Storebrand ended 2018 with record strong capital adequacy and liquidity. The solvency margin at year end was 173 per cent. Both the operating and financial results improved compared with the previous year. This increase is driven by strong growth in savings and insurance combined with strong cost discipline in the Group. Overall, this gives the Board an opportunity to increase the dividend to NOK 3 per share.
Due to reduced benefits from the government for future pensioners, people will have to take greater responsibility for their own financial future. We expect that the changing regulatory framework will result in people saving more. These are the main reasons why Storebrand chose to focus its strategy towards pensions and savings.
• Customer and community relations – our customers recommend us - Lifelong savings - Engaging, relevant and responsible advisory services - Digital trust - Simple and digital customer experiences
• Review of the underwriting process: developed a method for the assessment of risk and pricing associated with climate risk in underwriting.
14) Building Research Establishment Environment Assessment Method – a tool for the environmental certification of buildings.
15) Five per cent is the lowest that managers can guarantee, based on the quality of the data available about the companies and marketing rules for funds.
Approach To increase the commitment to pension savings, we work to simplify communications and offer user-friendly, digital tools to our customers.
Goals and ambitions My Pension Figure is a digital tool that helps customers (and potential customers) calculate their total expected pension. Figures are retrieved from the National Insurance Scheme, private savings and employers. The tool helps engage customers in taking charge of their own pensions. In 2019, our objective is for 9 per cent, or 100,000, of our pension and savings customers to check their future pension and get an overview of their pension finances. Among them, our goal is for 33 per cent to take action to improve their future pensions.
Results At the end of 2018, Storebrand had further strengthened our framework for the processing of personal data, which includes documentation of the processing that takes place, routines for handling incidents and robust controls.
Initiatives With the Peakon tool, we introduced monthly “pulse measurements ” to measure engagement among employees throughout the entire organisation in 2018. We have developed an e-learning course in ethics and anti-corruption that all employees must complete every three years. An external whistleblowing channel has been established through an external law firm. We also have good routines for dealing with harassment and improper conduct.
The engagement score measured in Peakon increased from 7.4 to 7.9, on a scale of 1–10, in which 1 is the lowest and 10 is the highest score. The pulse measurements in the last half of 2018 also showed progress for issues such as the extent to which employees experience freedom of opinion, a high degree of self-determination or autonomy in their daily work, support from management, and learning and development. The results also showed room for improvement for the working environment, among other things. In 2018, 243 employees completed the e-learning course in ethics and anti-corruption. All employees are to complete the course every three years. All members of the Board and executive management shall complete anti-corruption courses as part of the Group’s risk management.
*) Based on Hay Grade 21-24. Hay Grade above 24 is not included, as only men are represented here (applies for 3 positions only). For Hay Grade definition, see page 212.
Results In 2018, procurement contracts to suppliers valued at more than NOK 1 million amounted to a procurement volume of approximately NOK 2.1 billion. This also includes the management and development of direct property investments. Of this volume, 46 per cent is environmentally certified in accordance with our procurement policy. This volume represents 286 suppliers, 56 of which are certified, which accounts for 20 per cent of the suppliers.
Key performance indicators People and Systems These Key performance indicators include only data from Storebrand and SPP.
Share dividends within the standard dividend tax exemption are tax free. The dividend tax exemption is calculated by multi- plying the dividend tax exemption basis by the dividend exemption interest rate. The dividend exemption interest rate is determined by the Directorate of Taxes in January of the year after the income year, and it is based on the average three-month interest rate on treasury bills (with an additional 0.5 per- centage points from the 2017 income year) reduced by the tax.
Compliance As one of the country’s leading financial institutions, Storebrand is dependent on maintaining 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.
1. Implementation and reporting on corporate governance (No deviations from the Code of Practice) The Board has decided that the Norwegian Code of Practice for Corporate Governance shall be followed. Compliance with the Code of Practice is discussed in the Directors ’ Report. Storebrand complies with the Code of Practice without any significant exceptions. One minor deviation has been accounted for below under section 3.
