Storebrand ASA Annual Report 2019

Plain-text annual report

Annual Report 2019 Sustainable Solutions and Investments Page 1, Photographer: Mikael Svensson/Johner Page 5, Photographer: Nathan Anderson/Unsplash Page 6, Photographer: Ole Berg-Rusten, NTB Page 9, Photographer: Alexey Topolyanskiy /Unsplash Page 17, Photographer: Bevan Goldswain/Offset.com Page 19, Photographer: Aurora Photos, USA / Offset.com Page 20, Photographer: Michael Nolan /Offset.com Page 23, Photographer: Unsplash Page 25, Photographer: Sarah Bridgeman/Offset.com Page 26, Photographer: Shutterstock/TunedIn by Westend61 Page 27, Photographer: Maskot/Offset.com Page 30, Photographer: Olga Kashubin Page 32, Photographer: Shutterstock/KYTan Page 35, Photographer: Maskot Bildbyrå /Johnér Bildbyrå AB Page 37, Photographer: Shutterstock/Syda Productions Page 38, Photographer: Kate Vredevoogd/Offset.com Page 43, Photographer: Shutterstock / Halfpoint Page 45, Photographer: Shutterstock Page 47, Photographer: Colourbox.com Page 51, Photographer: The Good Brigade/Offset.com Page 53, Photographer: Mikael Svensson / Johner Bildbyra AB / Offset.com Page 59, Photographer: Cultura / Offset.com Page 60, Photographer: Shutterstock / Kamil Macniak Page 63, Photographer: Unsplash Page 67, Photographer: Shutterstock/loreanto Page 71, Photographer: Storebrand archive Page 75, Photographer: Maskot/Offset.com Page 76, Photographer: Nixon Johansen Cáceres/Johnér Bildbyrå AB Page 77, Photographer: Martin Pålsson/Offset.com Page 85, Photographer: Shutterstock/Westend61 Premium Page 197, Photographer: Maskot/Offset.com Page 209, Photographer: Luigi Vaccarella/SIME Page 221, Photographer: Johnér Images/Karl Forsberg Important notice: This document may contain forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that may be beyond the Storebrand Group’s control. As a result, the Storebrand Group’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in these forward-looking statements. Important factors that may cause such a difference for the Storebrand Group include, but are not limited to: (i) the macroeconomic development, (ii) change in the competitive climate, (iii) change in the regulatory environment and other government actions and (iv) market related risks such as changes in equity markets, interest rates and exchange rates, and the performance of financial markets generally. The Storebrand Group assumes no responsibility to update any of the forward-looking statements contained in this document or any other forward-looking statements it may make. 2 STOREBRAND ANNUAL REPORT 2019Table of contents Introduction 4 6 Facts and figures 2019 Letter from the Group Chief Executive Officer 1. This is Storebrand Storebrand at a glance 10 11 Organisation 12 13 14 Executive mangament Board of Directors Strategic highlights 2. Climate Risk and Opportunity 3. Financial Capital and Investment Universe 26 27 33 Provide a return to the owners and customers A driving force for sustainable investments Key performance indicators 4. Customer and Community Relations 36 38 40 41 Digital trust 42 Financial freedom in all stages of life Engaging, relevant and responsible advice Engaging our customers through digital experiences Key performance indicators 5. People 46 47 48 Diversity and equal opportunities Key performance indicators 50 A culture for learning Committed and courageous employees 6. Keeping Our House in Order 54 54 Anti-corruption Anti-money laundering, financial crime and terror financing Reducing our internal carbon footprint Sustainable practices throughout our value chain Corporate citizenship Key performance indicators 57 58 60 61 7. Shareholder matters Strategy Capital situation, rating & risk Regulatory changes 8. Directors´ report 68 72 74 77 Working environment and HSE 78 Group financial results 83 Official financial statements 9. Annual Accounts and Notes Storebrand Group 86 87 88 90 91 93 Notes Income statement Statement of total comprehensive income Statement of finacial position Statement of changes in equity Statement of cash flow Income statement Storebrand ASA 171 171 Statement of total comprehensive income 172 Statement of finacial position 173 Statement of changes in equity 174 Statement of cash flow 175 Notes 188 Declaration by member of the Board and the CEO 189 Independent auditor´s report 10. Governance 198 Corporate Governance 207 Companies in the Storebrand Group 11. Sustainability assurance 210 TCFD index 212 GRI index 218 Auditor’s statement on sustainability 12. Appendix 222 Definitions key performance indicators 224 Executive management CVs 228 Group board of directors CVs 3 STOREBRAND ANNUAL REPORT 2019 Facts and figures 2019 Group profit* NOK million Return on equity** 3 037 8.0% Solvency margin*** NOK billion invested in fossil free funds 176% 277 Assets under Management, NOK billion Assets under Management screened for sustainability criteria 831 100% *) Profit before amortisation **) After tax, adjusted for amortisation of intangible assets ***) Including transitional rules 4 STOREBRAND ANNUAL REPORT 20195 LETTER FROM THE GROUP CHIEF EXECUTIVE OFFICER Financial freedom for our customers Odd Arild Grefstad Group Chief Executive Officer 6 Financial freedom for our customers STOREBRAND ANNUAL REPORT 2019 2019 was an important year for Storebrand, with organisational changes making us even better equipped to meet our customers’ needs, and to create economic growth and good returns for both our customers and our shareholders. It was also a year where we noticed an increased focus on sustainability from financial markets and our customers, allowing us to further leverage our position as a leading provider of sustainable financial services. We continue our focus on delivering products and services that create good financial returns and are also aligned with the objectives of the UN Sustainable Development Goals. Almost one third of our AuM is now invested in fossil-free solutions. The reduction in carbon emissions from our portfolio is driven primarily by customer expectations, as well as our duty to manage financial risk on behalf of our customers and share- holders. This fits well with our overall ambition to be net carbon neutral by 2050 - in line with the Paris Agreement. We became one of the 12 founding members of the Net-Zero Asset Owner Alliance in 2019. We came second in the Ethical Bank Guide’s ranking of sustainable financial institutions. Climate change adaptation and the transition to a low carbon economy provide both risks and opportunities for Storebrand. Sustainability is integrated into all investment decisions we make, and in 2019 we further strengthened climate risk analy- ses and disclosure through adopting the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We have set our course. In 2020 we will continue to deliver new and innovative services to our customers, helping them to achieve financial freedom to realise their goals and fulfil their dreams. Odd Arild Grefstad is Norway’s largest private asset manager. Storebrand A buoyant financial market combined with prudent man- agement of assets under management (AuM) resulted in us managing a total of 831 billion Norwegian kroner on behalf of our customers at the end of 2019. We had a strong financial result, delivering a profit before amortisation of NOK 3.037 billion Norwegian kroner. In a rapidly changing world, no business can take their existence for granted. The finance sector is undergoing a digital transfor- mation, and our customers expect seamless experiences from all the products and services they buy. To meet our customers’ expectations to high quality digital services, we established two new roles to bring a stronger focus on technology and innova- tion into our group management team. This is in addition to an increased focus on digitalisation throughout our business. In 2019, Storebrand was again ranked first in the annual Norwegian Customer Survey, which measures satisfaction and loyalty amongst corporate customers in Norway. We are committed to creating excellent customer experiences, such as gathering all occupational pensions in one place, giving cus- tomers better control over their future finances. We also made the exciting decision to re-enter the Norwegian municipal occupational pensions market. This market is esti- mated to be twice the size of the corporate pensions market, and we are well-prepared to take part in tender processes for municipal occupational pensions in 2020. Our operations in Sweden, under the brand SPP, delivered yet another impressive result in 2019. Growth in new sales and transfers is very strong, supported by an increasing portfolio of digital solutions, including Sajna, a fully digital occupational pension that won Digital Project of the Year at this year’s CIO Awards. 7 1 This is Storebrand We create a future to look forward to by delivering simple and sustainable pensions and savings. 10 Storebrand at a glance 11 Organisation 12 Executive management 13 Board of directors 14 Strategic highlights 9 STOREBRAND ANNUAL REPORT 2019 Storebrand at a glance OUR VISION AND DRIVING FORCE Storebrand is a financial group, headquartered in Oslo, Norway. We offer pension, savings, insurance and banking products to individuals, businesses and public enterprises. We work hard to understand our customers well enough to consistently meet their expectations. Customers shall be safe in the know ledge that we put their needs first. We have been a part of people’s lives for more than 250 years. Today, we are Norway’s largest private asset manager – with NOK 831 billion invested in more than 3000 companies world- wide. More than two million Norwegians and Swedes place their savings with us. This comes with clear obligations. We are committed to managing our customers’ money effectively and responsibly, helping them to fulfil their dream of increased financial freedom and financial security for the future. Assets under management shall be invested according to best sustain- able practices, ensuring good financial returns and a positive impact on society. Our purpose is clear - we create a future to look forward to. Engelsk W HY A future to look forward to H OW O H W Customer centric – simple and sustainable W H A T Courageous pathfinder Greater security, freedom to choose Storebrand 1847 Christiania Almindelige Brand-Forsikrings-Selskap 1887 Life insurance company 1904 The Norwegian Association 1922 The Association for Norwegian 1936 Storebrand acquire Euro- referred to as Storebrand Brage established of Actuaries established life insurance companies peiske, Norway´s leading established travel insurance company 1767 Den almindelige Brand-Forsikrings-Anstalt established in Copenhagen 1861 Storebrand establish Idun, Norway´s ﬁ rst privately-owned life insurance company 1900 The Norwegian Association 1917 The Life Insurance company of Insurers established Norske Folk (Norwegian People) established 1966 1978 Association of casualty Storebrand changes its logo and insurers (SKAFOR) introduces “the link”. The name changes to The Storebrand Group Ltd 1996 Name changed to Storebrand ASA Storebrand Bank established 1991 Storebrand and Uni-Insurance merge and become UNI- Storebrand Ltd 1998 Storebrand Health Insurance 1999 2014 Storebrand’s AuM exceeds NOK 500 billion 2019 Storebrand Asset Management acquires Cubera Private Equity 1983 The Nordic Group and the Storebrand Group merge Storebrand acquires Finans- banken (the Finance Bank) 1814 Administration of national ﬁ re insurance scheme transferred to Christiania 10 1947 Storebrand celebrate centenary 1975 Custos Finance 1984 Norges Brannkasse and Norske Folk become UNI Insurance 1982 1995 Association of casualty Storebrand establishes team insurers dissolved of sustainability analytics in Storebrand Asset Management 2007 Storebrand acquires SPP 2006 Storebrand re-enters P&C insurance market 2012 “Our customers recommend us” vision launched 2017 2017 Storebrand acquires SKAGEN 2016 “Our driving force” launched SECTION 1. THIS IS STOREBRAND Organisation LEGAL STRUCTURE (SIMPLIFIED) Storebrand ASA Storebrand Livsforsikring AS Storebrand Forsikring AS Storebrand Bank ASA Storebrand Storebrand Asset Management AS Helseforsikring AS (50%) SPP Pension & Försäkring AB Storebrand Boligkreditt AS SPP Fonder AB SKAGEN AS Cubera Private Equity AS Business Segments Savings Guaranteed Pension Insurance Other Consists of products that encompass pension savings without interest rate guarantees. This includes defined contribution pensions in Norway and Sweden, asset management and savings and banking products for private individuals. Consists of products that include long-term pension savings, where customers have a guaranteed return. This area includes occupat ional pension schemes in Norway and Sweden, independent personal pensions and pension insurance. Consists of the Group’s risk products in Norway and Sweden. This comprises health insurance in the corporate and retail markets, employer’s liability insurance and pension-related insurance in the corporate market as well ass property, accident, and personal risk insurance products in the Norwegian retail market. This includes other compa- nies within the Storebrand Group, including small subsidiaries of Storebrand Life Insurance and SPP. Storebrand 1847 1887 1904 1922 1936 Christiania Almindelige Brand-Forsikrings-Selskap Life insurance company The Norwegian Association The Association for Norwegian Storebrand acquire Euro- referred to as Storebrand Brage established of Actuaries established life insurance companies peiske, Norway´s leading established travel insurance company 1966 Association of casualty 1978 Storebrand changes its logo and insurers (SKAFOR) introduces “the link”. The name changes to The Storebrand Group Ltd 1996 Name changed to Storebrand ASA Storebrand Bank established 1991 Storebrand and Uni-Insurance 1998 Storebrand 2014 Storebrand’s AuM exceeds NOK 500 billion 2019 Storebrand Asset Management acquires Cubera Private Equity merge and become UNI- Storebrand Ltd Health Insurance 1999 Storebrand acquires Finans- banken (the Finance Bank) 1983 The Nordic Group and the Storebrand Group merge 1947 Storebrand celebrate centenary 1975 Custos Finance 1984 Norges Brannkasse and Norske Folk become UNI Insurance 1982 Association of casualty insurers dissolved 1995 Storebrand establishes team of sustainability analytics in Storebrand Asset Management 2007 Storebrand acquires SPP 2006 Storebrand re-enters P&C insurance market 2012 “Our customers recommend us” vision launched 2017 2017 Storebrand acquires SKAGEN 2016 “Our driving force” launched 11 1767 Den almindelige Brand-Forsikrings-Anstalt established in Copenhagen 1861 Storebrand establish Idun, Norway´s ﬁ rst privately-owned life insurance company 1900 1917 The Norwegian Association The Life Insurance company of Insurers established Norske Folk (Norwegian People) established 1814 Administration of national ﬁ re insurance scheme transferred to Christiania Executive Management Back left to right: Heidi Skaaret (Executive Vice President Retail Market), Geir Holmgren (Executive Vice President Corporate Market), Terje Løken (Executive Vice President Digital and Innovation), Jan Erik Saugestad (Executive Vice President Asset Management), Trygve Håkedal (Executive Vice President Technology), Lars Løddesøl (Group Chief Financial Officer). Front left to right: Tove Selnes (Executive Vice President People), Odd Arild Grefstad (Group Chief Executive Officer), Staffan Hansén (Executive Vice President SPP), Karin Greve-Isdahl (Executive Vice President Sustainability, Communications and Industry Policy). See appendix on page 224 for complete CVs for the Executive Management Team. 12 STOREBRAND ANNUAL REPORT 2019SECTION 1. THIS IS STOREBRAND Board of Directors From back left to front right: Liv Sandbæk (Member of the Board), Magnus Gard (Employee Representative), Arne Fredrik Håstein (Employee Repre- sentative), Heidi Storruste (Employee Representative), Martin Skancke (Member of the Board) Karl Sandlund (Member of the Board), Laila S. Dahlen (Member of the Board), Didrik Munch (Chairman of the Board), Karin Bing Orgland (Member of the Board). See appendix on page 228 for complete CVs for Board and committee members. BOARD OF DIRECTORS The board is ultimately accountable for management of the Storebrand Group. This means, amongst other things, that the board will ensure responsible organisation of the business and establish plans, budgets and procedures. The board oversees the administrative management of the Group, maintaining in- sight into the Storebrand Group’s financial position. In addition, the board shall ensure that business activities, accounting and asset management are subject to proper scrutiny. All directors are independent and do not have significant business relations with Storebrand. All shareholder-elected directors are non-ma- nagerial staff. COMMITTEES The board has appointed three committees to support its role: the Audit Committee, the Compensation Committee and the Risk Committee. More information on the role of each committee can be found on page 202. Audit Committee Compensation Committee Risk Committee Chairperson Members Chairperson Members Chairperson Members Karin Bing Orgland Martin Skancke Didrik Munch Laila S. Dahlen Martin Skancke Didrik Munch Heidi Storruste Arne Fredrik Håstein Magnus Gard 13 Strategic highlights OVERALL STRATEGIC GOALS Storebrand’s ambition is to build a world-class savings group, supported by insurance. We create first-class customer experi- ences in the core areas of savings and pensions. Our strategy is built upon three overall goals: maintain a leading position in occupational pensions, leverage a unique position in the private savings market and build our asset management services with strong competitive advantages and good growth opportunities. Our position as Norway’s leading provider of occu- pational pensions provides a solid foundation to further build our business, including as an emerging leader in the Swedish market. Broad insurance offerings to both retail and corporate markets are aimed at supporting our strategic goals. Our strategy is based on a genuine commitment to sustainable investments. We create long-term returns for both our owners and customers. The strategy is strongly affected by several regulatory changes, such as the introduction of Share Savings Accounts (ASK) and Individual Pension Savings Accounts (IPS). Due to a restructuring of pension payments from the state, future pensioners will have to take greater responsibility for their financial future. We expect that the changing regulatory framework will result in people saving more privately. In 2019, we reviewed our business strategy and the executive management group, following several developments in the market: • Our customers increasingly expect seamless user experi- • • ences and personalised services and products. Developing robust yet flexible technological platforms is key to succeeding in satisfying customers’ needs, and in realis- ing cost efficiencies in operations. The competition to attract and retain the best talent is as fierce as ever. We are experiencing a transformation in the way customers buy our products, with rapid growth in sales through digital channels. In response to the increasing digitalisation of finan- cial services, we implemented a new organisational structure, introducing three new business areas: Technology, Digital Innovation and People. Digitalisation creates new opportuni- ties, enables new business models and partnerships, and the revised organisational structure will enable the Storebrand Group to more effectively capitalise on these.2) 2) For more details on our strategy, see Director’s Report 3) The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services 14 SUSTAINABILITY AS CORE BUSINESS In 2019, the UN released the results of the most thorough planetary health check ever undertaken, the IPBES3) report on biodiversity and ecosystem services. In conclusion, the report made it clear that human society is threatened from the accel- erating decline of our planet’s natural life-support systems. The backdrop to this report is the UN special report on global warming in 2018, which concluded that the transition towards a low-carbon society requires accelerated action to keep warming under 2oC. The transition represents huge economic risks and opportunities that we as investors cannot ignore. The financial sector has a key role to play in achieving the UN Sustainable Development Goals (SDGs). Our pensions, savings and investments are powerful tools to address key challenges needed to realise the SDGs. As a significant asset owner, insurer and asset manager, we also see great economic opportuni- ties in the alignment of investment portfolios to a sustainable agenda. Companies with sustainability at the core of their business strategy are typically financially robust and well positioned to weather global climate and sustainability risks and to benefit from opportunities. A growing body of evidence indicates that companies with a comprehensive strategy in line with the SDGs and Paris Agreement will create better long-term returns and may be better positioned to succeed in future markets. SUSTAINABILITY GOVERNANCE Sustainability is integrated in our business strategy and imple- mented across the entire business, including investments, products and product development, procurement, employ- ment policies and business management. Our main objective is to leverage sustainability as a competi- tive advantage. Members of the executive management group are responsible for achieving our main strategic goals on sustainability within their respective business areas. Business unit goals and targets are reviewed three times a year by the executive management group and semi-annually by the Board of Directors. At an operational level, our work on sustainability is divided into three areas: people and business management, products and services and communication and stakeholder engagement. STOREBRAND ANNUAL REPORT 2019 SECTION 1. THIS IS STOREBRAND PEOPLE AND BUSINESS MANAGEMENT The sustainability principles that guide our work are: • We base our business activities on the UN Sustainable Development Goals, and collaborate with customers, suppliers, partners and the authorities to meet these goals. • We help our customers to live more sustainably. We do this by managing our customers’ money in a sus- tainable manner, in addition to providing sustainable financing and insurance. • We are a responsible employer. • Our processes and decisions are based on sustainabil- ity outcomes – from the board and management, who have the ultimate responsibility, to each employee who promotes sustainability in their respective business area. • We use the precautionary principle when it comes to mitigating social and environmental risk. • We are transparent about our work and our sustainability results. We have identified three SDGs (right) which we can significantly impact by the way we manage our group’s business and people processes. We work actively towards equal opportunities and gender balance in work and economic life (target 5.5). We aim to achieve decent work for all our employees, and equal pay for work of equal value (target 8.5). We aim to protect labour rights and promote safe and secure working environments for all our workers, contractors and suppliers (target 8.8). We continuously work towards encouraging and expanding access to banking, insurance and financial services for all (target 8.10). We strengthen resilience and adaptive capacity to climate- related hazards and natural disasters in our operations and in our investments (target 13.1). We integrate climate change measures into our policies, strate- gies and planning (target 13.2). PRODUCTS AND SERVICES Storebrand is a leading player in the Nordic market and a pioneer within the field of sustainable investments. We have been at the forefront of sustainable investing since the mid 1990’s and were recognised for excellent performance on sustainable investments by UN PRI (Principles for Responsible Investments) in 2019. When our CEO was invited to speak at the COP 25 in 2019, this was an important recognition of our actions to reduce carbon emissions from our portfolios. All our assets are managed according to strict sustainability criteria. In addition, nearly one third of assets under management – NOK 277 billion – was invested in fossil free funds at the end of 2019. All assets under management in SPP Fonder are now fossil free. We have identified eight SDGs (below) where we can have the greatest impact through our investment activities. We use these sustainability goals actively in asset man- agement, for example when applying our sustainability rating. In addition, we consider accountability and anti-corruption (SDG 16) when engaging with the companies we invest in (see page 28). For specific measures and targets related to these SDGs in our asset management, see the section Financial Capital and Investment Universe . 15 COMMUNICATION AND STAKEHOLDER ENGAGEMENT We are transparent about our work on sustainability, and report in accordance with several leading reporting standards, includ- ing GRI, TCFD and CDP, in line with expectations from a range of key stakeholders. Setting clear strategic ambitions, and com- municating openly on progress towards specific targets are key success criteria in managing our stakeholder expectations. We form strong partnerships to realise our sustainability objectives. This illustrates our firm commitment to SDG 17: partnering for the goals. In addition, stakeholder engagement and communication aim to impact on SDG 12 and 13. K A B F D VERY HIGH I J HIGH C G L M H E MODERATE Significance of business impact 16 s n o i s i c e d d n a s t n e m s s e s s a r e d o h e k a t s n o e c n e u fl n l I We encourage companies to adopt sustainable practices and to integrate sus- tainability information into their reporting cycle (target 12.6). We strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in our operations and in our investments (target 13.1). We integrate climate change measures into our policies, strategies and planning (target 13.2). Financial capital and investment universe A B C Competitive returns to shareholders and customers Driving force for sustainable investments Active ownership Customer and community relations D E F G Financial freedom in all stages of life Engaging, relevant and responsible advice Digital trust Simple and digital customer experiences Our people H I J A culture for learning Committed and courageous employees Diversity and equal opportunities Keeping our house in order K L M Working against corruption and financial crime Sustainable practices throughout value chain Corporate citizenship STOREBRAND ANNUAL REPORT 2019 SECTION 1. THIS IS STOREBRAND MATERIAL ISSUES To ensure that we have a comprehensive and long-term approach to creating value for our shareholders, customers, employees and society at large, we conducted a materiality analysis in 2017. This has been adjusted, following ongoing stakeholder engagement, both in 2018 and 2019. This integrated report is built around these four focus areas, with the approach, goals, initiatives and results stipulated under each section. Key performance indicators for each focus area are reported to the executive management regularly and to the board annually. Our materiality analysis defines the challenges and issues that Storebrand and our stakeholders perceive as most essential, and where we have the most significant impact on society and the environment. The stakeholders we have discussed materi- ality with are shareholders, customers, employees, authorities and NGOs. These are defined as our main stakeholders, and dialogue has taken the form of AGMs, polls and surveys, inter- views and meetings, as well as participation in committees and initiatives aimed at addressing a wide range of sustainability issues. Following an analysis based on dialogue with key stake- holders, we have identified four focus areas and associated issues that give a clear prioritisation of long-term challenges, and how we should approach these. These focus areas are rel- evant to our most important strategic goals: maintain a leading position in occupational pensions, have a unique position in the private savings market and build asset management with strong competitive advantages and good growth opportunities. The focus areas and associated issues are presented in our materiality matrix above. This report has been prepared in accordance with the GRI Standards: Core option. Our GRI Index can be viewed on page 212. The guidelines of the International Integrated Reporting Council (IIRC) have also been used as a basis for reporting. This report covers Storebrand’s business activities in Norway and Sweden. Environmental data specified in Section 6 of this report and in our official CDP Report excludes Skagen and Cubera offices in Norway as they have recently been integrated into the Group. From 2020, the boundary for our environmen- tal data will be increased to include these offices. For more information on companies within the Storebrand Group, see page 207. 17 2 Climate Risk and Opportunity In developing our climate strategy, we have considered both how we affect climate change as well as how to avoid or mitigate being negatively affected by climate change and climate policy. 19 STOREBRAND ANNUAL REPORT 2019Climate Risk and Opportunity Climate change and the transition to a low-emissions society has a material impact on our business. This may be exacerbated by changes in the Norwegian economy, which is vulnerable to a falling oil price and lower activity in the oil and gas industry. In developing our climate strategy, we have considered both how we affect climate change as well as how to avoid or mitigate being negatively affected by climate change and climate policy. In addition, we have identified some of the opportunities relat- ing to the transition to a low-emissions economy. Norway. A potential trigger is if the policy is abruptly strength- ened to achieve Norway’s goals based on the Paris agreement. A potential effect is a country-specific fall in interest rate. We have used the Task force on Climate-Related Financial Disclosures (TCFD) recommendations as our framework for disclosing climate-related financial risks. Climate-related dis- closures are integrated throughout this annual report4), and a TCFD index can be found in appendix on page 210. The effects on investments and liabilities may be sudden in the form of market unrest or unfold gradually over time through lower average return and persistently low interest rates. A disorderly transition also poses a risk, for instance if policy initiatives are too strong relative to technology development and investment opportunities. Vulnerability from a lower oil- price and activity in the oil and gas-sector is a particular risk for 4) Further details regarding climate risks and opportunities can be found in Storebrand’s climate reports at https://www.storebrand.no/om-storebrand/barekraft/forpliktelser-utmerkelser-samarbeid#utmerkelser and https://www.storebrand.no/en/asset-management/sustainable-investments/document-library 20 STOREBRAND ANNUAL REPORT 2019SECTION 2. CLIMATE RISK AND OPPORTUNITY SCENARIO ANALYSIS European Central Banks and Supervisors have established the Network for Greening the Financial System (NGFS). Storebrand has used the NGFS framework to assess climate risks in dif- ferent scenarios. The scenarios differ in two dimensions. One dimension is the strength of the physical risk and the other dimension is whether the transition is orderly or disorderly. The scenario analysis incorporates findings from the Nor- wegian government’s Climate Risk Commission that relate to three core business areas: asset management, property investments, and insurance. Based on the scenarios below, we identified the potential risks and opportunities and assessed them in the short (1-3 years) and medium-long term (3-10 years)5). A simplified description of the scenarios used illustrated below: 1. Successful Climate Action 2. Late Transition 3. Drastic Climate Change 1.5oC 2oC 3oC Successful climate policy that delivers a swift transition to a low-emission society, achieving the goal of limiting average global warming to 1.5oC by 2100. No significant self-reinforcing mechanisms in the climate system are triggered. Climate changes are moderate, and worldwide economic implications are relatively minor as a consequence. Delayed changes to climate policy result in average global warming above 2oC by 2100. The economic and policy implications are consider- ably more pronounced than in the first scenario. In the short term, the transition presents less challenges for companies than in scenario 1. Late and more demanding climate policy increases the risk of financial instability in the long term. This is a scenario involving political failure and/or the triggering of major self-reinforcing mechanisms in the climate system, driving average global warming above 3oC by 2100 and resulting in economic instability in the long term. Main Impacts Main Impacts Main Impacts Low returns from companies unable to adapt to a low carbon economy, such as the risk of stranded assets6) in the short to medium term. Reputational risk from Storebrand being unable to meet increas- ing customer demands for green investments may affect our market position. Low absolute returns and financial instability due to climate related issues. Solution companies and projects are priced too high in the short term, creating a valuation bubble that may burst in the medium to long term. impact resulting The economic implications of the potentially catastrophic climate change from scenario 3 cannot be meaningfully quantified. We have therefore based our assessment on sce- nari os 1 and 2. 5)Since climate risk has been integrated into our structured risk assessment framework, which only looks at these two terms, we have not included the longer- term risks occurring beyond 10 years 6)Stranded assets are assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities 21 ASSET MANAGEMENT Our asset management’s largest climate-related financial risks and opportunities are believed to lie in the transition to a low-emission society. Climate policy and regulations, more rigorous emission requirements, a changed cost structure and market preferences may affect our investments. Our most important initiatives to mitigate these risks and capitalise on potential opportunities are listed below in sections 3 and 6. In addition, Storebrand Asset Management stress tested its investments through the 2 Degrees Investing Initiative scenario analysis tool PACTA7) in 2019. Transitional risk was mapped through exposure to high and low carbon technologies in the most important sectors, including fossil fuels and electri- fication in the transport sector. The results indicate how our investments are influenced by different scenarios, compared to reference portfolios. We were also one of twenty leading investors in the UNEP FI investor group on TCFD. The group developed models to enable scenario-based assessment and disclosure of cli- mate-related risks and opportunities. The group worked on methods to determine the value at risk for equity, bond and real estate portfolios. TARGETS AND METRICS • Carbon footprint in equity investments: 17.4 Tonnes CO2e per 1 million of sales income NOK/SEK (vs 22.1 Index) 8) Carbon footprint in bonds investments: 8.4 Tonnes CO2e per 1 million of sales income NOK/SEK (vs 14.8 Index)9) • • Number of active company engagements around cli- mate-related risk and opportunity: 135. REAL ESTATE INVESTMENTS Storebrand had direct real estate investments valued at NOK 42 billion at the end of 2019. Physical risk results largely from extreme weather impacts on real estate assets. Transitional risk is associated primarily with medium-long term uncertainty. We anticipate that the real estate sector will be subject to new requirements for energy and climate efficiency, and our ability to adapt to these requirements is crucial to man- aging risk as well as realising market opportunities. Mitigation measures that we have already implemented include real estate certification and Global Real Estate Sustainability Benchmark (GRESB) rating10) . In 2019, we participated in the TCFD project for developing a risk model for real estate investments. The model needs to be further developed. In addition, we have started developing a tool for climate accounting and forecasting for real estate. This should be completed in 2020. TARGETS AND METRICS • 100% environmentally certified real estate by 2030 The share of direct property investments that held a green building certificate in 2019 was 41%. Our target for 2025 is to increase this to 74%. • Sustainability rating of all real estate: Our direct real estate investments are rated by GRESB in four different portfolios, with rankings among the best of peers in Europe. The score increased nearly 7% from last year, to an average of 82 out of 100, corresponding to a four star rating out of five on a global basis. • Number of excluded companies due to serious climate • • and environmental damage: 94. Equity investments in fossil energy, billion NOK/ percentage of equity investments: 7.5 BNOK/2.6% In addition, our deforestation policy states that we shall have completely divested from companies that contribute to illegal deforestation by 2025. We are currently mapping all compa- nies with a high risk of contributing to deforestation and will report annually on this process starting in 2020. Additional metrics and targets can be found in section 3 below on page 33. Commitment to energy efficiency: Continuous improvements in energy efficiency are achieved through several operational optimisation initiatives. Total carbon emissions in direct real estate investments continued to decrease and was 10,228 tCO2e, equal to 9.12 tCO2e per m2 in 2019. Our target for 2025 is to reduce this to 6.5tCO2e/m2. Additional metrics and targets that are relevant for climate- related risks associated with real estate investments can be found on pages 33 and 61. 7) Paris Agreement Capital Transition Assessment. 8) Data available up to Q3 2019. 9) Data available up to Q3 2019. 10) GRESB assesses and benchmarks the ESG performance of real estate assets, providing standardised and validated data to capital markets. 22 STOREBRAND ANNUAL REPORT 2019 SECTION 2. CLIMATE RISK AND OPPORTUNITY INSURANCE The direct impact on insurance liabilities from climate change is limited for Storebrand. The greatest climate-related finan- cial risk for our real estate and casualty insurance business is physical risk in the form of increased payments due to cli- mate-related damage. In the long term, rising sea levels and changes in weather patterns may also have an impact. We believe that transitional risks, such as changing customer behaviour, technological developments and new regulations, will affect the real estate and casualty insurance markets. Our most important initiatives to mitigate climate risks are: • • • Risk assessment and pricing: climate factors are included in risk assessment and pricing in the underwriting process. Exposure mapping and reinsurance: We reinsure assets in areas with a high exposure to physical risks associated with climate change. Diversified risk through national plan: Participation in Norwegian natural perils pool is statutory and provides joint reinsurance protection linked to property insurance for real estate and housing. • • Pilot project under the auspices of UNEP FI: We are currently participating as one of 18 insurance companies to further develop standardised reporting for insurance providers in accordance with TCFD. The work is expected to be finalised in 2020. Rewarding damage prevention: We actively communi- cate with our customers, encouraging damage prevention measures, such as securing property during periods prone to flooding. TARGETS AND METRICS Insurance accounts for around 5% of our revenue and, as such, we do not have quantitative targets relating to climate risk. We do, however, have a focus on the mitigating initiatives mentioned above. 23 3 Financial Capital and Investment Universe We have two core objectives: to generate a return to our shareholders and to provide the best possible return for our customers on their savings so they can be financially secure during their retirement. We aim to be a leading player in the field of sustainable investments. 26 Provide a return to owners and customers 27 A driving force for sustainable investments 33 Key performance indicators 25 Provide a return to owners and customers WHY We are a publicly listed company and one of the largest pro- viders of pensions in Norway and Sweden. We therefore have two core objectives: to generate a return to our sharehold- ers and to provide the best possible return for our customers on their savings so they can be financially secure during their retirement. APPROACH Our core product is occupational pension plans, offered both to companies and directly to individuals. Legacy products that carry an interest rate guarantee shall be managed in a capi- tal-efficient manner to free up capital for shareholders over time. Non-guaranteed savings products are experiencing high growth at a low capital cost – a growth Storebrand is capturing together with our insurance offering. GOALS AND AMBITIONS We have the following operational goals: • Maintain our leading position within the occupational • • pensions market in Norway Continue our challenger role in Sweden with dou- ble-digit annual growth within occupational pensions Strengthen our Norwegian retail savings position through double-digit annual growth • Maintain our leading market position within asset management in Norway, while strengthening our inter- national presence Grow annual insurance premiums by at least 5%, with a combined ratio of 90-92% • Our dividend policy states that the aim is to pay an ordinary dividend of more than 50% of the group result after tax and at least the same nominal amount as the previous year. Ordi- nary dividends will be paid at a solvency margin of more than 150%. If the solvency margin is above 180%, the board intends to propose special dividends or share buy backs. To create further value, our ambition is to continue investment in prior- itised growth areas and deliver an overall return on equity of at least 10%. INITIATIVES In 2019 we announced that we will re-enter the Norwegian municipal occupational pension market following recent pension reforms. This opens up a completely new market esti- mated to be over double the size of the private sector market, when measured in assets under management (NOK 552 billion and NOK 248 billion respectively). 26 Storebrand’s asset management team further increased its focus on ESG-enhanced solutions in 2019. We acquired the private equity firm Cubera, strengthening our alternative invest- ment offering. Storebrand asset management also launched some of its ESG funds for international sales. RESULTS Storebrand delivered a return on equity of 8.0%, and the board proposed to the General Meeting an ordinary dividend of NOK 1,517 million, corresponding to NOK 3.25 per share for 2019. Fee and administration income grew 6% to NOK 5,308 million, but lower insurance results in 2019 lead to profit before amor- tisation of NOK 3,037 million, a reduction by 4% compared to last year. In Sweden, SPP gained market share through growth in new sales, premiums and transfers. STOREBRAND ANNUAL REPORT 2019SECTION 3. FINANCIAL CAPITAL AND OUR INVESTMENT UNIVERSE A driving force for sustainable investments WHY We manage customers’ pension savings over the span of decades so a long-term perspective to investing is key. Inter- national studies support our own observations that the most sustainable companies on the world’s stock exchanges tend to outperform their peers financially over time. They have a better understanding of the global development and how to manage risks and opportunities. The customers are also increasingly demanding sustainable investment products and solutions and 36% of the Norwegian population say they have stopped buying a product or service due to unsustainable practices in the company.11) APPROACH A key success factor in realising our sustainable investment strategy is ensuring that portfolio managers have the neces- sary tools to make well-informed decisions when identifying sustainability risks and opportunities. Three important tools to address these issues are solutions-oriented investments, active ownership and exclusions. Investing in Solutions Our investment strategy includes allocating capital towards more sustainable companies. To accelerate sustainable development over the next decade, we will be scaling up our investments in solution-oriented companies. We define solu- tion-oriented companies as firms that contribute to the UN Sustainable Development Goals (SDGs), without significantly hindering other SDGs or the Paris Agreement. Our solution company whitelist was updated in 2019 and is used in invest- ment decisions. It is part of the Storebrand sustainability score, which is based on a wide range of sustainability indicators and uses both internal analyses and data from third-party vendors. The score is comprised of both ESG risks and opportunities linked to the SDGs (see below). The score assesses compa- nies’ exposure to and management of financially material sustainability risks. This approach means we effectively iden- tify companies that offer both long-term financial returns and contribute to solving sustainability challenges. We invest more in these companies, and less in companies with a low score. 11) Results from a nationwide study in 2019 conducted by Norstat om behalf of Storebrand 27 STOREBRAND ANNUAL REPORT 2019 SCORING INVESTMENT OUTCOMES FOR SDG OPPORTUNITIES ENGAGING WITH COMPANIES TO REALISE SDGS Engage with the world’s largest corporate greenhouse gas emitters to curb emis- sions, strengthen climate-related financial disclosures and improve governance on climate change. Reduction of water use and GHG emis- sions within intensive livestock producers. Raise environmental standards in key sectors, such as palm oil. Raise awareness of international labour rights, particularly in high-risk sectors. Improve policies and performance regard- ing management-worker relations. Increase awareness of social issues in the palm oil industry and raising social standards. Promote measures to avoid corruption and bribery related to corporate gover- nance issues and systematic failure to detect fraud and corruption. Use voting rights to encourage greater accountability and transparency. Invest in companies that provide climate solutions and contribute to achieving the Paris Agreement. Invest in companies that provide solutions within sustainable management and effi- cient use of natural resources. Promote circular economy and improved waste management during a product’s life cycle. to companies that Ensure exposure provide sustainable urbanisation and transport systems and reduce the envi- ronmental impact of cities. This includes companies that improve air quality and waste management, promote inclusion, resource efficiency, mitigation and adap- tation to climate change, or resilience to natural disasters. Promote economic productivity through diversification, technological upgrading and innovation. Increase access to finan- cial institutions, banking, insurance and financial services for all. Invest in companies that promote energy efficiency and enable increased produc- tion, distribution and use of renewable energy in the global energy mix. Increase investments in clean energy infrastruc- ture, grid, storage and technology. Promote solutions for safe and afford- able drinking water, improved sanitation, water quality, water-use efficiency, water resource management and the resto- ration of water-related ecosystems. Promote companies that support pro- ductive employment and decent work for all women and men. Increase exposure to companies that work against discrim- ination, that provide equal pay for equal value work, and for equal opportunities in leadership at all levels of decision-making. 28 SECTION 3. FINANCIAL CAPITAL AND OUR INVESTMENT UNIVERSE EXCLUSION CRITERIA BASED ON THE SDGS THE STOREBRAND STANDARD (APPLIES TO ALL FUNDS) ADDITIONAL CRITERIA (APPLIES TO SELECTED FUNDS) Companies that derive more than 5% of their revenue from the production or distribution of weapons (small arms, military contracting and defence). Companies that derive more than 5% of their revenue from the production or distribution or fossil fuel reserves exceeding 100 million tonnes CO2. Companies involved in systematic corrup- tion and financial crime. Government bonds issued by countries that are systematically corrupt, system- atically suppress basic social and political rights, or that are subject to UN Security Council sanctions. Companies with more than 5% revenue from production or distribution of contro- versial weapons, hereunder nuclear, land mines, cluster munitions, biological and chemical weapons. Companies involved in serious environmen- tal damage. Companies with major stakes in coal and coal utilities and in oil sands. Companies with severe and/or systematic unsustainable palm oil production. Companies that cause or contribute to serious and systematic breaches of inter- national law and human rights. Companies that derive more than 5% of their revenue from the production or distribution of gambling or adult entertainment. Companies with more than 5% of revenue from the production or distribution of tobacco or recreational drugs. Companies that derive more than 5% of their revenue from the production or distribution of alcohol. 29 Active Ownership We exercise active ownership in the companies we hold shares in by voting at general meetings, including proxy voting, and direct dialogue with the management and boards of these companies. We prioritise direct dialogue when we believe this is the most effective way of influencing decisions relating to ESG issues. Through participation in the UN PRI (Principles for Responsi- ble Investments), we work with other investors to engage with companies in relevant areas of sustainable business, including climate and deforestation. Storebrand manages direct property investments in Norway and Sweden totalling NOK 42 billion, accounting for 5% of our invest- ment portfolio. We place stringent ESG requirements on how the properties we manage perform, and report on progress through GRESB . Exclusions All companies in our investment portfolio must satisfy the Storebrand Standard. This stipulates minimum requirements to human rights and international law, corruption and finan- cial crime, climate and environmental damage, controversial weapons and tobacco. It applies to all funds and pension assets in the Storebrand Group and ensures that customers’ money is invested in companies that comply with international norms and conventions. In case of serious violations of the Storebrand Standard, we use our role as owner to suggest improvements in dialogue with the company. If our engagement is not successful, the company is excluded from our investment portfolio. GOALS AND AMBITIONS We aim to be a strong agent for achieving lasting change in the way companies are managed – and at the same time provide good returns to our owners and customers. We put capital to work to finance socially beneficial, sustainable solutions and to reduce exposure to activities that impact society negatively. We aim to reduce greenhouse gas emissions from the compa- nies we invest in, and Storebrand as an asset owner is committed to having a net-zero carbon portfolio by 2050. Our coal exit strategy commits Storebrand to excluding com- panies that derive high revenues from coal. Storebrand will effectively divest from coal investments by 2026. Storebrand’s ambition is to have an investment portfolio that does not contribute to deforestation by 2025. A key objective is to ensure that we do not finance operations that are illegal, fail to protect high conservation value forests/land or violate the rights of workers and local people, as reflected in Storebrand’s policy on deforestation launched in 2019. All our property management services have a certified environ- mental management system. Our goal is to certify all individual properties in accordance with the BREEAM standard. 