Highest ever customer satisfaction Gjensidige’s customer satisfaction increased for the third consecutive year. We monitor customer satisfaction both with the company and individual advisers. The results were the best since the survey was introduced in 2009.
Digital customers 57 per cent of the customers have accepted digital communication.
Dividend per share 2014* NOK 5.90 2013** NOK 16.80 * Proposed ** Includes distribution of excess capital corresponding to
Provisions for unearned premiums, gross NOK million 11,944.6 11,049.2 10,141.6 9,531.4 9,078.3
Business acquisitions and new partner agreements were given high priority in 2014 as well. An agreement with the Swedish Homeowners Association and a new cooperation agreement with the Norwegian Automobile Federation (NAF) were important testaments to our systematic focus on initiatives to strengthen the basis for future growth.
The Group’s activities are divided into six segments, in addition to the asset management unit which manages the Group’s investment portfolio.
General Insurance Commercial The Commercial segment offers a wide range of general insurance products to the commercial and municipality markets in Norway and Sweden. In Norway pension and savings products are also offered. Gjensidige is the market leader in the Norwegian commercial market, where as many as 97 per cent of the customers are served directly by Gjensidige. The main part of the customer portfolio consists of small and medium-sized enterprises and agricultural customers.
Highlights 2014 Customer orientation and measures aimed at retaining customers were again the main priorities in the Private segment in 2014. At the same time, work on the tariffs and improved customer and risk selection contributed to better quality in the customer portfolio, solid growth and good profitability. The customer development was stable.
General Insurance Nordic The segment comprises the Group’s operations in the Danish private, commercial and municipality markets, and the Swedish private market. Gjensidige has a scalable business model in the Nordics.
Pension and Savings Pension and Savings is a growth area for Gjensidige. The segment shall contribute to sales of a wide range of products to general insurance customers in Norway by offering various pension and savings products, mainly to the commercial market.
Highlights 2014 Lending growth was good in 2014, driven by competitive loan terms that led to an increase in the customer base and more and broader customer commitments. The bank’s new car financing product, which is sold through car dealers, showed positive development throughout 2014. At year end, 46 per cent of the bank’s customers were also general insurance customers.
The investment portfolio consists of two parts: a match portfolio and a free portfolio. The match portfolio is intended to correspond to the Group’s technical provisions. It is invested in fixed-income instruments whose duration is adapted to match the disbursement of the technical provisions.
Gjensidige’s employees must comply with laws and regulations in the societies in which we do business, and act in accordance with ethical norms.
The Foundation aims to contribute to a safer, more healthy and active society and is particularly concerned with preventive measures and activities for children and young people throughout Norway.
Employees of the Company also take part in various initiatives together with disadvantaged people under the auspices of the Church City Mission.
Young drivers are especially at risk of being involved in accidents. In order to reduce the number of such accidents, Gjensidige therefore has several mea sures targeting this group in particular. • They get a discount on their insurance in Norway if they have practised driving with an accompanying driver for a sufficient number of kilometres.
• We also collaborate with other insurance companies on road safety through the industry organisation Finance Norway.
The Group’s Board had ten members in 2014, four of whom are women. Of the seven representatives who were not elected by and from among the employees, three are women.
The Board has adopted the following three perspectives to assess the Group’s capital needs: • Statutory requirements from the authorities
For all the perspectives, the Board has adopted buffers over and above the requirements for control purposes. At the turn of the year, the rating perspective results in the lowest excess capital.
Deviations from the Code of Practice: None 5. Freely negotiable shares
The nomination committee started work on preparing for the election in 2014 already in autumn 2013. A total of 12 meetings were held in the period leading up to the elections, which were held by the general meeting and the Supervisory Board. In order to arrive at the best possible basis for its assessments, the nomination committee has had conversations with the Chairman of the Board, the board members and the CEO.
