Management report From the Chief Executive Officer: A greenhouse for growth 12
Storebrand Bank and Finansbanken to continue to grow within their respective markets.
By co-ordinating these activities and bringing them together within the framework of Storebrand as a whole, we intend to create added value for our customers, shareholders and employees.
Storebrand's life insurance area is the leading supplier in the Norwegian savings and life insurance market. The group’s life insurance activities are well placed for continuing growth. Areas such as unit linked products, defined contribution, occupational pension schemes with individual investment choice, the public sector and sales of individual products to employees of companies that use Storebrand for their pension schemes are expected to show further growth in future years.
NOK million *) Numbers for 1996 and 1997 is excluding preference share capital
• The Norwegian Red Cross and Storebrand launch a new mutual fund that will contribute to the humanitarian work of the Norwegian Red Cross. The fund is titled Norwegian Red Cross Global, and is managed by Storebrand Fondene AS.
May: • Storebrand’s wholly owned subsidiary Finansbanken buys the Danish private banking operation Den Københavnske Bank as a step in the Nordic expansion of Storebrand’s private banking activities.
• The Norwegian Ministry of Finance gives the green light for Storebrand to establish Euroben Life and Pension Ltd., a life insurance company based in Ireland. The new company is owned 50 percent each by Storebrand and the Swedish company SPP Liv.
September: • Storebrand wins a very respectable third place in an environmental rating of the 27 largest European insurance groups.
October: • Åge Korsvold resigns as the Chief Executive Officer of Storebrand. The current Head of Accounting and Finance, Idar Kreutzer (38) is appointed as acting Chief Executive Officer of Storebrand ASA.
• Jon R. Gundersen resigns as the Chairman of Storebrand’s Board of Directors. Deputy Chairman Leiv L. Nergaard takes over as Chairman.
December: • Idar Kreutzer is appointed Chief Executive Officer of Storebrand ASA. Kreutzer has been acting Chief Executive Officer since 4 October.
• Kapital Data nominates Storebrand Bank for product of the year in the best Internet service category.
The changes made identified Storebrand ASA more clearly as a holding company responsible for four independent business areas as well as the group’s ownership interest in If Skadeförsäkring.
The reorganisation was based on a desire to establish a business model with increased focus on decentralised growth that would define clear targets and responsibilities for each of the separate business areas. This also further improves the ability of the distribution apparatus to adapt to changing customer demands. The new model provides a clear decision making structure, and co-operation between the business areas is based on straightforward commercial principles. The Board believes the new organisational structure provides a better basis to realise the growth potential created by the Storebrand group’s position as a major player in the expanding savings market.
Storebrand’s operating profit amounted to NOK 4,475 million as compared to NOK 5,347 million in 1999. Net premium income totalled NOK 9,596 million, which is NOK 934 million lower than in 1999. The reduction reflects a lower level of transfers of premium reserves to the life insurance company. Total assets under management amounted to NOK 151 billion at the end of 2000. Earnings per share for 2000 amounted to NOK 1.67 as compared to NOK 3.54 in 1999 after excluding non-recurring items. The group’s book equity increased by NOK 421 million to NOK 10,533 million. The group’s capital situation and solidity remains strong, and the accounts for all of the group’s companies have been prepared on the basis of the going concern accounting principle.
Storebrand Bank took over responsibility for distributing the Storebrand group’s products to the retail market with effect from January 2000, and reported a good sales performance for the year as a whole. This was particularly the case for sales of mutual funds, unit linked products and structured savings products such as equity index bonds. In order to further strengthen the bank’s position, significant investment was carried out in the last quarter of 2000 in recruiting new financial advisers, as well as in marketing and further improvements to the Internet banking service. The Board believes that the measures taken will further strengthen the bank’s performance.
Financial results from Finansbanken for the year show significant growth in business volumes and stronger earnings before loan losses and provisions as a result of a high level of activity and growth in customer numbers. However in the last quarter of 2000 the bank carried out a comprehensive review and evaluation of its shipping
lending with assistance from external experts in this field. This review has identified the need to make significant new loan loss provisions. The bank’s activities other than ship financing produced a satisfactory performance for the year. However the significant deterioration in the shipping portfolio is a cause of concern. Increased focus and additional resources have been directed to this portfolio in order to monitor it closely, and the necessary measures have been implemented.
In August 2000 Finansbanken ASA was granted a licence to acquire the entire share capital of Den Københavnske Bank, which has total assets of NOK 1.0 billion.
The group’s asset management activities again saw growth in both customer numbers and funds under management for institutional investors in 2000. Storebrand Fondene attracted a larger market share of new subscriptions to securities funds than in 1999, and together with Delphi this represented an increase to a 9.5 percent share of inflows by the close of the year. Storebrand Fondene was the leading player in the equity fund market in 2000, with a particularly significant increase in sales through external channels. In addition Storebrand Kapitalforvaltning made further progress with its planned international expansion, and now has sales offices in Oslo, Stockholm, London and Paris.
Further commentary on financial results from the main business areas The life insurance group’s operating profit amounted to NOK 4,789 million as compared to 4,956 million 1999. Of the total profit, NOK 3,951 million was allocated to policyholders and NOK 838 million was allocated to equity and tax, as compared to NOK 4,181 million and NOK 775 million respectively in 1999. Storebrand Livsforsikring AS reported a realised return on investment of 8.7 percent for the year, or 3.1 percent after adjusting for unrealised gains and losses. The effect of specifically Norwegian regulations in preventing Storebrand Livsforsikring AS from investing in banking and finance shares had a negative effect on the realised investment return of almost one percentage point.
Storebrand Skadeforsikring AS, which is a holding company for Storebrand’s ownership interests in non-life insurance, reported a pre-tax profit of NOK 300 million. This figure includes a negative contribution from If Skadeförsäkring of NOK 307 million and the release of security reserves to profit of NOK 336 million. The transfer of customer business to If Skadeförsäkring was carried out as planned.
If Skadeförsäkring, in which Storebrand has a 44 percent interest, reported a pre-tax loss of SEK 989 million. The technical insurance result shows a combined ratio of 110. 2 percent, which is a significant improvement from the combined ratio of 120.0 percent reported in 1999. This improvement is largely a result of increased premium tariffs. The company’s financial income was low in 2000 as a result of weak conditions in the equity markets, and If Skadeförsäkring reported a value-adjusted investment return for 2000 of 3.6 percent.
NOK 88 million for 2000. Of this result, a loss of NOK 35 million is recognised in Storebrand’s consolidated accounts.
The incidence of absence from work on grounds of sickness was 3.44 percent. No personal injuries, damage to property or accidents of any significance were reported during 2000.
Environmental policy During the course of 2000 Storebrand expanded its environmental focus into a broader commitment to Corporate Social Responsibility (CSR). Storebrand’s commitment to CSR is based on a long-term commercial strategy. A group-wide policy for CSR has been established, with a 10-point action plan for the period 2000-2002 that sets specific targets for different aspects of the group’s ambitions in this area. Storebrand’s Corporate Social Responsibility Report won the Norwegian Environmental Reporting prize for 1999 as the best environmental report in the trading and service sector company, and was in joint second place for all environmental reports published in 2000. Storebrand does not pollute the external environment beyond the normal level for the activities in which the group is engaged.
The former Chief Executive Officer, Åge Korsvold, entered an option agreement with a third party for the purchase of shares in Storebrand ASA. The Banking, Insurance and Securities Commission took the view that this agreement was in breach of the relevant provisions of the Securities Trading Act. In addition to this, Mr Korsvold’s use of a residential property at Kristinelundveien 7 in Oslo purchased by Storebrand for representation purposes and an agreement in respect of his right to purchase this property attracted extensive media attention.
Future prospects Storebrand’s new management model, with independent business units organised as separate legal entities, provides a good basis from which to win further market share in the various market segments. The group’s leading position in the Norwegian market for life-insurance and asset management, combined with a good basis for specific banking platforms targeted at the solvent retail sector and affluent private clients, provide the foundations for further growth. Storebrand expects to achieve growth both through increasing its product range and through geographic expansion. All the group’s main business areas currently have ambitious growth targets.
The development of focused, growing companies represents the core of Storebrand’s strategy. We have made further changes to our organisational model as part of the process of moving Storebrand from being a large, integrated financial group to a pro-active ”greenhouse” environment. The organisational model we have established is characterised by a number of subsidiaries, each with its own profile, reporting to a small holding company. This introduces a sharper distinction between the roles of ownership and operational responsibility for the individual units that make up the group. We believe that by decentralising both authority and responsibility we will encourage better operational decision making and create greater strategic flexibility.
Alliances The decision to establish If represents a good example of how a new platform for growth can be created by building strategic alliances at the level of subsidiary companies. Storebrand now consists of a group of companies, each with a clear strategy for profitable growth. We intend to achieve our objectives both through organic growth and by taking advantage of structural alternatives where this is appropriate.
The changes we have made to our organisational model should also be seen in the light of a clear strategy to use third parties to provide services that lie outside our core areas. We have established Norden Bedriftservice in order to secure access to competitive products and prices for office management and other joint services (accounting, human resources, staff catering etc.). At the same time this company represents an independent new venture with its own plans for growth in its particular segment. The extensive operational and service agreement we have entered into with IBM represents the same approach, and outsourcing these functions ensures that our valuable financial and management resources can be concentrated on our own core activities.
