February Cooperation agreement with Falck on the provision of roadside assistance services to Gjensidige’s customers.
Net income from investments NOK million 2,375.6 2,748.2 2,788.0 (258.7) 2,809.6
Gjensidige is currently a full-fledged provider of products in general insurance and accident and health insurance to Norwegian private and commercial customers. Other target areas – a broad range of products in Norway and general insurance in the Nordic countries and the Baltics – should primarily support the core business operations by offering customer relations-building products and services and economies of scale, respectively.
The Board of Directors recommends that NOK 2,275.0 million be paid in dividends for 2011, corresponding to NOK 4.55 per share.
Market leader with loyal cUstoMers Gjensidige is the largest player in the private market, with a market share of 23.8 per cent in 2011, down from 25.4 per cent in 2010. The decrease was related to Gjensidiges focus on profitability over growth. Much attention has been devoted to measures aimed at retaining customers, however, and the loss of customers has declined throughout 2011. On average, customers who choose to stay with Gjensidige have more products and a lower loss
Further growth: • Further growth will primarily be achieved through acquisitions that support the Group’s combined ratio and return on equity targets of 90-93 and 15 per cent (before tax expense), respectively.
Further developing distribution: • Further development of new distribution models through own distribution and partner agreements.
The segment offers products in the following main groups: pension • Group occupational pensions: defined-contribution schemes with pertaining risk coverage • Management of paid-up policies and pension capital certificates • Individual pensions: Fund pensions (management of the former Individual
Gjensidige is also doiong well in the transfer market for group definedcontribution pension schemes, in which it had the second highest positive transfer balance as of the third quarter 2011 (Finance Norway-FNO)
Profit margin savings, in per cent 0.41 0.61 0.90 The book return on the paid-up policy portfolio, in per cent 2) 5.33 5.29 5.97
Pension and savings shall be a support area for the Norwegian general insurance business: • Contribute to increasing the range of products for existing general insurance customers in Norway, and thereby strengthen customer relations and increase loyalty
Pension and savings shall utilise the opportunities in an emerging market: • The transitional market from defined-benefit schemes to definedcontribution schemes (conversion) and the transfer market for group defined-contribution schemes are important in relation to growth
Finance income in Pension and savings and Banking 44.3 43.7 64.7 net income from investmenst 2,375.6 2,748.2 2,788.0 balance sheet Match portfolio
The counterparty risk in the match portfolio breaks down as 14.9 per cent central government and other public sector, 67.3 per cent banks and financial institutions, and 17.8 per cent industry. Bonds with a coupon that is adjusted on the basis of the Norwegian consumer price index accounted for 9.7 per cent of the match portfolio.
equity portfolio At the end of 2011, the equity exposure excluding associated companies was NOK 2.1 billion and consisted of fund investments in private equity and shortterm shareholdings.
Number of customers (savings), addition in the period Number (334) (2,191) 310
Older people are particularly vulnerable in traffic. Gjensidige supports a project in which selected persons are encouraged to participate in the refresher courser ‘65+’ for older drivers, which is organised by the Norwegian Public Roads Administration in cooperation with the Folkeuniversitetet Adult Education Association and other educational institutions.
Involvement in the local community has always been important to Gjensidige. The Gjensidige Foundation gives financial support to local projects. You can read more about this at www.gjensidigestiftelsen.no.
’There is a lot of role playing, where we practice customer dialogue. One employee plays the customer, often a somewhat difficult customer, for one of his or her colleagues to practice on. An instructor follows the conversation and provides feedback on what should be done differently.’
Even people who work in loss prevention get a childlike sense of pleasure from lighting a fire. Setting a whole house on fire is not something you do every day. Expectations are running high among the watching crowd as Odd enters the living room with his matches at the ready. Odd has not relied on this particular TV self-combusting on this particular day and he lights a fuse to get the fire going. The TV is ablaze in a matter of seconds, and the fire quickly spreads to furniture and other combustible material. The smoke alarm in the living room is beeping for all it is worth, but the upper floor is silent. It takes several minutes for the smoke alarm in the bedroom to start beeping. By then, the fire has spread so far that it would not be possible to descend the stairs. Windows on the ground floor have exploded because of the heat, and flames are shooting out.
