GJENSIDIGE Drammensveien 288 P.O. Box 276 1326 Lysaker Phone +47 22 96 80 00
Lars Svanekjær Dorthe Elleby page 1, Ann Sofie Vinum page 5, Lykke Gædicke page 36
hElGE lEIRO BAASTAD: a Good year Gjensidige delivered a good financial performance in its first year as a listed company. At the same time, the work on customer orientation continued throughout the organisation.
The Group is well positioned for the next step. Our ambition is high: We aim to set a new standard for sale and service in the Nordic general insurance industry.
In 2011, Gjensidige maintained its position as the biggest general insurance company in Norway in a market characterised by increasingly tough competition from traditional players, banks and niche companies. Our strategy of prioritising profitability over growth remains unchanged. Correct pricing of insurance products is becoming increasingly important, in addition to efficient utilisation of customer and market data. The number of local branch offices will be reduced in 2012. At the same time, we are developing a new office concept for the biggest towns and cities, with increased focus on advisory services. Work continues on simplifying products and terms, together with measures aimed at facilitating self-service solutions on the internet and via mobile phone. Towards the end of 2011, we launched a new service for reporting claims by mobile phone, and in January 2012, we introduced our online shop on Facebook. These are examples of new services that increase our accessibility and make it easier for customers to buy and update insurance policies.
Gjensidige’s staff have great expertise and are very loyal to the Group. The sense of responsibility they feel for customers was clearly demonstrated in the way queries and claims were dealt with following both the terrorist attack on 22 July and the extreme weather incidents that occured in 2011. Through the Gjensidige Academy, we focus on continuouslyimproving skills all levels of the organisation, in order to both retain and attract competence. It is our employees who deliver our brand and ensure that all our customers regard their dealings with us as a good experience – the Gjensidige Experience.
The operations are divided into six segments. These are described on pages 12-25: • General insurance Private Norway • General insurance Commercial
Norway • General insurance Nordic • General insurance Baltics • Pension and savings • Banking
Gjensidige is one of Norway’s bestknown brands. Both the company logo and the Watchman have a high recognition factor. The roots of the general insurance operations can be traced back to the 1820s, while the Watchman has been the trademark for insurance business for more than 75 years. The Watchman logo was introduced in markets outside Norway in 2007 and 2008,
Gjensidige is one of the strongest brands in Norway and we are building brand awareness in the Nordic and Baltic countries. Our aim is to build a distinct, business oriented and relevant brand inn all markets in which we operate.
Gjensidige has wanted to combine the company strategy of customer orientation with the management of our brand.
The development of what we call the Gjensidige Experience is a key element.
Gjensidige has established a common framework for the Group’s customer orientation based on four organisational principles: • We keep our promises • We always provide quality • We make the complicated simple • We ensure that the customer is satisfied
These four principles shall provide directions for the organisation and provide a platform for Gjensidige’s value-adding services.
1958 The Company offered insurance directly to the market. At the same time, the insurance coverage and range of products were expanded.
1974 Samtrygd merged with Norsk Bilforsikring Gjensidige (NBG) and became the biggest car insurance company in the Norwegian market. later that year, collaboration was entered into with Gjensidige liv under the Gjensidige brand and the Watchman logo. The companies were placed under joint management in 1985.
1993 The acquisition of Forenede Forsikring resulted in a significant expansion of the Company’s business.
1999 Sixteen regional mutual fire insurers merged with Gjensidige Forsikring, transforming Gjensidige from a mutual federation of Gjensidige com panies into an integrated mutual group. later that year, Gjensidige, Gjensidige liv and Sparebanken NOR merged and combined their business operations to form the financial group Gjensidige NOR .
2001 The Group acquired Falck and became active in the Norwegian health service market.
2005 The cooperative agreement between Gjensidige and DnB NOR was terminated. Gjensidige expanded its geographical area to include Denmark, Sweden and the Baltic States.
Other claims incurred, losses etc. NOK million (987.9) (743.0) (390.3) (393.3) (90.7)
Underwriting result, general insurance 1 NOK million 1,421.0 796.3 817.9 859.8 552.6
Run-off results, general insurance 2 NOK million 366.3 301.1 310.2 417.3 49.5
Solvency margin capital 7 NOK million 15,179.3 15,712.1 17,081.4 15,409.3 13,423.5
Return on financial assets (ROI) 10 Per cent 4.4 5.2 5.5 (0.6) 6.3
Return on equity (ROE) 11 Per cent 15.9 14.4 15.2 1.5 15.4 financial key fiGures
combined ratio development equity and solvency marGin capital return on equity
healt, safety and the environment 2011 2010 2009 2008 2007 Sickness absence, Gjensidige Forsikring Norway Per cent 4.6 5.2 5.0 3.8 4.0
Participation in a training programme Days 4,500 6,200 3,231 4,756 2,485 definitions: 1. Underwriting-result, general insurance = earned premiums - claims incurred etc - operating expenses 2. Run-off result, general insurance = change in estimates from earlier periods 3. Combined ratio = claims ratio + cost ratio 4. loss ratio = claims incurred etc. / earned premium 5. Cost ratio = operating expenses / earned premium 6. Investment portfolio = includes all investment funds in the Group, except Pension and savings and banking 7. Solvency margin capital = net subordinated capital including share of security provisions (based on the company accounts for Gjensidige Forsikring ASA in accordance with NGAAP) 8. Solvency margin is calculated at company level according to regulations from the Financial Supervisory Authority of Norway. 9. Capital adequacy ratio = net subordinated capital / risk-weighted calculation basis (based on the consolidated accounts in accordance with NGAAP). 10. Return on financial assets = net financial income as a percentage of the average financial assets including property (excluding Pensions and savings and banking) 11. Return on equity = profit before tax / average equity for the period non-financial key fiGures
The Group had a total of 3,116 employees at the end of 2011 number of employees by seGment number of employees per country
Gjensidige’s sound brand forms a good basis for the sale of new products and services to the Group’s roughly one million customers in Norway. Combined with a further development and expansion of the loyalty programmes in the general market and aimed at the organisation market, this will contribute to more satisfied customers and reduced customer turnover.
Through growth in general insurance in the Nordic countries and the Baltics, the Group shall achieve economies of scale in the form of synergies that contribute to long-term value creation, increased competitiveness through the addition of new customers and greater risk diversification through a larger and more diversified portfolio. Cost synergies are primarely achieved in the areas of reinsurance, development and management of insurance products, common guidelines for underwriting, more efficient capital allocation and common ICT solutions.
In addition to organic growth, Gjensidige will also attempt to grow in the coming years through the acquisition of other businesses that support the Group’s growth strategy within its range of products and services and its geographical area, provided that the transactions support the Group’s longterm target of a 15 per cent return on equity before tax expense.
Gjensidige is, and shall be, an attractive workplace that attracts, challenges and develops motivated and competent employees and managers. This will be achieved through a strong emphasis on management and employee development, fair reward models and a systematic effort to further develop the skills in the organisation.
Return on equity before tax > 15 per cent Return on equity before tax in 2011 of 15.9 per cent
Dividend 50-80 per cent of the profit for the year after tax expence for the Group
Cost ratio 15 per cent by 2015 16.4 per cent in 2011 supportinG areas
Return on equity before tax in 2011 of 5.2 per cent and 2.9 per cent for Banking and Pension and savings, respectively tarGets
Gjensidige also offers banking, savings and investment products to its private customers. In 2011, the portfolio of insurance policies sold under other brands (white-label) was transferred to the Private Norway segment, while the agriculture portfolio was moved to the Commercial Norway segment.
General insurance private norWay Gjensidige has worked for many years to create good customer experiences. In combination with a strong brand, this has secured Gjensidige the position as market leader in the Norwegian private market. high customer satisfaction is the key to continued success, and Gjensidige is constantly introducing new measures aimed at increasing customer value.
key figures definitions: 1 loss ratio = claims incurred / earned premiums 2 Cost ratio = operating expenses / earned premiums 3 Combined ratio = loss ratio + cost ratio
At the end of 2011, Gjensidige had 753,000 customers in the private segment. Around 300,000 of them are part of the Gjensidige Fordel customer programme, in which customers receive a number of other benefits in addition to a discount based on the number of products they have. Around 233,000 of the customers are part of various customer programmes involving Gjensidige and key partners such as the Confederation of Vocational Unions (YS), the Norwegian Society of Engineers and Technologists (NITO) and Tekna – the Norwegian Society of Graduate Technical and Scientific Professionals. A long-standing cooperation with the Norwegian Automobile Federation (NAF) was terminated in spring 2011, with limited effect on portfolio. On average, Gjensidige’s programme and organisation customers have a longer relationship with the Company than other customers.
distribUtion Gjensidige’s private customers are served either through a dedicated distribution network or via agents and dealers/partners.
Our insurance offices and cooperating mutual fire insurers attend to functions that require local knowledge and personal contact. All the insurance offices offer the full range of Gjensidige products, but with different degrees of local specialist expertise. A wide product range is one of the segment’s most important focus areas.
Gjensidige Annual Report 2011 opeRAtions evening and handle around 1.1 million incoming calls every year. In addition, Gjensidige has two centres that contact new customers and develop and maintain existing customer relations.
The website gjensidige.no is becoming increasingly important for Gjensidige’s contact with its retail customers. The degree of self-service is increasing, and approximately 13 per cent of sales were online in 2011. Customer service personnel shall contribute to increasing the degree of self-service by actively guiding customers in the use of gjensidige.no.
resUlts Earned premiums amounted to NOK 8,082.8 million in 2011, an increase of 4.7 per cent from the year before. The development in earned premiums in 2011 reflected the effect of premium increases implemented in 2010 and 2011. There was considerable focus on measures aimed at retaining customers in 2011, which resulted in reduced loss of customers during the year. Claims incurred amounted to NOK 5,670.9 million in 2011, compared with
NOK 5,895.5 million in 2010. The loss ratio was 70.2 in 2011, compared with 76.4 the year before. During the first months of the year, the proportion of winter-related claims was considerably lower than in the same period in 2010, and the claims trend for property insurance (excluding natural disaster claims) was therefore substantially better. The level of compensation for motor, leisure and accident and health insurance was lower in 2011 than in 2010. The hurricanes Dagmar and Berit towards the end of 2011 had a negative effect of NOK 100 million on claims incurred.
large losses1 amounted to NOK 15.0 million in 2011, with absence of such the year before. The run-off gain2 in 2011 was NOK 114.5 million, compared with NOK 90.9 million in 2010.
The cost ratio for 2011 was 15.2, a reduction of 0.1 percentage points in relation to the year before. In nominal terms, costs increased by NOK 63.9 million in 2011 compared with 2010. Among other things, the increase was due to a provision of NOK 40.0 million related to the new distribution strategy.
The combined ratio for 2011 was 85.3 per cent, compared with 91.4 in 2010. The underwriting result amounted to NOK 1,185.7 million in 2011, compared with NOK 662 million the year before.
The Company’s leading position in the Norwegian private market will continue: • Increased focus on financial advisory services • Increase private customers’ number of products in the Company
1 losses in excess of NOK 10 million 2 Run-off gain/loss = estimate deviations from earlier periods
Market leader Gjensidige is the market leader in the Commercial market. At year-end 2011, market share was 32.0 per cent. This includes the agriculture portfolio, which was transferred from the Private segment in 2011. Based on comparable figures for 2010, the market share fell slightly. At year-end 2011, Gjensidige had around 85,000 commercial customers. At the same time, Gjensidige had 80,000 agricultural customers, which corresponds to a market share of 71.2 per cent in the agricultural market.
The market is characterized by considerable price competition among established players and a number of small players. As market leader, Gjensidige continues to take responsibility for ensuring a consistent focus on profitability.
A central customer centre to handle incoming service calls has been esta blished at Moelv. The new model frees up time that can be spent on sales and on advising customers. Together, the insurance offices and the customer centre provide specialist expertise to medium-sized and large commercial customers and big agricultural customers.
There is relatively limited use of the internet for sales and claims settlement in the commercial segment. Self-service will, nevertheless, become increasingly important as more customers prefere to manage their own insurance products online.
General insurance commercial norWay Gjensidige has 165,000 agricultural and commercial customers in Norway. The company is the largest player in the commercial market and has a market share of 32.0 per cent. A multi-channel distribution model was established in 2011, which is an important step to further rationalise operation.
resUlts Earned premiums amounted to NOK 5,411.9 million in 2011, an increase of 0.2 per cent from the year before. The trend of falling earned premiums was reversed in the second quarter and can be explained by, among other things, the switch to multi-channel distribution in the first half-year. The new model had a positive effect on sales activity and earned premiums throughout the year.
Claims incurred amounted to NOK 4,283.4 million in 2011, compared with NOK 4,339.6 million in 2010. For 2011, the loss ratio was 79.1, an improvement from 80.3 in 2010. Systematic risk management and customer selection had a positive effect.
The level of large losses1 was slightly higher in 2011 than in 2010, which has a negative effect on the underwriting result. large losses amounted to NOK 281.6 million in 2011, compared with NOK 251.4 million the year before. The run-off gain2 in 2011 was NOK 71.2 compared with NOK 102.0 in 2010.
The cost ratio came to 13.6 in 2011, compared with 12.8 in 2010. In nominal terms, the costs have increased by NOK 41.2 million in 2011 compared with 2010. This was due, among other things, to a non-recurring effect related to the reorganisation in the first half-year.
targets and strategies The Commercial segment shall support the Group’s goal of a combined ratio of 90-93: • Rebalance the portfolio • Improve pricing and tariffing • Stronger focus on the profitable small and medium-sized enterprise segment • Utilise the customer database to identify areas for growth, including cross-sales of pension and saving products .
Further develop the distribution model: • Process improvement, rationalisation and simplification • Use of technology for automation and self-service • Increased differentiation with respect to industries and customer segments.
Source: Customer satisfaction survey, self-initiated custumer analysis, conducted by Norsk Kundebarometer/BI. SME = Small and medium sized enterprises
Most of the insurance products are sold under Gjensidige’s name and brand. The exception is insurance that is sold to private customers via the Nykredit group in Denmark.
The competition in the municipal market in Denmark intensified during the year. The public sector insurance market remained challenging.
sweden In Sweden, general insurance products are distributed to private customers, directly via telephone and the internet, and through insurance mediators (partners and agents). In the commercial market, distribution mainly takes place through insurance brokers and partners.
In 2011, 27 employees took part in a course organised by Gjensidige’s Customer and Brand School. It is an objective that all employees in direct contact with customers shall have taken part in a course organised by the school by the end of 2013.
resUlts Earned premiums amounted to NOK 3,635.0 million in 2011, an increase of 5.3 per cent from the year before. The increase was mainly related to the acquisition of Nykredit Forsikring. Changes in the exchange rate and reinsurance premiums linked to reinstatement following the torrential downpour in Copenhagen on 2 July had a negative effect on earned premiums in 2011. Profitability requirements led to losses in the commercial portfolio in the Danish market. Comprehensive price measures were implemented in the Nordic segment in 2011.
The level of large losses1 in 2011 was somewhat lover than in 2010. They amounted to NOK 132.4 million (153.8). The run-off gains2 was NOK 160.8 million (77.3)
The cost ratio for 2011 was 17.2, a reduction of 1.4 percentage points in relation to the year before. In nominal terms, the costs decreased by NOK 14.6 million in 2011 compared with 2010. This development was mainly due to the increase in business volume following the acquisition of Nykredit Forsikring, and exchange rate effects, combined with considerable cost reductions as a result of the realisation of synergies. The expected cost synergies were realised by the end of 2011.
The combined ratio for 2011 was 97.9 per cent, compared with 102 in 2010. The underwriting result amounted to NOK 75.6 million in 2011, compared with NOK 70.4 million the year before.
oUtlook The Nordic general insurance markets are relatively consolidated, but Gjensidige expects that it will be possible to grow selectively through a patient and rational approach to the opportunities that may arise, including those emerging as a result of changes in regulatory conditions.
Gjensidige’s Baltic operations provide insurance products to the private and commercial markets in latvia, lithuania and Estonia in the following main categories: • Motor • Property • Accident and health • Liability • Other
a signiFicant player in the baltics The Baltic insurance market is in an early development phase, and a significant part of the market is uninsured. Motor insurance is the biggest insurance product in these markets. In addition, the demand for property and health insurance is growing quickly in latvia and lithuania.
Gjensidige has operations in all three Baltic states. The business has remained profitable through a period of falling insurance markets. The markets are showing signs of improvement.
The combined ratio for 2011 was 99.2 per cent, compared with 96.2 in 2010. The loss and cost ratios are still among the best in the industry in the Baltic states. The underwriting result amounted to NOK 3.0 million in 2011, compared with NOK 17.4 million the year before.
targets and strategies The Baltic segment shall support the Group’s target of a combined ratio of 90-93: • Rationalisation of operations and the realisation of synergies across the
Baltic states. • Focus on balancing the development in costs with the development in premium levels. • Focus on more efficient claims settlement
Gjensidige’s goal is to become one of the leading insurance companies in the Baltic states: • Main focus on profitable organic growth. • Utilise the potential offered by an immature insurance market
Streamlining distribution: • Simplification of products combined with a uniform product portfolio for the Baltic states seen as a whole.
Based on gross premiums written 2011 Based on gross premiums written 2011 product Groups baltic division by country
• A number of funds from reputable managers (unit trusts, bond funds, fixed-income funds and alternative investments).
Both assets under management and the volume of business in the savings operations increased in 2011, despite unrest in the stock markets.
sale oF a wide range oF prodUcts to the groUp’s insUrance cUstoMers Pension and savings products are distributed through the distribution channels Private Norway and Commercial Norway, where investment and pension advisers work systematically to sell a wider range of products to existing customers. The products are also sold through selected partners, including banks and other financial undertakings.
soUnd Market position In 2011, Gjensidige consolidated its position as by far the largest player in the transfer market for private pension schemes. The company had a market share for unit-linked individual pensions of 9.3 per cent at the end of third quarter 2011 (7.0 per cent at the end of 2010). The market share for transferred funds was 41.0 per cent (Finance Norway-FNO)
pension and savinGs Pension and savings is a support area for the general insurance oper ations in Norway, offering a wide range of products, to retail and commercial customers. Its profitability target was achieved in 2011, and prospects for growth are good.
Value adjusted return on the paid-up policy portfolio, in per cent 3) 4.96 5.10 7.08 definitions: 1 Underwriting result general insurance = earned premiums, net of reinsurance - claims incurred etc. - operating expenses 2 The book return on the paid-up policy portfolio = realized return on the portfolio 3 Value adjusted return on the paid-up policy portfolio = total return on the portfolio
portFolio retUrn 2011 Gjensidige offers two alternatives for the management of defined-contribution pensions to its commercial customers: combined or active management. A fully currency-hedged version of the combined solution is also offered. Despite a turbulent year in the global financial markets, the Trygg (low risk) fund delivered a positive return, while the Balansert (balanced) and Offensiv (higher risk) funds, which have a higher proportion of equity investments, fell somewhat in value in 2011.
The booked return on the paid-up policy portfolio was 5.33 per cent in 2011, while the value-adjusted return was 4.96 per cent. This was considered a satisfactory result seen in relation to the risk exposure, which reflects a conservative investment profile. The average annual interest guarantee for the paid-up policy portfolio was 3.6 per cent.
resUlts Earned premiums amounted to NOK 532.7 million in 2011, compared with NOK 335.8 million in 2010. It is especially the customer portfolio in group defined-contribution pensions that grew and made positive contribution.
Management income in the savings operations amounted to NOK 31.3 million in 2011, compared with NOK 22.4 million in 2010. The increase in income is due to an increase in assets under management and to an increase in other management income. The profit margin for savings was 0.41 per cent in 2011, compared with 0.61 per cent in 2010. This reduction was due to an increasing proportion of large customers with lower margins.
Claims incurred amounted to NOK 438.0 million in 2011, compared with NOK 258.1 million in 2010. In 2011, nothing was allocated to the risk equalisation fund, while the corresponding figure for 2010 was NOK 0.4 million.
