Gjensidige

Buy

Preview 1Q11 14 April 2011 Results date 12 May 2011

Share Price: NOK 69.7 (14.04.2011) Target: NOK 75

Share data Sector

14 April 2011 Financials

Bloomberg

GJF NO

Risk rating

Medium

Shares m

500

Market cap. NOKbn

35

Net debt NOKbn

2

Enterprise value NOKbn

37

Free float

34 %

High/low 52w

69 / 56

Gjensidige - Combined ratio 115 110 105 100

Price increases feeding through We estimate a group pre tax profit of NOK 780m (NOK 344m) in 1Q11. The underwriting result is to be helped by a normalized claims ratio when compared to the same quarter last year, which was severely hit by frost damages. Investments are also in this quarter to be the main contributor, albeit somewhat less than in 1Q10 largely as a result of rising bond yields in the period. Gjensidige currently offers a 2011 dividend yield of 7.2% on our estimates to an industry average of 5.4%. We retain our buy recommendation and price target NOK 75. Underwriting result - We estimate an underwriting result of NOK 246m in 1Q11, improving markedly from a loss of NOK 369m last year which was adversely affected by frost damages. The combined ratio hence falls to 94 (110), with the claims ratio declining to 78 (93). The cost ratio is estimated flat at 15. Return on financial assets - We see an overall return on the investment portfolio of 1.0% (1.6%) in 1Q11. Limited returns from current bonds with rising interest rates are the main driver of the weaker performance. Bonds held to maturity are still to contribute and EMI, from STB and ROGG, to give support.

95 90 85 80 1Q08 2Q

3Q

4Q 1Q09 2Q

3Q

4Q 1Q10 2Q

3Q

4Q 1Q11E

Source: Gjensidige / Fondsfinans Research

Estimate changes NOKm Underwriting result Investments Other Pre tax profit EPS DPS

Curr 2011E 1 393 2 716 15 4 124 6.4 5.00

Prev 2011E 1 374 2 826 12 4 212 6.6 4.92

Curr 2012E 1 403 3 058 89 4 550 7.1 5.20

Prev 2012E 1 386 3 010 87 4 483 7.0 5.19

Source: Gjensidige / Fondsfinans Research

Prepared by analysts: Tom Rogn Bengt Kirkøen Fondsfinans ASA TEL: +47 23 11 30 72 TEL: +47 23 11 30 42 [email protected] [email protected]

Change 2011E 1% -4 % 24 % -2 % -3 % 2%

Change 2011E 1% 2% 3% 1% 1% 0%

Other segments - Pension and savings, Online banking and Health care are estimated to generate a combined pre tax result of NOK 19m (NOK 16m) in 1Q11. The strategy for the Health care segment is currently under review and it could be listed for sale during 1H this year. Gjensidige has guided on a combined ratio between 90 and 93 and stated stable and growing dividends. With the combined ratio having trend support from price increase feeding through and dividends being helped by an estimated excess capital of NOK 6.4bn, we remain positive to the share. At our price target NOK 75, the share is offering a 2011 dividend yield of 6.7%. NOKm Private Norway Commercial Norway Other Underwriting result Combined ratio Pension and savings Online retail banking Health care services Investments Other Pre tax profit Tax Net profit EPS DPS PE Dividend yield % PB

2009 552 305 -39 818 95 -108 -76 33 2 723 -223 3 167 862 2 306 4.6 3.3

2010 788 246 -238 796 95 -28 33 27 2 705 -279 3 254 304 2 950 5.9 4.70 9.9 8.0 1.3

2011E 1 080 315 -3 1 393 92 12 86 42 2 716 -125 4 124 913 3 211 6.4 5.0 10.8 7.2 1.4

2012E 1 006 327 70 1 403 93 19 141 55 3 058 -125 4 550 1 006 3 543 7.1 5.2 9.8 7.5 1.4

4Q 10 301 95 -81 315 93 -1 4 13 788 -50 1 068 -94 1 162 2.32

Source: Gjensidige / Fondsfinans Research

FONDSFINANS ASA, HAAKON VII’S GATE 2, P.O.BOX 1782 VIKA, NO-0122 OSLO, TEL: +47 23 11 30 00, FAX: +47 23 11 30 03, [email protected] We refer to important information written later in this report

