Robot handles routine tasks For the first time Gjensidige put a robot in charge of handling routine tasks. The robot answers questions from other insurance companies about our customers’ bonus on motor insurance.
Customer dividend Gjensidige’s general insurance customers in Norway received customer dividend for the seventh consecutive year. The Gjensidige Foundation paid NOK 1.95 billion in dividend. That equals 13.5 per cent of premiums paid from Norwegian customers the preceding year.
Gjensidige together with Trygg Trafikk was declared winner of the CSR and Innovation categories for the "Stay focused"-campaign at the Digital Communication
Gjensidige was named Sports sponsor of the year 2016 by the Norwegian Sponsoring and Event Association.
Record-high customer satisfaction Customer satisfaction continued to improve in 2016. The scoring reached the highest level since the survey was introduced in 2009. Customers who had a claim or were in touch with us for other reasons were the most satisfied.
Corporate governance 36 The Board’s report 48 Financial statements and notes 73
General Meeting 6 April Ex dividend date 7 April Q1-result 4 Mai Q2-result 14 July Q3-result 26 October
Cyberinsurance Gjensidige launched an insurance to help companies minimize damages from a data breach.200 years celebration In 2016, it was 200 years since the first fire mutual in the Gjensidige family was established. The occation was celebrated in arrangements in Denmark, Norway and Sweden.
Health 55+ We launched an insurance that combines traditional health insurance with innovative ways of preventing health problems.
Underwriting result general insurance NOK bn 2 I Gjensidige annual report 2016
Earned premiums, general insurance NOK million 22,441.9 21,272.0 20,386.8 18,736.9 17,797.3
Number of employees in the Group Persons 4,005 3,908 3,525 3,377 3,163
Average amount spent on skills development per employee NOK 15,0001 17,5001 17,5001 15,8001 13,2001
Participation in a training programme Days 7,487 5,524 7,400 8,900 6,200 1 Starting in 2013, the amount refers to the Group as a whole. Figures for 2012 are adjusted accordingly.
In 2016, we celebrated that it was 200 years since the first predecessor of our company was established. At the end of the anniversary year, Gjensidige had a solid position in the domestic market in Norway. Customer satisfaction was record-strong, and customer loyalty was also at a high level.
Gjensidige delivered sound results also in 2016, with a total profit of NOK 4.7 billion. The results are still below the desired level in Sweden and the Baltics, but we have made systematic efforts in a number of areas throughout 2016 to strengthen our position in these two markets. We expect both areas to make a positive contribution to Gjensidige’s profitability in the years ahead.
Our banking and pension businesses have both been in operation for ten years, and they are both strong, ambitious players in the Norwegian market. When it was established in 2007, the Retail Bank was the smallest of approximately 130 banks in Norway. At the turn of last year, it had grown to number 14 among Norwegian mortgage banks. Our pension business was number four in the market for defined contribution pensions at the turn of the year. Both make positive contributions to Gjensidige’s profit, with a total profit of NOK 553,9 million in 2016.
Our customers are paid a large proportion of our profit through the customer dividend model. Since Gjensidige was listed in 2010, the Gjensidige Foundation has given NOK 11 billion back to our customers in customer dividend.
Social responsibility for 200 years Social responsibility has always been a natural and important part of our activities. As a fire insurance provider, we have been passionate about fire prevention for 200 years. In 2016, corporate social responsibility became an integral part of our annual risk mapping. Through an in-depth analysis of stakeholders and topics, we identified which areas we should give most priority to in our CSR work.
Technology and customer behaviour are changing faster than ever. There are many indications that we are in a period of great change, where many new services are being automated. This has already had an impact on how we run our business, and it will probably also affect demand for our products. The development entails challenges for us as a socially responsible company, both as regards customers’ need for modern products and the need for our staff to have up-to-date expertise.
Throughout 2016, we have carried out organisational restructuring and staff downsizing, and we have worked on management development and competence-raising under the auspices of the Gjensidige Customer and Brand School. Everything has been done to prepare for a future characterised by stronger focus on technology and analytics.
The Group’s activities are divided into six segments. Management of the investment portfolio comes in addition.
Gjensidige’s position shall be further strengthened through the development of Gjensidige as a pan-Nordic general insurance player that also takes its share of the growing accident and health insurance market. Acquisitions shall supplement organic growth and the achievement of the following financial targets after 2–3 years: • Return on equity above 15 percent • Combined ratio in the interval 90-93
Customer orientation and measures aimed at retaining customers were the main priorities in the segment in 2016 as well. Efforts to increase digitalization of customer processes to satisfy the customers’ expectations have been central to us. At the same time, continuous work on the tariffs and improved customer and risk selection contributed to better quality in the customer portfolio, growth and good profitability.
The Commercial Segment offers a wide range of general insurance products to the commer cial, agriculture and municipality markets in Norway. The sale is primarily through own distribution channels, and only 20 per cent of the premium volume is brokered business. Gjensidige is the market leader within general insurance to the commercial market. The main part of the customer portfolio consists of small and medium-sized enterprises and agricultural customers.
Implemented measures to improve the profitability in the Danish portfolio will be closely monitored. Further measures will be implemented if necessary. There is strong competition in the markets Gjensidige operates in. The pressure on prices seems to have intensified, especially in the market for commercial customers and the municipal market.
General Insurance Nordic The Nordic segment comprises the Group’s operations in the Danish and Swedich private, commercial and municipality markets. Gjensidige has own distribution in these markets, as well as distribution through a series of partners and via brokers. In Denmark the Nykredit Group is a central distribution partner. Gjensidige has a scalable business model in the Nordics, which gives a good position for further growth.
Outlook Gjensidige’s goal is to be one of the leading insurance companies in the Baltic states. The market is relatively immature, and a significant proportion of both the private and the commercial segments is still uninsured. We expect the market to grow as the general economic situation improves and the standard of living increases. Initiatives relating to product development, tariff programmes, distribution, CRM and claims operation runs according to the plan that was laid out when acquiring PZU Lietuva.
General Insurance Baltics Gjensidige’s Baltic operations offer general insurance products to private and commercial customers in Lithuania, Latvia and Estonia. The products are distributed through own channels, agents and brokers. The Baltics insurance market is immature, and Gjensidige is well positioned for future growth.
Pension and Savings Pension and Savings shall contribute to sales of a wide range of products to general insurance customers in Norway by offering pension and savings products, mainly to the Norwegian commercial market. The products are distributed directly by Gjensidige and via selected cooperation partners. Gjensidige is the fourth largest player in the Norwegian defined contribution pension market.
Product broadening towards the affinity customers in the general insurance operation, and innovative solutions for combined sale of car financing and insurance was central in 2016. Lending growth was high, and lending to the Group’s general insurance customers consisted 76 per cent of the total lending volume in the bank at the end of the year.
Outlook Gjensidige Bank shall first and foremost underpin the Norwegian general insurance business by making a wider product range available to existing general insurance customers in Norway. The bank will continue to offer a wide range of financial services through customer-friendly digital 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. Gjensidige Investeringsrådgivning was merged with the bank in February 2017. The merger is expected to help increase competitiveness in the savings market, and to improve efficiency at the Group level.
The market for banking in Norway is characterized by considerable competition and a growing number of players. Gjensidige Bank will continue to offer competitive terms in segments of strategic importance for the Group.
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 2016, the portfolio totalled NOK 54.0 billion.
The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and risk capacity, as well as the Group’s risk appetite at all times. Results from the use of derivatives for tactical and risk management purposes are assigned to the respective asset classes, depending on whether the derivatives used are equity or fixed-income derivatives. Generally, currency risk in the investment portfolio is hedged close to 100 per cent, within a permitted limit of +/- ten per cent per currency.
Financial result from the investment portfolio 3.9 2.6 4.3 2,155.1 1,492.4 2,426.3
Total eligible own funds to meet the MCR (SF) 9 NOK million 16,124.4 16,236.6 MCR margin (SF), Group 10 % 349.2 343.5
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 11 NOK 9.34 7.57 8.38
General insurance Gross premiums written Private NOK million 8,375.9 8,269.1 8,296.3 Commercial NOK million 7,446.1 7,434.9 7,250.3 Nordic NOK million 6,262.4 5,430.0 4,961.4 Baltics NOK million 1,080.6 702.9 512.5 Corporate Centre/reinsurance NOK million 53.0 138.7 143.3 Total NOK million 23,218.0 21,975.6 21,163.8 Premiums, net of reinsurance 12 % 97.5 97.9 97.7 Earned premiums Private NOK million 8,291.3 8,152.3 8,124.1 Commercial NOK million 7,257.4 7,076.8 6,847.2 Nordic NOK million 5,917.8 5,233.3 4,762.9 Baltics NOK million 1,036.3 642.0 523.0 Corporate Centre/reinsurance NOK million (60.9) 167.7 129.6 Total NOK million 22,441.9 21,272.0 20,386.8 Loss ratio 13
standard formula. Total comprehensive income is included, less a formulaic dividend pay-out ratio in first, second and third quarter of 70 per cent of net profit. 6 Minimum consolidated group SCR margin (SF) = Ratio of eligible own funds to minimum consolidated group SCR under the Solvency II formula 7 Total eligible own funds to meet the SCR (SF) = Total eligible own funds to meet the SCR for Gjensidige Forsikring ASA under the Solvency II standard formula. Total comprehensive income is included, less a formulaic dividend pay-out ratio in first, second and third quarter of 70 per cent of net profit of the Group. 8 SCR margin (SF) = Ratio of total eligible own funds to SCR for Gjensidige Forsikring ASA under the Solvency II standard formula 9 Total eligible own funds to meet the MCR (SF) = Total eligible own funds to meet the MCR for Gjensidige Forsikring ASA under the Solvency II standard formula. Total comprehensive income is included, less a formulaic dividend pay-out ratio in first, second and third quarter of 70 per cent of net profit of the Group. 10 MCR margin (SF) = Ratio of eligible own funds to MCR for Gjensidige Forsikring ASA under the Solvency II formula 11 Earnings per share, basic and diluted = the shareholders’ share of the profit or loss for the period/average number of outstanding shares in the period 12 Premiums, net of reinsurance = gross premiums written, net of reinsurance/gross premiums written (general insurance) 13 Loss ratio = claims incurred etc./earned premiums 14 Cost ratio = operating expenses/earned premiums 15 Combined ratio = loss ratio + cost ratio 16 Combined ratio discounted = combined ratio if claims provisions had been discounted 17 Operating margin = operating result/(net insurance-related income + management income etc.) 18 Recognised return on the paid-up policy portfolio = realised return on the portfolio 19 Value-adjusted return on the paid-up policy portfolio = total return on the portfolio 20 Shared customers = customers having both pension and savings and general insurance products with Gjensidige 21 Deposit-to-loan ratio = deposits as a percentage of gross lending 22 Net interest margin, annualised = net interest income/average total assets 23 Write-downs and losses, annualised = write-downs and losses/average gross lending 24 Cost/income ratio = operating expenses/total income 25 Shared customers = customers having both bank and general insurance products with Gjensidige 26 Capital adequacy ratio = net primary capital/risk-weighted assets. The result of the period is not included in the calculation for the quarters, with the exception of fourth quarter.
27 Tier 1 capital ratio = Tier 1 capital/risk-weighted assets. The result of the period is not included in the calculation for the quarter, with the exception of fourth quarter. 28 Common equity Tier 1 capital ratio = common equity Tier 1 capital/risk-weighted assets. The result of the period is not included in the calculation for the quarter, with the exception of fourth quarter.
A total dividend of NOK 6.80 per share is proposed for the 2016 financial year. This corresponds to 73 per cent of the profit after tax.
In addition, a special dividend of NOK 3.0 billion, corre sponding to NOK 6.00 per share, was paid through out 2016, as distribution of excess capital.
Dividend for the 2016 financial year will be approved by the Annual General Meeting on 6 April 2017 and paid to shareholders registered on the date of the General Meeting. The Gjensidige share is traded ex dividend on 7 April 2017, the record date is 10 April 2017, and dividend is to be paid on 20 April 2017.
Distribution of shares excluding shares owned by the Gjensidige Foundation 23 % North America
In its Articles of Association, the Gjensidige Foundation has stipulated to have an ownership in Gjensidige of at least 60 per cent, and shall contribute to stable ownership and predictability.
For more detailed information about the governing bodies and/or the General Meeting, see page 36-47 and/or www.gjensidige.no/ir.
Gjensidige follows Oslo Børs’s guidance on the reporting of corporate social responsibility, which was introduced in 2016. The report is based on an analysis of the most important stakeholders we interface with in our activities, and of CSR matters that are relevant to our relations with these stakeholders.
The analysis is part of our annual risk mapping. It involves a number of key personnel in various positions in the Group, including the Senior Group Management.
The assessment of relevant topics is based on • what topics the stakeholders are concerned with • what consequences it will have for Gjensidige not to meet stakeholder expectations • what consequences it will have for the stakeholders if we do not meet their expectations
The result of the analysis can be compiled in a table, where topics of great significance to both stakeholders and Gjensidige are placed in the top right-hand corner. Topics of less significance to Gjensidige and the stakeholders are placed in the bottom left-hand corner.
Loss prevention Socially responsible capital management Labour rights Competence-raising Product range Protection of privacy
Measures and results Gjensidige offers general insurance products to private and commercial customers in the Nordic region and the Baltic states. In Norway, we also offer banking and savings services to private customers and pension products to commercial customers.
Several other chapters in this annual report are relevant to understanding how Gjensidige exercises its corporate social responsibility. The most important are: • Corporate governance. Page 36 • Note 3, Management of insurance risk and financial risk. Page 88 • Note 18, Pay and remuneration. Page 132 • Note 28, Share-based payment. Page 143
The Company’s operations are described in more detail on page 8. Our strategy, financial targets and key figures are described on pages 8 and 3, respectively. Capital management is described on page 16.
Most insurance policies are designed to motivate the customer to avoid losses, both through incentives to reduce risk and through the customers usually having to carry some of the financial risk themselves.
insurance premium. Measures that contribute to reducing the risk for both us and customers include burglar alarms, inspections of electrical systems in buildings, the installation of equipment that reduces the risk of water damage in buildings, and tracking systems for cars.
We also collaborate with other insurance companies on road safety through the industry organisation Finance Norway.
With the help of weather data, we send text messages to customers likely to be affected by bad weather. The messages are based on official weather data and our customer data, so that we avoid distributing false alarms. Every year, we receive feedback from grateful customers who have had time to secure their assets thanks to these messages.
Norway and abroad, that work on fire prevention, prevention of water damage and other initiatives for the benefit of society.
For many years, we have been the main sponsor of the Norwegian women’s national handball team, and in 2016, we also sponsored the men’s national football team. We use these sponsorships to create activities for children and young people that can help to recruit new players into the sport and thereby promote a healthier lifestyle.
The Board of Gjensidige Forsikring has adopted a group policy for socially responsible investments. It states that our investment portfolio shall comply with internationally recognised guidelines for socially responsible investments: The policy mentions the following areas in particular: • Human rights • Labour standards • The environment • Corruption • Weapons
When a company is excluded, we will make sure that the company is not part of any portfolios that we manage ourselves, either by not buying securities in the company or by selling any securities we own. In connection with all individual investments in securities, we check the exclusion list to avoid investing in companies that have been excluded.
In the case of investments in funds managed by others and where Gjensidige does not decide the framework conditions, we will enter into dialogue with the fund manager with a view to excluding the company concerned. If the dialogue does not lead to a satisfactory outcome, we will terminate our investment in the fund. We also check the fund managers’ SRI policy when we consider entering into management agreements.
Meetings on socially responsible investments are held every quarter and as needed. In 2016, it was decided to exclude 12 companies from Gjensidige’s investment portfolio. At year-end, a total of 85 companies had been excluded.
Labour rights and competence-raising Gjensidige aims to be a health-promoting workplace where all employees are given opportunities for professional development and competence-raising. We believe that people thrive when they can use their abilities, develop and be part of a larger group. It is our responsibility to facilitate this, but it is also a sound investment if Gjensidige is to succeed in the time ahead.
At year-end 2016, the Group had a total of 4,005 employees.
The cooperation between the Company’s management and the employees’ trade unions is systematic and good, and it is based on a well-established structure with regular meetings of various committees. Rules have been adopted for what processes and decisions employee representatives shall be involved in. Employee representatives are paid by the Company.
In 2016, 86 per cent of the Company’s employees in Norway were covered by collective agreements. In Denmark, approximately 90 per cent of our employees were covered by collective agreements, and in Sweden nearly 100 per cent.
At year-end 2016, the number of women and men among our employees was almost exactly the same.
Eight of the Senior Group Management’s nine members were men. Of the male executive vice presidents, one was acting as replacement for a female EVP on parental leave.
Gjensidige wishes to increase the proportion of women in executive positions, and this is well known among managers at all levels. This ambition
• Differences in pay between women and men are highest among the employees of the higher age groups. There is no difference between employees under 30 years of age
• The percentage with higher education is higher among men than women
Gjensidige has measures in place that are aimed at helping to ensure that older employees can continue working until retirement age. The measures vary between countries. Examples of measures include the possibility of reduced working hours and extra holidays. The average retirement age has increased over time, but fell somewhat in 2016 due to early retirement in connection with restructuring.
Human capital and competence development Good management and continuous competence -raising measures will give Gjensidige important competitive advantages. We also have a responsibility to each individual employee and to society to make sure that employees are sufficiently qualified to be attractive employees.
The Gjensidige Customer and Brand School is the Group’s tool for ensuring that all employees have the necessary prerequisites for implementing the
Employees who are to work in sales and customer advice participate in a more extensive course programme, leading up to an exam where professional know-how, ethics and customer dialogue are tested. Advisers targeting the private market are certified in accordance with a national industry scheme for the sale of general insurance. The programmes are developed and organised by the Gjensidige Customer and Brand School.
E-learning plays an increasingly important role in the school’s programmes. It is mainly used for training in insurance subjects, systems, ethics and procedures. In 2016, staff have completed and passed 11,538 e-learning courses. A total of 5,274 different competence tests were held.
Sickness absence was 3.9 per cent in Norway, Denmark and Sweden in 2016. Our goal is to reduce sickness absence to three per cent by 2019.
In 2016, we conducted three internal HSE audits in Norway, two in Denmark and two in Sweden. The result shows that the Company takes a systematic approach to health, safety and the environment, and that relevant measures are successfully implemented. The nonconformities that were found will be addressed and closed.
No work accidents resulting in personal injuries or material damage occurred in 2016.
All managers review the survey with their staff in cooperation with the HR department. Each department defines an action plan that is followed up by the individual managers.
Customers’ satisfaction with the Company and individual advisers is measured on a continuous basis, and improvement measures are initiated based on feedback from the customers. Gjensidige has defined clear goals for customer satisfaction. The level of goal attainment influences the payment of bonuses to executive personnel and collective bonuses to all employees.
The Financial Services Complaints Board received 389 complaints from Gjensidige customers in 2016. They accounted for 12 per cent of all insurance-related complaints to the Board. This must be seen in conjunction with the fact that Gjensidige had a market share of 25,6 per cent in 2016.