Storebrand's distribution strategy for the retail market is based on using highly qualified financial advisers to help customers plan and improve their financial arrangements. Storebrand Bank has probably the leading focused network of advisers of any player in the Norwegian market, and their activities are supported by a strong Internet banking service. We intend to further strengthen our position as the Norwegian ”advice bank” by further recruitment and by continuing staff development in this area. Finansbanken offers tailor made private banking for the wealthier customer, and the acquisition of Den Københavnske Bank has given the bank a broader geographic market for this activity.
In order to meet the increasingly sophisticated demands of our customers, we have significantly expanded the product range of mutual fund investment opportunities we offer. Storebrand and Delphi together now offer 44 different funds, giving them almost a 10% share of the Norwegian market. There is also strong growth in the market for discretionary asset management. As the leading asset management operation in Norway, Storebrand intends to further strengthen its position in this segment of the market. Storebrand also intends to seek international growth in the product area of Socially Responsible Investing (SRI). This ambition provides the background for establishing our own distribution activities in Sweden, Great Britain and France.
We will demonstrate to our customers, employees, shareholders and other partners through a clear and open approach that Storebrand is indeed a trustworthy partner. The organisation's commitment to a defined ethical approach is nothing new for Storebrand, and we have recently completed an update of our long-standing ethical guidelines. However whilst written guidelines are necessary to support the process, they do not in themselves guarantee ethical behaviour, and this has prompted us to initiate further efforts to ensure an ethically aware management style throughout the Storebrand group. Our first duty is to our customers, and we can best fulfil this duty through ethical behaviour, competitive prices and products and secure operating practices.
These activities and the media attention the company attracted in autumn 2000 serve to demonstrate that a wide range of interests have their own, differing, expectations of Storebrand. Management's task is to set priorities and ensure that we have satisfied customers and strongly motivated employees since this will provide the best foundation to create added value for our shareholders. Storebrand's Norwegian roots represent its essential access to customers, expertise and capital in its domestic market, and this is something we shall take great care to preserve. At the same time we intend to gradually enlarge the reach of the group's activities by a selective and focused international expansion.
The life insurance company is organised into separate areas for products, distribution and customer service, each with its own profit responsibility. Distribution and sales to the retail market are primarily carried out through Storebrand Bank. The volume of sales to both the retail and corporate market made through independent sales channels is currently growing strongly, and this trend is expected to continue. As result of this the life company has established a separate business area to handle sales and service through these independent channels.
Products and services for pension funds are provided through the subsidiary companies Aktuar Consult, Storebrand Pensjonstjenester and Aktuarsystemer.
The sales and customer service activities carried out by the life company are also closely co-ordinated with other wholly and partly owned life insurance-related companies in the group, namely: Storebrand Fondsforsikring, Storebrand Helseforsikring, Nordben and the newly established company Euroben.
Strategy Storebrand’s life insurance operation is well placed for continuing growth. The occupational pension market is expected to expand following the introduction of new legislation on 1 January 2001 which makes it possible to offer more flexible products. The introduction of defined contribution occupational pension schemes is an example of this.
Defined contribution pension schemes offer companies a much more predictable cost for providing their employees with a pension. This does in turn make it more difficult for employees to predict their future pension, but on the other hand defined contribution schemes will allow employees a say in how pension funds are invested by offering individual investment choice.
New prospects More than 900,000 Norwegian employees currently have no pension arrangements other than the national insurance scheme. The authorities hope that the introduction of equal tax treatment for defined contribution and defined benefit pension schemes will encourage more companies to consider making pension provision for their employees. In addition the new legislation makes it possible for companies to take a fresh approach to the options available for providing pensions for their employees.
One example of this is that a defined contribution pension scheme can be offered in parallel with an existing defined benefit scheme. Employees can be offered the choice of staying on as members of the defined benefit scheme or of joining the new defined contribution scheme. In addition, work is underway to explore how a defined contribution scheme can be combined with an existing defined benefit scheme. A defined benefit scheme provides a sound foundation for future pensions, whilst adding a defined contribution scheme will give employees the opportunity to make their own decisions on how this part of their pension entitlement should be invested.
Good communications play a vital role Good systems for customer service, advice and information will be important factors for success in the new pensions market. In addition to Internet based systems that simplify the routine management of company pension schemes, Storebrand now offers a net-based system that provides information and advice to individual employees. Where company pension schemes offer individual investment choice, this system will allow employees to follow the performance of their pension investment from day to day, and they can make changes to their investment choices from their own PC. Alternatively employees can access help and advice from the customer centre, or from the company’s financial advisers visiting them at their place of work.
A broad range of investment choices The introduction of defined contribution pension schemes makes it particularly important that the company delivering a pension scheme can offer a broad range of alternative mutual funds for investment. One of the new features Storebrand now offers is a fund which protects pension investments against a fall in value on an annual basis. This product is based on the Storebrand Global Equity fund. In addition to Storebrand’s own range of funds, the company also offers funds provided by recognised and respected international fund managers.
Storebrand recently carried out a major interview survey into private individuals’ awareness of their own risk insurance arrangements. The survey showed that many people simply do not know what, if any, insurance they have.
The need for individual insurance varies during the course of one’s life. It is particularly important to consider the financial needs of a family if the main earner were to die, or what would happen to an individual’s financial situation if he or she were to become seriously ill or disabled. Insurance is particularly important for younger people at the stage when they are building up their own life and family. It is particularly important to arrange for financial security in the event of unexpected misfortune in the early years when the main breadwinner has taken on significant borrowing and possibly has small children.
This product takes the form of an Internet based system adapted to the particular company which carries details of each employee’s direct salary and other elements of the individual’s remuneration package. The company can use the system to establish an account for each employee to select benefits from the company’s ‘menu’ up to a preset total cost. The system also allows a separate bonus account to be established for each employee.
A total of 152 employees representing nine different nationalities work in Storebrand’s combined asset management activities, making this one of the largest asset management operations in Norway.
Strategy Storebrand has identified asset management and fundsbased savings as an area of particular focus since the mid1990s, and the group has major growth ambitions in this area. Storebrand intends to expand its asset management activities by offering a competitive investment return, global focus and good products, as well as discretionary asset management and flexible customer service. This will ensure that we create added value for our customers through the high level of expertise and the good risk management and control that our activities represent.
Some two years ago, Storebrand started to gradually build up international marketing of its asset management activities, with particular focus on the institutional investor market and the new pension premium system introduced in Sweden. International marketing has also extended to promoting securities funds based on ethical and environmental investment criteria to the markets of Great Britain and France. Storebrand expects to see growing demand for international asset management products.
The mutual funds market is going through a period of rapid growth and significant change. Storebrand is well placed to take a large and increasing share of this market. A number of major trends characterised the securities fund market in 2000, and the same trends will continue to influence future developments.
Open platform In areas where considerations of quality, capacity and cost effectiveness indicate that an external manager will be better able to deliver products to its customers, Storebrand Fondene AS has entered into co-operation agreements with external fund management companies. In 2000 Storebrand Fondene entered into co-operation with Goldman Sachs for the management of a European equity fund investing in small and mediumsized companies, with Foreign & Colonial for a fund investing in emerging markets, and with
Wellington for a global health sector fund. In addition to this Finansbanken offers funds from other suppliers, and Storebrand Bank intends to supplement the range of funds it offers with third party products during 2001.
Internet plays an increasingly important role Customers expect more detailed and better reporting, improved accessibility and the opportunity to access information over the Internet. Storebrand was one of the first fund companies to make it possible to subscribe for funds over the Internet, and it has continuously improved the functionality of the Internet services it offers. Our Internet pages now allow customers to subscribe for fund units, access an updated report of their total holdings and find greater information on the composition of the various funds.
There is increasing demand for international asset management products. Storebrand Asset Management offers a number of products that are considered to be attractive and competitive, and the company established its first international office in Stockholm in 1999. During 2000 new offices were opened in London and Paris.
Products Storebrand enjoys a sound international reputation for Socially Responsible Investing (SRI) and international asset management. The Storebrand Principle Global fund, the first fund with an environmental profile, was established in Luxembourg in June 1996. There is increasing demand for SRI products, and Storebrand is one of the leading companies in this area. Storebrand also offers distinctive products in the area of traditional international asset management.
Institutional clients and investment consultants Storebrand's strong record of investment return creates the opportunity for successful sales to the institutional market. An increasing number of institutional investors make use of investment consultants, and it is accordingly important that our products are well known in this market. This has been a priority area in 2000, and Storebrand has won the acceptance of the majority of major consultants in the markets it has prioritised.
Asset management is one of the Storebrand group's core activities. By the close of 2000, Storebrand had funds totalling NOK 151 billion under management, both through discretionary management and as funds. Total funds under management have shown annual growth of 13% over the last two years.
Mandates for discretionary asset management provided a strong net inflow of new funds for management in 2000 despite this being a weak year for stock markets. It seems that neither weak market conditions nor increased market volatility discourage this trend. Growth in funds under management has principally come from the public sector, although private sector pension funds have also played a part.