Financial reports are prepared every month and reported to the Board on a monthly basis, with comments on and explanations of each business segment. In this connection, Group Accounts cooperates with the Actuary function, Group Performance Management, reinsurance and the controllers in the business areas on quality assurance of figures and comments. The insurance provisions are assessed monthly by the Actuary function and reviewed at least every other year by an external actuary. Accounting items that entail a varying degree of discretionary judgement and assessment are reviewed and documented in advance of the quarterly closing of accounts. Discretionary items are reviewed by the Board’s audit committee at quarterly meetings. The audit committee also considers the interim reports, company accounts and consolidated accounts. The processes are identical for the Group and the parent company. The annual accounts are adopted by the respective general meetings.
Nominated by the employees Kjell Johnny Andersen Jon Aniksdal Carl Johan von Gegerfeldt Gro Tønder Roy Vedvik Lasse Wold Roger Warud
In the Baltic general insurance market, Gjensidige had a market share of 6,9 per cent at year end (source: Insurance Supervisory Commission of the Republic of Lithuania, Latvian Insurers Association, Statistics Estonia). Given an approval of the acquisition of PZU Lietuva Gjensidige’s market share will increase to around 13 per cent. The acquisition is mentioned under Events after the balance sheet date.
Andersen is up for election to the Board in 2015. Andersen holds 785 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
New partnership agreements Gjensidige has many years’ experience of partnership agreements, and at the turn of the year the partner organisations had a total of 1.5 million members. In 2014, Gjensidige signed an agreement with the Norwegian Automobile Federation (NAF), which has 500,000 members. NAF and Gjensidige will cooperate on selling insurance and car financing to NAF’s members.
The tax expense was NOK 1,210.0 million (903.5), corresponding to an effective tax rate of 22.4 per cent (19.8). The effective tax rate was influenced to a large extent by realised and unrealised gains from equity investments in the EEA.
Claims incurred in excess of this per event are, as a main rule, charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from earlier periods 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio 58 I Gjensidige Annual Report 2014
The average duration in the portfolio was approximately 0.6 years at the end of the year. The distribution of counterparty risk and credit rating is shown in the charts on page 63. Securities without an official credit rating amounted to NOK 1.7 billion (2.8). Of these securities, 1.1 per cent (9.7) were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or government- guaranteed companies. A third-party internal rating existed for 71.2 per cent (79.0) of the portfolio without an official rating. The geographical distribution1 of the fixed-income instruments in the free portfolio is shown in the chart on page 63.
In addition, at the beginning of 2015, Gjensidige acquired the Mondux group in Denmark. Mondux is an agency company that offers insurance in the private market in Denmark. Among other things, the company will strengthen Gjensidige’s position in the motor insurance market and give greater insight into the product insurance market. The company is expected to be taken over at the end of the second quarter 2015. The premium volume in 2014 was slightly below DKK 250 million.
The Board has decided to pay employees of Gjensidige Forsikring ASA a collective bonus corresponding to NOK 24,500, including holiday pay, per full-time employee. The bonus is based on the combined ratio achieved and on the development of the portfolio and customer satisfaction in 2014.
Own shares (0.0) (6.3) (6.3) Paid dividend (8,398.8) (8,398.8) Equity-settled share-based payment transactions 5.8 5.8
Cash flows from financing activities Payment of dividend (8,348.9) (3,424.5) Net receipts/payments on subordinated loans Gjensidige Forsikring ASA 1,197.1 Net receipts/payments on loans to credit institutions 635.5 4,433.5 Net receipts/payments on other short-term liabilities (26.8) (13.5) Net receipts/payments on interest on funding activities (195.9) (153.1) Net receipts/payments on sale/acquisition of own shares (6.3) (5.3) Net cash flow from financing activities (6,745.3) 837.2
IFRS 12 Disclosure of interests in other entities As a result of IFRS 12, Gjensidige is required to disclose more information about its interests in subsidiaries for accounting periods starting on or after 1 January 2014. One of the most significant changes is that information must be provided about the assessments that form the basis for the decision regarding whether the group has control of another entity.