Total operating expenses amounted to NOK 151.6 million in 2011, of which NOK 104.3 million was insurance-related. The corresponding figures for 2010 were NOK 156.7 million and NOK 109.6 million, respectively. The cost reduction in 2011 was due to the taking to income of a VAT reimbursement of NOK 9.1 million.
The profit before tax expense amounted to NOK 15.1 million in 2011, compared with a loss before tax expense of NOK 27.9 million in 2010. The profitability target was thus achieved in 2011.
Financial Supervisory Authority of Norway’s recommendation to insurance companies to make provision for future investment needs relating to higher life expectancy. Adjusted for this provision, the profit before tax expense would have been NOK 22.2 million.
• Increase the volume in the institutional savings market oUtlook The pension reform was adopted with effect from 1 January 2011, and the market for defined-contribution pension schemes is expected to grow substantially in the years ahead. Gjensidige is well positioned to take part in the expected growth. The Group’s customer base in general insurance represents a unique opportunity to succeed in achieving profitable growth through cross-sales of pension and savings products.
asset allocation portfolio Group policy market share, neW policies, defined contribution pension
Total asset under management at the end of the period assets under manaGement development
Gjensidige Bank offers the following products to private persons and the agricultural market/segment: • Traditional banking products such as day-to-day banking services and savings accounts • Loans secured by mortgage (housing loans and car loans) • Unsecured loans (consumer loans, credit cards and credit facilities).
The bank has a unique position compared with other online banks in that it provides online banking services combined with customer contact and advisory services from Gjensidige’s financial offices. The bank is one of the biggest players in the area of consumer financing in Norway.
A structural reorganisation was carried out according to plan in 2011. The improvement work continues unabated in 2012, with the goal of increasing the number of Gjensidige products customers have. Gjensidige Bank now offers a whole customer concept comprising housing loans, current accounts, cards and deposits.
The profit before tax expense was NOK 66.8 million in 2011, compared with 33.1 million in 2010. The profit improvement was due to improved quality in the loan portfolio, increased income from financial instruments and growth in volume.
deposit-to-loan ratio At year-end 2011, the deposit-to-loan ratio was 65.1 per cent, while it was 64.6 per cent at year-end 2010.
In December 2011, the bank launched a new brand for consumer financing, Opp Finans, which is expected to attract more customers. The new brand is scheduled to be fully implemented during the first quarter of 2012.
Deposits and lending at the end of 2011 Development in the number of customers with active use of the bank deposits and lendinG quarterly development in the number of customers
Net interest = net interest and credit commission income / average assets under management net interest income
Free portfolio Money market 173.3 99.5 320.7 Other bonds 2 86.7 340.7 909.1 Convertible bonds (42.8) 19.3 28.0 Shares (192.3) 4.2 71.8 PE-fond 178.1 210.4 (26.5) Property 418.6 359.2 5.8 Other 3 94.5 7.0 69.5 free portfolio total 716.1 1 040.5 1,378.4 finance income for the investm. portfolio 2,331.3 2,704.6 2,723.2
2) The item includes total investmentgrade-, high yield- and current bonds 3) The item includes currency hedging of Gjensidige Sweden, Gjensidige Baltic and Gjensidige Denmark.
A large part of the asset management is outsourced to external managers, while the Group’s own investment team concentrates on asset allocation, risk management and the selection of asset managers. Property investments are made via the wholly-owned property management company Oslo Areal.
the investMent portFolio The Group’s investment portfolio includes all investment funds in the Group except for investment funds in Pension and savings and Banking. At the end of 2011, the investment portfolio was NOK 54,486.7 million (52,347.0).
Match portFolio The match portfolio amounted to NOK 29,503.4 million at the end of 2011. The portfolio consists of three sub-portfolios: money market instruments, bonds valued at amortised cost and current bonds. The average duration at the end of 2011 was 3.3 years. The average term to maturity for the insurance debt was approximately 3.5 years.
Bond investments in the so-called PIIGS countries amounted to NOK 361.2 million at the end of 2011. Of this amount, NOK 298.3 million was invested in Spanish bonds issued by credit institutions that are government-guaranteed, while NOK 62.9 million was invested in Italian senior bank loans. These bond investments were part of the portfolio of bonds valued at amortised cost. For more details relating to counterparty risk and the breakdown by rating category, see Note 3, tables 22a and 22b.
Free portFolio The free portfolio amounted to NOK 20,505.1 million at year-end 2011. The portfolio comprises different classes of assets and is subject to dynamic risk management in order to ensure that the financial return is no lower than a pre-defined level.
The breakdown of the counterparty risk was 24.8 per cent central government and other public sector, 42.7 per cent banks and financial institutions, and 32.5 per cent industry. For more details relating to counterparty risk and the breakdown by rating category, see Note 3, table 29.
property portfolio The property investments amounted to NOK 5.8 billion at the end of the year. Property investments are concentrated in office properties in Oslo, but they also include shopping centres and office properties in other Norwegian cities and two office buildings in Copenhagen. In addition, a small part of the portfolio was invested in international property funds. In 2011, the property investments were reduced through sales in the amount of NOK 691 million. An agreement was signed at the turn of the year for the sale of four shopping centres. The transaction will be effected at the beginning of March 2012 associated coMpanies Associated companies amounted to NOK 4.5 billion at the end of 2011. The shareholding in Storebrand was recognised in the amount of NOK 3,454.2 million. The corresponding figure for the investment in SpareBank1 SR-Bank was NOK 995.4 million.
property portfolio Property showed a profit of NOK 418.6 million for the year, equivalent to a return of 6.7 per cent.
associated coMpanies Profit from associated companies amounted to NOK 431.6 million (488.7) in 2011, corresponding to a return of 9.8 per cent. NOK 307.2 million of this amount was Gjensidige’s estimated share of Storebrand’s profit for 2011. Gjensidige’s share of SpareBank1 SR-Bank’s profit for 2011 was NOK 118.4 million. The figures include amortisation of excess value and estimate deviations from earlier periods.
The fixed-income portfolio: 100 bp parallel shift upwards2 (241.6) (274.1) (347.2)
1 Storebrand and SpareBank 1 SR-Bank are recognised as associated companies. 2 Does not include the fixed asset portfolio or the effect of the swap agreements in Gjensidiges
Capital adequacy margin Gjensidige Forsikring 4 % 535.2 581.2 713.8 share capital
Number of outstanding shares at the end of the period Number 500,000,000 500,000 000 500,000,000
Total NOK million 18,111.9 17,466.8 16,198.3 earned premiums, net of reinsurance
Eliminations NOK million 22.6 30.0 89.9 loss ratio 7 cost ratio 8 combined ratio 9
Assets under management, pension, additions in the period NOK million 1,514.9 2,303.8 2,329.8
Assets under management, pension at the end of the period NOK million 8,188.9 6,674.1 4,370.3 of which the group policy portfolio NOK million 2,620.6 2,146.0 1,514.6
Profit margin savings in per cent 10 % 0.41 0.61 0.90
Recognised return on paid-up policies portfolio 11 % 5.33 5.29 5.97
Number of customers (pension), addition in the period Number 14,238 14,813 17,988
Number of customers (pension) at the end of the period Number 80,796 66,468 51,655
Gross lending, addition in the period NOK million 899.5 2,543.9 4,864.2
Deposit-to-loan ratio at the end of the period 14 % 65.1 64.6 56.6
Net interest income in per cent 15 % 2.71 2.88 0.63
Customers at the end of the period Number 98,183 89,594 75,945
GJENSIDIGE hAS FOR 18 YEARS BEEN ThE MAIN SPONSOR OF ThE NORWEGIAN WOMEN’S hANDBAll TEAM, WhICh WON ThE WORlD ChAMPIONShIPS IN BRAZIl IN DECEMBER 2011.
The task that we have taken on is to safeguard life, health and assets and carry the burden of risk for our customers. We replace what can be replaced when a customer’s house catches fire or a car is involved in a collision. We would rather help the customer to avoid fires and other accidents, however. We accumulate knowledge about what causes loss and injuries and how they can be avoided. We share this knowledge with customers and society at large, and promote sensible behaviour through information campaigns and prizes.
Interaction with the media is crucial if we are to reach a wide audience with preventive information. In 2011, Gjensidige contributed to more than 600 newspaper articles and radio and TV reports on the prevention of losses and injuries.
The prevention of traffic accidents is an important goal for Gjensidige. We are involved in research, public awareness campaigns and education. We also believe that the road network needs to be upgraded more quickly. This is a task that the authorities should be investing more in, and it should be prioritised ahead of expensive transport projects based on other motives.
From 2007 to 2012, we have supported the ‘Girls’ Safe Driving Initiative’, which is organised by the Norwegian Council for Road Safety. Younger womwn are generally safer drivers than young men. The objective of the initiative is to encourage female passengers to demand that young males drive safely.
From 2012, Gjensidige and the Norwegian Council for Road Safety will collaborate on a programme targeting apprentices. Most apprentices are young men with little experience of driving. Many of them drive a lot in connection with their work. They are therefore an important target group for public awareness campaigns. Among other things, the programme will feature the computer game ‘Real life Auto’, which simulates the consequences of different driving behaviour.
For many years, we have handed out reflective vests and reflectors, which are among the most effective safety measures for pedestrians. In 2011, we handed out 16,000 reflective vests to children at kindergartens and schools, and 40,000 reflectors. The reflector campaign is based on voluntary efforts by the Company’s employees, who show great commitment in this connection.
In 2011, in collaboration with the Rural Youth Association of Norway (NBU), Gjensidige organised a traffic safety project called ‘By young people for young people’. The Rural Youth Association of Norway has around 5,000 members, and they were invited to hold an event or a campaign on traffic safety in their local communities. The winner was announced and awarded a prize at NBU’s national conference in summer 2011.
GjensidiGe and society General insurance is about more than making life more pleasant, fun or exciting. With out insurance, a house fire can lead to financial ruin. It was this realisation that led to the establishment in the 19th century of the many mutual fire insurers that gradually merged to become Gjensidige.
’the expedient, swift settlement of claims makes life easier for the customer.’
’to be able to demystify insurance, pension and finance and make them easy to understand leads to job satisfaction and inspiration.’
’as long as you are genuinely interested in the customer and listen to them, you achieve good communication’
For years, Gjensidige has organised Aksjon boligbrann, a nationwide information campaign to help to prevent fires in the home, in collaboration with the Norwegian Fire Protection Association, the Directorate for Civil Protection and Emergency Planning (DSB) and local fire brigades. This is an annual campaign in which around 40,000 fire inspections are conducted in homes. A ‘fire calendar’ is also handed out in which the Norwegian women’s handball team demonstrates fire prevention in the home.
Our commitment to fire protection for elderly people living at home continued in 2011. This group is particularly vulnerable to fire. A joint project with the City of Oslo and the Oslo Fire and Rescue Department in which the homehelp service conducts an annual fire inspection has produced good results.
In collaboration with DSB and the Norwegian Fire Protection Association, we helped to develop and market educational material on fire prevention for schools in Norway. Gjensidige is represented on a number of councils, committees and boards, and regularly contributes to improving the regulations.
Gjensidige has endorsed the ‘Klimaløftet’ campaign, which is a climate action programme organised by the Ministry of the Environment. Among other things, it involves committing to preparing climate accounts, preparing action plans and considering purchasing carbon offsets to compensate for emissions in full or in part.
Every year, we endeavour to reduce our consumption of energy and other resources. Our energy consumption in 2011 was 12.8 million kWh, which was a reduction of nine per cent in relation to 2010.
Physical activity is important for both mental and physical health. Gjensidige is the main sponsor of the Norwegian women’s handball team, which won the World Championships in Brazil in December last year. In collaboration with the Norwegian handball Federation, we run handball schools for children and young people. In 2011, around 4,000 participants took part in handball schools during the winter break, and as many during the October break. We donate sports kits to handball, football and cross-country skiing sports clubs.
In 2010, the Company spent NOK 16,400 on courses and further education per employee. You can read more about Gjensidige’s investment in its employees on page 64-65.
’treat the customer the way you yourself would want to be treated in a conversation with a customer adviser.’
’our job is to help customers to get the claims compensation they are entitled to.’
’We are important culture bearers and an arena for establishing and passing on best practice. We work to implement the Group’s strategy, especially in relation to customer orientation,’ says Miriam. Gjensidige’s Customer and Brand School is the Group’s joint training arena for all personnel who deal with customers. This means everyone in the sales organisation, for both private and commercial customers, and the claims handlers.
Miriam underlines that competence-raising is a process that also continues after the exam. Courses in insurance and product knowledge are held on a regular basis, and much training is given as on-the-job training in the workplace.
’how easy is it to find time for training in a busy workday with budget targets and a full schedule?’
The feedback from the course participants is very important. As long as they feel that what they learn at the school is useful in their day-to-day
’the customer shall perceive us as eager to serve and easy to understand, and then we must keep our promises, of course.’
The Customer and Brand School was established in Denmark in autumn 2011. Miriam wants all employees in Denmark and Sweden who deal with customers to complete courses within two years. She is prepared for the fact that people with long experience can be sceptical about spending time on training.
Another focus area in 2012 is the school’s voluntary instructors, who otherwise normally work in sales, claims and products.
the year it rained and rained The storm Dagmar hit Norway in the early hours of Boxing Day 2011, and customers who had suffered damage started calling Gjensidige a few hours later. Many of our claims handlers who had been looking forward to a few lazy days at Christmas ended up spending long days on the phone. Over the course of five days, Gjensidige received 3,000 reports of damage to buildings. All available resources were called in to handle the worst hurricane since 1992.
Situations like that are the moment of truth for an insurance company. When customers need our help, we must be there to provide advice and guidance on how to handle claims. That is why our staff must be highly competent and motivated. They must feel responsible for helping the customers. And in 2011, our staff were called on to demonstrate this sense of responsibility many times.
The year began with a prolonged period of cold weather, which led to extensive frost and water damage. From the melting snow in the spring to the autumn rains in September, we experienced a series of floods, the June flood in Gudbrandsdalen being the one that caused most damage. The summer was also characterised by a lot of losses caused by thunder and lightning.
The end of the year was dominated by heavy storms, first Berit in November, and then Dagmar between Christmas and New Years. Claims cases involving loss of life or injuries are worst, but material damage can also be a heavy burden. People’s homes are where they feel safest. When someone’s house is suddenly destroyed and becomes uninhabitable, strong emotions come into play, at the same time as practical problems need to be resolved. Insurance is about more than money. It is also a question of taking care of customers in vulnerable situations. It is a job to be proud of. And we are proud of those who do it.
’our job is to help customers who have experienced damage or loss, and who often find themselves in a difficult situation.’
’the most important thing in my job is listen ing to the customer and understanding his or her needs.’
That is exactly what Odd is going to demonstrate on this chilly November morning. The local fire service, the Norwegian Fire Protection Association, the Directorate for Civil Protection and Emergency Planning (DSB) and the Norwegian Broadcasting Corporation (NRK) are also in place to follow the demonstration.
he points out that the smoke alarms should have been connected in series. In that case, the smoke alarm in the bedroom would start to beep at the same time as the one in the living room. That would have given the house’s inhabitants sufficient time to get down the stairs and to safety. They might even have had time to put out the fire before it got out of control.
Taxes and fees - VAT registered, no illegal labour Control Continued
Yes Yes Continued human rights Asset management The Group’s own financial investments follow international rules for ‘Socially responsible investments (SRI)’
the GjensidiGe foundation The Gjensidige Foundation is the largest in Norway, and it plays two important roles. One of these roles is relatively new and involves the ownership of Gjensidige Forsikring ASA and asset management. The other is the continuance of Gjensidige Forsikring’s long tradition as an important contributor to socially beneficial objectives.
In June 2010, the Gjensidige Foundation was converted from a general foundation to a financial foundation. This was a consequence of Gjensidige Forsikring’s simultaneous conversion to a public limited company (ASA). The foundation currently owns just under 63 per cent of the shares in Gjensidige, and it is stipulated in the Articles of Association that its ownership shall be long-term. Approximately 150 of Gjensidiges customers form the general meeting, the supreme body of the Foundation.
In addition to the long-term ownership of Gjensidige, the Gjensidige Foundation’s financial targets involve distributing a dividend to Gjensidige Forsikring’s general insurance customers and managing the investment income from Gjensidige Forsikring’s sell-down sale.
The Foundation’s socially beneficial objective involves promoting security and health both locally and nationally by helping to fund various causes. This shall occur in accordance with the foundation’s basic values, which are ’Prevention – Development – Generate activities – Development of society’. The funds that are distributed by the foundation shall mainly go to activities and projects that improve and safeguard the everyday lives of the general public or of selected target groups. We are looking for projects that will help to promote change and for the dedicated souls who will see these projects through to completion. It is important that these projects are based on a good idea or a good proposal that will benefit and bring happiness to many people over a period of time. Importance is also attached to innovation and implementation capabilities.
From its establishment in October 2007 up to year-end 2011, the Gjensidige Foundation has awarded a total of NOK 640 million to almost 2,800 projects to promote security and health. Examples of national projects that have received considerable support are the ’learning to swim’ campaign in cooperation with the Norwegian Swimming Federation, the project ’En helt vanlig jul’ (A typical Christmas ) with the Church City Mission, Active Against Cancer, Dignity Day and MOT.
The Gjensidige Foundation’s representatives from the owner committees in five regions recommend relevant local applications for support. The Board of Directors makes the final decision as to which projects will be approved.
The gifts from the Foundation shall promote security and health in accordance with the foundation’s basic values, which are ’Prevention – Development – Generate activities – Development of society’.
Risk management and risk factors are described in more detail in the directors ’ report and in Note 3.
The monthly reporting includes the results achieved in relation to budgets approved by the Board, up-to-date forecasts and developments in the most important risk factors.
Risk assessments are closely linked to business follow-up, so that managers of individual areas are aware of their responsibility for achieving goals within an acceptable risk level. The CEO holds regular performance review meetings with the managers who report to him, at which they focus on measures that ensure results and deliveries. Quarterly overviews of the Group’s risk and capital situation are prepared for both the Board and management, in which the need for measures is assessed.
Risk management and risk factors are described in more detail in the directors’ report and in Note 3.
handling of material risk factors in the Group. The CRO is responsible for clarifying the risk and capital situation and for bringing it to the attention of the Group Risk Committee. This committee also serves as the overall steering committee for the Group’s Solvency II project.
• compliance, among other things by investigating compliance with external and internal regulations.
The function was established and is conducted in accordance with international standards and the requirements set out in the Regulations relating to risk management and internal control. The Group Auditing Manager prepares and submits reports to the Board on risk management and internal control. The audit reports are also presented to the control committee and the external auditor.
Solvency II will contribute to improved quantification of risk and capital needs for insurance companies, and improve risk management in general. Gjensidige therefore welcomes the new regulations and believes that they will provide a greater incentive for companies to measure and manage all risks in a consistent manner. This kind of discipline is positive for profitability and value creation in the insurance markets in the long term. The development of Solvency II is being closely monitored, and active preparations for the coming regulations are being carried out in a separate project that reports directly to the CEO.
Gjensidige has participated in all the quantitative impact studies that have been conducted, most recently in 2010 (called QIS 5). They have primarily focused on consequences for capital and, as far as Gjensidige is concerned, QIS 5 shows that the Group will also be very well capitalised under the new regulations, with at least as much excess capital in relation to the new require ments as today. The new regulations entail a greater degree of market-based valuation of assets and liabilities, which will also mean that excess capital in relation to the capital requirements will fluctuate more from one period to the next in future. Because the drivers for the capital requirement are significantly different, it can also lead to the Group making changes to its adaptation of assets, product pricing and product composition and to the internal legal structure of the Group. Future work on the Group’s Solvency II project will focus strongly on this aspect.
• Strengthening the group-wide procedures for risk management • Meeting Solvency II’s new, comprehensive reporting requirements in an efficient manner.
The Group established Solvency II as a separate project area in 2009 on the basis of a gap analysis that was carried out the year before. It has since worked systematically to close the gaps identified in relation to the new requirements.