Other Norwegian companies and public bodies also participate in the project, which is called Big Insight.
Customers and data protection The Norwegian Data Protection Agency has granted Gjensidige a licence to process personal data, and laws and regulations regulate our collection, storage and use of such data. A group policy and instructions provide detailed guidelines on the processing of personal data.
Gjensidige’s employees are bound by a statutory duty of secrecy about all matters relating to our customers. Data protection training is mandatory for all new employees and is also a part of the introductory programme. Access to personal customer data shall only be granted to employees who need it in the course of their work. The Company shall not obtain other personal data than what it needs to serve the individual customer.
Our privacy statement is available at gjensidige.no. It describes how we handle personal data.
The requirements for information security are revised 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.
Notification of matters warranting criticism 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 procedures for whistleblowing is easily accessible on our intranet site.
Ethical and customer-friendly business operations Gjensidige shall have a corporate culture where each individual employee exercises good judgement and is able to handle difficult situations that may arise. Our value creation shall take place in accordance with our ethical guidelines. They are set out in a number of policy documents that are managed by the EVP of Group Staff and General Services.
The risk of criminal offences and violations of our code of ethics is monitored as part of our internal control system. The Board carries out an annual review of our most important risk areas and
Gjensidige’s internal regulations state that the Company has zero tolerance for corruption and anything resembling corruption. The regulations consist of instructions and a group policy adopted by the Board. Group policies on ethical rules and a specification of ethical guidelines relating to hospitality activities, plus guidelines on welfare measures, seminars and gifts are also relevant in this context.
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. Our Internal Investigation Unit is tasked with uncovering corruption and it is responsible for investigating concrete cases where improper conduct is suspected. The unit shall also contribute to establishing and developing procedures and processes that can prevent and uncover such matters.
If such measures fail to clarify the situation, the Company will carry out more detailed investigati-
ons in order to clarify whether the transaction can be carried out. The investigations are carried out by the Company’s Investigation department, which comprises employees who have previously worked in the police and have expertise in and experience of investigations.
A solid defence against money laundering is not only necessary because of official instructions. In the insurance business, money laundering often goes hand in hand with insurance fraud. At Gjensidige, we look at the fight against money laundering as a natural part of good risk selection, based on the principle ‘know your customers’.
In order to ensure that we impact the environment as little as possible, all our 11 Norwegian offices that have more than 30 employees are certified Eco-Lighthouses. Eco-Lighthouse is a national environmental certification scheme run by the Eco-Lighthouse Foundation. The foundation was established by key organisations in the private and public sector.
The consumption breaks down as follows: • Electricity: 8,387 MWh • District heating: 1,811 MWh • Fuel oil: 95 MWh
Climate change, trends and insurance Global warming and climate change will affect our business, our customers and the society we are part of. The same applies to changes in technology, demographics and a number of other factors.
We have funded and contributed to several studies of how this will affect Norway, and how well-prepared Norwegian society is for a ‘wilder and wetter’ climate. Together with other major insurance companies in the Nordic region, we have funded the development of the climate tool ‘VisAdapt’, which can help home owners and house builders in the Nordic countries to adapt to the climate in the best possible way.
Every year, Gjensidige conducts an emerging risk analysis in order to identify risk relating to phenomena and trends that may represent new risk or changed risk. The analysis is intended to describe risks that can be significant, but that cannot be quantified with the help of experience-based methods. We therefore use modelling tools to describe possible outcome scenarios. One example of this is climate change, where we have quantified possible costs under different scenarios.
The use of electricity and district heating does not cause greenhouse gas emissions, which must therefore be calculated on the basis of an assumed energy mix. The production of hydropower does not cause emissions either. We have calculated that our operations in 2016 caused emissions of 2,164 tonnes of CO2 equivalents (scope 1 and 2), compared with 2,579 tonnes the year before. The reduction in reported emissions is largely due to less use of heating oil and fewer emissions from company cars.
Gjensidige’s social commitment must be seen in conjunction with the Gjensidige Foundation, our biggest owner. The Foundation makes substantial donations that are funded by the return on the capital that was freed up in connection with the stock exchange listing of Gjensidige Forsikring in 2010.
The Foundation aims to contribute to a safer society and is particularly concerned with preventive measures and activities for children and young people throughout Norway.
Contributing to a safer society Gjensidige helps to finance the public welfare system by paying direct and indirect taxes and pay to employees. The Group’s payable tax expense for 2016 amounted to NOK 1,377 million. A large amount in value added tax comes in addition. Pay and employee benefits amounted to NOK 2,413 million.
Dialogue with authorities and the public Through the industry organisation Finance Norway, we coordinate our dialogue with the authorities on matters concerning the financial industry. Finance Norway is also engaged in extensive work aimed at schools and the general public to provide information about personal finances, economics and statistics from the financial industry.
Protection of privacy • Instructions for the processing of personal data • Group policy for the processing of personal data • Instructions for employees’ processing of personal data
Managers, proportion men/women *** Per cent 59/ 41 63/ 37 64/ 36
Average pay full time employed women as a percentage of average pay full time employed men, managers ****
** Not included distribution of excess capital *** Emissions for 2014 deviates from reported emissions in the Annual report for 2014, when Norwegian only emissions were reported. **** Norway, Denmark and Sweden ***** Norway ****** Norwegian employees who have had parental leave
This statement follows the structure set out in the Norwegian Accounting Act Section 3-3b: 1. The statement is submitted in compliance with the Norwegian Code of Practice for Corporate Governance of 30 October 2014.
4. The main elements in the systems for internal control and risk management are described in section 10 of the statement; see section 10a below. The systems for internal control and risk management relating to the financial reporting process are described separately in section 10b.
6. The annual report describes the composition of the Board and the Board’s select committees. The main elements of the currently applicable instructions and guidelines for these bodies are described in sections 8 and 9 below.
7. The provisions in the Articles of Association that regulate the appointment and replacement of board members are described in section 8 below.
8. The provisions in the Articles of Association and authorisations that empower the Board to decide that the Company shall buy back or issue own shares are explained in section 3 below.
In addition to what has been discussed above and changes made as a consequence of the new Financial Undertakings Act, corporate governance is subject to annual evaluation and discussions
by the Board. The Board discussed and prepared this statement at a meeting on 8 February 2017 and adopted it at a meeting on 8 March 2017. Gjensidige’s compliance with the individual items is also described.
Core values and social responsibility Gjensidige’s core values and social mission lie in its core business operations – to safeguard life, health and assets through relieving customers of financial risk and providing active, helpful assistance when there is a risk of loss or when a claim has arisen. Another important part of our social mission is to contribute the expertise the Group possesses in the field of loss prevention, to require safety measures to protect lives and assets, and to make other contributions that benefit society as a whole within a commercially responsible framework.
The Company’s work on corporate social responsibility is described in more detail on pages 22-35 of the annual report and at group/. Selected quantitative results are presented in the table on page 35.
We have celebrated Gjensidige’s 200th anniversary this year. It was not until 2010 that Gjensidige decided to focus its business activities through Gjensidige Forsikring ASA, and to strengthen its efforts for the benefit of society as a whole through the Gjensidige Foundation. The Board is impressed with the strong position the Gjensidige Foundation has achieved in such a short space of time as a public benefactor and Norway’s biggest foundation, and as the bearer of Gjensidige’s tradition for supporting efforts to safeguard lives and health.
Deviations from the Code of Practice: None 2. The business Operations Pursuant to its Articles of Association, 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.
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.
Gjensidige’s position shall be further strengthened through the development of Gjensidige as a pan-Nordic general insurance player that also takes its share of the growing accident and health insurance market. Acquisitions shall supplement organic growth and the achievement of of the following financial targets after 2–3 years. • Return on equity above 15 percent • Combined ratio in the interval 90-93
Changes in technology and customer behaviour mean that increasingly close cooperation is required between our distribution channels. A good understanding of what customers are concerned with in their everyday lives is a precondition for being able to develop new, relevant services. Customers’ needs and behaviour are changing faster than ever. It is therefore paramount to reduce the time it takes to develop and launch new customer-oriented services.
Gjensidige Bank and Gjensidige Pensjon og Sparing play an important strategic role in relation to Gjensidige’s position in the Norwegian market.
The Board has adopted the following three perspectives to assess the Group’s capital needs: • Legal requirements: Solvency II standard formula • Internal risk-based requirement: Solvency II
Adopted dividend for 2015 A dividend of NOK 4.2 billion was adopted and disbursed in April for the 2015 financial year. That corresponds to NOK 8.40 per share, of which NOK 6.40 was based on the profit for 2015 and NOK 2.00 was distribution of excess capital.
Adopted dividend for 2016 On 25 October 2016, based on the current authorisation granted to the Board, the Board adopted a dividend of NOK 4.00 per share, corresponding to a total of NOK 2.0 billion. The dividend is related to the distribution of excess capital and was disbursed on 10 November 2016.
- Authorisation of the Board to decide the distribution of dividend on the basis of the Company’s annual accounts for 2015. The authorisation is valid until the next annual general meeting, no longer, however, than until 30 June 2017. The authorisation is in accordance with the Company’s adopted capital strategy and dividend 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 2016. The authorisation was considered as a separate item at the Company’s annual general meeting.
- Authorisation to raise subordinated loans and other external financing limited upwards to NOK 3 billion and on the conditions stipulated by the Board. The authorisation was used in 2016.
The Board shall ensure that the Company complies with the Public Limited Liability Companies Act Sections 3-8 and 3-9 in agreements between the Company and parties mentioned there. On entering into not immaterial agreements between the Company and shareholders, closely-related parties, board members or members of the management or close associates of such members, the Board shall obtain an assessment from an independent third party. The same applies to agreements with group companies that have minority shareholders. This follows from the rules of procedure for the Board, which are available at gjensidige.no/group/
- In connection with elections at the general meeting, it will be possible to vote for one candidate at a time.
- Pursuant to the Articles of Association, the general meeting shall be chaired by the Chairman of the Board or another person designated by the Board.
- Shareholders can vote electronically in advance before the general meeting. Voting in advance can be done via the Company’s website www. gjensidige.no, and via VPS Investor Services.
Pursuant to the Articles of Association, the Board may decide that shareholders can attend the general meeting by means of electronic aids, including exercising their rights as shareholders electronically. Members of the Board are present at the general meeting. In accordance with the Articles of Association, the Chairman of the Board and the CEO will normally be present to answer questions.
Deviations from the Code of Practice: Pursuant to the Code of Practice, the whole Board, the whole Nomination Committee and the auditor should be present at the general meeting. It has so far not been necessary for all the above parties to be present, but this may change depending on the circumstances around the matters to be considered. In accordance with the Articles of Association, the Chairman of the Board, the Chair of the Nomination Committee, the Company’s auditor and the CEO will always be present to answer any questions.
As of 31 December 2016, the Nomination Committee consisted of the following members: - Einar Enger (Chair) - Mai-Lill Ibsen - John Ove Ottestad - Torun Bakken Skjervø - Joakim Gjersøe
The Nomination Committee started work on preparations for the election in 2016 already in autumn 2015. A total of 11 meetings were held. In order to arrive at the best possible basis for its 40 I Gjensidige annual report 2016
assessments, the Nomination Committee had conversations with the Chairman of the Board, the board members and the CEO.
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 .
Further information about shareholders’ right to submit proposals to the Nomination Committee is available at
Deviations from the Code of Practice: None 8. Board, composition and independence Composition of the Board The Board of Gjensidige shall consist of ten members, three of whom are elected by the employees. The shareholder-elected board members are elected for one year at a time. Board members elected by and from among the employees are elected for two years at time, but such that at least one member is up for election every year.
Hans-Erik F. Andersson (member until 7 April 2016) 2 of 3 1,778*
John Giverholt (member from 7 April 2016) 7 of 7 0
The Board holds regular physical board meetings and holds nine fixed meetings every year. Additional meetings may be held depending on matters at hand and the situation. They can be held by phone or electronically using the Company’s board portal. In 2016, a total of 11 board meetings were held, 2 of which were extraordinary board meetings. One of the ordinary meetings was an annual two-day strategy meeting. The Board also held two study sessions to obtain external input on the Board’s strategy revision.
The Board of Gjensidige Forsikring ASA has two select committees – an audit committee and a remuneration committee. All members of the two committees are independent of the Company and its general management. A dedicated risk committee was established in 2016. The committee started its work on 1 January 2017. While the audit committee is retrospective in its approach, the risk committee will be forward-looking. The purpose of the committees is to facilitate good and well-prepared discussions at board meetings.
The audit committee The audit committee is a preparatory and advisory select committee that consists of board members elected by the Board. The audit committee is tasked with preparing the Board’s follow-up of the financial reporting process and improving the Board’s follow-up of the Group, among other things by contributing to thorough and independent consideration by the Board of matters relating to financial reporting. The committee shall also monitor the systems for internal control and risk management, as well as the Company’s internal audit function. The committee is also in continuous contact with the Company’s elected auditor about the auditing of the annual accounts, and it assesses and monitors the auditor’s independence; cf. Chapter 4 of the Auditors Act. The committee shall state its opinion on the election of the auditor and the auditor’s fee. The committee held seven meetings in 2016.
As of 31 December 2016, the audit committee consisted of the following members: - Gisele Marchand (Chair) - Per Arne Bjørge - Gunnar Mjåtvedt - Knud Peder Daugaard - Tine G Wollebekk
Reference is otherwise made to the Board’s declaration on remuneration in Note 18 of the annual report.
As of 31 December 2016, the remuneration committee consisted of the following members: - Inge K Hansen - Mette Rostad - Gunnar Mjåtvedt
The Board’s impartiality The Group’s rules of procedure for the Board regulate matters concerning board members’ impartiality. A board member is disqualified from participating in considering or deciding matters that are of such great importance to the board member or his/her related parties that he or she must be deemed to have a direct or indirect personal or financial interest in the matter. The same applies to the CEO. Board members are also disqualified when other special circumstances could undermine trust in their motives for participating in deciding a matter.
Deviations from the Code of Practice: None 10. Risk management and internal control a) General 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
• The Board shall ensure that such processes are satisfactorily established, implemented and followed up, among other things by considering reports prepared by the Risk Management and Compliance function that are submitted to the Board by the CEO and the internal audit function as direct reports to the Board.
Centralised control functions have been established that are independent of business operations: the Risk Management-, the Compliance- and the Actuary function. In addition, the internal audit function serves as an additional, independent control level that reports directly to the Board.
The Group’s control functions are organised on the basis of the principle of three lines of defence.
Consolidated accounts are prepared every month and reported to the Board on a monthly basis, with comments on and explanations of each business segment. In this connection, Group Accounts cooperates with the Actuary function, Group Performance Management, Reinsurance and the controllers in the business areas on quality assurance of figures and comments. The insurance provisions are assessed monthly by the Actuary function and reviewed annually by an external actuary. Accounting items that entail a varying degree of discretionary judgement and assessment are reviewed and documented in advance of the quarterly closing of accounts. Discretionary accounting items are reviewed by the Board’s audit committee at quarterly meetings. The audit committee also considers the interim reports, company accounts and consolidated accounts. The processes are identical for the Group and the parent company. The annual accounts are adopted by the respective general meetings.
the Group obtains statements in accordance with ISA3402 in order to assess the contracting party’s internal control. The purpose of this is to ensure that the contracting party has satisfactory internal control. Gjensidige’s own security department also performs independent security checks of the contracting party relating to ICT systems, including access control and the protection of sensitive data.
The remuneration of individual board members is described in note 18 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.
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 (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 past two years. Half of the variable remuneration is in the form of a promise of shares
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) for executive personnel is earned annually and is based on an overall assessment of financial and non-financial performance over the past two years. Individual variable pay, including holiday pay, can amount to up to 30 per cent of the annual salary. Variable pay is not included in the pension basis. 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. 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 guidelines are submitted to the general meeting as a separate item in accordance with the Public Limited Liability Companies Act Section § 6-16 a. The general meeting’s decision on the guidelines in the statement on remuneration of executive personnel is advisory to the Board, except the part of the document that concerns share-based remuneration, which is binding. As a result, the general meeting holds an advisory vote on the Board’s statement on the stipulation of pay and other remuneration and the Board’s guidelines for the stipulation of pay for executive personnel, as well as a binding vote on the new guidelines for the allocation of shares, subscription rights etc. that the Board proposes pursuant to the Public Limited Liability Companies Act Section 6-16a first paragraph third sentence.
The Board’s complete declaration on the remuneration of executive personnel is included on page 18 of the annual report.
Deviations from the Code of Practice: None 13. Information and communication Gjensidige shall maintain an open dialogue with all stakeholders. All financial market participants shall have simultaneous access to correct, clear, relevant and detailed information about the Group’s historical results, operations, strategy and outlook. The information shall be consistent over time. The Board has adopted guidelines for the reporting of financial information and other information in the form of an IR policy. The guidelines are available at https:// www.gjensidige.no/group/investor-relations.
Gjensidige has published all relevant ownership information about the Group at gjensidige.no/group/.
The Company has a dedicated IR (investor relations) function that has a central place in the Company’s management, and that ensures that there is regular contact with the Company’s owners, potential investors, analysts and the financial market. The goal is that the Company’s information work shall be in accordance with best practice at all times.
Deviations from the Code of Practice: None 46 I Gjensidige annual report 2016
14. Corporate takeovers The Company has one big owner, the Gjensidige Foundation. The Foundation has laid down in its Article of Associations that its ownership interest shall at least amount to 60 per cent of the shares issued in Gjensidige.
Guidelines have been adopted for corporate takeovers. These guidelines ensure that all shareholders’ interests are attended to, and they contribute to equal treatment of shareholders.
A number of regular meetings are held between the external auditor and the Company’s governing bodies during the course of the year: The auditor presents the main elements in the audit plan to the audit committee on an annual basis. In addition, the audit committee considers the auditor’s assessment of internal control in relation to financial reporting. The auditor attends board meetings when the annual accounts are considered.
At least one meeting is held every year between the Board and the auditor, and between the audit committee and the auditor, at which the CEO and other executive personnel are not present.
The audit committee shall also monitor the auditor’s independence, including what services other than auditing the auditor has provided. The breakdown between the auditor’s fee and consultancy fees for 2016 is described in note 17.
The Board proposes that the Company pay a dividend of NOK 3.4 billion for the 2016 financial year. That corresponds to NOK 6.80 per share and represents a distribution percentage of 73 per cent. Compared with the previous financial year, the proposal corresponds to an increase of 6.3 per cent in nominal dividend based on the profit for the year.
The general insurance operations include both nonlife and personal insurance. The Norwegian general insurance operations also include life insurance, which is pure risk insurance with a duration of up to one year. This is largely group life insurance.
Gjensidige’s business model is based on an integrated value chain that includes the development and production of financial services and products, a high degree of direct distribution, service and customer dialogue, and efficient claims settlements. Distribution in cooperation with our partners is an important part of the business model, especially in Denmark and Sweden.
Customer orientation Gjensidige is working systematically to become the most customer-oriented company in the Nordic general insurance field. Our vision is to ‘know the customer best and care the most’. Our customers shall feel that we know them, care about them, make things easy for them and help them. Customer satisfaction is measured systematically, both at group level and down to the individual employee level, and improvement measures are implemented continually. Customer satisfaction was once more record-high in 2016. The training of staff, development of digital services and use of data and insight to ensure that we are relevant to our customers’ everyday lives are important tools in this context.