30 STOREBRAND ANNUAL REPORT 2019 SECTION 3. FINANCIAL CAPITAL AND OUR INVESTMENT UNIVERSE INITIATIVES Pathway Towards Decarbonisation We are members of Climate Action 100+, hailed as one of the most important global investor initiatives for tackling climate change, with more than 370 investors and USD 35 trillion in assets under management. We joined the UN backed Net-Zero Asset Owner Alliance in 2019, as one of 12 founding members. The aim is to leverage the role of active owners in order to reduce emissions in investment portfolios, whilst holding members publicly accountable for progress towards intermediate targets in line with Article 4.9 of the Paris Agreement12). Members commit to working with their portfolio companies to transition their production methods and energy sources to low carbon alternatives. In 2019, our CEO was invited to speak at a high level event at COP 25, representing the alliance and describing Storebrand’s measures to reduce the carbon footprint in our portfolios. We participate in and support the Accounting for Sustainabil- ity (A4S) initiative13). In 2019, 37 CFOs worldwide, Storebrand’s included, committed to helping their organisation achieve net zero emissions. Our coal exit strategy implies a 5% reduction in revenue from coal production in the companies we invest in every other year, meaning we will be effectively divested from coal by 2026. In 2019, we further strengthened our coal exit strategy by introduc- ing an absolute threshold of 20 million tonnes for coal mining and 10,000 MW coal power capacity, meaning that large compa- nies with significant yet relatively small shares of revenues from coal are also excluded. We released a deforestation policy in 2019 to encourage the elimination of deforestation through engagement with com- panies and investors14). The policy lays out what we expect of companies regarding their disclosure and management of deforestation risks. We also demanded climate action from the International Energy Agency (IEA), along with over 60 other international companies, organisations and academics, asking IEA to provide better tools for governments, investors and companies to align policies, investments and business strategies with the Paris Agreement. We have reported on our efforts to reduce greenhouse gas emissions from the companies we invest in, in line with The Portfolio Decarbonisation Coalition and Montréal Protocol since 2015. We have continued our dialogue with portfolio companies to use standardised reporting measures for climate-related dis- closures. We are a driving force for recommendations to The Task Force on Climate-related Financial Disclosures (TCFD). In 2019, we changed our methodology to report on carbon footprint metrics according to the TCFD recommendation using weighted average carbon intensity15). To advance our approach to climate-related reporting, both Storebrand Asset Management and Storebrand Life Insurance participated in the UNEP FI TCFD project for inves- tors and insurers in 2019. Our CEO also engaged in several initiatives in 2019, in order to promote climate friendly business practices and share knowl- edge and experience with other companies. The Norwegian business initiative Skift and the Nordic initiative Nordic CEOs for a Sustainable Future, are two examples. Our engagement in such initiatives will continue. “To accelerate sustainable development over the next decade, we will be scaling up our investments in solution-oriented companies.” Fossil-free investments 277 BNOK 12) http://www.mynewsdesk.com/no/storebrand-asa/pressreleases/storebrand-makes-unprecedented-commitment-to-net-zero-emissions-2919167 13) For more information, see http://www.accountingforsustainability.org/netzero 14) https://www.storebrand.no/en/asset-management/sustainable-investments/exclusions/deforestation-policy 15) Read our carbon footprint reports at https://www.storebrand.no/en/asset-management/sustainable-investments/document-library 31 31 Social and Governance Issues We continued our focus on deforestation in 2019 by acting as a lead investor in three different UN PRI initiatives that deal with soy, cattle and palm oil. Along with 250 investors with more than 16 trillion USD in assets under management, we demanded cor- porate action on deforestation in 2019. The call to action was heard both by companies and the Brazilian government. We co-hosted an event on deforestation, together with Norsif, to create better awareness about the topic and encourage Norwegian investors to join collaborative engage- ments with companies to tackle this issue. We are a signatory of an Investor letter asking companies to sign and implement the UN Women Empowerment Principles. The statement asks that companies strengthen their commitments and take decisive and concrete action towards gender equality. We cooperated with the Norwegian NGO Care and the consult- ing firm PwC in 2019, writing a report on the correlation between gender balance and corporate performance – and different ways of implementing these results when investing in companies. Storebrand is a signatory of the PRI Investor Commitment to Support a Just Transition on Climate Change launched in May 2019. The initiative intends to engage investors already active in climate change initiatives to make them aware of the social dimension linked to the transition to a low-carbon economy. In 2019, Storebrand launched its formal proxy voting policy16), which focuses on sustainability issues in shareholder resolutions. RESULTS We were recognised for excellent leadership in sustain- able investments by PRI, and were appointed as the only Norwegian asset owner among the PRI Leaders Group17) in 2019. Storebrand was included based on our management of external private equity investments. We also came second in the Ethical Bank Guide’s ranking of sustainable financial institutions18). SPP received the top ranking for sustainable investments by both Max Matthiessen19) and Söderberg & Partners20) in 2019. SPP Fonder made all their funds fossil free in 2019. As a result, one third of all AuM, NOK 277 billion, in the Storebrand Group was fossil free at year end. Storebrand was one of three lead investors engaging with Equinor as part of PRI’s Climate Action 100+. The engagement led to Equinor committing to take significant additional action on climate change. The share of environmentally certified real estate investments increased from 30% of real estate investment in 2018 to 41% in 2019. We work continuously with environmental management and investment in initiatives to optimise the environmental performance of the properties we manage, and have reduced energy and water consumption in Norwegian real estate invest- ments by around 30 % since 2011. We had excluded 181 companies from our investment uni- verse at the end of 2019 due to violations of our sustainability standard. Of these, 94 were due to serious climate and environ- mental damage, and 61 due to revenues exceeding 25% from the coal industry in line with our coal exit strategy. II) Pay-out ratio is adjusted for extraordinary tax income as per stock exchange release 15 January 2019 I) Adjusted for extraordinary tax income: 8.2% III) New definition 2018. Did not report in 2017. IV) Storebrand, SPP and SKAGEN, total AuM. V) pr. 4th quarter 2018 16) Read our proxy voting policy at https://www.storebrand.no/en/asset-management/sustainable-investments/document-library 17) Read more about the PRI Leaders Group at https://www.investmenteurope.net/news/4004890/storebrand-norwegian-pri-leaders 18) https://etiskbankguide.no/ 19) http://viewer.zmags.com/publication/47ce92ac#/47ce92ac/8 20) https://online.flippingbook.com/view/667717/22/ 32 STOREBRAND ANNUAL REPORT 2019SECTION 3. FINANCIAL CAPITAL AND OUR INVESTMENT UNIVERSE Key performance indicators For detailed KPI definitions, see page 222. Key performance indicators Result 2017 Result 2018 Result 2019 Goal 2020 Goal 2025 Return On Equity Solvency II Dividend pay-out ratio Percentage AuM screened for sustainability Billion NOK invested in fossil-free products 21) Carbon footprint from equity invest- ments: tonnes CO2e per 1 million NOK/SEK sales revenue (vs. index) Carbon footprint from bonds invest- ments: tonnes CO2e per 1 million NOK/SEK sales revenue (vs. index) Investment in solutions (solution companies, Green Bonds, and real estate with Green Building Certifica- te): Billion NOK/percentage of AuM22) Investment in green bonds, Billion NOK/Percentage total bond invest- 11.3% 172% 40% 100% 60 13.7% 173% 68% 100% 68 8.0% 176% 73% >10% >150% >50% >10% >150% >50% 100% 100% 100% 277 N/A N/A 28 (18) 22 (32) 17 (22) N/A N/A New New 8(15) N/A N/A New 38.8 BNOK / 5.5% 53.7 BNOK/6.5% 8% 15% ments New 8.4 / 2.9% 12.4 / 3.1% Investment in solution companies, Billion NOK/Percentage equity investments Certified green property, Billion NOK/Percentage total real estate investments23) Number/percentage companies excluded from investment universe in Storebrand Group Number / percentage company enga- gements to discuss ESG issues24) Number / percentage votes at AGM to promote ESG issues25) Energy intensity, real estate invest- New New New New New New 24.3 / 9.3% New 17 / 41% 171 / 5.9% 182 / 4.3% 314 / 10.8% 408 / 9.7% 530 / 41,6% 151 / 4.3% - - - N/A N/A N/A - - - N/A N/A N/A ments 189 kWh/m2 198 kWh/m2 184 kWh/m2 183 kWh/m2 172 kWh/m2 Water intensity, real estate investments 0,36m3/m2 0,38m3/m2 0.43m3/m2 0,34m3/m2 0,32m3/m2 Percentage of real estate investments with green certificate CO2 emissions real estate invest- 26% 30% 41% ments26): total / tonnes CO2e per m2 10551 / 10.25 10818 / 9.96 10228 / 9.12 Percentage waste sorted for recycling27) 71% 75% 71% 48% 8.6 75% 74% 6,5 80% 21) Fossil-free products are one of several ways to reach our overall goal of becoming net zero and we have therefore not set a specific goal for the amount invested in fossil-free products 22) We have decided to set an overall goal for 2020 and 2025, and not for each asset class 23) We have discontinued reporting total solutions as a percentage of AuM and replaced this with a more granular level of reporting, where the previous figure is divided into solution companies, green bonds and green certified real estate investments. 24) The number of companies engaged with has increased, while the percentage of investment universe has decreased due to an overall increase in the number of companies in our investment universe. 25) The total number of votes in 2018 was significantly higher in 2018 due to us testing out this model for engagement. In 2019, we launched our policy for voting, incorporating lessons learned from 2018. This has resulted in a more goal-oriented approach to active ownership, despite a reduction in total votes 26) Emissions factors have increased since we reported in 2018. We have therefore recalculated our emissions for 2017, 2018 and 2019 using the new factors in order to provide comparability over this three-year period 27) Di rect real estate investments in Norway only. Due to an earlier error in our calculation of sorted waste, this number has been revised for 2017 and 2018. Goals for 2020 and 2025 have also been increased to drive performance further. 33 4 Customer and Community Relations We offer customers a range of services designed to meet the breadth of their financial needs at all stages of their lives. 36 Financial freedom in all stages of life 38 Engaging, relevant and responsible advice 40 Engaging our customers through digital experiences 41 Digital trust 42 Key performance indicators Financial Freedom in All Stages of Life INITIATIVES In 2019 we launched the “Good Money” campaign, aimed at positioning us more clearly in the market as an investor with a unique competence in sustainable investments. Our brand should be recognised for excellence in combining good finan- cial performance with sustainable investments. In 2019 we developed an app that will provide customers with a complete overview of their expected financial situation during retirement. We also made improvements to My pension in 2019, aiming to provide a better overview over individual pension entitlement. RESULTS Nearly half a million Norwegians have checked their pension entitlement through our website since launching the service in 2013, and nearly 30% of these have purchased at least one product from Storebrand. In 2019, 70,000 customers found information relating to their pension entitlement through our website. “Customers shall be secure in the knowledge that we manage savings in a highly professional manner, contributing to at good return on investment” WHY Recent reforms to the Norwegian pension system have resulted in people having a larger responsibility for their own pension. This is especially true considering that life expectancy has increased, and that Norwegians can expect less support from the government to meet living costs throughout retirement. Pen- sions sit at the heart of our service offerings, and are our most important tool for helping customers achieve financial freedom. APPROACH We aim to increase awareness about personal finance by pro- viding simplified information and making good advice easily available for our customers. Developing digital tools and improv- ing digital communication are central. Customers shall be secure in the knowledge that we manage savings in a highly professional manner, contributing to a good return on investment. We provide information and advice to our corporate customers so that they can help their employees making better financial decisions. We focus on building strong relations with our corporate customers and between Storebrand and individual employees. We believe that the reasons we are a preferred provider of pension services include our customer seminars, easy access to qualified advisors and a simple communication without complex financial jargon. GOALS AND AMBITIONS My Pension is a digital tool that helps customers calculate expected pension entitlement, bringing together data from the State Pension Fund, private pension savings and employers’ pension contributions. The app, together with services such as our Guide to Financial Security, Smart Pension and Employee Overview are key to engaging employees, encouraging them to become private customers at Storebrand. Our aim is to offer customers a range of services designed to meet the breadth of their financial needs at all stages of their lives. We shall offer relevant products and services in banking and insurance. Our goal for 2020 is a 10% increase in number of customers who have products from at least one product line. We continuously work towards encour- aging and expanding access to banking, insurance and financial services for all (target 8.10). 36 STOREBRAND ANNUAL REPORT 2019 SECTION 4. CUSTOMER AND COMMUNITY RELATIONS 37 Engaging, relevant and responsible advice WHY Pensions and insurance are perceived by the general public as complicated. It can be difficult to understand which agreements and rights are collective and which are personal, as well as which conditions apply to the various agreements. If we are to succeed with our strategic goal of creating first-class customer expe- riences in the area of savings and pensions, we must take this challenge seriously. Throughout the various phases of working life, to the point of retirement, we work to provide our customers with an overview, necessary insight and understanding of their own pension and insurance agreements. APPROACH The starting point for all customer contact is the principle of “the customer first”. This is reflected in our service standards: • Trustworthy – I keep what I promise and I am professional • Caring – I treat everyone individually and I help them and give advice • Enthusiastic – I am positive and I exceed expectations • Efficient – I make the customer journey easy and I improve my organisation Relevant and responsible advisory services are the main prereq- uisites for customer satisfaction. Our aim is to consistently guide our customers to buy products and services that are relevant and appropriate for their particular life situation. If we do this effectively, we contribute to our vision of being customer centric. High ethical standards, expert advisory services and a focus on customer care, are fundamental. Our advisers are authorised either through a national authorisation scheme for financial advisers (AFR) or the approval scheme for salespersons and advisors in the area of property and casualty insurance (GOS). 38 STOREBRAND ANNUAL REPORT 2019SECTION 4. CUSTOMER AND COMMUNITY RELATIONS Both schemes are overseen by the Financial Services Industry. Our authorisation and qualification requirements are communi- cated to customers across digital platforms. GOALS AND AMBITIONS We aim to be known for having the best sustainable savings and pension solutions. Our ambition is to become the industry leader when it comes to customer satisfaction. Our goal for 2019 was to be among the top three. We also aim to improve customer relations and revenue per customer by increasing the number of products each customer has at Storebrand. Storebrand’s advice shall be based on the customer’s needs, and our ambition is for 75% of our savings advisors to be authorised at any given time28). INITIATIVES The interaction between digital and physical customer service is becoming increasingly important. Teams dedicated to digital and physical customer service work together to prioritise and develop initiatives. An important step in 2019 was introducing the Customer Engagement Platform, a transformational program that is based on a modern, data-driven CRM platform. This has redesigned our customer experience, making improvements on smarter use of data, and a more personalised customer experience, allowing us to better meet customer needs. We are working on a project for customers who are nearing retirement, called Retirement Management. By offering pension advice, combined with smart digital solutions, we aim to realise the potential in a customer group with uncovered needs. In 2019 we launched a new learning program for authorising new employees. We increased the number of authorised advi- sors and included bank and insurance advisors in the program. We also introduced a dedicated learning program for insurance advisors and started developing an authorisation program for credit advisors. RESULTS We were again ranked first in the Norwegian Customer Barom- eter’s annual survey of customer satisfaction in the corporate market. In the retail market, we maintained an NPS score29) correspond- ing to fourth place in Norway and fifth place in Sweden. With a market share of 20% in 2019, we maintained our position as one of the market leaders in Individual Pension Savings (IPS) amidst strong competition. In the market for transferable savings30), we had a market share of 19.9% in 2019. In the area of pension and savings, 22 new advisors were autho- rised according to the Authorised Financial Advisor program, bringing the total percentage of authorised advisors to 81% of all advisors at Storebrand. “Our ambition is to become the industry leader when it comes to customer satisfaction.” Market position: Pension #1 Corporate Market Norway 28) Staff turnover explains why our ambition is not 100%. 29) The Net Promotor System (NPS) is a measurement tool for customer satisfaction, in which the customer gives a score from 0 to 10, with 10 as the best result. 30) Free funds (Retail Market), individual pensions, individual capital, Pension Capital Certificates (PKB), and paid-up policies with investment options (FMI). 39 Engaging our customers through digital experiences WHY Of all the changes affecting our industry, technological progress and digitalisation are probably the greatest. Technology affects our entire business: our customers’ behaviour and expectations, opportunities to deliver services to customers, as well as opportu- nities to automate and transform how our products are delivered and experienced. APPROACH Digital & Innovation was established as a separate commercial group unit in 2019, creating better integration of technology expertise into our business development and operations. Digital Business Development is an interdisciplinary team, where product managers, business developers, IT architects, developers and interaction designers work together to improve customer experiences and solve customer problems through digital services. We maintain a close relationship with our customers in order to better understand their behaviour, challenges and service needs. GOALS AND AMBITIONS Our overarching ambition is to increase customer satisfaction and reduce costs through the use of our digital services. We aim to achieve this by enhancing the user experience, with more digital sales and self-service. In 2020 we shall further develop our pension app including all savings, not limited to pensions. Our goal is to have 130,000 app installations by the end of 2020. INITIATIVES Digital development was a high priority in 2019, and a broad range of improvements have been made to existing solutions, while also developing new services. Digital sales processes were improved across all business areas. We developed a fully digital mortgage application and approval process, automated health declarations for life insurance, and implemented a more intelligent process for helping customers initiate a savings plan. and what actions to take in order to ensure that savings generate a sufficient income throughout retirement. Our app for health insur- ance Get well was revamped with improved functionality, including direct booking of appointments and fully automated digital claims handling. We partnered with Eyr for in-app video consultations with doctors, Myworkout Go to measure and improve the physical age of our customers and incentivise better health outcomes, provided access to the user’s electronic health journal from Helsenorge, and Eprescription for viewing and renewing electronic prescriptions. We developed and expanded our cooperation with the app Dreams, which motivates customers to save through a supportive community and personalised savings strategies. We developed a new service in the Dreams application in 2019, which supports Norwegian households in reducing their debt burden. My pension was further developed in 2019, making the user expe- rience more intuitive, catering to the needs of employees of our corporate customers. This includes a digital savings advisor. RESULTS The total number of digital sales reached 150,000 in 2019, cor- responding to over 40% of total sales, and an increase of almost 15% from 2018 and more than triple compared to 2016. Results from the Digital Net Promotor System (Digital NPS), where customers are asked how likely they are to recommend Storebrand based on their digital experience, showed that more customers gave a very high score (9 or 10) than those giving a very low score (6 or lower). This indicates that customer satis- faction with our digital solutions continued to increase in 2019. The mobile application My pension, has a high ranking, and had been installed 17,000 times by the end of 2019. Get well reached 30% of the individuals with health insurance at Storebrand in 2019, and was used monthly by over 15,000 cus- tomers, who book more than 1100 physiotherapy sessions per month through this digital end-to-end process. The number of downloads of the Dreams app doubled, from 100,000 to over 200,000 in 2019, making it one of the most popular savings services on the market. Employees of our corporate customers are now being served by My pension. This mobile app helps users understand the value of their pension schemes, how it influences their total saving needs, Sajna, a fully digital occupational pension offered to customers in Sweden, won Digital Project of the Year at this year’s CIO Awards. 40 STOREBRAND ANNUAL REPORT 2019SECTION 4. CUSTOMER AND COMMUNITY RELATIONS Digital Trust WHY We live in a digital world, where our personal data is increas- ingly at risk of being misplaced, stolen or shared without our consent. In our efforts to create industry-leading customer experiences, it is critical that our customers are confident that their personal data is managed responsibly. New technology and intelligent use of information, and per- sonal data, enable us to better understand our customers and their needs. We can only do this because we have established a high level of trust amongst our customers. This will provide us with the necessary foundation for developing better, more relevant and more customer-centric products and services. APPROACH Our guidelines for the processing of personal data contain principles for digital trust, such as lawful and transparent processing, purpose limitation, rights of data subjects, and requirements for built-in privacy protection. We have imple- mented an internal control system throughout the entire data value chain. Through this system, we stipulate requirements, verify and continuously improve data security throughout the Group, internally, with our partners and in our customer solu- tions. In cases where the risk of a breach is assessed as being either medium or high, customers are contacted directly by tele- phone or email. In such cases, we inform customers what has happened, what measures we have implemented, and, where necessary, what action the customer should take to protect their personal data. INITIATIVES The managing director of each company in the Group is responsible for personal data management, including ensur- ing that internal control procedures are implemented and reviewed regularly. All managers at Storebrand are responsible for ensuring that employees with access to personal data have the necessary competence and are suitably qualified to secure our customers’ personal data rights, through following our pro- cedures for information security. Information security and data protection training are man- datory for all employees and are a part of our onboarding program for new employees. Employees who collect, process or have access to customer data receive mandatory training in data privacy. We have been dedicated to implementing the new General Data Protection Regulation (GDPR). Data protection and information security are well-integrated into our internal control systems and risk management processes. We continuously assess the privacy risk that we may expose our customers to. We also launched an improved version of our data protection declaration on our website and improved our online customer portal to provide individual customers with a better overview of their data protection settings31). RESULTS In 2019 all employees handling customer data received man- datory training on data protection. All new employees received the same training. In addition, several topic-specific workshops were held throughout the Group. GOALS AND AMBITIONS Our ambition is to engage our customers and build long-term relationships through delivering first-class customer experi- ence in all channels. This requires that we take responsibility for safeguarding our customers’ rights under the Personal Data Act. In 2019, 48 incidents32) related to the processing of personal data were reported. We reported 10 of these as non-con- formities (substantiated complaints) to the Norwegian Data Protection Authority in accordance with the General Data Pro- tection Regulation. All registered cases from 2019 were dealt with and are closed. No fines, warnings or mandatory improvements were issued to Storebrand by the Norwegian Data Protection Authority 31) Please visit our website: https://www.storebrand.no/en/online-security-and-privacy for more information about digital security and privacy. 32) A customer and process-related incident is defined as an undesired situation that has occurred as a result of a failure of internal processes, operational disruptions, human error, violation of internal/external regula- tions or external matters. The consequences may be financial loss or gain, extra work, loss of reputation and/or sanctions related to the violation of internal/external regulations. 41 STOREBRAND ANNUAL REPORT 2018 Key performance indicators For detailed KPI definitions, see page 222. Key performance indicators33) Result 2017 Result 2018 Result 2019 Goal 2020 Goal 2025 Customer satisfaction34) Market Share: Savings, Retail Market Norway Market Position: Pension, Corporate Market Norway Percentage female: pension savings Recognised for sustainable value creation (Retail Market Norway) Recognised for sustainable value #4 22% #1 43% #4 21% #1 43% New 2019 New 2019 creation (Corporate Market Norway) New 2019 New 2019 Customer satisfaction (Net Promoter System, Corporate Market Sweden) Expected pension as percentage of salary (My Pension) #8 58% #7 59% #4 Top 3 Top 3 20% Increase Increase #1 44% #3 #1 #5 #1 #1 Increase Increase Top 3 #1 #1 #1 Top 3 Top 3 60% Increase Increase 33) We have discontinued reporting for two indicators from 2019: a) GDPR courses, due to this being an important indicator to check implementation of new routines. We are however confident that these routines work well and that all relevant employees receive GDPR training as part of their induction; b) Sustainable Brand Index scores for UK and Sweden are being replaced by other indicators. In addition, complaints are now discussed under section 6 below. 34) Net Promoter System, Retail Market Norway 42 Key performance indicators SECTION 4. CUSTOMER AND COMMUNITY RELATIONS 43 5 People We recruit and develop people who are dedicated to finding the best solutions for our customers. 46 A culture for learning 47 Committed and courageous employees 48 Diversity and equal opportunities 50 Key performance indicators A culture for learning WHY Providing employees with opportunities for continuous learn- ing combined with a deep understanding of our customers’ needs are prerequisites for continued competitiveness in an industry undergoing rapid change. Greater breadth and diver- sity in expertise will contribute to continued growth and the ability to meet changing customer expectations. Digital skills, knowledge of customer preferences and insight into market developments are important to our success. APPROACH We recruit people who are dedicated to finding the best solu- tions for our customers. At Storebrand, all employees shall be able to develop in line with the company’s needs. In 2019, we developed our learning management systems to better facil- itate access to digital learning resources, strengthening our employees’ ability to take responsibility for their own learning. A working life with increased focus on knowledge as competitive advantage and higher levels of autonomy, requires employees to master the skill of self-management. A key aspect of this is the ability to continuously and proactively acquire new knowl- edge and apply this to create good customer experiences. GOALS AND AMBITIONS Our ambition is to build a learning culture marked by inno- vation, responsibility for one’s own learning and feedback to ensure continuous improvement. INITIATIVES In 2019, we increased the reach of our digital learning platform, Campus Storebrand. Mandatory training in ethics, anti-corrup- tion and anti-money laundering is facilitated via this platform. The platform is widely used by employees for training courses in sales and customer service, to access pre-reading resources to a range of courses, and to facilitate our employee training days under the theme “World-Class Together”. We continued to extend the reach and use of our Human Capital Management (HCM) platform to encompass onboard- ing materials for new employees in addition to materials for existing employees with regards to security and data privacy. Our digital program for middle management, Storebrand Lead- ership Weekly, started in 2018, and continued in 2019 with more than 20 middle managers from Sweden and Norway par- ticipating. A key topic in 2019 was trust and transformational management. 35) Turnover and role relevance explains why it was not 100%. 46 We continued the rollout of our working method “Build, Measure, Learn”, and our focus on developing an agile mindset in management training, self-organised learning networks and other gatherings. We aim to adopt this working method in product and service design throughout the Group. We launched our graduate program, Storebrand Future Impact in 2019. New and current employees with limited work expe- rience can apply to learn how to hone their skills and meet the global challenges of our time, responsibly, ethically and sustainably. The program focuses mainly on developing three skills; self-leadership, relations and collaboration and complex problem-solving. RESULTS In 2019, we offered 115 courses via the Campus Storebrand digital learning platform. A total of 1949 people attended one or more courses and completed a total of 5,696 hours of learning, with an average of 2.9 hours per person. However, this number does not accurately reflect all digital learning taking place, given that many employees complete training on many other web- based platforms such as Udacity, Coursera and LinkedIn, which are not tracked for completion. By the end of 2019, more than 70 % of our employees35) had completed training for the new Personal Data Act. All participants in Storebrand Leadership Weekly participated in the research project “Technology-based Management Devel- opment”. A 360-degree evaluation of managers before and after the programme documented a positive development in twelve parameters for “management” and “management per- formance”, relating to productivity, efficiency and satisfaction of employees. Our summer internship programme Sandbox received almost 1000 applications from Norway and Sweden in 2019. Ten stu- dents were accepted in Norway and six students in Sweden. The two first gatherings of Storebrand Future Impact were held in 2019. We received close to 200 applications in June, and five candidates were selected externally and paired up with 18 internal candidates. The participants represent the whole breadth of the company and with diverse backgrounds and skills ranging from IT to sales. During the program, the partici- pants will develop and present group case studies focusing on sustainability and organisational impact. STOREBRAND ANNUAL REPORT 2019 SECTION 5. PEOPLE Committed and courageous employees WHY Our employees are our most important source of innovation, development and growth. Employees who dare to innovate and challenge prevailing norms are essential to realising our goal of becoming a world-class savings group. APPROACH Our business relies on the trust of customers, partners, governments, shareholders and society at large. To gain trust, our organisation must be professional, capable and marked by high ethical standards. All employees shall act with due care, integrity and objectivity. Employee engagement surveys are conducted on a monthly or bi-weekly basis to measure well-being, commitment to work tasks, perception of sustainability and the experience of self-determination, amongst others. The results are followed up by the group management regularly. We encourage a good work-life balance for all employees. We aim to accommodate our employees’ needs for flexible working hours. Of our 1742 employees, only 59 (3%) are employed on a part-time basis (of which 50 are female). This is due to employee preferences. We offer permanent employees paid maternity and paternity leave equalling 100% of their salary, which is above the statu- tory requirements in Norway and Sweden. GOALS AND AMBITIONS Our ambition is to strengthen employee satisfaction, job sat- isfaction and engagement through meaningful work, good management, a motivating working environment, development opportunities and trust in the management. Our managers are responsible for setting clear objectives and for encouraging employees to collaborate with peers around how to achieve both collective and individual goals. INITIATIVES In 2019 we strengthened our ways of working through contin- uously using insight about the state of the organisation from bi-weekly/monthly pulse surveys. These surveys measure employee engagement across the entire group. RESULTS On average, 83% of the employees responded to the engage- ment surveys at least once during the last quarter of 2019. The engagement score measured in the surveys increased from 7.9 to 8.0 in 2019, on a scale of 1–10, where 1 is the lowest and 10 is the highest score. In the last half of 2019 the measurements also showed high scores in drivers regarding equality and diver- sity, freedom of opinion, high degree of autonomy, trust in open and honest communication with leaders and trust in colleagues doing quality work. The results also showed room for improve- ment on working environment regarding tools and equipment. Ongoing initiatives aimed at addressing these concerns are the upgrade of both hardware and software, with the ambition of fostering agile collaboration across the organisation. 47 Diversity and equal opportunities WHY Storebrand’s organisation and business activities should reflect the customers and market in which we operate. We believe that diversity contributes to an increased rate of innovation and a broader understanding across the breadth of our customer base. This appears to be supported by a number of International studies showing that companies performing well on diversity also tend to be more innovative and profitable36). APPROACH All Storebrand employees shall be treated equally, regardless of age, gender, disability, cultural background, religious beliefs or sexual orientation in recruitment processes and throughout the employment relationship. Storebrand works systematically to ensure diversity and equal- ity in recruitment, reorganisation processes, salary adjustments and offers of management training and other development ini- tiatives. We make a conscious effort to ensure that all employees, regard- less of cultural and religious backgrounds, experience a high level of workplace and job satisfaction. We work actively to achieve a gender balance through targeted recruitment measures as well as by nominating an equal number of women and men to executive positions and management development programmes. We aim to offer potential employees a transparent and inclusive recruitment process. We have a zero-tolerance policy against harassment and discrimination, and we strive towards equal treatment and equal opportunities in our recruitment and devel- opment processes. Storebrand has participated in a tripartite program called the IA Agreement since 2002. This program is based on the premise that involvement in activity through work promotes good health and well-being, and that early, active intervention can prevent absenteeism. The Group’s managers have established routines for inclusive follow-up of employees in the event of illness. GOALS AND AMBITIONS We aim to offer a good candidate journey throughout the recruitment process, ensuring that Storebrand is considered an attractive workplace. We will continue to develop our employ- ees and promote individual development of management skills amongst women. We work actively towards equal oppor- tunities and gender balance in work and economic life (target 5.5). Our goal is a 50/50 distribution of men and women in leading positions, and an equal dis- tribution of men and women in our management development programmes, as well as recruitment processes for man- agement positions. We aim to achieve decent work for all our employees. We have a goal of equal pay for work of equal value (target 8.5). Our policy on discrimination and our active promotion of good health and well-being at work support these objectives. "All Storebrand employees shall be treated equally, regardless of age, gender, disability, cultural background, religious beliefs or sexual orientation" 36) This was documented in our report Investing in Gender Equality from 2019, made in collaboration with PwC and CARE Norway. 48 STOREBRAND ANNUAL REPORT 2019 SECTION 5. PEOPLE INITIATIVES Our main work on diversity includes measures to promote gender equality. However, at the end of 2019 we established a diversity and inclusion committee, consisting of six employees nominated by the business. The committee shall raise aware- ness and increase the understanding of the importance of a diverse and inclusive working environment where people feel they belong. Additional initiatives are planned and will be imple- mented throughout 2020. Throughout 2019, we improved our communication with poten- tial new employees to make it as gender neutral as possible. There shall be (at least) one female and one male final candidate for recruitment to management positions. We expanded the use of social media to promote vacant positions. Every year, we nominate men and women on a 50/50 basis for our management programmes, and in cooperation with our elected representatives, we survey and analyse salary levels for various positions in order to eliminate differences based on gender. RESULTS Our work on diversity and gender equality continues to be a focus area going forward. At a group level, women account for 39% of all management level staff. This equates to 35% in Norway and 53% in Sweden. When it comes to employees, 45% are women in Norway and 53% are women in Sweden. In 2019, 44% of Storebrand ASA’s board members were women. Three of the ten members (30%) of the executive management team were women. Unfortunately, this is a reduction compared to 2018. Among the managers who reported directly to the executive management, 41% were women. The same number of women and men participated in the man- agement development offerings of the Storebrand Academy and Storebrand Leadership Weekly, as well as in the Sandbox programme for summer interns and Storebrand Future Impact program for graduates. The Group salary levels were reviewed in cooperation with the elected representatives during the salary adjustment process in 2019. We observed a slightly lower average salary for women than for men. 37) Includes Skagen and Cubera AS. The average age in the Storebrand Group was 43 at the end of the year. Average seniority was eleven years in Norway and ten years in Sweden. The Storebrand Group had 1,742 employees37) as of 31 December 2019. We have a good gender distribution in both Norway and Sweden amongst permanent staff, as detailed in the diagram below. Gender distribution Norway male 718 female 576 Sweden male 213 female 235 Absence due to illness has been low and stable for several years. Absence due to illness in our Norwegian operations was 3.1%, and 2.5% in our Swedish operations. No property damage was reported in the Storebrand Group in 2019. We had one reported accident, resulting in a light injury. 49 Key performance indicators For detailed KPI definitions, see page 222. All indicators in this table include Skagen, Cubera and Værdalsbruket. Key performance indicators Result 2017 Result 2018 Result 2019 Goal 2020 Goal 2025 Indicators Sick leave Norway Sick leave Sweden Number of employees (headcount) Gender balance, management Percentage women at management level 1-338) Percentage men at management level 1-3 Percentage women at management level 3 Percentage men at management level 3 Turnover rate for women for group Turnover rate for men for group New recruits to the group Number women hired during the year Number men hired during the year Male employees under 30 Female employees under 30 Male employees 30 - 50 Female employees 30 - 50 Male employees over 50 Female employees over 50 Female in Group Executive Management Team Female Directors in Group Board Average salary female employees39), Norway (NOK) Average salary male employees, Norway (NOK) Average salary female employees, Sweden (SEK) Average salary male employees, Sweden (SEK) Extended top management, share of men's salary per 2017 3.5% 3.5% New 38% New New New New New New New New New New New New New New New New New New New New New 2018 2.7 % 3.3 % 1667 39% 44% 56% 46% 54% 4.1 % 3.9 % 220 78 116 115 102 526 408 235 284 3 out of 9 5 out of 9 699,228 871,146 608,551 762,151 2019 3.1 % 2.5 % 1742 39% 39% 61% 41% 59% 4.7 % 5.5 % 204 78 126 109 117 531 379 264 302 3 of 10 4 of 9 743 684 914 107 644 484 811 717 2020 <3.5% <3.5% N/A 50% 50% 50% 50% 50% - - - - - - - - - - - 50% 50% - - - - 2025 <3.5% <3.5% N/A 50% 50% 50% 50% 50% - - - - - - - - - - - 50% 50% - - - - position category (haygrade 21-23) New 110.3 % 100.5 % 100% 100% All employees excluded for senior level staff, women's share of salary per position category (haygrade 13-20) CEO - Average worker pay ratio New New 99.2 % New 99.1 % 8.2:1 100% - 100% - 38) From 2019 gender indicators for management levels 1-3 will only be reported as percentage 39) Changes to the reported figures for average salaries for 2018 are due to the fact that the boundary for reporting people data now includes Skagen, Cubera and Vardalsbruk. This also applies to share of salary for men/women using the Hay grade scales. 50 STOREBRAND ANNUAL REPORT 2019Key performance indicators 51 6 Keeping Our House in Order Storebrand work actively to fight corruption and all types of financial crime throughout our business operations, with suppliers and other business partners. We aim to be energy efficient, reduce waste production, increase the proportion of waste sorted and reduce our carbon footprint. Anti-money laundering, financial crime and terror financing 54 Anti-corruption 56 57 Reducing our internal carbon footprint 58 60 Corporate citizenship 61 Key performance indicators Sustainable practices throughout our value chain 53 We expect all employees and contractors to act in manner that builds trust for both the individual concerned and for the Store- brand Group. As a general rule, no-one shall accept any form of benefits, including services, gifts and invitations, from Storebrand’s busi- ness relations. In situations where gifts may be accepted, our anti-corruption guidelines specify threshold values in NOK for all gifts. Gifts that are offered on behalf of Storebrand are subject to the same threshold value. No gifts shall be offered or accepted where there is an expectation of reciprocity, or to achieve any form of advantage, privately, or for any Storebrand company. All events held on behalf of Storebrand shall be consistent with our role in society, all content shall be professionally relevant, and shall otherwise adhere to our guidelines for events. GOALS AND AMBITIONS We have a zero-tolerance policy towards corruption, and our ambition is to avoid all incidences of corruption. All employees and board members shall complete our anti-cor- ruption program. The aim of this program is to ensure that employees are capable of making the right decision to avoid potential cases of corruption. STOREBRAND ANNUAL REPORT 2019 Anti-corruption WHY The nature of Storebrand’s business dictates that we are dependent upon unwavering trust from customers, authorities, shareholders and society at large. Trust is dependent upon our continued professionalism, competence and integrity. Corruption is a criminal offence under the Norwegian Criminal Act 2005. APPROACH We work actively against corruption throughout our business operations, with suppliers and other business partners. Our expectations for employees, temporary staff and con- sultants are stipulated in our ethical guidelines, approved by the board of Storebrand ASA and the boards of all subsid- iaries. We have additional guidelines specifically addressing anti-corruption, reviewed annually by the compliance team. The group’s compliance function is responsible for updating and disseminating material aimed at increasing anti-corruption competence and awareness. Our guidelines increase awareness about corruption and ensure that each employee is capable of identifying potential corruption risks at an early stage. The guidelines also specify measures that should be taken to avoid corruption. All employees are responsible for familiarising themselves with and acting in accordance with anti-corruption guidelines, including completing mandatory training, and managers shall ensure that this is done. All new employees complete manda- tory training as part of their onboarding process. Employees shall act with integrity and fully disclose any private business agreements or business-related services they provide to companies, individuals, friends or family members. 54 STOREBRAND ANNUAL REPORT 2019SECTION 6. KEEPING OUR HOUSE IN ORDER INITIATIVES The organisation uses e-learning to facilitate training in ethics, anti-corruption, anti-money laundering and terror financing. These courses are mandatory to complete every year to ensure solid business practice in line with our code of conduct. We have developed a designated area on our intranet for anti-corruption, with information about our expectations to business conduct for employees, including routines for dealing with grievances, harassment and improper conduct. We have an independent, third-party managed whistle-blowing system40) where employees and external business partners can register concerns, including relating to corruption. Storebrand’s compliance team is also available to discuss issues relating to corruption with employees, for example concerns about receiving gifts, invitations to events or other benefits from business partners that may be in breach of our ethical and anti-corruption guidelines. RESULTS Four issues were received through our third-party managed whistle-blowing system in 2019. None of these related to cor- ruption and all four issues were satisfactorily closed during the year. In 2019, 87% of our employees and all board members com- pleted mandatory anti-corruption training. 16.4 We are committed to fighting financial crime. 16.5 We are committed to fighting corruption and bribery in all their forms. 16.6 We are committed to developing effective, accountable and transparent companies. 40) Accessible at https://u.bdo.no/storebrand 55 STOREBRAND ANNUAL REPORT 2018 Anti-money laundering and terror financing WHY We are a key player in the finance market in the Nordics. Our reputation is contingent upon our ability to avoid being misused to finance terrorism, launder money or commit any other type of financial crime. GOALS AND AMBITIONS Storebrand shall act consistently and in compliance with rele- vant legislation regarding cases related to money laundering, terror financing and financial crime in general. APPROACH We have established guidelines to avoid money laundering (AML) and terror financing, which are reviewed and approved by the board. These guidelines build upon our ethical guide- lines. Each company in the Group shall conduct a risk assessment for financial crime and terror financing, and implement routines for identifying and establishing new customers. We conduct internal audits and regular spot checks to identify and report suspicious transactions or behavior. Activity that we suspect is in breach of the Norwegian Mea- sures Against Money laundering and Terror Financing Act (2018) is reported to the police. All employees are required to familiarise themselves with our guidelines for preventing financial crime, and shall complete our mandatory training program on AML and terror financing. All new employees complete mandatory training as part of their onboarding process. The training also provides employees with a basic understand- ing of the regulatory framework concerning financial crime and terror financing, as well as our requirements to employees and managers. Senior managers and board members for the Group and for each subsidiary also receive mandatory training in financial crime. We work systematically to ensure that our companies are not used for money laundering, terror financing or other forms of financial crime. All employees shall take mandatory training annually. INITIATIVES We have developed a designated area on our intranet for AML and terror-financing, with information about expected busi- ness conduct for employees. This applies across the Group’s companies. Employees shall complete a mandatory e-learning program in AML and terror financing. We are an active member of Finance Norway’s Committee on Financial Crime. The Committee works closely with the authori- ties in Norway and provides guidance to all member companies. RESULTS In 2019, 44 issues relating to financial crime were reported to the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime, and six issues to the police. Issues varied in gravity from suspected money-laundering, terror financing and tax evasion to docu- ment falsification. “We work systematically to ensure that our companies are not used for money laundering, terror financing or other forms of financial crime.” 56 56 STOREBRAND ANNUAL REPORT 2019SECTION 6. KEEPING OUR HOUSE IN ORDER Reducing our internal carbon footprint WHY At Storebrand, sustainability is integrated into our strategy, and we aim to be a role model. This is relevant for both the products and services we offer to our customers, but also for how we run our daily operations. APPROACH As early as in 2008, Storebrand became «climate neutral», as Norway’s first financial group. We achieve this by setting strin- gent requirements and establishing specific goals to minimise our carbon footprint. Storebrand’s environmental management system has been certified by Eco-Lighthouse since 2009, and we report publicly on environmental performance annually. Our facility management team monitor energy and water usage, waste production and waste sorting rate to ensure that we reach our goal of minimising our footprint. We purchase electricity generated by renewable energy with a guarantee of origin. In order to cut down on business travel, we encourage employ- ees to use technological solutions such as video conferencing. Over half of all meeting rooms are equipped with video-confer- encing facilities. We encourage travelling by train when travel is necessary. GOALS AND AMBITIONS We aim to set science-based targets by the end of 2020, aligned with the 1.5oC scenario41) covering the whole business, includ- ing own operations. We aim to be more energy efficient, reduce waste produc- tion, increase the proportion of waste sorted and reduce our carbon footprint arising from air travel and commuting. INITIATIVES In 2019, Storebrand committed to setting Science Based Targets in line with the Paris Agreement. This will include external verification of our targets once this is available for the finance industry42). 12.5 We aim to substantially reduce waste generation through prevention, reduction, recycling and reuse. 13.1 We strengthen resilience and adap- tive capacity to climate-related hazards and natural disasters in our operations and in our investments. 13.2 We integrate climate change mea- sures into our policies, strategies and planning. Residual CO2 emissions from own operations are compensated for by purchasing emission quotas and investing in carbon positive projects. To reduce unnecessary waste, we removed all plastic water cups, and introduced a discount for bringing your own cup to the coffee bar. We increased our electric car and electric bicycle fleet to make it easier and more reliable for employees to choose low- emissions travel where train travel is not feasible. RESULTS We saw reduced emissions from our headquarters, but unfor- tunately saw an increase in air travel and a reduced sorting rate. We will implement several initiatives, including an internal carbon price and updating our travel policy. We started working on re-designing the sorting stations in the cafeteria. Measures will be followed up closely, and more initiatives implemented if necessary. 41) So that the goal of limiting the average global heating to 1.5oC by 2100 is reached aligned with the Paris Agreement 42)The Science Based Target initiative is still working on which targets will be recognised as in line with the Paris Agreement 5757 Sustainable practices throughout our value chain WHY Procurement is a key area in our sustainability performance. To enhance efficiency and cost-effectiveness, we have increased the use of outsourcing. This demands more rigorous proce- dures for following up working conditions, safeguarding human rights and managing environmental impacts in our value chain. APPROACH We set clear requirements to our suppliers and business part- ners, by Storebrand’s Standard Annex for Sustainability. This is an annex to all tender requests and supplier contracts. In addi- tion to following our internal procurement guidelines, a key principle is that goods and services purchased shall support our key objective of cost effective, sustainable business operations. Our procurement policy is based on the group’s governing documents and associated routines43), which are revised annually. Sustainability is an important part of evaluating and allocating new contracts and is weighted at least 20%. Decla- rations concerning sustainability are required during requests for tenders. Sustainability is part of our evaluation of tenders and allocation of contracts. Sustainability performance requirements are specified in all contracts. The most important and largest purchases we make are for outsourcing of IT and business processes, health care ser- vices, claims settlement and management of direct property investments. We consider the areas with the greatest risk and opportunities for influencing sustainability to be outsourcing (including offshoring), claims settlement (cars and property), as well as property management in general. For larger and longer-term contracts, sustainability criteria are used for allocation of contracts and form part of our follow-up during the contract phase. 43) The governing documents include the “Guidelines for Outsourced Activities”, “Guidelines for Granting Authorisations”, “Code of Ethics”, “Guidelines for Combating Corruption”, “Guidelines for Combating Money Laundering, Terrorist Financing and Economic Crime”, “Guidelines for Dealing with Conflicts of In- terest”, ”Event Guidelines”, “Governing Document for Information Security” and the “Governing Document for the Processing of Personal Data”. 44) Eco-Lighthouse, EMAS, ISO14001 and Nordic Swan Ecolabel 58 GOALS AND AMBITIONS A key objective is to ensure that the Group does not enter into agreements with suppliers whose production processes or products violate international agreements, national legislation or internal policies. We shall contribute to sustainable develop- ment and to ensuring that human rights and labour laws are not violated. Our ambition is to increase the share of environmentally certi- fied procurement44) . We exceeded our 2025 goal already in 2019, with 57% environmentally certified procurement. We have there- fore revised our goal for 2025 providing us with an incentive to further drive environmental stewardship in our supply chain. 8.7 We implement measures to end modern slavery and eliminate child labour in our value chain. 8.8 We aim to protect labour rights and promote safe and secure working environ- ments for all our workers, contractors and suppliers. 12.5 We aim to substantially reduce waste generation in our supply chain. 12.6 We encourage companies to adopt sustainable practices. 12.7 We promote procurement practices that are sustainable. 13.2 We integrate climate change measures into our policies, strategies and planning. STOREBRAND ANNUAL REPORT 2019SECTION 6. KEEPING OUR HOUSE IN ORDER INITIATIVES We are a member of the United Nations Global Compact. Sup- pliers and subcontractors must demonstrate that they follow the same minimum standard for human rights, labour rights, environmental management and business integrity. For pur- chases of certain goods, or goods over a certain threshold value, we ask suppliers to document the life cycle cost and environmental properties of these products. All suppliers should observe the Guidelines of the Ethical Trading Initiative and/or the SA 8000 Standard. We continuously follow up strategic suppliers in the largest procurement categories. In 2019, we replaced all PCs for staff at our head office and through ongoing dialogue with our sup- plier, have ensured that all these PCs and all future IT hardware purchases are TCO-certified. RESULTS In 2019, contracts exceeding NOK 1 million accounted for a total spend of NOK 2.6 billion. This represents 91% of our total spend and includes the management and development of direct property investments. Of this volume, 57% is environ- mentally certified in accordance with our procurement policy. This volume is distributed between 297 suppliers, 65 of which (22%) are certified against a recognised environmental man- agement standard. 