Storebrand Livsforsikring AS issues perpetual subordinated loans worth NOK 1.5 billion.
Declaration by the Members of the Bord and the CEO 140
• 1847 On 4 May 1847, the P&C insurance company Christiania Almindelige BrandforsikringsSelskab for Varer og Effecter is incorporated by private subscription. The company is referred to as Storebrand.
• 1978 Storebrand changes its logo – from the stylised St. Hallvard, patron saint of Oslo – and introduces ”the link” as an easily recognisable trademark. The formal name of the holding company is changed to A/S Storebrand-gruppen.
• 1990 Storebrand and UNI Forsikring agree to merge, and the merger receives official permission in January 1991.
• 1998 The company moves into new premises on Filipstad Brygge.
• 1999 Storebrand, Skandia and Pohjola consolidate their P&C insurance activities in the new Nordic, Swedish registered, company, If Skadeförsäkring AB. Storebrand sells its stakes five years later.
Key figures 2008 2007 No. of customers 27,700 16,000 Total portfolio premium NOK 225 million NOK 121 million Share of P&C policies purchased online 52% 59%
Storebrand Life Insurance offers a wide range of products within occupational pensions, private pension savings, life insurance and health insurance to companies, public sector entities and private individuals. Storebrand Life Insurance’s Swedish branch offers occupational pensions based on Norwegian legislation in the Swedish market.
SPP offers a wide range of pension solutions to companies, organisations and private individuals in Sweden. SPP holds a particularly strong position in traditional products – policies with guaranteed interest rates – in the Swedish corporate market. Storebrand acquired SPP from Handelsbanken in December 2007 and with this became the leading provider of life insurance and pensions in the Nordic region.
Storebrand’s investment activities include the companies Storebrand Kapitalforvaltning, Storebrand Fondene and Storebrand Eiendom. All of the management activities have a guaranteed responsible profile. Storebrand offers a wide range of securities funds to retail customers and institutions under the Delphi and Storebrand Fondene brand names. Storebrand Eiendom is one of Norway’s largest real estate companies and manages real estate portfolios both in Norway and abroad.
Key figures (NOK million) 2008 2007 Pre-tax profit -2,145 164 Total premium income 7,281 7,191 Assets under management 120,250 130,025 Conditional bonuses 7,499 13,699 Solvecy margin 135% 178%
At the close of 2008, the Storebrand Group had 2,516 employees compared with 2,219 at the start of the year. Of these 52 percent were women. The average Storebrand employee is 43 years old and has worked for us for 10 years.
Proportion of women in senior positions 39% 2 37% 38% 37% 38%
At the same time, there are big differences between the sectors and between companies in the same sector. In the case of life insurance reduced balance sheet values and weak results are clear consequences. Meanwhile, pension premiums stipulated in agreements between employers and employees are robust when it comes to short-term fluctuations. Storebrand has been proactive in terms of positioning its activities in relation to the changed conditions that have emerged from the financial crisis, and has throughout the year strengthened its relative competitiveness within its core activities of life insurance, pensions and investments.
Norwegian markets. Sales in SPP increased by 42 percent 1 in 2008, while net transfers from competitors to Storebrand Life Insurance in the last three years have amounted to more than
NOK 10,000 million in the Norwegian occupational pensions market. We have grown into one of the largest private fund managers in
Storebrand Health Insurance experienced a 18 percent growth in premiums, while Storebrand
Successful integration of SPP The integration of SPP is proceeding as planned. During 2008, its investment strategy was fundamentally changed, its risk management strengthened, a new logo was introduced and its marketing work intensified. The integration of IT systems is on schedule and the transfer of SEK 135 billion to Storebrand
The financial crisis had a big effect on the 2008 business year. The crisis is broader, deeper and has spread more quickly than anything we have experienced in modern times. Consequently it is having a negative effect on results, balance sheets, market dynamics, and growth expectations.
Risk Risk is a measurement that combines the probability and the effect of an event. The concept is used mostly with negative or hazardous events. In the financial world, it is common to speak of risk in connection with an associated return. A high rate of return is normally expected from an investment that has high risk. The possibility for losses are however greater for such investments. The goal of exercising risk management is to preserve economic value through the use of financial instruments and predefined patterns of action.
Successful risk management is preconditioned on the sources of risk being identified, that the risks of such are able to be measured and that one has a plan for how one acts on the results from the measurements.
Storebrand Livsforsikring reduced its allocation to shares in its portfolio during the course of 2008 from 26 percent to 5 percent. At the start of 2009, the risk in the investment portfolio is low and adapted to the financial buffers of the customers and the company.
Where does the money go? We use our customers’ savings to buy and sell securities. It only requires a few keystrokes to move money from one account in Norway or Sweden to an equity or bond somewhere else in the world. Storebrand invests everywhere in the world and in many types of companies. Responsible investments are about being aware of how we earn money and what sort of companies we own securities in.
As of 31 December 2008, Storebrand had excluded 80 companies as potential investments. The requirements apply to both equities and bonds, both in Norway and abroad.
Storebrands analysis department for socially responsible investments monitors more than 3,000 listed companies around the world in order to identify companies that breach our corporate standard. The monitoring involves combining all of the companies’ names with 40 search words. Searches of 88,000 websites resulted in more than 15,000 hits in news articles in 2008.
Savings and insurance are about security and trust. They are about people wanting financial security when they retire or in the event of unforeseen circumstances. Storebrand continuously strives to prove it deserves its customers’ trust and provide them with security. Responsible investments ensure that our customers get the best possible returns, but not at any price.
We guarantee that these funds comply with Storebrand ’s corporate standard.
most systematic and who therefore deserve to be named “Best in Class”. Our active ownership is based on monitoring and analysis, and we contact around 400 companies every year.
Portfolio mangers also contribute to and vote in a number of annual general meetings.
Storebrand’s corporate standard for responsible investments. We conduct quarterly checks of the portfolios and record any breaches of our corporate standard. Any manager who breaches the standard is contacted and asked to comply with our corporate standard.
Q3 2008, breaches were discovered at 13 of these managers and all of them received letters from Storebrand. So far 12 meetings have been held and a further four are planned.
Oslo Stock Exchange (OSE). Storebrand and the other investors represent assets under management totalling NOK 2,700 billion, of which NOK 1,000 billion is invested in the
Therefore, transporting phosphates in this conflict zone also conflicts with Storebrand’s corporate standard. Storebrand contacted Jinhui to point out the problems and to hear their version of the matter. The portfolio manager also brought up the matter with the company in a conference call in February 2008.
It is said that the beat of a butterfly’s wings can trigger storms on the other side of the globe. In Storebrand we believe that the winners in business are those who systematically work to do better: financially, environmentally and socially. We believe that many small contributions have a big impact.
Handelsbanken has proven that they take both their partners and responsible investments seriously, and this example shows that active ownership in the financial supply chain does have an effect.
Norway. Life insurance, asset management and health insurance activities are also conducted in Sweden. Claims processing services are performed through the subsidiary Storebrand Baltic in Lithuania and Storebrand owns 75 percent of Nordben Life and Pension Insurance Company on Guernsey. Following the acquisition of SPP, the Swedish life insurance and pensions provider, in December 2007,
With the acquisition of SPP in Sweden in 2007, it was the assessment of the Board that the acquisition would provide significant synergies in the future and a number of tangible effects were defined in several areas.
The integration of SPP has gone according to plan in 2008. The working relationship between Storebrand and SPP is marked by mutual trust and the will to share knowledge.
Previous positions: 2002-2003 : CEO Norsk Hydro Deutschland • 1991-2002 :CFO Norsk Hydro ASA • 1984-1991: Various management positions in controls, finance, and strategy, Norsk Hydro • 1980-1984 CEO Notodden Fabrikker, Hydro • 1969-1980: Various positions at Norsk Hydro, aluminium division. Positions of trust: 2008 - : Board Member, Endeavour International Corp. • 2008 - : Chairman of the Board, Næringslivets Aksjemarkedsutvalg • 2004- : Board Member ,Yara International ASA, (Chairman of of Audit Committee) • 1997-2006: Board Member, Rieber & Søn ASA (Chairman of the Board from 2000) • 1971-2006: Board Member and Chairman of various companies in the Hydro group • 1996-2002: Board Member, Prosessindustriens Landsforening (PIL) • 1995-2002: Board Member, NHO • 1990-1996: Board Member, Den Norske Turistforening • 1973-2009: Chairman of the Board, Board Member and company/council member for a number of various private organisations, private and exchange-listed companies.
For old and new paid-up policies, modified profit sharing regime has been introduced, which means that the company can retain 20 percent of the profit, which in this case is made up of the sum of the investment and risk results from the paid-up policies. The modified profit sharing model means that any negative risk result will be deducted from the customer’s interest profit. In addition, the company receives all of the return on capital on the balance sheet that does not belong to the customers.
Pre-tax results Norwegian life insurance activities 578 -97 208 -249 -91 349
IFRS accounts of around NOK 200 million, primarily through dissolution of the security reserve. The result for the customers beyond the guaranteed interest was NOK 655 million and the result for the owner in the life insurance business was NOK 349 million compared to NOK 1,622 million in 2007. Reclassification of the portfolio that was included in the “hold to maturity” category affected the booked earnings positively by around NOK
1.8 billion, of which around NOK 1.2 billion were allotted to customers and around NOK
0.6 billion has provided an indirect positive effect for the owners’ profit.