Increased external management of pension funds Changes in the regulations to introduce stricter requirements for expertise and control in the management of pension funds have made it more difficult for companies to manage their own pension assets. These changes have strengthened the trend for the management of pension fund assets to be entrusted to professional asset managers.
Joint asset management assignments The role now played by independent advisers has made it increasingly common for investors to split their asset management between a number of players who then compete with each other. This in turn leads to increased focus on offering distinctive asset management products with a clearly defined investment philosophy, a strong and stable asset management team and a good track record for investment return. We believe that as a significant and professional asset management operation, Storebrand will be more than able to maintain its position in an increasingly competitive environment.
Norway. In addition the campaign represented a first step in positioning Storebrand Bank as a leading financial adviser, and it proved to be very successful. All the vacancies for additional financial advisers were filled during the spring 2001, and the campaign made a major contribution to increasing general public awareness of Storebrand Bank.
Customers are seeing major changes in their everyday contacts with the financial services industry. Never before have there been so many new players entering this industry, and never before have customers seen such a range of choices of products and services. At the same time Norwegians are taking much greater interest in their personal financial arrangements, and their knowledge and expertise grows in pace with their increasing interest. Storebrand Bank has recognised the implications of these changes, and is now in the process of launching a pioneering financial advice concept on a major scale.
New trends Storebrand Bank AS was established in 1996, and was originally designed as a straightforward directservice bank. Over recent years the bank has built up a nationwide staff of financial advisers in order to cater for new trends in customer requirements for financial services. Our concept is based on four cornerstones: the high level of expertise offered by our advisers, the independence of advice that our open product platform offers, our presence through financial offices, telephone based customer centres and the best financial Internet service in the market, and finally the unique methodology we have developed for use in advice consultations with customers.
Nationwide financial advice Storebrand Bank currently has 20 financial centres spread across the entire country. These centres offer customers the opportunity to have their financial situation analysed by a professional financial adviser. This service is available to all customers who will benefit from the accessibility, personal advice and follow-up that we offer, and this represents the bank of the future for discerning customers who take a serious interest in their financial affairs.
Many players in the market maintain that they offer financial advice to their customers, but few of these can demonstrate that they are properly equipped to take on such an important responsibility towards their customers. Storebrand Bank takes this challenge very seriously, and one consequence of this is that we send our financial advisers ‘back to school’.
Tailor-made for Storebrand Bank and our customers The certification program is tailor-made for both Storebrand Bank's financial advice strategy and for our customers' need for consistent and comprehensive professional advice. Employees who pass the final examinations will be recognised as ”Senior Financial Adviser - BI Certificated”. This qualification will represent 20 further education credits approved by the Norwegian School of Management BI.
The launch of the bank's mutual funds account was one of last year's major developments.
The mutual funds account allows customers to choose between a number of different funds, and currently offers 28 funds of which 11 are managed by external asset management companies. Storebrand Bank now offers funds managed by Goldman Sachs, Foreign & Colonial, Wellington, Merrill Lynch, Morgan Stanley Dean Witter, Invesco, Schroder and Delphi in addition to the range of funds offered by Storebrand’s own asset management activities. More funds will be added to the list over the course of the current year.
Share trading on the Internet Storebrand Bank is able to offer its customers the best arrangements for share trading on the Internet through its co-operation with E*TRADE. This service has been available since August 2000, and we are extremely satisfied with the co-operation that has been established. All of Storebrand’s customers that use E*TRADE see their shareholdings reported as part of their total investments with Storebrand Bank. In addition E*TRADE can be accessed directly from the bank's own Internet pages.
Finansbanken is a specialist bank, concentrating on high net worth individuals and selected segments of the corporate market. Following Storebrand’s acquisition of the bank, Finansbanken has developed its activities to offer specific expertise in a number of areas, and it has focused its activities on the three areas of private banking, asset management and project financing. Finansbanken’s main wholly owned subsidiaries include Delphi Forvaltning AS, Finansbanken Index ASA and Den Københavnske Bank AS in Denmark.
Strategy Finansbanken’s ambition is to be one of the leading financial partners for affluent private customers throughout the Nordic region. The new areas of business focus for the bank of private banking and asset management are growing strongly, whilst traditional activities such as real estate project financing and securities financing provide a strong foundation for growth.
The management of assets for affluent private customers is often described as private banking. This represents a service for private customers who have wealth and investments of a scale or complexity that makes it advantageous for the customer to co-operate closely with a specialist bank. These customers need a supplier of financial services that can offer a high level of expertise as well as the security and flexibility essential to creating a close long-term customer relationship. This area of business is described in greater detail in the article on the next page.
Finansbanken intends to further develop the traditional concept of private banking. This means that personal contacts between the customer and the bank will continue to play a central role in maintaining customer relationships. The bank’s service concept will in addition be based on expertise, security, flexibility and long-term credibility. Finansbanken has recruited experienced customer account managers and has built up a specialised customer service team to meet the diverse needs of its customers.
In private banking, the customers are themselves also an important resource. No two customer relationships are the same in private banking, and the service offered in each case has to reflect the customer’s business and investments as well as his or her preferences and objectives. However features that are common to all customer relationships include discretion, the customer’s financial security, professionalism and profitability.
Good advice needs access to attractive investment opportunities, and Finansbanken is recognised as an independent supplier of investment products. The bank itself offers certain products, and it also has long-established relationships with a number of leading international suppliers that give access to a range of financial products. In order to maintain a position as a complete supplier it is essential to continually evaluate the products available in the market and identify the best suppliers. Finansbanken has taken advantage of the past year to evaluate the suppliers of financial products it will use in the future. Finansbanken’s customers expect the best choices available - and that is precisely what the bank intends to offer.
The management of assets for affluent private customers is often described as private banking.
Main features of 2000 • Realised return on investment of 8.7%, with a value-adjusted return of 3.1% • Continuing strength in risk-bearing capacity provides the basis for high investment returns in the future
• Market leader for life insurance and unit Linked products with a market share of 26% at 30
• Improvement in cost ratio from 0.96% to 0.94%. • Weaker risk result, due in part to an increase in disability claims
Business development 2000 was a satisfactory year for the profitability of Storebrand’s life insurance activities. The life insurance company reported total premium income of NOK 7,950 million, and operating profit for the year amounted to NOK 4,789 million.
Premiums written in respect of group pension insurance increased by 3.1% in 2000. The market for small and medium-sized companies showed particularly strong growth, with an increase in the total volume of business outstanding of 5%. However premium earned for the year in respect of group pension insurance was 16% lower than in 1999 as a result of a reduction in reserves transferred.
Storebrand has seen an exciting place of development in the two years since it first launched health insurance products. The company’s health insurance products are now sold in both Norway and Sweden, and the limited capacity available in the public health service together with the emergence of an increasing number of competitors have served to expand the overall health insurance market. The company has particularly high expectations of growth for sales of health insurance to the corporate market in future years.
Investment return, solidity and risk capital Following a strong performance in 1999, capital markets saw turbulent conditions in 2000, parti-
The combination of a professional investment management function, high risk bearing capacity and low operating costs compared to competitors gives every reason to expect that Storebrand will continue to produce a competitive net return for its customers.
Return to owner and profit allocation The profit from life insurance business in the Norwegian market is subject to an allocation between customers and shareholders. The profit allocated to shareholders cannot exceed 35% of the year’s profit. With effect from the 2000 accounting year, Storebrand has introduced a new and simplified model for the allocation of profit. In this model the return to the owner is made up of a return on capital, a management fee of 0.4% of policyholders’ funds and a 12% margin on actual risk. In addition the owner receives full allocation of the profit on products not subject to the allocation of profit. The good level of overall return on capital, which also applies to shareholder capital, is the main reason for the good return to the company’s owner.
Interest result is the difference between the book return and the guaranteed return on policies. The average guaranteed return on insurance policies in 2000 was 3.8%.
The administration result shows the difference between the costs assumed for the premium tariffs and actual operating costs.
Income to capital from policyholders’ funds 376 387 366 339 319 Risk margin due to shareholder 55 Extraordinary items 105 Other 41 *) Profit of the Storebrand Livsforsikring Group was NOK 838 million.
Collective Group Individual Individual Non-life pension life capital- pension insurance Total Total
NOK million insurance insurance insurance insurance 2000 1999 - of which to premium reserve -186 -21 -207 -176 11. Change in premium reserve/sec. fund -55 0 0 0 -55 -548
To equity: - return on company's capital etc. b) -364 -408 - risk margin due to shareholder -55 - extraordinary items -105 13. Profit for the year -836 -899 14. Policyholders' share of profit 3,951 4,333 a) Adjusted to show analysis of results as if subsidiaries were recognised in the accounts by the gross method rather than the equity method.
• Return on life insurance portfolio 0.4% better than the benchmark return, and seven out of eight life insurance investment portfolios outperformed their benchmark return.
• Pre-tax profit for the year doubled between 1999 and 2000 to NOK 67 million.
Markets and customers Storebrand Kapitalforvaltning ASA and Storebrand Fondene AS (including Delphi Fondsforvaltning ) manage assets for institutions, companies and private customers in Norway and internationally totalling NOK 151 billion. Over the period 1998 to 2000 assets under management have increased from NOK 119 billion to NOK 151 billion. This represents average annual growth of 13%.
