Content In brief 2 Key figures 2 Interview with the CEO 4 Highlights of 2011 7 Our vision 8 Our values 9
ABOUT STOREBRAND Storebrand Group 12 Greater responsibility for our own pension 16 Sustainable investments 18 Shareholder matters 22 History of Storebrand 24
ACCOUNTS AND NOTES STOREBRAND GROUP Profit and loss account 72 Statement of total comprehensive income 73 Statement of financial position 74 Reconsiliation of Storebrand Group’s equity 76 Cash flow analyses 78 Notes 80
Storebrand can trace its history back to 1767. The company has provided occupational pensions to Norwegian employees since 1917, the same year Storebrand’s subsidiary SPP
Storebrand are treated equally, regardless of age, gender, disability, religious beliefs, cultural differences or sexual orientation.
Storebrand. Our vision is to serve them so well that we are ”Recommended by our customers”.
The Storebrand Group is made up of the business areas life and pension, asset mangement, bank and insurance. The group’s head office is at Lysaker and the company has also established life insurance, asset management and health insurance activities in Sweden. Storebrand is the Nordic region’s leading provider of life insurance and pensions, and offers a comprehensive range of products to retail customers, corporate customers, municipalities and the public sector.
Sick leave in the Storebrand Group was 3.8 per cent in 2011. No change from last year.
13. Storebrand qualified for the Dow Jones Sustainability Index for the 13th year in a row.
All the investments in Storebrand’s funds and portfolios have been assessed in accordance with our sustainability criteria.
– This is part of the group’s customer orientation. We see that Norwegian employees are gaining more influence over company-paid pensions, and our new vision and position takes this into account.
Our customer promises shall make it clear to our customers what they can expect from their encounter with Storebrand and act as guidelines for our employees. Our corporate customers are clear about the fact that good information and guidance to employees is an important and integral part of corporate deliveries. This strengthens customer satisfaction and improves the quality of the deliveries at the same time.
Storebrand has a small share of the retail market and a large share of the corporate market. Why focus on the retail market?
– Our results have been clearly affected by the unrest in the financial markets in the second half of the year. At the same time, it is satisfying to note that the customers’
return has been very competitive. We also see that Storebrand’s ongoing efficiency improvement, automation and cost control efforts are continuing to show results.
As we enter into 2012 our results will be marked by the fact that we have lower assets under management than expected as a result of the falling market. This means that Storebrand at the end of 2011 is behind on its plan to reach its result target in 2013. In order to compensate for this situation, cost measures are being implemented earlier and more extensively than planned.
”In Norway alone there are between 60–80,000 new employees every year in companies that offer occupational pensions from Storebrand.”
– We have actively shifted our business away from guaranteed business to business with lower capital requirements and greater earnings stability, which consists typically of fund-based products. Our efficiency improvement and automation efforts also result in higher earnings and greater robustness for our business. We also see that Storebrand Insurance is delivering strong and stable results in a business that is growing.
Risk management is important in turbulent times like now. What is being done here?
– Storebrand has assets under management of over NOK 400 billion, which has been placed in various sectors of the financial market. Risk management is a core competence for a business like ours. It has contributed to securing a good return for our customers in turbulent times and making the business more robust against fluctuations in the market.
– This is a problem that we are working on a great deal. We have been very successful with our strategy to increase our robustness by locking in approximately 40 per cent of our customer funds with interest rate guarantee in bonds at amortised cost that is held to maturity. These have an average duration of five years and an average return of around 5 per cent.
Storebrand’s assets at an average interest rate around 5 per cent in 2011. This level gives us a reassuring margin in relation to the guaranteed interest rate, which is around 3.4 per cent on average.
– The Banking Law Commission’s report on paid-up policies and capital requirements
Finance said that it provides a good basis for analysis for the future work on new pension products. We share this view, says
There are three factors that we believe to be very important, says Kreutzer, and he lists: - Firstly: The new occupational pension regulations must be formed in a way that enables us to offer attractive and competitive insurance-based products that are adapted to the Solvency II regulations. It is also important that we have transitional regulations that ensure continuity between the current system and the new products.
Secondly, the availability of long-term interest rate risk in the Norwegian market is far too limited in relation to the longterm capital requirements facing the life insurance companies under the new capital adequacy regulations. This is also a topic in the Banking Law Commission’s report, and it must be prioritised by the authorities.
Thirdly, an assessment should be made of changes to the guarantee structure with guarantees that last for several years, coupled with a relaxation of the limitations on the use of buffer capital, thus enabling additional statutory reserves to be more broadly utilised and increasing the opportunity to build buffer capital.
Our results have been clearly affected by the unrest in the financial markets in the second half of the year. At the same time, it is satisfying to note that the customers’ return has been very competitive.
When the year’s Global 100 list was presented at the World Economic Forum in Davos, Storebrand was ranked as the most sustainable insurance company in the world. Overall we came in 9th place of the 100 most sustainable companies in the world. The list was first introduced in 2005, and Storebrand has previously qualified in
Storebrand Bank is the first to launch the service ”My consumption”. The service is very well received by both customers and non-customers. ”My consumption” shows that through good and useful solutions, we provide customers with an overview and control of their own finances.
SPP is working closely with Fryshuset to disseminate knowledge on personal finance and pensions to young people and socially disadvantaged groups.
Storebrand Growth tops the list of the best Norwegian equity funds in 2011. Even though the fund has shown negative returns in 2011, no other Norwegian fund has performed better – despite the financial instabilities.
Storebrand adopts changes to the group’s vision and core values. The new vision is: ”Recommended by our customers”. The three core values that will form the foundation of our day-to-day decision making are trustworthy, straight-forward and forwardthinking.
Storebrand has 1.8 million customers in Norway and Sweden with occupational pensions, health insurance and paid-up policies, as well as retail market customers. It is an important job to convince more of the employees in the corporations to become private customers.
Storebrand Life Insurance is a leading provider of pensions in the Norwegian market and offers a wide range of products within occupational pensions, private pension savings and life insurance to companies, public sector entities and private individuals. Storebrand
Storebrand Life Insurance has a high level of customer satisfaction in the occupational pensions market (Norwegian Customer Barometer). Together with strong growth, this has helped the company consolidate its position as the leading pensions provider in the Norwegian market.
SPP offers pension and insurance solutions, and advice to companies and their employees in the competitive segment of the Swedish occupational pensions market. SPP also offers private pension savings and illness and health insurance. The company delivers qualified consultancy services within occupational pensions and insurance for companies and public sector entities.
All numbers are exclusive the result for sold/discountined business (Ring Eiendomsmegling).
Storebrand Insurance offers insurance products within P&C, health and life to the
Both the government and company-paid pensions have been reduced by 20-30 per cent, and the amount of focus on the consequences of this is increasing. When changing jobs more frequently in addition, it becomes very difficult to maintain an overview. The questions what do I have and what will I get are becoming more difficult to answer. The need for a simple overview that provides reassurance and an understanding of an individual’s pension savings is growing rapidly.
There is a great need for information as a result of the extensive changes in the
We share this responsibility as a pension provider with the parties in working life and the press. We inform our pension customers about the changes and help them find the solutions that are the most appropriate for each individual. In order to succeed, we must listen more to our customers and understand their needs. This is the core of
Our existing customers are the target group in our retail market strategy. The
Sweden (SPP). All the customers in SPP are pension customers. They currently receive a pension, have a paid-up policy that gives entitlement to a future pension or their employer pays into an existing pension scheme (see illustration). In Norway the picture is somewhat different: We have customers who have purchased a retail product (such as a car, health or child insurance policy, a bank account, loan or fund savings agreement), customers who have a paid-up policy and customers who are members of an existing employer-paid pension scheme (see illustration).
In Norway one of our goals is to recruit customers who currently only have a corporate relationship so that they also buy retail products. This strategic potential lies in good guidance and relevant advice adapted to each individual customer – in a pension market where there is a need for increased individual savings. This is supported by the fact that many companies would like to provide their employees with good information and guidance, including special benefit agreements for financial services.
One of our goals is to recruit customers who currently only have a corporate relationship so that they also buy retail products.
As a customer you should be able to choose how you want to contact us: by phone, online, chatting or through meeting one of our advisors in person.
have developed new and simpler services, and also when we can give them information on matters that will affect their finances in a positive or negative direction.
We are sending newsletters with editorial content to a growing number of customers, and the feedback we have received is good. The newsletters are increasingly based on each customer’s life situation to provide appropriate advice. Many customers want to decide themselves. Our role is to give them the information they need so that they can make good decisions.
We are also present to a greater extent where our customers can be found. We inform and help our customers on Facebook, on Twitter and with instructional videos on YouTube. Customers who use multiple channels for communication with us are in general more satisfied than those who use just one channel.
Storebrand, and as a customer you should be able to choose how you want to contact us: by phone, online, chatting or through meeting one of our advisors in person.
Storebrand’s position shall lead the way to the goal to which we strive. We have gained valuable insight and specific guidelines for our future work through our positioning efforts. Work on interaction and customer orientation is a continuous change process that will require a great deal of us in the future. We have decided that we will do what we can to succeed. We have defined
WHAT WE PROMISE THE CUSTOMER: You will receive feedback that is the most appropriate for you and your situation.
We will contact you when changes we make may be beneficial to you.
We will provide you with an overview of your finances, today and tomorrow.
Storebrand is one of the pioneers in sustain able investments. Storebrand’s minimum standard for sustainable investments was adopted in 2005 and encompasses all of Storebrand’s funds and portfolios (see the world map on page 20 for specific criteria). A separate department with eight specialists monitors and analyses companies from all over the world. For more than 15 years we have encouraged listed companies to make improvements in more than 3,000 cases. We have made demands and asked questions, and we expect environmental management, anti-corruption and human rights systems to be in place. Our goal is sustainable and profitable development.
The UNEP Finance Initiative (UNEP FI) – a global partnership between the UN and 190 players in the financial sector.
A South African mining company has been excluded due to serious environmental damage as a result of the discharge of cyanide and heavy metals in Ghana over several years. This pollution has been so extensive and the measures have been so inadequate that the authorities have shut down two of the company’s mines.
More than 900 institutional investors with around USD 30 billion in assets under management have acceded to these principles.
March 2011 to gain better insight into conflict areas and investments. A trip was arranged to Israel and the Palestinian territories under the auspices of the Norwegian
Investments (UNPRI). Our criteria are based on the United Nations Universal Declaration of Human Rights; core United Nations and ILO conventions; the United Nations
* The companies excluded in this category operate in industries in which there is a serious risk of human rights violations, environmental harm and corruption, without addressing this risk.
Storebrand started to monitor over 600 companies in emerging economies (EM).
Our efforts have shown that there are a relatively high number of companies in violation of Storebrand’s minimum standard for sustainable investments in some of the countries. In South Korea there were eight companies in violation of the minimum standard in 2011, and four of these violations were related to corruption.
After the financial crisis in 2008–09 there was a greater focus on rebuilding and strengthening confidence in financial institutions. The Financials’ sector analysis in 2010 focused a great deal on good corporate governance, which is something we feel can contribute to stable and sustainable development over time. The ANZ Banking Group and Standard Chartered Bank were among the ”Best in Class” companies.
”Best in Class”. The best companies in each sector are awarded this distinction. At the end of the fourth quarter 98 companies had such a distinction.
STB. Storebrand ASA’s share capital at the start of 2011 was NOK 2,249.5 million. The company has 449,909,891 shares with a par value of NOK 5. As at 31 December 2011 the company owned 3,504,654 of its own shares. which corresponds to 0.78 per cent of the total share capital. The company has not issued any options that can dilute the existing share capital.
Storebrand ASA is one of the largest companies listed on Oslo Børs measured by the number of shareholders. The company has shareholders from almost all the municipalities in Norway and from 42 countries in terms of market capitalisation. Storebrand was the 14th largest company on Oslo Børs at the end of 2011.
March 2011 each employee was given the opportunity to buy between 163 and 868 shares in Storebrand at a price of NOK 37.43 per share. Around 22 per cent of the employees participated and purchased a total of 252,696 shares.
As at 31 December 2011 total foreign ownership amounted to 55.0 per cent, compared with 51.5 per cent at the end of 2010.
In relation to the average total number of shares, the turnover rate for shares in
Beinsur showed a return of minus 54 per cent for the corresponding period.
The Board wishes to have a dividend policy with a long-term horizon, and will aim for stable year-on-year dividend growth. Given the developments in the financial markets in recent years, building up financial strength
6 State Street Bank And Trust Co. NOM 9,272,826 2.28% LUX
19 State Street Bank & Trust Co. NOM 3,700,000 0.76% NOR
Board of Directors has decided to propose to the Annual General Meeting that the entire annual result for 2011 will be used to strengthen the company´s equity and that no dividend will be paid.
As one of the country’s leading financial institutions, Storebrand is dependent on main taining an orderly relationship with the financial markets and supervisory authorities. The company therefore places particular emphasis on ensuring that its routines and guidelines satisfy the formal requirements imposed by the authorities on securities trading. In this context the company has prepared internal guidelines for insider trading and own account trading based on the current legislation and regulations. The company has its own compliance system to ensure that the guidelines are observed.
2012 financial calendar 14 February Results 4Q 2011 7 March Embedded Value 2011 18 April Annual General Meeting 19 April Ex-dividend date 3 May Results 1Q 2012 13 July Results 2Q 2012 24 October Results 3Q 2012 February 2013 Results 4Q 2012
Selskab for Varer og Effecter” is incorporated by private subscription. The company is referred to as Storebrand.
Storebrand acquires nearly all of the shares in Idun. The rest, with a couple of exceptions, are acquired during the 1970s.
Storebrand changes its name in its articles of association from ”Christiania Almindelige Forsikrings-Aksjeselskap” (renamed in 1915) to ”Christiania Almindelige Forsikrings-
Storebrand acquires Europeiske – the leading travel insurance company in Norway.
March following the heaviest fall since the 1930s. In the second half of the year the economies of the largest countries start to recover.
Storebrand confirms it has been in talks about a possible merger with Gjensidige.
Storebrand. The group’s executive management team is being reduced from ten to six people and a new management forum, the executive management, is established.
The executive management is composed of 30 people, including the group’s executive management team. The new model strengthens the interaction across national borders and paves the way for efficient balance sheet management.
– and introduces “the link” as an easily recognisable trademark. The formal name of the holding company is changed to A/S
News: From 2013 you will be able to decide yourself how your paidup policies* should be managed1.
MAIN FEATURES Turbulent financial markets, significant changes in the regulatory framework and a strengthened commitment to the retail market are key words for the year 2011.
Storebrand currently has 1.8 million retail customers in Norway and Sweden, divided into pure retail market customers, employees of businesses with occupational pensions in Storebrand and people who have a paid-up policy or a pension capital certificate in the company.
Strategic initiative Our research shows that a large percentage of employees who have their pensions with Storebrand also want personal advice and guidance on, among other things, pensions and savings. Pension relationships provide Storebrand with a good opportunity to contact and to give personal advice to many people. In Norway, between 60,000 and 80,000 new employees start to work in companies that have occupational pensions with Storebrand.
There is considerable uncertainty surrounding several regulatory framework issues at the beginning of 2012. This relates to the proposed tax changes, as well as to new solvency regulations (Solvency II), which is hardly adapted to Norwegian business rules and does not take into account the historically low interest rates.
of pension in occupational pension schemes if one continues to work - the same principles that apply to the National Insurance Scheme. These changes came into effect simultaneously with the social security reform on 1 January 2011. Storebrand made the necessary adjustments so that pension customers could take advantage of the new options in the pension system from the time the legislation came into force.
In 2011, the Banking Law Commission has been working on Phase 2: Adapting pension products to the other two main pillars of the new National Insurance: Pension entitlement for all years of service, and life expectancy adjustments. It is expected that a report, with proposals for new regulations for occupational pension schemes, will be published in the summer of 2012. This report will then be sent for consultation before the Finance Ministry submits a bill for consideration by Parliament. Private occupational pensions will then be adapted to the pensions reform. One can expect the new legislation to come into force in a couple of years. The framework regulations for insurance-based occupational pension products that are adapted to the new earning model in the National Insurance Scheme (pension entitlement for all years of service), life expectancy adjustments and maximum ceilings for savings in defined contribution pensions, are among the topics that are being considered in this round.
On 17 January 2012, the Banking Law Commission published the report NOU 2012:3 Paid-up policies and capital requirements. The report assessed the consequences that Solvency II will have on the Norwegian occupational pension system. It notes that Solvency II will result in a significant tightening of capital requirements for life insurance companies. Paid-up policies are highlighted as a particularly challenging area. This is because the companies, for this product, cannot price the guaranteed return annually, as is the case for active benefit plans. Solvency II requires on-going market value valuation of both assets and liabilities. Lack of correlation between long liabilities and short investment triggers high capital requirements related to interest rate risk. Solvency II assumes that life insurance companies have access to a long and deep interest rate market so that long liabilities can be offset by long low risk investments. This premise is not fulfilled in Norway because of low government debt and the short fixed interest terms on bonds available. These conditions are described in the report from the Banking Law Commission. It points out that the interest rate risk under Solvency II, and capital requirements as a result of this, can be neutralised if the companies can invest in low risk bonds with maturities corresponding to the paid-up policies to maturity.