190 million compared with NOK 157 million in 2007. Loan and guarantee losses and writedowns represented a net write-back of NOK
the revenues from the administration of the securities funds were substantially reduced as compared to the prior year. The downturn is due to a reduction in the volume administrated in the securities funds in consequence of the financial crisis and negative profit-based fees from the securities funds in consequence of weaker earnings results.
Storebrand ASA attained a pre-tax profit of minus NOK 14 million compared with NOK
Business areas Storebrand Life Insurance: After the introduction of an obligatory occupational pension, the market for occupational pensions is to a large degree a transfer market. Storebrand is extremely competitive in this market with net transferred funds of NOK 2.5 billion from customers who have chosen to move to
Storebrand’s asset management model with dynamic risk management. With its total return of 2.9 percent for traditional insurance,
SPP was one of the best in the Swedish pension market. The company increased its new policies by SEK 0.3 billion to SEK 1.5 billion during 2008. The trend through the year has been a transition from sales of contracts with single premium payments to contracts with instalment premium payments.
SPP: • The 100-day Programme has placed an emphasis on increasing the level of activity and on product improvement with the aim of increasing SPP’s sales. The objective for the increased sales synergy is defined in increased value of new business.
• The Separation and Integration Project has worked to release SPP from Handelsbanken, rationalise its procedures and to implement a common IT infrastructure in the group.
The rationalisation projects that have been commenced at SPP are being received well and are showing positive results.
Storebrand Bank’s profits. The financial results have been undermined primarily due to increased lending losses, poor results in
Ring Eiendomsmegling, a halt in the sales of structured savings products and unrealised losses in the liquidity portfolio.
The bank’s position has been strengthened in many areas during 2008. The loan portfolio has increased from NOK 37 billion in 2007 to NOK 39 billion in 2008. Storebrand
The positive trend in customers that the bank experienced after the introduction of no-fee everyday banking in 2005 has continued in 2008. This has manifested itself in significant growth in both the number of retail customers as well as in the volume.
Jointly, telephone and Internet sales comprise more than 90 percent of the total sales. With efficient distribution channels, the company is able to maintain competitive prices.
Risk management Storebrand has through the products and policies it has signed with customers established liabilities that generate risks. These vary in nature depending on the product area. Various types of insurance risk are associated with the life insurance and P&C
Identifying and managing operational risk forms an integral part of management responsibility in the organisation. In addition to this, the group’s executive management conducts an annual risk assessment that results in a summary of risks and pertinent improvement measures. This summary is presented to and dealt with by the Board.
Life insurance activities: A significant proportion of savings-related life insurance products incorporate a guaranteed minimum annual return, currently just over 3.5 percent on average. The average guaranteed return will fall over time since the annual guarantee for new policies cannot exceed 2.75 percent.
The life insurance company’s financial risk principally relates to its ability to generate an annual investment return at least equal to the guaranteed minimum. This places particular demands on how the life insurance company allocates its investments between securities and other assets, and on the quality of the company’s risk management. Falling interest rates during the latter half of 2008 have in isolation contributed to profits in bonds, but do cause the expected returns and thus the risk-bearing capacity to be reduced to some extent in the future. For Norwegian life insurance companies a high level of interest rates is better than a low level since the guaranteed returns are then easier to achieve. The company has invested a significant part of its financial fixed assets in bonds in the category
‘loans and receivables’. These securities are not booked at market value on an on-going basis, but will provide regularly booked returns significantly exceeding the interest rate guaran tees. This contributes to reducing sensitivity to changes in interest rates.
At the end of 2004, the Norwegian parliament approved a number of major changes to the Insurance Activities Act. The new operational rules came into effect on 1 January 2008. One important change is that insurance companies must invoice the customers in advance for the costs connected with the interest rate guarantees issued for a large part of the products. The risk of a loss of income for these products thus is reduced.
Excess value of bonds at amortised cost 4,213 3,573 1,097 40 -313
HALVOR STENSTADVOLD (64), Independent Advisor. Board Member for Storebrand ASA since 2000.
The life insurance company uses tariffs based on historical statistical data that are notified to the authorities and are based upon statistical material drawn from experience.
On 1 January 2006, SPP was restructured such that the company assumed some of the financial risk the customers previously bore.
In order to ensure that the insurance company has adequate capital to service its obligations, the Swedish supervisory authority, Finansinspektionen, requires that insurance companies stress test all of their business activities pursuant to a predefined template. The stress tests cover both assets and liabilities in the balance sheet. This is known in Sweden as traffic light reporting. The capital requirements during the stress tests can be reduced by available buffer capital (known as “conditional bonuses” in Sweden), which thus results in a net requirement concerning equity.
The bank has standard procedures for reviewing its lending and all new lending is approved in accordance with the bank’s credit policy.
The bank monitors its credit risk through its own risk classification system. Lending to corporate customers over a certain limit requires the approval of a credit committee chaired by the CEO, or by the bank’s Board. Credit risk is monitored through a risk classification system that ranks each customer by ability to pay, financial situation and collateral.
Non-performance reports are produced monthly. For the corporate area, nonperformance reports are produced twice per month, and residuals lists are produced weekly which are reviewed in credit committee meetings. Risk reports are produced monthly, with expanded versions quarterly.
Previous positions: 2001–2007: Training Manager and Professional Consultant, Storebrand Bank ASA • 1982-2001: DnB and DnB Investor Positions of trust: 2003-2007: Employee Representative for Storebrand Bank ASA • 2003-2007: Employee Representative of Board of Representatives for Storebrand ASA.
Individual write-downs on the bank’s lending amounted to NOK 262 million and group write-downs comprised NOK 88 million, i.e.
Bank are within the internally established limits. It is challenging to obtain long-term funding in the market, and it is expected that it will continue to be challenging through all of 2009. Through the establishment of
The Storebrand Skadeforsikring group’s securities portfolio primarily consists of low risk, interest-bearing securities. The assessment of share price risk, interest rate risk, credit risk and foreign currency risk is central to the risk management of the securities portfolio in Storebrand Skadeforsikring and the exposure is monitored pursuant to set limits.
KNuT DyRE HAuG (53), Special Consultant, Storebrand Livsforsikring AS. Employee Representative Board Member for Storebrand ASA since 2006.
As per 31 December 2008, the solvency margin of the Storebrand Life Insurance group was 160 percent. There has been an increase in the solvency margin during 2008 in consequence of the long-term financing connected with the acquisition of SPP being carried out.
The solvency margin of SPP was 135 percent at the end of 2008. Storebrand Bank had a capital adequacy of 10.8 percent and a core capital adequacy of 9.5 percent as per 31 December 2008. The authorities’ requirements are 8 percent for capital adequacy.
The group’s capital base, which consists of equity, subordinated loan capital, the market value adjustment reserve, additional statutory reserves, conditional bonuses and other capital adequacy of the life insurance company comprised NOK 38 billion as per 31 December 2008 compared with NOK 48 billion at the end of the prior year.
Storebrand ASA has a bond issue of NOK 830 million that falls due in September of 2009 and a bank loan for EUR 70 million in December of 2009. The debt of Storebrand ASA is normally refinanced in good time before it falls due. If the bond market is not functioning, the payments due in 2009 will be able to be covered by the liquidity holdings of
P = positive outlook, S = stable outlook, N = negative outlook
Corporate responsibility The ambition of Storebrand is to be the leader in corporate responsibility and responsible investments. The group has for nearly 15 years been building, brick by brick, the corporate responsibility work that today has been integrated into strategies and plans as well as being anchored directly in the group management. The winners in the business world of the future will be the companies that manage to unify sustainability with their own profitable growth.
ANNIKA LuNDIuS (58), Deputy CEO of Svenskt Näringsliv. Board Member for Storebrand ASA since 2008.
University of Lund, LLB Law School, 1975:Law Graduate. Lunds University • 1979: Reporting Clerk Svea Court of Appeal • 1987: Associate Appellate Judge Svea Court of Appeal • 1976-1978: District Court Service, Gothenburg District Court.
the tenth year in a row, Storebrand has qualified for the Dow Jones Sustainability Index.
Storebrand makes purchases in Norway worth more that NOK 1 billion per year. we use this position to contribute to more sustainable development. New procurement guidelines were adopted in the autumn of 2008. We will continue the implementation of those in 2009. The guidelines weight environment and corporate responsibility a minimum of 20 percent for all types of purchasing. Suppliers who are excluded from investments with respect to Storebrand’s corporate standard for responsible investments are not allowed to submit offers.
At the end of the year the group had 2,516 employees, compared with 2,219 at the beginning of the year. Of these, 52 percent were women. The average age is 43 and the average length of service is 10 years. Storebrand has included the following statement in all its recruitment advertising in Norway: “We are committed to diversity, and encourage applications from all qualified candidates regardless of age, gender, disability, cultural background or sexual orientation”.
SPP have also been strengthened, particularly in the area of sales training. Managerial development has also received a significant emphasis during 2008. The company’s managers go through mandatory managerial training modules. The group’s management development programme has been expanded by an additional module connected to awareness of the management role itself.
20 percent of the group’s executive managers are female. For the next planning period a goal will be set for female managers on the level reporting to the group’s executive managers. At the end of 2008, a total of 39 percent of those with management responsibilities in the group were women. Among the 1,616 employees in Norway, 628 took part in internal training programmes in 2008, and of these 54 percent were women.
