertainty relating to Solvency II, and allowance is made for this in the strategic buffer.
Other matters mentioned in the Financial Supervisory Authority’s letter relating to the capital requirement for credit exposure to municipalities / county authorities and life insurance products in the general insurance companies are not regarded as being particularly relevant to Gjensidige.
The Data Protection Authority cases In 2013, Gjensidige received an inspection report from the Norwegian Data Protection Authority that criticised aspects of the handling of personal data in connection with investigations of possible insurance fraud. Gjensidige did not agree with the Data Protection Authority’s conclusions and, with two exceptions, it appealed the Authority’s decision to the Privacy Appeals Board, and accepted a penalty fine. Gjensidige appealed the part of the decision that concerned the use of investigation methods. The Privacy Appeals Board sent the matter back to the Data Protection Authority without considering it, because that the Data Protection Authority had not complied with public administrative law. The Data Protection Authority thereafter closed the case. In March 2014, a new fine was imposed on Gjensidige for violation of the Personal Data Act in a case that concerned concealed filming. Gjensidige appealed the decision to the Privacy Appeals Board and the
Hans Erik F. Andersson (1950) has been a member of the Board of Gjensidige since 2008. He is an adviser, Chairman of the Board of SinterCast AB, and Deputy chair of Skandia , Board member of JLT Risk Solutions AB and Anticimex International AB.
Among other things, Andersson has previously been managing director of Skandia Insurance Company Ltd, Nordic manager for Marsh & McLennan, and Executive Director of Mercantile & General Re plc. Among other things, he studied economics, statistics and business law at Stockholm University, and has completed the INSEAD Executive Programme.
penalty fine was set aside. Gjensidige has thereby won both these cases and obtained confirmation that the insurance industry can use observation as a method in cases where there are reasonable grounds to suspect insurance fraud.
Amendments concerning disability pensions are expected to be announced to the Act relating to Company Pension Schemes in 2015 that are better adapted to the new disability pension in the National Insurance scheme. The new disability pension will have limited/no profit/loss effect for Gjensidige, but it is somewhat more complicated administratively than the current system.
Return on equity before tax expense >15 per cent 23.3 per cent
Bjørge is up for election to the Board in 2015. Bjørge holds 10,542 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
The underwriting result was positively influenced by solid growth in premiums of 8.8 per cent and a good underlying frequency claims development, among other things as a result of a favourable weather situation, as well as good control of customer and risk selection and risk pricing. A lower proportion of large losses and higher run-off gains also made a positive contribution to the profit performance compared with the year before. The financial result was on a par with the result in 2013. The Retail Bank and Pension and Savings also made a positive contribution.
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 2014, the combined ratio on a discounted basis would have been 83.4, compared with 86.0 in recognised nominal number.
Pension and Savings 43.9 49.9 Retail Bank 253.5 191.0 Financial result from the investment portfolio 3 2,426.3 2,480.9 Amortisation and impairment losses of excess value – intangible assets (170.0) (161.7) Other items (16.5) (5.5) Profit/(loss) for the period before tax expense 5,399.6 4,574.1
Key figures general insurance Large losses 4 823.3 906.6 Run-off gains/(losses) 5 493.7 299.6 1 Large losses in excess of NOK 30.0 million are charged to the Corporate Centre, while claims of less than NOK 30.0 million are charged to the segment in which the large losses occured. The segment Baltics has a retention level of EUR 0.5 million. Large losses allocated to the Corporate Centre amounted to NOK 207,2 million (373,6). Moreover, accounting items related to written reinsurance and reinstatement premium are included.
Expenses for research and development have not been charged to income in Gjensidige’s consolidated accounts in 2014 or 2013. Nor have such expenses been capitalised during these two financial years. The parent company has continued its collaboration with the Norwegian Computing Centre and SFI (Statistics for Innovation), which are carrying out projects relating to risk assessment and data analysis.
Balance sheet and capital base The Group’s balance sheet total at the end of 2014 was NOK 113,982.0 million (108,946.3). This in crease was mainly attributable to volume growth in the Retail Bank and Pension and Savings segments. Gjensidige’s equity amounted to NOK 21,656.8 million (26,287.8) as of 31 December 2014. This reduction is largely due to a distribution of excess capital in 2014 corresponding to NOK 5.0 billion.
The return on equity before tax expense was 23.3 per cent (18.3). The capital adequacy was 18.1 per cent (13.4), and the solvency margin 1 was 366.5 per cent (423.8). The year’s figures for capital adequacy and the solvency margin have been adjusted to take account of the Board’s dividend proposal for the 2014 financial year. The statutory capital adequacy requirement is eight per cent.
Cash flow Gjensidige is an insurance company in which investments are part of the operational cash flow and therefore largely affected by strategic decisions. The Company’s ability to self-finance investments is good. The net cash flow from operational activities mainly consists of payments in the form of premiums and net payments/disbursements in connection with sales of investment assets, including lending from banking operations, plus disbursements in the form of claims settlement costs, purchases of reinsurance, administration expenses and tax.
The net cash flow from financing activities mainly consists of payments made/received in connection
with external debt financing and the payment of dividend to shareholders. The net cash flow from financing activities was NOK 6,745.3 million (837.2) in 2014. The change is mainly due to the distribution of dividends, including the distribution of excess capital, in 2014, and to payments received on subordinated loans.
General Insurance Private The Private segment offers a wide range of insurance products and services in the Norwegian private market, including insurance for motor vehicles, property, travel/leisure and accident and health.
Customer orientation and measures aimed at retaining customers were again the main priorities in the segment in 2014. At the same time, work on the tariffs and improved customer and risk selection contributed to better quality in the customer portfolio, solid growth and good profitability.
Profit performance The underwriting result amounted to NOK 1,624.0 million (1,305.5). The main reason for the increase was the growth in premiums, combined with a favourable frequency claims development and a higher run-off gain. The combined ratio was 80.0 (83.3).
Earned premiums increased to NOK 8,124.1 million (7,799.0), driven by premium increases. The number of customers at year end was at approximately the same level as at the end of the same period in 2013, and the competitiveness was good in a market characterised by strong competition.
Claims incurred amounted to NOK 5,468.5 million (5,466.5). The loss ratio was 67.3 (70.1). The motor product in particular had a lower loss ratio than in the year before, partly as a result of the favourable weather situation during the period, but also because of an underlying lower frequency level than expected, particularly in the first quarter. The property product had a somewhat weaker claims development, among other things as a result of a higher proportion of weather-related claims and fires. The leisure insurance and accident and health products showed a better claims development than in 2013. Partly as a result of a somewhat higher capitalisation interest rate than expected, the run-off gain also contributed to a lower loss ratio.
Operating expenses amounted to NOK 1,031.5 million (1,027.0), and the cost ratio was 12.7 (13.2).
Earned premiums 8,124.1 7,799.0 Claims incurred etc. (5,468.5) (5,466.5) Operating expenses (1,031.5) (1,027.0)
also means that Gjensidige will take over an insurance portfolio with premiums of around NOK 95 million. The portfolio will be converted during the course of 2015 and will not have full effect until 2016.
General Insurance Commercial The segment offers general insurance products in the areas of liability, property, agriculture, accident and health, and motor insurance, as well as coastal, aquaculture and transport insurance in Norway and Sweden. The Swedish portfolio will be transferred to the Nordic segment with effect from 2015.
Increased automation and systematic development and simplification of the distribution model in 2014 further improved the customer experience and led to improved operational efficiency in the organisation. In connection with the work on increasing customer satisfaction and improving risk pricing, tools for systematic risk management were introduced for small and medium-sized enterprises as well.
Profit performance The underwriting result amounted to NOK 1,140.3 million (992.9). The increase in the result was largely due to good growth in premiums, and to a good
Outlook and priorities Continuous focus on delivering the best customer experience in combination with analytically-driven business processes and efficient operation will help to ensure that the company is forward-looking and customer-oriented. Further development of the pricing models and methodology for risk management and selection will ensure continued good profitability and competitiveness in the commercial market. The multi-channel model contributes to cost-efficient distribution through analytically-driven CRM activities.
Profit performance The underwriting result amounted to NOK 529.4 million (342.3). The improvement in the result was largely due to good underlying growth in premiums and profitability, combined with an increase in run-off gains. The acquisition of the Gouda portfolio made a positive contribution to the result, while the Solid portfolio made a negative contribution, as expected. Work on integrating the business is ongoing. The combined ratio was 87.6 (89.7).
Amortisation and impairment losses of excess value – intangible assets (130.2) (147.2) Large losses 1 133.3 132.8 Run-off gains/(losses) 2 194.7 130.8 1 Large losses = loss event in excess of NOK 10.0 million.
on work on integrating and capitalising on business synergies in connection with portfolio acquisitions and the distribution collaboration with Nykredit.
There is strong competition in the markets Gjensidige operates in. The focus on improved profitability has resulted in long-tailed accident and health insurance with annual premiums of around NOK 100 million not being renewed as of 1 January 2015.
Gisele Marchand (1958) has been a member of the Board of Gjensidige since 2010. She is CEO in the lawfirm Haavind AS, a board member and chair of the audit committee of Selvaag Bolig ASA and a board member of Eiendomsspar AS, Victoria Eiendom AS and the Norwegian Refugee Council. She has previous experienced from several boards, e.g Norske Skog ASA and Oslo Børs AS.
Marchand has previously been CEO of Eksportfinans AS, the Norwegian Public Service Pension Fund, the Bates Group and EVP with Den norske Bank. She is a graduate of Copenhagen Business School.
Marchand is up for election to the Board in 2015. Marchand holds 1,481 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
Generel Insurance Baltics Gjensidige’s Baltic operations offer general insurance products to the private and commercial markets in Latvia, Lithuania and Estonia. The target customers are people with medium to high income in the private market, and small and medium-sized enterprises in the commercial market.
Profitability is given priority in a market with considerable price competition. Targeted efforts to rationalise operations and the restructuring and repricing of portfolios were emphasised in 2014.
Profit performance The underwriting result was NOK 0.6 million (35.7). The reduction in the underwriting result was largely due to a weaker run-off result. The combined ratio was 99.9 (93.0).
Earned premiums amounted to NOK 523.0 million (510.8). Of the increase, NOK 36.1 million was due to changes in the exchange rate. This means an underlying reduction in premiums. The development in earned premiums was negatively affected by the loss of a large commercial customer.
Amortisation and impairment losses of excess value – intangible assets (5.2) (4.8) Large losses 1 1.7 3.7 Run-off gains/(losses) 2 (11.8) 10.0 1 Large losses = loss event in excess of EUR 0.5 million.
The nominal operating expenses amounted to NOK 145.1 million (132.5). Of the increase, NOK 9.4 million was due to changes in the exchange rate. The cost ratio was 27.8 (25.9).
Outlook and priorities 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 segments is still un insured. Growth is expected in step with the improvement in the general economic situation and increase in the standard of living.
Gjensidige sees a potential for growth and better profitability in the Baltic portfolio over time. The Group has therefore decided to strengthen its efforts in this market going forward, among other things by increasing investments in IT systems and in areas such as product development and tariff setting, distribution, CRM and claims settlement. Gjensidige has acquired PZU Lietuva in Lithuania since the balance sheet date. This acquisition will contribute to Gjensidige achieving critical mass and a significantly stronger position in the Baltic market.
Pension and Savings Pension and Savings shall contribute to sales of a wide range of products to general insurance customers in Norway and offer various pension and savings products, mainly to the commercial market. The pension products include defined contribution plans in the field of group occupational pensions, individual pensions, individual disability pensions and the management of paid-up policies and pension capital certificates. Gjensidige Investeringsrådgivning is an independent fund provider that offers saving and investment solutions to the private and commercial markets.
Pension and Savings is a growth area for Gjensidige in Norway. As many as 85 per cent of the customers were also general insurance customers at year end 2014.
Profit performance The profit before tax expense was NOK 43.9 million (49.9). The business showed positive development, with an underlying improvement in profit performance driven by higher revenues as a result of growth in the customer portfolio and assets under management.
The reduction in profits was due to a decision by the tax authorities to levy VAT in arrears on IT services delivered from abroad to Gjensidige Pensjonsforsikring AS for the years 2011, 2012 and 2013. The VAT payment was charged to profit/loss in the fourth quarter in the amount of NOK 28.6 million, which comprises the payment in arears with interest, and VAT incurred for 2014. The company disagrees with the decision, which will be appealed. Net insurance revenue in the period amounted to NOK 136.0 million (124.4). The increase was due to increased administration revenues as a result of growth in the portfolio for defined contribution pensions.
Management revenues increased to NOK 98.1 million (82.2) as a result of growth in assets under management, in both the pensions and savings areas.
Retail Bank Gjensidige Bank is an online bank that mainly targets the Norwegian private market. The bank offers dayto -day banking services, mortgages, savings products and car and consumer financing. By offering competitive banking products, Gjensidige Bank will contribute to the sale of a wide range of products to general insurance customers in Norway.
Lending growth was good in 2014, driven by competitive loan terms that led to an increase in the customer base and more and broader customer commitments.
The bank’s new car financing product, which is sold through car dealers, showed positive development throughout 2014. At year end, 46 per cent of the bank’s customers were also general insurance customers.
Profit performance The profit before tax expense was NOK 253.5 million (191.0). The positive development was mainly a result of increased net interest income, coming primarily from growth in customer lending.
Interest income and related income 1,327.9 1,135.0 Interest expenses and related expenses (714.1) (588.9) Net interest income 613.8 546.1 Net commission income and other income 49.4 53.3 Total income 663.2 599.5 Operating expenses (357.9) (341.3) Write-downs and losses (51.8) (67.1) Profit/(loss) before tax expense 253.5 191.0 1 Net interest margin = net interest income/average total assets 2 Write-downs and losses = write-downs and losses/avarage gross lending 3 Cost/income ratio = operating expenses/total income 60 I Gjensidige Annual Report 2014
Gross lending increased by 13.9 per cent year on year, amounting to NOK 27,546.5 million (24,193.9) at the end of the year. Deposits increased by 11.8 per cent year on year, reaching NOK 16,703.4 million (14,938.3) at the end of the year. The deposits to loans ratio was 60.6 per cent (61.7).
Standard & Poor’s upgraded the outlook for Gjensidige Bank ASA and Gjensidige Bank Boligkreditt AS from ’negative’ to ’stable’ and kept the longterm rating unchanged at A-. The amendment was based on their assessment of the strategic position the bank has within Gjensidige Group. The outlook for the covered bonds portfolio issued by Gjensidige Bank Boligkreditt AS was also changed to ‘stable’ as a result while the long term-rating rating remained AAA. There is good access to external financing.
Outlook and priorities Gjensidige Bank shall primarily underpin the Norwegian general insurance business by contributing to a wider product range being available to existing general insurance customers in Norway. The
Bank will continue to offer a wide range of financial services through customer-friendly online solutions, Gjensidige’s financial offices and cooperating car dealers. Based on a full range of banking products and attractive terms for the private market, the bank shall contribute to the Group’s growth and profitability.
Management of financial assets and properties The Group’s investment portfolio includes all investment funds in the Group, except for investment funds in the Pension and Savings and Retail Bank segments. The investment portfolio consists of two parts: a match portfolio and a free portfolio. The match portfolio is intended to correspond to the Group’s technical provisions. It is invested in fixed-income instruments whose duration is adapted to match the disbursement of the technical provisions. The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and pertaining risk capacity, as well as the Group’s ongoing risk management.