In NOU 2012:3, the Banking Law Commission describes a "worst case" scenario where capital requirements, as a result of future paid-up policies, cannot be handled without significant adjustments to the regulatory framework (NOU 2012:3 page 39).
The Banking Law Commission proposes legislative amendments that may help to curb the issuance of paid-up policies. It also proposes changes that contribute to a better adaptation of paid-up policies to the capital requirements of Solvency II.
The Banking Law Commission will proceed with the new regulations for insurance-based occupational pension schemes adapted to the pensions reform and changes in market conditions. The main issues in this work are: • Designing new insurance-based pensions schemes that are competitive alternatives in relation to both companies' costs and the pension schemes' return risk and biometric risk, in order to diminish the effects of a new capital requirements regime.
• Handling of pension benefits earned under existing pension schemes in the transition to the new insurance-based pension schemes. Avoiding incentives for the liquidation of existing pension schemes and a large-scale issuance of new paid-up policies is considered important.
THE GROUP'S FINANCIAL PERFORMANCE The Storebrand Group prepares its consolidated financial statements in accordance with the EU approved International Financial Reporting Standards (IFRS). The financial statements of the parent company, Storebrand ASA, are prepared pursuant to Norwegian accounting law. IFRS is not applied to the parent company‘s financial statements. The Storebrand Group‘s group result prior to amortisation of intangible assets was NOK 1,279 million in 2011 compared with NOK 1,612 million in 2010. After amortisation, the Group result was NOK 885 million compared with NOK 1,223 million in 2010.
Storebrand's tax charge amounted to NOK 144 million in 2011. The main part of this tax is not payable. The carry forward tax losses were reduced, mainly due to the fall in the stock market. There were also tax-related temporary differences that, as a whole, have resulted in the allocation of net deferred tax assets amounting to NOK 58 million at the end of 2011.
Pursuant to Norwegian accounting legislation, the Board of Directors confirms that the company meets the requirements for preparing the financial statements on the basis of a continued operation assumption. The Board is not aware of any events that have occurred after the balance sheet date that have a significant impact on the annual financial statements or consolidated accounts that have been presented.
BUSINESS AREAS Storebrand is a financial group consisting of four business areas: life and pension, asset management, banking and insurance. Storebrand‘s head office is in Lysaker in the municipality of Bærum.
STOREBRAND LIFE INSURANCE The business area Storebrand Life Insurance offers a wide range of products covering occupational pensions, private pension savings, and life insurance to companies, public sector entities, and private individuals.
For group pensions, NOK 147 million was allocated to the risk equalization fund in 2011. At the end of 2011, the risk equalization fund totalled NOK 404 million. The risk equalisation fund for paid-up policies totals NOK 65 million at the end of 2011, which is an increase of NOK 23 million for the year.
Financial result 2011 has been marked by considerable turbulence in the financial markets. Long-term rates have declined significantly, while the uncertainty in the financial markets has resulted in increased credit spreads. Lower interest rates make a positive contribution to returns in the short term, while higher credit spreads adversely affect the return. Equity markets have fallen both in Norway and internationally.
With the exception of a small proportion of individual products and of group pension products with multi-year guaranteed interest rate, the booked return on customer portfolios was sufficient to meet the average guaranteed interest rate and generate a profit to customers of NOK 0.5 billion. The average annual interest rate guarantee for the various customer portfolios is in the range 3.1 per cent to 3.7 per cent. The guarantee rate for new business was reduced to 2.5 per cent as a result of low interest rates.
In its letter of December 2011, the Norwegian FSA requested life insurance companies to prioritise the allocation of profits in order to strengthen premium reserves in order to satisfy the assumptions of future longer life expectancy. As a result, Storebrand Life Insurance in 2011 set aside NOK 1.1 billion to strengthen the premium reserve for group pension and paid-up policies.
At year-end 2010, the amount by which the reserves still need to be built up was calculated at around NOK 170 million for individual pension insurance. The plan is to complete the build up of the reserves by the end of 2012. This build up of reserves can be covered from the positive booked return. If the booked return for the individual portfolio is higher than 5.8 per cent, this build-up could take place at no cost to the owner.
Storebrand Life Insurance is funded through a combination of equity and subordinated loans. The proportion of subordinated debt is about 30 per cent, and amounted to NOK 6.6 billion at the end of 2011. Interest expenses on subordinated loans are approximately NOK 130 million net per quarter for the next 12 months. The company portfolio had a gross return of 5.1 per cent in 2011 compared with 5.8 per cent in 2010. The returns are negatively impacted by increased credit spreads in the banking sector. The company portfolio had a net result in 2011 of minus NOK 120 million, compared with minus NOK 55 million in the preceding year.
Price of interest guarantee and profit risk A total of NOK 520 million was recognised as income from upfront pricing of the interest guarantee and profit from risk for group defined benefits in 2011, a decline of NOK 37 million on the preceding year. The decrease was due to implemented price changes and the transition to defined contribution pensions.
Intra-group transaction - BenCo In November, an internal transaction was carried out in the Group, where SPP Livförsäkring AB's stake in Benco Holding (the parent company of Euroben and Nordben) was sold to Storebrand Livsforsikring AS. The purpose of the transaction was to create a simpler ownership structure of Benco in the Group, in that the previously shared ownership between SPP and Storebrand Livsforsikring AS was gathered in Storebrand Livsforsikring. Furthermore, the transaction contributed to a strengthening of SPP Group's capital and solvency. Storebrand Life Insurance now owns 90 per cent of Benco's equity. Mandatum and Varma own the remaining shares. Benco is now reported as part of Storebrand Life Insurance and has been incorporated into historic figures.
Corporate and public sector Storebrand has been very successful within occupational pensions in recent years and has seen a net transfer balance in the last 7 years worth a net inflow of around NOK 11 billion. 2011 was, however, a weaker years for sales, being particularly affected by the competitive situation in the public sector and the loss of two of our local authorities with public occupational pensions.
New business Total new premiums (APE) worth NOK 658 million were signed in 2011 compared with NOK 1,314 million in 2010. The decline is primarily due to the lower APE for group defined benefit and defined contribution pensions, but was also reduced somewhat for unit-linked.
Risk result In 2011, the risk result was NOK 289 million, compared with NOK 290 million in the preceding year. The sickness result, which accounts for most of the risk result, is still good. Fewer and shorter disability cases than expected resulted in the capitalisation of reserves, which gave a strong risk result, albeit lower than last year.
In December, the risk activities' reinsurance agreement was terminated, which had a positive effect of NOK 85 million. A new reinsurance agreement has been negotiated with effect from 1 January 2012. The new agreement limits SPP's exposure to disability and mortality risk among private individuals.
Financial result The financial result was negative during the period and amounted to NOK 226 million for the year as a whole. A weak equity market and declining interest rates during the period contributed to the negative financial result.
The return of the various portfolios depends on developments in financial markets. The portfolios have different exposures to, for example, equities, fixed income and currency markets, since they have investment profiles that are adapted to the liabilities. The return will therefore vary. Due to falling interest rates, all portfolios have enjoyed positive returns during the period.
In portfolios with a high allocation to fixed income securities, the return was good and gave a profit sharing of NOK 319 million, compared with NOK 154 million in 2010.
1. Maximum interest rate guarantee in the portfolio P250, P300 and P520 is 2.5 per cent, 4 per cent and 5.2 per cent respectivly.
Balance sheet SPP adjusts its exposure to equity in line with market developments and the risk-bearing capacity of the portfolio by way so-called dynamic risk management. The portion of shares in the portfolios has been reduced during the year. As is the case for the Norwegian life insurance business, interest rate guarantees on new sales were reduced because of low interest rates, and from 1 January 2012 this interval is 0 to 0.5 per cent.
Market SPP has continued to record good new sales of current premiums for SPP's core business, occupational pension that is exposed to competition. Thanks to an attractive unit-linked offer and a competitive unit-linked insurance product SPP enjoyed a good sales performance in 2011.
Storebrand Kapitalforvaltning manages a full range of savings and investment products for the product companies in the group. In addition, Storebrand Kapitalforvaltning offers to a wide range of asset management services to major investors. In collaboration with its customers, it designs customised investment strategies that are tailored to the client's financial objectives, investment horizon and risk profile.
Market trends The global economic growth continued in 2011, until activity and the outlook fell relatively sharply in the 2nd half. The national debt crisis in Europe caused market unrest that escalated when attention was directed towards Italy. Stock markets fell sharply in August, especially after the downgrading of the creditworthiness of the United States, combined with falling global growth prospects. The global equity market, as measured by the MSCI World in local currency, ended down 8 per cent overall for 2011. Norwegian shares fell more than the broader market, and Oslo Stock Exchange ended down 12 per cent in 2011. Norwegian and global government bond yields have also fallen in line with the weakening outlook and the flee to safety. Central banks have also reversed the interest rate increases and instead cut interest rates further. National debt-burdened countries like Italy, however, have seen interests rise. This has also affected other credit markets and especially the banking sector.
2011 was a weak year for active asset management, generating a lower return (return less than the benchmark indexes) for the full year.
BANKING Storebrand Bank ASA's ambition is to establish itself as Norway's leading direct bank in the retail market. It is the leading provider of advisory services, transaction services and financing to corporate customers engaged in commercial real estate. Storebrand Bank ASA has total assets amounting to approximately NOK 39 billion.
Pre-tax profit/loss for continued business 190 135 1. Encompasses Storebrand Bank Group and is exclusive Ring Eiendomsmegling.
Net commission income, amounting to NOK 73 million, is virtually unchanged compared with 2010, while other income increased by NOK 20 million to total NOK 32 million. About half of this increase comes from the sale of a stake in a development project.
Operating expenses totalled NOK 345 million, a decrease of NOK 7 million on the previous year. The cost ratio for the banking business was 66 per cent in 2011, compared to 68 per cent in the preceding year. The underlying cost growth is offset by further cost-cutting measures implemented during the year.
Balance sheet At the end of 2011, the bank group had total assets of NOK 39 billion kroner. Gross lending to customers totalled NOK 34 billion at the end of the year. This is a reduction of NOK 1 billion during the year. The retail market portfolio had a positive trend over the last three quarters of the year, while the corporate portfolio increased in the 4th quarter.
The bank has a balanced funding structure and bases its funding on customer deposits, the issuance of securities and mortgage bonds in the market, both directly and through the swap arrangement with Norges Bank, as well as borrowing in the Norwegian and international capital markets. The bank prioritised yet again in 2011 having a good deposit coverage, and at the end of the year maintained a coverage of 55 per cent.
At the end of 2011, Storebrand Bank Group had net primary capital amounting to NOK 2.8 billion, unchanged from the year-end in 2010. This represents a capital adequacy ratio of 13.3 per cent against 13.0 per cent at the end of 2010. The core capital (tier I) adequacy ratio is 11.4 per cent against 10.6 per cent at 31 December 2010. Storebrand Bank considers it necessary to have a core capital ratio of at least 9 per cent at all times. In good economic times, the core capital ratio will be well above this level and Storebrand Bank will aim at having a core capital ratio of at least 11 per cent from 2013. The increase in core capital ratio in 2011 was due to increased core capital from the year's net profit and reduced risk weighted assets as a result of reduced lending volumes.
Storebrand Group has established a new comprehensive retail strategy in 2011. As a consequence of the new retail strategy, the bank is more closely integrated with the Group's total involvement in the retail area. Sales and customer service are handled collectively on behalf of Storebrand Group's business areas. The new retail strategy, new prices and product concepts, as well as improved marketing, have been important factors behind the bank's positive development.
The development of online banking services has continued in 2011 and in the 2nd quarter, the bank launched the new services Mitt Forbruk (My Consumption) and Mitt Budsjett (My Budget). In 2012, the online bank will be more closely integrated into the Group's other online solutions, and bank customers will have a full range of financial services at their disposal via the online bank.
STOREBRAND INSURANCE The Insurance business area is responsible for the Group's one-year risk products. Through cost-effective distribution and customer-friendly web solutions, the unit offers health treatment insurance4 in the Norwegian and Swedish corporate and retail markets, injury and personal risk products in the Norwegian retail market and personal insurance in the Norwegian corporate market
The cost ratio was 19 per cent for the year, compared with 21 per cent the year before, reflecting the unit's increased cost efficiency. The cost base will be further streamlined through increased automation and increased sales via direct-based channels.
Market Storebrand Insurance's growth in the retail and corporate markets reflects the degree of competition within the two customer segments to which the unit offers product solutions. Sales have shown a positive trend throughout the year and overall growth is somewhat stronger than the overall market growth. Competition is increasing in the retail market and strong in the upper part of the corporate market. Total annual premium income at the end of the year was NOK 2.1 billion, with NOK 1 billion coming from the retail market.
4 Health Insurance is owned 50/50 by Storebrand ASA and Deutsche Krankenversicherung AG.
Within the retail market, Storebrand Insurance has an established position when it comes to private insurances, and holds a challenger position in the P&C fields motor and property. The sale of P&C insurance products is still increasing. Of the total sales, 86 per cent are through direct-based channels. This contributes to a cost-effective distribution model in a price sensitive market.
The result from other activities amounted to minus NOK 278 million compared to minus NOK 231 million in 2010. The result consists essentially of operating income and operating costs in Storebrand ASA. Net income from financial instruments rose by NOK 16 million to NOK 47 million. Operating expenses rose by NOK 34 million.
Total applications 700 502 1. Includes write-downs on equity in Storebrand Bank ASA with NOK 425 million in 2010.
RISK AND CAPITAL SITUATION RISK Storebrand's income is dependent on external factors which are somewhat uncertain. The most important are capital markets developments and changes in life expectancy in the Norwegian and Swedish populations.
Storebrand's customers want financial security, if something unforeseen should occur, and to maintain their purchasing power on retirement. To satisfy these needs, Storebrand offers various solutions for pension savings and products that ensure further income if, for example, customers lose the capacity to work. The products present the insurance company with an insurance risk, where inter alia, the customers' life expectancy and capacity for work are risk factors. Because of return guarantees, the products also entail interest rate risk. In the Swedish business, this interest rate risk is reflected in the income statement as the liabilities are recognised at market value. The introduction of Solvency II rules with effect from 2014 will mean that the market value of provisions will have far greater importance also in the Norwegian business.
Premiums earned are invested in various forms of securities until the assets, including return, are repaid to customers as a pension or compensation. Storebrand therefore assumes capital market risk by selling these products, with the aim of generating excess returns for both customers and owners. The products are developed, operated and managed by Storebrand and the company is therefore exposed to operational risk in these transactions.
Both Storebrand Life Insurance and SPP employ dynamic risk management in their everyday management. The methodology employed shall ensure that the companies maintain a good risk-bearing capacity through continuous adaptation of asset allocation and financial risk to the company's solvency and risk capital. The effect of market declines is reduced, while customers and owners can participate in market upturns. Daily calculations in separate modelling tools based on the latest market and portfolio development, form the basis for decisions about possible asset adjustments after a pre-defined framework. By exercising this type of risk management, the company expects to produce good returns each year and over time.
Operational risk refers to the risk of direct or indirect losses resulting from inadequate or failed internal processes or systems, human error or external incidents. The company seeks to reduce operational risk through clear procedures, clear descriptions of responsibilities and documented authorities. In addition, internal audit independent control is carried out in accordance with board-approved audit projects. The major operational risks are associated with regulatory changes, major IT projects and the accompanying risk of operational and commercial implications. The management team carries out an annual review of risks and improvement, which results in improvement measures. The risk assessment is presented to and considered by the Board.
Exposure to increased life expectancy and disability is associated with the insurance's long duration. The tariffs are based on historical statistical material, and the company has strategies for implementation of future demand for reserve strengthening and to reduce the owner's risk from changes in portfolios to the lowest possible level. Significant portions of the savings products have return guarantees. The company's greatest financial risk is linked to its ability to meet the annual interest rate guarantees. This sets the framework for the types of investments and the implementation of risk management. Most of the new sales are products where customers choose the risk profile of their pension savings and themselves bear the return risk on their accumulated pension funds.
risk for the company. This risk is not reflected in the current rules for financial accounting and solvency requirements. New solvency regulations - Solvency II - from 2014 will take into account this interest rate risk. One important stabilising measure is the significant volume of assets in the category of bonds held at amortised cost that are not recognised at current market value, but which provide a stable current booked return significantly above the interest rate guarantee. Liquidity risk is managed by significant financial investments that enjoy extremely good liquidity.
2011 was characterised by market turmoil and a great deal of uncertainty in the 2nd half, especially regarding the servicing of the large debt burden for many countries in the Eurozone. World stock market indexes fell, long interest rates in countries outside of the Euro crisis fell sharply, and the credit premium on bonds rose somewhat. This also affects Storebrand Life Insurance. The return on customer funds that were invested in shares was clearly negative, while falling interest rates generated higher returns than expected. Mortgage bonds gave returns somewhat below expectation, while real estate provided a yield approximately as expected. Exposure to the debt-ridden Euro countries, the so-called PIIGS nations, is limited.
In order to ensure sufficient capital to service its obligations, Norway's FSA requires that the insurance industry stress tests both assets and liabilities pursuant to pre-defined templates. This is referred to as Risk-based Supervision and is a step in the direction of the forthcoming European regulations for life insurance, Solvency II.