Under Solvency II, it is possible to apply to use internal models to calculate the regulatory capital requirement. This means that the capital requirements will as far as possible reflect the Group’s own quantitative assessment of the risk and the impact of the risk-reduction measures that are in place, for example reinsurance. Since 2004, Gjensidige has worked on developing a so-called AlM (Asset liability Management) model that is used in its internal capital management. This model is being further developed both in its scope and area of application, and Gjensidige will apply to have it approved as an internal model. In addition to producing a more correct assessment of the capital requirement, it is deemed to result in improved risk management in that it consistently takes risk and capital effects into account in strategic and operational decisions.
Gjensidige already meets many of the requirements for efficient group-wide risk management that are set out in the Solvency II regulations. Functions and governing documents are in place, and work is under way on ensuring as many common systems and procedures as possible in the individual companies in the Group. The overriding principle on which this work is based is to ensure that risk and business management are as closely integrated as possible. This results in swifter identification of risks relating to not achieving targets and initiating corrective measures.
solvency ii The Solvency II regulations are being established under the auspices of the EU. They will introduce a new standard for calculating capital requirements, requirements for risk management and the reporting of the risk and capital situation in European insurance companies.
Financial and non-financial target figures have been set that govern the Group’s activities. These target figures are disclosed at least once a year in connection with the annual report, and otherwise as soon as possible if revised or new target figures are adopted by the Board. Gjensidige does not guide for the Group’s future financial performance.
dividend and dividend policy The Board has adopted a dividend policy that will form the basis for the dividend proposals that are submitted to the general meeting. Gjensidige shall have a dividend policy that ensures a competitive dividend in relation to comparable investments.
When determining the size of the annual dividend, consideration shall be given to the Group’s capital needs, including capital adequacy requirements and the Group’s targets and strategic plans. Unless the capital needs indicate otherwise, the Board’s target is that between 50 and 80 per cent of the profit for the year will be distributed as dividend.
In addition to paying a cash dividend, Gjensidige will also consider buying back shares as a means of increasing the total shareholder return.
In 2011, dividend corresponding to 80 per cent of the profit after tax expense for the financial year 2010 was distributed. This amounted to NOK 2,350 million, which corresponds to NOK 4.70 per share. For the 2011 financial year, the Board of Gjensidige has proposed a dividend of NOK 2,275.0 million to be distributed. This corresponding to NOK 4.55 per share.
The dividend for the 2011 financial year will be approved by the general meeting on 19 April 2012 and paid to shareholders registered on the date of the general meeting. The dividend is expected to be disbursed approximately eight business days after the date of the general meeting.
the 20 biGGest shareholders as of 31 december 1 no shareholder holding 4 DWS Investments 2.1 5 lansdowne Partners 1.9 6 Thornburg Investment Mgmt 1.9 7 Greenlight Capital 1.4 9 Odin Fund Management 1.1 10 People's Bank of China 1.0 11 BNP Paribas Inv. Partners 0.9 12 DNB NOR AM 0.5 13 Danske Capital 0.5 14 Invesco Perpetual 0.4 17 Storebrand Investments 0.3 18 APG AM 0.3 19 Vanguard Group 0.3 20 Alfred Berg 0.3 total 20 biggest 84.7 1) The list of shareholders is based on an analysis of the register of shareholders in the Norwegian Central Securities Depository (VPS) carried out by RD:IR. The analysis maps the owners behind the nominee accounts. There is no guarantee that the list is complete. An overview of the 20 biggest shareholders as specified in VPS’s register of shareholders is available in Note 26 on page 129.
share capital The share capital in the Company is NOK 1,000,000,000 divided between 500,000,000 shares each with a nominal value of NOK 2.
The authorisation can be used to purchase own shares with a total nominal value of up to NOK 3,000,000. Shares purchased in accordance with the authorisation can only be used for the sale and transfer of shares to employ1 ) Fordeling av aksjer eksklusiv aksjene eiet av Gjensidigestiftelsen
GeoGrafisk fordelinG av eiere per 31.12.2011 key figures – the Gjensidige share
Outstanding shares, average 500,000 Outstanding shares at 31 Dec. 2011 500,000 ownership Gjensidige had approximately 45,000 shareholders at the turn of the year. The Gjensidige Foundation is the largest owner, with a holding of 62.8 per cent. The twenty biggest owners own a total of 89.7 per cent of the shares in the Company.
The Gjensidige Foundation has stipulated in the Articles of Association to have an owner share in Gjensidige of at least 60 per cent.
The Gjensidige Foundation has an ownership policy that focuses on high value creation over time. The Gjensidige Foundation has stated that it expects an annual dividend that is competitive in relation to equivalent businesses and that it is willing to contribute to ensuring stable ownership and predictability. The Foundation is also willing to consider a reduced ownership fraction in the event of any acquisitions or capital increases that are in accordance with the Gjensidige Foundation’s overall strategy.
The Gjensidige Foundation manages ownership on behalf of the Norwegian general insurance customers, which, among other things, means that dividend also for 2011 from Gjensidige is passed on to Norwegian general insurance customers through the Gjensidige Foundation.
The authorisation to purchase own shares for the purpose of cancellation through a capital reduction has not been used.
The Board will propose that the authorisations be extended in the same scope, for the same purpose and on the same terms.
The general meeting is open to all shareholders. Registration for the general meeting takes place online at www.gjensidige.com. The deadline for registration is 16 April 2012.
rating Gjensidige is rated by the rating agency Standard & Poor’s. Gjensidige has an A rating with a stable outlook, and the latest rating report was dated 30 August 2011.
bjørn asp pension and savings Asp (1950) took over as Executive Vice President in charge of Pensions and savings in 2005. he joined Gjensidige in 1982 and has held various executive positions in the Group. he has been a member of the senior group management since 2001 and has held several directorships. Asp has a degree in business economics from handelsakademiet (Oslo Business School).
Martin danielsen product and price Danielsen (1966) has been Executive Vice President of Product and Price since 2009. he joined Gjensidige in 2006 and has held several executive positions in the Group, including Deputy CEO of Gjensidige Pensjon og Sparing. he has previously worked as a consultant with McKinsey and held executive positions in BearingPoint, Storebrand ASA and If. Danielsen has a Bachelor of Science in Business Administration from the University of Bath as well a Norwegian law degree (cand. jur) from the University of Oslo.
sigUrd aUstin commercial Austin (1971) took up the post of Executive Vice President of the Commercial segment in 2011. he joined Gjensidige in 2003 and has held various executive positions in the Group, most recently as head of small and mediumsized enterprises and agriculture (SMBl) in the Commercial segment. Austin has previously held various leading positions in the Norwegian Armed Forces. Austin studied at the Norwegian Military Academy, has a Master of Science (MSc) degree from BI Norwegian Business School and an MBA degree from the Norwegian School of Economics (Nhh).
cecilie ditlev-siMonsen brand management, communications and marketing Ditlev-Simonsen (1964) was apointed in May 2011. She was previously Managing Director of the communications agency JKl Group. From 2002 to 2007, she was head of communication in Norsk hydro ASA, the last year as member of corporate management. She has also been Deputy Managing Director of NSB and head of Information at IBM Norge/Nordic. DitlevSimonsen has previously been head of Oslo City Government’s Secretariat and been a member of Oslo City Council. She has experience as a journalist from several American newspapers and holds a Bachelor of Science in Journalism from the Northwestern University in the USA.
kaare østgaard claims and ict Østgaard (1964) took up the post of Executive Vice President of Claims and ICT in 2011. he joined Gjensidige in 2004 and has been responsible for ICT since 2006. he was also in charge of the integration work following the acquisition of Nykredit Forsikring in 2010. he has previously held various executive positions in ErgoGroup, including as deputy managing director prior to joining Gjensidige. Østgaard holds a degree in business economics (siviløkonom) from BI Norwegian Business School.
hege yli MelhUs private norway Melhus (1974) started as Executive Vice President in charge of the Private segment in 2011. She came from the position of CEO of Agito Nordic AS and has previously been Executive Vice President of Markets in hafslund ASA. She also has experience as an investment analyst with Kistefos Venture Capital AS and has worked as a research assistant at INSEAD in France. Melhus has been a member of the board of Skagerak Venture since 2007. She holds a Maîtrise des Sciences de Gestion (MA in Business Economics ) from Université Paris IX Dauphine in France.
kiM rUd-petersen international General insurance Petersen (1970) took up the post of Executive Vice President of International General Insurance in 2010. he came from the position of head of the Commercial division in the Danish part of the business. Rud-Petersen was appointed sales director of KommuneForsikring in 2005 and has previously worked for Codan and AON. Kim Rud-Petersen has been chair of the board of Nykredit Forsikring AS since 2010 and chair of the board of Gjensidige Baltic since 2010. In addition, he has been deputy chair of Gjensidiges Arbejdsskadesforsikring A/S since 2010 and a member of the board of Compass human Resources Group A/S since 2010. Rud-Petersen has a Bachelor’s degree in Insurance and Economics and a Master of Business Administration from IUM in Monaco.
Bjørn Iversen, Chairman Kirsten Ingjerd Værdal, Deputy chairman Benedikte Bettina Bjørn Knud Daugaard Randi Dille Marit Frogner Geir holtet Arne G. Krog hilde Myrberg Jens Eghøy Nielsen John Ove Ottestad lilly T. Stakkeland Christina Stray Even Søfteland depUty MeMbers 1. Ivar Kvinlaug 2. Inger Tone Ødegård 3. Wenche Teigland 4. Terje Wold eMployee representatives Jon Aniksdal Elisabeth Katai Knudsen Åsa Schwaiger Vibeke Thomassen lasse Wold Roger Warud Petter Aasen depUty MeMbers 1. Ellen Kristine Enger 2. hanne Rennemo 3. Monika huseby Antonsen Susanne Baden Weltz (Nordic)
coMbined ratio Combined Ratio (CR ) is a key figure in the insurance sector and shows the ratio of costs (both claims incurred and operating expenses) to earned premiums in the general insurance operations. The combined ratio is equal to the sum of the loss ratio and the cost ratio.
cost ratio Expresses the ratio of the total insurance- related operating expenses to the earned premiums.
reinsUrance Reinsurance is a contract between an insurance company and a reinsurer, where the insurance company transfers a portion of an insurance policy to the reinsurer. This is a method of risk moderation in order to protect equity.
loss ratio The loss ratio expresses the ratio of claims incurred to the earned premiums.
solvency Margin reqUireMents Insurance companies must meet a solvency margin requirement that is an expression of the risk associated with the insurance liabilities. The requirement that must be met is calculated on the basis of the company’s insurance liabilities.
The following explanations are not meant to be technical definitions, but to give a general and fundamental understanding of some of the key concepts that are used in the annual report.
Per Arne Bjørge randi b. sætershaGen board member Sætershagen has been a board member of Gjensidige since 2005 and has been chair of the audit committee since 2008. She now works as a consultant and is interim manager of the consultancy company lien & Co. She has previously held the position of managing director of Swix Sport AS and marketing director of Norsk Tipping AS. Sætershagen is a board member of the Gjensidige Foundation, Elsikkerhet Norge AS, Briskeby Eiendom 1 AS, Briskeby Gressbane AS, hamar Sportsanlegg AS, Børstad Idrettsanlegg AS, Briskeby Bolig og hotel AS, Grid Design AS and Posten Norge AS. Sætershagen has a degree in business economics (siviløkonom) from BI Norwegian Business School. Sætershagen has attended eleven board meetings.
inGe k. hansen chairman hansen has been Chairman of the Board of Gjensidige since 2008. hansen is now a consultant. Among other positions, he has previously been CFO of Statoil, CEO of Aker Kværner and a consultant in Aker ASA. he is chair of the board of Siriusungen AS, NorSun AS, Bertel O. Steen AS, hotell- og Restauranthuset Continental AS, Core Energy AS, AIM Norway SF and leonhard Nilsen og Sønner AS, and a board member of hydro ASA, Jiffy International AS, JGO AS, Sissener AS and Master Marine AS. hansen holds a degree in business economics (siviløkonom) from the Norwegian School of Economics (Nhh). hansen has attended ten board meetings.
hans-erik andersson board member Andersson has been a board member of Gjensidige since 2008. Andersson, who is now a consultant, has previously been managing director of the insurance company Skandia, manager of the Nordic division of Marsh & Mclennan and Executive Director of Mercantile & General Re. Andersson is chair of the board of Semcon AB, Erik Penser Bankaktiebolag, Canvisa AB and Implement MP AB, and a board member of Cision AB. Andersson has studied statistics, economics, business law and administration at the University of Stockholm. Andersson has attended eleven board meetings.
BOARD OF DIRECTORS’ REPORT The Gjensidige Group recorded a profit before tax expense of NOK 3,647.4 million in 2011, up from NOK 3,254.0 million in 2010. The increased result is driven by strong improvement in the under­ writng result. The Board proposes that an ordinary dividend of NOK 2,275.0 million be distributed, corresponding to NOK 4.55 per share. Gjensidige’s customers in Norway will receive a total of NOK 1.4 billion in customer dividend, which will be paid by the Group’s biggest owner, the Gjensidige Foundation, through a unique model that contributes to customer loyalty and satisfaction.
The Group’s general insurance operations achieved good profitability in 2011, although the profit was negatively affected by the highest number of natural disaster claims in Norway since 1992. Measures aimed at retain­ ing customers, in addition to correct pricing of risk and strategic customer selection, contributed to reducing the loss ratio by 3.4 percentage points. The underlying cost ratio also developed positively in 2011. The Board is satisfied that the Group achieved its financial targets for 2011.
The return on financial investments was satisfactory in 2011, considering the challenging macroeconomic conditions in the second half­year. The return on financial assets was 4.4 per cent.
Gjensidige’s business model is based on an integrated value chain, from the production of financial services and products to distribution and customer dia­ logue. Critical mass and streamlining of processes lead to high efficiency and low cost ratios. Gjensidige is market leader in the Norwegian general insurance market, where its brand has ahigh brand recognition and strength.
dige by telephone, online or in person. More and more people want self­service solutions, and Gjensidige’s strong position in the private market provides a good basis for facilitating new services in the commercial market as well.
Most of the Danish and Swedish business is organised through branches of the Norwegian parent company.
Gjensidige will continue to prioritise profitability over growth in 2012. Experi ence, competence, extensive data and an analytical approach to customer selection and market activities represent important competitive advantages in a market characterised by increasing competition.
­ the brand initiative, which includes the development of a new brand strategy, a new visual identity, new customer portals in Norway, Denmark and Sweden, and a focus on management development and culture­building measures.
Further development of the loyalty and affinity group programmes will expand existing customer relations and reduce the loss of customers, in addition to supporting sales of banking, pension and savings products to insurance customers. Surveys show that people who own many Gjensidige products are the most satisfied customers.
A diversified product portfolio enables Gjensidige to increasingly capitalise on the value of its existing customer base and distribution platform. At the end of 2011, 84.8 per cent of the pension and savings customers and 48.3 per cent of the bank customers also had general insurance products in Gjensidige.
In addition to focusing on organic growth, Gjensidige will consider acquiring businesses that support the Group’s growth strategy in product expansions and geographical areas, provided that the acquisitions contribute to meeting the Group’s return on equity requirement within three years. Aquired insurance
Gjensidige’s internal risk­based capital model shall ensure that the allocation of capital takes capital costs into account. This enables the management to assess the relationship between risk in investment and insurance operations, while ensuring that the pricing of the insurance products reflects capital costs and the long­term profitability requirements.
The Group focuses on management and employee development, expedient remuneration models and systematic competence­raising in order to retain, develop and attract capable employees and managers.
FINANcIAl TARgETS Gjensidige achieved its financial targets in 2011. The Group’s overriding financial target is a return on equity of 15 per cent before tax expense. The Group’s return on equity before tax expense was 15.9 per cent in 2011.
The Group shall have a capitalisation that ensures an A rating from Standard & Poor’s. Gjensidige has substantial capital buffers in relation to internal risk models, statutory capital adequacy requirements and an A rating. The Group’s A rating was last confirmed in August 2011.
The Gjensidige Experience, which is the Company’s framework for customer orientation, will have been implemented throughout the Group in the course of 2012. A broad range of improvement measures have been implemented in recent years to strengthen customer orientation in all parts of the organi­ sation. Customer satisfaction is measured systematically, and improvement measures implemented continuously, down to the individual employee level. User­friendly self­service solutions are being developed to enable customers to buy and change insurance policies, seek advice and report claims both online and by mobile phone. At the same time, the simplification of internal work processes, system development and training shall ensure greater effi­ ciency in the servicing of customers both by phone and on the internet.
dISTRIBuTION Gjensidige has nearly one million insurance customers in Norway, divided between about 753,000 customers in the Private segment and 165,000 customers in the Commercial segment. Private customers are served through various distribution channels such as branch offices, customer centres and online solutions. Experience and methods from the Private segment have been transferred to the Commercial segment, which in Norway mostly comprises small and medium­sized enterprises. In 2011, as the first general insurance company in the Nordic countries, Gjensidige established a multi­ channel model for the whole commercial sector. Self­service solutions are being developed for both private and commercial customers. The 500 largest commercial customers are still served by a dedicated organisational unit together with customers served through the system of brokers.
The customers are now offered products and services via a single point of con­ tact, which greatly increases the possibility of increased sales of a wider range of products. The number of branch offices has been reduced, and an additional 16 branch offices will be closed in 2012. The business will be moved to nearby offices or customer services on the telephone or the internet. A new office concept is beeing developed for the largest towns and cities in Norway.
The Danish private market is primarily served by telephone and the internet. In addition, private insurance products are sold via partners, including Kia Motors, Hyundai Motor, the Danish Association of Managers and Executives, and EDC, Denmark’s largest estate agency chain. Distribution in the Danish commercial insurance market primarily takes place in collaboration with brokers.
A long­term distribution agreement was entered into with the Nykredit group in connection with the acquisition of Nykredit Forsikring. Nykredit is one of
In Sweden, distribution to private customers takes place both directly by tele­ phone and on the internet and through partners and agents. In the commercial market, distribution mainly takes place through insurance brokers and partners.
Gjensidige is also positioned for product deliveries adapted to different dis­ tribution channels, both in Norway and in the rest of the Nordic countries. Distribution largely takes place through agents and via business partners such as shops, car dealers and banks that wish to expand their product range with insurance products under their own label (‘white label’).
THE YEAR 2011 IMPORTANT EvENTS The year in weather The year 2011 will go down in history as one of the world’s worst years for natural disasters, measured by the number of weather­related claims. For Norway, total natural disaster losses from the Natural Perils Pool are estimated to be around NOK 1.9 billion. The effect of the extreme weather on Gjensidige’s performance is related to four major events in particular: the flood in the Gudbrandsdalen valley in June, the torrential downpour in Copenhagen in July and the storms Berit and Dagmar in Western Norway at the end of the year led to total claims incurred of almost NOK 330 million.
Customer orientation Gjensidige has prioritised customer orientation and measures aimed at retaining customers in 2011. Gjensidige’s Customer and Brand School has an important role in the training of managers and personnel who deal with customers. Internal surveys carried out in 2011 showed sales training had a positive effect on customer satisfaction, sales and in reducing the loss of customers. In a 2011­survey conducted by TNS Gallup, Gjensidige was rated best in the customer service category among the Norwegian insurance companies. External surveys showed increased satisfaction among Gjensidige’s customers.
New Nordic group functions Following the acquisition of Nykredit Forsikring in 2010, work on efficiency measures and integration of the business in the Nordic segment was carried out in 2011. Defined synergies were realised in the course of 2011. Nordic functions were established in 2011 for Product and price, Claims, ICT, as well as Brand, Communications and Marketing. Ongoing efficiency and streamli­ ning efforts to form a uniform group structure continue in 2012.
The Group management was expanded from nine to eleven members in 2011. For a more detailed presentation of the members of the Group mana­ gement, see page 52­53.