59 Corporate citizenship Voluntary community activities are a strong part of the Norwegian culture, and people from local communities or sports teams regularly volunteer to help local sports clubs and activity centres. Our «We cheer for» competition is one way we can provide financial support to local and global initiatives that are beneficial for the environment and society. RESULTS 337 YE start-ups competed in the sustainability category. The winning team invented a product that reduces micro-plastic waste from washing machines. 500,000 NOK was awarded to 17 “We cheer for” initiatives around Norway and 250,000 SEK was awarded to similar initia- tives in Sweden. WHY As a leading financial institution in Norway and Sweden, our role as a corporate citizen is important. A part of our sustain- ability work includes being active in the society we operate in beyond our role as a provider of financial services. APPROACH We have three main corporate citizenship activities: collabora- tions and sponsorships, donations and employee volunteering. These are aligned with our strategy, and should promote and increase awareness about sustainability, as well as demon- strating the connection between sustainability and financial prosperity. GOALS AND AMBITIONS We aim to combine financial contributions and knowledge to give back to society on topics related to sustainability. We also want to enable more employees to use their skills and time on corporate citizenship related activities. INITIATIVES Youth Entrepreneurship (YE) is a non-profit organisation encouraging high school students to establish and run their own enterprise. By initiating a sustainability award in this program, we educate students in how to run a sustainable business. In 2019, Storebrand and YE launched a mentor system, where the youth could discuss business issues with a Storebrand employee. In 2019, for the third consecutive year, ten employees were given an opportunity to be a mentor to a student with a minority language background through the Catalyst Mentor Program. Through monthly meetings at Storebrand, the students gained insight into Norwegian working life, help in developing them- selves and advice on school and working life. The program is a collaboration between Storebrand and the non-profit organ- isation Catalysts. The objective is to prevent students from dropping out of high school. 60 STOREBRAND ANNUAL REPORT 2019SECTION 6. KEEPING OUR HOUSE IN ORDER Key performance indicators For detailed KPI definitions, see page 222. Key performance indicators Result 2017 Result 2018 Result 2019 Goal 2020 Goal 2025 Environmentally-certified procurement45) 38% 46% 57% Total GHG emissions46) (Scope 1-3) tCO2e / tCO2e per FTE 1484 / 0.9 1444 / 0.9 1519 / 0.92 Scope 1 emissions tCO2 / tCO2 per FTE 1.9 / 0 1.4 / 0 1.1 / 0 Scope 2 emissions tCO2 / tCO2 per FTE 320 / 0.19 201 / 0.13 179 / 0.11 Scope 3 emissions tCO2 / tCO2 per FTE 1162 / 0.71 1241 / 0.77 1339 / 0.81 tCO2e emissions per FTE from air travel47) Energy use, main offices (kWh per m2) Water use48), main offices (m3 per m2) 0.64 151 0.3 0.69 147 0.29 0.74 150 0.32 55% 0.8 - - - - 150 0.31 60% 0.6 - - - - 145 0.3 Total waste Headquarters (total tonnes / kg per FTE) 201 / 122 209 / 130 203 / 123 200 / 121 190 / 110 Amount of waste sorted for recycling, main offices (percentage total waste) 82% 72% 72% Paper use, main offices (total kg / kg per FTE) 58952 / 50 41138 / 37 59199 / 36 CDP rating E-learning49) completed: ethics (total / percentage of FTE) E-learning completed: anti-corruption (total / percentage of FTE) E-learning completed: anti-money laundering and financial crime (total / percentage of FTE) Number of complaints handled by the Norwegian Financi- al Services Complaints Board B New New New New A - New A - 1518 / 88.9 % 100% 100% 79% 35 A 82% 30 A New 1479 / 86.6 % 100% 100% New 1523 / 89.2 % 100% 100% 135 192 N/A N/A 45) New goals have been set for 2020 and 2025 on the basis of exceeding performance expectations for 2019. 46) Emissions from Storebrand Group offices in Sweden and Norway. Emissions factors have increased and we have therefore recalculated our GHG emissions for 2017 and 2018 to provide for comparability. GHG emissions include all greenhouse gases and are therefore expressed as CO2e. We have set a goal for our total GHG emissions not for each scope. 47) We have discontinued reporting on average number of flights per FTE. This is not perceived as a relevant indicator due to the fact that a flight will have a very different impact on the environment depending on the distance travelled. kgCO2e per FTE relating to air travel therefore replaces this indicator from 2019. CO2 emissions from air travel has been recalculated for 2017 – 2019 due to updates to emissions factors in our travel agency´s systems. 48) Our paper consumption goal has been revised to further drive performance 49) From 2019 we start reporting for each course separately. Historical data for 2017 and 2018 refers to all courses at an aggregate level, for new employees only. Data for 2019 refers to the percentage of all permanent employees employed throughout the year. Turnover and new recruits explains the deviation from our goal of 100%. 61 7 Shareholder matters 63 STOREBRAND ANNUAL REPORT 2019 Shareholder matters SHARE CAPITAL, RIGHTS ISSUES AND NUMBER OF SHARES Shares in Storebrand are listed on the Oslo Stock Exchange (Oslo Børs) under the ticker code STB. Storebrand ASA’s share capital at the beginning of 2020 was 2,339.1 million kroner. The Company has 467,813,982 shares with a nominal value of NOK 5. As of 31 December 2019, the Company owned 943,190 trea- sury shares, which corresponds to 0.2% of the total shares. The Company has not issued any options that can dilute the existing share capital. SHAREHOLDERS Storebrand ASA is among the largest companies listed on the Oslo Stock Exchange measured by the number of shareholders. The Company has shareholders from almost all the munici- palities in Norway and from 51 countries. In terms of market capitalisation, Storebrand was the 16th largest company on the Oslo Stock Exchange at the end of 2019. SHARE PURCHASE SCHEME FOR EMPLOYEES Every year since 1996, Storebrand ASA has given its employees an opportunity to purchase shares in the Company through a share purchase scheme. The purpose of the scheme is to involve the employees more closely in the Company’s value creation. In 2019, each employee was given the opportunity to buy shares in Storebrand. 820 employees, around 47%, partici- pated and purchased a total of 361,970 shares. FOREIGN OWNERSHIP As at 31 December 2019, foreign ownership totalled 56.2%, compared to 56.3% at the end of the 2018. TRADING VOLUME FOR SHARES IN STOREBRAND In 2019, 335 million shares were traded, compared with 445 million in 2018. The trading volume in monetary terms was NOK 21,348 million in 2019, down from NOK 30,447 million in 2018. Storebrand was the 14th most traded stock on the Oslo Stock Exchange in 2019, measured in terms of NOK. In relation to the average number of shares, the turnover rate for shares in Store- brand was 72%. SHARE PRICE PERFORMANCE Shares in Storebrand yielded a total return (including dividends) of 16.9% during 2019. In the same period, the Oslo Stock Exchange’s OSEBX Index ended at 16.5%, whereas the European Insurance Index Beinsur yielded a total return of 24% for the corresponding period. DIVIDEND POLICY Storebrand’s dividend policy sates that the aim is to pay an ordinary dividend of more than 50% of the group result after tax and at least the same nominal amount as the previous year. Ordinary dividends will be paid at a solvency margin of more than 150%. If the solvency margin is above 180%, the board intends to propose special dividends or share buy backs. Storebrand share Highest closing price (NOK) Lowest closing price (NOK) Closing price on 31/12 (NOK) 2019 73.98 50.86 69.02 2018 75.20 59.48 61.64 2017 70.45 46.97 66.9 2016 47.10 28.45 45.92 2015 35.98 23.21 34.95 2014 40.65 27.52 29.9 Market cap 31/12 (NOK million) 32,289 28,836 31,296 20,660 15,724 13,137 Annual turnover (1000s of shares) 335,202 445,614 427,632 589,322 707,870 546,156 Average daily turnover (1000s of shares) Annual turnover (NOK million) Rate of turnover (%) Number of ordinary shares 31/12 (1000s of 1,346 21,348 71.7 3,094 30,477 95.3 2,450 25,359 94.9 2,780 21,249 131 2,820 20,907 157.3 2,185 19,123 121.4 shares) 467,814 467,814 467,814 449,910 449,910 449,910 Earnings per ordinary share (NOK) Dividend per ordinary share (NOK) Total return (%) 4.43 3.25 16.9 7.89 3.0 -4.22 5.28 2.1 49.1 4.73 1.55 31.4 2.63 0 19.7 4.61 0 -23 64 SECTION 7. SHAREHOLDER MATTERS CAPITAL GAINS TAXATION From 2016, new rules came into force in Norway concerning the taxation of dividends and gains on shares held by private individ- uals. The shareholder model entails that share dividends over the standard dividend tax exemption multiplied up by an adjustment factor (1.44 for the 2019 tax year) are taxed as ordinary income for the private shareholder (the tax rate is 22%for the 2019 tax year, which, together with the adjustment factor, gives an actual taxation of 31.68%). Share dividends within the standard dividend tax exemption are tax free. Tax exemption is calculated by multiplying the amount eligible for a dividend tax exemption by a dividend exemption interest rate. The dividend exemption interest rate is determined by the Directorate of Taxes in January following the previous tax year. It is based on the average three-month interest rate on trea- sury bills with an additional 0.5 percentage points added to it and then reduced by the rate for general income tax. INSIDER TRADING As one of the country’s leading financial institutions, Storebrand is dependent on maintaining an orderly relationship with finan- cial markets and supervisory authorities. The Company therefore places particular emphasis on ensuring that its routines and guidelines satisfy the formal requirements imposed by the authorities on securities trading. In this context, the Company has prepared internal guidelines for insider trading and own account trading based on the current legislation and regulations. The Company has its own compliance system to ensure that the guidelines are observed. THE 20 LARGEST SHAREHOLDERS Fund Manager Folketrygdfondet Allianz Global Investors T Rowe Price Global Investments Handelsbanken Asset Management Danske Bank Asset Management DNB Asset Management Vanguard Group KLP M&G Investment Management EQT Fund Management BlackRock OM Holding AS Storebrand Asset Management Deka Investment HSBC Trinkaus & Burkhardt Nordea Asset Management Arrowstreet Capital Dimensional Fund Advisors Carnegie Investment Bank (PB) BMO Global Asset Management (UK) INVESTOR RELATIONS Storebrand has a focus on comprehensive and effective com- munication with financial markets. Maintaining a continuous dialogue with shareholders, investors and analysts both in Norway and abroad is a high priority. The Group has a special Investor Relations unit. This unit is responsible for establishing and coordinating contact between the Company and external parties such as the stock exchange, analysts, shareholders and other investors. All quarterly reports, press releases and pre- sentations of interim reports are published on Storebrand’s website: www.storebrand.com/ir. GENERAL MEETING Storebrand has one class of shares, each share carrying one vote. The Company holds its Annual General Meeting each year by the end of June. Shareholders who wish to attend the General Meeting must notify the Company no later than 4:00 p.m. three business days before the General Meeting. Shareholders who do not give notice of attendance before the deadline expires will be able to attend the General Meeting, but concede their right to vote. SHAREHOLDERS’ CONTACT WITH THE COMPANY Shareholders should generally contact the operator of their securities account for questions or notification of changes, such as change of address. Current Rank Shares Ownership in % 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 51 635 337 29 360 824 23 041 438 19 065 179 18 446 682 15 987 409 13 342 814 12 447 973 11 953 592 11 700 000 9 272 853 8 517 075 8 074 788 6 779 598 6 361 427 5 933 499 5 544 992 4 970 961 4 765 300 4 745 455 11.04 6.28 4.93 4.08 3.94 3.42 2.85 2.66 2.56 2.50 1.98 1.82 1.73 1.45 1.36 1.27 1.19 1.06 1.02 1.01 65 8 Directors´ report 68 Strategy 72 Capital situation, rating & risk 74 Regulatory changes 77 Working environment and HSE 78 Group financial results 83 Official financial statements 67 Strategy 1 Buil a world class Savings business - support by insurance A B C D Leading position Occupation Pension Uniquely positioned in growing retail savings marked Asset manager with strong competitive position and clear growth opportunities Bolt-on M&A A. Cost discipline B. SII capital management framework C. Increased return 2 Manage balance sheet and capital 0% 2018 2020 180% 150% 176% Q4 2019 Manage for capital realease and increasing dividends Storebrand follows a twofold strategy, illustrated in the figure above. A WORLD CLASS SAVINGS BUSINESS, SUPPORTED BY INSURANCE The core of the strategy is to gather savings from Norwegian and Swedish pension customers, institutional customers and retail customers. The assets we manage are the most import- ant revenue drivers. In addition, we aim to capitalise on the savings and pension relationship by offering complementary products and solutions within insurance and banking. Storebrand’s core product, Defined Contribution pension, is expected to continue its strong growth. In Norway, this is still a relatively young product where the average policyholder’s age is about 50 years. This means that premium payments received exceed pension payments made. In Sweden, the market is more mature, but SPP’s position as a challenger, with growth exceeding market growth in 2019, has enabled us to increase our market share in 2019. Increased competition in the market has resulted in gradual margin decline, which is expected to continue. This requires cost reductions and efficiency improve- ments to achieve profitable growth. A genuine commitment to a sustainable society and a strong belief in sustainable investments form the basis of the Group’s strategy. As a sizeable asset manager, we create long-term returns for both shareholders and customers, while ensuring that our business contributes to a more sustainable world. Storebrand and SPP’s work with sustainability strengthens the Group’s competitive position, creates value for shareholders and positive effects on society. Read more about our sustain- ability work in parts 1 to 6 of this report. Due to Norwegian pension reforms over the last decade, future pensioners are expected to receive less pension income from the state and will have to take greater responsibility for their financial future. We expect that the changing regulatory frame- work will result in people saving more privately. Storebrand’s mission in society is help our customers achieve economic freedom and financial security. Against, this backdrop, we have defined the strategic focus areas outlined in the figure above. We continued to focus on our three strategic growth ambitions in 2019: Maintain a leading position in occupational pensions, leverage a unique position in the retail savings market and build on our asset management with strong competitive advantages and good growth opportunities. A broad insurance offering in both the retail and corporate market further supports the stra- tegic ambitions. 68 STOREBRAND ANNUAL REPORT 2019SECTION 8. DIRECTORS´ REPORT We have the following operational goals to succeed with our strategic ambitions: • Maintain a market leading position within occupational pensions in Norway and continue the challenger role in Sweden with double-digit annual growth within occupa- tional pensions; Strengthen the Norwegian retail savings position through double-digit annual growth in savings; • • Maintain a leading market position within asset manage- ment in Norway while strengthening our international presence; Grow annual premiums by 5% within insurance at a com- bined ratio of 90-92%. • A LEADING POSITION IN OCCUPATIONAL PENSIONS – KEY RESULTS In 2019, we maintained our leading market position in Norwe- gian private sector Defined Contribution pensions with a market share of 29%. The market is experiencing increased competition in anticipation of new Individual Savings Accounts. In Sweden, we continued to grow our market share from 13% to 14% through strong sales performance. New digital sales tools and successful efforts to activate individuals to transfer previ- ously earned pensions rights to SPP were some key contributors to the growth. Altogether, Storebrand’s Unit Linked reserves increased by 23% in 2019 and are expected to continue to grow by 12-15% annu- ally under normal market conditions. The decision to re-enter the municipal market for occupational pensions in Norway after recent pension reforms is an oppor- tunity to further strengthen our position as the leading pension provider. STRENGTHEN POSITION IN THE RETAIL SAVINGS MARKET – KEY RESULTS Within retail savings, the new sustainability concept “Bølge” gained traction. Our investment solution, focusing on Social Development Goal 7: Affordable and clean energy, had a return of 63.7% in 2019. Our partnership with the savings app Dreams continued to prove popular. The app had 150,000 downloads in Norway in 2019. The growth in the bank’s mortgage lending stabilised from pre- vious high growth levels. The bank’s profitability increased and ended the year with a return on equity of 10%. In the retail market, growth initiatives within insurance distri- bution contributed to an overall growth rate in the Insurance segment of 5%. The growth is primarily attributed to property and casualty (P&C insurance) in the retail market where premi- ums grew by 10% in 2019. COMPETITIVE ASSET MANAGEMENT SERVICES – KEY RESULTS Continued strong growth in occupational pensions and com- petitive returns to customers contributed to NOK 124 billion in increased assets under management in 2019. Our role as Nor- way’s largest private asset manager was affirmed with NOK 831 billion under management at year end. Return on equity* Target: >10% Dividend ratio** Target: >50% 8.0% 73% Solvency margin*** (Storebrand Group) Target: >150% 176% *) After tax, adjusted for amortisation of intangible assets. This report contains alternative performance measures (APM) as defined by the European Securities and Market Authority (ESMA). There is summary of the APMs used in financial reporting at storebrand.com/ir. **) After tax. The profit is based on reported IFRS results for the individual companies. ***) Including transitional rules. 69 During the year, we increased the focus on ESG-enhanced investment solutions and launched several funds for interna- tional sales through Skagen’s existing distribution channels in Europe. To complement our institutional offering of alternative asset classes, we also acquired the private equity funds-of- funds provider Cubera. Storebrand was in 2019 identified as an investor with excellent responsible investment practices in PRI Leader’s Group and the only Norwegian asset manager to receive this recognition. DIVIDEND FOR 2019 The board has established a framework for capital management that links dividends to the solvency ratio. The dividend policy shall reflect the growth in fee-based earnings, more volatile financial market earnings and future capital release from the guaranteed business that is in long term run-off. The Board’s ambition is to pay a gradually and growing ordinary dividend. In addition, the expected release of capital will increase returns over time, primarily in the form of share buybacks. Storebrand’s dividend policy: Storebrand aims to pay a dividend of more than 50% of Group result after tax. The Board of Directors’ ambition is to pay ordinary dividends per share of at least the same nominal amount as the previous year. Ordinary dividends are subject to a sustainable solvency margin above 150%. If the solvency margin is above 180%, the Board of Directors intends to propose special dividends or share buybacks. The implementation of a common technological platform for our brands Storebrand, SKAGEN, SPP Fonder and Delphi was completed during the year. This will contribute to greater effi- ciency and enable further scalable growth in the future. MANAGE BALANCE SHEET AND CAPITAL Historically, the core product used to be Defined Benefit pen- sions with a guaranteed rate of return. Guaranteed pensions are now in long-term decline and mostly closed for new busi- ness. Just over half of the pension assets managed, or NOK 263 billion of reserves, still carry a guaranteed rate of return. Despite volatile interest rate markets in 2019, we strengthened our solvency ratio and delivered returns above the guaranteed rate. This has helped build additional customer buffers against potential future market shocks. The average policyholder with such a contract is over 62 years old, which means that the majority of these pensions will soon be under payment. These products are managed with strong cost control and a disci- plined use of capital and risk taking in order to increase return to shareholders and customers. The Board proposes to the Annual General Meeting an ordinary dividend of NOK 1,517 million, corresponding to an ordinary dividend of NOK 3.25 per share for 2019. OUTLOOK The coming years will see important developments in the market for pensions, especially with the opportunity to enter the market for public sector pensions in 2020 and with Individ- ual Pension Accounts being introduced in Norway in 2021. An overwhelming trend towards sustainable finance is an opportu- nity for Storebrand to capitalise on its long history of sustainable investments. Specific developments in the regulatory landscape and risks are described in separate chapters below. Market Performance Financial market developments impact Storebrand’s solvency margin. Higher interest rates increase the solvency ratio and makes it easier to achieve returns above the guaranteed rate. Defined Contribution pension savings have large exposures to stocks meaning market movements will impact the fee income earned on assets under management. Currency movements between the Norwegian and Swedish krone affect the reported balance and results in SPP on a consolidated level. Trade tensions and weak economic indicators globally contrib- uted to financial market uncertainty during 2019. While stock markets rebounded significantly during the year after sharp declines towards the end of 2018, global as well as Norwegian and Swedish long-term interest rates were volatile, ending the year at a lower level than at the start. However, the Norwegian and Swedish central banks increased rates in 2019, resulting in higher short-term rates compared with levels at the start of the year. The Norwegian central bank forecasts a stable policy rate. Market risks are managed within a well-established risk frame- work, described in more detail in the section on risk below. 70 STOREBRAND ANNUAL REPORT 2019SECTION 8. DIRECTORS´ REPORT Financial Performance Financial performance in Storebrand is reported by business segment. The Savings business is expected to continue to grow in assets under management. Growth in assets from occupa- tional pensions in Sweden and Norway is expected at 12-15% annually. We aim to achieve additional growth in Asset Man- agement from the sale of our investment solutions to external clients. This is supported by the newly completed distribution set up for international sale of funds and increased focus on co-investment opportunities into alternative asset classes. Margins are likely to continue to gradually decline in line with a general trend in the industry and with the introduction of Indi- vidual Pension Accounts. Efforts to mitigate the effect include strong cost control, a focus on alternative asset classes and alternative pricing models. Our loyalty programme for employees of companies with an occupational pension plan with Storebrand is important to succeed in the retail market. Our efforts, enabled by new digital solutions for our customers, are expected to foster loyalty to Storebrand and contribute to further growth in both retail savings and bank lending as well as growth in the Insur- ance business. In the insurance business, we aim at 5% annual growth in portfolio premiums with a combined ratio of 90-92%. Efforts to increase the sale of P&C and other individual risk products have been successful. The profitability of the retail and corpo- rate markets is considered to be satisfactory in general. The Guaranteed Pension segment has been in long-term decline and flat growth in reserves is expected over several years before the reserves start to fall. Pensions are largely under payment, but the guaranteed return on reserves and continued build-up of buffers contribute to the flat develop- ment. Paid-up policies are still increasing as companies convert their old Defined Benefit plans to Defined Contribution plans and policyholders are entering retirement. The Guaranteed segment remains a significant result contrib- utor, albeit with declining importance and limited potential in the prevailing low-rate environment. Success in the public sector pension market will enable new profitable business within the segment. We have maintained nominally flat costs between 2012 and 2019. This is despite assets under management nearly dou- bling in the period and with continued investments in selected growth initiatives. This implies a reduction in real costs. The cost ambition is excluding any performance related costs in Asset Management or potential acquisitions. Lower cost through automation, digitalisation and partnerships are expected to cover normal investments in business growth and inflation the coming years. Capital Management The solvency ratio at the end of the fourth quarter was 176%, against our target of 150%. This means that the Group’s solidity is robust. We expect a gradual improvement of approximately 5 percentage points net of dividends in the solvency margin in the coming years form our ongoing business. Reduced capital requirements in the Guaranteed business may improve the solvency further. Financial market volatility and changes to regu- latory requirements may result in short-term movements in the solvency level. The Board’s ambition is to pay a gradually and growing ordinary dividend. When the solvency margin reaches 180%, the board intends to initiate a share buyback program. The purpose of the buyback program is to return excess capital released from the guaranteed liabilities that are in long-term run-off. A review of the solvency level and related share buy- backs will normally be conducted in connection with first half and full year results, starting first half 2020. 71 Capital situation, rating and risk CAPITAL SITUATION We adapt the level of equity and debt in the Group continu- ously and systematically. The level is adjusted for financial risk and capital requirements. The growth and composition of business segments are important drivers behind the need for capital. Capital management is designed to ensure an efficient capital structure and maintain an appropriate balance between internal targets and regulatory requirements. The Group’s target is to have a solvency margin in accordance with Solvency II of at least 150%, including use of the transi- tional rules. The solvency margin for the Storebrand Group was estimated at 176% at the end of 2019, including transitional rules. Without the transitional rules, the solvency margin was 174%. Storebrand uses the standard model for the calculation of Solvency II. Good risk management and a positive impact of the regulatory adjustment mechanisms in the solvency regulations more than compensate for challenging financial markets. The solvency margin without transitional rules strengthened 2 percentage points in 2019. The value of the transitional rules remained marginal throughout the year. Storebrand Life Insurance Group’s solidity capital consists of equity, subordinated loan capital, market value adjustment reserves, additional statutory reserves, conditional bonuses and risk equalisation reserves. The solidity capital strength- ened by NOK 3.4 billion to NOK 62.4 billion in 2019. The market value adjustment reserve increased by NOK 3.3 billion due to good market performance and amounted to NOK 5.5 billion by the end of the year. Conditional bonuses increased by NOK 1.1 billion and amounted to NOK 9.3 billion. Additional statutory reserves increased NOK 0.5 billion due to preliminary applica- tion of the investment return and amounted to NOK 9.0 billion at the end of the year. The excess value of bonds and loans that are assessed at amortised cost decreased by NOK 0.3 billion due to increases in interest rates and amounted to NOK 4.7 billion as at 31 December 2019. The excess value of bonds and loans at amortised cost is not included in the financial state- ments. 50) For detailed information about our work on climate risk, please see pages 19-23. 72 The Storebrand Bank Group had pure core capital adequacy of 17.5% and capital adequacy of 19.6% at the end of 2019. The Bank Group has adapted to the new capital requirements. The company has satisfactory capital adequacy and liquidity based on its business activities. The lending portfolio consists primarily of low-risk home mortgages with an average LTV (loan-to-value) of 57%. Storebrand ASA (holding) aims to have liquid assets on par with the Company’s interest-bearing debt and to fund portions of the liquidity reserve by equity over time. It held liquid assets of NOK 3.3 billion at the end of the year. Liquid assets consist primarily of short-term fixed income securities with a good credit rating. Storebrand ASA’s (holding) total interest-bearing liabilities were NOK 1.3 billion at the end of the year. This cor- responds to a net liquidity ratio of 9.8%. The next maturity date for bond debt for Storebrand ASA is in May 2020. In addition to the liquidity portfolio, the Company has an unused credit facil- ity of EUR 200 million, which expires in December 2023, with the option of an extension for another two years. Storebrand ASA recognised dividends and group contributions from sub- sidiaries of NOK 3,230 million for 2019. Dividends allocated to shareholders amounted to NOK 1,517 million. RATING Four companies in the Storebrand Group issue debt securities. All four companies are rated by the credit rating agency S&P Global. Storebrand Livsforsikring AS, the main operating entity, aims for at least an A- rating. In July 2019, the A- rating of Store- brand Livsforsikring AS and Storebrand Bank ASA was affirmed with a stable outlook. Storebrand Boligkreditt AS is rated AAA and the holding company Storebrand ASA is rated BBB. RISK Our risk management framework is designed to help protect customers, owners, employees and other stakeholders from adverse events or losses and covers all risks to which Store- brand is or may be exposed. Our main risks are business risk, financial market risk, insurance risk, counterparty risk, opera- tional risk, climate risk50) and liquidity risk. STOREBRAND ANNUAL REPORT 2019SECTION 8. DIRECTORS´ REPORT The Board of Directors of Storebrand ASA and the Boards of subsidiaries adopt a risk appetite and risk strategy at least annually. Risk-taking should contribute to achieving our stra- tegic and commercial goals, including customers receiving a competitive return on their pension assets and Storebrand receiving adequate payment for assuming risk. Risk appetite is defined as the overall risk level and what types of risk are deemed acceptable. The guidelines from the risk appetite are incorporated in our risk strategy, which sets the targets and frameworks. Based on these, more detailed strategies are compiled for different risk categories. Storebrand publishes an annual Solvency and Financial Condition Report (SFCR) which helps customers and other stakeholders understand the risks in the business and how these are managed. Overall, 2019 saw a positive development in reported incidents. The number of reported incidents were 6% fewer compared to 2018 and the number of “high” risk incidents decreased by 8%. The risk picture differs between business units. The main risks are described per business unit below. Insurance Insurance consists of risk products and property and casualty insurance. The price can normally be adjusted on an annual basis if the risk changes. The greatest risk is disability risk. More persons than expected may be disabled and/or fewer disabled persons will be able to work again. Some policies provide a pay-out in the event of death, but Storebrand’s risk from this is limited. In property and casualty insurance, most of the risk is linked to developments in claims payments from car and home insur- ance. Climate change is one factor which may affect future claims (see page 21-23). Savings Savings consists of unit-linked insurance and other non-guar- anteed pensions, the asset management business and the banking business. For unit-linked insurance, the customer bears the financial market risk. The disbursements are generally time limited, and Storebrand bears low risk from increased life expectancy. For Storebrand, the risk from unit-linked insurance is primarily changes in future income or cost. The asset management business offers active and passive management, as well as management of fund-in-fund struc- tures. Operational risks, including regulatory compliance, are the greatest risks. The greatest risks for the banking business are credit risk and liquidity risk. Virtually the entire loan portfolio is secured by mortgages, limiting our credit risk. Guaranteed Pension Guaranteed Pension encompasses savings and pension prod- ucts with guaranteed interest rates. The greatest risks are financial market risk and longevity risk. A common feature of the products is that Storebrand guaran- tees a minimum return. In Norway, the return must exceed the guarantee in each year, while in Sweden it is enough to achieve the guaranteed return on average over time. The guaranteed insurance liabilities are sensitive to changes in interest rates, where lower rates will increase the value of the liabilities and make it harder to achieve the guaranteed rate. We aim to control the risk through the investments, but there is a residual risk from lower interest rates. The traditional guaranteed products are closed for new busi- ness, but there is a large back-book of reserves. New premiums are mainly in Defined Contribution pensions (unit linked) or hybrid schemes with zero percent guarantee. Other The Other unit encompasses the holding company Storebrand ASA, as well as the company portfolios and smaller subsidiaries of Storebrand Life Insurance and SPP. The assets in Storebrand ASA and the company portfolios are invested at low risk, primar- ily in investment grade short-term interest-bearing securities. Below are the most significant regulatory changes and their possible effect on Storebrand. 73 Regulatory changes EUROPEAN REGULATIONS Solvency II 2020 review The European Insurance and Occupational Pension Authority (EIOPA) has launched a public consultation on changes in the Solvency II standard model. EIOPA has proposed changes in the interest rate risk module that appear to increase the sol- vency capital requirement for NOK and SEK. EIOPA will present final proposals to the Commission in June 2020, and final con- clusions drawn by the Commission, the Parliament and the Council in 2022. Sustainable finance The European Commission is working on regulations for sus- tainable finance. This is in line with the action plan for the financing of sustainable growth and aims to contribute to more investments in sustainable businesses, as well as increasing the robustness of the financial system with respect to climate- related risk. Regulations will be introduced in three main areas: 1. A uniform taxonomy defining sustainable economic activities. 2. Requirements for disclosure on sustainable investments and sustainability risk. 3. Reference values for carbon emissions (carbon benchmarks). The new EU regulations will establish standards for sustainable asset management and stipulate requirements for report- ing and customer information. We consider this a positive step, providing improved rigour to financial and non-financial disclosure, better information to key stakeholders, as well as improved benchmarking through comparable data across the finance sector. Our current level of disclosure is deemed to be enough to meet the requirements of the proposed regulations, and as such do not represent a key risk in terms of compliance. The Commission will consider developing a labelling scheme (EU Ecolabel) for sustainable investments based on the taxon- omy. The taxonomy will come into force in December 2021. NORWEGIAN REGULATIONS Individual Pension Accounts In April 2019 the Norwegian parliament passed legislation that will introduce individual pension accounts in the private sector Direct Contributions (DC) market. This is expected to come into force in 2021. Individual pension accounts will consolidate the DC market by transferring pension capital certificates from pre- vious employers to a single pension account with the current employer’s pension provider. This transfer will occur automat- ically, unless the employee chooses to opt out. Employees can choose to transfer their pension earnings to a provider of own choice. The employer will cover asset management cost for contri- butions during current employment (active part) while the employee will cover asset management costs for previous earnings (pension capital certificates that are transferred to the new pension account). A key aim of the reform is to reduce the costs associated with the administration of pension contributions from previous employers. This will in turn entail lower income for the provid- ers. The reform will initially transfer pension contributions from a retail market for Pension capital certificates to a corporate market for active Defined Contribution schemes. We are well positioned in this market. Over time, the individual’s option to transfer the account to a provider of own choice may contrib- ute to further individualisation of the market for pensions. This may require Storebrand to further strengthen its position in the retail market. Transfers require new digital infrastructure for handling opt- outs and exchanging information and payments between companies. It is important for Storebrand to seek solutions that ensure a good implementation of the reform, while at the same time limiting additional administrative costs. We are part of a multi-stakeholder Implementation Committee established by the Ministry of Finance. 74 STOREBRAND ANNUAL REPORT 2019SECTION 8. DIRECTORS´ REPORT Public service pensions New public sector occupational pensions will be introduced from 2020. We provide administration and asset management services for municipal pension funds and decided to enter the insured municipal pension market in 2019. When collective guaranteed pension contracts are transferred to other providers, the provider which the customer transfers from can withhold market value adjustment reserves up to two per cent of technical provisions. The Ministry of Finance has abolished this regulation with effect from December 2019. Storebrand views this as having a mainly positive impact on the market for public sector pensions, facilitating competition by creating a more level playing field and increasing transfer values for municipal customers moving from KLP. Contractual pensions (AFP) The Confederation of Trade Unions (LO) and Confederation of Norwegian Enterprise (NHO) are working on changes to the AFP scheme, as a basis for the negotiations during the annual wage settlement in the spring of 2020. Changes in the collectively agreed AFP scheme, making this a more predictable benefit for employees, could have an impact on demand for regular occu- pational pension. Regulations for guaranteed products The Ministry of Finance is considering proposals from the Financial Supervisory Authority (FSA) regarding changes in guar- anteed pension regulations. The FSA proposals follow up from a Working Group report on guaranteed pensions published in September 2018. The Working Group assessed the regulations for profit sharing and buffer building, as well as rules regulating the transfer of pension assets between providers: • The opportunity for companies to build up additional stat- utory provisions separately for individual contracts. • • Merging the additional statutory reserves and the market value adjustment reserve into a new customer-distributed buffer reserve that could also cover negative returns. The opportunity for the company to fulfil annual interest rate guarantees with borrowed equity. The opportunity for customers to choose faster disburse- ments for small paid-up policies. The opportunity for the companies to compensate custom- ers when transitioning to paid-up policies with investment options. • • The FSA also proposed removing the ability to book fixed income investments at amortised cost. Storebrand, alongside other pension providers, has advocated against this proposal. In the consultation paper, the Ministry of Finance points to the arguments against this and emphasises that such a change only will be considered should it prove to be significantly favor- able to the customers. The Ministry of Finance will decide on which proposals to put forward to parliament after a public consultation which ends in April 2020. 75 SWEDISH REGULATIONS Official report on the premium pension (PPM) of the national retirement pension system The second report on the PPM was published in November 2019. From January 2021, a new law will require funds on the platform to be selected through a procurement procedure under new criteria for fees, quality and sustainability. The report proposes Sweden’s AP7 fund to be given the authority to manage the procurement proceedings in addition to man- aging the default investment option in the PPM system and run under the new name “Authority for the Premium Pension Fund Management”. The procurements are expected to start in 2021 and the reform shall be fully implemented by 2024. The PPM fund platform is a large distribution channel for Storebrand funds. The new fund platform is expected to offer fewer funds than what is available on the platform today. New transfer market regulation A new regulation with the purpose of increasing the transfer- ability of pensions policies came into force in January 2020. The new rules limit the amount of fees that can be charged upon transferring pensions rights to competing providers. In accor- dance with the new regulation, SPP adjusted its transfer fees. SPP is a proponent of increased transfer rights and welcomes the new regulation. The Swedish government has been asked by the parliament to propose further measures that could lead to further adjustments in the fee models. 76 STOREBRAND ANNUAL REPORT 2019Working environment and HSE Every year managers must confirm in writing that they have discussed ethics and ethical dilemmas, information security, financial crime and HSE in departmental meetings. There was one injury to a staff member in 2019. No damage to property was reported, and no accidents were otherwise reported in the Storebrand Group in 2019. Storebrand’s absence due to illness has been at a stable low level for many years. Absence due to illness was 3.1% in Norway and 2.5% in the Swedish business. Storebrand has been an “inclusive workplace” (IA) company since 2002, and the Group’s managers have over the years built up routines for the fol- low-up of employees who are ill. All managers with Norwegian employees must complete a mandatory HSE course, in which following up illness is part of the training. Storebrand’s work in this area is elaborated on in Chapter 5 – People and Chapter 6 – Keeping Own House in Order. 77 Group financial results for 2019 The Storebrand Group’s annual financial statements have been prepared in accordance with the International Finan- cial Reporting Standards (IFRS). We the Board of Storebrand ASA confirm that we meet the conditions for preparing finan- cial statements on the basis of a going concern, pursuant to Norwegian accounting legislation. Our financial result is reported by business segment: Savings, Insurance, Guaranteed Pension and Other as well as on a consolidated Group level. The insurance result had a combined ratio of 91% (82%), in line with target. Higher disability claims in 2019 and the dissolution of reserves in a 2018 explain the development in the result. Operational costs amounted to NOK 4,015 million (NOK 3,786), but adjusted for performance related costs, the consolidation of Cubera and restructuring costs, the Group’s underlying oper- ational costs were in line with the cost target. Our goal is to keep the costs nominally flat between 2012 to 2020, which will entail a reduction in the real costs. Overall, the operating profit amounted to NOK 2,298 mil- lion (NOK 2,516 million). The financial items and risk result increased 15% due to positive developments in financial mar- kets compared to 2018. Amortisation of intangible assets amounted to NOK 444 million (NOK 360 million). The increase stems partly from the acqui- sition of Cubera. Ordinary depreciation of intangible assets is expected to be around NOK 110 million per quarter in 2020. The Group profit before tax was NOK 2,593 million (2,799 mil- lion) resulting in a tax of NOK 511 million (NOK -898 million). In 2018, the booked tax income was a result of transitional effects related to new tax legislation in Norway. The effective tax rate is influenced by the different tax rates in the countries Storebrand has operations in. The tax rate is estimated to be between 21-23% for 2020. For more information on tax and uncertain tax positions, see Note 26. Storebrand has a policy for responsible taxation and publishes a separate tax trans- parency report52). GROUP PROFIT • • • Group profit51) NOK 3,037 million Solvency margin of 176% The Board proposes a dividend of NOK 3.25 per share NOK million Fee and administration income Insurance result Operational cost Operating profit 2019 2018 5,308 5,011 1,005 1,291 -4,015 -3,786 2,298 2,516 Financial items and risk result life 739 642 Profit before amortisation 3,037 3,158 Amortisation and write-downs of -444 -360 intangible assets Profit before tax Tax Profit after tax 2,593 2,799 -511 898 2,082 3,697 Storebrand achieved a group profit before amortisation of NOK 3,037 million (3,158 million). Group profit after tax was NOK 2,082 million (3,697 million). The figures in brackets show the comparative figures for the same period last year. Fee and administration income increased by 6%. The under- lying income performance is marked by growth in Defined Contribution occupational pensions. Improved relative perfor- mance in funds with performance fees contributes as well. 51) Profit before amortisation and taxes 52) See separate report on our website for more information 78 STOREBRAND ANNUAL REPORT 2019 SECTION 8. DIRECTORS´ REPORT SAVINGS The Savings business had a year with strong growth in assets under management fuelled by good market returns, growth in new business and improved relative fund performance. Return on standard defined contribution pension portfolios in the ITP scheme NOK million 2019 2018 Fee and administration income 3,996 3,709 Operational cost Operating profit -2,621 -2,405 1,375 1,303 Financial items and risk result life -11 -46 Profit before amortisation 1,364 1,257 Financial Performance Total fee and administration income increased by 8% to NOK 3,996 million (NOK 3,709 million). The increase is attributed to underlying growth from volume growth, new business and higher savings rates as well as improved relative fund perfor- mance in funds with performance fees. Increased competition contributes to moderate margin pressure both for the Norwe- gian and the Swedish Unit Linked products. The bank achieved a higher net interest margins of 1.26% (1.22%) for mortgage lend- ing to the retail market compared to the previous year. In Asset Management, growth in index-based products slowly leads to lower gross margins. Profit before amortisation grew by 9% and amounted to NOK 1,364 million (1,257 million). Operational costs increased slightly in 2019 – partly explained by higher performance related costs but also by underlying growth in the business. The recent acqui- sition of Cubera is included with a profit of NOK 37 million. Balance sheet and market performance Unit Linked premiums grew by 7% and amounted to NOK 17.2 bil- lion. The total reserves (assets under management) in Unit Linked increased by 41 billion (23%) compared to the previous year and amounted to NOK 220 billion at the end of the 2019. Growth was driven by new sales, higher savings rates, growth from wage adjustments and good market returns. See the graph above. 20.9% 23.0% 14.8% 7.9% 6.9% 10.5% 8.2% 12.8% 11.3% 8.0% 5.1% 4.7% 3.4% 3.0% 2.5% Extra Cautious Cautious Moderate Aggressive Extra Aggressive 2019 3 years Since inception In Norway, Storebrand retained its position as the market leader in Defined Contribution schemes, with a 29% market share. SPP is the fourth largest provider of non-unionised occupational pen- sions with a market share of 14%. Assets under management in Storebrand Asset Management increased by NOK 124 billion or 18% compared to the previous year. This includes the consolidation of Cubera with NOK 20 bil- lion. The increase was attributed to positive inflows and financial markets in 2019. At the end of year, assets under management amounted to NOK 831 billion divided into portfolios for Storebrand Life Insurance and SPP, institutional mandates and distributors, as well as retail savings. Key figures – Savings NOK million Unit Linked reserves Unit Linked premiums AuM Assets Management Retail Market Lending 2019 2018 219,793 179,299 17,168 16,021 831,204 707,297 48,161 46,526 PENSION SAVINGS NORWAY 296 BN INSTITUTIONAL MANDATES AND DISTRIBUTORS* 293 BN PENSION SAVINGS SWEDEN AUM 831BN NOK DIRECT RETAIL SAVINGS NORWAY 168 BN 42 BN *)Company capital of NOK 31 billion is not allocated to any of the customer segments but included in the sum 79 INSURANCE Insurance delivered an overall combined ratio and premium growth in in line with our ambition, supported by successful growth initiatives in the retail market. Higher disability claims in 2019 as opposed to a positive effect from dissolution of reserves in 2018 resulted in a lower insurance result in 2019. Key figures – Insurance Key figures Claims ratio Cost ratio Combined ratio 2019 74% 17% 91% 2018 66% 16% 82% Balance sheet and market performance The Insurance segment offers a broad range of products to the retail market in Norway, as well as to the corporate market in both Norway and Sweden. The total premiums written for the segment at the end of 2019 amounted to NOK 4.7 billion (NOK 4.5 billion), an increase of 5% in line with our growth target. Of these, NOK 1.9 billion (NOK 1.7 billion) is in the retail market and NOK 2.8 billion (NOK 2.8 billion) in the corporate market. Our growth in the retail market has increased both within P&C and Individual Life due to a strong contribution from sales agents. In combination with our own distribution channels, this should contribute to profitable growth. Margins within the seg- ment remain attractive and Storebrand aims to continue grow its market share from today’s small levels. The corporate market is competitive and more mature with a strong focus on price. In Sweden, the disability trend has been declining for a long time, which has resulted in better results. Health insurance is a growing market with good profitability and where Storebrand is one of the market leaders. Storebrand is a relatively small provider in the market for Group life insur- ance. The claims ratio has been high, but price increases are implemented as of January 2020 in order to improve the result. NOK million Insurance premiums f.o.a. Claims f.o.a. Operational cost Operating profit Financial result Result before amortisation 2019 2018 3,909 3,854 -2,904 -2,562 -648 -614 357 677 83 71 439 748 Financial performance The Insurance profit was NOK 439 million (748 million), with a total combined ratio of 91% (82%) in line with our profitability target. Insurance premiums for own account increased by 1.4% as a result of new growth initiatives in the retail market. The pre- mium level was stable in the corporate market. The lower result and higher combined ratio is due to higher disability claims in 2019, as opposed to 2018 which was positively affected by dis- solution of reserves. The underlying profitability and efficiency were good and showed satisfactory performance. The combined risk result gave a claims ratio of 74% (66%) and the underlying risk performance was satisfying. P&C insurance delivered a good underlying result and was further strength- ened by dissolution gains. Individual life maintained good profitability. Higher disability claims increase the claims ratio in Individual life and Group life, while increased price competition weakened the result in Norwegian Pension related disability insurance. The result for the Swedish risk products was good and explained by a lower claims ratio. The cost percentage was 17% (16%). The increase is mainly explained by increased commission fees to the sales agents. The investment portfolio of Insurance in Norway amounted to NOK 8.3 billion (NOK 8.1 billion), which is primarily invested in fixed income securities with a short or medium duration. Finan- cial returns increased in 2019 due to higher short-term rates. 80 STOREBRAND ANNUAL REPORT 2019 SECTION 8. DIRECTORS´ REPORT GUARANTEED PENSION Guaranteed Pension delivered a strong financial and risk result supported by positive market developments. NOK million 2019 2018 Fee and administration income 1,475 1,440 Operating costs Operating results Risk result life & pensions Net profit sharing -819 -816 657 624 215 191 157 333 Result before amortisation 1,029 1,148 Financial performance The profit for Guaranteed Pension amounted to NOK 1,029 million (NOK 1,148 million). While the operating profit and risk result improved in 2019, net profit sharing in 2019 was lower than in 2018 due to dissolution of reserves of NOK 200 million last year. Fee and administration income in 2019 was in line with the previous year and amounted to NOK 1,475 million (NOK 1,440 million). This is consistent with the fact that the products are in long-term decline. Norwegian Paid-up policies had a 12% increase in income in 2019, while SPP and Norwegian Defined Benefit experienced 2% and -3% growth, respectively. Operat- ing costs remained flat compared to 2018 and have declined over time, as a result of the area being in long-term decline. The risk result was NOK 215 million (NOK 191 million) in 2019, largely stemming from the Norwegian paid-up policy portfolio due to good disability results and reactivation. The profit-sharing result was NOK 157 million (NOK 333 million) in 2019. The result has essentially been generated in SPP. The lower result in 2019 is explained by dissolution of reserves of NOK 200 million in 2018. Positive investment returns resulted in lower deferred capital contributions (DCC) in 2019. Balance sheet and market performance The products are in long-term decline, but customer reserves for Guaranteed Pension amounted to NOK 263 billion at the end of 2019, which is 1% higher than at the start of the year. This is because the return on policies exceeded the net flow of premiums and pension claims. The net flow amounted to NOK -8.2 billion in 2019. The Norwegian Paid-up policy portfolio grew as Defined Benefit contracts eventually become Paid-up policies and amounted to NOK 137 billion (NOK 133 billion) at the end of 2019. All products achieved a return above the guaranteed rate on average in 2019, resulting in 16% growth in buffer capital. In Norway, the average value adjusted return was 5.5% while the average guaranteed rate was 3.2%. In Sweden, the average value adjusted return was 7.9% while the average guaranteed rate was 2.9%. Key figures – Guaranteed Pension (NOK mill.) Guaranteed reserves 2019 2018 263,185 260,573 Guaranteed reserves in % of total reserves 54.5% 59.2% Net transfers Buffer capital in % of customer reserves Norway -103 8.6% -165 6.4% Buffer capital in % of customer reserves 10.7% 8.7% Sweden 81 OTHER Satisfactory returns in company portfolios contributed to a positive financial result in the Other segment. Results for Other53) (NOK mill.) 2019 2018 Fee and administration income 51 102 Operating costs Operating profit -143 -190 -91 -89 Financial results and risk results life 296 128 Result before amortisation 205 40 Eliminations NOK million 2019 2018 Fee and administration income -215 -239 Operating costs Financial result Result before amortisation 215 239 -35 -35 Financial performance The profit before amortisation in the Other segment was NOK 205 million (NOK 5 million) in 2019. The Fee and administration income as well as the operational costs declined in 2019 due the sale of Nordben and the run-off of the corporate bank. The Storebrand Life Insurance Group is funded by a combina- tion of equity and subordinated loans. Assuming the current interest rate at the end of 2019, interest expenses are expected to be approximately NOK 90 million quarterly. The financial result includes the return on the company portfolios in Storebrand Life Insurance and SPP, as well as the financial result of Storebrand ASA. The financial result is affected by the low interest rate level throughout the year, but tightened credit spreads contributed to positive returns in the company portfolios. 