If the value of the assets is lower than the value of the liabilities to customers, as a result of return lower than the interest rate guarantees that have been issued, a so-called deferred capital contribution arises, for which provisions are made in the accounts. Deferred capital contributions can be reversed by good portfolio returns and/or increased market interest rates.
The risk is monitored in accordance with the board approved guidelines for risk management and internal control. The bank's risk appetite is expressed through the risk strategy that supports the commercial goals. Policy documents are drawn up for the individual risks defined in the guidelines. These documents set the target parameters. The way in which these parameters develop is monitored through risk reports to the bank's board.
Credit Credit quality in the corporate portfolio is considered good. About 80 per cent of portfolio's loan are real estate loans and about 20 per cent are development and construction loans. Real estate loans are characterised by a well-diversified tenant profile and good long-term leases. With such loans, the bank is secured a cash flow from tenants, while at the same time having collateral in the properties themselves. Tenant diversification provides an equivalent diversification of cash flows that reduces the overall risk in the portfolio.
Storebrand Insurance has a conservative investment profile, with some variation between the different investment portfolios relating to P&C, health insurance, private insurance and personal insurance. The investment portfolios are invested primarily in fixed income securities with short to medium term durations and a low credit risk. Assets and liabilities are well matched from a duration viewpoint. On the whole, Storebrand Insurance's financial risk is limited.
Storebrand ASA has only one share class. All shares have equal rights and the shares are freely transferable. The company is not aware of the existence of agreements between shareholders that limit rights to sell shares or to exercise related voting rights.
Storebrand Life Insurance Group's solvency margin was 161 per cent at the end of the year. There has been a reduction in the solvency margin in 2011. This reduction is due to estimated tax charges. The solvency ratio is also positively influenced by the permission from the Norwegian FSA to change the way investments in real estate interests of between 10 and 15 per cent are dealt with. SPP's solvency margin was 141 per cent at the end of 2011. Storebrand Bank had a capital adequacy ratio of 13.3 per cent and core capital ratio of 11.4 per cent. Storebrand Life Insurance Group's capital adequacy ratio was 13.8 per cent and the core capital (tier I) ratio was 10.1 per cent. Storebrand Group's capital adequacy ratio was 13.9 per cent and the core capital ratio (tier I) was 10.4 per cent at 31 December 2011. The regulatory requirement for capital adequacy is 8 per cent.
Storebrand ASA had total liquid assets amounting to NOK 1.4 billion at the end of 2011, and also has an undrawn credit facility of 145 million Euros. Storebrand ASA's total interest-
Rating Storebrand Livsforsikring AS, and Storebrand ASA have the same rating from Moody's and Standard & Poor's respectively that they had at the end of the preceding year.
P = positive outlook S = stable outlook N = negative outlook
SUSTAINABILITY Storebrand Group has worked systematically and purposefully with corporate social responsibility (CSR) for over 15 years. Long before most other players in the financial sector related to socially responsible criteria for their investments, Storebrand had a research department with methods to define the best companies as regards CSR. Storebrand's ambition has long been to be the leading player in the field of corporate social responsibility in the Nordic countries. In 2011, decisions were taken to ensure that this position is maintained in a world undergoing rapid change, where sustainability is an important competitive factor. Reporting of key figures in sustainability is certified by an independent third party and is shown on page 173. Work on sustainable investments is described in more detail on page 18.
In the spring of 2011, the Board of Directors resolved a further development of the Group's work on sustainable investments. Since 2005, the Group has had a minimum standard for sustainable investments that applies to all funds managed by the Group. This resolution implies that the ESG parameters (Environmental, Social and Governance) shall be taken into consideration in all investment decisions. The purpose is to identify companies that are best positioned to meet future challenges from a sustainability perspective.
The value of the Group's work on sustainable investments also received wide recognition as the Group in 2011 was awarded "Sustainable Asset Owner of the Year" by Financial Times and IFC, a part of the World Bank.
5 Definition of sustainable development from the Brundtland Commission Report 1987.
Storebrand has been involved in formulating the policies and preparing the business to deliver on the new principles for sustainable insurance.
Although the Group is actively working to reduce emissions, it is not currently possible to reduce CO2 emissions to a zero level. To compensate for this, Storebrand purchases UNcertified carbon quotas (CER, Certified Emissions Reductions) covering emissions from air flights, energy consumption and company cars. The Group became Norway's first carbon neutral financial player in 2008 and has since been climate neutral.
50 per cent of the directors of Storebrand ASA are women. Women account for 33 per cent of the boards of its subsidiaries and 17 per cent of the executive management team. At the end of the year, 38 per cent of women had management responsibilities in the Group. The Storebrand-Group participates in the financial industry‘s management training programme for women, Futura, chairing the working group and contributing with candidates and agents. In addition to Futura, the Group participates in Ruter Dam (Women's' routes) in Sweden. The company requires that its partner recruitment agencies present final candidates of both genders for managerial positions. The company provides a series of employee benefits that contribute to flexible solutions, including the right to 15 days off in lieu, flexible working hours within the Group‘s core hours, and the majority of employees have laptops. Employees receive their full pay if they, their children or their parents are sick and during pregnancy. Salary statistics are produced for specified levels and types of position in order to facilitate comparisons between the genders.
In 2011, 15 employees over the retirement age of 65 were in work, compared to 38 in 2010. In Norway, the Group hired 33 new people over the age of 45.
Sick leave Health and satisfaction are included in all business area scorecards and health has consistently been high on the agenda of the Group in 2011. In the health indicator physical working conditions are included, and a range of measures have been introduced to ensure that the Group's physical working conditions are the best possible. There is still much that can
be improved and work will continue into the coming year. Action on many fronts has led the Group being able to record stability in sickness leave in 2011, which at the beginning of the year was targeted at 3.5 per cent. Overall, sick leave in the Group was 3.8 per cent in 2011, 4.4 per cent in Norway, 2.4 per cent and 2.5 per cent in SPP and Storebrand Baltic respectively. The Group became an “inclusive workplace” (IA) company in 2002 and enjoys a close and good cooperation with The Norwegian Labour and Welfare Service (NAV). Storebrand has its own health clinic and in 2011 it had just over 5,800 medical consultations. With an average of 9 consultations per employee this has contributed positively to the Group's low sickness figures.
It was important to improve customer relationships, and courses in customer communications and sales have been held throughout the year. Storebrand has used internal resources in this effort to raise the level of competency. In 2011, there has also been considerable focus on the authorisation scheme for financial advisors (AFR) in terms of the theoretical knowledge test and practical examination. In all, six theme days were arranged in preparation for the knowledge test.
Ethics and trust Storebrand lives on trust. It is not a physical product that is sold, but a promise to be there when needed, be it tomorrow, in ten years or in forty years. Therefore, we set stringent demands on the high ethical standards of the Group's employees. All employees are measured on performance, behaviour and attitudes. One of the group's core values in 2011 was To be trusted and one of the Group principles was We take social responsibility.
established a Remuneration Committee, which is common to Storebrand ASA, Storebrand Livsforsikring AS, Storebrand Bank ASA, Storebrand Kapitalforvaltning AS and Storebrand Finansiell Rådgiving AS, pursuant to § 3, third paragraph of the Remuneration Regulations. The Remuneration Committee is in addition to the Compensation Committee. The committee cannot take decisions on behalf of individual boards.
The Board wishes to thank the retiring members of the Board of Directors, Board of Representatives and the Control Committee for their valuable contributions to the Group.
OUTLOOK The macroeconomic picture 2011 was marked by turbulent financial markets. At the beginning of 2012, turmoil in the financial markets is still considerable and the scope of the financial developments are still significant internationally. Several southern European countries are struggling with high debt. Growth forecasts for Europe are low, and there is great uncertainty in the market linked to the European authorities' handling of the difficult economic situation. The global downturn brought about weaker economic growth in Storebrand's home markets, Norway and Sweden.
The yield on ten-year government bonds fell significantly in the 2nd half of 2011 and is historically low in both Norway and Sweden. In the long term, this is a challenging situation for an insurance company that must satisfy an annual interest rate guarantee. At the same time Storebrand registers that there are still good investment opportunities in the market, with an expected return that exceeds the average guaranteed interest rate of 3.4 per cent.
Group. After the financial crisis in 2008, Storebrand has actively built up buffers to tackle the kind of market turmoil that is now being experienced
Proposed amendments in tax laws On 1 January 2012, the Ministry of Finance sent out a proposal, for consultation purposes, to limit the exemption method for shares owned in the customer portfolios of life insurance companies and pension funds. Under the proposed amendments, Storebrand will experience a tax charge of up to 28 per cent. As the proposal is formulated, however, Storebrand's carry forward losses could be continued and will shield the company from paying taxes for a period.
Solvency II The Banking Law Commission's report on paid-up policies and capital requirements, NOU 2012:3, was submitted to the Ministry of Finance on 17 January 2012. The Banking Law Commission proposes in NOU 2012:3 legislative amendments that may contribute to a better adaptation of the paid-up policies to the capital requirements that follow from Solvency II. The main points in the proposal presented by the Banking Law Commission's are voluntary conversion of paid-up policies to paid-up policies with an investment options, without any guarantee. It also proposes to allow companies to convert several paid-up to individual pension contracts without guarantee, and shorten payment period for small paid-up policies.
Amendments to the Norwegian regulations are necessary in order to ensure a good and stable occupational pension system for companies and employees under Solvency II. Storebrand is in favour of the proposed measures, but emphasises that these are not adequate if we are to deal with the challenges presented by the introduction of Solvency II under current Norwegian legislation.
DIVIDENDS AND YEAR-END APPROPRIATIONS Storebrand's result target suggests an increased cash flow from operations. Growth in earnings and cash flow will lead to a revision of the dividend policy and an increase in the dividend level.
The Board has resolved to propose to the Annual General Meeting that the entire net profit for 2011 is applied to enhance equity and reduce Storebrand ASA's net debt ratio.
Distributable reserves amounted to NOK 4,718 million as per 31 December 2011.
The management and Board of Directors of Storebrand conduct an annual review of Storebrand’s corporate governance policies and how they function in the group. Storebrand reports on the group’s policies and practice for corporate governance in accordance with section 3-3b of the Norwegian Accounting Act and the Norwegian Code of Practice for Corporate Governance of 20 October 2011.
Storebrand complies with section 3-3b, second paragraph of the Norwegian Accounting Act. The sections below refer to the numbering within the paragraph.
1-3. Specification of the code of practice that Storebrand observes, information on where this code of practice is available and grounds for any deviation from the code of practice
Storebrand’s corporate governance policies are based on Norwegian law. Storebrand complies with the Norwegian Code of Practice for Corporate Governance published by the Norwegian Corporate Governance
5. Provisions in the Articles of Association that completely or partially expand on or deviate from the provisions in section 5 of the Norwegian Public Limited Companies Act
6. Composition of governing bodies and a description of the main elements of the applicable instructions and guidelines
See sections 6, 7, 8 and 9 of the Norwegian Code of Practice for Corporate Governance below.
8. Provisions in the Articles of Association and authorisations granting the board the authority to buy back or issue the group’s own shares
Directors (the Board) has decided that the company will comply with the Norwegian
importance of the ethical guidelines in their day-to-day work. The final score was 84.
Storebrand ASA is a parent company for a financial group. The object of Storebrand
The full text of the Articles of Association can be found on the group’s website at www.storebrand.no.
The Board continually monitors the company’s capital solidity in light of its goals, strategy and risk profile. You can read more about Storebrand’s solvency capital and capital situation on page 43 of the Board of Directors’ Report. The Board has adopted a dividend policy that states that the dividend paid to shareholders shall normally amount to more than 35 per cent of the profit for the year after tax, but before amortisation costs. The dividend is set by the Annual General Meeting (AGM), based on a proposal put forward by the
Storebrand ASA wants to have various tools at its disposal that it can use to maintain an optimal capital structure for the group.
At the 2011 AGM the Board was granted authorisation to increase the share capital through issuing new shares for a total maximum value of NOK 224,954,945. This authorisation may be used to develop the group’s focus areas by the acquisition of businesses in consideration for new shares or by otherwise increasing the share capital. The authorisation may be used for one or more new issues. The authorisation is valid until the next AGM.
Storebrand ASA sells shares to employees from its own holdings in connection with the share purchase scheme and longterm incentive schemes for employees in the group. It is accordingly appropriate to authorise the Board to buy shares in the market to cover the aforementioned needs or any other needs. The authorisation will remain in force until the next AGM and is limited to a defined purpose.
The total holdings of treasury shares must, however, never exceed 10 per cent of the group’s share capital.
All shares have equal rights and are freely negotiable. The Articles of Association do not impose any limitations on the negotiability of Storebrand shares.
was held on 13 April. All shareholders with a known address will receive written notice of the AGM by post, which will be sent out no later than 21 days before the AGM. The deadline for registration is three working days before the AGM.
Company’s web site, the requirements contained in the Norwegian Public Limited
Chairman of the Board, at least one representative from the Nomination Committee and the external auditor must attend the
AGM. The CEO and the group’s executive management team also participate.
• Declaration on the fixing of salaries and other remuneration for leading personnel
• Election of shareholder representatives to the Board of Representatives and members of the Nomination Committee and the Control Committee.
All shareholders may participate at the AGM, and it is also possible to vote by proxy.
rights in connection with any share issues, mergers, demergers, amendments to the
and Storebrand Boligkreditt AS share a committee, which consists of five members and an alternate member elected by the
Control Committee meetings. The composition of the committee is identical for
Storebrand does not have any written provisions concerning rotation of Nomination Committee members, but the Nomination Committee has in practice rotated its members. The Articles of Association stipulate that the Nomination Committee should work in accordance with the rules of procedure adopted by the AGM. The Nomination
Committee’s rules of procedure were adopted at the 2010 AGM. In accordance with the rules of procedure, the Nomination Committee shall focus, for example, on the following when preparing nominations for representatives for the companies’
Nomination Committee reviews the annual appraisal of the work of the Board and is responsible for proposing candidates to the
The Nomination Committee held seven meetings in 2011, and prepared nominations for the election of new members to the Board of Representatives, including a new chairman. It also prepared nominations for the election of members to the
Members are elected for a two-year term so that half the members are up for election each year. It is a statutory requirement that the members elected by the
AGM shall reflect the company’s stakeholders, customer structure and function in society. The company’s shareholders are broadly represented through the elections that are held.
The duties of the Board of Representatives include making recommendations to the AGM regarding the Board’s proposed annual report and financial statements,
electing six, or up to seven, shareholderelected board members, including the
Committees’ work, and considering reports from the Control Committees. The Board of
Board has consisted of ten members in 2011. Furthermore, the Articles of Association stipulate that six, or possibly seven board members, shall be elected by the
Three members shall be elected by and from among the employees. The day-today management is not represented on the Board.
None of the members elected by the Board of Representatives have any employment, professional or consultancy relationship with the group beyond their appointment to the Board. The backgrounds of the individual board members are described on page 64 of the annual report and on the group’s website. The composition of the
Board satisfies the independence requirements set forth in the Code of Practice.
There are few instances of disqualification during the consideration of matters by the Board. The Board’s assessment of each board member’s independence is commented on in the overview of governing and controlling bodies on page 66. An overview of the number of shares in the
Board is regulated by special rules of procedure for the Board, which are reviewed annually. In order to ensure sound and well-considered decisions, importance is attached to ensuring that meetings of the Board are well prepared so that all the members can participate in the decisionmaking process. The Board prepares an annual schedule for its meetings and the topics it will consider. The agenda for the next board meeting is normally presented to the Board based on the approved schedule for the year and a list of matters carried forward from previous meetings.
Board with all matters concerning the CEO’s remuneration. The committee monitors the remuneration of the group’s executive personnel, and proposes guidelines for the fixing of the executive personnel’s remuneration and the Board’s statement on the fixing of the executive personnel’s remuneration, which is presented to the AGM each 58 | STOREBRAND ASA
The Audit Committee assists the Board by reviewing, evaluating and, where necessary, proposing appropriate measures with respect to the group’s overall controls, financial and operational reporting, risk management, and internal and external auditing. The Audit Committee held seven meetings in 2011. The external and internal auditors participate in the meetings. The majority of the committee’s members are independent of the group. The Board has found that it is appropriate to have a combined Remuneration Committee for the entire Storebrand Group.
Committee is in addition to the Remuneration Committee. In accordance with its mandate, the Compensation Committee shall advise the boards of the affected companies in any matters that concern the individual company’s compensation scheme for executive personnel, employees with duties of importance to the company’s risk exposure and employees with control functions. In addition, the committee shall evaluate whether the company’s compensation scheme and its practice makes good management and control of the company’s risk possible, counteracts high risk-taking and contributes to the avoidance of conflicts of interest. The committee cannot make decisions on behalf of the individual board.
Storebrand ASA’s Board has drawn up general policies and guidelines for management and control. These policies deal with the Board’s responsibility for determining the group’s risk profile, approval of the organisation of the business, assignment of areas of responsibility and authority, requirements concerning reporting lines and information, and risk management and internal control requirements. The
The group’s strategy development is anchored in the Board by means of an annual strategy meeting and as a permanent item on the Board’s agenda. The
Board’s guidelines for the annual planning process are summarised in the form of challenge notes to the group management team. The final product is a Board approved three-year plan for the group with goals and an action plan, financial forecasts and budgets, as well as a comprehensive assessment of the risk picture for the period covered by the plan.
