Superior customer experiences and efficient operations in 2015 contributed to record-high customer satisfaction and the best-ever underwriting result for Gjensidige.
Customer dividend Gjensidige’s general insurance customers in Norway received customer dividend for the sixth consecutive year. The Gjensidige Foundation paid approximately NOK
Record-high customer satisfaction Customer satisfaction continued to improve in 2015, scoring reaching the highest level since the survey was introduced in 2009. Customers who had a claim or were in touch with us for other reasons were the most satisfied.
Traffic safety campaign Launch of “Stay focused” traffic safety campaign in cooperation with the Norwegian Council for Road Safety. The campaign contributed to increased awareness of the dangers of using mobile phones while driving and won several prizes for innovative use of social media.
Digital customers The share of customers who accepted digital communication increased from 57 to 62 per cent.
App for teenagers learning to drive Tventy thousand young drivers downloaded Gjensidige’s new app, which makes it easy to register the distance driven and offers helpful hints about traffic safety. Drivers who drive 2,000 kilometers qualify for discounted car insurance from Gjensidige when getting their driver’s licence.
Claims reported online The share of claims reported online by private customers in Norway increased from 26 to 34 per cent in 2015.
Gjensidige’s market value increased from NOK 29 billion from December 2010 to
NOK 71 billion at year end 2015. The total return over the period was 255 per cent.
Gjensidige recorded a profit after tax of NOK 3.8 billion in 2015, corresponding to a return on equity of 17.4 per cent. For the general insurance operation the premium growth was 4.3 per cent and the combined ratio was 83.7 per cent. The earnings per share was NOK 7.57 and the Board has proposed a dividend of NOK 8.40 per share.
Earned premiums, general insurance NOK million 21,272.0 20,386.8 18,736.9 17,797.3 17,548.1
Claims incurred, general insurance NOK million (14,597.5) (14,470.4) (13,859.6) (12,437.7) (13,249.3)
Profit for the year NOK million 3,784.7 4,189.6 3,670.6 4 ,280.1 2,747.9
Underwriting result, general insurance 1 NOK million 3,456.9 2,862.3 2,019.6 2,607.8 1,421.0
Total equity and liabilities NOK million 129,264.4 113,982.0 108,946.3 94,207.1 88,491.9
9 Capital adequacy ratio = net subordinated capital/risk-weighted calculation basis, calculated on the basis of NGAAP for the Group. This year’s capital adequacy ratio is adjusted for the Board’s proposed dividend for the financial year 2015.
Turnover of employees, Gjensidige Forsikring % 9.6 8.7 9.7 16.6 11.6
Number of employees in the Group Persons 3,908 3,525 3,377 3,377 3,163
Average amount spent on skills development per employee NOK 17,500 1 17,5001 15,800 1 15,800 1 13,200
Participation in a training programme Days 5,524 7,400 8,900 8,900 6,200 1 Starting in 2013, the amount refers to the Group as a whole. Figures for 2012 are adjusted accordingly.
Employees per business area as at 31.12.2015 2,272 Norway 687 Denmark 738 Baltics 211 Sweden 3,686 General insurance 151 Retail Bank 71 Pension and Savings
In 2015, Gjensidige achieved new record-strong underwriting results. The market position in Norway remained stable, whereas some strengthening was seen outside Norway. The customer satisfaction at year-end was higher than ever. The finance market was demanding, but relevant products and services, good customer and risk selection, correct risk pricing and a favourable weather situation contributed to the best underwriting result in Gjensidige’s history. The Retail Bank and Pension and Savings also delivered record results.
Digitalisation had a central place in our work in 2015, both internally and in relation to our customers. Our technology and development resources were merged in a new organisational entity to ensure speedier development and the use of best practice across departments and national borders. A new phone system was introduced in summer 2015, and further development of the system in 2016 and 2017 will contribute to rationalisation and better customer experiences. The launch of our new online shop, a new app for insurance and banking services, value-adding services and digital marketing contributed to increased online sales in the Norwegian private market. More and more customers used our self-service solutions. At year-end, 62 per cent of our customers in Norway had consented to electronic communication, and 34 per cent of frequency claims from private customers in Norway were reported online in 2015. Our private customers now get advice and tips tailored to their individual insurance needs when they log into gjensidige. no. Better use of customer and market data also helps us to offer even better advice when customers choose to contact us by telephone.
Digital solutions are becoming more and more important also in the commercial market, as more and more enterprises now prefer to make changes to their insurance policies themselves online. In 2015, nearly 9,000 commercial customers used our new solution to map industry-specific risks. The solution provides better insight into possible loss prevention and risk-reduction measures and will also be used for risk selection and portfolio management going forward.
Changes in customer behaviour and better utilisation of technology and data mean many new opportunities for the general insurance industry, among other things through products and services relating to smart homes and cars, health and lifestyle, and participation in new ecosystems. Gjensidige is closely monitoring developments. Many people ask us how Gjensidige will be affected by the sharing economy, where internet-based companies help customers and users to find each other and share the transaction costs associated with buying, hiring or exchanging services. We see many opportunities in this context. We will continue our work on digitalisation, product simplification and the development of value-adding services, and we will be open to new forms of partnership and collaboration. Furthermore, it is becoming more and more clear to me that Gjensidige actually has 200 years’ experience of the sharing economy; our business model has always been based on customers sharing the risk if something were to happen.
Gjensidige is market leader in the Norwegian general insurance market, where the Group has very high brand recognition and preference. Gjensidige was the leading player in Norwegian non-marine general insurance in 2015 as well, and has a solid position for further growth in the Nordic countries and Baltic states.
34.2% Private 29.7% Commercial 21.9% Nordic 2.7% Baltics 6.0% Pension and saving 5.5% Retail bank
Information is a strategic resource for Gjensidige. The work on ensuring good data quality, efficient data collection processes, availability, reporting and analysis will therefore be strengthened.
Without motivated and enthusiastic managers and employees who have the right expertise and attitudes, the strategic ambitions cannot be realised. A higher pace of change – not least as regards technology and customer behaviour – means that a transition must be made from traditional training-based competence-raising measures to a dynamic learning culture driven by individual managers and employees. Competencesharing shall increasingly take place through data- driven work processes, and an overall understanding is created through internal rotation of managers and staff.
* Dividends based on profit for the year. Excess capital distribution not included. ** Combined ratio target on an undiscounted basis, assuming ~4 pp run-off gains next 3-5 years and normalised large losses impact. Beyond the next 3-5 years, the target is 90-93 given 0 pp run-off.
Competition is strong, both from established financial players and from some smaller niche players, but Gjensidige’s competitiveness in the Norwegian private market is still good.
Digital solutions, better risk pricing and more efficient service processes were the main priorities in the Commercial segment in 2015. In connection with the work on increasing customer satisfaction and improving risk pricing, the methodology for systematic risk management was further refined.
Increased automation and simplification of the distribution model improved the customer experience and led to improved operational efficiency in the organisation.
General Insurance Private Private Norway offers a wide range of general insurance products and services in the Norwegian private market. The products are sold mainly through own distribution channels. With loyal custo­ mers and a strong brand Gjensidige is the market leader in the general insurance market for private customers.
Distribution earned premiums 44.0% Motor 27.0% Property and health 12.0% Leisure
Market shares 23.7% Gjensidige 20.0% If 13.1% Tryg 13.4% SpareBank1 29.8% Other
Outlook Gjensidige’s Nordic operations shall contribute to economies of scale, diversification of risk and increased competitiveness. The Nordic general insurance markets are relatively consolidated, but Gjensidige expects that it will be possible to grow selectively through a patient, rational approach to new opportunities. The implementation of new tariffs and steps to achieve a higher proportion of self-service will be prioritised in 2016. Focus on integrating and capitalising on business synergies in connection with portfolio acquisitions and distribution collaborations will continue, and the volatility in the Swedish portfolio will be reduced.
Following the acquisition of PZU Lietuva, Gjensidige is the second-largest general insurance company in Lithuania and the fourth largest player in the Baltic region. An improvement programme including investments in IT systems, product development, tariff programmes, distribution, CRM and claims operation is launched in order to position the Company for expected future growth and improved profitability. The Baltic operation is expected to break-even during 2017 and be profitable from 2018.
General Insurance Nordic The Nordic segment comprises the Group’s operations in the Danish and Swedich private, commercial and muni­ cipality markets. Gjensidige has own distribution in these markets, as well as distribution through a series of partners and via brokers. In Denmark the Nykredit Group is a central distribution partner. Gjensidige has a scalable business model in the Nordics, which gives a good position for further growth.
Distribution earned premiums 32.2% Motor 35.2% Property 14.1% Accident and health 4.1% Liability 5.0% Agriculture 9.4% Leisure 0.1% Other
Distribution earned premiums 55.8% Motor 18.4% Property 18.8% Accident and health 4.9% Liability 2.1% Other
Source: Insurance Sweden, based on earned premiums 2015 1.6% Gjensidige 29.8% Länsförsäkringar 18.2% If 15.4% Trygg-Hansa 16.3% Folksam 18.7% Other 6.4% Gjensidige 18.0% Tryg 17.5% Topdanmark 11.6% Codan 9.7% Alm Brand 12.5% Gjensidige 24.7% PZU 14.1% If 12.8% Ergo 11.7% BTA 24.2% Other
Outlook Pension and Savings is a priority area that helps to make Gjensidige a complete supplier of insurance and pension products. The business contributes to stronger customer relations and loyalty among the general insurance customers.
The work to secure product broadening, particularly towards the affinity customers in the general insurance operation, was central in 2015. Lending growth was high, and lending to the Group’s general insurance customers consisted 77 per cent of the total lending volume in the bank at the end of the year.
Based on a full range of banking products and attractive terms for the private market, the bank shall contribute to the Group’s growth and profitability.
Source: Finance Norway, 3rd quarter 2015, Assets under management * Unit linked
Nordic NOK million 5,430.0 4,961.4 3,991.3 Baltics NOK million 702.9 512.5 532.7 Corporate Centre/reinsurance NOK million 138.7 143.3 163.4 Total NOK million 21,975.6 21,163.8 19,631.4 Premiums, net of reinsurance 7 % 97.9 97.7 97.1 Earned premiums Private NOK million 8,152.3 8,124.1 7,799.0 Commercial NOK million 7,076.8 6,847.2 6,564.7 Nordic NOK million 5,233.3 4,762.9 3,783.5 Baltics NOK million 642.0 523.0 510.8 Corporate Centre/reinsurance NOK million 167.7 129.6 78.9 Total NOK million 21,272.0 20,386.8 18,736.9 Loss ratio 8
Pension and Savings Assets under management pension, at the end of the period NOK million 20,033.0 17,196.3 13,953.8 of which the group policy portfolio NOK million 4,877.5 4,186.8 3,553.2 Assets under management savings, at the end of the period NOK million 15,555.1 15,018.2 11,896.4 Operating margin 12 % 19.37 5.43 11.89 Recognized return on paid-up policy portfolio 13 % 5.43 4.63 4.57 Value-adjusted return on paid-up policy portfolio 14 % 5.42 4.63 4.67 Customers with insurance agreements at the end of the period % 84.5 84.6 84.6 Return on equity before tax 2 % 14.1 7.8 9.7 Return on equity after tax 2 % 10.0 5.7 6.8
4 Solvency margin capital is the sum of Gjensidige Forsikring ASA’s primary capital, according to the capital ratio calculation, and other solvency margin capital, which in
A total dividend of NOK 8.40 per share is proposed for the 2015 financial year. Of this amount, NOK 6.40 is based on the profit for the year after tax. This corresponds to 84.5 per cent of the profit after tax. The remaining NOK 2.00 per share is related to distribution of excess capital and contributes to ensuring an optimal capital structure.
The Gjensidige share yielded a total return of 22 per cent in 2015. At year-end Gjensidige was the seventh largest company listed on Oslo Stock Exchange, with a market cap of NOK 71 billion. Earnings per share was NOK 7.57 in 2015, and the Board has proposed a dividend of NOK 8.40 per share.
Ownership At the end of 2015, Gjensidige had about 33,000 shareholders. The 20 largest shareholders held a total of 85.1 per cent of the shares in Gjensidige.
The Gjensidige Foundation is the largest shareholder, with a holding of 62.2 per cent. In its Articles of Association, the Gjensidige Foundation has stipulated to have an ownership in Gjensidige of at least 60 per cent, and shall contribute to stable ownership and predictability.
The Foundation expresses a willingness to consider reducing the holding in the event of any acquisitions or capital increases that are in accordance with Gjensidige’s overall strategy.
Per cent 3 Deutsche Bank 4.2 4 Caisse de Depot et Placement du Quebec 2.5 5 Danske Bank 2.3 8 Safe Investment Company 0.9 9 Thornburg Investment Mgt 0.8 10 State Street Corporation 0.8 11 Vanguard Group 0.7 12 JPMorgan Chase & Co 0.6 13 Fidelity Worldwide Investment (FIL) 0.5 16 Genossenschaftliche FinanzGruppe Volksbanken Raiffeisenbanken 0.4 18 Crux Asset Mgt 0.4 19 Unigestion Asset Mgt 0.3 20 Capital Group 0.3 1 The list of shareholders is based on an analysis of the register of shareholders in the Norwegian Central Securities Depository (VPS) as at 31 December 2015, carried out by Orient Capital Ltd. The analysis maps the owners behind the nominee accounts. There is no guarantee that the list is correct. An overview of the 20 largest shareholders as specified in VPS’s register of shareholders is available in Note 27 on page 142.
Gjensidige’s object is to create value for society through safeguarding life, health and assets and by relieving customers of risk. Gjensidige shall ensure that the Group’s experience and expertise in loss prevention benefits society at large. Our activities shall contribute to a good, sustainable society characterised by respect for human rights and the environment we live in.
In line with this, Gjensidige shall contribute to safe communities where we operate and make arrangements so that our employees can demonstrate social commitment. All aspects of our activities shall be based on respect for human rights and employees’ right to meaningful work under safe conditions.
Several other chapters in this annual report are relevant to understanding how Gjensidige exercises its corporate social responsibility. The most important are: • Corporate governance. Page 35 • Note 3, Management of insurance risk and financial risk. Page 88 • Note 18, Pay and remuneration. Page 132 • Note 27, Share-based payment. Page 143
The Company’s operations are described in more detail on page 8. Our strategy, financial targets and key figures are described on page 8 and 3, respectively. Asset management is described on page 16, and our policy for socially responsible investments is described below.
In Oslo, Gjensidige cooperates with the Church City Mission on creating a better and safer environment in the city centre, where the Company’s head office is located. On Gjensidige’s part, this cooperation involves a financial contribution to the Church City Mission and participation by our employees. In 2015, employees from several offices all over the country contributed to the Church City Mission’s knitting campaign, which is organised before Christmas every year to get people involved and raise money for a Christmas celebration for disadvantaged people.
In 2016, Gjensidige will be celebrating its 200th anniversary. Through the project ‘Gode gjerninger’ (‘Good deeds’), all the Company’s employees will be given an opportunity to spend one working day on a humanitarian cause in their local community.
Through our operations, we have acquired extensive expertise in loss prevention. This know-how shall as far as possible be used for the benefit of society at large.
When they reach the age of 23, customers who have driven claim-free for the past year or longer will be paid an amount as a reward. The longer the claim-free period, the bigger the reward.
The most important tool in the campaign is an interactive combination of video, Facebook and mobile phone, which gives the viewer a strong sense of taking part in the action. The video follows a driver who is texting, making calls and using social media while driving. Images from the viewer’s Facebook page are shown on the video, which is thereby personalised for each viewer. The viewer also receives text messages and a phone call from the driver.
The campaign was shared more than 27,000 times on Facebook, and the video had 257,000 viewings. A survey shows that one-third of those who saw the video changed their attitude to using mobile phones in cars. The campaign also reached a large audience through marketing and editorial content in the media.
We were represented on the Norwegian Financial Services Complaints Board, a broadly composed independent body with members from Norwegian society that considers complaints from customers of Norwegian insurance companies.
Through the industry organisation Finance Norway, we coordinate our dialogue with the authorities on matters concerning the financial industry. Finance Norway is also engaged in extensive work targeting schools and the general public on providing information about personal finances, economics and statistics from the financial industry.
For many years, we have been the main sponsor of the Norwegian women’s national handball team, and we also sponsor the Norwegian men’s national football team. We use these sponsorships to create activities for children and young people that can help to recruit new players into the sport and thereby promote a healthier lifestyle.
Responsible investments Our investment activities are globally oriented, and we invest in countries where respecting human rights is not a matter of course. By doing so, we risk becoming part-owner of companies that contribute to violating human rights through their production of goods and services or their treatment of employees, suppliers, the local community or other interest groups.
The Board of Gjensidige Forsikring has adopted a group policy for ethical investments. It states that our investment portfolio shall comply with internationally recognised guidelines for socially responsible investments in the following areas: • Human rights • Labour standards • The environment • Corruption • Weapons
Diversity and discrimination We work to ensure that all employees in the Group have equal opportunities for personal and professional development. We do not tolerate discrimination on the basis of such characteristics as
• gender • age • disabilities • ethnic origin • sexual orientation • religion
Recruitment and HSE procedures ensure compliance with the Norwegian Anti-Discrimination and Accessibility Act.
At year-end 2015, the number of women and men among our employees was almost exactly the same.
The Group’s Board had ten members in 2015, four of whom were women. Of the seven representatives who were not elected by and from among the employees, three were women.
Gjensidige wishes to increase the proportion of women in executive positions, and this is well known among managers at all levels. This ambition has contributed to a higher proportion of female managers over time.
We have an equality and discrimination committee that meets when necessary. The committee comprises staff from the HR department and employee representatives. It is the Group’s HSE manager who decides when to convene the committee. Employees reporting discrimination is a typical reason for holding a meeting. No meetings of the committee were held in 2015.
Gjensidige is an Inclusive Workplace (IW) enterprise and it cooperates with the Norwegian Labour and Welfare Administration (NAV) on job training for people who have been unemployed. NAV pays subsidies to employees who suffer from chronic illnesses but still manage to work. In 2015, we have had employees in job training programmes through such close cooperation with NAV.
Gjensidige has a number of measures aimed at helping to ensure that older employees can continue working until retirement age. The measures vary between countries. Examples of measures include the possibility of reduced working hours and extra holidays.
In Norway, these measures have contributed to an increase in the average retirement age.
Every year we organise the ‘Gjensidige Day’ at Gjensidige’s head office, which offers a varied programme for students. In 2015, 60 students participated in presentations, workshops, group interviews and a social event in the afternoon.
The Gjensidige Customer and Brand School is the Group’s tool for ensuring that all employees understand and have the necessary prerequisites for living up to the Group’s customer orientation strategy. All competence -raising measures are aimed at this.
All new Gjensidige employees take part in an introduction day where the CEO and other key personnel talk about the Company’s strategy, culture, brand, ethics and more practical information.
Employees who are to work with sales and customer advice take part in a more thorough program that leads to an exam where professional know-how, ethics and customer dialogue are tested. Advisers targeting the private market are certified in accordance with a national industry scheme for the sale of general insurance. The programmes are developed and organised by the Gjensidige Customer and Brand School.
The school had 5,524 course days in 2015. Almost 1,400 employees participated in courses organised by the Gjensidige Customer and Brand School in 2015.
In all, we spent NOK 17,500 per employee on competence -raising measures in 2015, the same as in 2014.
We have an active career development programme in the Company. Among other things, it facilitates internal mobility for the purpose of broadening the employees’ range of competence and experience.
Every year, we carry out a systematic process to map internal ‘successors’ and talents who have the potential to take over managerial or other key positions.
Health, safety and the environment (HSE) Systematic health, safety and environmental work is given high priority in Gjensidige. Our goal is not only to prevent sickness absence and injuries, but also to ensure that Gjensidige is a health-promoting workplace.
Our health-promoting measures include (varies from office to office): • Arrangements to facilitate cycling to work in the form of bicycle parking and changing rooms
• Gym rooms • Competitions that motivate moderate physical activity on a daily basis • Short exercise breaks during working hours • Company sports club that organises a range of activities
Special adaptation procedures have been adopted for employees who have health problems that are aggravated by computer work or who wish to prevent such problems arising. The Company has not been notified of any repetitive strain injuries in 2015.
The HSE work is monitored through external audits and followed up internally by employees with special responsibility for HSE. All incidents that can represent a risk must be reported in the Company’s nonconformity system.
In Gjensidige, we have adopted a wide definition of corruption: abusing one’s position to obtain an advantage for the company, oneself or others. The work to combat corruption requires clearly defined rules and active enforcement of the rules.