53) Excludes eliminations. The segment result consists of the sum total of results for the business activities in Other plus eliminations. 82 STOREBRAND ANNUAL REPORT 2019SECTION 8. DIRECTORS´ REPORT Official Financial Statements of Storebrand ASA ALLOCATION OF THE PROFIT FOR THE YEAR Storebrand ASA reported a profit of NOK 2,952 million for 2019, compared with NOK 3,963 million for 2018. The Board proposes a dividend of NOK 1,517 million to the General Meeting, corresponding to an ordinary dividend of NOK 3.25 per share for 2019 financial year. Allocation of the profit for the year for Storebrand ASA NOK million Profit for the year Allocations Transferred to other reserves Provision for shared dividends Total allocations 2019 2,952 1,435 1,517 2,952 2018 3,963 2,561 1,402 3,963 Storebrand ASA is the holding company in the Storebrand Group, and the accounts have been prepared in accordance with the Norwegian Accounting Act, the generally accepted accounting policies in Norway and the Norwegian Regulations relating to annual accounts for insurance companies. Storebrand ASA reported a pre-tax profit of NOK 3,125 million in 2019, compared with NOK 4,074 million in 2018. Group contribu- tions from investments in subsidiaries amounted to NOK 3,230 million, compared with NOK 4,131 million for the previous year. Income statement for Storebrand ASA NOK million Group contribution and dividends Net financial items Operating expenses Pre-tax profit/loss Tax Profit for the year 2019 3,230 -3 -102 3,125 -173 2,952 2018 4,131 28 -86 4,074 -111 3,963 Statement of comprehensive income NOK million Profit for the year 2019 2,952 2018 3,963 Other result elements not to be classified to profit/loss Change in actuarial gains or losses Tax on other income statement components Total other income statement elements -8 2 -6 9 -2 6 Total comprehensive income 2,946 3,969 Lysaker, 11 February 2020 Board of Directors of Storebrand ASA Didrik Munch Chairman of the Board Karin Bing Orgland Laila S. Dahlen Liv Sandbæk Martin Skancke Karl Sandlund Fredrik Törnqvist Magnus Gard Odd Arild Grefstad Group Chief Executive Officer 83 9 Annual Accounts and Notes Income statement Storebrand Group 86 87 Statement of total comprehensive income 88 Statement of finacial position 90 Statement of changes in equity 91 Statement of cash flow 93 Notes Storebrand ASA 171 Income statement 171 Statement of total comprehensive income 172 Statement of finacial position 173 Statement of changes in equity 174 Statement of cash flow 175 Notes 188 Declaration by member of the Board and the CEO 189 Independent auditor´s report 8585 STOREBRAND GROUP Income statement NOK million Premium income Net income from financial assets and properties for the company: - equities and other units at fair value - bonds and other fixed-income securities at fair value - financial derivatives at fair value - loans at fair value - bonds at amortised cost - loans at amortised cost - profit from investments in associated companies/joint controlled operation Net income from financial assets and properties for the customers: - equities and other units at fair value - bonds and other fixed-income securities at fair value - financial derivatives at fair value - loans at fair value - bonds at amortised cost - loans at amortised cost - properties - profit from investments in associated companies Other income Total income Insurance claims Change in insurance liabilities Change in capital buffer Operating expenses Other expenses Interest expenses Total expenses before amortisation and write-downs Group profit before amortisation and write-downs Amortisation and write-downs of intangible assets Group pre-tax profit Tax expenses Profit/loss for the year Profit/loss for the year due to: Share of profit for the period - shareholders Share of profit for the period - hybrid capital investors Share of profit for the period - minority Total Earnings per ordinary share (NOK) Average number of shares as basis for calculation (million) There is no dilution of the shares 86 Note 14 15 15 15 15 15 15 29 15 15 15 15 15 15 16 29 17 18 38 19 20, 21, 22, 23 24 25 27 26 2019 32,366 2018 29,631 40 600 7 14 214 802 39 37,318 4,167 1,424 11 3,912 546 1,864 341 3,758 87,422 -26,756 -44,725 -5,892 -4,828 -1,238 -947 -84,385 3,037 -444 2,593 -511 2,082 2,067 12 3 2,082 4.43 466.8 -10 286 50 4 116 665 46 -5,249 737 -2,111 136 4,254 544 1,487 303 4,028 34,918 -25,142 -2,140 1,730 -4,542 -853 -813 -31,760 3,158 -360 2,799 898 3,697 3,684 9 3 3,697 7.89 467.2 STOREBRAND ANNUAL REPORT 2019STOREBRAND GROUP Statement of total comprehensive income NOK million Profit/loss for the year Change in actuarial assumptions Adjustment of value of properties for own use Total comprehensive income elements allocated to customers Tax on other comprehensive income elements not to be classified to profit/loss Total other comprehensive income elements not to be classified to profit/loss Translation differences foreign exchange Gains/losses from cash flow hedging Total other comprehensive income elements that may be classified to profit/loss Note 21 41 Total other comprehensive income elements Total comprehensive income Total comprehensive attribute to: Share of total comprehensive income - shareholders Share of total comprehensive income - hybrid capital investors Share of total comprehensive income - minority Total 2019 2,082 3 -22 22 12 15 -168 -36 -204 -190 1,892 1,879 12 1 1,892 2018 3,697 -26 48 -48 1 -25 -351 -23 -374 -399 3,297 3,286 9 2 3,297 87 SECTION 9. ANNUAL ACCOUNTS AND NOTES STOREBRAND GROUP Statement of Financial Position NOK million Assets company portfolio Deferred tax assets Intangible assets and excess value on purchased insurance contracts Pension assets Tangible fixed assets Investments in associated companies and joint ventures Financial assets at amortised cost: - Bonds - Loans to financial institutions - Loans to customers Reinsurers' share of technical reserves Investment properties at fair value Biological assets Note 31.12.19 31.12.18 26 27 21 28 29 10,30,31 10,30 1,430 6,220 2 1,075 227 8,256 41 10,30,32 29,798 8,33 26 49 67 Accounts receivable and other short-term receivables 30,34 4,824 Financial assets at fair value: - Equities and other units - Bonds and other fixed-income securities - Derivatives - Loans to customers Bank deposits Minority interests in consolidated mutual funds Total assets company portfolio Assets customer portfolio Investments in associated companies Financial assets at amortised cost: - Bonds - Bonds held-to-maturity - Loans to customers Reinsurers' share of technical reserves Investment properties at fair value Properties for own use Accounts receivable and other short-term receivables Financial assets at fair value: - Equities and other units - Bonds and other fixed-income securities - Derivatives - Loans to customers Bank deposits Total assets customer portfolio Total assets 88 8,12,30,35 323 8,10,12,30,36 28,512 10,12,30,37 32 10,30 1,183 389 3,119 44,933 130,474 29 4,045 10,30,31 10,30,31 10,30,32 8,33 33 30.34 8,12,30,35 8,10,12,30,36 10,12,30,37 32 10,30 89,790 13,377 23,735 69 29,366 1,375 450 194,020 128,127 4,131 6,736 7,475 502,695 633,170 1,972 6,106 5 43 255 8,349 318 28,236 21 50 67 7,005 295 24,055 1,226 220 3,633 29,290 111,145 4,406 86,374 14,403 25,270 48 28,217 1,420 1,012 157,066 133,531 3,421 5,708 5,457 466,331 577,476 STOREBRAND ANNUAL REPORT 2019NOK million Equity and liabilities Paid-in capital Retained earnings Hybrid capital Minority interests Total equity Subordinated loan capital Capital buffer Insurance liabilities Pension liabilities Deferred tax Financial liabilities: - Liabilities to financial institutions - Deposits from banking customers - Securities issued - Derivatives company portfolio - Derivatives customer portfolio - Other non-current liabilities Other current liabilities Minority interests in consolidated mutual funds Total liabilities Total equity and liabilities Note 31.12.19 31.12.18 12,856 20,264 226 52 33,398 8,925 23,825 9,30 38 38,39 477,171 21 26 266 768 9,12,30 9,12,30 9,12,30 10,12,30,37 10,12,30,37 9,30,40 446 14,404 18,729 86 908 1,037 8,274 44,933 599,772 633,170 12,858 19,782 176 57 32,873 8,224 18,983 444,341 322 258 2 14,419 17,529 460 4,147 6,628 29,290 544,604 577,476 89 Lysaker, 11 February 2020 Board of Directors of Storebrand ASA Didrik Munch Chairman of the Board Karin Bing Orgland Laila S. Dahlen Liv Sandbæk Martin Skancke Karl Sandlund Fredrik Törnqvist Magnus Gard Odd Arild Grefstad Group Chief Executive Officer SECTION 9. ANNUAL ACCOUNTS AND NOTES STOREBRAND GROUP Statement of changes in equity NOK million capital 1) shares premium equity differences equity 2) earnings capital 3) interests equity Share Own Share paid in translation Other retained Hybrid Minority Total Statement of changes in equity Total Currency Total Equity at 31 December 2017 2,339 -5 10,521 12,855 1,426 16,226 17,652 3,684 3,684 -350 -48 -398 226 9 99 3 -1 30,832 3,697 -399 -350 3,636 3,286 9 2 3,297 Equity at 31 December 2018 2,339 -2 10,521 12,858 1,076 18,706 19,782 3 3 48 48 2 2 -1,167 -1,167 -82 43 -82 43 50 4 -48 -9 -1,169 -120 35 32,873 2,082 4 -2 -38 -8 57 3 -50 -9 176 12 2,067 2,067 -166 -22 -188 -2 -190 -166 2,045 1,879 12 1 1,892 Profit for the period Total other comprehensive income elements Total comprehensive income for the period Equity transactions with owners: Own shares Issues of shares Hybrid capital classified as equity Paid out interest hybrid capital Dividend paid Purchase of minority interests Other Profit for the period Total other comprehensive income elements Total comprehensive income for the period Equity transactions with owners: Own shares -3 -3 -27 -27 Hybrid capital classified as equity Paid out interest hybrid capital Dividend paid Other 3 3 50 -12 -1,399 -1,399 27 27 Equity at 31 December 2019 2,339 -5 10,521 12,856 910 19,355 20,264 226 1) 467,813,982 shares with a nominal value of NOK 5. 2) Includes undistributable funds in the risk equalisation fund amounting to NOK 466 million and security reserves amounting NOK 62 million. 3) Perpetual hybrid tier 1 capital classified as equity. -29 53 -12 -1,399 21 33,398 -7 52 90 STOREBRAND ANNUAL REPORT 2019STOREBRAND GROUP Statement of cash flow NOK million Cash flow from operational activities Net receipts premium - insurance Net payments compensation and insurance benefits Net receipts/payments - transfers Net receipts/payments - insurance liabilities Receipts - interest, commission and fees from customers Payments - interest, commission and fees to customers Taxes paid Payments relating to operations Net receipts/payments - other operational activities Net cash flow from operations before financial assets and banking customers Net receipts/payments - loans to customers Net receipts/payments - deposits bank customers Net receipts/payments - mutual funds Net receipts/payments - investment properties Net change in bank deposits insurance customers Net cash flow from financial assets and banking customers Net cash flow from operational activities Cash flow from investment activities Receipts - sale of subsidaries Payments - purchase of subsidaries Net receits/payments - sale/purchase of fixed assets Net receipts/payments - sale of insurance portfolios Net cash flow from investment activities Cash flow from financing activities Receipts - new loans Repayments of loans Payments - interest on loans Receipts - subordinated loan capital Payments - repayment of subordinated loan capital Payments - interest on subordinated loan capital Net receipts/payments - loans to and claims from other financial institutions Receipts - issuing of share capital / sale of shares to own employees Payments - repayment of share capital Payments - dividends Receipts - hybrid capital Payments - repayment of hybrid capital Payments - interest on hybrid capital Net cash flow from financing activities Net cash flow for the period 2019 2018 26,343 -20,723 -118 -765 2,426 -503 -21 -4,837 4,786 6,589 -1,419 -15 -3,435 -368 -2,092 -7,329 -740 -308 -96 29 -375 3,001 -1,769 -429 1,052 -253 -365 443 33 -68 -1,399 125 -75 -12 284 -831 25,211 -20,056 -699 -5,140 2,232 -290 -56 -4,633 -303 -3,735 -5,584 -209 10,965 296 -423 5,045 1,310 1,175 -736 -35 156 560 4,177 -3,195 -295 845 -1,501 -373 -153 37 -1,168 100 -150 -9 -1,684 185 91 SECTION 9. ANNUAL ACCOUNTS AND NOTESSTOREBRAND GROUP Statement of cash flow (continue) NOK million Net movement in cash and cash equivalents Cash and cash equivalents at start of the period Currency translation cash/cash equivalents in foreign currency Cash and cash equivalents at the end of the period 1) 1) Consist of: Loans to financial institutions Bank deposits Total 2019 -831 3,951 41 3,160 41 3,119 3,160 2018 185 3,780 -14 3,951 318 3,633 3,951 The cash flow analysis shows the Group’s cash flows for operational, investment and financial activities pursuant to the direct method. The cash flows show the overall change in means of payment over the year. Operational activities A substantial part of the activities in a financial group will be classified as operational. All receipts and payments from insurance activities are included from the insurance companies, and these cash flows are invested in financial assets that are also defined as operational activities. One subtotal is generated in the statement that shows the net cash flow from operations before financial assets and banking customers, and one subtotal that shows the cash flows from financial assets and banking customers. This shows that the composition of net cash flows from operational activities for a financial group includes cash flows from both operations and investments in financial assets. The life insurance companies’ balance sheets include substantial items linked to the insurance customers that are included on the individual lines in the cash flow analysis. Since the cash flow analysis is intended to show the change in cash flow for the company, the change in bank deposits for insurance customers is included on its own line in operating activities to neutralise the cash flows associated with the customer portfolio in life insurance. Investment activities Includes cash flows for holdings in group companies and tangible fixed assets. Financing activities Financing activities include cash flows for equity, subordinated loans and other borrowing that helps fund the Group’s activities. Payments of interest on borrowing and payments of share dividends to shareholders are financial activities. Cash/cash equivalents Cash/cash equivalents are defined as claims on central banks and loans to and claims from financial institutions. The amount does not include claims on financial institutions linked to the insurance customers portfolio, since these are liquid assets that not available for use by the Group. 92 STOREBRAND ANNUAL REPORT 2019 STOREBRAND GROUP Notes to the financial statement Note 31: Note 32: Note 33: Note 34: Note 35: Note 36: Note 37: Note 38: Note 39: Note 40: Note 41: Note 42: Note 43: Note 44: Note 45: Note 46: Bonds at amortised cost Loans to customers Properties Accounts receivable and other short-term receivables Equities and fund units to fair value Bonds and other fixed-income securities Derivatives Technical insurance reserves - life insurance Technical insurance reserves - P&C insurance Other current liabilities OTHER NOTES Hedge accounting Collateral Contingent liabilities Securities lending and buy-back guarantees Information about related parties Sold/liquidated business Note 1: Note 2: Note 3: Note 4: Note 5: Note 6: Note 7: Note 8: Note 9: Note 10: Note 11: Note 12: Note 13: Note 14: Note 15: Note 16: Note 17: Note 18: Note 19: Note 20: Note 21: Note 22: Note 23: Note 24: Note 25: Note 26: BUSINESS AND RISK NOTES Corporate information and accounting policies Important accounting estimates and discretionary judgements Acquisition Segment reporting Risk management and internal control Operational risk Insurance risk Financial market risks Liquidity risk Credit risk Risk concentration Valuation of financial instruments and properties Solidity and capital management PROFIT AND LOSS ACCOUNT NOTES Premium income Net income analysed by class of financial instrument Net income from properties Other income Insurance claims Change in capital buffer Operating expenses and number of employees Pensions expenses and pension liabilities Remuneration to senior employees and elected officers of the company Remuneration paid to auditors Other expenses Interest expenses Tax STATEMENT OF FINANCIAL POSITION NOTES Note 27: Intangible assets and excess value on purchased insurance contracts Note 28: Tangible fixed assets Tangible fixed assets and lease Note 29: Note 30: contracts Investments in other companies Classification of financial assets and liabilities 93 SECTION 9. ANNUAL ACCOUNTS AND NOTESNote 1: Company information and accounting policies 1. Company information Storebrand ASA is a Norwegian public limited company that is listed on the Oslo Stock Exchange. The consolidated financial state- ments for 2019 were approved by the Board of Directors of Storebrand ASA on 11 February 2020. The Storebrand Group offers a comprehensive range of insurance and asset management services, as well as securities, banking and investment services, to private individuals, companies, municipalities, and the public sector. The Storebrand Group consists of the business areas Savings, Insurance, Guaranteed Pensions and Other. The Group’s head office is located at Professor Kohts vei 9, in Lysaker, Norway. 2. Basis for preparation of the financial statements The accounting policies applied in the consolidated financial statements are described below. The policies are applied consistently to similar transactions and to other events involving similar circumstances. There is no required use of uniform accounting policies for insurance contracts and this exemption is applied for insurance contracts in the consolidated financial statements. This is discussed in section 14. Storebrand ASA’s consolidated financial statements are presented using EU-approved International Financial Reporting Standards (IFRS) and related interpretations, as well as other Norwegian disclosure requirements laid down in legislation and regulations. Use of estimates when preparing the consolidated financial statements. The preparation of the consolidated financial statements in accordance with IFRS requires the management to make judgements, estimates and assumptions that affect assets, liabilities, revenue, expenses, the notes to the financial statements and information on potential liabilities. Actual amounts may differ from these estimates. See Note 2 for further information. 3. Summary of significant accounting policies for material items on the balance sheet For the most part, the asset side of the Group’s balance sheet comprises financial instruments and investment properties and a differ- entiation is made between assets in the company portfolio (shareholders) and assets belonging to the customer portfolio. This split is due to the fact that the Group has a significant life insurance business in which customer assets must be kept separate from the company’s assets. Financial instruments - IFRS 9 IFRS 9 Financial Instruments replaces the current IAS 39, and was generally applicable from 1 January 2018. However, for insurance- dominated groups and companies, IFRS 4 allows for either the implementation of IFRS 9 to be deferred (deferral approach) or to enter the differences between IAS 39 and IFRS 9 through other comprehensive income (overlay approach) until implementation of IFRS 17. The Storebrand Group qualifies for temporary deferral of IFRS 9 because over 90 per cent of the Group’s total liabilities as of 31 December 2015 were linked to the insurance businesses. For the Storebrand Group, IFRS 9 will be implemented together with IFRS 17, which is expected to be applicable from 1 January 2022. The Storebrand Group has conducted a provisional analysis of the classification and measurement of financial instruments in accordance with the present IAS 39 for the transition to IFRS 9, based on the current business model for the individual instruments. For financial instruments that are expected to be classified and measured at amortised cost or fair value through total comprehensive income upon transition to IFRS 9, a SPPI (“Solely payment of principal and interest”) test is carried out. This is a provisional categorisa- tion under IFRS 9, based on the present asset allocation. No assessments have been made of any changes in classification and measurement of financial assets under IFRS 9 in connection with the transition to IFRS 17. 94 STOREBRAND ANNUAL REPORT 2019IFRS9 - FINANCIAL INSTRUMENTS TO AMORTISED COST AND FVOCI NOK million Financial assets Bank deposits Bonds and other fixed-income securities Loans to financial institutions Loans to customers Loans to customers Accounts receivable and other short-term receivables Total financial assets Financial liabilities Deposits from banking customers Liabilities to financial institutions Debt raised by issuance of securities Subordinatd loan capital Other current liabilities Total financial liabilities IAS 39 IFRS 9 after IAS 39 after IFRS 9 after IAS 39 after IFRS 9 classification classification 1.1.2019 1.1.2019 31.12.2019 31.12.2019 Booked value Fari value Booked value Fari value AC AC AC AC AC AC AC AC AC AC AC AC AC AC 9,090 9,090 10,594 10,594 109,126 114,164 111,424 116,161 318 318 41 41 FVOCI 53,192 53,169 53,245 53,246 AC AC AC AC AC AC AC 316 316 288 288 8,018 8,018 5,273 5,273 180,059 185,075 180,865 185,604 14,419 14,419 14,404 14,404 2 2 446 446 17,529 17,565 18,729 18,728 8,224 6,795 8,218 6,795 8,925 8,274 9,010 8,274 46,969 47,000 50,778 50,862 IFRS9 - FINANCIAL INSTRUMENTS AT FAIR VALUE NOK million Financial assets IAS 39 IFRS 9 after IAS 39 after IFRS 9 after IAS 39 after IFRS 9 classification classification 1.1.2019 1.1.2019 31.12.2019 31.12.2019 Booked value Fari value Booked value Fari value Shares and fund units FVP&L (FVO) Bonds and other fixed-income securities FVP&L (FVO) Loans to customers FVP&L (FVO) FVP&L FVP&L FVP&L 157,361 157,361 194,343 194,343 157,586 157,586 156,639 156,639 5,928 5,928 7,126 7,126 Derivatives Total financial assets Financial liabilities Derivatives Total financial liabilities FVP&L/ Hedge accounting FVP&L/ Hedge accounting 4,646 4,646 5,314 5,314 325,521 325,521 363,421 363,421 FVP&L/ Hedge FVP&L/ Hedge accounting accounting 4,607 4,607 4,607 4,607 994 994 994 994 A large majority of the financial instruments are measured at fair value (the fair value option is used), whilst other financial instruments that are included in the categories Loans and receivables and Held to maturity are measured at amortised cost. Financial instruments measured at amortised cost are largely related to Norwegian pension liabilities with annual interest rate guarantee. Investment properties are measured at fair value. 95 SECTION 9. ANNUAL ACCOUNTS AND NOTESIntangible assets primarily comprise excess value relating to insurance contracts and customer relations acquired in connection with a business combination. This excess value is measured at historical cost less annual amortisation and write-downs. For the most part, the liabilities side of the Group’s balance sheet comprises financial instruments (liabilities) and provisions relating to future pension and insurance payments (insurance liabilities). With the exception of derivatives, financial liabilities are measured at amortised cost. Insurance liabilities must be adequate and cover liabilities relating to issued insurance contracts. Various methods and principles are used in the Group when assessing the reserves for different insurance contracts. A considerable part of the insurance liabilities relate to insurance contracts with interest guarantees. The recognised liabilities related to Norwegian insurance contracts with guaranteed interest rates are discounted by the basic interest rate (which corresponds to the guaranteed return/interest rate) for the respective insurance contracts. The recognised liabilities related to the Swedish insurance contracts with guaranteed interest rates in the subsidiary SPP are discounted by an observable market interest rate and by an estimated market interest rate for terms to maturity when no observable interest rate is available and corresponds essentially to the same interest rate that is used in the Solvency calculations. In the case of unit-linked insurance contracts, reserves for the savings element in the contracts will correspond to the value of related asset portfolios. Due to the fact that the customers’ assets in the life insurance business (guaranteed pension) have historically yielded a return that has exceeded the increased value in guaranteed insurance liabilities, the excess amount has been set aside as customer buffers (liabilities), including in the form of additional reserves, value adjustment reserve and conditional bonus. Insurance liabilities include Incurred But Not Settled (IBNS) reserves, which consist of amounts reserved for claims either incurred but not yet reported or reported but not yet settled (Incurred But Not Reported “IBNR” and Reported But Not Settled “RBNS”). IBNS reserves are included in the premium reserve. IBNS reserves are measured using actuarial models based on historical information about the portfolio. 4. Changes in accounting policies Anew accounting standard was implemented in 2019 - IFRS 16 Leases. For changes in estimates, see Note 2 for further information. IFRS 16: IFRS 16 Leases, replaces the current IAS 17 and is applicable from 1 January 2019. IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases. The new standard for leases will not result in major changes for lessors, but will however significantly change accounting by lessees. IFRS 16 requires that, in principle, lessees recognise all leases in the balance sheet according to a simplified model that resembles the accounting treatment of financial leases in accordance with IAS 17. The present value of fixed lease payments shall be recognised in the balance sheet as debt and the right to use the leased asset during the lease period is recognised as an asset. Short-term leases and leases in which the leased asset has a low value are not recognised. Storebrand has chosen to classify the right to use the asset as tangible fixed assets and the lease liability as other non-current liabili- ties. The recognised asset is amortised over the lease period and the depreciation expense is recognised as an operating expense on an ongoing basis. The interest expense on the lease commitment is recognised as a financial expense. IFRS 16 can be implemented according to either a full retrospective approach or a modified retrospective approach, and Storebrand has selected the modified retrospective approach. This means that comparative figures are not restated and the effect is entered in the balance sheet in the implementation year of 2019. Upon implementation, the right of use of the asset and liability will be the same amount and will not impact on equity. The transition to IFRS 16 increased assets and liabilities by approximately NOK 1.1 billion for the Storebrand Group on the transition date. Leases with a duration of less than 12 months as at 1 January 2019 and leases that include assets valued at less than NOK 50,000 will not be recognised in the balance sheet, but will be recognised as an operating expense over the lease period. For further information regarding the accounting effect of IFRS 16, see Note 28 Tangible fixed assets and leases. Hedge accounting Storebrand has selected early implementation of “Interest Rate Benchmark Reform – Amendments to IAS 39 and IFRS 7” that was issued in September 2019. In accordance with the transitional rules, the amendments have been subsequently applied to hedging 96 STOREBRAND ANNUAL REPORT 2019 arrangements that existed at the start of the reporting period or were identified thereafter and to the amount accumulated in the cash flow hedge reserve on that date. The amendments provide temporary relief from applying specific requirements for hedge accounting of hedging arrangements that are directly affected by the IBOR reform. This has the effect that the IBOR reform will not generally result in the conclusion of hedge accounting. However, all hedge effectiveness will still be recognised in the income statement. The stipulated amendments also determine when the relaxation of the rules shall no longer apply, which includes the uncertainty resulting from the Interest Rate Benchmark Reform no longer existing. See the discussion in Note 41. 5. New IFRS that have not entered into force New standards and changes in standards that have not come into effect FRS 17: IFRS 17 replaces IFRS 4 Insurance Contracts and introduces new requirements for the recognition, measurement, presentation and disclosure of issued insurance contracts. The standard has not been approved by the EU, but is expected to be applicable from 1 January 2022. The purpose of the new standard is to establish uniform practices for the accounting treatment of insurance contracts. IFRS 17 is a comprehensive and complex standard, with fundamental differences to the present standard for measuring liabilities and recognising earnings. Insurance contracts must be recognised at the risk-adjusted present value of future cash flows, with the addition of unearned profit in a group of contracts (Contractual Service Margin = CSM). Loss-making contracts must be recognised immediately. As a starting point, IFRS 17 must be retrospectively applied, but modified retrospective application is permitted or application based on the fair value on the transition date if retrospective application is impracticable. The implementation date is 1 January 2022, with a requirement that comparable figures are stated. Storebrand is working on preparing for implementation of IFRS 17, including assessing the effects implementation of IFRS 17 will have for Storebrand’s consolidated financial statements. There are no other new or changed accounting standards that have not entered into force that are expected to have a significant effect on Storebrand’s consolidated financial statements. 6. Consolidation The consolidated financial statements include Storebrand ASA and companies controlled by Storebrand ASA. Minority interests are included in the Group’s equity, unless there are options or other conditions that entail minority interests being measured as liabilities. Storebrand Livsforsikring AS, Storebrand Asset Management AS, Storebrand Bank ASA and Storebrand Forsikring AS are significant subsidiaries owned directly by Storebrand ASA. Storebrand Livsforsikring AS also owns the Swedish holding company Storebrand Holding AB, which in turn owns SPP Pension & Försäkring AB (publ). On acquiring the Swedish operations in 2007, the authorities instructed Storebrand to make an application to maintain a group structure by the end of 2009. Storebrand has filed an application to maintain the existing group structure. A controlling interest in Skagen AS was acquired in 2017 and is owned by Storebrand Asset Management AS. The Norwegian authorities have granted Storebrand an exemption from the requirement to organise equivalent businesses in the same company. This exemption expires in 2022. Investments in associated companies (normally investments of between 20 per cent and 50 per cent of the company’s equity) in which the Group exercises significant influence, and investments in joint ventures are recognised in accordance with the equity method. Investments in associated companies and joint ventures are initially recognised at acquisition cost. Storebrand consolidates certain funds in the Group’s balance sheet when the requirement for control has been met. This encompasses funds in which Storebrand has an ownership interest of approximately 40 per cent or more, which are managed by companies in the Storebrand Group. In the Group’s accounts, such funds are consolidated fully in the balance sheet, and the non-controlling interests are shown on a line for assets and on a corresponding line for liabilities. The non-controlling interests can demand redemption of their ownership interests and, as a result of this, they are classified as liabilities in the consolidated financial statements of Storebrand. 97 SECTION 9. ANNUAL ACCOUNTS AND NOTESCurrencies and translation of foreign companies’ accounts The Group’s presentation currency is Norwegian kroner. Foreign companies that are part of the Group and have different functional currencies are converted to Norwegian kroner. Translation differences are included in the total comprehensive income. Elimination of internal transactions Internal receivables and payables, internal gains and losses, interest, dividends and similar between companies in the Group are eliminated in the consolidated financial statements. Transactions between the customer portfolios and the company portfolio in the life insurance business and between the customer portfolios in the life insurance business and other companies in the Group will not be eliminated in the consolidated financial statements. The reason for this is that the result in the customer portfolio is assigned to the customers each financial year and must not influence the result and equity of the company. Pursuant to the life insurance regulations, transactions with customer portfolios are carried out at fair value. 7. Business combinations The acquisition method is applied when accounting for acquisition of businesses. The consideration is measured at fair value. The direct acquisition expenses are expensed when they arise, with the exception of expenses related to raising debt or equity (new issues). When making investments, including purchasing investment properties, a decision is made as to whether the purchase constitutes acquisition of a business pursuant to IFRS 3. When such acquisitions are not regarded as an acquisition of a business, the acquisition method pursuant to IFRS 3 is not applied. Among other things, this does not entail provisions for deferred tax such as for business combinations. 8. Segment information The segment information is based on the internal financial reporting structure of the most senior decision-maker. At Storebrand, the executive management is responsible for following-up and evaluating the results of the segments and is defined as the most senior decision-maker. Four segments are reported for: • • • • Savings Insurance Guaranteed Pension Other There are some differences between the result lines used in the income statement and the segment results. The Group’s income statement includes gross income and costs linked to both the insurance customers and owners (shareholders). The segment results only include result elements relating to owners (shareholders) which are the result elements that the Group has performance measures and follow-up for. Financial services provided between segments are priced at market terms. Services provided from joint functions and staff are charged to the different segments based on supply agreements and distribution keys. 9. Income recognition Premium income Net premium income includes the year’s premiums written (including savings elements, administration premium, fees for issuing Norwegian interest rate guarantees and profit element risk), premium reserves transferred and ceded reinsurance. Annual premiums are generally accrued on a straight-line basis over the coverage period. Income from properties and financial assets Income from properties and financial assets are described in Sections 12 and 13. Other income Fees are recognised when the income can be measured reliably and is earned. Return-based revenues and performance fees are recognised when the uncertainty associated with the income is no longer present. Fixed fees are recognised as income in line with delivery of the service. 98 STOREBRAND ANNUAL REPORT 2019 10. Goodwill and intangible assets Added value when acquiring a business that cannot be directly attributable to assets or liabilities on the date of the acquisition is classified as goodwill on the balance sheet. Goodwill is measured at acquisition cost on the date of the acquisition. Goodwill arising from the acquisition of subsidiaries is classified as an intangible asset. Goodwill is not amortised, instead it is tested for impairment. Goodwill is reviewed for impairment if there are indications that its value has become impaired. The review is conducted at least annually and determines the recoverable amount of goodwill. If the relevant discounted cash flow is less than the carrying value, goodwill will be written down. Reversal of an impairment loss for goodwill is prohibited even if information later comes to light showing that there is no longer a need for the write-down or the impairment loss has been reduced. Goodwill is allocated to the relevant cash flow generating units that are expected to benefit from the acquisition so that it can subsequently be tested for impairment. Intangible assets with limited useful economic lives are measured at acquisition cost less accumulated amortisation and any write downs. The useful life and amortisation method are measured each year. With initial recognition of intangible assets in the balance sheet, it must be demonstrated that probable future economic benefits attributable to the asset will flow to the Group. The cost of the asset must also be measured reliably. The value of an intangible asset is tested for impairment when there are indications that its value has been impaired. In other respects intangible assets are subject to write-downs and reversals of write-downs in the same manner as described for tangible fixed assets. 11. Adequacy test for insurance liabilities and related excess values A liability adequacy test must be conducted of the insurance liability pursuant to IFRS 4 each time the financial statements are presented. The test conducted in Storebrand’s consolidated financial statements is based on the Group’s calculation of capital. 12. Investment properties Investment properties are measured at fair value. Fair value is the amount for which an asset could be exchanged between well- informed, willing parties in an arm’s length transaction. Income from investment properties consists of both changes in fair value and rental income. Investment properties primarily consist of centrally located office buildings, shopping centres and logistics buildings. Properties leased to tenants outside the Group are classified as investment properties. In the case of properties partly occupied by the Group for its own use and partly let to tenants, the identifiable tenanted portion is treated as an investment property. All properties that are owned by the customer portfolios are measured at fair value and the changes in value are allocated to the customer portfolios. 13. Financial instruments 13-1. General policies and definitions Recognition and derecognition Financial assets and liabilities are included in the balance sheet from such time Storebrand becomes party to the instrument’s contractual terms and conditions. General purchases and sales of financial instruments are recorded on the transaction date. When a financial asset or a financial liability is initially recognised in the financial statements, it is valued at fair value. Initial recognition includes transaction costs directly related to the date of acquisition or issue of the financial asset/liability if it is not a financial asset/liability at fair value through profit or loss. Financial assets are derecognised when the contractual right to the cash flow from the financial asset expires, or when the company transfers the financial asset to another party in a transaction by which all, or virtually all, the risk and reward associated with owner- ship of the asset is transferred. Financial liabilities are derecognised in the balance sheet when they cease to exist, i.e. once the contractual liability has been fulfilled, cancelled or has expired. Impairment of financial assets For financial assets carried at amortised cost, an assessment is made on each reporting date as to whether there is any objective evidence that a financial asset or group of financial assets have incurred losses. If there is objective evidence that impairment has occurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not occurred), 99 SECTION 9. ANNUAL ACCOUNTS AND NOTES discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate calculated at initial recognition). The amount of the loss is recognised in the income statement. Losses expected as a result of future events, no matter how likely, are not recognised. 13-2. Classification and measurement of financial assets and liabilities Financial assets are classified into one of the following categories: • • • • Financial assets held for trading. Financial assets at fair value through profit or loss in accordance with the fair value option (FVO). Financial assets held to maturity. Financial assets, loans and receivables. Held for trading A financial asset is held for trading if: • • • it has been acquired principally for the purpose of selling or repurchasing it in the short term, is part of a portfolio of identified financial instruments that are managed together and there is evidence of a recent actual pattern of short-term profit-taking, or it is a derivative that is not designated and effective as a hedging instrument. With the exception of derivatives, only a limited proportion of Storebrand’s financial assets fall into this category. Financial assets held for trading are measured at fair value at the reporting date, with all changes in their fair value recognised in profit or loss. At fair value through profit or loss in accordance with the fair value option (FVO). A significant proportion of Storebrand’s financial instruments are classified in the category of fair value through profit or loss because: • such classification reduces the mismatch in the measurement or recognition that would otherwise arise as a result of the different rules for measuring assets and liabilities, or the financial assets form part of a portfolio that is managed and reported on a fair value basis • The accounting is equivalent to that of the held for trading category (the instruments are measured at fair value and changes in value are recognised in the income statement). Investments held to maturity Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity and that a company has the intention and ability to hold to maturity, with the exception of: • • assets that are designated upon initial recognition as assets at fair value through profit or loss, or assets that are defined as loans and receivables. Assets held to maturity are recognised at amortised costs using the effective interest method. The category is used in the Norwegian life insurance business for assets linked to insurance contracts with interest rate guarantees. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, with the exception of assets that the company intends to sell immediately or in the near term that are classified as held for trading and those that the company upon initial recognition designates at fair value through profit or loss. Loans and receivables are recognised at amortised cost using the effective interest method. The category is used in the Norwegian life insurance business linked to insurance contracts with a guaranteed interest rate, and in the banking business. Loans and receivables that are designated as hedged items are subject to measurement under the hedge accounting requirements. 100 STOREBRAND ANNUAL REPORT 2019 13-3. Derivatives Accounting treatment of derivatives that are not hedging Derivatives that do not meet the criteria for hedge accounting are recognised as financial instruments held for trading. The fair value of such derivatives is classified as either an asset or a liability with changes in fair value through profit or loss. The majority of the derivatives used routinely for asset management fall into this category. Some of the Group’s insurance contracts contain embedded derivatives such as interest rate guarantees. These insurance contracts do not follow the accounting standard IAS 39 Financial Instruments, but instead follow the accounting standard IFRS 4 Insurance Contracts, and the embedded derivatives are not continually measured at fair value. 13-4. Hedge accounting Fair value hedging Storebrand uses fair value hedging for the interest rate risk. The items hedged are financial liabilities measured at amortised cost. Derivatives are recognised at fair value through profit or loss. Changes in the value of the hedged item that are attributable to the hedged risk adjust the carrying amount of the hedged item and are recognised through profit or loss. Cash flow hedging Some borrowing in foreign currency is hedged by means of hedging instruments (derivatives). Storebrand uses cash flow hedging of the foreign exchange risk on the principal amount and foreign exchange risk for the credit margin. The net ongoing changes in value in the hedging instrument that is considered effective hedging are recognised in total comprehensive income and the non-effective share must be recognised through profit or loss. Hedging of net investments Hedging of net investments in foreign businesses is recognised in the accounts in the same way as cash flow hedging. Gains and losses on the hedging instrument that relate to the effective part of the hedging are recognised through total comprehensive income, while gains and losses that relate to the ineffective part are recognised in the income statement. The total loss or gain in equity is recognised in the income statement when the foreign business is sold or wound up. 13-5. Financial liabilities Subsequent to initial recognition, all financial liabilities are primarily measured at amortised cost using an effective interest method. 14. Insurance liabilities The accounting standard IFRS 4 Insurance Contracts addresses the accounting treatment of insurance contracts. Storebrand’s insurance contracts fall within the scope of this standard. IFRS 4 is a temporary standard until IFRS 17 is to be used. IFRS 4 allows the use of non-uniform principles for the treatment of insurance contracts in consolidated financial statements. In the consolidated financial statements, the insurance liabilities in the respective subsidiaries are included as these are calculated on the basis of the laws of the individual countries. This also applies to insurance contracts acquired via business combinations. In such cases, positive excess values are capitalised as assets. Pursuant to IFRS 4, provisions for insurance liabilities must be adequate. When assessing the adequacy associated with recognised acquired insurance contracts, reference must also be made to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and Solvency II calculations. An explanation of the accounting policies for the most important insurance liabilities can be found below. 14-1. General – life insurance Claims for own account Claims for own account comprise claims settlements paid out, less reinsurance received, premium reserves transferred to other com- panies, and reinsurance ceded. Changes in insurance liabilities Changes in insurance liabilities comprise premium savings that are taken to income under premium income and payments, as well as changes in provisions for future claims This item also includes added guaranteed returns on the premium reserve and the premium fund, as well as returns to customers beyond the guaranteed returns. 101 SECTION 9. ANNUAL ACCOUNTS AND NOTES Insurance liabilities (premium reserve) The premium reserve represents the present value of the company’s total expected insurance liabilities, including future administration costs in accordance with the individual insurance contracts, after deducting the present value of agreed future premiums. In the case of individual account policies with flexible premium payments, the total policy value is included in the premium reserve. The premium reserve is equivalent to 100 per cent of the guaranteed surrender or transfer value of insurance contracts prior to any fees for early surrender or transfer and the policies’ share of the market value adjustment reserve. The premium reserve is calculated using the same assumptions as those used to calculate premiums for the individual insurance contracts, i.e. assumptions about mortality and disability rates, interest rates and costs. Premium tariffs are based on the observed level of mortality and disability in the population with the addition of security margins that include expected future developments in this respect. The premium reserve includes reserve amounts for future administration costs for all lines of insurance including settlement costs (administration reserve). In the case of paid-up contracts, the present value of all future administration costs is allocated in full to the premium reserve. In the case of contracts with future premium payments, a deduction is made for the cash value of the proportion of future administration costs expected to be financed by future premium receipts. A substantial proportion of the Norwegian insurance contracts have a one-year interest rate guarantee, meaning that the guaranteed return must be achieved every year. In the Swedish business, there are no contracts with an annual interest rate guarantee, but there are insurance contracts with a terminal value guarantee. Insurance liabilities, special investments portfolio Insurance liabilities associated with the value of the special investments portfolio must always equal the value of the investments port- folio assigned to the contract. The proportion of profit in the risk result is included. The company is not exposed to investment risk on customer assets, since the customers are not guaranteed a minimum return. The only exception is in the event of death, when the beneficiaries are repaid the amount originally paid in for annuity insurance and for guaranteed account (Garantikonto). IBNS reserves Included in the premium reserve for insurance risk are provisions for claims either occurred but not yet reported or reported but not yet settled. IBNR are reserves for potential future payments when Storebrand has yet to be informed about whether an instance of disability, death or other instance entailing compensation has occurred. Since Storebrand is neither aware of the frequency nor the amount payable, IBNR is estimated using actuarial models based on historical information about the portfolio. Correspondingly, RBNS is a provision for potential future payments when Storebrand has knowledge of the incident, but has not settled the claim. Actuarial models based on historical information are also used to estimate the reserves. Transfers of premium reserves, etc. (transfers) Transfers of premium reserves resulting from transfers of policies between insurance companies are recorded in the income state- ment as net premiums for own account in the case of reserves received and claims for own account in the case of reserves paid out. The recognition of costs and income takes place on the date the insured risk is ceded. The premium reserve in the insurance liabilities is reduced/increased on the same date. The premium reserve transferred includes the policy’s share of additional statutory reserves, the market value adjustment reserve, conditional bonus and the profit for the year. Transferred additional reserves are not shown as part of premium income, but are reported separately as changes in insurance liabilities. Transferred amounts are classified as current receivables or liabilities until the transfer takes place. Selling costs Selling costs in the Norwegian life insurance business are expensed, whilst in the Swedish subsidiaries, selling costs are recorded in the balance sheet and amortised over the expected duration of the contract. 14-2. Life insurance – Norway Additional statutory reserves The company is allowed to make allocations to the additional statutory reserves to ensure the solvency of its life insurance business. These additional reserves are divided among the contracts and can be used to cover a negative interest result up to the interest rate guarantee. In the event that the company does not achieve a return that equals the interest rate guarantee in any given year, the allocation can be reversed from the contract to enable the company to meet the interest rate guarantee. This will result in a reduction in the additional statutory reserves and a corresponding increase in the premium reserve for the contract. For allocated annuities, the additional statutory reserves are paid in instalments over the disbursement period. 102 STOREBRAND ANNUAL REPORT 2019The additional statutory reserves cannot exceed 12 per cent of the premium reserve. If the limit is exceeded, the excess amount is assigned to the contract as surplus. Premium fund, deposit reserve and pensioners’ surplus fund The premium fund contains premiums prepaid by policyholders as a result of taxation regulations for individual and group pension insurance and allocated profit shares. The contribution fund contains payments and deposits for employees who have been members for less than 12 months. Credits and withdrawals are not recognised through the income statement but are taken directly to the balance sheet. The pensioners’ surplus fund comprises surplus assigned to the premium reserve in respect of pensions in group payments. The fund is applied each year as a single premium payment to secure additional benefits for pensioners. Market value adjustment reserve The current year’s net unrealised gains/losses on financial assets at fair value in the group portfolio are allocated to or reversed from the market value adjustment reserve in the balance sheet assuming the portfolio has a net unrealised excess value. The portion of the current year’s net unrealised gains/losses on financial current assets denominated in foreign currencies that can be attributed to fluctuations in exchange rates is not transferred to the market value adjustment reserve. The foreign exchange fluctuations associated with investments denominated in foreign currencies are largely hedged through foreign exchange contracts on a portfolio basis. Similarly, the change in the value of the hedging instrument is not transferred to the market value adjustment reserve, but is charged directly to the income statement. Pursuant to accounting standard for insurance contracts (IFRS 4) the market value adjustment reserve is shown as a liability. Risk equalisation reserve Up to 50 per cent of the positive risk result for group pensions and paid-up policies can be allocated to the risk equalisation fund to cover any future negative risk result. The risk equalisation reserve is not considered to be a liability according to IFRS and is included as part of the equity (undistributable equity). 