History In brief and key figures 2014 Highlights Interview with CEO Sustainability Among the best 15 years in a row Climate adaptation Sustainability labelling of funds Scorecard for sustainability Shareholder matters
Population growth and scarcity of resources Population growth increases pressure on natural resources, scarcity of, for example, water becomes a challenge.
The year is otherwise marked by a number of important clarifications in the pension area. From a situation with a great deal of uncertainty, we now have the long-awaited clarifications concerning Solvency II, increasing longevity and paid-up policies with investment choice, which is something that is good to take with us into 2015.
The new Occupational Pensions Act from 2014 allows companies to choose a third alternative to the traditional occupational pension schemes: A hybrid model, which contains elements of both a defined contribution and defined benefit pension. What sort of market do you see for this product in the future? The new hybrid model may have a broad area of impact in sectors with contractual pensions or other matters that make a direct transition from a defined benefit to defined contribution pension scheme challenging. An obvious example is the employers’ association Virke (Enterprise Federation of Norway), which has, for example, entered into a collective wage agreement for a hybrid pension with Fagforbundet (Norwegian Union of Municipal and General Employees).
WE LIVE AS WE LEARN The Group makes high demands on the companies we invest in, and we make the same high demands on ourself. Every year we make many large purchases, and our goal is to increase the proportion of suppliers with eco-labelling. By making sustainability a clear requirement in our procurements, we play a role in the development of better and a larger number of sustainable products. We are a member of the Swan eco-label’s purchaser club.
At present the Group has excluded (number) companies from investment, and these companies have been disqualified as suppliers to us for several years.
Storebrand believes that a sustainable company is a company that combines innovative solutions to global challenges with its own profitable growth. Those who manage to do more, for a greater number of people, with fewer resources, will be the best investment choices for the future and provide a higher return in the long term.
Less palm oil and more hydropower in pension assets is one of many proofs of Storebrand’s focus on more climate-friendly investments in 2014.
An important part of Storebrand’s sustainability strategy is to make sustainability close and relevant for our customers. Customers should be able to understand the value of our work in this area and themselves make active sustainable choices for their savings and pensions. In addition, sustainability labelling is an important internal tool. After we have calculated the sustainability level of our funds, we can follow their development over time and set clear targets for increasing the level. We can also identify funds with an improvement potential and implement targeted measures as required. When we also have detailed information on the companies in our externally managed funds, the information can be used for extensive lobbying efforts. We have a good dialogue with all of our external managers concerning specific companies in their funds.
ABOUT OUR WORK ON SUSTAINABILITY Storebrand has signed the UN Global Compact on responsible business practices. The principles encompass human rights, labor standards, and environment and anti-corruption standards. We support the UN Principles for Responsible Investment (PRI) and the UN Principles for Sustainable Insurance (PSI). Storebrand has been a driving force behind the development of the World Business Council for Sustainable Developments Vision 2050, and we are thus working towards a world in 2050 where “9 billion people are living well within the resource limits of the planet”. Our sustainability work is regulated by guidelines that are revised annually and adopted by the Board of Storebrand ASA.
ONE STOREBRAND GROUP WITH A NEW COMMON BRAND PLATFORM In our efforts to be the best provider of pension savings, the Group launched a new brand platform last spring. It tells what Storebrand is about and how the Group distinguishes itself from its competitors. Pension expertise and sustainable savings, combined with being on the customer’s side, are three of the most important areas in which Storebrand aims to distinguish itself. Pensions are the Group’s main business, and Storebrand is a world leader in the area of sustainable investments.
In the Norwegian market, Storebrand maintained its status as market leader for defined contribution schemes, with around 30 per cent of the market. Premium growth for occupational pensions was 16 per cent in 2014. This growth is primarily driven by the increasing portfolio, wage adjustments and higher savings rates, cf. higher maximum rates from 2014. There is strong competition in the market for defined contribution pensions, and Storebrand expects that this will continue as a result of the significant dynamics in the market. The new Occupational Pensions Act that entered into force on 1 January 2014 allows for the sale of so-called hybrid products. Due to market demand, Storebrand is planning to launch such products in 2015.
The Storebrand Life Insurance Group is funded by a combination of equity and subordinated loans. The proportion of subordinated loans of approximately 24 per cent and interest costs comprise a net amount of approximately NOK 100 million for the quarter at the current interest rate level. The financial result includes the return on the company portfolios in Storebrand Life Insurance and SPP, as well as the financial result of Storebrand ASA. The financial result is weaker due to a lower return in the company portfolios.
