Board’s Report
The Gjensidige Group achieved solid premium growth and good profitability in 2014. Customer satisfaction continued to increase and competitiveness remained good.
Board’s Report 2014 The result in 2014 was one of the best Gjensidige has ever recorded. The profit after tax expense was NOK 4.2 billion, corresponding to NOK 8.38 per share. The underwriting result increased by more than 40 per cent from 2013, ending at NOK 2.9 billion. The result was positively influenced by a solid growth of 8.8 per cent in premiums and a good underlying frequency claims development, among other things as a result of good customer and risk selection and risk pricing, and a favourable weather situation. A lower proportion of large losses and higher run-off gains also made a positive contribution to the im provement in the result. The financial result was NOK 2.4 billion, which is on a par with the result in 2013. The Retail Bank and Pension and Savings also made a positive contribution to the good profit performance by the Group. The Board is satisfied that the Group delivered on its financial targets in 2014 as well. The Board proposes a dividend of NOK 3.0 billion for the 2014 financial year, corresponding to NOK 5.90 per share. That is 70.4 per cent of the Group’s profit after tax expense, and it is based on the adopted dividend policy that applies from the 2014 financial year. The Gjensidige Foundation’s share of the total dividend amounts to NOK 1.8 billion. The board of the Gjensidige Foundation has proposed that the dividend, after a deduction for expenses, be d istributed to Gjensidige’s general insurance customers in Norway.
The business
Gjensidige Forsikring ASA (Gjensidige Forsikring) is a Nordic general insurance company with its head office in Oslo in Norway. The object of the business is to safeguard life, health and assets for customers in the private and commercial markets by offering competitive insurance products. In Norway a wide range of products within banking, pension and savings are also offered, contributing to a broader offering and stronger relations to the customers. Gjensidige Forsikring is the parent company of the Gjensidige Group (Gjensidige). Gjensidige is the leading general insurance company in Norway, and it is the biggest Norwegian-owned general insurance company in the Nordic countries
46 I Gjensidige Annual Report 2014
and the Baltic states. These markets are Gjensidige’s defined market area for further growth, and at year end 2014, Gjensidige was one of the leading general insurance companies in this area. The general insurance operations include general insurance and accident and health insurance. The Norwegian general insurance operations also include life insurance, which is pure risk insurance with a duration of up to one year. Group life insurance is the biggest product in this category. Gjensidige’s business model is based on an integrated value chain that includes the production of financial services and products, a high degree of direct distribution and customer dialogue, and efficient claims settlements. Customer orientation Gjensidige is working systematically to become the most customer-oriented company in the Nordic general insurance field. The vision is to “know the customer best and care the most”. The customers should feel that Gjensidige knows them, cares about them, makes things easy for them and helps them. Customer satisfaction is measured systematically, at Group level and down to the individual employee level, and improvement measures are implemented continuously. User-friendly self-service solutions are being developed to enable customers to buy and change insurance policies, seek advice and report claims online and by mobile phone. At the same time, internal work processes and new tools are being developed in order to ensure further rationalisation of customer service. Gjensidige is involved in businesses’ and people’s lives, both before and after a claim arises, which, among other things, is reflected in the communication concept ’It is good to be prepared’. Customer satisfaction has developed very positively in recent years. Surveys show that people who have had a claim or who have many Gjensidige products are the most satisfied customers. Further development of loyalty and affinity programmes, further digitalisation of customer communication and the development of value added services are among the measures that are expected to further enhance existing good customer relations going forward.
Board’s Report
Inge K. Hansen Chairman Inge K Hansen (1946) has been Chairman of the Board of Gjensidige since 2008. He is also Chairman of the Board of NorSun AS, Harding AS, Troms Kraft AS and Nets AS, and Deputy Chairperson of the Board of Hydro. He was elected Chair of the Year in Norway and the Nordic Countries in 2012. Hansen has previously been an executive vice president in Statoil and CEO of Aker Kværner. He is a graduate of the Norwegian School of Economics (NHH). Market position Gjensidige is market leader in the Norwegian general insurance market, where the Group has very high brand recognition and preference. Gjensidige was the leading player in Norwegian non-marine general insurance in 2014 as well, with a market share of 25.2 per cent of a total market of NOK 55.3 billion. The market share is unchanged from 2013. (Source: Finance Norway). The Company prioritises profitability ahead of growth, and the market share development therefore confirms Gjensidige’s good competitiveness. The Company had a market share of 23.5 per cent in the private market at the end of 2014. The market share in the commercial market was 27.9 per cent. This includes the agricultural market, where Gjensidige has historically enjoyed a high market share. The market shares in Denmark and Sweden were 6.0 per cent (based on the most recent s tatistics from the Danish Insurance Association as of 31 December 2013) and 1,5 per cent, r espectively (source: Insurance Sweden, statistics as of 31 December 2014). In the Baltic general insurance market, Gjensidige had a market share of 6,9 per cent at year end (source: Insurance Supervisory Commission of the Republic of Lithuania, Latvian Insurers Association, Statistics Estonia). Given an approval of the acquisition of PZU Lietuva Gjensidige’s market share will increase to around 13 per cent. The acquisition is mentioned under Events after the balance sheet date. The market share for group unit-linked defined contribution pensions was 9.2 per cent and for individual unit-linked pensions it was 9.1 per cent. The market share for transferred defined contribution pension agreements was 11.8 per cent. The corresponding market share for private pension assets was 8.0 per cent. (Source: Finance Norway, third quarter 2014). Distribution Norway Gjensidige has approximately 760,000 customers in the Private segment and around 150,000 in the
Hansen is up for election to the Board in 2015. Hansen holds 12,253 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
Commercial segment in Norway. An own distribution network is largely responsible for sales and ad visory services, but agents and dealers are also used in some cases. Gjensidige has central cooperation agreements with several large national trade unions and interest organisations. These agreements give members of the organisations advantages as customers of Gjensidige. Three per cent of Gjensidige’s commercial customers in Norway (18 per cent of the premium volume) are served indirectly through brokers. Both the Private and Commercial segments distribute products and services through a combination of telephony, web-based solutions and local branch offices. The customers can choose their point of contact and the service they want, and they shall experience the same quality and service regardless of channel. The multi-channel model contributes to both good customer experiences and cost-efficient distribution. The sales centres and customer service centres are responsible for external sales and for serving customers who contact Gjensidige to buy or change insurance policies or to seek advice. Gjensidige has 38 local branch offices that offer advisory services in the fields of insurance and banking. The offices can refer customers to other departments if the queries concern pensions and saving. The customer portal gjensidige.no plays an increasingly important role in relations with the customers. There, private and commercial customers can see their own insurance policies and can manage their customer relationship themselves, for example by reporting a claim or tracking the processing of a claim online. A substantial proportion of sales to private customers in Norway are now initiated
Gjensidige Annual Report 2014 I 47
Board’s Report
Gunnhild H. Andersen Board member Gunnhild H. Andersen (1949) has been a member of Gjensidige’s Board as an employee representative since 2008. She is a customer adviser in Gjensidige, an employee representative in the Finance Sector Union and the senior employee representative for the Claims/ IT department. Among other things, Andersen has previously held positions as a customer adviser and claims handling consultant in Gjensidige, and has been secretary at AL Gartnerhallen. She was educated at Lunner municipal commercial college. Andersen is up for election to the Board in 2015. Andersen holds 785 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
at gjensidige.no, almost 50 per cent of customers use the internet at one or several points in the sales process and roughly a quarter of frequency claims are reported online. Gjensidige Bank and the general insurance business are cooperating more and more closely in the Norwegian private market. Digital solutions have been developed that make it simple for car dealers to offer financing and insurance products to their customers, and products and concepts are being developed that target younger customers in parti cular. Gjensidige Pensjon og Sparing cooperates closely with the Commercial segment on the distribution of pension and savings products to small and medium-sized enterprises in Norway. Nordic Gjensidige distributes general insurance products in Denmark through its own sales network and in cooperation with the Nykredit group. In addition, private insurance products are sold through a number of partners, especially travel agents, car dealers and estate agents. Otherwise, the private market is served directly via call centres and the internet. In the Danish commercial market, sales are made in cooperation with brokers and call centres and dedicated underwriters in the market for small and medium-sized enterprises and agricultural customers. Distribution in the municipal market takes place either directly or through brokers. The market is to a large extent based on competitive tendering. In Sweden, general insurance products are distributed to private customers both directly by phone and via the internet, and through insurance mediators (partners and agents). In the commercial market, distri-
48 I Gjensidige Annual Report 2014
bution mainly takes place through insurance brokers and partners. Baltics The most important distribution channels in the Baltic states are direct sales and sales through insur ance agents and brokers. The importance of online sales as a distribution channel continues to increase in the Baltic market. In order to further rationalise operations, priority is being given to increasing online sales and sales via call centres. Other Gjensidige is also positioned to deliver products adapted to other distribution channels, both in Norway and in the other Nordic countries. Distribution largely takes place through agents and business partners such as shops, car dealers and banks that wish to expand their product range with insurance products under their own label (’white label’). Information technology Gjensidige has a joint Nordic ICT platform, where all products and customer data are available on the same system platform. It is also used by the banking and pension and savings businesses. This gives a high degree of flexibility and ensures a uniform customer experience across channels, at the same time as it is cost-efficient. A flexible service architecture enables use of functionality from the core system and information from the customer system for self-service solutions, internal user interfaces and other support systems, and in the work on for instance optimal customer and risk selection and tariff setting. Further digitalisation of business and customer pro cesses continued in 2014 and this will have high priority going forward. New technology is providing more and more opportunities to collect and utilise market and customer data and assess risk. External communication is being increasingly adapted to the individual customers, thereby ensuring that Gjensidige can help customers with their everyday problems. IT systems together with data play a key role in managing sales activities. Common user interfaces for customer advisers in all parts of the business contribute to efficient work processes and to ensuring that customers get equally good service regardless of which channel they choose for their dialogue with Gjensidige. New and better function ality is continuously being implemented for customers who want to use online self-service solutions, and in 2015 the Company will open a new contact centre that will contribute to a common service standard across channels and organisational entities.