14-3. Life insurance Sweden Life insurance liabilities The life insurance liabilities are estimated as the present value of the expected future guaranteed payments, administrative expenses and taxes, discounted by the current risk-free interest rate. Insurance reserves with guaranteed interest rates in SPP use a marked- based yield curve. A real discount curve is used for risk insurance within the defined-contribution portfolio. For endowment insurance within the defined-benefit and defined-contribution portfolios, as well as sickness insurance in the defined-benefit portfolio, the provisions are discounted using the nominal yield curve. As a starting point, the applicable discount rate is determined based on the methods used for the discount rate in Solvency II. When calculating the life insurance liabilities, the estimated future administrative expenses that may reasonably be expected to arise and can be attributed to the existing insurance contracts are taken into account. The expenses are estimated according to the company’s own cost analyses and are based on the actual operating costs during the most recent year. Projection of the expected future costs follow the same principles on which Solvency II is based. Any future cost-rationalisation measures are not taken into account. Conditional bonus and deferred capital contribution The conditional bonus arises when the value of customer assets is higher than the present value of the liabilities, and thus covers the portion of the insurance capital that is not guaranteed. In the case of contracts where customer assets are lower than liabilities, the owners’ result is charged via deferred capital contribution allocations. The conditional bonus and deferred capital contribution are recognised on the same line in the balance sheet as part of the buffer capital. 14-4. P&C insurance Costs related to insurance claims are recognised when the claims occur. The following allocations have been made: Reserve for unearned premium for own account concerns on-going policies that are in force at the time the financial statements were closed and is intended to cover the contracts’ remaining risk period. 103 SECTION 9. ANNUAL ACCOUNTS AND NOTESThe claims reserve is a reserve for expected claims that have been reported, but not settled (RBNS). The reserve also covers expected claims for losses that have been incurred, but have not been reported (IBNR) at the expiry of the accounting period. In addition, claims reserves shall include a separate provision for future claims on losses that have not been settled. 15. Pension liabilities for own employees Storebrand has country-specific pension schemes for its employees. The schemes are recognised in the accounts in accordance with IAS 19. In Norway, Storebrand has a defined-contribution pension. Storebrand is a member of the Norwegian contractual early retirement (AFP) pension scheme. The Norwegian AFP scheme is regarded as a defined-benefit scheme, but there is insufficient quantitative information to be able to estimate reliable accounting obligations and costs. In Sweden, SPP has agreed, in accordance with the Finance Companies’ Service Pension Plan (BTP Plan), to collective, defined-benefit pension plans for its employees. A group defined-benefit pension implies that an employee is guaranteed a certain pension based on the pay scale at the time of retirement on termination of the employment. 15-1. Defined-benefit scheme Pension costs and pension obligations for defined-benefit pension schemes are determined using a linear accrual formula and expected final salary as the basis for the entitlements, based on assumptions about the discount rate, future salary increases, pensions and National Insurance benefits, future returns on pension plan assets as well as actuarial estimates of mortality, disability and voluntary early leavers. The net pension cost for the period comprises the total of the accrued future pension entitlements during the period, the interest cost on the calculated pension liability and the calculated return on pension plan assets. Actuarial gains and losses and the impact of changes in assumptions are recognised in total comprehensive income during the period in which they arise. Employees who resign before reaching retirement age or leave the scheme will be issued ordinary paid-up policies. 15-2. Defined-contribution scheme A defined-contribution pension scheme involves the Group in paying an annual contribution to the employees’ collective pension savings. The future pension will depend upon the size of the contribution and the annual return on the pension savings. The Group does not have any further work-related obligations after the annual contribution has been paid. No provisions are made for ongoing pension liabilities for these types of schemes. Defined-contribution pension schemes are recognised directly in the financial statements. 16. Tangible fixed assets and intangible assets The Group’s tangible fixed assets comprise equipment, fixtures and fittings, IT systems and properties used by the Group for its own activities. Equipment, inventory and IT systems are valued at acquisition cost less accumulated depreciation and any write-downs. Properties used for the Group’s own activities are measured at appreciated value less accumulated depreciation and write-downs. The fair value of these properties is tested annually in the same way as described for investment properties. The increase in value for buildings used by the Group for its own activities is recognised through total comprehensive income. Any write-down of the value of such a property is recognised first in the revaluation reserve for increases in the value of the property in question. If the write-down exceeds the revaluation reserve for the property in question, the excess is expensed over the income statement. The write-down period and method are reviewed annually to ensure that the method and period being used both correspond to the useful economic life of the asset. The disposal value is similarly reviewed. Properties are split into components if different parts have different useful economic lives. The depreciation period and method of depreciation are measured then separately for each component. The value of a tangible fixed asset is tested when there are indications that its value has been impaired. Any impairment losses are charged to the income statement as the difference between the carrying value and the recoverable amount. The recoverable amount is the greater of the fair value less costs of sale and the value in use. On each reporting date it is determined as to whether there is a basis for reversing previous impairment losses on non-financial assets. 104 STOREBRAND ANNUAL REPORT 2019 17. Tax The Group’s tax liabilities are valued in accordance with IAS 12 and clarifications in IFRIC 23. The tax cost in the income statement consists of tax payable and changes in deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in total comprehensive income. Deferred tax and deferred tax assets are calculated on the differences between accounting and tax values of assets and liabilities. Deferred tax is calculated on the basis of the Group’s tax loss carryforward, deductible temporary differences and taxable temporary differences. Any deferred tax assets shall be recognised if it is considered probable that the tax asset will be recovered. Assets and liabilities associated with deferred tax are recognised as a net amount when there is a legal right to offset assets and liabilities for tax payable and the Group has the ability and intention to settle net tax payable. Changes in assets and liabilities associated with deferred tax that are due to changes in the tax rate are generally recognised in the income statement. Reference is made to Note 26 - Tax for further information. 18. Provision for dividends The proposed dividend is classified as equity until approved by the general meeting and presented as liabilities after this date. The proposed dividend is not included in the calculation of the solvency capital. 19. Leases Leases are recognised in the balance sheet. The present value of the combined lease payments shall be recognised on the balance sheet as debt and an asset that reflects the right of use of the asset during the lease period. Storebrand has chosen to classify the right to use the asset as tangible fixed assets and the lease liability as other debt. The recognised asset is amortised over the lease period and the depreciation expense is recognised as an operating expense on an ongoing basis. The interest expense on the lease liability is recognised as a financial expense. Leases with a duration of less than 12 months and leases that include assets valued at less than approximately NOK 50,000 will not be recognised in the balance sheet, but will be recognised as an operating expense over the lease period. 20. Statement of cash flows The statement of cash flows is prepared using the direct method and shows cash flows grouped by sources and use. Cash is defined as cash, receivables from central banks and receivables from credit institutions with no agreed period of notice. 21. Biological assets Pursuant to IAS 41, investments in forestry are measures as biological assets. Biological assets are measured at fair value, which is de- fined based on alternative fair value estimates, or the present value of expected net cash flows. Changes in the value of biological assets are recognised in the income statement. Ownership rights to biological assets are recognised at the point in time when the purchase agreement is signed. Annual income and expenses are calculated for forestry and outlying fields. Note 2: Critical accounting estimates and judgements In preparing the consolidated financial statements the management are required to apply estimates, make discretionary assessments and apply assumptions for uncertain amounts. The estimates and underlying assumptions are reviewed on an ongoing basis and are based on historical experience and expectations of future events and represent the management’s best judgement at the time the financial statements were prepared. A description of the most important elements and assessments in which discretion is used and which may influence recognised amounts or key figures is provided below and in Note 13 for Solvency II and in Note 26 for Tax. Actual results may differ from these estimates. 105 SECTION 9. ANNUAL ACCOUNTS AND NOTES Insurance contracts Insurance risk is the risk of higher than expected payments and/or unfavourable changes in the value of an insurance liability due to the actual development differing from what was expected when premiums or provisions were calculated. In the consolidated accounts, insurance liabilities with a guaranteed interest rate are included, but using different principles in the Norwegian and the Swedish activities. An immaterial asset (value of business in-force – VIF) linked to the insurance contracts in the Swedish activities is also included. This asset originated from Storebrand’s purchase of the insurance business. There are several factors that may have an impact on the size of the insurance liabilities including VIF, such as biometric factors relating to higher life expectancy, future returns and invalidity, as well as the development of future costs and legal aspects, such as amendments to legislation and judgments handed down in court cases, etc. In the long term, a low interest rate will represent a challenge for insurance contracts with a guaranteed interest rate and, together with a reduced customer buffer, may have an impact on the amount recorded that is linked to the insurance contracts. The Norwegian insurance contracts with guaranteed interest rates are discounted at the premium calculation rate (around 3.2 per cent). The Swedish insurance liabilities with guaranteed interest rates have been discounted by a yield curve that coincides with the Solvency II yield curve. In the Norwegian business, a significant share of the insurance contracts have annual interest rate guarantees. Changes in estimates and valuations may entail a change in the return on the customer portfolios. Depending on the size of any impairment in value, such impairment may be offset by a reduction in the market value adjustment reserve and additional statutory reserves, so that the effect on the owner’s result may be limited. Correspondingly, increases in values could, to a large extent, increase the size of such funds. In the Swedish business, there are no contracts with an annual interest rate guarantee, but there are insurance contracts with interest rate guarantees which enable them to receive a guaranteed terminal value. These contracts are discounted by a market-based calculated interest rate where parts of the yield curve used are not liquid. Changes in the discount rate may have a significant impact on the size of the insurance liabilities and impact the result. If the associated customer assets have a higher value than the recognised value of these insurance liabilities, then the difference will represent a conditional customer allocated fund – conditional bonus (buffer capital). Changes in the assumptions for future cost, mortality and other biometric assumptions may also have a significant impact on the recognised insurance liabilities. Changes in estimates and valuations may entail a change in the return on the customer portfolios. Depending on the size of any impairment in value, such impairment may be offset by a reduction in the conditional bonus, so that the effect on the owner’s result may be limited. If the value of the individual insurance contract is higher than the associated customer assets, the owner will have to cover the deficient capital. Further information about insurance liabilities is provided in Notes 7, 38 and 39. Investment properties Investment properties are measured at fair value. The commercial real estate market in Norway and Sweden is not particularly liquid, nor is it transparent. Uncertainty will be linked to the valuations, and they require exercise of professional judgement, especially in periods with turbulent finance markets. Key elements included in valuations that require exercising judgement are: • • • • • Market rent and vacancy trends Quality and duration of rental income Owners’ costs Technical standard and any need for upgrading Discount rates for both certain and uncertain cash flows, as well as residual value External valuations are also obtained for parts of the portfolio every quarter. All properties must have an external valuation during at least a 3 year period. Reference is also made to Note 12 in which the valuation of investment properties at fair value is described in more detail. Financial instruments at fair value There will be some uncertainty associated with the pricing of financial instruments, particularly instruments that are not priced in an active market. This is particularly true for the types of securities priced on the basis of non-observable assumptions, and for these investments various valuation techniques are applied in order to fix fair value. These include private equity investments, investments 106 STOREBRAND ANNUAL REPORT 2019 in foreign properties, and other financial instruments where theoretical models are used in pricing. Any changes to the assumptions could affect recognised amounts. The majority of such financial instruments are included in the customer portfolio. There is uncertainty linked to the valuation of fixed-rate loans recorded at fair value, due to variation in the interest rate terms offered by banks and since individual borrowers often have different credit risks. Reference is also made to Note 12 in which the valuation of financial instruments at fair value is described in more detail. Deferred tax and uncertain tax positions Calculation of deferred tax assets, deferred tax liabilities and the income tax expense is based on the interpretation of rules and estimates. The Group’s business activities may give rise to disputes, etc. related to tax positions with an uncertain outcome. The Group makes provisions for uncertain and disputed tax positions with best estimates of expected amounts, subject to decisions by the tax authorities in accordance with IAS 12 and IFRIC 23. The provisions are reversed if the disputed tax position is decided to the benefit of the Group and can no longer be appealed. Reference is made to further information in Note 26. Note 3: Acquistion Cubera On 11 February, Storebrand Asset Management AS entered into an agreement to acquire Cubera Private Equity AS [Cubera]. Cubera is a Nordic firm offering investors exposure to Nordic private equity primarily through the secondary market. The firm is a leading player within Nordic private equity and has around NOK 9 billion under management, mainly from international investors. The transaction was completed on 1 April 2019. The purchase price of the acquisition was NOK 329 million and was settled with cash only. The purchase price may increase with up to NOK 225 million related to fundraising to new funds managed by Cubera. Business combinations are recognised in accordance with the acquisition method. Upon acquisition of a subsidiary, a fair value anal- ysis is performed, and assets and liabilities are assessed at fair value at the time of purchase. The residual value in the acquisition will constitute goodwill. Excess value of NOK 383 million has been identified before deferred tax in the acquisition analysis. Of the total excess value, NOK 225 million is linked to customer relations, which is amortized over 7 years, while NOK 140 million is linked to customer contracts, which are amortized over 5 years. In addition, excess value has been identified excess value of NOK 18 million related to IT systems, which are amortized over 3 years. Deferred tax of NOK 92 million has been calculated for the excess value. Goodwill amounts to NOK 206 million and this item is not depreciated, but is tested yearly against impairment. 107 SECTION 9. ANNUAL ACCOUNTS AND NOTESACQUISITION ANALYSIS CUBERA NOK million Assets - Customer lists - Customer contracts - IT systems Total intangible assets Other assets Bank deposits Total assets Liabilities Current liabilities Deferred tax Net identifiable assets and liabilities Goodwill Fair value at acquisition date Conditional payment 1) Cash payment 1) Estimated present value earnout at acquisition date Note 4: Profit by segments Book values in the Excess value upon company acquistion Book values 225 140 18 383 383 92 291 1 6 30 36 7 29 225 140 18 384 6 30 419 7 92 320 206 526 198 329 Storebrand’s operation includes the segments Savings, Insurance, Guaranteed Pension and Other. Savings The savings segment includes products for retirement savings with no interest rate guarantees. The segment consists of defined contribution pensions in Norway and Sweden, asset management and retail banking products. In addition, certain other subsidiaries in Storebrand Livsforsikring and SPP are included in Savings. Insurance The insurance segment provides health insurance in the Norwegian and Swedish corporate and retail markets, P&C insurance and personal risk products in the Norwegian retail market and employer’s liability insurance and pension-related insurance in the Norwegian and Swedish corporate markets. Guaranteed pension The guaranteed Pension segment includes long-term pension savings products that give customers a guaranteed rate of return. The area includes defined benefit pensions in Norway and Sweden, paid-up policies and individual capital and pension insurances. Other The result for Storebrand ASA is reported under Other, as well as the result for the company portfolios and small subsidiaries of Storebrand Life Insurance and SPP. In addition, the results associated with loans to commercial enterprises by Storebrand Bank and the activities at BenCo are reported in this segment. The elimination of intra-group transactions that have been included in the other segments has also been included. 108 STOREBRAND ANNUAL REPORT 2019 Reconciliation between the income statement and alternative statement of the result (segment) The results in the segments are reconciled against the Group result before amortisation and write-downs of intangible assets. The Group’s income statement includes gross income and costs linked to both the insurance customers and owners (shareholders). The alternative statement of the result only includes result elements relating to owners (shareholders) which are the result elements that the Group has performance measures and follow-up for. The result lines that are used in segment reporting will therefore not be identical with the result lines in the consolidated income statement. Below is an overall description of the most important differences. Fee and administration income consists of fees and fixed administrative income. In the Group’s income statement, the item is classified as premium income, net interest income from bank or other income depending on the type of activity. The Group’s income statement also includes savings elements for insurance contracts and possibly transferred reserve. Price of return guarantee and profit risk (fee incomes) – Storebrand Life Insurance AS The return guarantees in group pension insurance with a return guarantee must be priced upfront. The level of the return guarantee, the size of the buffer capital (additional statutory reserves and unrealised gains), and the investment risk of the portfolio in which the pensions assets are invested determine the price that the customer pays for his or her return guarantee. Return guarantees are priced on the basis of the risk to which the equity is exposed. The insurance company bears all the downside risk and must carry reserves against the policy if the buffer reserves are insufficient or unavailable. The insurance result consists of insurance premiums and claims. Insurance premiums consist of premium income relating to risk products (insurance segment) that are classified as premium income in the Group’s income statement. Claims consist of paid-out claims and changes in provisions for claims incurred but not reported (IBNR) and claims reported but not settled (RBNS) relating to risk products that are classified as claims in the Group’s income statement. Administration costs consist of the Group’s operating costs in the Group’s income statement minus operating costs allocated to traditional individual products with profit sharing. Financial items and risk result life and pensions include risk result life and pensions and financial result includes net profit sharing and Loan Losses. Risk result life and pensions consists of the difference between risk premium and claims for products relating to defined-contribution pension, unit linked insurance contracts (savings segment) and defined-benefit pension (guaranteed pension segment). Risk premium is classified as premium income in the Group’s income statement. The financial result consists of the return for the company portfolios of Storebrand ASA, Storebrand Livsforsikring AS and SPP Pension & Försäkring AB (Other segment), while returns for the other company portfolios in the Group are a financial result within the segment which the business is associated with. Returns on company portfolios are classified as net income from financial assets and property for companies in the Group’s income statement. The financial result also includes returns on customer assets relating to products within the insurance segment, and in the Group’s income statement this item will be entered under net income from financial assets and property for customers. In the alternative income statement, the result before tax of certain unimportant subsidiaries is included in the financial result, while in the Group’s income statement, this is shown as other income, operating costs and other costs. Net profit sharing Storebrand Livsforsikring AS A modified profit-sharing regime was introduced for old and new individual contracts that have left group pension insurance policies (paid-up policies), which allows the company to retain up to 20 per cent of the profit from returns after any allocations to additional statutory reserves. The modified profit-sharing model means that any negative risk result can be deducted from the customers’ inter- est profit before sharing, if it is not covered by the risk equalisation fund. Individual endowment insurance and pensions written by the Group prior to 1 January 2008 will continue to apply the profit rules ef- fective prior to 2008. New contracts may not be established in this portfolio. The Group can retain up to 35 per cent of the total result after allocations to additional statutory reserves. 109 SECTION 9. ANNUAL ACCOUNTS AND NOTES Any negative returns on customer portfolios and returns lower than the interest guarantee that cannot be covered by additional statutory reserves must be covered by the company’s equity and will be included in the net profit-sharing and losses line. SPP Pension & Försäkring AB For premiums paid from and including 2016, previous profit sharing is replaced by a guarantee fee for premium-determined insurance (IF portfolio). The guarantee fee is annual and is calculated as a percentage of the capital. It goes to the company. For contributions agreed to prior to 2016, the profit sharing is maintained, i.e. that if the total return on assets in one calendar year for a premium-determined insurance (IF portfolio) exceeds the guaranteed interest, profit sharing will be triggered. When profit sharing is triggered, 90 per cent of the total return on assets passes to the policyholder and 10 per cent to the company. The company’s share of the total return on assets is included in the financial result. In the case of defined-benefit contracts (KF portfolio), the company is entitled to charge an indexing fee if the group profit allows the indexing of the insurance. Indexing is allowed up to a maximum equalling the change in the consumer price index (CPI) between the previous two Septembers. Pensions that are paid out are indexed if the consolidated figures on 30 September exceed 107 per cent, and half of the fee is charged. The whole fee is charged if the consolidated figures on 30 September exceed 120 per cent, in which case paid-up policies can also be included. The total fee equals 0.8 per cent of the insurance capital. The guaranteed liability is continuously monitored. If the guaranteed liability is higher than the value of the assets, a provision must be made in the form of a deferred capital contribution. If the assets are lower than the guaranteed liability when the insurance payments start, the company supplies capital up to the guaranteed liability in the form of a realised capital contribution. Changes in the deferred capital contribution are included in the financial result. Loan losses: balance sheet of Storebrand Bank Group. In the Group’s income statement, the item is classified under loan losses. With regard to loan losses that are on the balance sheet of the Storebrand Livforsikring Group, these will not be included on this line in either the alternative income statement or in the Group’s income statement, but in the Group’s income statement will be included in the item, net income from financial assets and property for customers. Amortisation of intangible assets includes depreciation and possible write-downs of intangible assets established through acquisitions of enterprises. GROUP PROFIT BY SEGMENTS NOK million Savings Insurance Guaranteed pension Other Group profit before amortisation Amortisation of intangible assets Group pre-tax profit 110 2019 1,364 439 1,029 205 3,037 -444 2,593 2018 1,257 748 1,148 5 3,158 -360 2,799 STOREBRAND ANNUAL REPORT 2019 NOK million Fee and administation income Insurance result - Insurance premiums f.o.a. - Claims f.o.a. Operating cost Operating profit Financial items and risk result life & pension Group profit before amortisation Amortisation of intangible assets1) Group pre-tax profit NOK million Fee and administation income Insurance result - Insurance premiums f.o.a. - Claims f.o.a. Operating cost Operating profit Financial items and risk result life & pension Group profit before amortisation Amortisation of intangible assets 1) Group pre-tax profit Savings 2019 3,996 2018 3,709 Insurance Guaranteed pension 2019 2018 2019 1,475 2018 1,440 1,005 3,909 -2,904 -648 357 83 439 1,291 3,854 -2,562 -614 677 71 748 -819 657 372 1,029 -2,621 1,375 -11 1,364 -2,405 1,303 -46 1,257 Other 2) Storebrand Group 2019 -164 2018 -138 73 -91 296 205 49 -89 93 5 2019 5,308 1,005 3,909 -2,904 -4,015 2,298 739 3,037 -444 2,593 -816 624 525 1,148 2018 5,011 1,291 3,854 -2,562 -3,786 2,516 642 3,158 -360 2,799 1) Amortisation of intangible assets are included in Storebrand Group 2) Includes eliminations of group transactions STOREBRAND GROUP ARE REPRESENTED IN THE FOLLOWING COUNTRIES: Segment/Country Norway Sweden UK Netherlands Denmark Germany Savings Insurance Guaranteed pension Other X X X X X X X X X X X X X 111 SECTION 9. ANNUAL ACCOUNTS AND NOTESKEY FIGURES BY BUSINESS AREA NOK million Group Earnings per ordinary share Equity Savings Premium income Unit Linked Unit Linked reserves AuM asset management Retail lending Insurance Total written premiums Claims ratio Cost ratio Combined ratio Guaranteed pension Guaranteed reserves Guaranteed reseves in % of total reserves Net transfer out of guaranteed reserves Buffer capital in % of customer reserves Storebrand Life Group 1) Buffer capital in % of customer reserves SPP 2) Solidity Solvency II 3) Solidity capital (Storebrand Life Group) 4) Capital adequacy Storebrand Bank Core Capital adequacy Stobrand Bank 1) Additional statutory reserves + market value adjustment reserve 2) Conditional bonuses 3) See note 13 for specification of Solvency II 2019 2018 4.43 33,398 17,168 219,793 831,204 48,161 4,698 74% 17% 91% 263,185 54.5% 103 8.6% 10.7% 176% 62,442 19.6% 17.5% 7.89 32,873 16,021 179,299 707,297 46,526 4,455 66% 16% 82% 260,573 59.2% 165 6.4% 8.7% 173% 58,978 18.9% 16.6% 4) The term solidity capital encompasses equity, subordinated loan capital, the risk equalisation fund, the market value adjustment reserve, additional statutory reserves, conditional bonuses, excess value/deficit related to bonds at amortised cost and accrued profit. Note 5: Risk management and internal control Storebrand’s income and performance are dependent on external factors that are associated with uncertainty. The most important external risk factors are the developments in the financial markets and changes in life expectancy in the Norwegian and Swedish populations. Certain internal operational factors can also result in losses, e.g. errors linked to the management of the customers’ assets or payment of pension. Continuous monitoring and active risk management are core areas of the Group’s activities and organisation. The basis for risk management is laid down in the Board’s annual review of the strategy and planning process, which sets the appetite for risk, risk targets and overriding risk limits for the operations. At the Storebrand Group, responsibility for risk management and internal control is an integral part of management responsibility. 112 STOREBRAND ANNUAL REPORT 2019 Organisation of risk management The Group’s organisation of the responsibility for risk management follows a model based on three lines of defence. The objective of the model is to safeguard the responsibility for risk management at both company and Group level. Board of Directors CEO Executive management CRO Group Independent control functions Internal auditing Risk management Actuary function Compliance Anti-money laundering (AML) Privacy (DPO) The boards of directors of both Storebrand ASA and the group companies have the overall responsibility for limiting and following up the risks associated with the activities. The boards set annual limits and guidelines for risk-taking in the company, receive reports on the actual risk levels, and perform a forward-looking assessment of the risk situation. The Board of Storebrand ASA has established a Risk Committee consisting of 3 Board members. The main task of the Risk Committee is to prepare matters to be considered by the Board in the area of risk, with a special focus on the Group’s appetite for risk, risk strategy and investment strategy. The Committee should contribute forward-looking, decision-making support related to the Board’s discussion of risk taking, financial forecasts and the treatment of risk reporting. Managers at all levels in the company are responsible for risk management within their own area of responsibility. Good risk management requires targeted work on objectives, strategies and action plans, identification and assessment of risks, documentation of processes and routines, prioritisation and implementation of improvement measures, and good communication, information and reporting. Independent control functions Independent control functions have been established for risk management for the business (Risk Management Function/Chief Risk Officer), for compliance with the regulations (Compliance Function), for ensuring the insurance liabilities are calculated correctly (Actuary Function), for data protection (Data Protection Officer), for money laundering (Anti Money Laundering) and for the bank’s lending. Relevant functions have been established for both the Storebrand Group (the Group) and all of the companies requiring a licence. The independent control functions are organised directly under the companies’ managing directors and report to the respective company’s board. In terms of function, the independent control functions are affiliated with the Group CRO, who is responsible to the group CEO and reports to the board of Storebrand ASA. The Group CRO shall ensure that all significant risks are identified, measured and appropriately reported. The Group CRO function shall be actively involved in the development of the Group’s risk strategy and maintain a holistic view of the company’s risk exposure. This includes responsibility for ensuring compliance with the relevant regulations for risk management and the consolidated companies’ operations. The internal audit function is organised directly under the Board and shall provide the boards of the relevant consolidated companies with confirmation concerning the appropriateness and effectiveness of the company’s risk management, including how well the various lines of defence are working. 113 SECTION 9. ANNUAL ACCOUNTS AND NOTES Note 6: Operational risk Operational risk is the risk of loss due to inadequate or failing internal processes or systems, human error or external events. The definition includes compliance risk: Compliance risk is the risk of loss or public sanctions as a result of non-compliance with external or internal rules. Risk management shall ensure that the risk level at any time is compatible with the appetite for risk and within internal and regulatory frameworks. The Group seeks to reduce operational risk through an effective system for internal control. Risks are followed up through the management’s risk reviews, with documentation of risks, measures and the follow-up of incidents. In addition, Internal Audit carries out independent checks through audit projects adopted by the Board. Contingency plans have been prepared to deal with serious incidents in business-critical processes and recovery plans. Storebrand’s IT systems are vital for operations and reliable financial reporting. Errors and disruptions may have consequences for commercial operations and can impact on the trust the Group has from both customers and shareholders. In the worst case, abnormal situations can result in penalties from the supervisory authorities. Storebrand’s IT platform is characterised by complexity and integration between different specialist systems and joint systems. The operation of the IT systems has largely been outsourced to different service providers. A management model has been established with close follow-up of providers and internal control activities in order to reduce the risk associated with the development, administration and operation of the IT systems, as well as information security. The bank platform and insurance platform are based on purchased standard systems that are operated and monitored through outsourcing agreements. There is a greater degree of own development for the life insurance activities, while parts of the operation of this have also been outsourced. The unit administration linked to the savings part of the group defi- ned-contributed based occupational pension and unit linked products is managed in a purchased system solution. Note 7: Insurance risk Storebrand offers traditional life and pension insurance as both group and individual contracts. Contracts are also offered in which the customer has the choice of investment. The insurance risk in Norway is largely standardised for contracts in the same industry as a result of detailed regulation from the aut- horities. In Sweden, the framework conditions for insurance contracts entail major differences between the contracts within the same industry. The insurance risk associated with an increase in life expectancy and thereby an increase in future pension payments (longevity) is the greatest risk for the Group. Other risks include disability risk and mortality risk. The life insurance risks are: 1. Long life expectancy – The risk of erroneously estimating life expectancy and future pension payments. Historical developments have shown that an increasing number of people attain retirement age and live longer as pensioners than was previously the case. There is a great deal of uncertainty surrounding future mortality development In the event of longer life expectancy beyond that assumed in the premium tariffs, the owner could risk higher charges on the owner’s result in order to cover necessary statutory provisions. Disability – The risk of erroneous estimation of future illness and disability. There will be uncertainty associated with the future development of disability, including disability pensioners who are returned to the workforce. Death – The risk of erroneous estimation of mortality or erroneous estimation of payment to surviving relatives. Over the last few years, a decrease in mortality and fewer young surviving relatives have been registered, compared with earlier years. 2. 3. In the Guaranteed Pensions segment, the Group has a significant insurance risk relating to estimation of life expectancy and future pension payments for group and individual insurance agreements. In addition, there is an insurance risk associated with estimates of disability and pensions left to spouses and/or children. The disability coverage in Guaranteed Pensions is primarily sold together with a retirement pension. The risk of mortality is low in Guaranteed Pensions when viewed in relation to other risks. In SPP it is possible to change the future premiums for the IF portfolio, reducing the risk significantly. In Norway it is also possible to change the future premiums of group policies, but only for new accumulation, entailing reduced risk. 114 STOREBRAND ANNUAL REPORT 2019 Occupational pension agreements (hybrid) are reported in the Guaranteed Pension segment when a customer has an agreement without a choice for investment of the pension assets. This is a small portfolio with limited insurance risk. In the Savings segment the Group has a low insurance risk. The insurance risk is largely associated with death, with some long-life risk for paid-up policies with investment options. In the Insurance segment, the Group has an insurance risk associated with disability and death. In addition, there are insurance risks associated with occupational injury, critical illness, cancer insurance, child insurance, accident insurance and health insurance. For occupational injury, the risk is first and foremost potential errors in the assessment of the level of provisions, because the number of claim years can be up to 25 years. The insurance risk within critical illness, cancer, accident and health insurance is considered to be limited based on the volume and underlying volatility of the products. Within P&C insurance, the risk of house fire and personal injury for motor vehicle insurance constitute the main risks. The Other segment also includes the insurance risk at Euroben, which offers pension products to multinational companies. The insurance risk primarily relates to group life insurance, early retirement pensions and pensions for expatriate employees. These are defined-benefit pensions that can be time-limited or lifelong and the insurance risk is limited. Description of products Risk premiums and tariffs Guaranteed Pension Group pension insurance schemes in Norway follow the premiums for traditional retirement and survivor coverage in the industry tariff K2013. The premiums for disability pensions are based on the company’s own experience. Expense premiums are determined annually with a view to securing full cover for the next year’s expected costs. For individual insurance in Norway, the premiums for death risk and long life expectancy risk are based on tariffs produced by insurance companies on the basis of their shared experience. This applies to both endowment and pension insurance. Disability premiums are based on the company’s own experience. The risk premium for group insurance in Sweden is calculated as an equalised premium within the insurance group, based on the group distribution of age and gender, as well as the requirement for coverage of next of kin. The risk premium for individual insurance is determined individually and is based on age and gender. SPP’s mortality assumptions are based on the general mortality tariff DUS14, adjusted for the company’s own observations. The new public sector occupational pension enters into force from 2020 and includes retirement pensions in the public sector. The new scheme is a premium pension and is a net pension recognisable from the private sector. Premium pension means that the pension is accrued each year based on the employee’s salary. This is as opposed to the previous schemes whereby the pension was calculated based on the final salary. The premium pension ensures a life-long retirement pension, and the retirement pension can be fully or partly withdrawn from and including the age of 62 until and including the age of 75. Payment of the pension will start at the age of 75 regardless. Members who are not entitled to an AFP are given a conditional occupational pension as a supplement to the retirement pension. Insurance Tariffs for group life insurance and certain risk insurances within group pensions also depend on the industry or occupation, in addition to age and gender. Group life insurance also applies tariffs based on claims experience. The company’s tariff for group life insurance, both for life and disability cover, is based on the company’s own experience. Newer individual endowment policies are priced without taking gender into account. The tariffs for all individual endowment policies are based on the company’s own experiences. For P&C insurance (occupational injury, property and motor vehicle) the tariffs are based on the company’s own experiences. Management of insurance risk Insurance risk is monitored separately for every line of insurance in the current insurance portfolio. The development of the risk results is followed throughout the year. For each type of risk, the ordinary risk result for a period represents the difference between the risk premiums the company has collected for the period and the sum of provisions and payments that must be made for insured 115 SECTION 9. ANNUAL ACCOUNTS AND NOTESevents that occur in the period. The risk result takes into account insured events that have not yet been reported, but which the company, on the basis of experience, assumes have occurred. When writing individual risk cover, the customer is subject to a health check. The result of the health check is reflected in the level of premium quoted. When arranging group policies with risk cover, all employees of small companies are subject to a health check, while for companies with many employees a declaration of fitness for work is required. In the assessment of risk (underwriting), the company’s industrial category, sector and sickness record are also taken into account. Large claims or special events constitute a major risk for all products. The largest claims will typically be in the group life, occupational injury and personal injury (motor vehicle accidents) segments. The company manages its insurance risk through a variety of reinsurance programmes. Through catastrophe reinsurance (excess of loss), the company covers losses (single claims and reserves provisions) where a single event causes more than two deaths or disability cases. This cover is also subject to an upper limit. A reinsurance agreement for life policies covers death and disability risk that exceeds the maximum risk amount for own account the company practises. The company’s maximum risk amount for own account is relatively high, and the risk reinsured is therefore relatively modest. The company also manages its insurance risk through international pooling. This implies that multinational corporate customers can equalise the results between the various units internationally. Pooling is offered for group life and risk cover within group defined-benefit and defined-contribution pensions. Risk result The risk result consists of premiums the company charges to cover insurance risks less the actual costs in the form of insurance reserves and payments for insured events such as death, pensions, disability and accidents. The table below specifies the risk result for the largest entities in the Group and also states the effect of reinsurance and pooling on the result. The risk result in the table shows the total risk result for distribution to customers and owner (the insurance company). SPECIFICATION OF RISK RESULT NOK million Survival Death Disability Reinsurance Pooling Other 1) Total risk result Storebrand Life Insurance AS SPP Pension & Försäkring AB 2019 -58 416 443 2 22 -101 724 2018 2019 2018 2 367 643 47 52 -29 1,081 -39 19 92 -1 -14 -4 53 21 -4 69 -2 -15 -209 -140 1) Change in estimate linked to closed risk product in SPP. Adequacy test In accordance with the accounting standard IFRS 4 Insurance Contracts, the insurance liabilities that are included shall be adequate and a liability adequacy test shall be performed. Storebrand satisfies the adequacy tests for 2019, and these therefore had no impact on the results in the financial statements for 2019. 116 STOREBRAND ANNUAL REPORT 2019 Note 8: Financial market risk Market risk means changes in the value of assets as a result of unexpected volatility or changes in prices on the financial markets. It also refers to the risk that the value of the insurance liability develops differently to that of the assets. The most significant market risks for Storebrand are interest rate risk, share market risk, property price risk, credit risk, and exchange rate risk. For the life insurance companies, the financial assets are invested in a variety of sub-portfolios. Market risk affects Storebrand’s income and profit differently in the different portfolios. There are three main types of sub-portfolio: company portfolios, customer portfolios without a guarantee (unit linked insurance) and customer portfolios with a guarantee. The market risk in the company portfolios has a direct impact on the profit. The market risk in unit linked insurance is at the customers’ risk and expense, meaning Storebrand is not directly affected by changes in value. Nevertheless, changes in value do affect Storebrand’s profit indirectly. Income is based largely on the size of the reserves, while the costs tend to be fixed. Lower than expected returns on the financial market will therefore have a negative effect on Storebrand’s future income and profit. For customer portfolios with a guarantee, the net risk for Storebrand will be lower than the gross market risk. The extent of measures to reduce risk depends on several factors, the most important being the size and flexibility of the customer buffers and level and duration of the return guarantee. If the investment return is not sufficient to meet the guaranteed interest rate, the shortfall may be met by using customer buffers built up from previous years’ surpluses. For guaranteed customer portfolios, the risk is affected by changes in the interest rate level. Falling interest rates are positive for the investment return in the short term due to price appreciation for bonds and interest rate swaps, but negative in the long term because it reduces the probability of achieving a return higher than the guarantee. Long-term interest rates fell slightly in both Norway and Sweden in 2019. Short-term money market rates increased slightly in both Norway and Sweden. The composition of the assets within each sub-portfolio is determined by the company’s investment strategy. The investment strategy also establishes guidelines and limits for the company’s risk management, credit exposure, counterparty exposure, currency risk, use of derivatives, and requirements regarding liquidity ASSET ALLOCATION Properties at fair value Bonds at amortised cost Money market Bonds at fair value Equities at fair value Loans at amortised cost Total Customer portfolios Customer portfolios with guarantee without guarantee Company portfolios 11% 38% 2% 28% 8% 14% 100% 2% 4% 15% 79% 25% 3% 72% 100% 100% Storebrand aims to take low financial risk for the company portfolios, and most of the funds were invested in short and medium-term fixed income securities with low credit risk. 117 SECTION 9. ANNUAL ACCOUNTS AND NOTES The financial risk related to customer portfolios without a guarantee is borne by the insured person, and the insured person can choose the risk profile. Storebrand’s role is to offer a good, broad range of funds, to assemble profiles adapted to different risk profiles, and to offer systematic reduction of risk towards retirement age. The most significant market risks are share market risk and exchange rate risk. The most significant market risks facing guaranteed customer portfolios are linked to equity risk, interest rate risk, credit risk and property price risk. There were no major changes in the investment allocation during 2019. In Norway, most of the credit risk is linked to securities, which are carried at amortised cost. This reduces the risk to the company’s profit significantly. The market risk is managed by segmenting the portfolios in relation to risk-bearing capacity. For customers who have large customer buffers, investments are made with higher market risk that give increased expected returns. Equity risk is also managed by means of dynamic risk management, the objectives of which are to maintain good risk-bearing capacity and to adjust the financial risk to the buffer situation and the company’s financial strength. By exercising this type of risk management, Storebrand expects to create good returns both for individual years and over time. For company portfolios and guaranteed customer portfolios, most of the assets that are in currencies other than the domestic currency are hedged. This limits the currency risk from the investment portfolios. Foreign exchange risk primarily arises as a result of investments in international securities, including as a result of ownership in SPP. In the consolidated financial statements, the value of assets and results from the Swedish operations are affected by changes in the value of the Swedish krone. Storebrand Livsforsikring AS has hedged parts of the value of SPP through forward foreign exchange contracts and borrowings in Swedish kroner.. FINANCIAL ASSETS AND LIABILITIES IN FOREIGN CURRENCIES NOK million Net in balance sheet Net sales in currency in NOK Balance sheet items exclu- ding currency derivatives Forwad contracts Net position DKK CAD EUR GBP JPY SEK USD NOK1) 157 127 1,098 123 26,214 212,671 3,655 33,945 -256 -327 -1,273 -217 -45,381 -456 -5,132 -1,890 Other currency types Insurance liabilities in foreign exchange -209,425 Total net currency positions 2019 Total net currency positions 2018 1) Equity and bond funds denominated in NOK with foreign currency exposure in i.a. EUR and USD NOK 28 billion. -100 -201 -183 -94 -19,167 211,978 -1,478 32,039 -209,425 -131 -1,365 -1,739 -1,101 -1,556 206,694 -12,960 32,202 -1,653 -204,526 13,866 5,152 The table above shows the currency positions as at 31 December 2019. The currency exposure is primarily related to investments in the Norwegian and Swedish insurance business. Storebrand Life Insurance: The company hedges most of the foreign exchange risk in the customer portfolios on an ongoing basis. Foreign exchange risk exists primarily as a result of investments in international securities, as well as subordinated loans in a foreign currency to a certain extent. Hedging is performed by means of forward foreign exchange contracts at the portfolio level, and the currency positions are monito- red continuously against a total limit. Negative currency positions are closed out no later than the day after they arose. In addition, separate limits have been defined so that active currency positions can be taken. Storebrand employs a currency hedging principle called block hedging, which makes the execution of currency hedging more efficient. 118 STOREBRAND ANNUAL REPORT 2019SPP SPP uses currency hedging for its investments to a certain degree. Currency exposure may be between 0 and 30 per cent in accordance with the investment strategy. Banking business Storebrand Bank ASA hedges net balance sheet items by means of forward contracts. The permitted limit for the bank’s foreign exchange position is 0.50 per cent of primary capital, which is approximately 12 million at present. Guaranteed customer portfolios in more details. Storebrand Livsforsikring The annual guaranteed return to the customers follows the basic interest rate. New premiums were taken in with a basic interest rate of 2.0 per cent, and pensions were adjusted upwards with a basic interest rate of 0.5 per cent. The percentage distribution of the insurance reserves by the various basic annual interest rates as at 31 December is as follows: Interest rate 6% 5% 4% 3.4% 3% 2.75% 2.50% 2.00% 0.50% 0% The table includes premium reserve excluding IBNS Average interest rate guarantee in per cent Individual endowment insurance Individual pension insurance Group pension insurance Paid-up policy Group life insurance Total The table includes premium reserve including IBNS 2019 0.3% 0.3% 44.4% 0.3% 29.0% 1.8% 11.0% 11.2% 1.3% 0.5% 2019 2.6% 3.8% 2.5% 3.3% 0.1% 3.2% 2018 0.3% 0.3% 45.8% 0.4% 29.5% 1.8% 11.0% 9.5% 1.0% 0.5% 2018 2.6% 3.8% 2.5% 3.3% 0.1% 3.2% There is a 0 per cent interest rate guarantee for premium funds, defined-contribution funds, pensioners’ surplus funds and additional statutory reserves. The interest rate guarantee must be fulfilled on an annual basis. If the company’s investment return in any given year is lower than the guaranteed interest rate, the equivalent of up to one year’s guaranteed return for the individual policy can be covered by transfers from the policy’s additional statutory reserves. To achieve adequate returns with the present interest rates, it is necessary to take an investment risk. This is primarily done by investing in shares, property and corporate bonds. Interest rate risk is in a special position because changes in interest rates also affect the fair value of the insurance liability for the solvency calculation. Since pension disbursements may be many years in the future, the insurance liability is particularly sensitive to changes in interest rates. In the Norwegian business, greater interest rate sensitivity from the investments will entail increased risk 119 SECTION 9. ANNUAL ACCOUNTS AND NOTES that the return is below the guaranteed level. The risk management must therefore balance the risk of the profit for the year (interest rate increase) with the reinvestment risk if interest rates fall below the guarantee in the future. Bonds at amortised cost are an important risk management tool. SPP Pension & Forsäkring The guaranteed interest rate is determined by the insurance company and is used when calculating the premium and the guaranteed benefit. The guaranteed interest rate does not entail that there is an annual minimum guarantee for the return as is the case in Norway. New premiums in individual defined-contribution pensions (IF) have a guarantee of 1.25% for 85% of the premium. Group defined-benefit pension (KF) is closed to new members. SPP bears the risk of achieving a return equal to the guaranteed interest on the policyholders’ assets over time and that the level of the contracts’ assets is greater than the present value of the insurance liabilities. For IF, profit sharing becomes relevant in SPP if the return exceeds the guaranteed yield. The contracts’ buffer capital must be intact in order for profit sharing to represent a net income for SPP. In the case of KF, a certain degree of consolidation, i.e. that the assets are greater than the present value of the liabilities by a certain percentage, is required in order for the owner to receive profit-sharing income (indexing fee). If the assets in an insurance contract in the company are less than the market value of the liability, an equity contribution is allocated that reflects this shortfall. This is termed a deferred capital contribution (DCC), and changes in DCC are recognised in the income statement as they occur. When the contracts’ assets exceed the present value of the liabilities, a buffer, which is termed the conditional bonus, is established. Changes in this customer buffer are not recognised in the income statement. Interest rate 5.20% 4,5%-5,2% 4.00% 3.00% 2,75%-4,0% 2.70% 2.50% 1.60% 1.50% 1.25% 1,25% * 0,5%-2,5% 0.00% * 1,25% på 85% av Premien Average interest rate guarantee in per cent Individual pension insurance Group pension insurance Individual occupational pension insurance Total 2019 12.7% 0.4% 3.7% 48.8% 5.4% 0.1% 6.2% 0.0% 2.6% 4.1% 7.6% 4.0% 4.1% 2019 3.1% 2.6% 3.1% 2.9% 2018 13.0% 0.4% 1.6% 47.0% 7.0% 0.1% 6.9% 0.0% 4.1% 4.6% 5.1% 4.3% 5.9% 2018 3.3% 2.5% 3.1% 2.8% In the Swedish operations management of interest rate risk is based on the principle that the interest rate risk from assets shall approximately correspond to the interest rate risk from the insurance liabilities. Sensitivity analyses The tables show the fall in value for Storebrand Life Insurance and SPP’s investment portfolios as a result of immediate changes in value related to financial market risk. The calculation is model-based and the result is dependent on the choice of stress level for each category of asset. The stresses have been applied to the company portfolio and guaranteed customer portfolios as at 31 December 2019. The effect of each stress changes the return in each profile. 