• 2006 is the major year for mandatory occupational pensions, and by 22 De­ cember Storebrand has set up pension schemes for 15,500 new corporate custom­ ers with almost 200,000 employees.
Storebrand is a growing business. At the close of 2006, the Storebrand group had 1,429 full­time equivalent employees as compared to 1,295 at the start of the year. The re­launch of property and casualty insurance, together with a focus on the market for mandatory occupational pension schemes, were important factors in the increase in employee numbers.
1 Includes NOK 1,571 million of profit contribution from the sale of shares in If Skadeförsäkring.
2 Investment yield I: Realised financial income including revaluations (positive or negative) of real estate. Investment yield II: As Investment yield I but including change in unrealised gains on financial current assets. Investment yield III: As Investment yield I but including all changes in unrealised gains.
Auditor’s report for 2006 107 Storebrand Group companies 108 Terms and expressions 109
Following the split from Denmark, management of the fire insurance scheme is transferred to Christiania, as the capital of Norway was known at that time. The scheme is later converted in 1913 into a public sector company known as Norges Brannkasse.
Storebrand is well underway with the task of adapting its products and solutions to the new legislation. The new opportunities made possible by the legislation will be utilised to provide greater flexibility to meet specific customer requirements.
Municipalities on the sidelines in anticipation of new insurance legislation The public sector pension market represents over NOK 200 billion of accumulated premium reserves. The municipal sector accounts for a major part of this total, but a number of other bodies such as energy and transport companies also provide public sector occupational pensions. In 2005, legislation on the conduct of public sector purchasing was extended to include pension schemes. This has helped to ensure more competitive bidding arrangements, while at the same time increasing the threshold at which such procedures must be carried out. The regulations also impose requirements for public sector pension arrangements to be submitted to competitive bidding on a regular basis.
Konsernkunder insurance secures prompt access to treatment when employees fall ill, while HSE advice helps companies to work towards a better working environment and reduced sick leave. Storebrand’s HSE agreement is only available to companies that have entered into a “More inclusive working life” agreement with the National Insurance Administration. For the public sector, Storebrand has established an HSE and senior policy fund. The fund can be used for various HSE measures, as well as training and education. In addition, Storebrand offers health insurance and HSE advice for municipalities and other public sector entities.
Greater visibility Ever since 1861, Storebrand has helped Norwegians to protect their finances through life insurance. With its 145 years of experience, Storebrand has built up expertise, systems and procedures that make it one of the most recognized brands in the financial sector and a specialist in long-term management of people’s assets. The company has committed considerable resources to further improve the visibility of its brand in this area. Surveys of customer awareness show that Storebrand enjoys strong recognition for long-term savings and insurance, and that its position
It is pleasing to see that discussions between the parties on the government ’s proposed pension reforms do suggest that tax shelter for private pension savings may continue in one form or another if the parties reach agreement in spring 2007 annuity policies. It is unclear whether this will be in the form of a continuation of IPA or annuity policies, or in another form altogether. The timing of the introduction is also unclear
Responsible investments Storebrand started its work on responsible investments in 1995. We are now one of the leading companies globally in this area. A separate department has been established with the sole responsibility of monitoring Storebrand’s investments with respect to issues such as environmental degradation, corruption, human rights, landmines, cluster munitions and nuclear weapons.
Proportion of tel. calls answered within 20 sec. (main switchboard) 94% 91% 90%
En vi ro n m en ta l i ss u e s Energy consumption (head office) 324 kwh/m2 Reduced by 14% Reduce by 5%
Leiv L. Nergaard (62), partner Norscan Partners AS. MBA, Norges Handelshøyskole. 1969­2006 Norsk Hydro ASA including 2002 – 2003 CEO Norsk Hydro Deutschland, 1991­2002, CFO Norsk Hydro. 1984­1991, various management positions in finance, accounting and strategy, Norsk Hydro. 1980­1984 CEO Notodden Fabrikker. 2004­, Board chairman GRIP. 2004­, board member Yara Int. ASA (Chairman of audit committee 2007). 2003­, Board member Tinfos AS. 1997­, Board member and later deputy chairman and chairman Storebrand ASA (Chairman from 2000). 1997­ 2006, board member Rieber & Søn ASA (Chairman from 2000). 1996­ 2002, board member Prosessindustriens Landsforening (PIL). 1995­2002, board member NHO. 1993­1996, board member Freia Marabou Kraft AS. 1990­1996, board member Den norske Turistforening. 1987­1996, board member Alcatel ASA. 1973­2006, Chairman, board member and member of corporate bodies in various listed companies and organisations.