‘The demonstration was an excellent illustration of how important it is to get an early warning. Smoke alarms connected in series can actually mean the difference between life and death,’ explains Odd.
Every year, fires claim many lives and destroy huge assets in Norway. Spreading knowledge about how to prevent fires and how to save lives in case of fire is an important task for Odd and Gjensidige. Cooperation with the media is very important in this connection. NRK produced a story about the demonstration, which was broadcast on the daily TV news programme ‘Dagsrevyen’, thus ensuring that the message reached a large audience.
bUsiness and risk ManageMent and Follow-Up Scorecards have been drawn up for the Group’s employees. They identify key performance indicators, deliveries and measures that influence the Group’s earnings, value development and risk situation. The strategic plan and more detailed business plans are important premises for the scorecards. Budgets, various measurement criteria of both a financial and a non-financial nature, authorisations and trend analyses are also used in the management of the Group in addition to scorecards. The measurement indicators are included in internal monthly reports to the Board and management. They provide a basis for making decisions on measures and responsibility relating to efficient goal achievement.
The CRO’s responsibilities include ensuring that an adequate risk management and internal control system is in place, optimising capitalisation and capital use, ensuring that the allocation of assets meets the Group’s defined requirements, maintaining an overview of the overall risk situation in the Group and communicating any matters that the Group’s risk management committee should be aware of. The Group’s risk and capital management policy, as adopted by the Board, covers the overall requirements for these areas, including describing the roles of the Board, the CEO and other roles in the risk management system.
Risk management is an integral part of Gjensidige’s day-to-day operations. Comprehensive and strong risk management is an important strategic tool in increasing value creation, and it enables the Group to handle uncertainty, threats and negative outcomes and to utilise its risk capacity in an optimal manner.
general Meeting The general meeting is the supreme body in Gjensidige. The governing bodies under the general meeting are structured in the same way as financial institutions in Norway, with a supervisory board, a Board of Directors with select committees, a control committee and a nomination committee.
helge l. baastad ceo Baastad (1960) has been CEO since 2003 and a member of the senior group management since 2001. he joined Gjensidige in 1998 and has many years of management experience from other leading brand companies. he held various executive positions in Jordan AS from 1987 to 1998. From 1984 to 1987, he worked for Denofa and lilleborg Fabrikker, part of Orkla AS. Baastad is chairman of the board of Jordan AS from 2011 and holds several directorships, and he is a member of the executive board of Finance Norway (FNO). he is also a member of the corporate assembly and nomination committee of Norske Skog. he was chairman of the board of Gjensidige Bank holding AS from 2006-2011, and has been chairman of the board of Gjensidige Pensjon og Sparing holding AS and Gjensidige Pensjonsforsikring AS since 2005. Mr. Baastad has a degree in business economics (siviløkonom) from the Norwegian School of Economics (Nhh).
The Group’s other focus areas are primarily intended to support core activities through a range of customer relations­building products and ser­ vices such as banking, pension and savings services for Norwegian general insurance customers, and to achieve economies of scale through investing in general insurance in the Nordic countries and the Baltics.
Gjensidige has expedient and efficient solutions for sales via the internet. Private and commercial customers have a complete overview of their own products and can manage their own customer account, for example by reporting a claim or making changes to a fund. Gjensidige.no had 7.3 million visits in 2011. Total sales via the internet increased 12 per cent from 2010 to 2011. For the Private segment seen in isolation, the increase was 33 per cent. Online and mobile channels are expected to grow significaticaly.
In the Private Norway segment, earned premiums increased by 4.7 per cent in 2011. There is strong competition in the Norwegian private market, but measures that have been implemented to retain customers have had a positive effect in relation to reducing the loss of customers during the year. In the Commercial Norway segment, earned premiums increased by 0.2 per cent, despite the fact that profitability is still prioritised over growth.