Storebrand Fondene AS has almost doubled its share of the market for mutual securities funds over the past three years to reach 8.6% by the end of 2000. (The market share is 9.5% if Delphi Fondsforvaltning is included). Net inflows to funds managed by Storebrand Fondene amounted to NOK 3.1 billion, of which NOK 2.9 million was placed in equity funds representing a 23.6% share of the total market for net subscription to equity funds. This made Storebrand Fondene the market leader for sales of equity funds in 2000.
Our objective is to satisfy the four fundamental market requirements for: • A strong likelihood of a reliable and stable future investment return, based on a disciplined, clearly defined and transparent investment process.
• Leading international expertise in certain specialist areas such as environmental and ethical asset management and private equity investment (un-listed equities).
In addition to serving its own customers, the asset management operation distributes securities funds to the Norwegian market through Storebrand Bank and Storebrand Livsforsikring, as well as through 15 external co-operation partners and portals.
The first Storebrand International Private Equity (SIPE) fund-of-funds was launched very successfully at year-end 1999/2000. This represents a type of fund with a limited subscription period that invests in international private equity and venture capital funds around the world. Over the longer term this type of fund is expected to provide a higher return than investment in listed equities. SIPE II was launched in December 2000 with NOK 112 million of investment capital. Storebrand Principle Funds in Luxembourg is responsible for a product range of environmental and ethical investments, and expanded its product portfolio during 2000 by adding a further five funds to complement the Storebrand Principle Global Fund, which was the group’s original SRI fund. The range of five SRI funds now offered comprises four equity funds and a fixed income fund, the Storebrand Principle European Bond Fund.
Storebrand Kapitalforvaltning launched three new international equity funds in 2000 - Storebrand Goldman SMB Europa, Storebrand F&C Emerging Markets and Storebrand WGA Healthcare. These are all of the fund-of-funds type whereby assets are solely invested in underlying funds and administered by managers external to the Storebrand group. The fund managers initially chosen for this purpose following a thorough selection process are Goldman Sachs International and Foreign & Colonial Management Ltd and Wellington GHCP.
Investment philosophy and management of securities investments All the group’s asset management products are based on the common fundamental investment philosophy which seeks to achieve the investment goals set for the various investment products by active portfolio management which concentrates on a focused and systematic approach with thorough analysis and a high level of investment discipline. A key factor for success is the efficient processing of information to help ensure that active position taking makes the right decisions which offer the best chance of outperforming the relevant benchmarks.
Organisational structure With effect from 1 January 2001, Storebrand Kapitalforvaltning ASA and Storebrand Fondene AS will become part of the same sub-group under
Investment return Storebrand Kapitalforvaltning produced good investment results for the management of both equities and fixed income portfolios in 2000. Equity portfolios benefited from a good selection of stocks drawn from both TMT companies and industrial companies. However the balance over the course of the year was somewhat over-weighted in favour of the TMT sector, and this was not a positive feature. The slowdown seen in the American economy was much more pronounced than players in the market had foreseen, and was somewhat greater than Storebrand Kapitalforvaltning had expected. In addition the technology sector was more adversely affected by the slowdown than had been expected. With the benefit of hindsight, the technology sector has proved to be more cyclical than the market had envisaged. This had a particularly marked effect on the Japan element of the Asian equity portfolio.
Storebrand continued the process of strategically re-orientating its property portfolio during 2000. This involves concentrating the portfolio on first-class centrally located office premises in the Oslo region and on larger shopping centres. 2000 saw the sale of two properties in Tromsø, one property in Drammen and a smaller property in Oslo. New investments included two new properties at Hoffsveien 1 in the Skøyen area of Oslo. The current strategy represents a lower level of risk in respect of the overall property portfolio.
Fixed income 7.88% +0.22% Norway 5.94% +0.10% International 11.36% +0.63% Money market 6.38% +0.13%
Market position Storebrand Bank currently serves approximately 370,000 retail customers in the areas of life insurance, mutual funds and banking. Storebrand has a strong market position in a number of product areas for the retail market, including a 32% share of the market for life insurance and a 22% share of the unit-linked market. The group's position in the market for equity funds at the close of 2000 showed a market share of 23.7% of net inflows and 10.4% of outstanding volumes. The retail market makes a significant contribution to these figures for market share.
Net Interest Income Net interest income showed an increase of NOK 68.8 million to NOK 208.1 million. The increase in net interest income reflects both higher interest margin and overall growth in assets. Interest margin for Storebrand Bank AS increased from 1.50% in 1999 to 2.00% in 2000. The increase in interest margin was driven by higher product margins and sales of equity index bonds. The positive contribution of these factors was to some extent offset by a reduction in the proportion of lending funded from deposits. The bank's deposit customers and its mortgage lending are to all practical purposes on floating rate terms. Other interest-bearing assets and liabilities have short interest fixing periods.
Other Income Total non-interest income showed a significant increase from NOK 61.8 million in 1999 to NOK 362.6 million in 2000. The increase should be seen against the background of the concentration of all the Storebrand group’s distribution activities for the retail market into Storebrand Bank with effect from 2000. Net commission income increased from NOK 21.5 million to NOK 55.5 million as result of sales of equity index bonds and growth in overall customer numbers. Increased interest rates caused a loss of NOK 1.2 million on securities whereas 1999 saw a gain on securities of NOK 4,9 million. Other sources of non-interest income, principally commissions earned on the distribution of life insurance products, mutual funds products and unit linked products, increased from NOK 35.8 million in 1999 to NOK 308.9 million in 2000.
ced by NOK 27.0 million for the year, realised loan losses amounted to NOK 11.2 million and writebacks in respect of amounts previously written off represented an income of NOK 31.5 million. Net non-performing loans and problem loans amounted to NOK 96.6 million at the end of 2000. The shareholding in BOS Finans has been written down to zero since the company's losses have exhausted its equity. The process of re-capitalising the company is underway.
Deposits from customers, principally retail customers, increased by NOK 510 million to NOK 5,666 million at the close of 2000. The moderate increase in deposits should be seen in connection with the success of sales of equity index bonds. The loan to deposit ratio fell to 62% as compared to 76% a year previously.
The bank's non-deposit funding increased significantly in 2000 as result of the strong growth in lending, slower growth in deposits and sales of equity index bonds. Interbank borrowing was reduced over the course of the year to NOK 230 million at year-end, while certificates issued increased from NOK 975 million to NOK 2,365 million at year-end. A total of NOK 250 million was raised by issuing bonds during 2000, and bonds outstanding at year-end totalled NOK 1,434 million.
Storebrand Bank has a credit facility of NOK 1,000 million which expires in 2004.
Capital base consists entirely of core capital, made up of NOK 125.0 million of share capital, NOK 469.7 million of share premium reserve,
NOK 184 million of other equity and deductions of NOK 102.8 million in respect of intangible assets and NOK 4.6 million for over-funded pension liabilities.
Storebrand Bank will continue to invest significant resources during 2001 in developing the bank's advisory concept and increasing the numbers of financial advisers employed, as well as in marketing and launching new products and customer programs.
The Storebrand Bank group expects to achieve an increase in earnings in 2001. The improvement in the operating profit seen for Storebrand Bank AS in 2000 is expected to continue, however the scale of write-backs of loan losses in Storebrand Finans is expected to reduce over time.
Finansbanken ASA and its subsidiaries produced a consolidated profit before loan losses and provisions for 2000 of NOK 313.1 million (NOK 240.1 million in 1999) equivalent to 1.78% of average total assets. Loan losses and provisions amounted to NOK 294.9 million (NOK 72.5 million), and consolidated profit after loan losses and provisions was NOK 18.2 million (NOK 167.6 million in 1999), equivalent to 0.10% of average total assets. After tax of NOK 13.4 million, the bank reported a profit for the year of NOK 4.8 million (NOK 119.4 million) equivalent to a post-tax return on equity of 0.4%.
A total of 194 employees (94) were employed at year-end, representing 191.7 full time equivalent positions (90).
Non-interest income increased in 2000 to NOK 161.7 million (NOK 41.7 million). The parent bank saw significant growth in non-interest income. Net gains on securities and foreign exchange for the parent bank contributed NOK 17.7 million (NOK 15.4 million), and net income from commissions and banking fees contributed NOK 15.7 million (NOK 11.9 million). However the bank's asset management companies were the main reason for the growth in non-interest income seen in the year. Finansbanken Index ASA, purchased at the start of 1999, reported non-interest income of NOK 45.4 million before consolidation, and the Delphi Group, which was consolidated with effect from 1 January 2000, produced noninterest income of NOK 74.1 million.
Operating expenses amounted to NOK 249.7 million in total (NOK 128.8 million), equivalent to 1.42% of average total assets or 44.4% of total operating income. The increase in costs largely arose as a result of the consolidation of the Delphi Group (from 1 January 2000) and Den Københavnske Bank (from 30 June 2000). There was also a significant increase in costs in respect of the introduction of private banking and costs rose in general as a result of increased activity.