The average duration of the match portfolio was 3.4 years. The average term to maturity for the corresponding insurance debt was 3.8 years. The distribution of counterparty risk and credit rating is shown in the charts on page 63. Securities without an official credit rating amounted to NOK 11.0 billion (9.3). Of these securities, 16.5 per cent (22.1) were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or government- guaranteed companies. A third-party internal rating existed for 71.5 per cent (76.3) of the portfolio without an official rating. Bonds with a coupon that is adjusted on the basis of the development in the Norwegian consumer price index accounted for 12.5 per cent (13.0) of the match portfolio. The geographical distribution1 of the match portfolio is shown on page 63.
Free portfolio The free portfolio amounted to NOK 21.8 billion (24.9) at year end. The return was 5.8 per cent (5.4).
Equity portfolio The total equity exposure at the end of the period was NOK 5.5 billion (8.7), of which NOK 3.8 billion (7.0) consisted of current equities and NOK 1.7 billion (1.7) of PE funds. The reduction in current equities must be seen in conjunction with the reduction in the shareholding in Storebrand. The return on current equities was 6.7 per cent (8.2). This includes the return on derivatives used for hedging purposes. The shareholding in SpareBank 1 SR-Bank was recognised at market value from the second quarter. Gjensidige is no longer represented on the bank’s board and the bank is no longer defined as an associated company for accounting purposes. The market value of the investment amounted to NOK 1,390.4 million at year end. The return on PE funds was 15.1 per cent (10.3).
Property portfolio At the end of the period, the property portfolio amounted to NOK 6.5 billion (5.1). The property portfolio yielded a return of 9.9 per cent (5.7). The general required rate of return in connection with the valuation of the properties was reduced to 6.2 per cent (6.5). The individual valuations resulted in a net increase in value of NOK 279.3 million. External valuations of 21 out of a total of 23 individual properties were carried out at year end. The portfolio is concentrated in office properties in Oslo, but it also includes a few office properties in other Norwegian towns and cities.
Financial income in Pension and Savings and Retail Bank 58.9 57.2
Geographic distribution �xed income instruments in free portfolio at the end of 2014
the Group’s risk management system and for maintaining an overview of the risks that the Group is or may be exposed to. The Risk Management function shall ensure that the senior group management and the Board have sufficient information about the Group’s risk profile at all times. The Group has a moderate risk profile whereby, in the Board’s view, no individual events will be capable of seriously harming the Company’s financial position.
More and more is expected of staff and managers in terms of expertise. There is a risk that inadequate or insufficiently adapted expertise will reduce the chances of realising commercial and strategic ambitions. There is also competition to attract and retain capable employees. Targeted efforts are therefore being made to ensure the right expertise at all levels of the organisation. The Gjensidige Customer and Brand School is responsible for competence-raising and management development in Gjensidige. The school offers training for sales personnel, claims handlers and managers based on the Group’s strategic focus and development areas. New employer branding measures have been implemented and recruitment processes are being further refined. Performancebased remuneration models have been introduced for groups of employees, and individual scorecards have also been introduced. Systematic work is being done on the corporate culture and management development, and on firmly establishing requirements and expectations of managers and staff.
Insurance risk The insurance risk relating to large individual losses or events is managed through authorisations and lines of reporting for ordinary operations. Clear guidelines have been established for what insurance policies can be taken out. The risk of a generally 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 Group’s Actuary function carries out calculations and assessments of the technical provisions and develops and maintains adequate models and methods for estimating losses that have occurred, but that have not yet been reported to the Group. There is a considerable inherent risk that the provisions will be insufficient, but the Group is working continuously to improve actuarial methods. External actuaries are used from time to time to conduct independent reviews of the provisions.
Mette Rostad (1964) has been a member of the Board of Gjensidige since 2012. She is self-employed, a board member of Gjensidigestiftelsen and of Innherred Renovasjon, and Chair of the Board of Visit Innherred.
Rostad has previously been CFO of Aker Verdal, managing director of Aker FDV, and managing director of Clean-Tech Mid-Norway. She is a graduate of the Norwegian Business School BI.
Financial risk Gjensidige had NOK 56.5 billion in financial investments in the insurance operations as of 31 December 2014. The counter entry in the balance sheet consists of the actuarial liabilities and equity. The investments mainly consisted of fixed-income investments, property and equity investments. The value of the investments can be affected by changes in macroeconomic factors.
Through the Board’s adoption of strategic allocations of assets, with pertaining limits for the different risk types, and a dynamic risk management model, limits are set that make it possible to rapidly adjust risk to changed macroeconomic assumptions. Price, interest rate and currency risk is also followed up through stress tests, where the buffer capital must be suffi cient at all times to be able to withstand sharp simultaneous falls in equity and bond prices.
For more detailed information about financial risk and stress tests, see Note 3 to the consolidated annual accounts.
Limits have been defined for the necessary access to liquid assets. They are taken into account in the strategic allocation of assets. The liquidity risk is considered to be very low. The Group is exposed to credit risk through investments in the bond and money market and through lendings. The Board has defined limits for the credit operations. Credit losses have been insignificant to date. Outstanding claims against the Group’s reinsurers may also represent a substantial credit risk. Counterparty risk in the reinsurance market is continuously assessed. The Group’s reinsurers shall at least have an A rating from Standard & Poor’s or an equivalent rating from one of the other reputable rating companies.
Wollebekk is up for election to the Board in 2015. Wollebekk does not hold any shares in Gjensidige Forsikring ASA, including any shares held by closely related parties.
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 systems function as intended.
Gjensidige aims to be a developing and health-promoting workplace. Systematic work is carried out on competence-raising measures for managers and employees, and a number of measures and processes have been established relating to employees’ health, safety and working environment. Information about the working environment, equality, discrimination and the natural environment, cf. the Accounting Act Section 3-3 (ninth to twelfth paragraphs), is provided in the report on corporate social responsibility on pages 22-30.
Over time, organic growth is expected to be on a par with growth in GDP in Gjensidige’s market areas in Norway, the Nordic countries and the Baltic states. Further profitable growth will come by pursuing a disciplined acquisition strategy. The annual combined ratio shall be in the range of 90–93 per cent, corresponding to ~87–90 per cent on a discounted basis.
Competition is strong in the Norwegian general insurance market, particularly from established financial players that are focusing on general insurance.
Gjensidige’s competitiveness is regarded as good, with a solid growth in premiums and volume combined with good profitability and high customer satisfaction. The work of retaining and strengthening the customer base and the Company’s position in the Norwegian market will be given priority. At the same time, new, profitable opportunities for growth in the Nordic region and the Baltics are continuously considered in order to ensure good utilisation of a scalable business model and best practice. Great emphasis is placed on further developing cooperation with partners and distributors.
The macroeconomic picture for the Norwegian general insurance business is still regarded as good, despite a fall in oil prices and somewhat higher uncertainty in some sectors of Norwegian business and industry. Gjensidige has very limited direct exposure to the oil sector. There is little to indicate a substantial and rapid increase in unemployment, and, in combination with a persistent low interest rate level, this is not expected to result in a significant weakening of the housing market. The Danish housing market is improving, but with considerable regional differences. There is also positive development in the Baltic economies.
Some reduction in the acquired portfolios is expected in the integration phase. The portfolios have higher cost ratios than current operation and endeavours will be made to absorb them over time.
Allocation of the profit before other income and expenses The Group’s profit for the year after tax expense amounted to NOK 4,189.6 million. The Board has adopted a dividend policy that forms the basis for the dividend proposal submitted to the general meeting. The Board proposes a dividend of NOK 2,950.0 million for the 2014 financial year, corresponding to NOK 5.90 per share. That is 70.4 per cent of the Group’s profit after tax expense, and it is based on the adopted dividend policy that applies from the 2014 financial year.
Gjensidige’s goal is to distribute high and stable nominal dividends to its shareholders in future, and at least 70 per cent of the profit after tax expense over time. When determining the size of the dividend, consideration will be given to expected future capital needs. In addition, any future excess capital over and above the capitalisation target will be distributed to the owners over time. By the capitalisation target is meant capitalisation that is adapted to Gjensidige’s strategic targets and appetite for risk at all times. The Group shall maintain its financial freedom of action, without this being at the expense of capital discipline.
A dividend of 79.4 per cent was paid for the 2013 financial year, based on the profit after tax expense (adjusted for the effect of the impairment loss on the Storebrand investment). The level of the dividend proposed for 2014 must be seen in connection with a more optimal capital structure as of 31 December 2014 and a new dividend policy that emphasises stability in the future dividend stream.
1 The dividend includes distribution of excess capital corresponding to NOK 2 billion in November 2014, adopted based on Board authorisation and based on the financial situation as of the accounting year 2013.
Inge K. Hansen Gunnhild H. Andersen Trond Vegard Andersen Hans-Erik F. Andersson Per Arne Bjørge Styreleder
Kjetil Kristensen Gisele Marchand Gunnar Mjåtvedt Mette Rostad Tine Gottlob Wollebekk
Notes 2 Use of estimates ..................................................83 3 Management of insurance and financial risk .........84 4 Segment information.........................................103 5 Intangible assets ................................................104 6 Shares in associates ...........................................106 7 Owner-occupied property, plant and equipment 107 8 Financial assets and liabilities .............................108 9 Investment property ..........................................113 10 Loans and receivables ........................................ 114 11 Cash and cash equivalents ................................. 114 12 Shares and similar interests ................................115 13 Insurance-related liabilities and reinsurers’ share .117 15 Provisions and other liabilities .............................122 18 Salaries and remuneration .................................126 19 Net income from investments ............................130 22 Related party transactions ................................. 132 23 Events after the balance sheet date ...................134 24 Capital ratio ......................................................135 25 Solvency margin ................................................136 26 Restricted funds ................................................136 28 Share-based payment .......................................137 29 Earnings per share .............................................138
Income statement ....................................................139 Statement of financial position .................................140 Statement of changes in equity ................................. 142 Statement of cash flows ............................................143 Accounting policies ...................................................144
Notes 2 Use of estimates ................................................ 151 3 Management of insurance and financial risk ....... 151 4 Premiums and claims etc. in general insurance ... 152 5 Intangible assets ................................................154 6 Shares in subsidiaries and associates ..................156 7 Owner-occupied property, plant and equipment 158 8 Financial assets and liabilities .............................159 9 Investment property ..........................................163 10 Loans and receivables ........................................164 11 Cash and cash equivalents .................................164 12 Shares and similar interests ................................165 13 Insurance-related liabilities and reinsurers’ share . 167 15 Provisions and other liabilities .............................173 18 Salaries and remuneration ................................. 176 19 Net income from investments ............................180 22 Related party transactions .................................182 23 Events after the balance sheet date ...................184 24 Capital ratio ......................................................185 25 Solvency margin ................................................186 26 Restricted funds ................................................186 28 Share-based payment .......................................188
Total expenses (20,174.8) (18,848.5) Profit/(loss) for the year before tax expense 4 5,399.6 4,574.1
Earnings per share, NOK (basic and diluted) 29 8.38 7.34 70 | Gjensidige annual report 2014
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 281.2 450.8 Share of exchange differences from associates (142.4) 128.7 Exchange differences from hedging of foreign operations (237.0) (376.0) Tax on items that may be reclassified to profit or loss 27.3 85.3 Total items that may be reclassified subsequently to profit or loss (70.9) 288.8
Goodwill 5 2,819.0 2,562.2 Other intangible assets 5 1,123.5 1,138.2 Deferred tax assets 16 5.0 5.0 Investments in associates 6 44.3 4,772.0 Owner-occupied property 7 280.7 288.5 Plant and equipment 7 321.0 249.5 Investment properties 9 6,104.0 4,644.3 Pension assets 14 71.8 0.0
Financial assets Financial derivatives 8 470.2 219.9 Shares and similar interests 8, 12 7,499.8 6,023.4 Bonds and other securities with fixed income 8 23,748.3 22,398.0 Bonds held to maturity 8 2,955.9 5,211.3 Loans and receivables 8, 10 46,969.5 42,692.4 Assets in life insurance with investment options 8 12,950.3 10,330.6 Reinsurance deposits 0.8 0.8 Reinsurers' share of insurance-related liabilities in general insurance, gross 13 551.8 727.9 Receivables related to direct operations and reinsurance 10 4,629.8 4,290.5 Other receivables 10 823.6 509.2 Prepaid expenses and earned, not received income 10 209.0 153.3 Cash and cash equivalents 11, 26 2,403.8 2,729.4
Total equity and liabilities 113,982.0 108,946.3 72 | Gjensidige annual report 2014
Inge K. Hansen Gunnhild H. Andersen Trond Vegard Andersen Hans-Erik F. Andersson Per Arne Bjørge Kjetil Kristensen Chair
Gisele Marchand Gunnar Mjåtvedt Mette Rostad Tine Gottlob Wollebekk Helge Leiro Baastad CEO
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset (410.2) (410.2) Share of other comprehensive income of associates (50.9) (50.9) Tax on items that are not reclassified to profit or loss 110.8 110.8 Total items that are not reclassified subsequently to profit or loss (299.4) (50.9) (350.3)
Cash flows from operating activities Premiums paid, net of reinsurance 24,091.4 23,080.0 Claims paid, net of reinsurance (15,127.2) (13,554.2) Net payment of loans to customers (3,352.6) (6,869.7) Net payment of deposits from customers 1,765.1 3,357.8 Payment of interest from customers 1,251.5 1,073.0 Payment of interest to customers (472.3) (369.3) Net receipts/payments on premium reserve transfers (598.7) (472.4) Net receipts/payments from financial assets 1,028.4 (2,534.1) Net receipts/payments from properties 297.6 234.8 Net receipts/payments from sale/acquisition of investment property (1,190.5) (135.7) Operating expenses paid, including commissions (3,460.9) (3,639.2) Taxes paid (852.7) (1,338.5) Net other receipts/payments 49.3 39.9
Effect of exchange rate changes on cash and cash equivalents 36.2 44.6 Net cash flow for the period (325.6) 397.9
Cash and cash equivalents at the start of the period 2,729.4 2,331.5 Cash and cash equivalents at the end of the period 2,403.8 2,729.4 Net cash flow for the period (325.6) 397.9
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 2014, 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.
Changes in accounting policies Gjensidige has implemented the following new standards and changes to standards, including any improvements to other standards, with a date of initial application of 1 January 2014.
The content of and effects of the changes are explained below.
New standards and interpretations not yet adopted A number of new standards, changes to standards and interpretations have been issued for financial years beginning after 1 January 2014. They have not been applied when preparing these consolidated financial statements. Those that may be relevant to Gjensidige are mentioned below. Gjensidige does not plan early implementation of these standards.
Consolidation policies Subsidiaries Subsidiaries are entities controlled by Gjensidige Forsikring. Gjensidige Forsikring controls an investee when it is exposed, or has the rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of the subsidiaries have been changed when necessary, to align them with the policies adopted by the Group.
Associates Associates are entities in which the Group has a significant, but not a controlling, influence over the financial and operating policies. Normally this will apply when the Group has between 20 and 50 per cent of the voting power of another entity. Associates are accounted for using the equity method, and are recognised initially at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of income, expenses, and movements in equity, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that the significant influence ceases.
Foreign currency Foreign currency transactions Every company in the Group determines its functional currency, and transactions in the entities’ financial statements are measured in the functional currency of the subsidiary.
Exchange differences arising on retranslations are recognised in profit or loss, except for differences arising on the retranslation of financial instruments designated as hedge of a net investment in a foreign operation that qualifies for hedge accounting. These are recognised in other comprehensive income.