The free portfolio consists of fixed income instruments combined with, among other things, shares and property. The return for 2011 amounted to NOK 716.1 million, compared with NOK 1,040.5 million in 2010. The portfolio thus yielded a return of 3.8 per cent in 2011, compared with 5.5 per cent in 2010.
Investments in associated companies showed a profit of NOK 431.6 million in 2011, compared with NOK 488.7 million in 2010. This corresponded to a return of 9.8 per cent and 12.3 per cent, respectively. Associated companies mainly comprise Storebrand and Sparebank 1 SR­Bank. Of the profit for 2011, NOK 307.2 million was attributable to the investment in Storebrand and NOK 118.4 million to the investment in Sparebank1 SR­Bank.
Large losses amounted to NOK 521.9 million in 2011, compared with NOK 438.7 million the year before. It was particularly the Nordic and Commercial segments that were affected by many large losses in 2011.
Interest expenses and losses on loans and guarantees from banking opera­ tions amounted to NOK 550.0 million in 2011, compared with NOK 484.9 million in 2010. The increase is due to increased interest expenses.
Among other things, the effective tax rate was affected by the gain on the sale of the shares in Hjelp24, a high number of natural disaster claims that were not tax deductible from the profit for the year and the reversal of the tax provision relating to the sale of property and profits/losses from associated companies. An important reason for the unusually low tax rate in 2010 was that the Ministry of Finance consented to exempting Gjensidige Forsikring, on specific conditions, from capital gains tax on the conversion of the business into a public limited company. This decision reduced the tax expense for 2010 by approximately NOK 333 million.
cASH FlOw The net cash flow from operational activities mainly consists of payments in the form of premiums and net payments/disbursements in connection with sales of investment assets, plus payments in the form of claims settlement costs, purchases of reinsurance, administration expenses and tax. The net cash flow from operational activities was positive in the amount of NOK 2,716.1 million in 2011, compared with a positive cash flow of NOK 4,057.3 million in 2010. The gap between the operating profit and the operational cash flow is due to the nature of the business. An integral part of insurance companies’ operations is to invest received insurance premiums in financial assets, which means that cash flows relating to the management of such assets are included in the operational cash flow.
In 2011, the school’s concept was also used for sales personnel and sales managers in Denmark. The feedback is positive and new groups of course participants are planned for 2012. A corresponding programme is also being planned for claims handlers in Denmark in 2012.
Gjensidige cooperates with NAV on job training and pay subsidies for people who have been unemployed, and it has had several employees on job train­ ing programmes through such schemes.
EvENTS AFTER THE BAlANcE SHEET dATE On 23 January 2012, a binding agreement was entered into for the sale of four shopping centres in the property portfolio with a value corresponding to their book value. The transaction is expected to be completed with ac­ counting effect in the first quarter 2012.
NOK million Notes 1.1.-31.12.2011 1.1.-31.12.2010 operating income Earned premiums from general insurance 17,548.1 17,063.3 Earned premiums from pension 532.7 335.8 Interest income and credit commission income from banking operations 886.7 782.6 Other income including eliminations 414.1 609.1 net income from investments Income from investments in associates 6 431.6 488.7 Net operating income from property 419.9 422.8 Interest income and dividend etc. from financial assets 1,449.2 1,385.4 Net changes in fair value on investments (incl. property) (112.2) 262.3 Net realised gain and loss on investments 379.7 331.4 Expenses related to investments 17 (192.6) (142.4) total net income from investments 19 2,375.6 2,748.2 total operating income and net income from investments 21,757.1 21,539.0 claims, loss etc.
Paid dividend (1,650.0) (1,650.0) Equity-settled share-based payment transactions 7.5 7.5 Tax on items recognised directly in equity 13.2 13.2 1.1.-31.12.2011 Profit/(loss) for the year 2,747.9 2,747.9 components of other comprehensive income
• Based on our preliminary assessments and on the basis of Gjensidige’s current operations, IFRS 13 Fair Value Measurements, which enters into force on 1 January 2013, will not have any significant effect.
inVestment properties Investment properties are properties held either to earn rental income or for capital appreciation, or for both. These properties are not used in production, deliveries of goods and services, or for administrative purposes.