The Gjensidige Insurance Group achieved once more a strong result in 2016. Customer satisfaction increased to a record-high level, and competitiveness remained good.
Inge K Hansen (1946) has been Chairman of the Board of Gjensidige since 2008. He is also Chairman of the Board of Siriusungen AS, Troms Kraft AS, Hotel and Restaurant Continental AS, Nets AS, Arctic Securities AS and NorSun AS and Point Resources AS. He is board member of Fram Museum and Sissener AS. He was elected Chair of the Year in Norway and the Nordic Countries in 2012.
The market shares in Denmark and Sweden were 6.6 per cent (based on the most recent statistics from the Danish Insurance Association as of 31 December 2015) and 2.5 per cent, respectively (source: Insurance Sweden, as of 31 December 2016).
The market share for group unit-linked defined contribution pensions was 9.0 per cent, while the market share for individual unit-linked pensions was 8.5 per cent. Our market share of transferred defined contribution pension agreements was 16.6 per cent (source: Finance Norway, as of 30 September 2016).
Distribution Norway Gjensidige has approximately 770,000 customers in the Private segment and around 150,000 in the Commercial segment in Norway.
Gjensidige’s commercial customers in Norway are primarily serviced through own sales channels (around 80 per cent of the premium volume). Other customers are mainly served via brokers.
The sales centres and customer service centres are responsible for external sales and for serving customers who contact us to buy or amend insurance policies as well as to seek advice. We have 32 local branch offices that offer advisory services in the fields of insurance and banking. The offices can refer customers to other departments if the queries concern pensions and saving.
The customer portal gjensidige.no plays an increasingly important role in relations with our customers. In the portal, private and commercial customers can obtain an overview of their insurance policies. They can manage the customer relationship themselves, for example by reporting a claim or keeping track of case processing on the internet. A considerable proportion of sales to private customers in Norway is now initiated at gjensidige.no. Almost 60 per cent of
customers use the internet at one or several points in the purchasing process, and more than half of all frequency claims are reported online.
A greater proportion of the sales in the Danish commercial market take place in collaboration with brokers. The market for small and medium-sized customers and agricultural customers is served by call centres and our dedicated underwriters.
Distribution in the municipal market takes place either directly or through brokers. The market is to a large extent based on competitive tendering.
Customer orientation, increased sales of a wider range of products and access to customers through strategic partners will be important growth drivers.
Striking a balance between continuity and modernisation will continue to be important. New technology is providing more and more opportunities to collect and utilise market and customer data and assess risk. Gjensidige is investing in technology and expertise on a continuous basis in order to generate and utilise relevant insight.
our customers to buy products, maintain an overview of their customer relationship, and report and follow up claims. Internal efficiency is constantly being improved through the reuse of ICT solutions between different entities in the Group and by using new technology that makes us increasingly more efficient.
The year 2016 Leading position in Norway strengthened Gjensidige strengthened its leading position in the Norwegian market in 2016, both in absolute terms and relative to our major competitors, despite intense competition. Customer satisfaction was greater than ever, and in combination with continued good profitability, this confirms Gjensidige’s sound competitiveness in Norway.
Goal attainment – financial and operational targets The financial targets were achieved in 2016 as well.
The cost ratio is expected to be around 15 per cent. Continuous efforts are being made to reduce the underlying cost base in order to create room for investments in new technology, the brand and relevant skills, and thereby ensure good competitiveness going forward.
The best digital customer experience in general insurance Gjensidige is developing digital service solutions in step with changes in customer preferences and to make operations increasingly more efficient. For example, the proportion of claims reported online or via mobile phone increased from 46 per cent to 52 per cent in the Norwegian private market in 2016. In addition, self-service sales increased by more than 45 per cent as a result of changes in customer behaviour and continually improving digital sales solutions.
The Danish online shop for car insurance was upgraded with a new design and simpler solutions for checking prices and buying insurance.
In Norway, we are further developing the online shopping portal by improving the customer experience and including more products, and we continue to facilitate the digital reporting of claims for more and more insurance products. In Denmark, we will simplify products, improve tariffs and make the renewal process easier for customers.
Business intelligence and analytics In 2016, our expert groups in analytics, product and price were brought together to form one dynamic entity. Increasing digitalisation results in exponential growth in the amount of data, and responsibility for the data warehouse was transferred to the new entity.
Combined with the ability to utilise new insight, access to and analysis of large amounts of data will be an important competitive advantage going forward. For example, Gjensidige has come far in utilising publicly available geographical and building data in all relevant processes. This contributes to better pricing, customer- and risk selection and more efficient claims settlements. Many of the pricing tariffs used outside Norway were modernised and improved during 2016. This work will continue to have high priority in 2017.
Strategic workforce planning is an important foundation for competence and organisational development. Management tools have been introduced that enable an analytical approach to competence and workforce planning. Measures in this context will include planned secondments and job rotation. A gradual shift will have to be made from in-house learning programmes to innovative platforms that enable individual employees to learn to develop themselves. Employees are expected to take more responsibility for their own expertise based on analyses of Gjensidige’s needs. A new learning portal has been developed in order to support this.
Satisfied, loyal customers Brand recognition and preference for Gjensidige in the Norwegian market are stable and higher than among our competitors. According to Ipsos’s annual surveys, we have the best reputation of the biggest companies in the Norwegian financial sector. In Denmark, determined efforts are being made to increase familiarity with Gjensidige. Unaided familiarity in the Danish market was 14 per cent on average in 2016.
Our most loyal insurance customers are those who have the most products. In Norway, the majority of the most loyal private customers have more than four general insurance products with Gjensidige. In addition to a broad range of insurance products, we offer banking, pension and savings products in Norway as part of our efforts to increase our product range and the number of products individual customers buy. As much as 76 per cent of the Retail Bank’s lending volume at year-end 2016 consisted of loans to general insurance customers, and most of the growth in volume comes from general insurance customers who are members of organisation- or loyalty programmes. Around 70 per cent of our pension and savings customers are also general insurance customers.
Partnership agreements – renewals and new agreements Gjensidige has many years’ experience of partnership agreements, and at the turn of the year, our partner organisations had a total of 1.6 million members. In 2016, Gjensidige signed an agreement with NITO (the Norwegian Society of Engineers and Technologists) for accident and health insurance, and it is now the complete supplier of insurance and banking services to the organisation.
In the commercial segment, we have a number of partnership agreements with industry associations and individual companies. New agreements were established and existing agreements renewed in 2016.
At the beginning of 2017, Gjensidige acquired Mølholm Forsikring A/S, which is the market leader in health insurance in Denmark, with 18 per cent of the market for health insurance and a premium volume of around DKK 400 million. The acquisition is in line with Gjensidige’s strategy of securing a solid position in the growing market for accident and health insurance in the Nordic region.
In April 2016, a dividend totalling NOK 4.2 billion was distributed, of which NOK 3.2 billion was related to the profit of the year 2015 and NOK 1 billion was related to the distribution of excess capital.
In August 2016, Gjensidige became the first insurance company in Europe to issue a perpetual subordinated loan under the Tier 1 criteria in the Solvency II regulations, which entered into force on 1 January 2016. The placement of NOK 1 billion was done on favourable
John Giverholt (1952) has been a member of the Board of Gjensidige since 2016. He is Managing Director of Ferd AS. Giverholt holds a Bachelor’s degree in business economics from the University of Manchester and the exam for stateauthorised auditors from the Norwegian School of Economics (NHH). He was previously CFO of the same company, Executive Vice President at DNB and Deputy Finance Director at Norsk Hydro.
Giverholt is up for election to the Board in 2017. Giverholt did not hold any shares in Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016.
Gjensidige more than halved its holding in Sparebanken1 SR-Bank in October 2016. This was part of the strategy of reducing the concentration of bank exposure in the investment portfolio.
In November 2016, in the wake of the issuing of the loan and the sale of the shareholding, the Board used its authorisation from the general meeting to distribute excess capital in the form of a dividend of NOK 2 billion.
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 Norgesgruppen AS and Selvaag Bolig ASA, and a board member of Eiendomsspar AS and Victoria Eiendom AS. She has previous experience from several Boards, e.g Norske Skog ASA and Oslo Børs AS.
Marchand is up for election to the Board in 2017. Marchand held 1,481 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016 (last change 10 December 2012).
the proposal could have had significant negative tax consequences for Gjensidige, both upon its introduction and in the future.
Taxes In December 2016, a new Financial Tax was introduced by the Norwegian Government. The new Financial Tax means that Gjensidige’s taxable income will continue to be taxed at a rate of 25 per cent. Furthermore, it will entail Gjensidige having to pay increased payroll tax. The increase is 5 per cent and will be deductible for tax purposes leading to an effective increase of 3.75 per cent in payroll expenses, corresponding to approximately NOK 65 million in isolated net profit effect based on the 2016 full-year accounts. Gjensidige has taken measures to minimise the negative effects of the implementation of this Financial Tax.
The proposal means that enterprises can no longer engage in telemarketing services to own customers who have opted out in the Central Marketing Exclusion Register, unless they have confirmed that they wish to receive such calls. It will still be permitted to call customers to provide factual information about their customer relationship, as this is not defined as marketing. Such calls that proceed to marketing and purchases will also be permitted, as long as the main purpose of the call was to provide factual information.
In the insurance field, there will still be several reasonable reasons for contacting customers, including lack of payment, double insurance and information about circumstances that mean that the conditions for being covered by an insurance policy are no longer met. This will make it difficult to draw the line between the Company’s lawful provision of information and advisory services to customers and illegal marketing.
Pursuant to the requirements of Norwegian accounting legislation, the Board confirms that the requirements for the going concern assumption have been met and that the annual accounts have been prepared on this basis.
General Insurance Private 2,196.7 2,208.1 General Insurance Commercial 1,631.3 1,440.8 General Insurance Nordic 247.3 509.1 General Insurance Baltics (99.5) (98.9) Corporate Centre/costs related to owner (10.6) (331.8) Corporate Centre/reinsurance 1 (230.6) (270.5) Underwriting result general insurance 2 3,734.6 3,456.9
6 Loss ratio = claims incurred etc./earned premiums 7 Cost ratio = insurance related operating expenses/earned premiums 8 Combined ratio = loss ratio + cost ratio competencies, and thereby ensure competitiveness in the long term. The provision is expensed to the Corporate Centre. Furthermore, a provision in the amount of NOK 23.0 million related to increased payroll tax, applicable from 2017, was made in the fourth quarter, mainly affecting costs in the Corporate Centre.
Adjusted for the non-recurring effects mentioned above, the underwriting result amounted to NOK 3,445.0 million, corresponding to a combined ratio of 84.6. The result was thereby on a par with the record-strong result in 2015.
Gunnar Mjåtvedt (1960) has been a member of Gjensidige’s Board as an employee representative since 2007. He is also Gjensidige’s senior employee representative.
Mjåtvedt has previously held positions as a sales consultant and senior consultant, and he has more than 20 years’ experience of the insurance sector. He studied mathematics and science subjects at upper secondary School, and is authorized insurance adviser within health and pension.
Mjåtvedt is up for election to the Board in 2018. Mjåtvedt held 1,975 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016 (last change 7 November 2016).
The tax expense was NOK 1,474.1 million (1,265.0), corresponding to an effective tax rate of 24.0 per cent (25.1). The effective tax rate was influenced by realised and unrealised gains and losses on equity investments in the EEA.
The return on financial assets was satisfactory, and higher than 2015. This was largely due to increased returns on current equities and bonds, partly offset by negative returns on private equity investments. The Retail Bank and Pension and Savings also made a positive contribution to the profit performance.
From 1 January 2016, the Company became subject to the Solvency II regulations. Based on Gjensidige’s understanding of the regulations and how they are implemented in Norway, the solvency margin1 at the end of the year was 147 per cent based on the standard formula and 180 per cent based on the Company’s partial internal model. The guarantee scheme is classified as a liability under Solvency II. If it had been included as solvency capital, the solvency margin would be 150 per cent based on the standard formula and 183 per cent based on the Company’s partial internal model.
In addition, a deduction is made for the higher of the estimated additional capital required to maintain the current rating and the capital required to meet the statutory capital adequacy requirements.
Excess capital above and beyond this constitutes the strategic buffer. At the end of the year, this amounted to NOK 1.3 billion. Adjusted for the acquisition of Mølholm Forsikring A/S at the start of 2017, the strategic buffer would be NOK 0.9 billion.
Solvency margins and the strategic buffer are deducted from the Board’s dividend proposal of NOK 3.4 billion for the 2016 accounting year.
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 1 Solvensmargin for Gjensidige Forsikring ASA
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 operational activities was NOK 2,512.8 million (minus 6,396.4) in 2016. There is a large positive cash flow from the insurance operations. The difference between the operating profit and the cash flow from operational activities is due to the nature of the business, whereby investments in financial assets are part of operations. The change in the cash flow in 2016 can largely be explained by the fact that less has been invested in securities because of the payment of a higher dividend in 2016 than in 2015.
The net cash flow from investment activities mainly consists of payments made/received in connection with the acquisition of subsidiaries and associated companies, owner-occupied property, plant and equipment, plus dividend from associated companies and joint ventures. The net cash flow from investment activities was minus NOK 248.4 million (2,463.8) in 2016. The change was mainly due to a sale of 50 per cent of Oslo Areal AS in 2015.
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 minus NOK 3,224.5 million (4,647.7) in 2016. The change is largely due to two opposite effects; a higher distribution of dividend in 2016 and more lending from credit institutions in 2015.
The segments Gjensidige’s business is organised in six operational segments. Management of the investment portfolio comes in addition. A summary of the results for the individual segments follows below.
General Insurance Private The Private segment offers a wide range of general insurance products and services in the Norwegian private market, including insurance for motor vehicles, property, travel/leisure and accident and health. The products are largely sold through our own distribution network.
Run-off gains/(losses) 2 377.5 261.0 1 Large losses = loss events in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre.
Nyhammer has previously been employed in DnB and in Norsk Hydro/ Leirvik Sveis.
Nyhammer is up for election to the Board in 2018. Nyhammer did not hold any shares in Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016.
Development during the year The underwriting result was 2,196.7 million (2,208.1). Increased premiums and run-off gains were offset by a slightly less favourable underlying frequency claims development. The combined ratio was 73.5 (72.9).
Earned premiums amounted to NOK 8,291.3 million (8,152.3). Premiums showed an increase in all main product lines. Gjensidige’s competitive position remained strong, and the number of customers increased slightly in the period despite fierce competition.
Claims incurred amounted to NOK 5,030.8 million (4,908.5). The loss ratio was 60.7 (60.2). Motor insurance and property insurance showed increases in the underlying loss ratio from very benign levels in 2015. For leisure insurance and accident and health insurance, loss ratios were relatively stable. Overall, the weather situation was benign also in 2016, resulting in a lower frequency claims impact than can normally be expected.
Earned premiums increased to NOK 7,257.4 million (7,076.8) mainly due to new business initiatives. Growth was partly offset by softening market conditions, affecting accident and health insurance in particular.
Claims incurred amounted to NOK 4,825.1 million (4,826.7) and the loss ratio was 66.5 (68.2). Adjusted for increased run-off gains and the impact from large losses, the underlying level of frequency claims was somewhat better than in 2015. This is very satisfactory given the fierce competition.
Earned premiums increased to NOK 5,917.8 million (5,233.3), of which NOK 164.5 million was related to currency effects. The Mondux acquisition increased earned premiums by NOK 116.2 million, while the Vardia acquisition contributed NOK 304.1 million. The premiums in the Danish portfolio accounted for around 78 per cent of total premiums in the segment. They increased organically by 5.1 per cent in local currency. The growth was especially driven by property and motor insurance in the commercial
Earned premiums 5,917.8 5,233.3 Claims incurred etc. (4,739.6) (3,905.2) Operating expenses (930.9) (819.0) Underwriting result 247.3 509.1
Amortisation and impairment losses of excess value – intangible assets (216.8) (175.2)
Lotte Kronholm Sjøberg (1972) has been a member of Gjensidige’s Board as an employee representative since 2015. She is chair of the staff union in Gjensidige Forsikring Denmark.
Earned premiums increased to NOK 1,036.3 million (642.0), driven by the PZU Lietuva acquisition. NOK 20.8 million of the increase was related to currency effects. The underlying premium development was positive, influenced by portfolio re-underwriting and repricing activities. The relative proportion of property insurance in the portfolio has increased after the acquisition.
Claims incurred amounted to NOK 748.4 million (524.8). NOK 17.0 million of the increase was related to currency effects. The loss ratio was 72.2 (81.8), positively affected by run-off gains. The loss ratio was negatively affected by a number of medium-sized property and motor insurance claims. Tariffs based on group best practice were introduced in Latvia at the end of 2015 and in Lithuania during April 2016, with the aim of improving profitability in a highly price-sensitive market. Improvements have taken place in frequency claims levels and further improvements are
Earned premiums 1,036.3 642.0 Claims incurred etc. (748.4) (524.8) Operating expenses (387.4) (216.0) Underwriting result (99.5) (98.9)
Amortisation and impairment losses of excess value – intangible assets (14.9) (22.4) Large losses 1 Run-off gains/(losses) 2 12.8 (30.1)
Operating expenses amounted to NOK 387.4 million (216.0). NOK 7.0 million of the increase in operating expenses was related to currency effects. The cost ratio was 37.4 (33.6). The increase in the cost ratio was mainly due to a higher cost ratio run-rate in the acquired company, combined with increased investments in IT systems, distribution improvements and pan-Baltic rebranding initiatives. Numerous initiatives have been implemented in 2016 that are expected to improve profitability going forward.
Development during the year The profit before tax expense increased to NOK 125.4 million (84.2).
reclassification of income. Underlying financial income grew due to higher insurance reserves, a narrowing bond portfolio spread and increased return on real estate investments. The company’s share of the profit relating to the paid-up policy portfolio was allocated in its entirety as a provision for longevity.
At the end of the period, pension assets under management amounted to NOK 23,237.3 million (20,033.1) including the group policy portfolio of NOK 5,409.6 million (4,877.5).
The recognised return on the paid-up policy portfolio was 4.08 per cent (5.43). The average annual interest guarantee was 3.5 per cent (3.5).
Savings assets under management amounted to NOK 15,141.6 million (15,555.1) at the end of the period.
In order to strengthen the solvency capital ratio and to optimise the capital structure, Gjensidige Pensjonsforsikring AS (GPF) issued a subordinated bond (Tier 2) of NOK 300 million in June.
Net interest income amounted to NOK 797.3 million (721.2). The improvement was driven by business growth.
Net commission income and other income increased to NOK 74.3 million (4.1). The increase was the result of gains on financial instruments, partly offset by higher acquisition costs. The improvement also included a gain on the Visa Europe sale to Visa Inter-national, of which Gjensidige Bank’s share was NOK 12.3 million.
The net interest margin was 1.85 per cent (2.12). The decrease was driven by overall margin pressure.