Owner-occupied property is defined as property that is used by Gjensidige for conducting its business. If the properties are used both for the company’s own use and as investment properties, classification of the properties is based on the actual use of the properties.
Fair value is based on market prices, after consideration of any differences in type, location or condition of the individual property. Where market prices are not available, the properties are individually assessed by discounting the expected future net cash flow by the required rate of return for each investment. The net cash flow takes into account existing rental contracts and expectations of future rental income based on the current market situation. The required rate of return is determined based on the expected future risk-free interest rate and an individually assessed risk premium, dependent on the rental situation and the location
Intangible assets Goodwill Goodwill acquired in a business combination represents cost price of the acquisition in excess of the Group’s share of the net fair value of identifiable assets, liabilities and contingent liabilities in the acquired entity at the time of acquisition. Goodwill is recognised initially at cost and subsequently measured at cost less accumulated impairment losses.
Other intangible assets Other intangible assets which consist of customer relationships, trademarks, internally developed software and other intangible assets that are acquired separately or as a group are recognised at historical cost less accumulated amortisation and accumulated impairment losses. New intangible assets are capitalised only if future economic benefits associated with the asset are probable and the cost of the asset can be measured reliably.
Development expenditures (both internally and externally generated) is capitalised only if the development expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete the development and to use or sell the asset.
Adequacy test A yearly adequacy test is performed to verify that the level of the provisions is sufficient compared to the company’s liabilities. Current estimates for future claims payments for the company’s 78 | Gjensidige annual report 2014
Investments held to maturity are measured at amortised cost using the effective interest method, less any impairment losses. The category investments held to maturity comprises the class bonds held to maturity.
Share-based payment The fair value of share-based payment arrangements allocated to employees is at the time of allocation recognised as personnel costs, with a corresponding increase in equity. Share-based payment arrangements which are recovered immediately are recognised 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 recognised 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 charged as expenses is done upon failing to meet such conditions.
Transactions with affiliated companies The Fire Mutuals operate as agents on behalf of Gjensidige. For these services commission is paid. The Fire Mutuals are also independent insurance companies with fire and natural damage on their own account. Gjensidige 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.
NOK 5.90 per ordinary share (12.80) 2,950.0 6,400.0 Dividend for 2013 increased by NOK 4,00 per share based on power of attorney to the Board 2 1 Proposed dividend for 2014 is not recognised at the reporting time, and it does not have any tax consequences. 2 Increased dividend was agreed in October and paid in November 2014.
The basis of insurance is the transfer of risk, from the insured to the insurer. Gjensidige receives insurance premiums from a large number of policy holders whom it is committed to compensating in the event that a loss occurs. Naturally, insurance risk is a major component of risk in the Group. Insurance premiums are received in advance and set aside in order to cover future claims. These technical provisions and the Company’s equity are invested, which means that the Group is exposed to market and credit risk as well.
Responsibility for the execution of investments for the insurance operations is vested in the CFO’s organisation. The function for monitoring and reporting financial returns and compliance with investment risk limits reports to the Executive Vice President, Group Staff/General Services in order to ensure independent follow-up. In addition, the Chief Risk Officer has an independent reporting line to the CEO.
Responsibility for all investment management is centralised in the Group’s investment centre. Responsibility for estimating technical provision in the insurance companies is correspondingly centralised in the Group’s actuary department. All internal guidelines and requirements concerning risk taking are based on comprehensive group policies and are subject to approval by the Board of each company based on local legislation. A group-wide credit committee chaired by the CFO has been established in order to set credit limits for individual issuers of credit and general guidelines for counterparty risk.
Gjensidige’s minimum capitalisation is determined on the basis of the strictest of three criteria: Regulatory requirements, rating requirements and internal risk-based requirements. For all three, board-approved buffers are in place for management purposes. In the calculations of excess capital, consideration was given to an assumed dividend of NOK 2.950 million. The Group has a strong capitalisation seen from all three of these perspectives.
In 2014 Gjensidige Forsikring issued NOK 1.200 million as subordinated loan. This can be accounted for as own funds for both legal and rating purposes. The loan is rated BBB+ as of 16 September 2014. The loan improves capital structure in the Gjensidige group. The desired level of capitalisation will be measured against the highest capital requirement, including a safety margin. In addition, the company will hold a strategic buffer to assure financial stability in case of regulation changes, organic growth, a stable dividend policy and smaller acquisitions, which are not financed by retained profit. Gjensidige Forsikring intends to maintain high dividend payments to its shareholders. It is a goal that over time, 70 per cent of the company’s earnings after taxes should be used to pay out dividends. Dividend decisions will take into account expected future capital requirements.
Insurance operations and the banking business are subject to capital requirements specified by the authorities. Capital adequacy and solvency positions are reported for the Group and its subsidiaries to the financial supervisory authorities. Based on the capital adequacy rules (BIS rules) as at 31 December 2014 the excess capital was NOK 5,583.7 million, equivalent to a capital adequacy ratio of 18.1 per cent The Group’s excess capital above the solvency margin requirements was NOK 8,025.2 million as at 31 December 2014. Before internally set buffers, the rating requirement results in the lowest excess capital at group level. 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 an actual rating of A’ (Stable) from Standard & Poor’s (unchanged since 1999, last updated on 31 July 2014). The rating is subject to annual review. Standard & Poor’s capital 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 of 31 December 2014, the excess capital relative to the targeted A rating is estimated at NOK 2,067.7 million. Gjensidige Bank ASA has its own rating of A- from Standard & Poor’s (last updated on 28 August 2014) while covered bonds issued by Gjensidige Bank Boligkreditt are rated AAA (updated on 2 October 2014).
(13.5%/12.5%) Gjensidige Pensjon og Sparing Holding Group 144.8 183.8 Capital adequacy (8%)
The solvency margin in Gjensidige Baltic does not include the profit for the year until completion of the auditing of the financial statements for 2014. 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 in 2014.
The internal risk based capital requirement is determined as part of 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 not 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 they may deviate from the accounting policies. This is in line with the proposals for the Solvency II regulations. Among other things, this means that technical provisions are assessed at their discounted value instead of at recognised (nominal) value.
Using the internal model, and the definition of internal capital stated above, the internal capital requirement for the insurance group was set at NOK 10,850 million at the end of 2014, compared to NOK 11,400 million at the end of 2013. Excess capital over and above the internal capital requirement is NOK 11,200 million.
General insurance Frequency and severity of claims 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.
Growth in severity of claims may be driven by the development of consumer price index (CPI), salary increases, social inflation and the price of materials and services purchased in connection with claims settlement. In Property insurance the inflation will consist of CPI and an increase in building costs, which in the past has been slightly higher than CPI. For accident and health the insurance policies are divided into two main groups, one with fixed sum insured and another part where the compensation is adjusted in accordance with a public/government index (in Norway: ‘G’ - the basic amount in the National Insurance Scheme). This is the case in Workers’ Compensation, for instance. The Group writes Workers’ Compensation insurance in Norway and Denmark. The regulation of this LOB is quite different in these countries. In Norway Workers’ Compensation covers both accident and diseases, while in Denmark diseases are covered by a governmental body. The compensation in Norway is exclusively in the form of lump sums, while in Denmark the compensation consists of both lump sums and annuity payments. Annuity payments are calculated on the basis of assumptions about mortality, interest rate and retirement age. For bodily injuries the severity of claims is also influenced by court awards, which tend to increase the compensation more than the general inflation. This is also a significant factor, due to the long period typically required to settle these cases.
Gjensidige manages these risks mainly through close supervision of the development for each LOB, underwriting guidelines and proactive claims handling. The monthly supervision of the results for each LOB contains an overview of both premium and loss development. If there is an adverse development of the profitability, sufficient measures will be put in force. This includes necessary premium increases to ensure that the profitability is within the accepted level.
Total 23,875.6 100.0% 22,662.2 100.0% Total Gjensidige Forsikring ASA 20,458.1 85.7% 18,964.7 83.7%
Insurance contracts are often classified as risks that are short-tail and risks that are long-tail. Short-tail risk is characterised by the period between the occurrences, reporting and final settlement of claims being short. Long-tail risk is the opposite. The period between the occurrence, reporting and settlement of claims is long. In Property and Motor insurance (excluding bodily injury claims) the claims are reported soon after occurrence, while for Accident and Health insurance the claims may be reported several years after the occurrence and settled several years after they were reported. The provisions for IBNR for short-tail risks are relatively small, while for long-tail risks the provisions for IBNR may constitute a substantial part of the total claims provision.
The duration (average time between the date of loss until the claim is finally settled) differs significantly between the types of risk considered. Long duration will increase the company’s exposure to inflation. In Motor insurance, physical damage, the duration is less than one year, while in Motor bodily injury claims the average duration is almost eight years. In Property insurance the average duration is one to two years. In Workers’ Compensation in Norway the average duration is six years. In Group life insurance the duration differs significantly between death and disability coverage. Workers’ Compensation in Denmark has a particularly long duration due to the annuity part. For the other lines of businesses (LOB) in Gjensidige’s Nordic branches and subsidiaries the duration is in line with the similar LOB in Norway. In the Baltic the duration is significantly shorter due to few bodily injury claims.
Calculation of claims provisions is based on empirical data, where the basis is the development of claims cost over time. This includes development for both 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.
• Economic, legal and social trends and social inflation ­ (e.g. a shift in court awards)
Gjensidige Forsikring ASA and its subsidiaries have detailed underwriting guidelines, intended to ensure good quality in the assessment and quantification of insured risks, and to define risk types and limits for sums insured that can be accepted, thus ensuring control of the risk exposure in the insurance portfolio.
Change in CR (1 %- point) General insurance Private 81.2 78.0 General insurance Commercial 73.4 70.2 General insurance Nordic 42.7 33.3 General insurance Baltics 5.2 5.1 Pension and savings 12.6 9.0 Corporate Centre/reinsurance 1.3 0.8
General insurance Private 321.2 364.3 General insurance Commercial 397.3 447.5 General insurance Nordic 532.4 449.0 General insurance Baltics 1.8 1.8
Table 6a – Analysis of claims development, Gjensidige Group NOK million 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total
Total disbursed 9,682.4 10,126.6 10,350.5 10,729.8 10,938.0 10,058.9 10,999.0 11,151.1 10,173.7 10,344.1 8,417.9 112,972.0 Claims provision 674.8 975.8 1,085.6 1,318.6 1,463.3 1,876.4 2,813.0 3,728.3 2,786.9 3,885.6 6,061.5 26,669.8 Prior-year claims provision and loss adjustment provision 4,854.9 Gjensidige Baltic 198.7 Total 31,723.4 90 | Gjensidige annual report 2014
Total disbursed 9,339.4 9,892.6 9,894.8 10,326.7 10,438.5 9,413.7 10,173.8 10,012.0 9,869.4 9,303.0 8,026.8 106,690.7 Claims provision 674.8 972.6 1,084.2 1,296.2 1,409.2 1,862.1 2,790.5 3,679.1 2,533.9 4,123.3 6,447.4 26,873.3 Prior-year claims provision and loss adjustment provision 4,607.6 Total 31,480.9
Life insurance Insurance risk Gjensidige Pensjonsforsikring AS (GPF) offers products, such as occupational pensions, including disability protection and survivor’s benefit, individual disability protection and pension saving products. Their purpose is to provide financial security after retirement, and protection in case of disability or death.
Life insurance risk can be divided into three elements: • Longevity risk - when mortality is lower than assumed • Mortality risk - when mortality is higher than assumed • Disability risk - when disability is higher than assumed
GPF is exposed to mortality, longevity and disability risk respectively because of the products survivor’s benefit, defined benefit pensions and disability protection. The greatest risk contributor is disability, followed by longevity and mortality.
Furthermore, GPF makes assumptions about the likelihood of survivors, their age and benefit amounts. If empirical data deviates from the assumptions, the premium reserve may be insufficient. The liability duration, likelihood of claims and insured amounts create the time span of cash out-flow, but also affect the risk. The following section describes the products that represent the greatest insurance risk for GPF.
GPF’s main business focus is occupational pension products. This can be mandatory pension plans, defined contribution plans exceeding the minimum level and supplementary pensions such as disability protection and survivor’s benefits. Furthermore, GPF administers a portfolio of paid-up policies, and offers individual disability pension and other pension savings products. Among these products, the occupational pension’s supplementary coverage, paid-up policies and individual disability protection represent the greatest insurance risk for GPF.
Compulsory occupational pensions 54% 58% Other defined contribution pensions 46% 42%
Occupational pensions are defined contribution plans which are usually paid out within 10 years. For this reason, occupational pensions hardly expose GPF to any longevity risk.
Until 2014 GPF used the mortality tariff «K2005», commonly used in the industry. K2005 included safety loading margins as required by the Financial Supervisory Authority of Norway (FSA). From 2014, GPF has started using a new mortality tariff «K2013» 1, which affects reserves on products that expose GPF to mortality and longevity risk. This tariff also includes safety loading margins required by the FSA. The new tariff assumes that mortality changes over time (thus being a dynamic tariff). Hence, life expectancy is higher for those born this year compared to last year. K2013 assumes lower mortality than K2005. Therefore, GPF is increasing its reserves, since longevity risk is greater than mortality risk. GPF has been building its reserves since 2011, and NOK 127 million is currently withheld for this purpose. Reserving according to K2013 must be completed as soon as possible and within seven years at the latest. A large part of the surplus will be withheld to build reserves. In 2014 the government decided that reserves need to be built individually which means that surplus from fully reserved policies cannot subsidise policies which are not fully reserved. The government requires GPF to contribute at least 20 per cent from own funds to the needed increase in reserves. GPF has reported to the FSA a reserve building plan, and the total increase in reserves amounts to NOK 206 million. At the end of year 2014, NOK 79 million remain. GPF’s estimated contribution is NOK 41 million, excluding contribution from the owner’s share of surplus. Approximately 38 per cent of the portfolio (in reserves) is fully reserved (per 1.1.2015). For this case surplus will be distributed as normal which means that surplus will be used to build supplementary reserves, increase benefits and increase own funds.
Insurance risk is satisfactory per December 2014, and reserves should be sufficient to account for uncertainty. GPF protects itself against fluctuations in claims by a reinsurance contract where GF is the reinsurer. In addition, GPF benefits from exchanging knowledge with GF. Increasing data material enables GPF to observe significant changes in disability trends, for insured and uninsured, in early stages.
Reported and settled claims (premium reserve) amount to NOK 399 million (NOK 353 million in 2013). They are estimated as the present value of future obligation and contribute to 37 per cent (46 per cent in 2013) of all provisions.
Paid claims, reserves and IBNR continue to increase as expected, due to an increasing number of insured lives and risk years 3. The number of retirees is expected to stay low, and benefits originate from defined contribution plans, paid-up policies or individual pension saving products.
Mortality risk Mandatory occupational pension contracts are signed on a yearly basis, so GPF is able to adjust survivor’s pension premium tariffs at renewal if needed. Survivor’s pension claims are reported fairly quickly, which makes it possible to adjust the premium tariffs in time. Survivor’s pension only accounts for minor part of the business and the majority of the risk premium is used for reserving. In addition, GPF is exposed to mortality risk in paid- up policies.
Longevity risk The new K2013 mortality tariff is dynamic, which means that GPF will hold premium reserve for future development in mortality. Considering this, the new mortality tariff is considered a strong tariff, which also is the general opinion in the business.