Balance sheet Gross lending to customers increased over the course of the year by NOK 4.5 billion, representing growth of 36%. Growth in real estate financing was the main cause of this increase, although securities financing also showed an increase. Given the level of transactions in progress, the bank expects growth in lending to continue at its current pace some way into 2001 and to then level off. Deposits from customers increased by 50% in 2000 to NOK 8.4 billion (NOK 5.6 billion). Finansbanken enjoyed steady growth in total assets over the course of the year. Deposits from customers increased significantly, and the ratio of deposits to lending now stands at 50% of net lending as compared to 46% at the end of 1999. The bank funds its lending from normal customer deposits, the issue of securities and money market borrowings in Norway and the international interbank markets. The bank has for some time focused particular attention on its funding and equity structure in order to achieve
% o f a ve ra ge to ta l a ss ets
a more long-term funding base and thereby secure strong liquidity. Funding will be less dependent on borrowing from the short-term money market in the future. Total assets at the end of 2000 amounted to NOK 20.1 billion (NOK 13.9 billion).
Specific loan-loss provisions were increased in 2000 by a net NOK 235 million (NOK 63 million). In addition general loan-loss provisions were increased by NOK 60 million, bringing the general loan-loss provision at year-end 2000 to NOK 168 million, equivalent to 0.99% of gross lending.
• Pohjola pulled out of the If co-operation on 16 May 2000
Storebrand's involvement in non-life insurance comprises the activities of Storebrand Skadeforsikring AS and its subsidiaries, and the Danish company Fair Forsikring AS.
Storebrand Skadeforsikring AS is wholly owned by Storebrand ASA. In 1999 Storebrand and Skandia entered into an agreement to establish a joint non-life insurance company, and Pohjola joined this agreement at a later date. The group's nonlife insurance activities were accordingly spun-off into the Nordic non-life insurance company If Skadeförsäkring. This caused a change in the role of Storebrand Skadeforsikring from being an operational non-life insurance company active in the Norwegian market to becoming the part-owner of a Nordic non-life insurance company. Pohjola pulled out of the If co-operation in spring 2000, and this led in due course to an amicable settlement being agreed between Pohjola, Skandia and Storebrand. The agreement reached had no direct accounting effect on Storebrand in 2000.
The weak earnings reported for 2000 reflect lower profitability at If. If reported an operating loss of SEK 989 million in 2000 (figures quoted refer to the entire company), which is SEK 432 million weaker than the pro forma operating result for 1999. Profitability benefited from an improvement in the technical result, and the combined ratio for the year was 110.2. This represents an improvement of 9.8 percentage points from the pro forma results for 1999, largely caused by the beneficial effect of increases made to prices in 1999 and 2000, a somewhat lower frequency of major claims and a 1 percentage point reduction in the cost ratio1. All market areas reported an improvement in combined ratio. Weak stock market conditions had a negative effect on the company's profitability. Total investment return amounted to 3.6 percent, which was nonetheless better than the relevant benchmark indices. Storebrand's 44 percent ownership interest in If is recognised in the accounts in accordance with the equity method. The effect on Storebrand’s accounts for the year was a loss of NOK 307 million after tax, goodwill depreciation and the recognition of deferred income.
Storebrand Skadeforsikring's other activities produced an operating profit of NOK 271 million. In addition to a good net investment return of NOK 167 million for Storebrand Skadeforsikring AS, the subsidiary companies Oslo Re and Europeiske Reiseforsikring contributed NOK 96 million and NOK 8 million respectively.
Share of results - If (44%) -307 Non life insurance - other 167
Oslo Reinsurance Company ASA 96 Europeiske Reiseforsikring AS 8 Fair Forsikring (50%) -36
Change in security reserve etc. 336 155 Profit on sale of non-life insurance activities - 3,230
Claims profit 86.8% 95.6% Cost ratio 23.4%**) 24.4% Combined ratio 110.2%**) 120.0%
*) Proforma figures since company was first incorporated with accounting effect from 1.3.1999.
Share capital and shares Storebrand ASA’s share capital at the start of year 2000 was NOK 1,387.2 million. Following a new issue of shares for employees of NOK 585,000 in July 2000, share capital at 31 December 2000 amounted to NOK 1,387,736,610 made up of 277,547,322 shares each of nominal value NOK 5.
Stock exchange listing Storebrand’s shares are listed on the Oslo Stock Exchange and have the following symbol: STB
Shareholders No single investor is permitted to hold more than 10% of the shares in a financial institution. However banks may, with the approval of the authorities, have a holding in excess of 10% where this relates to their role as a manager of shares.
Storebrand ASA still has one of the largest numbers of shareholders of all companies listed on the Oslo Stock Exchange. The company has shareholders from all the municipalities in Norway and from 37 foreign countries
The Board has decided to recommend to the Annual General Meeting be held on 25 April 2001 that in view of the company’s profit for 2000 a dividend of NOK 1.10 per share should be paid. Subject to the Annual General Meeting approving this proposal, the dividend will be distributed on 11 May to those shareholders registered in the company’s share register as of the date of the Annual General Meeting.
Risk adjustment The following paragraph is not included in the original Norwegian Annual Report and is included here by way of explanation for the international reader: There are particular rules for shareholders resident in Norway relating to the taxable gain or loss on the sale of shares. When shares in Storebrand ASA are sold by shareholders resident in Norway the acquisition price has to be adjusted by a socalled RISK amount when calculating the taxable gain or loss. The RISK amount is calculated annually and is related to the change in retained capital for the year. Foreign shareholders are subject to the tax regulations of their own domicile and are not affected by the Norwegian RISK regulations.
The information provided in the Norwegian Annual Report for the purposes of shareholders resident in Norway is as follows: As at RISK amount
Skandinaviska Enskilda Banken *) Stockholm 29,215 10.53 Folketrygdfondet Oslo 27,672 9.97 Orkla ASA Oslo 27,649 9.96 Steen & Strøm Invest ASA Oslo 17,500 6.31 The Chase Manhattan Bank London 14,316 5.16 Canica AS Oslo 10,000 3.60 Nordstjernen Holding AS Oslo 7,410 2.67 Hartog & Co. A/S Oslo 7,000 2.52 DnB Markets Oslo 6,982 2.52 Bankers Trust Co. New York 6,257 2.25 State Street Bank & Trust Co. Boston 6,116 2.20 KLP Forsikring Oslo 4,994 1.80 The Northern Trust Co. London 4,255 1.53 Morgan Stanley & Co. London 4,224 1.52 Euroclear Bank S.A./N.V. Brussels 3,987 1.44 Vital Forsikring ASA Bergen 3,768 1.36 Commerzbank AG Frankfurt 2,634 0.95 Deutsche Bank AG Eschborn 2,522 0.91 Gjensidige NOR Spareforsikring Lysaker 2,441 0.88 Salomon Brothers International London 2,439 0.88
Reserves for other risks and costs 66.4 54.9 Deferred tax 10 22.4 Allocated for dividend 305.3 277.4
Insurance premiums for own account 9,595.9 10,529.5 9,099.4 Interest and related income - banking 19 2,270.2 923.4 291.6
Net profit from non-life insurance 301.6 460.6 To (from) market value adjustment reserve 5,598.2 -5,868.4 2,007.9
Conditional additional statutory allocations - life insurance -450.9 Funds allocated to policyholders - life insurance -3,500.5 -4,180.9 -1,285.5
Properties and real estate 26 10,994.8 10,234.6 Interests in associated companies 35 3,445.5 5,110.0 Shares and other equity investments - long term holdings 28 36.0 43.7 Bonds held to maturity 30 27,402.3 25,124.8 Net loans to customers 33 27,697.0 22,209.7 Other long term financial assets 31,32 4,525.0 2,617.9 Shares and other equity investments 28 36,287.6 38,705.3
Insurance reserves - life insurance 103,596.3 99,553.2 Premium and claims reserve - non life insurance 747.5 809.5 Security reserve etc. - non life insurance 779.1 1,112.5
Net movement in cash and cash equivalent assets -197.4 139.2 1,709.4 -1,887.9 Cash and cash equivalent assets at start of the period for new companies 331.9 Cash and cash equivalent assets at start of the period 326.4 187.2 3,226.2 4,782.2
RECONCILIATION: Tax paid in the period 2.2 -8.7 Gains/losses on sale of fixed assets -0.1
Net cash flow from operational activities for the year -398.9 -260.7 7,131.8 9,035.0
Respective Responsibilities of the Directors and Auditors We have audited the annual financial statements of Storebrand ASA as of 31 December 2000, showing a profit of NOK 1,954.7 million for the parent company and a profit of NOK 705.7 million for the group. We have also audited the information in the Board of Directors’ Report concerning the financial statements, the going concern assumption and the proposal for the allocation of the profit. The financial statements comprise the balance sheet, the statements of income and cash flows, the accompanying notes and the group accounts. These financial statements are the responsibility of the company's Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on the other information according to the requirements of the Norwegian Act on Auditing and Auditors.
Basis of Opinion We have conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and good auditing practice in Norway. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and good accounting practice and audit also comprises a review of the management of the Company's financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion.
• the information in the Board of Directors' report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit are consistent with the financial statements and comply with the law and regulations.