The dividend is adopted by the General Meeting, based on a proposal put forward by the Board of Directors. The General Meeting may, by simple majority, authorise the Board of Directors to distribute a dividend pursuant to Section 8-1, second paragraph of the Norwegian Public Limited Companies Act. This shall be based on the annual financial statements adopted by the General Meeting. This authorisation may not be granted for a period longer than until the next Annual General Meeting. In addition, the authorisation shall be based on the adopted dividend policy. The General Meeting was not requested to provide such authorisation in 2018. Read more about Storebrand’s dividend policy in the Directors’ Report under the heading “Dividend for 2018”.
The Chairman of the Nomination Committee and the other members are elected annually by the General Meeting. The employees’ representative will participate as a permanent member of the Committee in discussions and nominations concerning the election of the Chairman of the Board of Directors, as well as in other contexts where this would be natural, in accordance with an invitation from the Chairman of the Committee.
Risk management and internal control The assessment and management of risk are integrated into Storebrand’s corporate governance. This management system shall ensure that there is a correlation between goals and actions at all levels of Storebrand and the overall policy of creating value for Storebrand’s shareholders.
Throughout 2018, the Group took several steps to reinforce this strategy. Acquisitions that can strengthen the Group’s earning power within its strategic core are important subjects of discussions and decisions made by the Board. The acquisitions of SKAGEN and Silver, which were concluded in 2018, were a key part of our savings strategy. SKAGEN complements and broadens Storebrand’s investment offerings and customer base. This work will continue in 2019, including a stronger focus on international distribution of fund solutions.
Defined contribution pensions continue to show strong growth due to most companies now having chosen to convert from defined benefit schemes to defined contribution -based schemes. This increases the number of members, ongoing premium payments and management volume in the defined contribution pension schemes in both Norway and Sweden, in addition to growth through the return on premium reserves. Volatile Financial markets in 2018, especially in the 4th quarter, have contributed to the reduction of customer assets in Sweden by 2 per cent, compared with the previous year.
Retail Market Lending 46,531 42,133 36) Health insurance is 50 per cent owned by Storebrand ASA and 50 per cent owned by Munich Health
*) Pension customers encompass customers of Storebrand Life Insurance who save in pension products.
The result for Guaranteed Pension before amortisation amounted to NOK 1,138 million in 2018, an increase of NOK 372 million compared with 2017. The higher result was attributed to an improvement in operational performance, increased risk result and a higher level of profit sharing from the Swedish business.
Employees will not be allowed to choose a management solution for previous contributions other than the solution that has been chosen for the current contributions. If the employee wants to have a different management profile for the previous contributions, this must be managed in a separate agreement.
All employees shall complete the Company’s e-learning course in ethics. In 2019, ethics training will be offered through the digital tool ‘Workday’ and all employees will be required to review the content annually. For new employees, information about ethical regulations is included in the onboarding process.
Storebrand ASA reported a pre-tax profit of NOK 4,074 million in 2018, compared with NOK 1,934 million in 2017. Group contributions from investments in subsidiaries amounted to NOK 4,131 million, compared with NOK 2,154 million for the previous year.
Financial assets at fair value: - Bonds and other fixed-income securities 8,10,12, 30,3 6 133,531 135,042
Cash and cash equivalents at the end of the period 1) 3,951 3,780 1) Consist of: Loans to financial institutions 318 313
15-2. Defined-contribution scheme A defined-contribution pension scheme involves the Group in paying an annual contribution to the employees’ collective pension savings. The future pension will depend upon the size of the contribution and the annual return on the pension savings. The Group does not have any further work-related obligations after the annual contribution has been paid. No provisions are made for ongoing pension liabilities for these types of schemes. Defined-contribution pension schemes are recognised directly in the financial statements.
changes to the assumptions could affect recognised amounts. The majority of such financial instruments are included in the customer portfolio.
For contributions agreed to prior to 2016, the profit sharing is maintained, i.e. that if the total return on assets in one calendar year for a premium-determined insurance (IF portfolio) exceeds the guaranteed interest, profit sharing will be triggered. When profit sharing is triggered, 90 per cent of the total return on assets passes to the policyholder and 10 per cent to the company. The company’s share of the total return on assets is included in the financial result.