The latter-mentioned group represented 8 percent of the new employees in 2008. In order to attract qualified employees in the second group, Storebrand explicitly encourages disabled persons and persons who have disability benefits or rehabilitation benefits to apply for positions. The Norwegian Ministry of Children and Equality with its Minister, as well as the Norwegian Ministry of Labour and
Storebrand is committed to offering a good senior policy. The group employed 43 people over the pension age of 65 in 2008, compared with 34 in 2007 and 21 in 2006.
Norway. Working meetings involving ethics and customer care were also held for central staffs and business units. The new guidelines for customer care will be implemented and integrated into the ethical guidelines in connection with the revising and relaunching of such in 2009. From 2009, it will be the corporate responsibility unit that will have the overall responsibility for the guidelines concerning ethics, notifications, anti-corruption and violations.
Storebrand Sport is the sports club for employees, with 18 active branches and a total of 600 members. Employees can call an 800 number for free personal assistance, where
Board was considered in 2006, but such an appointment was not considered to be appropriate.
Further information on Storebrand’s policies and procedures for corporate governance can be found in a separate article on page 31 of the annual report.
The Board carried out an evaluation of its work in 2008 in which the Storebrand’s administration also participated. The Board held 15 meetings and one Board conference in 2008. The work of the Board is subject to a specific mandate. The Board has established advisory committees on remuneration and internal auditing.
During 2008, the following changes in the membership of Storebrand’s corporate bodies took place: Board of Directors: Sigurdur Einarsson was elected as a Board
June have contributed to increased interest in pension savings. Increased lifespans, combined with the desire to maintain a high standard of living as a retiree creates a demand for Storebrand’s products.
Sweden, SPP strengthened its position in the market for occupational pensions through increased marketing and sales. Storebrand is working actively on exploiting its broad range of contacts in the corporate market by developing good solutions for both the retail market as well as employees of corporations having pension agreements with Storebrand.
At the beginning of 2009, Storebrand can look forward to a year in which there is great uncertainty connected with developments in the financial markets. Storebrand has, with its vast experience in active risk and portfolio management, a great point of departure for meeting these challenges.
Storebrand ASA recorded an annual result of minus NOK 13.6 million for 2008. During its discussion of the profit for the year in 2007, the Board of Storebrand ASA adopted a new dividend policy with an increased distribution ratio. The new dividend policy is as follows: “The dividend policy shall contribute towards providing shareholders with a competitive return and optimising the company’s capital structure. The dividend to shareholders will normally represent more than 35 percent of the full-year profit after tax, but before amortisation costs. The Board wishes to have a dividend policy with a long-term horizon, and will aim for stable year-on-year growth in dividend per share.”
The share capital, rights issues and shares Shares in Storebrand ASA are quoted on the
Share purchase arrangements for employees Every year since 1996, Storebrand ASA
has given its employees an opportunity to purchase shares in the company through a share purchase scheme. The objective of the scheme is to involve employees more closely in the company‘s value creation. Employees were also offered an opportunity to purchase shares in Storebrand in 2008. In March 2008, each employee was offered the opportunity
Shareholders by number of shares and ownership as of 31 Dec 2008
See note 17 for information about the shares held by senior management.
(including dividend) of -70 percent over the course of 2008. The OSE benchmark index
Investor relations Storebrand places great importance on comprehensive and efficient communication with financial markets. Maintaining a continuous dialogue with shareholders, investors and analysts both in Norway and internationally is a high priority. The group has a separate investor relations unit responsible for establishing and coordinating contact with analysts, the stock exchange, shareholders, investors and others.
(the Board) has resolved that the company shall adhere to the Norwegian Code of Practice, and its statement on adherence to the
Deviations from sections 1 and 2 of the Code of Practice: None
4) Equal treatment of shareholders and transactions with close associates √
8) Corporate assembly and board of directors: composition and independence √
Storebrand’s Corporate bodies Annual General Meeting (CoP section 6) Storebrand ASA holds its AGM no later than the end of June each year. The 2008 AGM
Election Committee. The notice calling the meeting and supporting papers are published on the group’s website 21 days before the general meeting.
Election Committee is not directly elected to this position by the AGM. However, the AGM
Committee. The Board of Representatives is entitled to make recommendations to the
Committee and an Audit Committee. Each comprises two shareholder elected and one employee elected Board member. This helps to ensure thorough and independent attention to matters such as financial reporting and the remuneration of senior employees.
The committees assist the Board by preparing matters for consideration, but decisions are taken by the entire Board. Both committees are able to hold meetings and consider matters without involvement from the company’s management.
Board’s declaration concerning the setting of the executive management’s remuneration, which is presented to the AGM each year. The
Practice: There is no requirement in legislation or the company’s Articles of Association for the appointment of a Deputy Chairman to the Board of Storebrand ASA. The Board may elect a Deputy Chairman if it so requires. This has been considered, but was not considered necessary. The Board considers that such an appointment could cause undesirable differentiation between members of the Board. When necessary, for example due to the absence of the elected Chairman or because the Chairman is unable to participate in a particular matter, the Board considers it sensible and appropriate to elect one of its members as chairman of the meeting in question as required.
Storebrand relaunched its P&C insurance business in 2006, and the group’s Chief
Kredittilsynet is responsible for supervising financial institutions to ensure that they operate in a prudent and proper manner in accordance with legislation, business objectives and the Articles of Association. Kredittilsynet supervises all of Storebrand’s activities.
ASA’s AGM as the company’s external auditor. The Board of Storebrand ASA has appointed KPMG as the company’s internal auditor. The other companies in the group use the same external and internal auditors as Storebrand ASA.
Storebrand’s value-based management system (CoP section 10) The management system is central to the internal audit function and is intended to ensure a correlation between targets and actions at all levels of the group and the overall objective of value creation. The system is based on a balanced scorecard where the four dimensions of finance, customers, processes and skills/growth reflect both short-term and long-term value creation in the group.
The appraisal and remuneration of Storebrand employees forms an integral part of the value-based management system, and is designed to ensure that the group’s strategies are implemented. Bonus payments are dependent on both the overall level of value creation and individual performance. Storebrand ’s remuneration systems follow internationally recognised principles. Remuneration does not include share options. Historical data on share options can be found in the annual reports for 2004 and earlier years.
Do we meet the requirements of cost efficiency in our internal processes?
Internal guidelines have been established for share trading by employees and insiders.
This extra service will be staffed by an internal ethics committee or ethics board, and can be used to gain guidance on all types of ethical dilemmas and issues.
The group’s sales teams in Norway underwent ethics training in 2008. Ethics and customer care workshops were also held for key staff and business units. New customer care guidelines will be implemented and integrated into the ethical guidelines as part of the revision and relaunch of these in 2009. From 2009, the corporate responsibility unit will bear overall responsibility for the guidelines for ethics, whistle blowing, anti-corruption, and non-performance.
Association and further information on its ownership principles as an investor.
Loan loss provisions as % of non-performing and loss-exposed loans 49% 68% 81% 64% 62%
Ratio of external funds under management retail/institutional clients (%) 13 / 87 14 / 86 19 / 81 20 / 80 26 / 74
The figures for 2004 - 2007 have not been converted to the new layouts used in 2008.1 Calculation method: (Result after tax adjusted for amortisation expenses) / (opening equity – provision for dividend - half of the shares bought back during the year).2 SPP’s figures are only started from the moment of acquisition.3 Combined business - figures up to 2007 are Norwegian business before the acquisition of SPP.4 Consists of equity, subordinated loans, market value adjustment reserve, risk equalisation fund, unrealised capital gains and losses, hold to maturity bonds, additional statutory reserves, 5 conditional bonuses and accrued profit. In 2008 net financial income includes the result from Storebrand Eiendom. For 2007 and previous years net financial income includes Storebrand Alternative Investment ASA.6
Swedish market for occupational pensions through SPP. Nordic and European life and pension insurance market trends support the establishment of transnational activities.
Harmonisation of the regulatory framework and products make transnational synergies more apparent and easier to realise. In 2009,
European Commission. Implementation is expected in 2012 at the earliest. However, companies wishing to use internal models to assess their capital requirements should have an equivalent system up and running a few years prior to implementation of the regulations. One of Solvency II’s key principles is that both the company’s assets and its liabilities should be valued at fair value on a continuous basis. Storebrand has played an active role in understanding, producing information about, and establishing possible solutions to the challenges Solvency
NOK 20 million, a market share of 13 percent measured by annual premiums (The Norwegian Financial Services Association (FNH)).
The group’s primary task is to contribute to value creation in society through good profitability. However, how this value creation takes place is not unimportant. As a player in an industry with a long time horizon our work on sustainable value creation is a natural, integral part of our business strategy.
The group reinforced its corporate responsibility work in 2008, including by ensuring corporate responsibility is directly represented in the group’s management team and by establishing a specific corporate responsibility unit. The new unit has wide-ranging, overarching areas of responsibility, while operative responsibility is located in the line.
The strengthened unit has increased the level of activities and raised our profile in the
SPP’s priority areas in 2008 were training and skills enhancement within corporate responsibility in general and responsible investments in particular. The sales channel increased its skills within corporate responsibility and responsible investments through training, dilemma exercises and seminars.
In addition to sales training, we also focused on measures under the heading “In-house order” in 2008. This involved introducing inhouse guidelines and measures that support the group’s corporate responsibility strategy.