1Q 11E 203 68 -25 246 94 0 16 3 540 -25 780 172 608 1.22

Gjensidige

Preview 1Q11

1Q11 estimates by reporting segments Underwriting Private Norway

Private Norway turns a large loss last year to a profit this year

Private Norway is the largest insurance segment of the group, with earned premiums constituting close to half of the total last year. In 1Q11, we see a contribution of NOK 203m (NOK -223m) to the underwriting result, with the return to profitability reflecting both premium increases and a normalized level of frost damages. The combined ratio is correspondingly brought down to 90 (112), with claims falling to 75 (96). The cost ratio is seen flat at 15. Commercial Norway

Also the commercial segment records an improvement YoY

The commercial segment in Norway generated a quarter of earned premiums for the group last year. Albeit frost related damages also impacted this segment negatively in 1Q10, the affect was significantly less pronounced. In the first quarter of this year, we estimate an underwriting result of NOK 68m (NOK 25m), resulting in a combined ratio of 94 (98). The claims ratio is estimated to improve to 80 (85), while the cost ratio is to nudge up 1 percentage point to 14 (13). Other Nordic

Other Nordic on trend with Private Norway

Insurance activities in the other Nordic countries are by far the largest segment for the group outside Norway. The 1Q11 underwriting result is estimated at NOK 9m, turning a large loss of NOK 123m in 1Q10 to profitability. Again frost related damages were the culprit last year. The combined ratio in the segment improves to 99 (119), with claims down to 83 (101) and the cost ratio reduced to 16 (19). Baltic

Baltic activities remain small

The Baltic operations are the remaining market exposure for the group’s insurance activities, but remain small. We estimate an underwriting result of NOK 6m (NOK -1m) in 1Q11.

Gjensidige – General insurance segments, relative size 2010

Private Norway constitutes close to half of earned insurance premiums for the group

Other Nordic 23 %

Baltic 3%

Private Norway 48 %

Commercial Norway 26 %

Source: Gjensidige / Fondsfinans Research

Page 2

14 April 2011

Fondsfinans Research

Preview 1Q11

Gjensidige

Investments Investment returns to be main driver of group pre tax returns Bonds generating less with rising interest rates Modest equity returns, but improved EMI YoY

The investment portfolio is to be the main driver of group pre tax profits in 1Q11, however to contribute less than seen in the previous quarter and a year ago. We estimate a pre tax contribution of NOK 540m (NOK 837m). Lower returns from bonds and weaker equity performance are the main explanatory variables behind the reduction. The bond portfolio overall is still to be the largest contributor, however current bonds will see limited returns with rising interest rates in the period. The OSEBX index appreciated by 1.3% (1.4%) in 1Q11, comparing to a 15% rally in 4Q10. Storebrand and Sparebank 1 SR-Bank, accounted for as EMI under equities, are though to contribute more YoY. We estimate a combined contribution from the two of NOK 141m (NOK 97m). Pension and savings

Pension and savings to reach profitability

Pension and savings is seen to reach a break even result from a loss of NOK 11m in 1Q last year and also a NOK 1m loss in the previous quarter. Earned premiums growth and hence improved economies of scale is seen to drive the improvement. Online Banking

NII to grow with a larger lending portfolio

We estimate an annualized net interest rate of 3.05% (3.29%), in-line with the level seen in 4Q10. With a larger lending portfolio, NII is seen at NOK 109m (NOK 97m) in the quarter. After operating expenses and loan losses the pre tax contribution is estimated at NOK 16m (NOK 5m). Health care

Health care segment; unrelated, low margin activity – spin off likely

The Health care segment of the group, comprising health services to companies, security alarms and a private hospital, is currently under a strategic review. We would expect this seemingly unrelated business to be spun off at an appropriate time. In 1Q11, we estimate a pre tax profit NOK 3m (NOK 9m) in the segment with margin pressure stemming from public procurements continuing.