The purpose of this is to identify, assess and manage risks that can hamper a unit’s ability to achieve its goals. Developments in the financial markets are important risk factors in relation to the group’s earnings and solvency position. In addition to assessing the effects of sudden shifts in the equity markets or interest rates (stress tests), scenario analysis is used to estimate the effect of various sequences of events in the financial markets on the group’s financial performance and solvency. This is important input for the Board’s general discussion about risk appetite and risk allocation.
Chief Risk Officer (CRO). The CRO reports to the group’s CFO. The CRO function is responsible for supporting the Board and group management team with respect to the establishment of a risk strategy and operationalisation of the setting of limits and risk monitoring across the group’s business areas. In addition, this function is responsible for managing the valuebased management system, coordinating the financial planning process, and the management’s risk assessment and internal control reporting, in addition to reporting from the Board and management.
The group has a common internal audit function, which carries out an independent review of the robustness of the management model. The internal audit function’s instructions and annual plan are determined by the Board pursuant to the current legislation, regulations and international standards. The internal audit function produces quarterly reports for the boards of the respective group companies.
The basis for Storebrand’s continuous management reporting is formed in the strategy and planning process through the stipulation of goals and action plans.
The appraisal of Storebrand employees forms an integral part of the value-based management system and is designed to ensure that the group’s strategies are implemented. The policies for earning and paying bonuses to the group’s risk managers comply with the regulations relating to remuneration in financial institutions.
CFO, CRO and employees with control functions related to risk management, internal control and compliance only have fixed salaries.
Financial Statements unit, which reports to the group’s CFO. Key executives in the Consolidated Financial Statements unit receive a fixed annual remuneration that is not affected by the group’s financial earnings. The work involved in the preparation of the financial statements is organised in such a way that the Consolidated Financial Statements unit does not carry out valuations of investment assets.
changes to policies, etc., are described in a separate document (Valuation Items
More detailed information on the remuneration, loans and shareholdings of board members can be found in notes 24 (Group)
Storebrand, and a statement on the fixing of remuneration is presented to the AGM.
The Storebrand Group has chosen to only pay fixed salaries to employees for whom control functions make up a large part of their duties. This is to ensure independence in the execution of the control functions. For other executive personnel and employees who influence the company’s risk, as defined by the authorities, the most important objectives of the bonus model are for the bonuses to guide their actions so that they are generally commensurate with the owners’ long-term interests, promote good management and control of the company’s risk, counter high levels of risk-taking, and act as an incentive.
The number of shares is registered in a share bank and will remain there for three years. Actual shares are not purchased. At the end of the period an amount corresponding to the market price of the shares awarded is paid. Half of the amount paid
(after tax) from the share bank is used to purchase actual shares in Storebrand with a lock-in period of 3 years. No payments are made from the share bank until the end of the 3-year period, even if the employee withdraws from the scheme or leaves the company.
The ”target bonus” shall account for 20-40 per cent of the fixed salary. The bonus awarded for a given year is subject to a fixed ceiling and cannot exceed 90 per cent
Board’s assessment of the bid, and seek to obtain a valuation from an independent expert. The Board will in the event of any takeover bid seek whenever possible to maximise the shareholders’ assets.
The Board agrees in other respects with the formulations in the Code of Practice on this point.
and is responsible for the financial auditing of the group. The external auditor issues an auditor’s report in connection with the annual financial statements and conducts limited audits of the interim financial statements. The external auditor attends board meetings in which interim financial statements are reviewed, all meetings of the
Audit Committee, unless the items on the agenda do not require the presence of the auditor. In 2007, the Board decided that the external auditor must rotate the partner responsible for the audit assignment every seven years. The external auditor’s work and independence are evaluated every year by the Board’s Audit Committee. Deloitte has been elected by Storebrand ASA’s AGM
as the company’s external auditor. The other companies in the group use the same auditor as Storebrand ASA.
Governance Committee since 2006. The committee is responsible for ensuring good corporate governance across the Storebrand Group. Storebrand has issued guidelines that restrict employees’ access to hold positions of trust in external companies.
Chairman of the Board of Storebrand ASA since 2009 1984 MBA from INSEAD, France l 1979 MSc from the Norwegian University of Science and Technology
Positions of trust: 2008-, Chairman of the Norwegian Microfinance Initiative, NMI l 2008-, Board Member of Navamedic ASA l 2002-, Board Member of Statkraft SF and Statskraft AS l 2011-, Board Member of Kongsberg Automotive ASA l 2005-, Board Member of SOS Barnebyer l 2006-, Board Member of SOS USA l 2008-, Chairman of Henie Onstad Art Centre
General Management Programme at CEDEP/ INSEAD l 1986 Bachelor of Commerce in international relations, Copenhagen Business School l 1993 Bachelor of Commerce in economics and finance, Copenhagen Business School
Group Director and Deputy CEO of SAS Group l Board Member of Storebrand ASA since 2009
Previous positions: 1998-2002 Group Director of Group 4 Falck AS l 1996-1998 EVP of SAS Technical Division l 19941996 Group Director of ISS Scandinavia AS l 1990-1994 CEO of SAS Data A/S l 1985-1990 Group Director of Top Danmark
Procurement Director of Statoil ASA l Board Member of Storebrand ASA since 2009 1983 MBA from University of Wisconsin l 1981 MA in business and economics from BI (Norwegian Business School)
Previous positions: 2004-2009 Group Director of Refining and Marketing for Statoil ASA l 1998-2004 Finance Director of Statoil ASA l 1985-1998 Various positions in DNB ASA: Head of Oil Group division, Head of Industrial section Group division, Head of Industrial and Financial institutions Group division, General Manager of Singapore Branch responsible for DNB’s operations in ASEAN
Project Manager in Storebrand Livsforsikring AS l Employee Representative Board Member of Storebrand ASA since 2010 2004 Master’s degree in economics and business administration from BI (Norwegian Business School)
Previous positions: 2006–2007 Key Account Manager in Storebrand Livsforsikring AS l 2004– 2006 Group Trainee in Storebrand ASA
Senior Union Representative for Employees in Storebrand l Employee Representative Board Member of Storebrand ASA since 2007
Market economist from BI (Norwegian Business School) l Bachelor of Management from BI
Previous positions: 2001–2007 Training manager and Professional Consultant for Storebrand Bank ASA l 1982–2001 Financial Adviser/Funds Adviser in DNB and DNB Investor
Hans Aasnæs is the Managing Director of Storebrand Asset Management. He has worked for Storebrand Asset Management since 1994 and has held a number of executive positions with the company. Before joining Storebrand, Hans Aasnæs was in Orkla Finans and he was a research fellow at the Norwegian School of Economics and Business Administration (NHH).
Gunnar Rogstad is the Managing Director of Storebrand Insurance. He has a Cand.jur degree from the University of Oslo and long experience in P&C and life insurance. Rogstad has been with Storebrand since 2006. Before this he held executive positions at If and Sampo.
She has a Master of Science in Economics and Business Administration from the Stockholm School of Economics and a Master of Arts in Latin American Studies from Stanford University.
Lars Aa. Løddesøl is the CFO and COO of the Storebrand Group. Løddesøl has worked for Storebrand since 2001, and he has, for example, been the Managing Director of Storebrand Life Insurance, Deputy Managing Director of Storebrand Bank and Group Finance Director. Before Løddesøl joined Storebrand, he worked for Citibank and the airline SAS.
Idar Kreutzer is the CEO of Storebrand. He has been with the Storebrand Group since 1992 and has a number of internal and external board positions.
Kreutzer is Chairman of the Corporate Assembly and Nominating Committee of Orkla ASA. He is the Deputy Chairman of the Corporate Assembly of Statoil ASA and a member of the Corporate Assembly of Norsk Hydro ASA. He is the Board Chairman of the Norwegian Refugee Council and sits on the Board of the Norwegian Financial Services Association. In recent years Kreutzer has participated as a Council Member of the World Business Council for Sustainable Development (WBCSD).
The CVs of the executive management are available in their entirety at www.storebrand.com/ir.
A total of 340,000 private customers in Norway have savings, insurance or banking relationships in Storebrand.
Business and risk notes note 1 Corporate information and accounting policies 80 note 2 Profit sharing and result allocated to owners – life insurance 88 note 3 Important accounting estimates and discretionary judgments 91 note 4 Risik management and internal control 93 note 5 Solvency II 95 note 6 Insurance risk 96 note 7 Financial market risks 100 note 8 Liquidity risk 103 note 9 Credit risk 105 note 10 Operational risk 108 note 11 Valuation of financial instruments at fair value 109 note 12 Segment reporting 113
Result notes note 13 Premium income 116 note 14 Net interest income - banking activities 117 note 15 Net income analysed by class of financial instrument 117 note 16 Net income from real estate 118 note 17 Other income 118 note 18 Insurance claims for own account 119 note 19 Change in buffer capital 120 note 20 Change in insurance liabilities - life insurance 120 note 21 Losses from lendings and reversal of previous losses 120 note 22 Operating costs and number of employees 121 note 23 Pension costs and pension liabilities 121 note 24 Remuneration to senior employees and elected officers of the company 124 note 25 Remuneration paid to auditors 128 note 26 Other costs 128 note 27 Interest expenses 129 note 28 Tax 129
Statement of financial position notes note 29 Intangible assets 131 note 30 Tangible fixed assets 133 note 31 Tangible fixed assets - operational leasing 133 note 32 Investments and receivables in associated companies 134 note 33 Joint Ventures 135 note 34 Classification of financial assets and liabilities 136 note 35 Fair value of financial assets and liabilities at amortised cost 136 note 36 Bonds at amortised cost 137 note 37 Lendings to customers 138 note 38 Reinsurer's share of technical reserves 138 note 39 Real estate 139 note 40 Biological assets 141 note 41 Accounts receivable and other short-term receivables 142 note 42 Equities and units 142 note 43 Bonds and other fixed-income securities 143 note 44 Derivatives 143 note 45 Currency exposure 144 note 46 Technical insurance reserves - life insurance 146 note 47 Technical insurance reserves - P&C insurance 147 note 48 Deposits from banking customers 148 note 49 Other current liabilities 148
Profit/loss for the year due to: Majority's share of profit 674 1,471
Adjustment of value of properties for own use, net of tax 76 -57
Statement of total comprehensive income Storebrand Group 1 January – 31 December
Financial assets at amortised cost: Real estate at fair value 7, 39 27,471 25,871
Financial assets at fair value: - Bonds and other fixed-income securities 7, 9, 11, 34, 43 128,034 137,732
The own shares column shows the nominal values of the holding of own shares. The amount paid in excess of the equity's nominal value is booked as a reduction in other equity, such that the entire cost price for own shares is deducted from the Group's equity. A positive amount on the "own shares" line is due to own shares being used in the shares scheme for employees.
Net cash flow from operations before financial assets and banking customers 3,006 2,798
Net receipts/payments - sale/purchase of real estate and fixed assets -14 -113
Net cash flow for the period 1,050 -308 - of which net cash flow in the period before financial assets and banking customers 681 -5,164
Cash and cash equivalents at start of the period for new companies -4 -126
INVESTMENT ACTIVITIES Includes cash flows for holdings in group companies and tangible fixed assets.
CASH/CASH EQUIVALENTS Cash/cash equivalents are defined as claims on central banks and claims on financial institutions without notice periods for the company portfolio. The amount does not include claims on financial institutions linked to the insurance customers portfolio, since these are liquid assets that not available for use by the Group.
Storebrand Group offers a comprehensive range of insurance and asset management services, as well as securities, banking and investment services, to private individuals, companies, municipalities, and the public sector. The Storebrand Group comprises the following business segments: life insurance, asset management, banking, P&C insurance and health insurance. The company's head office is at Professor Kohts vei 9, Lysaker.
Use of estimates when preparing the annual accounts When preparing the financial statements using IFRS, management must make assumptions and use estimates that affect assets, liabilities, revenues, costs and information in the notes to the financial statements, as well as the information provided on contingent liabilities. Actual figures may deviate from the estimates used. For further details, please refer to note 3.
3. CHANGES IN ACCOUNTING POLICIES During the course of 2011, there have been a number of amendments made to IFRS. None of these has had any influence the presentation, recognition and measurement of the consolidated accounts for Storebrand.
4. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES RELATING TO SIGNIFICANT STATEMENT OF FINANCIAL POSITION ITEMS The asset side of the Group's statement of financial position comprises, for the most part, financial instruments and investment properties. Investment properties are recognised at fair value, Most of the financial instruments are recognised at fair value, whilst other financial instruments that are included in the category Loans and receivables and Held to maturity are recognised at amortised cost. Capitalised intangible assets, which mainly comprise excess of purchase price relating to insurance contracts, are recognised in the statement of financial position. These assets are recognised at cost less an annual amortisation.
Business combinations When acquiring a company, the purchase method of account is applied. Acquisition cost is measured at fair value, taking into account possible equity instruments, in addition to direct costs relating to the acquisition. Any issue expenses that arise are not included in acquisition costs, but are charged to equity.
Identified tangible and intangible assets and liabilities that have been acquired are assessed at fair value on the acquisition date. If the acquisition costs exceed the value of the identified assets and liabilities, the difference is recognised in the financial statements as goodwill.
If the acquisition cost is less that the identified assets and liabilities, the difference is recorded in the profit and loss account at the time the transaction is carried out. If less that 100 per cent of the company is acquired, 100 per cent of excess values or shortfall in market value is recognised in the statement of financial position, with the exception of goodwill, where only Storebrand's share is recognised.
The purchase method of account is used when accounting for acquired businesses. Investments in associated companies, (normally investments between 20 per cent and 50 per cent of a company's equity) where the Group exercises significant influence are recorded using the equity method. Interests in joint ventures are consolidated using the proportional consolidation method, i.e. by including the proportion of revenue, costs, assets and liabilities in the appropriate lines in the financial statements.
Functional currency and currency translation of foreign companies The Group's functional currency is the Norwegian Krone (NOK). Foreign companies included in the consolidated financial statements, which have a different functional currency, are translated to NOK by converting the profit and loss account at the average exchange rate for the accounting year, and converting the statement of financial position at the exchange rate effective at year-end. Because of the difference in the exchange rates applied when converting profit and loss account and statement of financial position items, any differences are recorded directly against total profit. Conversion differences are recorded against total profit.
Elimination of internal transactions Internal receivable and payables, internal profit s and losses, interest and dividends etc. between Group companies are eliminated in the consolidated financial statement. Transactions between customer portfolios and the life insurance company's or other Group unit portfolios, are not eliminated in the consolidated accounts, Pursuant to the life insurance regulations, transactions with customer portfolios are based on the arms-length principle.
Income from properties and financial assets Income from properties and financial assets is described in sections 9 and 10.
Other income Fees are recorded when the income is dependable and earned, fixed fees are taken to income as the service is delivered and success fees are taken to income when the success criteria have been fulfilled.
Goodwill is not amortised, but is tested annually for impairment. Goodwill is tested for impairment when there are indicators showing that such impairment has taken place. A test of the recoverable amount of goodwill is carried out at least once a year.
If the relevant discounted cash flow is lower than the book value, goodwill is written down to fair value. Write-downs of goodwill are never reversed, even if there is information in future periods that the impairment no longer exists or is of a lesser amount. Goodwill is allocated to the relevant cash flow generating units that are expected to benefit from the acquisition so that it can subsequently be tested for impairment. Cash flow generating units are identified in relation to operational segments.
8. INTANGIBLE ASSETS Intangible assets with limited useful lifetimes are recognised at acquisition cost less accumulated depreciation and any write-downs. The depreciation period and the method of depreciation are reviewed annually. New intangible assets are only capitalised if it can be demonstrated that it is likely that the Group will gain future commercial benefit that is directly applicable to the asset in question. In addition, it must be possible to reliably estimate the cost price of the asset. The value of an intangible asset is tested for impairment if there are indications of a fall in its value; otherwise, intangible assets are subject to write-downs and reversals of write-downs in the same manner described for tangible fixed assets. When insurance contracts are purchased as part of a business combination, the insurance liabilities are
recognised on the basis of the underlying company’s accounting policies. Excess value linked to these liabilities, often referred to as the value of business in force (VIF), is recognised as an asset. A liability adequacy test must be conducted of the insurance liability, including VIF, pursuant to IFRS 4, every time the financial statements are presented. The test conducted looks at the calculated present value of cash flows to the contract issuer, often called embedded value. Any write-down of VIF will be reversed if the basis for the write-down no longer exists.
Intangible assets with unspecified useful lifetimes are not written down, but are tested for impairment annually and at other times if there are indications of a fall in their value.
Primarily, investment properties consist of centrally located office buildings and shopping centres. Properties leased to tenants outside the Group are classified as investment properties. In the case of properties partly occupied by the Group for its own use and partly let to tenants, the identifiable tenanted portion is treated as an investment property. See note 39 for more information about investment properties.