Both major and minor measures were implemented to raise awareness and increase competence among employees. On the environmental side of things, for example, we purchased bicycles for employees to use during work hours, introduced organic coffee in all coffee vending machines, and introduced measures to reduce the use of paper, plastic, etc. A special Corporate Responsibility Forum was also established. The integration of corporate responsibility into SPP will continue at full strength in 2009. The goal is for the whole group to report on common corporate responsibility goals from and including 2010.
colleagues. All employees have undergone training in the group’s principles and will be assessed in relation to their compliance with these via the new employee monitoring system introduced in January 2009.
knowledge and awareness of the group’s corporate responsibility into activities, measures and processes that can improve the group’s profitability in the long-term.
The group’s target of 66 percent customer satisfaction among retail customers was therefore not met. Various measures have been initiated to improve retail customer satisfaction in 2009.
Driving Schools. Almost 10,000 people have completed the course, which teaches drivers how they can reduce their fuel consumption and CO2 emissions, and also improves traffic safety.
OECD’s guidelines for multinational companies. It has concentrated on its international commitments to the World Business Council for Sustainable Development (WBCSD), the
United Nations Environment Programme Finance Initiative (UNEP FI) and the Norwegian
SPP Livsförsäkring AB, the result contains the activities in the holding company and the subsidiary Euroben Life & Pension Ltd. Banking activities comprise Storebrand Bank ASA and its subsidiaries. Asset management activities comprise Storebrand Kapitalforvaltning AS,
The figures for 2004 -2007 have not been restructured according to new layout for 2008.1
In 2008, the annual general meeting gave the Board a mandate to purchase up to 10 percent of its own shares. This is valid until the annual general meeting in 2009. It purchased none of its own shares in 2008. The company sold 686,460 of its own shares in connection with the share purchase scheme for employees and a long term incentive scheme for the group’s management and other senior employees, raising a total of
There is a basis for recognising a deferred tax asset of NOK 5.8 billion, including temporary differences between the accounts and tax, in the balance sheet at year-end 2008. Tax losses carried forward and tax allowances amount to around NOK 10.8 billion. See note 12 in the consolidated annual accounts. Tax allowances can be carried forward for 10 years from the moment the tax allowance arises. Deferred tax assets are recognised in the balance sheet when it is likely that companies in the group will have a sufficient taxable basis to utilise the tax asset in the future.
(OTP) in 2006. As in 2007, Storebrand was the winner in the transfer market with a net inflow of assets (reported sales) of NOK 2.5 billion.
The level of tender activities in the municipalities market was low in 2008. Only 8 municipalities conducted tender processes.
Three of these chose to move their pension schemes. Four of Storebrand’s municipal customers invited tenders. Three of these stayed with Storebrand, while one moved to
The market for paid-up policies is set to grow strongly in years to come because of the introduction of mandatory employers’ pensions and increasing numbers of companies switching from defined benefits to defined contribution schemes. This market is expected to become more competitive, and has attracted new participants. Storebrand intends to respond aggressively to this competition by offering competitive products and its long experience of ensuring customers’ financial security through managing pension assets.
The Norwegian pensions reform has been postponed until 2011. The pensions settlement agreed in the Norwegian Parliament in the spring of 2007 clarifies how pension rights will be earned and how the new state pension can be drawn. The government will present proposed amendments to legislation due to the settlement agreed in February 2009. It is expected that the work of adapting the occupation pension schemes to the new national insurance scheme will start during spring 2009 via a banking law commission. Changes that will affect occupational pension schemes include new earnings rules that will make one’s final pay level less relevant as a basis for a pension and a flexible retirement age. A public committee is examining so-called “broad occupational pension schemes” and looking at how stakeholders can have more influence over the occupational pension schemes. The committee will report in March 2009.
Storebrand wants to encourage its customers in both the private and public sector to focus more on health, safety and the environment
Before 2008 customers’ assets and the company’s assets were invested in the same portfolio and customers were unable to influence the investment risk to which their assets were exposed. The new legislation allows the total portfolio to be divided into sub-portfolios with different equity compositions and risks. This means customers can have greater say in how their assets should be invested.
Such an increase in the customer’s risk also reduces the total price the customer has to pay for the guaranteed return.
A modified profit sharing regime has been introduced for old and new individual policies derived from discontinued group pension policies. This allows the company to retain up to 20 percent of the profit, which is derived from the sum of the investment and risk results from these policies. The modified profit sharing model means that any negative risk result will be deducted from the customer’s interest profit. In addition, the company receives all of the return on capital in the balance sheet that does not belong to the customers.
Traditional individual products provided by the company prior to the act coming into force can continue to be managed in accordance with the profit rules that applied prior to 2008. Storebrand intends to continue managing these assets in accordance with this regime. New contracts cannot be established in this portfolio.
The customer pays for the guaranteed return in advance each year. This means the company will be unable to obtain the profit in arrears by retaining parts of the interest profit from the customers’ insurance contracts.
Administration and management costs are charged in advance every year with final effect for the customer. The insurance company must meet any deficit in the administration and management result, and any surplus is retained by the company. Where a policy’s assets are managed in the investment trust portfolio, the price of asset management must be shown as a separate element of the overall charge.
The result is generated via various product areas and the return on the company portfolio, as described in the “Profit allocated to the owner” section below.
The administration result shows the difference between the administration premium charged and actual operating costs. The administration result amounted to minus NOK
669 million in 2007. The administration result in 2008 was affected by lower management fees, commission costs and bonus costs. The implementation of Lean methodology has resulted in an underlying positive development in the general level of costs.
The risk result arises from the incidence of mortality and disability during a period deviating from the assumptions used for the premium tariffs. The total risk result amounted to NOK 737 million in 2008 compared to
Premium income in the occupational pensions market developed well. Group insurance products with investment choice grew by 38 percent in 2008 compared with 2007. The growth was due to increased conversion from defined benefits pensions to defined contribution pensions and a positive transfers balance in relation to competitors. Defined benefits group pension insurance grew by 19 percent in 2008 due to growth in pay, among other things.
1,583 million compared to NOK 1,790 million in 2007. The reduction in relation to 2007 was primarily due to the transfer of a single customer with a large APE in 2007. New business premiums for group pensions developed well.
Profit allocated to the owner per product area as per 31.12.08
Pre-tax profit Storebrand Life Insurance Norwegian business 578 - 97 208 - 249 - 91 349
NOK 170 million in Q4. The owner’s share of the market value adjustment reserve as per 1 January 2008 amounted to NOK 320 million and was recognised as income.
Storebrand Life Insurance. This restructuring process will be completed by March 2009.
The profit allocated to customers depends on developments in the financial markets and the profile customers have chosen for their investments, as well as investments in the profile based on buffer capital. A surplus of NOK
Due to reclassification, the allocation for short-term bonds recognised at fair value increased, while the allocation for bonds at amortised cost were reduced by NOK 23.6 billion during Q4 and amounted to NOK 22.4 billion at year-end 2008.
in the market for contractual early retirement pensions. SPP’s broad range of products and services make it the only pension provider that covers all segments of the Swedish occupational pensions market.
During the year, SPP strengthened its market position, improved customer relationships, and increased turnover. Its integration into the Storebrand Group and the transfer of expertise in structure capital and “best practice” from the Norwegian market made a positive contribution to its development. Sales through both its own insurance advisers and insurance brokers (external partners) strengthened in the market thanks to our structured improvement measures throughout the year.
The new cash flow-based model discounts liabilities according to a yield curve rather than an interest rate point. This results in better correspondence between assets and liabilities, and at the same time it reduces hedging costs and the volatility of the financial results in relation to fluctuations in interest rate levels. The hedging programme was substantially reduced because of this and will consequently have less affect on future financial results.
Premium income amounted to NOK 7,281 million in 2008 compared to NOK 7,191 million in 2007. The 2007 figures include a very large single premium in Euroben of approximately
3,010 million in 2008 compared to NOK 2,720 million in 2007, an increase of 11 percent.
Stock exchange trends in 2008 were characterised by heavy falls in share prices over large parts of the world. The negative trend accelerated in the second half of the year and in autumn turned into a full-blown global financial crisis. The Swedish Stockholm Stock
The solvency margin decreased to 135 percent in 2008 from 178 percent in 2007. The reduction in solvency is primary a result of falling market interest rates, which resulted in a higher assessment of pension liabilities.
EV is an actuarially determined estimate of the value of a company excluding any value attributable to future new business. Calculating EV involves a number of assumptions about the business, operating and economic conditions, and other factors, some of which are determined by economic conditions and financial markets. Storebrand has published a specific EV report containing more detailed information. Storebrand’s EV report has been prepared in cooperation with the actuarial consulting firm Towers Perrin, using a market consistent approach (MCEV).
for 2007. The most important relates to the introduction of capital costs for risk the company cannot insure itself against (cost of non-hedgeable risk). This capital cost is not caught in other places in the calculations.
As an effect of the holding company structure in Sweden, whereby part of the profits can be transferred to the group as a tax-free group contribution, it is currently expected that the effective tax rate for profits arising in SPP will be zero. Therefore, a tax rate of 0 percent has been applied to SPP. The current tax legislation in Norway leads to an effective tax rate of 0 percent for profits arising in SBL
Storebrand’s operations and new business contributed NOK 1.8 billion to the MCEV result in 2008. The reasons for this positive development include SPP’s new investment strategy.
The value of new business in 2008 was calculated at NOK 395 million. Sales have been positive in both the Norwegian and Swedish insurance companies with new premiums (APE)
Value of New Business comprising - Present value of future profits (PVFP) 794 - Time value of financial options and gurantees (TVOG)
On 1 January 2009, Storebrand Investments took over management of SPP Livforsikring
AB’s portfolios. This will increase the volume under management in Storebrand Investments by approximately NOK 125 billion by year-end 2009. Substantial synergies are also expected to be achieved through lower management costs in Storebrand Investments in relation to the assets under management.