Longevity sensitivity testing is performed for several purposes, and Solvency 2-calculations reveal a potential loss of NOK 109 million per Q4 2014, if the mortality rate decreases by 20 per cent. It is first and foremost the paid-up policies that require extra provisions in case of increased longevity.
Disability risk Disability risk varies greatly within the insured population. Because of this, the price tariff for mandatory occupational pension groups businesses by hazard categories. Provisions are dependent on recovery rates (rate of insured receiving disability benefit that recover), and varying the recovery rate greatly vary the provisions. Calculations show that disability provisions need to increase by NOK 150 million if the disability rate increases by 35 per cent the first year and then 25 per cent the following years.
Management of financial risk – general insurance operations Financial risk is a collective term for various types of risk relating to financial assets. The different types of financial risk are described in greater detail below. Operational risk is also monitored and controlled, and requirements for operational risk management are included in the guidelines for asset management approved by the Board.
In terms of concentration risk, the main risks for the Group are the investments in SpareBank 1 SR-Bank ASA. Furthermore the portfolio involves substantial concentration in the fixed income portfolio towards Norwegian financial institutions, as well as exposure to office properties in the Oslo area. Concentration risk is further analysed under the various market risk factors.
4 The item includes the investment in SpareBank 1 SR-Bank ASA.
The development of the financial results is measured continuously relative to the targets and risk limits set by the Board. In the liquid part of the free portfolio, daily risk limits in accordance with Tail Value at Risk (TVaR) are measured; see the table below. As of 31 December 2014, NOK 40.4 million of the risk capacity measured by TVaR was used. TVaR is a statistical measure of maximum loss in NOK million per day given a 95 per cent confidence level. TVaR has fluctuated between NOK 20 and 45 million throughout the year. In the event of a significant negative development in the financial results, the limit on investments in risky assets will be lowered. The development in the financial results and asset allocation is measured and reported regularly to the group management and the Board.
Table 9 – TVaR utilisation of risk limits in the liquid part of the free portfolio 31.12.2014 31.12.2013 NOK million Risk Limit Risk Limit 94 | Gjensidige annual report 2014
This stress test based on figures at year-end is shown below (group figures). The capital buffer here is relative to the capital adequacy requirement for the Gjensidige Group, which is calculated in accordance with Norwegian GAAP. Interest rate risk and credit spread risk in the stress test are calculated exclusive of bonds at amortised cost. Changes to SpareBank 1 SR-Bank ASA and insurance risks are modelled through Gjensidige’s internal model. The risk in the subsidiaries outside general insurance (Gjensidige Pension and Savings, Gjensidige Bank) are taken into account through stress scenarios from the recommendations in the Norwegian FSA’s “risk-based supervision” (RBT), for Gjensidige Pensjonsforsiking and the ICAAP process for Gjensidige Bank.
The capital surplus at year-end is not representative of the situation throughout the year, since Gjensidige Forsikring ASA undertook the distribution of surplus capital in October 2014 at NOK 2.000 million and the stress test takes into account the purposed dividend. The precise figures will generally vary with changes in asset allocation and year-to-date profit. A rule for management actions with escalation to the CEO or Board is implemented if the total decrease in value/buffer capital is above the predefined levels.
Total market risk (1,846.7) Claims provision (622.6) Catastrophe (410.0) Storebrand ASA and SpareBank 1 SR-Bank ASA Internal model (1,763.0)
Storebrand ASA 3,306.3 SpareBank 1 SR-Bank ASA 1,423.0 Spotify 113.5 SOS International A/S 47.3 Apply AS 45.3
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 taxation effects into account. As shown in the table, the sensitivity is increased since 2013.This is mainly due to the fact that Sparebank 1 SR-bank AS is taken into account in the equity portfolio sensitivity analysis.
Interest-rate risk In the Group’s insurance companies, overall exposure to interest rate risk will be reduced by matching a portfolio of fixed-income instruments to the overall duration and the pay-out pattern of the insurance liabilities. Since the insurance liabilities are generally not discounted in the balance sheet, this means that, from an accounting perspective, insurance liabilities will be exposed to changes in inflation (but not directly to interest rates). An economic perspective, however, calls 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 of choosing this hedging strategy is reduced because a large part of the bond portfolio is recognised at amortised cost. Furthermore, from an economic perspective the inflation risk is partly reduced since some of these bonds carry a coupon linked to the development of the consumer price index.
Table 14 – Maturity profile (number of years) fixed income portfolio NOK million 31.12.2014 31.12.2013
The interest-rate sensitivity of the fixed-income portfolio is also shown in the table below. This table does not include the amortised cost portfolio, and the effect of the swap agreements in the Danish branch has not been included either, because they have a reciprocal effect on the liabilities. The effect on profits and ­equity is the same, and tax effects have been disregarded. The Board of Directors has set a limit of NOK 500 million.
Table 15 – Sensitivity fixed income portfolio NOK million 31.12.2014 31.12.2013 100 bps parallell shift up (168.2) (298.8)
The following graph shows the expected pay-out pattern for the Group’s premium and claims provisions at year-end 2014 and 2013, respectively. Approximately one third of the provisions are expected to be paid out within one year.
The match portfolio will match these cash flows, as well as the cash flows related to the issued subordinated debt with a maximum duration mismatch of one year and a maximum net interest rate sensitivity of NOK 345 million. The table below shows this as of 30 November 2014.
Hedge fund Hedge fund is a generic term for funds that invest in most types of asset classes with few limitations on the use of derivatives, shorting or leverage in order to earn a return that is partly independent of (has a low correlation with) traditional market indexes. Gjensidige utilises hedge funds to gain exposure to active risk in the individual asset classes and to allocation risk between the individual asset classes and/or risk premiums. Both fund of funds and individual funds are used. The fund-of-fund manager will select and follow up of the underlying hedge funds, thus reducing operational risk.
Foreign exchange risk 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 a permitted limit of +/- ten per cent per currency, except for smaller mandates where active currency management is included.
The parent company hedges its investments, but not future income, in subsidiaries against foreign exchange risk. The results of the hedging are recognised in the income statement, while the change in value of the hedged object is recognised in other comprehensive income. In the Danish branch and the subsidiary Nykredit Forsikring, hedge accounting is employed where only the inefficient part of the hedging is recognised in the income statement. The hedging is carried out using currency forwards, where the amount is adjusted quarterly.
The table below shows the foreign currency exposure by currency type. The gross position shows the exposure after taking into account the distribution of the insurance liabilities among different currencies and includes the investments in the subsidiaries that are entered in the parent company’s accounts. In the net position column, the hedges of the subsidiaries are included.
A ten per cent strengthening of NOK against all other currencies will decrease equity by about NOK 16.1 million (decrease by 21.7). Since the conversion effect related to subsidiaries is recognised in other comprehensive income, whereas the currency hedging for Gjensidige Baltic is recognised in the income statement, the effect on profit or loss will be positive and amount to NOK 18.3 million (23.6).
In the opposite case, if there is a ten per cent weakening of NOK against all other currencies, the effects above will be about the same amount, but with the opposite sign.
Credit risk Gjensidige is exposed to credit risk, i.e. the risk that a counterparty is not able or willing to settle its liability on the due date or the risk that the credit spreads will increase (credit risk premium). The Group is primarily exposed to credit risk in the investments in the insurance companies, and through receivables from insurance customers and reinsurers. Credit risk in Gjensidige Bank will be covered in a separate section.
Risk by 100 bps change in credit spread 3.0 (1,271.6) (1,500.0)
AAA 10,743.6 11,830.4 AA 1,774.8 2,496.6 A 13,775.4 13,071.8 BBB 2,526.9 2,553.4 BB 760.9 496.3 B 607.3 434.5 CCC or lower 110.9 96.8 Not rated 12,735.1 12,039.1 Total 43,034.8 43,019.0
Table 22b – Fixed-income portfolio per rating category, internal rating included
AAA 10,743.6 11,830.4 AA 4,020.3 4,004.1 A 16,833.2 15,688.0 BBB 6,313.1 7,674.9 BB 775.7 511.7 B 607.3 434.5 CCC or lower 110.9 96.8 Not rated 3,630.7 2,778.5 Total 43,034.8 43,019.0
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 also includes the allocation using the internal rating of Gjensidige’s main asset manager, Storebrand Asset Management. The following tables show the largest issuers as of 31 December 2014 and 31 December 2013, respectively.
The overview of the largest issuers also includes the fixed-income portfolio for GPF and Gjensidige Bank because the individual counterparty risk is monitored at group level. Total fixed-income portfolio is only for general insurance. Exposures also include mortgage bonds and covered bonds for groups that have issued these.
Nordea Bank AB 3,061.5 Nykredit Realkredit A/S 2,422.7 Danske Bank A/S 2,221.1 DnB ASA 2,074.2 Kongeriket Norge 1,182.6 Niam Fund V Kjøpesenter I Holding AS 1,115.9 Lloyds Bank Covered 1,061.0 Realkredit Danmark A/S 916.5 Bergenshalvøens Kommunale Kraftselskap AS 805.3 Svenska Handelsbanken AB 800.2 Total ten largest 15,661.1 Total fixed-income portfolio 43,019.0
NOK million Direct insurance Reinsurance 31.12.2014 Installments not due 4,157.2 49.2 <35 days 255.8 16.7 35-90 days 74.4 0.5 > 90 days 75.4 0.5 Total 4,562.8 66.9 31.12.2013 Installments not due 3,771.8 31.9 <35 days 217.1 0.6 35-90 days 136.4 0.3 > 90 days 132.1 0.3 Total 4,257.4 33.1
Reinsurance is used to manage insurance risk. This does not, discharge Gjensidige of its liability as primary insurer, however. If a reinsurer fails to pay a claim for any reason, Gjensidige remains liable for the payment to the policyholder. The creditworthiness of reinsurers is assessed by reviewing their financial strength prior to finalisation of any contract. As a general requirement, all reinsurers need to be rated ‘A-’or better by Standard & Poor’s (or the equivalent from other rating agencies) when entering into a contract with Gjensidige. The figure below shows the breakdown of the purchased reinsurance capacity for 2014 and 2013, i.e. the rating of the reinsurers that would have been drawn on if the losses had occurred.
The following table provides an overview of the breakdown of reinsurance receivables and the reinsurers’ share of outstanding claims per rating category. The exposure in the not-rated category primarily relates to run-off business and is broken down between a number of counterparties. The companies in run-off no longer have a rating.
AAA AA 243.8 41.3% 286.7 38.5% A 317.0 53.7% 424.4 57.1% BBB 0.4 0.1% 0.2 0.0% BB 0.3 0.1% 0.5 0.1% B 0.4 0.1% 0.1 0.0% Not rated 28.3 4.8% 32.0 4.3% Total 590.3 100.0% 743.9 100.0%
Liquidity risk For most general insurers, the liquidity risk is quite limited. Premium income is paid up front, and claims are paid out at a later stage. Future payments are not based on contractual payment dates, but rather on when claims arise and how long the claims handling takes. See the expected pay-out pattern presented in the previous figure 8a and b. The liquidity risk in Gjensidige Bank is described separately.
Based on this kind of scenario, the Board has set a liquidity requirement for 2014 of at least NOK 3,000 million in the most liquid assets, defined as deposits in banks, covered bonds (OMF), bonds and certificates issued by OECD countries or guaranteed by these countries and money market instruments with a rating of A or better and with a due date within six months. The current allocation meets these requirements. The table below shows the classification used and the amounts as of 31 December 2014 and 2013 for Gjensidige Forsikring ASA.
GPF has separate strategies for the funds in each portfolio, the unit-linked, paid-up policy, other group policy and company portfolios. GPF does not carry investment risk for the unit-linked portfolio. Both positive and negative returns are passed on in full to the customers. The other portfolios expose the Company’s equity to risk. For the company and other group policy portfolios, little risk is taken, since the funds are mainly invested in bank deposits and fixed-income instruments with high creditworthiness. The company portfolio is financed by the Company’s equity and, in addition to bank deposits, it also includes a small trading portfolio to support incoming capital in the customer portfolios. The other group policy portfolio is funded by premium reserves, claims provisions for unreported and/or unsettled claims and the risk equalisation fund. The paid-up policies pay a minimum guaranteed interest to customers at the same time as the customers receive a percentage of any excess return above this amount. Therefore, for the paid-up policy portfolio, the objectives are to be able to offer the customers a competitive return over a period of time, at the same time as the risk relative to the strain on equity is kept at a targeted low level.
The portfolios are stress tested in accordance with the recommendations from the Financial Supervisory Authority of Norway in order to measure whether the company can stand a given decline in value. The paid-up policy portfolio amounted to NOK 3,046.1 million as of 31 December 2014 with an average guaranteed interest rate of 3.5 per cent. The other group policy portfolio amounted to NOK 1,170.5 million, whereas the company portfolio had NOK 443.2 million in financial assets.
Table 28 – Sensitivity fixed-income and equity portfolio, Gjensidige Pensjonsforsikring NOK million 31.12.2014 31.12.2013 100 bps parallell shift up (1.5) (0.6) 10 % drop in equity prices (2.4) (0.3)
Management of credit and financial risk – Gjensidige Bank Gjensidige Bank ASA is exposed to credit risk, market risk, liquidity risk and operational risk. The Board approves the guidelines and policies for managing the bank's risks. The largest risk is the credit risk. The Board of Gjensidige Bank ASA has final responsibility for limiting and following up the risks in the bank. The bank’s management is responsible for implementing and adhering to policies, guidelines, management and reporting related to the bank's risk management.
The bank's risk areas are evaluated continuously, and the strategy for the risk areas is adopted annually by the Board. The bank uses statistical modelling to calculate capital requirements given the chosen level of confidence for most of the risk categories. The capital requirements are calculated for the risk areas for the entire strategy period in the current strategy plan, shown in the bank's ICAAP document, and capital adequacy is reported to the Board quarterly.
The bank also has a sizable portfolio of Unsecured Consumer Finance lending. The bank has a higher return on this portfolio that is proportionate to the level of credit risk in the portfolio. As such, a large part of the credit losses are related to the Unsecured Consumer Finance lending portfolio. The bank uses risk-based pricing models driven by credit scores, and the portfolio shows healthy profitability.
Models for monitoring credit risk The bank uses application score models based on internal and external customer data for decisions relating to customers’ applications for loans. In addition, the bank uses behaviour score models that predict the probability of default for decisions related to top-ups, collections, group write-downs and other portfolio management decisions.
Low 18,655.6 3,442.1 22,097.8 Medium 3,891.8 965.6 4,857.4 High 817.2 57.6 874.8 Not classified 6.3 5.0 7.8 19.1 Past due and impaired 823.0 3.0 825.9 Total 24,193.9 5.0 4,473.1 3.0 28,675.0 Group write-downs 321.4 321.4 Total net 23,872.5 5.0 4,473.1 3.0 28,353.6
Table 31 – Payments overdue NOK million 31.12.2014 31.12.2013 0-30 days 383.0 419.9 30-90 days 95.0 95.0 Over 90 days 300.9 279.3 Total 778.9 794.1
Gross lendings in default for more than 30 days amounted to NOK 395.9 million by the end of the year, compared to NOK 374.3 million in 2013. The total write-downs of loans in 2014 amounted to NOK 355.2 million compared with NOK 324.4 million in 2013. Gross lendings in default for more than 30 days amounted for 1.4 per cent of gross lending as of the end of the year, compared to 1.6 per cent in 2013.