10-1 GENERAL POLICIES AND DEFINITIONS Recognition and derecognition Financial assets and liabilities are included in the statement of financial position from such time Storebrand becomes party to the instrument’s contractual terms and conditions. Normal purchases and sales of financial instruments are recorded on the transaction date. When a financial asset or a financial liability is initially recognised in the financial statements, it is stated at fair value. Initial recognition includes transaction costs directly related to the acquisition or issue of the financial asset/financial liability, if it is not a financial asset/financial liability at fair value in the profit and loss account.
Definition of fair value See definition of fair value in section 9. The fair value of financial assets listed on a stock exchange or in another regulated market place in which regular trading takes place is determined as the price on the last trading day, up to and including the statement of financial position date.
The fair value of loans is estimated based on the current market rate of interest on similar lending. When estimating the fair value of a loan, consideration is also given to the development of the associated credit risk in general.
Losses that are expected as a result of future events, irrespective of how probably they are, not included.
• a derivative except for a derivative that is a designated as an effective hedging instrument.
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments, that are not quoted in an active market, with the exception of such assets that the company intends to sell immediately or in the short term, that are classified as held-for-sale and such assets that the company designates on initial recognition as assets at fair value over profit or loss.
Loans and receivables are recorded at amortised cost using the effective interest method.
Available for sale Financial assets are classified as available for sale if they are non-derivative financial assets that are designated as available for sale or are not classified as a) loans and receivables, b) investments held to maturity, or c) financial assets at fair value through profit or loss.
Hedging of net investments Hedging of net investments in foreign businesses is recognised in the accounts in the same way as cash flow hedging. Gains and losses on the hedging instrument that relate to the effective part of the hedging are recorded directly against equity, while gains and losses that relate to the ineffective part are recognised immediately in the accounts in the profit and loss account.
10-6 FINANCIAL LIABILITIES Subsequent to initial recognition, all financial liabilities are measured at amortised cost using the effective interest method or at fair value.
Insurance obligations special investments portfolio The insurance reserves allocated to cover liabilities associated with the value of the special investments portfolio must always equal the value of the investments portfolio assigned to the contract. The proportion of profit in the risk result is included. The company is not exposed to investment risk on customer assets, since the customers are not guaranteed a minimum return. The only exception is in the event of death, when the beneficiaries are repaid the amount originally paid in for annuity insurance.
Transfers of premium reserves, etc. (transfers) Transfers of premium reserves resulting from transfers of policies between insurance companies are recorded in the profit and loss account as net premiums for own account in the case of reserves received and claims for own account in the case of reserves paid out. The recognition of cost/income takes place at the date the insured risk ceded. The income/expense is recorded at the time the risk is transferred. The premium reserve in the insurance reserves is reduced/increased on the same date. The premium reserve transferred includes the policy’s share of additional statutory reserves, the adjustment fund and the year’s profit. Transferred additional reserves are not shown as part of premium income, but are reported separately as changes in insurance liabilities. Transferred amounts are classified as current receivables/ liabilities until the transfer takes place.
Selling expenses Selling expenses in the Norwegian life insurance business are expensed, whilst in the Swedish subsidiaries selling expenses are recorded in the statement of financial position and amortised.
However, the company is allowed to apply a higher multiple of the basic interest rate than that defined by the Norwegian FSA. The allocation to additional statutory reserves is a conditional allocation to policyholders that is recognised in the profit and loss account as a statutory reserve and accordingly reduces net profit. Additional statutory reserves can be used to meet a shortfall in the individual customer’s guaranteed return, and are shown in the profit and loss account in the item ‘to/ from additional statutory reserves’. The amount released cannot exceed the equivalent of one year’s interest rate guarantee.
Premium fund, deposit reserve and pensioners’ surplus fund The premium fund contains premiums prepaid by policyholders as a result of taxation regulations for individual and group pension insurance and allocated profit shares. Credits and withdrawals are not booked through the profit and loss account but are taken directly to the statement of financial position.
Insurance liabilities special investments portfolio If a return guarantee is linked to a special investments portfolio, a supplementary provision is made to cover the guarantee obligation. The supplementary provision to cover the company’s liability pursuant to section 11-1, fourth paragraph, of the Companies Pension Act shall equal the difference between the capitalised value of the company’s liabilities vis-à-vis the insured, calculated pursuant to section 9-16 of the Insurance Act and the value of the investment portfolio
Risk equalisation fund Up to 50 per cent of the risk result for group pensions and paid/up policies can be allocated in the risk equalisation fund to cover any future negative risk result. The risk equalisation fund is included as part of equity.
Reserves for unfixed insurance cases The reserves for incurred insurance events consist of reserves for disability pensions, established claims, unestablished claims and claims processing reserves. When assessing the reserves for disability pensions, a risk free market interest rate is used, which takes into account future index adjustment of the payments. In addition, provisions are made for calculated claims that have been incurred but not reported (IBNR).
11-4 P&C INSURANCE Costs related to insurance claims are recognised when the claims occur. The following allocations have been made: Reserve for unearned premium for own account concerns on-going policies that are in force at the time the financial statements were closed and is intended to cover the contracts’ remaining risk period.
The insurance companies in the Group are subject to their own specific legal requirements for technical insurance reserves, including security reserves etc. In Storebrand’s consolidated financial statements, security reserves with high security margin are not defined as liabilities and are thus not recognised in the Group’s equity. The technical insurance reserves shall be adequate pursuant to IFRS 4.
12-1 DEFINED BENEFITS SCHEME Pension costs and pension liabilities for defined benefits schemes are calculated on a straight-line earnings profile and anticipated final salary as the calculation basis, based on assumptions relating to the discount rate, future wage adjustments, pensions and benefits from the National Insurance Scheme, future yields on pension assets and actuarial assumptions relating to mortality, disability, and voluntary retirement. Since there was no active market for high quality corporate bonds in Norway, the discount rate has been set at risk-free rate (government bond) taking into consideration the remaining period to maturity. The period's net pension cost comprises the sum of the period's pension earnings, the interest cost on the estimated liability, and the expected return on the pension assets.
12-2 DEFINED CONTRIBUTION SCHEME The defined contribution scheme implies that the Group pays an annual contribution to the employees' collective pension savings. The future pension will depend on the size of the contribution and the annual yield on pension savings. The Group has no further obligations in respect of work performed after the annual contribution has been paid. There are no provisions for incurred pension liabilities in such schemes. Defined contribution schemes are expensed directly.
Equipment, fixtures and fittings, and vehicles are recognised at acquisition cost less accumulated depreciation and any write-downs.
The depreciation period and the depreciation method are reviewed annually to ensure that the method and period used correspond with the useful economic life of the asset in question. This also applies to the residual value. Properties are split into components if different parts have different useful economic lives. The depreciation period and method of depreciation are evaluated separately for each component. Assets are assessed for impairment if there are indications of a decline in its value. Any write-downs are recognised as the difference between the book value and the recoverable amount. The recoverable amount is the highest of fair value less selling expenses and the value in use. On every reporting date, the possibility of reversing earlier write-downs on non-financial assets is assessed.
On 1 January 2012, the Ministry of Finance distributed, for consultation purposes, its proposal to limit the exemption method for shares etc. owned by life insurance companies and pension companies. This refers primarily to shares that are included in the Norwegian life insurance companies' customer portfolios. Under the proposal, any amendment to the legislation will take place with effect from 1.1.2012. The proposal is subject to a great deal of uncertainty, and the existing tax regulations have been applied when calculating the tax at 31.12.2011 for the Norwegian activities.
15. DIVIDEND ALLOCATED Pursuant to IAS 10, which deals with events after the balance sheet date, proposed dividends/group contributions are classified as equity until approved by the general meeting.
16. LEASES A lease agreement is classified as a financial lease agreement if it significantly transfers the risk and return inherent in the ownership. Other leases are classified as operational lease agreements. Storebrand has no financial lease agreements.
19. SHARE-BASED REMUNERATION Storebrand Group has share-based remuneration for key personnel. The fair value of the share options is set on the allotment date. This evaluation is based on recognised evaluation models adjusted to the characteristics of the options in question. The value set at the allotment date is accrued in the profit and loss account over the option's earning period with a corresponding increase in equity. The amount is considered a cost and is adjusted to reflect the actual number of share options earned. The earning period is the period from the scheme is established and through to the options being fully earned.
If one were to regroup profit and loss, one could divide the profit between customers and owner in the following elements: • Administration result The administration result is the difference between the premiums paid by customers pursuant to the tariff and the company’s actual operating expenses. The income consists of fees based on the size of customer assets, premium volumes or number in the form of unit price. Among other things, operating expenses consist of personnel costs, marketing, commissions and IT costs.
Generation of result to the owner The following is a description of the results for the segments Storebrand Livsforsikring and SPP.
1. The ownership of BenCo has in 2011 been transferred from SPP to Storebrand Life Insurance. The corresponding figures of 2010 have been recalculated. 2. Interest result and profit sharing.
Risk result In the case of group defined benefit pensions and newly established guaranteed individual products, any positive risk result devolves on the customers, while any deficit in the risk result must, in principle, be covered by the insurance company. However, up to half of any risk profit on a particular line of insurance may be retained in a risk equalisation fund. A deficit due to risk elements can be covered by the risk equalisation fund. The risk equalisation fund can, as a maximum, amount to 150 per cent of the total annual risk premium. The risk equalisation fund is classified as equity.
Financial result The net return on share capital devolves on the company. Share capital consists of equity and subordinated loans.
Any negative returns on customer portfolios and returns lower than the interest guarantee that cannot be covered by additional statutory reserves must be covered by the company’s equity and will be included in the financial result line.
Individual endowment insurance and pensions written by the company prior to 1 January 2008 will continue to apply the profit rules effective prior to 2008. New contracts may not be established in this portfolio. The company can retain up to 35 per cent of the total result after allocations to additional statutory reserves.
to multi-year return guarantees. For example, customers can pledge their own buffer capital as collateral for returns under the calculated interest rate applied to the insurance. Such an increase in the customer’s risk also reduces the total price of the return guarantee charged to the customer.
Assets under management (NOK billion) 81 32 10 124 117 1. The ownership of BenCo has in 2011 been transferred from SPP to Storebrand Life Insurance. The corresponding figures of 2010 have been recalculated.
Administration result The administration result for all products are paid to or charged to the result allocated to owners. Income and costs related to SPP’s consultancy and service activities are included in the administration result.
Risk result The risk result is paid to the owners in its entirety for all products
Financial result In the case of insurance products with guaranteed interest, the financial result is primarily affected by three components: • profit sharing • indexing fee • changes in deferred capital contribution to cover guaranteed capital
The return on risk products is recognised in the financial result.
In the case of unit-linked insurance, the technical insurance reserves are changed by the market return, regardless of whether it is positive or negative. This means the company has no financial result from unit linked insurance business.
Other result The other result consists of the return on assets not managed for account of the policyholders, equity and depreciation on intangible assets and interest expenses on subordinated loans.
The Group's most important estimates and judgments that can result in major changes to values included are explained below: REFERRING TO LIFE INSURANCE IN GENERAL In the consolidated accounts, insurance liabilities with a guaranteed interest rate are included, but using different principles in the Norwegian and the Swedish activities. An immaterial asset (value of business in force – VIF) linked to the insurance contracts in the Swedish activities is also included. There are several elements that may have an impact on the size of the insurance liabilities including VIF, such as biometric factors relating to trends in life expectancy and invalidity, and legal aspects such as amendments to legislation and judgments handed down in court cases etc. In the long term, a low interest rate will represent a challenge for insurance contracts with a guaranteed interest rate and, together with a reduced customer buffer, can have an impact on the amount recorded that is linked to the insurance contracts. The Norwegian insurance contracts with interest guarantees are discounted at the premium calculation rate (approximately 3.5 per cent on average). The Swedish insurance liabilities with interest guarantee are discounted based on a swap yield curve where parts of the yield curve are not liquid. The non-liquid part of the yield curve is estimated on the basis of long-term expectations regarding real interest rates and inflation.
On acquisition of the Swedish insurance company SPP, intangible assets were capitalised in the consolidated accounts relating to the values of SPP Group's insurance contracts, whilst SPP Group's recorded technical insurance reserves were continued in Storebrand's consolidated accounts. The intangible assets were often referred to as "Value of business in force" (VIF), and these intangible assets, together with associated capitalised sales costs and insurance liabilities are test for adequacy. The test is passed if book liabilities are larger than or equal to the net liabilities assessed at an estimated market value, including expected owner's profit. This test looks at embedded value estimates and follows IAS 37.
Storebrand satisfies the liability adequacy tests for 2011 and it has, therefore, no impact on the profit and loss account for 2011. There will be uncertainty associated with these tests. For more details about the uncertainty associated with the technical insurance reserves, please see below.
A substantial proportion of the insurance contracts in the Norwegian life insurance business have an annual interest guarantee. Changes to estimates and judgments may result in changed returns in customer portfolios. Depending on the size of any impairment in value, such a fall in value could be countered, wholly or partly, by a reduction in the adjustment reserve and additional statutory reserves such that the effect on the owner's result can be limited.
There are also insurance contracts without an interest guarantee in the life insurance business in which customers bear the return guarantee. Changes to estimates and judgments may result in changed returns in relevant customer portfolios. The recognition of such value changes does not directly affect the owners’ result.
In general, the following will often be key factors in the generation of the result for customers and/or the owners: • Performance of interest rate and equity markets, as well as commercial property trends • Composition of assets and risk management, and changes in the assets’ composition over the year • Buffer capital level for various products • Buffer capital related to the individual insurance contract • Trends of life expectancy, mortality and illness - assumptions • Development of costs – assumption
INVESTMENT PROPERTIES Investment properties are recognised at fair value. The commercial real estate market in Norway is not particularly liquid nor is it transparent. Uncertainty will be linked to the valuations and these require the exercising of judgment, especially in periods whith turbulent finance markets.
FINANCIAL INSTRUMENTS AT AMORTISED COST Financial instruments stated at amortised cost are assessed on the statement of financial position date to see whether there are objective indications of any impairment in the value of financial asset or a group of financial assets.
applying a relevant discount rate. Tangible fixed assets and other intangible assets are assessed annually to ensure that the method and period being used correspond with economic realities.
An intangible asset that arises from development (or the development phase of an internal project) shall be recognised if all the following elements can be documented: • technical assumptions for completing the intangible asset with a view to it becoming available for use or sale • the enterprise intends to complete the intangible asset and put it into use or sell it • the enterprise has the ability to use the intangible asset or to sell it • how the intangible asset will probably generate economic benefits. I.e. can the enterprise show that there is a market for the intangible asset's products or for the intangible asset per se, or, in the event that it is to be used internally, the usefulness of the intangible asset • Availability of adequate technical, financial and other resources to complete the development and to start sig or to sell the intangible asset • The enterprise's ability to reliably measure the expenditure attributable to the intangible asset while it is under development
PENSIONS OWN EMPLOYEES The present value of pension liabilities depends on the economic and demographic assumptions used in the calculation. The assumptions used must be realistic, mutually consistent and kept up to date in the sense that they should be based on uniform expectations of future economic conditions. The pension liabilities are calculated by actuaries. Any changes associated with the expected growth in pay and the discount rate, etc., could have a significant effect on the recognised pension obligations relating to our own employees. There is considerable uncertainty linked to the assumptions regarding future real interest rates, future adjustments of the national insurance Scheme's base rate and future inflation rates.
DEFERRED TAX The consolidated accounts contain significant temporary differences between the values of assets for accounting purposes and for tax purposes. The current Norwegian tax regulations have been applied when calculating deferred tax in the Norwegian business. In the case of certain investments and positions, the tax calculation will be based on estimates that may deviate from the final assessed figures.
Storebrand Group's life insurance customers want security for their own economy in the event that anything unforeseen might occur, and they want to be able to maintain their purchasing power as pensioners. To satisfy these needs, for a considerable time the Group has sold various pension products and products that secure future earnings if, for example, the customer should be disabled. The products pose an insurance risk, where i.a. the customers' life expectancy and working ability are risk factors. Because of the return guarantees, the products also present a financial market risk in the form of interest risk. In the Swedish business, this interest risk is reflected in the financial accounts since the liabilities are recognised at market value. The implementation of the Solvency II rules with effect from 2014 will imply that the market value of reserves will be very important to the Norwegian business as well.
ORGANISATION The Board of Directors shall ensure that the company has the appropriate systems for risk management and internal control.
The Chief Executive Officer shall, in accordance with the guidelines adopted by the Board of Directors, arrange for the establishment of acceptable risk management and internal control, continuous risk follow, and ensure that the risks are satisfactorily covered, ensue that the company's risk management and internal control is implemented, monitored and documented, and provide the Board of Directors with relevant and timely information about the company's risks, risk management and internal control.
INTERNAL AUDIT Storebrand has entered into an agreement with KPMG concerning the internal audit function. The responsible partner in KPMG reports directly to the Board of Storebrand ASA, which stipulates the instructions for the internal audit and approves the audit’s annual plan. The audit plan also includes an independent evaluation of the Group's control functions.
RISK MANAGEMENT IN CERTAIN AREAS IN MORE DETAIL Below follows a description of the special situation concerning risk management of life insurance linked to the relationship between customers and owner. As far as the risk associated with the business in the Group is concerned this is, apart from life insurance, risk that essentially affects the owner. Insurance risk, financial market risk, liquidity risk, credit risk, and operational risk are described in more detail in notes 5-10.