*) Applies to the formal sections of the annual financial statements and the Board of Director's report as set out on pages
Control Committee's Statement - 2000 The Control Committee of Storebrand ASA has reviewed the Board of Directors' proposed Annual Report and Accounts for 2000 for the Storebrand Group.
With reference to the auditor's report of 20 February 2001 the Control Committee recommends that the Annual Accounts proposed be adopted as the Annual Accounts of Storebrand ASA and the Storebrand Group for 2000.
Board of Representatives' Statement 2000 The Board of Directors' proposal for the Annual Report and Accounts, together with the Auditor's report and the Control Committee's statement have, in the manner required by law, been presented to the Board of Representatives. The Board of Representatives recommends that the Annual General Meeting approve the Board of Directors proposal for the Annual Report and Accounts of Storebrand ASA and the Storebrand Group.
Sales costs (insurance) -304.7 -298.6 -283.1 Insurance related administration costs -479.9 -456.7 -435.2
Properties and real estate 10,907.2 10,103.4 Receivables due from/securities issued by group companies 97.4 135.6 Shares and other financial investments - long term holdings 67.4 69.4 Bonds held to maturity 27,402.3 25,124.8
Shares and other equity investments 35,180.3 37,255.8 Bonds and other securities - fixed yield 28,043.5 33,123.4
Note 4: Remuneration of officers of the company, non-executive 56 officers and auditors
Note 14: Senior executives, non-executive officers and other connected parties 60
Investments considered to be of strategic importance where the group owns between 20% and 50% of the voting capital (associated companies), are consolidated in accordance with the equity method. This implies in general terms that the ownership interest is recognised in the accounts in line with the consolidation principles described in this section, but is presented as a single line in both the profit and loss account and balance sheet ("single line consolidation").
Approval of the acquisition of subsidiaries by the authorities Financial institutions require approval from the authorities when they acquire other companies. Such new subsidiaries are not normally consolidated until such time as the required licence is granted, but the recognition of surplus value and its application is carried out with effect from the date of the transaction. Profit and loss recognised in the company acquired in the period between the date of the transaction and the date the licence is granted is applied directly to the group's capital.
Minority interests In the profit and loss account, the minority interests' share of the profit after tax is stated. This means that all items in the profit and loss account include minority interests.
Tax payable is calculated on the basis of the taxable profit for the year. Deferred tax/tax allowances are calculated on the basis of timing differences between accounting and tax values as well as the tax effects of the loss and unused allowances carried forward.
Net deferred tax allowances are recorded in the balance sheet to the extent that it is considered likely that it will be possible to make use of the benefit they represent at some future date.
Prepaid pension is the difference between the actual value of the pension funds and the present value of estimated pension liabilities, and is booked as a longterm asset in the balance sheet. Correspondingly a long term liability arises in the accounts when the pension liability is greater than the pension funds. A distinction is made between insured and uninsured schemes. The uninsured scheme will always be entered as a liability, as such a scheme does not have a pension fund.
Accounting principles account existing and future losses of income as a result of vacancy, necessary investments and an assessment of the future development in market rents. The yield requirement is based on the expected future riskfree interest rate and an individually determined risk premium, dependent on the letting situation and the building's location and standard.
Real estate directly owned by Storebrand Livsforsikring AS Due to the relationship with life insurance customers the rules for the treatment of real estate in the accounts differ as between the life insurance business and the Group's other businesses.
The provisions of new regulations require that properties and real estate are valued at market value in the accounts. Market value must be determined at least once every three years. Changes in valuation are recognised to profit and loss.
Specific loss provisions are intended to cover calculable losses on facilities which are identified as exposed to the risk of loss at the balance sheet date. In the event that a borrower becomes insolvent, enters into a composition with its creditors or is wound up, the value of any collateral security forms the basis for estimating possible losses. In other cases of default the borrower's financial situation, including the capacity to service indebtedness, and the value of collateral security form the basis for estimating possible losses. A facility is defined as being in default if 90 days have passed since the facility went into arrears or an unauthorised overdraft arose and the arrears or overdraft have not been remedied, or if the borrower is subject to winding up or a composition with creditors. The possibility of loss is also considered when other conditions affecting the borrower such as weak liquidity, excessive gearing or weak earnings, or the value of collateral security, suggest that there is a risk of loss. The specific loan loss provisions considered necessary are established accordingly.
General loss provisions are booked to cover losses which, due to matters existing on the balance sheet date, must be expected to occur on facilities which have not been identified and valued in accordance with the rules for specific loss provisions. The provisions are made on the basis of past experience and sector data and by applying an annually reviewed risk classification system, which appraises the borrower and the value of any collateral security.
Bonds to be held to maturity Bonds classified as to be held until maturity are managed in accordance with the Banking, Insurance and Securities Commission’s guidelines. Such bonds are booked at cost price at the time of purchase. Premiums/discounts in relation to par value are amortised over the bonds' remaining term and recorded in the profit and loss account as an interest element.
Bonds in default are valued in line with the Banking, Insurance and Securities Commission's guidelines for loans.
Bonds held as current assets Bonds held as current financial assets are booked at market value, which is the last known traded price. In the case of securities where no traded price is available, a price is calculated on the basis of the yield curve for the particular sector.
Financial derivatives Financial derivatives form an integrated part of Storebrand's management of the risk and return profile of share and bond portfolios.
The various categories of financial derivative are described in "Terms and Expressions" on page 77.
Financial current assets denominated in foreign currency are to all practical intent currency hedged through forward foreign exchange transactions. The overall valuation of such financial current assets and the associated currency hedging transactions requires that forward foreign exchange contracts are booked at market value in order to be consistent with the use of exchange rates at 31 December in the valuation of foreign currency items.
Subordinated loans are also hedged through the use of forward foreign exchange transactions. The accounting treatment is the same as that for currency hedging of financial current assets. In addition subordinated loans which have interest rates fixed for long periods are hedged against interest rate movements through interest rate swaps. The market value surplus to the interest accrued on interest rate swaps used to hedge subordinated loans is not capitalised in the accounts, and in the same way any premium or discount on subordinated loans is not capitalised.
Share and interest rate options Option premiums are capitalised at market value when an option is purchased or sold. Options are realised when they expire, are exercised or are closed out by a matching and opposite transaction.
Premium reserve in the insurance fund The premium reserve represents the cash value of the company's total insurance obligations in accordance with the individual insurance agreements after deducting the cash value of future premiums. The calculation principles are set out in the Insurance Activities Act. The calculations are made by an actuary.
Additional statutory allocations in the insurance fund Additional statutory allocations are a conditional reserve, allocated to customers, which is booked to the profit and loss account as a mandatory reserve allocation. The maximum additional statutory allocation is set at the difference between the premium reserve, calculated on the basis of 3.5% guaranteed yield on basic premium amounts, and the actual guaranteed yield in the contracts. In addition maximum limits apply in respect of individual contracts.
Security fund The security fund consists of statutory security allocations to cover unexpected insurance risks. The calculations are made in accordance with regulations published by the Banking, Insurance and Securities Commission.
In addition employers' social security contributions in respect of the uninsured scheme totalling NOK 5.7 million were charged to profit and loss in 2000.
Deviations from estimate are booked against the "corridor" in accordance with Norwegian Accounting Standards, and are not reflected in the balance sheet or profit and loss account. (See Accounting Principles). Note 22 also provides a more detailed description of the pension schemes provided by Storebrand and their accounting treatment. The estimated employer's social security contributions in respect of uninsured pension liabilities amounts to NOK 48.1 million and is included as part of the "Reserves for other risks and costs" item in the balance sheet. The calculations are in respect of 62 employees and 2,340 pensioners. Pension funds and pension liabilities in respect of pensioners were allocated to Storebrand ASA in 2000.
Ordinary wages and salaries 92.8 287.1 274.1 Employer's social security contributions 25.3 59.0 56.4
Note 4: Remuneration of officers of the company, non-executive officers and auditors
Other taxable benefits **) 117 371 8,644 Pension cost **) 157 873
**) Figures for 2000 relate to Idar Kreutzer. ***) The Control Committee covers all the Norwegian companies in the group which are required to have a Control Committee, except for Storebrand Bank AS, Finansbanken ASA and Oslo Reinsurance Company ASA which have their own Control Committees.
Effective tax rate for accounting purposes **) The effective tax rate for accounting purposes for 2000 is 13.4%. The deviation from the nominal rate of 28% is mainly due to dividend and group contribution received from subsidiaries and first recognised in the profit and loss account the following year. In addition NOK 800 million of dividends were recognised to income in 2000 which give rise to a tax credit and therefore have no effect on the tax charge.
Profit before tax 2,254.7 1,333.6 503.7 + Prior year dividend from subsidiaries 0.8 371.8 193.3 - Current year dividend from subsidiaries -530.6 -0.8 -371.8 - Non-taxable group contribution -647.9
Tax base for the year 1,608.6 846.8 406.3 - Tax losses carried forward -428.5 -406.3
International shares and fund units Vovi-Beteilungs (Neiv) (Germany) 13 7.5 7.7 FSN Capital Holding (United Kingdom) 1,167 9.2 8.9 Nycomed Amersham (United Kingdom) 30,000 1.9 2.2 Stolt-Nielsen B (Luxembourg) 12,100 1.9 1.7 Atlantic Container Line (Sweden) 31,400 3.3 3.0 SAS Sverige (Sweden) 20,000 1.4 1.7
Subordinated loan Storebrand ASA has granted a subordinated loan to Fair Financial Ireland Ltd. of DKK 117 million. Interest is charged on the loan at 12%.