Market risk Market risk is the risk of losses associated with unfavourable movements in market prices, which, in this context, concerns positions and activities in the interest, currency and stock markets.
The bank’s market risk is largely related to interest-rate risk and spread risk (credit risk).
Interest-rate risk arises when the bank’s assets and liabilities have different remaining fixed-rate periods. The interest-rate risk is managed by adopting fixed-interest rate periods for assets and liabilities. In addition, derivatives are used for hedging purposes. Fixed-interest assets and liabilities in millions multiplied by the remaining interest rate period are used to measure interest-rate risk exposure. This is known as ‘milli years’ (MY).
The limit for the interest-rate risk under one year is a negative exposure of up to 500 milli years (MY). A limit is also set for interest rate risks for all time periods plus/minus 300 MY. The bank’s limit for cumulative exposure to interest-rate risk is 500 MY. Interest rate risk under three months is measured and reported, but the exposure is not included in the interest risk limits. When the limit is fully utilised, the loss for the bank in the event of a one percentage point change in the yield curve will be NOK 5 million. Utilisation of this limit is reported monthly to the Board.
As of 31 December 2014 the bank has a negative interest rate exposure in the three months to one year interval of 167 MY. The net accumulated interest rate exposure over three months is a negative 141 MY as at 31 December 2014.
Concentration risk Concentration risk is the risk of losses due to the bank having large parts of its lending tied to a single borrower or to limited geographic or business areas. The concentration risk is managed using the bank’s risk limits.
As of 31 December 2014, the liquidity reserve was NOK 3,082.4, consisting of NOK 136.1 million in deposits and NOK 2,946.3 million in bonds, securities and money market funds. NOK 1,107.1 million of this amount were investments in covered bonds issued by Gjensidige Bank Boligkreditt AS (eliminated in the consolidated accounts) that have not been utilised in the swap arrangement with Norges Bank. The liquidity reserve is highly liquid and the liquidity holdings are sufficient to meet due payments for 34 consecutive months. Stress tests have also been carried out to demonstrate the bank’s needs for a liquidity reserve based on future recession and/or financial crisis scenarios.
Debt to credit institutions 350.0 350.0 Deposits from and liabilities to customers 15,904.7 335.0 463.7 16,703.4 Debt incurred through the issue of securities 11.5 35.8 292.9 8,362.6 2,165.2 10,867.9 Loan approvals and unused drawing rights 6,760.4 6,760.4 Derivatives - gross outflows 1 0.7 11.4 39.3 167.5 86.7 305.4 Total liabilities 23,027.3 382.1 795.9 8,530.0 2,251.8 34,987.1 1 Derivatives gross inflows 0.7 2.3 65.7 248.9 151.5 469.1 Financial derivatives - net settlement (negative figures yield net payment) (0.1) 9.1 (26.4) (81.5) (64.8) (163.7)
4. Segment information The group has six reportable segments, as described below, which offers different products and services within different geographical areas. The Group CEO holds regular meetings with its reporting managers concerning performance management, which focuses on future measures to ensure performance and deliveries.
General Insurance Commercial The Commercial segment offers a wide range of general insurance products to the commercial and municipality markets in Norway and Sweden.
General Insurance Nordic The Nordic segment includes the Group’s operations in the Danish private, commercial and municipal markets, and the Swedish private market.
General Insurance Baltics Gjensidige’s Baltic operations provide general insurance products to the private and commercial markets in Latvia, Lithuania and Estonia.
The segment result is defined as the underwriting result for general insurance, and the profit before tax expense for Pension and Savings and Retail Bank.
Segment income – group 2 - Claims, interest expenses, loss etc. (5.468,5) (5,466.5) (5,349.9) (5,207.6) (3,031.0) (2,417.0) (377.2) (342.5) (1,126.4) (779.7) (765.9) (656.0) (243.8) (425.9) (16,362.8) (15,295.3)
2 There is no significant income between the segments at this level in 2014 and 2013.
Exchange differences (14.4) (46.2) (6.4) (16.5) (12.3) (95.8) As at 31 December 2013 (233.8) (484.6) (30.9) (525.7) (116.2) (1,391.2)
Carrying amount As at 1 January 2013 2,267.7 457.3 39.2 436.2 190.5 3,391.0 As at 31 December 2013 2,562.2 439.9 15.6 512.7 169.9 3,700.4
Impairment testing of goodwill The carrying amount of goodwill in the Group as at 31 December 2014 is NOK 2,819.0 million. See table.
Each of the units above is the smallest identifiable group of assets that generates cash inflows and are considered as separate cashgenerating units. In Oslo Areal each underlying property is defined as a cash-generating unit, and goodwill related to Oslo Areal occurs as a consequence of provision for deferred tax on temporary differences (tax amortisation benefit).
Budgets/prognoses and the period for which the cash flows are projected The projection of cash flows is based on budget and forecast for the next four years reviewed by the management and approved by the Board of Directors. In the period after 2018 an annual growth of three per cent has been projected until 2023. The terminal value is calculated in 2023. The growth is grounded in the fact that the companies are small and with a solid parent company, which gives them good chances of increasing market shares. The cash flows are estimated to a normal level before a terminal value is calculated. Gjensidige normally has a ten-year horizon on its models, as the acquired companies are in a growth phase and a shorter period will not give a correct view of expected cash flows.
Discount rate 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 and in addition a risk premium is added. The risk premium is higher in Baltic than in Sweden and Denmark and is increased somewhat from 2013 due to the decline in interest rate on government bonds. The discount rate that had been used is 7.4 per cent for Denmark, 7.8 per cent for Sweden and 9.6 per cent for Baltic.
Gjensidige Baltic No need for impairment No need for impairment No need for impairment No need for impairment Gouda portfolio No need for impairment No need for impairment No need for impairment No need for impairment
Storebrand ASA (sold 4.2% interest in 2013) 4 450,381.0 22,514.0 427,867.0 52,875.0 1,976.0 13.2 3,428.4
Cost As at 1 January 2013 123.0 519.3 642.4 Transferred from/(to) investment property 160.3 160.3 Additions through business combinations 43.3 0.4 43.7 Additions 3.6 47.3 50.8 Disposals (91.1) (91.1) Exchange differences 0.6 9.1 9.6 As at 31 December 2013 330.7 484.9 815.6 Uncompleted projects 136.1 136.1 As at 31 December 2013, including uncompleted projects 330.7 621.0 951.7
Depreciation and impairment losses As at 1 January 2014 (42.4) (371.5) (413.9) Depreciation for the year (11.0) (49.1) (60.1) Disposals 6.9 39.0 45.9 Impairment losses reversed during the period 0.8 0.8 Exchange differences (0.2) (5.2) (5.4) At at 31 December 2014 (45.8) (386.8) (432.6)
Market value of land and owner-occupied property 338.6 308.3 Carrying amount of land and owner-occupied property 280.7 288.5 Excess value beyond carrying amount 57.9 19.8
Quoted prices in active markets Quoted prices in active markets are considered the best estimate of an asset/liability’s fair value. A financial asset/liability is considered valued based on quoted prices in active markets if fair value is estimated based on easily and regularly available prices and these prices represent actual and regularly occurring transactions at arm’s length distance. Financial assets/liabilities valued based on quoted prices in active markets are classified as level one in the valuation hierarchy.
Financial assets held to maturity Bonds held to maturity 2,955.9 3,185.7 5,211.3 5,447.7
Financial liabilities at amortised cost Subordinated debt 1,448.6 1,448.6 Interest-bearing liabilities 10,405.6 10,405.6
Financial liabilities at amortised cost Interest-bearing liabilities 9,822.8 9,822.8 110 | Gjensidige annual report 2014
Shares and similar interests 2,305.4 68.7 279.2 (521.9) 2,131.5 (85.7) Bonds and other fixed income securities 1.2 (5.4) 410.3 406.1 Total 2,306.6 63.4 689.6 (521.9) 2,537.6 (85.7)
Hedge accounting Net investment in the foreign operation Gjensidige Forsikring utilises 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 Forsikring ASA, Danish branch Currency-related contracts - hedging instruments 1,756.7 65.7 0.9 Hedging object 1,755.2
The investment properties are mainly located in Oslo and the surrounding area, as well as Drammen, Fredrikstad and Stavanger. The Group’s investment property in Denmark was sold during 2014. The average rental period is 5.2 years and the portfolio of investment properties includes principally offices.
The Group's valuation model is developed by the subsidiary Oslo Areal AS over multiple years. The valuation model has been used both in the quarterly financial statements and at year end. In addition, by half year and year end independent valuations from external advisors are gathered for selected parts of the portfolio. As of 31 December 2014 there were obtained value assessments from two independent parties for more than 90 percent of property values. The assumptions in the model are reconciled against external observable property transactions.
Determination of parameters implies a significant level of judgment. Emphasis is put on this judgment being consistent with that observed in the market and that the judgment is applied consistently from period to period. The table below shows how the sensitivity of the yield and the market rent affects the value of the portfolio, as it stands as at 31 December 2014.
The Group has no investment properties for leasing or classified as available for sale.
As at 1 January 4,644.3 4,626.7 Additions 767.5 130.9 Additions through business combinations 565.9 300.8 Disposals (150.0) (352.7) Net gains/(losses) from fair value adjustments 279.5 81.7 Transfer from/(to) owner-occupied property (3.2) (160.7) Exchange differences 17.6 As at 31 December 6,104.0 4,644.3
NOK million Market rent reduced by 10% Market rent as at 31.12.2014 Market rent increased by 10%
Total loans and receivables 46,969.5 42,692.4 Receivables related to direct operations and reinsurance Receivables from policyholders 4,562.8 4,257.4 Receivables related to reinsurance 66.9 33.1
A considerable amount of receivables in relation with asset management as at 31 December 2014 is short-term receivables in relation with sale of securities.
Deposits with financial institutions 594.3 258.6 Cash and bank deposits 1,809.5 2,470.8
Other Norwegian shares Hafslund B 51.0 Norsk Hydro 10.0 Aker 9.0 Yara International 8.3 Solstad Offshore 6.8 Farstad Shipping 4.1 Total other Norwegian shares 89.2
Other foreign shares Volvo B 11.7 ABB SE 6.4 Total other foreign shares 18.0
Private equity investments HitecVision Private Equity V LP 152.3 Northzone V KS 116.6 Argentum Secondary III 100.2 HitecVision Private Equity IV LP 94.1 HitecVision Asset Solution KS 90.4 Norvestor V LP 66.2 Altor Fund II LP 62.0 HitecVision VI LP 58.4 Energy Ventures III LP 57.3 Argentum Secondary II 54.7 SOS International A/S 50.6 Partners Group European Buyout 2005 (A) LP 50.4 Norvestor IV LP 45.9 Energy Ventures II B IS 44.6 Verdane Capital VII KS 44.5 BaltCap PEF LP 44.0 Northzone VI L.P. 41.3 Viking Venture III DIS 39.0 FSN Capital II LP 36.7 Verdane Capital VI KS 34.3 CapMan BO IX LP 32.5 LGT Crown European Private Equity PLC 28.0 Argentum Sec Haniel EQT V IS 27.8 CapMan Buyout X 25.9 NPEP1 IS (Altor fund III) 25.3 Norvestor VI LP 24.6 Nordic Additonal Funding Programme IS 20.2 Partners Group Direct Investments 2006 LP 19.6 Energy Ventures II KS 18.5 Energy Ventures IV LP 16.8 Viking Venture II AS 14.2 Teknoinvest VIII C IS 14.1 NeoMed Innovation IV LP 11.5 Northzone IV KS 11.3 NPEP Triton IV IS 11.3
Viking Venture II B IS 9.9 Axcel IV 9.3 Procuritas Capital Investor V 7.9 Scalepoint Technologies Limited 7.5 Sector Asset Management AS 6.9 Teknoinvest VIII B DIS 6.7 Northzone VII L:P 5.8 Teknoinvest VIII KS (inkl. Teknoinv. VIII (GP) KS) 5.5 Nord II IS 4.9 Fjord Invest AS 4.2 Helgeland Invest 4.0 NPEP NeoMed V (Neomed V LP og N5 invest IS) 3.9 Tun Media (Landbrukets Medieselskap AS) 3.7 BTV Investeringsfond AS 3.0 Convexa Capital VIII AS - klasse B 2.9 Rogaland Kunnskapsinvest 2.5 NPEP Accent Equity 2012 IS 2.3 Norinnova 2.1 Midvest I A 2.1 Convexa Capital IV - -B-aksjer 2.0 HitecVision VII 1.7 Midvest II A 1.3 Norinnova Invest AS 1.3 Other private equity investments 4.7 Total private equity investments 1,701.7
Shares and similar interests owned by other group companies Shares and similar interests owned by Gjensidige Pensjonsforsikring AS 23.5 Shares and similar interests owned by Nykredit Forsikring A/S 6.4 Shares and similar interests owned by Gjensidige Baltic AAS 0.3 Shares and similar interests owned by Gjensidige Bank ASA 0.2 Total shares and similar interests owned by other group companies 30.3
Total shares and similar interests owned by the Gjensidige Insurance Group 7,499.8 116 | Gjensidige annual report 2014
Insurance-related liabilities, reinsurers' share Reinsurers' share of unearned premiums, gross 28.7 16.0
Claims reported and claims handling costs 523.1 608.6 Claims incurred, but not reported 0.0 103.2 Total reinsurers' share of claims provision, gross 523.1 711.8
Insurance-related liabilities net of reinsurance Premium reserve in life insurance 3,408.3 3,064.6 Provision for unearned premiums from general insurance 8,507.6 7,968.6
Claims and claims handling costs Claims reported and claims handling costs 14,720.3 (608.6) 14,111.7 12,949.6 (576.7) 12,372.9 Claims incurred, but not reported 17,029.4 (103.2) 16,926.1 16,612.7 (77.2) 16,535.5 Total as at 1 January 31,749.6 (711.8) 31,037.8 29,562.3 (653.9) 28,908.4
Increase in liabilities Arising from current year claims 16,140.8 (132.6) 16,008.2 15,128.6 (394.8) 14,733.8 - of this paid (8,196.8) (2.3) (8,199.1) (7,102.4) 23.6 (7,078.9) Arising from prior year claims (run-off) (520.7) 26.9 (493.8) (335.6) 36.1 (299.6) Other changes, including effects from discounting (363.7) (363.7) (666.6) (666.6) Exchange differences 621.9 (24.2) 597.7 924.7 (52.6) 872.0 Total as at 31 December 32,926.9 (523.1) 32,403.7 31,749.6 (711.8) 31,037.8
Claims reported and claims handling costs 16,709.4 (523.1) 16,186.3 14,720.3 (608.6) 14,111.7 Claims incurred, but not reported 16,217.5 16,217.5 17,029.4 (103.2) 16,926.1 Total as at 31 December 32,926.9 (523.1) 32,403.7 31,749.6 (711.8) 31,037.8
Provisions for unearned premiums in general insurance As at 1 January 7,984.6 (16.0) 7,968.6 7,984.6 (16.0) 7,968.6 Additions through acquisitions 88.0 88.0 124.3 124.3 Increase in the period 21,192.5 (493.7) 20,698.8 18,987.4 (570.8) 18,416.6 Release in the period (20,867.8) 481.0 (20,386.8) (19,307.7) 570.8 (18,736.9) Exchange differences 139.0 139.0 196.1 196.1 Total as at 31 December 8,536.3 (28.7) 8,507.6 7,984.6 (16.0) 7,968.6 1 For own account.