Optimal risk pricing The correct pricing of risk is the core of all insurance activity. In recent years, Gjensidige has done a lot of work on developing tariff rates and customer selection. By using advanced analytical and modelling tools in combination with extensive internal and external data and risk parameters, Gjensidige has succeeded in developing and launching premium rates that better reflect the underlying insur­ ance risk. The method enables fine­meshed price differentiation between groups with different risk profiles, which will contribute to ensuring Gjensidige’s competi­ tiveness in the time ahead. In the Private segment, new tariff rates for motor and property insurance have been launched previously, and a new tariff rate for private travel insurance was introduced in 2011. In the Commercial segment, Gjensidige has developed and implemented new tariff rates in important areas such as motor vehicles, lorries and commercial buildings in the course of 2011.
The share The Gjensidige share yielded a total return (including dividend) for the share­ holders of 26.6 per cent in 2011. In December, the Gjensidige Foundation distributed bonus shares to small shareholders who bought shares in con­ nection with the Company being listed on the stock exchange and had kept them for one year. In total, approximately 3.2 million bonus shares were distributed to just over 43,000 shareholders.
Mutual fire insurers A new strategic agreement with 19 mutual fire insurers was entered into with commercial terms and without requirements for dispensations. A previous joint pool arrangement for fire insurance was discontinued, including the statutory requirement that Gjensidige was externally liable for any insurance claims arising in the cooperating mutual fire insurers’ fire insurance operations. This responsibility lapsed in its entirety for insurance amounts in excess of NOK 100 million, but remains in force on a commercial basis for smaller policies.
The Group has considered what preparations should be made in order to meet the new Solvency II requirements. Gjensidige is well positioned to meet the new requirements, but additional measures will be implemented in the period until the requirements enter into force. Changes are being made to ensure comprehensive risk management that is well integrated with other management processes. The Board was kept informed about relevant matters relating to Solvency II throughout 2011.
Gjensidige aims to apply for approval for an internal model for parts of the busi­ ness to calculate the regulatory capital requirement under Solvency II. Since 2004, Gjensidige has worked on developing a so­called ALM (Asset Liability Manage­ ment) model that is used in its capital management. This model is being further developed both in scope and areas of use. The new regulations are expected to entail requirements for a higher capitalisation level than under Solvency I. In Norway, the insurance companies have also been subject to the banks’ capital adequacy regulations. In general, the requirements for good risk management will become more stringent, and the requirements for reporting to the authorities and the market will help to highlight the company’s value creation. Gjensidige intends to use the upcoming legislative amendments in a constructive manner to further strengthen the overall risk management in the Group.
HIgHER lIFE ExPEcTANcY ANd PENSION There has been a marked fall in the mortality rate in recent years. It is there­ fore necessary to introduce a new and updated tariff rate, which the insur­ ance industry is expected to start using during the course of 2013/2014. Higher life expectancy means that life insurance companies should increase their reserves. Gjensidige Pensjonsforsikring has already made provisions in its 2011 accounts to meet this need.
(NOU) 2012:3 ‘Fripoliser og kapitalkrav’ (‘Paid­up policies and capital require ments’ – in Norwegian only) was submitted in January 2012, and a new NOU is expected during the first half­year 2012.
The reduction in profit after tax expense can largely be explained by the tax relief granted in connection with the conversion from a mutual insurance company to a public limited company in 2010. The profit before tax expense increased by almost NOK 400 million, driven by a strong improvement in the underwriting result.
With the exception of loss provisions relating to the Danish workers’ com­ pensation portfolio, Gjensidige’s loss provisions are recognised at nominal value (not discounted). In preparation for expected changes in IFRS and the introduction of Solvency II, Gjensidige has, with effect from the second quarter 2010, calculated but not recognised the effect on the combined ratio of dis counting the loss provisions. For 2011 seen as a whole, the combined ratio on a discounted basis would have been 87.1, a reduction of 4.8 percentage points in relation to the recognised nominal amount.
In the calculation, a swap interest rate is used for the Norwegian and Swedish provisions, while an interest rate determined by the Danish Finan­ cial Supervisory Authority has been used for the Danish provisions. A euro swap interest rate has been used for the Baltic provisions.
Part of the growth in premiums in 2011 was due to the acquisition of Nykredit Forsikring, which was included in the consolidated accounts from 1 May 2010. Underlying earned premiums in the Nordic countries have developed poorly during the year, partly affected by exchange rate effects and reinstatement premiums relating to reinsurance, but also as a result of a conscious reduction of commercial accounts that failed to generate adequate profitability.
In the Baltics, earned premiums fell 13.8 per cent. Corrected for changes in the exchange rate, the reduction measured in local currency was 11.4 per cent. However, premiums written developed in a positive direction during the year because of improved market development. Gjensidige’s overall Baltic market share increased from 6.9 per cent in 2010 to around 7.5 per cent in 2011.
Earned premiums from pension operations increased from NOK 335.8 mil­ lion in 2010 to NOK 532.7 million in 2011, due to growth in the portfolio and non­recurring effects in connection with portfolio acquisitions from external distributors. Net interest and credit commission income for the banking operations amounted to NOK 430.8 million in 2011, compared with NOK 407.0 million in 2010. The increase wasprimarily due to the reclassi­ fication of loan charges from net financial income and other income to net interest and credit commission income at the end of 2010.
Net income from investments The Group’s net income from investments was NOK 2,375.6 million in 2011, compared with NOK 2,748.2 million the year before. The return on financial assets was 4.4 per cent in 2011. The return on financial assets is calculated as net financial income and expenses (excluding financial income in Pension and savings, and online retail banking) as a percentage of the investment portfolio (includes all investment funds in the Group except for Pension and savings, and online retail banking). The corresponding figure for 2010 was a return on financial assets of 5.2 per cent.
At the end of 2011, the value of the Group’s investment portfolio was NOK 54,486.7 million. The match portfolio accounted for 54.1 per cent of the investment portfolio, while 8.2 per cent was invested in shares in associated companies and 37.6 per cent consisted of the so­called free portfolio.
The equity exposure in the free portfolio consisted of fund investments in private equity and short­term shareholdings. It contributed a negative return of 0.6 per cent in 2011. Private equity yielded a return of 14.5 per cent, while short­term shareholdings produced a negative return of 14.9 per cent. This must be seen in conjunction with the overall market development in the period.
The property exposure in the free portfolio was concentrated in office pro­ perties in Oslo, but it also included shopping centres and office properties in other Norwegian cities and two office buildings in Copenhagen. In addition, a small part of the portfolio was invested in international property funds. The portfolio yielded a return of 6.7 per cent in 2011. The general required rate of return in connection with the valuation of the properties was 6.6 per cent, unchanged from 2010.
The portfolios of fixed income instruments were not exposed to loss as a result of bankruptcies among debtors in 2011. The international part of the investment portfolio is almost fully currency­hedged.
Claims incurred, interest expenses, losses etc. Claims incurred for the general insurance operations amounted to NOK 13,249.3 million, compared with NOK 13,456.6 million in 2010. The loss ratio was reduced by 3.4 percentage points in relation to 2010, and came to 75.5. The figures for last year were influenced by frost­related claims because of the harsh winter in 2009/2010, while there were more large losses and a higher proportion of flood and wind­related natural disaster claims in 2011.
Operating expenses The cost ratio for general insurance (operating expenses from general insurance in relation to earned premiums) was 16.4 per cent, compared with 16.5 per cent in 2010. The nominal operating expenses from general insurance amounted to NOK 2,877.9 million, compared with NOK 2,810.4 million in 2010, an increase of 2.4 per cent.
The nominal operating expenses fell with NOK 14.6 million in the Nordic segment. Greater business volume and exchange rate effects contributed to increased costs, while cost reductions as a result of the realisation of synergies following the acquisition of Nykredit Forsikring contributed to an overall cost reduction. Identified cost synergies were fully realised at the end of 2011.
In the Baltic segment, the nominal operating expenses were reduced by NOK 14.5 million. The cost level in the Baltic operations has been adapted to the fall in earned premiums, with a cost ratio for 2011 of 30.9, compared with 29.8 in 2010.
Depreciation and impairment of excess values were related to intangible assets, including acquired assets related to customer relations and brands in business combinations, plus the value of internally developed IT systems. Depreciation and impairment losses amounted to NOK 181.5 million in 2011, compared with NOK 254.3 million in 2010. In 2010, an impairment loss of goodwill in the amount of NOK 100.0 million was recognised in the Private Norway segment.
Expenses for research and development were not charged to income in Gjensidige’s consolidated accounts in 2011 or 2010, nor were such expen­ ses been capitalised during these two financial years. The parent company continued its collaboration with the Norwegian Computing Centre and SFI (Statistics for Innovation), under which projects relating to insurance fraud and traffic­related claims are being implemented.
Tax The Group had a tax expense of NOK 899.5 million in 2011, compared with NOK 303.6 million in 2010. The effective tax rate was 24.7 per cent in 2011 (9.3).
In addition to testing the capital with regard to statutory requirements, a cal­ culation is carried out quarterly of the economic capital requirements for the Group’s activities. The calculation is performed using the Group’s internal risk model, which is based on an economic valuation of assets and liabilities. The principles are in line with what is expected to apply following the introduction of Solvency II. Capital in excess of this amount constitutes the Group’s excess capital. To arrive at the final excess capital, a deduction is made for the estimated additional capital required to maintain the Group’s current A rating from Standard & Poor’s, which was last confirmed in August 2011. At the end of 2011, the excess capital was calculated to be NOK 5.3 billion, after deduction of the Board’s proposed dividend of NOK 2,275.0 million.
The net cash flow from financing activities mainly consists of payments made/received relating to external borrowings and the payment of dividend to shareholders. The net cash flow from financing activities was negative in the amount of NOK 2,444.2 million in 2011, compared with a negative cash flow of NOK 1,444.3 million in 2010. For 2011, the net cash flow was mainly affected by the payment of dividend of NOK 2,349.9 million.
The cost ratio in 2011 was 15.2. The nominal operating expenses increased by NOK 63.9 million, among other things, due to a provision of NOK 40.0 million relating to the new distribution strategy. In 2010, the recognition of income related to the AFP early­retirement scheme reduced the cost ratio by 0.5 per­ centage points. Corrected for provision for the new distribution strategy and the reclassification of indirect claims settlement costs for claims incurred, the cost ratio in 2011 would have been 15.0. The cost ratio in 2010 was 15.1.
The combined ratio for 2011 was 85.3 per cent, compared with 91.4 in 2010. The underwriting result amounted to NOK 1,185.7 million in 2011, compared with NOK 662.0 million the year before.
cOMMERcIAl NORwAY The segment provides general insurance products in the areas of liability, pro­ perty, accident and health and in marine/transport. In addition, the agriculture portfolio was moved from the Private segment in 2011.
NORdIc The segment includes the Group’s operations in the Danish and Swedish private and commercial markets. The area also includes general insurance products to municipalities and municipal undertakings in Scandinavia.
Earned premiums in 2011 amounted to NOK 395.8 million, down from NOK 459.3 million the year before. The reduction is due to negative developments in the Baltic market in recent years. However, premiums written have developed in a positive direction in recent quarters because of improved market development.
PENSION ANd SAvINgS Gjensidige offers a wide range of pension, investment and savings products to both the private and commercial markets in Norway. The pension products include occupational pension insurance, individual pension agree­ ments, disability pension and the management of paid­up policies. The Vekter Funds are the core of the savings products.
Gjensidige experienced solid growth in the customer portfolio in 2011 as well, and earned premiums amounted to NOK 532.7 million, compared with NOK 335.8 million in 2010.
Total operating expenses amounted to NOK 151.6 million in 2011, of which NOK 104.3 million was insurance­related. The corresponding figures for 2010 were NOK 156.7 million and NOK 109.6 million, respectively. The taking to income of a VAT reimbursement accounted for NOK 9.1 million, which explained the reduction in costs.
The book return on the paid­up policy portfolio was 5.33 per cent in 2011, compared with 5.29 per cent in 2010. This was a satisfactory result seen in relation to the risk exposure, which reflected a conservative investment pro­ file. The annual average interest­rate guarantee was 3.6 per cent. The entire return in excess of the interest­rate guarantee was allocated to provide for the effects of higher life expectancy.
Net interest and credit commission income for 2011 amounted to NOK 430.8 million, up from NOK 407.0 million in 2010. The increase was primarily due to the reclassification of loan charges from net financial income and other income to net interest and credit commission income at the end of 2010.
Net interest in relation to average assets under management amounted to 2.71 per cent in 2011, down from 2.88 per cent in 2010. The reduction was mainly due to increased interest expenses and a greater proportion of loans being secured by residential mortgage than in 2010. Increased volume in the loan portfolio compensated for the reduction in income as a result of the decrease in the interest margin.
The profit before tax expense was NOK 66.8 million in 2011, compared with 33.1 million in 2010. The improvement was the result of better quality in the loan portfolio, increased income from financial instruments and growth in volume.
Capital adequacy The capital adequacy was 15.0 per cent at the end of 2011, compared with
RISk FAcTORS Risk is defined as the possibility of an event affecting the Group’s target at­ tainment. In order to understand and manage risk, an assessment is therefore carried out of both the probability of the event occurring and its consequen­ ces. Through the Group’s risk management and internal control, a structure has been established that identifies, assesses, communicates and manages risk in a systematic manner throughout the Group. The risk assessment process is integrated with the Group’s budget and business plan process.
STRATEgIc RISk Gjensidige’s strategy is monitored continuously in relation to changes in performance, market developments and changes in framework conditions. Factors that have been identified as critical to the Company’s target at­ tainment are followed particularly closely. To ensure that Gjensidige is ahead of developments, strategic risk is managed through continuous monitoring of competitors and the market, and through product development and plan­ ning processes.
INSuRANcE RISk The insurance risk relating to large individual losses or events is managed through authorisations and guidelines for ordinary operations. Clear guidelines have been established for which insurance policies can be taken out. The risk of an unsatisfac­ tory premium level is monitored on a continuous basis by the product and actuary department, and increasingly precise methods for pricing are being developed.
OPERATIONAl RISk Operational risk is the risk of losses due to weaknesses or faults in processes and systems, errors committed by employees, or external events. In order to reduce the risk, emphasis has been placed on having well­defined and clear lines of reporting and a clear division of responsibility in the organisation of the business. Set procedures have been established for conducting risk assessments, and the Board evaluates the annual status as part of the established internal control system. An independent Compliance function has been established to help the Group to avoid official sanctions, financial losses or a loss of reputation as a re­ sult of failure to comply with statutes, regulations and standards. The Compliance function identifies, assesses, advises on, monitors and reports on the Group’s risk of failing to comply with statutes, regulations and internal guidelines.
Ethical issues are discussed at training courses for new employees and they are also discussed regularly by management groups and at department meetings. This is intended to reduce the risk of breaches of procedures and guidelines, while contributing to a good working environment. Employees have also signed a personal data discipline statement relating to the use of the Group’s information and IT systems.
For a more detailed description of the Company’s risk management, reference is made to Note 3 to the consolidated annual accounts, plus a separate chapter on pages 80­98.
cORPORATE gOvERNANcE Good corporate governance is a priority for the Board. The Board has based the Group’s corporate governance on the Norwegian Code of Practice for Corporate Governance dated 21 October 2010, and it complies with the Code of Practice and subsequent amendments to it in all areas. A more detailed account of how Gjensidige complies with the Code of Practice and the Norwegian Accounting Act’s requirements for reporting on corporate governance is included in a sepa­ rate document that is available on the Group’s website: com/web/Front+Page/Investor+relations/Corporate+governance cORPORATE SOcIAl RESPONSIBIlITY ANd THE NATuRAl ENvIRONMENT Gjensidige’s object is to create value for society through safeguarding life, health and assets and by relieving the customers of risk. Gjensidige shall ensure that the Group’s experience and expertise in the prevention of loss benefits society as a whole. Ethical, social and environmental considerations are integra­ ted in day­to­day operations and in relation to the Group’s stakeholders.
Quantitative goals have been adopted for socially responsible operations in relation to customers, suppliers, employees and the environment.
Renovation work has uncovered asbestos in Gjensidige’s office in Copen­ hagen. Necessary remedial work has been initiated, and great emphasis is placed on the work being carried out in a manner that does not entail risk to employees. As far as the Board is aware, there are no products containing PCB in Gjensidige’s buildings and properties.
Targets achievement and a further description of Gjensidige’s work in rela­ tion to social responsibility are shown in the table and description on pages 32­39 of the annual report.
The gender distribution in Gjensidige Forsikring at the end of 2011 was 54 per cent men and 46 per cent women. The proportion of women increased slightly in relation to 2010 (45.6 per cent women). In 2011, 223 new employees were hired, excluding employees in acquired businesses. Of the new employees, 127 are men and 96 women, with an average age of 32.5. In the same period, 326 employees left the Company (133 women and 193 men, average age of 42.0), which gives a staff turnover rate of 16.6 per cent. The extraordinarily high turnover in 2011 was largely due to reorganisation and downsizing as a result of structural changes. The restructuring of Commercial segment and the local office channel, as well as the closure of the sales centre in Oslo, are examples.
At the end of 2011, the Group management consisted of three women and eight men, while the number of women in the Group management at the end of 2010 was two. The percentage of women on the Board of Directors was 40 per cent at the end of 2011 (four out of ten), unchanged from 2010. Among the representatives who are not elected by and from among the em­ ployees, the percentage of women was 43 per cent (three out of seven). Out of a total of 201 managers in Gjensidige Forsikring, 40.8 per cent are women, which is an increase from 2010 (35.0 per cent female managers).
In autumn 2011, several in­house surveys were carried out that also show a clear connection between sales training, customer satisfaction, sales and a reduction in the loss of customers.
Good management and continuous competence­raising measures will give Gjensidige important competitive advantages. In 2011, the Gjensidige Academy launched the ‘Developing People’ initiative – a mandatory mana­ gement development programme for all newly appointed managers with up to two to three years’ management experience. The programme includes participants from all of the Nordic countries. To date, around 60 managers have participated in the programme.
Management development is important in general in relation to ensuring an adaptable and highly competent business. To ensure that management development has the greatest possible effect, emphasis is placed on linking it closely to the business’s needs.
As in previous years, 2011 has been dominated by a high work pace, restructuring and reorganisation, and HR/HSE perspectives have been well­ integrated in these processes.
Internal HSE audits were conducted in the Commercial segment in 2011, and a total of ten managers were audited by Hjelp24 HSE. The audit’s conclusion was that quality­assured and systematic HSE work is carried out at all levels. The Working Environment and HSE committees have held regular meetings.
The Norwegian Labour Inspection Authority carried out three inspections at Gjensidige premises in 2011. None of these inspections uncovered any material shortcomings in the Company’s HSE work. There were no signifi­ cant injuries or accidents in 2011.
At the end of 2011, the average absence with a doctor’s certificate was 4.6 per cent in the Norwegian part of the business, compared with 5.2 per cent in 2010. Total sickness absence in the Norwegian part of the business at year­end 2011 was 5.5 per cent, compared with 5.9 per cent in 2010. The total sickness absence for the Group as a whole was 3.2 per cent.
dIvERSITY ANd dIScRIMINATION In 2011, Gjensidige continued to pursue all three sub­goals in the Inclusive Workplace (IW) Agreement, and integration and diversity are deeply entren­ ched in the organisational culture.
Pay statistics are prepared to bring to light any wage disparities on the basis of gender, age, ethnic origin or impaired functionality for the same work or work of equivalent value, and measures are implemented to correct any disparities.
Since 1972, Gjensidige has had an upper age limit of 67 for its employees. The Norwegian Supreme Court ruled in favour of Gjensidige in a lawsuit brought by an employee who wished to remain with the Company after turning 67. The unanimous decision was based on the fact that the age limit was lawful as long as it had been applied consistently, that it had been known to the employees and was applied in combination with a satisfactory occupational pension scheme. The judgment clarified that age limits set by companies are not in conflict with the Norwegian Working Environment Act’s provisions on discrimination, and it ensures the predictability the Company needs with respect to its pension agreements.
