the Storting, the norwegian parliament, rules that all companies must have an occupational pension scheme in place by 2007. Storebrand responds to the challenge with its new product, Storebrand Folkepensjon.
Storebrand’s new energy efficient head office gains a lot of attention. the building is awarded the acclaimed 2010 City Prize by the real estate industry. the head office receives eco-lighthouse certification.
a new group organisation lays the ground¬work to make it easier to be a customer in Storebrand.
The industry has been working on Solvency II for a number of years. Can you explain exactly what this is? – Solvency II refers to the new set of european regulations governing solvency for life insurance companies. the regulations are meant to ensure that the life insurance companies have adequate capital to withstand a 200-year wave in the market. a great deal of capital is required, for example, to back up investments in equities, while government bonds are considered risk-free. the new regulations reduce opportunities for the life insurance companies to take risk, because significantly more equity is required to back up the annual interest rate guarantee. Lower risk means a lower percentage of equities and lower expected returns for the customers with guaranteed schemes.
STRONG RESULTS IN 2012 How would you describe Storebrand's financial results for 2012? – our results are satisfactory in a challenging market. our earnings performance was positive in all our business areas, with the exception of asset management, which has been impacted by a reallocation from equities to fixed income investments. non-recurring costs of close to noK 200 million for restructuring and the discontinuation of business have also marked our results. our cost program will continue unabated in 2013. Customer buffers increased to noK 16.3 billion in Storebrand Life Insurance, noK 4.3 billion of which was allocated to longevity reserves.
2) Health insurance is 50 percent owned by Storebrand aSa and munich re.
KeY FiGureS (noK million) 2012 2011 2010 profit before amortisation and tax 238 213 162 net interest margin 1.25% 1.13% 1.10%
It has been evident for many years that the global economy is running at two different speeds. developed countries are stagnating, while many developing countries are experiencing double-digit GdP growth. by 2015, the combined GdP of emerging economies is forecast to be greater than the developed economies. the number of people in countries such as India, China and brazil with significant purchasing power will increase greatly in the coming years. Good for human development, but extremely demanding for a global community that is already consuming more than our planet can replenish every single year.
• All of the Storebrand Group's self-man- aged assets are subject to the Minimum Standard for Sustainable Investments as defined by the executive management.
• We will contact you when changes we make may be beneficial to you.
FOREIGN OWNERSHIP as at 31 december 2012 total foreign ownership amounted to 50 per cent, compared with 53 per cent at the end of 2011.
DIvIDEND POLICy the dividend shall contribute towards providing shareholders with a competitive return. the dividend to shareholders will normally represent more than 35 per cent of the full-year profit after tax, but before amortization costs. the dividends shall be adjusted to ensure a properly capital structure in the Group.
CUSTOMERS AND COMMERCIALISATION the Group has implemented a series of measures aimed at ensuring customers see us as an attractive choice as we strive to become more customer-oriented. our marketing and sales work has been strengthened and coordinated. the goal is to ensure a good customer experience where customers can receive advice tailored to their life situation in the way they want it. this means that the advice, prices and impression customers get should be the same in all of Storebrand's distribution channels: the internet, social media, telephone calls, letters and face-to-face meetings. Storebrand is goal-oriented and we systematically strive to fulfil our promises to our customers so we can achieve the Group's vision: "recommended by our customers".
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. It also encompasses benCo, which offers pension products to multinational companies through nordben and euroben.
Risk result the disability result within group pensions was better than in 2011, but still weak. the reason for this is the change in the assumptions concerning reactivation (disabled persons who return to working life), which entails a need for higher claims provisions. Lower mortality than that assumed when calculating reserves for retirement pensions resulted in negative longevity results. there is a general need to build up reserves to boost provisions for higher life expectancy within group pensions.
the assets under management increased by noK 17 billion in 2012 and totalled noK 230 billion at the end of the year. this increase was driven by positive returns and a net transfer of customer assets.
Pre-tax profit 138 284 the results in asset management were weaker in 2012. the increase in income failed to materialise due to the customers' reallocation from equities to lower risk products with lower margins. Increased costs compared with the previous year were driven primarily by an allocation of noK 54 million linked to the Group's costs programme.
Value creation in the actively managed portfolios was good in 2012, but only a limited proportion of the portfolios have performancebased fees. Performance-based income was however higher than in 2011, corrected for income of noK 35 million in 2011 linked to previous years' value creation. operating costs totalled noK 590 million, compared with noK 481 million in 2011. the growth in costs was mainly due to restructuring costs, higher personnel costs due to bonuses and pension costs, as well as growth in the Swedish part of the business.
activity within the area of cash management increased during 2012. More customer contracts have been established, which has resulted in increased use of the bank's payment services. the total transaction volume and deposits in operating accounts increased during the year.
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 produce good returns both for individual years and over time. 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.