RATING Storebrand Livsforsikring AS, Storebrand ASA, Storebrand Bank ASA and Storebrand Boligkreditt AS had the same rating from Standard & Poor’s at the end of the preceding year. In December 2014, Moody’s Investor Service downgraded its credit rating from A3 to Baa1 for Storebrand Livsforsikring AS and from Baa1 to Baa2 for Storebrand Bank. Storebrand ASA’s rating was derived from Storebrand Life Insurance’s rating and was adjusted downwards to Ba1. The outlook for the rating of Storebrand Life Insurance and Storebrand ASA was changed at the same time from negative to stable, while Storebrand Bank maintained its negative credit rating outlook. Moody’s justified the downgrade of Storebrand Livsforsikring AS by low interest rates combined with a capital-intensive paid-up policy portfolio. Moody’s outlook (“stable”) reflects an expectation that the measures implemented by the company will strengthen the economic capital from the current level over time.
INSURANCE The Insurance business area is responsible for the Group’s risk products. Storebrand has the risk of there being more disability cases than expected and/or that fewer disabled persons are fit to work again (reactivation). The restructuring of disability cover in Norway’s National Insurance Scheme from 1 January 2015 will give better cover from the National Insurance Scheme for new incidents of disability. Higher taxes on disability income will, however, entail that the disability cover is approximately at the same level as the old scheme. In 2015, new rules will be introduced for disability pensions in the occupational pension schemes in the private sector. All else being equal, these two factors may reduce the scope of the disability risk in the future. The Group also provides cover with death benefits, but Storebrand’s risk from this is limited.
The legislative implementation of Solvency II in Norway will take place through the new Act on Financial Undertakings and Financial Groups, which will be considered by the Storting in February 2015. The Financial Supervisory Authority of Norway has prepared draft regulations that have been circulated for consultative comments until 20 March 2015.
Disability pension in private occupational pension schemes On 12 December, the Ministry of Finance introduced a bill to establish new rules for disability pensions in the occupational pension schemes in the private sector. It is expected that the bill will be considered by the Storting in the spring of 2015 and that new regulations will enter into force by the end of 2015.
TAX POLICY In 2014 Storebrand developed a policy for tax and public fees. This policy clarifies Storebrand’s attitudes towards tax issues and is an integral part of the Group’s ethical guidelines. The policy is as follows: “Storebrand shall observe the tax legislation in the countries where the Group operates. In the event of transactions or arrangements where Storebrand does not perceive the law to be adequately clear, information shall be disclosed to the tax authorities. In some situations, an attempt will be made to clarify the issue in advance through dialogue or the request for a binding advance statement. The local regulations, as well as relevant guidelines and standards, including IFRS are observed for tax reporting.
• Remuneration of the Board of Representatives, Nomination Committee and Control Committee.
The Nomination Committee is independent of the Board and management, and its composition aims to ensure broad representation of the shareholders’ interests. Two of the Committee’s members are not members of the Board of Representatives. Storebrand does not have any written provisions concerning the rotation of Nomination Committee members, but in recent years members of the Nomination Committee have been replaced as a matter of course due to changes in the shareholder composition.
None of the members elected by the Board of Representatives have any employment, professional or consultancy relationship with Storebrand beyond their appointment to the Board of Directors. The backgrounds of the individual board members are described on page 56 of the annual report and on the Group’s website. The composition of the Board of Directors 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 58. An overview of the number of shares in Storebrand ASA owned by members of governing bodies as at 31 December 2014 is included in the notes to the financial statements for Storebrand ASA (Information on related parties) on page 156.
The responsibility for Storebrand’s control functions for risk management and internal control lies in the CRO function under the management of the Group Chief Risk Officer. The CRO reports directly to the CEO. 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 Storebrand’s business areas. In addition, this function is responsible for managing the value-based management system, coordinating the financial planning process, and the management’s risk assessment and internal control reporting.
OTHER As one of the largest investors in the Norwegian stock market, Storebrand has considerable potential influence over the development of listed companies. Storebrand attaches importance to exercising its ownership in listed companies on the basis of straightforward and consistent ownership principles that also focus on sustainability. Storebrand applies the Norwegian Code of Practice for Corporate Governance in this role. Storebrand has had an administrative Corporate Governance Committee since 2006. The Committee is responsible for ensuring good corporate governance across Storebrand. Storebrand has issued guidelines with respect to employees holding positions of trust in external companies, which regulate, for example, the number of external board positions.
Caneman is Chairman of the Board of Fourth Swedish National Pension Fund, Arion Bank hf. and Big Bag AB. She is a Board Member of SAS AB, Poolia AB, Intermail AS, Schibsted Sverige AB and MySafety AB.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR MATERIAL STATEMENT OF FINANCIAL POSITION ITEMS
The tables below show the effect of IFRS 10/11 for the lines in the accounts that are affected of the changes.