The year 2014
Profitable growth Gjensidige achieved solid growth combined with good underlying profitability and customer develop-
Board’s Report
ment in 2014. Satisfactory control of customer and risk selection and risk pricing contributed to good competitiveness throughout the year. The implementation of new tariffs continued in the Nordic countries in 2104, at the same time as the established tariffs in Norway are being continuously developed and im proved. In addition, the efficiency of the distribution channels was further increased as a result of targeted activity management and continued digitalisation of work and customer processes. Increased sales of a wider range of products and new value added services In Norway, banking, pension and savings products are offered to general insurance customers as part of the efforts to increase the product range and the number of products individual customers buy. Gjensidige cooperates closely with the motor trade and, through a unique solution for the sale of car financing and car insurance, Gjensidige is fast be coming the motor trade’s preferred partner. In 2014, this resulted in substantial growth in the number of new car insurance policies and financing solutions, and Gjensidige was the biggest car insurer in the market. Several value added services were developed in 2014 in order to contribute to greater customer loyalty and preference. They included a digital advisory service for buyers of second-hand cars and a digital travel insurance app that can be downloaded to mobile phones. At the turn of the year, Gjensidige launched its own app that makes it simple for young drivers to register practice driving and that can later entitle them to a discount on car insurance. Greater customer satisfaction and high customer loyalty Gjensidige works continuously to improve the customer experience in all channels. The training of staff, better data accessibility, digital customer communication and the development of value added services are important measures in this context. Customer satisfaction with the Company and advisers is measured systematically, and customer satisfaction at Group level further increased, from 73.6 in 2013 to 74.8 in 2014. Satisfaction is highest among customers who have had a claim or been in contact with Gjensidige for other reasons. Gjensidige’s customers show strong loyalty. Private customers in Norway have a customer relationship lasting more than ten years on average. Around 70 per cent of the private customers are members of affinity or loyalty programs and, among these customers, the average customer relationship lasts more than 15 years. Commercial customers in Norway have a customer relationship lasting eight years on average. Loyalty among customers in Denmark is developing positively, but there is a potential for lon-
ger c ustomer relationships in both the private and commercial markets. Recognition and preference for Gjensidige in the Norwegian market is stable and higher than among competitors, and according to IPSOS, Gjensidige had the best reputation of all the biggest companies in the Norwegian financial sector in 2014. In Denmark, determined efforts are being made to increase familiarity with Gjensidige. The development was also positive in 2014, with unaided familiarity in the Danish market of 13.5 per cent on average. The customer dividend model boosts loyalty Gjensidige’s biggest owner, the Gjensidige Foundation, pays customer dividend to Gjensidige’s general insurance customers in Norway. In 2014, the general insurance customers in Norway received customer dividend from the Gjensidige Foundation corresponding to about 15 per cent of the insurance premiums they had paid in 2013. As many as 77 per cent of Gjensidige’s general insurance customers in Norway say that the customer dividend model is one of the reasons for their remaining Gjensidige customers. Targeted marketing in 2014 contributed to greater awareness of the model among non- customers. New partnership agreements Gjensidige has many years’ experience of partnership agreements, and at the turn of the year the partner organisations had a total of 1.5 million members. In 2014, Gjensidige signed an agreement with the Norwegian Automobile Federation (NAF), which has 500,000 members. NAF and Gjensidige will cooperate on selling insurance and car financing to NAF’s members. In addition, an agreement was signed with Villaägarne (the Swedish Homeowners Association) in Sweden, which has 300,000 members. This agreement will help to ensure that Gjensidige has access to a larger proportion of the Swedish private market. Members of organisations are often Gjensidige’s most loyal customers. Good management of partnerships agreements will be given priority also in the time ahead. Two small acquisitions The platform for future growth was further strengthened in 2014 through two small acquisitions. Insurance mediator Försäkringshuset Amb&Rosén AB was acquired in June, which gave access to the above-mentioned partnership agreement with Villaägarne in Sweden. In December, Försäkringsproduktion AB in Sweden was aquired. This company specialises in insuring boats, jet skis and snowmobiles, and it gives Gjensidige access to a
Gjensidige Annual Report 2014 I 49
Board’s Report
Trond Vegard Andersen Board member Trond Vegard Andersen (1960) has been a member of the Board of Gjensidige since 2009. He is CEO of Fredrikstad Energi AS (FEAS), a board member in Nettpartner Holding AS and an elected member to the General Meeting of the Gjensidige Foundation. Among other things, Andersen has been an auditor with PricewaterhouseCoopers. He is a state-authorised public accountant and holds an MBA from the Norwegian School of Economics (NHH). Andersen is up for election to the Board in 2015. Andersen holds 1,805 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 16 October 2014).
number of niche products that strengthen the product platform in the Swedish private market. Capital and balance sheet optimisation Throughout 2014, Gjensidige has taken various steps to optimise its balance sheet and capitalisation. This means that, at the start of 2015, the Group had a balance sheet and capital structure that supports the target of a 15 per cent return on equity after tax expense with effect from 2015. The holding in Storebrand was sold at the beginning of 2014, and in autumn 2014, Gjensidige carried out a dated subordinated bond issue in the amount of NOK 1.2 billion. These measures helped to make it possible to distribute excess capital corresponding to NOK 5.0 billion to the owners in 2014. Financial and operational targets towards 2018 Gjensidige’s strategy reflects the Company’s belief in customer orientation, a down-to-earth business culture and analytically-driven core operations. The Group’s goal is to be the most customer-oriented general insurance company in the Nordic region. In October, the Board decided to maintain its previously announced financial targets: • Return on equity after tax expense from and including 2015: 15 per cent • Combined ratio: 90-93 per cent (~87-90 per cent discounted) • Cost ratio: ~15 per cent • Dividend from the 2014 financial year: nominal high and stable, >70 per cent of profit after tax over time Moreover, new operational targets for the period up to 2018 were presented at the Capital Market Day in November: • Customer satisfaction: 77 (74.8 in 2014)
50 I Gjensidige Annual Report 2014
• Proportion of customers who consent to electronic communication: 75 per cent (57 per cent in 2014) • Proportion of frequency claims reported online: >50 per cent (26 per cent in 2014) • Reduction of NOK 400–500 million in claims cost • Reduction in claims settlement costs per claim of 10 per cent • Continued high customer loyalty • Maintain the number of customers with >4 general insurance products The Board has defined five strategic focus areas that will play a central role in achieving the financial and operational targets in the period up to 2018: • Enhance and expand multi-channel distribution • Develop value-adding services for loyalty and preference • Further digitalise business and customer processes • Strengthen business intelligence and analytics • Build dynamic organisational capabilities See page 32 for a more detailed description of the strategic focus areas. An attractive share The Gjensidige share yielded a total return for the shareholders of 21.6 per cent in 2014. The aver age number of shares traded daily on Oslo Stock Exchange was around 500,000, and the share is among the 25 most liquid shares listed on Oslo Stock Exchange. In addition, a substantial number of shares are traded in other marketplaces. Gjensidige held its first Capital Market Day in London in November 2014, and interest among market players was good.
Changes in framework conditions
Solvency II Preparations for the Solvency II regulations have been prioritised in 2014. Solvency II entails new rules for calculating capital requirements and qualifying capital, risk management requirements and requirements for the reporting of the risk and capital situation. The regulations will enter into force on 1 January 2016. The Group is well-prepared for the regulatory changes. During 2015, Gjensidige plans to apply for approval of an internal model for calculating the regulatory capital requirement for parts of its opera tions. Gjensidige’s internal model provides the best picture of the Group’s risk profile. If approval of the internal model is given, Gjensidige’s regulatory capital requirement will be lower than if the standard formula was used. There is still some uncertainty about how the calculation of capital requirements and qualifying capital will take place under the new rules. For Gjensidige, the most important uncertainties are related to whether or not the natural perils fund and the guarantee provisions can be included as qualifying capital, and to possible tax consequences of the transi-
Board’s Report
Hans-Erik F. Andersson Board member Hans Erik F. Andersson (1950) has been a member of the Board of Gjensidige since 2008. He is an adviser, Chairman of the Board of SinterCast AB, and Deputy chair of Skandia , Board member of JLT Risk Solutions AB and Anticimex Inter national AB.
tion to the Solvency II principles. These issues are expected to be clarified in 2015. The new regulations are expected to entail requirements for a higher capitalisation level than under Solvency I and the current capital adequacy regulations. The requirements will ensure good risk management in general, and the reporting to the authorities and the market could make a positive contribution to highlighting the Company’s value creation. Gjensidige wishes to make active use of the upcoming legislative amendments to further strengthen overall risk management in the Group. On the letter from the Financial Supervisory Authority of Norway concerning the implementation of the Solvency II Directive in Norwegian law In a letter of 19 June 2014, the Financial Supervisory Authority informed the Ministry of Finance about some of its assessments concerning the implementation of the Solvency II Directive in Norwegian law. Among other things, the letter contains assessments relating to the special Norwegian provisions arrangements, i.e. the natural perils fund, the guarantee scheme and security provisions. All of the above-mentioned provisions are included in the IFRS equity in the consolidated financial statements, and are thus also included in the Group’s qualifying funds in the internal model and the S&P model. In the Financial Supervisory Authority’s assessment, the natural perils fund and the guarantee scheme provision are not part of the solvency capital. In Gjensidige’s opinion, special Norwegian provisions that are actually an equity element must be treated as solvency capital. Together with other insurance companies in Norway, the Company will endeavour to ensure that the Ministry of Finance’s final decision is in line with this view. In Proposition No 125L concerning the financial undertakings act, the Ministry stated that the natural perils fund and the guarantee scheme will be dealt with as a separate matter. In its letter, the Financial Supervisory Authority also refers to unresolved tax issues in connection with the transition to the Solvency II Directive. They are primarily related to the tax valuation of the technical provisions. Pursuant to the assessment principles in the Solvency II Directive, technical provisions are expected to be a lower amount. They also include the security provision, which is included as part of the technical provisions in both the company and tax accounts. Pursuant to current practice, the same value is used for the technical provisions in the company and tax accounts. If the tax valuation of the technical provisions is adapted to the assessment principles set out in the Solvency II Directive, this could have significant tax consequences.