Compliance risk is linked to compliance with legislation and regulations. Special attention is therefore paid to risks associated with amendments to relevant legislation.
WORKING ENvIRONMENT/SICK LEAvE Job satisfaction increased somewhat according to the Group's employee satisfaction index. Job satisfaction is a combination of satisfaction and motivation, which in turn is a combination of seven priority areas. the working environment survey shows that the trends for health and satisfaction parameters were stable in 2012. one fixed item on the agenda of the Group's working environment committee is reviewing measurements of light, air and sound, and improvements are continuously being made in this area.
the nomination Committee held seven meetings in 2012, and prepared, for example, nominations for the election of new members to the board of representatives, Control Committee and boards of the group companies. the nomination Committee also prepared elections that will be held in 2013.
Committee conducts a preparatory review of interim financial statements and annual financial statements, focusing in particular on the discretional valuations and estimations that have been made prior to consideration by the board. the external auditor attends meetings of the board as required and meetings of the board's audit Committee.
Specific goals are set annually for how the company's creation of value shall finance bonuses. the financing is calculated based on the creation of value over the last two years and the value creation target is based on the risk-adjusted result. the bonuses awarded are also determined by the unit’s and individual’s results in addition to the creation of value. the units' results are measured by means of a scorecard, which incorporates both quantitative and qualitative goals, and these goals are both financial and operational. the employees' performance is followed up by a special monitoring system, in which performance is measured in relation to both the execution of individual action plans and compliance with the Storebrand Group’s corporate policies. the unit and individual results are weighted the same, and the maximum total goal achievement is 150 per cent. the unit’s scorecard and the individual’s action plan are directly linked to the strategy adopted by the board. this helps to further strengthen agreement between the owners and the management.
Birgitte nielsen (49) board Member of Storebrand aSa since 2005. attended 14 out of 14 board meetings in 2012. number of shares: 0 3 nielsen's previous positions have included an adviser at nielsen + axelsson asp., CP/CFo at FLS Industries aS and Vice President at danske bank.
Storebrand is a financial group subject to statutory requirements regarding primary capital under both the capital adequacy regulations and the solvency margin regulations. Primary capital encompasses both equity and subordinated loan capital. For Storebrand, these legal requirements carry the greatest significance in its capital management.
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.
10-3. DERIvATIvES DEFINITION OF A DERIvATIvE a derivative is a financial instrument or other contract within the scope of IaS 39, with all three of the following characteristics: • Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable (sometimes called the ‘underlying’). • It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. • It is settled at a future date.
12-1. bENEFIT SCHEME Pension costs and pension obligations for defined benefit pension schemes are determined using a linear accrual formula and expected final salary as the basis for the entitlements, based on assumptions about the discount rate, future salary increases, pensions and national Insurance benefits, future returns on pension plan assets as well as actuarial estimates of mortality, disability and voluntary early leavers. the net pension cost for the period comprises the total of the accrued future pension entitlements during the period, the interest cost on the calculated pension liability and the expected return on pension plan assets.
In Storebrand's life insurance activities, a change in the estimates related to insurance reserves, financial instruments or investment properties allocated to life insurance customers will not necessarily affect the owner's result, but a change in the estimates and valuations may affect the owner's result. a key factor will be whether the assets of the life insurance customers, including the return for the year, exceed the guaranteed liabilities.
In the Swedish activities (SPP) there are no contracts with an annual interest rate guarantee. However, there are insurance contracts with a terminal value guarantee. these contracts are discounted by a market-based interest rate. If the associated customer assets have a higher value than the recognised value of these insurance liabilities, then the difference will represent a conditional customer allocated fund – conditional bonus (buffer capital). Changes in estimates and valuations may entail a change in the return on the customer portfolios. depending on the size of any impairment in value, such impairment may be offset by a reduction in the conditional bonus, so that the effect on the owner's result may be limited. If the value of the individual insurance contract is higher than the associated customer assets, the owner will have to cover the deficient capital.
84 | Storebrand aSa the majority of the intangible assets recognised from the acquisition of SPP were linked to the existing life insurance contracts at the time of the acquisition. these recognised intangible assets are, together with the pertinent recognised insurance liabilities, tested for impairment using a liability adequacy test pursuant to IFrS 4 Insurance Contracts. a key element of this assessment involves calculating future profit margins using embedded value calculations. embedded value calculations are affected, among other things, by volatility in the financial markets, interest rate expectations and the amount of buffer capital in SPP.
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 follow-up of risk, 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.
the company’s total risk picture is monitored continuously, using tools such as the Financial Supervisory authority of norway’s riskbased Supervision and self-developed risk goals.
the return on capital linked to risk products is recognised in the financial result.
RISK PREMIUMS AND TARIFFS Storebrand Life Insurance norway tariffs for group life insurance and certain risk insurances within group pensions also depend on the industry/occupation, in addition to age and gender. Group life insurance also applies tariffs based on claims experience. the company’s standard tariff for group life insurance, both for life and disability cover, is based on the company’s own experience.