OuTlOOk The financial sector in Norway and abroad is facing considerable changes in statutory regulations and framework conditions. The final solutions and consequences are not yet clear. Combined with a weak international economic situation and financial challenges in several key countries, the situation means increased uncertainty in the time ahead, also for Gjensidige, and especially in relation to financial income. Gjensidige has a relatively robust investment strategy, its financial strength is good and it has high business exposure in the Norwegian general insurance market. The Board therefore considers the Group to be well equipped to meet turbulent financial markets in the time ahead.
The work on product simplification and better self­service solutions is progressing according to plan, and it contributes to supporting the Group’s long­term financial target of a combined ratio of between 90 and 93 and its ambition of being the most customer­oriented company in the Nordic insurance industry. Combined with the training of employees and continuous work on further developing price models, new customer­oriented improve­ ment measures are expected to lead to more satisfied customers and increased market power in the time ahead. It is therefore pleasing to note that Gjensidige’s customer centres were rated best in the insurance industry in 2011 in a comprehensive survey conducted by TNS Gallup.
There was still strong competition in the Norwegian general insurance market in 2011. The small insurance companies have gradually increased their market shares by establishing operations in niches in the market, and partly through aggressive pricing, at the same time as several of the established financial play­
Inge K. Hansen Gunnhild H. Andersen Trond Vegard Andersen Hans­Erik F. Andersson Per Arne Bjørge Chairman
Kjetil Kristensen Gisele Marchand Gunnar Mjåtvedt Mari T. Skjærstad Randi B. Sætershagen
The established pension, savings and banking operations developed in line with expectations, and they will strengthen the Group’s position and foundation for growth in Norway in the long term. It is an objective that the operations contribute to meeting the Group’s target of a 15 per cent return on equity before tax expense in the course of two years.
In general, changes in framework conditions can affect Gjensidige’s operations. No new framework conditions have been adopted in 2011 of any material consequence to operations, but there are a number of initiatives that will have an impact over time. This applies in particular to Solvency II, the EU’s capital adequacy project for insurance companies. The Solvency II project, which is developed under the auspices of the EU, will entail a new standard for capital adequacy and regulation of European insurance companies. Solvency II will contribute to improved quantification of risk and capital needs for insurance companies, and improve risk management in general. The new regulations, which currently look set to enter into force in 2014, will provide a greater in­ centive for companies to measure and manage all risks in a consistent manner. Gjensidige is actively monitoring developments and has, among other things, participated in the quantitative impact studies. The conclusion of the pre­study is that Gjensidige is in a good position to meet the new requirements. Solvency II will also entail new requirements with respect to how risk management is organised and carried out in the enterprise, as well as reporting requirements. Gjensidige has substantial capital buffers in relation to both internal risk models and statutory capital adequacy requirements. The Board considers the Group’s capital situation and financial strength to be good. Considerable uncertainty is normally associated with the assessment of future developments, but, in the Board’s opinion, the Group is well­equipped to meet the competition in the years ahead. The Group’s financial targets remain unchanged.
It is proposed that the parent company’s profit before other components of income and expense of NOK 2,094.4 million be allocated as follows: NOK million Dividend (after a deduction for dividend on own shares) 2,274.6 Transferred from undistributable reserves (144.1) Transferred from other distributable equity (36.2)
Other components of income and expense as presented in the income statement are not included in the allocation of profit. After allocation of the profit before other components of income and expense, the parent company’s distributable equity amounts to NOK 12,993.9 million.
The Board has decided to give each employee a bonus of NOK 22,500 for those in full­time positions based on the achieved insurance result (measu­ red by the underwriting result) and the return on equity achieved for 2011.
Consolidated income statement .....................................................................66 Consolidated statement of comprehensive income .......................................67 Consolidated statement of financial position ................................................68 Consolidated statement of changes in equity................................................69 Consolidated statement of cash flows ...........................................................70 Accounting policies ..........................................................................................71 notes 2 Use of estimates ...................................................................................79 3 Management of insurance and financial risk .......................................80 4 Segment information ............................................................................99 5 Intangible assets ..................................................................................100 6 Shares in associates.............................................................................102 7 Owner-occupied property, plant and equipment ...............................103 8 Investestment property .......................................................................104 9 Financial asset and liabilities ...............................................................105 10 Loans and receivables .........................................................................109 11 Cash and cash equivalents ..................................................................110 12 Shares and similar interests.................................................................110 13 Insurance-related liabilities and reinsurers’ share...............................112 15 Provisions and other liabilities .............................................................117 18 Salaries and remuneration ...................................................................120 19 Net income from investments ............................................................124 20 Contingent liabilities ............................................................................125 21 Related party transactions ..................................................................125 22 Events after the balance sheet date ..................................................128 23 Capital ratio ..........................................................................................128 24 Solvency margin ...................................................................................129 25 Restricted funds ..................................................................................129 27 Share-based payment .........................................................................130 28 Earnings per share ...............................................................................131 financial statements and notes 2011
Claims incurred etc. from general insurance (13,249.3) (13,456.6) Claims incurred etc. from pension (438.0) (258.1) Interest expenses etc. and loss on loans/quarantees from banking operations (550.0) (484.9) total claims, interest expenses, loss etc. (14 ,237.2) (14,199.6)
operating expenses Operating expenses from general insurance (2,877.9) (2,810.4) Operating expenses from pension (104.3) (109.6) Operating expenses from banking operation (308.9) (302.1)
Other operating expenses (399.9) (608.9) Amortisation and impairment losses of excess value - intangible assets (181.5) (254.3) total operating expenses 17 (3,872.5) (4,085.3)
PRofit/(loss) foR tHe YeaR 2,747.9 2,950.4 earnings per share, noK (basic and diluted) 28 5.50 5.90
Other intangible assets 5 1,201.7 1,349.5 Deferred tax assets 16 7.4 199.4 Investments in associates 6 4,478.2 4,275.5 Owner-occupied property 7 270.7 318.5 Plant and equipment 7 238.4 345.1 financial assets
Provision for liabilities Provision for unearned premiums, gross 13 9,531.4 9,078.3 Claims provision, gross 13 29,961.6 28,339.3 Other technical provisions 13 126.9 119.0 financial liabilities
Deferred tax liabilities 16 950.3 442.7 Liabilities related to direct insurance 16 1,003.6 1,274.6
results 69 Gjensidige Annual Report 2011 consolidated statement of cHanges in eQUitY
exchange actuarial other other share own Premium differ- gains/los. paid in earned total noK million capital shares reserve ences pension capital equity equity 1.1.-31.12.2010 Profit/(loss) for the year 2,950.4 2,950.4 components of other comprehensive income
Paid dividend (2,349.9) (2,349.9) Actuarial gains and losses on pension in other companies (13.3) 13.3 Equity-settled share-based payment transactions 1.0 1.0
Net receipts/payments on other short-term liabilities 14.0 (15.9) Net receipts/payments on interest on funding activities (169.6) (146.1) net cash flow from financing activities (2,444.2) (1,444.3)
Effect of currency exchange rate changes on cash and cash equivalents 1.3 (18.5)
Cash and cash equivalents at the start of the period 2,889.9 3,103.5 Cash and cash equivalents at the end of the period 3,513.3 2,889.9 net cash flow for the year 623.3 (213.6)
results 71 Gjensidige Annual Report 2011 accoUnting Policies reportinG entitY Gjensidige Forsikring ASA is a publicly listed company domiciled in Norway. The company’s head office is located at Drammensveien 288, Oslo, Norway. The consolidated financial statements of the Gjensidige Insurance Group (the Group) as at and for the year ended 31 December 2011 comprise Gjensidige Forsikring ASA and its subsidiaries and the Group’s interests in associates. The activities of the Group consist of general insurance, pension and savings, online retail banking and health care services. The Group does business in Norway, Sweden, Denmark, Latvia, Lithuania and Estonia.
Basis oF preparation statement oF compliance The consolidated financial statements have been prepared in accordance with IFRSs endorsed by EU, and interpretations that should be adopted as of 31 December 2011, and additional disclosure requirements in accordance with the Norwegian Financial Reporting Regulations for Insurance Companies (FOR 1998-12-16 nr 1241) pursuant to the Norwegian Accounting Act.
The following International Financial Reporting Standards (IFRS) and interpretation statements have been published up until 7 March 2012, without them having entered into force or having been implemented early standards that can influence accounting principles • Amendments to IAS 12 Income Taxes, which enter into force on 1
• IFRS 9 Financial Instruments, issued in November 2009 and October 2010, is expected to enter into force on 1 January 2015. This is the first phase of the International Accounting Standards Board’s (IASB) threephase project aimed at replacing IAS 39. It concerns the classification and measurement of financial assets and liabilities. Financial assets will be classified either at fair value or at amortised cost, depending on how they are managed and on what contractual cash flow characteristics they have. Phases two and three concern impairment losses and hedge accounting, respectively. The standard is still being prepared and is not yet completed. Our preliminary assessment is that the standard can result in the reclassification of financial instruments in the consolidated financial statements.
• Amendments to IAS 19 Employee Benefits, which enter into force on 1 January 2013, will, using the same interest rate to calculate the expected return on the pension assets as for discounting the pension commitments, entail higher recognised pension costs, but it is not expected that this change will be significant for the overall group profit/ loss. The other amendments will not have any significant effect for Gjensidige.
standards that will affect disclosure requirements • Several amendments have been made to IFRS 7 Disclosure – Financial
Instruments with different commencement dates, and to IFRS 12 Disclosure of Interests in Other Entities, which enters into force on 1 January 2013, but which it is uncertain when the EU will approve. All these will entail additional disclosure requirements for us.
Functional and presentation currencY The consolidated financial statements are presented in NOK. Gjensidige Forsikring has three functional currencies: Norwegian, Swedish and Danish kroner. All financial information is presented in NOK, unless otherwise stated.
seGment reportinG According to IFRS 8, the operating segments are determined based on the Group’s internal organisational management structure and the internal financial reporting structure to the chief operating decision maker. In Gjensidige Insurance Group the Senior Group Management is responsible for evaluating and following up the performance of the segments and is considered the chief operating decision maker within the meaning of IFRS 8. Gjensidige reports on six operating segments, which are independently managed by managers responsible for the respective segments depending on the products and services offered, distribution and settlement channels, brands and customer profiles. Identification of the segments is based on the existence of segment managers who report directly to the Senior Group Management/CEO and who are responsible for the performance of the segment under their charge. Based on this Gjensidige reports the following operating segments • General insurance Private Norway • General insurance Commercial Norway • General insurance Nordic • General insurance Baltic • Pension and savings • Online retail banking
associates Associates are entities in which the Group has a significant, but not a controlling, influence over the financial and operating policies. Normally this will apply when the Group has between 20 and 50 per cent of the voting power of another entity. Associates are accounted for using the equity method, and are recognised initially at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of income, expenses, and movements in equity, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that the significant influence ceases.
cash FloW statement Cash flows from operating activities are presented according to the direct method, which gives information about material classes and payments.
earned premiums From pension Earned premiums from pension consist of earned risk premium and administration expenses in relation to the insurance contracts.
interest income and credit commission income From BankinG operations Interest income and interest expenses are calculated and recognised using the effective interest method. The calculation takes into account arrangement fees and direct marginal transaction costs that form an integral part of the effective interest rate. Interest is recognised in profit or loss using the effective interest method both for balance sheet items that are measured at amortised cost and those that are measured at fair value through profit and loss. Interest income on impaired loans is calculated as the effective interest on the impaired value.
net income From inVestments Financial income consist of interest income on financial investments, dividend received, realised gains related to financial assets, change in fair value of financial assets at fair value through profit or loss, and gains on financial derivatives. Interest income is recognised in profit or loss using the effective interest method.
ForeiGn operations Foreign operations that have other functional currencies are translated to NOK by translating the income statement at average exchange rates for the period of activity, and by translating the balance sheet at exchange rates at the reporting date. Exchange differences are recognised as a separate component of equity. On disposal of the foreign operation, the cumulative amount of the exchange difference recognised in other comprehensive income relating to that foreign operation is recognised in profit of loss, when the gain or loss on disposal is recognised.
tanGiBle assets oWner-occupied propertY, plant and equipment Recognition and measurement Items of owner-occupied property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the item. In cases where equipment or significant items have different useful lives, they are accounted for as separate components.
subsequent costs Subsequent costs are recognised in the asset’s carrying amount when it is probable that the future economic benefits associated with the asset will flow to the Group, and the cost of the asset can be measured reliably. If the subsequent cost is a replacement cost for part of an item of owner-occupied property, plant and equipment, the cost is capitalized and the carrying amount of what has been replaced is derecognised. Repairs and maintenances are recognised in profit or loss in the period in which they are incurred.
impairment oF non-Financial assets Indicators of impairment of the carrying amount of tangible and intangible assets are assessed at each reporting date. If such indicators exist, then recoverable amount of an assets or a cash generating unit is estimated. Indicators that are assessed as significant by the Group and might trigger testing for an impairment loss are as follows • significant reduction in earnings in relation to historical or expected future earnings • significant changes in the Group’s use of assets or overall strategy for the business • significant negative trends for the industry or economy • other external and internal indicators
claims proVision, Gross The claims provision comprise provisions for anticipated future claims payments in respect of claims incurred, but not fully settled at the reporting date. These include both claims that have been reported to the company (RBNS – reported but not settled) and those that have not yet been reported (IBNR – incurred but not reported). The provisions related to reported claims are assessed individually by the Claims Department, while the IBNR provisions are calculated based on empirical data for the time it takes from a loss or claim occurring (date of loss) until it is reported (date reported). Based on experience and the development of the portfolio, a statistical model is prepared to calculate the scope of post-reported claims. The appropriateness of the model is measured by calculating the deviation between earlier post-reported claims and post-reported claims estimated by the model.
adequacY test A yearly adequacy test is performed to verify that the level of the provisions is sufficient compared to the company’s liabilities. Current estimates for future claims payments for the company’s insurance liabilities at the reporting date, as well as related cash flows, are used to perform the test. This includes both claims incurred before the reporting date (claims provisions) and claims that will occur from the reporting date until the next annual renewal (premium provisions). Any negative discrepancy between the original provision and the liability adequacy test will entail provision for insufficient premium level.
proVisions For liFe insurance Technical provisions regarding life insurance in Gjensidige Pensjonsforsikring are premium reserve, claims provision and additional provision.
The technical provisions related to the unit linked contracts are determined by the market value of the financial assets. The unit linked contracts portfolio is not exposed to investment risk related to the customer assets since the
results 75 Gjensidige Annual Report 2011 customers are not guaranteed any return. In addition there is a portfolio of annuity contracts which have an average 3.6 per cent annually guaranteed return on assets.
Financial instruments Financial instruments are classified in one of the following categories • at fair value through profit or loss • available for sale • investments held to maturity • loans and receivables • financial derivatives • financial liabilities at amortised cost recoGnition and derecoGnition Financial assets and liabilities are recognised when Gjensidige becomes a party to the instrument’s contractual terms. Initial recognition is at fair value. For instruments that are not derivatives or measured at fair value through profit or loss, transaction expenses that are directly attributable to the acquisition or issuance of the financial asset or the financial liability, are included. Normally initial recognition will be equal to the transaction price. Subsequent to initial recognition the instruments are measured as described below.
The banking operation has established a liquidity portfolio which is continuously measured and reported at fair value. The bank has a goal of having low interest rate risk and plans and manages the interest rate risk so that one aggregates fixed-rate positions on both deposits, loans and placements in a model, and then use interest rate swaps to balance out potential remaining risk. Interest rate swaps are measured at fair value, and in order to avoid inconsistent measurement, bonds and certificates with fixed interestrates subject to interest rate hedging are measured at fair value.
inVestments held to maturitY Investments held to maturity are non-derivative financial assets with payments that are fixed or which can be determined in addition to a fixed maturity date, in which a business has intentions and ability to hold to maturity with the exception of • those that the business designates as at fair value through profit or loss at initial recognition • those that meet the definition of loans and receivables
Financial deriVatiVes Financial derivatives are used in the management of exposure to equities, bonds and foreign exchange in order to achieve the desired level of risk and return. The instruments are used both for trading purposes and for hedging of other balance sheet items. Any trading of financial derivatives is subject to strict limitations.
deFinition oF amortised cost Subsequent to initial recognition, investments held to maturity, loans and receivables and financial liabilities that are not measured at fair value are measured at amortised cost using the effective interest method. When calculating effective interest rate, future cash flows are estimated, and all contractual terms of the financial instrument are taken into consideration. Fees paid or received between the parties in the contract and transaction costs that are directly attributable to the transaction, are included as an integral component of determining the effective interest rate.
impairment oF Financial assets loans, receiVaBles and inVestments held to maturitY For financial assets that are not measured at fair value, an assessment of whether there is objective evidence that there has been a reduction in the value of a financial asset or group of assets is made on each reporting date. Objective evidence might be information about credit report alerts, defaults, issuer or borrower suffering significant financial difficulties, bankruptcy or observable data indicating that there is a measurable reduction in future cash flows from a group of financial assets, even though the reduction cannot yet be linked to an individual asset.
aVailaBle For sale For financial assets available for sale, an assessment to whether the assets are impaired is carried out quarterly.
diVidend Dividend from investments is recognised when the Group has an unconditional right to receive the dividend. Proposed dividend is recognised as a liability from the point in time when the General Meeting approves the payment of the dividend.
results 77 Gjensidige Annual Report 2011 pensions Gjensidige has both defined contribution and defined benefit plans for its employees. The defined benefit plan has been placed in a separate pension fund and is closed to new employees.
current taX Current tax is tax payable on the taxable profit for the year, based on tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
deFerred taX Deferred tax is determined based on differences between the carrying amount and the amounts used for taxation purposes, of assets and liabilities at the reporting date. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that they can be offset by future taxable income. If deferred tax arises in connection with the initial recognition of a liability or asset acquired in a transaction that is not a business combination, and it does not affect the financial or taxable profit or loss at the time of the transaction, then it will not be recognised.
current and deFerred taX Current tax and deferred tax are recognised as an expense or income in the income statement, with the exception of deferred tax on items that are recognised in other comprehensive income, where the tax is recognised in other comprehensive income, or in cases where deferred tax arises as a result of a business combination. For business combinations, deferred tax is calculated on the difference between fair value of the acquired assets and liabilities and their carrying amount. Goodwill is recognised without provision for deferred tax.
related partY transactions Intra-group balances and transactions are eliminated in preparing the consolidated financial statements.
in thousand equity certificates/shares 2011 2010 Issued 1 January 500,000 100,000 Share split 400,000 Issued 31 December 500,000 500,000
oWn shares In the column for own shares in the statement of changes in equity the nominal value of the company’s holdings of own shares is presented. Amounts paid in that exceeds the nominal value is charged to other equity so that the cost of own shares reduces the Group’s equity.
actuarial Gains/losses pension Actuarial gains/losses pension consists of gains/losses occurring by changing the actuarial assumptions used when calculating pension liability.
other earned equitY Other earned equity consists of this year’s and previous year’s retained earnings that are not disposed to other purposes and includes provisions for compulsory restricted funds (Natural perils fund, guarantee scheme).
plant and equipment, oWner-occupied propertY and intanGiBle assets Plant and equipment, owner-occupied property and intangible assets are assessed annually to ensure that the depreciation method and the depreciation period used are in accordance with useful life. The same applies to residual value. Impairment losses will be recognised if impairment exists. An ongoing assessment of these assets is made in the same manner as investment properties.
loans and receiVaBles For financial assets that are not measured at fair value, it is assessed whether there is objective evidence that there has been a reduction in the value of a financial asset or a group of financial assets on each reporting date. See note 10.
insurance-related liaBilities Use of estimates in calculation of insurance-related liabilities is primary applicable for claims provisions.
pension The present value of pension liabilities is calculated on the basis of actuarial and financial assumptions. Any change in the assumptions affects the estimated liability. Change in the discount rate is the assumption most significant to the value of the pension liability. The discount rate and other assumptions are normally reviewed once a year when the actuarial calculations are performed unless there have been significant changes during the year. See note 14.