120 STOREBRAND ANNUAL REPORT 2019 Unit linked insurance without a guaranteed annual return is not included in the analysis. For these products, the customers bear the market risk and the effect of a falling market will not directly affect the result or buffer capital. The amount of stress is the same that is used for the company’s risk management. Two stress tests have been defined. Stress test 1 is a fall in the value of shares, corporate bonds and property in combination with lower interest rates. Stress test 2 is a somewhat smaller fall in the value of shares, corporate bonds and property in combination with higher interest rates. Level of stress Interest level (parallel shift) Equity Property Credit spread (share of Solvency II) 2019 -100bp -20% - 12% 50% 2018 +100bp - 12% - 7% 30% Because it is the immediate market changes that are calculated, dynamic risk management will not affect the outcome. If it is assumed that the market changes occur over a period of time, then dynamic risk management would reduce the effect of the negative outcomes and reinforce the positive to some extent. As a result of customer buffers, the effect of the stresses on the result will be lower than the combined change in value in the table. As at 31 December 2019, the customer buffers are of such a size that the effects on the result are significantly lower. Stresstest 1 Sensitivity Interest rate risk Equtiy risk Property risk Credit risk Total Stresstest 2 Sensitivity Interest rate risk Equtiy risk Property risk Credit risk Total Storebrand Livsforsikring SPP Pension & Försäkring NOK million Share of portfolio SEK million Share of portfolio 3,341 -3,201 -2,388 -850 -3,098 1.6% -1.5% -1.1% -0.4% -1.5% 421 -2,038 -1,170 -704 -3,490 0.5% -2.2% -1.3% -0.8% -3.8% Storebrand Livsforsikring SPP Pension & Försäkring NOK million Share of portfolio SEK million Share of portfolio -3,341 -1,920 -1,393 -510 -7,164 -1.6% -0.9% -0.7% -0.2% -3.4% -421 -1,223 -682 -422 -2,749 -0.5% -1.3% -0.7% -0.5% -3.0% 121 SECTION 9. ANNUAL ACCOUNTS AND NOTES Storebrand Livsforsikring For Storebrand Livsforsikring it is stress test 2, which includes an increase in interest rates, that makes the greatest impact. The overall market risk is NOK 7.2 billion, which is equivalent to 3.4 per cent of the investment portfolio. If the stress causes the return to fall below the guarantee, it will have a negative impact on the result if the customer buffer is not adequate. Other negative effects on the result are a lower return from the company portfolio and that there is no profit sharing from paid-up policies and individual contracts. SPP Pension & Insurance For SPP it is stress test 1, which includes a fall in interest rates, that creates the greatest impact. The overall market risk is SEK 3.5 billion, which is equivalent to 3.8 per cent of the investment portfolio. The buffer situation for the individual contracts will determine if all or portions of the fall in value will affect the financial result. Only the portion of the fall in value that cannot be settled against the customer buffer will be charged to the result. In addition, the reduced profit sharing or loss of the indexing fees may affect the financial result. Other operations The other companies in the Storebrand Group are not included in the sensitivity analysis, as there is little market risk in these areas. The equity of these companies is invested with little or no allocation to high-risk assets, and the products do not entail a direct risk for the company as a result of price fluctuations in the financial market. Note 9: Liquidity risk Liquidity risk is the risk that the company is unable to fulfil its obligations without incurring substantial additional expenses in the form of reduced prices for assets that must be realised, or in the form of especially expensive financing. For the insurance companies, the life insurance companies in particular, the insurance liabilities are long-term and the cash flows are generally known long before they fall due. In addition, liquidity is required to handle payments related to operations, and there are liquidity needs related to derivative contracts. The liquidity risk is handled by liquidity forecasts and the fact that portions of the investments are in very liquid securities, such as government bonds. The liquidity risk is considered low based on these measures. Liquidity risk is one of the largest risk factors for the banking business, and the regulations stipulate requirements for liquidity management and liquidity indicators. The guidelines for liquidity risk specify principles for liquidity management, and limits stipulated by the Board for different minimum liquidity and financing indicators. In addition to this, an annual funding strategy and funding plan are being drawn up that set out the overall limits for the bank’s funding activities. Separate liquidity strategies have also been drawn up for other subsidiaries in accordance with the statutory requirements. These strategies specify limits and measures for ensuring good liquidity and a minimum allocation to assets that can be sold at short notice. The strategies define limits for allocations to various asset types and mean the companies have money market investments, bonds, equities and other liquid investments that can be disposed of as required. In addition to clear strategies and the risk management of liquidity reserves in each subsidiary, the Group’s holding company has established a liquidity buffer. The development of the liquid holdings is continuously monitored at the Group level in relation to internal limits. A particular risk is the fact that during certain periods the financial markets can be closed for new borrowing. Measures for minimising the liquidity risk are to maintain a regular maturity structure for the loans, low costs, an adequate liquidity buffer and credit agreements with banks which the company can draw on if necessary. 122 STOREBRAND ANNUAL REPORT 2019UNDISCOUNTED CASH FLOWS FOR FINANCIAL LIABILITIES 1) NOK million 0-6 months 7-12 months 2-3 years 4-5 years > 5 years cashflows booked value Subordinated loan capital2) 1,161 75 2,469 5,359 976 10,040 8,925 Total Total Liabilities to financial institutions Deposits from bank customers Debt raised from issuance of securities Other current liabilities Uncalled residual liabilities Limited partnership Unused credit lines lending Lending commitments Total financial liabilities 2019 Derivatives related to funding 2019 Total financial liabilities 2018 Derivatives related to funding 446 14,399 4,115 8,194 7,297 3,072 1,466 5 497 11,381 80 4,037 -8 446 446 14,404 14,404 18,729 8,274 20,022 8,274 7,297 3,072 1,466 40,150 576 13,930 9,395 968 65,020 50,778 -115 32,471 98 1,403 -50 12,280 -114 11,834 2,049 -181 60,036 -5 46,803 2018 -111 29 -76 -159 -317 23 1) Liabilities for which repayment may be demanded immediately are included in the 0-6 month column. 2) In the case of perpetual subordinated loans the cash flow is calculated through to the first call date. SPECIFICATION OF SUBORDINATED LOAN CAPITAL1) Nominal value Currency Interest Maturity Book value NOK million Issuer Perpetual subordinated loan capital2) Storebrand Livsforsikring AS Storebrand Livsforsikring AS Dated subordinated loan capital Storebrand Livsforsikring AS Storebrand Livsforsikring AS Storebrand Livsforsikring AS Storebrand Livsforsikring AS Storebrand Livsforsikring AS Storebrand Bank ASA Storebrand Bank ASA Total subordinated loans and hybrid tier 1 capital 2019 Total subordinated loans and hybrid tier 1 capital 2018 872 1,100 1,000 1,000 300 750 900 150 125 NOK NOK SEK SEK EUR SEK SEK NOK NOK Variable Variable Variable Variable Fixed Variable Variable Variable Variable 2020 2024 2022 2024 2023 2021 2025 2022 2025 1) Storebrand Bank ASA has issued hybrid tier 1 capital bonds/hybrid capital that is classified as equity. See the statement of changes in equity. 2) In the case of perpetual subordinated loans the cash flow is calculated through to the first call date. 874 1,100 939 940 3,243 709 844 151 125 8,925 8,224 123 SECTION 9. ANNUAL ACCOUNTS AND NOTESSPESIFICATION OF LIABILITIES TO FINANCIAL INSTITUTIONS NOK million Call date 2019 2020 Total liabilities to financial institutions SPECIFICATION OF SECURITIES ISSUED NOK million Call date 2019 2020 2021 2022 2023 Total securities issued Book value 2019 446 446 Book value 2019 3,769 4,916 6,023 4,021 18,729 2018 2 2 2018 2,779 4,314 4,414 4,519 1,503 17,529 The loan agreements and credit facilities contain covenants. Covered bonds For issued covered bonds, a regulatory requirement for over-collateralisation of 102 per cent and an over-collateralisation require- ment of 109.5 per cent for bonds issued before 21 June 2017 apply. Credit facilities Storebrand ASA has an unused credit facility of EUR 240 million, expiration December 2024. FINANCING ACTIVITIES - MOVEMENTS DURING THE YEAR NOK million Book value 1.1.19 Admission of new loans/liabilities Repayment of loans/liabilities Change in accrued interest Translation differences Change in value/amortisation Book value 31.12.19 Subordinated loan Liabilities to financial capital institutions Securities issued 8,224 1,052 -253 1 -101 1 8,925 2 446 -2 17,529 4,500 -3,290 -5 -5 446 18,729 124 STOREBRAND ANNUAL REPORT 2019Note 10: Credit risk Storebrand is exposed to risk of losses as a result of counterparties not fulfilling their debt obligations. This risk also includes losses on lending and losses related to the failure of counterparties to fulfil their financial derivative contracts. The maximum limits for credit exposure to individual counterparties and for overall credit exposure to rating categories are set by the boards of the individual companies in the Group. Particular attention is paid to ensuring diversification of credit exposure in order to avoid concentrating credit exposure on any particular debtors or sectors. Changes in the credit standing of debtors are monitored and followed up. Thus far, the Group has used published credit ratings wherever possible, supplemented by the company’s own credit evaluation. Underlying investments in funds managed by Storebrand are included in the tables. Credit risk by counterparty BONDS AND OTHER FIXED-INCOME SECURITIES AT FAIR VALUE NOK million Fair value Fair value Virkelig verdi Fair value Fair value AAA AA A BBB NIG Not rated Fair value Total Fair value Government and go- vernment guaranteed bonds Corporate bonds Structured notes 22,890 20,926 14,431 7,089 415 25,389 Collateralised securities 3,587 554 335 27,169 1 734 259 12,109 201 38,331 93,416 1 4,341 Total interest bearing securities stated by rating Bond funds not mana- ged by Storebrand Non-interest bearing securities managed by Storebrand Total 2019 Total 2018 47,403 22,073 25,805 27,505 734 12,569 136,089 47,403 43,974 22,073 28,548 25,805 34,613 27,505 26,452 734 3,630 12,569 7,142 16,846 10,440 163,375 163,294 125 SECTION 9. ANNUAL ACCOUNTS AND NOTESINTEREST BEARING SECURITIES AT AMORTISED COST Category of issuer or guarantor NOK million Fair value Fair value Fair value Fair value Fair value Fair value Fair value AAA AA A BBB NIG Not rated Total 10,669 25,843 504 37,016 40,127 14,276 10,385 290 24,952 25,945 2,976 41,435 44,411 25,220 12,905 12,905 10,168 11,810 19,327 1,220 20,547 25,253 AAA AA A BBB NIG Fair value Fair value Fair value Fair value Fair value Not rated Fair value 3,224 1,734 53 596 167 109 18 3,057 1,625 53 578 2,484 3,606 1,490 7,837 77 494 596 108 -110 1,370 494 27,921 109,895 1,510 504 139,830 138,524 Total Fair value 5,607 294 5,313 4,646 12,348 1,754 Government and govern- ment guaranteed bonds Corporate bonds Structured notes Collateralised securities Total 2019 Total 2018 Counterparties NOK million Derivatives Of which derivatives in bond funds, managed by Storebrand Total derivatives excluding derivatives in bond funds 2019 Total derivatives exclu- ding derivatives in bond funds 2018 Of which bank deposits in bond funds, mana- ged by Storebrand Total bank deposits excluding bank deposits in bond funds 2019 Total bank deposits excluding bank deposits Bank deposits 303 303 3,716 6,466 108 10,594 in bond funds 2018 376 6,303 2,218 15 159 19 9,090 Loans to financial institutions Rating classes based on Standard & Poor’s. NIG = Non-investment grade. 20 21 41 126 STOREBRAND ANNUAL REPORT 2019INVESTMENTS SUBJECT TO NETTING AGREEMENTS/CSA Sikkerhetsstillelser NOK million fin. assets fin. liabilites assets/ liabilities (+/-)" (+/-) Net exposure Booked value Booked value Net booked fin. "Cash Securities Investments subject to netting agree- ments Investments not subject to netting agre- ements Total 2019 Total 2018 5,260 994 4,266 2,586 -322 2,002 53 5,313 4,926 994 4,607 53 4,319 319 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS (FVO) NOK million Booke value maximum exposure for credit risk Net credit risk This year's change in fair value due to change in credit risk Storebrand has none related credit derivatives or collateral 2019 159,045 159,045 -276 2018 155,902 155,902 -712 127 SECTION 9. ANNUAL ACCOUNTS AND NOTESCREDIT RISK FOR THE LOAN PORTFOLIO COMMITMENTS BY CUSTOMER GOUPS Lending to and receiva- bles from Total Unimpaired Impaired Individual defaulted Net Unused commit- commit- commit- NOK million customers Guarantees credit-lines ments ments ments Sale and operation of real estate Other service providers Wage-earners and others Others Total - Individual write-downs + Group write-downs Total loans to and receivables from customers 20191) Total loans to and receivables from customers 20182) 1) 2019: - Of whcih Storebrand 10,597 1 47,540 2,581 60,719 -28 -32 60,659 59,436 1 1 1 1 3,129 25 3,155 10,598 2 50,669 2,606 63,875 -28 -32 3,155 63,815 3,444 62,881 72 2 73 73 71 22 30 52 52 59 Bank 30,187 1 3,072 33,260 73 52 - Of which Storebrand Livsforsikring 30,472 83 30,555 write- downs commit- ments -9 -11 -8 -28 13 91 -7 97 -28 97 -21 108 -20 -8 105 -8 2) 2018: - Of whcih Storebrand Bank 28,456 1 3,362 31,819 71 59 21 108 - Of which Storebrand Livsforsikring 30,980 83 31,062 The majority of the loans at Storebrand consist of home loans to retail market customers. The home loans are approved and administered by Storebrand Bank, but a significant share of the loans have been transferred to Storebrand Livsforsikring as a part of the investment portfolio. Storebrand Livsforsikring and SPP also have loans to companies as part of the investment portfolio. Storebrand Bank’s corporate market segment has largely been discontinued. As of 31 December 2019, Storebrand had loans to customers totalling NOK 60.7 billion net after provisions for losses of NOK 0.1 billion. Of this, NOK 13.2 billion was to the corporate market and NOK 47.5 billion to the retail market. The corporate market portfolio consists of income generating properties and development properties with few customers and low level of default that are primarily secured by mortgages in commercial property. Storebrand Bank’s corporate market loans segment has largely been discontinued. In the retail market, most of the loans are secured by means of home mortgages. Customers are evaluated according to their capacity and intent to repay the loan. In addition to their capacity to service debt, checks are conducted of customers in relation to policy rules and they are given a credit rating. 128 STOREBRAND ANNUAL REPORT 2019The weighted average loan-to-value ratio for home loans is approximately 58 per cent. Over 97 per cent of home loans have a loan to value ratio within 85 per cent and approximately 99.3 per cent are within a 100 per cent loan to value ratio. Approximately 50 per cent of the home loans are within a 60 per cent LVR. The portfolio is considered to have a low to moderate credit risk. TOTAL COMMITTMENTS BY REMAINING TERM 2019 2018 Loans to and receiva- bles from Loans to Total and receiva- Total Unused commit- bles from Unused commit- NOK million customers Guarantees credit line ments customers Guarantees credit line ments Up to one month 1 - 3 months 3 months - 1 year 1 -5 years More than 5 years Total gross commit- ments 20 259 806 10,639 48,995 60,719 5 23 121 758 2,248 25 282 928 11,397 51,243 234 318 1,782 9,527 47,679 3,155 63,875 59,540 1 1 4 35 139 881 2,385 238 353 1,922 10,408 50,064 3,444 62,985 1 1 Commitments are regarded as non-performing and loss exposed when a credit facility has been overdrawn for more than 90 days and when an instalment loan has arrears older than 90 days and the amount is at least NOK 2000. CREDIT RISKS BY CUSTOMER GROUPS NOK million ming commitments write-downs commitments during the period Gross non-perfor- Individual performing value changes Net non- Total recognised Sale and operation of real estate Wage-earners and others Others Total 2019 Total 2018 22 102 2 125 129 9 11 -8 11 -28 13 91 2 105 108 -1 -1 -80 In the case of default, Storebrand Bank ASA will sell the securities or repossess the properties if this is most suitable. TOTAL ENGAGEMENT AMOUNT BY REMAINING TERM TO MATURITY NOK million Overdue 1-30 days Overdue 31-60 days Overdue 61-90 days Overdue more than 90 days Total 2019 2018 Loans to and Loans to and receivables Unused Total receivables Unused Total from credit- commit- from credit- commit- customers lines ments customers lines ments 285 58 46 91 480 285 58 46 91 481 155 54 2 71 281 1 156 54 2 71 2 283 129 SECTION 9. ANNUAL ACCOUNTS AND NOTES Note 11: Concentrations of risk Most of the risk for the Storebrand Group relates to the guaranteed pension products in the life insurance companies. These risks are consolidated in the Storebrand Life Insurance Group, which includes Storebrand Livsforsikring AS, SPP Livförsäkring AB and the business in Ireland (BenCo). Other companies directly owned by Storebrand ASA that are exposed to significant risks are Storebrand Forsikring AS, Storebrand Helseforsikring AS, Storebrand Asset Management Group and Storebrand Bank Group. For the life insurance businesses, the greatest risks are largely the same in Norway and Sweden. The financial market risk will depend significantly on global circumstances that influence the investment portfolios in all businesses. The insurance risk may be different for the various companies, and long life in particular can be influenced by universal trends. Both the insurance business and the banking business are exposed to credit risk. The insurance business primarily has a credit risk relating to bonds with significant geographical and industry-related diversification, while the bank is mostly exposed to direct loans for residential property in Norway. There is no significant concentration risk across bonds and loans. The financial market and investment risks are largely related to the customer portfolios in the life insurance business. The risk associated with a negative outcome in the financial market is described and quantified in Note 8, financial market risk. The banking business has little direct exposure to types of risk other than credit. In the short term, an interest rate increase will negatively impact on the returns for the life insurance companies. An interest rate increase can also result in bank customers having lower debt-servicing capacity and increased losses for the banking business. The risk from the P&C insurance and health insurance risk in Storebrand Skadeforsikring AS and Storebrand Helseforsikring AS has a low correlation with the risk from the rest of the businesses in the Group. In the asset management business, the principal risk is operational risk in the form of behaviour that can trigger claims and/or impact on reputation. Since the asset management business is the principal manager of the insurance businesses, errors in asset management could result in errors in the insurance businesses. Note 12: Valuation of financial instruments and properties The Group conducts a comprehensive process to ensure that financial instruments are valued as closely as possible to their market value. Publicly listed financial instruments are valued on the basis of the official closing price on stock exchanges, supplied by Reuters and Bloomberg. Fund units are generally valued at the updated official NAV prices when such prices exist. Bonds are generally valued based on prices collected from Nordic bond pricing and Bloomberg. Bonds that are not regularly quoted will normally be valued using recognised theoretical models. This principally applies to bonds denominated in Norwegian kroner. Discount rates composed of the swap rates plus a credit premium are used as a basis for these types of valuations. The credit premium will most often be specific to the issuer. Unlisted derivatives, such as forward exchange contracts and interest rate and foreign exchange swaps, are also valued theoretically. Money market rates, swap rates and exchange rates that form the basis for valuations are supplied by Reuters and Bloomberg. The valuations of currency options and swaptions are provided by Markit. The Group carries out continual checks to safeguard the quality of market data that has been collected from external sources. This involves controlling and assessing the likelihood of unusual changes. The Group categorises financial instruments valued at fair value on three different levels, which are described in more detail below. The levels express the differing degrees of liquidity and different measurement methods used. The company has established valuati- on models to gather information from a wide range of well-informed sources with a view to minimising the uncertainty of valuations. Level 1: Financial instruments valued on the basis of quoted prices for identical assets in active markets This category encompasses listed equities that over the previous three months have experienced average daily trading equivalent to approximately NOK 20 million or more. Based on this, the equities are regarded as sufficiently liquid to be included at this level. 130 STOREBRAND ANNUAL REPORT 2019Bonds, certificates or equivalent instruments issued by national governments are generally classified as level 1. When it comes to derivatives, standardised stock index futures and interest rate futures will also be included at this level. Level 2: Financial instruments valued on the basis of observable market information not covered by level 1 This category encompasses financial instruments that are valued on the basis of market information that can be directly observable or indirectly observable. Market information that is indirectly observable means that the prices can be derived from observable related markets. Level 2 includes shares or equivalent equity instruments for which market prices are available, but where the volume of transactions is too limited to fulfil the criteria in level 1. Shares in this level will normally have been traded during the last month. Bonds and equivalent instruments are generally classified in this level. Moreover, interest rate and foreign exchange swaps, as well as non-standardised interest rate and foreign exchange derivatives are classified as level 2. Fund investments, with the exception of private equity funds, are generally classified as level 2, and encompass equity, interest rate, and hedge funds. Level 3: Financial instruments valued on the basis of information that is not observable in accordance with level 2 Equities classified as level 3 are primarily investments in unlisted/private companies as well as funds consisting of these. These include investments in forestry, microfinance, infrastructure and property. Private equity is generally classified at this level through direct investments or investments in funds. Private customer loans and funds consisting of these are also at level 3. The types of mutual funds classified as level 3 are discussed in more detail below with a reference to the type of mutual fund and the valuation method. Storebrand is of the opinion that the valuation method used represents a best estimate of the mutual fund’s market value. Equities Forestry represents most of the value of the level 3 shares. An external valuation was carried out as at 31 December which forms the basis for the valuation of the company’s investments. The valuation is based on models that include non-observable assumptions. Alternative investments organised as limited liability companies (such as microfinance, property and infrastructure) are equity investments that are valued based on the value-adjusted equity reported by external sources when available. In the case of direct private equity investments, the valuation is normally based on either the most recent transaction or a model in which a company that is in continuous operation is assessed by comparing the key figures with groups of equivalent listed companies. Fund units Of the fund units, it is primarily private equity investments and property funds that represent the majority at level 3. Moreover, there are also some other types of funds, such as infrastructure funds and microfinance, loan funds and property funds here. The majority of Storebrand’s private equity investments are investments in private equity funds. These fund investments are valued based on the value reported by the funds. Most of the funds report on a quarterly basis, while a few report less often. Reporting typically takes place with a few months’ delay. The most recently received valuations are used as a basis, adjusted for cash flows and market effects in the period from the most recent valuation until the reporting date. For private equity, the market effect is calculated based on the development in value in the relevant index, multiplied by the estimated beta in relation to this index. Indirect real estate investments are primarily investments in funds with underlying real estate investments where Storebrand’s intention is to own the investments throughout the fund’s lifetime. The valuation of the property funds is carried out based on information received from each fund manager, adjusted for cash flows in the period from the most recent valuation until the reporting date. Estimated values prepared by the fund companies will be used if these are available. Loans to customers The value of fixed-rate loans is determined by discounting the agreed cash flows over the remaining maturity by the current discount rate adjusted for market spread. The discount rate that is used is based on a swap interest rate (mid swap) with a maturity that corresponds to the remaining lock-in period for the underlying loans. The market spread that is used on the balance sheet date is determined by assessing the market conditions, market price and the associated swap interest rate. However, the fair value of loans to corporate customers with margin loans is lower than the amortised cost because certain loans run with lower margins than they would have done if they had been taken up as of the end of 2019. The value shortfall is calculated by discounting the difference between the agreed margin and the current market price over the remaining duration. 131 SECTION 9. ANNUAL ACCOUNTS AND NOTESCorporate bonds Among level 3 bonds, non-performing loans will be left for estimated expected payment. Investment properties The investment properties primarily consist of office buildings located in Oslo and Stockholm and shopping centres in Southern Norway. Office properties and shopping centres in Norway: When calculating fair value, Storebrand uses an internal cash flow model. The required rate of return is of greatest importance when calculating the fair value for investment properties. Net cash flows for the individual property are discounted by an individual required rate of return. A future income and expense picture for the first 10 years has been estimated for the office properties and a final value has been calculated for the end of the 10th year based on market rent and normal operating costs for the property. In the net income stream, consideration has been made to existing and future loss of income due to vacancy, necessary investments and an assessment of the future development in the market rent. The majority of new contracts that are entered into have a duration of five or ten years. The cash flows from these lease agreements (contractual rent) are included in the valuations. To estimate the long-term, future non-contractual rental incomes, a forecasting model has been developed. The model is based on historical observations in Dagens Næringsliv’s property index (adjusted by CPI) and market estimates. A long-term, time-weighted average of the annual observations is calculated in which the oldest observations are weighted with the lowest importance. For non-contractual rent in the short-term, the current rental prices and market situation are used. An individual required rate of return is determined for each property. The required rate of return is viewed in connection with the related cash flow for the property. The knowledge available about the market’s required rate of return, including transactions and appraisals, is used when determining the cash flow. The required rate of return is divided into the following elements: • • • • • • • • • Risk-free interest Risk premium, adjusted for: Type of property Location Structural standard Environmental standard Duration of contract Quality of tenant Other factors such as transactions and perception in the market, vacancy and general knowledge about the market and the individual property. External valuation: For properties in the Norwegian business, a methodical approach is taken to a selection of properties that are to be externally valued each quarter so that all properties have had an external valuation at least every three years. In 2019, external valuations were obtained for properties worth NOK 16 billion (77 per cent of the portfolio’s value as of 31 December 2019). External valuations are obtained for properties in the Swedish business. Shopping centres and commercial premises are valued annually, while other wholly-owned property investments are valued on a quarterly basis. 132 STOREBRAND ANNUAL REPORT 2019 VALUATION OF FINANCIAL INSTRUMENTS AND PROPERTIES AT FAIR VALUE NOK million Assets: Equities and units - Equities - Fund units Total equities and fund units 31.12.19 Total equities and fund units 31.12.18 Loans to customers - Loans to customers - corporate - Loans to customers - retail Loans to customers 31.12.19 Loans to customers 31.12.18 Bonds and other fixed-income securities - Government bonds - Corporate bonds - Structured notes - Collateralised securities - Bond funds Total bonds and other fixed-income securities 31.12.19 Total bonds and other fixed-income securities 31.12.18 Derivatives: - Equity derivatives - Interest derivatives - Currency derivatives Total derivatives 31.12.19 - of which derivatives with a positive market value - of which derivatives with a negative market value Total derivatives 31.12.18 Properties: Investment properties Properties for own use Total properties 31.12.19 Total properties 31.12.18 Level 1 Level 2 Level 3 Non- Quoted Observable observable prices assumptions assumptions 31.12.19 31.12.18 28,007 197 28,205 23,379 226 156,365 156,591 125,493 10,638 180 10,818 13,839 21,618 60,040 3,648 55,010 140,316 140,370 1 2,537 1,781 4,319 5,314 -995 39 532 9,016 9,548 8,489 6,736 389 7,125 5,928 15 5,490 5,505 3,377 29,415 1,375 30,790 29,686 28,765 165,578 194,343 6,736 389 7,125 32,256 60,055 3,648 60,680 156,639 1 2,537 1,781 4,319 5,314 -995 29,415 1,375 30,790 24,038 133,323 157,361 5,708 220 5,928 34,347 50,890 79 22,793 49,478 157,586 2,820 -2,781 4,646 -4,607 39 28,266 1,420 29,686 MOVEMENTS BETWEEN QUOTED PRICES AND OBSERVABLE ASSUMPTIONS NOK million Equities and fund units From quoted prices to From observable assump- observable assumptions tions to quoted prices 48 37 Movements from level 1 to level 2 reflect reduced sales value in the relevant equities and bonds in the last measuring period. On the other hand, movements from level 2 to level 1 indicate increased sales value in the relevant equities and bonds in the last measuring period. 133 SECTION 9. ANNUAL ACCOUNTS AND NOTESFINANCIAL INSTRUMENTS AND REAL ESTATE AT FAIR VALUE - LEVEL 3 NOK million Equities Fund units customers bonds Bond funds properties for own use Loans to Corporrate Investment Properties Book value 01.01.19 640 7,849 5,928 Net gains/losses on financial instruments Supply Sales Translation differences Other Book value 31.12.19 30 22 -9 -6 -145 532 1,300 1,076 -1,112 -98 94 2,350 -874 -208 -165 56 2 -42 -1 3,321 28,266 1,420 -49 2,681 -356 -107 716 551 -360 242 -34 43 -2 -92 40 9,016 7,125 15 5,490 29,415 1,375 As of 31.12.19, Storebrand Livsforisikring had NOK 4.044 million invested in Storebrand Eiendomsfond Norge KS and Ruseløkkveien 26, Oslo. The investments are classified as “Investment in associated Ccmpanies and joint ventures” in the Consolidated Financial Statements. VALUATION OF FINANCIAL INSTRUMENTS AT AMORTISED COST NOK million Financial assets Loans to and due from financial institutions Loans to customers - corporate Loans to customers - retail Bonds held to maturity Bonds classified as loans and receiva- bles Total financial assets 31.12.2019 Total financial assets 31.12.2018 Financial liabilities Debt raised by issuance of securities Liabilities to financial institutions Deposits from banking customers Subordinatd loan capital Total financial liabilities 31.12.2019 Total financial liabilities 31.12.2018 Level 1 Level 2 Level 3 Non- Total Total Quoted Observable observable fair value Book value fair value Book value prices assumptions assumptions 31.12.19 31.12.19 31.12.18 31.12.18 41 14,433 100,191 114,665 114,798 18,728 446 14,404 9,010 42,589 40,205 6,180 47,327 41 6,180 47,327 14,433 41 318 6,206 6,981 47,327 46,508 13,377 15,679 318 6,999 46,508 14,403 1,537 101,728 98,046 98,485 94,723 55,044 53,173 169,709 164,997 167,971 162,951 18,728 18,729 17,565 17,529 446 14,404 9,010 42,589 446 2 2 14,404 14,419 14,419 8,925 8,218 8,224 42,504 40,205 40,175 134 STOREBRAND ANNUAL REPORT 2019SENSITIVITY ASSESSMENTS Equities It is primarily investments in forests that are classified under equity at level 3. Forestry investments are characterised by, among other things, very long cash flow periods. There can be some uncertainty associated with future cash flows due to future income and costs growth, even though these assumptions are based on recognised sources. Nonetheless, valuations of forestry investments will be particularly sensitive to the discount rate used in the estimate. The company bases its valuation on external valuations. These utilise an estimated market-related required rate of return. NOK million Change in fair value per 31.12.19 Change in fair value per 31.12.18 Change in value at change in discount rate Increase + 25 bp Decrease - 25 bp -19 -56 21 57 Fund units Large portions of the portfolio are private equity funds invested in companies priced against comparable listed companies The valuation of the private equity portfolio will thus be sensitive to fluctuations in global equity markets. The private equity portfolio has an estimated Beta relative to the MSCI World (Net – currency hedged to NOK) of around 0.46 NOK million Change in fair value per 31.12.19 Change in fair value per 31.12.18 Change MSCI World Increase + 10 % Increase + 10 % 413 455 -413 -455 The valuation of indirect property investments will be sensitive to a change in the required rate of return and the expected future cash flow. Remaining indirect property investments are no longer leveraged. NOK million Change in fair value per 31.12.19 Change in fair value per 31.12.18 Change in value underlying real estate Increase + 10 % Decrease - 10 % 1 1 -1 -1 Loans to customers The value of fixed-rate loans is determined by discounting the agreed cash flows over the remaining maturity by the current discount rate adjusted for market spread. The discount rate that is used is based on a swap interest rate (mid swap) with a maturity that corresponds to the remaining lock-in period for the underlying loans. The market spread that is used on the date of the balance sheet is determined by assessing the market conditions, market price and the associated swap interest rate. Loans from SPP Pension & Försäkring AB are appraised at fair value. The value of these loans is determined by future cash flows being discounted by an associated swap curve adjusted for a customer-specific credit spread NOK million Change in fair value per 31.12.19 Change in fair value per 31.12.18 Change in marketspread + 10 bp -29 -34 - 10 bp 29 34 135 SECTION 9. ANNUAL ACCOUNTS AND NOTESCorporate bonds Corporate bonds at level 3 are typical non-performing loans and convertible bonds. They are not priced by a discount rate as bonds normally are, and therefore these investments are included in the same sensitivity test as private equity. NOK million Change in fair value per 31.12.19 Change in fair value per 31.12.18 Properties The sensitivity assessment for properties includes investments properties. Change MSCI World Increase + 10 % Decrease - 10 % 0 3 0 -3 The valuation of property is particularly sensitive to a change in the required rate of return and the expected future cash flow. A chan- ge of 0.25 per cent in the required rate of return when everything else remains unchanged will result in a change in the value of Sto- rebrand’s property portfolio of approximately 4.5 per cent. About 25 per cent of the property’s cash flow is linked to lease agreement. This means that the changes in the uncertain parts of the cash flow by 1 per cent result in a change in value of 0.75 per cent. NOK million Change in fair value per 31.12.19 Change in fair value per 31.12.18 Change in required rate of return 0,25 % -1,560 -1,373 -0,25 % 1,699 1,522 Note 13: Solidity and capital management The Storebrand Group is an insurance-dominated, cross-sectoral financial group with capital requirements in accordance with Solvency II. Storebrand calculates Solvency II according to the standard method as defined in the Solvency II Regulations. Consolidation is carried out in accordance with Section 18-2 of the Norwegian Act relating to Financial Undertakings and Financial Groups. The solvency capital requirement and minimum capital requirement for the group are calculated in accordance with Section 46 (1)-(3) of the Solvency II Regulations using the standard method and include the effect of the transitional arrangement for shares pursuant to Section 58 of the Solvency II Regulations. Capital management Storebrand places particular emphasis on continually and systematically adapting the levels of equity in the Group. The level is adapted to the financial risk and capital requirements in the business, where growth and the composition of segments are impor- tant motivating factors for the need for capital. The purpose of capital management is to ensure an efficient capital structure and provide for an appropriate balance between in-house goals and regulatory and rating company requirements. If there is a need for new capital, this is raised by the holding company Storebrand ASA, which is listed on the stock exchange and is the ultimate parent company. The Storebrand companies are subject to various capital requirements depending on the type of business. In addition to the capital requirements for the Storebrand Group and insurance companies, the banking and asset management businesses have capital requirements in accordance with CRD IV. The companies in the group governed by CRD IV are included in the group’s solvency capital and solvency capital requirements with their respective primary capital and capital requirements. Storebrand has the goal of paying a dividend of more than 50% of the Group profit after tax. The board has the ambition of ordinary dividends per share being, at a minimum, at the same nominal level as the previous year. The normal dividend is paid with a sustainable solvency margin of more than 150%. If there is a solvency margin of more than 180%, the board’s intention is to propose extraordinary dividends or share buy-backs. In general, equity in the Group can be controlled without material limitations if the capital requirement is met and the respective legal entities have sufficient solvency. 136 STOREBRAND ANNUAL REPORT 2019SOLVENCY CAPITAL NOK million Share capital Share premium Reconciliation reserve Subordinated loans Deferred tax assets Risk equalisation reserve Minority interests Unavailable minority interests Deductions for CRD IV subsidiaries Expected paid out dividend 2019 Total basic solvency capital Subordinated capital for subsidiaries regulated in accordance with CRD IV Total solvency capital Total solvency capital available to cover the 31.12.19 Group 1 limited Group 2 Group 3 1,114 6,536 466 268 57 -41 1,114 7,002 285 Group 1 unlimited 2,339 10,521 27,169 -2,970 -1,517 35,542 Total 2,339 10,521 27,169 7,651 268 466 57 -41 -2,970 -1,517 43,943 2,970 46,913 minimum capital requirement 38,614 35,542 1,114 1,958 SOLVENCY CAPITAL REQUIREMENT AND -MARGIN NOK million Market Counterparty Life Health P&C Operational Diversification Loss-absorbing tax effect Total solvency capital requirement - insurance company Capital requirements for subsidiaries regulated in accordance with CRD IV Total solvency capital requirement Solvency margin with transitional rules Minimum capital requirement Minimum margin 2019 22,040 779 10,702 761 307 1,493 -7,207 -4,847 24,028 2,683 26,711 176% 9,788 394% 31.12.18 Total 2,339 10,521 23,444 7,780 873 234 56 -37 -3,311 -1,402 40,498 3,311 43,808 34,623 2018 20,917 625 10,412 713 278 1,485 -6,838 -4,764 22,827 2,482 25,309 173% 9,711 357% Storebrand has the goal of paying a dividend of more than 50% of the Group profit after tax. The board has the ambition of ordinary dividends per share being, at a minimum, at the same nominal level as the previous year. The normal dividend is paid with a sustainable solvency margin of more than 150%. If there is a solvency margin of more than 180%, the board’s intention is to propose extraordinary dividends or share buy-backs. In general, equity in the Group can be controlled without material limitations if the capital requirement is met and the respective legal entities have sufficient solvency. 137 SECTION 9. ANNUAL ACCOUNTS AND NOTES CAPITAL- AND CAPITAL REQUIREMENT IN ACCORDANCE WITH THE CONGLOMERATE DIRECTIVE NOK million Capital requirements for CRD IV companies Solvency captial requirements for insurance Total capital requirements Net primary capital for companies included in the CRD IV report Net primary capital for insurance Total net primary capital Overfunding 2019 2,937 24,028 26,966 2,970 43,943 46,913 19,947 2018 2,714 22,827 25,541 3,311 40,498 43,808 18,267 Under Solvency II, the capital requirement from the CRD IV companies in the Group is included in accordance with their respective capital requirements. In a multi-sectoral financial group, all the capital requirements of the CRD IV companies are calculated based on their respective applicable requirements, including buffer requirement for the largest company in the Group (Storebrand Bank). This increases the total requirement from the CRD IV companies in relation to what is included in the Solvency II calculation. As at 31 December 2019, the difference amounted to NOK 255 million. Note 14: Premium income NOK million Savings: Unit Linked Storebrand Life Insurance Unit Linked SPP Total savings Of which premium reserve transferred to company Insurance: P&C & Individual life1) Group life2) Pension related disability insurance Total insurance Of which premium reserve transferred to company Guaranteed pension: Defined Benefit (fee based) Storebrand Life Insurance Paid-up policies Storebrand Life Insurance Traditional individual life and pension Storebrand Life Insurance SPP Guaranteed Products Total guaranteed pension Of which premium reserve transferred to company Other: BenCo Total other Total premium income Of which premium reserve transferred to company 138 1) Individual life and disability, property and caualty insurance 2) Group life, workers comp. And health insurance 2019 14,204 8,751 22,955 5,784 1,915 662 1,188 3,765 34 3,110 103 234 2,169 5,616 420 30 30 32,366 6,239 2018 13,173 7,326 20,499 4,479 1,817 732 1,151 3,700 10 3,086 -50 238 2,068 5,342 77 90 90 29,631 4,566 STOREBRAND ANNUAL REPORT 2019Note 15: Net income analysed by class of financial instrument Net gains and Net Dividend/ losses on revaluation interest financial on Of which NOK million income etc. assets investments Total 2019 Company Customer Profit on equities and fund units 1,357 3,858 32,143 37,358 40 37,318 Profit on bonds and other fixed- income securities at fair value Profit on financial derivatives Profit on loans Total gains and losses on financial assets at fair value - of which FVO (fair value option) - of which trading Net income bonds to amortised cost, loans and accounts receivables Net income loans Total gains and losses on financial assets at amortised cost LOSSES FROM LOANS NOK million 2,424 915 25 4,720 3,781 2,271 4,115 1,348 5,463 156 540 4,554 10 11 11 2,188 -24 4,767 1,431 25 34,307 43,581 -16 -6 3,775 2,266 4,126 1,348 600 7 14 661 138 -6 214 802 4,167 1,424 11 42,920 3,912 546 2018 -5,258 1,023 -2,061 140 -6,155 3,158 1,152 4,370 1,209 5,474 1,016 4,457 5,579 2019 2018 Write-downs/income recognition for loans and guarantees for the period Change in individual loan write-downs for the period Change in grouped loan write-downs for the period Other corrections to write-downs Realised losses on loans where provisions have previously been made Realised losses on loans where no provisions have previously been made Recovery of loan losses realised previously Write-downs/income recognition for loans and guarantees for the period 1 16 -1 -21 1 -3 22 -12 1 -25 -11 3 -23 139 SECTION 9. ANNUAL ACCOUNTS AND NOTESNote 16: Net income from properties NOK million Rent income from properties 1) Operating expenses (including maintenance and repairs) relating to properties that have provided rent income during the period 2) Result minority defined as liabilities Total Change in fair value Total income properties 1) Of which real estate for own use 2) Of which properties for own use Allocation by company and customers: Customer Total income from properties Note 17: Other income NOK million Fee and commission income, banking Net fee and commission income, banking Management fees, asset management Net agio/disagio Bank Management fees Return commissions/Kick-back Insurance related income Revenue from companies other than banking and insurance Other income Total other income 2019 1,556 -346 -59 1,151 713 1,864 82 -29 1,864 1,864 2019 107 107 2,111 10 17 1,117 250 115 32 3,758 2018 1,357 -327 1,030 457 1,487 74 -29 1,487 1,487 2018 106 106 1,937 221 364 764 187 125 325 4,028 140 STOREBRAND ANNUAL REPORT 2019Note 18: Insurance claims NOK million Savings: Unit Linked Storebrand Life Insurance Unit Linked SPP Total savings Of which premium reserve transferred to company Insurance: P&C & Individual life1) Group life2) Pension related disability insurance Total insurance Of which premium reserve transferred to company Guaranteed pension: Defined Benefit (fee based) Storebrand Life Insurance Paid-up policies Storebrand Life Insurance Traditional individual life and pension Storebrand Life Insurance SPP Guaranteed Products Total guaranteed pension Of which premium reserve transferred to company Other: BenCo Total other Total net premium income Of which premium reserve transferred to company 1) Individual life and disability, property and caualty insurance 2) Group life, workers comp. And health insurance The table below shows the anticipated compensation payments DEVELOPMENT IN EXPECTED INSURANCE CLAIM PAYMENTS - LIFE INSURANCE NOK billion 0-1 year 1-3 years > 3 years Total Storebrand Life Insurance 16 40 233 289 2019 -6,758 -3,732 -10,490 -6,020 -1,255 -715 -158 -2,128 -45 -1,218 -6,182 -1,368 -4,961 -13,729 -291 -409 -409 -26,756 -6,357 SPP 6 13 159 178 2018 -4,614 -3,487 -8,101 -4,238 -1,065 -622 -147 -1,833 -32 -1,219 -5,829 -1,395 -5,710 -14,153 -995 -1,054 -1,054 -25,142 -5,265 BenCo 1 7 8 141 SECTION 9. ANNUAL ACCOUNTS AND NOTESDEVELOPMENT IN INSURANCE CLAIM PAYMENT - P&C INSURANCE, EXLUSIVE RUN-OFF NOK million 2014 2015 2016 2017 2018 2019 Total Calculated gross cost of claims At end of the policy year - one year later - two years later - three years later - four years later - five years later Calculated amount 31.12.19 Total disbursed to present Claims reserve Claims reserve for previous years (before 2014) Total claims reserve 513 501 500 489 478 472 462 10 685 687 661 648 641 613 28 793 774 750 741 797 764 756 760 749 825 698 43 694 62 664 86 514 311 3,645 539 9 548 The overview shows the development in the estimate for occurred insurance claims over time and the remaining claims reserve. The overview also excludes the ”Naturskadepool”, Norwegian Motor Insurers’ Bureau (TFF), reinsurance and claim settlement costs on all products. Note 19: Change in capital buffer NOK million Change in market value adjustment reserve Change in additional statutory reserves Change in conditional bonuses Total change in capital buffer Note 20: Operating expenses and number of employees OPERATING EXPENSES NOK million Personnel expenses Amortisation/write-downs Other operating expenses Total operating expenses 142 2019 -3,255 -779 -1,858 -5,892 2019 -2,281 -231 -2,316 -4,828 2018 1,462 -68 336 1,729 2018 -2,143 -147 -2,252 -4,542 STOREBRAND ANNUAL REPORT 2019PECIFICATION OF AMORTISATION/WRITE-DOWNS NOK million Amortisation/write-downs tangible fixed assets Amortisation/write-downs IFRS 16 assets Amortisation/write-downs IT systems Amortisation/write-downs properties for own use Total amortisation/write-down in income statement NUMBER OF EMPLOYEES 1) Number of employees 31.12 Average number of employees Number of person-years 31.12 Average number of person-years 1) Including Storebrand Helseforsikring with 100 per cent. see note 28 see note 28 see note 27 see note 33 2019 -6 -132 -92 -2 -231 2019 1,759 1,774 1,739 1,753 2018 -6 -139 -2 -147 2018 1,789 1,766 1,767 1,747 Note 21: Pension expenses and pension liabilities Storebrand Group has country-specific pension schemes. Storebrand’s employees in Norway have a defined-contribution pension scheme. In a defined-contribution scheme, the company allocates an agreed contribution to a pension account. The future pension depends upon the amount of the contributions and the return on the pension account. When the contributions have been paid, the company has no further payment obligations relating to the defined-contribution pension and the payment to the pension account is charged as an expense on an ongoing basis. For regulatory reasons, there can be no savings in the defined-contribution pension for salaries that exceed 12G (G = National Insurance Scheme basic amount). Storebrand has pension savings in the savings product Extra Pension for employees with salaries exceeding 12G. The premiums and content of the defined-contribution pension scheme are as follows: • Saving starts from the first krone of salary. Savings rate of 7 per cent of salary from 0 to 12 G (the National Insurance basic amount ”G” was NOK 99,858 at 31 December 2019) In addition, 13 per cent of salary between 7.1 and 12 G is saved. Savings rate for salary over 12 G is 20 per cent. • • • Employees and former employees who had salaries in excess of 12G until 31 December 2014 were offered a cash redemption option for their accrued rights with payment at the start of 2015. For employees who were a part of the executive management team, these payments were distributed over 5 years, with last payment in 2019. The Norwegian companies participate in the Joint Scheme for Collective Agreement Pensions (AFP). The private AFP scheme provides a lifelong supplement to an ordinary pension and is a multi-employer pension scheme, but there is no reliable information available for inclusion of this liability on the statement of financial position. The scheme is financed by means of an annual premium that is defined as a percentage of salaries from 1 G to 7.1 G, and the premium rate was 2.5 % in 2019. Storebrand employees in Norway who were born before 1 January 1956 can choose between drawing an AFP scheme pension or retiring at the age of 65 and receiving a direct pension from the company until they reach the age of 67. Employees can choose to receive benefits from the AFP scheme from the age of 62 and still continue to work. Employees who were on sick leave and partiality disabled during the transition to the defined-contribution pension, remain in the defined-benefit pension scheme. There are also pension liabilities for the defined-benefit scheme related to direct pensions for certain former employees and former board members. 