Gjensidige – 1Q11E estimates NOKm

The underwriting result turns positive from a loss last year with claims normalizing

Investments to contribute the most, but recording lower returns

1Q 11E

1Q 10

4Q 10

Underwriting result Private Norway Commercial Norway Other Nordic Baltic Corporate centre General insurance Combined ratio %

203 68 9 6 -40 246 94

-223 25 -123 -1 -47 -369 110

301 95 -24 3 -60 315 93

Pension and savings Online retail banking Health care services

0 16 3

-11 5 9

-1 4 13

Investments Amortisation and impairment Other items Pre tax profit

540 -25 0 780

837 -124 -2 344

788 -43 -7 1 068

Tax expense

-172

-87

94

Net profit

608

257

1 162

Source: Gjensidige / Fondsfinans Research

Fondsfinans Research

14 April 2011

Page 3

Gjensidige

Preview 1Q11

Combine ratio

Pre tax contribution by business

115

NOKm 1 000

110

800 600

105

400

100

200 0

95

-200 -400

90

-600 Underwriting Investments Pension and Online retail Health care Amortisation result savings banking services and other

85

1Q10

80 1Q08 2Q

3Q

4Q 1Q09 2Q

3Q

4Q 1Q10 2Q

3Q

1Q11E

4Q 1Q11E

Source: Gjensidige, Fondsfinans Research

Valuation to peers Gjensidige shares offer the highest dividend yield

Company Allianz Axa Sampo Topdanmark Tryg Zürich Gjensidige Average

MC EURm 47 450 27 299 36 402 13 241 1 900 2 810 4 429

EV EURm 79 156 31 834 35 831 14 901 2 499 3 711 4 730

2009 7.3 9.1 9.3 10.0 8.3 11.2 NM 9.2

P/E 2010 7.7 9.6 8.9 9.8 10.4 33.2 NM 13.3

Dividend yield 2011E 2012E 2009 2010 2011E 2012E 2009 8.7 8.0 3.7 4.3 4.7 5.1 0.8 8.4 7.7 4.5 6.3 6.8 7.0 1.1 7.8 7.2 3.2 4.3 5.0 5.4 0.7 10.8 10.1 4.0 4.7 5.2 5.5 1.1 10.9 9.8 NM NM NM NM 2.7 13.6 11.2 4.8 1.6 3.9 4.7 2.2 11.7 10.8 4.8 5.1 6.6 7.1 NM 10.3 9.2 4.2 4.4 5.4 5.8 1.4

P/B 2010 2011E 2012E 0.9 1.0 0.9 1.1 1.1 1.0 0.7 0.7 0.7 1.2 1.4 1.3 2.3 2.6 2.3 2.3 2.1 1.9 NM 1.5 1.4 1.4 1.5 1.4

Source: Bloomberg / Fondsfinans Research

Share development to peers Dec 9th 2010 = 100 140

130

120

Since listing in December last year, the Gjensidige share has performed on average with peers

110

100

90

Gjensidige

Allianz

Axa

Sampo

Topdanmark

Tryg

M ar -1 1 Ap r-1 1

M ar -1 1 M ar -1 1

M ar -1 1 M ar -1 1

Fe b11 Fe b11

n11 Fe b11 Fe b11

Ja

n11

n11

Ja

Ja

n11 Ja

D ec -1 0

D ec -1 0

D ec -1 0

D ec -1 0

80

Zürich

Source: Bloomberg / Fondsfinans Research

Page 4

14 April 2011

Fondsfinans Research

Preview 1Q11

Gjensidige

Risk assessment Our estimates assume growth both for the group and the overall economy

Gjensidige is a general insurer and exposed to overall economic activity and volatility in claims. The competitive setting and ability of the group to manage costs could further impact group results. All of the above could move in an adverse direction not incorporated in our estimates.

Investment returns could disappoint

Reflecting the structure of insurance with premiums paid up front, the group is exposed to asset management risks. With the bulk of assets invested in bonds, group results are significantly exposed to interest rate movements resulting both from shifts in risk aversion and inflation expectations.

The company could expand unprofitably, both organically and through acquisitions Liability

Fondsfinans Research

The company could enter into loss making products or uncharted geographical regions. Management could perform dilutive acquisitions and mergers. The company could be found liable for mistakes and be required by law to pay compensation.