1
Among other things, Andersson has previously been managing director of Skandia Insurance Company Ltd, Nordic manager for Marsh & McLennan, and Executive Director of Mercantile & General Re plc. Among other things, he studied economics, statistics and business law at Stockholm University, and has completed the INSEAD Executive Programme. Andersson is up for election to the Board in 2015. Andersson holds 1,778 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
The A rating from Standard & Poor’s is the most binding capital requirement for Gjensidige. This is also expected to be the case after the Solvency II Directive enters into force. There is still considerable regulatory uncertainty relating to Solvency II, and allowance is made for this in the strategic buffer. Other matters mentioned in the Financial Supervisory Authority’s letter relating to the capital requirement for credit exposure to municipalities / county authorities and life insurance products in the general insurance companies are not regarded as being particularly relevant to Gjensidige. The Data Protection Authority cases In 2013, Gjensidige received an inspection report from the Norwegian Data Protection Authority that criticised aspects of the handling of personal data in connection with investigations of possible insur ance fraud. Gjensidige did not agree with the Data Protection Authority’s conclusions and, with two exceptions, it appealed the Authority’s decision to the Privacy Appeals Board, and accepted a penalty fine. Gjensidige appealed the part of the decision that concerned the use of investigation methods. The Privacy Appeals Board sent the matter back to the Data Protection Authority without considering it, because that the Data Protection Authority had not complied with public administrative law. The Data Protection Authority thereafter closed the case. In March 2014, a new fine was imposed on Gjensidige for violation of the Personal Data Act in a case that concerned concealed filming. Gjensidige appealed the decision to the Privacy Appeals Board and the
It is pointed out that deferred tax liability, including for the security provision and the guarantee scheme, will not be realised in a financially stressed situation, and that this is used as the basis for calculating qualifying funds.
Gjensidige Annual Report 2014 I 51
Board’s Report
Per Arne Bjørge Board member Per Arne Bjørge (1950) has been a member of the Board of Gjensidige since 2011. He is Chairman of the Board and general manager of PAB Consulting AS, a board member of the Gjensidige Foundation and of 3D Perception AS, and Chairman of the Board of Borgund Invest AS, Tanux Shipping KS, Tanux Shipping AS, Havskjer AS, Havstål AS and in the co-ownership Øvre Volsdalsberga. Among other things, Bjørge has previously been a bank director with Kredittkassen (Nordea) and worked as an auditor. He has a bachelor in economics and is a qualified auditor.
provisioned paid-up policies in the market, stringent requirements for advice concerning conversion and the current low interest rate, which makes paid-up policies with a guarantee more valuable, Gjensidige will not offer this product until further notice. More-over, the Financial Supervisory Authority has decided to allow for a provisioning period up to and including 2020. Amendments concerning disability pensions are expected to be announced to the Act relating to Company Pension Schemes in 2015 that are better adapted to the new disability pension in the National Insurance scheme. The new disability pension will have limited/no profit/loss effect for Gjensidige, but it is somewhat more complicated administratively than the current system.
Bjørge is up for election to the Board in 2015. Bjørge holds 10,542 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
Statement on the annual accounts
penalty fine was set aside. Gjensidige has thereby won both these cases and obtained confirmation that the insurance industry can use observation as a method in cases where there are reasonable grounds to suspect insurance fraud. The capitalisation interest rate In December 2014, the Norwegian Supreme Court pronounced judgment in a case concerning the level of the capitalisation interest rate used when calculating the present value of claims for future losses. The interest rate was reduced from 5 per cent to 4 per cent. Gjensidige had used a somewhat more conservative estimate for the capitalisation interest rate. Norwegian pension legislation Amendments to the Act relating to Company Pension Schemes mean that unit-linked paid-up policies can be offered provided that the policy has been fully provisioned in relation to the Financial Supervisory Authority’s tariff basis K2013. As a result of few fully
Area
Gjensidige reports consolidated financial infor mation pursuant to International Financial Reporting Standards (IFRS). Pursuant to the requirements of Norwegian accounting legislation, the Board confirms that the requirements for the going concern assumption have been met and that the annual accounts have been prepared on this basis. The preparation of the accounts and application of the chosen accounting principles involve using assessments and estimates and necessitate the application of assumptions that affect the carrying amount of assets and liabilities, income and expenses. The estimates and the pertaining assumptions are based on experience and other factors. The uncertainty associ ated with this means that the actual figures may deviate from the estimates. It is especially the insur ance liabilities that are associated with this type of uncertainty. Financial targets The financial Group targets applied in 2014 are presented in the table below. Target 2014
Target attainment 2014
Return on equity before tax expense
>15 per cent
23.3 per cent
Rating
Maintain A rating from S&P
A-rating confirmed in July
Dividend
>70 per cent
70.4 per cent
Combined ratio
90-93 per cent
86.0 per cent
Cost ratio
15 per cent by 2015
15.0 per cent
Group
General insurance
52 I Gjensidige Annual Report 2014
Board’s Report
Profit/loss The Group recorded a profit before tax expense of NOK 5,399.6 million (4,574.1). The profit from general insurance operations measured by the underwriting result was NOK 2,862.3 million (2,019.6). For the investment portfolio, the return on financial assets was 4.3 per cent (4.3), corresponding to NOK 2,426.3 million (2,480.9). The tax expense was NOK 1,210.0 million (903.5), corresponding to an effective tax rate of 22.4 per cent (19.8). The effective tax rate was influenced to a large extent by realised and unrealised gains from equity investments in the EEA. The profit after tax expense was NOK 4,189.6 million (3,670.6), corresponding to NOK 8.38 (7.34) per share. The underwriting result was positively influenced by solid growth in premiums of 8.8 per cent and a good
underlying frequency claims development, among other things as a result of a favourable weather situation, as well as good control of customer and risk selection and risk pricing. A lower proportion of large losses and higher run-off gains also made a positive contribution to the profit performance compared with the year before. The financial result was on a par with the result in 2013. The Retail Bank and Pension and Savings also made a positive contribution. With the exception of claims provisions relating to the Danish workers’ compensation portfolio, Gjensidige’s claims provisions are recognised at nominal value (not discounted). In preparation for expected c hanges in IFRS and the introduction of Solvency II, Gjensidige has, with effect from the second quarter 2010, calculated but not recognised the effect on the combined ratio of discounting the claims provisions. For 2014, the combined ratio on a discounted basis would have been 83.4, compared with 86.0 in recognised nominal number.