All gifts worth less than NOK 500 from external business connections to employees of Gjensidige shall be registered in a gift and hospitality register. It is not permitted to accept gifts worth more than NOK 500. Regardless of the gift’s value, it must not be accepted
if the employee’s partiality or independence can be placed in doubt. Hospitality activities must also be registered.
All managers are responsible for establishing procedures and processes in their area of responsibility in order to prevent and uncover irregularities and fraudulent acts, including corruption. The Group’s Compliance function is tasked with uncovering corruption and it is responsible for investigating concrete cases where improper conduct is suspected. The Compliance function shall also contribute to establishing and developing procedures and processes that can prevent and uncover such matters.
Money laundering and financing of terrorism In the field of insurance, Gjensidige is required to take a risk-based approach to money laundering and financing of terrorism. That means that we carry out a risk assessment in connection with the sale of insurance to new and existing customers, and the payment of claims. The risk assessment is comprehensive and is based on characteristics of the customer, the customer relationship, the product, the transaction and other matters of relevance.
In cases where there is a sufficiently strong suspicion of money laundering or financing of terrorism, Gjensidige will report the matter to the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (Økokrim).
Gjensidige does not sell insurance to customers outside its geographical core area, which is the Nordic region and the Baltic states. Any exceptions from this rule will be subject to a special assessment at management level in each individual case.
The money laundering regulations for banking and investment services deviate slightly from the insurance industry. Separate money laundering instructions have been prepared for Gjensidige Bank and Gjensidige Investeringsrådgivning, respectively. Both companies have established clear procedures for uncovering and handling suspicion of money laundering, and each of the companies has appointed a dedicated person responsible for the prevention of money laundering who follows up cases that the customer service staff cannot resolve themselves.
Underwriting policy Good risk selection is decisive for financial strength and profitability. Gjensidige’s underwriting policy is intended to provide the Company with an overview and control of its risk exposure. It is also intended to ensure that
The underwriting policy explicitly states that the Company shall not enter into insurance contracts that form the basis for the payment of claims or other benefits to states or geographical areas subject to sanctions adopted by the UN or the EU.
In 2015, Gjensidige’s customer satisfaction index (KTI) was 76.2 at group level, an increase of 1.4 from 2014. That is a very good result.
The Financial Services Complaints Board received 398 complaints from Gjensidige customers in 2015. They accounted for 12 per cent of all insurance-related complaints to the board. This must be seen in conjunction with the fact that Gjensidige had a market share of 25 per cent in 2015.
Customers and data protection Gjensidige’s employees are bound by a statutory duty of secrecy about all matters relating to our customers.
A group policy and instructions provide detailed guidelines on the processing of personal data.
The Group has data protection officers for insurance, banking, and savings and pensions, respectively. The data protection officers have an independent role and are in contact with the Norwegian Data Protection Agency and with customers and employees who have enquiries about personal data. They also have an internal control function.
Customers can request access to the information stored about them at any time, and they can demand that incorrect information be corrected. The request for access may be rejected in special cases following a concrete assessment, for example in connection with the investigation of insurance fraud.
Notifications to the internal mailbox are dealt with by the Company’s HR department based on clear procedures. Relevant matters are reported to the Group’s risk committee and the Board.
Procurements and suppliers We make equally strict ethical demands of our suppliers as of ourselves. Procurements over a certain size must be quality-approved by the Corporate Procurement department. Most purchasing agreements are the result of competitive tendering carried out in accordance with adopted guidelines. All our suppliers must sign a self-declaration on corporate social responsibility.
The environment and climate Gjensidige’s operations creates very little pollution. Our CRS policy states that the we shall ensure as little negative impact on the environment and climate as possible.
An annual environmental report is prepared for all these offices that also addresses health and safety for employees. The report contains a total of 50 points.
The offices must be recertified every third year, which is a more extensive process that is carried out by an external adviser certified by the Eco-Lighthouse Foundation.
The consumption breaks down as follows: • Electricity: 8.0 MWh • District heating: 2.4 MWh • Fuel oil: 0.6 MWh
Approximately 70 per cent of the electricity was consumed in Norway.
We help our employees to be environmentally friendly, both in the performance of their duties, as employees in general and in their free time, among other things through information published on our intranet site.
• energy saving • how to reduce the use of polluting transport and travel
Gjensidige meets all statutory requirements relating to environmental emissions. The Company did not cause illegal emissions or receive fines or other sanctions relating to the environment in 2015.
Digital customer communication improves the customer experience and contributes to reducing costs and paper consumption.
In the countries where we do business, climate change will most likely lead to increased precipitation and more frequent storms. This will increase the risk of both personal injuries and material damage. Weather data and claims incurred in the last 35 years indicate that this is already happening.
Every year, we carry out an ‘Emerging Risk’ analysis that includes risk relating to climate change. We have quantified possible costs under different scenarios, including a worst case scenario that is statistically likely to occur once every thousand years.
Statement on corporate governance in accordance with the Norwegian Accounting Act The statement on corporate governance follows the structure set out in the Act. 1. The Company complies with the Norwegian Code of Practice for Corporate Governance.
7. The provisions in the Articles of Association that regulate the appointment and replacement of board members are described in section 8 of the statement.
1. Statement on corporate governance Corporate governance is subject to an annual evalu ation and discussion by the Board. The Board discussed and prepared this statement at a meeting on 2 February 2016 and adopted it at a meeting on 9 March 2016. Gjensidige’s compliance with the individual items is also described.
This statement follows from the Norwegian Accounting Act Section 3-3b and Oslo Børs’s requirement that listed companies must report on corporate governance and explain any devia tions from the Norwegian Code of Practice for Corporate Governance as last amended on 30 October 2014.
Vision and goals Gjensidige’s vision is to know the customer best and care the most. Its mission is to safeguard life, health and assets, which has been the Company’s value basis for almost two hundred years.
Strategy A strong focus on customers is at the very core of Gjensidige’s strategy. Backed by a down-to-earth business culture and analysis-based core operations, this will give Gjensidige a competitive advantage.
• Changes in technology and customer behaviour mean that increasingly close cooperation is required between the channels. For example, more and more customers expect to be served via call centres while also being able to contact Gjensidige on the internet.
• Customers’ needs and behaviour are changing faster than ever. It is therefore decisive to reduce the time it takes to develop and launch new customer-oriented services.
Good self-service solutions combined with more automatic processes will underpin the focus on customer orientation and ensure continued cost-efficiency and competitiveness.
Without motivated, committed managers and em ployees who possess the right expertise and attitudes, the strategic ambitions cannot be realised. A higher pace of change – not least as regards technology and customer behaviour – means that a transition is needed from traditional training-based competence-raising measures to a dynamic learning culture driven by individual 36 I Gjensidige annual report 2015
Deviations from the Code of Practice: None 3. Equity and dividends Equity The Gjensidige Group’s equity amounted to NOK 23.3 billion (IFRS) at the end of 2015. The capital adequacy ratio was 17.1 per cent (for the Group), and the solvency margin was 351.6 per cent (for Gjensidige Forsikring ASA). Both capital adequacy and the solvency margin have been adjusted to take account of the Board’s proposed dividend for the 2015 financial year. The statutory capital adequacy requirement was eight per cent until 1 January 2016, when the Solvency II regulations entered into force.
At the turn of the year, the rating perspective resulted in the lowest excess capital.
Dividend Gjensidige’s goal is to distribute high, stable nominal dividends to its shareholders. It is also a goal that, over time, at least 70 per cent of the profit after tax expense will be distributed as dividend. When determining the size of the dividend, consideration will be given to expected future capital needs.
Adopted dividend for 2014 It was decided that a total dividend of NOK 3.0 billion was to be distributed for the 2014 financial year, corresponding to NOK 5.90 per share.
Proposed dividend for 2015 The proposed dividend for the 2015 financial year is NOK 4.2 billion. This corresponds to NOK 8.40 per share, of which NOK 6.40 is based on the profit for the year and NOK 2.00 represents the distribution of excess capital. The proposed dividend based on the profit for the year corresponds to 84.5 per cent of the Group’s profit after tax expense. The Board’s proposal for the distribution of dividend for the 2015 financial year is explained in more detail in the directors’ report.
Authorisations granted to the Board Gjensidige’s annual general meeting granted the following authorisations to the Board in 2015: – Authorisation to purchase own shares in the market with a total nominal value of up to NOK 1,000,000. The authorisation is valid until the next general meeting, no longer, however, than until 30 June 2016. It can only be used for sale and transfer to employees of the Gjensidige Group as part of the Group’s share savings programme as approved by the Board or to executive personnel in accordance with the remuneration regulations and the pay policy adopted by the Board. The minimum and maximum amounts that can be paid per share are NOK 20 and NOK 200, respectively. The purpose of this measure is to promote a good business culture and loyalty by making employees part-owners in the Company. The authorisation was used to buy shares in 2015. The authorisation was considered as a separate item at the Company’s annual general meeting.
Existing shareholders have pre-emption rights when new shares are issued. With the approval of at least two-thirds of the total number of votes represented at the general meeting, the general meeting can decide to set aside the pre-emption rights. Grounds must be stated for any proposal to set aside pre-emption rights, and this must be documented in the case document submitted to the general meeting.
In cases where the Board decides to issue new shares and the pre-emption rights are set aside on the basis of an authorisation, the grounds will be disclosed in a stock exchange announcement in connection with the share issue.
less demand that the case documents be sent to them by post free of charge. The minutes will be published at as soon as they are available.
– If necessary, and if the nature of the matter so requires, the whole Board and the whole nomination committee will be present at the meeting.
More information about the use of proxy and share holders’ right to have matters considered by the general meeting is provided in the notice of the meeting and at
8. Nomination committee Gjensidige has decided in its Articles of Association that the Company shall have a nomination committee consisting of four to six members elected by the general meeting. The Chair of the Supervisory Board is a permanent member if he or she has not already been elected by the general meeting. The chair and members of the nomination committee are elected by the general meeting every year.
At present, Gjensidige’s nomination committee consists of four members, including the Chair of the Supervisory Board. All members are independent of the Board and other executive personnel. Three of the members are also members of the Supervisory Board, including the Chair of the Supervisory Board. According to the rules of procedure for the nomination committee, the members should reflect the interests of the shareholders as a whole, and the Gjensidige Foundation should be represented by two members. This recommendation was followed in 2015.
As of 31 December 2015, the nomination committee consisted of the following members: – Bjørn Iversen (chair) – Mai-Lill Ibsen – Ivar Kvinlaug – John Ove Ottestad
Two representatives elected by and from among the employee members of the Supervisory Board shall take part in the nomination committee’s work on preparing the election of the Chairman of the Board and the Chair and Deputy Chair of the Supervisory Board.
The nomination committee started work on preparing for the election in 2015 already in autumn 2014. A total of 10 meetings were held in the period leading up to the elections, which were held by the general meeting and the Supervisory Board. In order to arrive at the best possible basis for its assessments, the nomination committee has had conversations with the Chairman of the Board, the board members and the CEO.
The nomination committee shall contribute to the election of competent, committed officers who focus on value creation. The objective is that together the elected officers shall be capable of challenging and inspiring the day-today management in the company’s business areas.
Deputy Chair – the Board, including the Chairman of the Board – the control committee, including the chair of the committee – the nomination committee, including the chair of the committee – external auditor
Further information about shareholders’ right to submit proposals to the nomination committee is available at
Deviations from the Code of Practice: None 9. Supervisory Board and Board, composition and independence Composition of the Supervisory Board The Supervisory Board of Gjensidige consists of 21 members or a higher number divisible by three. The employee representatives are elected for two years at a time, while the remaining representatives are elected for one year. The Chair and Deputy Chair of the Supervisory Board are elected by the Supervisory Board for one year.
• When nominating members to the Board, the principles for good corporate governance mean that emphasis should be given to the overall interests of the shareholders and to reflecting the composition of the shareholders.
Gunnhild H. Andersen (1 Jan 2015–28 May 2015) 7 of 7 785
Lotte Kronholm Sjøberg (28 May 2015–31 Dec. 2015) 5 of 6 283
Today, 43 per cent of the shareholder-elected members of the Board are women. For a more de tailed presentation of the board members, see pages 51 to 69 in the annual report and the Company’s website https:// www.gjensidige.no/group/.
The Board’s independence No member of the Company’s general management is a member of the Board. All shareholder-elected board members are independent of executive personnel. Board members Trond Andersen, Per-Arne Bjørge and Mette Rostad are appointed by the Company’s biggest owner, the Gjensidige Foundation. All board members are independent of important business associates.
Deviations from the Code of Practice: None 10. The work of the Board The work of the Board follows a fixed annual plan and is conducted in accordance with established rules of procedure. The rules of procedure are available at They set out more detailed rules for the work of the Board and how it handles matters, including what matters shall be considered by the Board, rules concerning notices of meetings and the conducting of meetings. The Board has also issued instructions for the CEO, which regulate the internal division of responsibility and tasks.
of matters relating to financial reporting. The committee shall also monitor the systems for internal control and risk management, as well as the Company’s internal audit function. The committee is also in continuous contact with the Company’s elected auditor about the auditing of the annual accounts, and it assesses and monitors the auditor’s independence; cf. Chapter 4 of the Auditors Act. The committee shall state its opinion on the election of the auditor and the auditor’s fee. The committee held seven meetings in 2015.
As of 31 December 2015, the audit committee consisted of the following members: – Gisele Marchand (chair 30.6.-31.12.) – Hans-Erik F. Andersson (chair 1.1.-30.6.) – Per Arne Bjørge – Kjetil Kristensen – Gunnar Mjåtvedt
• Drafting proposals for principles and a declaration on the stipulation of pay and other remuneration for executive personnel, employees and officers of the Company who have duties that are of material importance to the Company’s risk exposure, and other employees and officers with control tasks
Reference is otherwise made to the Board’s declaration on remuneration in Note 18 on page 132 of the annual report.
The committee is an advisory body to the Board. It held one meeting in 2015.
The main purpose of risk management and internal control is to provide reasonable assurance of goal attainment through the following methods: • Goal-oriented, efficient and expedient operations. • Reliable internal and external reporting. • Compliance with laws and regulations, and internal regulations.
Centralised control functions have been established that are independent of business operations: the Risk Management and Compliance function and the Actuary function. In addition, the internal audit function serves as an additional, independent control level that reports directly to the Board.
The Compliance function is independent in relation to operations, and it identifies, assesses, monitors, advises and reports on the Group’s compliance risk. Assessing compliance risk is part of the Group’s annual risk assessment process.
Rules of procedure for the control committee’s work have been drawn up and adopted by the general meeting. The rules of procedure are available at https:// www.gjensidige.no/group/.
Publishing deadlines are stipulated by the Board. The tasks that are carried out in the con cluding phase are set out in a schedule that specifies the person responsible and the deadline for ensuring timely reporting. The schedule is reviewed prior to each quarter to ensure that any new circumstances are identified and that the schedule continues to be expedient.
As part of Gjensidige’s governing documents, an overall description has been prepared of the process relating to the closing of the accounts. Reporting instructions have also been prepared, including accounting principles that subsidiaries and branch offices must use in their reporting. The internal control is based on the principle of division of labour and dualism, and it is documented through descriptions of processes and procedures in material areas. Authorisation structures, reconciliations and management reviews have been established.
The Group has established a planning process for financial management whereby the CEO, the CFO and the Chief Performance Officer meet with business and support areas at least every quarter and review financial performance and goal attainment as well as events that affect future development. Among other things, they assess risks relating to financial reporting, in both the short and long term. The Senior Group Management reviews monthly financial reporting, including developments in profit/loss and balance sheet items, goal attainment, the forecast for the year, risk assessment and analysis of and comments on results in business and support areas.
Remuneration of the Senior Group Management is stipulated by the CEO, in accordance with limits discussed with the remuneration committee and on the basis of guidelines issued by the Board. Correspondingly, the Group’s guidelines are used as the basis for other executive personnel and employees who can materially influence risk.
Gjensidige has published all relevant ownership information about the Group at
In connection with quarterly financial reporting, open presentations are held for investors, analysts and other stakeholders. The presentations are also made available at via webcast.
Deviations from the Code of Practice: None 15. Corporate takeovers The Company has one big owner, the Gjensidige Foundation. The Foundation has laid down in its Article of Associations that its ownership interest shall at least amount to 60 per cent of the shares issued in Gjensidige.
Guidelines have nonetheless been adopted for corporate takeovers. These guidelines ensure that all shareholders’ interests are attended to, and they contribute to equal treatment of shareholders. The guidelines are in compliance with the Norwegian Code of Practice for Corporate Governance. The Board will obtain independent valuations and draft a recommendation on whether or not the shareholders should accept the bid.
In conversations with the bidder and in its other actions, the Board shall endeavour to safeguard the interests of the Company and the shareholders as a whole. The Board shall ensure that all the Company’s shareholders are treated equally and kept up-to-date about 46 I Gjensidige annual report 2015
Guidelines have been drawn up for the management’s right to use an external auditor for services other than auditing.
The Board proposes a dividend of NOK 4.2 billion for the 2015 financial year. This corresponds to NOK 8.40 per share, NOK 6.40 of which is based on the profit for the year and the expected dividend capacity going forward. This corresponds to an increase in nominal dividend of 8.5 per cent compared with 2014, and a payout ratio of 84.5 per cent. The nominal dividend flow shall be high and stable over time and grow in periods of growth in earnings. The remaining NOK 2.00 per share is related to the distribution of excess capital as part of the process of ensuring an optimal capital structure.
Hansen has previously been an executive vice president in Statoil and CEO of Aker Kværner. He is a graduate of the Norwegian School of Economics (NHH).
Hansen is up for election to the Board in 2016. Hansen holds 12,253 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
User-friendly self-service solutions are being developed to ensure that customers, at their convenience, can take out and change insurance policies, seek advice and report claims online using a computer, mobile phone or tablet. At the same time, continuous efforts are being made to rationalise internal work processes so that Gjensidige can continue to improve the service to customers. In addition to offering traditional insurance products, Gjensidige has developed several value-adding services in the Norwegian private market that contribute to brand preference and loyalty.
The Company had a market share of 23.8 per cent in the private market at the end of 2015. The market share in the commercial market was 27.7 per cent (source: Finance Norway). This includes the agricultural market, where Gjensidige has historically had a high market share.
Both the Private and Commercial segments distribute products and services through a combination of telephony, web-based solutions and local branch offices. The customers can choose their point of contact 1 The numbers are updated after moving some customers between the two segments. Total number of customers increased by around 10,000 in 2015
and the service they want, and they shall experience the same quality and service regardless of channel. The multi-channel model contributes to both good customer experiences and cost-efficient distribution.
The sales centres and customer service centres are responsible for external sales and for serving customers who contact Gjensidige to buy or change insurance policies or to seek advice. Gjensidige has 33 local branch offices that offer advisory services in the fields of insurance and banking. The offices can refer customers to other departments if the queries concern pensions and saving.
The customer portal gjensidige.no plays an increasingly important role in relations with the customers. There, private and commercial customers can see their own insurance policies and can manage their customer relationship themselves, for example by reporting a claim or tracking the processing of a claim online. A considerable proportion of sales to private customers in Norway is now initiated at gjensidige.no. Almost 50 per cent of customers use the internet at one or several points in the sales process and roughly a third of frequency claims are reported online.
Nordic Gjensidige distributes general insurance products in Denmark through its own sales network and in cooperation with the Nykredit group. In addition, private insurance products are sold through a number of partners, especially travel agents, mobile telephony companies, car dealers and estate agents. Otherwise, the private market is served directly via underwriters, call centres and the internet.
Baltics The most important distribution channels in the Baltic states are direct sales and sales through insurance agents and brokers. Sales via the internet are increasing. Gjensidige aims to develop cost-efficient, multi-channel distribution models also in the Baltic market, with the emphasis on web-based solutions and telephony. Customer focus, increased sales of a wider range of products and access to customers through strategic partners will be important growth drivers.
Trond Vegard Andersen (1960) has been a member of the Board of Gjensidige since 2009. He is CEO of Fredrikstad Energi AS (FEAS), a board member in Nettpartner Holding AS and Værste AS, and an elected member to the General Meeting of the Gjensidige Foundation.
In 2015, the development, technology and ICT resources were merged to form a single effective entity: Technology and Development. The entity will be a driving force for the realisation of projects in Gjensidige’s five strategic focus areas and will also play a central role in the work on ensuring competitiveness going forward. High on the agenda are the development and testing of products and services based on customer and market insight and ‘the internet of things’ in the fields of health, motor and property insurance. Robot technology is being tested on selected processes as a basis for further automation of internal work processes.