In order for the insurance business to operate with an appropriate degree of security the portfolio should be both of a certain size and sufficiently homogeneous in relation to the spread between the best and worst risk and between the smallest and greatest risk. The larger the portfolio and the more homogeneous the actual risk is, the greater will be the probability of meeting its future liabilities. In addition to the aforementioned factors, such as the probability of disability, mortality and longevity, any concentration around certain occupations or a few major risks could have a negative impact on insurance earnings.
results Gjensidige Annual Report 2011 for the Norwegian market as a whole. On behalf of its members the pool has its own reinsurance programme in place, which further reduces the risk exposure. As in 2010, Gjensidige participates with ten per cent on the pool’s programme in 2011. This exposure is included in the outward reinsurance programme, resulting in synergy effects, economies of scale and diversification in Gjensidige’s reinsurance programme. In Gjensidige’s other geographies natural perils claims are included in the ordinary property reinsurance covers. An event resulting in claims in several countries where Gjensidige has its business will be aggregated into one event in respect of reinsurance.
results 91 Gjensidige Annual Report 2011 stress testinG Stress testing is performed on the value of the investment assets relative to the market, credit, interest rate and foreign-exchange risk as well as to negative scenarios for the insurance activities measured relative to the buffer capital (defined as capital in excess of legal minimum requirements) and reported regularly to the Board of Directors. The purpose of the stress test is not to analyze the effect on profit or loss or on recognised equity, but rather the effect on the capital buffer.
interest-rate risk Within the Group’s insurance companies, overall exposure to interest-rate risk will be reduced by matching a portfolio of fixed income instruments to the overall duration and the payout pattern of the insurance liabilities. Since the insurance liabilities are generally not discounted in the balance sheet, this implies that from an accounting perspective insurance liabilities will be exposed to changes in inflation (but not directly to interest rates). An economic perspective, however, argues for hedging interest-rate risk, because the present value of the provisions will be exposed to changes in the real interest rate. From an accounting perspective, the risk from choosing this hedging strategy is reduced, because a major part of the bond portfolio is classified as held to maturity or loans and receivables (hereafter only referred to as the amortized cost portfolio). Furthermore from an economic perspective the inflation risk is partly reduced since a part of these bonds carries a coupon linked to the development of the consumer price index.
A ten per cent strengthening of NOK against all other currencies will have a positive effect on equity of about NOK 19.3 million (97.7). Since the conversion effect related to subsidiaries is recognised in other comprehensive income, whereas the currency hedging for Gjensidige Baltic is recognised in the income statement, the effect on profit or loss will be positive and amount to NOK 86.1 million (87.2).
results Gjensidige Annual Report 2011 2011 will be about the same amount, but with an opposite sign, provided that all other variables are held constant.
For investments, risk limits are set for credit risk in several ways. As a point of departure there is a credit limit on designated counterparties. For issuers with an official credit rating from a recognised rating agency, this is generally utilized as a criterion. The list of credit limits is approved by the CFO and employed for all separate mandates and for derivative counterparties. In addition, the board-approved asset allocation sets limits on global bonds, both bonds with high financial strength ratings (investment grade) and other bonds (high yield). Additionally, there is a maximum limit for credit duration measured as a one per cent change in credit spreads that include all fixed income assets in the balance sheet. This limit was NOK 1,100 million in 2011.The Group’s total fixed-income portfolio of NOK 40,791.9 million as at 31 December 2011 (including the amortized cost portfolio, other bonds, certificates and deposits) consisted of NOK 7,212.9 million issued by government sector entities and NOK 33,579.0 million by non-public entities. The majority of the latter category was financial institutions. The percentage issued by government sector entities decreased from the level in 2010. The distribution is shown in the table below.