14 April 2011

Page 5

Gjensidige

Preview 1Q11

Definitions of ratings Neutral

Low risk: with a potential of min 5%. Medium risk: with a potential of min 10%. High risk: with a potential of min 15%. Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -15% to +15%.

Sell

Low risk: min 5%. Medium risk: min 10%. High risk: min 15%.

Buy

Risk ratings are based on price volatility, fundamental criteria and perceived risk. Ratings are: Low (L), Medium (M) and High (H). Target: Our valuation as of today. Time frame of target: Target is what we value the share as of today.

Recommendation distribution as of 11.04.11:

Companies in each recommendation category that have been investment banking clients over the past 12 months:

Recommendation Buy Neutral Sell Total

Recommendation Buy Neutral Sell Total

No 44 9 6 59

Percent 75 % 15 % 10 % 100 %

No 8 0 1 9

Percent 18 % 0% 17 %

Our intention is to issue preview and update research on a quarterly basis. Our investment recommendation is elaborated in accordance with “The Norwegian Securities Dealers Associations” standards. This report has not been sent to the company for correction of any factual errors. Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition, Fondsfinans has internal instructions and guidelines for handling sensitive information. The analyst receives compensation that is impacted by overall firm profitability, including investment banking activities. The analyst is partner in DIS Fondsfinans. Fondsfinans is under supervision of The Financial Supervisory Authority of Norway. The recommendation has not been changed. The previous recommendation was issued 18.02.2011. Ownership per 14.04.11 in Gjensidige Forsikring: Analyst (including his/her closely related persons or companies): 0, corresponding to 0% of the company share capital Employees (including their respective closely related persons or companies): 28 191, corresponding to 0.0% of the company share capital Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100% controlled subsidiaries): 2 666, corresponding to 0.0% of the company share capital

Fondsfinans may hold shares in Gjensidige Forsikring as a result of daily trading/market making. Information on such holdings is not given when of non-significant value. This report was issued and distributed 14.04.11. Distribution in the United States Research reports are prepared by Fondsfinans ASA for information purposes only. Fondsfinans ASA and its employees are not subject to the Rules of the Financial Industry Regulatory Authority (FINRA) governing research analyst conflicts. The research reports are intended for distribution in the United States solely to “major U.S. institutional investors” as defined in Rule 15a-6 under the United States Securities Exchange Act of 1934, as amended and may not be furnished to any other person in the United States. Each major U.S. institutional investor that receives a copy of a Fondsfinans ASA research report by its acceptance thereof represents and agrees that it shall not distribute or provide copies to any other person. Reports are prepared by Fondsfinans ASA and distributed to major U.S. institutional investors under Rule 15a-6(a)(2). These research reports are prepared by Fondsfinans ASA and distributed in the United States by Fondsfinans Inc. under Rule 15a-6(a)(2). Any U.S. Person receiving these reports that desires to effect transactions in any securities discussed within the report should call or write Fondsfinans Inc., a member of FINRA.

Page 6

14 April 2011

Fondsfinans Research

Gjensidige Sector: Date: Next results: Target (NOK): Recommendation:

Insurance 14-Apr-11 12-May-11 75 Buy

Price (NOK): Book per equity share (NOK):

70 46

12 month high/low:

69 / 56

Number of shares m Market capitalisation (NOKbn): Net debt (NOKbn) Enterprise value (NOKbn)

500.0m 34.8 2.4 37.2

P&L NOKm

2008

2009

2010

2011E

2012E

1Q2010

2Q2010

3Q2010

Underwriting result Private Norway Commercial Norway Other Nordic Baltic Corporate centre General insurance