In addition, the business in the former Storebrand Alternative Investments AS (SAI) was integrated into the activities of Storebrand
Sensitivities for Storebrand Life Group: The sensitivities reflect changes in EV based on changes in assumptions.
100 basis point pa increase in the interest rate 26,045 3,004 13% 519 123 31%
100 basis point pa decrease in the interest rate 17,758 -5,284 -23% 106 -289 -73%
10% decrease in equity/property capital 19,359 -3,682 -16% 359 -36 -9%
25% increase in equity/property implied volatilities 21,721 -1,320 -6% 355 -40 -10%
Storebrand Investments gained 29 new institutional customers in 2008. Institutional customers are served by a dedicated institutional customer unit with highly qualified investment advisers. Investment strategies are specially tailored to the customers’ financial goals, investment horizons and risk profile in consultation with the customers. The sales organisation was strengthened with three new employees in 2008.
In addition to new business and extra sales, 2008 was also characterised by major challenges for pension funds: primarily from the introduction of the new asset management regulations (KFF) on 1 March, which resulted in substantial reallocations, and secondly from the heavy falls in the equity markets and climbing interest rates, which resulted in them undergoing two stress test scenarios in the space of a few months. Storebrand Investments’
Investments. The institutional customer satisfaction survey again yielded good results in 2008. Storebrand Investments generally scored highly on customer service. SIOS (Storebrand
Eiendom, which from 2008 reports as part of the asset management activities. Fixed income increased due to the management agreement with Storebrand Life Insurance because the new life insurance act consists of a larger fixed element. Volume-based income in
Storebrand Fondene fell due to falls in management volumes. Following the restructuring income from alternative investments such as private equity and hedge funds is reported as part of total income. Good costs control resulted in low total costs and produced a solid operating margin.
Storebrand Alternative Investments being reported as part of the asset management activities following the structural change. The income from alternative investments contributed NOK 53 million in 2008. Performancebased fees were NOK 10 million higher in 2008 than in 2007. The increase can be ascribed to very good performance in some products. In total, value creation was weak in 2008. Falls in the assets under management and the migration from high margin to low margin products due to the financial crisis resulted in a reduction in performance-based fees. Volume-based income in Storebrand
Fondene fell by NOK 47 million compared to 2007, a reduction of 27 percent. Storebrand
Total costs increased by NOK 22 million compared to 2007, an increase of 8.5 percent.
Storebrand Investments increased due to a number of appointments and investments in 2008 associated with the take over of SPP’s portfolio. The increase in costs associated with this was in line with the plans and amounts to around NOK 15 million in 2008.
This is countered to some extent by the fact that performance-based pay was reduced by around NOK 34 million compared with 2007.
The fall was primarily driven by the income from real estate activities.
NOK 2 billion in 2008. The total assets under management amounted to NOK 229 billion at year-end. The development of assets under management was affected by the financial crisis and the consequent heavy market falls that impacted the markets in Q3 and Q4 2008. Assets from intragroup companies fell by approximately NOK 6 billion compared with 2007. External discretionary assets and funds amount to NOK 58.4 billion of the total volume under management. Compared with 2007 the volumes under management from external discretionary customers increased, while the proportion in funds decreased.
The net effect was a weak positive increase in assets under management from external customers and funds from 2007 to 2008.
Storebrand Kredittforetak AS established its lending programme in April 2008. This gained an AAA rating from Moody’s. The company issued its first covered bonds in the Norwegian and European markets in April and May 2008. In Q4, Storebrand Bank used covered bonds issued by the credit company to participate in the authorities’ crisis package for the financial industry. The bank gained access to a new long-term funding source through Storebrand Kredittforetak that substantially reduces the liquidity risk in the bank. By year-end 2008 covered bonds with a recognised value of NOK 11.3 billion had been issued, of which Storebrand Bank ASA
NOK 78 million in 2007. Ring Eiendomsmegling experienced a loss of NOK 44 million in 2008.
December 2007. Group write-downs amounted to NOK 88 million (NOK 58 million ) as of 31 December 2008, equivalent to 0.23 percent (0.16 percent) of total lending.
The group write-down model was updated in 2007 and now takes greater account of macroeconomic factors and the bank’s own risk classification when calculating the need for group write-downs. The model was developed further in 2008.
50 million in 2008 compared to NOK 90 million in 2007. The decrease was largely due to unrealised losses on shares the company owns in Oslo Børs VPS Holding ASA, unlike in 2007 when there was an unrealised price gain on the holding.
The P&C business is still growing strongly. In 2008 the annual premium grew by 86 percent. The number of insurance contracts in the portfolio increased by 36,000 to 83,500 contracts in 2008. Storebrand Skadeforsikring also established an online sales solution for corporate customers in 2008 in which standard corporate policies for shops, companies and offices can easily be bought without contacting an adviser.
(total customer satisfaction index for claims settlements of 79.6 percent) tells us that our customers are very satisfied that we deliver rapid, friendly and effective claims settlements.
Arrangements in 2008. Most of the remaining business is expected to be run-off in 2009. Alongside its new activities and Oslo
Profit from risk products not subject to profit-sharing (NOK million) 208 144 135 N/A Very good
Customer satisfaction – Norsk Kundebarometer Survey 4 68 70 70 67 Satisfactory
Number of products per retail customer 2.62 1.8 1.5 1.35 Satisfactory
Re, the other activities of Storebrand Skadeforsikring AS are the run-off of its gross insurance commitments (fronting responsibility), which are reinsured with If Skadeförsäkring.
The 2008 deficit was in line with plans. The claim ratio for the year ended up at 79.5 percent.
Monitoring value drivers – Storebrand’s value-based management system Storebrand’s strategic planning process combines targets, action plans, reporting, and employee remuneration, as described in the article on corporate governance on page 31.
Storebrand Compass is produced every month. The Compass reports on the performance of key figures and value drivers relative to targets for each business area.
Insurance is financial risk and in the Norwegian business this is primarily associated with achieving the annual guaranteed return.
Moreover, customers’ assets are divided into two main categories: collective and those with an investment choice. The traditional guaranteed interest rate applies to all the customers in the collective portfolio, while the investment choice category includes both traditional defined benefits pensions, to which the guaranteed interest rate applies, and defined contribution pensions without a guaranteed interest rate. The investment strategy and risk management have been tailored to the new framework with varying assets allocation and risk management measures being practised for the different portfolios. In the case of the collective port-
the portfolio is divided into defined benefits pensions, defined contribution pensions and unit-linked policies. Both the defined benefits pensions and the defined contribution pensions in SPP have associated guarantees. This results in the generation of financial risk in the event of falling stock markets and falling interest rates. In the case of some policies, a risk also arises from strongly rising interests rates. Due to the somewhat more complex financial risk picture in SPP than in the Norwegian activities, the risk the customer portfolio represents against the equity is also managed through derivative transactions in SPP’s company portfolio. The investment strategy and risk management in SPP comprises three main pillars. Asset allocation that results in a good return over time for customers and the owner, the continuous implementation of risk management measures in the customer portfolios, and tailored hedging of certain selected insurance policies in the company’s portfolio.
Monitoring, management reports and reporting the risk in the life insurance companies to the authorities takes place periodically and on a daily basis if necessary.
This combination permits good control of the life insurance company’s total exposure to financial risk. The principles apply to both the
The company pays great attention to carefully evaluating investment opportunities that offer a high return, balanced against the risk of loses and falls in the value. Real estate is an asset class that offers a relatively high future running yield, but where the risk of loss or depreciation is higher than for government bonds. Other alternative investment classes include infrastructure and natural resources (forestry, commodities, etc). Moreover,
Supervisory Authority) new stress test has been implemented in the sector during 2008 and is part of the new risk-based supervision methodology that Kredittilsynet is currently developing for Norwegian financial institutions. The test does not indicate capital requirements, rather it is meant to contribute to better risk management by insurance companies and forms part of the preparations for the new European solvency regulations,
“conditional bonus” can thus be utilised to reduce the capital requirement during the stress tests.
Act, the unique Norwegian rules on transfers of insurance business, and the arrangements for unconditional profit sharing in Norwegian insurance companies. Storebrand is of the view that an uncritical acceptance of the proposed regulations may have unfortunate consequences for policyholders and owners, and could contribute to non-optimal asset allocation in the Norwegian financial market with the accompanying negative effects.
Storebrand Bank ASA places great importance on maintaining close relationships with its corporate customers and monitoring credit risk, and has credit review policies in place.
A significant proportion of Storebrand Bank’s corporate lending is linked to real estate in the greater Oslo area. Storebrand follows economic conditions and the real estate market in this region closely.
Separate credit approval processes are now used for retail lending on the basis of credit scoring, combined with case-by-case evaluation of the borrower’s ability to repay.
The bank manages its exposure to counterparty risk when placing its liquidity or through other exposure on the basis of the counterparty’s credit rating and size.