143 SECTION 9. ANNUAL ACCOUNTS AND NOTES The pension plan for employees at SPP in Sweden follows the plan for bank employees in Sweden (BTP). SPP has a defined-contribution occupational pension known as BTP1. All new employees were enrolled in this pension agreement from and including 1 January 2014. In BTP1, the employer pays a premium for pension savings that is calculated based on pensionable salary up to 30 times the ”basic income amount” (inkomstbasbelopp). The insurance includes retirement pension with or without mortality inheritance, disability pension and children’s pension. The premium is calculated independently of age and is calculated primarily based on the monthly salary. The premium is paid monthly in two parts, a fixed part that is 2.5 per cent of the pensionable salary up to and including 7.5 times the “basic income amount”. The optional part of the premium is 2 per cent of salary up to and including 7.5 times the “basic income amount” and 30 per cent of salary between 7.5 and 30 times the “basic income amount”. The pension in the BTP2 agreement (defined-benefit occupational pension that is a closed scheme) amounts to 10 per cent of the annual salary up to 7.5 times the “basic income amount” (which was SEK 64,400 in 2019 and will be SEK 66.800 in 2020), 65 per cent of salary in the interval from 7.5 to 20, and 32.5 per cent in the interval from 20 to 30. No retirement pension is paid for the portion of salary in excess of 30 times the ”basic income amount”. Full pension entitlement is reached after 30 years of member- ship in the pension scheme. In addition to the defined-benefit part, the BTP plan has a smaller defined-contribution component. Here the employees can decide themselves how assets are to be invested (traditional insurance or unit-linked insurance). The defined-contribution part is 2 per cent of the annual salary. The ordinary retirement age is 65 in accordance with the pension agreement between the Employer’s Association of the Swedish Banking Institutions (BAO) and the trade unions that are part of BTP, and will be changed to age 68 from 2020. The retirement age for SPP’s CEO is 65 years. The CEO is covered by BTP1. In addition, the CEO has a defined-contribution based additional pension with SPP. The premium for this insurance is 20 per cent of salary that exceeds 30 times the “basic income amount”. The pension for the employees at Euroben Life and Pension LTD is covered by a defined-contribution scheme. RECONCILIATION OF PENSION ASSETS AND LIABILITIES IN THE STATEMENT OF FINANCIAL POSITION NOK million Present value of insured pension liabilities Fair value of pension assets Net pension liabilities/assets insured scheme Present value of unsecured liabilities Net pension liabilities recognised in statement of financial position Includes employer contributions on net under-financed liabilities in the gross liabilities BOOKED IN STATEMENT OF FINANCIAL POSITION NOK million Pension assets Pension liabilities 2019 1,062 -994 68 196 264 2019 2 266 2018 1,018 -913 105 213 317 2018 5 322 144 STOREBRAND ANNUAL REPORT 2019CHANGES IN THE NET DEFINED BENEFIT PENSION LIABILITIES IN THE PERIOD NOK million Net pension liabilities 01.01 Pensions earned in the period Pension cost recognised in period Estimate deviations Gain/loss on insurance reductions Pensions paid Changes to pension scheme Pension liabilities additions/disposals and currency adjustments Net pension liabilities 31.12 CHANGES IN THE FAIR VALUE OF PENSION ASSETS NOK million Pension assets at fair value 01.01 Expected return Estimate deviation Premiums paid Pensions paid Changes to pension scheme Pension liabilities additions/disposals and currency adjustments Net pension assets 31.12 Expected premium payments (pension assets) in 2020 Expected premium payments (contributions) in 2020 Expected AFP early retirement scheme payments in 2020 Expected payments from operations (uninsured scheme) in 2020 2019 1,231 13 25 84 2 -53 -4 -37 1,259 2019 914 18 87 32 -21 -4 -32 995 21 203 15 40 PENSION ASSETS ARE BASED ON THE FINANCIAL ASSETS HELD BY STOREBRAND LIFE INSURANCE/SPP COMPOSED AT 31.12: Storebrand Livsforsikring SPP NOK million Real estate at fair value Bonds at amortised cost Loans at amortised cost Equities and units at fair value Bonds at fair value Other short-term financial assets Total 2019 13% 36% 13% 15% 20% 1% 100% 2018 14% 36% 14% 12% 24% 1% 100% 2019 12% 14% 11% 63% 2018 1,260 15 17 18 -4 -55 -21 1,231 2018 928 21 -15 27 -27 -20 914 2018 12% 11% 9% 68% 100% 100% The table shows the percentage asset allocation of pension assets at year-end managed by Storebrand Livsforsikring and SPP. Realised return on assets 2019 3.6% 2018 2.2% 2019 8.8% 2018 2.3% 145 SECTION 9. ANNUAL ACCOUNTS AND NOTESNET PENSION EXPENSES BOOKED TO PROFIT AND LOSS ACCOUNT, SPECIFIED AS FOLLOWS NOK million Current service cost Net interest cost/expected return Changes to pension scheme Total for defined benefit schemes The period's payment to contribution scheme The period's payment to contractual pension "Net pension cost recognised in profit and loss account in the period" OTHER COMPREHENSIVE INCOME (OCI) IN THE PERIOD NOK million Actuarial loss (gain) - change in discount rate Actuarial loss (gain) - change in other financial assumptions Actuarial loss (gain) - experience DBO Loss (gain) - experience Assets Investment manage cost Asset ceiling - asset adjustment Remeasurements loss (gain) in the period MAIN ASSUMPTIONS USED WHEN CALCULATING NET PENSION LIABILITY 31.12 NOK million Discount rate Expected earnings growth Expected annual increase in social security pensions Expected annual increase in pensions payment Disability table Mortality table Storebrand Livsforsikring 2019 2.2% 2.00% 2.00% 0,0% KU 2018 2.8% 2.50% 2.00% 0.0% KU 2019 13 7 3 23 188 17 229 2019 119 -25 -10 -99 12 -4 SPP 2019 1.5% 3.5% 2018 15 8 -4 19 166 17 203 2018 59 -17 -36 27 -5 28 2018 2.3% 3.5% 2.0% 2.0% K2013BE K2013BE DUS14 DUS14 Financial assumptions: The financial assumptions have been determined on the basis of the regulations in IAS 19. Long-term assumptions such as future inflation, real interest rates, real wage growth and adjustment of the basic amount are subject to a particularly high degree of uncertainty. In Norway, a discount rate based on covered bonds is used. Based on the market and volume trends observed, the Norwegian covered bond market must be perceived as a deep market. Specific company conditions including expected direct wage growth are taken into account when determining the financial assumptions. Actuarial assumptions: In Norway standardised assumptions on rates of mortality and disability as well as other demographic factors are prepared by Finance Norway. With effect from 2014 a new mortality basis, K2013, has been introduced for group pension insurance in life insurance companies and pension funds. Storebrand has used the mortality table K2013BE (best estimate) in the actuarial calculations at 31 December 2019. 146 STOREBRAND ANNUAL REPORT 2019 The actuarial assumptions in Sweden follow the industry’s mutual mortality table DUS14 adjusted for corporate differences. The average employee turnover rate is estimated to be 4 per cent p.a. Sensitivity analysis pension calculations Storebrand’s risk associated with the pension scheme relates to the changes in the financial and actuarial assumptions that must be used in the calculations and the actual return on the pension funds. The pension liabilities are particularly sensitive to changes in the discount rate. A reduction of the discount rate will in isolation entail an increase in pension liabilities. For the Norwegian companies that have converted to defined contribution pensions as of 1 January 2015, the sensitivity has not been calculated, and the figures below illustrate the sensitivity for the Swedish companies. The following estimates are based on facts and circumstances as of 31 December 2019 and are calculated for each individual when all other assumptions are kept constant: SWEDEN Percentage change in pension: - Pension liabilities - The period's net pension costs Discount rate Expected earnings growth expected life expectancy 1,0% -1,0% 1,0% -1,0% + 1 year - 1 year Mortality - change in -10% -12% 12% 15% -1% 7% -4% -6% 2% -1% -2% -1% Note 22: Remuneration to senior employees and elected officers of the company NOK thousand Senior employees Odd Arild Grefstad Lars Aa. Løddesøl Geir Holmgren Heidi Skaaret Staffan Hansén Jan Erik Saugestad Jostein Dalland 5) Karin Greve-Isdahl Wenche Annie Martinussen5) Trygve Håkedal6) Tove Selnes6) Terje Løken6) Total 2019 Total 2018 Total Post remunera- Pension terminati- Ordinary Other tion for the accrued for on salary No. of shares salary 1) benefits 2) year the year (months) Loan 3) owned 4) 6,899 5,339 4,529 4,447 5,547 5,893 3,608 2,590 2,845 2,523 2,858 2,542 191 205 207 180 32 157 138 41 131 35 172 151 7,090 5,545 4,736 4,627 5,579 6,050 3,745 2,631 2,976 2,558 3,031 2,693 49,621 40,010 1,639 1,311 51,260 41,321 1,353 1,031 848 851 1,200 1,144 628 468 514 378 421 342 9,180 7,467 24 18 12 12 12 12 12 12 12 6,780 162,269 10,564 100,026 7,051 3,254 1,200 - 67,089 69,690 66,689 58,411 - 15,569 12,861 - 7,695 7,264 3,199 78,150 51,509 - 8,034 14,964 8,921 568,954 471,313 1) A proportion of the executive management’s fixed salary will be linked to the purchase of physical STB shares with a lock-in period of three years. The purchase of shares will take place once a year. 2) Comprises company car, telephone, insurance, concessionary interest rate, other taxable benefits. 3) Employees can borrow up to NOK 7.0 million at a subsidised interest rate, which is set at 42 bp below the best current market interest rate. Excess loan amounts will be subject to market terms. 4) The summary shows the number of shares owned by the individual, as well as his or her close family and companies where the individual exercises significant influence, cf. the Accounting Act, Section 7-26.. 5) Senior employee only part of the year 6) Senior employee from August. Reported remuneration is for the total year 147 SECTION 9. ANNUAL ACCOUNTS AND NOTESNOK thousand Board of Directors Didrik Munch Laila Synnøve Dahlen Martin Skancke Karin Bing Orgland Jan Chr. Opsahl2) Liv Sandbæk Karl Sandlund2) Heidi Storruste Arne Fredrik Håstein Ingvild Pedersen Magnus Gard Total 2019 Total 2018 Remuneration Loan No. of shares owned 1) 855 392 628 523 93 438 327 446 366 124 315 4,507 4,371 32,000 12,500 22,000 17,000 - - 3,925 5,404 1,964 613 95,406 1,171,947 340 3,135 2,030 5,381 10,886 9,401 1) The summary shows the number of shares owned by the individual, as well as his or her close family and companies where the individual exercises significant influence, cf. the Accounting Act, Section 7-26. 2) Board member only part of the year Loans to Group employees totalled NOK 2.819 million. STOREBRAND ASA – THE BOARD OF DIRECTORS’ STATEMENT ON THE FIXING OF SALARIES AND OTHER REMUNERATION OF EXECUTIVE PERSONNEL The Board of Directors’ statement on the fixing of the salaries and other remuneration of executive personnel, cf. Section 6-16 (a) of the Norwegian Public Limited Companies Act, shall be presented to the General Meeting for an advisory vote with regard to the indicative guidelines for the next financial year and a separate advisory vote with regard to binding guidelines for shares, subscription rights, etc. for the next financial year. The statement is worded as follows: The Board of Directors of Storebrand ASA has had a dedicated Compensation Committee since 2000. The Compensation Committee is tasked with making a recommendation to the Board of Directors concerning all matters regarding the Company’s remuneration of its Chief Executive Officer. The Committee is responsible for keeping itself informed and proposing guidelines for the determination of remuneration of executive employees in the Group. The Committee also acts as an advisory body to the Chief Executive Officer with regard to remuneration schemes that encompass all employees of the Storebrand Group, including Storebrand’s bonus and pension schemes. The Compensation Committee satisfies the follow-up requirements set forth in the remuneration schemes. Storebrand Asset Management AS has two subsidiaries, Skagen AS and Cubera Private Equity AS, each of which has its own board-appointed compensation committee and separate guidelines for financial remuneration. The Group’s guidelines will therefore not directly apply for these two subsidiaries in 2020. 1. ADVISORY GUIDELINES FOR THE COMING FINANCIAL YEAR Storebrand aims to base remuneration on competitive and motivating principles that help attract, develop and retain highly qualified staff. Storebrand shall have an incentive model that supports the strategy, with emphasis on the customers’ interests and long-term perspective, an ambitious model of cooperation, as well as transparency that enhances the Group’s reputation. Therefore, the Company will primarily stress a fixed salary as a means of overall financial compensation, and utilise variable remuneration to a limited extent. 148 STOREBRAND ANNUAL REPORT 2019The salaries of executive employees are determined based on the position’s responsibilities and level of complexity. Comparisons with equivalent external positions are regularly made in order to adjust the salary level to the market rates. Storebrand does not wish to be a pay leader in relation to the industry. Bonus scheme and other benefits The Group’s executive management team and executive personnel who have a significant influence on the Company’s risk receive only fixed salaries. Some members of the executive management have fringe benefits in the form of a car allowance and fixed amounts for coverage of expenses for newspaper, telephone and electronic communication. These are arrangements linked to employment contracts entered into in the past and are not included in new contracts. Pension scheme and insurance The Company shall arrange and pay for ordinary group pension scheme common to all employees, from the moment employment commences, and in accordance with the pension rules in force at any given time. All employees are also included in group insurance schemes which apply in the event of illness, disability or death. Since 2015, the Company has had defined-contribution pension schemes for all employees. For executive management, the calculated cash value of pension rights for pay above 12 G that was already earned as of the transition to a defined-contribution scheme was paid out over a five-year period, with the final payment in 2019. The payment period was fixed, regardless of whether the employee left the company before the end of that period. Severance pay The CEO is entitled to 24 months of severance pay. Other members of the executive management have severance pay agreements of up to 18 months from the agreed resignation date. The amount of potential severance pay will be subject to an assessment in accordance with the individual agreements and relevant rules pertaining to remuneration. The severance pay corresponds to the pensionable salary at the end of the employment, excluding any bonus schemes. Deductions are made to the severance pay for all work-related income, including fees from the provision of services, offices held, etc. 2. BINDING GUIDELINES FOR SHARES, SUBSCRIPTION RIGHTS, OPTIONS, ETC. FOR THE UPCOMING 2020 FINANCIAL YEAR To ensure that the Group’s executive management team has incentive schemes that accord with the long-term interests of the owners, a proportion of the fixed salary will be linked to the purchase of physical Storebrand shares with a lock-in period of three years. The Chief Executive Officer may decide that a limited group of employees shall be covered by an equivalent scheme. The purchase of shares will take place once a year. Like other employees of Storebrand, executive employees have an opportunity to purchase a limited number of shares in Storebrand ASA at a discount in accordance with the share programme for employees. 3. STATEMENT ON THE EXECUTIVE EMPLOYEE REMUNERATION POLICY DURING THE PREVIOUS FINANCIAL YEAR The guidelines for the executive remuneration policy set for 2019 have been followed. The annual independent assessment of the guidelines and the practising of these guidelines in connection with bonuses to be paid in 2020 will be carried out during 2020. 4. STATEMENT ON THE EFFECTS OF SHARE-BASED REMUNERATION AGREEMENTS ON THE COMPANY AND THE SHAREHOLDERS A proportion of the executive management’s fixed salary will be linked to the purchase of physical Storebrand shares with a lock-in period of three years. The purchase of shares will take place once a year. In the opinion of the Board of Directors, this has a positive effect on the Company and the shareholders, given the structure of the scheme and the size of each executive vice president’s portfolio of shares in Storebrand ASA. 149 SECTION 9. ANNUAL ACCOUNTS AND NOTESNote 23: Remuneration paid to auditors NOK million Statutory audit Other reporting duties Tax advice Other non-audit services Total remuneration to auditors The amounts are excluding VAT. Note 24: Other expenses NOK million Incurance related expenses Losses on claims, insurance Management fees Earnout Other expenses Total other expenses Note 25: Interest expenses NOK mill. Interest expenses subordinated loan Interest expenses financial institutions Interest expenses deposits from banking customers Interest expenses IFRS 16 liabilities Other interest expenses Total interest expenses 2019 -10 -1 -1 -1 -12 2019 -267 -762 -157 -51 -1,238 2019 -374 -413 -99 -25 -35 -947 2018 -10 -1 -1 -1 -13 2018 -53 -118 -618 -40 -24 -853 2018 -373 -344 -84 -12 -813 150 STOREBRAND ANNUAL REPORT 2019Note 26: Tax TAX EXPENSES IN THE RESULT NOK million Tax payable Change in deferred tax Total tax charge RECONCILIATION OF EXPECTED AND ACTUAL TAX EXPENSES NOK million Pre-tax profit Expected income tax at nominal rate Tax effect of realised/unrealised shares share dividends received associated companies permanent differences deferred tax on the increase in value of properties for customer assets 1) deferred tax on the increase in value of properties for customer assets covered by customer returns 1) change in tax rate Changes from previous years Total tax charge Effective tax rate 2) 2019 -16 -495 -511 2019 2,593 -648 -64 32 3 52 -451 451 16 99 -511 20% 2018 -17 915 898 2018 2,799 -700 -112 12 11 1,681 6 898 -32% 1) Provisions are made for deferred tax on the increase in value during the ownership of real estate in SPP Fastigheter AB in accordance with IAS 12 and guiding principles for consolidation. The real estate investments are made on behalf of the customer assets. Each real estate is owned by a separate investment company, and a sale of real estate itself would entail a tax expense that will reduce the return on the customer assets and will not affect the income tax for SPP / Storebrand. The deferred tax is in the consolidated financial reporting recognised as a claim on the customer funds and will not affect the income tax expense for SPP / Storebrand. Deferred tax relating to real estate investments in the customer assets is not netted against other temporary differences in the balance sheet. 2) The effective tax rate is influenced by the fact that the Group has operations in countries with tax rates that are different from Norway. The income tax expense is also influenced by tax effects relating to previous years. The tax rate for companies in Norway was changed from 23 to 22 per cent with effect from 1 January 2019. It was also agreed to keep the rate at 25 per cent for companies subject to the financial tax. The Storebrand Group includes companies that are both subject to and not subject to the financial tax. Therefore, when capitalising deferred tax/ deferred tax assets in the consolidated financial statements, the company tax rate that applies for the individual companies is used (22 or 25 per cent). The tax rate for companies in Sweden was changed from 22 per cent in 2018 to 21.4 per cent in 2019. 151 SECTION 9. ANNUAL ACCOUNTS AND NOTESCALCULATION OF DEFERRED TAX ASSETS AND DEFERRED TAX ON TEMPORARY DIFFERENCES AND LOSSES CARRIED FORWARD NOK million Tax-increasing temporary differences Securities Properties Fixed assets Gains/losses account Other Total tax-increasing temporary differences Tax-reducing temporary differences Securities Fixed assets Provisions Accrued pension liabilities Other Total tax-reducing temporary differences Carryforward losses Net basis for deferred tax and tax assets Net deferred tax assets/liabilities in balance sheet Recognised in balance sheet Deferred tax assets Deferred tax 2019 283 2,126 8 78 1,377 3,872 -7 -22 -30 -166 753 527 -6,685 -2,287 -663 1,430 768 2018 8 67 1,202 1,278 -144 -51 -26 -183 86 -318 -7,808 -6,848 -1,714 1,972 258 Uncertain tax positions The tax rules for the insurance industry have undergone changes in recent years. In some cases, Storebrand and the Norwegian Tax Administration have had different interpretations of the tax rules and associated transitional rules. As a result of this, uncertain tax positions arise in connection with the recognised tax expenses. Whether or not the uncertain tax positions have to be recognised in the financial statements is assessed in accordance with IAS 12 and IFRIC 23. Uncertain tax positions will only be recognised in the financial statements if the company considers it to be preponderance that the Norwegian Tax Administration’s interpretation will be accepted in a court of law. Significant uncertain tax positions are described below. A. In 2015, Storebrand Livsforsikring AS discontinued the Norwegian subsidiary, Storebrand Eiendom Holding AS, with a tax loss of approximately NOK 6.5 billion and a corresponding increase in the tax loss carryforward. In January 2018, Storebrand Livsforsikring AS received notice of an adjustment to the tax returns for 2015 which claimed that the calculated loss was excessive, but provided no further quantification. Storebrand Livsforsikring AS disagrees with the arguments that were put forward and submitted its response to the Norwegian Tax Administration on 2 March 2018. The notice was unclear, but based on the notice, a provision was made in the 2017 annual financial statements for an uncertain tax position of approximately NOK 1.6 billion related to the former booked tax loss (appears as a reduction in the loss carryforward and, in isolation, gave an associated increased tax expense for 2017 of approximately NOK 0.4 billion). In May 2019, Storebrand Livsforsikring AS received a draft decision from the Norwegian Tax Administration claiming changes in the tax return from 2015. Storebrand disagrees with the notice from the Norwegian Tax Administration and submitted its response in October 2019. The company considers it to be preponderance that Storebrand’s understanding of the tax legislation will be accepted by a court of law and thus, no uncertain tax position has been recognised in the financial statements based on the recieved draft decision. If the Norwegian Tax Administration’s position is accepted, Storebrand estimates that a tax expense for the company of approximately NOK 1.2 billion will arise. There will also be negative effects for returns on customer assets after tax. The effects are based on best estimates and following a review with external expertise. B. New tax rules for life insurance and pension companies were introduced for the 2018 financial year. These rules contained transitional rules for how the companies should revalue/ write-down the tax values as at 31 December 2018. In December 2018, the Norwegian Directorate of Taxes published an interpretive statement that Storebrand does not consider to be in accordance with the wording of the relevant act. When presenting the national budget for 2020 in October 2019, the Ministry of Finance proposed a clarification of the wording of the transitional rules in line with the interpretive statement from the Norwegian Directorate of Taxes. The clarification was approved by the Norwegian Parliament in December 2019. Storebrand considers there to be uncertainty regarding the value such subsequent work on a legal rule has as a source of law, and which in this instance only applies for a previous financial year. In the tax return for 2018, Storebrand Livsforsikring AS applied the wording in the original transitional rule, but in October 2019 received a notice of adjustment of tax assessment in line with the interpretive statement from the Norwegian Directorate of Taxes and the clarification from the Ministry of Finance. Storebrand Livsforsikring AS disagrees with the Norwegian Tax Administration’s interpretation, but considers it uncertain as to whether the company’s interpretation will be accepted if the case is decided by a court of law. The uncertain tax position has therefore been recognised in the financial statements. Based on our best estimate, the difference between Storebrand’s interpretation and the Norwegian Tax Administration’s interpretation is approximately NOK 4.2 billion in an uncertain tax position. If Storebrand’s interpretation is accepted, a deferred tax expense of approximately NOK 1 billion will be derecognised from the financial statements. 152 STOREBRAND ANNUAL REPORT 2019 C. The outcome of the interpretation of tax rules for group contributions referred to above under (A) will have an impact when calculating the effect from the transitional rules for the new tax rules referred to under point (B). An equivalent interpretation to that described under (A) has been used as a basis in the financial statements when calculating tax input values on property shares owned by customer assets for 2016 and 2017. There is thus an uncertain tax position relating to the effect from the transitional rules described in (B). This effect will depend on the interpretation and outcome of (A). If Storebrand’s position is accepted under (A), Storebrand will recognise a tax income of approximately NOK 0.8 billion. If the Norwegian Tax Administration prevails with its argument under point (A), Storebrand will recognise a tax expense of approximately NOK 0.6 billion. The timeline for the continued process with the Norwegian Tax Administration is unclear, but if necessary, Storebrand will seek clarification from the court of law for the aforementioned uncertain tax positions. Note 27: Intangible assets and excess value on purchased insurance contracts Intangible assets Other intangible assets 1,368 VIF 1) 9,950 Goodwill 2,292 2019 14,604 2018 14,434 384 206 124 92 590 -69 56 137 281 -48 -26 1,727 -31 2,467 -440 14,901 -256 14,604 NOK million Acquisition cost 01.01 Additions in the period - Developed internally - Purchased separately - Purchased via acquistion/merger Disposals in the period Currency differences on converting foreign units Acquisition cost 31.12 Accumulated depreciation and write-downs 01.01 Write-downs in the period Amortisation in the period Disposals in the period Currency differences on converting foreign units Acc. depreciation and write-downs 31.12 Book value 31.12 IT systems 993 124 92 -69 -7 1,133 -567 -35 -57 69 -590 543 -376 9,574 -6,745 -341 258 -6,827 2,747 -880 -104 25 -959 768 1) Value of business-in-force, the difference between market value and book value of the insurance in SPP and Silver. SPECIFIACTION OF AMORTISATION OF INTANGILBE ASSETS NOK million Amortisation in the period - VIF Amortisation in the period - other intangible assets Negative GW - booked as income Total write-downs//amortisation of intangible assets in income statement Write-downs/amortisation of IT-systems are booked as operating expenses -305 -8,498 -8,139 -35 -502 69 284 -8,681 6,220 -305 2,162 2019 -341 -104 -444 -29 -504 28 147 -8,498 6,106 2018 -343 -55 38 -360 153 SECTION 9. ANNUAL ACCOUNTS AND NOTES SPECIFICATION OF INTAGIBLE ASSETS NOK million IT systems Value of business in force SPP Value of business in force Silver Customer lists Skagen Customer lists Cubera Customer contracts Cubera Brand name Skagen Database Cubera Total Useful economic life Depr. rate Depr. method Book value 2019 5 years 20 years 10 years 10 years 7 years 5 years 10 years 3 years 20% 5% 10% 10% 14% 20% 10% 33% Straight line Straight line Straight line Straight line Straight line Straight line Straight line Straight line 543 2,522 225 318 201 120 115 14 4,057 GOODWILL DISTRIBUTED BY BUSINESS ACQUISITION Acquisition cost write-downs Accumulated Supply/ disposals/ NOK million Business area 01.01 01.01 Book value 01.01 currency effect Book value 31.12 Delphi Fondsforvaltning Storebrand Bank ASA SPP SPP Fonder Skagen Cubera Total Savings Other Guarant. pension/Savings Savings Savings Savings 35 422 780 48 1,007 -4 -300 32 122 780 48 1,007 2,292 -304 1,988 32 122 750 45 1,007 206 2,162 -30 -3 206 174 Goodwill is not amortised, but is tested annually for impairment. Intangible assets linked to acquisition of SPP In 2007, Storebrand Livsforsikring AS acquired SPP Pension & Försäkring AB and its subsidiaries (SPP). The majority of the intangible assets linked to the acquisition of SPP include the value of business in force (VIF), for which liability adequacy tests are conducted in accordance with the requirements in IFRS 4. To determine whether goodwill and other intangible assets linked to SPP have declined in value, an estimate is made of the recoverable amount by calculating the entity specific value of the business. SPP is considered to be a separate cash flow generating unit. In calculating the entity specific value, the management have made use of budgets and forecasts approved by the Board of Directors for the next three years (2020-2022). The management has made assessments for the period from 2023 to 2029, and the annual growth rate for the elements in the income statement have been estimated. When calculating the terminal value, a growth rate equivalent to Sveriges Riksbank’s inflation target of 2.0 per cent is used. The primary drivers of improved long-term results will be the return on total assets, underlying inflation and salary increase in the market (which drives premium growth). The entity specific value is calculated using discount rate after tax of 5.2 per cent. The discount rate is calculated as the risk-free interest rate included a premium that reflects the risk of the business. Calculations related to the future are uncertain. The value will be impacted by various growth parameters, expected return and the required rate of return used as a basis, etc. The aim of the calculations is to achieve a satisfactory level of certainty that the recoverable amount, cf. IAS 36, is not lower than the value recognised in the accounts. Intangible assets linked to the banking business When assessing the recoverable amount for the banking business an estimate for the entity specific value has been found by using a discounted cash flow model of the expected profits after tax. Budgets and forecasts approved by the Board of Directors for the next three years (2020 to 2022) are used as the basis for the valuation. 154 STOREBRAND ANNUAL REPORT 2019 The cash flow is based on two elements, profit/loss after tax to equity and the expected change in regulatory capital. It is also assumed that all capital in addition to regulatory tied-up capital, can be distributed to the owner at the end of each period. For the period after 2022, a growth rate of 2.0 percent has been used. The same growth rate is used in the calculation of the terminal value. The entity specific value is calculated using a discount rate after tax of 5.1 per cent. The discount rate is calculated as the risk-free interest rate included a premium that reflects the risk of the business. There is uncertainty related to the assumptions that have been made in the valuation. The value will be affected by the assumptions for the interest rate margin, expected losses on lending, growth parameters and capital requirements, the discount rate. The aim of the calculations is to achieve a satisfactory level of certainty that the recoverable amount, cf. IAS 36, is not lower than the value recognised in the accounts. Intangible assets linked to the acquisition of Skagen Storebrand Asset Management AS acquired Skagen AS in 2017. The intangible assets linked to Skagen are customer lists, the Skagen brand and goodwill. Budgets and forecasts approved by the Board of Directors for the next three years (2020 to 2022) are used as the basis for the valuation. For the period from 2023 to 2025, a growth rate in line with the expected return from the stock market is used for the revenue and the expected inflation rate for the costs. A growth rate equivalent to Norges Bank’s inflation target of 2.0 per cent is used for calculating the terminal value. The entity specific value is calculated using a discount return after tax of 10 per cent. There is uncertainty related to the assumptions that have been made in the valuation. The value will be influenced by changes in the assumptions regarding expected returns of the financial markets, costs, management fees, growth parameters, and the discount rate. The aim of the calculations is to achieve a satisfactory level of certainty that the entity specific value, cf. IAS 36, is not lower than the value recognised in the accounts. Intangible assets linked to the acquisition of Cubera Private Equity Storebrand Asset Management AS acquired Cubera Private Equity AS in 2019. The intangible assets linked to Cubera are customer lists, customer relations and information regarding the private equity market. Budgets and forecasts approved by the Board of Directors for the next three years (2020 to 2022) are used as the basis for the valuation. For the period from 2023 to 2025, a growth rate in line with the private equity market has been used as a basis for revenues and a fixed relationship between revenues and costs has been used to estimate the costs. A growth rate equivalent to Norges Bank’s inflation target of 2.0 per cent is used for calculating the terminal value. The entity specific value is calculated using a discount return after tax of 10 per cent. There is uncertainty related to the assumptions that have been made in the valuation. The value will be influenced by changes in the assumptions regarding expected returns of the financial markets, costs, management fees, growth parameters, and the required rate of return that is used as the discount rate. The aim of the calculations is to achieve a satisfactory level of certainty that the entity specific value, cf. IAS 36, is not lower than the value recognised in the accounts. Intangible assets linked to the acquisition of Silver Storebrand Livsforsikring AS acquired Silver Pensjonsforsikring AS (Silver) in 2018 and the company was merged with Storebrand Livsforsikring AS the same year. The intangible assets linked to the acquisition of Silver include the value of business in force (VIF), which is included in Storebrand Livsforsikring’s liability adequacy test in accordance with the requirements in IFRS 4. To determine whether intangible assets linked to Silver have declined in value, an estimate is made of the recoverable amount for the contracts in the acquired business. The recoverable amount is determined by calculating the entity specific value of the business. Silver has been integrated into Storebrand Livsforsikring’s business and is predominantly part of the savings segment. The assessment of the intangible assets is done by estimating the value of the contracts that were purchased, despite these not being a separate cash-generating unit. The assets under management and income margins are forecasted based on observable developments since the acquisition and expected natural negative growth in the portfolio. There is uncertainty related to the assumptions that have been made in the valuation. The value will be influenced by the assumptions regarding expected returns in the financial markets, costs, transfers, income development and the discount rate. The aim of the estimation is to achieve a satisfactory level of certainty that the entity specific value, cf. IAS 36, is not lower than the value recognised in the accounts. 155 SECTION 9. ANNUAL ACCOUNTS AND NOTES Note 28: Tangible fixed assets and lease agreements NOK million Book value 01.01 Additions Disposals Addition via acquisition/merger Depreciation Book value 31.12 Vehicles/ equipment Real estate 2019 42 12 -1 -6 48 1 1 For specifiaction of write-downs and depreciation, see note 20. DEPRECIATION PLAN AND FINANCIAL LIFETIME: Depreciation method: Vehicles/equipment Fixtures & fittings Properties Straight line 3-10 years 3-8 years 15 years SPECIFICATION OF TANGIBLE FIXED ASSETS AND LEASE AGREEMENTS IN BALANCE SHEET NOK million Tangible fixed assets IFRS 16 assets Book value 31.12 Allocation by company and customers Tangible fixed assets - company Total tangilbe fixed assets and lease agremments LEASE AGGREMENTS 43 12 -1 -6 49 2019 49 1,026 1,075 1,075 1,075 2018 543 3 -492 -1 -9 43 2018 43 43 43 43 The Group’s leased assets include offices and other real estate, IT equipment and other equipment. The Group’s right-of-use assets are categorised and presented in the table below: NOK million Book value 01. 01 Additions Book value 31. 12 Accumulated write-downs/depreciations 01.01 Depreciation Currency differences from converting foreign units Accumulated write-downs/depreciations 31.12 Booked value 31.12 Buildings IT-equipment Other equipment 1,019 78 1,097 -115 -7 -123 975 68 68 -16 -3 -19 50 1 1 2 1 Total 1,088 79 1,167 -132 -10 -141 1,026 156 STOREBRAND ANNUAL REPORT 2019Applied practical solutions The Group also leases PCs, IT equipment and machinery with contract terms from 1 to 3 years. The Group has decided not to recognise leases when the underlying asset has a low value and therefore does not recognise lease liabilities and right-of-use assets for any of these leases. Instead, the lease payments are expensed as they are incurred. The Group also does not recognise lease liabilities and right-of-use assets for short-term leases of less than 12 months. LEASE LIABILITIES NOK million Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Mote than 5 years Total non-discounted lease liabilities 31. 12.2019 CHANGES IN LEASE LIABILITIES NOK million Upon initial adoption 01.01.2019 New/changed lease liabilities recognised during the period Payment of principal Payment of interest Exchange rate differences when converting foreign unit Total lease liabilities 31. 12.2019 OTHER LEASE EXPENSES INCLUDED IN THE INCOME STATEMENT NOK million Lease agreement with lower value Total lease expenses included in operating expenses Amount 142 135 132 111 105 511 1,136 Amount 1,080 87 -146 25 -10 1,037 Amount -10 -10 157 SECTION 9. ANNUAL ACCOUNTS AND NOTESNote 29: Investments in other companies Applies to subsidiaries with a significant minority, associated companies and joint ventures. IFRS 10 establishes a model for evaluating control that will apply to all companies. Control exists when the investor has power over the investment object and possesses the right to variable yields from the investment object and simultaneously possesses the power and possibility to steer activities in the investment object that affect the yield. In the Group’s financial statements, securities funds in which Storebrand has an ownership percentage of around 40 per cent or more, and which are also managed by management companies within the Storebrand Group, are consolidated 100 per cent on the balance sheet. Minority ownership interests in consolidated securities funds are shown on one line for assets and correspondingly on one line for liabilities. In consequence of other investors in the funds being able to request redemption of their ownership interests from the respective funds, such are deemed to be minority interests that are classified as liabilities in Storebrand’s consolidated financial statements. SPECIFICATION OF SUBSIDARIES WITH SUBSTANTIAL MINORITY (100% FIGURES) NOK million Assets Liabilities Equity - majority Equity - minority Ownership intereest - minority Voting rights as a percentage of the total number of shares Income Result after tax Total comprehensive income Dividend paid to minority 2019 Benco 10,712 10,200 512 51 10 10 882 32 32 2018 Benco 16,376 15,877 449 50 10 10 486 30 30 2 SPECIFICATION OF ASSOCIATED COMPANIES AND JOINT VENTURES CLASSIFED AS SUBSTANTIAL (100% FIGURES) Storebrand Helseforsikring AS Storebrand Helseforsikring AS 2019 2018 Equity-method Insurance Joint venture Equity-method Insurance Joint venture 584 66 50 373 28 735 47 47 130 700 38 66 363 29 689 64 64 79 NOK million Accounting method Type of operation Type of interest Current assets Fixed assets Short term liabilities Long term liabilities Cash and cash equivalents Income Result after tax Total comprehensive income Dividend paid 158 STOREBRAND ANNUAL REPORT 2019 PROFIT AND OWNERSHIP INTERESTS IN ASSOCIATED COMPANIES AND JOINT VENTURES NOK million Associated companies Inntre Holding AS Handelsboderna i Sverige Fastighets AB 1) Storebrand Eiendomsfond Norge KS Joint ventures Försäkringsgirot AB Ruseløkkveien 26 AS Storebrand Helseforsikring AS Total 2019 Booked in the statement of financial position Investments in associated companies - company Investments in associated companies - customers Total 2019 Total 2018 1) Handelsbodarna in Sverige Fastighets AB is sold during 2019 Business location Ownership share Profit Book value 31.12 Steinkjær Stockholm Bærum Stockholm Oslo Lysaker 34.3% 0.0% 20.2% 25.0% 50.0% 50.0% 14 1 177 1 164 24 379 39 341 379 341 109 2,426 4 1,619 113 4,272 227 4,045 4,272 4,045 Note 30: Classification of financial assets and liabilities Investments, Loans and held to Fair value, Liabilities at amortised receivables maturity held for sale Fair value cost Total NOK million Financial assets Bank deposits Shares and fund units 10,594 0 Bonds and other fixed-income securities 98,046 13,377 Loans to financial institutions Loans to customers Accounts receivable and other short-term receivables Derivatives Total financial assets 2019 Total financial assets 2018 41 53,534 5,273 167,488 165,375 13,378 14,403 Financial liabilities Subordinated loan capital Liabilities to financial institutions Deposits from banking customers Securities issued Derivatives Other current liabilities Total financial liabilities 2019 Total financial liabilities 2018 194,343 156,639 7,126 58 358,166 320,970 10 10 72 5,256 5,256 4,831 932 932 4,535 8,925 446 14,404 18,729 62 8,264 50,831 46,803 10,594 194,343 268,062 41 60,659 5,273 5,314 544,287 505,579 8,925 446 14,404 18,729 994 8,274 51,772 51,410 159 SECTION 9. ANNUAL ACCOUNTS AND NOTESNote 31: Bonds at amortised cost LOANS AND RECEIVABLES NOK million Government bonds Corporate bonds Structured notes Collateralised securities Total bonds at amortised cost Storebrand Bank Modified duration Average effective yield Storebrand Life Insurance Modified duration Average effective yield Distribution beween company and customers Loans and receivables company Loans and receivables customers with guarantee Total BONDS HELD TO MATURITY NOK million Corporate bonds Collateralised securities Total bonds at amortised cost Modifed duration Average effective yield Distribution beween company and customers: Bonds held to maturity - customers with guarantees Total 2019 2018 Book value Fair value Book value Fair value 27,964 71,750 1,510 504 101,728 0.1 1.9 % 6.2 3.3% 26,249 69,772 1,525 501 98,046 2.7% 8,256 89,790 98,046 26,994 65,944 1,484 300 94,723 2.7% 8,349 86,374 94,723 28,945 67,757 1,482 301 98,485 0.2 1.4% 6.4 3.4% 2019 2018 Book value Fair value Book value Fair value 13,377 14,433 14,433 3.8 4.4% 13,377 2.4% 13,377 13,377 13,880 523 14,403 2.7% 14,403 14,403 15,109 570 15,679 4.3 4.5% A yield is calculated for each bond, based on both the paper’s book value and the observed market price (fair value). For fixed income securities with no observed market prices the effective interest rate is calculated on the basis of of the fixed interest rate period and classification of the individual security with respect to liquidity and credit risk. Calculated effective yields are weighted to give an average effective yield on the basis of each security’s share of the total interest rate sensitivity. 160 STOREBRAND ANNUAL REPORT 2019Note 32: Loans to customers NOK million Corporate market 1) Retail market Gross loans Write-downs of loans losses Net loans 2) 1) Of which Storebrand Bank 2) Of which Storebrand Bank Of which Storebrand Livsforsikring Allocation by company and customers: Net loans to customers - company net loans to customers - customers with guarantee Total NON-PERFORMING AND LOSS-EXPOSED LOANS NOK million Non-performing and loss-exposed loans without identified impairment Non-performing and loss-exposed loans with identified impairment Gross non-performing loans Individual write-downs Net non-performing loans 1) 1) The figures apply in their entirety Storebrand Bank For further information about lending, see note 10 Credit risk. 2019 12,943 47,768 60,712 -53 60,658 13 30,187 30,472 30,187 30,471 60,658 2019 73 52 125 -20 105 2018 12,756 46,742 59,498 -63 59,435 33 28,456 30,979 28,457 30,978 59,435 2018 71 59 129 -21 108 161 SECTION 9. ANNUAL ACCOUNTS AND NOTESNote 33: Properties NOK million 31.12.19 31.12.18 of return % 1) (years) 3) m2 31.12.19 Average dura- Required rate tion of lease Office buildings (including parking and storage): Oslo-Vika/Filipstad Brygge Rest of Greater Oslo Office buildings in Sweden Shopping centres (including parking and storage) Rest of Norway Housing Sweden 2) Car parks Multi-storey car parks in Oslo Other properties: Cultural/conference centres Sweden 2) Housing properties Sweden 2) Hotel Sweden 2) Service properties Sverige 2) Properties under development Norway Conference centres Norway Total investment properties Properties for own use Total properties Allocation by company and customers: Properties - company Properties - customers with guarantee Properties - customers without guarantee Total 7,682 4,360 719 5,955 2,137 7,201 4,102 693 6,101 2,131 898 924 239 2,143 2,563 2,016 653 49 29,415 1,375 30,790 49 26,901 3,839 30,790 224 1,775 2,508 1,923 635 50 28,266 1,420 29,686 50 26,333 3,303 29,686 4,00 - 4,45 4,00 - 5,63 4.48 4,75 - 6,69 5.67 4.30 6.50 4.25 4.38 4.73 7.60 4.6 4.7 4.8 3.4 3.8 2.0 12.7 0.2 10.3 10.2 3.75 4.3 94,332 85,247 16,987 157,113 86,316 27,393 18,757 60,306 35,872 64,089 38,820 685,231 19,528 704,759 1) The properties are valued on the basis of the following effective required rate of return (included 2.0 per cent inflation) 2) All of the proporties in Sweden are appraised externally. The appraisal is based on the required rates of return in the market (including 2 per cent inflation) 3) The average duration of the leases has been calculated proportionately based on the value of the individulal properties. As of 31.12.19, Storebrand Life Insurance had NOK 4.044 million invested in Storebrand Eiendomsfond Norge KS and Ruseløkkveien 26, Oslo. The investments are classified as “Investment in associated Ccmpanies and joint ventures” in the Consolidated Financial Statements. Storebrand Eiendomsfond Norge KS and Ruseløkkveien 26, Oslo invest exclusively in real estate at fair value. Vacancy Norway The vacancy rate for lettable areas was 6.3 per cent (6.1 per cent) at the end of 2019. The vacancy rate for areas with ongoing development projects is 57.2 per cent (76.9 per cent). At the end of 2019, a total of 12.1 per cent (12.7 per cent) of the floor space in the investment properties was vacant. Sweden At the end of 2019, there was practically no vacancy in the investment properties Transactions: Purchases: Further NOK 193 millions in property acquisitions in SPP have been agreed on in 4th quarter 2019 in addition to the figures that has been finalised and included in the finacial statements as of 31 December 2019 162 STOREBRAND ANNUAL REPORT 2019Sale: No further property sales has been agreed on in Storebrand/SPP in addiition to the figures that has been finalised and included in the finacial statements as of 31 December 2019 PROPERTIES FOR OWN USE NOK million Book value 01.01 Additions Revaluation booked in balance sheet Depreciation Write-ups due to write-downs in the period Currency differences from converting foreign units Other change Book value 31.12 Acquisition cost opening balance Acquisition cost closing balance Accumulated depreciation and write-downs opening balance Accumulated depreciation and write-downs closing balance Allocation by company and customers: Properties for own use - customers Total 2019 1,420 6 -34 -13 11 -55 40 1,375 545 551 -664 -677 1,375 1,375 Depreciation method: Depreciation plan and financial lifetime Straight line 50 years Note 34: Accounts receivable and other short-term receivables NOK million Accounts receivable Receivables in connection with direct insurance Pre-paid expenses Fee earned Claims on insurance brokers Prepayment of yield tax Client funds Collateral Tax receivable Activated sales costs (Swedish business) Pre-paid tax abroad Other current receivables Book value 31.12 Allocation by company and customers: Accounts receivable and other short-term receivables - company Accounts receivable and other short-term receivables - customers Total 2019 711 310 188 358 290 225 1,086 1,309 583 213 5,273 4,824 450 5,273 2017 1,408 6 39 -13 12 -31 1,420 534 540 -587 -600 1,420 1,420 2018 633 539 215 72 395 408 34 1,894 2,975 553 106 192 8,017 7,005 1,012 8,017 163 SECTION 9. ANNUAL ACCOUNTS AND NOTESAGE DISTRIBUTION FOR ACCOUNTS RECEIVABLE 31.12 (GROSS) NOK million Receivables not fallen due Past due 1 - 30 days Past due 31 - 60 days Past due 61 - 90 days Past due > 90 days Gross accounts receivable Provisions for losses Net accounts receivable Note 35: Equities and fund units NOK million Equities Private Equity fund investments Fund units Total equities and fund units Allocation by company and customers: Equities and fund units - company Equities and fund units - customers with guarantee Equities and fund units - customers without guarantee Total Note 36: Bonds and other fixed-income securities NOK million Government bonds Corporate bonds Structured notes Collateralised securities Bond funds Total bonds and other fixed-income securities Allocation by company and customers: Bonds and other fixed-income securities - company Bonds and other fixed-income securities - customers with guarantee Bonds and other fixed-income securities - customers without guarantee Total 164 2019 685 27 4 1 5 721 -9 711 2019 Fair value 28,768 1,471 164,104 194,343 323 25,677 168,344 194,343 2019 Fair value 32,256 60,055 3,648 60,680 156,639 28,512 83,881 44,245 156,639 2018 619 12 1 1 1 635 -2 633 2018 Fair value 24,038 1,418 131,904 157,361 295 23,402 133,664 157,361 2018 Fair value 34,491 51,028 79 22,510 49,478 157,586 24,055 91,894 41,637 157,586 STOREBRAND ANNUAL REPORT 2019Modified duration Average effective yield Storebrand Fair value Life SPP Pension Storebrand Storebrand Storebrand Insurance & Insurance Euroben 7.2 2.4% 7.3 0.7% 4.3 0.5% Bank 0.2 1.9% Insurance 0.5 2.1% ASA 0.5 2.1% The effective yield for each security is calculated using the observed market price. Calculated effective yields are weighted to give an average effective yield on the basis of each security’s share of the total interest rate sensitivity. Interest derivatives are included in the calculation of modified duration and average effective interest rate. Note 37: Derivatives Nominal volume Financial derivatives are related to underlying amounts which are not recognised in the statement of financial position. In order to quantify the scope of the derivatives, reference is made to amounts described as the underlying nominal principal, nominal volume, etc. Nominal volume is arrived at differently for different classes of derivatives, and provides some indication of the size of the position and risk the derivative presents. Gross nominal volume principally indicates the size of the exposure, while net nominal volume provides some indication of the risk exposure. However , nominal volume is not a measure which necessarily provides a comparison of the risk represented by different types of derivatives. Unlike gross nominal volume, the calculation of net nominal volume also takes into account which direction of market risk exposure the instrument represents by differentiating between long (asset) positions and short (liability) positions. A long position in an equity derivative produces a gain in value if the share price increases. For interest rate derivatives, a long position produces a gain if interest rates fall, as is the case for bonds. For currency derivatives, a long position results in a positive change in value if the relevant exchange rate strengthens against the NOK. Average gross nominal volume are based on daily calculations of gross nominal volume. Gross nominal Gross booked value fin. liabi- Gross booked volume 1) value fin. assets lities Fin. assets Fin. liabilities Net amount Net amounts taken into account netting agreements NOK million Equity derivatives Interest derivatives Currency derivatives Total derivater 31.12.19 Total derivater 31.12.18 80,259 72,146 1 3,501 1,811 5,313 4,646 834 160 994 4,607 89 Distribution between company and customers: Derivatives - company Derivatives - customers with guarantee Derivatives - customers without guarantee Total 1) Values 31.12. 1 2,667 1,651 4,319 39 1,097 2,320 902 4,319 165 SECTION 9. ANNUAL ACCOUNTS AND NOTESNote 38: Technical insurance reserves - life insurance SPECIFICATION OF BUFFER CAPITAL ITEMS CONSERNING LIFE INSURANCE NOK million pension Savings Insurance *) BenCo Guaranteed Additional statutory reserves Conditional bonus Market value adjustment reserve Total buffer capital 9,023 7,802 5,348 22,173 152 152 SPECIFICATION OF BALANCE SHEET ITEMS CONSERNING LIFE INSURANCE NOK million Premium reserve - of which IBNS Pension surplus fund Premium fund/deposit fund Other technical reserves - of which IBNS Supplerende avsetning Guaranteed pension 240,372 1,825 2,016 Savings Insurance 1) 219,803 10 4,854 2,916 649 607 Total Store- Total Store- brand Group brand Group 2019 9,023 9,302 5,500 2018 8,494 8,243 2,245 1,500 1,500 23,825 18,983 BenCo 8,346 61 Total Store- Total Store- brand Group brand Group 2019 2018 473,375 440,504 4,813 2,016 649 607 4,883 4 2,153 622 562 8 Total insurance liabilities - life insurance 242,388 219,803 5,502 8,346 476,040 443,290 1) Including personal risk and employee insurance of the Insurance segment. MARKET VALUE ADJUSTMENT RESERVE NOK million Equities Interest-bearing Total market value adjustment reserves at fair value 2019 4,424 1,076 5,500 NOK million Total insurance liabilities - life insurance 01.01 Premium income Capital return Insurance claims Other1) Translation differences Guaranteed pension 244,890 5,907 9,711 -13,206 -1,985 -2,929 Savings Insurance 179,300 23,096 32,397 -10,537 -1,314 -3,139 5,298 2,384 210 -1,197 -1,193 Total insurance liabiliteis - life insurance 31.12. 