Interest income and related income 1,408.0 1,311.0 Interest expenses and related expenses (610.7) (589.8) Net interest income 797.3 721.2 Net commission income and other income 74.3 4.1 Total income 871.6 725.2 Operating expenses (373.6) (359.3) Write-downs and losses (69.5) (62.3) Profit/(loss) before tax expense 428.5 303.6
1 Net interest margin, annualised = net interest income/average total assets 2 Write-downs and losses, annualised = write-downs and losses/average gross lending 3 Cost/income ratio = operating expenses/total income 1 The estimate is based on the exposure at the reporting date and the property valuation at the time the loan was approved, including any higher priority pledge(s).
growth, changed employees’ pension scheme and somewhat increased depreciation. The cost/income ratio decreased to 42.9 per cent (49.5).
Total write-downs and losses amounted to NOK 69.5 million (62.3), an increase driven by portfolio growth. Write-downs and losses were primarily related to the unsecured lending portfolio. The bank agreed to sell NOK 14.6 million of impaired customer loans in the first quarter. The sale led to the release of the provisions made for this group of loans. The portfolio continues to be of high quality. Write-downs and losses were 0.18 per cent (0.20) of average gross lending. Adjusted for the above-mentioned sale of impaired customer loans, the ratio was 0.21 per cent. The weighted average loan-to-value ratio was estimated to be 61.7 per cent (63.7) for the mortgage portfolio.
Gross lending increased by 12.3 per cent and amounted to NOK 41,249.5 million (36,735.5) at the end of 2016. Deposits increased by 9.9 per cent, reaching NOK 21,270.4 million (19,357.2) at the end of 2016. The deposits to loans ratio was 51.6 per cent (52.7).
At the end of the second quarter, S&P Global Ratings raised its long-term and short-term counterparty credit ratings for Gjensidige Bank ASA and its subsidiary Gjensidige Bank Boligkreditt AS to 'A/A-1' from 'A-/A-2'. The outlook remained stable. This was driven by the reassessment of Gjensidige Bank's strategic position within the parent company.
In order to gain access to international capital markets, Gjensidige Bank established, through its subsidiary Gjensidige Bank Boligkreditt, a Euro Medium Term Covered Bond Programme amounting to EUR 2 billion during the second quarter.
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 technical provisions. The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and risk capacity, as well as the Group’s risk appetite at all times. Results from the use of derivatives for tactical and risk management purposes are assigned to the respective asset classes, depending on whether the derivatives used are equity or fixed-income derivatives. Foreign-exchange risk in the investment portfolio is generally hedged close to 100 per cent, within a permitted limit of +/- ten per cent per currency.
Development during the year At the end of 2016, the investment portfolio totalled NOK 54.0 billion (57.2). The financial result for the full year was NOK 2,155.1 million (1,492.4), which corresponds to a return on total assets of 3.9 per cent (2.6).
Match portfolio The match portfolio amounted to NOK 35.1 billion (36.0). The portfolio yielded a return of 3.5 per cent (2.8), excluding changes in the value of the bonds recognised at amortised cost.
Bonds recognised at amortised cost amounted to NOK 17.5 billion (18.7). Unrealised excess value amounted to NOK 1,338.3 million (1,416.3) at the end of the period. The reinvestment rate for new investments in the portfolio of bonds held at amortised cost was approximately 2.8 per cent on average during the year, and the running yield was 4.5 per cent at the end of the year.
Financial income in Pension and Savings and Retail Bank 72.6 15.9
Net income from investments 2,196.1 1,473.3 1 The item includes the discounting effects of insurance obligations in Denmark and mismatch between interest rate adjustments on the liability side in Denmark, versus the interest rate hedge. 2 The item consist of total investment grade, high yield and current bonds. Investment grade and high yield are investments in internationally diversified funds externally managed. 3 Investments in internationally diversified funds externally managed.
Financial assets and properties 39.9% Norway 1.3% Sweden 1.9% Denmark 36.5% USA 9.1% UK 0.5% Baltics 10.7% Other
The geographical distribution 1 of the match portfolio is shown in the chart on page 66.
Free portfolio The free portfolio amounted to NOK 18.9 billion (21.1) at the end of the year. The return was 4.6 per cent (2.3).
Fixed-income instruments The fixed-income instruments in the free portfolio amounted to NOK 10.1 billion (11.7), of which money market investments, including cash, accounted for NOK 4.3 billion (4.1). The rest of the portfolio was invested in international bonds (investment grade, high yield and convertible bonds). The total fixed-income portfolio yielded a return of 5.2 per cent (1.2). It was positively affected by good returns on investment grade and high yield bonds and a moderate return on money market investments and convertible bonds.
Property portfolio At the end of the year, the exposure to commercial real estate in the portfolio was NOK 3.1 billion (3.2) plus a forward contract of NOK 1.6 billion. The forward contract matured on 31 December 2016. The property portfolio yielded a return of 7.9 per cent (16.6). The sale of 50 per cent of the shares in Oslo Areal explains the high return in 2015.
Risk factors Risk is defined as the possibility of a potential event affecting the Group’s goal attainment. In order to understand and manage risk, an assessment is therefore carried out of both the probability of 1 The geographical distribution is related to issuers and does not reflect actual currency exposure.
the event occurring and its consequences. Through the Group’s risk management and internal control framework, a structure has been established that systematically identifies, assesses, communicates and manages risk throughout the Group. The risk assessment process is coordinated with the Group’s strategy processes.
Risk management is based on specified goals and strategies and the limits on risk exposure adopted by the Board.
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 and, in the Board’s view, no individual events will be capable of seriously harming the Company’s financial position.
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 have been further developed and made more targeted. Performance-based 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.
Financial risk Financial risk concerns exposure relating to financial investments in the insurance operations. The counter entry in the balance sheet consists of actuarial liabilities, other 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.
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 lending. 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.
discipline statement relating to the use of the Group’s information and IT systems.
Employees, corporate social responsibility and the environment Gjensidige follows Oslo Børs’s guidance on the reporting of corporate social responsibility. Our work on corporate social responsibility is described in a separate statement on pages 22–35 of the annual report. The Board of Gjensidige has adopted guidelines for how the Company shall exercise social responsibility. The guidelines and the group policy for socially responsible investments are available at www.gjensidige.no/group.
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 on pages 22–35 in the report on corporate social responsibility.
Outlook The Group targets a 15 per cent return on equity after tax. There is always considerable uncertainty associated with the assessment of future developments. However, the Board remains confident in Gjensidige’s ability to deliver solid earnings and dividend growth over time. Strong underwriting profitability is expected to offset a challenging environment as regards achieving investment returns.
3. Over the next 3-5 years, average annual run-off gains are expected to be around NOK 900 million, moving the expected reported combined ratio to the lower end of the 86-89 corridor (undiscounted).
Over time, dividend pay-outs will reflect Gjensidige’s policy not to build capital in excess of the targeted capitalisation.
Efforts to deliver the best digital customer experiences in the Nordic general insurance industry will be strengthened. At the same time, Gjensidige intends to increase its presence in the growing market for health and personal insurance.
The Group has satisfactory capital buffers in relation to internal risk models, statutory solvency requirements and its target rating. The Board considers the Group’s capital situation and financial strength to be good.
Gjensidige’s goal is to distribute high and stable nominal dividends to its shareholders, 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 risk appetite at all times. The Group shall maintain its
Inge K. Hansen Per Arne Bjørge Knud Peder Daugaard John Giverholt Gisele Marchand Chair
Gunnar Mjåtvedt Anne Marie Nyhammer Mette Rostad Lotte Kronholm Sjøberg Tine Gottlob Wollebekk
The Board wishes to thank each individual employee for their contribution to Gjensidige’s good results in 2016.
Notes 2 Use of estimates ................................................159 3 Management of insurance and financial risk .......159 4 Premiums and claims etc. in general insurance ...160 6 Shares in subsidiaries and associates ..................163 7 Owner-occupied property, plant and equipment 166 8 Financial assets and liabilities ............................. 167 9 Loans and receivables ........................................ 171 10 Cash and cash equivalents ................................. 171 12 Shares and similar interests ................................ 172 13 Insurance-related liabilities and reinsurers’ share . 175 15 Provisions and other liabilities .............................180 18 Salaries and remuneration .................................183 19 Net income from investments ............................ 187 20 Contingent liabilities ..........................................188 21 Hybrid capital ....................................................188 22 Related party transactions .................................189 23 Events after the balance sheet date ................... 191 25 Share-based payment ....................................... 193
Notes 2 Use of estimates ..................................................87 3 Management of insurance and financial risk .........88 4 Segment information.........................................110 5 Intangible assets ................................................111 6 Shares in associates ...........................................113 7 Owner-occupied property, plant and equipment 115 8 Financial assets and liabilities .............................116 9 Loans and receivables ........................................121 10 Cash and cash equivalents .................................121 11 Restricted funds ................................................121 12 Shares and similar interests ................................122 13 Insurance-related liabilities and reinsurers’ share .125 15 Provisions and other liabilities .............................130 18 Salaries and remuneration .................................134 19 Net income from investments ............................138 20 Contingent liabilities ..........................................139 21 Hybrid capital ....................................................139 22 Related party transactions .................................140 23 Events after the balance sheet date ................... 142 25 Share-based payment .......................................144 26 Earnings per share ............................................. 145 27 Acquisition of Vardia ..........................................146
Operating income Earned premiums from general insurance 22,441.9 21,272.0 Earned premiums from pension 1,479.4 1,431.5 Interest income etc. from banking operations 1,408.0 1,311.0 Other income including eliminations 162.0 140.8 Total operating income 4 25,491.4 24,155.4
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurements of the net defined benefit liability/asset 14 (158.7) 69.0 Share of other comprehensive income from associates and joint ventures 0.3 Tax on items that are not reclassified to profit or loss 39.7 (17.5) Total items that are not reclassified subsequently to profit or loss (118.7) 51.5
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations (391.3) 438.4 Exchange differences from hedging of foreign operations 127.5 Investments available for sale (12.5) 17.0 Tax on items that may be reclassified to profit or loss 66.7 (114.3) Total items that may be reclassified subsequently to profit or loss (337.1) 468.5
Total comprehensive income attributable to: Owners of the company 4,214.6 4,308.8 Non-controlling interests (4.5) (4.1) Total 4,210.1 4,304.7
Equity Share capital 999.9 999.9 Share premium 1,429.9 1,430.0 Other equity 19,876.3 20,876.5 Total equity attributable to owners of the company 22,306.2 23,306.3 Non-controlling interests 19.8 24.3 Total equity 1 22,326.0 23,330.6
Provision for liabilities Subordinated loan 21 1,946.8 1,547.2 Premium reserve in life insurance 13 4,127.0 3,867.2 Provision for unearned premiums, gross, in general insurance 13 9,527.9 9,230.0 Claims provision, gross 13 32,447.5 33,178.5 Other technical provisions 13 297.3 230.5 Pension liabilities 14 511.8 558.8 Other provisions 15 342.1 345.6
Financial liabilities Financial derivatives 8 1,191.8 403.5 Deposits from and liabilities to customers 8, 15 21,270.4 19,357.2 Interest-bearing liabilities 8, 15 19,596.5 17,804.7 Other liabilities 8, 15 1,368.5 1,065.4 Current tax 16 1,272.7 1,295.1 Deferred tax liabilities 16 871.7 835.8 Liabilities related to direct insurance and reinsurance 8, 15 555.2 619.4 Liabilities in life insurance with investment options 17,780.0 15,109.6 Accrued expenses and deferred income 8, 15 493.3 485.3
Exchange differences from foreign operations 438.4 438.4 Exchange differences from hedging of foreign operations 127.5 127.5
Investments available for sale 17.0 17.0 Tax on items that may be reclassified to profit or loss (114.3) (114.3)
Share of other comprehensive income of associates 0.3 0.3 Tax on items that are not reclassified to profit or loss 39.7 39.7 Total items that are not reclassified subsequently to profit or loss (119.0) 0.3 (118.7)
Total items that may be reclassified subsequently to profit or loss (324.7) (12.4) (337.1)
Equity as at 31.12.2016 attributable to the owners of the company 1,000.0 (0.1) 1,430.0 39.2 1,298.3 113.5 (1,702.0) 20,127.3 22,306.3
Cash flow from investing activities Net receipts/payments from sale/acquisition of subsidiaries, associates and joint ventures (92.2) 2,521.7 Net receipts/payments on sale/acquisition of owner-occupied property, plant and equipment and intangible assets (110.7) (21.9) Net receipts/payments on sale/acquisition of customer portfolios - intangible assets (45.5) (36.1) Net cash flow from investing activities (248.4) 2,463.8
Effect of exchange rate changes on cash and cash equivalents (33.1) 33.1 Net cash flow (993.2) 748.1
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 2016, and additional disclosure requirements in accordance with the Norwegian Financial Reporting Regulations for Insurance Companies (FOR 2015-12-18-1775) pursuant to the Norwegian Accounting Act.
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (2016) IFRS 9 addresses the accounting for financial instruments and is effective for annual periods beginning on or after 1 January 2018. An insurer may apply the temporary exemption from IFRS 9 if the activities are predominantly connected with insurance. Gjensidige’s banking operations amounts to a significant part of the group’s turnover and Gjensidige will therefore most likely not be able to apply the temporary exemption.
IFRS 16 Leasing (2016) IFRS 16 requires all contracts that qualify under its definition as a lease to be reported on a lessee’s balance sheet as right of use assets and lease liabilities. Earlier classification of leases as either operating leases or finance leases are removed. Short-term leases (less than 12 months) and leases of low-value assets are exempt from the requirements. A lessee shall recognise right-of-use assets and lease liabilities. The interest effect of discounting the lease liability shall be presented separately from the depreciation charge for the right-of-use asset. The depreciation expense will be presented with the group’s other depreciations, whereas the interest effect of discounting will be presented as a financial item. IFRS 16 is effective 1 January 2019. The standard is expected to have an effect on the group’s financial statements, significantly increasing the group’s recognised assets and liabilities and potentially affecting the presentation and timing of recognition of charges in the income statement.
• derivatives are measured at fair value • financial instruments at fair value through profit or loss are measured at fair value
• financial assets available for sale are measured at fair value • investment properties are measured at fair value
Due to rounding differences, figures and percentages may not add up to the total.
Segment reporting According to IFRS 8, the operating segments are determined based on Gjensidige’s internal organisational management structure and the internal financial reporting structure to the chief operating decision maker. In Gjensidige Insurance Group, the Senior Group Management is responsible for evaluating and following up the performance of the segments and is considered the chief operating decision maker within the meaning of IFRS 8. Gjensidige reports on six operating segments, which are independently managed by managers responsible for the respective segments depending on the products and services offered, distribution and settlement channels, brands and customer profiles. Identification of the segments is based on the existence of segment managers who report directly to the Senior Group Management/CEO and who are responsible for the performance of the segment under their charge. Based on this Gjensidige reports the following operating segments
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 Gjensidige.
Associates Associates are entities in which Gjensidige has a significant, but not a controlling, influence over the financial and operating policies. Normally this will apply when Gjensidige 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. Gjensidige’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include Gjensidige’s share of income, expenses, and movements in equity, after adjustments to align the accounting policies with those of Gjensidige, from the date that significant influence commences until the date that the significant influence ceases.
Transactions eliminated on consolidation Intra-group balances and transactions, and unrealised income and expenses arising from intra-group transactions, are eliminated in the consolidated financial statements. Unrealised gains arising from transactions with equity accounted companies are eliminated against the investment to the extent of Gjensidige’s interest. Unrealised losses are eliminated in the same way, but only to the extent that there is no evidence of impairment.
Interest income and credit commission income from banking operations Interest income and interest expenses are calculated and recognised using the effective interest method. The calculation takes into account arrangement fees and direct marginal transaction costs that form an
Gjensidige annual report 2016 | 81 integral part of the effective interest rate. Interest is recognised in profit or loss using the effective interest method both for balance sheet items that are measured at amortised cost and those that are measured at fair value through profit and loss. Interest income on impaired loans is calculated as the effective interest on the impaired value.
Financial expenses consist of interest expenses on loans that are not part of the banking operations, realised losses related to financial assets, change in fair value of financial assets at fair value through profit or loss, recognised impairment on financial assets and recognised loss on financial derivatives. All expenses related to loans are recognised in profit or loss using the effective interest method.
Provisions for life insurance Technical provisions regarding life insurance in Gjensidige Pensjonsforsikring are premium reserve, claims provision and additional provision.
The technical provisions related to the unit linked contracts are determined by the market value of the financial assets. The unit linked contracts portfolio is not exposed to investment risk related to the customer assets since the customers are not guaranteed any return. In addition there is a portfolio of annuity contracts which have an average 3.5 per cent annually guaranteed return on assets.
The banking operation has established a liquidity portfolio which is continuously measured and reported at fair value. The bank has a goal of having low interest rate risk and plans and manages the interest rate risk so that one aggregates fixed-rate positions on deposits, loans and placements in a model, and then use interest rate swaps to balance out potential remaining risk. Interest rate swaps are measured at fair value, and in order to avoid inconsistent measurement, bonds and certificates with fixed interest-rates issued before 2013 subject to interest rate hedging are measured at fair value. Hedge accounting is used for new bonds and certificates with fixed interest-rates subject to interest rate hedging.
Fair value hedging has in 2015 been carried out to hedge the currency in fixed agreements of acquisition of operations. Gains and losses on the hedging instrument are recognised in profit or loss, together with the change in fair value of the fixed agreement. The change in fair value of the fixed agreement is recognised in goodwill when the acquired operation is accounted for.
The bank uses fair value hedging on interest rate risk. Changes in the fair value of the hedged object dedicated to the hedged risk are adjusting the hedged objects carrying amount and is recognised in profit or loss.
Any actuarial gains and losses related to defined benefit plan is recognised in other comprehensive income.
Notes 1. Equity Share capital At the end of the year the share capital consisted of 500 million ordinary shares with a nominal value of NOK 2, according to the statutes. All issued shares are fully paid in.
At the end of the year the number of own shares was 26,817 (68.175).
NOK 4.00 (2.00) based on excess capital distribution 2,000.0 1,000.0 1 Proposed dividend for 2016 is not recognised at the reporting date, and it does not have any tax consequences.
Gjensidige annual report 2016 | 87 2. Use of estimates The preparation of the financial statements under IFRS and the application of the adopted accounting policies require that management make assessments, prepare estimates and apply assumptions that affect the carrying amounts of assets and liabilities, income and expenses. The estimates and the associated assumptions are based on experience and other factors that are assessed as being justifiable based on the underlying conditions. Actual figures may deviate from these estimates. The estimates and associated prerequisites are reviewed regularly. Changes in accounting estimates are recognised in the period the estimates are revised if the change only affects this period, or both in the period the estimates change and in future periods if the changes affect both the existing and future periods. The accounting policies that are used by Gjensidige in which the assessments, estimates and prerequisites may deviate significantly from the actual results are discussed below.
88 | Gjensidige annual report 2016 3. Management of insurance and financial risk Overview Managing risk is an integral part of Gjensidige’s day-to-day operations. Identification, assessment, management and control of risk exposure as well as analyses of the effects of potential strategic decisions on the risk profile are an essential part of operations. The aim is to ensure that the level of risk-taking is in keeping with the approved risk appetite and to enhance value creation.