775 59 113 37 -127 858

552 305 153 41 -233 818

788 246 -77 18 -178 796

1 080 315 141 26 -170 1 393

1 006 327 229 31 -190 1 403

-223 25 -123 -1 -47 -369

282 10 30 8 -41 289

428 116 40 7 -29 562

301 95 -24 3 -60 315

203 68 9 6 -40 246

Pension and savings Online retail banking Health care services

-133 -85 41

-108 -76 33

-28 33 27

12 86 42

19 141 55

-11 5 9

-7 10 6

-9 14 0

-1 4 13

0 16 3

Investments Amortisation and impairment Other items Pre tax profit

-276 -107 10 307

2 723 -217 -6 3 167

2 705 -243 -36 3 254

2 716 -100 -25 4 124

3 058 -100 -25 4 550

837 -124 -2 344

289 -35 -22 530

792 -42 -5 1 312

788 -43 -7 1 068

540 -25 0 780

Tax expense

-55

-862

-304

-913

-1 006

-87

-35

-276

94

-172

Net profit

252

2 306

2 950

3 211

3 543

257

495

1 036

1 162

608

0 0

1 650 72

2 350 80

2 500 78

2 600 73

500

500

500 58.4

500 69.7

500 69.7

500

500

500

500

500

Dividend per share Yield, %

0.00

3.30

4.70 8.0

5.00 7.2

5.20 7.5

Earnings per share P/E

2.52

4.61

5.90 9.9

6.42 10.8

7.09 9.8

0.51

0.99

2.07

2.32

1.22

P/B ROE

1.3

11.1

1.3 13.1

1.4 13.6

1.4 14.4

Capital adequacy ratio Solvency margin

22 667

19 707

16 581

94 77 16

95 77 16

95 79 15

92 76 15

93 77 15

110 93 15

93 76 16

88 72 15

93 76 15

94 78 15

2008

2009

2010

2011E

2012E

Major shareholders

Total assets Assets Financial assets - ow/ cash and cash equivalents

65 551 11 728 53 823 3 012

74 869 12 246 62 623 3 104

84 107 14 969 69 138 2 890

84 993 14 969 70 024 3 876

86 062 14 969 71 093 5 045

Equity and liabilities Equity Provision for liabilities Financial liabilities - ow/ interest bearing liabilities

65 551 19 586 33 889 12 077 606

74 869 22 005 34 517 18 347 4 916

84 107 23 138 38 380 22 588 5 255

84 993 24 024 38 380 22 588 5 255

86 061 25 093 38 380 22 588 5 255

Net debt

-2 406

1 813

2 365

1 379

210

Gjensidigestiftelsen Folketrygdfondet State Street Skagen Global State Street Bank of New York Goldman Sachs Skagen Kon-Tiki Clearstream Rasmussengruppen Other Total

Total dividend Payout ratio

Key figures (Proforma for 2008) No. of shares; million Price

Combined ratio* Claims ratio Cost ratio

4Q2010 1Q2011E

* including coporate centre expenses

Balance sheet NOKm

% 63.5 2.7 2.1 1.7 1.7 1.5 1.4 1.2 0.9 0.8 22.6 100.0

Shares 317.3m 13.5m 10.3m 8.4m 8.4m 7.3m 7.1m 6.1m 4.4m 4.0m 113.2 500.0m

DISCLAIMER This report is provided for information purposes only. It should not be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Any opinions expressed are subject to change without prior notice. This report is based on information from various sources believed to be reliable. Although all reasonable care has been taken to ensure that the information herein is not misleading, Fondsfinans ASA makes no representation or warranty expressed or implied as to its accuracy or completeness. Neither Fondsfinans ASA, its partners and employees, nor any other person connected with it, accepts any liability whatsoever for any direct or consequential loss of any kind arising out of the use or reliance on the information in this report. This report is prepared for general circulation and general information. It does not take into account the specific investment objectives and financial situation of any recipient. Investors seeking to buy or sell any securities discussed or recommended in this report, should seek independent financial advice relating thereto. This report may not be distributed, quoted from or reproduced for any purpose without written approval by Fondsfinans ASA. DISCLOSURE OF INTERESTS Fondsfinans ASA is constantly seeking investment-banking mandates, and may at any time perform investment banking or other services or solicit investment banking or other mandates from the company or companies covered in this report. Fondsfinans ASA may from time to time as part of its investment services hold positions in securities covered in this report. Under our internal regulations, our analysts are not permitted to purchase new securities in the companies they cover. Holdings are specified as part of shareholder information in each report.