The composition of the financial assets is determined by the company’s investment strategy. The investment strategy establishes guidelines and limits for the company’s risk management, credit exposure, counterparty exposure, currency risk, the use of derivatives, and requirements regarding the liquidity in the asset portfolio. The objectives of this dynamic risk management are to maintain good risk bearing capacity and to adjust the financial risk to the company’s financial strength. By exercising this type of risk management, the company expects to create good returns both for individual years and over time. Given the current investment portfolio and dynamic risk management strategy, the annual return for the main product groups will normally fluctuate between 2 per cent and 8 per cent. Smaller portions of the portfolio are invested in profiles with somewhat lower and somewhat higher market risk. Dynamic risk management and hedging transactions reduce the likelihood of a low investment return. If the investment return is not sufficient to meet the guaranteed interest rate, the shortfall will be met by using risk capital built up from previous years' surpluses. Risk capital primarily consists of additional statutory reserves and unrealised gains. The owner is responsible for meeting any shortfall that cannot be covered from risk capital. The average interest guarantee is expected to sink in the years ahead and from 2012 all new earnings will be linked to an annual guarantee of 2.5 per cent. The share capital is invested with a low market risk. The financial risk related to contracts in the unit-linked and defined contribution pension product categories is borne by the insured person, and the insured person can choose the risk profile.
SPP In SPP, the portfolios are divided into defined benefit pensions, defined contribution pensions and unit linked contracts, and both defined benefit pensions and defined contribution pensions have associated guaranteed returns. In portfolios with a guaranteed return, the differences in the investments’ and the insurance liabilities’ interest rate sensitivity is minimised and the short-term interest risk is therefore substantially reduced. However, financial risks are assumed in order to achieve returns in excess of the guarantee, primarily by way of equities, corporate bonds and alternative investments. The proportion of equities in the portfolios is dynamically adjusted based on their risk bearing capacity, in order to dampen the effect of falls and at the same time participate in rises. Due to the somewhat more complex financial risk picture in SPP than in the Norwegian life insurance business, the risk to equity represented by the customer portfolio is also managed through derivative transactions in SPP’s company portfolio.
The investment strategy and risk management in SPP comprises four main pillars: • the assets’ interest rate sensitivity is continuously adjusted to the insurance liabilities • asset allocation that results in a good return over time • the continuous implementation of risk management measures in the customer portfolios through dynamic risk management • adjusted hedging in the company portfolio of parts of the financial risk the customer portfolios expose the equity to
STOREBRAND BANK Storebrand Bank's Board of Directors has approved guidelines for risk management and internal control. These ensure that the bank has established effective and robust functions for risk management, internal control, compliance and internal audit. The guidelines ensure implementation of the bank's strategies and compliance with risk-taking limits.
The capital requirements shall reflect all significant risks, including financial market risk, insurance risk, counter-party risk, and operational risk. The ultimate formulation of the capital requirements, including transitional arrangements, is scheduled for some time in 2012, but it is likely that the capital requirements will be higher than the capital requirement under Solvency I.
Calculating solvency capital will be based on the fair value of both assets and liabilities. This implies that the value of insurance liabilities will vary depending on the interest rate level. Under current investment adjustment and product regulations, interest rate sensitivity is considerably higher for insurance liabilities than it is for assets. This implies that a fall in interest rates weakens the solvency position. This effect gets stronger as interest rates fall. Paid-up policies and traditional individual insurance products with guarantees present the greatest risk, because the premium has been fully paid.
The Norwegian authorities are aware of the problems. The Banking Law Commission has been requested by the Ministry of Finance to propose amendments to Norwegian product legislation, including how current premium reserves for current private pension schemes can be adapted to the new framework regulations without triggering paid-up policies. Furthermore, there will be a need for amendments that allow for dealing with the interest rate risk linked to existing paid-up policies and individual contracts. In the report, NOU 2012-3, the Norwegian Banking Law Commission proposes, inter alia, that customers may voluntarily opt to convert the old age pension part of the paid-up policy into a paid-up policy with investment alternatives. This is positive, but it is not sufficient to solve the challenge related to the interest rate risk for paid-up policies. The proposal is now submitted for consultation. It is uncertain what amendments can be implemented and how much the risk can be reduced.
INDIVIDUAL CONTRACTS 1. Individual allocated annuity or pension insurance provides guaranteed payments for as long as the insured person lives. Alternatively, it can be agreed that the pension ends at a specified age.
2. Individual endowment insurance provides single payments in the event of attaining a specified age, death or disability. 3. Individual unit linked insurance is endowment insurance or allocated annuity in which the customer bears the financial risk.
RISK AREAS For Storebrand, life insurance is the dominant insurance area and deals with the following biometric areas of risk: 1. Death – The risk of erroneous estimation of mortality (before retirement age) or erroneous estimation of payment to surviving relatives. Over the last few years, a decrease in mortality and fewer young surviving relatives have been registered, compared with earlier years.
2. Long life – The risk of erroneously estimating life expectancy and future pension payments. Historical developments have shown that an increasing number attain retirement age and live longer as pensioners than was previously the case. There is a great deal of uncertainty surrounding future mortality development. In the event of longer life expectancy above that assumed in the premium tariffs, the owner could risk higher charges on the owner's result in order to cover necessary statutory provisions.
3. Disability – The risk of erroneous estimation of future illness and disability. As of today, the disability risk in Norway is greater than in other OECD countries. There is uncertainty linked to future disability rates.
RISK PREMIUMS AND TARIFFS Storebrand Life Insurance Norway Tariffs for group life insurance and certain risk insurances within group pensions also depend on industry/occupation in addition to age and gender. Group life insurance also applies tariffs based on claims experience.
Net annual risk premium for a sum insured of NOK 100.000.
Men Women 30 years 45 years 60 years 30 years 45 years 60 years
Life expectancy in Sweden is gradually increasing (mortality is sinking). This is positive for life cover. On the other hand, it may become a financial burden in the case of pension insurance (accident cover). The Swedish Insurance Research Council (FTN), which is a sector organisation for the insurance business, conducted an analysis of mortality in 2006 that makes it possible to look at mortality forecasts that take into account changes in the level of change trends. Such a forecast is crucial when it comes to setting prices for both life cover and pension insurance. Insurance products are usually designed in such a way that the premium calculation for the entire period of cover is based on mortality/life expectancy at the time the policy is written.
The majority of SPP risk policies are annual. In other words, the company can change the premium every year. Errors in the estimate of the premium for life and disability cover can therefore be corrected, which has a rapid effect on the company’s risk result.
6) Traffic light reporting (only SPP) In order to ensure that insurance companies have adequate capital to meet their insurance liabilities, Finansinspektionen (Swedish Financial Supervisory Authority) requires the sector to stress test all of its insurance business using so-called traffic light calculations. The elements tested are the premium income side and the insurance liabilities. From 2007, the companies are also required to stress changes with respect to insurance risks. This also applies to so-called cancellation risk, which is the risk that a policyholder will terminate the policy and thus stop paying premiums. The level of stress testing generally follows the guidelines issued by CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors) and their work on Solvency II.
The guaranteed rate is used both as the guaranteed interest and for discounting future payments. The following table shows the proportions of insurance fund reserves at 31.12.2010 relating to policies with various basic annual interest rates: Interest rate guarantee in per cent 2011 2010
A guaranteed interest rate of 2.75 per cent has been applied to new policies written in 2011. In the case of contracts that have been transferred to the company, the guaranteed rate in the ceding company has been used, limited upwards to 4 per cent.
Market risk is the risk of incurring losses on open positions in financial instruments due to changes in market variables and/or market conditions within a specified time horizon. Therefore, market risk is the risk of price changes in the financial markets, including interest rate, currency, equity, property and commodity markets that have an impact on the value of the company’s financial instruments. Storebrand continuously monitors market risk using a range of evaluation methods. The potential for losses in the investment portfolio on a one-year horizon is calculated and the portfolios are stress tested pursuant to the statutorily defined stress tests as well as internal models.
Bank activities The table includes the accounting effect over a 12-month period of an immediate parallel change in interest rates of +1.5 percentage points and -1.5 percentage points respectively. Account is taken of the one-time effect such an immediate interest rate change has on the items
recognised at fair value and hedging value, and on the effects the interest rate change has on the result for the remainder of the interest rate duration period before the interest rate change has income and costs-related effect.
Liquidity risk is the risk that the company will not have sufficient liquidity to meet its payment obligations when they fall due, or that the company will not be able to sell securities at acceptable prices. Storebrand Life Insurance’s and SPP’s insurance liabilities are long-term and are usually known long before they fall due, but a solid liquidity buffer is still important for withstanding unforeseen events.
Separate liquidity strategies have been drawn up for several of the subsidiaries, in line with statutory requirements. These strategies specify limits and measures for ensuring good liquidity and a minimum allocation to assets that can be sold at short notice. The strategies define limits for allocations to various asset types and mean the companies have money market investments, bonds, equities and other liquid investments that can be disposed of as required.
Credit risk is the risk of incurring losses due to counterparty’s unwillingness or inability to meet his obligations. Maximum limits for credit exposure to individual debtors and for overall credit exposure to rating categories are set by the boards of the individual companies in the Group. Particular attention is paid to ensuring diversification of credit exposure in order to avoid concentrating credit exposure on any particular debtors or sectors. Changes in the credit standing of debtors are monitored and followed up. Storebrand Life Insurance and SPP use published credit ratings wherever possible, supplemented by the company’s own credit evaluation when there are no published ratings. The Group has entered into framework agreements with all counterparties to reduce the risk inherent in outstanding derivative transactions. These regulate, inter alia, how collateral is to be pledged against changes in market values which are calculated on a daily basis.
Credit risk and liquidity risk are the two most important risks for banking activities. The bank’s risk strategy establishes overall limits for how much credit risk the bank group is willing to assume. The willingness to accept risk is adjusted to the bank’s risk appetite and target risk profile, capital adequacy and growth. Credit policies establish general principles for granting credit. The bank group’s routines for credit management are set forth in special credit handbooks. The most important control of credit risk is carried out and administered by the Credit Control unit.
The years change in fair value due to credit risk -1 -5
The maximum credit exposure is the sum of gross lending, drawn amounts on credit lines, and undrawn amounts on such credit lines. The maximum exposure was marginally reduced from the end of 2010 as a result of lower commitments, counteracted by an increase in interest rate swaps. The following specifies bonds and derivatives by rating and lending by customer groups.
Non-interest bearing securities managed by Storebrand 1. Excluding underlying investments in external funds
Counterparties AAA AA A BBB Total 2011NOK million Fair value Fair value Fair value Fair value
The purpose of using financial derivatives is to identify and reduce currency and interest rate risk. Counterparty risk in connection with the trading of financial derivatives is included in credit risk. The bank's risk strategies and policies set limits for how much credit the bank group is willing to accept. Storebrand Bank secures all customer derivatives trading by way of counter deals in derivatives to minimise the currency and interest rate exposure.
CREDIT EXPOSURE IN LENDING Loans to the corporate market total almost NOK 14 billion. Further, approximately NOK 600 million in unused credit lines and just under NOK 300 million in guarantees.
About 80 per cent of the loans relate to income-generating properties. Just under 20 per cent relate to building projects. Less than 5 per cent of the corporate market portfolio is secured by collateral other than mortgages on property. The portfolio is secured by collateral in the form of mortgages on real estate. Property loans are characterised by a good, diversified tenant profile and good lease durations. The company is ensured a cash flow from tenants and has security in the properties themselves. Tenant diversification ensures corresponding diversification of cash flows, which significantly reduces the overall risk inherent in the portfolio.
In the retail market, loans are for the most part secured by mortgages on residential properties. Approximately NOK 22 billion has been lent in housing loans, with additionally almost NOK 2 billion in undrawn credit facilities. The total exposure to the housing sector is therefore approximately NOK 24 billion. Customers are checked in accordance with policies, and their ability and willingness to service the loan is evaluated using a liquidity calculation and a risk classification model.
The difference between the liabilities' book value and the contractual amount at maturity 4 4
Accumulated change in fair value of liabilities due to changes in credit risk -2 7
The assessment of operational risks is linked to the ability to achieve target and to implement plans. This includes both risks for losses and declining profitability associated with, inter alia, economic fluctuations and changes in framework conditions, changed customer behaviour, and the risk of losses as a result of inadequate or failed internal processes, control routines, systems, human error or external events.
Contingency plans have been prepared to deal with serious events in the business-critical processes, and these are the responsibility of people with special security responsibilities. Storebrand's control function also involves people with particular responsibility for controlling operational risk.
The company continuously performs checks to ensure the quality of the market data obtained from external sources. Generally, such checks involve comparing multiple sources, checking, and assessing the reasonableness of abnormal changes.
Asset backed securities (ABS), residential mortgage backed securities (RMBS) and commercial mortgage backed securities (CMBS) are classified as level 3 due to their generally limited liquidity and transparency in the market.
UNLISTED EQUITIES/FORESTRY The external valuations are based on models that include non-observable assumptions. Besides the external valuations that had been conducted as per 31.12. 2011, the equity investments are stated on the basis of value adjusted equity reported by external sources. Comprehensive external valuations were carried out on the largest forestry investments at 31.12.2011 and these for the basis for the valuation of the company's investments.
The investments in private equity funds are stated on the basis of the values reported by the funds. Most private equity funds report on a quarterly basis, while a few report less often. In those cases where Storebrand has not received an updated valuation with respect to an investment from a fund by the time the annual financial statements are closed, the last valuation received is used and adjusted for cash flows and any significant market effects during the period from the last valuation up to the reporting date. These market effects are estimated on the basis of the type of valuations made of the companies in the underlying funds; the financial performance of relevant indexes, adjusted for estimated correlation between the relevant company and the relevant index.
SENSITIVITY ASSESSMENTS Forestry investments are characterised by, among other things, very long cash flow periods. There can be some uncertainty associated with future cash flows due to future income and costs growth, even though these assumptions are based on recognised sources. Nonetheless, valuations of forestry investments will be particularly sensitive to the discount rate used in the estimate. The company bases its valuation on external valuations. These utilise an estimated market-related required rate of return. As a reasonable alternative assumption to the required rate of return used, a change in the discount rate of 0.25 per cent would result in an estimated change of around 4-6 per cent in value, depending on the maturity of the forest and other factors.
Composition of ABS/CMBS/RMBS portfolios based on primary exposure of underlying collateral: Country Asset Backed Commercial
Composition of ABS/CMBS/RMBS based on ratings from Moody’s, alternatively S&P: Rating Asset Backed Commercial
Derivatives: Total derivatives 3,721 3,721 - of which derivatives with a positive market value - of which derivatives with a negative market value
Level 1 encompasses listed equities that over the previous six months have experienced a daily average turnover equivalent to approximately NOK 20 million or more. Movements from level 1 to level 2 reflect reduced sales value in the relevant equities in the last measuring period. On the other hand, movements from level 2 to level 1 indicate increased sales value in the relevant equities in the last measuring period.
SPP Consists of the companies in the SPP Group (Storebrand Holding Group excluding SPP Fonder AB). SPP offers a wide range of pension solutions to companies, organisations and private individuals in Sweden. SPP holds a particularly strong position in traditional products - policies with guaranteed interest rates - in the Swedish corporate market.
Revenue from other group companies2 32 31 188 315 3 5
Group result before amortisation and write-downs of intangible assets2 481 783 291 410 293 333 213 162
Group result before amortisation and write-downs of intangible assets2 281 155 880 179 -1,158 -410 1,279 1,612
2. Income from other group companies: Storebrand Investments manages financial assets for other group companies. Asset management fees are made up of fixed management fees and performance-related fees. Performance-based fees apply to the portfolios qualifying for such fees at any given time, and are recognised as income when they are assured. Storebrand Livsforsikring AS earns revenue from other group companies for product sales and management. These services are priced on commercial terms.
Net interest income as a percentage of average total assets 1.1% 1.1%
Deposits from and due customers as% of gross lending 55.2% 54.6%
Gross defaulted and loss-exposed loans as% of gross lending 1.0% 2.0%
3. Costs and AuM are 12 month rolling figures. Previous quarters are revised. AuM = Assets under Management (total assets under management), bp = basis points. 4. Consists of the companies Storebrand Bank ASA, Storebrand Boligkreditt AS and Storebrand Eiendomskreditt AS under liquidation.
Fixed income and similar income from lending to and receivables from financial institutions 21 20
Interest and similar costs from liabilities to financial institutions -225 -288
Total net interest income 443 457 1 The total interest income for lending, etc, that is not stated at fair value. 1,151 1 381 2 The total interest costs for deposits, etc, that are not stated at fair value. -923 -848
Interest costs and value changes on borrowing at fair value (FVO): NOK million 2011 2010
Profit on equities and units 1,884 1,435 -9,291 -5,972 26 -5,998 9,095
Real estate equities and units in Norway and Sweden1 73 96
Realised gains/losses sold real estate 82 16 1. Are classified as equities and other units in the statement of financial position.
Other revenue from companies other than banking and insurance 557 474
Total fee and commission income from financial instruments not stated at fair value totalled NOK 58 million in 2011 (2010: NOK 55 million). Total fee and commission expenses on financial instruments not stated at fair value totalled NOK 13 million in 2011 (2010: NOK 14 million).