Profit performance group NOK million
2014
2013
General Insurance Private
1,624.0
1,305.5
General Insurance Commercial
1,140.3
992.9
General Insurance Nordic
529.4
342.3
General Insurance Baltics
0.6
Corporate Centre/costs related to owner Corporate Centre/reinsurance 1 Underwriting result general insurance 2 Pension and Savings Retail Bank Financial result from the investment portfolio 3 Amortisation and impairment losses of excess value – intangible assets Other items Profit/(loss) for the period before tax expense
(311.4) (120.5) 2,862.3
35.7 (299.4) (357.4) 2,019.6
43.9
49.9
253.5
191.0
2,426.3
2,480.9
(170.0) (16.5)
(161.7) (5.5)
5,399.6
4,574.1
Large losses 4
823.3
906.6
Run-off gains/(losses) 5
493.7
299.6
Loss ratio 6
71.0 %
74.0 %
Cost ratio 7
15.0 %
15.3 %
Combined ratio 8
86.0 %
89.2 %
Key figures general insurance
1
2 3 4 5
6 7 8
Large losses in excess of NOK 30.0 million are charged to the Corporate Centre, while claims of less than NOK 30.0 million are charged to the segment in which the large losses occured. The segment Baltics has a retention level of EUR 0.5 million. Large losses allocated to the Corporate Centre amounted to NOK 207,2 million (373,6). Moreover, accounting items related to written reinsurance and reinstatement premium are included. Underwriting result general insurance = earned premiums - claims incurred etc. - operating expenses Excluding return on financial assets in Pension and Savings and Retail Bank. Large losses = loss events in excess of NOK 10.0 million. Run-off gains/(losses) = changes in estimates from earlier periods. Reserving is based on best estimate, and expected run-off result over time is zero. Loss ratio = claims incurred etc./earned premiums Cost ratio = insurance related operating expenses/earned premiums Combined ratio = loss ratio + cost ratio
Gjensidige Annual Report 2014 I 53
Board’s Report
Kjetil Kristensen Board member Kjetil Kristensen (1970) has been a member of Gjensidige’s Board as an employee representative since 2008. He is a senior customer adviser in Gjensidige and the senior employee representative for the Private segment. Kristensen has previously been general manager of Alta IF Football. He has an education in IT and economics from Finnmark University College. Kristensen is up for election to the Board in 2016. Kristensen holds 526 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
Expenses for research and development have not been charged to income in Gjensidige’s consolidated accounts in 2014 or 2013. Nor have such expenses been capitalised during these two financial years. The parent company has continued its collaboration with the Norwegian Computing Centre and SFI (Statistics for Innovation), which are carrying out projects relating to risk assessment and data analysis. Balance sheet and capital base The Group’s balance sheet total at the end of 2014 was NOK 113,982.0 million (108,946.3). This in crease was mainly attributable to volume growth in the Retail Bank and Pension and Savings segments. Gjensidige’s equity amounted to NOK 21,656.8 million (26,287.8) as of 31 December 2014. This reduc tion is largely due to a distribution of excess capital in 2014 corresponding to NOK 5.0 billion. The return on equity before tax expense was 23.3 per cent (18.3). The capital adequacy was 18.1 per cent (13.4), and the solvency margin 1 was 366.5 per cent (423.8). The year’s figures for capital adequacy and the solvency margin have been adjusted to take account of the Board’s dividend proposal for the 2014 financial year. The statutory capital adequacy requirement is eight per cent. Available capital in excess of the risk-based requirement calculated using the Group’s internal model constitutes the Group’s economic excess capital. In addition, a deduction is made for the higher of the calculated supplementary capital required to maintain the current rating (including a five per cent buffer) and the capital required to meet the statutory capital adequacy requirements. Excess capital above and beyond this constitutes the strategic buffer. At year end, the strategic buffer amounted to NOK 1.3 billion, after adjusting for the Board’s proposed dividend for the 2014 financial year. Two acquisitions have been made since the balance sheet date. Together, they will reduce the buffer by NOK 0.8 billion. Moreover, Standard & Poor’s con 1
Solvency margin for Gjensidige Forsikring ASA
54 I Gjensidige Annual Report 2014
firmed that quantitative weight can be given to the internal model in the rating-based capital model. Seen in isolation and based on Gjensidige’s understanding, assumptions and use of the model, this contributes to increasing the buffer by an amount corresponding to NOK 0.8 billion. Both these figures have been calculated on the basis of the capital situation as of 31 December 2014. Off-balance sheet commitments and derivatives As part of the Group’s investment activities, an agreement has been entered into for the investment of up to NOK 2,278.6 million in bond funds and various p rivate equity and property fund investments, in addition to the amounts recognised in the balance sheet. In order to increase the effectiveness of its capital and risk management, the Group enters into financial derivative contracts on a regular basis. They are described in more detail in the notes to the accounts. Cash flow Gjensidige is an insurance company in which investments are part of the operational cash flow and therefore largely affected by strategic decisions. The Company’s ability to self-finance investments is good. 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, including lending from banking operations, plus disbursements in the form of claims settlement costs, purchases of reinsurance, administration expenses and tax. The net cash flow from operational activities was NOK 3,428.3 million (negative in the amount of 1,127.7) in 2014. There is a large positive cash flow from the insurance operations. The difference between the operating profit and the cash flow from operational activities is due to the nature of the business, whereby investments in financial assets are part of operations. The change in the cash flow in 2014 can largely be explained by the fact that less has been invested in securities because of a higher dividend paid, in addition to a somewhat lower growth rate in the bank. The net cash flow from investment activities mainly consists of payments made/received in connection with the acquisition of subsidiaries and a ssociated companies, owner-occupied property, plant and equipment, plus dividend from associated companies. The net cash flow from investment activities was NOK 2,955.1 million (643.8) in 2014. The increase is largely due to the sale of the Storebrand shareholding in the first quarter 2014. The net cash flow from financing activities mainly consists of payments made/received in connection
Board’s Report
with external debt financing and the payment of dividend to shareholders. The net cash flow from financing activities was NOK 6,745.3 million (837.2) in 2014. The change is mainly due to the distribution of dividends, including the distribution of excess capital, in 2014, and to payments received on subordinated loans.
The segments
Gjensidige’s business is organised in six operational segments. Management of the investment portfolio comes in addition. A summary of the results and outlook for the individual segments follows below. It is emphasised that there is always considerable uncertainty attached to the assessment of future developments. General Insurance Private The Private segment offers a wide range of insurance products and services in the Norwegian private market, including insurance for motor vehicles, property, travel/leisure and accident and health. Customer orientation and measures aimed at retain ing customers were again the main priorities in the segment in 2014. At the same time, work on the tariffs and improved customer and risk selection contributed to better quality in the customer portfolio, solid growth and good profitability. Profit performance The underwriting result amounted to NOK 1,624.0 million (1,305.5). The main reason for the increase was the growth in premiums, combined with a favourable frequency claims development and a higher run-off gain. The combined ratio was 80.0 (83.3). Earned premiums increased to NOK 8,124.1 million (7,799.0), driven by premium increases. The num-
ber of customers at year end was at approximately the same level as at the end of the same period in 2013, and the competitiveness was good in a market characterised by strong competition. Claims incurred amounted to NOK 5,468.5 million (5,466.5). The loss ratio was 67.3 (70.1). The motor product in particular had a lower loss ratio than in the year before, partly as a result of the favourable weather situation during the period, but also because of an underlying lower frequency level than expected, particularly in the first quarter. The property product had a somewhat weaker claims development, among other things as a result of a higher proportion of weather-related claims and fires. The leisure insur ance and accident and health products showed a better claims development than in 2013. Partly as a result of a somewhat higher capitalisation interest rate than expected, the run-off gain also contributed to a lower loss ratio. Operating expenses amounted to NOK 1,031.5 million (1,027.0), and the cost ratio was 12.7 (13.2). Outlook and priorities Continuous work is being done in the Private segment on measures aimed at retaining customers and improving the quality of all customer processes. Improved availability, simplification of products and processes, and a higher proportion of self-service are prioritised in order to support the Group’s financial targets and improve customer orientation. In the fourth quarter, Gjensidige signed a cooperation agreement with the Norwegian Automobile Federation (NAF), which has around 500,000 members. NAF and Gjensidige will cooperate on insurance and car financing for NAF’s members. The agreement
General Insurance Private NOK million Earned premiums
2014
2013
8,124.1
7,799.0
Claims incurred etc.
(5,468.5)
(5,466.5)
Operating expenses
(1,031.5)
(1,027.0)
Underwriting result
1,624.0
1,305.5
Amortisation and impairment losses of excess value – intangible assets Large losses 1 Run-off gains/(losses) 2
(34.6)
(9.5)
81.6
49.9
181.9
65.0
67.3 %
70.1 %
Cost ratio 4
12.7 %
13.2 %
Combined ratio 5
80.0 %
83.3 %
Loss ratio
1
5 2
3
4
3
Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. Run-off gains/(losses) = changes in estimates from earlier periods Loss ratio = claims incurred etc./earned premiums Cost ratio = operating expenses/earned premiums Combined ratio = loss ratio + cost ratio
Gjensidige Annual Report 2014 I 55
Board’s Report
also means that Gjensidige will take over an insur ance portfolio with premiums of around NOK 95 million. The portfolio will be converted during the course of 2015 and will not have full effect until 2016. Changing the structure of a partnership agreement will mean a reduction in annual premiums of around NOK 120 million from 1 January 2015. This change will not affect profitability. Competition remains strong, both from e stablished players and from some smaller niche players, but Gjensidige’s competitiveness in the Norwegian private market is good. General Insurance Commercial The segment offers general insurance products in the areas of liability, property, agriculture, accident and health, and motor insurance, as well as coastal, aquaculture and transport insurance in Norway and Sweden. The Swedish portfolio will be transferred to the Nordic segment with effect from 2015. Increased automation and systematic development and simplification of the distribution model in 2014 further improved the customer experience and led to improved operational efficiency in the organisation. In connection with the work on increasing customer satisfaction and improving risk pricing, tools for systematic risk management were introduced for small and medium-sized enterprises as well. Profit performance The underwriting result amounted to NOK 1,140.3 million (992.9). The increase in the result was largely due to good growth in premiums, and to a good
underlying frequency claims development in Norway. The combined ratio was 84.5 (85.9). Earned premiums increased to NOK 7,337.7 million (7,021.8). Both the Norwegian and the Swedish portfolios showed positive development. The development in earned premiums was particularly positive for the accident and health, liability and property products in Norway, and for the property and motor products in Sweden. The growth was negatively affected by a planned reduction of the municipal portfolio. Claims incurred amounted to NOK 5,349.9 million (5,207.6) and the loss ratio ended at 72.9 (74.2). A good underlying frequency claims development for most of the main products in Norway was partly outweighed by a weaker development in Sweden. Operating expenses amounted to NOK 847.5 million (821.3), which corresponds to a cost ratio of 11.5 (11.7). The cost increase was largely due to higher payroll expenses as a result of the establishment of a sales organisation in Sweden. Outlook and priorities Continuous focus on delivering the best customer experience in combination with analytically-driven business processes and efficient operation will help to ensure that the company is forward-looking and customer-oriented. Further development of the pricing models and methodology for risk management and selection will ensure continued good profitability and competitiveness in the commercial market. The multi-channel model contributes to cost-efficient distribution through analytically-driven CRM activities.