Organisation The Board has overall responsibility for ensuring that the level of risk-taking in the Group is satisfactory relative to the Group’s financial strength and willingness to take risks, and it has adopted a risk appetite statement that covers the most important types of risks. This entails ensuring that necessary policies, procedures and reporting are in place to guarantee satisfactory risk management and compliance with laws and regulations and that the risk management and internal control efforts will be appropriately organised and documented.
Mortality risk is caused by survivor’s benefit as part occupational pension. This can be a widow/widower pension or survivor’s pension to children. Survivor’s pension is most common supplementary coverage to defined contribution plans which exceed minimum levels (a contribution of 2 per cent of salary). The paid-up policies also contain some survivor’s benefit, but these benefits are generally lower. The duration of survivor’s benefit linked to an occupational pension is often limited. However, the duration of survivor’s benefit linked to paid-up policies is longer and benefits are often guaranteed for lifetime.
Paid-up policies require a minimum return every year 4. The rate of minimum return is also used as the discount rate, and the FSA regulate the level of this rate. If a minimum return is not achieved, GPF must add funding, or supplementary reserves can be used. The average level of minimum return is approximately 3,5 per cent for paid-up policies in GPF. This yearly guarantee exposes GPF to market risk. This is discussed further under the chapter “Management of financial risk”.
Reinsurance Gjensidige purchases reinsurance to protect the Group’s equity capital and reinsurance is a capital management tool. The Group’s established models and methodologies for evaluation of the internal risk based capital allocation are used to analyse and purchase reinsurance. The maximum retention is set by the Board. Gjensidige’s reinsurance programme consists of non-proportional reinsurance. The maximum retention level for the Group was NOK 390 million in 2014, increased from NOK 360 million in 2013. As a general rule, Gjensidige purchases reinsurance to limit any single claim or claim event per insurance product to NOK 100 million. For some industries Gjensidige purchases reinsurance coverage that will reduce the retention level to under 100 million. Decisions concerning the reinsurance programme are based on an analysis of exposure, claims history, model simulations and Gjensidige’s capitalisation.
Equity price risk is defined as a loss in value resulting from a fall in equity prices. This is analogous to real estate price risk. See the amounts in the stress test and sensitivity analysis below. Interestrate risk is defined as the loss in value resulting from a change in interest rates and it is viewed both from an asset-only perspective and in relation to the interest-rate sensitivity of the liabilities. Foreign exchange risk is defined as the loss resulting from a movement in exchange rates. Credit risk is defined as the loss arising from an issuer defaulting on its obligations or because of increased risk premiums for bonds with credit risk. Liquidity risk is defined as the inability to meet payments on the due date, or the need to realise investments at a high cost in order to meet payments. The insurance operations are exposed to these types of risk through the Group’s investment activities, and they are managed at the aggregate level and handled through guidelines for capital management and investment strategies that have been drawn up for the Gjensidige Group and its subsidiaries and through resolutions by the Group’s credit committee.
The table below shows an overview of the asset allocation for the insurance business at year-end 2014 and 2013. The asset allocation is divided between a match portfolio to cover insurance liabilities and a free portfolio that can be viewed as the Group’s invested equity. The actual allocation will vary throughout the year and follow movements in the market, tactical allocation and risk situation.
HitecVision Private Equity V LP 168.1 Northzone V KS 137.7 Norvestor V LP 92.0 Altor Fund II LP 89.6 HitecVision Private Equity IV LP 88.1 Total five largest 575.5 Total private equity 1,665.3
Duration mismatch in NOK (57.0) 345.0 Mismatch in match portfolio and hedge requirement 6.5% 10.0%
For a going concern, this will result in a positive net cash flow under normal circumstances. Large net outflows would normally only arise as a result of acquisitions or recapitalisation of subsidiaries. In the event of a large claim or catastrophic event, the payments will take place sometime after the event, and the reinsurers will cover most of the amount within a short time of the payments having been made to the claimants. In an extreme scenario, reinsurers could fail to honour their obligations after such a catastrophic event.