Total change in buffer capital 4,163 -5,132 note 20 | Change in insurance liabilities - life insurance
Realised losses on loans where provisions have previously been made -95 -47
Realised losses on loans where no provisions have previously been made -7 -1
Write-downs/income recognition for lending and guarantees for the period 14 -15
Storebrand Helseforsikring is 50% owned by Storebrand. Employees are added by 50%. The corresponding figures from 2010 have been recalculated.
Includes employer contributions on net under-financed liabilities in the gross liabilities.
Expected return on pension fund assets in the period 4.6% 4.9% 5.0% 5.0%
Expected annual increase in pensions in payment 1.5% 2.0% 2.0% 2.0%
FINANCIAL ASSUMPTIONS The calculation assumptions are set based on the rules in IAS 19. Particular uncertainty is linked to long-term assumptions such as future inflation, real wage growth, and the regulation of G. Since there is no deep and active market for high quality corporate bonds in Norway, IAS 19 requires that the government bond rate be used as the discount rate. IAS 19 does not require the existence of a deep and active market for government bonds in order to use this interest rate as the discount rate. When setting financial assumptions, company-specific issues are considered, including increase in direct salaries.
NOK '000s * Percentage intervals indicate that there are several loans with differing interest rates and repayment periods.
Ole Klette 225 * Intervals indicate that there are several loans with differing interest rates and repayment periods.
As a consequence of the new remuneration regulations, Storebrand made the necessary adjustments to the Group's bonus model with effect from 2011. In this connection, the existing bonus bank was liquidated inthe first half of 2011. Payments for 2011 are therefore considerably higher than the normal bonus payment level. This is to be seen as a one-time occurrence. The bonus bank's assets comprised retained bonuses earned in previous years. 50% of amounts paid after tax were used to purchase Storebrand shares with a lock-in period of 18 months. Based on current market conditions, no raises in salary or bonuses were resolved for Storebrand's senior management in 2012, and a moderate local adjustment in salaries is to be implemented in the rest of the organisation, slightly over 1% in Norway and 2% in Sweden.
2. Comprises company car, telephone, insurance, concessionary interest rate, other taxable benefits. 3. The summary shows the number of shares owned by the individual, as well as his or her close family and companies where the individual exercises significant influence, cf.
The Accounting Act, Section 7-26. 4. Earned bonus at 31.12.11. Senior executives are contractually entitled to performance related bonuses . 50% of the earned bonus is paid in cash. The remaining amount is converted to synthetic shares based on the market priice. These are registered in a share bank with a lock-in period of three years. At the end of three years, the value of the synthetic share is calculated at a new market price. Half of the amount paid from the share bank shall, after tax, be used to purchase shares in Storebrand ASA at market price, with a new three-year lock -in period.
5. The retirement age for SPP‘s CEO is 62 years old. SPP‘s CEO is covered by a defined contribution based scheme in addition to a defined benefits scheme.
The Board of Storebrand ASA will submit the statement to the 2012 annual general meeting on the salary and other remuneration of senior employees, cf.
STOREBRAND ASA – THE BOARD OF DIRECTOR ’S STATEMENT ON THE FIXING OF THE SALARY AND OTHER REMUNERATION FOR SENIOR EMPLOYEES The Board of Storebrand ASA has had a special Compensation Committee since 2000. The Compensation Committee is tasked with providing recommendations to the Board concerning all matters to do with the company’s remuneration of the CEO . The Committee shall remain informed about and suggest guidelines for the fixing of remuneration for senior employees in the Group. In addition the Committee is the advisory body for the CEO in relation to remuneration regimes that cover all employees in the Storebrand Group, including Storebrand’s bonus system and pension scheme.
mittee shall prepare issues which, pursuant to the regulations, shall be dealt with by the Board of Directors. The Compensation Committee will continue to function in accordance with current practice.
Senior employees in Storebrand can, in addition to their fixed salary, receive remuneration in the form of an annual bonus, participation in the Group’s group pension scheme and usual benefits . Senior employees may also be entitled to a severance pay arrangement, which guarantees they will receive their salary less other income for a specific period of up to 24 months upon the termination of their employment contract.
2. BINDING GUIDELINES FOR SHARES, SUBSCRIPTION RIGHTS, OPTIONS, ETC, FOR THE 2012 FINANCIAL YEAR
Bonuses are findnaced through the value-creation inthe Group, but allocation is dependent on the unit's value creation and the employees' own performances.
Allotment How should the pot be distributed among the employees in the scheme?
The Board of Storebrand ASA sets the target that determines how the risk adjusted value creation will fund the bonus.
Calculation of the allotment result A unit‘s value creation is measured using a scorecard that is anchored in the unit‘s strategic, financial and operation goals. Scorecards contain both quantitative and qualitative goals. Specific goals are also set each year with respect to the senior employees‘performance. This is documented using a special monitoring system. The allotment result depends on both the unit‘s result and individual target attainment.
Compulsory purchase of shares in Storebrand ASA Senior employees must spend half of the paid bonus, after tax, on purchasing Storebrand ASA shares at market price. SPP‘s CEO must spend 60 per cent on purchasing shares. These shares are subject to a lock-in period of 3 years. The lock-in period continues to apply if the employee leaves the company.
2.3 SEVERANCE PAY The CEO and executive vice presidents are entitled to severance pay if their contracts are terminated by the company. Entitlement to severance pay is also triggered by resignation if this is due to substantial organisational changes or equivalent situations that make it unreasonable for the employee to remain in his or her position. If the employment relationship is brought to an end due to a gross breach of duty or other material non-performance of the employment contract, the provisions in this section do not apply. Any income gained through work, including fees for service provision, the exercising of an office, etc shall result in an equal amount being deducted from the severance pay.
Severance pay amounts to the pensionable salary at the end of the employment relationship, excluding any bonus schemes.
The CEO is entitled to 24 months‘ severance pay. Other executive vice presidents are entitled to 18 months‘ severance pay.
2.4. SHARE PROGRAMME STAFF Senior employees are granted, as are other Storebrand employees, the opportunity to purchase a limited number of shares in Storebrand ASA at a discount under an employee share purchase programme.
3. THE MANAGEMENT POLICY APPLIED IN 2011 3.1 GENERAL The senior employee policy practised in 2011 was based on the statement regarding the fixing of the salary of senior employees that was dealt with by the annual general meeting in April 2010.
3.2 PAID BONUS FOR 2010 QUALIFYING YEAR The targets set for funding bonuses were achieved in the 2010 qualifying year. Therefore, bonuses were awarded to senior employees based on results and performance in 2010 and which were paid out in March 2011. Payments from the bonus bank in March 2010 were made pursuant to the rules that applied in the 2009 qualifying year. 1/3 of the existing balance in the bonus bank was paid out after the awarding of the bonus for the 2009 qualifying year and after calculating the return using the bank interest rate and the development of the Storebrand share between 1 January 2009 and 31 December 2009 and 31.12.2009, respectively. 42 344 shares were purchased.
As a consequence of the new compensation regulations, Storebrand made, with effect from 2011, the necessary adjustments to the group bonus model. In this connection, the existing bonus bank was liquidated in the first half of 2011. Payments in 2011 were therefore significantly higher than normal level of bonus payments. This is regarded as a one time occurrence. The funds in the bonus bank consisted of withheld bonuses earned in previous years. 50% of the amount paid after tax was used to purchase Storebrand shares with an 18-month lock-in period. On the basis of prevailing market conditions, it was decided not to increase the salary and bonus framework for Storebrand's corporate management in 2012, and only a modest local salary adjustment will take place in the rest of the organisation, just over 1% in Norway and 2% in Sweden.
3.3 CALCULATION OF BONUS PAYMENT FOR 2010 QUALIFYING YEAR The average bonus entitlement for a member of the executive management team is calculated using the following formula: Expected bonus level x Group‘s funding x Individual target attainment
The average expected bonus level was NOK 938,000. Group funding was 114 per cent and the average target attainment by units and individuals was 106 per cent for the 2010 qualifying year. This results in an average bonus entitlement of NOK 1 289 000. This amount was credited to the bonus bank. In 2010, the return on the cash portion of the bonus bank was 3.04 per cent and the return on the share portion of the bonus bank was 10.3 per cent. The awarding and payment of bonuses complied with the applicable guidelines for 2010. 1/3 of the bonus account balance was paid out. Half of the amount paid out was used to purchase shares with a 3-year lock-in period. On liquidation of the bonus bank, NOK 796 000 was paid to each Group Director, including funds for share purchases with a lock-in period of 18 months.
The remuneration paid to Deloitte AS and coadjutant companies amounts to: NOK million Deloitte Other auditors 2011 2010
Total remuneration to auditors 17.0 0.4 17.4 15.4 *The fee is mainly due to assistance in connection with inquirys from public authorities.
Total interest expenses1 -681 -648 1. Interest expenses for Storebrand Bank are included in net interest income for banking enterprises.
Deferred tax 169 1. Tax-increasing and tax-reducing temporary differences on investment properties and any other items for 2010 are adjusted in relation to the financial statements for 2010. This has resulted in a net increase in tax-increasing temporary differences of NOK 1.3 billion compared to previously presented figures.
2. The basis for net deferred tax assets also includes itemsthat are recorded against the total profit.
The Storebrand Group has a significant tax-related deficit linked to the Norwegian life insurance activities. This is because there are major differences between income and losses for accounting purposes and for tax purposes associated with investments in equities within the EEC area. Under Norwegian tax regulations, realised gains are virtually tax free, whilst realised losses are not deductible for taxation purposes. However, an increase or reduction in insurance provisions allows tax deductions or represents taxable income. In 2011, the carryforward tax losses were reduced, inter alia because of a loss on the share portfolios and as a result of other temporary differences between recorded values and values for taxation purposes. The Group's tax-increasing temporary differences also include temporary differences linked to the Group's investment properties. These properties are for the most part recorded in the Norwegian life insurance company's customer portfolios and recorded in the accounts of Storebrand Eiendom Holding AS, which is owned by Storebrand Livsforsikring AS. Even though these property companies are included in the customer portfolio, and can be sold virtually free of tax, the tax-increasing temporary differences linked to the underlying properties are included in the Group's temporary differences, where deferred tax is calculated at a 28 per cent nominal tax rate. As a result of changes in temporary differences, and the effect of permanent differences for accounting and
Acc. depreciation and write-downs 31.12 1. Value of business-in-force, the difference between market value and book value of the insurance liabilities in SPP. 2. NOK 17 million was classified as depreciation under operating costs.
three-year period, cash flows are projected for the period 2015 to 2019 based on growth in the various result elements of between 2 per cent and 4 per cent per annum. A stable growth rate of 3 per cent is also assumed in the calculation of the terminal value. For increase in profit, the long-term main drivers will be the return on total assets , the underlying inflation and wage growth. The utility value is calculated using a required rate of return after tax of 8 per cent. The required rate of return is computed on the basis of risk-free interest and added to a premium that reflects the risk in the enterprise.
The executive management has assessed the recoverable amount of goodwill as per 31 December 2011and concluded that no write-down is necessary.
Value of business in force SPP 10 years 10% Straight line 4,678
Rights to withdraw fees from SPP Fonder 10 years 10% Straight line 3
This primarily concerns lease of office buildings at Lysaker and in Stockholm, as well as some movables.
Other current liabilities 10,095 10,095 note 35 | Fair value of financial assets and liabilities at amortised cost
Loans to and due from financial institutions 269 269 699 698
Lending to customers/liabilities to financial institutions/debt raised by issuance of securities The fair value of lending to customers subject to variable interest rates is recognised as book value. However, the fair value of lending to corporate customers with margin loans is slightly lower than book value since some loans have lower margins than they would have had, had they been taken upat year end 2011. The shortfall is calculated using a discounted difference between the agreed margin and the current market price over the remaining term to maturity. Fair value is also adjusted for individual write-downs.
Bonds at amortised cost As a general rule, the fair value of bonds is based on prices obtained from Reuters and Bloomberg. Bonds that are not quoted regularly will normally be valued on the basis of recognised theoretical models. The latter is particularly true for bonds denominated in NOK. These sorts of valuations are based on discount rates consisting of swap interest rates plus a credit premium. The credit premium will often be issuer specific and normally based on a consensus of credit spreads quoted by a selected brokerage house. The imparimen ttests carried out have resulted in write.downs of NOK 45 million in 2011.
Debt issued by issuance of securities The bonds are recognised on the basis of our theoretical models using the issuer-specific credit spead over swap. Bonds are valued on the basis of registered sales of the bonds and quoted prices from brokers. All prices are quality assured in relation to EOM (end of month) reports from brokers.
Subordinated loan capital The fair value of subordinated loan capital is determined on the basis of registered sales of the bonds and quoted prices from brokers. All prices are quality assured in relation to EOM (end of month) reports from brokers.
Total investment properties 28,747 27,102 1,376 1. The leased amount is calculated in relation to floor space.
There have not been made any further agreements with regards to buying or selling of real estate in 2011. NOK 309 million in Storebrand and SEK 209 million in SPP have been committed but not drawn on in international real estate funds.
Cash flow An internal cash flow model is used to calculate fair value. The individual properties' net cash flows are discounted by an individual required rate of return. In the case of office buildings, a future income and costs picture is estimated for the first 10 years, and a final value calculated at the end of that 10 year period, based on market rents and normal operating costs for the property. The net income cash flow takes into account existing and future reductions in income resulting from vacancy, necessary investments and an assessment of the future changes in market rents. Storebrand's average occupancy rate in its office properties portfolio is 95-98 per cent. Most contracts are for 5 or 10 years. The cash flows from these tenancy agreements (contractual rent) are included in the valuations. A forecast model has been developed to estimate long-term, future non-contractual rent. The model is based on historical observations from Dagens Næringsliv's property index (adjusted by CPI) as well as market estimates. A long-term, time-weighted average is calculated for the annual observations in which the oldest observations are afforded the least weight. Short-term, non-contractual rent forecasts are based on current market rents and conditions.
Required rate of return An individual required rate of return is set for each property. The required rate of return should be viewed in relation to the property's cash flow. Cash flows are determined on the basis of data about the market's required rate of return, including transactions and valuations. The required rate of return is divided into the following components: Composition of the required rate of return: Risk free interest rate Risk markup, adjusted for: • Type of property • Location • Structual standard • Environmental standard
In the case of shopping centres, the property's value is calculated based on a market yield. In cases where it is known significant changes will occur to the expected cash flow in later years, this is taken account of in the valuation.
SENSITIVITIES Valuations are particularly sensitive to changes in the required rate of return and assumed future cash flows. A change of 0.25 per cent in the required rate of return, where everything else remains the same, would result in a change in value in the real estate portfolio of 989 million, which is equivalent to 3.42 per cent. Around 25 per cent of a property's cash flow is linked to signed leases. This means that changes in the uncertain components of the cash flow of 1 per cent result in a change in value of 0.75 per cent.
Depreciation plan and financial lifetime: 50 years note 40 | Biological assets
NOK million Accounts receivable Receivables insurants Receivables in connection with reinsurance Accounts receivable Receivables insurants
Allocation by company and customers: Bonds and other fixed-income securities - company 20,058 19,013
Bonds and other fixed-income securities - customers with guarantee 109,202 122,820
Total net currency positions 2010 2,065 -1,615 1. Equity and bond funds denominated in NOK with foreign currency exposurein i.a. EUR and USD NOK 9 billion.
SPP SPP practices currency hedging to a certain extent with respect to its international investments. In the case of equities the currency hedging will be between 50 per cent and 100 per cent, and for other classes SPP actively hedges the major part of its foreign currency risk.
Bank activities Storebrand Bank ASA hedges net items in the balance sheet by way of forward exchange contracts.
Total market value adjustment reserves at fair value 1,971 -1,971 1,940
FAIR VALUE HEDGING OF INTEREST RISK Storebrand uses fair value hedging for interest risk. The hedged items are financial assets and financial liabilities measured at amortised cost. Derivatives are recognised at fair value over profit or loss . Changes in the value of the hedged item that can be attributed to the hedged risk are adjusted in the book value of the hedged item and reconised in the income statement.
Book value of bonds pledged as collateral for the bank's lending from Norges Bank 2,159 2,926
Booked value of securities pledged as collateral in other financial institutions 287
Booked value of bonds pledged as collateral for swap agreement of state paper for covered bonds 3,497 5,856
Guarantees principally concern payment guarantees and contract guarantees. Unused credit facilities concern granted and unused overdrafts and credit cards, as well as unused facility for credit loans secured by property. SPP Livförsäkring AB (SPP), a wholly owned subsidiary of Storebrand Holding AB, which in turn is 100% owned by Storebrand Livsforsikring AS, is being sued under a writ of summons dated 16 June 2010, by Svenskt Näringsliv (Confederation of Swedish Enterprise) et al. with a demand for compensation in the amount of SEK 3.7 million plus interest and costs. The allegation is that SPP is obliged to pay supplementary pensions (värde-säkringsbelopp) pursuant to the provisions in the so-called "ITP Plan", and "associated agreements", as well as the Alecta Board resolution on such index regulation. The plaintiffs also allege that SPP is obliged to index regulate paid-up contract pensions (fribrevsuppräkna) for the period 2003 – 2006 in accordance with what Alecta has done (but which SPP has not done).