General Insurance Commercial NOK million Earned premiums Claims incurred etc. Operating expenses Underwriting result
2013
7,337.7
7,021.8
(5,349.9)
(5,207.6)
(847.5)
(821.3)
1,140.3
992.9
399.6
346.6
91.3
120.2
Loss ratio 3
72.9 %
74.2 %
Cost ratio 4
11.5 %
11.7 %
Combined ratio 5
84.5 %
85.9 %
Large losses 1 Run-off gains/(losses) 2
1
3 4 5 2
56 I Gjensidige Annual Report 2014
2014
Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. Run-off gains/(losses) = changes in estimates from earlier periods Loss ratio = claims incurred etc./earned premiums Cost ratio = operating expenses/earned premiums Combined ratio = loss ratio + cost ratio
Board’s Report
Established companies offering a broad range of products, challengers to the established industry structure and competition for market shares from individual players mean that there is still pressure on prices in some parts of the market. General Insurance Nordic The segment comprises the Group’s operations in the Danish private and commercial markets, and the Swedish private market. With effect from 2015, the Swedish commercial portfolio will also be part of the Nordic segment. Continuous strengthening of the distribution collaboration with the Nykredit group and integration activities relating to the acquisitions of Gouda Reiseforsikring and Solid were important priorities in 2014. Continued focus on portfolio restructuring and repricing contributed to maintaining good quality in the portfolios and a satisfactory underlying profita bility development. Profit performance The underwriting result amounted to NOK 529.4 million (342.3). The improvement in the result was largely due to good underlying growth in premiums and profitability, combined with an increase in run-off gains. The acquisition of the Gouda portfolio made a positive contribution to the result, while the Solid portfolio made a negative contribution, as e xpected. Work on integrating the business is ongoing. The combined ratio was 87.6 (89.7). Earned premiums increased to NOK 4,272.4 million (3,326.4). Of the increase, NOK 227.9 million was due to changes in the exchange rate. The increase in premiums over and above exchange rate effects was primarily due to the acquisition of the Gouda
and Solid portfolios, and an increase in the number of new commercial customers. Earned premiums from the two acquired portfolios amounted to NOK 554.1 million for the year. The integration and optimisation of the two portfolios is expected to contribute to somewhat lower earned premiums going forward. Claims incurred amounted to NOK 3,031.0 million (2,417.0). Of the increase, NOK 177.8 million was due to changes in the exchange rate. The loss ratio was 70.9 (72.7). The lower loss ratio was due to a general improvement in the underlying frequency claims development, for both commercial and private products. There were fewer weather-related claims and the run-off gains were higher than the year before. The Solid portfolio is in an integration phase, and, as expected, it delivered a weaker loss ratio than the rest of the portfolio. Operating expenses were NOK 712.1 million (567.1). Of the increase, NOK 38.8 million was due to changes in the exchange rate. The cost ratio was 16.7 (17.0). The distribution model in Gouda entails commission expenses that have a negative effect on the cost ratio. Outlook and priorities The Nordic operations shall contribute to economies of scale, diversification of risk and increased competitiveness. The Nordic general insurance markets are relatively consolidated, but Gjensidige expects that it will be possible to grow selectively through a patient, rational approach to new opportunities. With normalisation of the Danish property market, organic growth is expected to be slightly above market growth. The implementation of new tariffs and steps to achieve a higher proportion of self-service will be prioritised in 2015 as well. Continued focus will be
General Insurance Nordic NOK million Earned premiums
2014
2013
4,272.4
3,326.4
Claims incurred etc.
(3,031.0)
(2,417.0)
Operating expenses
(712.1)
(567.1)
529.4
342.3
Underwriting result
(130.2)
(147.2)
Large losses 1
Amortisation and impairment losses of excess value – intangible assets
133.3
132.8
Run-off gains/(losses) 2
194.7
130.8
Loss ratio 3
70.9 %
72.7 %
Cost ratio 4
16.7 %
17.0 %
Combined ratio 5
87.6 %
89.7 %
1
5 2
3
4
Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. Run-off gains/(losses) = changes in estimates from earlier periods Loss ratio = claims incurred etc./earned premiums Cost ratio = operating expenses/earned premiums Combined ratio = loss ratio + cost ratio
Gjensidige Annual Report 2014 I 57
Board’s Report
Gisele Marchand Board member Gisele Marchand (1958) has been a member of the Board of Gjensidige since 2010. She is CEO in the lawfirm Haavind AS, a board member and chair of the audit committee of Selvaag Bolig ASA and a board member of Eiendomsspar AS, Victoria Eiendom AS and the Norwegian Refugee Council. She has previous experienced from several boards, e.g Norske Skog ASA and Oslo Børs AS.
Generel Insurance Baltics Gjensidige’s Baltic operations offer general insurance products to the private and commercial markets in Latvia, Lithuania and Estonia. The target customers are people with medium to high income in the private market, and small and medium-sized enterprises in the commercial market.
Marchand has previously been CEO of Eksportfinans AS, the Norwegian Public Service Pension Fund, the Bates Group and EVP with Den norske Bank. She is a graduate of Copenhagen Business School.
Profitability is given priority in a market with con siderable price competition. Targeted efforts to rationalise operations and the restructuring and repricing of portfolios were emphasised in 2014. Profit performance The underwriting result was NOK 0.6 million (35.7). The reduction in the underwriting result was largely due to a weaker run-off result. The combined ratio was 99.9 (93.0).
Marchand is up for election to the Board in 2015. Marchand holds 1,481 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
on work on integrating and capitalising on business synergies in connection with portfolio acquisitions and the distribution collaboration with Nykredit. There is strong competition in the markets Gjensidige operates in. The focus on improved profitability has resulted in long-tailed accident and health insurance with annual premiums of around NOK 100 million not being renewed as of 1 January 2015.
Earned premiums amounted to NOK 523.0 million (510.8). Of the increase, NOK 36.1 million was due to changes in the exchange rate. This means an underlying reduction in premiums. The development in earned premiums was negatively affected by the loss of a large commercial customer. Claims incurred amounted to NOK 377.2 million (342.5). Of the increase, NOK 24.2 million was due to changes in the exchange rate. The loss ratio was 72.1 (67.1). The increase in the loss ratio was mainly due to a run-off loss in 2014 compared with a runoff gain in 2013. The profitability of the commercial portfolio was generally good, while the profitability of the private portfolio was weaker.
General Insurance Baltics NOK million Earned premiums
2013
523.0
510.8
Claims incurred etc.
(377.2)
(342.5)
Operating expenses
(145.1)
(132.5)
Underwriting result Amortisation and impairment losses of excess value – intangible assets
0.6
35.7
(5.2)
(4.8)
1.7
3.7
(11.8)
10.0
Loss ratio 3
72.1 %
67.1 %
Cost ratio 4
27.8 %
25.9 %
Combined ratio 5
99.9 %
93.0 %
Large losses 1 Run-off gains/(losses) 2
1
3 4 5 2
58 I Gjensidige Annual Report 2014
2014
Large losses = loss event in excess of EUR 0.5 million. Claims incurred in excess of this per event are, as a main rule, charged to the Corporate Centre. Run-off gains/(losses) = changes in estimates from earlier periods Loss ratio = claims incurred etc./earned premiums Cost ratio = operating expenses/earned premiums Combined ratio = loss ratio + cost ratio
Board’s Report
The nominal operating expenses amounted to NOK 145.1 million (132.5). Of the increase, NOK 9.4 million was due to changes in the exchange rate. The cost ratio was 27.8 (25.9). Outlook and priorities Gjensidige’s goal is to be one of the leading insurance companies in the Baltic states. The market is relatively immature, and a significant proportion of both the private and the commercial segments is still un insured. Growth is expected in step with the improve ment in the general economic situation and increase in the standard of living. Gjensidige sees a potential for growth and better profitability in the Baltic portfolio over time. The Group has therefore decided to strengthen its efforts in this market going forward, among other things by increasing investments in IT systems and in areas such as product development and tariff setting, distribution, CRM and claims settlement. Gjensidige has acquired PZU Lietuva in Lithuania since the balance sheet date. This acquisition will contribute to Gjensidige achieving critical mass and a significantly stronger position in the Baltic market. Pension and Savings Pension and Savings shall contribute to sales of a wide range of products to general insurance customers in Norway and offer various pension and savings products, mainly to the commercial market. The pension products include defined contribution plans in the field of group occupational pensions, individual pensions, individual disability pensions and the management of paid-up policies and pension capital certificates. Gjensidige Investeringsrådgivning is an independent fund provider that offers saving
and investment solutions to the private and commercial markets. Pension and Savings is a growth area for Gjensidige in Norway. As many as 85 per cent of the customers were also general insurance customers at year end 2014. Profit performance The profit before tax expense was NOK 43.9 million (49.9). The business showed positive development, with an underlying improvement in profit performance driven by higher revenues as a result of growth in the customer portfolio and assets under management. The reduction in profits was due to a decision by the tax authorities to levy VAT in arrears on IT services delivered from abroad to Gjensidige Pensjonsforsikring AS for the years 2011, 2012 and 2013. The VAT payment was charged to profit/loss in the fourth quarter in the amount of NOK 28.6 million, which comprises the payment in arears with interest, and VAT incurred for 2014. The company disagrees with the decision, which will be appealed. Net insurance revenue in the period amounted to NOK 136.0 million (124.4). The increase was due to increased administration revenues as a result of growth in the portfolio for defined contribution pensions. Management revenues increased to NOK 98.1 million (82.2) as a result of growth in assets under management, in both the pensions and savings areas. Operating expenses were NOK 221.4 million (182.0). The cost increase was due to VAT levied in arears and an increase in the amount of business.