The overview of the largest issuers also includes the fixed-income portfolio for GPF and Gjensidige Bank because the individual counterparty risk is monitored at group level. Total fixed-income portfolio is only for general insurance.
figure 9b – Potential credit exposure reinsurance per rating category 2010
Debt to credit institutions 3.8 13.6 542.5 559.9 Deposits from and liabilities to customers 9,079.7 0.2 41.4 0.2 9,121.4 Debt incurred through the issue of securities 119.2 229.7 955.0 3,776.3 5,080.2 Loan approvals and unused drawing rights 2,367.0 2,367.0 Derivatives - gross outflows 1 0.4 12.7 37.5 50.6 total liabilities 11,566.3 233.7 1,022.7 4,356.5 17,179.2 1 Derivatives gross inflows 0.5 16.5 49.0 65.9 Financial derivatives - net settlement (negative figures yield net payment) (0.1) (3.8) (11.4) (15.3)
Based on this, the requirement for a liquidity reserve as at 31 December 2011 was NOK 1,143 million and the actual liquidity reserve was NOK 1,890 million composed of NOK 374 million in deposits and NOK 1,517 million in bonds, securities and money market funds. NOK 364 million of this were investments in preferential bonds from Gjensidige Bank ASA Boligkreditt AS (eliminated in the consolidated accounts) that were not utilised in the swap arrangement with Norges Bank. The liquidity reserves are mainly realisable within a few days and the liquidity holdings are sufficient to meet payments due on debts for 14 months .
description oF the seGments priVate norWaY Gjensidige is a broad supplier of general insurance products to private consumers in Norway. The company is a market leader in motor insurance and accident and health insurance, and it also has a solid position in other types of private insurances.
The annual assessment of impairment losses was carried out in the third quarter of 2011. An indication assessment was also carried out in the other quarters in order to assess whether new circumstances calls for new impairment testing of goodwill.
There is no need for recognition of impairment losses of goodwill or other intangible assets related to other business combinations/portfolios.
leVel oF comBined ratio (cr) The expected CR level is both in the growth period and when estimating the terminal value considered to be from 86.8 to 96.9.
The market value of owner-occupied property exceeds the carrying amount as shown below. For plant and equipment there is no material difference between the carrying amount and the market value. Some equipment, such as furniture, is fully depreciated, but still in use.
Receivables related to direct operations and reinsurance 10 3,791.1 3,791.1 3,585.1 3,585.1
noK million as at 1.1.2011 net realised /unrealised gains recognised in profit or loss
Bonds and other fixed income securities Decrease in value 10 % 2.4 total 197.7 noK million sensitivity
Gjensidige Forsikring ASA initiated hedge accounting of the currency exposure of the net investment in the fully owned subsidiary Nykredit Forsikring A/S on 1 Oktober 2010. The net investment in Nykredit Forsikring is hedged through currency-related contracts that are renewed every quarter at a principal equal to the value of the investment in Nykredit Forsikring in Gjensidige’s consolidated financial statements. The credit risk associated with the hedging derivatives is within the limits of Gjensidige’s credit policy.
Assets in life insurance with investment options 5,542.1 4,503.6 total assets in life insurance with investment options 5,542.1 4,503.6
Cash and bank deposits are cash and bank deposits available for day to day business. Deposits with financial instistutions consist of short-term currency deposits and other short-term credit deposits.
results 113 Gjensidige Annual Report 2011 movements in insurance-related liabilities and reinsurers’ share gross Reinsurers’
deFined BeneFit plan The retirement pension together with contributions from the National Insurance and taken into consideration paid-up policies, constitutes about 70 per cent of salary at retirement age, provided a completed contribution time of 30 years. The retirement age is 67 years, while as for the underwriters a retirement age of 65 years applies.
results Gjensidige Annual Report 2011 18 – SAlARIES AND REMUNERATION (CONT.)