Stronger basis for further profitable growth in the Nordic region and Baltic states Throughout 2015, Gjensidige strengthened its platform for further growth in the Nordic region and the Baltic states. At the beginning of 2016, the premium volume from this part of the business accounted for approximately 30 per cent of the total premium volume in general insurance operations. Gjensidige has a scalable business model, and the use of best practice across national borders represents a potential for growth and profitability going forward. Gjensidige has consolidated its position as a true and rational challenger in the Danish market. In Sweden and the Baltic states, measures have been introduced to ensure the implementation of best practice and good profitability in the longer term. New opportunities for growth, both organically and structurally, are continuously assessed.
Value-adding services Value-adding services shall contribute to increased brand preference and customer loyalty. In 2015, Gjensidige launched a new solution for risk selection in the commercial market. Almost 9,000 commercial customers in Norway participated in a systematic risk check based on industry-specific digital modules. This gives customers valuable insight, while also providing Gjensidige with information about the risk situation and loss prevention possibilities. Increased insight will enable Gjensidige to better predict customer profitability and ensure that the Company has access to and retains the most attractive customers. A preliminary goal is that further 10,000 commercial customers in the SME segment and agricultural customers undergo a risk check during 2016.
Business intelligence and analytics With increased digitalisation comes an exponential growth in data quantity. For example, Gjensidige has come far in utilising publicly available geographical and building data across all processes. This contributes to better pricing, customer and risk selection and more efficient claims settlements. In 2015, several pricing tariffs outside Norway were modernised and improved. The development of different products and services based on insight via ‘the internet of things’ and telematics in the fields of health, motor and property insurance are on the agenda going forward.
Satisfied and loyal customers Brand recognition and preference for Gjensidige in the Norwegian market is stable and higher than among competitors, and, according to Ipsos MMI’s annual surveys, the Company had the best reputation of all the biggest companies in the Norwegian financial sector. In Denmark, determined efforts are being made to increase familiarity with Gjensidige, and unaided familiarity in the Danish market was 13 per cent on average.
The customer satisfaction rate showed positive development and increased from 74.8 in 2014 to a record-strong 76.2 in 2015. Satisfaction is highest among customers who have had a claim or been in dialogue with Gjensidige for other reasons.
Gjensidige’s customers show strong loyalty. Private customers in Norway have a customer relationship lasting more than ten years on average. Around 70 per cent of the private customers are members an organisational or loyalty programme and, among these customers, the average customer relationship has been more than 15 years. Commercial customers in Norway had a customer relationship lasting around eight years on average. Loyalty among customers in Denmark is developing positively, but there is still a potential for longer customer relationships in both the private and commercial markets.
savings products are offered to Norwegian general insurance customers as part of the efforts to increase the product range and the number of products individual customers buy. As much as 77 per cent of the bank’s lending volume at the end of 2015 consisted of loans to insurance customers, and most of the growth in volume comes from insurance customers who are members of organisations or loyalty programmes.
In addition, the Lithuanian company PZU Lietuva, which has an annual premium volume of around EUR 50 million, was acquired with effect from the fourth quarter 2015. The acquisition almost doubles Gjensidige’s premium volume in the Baltic market. It lays the foundation for growth and the implementation of more efficient tariff setting, distribution and claims settlement procedures in the years ahead.
Andersson is up for election to the Board in 2016. Andersson holds 1,778 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
510,000 in 2015, and the share is among the 25 most liquid shares listed on the stock exchange. In addition, a substantial number of shares are traded in other marketplaces. Gjensidige pursues a shareholder-friendly capital and dividend policy, and the Gjensidige share is and should be a dividend-paying share.
There is still some uncertainty about how the calculation of capital requirements and qualifying funds will take place under the new rules. On 19 February 2016 the instruction for the Natural Perils Pool was changed. The purpose of the amendment was that the natural perils capital shall be considered eligible as solvency capital. Gjensidige is of the opinion that the change that has now been made is sufficient for the capital to be deemed eligible. There is currently no final confirmation from the Norwegian Financial Supervisory Authority that this will be the outcome. For Gjensidige, the main remaining uncertainty is then whether provisions for the guarantee scheme will be included in qualifying funds. The Financial Supervisory Authority takes the view that the guarantee provision shall be treated as a liability. In Gjensidige’s opinion, special Norwegian provisions that are actually an equity element must be treated as solvency capital. The Company will continue to make endeavours to ensure that the regulations are in line with this view. The final decision is expected in 2016.
Proposal for changes in the telephone sales rules In July 2015, the Ministry of Children, Equality and Social Inclusion distributed a bill concerning telephone sales for consultation. The point of departure is that consumers are currently entitled to opt out of receiving telephone sales calls, subject to some exceptions. One of the exceptions states that you can be phoned by companies with which you have a customer relationship, even though you have opted out. The proposed legislative amendment will mean that enterprises are
Bjørge is up for election to the Board in 2016. Bjørge holds 10,542 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
no longer allowed to call existing customers who have opted out if the purpose of the call is sales. Gjensidige has argued strongly against the proposal through the industry organisation Finance Norway.
Gjensidige believes that the customer relationship exception should be upheld. Such exception is a precondition for good customer follow-up, and it facilitates compliance with the financial industry’s duty to provide information and guidance, and, in practice, strengthens the consumers’ position. Especially in the insurance context, it will be a disadvantage for customers if companies are not allowed to give them the necessary information and guidance about their insurance coverage when customer needs, regulations or services change.
Run-off gains/(losses) 5 724.8 493.7 1 Large losses in excess of NOK 30.0 million are charged to the Corporate Centre, while claims of less than NOK 30.0 million are charged to the segment in which the large losses occured. The segment Baltics has a retention level of EUR 0.5 million. Large losses allocated to the Corporate Centre amounted to NOK 388,5 million (207,2). Moreover, accounting items related to written reinsurance and reinstatement premium are included.
6 Loss ratio = claims incurred etc./earned premiums 7 Cost ratio = insurance related operating expenses/earned premiums 8 Combined ratio = loss ratio + cost ratio
The profit after tax expense was NOK 3,784.7 million (4,189.6), corresponding to NOK 7.57 (8.38) per share.
The underwriting result was positively influenced by solid growth in premiums of 4.3 per cent and a good underlying frequency claims development, among other things as a result of a favourable weather situation. In addition, run-off gains increased in the second half-year 2015 according to the adjusted expectation of an average annual run-off gain of NOK 800 million over the next 3-5 years period. The result reflects continued good control of customer and risk selection and risk pricing.
self-finance investments is good. The net cash flow from operational activities mainly consists of payments in the form of premiums and net payments/disbursements in connection with sales of investment assets, including lending from banking operations, plus disbursements in the form of claims settlement costs, purchases of reinsurance, administration expenses and tax.
General Insurance Private The Private segment offers a wide range of general insurance products and services in the Norwegian private market, including insurance for motor vehicles, property, travel/leisure and accident and health. The products are largely sold through own distribution network.
Profit performance The underwriting result was NOK 2,208.1 million (1,624.0) in 2015. The improvement was driven by a favourable claims development. The combined ratio was 72.9 (80.0).
Earned premiums 8,152.3 8,124.1 Claims incurred etc. (4,908.5) (5,468.5) Operating expenses (1,035.7) (1,031.5) Underwriting result 2,208.1 1,624.0
Earned premiums 7,076.8 6,847.2 Claims incurred etc. (4,826.7) (4,791.1) Operating expenses (809.3) (770.6) Underwriting result 1,440.8 1,285.4
Claims incurred amounted to NOK 4,826.7 million (4,791.1), and the loss ratio was 68.2 (70.0). Adjusted for increased run-off gains and impact from large losses, the underlying frequency claims development was somewhat weaker than in 2014, particularly in agriculture and business interruption insurance. In general, the underlying frequency claims development was more normal than in 2014.
Gjensidige has entered into a new agreement with a premium volume of around NOK 195 million with effect from 1 January 2016.
General Insurance Nordic The segment includes the Group’s operations in the Danish and Swedish private and commercial markets. The segment offers general insurance products in the areas of motor, property, accident and health, liability, agriculture and leisure insurance, among other things.
Earned premiums increased to NOK 5,233.3 million (4,762.9). NOK 298.3 million of the increase was related to currency effects. The Mondux acquisition with accounting effect from 1 July 2015 affected earned premiums by NOK 128.5 million. Underlying premiums grew moderately, particularly in the Danish portfolio. The Swedish portfolio also contributed positively. Growth rates gradually slowed down during the year, particularly in the Danish commercial portfolio as a result of a soft market in the large customer segment, combined with the non-renewal of a large portfolio in accident and health insurance early in 2015. Re-pricing, focus on profitability and less volatile exposure in the commercial portfolio contributed to growth levelling out also in Sweden. Underlying growth was good for most product groups, particularly property insurance and accident and health when adjusted for the above-mentioned portfolio.
Kjetil Kristensen (1970) has been a member of Gjensidige’s Board as an employee representative since 2008. He is a senior customer adviser in Gjensidige and the senior employee representative for the Private segment.
Kristensen is up for election to the Board in 2016. Kristensen holds 578 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 9 November 2015)
Earned premiums amounted to NOK 642.0 million (523.0).NOK 36.9 million of the increase was due to currency effects. The consolidation of PZU Lietuva from the fourth quarter 2015 led to an increase in earned premiums of NOK 109.7 million. The underlying premium growth was negative, especially due to a weak development in motor product lines, where competition is fierce. New customer concepts have contributed to a higher number of products per customer.
Claims incurred amounted to NOK 524.8 million (377.2). Of the increase, NOK 26.6 million was due to currency effects. The loss ratio was 81.8 per cent (72.1). The claims provisions in motor third-party liability were considerably strengthened in the period. Adjusted for negative run-off, the underlying frequency claims development was negatively impacted by motor products in particular. Measures are being taken to improve the quality of the portfolio, and tariffs based on best practice from Norway were introduced in Latvia at the end of 2015.
Earned premiums 642.0 523.0 Claims incurred etc. (524.8) (377.2) Operating expenses (216.0) (145.1) Underwriting result (98.9) 0.6
Amortisation and impairment losses of excess value – intangible assets (22.4) (5.2) Large losses 1 1.7 Run-off gains/(losses) 2 (30.1) (11.8)
Claims incurred in excess of this per event are, as a main rule, charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from earlier periods 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio
Gisele Marchand (1958) has been a member of the Board of Gjensidige since 2010. She is CEO in the lawfirm Haavind AS, a board member and chair of the audit committee of Selvaag Bolig ASA, a board member of Eiendomsspar AS and Victoria Eiendom AS. Further she is av board member and chair of the audit committee of Norgesgruppen ASA. She has previous experience from several Boards, e.g Norske Skog ASA and Oslo Børs AS.
Profit performance The profit before tax expense was NOK 84.2 million (43.9) in 2015, a significant improvement compared with 2014, also when adjusted for the extraordinary VAT payment of NOK 28.6 million in the fourth quarter 2014.
The business developed positively in 2015, driven by a growing customer portfolio and increasing assets under management. As a result, net insurance revenues increased to NOK 155.9 million (136.0) and management income to NOK 119.5 million (98.1).
At year-end, pension assets under management amounted to NOK 20,033.0 million (17,196.3). Of this amount, the group policy portfolio accounted for NOK 4,877.5 million (4,186.8).
Assets under management for the savings operation amounted to NOK 15,555.1 million (15,018.2) at year-end.
Earned premiums 1,431.5 1,262.4 Claims incurred etc. (1,275.7) (1,126.4) Net insurance revenue 155.9 136.0 Management income etc. 119.5 98.1 Operating expenses (222.0) (221.4) Net operating income 53.4 12.7 Net financial income 30.8 31.2 Profit/(loss) before tax expense 84.2 43.9
For 2015 as a whole, assets under management increased by NOK 3,373.6 million (6,364.3) to NOK 35,588.1 million (32,214.5) at year-end.
Gjensidige Bank Gjensidige Bank is an online bank that mainly targets the Norwegian private market. The bank offers day-today banking services, mortgages, savings products and car and consumer financing. By offering competitive banking products, Gjensidige Bank will contribute to the sale of a wide range of products to general insurance customers in Norway.
The weighted average loan-to-value ratio3 was estimated to be 63.7 per cent (62.4) for the mortgage portfolio.
Gross lending increased by 33.4 per cent year-on-year, amounting to NOK 36,735.5 million (27,546.5) at the end of 2015. Deposits increased by 15.9 per cent yearon -year, reaching NOK 19,357.2 million (16,703.4) at the end of 2015.
In the second half of 2015, bond markets experienced widening credit spreads, which impacted the bank’s cost of funding from such markets.
At year-end 2015, the investment portfolio totalled NOK 57.2 billion (56.5). The financial result was NOK 1,492.4 million (2,426.3), which corresponds to a return on financial assets of 2.6 per cent (4.3).
The average duration of the match portfolio was 3.5 years. The average term to maturity for the corresponding insurance liabilities was 3.7 years. The distribution of counterparty risk and credit rating is shown in the charts on page 67. Securities without an official credit rating amounted to NOK 11.5 billion (11.0). Of these securities, 13.5 per cent (16.5) were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or governmentguaranteed companies. A third-party internal rating existed for 67.4 per cent (71.5) of the portfolio without an official rating. Bonds with a coupon linked to the development in the Norwegian consumer price index accounted for 11.2 per cent (12.5) of the match portfolio.
The geographical distribution4 of the match portfolio is shown in the chart on page 67.
Free portfolio The free portfolio amounted to NOK 21.1 billion (21.8) at the end of the year. The return was 2.3 per cent (5.8).
Fixed-income instruments The fixed-income instruments in the free portfolio amounted to NOK 11.7 billion (8.3), of which money market investments including cash accounted for NOK 4.1 billion (3.6). The rest of the portfolio was invested in international bonds (investment grade, high yield and convertible bonds). The total fixed-income portfolio yielded a return of 1.2 per cent (2.7), negatively affected by the widening of credit spreads in the second half-year.
The average duration in the portfolio was approximately 3.4 years at the end of 2015. The distribution of counterparty risk and credit rating is shown in the charts on page 67. Securities without an official
Mette Rostad (1964) has been a member of the Board of Gjensidige since 2012. She is self-employed, a board member of Gjensidigestiftelsen and of Innherred Renovasjon, Visit Innherred, Mesta Konsern, NTE Elektro, Helse Nord-Trøndelag, Kunnskapsparken in Steinkjer, Verdal Næringsforum, Innerred Vekst and Stiklestad Golfklubb.
4 The geographical distribution is related to issuers and does not reflect actual currency exposure
Property portfolio At the end of the period, the exposure to commercial real estate in the portfolio amounted to NOK 3.2 billion (6.5). The property portfolio yielded a return of 16.6 per cent (9.9)
Risk management is based on specified goals and strategies and the limits on risk exposure stipulated by the Board. Responsibility for good risk management and internal control primarily rests with the first-line management, i.e. the CEO and all managers and employees in the operational units, through the work they carry out in accordance with the authorisations, instructions and guidelines that apply to each of them. A Risk Management function has been established at group level. It is responsible for monitoring the Group’s risk management system and for maintaining an overview of the risks that the Group is or may be exposed to.
Financial assets and properties 50.1% Norway 4.2% Sweden 23.7% Denmark 3.8% USA 7.4% UK 2.0% Baltics 8.9% Other 16.0% Lorem ipsum dolores
Geographic distribution �xed income instruments in free portfolio at the end of 2015
Counterparty risk �xed income instruments at the end of 2015 Per cent
Strategic risk Gjensidige’s strategy is monitored continuously in relation to changes in performance, developments in the market and competition, and changes in framework conditions. Factors that have been identified as critical to the Company’s goal attainment are monitored particularly closely. To ensure that Gjensidige is ahead of developments, strategic risk is managed through continuous monitoring of competitors and the market, follow-up of profitability, and through product development and planning processes.
In the insurance market, Gjensidige faces challenges from both traditional Norwegian financial players and new companies. Increased digitalisation and new business models entail new challenges. Emphasis is therefore placed on Gjensidige’s ability to quickly adapt to consumers’ wishes for new service channels, and its ability to utilise modern technology and support systems in an efficient manner. Continuous efforts are made to develop new, customer-adapted products and service solutions, at the same time as the organisation, processes and value chains are reviewed and standardised to reduce costs and achieve greater efficiency. There is a risk that Gjensidige will not succeed in adapting to the changes in time and in line with market expectations. In order to reduce this risk, Gjensidige keeps close track of developments in the insurance market. Making incorrect judgements can lead to lasting competitive disadvantages, a significant loss of premium volume and a weakened capital position.
The Gjensidige Customer and Brand School is responsible for competence-raising and management development in Gjensidige. The school offers training for sales personnel, claims handlers and managers based on the Group’s strategic focus and development areas. New employer branding measures have been implemented and recruitment processes have been further developed and refined. Performance-based remuneration models have been introduced for groups of employees, and individual scorecards have also been introduced. Systematic work is being done on developing the corporate culture and on management development, as well as on firmly establishing requirements and expectations of managers and staff.
Kronhold Sjøberg is up for election to the Board in 2017. Andersen holds 283 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 9 November 2015).
The insurance risk is deemed to be moderate based on the reinsurance coverage the Group has purchased.
Financial risk Gjensidige had NOK 57.2 billion in financial investments in the insurance operations as of 31 December 2015. The counter entry in the balance sheet consists of the actuarial liabilities and equity. The investments mainly consisted of fixed-income investments, property and equity investments. The value of the investments can be affected by changes in macroeconomic factors.
Operational risk Operational risk is the risk of losses due to weaknesses or faults in processes and systems, errors made by employees, or external events. In order to reduce the risk, emphasis has been placed on having well-defined 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 status annually as part of the Company’s 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 result of failure to comply with laws, regulations and standards. The Compliance function identifies, assesses, advises on, monitors and reports on the Group’s risk of non-compliance with laws, regulations and internal guidelines. An incidents database has been created in order to close, handle and, not least, learn from undesirable incidents.
Ethical issues are discussed at training courses for new employees and they are also discussed regularly by management groups and at departmental staff meetings. This is intended to reduce the risk of breaches of procedures and guidelines, while also contributing to a good working environment. Employees have also
Tine Gottlob Wollebekk (1962) has been a member of the Board of Gjensidige since 2014. She is a Senior Vice President responsible for Global Financial Services in Telenor ASA, Chair of the board of MicroEnsure Asia Ltd and Tameer Micro Finance Bank. Board member of PM Retail, Goodtech ASA, Tybring Gjedde, Møller Gruppen AS, Idea Foundation, Aars AS, Telenor Kapitalforvaltning AS, Finn Clausen Gruppen ASA.
signed a personal data discipline statement relating to the use of the Group’s information and IT systems.
Outlook The Group targets a 15 per cent return on equity after tax from and including 2015. The Board is confident of delivering solid earnings and dividend growth over time, and strong underwriting profitability is expected to offset the more challenging environment as regards achieving investment returns. It is emphasised that there is always considerable uncertainty attached to the assessment of future developments.
• Secondly, the annual combined ratio is expected to be at the lower end of the target corridor of 90–93 (undiscounted and given zero run-off effects). The target cost ratio is around 15 per cent. A reduction is expected in the underlying cost ratio and loss ratio, but Gjensidige will endeavour to strike a balance between good profitability and increased investments in order to ensure strong competitiveness in future. Extraordinary circumstances relating to the weather and the proportion of large losses can bring the combined ratio outside the target range in both directions.
• Thirdly, over the next 3–5 years, average annual run-off gains are expected to double from the average level reported over the past five years, moving the expected reported combined ratio to the lower end of the 86–89 corridor (undiscounted).
In order to ensure strong competiveness in future, investments will primarily be increased in the fields of IT, competence development, brand strength and marketing in order to support the five strategic focus areas described on page 54.
Uncertainty about the domestic and international economic situation, combined with low interest rates and financial challenges in several key economies, remains a source of uncertainty. Gjensidige has a robust investment strategy, although returns are affected by challenging market conditions. The Group is financially sound and has a high proportion of its business in the Norwegian general insurance market. Although the macroeconomic situation is more challenging, the outlook for the Norwegian and Nordic general insurance operations is still regarded as good in a relative perspective.
The Group has satisfactory capital buffers in relation to internal risk models, statutory capital adequacy requirements and its target rating. The Board considers the Group’s capital situation and financial strength to be good.