Overall management of risks ensures that risks are assessed and handled in a consistent way throughout the Group.
Given the division of operations into operative and reporting segments, the Group has chosen to divide the information in this note on the basis of the business areas general insurance, life insurance/savings and banking, with the exception of certain contexts where it has been natural to present these areas together. The description of the management of financial risk in general insurance operations focuses on the Group’s total general insurance operations and separate tables have not been produced for Gjensidige Forsikring ASA. This reflects the way in which the financial risk is managed.
The risk management function is responsible for monitoring and developing Gjensidige risk management and internal control system. In addition, the function shall have an overview of the risks Gjensidige is or may be exposed to, and what this means for the group solvency. The compliance function shall detect and prevent risks related to compliance with external and internal regulations. Head of the risk management function and head of the compliance function report to Group CEO when it comes to subject matters.
The actuary function is responsible for control of the technical provisions of the insurance companies and comment on underwriting policy and reinsurance arrangements. The responsibility is centralised in the Group 's Actuary department. Head of the actuary function reports to Group CEO when it comes to subject matters.
In addition, the Group has an independent internal audit function, which monitors that the risk management and internal control systems function satisfactory. The internal audit function reports directly to the Board.
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. Chief Risk Officer has overall responsibility for risk management and monitors the Board approved limits, with an independent reporting line to the Group CEO.
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.
• Internal risk-based requirement based on partial internal model: 120 -175 per cent
• Rating requirement: A-rating from Standard and Poor’s: 109 per cent
Figure 4 – Excess capital in the group from different perspectives
Regulatory capital requirement The regulatory capital requirement is calculated based on the standard formula specified in the Solvency II regulation. The capital requirement for the Gjensidige Group is NOK 13.9 billion. Eligible capital is NOK 20.4 billion. This gives a solvency margin of 147 per cent. The capital requirement for Gjensidige Forsikring ASA is NOK 10.3 billion. Eligible capital is NOK 18.6 billion. This gives a solvency margin of 181 per cent.
Table 1 – Regulatory Solvency Capital Requirement for Gjensidige Forsikring ASA and the Gjensidige Group
SCR 10,262.3 10,547.6 13,879.8 14,038.0 Capital surplus 8,362.8 8,112.1 6,498.2 5,453.3 SCR margin 181.5 % 176.9 % 146.8 % 138.8 %
Table 2 – Regulatory Minimum Capital Requirement for Gjensidige Forsikring ASA and the Gjensidige Group
According to Solvency II principles, technical provisions are derived as the sum of a best estimate and a risk margin. For non-life and health insurance the best estimate of technical provisions consist of the premium provisions and the claims provisions. The tables below show the technical provisions for Gjensidige Forsikring ASA and for the Gjensidige Insurance Group according to accounting principles and Solvency II principles.
Claims provisions for non-life and health insurance are discounted in Solvency II, while the claims provisions (except claims provisions for workers’ compensation product in Denmark) are undiscounted in the accounting figures. All other assumptions for Solvency II purposes are identical with the accounting assumptions.
Technical provisions for life insurance are based on a market value approach according to Solvency II principles, where future cashflows are discounted using the Solvency II interest rate curve. This
The tier 2 capital for the Gjensidige Group and Gjensidige Forsikring ASA consists of natural perils capital and subordinated liabilities. Natural perils capital can only be used to cover claims related to natural perils, but can in an insolvent situation also be used to cover other liabilities. The subordinated liabilities comprises of bonds issued by Gjensidige Forsikring ASA (nominal amount of NOK 1,200 million), Gjensidige Pensjonsforsiking AS (nominal amount of NOK 300 million) and Gjensidige Bank ASA (nominal amount of NOK 450 million). The market value of these bonds is NOK 1,912 million per 31.12.2016.
Table 5 - Eligible own funds to meet the Solvency Capital Requirement, split by tiers
Tier 1 15,200.8 15,291.3 16,199.6 15,773.2 Of this; Restricted tier 1 capital from insurance 1,025.0 1,025.0
Tier 2 3,424.2 3,368.3 4,178.4 3,718.1 Of this; Natural perils capital 2,266.2 2,171.0 2,266.2 2,171.0
Total eligible own funds to meet SCR 18,625.0 18,659.7 20,377.9 19,491.4
Table 6 - Eligible own funds to meet Minimum Capital Requirement, split by tiers.
Tier 2 923.6 945.2 1,056.1 1,003.1 Total eligible basic own funds to meet MCR/minimum consolidated group SCR
Diversification (2,779.5) (2,858.2) (3,757.0) (3,674.2) Basic SCR 12,136.8 12,356.3 12,683.5 13,223.2 Operational risk 857.9 871.8 936.9 966.1 Adjustments (riskreducing effect of deferred tax)
The minimum capital requirement for Gjensidige Forsikring ASA is NOK 4,618.0 million. The Minimum Capital Requirement shall be between 25 per cent and 45 per cent of the SCR. The Minimum Capital Requirement before applying the thresholds is NOK 4,654.6 million.
The regulatory capital surplus for the Gjensidige Group, Gjensidige Forsikring ASA and subsidiaries are given in the table below.
Capital charge for life uw risk 1,323.7 944.7 Capital charge for market risk 5,953.0 6,587.8 Capital charge for counterparty risk 496.8 489.7
Gjensidige Bank ASA has its own rating (A- last updated on 30 June 2016), while covered bonds issued by Gjensidige Bank Boligkreditt are rated AAA (last updated on 27 July 2016).
Introduction of the Solvency II-framework The Solvency II regulation took effect 1 January 2016. The capital position is calculated based on Gjensidge’s understanding of requirements and principles given in laws and prescriptions.
There is still some uncertainty about how the calculation of capital requirements and eligible capital should be calculated under the new rules. For general insurance companies the main uncertainties are related to any tax implications of the transition to Solvency II principles for calculating technical provisions and the treatment of the guarantee scheme provision: • Calculation of technical provisions according to Solvency II principles was suggested in a letter from the FSA in June 2014. In August 2015 the Ministry of Justice cancelled a hearing regarding tax based on technical provisions calculated according to Solvency II principles, and the issue is postponed until further notice. According to Gjensidige’s assessment, transition to Solvency II principles should not involve significant changes in the tax position and Gjensidige expects that the final regulations will reflect this.
• FSA argues that the guarantee scheme provision shall be treated as a liability. Gjensidige is of the opinion that the high level of domestic deposits which are actually equity elements should be treated as eligible solvency capital. The company will continue to pursue a regulatory framework in line with this. Until final clarification the guarantee scheme provision is treated as a liability under Solvency II.
Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability around the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected by a change in any subset of the portfolio.
Gjensidige has developed its steering documents for insurance risk to diversify the types of insurance risks and, within each of these categories, achieve a sufficiently large population of risks to reduce the fluctuation in the expected outcome.
The severity of claims is affected by several factors. In some LOB, with relatively few claims, the severity may be heavily influenced by large claims. The number of large claims incurred during a year varies significantly from one year to another. This is typical of the commercial market. In most LOB the underlying development of the severity of claims is influenced by inflation.
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 severity of claims will be incluenced by inflation and specifically by increased building costs, which in the past has been slightly higher than CPI. For accident and health the insurance policies are divided into two main groups, one with fixed sum insured and another part where the compensation is adjusted in accordance with a public/government index (in Norway: ‘G’ - the basic amount in the National Insurance Scheme). This is the case in Workers’ Compensation, for instance. The Group writes Workers’ Compensation insurance in Norway and Denmark. The regulation of this 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.
Total 26,822.2 100.0% 25,053.6 100.0% Total Gjensidige Forsikring ASA 22,118.4 82.5% 21,251.1 84.8%
Table 11a – Gross premiums written per line of business, Gjensidige Group
Fire and other damage to property insurance 7,855.1 29.3% 7,140.6 28.5%
General liability insurance 648.1 2.4% 673.4 2.7% Other 4,161.3 15.5% 3,766.2 15.0% Pension and savings 3,604.2 13.4% 3,078.0 12.3%
General liability insurance 627.7 2.8% 625.0 2.9% Other 4,106.5 18.6% 4,647.2 21.9% Total 22,118.4 100.0% 21,251.1 100.0%
• Economic, legal and social trends and social inflation - (e.g. a shift in court awards)
Gjensidige has a centralised actuarial department, and the actuaries in the Gjensidige Group working with technical provisions meet regularly, as part of keeping a high professional level. Under Solvency II Gjensidige has established an actuarial function to ensure that the technical provisions are at a sufficient level and are calculated according to current regulations.
Change in severity of claims (+10%) General insurance Private 503.1 490.9 General insurance Commercial 482.5 482.7 General insurance Nordic 474.0 386.1 General insurance Baltics 74.8 52.0
General insurance Private 289.9 312.7 General insurance Commercial 337.2 374.1 General insurance Nordic 551.6 556.6 General insurance Baltics 4.5 2.2
Gross Estimated claims cost At the end of the accident year 12,187.8 12,664.8 12,808.3 12,366.3 14,528.8 15,649.2 13,269.7 15,102.8 14,714.3 12,601.4 13,627.2 - One year later 12,047.2 12,700.3 12,884.4 12,310.9 14,398.9 15,886.2 13,225.9 14,995.8 14,346.3 12,569.9 - Two years later 11,974.4 12,575.0 12,792.5 12,153.6 14,426.0 15,928.5 13,150.4 14,821.4 14,229.0 - Three years later 11,787.5 12,515.2 12,769.5 12,161.4 14,351.8 15,749.8 12,983.6 14,628.4 - Four years later 11,776.9 12,534.2 12,728.1 12,021.4 14,272.6 15,552.9 12,809.5 - Five years later 11,791.2 12,457.4 12,601.3 11,961.0 14,166.2 15,434.4 - Six years later 11,746.3 12,367.5 12,558.1 11,916.0 14,044.0 - Seven years later 11,644.7 12,329.9 12,512.6 11,779.5 - Eight years later 11,607.5 12,281.7 12,426.6 - Nine years later 11,659.1 12,144.3 - Ten years later 11,477.4
Total disbursed 10,556.9 11,077.8 11,189.2 10,363.1 12,600.8 13,918.2 11,125.3 12,551.4 11,987.9 9,512.2 7,291.2 122,174.0 Claims provision 920.5 1,066.5 1,237.4 1,416.3 1,443.2 1,516.2 1,684.2 2,077.1 2,241.1 3,057.6 6,336.1 22,996.1 Prior-year claims provision and loss adjustment provision 6,737.7 Gjensidige Baltic 511.3 Total 30,245.1
Net of reinsurance Estimated claims cost At the end of the accident year 12,075.9 12,396.0 12,644.3 12,337.3 14,042.4 14,724.8 13,066.4 14,371.4 14,589.5 12,601.4 13,386.9 - One year later 11,931.4 12,432.1 12,730.2 12,282.1 13,938.8 14,900.7 13,017.0 14,225.7 14,215.5 12,569.7 - Two years later 11,816.4 12,289.4 12,643.7 12,130.5 13,964.0 14,996.5 12,956.5 14,137.2 14,102.1 - Three years later 11,622.7 12,233.8 12,615.8 12,138.3 13,890.7 14,878.8 12,784.1 13,941.4 - Four years later 11,606.9 12,252.7 12,574.6 11,998.8 13,810.6 14,677.9 12,605.0 - Five years later 11,621.3 12,178.5 12,448.3 11,937.2 13,699.9 14,559.4 - Six years later 11,579.3 12,088.6 12,403.8 11,892.3 13,577.7 - Seven years later 11,476.6 12,051.0 12,358.3 11,755.7 - Eight years later 11,439.4 12,002.8 12,272.2 - Nine years later 11,493.3 11,865.4 - Ten years later 11,311.5
Net of reinsurance Estimated claims cost At the end of the accident year 11,598.1 11,994.4 12,079.3 11,685.6 13,169.3 13,538.5 12,444.8 13,525.5 13,972.4 11,950.8 12,740.3 - One year later 11,469.4 12,008.4 12,189.8 11,614.9 13,111.2 13,715.9 12,443.4 13,420.6 13,597.8 11,918.9 - Two years later 11,370.5 11,879.9 12,100.8 11,476.2 13,131.6 13,801.7 12,398.0 13,342.4 13,478.3 - Three years later 11,180.4 11,823.6 12,060.4 11,479.2 13,058.3 13,687.9 12,237.4 13,161.5 - Four years later 11,165.4 11,829.6 12,019.4 11,343.4 12,961.0 13,490.0 12,055.1 - Five years later 11,169.0 11,751.3 11,893.9 11,276.3 12,847.7 13,369.7 - Six years later 11,123.7 11,664.4 11,849.0 11,228.4 12,721.4 - Seven years later 11,019.6 11,624.7 11,802.1 11,087.3 - Eight years later 10,981.3 11,576.3 11,715.3 - Nine years later 11,032.3 11,436.8 - Ten years later 10,853.6
Total disbursed 9,978.0 10,420.6 10,561.7 9,688.0 11,648.8 12,012.6 10,552.9 11,511.7 11,409.1 8,961.1 6,913.1 113,657.3 Claims provision 875.6 1,016.2 1,153.7 1,399.4 1,072.6 1,357.1 1,502.2 1,649.8 2,069.2 2,957.8 5,827.2 20,880.8 Prior-year claims provision and loss adjustment provision 8,536.3 Total 29,417.1
Risk of insufficient premium reserve can arise when mortality and disability rates do not develop as expected. This is called insurance risk.
(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
Compulsory occupational pensions 62,022 8,750 Other defined contribution pensions 61,822 7,248 Total 123,844 15,998
Compulsory occupational pensions 50% 55% Other defined contribution pensions 50% 45%
As from 1 January 2014 GPF applies the mortality tariff «K2013» 1, for the calculation of reserves for products that expose GPF to mortality and longevity risk. The 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 the previous calculation basis K2005; thus there is a need for GPF to increase its reserves. GPF has reported to the FSA and got the approval for a reserve building plan where the reserves will be increased gradually within 2020. A large part of the company’s surplus this year and the coming years will be withheld for this purpose. One of the basic principles for this plan is that reserves need to be built individually per contract, and the company is required to contribute at least 20 per cent from own funds to the needed increase in reserves. On this basis GPF has registered a plan for increasing the reserves. The total calculated need for increase in reserves is calculated to NOK 214 million. After the 2015 year end NOK 22 million remain. GPF’s estimated contribution is NOK 7 million, excluding contribution from the owner’s share of surplus. Approximately 70 per cent of the portfolio (in reserves) is fully reserved as per 1.1.2017. 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.
Occupational pensions may include a waiver of premium for Disability2 and disability cover, which expose GPF to disability risk. Mandatory occupational coverage requires some disability coverage, so a large proportion of disability risk is connected to these plans where annual payment is two per cent of the salary. Some paid-up policies also include disability coverage where benefits originally were linked to salary. Disability risk premiums are based on a tariff which is developed in collaboration with Gjensidige Forsikring ASA (GF). It is based on national statistics from social security and insurance claims primarily from GF. Disability reserves have been increased with NOK 444 million in 2016.
1 K2013 is based on predictions about life expectancy performed by Statistisk Sentralbyrå (Statistics Norway, SSB). Three different life expectancy alternatives were made, “High”, “Medium” and “Low”. K2013 uses the medium alternative. FSA required insurance companies to add safety margins to account for higher life expectancy in insured population and their deviating dynamic development in mortality (compared to uninsured). 2A waiver of premium for disability states that the insurance company will not charge the usual defined contribution premium in case of disability.
Insurance risk is satisfactory per December 31 2016, and provisions for claims are considered to 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.
Sensitivity analysis pension insurance GPF has been in business for ten years. Since the data material is increasing, GPF has adjusted the premium tariffs; one of the changes has been an increase in the premium for disability coverage.
Longevity sensitivity testing is performed for several purposes, and Solvency II calculations reveal a potential loss of approximately NOK 135 million per Q4 2016, 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.
The table below shows risk exposure within underwriting risk for the Gjensidige Pensjonsforsikring based on standard formula calculations: Table 16 - Distribution of insurance risk Gjensidige Pensjonsforsikring
The table below shows an overview of the asset allocation for the insurance business at year-end 2016 and 2015. The asset allocation is divided between a match portfolio, which purpose is to cover insurance liabilities, and a free portfolio which can be viewed as the Group’s invested equity. The actual allocation will vary throughout the year and follow movements in the market, tactical allocation and risk situation.
Match portfolio Money market 5,159.5 9.6% 6,836.6 12.0% Bonds at amortised cost 17,491.3 32.4% 18,747.7 32.8%
Free portfolio Money market 4,321.1 8.0% 4,066.4 7.1% Other bonds 2 3,689.5 6.8% 4,075.5 7.1% High Yield bonds3 1,072.2 2.0% 2,475.9 4.3% Convertible bonds 4 1,045.3 1.9% 1,066.4 1.9% Current equities 5 2,870.3 5.3% 3,250.3 5.7% PE-funds 1,145.7 2.1% 1,383.7 2.4% Property 6 3,072.2 5.7% 3,188.1 5.6% Other 7 1,673.5 3.1% 1,628.9 2.8%
Free portfolio total 18,889.9 35.0% 21,135.2 37.0% Investment portfolio total 53,957.7 100.0% 57,173.9 100.0%
1 The item includes the market value of the interest rate hedge in Denmark. Investments include mortgage, sovereign and corporate bonds, investment grade bond funds and loan funds containing secured debt. 2 The item includes total investment grade and current bonds. Investment grade bonds are investments in internationally diversified funds that are externally managed. 3 Investments in internationally diversified funds that are externally managed. 4 Investments in internationally diversified funds that are externally managed. 5 The item includes the investment in SpareBank 1 SR-Bank ASA. Other investments are mainly investments in internationally diversified funds that are externally managed. In addition, there is derivative exposure of NOK (15.7) million. 6 Gjensidige Forsikring ASA halved its property exposure through the sale of 50 per cent of Oslo Areal AS late 2015. In addition, there was a forward contract on the IPD index further increased Gjensidige's property exposure by NOK 1.6 billion throughout 2016, and total return swaps with Gjensidige Pensjonskasse and Gjensidige Pensjonsforsikring AS reducing the property exposure in total by NOK 200.0 million. 7 The item includes currency hedging related to Gjensidige Sverige and Gjensidige Denmark, lending, paid-in capital in Gjensidige Pensjonskasse, hedge funds and commodities.
Table 18 – TVaR utilization of risk limits in the liquid part of the free portfolio
This stress test based on figures at year-end is shown below (Group figures). The stress parameters are partly based on the standard formula and partly on Gjensidige’s internal model. One simplification is not explicitly calculating diversification effects. On the other hand the value decrease in the stress scenario is reduced by lower tax, and the capital requirement after stress is calculated on a lower balance. The time horizon in the stress test is one quarter.
Equities include private equity, hedge funds, Sparebank 1 SR-Bank ASA, and a pertaining value-adjusted drop for equity derivatives. The interest rate risk is calculated net of assets and liabilities, and Gjensidige Pensjonsforsikring is included. The spread widening in the credit spread risk is based on the standard formula. Insurance risk is modelled through Gjensidige’s internal model, while the stress for Gjensidige Bank is based on the banks ICAAP process.