Pension and Savings NOK million Earned premiums Claims incurred etc. Net insurance revenue Management income etc. Operating expenses
2014
2013
1,262.4
904.0
(1,126.4)
(779.7)
136.0
124.4
98.1
82.2
(221.4)
(182.0)
Net operating income
12.7
Net financial income
31.2
24.6 25.3
Profit/(loss) before tax expense
43.9
49.9 11.89 %
Operating margin 2
5.43 %
Recognised return on the paid-up policy portfolio 3
4.63 %
4.57 %
Value-adjusted return on the paid-up policy portfolio 4
4.63 %
4.67 %
4 1
2
3
Run-off gains/(losses) = changes in estimates from earlier periods Operating margin = net operating income/(net insurance revenue + management income etc.) Recognized return on the paid-up policy portfolio = realised return of the portfolio Value-adjusted return on the paid-up policy portfolio = total return of the portfolio
Gjensidige Annual Report 2014 I 59
Board’s Report
Financial income amounted to NOK 31.2 million (25.3). This includes the return on the group policy portfolio and corporate portfolio. The reason for the increase was a higher return on the rest of the group policy portfolio as a result of increased claims provisions and the realisation of gains on bonds. The Company’s share of the financial profit on the paid-up policy portfolio, which amounted to NOK 30.1 million, was allocated in its entirety as a provision for higher life expectancy. The total increase in provisions thereby amounted to NOK 127.2 million, while the total need for provisions is now expected to be NOK 210.0 million. At year end, the assets under management in the pension operations amounted to NOK 17,196.3 million (13,953.8). Of this amount, the group policy portfolio accounted for NOK 4,186.8 million (3,553.2). The recognised return on the paid-up policy portfolio was 4.63 per cent (4.57) for the year. The average annual interest guarantee was 3.6 per cent. Assets under management for the savings o perations amounted to NOK 15,018.2 million (11,896.4) at year end. The total assets under management increased by NOK 6,364.3 million (5,371.3), amounting to NOK 32,214.5 million (25,850.2) at year end. Outlook and priorities Pension and Savings is a priority area that helps to make Gjensidige a complete supplier of insurance and pension products. The business contributes to
stronger customer relations and loyalty among the general insurance customers. The market for defined contributions pensions is growing and Gjensidige is well-positioned to participate in it. The positive growth rate is expected to continue. Retail Bank Gjensidige Bank is an online bank that mainlytargets the Norwegian private market. The bank offers dayto-day banking services, mortgages, savings products and car and consumer financing. By offering competitive banking products, Gjensidige Bank will contribute to the sale of a wide range of products to general insurance customers in Norway. Lending growth was good in 2014, driven by competitive loan terms that led to an increase in the customer base and more and broader customer commitments. The bank’s new car financing product, which is sold through car dealers, showed positive development throughout 2014. At year end, 46 per cent of the bank’s customers were also general insurance customers. Profit performance The profit before tax expense was NOK 253.5 million (191.0). The positive development was mainly a result of increased net interest income, coming primarily from growth in customer lending. Net interest income was NOK 613.8 million (546.1). This was primarily driven by customer lending growth. Net commission income and other income were NOK 49.4 million (53.3). The decrease was driven by lower gains from financial instruments.
Retail Bank NOK million Interest income and related income Interest expenses and related expenses Net interest income Net commission income and other income Total income Operating expenses
2013
1,327.9
1,135.0
(714.1)
(588.9)
613.8
546.1
49.4
53.3
663.2
599.5
(357.9)
(341.3)
Write-downs and losses
(51.8)
(67.1)
Profit/(loss) before tax expense
253.5
191.0
Net interest margin 1
2.17 %
2.42 %
Write-downs and losses 2
0.20 %
0.32 %
Cost/income ratio 3
54.0 %
56.9 %
Net interest margin = net interest income/average total assets 2 Write-downs and losses = write-downs and losses/avarage gross lending 3 Cost/income ratio = operating expenses/total income 1
60 I Gjensidige Annual Report 2014
2014
Board’s Report
Gunnar Mjåtvedt Board member Gunnar Mjåtvedt (1960) has been a member of Gjensidige’s Board as an employee representative since 2007. He is also Gjensidige’s senior employee representative. The net interest margin was 2.17 percent (2.42). The decline was a result of strong growth in the secured lending in the past 12 months. Operating expenses were NOK 357.9 million (341.3). The increase was driven by volume growth and running costs related to the car financing product launched in 2013. The increase in expenses was also driven by fixed assets write off related to systems replacements and changes in the contract with the bank’s systems and technology provider. The cost/ income ratio was 54.0 per cent (56.9), driven by increased income. Total write-downs and losses were NOK 51.8 million (67.1), predominantly related to the unsecured lending portfolio. The decrease was a result of improved impairment levels and lower provision requirements on loans. Lower portfolio growth compared with the previous year also had a positive impact on the level of write-downs. Write-downs and losses as a percentage of average gross lending amounted to 0.20 per cent (0.32). The decline was driven by an increased share of secured loans in the total lending portfolio and the improved credit quality. The weighted average loan to value1 was estimated at 62.4 per cent (61.8) for the mortgage portfolio. Gross lending increased by 13.9 per cent year on year, amounting to NOK 27,546.5 million (24,193.9) at the end of the year. Deposits increased by 11.8 per cent year on year, reaching NOK 16,703.4 million (14,938.3) at the end of the year. The deposits to loans ratio was 60.6 per cent (61.7). Standard & Poor’s upgraded the outlook for Gjensidige Bank ASA and Gjensidige Bank Boligkreditt AS from ’negative’ to ’stable’ and kept the longterm rating unchanged at A-. The amendment was based on their assessment of the strategic position the bank has within Gjensidige Group. The outlook for the covered bonds portfolio issued by Gjensidige Bank Boligkreditt AS was also changed to ‘stable’ as a result while the long term-rating rating remained AAA. There is good access to external financing. The Bank issued a subordinated bond of NOK 250.0 in the second quarter, among other things to comply with more stringent capital requirements from 1 July 2014. Outlook and priorities Gjensidige Bank shall primarily underpin the Norwegian general insurance business by contributing to a wider product range being available to existing general insurance customers in Norway. The
1
Mjåtvedt has previously held positions as a sales consultant and senior consultant, and he has nearly 20 years’ experience of the insurance sector. He studied mathematics and science subjects at upper secondary school. Mjåtvedt is up for election to the Board in 2016. Mjåtvedt holds 1,838 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 14 February 2014).
Bank will continue to offer a wide range of financial services through customer-friendly online solutions, Gjensidige’s financial offices and cooperating car dealers. Based on a full range of banking products and attractive terms for the private market, the bank shall contribute to the Group’s growth and profitability. The Bank will continue its work on ensuring efficient operations through automation and improvements in all parts of the value chain, and by limiting losses on loans. Management of financial assets and properties The Group’s investment portfolio includes all investment funds in the Group, except for investment funds in the Pension and Savings and Retail Bank segments. The investment portfolio consists of two parts: a match portfolio and a free portfolio. The match portfolio is intended to correspond to the Group’s technical provisions. It is invested in fixed-income instruments whose duration is adapted to match the disbursement of the technical provisions. The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s capitalisation and pertaining risk capacity, as well as the Group’s ongoing risk manage ment. At the end of the year, the total investment portfolio amounted to NOK 56.5 billion (58.1). The reduction in the portfolio must, among other things, be seen in conjunction with disbursement of excess capital (dividend) in May and November. The financial result was NOK 2,426.3 million (2,480.9), which corresponds to a return on financial assets of 4.3 per cent (4.3).
The Loan to value estimate is calculated based on the exposure at the reporting date and the property valuation, including any higher priority pledge(s), at the time the loan was approved.
Gjensidige Annual Report 2014 I 61
Board’s Report
Match portfolio The match portfolio amounted to NOK 34.7 billion (33.2). The portfolio yielded a return of 3.2 per cent (3.6) excluding changes in the value of the part of the portfolio recognised at amortised cost. Unrealised excess value from bonds valued at amortised cost amounted to NOK 2,193.8 million (1,032.5) at year end. The average duration of the match portfolio was 3.4 years. The average term to maturity for the corresponding insurance debt was 3.8 years. The distribution of counterparty risk and credit rating is shown in the charts on page 63. Securities without an official credit rating amounted to NOK 11.0 billion (9.3). Of these securities, 16.5 per cent (22.1) were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or government- guaranteed companies. A third-party internal rating existed for 71.5 per cent (76.3) of the portfolio with out an official rating. Bonds with a coupon that is adjusted on the basis of the development in the Norwegian consumer price index accounted for 12.5 per cent (13.0) of the match portfolio. The geographical distribution1 of the match portfolio is shown on page 63. Free portfolio The free portfolio amounted to NOK 21.8 billion (24.9) at year end. The return was 5.8 per cent (5.4). Fixed-income instruments The fixed-income instruments in the free portfolio amounted to NOK 8.3 billion (9.6). The portfolio yielded a return of 2.7 per cent (4.0). High yield and convertible bonds were negatively affected by increased credit margins. The average duration in the portfolio was approximately 0.6 years at the end of the year. The distribution of counterparty risk and credit rating is shown in the charts on page 63. Securities without an official credit rating amounted to NOK 1.7 billion (2.8). Of these securities, 1.1 per cent (9.7) were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or government- guaranteed companies. A third-party internal rating existed for 71.2 per cent (79.0) of the portfolio without an official rating. The geographical distribution1 of the fixed-income instruments in the free portfolio is shown in the chart on page 63.
1
Equity portfolio The total equity exposure at the end of the period was NOK 5.5 billion (8.7), of which NOK 3.8 billion (7.0) consisted of current equities and NOK 1.7 billion (1.7) of PE funds. The reduction in current equities must be seen in conjunction with the reduction in the shareholding in Storebrand. The return on current equities was 6.7 per cent (8.2). This includes the return on derivatives used for hedging purposes. The shareholding in SpareBank 1 SR-Bank was recognised at market value from the second quarter. Gjensidige is no longer represented on the bank’s board and the bank is no longer defined as an associated company for accounting purposes. The market value of the investment amounted to NOK 1,390.4 million at year end. The return on PE funds was 15.1 per cent (10.3). Property portfolio At the end of the period, the property portfolio amounted to NOK 6.5 billion (5.1). The property portfolio yielded a return of 9.9 per cent (5.7). The general required rate of return in connection with the valuation of the properties was reduced to 6.2 per cent (6.5). The individual valuations resulted in a net increase in value of NOK 279.3 million. External valuations of 21 out of a total of 23 individual properties were carried out at year end. The portfolio is concentrated in office properties in Oslo, but it also includes a few office properties in other Norwegian towns and cities.