Hallvard Strømme (28.6.10-31.12.10) 1 1.5 Lieslotte Aune Lee (28.6.10-31.12.10) 1 6.5 Vigdis Myhre Næsseth (28.6.10-31.12.10) 1, Deputy 11.5 supervisory board 5
Realised gain/(loss) from bonds held to maturity (23.0) Impairment bonds held to maturity (40.0) Net gain/(loss) from changes in exchange rates on bonds held to maturity 0.1 total net gain/(loss) from bonds held to maturity 626.4 761.4 net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 370.6 236.9 Net gain/(loss) from loans and receivables (0.4) 19.7 Net gain/(loss) from changes in exchange rates on loans and receivables (61.4) (94.4) total net income and gains/(losses) from loans and receivables 308.8 162.2 net income and gains/(losses) from financial liabilities at amortised cost Net gain/(loss) from changes in exchange rates on financial liabilities at amortised cost (0.2) total net income and gains/(losses) from financial liabilities at amortised cost (0.2)
Gjensidigestiftelsen covered in 2010 all of the expenses related to the stock exchange listing of Gjensidige Forsikring ASA. Expenses related to the conversion of Gjensidige Forsikring BA to a public limited company were evenly divided between Gjensidigestiftelsen and Gjensidige Forsikring. Part of the expenses were charged Gjensidige Forsikring and invoiced Gjensidigestiftelsen. At year end 2011 the intercompany account was NOK 370,000 to Gjensidige Forsikrings advantage.
As described in the Board of Directors’ statement on the stipulation of pay and other remuneration in Note 18, half of the variable remuneration is paid in the form of shares in Gjensidige Forsikring ASA, one third of which can be sold in each of the following three years.
AdEquAcY TEST A yearly adequacy test is performed to verify that the level of the provisions is sufficient compared to the company’s liabilities. Current estimates for future claims payments for the company’s insurance liabilities at the reporting date, as well as related cash flows, are used to perform the test. This includes both claims incurred before the reporting date (claims provisions) and claims that will occur from the reporting date until the next annual renewal (premium provisions). Any negative discrepancy between the original provision and the liability adequacy test will entail provision for insufficient premium level.
lOANS ANd REcEIVABlES Loans and receivables are non-derivative financial assets with payments that
GuARANTEE SchEmE The provision for guarantee scheme shall provide security to the insured for the right fulfillment of claims covered by the agreement even after the agreement is terminated in Norway.
Of which other classes small craft and pleasure craft accident travel
Carrying amount As at 1 January 2010 182.9 243.9 426.7 as at 31 December 2010 112.0 289.8 401.8
reCOnCiliatiOn FinanCial assets valUeD baseD On nOn-Observable Market Data (level 3) 2011 nOk million sensitivity
Gjensidige Annual Report 2011 results 9 – FinanCial assets anD liabilities (COnt.)
Present value of funded plans 2,465.4 2,214.1 present value of the defined benefit obligation 2,883.7 2,626.4 Fair value of plan assets (2,075.9) (2,040.8) net defined benefit obligation 807.8 585.6 Employers' national insurance contributions 108.2 76.7 net pension liability in the balance sheet 916.0 662.3 14 – pensiOn
Gjensidige Forsikring is required to have an occupational pension plan pursuant to the Mandatory Occupational Pension Act. The company’s pension plans meet the requirements of the Act.
Change in pension benefits accrued during the year (17.3 %) 22.7 % 19.0 % (15.2 %)
Jørgen Inge Ringdal, Executive Vise President 2,232.4 471.8 202.2 822.1 20.2 292 8,743 2 Trond Delbekk (1.1.11-30.9.11), Executive Vise President 2,136.7 543.6 157.2 300.2
Gjensidige Annual Report 2011 results key ManageMent persOnell COMpensatiOn nOk thousand paid fixed salary/fee paid variable salary
172 results key ManageMent persOnell COMpensatiOn nOk thousand paid fixed salary/fee paid variable salary
9 Everyone in the Senior Group Management has pension plans, benefit based or contribution based. 10 The person concerned has not received any fees during 2010.
TRANSAcTIONS WITh RElATEd PARTIES inCOMe stateMent The table below shows transactions with related parties recognised in the income statement.
INcOmE FROm INVESTmENTS IN SuBSIdIARIES ANd ASSOcIATES The table below shows a summary of contributions/dividends from/to subsidiaries as well as liquidation losses.