Storebrand has anticipated and drawn attention to accelerating pressure on margins in certain product areas. Recent developments have confirmed these trends in the lending market and for mandatory occupational pension products. Storebrand is prepared for these trends, and has focused on improving its operational efficiency over recent years.
Storebrand’s executive management is charged with implementing the strategies approved by the Board, and is directly responsible for the group's overall profitability and for making optimal use of resources across the entire group. Storebrand works systematically to build up the system value of expertise across the group, and annually carries out succession planning for the entire executive management team. A good process for succession management plays an important role in ensuring the long-term stability and continuity of executive management in Storebrand. Succession planning is submitted to the Board for approval. In addition, in order to ensure continuity of expertise in key positions, all the members of the executive management team are subject to a written agreement to give six months' notice of termination of employment. Information on the executive management team can be found on page 36.
Deloitte has been elected by Storebrand ASA’s AGM as the company's external auditor. The Board of Storebrand ASA has appointed KPMG as the company's internal auditor. The other companies in the group use the same external and internal auditors as Storebrand ASA.
Growth. 2006 was a good year for Storebrand. In the corporate market, Storebrand reinforced its strong position for pension schemes and employee insurance products. During the course of the year, Storebrand attracted over 15,500 new corporate customers in connection with the introduction of mandatory occupational pensions, and these customers represent about 200,000 employees in total. 2006 was also a good year for traditional occupational pension schemes, with transfers of business between insurance companies generating a net inflow of pension reserves to Storebrand of NOK 5.1 billion. The Norsk
Storebrand Bank intends to continue its focus on selected segments of the corporate market. The bank operates as a niche player for property developers and real estate investors in the Oslo and Akershus region.
Productivity. Strong growth for Storebrand’s core businesses, combined with increasing competition, make it essential to improve the efficiency of the group's internal processes. Storebrand works continually to improve its operational efficiency, and at the capital markets day in 2004 the company announced a number of efficiency targets to be achieved by the close of 2007. These targets covered all the most important business areas in the group, namely life insurance, banking, asset management and the holding company. At the 2006 capital markets day, the company issued a new evaluation of the objectives based on performance to date and changes in operating conditions.
The product emphasises customer-friendly service solutions that make it easy for companies to administer their pension arrangements.
The profit allocated to policyholders for 2006 was NOK 3,994 million
Insurance produced a satisfactory investment return in 2006. The booked investment return for 2006 was 7.1%, compared to 6.9% for 2005. The value-adjusted return on current asset investments was 8.3% compared to 7.6% in 2005. The value adjusted return including bonds held to maturity was 6.5% in 2006 compared to 6.9% in 2005. At the close of 2006 unrealised gains on current asset investments totalled NOK 5,890 million, while unrealised gains on bonds held to maturity totalled NOK 1,097 million. The overall increase in unrealised gains in 2006 was NOK 2,041 million.
1 Change in market value of unit funds not considered for defined contribution pensions and unit linked.
New Norwegian life insurance legislation The new Insurance Activities Act comes into force from 1 January 2008. The new Act will create considerable changes for the life insurance industry, and
• Premium for pension scheme administration: Administration costs must be charged in advance and represent the final cost for the customer
Higher revenue. Total revenue increased by 65% in 2006. The main increase came from performance-based revenue, which was NOK 132 million higher, but fixed and volume-based revenue also increased by NOK
This reflects both a net inflow of assets under management during the year and growth in the stock markets.