Notes 2 Use of estimates ..................................................87 3 Management of insurance and financial risk .........88 4 Segment information.........................................108 5 Intangible assets ................................................109 6 Shares in associates ...........................................111 7 Owner-occupied property, plant and equipment 113 8 Financial assets and liabilities ............................. 114 10 Loans and receivables ........................................120 11 Cash and cash equivalents .................................120 12 Shares and similar interests ................................121 13 Insurance-related liabilities and reinsurers’ share .123 15 Provisions and other liabilities .............................128 18 Salaries and remuneration ................................. 132 19 Net income from investments ............................136 20 Contingent liabilities ..........................................137 21 Subordinated debt .............................................137 22 Related party transactions .................................138 23 Events after the balance sheet date ................... 141 28 Share-based payment .......................................143 29 Earnings per share .............................................144 30 Acquisition of PZU ............................................. 145
Operating expenses Operating expenses from general insurance (3,217.6) (3,054.0) Operating expenses from pension (222.0) (221.4) Operating expenses from banking operations (359.3) (357.9) Other operating expenses (45.1) (8.7) Amortisation and impairment losses of excess value - intangible assets (209.6) (170.0) Total operating expenses 17 (4,053.6) (3,812.0)
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurements of the net defined benefit liability/asset 14 69.0 (410.2) Share of other comprehensive income from associates and joint ventures (50.9) Tax on items that are not reclassified to profit or loss (17.5) 110.8 Total items that are not reclassified subsequently to profit or loss 51.5 (350.3)
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 438.4 281.2 Share of exchange differences from associates and joint ventures (142.4) Exchange differences from hedging of foreign operations 127.5 (237.0) Investments available for sale 17.0 Tax on items that may be reclassified to profit or loss (114.3) 27.3 Total items that may be reclassified subsequently to profit or loss 468.5 (70.9)
Total comprehensive income for the year attributable to: Owners of the company 4,308.8 3,768.4 Non-controlling interests (4.1) Total 4,304.7 3,768.4
Equity Share capital 999.9 999.9 Share premium 1,430.0 1,430.0 Other equity 20,876.5 19,226.9 Total equity attributable to owners of the company 23,306.3 21,656.8 Non-controlling interests 24.3 Total equity 1 23,330.6 21,656.8
Provision for liabilities Subordinated loan 21 1,547.2 Premium reserve in life insurance 13 3,867.2 3,408.3 Provision for unearned premiums, gross, in general insurance 13 9,230.0 8,536.3 Claims provision, gross 13 33,178.5 32,926.9 Other technical provisions 13 230.5 168.0 Pension liabilities 14 558.8 590.4 Other provisions 15 345.6 247.6
Gisele Marchand Gunnar Mjåtvedt Mette Rostad Lotte Kronholm Sjøberg Tine Gottlob Wollebekk
Own shares (0.0) (6.3) (6.3) Paid dividend (8,398.8) (8,398.8) Equity-settled share-based payment transactions 5.8 5.8 1.1.-31.12.2015 Profit/(loss) for the year (the controlling interests' share) 4.5 3,784.3 3,788.8
Tax on items that are not reclassified to profit or loss (17.5) (17.5) Total items that are not reclassified subsequently to profit or loss 51.5 51.5
Exchange differences from foreign operations 438.4 438.4 Investments available for sale 17.0 17.0 Exchange differences from hedging of foreign operations 127.5 127.5
Total comprehensive income for the year 4.5 451.5 51.5 3,801.2 4,308.8
Equity-settled share-based payment transactions 6.0 6.0 Perpetual Tier 1 capital instrument 298.2 298.2 Perpetual Tier 1 capital instrument - interest paid (3.9) (3.9)
Cash flow from financing activities Payment of dividend (2,949.6) (8,348.9) Net receipts/payments on subordinated loans Gjensidige Forsikring ASA (36.9) 1,197.1 Net receipts/payments regarding perpetual Tier 1 capital instrument and non-controlling interests 297.1 Net receipts/payments on loans to credit institutions 7,554.7 635.5 Net receipts/payments on other short-term liabilities 40.7 (26.8) Net receipts/payments on interest on funding activities (248.5) (195.9) Net receipts/payments on sale/acquisition of own shares (9.9) (6.3) Net cash flow from financing activities 4,647.7 (6,745.3)
Accounting policies Reporting entity Gjensidige Forsikring ASA is a publicly listed company domiciled in Norway. The company’s head office is located at Schweigaardsgate 21, Oslo, Norway. The consolidated financial statements of the Gjensidige Insurance Group (the Group) as at and for the year ended 31 December 2015 comprise Gjensidige Forsikring ASA and its subsidiaries and the Group’s interests in associates and joint ventures. The activities of the Group consist of general insurance, pension and savings and banking. 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 2015, 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.
• derivatives are measured at fair value • financial instruments at fair value through profit or loss are measured at fair value • financial assets available for sale are measured at fair value • investment properties are measured at fair value
Functional and presentation currency The consolidated financial statements are presented in NOK. The mother company and the different branches have respectively Norwegian, Swedish, Danish kroner and Euro as functional currency. All financial information is presented in NOK, unless otherwise stated.
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.
At the reporting date monetary items are retranslated to the functional currency at exchange rates at that date. Non-monetary items denominated in foreign currencies that are measured at historical cost, are retranslated using the exchange rates at the date of the transaction. Non-monetary items denominated in foreign currencies that are measured at fair value, are retranslated to the functional currency at the exchange rates at the date when the fair value was determined.
Gjensidige may engage in refurbishment, major upgrades or new property projects. The costs for these are recognised using the same principles as for an acquired asset.
In cases of change of use and reclassification to owner-occupied property, fair value at the date of the reclassification is used as cost for subsequent reporting.
• significant changes in the Group’s use of assets or overall strategy for the business
Impairment losses will only be reversed if the recoverable amount does not exceed the amount that would have been the carrying amount at the time of the reversal if the impairment loss had not been recognised.
Gjensidige holds an investment portfolio that is designated at fair value at initial recognition, and that is managed and evaluated regularly at fair value. This is according to the Board’s approved risk management and investment strategy, and information based on fair value is provided regularly to the Senior Group Management and the Board.
Hedge accounting is applied on the largest branches and subsidiaries. Gains and losses on the hedging instrument relating to the effective portion of the hedge are recognised in other comprehensive income, while any gains or losses relating to the ineffective portion are recognised in profit or loss. If subsidiaries are disposed of, the cumulative value of such gains and losses recognised in other comprehensive income is transferred to profit or loss. Where hedge accounting is not implemented, this implies a divergent treatment of the hedged object and the hedge instrument used. Hedge accounting of the largest branches and subsidiaries was terminated in the second half-year of 2015.
If a decline in fair value of an available-for-sale financial asset, compared to cost, is significant or has lasted longer than nine months, the cumulative loss, measured as the difference between the historical cost and current fair value, less impairment loss on that financial asset that previously has been recognised in profit or loss, is removed from equity and recognised in profit or loss even though the financial asset has not been derecognised.
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.
Restructuring Provision for restructuring are recognised when the Group has approved a detailed and formal restructuring plan which has commenced or has been announced. Provisions are not made for future expenses attributed to the operations.
At the end of the year the number of own shares was 68,175 (63,579).
A total of 259,515 (208,030) own shares at an average share price of NOK 128.51 (120.02) have in 2015 been acquired to be used in Gjensidige's share-based payment arrangements. Of these 173,499 (152,960) shares have been sold to employees, at the same price, but with a discount in the form of a contribution, see note 28. In addition 48,579 (31,662) shares have been allocated to executive personnel within the share-based remuneration scheme and 32.841 (19,644) bonus shares have been allocated to employees in the share savings programme in 2015. Own shares are increased by 4,596 (3,764) through the year.
Perpetual Tier 1 capital instrument Perpetual Tier 1 capital instrument consists of a perpetual hybrid instrument in Gjensidige Bank, classified as equity.
Gjensidige annual report 2015 | 87 2. Use of estimates The preparation of the financial statements under IFRS and the application of the adopted accounting policies require that management make assessments, prepare estimates and apply assumptions that affect the carrying amounts of assets and liabilities, income and expenses. The estimates and the associated assumptions are based on experience and other factors that are assessed as being justifiable based on the underlying conditions. Actual figures may deviate from these estimates. The estimates and associated prerequisites are reviewed regularly. Changes in accounting estimates are recognised in the period the estimates are revised if the change only affects this period, or both in the period the estimates change and in future periods if the changes affect both the existing and future periods.
For long-tail lines, the risk is linked to the fact that the ultimate claim costs must be estimated based on experience and empirical data. For certain lines within accident and health insurances, it may take ten to 15 years before all the claims that occurred in a calendar year are reported to the company. In addition, there will be many instances where information reported in a claim is inadequate to calculate a correct provision. This may be due to ambiguity concerning the causal relationship and uncertainty about the injured party’s future work capacity etc. Many personal injury claims are tried in the court system, and over time the level of compensation for such claims has increased. This will also be of consequence to claims that occurred in prior years and have not yet been settled. The risk linked to provisions for lines related to insurances of the person is thus affected by external conditions. To reduce this risk, the company calculates its claims liability based on various methods and follows up that the registered provisions linked to ongoing claims cases are updated at all times based on the current calculation rules. See note 3 (in the consolidated group accounts) and 13.
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.
The basis of insurance is the transfer of risk, from the insured to the insurer. Gjensidige receives insurance premiums from a large number of policy holders whom it is committed to compensating in the event that a loss occurs. Hence, insurance risk is a major component of risk in the Group. Insurance premiums are received in advance and set aside in order to cover future claims. These technical provisions and the Company’s equity are invested, which means that the Group is exposed to market and credit risk as well.
The subsidiary Gjensidige Bank primarily offers banking products to private individuals and organisations in the Norwegian market. Gjensidige Bank is mainly exposed to credit and liquidity risk.
Organisation The Board has overall responsibility for ensuring that the level of risk-taking in the Group is satisfactory relative to the Group’s financial strength and willingness to take risks, and it has adopted a risk appetite statement that covers the most important types of risks. This entails ensuring that necessary governing documents, procedures and reporting are in place in order to secure satisfactory risk management and compliance with laws and regulations and that the risk management and internal control efforts are appropriately organised and documented.
The risk management function is responsible for monitoring and developing Gjensidige risk management and internal control system. In addition, the function shall have an overview of the risks Gjensidige is or may be exposed to, and what this means for the group solvency. The compliance function shall detect and prevent risks related to compliance with external and internal regulations. The risk management function and compliance function is headed by the Chief Risk Officer, and reports to Group CEO when it comes to subject matters.
The actuary function is responsible for coordinating the calculation and control of the technical provisions of insurance companies. The responsibility is centralised in the Group 's Actuary department.
Responsibility for the execution of investments for the insurance operations is vested in the CFO’s organisation. The function for monitoring and reporting financial returns and compliance with investment risk limits reports to the Executive Vice President, Group staff and general services in order to ensure independent follow-up. Chief Risk Officer has overall responsibility for risk management and monitors the Board approved limits. The Chief Risk Officer has an independent reporting line to the CEO.
Responsibility for all investment management is centralised in the Group’s investment centre. A group-wide credit committee chaired by the CFO has been established in order to set credit limits for individual issuers of credit and general guidelines for counterparty risk.
Gjensidige’s minimum capitalisation is determined on the basis of the strictest of three criteria: Regulatory requirements, rating requirements and internal risk-based requirements. For all three, board-approved buffers are in place for management purposes. In the calculations of excess capital, consideration was given to an assumed dividend of NOK 4,200 million. The Group has a strong capitalisation seen from all three of these perspectives.
The desired capitalisation level will be measured against the most binding capital requirement, including a buffer approved by the Board. Excess capital is held to assure financial stability with regards to organic growth, a stable dividend policy and smaller acquisitions, which are not financed by retained profit. Gjensidige Forsikring intends to maintain high dividend payments to its shareholders. The Group’s goal is that over time, 70 per cent of the company’s earnings after taxes should be used to pay out dividends. Dividend decisions will take into account expected future capital requirements.
Insurance operations and the banking business are subject to capital requirements specified by the authorities. Capital adequacy and solvency positions are reported for the Group and its subsidiaries to the financial supervisory authorities. Based on the capital adequacy rules (BIS rules) as at 31 December 2015 the excess capital was NOK 5,558.4 million, equivalent to a capital adequacy ratio of 17.1 per cent The Group’s excess capital above the solvency margin requirements was NOK 8,156.2 million as at 31 December 2015. The rating requirement results in the lowest excess capital at group level. Gjensidige Forsikring’s target financial strength rating is ‘A’ (single A) from Standard & Poor’s or the equivalent from another rating institution. This target has been achieved by an actual rating of A’ (Stable) from Standard & Poor’s (unchanged since 1999, last updated on 22 July 2015). The rating is subject to annual review. Standard & Poor’s capital model is used as an approximation of the capital requirements from this perspective, even though a number of other factors also play an important role in determining the Group’s rating. Based on data as of 31 December 2015, the excess capital relative to the targeted A rating is estimated at NOK 850.6 million. Gjensidige Bank ASA has its own rating of A- from Standard & Poor’s (last updated on 18 August 2015) while covered bonds issued by Gjensidige Bank Boligkreditt are rated AAA (updated on 22 May 2015).
Table 1 – Capital in excess of legal requirements per company
(13.5%) Gjensidige Pensjon og Sparing Holding Group 124.9 144.8 Capital adequacy (8%)
The solvency margin in Gjensidige Baltic does not include the profit for the year until completion of the auditing of the financial statements for 2015. In Denmark, an individual solvency calculation was introduced as an adaptation to the upcoming Solvency II regulations. Gjensidige Forsikring ASA and all subsidiaries met all regulatory capital requirements in 2015. From 2016, Solvency II rules will be the legal capital requirement for all insurance entities and the group itself.
There is still some uncertainty about how capital requirements and eligible capital should be calculated under the new rules. In a letter of June 2014 the Norwegian FSA took up processing of technical provisions under Solvency II regulations. Of greatest importance to general insurance companies was tax consequence of the transition to Solvency II principles for calculating technical provisions, the treatment of the Norwegian Natural perils fund and the guarantee scheme provision as capital items. In August 2015 the Ministry of Finance withdrew a draft proposal on tax on insurance reserves. This case was postponed; earliest implementation will be 2017. According to Gjensidige’s assessment transition to Solvency II will not materially alter the tax position, and Gjensidige expects that the final regulations will reflect this. In August 2015 the Ministry of Justice and Public Security forwarded a proposal for changes in the Norwegian Natural Perils insurance scheme, implying that the Natural perils fund should be included as capital under Solvency II. On 19 February 2016 the regulation for Norwegian Natural Perils insurance Pool was changed. The purpose of the change was that the Natural perils fund shall be considered eligible solvency capital. After Gjensidige's perception the mentioned change that has been carried out in the regulation, is sufficient for the Natural perils fund to be considered eligible capital. There is currently no final confirmation from the Financial Supervisory Authority that this will be the outcome. FSA argues that the guarantee scheme provision shall be treated as a liability. Gjensidige is of the opinion that the high level of domestic deposits which are actually equity elements should be treated as eligible solvency capital. The company will continue to pursue a regulatory framework in line with this.
An increase in the frequency of claims can be due to seasonal effects and more sustainable effects. During the winter season snow and cold weather will cause an increase in the frequency of claims in Motor insurance. In Property insurance, a cold winter will cause an increase in the frequency of claims due to frozen water pipes and increased use of electrical power and open fire places for heating of the houses. More permanent shifts in the level of claims frequency may occur due to e.g. change in customer behaviour and new types of claims. The effect on the profitability of a permanent change in the level of claims frequency will be high. In Motor insurance in Norway, for example, an increase of one percentage point in the level of claims frequency will increase the loss ratio by four to five percentage points.
Premiums, deductibles and elements in the conditions may be changed at the yearly renewal of policies. Insurance companies have the right to reject the payment of a fraudulent claim. Gjensidige has the right not to renew individual policies in cases of insurance fraud, and in some instances legislation or policy conditions give the company the right to terminate or not to renew individual policies where special reasons indicate that such termination is reasonable. In cases where a claim has been paid, Gjensidige is entitled to pursue any third parties liable for the damage for payment of some or all costs (recourse claim). The underwriting policy and guidelines in all companies are within the Group’s approved risk level.
Motor, third party liability 2,972.2 14.0% 2,838.8 13.9% Motor, other classes 3,718.1 17.5% 3,680.6 18.0% Marine, aviation and transport 254.3 1.2% 232.5 1.1%
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.
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 non-proportional reinsurance contracts with sufficiently high retentions for only relatively few, large claims to be recoverable.
Sensitivity analysis – underwriting risk Underwriting risk is the risk that an insurer does not charge premiums appropriate for the insurance contracts. The pricing processes for the different insurance products involve estimates of future frequency and severity of claims, based on statistics from internal and external sources. Even if the underwriting criteria are adequate and the premium calculations are performed on a good statistical basis, the claims cost may deviate from the expected level, due to large claims, natural catastrophes etc.
Change in loss frequency (1%-point) General insurance Private 467.6 559.2 General insurance Commercial 1044.5 1,237.5
Change in severity of claims (+10%) General insurance Private 490.9 546.9 General insurance Commercial 482.7 535.0
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 effects 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 claims 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 to the claims settlement. For LOB with nominal long-tailed provisions the effect of a one percentage point increase in inflation will be significant, proportional to the average duration (in number of years).
General insurance Private 312.7 321.2 General insurance Commercial 374.1 397.3 General insurance Nordic 556.6 532.4 General insurance Baltics 2.2 1.8
Table 6a – Analysis of claims development, Gjensidige Group NOK millions 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total
Gross Estimated claims cost At the end of the accident year 12,132.0 12,157.3 12,637.4 12,781.3 12,340.0 14,503.0 15,612.1 13,531.8 14,410.3 14,063.5 14,499.9 - One year later 12,090.9 12,017.5 12,672.3 12,858.2 12,284.1 14,374.3 15,846.7 13,489.4 14,304.3 13,694.3 - Two years later 12,079.8 11,945.2 12,548.8 12,766.6 12,127.8 14,400.1 15,889.3 13,414.2 14,130.0 - Three years later 12,028.1 11,760.3 12,489.3 12,743.7 12,134.8 14,327.0 15,712.4 13,247.6 - Four years later 11,857.7 11,749.6 12,508.1 12,702.2 11,996.7 14,248.3 15,516.3 - Five years later 11,847.8 11,763.7 12,431.8 12,576.7 11,936.4 14,141.9 - Six years later 11,850.1 11,719.1 12,342.4 12,533.4 11,891.4 - Seven years later 11,736.4 11,618.4 12,304.9 12,487.7 - Eight years later 11,634.0 11,581.5 12,256.7 - Nine years later 11,634.8 11,632.8 - Ten years later 11,703.9
Total disbursed 10,705.5 10,504.7 11,016.6 11,025.1 10,229.6 12,349.7 13,615.7 10,761.4 11,747.8 11,198.1 8,122.6 121,276.7 Claims provision 998.4 1,128.1 1,240.1 1,462.7 1,661.8 1,792.2 1,900.6 2,486.2 2,382.2 2,496.2 6,377.3 23,925.8 Prior-year claims provision and loss adjustment provision 7,765.2 Gjensidige Baltic 595.2 Total 32,286.2
Total disbursed 10,339.1 10,052.9 10,597.9 10,479.8 9,581.8 11,518.4 12,463.1 10,241.2 11,306.1 10,688.0 7,777.3 115,045.7 Claims provision 998.4 1,125.0 1,238.0 1,459.1 1,653.1 1,782.7 1,881.1 2,188.0 2,706.1 3,029.8 6,080.6 24,141.8 Prior-year claims provision and loss adjustment provision 7,510.7 Total 31,652.5
Compulsory occupational pensions 56% 59% Other defined contribution pensions 44% 41%
As from 1 January 2014 GPF applies the mortality tariff «K2013» 1, for the calculation of reserves for products that expose GPF to mortality and longevity risk. The tariff assumes that mortality changes over time (thus being a dynamic tariff). Hence, life expectancy is higher for those born this year compared to last year. K2013 assumes lower mortality than the previous calculation basis K2005; thus there is a need for GPF to increase its reserves. GPF has reported to the FSA and got the approval for a reserve building plan where the reserves will be increased gradually over a period of 6 years. A large part of the company’s surplus this year and the coming years will be withheld for this purpose. One of the basic principles for this plan is that reserves need to be built individually per contract, and the company is required to contribute at least 20 per cent from own funds to the needed increase in reserves. On this basis GPF has registered a plan with a total calculated need for increase in reserves of NOK 215 million; after the 2015 year end NOK 35 million remain. GPF’s estimated contribution is NOK 10 million, excluding contribution from the owner’s share of surplus. Approximately 60 per cent of the portfolio (in reserves) is fully reserved as per 1.1.2016. For this case surplus will be distributed as normal which means that surplus will be used to build supplementary reserves, increase benefits and increase own funds.