Risk factors
Risk is defined as the possibility of an event affecting the Group’s goal attainment. In order to understand and manage risk, an assessment is therefore carried out of both the probability of the event occurring and its consequences. Through the Group’s risk management and internal control, a structure has been established that systematically identifies, assesses, communicates and manages risk throughout the Group. The risk assessment process is coordinated with the Group’s budget and planning processes. Risk management is based on specified goals and strategies and the limits on risk exposure stipulated by the Board. Responsibility for good risk management and internal control primarily rests with the first-line management, i.e. the CEO and all managers and employees in the operational units, who carry out their work in accordance with the authorisa tions, instructions and guidelines that apply to each of them. A Risk Management function has been established at Group level. It is responsible for monitoring
The geographical distribution is related to issuers and does not reflect the actual currency exposure.
62 I Gjensidige Annual Report 2014
Board’s Report
Financial assets and properties Return in per cent Result NOK million
2014
2013
2014
Carrying amount 31.12 2013
2014
2013
Match portfolio Money market
2.3
1.9
119.8
86.4
6,144.1
4,473.4
Bonds at amortized cost
4.7
5.1
893.0
1,054.0
18,760.5
19,604.0
Current bonds 1
0.6
0.7
58.3
61.5
9,784.8
9,160.6
Match portfolio total
3.2
3.6
1,071.2
1,201.9
34,689.3
33,237.9
Money market
1.8
1.7
94.0
87.4
3,570.9
4,911.4
Other bonds
3.6
4.1
147.3
121.4
3,964.0
3,606.5
5.0
16.5
34.7
161.5
790.9
1,121.0
Free portfolio
2
Convertible bonds 3
6.7
8.2
286.8
553.6
3,832.7
7,044.2
PE funds
15.1
10.3
259.7
161.3
1,710.9
1,665.3
Property
9.9
5.7
547.2
288.8
6,516.2
5,097.1
Current equities
4
(0.8)
(9.8)
1,463.8
1,464.8
Free portfolio total
5.8
5.4
1,355.1
1,279.0
21,849.5
24,910.3
Financial result from the invesment portfolio
4.3
4.3
56,538.8
58,148.2
Other
5
(14.5)
(94.9)
2,426.3
2,480.9
Financial income in Pension and Savings and Retail Bank
58.9
57.2
Interest expenses subordinated loan Gjensidige Forsikring ASA
(9.5)
Net income from investments
2,475.6
2,538.1
The item includes the discounting effects of insurance obligations in Denmark and mismatch between interest rate adjustments on the liability side in Denmark, versus the interest rate hedge. The item consist of total investment grade, high yield and current bonds. Investment grade and high yield are investments in internationally diversified funds externally managed. Investments in internationally diversified funds externally managed. 4 The item includes the investment in SpareBank 1 SR-Bank and effect on profit of the sale of shares in Storebrand. 5 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Danmark, and lendings, paid-in capital in Gjensidige Pensjonskasse, profit or loss effects from total return swaps with Gjensidige Pensjonskasse and Gjensidige Pensjonsforsikring AS, hedge funds and finance related expenses. 1
2
3
Geographic distribution match portfolio at the end of 2014 52,6 % Norway 3.9 % Sweden 28.4 % Denmark 1.6 % USA 5.8 % UK 1.6 % Baltics 6.2 % Other
Geographic distribution fixed income instruments in free portfolio at the end of 2014
16.0%
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31.6 % Norway 2.8 % Sweden 2.9 % Denmark 37.2% 29.4 % USA 12.7 % UK 20.7 % Other
25.0%
Credit rating fixed income instruments at the end of 2014
Counterparty risk fixed income instruments at the end of 2014
Per cent
Per cent
100
100
80
80
60
No official rating High yield Investment grade
40 20 0
Industry Banks/financial institutions Government/ public sector
60 40 20
Match portfolio
Free portfolio
0
Match portfolio
Free portfolio
Gjensidige Annual Report 2014 I 63
Board’s Report
Mette Rostad Board member Mette Rostad (1964) has been a member of the Board of Gjensidige since 2012. She is self-employed, a board member of Gjensidigestiftelsen and of Innherred Renovasjon, and Chair of the Board of Visit Innherred. Rostad has previously been CFO of Aker Verdal, managing director of Aker FDV, and managing director of Clean-Tech Mid-Norway. She is a graduate of the Norwegian Business School BI. Rostad is up for election to the Board in 2015. Rostad holds 2,794 shares in Gjensidige Forsikring ASA, including any shares held by closely related parties (last change 10 December 2012).
the Group’s risk management system and for maintaining an overview of the risks that the Group is or may be exposed to. The Risk Management function shall ensure that the senior group management and the Board have sufficient information about the Group’s risk profile at all times. The Group has a moderate risk profile whereby, in the Board’s view, no individual events will be capable of seriously harming the Company’s financial position. Strategic risk Gjensidige’s strategy is monitored continuously in relation to changes in performance, developments in the market and competition, and changes in frame work conditions. Factors that have been identified as critical to the Company’s goal attainment are monitored particularly closely. To ensure that Gjensidige is ahead of developments, strategic risk is managed through continuous monitoring of competitors and the market, follow-up of profitability, and through product development and planning processes. In the insurance market, Gjensidige faces challenges from both traditional Norwegian financial players and new companies. A loss of business combined with reduced profitability in the insurance operations will have a negative effect on the return on capital and other key figures. Emphasis is therefore placed on Gjensidige’s ability to quickly adapt to consumers’ wishes for new service channels, and its ability to utilise modern technology and support systems in an efficient manner. Continuous efforts are made to develop new, customer-adapted products and service solutions, at the same time as the organisation, processes and value chains are reviewed and standardised to reduce costs and achieve greater efficiency.
64 I Gjensidige Annual Report 2014
More and more is expected of staff and managers in terms of expertise. There is a risk that inadequate or insufficiently adapted expertise will reduce the chances of realising commercial and strategic ambitions. There is also competition to attract and retain capable employees. Targeted efforts are therefore being made to ensure the right expertise at all levels of the organisation. The Gjensidige Customer and Brand School is responsible for competence-raising and management development in Gjensidige. The school offers training for sales personnel, claims handlers and managers based on the Group’s strategic focus and development areas. New employer branding measures have been implemented and recruitment processes are being further refined. Performancebased remuneration models have been introduced for groups of employees, and individual scorecards have also been introduced. Systematic work is being done on the corporate culture and management development, and on firmly establishing requirements and expectations of managers and staff. Insurance risk The insurance risk relating to large individual losses or events is managed through authorisations and lines of reporting for ordinary operations. Clear guidelines have been established for what insurance policies can be taken out. The risk of a generally unsatisfactory premium level is monitored on a continuous basis by the product and actuary department, and increasingly precise methods for pricing are being developed. The Board stipulates annual limits for the Group’s reinsurance programme. The limits are decided on the basis of the need to protect the equity against loss events over and above an amount deemed to be justifiable, and of the need to reduce fluctuations in earnings. The insurance risk is deemed to be moder ate based on the reinsurance coverage the Group has purchased. The reinsurance programme is described in more detail in Note 3 to the consolidated annual accounts. The Group’s Actuary function carries out calculations and assessments of the technical provisions and develops and maintains adequate models and methods for estimating losses that have occurred, but that have not yet been reported to the Group. There is a considerable inherent risk that the provisions will be insufficient, but the Group is working continuously to improve actuarial methods. External actuaries are used from time to time to conduct independent reviews of the provisions.
Board’s Report
Tine Gottlob Wollebekk Board member
Financial risk Gjensidige had NOK 56.5 billion in financial investments in the insurance operations as of 31 December 2014. The counter entry in the balance sheet consists of the actuarial liabilities and equity. The investments mainly consisted of fixed-income investments, property and equity investments. The value of the investments can be affected by changes in macroeconomic factors. Through the Board’s adoption of strategic alloca tions of assets, with pertaining limits for the different risk types, and a dynamic risk management model, limits are set that make it possible to rapidly adjust risk to changed macroeconomic assumptions. Price, interest rate and currency risk is also followed up through stress tests, where the buffer capital must be sufficient at all times to be able to withstand sharp simultaneous falls in equity and bond prices.
Tine Gottlob Wollebekk (1962) has been a member of the Board of Gjensidige since 2014. She is a Senior Vice President responsible for Global Financial Services in Telenor ASA , Board member of Aars AS, Tameer Micro Finance Bank, Telenor Banka, Idea Foundation and Finn Clausen Gruppen AS. Among other things, Wollebekk has previously had several managing positions in Skandinaviska Enskilda Banken, latest as CEO in SEB Kort and Country Manager for SEB Norway. She holds a Master of Science degree in International Business from Copen hagen Business School. Wollebekk is up for election to the Board in 2015. Wollebekk does not hold any shares in Gjensidige Forsikring ASA, including any shares held by closely related parties.