Market risk (2,284.9) Insurance risk (life and non-life) Expected loss CR > 100 (645.0) Capital, Gjensidige Bank ICAAP (100.0)
Effect on surplus capital Available capital before stress 20,377.9 Capital requirement before stress 13,879.8 Surplus without buffer before stress 6,498.2
Surplus without buffer after stress 4,359.4 Solvency ratio after stress 132.3 % Solvency ratio before stress 146.8 %
Assets/risk Equities and hedgefund 20% drop (576.0) Interest rate risk 150 bps change (837.0) Property 12% drop (496.7) Private equity 25% drop (345.9)
Total market risk (2,397.3) Insurance risk General insurance Internal model (404.5)
SpareBank 1 SR-Bank ASA Internal model (301.0) Capital subsidiaries (285.2) Pension commitments (298.0) Total undiversified insurance risk, major company investments, subsidiaries and pension commitments (1,288.7)
Equity price risk The largest exposure is to SpareBank 1 SR-Bank ASA. Other equity exposures are mainly investments are mainly investments in internationally diversified funds, with the majority focusing on developed markets. The concentration risk is shown in the table below.
SpareBank 1 SR-Bank ASA 747.7 Point Resources 79.2 Atlantica Tender Drilling 73.7 SOS International A/S 51.5 Ocean Installer 26.8
HitecVision Private Equity V LP 94.1 Argentum Secondary III 91.4 HitecVision Asset Solution KS 81.2 HitecVision VI LP 58.7 Verdane Capital VII KS 43.8 Total five largest 369.2 Total private equity 1,145.7
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.
The interest rate sensitivity of the fixed-income portfolio is also shown in the table below. From 2016 onwards, only the fixedincome portfolio in the free portfolio is included, for which the Board has set a limit of NOK 750 million for the interest rate sensitivity for a 1 per cent shift in the yield curve. The corresponding figure is changed to show the corresponding risk as at year-end 2015. Interest rate risk of the Tier 1 and Tier 2 loans that Gjensidige Forsikring ASA has issued is included. This table does not include the interest rate sensitivity in the match portfolio, includingthe effect of the swap agreements in the Danish branch, as they have a reciprocal effect on the liabilities. The interest rate sensitivity in the match portfolio is measured in ALM-risk fixed-income.
Asset and liability management (ALM) risk fixed-income Figure 8a shows the expected pay-out pattern for the Group’s premium and claims provisions as at year-end 2016 and 2015, respectively. Approximately one third of the provisions are expected to be paid out within one year.
The match portfolio will match these cash flows, with a duration mismatch limit, which also includes total pension commitments and the investment portfolio of Gjensidige Pensjonskasse, of maximum one year and a maximum net interest rate sensitivity of NOK 350 million. The table below shows this as of 30 November 2016. The corresponding figure is changed by removing the subordinated loan.
The Group owns most of its properties through Oslo Areal AS, although a small part of the portfolio is invested in property funds outside Norway. In addition to the amounts invested through funds, an additional NOK 11.8 million is committed, but not invested. The joint venture Oslo Areal AS manages the real estate portfolio. The portfolio consists of investment properties. The real estate portfolio has its largest concentration in offices in the Oslo area, but it also contains property in other major cities in Norway. In addition, there was a NOK 1,600 million forward contract on the IPD index which expired at year-end 2016.
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, short sales 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 take allocation risk between the individual asset classes and/or risk premiums. Individual funds are used.
Sector Healthcare - A USD 290.9 Goldman Sachs Global Opportunities Offshore 205.8 Winton Futures Fund- Lead Series 148.2 Sector EuroPower Fund Class A EUR 102.2 Incentive Active Value Fund Cl. A EUR Unrestricted 96.8 Total five largest 843.9 Total hedgefunds 947.0
The Group underwrites insurance in the Scandinavian and Baltic countries, and thus has insurance liabilities in the corresponding currencies. The foreign exchange risk, at both group and company levels, is generally hedged by matching technical provisions with investments in the corresponding currency. The focus of the currency hedging strategy is to minimize currency risk in surplus capital for the Group in accordance to the capital requirement which is the most binding at any time (currently Rating). This is implemented by adjusting assets in foreign branches and subsidiaries such that surplus capital in foreign currency is minimized, which minimizes currency risk in the surplus capital for the Group. The effect of exchange rate movements on available capital and the capital requirement will be of the same magnitude. This minimizes fluctuations in surplus capital. The strategy has been efficient post implementation.
A ten per cent strengthening of NOK against all other currencies will increase surplus capital by NOK 49.2 million and decrease profit or loss by NOK 9.4 million. Book equity in currency in foreign entities is approximately 6 billion, and a consequence of the currency hedging strategy is that book equity is exposed to foreign exchange risk. A ten per cent strengthening of NOK would at year-end decreased book equity by NOK 653.5 million. A weakening of NOK will have the opposite effect. .
For investments, risk limits for credit risk are set in several ways. As a starting point a credit limit is set for designated counterparties. For issuers with an official credit rating from a recognised rating agency, this is generally utilised as a criterion. The list of credit limits is approved by the CFO and used for all separate mandates and for derivative counterparties. In addition, the board-approved asset allocation sets limits on global bonds, both bonds with high financial strength ratings (investment grade) and other bonds (high yield). In addition, there is a maximum limit on credit duration measured as a one per cent change in credit spreads, which include all fixedincome assets in the balance sheet. This limit was NOK 2,000 million in 2016.The Group’s total fixed-income portfolio of NOK 45,165.1 million as at 31 December 2016 (including the amortized cost portfolio, other bonds, certificates and deposits) consisted of NOK 6,251.9 million issued by government sector entities and NOK 38,913.2 million issued by non-public entities. Most of the latter category was financial institutions. The distribution is shown in the table below.
Risk by 100 bps change in credit spread 3.3 (1,595.7) (2,000.0)
Government 13.8% 12.0% Banks and financial institutions 50.0% 52.9% Corporates 36.1% 35.1% Total 100.0% 100.0%
AAA 11,517.0 11,687.6 AA 4,397.5 4,707.8 A 8,088.7 11,070.4 BBB 3,709.2 3,201.2 BB 1,152.4 1,789.9 B 2,078.8 1,684.9 CCC or lower 108.2 126.0 Not rated 14,113.4 13,551.2 Total 45,165.1 47,818.9
Table 31 – Fixed-income portfolio per rating category, internal rating included
DNB ASA 2,992.5 Nordea Bank AB 2,897.1 Nykredit Realkredit A/S 2,265.5 Realkredit Danmark A/S 1,566.5 NIAM V Kjøpesenter I Holding AS 1,284.5 BKK AS 1,128.0 Lloyds TSB Bank PLC - Covered Bonds 1,023.6 Sparebanken Sør 959.0 E-CO Energi AS 923.7 Oslo kommune 910.6 Total ten largest 15,950.9
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. Exposures also include mortgage bonds and covered bonds for groups that have issued such.
Nordea Bank AB 3,161.0 DNB ASA 2,799.1 Nykredit Realkredit A/S 2,272.6 Danske Bank A/S 1,650.3 Kongeriket Norge 1,452.6 BKK AS 1,280.5 JPMorgan Chase & Co. 1,257.9 NIAM V Kjøpesenter I Holding AS 1,227.5 Lloyds TSB Bank PLC - Covered Bonds 1,062.5 Realkredit Danmark A/S 974.5 Total ten largest 17,138.5
NOK millions Direct insurance Reinsurance 2016 Installments not due 4,618.0 277.6 <35 days 422.1 0.2 35-90 days 143.3 62.7 > 90 days 96.7 1.0 Total 5,280.0 341.5 2015 Installments not due 4,514.4 28.7 <35 days 220.1 0.5 35-90 days 122.3 0.2 > 90 days 110.6 0.6 Total 4,967.4 30.0
Reinsurance is used to manage insurance risk. However, this does not discharge Gjensidige of its liability as primary insurer. 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 2016 and 2015, i.e. the rating of the reinsurers that would have been drawn on if the losses had occurred.
Table 34 – Reinsurance receivables and reinsurers’ share of claims provisions 2016 2015
AAA AA 293.6 31.7% 235.9 45.4% A 604.7 65.2% 251.0 48.3% BBB 1.0 0.1% 3.6 0.7% BB 0.4 0.1% B 0.6 0.1% Not rated 28.3 3.0% 28.2 5.4% Total 927.6 100.0% 519.8 100.0%
For a going concern, this will result in a positive net cash flow under normal circumstances. Large net outflows would generally only arise as a result of acquisitions or recapitalisation of subsidiaries. In the event of a large claim or catastrophic event, the payments will take place sometime after the event, and the reinsurers will cover most of the amount within a short time of the payments having been made to the claimants. In an extreme scenario, reinsurers could fail to honour their obligations after a catastrophic event.
Bank deposits 1,237.4 Money market instruments 1,779.3 Bonds and certificates coupons with maturity less than 6 months 217.5
In Gjensidige Pensjonsforsikring AS, asset management is governed by four documents: ‘Policy for investment activities’, ‘Capital management policy’, ‘Investment strategy for portfolios with equity risk’ and ‘Investment strategy for portfolios without equity risk’. The documents are subject to approval by the Board of Gjensidige Pensjonsforsikring AS. The Board must carry out an assessment of these four documents at least once a year. The Board’s assessment must be in writing and it must be included in the minutes of the board meeting.
The policy for investment activities describes the scope of the company’s asset management, the purpose of the asset management, organisation and responsibility, reporting, monitoring and control, financial authorisations, asset classes and instruments, derivatives, management and control of various risks relating to asset management, the use of external managers, the entering into of management agreements, liquidity policy, credit policy and SRI criteria.
The investment strategy document sets goals for asset management in the current year and defines limits for the asset management.
Gjensidige Pensjonsforsikring AS also has a liquidity strategy that describes the company’s liquidity needs one year ahead. It is adopted by the Board. The purpose of the strategy is to ensure satisfactory liquidity management, so that the company has sufficient liquid assets at all times to meet its commitments when they fall due.
The portfolios that expose the company’s equity to risk have a long duration on the liability side. Deviations in duration between the asset and liability sides based on a market value valuation are significant. In a Solvency II perspective, the liability side is valued based on a swap curve up until 10 years and then with an interpolation of interest rates that ends in an ultimate forward rate of 4.2% at the 60-year point. Under the accounting rules, the liability side is valued based on the base interest rate, and its value does not change in the event of changes in the interest rate. The asset side is valued at market value with the exception of bonds recognised as held to maturity or loans and receivables. In the risk management, endeavours are made to balance the three different perspectives to achieve an operational strategy for the company.
Capital Management Identification, quantification and management of risk are an important part of the company's activities. All insurance companies must adapt their risk exposure to their capital base. Insurance companies must have sufficient solvency capital as a buffer against unfavourable outcomes, and this capital base must be adapted to the risk level. On the other hand, solvency capital, or equity, has a cost. An important goal of capital management is to balance these two aspects. Gjensidige Pensjonsforsikring AS’s goals for capital management are specified in the capital management policy adopted by the Board. The company’s capitalisation must satisfy the following requirements in order of priority: 1. The statutory requirements applicable at all times pursuant to the Financial Undertakings Act and the Regulations relating to minimum equity requirements for Norwegian insurance companies.
Gjensidige Pensjonsforsikring AS’s long-term goal is to distribute dividends to its owner Gjensidige Forsikring ASA. The dividend will be assessed every year based on the company’s future capital need and solvency margin.
The Solvency II capital requirement for Gjensidige Pensjonsforsikring AS is NOK 1,282.9 million. Available capital is
A purely market value-based valuation of both the asset and liability sides means that a yield model must be used to estimate long-term Norwegian interest rates. Long-term Norwegian interest rates are rarely traded, and their pricing is therefore associated with uncertainty because there are few observable transactions. With today’s yield curve and with the models used to estimate long-term Norwegian interest rates (rates beyond 20 years), the marketestimated interest rates will be significantly lower at the 60-year point than today’s UFR.
Table 37 – Asset allocation excluding the unit-linked portfolio, Gjensidige Pensjonsforsikring
Money market 1 1,614.5 1,756.1 Bank deposits 479.0 363.8 Bonds held to maturity 30.5 61.1 Loan and receivables 3,149.7 3,122.6 Current bonds 332.1 26.4 Equities 13.0 11.9 Real estate 734.1 Other 0.2 5.6 Total 6,353.2 5,347.4 1 The money market exposure is reduced and property exposure increased through a total return swap with Gjensidige Forsikring ASA with notional value of NOK 50.0 (600.0) million.
The investment portfolio of Gjensidige Pensjonsforsikring AS, exclusive the unit-linked portfolio amounted to 6,352.2 million at December 31, 2016. This is mainly invested in fixed income securities, real estate, money market funds and bank deposits, but also has a smaller proportion of shares in funds originating from a trading inventory portfolio in the company portfolio of Gjensidige Pensjonsforsikring AS.
The accounting interest rate risk in Gjensidige Pensjonsforsikring AS’ assets is very limited due to that the securities are invested in bonds held to maturity and loans and receivables, as well as other fixed-income securities are of short duration. Gjensidige Pensjonsforsikring AS is exposed to equity risk through a small allocation in shares in funds in the company portfolio.
The table above shows the effect of a ten per cent drop in the stock market and a one percentage point increase in interest rates on the equity in Gjensidige Pensjonsforsikring AS. Calculations do not take into account tax effects or that a share of the returns normally goes to the customers.
The largest single exposure per counterparty is included in the group table.
Management of credit and financial risk – Gjensidige Bank Gjensidige Bank ASA is mainly exposed to credit risk, market risk, liquidity risk and operational risk. The Board approves the risk appetite statement and the strategy and policies for managing the bank's risks. The largest material risk is 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 strategy, policies, 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 reviewed annually by the Board. As a part of the ICAAP-process the bank uses different models to calculate capital requirements. 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 capital plan is constantly updated based on actual growth and updated forecasts.
The Board sets the overall limit for the bank's credit risk appetite through its Credit Strategy and Policy and risk appetite statement. Gjensidige Bank ASA offers a wide range of lending products including secured as well as unsecured loans and credit to meet a variety of needs of consumers in the country.
With the launch of the car finance, the bank has also started commercial lending in an exceptional basis to support the growth of the standard loans and leasing offered within the car finance business and creates awareness in the market of the banks products. This includes products like dealer floor finance, fleet finance to key players in the car dealer market and loans and leasing to a few corporates related to car business. Lending in the commercial segment is usually secured exposures and in addition the bank may require guarantees prior to approving the exposure.
108 | Gjensidige annual report 2016 using internal models to assess the solidity, stability, liquidity and profitability.
With the help of these score models, the lending portfolios in the bank are grouped into risk classes, starting from the worst risk, based on their probability of default in addition to already defaulted and unclassified. These risk categorisations are mainly intended to assist in various credit decisions. They are then further grouped into three main risk groups: Low risk, Medium risk and High risk which are used in the bank's monthly portfolio monitoring and reporting.
The table below shows the lending portfolio and write-downs as of 31 December 2016 and 31 December 2015 segmented by risk groups.
Table 41 – Payments overdue 0-30 days 798.2 555.9 30-90 days 187.4 163.1 Over 90 days 399.5 339.2 Total 1,385.1 1,058.2
Market risk Market risk is the risk of losses associated with movements in market prices, which, in this context relate to positions and activities in the interest-, currency-, credit and stock markets.
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. Fixedinterest 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).
Currency risk is the risk of loss due to changes in exchange rates. The risk arises from the bank's bond in foreign currency. The bank manages this risk by using derivatives. The bank changes from currencies into NOK with an approved counterparty on both principal and interest through "cross currency rate swaps". In practice this means that a combination of a bond in currency and cross-currency rate swap rate swap,
Gjensidige Bank ASA does not have stock market risk. Gjensidige Bank ASA does not have market risk under Pillar 1 because the bank does not have a trading portfolio.
Liquidity risk Liquidity risk is the risk of the bank not being able to meet its debt obligations when due and/or not being able to finance growth of its assets without incurring a substantial increase in costs.
As of 31 December 2016 the liquidity reserve was NOK 4,315.2 million, divided between NOK 120.0 million in bank deposits and NOK 4,195.2 million in debt securities. Of these assets NOK 661.1 million were investments in covered bonds from Gjensidige Bank Boligkreditt AS (eliminated in the consolidated accounts). The net liquid assets were at an adequate level that covers the bond debt that will fall due in the next 20 months. Stress tests have also been carried out to demonstrate the bank’s liquidity need based on future scenarios involving a general recession and/or a bank specific crisis.
Loans to and claims on credit institutions 77.5 77.5 Loans to and claims on customers 333.4 643.9 2,597.2 12,038.2 31,160.7 180.3 46,953.7 Certificates, bonds and other interest-bearing securities 101.7 6.7 699.1 2,403.0 105.1 3,315.6 Other financial assets 37.0 175.9 212.9 Derivatives – gross inflows 1.5 6.8 97.7 327.0 145.5 578.5 Total financial assets 473.6 657.4 3,394.0 14,768.3 31,411.2 433.6 51,138.2
Deposits and liabilities to customers 16,702.4 536.8 2,118.1 19,357.2 Liabilities opened for the issue of securities 10.2 458.1 834.3 15,101.1 2,927.0 19,330.8 Loan offers and unused credit facilities 7,527.2 7,527.2 Derivatives – gross outflows 0.7 16.3 61.4 216.8 74.8 369.9 Total liabilities 24,240.4 1,011.2 3,013.8 15,317.9 3,001.8 46,585.1
Description of the segments General Insurance Private The Private segment offers a wide range of general insurance products and services in the Norwegian private market, including insurances related to motor, property, accident and health and leisure.
Pension and Savings Pension and Savings shall contribute to sales of a wide range of products to general insurance customers in Norway by offering pension and savings products, mainly to the Norwegian commercial market. The pension products include defined contribution pensions and related risk for disability and death, private pension savings and individual disability pensions. The savings products include readyfund packages, funds from reputable asset managers and asset management.
Description of the segments income and expenses Segment income is defined as earned premiums for general insurance, earned premiums and management income etc. for Pension and Savings and interest income and other income for Retail Bank.
Private Commercial Nordic Baltics Pension and Retail Bank Eliminations etc. 1 Total
Cost As at 1 January 2015 3,084.4 1,023.5 44.9 1,122.4 299.1 5,574.4 Additions 16.5 73.5 56.0 146.0 Additions through business combinations 497.1 75.4 184.3 756.8 Additions from internal development 156.2 156.2 Disposals/reclassifications (227.5) (5.8) (0.8) (244.9) (2.5) (481.5) Exchange differences 177.1 59.2 2.1 25.3 28.8 292.5 As at 31 December 2015 3,531.1 1,168.8 46.2 1,132.6 565.7 6,444.4 Uncompleted projects 118.0 118.0 As at 31 December 2015, including uncompleted projects 3,531.1 1,168.8 46.2 1,250.6 565.7 6,562.4
Carrying amount As at 1 January 2015 2,819.0 407.8 7.2 558.7 149.7 3,942.4 As at 31 December 2015 3,224.5 415.9 0.2 593.7 333.9 4,568.0
Carrying amount As at 1 January 2016 3,224.5 415.9 0.2 593.7 333.9 4,568.0 As at 31 December 2016 3,140.2 360.1 0.0 611.6 388.7 4,500.7
The group has in 2016 acquired the Swedish insurance portfolio of the Vardia insurance group and the company Vardia Forsäkring AB. In 2015, PZU Lietuva in Lithuania and Mondux in Denmark were acquired. In addition 50 percent of Oslo Areal was sold in the fourth quarter. The remaining investment is after the sale classified as joint venture and recognised according to the equity method.