3.5 billion, the market improved in 2006 to give an overall net inflow of NOK 1.9 billion. Storebrand’s retail market equity funds saw a net outflow of NOK 0.3 billion in 2006, which represents a lower outflow than the NOK 0.8 billion seen in 2005. Looking at the total Norwegian market for equity funds, 2006 saw a net inflow of NOK 24.2 billion, and Storebrand's net inflow was NOK 2.2 billion.
The aim of risk management is to achieve the highest possible return for customers, pensioners and the owner over the long term at an acceptable risk level. The investment portfolio is subject to a range of quantitative and qualitative limits, and risk is measured and monitored continuously using a range of reports, models and tests. For instance, Storebrand uses ‘Conditional Value at Risk’ as a method for calculating the potential for loss on a one-year horizon for a given probability, including worst-case losses. This is evaluated in the light of the guaranteed annual return and the company’s risk capital financed by policyholders and the owner.
Payments to third parties for goods and services 2 932.0 1 713.3 -1 801.2
The acquisition method of accounting is used to account for the purchase of subsidiaries. Investments in associated companies (normally investments of between 20% and 50% of the associated companies’
Financial assets are valued at market value. The level of technical reserves required in respect of such policies is determined by the market value of the financial assets. Unit Linked products are not exposed to any investment risk on customers’ funds since they do not guarantee any minimum return. The sole exception is in the event of death, when the deceased’s estate is entitled to a refund of premiums paid for annuity insurance.
– of which products with investment choice 1 763 992 620
Calculation of deferred tax assets and deferred tax on timing differences and losses carried forward: Tax increasing timing differences
Minimum future payments on operational leases for fixed assets are as follows: NOK million Minimum lease payment less than 1 year
Experience adjustments for the year included in equity 239.7 49.8 176.3
The Board will submit a statement to the Annual General Meeting on the salary and other remuneration of senior employees, cf. Section 6-16a of the Public Limited Liabilities Companies Act.
Goodwill and other intangible assets -14 -27 -180 -753 -828 -821
Losses realised in the period for which individual write-downs have previously been made -17.2 -81.9
Base amount for analysis by sector and currency 4 245.8 42 721.4 46 967.2 827.9 47 795.1
Perpetual subordinated bond issue 2004 166.6 NOK NIBOR + 1.5% 166.4
Number of days overdue: Total loans past maturity not written down 0.5 0.3
Interest rate sensitivity is a measure of interest rate risk based on how changes in interest rates will affect the market value of bonds, interest rate derivatives and other interest rate sensitive financial items. This summary shows how the values of financial current assets and financial fixed assets (bonds held to maturity) at 31 December 2006 would be affected by an increase of 1 percentage point in all interest rates. Storebrand creates interest rate positions through its assets in order to partly offset the interest rate risk implicit in the company's insurance obligations. However, the interest rate risk represented by insurance policies cannot be calculated and quantified in the same way as interest rate risk for financial items.
The following table shows the proportions of insurance fund reserves at 31 December relating to policies with various basic annual interest rates: Guaranteed interest rate 2006 2005
Total long-term liabilities and commitments 2 191.1 2 208.5 2 035.7
Pension assets at fair value -1 972.8 -1 962.0 -2 033.3
Net pension cost in the profit and loss account, specified as follows: Current service cost including employment taxes 5.9 6.2 16.4
Pension assets at fair value 1 972.8 1 962.0 2 033.3
We conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and good auditing practice in Norway, including standards on auditing adopted by Den norske Revisorforening. These auditing standard require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and good auditing practice an audit also comprises a review of the management of the Company’s financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion.
BANKING Annual percentage rate (APR): The true interest rate calculated when all borrowing costs are expressed as an annual payment of interest in arrears.
Storebrand Kapitalforvaltning AS Norge, Swedish branch office Kungsgatan 12­14, level 7 P.O.Box 5541 S­114 85 Stockholm Sweden www.storebrand.se