Deferred tax/deferred tax allowances in the balance sheet 22.4 145.9 -168.3 *) Amount calculated to be equivalent to losses carried forward. Unused allowances deductible from tax total NOK 243 million (28% of losses carried forward).
Share capital at 1.1 1,387.1 1,385.7 New share capital (employee issue) 0.6 0.6 1.4 1.4
Group contribution paid -338.8 Dividends received booked directly against equity 470.5 Interest -39.1 Profit for the year 1,954.7 1,157.3 Allocated to dividend -305.3 -277.4 Other capital movement 87.8 1,868.9 840.8
Storebrand ASA (drawn down in June 1993) 1,800.0 NOK 8.5% 2003
Control Committee Nils Erik Lie 0 Brit Seim Jahre 0 Sverre Bjørnstad 2,816 Harald Moen 322 Carl Graff-Wang 0 Jon Ansteinsson 4,334
***) Idar Kreutzer was entitled upon appointment to his current position to a bonus scheme in respect of 500,000 units representing the difference between the actual share price at a future date and the allocation price. The allocation price was fixed by reference to the average share price over the week before the bonus was awarded (NOK 59.33) and will be increased by 10% annually less the effect of any dividend. The bonus may be exercised no earlier than 1 January 2004 and no later than 31 December 2004.
The Storebrand group operates a cash bonus scheme for senior management which is linked to the price of the Storebrand share. The bonus falls due for payment between two and three years from the date it is granted, and takes the form of a cash payment equivalent to the difference between the market price of the Storebrand share and the allocation price of NOK 60. The bonus scheme is hedged, and the cost so incurred is recognised to profit and loss.
Board of Representatives continues Wenche Meldahl 0 Brit Seim Jahre 0 Svein Rennemo 0 Tore Lindholt 156 Anders Renolen 0 Johan H. Andresen jr. 0 Per Alm Knudsen 150 Tor Haugom 5 Ann Jeanette Magnussen 689 Pål Ersvik 0 Inger Anne Strand 248 Per Ivar Laneskog 0 Alf Bruun 685 May Molderhauer 115 Paul Eggen jr. 685 Anne Sofie Oseid 0
No loans have been made to any member of the Control Committee, and loans to the Board of Representatives total NOK 11.2 million.
Følgende garantier er stillet av Storebrand ASA: 1) Institute of London Underwriters (ILU) GBP No specified amount 0 2) Aon Norway AS NOK No specified amount 0 3) Norges Bank NOK No specified amount 0 1) Counter indemnity of Oslo Reinsurance Company ASA (formerly UNI Storebrand International Insurance AS). 2) Contingent liability in respect of AS DUO which ceased trading on 07.06.1993. Liability is not specified and is not considered to be material.
3) Guarantee issued in respect of management of the Norwegian Government Petroleum Fund.
Profit and loss account items: Group contribution from subsidiaries 1,268.0 Dividends from subsidiaries 1,330.7 Purchase and sale of services (net) 306.9
Balance sheet items: Long term debt within the group 328.7 Net accounts payable and receivable (inc. group contribution) 1,492.5
Other costs - life insurance -10,049.3 -10,049.3 Net result - non life insurance 301.6 301.6
Explanatory note: Life insurance comprises: Storebrand Livsforsikring Group, Storebrand Fondsforsikring AS, Storebrand Helseforsikring AS, Storebrand Systemutvikling AS and Euroben Asset management comprises: Storebrand Kapitalforvaltning ASA, Storebrand Fondene AS and Storebrand Investment Management AS. Figures for Finansbanken include Storebrand ASA's depreciation of goodwill, and figures for profit relate to the period 1.8.99 to 31.12.99. Non-life insurance includes Fair Forsikring. Other includes Storebrand ASA. Other costs-life insurance relates to changes in the market adjustment reserve and funds allocated to policyholders.
Other costs - life insurance -6,165.3 -6,165.3 Net result - non life insurance 187.8 187.8
Change in specific loan loss provisions for the period 1.7 23.4 -150.9 -125.8 8.1 33.9 Change in general loan loss provisions for the period 1.2 3.6 -60.0 -55.2 23.9 14.6 Realised losses on loans where specific provision has previously been made -10.9 -78.7 -89.6 -16.1 -5.5 Realised losses on loans where no specific provision has previously been made -0.5 -0.3 -21.2 -22.0 -2.6 -8.9 Recovery of loan losses realised previously 0.6 31.5 16.0 48.1 31.4 45.8
Loan losses and provisions for the period 3.0 47.3 -294.8 -244.5 44.7 79.9
Total interest and related income 876.5 501.4 291.6 1,393.7 422.0 2,270.2 923.4 291.6
Total interest and related expense -698.7 -394.5 -232.0 -992.6 -281.2 -1,691.3 -675.7 -232.0
Valuation adjustments - interest bearing instruments -0.1 -0.1 Write-down of real estate -393.6 -163.8 -393.6 -163.8 Loss on sale of shares -9,925.3 -4,202.5 -6,230.6 -9,994.4 -4,206.8 -6,234.2 Loss on sale of interest bearing instruments -4,314.6 -3,166.7 -3,890.2 -4,332.7 -3,166.9 -3,890.2 Unrealised loss on shares -6,290.5 -1,986.7 -7,168.3 -2,013.3 Unrealised loss on interest bearing instruments 692.3 -21.2 692.7 -0.7 -21.2
Total costs of financial assets -20,588.3 -7,943.7 -12,438.5 -21,592.3 -7,730.7 -12,357.9
Total net income from financial assets 3,365.5 15,176.0 3,247.3 3,381.8 15,830.3 3,303.7 *) Of which administration costs -15.0 -13.4 -13.4 **) Of which administration costs -129.9 -126.9 -85.2
Administration costs are included in the line for operating costs in the group accounts and are netted in the group column in the above table. ***) Group figures include Storebrand Fondsforsikring AS, Storebrand Helseforsikring AS, Storebrand Skade, Euroben, Fair and intra-group netting.
Expected return on pension funds 214.7 214.7 140.0 261.4 Deviation from estimates -2.5 4.3 1.8
Calculated liability Shown on the next page is a reconciliation of the estimated pension liabilities, and the pension funds held in respect of these, to the liability booked in the balance sheet: Note 22: Pension costs and pension liabilities
Security Fund's base amount (G) 3.0% – Annual pension increase 2.5%
Actuarial assumptions: – Standardised assumptions on mortality/disability and other demographic factors as produced by the Association of Norwegian Insurance Companies.
Delphi Forvaltning AS Finansbanken 17.2 -1.1 14% Delphi Aktiv Forvaltning AS Finansbanken 36.3 -6.0 14% Delphi Fondsforvaltning AS Finansbanken 36.3 -6.0 14% Delphi Investors Service AS Finansbanken 9.7 -2.4 20% Den Københavnske Bank AS Finansbanken 25.1 -1.9 14% Viken Kapitalforvaltning Finansbanken 0.8 -0.9 20% Delphi Fondsforvaltning Finansbanken 0.7 -0.6 20%
Company Den Københavnske Bank 30.06.00 Cost 100% 156.6 27.0 25.1 Delphi Forvaltning AS 31.07.00 Cost 11% 25.3 18.3 17.2 Delphi Aktiv Forvaltning AS 30.06.00 Cost 89% 57.2 42.3 36.3 Delphi Fondsforvaltning AS 30.06.00 Cost 89% 57.2 42.3 36.3 Delphi Investor Service AS 30.06.00 Cost 89% 16.4 12.1 9.7 Morningsstar Norge AS 01.10.00 Equity method 50% 3.3 E*Trade AS 30.06.00 Equity method 33% 32.7 24.2 21.8 Finansbanken Index ASA 01.06.00 Cost 19% 10.5 7.8 6.3
Net pensions liability as per balance sheet 526.3 -411.2 -131.0 -15.9 -188.3 -179.7 *) Deviations from estimate are booked against the "corridor" in accordance with Norwegian Accounting Standards, and the excess is amortised over the remaining service-period for the employees. (See Accounting Principles). Estimated employer's social security contributions in respect of uninsured pension liabilities amounts to NOK 64.8 million and is included in the balance sheet under 'Reserves for other risks and costs'.
*) Tax expressed as a percentage of pre-tax profit (effective accounting rate of tax) is 17.7%. This percentage will vary considerably from year to year as result of differences in the effective accounting rate of tax in subsidiaries and as result of the share in the results of If being accounted for in accordance with equity method.