The discount rate used is the swap rate, which improves consistency between the valuation of assets and liabilities. Previously, a discount rate determined by Finanstilsynet (the Financial Supervisory Authority) in Denmark was used, but this was changed when Gjensidige Arbejdsskadeforsikring was set under supervision by Norwegian authority in the fourth quarter 2013. The applied swap rate is consistent with market practice for the valuation of liabilities.
In Gjensidige Forsikring, contributions are paid for employees corresponding to the limit on tax-free contributions, currently five per cent of their salary from 1 to 6 times the National Insurance basic amount (G) and eight per cent from 6 to 12 G.
Gjensidige is entitled to change the closed defined benefit plan, and any changes will occur no later than 31 December 2016.
Gjensidige’s pension assets are invested in Gjensidige Pensjonskasse. Gjensidige’s pension assets are managed as an investment choice portfolio. This means that Gjensidige decides itself how the pension assets are invested within a set of limits that are approved by the board of the pension fund. Gjensidige has a separate investment committee that decides how the pension assets are allocated. The investment choice portfolio entails a financial risk for Gjensidige Forsikring.
Credit risk The pension assets’ exposure to credit risk is deemed to be moderate. The credit risk is managed by limits on the biggest commitment and rating for individual investments. Most of the pension fund’s fixed-income investments shall be within investment grade.
Wage growth is based on expectations of growth in real wages in Norway and inflation in Norway. Inflation is also part of the interest rate. An increase in inflation will thus influence both wage growth and the increase in the interest rate. Normally, this could reduce the pension liability somewhat.
If the administrator of the AFP plan presents such allocation figures, this could result in the plan being recognised as a defined benefit plan. It is difficult, however, to arrive at an allocation key that is acceptable to the Group. An allocation key based on the Group’s share of total annual pay will not be acceptable since such a key is too simple and will not reflect the financial liabilities in a good manner. Given the way the financing structure relating to the AFP plan is organised, 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 liability that must be recognised will be substantial.
All employees who reached the age of 62 after 1 January 2011 could draw a pension under the new AFP plan from 1 January 2011. This means that the liability relating to earned entitlements in the old AFP plan has lapsed in full.
As at 1 January 2,019.5 481.8 2,501.4 1,998.6 472.9 2,471.5 Current service cost 31.9 8.6 40.6 33.0 7.8 40.8 Employers' national insurance contributions of current service cost 4.5 1.2 5.7 4.7 1.1 5.7
Foreign currency exchange rate changes 3.5 3.5 5.1 5.1 As at 31 December 2,335.5 588.1 2,923.7 2,019.5 481.8 2,501.4
Fair value of plan assets As at 1 January 2,391.6 2,391.6 2,334.0 2,334.0 Interest income 96.3 96.3 99.2 99.2 Return beyond interest income 2.3 2.3 43.9 43.9 Contributions by the employer 0.2 6.5 6.7 1.1 6.5 7.6 Benefits paid (85.3) (85.3) (86.6) (86.6) Employers' national insurance contributions of benefits paid (6.5) (6.6) (0.1) (6.5) (6.7)
Actuarial assumptions Discount rate 2.50% 4.10% Future salary increases 1 3.40% 4.00% Change in social security base amount 3.10% 4.00% Future pension increases 1.90% 2.50%
Shares and similar interests 144.3 144.3 Bonds 178.0 1,974.5 2,152.5 Derivatives 74.6 74.6 Bank 33.7 33.7 Total 178.0 2,227.1 2,405.0
Shares and similar interests 122.0 122.0 Bonds 64.6 2,140.5 2,205.0 Derivatives 62.2 62.2 Bank 2.4 2.4 Total 64.6 2,327.0 2,391.6
Reconciliation of tax expense Profit before tax 5,399.6 4,574.1 Estimated tax of profit before tax expense (27% in 2014 and 28% in 2013) (1,457.9) (1,280.7)
Tax effect of Different tax rate in foreign subidiaries 2.4 6.1 Change in tax rate (8.6) 43.6 Valuation allowance and reverseal of loss carried forward in subsidiaries (0.6) Dividend received 61.9 3.1 Tax exempted income and expenses 165.8 204.3 Associates 51.9 43.9 Impairment loss on goodwill and recognition of negative goodwill (6.1) Non tax-deductible expenses (10.2) (12.4) Correction previous years (8.6) 88.5
Tax recognised in other comprehensive income Deffered tax pensions 110.8 (5.5) Change in tax rate on pensions previously included in other comprehensive income (18.1) Deferred tax on hedge accounting 34.5 29.3 Tax payable on hedge accounting 29.4 76.0 Tax payable on exchange rate differences (36.7) (20.0) Other changes 36.1
Employee benefit expenses Wages and salaries 1,735.3 1,510.3 Social security cost 328.7 297.4 Pension cost - defined contribution plan (note 14 incl. social security cost) 153.0 125.9 Pension cost - defined benefit plan (note 14 incl. social security cost) 49.1 46.1 Share-based payment 13.0 11.9
Auditor's fee (incl. VAT) Statutory audit 4.8 5.6 Other non-assurance services 1.8 3.4 Tax consultant services 0.1 0.6
18. Salaries and remuneration The average number of employees in the Group was 3,634 (3,342).
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 remuneration (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 remuneration is earned annually and is based on an overall assessment of financial and non-financial performance over the last two years. Variable pay is not included in the pension basis. The assessment takes into account the enterprise’s overall performance targets for return on equity adjusted for extraordinary dividends and transactions and combined ratio, as well as developments in customer satisfaction. In addition, it emphasises the CEO’s personal contribution to the Group’s development and results, compliance with the Group’s vision, values, ethical guidelines and management principles.
Variable remuneration relating to Gjensidige’s performance is decided on the basis of the past two years’ performance. Half of the variable remuneration is paid in the form of a promise of shares in Gjensidige Forsikring ASA, 1/3 of which will be released in each of the following three years. Restricted variable remuneration that has not yet been disbursed may be reduced if subsequent results and developments indicate that it was based on incorrect assumptions. The CEO does not receive performancebased benefits over and above the above-mentioned bonus, but may receive payments in kind such as a company car and the coverage of costs for electronic communication. Payments in kind shall be related to the CEO’s function in the Group, and otherwise be in line with market practice.
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 remuneration (bonus) to executive personnel is earned annually, and is based on an overall assessment of financial and non-financial performance over the two last years. The assessment takes into account a combination of the enterprise’s overall performance targets for return on equity adjusted for extraordinary dividends and transactions and combined ratio, as well as developments in customer satisfaction. In addition, it evaluates the target achievement of the business unit in question, as well as personal contribution relating to compliance with the Group’s vision, values, ethical guidelines and management principles. 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.
With exception from one employee in the Group, there are no severance pay arrangements for executive personnel who leave their position in Gjensidige.
The Board has decided to continue the Group’s share savings programme for employees in 2015. The CEO and executive personnel are entitled to take part in the programme on a par with other Gjensidige employees. Under the current programme, employees can save through deductions from their salary for the purchase of shares in Gjensidige Forsikring ASA for up to NOK 75,000 per year. Purchases take place quarterly following publication of the results. A discount of 20 per cent of the purchase price is offered, limited upwards to NOK 1,500. For those who keep the shares and are still employed in the Group, one bonus share is awarded for each share they have owned for more than two years.
Jørgen Inge Ringdal, Executive Vice President 2,442.7 330.5 155.5 706.9 353.4 3,141 3,009 8,631 14,052 2
Kim Rud-Petersen, Executive Vice President 2,512.0 314.2 186.9 527.1 318.3 3,042 2,483 8,028 5,333
Cecilie Ditlev-Simonsen, Executive Vice President 2,204.1 297.8 170.7 256.7 313.1 2,443 1,537 6,049 4,291 3
Mats C. Gottschalk, Executive Vice President 2,750.4 413.6 158.0 220.2 436.4 3,517 1,732 7,791 5,207 3
Supervisory board 4 Bjørn Iversen, Chairman 194.7 4.0 890 Hilde Myrberg, Deputy Chairman (1.1.14-24.4.14) 1 16.8
Jørgen Inge Ringdal, Executive Vice President 2,356.9 355.7 190.3 693.1 388.3 4,027 1,644 7,395 11,751 2
Martin Danielsen, Executive Vice President 2,305.2 291.5 160.5 447.1 324.1 4,498.5 3.7% 31.12.2021 3,949 1,705 7,441 12,515 3
Kim Rud-Petersen, Executive Vice President 2,298.4 361.7 167.4 482.8 385.2 4,075 944 6,427 3,636
Catharina Hellerud, Executive Vice President 2,653.8 400.5 159.8 150.9 433.2 4,510 1,814 8,280 6,239 3
Mats C. Gottschalk, Executive Vice President 2,637.2 400.5 150.0 199.6 400.5 4,510 0 5,014 3,572 3
The Board Inge K. Hansen, Chairman 492.5 12.7 12,253 Trond V. Andersen 251.5 11.1 1,778 Hans-Erik Andersson 8 365.0 6.0 1,778 Mari T. Skjærstad 251.5 6.0 Gisele Marchand 9 332.5 1,481 Gunnhild H. Andersen, staff representative 5 245.0 785
Supervisory board 4 Bjørn Iversen, Chairman 201.5 2.3 890 Hilde Myrberg, Deputy Chairman 33.1
Net income and gains/(losses) from investments in associated companies Net income from associated companies 77.5 768.3 Impairment associated companies (611.0) Net gains/(losses) from sale of associated companies 114.5 35.3 Total net income and gains/(losses) from investments in associated companies 192.0 192.7
Owner-occupied properties Rental income from owner-occupied properties 22.0 15.7 Net gains/(losses) from sale of owner-occupied properties 3.1 Administration expenses related to owner-occupied properties (16.9) (12.6) Total net income and gains/(losses) from owner-occupied properties 8.3 3.0
Net income and gains/(losses) from financial assets at fair value through profit or loss, designated Dividend income 12.7 72.4 Unrealised gains/(losses) from shares and similar interests 212.9 606.5 Realised gains/(losses) from shares and similar interests 732.0 275.3 Total net income and gains/(losses) from shares and similar interests 957.6 954.2
Total net income and gains/(losses) from financial assets at fair value through profit or loss, designated 1,036.4 628.1
Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 173.5 414.8 Unrealised gains/(losses) from bonds held to maturity 0.8 (1.0) Realised gains/(losses) from bonds held to maturity (72.8) (11.2) Total net income and gains/(losses) from bonds held to maturity 101.4 402.6
Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 806.1 699.6 Net gains/(losses) from loans and receivables 0.3 3.5 Net gains/(losses) from changes in exchange rates on loans and receivables (152.0) 11.7 Total net income and gains/(losses) from loans and receivables 654.4 714.7
Net interest income/(expenses) from subordinated debt (14.0) Total net income and gains/(losses) from financial liabilities at amortised cost (14.0)
Net other financial income/(expenses) 1 216.2 8.7 Discounting of claims provision classified as interest expense (80.7) 322.1 Change in discount rate claims provision (182.8) (82.3)
Interest income from financial assets not recognised at fair value through profit or loss 1,051.7 1,115.7 Interest expenses from financial assets not recognised at fair value through profit or loss (319.7) (282.6)
There are contractual commitments regarding development of investment properties amounting to NOK 80.0 million (232.0). The commitment falls due during the period until December 2017.
ISIN NO0010713118 NO0010720378 Issuer Gjensidige Bank AS Gjensidige Forsikring ASA Principal, NOK million 250 1,200 Currency NOK NOK Issue date 17.6.2014 2.10.2014 Maturity date 17.6.2024 3.10.2044 First call date 17.6.2019 2.10.2024 Interest rate 19 NIBOR 3M + 1.55% NIBOR 3M + 1.5%
Gjensidige Pensjon og Sparing Holding AS 9.3 8.3 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 47.7 37.9 Gjensidigestiftelsen 4.1 12.8 Nordisk Forsikrings Service AS 30.9 22.2 Nykredit Forsikring A/S 101.6 86.1 Oslo Areal AS 0.3 1.0 0.3 1.3 Tennant Assuranse AS 18.8 17.9 132 | Gjensidige annual report 2014
Total gains and losses in connection with sale, liquidation and impairment losses 114.7 47.3 35.3 611.0
Intercompany non-interest-bearing debts and receivables Byggeriet Forsikringsservice A/S 1.3 2.7 Försäkringshuset Amb & Rosèn AB 1.3 Gjensidige Baltic AAS 1.6 Gjensidige Bank ASA (owned by Gjensidige Bank Holding AS) 0.3 1.1 Gjensidige Pensjon og Sparing Holding AS 0.4 3.8 1.6 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 10.3 9.5 0.1 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding AS) 0.4
Reinsurance deposits Nykredit Forsikring A/S 576.7 643.1 Total reinsurance deposits 576.7 643.1
Other intercompany balances Bank deposits Brannkassene Gjensidige Bank ASA 14.2 16.7 Bank deposits Gjensidigestiftelsen Gjensidige Bank ASA 234.0
Assets with 0% risk weight 2,761.7 5,306.5 Assets with 10% risk weight 4,089.0 2,608.3 Assets with 20% risk weight 40,543.7 37,652.9 Assets with 35% risk weight 23,559.8 20,012.3 Assets with 50% risk weight 962.8 1,633.3 Assets with 100% risk weight 35,699.1 36,094.5 Assets with 150% risk weight 1,948.3 1,713.1
Assets with 0% risk weight 0.0 0.0 Assets with 10% risk weight 408.9 260.8 Assets with 20% risk weight 8,108.7 7,530.6 Assets with 35% risk weight 8,245.9 7,004.3 Assets with 50% risk weight 481.4 816.7 Assets with 100% risk weight 35,699.1 36,094.5 Assets with 150% risk weight 2,922.4 2,569.7 Net basis of calculation for institutions reporting in accordance with Basel II and which are not distributed according to risk weight 0.0 42,702.8
28. Share-based payment Description of the share-based payment arrangements As at 31 December 2014, Gjensidige has the following share-based payment arrangements: Share-based remuneration for executive personnel with settlement in equity and cash (remuneration scheme) Gjensidige has established equity-settled share-based payment for the group management and more explicitly defined executive personnel.
Gjensidige has established a share savings programme for employees of the Group with the exception of employees of Gjensidige Baltic. All employees are given an opportunity to save an annual amount of up to NOK 75,000. Saving take the form of fixed deductions from salary that is used to buy shares four times a year. The employees are offered a discount in the form of a contribution of 20 per cent, limited upwards to NOK 1,500 kroner per year, which corresponds to the maximum tax-exempt discount. Employees will receive one bonus share for every four shares they have owned for more than two years, provided that they are still employed by the Company or have become retired.
The fair value at grant date is based on the market price. The discount is recognised as payroll expenses at the time of allocation. The value of the bonus shares is recognised as payroll expenses over the vesting period, which is two years.
The number of bonus shares Outstanding 1 January 57,487 70,918 Granted during the period 37,957 37,634 Released during the period (19,644) (43,383) Cancelled during the period (905) (3,408) Forfeited during the period (2,751) (4,274) Exercised during the period Expired during the period Outstanding 31 December 72,144 57,487 Exercisable 31 December 0 0 Average remaining life of outstanding bonus shares 0.96 1.12 Weighted average fair value of bonus shares granted 100.79 79.30 Weighted average share price of bonus shares released during the period 119.60 111.70
The number of shares Outstanding 1 January 77,879 72,749 47,555 44,366 Granted during the period 29,763 26,881 41,093 38,298 Forfeited during the period (31,662) (29,575) (15,980) (14,905) Cancelled during the period Exercised during the period Expired during the period Modification dividend during the period 11,623 10,852 5,211 4,990 Outstanding 31 December 87,603 80,907 77,879 72,749 Exercisable 31 December 0 0 0 0
Earnings per share (NOK), basis 8.38 7.34 Earnings per share (NOK), diluted 8.38 7.34 1 Holdings of own shares are not included in the calculations of the number of shares.