Reported and settled claims (premium reserve) amount to NOK 558.6 million (NOK 399.3 million in 2014). They are estimated as the present value of future obligation and contribute to 39.3 per cent (37.0 per cent in 2014) of all provisions.
Paid-up policies require a minimum return every year 4. The rate of minimum return is also used as the discount rate, and the FSA regulate the level of this rate. If a minimum return is not achieved, GPF must add funding, or supplementary reserves can be used. The average level of minimum return is approximately 3.5 per cent for paid-up policies in GPF. This yearly guarantee exposes GPF to market risk. This is discussed further under the chapter “Management of financial risk”.
Sensitivity analysis pension insurance GPF has been in business for ten years. Since the data material is increasing, GPF has adjusted the premium tariffs; one of the changes has been an increase in the premium for disability coverage. The reserves have also increased, partly because the discount rate has been reduced. The current discount rate is 2.0 per cent.
Disability risk Disability risk varies greatly within the insured population. Because of this, the price tariff for mandatory occupational pension groups businesses by hazard categories. Provisions are dependent on recovery rates (rate of insured receiving disability benefit that recover), and varying the recovery rate greatly vary the provisions.
Reinsurance Gjensidige purchases reinsurance to protect the Group’s equity capital and reinsurance is a capital management tool. The Group’s established models and methodologies for evaluation of the internal risk based capital allocation are used to analyse and purchase reinsurance. The maximum retention is set by the Board. Gjensidige’s reinsurance programme consists of non-proportional reinsurance. The maximum retention level for the Group was NOK 400 million in 2015, increased from NOK 390 million in 2014. As a general rule, Gjensidige purchases reinsurance to limit any single claim or claim event per insurance product to NOK 100 million. For some industries Gjensidige purchases reinsurance coverage that will reduce the retention level to under 100 million. Decisions concerning the reinsurance programme are based on an analysis of exposure, claims history, model simulations and Gjensidige’s capitalisation.
Management of financial risk – general insurance operations Financial risk is a collective term for various types of risk relating to financial assets and liabilities. The different types of financial risk are described in greater detail below. Operational risk is monitored and controlled. Requirements for operational risk management are included in the guidelines for asset management approved by the Board.
Equity price risk is defined as a loss in value resulting from a fall in equity prices. This is analogous to real estate price risk. See the amounts in the stress test and sensitivity analysis below. Interest rate risk is defined as the loss in value resulting from a change in interest rates, and it is viewed both from an asset-only perspective and in relation to the interest rate sensitivity of the liabilities. Foreign exchange risk is defined as the loss resulting from a movement in exchange rates. Credit risk is defined as the loss arising from an issuer defaulting on its obligations or from increased risk premiums for bonds with credit risk. Liquidity risk is defined as the inability to meet payments on the due date, or the need to realise investments at a high cost in order to meet payments. The insurance operations are exposed to these types of risk through the Group’s investment activities. They are managed at the aggregate level and handled through the guidelines for asset management and investment strategies, which have been drawn up for the Gjensidige Group and its subsidiaries, and through resolutions by the Group’s credit committee.
There has been one material change in Gjensidige’s handling of financial risks during 2015 compared to previous periods. Previously, the currency hedging strategy focused on stable book equity. As of mid-2015, the strategy changed to focus on stable surplus capital for the Group in accordance to the capital requirement (Rating, Internal Model or Standard Formula) which is the most binding at any time (currently Rating). The investment strategy and risk management policies are approved by the Board of each company, but are closely coordinated with the parent company’s overarching strategy and policies. The general rule is that the asset allocation in the subsidiaries in general insurance will only be used to hedge the technical provisions against interest rate and foreign exchange risk, with excess funds being invested in interest-bearing securities with low risk. Exposures to market risk are recognised in the balance sheet of Gjensidige Forsikring ASA. This is done in order to improve the efficiency of investment management and capitalisation in the Group.
The table below shows an overview of the asset allocation for the insurance business at year-end 2015 and 2014. The asset allocation is divided between a match portfolio, which purpose is to cover insurance liabilities and the subordinated loan, and a free portfolio that can be viewed as the Group’s invested equity. The actual allocation will vary throughout the year and follow movements in the market, tactical allocation and risk situation.
In terms of concentration risk, one of the main risks for the Group is the investments in SpareBank 1 SR-Bank ASA. Furthermore, the portfolio involves substantial concentration in the fixed-income portfolio towards Norwegian financial institutions, as well as exposure to office properties in the Oslo area through the joint venture Oslo Areal AS. Concentration risk is further analysed under the various market risk factors.
Current bonds 1 10,454.4 18.3% 9,784.8 17.3% Match portfolio total 36,038.7 63.0% 34,689.3 61.4%
Free portfolio Money market 4,066.4 7.1% 3,570.9 6.3% Other bonds 2 6,551.3 11.5% 3,964.0 7.0% Convertible bonds 3 1,066.4 1.9% 790.9 1.4% Current equities 4 3,250.3 5.7% 3,832.7 6.8% PE-funds 1,383.7 2.4% 1,710.9 3.0% Property 5 3,188.1 5.6% 6,516.2 11.5% Other 6 1,628.9 2.8% 1,463.8 2.6% Free portfolio total 21,135.2 37.0% 21,849.5 38.6% Investment portfolio total 57,173.9 100.0% 56,538.8 100.0%
This stress test based on figures at year-end is shown below (Group figures). The capital buffer here is relative to the capital adequacy requirement for the Gjensidige Group, which is calculated in accordance with Norwegian GAAP. Interest rate risk and credit spread risk in the stress test are calculated exclusive of bonds at amortised cost. Changes to SpareBank 1 SR-Bank ASA and insurance risks are modelled through Gjensidige’s internal model. The risk in the subsidiaries outside general insurance (Gjensidige Pension and Savings, Gjensidige Bank) are taken into account through stress scenarios from the recommendations in the Norwegian FSA’s “risk-based supervision” (RBT) for Gjensidige Pensjonsforsiking and the ICAAP process for Gjensidige Bank. Stress parameters for asset risk are closely aligned with the recommendations in the RBT, and correlation matrices are used to calculate diversification effects both between asset classes, and market and insurance risk. The only deviation from the RBT is that private equity (PE) and commodities are stressed by 25 per cent and their correlation with shares and hedge funds is set to 0.75.
The precise figures will generally vary with changes in asset allocation and year-to-date profit. A rule for management actions with escalation to the CEO or the Board is implemented if the total decrease in value/buffer capital is above the predefined levels.
Assets/risk Equities and hedge funds 20% drop (576.0) Interest rate risk 150 bps change (837.0) Property 12% drop (496.7) Private equity 25% drop (345.9)
Equity price risk The largest exposure is to SpareBank 1 SR-Bank ASA. The concentration risk is shown in the table below. The exposure at year-end is evenly distributed among Norwegian equities and international equity funds.
SpareBank 1 SR-Bank ASA 1,053.6 SOS International A/S 54.4 Atlantica Tender Driling 42.6 Core Energy 34.1 READ Well Services 32.4
SpareBank 1 SR-Bank ASA 1,404.3 Spotify 98.1 SOS International A/S 51.4 Ocean Installer AS 51.4 Hafslund ASA 51.0
To illustrate the sensitivity of the equity portfolio to a fall in equity prices, the table below shows the effect of a possible scenario. The figures show the effect on equity, but do not take taxation effects into account. As shown in the table, the sensitivity is reduced since 2014.This is mainly due to reduced investment in equities and contribution from equity derivatives.
Table 12 – Sensitivity analysis equity portfolio NOK millions 31.12.2015 31.12.2014 10 per cent drop in equity prices (266.5) (365.3)
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 play 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 funds.
HitecVision Private Equity V LP 152.3 Northzone V KS 116.6 Argentum Secondary III 100.2 HitecVision Private Equity IV LP 94.1 HitecVision Asset Solution KS 90.4 Total five largest 553.6 Total private equity 1,710.9
Interest rate risk In the Group’s insurance companies, overall exposure to interest rate risk will be reduced by matching a portfolio of fixed income instruments to the overall duration and the pay-out pattern of the insurance liabilities. Since the insurance liabilities are generally not discounted in the balance sheet, this means that, from an accounting perspective, insurance liabilities will be exposed to changes in inflation (but not directly to interest rates). An economic perspective, however, calls for hedging interest rate risk, because the present value of the provisions will be exposed to changes in the real interest rate. From an accounting perspective, the risk of choosing this hedging strategy is reduced because a large part of the bond portfolio is recognised at amortised cost. Furthermore, from an economic perspective, the inflation risk is partly reduced since some of these bonds carry a coupon linked to the development of the consumer price index.
The interest rate sensitivity of the fixed-income portfolio is also shown in the table below. This table does not include the amortised cost portfolio, and the effect of the swap agreements in the Danish branch, because they have a reciprocal effect on the liabilities. Tax effects have been disregarded. The Board has set a limit of NOK 700 million for the interest rate sensitivity for a 1 per cent point shift in the yield curve.
Table 15 – Sensitivity fixed-income portfolio NOK millions 31.12.2015 31.12.2014 100 bps parallel shift up (558.0) (168.2)
The next figure shows the corresponding pay-out pattern for Gjensidige Forsikring ASA. The average duration for Gjensidige Forsikring ASA is similar to that of the Group.
Hedge requirement 35,388.3 1,200.0 36,588.3 Duration hedge requirement 3.8 0.3 3.6
Hedge fund Hedge fund is a generic term for funds that invest in most types of asset classes with few limitations on the use of derivatives, shorting or leverage in order to earn a return that is partly independent of (has a low correlation with) traditional market indexes. Gjensidige utilises hedge funds to gain exposure to active risk in the individual asset classes and to take allocation risk between the individual asset classes and/or risk premiums. Individual funds are used.
Foreign exchange risk Foreign exchange risk is defined as the financial loss resulting from fluctuations in exchange rates. Generally, foreign exchange risk in the investment portfolio is hedged close to 100 per cent, within a permitted limit of +/- ten per cent per currency, except for smaller mandates where active currency management is included.
The Group underwrites insurance in the Scandinavian and Baltic countries, so it has insurance liabilities in these currencies. The foreign exchange risk, at both the group and company levels, is generally hedged by matching technical provisions with investments in the corresponding currency. The currency hedging strategy changed mid-2015, from focusing on stable book equity to focus on stable surplus capital for the Group in accordance to the capital requirement which is the most binding at any time. This is done by adjusting assets in foreign branches and subsidiaries such that surplus capital in foreign currency is minimized, which minimizes currency risk in the surplus capital for the Group. The effect of exchange rate movements on available capital and the capital requirement will be of the same magnitude. This minimizes fluctuations in surplus capital. The strategy has been efficient post implementation.
The table below shows the foreign currency exposure by currency type. The gross positions show exposure from investments. Currency positions related to the new currency hedging strategy, where the surplus capital of the subsidiaries are minimised, are not included. A ten per cent strengthening of NOK against all other currencies will increase surplus capital by NOK 9.8 million, decrease profit or loss by NOK 10.3 million and decrease book equity by NOK 636.5 million. A weakening of NOK will have the opposite effect.
Currency transactions are performed within strictly defined limits and are employed in both ordinary management and to hedge financial instruments. The table below shows both gross and net positions. Currency hedging is done primarily by using forward contracts or swaps. Currency positions are continuously monitored against exposure limits per currency.
For investments, risk limits for credit risk are set in several ways. As a starting point a credit limit is set for designated counterparties. For issuers with an official credit rating from a recognised rating agency, this is generally utilised as a criterion. The list of credit limits is approved by the CFO and used for all separate mandates and for derivative counterparties. In addition, the board-approved asset allocation sets limits on global bonds, both bonds with high financial strength ratings (investment grade) and other bonds (high yield). In addition, there is a maximum limit on credit duration measured as a one per cent change in credit spreads that include all fixed-income assets in the balance sheet. This limit was NOK 2,000 million in 2015.The Group’s total fixed-income portfolio of NOK 47,818.9 million as at 31 December 2015 (including the amortized cost portfolio, other bonds, certificates and deposits) consisted of NOK 5,736.6 million issued by government sector entities and NOK 42,082.3 million issued by non-public entities. Most of the latter category was financial institutions. The distribution is shown in the table below.
Risk by 100 bps change in credit spread 3.4 (1,449.2) (1,500.0)
Table 20 – Allocation of fixed-income portfolio per sector 31.12.2015 31.12.2014
Table 22 – Fixed-income portfolio per rating category, internal rating included.
A large part of the Norwegian fixed-income portfolio consists of issuers without a rating from an official rating company. However, many asset managers and brokerages conduct their own internal rating, assigning rating categories in the same way as the rating companies. For completeness, the second table also includes the allocation using the internal rating of Gjensidige’s main asset manager, Storebrand Asset Management. The following tables show the largest issuers as of 31 December 2015 and 31 December 2014, respectively.
NOK millions Direct insurance Reinsurance 31.12.2015 Instalments not due 4,514.4 28.7 <35 days 220.1 0.5 35-90 days 122.3 0.2 > 90 days 110.6 0.6 Total 4,967.4 30.0 31.12.2014 Instalments not due 4,157.2 49.2 <35 days 255.8 16.7 35-90 days 74.4 0.5 > 90 days 75.4 0.5 Total 4,562.8 66.9
Figure 9a – Potential credit exposure reinsurance per rating category 2015
The following table provides an overview of the breakdown of reinsurance receivables and the reinsurers’ share of outstanding claims per rating category. The exposure in the not-rated category primarily relates to run-off business and is broken down between numbers of counterparties. The companies in run-off no longer have a rating.
Based on this kind of scenario, the Board has set a liquidity requirement for 2015 of at least NOK 3,000 million in the most liquid assets, which includes deposits in banks, covered bonds (OMF), bonds and certificates issued by OECD countries or guaranteed by these countries and money market instruments rated A or better that have a due date within six months. The current allocation meets these requirements. The table below shows the classification used and the amounts as of 31 December 2015 and 2014 for Gjensidige Forsikring ASA.
Bonds and certificates coupons with maturity less than 6 months 303.6
Bonds and certificates coupons with maturity less than 6 months 372.8
Management of financial risk – Gjensidige Pensjonsforsikring Gjensidige Pensjonsforsikring (GPF) has separate guidelines for asset management and investment strategy approved by the Board. They specify targets and limits for the organisation of the investment management activities. A separate investment committee with representatives from GPF, Gjensidige Investeringsrådgivning (GIR) and the Group’s investment and capital management departments advise the CEO on matters pertaining to asset and risk management. The portfolio management is outsourced to GIR. Asset manager selection and asset allocation are based on advice from the Group’s Investment Centre.
The portfolios are stress tested in accordance with the recommendations from the Financial Supervisory Authority of Norway in order to measure whether the company can stand a given decline in value. The paid-up policy portfolio amounted to NOK 3,335.6 million as of 31 December 2015 with an average guaranteed interest rate of 3.5 per cent. The other group policy portfolio amounted to NOK 1,452.6 million, whereas the company portfolio had NOK 463.7 million in financial assets.
Table 27 – Asset allocation excluding the unit-linked portfolio, Gjensidige Pensjonsforsikring NOK millions 31.12.2015 31.12.2014
The table above shows the effect of a ten per cent fall 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, neither that a share of the return is normally allocated to the customers.
Changes in the regulatory framework Important changes that Solvency II will lead to is that Gjensidige Pensjonsforsikring will get a common solvency requirement for the combined asset and liability risk. The effect of this is that the capital requirement will basically become more risk-driven than under the current regulatory regime. The capital requirement will also be closely linked to the business strategy and risk profile.
Gjensidige Pensjonsforsikring has applied to the Financial Supervisory Authority of Norway to use the transition rules for technical provisions and got this approved by the Financial Supervisory Authority of Norway.
Management of credit and financial risk – Gjensidige Bank Gjensidige Bank ASA is exposed to credit risk, market risk, liquidity risk and operational risk. The Board approves the risk appetite statement and the strategy and policies for managing the bank's risks. The largest risk is the credit risk. The Board of Gjensidige Bank ASA has final responsibility for limiting and following up the risks in the bank. The bank’s management is responsible for implementing and adhering to strategy, policies, management and reporting related to the bank's risk management.
The bank's risk areas are evaluated continuously, and the strategy for the risk areas is reviewed annually by the Board. The bank uses statistical modelling to calculate capital requirements given the chosen level of confidence for most of the risk categories. The capital requirements are calculated for the risk areas for the entire strategy period in the current strategy plan, shown in the bank's ICAAP document, and capital adequacy is reported to the Board quarterly.
The Board sets the overall limit for the bank's credit risk appetite through its Credit Strategy and Policy and risk appetite statement. Gjensidige Bank ASA offers a wide range of lending products including secured as well as unsecured loans and credit to meet a variety of needs of consumers in Norway. Secured lending mainly comprises loans and credits secured by residential property. The bank also recently launched car finance business which includes loans and leasing secured by vehicles.
With the launch of the car finance, the bank has also started commercial lending in a limited basis to support the growth of the standard loans and leasing offered within the car finance business and creates awareness in the market of our products. This includes products like dealer floor finance, fleet finance to key players in the car dealer market and loans and leasing to a few corporates related to car business. Lending in the commercial segment is normally secured exposures.
Models for monitoring credit risk The bank uses application score models based on internal and external customer data for decisions relating to customers’ applications for a loan. In addition, the bank uses behaviour score models that predict the probability of default for decisions related to top-ups, collections, group write-downs and other portfolio management decisions.
The bank's maximum exposure to credit risk is NOK 42,693.3 million.
Low 28,635.6 4,954.1 33,589.7 Medium 5,928.3 1,185.2 7,113.5 High 998.5 68.0 1,066.5 Not classified 46.1 83.0 14.3 143.4 Past due and impaired 1,127.0 6.1 1,133.2 Total 36,735.5 83.0 6,221.6 6.1 43,046.3 Group write-downs 352.9 352.9 Total net 36,382.6 83.0 6,221.6 6.1 42,693.3
Table 31 – Payments overdue NOK millions 31.12.2015 31.12.2014 0-30 days 555.9 383.0 30-90 days 163.1 95.0 Over 90 days 339.2 300.9 Total 1,058.2 778.9
Gross lendings in default for more than 90 days amounted to NOK 339.2 million by the end of the year, compared to NOK 300.9 million in 2014. The total written-down balance on loans in 2015 amounted to NOK 359.1 million compared with NOK 355.2 million in 2014. Gross lendings in default for more than 90 days amounted for 0.9 per cent of gross lending as of the end of the year, compared to 1.1 per cent in 2014.
Market risk Market risk is the risk of losses associated with movements in market prices, which, in this context, concerns positions and activities in the interest, currency and stock markets.
Currency risk is the risk of loss due to changes in exchange rates. The risk arises from the bank's bond in foreign currency. The bank manages this risk by using derivatives. The bank changes from currencies into NOK with an approved counterparty on both principal and interest through "cross currency rate swaps". In practice this means that a combination of a bond in currency and cross-currency rate swap rate swap, the bond is converted from currency into a bond in NOK based on NIBOR. Under IFRS the changes in the fair value of the derivative related to changes in cross currency basis swaps are recognised as value change in financial instruments.
Concentration risk Concentration risk is the risk of losses due to the bank having large parts of its lending tied to a single borrower or to limited geographic or business areas. The concentration risk is managed using the bank’s risk framework and is measured and assessed through annual stress tests / scenario analyses in the credit area.
Operational risk Operational risk is the risk of losses resulting from inadequate or failing internal processes or systems, human error or external events. The bank has its own loss and event database for the evaluation, follow-up and storage of operational incidents.
The liquidity risk due to lack of access to liquidity is managed by having sufficient liquid assets to cover liabilities that reach maturity. The bank shall have a liquidity reserve (buffer) in short-term deposits, liquid securities and/or committed credit facilities that, in an acute liquidity freeze in the market, allow sufficient time to implement the necessary measures.
As of 31 December 2015, the liquidity reserve was NOK 4,663.2, divided between NOK 626.2 million in bank deposits and NOK 4,037.0 million in debts securities. Of these assets NOK 851.7 million were investments in covered bonds issued by Gjensidige Bank Boligkreditt AS (eliminated in the consolidated accounts). The net liquid assets were at an adequate level that covers the bond debt that will fall due in the next 32 months. Stress tests have also been carried out to demonstrate the bank’s needs for a liquidity reserve based on future scenarios involving a recession and/or financial crisis.