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 varies so that the discount rate is 7.5 per cent for all companies. This corresponds to the discount rate of the group. In 2015 the discount rate that was used was 7.5 per cent for Denmark and Sweden and 8.5 per cent for Baltic. In 2016 the country-risk has been adjusted directly in the cash flow of all units.
Gjensidige annual report 2016 | 113 6. Shares in associates and joint ventures
Associates - additional information Oslo Areal AS, pro & contra settlement shares (1.3) N/A
Total shares in associates and joint ventures 171.3 54.2 117.1 373.9 3.7 184.1
Associates - additional information Bilskadeinstituttet AS (liquidated in 2014) 2.0 Vervet AS 100.0 4.3 95.7 0.7 (1.7) 6.0 N/A FDC A/S 249.3 80.1 169.2 432.3 (12.2) (12.8) N/A
Joint ventures - additional information Oslo Areal AS (November-December 2015) 2 54.6
Income statement Operating income 423.0 419.8 Operating expenses (75.4) (75.5) Interest income 2.1 1.5 Interest expenses (65.4) (71.5) Fair value adjustments property 111.9 271.7 Gains/losses on sale of property 27.0 3.7 Depreciation and amortisation (3.9) (8.8) Profit/(loss) before tax expense 419.4 540.9 Tax expense (69.4) (92.0) Profit/(loss) 350.0 448.9 Components of other comprehensive income 134.8 0.1 Total comprehensive income 484.8 449.0
There are contractual commitments regarding development of investment properties in Oslo Areal AS amounting to NOK 30.0 million (71.0). The commitment falls due during the period until 31 December 2017.
Depreciation and impairment losses As at 1 January 2015 (45.8) (386.8) (432.6) Depreciation for the year (11.7) (59.2) (70.9) Disposals 50.1 31.3 81.3 Exchange differences (0.2) (5.4) (5.5) As at 31 December 2015 (7.8) (420.2) (428.0)
Depreciation and impairment losses As at 1 January 2016 (7.8) (420.2) (428.0) Depreciation for the year (0.4) (60.2) (60.6) Disposals 7.5 164.6 172.1 Exchange differences 0.3 5.7 6.0 As at 31 December 2016 (0.4) (310.1) (310.5)
Market value of land and owner-occupied property 45.6 50.2 Carrying amount of land and owner-occupied property 29.5 34.8 Excess value beyond carrying amount 16.1 15.4
116 | Gjensidige annual report 2016 8. Financial assets and liabilities Fair value Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in an orderly transaction between market participants at the measurements date at the prevailing market conditions.
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 12 6,892.1 6,892.1 7,202.3 7,202.3 Bonds and other fixed income securities 30,385.8 30,385.8 30,626.4 30,626.4 Shares and similar interests in life insurance with investment options 16,002.8 16,002.8 13,720.6 13,720.6 Bonds and other fixed income securities in life insurance with investment options 1,777.2 1,777.2 1,389.0 1,389.0
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 1,191.8 1,191.8 403.5 403.5
Financial liabilities at amortised cost Subordinated debt 21 1,946.8 1,904.9 1,547.2 1,485.5 Deposits from and liabilities to customers, bank 15 21,270.4 21,270.4 19,357.2 19,357.2 Interest-bearing liabilities 15 19,596.5 19,649.2 17,804.7 17,616.7 Other liabilities 15 1,368.5 1,368.5 1,065.4 1,065.4 Liabilities related to direct insurance 15 555.2 555.2 619.4 619.4 Accrued expenses and deferred income 15 493.3 493.3 485.3 485.3
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 1,335.4 1,335.4
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 820.4 3,764.6 2,307.0 6,892.1 Bonds and other fixed income securities 10,840.6 18,211.7 1,333.5 30,385.8 Shares and similar interests in life insurance with investment options 15,993.6 9.2 16,002.8 Bonds and other fixed income securities in life insurance with investment options 1,764.3 12.9 1,777.2
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 1,191.8 1,191.8
Financial liabilities at amortised cost Subordinated debt 1,904.9 1,904.9 Interest-bearing liabilities 19,649.2 19,649.2
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 434.3 434.3 Financial derivatives subject to hedge accounting 52.2 52.2
unrealised gains recognised in profit or loss that are attributable to instruments held as at 31.12.2016
unrealised gains recognised in profit or loss that are attributable to instruments held as at 31.12.2015
Fair value hedging Gjensidige Bank utilizes fair value hedge accounting to manage its interest rate risk. Hedging is performed to prevent from valuation variations of issued fixed rate obligations due to changes in the rate level. Interest rate swaps designed as hedging instruments are measured at fair value through profit or loss. The changes in fair value for the hedging object linked to the hedged risk are accounted as addition or deduction to the carrying value and in profit or loss. Interest rates swaps are renewed every quarter. Fair value hedging has in 2015 been carried out to hedge the currency in fixed agreements of acquisition of the operations Mondux and PZU. Gains and losses on the hedging instrument are recognised in profit or loss, together with the change in fair value of the fixed agreement. The change in fair value of the fixed agreement is recognised in goodwill when the acquired operation is accounted for.
PZU Lietuva SA Currency futures - hedging instruments 48.3 Acquisition liability - hedging object (47.8) Net gain/loss recognised in profit or loss 0.5
Loans and receivables Mortgage loans 34,081.0 31,256.4 Bonds classified as loans and receivables 19,045.5 19,295.8 Other loans 121.3 163.2 Subordinated loans 3.9 3.7 Provision for impairment losses (396.1) (360.9) Loans for consumer goods and auto financing 7,175.0 5,479.1
Receivables related to direct operations and reinsurance Receivables from policyholders 5,280.0 4,967.4 Receivables related to reinsurance 341.5 30.0
Deposits with financial institutions 57.0 960.6 Cash and bank deposits 2,101.7 2,191.3
Weighted average rate for interest earned on cash, bank deposits and deposits with financial institutions is approximately 0.7 per cent (0.8). The interest rate is calculated at company level and we are regarding this as attributable to group level as well.
Hedge funds Sector Healthcare - A USD 290.9 Goldman Sachs Global Opportunities Offshore Fund 205.8 Winton Futures Fund- Lead Series 148.2 Sector EuroPower Fund Class A EUR 102.2 Incentive Active Value Fund Cl. A EUR Unrestricted 96.8 Sector Zen Fund NOK 90.5 Sector Speculare IV Fund Class A USD 9.2 Sector Speculare II Fund Class A USD 2.7 Sector Spesit I Fund Class A USD 0.5 Total hedge funds 947.0
Gjensidige annual report 2016 | 125 13. Insurance-related liabilities and reinsurers' share
Insurance-related liabilities, gross Premium reserve in life insurance 4,127.0 3,867.2 Provision for unearned premiums, gross from general insurance 9,527.9 9,230.0
Insurance-related liabilities, reinsurers' share Reinsurers' share of unearned premiums, gross 120.1 40.7
Claims reported and claims handling costs 16,392.1 17,844.8 Claims incurred, but not reported 15,468.7 14,841.4 Total claims provision, net of reinsurance 31,860.8 32,686.2
Claims and claims handling costs Claims reported and claims handling costs 18,331.2 (486.5) 17,844.8 16,709.4 (523.1) 16,186.3 Claims incurred, but not reported 14,847.2 (5.9) 14,841.4 16,217.5 16,217.5 Total as at 1 January 33,178.5 (492.3) 32,686.2 32,926.9 (523.1) 32,403.7
Acquisitions through business combinations 348.3 (247.7) 100.6 283.3 (60.4) 222.9 Claims paid, prior year claims (6,289.8) 417.8 (5,872.0) (7,085.1) 333.3 (6,751.8)
Increase in liabilities Arising from current year claims 18,311.9 (477.3) 17,834.6 16,564.7 (140.2) 16,424.5 - of this paid (11,042.1) 191.9 (10,850.3) (8,632.0) 2.2 (8,629.8) Arising from prior year claims (run-off) (1,033.2) 9.8 (1,023.4) (653.3) (71.4) (724.8) Other changes, including effects from discounting 239.4
Provisions for unearned premiums in general insurance As at 1 January 9,230.0 (40.7) 9,189.3 8,536.3 (28.7) 8,507.6 Additions through acquisitions 342.0 (251.2) 90.8 Increase in the period 23,185.0 (439.6) 22,745.4 22,255.4 (464.8) 21,790.7 Release in the period (23,031.6) 589.7 (22,441.9) (21,724.8) 452.8 (21,272.0) Exchange differences (197.5) 21.6 (175.9) 163.0 163.0 Total as at 31 December 9,527.9 (120.1) 9,407.8 9,230.0 (40.7) 9,189.3 1 For own account.
Defined contribution plan Defined contribution pension is a private pension plan that supplements the National Insurance scheme. Benefits from the pension plan come in addition to retirement pension from the National Insurance scheme. The retirement age is 70. Disability pension, spouse/cohabitant pension and child’s pension are also included in the plan subject to more detailed rules. With effect from and including 2016, Gjensidige changed its contribution rates and cut-off point as an adaptation to the new Act relating to Company Pension Schemes. The new rates are seven per cent of earnings between 0 and 7.1 times the National Insurance basic amount (G) and 20 per cent of earnings between 7.1 and 12 G. Gjensidige Forsikring’s branches and some of its subsidiaries have a defined contribution pension plan corresponding to the plan in Gjensidige Forsikring in Norway. Contributions to the defined contribution plan are recognised as an expense in the year the contribution is paid.
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. The financial risk is related to investments in equities, interestbearing securities and property. Most of the investments are in securities funds and bonds. The financial risk comprises stock market, interest rate, credit, currency and liquidity risk. Financial risk in pension assets is estimated using defined stress parameters for each asset class and assumptions about how the development of the different asset classes will co-vary. The largest risk factor is interest rate risk. Interest rate risk The pension assets’ exposure to interest rate risk is deemed to be moderate because the market value-weighted duration is approximately three years. The portfolio value will fall by approximately three per cent in the event of a parallel shift in the yield curve of plus one percentage point. The pension liabilities measured in the pension fund’s accounts have a duration of approximately 12 years. The pension liabilities are exposed to interest rate risk. The discount rate is composed of market interest rates for ten years, while, from year 20, it is based on long-term equilibrium interest rates, and between year ten and year 20, it is interpolated linearly between market interest rates and long-term equilibrium interest rates. A shift in the market interest rates will thereby directly affect the value of the cash flows until year ten and then have a falling effect for the next ten years. From year 20, the market interest rates will only have a marginal effect. An interest rate fall is the biggest risk, due to the long duration of the liability. The pension liability will increase by 11.1 per cent in the event of a parallel shift in the whole yield curve of minus one percentage point. The value will fall by 9.2 per cent in the event of an interest rate increase of one percentage point. Because of the relationship between pension liabilities and pension assets, Gjensidige has an asset ceiling, since not all pension assets can be used to pay future premiums. This means that the effect of a decrease in the interest rate will be limited to liabilities attributable to current employees and that liabilities attributable to retired employees will remain relatively unchanged. An interest rate fall is the biggest risk, due to the long duration of the liability. An increase in the interest rate leads to a fall in the pension liabilities, but much of the fall will lead to a potential pension increase. 35 per cent of the pension assets are attributable to current employees. With time, however, employees will represent an increasingly lower proportion of the pension assets as a result of employees leaving or retiring. A greater proportion of the return will thereby go to retired and former employees, and less to the employer. This has been incorporated in the asset ceiling assessment. Credit risk The pension assets’ exposure to credit risk is deemed to be moderate. The credit risk is managed by setting limits on the biggest commitment and rating for individual investments. Most of the pension fund’s fixed-income investments shall be within “investment grade”. Approximately five per cent of the total pension assets are global high-yield bonds. If the credit risk on a global basis were to increase by a factor corresponding to the factor used in stress tests for pension funds (equal to a deterioration in relation to the 99.5 percentile), this would lead to a fall of approximately nine per cent in the bond portfolio. This corresponds to an average widening of spreads of 1.9 per cent. The pension liabilities are exposed to some credit risk because the Norwegian covered bond yield, which forms the basis for determining the discount rate, entails a certain credit risk. The credit mark-up (on ten-year swaps) at 31 December 2016 was 0.67 per cent.
Present value of the defined benefit obligation As at 1 January 2,275.7 555.9 2,831.6 2,335.5 588.1 2,923.7 Correction of the opening balance 0.8 0.8 Current service cost 33.2 13.8 46.9 35.9 11.3 47.1 Employers' national insurance contributions of current service cost 4.7 1.9 6.6 5.1 1.6 6.6
Amount recognised in the balance sheet Present value of the defined benefit obligation 1,954.9 511.5 2,466.3 2,275.7 555.9 2,831.6 Fair value of plan assets (2,443.2) (2,443.2) (2,366.0) (2,366.0) Net defined benefit obligation/(benefit asset) (488.3) 511.5 23.2 (90.3) 555.9 465.6
Sensitivity 10% increased mortality (3.6%) (4.3%) 10% decreased mortality 2.7% 3.3% + 1% point discount rate (9.2%) (11.1%) - 1% point discount rate 11.1% 14.7% + 1% point salary adjustment 4.0% 4.3% - 1% point salary adjustment (3.0%) (3.3%) + 1% point social security base amount (1.5%) (1.6%) - 1% point social security base amount 1.7% 1.8% + 1% point future pension increase 9.1% 11.9% - 1% point future pension increase 0.0% (9.4%)
Shares and similar interests 58.6 58.6 Bonds 1,798.2 513.1 2,311.3 Bank 9.8 9.8 Derivatives 63.5 63.5 Total 1,798.2 645.0 2,443.2
Liabilities related to insurance Liabilities related to direct insurance 487.0 531.6 Liabilities related to reinsurance 68.2 87.8 Total liabilities related to insurance 555.2 619.4
Restructuring costs 1 Provisions as at 1 January 85.8 7.1 New provisions 163.9 84.9 Provisions used during the year (53.8) (7.1) Exchange rate differences (1.0) 0.9 Provision as at 31 December 194.9 85.8 1 In 2016, 163.9 NOK million is allocated to restructuring provision, due to a decision of changes in processes in the group. The processes have been communicated to all entities affected by the changes.
Specification of tax expense Tax payable (1,419.9) (1,139.3) Correction previous years (23.3) (9.9) Change in deferred tax (30.9) (115.7) Total tax expense (1,474.1) (1,265.0)
Change in deferred tax Deferred tax liabilities as at 1 January 822.9 1,284.1 Change in deferred tax recognised in profit or loss 30.9 115.7
Tax recognised in other comprehensive income Deferred tax pensions 39.6 (17.5) Tax payable on hedge accounting (34.4) Tax payable on exchange rate differences 66.6 (79.9) Total tax recognised in other comprehensive income 106.2 (131.8)
Tax cost In connection with the conversion of Gjensidige Forsikring BA to a public limited company the Ministry of Finance has consented to an exemption from capital gains taxation on the transfer of business to the newly formed public limited company under certain conditions. The consequences of the tax relief decision have been incorporated into the tax expense and tax liabilities from the fourth quarter 2010. The tax relief decision involves greater complexity and discretionary assessments, which entails a greater degree of uncertainty with respect to the tax expense and tax liabilities until all the effects have ultimately been evaluated by the tax authorities. In February 2015, Gjensidige received a decision from the Central Tax Office for Large Enterprises in connection with the calculation of a tax gain as a result of the conversion of Gjensidige Forsikring BA into a public limited company (ASA) in 2010. The decision means that the tax payable for 2010 is reduced by around NOK 35 million. The tax will be further reduced for the ensuing years, by a total of around NOK 137 million at known tax rates. Gjensidigestiftelsen received a similar decision, and we have been informed that they have appealed the decision on the grounds that there is no basis for the change and that the tax office has based its decision on an incorrect valuation. Gjensidige agrees with Gjensidigestiftelsen’s assessment. Changing the decision concerning Gjensidigestiftelsen will have tax consequences for Gjensidige in relation to the above-mentioned figures, which will then not materialize. The appeal is still being processed by the tax office.
Operating expenses Depreciation and value adjustments (note 5 and note 7), excl. depreciation properties 247.9 426.7 Employee benefit expenses (note 18) 2,411.0 2,545.0 Fee for customer representatives 3.3 6.7 Software costs 496.5 470.9 Auditor’s fee (incl. VAT) 7.6 5.2 Consultants’ and lawyers’ fees 82.3 114.1 Commissions 683.5 789.6 Other expenses 1 136.0 (304.5)
Expenses related to investments Depreciation and value adjustments (note 5 and note 7) 0.4 11.8 Employee benefit expenses (note 18) 0.3 14.4 Software costs 0.4 Auditor’s fee (incl. VAT) 1.1 Consultants’ and lawyers’ fees 2.9 Commissions 0.7 Other expenses 129.1 198.3
Auditor's fee (incl. VAT) Statutory audit 5.5 5.0 Other assurance services 0.1 0.1 Other non-assurance services 1.9 0.5 Tax consultant services 0.1 0.7
Total auditor's fee (incl. VAT) 7.6 6.3 1 Other expenses include cost reductions for Gjensidige Forsikring ASA in connection with duties performed for subsidiaries and cost allocations to claims and finance.
134 | Gjensidige annual report 2016 18. Salaries and remuneration The average number of employees in the Group was 4,029 (3,970).
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 emphasizes the CEO’s personal contribution to the Group’s development and results, compliance with the Group’s vision, values, ethical guidelines and management principles.
Gjensidige annual report 2016 | 135 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 Forsikring ASA. In accordance with practice in Denmark and the Baltic, there are certain individual agreements on severance pay in connection with resignation in Gjensidige Forsikring ASA in Denmark and the Baltic.
Share savings programme The Board has decided to continue the Group’s share savings programme for employees in 2016. 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 in 2016 and NOK 3,000 from 2017. For those who keep the shares and are still employed in the Group, one bonus share is awarded for every four share they have owned for more than two years.