Accumulated change in fair value due to changes in credit risk 16 5
in connection with Storebrand life insurance’s 2007 acquisition of Spp, the Financial Supervisory authority of norway placed a condition on its approval by giving a time limited approval to include parts of the conditional bonus as primary capital. this approval ends on 1 april 2012.
Profit on equities and units 1,844 58 4,585 6,488 6,487 -5,972
At end of the policy year 79 197 298 425 481 545 - four years later 83 201 - five years later 82
Storebrand Helseforsikring is 50 per cent owned by Storebrand. employees are added by 50 per cent.
the employees who are members of the defined benefit pension scheme are secured a pension of about 70 per cent of pensionable salary at the time of retirement. Full pension entitlement is reached after 30 years of membership in the pension scheme. the cost for the period shows the employees' accrued future pension entitlements during the financial year. From 1 July 2011 the retirement age is 67 years old. nonetheless employees are given the right to retire at 65 years old and receive a pension directly until they reach 67 years old. In the case of underwriters, retirement age is 65 years.
NOK thousand Remuneration No. of shares owned 3 loan Interest rate at 31.12.12*
NOK million Brand names IT systems Customer lists vIF 1 Goodwill
The forecast for the various result elements are based on the development in recent years, effects of measures during the forecast period, as well as assumptions regarding the normalised development of the financial markets based on the current financial strategy and applicable market interest rates. The administration result is expected to show a positive development as the result of greater cost effectiveness, and growth in the sales of products and services that are cost-effective to manage and require less capital. In addition to the coming three-year period, cash flows are projected for the period from 2016 to 2020 based on growth in the various result elements of between -15 per cent and 3 per cent per annum. A stable growth rate of 3 per cent is also assumed for calculation of the terminal value. The primary drivers of improved results will be the return on total assets, underlying inflation and wage growth in the market. The utility value is calculated using a required rate of return after tax of 7.8 per cent. The required rate of return is calculated based on the risk-free interest rate and added to a premium that reflects the risk of the business.
INTANGIbLE ASSETS LINKED TO THE bANKING bUSINESS A cash flow based valuation based on the expected pre-tax result is used when calculating the utility value of the banking business. The calculation is based on budgets and forecasts approved by the Board for the next three years. The forecast assumes an improvement in results, which includes implementation of a cost programme and growth in other income based on the development shown and effort made in recent years. A stable growth rate of 2.5 per cent is assumed for calculation of the terminal value, which corresponds to the expected inflation. The utility value is calculated using a required rate of return after tax of 8.3 per cent. The required rate of return is calculated based on the risk-free interest rate and added to a premium that reflects the risk of the business.
the fair values of lending, liabilities to financial institutions and debt raised by issuance of securities are based on valuation techniques. The valuation techniques use interest rate curves and credit spreads from external sources. The calculations are made using the QRM risk management system.
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 92-99 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.
Storebrand Life Insurance has had a securities lending agreement with J.P.Morgan. this agreement is liquidated in 2012.
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a UK private company network limited by guarantee, 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.
Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
Average sustainability score for the life balance sheet investments Definition of the indicator is primarily developed
Definition of the indicator is developed in 2011. Baseline assessment conducted in 2012.
Indicator developed with baseline; score 77 of 100 points Score 77 of 100 points
AbOUT SUSTAINAbILITy REPORTING Storebrand has published environmental and corporate social responsibility reports since 1995, integrated into the Group's annual report since 2008. Storebrand uses the Global reporting Initiative (GrI) guidelines as a tool for reporting on sustainability. our reporting practice is essentially in accordance with GrI's reporting principles and satisfies level b+. See storebrand.no for references as to where information on the individual indicators can be found, and for whether they have been answered in full or in part. Further details regarding the scorecard indicators are also described here. Storebrand desires transparency and requires compliance and quality in its sustainability work. the results have therefore been reviewed and certified by deloitte aS. this increases the credibility of the reporting and data, and also engenders greater internal confidence that the information has been collected, analysed, and the quality assured in a proper manner.
Calibration and target completed during 2013. New target for 2014 set in 2013.
Processing time for complaints 70% within 3 weeks 70% within 3 weeks
Externally managed properties: Energy consumption 238 kWh/m2 Reduce 5% to 226 kWh/m2
A capital requirement is calculated for credit risk, market risk and operational risk. The individual asset items and off-balance-sheet items are a assigned a risk weight based on the estimated risk they represent. The capital requirement is 8 per cent of the calculation basis for credit risk, market risk and operational risk.
For Storebrand Holding AB this will entail an adjustment of SPP AB's estimated insurance liabilities for which a different yield curve is used for credit assessment than is used in the financial accounts.
The return produced after allowing for actual or expected inflation. Preferably expressed as a nominal rate less the rate of inflation.