The risk of long life expectancy is the greatest insurance risk in the Group. Other risks include the risk of disability and risk of mortality. The life insurance risks are: 1. Long life expectancy – The risk of erroneously estimating life expectancy and future pension payments. Historical developments have shown that an increasing number of people 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 beyond that assumed in the premium tariffs, the owner could risk higher char ges on the owner’s result in order to cover necessary statutory provisions. 2. Disability – The risk of erroneous estimation of future illness and disability. There will be uncertainty associated with the future development of disability, including disability pensioners who are returned to the workforce. 3. Death – The risk of erroneous estimation of mortality 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.
The company manages its insurance risk through a variety of reinsurance programmes. Through catastrophe reinsurance (excess of loss), the company covers losses (single claims and reserves provisions) where a single event causes more than two deaths or disability cases. This cover is also subject to an upper limit. A reinsurance agreement for life policies covers death and disability risk that exceeds the maximum risk amount for own account the company practises. The company’s maximum risk amount for own account is relatively high, and the risk reinsured is therefore relatively modest.
If the stress causes the return to fall below the guarantee, it will have a negative impact on the result if the customer buffer is not adequate. Other negative effects on the result are a lower return from the company portfolio and that there is no profit sharing from paid-up policies and individual contracts.
External valuation: For properties in Norwegian activities, a methodical approach is taken to a selection of properties that are to be externally valued each quarter so that all properties have had an external valuation at least every three years. In 2018, external valuations were obtained for properties worth NOK 14 billion (72 per cent of the portfolio’s value as of 31 December 2018).
Realised losses on loans where no provisions have previously been made -11 -5
Financial assumptions: The financial assumptions have been determined on the basis of the regulations in IAS 19. Long-term assumptions such as future inflation, real interest rates, real wage growth and adjustment of the basic amount are subject to a particularly high degree of uncertainty.
In calculating the utility value, the management have made use of budgets and forecasts approved by the Board for the next three years (2019-2021). The management has made assessments for the period from 2022 to 2028, and the annual growth for each element in the income statement has been estimated. When calculating the terminal value, a growth rate equivalent to Sveriges Riksbank’s inflation target of 2.0 per cent is used. The primary drivers of improved long-term results will be the return on total assets, underlying inflation and wage growth in the market (which drive premium growth). The utility value is calculated using a required rate of return after tax of 5.4 per cent. The required rate of return is calculated based on the riskfree interest rate and added to a premium that reflects the risk of the business.
Intangible assets linked to the acquisition of Silver Storebrand Livsforsikring AS acquired Silver Pensjonsforsikring AS in 2018 and the company was merged with Storebrand Livsforsikring AS in the same year. The intangible assets linked to the acquisition of Silver include the value of business in force (VIF), for which a separate adequacy test was conducted in accordance with the requirements in IFRS 4. To determine whether intangible assets linked to Silver have declined in value, an estimate is made of the recoverable amount for the contracts in the acquired business. The recoverable amount is determined by calculating the utility value of the business. Silver has been integrated into Storebrand Livsforsikring’s business and is predominantly part of the savings segment. In this instance, it is considered more accurate to estimate the utility value of the contracts in isolation as opposed to the overall savings segment as a cash flow generating unit. The value of the portfolios acquired from Silver is calculated as the discounted value of future, expected cash flows to Storebrand.
Allocation by company and customers: Investments in associated companies - company 255
Debt instrument to Silver Pensjonsforsikring in connection with the acquisition1) 520
– of which FVO (Fair Value Option) 42 -10 -5 27 36
of an annual premium that is defined as a percentage of salaries from 1 G to 7.1 G, and the premium rate was 2.5 % in 2018. Storebrand employees in Norway who were born before 1 January 1956 can choose between drawing an AFP scheme pension or retiring at the age of 65 and receiving a direct pension from the company until they reach the age of 67. Employees can choose to receive benefits from the AFP scheme from the age of 62 and still continue to work.
CHANGES IN THE NET DEFINED BENEFITS PENSION LIABILITIES IN THE PERIOD: NOK million 2018 2017
Actuarial assumptions: In Norway standardised assumptions on rates of mortality and disability as well as other demographic factors are prepared by Finance Norway. With effect from 2014 a new mortality basis, K2013, has been introduced for group pension insurance in life insurance companies and pension funds. Storebrand has used the mortality table K2013BE (best estimate) in the actuarial calculations at 31 December 2018.
Share of female pension savers: Share of female customers who are saving for pension