In the areas of pension, savings and investment advice, there will be insurance and financial risk in the subsidiary Gjensidige Pensjonsforsikring (GPF). Within the commercial market GPF offers defined-contribution occupational pensions with related risk coverage such as disability insurance, disability pension and child and spouse pensions. In addition GPF manages funds related to paid-up policy portfolios. Within the private market GPF offers life and pension products and pure risk products such as disability pension. Mortality and disability risks are the two main insurance risks within GPF, whereas the greatest financial risk is related to the guaranteed return for the paid-up policies.
The group CEO is responsible for the overall risk management in the Group. The Group’s risk management committee, chaired by the group CEO, has a supervisory role with regard to the Group’s total risk situation and an advisory role to the group CEO with regard to risk management. The responsibility to help prepare for the risk management committee’s work and to facilitate the Group’s internal control processes is delegated to the Chief Risk Officer. Likewise, the Head of Group Compliance, which reports on professional matters to the group CEO, is responsible for the Group’s process for preventing and detecting compliance risk pursuant to laws and regulations as well as internal policies and instructions. The responsibility for the ongoing risk management is delegated to the responsible line managers in their respective areas. Gjensidige has centralized risk control functions, such as risk management, compliance and actuarial functions. Moreover, the Group has an independent internal audit function, which monitors risk management and internal control to ensure that they function properly and which reports directly to the Board of Directors.
SECOND LINE Assess, monitor, give advice and recommendations, quality assurance, quantification, aggregation of risk
THIRD LINE Audit the framework for risk management and internal control, report to the Board of Directors
The responsibility for all investment management is centralized in the Group’s investment centre. The responsibility for the reserve setting in the insurance companies is correspondingly centralized in the Group’s actuary department. All internal guidelines and requirements for risk taking are based on comprehensive group policies and are subject to approval by the Board of Directors in each company where this derives from local legislation. A group-wide credit committee chaired by the CFO has been established to set credit limits for individual issuers of credit together with general guidelines for counterparty risk.
capital manaGement The core function of insurance is the transfer of risk, and the Group is exposed to risk in both its insurance and investment operations. Identification, measurement and management of risk are essential parts of the operations. Risk and capital are, and must be interlinked. Any insurance company must adapt its risk exposure to its capital base. On the other hand, solvency capital, or equity, has a cost. A key objective of capital management is to balance these two aspects. Gjensidige’s overall capital management objectives are firstly to ensure that the capitalization of the Group can sustain an adverse outcome without creating a financially distressed situation and secondly that the Group’s capital is used in the most efficient way.
Gjensidige’s minimum capitalization is determined on the basis of the strictest of three criteria: regulatory requirements, rating requirements and internal riskbased requirements. In the calculations of excess capital, consideration was given to an assumed dividend of NOK 2,275.0 million for the 2011 financial year, which reduces the excess capital equivalently from all three perspectives. The Group has a very strong capitalization from all three of these perspectives.
For the Group, the rating requirements are most binding. Gjensidige Forsikring’s target financial strength rating is ‘A’ (single A) from Standard & Poor’s or the equivalent from another rating institution. This target has been achieved by actual rating of ‘A’ (Stable) from Standard & Poor’s (unchanged since 1999, last updated on 30 August 2011). The rating is subject to an annual review. Standard & Poor’s rating model is used as an approximation of the capital requirements from this perspective, even though a number of other factors also play an important role in determining the Group’s rating. Based on data as at 31 December 2011, the excess capital relative to the targeted A rating is estimated at NOK 5,302.6 million. The subsidiaries do not have their own interactive rating, although the rating for Gjensidige Forsikring is based on the Group’s financial position.
The solvency margin in Gjensidige Baltic does not include the profit for the year until the completion of the auditing of the financial statement for
Gjensidige has, over several years, been developing an internal stochastic simulation model for its insurance operations, based on state-of-the-art modeling technology. The model is customized to Gjensidige’s risk profile and provides fully stochastic simulations of both insurance and investment operations. This model is a key tool for aggregated risk measurement and capital management as it provides an overview of the aggregated risk profile. The main areas of use of the internal model are • Overall risk profile and capital need • Capital allocation to lines of business and products • Capital consequences of asset allocation • Requirements for and optimization of reinsurance
Using the internal model, with the definition of internal capital as stated above, the internal capital requirement for the insurance group was set at NOK 11,600 million at the end of 2011, compared to NOK 12,200 million at the end of 2010. Excess capital above the internal capital requirement is NOK 9,200 million.
Gjensidige Forsikring is adapting to the upcoming Solvency II rules, which will both replace the current capital rules and specify requirements for good risk management and reporting. One of the elements in the new rules is that it allows for the utilization of the Group’s own model for setting the statutory capital requirements according to clearly defined criteria. Gjensidige participates in the formal pre-application process for internal models with the Norwegian FSA (Financial Supervisory Authority). Gjensidige’s existing model is deemed to be a good point of departure and is further developed for this purpose.
insurance risk The risk under any insurance contract is the probability that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and must therefore be estimated.
Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability around the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected by a change in any subset of the portfolio. Gjensidige has developed its steering documents for insurance risk to diversify the types of insurance risks and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome.
Growth in severity of claims may be driven by the development of consumer price index (CPI), salary increases, social inflation and the price for material and services purchased with claims settlement. In Property insurance the inflation will consist of CPI and an increase in building costs, which in the
The claims handling procedures also include a clear strategy and routines for purchasing material and services in an optimal manner. The routines are to use purchase agreements to ensure the quality of our benefits to our customers and to reduce the inflation risk.
Per cent of total table 3a – gross premiums written per line of business, gjensidige group noK million gross premiums written
Accident and health - others/default 2,694.7 13.4 % 2,622.3 13.3 %
table 3b – gross premiums written per line of business, gjensidige forsikring noK million gross premiums written
Subsidiaries are reinsured by Gjensidige Forsikring ASA and the subsidiaries’ reinsurance exposure is included in the outwards reinsurance programme for the Gjensidige Group.
There are several variables that affect the amount and timing of cash flows from the insurance contracts. These variables mainly relate to the characteristics of the different types of risks covered and the applied risk management procedures. The compensation paid is according to the terms specified in the insurance contract. Compensation for claims with respect of bodily injuries are calculated as the present value of lost earnings, rehabilitation expenses and other expenses that the injured party will incur
results Gjensidige Annual Report 2011 as a result of the accident or disease. In most cases in Norway, and also in the other countries where Gjensidige operates, personal injury claims are paid as a lump-sum. An exception from this is Workers’ Compensation claims in Denmark, where claims may be paid as annuity payments. The calculations for those claims will include information about the severity of the loss, mortality rates, the number of years until retirement age and assumptions about future social welfare inflation. Mortality rates are from tables approved by the supervisory authorities.
In estimating the liability for the cost of reported claims not yet paid, Gjensidige considers any information available from loss adjusters, claims handlers and information about the costs of settling claims with similar characteristics in previous periods. All claims are assessed on a case-by-case basis by a claims handler. Claims with potential for distortive effects of their development are handled separately and projected to their ultimate by an additional provision (e.g. bodily injury claims in Motor insurance). Where possible, Gjensidige adopts multiple techniques to estimate the required level of provision. This provides a greater understanding of the trends inherent in the experience being projected. The projections given by the various methodologies also assist in estimating the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year. The development of the estimate of ultimate claim cost for claims incurred in a given year is presented in tables 6a and b. This gives an indication of the accuracy of Gjensidige’s estimation techniques for claims payments.
figure 5 – average duration per insurance product process used to decide on assumptions The risks associated with insurance contracts are complex and subject to a number of variables that complicate quantitative sensitivity analysis.
The provisions related to reported claims are assessed individually by a claims-handler and registered into the claims system. The development of provisions for notified claims is supervised by the claims managers. In case of adverse development necessary efforts are put in force.
Calculation of claims provisions are based on empirical data, where the basis is the development of claims cost over time. This includes development both for reported claims (RBNS provisions) and incurred, but not reported claims (IBNR provisions). Based on experience and the development of the portfolio statistical models are prepared to calculate the claims provisions. The fit of the model is measured by looking at the deviation between earlier postreported claims and those estimated by the model.
The key statistical methods used are • Chain ladder methods, which use historical data to estimate the proportions of the paid and incurred to date of the ultimate claim costs. • Expected loss ratio methods (Bornhuetter-Ferguson), which use
Gjensidige’s expectation of the loss ratio for a line of business. • Methods where “Chain ladder” and “Expected loss ratio” methods are used in combination. One advantage in the use of these methods is that more weight can be given to experience data when the run-off development of the actual claim year has become more stable.
The methods used will depend on the LOBs and the time period of data available. To the extent that these methods use historical claims development information, they assume that the historical claims development pattern will occur in the future. There are reasons why this may not be the case, which, insofar as they can be identified, have been allowed for by modifying model parameters. Such reasons include • Economical, legal and social trends and social inflation (e.g. a shift in court awards) • Changes in the mix of insurance contracts incepted • The impact of large losses
IBNR provisions and provisions for outstanding claims are initially estimated at a gross level, and a separate calculation is carried out to estimate the size of reinsurance recoveries. Gjensidige purchases almost exclusively excess of loss reinsurance contracts with sufficiently high retentions for only relatively few, large claims to be recoverable. The actuaries in the Gjensidige Group working with technical provisions
During the last years Gjensidige has had processes where external actuarial firms have calculated best estimates of the technical provisions. This is done to get a second opinion of the level of the provision from independent, recognised actuarial firms. The deviation between the internal and external estimates of the claims provisions has been within normal range for calculations of this type.
Pension and savings 5.3 3.4 total gjensidige forsikring asa 167.2 161.3 change in loss frequency (1 %-point) Private Norway 631.3 640.1 Commercial Norway 976.6 936.1 total gjensidige forsikring asa 1,608.0 1,576.2 change in severity of claims (+10 %) Private Norway 552.9 575.3 Commercial Norway 428.3 434.0 total gjensidige forsikring asa 981.2 1,009.3
sensitiVitY analYsis – proVision risk The estimation of technical provisions for an insurance portfolio represents an approximation of future cash flow for the claims payments, and there will always be an element of uncertainty in such calculations. Provision risks relate to this kind of uncertainty. The uncertainty depends on the nature of the risk. Risk with a short duration is less exposed to changes that will affect the future payments. Bodily injury claims are on the other hand very sensitive regarding changes in e.g. inflation and court awards. The effect of court awards are taken into account as soon as they are known. In cases when a judgement is not yet final and legally binding, the effect on the loss provision is based on a probability weighted estimate of the possible outcomes.
Inflation is an underlying risk in most insurance products. The effect will be different, depending on the characteristics of each product and the terms and conditions that apply for the claims settlement. For LOBs with nominal longtailed provisions the effect of a one percentage point increase in inflation will be significant, proportional to the average duration (in number of years).
table 5 – sensitivity analysis claims provision cHange in inflation (+/- 1 %-Point) noK million 2011 2010 Private Norway 330.7 382.0 Commercial Norway 423.3 413.7 total gjensidige forsikring asa 857.1 886.3
results Gjensidige Annual Report 2011 gRoss estimated claims cost At the end of the accident year 8,802.9 9,800.9 9,811.2 10,926.7 10,953.2 11,665.1 11,647.8 11,145.4 13,049.1 13,882.8 - Eight years later 8,751.0 9,733.3 - Nine years later 8,753.3
The operations in Denmark and Sweden are included in the table as from 2002. The claims provision in Gjensidige Baltic is shown separately.
Prior-year claims provision 1,296.0 total 24,520.7 table 6b – analysis of claims development, gjensidige forsikring asa
liFe insurance insurance risk The purpose of insurance is to meet the desire of the customer (insured party) to safeguard against an unexpected, arbitrary loss deriving from an unforeseen event. In respect of the products offered by Gjensidige Pensjonsforsikring AS these events are primarily incapacity for work and death with ensuing loss of income for the insured or their surviving dependants, alternatively that the insured should live a long life with the consequent risk that their pension savings will not last their entire lives.
The table below shows the number of members and contracts divided between compulsory occupational pensions and other defined contribution pensions.
Compulsory occupational pensions 59,718 15,562 Other defined contribution pensions 35,067 7,054 total 94,785 22,616
For paid-up policies there is in addition a guaranteed minimum annual rate of return amounting to 3.6 per cent at the end of 2011, the same as in 2010.
The company’s largest insurance exposure is to disability risk, followed by longevity risk, while the smallest exposure is to mortality risk.
The insurance risk as at 31 December 2011 is considered satisfactory, and efforts are made to alleviate any uncertainty surrounding cases not yet reported through claims provisions. The company has a reinsurance arrangement with Gjensidige Forsikring ASA which provides satisfactory coverage in the event of major fluctuations. Gjensidige Forsikring ASA has a substantial portfolio involving both individual and group personal risk with disability risk, and close collaboration with specialists in this company will make it possible to identify changes in disability trends both in society at large and among the insured population.
Both insurance payouts and claims provisions have increased in recent years, and will continue to do so in the years ahead. This can be ascribed to continued strong growth in the insured population and a disproportionately large percentage increase in the number of risk years, since relatively few years have passed since the start-up of the company. The number of retirement pensioners is expected to remain low, with modest benefit payments. Benefit payments will come either from the defined pension’s savings account or from the premium reserve from paid-up policies and individual, funded pensions transferred from other companies.
Although the portfolio is clearly growing the number of insurance events remains small. The number of disability claims has risen through 2011, which is expected since the insured population has grown, while the number of risk years has risen from five to six. Experience so far shows a slightly higher level of disability risk than originally anticipated. Premiums were therefore increased for the individual products in 2010 and for products aimed at the commercial market in 2011. The rise in premiums is largest for risk associated with the paying in of contributions (contribution exemption), with the biggest increase for the youngest insured parties. To this must also be added the increase due to the fact that highest calculation rate has now been reduced from 2.75 to 2.5 per cent.
longevity risk The issue of longevity, which will affect only paid-up policyholders out of the company’s future pensioners, primarily retirement pensioners, is inversely proportional to the mortality rate of those insured in relation to the aforementioned surviving dependants benefits. In this case the company’s risk is that the pensioners that have agreed lifelong pensions live longer than anticipated. In this case, too, the K2005 basis for mortality rate is employed, but now with survival probability and safety margins “the other way”. Furthermore, the Financial Supervisory Authority of Norway has imposed additional safety margins with respect to this risk. The adequacy of these margins is assessed continually through industry-wide mortality analyses. Empirical figures for the Norwegian population published by Statistics Norway, and the industry’s own empirical figures for the insured population show that average life expectancy continues to rise. This trend means that the safety margins originally included in the basis for calculation will have been eliminated in a few years. The insurance industry has therefore taken the initiative for a revision of the K2005 calculation basis. The outcome of this reassessment was sent to the Financial Supervisory Authority of Norway in December 2011. The insurance industry will, in conjunction with the Financial Supervisory Authority of Norway, draw up a plan for when a new basis for calculation is to be introduced, and how the necessary increase in provisions shall be funded. To ensure consistency for contracts that are moved between companies it is necessary to have a uniform, industry-wide set of regulations. In 2011 Gjensidige Pensjonsforsikring AS recognised a
disability risk Disability risk relates to disability pensions and/or exemptions from paying in the agreed annual contribution to a pension scheme. Benefits cease at the latest when the individual reaches normal retirement age, which is normally 67 years. Any disability claims will be filed only after an uninterrupted period of sick leave lasting 12 months. Risk exposure will therefore depend on the agreed pension sum and the total time remaining until retirement age. Although in these cases Gjensidige Pensjonsforsikring AS employs some of the assumptions from the K2005 basis for calculation, it rests primarily on its own disability tables based on recently updated Norwegian disability statistics. The tables have been drawn up in close collaboration with Gjensidige Forsikring ASA, which has a substantial portfolio involving disability risk, and take into consideration differences between disability rates in the population at large and those in an insured population. Insured populations are generally subject to one or other forms of risk assessment or restricted terms in connection with the assumption of a disability risk. For occupational pension schemes companies are also divided into different risk categories depending on the nature of their businesses. Customers who take out individual disability pension insurance are subject to ordinary rules regarding individual risk assessment based on the insured party’s statement of health.
The number of insured people who receive some form of disability benefit, either disability pension and/or exemption from agreed contributions, remains small, compared with the overall number of policyholders. Here too simplified methods for making provisions are employed, in that the bulk of the year’s risk premium is set aside as a general claims provision. After some time each year’s risk is assessed with respect to the reported insurance events and anticipated claims patterns. Since most of the disability risk in question is linked to company-related pension schemes, it is assumed that the time between an insurance event occurrin, in this case a disability that has lasted longer than 12 months, until the company is notified will be relatively short.
Private Commercial reinsurance Gjensidige purchases reinsurance to protect the Group’s equity capital and reinsurance is thus a capital management tool. The same models and methodology, as used for evaluation of the internal risk based capital allocation, are also used to analyze and purchase reinsurance.
The maximum retention is set by the Board of Directors, and the Reinsurance department is responsible for the purchasing and follow-up of reinsurance activities.
Gjensidige Forsikring ASA provides a corporate function with regard to reinsurance. Gjensidige Forsikring is acting as reinsurer for group subsidiaries, and their exposure is included in the outward reinsurance covers for the Group. The reinsurance programme for property insurance also include the cooperating mutual fire insurers. The subsidiaries’ reinsurance programmes generally have a lower retention, as they are smaller entities than Gjensidige Forsikring ASA . The difference between the retention levels of the subsidiaries and Gjensidige Forsikring ASA are held for own account by Gjensidige Forsikring ASA .
manaGement oF Financial risk – General insurance operations Financial risk is a collective term for various types of risk related to financial assets. The different types of financial risk are described in greater detail below. Operational risk is monitored and controlled as well, and requirements for operational risk management is included in the Board of Directors’ approved guidelines for asset management.
Foreign-exchange risk is defined as the loss resulting from a movement in exchange rates. Generally, foreign-exchange risk in the investment portfolio is hedged close to 100 per cent, within limits of +/- ten per cent per currency, except for smaller mandates where active currency management is a part.
Credit risk is defined as the loss arising from an issuer defaulting on its obligations or because of increased risk premiums for bonds with credit risk. Credit risk is managed both via credit lines for named counterparties, from lines based on official credit ratings and from diversification requirements on mandates for corporate bonds. Credit spread risk is limited to NOK 1,100 million, given a spread increase of 100 basis points. Credit risk in relation to reinsurance is handled through minimum rating requirements for Gjensidige’s reinsurance companies and close follow-up of receivables.
Liquidity risk is defined as the inability to meet payments at due date, or the need to realize investments at a high cost to meet payments. The Board of Directors has set minimum limits for the amount of assets to be realized without undue transaction costs within various time frames. The liquid buffer shall after these criteria be at least NOK 4,000 million.
The insurance operations are exposed to these types of risk through the Group’s investment activities, and they are managed at the aggregate level and handled through guidelines for capital management and investment strategies that have been drawn up for the Gjensidige Group and its subsidiaries and through resolutions in the Group’s credit committee.
table 8 – asset allocation general insurance noK million Per cent noK million Per cent
This stress test based on figures at year-end is shown below (group figures). The capital buffer here is relative to the capital adequacy requirement for the Gjensidige Group, which is calculated according to Norwegian GAAP. Interest rate risk and credit spread risk in the stress test are calculated exclusive of bonds at amortised cost. For purposes of capital adequacy, Gjensidige’s stakes in Storebrand and SpareBank1 SR-Bank are consolidated so that any decline in the share price of these enterprises will not affect the capital buffer as long as there is no impairment on the assets. This impairment risk is reflected in the stress test. Changes to Storebrand and Sparebank1 SR-Bank and claim provisions are modeled through Gjensidige’s internal model. Catastrophe risk includes losses on reassurance receivables, exposure to natural catastrophes and possible credit risk of reinsurers given a natural catastrophe. Finally, the risk in the subsidiaries outside general insurance (Gjensidige Pension and savings, Gjensidige Bank) are included by assuming a reduction of ten percentage points in their return on equity and including the losses that this may entail.