Allocated return on investments transferred from the non-technical accounts 589.4 651.7
Allocated return on investments transferred to the technical accounts (589.4) (651.7) Other income 20.6 19.8 Other expenses 17 (4.9) (8.0)
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset 14 (403.1) 19.3 Tax on items that are not reclassified to profit or loss 108.8 12.7 Total items that are not reclassified subsequently to profit or loss (294.2) 32.0
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operation 144.3 257.6 Exchange differences from hedging of foreign operation (142.5) (233.4) Tax on items that may be reclassified to profit or loss 1.8 45.4 Total items that may be reclassified subsequently to profit or loss 3.6 69.5
Total comprehensive income 4,830.7 3,262.3 139 | Gjensidige annual report 2014
Investments Buildings and other real estate Investment properties 9 169.7 177.3 Owner-occupied property 7 79.2 84.4 Subsidiaries and associates Shares in subsidiaries 6 6,344.7 6,376.4 Shares in associates 6 5.5 3,149.8 Interest bearing receivables within the group 22 3,430.5 2,365.9 Financial assets measured at amortised cost Bonds held to maturity 8 2,421.7 4,567.0 Loans and receivables 8, 10 16,089.9 15,004.1 Financial assets measured at fair value Shares and similar interests (incl. shares and similar interests measured at cost) 8, 12 7,469.5 6,016.4 Bonds and other fixed-income securities 8 19,888.5 19,646.8 Financial derivatives 8 324.4 216.8 Reinsurance deposits 577.4 643.9 Total investments 56,801.1 58,248.9
Reinsurers' share of insurance-related liabilites in general insurance, gross Reinsurers' share of provision for unearned premiums, gross 13 28.7 15.5 Reinsurers' share of claims provision, gross 13 501.0 694.6 Total reinsurers' share of insurance-related liabilites in general insurance, gross 529.7 710.1
Other assets Plant and equipment 7 312.3 243.8 Cash and cash equivalents 8, 11, 26 1,652.1 1,002.2 Deferred tax assets 16 31.2 Pension assets 14 70.5 Total other assets 2,066.0 1,246.0
Provision for liabilities Pension liabilities 14 558.6 87.0 Current tax 16 1,030.1 663.3 Deferred tax liabilities 16 212.7 Other provisions 15 245.5 161.3 Total provision for liabilities 1,834.2 1,124.2
Liabilities Liabilities related to direct insurance 8 330.1 253.9 Liabilities related to reinsurance 8 137.0 184.6 Financial derivatives 8 506.3 321.5 Accrued dividend 2,950.0 6,400.0 Other liabilities 8, 15 883.2 833.8 Liabilities to subsidiaries and associates 8, 22 57.4 153.9 Total liabilities 4,864.1 8,147.6
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset 19.3 19.3 Tax on items that are not reclassified to profit or loss (23.5) 36.2 12.7 Total items that are not reclassified subsequently to profit or loss (4.1) 36.2 32.0
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 256.6 1.0 257.6 Exchange differences from hedging of foreign operations (233.4) (233.4) Tax on items that may be reclassified to profit or loss 45.4 45.4 Total items that may be reclassified subsequently to profit or loss 68.5 1.0 69.5
Own shares 0.0 (5.3) (5.3) Accrued dividend (6,399.5) (6,399.5) Equity-settled share-based payment transactions 5.7 5.7 Effect of merger (93.8) (93.8)
Cash flows from investing activities Net receipts/payments from sale/acquisition of subsidiaries and associates 3,199.9 243.7 Net receipts/payments on sale/acquisition of owner-occupied property, plant and equipment (214.5) 15.6 Dividends from subsidiaries 124.0 174.9 Dividends from associated companies 42.4 39.7 Group contributions received 76.0 Group contributions paid (1.7) (19.4) Net cash flow from investing activities 3,226.1 454.4
Cash flows from financing activities Payment of dividend (8,348.9) (3,424.5) Net receipts/payments on bonds and commercial papers issued 1,197.1 Payments regarding intra-group equity transactions (1,006.3) 241.5 Net receipts/payments on sale/acquisition of own shares (6.3) (5.3) Net cash flow from financing activities (8,164.3) (3,188.3)
Reporting entity Gjensidige Forsikring ASA is a publicly listed company domiciled in Norway. The company’s head office is located at Schweigaardsgate 21, Oslo, Norway. The activities of the company consist of general insurance. The company does business in Norway, Sweden and Denmark.
Other changes to standards and interpretation statements have not had any significant effects.
There have been no other significant accounting policy changes in 2014 compared to the annual financial statements for 2013.
IFRS 15 Revenue from contracts with customers (2014) IFRS 15 covers all contracts with customers, but insurance contracts, among others, are exempted. Insofar as such contracts cover the provision of several services, this may have a bearing on how Gjensidige recognises revenues in its accounts. The change is not expected to have any significant effect, however.
Functional and presentation currency The financial statements are presented in NOK. The mother company and the different branches have respectively Norwegian, Swedish and Danish krones as functional currency. All financial information is presented in NOK, unless otherwise stated.
Segment reporting According to IFRS 8, the operating segments are determined based on the Group’s internal organisational management structure and the internal financial reporting structure to the chief operating decision maker. In Gjensidige Insurance Group the Senior Group Management is responsible for evaluating and following up the performance of the segments and is considered 144 | Gjensidige annual report 2014
the chief operating decision maker within the meaning of IFRS 8. Gjensidige reports on two operating segments, General insurance Private and General insurance 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.
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 2014 and 2013 to be 1.55 per cent and 1.62 per cent respectively. The allocated return on investments is transferred from the nontechnical account to the technical account.
Subsequent costs Subsequent costs are recognised in the asset’s carrying amount when it is probable that the future economic benefits associated with the asset will flow to the Company, and the cost of the asset can be measured reliably. If the subsequent cost is a replacement cost for part of an item of owner-occupied property, plant and equipment, the cost is capitalized and the carrying amount of what has been replaced is derecognised. Repairs and maintenances are recognised in profit or loss in the period in which they are incurred.
• significant changes in the Company’s use of assets or overall strategy for the business
generating unit, the goodwill attributable will be included in the determination of the gain or loss on disposal.
Dividend Dividend from investments is recognised when the company has an unconditional right to receive the dividend. Proposed dividend is recognised as a liability in accordance with the Accounting Act and Regulations on Simplified Application of International Accounting Standards (FOR 2008-01-21 nr. 57). This implies that dividend reduces equity in the fiscal year the dividend provision relates to.
Share-based payment The fair value of share-based payment arrangements allocated to employees is at the time of allocation recognised as personnel costs, with a corresponding increase in equity. Share-based payment arrangements which are recovered immediately are recognised 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 recognised 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 recognised as expenses is done upon failing to meet such conditions.
Gross premiums earned 2,370.0 4,950.1 1,998.2 2,951.8 213.1 526.5 966.7 290.3 9,316.7 Gross claims incurred (1,855.7) (3,227.9) (1,420.3) (1,807.5) (127.9) (301.0) (626.7) (206.6) (6,345.6) Operating expenses gross (338.7) (725.4) (281.1) (444.4) (34.5) (68.5) (180.3) (54.3) (1,401.7) Underwriting result 175.6 996.8 296.8 699.9 50.7 157.1 159.7 29.5 1,569.4
Pool arrangements Norwegian Natural perils fund 111.0 111.0 252.4 203.2 Norwegian Occupational Injury Insurers' Bureau 37.3 37.3 Norwegian Motor Insurers' Bureau 47.5 47.5 Norwegian Pharmapool 2.6 2.6 Total pool arrangements 111.0 111.0 339.8 290.6 152 | Gjensidige annual report 2014
Underwriting result Gross premiums written 2,153.6 1,602.8 1,495.7 824.6 671.1 564.6 631.4 280.2 113.5 59.5 61.6 490.5 110.8 1,995.5 9,559.7
Gross claims incurred Incurred during the year (1,665.9) (1,130.9) (1,053.6) (484.6) (569.0) (370.3) (489.5) (213.9) (85.1) (80.8) (21.8) (420.2) (68.5) (1,308.3) (6,908.7) Incurred previous years (91.2) 80.1 30.3 (2.6) 32.9 70.4 38.2 11.1 (6.0) (3.7) 2.8 71.0 (13.2) (25.3) 164.6 Gross claims incurred (1,757.1) (1,050.8) (1,023.3) (487.2) (536.1) (299.9) (451.3) (202.8) (91.0) (84.5) (18.9) (349.3) (81.7) (1,333.6) (6,744.2)
Technical provisions Provision for unearned premiums, gross 616.8 763.2 501.0 180.3 320.7 198.4 185.2 65.0 51.7 15.4 21.6 77.5 3.2 505.4 3,004.4
Security provision 1,202.0 FSAN 1 minimum 1 The Financial Supervisory Authority of Norway.
Claims provision, gross 7.1 209.4 35.9 252.4 596.9 162.8 759.7 355.1 31,981.9 Gross loss liability 6.8 191.5 34.9 233.2 576.7 155.8 732.5 339.8 25,726.9
Goodwill Gjensidige Forsikring, Danish branch 1,016.7 935.1 Gjensidige's workers' compensation insurance in Denmark 1 114.5 105.3
Growth reduced by 2% compared to expected next 3 years CR increases by 2%
Gjensidige Forsikring, white label No need for impairment No need for impairment No need for impairment No need for impairment Gouda portfolio No need for impairment No need for impairment No need for impairment No need for impairment 155 | Gjensidige annual report 2014
Nordisk Forsikrings Service AS Copenhagen, Denmark 100% 65.5 38.1 65.5 65.5
Försäkringsproduktion i Sverige AB Piteå, Sweden 100% 9.6 9.6 Total shares in subsidiaries 6,827.4 6,344.7 6,811.6 6,376.4
Vervet AS including subordinated loan 3 Tromsø, Norway 25% 35.3 5.5 35.3 5.5 1 Sold during 2014, see text at the end of the note. 2 Bilskadeinstituttet AS was liquidated during 2014. 3 Subordinated loan of NOK 24.0 million is included in cost.
Gjensidige Bank Holding (group) 29,521.2 2,038.9 27,482.3 612.0 184.6 N/A Gjensidige Norge AS 0.1 0.1 N/A Gjensidige Pensjon og Sparing Holding (group) 17,903.3 568.2 17,335.1 1,262.4 32.1 N/A Oslo Areal AS 6,456.8 2,223.8 4,233.0 457.2 347.8 N/A Gjensidige Baltic AAS 850.4 341.1 509.3 523.0 6.3 N/A Samtrygd Eigedom AS 6.3 6.2 0.1 0.1 0.1 N/A Lokal Forsikring (group) 25.9 17.5 8.4 0.2 (19.6) N/A Nykredit Forsikring A/S 1,542.6 368.1 1,174.5 199.2 80.4 N/A Byggeriets Forsikringsservice AS 5.2 1.7 3.5 1.1 N/A Nordisk Forsikrings Service AS 49.8 38.1 11.7 30.9 28.9 N/A Försäkringshuset Amb & Rosèn AB 2.2 (0.4) 2.6 (2.1) N/A Försäkringsproduktion i Sverige AB 3.6 0.5 3.0 N/A Total subsidiaries 56,367.3 5,603.8 50,763.6 3,085.0 659.5
Gjensidige Bank Holding (group) 26,778.7 1,856.6 24,922.0 532.8 137.7 N/A Gjensidige Norge AS 0.1 0.1 N/A Gjensidige Pensjon og Sparing Holding (group) 14,676.4 536.1 14,140.3 904.0 35.0 N/A Oslo Areal AS 4,928.5 2,016.0 2,912.5 280.4 194.2 N/A Gjensidige Baltic AAS 856.6 349.7 506.8 510.8 48.3 N/A Samtrygd Eigedom AS 6.3 6.2 0.1 0.2 (0.1) N/A Lokal Forsikring (group) 43.9 40.0 4.0 0.2 0.8 N/A Nykredit Forsikring A/S 1,440.2 817.6 622.6 (3.0) N/A Byggeriets Forsikringsservice AS 6.0 0.5 5.5 16.1 (1.3) N/A Nordisk Forsikrings Service AS 96.3 39.9 56.4 22.2 8.4 N/A Total subsidiaries 48,832.9 5,662.7 43,170.2 2,266.7 420.0 156 | Gjensidige annual report 2014
NOK million Assets Equity Liabilities Revenues 4 Profit/(loss) Share of stock value
Storebrand ASA 450,381.0 22,514.0 427,867.0 52,875.0 1,976.0 3,428.4 SpareBank 1 SR-Bank ASA 156,985.0 14,056.0 142,929.0 4,498.0 1,860.0 1,595.6 Bilskadeinstituttet AS 5.5 5.2 0.3 2.3 0.1 N/A Vervet AS 99.5 3.1 96.4 0.8 0.1 N/A Total associates 607,471.0 36,578.3 570,892.7 57,376.1 3,836.2 4 Operating income. For companies where financial income is operating income, financial income is included. For other companies financial income is not included.
There are some restrictions on Gjensidige Forsikring ASA’s ability to access or use the Group’s assets, as well as settling its obligations.
Group contributions added together with dividends must not exceed justifiable payment of dividend based on a company’s financial strength and operations. Distributions from life insurance companies must be within profit for the year. Is it desired to distribute more than this then it has to be approved in advance by the Financial Supervisory Authority. The regulatory framework for capital adequacy and solvency margin must be complied, as well as asset management regulations that set requirements which must be met in order to cover the technical provisions. In addition, Gjensidige shall fulfill the capital requirements for an A rating, which ties additional capital.
Market value of land and owner-occupied property 97.6 99.4 Carrying amount of land and owner-occupied property 79.2 84.4 Excess value beyond carrying amount 18.4 15.0
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
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 12 7,469.5 7,469.5 6,016.4 6,016.4 Bonds and other fixed income securities 19,888.5 19,888.5 19,646.8 19,646.8
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 297.0 297.0 245.2 245.2 Financial derivatives subject to hedge accounting 209.3 209.3 76.3 76.3
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 1,426.8 3,917.8 2,124.9 7,469.5 Bonds and other fixed income securities 7,140.5 12,342.0 406.0 19,888.5
Shares and similar interests 2,305.2 68.7 281.7 (530.8) 2,124.9 (85.7) Bonds and other fixed income securities 1.2 (5.5) 410.3 406.0 Total 2,306.4 63.3 692.0 (530.8) 2,531.0 (85.7)
Gjensidige Forsikring, Danish branch Currency-related contracts - hedging instruments 1,415.0 74.4 1.6 Hedging object 1,449.0
Gjensidige Forsikring owns no investment properties outside of Norway. The average rental period is 4.4 years, and the portfolio of investment properties includes offices.