Debt to credit institutions Deposits from and liabilities to customers 16,702.4 536.8 2,118.1 19,357.2 Debt incurred through the issue of securities 10.2 454.1 822.3 13,948.1 2,927.0 18,161.7 Loan approvals and unused drawing rights 7,527.2 7,527.2 Derivatives - gross outflows 1 0.7 16.3 61.4 216.8 74.8 369.9 Total liabilities 24,240.4 1,007.1 3,001.8 14,164.9 3,001.8 45,416.0 1 Derivatives gross inflows 1.5 6.8 97.7 327.0 145.5 578.5 Financial derivatives - net settlement (negative figures yield net payment) (0.8) 9.5 (36.3) (110.2) (70.7) (208.6)
The group has six reportable segments, as described below, which offers different products and services within different geographical areas. The Group CEO holds regular meetings with its reporting managers concerning performance management, which focuses on future measures to ensure performance and deliveries. Commercial Sweden was moved from Commercial Norway to Nordic as from 1 January 2015. Comparable figures are restated accordingly.
General Insurance Nordic The Nordic segment includes the Group’s operations in the Danish and Swedish private, commercial and municipal markets.
Cost As at 1 January 2015 3,084.4 1,023.5 44.9 1,122.4 299.1 5,574.4 Additions 73.5 56.0 129.5 Additions internal 16.5 16.5 Additions through business combinations 497.1 75.4 184.3 756.8 Additions from internal development 156.2 156.2 Disposals/reclassifications (227.5) (5.8) (0.8) (244.9) (2.5) (481.5) Exchange differences 177.1 59.2 2.1 25.3 28.8 292.5 As at 31 December 2015 3,531.1 1,168.8 46.2 1,132.6 565.7 6,444.4 Uncompleted projects 118.0 118.0 As at 31 December 2015, including uncompleted projects 3,531.1 1,168.8 46.2 1,250.6 565.7 6,562.4
Amortisation and impairment losses As at 1 January 2015 (265.4) (615.7) (37.7) (673.5) (149.4) (1,741.7) Amortisations (104.7) (7.0) (171.1) (71.7) (354.6) Disposals/reclassifications (17.6) 5.8 0.8 199.8 2.5 191.4 Impairment losses recognised in profit or loss during the period (13.5) (13.5)
Nykredit Forsikring Nordic 876.2 840.7 Gjensidige Forsikring, Swedish branch Nordic 158.2 144.4
In the fourth quarter there has been an impairment loss on goodwill of NOK 13.5 million related to an underlying business in Baltics. A new assessment of impairment loss was conducted due to a negative underlying business development. The impairment loss is included in the line amortization and impairment losses of excess value on intangible assets. Value in use is used for the valuation.
Budgets/prognoses and the period for which the cash flows are projected The projection of cash flows is based on budget and forecast for the next five years reviewed by the management and approved by the Board. In the period after 2019 a lower annual growth has been used than in the budget period. The terminal value is calculated in 2024. The growth is grounded in the fact that the companies are small with a solid parent company, which gives them good chances of increasing market shares. In the forecast period the Swedish branch has a higher premium growth than the other cash generating units because several measures are established in 2015 to increase growth and improve profitability. The cash flows are estimated to a normal level before a terminal value is calculated. Gjensidige normally has a ten-year horizon on its models, as the acquired companies are in a growth phase and a shorter period will give a less correct view of expected cash flows.
Level of combined ratio (CR) The expected CR level is both in the growth period and when estimating the terminal value considered to be from 80.6 to 112.2.
Growth rate in terminal value calculation The growth rate is determined to 2.5 per cent in Scandinavia and 3.0 per cent in Baltics. In 2014 3.0 per cent were used for all cash generating units.
Gjensidige Baltic No need for impairment No need for impairment No need for impairment No need for impairment Gouda porfolio No need for impairment No need for impairment No need for impairment No need for impairment Mondux porfolio No need for impairment No need for impairment No need for impairment No need for impairment PZU No need for impairment No need for impairment No need for impairment No need for impairment
Joint ventures Oslo Areal AS Oslo, Norge 50,0 % 1,086.9 1,509.0
Joint ventures - additional information Oslo Areal AS (November-December 2015) 3 54.6
In November, Gjensidige sold 50 per cent of the shares in Oslo Areal to AMF Pensionsforsäkring (AMF). The transaction implies that Gjensidige and AMF will own Oslo Areal together as a joint venture, as each party has rights to its share of the net assets of the arrangement. The parties will make joint investments in the Norwegian real estate market through Oslo Areal. The investment is recognised according to the equity method at NOK 1.5 billion at year end. Principles for valuation of real estate investments are disclosed in Note 9 Investment property. Gjensidige Forsikring has granted a loan to Oslo Areal amounting to NOK 1.5 billion at year end. The loan is interest-bearing.
Part of the agreement is that Gjensidige, through a price-adjustment mechanism, will be exposed to the property market development with an amount corresponding to half of the proceeds during the period until 31 December 2016. Gjensidige will therefore have a higher property-exposure in this period than the 50 per cent holding in Oslo Areal. The exposure that this agreement represents is not recognised. The agreement is recognised at fair value and the unrealised gain was NOK 16.2 million at December 31. 2015.
There are some restrictions on Gjensidige Forsikring ASA’s ability to access or use the Group’s assets, as well as settling its obligations. Group contributions added together with dividends must not exceed justifiable payment of dividend based on a company’s financial strength and operations. Distributions from life insurance companies must be within profit for the year. Is it desired to distribute more than this then it has to be approved in advance by the Financial Supervisory Authority. The regulatory framework for capital adequacy and solvency margin must be complied, as well as asset management regulations that set requirements which must be met in order to cover the technical provisions. In addition, Gjensidige shall fulfil the capital requirements for an A rating, which ties additional capital.
112 | Gjensidige annual report 2015 7. Owner-occupied property, plant and equipment
Disposals 6.9 39.0 45.9 Impairment losses reversed during the period 0.8 0.8 Exchange differences (0.2) (5.2) (5.4) As at 31 December 2014 (45.8) (386.8) (432.6)
Depreciation and impairment losses As at 1 January 2015 (45.8) (386.8) (432.6)
Disposals 50.1 31.3 81.3 Exchange differences (0.2) (5.4) (5.5) As at 31 December 2015 (7.8) (420.2) (428.0)
The following financial assets are classified as level one in the valuation hierarchy
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 nonobservable market data.
• Unlisted private equity investments. The private equity investments that are not organized as funds are valued using cash flow analysis, price multiples and recent market transactions. The private equity investments that are organized as funds are valued based on NAV (Net Asset Value) as reported by the fund administrators in accordance with IPEV guidelines (International Private Equity and Venture capital Valuation. The NAV are estimated by the fund administrators by using the valuation techniques best suited to estimate fair value, given the actual circumstances of each underlying investment. Because of late reporting from the funds, the NAV from the previous quarterly reporting are used in estimating fair value. The NAV is then assessed for discretionary adjustments based on objective events since the last reporting date. Objective events may be the development in underlying values of listed companies since the last reporting, changes in regulations or substantial market movements. By substantial market movements in general or in individual sectors, as measured by the development in various stock market indices, it is predictable that the value of PE investments will be affected as well. On the basis of what this produces of information a final valuation is made.
• Gjensidige’s paid-in capital in Gjensidige Pensjonskasse. The paid-in capital is valued at nominal value.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 434.3 434.3 470.2 470.2 Financial derivatives subject to hedge accounting 52.2 52.2
Loans and receivables Bonds and other fixed income securities classified as loans and receivables 10 16,173.2 17,439.1 19,596.2 21,911.7 Loans 10 39,664.1 39,973.7 27,373.2 27,402.8 Receivables related to direct operations and reinsurance 10 4,997.4 4,997.4 4,629.8 4,629.8 Other receivables 10 502.7 502.7 823.6 823.6 Prepaid expenses and earned, not received income 10 96.7 96.7 209.0 209.0 Cash and cash equivalents 11, 26 3,151.9 3,151.9 2,403.8 2,403.8
Financial liabilities at amortised cost Subordinated debt 21 1,547.2 1,485.5 1,447.1 1,448.6 Deposits from and liabilities to customers, bank 15 19,357.2 19,357.2 16,703.4 16,703.4 Interest-bearing liabilities 15 17,804.7 17,616.7 10,300.3 10,405.6 Other liabilities 15 1,065.4 1,065.4 1,006.5 1,006.5 Liabilities related to direct insurance 15 619.4 619.4 626.3 626.3 Accrued expenses and deferred income 15 485.3 485.3 424.9 424.9
Financial assets at amortised cost Bonds held to maturity 556.6 2,629.1 3,185.7 Bonds and other fixed income securities classified as loans and receivables 21,910.6 1.1 21,911.7 Loans 27,402.8 27,402.8
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 19.6 298.3 317.9 Financial derivatives subject to hedge accounting 209.3 209.3
unrealised gains recognised in profit or loss that are attributable to instruments held as at
Shares and similar interests Decrease in value 10% 213.2 Bonds and other fixed income securities Decrease in value 10% 40.6 Total 253.8
Fair value hedging Gjensidige Bank utilizes fair value hedge accounting to manage its interest rate risk. Hedging is performed to prevent from valuation variations of issued fixed rate obligations due to changes in the rate level. Interest rate swaps designed as hedging instruments are measured at fair value through profit or loss. The changes in fair value for the hedging object linked to the hedged risk are accounted as addition or deduction to the carrying value and in profit or loss. Interest rates swaps are renewed every quarter.
Gjensidige Forsikring ASA, Danish branch Currency-related contracts - hedging instruments 0.0 0.0 0.0 Hedging object 0.0 Nykredit Forsikring A/S Currency-related contracts - hedging instruments 0.0 0.0 0.7 Hedging object 0.0
Gjensidige Bank ASA, group Interest rate swaps - hedging instruments 145.7 150.9 Obligation debt - hedging object (151.4) Net gain/loss recognised in profit or loss (0.5)
118 | Gjensidige annual report 2015 9. Investment properties Gjensidige Insurance Group sold 50 percent of Oslo Areal in the fourth quarter ( see note 6) .The investment is accounted for as a joint venture using the equity method amounting to 1.5 billion at year end, in addition Gjensidige Forsikring has provided a loan to Oslo Areal of 1.5 billion. Information about investment properties relate to 50 percent of the underlying properties in Oslo Areal.
As at 1 January 6,104.0 4,644.3 Additions 79.6 767.5 Additions through business combinations 565.9 Disposals (3,275.8) (150.0) Net gains/(losses) from fair value adjustments 198.2 279.5 Transfer from/(to) owner-occupied property (6.4) (3.2) Transfer to joint ventures (3,099.7) As at 31 December 0.0 6,104.0
Yield increases by 0.25 percentage points 2,871.5 3,154.2 3,437.0 Yield 5,9 per cent 3,002.4 3,297.7 3,593.9 Yield decreases by 0.25 percentage points 3,145.4 3,455.4 3,765.4
Loans and receivables Mortgage loans 31,256.4 23,817.4 Bonds classified as loans and receivables 19,295.8 19,596.2 Other loans 163.2 181.0 Subordinated loans 3.7 2.6 Provision for impairment losses (360.9) (358.0) Loans for consumer goods 5,479.1 3,730.1
Total loans and receivables 55,837.3 46,969.5 Receivables related to direct operations and reinsurance Receivables from policyholders 4,967.4 4,562.8 Receivables related to reinsurance 30.0 66.9
Total receivables related to direct operations and reinsurance 4,997.4 4,629.8 Other receivables Receivables in relation with asset management 279.4 629.9 Other receivables and assets 223.2 193.7
Of other loans NOK 101.6 million (123.3) are loans given 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 vary from one year to over 20 years. Gjensidige Forsikring has not offered this type of loan to its customers since 2008. The default rate is 1.00 (1.00) per cent at year end.
Included in other loans are also NOK 60.7 million (53.8) in loans given with regard to sale of subsidiaries.
Note 3 table 24 shows the age distribution of these receivables
Deposits with financial institutions 960.6 594.3 Cash and bank deposits 2,191.3 1,809.5
Cash and bank deposits are cash and bank deposits available for day to day business. Deposits with financial institutions consist of short-term currency deposits and other short-term credit deposits.
Gjensidige Forsikring ASA Norwegian financial shares SpareBank1 SR-bank 1,053.6 Sparebanken Midt-Norge 14.9 Sparebank 1 Nord-Norge 15.4 Sparebanken Vest 10.6 Indre Sogn Sparebank 0.3 Total Norwegian financial shares 1,094.7
Other foreign shares Volvo 11.9 Grand City Properties SA 8.4 LEG Immobilien AG 7.8 Deutsche Wohnen AG 7.7 Vonovia SE 7.5 Total other foreign shares 43.3
Shares and similar interests owned by branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 0.4 Total shares and similar interests owned by branches 0.4
Insurance-related liabilities, reinsurers' share Reinsurers' share of unearned premiums, gross 40.7 28.7
Claims reported and claims handling costs 486.5 523.1 Claims incurred, but not reported 5.9 Total reinsurers' share of claims provision, gross 492.3 523.1
Increase in liabilities Arising from current year claims 16,564.7 (140.2) 16,424.5 16,140.8 (132.6) 16,008.2 - of this paid (8,632.0) 2.2 (8,629.8) (8,196.8) (2.3) (8,199.1) Arising from prior year claims (run-off) (653.3) (71.4) (724.8) (520.7) 26.9 (493.8) Other changes, including effects from discounting (806.1) (806.1) (363.7) (363.7) Exchange differences 580.2 (32.7) 547.5 621.9 (24.2) 597.7 Total as at 31 December 33,178.5 (492.3) 32,686.2 32,926.9 (523.1) 32,403.7
NOK millions 2015 2014 Discounted claims provision, gross - workers' compensation insurance in Denmark 5,067.4 4,844.4 Nominal claims provision, gross - workers' compensation insurance in Denmark 5,794.7 5,458.6
The claims provisions shall cover future claims payments. The claims provisions for workers’ compensation insurance in Denmark are converted to present value (discounted), whereas other provisions are nominal.
The reason why the claims provisions for workers’ compensation insurance in Denmark are discounted is that this portfolio consists exclusively of Danish workers’ compensation business with very long payment flows and substantial future interest income. The claims for occupational injuries in Denmark are paid either as annuities or as lump-sum indemnities (which are calculated mainly as discounted annuities). Therefore, it is most expedient to regard the whole portfolio as annuities. The discount rate used is the swap rate.
Branches of Gjensidige Forsikring and some of its subsidiaries have a defined contribution pension plan corresponding to the plan in Gjensidige Forsikring.
The ordinary retirement pension is a funded plan where the employer contributes payments to pension funds. Pension beyond the common collective agreement is an unfunded plan paid from operations.
Actuarial assumptions The discount rate is based on a yield curve stipulated on the basis of the covered bond yield. The discount rate is based on observed interest approximately ten years ahead. The market’s long-term view of the interest rate level is estimated on the basis of the required real interest rate, inflation and future credit risk. An interpolation has been made in the period between the observed interest and long-term market expectations. A discount curve has thus been calculated for each year in which pensions will be disbursed. The discount rate for a pension payment is 2.55 per cent (2.06) in year 10, 2.89 per cent (2.48) in year 15, 3.05 per cent (2.76) in year 20, 3.16 per cent (2.94) in year 25, 3.22 per cent (3.06) in year 30, and 3.30 per cent (3.19) in year 40.
The discount rate is the assumption that has the greatest impact on the value of the pension liability. Wage growth, pension increases and the adjustment of the National Insurance basic amount are based on historical observations and expected future inflation. Because the average age of the employees who are members of the defined contribution plan is above 55 years, wage growth does not contain a career supplement, and the determined wage growth may therefore be lower than is otherwise normal in the market. The decreasing wage trend applied to Gjensidige Forsikring for 2015 shows an average salary increase of 1.6 per cent (2.0) in Gjensidige’s population.
Stock market risk Over the year, the pension fund has been exposed to stock market risk through unit trusts and purchase options. The exposure was 3.7 per cent (6.0) at the end of the year. The pension assets have low exposure to the stock market. The greatest stock market risk is deemed to be the risk of a fall in the stock market.
Gjensidige resumes that a continued low interest rates in future and changes in EU based rules might entail an increase in future contributions to the funded pension plan.
Business combinations (3.7) (3.7) As at 31 December 2,366.0 2,366.0 2,405.0 2,405.0
Cumulative amount as at 1 January (2,229.8) (1,819.4) Return on plan assets (5.4) 2.3 Changes in demographic assumptions 1.3 (37.9) Changes in financial assumptions 73.0 (374.5) Sold companies (6.7) Exchange rate differences (0.3) Cumulative amount as at 31 December (2,167.5) (2,229.8)
Other specifications Amount recognised as expense for the defined contribution plan 150.7 130.6
Sensitivity 10% increased mortality (4.3%) (4.3%) 10% decreased mortality 3.3% 3.3% + 1% point discount rate (11.1%) (11.3%) - 1% point discount rate 14.7% 15.0% + 1% point salary adjustment 4.3% 4.5% - 1% point salary adjustment (3.3%) (3.4%) + 1% point social security base amount (1.6%) (1.7%) - 1% point social security base amount 1.8% 1.9% + 1% point future pension increase 11.9% 12.2% - 1% point future pension increase (9.4%) (9.5%)
Shares and similar interests 144.3 144.3 Bonds 178.0 1,974.5 2,152.5 Bank 33.7 33.7 Derivatives 74.6 74.6 Total 178.0 2,152.5 2,405.0
Gjensidige annual report 2015 | 127 15. Provisions and other liabilities
Other liabilities Outstanding accounts Fire Mutuals 40.0 15.1 Accounts payable 185.7 163.6 Liabilities in relation with properties 1.2 2.3 Liabilities to public authorities 354.1 301.7 Other liabilities 484.4 523.9 Total other liabilities 1,065.4 1,006.5
Liabilities related to insurance Liabilities related to direct insurance 531.6 530.2 Liabilities related to reinsurance 87.8 96.0 Total liabilities related to insurance 619.4 626.3
Restructuring cost 1 Provisions as at 1 January 7.1 25.4 New provisions 84.9 Provisions used during the year (7.1) (18.3) Exchange rate difference 0.9 Provision as at 31 December 85.8 7.1 1 In 2015, NOK 85.8 million is allocated to restructuring provision, due to a decision of changes in processes in Norway, Denmark and Sweden. The processes have been communicated to all entities affected by the changes.
Taxable temporary differences Properties 0.8 2,377.1 Plant and equipment and intangible assets 465.3 Shares, bonds and other securities 119.2 Profit and loss account 229.5 287.8 Security provisions etc. 3,439.6 3,415.0 Total taxable temporary differences 4,254.4 6,079.9
Reconciliation of tax expense Profit before tax 5,049.7 5,399.6 Estimated tax of profit before tax expense (27%) (1,363.4) (1,457.9)
Tax effect of Different tax rate in foreign subsidiaries (9.2) 2.4 Change in tax rate 76.6 (8.6) Valuation allowance and reversal of loss carried forward in subsidiaries (7.6) (0.6) Dividend received 18.9 61.9 Tax exempted income and expenses 42.7 165.8 Associates and joint ventures 23.4 51.9 Impairment loss on goodwill and recognition of negative goodwill (2.0) (6.1) Non tax-deductible expenses (34.5) (10.2) Correction previous years (9.9) (8.6)
Total tax expense (1,265.0) (1,210.0) Effective rate of income tax 25.1 % 22.4 %
Loss and dividend tax deduction carried forward 2016 2017 2018 2019 2020 Later or no due date 71.4 7.5 Total loss and dividend carried forward 71.4 7.5
Change in deferred tax Deferred tax liabilities as at 1 January 1,284.1 1,335.7 Change in deferred tax recognised in profit or loss 115.7 (2.3)
Change in deferred tax recognised directly in the balance sheet Pensions 17.5 (110.8) Hedge accounting (34.5) Companies sold and purchased (593.9) 87.7 Exchange rate differences (0.5) 8.4 Net deferred tax liabilities as at 31 December 822.9 1,284.1
Tax recognised in other comprehensive income Deferred tax pensions (17.5) 110.8 Deferred tax on hedge accounting 34.5 Tax payable on hedge accounting (34.4) 29.4 Tax payable on exchange rate differences (79.9) (36.7) Total tax recognised in other comprehensive income (131.8) 138.0
Operating expenses Depreciation and value adjustments (note 5 and note 7), excl. depreciation properties 426.7 404.7 Employee benefit expenses (note 18) 2,545.0 2,263.4 Fee for customer representatives 6.7 6.3 Software costs 470.9 421.6 Auditor’s fee (incl. VAT) 5.2 6.0 Consultants’ and lawyers’ fees 114.1 94.3 Commissions 789.6 617.5 Other expenses 1 (304.5) (2.0)
Expenses related to investments Depreciation and value adjustments (note 5 and note 7) 11.8 11.4 Employee benefit expenses (note 18) 14.4 15.6 Software costs 0.4 0.5 Auditor’s fee (incl. VAT) 1.1 0.7 Consultants’ and lawyers’ fees 2.9 3.6 Other expenses 198.3 167.5
Employee benefit expenses Wages and salaries 1,922.9 1,735.3 Social security cost 383.9 328.7 Pension cost - defined contribution plan (note 14 incl. social security cost) 176.2 153.0 Pension cost - defined benefit plan (note 14 incl. social security cost) 63.3 49.1 Share-based payment 13.0 13.0
Gjensidige annual report 2015 | 131 18. Salaries and remuneration The average number of employees in the Group was 3,970 (3,634).