Table 29 – Fixed-income portfolio per rating, Gjensidige Pensjonsforsikring NOK million 2014 2013
Segment result/profit/(loss) before tax expense 1,624.0 1,305.5 1,140.3 992.9 529.4 342.3 0.6 35.7 43.9 49.9 253.5 191.0 1,807.9 1,656.8 5,399.6 4,574.1 1 Eliminations etc. consist of internal eliminations and other income and expenses not directly attributable to one single segment and large losses of NOK 207.2 million (373.6).
Gouda Portfolio Nordic 73.2 71.2 Gjensidige Baltic Baltic 76.9 70.8 Oslo Areal Other 245.1 180.4 Gjensidige Bank Bank 1.5 1.5 Gjensidige Forsikring, White label Privat 128.7 128.7
The following financial assets are classified as level three in the valuation hierarchy • Unlisted private equity-investments. The private equity investments that are not organised as funds are valued using cash flow analysis, price multiples and recent market transactions. The private equity investments that are organised as funds are valued based on NAV values (Net Asset Value) as reported by the fund administrators in accordance with IPEV guidelines (International Private Equity and Venture capital Valuation) set out by the Equity Venture Capital Association. The NAV values are estimated by the fund administrators by using the valuation techniques best suited to estimate fair value, given the actual circumstances of each underlying investment. Because of late reporting from the funds, the NAV values from the previous quarterly reporting are used in estimating fair value. These values are then adjusted for known events since the last reporting date. The typical known event is the increase/decrease in value on listed shares owned by a fund.
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 470.2 470.2 219.9 219.9
Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 31.5 3,686.5 2,305.4 6,023.4 Bonds and other fixed income securities 10,256.9 12,139.9 1.2 22,398.0 Shares and similar interests in life insurance with investment options 3,537.8 5,692.4 9,230.2 Bonds and other fixed income securities in life insurance with investment options 761.6 338.8 1,100.4
Shares and similar interests 1 1,859.3 281.2 545.6 (211.5) (186.1) 16.9 2,305.4 10.5 Bonds and other fixed income securities 26.8 16.2 0.4 (42.2) 1.2 Total 1,886.1 297.4 546.0 (253.8) (186.1) 16.9 2,306.6 10.5 1 In 2013, we received pricing information for an equity fund less frequently, which caused its transfer from level 2 to level 3.
Nykredit Forsikring A/S Currency-related contracts - hedging instruments 980.2 55.8 (9.8) Hedging object 992.9
The Group's valuation model values each property separately. The valuation model relies on a quarterly in arrears cash flow method. The most important inputs are yield, market rent, contractual rent, potentially vacant premises, the properties' long-term normalised operating costs and any investment requirements. The method maps all incomes and all expenses in a given investment horizon so that the net cash flow is given yearly for each property. Thereafter, the present value is calculated using this cash flow based on real yield adjusted for expected inflation. The present value of the cash flow and the present value of the remaining value compose the cash flow value of the property, and this is considered as the market value, as it would appear in an orderly transaction between market participants at the measurement date under current market conditions.
Insurance-related liabilities, gross Premium reserve in life insurance 3,408.3 3,064.6 Provision for unearned premiums, gross from general insurance 8,536.3 7,984.6
Claims reported and claims handling costs 16,186.3 14,111.7 Claims incurred, but not reported 16,217.5 16,926.1 Total claims provision, net of reinsurance 32,403.7 31,037.8
Report on executive remuneration in the preceding financial year In accordance with the guidelines, one employee in the finance department has been offered up to 50 per cent variable remuneration. The Board confirms that the guidelines on the remuneration of executive personnel for 2014 set out in last year’s statement have been complied with.
Kaare Østgaard, Executive Vice President 2,469.6 358.2 169.3 496.6 381.1 3,049 2,961 8,526 5,982 3
Kjetil Kristensen, staff representative 5, 9 365.9 526 Gunnar Mjåtvedt, staff representative 5,
Per Arne Bjørge 9 332.5 8.2 10,542 Mette Rostad 245.0 9.7 2,794
Overview Gjensidige Forsikring ASA is the Group's parent company. As at 31 December 2014 the following companies are regarded related parties.