In recent years, Storebrand has invested significant resources in developing a framework for effective and comprehensive management of the group’s overall risk. Methods and modelling systems have been developed for the life insurance activities in Norway and Sweden that handle risk management and reporting based on integrated balance sheet management. This allows the liabilities and assets of the life insurance company to be evaluated in relation to changes in exogenous variables such as interest rate levels, and take into account the established management principles for handling financial risk. The models are used for reporting
Note 28: Net income analysed by class of financial instrument 96
Note 32: Valuation of financial assets and liabilities at fair value 98
Net income from financial assets and property for the company: - shares and other equity participations at fair value 28 137.2 - bonds and other fixed-income securities at fair value 28 273.7 - financial derivatives at fair value 28 -468.1 - net income from bonds at amortised cost 28 10.6 - net income from investment properties 25 112.5 - result from investments in associated companies 19 -73.8
Net income and gains from financial assets at fair value: - shares and other equity participations 28 658.0 - bonds and other fixed-income securities 28 123.9 - income from financial assets with investment choice 28 353.4
Consolidated statement of recognized income and expence NOK million 2008 2007
The balance sheet for 2007 has been restated with the final acquisition analysis for SPP.
The accounting policies used for the preparation of the consolidated accounts are described below. The policies are applied consistently to similar transactions and to other events involving similar circumstances.
Investment properties are valued at fair value. Fair value is assessed on each reporting date. Changes in value are recognised in the profit and loss account. Each investment property is valued separately by discounting the future net cash flow by the appropriate yield requirement for the investment in question. The net income stream takes into account current and future loss of income due to vacancy, essential investment and an estimate of future changes in market rent. The yield requirement is determined on the basis of the expected future risk-free interest rate plus an individually determined risk premium dependent on the rental situation and the location and standard of the property . Valuation is also compared against observed market prices.
When an investment property is first capitalised it is valued at acquisition cost, i.e. the purchase price plus costs directly attributable to the purchase.
If an investment property becomes a property used by the group for its own activities, the cost price for the property in own use is deemed to be its fair value at the time of reclassification. If a property previously used by the group for its own activities is rented to external tenants, the property is reclassified as an investment property and any difference between book value and fair value at the time of reclassification is recognised as a valuation change to properties carried at written-up value. (See the description for properties held as fixed assets .) Changes in fair value that arise following the reclassification are applied to profit and loss.
Goodwill is allocated to the relevant cash flow generating units that are expected to benefit from the acquisition so that it can subsequently be tested for impairment . Cash flow generating units are identified in relation to operational segments.
Financial instruments General policies and definitions Recognition and derecognition Financial assets and liabilities are included in the balance sheet from such times Storebrand becomes party to the instrument’s contractual terms and conditions . Normal purchases and sales of financial instruments are booked on the transaction date. When a financial asset or a financial liability is first recognised in the accounts, it is valued at fair value. First time recognition includes transaction costs directly related to the acquisition or issue of the financial asset or the financial liability if it is not a financial asset or a financial liability at fair value in the profit and loss account.
Financial liabilities are derecognised in the balance sheet when they cease to exist , i.e. once the contractual liability has been fulfilled, cancelled or has expired.
Definition of amortised cost Subsequent to inception, hold to maturity financial assets, loans and receivables as well as financial liabilities not at fair value in the profit and loss account, are valued at amortised cost using the effective interest method. The calculation of the effective interest rate involves estimating all cash flows and all contractual terms of the financial instruments (for example early repayment, call options and equivalent options). The calculation includes all fees and margins paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
where available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, and options pricing models. If a valuation technique is in common use by participants in the market and this method has proved to provide reliable estimates of prices actually achieved in market transactions, this method is used.
Losses that are expected to occur as a result of future events are not included in the accounts; regardless of how likely it is that the loss will occur.
The accounting treatment is equivalent to that for held for sale assets.
Financial hedging for fixed-rate deposits and lending in Storebrand Bank uses this type of hedge accounting. The method is also used for hedging fixed-rate subordinated loan capital for Storebrand Life Insurance. Due to of the unified policies for measuring hedged items and hedging instruments in the other parts of the group, this hedging reflects the group’s ordinary valuation rules.
Commissions paid to distributors of securities funds are reported in the profit and loss account as a reduction in management fees and sales commission.
Any negative discrepancy between the original provision and the sufficiency test entails a provision for unincurred risk (premium provisions).
Life insurance - Norway Premium income Net premium income comprises premium amounts that fall due during the year, transfers of premium reserve and premiums on reinsurance ceded. Upfront pricing of guaranteed interest and the risk profit element are included in premium income. Accrual of premiums earned is made through allocations to the premium reserve in insurance reserves.
Premium fund, deposit reserve and pensioners’ surplus fund The premium fund contains premiums prepaid by policyholders as a result of taxation regulations for individual and group pension insurance and allocated profit share. Credits and withdrawals are not booked through the profit and loss account but are taken directly to the balance sheet.
Claims reserve Amounts reserved for claims either not yet reported or not yet settled (IBNR and RBNS). The reserve only covers amounts which might have been paid in the accounting year had the claim been settled.
Risk equalisation fund The security reserve for paid-up policies was transferred to the risk equalisation fund on 1 January 2008. Other security reserves were dissolved and recognised in the profit and loss account in 2008. Up to 50 percent of the risk result for group pensions and paid-up policies can be allocated to cover any future negative risk result. The risk equalisation fund is included as part of equity.
Reserves for unfixed insurance instances The reserves for claims that have been incurred consist of reserves for disability pensions , established claims, unestablished claims and claims processing reserves. When assessing the reserves for disability pensions a risk free market interest rate is used, which takes into account future index adjustment of the payments. In addition provisions are made for calculated claims that have been incurred but not reported (IBNR).
Property and casualty insurance Insurance premiums are recognised as income in pace with the period of insurance . Costs are recognised when they are incurred.
Please also refer to note 5, which discusses the acquisition of SPP in 2007 in more detail. The majority of the intangible assets recognised from the acquisition were linked to the existing insurance contracts in SPP at the time of the acquisition. These recognised intangible assets are, together with the pertinent recognised insurance obligations, tested for impairment using a sufficiency test pursuant to IFRS 4 Insurance Contracts. A key element of this assessment involves calculating future profit margins using embedded value calculations. Embedded value calculations are affected by, among other things, volatility in the financial markets, interest rate expectations and the amount of buffer capital in SPP.
Brief descriptions of the most important changes are provided below: Net premium income includes as before the savings part and the risk part of the premium as well as the premium for the guaranteed interest. The inflow and outflow volumes of premiums are also included in this line.
Income associated with financial instruments, as well as real estate and associated companies, is split between the customer portfolio and company portfolio. The customer portfolio consists of both the group portfolio and investment choice portfolio. The to/from market value adjustment reserve line, which is linked to unrealised gains in the customer portfolio, has now been moved to financial income.
The change insecurity allocations, etc, in non-life insurance is included in the line for insurance claims on own account.
The balance sheet is divided into the company’s assets and the customers’ assets. The customers’ assets in a group portfolio and an investment choice portfolio have not been split.
Products with investment choice with a guaranteed interest rate (fee-based): The administration result, as well as any negative risk result not covered by the risk equalisation fund and negative financial result (booked) not covered by additional statutory reserves, are allocated in their entirety to the owner. The owner receives the premiums for the guaranteed interest rate, as well as any profit margin for risk, administration and management. A positive financial result is allocated to the customer; a positive risk result is allocated to the customer or possibly the risk equalisation fund.
Modified profit sharing (paid-up policies, etc.): A positive financial result (booked), less any negative risk result that is not covered by the risk equalisation fund, is shared between customers and the owner, though a maximum of 20 percent of the profit can be allocated to the owner. A negative financial result that is not covered by the additional statutory reserves is allocated to the owner. The administration result is allocated in its entirety to the owner. A positive risk result is allocated to the customer or the risk equalisation fund.
Market value adjustment reserve, Security fund and risk equalisation fund: The market value adjustment reserve was previously been treated as a liability in its entirety in the Storebrand ASA Group’s accounts. After the transition to the new insurance act a proportion of the original unrealised gains have been allocated to the owner. With reference to IAS 8 nos. 5 and 16 and IFRS 4 nos. 26 and 36, this change is not regarded as a change of principle pursuant to IFRS, and this change has been recognised in the profit and loss account . The same applies to the security reserve. The new risk adjustment fund is viewed as equity.
The investments in private equity funds are valued on the basis of the values reported by the funds. The private equity funds Storebrand has invested in value their own investments in accordance with pricing guidelines stipulated by, among others, EVCA (European Private Equity Venture Capital Association) or in accordance with FASB 157. Most of the private equity funds report on a quarterly basis, while a few report less often. In those cases where Storebrand has not received an updated valuation with respect to an investment from a fund by the time the annual accounts are closed, the latest received valuation is used and adjusted for cash flows and any significant market effects during the period from the last valuation up to the reporting date. These market effects are estimated on the basis of the type of valuations made of the companies in the underlying funds; the financial performance of relevant indexes, adjusted for estimated correlation between the relevant company and the relevant index.
The composition of the financial assets is determined by the company’s investment strategy. The investment strategy establishes guidelines for the composition of financial assets through principles and limits for the company’s risk management. The investment strategy also includes limits and guidelines for credit and counterparty exposure, currency risk and the use of derivates. The objectives of this active risk management are to maintain good risk bearing capacity and to continuously adapt the financial risk to the company’s financial strength. Given the risk the company is exposed to and with the aid of the risk management that is practised, the company expects to produce good returns, both in individual years and over time.