Storebrand ASA 3,454.2 Sparebank1 SR-Bank 992.5 Spring Energy Norway AS 48.4 Via Travel Group 47.2 Spotify 42.3 total five largest 4,584.6 total equities 6,548.2 table 11b – largest equity exposures 2010 noK million 31.12.2010
Storebrand ASA 3,287.8 Sparebank1 SR-Bank 958.9 Spring Energy Norway AS 49.9 AT Group 40.2 RenoNorden Holding AS 35.2 total five largest 4,372.1 total equities 6,775.8
To illustrate the sensitivity of the equity portfolio to a fall in equity prices, the table below shows the effect of a possible scenario. The figures show the effect on equity, but do not take into account taxation effects. Consideration is given to the fact that Storebrand and SpareBank1 SR-Bank were recognised as an associated company as at 31 December 2011 so that a drop of ten per cent in the share price will not result in an impairment of the value in the balance sheet, and the items are excluded from the sensitivity calculation. As shown in the table, the sensitivity is reduced since 2010. As previously mentioned, this was attributed to a decrease in the shareholdings.
results Gjensidige Annual Report 2011 table 12 – sensitivity analysis equity portfolio noK million 31.12.2011 31.12.2010 10 per cent drop in equity prices (77.7) (250.0)
Gjensidige Forsikring invests in a number of private equity funds as well as fund-of-funds. The focus is on the Nordic region, and Gjensidige will seek to assume an active role through a place on the board or advisory committees of the different funds. The portfolio consists of a mixture of venture and buy-out strategies.
HitecVision Private Equity V LP 173.2 FSN Capital II LP 132.5 HitecVision Private Equity IV LP 116.7 Altor Fund II LP 78.5 Northzone V KS 68.8 total five largest 569.6 total private equity 1,293.4 table 13b – largest private equity funds 2010 noK million 31.12.2010
table 15 – sensitivity fixed income portfolio noK million 31.12.2011 31.12.2010 100 bps parallell shift up (241.6) (274.1)
The following graph shows the expected payout pattern for the Group’s premium and claims provisions at year-end 2011 and 2010 respectively. Approximately one third of the provisions are expected to be paid out within one year.
results 93 Gjensidige Annual Report 2011 figure 8b – Payout pattern insurance liabilities, gjensidige forsikring asa
The Group owns most of its properties directly, although a small part of the portfolio is invested in property funds outside of Norway. In addition to the amounts invested through funds, an additional NOK 46,1 million is committed, but not called upon. The management of the directly owned real estate portfolio is carried out in the wholly owned subsidiary Oslo Areal. The portfolio consists both of property for own use and investment properties. The real estate portfolio has its largest concentration in offices in the Oslo area, but also has offices in other major cities in Norway as well as a substantial holding of shopping centers. In addition there is a property for own use and an investment property in Denmark. Exposure to real estate has been reduced as a consequence of portfolio optimization and sales of properties in Oslo Areal.
table 17 – largest real estate investments noK million 31.12.2011 31.12.2010 total ten largest properties 3,810.0 4,007.8 hedGe Funds Hedge fund is a common term for funds that invest in most types of asset classes with few limitations on the use of derivatives, shorting or leverage in order to earn a return that is partly independent of (has a low correlation with) traditional market indices. Gjensidige utilizes hedge funds to gain exposure to active risk in the individual asset classes and to allocation risk between the individual asset classes and/or risk premiums. Both fund-offunds and individual funds are used. The fund-of-fund manager will perform the selection and follow-up of the underlying hedge funds, thus reducing operational risk.
Winton Futures Fund - Lead Series 191.4 The Winton Evolution Fund 181.2 Sector EuroPower Fund Class A EUR 78.4 Sector Speculare IV Fund Class A USD (alle x Ferd) 19.8 Sector Maritime Investment Class A 15.5 total five largest 470.8 total hedgefunds 525.2 table 18b – largest hedge funds 2010 noK million 31.12.2010
In the opposite case, if there is a ten per cent weakening of NOK against all other currencies, the effect on the basis of the situation as at 31 December
table 20 – credit spread risk noK million credit duration, years Risk limit
The following tables show the allocation of the fixed-income portfolio by rating category at year-end in 2011 and 2010.
table 22a – fixed-income portfolio per rating category noK million 31.12.2011 31.12.2010
A large part of the Norwegian fixed-income portfolio consists of issuers without a rating from an official rating company. However, the asset managers and brokerages conduct their own internal rating, assigning rating categories in the same way as the rating companies. For completeness, the second table includes the allocation also using the internal rating of Gjensidige’s main asset manager, Storebrand Kapitalforvaltning. The following tables show the largest issuers as at 31 December 2011 and 31 December 2010, respectively table 23a – ten largest issuers 2011 noK million 31.12.2011
results 95 Gjensidige Annual Report 2011 table 23b – ten largest issuers 2010 noK million 31.12.2010
Installments not due 3,020.0 31.6 <35 days 282.2 1.2 35-90 days 102.6 > 90 days 135.7 11.8 total 3,540.5 44.6
table 25 – Reinsurance receivables and reinsurers’ share of claims provisions
Based on this kind of scenario, the Board of Directors has set a liquidity requirement for 2011 of at least NOK 4,000 million in the most liquid funds, defined as deposits in banks, covered bonds (OMF), bonds and certificates issued by OECD countries or guaranteed by these countries and money market instruments with a rating of A or better and with a due date within six months. The current allocation meets these requirements. The table below shows the classification used and the amounts as at 31 December 2011 for Gjensidige Forsikring ASA. Similar figures are shown for 2010 versus the definition of most liquid funds of that year.
Bank deposits 560.5 560.5 Bonds and certificates issued by, or guaranteed by OECD-countries
Gjensidige Pensjonsforsikring (GPF) has separate strategies for the funds in each portfolio, the unit-linked, paid-up policy, other group policy and company portfolios. GPF does not bear investment risk for the unit-linked portfolio; both positive and negative returns are passed on in full to the customers. The other portfolios expose the Company’s equity to risk. For the company and other group policy portfolios, very little risk is taken, the funds are mainly invested in bank deposits and fixed-income instruments with high creditworthiness. The company portfolio is financed by the Company’s equity and also includes a small trading portfolio to support incoming and/ or outgoing capital in the customer portfolios. The other group portfolio is funded by premium reserves, claims provisions for unreported and/or unsettled claims and the risk equalization fund. The paid-up policies give a minimum guaranteed interest to the customers at the same time as the customers receive a percentage of any excess return above this amount. Therefore, for the paid-up policy portfolio, the objectives are to be able to offer the customers a competitive return over a period of time at the same time as the risk relative to strain on equity is kept at a targeted low level. The pension and savings operations have most of their balance in definedcontribution products, but the paid-up policy portfolio is growing. Therefore, GPF is also exposed to the types of risk mentioned above and has its own investment strategy approved by the Board of Directors, which sets the limits for exposure. The portfolios are stress tested in the same way as for the insurance operations (cf. previous section) to measure whether the buffer capital can tolerate a given decline in value. In addition, VaR calculations at a 95 per cent confidence level are done for the paid-up policy portfolio. With the current asset allocation, risk is very low according to all these measures. The paid-up policy portfolio amounted to NOK 2,290.6 million as at 31 December 2011 with an average guaranteed interest rate of 3.6 per cent. The other group policy portfolio amounted to NOK 376.9 million, whereas the company portfolio had NOK 293.8 million in financial assets.
Bank deposits 355.1 340.4 Bonds held to maturity 513.5 587.3 Loan and receivables 2,007.7 1,249.6 Current bonds 13.3 214.8
The accounting interest-rate risk in GPF’s assets is extremely limited because bonds are classified as bonds held to maturity and loans and receivables, and the remaining fixed-income instruments are of short duration.
GPF is exposed to equity price risk through its investment in equities. The following table shows the effect of a ten per cent drop in the stock market and a one percentage point increase in the interest rate level of equity in GPF. The calculations do not take tax effects into consideration or that a share of the return normally is allocated to the customers.
table 29 – fixed-income portfolio per rating, gjensidige Pensjonsforsikring noK million 2011 2010
AAA 764.7 488.0 AA 171.7 158.0 A 1,112.5 866.0 BBB 26.0 20.0 BB 37.0 B 3.8 58.0 CCC or lower 10.0 Not rated 870.4 780.0 total 2,949.0 2,417.0
manaGement oF credit and Financial risk – GjensidiGe Bank The banking business is exposed to credit risk in its loan portfolio and in addition liquidity and interest-rate risk from any mismatches of maturity and time of repricing between assets and liabilities. The bank is also exposed to credit risk in connection with placement in securities. The bank does not invest in equity instruments, nor does it have any foreign currency positions. The Board of Directors of Gjensidige Bank approves the Company’s credit policy and lending regulations. A credit strategy is approved annually, as well as limits for market and liquidity risk.
Risk areas are continuously monitored and statistical models used to calculate capital needs given specified confidence level for most risk categories. The capital need is calculated over the strategy horizon in the current strategy plan, included in the ICAAP document, and reported to Board of Directors quarterly.
The Board of Directors sets the overall framework for the bank’s credit risk appetite through its credit strategy and policy.
Secured lending mainly includes loans and credits secured by property. In this type of lending Gjensidige Bank ASA maintains a conservative risk profile, and the majority of the portfolio is secured within 80 percent loans to property value.
table 30a – Risk classification banking operations 2011 noK million gross lending Per cent individual impairment losses group impairment losses table 30b – Risk classification banking operations 2010 noK million gross lending Per cent individual impairment losses group impairment losses table 31 – Payments overdue noK million 31.12.2011 31.12.2010 10-30 days 176.2 233.9 30-90 days 82.0 86.3 Over 90 days 243.7 157.5 total 501.9 477.8
market risk Market risk is the risk of losses associated with unfavourable movements in market prices, which in this context relates to positions and activities in the interest, currency and stock markets.
The Board has specified limits on the bank’s exposure to interest rate risk. The limit for the interest rate risk under one year is a negative exposure of up to 500 milli years (MY). A limit is also provided for interest rate risks for all time periods plus/minus 300 MY. The bank’s maximum exposure to interest rate risk is 500 MY. Interest rate risk under three months is reported but does not enter into the risk framework. This means that when the limit is fully utilised, the maximum loss for the bank at one percentage point change in the yield curve will be NOK 5 million. Utilisation of this limit is reported monthly to the Board of Directors.
As at 31 December 2011 the bank has a negative interest rate exposure in the three months to one year interval of 211 MY. The net accumulated interest rate exposure over three months is a negative 81 MY as at 31 December 2011.
operational risk Operational risk refers to the risk loss resulting from human errors, external events or deficiencies or inadequacies in the bank’s internal systems, routines or processes. The bank has its own losses and events database for the evaluation, follow-up and storage of operational mistakes.
The Bank uses the basis method for calculating capital needs related to operational risk. As at 31 December 2011 the capital provisions for operational risk was NOK 28.7 million.
results Gjensidige Annual Report 2011 table 30b – liquidity profile banking operations 2010 noK million < 1 month months months years more than 5 years without maturity total
noK million < 1 month months months years more than 5 years without maturity total
Provision for the first type of liquidity loss is estimated in the total risk model. Liquidity risk arising from losses that result in a downgrading of credit rating category is defined as the charge against equity due to increased financing costs.
Liquidity risk due to reduced access to liquidity is a matter of having sufficient liquid assets to meet the obligations which fall due.
Through recession scenarios and stress tests using the probability and consequences of weakened financing, requirements are defined for deposit coverage, maturities structure and liquidity reserves. These calculations are based on a relatively short time frame.
Gjensidige has entered into a strategic collaboration with Nykredit concerning distribution of general insurance for Gjensidige for the private market under the brand Nykredit.
Baltics The Baltic insurance market is in an early development phase and a significant share of the market is still uninsured. Motor insurances are the most widespread insurance product in these markets. The Group has operations in each of the three Baltic states.
pension and saVinGs Gjensidige offers a broad range of pension, investment and savings products for both the private and commercial market in Norway. The products offered include among others occupational pensions, fund pensions, paid-up policies and fund savings.
online retail BankinG Gjensidige Bank is a nationwide Internet bank aimed at the private, affinity group and agricultural markets in Norway. The bank offers traditional banking products adapted to electronic distribution.
chanGe in seGment diVison Effective 1 January 2010, the division into segments has been modified by transferring the Agriculture business area from the Private Norway segment to the Commercial Norway segment. In addition, the Group’s white label business has been transferred from the Nordic segment to the Private Norway segment. The changes in the segments are attributed to changes in the management structure in the Group.
In addition, all large losses (net) over NOK 30.0 million have been removed from the individual segment and transferred to the Corporate Centre. The corresponding figures have been equivalently modified.
segment result/profit/(loss) before tax expense 662.0 368.5 (70.4) 17.4 (27.9) 33.1 2,271.4 3,254.0 impairment loss goodwill (100.0) (100.0) 1 Eliminations etc. consist of internal eliminations and other income and expenses not directly attributable to one single segment and large losses of NOK 89.1 million (33.5). 2 There is no significant income between the segments at this level in 2010 and 2011.
An impairment loss on goodwill is in 2010 recognised in Private Norway. For further information, see note 5.
carrying amount As at 1 January 2010 1,507.5 338.1 85.5 416.0 7.5 2,354.6 as at 31 december 2010 2,580.7 634.6 68.1 416.0 230.9 3,930.2 cost As at 1 January 2011 2,867.6 855.7 146.0 789.7 266.3 4,925.3 Additions 1.7 0.8 26.9 36.0 65.4 Additions from internal development 145.5 145.5 Disposals (214.2) (40.4) (10.8) (131.4) (8.6) (405.4)
as at 31 december 2011 2,650.8 813.0 135.7 830.6 292.6 4,722.7 Uncompleted projects 93.2 93.2 as at 31 december 2011, including uncompleted projects 2,650.8 813.0 135.7 923.8 292.6 4,815.9 amortisation and impairment losses As at 1 January 2011 (286.9) (221.1) (78.0) (450.1) (35.4) (1,071.4) Amortisation recognised during the period (78.9) (10.6) (184.9) (36.2) (310.6) Disposals 31.0 17.6 3.7 100.7 8.9 161.8 Impairment losses recognised in profit or loss during the period (19.2) (19.2)
results 101 Gjensidige Annual Report 2011 noK million 2011 2010 subsidiaries/portfolios Glitne Invest 22.5 183.2 Oslo Areal 203.6 220.6 Gjensidige Forsikring, Danish branch 1,018.3 1,022.2 Gjensidige Forsikring, White label 1 128.7 Gjensidiges Arbejdsskadeforsikring 98.0 94.4 Nykredit Forsikring 751.5 753.6 Gjensidige Baltic 65.9 65.5 Tennant Försäkringsaktiebolag 1 151.2 Gjensidige Forsikring, Swedish branch 85.2 84.7 Gjensidige Bank 1.5 1.5 total 2,374.8 1,580.7 1 Tennant Försäkringsaktiebolag has merged with Gjensidige Forsikring.
An impairment loss of goodwill has also been recognised in Oslo Areal amounting to NOK 19.2 million. The impairment is of a technical nature due to this being goodwill connected to deferred tax reversed.
Recoverable amount for the cash flow generating unit is determined based on an assessment of the utility value. The utility value is based on a discounting of future cash flows, with a relevant discount rate that takes into account maturity and risk.
BudGets/proGnoses and the period For Which the cash FloWs are projected The projection of cash flows is based on budgets for the next four years reviewed by the management and approved by the Board of Directors. In the period after 2015 an annual growth of three per cent has been projected until 2020. The terminal value is calculated in 2020. The growth is grounded in the fact that the companies are small and with a solid parent company, which gives them good chances of increasing market shares. The cash flows are estimated to a normal level before a terminal value is calculated. Gjensidige normally has a ten-year horizon on its models, as the company is in a growth phase and a shorter period will not give a correct view of expected cash flows.
cR-level in growth period cR-level when calculating terminal value cash flow generating unit Gjensidige Forsikring, Danish branch 93.2-96.2 % 96.2 %
Long-term expected inflation 2-3 % total nominal expected growth 4-6 %
sensitiVitY analYsis keY assumptions The excess values associated with the acquisition are based on different key assumptions. If these assumptions change significantly from what they are expected to be in the impairment models, a need for impairment may arise. The models are especially sensitive to deviations from expected CR. See table.
growth reduced by 2 % compared to expected next 3 years cR increases by 2 %
Gjensidige Forsikring, Danish branch Need for impairment, app. NOK 40 million
No need for impairment No need for impairment Need for impairment, app. NOK 35 million
No need for impairment No need for impairment Need for impairment, app. NOK 255 million
Registered interest cost carrying amount cost carrying amount noK million office held 31.12.2011 31.12.2011 31.12.2010 31.12.2010
results 103 Gjensidige Annual Report 2011 noK million owner-occupied property Plant and equipment 1 total cost As at 1 January 2010 365.8 777.6 1,143.4 Transferred from/to investment property (87.9) (87.9)
as at 31 december 2010 360.6 841.7 1,202.2 Uncompleted projects 53.5 53.5 as at 31 december 2010, including uncompleted projects 360.6 895.2 1,255.8 depreciation and impairment losses
carrying amount As at 1 January 2010 282.2 316.1 598.4 as at 31 december 2010 318.5 345.1 663.6 cost As at 1 January 2011 360.6 841.7 1,202.2 Additions 66.6 66.6 Disposals (28.5) (151.7) (180.2) Exchange differences 0.1 0.1 as at 31 december 2011 332.1 756.6 1,088.7 Uncompleted projects 32.6 32.6 as at 31 december 2011, including uncompleted projects 332.1 789.2 1,121.3 depreciation and impairment losses
The valuation was not based on observeable market prices or recent transactions. The carrying amount of the property before the impairment was NOK 16.8 million. 3 In 2011, an impairment loss of NOK 28.8 million on an owner-occupied property was recognised. The new value of the property was determined by using the Group’s internal valuation model, cf.
Office and education 6.55 % 1,420.0 1,312.0 22,482.0 Shopping center 6.33 % 1,147.0 1,081.0 18,411.0 Combined portfolio 6.50 % 1,343.0 1,247.0 21,450.0 noK million market rent reduced by 10 % market rent as at market rent
The table below shows how the sensitivity of the yield and the market rent affects the value of the property portfolio, as it stands as at 31 December 2010.
The Group’s valuation model values each property separately. Valuation model relies on a semi-annually in arrears cash flow method. The most important inputs are yield, market rent, contractual rent, potentially vacant premises, the properties’ long-term normalised operating costs and any investment requirements. The method maps all incomes and all expenses in a given investment horizon (usually ten years) so that net the cash flow is given yearly for each property. Thereafter, the present value is calculated using this cash flow based on real yield adjusted for expected inflation. Present value of the cash flow and present value of the remaining value compose the cash flow value of the property, and this is considered as the market value.
results 105 Gjensidige Annual Report 2011 9 – financial assets and liaBilities noK million notes carrying amount as at 31.12.2011 fair value as at carrying amount as at 31.12.2010 fair value as at financial assets Financial derivatives Financial derivatives at fair value through profit or loss 511.0 511.0 382.1 382.1 Financial derivatives subject to hedge accounting 36.4 36.4 154.5 154.5
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 10 9,235.9 9,106.2 5,163.1 5,154.8
Prepaid expenses and earned, not received income 10 108.9 108.9 84.5 84.5 financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 69.4 69.4 155.3 155.3
Financial liabilities at fair value through profit or loss, initial recognition Interest-bearing liabilities at fair value through profit or loss 15 308.2 308.2 303.8 303.8
Deposits from and liabilities to customers, bank 15 9,776.2 9,776.2 9,120.0 9,120.0
Liabilities related to direct insurance 15 477.1 477.1 392.5 392.5 Accrued expenses and deferred income 15 262.2 262.2 210.7 210.7 gain/(loss) not recognised in profit or loss 218.9 440.6
quoted prices in actiVe markets Quoted prices in active markets are considered the best estimate of an asset/liability’s fair value. A financial asset/liability is considered valued based on quoted prices in active markets if fair value is estimated based on easily and regularly available prices and these prices represent actual and regularly occurring transaction transactions at arm’s length distance. Financial assets/ liabilities valued based on quoted prices in active markets are classified as level one in the valuation hierarchy.