The case is being heard by Stockholm District Court from 7 -17 February 2012. The case deals with matters of principal that are important above and beyond the case in question, and the consequences of a possible negative outcome on the portfolios are expected to have a significant economic value. Based on an overall assessment of the case, and based on external legal reviews, it is regarded as remote that the judgment will be in favour of the plaintiffs. No provisions have been made relating to this lawsuit.
Storebrand Life Insurance has a securities lending agreement with J.P.Morgan. The agreement only applies to international equities. The agreement gives J.P. Morgan the right to lend out equities from this portfolio. J.P. Morgan is responsible for ensuring that the lent equities are returned to Storebrand Life Insurance‘s portfolio immediately Storebrand Investments sells an equity. J.P. Morgan receives collateral from the equity borrower and the collateral can be placed in defined fixed income securities. Storebrand Kapitalforvaltning receives daily summaries of the securities that have been lent out. Income linked to lending equities is settled monthly and is shared according to the agreement between Storebrand Life Insurance and J.P. Morgan.
Primary capital consists of core (tier 1) capital and supplementary capital. Pursuant to the regulations for calculating primary capital, core (tier 1) capital is materially different to equity in the financial statements. The table below shows a reconciliation of core (tier 1) capital in relation to equity. Issued hybrid tier 1 capital can account for 15 per cent of the core (tier 1) capital, while any overshoot can be included in the tsupplementary capital. A percentage of the conditional bonus is included in the core (tier 1) capital pursuant to the conditions stipulated by The Norwegian FSA and this applies to that part of the insurance capital that is not guaranteed in SPP. Supplementary capital which consists of subordinated loans cannot exceed more than 100 per cent of the core (tier 1) capital, while non-perpetual subordinated loan capital cannot exceed more than 50 per cent of the core (tier 1) capital.
Pursuant to Basel II the capital requirement for primary capital is 8 per cent of the basis for calculating the credit risk, market risk and operational risk. The insurance companies in the Group are included in capital adequacy with a capital requirement pursuant to the regulations in Basel I.
In the solvency margin requirement that is used for the insurance companies, this requirement is calculated as 4 per cent of the gross insurance fund. This applies in both Norway and Sweden. INn Sweden, the requirement also covers 1 per cent of Conditional bonus and 0.1 - 0.3 per cent of the death risk in unit-linked insurance. The solvency margin capital in insurance differs slightly from primary capital which is used in capital adequacy. Primary capital includes a proportion of conditional bonuses, but this capital cannot be included in the solvency margin capital. A proportion of additional statutory reserves and the risk equalisation fund are also included in the solvency margin capital.
Capital requirements Storebrand Group from capital adequacy statement 12,401 12,427 -capital requirements insurance companies -10,653 -10,672
Surplus solvency capital 8,270 7,318 1. In connection with the acquisition of SPP in 2007, Storebrand LIvsforsikring AS time-limited permission from the Financial Services Authority to include parts of Conditional bonuses in SPP as eligible core capital when calculating capital adequacy. As of 1 April 2012, this permission expires . For figures as of 31/12/11, capital adequacy and core capital adequacy for the group are 11.9% and 8.5% respectively, when the conditional bonus is not included in the primary capital. This will not involve changes in the Group's solvency capital or the solvency margin for Storebrand Life Insurance.
Companies in the Storebrand Group have transactions with close associates who are shareholders in Storebrand ASA and senior employees. These are transactions that are part of the products and services offered by the Group‘s companies to their customers. The transactions are entered into on commercial terms and include occupational pensions, private pensions savings, P&C insurance, leasing of premises, bank deposits, lending, asset management and fund saving. See note 24 for further information about senior employees.
Net income and gains from financial instruments: – equities and other units 11
Profit and loss account 1 January - 31 December Storebrand ASA
Birgitte Nielsen Jon Arnt Jacobsen Halvor Stenstadvold Heidi Skaaret Jon S. Dueholm
Monica Caneman Knut Dyre Haug Kirsti Valborgland Ann-Mari Gjøstein Idar Kreutzer Chief Executive Officer
Cash and cash equivalents at start of the period 74 48
Cash and cash equivalents at the end of the period 126 74
A prerequisite for recognition is that this is earned income in a subsidiary that Storebrand owns. Otherwise, this is recorded as an equity transaction. This means that the investment in the subsidiary is reduced by dividends or group contributions that are received.
TANGIBLE FIXED ASSETS Tangible fixed assets for own use are recognised at acquisition cost less accumulated depreciation. Write-downs are made if the book value exceeds the recoverable amount of the asset.
The effect of changes to the pension scheme is charged to the profit and loss account as incurred, unless the change is conditional on future accrual of pension entitlement. In such a case, the effect is amortised on a straight-line basis over the time until the entitlement has been fully earned. Employer's social security contributions are included in the pension liability and as part of the estimate deviation are included in equity
Other equities and units are valued at fair value. Where the share or interest in question is listed on a stock exchange or another regulated market, fair value is determined as the bid price on the last trading day immediately prior to or on the balance sheet date.
Storebrand's employees in Norway have both a defined contribution pension scheme and a defined benefit pension scheme that are established in Storebrand Livsforsikring AS. With effect from 1 January 2011, no new members have been included in the defined benefit scheme. From that date, a defined contribution scheme was established. The defined contribution scheme applies to all new employees from 1 January 2011, and for those who elected to transfer from defined benefit to defined contribution pensions. In the case of the defined contribution scheme, the cost is equal to the period's contribution to the employees' pension savings, which amounts to 5 per cent of the contribution basis between 1G and 6G (G = the public pension base rate in the National Insurance Scheme at 31.12.2011, amounting to NOK 79 216), plus 8 per cent of the contribution basis between 6G and 12G. Contributions are credited to the employees' pension accounts monthly. Future pensions are dependent on the size of the contributions and the return on the pension savings.
Reconsiliation of pension assets and liabilities in the statement of financial position
Booked returns on assets managed by Storebrand Life Insurance were: 4.5% 4.7%
Net pension cost includes employer's national insurance contribution and is included in operating costs.
Main assumptions used when calculating net pension liability as per 31.12
Expected return on pension fund assets in the period 4.6% 4.9%
Discounted current value of defined benefit pension liabilities 1,763 1,813 fair value of pension asets 1,614 1,660 note 5 | Remuneration of the CEO and elected officers of the company
Other non-audit services 1,364 253 1. Bonus paid/liquidation of bonus bank As a consequence of the new remuneration regulations, Storebrand has made the necessary adjustments to the group's bonus model with effect from 2011. In this connection, the existing bonus bank was liquidated during the first half of 2011. Payments for 2011 are therefore considerably higher than the normal bonus payment level. This is to be seen as a one-time occurrence. The bonus bank's assets comprised retained bonuses earned in previous years. 50% of amounts paid after tax were used to purchase Storebrand shares with a lock-in period of 18 months. Based on current market conditions, no raises in salary or bonuses were resolved for Storebrand's senior management in 2012, and a moderate local adjustment in salaries is to be implemented in the rest of the organisation, slightly over 1% in Norway and 2% in Sweden.
Calculation of deferred tax assets and deferred tax on temporary differences and losses carried forward
Net deferred tax asset/liability in the statement of financial position 632 -of which changes in deferred tax assets recognised in the balance sheet 128 1. Deferred tax relating to net temporary differences and carryforward tax losses are recognised. This is because it is considered likely that future taxable income will be available in order to exploit the tax benefit. Carryforward unexploited benefits arose in 2002 and 2003 and must be exploited within 10 years.
Tax effect of: dividends received 2 gains on equities -6 permanent differences 82 141 regonition of deferred tax benefit in balance sheet 477 4
Assets Liabilities 1. Used for hedge accounting, see also note 15.
Short-term holdings of interest-bearing securities Fair value Fair value Fair value Fair value Fair value
Interest risk Interest rate sensitivity is a measure of interest rate risk based on how changes in interest rates will affect the market value of bonds and other securities.
Storebrand ASA had as per 31 December 2011 liquid assets of NOK 1.4 billion.
NOK million Net on balance sheet Net sales in currency in NOK
Straight line depreciation periods for tangible fixed assets are as follows: Equipment. fixtures and fittings 4–8 years
Allocated dividend -491 1. 449 909 891 shares with a nominal value of NOK 5. 2. Det er i 2011, 334 278 shares were sold to our own employees. Holding of own shares 31 December 2011 was 3 504 654.
Total bond and bank loans2 3,544 2,898 1. Loans with fixed rates are hedged by interest swaps, which are booked at fair value through profit and loss. Changes in values of loans that can be related to the hedged risk are included in the carrying amount and included in the result.
2. Loans are booked at amortised cost and include earned not due interest.
Signed loan agreements have standard covenant requirements. The terms and conditions have been redeemed persuant to signed loan agreements. Storebrand ASA has an unused drawing facility of EUR 145 million.
The company uses fair value hedging to hedge interest rate risk. The effectiveness of hedging is monitored at the individual security level.
Statement of financial position items: Subordinated loans to group companies1 986 17
On this date, the Board of Directors and the Chief Executive Officer have considered and approved the annual report and annual financial statements for Storebrand ASA and the Storebrand Group for the 2011 financial year and as per 31 December 2011 (2011 Annual Report).
Storebrand ASA and the Storebrand Group Declaration by the members of the Board and the CEO
At its meeting on 28 February 2012, the Control Committee of Storebrand ASA examined the annual accounts as proposed by the Board (consisting of the parent and consolidated financial statements) and the 2011 annual report for Storebrand ASA
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK Limited company, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/no/omoss for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms.
Conclusion In conclusion, in all material respects, nothing has come to our attention that causes us not to believe that: • Storebrand ASA has applied procedures, as summarised on page 175, for the purpose of collecting, compiling and validating data for 2011 for the selected indicators, to be included in the presentation on pages 174 – 175 in the Annual Report 2011 Storebrand ASA.
— Definition of the indicator is developed in 2011 Baseline assessment conducted in 2012
Processing time for complaints 55% within 3 weeks 61% within 3 weeks 70% within 3 weeks
Indicator developed with baseline; 66% believe the measured health indicators are met, 73% believe the measured job satisfaction factors are met
Diversity Analysed measures Indicator developed with baseline; 77% believe that diversity is maintained in Storebrand
Productivity measurements LEAN4 — Indicator developed and target established Develop indicator + establish target
Percentage reported from 2012 50% of new agreements contain environmental requirements
5. Baseline 2010 for measurement of CO2 emissions has been changed from 1,836 to 1,394 metric tons due to the termination of the company car scheme. Status 2010 was originally reduced by 35% compared to baseline 2008.
6. The number of individual flights for 2010 is adjusted compared to earlier report. The figures now include Sweden. 7. Energy consumption (managed properties) for 2010 is adjusted compared to earlier report. 8. Energy consumption (head office) for 2010 is adjusted compared to earlier report.
9. Certification according to the Norwegian environmental standard ”Miljøfyrtårn”, 13 of 22 managed properties are certified in 2011. In addition 12 of 15 externally managed shopping centres are certified.
OUR WORK ON SUSTAINABILITY Storebrand has signed the UN Principles for responsible business: Global Compact, which is the foundation of all our work with sustainability. The principles cover the following areas: human rights, labour, environment and anti-corruption. Furthermore, we support the UNs principles for sustainable investments, UNPRI. We have been working actively with the development of the World Business Council for Sustainable Developments Vision 2050 and are working towards a world in 2050 where “9 billion people are living well and within our planet’s resources”.
Storebrand seeks to ensure transparency in its work on corporate responsibility, and demands accountability and quality in this work. The results relating to sustainability have therefore been reviewed and attested to by Deloitte AS. Such reviews increase the credibility of the reporting and the data presented. Additionally, they also increase internal confidence that the information has been gathered, collated and quality assured in a proper manner.
Subordinated loan capital Subordinated loan capital is loan capital which ranks after all other debt. Subordinated loan capital forms part of tier 2 capital in the calculation of capital adequacy.
Equity Equity consists of paid in capital, retained earnings and minority interests. Paid in capital includes share capital, the share premium reserve and other paid in capital. Retained earnings include other equity and other funds.
Primary capital Primary capital is capital eligible to fulfil the capital requirements under the authorities’ regulations. Primary capital may comprise of core (tier 1) capital and tier 2 capital.
Capital requirements A capital requirement is calculated for credit risk, market risk and operational risk. Individual assets and off-balance sheet items are given a risk weighting based on the estimated risk they represent. The capital requirement is 8 per cent of the basis for calculating credit risk, market risk and operational risk.
Capital adequacy ratio Primary capital must at least equal the calculated capital requirement. The capital adequacy ratio is calculated by measuring total primary capital in relation to the capital requirement of 8 per cent.
Tier 2 capital Tier 2 capital is part of primary capital and consists of subordinated loan capital and that proportion of hybrid tier 1 capital that is not counted as core (tier 1) capital. 50 percent of any capital adequacy reserve and cross-ownership deduction in other financial institutions is deducted. In order to be eligible as primary capital, tier 2 capital cannot exceed core (tier 1) capital. Perpetual subordinated loan capital, together with other tier 2 capital, cannot exceed 100 percent of core (tier 1) capital, whilst dated subordinated loan capital cannot exceed 50 percent of core (tier 1) capital. To be fully eligible as primary capital, the remaining term must be at least five years. If the remaining term is less, the eligible portion is reduced by 20 percent per annum.
Solvency II Solvency II is a common set of European regulatory requirements for the insurance industry. Under Solvency II, the size of the capital requirement will be determined by the amount of risk the company is exposed to.
Reinsurance (Reassurance) The transfer of part of the risk to another insurance company.
Return on capital The booked return on capital shows net realised income from financial assets and changes in the value of real estate and exchange rate changes on financial assets, expressed as a percentage of the year’s average capital in customer funds with guarantees and in the company portfolio, respectively. The market return shows the total of realised income from financial assets, changes in the value of real estate and the year’s change in unrealised gains or losses, expressed as a percentage of the year’s average total capital in customer funds with guarantees and in the company portfolio, respectively, at market value.
Group contracts Group defined benefit pensions (DB) Guaranteed pension payments from a specified age for as long as the insured person lives. Alternatively, it can be agreed that the pension will end at a specified age. The product is offered in both the private and the public sectors. The cover includes retirement, disability and survivor pensions.
Group defined contribution pensions (defined contribution – DC) In group defined contribution pensions the premium is stated as a percentage of pay, while the payments are unknown. The customer bears all the financial risk during the saving period.
Group one-year risk cover These products involve guaranteed payments upon death or disability, and a waiver of premiums in the event of disability.
Group life insurance Group life insurance in which an insured sum is payable on the death of a member of the group. Such insurance can be extended to cover disability insurance.
Unit linked Life insurance offering an investment choice whereby the customer can influence the level of risk and return by selecting in which funds assets are to be invested. Applies to both individual policies and group defined contribution pensions.
Individual endowment insurance Contracts involving a single payment in the event of attaining a specified age, death or disability.
Individual unit linked insurance Endowment insurance or allocated annuity in which the customer bears the financial risk.
Contractual liabilities Allocations to premium reserves for contractual liabilities shall, as a minimum, equal the difference between the capital value of the company’s future liabilities and the capital value of future net premiums (prospective
Financial result The financial result consists of the net financial income from financial assets for the group portfolio (group and individual products without investment choice) less the guaranteed return.
F.o.a. Abbreviation for the term “for own account“, i.e. before additions/deductions for reinsurance.
Insurance reserves - P&C insurance For a more detailed description of the technical insurance reserves and accrual accounting for premiums and compensation see note 1 - accounting policies, section 11, page 84-86.
Real rate of interest The return produced after allowing for actual or expected inflation. Preferably expressed as a nominal rate less the rate of inflation.
Stock futures (stock index futures) Stock futures contracts can be related to individual shares, but are normally related to stock market indices. Stock futures contracts are standardised futures contracts, which are exchange traded, and are subject to established clearing arrangements. Profits and losses on futures contracts are recognised daily, and are settled on the following day.
Basis swaps A basis swap is an agreement to exchange principle and interest rate terms in different currencies. At the maturity of the contract, the principal and interest rate terms are exchanged back to the original currency. Basis swaps are used for currency hedging of loans.
Credit derivatives Credit derivatives are financial contracts that transfer all or part of the credit risk associated with loans, bonds or similar instruments from the purchaser of the protection (seller of the risk) to the seller of the protection (purchaser of the risk). Credit derivatives are tradable instruments that make it possible to transfer the credit risk associated with particular assets to a third party without selling the assets.
Interest rate futures Interest rate futures contracts are related to government bond rates or short-term reference interest rates. Interest rate futures are standardised contracts which are exchange traded and are subject to established clearing arrangements. Profits and losses on futures contracts are recognised daily, and are settled on the following day.
Forward foreign exchange contracts/ foreign exchange swaps Forward foreign exchange contracts/foreign exchange swaps relate to the purchase or sale of a currency for an agreed price at a future date. These contracts are principally used to hedge the currency exposure arising from currency denominated securities, bank deposits, subordinated loans and insurance reserves. These contracts also include spot foreign exchange transactions.
Foreign exchange options A foreign exchange option confers a right (but not an obligation) to buy or sell a currency at a predetermined exchange rate. Foreign exchange options are used for hedging subordinated loans.