Market risk Market risk relates to the risk that the value of the group’s assets might be reduced by unexpected and unfavourable movements in the market. Market risk is monitored continuously using a range of evaluation methods. Large parts of the group use ‘Conditional Value at Risk’ as a method for calculating the potential for loss for the investment portfolio on a one-year horizon for a given probability, and the portfolios are stress tested pursuant to the statutorily defined stress tests and internal models.
All credit approvals by Storebrand Bank over a certain limit require the approval of a credit committee chaired by the bank’s managing director, or by the bank’s board of directors. Credit risk is monitored through a risk classification system that ranks each customer by ability to pay, financial condition and collateral. The risk classification system estimates the likelihood of a borrower defaulting (ability to pay/financial condition) and the likely loss given default (collateral). All loans on the bank’s watch list are reviewed at least quarterly in respect of the condition of the borrower and collateral, and of the steps being taken to protect the bank’s position. Retail lending is assessed on the basis of credit scoring, combined with case-by-case evaluation of the borrower’s ability to repay. Loans are primarily provided with collateral in residential property in the retail market and collateral in real estate in the commercial market.
Changes in the net defined benefit pension liability in the period: NOK million 2008 2007
Changes in the fair value of pension assets in the period: NOK million 2008 2007
Net pension assets at 31.12 1 2,897.7 3,014.8 1 Pension assets in SPP are included in the group portfolio.
The table shows the percentage asset allocation of pension assets at year-end managed by Storebrand Livsforsikring.
Net pension cost booked to profit and loss account, specified as follows: NOK million 2008 2007
Comprises company car, telephone, insurance, concessionary interest rate, other contractual benefits1 2 The summary shows the number of shares owned by the individual, as well as his or her close family and companies where the individual exercises significant influence
Senior employees in Storebrand can, in addition to their fixed salary, receive remuneration in the form of an annual bonus, participation in the group’s group pension scheme, usual benefits in the form of free newspapers, telephone, company car scheme, and other personal benefits. Senior employees may also be entitled to an arrangement in which their salary is paid after the end of their employment. This guarantees salary less other income for a specific period of up to 24 months after the end of their employment.
Share programme for employees Like other employees in Storebrand, senior employees have an opportunity to purchase a limited number of shares in Storebrand ASA at a discount pursuant to the share programme for employees. The scheme is subject to a minimum contractual period.
The senior employee remuneration policy practised in 2008 In 2008, senior employee remuneration in Storebrand was fixed according to the guidelines described above. On 10 June 2008 the board of Storebrand established a long-term incentive scheme for senior employees pursuant to the decision of the annual general meeting on 23 April 2008. The scheme applies to the group’s management team and other selected key personnel. Upon the establishment of the long-term incentive scheme the group’s management team and some other senior employees received a contribution from the company for the initial purchase of shares with a lock-in period of 3 years during 2008. The contribution equalled an amount equal to the amount the individual participant paid in himself or herself. Because no bonuses were awarded for the 2008 income year, the scheme will be escalated at the start of 2010.
The consolidated accounts include the following companies with the amounts shown: NOK million 2008 2007
Storebrand purchased 100% of the company in 2008, and it was consolidated as a subsidiary on 31.12.08.1
The properties are valued based upon the following effective return requirements (including 2.5 percent inflation): Segment Return requirement %
Net primary capital 17,867 18,528 50% of additional statutory reserves 1,710 1,710 50% of risk equalisation fund 77 77
Reduction in Tier 2 capital that can be included in the solvency capital -851 -1,041
Total shares and other equity investments -22,849.8 658.0 - of which FVO (fair value option) -25,642.1 823.1
Net income and gains from financial assets at fair value -12,363.5 5,430.9 - of which FVO (fair value option) -10,075.0 462.4
Losses realised in the period for which individual write-downs have previously been made -79.9 -59.6
Grouped write-downs of loans, guarantees, etcetera at 31.12. 88.3 58.1 30 Classification of financial assets and liabilities
Booked value of bonds pledged as collateral for swap arrangement of state paper for covered bonds 2,002.3
In 2008, Storebrand utilised cash flow hedging for the currency risk linked to Storebrand’s net investment in SPP. 3 month rolling currency derivatives were used, in which the spot element in these is used as the hedging instrument. The effective share of hedging instruments is recognised in equity. The net amount recognised in equity in 2008, i.e. the effective share of the hedging instruments and the currency effect on the hedged object was minus NOK 15.6 million.mBecause the hedging instruments are continuously adjusted to the balance sheet value of the net investment in SPP, the hedging efficiency was 100% and is expected to be 100% in the future as well.
The Storebrand group will be prevented from using the hold-to-maturity category in 2009 and 2010 because of the reclassification.
Security lending, collateral, cash reinvested in interest-bearing securities Total including bond funds Total including bond funds
The loans will be taken over by Storebrand by 21 June 2009, and are not included in the group's primary capital.1
NOK million Booked value 31.12.07 New issues Repayments Exchange rate changes Paper price change Amortisation/
Financial assets at fair value in the profit and loss account (FVO) For financial instruments that are included in the category of financial assets at fair value in the profit and loss accounts as per 31.12.2008 that at the point in time they were incorporated could have been entered in the category loans and receivables, it is estimated that changes in credit risks in 2008 have in isolation brought about unrealised losses of around NOK 0.5 billion.
NOK million 2007 -net return share capital1 672 -0.40% of customer fund 613 -equity capital earnings risk 50 -products without profit sharing 100 -other 187
For individual endowment insurance (life account) policies, profit allocations are accumulated on each policy and are paid out together with the sum assured. In the cases of traditional individual endowment insurance and individual annuity and pension insurance, the profit allocated is applied to increasing the insured benefit. Individual policies based on group schemes are handled in an equivalent manner. In the case of group pension insurance, the profit allocated is credited to the surplus on the scheme’s premium reserve and pensioners’ surplus reserve in accordance with the legislation on occupational pensions.
Risk result The risk result is divided up into survival, death and disability results, as well as pooling1 and reinsurance. Pooling and reinsurance are risk-reducing items. The risk result for SPP Livsforsäkring AB then gives the following magnitudes: NOK million
The disability result consists of the number of new disability incidences as well as the run-off of the portfolio of those who are already disabled. The latter is called the run-off result. The disability result consists of the risk premiums paid in the year and the allocations to the reserve for new incidences of disability. The reserve that is allocated is a cash value that represents the expected repayments, taking into account the expected level of reactivation and mortality. If the reserve and the paid risk premium are equally large, then the disability result will be zero. If the number of new incidences of disability is higher than expected, then the risk result will be negative since the allocations will be higher than the paid risk premiums. If the number of new disability incidences is lower than expected, then the risk result will be positive since the allocations will be lower than the paid risk premiums.
Financial result In the case of unit-linked policies the customers’ assets change with the return regardless of whether the return is positive or negative. The financial result from unit-linked policies equals zero. In the case of guaranteed interest there are two amounts that affect the interest result: the allocation of the return between the customers and the owner, and the capital contribution necessary to pay the guaranteed interest. If the total return exceeds the guaranteed interest, which is between 2.5 percent and 5.2 percent, the return is shared. In this case the customers receive 90 percent, though at least the guaranteed interest, and the company receives 10 percent. The company’s portion of the total return is in theses circumstances recognised as income in the interest result. The customers’ guaranteed capital shall at least receive the guaranteed interest on the assets. If the value of a customer’s policy should be lower than the guaranteed value, the company must contribute capital up to the guaranteed value. The item other consists of return on assets not owned by the insurance customers, immaterial assets and interest rate costs on loans issued by the company.
Changes to the rules for payment from the national social security scheme for disability benefits etc. may have a significant effect on insurance companies in terms of the number of claims for disability and disability reserves. This currently relates principally to group pension insurance for the public sector, where insurance benefits are fully linked to national social security scheme benefits. Future changes to occupational pensions legislation may also cause changes in this respect for private sector occupational pensions. The premium tariffs will normally be amended to take account of such changes.
Right to transfer insurance between companies The right to transfer insurance between companies, subject to two months’ notice for policies where the transfer value exceeds NOK 300 million, can represent a liquidity risk for smaller life insurance companies if one or more customers elect to transfer large policies to other companies in the space of a short time. The fee that can be charged for transfers is limited to NOK 5,000. For large insurance companies, if transfers out exceed transfers in for an extended period, this will have an adverse effect on future cash flow.
Sufficiency test Storebrand is required by IFRS 4 to carry out a sufficiency test to ensure that the company has sufficient margins in the various constituent elements that make up the company’s reserves. IFRS permits two alternative methods for the sufficiency test. Where a company has an established form of analysis that demonstrate the margins in the various constituent elements, Section 16 of the standard allows this analysis to continue to be used to demonstrate that the test is satisfied. Where a company has not established such analysis, it is required to discount future cash flows to present value in accordance with IAS37. Capitalised VIF is included in the sufficiency test.
Storebrand satisfies the test, as it did in 2007. The test has no profit and loss account effects on the 2008 accounts.
Future risks Life expectancy in Sweden is increasing sequentially (mortality is sinking). This is positive for life cover. On the other hand it may become a financial burden in the case of pension insurance (accident cover).
Risk exposure In order to ensure that insurance companies have adequate capital to meet their insurance obligations, Finansinspektionen (the Swedish Financial Supervisory Authority) requires that the sector stress test all of its insurance business using the so-called traffic light calculations. The elements tested are the premium income side and the insurance liabilities. In 2007, it was announced that companies would be also required to stress changes with respect to insurance liabilities in risk policies. This also applies to so-called cancellation risk, which is the risk that a policyholder will terminate the policy and thus stop paying premiums. The level of stress testing generally follows the guidelines issued by CEIOPS (the Committee of European Insurance and Occupational Pensions Supervisors) and their work on Solvency II.