Another important standard for Storebrand’s consolidated financial statements will be IFRS 9 Financial Instruments. Among other things, the standard deals with classification of financial instruments (use of fair value and amortised cost) and rules for writing down financial instruments. No implementation date has been decided.
Currencies and translation of foreign companies’ accounts The Group’s presentation currency is Norwegian kroner. Foreign companies included in the Group which use a different functional currency are translated into Norwegian kroner. The income statement figures are translated using an average exchange rate for the year and the statement of financial position is translated using the exchange rate prevailing at the end of the financial year. As differences will arise between the exchange rates applied when recording items in the statement of financial position and the income statement, any translation differences are recognised in total comprehensive income.
Norwegian life insurance business in relation to insurance contracts with interest rate guarantees.
The tax expense in the income statement comprises current tax and changes to deferred tax and is based on the accounting standard IAS 12 Income Taxes. Tax is recognised in the income statement, except to the extent that it relates to items recognised in total comprehensive income. Deferred tax and deferred tax assets are calculated on the differences between accounting and tax values of assets and liabilities.
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 which are also included in the Norwegian tax group, are included in the Group’s temporary differences where provisions have been made for deferred tax. See also section 6 above which concerns business combinations.
STOREBRAND LIFE INSURANCE In the case of group defined-benefit pensions and paid-up policies, any positive risk¬ result passes to 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 in the balance sheet.
Other Storebrand Group 1) Write-downs and amortization of intangible assets are included in Storebrand Group
Continuous monitoring and active risk management are therefore core areas of the Group’s activities and organisation. The basis for risk management is laid down in the Board’s annual review of the strategy and planning process, which sets the risk appetite, risk targets and overriding risk limits for the operations. In the Storebrand Group, responsibility for risk management and internal control is an integral part of management responsibility.
The Other segment includes the insurance risk at BenCo. BenCo offers pension products to multinational companies through Nordben and Euroben. The insurance risk at BenCo primarily relates to group life insurance, early retirement pensions and pensions for expatriate employees. These are defined-benefit pensions that can be time-limited or lifelong. Many of the agreements have short durations, typically five-year early retirement pensions, and the insurance risk is therefore limited.
GROUP CONTRACTS Savings 1. Group defined-contribution pensions are pensions where the premium is stated as a percentage of pay, while the payments depend on the actual added return.
Risk premiums for defined benefit contracts in Sweden are based on collective assumptions, based on collective’s distribution of age, gender and family composition. Risk premiums for defined contribution contracts are determined individually based on age and gender.
The financial risk related to customer portfolios without a guarantee is borne by the insured person, and the insured person can choose the risk profile. Storebrand’s role is to offer an attractive, broad range of funds, to assemble profiles adapted to different risk profiles, and to offer systematic reduction of risk towards retirement age. The most significant market risks are equity market risk and exchange rate risk.
Mortgage and asset backed securities 37,944 4,941 2,576 3,276 2,051 50,788
Total bank deposits excluding bank deposits in bond funds 2013 36 5 067 2 051 483 24 24 7 686
Derivatives: - of which derivatives with a positive market value 6 457 6 457 2 211 - of which derivatives with a negative market value -4 826 -4 826 -2 533
FINANCIAL INSTRUMENTS AND REAL ESTATE AT FAIR VALUE - LEVEL 3
External appraisals: A methodical approach is taken to a selection of properties that are to be appraised each quarter so that all properties are appraised at least every three years. In 2014, appraisals corresponding to about 70 per cent of Storebrand’s property portfolio in Norway were obtained.
Real estate fund The valuation of indirect property investments will be sensitive to a change in the required rate of return and the expected future cash flow. The indirect property investments are leveraged structures. The portfolio is leveraged 51 per cent on average.
Interest and similar costs from deposits from and liabilities to customers -508 -552
Total net interest income 462 547 1) The total interest income for lending, etc, that is not stated at fair value. 1,140 1,352 2) The total interest costs for deposits, etc, that are not stated at fair value. -838 -973
Guaranteed pension: Defined Benefit (fee based) Storebrand Life Insurance -14 419 -10 194
Realised losses on loans where provisions have previously been made -138 -78
Deferred tax 1,228 825 1) 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
This primarily concerns lease of office buildings at Lysaker , as well as some movables. Lease of IT-systems are not included.
Amounts that can, but are not presented net in the balance sheet Net amountFin. assets Fin. liabilities
The effectiveness of hedging is monitored at the individual security level.
Lysaker, 10. February 2015 Board of Directors of Storebrand ASA Translation - not to be signed
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 2014 financial year and as at 31 December 2014 (2014 Annual Report).
The annual financial statements as proposed by the Board, the Board’s report, the auditor’s report and the Control Committee’s statement have been submitted to the Board of Representatives, in the manner prescribed by the law.