The Group's valuation model values each property separately. The valuation model relies on a quarterly in arrears cash flow method. The most important inputs are yield, market rent, contractual rent, potentially vacant premises, the properties' long-term normalized operating costs and any investment requirements. The method maps all incomes and all expenses in a given investment horizon so that the net cash flow is given yearly for each property. Thereafter, the present value is calculated using this cash flow based on real yield adjusted for expected inflation. The present value of the cash flow and the present value of the remaining value compose the cash flow value of the property, and this is considered as the market value, as it would appear in an orderly transaction between market participants at the measurement date under current market conditions.
There are no loans with collateral in investment properties in 2013 or 2014.
NOK Yield Average market rent Average contractual rent Average value per
NOK million Market rent reduced by 10% Market rent as at 31.12.2014 Market rent increased by 10% Yield increases by 0.25 percentage point 150.2 163.9 177.6 Yield 7.00 per cent 155.5 169.7 183.9 Yield decreases by 0.25 percentage point 161.3 176.0 190.7 163 | Gjensidige annual report 2014
Loans and receivables Mortgage loans 1.0 1.2 Bonds classified as loans and receivables 15,908.1 14,629.7 Other loans 181.0 377.2 Impairment to fair value (2.6) Subordinated loans 2.6 2.2 Provision for impairment losses (2.8) (3.6) Total loans and receivables 16,089.9 15,004.1
Subordinated loans Midvest I 0.8 0.6 0.6 0.6 0.4 0.6 Midvest II 0.4 0.4 0.4 0.4 0.8 0.4 Norinnova Invest 1.4 1.2 1.2 1.2 1.4 1.2 Vervet AS 1 24.0 24.0 24.0 24.0 Total subordinated loans 26.6 26.2 26.2 26.2 2.6 2.2 1 Vervet AS is 25 per cent owned by Gjensidige Forsikring and is classified as receivables from associates. The subordinated loan was recognised as impairment loss of associates in 2008. Interest accrued only on Midvest I og Midvest II.
Partners Group Direct Investments 2006 LP 19.6 Energy Ventures II KS 18.5 Energy Ventures IV LP 16.8 Viking Venture II AS 14.2 Teknoinvest VIII C IS 14.1 NeoMed Innovation IV LP 11.5 Northzone IV KS 11.3 NPEP Triton IV IS 11.3 Verdane Capital V B KS 10.6 Viking Venture II B IS 9.9 Axcel IV 9.3 Procuritas Capital Investor V 7.9 Scalepoint Technologies Limited 7.5 Sector Asset Management AS 6.9 Teknoinvest VIII B DIS 6.7 Northzone VII L:P 5.8 Teknoinvest VIII KS (inkl. Teknoinv. VIII (GP) KS) 5.5 Nord II IS 4.9 Fjord Invest AS 4.2 Helgeland Invest 4.0 NPEP NeoMed V (Neomed V LP og N5 invest IS) 3.9 Tun Media (Landbrukets Medieselskap AS) 3.7 BTV Investeringsfond AS 3.0 Convexa Capital VIII AS - klasse B 2.9 Rogaland Kunnskapsinvest 2.5 NPEP Accent Equity 2012 IS 2.3 Norinnova 2.1 Midvest I A 2.1 Convexa Capital IV - -B-aksjer 2.0 HitecVision VII 1.7 Midvest II A 1.3 Norinnova Invest AS 1.3 Øvrige andeler private equity-investeringer 4.7 Total private equity investments 1,701.7
Hedge funds Goldman Sachs Global Opportunities Offshore Fund 462.8 Sector Healthcare - A USD 199.2 Sector EuroPower Fund Class A EUR 104.0 Trient Global Macro Fund USD A-Class 102.9 Sector Zen Fund 83.8 Winton Futures Fund- Lead Series 23.7 Sector Maritime Investment Class A 18.3 Sector Speculare IV Fund Class A USD 16.8 Sector Maritime Investment Class A1 8.5 Sector Speculare II Fund Class A USD 5.9 Sector Spesit I Fund Class A USD 1.3 Sector Exspec Fund Class A USD (utfisjonert sels.) 0.1 Total hedge funds 1,027.2
Shares and similar interests owned by other branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 2.5 Total shares and similar interests owned by other branches 2.5
Claims reported and claims handling costs 15,930.5 14,252.4 Claims incurred, but not reported 16,051.4 16,794.4 Total claims provision, gross 31,981.9 31,046.8
Insurance-related liabilities, reinsurers' share Reinsurers' share of unearned premiums, gross 28.7 15.5
Claims reported and claims handling costs 501.0 591.3 Claims incurred, but not reported 103.2 Total reinsurers' share of claims provision, gross 501.0 694.6
Insurance-related liabilities, net of reinsurance Provision for unearned premiums 7,808.0 7,309.6
Claims and claims handling costs Claims reported and claims handling costs 14,252.4 (591.3) 13,661.1 11,395.7 (550.0) 10,845.8 Claims incurred, but not reported 16,794.4 (103.2) 16,691.2 13,810.1 (62.7) 13,747.4 Total as at 1 January 31,046.8 (694.6) 30,352.2 25,205.8 (612.6) 24,593.1
Provisions for unearned premiums As at 1 January 7,325.1 (15.5) 7,309.6 6,681.0 (19.1) 6,661.8 Additions through acquisitions 88.0 88.0 124.3 124.3 Addition through merger 83.5 83.5 Increase in the period 20,486.7 (494.0) 19,992.7 18,961.5 (565.4) 18,396.1 Earned in the period (20,146.5) 481.4 (19,665.1) (18,642.1) 569.0 (18,073.1) Exchange differences 83.4 (0.6) 82.7 116.9 116.9 Total as at 31 December 7,836.7 (28.7) 7,808.0 7,325.1 (15.5) 7,309.6 1 For own account.
The difference between the estimated pension liability and the estimated value of pension assets as of the previous financial year and the actuarial pension liability and the fair value of the pension assets as of the beginning of the year is recognised under Other comprehensive income. In the calculation for 2014 this difference amounted to more than NOK 400 million, and was mainly due to a reduced discount rate. In 2013, this difference amounted to slightly less than NOK 20 million.
Stock market risk Over the year, the pension fund has been exposed to stock market risk through unit trusts and purchase options. The exposure was 6.0 per cent at the end of the year. The pension assets have low exposure to the stock market. The greatest stock market risk is deemed to be the risk of a fall in the stock market.
Liquidity risk The liquidity risk in the pension assets is deemed to be low, since there are short-term investments at all times that exceed shortterm liabilities. The investments are deemed to be sufficiently liquid.
No information has become available in 2014 to indicate that GAP07 should be changed. There is uncertainty about how life expectancy will develop, especially for men. The Financial Supervisory Authority of Norway has adopted separate minimum requirements for life expectancy prices (K2013) for pension plans. These requirements concern the minimum price a life insurance company or pension fund shall charge to insure benefits. These minimum prices thus affect the size of the contributions that must be made towards the annual earnings and for the minimum requirement for pension assets.
Both in 2013 and 2012, the Finance Supervisory Authority of Norway wanted to lower the interest rate from 2.5 per cent to 2 per cent for accrued benefits. This was stopped by the Ministry of Finance. In 2014, however, the Ministry of Finance changed highest rate to 2 per cent. Gjensidige expects that there is a high risk that interest rates will be lowered to 1 per cent if long-term government bond yields will remain at the level of 31 December 2014.
Interest cost 80.6 17.1 97.6 81.5 15.7 97.2 Actuarial gains and losses 280.4 122.5 402.9 (7.7) 36.0 28.3 Benefits paid (85.3) (44.9) (130.2) (86.6) (48.7) (135.2) Employers' national insurance contributions of benefits paid (6.3) (6.3) (6.9) (6.9)
Curtailments and settlements (0.3) (0.3) Foreign currency exchange rate changes 5.1 5.1 As at 31 December 2,318.5 558.6 2,877.1 2,007.5 457.6 2,465.1
NOK million Funded 2014 Unfunded 2014 Total 2014 Funded 2013 Unfunded 2013 Total 2013 Expense recognised in profit or loss Current service cost 31.2 8.0 39.2 32.2 7.4 39.6 Interest cost 80.6 17.1 97.6 81.5 15.7 97.2 Interest income (95.8) (95.8) (98.5) (98.5) Employers' national insurance contributions 4.4 1.1 5.5 4.5 1.0 5.6 Total defined benefit pension cost 20.4 26.2 46.6 19.8 24.1 43.9
Sensitivity 10% increased mortality (4.3%) (4.1%) 10% decreased mortality 3.3% 3.1% + 1% point discount rate (11.2%) (10.8%) - 1% point discount rate 15.0% 13.2% + 1% point salary adjustment 4.5% 4.5% - 1% point salary adjustment (3.4%) (3.7%) + 1% point social security base amount (1.7%) (1.8%) - 1% point social security base amount 1.9% 2.0% + 1% point future pension increase 12.2% 10.8% - 1% point future pension increase (9.5%) (9.2%)
Other liabilities Outstanding accounts Fire Mutuals 15.1 16.9 Accounts payable 152.5 145.1 Liabilities in relation with properties 2.3 3.3 Liabilities to public authorities 292.9 364.8 Other liabilities 420.4 303.7 Total other liabilities 883.2 833.8
Other accrued expenses and deferred income Liabilties to public authorities 19.2 18.3 Accrued personnel costs 237.7 216.1 Other accrued expenses and deferred income 18.7 3.4 Total other accrued expenses and deferred income 275.6 237.8
Specification of tax expense Tax payable (1,044.7) (737.9) Correction previous years (20.5) 100.5 Change in deferred tax 118.8 (29.5) Total tax expense (946.3) (666.8)
Reconciliation of tax expense Profit before tax 6,067.6 3,827.5 Estimated tax of profit before tax expense (27% in 2014 and 28% in 2013) (1,638.3) (1,071.7)
Tax effect of Dividend received 116.4 57.8 Tax exempted income and expenses 601.3 243.2 Non tax-deductible expenses (5.3) 10.2 Change in tax rate (6.8) Correction previous years (20.5) 100.5
Tax recognised in other comprehensive income Deffered tax pensions 108.8 (5.4) Change in tax rate on pensions previously included in other comprehensive income (18.1) Deferred tax on hedge accounting 20.1 18.0 Tax payable on hedge accounting 18.4 47.3 Tax payable on exchange rate differences (36.7) (20.0) Other changes 36.2 Total tax on items in other comprehensive income 110.6 58.1
Of which sales expenses Employee benefit expenses 675.1 621.0 Commission 373.4 333.7 Other sales expenses 393.5 465.1 Total sales expenses 1,442.0 1,419.7
Employee benefit expenses Wages and salaries 1,547.0 1,343.8 Social security cost 288.0 267.9 Pension cost - defined benefit plan (note 14 incl. social security cost) 144.4 118.3 Pension cost - defined contribution plan (note 14 incl. social security cost) 46.6 43.9 Share-based payment 9.9 9.3 Total employee benefit expenses 2,035.8 1,783.2
18. Salaries and remuneration The average number of employees in Gjensidige Forsikring ASA was 2,881 (2,747).
The senior group management should always be regarded as executive employees. By decision of which functions of the company that shall be defined as employees with tasks of crucial importance for the company’s risk exposure, both qualitative criteria related to the role and quantitative criteria related to the level of remuneration is to be taken into account. There must also be an individual assessment of each employee’s impact on company risk.
Per Arne Bjørge 9 365.9 6.7 10,542 Mette Rostad 267.6 8.9 2,794 Tine Wollebekk (27.5.14-31.12.14) 1 64.5 1.2
The senior group management Helge Leiro Baastad, CEO 4,487.3 1,008.7 254.5 1,567.9 1,041.3 12,260 4,552 22,467 23,462 2
Martin Danielsen, Executive Vice President 2,305.2 291.5 160.5 447.1 324.1 4,498.5 3.7% 31.01.2021 3,949 1,705 7,441 12,515 3
1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 4 Annual fee of NOK 89.0 thousand for Chairman and NOK 22.0 thousand for Deputy Chairman. In addition, fee as Chairman of the Nominating committee. 5 For staff representatives only remuneration for the current position is stated. 6 Everyone in the senior group management except for one has pension plans, benefit or contribution based. 7 Including bonus shares in the share saving's programme for employees. See note 27 for terms and further description of the scheme. 8 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 127.5 thousand for 2013. 9 Remuneration includes participation in the Audit Committee honored with NOK 88.8 thousand for 2013.
Net income and gains/(losses) from investments in subsidiaries and associated companies Net income from investments in subsidiaries and associated companies 297.5 270.2 Impairment investments in subsidiaries and associated companies (47.5) Net gains/(losses) from sale of investments in subsidiaries and associated companies 1,110.0 209.6 Total net income and gains/(losses) from investments in subsidiaries and associated companies 1,360.0 479.8
Net income and gains/(losses) from buildings and other real estate Investment properties Rental income from investment properties, excl. unrealised gains/(losses) 15.2 16.5 Net revaluation investment properties 4.9 (8.3) Net gains/(losses) from sale of investment properties 0.6 Administration expenses related to investment properties (2.2) (2.9) Total net income and gains/(losses) from investment properties 18.6 5.2
Owner-occupied properties Rental income from owner-occupied properties 6.2 7.1 Net gains/(losses) from sale of owner-occupied properties 3.1 Administration expenses related to owner-occupied properties (4.4) (5.0) Total net income and gains/(losses) from owner-occupied properties 4.9 2.1
Total net income and gains/(losses) from buildings and other real estate 23.5 7.3
Net income and gains/(losses) from financial assets at fair value through profit or loss, designated Shares and similar interests Dividend income 12.7 72.4 Unrealised gains/(losses) from shares and similar interests 646.2 609.8 Realised gains/(losses) from shares and similar interests 732.1 269.0 Total net income and gains/(losses) from shares and similar interests 1,391.0 951.1
Derivatives Net interest income/(expenses) from derivatives (5.9) 52.7 Unrealised gains/(losses) from derivatives (164.0) (355.1) Realised gains/(losses) from derivatives (668.6) (620.6) Total net income and gains/(losses) from derivatives (838.5) (922.9)
Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 866.6 752.8 Net gains/(losses) from loans and receivables 0.3 3.5 Net gains/(losses) from changes in exchange rates on loans and receivables (152.0) 11.9 Total net income and gains/(losses) from loans and receivables 714.9 768.2
Specifications Interest income and expenses from financial assets and liabilities not recognised at fair value through profit or loss
General terms Regulatory regulation Solvency II Regulatory call Yes 181 | Gjensidige annual report 2014
Subsidiaries Byggeriet Forsikringsservice A/S Copenhagen Denmark 100.0% Försäkringshuset Amb & Rosèn AB Stockholm, Sweden 100.0% Försäkringsproduktion i Sverige AB Piteå, Sweden 100.0% Gjensidige Baltic AAS Riga, Latvia 100.0% Gjensidige Bank Holding AS Oslo, Norway 100.0% Gjensidige Norge AS Oslo, Norway 100.0% Gjensidige Pensjon og Sparing Holding AS Oslo, Norway 100.0% Lokal Forsikring AS Oslo, Norway 100.0% Nordisk Forsikrings Service AS Copenhagen Denmark 100.0% Nykredit Forsikring A/S Copenhagen Denmark 100.0% Oslo Areal AS Oslo, Norway 100.0% Samtrygd Eigedom AS Førde, Norway 100.0%
Interest income and expenses Gjensidige Bank Boligkreditt AS (owned by Gjensidige Bank ASA) 1.4 Oslo Areal AS 73.6 66.1
Loans As at 31 December 2014 employees have loans in Gjensidige Bank amounting to NOK 1,364.1 million (1,352.2). The loans are offered on normal commercial conditions.