Guidelines for remuneration and career development shall be linked to achievement of the Group’s strategic and financial goals and core values, and both quantitative and qualitative targets shall be taken into consideration. The measurement criteria shall promote the desired corporate culture and long-term value creation, and, as far as possible, take actual capital costs into account. The remuneration system shall contribute to promoting and providing incentives for good risk management, prevent excessive risk-taking and contribute to avoiding conflicts of interest. A fixed basic salary shall be the main element of the overall remuneration, which also consists of variable pay, pension and payments in kind. Variable remuneration shall be used to reward performances beyond the expected, where both results and behaviour in form of compliance of with the company values, brand and management principles are to be assessed.
None of the executive personnel with supervisory tasks currently has variable bonus schemes, but they get to participate in the collective bonus scheme in the same manner as other employees. The fixed salary is based on the Group’s general principles of competitively, but not leading wages.
Report on executive remuneration in the preceding financial year In accordance with the guidelines, one employee in the finance department has been offered up to 50 per cent variable remuneration. The Board confirms that the guidelines on the remuneration of executive personnel for 2015 set out in last year’s statement have been complied with.
Catharina Hellerud, Executive Vice President 2,838.8 340.6 163.1 268.2 407.3 3,088 5,154 7,931 12,135 3
Control committee Sven Iver Steen, Chairman 167.5 2.9 1,778 Hallvard Strømme 104.5 4.9 Lieslotte Aune Lee 104.5 2.9 Vigdis Myhre Næsseth, Deputy 94.5 2.9
1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 4 Annual fee of NOK 96.3 thousand for Chairman and NOK 23.0 thousand for Deputy Chairman. In addition, fee as Chairman of the Nominating committee. 5 For staff representatives only remuneration for the current position is stated. 6 Everyone in the senior group management except for one has pension plans, benefit or contribution based. 7 Including bonus shares in the share saving's programme for employees. See note 28 for terms and further description of the scheme. 8 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 137.0 thousand for 2014. 9 Remuneration includes participation in the Audit Committee honored with NOK 91.5 thousand for 2014. 10 Hege Yli Melhus Ask has been on leave from 3 August to 31 December. Her remuneration is presented for the whole year. 11 Constituted Executive Vice President for Hege Yli Melhus Ask from 4 August to 31 December. 12 Borrower in Gjensidige Bank ASA with NOK 4,477.6 thousand outstanding. Applicable conditions are 3.25% in interest rate and loan maturity 31.12.2021.
Gjensidige annual report 2015 | 135 19. Net income from investments
Net income and gains/(losses) from investments in associated companies Net income from associated companies 47.7 77.5 Net gains/(losses) from sale of associated companies 2.0 114.5 Total net income and gains/(losses) from investments in associated companies 49.7 192.0
Net income and gains/(losses) from financial assets at fair value through profit or loss, designated Shares and similar interests Dividend income 72.1 12.7 Unrealised gains/(losses) from shares and similar interests (493.5) 212.9 Realised gains/(losses) from shares and similar interests 615.7 732.0 Total net income and gains/(losses) from shares and similar interests 194.3 957.6
Total net income and gains/(losses) from financial assets at fair value through profit or loss, designated (544.4) 1,036.4
Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 132.3 173.5 Unrealised gains/(losses) from bonds held to maturity (2.0) 0.8 Realised gains/(losses) from bonds held to maturity 0.3 (72.8) Net gains/(losses) from changes in exchange rates on bonds held to maturity 376.7 Total net income and gains/(losses) from bonds held to maturity 507.3 101.4
Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 741.1 806.1 Net gains/(losses) from loans and receivables 67.4 0.3 Net gains/(losses) from changes in exchange rates on loans and receivables 51.7 (152.0) Total net income and gains/(losses) from loans and receivables 860.1 654.4
Interest income from financial assets not recognised at fair value through profit or loss 874.5 1,051.7 Interest expenses from financial assets not recognised at fair value through profit or loss (309.3) (319.7)
Specification of other financially related income and expenses not recognised in net income from investments Commission arising from the investment of assets on behalf of individuals 39.4 36.4 1 Net other financial income/(expenses) include financial income and expenses not attributable to individual classes of financial assets or liabilities, and financial administration costs.
Change in gross provision for claims Gjensidige Baltic AAS 2.7 16.8 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 5.9 8.4 Nykredit Forsikring A/S 44.8 112.3
Gains and losses in connection with sale and liquidation Bilskadeinstituttet AS (liquidated in 2014) 2.0 (0.2) Oslo Areal AS 379.1 Storebrand ASA 114.7
Intercompany non-interest-bearing debts and receivables Byggeriet Forsikringsservice A/S 1.3 Försäkringshuset Amb & Rosèn AB 1.3 Gjensidige Baltic AAS 3.4 Gjensidige Bank ASA (owned by Gjensidige Bank Holding AS) 0.3 Gjensidige Pensjon og Sparing Holding AS 31.6 0.9 0.4 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 3.1 21.1 10.3 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding AS) 0.1
Claims provision Gjensidige Baltic AAS 11.0 7.5 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 14.3 8.4 Nykredit Forsikring A/S 523.7 576.7 Total claims provision 549.0 592.5
Other transactions Interest on bank deposits Gjensidige Bank ASA Brannkassene 0.3 0.5 Interest on bank deposits Gjensidige Bank ASA Gjensidigestiftelsen 3.9
Equity 23,330.6 21,656.8 Security provision (2,823.4) (2,818.0) Dividend (4,200.0) (2,950.0) Tax effects 859.9 922.0 Equity NGAAP 17,167.1 16,810.8 Effect of guarantee scheme provision and Natural perils fund (2,790.2) (2,902.2) Goodwill (3,224.5) (2,819.0) Deferred tax assets (12.9) (5.0) Other intangible assets (1,343.6) (1,123.5) Investment properties, unrealised gains, proportion (367.4) Reinsurance provision, minimum requirement (4.8) (11.5) Core capital before 50/50-deductions 9,791.1 9,582.3 Proportion 50/50-deductions (413.6) (588.9) Core capital 9,377.5 8,993.3
Subordinated term debt 1,547.2 1,447.1 45% of investment properties, unrealised gains, proportion 165.3 Additional capital before 50/50-deductions 1,547.2 1,612.4 Proportion 50/50-deductions (413.6) (588.9) Additional capital 1,133.6 1,023.5
Assets with 0% risk weight 0.0 0.0 Assets with 10% risk weight 303.7 408.9 Assets with 20% risk weight 9,242.7 8,108.7 Assets with 35% risk weight 10,604.6 8,245.9 Assets with 50% risk weight 461.7 481.4 Assets with 100% risk weight 38,517.9 35,699.1 Assets with 150% risk weight 2,414.0 2,922.4 Total risk weighted assets 61,544.7 55,866.5
Net primary capital 10,511.1 10,016.8 Proportion of security provision 1,270.5 1,268.1 Proportion of Natural perils fund (up to 25% of the Natural perils fund is included) 542.7 576.3 Deduction due to discounting effects (72.7) (61.4) Solvency margin capital 12,251.7 11,799.8 Solvency margin minimum requirement 4,095.5 3,774.6 In excess of requirement 8,156.2 8,025.2
Gjensidige annual report 2015 | 143 28. Share-based payment Description of the share-based payment arrangements As at 31 December 2015, Gjensidige has the following share-based payment arrangements: Share-based remuneration for executive personnel with settlement in equity and cash (remuneration scheme) Gjensidige has established equity-settled share-based payment for the group management and more explicitly defined executive personnel.
Share-based remuneration for key personnel 8.3 9.3 Share savings programme for employees 4.7 3.7 Total expenses (note 17) 13.0 13.0
The number of bonus shares Outstanding 1 January 72,144 57,487 Granted during the period 43,012 37,957 Released during the period (32,841) (19,644) Cancelled during the period (923) (905) Forfeited during the period (4,737) (2,751) Outstanding 31 December 76,655 72,144 Exercisable 31 December 0 0 Average remaining life of outstanding bonus shares 1.00 0.96 Weighted average fair value of bonus shares granted 112.88 100.79 Weighted average share price of bonus shares released during the period 128.75 119.60
Weighted average number of shares 1 499,933,831 499,935,704 Weighted average number of diluted shares share-based payment 123,852 137,306 Weighted average number of shares, diluted 1 500,057,683 500,073,010
Earnings per share (NOK), basis 7.57 8.38 Earnings per share (NOK), diluted 7.57 8.38 1 Holdings of own shares are not included in the calculations of the number of shares.
Gjensidige annual report 2015 | 145 30. Acquisition of PZU On 2 February 2015, Gjensidige signed a contract with PZU SA relating to the purchase of 99.88 per cent of the shares in PZU Lietuva. The acquisition price was adjusted on closing from the previously announced EUR 54 million to EUR 66 million due to a corresponding increase in net asset value (NAV) in PZU Lietuva. Consequently, the capital effect is unchanged from what was previously announced.
PZU Lietuva offers general insurance products primarily within the motor, property and personal lines in Lithuania. The voting share is equal to the ownership share. Through its voting rights and in the absence of any contractual arrangements, Gjensidige has control over PZU Lietuva.
Gross premiums written for PZU Lietuva for the period 1 January 2015 to 30 September 2015 amounted to EUR 39.2 million, whereas the loss before tax expense in this period was EUR 1.3 million.
Goodwill 37.6 37.6 Intangible assets 1.1 9.5 10.6 Financial assets 55.3 55.3 Receivables 9.2 9.2 Other assets 2.6 2.6 Cash and marketable securities 2.7 2.7 Total assets 71.0 47.1 118.1 Liabilities related to direct insurance 45.2 45.2 Deferred tax liabilities 1.4 1.4 Other liabilities 5.4 5.4 Total liabilities 50.7 1.4 52.1
Premiums Gross premiums written 4 21,251.1 20,458.1 Ceded reinsurance premiums (450.1) (494.1) Premiums written, net of reinsurance 20,801.1 19,964.1 Change in gross provision for unearned premiums (226.8) (311.7) Change in provision for unearned premiums, reinsurers' share 2.9 12.6 Total earned premiums, net of reinsurance 20,577.2 19,665.1
Allocated return on investments transferred from the non-technical accounts 289.8 589.4
Allocated return on investments transferred to the technical accounts (289.8) (589.4) Other income 11.2 20.6 Other expenses 17 (9.7) (4.9)
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset 14 69.0 (403.1) Tax on items that are not reclassified to profit or loss (17.1) 108.8 Total items that are not reclassified subsequently to profit or loss 51.9 (294.2)
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operation 293.9 144.3 Exchange differences from hedging of foreign operation 62.7 (142.5) Tax on items that may be reclassified to profit or loss (96.7) 1.8 Total items that may be reclassified subsequently to profit or loss 259.9 3.6
Reinsurers' share of insurance-related liabilities in general insurance, gross Reinsurers' share of provision for unearned premiums, gross 13 32.0 28.7 Reinsurers' share of claims provision, gross 13 361.7 501.0 Total reinsurers' share of insurance-related liabilities in general insurance, gross 393.7 529.7
Prepaid expenses and earned, not received income Earned, not received interest income 22.2 14.1 Other prepaid expenses and earned, not received income 3.5 36.7 Total prepaid expenses and earned, not received income 25.7 50.8
Equity and liabilities Paid in equity Share capital 1,000.0 1,000.0 Own shares (0.1) (0.1) Share premium 1,430.0 1,430.0 Other paid in equity 29.3 22.8 Total paid in equity 2,459.2 2,452.7
Insurance-related liabilities in general insurance, gross Provision for unearned premiums, gross 4, 13 8,238.4 7,836.7 Claims provision, gross 4, 13 31,652.5 31,981.9 Provision for premium discounts and other profit agreements 44.5 69.9 Security provision 4 2,823.4 2,818.0 Total insurance-related liabilities in general insurance, gross 42,758.8 42,706.5
Liabilities Liabilities related to direct insurance 8 392.1 330.1 Liabilities related to reinsurance 8 82.7 137.0 Financial derivatives 8 366.3 506.3 Accrued dividend 4,200.0 2,950.0 Other liabilities 8, 15 970.4 883.2 Liabilities to subsidiaries and associates 8, 22 22.2 57.4 Total liabilities 6,033.7 4,864.1
Accrued expenses and deferred income Other accrued expenses and deferred income 8, 15 297.2 275.6 Total accrued expenses and deferred income 297.2 275.6
Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset (403.1) (403.1) Tax on items that are not reclassified to profit or loss 108.8 108.8 Total items that are not reclassified subsequently to profit or loss (294.2) (294.2)
Own shares (0.0) (6.3) (6.3) Accrued and paid dividend (4,948.9) (4,948.9) Equity-settled share-based payment transactions 5.7 5.7
Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 293.9 293.9 Exchange differences from hedging of foreign operations 62.7 62.7 Tax on items that may be reclassified to profit or loss (96.7) (96.7) Total items that may be reclassified subsequently to profit or loss 259.9 259.9
Own shares (0.0) (9.9) (9.9) Accrued and paid dividend (4,199.6) (4,199.6) Equity-settled share-based payment transactions 6.5 6.5
IFRS 9 contains three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income, and fair value through profit or loss. Financial assets will be classified as either at amortised cost, at fair value through other comprehensive income, or at fair value through profit or loss, depending on how they are managed and which contractual cash flow properties they have. IFRS 9 introduces a new requirement in connection with financial liabilities earmarked at fair value: where changes in fair value that can be attributed to the liabilities' credit risk are presented in other comprehensive income rather than over profit or loss. IFRS 9 replaces an 'accrued loss model' with an 'expected loss model', which means that the loss no long has to have been incurred for it to be recognised as an impairment loss. The expected loss model is a two-step measurement model where the provision for loss is either measured as the 12-month expected loss or as the lifetime expected loss, depending on whether there has been a significant increase in the credit risk since it was first recognised. IFRS 9 introduces new requirements for hedge accounting that are more in accordance with the actual risk management. This means that the documentation requirements in IFRS are less rigid and that more hedging instruments and objects can qualify for hedge accounting. IFRS 9 will enter into force on 1 January 2018. Our provisional assessment is that the standard is expected to have an effect on Gjensidige's financial statements.
Our preliminary assessment is that the standard is not expected to have a significant effect on Gjensidige’s financial statements.
The recognition and measurement principles for Gjensidige’s segment reporting are based on the IFRS principles adopted in the consolidated financial statements. Inter-segment pricing is determined on arm’s length distance.
Allocated return on investments The allocated return on investments is calculated based on the average of the technical provisions throughout the year. The average yield on government bonds with three years remaining until maturity is used for the calculation. The Financial Supervisory Authority of Norway has calculated the average technical yield for 2015 and 2014 to be 0.76 and 1.55 per cent respectively. The allocated return on investments is transferred from the nontechnical account to the technical account.
Claims incurred in general insurance Claims incurred consist of gross paid claims less reinsurers’ share, in addition to a change in gross provision for claims, also less reinsurers’ share. Direct and indirect claims processing costs are included in claims incurred. The claims incurred contain run-off gains/losses on previous years’ claims -provisions.
Fair value is based on market prices, after consideration of any differences in type, location or condition of the individual property. Where market prices are not available, the properties are individually assessed by discounting the expected future net cash flow by the required rate of return for each investment. The net cash flow takes into account existing rental contracts and expectations of future rental income based on the current market situation. The required rate of return is determined based on the expected future risk-free interest rate and an individually assessed risk premium, dependent on the rental situation and the location and standard of the building. An observation of yields reported from market transactions is also performed. The valuation is carried out both by external and internal expertise having substantial experience in valuing similar types of properties in geographical areas where the Company's investment properties are located.
Intangible assets Goodwill Goodwill acquired in acquisition of portfolios represents cost price of the acquisition in excess of the company’s share of the net fair value of identifiable assets, liabilities and contingent liabilities in the acquired portfolio at the time of acquisition. Goodwill is recognised initially at cost and subsequently measured at cost less accumulated impairment losses.
• 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 the initial recognition value will be equal to the transaction price. Subsequent to initial recognition the instruments are measured as described below.
The company uses financial derivatives, amongst other to hedge foreign currency exchanges arising from the ownership of foreign subsidiaries with other functional currency.
Hedge accounting is applied on the largest branches. Gains and losses on the hedging instrument relating to the effective portion of the hedge are recognised in other comprehensive income, while any gains or losses relating to the ineffective portion are recognised in profit or loss. If subsidiaries are disposed of, the cumulative value of such gains and losses recognised in other comprehensive income is transferred to profit or loss. Where hedge accounting is not implemented, this implies a divergent treatment of the hedged object and the hedge instrument used. Hedge accounting of the largest branches was terminated in the second half-year of 2015.
Fair value hedging has in 2015 been carried out to hedge the currency in fixed agreements of acquisition of operations. Gains and losses on the hedging instrument are recognised in profit or loss, together with the change in fair value of the fixed agreement. The change in fair value of the fixed agreement is recognised in
Definition of fair value Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in an orderly transaction between market participants at the measurements date.
Quoted prices in active markets are considered the best estimate of an asset/liability’s fair value. 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. 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 nonobservable market data.
See note 28 for a further description of the Group’s share-based payment arrangements.
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.
Financial assets and liabilities The fair value of financial assets and liabilities that are not traded in an active market (such as unlisted shares) is determined by means of generally accepted valuation methods. These valuation methods are based primarily on the market conditions at the reporting date. See note 8.
Gjensidige annual report 2015 | 159 4. Premiums and claims etc. in general insurance
For segment information according to IFRS 8 please refer to note 4 in the consolidated financial statements. The information below is worked out based on the requirements in the Norwegian Financial Reporting Regulations for Insurance Companies.
Underwriting result Gross premiums written 2,693.9 5,090.2 2,356.4 2,733.8 220.2 537.3 916.0 385.1 9,842.6
Claims provision, gross 1,472.9 6,418.6 5,515.9 902.7 64.6 2,831.0 297.9 31.7 11,116.7 Gross loss liability 1,403.9 5,255.0 4,231.5 739.7 62.6 2,816.4 280.8 25.4 9,560.3
Pool arrangements Norwegian Natural perils fund 119.7 119.7 290.2 271.0 Norwegian Occupational Injury Insurers' Bureau 37.8 37.8 Norwegian Motor Insurers' Bureau 36.2 36.2 Norwegian Pharmapool 1.6 1.6 Total pool arrangements 119.7 119.7 365.7 346.5
Underwriting result Gross premiums written 2,543.8 1,243.3 1,600.0 615.8 984.2 625.0 624.9 282.8 117.5 50.8 63.2 433.7 107.7 2,032.5 9,725.3
Technical provisions Provision for unearned premiums, gross 602.7 707.5 523.0 189.3 333.7 226.5 190.1 70.8 53.0 14.8 22.0 87.7 2.2 500.5 3,000.8
Claims provision, gross 856.3 1,540.9 1,309.1 1,104.3 204.8 924.3 5,410.8 1,716.9 87.0 26.2 13.8 5,125.6 27.3 2,239.0 19,277.2 Gross loss liability 850.9 1,531.0 834.7 704.0 130.7 825.9 4,264.5 912.9 85.3 18.6 12.4 5,125.6 27.3 2,239.0 16,728.1
Security provision 1,225.9 FSAN 1 minimum requirement 1,225.9 1 The Financial Supervisory Authority of Norway.