NOK million Income Expense Income Expense Interest income and expenses Gjensidige Bank Boligkreditt AS (owned by Gjensidige Bank ASA) 1.4 Oslo Areal AS 73.6 66.1
Equity 21,656.8 26,287.8 Security provision (2,818.0) (2,764.9) Dividend (2,950.0) (6,400.0) Tax effects 922.0 903.8 Equity NGAAP 16,810.8 18,026.6 Hybrid capital in associates, proportion 0.0 387.5 Effect of guarantee scheme provision and Natural perils fund (2,902.2) (2,797.8) Goodwill (2,819.0) (2,562.2) Deferred tax assets (5.0) (5.0) Other intangible assets (1,123.5) (1,138.2) Investment properties, unrealised gains, proportion (367.4) (163.6) Reinsurance provision, minimum requirement (11.5) (11.5) Core capital before 50/50-deductions 9,582.3 11,735.8 Proportion 50/50-deductions (588.9) (54.3) Core capital 8,993.3 11,681.5
Recognition of revenue and expenses Premiums Insurance premiums are recognised over the term of the policy. Gross premiums written include all amounts the company has received or is owed for insurance contracts where the insurance period starts before the end of the accounting period. At the end of the period provisions are recorded, and premiums written that relate to subsequent periods are adjusted for in Change in gross provision for unearned premiums in the income statement.
Goodwill arising on the acquisition of a foreign portfolio and fair value adjustments of the carrying amount of assets and liabilities arising on the acquisition of the foreign branch are treated as assets and liabilities of the foreign operation.
Technical provisions Provision for unearned premiums, gross 1,322.4 2,510.7 1,118.7 1,392.0 88.5 306.8 379.9 101.3 4,709.6
Amortisation and impairment losses As at 1 January 2013 (100.0) (134.1) (26.3) (259.0) (18.6) (537.9) Additions through merger (10.5) (4.8) (8.5) (6.7) (30.5) Amortisations (46.5) (8.7) (93.1) (3.9) (152.3) Disposals/reclassifications (9.1) 52.0 141.1 18.6 202.5 Impairment losses recognised in profit or loss during the period (29.7) (29.7)
Storebrand ASA (sold 4.2% interest in 2013) 1 Oslo, Norway 3,805.2 2,121.7
Financial assets held to maturity Bonds held to maturity 2,421.7 2,628.1 4,567.0 4,782.6
Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 324.4 324.4
unrealised gains recognised in profit or loss that are attributable to instruments held as at 31.12.2013
Total shares and similar interests owned by Gjensidige Forsikring ASA 7,469.5 166 | Gjensidige annual report 2014
Real wage growth is corrected for the age effect, so that the real wage growth for younger employees is stronger than for older employees. A pension plan rarely has the same age composition as the economy as a whole. This is particularly the case for Gjensidige’s pension plan, which is closed for new entrants.
In the long term, inflation will be in the range of 1.5 to 2.5 per cent. Norges Bank has an inflation target of 2.5 per cent.
Operational risk The management of the pension plans has been transferred to Gjensidige Pensjonskasse. Gjensidige Pensjonskasse has its own employees and makes substantial purchases of services from professional suppliers of pension fund management and asset management services. The pension fund is subject to internal control. Gjensidige considers the operational risk as low.
Deductible temporary differences Loans and receivables (97.0) (91.1) Shares, bonds and other securities (342.0) Provisions for liabilities (245.5) (79.2) Pension liabilities (426.6) (17.8) Total deductible temporary differences (1,111.1) (188.1)
Variable pay is not included in the pension basis. Restricted variable remuneration that has not yet been disbursed may be reduced if subsequent results and developments indicate that it was based on incorrect assumptions.
There are no contractual obligations to tenants for renovating (NOK 0.5 million last year).
Other related parties Fire Mutuals All over the country, Norway Gjensidige Pensjonskasse Oslo, Norway 94.7%