For more detailed information about financial risk and stress tests, see Note 3 to the consolidated annual accounts. Limits have been defined for the necessary access to liquid assets. They are taken into account in the strategic allocation of assets. The liquidity risk is con sidered to be very low. The Group is exposed to credit risk through investments in the bond and money market and through lendings. The Board has defined limits for the credit operations. Credit losses have been insignificant to date. Outstanding claims against the Group’s reinsurers may also represent a substantial credit risk. Counterparty risk in the reinsurance market is continuously assessed. The Group’s reinsurers shall at least have an A rating from Standard & Poor’s or an equivalent rating from one of the other reputable rating companies.
ivision of responsibility in the organisation of the d business. Set procedures have been established for conducting risk assessments, and the Board evaluates the status annually as part of the Company’s internal control system. An independent Compliance function has been established to help the Group to avoid official sanctions, financial losses or a loss of reputation as a result of failure to comply with laws, regulations and standards. The Compliance function identifies, assesses, advises on, monitors and reports on the Group’s risk of non-compliance with laws, regulations and internal guidelines. An incidents database has been created in order to close, handle and, not least, learn from undesirable incidents.
The Board has assessed the risk of losses on loans, guarantee liabilities and other receivables, and necessary provisions have been made in the accounts.
Ethical issues are discussed at training courses for new employees and they are also discussed regularly by management groups and at departmental staff meetings. This is intended to reduce the risk of breaches of procedures and guidelines, while also contributing to a good working environment. Employees have also signed a personal data discipline statement relating to the use of the Group’s information and IT systems.
Operational risk Operational risk is the risk of losses due to weak nesses or faults in processes and systems, errors made by employees, or external events. In order to reduce the risk, emphasis has been placed on having well-defined and clear lines of reporting and a clear
Gjensidige Annual Report 2014 I 65
Board’s Report
On behalf of the Board, Gjensidige’s internal audit function has been assigned the role of monitoring and assessing whether the risk management and internal control systems function as intended. For a more detailed description of risk management, reference is made to Note 3 to the consolidated annual accounts.
Corporate governance
Good corporate governance is a priority for the Board. The Board has based the Group’s corporate governance on the Norwegian Code of Practice for Corporate Governance as most recently amended on 30 October 2014, and it has made adjustments to ensure that it complies with the Code in all areas. A more detailed account of how Gjensidige complies with the Code of Practice and the Norwegian Accounting Act’s requirements for reporting on corporate governance is provided on pages 31-43 of the annual report and in a separate document that is available on the Group’s website www.gjensidige.no/corporate-governance.
Employees, corporate social responsibility and the environment
Gjensidige’s work on corporate social responsibility is described in a separate statement on pages 22-30 of the annual report. The Board of Gjensidige has adopted guidelines for how the Company shall exercise social responsibility. The guidelines and the Group policy for ethical investments are available at www.gjensidige.no/group. Gjensidige aims to be a developing and health-promoting workplace. Systematic work is carried out on competence-raising measures for managers and employees, and a number of measures and processes have been established relating to employees’ health, safety and working environment. Information about the working environment, equality, discrimination and the natural environment, cf. the Accounting Act Section 3-3 (ninth to twelfth paragraphs), is provided in the report on corporate social responsibility on pages 22-30.
Outlook
In autumn 2014, the Board decided not to change the financial targets. Throughout 2014, Gjensidige took various measures to optimise the balance sheet and capital structure. This means that, at the start of 2015, the Group has a balance sheet and capital structure that supports the target of a 15 per cent return on equity after tax from and including 2015.
66 I Gjensidige Annual Report 2014
Over time, organic growth is expected to be on a par with growth in GDP in Gjensidige’s market areas in Norway, the Nordic countries and the Baltic states. Further profitable growth will come by pursuing a disciplined acquisition strategy. The annual combined ratio shall be in the range of 90–93 per cent, corresponding to ~87–90 per cent on a discounted basis. Moreover, the cost ratio shall be around 15 per cent. A reduction is expected in the underlying cost ratio and loss ratio, but Gjensidige will endeavour to strike a balance between good profitability and increased investments in order to ensure strong competitiveness in future. In the short and medium term, it is expected that the combined ratio will be in the lower half of the target range. However, extraordinary circumstances relating to the weather and the proportion of large losses, and to run-off effects from previous years, can bring the combined ratio outside the target range in both directions. Gjensidige’s ambition is to become the most customer-oriented general insurance company in the Nordic region, based on profitable operations and a leading position. In order to ensure strong competiveness in future, investments will primarily be increased in the fields of IT, competence development, brand strength and marketing. The investments will support the five strategic focus areas described on page 32. Competition is strong in the Norwegian general insurance market, particularly from established financial players that are focusing on general insur ance. Gjensidige’s competitiveness is regarded as good, with a solid growth in premiums and volume combined with good profitability and high customer satisfaction. The work of retaining and strengthening the customer base and the Company’s position in the Norwegian market will be given priority. At the same time, new, profitable opportunities for growth in the Nordic region and the Baltics are continuously considered in order to ensure good utilisation of a scalable business model and best practice. Great emphasis is placed on further developing cooperation with partners and distributors. Uncertainty about the international economic situation, combined with low interest rates and financial challenges in several key economies, remains a source of uncertainty for Gjensidige as well. Gjensidige has a balanced investment strategy, however. It is finan cially sound and has a high proportion of its business in the Norwegian general insurance market.
Board’s Report
The macroeconomic picture for the Norwegian general insurance business is still regarded as good, despite a fall in oil prices and somewhat higher uncertainty in some sectors of Norwegian business and industry. Gjensidige has very limited direct exposure to the oil sector. There is little to indicate a substantial and rapid increase in unemployment, and, in combination with a persistent low interest rate level, this is not expected to result in a significant weakening of the housing market. The Danish housing market is improving, but with considerable regional differences. There is also positive development in the Baltic economies. The Group has satisfactory capital buffers in relation to internal risk models, statutory capital adequacy requirements and its target rating. The Board considers the Group’s capital situation and financial strength to be good.
Events after the balance sheet date
On 3 February Gjensidige announced the acquisition of 99.88 per cent of the shares of PZU Lietuva from PZU SA at EUR 54 million. The acquisition is in line with Gjensidige’s strategy for growth in the Nordic region and the Baltics. PZU Lietuva is a general insurance company mainly offering motor, property and personal insurance products in Lithuania. The company also has operations in Estonia and Latvia, but these will be separated out before final closing and are not part of the transaction. Gross premiums written for the operations bought in Lithuania were approximately EUR 50 million in 2014. Gjensidige’s market share in the Baltics will increase from around 7 per cent to around 13 per cent, and the acquisition of PZU Lietuva will contribute to critical mass in a market with growth potential and a potential for improved profitability going forward. The acquisition is expected to be closed at the beginning of the third quarter, contingent upon the approval of the relevant authorities. In addition, at the beginning of 2015, Gjensidige acquired the Mondux group in Denmark. Mondux is an agency company that offers insurance in the private market in Denmark. Among other things, the company will strengthen Gjensidige’s position in the motor insurance market and give greater insight into the product insurance market. The company is expected to be taken over at the end of the second quarter 2015. The premium volume in 2014 was slightly below DKK 250 million.
Some reduction in the acquired portfolios is expected in the integration phase. The portfolios have higher cost ratios than current operation and endeavours will be made to absorb them over time.
Allocation of the profit before other income and expenses
The Group’s profit for the year after tax expense amounted to NOK 4,189.6 million. The Board has adopted a dividend policy that forms the basis for the dividend proposal submitted to the general meeting. The Board proposes a dividend of NOK 2,950.0 million for the 2014 financial year, corresponding to NOK 5.90 per share. That is 70.4 per cent of the Group’s profit after tax expense, and it is based on the adopted dividend policy that applies from the 2014 financial year. Gjensidige’s goal is to distribute high and stable nominal dividends to its shareholders in future, and at least 70 per cent of the profit after tax expense over time. When determining the size of the dividend, consideration will be given to expected future capital needs. In addition, any future excess capital over and above the capitalisation target will be distributed to the owners over time. By the capitalisation target is meant capitalisation that is adapted to Gjensidige’s strategic targets and appetite for risk at all times. The Group shall maintain its financial freedom of action, without this being at the expense of capital discipline. A dividend of 79.4 per cent was paid for the 2013 financial year, based on the profit after tax expense (adjusted for the effect of the impairment loss on the Storebrand investment). The level of the dividend proposed for 2014 must be seen in connection with a more optimal capital structure as of 31 December 2014 and a new dividend policy that emphasises stability in the future dividend stream. It is proposed that the parent company’s profit of NOK 5,121.3 million before other components of income and expense be allocated as follows: NOK million Dividend (after a deduction for dividend on own shares) Transferred to undistributable reserves Transferred to other retained earnings Allocated
1
(4,948.9)1 (110.0) (62.4) (5,121.3)
The dividend includes distribution of excess capital corresponding to NOK 2 billion in November 2014, adopted based on Board authorisation and based on the financial situation as of the accounting year 2013.
Gjensidige Annual Report 2014 I 67
Board’s Report
Other components of income and expense as presented in the income statement are not included in the allocation of profit.
based on the combined ratio achieved and on the development of the portfolio and customer satisfaction in 2014.
The Board has decided to pay employees of Gjensidige Forsikring ASA a collective bonus corresponding to NOK 24,500, including holiday pay, per full-time employee. The bonus is
The Board wishes to thank all employees for their efforts and their contribution to Gjensidige’s good results in 2014.
Oslo, 11 March 2015 The Board of Gjensidige Forsikring ASA
Inge K. Hansen
Gunnhild H. Andersen
Trond Vegard Andersen
Kjetil Kristensen
Gisele Marchand
Gunnar Mjåtvedt
Chair
Hans-Erik F. Andersson
Per Arne Bjørge
Mette Rostad Tine Gottlob Wollebekk
Helge Leiro Baastad CEO
68 I Gjensidige Annual Report 2014