Rights earned in the financial year according to defined benefit pension
The senior group management Helge Leiro Baastad, CEO 4,927.7 998.9 129.2 1,594.7 1,119.0 8,109 11,465 18,662 43,491 2
Martin Danielsen, Executive Vice President (1.1.16-30.09.16) 1 1,810.6 19.3 560.0 2,286 3,501 5,325 3
The senior group management Helge Leiro Baastad, CEO 4,800.4 1,006.1 65.8 1,897.6 1,152.6 7,943 13,703 20,438 36,851 2
Kim Rud-Petersen, Executive Vice President 2,882.0 515.3 223.6 583.0 522.9 2,869 3,997 7,194 7,463
Supervisory board 4 Bjørn Iversen, Chairman 171.3 1.5 890 Christina Stray, Deputy Chairman 41.8
138 | Gjensidige annual report 2016 19. Net income from investments
Derivatives Net interest income/(expenses) from derivatives 24.3 (26.9) Unrealised gains/(losses) from derivatives 231.7 156.3 Realised gains/(losses) from derivatives 9.6 (792.0) Total net income and gains/(losses) from derivatives 265.6 (662.6)
Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 137.3 132.3 Unrealised gains/(losses) from bonds held to maturity 2.1 (2.0) Realised gains/(losses) from bonds held to maturity (5.1) 0.3 Net gains/(losses) from changes in exchange rates on bonds held to maturity 181.2 376.7 Total net income and gains/(losses) from bonds held to maturity 315.6 507.3
Interest income from financial assets not recognised at fair value through profit or loss 886.7 874.5 Interest expenses from financial assets not recognised at fair value through profit or loss (40.7) (309.3)
Guarantees and committed capital Gross guarantees 0.1 0.1 Committed capital, not paid 1,174.3 1,643.6
General terms Regulatory regulation CRD IV CRD IV Solvency II Regulatory call No No No
Subsidiaries ADB Gjensidige (merged company of Gjensidige Baltic AAS and PZU Lietuva SA) Vilnius, Lithuania 100.0 % Ejendomsselskabet Krumtappen 2 A/S Copenhagen, Denmark 100.0 % Försäkringsakademin JW AB Stockholm, Sweden 100.0 % Försäkringshuset Amb & Rosèn AB Stockholm, Sweden 100.0 % Gjensidige Bank Holding AS Oslo, Norway 100.0 % Gjensidige Investeringsrådgivning ASA 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 % Mondux Assurance Agentur A/S Copenhagen, Denmark 100.0 % Mondux AB Malmö, Sweden 100.0 % NAF Forsikringsformidling AS Oslo, Norway 66.0 % Nykredit Forsikring A/S Copenhagen Denmark 100.0 % Samtrygd Eigedom AS Oslo, Norway 100.0 % Vardia Försäkring AB Stockholm, Sweden 100.0 %
Cooperating companies 1 Fire Mutuals 20.7 142.7 18.6 140.1 Gjensidige Pensjonskasse 5.9 32.1 1 Cooperating companies are defined as companies with which Gjensidige Forsikring has entered into a long-term strategic alliance.
Loans As at 31 December 2016 employees have loans in Gjensidige Bank amounting to NOK 1,501.0 million (1,225.3). The loans are offered on normal commercial conditions.
Gains and losses in connection with sale and liquidation Bilskadeinstituttet AS (liquidated in 2014) 2.0 Oslo Areal AS 1.3 379.1 Vervet A/S 8.8
Impairment losses Gjensidige Baltic AAS (merged into ADB Gjensidige in 2016) 13.5
Intercompany balance The table below shows a summary of receivables/liabilities from/to related parties. 2016 2015
Intercompany non-interest-bearing debts and receivables ADB Gjensidige 4.6 3.4 Gjensidige Bank ASA (owned by Gjensidige Bank Holding AS) 0.9 Gjensidige Pensjon og Sparing Holding AS 11.6 31.6 0.9 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 16.5 3.1 21.1 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding AS) 0.1 0.1
Gjensidigestiftelsen 0.8 1.0 Mondux Affinity Aps 11.6 Mondux Assurance Agentur A/S 16.0 5.0 Mondux AB 1.9 10.5 NAF Forsikringsformidling AS 0.1 0.5 Nykredit Forsikring A/S 56.9 31.1 Vardia Försäkring AB 7.6 Samtrygd 4.4 Tennant Assuranse AS (owned by Lokal Forsikring AS) 0.6 7.3 Total intercompany non-interest-bearing debts and receivables 89.5 43.1 77.9 38.7
Reinsurance deposits Nykredit Forsikring A/S 457.5 523.7 Total reinsurance deposits 457.5 523.7
Claims provision ADB Gjensidige 19.1 11.0 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 25.2 14.3 Nykredit Forsikring A/S 457.5 523.7 Total claims provision 501.8 549.0
Cooperating companies Fire Mutuals 30.7 39.9 Gjensidige Pensjonskasse 2 111.0 111.0 Total intercompany balances with cooperating companies 111.0 30.7 111.0 39.9 2 Gjensidige Forsikring ASA is a sponsor of Gjensidige Pensjonskasse and has contributed with funds equiavelt to NOK 111.0 million.
Gjensidigestiftelsen 311,200,115 62.24% Folketrygdfondet 20,275,005 4.06% State Street Bank And Trust Co. Nominee 17,521,401 3.50% State Street Bank And Trust Co. Nominee 13,814,079 2.76% State Street Bank And Trust Co. Nominee 4,658,816 0.93% Danske Invest Norske Instit. II. 4,454,140 0.89% Clearstream Banking S.A. Nominee 3,719,697 0.74% State Street Bank And Trust Co. Nominee 3,402,995 0.68% State Street Bank And Trust Co. Nominee 3,068,158 0.61% State Street Bank And Trust Co. Nominee 2,840,680 0.57% Fidelity Funds - Global Dividend 2,570,000 0.51% Citibank, N.A. Nominee 2,389,008 0.48% J.P. Morgan Chase Bank N.A. London Nominee 1,963,375 0.39% Danske Invest Norske Aksjer Inst. 1,889,209 0.38% Klp Aksje Norge Indeks 1,841,787 0.37% State Street Bank And Trust Co. Nominee 1,813,611 0.36% J.P. Morgan Chase Bank N.A. London Nominee 1,807,859 0.36% Odin Norge 1,300,972 0.26% State Street Bank And Trust Co. Nominee 1,281,574 0.26% Nordea Nordic Fund 1,278,225 0.26% Number of shares 20 largest shareholders 403,090,706 80.62% Total number of shares 500,000,000 100.00%
Goodwill 35.2 35.2 Intangible assets 3.8 277.9 281.7 Insurance realeted assets 454.9 454.9 Receivables etc 237.2 237.2 Cash 14.4 14.4 Total assets 710.3 313.1 1,023.4 Liabilities related to insurance 806.0 806.0 Deferred tax liabilities 5.2 5.2 Other liabilities 118.2 118.2 Total liabilities 924.2 5.2 929.4
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset 14 (159.2) 69.0 Tax on items that are not reclassified to profit or loss 39.8 (17.1) Total items that are not reclassified subsequently to profit or loss (119.4) 51.9
Assets Goodwill 1,587.0 1,676.7 Other intangible assets 955.5 846.9 Total intangible assets 5 2,542.5 2,523.6
Receivables Receivables related to direct operations 8 4,983.0 4,671.0 Receivables related to reinsurance 8 340.1 25.7 Receivables within the group 22 89.5 61.0 Other receivables 9 833.5 367.2 Total receivables 6,246.0 5,124.8
Prepaid expenses and earned, not received income Earned, not received interest income 22.2 Other prepaid expenses and earned, not received income 4.2 3.5 Total prepaid expenses and earned, not received income 4.2 25.7
Natural perils capital 2,266.2 2,171.0 Guarantee scheme provision 628.9 616.2 Other retained earnings 11,318.2 12,885.7 Total retained earnings 14,213.3 15,672.9
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset 69.0 69.0
Tax on items that are not reclassified to profit or loss (17.1) (17.1) Total items that are not reclassified subsequently to profit or loss 51.9 51.9
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 293.9 293.9 Exchange differences from hedging of foreign operations 62.7 62.7
Tax on items that may be reclassified to profit or loss 1.8 (96.7)
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset (159.2) (159.2)
Total items that may be reclassified subsequently to profit or loss (206.5) (206.5)
Own shares 0.1 (3.8) (3.7) Accrued and paid dividend (5,396.6) (5,396.6) Equity-settled share-based payment transactions 7.3 7.3 Perpetual Tier 1 capital 997.1 997.1 Perpetual Tier 1 capital - interest paid (8.9) (8.9)
Statement of cash flow Gjensidige Forsikring ASA NOK millions 1.1.-31.12.2016 1.1.-31.12.2015
Cash flow from investing activities Net receipts/payments from sale/acquisition of subsidiaries and associates (96.6) 931.7 Net receipts/payments on sale/acquisition of owner-occupied property, plant and equipment (63.9) (75.5) Net receipt/payments from sale/acquisition of customer portfolios (45.5) Dividends from subsidiaries 58.2 Dividends from associated companies 32.0 Group contributions received 4.9 26.0 Group contributions paid (1.5) Net cash flow from investing activities (169.1) 938.8
The accounting policies applied in the financial statements are described below. The policies are used consistently throughout Gjensidige with the exception of one difference that is permitted in accordance with IFRS 4 about insurance contracts. See description under the section Claims provision, gross.
Basis of preparation Statement of compliance The financial statements have been prepared in accordance with the Norwegian Accounting Act and Norwegian Financial Reporting Regulations for Insurance Companies (FOR-2015-12-18-1775). The Norwegian Financial Reporting Regulations for Insurance Companies is to a great extent based on IFRSs endorsed by EU, and interpretations.
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 2016. They have not been applied when preparing these financial statements. Those that may be relevant to Gjensidige are mentioned below. Gjensidige does not plan early implementation of these standards.
Amendments to IFRS 2: Classification and measurement of share-based payment transactions (2016) IFRS 2 has been amended regarding the classification and measurement of share-based payment transactions with a net settlement feature for withholding tax obligations. If the entity is obliged to withhold an amount for an employee’s tax obligation associated with a share-based payment, and transfer that amount in cash to the tax authority on the employee’s behalf, then the entity shall account for that obligation as an equity-settled share-based payment transaction. The amendments are effective from 1 January 2018. The tax obligation in Gjensidige’s remuneration scheme will be reclassified from liability to equity as at 1 January 2018. From this date the tax obligation will be accounted for as an equity-settled share-based payment transaction instead of a cash-settled sharebased payment transaction. Our preliminary assessment is that the amendment is not expected to have a significant effect on Gjensidige’s financial statements.
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (2016) IFRS 9 addresses the accounting for financial instruments and is effective for annual periods beginning on or after 1 January 2018. An insurer may apply the temporary exemption from IFRS 9 if the activities are predominantly connected with insurance. Gjensidige’s banking operations amounts to a significant part of Gjensidige’s turnover for the Group and Gjensidige will therefore most likely not apply the temporary exemption for the financial statements for the company either.
IFRS 16 Leasing (2016) IFRS 16 requires all contracts that qualify under its definition as a lease to be reported on a lessee’s balance sheet as right of use assets and lease liabilities. Earlier classification of leases as either operating leases or finance leases are removed. Short-term leases (less than 12 months) and leases of low-value assets are exempt from the requirements. A lessee shall recognise right-of-use assets and lease liabilities. The interest effect of accounting the lease liability shall be presented separately from the depreciation charge for the right-of-use asset. The depreciation expense will be presented with Gjensidige’s other depreciations, whereas the interest effect of discounting will be presented as a financial item. IFRS 16 is effective 1 January 2019. The standard is expected to have an effect on Gjensidige’s financial statements, significantly increasing Gjensidige’s recognised assets and liabilities and potentially affecting the presentation and timing of recognition of charges in the income statement.
Segment reporting According to IFRS 8, the operating segments are determined based on Gjensidige’s internal organisational management structure and the internal financial reporting structure to the chief operating decision maker. In Gjensidige Insurance Group, the Senior Group Management is responsible for evaluating and following up the performance of the segments and is considered the chief operating decision maker within the meaning of IFRS 8. Gjensidige reports on two operating segments, General insurance Private 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 Gjensidige comprises a Swedish and Danish branch that is reported as a part of the segment Nordic in the consolidated financial statements.
Recognition of revenue and expenses Premiums Insurance premiums are recognised over the term of the policy. Gross premiums written include all amounts Gjensidige has received or is owed for insurance contracts where the insurance period starts before the end of the accounting period. At the end of the period provisions are recorded, and premiums written that relate to subsequent periods are adjusted for in Change in gross provision for unearned premiums in the income statement.
Owner-occupied property is defined as property that is used by Gjensidige for conducting its business. If the properties are used both for Gjensidige’s own use and as investment properties, classification of the properties is based on the actual use of the properties.
Depreciation Each component of owner-occupied property, plant and equipment are depreciated using the straight-line method over estimated useful life. Land is not depreciated. The estimated useful lives for the current and comparative periods are as follows
• owner-occupied property 10-50 years • plant and equipment 3-10 years
Intangible assets Goodwill Goodwill acquired in acquisition of portfolios represents cost price of the acquisition in excess of Gjensidige’s share of the net fair value of identifiable assets, liabilities and contingent liabilities in the acquired portfolio at the time of acquisition. Goodwill is recognised initially at cost and subsequently measured at cost less accumulated impairment losses.
Adequacy test A yearly adequacy test is performed to verify that the level of the provisions is sufficient compared to Gjensidige’s liabilities. Current estimates for future claims payments for Gjensidige’s insurance liabilities at the reporting date, as well as related cash flows, are used to perform the test. This includes both claims incurred before the reporting date (claims provisions) and claims that will occur from the reporting date until the next annual renewal (premium provisions). Any negative discrepancy between the original provision and the liability adequacy test will entail provision for insufficient premium level.
The category loans and receivables comprises the classes loans, receivables related to direct operations and reinsurance, other receivables, prepaid expenses and earned, not received income, cash and cash equivalents, bonds and other fixed income securities classified as loans and receivables and receivables within Gjensidige.
Financial derivatives Financial derivatives are used in the management of exposure to equities, bonds and foreign exchange in order to achieve the desired level of risk and return. The instruments are used both for
156 | Gjensidige annual report 2016 trading purposes and for hedging of other balance sheet items. Any trading of financial derivatives is subject to strict limitations.
The category financial liabilities at amortised cost comprises the classes subordinated loan, other liabilities, liabilities related to direct insurance and reinsurance, accrued expenses and deferred income and liabilities within Gjensidige.
Restructuring Provision for restructuring are recognised when Gjensidige has approved a detailed and formal restructuring plan which has commenced or has been announced. Provisions are not made for future expenses attributed to the operations.
Pensions Gjensidige has both defined contribution and defined benefit plans for its employees. The defined benefit plan has been placed in a separate pension fund and is closed to new employees.
Transactions with affiliated companies The Fire Mutuals operate as agents on behalf of Gjensidige Forsikring. For these services commission is paid. The Fire Mutuals are also independent insurance companies with fire and natural damage on their own account. 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.
At the end of the year the number of own shares was 26,817 (68,175).
Guarantee scheme The provision for guarantee scheme shall provide security to the insured for the right fulfilment of claims covered by the agreement even after the agreement is terminated in Norway.
NOK 6.80 (6.40) based on profit for the year 3,400.0 3,200.0
Gjensidige annual report 2016 | 159 2. Use of estimates The preparation of the financial statements under IFRS and the application of the adopted accounting policies require that management make assessments, prepare estimates and apply assumptions that affect the carrying amounts of assets and liabilities, income and expenses. The estimates and the associated assumptions are based on experience and other factors that are assessed as being justifiable based on the underlying conditions. Actual figures may deviate from these estimates. The estimates and associated prerequisites are reviewed regularly. Changes in accounting estimates are recognised in the period the estimates are revised if the change only affects this period, or both in the period the estimates change and in future periods if the changes affect both the existing and future periods.
Goodwill is tested for impairment annually or more often if there are indications that the amounts may be subject to impairment. The testing for impairment entails determining recoverable amount for the cash-generating unit. Normally recoverable amount will be determined by means of discounted cash flows based on business plans. The business plans are based on prior experience and the expected market development. See note 5 and 7.
Premiums earned Gross - direct business and accepted proportional reinsurance 296.5 21,778.0 Gross – accepted non-proportional reinsurance 6.0 12.0 7.6 126.9 152.6 Reinsurers' share (3.1) (52.0) (578.0) Net 6.0 12.0 7.6 123.8 244.5 21,352.6
Gross claims incurred (29.7) (3.9) (42.3) (149.5) (15,205.3) Incurred during the year (29.7) (3.9) (42.3) (138.6) (16,202.2) Incurred previous years (10.9) 996.9
Breakdown of revenue by geographical area Gross premium written direct business 15,775.6 1,449.6 3,688.8
Cost As at 1 January 2015 1,668.7 577.5 37.7 821.7 23.9 3,129.4 Additions 16.5 41.0 50.1 107.6 Additions internal 15.6 24.4 40.0 Additions from internal development 156.2 156.2 Disposals/reclassifications (244.9) (244.9) Exchange differences 92.4 31.9 1.5 25.0 4.8 155.5 As at 31 December 2015 1,776.7 650.3 39.2 799.0 78.8 3,343.9 Uncompleted projects 99.2 99.2 As at 31 December 2015, including uncompleted projects 1,776.7 650.3 39.2 898.2 78.8 3,443.1
Carrying amount As at 1 January 2015 1,568.7 286.2 6.4 482.1 20.7 2,364.0 As at 31 December 2015 1,676.6 281.3 0.2 517.5 47.9 2,523.6
Amortisation and impairment losses As at 1 January 2016 (100.0) (369.0) (39.0) (380.6) (30.9) (919.5) Amortisations (91.0) (0.2) (139.8) (48.6) (279.5) Disposals/reclassifications 10.7 15.3 25.9 Exchange differences 17.8 1.5 12.1 2.8 34.2 As at 31 December 2016 (100.0) (431.5) (37.7) (493.0) (76.6) (1,138.9)
The company has in 2015 acquired the Swedish insurance portfolio of the Vardia insurance group and the company Vardia Forsäkring AB. In 2015, PZU Lietuva in Lithuania and Mondux in Denmark were acquired. In addition 50 percent of Oslo Areal was sold in the fourth quarter. The remaining investment is after the sale classified as joint venture and recognised according to the equity method.
Impairment testing goodwill The carrying amount of goodwill in the company as at 31 December 2016 is NOK 1,587.0 million. See table.
Goodwill Gjensidige Forsikring, Danish branch 1,149.5 1,213.0 Gouda portfolio 81.5 85.8 Gjensidige Forsikring, Swedish branch 227.3 249.2 Gjensidige Forsikring, white label 128.7 128.7 Total 1,587.0 1,676.7
Each of the units above is the smallest identifiable group of assets that generates cash inflows and considered as separate cashgenerating units. The annual assessment of impairment losses was carried out in the third quarter of 2016. There has also been carried out indication assessments during other quarters in order to assess whether there is new evidence that calls for a new impairment assessment.
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. In the period after 2020 an annual growth of two and a half and three per cent has been projected until 2025. The terminal value is calculated in 2025. 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 give a less correct view of expected cash flows. In 2016 the profitability in the Danish market has been challenged more than in other markets, which has resulted in several actions in the autumn 2016. These will be completed in 2017/2018 and are primarily focused on improving the claims ratio through better tariffing and risk-selection.
Level of combined ratio (CR) The expected CR level is both in the growth period and when estimating the terminal value considered to be from 87.2 to 100.3.
CR-level when calculating terminal value Gjensidige Forsikring, Danish branch 87.2-91.2% 91.2%