Norwegian banking and finance shares Bolig- og Næringsbanken 487.7 50.00 164,800 1.69% 31.1 32.1
Type of property Office premises (inc. commercial premises, parking and storage) 5,882.6 1,249 4.3 361,115 99.0% Shopping centre (inc. parking and storage) 4,534.4 1,125 3.9 332,938 97.7%
Revaluation/write-down for the year and reversals of same 82.8 82.8 Ordinary depreciation for the year -1.3 -132.2 -133.5
Equity fund units (Norwegian) FSN Capital Limited Partnership 1 617,000 4.9 5.1
Share Par value Shares Interest Acquisation Market NOK million capital NOK held cost value
Recognised to P&L in 2000 -297.0 -9.9 -306.9 Return of capital -1,410.4 -1,410.4 Currency translation 13.3 13.3
Storebrand's share in the goodwill of If is to be depreciated over 20 years on the basis of the expected long-term earnings perspective.
Loans and deposits from financial institutions on demand or with no fixed maturity date 13.8 13.8 6.4 Loans and deposits from financial institutions with agreed notice period or fixed maturity date 230 4,036.7 4,266.7 3,110.4
Booked directly to balance sheet/items not giving rise to balance sheet entries -180.2 -606.2 426.0
**) Difference between this and movement in profit arises from items applied directly to the balance sheet and items which do not give rise to balance sheet entries.
Lender/date drawn down J.P. Morgan (16 bank syndicate, 11.05.1995) **) SB Life USD 120 Redeemed May 2000 131.4 Carl Kierulf, SPN Fonds, Oslo Securities (15.01.1992) SB Life 81.2 NOK 11.15% 2002 Chase Manhattan Bank, Oslo (01.12.1997) SB Life 479.8 NOK 5.89% 2007 Citibank, London (24.02.98) *)/**) SB Life 1,804.1 USD 200 7.05% Perpetual 176.2 Merill Lynch International **) SB Life 1,133.1 EUR 135 5.07% 2009 26.4 Convertible subordinated loan **) Finansbanken 9.3 8.50% Perpetual Subordinated loan, 2000-2005 Finansbanken 88.5 7.96% 2005 Subordinated loan, 2000-2005 Finansbanken 110.0 8.79% 2005 Subordinated loan, 1997-2002 Finansbanken 60.0 8.07% 2002 Subordinated loan, 1997-2002 Finansbanken 40.0 6.30% 2002 Subordinated loan, 1998-2008 Finansbanken 109.0 6.11% 2008 Subordinated loan, 1998-2008 Finansbanken 91.0 7.79% 2008 Subordinated loan, 1999-2009 Finansbanken 35.0 7.80% 2009 *) Option to redeem after 5 years.
The annual accounts have been prepared in accordance with Norwegian generally accepted accounting principles (N GAAP). The following tables provide a reconciliation between net income and shareholders’ equity in accordance with N GAAP and the same figures as they would be reported in accordance with United States Generally Accepted Accounting Principles (US GAAP) and show where the differences arise. The figures for 2000 apply only to the group’s life insurance activities, which comprise Storebrand Livsforsikring and Storebrand Fondsforsikring AS.
Capitalised contract acquisition costs Under N GAAP all costs and expenses directly or indirectly incurred in originating new insurance contracts and renewing existing policies are charged to expense as they are incurred, whilst under US GAAP these costs are capitalised and charged to expenses against the future incomes with which they are associated.
In the case of N GAAP bonds already in Storebrand’s ownership which are subsequently classified as "hold to maturity" are valued at the lowest of historic cost and market value at the time of the reclassification. Under US GAAP amortisation of any premium or discount would continue after such a reclassification.
Effect of estimated adjustments for US GAAP: Contract acquisition costs -11.9 79.7 51.9 Real estate -238.9 -401.8 -119.5 Securities 264.3 -109.9 48.8 Allocation of US GAAP differences to policyholders -1.7 283.7 -18.6 Tax effect of US GAAP adjustments -3.3 41.5 10.5
Net income - Life insurance - before the accumulated effect of new accounting principles - US GAAP 719.5 600.0 430.5
Acc. effect of new accounting principles post tax - - 77.6
Effect of estimated adjustments for US GAAP: Contract acquisition costs 1,551.8 1,563.7 Real estate -2,054.0 -1,815.1 Securities -190.5 -454.8 Allocation of income adjustments to policyholders 454.8 456.5 Market value adjustment for securities 3,334.3 9,261.3 Life insurance policyholders’ share of mark to market -2,500.7 -6,945.9 Tax effect of US GAAP adjustments 595.6 -220.6 Dividends 530.6 642.8
Life insurance activities - shareholders’ equity - US GAAP 4,950.4 5,471.8
Life insurance policyholders' participation in profits and equity movements Storebrand Livsforsikring AS allocates pre-tax profit between policyholders and shareholders. Norwegian legislation requires that a minimum of 65% of profit shall be allocated to policyholders, whilst the allocation to owners is limited to a maximum of 35% to cover capital accumulation, dividend payments and tax.
Earnings per ordinary share: The calculation of earnings per ordinary share is based on profit for the year adjusted for post-tax changes in statutory security reserves etc. in respect of non-life insurance. These statutory allocations include security, reinsurance and administration reserves, as well as the guarantee reserve. The total number of shares used in the calculation is taken as the average number of ordinary shares in issue over the course of the year. In the event of new issues of shares, the new shares are included from the date of subscription.
Tier 2 capital: Tier 2 capital is part of the primary capital and consists of the revaluation reserve and subordinated loan capital. In order to be eligible as primary capital, Tier 2 capital cannot exceed Tier 1 capital. Perpetual subordinated loan capital, together with other Tier 2 capital, cannot exceed 100% of Tier 1 capital, whilst subordinated loan capital which is not perpetual cannot exceed 50% of Tier 1 capital. To be fully eligible as primary capital, the remaining term must be at least 5 years. If the remaining term is less, the eligible portion is reduced by 20% for each year.
Annuity/pension insurance: Individual life insurance where the annuity/pension amount is paid in instalments from an agreed age, during the life of the insured. Such insurance can be extended to include spouse, child and disability pensions.
Collective pension insurance: A collective pension insurance scheme where pensions are paid in instalments from an agreed age, during the life of the insured. Such insurance normally includes spouse, child and disability pensions.
Return on capital: Return on capital shows net realised income from financial assets and changes in the value of real estate expressed as a percentage of the average of the company 's total assets over the year in accordance with rules set by the Banking, Insurance and Securities Commis-
Terms and expressions sion. The value-adjusted return on capital shows the total of realised income from financial assets, changes in the value of real estate and the year's change in unrealised gains expressed as a percentage of the average of the company's total assets over the year at market value.
Unit Linked: Life insurance offering investment choice whereby the customer can influence the level of risk and return associated with the investment element of the product by selecting in which funds assets are to be invested.
Level repayment loan: A specific form of loan repayment. Periodic payments (representing both capital and interest) on a level repayment loan remain constant throughout the life of the loan.
Share options: The purchase of share options confers a right (but not an obligation) to buy or sell shares at a predetermined price. Share options may be related to stock market indices as well as to specific individual stocks. The sale of share options implies the equivalent one-sided obligation. In the main exchange traded and cleared options are used.
Storebrand Fondsforsikring AS 100.0% NOK 38.0 Storebrand Bank AS 100.0% NOK 125.0 Storebrand Finans AS 100.0% NOK 20.0 Bertil O. Steen Finans AS 50.0% NOK 5.0
Finansbanken ASA 100.0% NOK 973.3 Finansbanken Formuesforvaltning ASA 100.0% NOK 10.0 Finansbanken Index ASA 100.0% NOK 1.0 Den Københavnske Bank AS 100.0% DKK 80.0 Industri & Skipsbanken Fonds AS 100.0% NOK 6.5 Industri & Skipsbanken Insurance AS u.a. 100.0% NOK 1.0 Industri & Skipsbanken Brokers AS u.a. 100.0% NOK 2.0 Industri & Skipsbanken Invest I AS 100.0% NOK 0.1 Skipskredittforeningen AS 100.0% NOK 0.1 Morningstar Norge AS 49.0% NOK 0.3 Grefsenkollveien 32 AS 100.0% NOK 0.1 FB Invest AS 81.0% NOK 1.0 Delphi Forvaltning AS 100.0% NOK 0.9
Storebrand Kapitalforvaltning ASA 100.0% NOK 12.0 Storebrand Investment Management AS 100.0% NOK 15.0 Storebrand Skadeforsikring AS 100.0% NOK 1,380.6 Oslo Reinsurance Company ASA 100.0% NOK 132.0 - Oslo Reinsurance Company (UK) Ltd. 100.0% GPB 26.0 If Skadeförsäkring Holding AB 44.0% SEK 640.0 Europeiske Reiseforsikring AS 100.0% NOK 7.9
The list of companies provided above is not exhaustive. Certain smaller companies and companies where Storebrand holds only a minority interest have been excluded.
Head Office: Filipstad Brygge 1 P O Box 1380 Vika N-0114 Oslo
Banking, savings and mutual funds customer centre: Life and pensions customer service: Telephone: +47 810 01 301
Oslo Reinsurance Company ASA Ruseløkkveien 14 P O Box 1753 Vika N-0122 Oslo
Storebrand Kapitalforvaltning ASA Swedish Branch Office Engelbrektsplan 2 P O Box 5541 S-114 85 Stockholm
Internet: Norden Bedriftservice Filipstad Brygge 1 P O Box 1375 Vika N-0114 Oslo
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