Underwriting result Gross premiums written 191.1 191.1 1,038.3 160.4 1,198.7 293.4 21,251.1
Gross premiums earned 187.3 187.3 1,038.9 160.4 1,199.3 284.7 21,024.3 Gross claims incurred (108.1) (108.1) (716.6) (84.3) (800.9) (349.8) (14,003.4) Operating expenses gross (26.9) (26.9) (247.0) (7.6) (254.6) (3,117.5) Underwriting result 52.3 52.3 75.3 68.5 143.8 (65.1) 3,903.5
Security provision 26.3 99.4 2,823.4 FSAN 1 minimum requirement 26.3 99.4 2,823.4 1 The Financial Supervisory Authority of Norway.
Impairment testing of goodwill The carrying amount of goodwill in the company as at 31 December 2015 is NOK 1,676.7 million. See table.
Gouda portfolio 85.8 81.4 Gjensidige Forsikring, Swedish branch 249.2 227.3 Gjensidige Forsikring, white label 128.7 128.7 Total 1,676.7 1,568.6
Each of the units above is the smallest identifiable group of assets that generates cash inflows and considered as separate cashgenerating units.
CR-level when calculating terminal value Gjensidige Forsikring, Danish branch 90.5-95.8% 91.6% Workers' compensation insurance in Denmark 84.7-86.7% 86.7%
Gjensidige Forsikring, Danish branch Need for impairment app. NOK 289 million No need for impairment No need for impairment Need for impairment app.
Workers' compensation insurance in Denmark Need for impairment app. NOK 96 million No need for impairment No need for impairment Need for impairment app.
Försäkringsproduktion i Sverige AB Piteå, Sweden 100% 14.4 16.9 9.6 9.6 NAF Forsikringsformidling AS Oslo, Norway 66% 47.0 54.9
Vervet AS including subordinated loan 4, 5 Tromsø, Norway 25% 35.3 11.5 35.3 5.5
Total shares in associates and joint ventures 1,122.2 1,098.4 35.3 5.5 1 Sold 50 per cent of the shares to AMF, see text at the end of the note. 2 Byggeriet Forsikringsservice AS was liquidated during 2015. 3 Nordisk Forsikrings Service AS was liquidated during 2015. 4 Reversal of impairment loss resulted in a gain of NOK 6.0 million. 5 Subordinated loan of NOK 24.0 million is included in cost.
Subsidiaries - additional information Gjensidige Bank Holding (group) 40,487.8 2,695.8 37,792.0 663.4 225.9 N/A Gjensidige Norge AS 0.1 0.1 N/A Gjensidige Pensjon og Sparing Holding (group) 20,770.0 596.2 20,173.8 1,431.5 59.9 N/A Gjensidige Baltic AAS 935.5 277.7 657.8 532.3 (78.4) N/A Samtrygd Eigedom AS 6.3 6.2 0.1 N/A Lokal Forsikring (group) 18.2 17.5 0.7 0.1 4.3 N/A Nykredit Forsikring A/S 1,454.5 308.9 1,145.5 51.8 (14.9) N/A Försäkringshuset Amb & Rosèn AB 0.8 0.5 0.3 0.8 N/A Försäkringsproduktion i Sverige AB 8.8 3.5 5.3 N/A NAF Forsikringsformidling AS 4.6 (0.1) 4.7 (8.0) N/A Mondux Affinity Aps 21.9 9.9 12.0 4.5 N/A Mondux Assurance Agentur A/S 18.2 13.0 5.2 7.2 N/A Mondux Service A/S 0.7 0.7 N/A Mondux AB 4.7 0.1 4.6 0.4 N/A PZU Lietuva SA 787.8 157.0 630.9 109.7 (38.1) N/A Total shares in subsidiaries 64,520.0 4,086.8 60,433.2 2,788.9 163.8
Subsidiaries - additional information Gjensidige Bank Holding (group) 29,521.2 2,038.9 27,482.3 612.0 184.6 N/A Gjensidige Norge AS 0.1 0.1 N/A Gjensidige Pensjon og Sparing Holding (group) 17,903.3 568.2 17,335.1 1,262.4 32.1 N/A Oslo Areal AS 6,456.8 2,223.8 4,233.0 457.2 347.8 N/A Gjensidige Baltic AAS 850.4 341.1 509.3 523.0 6.3 N/A Samtrygd Eigedom AS 6.3 6.2 0.1 0.1 0.1 N/A Lokal Forsikring (group) 25.9 17.5 8.4 0.2 (19.6) N/A Nykredit Forsikring A/S 1,542.6 368.1 1,174.5 199.2 80.4 N/A Byggeriets Forsikringsservice AS 5.2 1.7 3.5 1.1 N/A Nordisk Forsikrings Service AS 49.8 38.1 11.7 30.9 28.9 N/A Försäkringshuset Amb & Rosèn AB 2.2 (0.4) 2.6 (2.1) N/A Försäkringsproduktion i Sverige AB 3.6 0.5 3.0 N/A Total shares in subsidiaries 56,367.3 5,603.8 50,763.6 3,085.0 659.5
Associates - additional information Vervet AS 102.1 6.1 96.0 0.5 (2.9) N/A Total shares in associates 102.1 6.1 96.0 0.5 (2.9)
Part of the agreement is that Gjensidige, through a price-adjustment mechanism, will be exposed to the property market development with an amount corresponding to half of the proceeds during the period until 31 December 2016. Gjensidige will therefore have a higher property-exposure in this period than the 50 per cent holding in Oslo Areal. The exposure that this agreement represents is not recognised. The agreement is recognised at fair value and the unrealised gain was NOK 16.2 million at 31 December 2015.
166 | Gjensidige annual report 2015 7. Owner-occupied property, plant and equipment
Cost As at 1 January 2014 117.0 443.2 560.3 Additions 5.4 220.4 225.8 Disposals (14.3) (106.1) (120.4) Exchange differences 4.2 4.2 As at 31 December 2014 108.2 561.7 669.9 Uncompleted projects 98.7 98.7 As at 31 December 2014, including uncompleted projects 108.2 660.5 768.6
• Currency futures, equity options, forward rate agreements and currency swaps, in which fair value is derived from the value of underlying instruments. These derivatives are valued using common valuation techniques for derivatives (option pricing models etc.).
• Bonds, certificates or index bonds that are unlisted, or that are listed but where transactions are not occurring regularly. The unlisted instruments in this category are valued based on observable yield curves and estimated credit spreads where applicable.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 275.6 275.6 324.4 324.4 Financial derivatives subject to hedge accounting 52.2 52.2
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 12 7,130.6 7,130.6 7,469.5 7,469.5 Bonds and other fixed income securities 24,205.7 24,205.7 19,888.5 19,888.5
The table shows a valuation hierarchy where financial assets/liabilities are divided into three levels based on the method of valuation.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 275.6 275.6 Financial derivatives subject to hedge accounting 52.2 52.2
Financial assets at amortised cost Bonds held to maturity 109.8 2,518.3 2,628.1 Bonds and other fixed income securities classified as loans and receivables 17,864.1 1.1 17,865.2
Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 19.6 277.4 297.0 Financial derivatives subject to hedge accounting 209.3 209.3
Amount of net realised/unrealis ed gains recognised in profit or loss that are attributable to instruments held as at 31.12.2015
Gjensidige Forsikring, Danish branch Currency-related contracts - hedging instruments 1,415.0 74.4 1.6 Hedging object 1,449.0 9. Investment properties Gjensidige Forsikring sold 50 percent of Oslo Areal in the fourth quarter (see note 6). The investment is accounted for using the cost method at year end, in addition to Gjensidige Forsikring has provided a loan to Oslo Areal. Gjensidige Forsikring 's investment properties were sold in their entirety to Oslo Areal in the fourth quarter.
Subordinated loans Midvest I 1.0 0.8 1.0 0.6 1.1 0.4 Midvest II 1.0 0.4 1.0 0.4 1.1 0.8 Norinnova Invest 1.5 1.4 1.5 1.2 1.5 1.4 Vervet AS 1 24.0 24.0 24.0 24.0 Total subordinated loans 27.5 26.6 27.5 26.2 3.7 2.6 1 Vervet AS is 25 per cent owned by Gjensidige Forsikring and is classified as receivables from associates. The subordinated loan was recognised as impairment loss of associates in 2008. Interest accrues only on Midvest I og Midvest II.
Other receivables Receivables in relation with asset management 272.0 607.2 Receivables SOS International 21.3 29.9 Other receivables 73.9 32.2 Total other receivables 367.2 669.3
Of other loans NOK 101.6 million (126.3) are loans given to agricultural customers. The loans are in their entirety intended for instalment of fire detection systems with these customers. There is no mortgage attached to the loans, and the terms vary from one year to over 20 years. Gjensidige Forsikring has not offered this type of loan to its customers since 2008. The default rate is 1.00 per cent (1.00) at year end.
Beyond the liabilities that arise from insurance contracts, Gjensidige Forsikring has not issued guarantees for which provisions have been made.
Weighted average rate for interest earned on cash, bank deposits and deposits with financial institutions is approximately 0.8 per cent (2.4).
172 | Gjensidige annual report 2015 12. Shares and similar interests
Energy Ventures IV LP 17.2 Northzone VII L:P 17.2 Nordic Additonal Funding Programme IS 16.5 Viking Venture II AS 14.2 NPEP Triton IV IS 14.1 HitecVision VII 14.1 Axcel IV 12.3 Procuritas Capital Investor V 9.7 Teknoinvest VIII KS (inkl. Teknoinv. VIII (GP) KS) 8.3 Scalepoint Technologies Limited 7.9 Energy Ventures II KS 7.4 Teknoinvest VIII B DIS 7.2 Sector Asset Management AS 6.9 NPEP NeoMed V (Neomed V LP og N5 invest IS) 6.8 Viking Venture II B IS 6.2 Nord II IS 5.2 NPEP Accent Equity 2012 IS 4.5 Northzone IV KS 4.3 Fjord Invest AS 4.2 Helgeland Invest 4.0 Tun Media AS 3.7 BTV Investeringsfond AS 3.0 Norinnova 2.1 Midvest I A 2.1 NeoMed Innovation IV LP 1.5 Verdane Capital V B KS 1.4 Midvest II A 1.3 Norinnova Invest AS 1.3 Other private equity investments 5.7 Total private equity investments 1,376.9
Claims reported and claims handling costs 16,682.2 15,429.5 Claims incurred, but not reported 14,608.6 16,051.4 Total claims provision, net of reinsurance 31,290.8 31,480.9
Claims and claims handling costs Claims reported and claims handling costs 15,930.5 (501.0) 15,429.5 14,252.4 (591.3) 13,661.1
NOK millions 2015 2014 Discounted claims provision, gross - workers' compensation insurance in Denmark 5,067.4 4,844.4 Nominal claims provision, gross - workers' compensations insurance 5,794.7 5,458.6
Gjensidige annual report 2015 | 175 14. Pension Gjensidige Forsikring is required to have an occupational pension plan pursuant to the Norwegian Act relating to Mandatory Occupational Pensions. The Company’s pension plans meet the requirements of the Act.
The defined benefit pension plan is a closed plan. New employees become members of the defined contribution pension plan.
Branches of Gjensidige Forsikring and some of its subsidiaries have a defined contribution pension plan corresponding to the plan in Gjensidige Forsikring in Norway.
Disability pension, spouse/cohabitant pension and child’s pension are also included in the plan subject to more detailed rules. In addition, Gjensidige Forsikring has pension liabilities to some employees over and above the ordinary group pension agreement. This applies to employees with a lower retirement age, employees who earn more than 12 times the National Insurance basic amount (G) and supplementary pensions.
Interest rate risk The pension assets’ exposure to interest rate risk is deemed to be moderate because the market value-weighted duration is 4.5 years. The portfolio value will fall by approximately NOK 103 million in the event of a parallel shift in the yield curve of plus one percentage point. The value will increase correspondingly in the event of a fall in the interest rate.
Liquidity risk The liquidity risk in the pension assets is deemed to be low, since there are short-term investments at all times that exceed short-term liabilities. The investments are deemed to be sufficiently liquid.
The Group’s employees can be involved in big disaster-like events such as plane crashes, bus crashes, as spectators at sporting events or through incidents in the workplace. If such an event occurs, the pension liability could significantly increase. The Group has invested in disaster insurance that means that it will receive compensation if such an event occurs.
In the long term, inflation will be in the range of 1.5 to 2.5 per cent. Norges Bank has an inflation target of 2.5 per cent. KPI is set to 1.9 per cent, in line with last year’s assumption.
All employees who reached the age of 62 on or after 1 January 2011 could draw a pension under the new AFP plan from 1 January 2011. This means that the liability relating to earned entitlements in the old AFP plan has lapsed in full.
Business combinations (3.2) (3.2) Curtailments and settlements (0.3) (0.3) Foreign currency exchange rate changes 2.5 2.5 3.5 3.5 As at 31 December 2,258.8 528.7 2,787.6 2,318.5 558.6 2,877.1
Fair value of plan assets As at 1 January 2,389.0 2,389.0 2,378.1 2378.1 Interest income 59.9 59.9 95.8 95.8 Return beyond interest income (5.3) (5.3) 0.7 0.7 Contributions by the employer 5.7 5.7 6.3 6.3 Benefits paid (89.5) (89.5) (85.3) (85.3) Employers' national insurance contributions of benefits paid (5.7) (5.7) (6.3) (6.3)
Cumulative amount as at 1 January (2,207.1) (1,804.8) Return on plan assets (5.3) 0.7 Changes in demographic assumptions 2.6 (35.9) Changes in financial assumptions 71.7 (367.8) Exchange rate differences 0.7 Cumulative amount as at 31 December (2,138.1) (2,207.1)
Actuarial assumptions Discount rate 2.80% 2.50% Future salary increases 1 3.10% 3.40% Change in social security base amount 3.10% 3.10% Future pension increases 1.90% 1.90%
Shares and similar interests 143.3 143.3 Bonds 176.8 1,961.3 2,138.1 Bank 33.4 33.4 Derivatives 74.1 74.1 Total 176.8 2,138.1 2,389.0
Gjensidige annual report 2015 | 179 15. Provisions and other liabilities
Other provisions and liabilities Restructuring costs 1 85.8 7.1 Other provisions 250.1 238.4 Total other provisions and liabilities 335.8 245.5
Other liabilities Outstanding accounts Fire Mutuals 40.0 15.1 Accounts payable 182.5 152.5 Liabilities in relation with properties 1.2 2.3 Liabilities to public authorities 340.7 292.9 Other liabilities 406.0 420.4 Total other liabilities 970.4 883.2
Other accrued expenses and deferred income Liabilities to public authorities 21.3 19.2 Accrued personnel costs 258.4 237.7 Other accrued expenses and deferred income 17.4 18.7 Total other accrued expenses and deferred income 297.2 275.6
Deductible temporary differences Loans and receivables (97.9) (97.0) Shares, bonds and other securities (342.0) Provisions for liabilities (231.5) (245.5) Pension liabilities (425.5) (426.6) Total deductible temporary differences (754.9) (1,111.1)
Dividend received 43.2 116.4 Tax exempted income and expenses 170.8 601.3 Non tax-deductible expenses (39.5) (5.3) Change in tax rate 8.1 Correction previous years (14.5) (20.5)
Total tax expense (1,153.5) (946.3) Effective rate of income tax 23.6% 15.6%
Deferred tax liabilities as at 1 January (31.1) 212.7 Change in deferred tax recognised in profit or loss 243.7 (118.8)
Pensions 17.1 (108.8) Hedge accounting (20.1) Exchange differences (0.6) 3.9 Deferred tax liabilities/(deferred tax assets) as at 31 December 229.1 (31.1)
Tax cost In connection with the conversion of Gjensidige Forsikring BA to a public limited company the Ministry of Finance has consented to an exemption from capital gains taxation on the transfer of business to the newly formed public limited company under certain conditions. The consequences of the tax relief decision have been incorporated into the tax expense and tax liabilities from the fourth quarter 2010. The tax relief decision involves greater complexity and discretionary assessments, which entails a greater degree of uncertainty with respect to the tax expense and tax liabilities until all the effects have ultimately been evaluated by the tax authorities.
Insurance-related administration expenses incl. commissions for received reinsurance and sales expenses Depreciation and value adjustments (note 5 and note 7), excl. depreciation properties 292.2 273.4 Employee benefit expenses (note 18) 2,238.6 2,035.8 Fee for customer representatives 4.8 4.9 Software costs 350.2 345.2 Auditor’s fee (incl. VAT) 3.9 3.0 Consultants’ and lawyers’ fees 93.5 82.1 Commissions 626.9 484.3 Other expenses 1 (492.5) (340.0) Total insurance-related operating expenses incl. commissions for received reinsurance and sales expenses 3,117.5 2,888.6
Of which sales expenses Employee benefit expenses 679.3 675.1 Commission 315.4 373.4 Other sales expenses 446.7 393.5 Total sales expenses 1,441.4 1,442.0
Employee benefit expenses Wages and salaries 1,662.3 1,547.0 Social security cost 339.6 288.0 Pension cost - defined benefit plan (note 14 incl. social security cost) 165.4 144.4 Pension cost - defined contribution plan (note 14 incl. social security cost) 61.4 46.6 Share-based payment 10.0 9.9 Total employee benefit expenses 2,238.6 2,035.8
Auditor's fee (incl. VAT) Statutory audit 2.6 2.6 Other assurance services 0.1 Other non-assurance services 0.5 0.3 Tax consultant services 0.7 0.1 Total auditor's fee (incl. VAT) 3.9 3.0
Depreciation and value adjustments (note 5 and note 7) 2.9 3.5 Other expenses 160.5 159.9 Total administration expenses related to financial assets, excl. interest expenses, incl. administration expenses properties 163.4 163.4 1 Other expenses include cost reductions for Gjensidige Forsikring ASA in connection with duties performed for subsidiaries and cost allocations to claims and finance.
Binding guidelines for shares, subscription rights etc. for the upcoming financial year Of the variable pay earned in 2015 by the CEO and other employees covered by the Regulations relating to remuneration in financial institutions, 50 per cent of the gross earned variable pay will be given in the form of a promise of shares in Gjensidige Forsikring ASA. One third of the shares will be released in each of the following three years.
Share savings programme The Board has decided to continue the Group’s share savings programme for employees in 2016. The CEO and executive personnel are entitled to take part in the programme on a par with other Gjensidige employees. Under the current programme, employees can save through deductions from their salary for the purchase of shares in Gjensidige Forsikring ASA for up to NOK 75,000 per year. Purchases take place quarterly following publication of the results. A discount of 20 per cent of the purchase price is offered, limited upwards to NOK 1,500. For those who keep the shares and are still employed in the Group, one bonus share is awarded for every four share they have owned for more than two years.
Mats C. Gottschalk, Executive Vice President 2,838.8 378.5 156.4 255.0 449.7 3,243 3,269 8,092 7,621 3
Hans G. Hanevold, Executive Vice President (1.1.15-11.5.15) 1, 11 912.9 66.4 385.0 10.6 886 37 1,064 7,508
Hege Yli Melhus Ask, Executive Vice President (1.1.14-4.8.14) 1, 10 2,498.3 175.3 215.7 189.6 198.2 2,630 3,143 8,252 6,397 3
Hans G. Hanevold, Executive Vice President (4.8.14-31.12.14) 1, 11 1,117.7 280.8 121.7 160.4 116.4 24.0 9.0 179.0 7,111.0
Net income and gains/(losses) from investments in subsidiaries and associated companies Net income from investments in subsidiaries and associated companies 99.0 297.5 Impairment investments in subsidiaries and associated companies (47.5) Net gains/(losses) from sale of investments in subsidiaries and associated companies 681.4 1,110.0 Total net income and gains/(losses) from investments in subsidiaries and associated companies 780.4 1,360.0
Net income and gains/(losses) from buildings and other real estate Investment properties Rental income from investment properties, excl. unrealised gains/(losses) 12.0 15.2 Net revaluation investment properties 16.2 4.9 Net gains/(losses) from sale of investment properties 15.2 0.6 Administration expenses related to investment properties (1.4) (2.2) Total net income and gains/(losses) from investment properties 41.9 18.6
Owner-occupied properties Rental income from owner-occupied properties 4.9 6.2 Net gains/(losses) from sale of owner-occupied properties 33.8 3.1 Administration expenses related to owner-occupied properties (3.6) (4.4) Total net income and gains/(losses) from owner-occupied properties 35.1 4.9
Total net income and gains/(losses) from buildings and other real estate 77.0 23.5