Valuation Based on oBserVaBle market data When quoted prices in active markets are not available, the fair value of financial assets/ liabilities is preferably estimated on the basis of valuation techniques based on observable market data.
Valuation Based on non-oBserVaBle market data When neither quoted prices in active markets nor observable market data is available, the fair value of financial assets/liabilities is estimated based on valuation techniques which are based on non-observable market data.
Quoted prices in active markets leVel 2 Valuation techniques based on observable market data leVel 3 Valuation techniques based on non-observable market data total financial assets Financial derivatives Financial derivatives at fair value through profit or loss 419.1 91.9 511.0 Financial derivatives subject to hedge accounting 36.4 36.4
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 712.6 1,356.4 1,952.8 4,021.7 Bonds and other fixed income securities 9,615.3 10,107.9 24.0 19,747.1 financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 69.4 69.4
results 107 Gjensidige Annual Report 2011 9 – FINANCIAl ASSETS AND lIABIlITIES (CONT.)
Bonds and other fixed income securities 8.5 15.3 24.0 sensitiVitY financial assets ValUed Based on non-oBseRVaBle maRKet data (leVel 3) 2011 sensitiVitY financial assets ValUed Based on non-oBseRVaBle maRKet data (leVel 3) 2010
Reconciliation financial assets ValUed Based on non-oBseRVaBle maRKet data (leVel 3) 2010 noK million sensitivity
Quoted prices in active markets leVel 2 Valuation techniques based on observable market data leVel 3 Valuation techniques based on non-observable market data total financial assets Financial derivatives Financial derivatives at fair value through profit or loss 83.2 298.9 382.1 Financial derivatives subject to hedge accounting 154.5 154.5
Financial liabilities at fair value through profit or loss, initial recognition Interest-bearing liabilities at fair value through profit or loss 303.8 303.8 noK million as at 1.1.2010 net realised /unrealised gains recognised in profit or loss
amount of net unrealised gains regocnised in profit or loss that are attributable to instruments held as at 31.12.2010
hedGe accountinG Gjensidige Forsikring utilizes hedge accounting of currency of the net investment in the foreign operation. The hedging efficiency is measured per heding object. The hedging instruments are rolled over continously so that the principal value is approximately similar to that of the hedged object.
Currency-related contracts - hedging instruments 652.8 9.9 Hedging object 644.2 gjensidige forsikring asa, danish branch noK million
The net investment in Fair Forsikring is hedged through currency-related contracts that are renewed every quarter at a principal equal to the value of the investment in Fair Forsikring in Gjensidige’s cosolidated financial statements. The credit risk associated with the hedging derivatives is within the limits of Gjensidige’s credit policy. Fair Forsikring was liquidated in the second quarter in 2011.
Of other loans 243.5 mill are loans regarding to agricultural customers. The loans are in their entirety intended for installment of fire detection systems with these customers. There is no mortgage attached to the loans, and the terms varies from two years to over 20 years. Gjensidige Forsikring has not offered this type of loan to its customers since 2008. The default rate is 1.69 noK million 2011 2010
Receivables related to reinsurance arise when Gjensidige issues claims towards reinsurers in accordance with reinsurance contracts. Provision for potentially irrecoverable amounts has been made.
Note 3 table 24 shows the age distribution of this receivables.
Other prepaid expenses and earned, not received income 64.1 25.1 total prepaid expenses and earned, not received income 108.9 84.5
A considerable amount of receivables in relation with asset management as at 31 December 2011 is short-term receivables in relation with sale of securities.
On 15 December 2009 Gjensidige Bank acquired Citibank’s Norwegian portfolio of loans for consumer goods, and as at 31 December 2011 the portfolio of loans for consumer goods consist mainly of this portfolio. The portfolio of loans for consumer goods is spread across Norway. Bonds are securities classified as loans and receivables in accordance with IAS 39.
Private equity investments HitecVision Private Equity V LP 173.2 FSN Capital II LP 132.5 HitecVision Private Equity IV LP 116.7 Altor Fund II LP 78.5 Northzone V KS 68.8 Northzone IV KS 10.8 % 56.4 Partners Group European Buyout 2005 (A) LP 51.5 Argentum Secondary II 48.9 Energy Ventures III LP 44.9 11 – casH and casH eQUiValents noK million 2011 2010
Norvestor V LP 40.8 Viking Venture III DIS 32.0 Verdane Capital VI KS 10.0 % 31.3 Energy Ventures II B IS 17.4 % 31.0 Partners Group Direct Investments 2006 LP 30.3 Energy Ventures II KS 28.0 HitecVision Asset Solution KS 27.6 LGT Crown European Private Equity PLC 26.6 Viking Venture II AS 23.0 CapMan BO IX LP 22.4 NeoMed Innovation IV LP 20.9 BaltCap PEF LP 20.7 Norvestor IV LP 17.7 Nordic PEP 1 IS (Altor fund III) 12.3 % 15.1 Teknoinvest VIII KS (inkl. Teknoinv. VIII (GP) KS) 13.9 % 13.1 Convexa Capital VIII AS - klasse B 11.1 Verdane Capital V B KS 10.6 Teknoinvest VIII B DIS 15.7 % 9.9 Verdane Capital VII KS 9.4 Fjord Invest AS 8.9 Northzone VI L.P. 8.1 Viking Venture II B IS 16.9 % 6.1 Kapnord Fond AS 5.5 Axcel IV 5.1 Viking Venture AS 4.4 Helgeland Invest 4.0 Tun Media (Landbrukets Medieselskap AS) 3.7 Convexa Capital IV 3.2 BTV Investeringsfond AS 3.0 Norchip AS 2.5 Rogaland Kunnskapsinvest 2.5 Convexa Capital IV 2.4 Norinnova 2.1 Energy Ventures IV LP 1.8 Berger Eiendom 1.7 Midvest I A 1.6 Såkorninvest Sør 1.5 Energy Ventures IS 17.5 % 1.4 Norinnova Invest AS 1.3 HitecVision VI LP 1.1 Midvest II A 1.0 Teknoinvest VIII C IS 26.8 % 1.0 Other private equity investments 5.5 total private equity investments 1,272.7
Real estate funds CEREP II 73.2 CEREP III 89.6 CEREP 15.6 La Salle 43.2 total real estate funds 221.6 combination funds FORTIS L FUND-BD CONV WRLD-I 674.7 total combination funds 674.7 other investments total other investments 111.0 shares and similar interests owned by other branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 2.1 total shares and similar interests owned by other branches 2.1 total sHaRes and similaR inteRests owned BY gjensidige foRsiKRing asa 3,466.2 sHaRes and similaR inteRests Held BY otHeR gRoUP comPanies Shares and similar interests owned by Gjensidige Pensjonsforsikring AS 10.0 Shares and similar interests owned by Gjensidige Bank ASA 501.8 Shares and similar interests owned by Nykredit Forsikring A/S 5.6 Shares and similar interests owned by Oslo Areal AS 18.4 Shares and similar interests owned by Glitne Invest AS 19.7 total sHaRes and similaR inteRests owned BY otHeR gRoUP comPanies 555.5 total sHaRes and similaR inteRests owned BY tHe gjensidige insURance gRoUP 4,021.7 noK million 2011 2010 short-term insurance contracts, gross Provision for unearned premiums, gross 9,531.4 9,078.3
Claims incurred, but not reported 16,504.1 14,574.4 total claims provision, gross 29,961.6 28,339.3
Other insurance related provisions 126.9 119.0 total insurance-related liabilities, gross 39,619.9 37,536.6 short-term insurance contracts, reinsurers' share Reinsurers' share of unearned premiums, gross 15.2 27.6
Claims incurred, but not reported 166.1 97.0 total reinsurers' share of claims provision, gross 1,007.5 459.4 total reinsurers’ share of insurance-related liabilities, gross 1,022.8 487.0 short-term insurance contracts, net of reinsurance Provision for unearned premiums 9,516.2 9,050.7
Claims incurred, but not reported 16,504.1 (166.1) 16,338.0 14,574.4 (97.0) 14,477.3 total as at 31 december 29,961.6 (1,007.5) 28,954.0 28,339.3 (459.4) 27,879.9
The reason why the claims provisions for Gjensidiges Arbejdsskadeforsikring A/S are discounted is that this portfolio consists exclusively of Danish workers ’ compensation business with very long payment flows and substantial future interest income.
results Gjensidige Annual Report 2011 14 – Pension Gjensidige Forsikring is required to have an occupational pension plan pursuant to the Mandatory Occupational Pension Act. The company’s pension plans meet the requirements of the Act.
deFined contriBution plan Defined contribution plan is a private pension plan which is a supplement to the National Insurance. Contributions from the pension plan come in addition to retirement pension from the National Insurance. The retirement age is 67 years.
Pension liabilities are measured at the present value of future pension benefits that for accounting purposes are considered as accrued at the reporting date. Future pension benefits are calculated on the basis of expected salary at the time of retirement. Estimated liability at the reporting date is used when measuring accrued pension liability. Plan assets are measured at fair value. For the valuation of pension funds, estimated value at the reporting date is used. Net pension liability is the difference between the present value of the pension liability and the fair value of the plan assets. A provision is recognised for employers’ national insurance contributions in periods of underfunding. Net pension liability is presented in the balance sheet under the line Pension liabilities.
Present value of the defined benefit obligation As at 1 January 2,783.4 2,765.6 Current service cost 62.8 73.4 Interest cost 96.8 105.4 Actuarial gains and losses 253.7 115.8 Benefits paid (144.5) (139.2) Past service costs (1.0) (96.6) Business combinations (122.8) (38.1) Foreign currency exchange rate changes (0.2) (2.9) as at 31 december 2,928.4 2,783.4 amount recognised in the balance sheet Present value of unfunded plans 445.0 432.7
Present value of funded plans 2,483.4 2,350.8 Present value of the defined benefit obligation 2,928.4 2,783.4 Fair value of plan assets (2,089.4) (2,160.2) net defined benefit obligation 839.0 623.3 Employers' national insurance contributions 112.6 82.0 net pension liability in the balance sheet 951.6 705.3
results 115 Gjensidige Annual Report 2011 noK million 2011 2010 fair value of plan assets As at 1 January 2,160.2 2,080.7 Expected return on plan assets 98.8 119.0 Actuarial gains and losses (52.2) 16.5 Contributions by the employer 125.3 116.2 Benefits paid (142.8) (140.6) Business combinations (99.9) (31.6)
expense recognised in profit or loss Current service cost 62.8 73.4 Interest cost 96.8 105.4 Expected return on plan assets (98.8) (119.0) Past service cost (1.0) (96.6) Employers' national insurance contributions 8.5 (5.2) total defined benefit pension cost 68.3 (42.0)
the expense is recognised in the following line items in the income statement Total operating expenses 68.3 (42.0)
Plan assets comprise expected rates of return on plan assets 14 – PENSION (CONT.)
Expected rates of return on plan assets are based on current asset allocations. Expected return is determined in conjunction with external advisers and takes into account both current and future market expectations when these are available and historical returns. The actual return on plan assets amounted to 3.27 per cent in 2011 (6.57).
All employees who turned 62 years after 1 January 2011 were entitled to apply for pension according to new AFP arrangement as from 1 January 2011. This implies that the liability regarding earned rights is fully repealed.
Other provisions 104.9 83.8 total other provisions for liabilities 174.9 138.5
Other accrued expenses and deferred income 239.8 188.1 total accrued expenses and deferred income 262.2 210.7
16 – tax noK million 2011 2010 spcification of tax expense Tax payable (845.3) (619.2) Correction previous years (35.4) 73.1 Change in deferred tax (18.8) 242.5 total tax expense (899.5) (303.6)
Deferred tax liabilities and deferred tax assets are offset when there is a legally enforceable right to offset those assets/liabilities and when deferred tax liabilities/deferred tax assets relate to the same fiscal authority. The amounts offset are as follows taxable temporary differences Shares, bonds and other securities 189.2 295.5 Properties 1,794.7 1,827.9 Security provisions etc. 3,048.5 2,973.7 Profit and loss account 378.5 365.4 total taxable temporary differences 5,410.9 5,462.6
results Gjensidige Annual Report 2011 noK million 2011 2010 deductible temporary differences Plant and equipment and intangible assets (600.3) (671.1) Loans and receivables (82.7) (101.8) Provisions for liabilities (139.3) (62.3) Claims provision (7.5) (15.3) Other deductible temporary differences (34.2) (6.3) Pension liabilities (963.6) (699.9) total deductible temporary differences (1,827.6) (1,556.9)
Disparagement of deferred tax assets 3.1 net taxable temporary differences 3,578.8 3,890.4 deferred tax liabilities/(deferred tax assets) 996.2 1,075.1 of this non-assessed deferred tax assets 7.4 199.4 deferred tax liabilities 1,003.6 1,274.6
Reconciliation of tax expense Profit before tax expense 3,647.4 3,254.0 Estimated tax of profit before tax expense (28 %) (1,021.3) (911.1)
Later or no due date 16.1 77.0 total loss and dividend tax deduction carried forward 16.1 77.0 change in deferred tax Deferred tax liabilities as at 1 January 1,075.1 1,205.5 Change in deferred tax recognised in profit or loss 18.8 (242.5) Change in deferred tax recognised directly in the balance sheet
Hedge accounting 6.8 20.2 Companies sold and purchased (1.9) 148.7 Other changes in deferred tax (9.4) (21.9) Exchange differences 2.0 (1.9)
deferred tax liabilities as at 31 december 996.2 1,075.1 16 – TAx (CONT.)
Depreciation and value adjustments (note 5 and note 7), excl. depreciation properties 417.7 468.8 Employee benefit expenses (note 18) 1,933.0 1,855.8 Fee for customer representatives 4.5 7.1 Software costs 365.0 375.2 Auditor’s fee (incl. VAT) 13.2 16.7 Consultants’ and lawyers’ fees 132.6 114.0 Commissions 636.2 655.9 Other expenses 370.2 591.8 total operating expenses 3,872.5 4,085.3 exPenses Related to inVestments noK million 2011 2010
The remuneration shall be competitive, but the Group shall not be a wage leader. Employees are expected to see the remuneration and benefits offered by the Group as an overall whole. The Group’s remuneration systems shall be open and performance-based, so that they, as far as possible, are perceived as being fair and predictable. The remuneration that is paid shall correspond to the agreed performance.
Guidelines For the upcominG Financial Year remuneration oF the ceo The CEO’s salary and other benefits are stipulated by the Board of Directors on the basis of an overall assessment that takes into account Gjensidige’s remuneration scheme and market salary for corresponding positions.
The retirement age for members of the senior group management is 62. Of the current members of the senior group management, five are members of the closed defined-benefit pension scheme. Given the full earnings period, they are entitled to a pension of 70 per cent of final salary. Six members are part of the Company’s defined -contribution pension scheme. The Company will continue a previously agreed individual pension agreement for one member of the senior group management.
Paid variable salary calculated value of total benefits other than cash
Trond Delbekk (1.1.11-30.9.11), Executive Vise President 2,136.7 543.6 157.2 300.2 3
Martin Danielsen, Executive Vise President 2,096.8 295.7 39.1 555.8 20.2 4,480.8 3.65 % 31.1.2021 292 7,418 3
Bjørn Asp, Executive Vise President 2,085.2 438.3 203.2 504.4 2.6 5,913.9 3.82-3.89 % 20.7.2033 38 3,918 3 Kim Rud-Petersen, Executive Vise President 2,260.6 246.5 137.6 189.1 2,543 Lise Westly (1.1.11-15.8.11), Executive Vise President 1,113.6 118.2 68.3 3
Catharina Hellerud (16.5.11-31.12.11) 1, Executive Vise President 1,226.3 200.0 15.8 150.1 20.2 292 3,442 3
Cecilie Ditlev-Simonsen (1.5.11-31.12.11), Executive Vise President 1,057.8 219.5 16.5 157.7 20.2 292 1,169 3
Inge K. Hansen, Chairman 375.8 1.5 11,982 Randi B. Sætershagen, Deputy Chairman 230.0 1.5 8,982
Gunnhild H. Andersen, staff representative 7 200.0 14.9 695 Kjetil Kristensen, staff representative 7 195.0 18.0 466 Gunnar Mjåtvedt, staff representative 7 238.0 18.0 1,509 Tor Øwre (1.1.11-31.5.11) 100.0 Per Arne Bjørge (1.6.11-31.12.11) 110.0 1.5 10,271 18 – SAlARIES AND REMUNERATION (CONT.)
months. There is no severance pay arrangement for executive personnel who leave their position in Gjensidige.
Variable pay (bonus) for executive personnel with supervisory functions is based on a discretionary assessment of the contribution of the unit in question measured by scorecards, in addition to their personal contribution. Half of the variable remuneration is paid in the form of shares in Gjensidige Forsikring ASA, one third of which can be sold in each of the following three years. An upper ceiling of 30 per cent of annual salary including holiday pay applies to the payment of bonuses. After consulting with the remuneration committee, the CEO may make exceptions for special positions if this is necessary in order to be able to offer competitive terms.
The CEO and executive personnel are entitled to take part in the Group’s share savings programme for employees on a par with other Gjensidige employees. Under the current programme, employees can save through deductions from their salary for the purchase of shares in Gjensidige Forsikring ASA for up to NOK 75,000 per year. Purchases take place quarterly following publication of the results. A discount of 20 per cent of the purchase price is offered, limited upwards to NOK 1,500. For those who keep the shares and are still employed in the Group, one bonus share is awarded for each share they have owned for more than two years.
9 In this content, options refer to future bonus shares. See note 27 for terms and further description of the scheme.
payment loans, advance payments, guarantees, outstanding amount interest rate 6 applicable conditions and installment plan number of options assigned/
Sven Iver Steen, Chairman 343.5 0.5 1,630 Hallvard Strømme 172.5 Lieslotte Aune Lee 176.3 Vigdis Myhre Næsseth, Deputy 111.5 supervisory board 4
Trond Delbekk, Executive Vise President 2,390.9 381.7 233.6 658.0 2,319 3 Bjørn Walle (1.1.10-31.8.10) 1, Executive Vise President 1,321.9 269.4 163.8 206.0 4
Hege Toft Karlsen (1.9.10-31.12.10) 1, Exec. Vise President 591.2 27.7 53.5 76.2 1,965.3 2,348 3.0-3.3 % 16.04.2019 3
Martin Danielsen, Executive Vise President 1,911.2 324.0 162.1 555.8 4,479.6 4,213 3.0-3.3 % 28.04.2019 3
Bjørn Asp, Executive Vise President 2,026.1 418.9 199.2 595.5 5,663.9 3,353 3.0-3.1 % 20.07.2033 3
1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 percent at age 67 according to time of earning. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring’s ordinary pension terms will take effect. 4 Age 60, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring’s ordinary pension terms will take effect. 5 Annual fee of NOK three thousand five hundred, in addition to a per meeting fee of NOK three thousand five hundred. There have been three ordinary meetings during 2010. 6 The fee includes a fee for subsidiaries.
Sven Iver Steen (28.6.10-31.12.10) 1, 10, Chairman 1,482 Snorre Inge Roald 1.1.10-28.6.10) 1, Deputy Chairman 147.5
results 125 Gjensidige Annual Report 2011 19 – NET INCOME FROM INVESTMENTS (CONT.)
There are contractual commitments regarding development of investment properties amounting to NOK 39.0 million (96.0), and also a commitment to invest NOK 15.0 million (45.0) in a residential development project. The latter commitment falls due during the period from 2012 to 2013, depending on the progress of the project.
Gjensidige Forsikring was until 1 January 2012 responsible externally for any insurance claim arising from the cooperating Fire Mutuals’ operations.
Gjensidige Forsikring ASA is the Group’s parent company. As at 31 December 2011 the following companies are regarded related parties.