The insurance risk constitutes a significant proportion of the total capital requirement that results from the stress test. In total the stress test affects the risk result in the amount of SEK 180 million. With an expected risk result of approx. SEK 300 million, this means that the majority of the risk result will thus be consumed if the basis for the stress test should become a reality. The stress tests are based on a 1:200 scenario, or a confidence level of 99.5 percent.
The item ‘Reinsurers’ share of technical insurance reserves’ includes NOK 365 million that the company assumes will fall due in 2009. The item ‘Reserves – P&C insurance’ includes NOK 287 million that the company assumes will fall due in 2009.
Risk exposure and insurance risk – Storebrand Skadeforsikring AS The main risk for the newly established P&C business is that it will initially have a small portfolio to absorb claims. This can mean that single large claims may have a disproportionate impact on profit. The largest claims will typically arise from liability and motor insurance. In order to offset this risk, Storebrand has arranged reinsurance with a deductible of NOK 5 million per loss and unlimited capacity. For 2008, an XL cover was taken out that is intended to cover claims in all sectors apart from liability. This involves an excess amount of NOK 5 million. The cover has a capacity of NOK 25 million.
Risk exposure and insurance risk – Oslo Reinsurance Company The company’s commercial operations are concentrated on the run-off of its existing reinsurance portfolios, either by paying claims that are reported to the company or by seeking to extricate itself from policies by negotiating a settlement amount with the insured party (cedent) by commuting the cover.
Actual claims experience compared with earlier forecasts Storebrand Skadeforsikring AS has reinsured all its insurance risk with respect to the run-off portfolio, and its claims performance is therefore largely dependent on the requirements imposed by Kredittilsynet for the minimum level of claims reserves that must be held for the various lines of insurance. Storebrand Skadeforsikring AS’ active portfolio achieved a small run-off gain in 2008 for the years 2006 and 2007.
Net income and gains from financial assets at fair value: - shares and other equity investments -58.0 97.1 - bonds and other fixed-income securities 113.6 91.3 - financial derivatives/other financial instruments 144.4 -0.4
Dividends and group contributions In the company’s unconsolidated accounts, investments in subsidiaries and associated companies are valued at acquisition cost less any write-downs. The main income of Storebrand ASA is the return on capital invested in subsidiaries. Group contributions and dividends received in respect of these investments are therefore recorded as operating income. Proposed and approved dividends and group contributions from subsidiaries are recognised in the unconsolidated accounts of Storebrand ASA as income in the accounting year.
Tangible fixed assets Tangible fixed assets for own use are valued at acquisition cost less accumulated depreciation. Fixed assets are written down if the value in the balance sheet exceeds the recoverable value of the asset.
Pension costs and pension liabilities for defined benefit schemes are calculated using a linear profile for the accrual of pension entitlement and expected final salary as the basis for calculating the benefit obligation, based on assumptions about discount rate, future increases in salary, pensions and social security pension benefits, the future return on pension assets and actuarial assumptions about mortality, staff turnover etc. The discount rate used is the risk-free interest rate appropriate for the remaining maturity. Where a scheme is funded, the pension assets are valued at fair value and deducted to show the net liability in the balance sheet.
Tax The tax cost in the profit and loss account consists of tax payable for the accounting year and changes in deferred tax. Deferred tax and deferred tax assets are calculated on the basis of differences between accounting and tax values of assets and liabilities. Deferred tax assets are recorded in the balance sheet to the extent it is considered likely that the company will have sufficient taxable profit in the future to make use of the tax asset. Deferred tax is applied directly to equity to the extent that it relates to items that are themselves directly applied to equity.
Personnel expenses increased in 2008 because there were more employees than in 2007, see note 17.1 04 Pension costs and pension liabilities
Net pension cost recognised in the profit and loss account during the period -19.5 -18.2
Guidelines for fixing the salaries and other remuneration of senior employees in Storebrand Storebrand aims to base remuneration on competitive and stimulating principles that help to attract. develop and retain highly qualified staff. The aim is for total remuneration to move towards a lower proportion of fixed salary and a higher proportion of bonus over time. The salaries of senior employees are fixed on the basis of a position’s responsibilities and complexity. Regular comparisons are made with corresponding positions in the market in order to adjust the pay level to the market. Storebrand does not wish to be a pay leader in relation to the sector.
Unlisted shares outside the EEA 0.9 0.4 0.9 0.3 09 Bonds and other fixed-income securities
Loans are booked at amortised cost. The figures for 2008 include earned not due interest.1
16 Holdings of shares in Storebrand ASA by executive management and members of corporate bodies
Storebrand ASA and the Storebrand Group – Declaration by the Members of the Board and the CEO
Board and CEO that the Board of Directors’ report provides a true and fair overview of important events during the fiscal year and their effects on the annual accounts and consolidated accounts. It is the best judgement of the Board and CEO that the description of the most central risk and uncertainty factors the enterprise is facing during the next fiscal year, as well as the descriptions of the significant transactions by the executive management and members of corporate bodies, also provide a true and fair overview.
We have conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and generally accepted auditing practice in
To the extent required by law and generally accepted auditing practice an audit also comprises a review of the management of the Company’s financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion.
Investment return from Storebrand Global SRI relative to benchmark index 2 -6.4% Better than bench mark index -33% Dropped
Energy consumption (managed properties) 6 Reduced by 0.1% Reduce by 5% Reduced by 6% Reduce by 3%
For more information about the indicators, including reporting principles, definitions and calculations, see www.storebrand.com (Corporate Responsibility pages).
About our reporting on the field of corporate responsibility Storebrand has been issuing its own environmental reports since 1995. In addition, it has been reporting on the broader field of corporate responsibility since 1999. The group reports along a three-part bottom line for which financial, environmental and social responsibilities are described. The matrix of objectives (p. 142) for the corporate responsibility field is also structured around its interrelationships with the group’s most important stakeholders: its owners, customers, employees, suppliers and the domestic and international societies. The goals for 2008, as described in the objectives matrix, concern the Norwegian enterprises. For 2009, SPP, the Swedish life insurance company acquired by Storebrand in 2007, will report on the same goals in a separate column. For 2009-10, SPP’s goals will become fully integrated, allowing the group to report on goals that are fully shared by the Norwegian and the Swedish enterprises.
Goals and data concerning the area of corporate responsibility have been collected from all units in the group through established reporting procedures. These involve standardised reporting twice annually. In addition, the Unit for Corporate Responsibility conducts separate meetings and community gatherings for all those who are responsible for meeting the company’s goals. The figures in the objectives matrix have been complied and processed with the aim of presenting the best possible overall picture of Storebrand’s work with corporate responsibility. The goals have been reviewed and approved by the Storebrand Group’s senior management and Board, and the measures have been anchored in and are followed up on from the company’s various occupational environments. A great emphasis is being placed on ensuring that the information is completely correct, however some uncertainty may nevertheless be associated with some individual parts of the numerical data.
• The information accumulated as a result of the procedures noted above for the selected indicators is consistent with the source documentation presented to us and appropriately reflected on the pages referred to above.
SPP Livsförsäkring AB owns 50% and Storebrand Livsforsikring AS owns 25%. 1 Storebrand ASA owns 24.9% and Storebrand’s total ownership share is 99.8%. 2
Primary capital is capital eligible to fulfil the capital requirements under the authorities’ regulations. Primary capital may comprise Tier 1 capital and Tier 2 capital.
Gross premium reserve comprises the cash value (insurance obligations discounted by the guaranteed interest rate) of the company’s total insurance obligations with respect to the individual insurance agreements, reduced by the cash value of future premiums. This corresponds to the sum of the amounts that are entered in the accounts of the insured, as well as premium reserves set aside for contracts for which no accounts are kept (pure risk insurance policies, including group life insurance, etc.).
In order to ensure the capital adequacy of life insurance, the companies have the ability to create supplementary provisions in the insurance fund. The supplementary provisions are a conditional provision that is assessed to customers and which is entered on the income statement as a statutory reserve, thus reducing the year’s results. Supplementary provisions may be used for coverage of interest deficits for contracts with a guaranteed return. For an individual year, up to one year’s interest guarantee may be covered from the contract’s supplementary provisions. Any possible negative returns must be covered by the company’s equity.
The sum of total claims amount for losses incurred in the period regardless of whether or not they have been reported to the company and any changes in losses which occurred in earlier periods.
That part of the premiums written that is not earned by the end of the accounting year.
This is accrual accounting for premiums written and constitutes the premium for that part of the policy’s agreement period that falls within the accounting year.
A basis swap is an agreement to exchange principle and interest rate terms in a foreign currency. At the maturity of the contract, the principal and interest rate terms are exchanged back to the original currency. Basis swaps are used for currency hedging of loans.
Storebrand Livsforsikring AS Swedish branch Torsgatan 14 P. O. Box 5541 S-114 85 Stockholm, Sweden www.storebrand.se
Other group companies:Headquarters: Branch offices in Norway (insurance agents) Tromsø, Trondheim, Kristiansund, Molde, Ålesund, Bergen, Stavanger, Kristiansand, Porsgrunn, Sandefjord, Tønsberg, Drammen, Asker, Sandvika, Lysaker, Oslo, Hønefoss, Hamar, Lillehammer, Jessheim, Ski, Sarpsborg and Fredrikstad.