242,388 219,803 5,502 2018 1,776 469 2,246 Total 443,290 31,417 43,146 -25,349 -10,075 -6,390 476,040 BenCo 13,802 30 828 -409 -5,583 -322 8,346 1) Including sale of Nordben See note 39 for insurance liabilities - P&C. 166 STOREBRAND ANNUAL REPORT 2019Note 39: Technical insurance reserves - P&C insurance ASSETS AND LIABILITIES - P&C INSURANCE NOK million Reinsurance share of insurance technical reserves Total assets Premium reserve Claims reserve - of which IBNS - of which administration reserve Total liabilities See note 38 for insurance liabilities - life insurance. Note 40: Other current liabilities NOK million Accounts payable Accrued expenses Appropriations earnout Other appropriations Governmental fees and tax withholding Collateral received derivates in cash Liabilities in connection with direct insurance Liabilities to broker Liabilities tax/tax appropriations Minority SPP Fastighet KB Other current liabilities Book value 31.12 SPECIFICATION OF RESTRUCTURING RESERVES NOK million Book value 01.01 Increase in the period Amount recognised against reserves in the period Book value 31.12 2019 26 26 537 594 566 28 1,131 2019 169 965 423 162 298 2,929 1,196 500 29 1,140 465 8,274 2019 38 50 -32 57 2018 21 21 470 581 553 28 1,051 2018 260 701 105 290 313 1,709 1,485 319 63 891 492 6,629 2018 49 7 -18 38 167 SECTION 9. ANNUAL ACCOUNTS AND NOTESNote 41: Hedge accounting Fair value hedging of interest rate risk and cash flow hedging of foreign exchange risk Storebrand uses fair value hedging for the interest rate risk. The hedged items are financial liabilities measured at amortised cost. Derivatives are recognised at fair value through profit or loss. Changes in the value of the hedged item that are attributable to the hedged risk adjust the carrying amount of the hedged item and are recognised through profit or loss. Hedge effectiveness is monitored at an individual security level. Storebrand uses cash flow hedging of the foreign exchange risk for the principal and the foreign exchange risk for the credit margin. The hedged items are liabilities measured at amortised cost. Derivatives are recognised at fair value. The proportion of the profit or loss on the hedging instrument that is deemed to be effective hedging is recognised in total comprehensive income. The proportion is subsequently reclassified to profit or loss in step with the hedged item’s effect on earnings. HEDGING INSTRUMENT/HEDGED ITEM 2019 Book value 1) 2018 Book value 1) Contract/ nominal Recog- nised of compre- Contract/ hensive nominal Recog- nised of compre- hensive NOK million value Assets Liabilities Booked income value Assets Liabilities Booked income Interest rate swaps Subordinated loans Debt raised through 3,073 -2,238 1,073 issuance of securities 800 3,243 798 -15 -5 21 -55 53 4,623 -2,238 2,350 1,171 3,255 2,406 -60 -14 45 -12 14 1) Book values as at 31.12. Hedging of net investment in Storebrand Holding AB In 2019, Storebrand used hedge accounting for its net investment in Storebrand Holding AB. Three-month rolling currency derivatives were used, and the spot element of these was used as a hedging instrument. A time-limited subordinated loan of SEK 1,000 million was taken up in 2019. The loan was used as a hedging instrument linked to the hedging of the net investment in Storebrand Holding AB. The effective share of the hedging instruments is recognised in total comprehensive income. There is partial hedging of the net investment in Storebrand Holding AB and it is therefore expected that the hedge effectiveness in the future will be about 100 per cent. HEDGING INSTRUMENT/HEDGED ITEM 2019 Book value 1) 2018 Book value 1) Contract/ Contract/ nominal value Assets Liabilities nominal value Assets Liabilities -4,700 -3,650 27 3,426 -5,302 -2,650 222 2,588 9,045 9,242 NOK million Currency derivatives Loan used as hedging instrument Underlying items 1) Book values at 31.12. Storebrand hedges an exposure in the reference interest rate EURIBOR 3M. Storebrand hedges an exposure of EUR 300 million nominal value in EURIBOR 3M. 168 STOREBRAND ANNUAL REPORT 2019 Storebrand follows market developments relating to the discontinuation of reference interest rates. New reference interest rates will influence the management of customer portfolios, but the scope and efficiency will particularly depend on the future for NIBOR and STIBOR . LIBOR for different currencies will be available until the end of 2021, but the transition to new “overnight interest rates” appears to be progressing faster than first assumed. This may result in some of the “Panel banks” not providing data to maintain the LIBOR interest rates until the end of 2021. This could make the LIBOR interest rates less attractive to use and the transition to new “over- night” reference interest rates” before the end of 2021 may be in all of the parties’ interests. The transition to new reference interest rates and specification of “fallbacks” will be calculated by ISDA and published by Bloomberg. To ensure the wording of the agreements between the market players, ISDA will release a “Protocol” at the end of Q1 2020 and it is expected that most market players will accede to the “Protocol”. Storebrand Asset Management has the ambition of acceding to the “Protocol” on behalf of the life insurance companies in the Group. NIBOR and STIBOR will not be immediately affected, and the administrator of these reference interest rates has an ambition of also continuing these beyond 2021. GBP LIBOR is expected to be replaced by SONIA (Sterling Overnight Index Average). USD LIBOR is expected to be replaced by SOFR (Secured Overnight Financing Rate), and EUR LIBOR will be replaced by EUR ESTER. The transfer to “overnight interest rates” for the major currencies may also influence the continuation of NIBOR. NIBOR will then be able to be replaced with NOWA (Norwegian Overnight Weighted Average). The derivative that hedges the EURIBOR 3M risk is a cross currency swap of EUR 300 million nominal value. Note 42: Collateral NOK million Collateral for Derivatives trading Collateral received in connection with Derivatives trading Total received and pledged collateral 2019 477 -3,939 -3,462 2018 4,055 -1,669 2,385 Collateral pledged in connection with futures and options are regulated on a daily basis in the daily margin clearing on individual contracts. Collatrals are received and given both as cash and securities. NOK million Book value of bonds pledged as collateral for the bank's lending from Norges Bank Booked value of securities pledged as collateral in other financial institutions Total 2019 904 151 1,055 2018 1,205 151 1,355 Securities pledged as collateral are linked to lending access in Norges Bank for which, pursuant to the regulations, the loans must be fully guaranteed with collateral in interest-bearing securities and/or the bank’s deposits in Norges bank. Storebrand Bank ASA has none F-loan in Norges Bank as per 31.12.2019. Of total loans of NOK 30.1 billion, NOK 20,4 billion has been mortgaged in connection with the issuing of covered bonds (covered bond rate) in Storebrand Boligkreditt AS. Loans in Storebrand Boligkreditt AS are security for covered bonds in the company, and these assets have therefore been mortgaged through the bondholders’ pre-emptive rights to the security in the company. Storebrand Boligkreditt AS has overcollateralization (OC) of 39,5 per cent, but committed OC is 11.59 per cent. Storebrand Boligkreditt AS therefore has security that is NOK 3.8 billion more than was committed in the loan programme. Storebrand Bank ASA considers the risk associated with the transfer rate of mortgages to Storebrand Boligkreditt AS as low. 169 SECTION 9. ANNUAL ACCOUNTS AND NOTES Note 43: Contingent liabilities NOK million Guarantees Unused credit limit lending Uncalled residual liabilities re limited partnership Loan commitment retail market Total contingent liabilities 2019 1 3,072 7,297 1,466 11,837 2018 1 3,362 5,818 1,672 10,853 1) The debt instrument is conditional upon the company being released from administration Guarantees principally concern payment guarantees and contract guarantees. Unused credit facilities concern granted and unused overdrafts and credit cards, as well as unused facility for credit loans secured by property. Storebrand Group companies are engaged in extensive activities in Norway and abroad, and are subject for client complaints and may become a party in legal disputes. Note 44: Securities lending and buy-back guarantees COVERED BONDS - STOREBRAND BANK GROUP NOK million Transferred bonds still recognised on the statement of financial position Liabilities related to the assets 2019 403 403 2018 Transferred bonds that are included in buyback agreements (repos) are not derecognised, since all risk and return on the securities are retained by Storebrand Bank ASA. Note 45: Information related parties Companies in the Storebrand Group have transactions with related parties who are shareholders in Storebrand ASA and senior employees. These are transactions that are part of the products and services offered by the Group‘s companies to their customers. The transactions are entered into on commercial terms and include occupational pensions, private pensions savings, P&C insurance, leasing of premises, bank deposits, lending, asset management and fund saving. See note 22 for further information about senior employees. Internal transactions between group companies are eliminated in the consolidated financial statements, with the exception of transactions between the customer portfolio in Storebrand Livsforsikring AS and other units in the Group. See note 1 Accounting Policies for further information. For further information about close associates, see notes 29 and 40. Note 46: Sold/liquidated business Nordben Life and Pension Insurance Co. Ltd og Interben Trustees Ltd are sold out from the Group during 2019. 170 STOREBRAND ANNUAL REPORT 2019STOREBRAND ASA Income statement NOK million Operating income Income from investments in subsidiaries Net income and gains from financial instruments: - equities and other units - bonds and other fixed-income securities - financial derivatives/other financial instruments Other financial income Operating income Interest expenses Other financial expenses Operating expenses Personnel expenses Amortisation Total operating expenses Total expenses Pre-tax profit Tax Profit for year Note 2019 2 3 3 3 4, 5, 6 13 3,230 2 50 -6 1 3,278 -51 -40 -62 -102 -153 3,125 7 -173 2,952 Statement of total comprehensive income NOK million Profit for year Other result elements not to be classified to profit/loss Change in estimate deviation pension Tax on other result elements Total other result elements Note 2019 2,952 5 -8 2 -6 2018 4,131 1 26 -7 33 4,184 -60 35 -41 -44 -86 -111 4,074 -111 3,963 2018 3,963 9 -2 6 Total comprehensive income 2,946 3,969 171 SECTION 9. ANNUAL ACCOUNTS AND NOTES STOREBRAND ASA Statement of financial position NOK million Fixed assets Deferred tax assets Tangible fixed assets Shares in subsidiaries and associated companies Total fixed assets Current assets Owed within group Other current receivables Investments in trading portfolio: - equities and other units - bonds and other fixed-income securities - financial derivatives/other financial instruments Bank deposits Total current assets Total assets Equity and liabilities Share capital Own shares Share premium reserve Total paid in equity Other equity Total equity Non-current liabilities Pension liabilities Securities issued Total non-current liabilities Current liabilities Debt within group Provision for dividend Other current liabilities Total current liabilities Total equity and liabilities Note 31.12.19 31.12.18 7 13 8 17 9 10, 12 11, 12, 15 12 5 14, 15 17 41 27 20,042 20,110 3,166 16 44 3,260 3 34 6,523 26,633 2,339 -5 10,521 12,856 9,794 22,650 154 1,309 1,463 900 1,517 103 2,520 26,633 47 26 19,286 19,359 4,092 21 22 1,820 9 34 5,998 25,357 2,339 -2 10,521 12,858 8,395 21,253 161 1,813 1,974 597 1,402 131 2,130 25,357 Lysaker, 11 February 2020 Board of Directors of Storebrand ASA Didrik Munch Chairman of the Board Karin Bing Orgland Laila S. Dahlen Liv Sandbæk Martin Skancke Karl Sandlund Fredrik Törnqvist 172 Magnus Gard Odd Arild Grefstad Group Chief Executive Officer STOREBRAND ANNUAL REPORT 2019 STOREBRAND ASA Statement of changes in equity NOK million Share capital 1) Own shares Share premium Other equity Equity at 31. December 2017 2,339 -5 10,521 Profit for the period Total other result elements Total comprehensive income Provision for dividend Own share bought back 2) Employee share 2) Equity at 31. December 2018 2,339 Profit for the period Total other result elements Total comprehensive income Provision for dividend Own share bought back 2) Own share sold 2) Employee share 2) Equity at 31. December 2019 2,339 1) 467 813 982 shares with a nominal value of NOK 5. 3 -2 -5 2 -5 Total equity 18,648 3,963 6 3,969 -1,402 50 -13 21,253 2,952 -6 2,946 5,793 3,963 6 3,969 -1,402 48 -13 8,395 2,952 -6 2,946 10,521 -1,514 -1,514 -63 36 -6 -68 38 -6 10,521 9,794 22,650 2) In 2019, Storebrand ASA has bought 1 000 000 own shares. In 2019, 487 950 shares were sold to our own employees. Holding of own shares 31. December 2019 was 943 190. 173 SECTION 9. ANNUAL ACCOUNTS AND NOTESSTOREBRAND ASA Statement of cash flow NOK million Cash flow from operational activities Receipts - interest, commission and fees from customers Net receipts/payments - securities at fair value Payments relating to operations Net receipts/payments - other operational activities Net cash flow from operational activities Cash flow from investment activities Net receipts - sale of subsidiaries Net payments - sale/capitalisation of subsidiaries Net receipts/payments - sale/purchase of property and fixed assets Net cash flow from investment activities Cash flow from financing activities Payments - repayments of loans Receipts - new loans Payments - interest on loans Receipts - sold own shart to employees Payments - buy own shares Payments - dividends Net cash flow from financing activities Net cash flow for the period Net movement in cash and cash equivalents Cash and cash equivalents at start of the period Cash and cash equivalents at the end of the period 174 2019 67 -1,475 -128 4,157 2,621 -629 -1 -630 -500 1 -58 33 -68 -1,399 -1,991 0 0 34 34 2018 47 -477 -89 2,247 1,728 33 -131 2 -95 -450 1 -72 37 -1,168 -1,651 -19 -19 53 34 STOREBRAND ANNUAL REPORT 2019STOREBRAND ASA Notes to the financial statement Note 1: Note 2: Note 3: Note 4: Note 5: Note 6: Note 7: Note 8: Note 9: Accounting policies Income from investments in subsidiaries Net income for various classes of financial instruments Personnel costs Pensions costs and pension liabilities Remuneration to the CEO and elected officers of the company Tax Parent company’s shares in subsidiaries and associated companies Equities Note 10: Bonds and other fixed-income securities Note 11: Financial derivatives Note 12: Financial risks Note 13: Tangible fixed assets Note 14: Securities issued Note 15: Hedge accounting Note 16: Shareholders Note 17: Information about close associates Note 18: Number of employees/person-years 175 SECTION 9. ANNUAL ACCOUNTS AND NOTESNote 1: Accounting policies Storebrand ASA is the holding company of the Storebrand Group. The Storebrand Group is engaged in life and P&C insurance, banking and asset management, with insurance being the primary business. The financial statements of Storebrand ASA have accordingly been prepared in accordance with the Norwegian Accounting Act, generally accepted accounting policies in Norway, and the Norwegian Regulations relating to annual accounts for nonlife insurance companies. Storebrand ASA has used the simplified IFRS provisions in the regulations for recognition and measurement. Use of estimates and discretionary assumptions In preparing the annual financial statements, Storebrand has made assumptions and used estimates that affect the reported value of assets, liabilities, revenues, costs, as well as the information provided on contingent liabilities. Future events may cause these estimates to change. Such changes will be recognised in the financial statements when there is a sufficient basis for using new estimates. The most important estimates and assessments are related to the valuation of the company’s subsidiaries and the assumptions used for pension calculations. Classification and valuation policies Assets intended for permanent ownership and use are classified as fixed assets, and assets and receivables due for payment within one year are classified as current assets. Equivalent policies have been applied to liability items. Profit and loss account and statement of financial position Storebrand ASA is a holding company with subsidiaries in the fields of insurance, banking and asset management. The layout plan in the Regulations relating to annual financial statements for nonlife insurance companies has not been used, a custom layout plan has been used. Investments in subsidiaries, dividends and group contributions In the company’s accounts, investments in subsidiaries and associated companies are valued at the acquisition cost less any write-downs. The need to write down is assessed at the end of each accounting period. Storebrand ASA’s primary income is the return on capital invested in subsidiaries. Group contributions and dividends received in respect of these investments are therefore recorded as ordinary operating income. Proposed and approved dividends and group contributions from subsidiaries at the end of the year are recognised in the financial statements of Storebrand ASA as income in that financial year. A prerequisite for recognition is that this is earned equity by a subsidiary. Otherwise, this is recognised as an equity transaction, which means that the ownership interest in the subsidiary is reduced by dividends or group contributions. Tangible fixed assets Tangible fixed assets for own use are recognised at acquisition cost less accumulated depreciation. Write-downs are made if the book value exceeds the recoverable amount of the asset. Pension liabilities for company’s own employees Storebrand ASA have defined-contribution pension, but have some pension obligation that are recorded as defined-benefit pension. The defined-contribution pension scheme involves the company paying an annual contribution to the employees’ collective pension savings. The future pension will depend upon the size of the contribution and the annual return on the pension savings. The company does not have any further work-related obligations after the annual contribution has been paid. No provisions are made for ongoing pension liabilities for these types of schemes. Defined-contribution pension schemes are recognised directly in the financial statements. Tax The tax cost in the profit and loss account consists of tax payable and changes in deferred tax. Deferred tax and deferred tax assets are calculated on the differences between accounting and tax values of assets and liabilities. Deferred tax assets are recorded on the balance sheet to the extent it is considered likely that the company will have sufficient taxable profit in the future to make use of the tax asset. Deferred tax is applied directly against equity to the extent that it relates to items that are themselves directly applied against equity. 176 STOREBRAND ANNUAL REPORT 2019Currency Current assets and liabilities are translated at the exchange rate on the balance sheet date. Shares held as fixed assets are translated at the exchange rate on the date of acquisition. Financial instruments Equities and units Equities and units are valued at fair value. For securities listed on an exchange or other regulated market, fair value is determined as the bid price on the last trading day immediately prior to or on the balance sheet date. Any repurchase of own shares is dealt with as an equity transaction, and own shares (treasury stock) are presented as a reduction in equity. Bonds and other fixed income securities Bonds and other fixed income securities are included i the statement of financial position from such time the company becomes party to the instrument’s contractual terms and conditions. Ordinary purchases and sales of financial instruments are recognised on the transaction date. When a financial asset or a financial liability is initially recognised in the financial statements, it is valued at fair value. Initial recognition includes transaction costs directly related to the acquisition or issue of the financial asset/liability. Financial assets are derecognised when the contractual right to the cash flows from the financial asset expires, or when the company transfers the financial asset to another party in a transaction by which all, or virtually all, the risk and reward associated with ownership of the asset is transferred. Bonds and other fixed income securities are recognised at fair value. Fair value is the amount for which an asset could be sold for, or a liability settled with, between knowledgeable, willing parties in an arm’s length transaction. For financial assets that are listed on an exchange or other regulated market place, fair value is determined as the bid price on the last trading day up to and including the balance sheet date, and in the case of an asset that is to be acquired or a liability that is held, the offer price. Financial derivatives Financial derivatives are recognised at fair value. The fair value of such derivatives is classified as either an asset or a liability with changes in fair value through profit or loss. Bond funding Bond loans are recorded at amortised cost using the effective interest rate method. The amortised cost includes the transaction costs on the date of issue. Accounting treatment of derivatives as hedging Fair value hedging Storebrand uses fair value hedging, and the hedged items are fixed rate funding measured at amortised cost. Derivatives that fall within this category are recognised at fair value through profit or loss. Changes in the value of the hedged item that relate to the hedged risk are applied to the book value of the item and recognised through profit or loss Note 2: Income from investments in subsidiaries NOK million Storebrand Livsforsikring Storebrand Bank ASA Storebrand Asset Management AS Storebrand Forsikring AS Storebrand Helseforsikring AS Total Group contribution from Storebrand ASA, see note 8 2019 2,200 244 568 153 65 3,230 2018 3,200 153 415 324 39 4,131 177 SECTION 9. ANNUAL ACCOUNTS AND NOTESNote 3: Net income for various classes of financial instruments NOK million rest income on realisation sed gain/loss 2019 2018 Dividend/inte- Net gain/loss Net unreali- Net income from equities and units Net income from bonds and other fixed income securi- ties Net income from financial derivatives Net income and gains from financial assets at fair value – of which FVO (Fair Value Option) – of which trading 54 54 54 -3 -6 -9 -3 -6 2 -1 1 1 2 50 -6 47 52 -6 1 26 -7 20 27 -7 Note 4: Personnel costs NOK million Ordinary wages and salaries Employer's social security contributions Personnel costs 1) Other benefits Total 1) See the spesification in note 5 2019 -20 -6 -8 -6 -40 2018 -21 -6 -9 -6 -41 Note 5 : Pensions costs and pension liabilities Storebrand Group has country-specific pension schemes. Storebrand’s employees in Norway have a defined-contribution pension scheme. In a defined-contribution scheme, the company allocates an agreed contribution to a pension account. The future pension depends upon the amount of the contributions and the return on the pension account. When the contributions have been paid, the company has no further payment obligations relating to the defined-contribution pension and the payment to the pension account is charged as an expense on an ongoing basis. For regulatory reasons, there can be no savings in the defined-contribution pension for salaries that exceed 12G (G = National Insurance Scheme basic amount). Storebrand has pension savings in the savings product Extra Pension for employees with salaries exceeding 12G. The premiums and content of the defined-contribution pension scheme are as follows: – Saving starts from the first krone of salary – Savings rate of 7 per cent of salary from 0 to 12 G (the National Insurance basic amount “G” was NOK 99,858 as at 31 December 2019) – In addition, 13 per cent of salary between 7.1 and 12 G is saved – Savings rate for salary over 12 G is 20 per cent Employees and former employees who had salaries in excess of 12G until 31 December 2014 were offered a cash redemption option for their accrued rights with payment at the start of 2015. For employees who were a part of the executive management team, these payments were distributed over 5 years and the last payment in 2019. The Norwegian companies participate in the Joint Scheme for Collective Agreement Pensions (AFP). The private AFP scheme provides a lifelong supplement to an ordinary pension and is a multi-employer pension scheme, but there is no reliable information available for inclusion of this liability on the statement of financial position. The scheme is financed by means of an annual premium that is defined as a percentage of salaries from 1 G to 7.1 G, and the premium rate was 2.5 % in 2019. Storebrand employees in Norway who were born before 1 January 1956 can choose between drawing an AFP scheme pension or retiring at the age of 65 and receiving a direct pension 178 STOREBRAND ANNUAL REPORT 2019 from the company until they reach the age of 67. Employees can choose to receive benefits from the AFP scheme from the age of 62 and still continue to work. Employees who were on sick leave and partiality disabled during the transition to the defined-contribution pension, remain in the defined-benefit pension scheme. There are also pension liabilities for the defined-benefit scheme related to direct pensions for certain former employees and former board members. RECONSILIATION OF PENSION ASSETS AND LIABILITIES IN THE STATEMENT OF FINANCIAL POSITION NOK million Present value of insured pension benefit liabilities Pension assets at fair value Net pension liabilities/assets for the insured schemes Present value of the uninsured pension liabilities Net pension liabilities in the statement of financial position CHANGES IN THE NET DEFINED BENEFITS PENSION LIABILITIES IN THE PERIOD: NOK million Net pension liabilities 01.01 Interest on pension liabilities Pension experience adjustments Pensions paid Net pension liabilities 31.12 CHANGES IN THE FAIR VALUE OF PENSION ASSETS NOK million Pension assets at fair value 01.01. Pension experience adjustments Net pension assets 31.12 2019 2 -7 -5 159 154 2019 168 4 8 -19 161 2019 7 -1 7 2018 2 -7 -5 166 161 2018 183 5 -9 -11 168 2018 7 7 Expected premium payments are estimated to be NOK 1 million and the payments from operations are estimated to be NOK 11 million in 2020. PENSION ASSETS ARE BASED ON THE FINANCIAL ASSETS HELD BY STOREBRAND LIFE INSURANCE, WHICH ARE COMPOSED OF AS PER 31.12.: NOK million Properties and real estate Bonds at amortised cost Loan Equities and units Bonds Other short term financial assets Total Booked returns on assets managed by Storebrand Life Insurance were: 2019 13% 36% 13% 15% 20% 1% 100% 3.6% 2018 14% 36% 14% 12% 24% 1% 100% 2.2% 179 SECTION 9. ANNUAL ACCOUNTS AND NOTESNET PENSION COST BOOKED TO PROFIT AND LOSS ACCOUNTS IN THE PERIOD NOK million Net interest/expected return Total for defined benefit schemes The period's payment to contribution scheme Net pension cost booked to profit and loss accounts in the period OTHER COMPREHENSIVE INCOME (OCI) IN THE PERIOD NOK million Actuarial loss (gain) - change in discount rate Actuarial loss (gain) - experience DBO Loss (gain) - experience Assets Remeasurements loss (gain) in the period MAIN ASSUMPTIONS USED WHEN CALCULATING NET PENSION LIABILITY AS PER 31.12. NOK million Economic assumptions: Discount rate Expected earnings growth Expected annual increase in social security pension Expected annual increase in pensions in payment Disability table Mortality table 2019 2018 4 4 4 8 2019 8 1 8 2019 2.2 % 2.00% 2.00% 0.0 % KU 4 4 5 9 2018 -2 -6 -9 2018 2.8% 2.50% 2.50% 0.0 % KU K2013BE K2013BE Financial assumptions: The financial assumptions have been determined on the basis of the regulations in IAS 19. Long-term assumptions such as future inflation, real interest rates, real wage growth and adjustment of the basic amount are subject to a particularly high degree of uncertainty. In Norway, a discount rate based on covered bonds is used. Based on the market and volume trends observed, the Norwegian covered bond market must be perceived as a deep market. Specific company conditions including expected direct wage growth are taken into account when determining the financial assumptions. Actuarial assumptions: In Norway standardised assumptions on rates of mortality and disability as well as other demographic factors are prepared by Finance Norway. With effect from 2014 a new mortality basis, K2013, has been introduced for group pension insurance in life insurance companies and pension funds. Storebrand has used the mortality table K2013BE (best estimate) in the actuarial calculations at 31 December 2019. 180 STOREBRAND ANNUAL REPORT 2019 Note 6: Remuneration of the CEO and elected officers of the company NOK thousand Chief Executive Officer 1) Salery2) Other taxable benefits Total remuneration Pension costs 3) Chairman of the Board Board of Directors including the Chairman Remuneration paid to auditors Statutory audit Other reporting duties 2019 6,899 191 7,090 1,353 855 4,730 1,896 20 2018 6,761 194 6,955 1,253 760 4,371 1,261 33 1) Odd Arild Grefstad is the CEO of Storebrand ASA and the amount stated in the note is the total remuneration from the Group. He has a guaranteed salary for 24 months after the ordinary period of notice. All work-related income including consulting assignments will be deducted. 2) A proportion of the executive management’s fixed salary will be linked to the purchase of physical Storebrand shares with a lock-in period of three years. The purchase of shares will take place once a year. 3) Pension costs include accrual for the year. See also the description of the pension scheme in Note 5. For further information on senior employees, the Board of Directors and the Board’s statement on fixing the salary and other remuneration of senior employees, see note 22 in the Storebrand Group. Note 7: Tax THE DIFFERENCE BETWEEN THE FINANCIAL RESULTS AND THE TAX BASIS FOR THE YEAR IS PROVIDED BELOW. NOK million Pre-tax profit Dividend Gain/loss equities Tax-free group contribution Permanent differences Change in temporary differences Tax base for the year - Use of losses carried forward Payable tax TAX COST NOK million Payable tax group contribution Change in deferred tax Tax cost 2019 3,125 -219 -2,202 -21 -22 662 662 2019 -168 -5 -173 2018 4,074 -39 -28 -3,527 -27 -24 428 -327 101 2018 -25 -86 -111 181 SECTION 9. ANNUAL ACCOUNTS AND NOTES CALCULATION OF DEFERRED TAX ASSETS AND DEFERRED TAX ON TEMPORARY DIFFERENCES AND LOSSES CARRIED FORWARD NOK million Tax increasing temporary differences Other Total tax increasing temporary differences Tax reducing temporary differences Securities Operating assets Provisions Accrued pension liabilities Gains/losses account Other Total tax reducing temporary differences Net tax increasing/(reducing) temporary differences Net deferred tax asset/liability in the statement of financial position RECONCILIATION OF TAX COST AND ORDINARY PROFIT NOK million Pre-tax profit Expected tax at nominal rate Tax effect of: dividends received gains on equities permanent differences changes from previous year Tax cost Effective tax rate 1) 2019 2018 1 1 -9 -1 -154 -2 -165 -165 41 2019 3,125 -781 55 551 3 -173 6% 1 1 -8 -1 -6 -161 -2 -10 -188 -187 47 2018 4,074 -1,018 10 7 890 -111 3% Note 8: Parent company’s shares in subsidiaries and associated companies NOK million Subsidiaries Storebrand Livsforsikring AS 1) Storebrand Bank ASA 2) Storebrand Asset Management AS Storebrand Forsikring AS 3) Storebrand Facilities AS Jointly controlled/associated companies Storebrand Helseforsikring AS AS Værdalsbruket 4) Sum 1) Group contribution in 2019 of NOK 512 million as capital contribution. 2) Group contribution in 2019 of NOK 184 million as capital contribution. 182 3) Group contribution in 2019 of NOK 35 million as capital contribution. 4) 74.9 per cent owned by Storebrand Livsforsikring AS. Business office Interest/ votes in % Carrying amount 2019 2018 Oslo Oslo Oslo Oslo Oslo Oslo Værdal 100% 100% 100% 100% 100% 50% 25% 14 303 2 493 2 746 394 25 78 4 13 788 2 309 2 748 359 78 4 20 042 19 286 STOREBRAND ANNUAL REPORT 2019Fair value 2019 44 44 Fair value 2019 3,260 3,260 0.5 2.12% 2018 22 22 2018 363 1,024 433 1,820 0.6 1.13% Note 9: Equities NOK million Equities Total equities Note 10: Bonds and other fixed-income securities NOK million State and state guaranteed Company bonds Covered bonds Bond funds Total bonds and other fixed-income securities Modified duration Average effective yield Note 11: Financial derivatives NOK million Interest rate swaps 1) Total derivatives 2019 Total derivatives 2018 1) Used for hedge accounting, also see note 15 Note 12: Financial risks Gross nominal vo- Gross booked value Gross booked fin. lume 1) fin. assetsr liabilities Net amount 600 600 300 11 11 9 7 7 3 3 9 CREDIT RISK BY COUNTERPARTY Bonds and other fixed-income securities at fair value Category of issuer or guarantor Fair value Fair value Fair value Fair value AAA AA A BBB Not rated Fair value Total Fair value NOK million State and state guaranteed Company bonds Supranational organisations Other Total 2019 Total 2018 27 78 17 121 487 173 383 173 431 383 901 29 29 195 2,145 201 2,541 222 2,808 217 13 3,260 1,820 183 SECTION 9. ANNUAL ACCOUNTS AND NOTES COUNTERPARTIES NOK million Derivatives Bank deposits AA 3 11 Fair value A 23 Total 3 34 The rating classes are based on Standard & Poors’s. Interest rate risk Storebrand ASA has both interest-bearing securities and interest-bearing debt. A change in interest rates will have a limited effect on the company’s equity. Liquidity risk UNDISCOUNTED CASH FLOWS FOR FINANCIAL LIABILITIES NOK million 0-6 months 7-12 months 2-3 years 4-5 years Total value Securities issued/bank loans Total financial liabilities 2019 Derivatives related to funding 2019 Total financial liabilities 2018 Derivatives related to funding 2018 517 517 5 19 5 323 323 -10 531 -10 526 526 850 -6 1,366 1,366 -6 1,907 -11 507 Carrying amount 1,309 1,309 -3 1,813 -9 Storebrand ASA had as per 31 December 2019 liquid assets of NOK 3,3 billion. Currency risk Storebrand ASA has low currency risk Note 13: Tangible fixed assets EQUIPMENT, FIXTURES & FITTINGS NOK million Acquisition cost 01.01 Accumulated depreciation Carrying amount 01.01 Additions Disposals Carrying amount 31.12 Straight line depreciation periods for tangible fixed assets are as follows Equipment. fixtures and fittings IT systems 4-8 years 3 years 184 2019 2018 34 -7 26 1 27 36 -7 28 -2 26 STOREBRAND ANNUAL REPORT 2019 Note 14: Bond and bank loans NOK million Bond loan 2014/2020 1) Bond loan 2014/2019 Bond loan 2017/2020 Bond loan 2017/2022 Total bond and bank loans 2) Interest rate Currency value Net nominal Fixed Variable Variable Variable NOK NOK NOK NOK 300 500 500 500 2019 305 502 501 1,309 2018 311 500 501 501 1,813 1) Loans with fixed rates are hedged by interest swaps, which are booked at fair value through profit and loss. Changes in values of loans that can be related to the hedged risk are included in the carrying amount and included in the result. 2) Loans are booked at amortised cost and include earned not due interest. Signed loan agreements and drawing facility have covenant requirements. Storebrand ASA has an unused drawing facility of EUR 200 million, expiration december 2024. Note 15: Hedge accounting The company uses fair value hedging to hedge interest rate risk. The effectiveness of hedging is monitored at the individual security level. HEDGING INSTRUMENT/HEDGED ITEM – FAIR VALUE HEDGING Contract/ nominal 2019 Carrying amount 1) Contract/ nominal 2018 Carrying amount 1) value Assets Liabilities Booked value Assets Liabilities Booked 300 300 3 305 -6 6 300 300 9 311 -7 7 NOK million Interest rate swaps Securities issued 1) Carrying amount 31.12. 185 SECTION 9. ANNUAL ACCOUNTS AND NOTES Note 16: Shareholders THE 20 LARGEST SHAREHOLDERS 1) Folketrygdfondet Allianz Global Investors T Rowe Price Global Investments Handelsbanken Asset Management Danske Bank Asset Management DNB Asset Management Vanguard Group KLP M&G Investment Management EQT Fund Management BlackRock OM Holding AS Storebrand Asset Management Deka Investment HSBC Trinkaus & Burkhardt Nordea Asset Management Arrowstreet Capital Dimensional Fund Advisors Carnegie Investment Bank (PB) BMO Global Asset Management (UK) Foreign ownership of total shares Note 17: Information about close associates Senior employees Odd Arild Grefstad Lars Aa. Løddesøl Geir Holmgren Heidi Skaaret Staffan Hansén Jan Erik Saugestad Karin Greve-Isdahl Trygve Håkedal Tove Selnes Terje Løken 186 Ownership interest in % 11.0 6.3 4.9 4.1 3.9 3.4 2.9 2.7 2.6 2.5 2.0 1.8 1.7 1.4 1.4 1.3 1.2 1.1 1.0 1.0 56% Number of shares 1) 162,269 100,026 67,089 69,690 66,689 58,411 12,861 8,034 14,964 8,921 STOREBRAND ANNUAL REPORT 2019Board of Directors Didrik Munch Laila Synnøve Dahlen Martin Skancke Karin Bing Orgland Liv Sandbæk Karl Sandlund Heidi Storruste Arne Fredrik Håstein Ingvild Pedersen Magnus Gard 1) The summary shows the number of shares owned by the individual, as well as his or her immediate family and companies where the individual exercises significant influence, confer the Accounting Act, Section 7-26. TRANSACTIONS BETWEEN GROUP COMPANIES NOK million Profit and loss account items: Group contributions and dividends from subsidiaries Purchase and sale of services (net) Statement of financial position items: Due from group companies Payable to group companies Note 18: Number of employees/person-years Number of employees Number of full time equivalent positions Average number of employees 2019 3,230 -47 3,166 900 2019 6 6 7 32,000 12,500 22,000 17,000 0 3,000 3,925 5,404 1,964 613 2018 4,131 -26 4,092 597 2018 8 8 8 187 SECTION 9. ANNUAL ACCOUNTS AND NOTES – Declaration by the members of the Board and the CEO On this date, the Board of Directors and the Chief Executive Officer have considered and approved the annual report and annual financial statements for Storebrand ASA and the Storebrand Group for the 2019 financial year and as at 31 December 2019 (2019 Annual Report). The consolidated financial statements have been prepared in accordance with the EU-approved International Financial Reporting Standards (IFRS) and the associated interpretations, as well as the other disclosure obligations stipulated in the Norwegian Accounting Act that must be applied as at 31 December 2019. The annual financial statements for the parent company have been prepared in accordance with the Norwegian Accounting Act, Norwegian Regulations relating to annu- al accounts, etc. for insurance companies and the additional requirements in the Norwegian Securities Trading Act. The annual report for the Group and parent company complies with the requirements of the Norwegian Accounting Act and Norwegian Accounting Standard no. 16 as at 31 December 2019. In the best judgment of the Board and the CEO, the annual financial statements for 2019 have been prepared in acco- rdance with applicable accounting standards, and the information in the financial statements provides a fair and true picture of the parent company’s and Group’s assets, liabilities, financial standing and results as a whole as at 31 Decem- ber 2019. In the best judgment of the Board and the CEO, the annual report provides a fair and true overview of impor- tant events during the accounting period and their effects on the annual financial statements for Storebrand ASA and the Storebrand Group. In the best judgement of the Board and the CEO, the descriptions of the most important elements of risk and uncertainty that the group faces in the next accounting period, and a description of related parties’ material transactions, also provide a true and fair view. Lysaker, 11 February 2020 Board of Directors of Storebrand ASA Didrik Munch Chairman of the Board Karin Bing Orgland Laila S. Dahlen Liv Sandbæk Martin Skancke Karl Sandlund Fredrik Törnqvist Magnus Gard Odd Arild Grefstad Group Chief Executive Officer 188 STOREBRAND ANNUAL REPORT 2019 To the General Meeting of Storebrand ASA Independent Auditor’s Report Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Storebrand ASA, which comprise: • The financial statements of the parent company Storebrand ASA (the Company), which comprise the statement of financial position as at 31 December 2019, the income statement, statement of total comprehensive income, statement of changes in equity and statement of cash flow for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and • The consolidated financial statements of Storebrand ASA and its subsidiaries (the Group), which comprise the statement of financial position as at 31 December 2019, the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flow for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion: • The financial statements are prepared in accordance with the law and regulations. • The accompanying financial statements give a true and fair view of the financial position of the Company as at 31 December 2019, and its financial performance and its cash flows for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway. • The accompanying consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2019, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. Basis for Opinion We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group as required by laws and regulations, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The group’s activities are largely unchanged compared to last year. PricewaterhouseCoopers AS, Dronning Eufemias gate 71, Postboks 748 Sentrum, NO-0106 Oslo T: 02316, org. no.: 987 009 713 VAT, www.pwc.no State authorised public accountants, members of The Norwegian Institute of Public Accountants, and authorised accounting firm 189 SECTION 9. ANNUAL ACCOUNTS AND NOTES Independent Auditor's Report - Storebrand ASA Independent Auditor's Report - Storebrand ASA We have not identified regulatory changes, transactions or other material events that qualified as new key audit matters for our audit of the 2019 financial statements. Our areas of focus related to “Valuation of life insurance liabilities”, “Valuation of investment property” and “Valuation of financial instruments measured at fair value” have been the same in 2019 as the previous year. Due to new tax regulations among other things we have focused on “New tax regulations and uncertain tax positions”. Our focus on the groups IT-systems relevant for financial reporting have also been maintained, and the description of our audit approach is integrated in how we have addressed the other key audit matters. Key Audit Matter How our audit addressed the Key Audit Matter Valuation of life insurance liabilities We focused on the valuation of the insurance liabilities because it is significant estimates in the financial statements. The estimates involves complex assessment concerning the probability that insured events occurs, and uncertainty related to whether the provisions are sufficient to cover the total liabilities to the policyholders. Small adjustments of the assumptions may have significant impact on the estimates. The calculation of the insurance liabilities will to a large extent depend on good quality of data in the insurance system and use of assumptions that are in accordance with regulatory requirements and appropriate industry standards. Refer to note 1, 2, 7 and 38 in the financial statements where management further describes the insurance liabilities, assumptions and uncertainty of the estimates. In our audit we have considered and tested the design and effectiveness of established controls for review of used assumptions and calculation methods, including the company’s internal recalculations of the insurance liabilities. We also examined whether management had established effective controls that ensured good data quality for the calculation of the insurance liabilities. This included controls related to data collection, data processing, reconciliation of the insurance systems and IT General Controls relevant for financial reporting. Those controls we elected to base our audit on, was working efficiently. We also performed independent calculations for a selection of insurance obligations using our internal actuarial models and compared these with the company’s calculations. We used our internal actuaries for this work. The comparison did not indicate any deviations of significance. We considered and challenged management’s use of key assumptions such as risk of death, risk of disability, long life expectancy, discount rate and other actuarial assumptions that the estimated insurance liabilities are based on. We did the same for the method and the models the management used. We used our own internal actuaries for parts of this work. Our findings is that assumptions, methods and models were in accordance with industry standards, regulatory requirements, and that they were used consistently. We also considered and found that the information regarding the insurance liabilities in notes to the financial statements is sufficient and adequate. Valuation of investment properties The Group has investment properties that mainly consists of office and retail Through our audit we have assessed and tested design and effectiveness of established controls for review of 190 (2) properties. We have focused on investment applied assumptions and calculation methods, including property because it represents an estimate the company’s internal valuation of investment and a substantial part of the assets in the properties. We particularly examined whether Group’s statement of financial position. management had established controls to ensure assessment of market rent and discount rate. We found that routines to ensure that these elements regularly were checked against both external valuations and marked data was established. Those controls that we elected to base our audit on, was in our view working efficiently. These properties are measured at fair value and classified in level 3 according to IFRS 13. Valuation of the properties involves use of assumptions which are subject to management judgement. Important assumptions for the value of individual properties are primarily rate. internal valuation model and external valuations. Management obtain observations of market data from various expected future cash flows and discount valuation model. We concluded that the model contains We obtained, read through and understood the internal The basis for management’s estimate is an determining fair value on the Group’s investment the elements required by the financial reporting framework and therefore is appropriate as a basis for properties. We tested whether and concluded that the model made mathematically correct calculations. market participants. Management In our assessment of the valuation, we challenged the considers reasonableness of their own assumptions for expected future cash flows and discount estimates through obtaining valuations rate by comparing a sample of properties against from external valuers for a sample of properties on a continuing basis. The information from relevant external sources. Substantial changes in value from previous periods was subject to valuers were engaged by management. discussions with management. We concluded that Refer to note 1, 2, 12 and 33 in the financial statements for management’s further description of investment properties, the methods used and the assumptions the valuations are based on. assumptions were consistent with information from relevant sources and that explanations regarding substantial changes in value were based on changes in the information from relevant sources. We also assessed the qualifications, competence and objectivity of the external valuers We reviewed the engagement letters with the valuers to assess whether there were any clauses or fee provisions that may have affected their objectivity or in any other way limited their engagement. We did not find any indications of such circumstances. We compared the internal valuations against the valuers estimates on values for a sample of properties. We challenged management on substantial deviations and obtained explanations on deviations. We assessed management’s explanations as reasonable. We also assessed and came to the conclusion that the information about investment properties in the notes to the financial statements were in accordance with the accounting principles and provides an adequate description of the method and the underlying assumptions that is used for the valuation. (3) STOREBRAND ANNUAL REPORT 2019 Independent Auditor's Report - Storebrand ASA properties. We have focused on investment property because it represents an estimate and a substantial part of the assets in the Group’s statement of financial position. These properties are measured at fair value and classified in level 3 according to IFRS 13. Valuation of the properties involves use of assumptions which are subject to management judgement. Important assumptions for the value of individual properties are primarily expected future cash flows and discount rate. The basis for management’s estimate is an internal valuation model and external valuations. Management obtain observations of market data from various market participants. Management considers reasonableness of their own estimates through obtaining valuations from external valuers for a sample of properties on a continuing basis. The valuers were engaged by management. Refer to note 1, 2, 12 and 33 in the financial statements for management’s further description of investment properties, the methods used and the assumptions the valuations are based on. applied assumptions and calculation methods, including the company’s internal valuation of investment properties. We particularly examined whether management had established controls to ensure assessment of market rent and discount rate. We found that routines to ensure that these elements regularly were checked against both external valuations and marked data was established. Those controls that we elected to base our audit on, was in our view working efficiently. We obtained, read through and understood the internal valuation model. We concluded that the model contains the elements required by the financial reporting framework and therefore is appropriate as a basis for determining fair value on the Group’s investment properties. We tested whether and concluded that the model made mathematically correct calculations. In our assessment of the valuation, we challenged the assumptions for expected future cash flows and discount rate by comparing a sample of properties against information from relevant external sources. Substantial changes in value from previous periods was subject to discussions with management. We concluded that assumptions were consistent with information from relevant sources and that explanations regarding substantial changes in value were based on changes in the information from relevant sources. We also assessed the qualifications, competence and objectivity of the external valuers We reviewed the engagement letters with the valuers to assess whether there were any clauses or fee provisions that may have affected their objectivity or in any other way limited their engagement. We did not find any indications of such circumstances. We compared the internal valuations against the valuers estimates on values for a sample of properties. We challenged management on substantial deviations and obtained explanations on deviations. We assessed management’s explanations as reasonable. We also assessed and came to the conclusion that the information about investment properties in the notes to the financial statements were in accordance with the accounting principles and provides an adequate description of the method and the underlying assumptions that is used for the valuation. 191 (3) SECTION 9. ANNUAL ACCOUNTS AND NOTES Independent Auditor's Report - Storebrand ASA Valuation of financial assets measured at fair value We have focused on this area both because financial assets represent a substantial part of the assets in the statement of financial position, and because the fair value in certain instances will have to be estimated using valuation models that apply judgement. Most of the financial assets that are measured at fair value is based on quoted prices in active markets (level 1 investments), or derived from observable market information (level 2 investments). Routines and processes that ensures an accurate basis for the valuation is important for these assets. For financial assets that is measured based on models and certain assumptions that is not observable (level 3 investments), we focused on assessing both the models and the assumptions underlying the valuation. Refer to note 2 and 12 in the financial statements for a further description of management’s valuation of financial assets measured at fair value. New tax rules and uncertain tax positions Tax rules for life insurance companies and financial groups are complex and has changed significantly during the last couple of years. As described in note 26 uncertain tax positions have occurred as part of the group’s activities related to liquidation of a subsidiary in 2015 and new tax rules for life insurance companies in 2018. Management applied significant judgment in their assessment of whether the uncertain tax positions should be recognized in the financial statements. The uncertain tax positions has therefore been a focus area. In our audit we considered design and tested effectiveness of Storebrand’s established controls over valuation of financial assets measured at fair value. Particularly we focused on those controls that ensured complete and accurate use of quoted market prices and other observable masterdata, return on investments controls and IT General Controls relevant for financial reporting. In our opinion, the controls that we have chosen to base our audit on are working effectively. For financial assets measured through use of models and assumptions that are not observable, we assessed valuation principles, the models and assumptions that were used. We found that the models and assumptions were reasonable and used consistently. For a sample of investments, we also tested that fair value was in accordance with external valuations. We considered the reliability of the sources of information, when relevant. Our tests did not reveal substantial deviations. We also assessed and found that the information in the notes regarding the Group’s valuation principles and fair value determination were sufficient and adequate. We have reviewed and challenged management assessment of the uncertain tax positions. Management obtained external legal opinions as a basis for their conclusions. We evaluated the competence, integrity and objectivity of the external legal advisors. We evaluated the external legal opinions, and whether the arguments used by the legal advisors are reasonable and that the considerations were neutral. We also assessed the information regarding the uncertain tax positions in the financial statements. We found that the information meets the requirements in the accounting standards. 192 (4) STOREBRAND ANNUAL REPORT 2019 Independent Auditor's Report - Storebrand ASA Other information Management is responsible for the other information. The other information comprises information in the annual report, except the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director (Management) are responsible for the preparation in accordance with law and regulations, including fair presentation of the financial statements of the Company in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and for the preparation and fair presentation of the consolidated financial statements of the Group in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern. The financial statements of the Company use the going concern basis of accounting insofar as it is not likely that the enterprise will cease operations. The consolidated financial statements of the Group use the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. We design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (5) 193 SECTION 9. ANNUAL ACCOUNTS AND NOTES Independent Auditor's Report - Storebrand ASA Independent Auditor's Report - Storebrand ASA Opinion on Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the Company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway. Oslo, 11 February 2020 PricewaterhouseCoopers AS Magne Sem State Authorised Public Accountant Note: This translation from Norwegian has been prepared for information purposes only. • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's or the Group's internal control. • • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company and the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and the Group to cease to continue as a going concern. • evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors’ report and in the statements on Corporate Governance and Corporate Social Responsibility concerning the financial statements, the going concern assumption and the proposed allocation of the result is consistent with the financial statements and complies with the law and regulations. 194 (6) (7) STOREBRAND ANNUAL REPORT 2019 Independent Auditor's Report - Storebrand ASA Opinion on Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the Company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway. Oslo, 11 February 2020 PricewaterhouseCoopers AS Magne Sem State Authorised Public Accountant Note: This translation from Norwegian has been prepared for information purposes only. 195 (7) SECTION 9. ANNUAL ACCOUNTS AND NOTES 10 Governance 198 Corporate Governance 207 Companies in the Storebrand Group 197197 Corporate governance Good corporate governance is important to ensure that an enterprise can achieve its defined goals, including best possible utilisation of resources and good value creation. The Store- brand Group (hereinafter referred to as Storebrand) works continuously on improving both the overall decision-making processes and the day-to-day management of the company. The market is kept updated on Storebrand’s goals, strategies and creation of value through quarterly performance presenta- tions and other thematic presentations. Read more about the Company’s goals and main strategies in the Directors’ Report under the heading Strategy. Storebrand’s corporate governance principles have been laid down in accordance with the Norwegian Corporate Gover- nance Board’s (NUES) Code of Practice. The Board of Directors of Storebrand ASA (hereafter referred to as the board) and management an annual review of Storebrand’s corporate gov- ernance policies and compliance therewith. Storebrand reports in accordance with section 3-3b of the Norwegian Accounting Act and the NUES Code of Practice. Storebrand publishes an integrated report annually presenting financial, social, environmental and governance issues that are material for Storebrand. The materiality analysis is discussed on pages 16-17 above). Statement on corporate governance (no deviation from recommentations) The statement below describes how Storebrand complies with the 15 sections of the NUES Code of Practice. 1. IMPLEMENTATION AND REPORTING ON CORPORATE GOV- ERNANCE (NO DEVIATIONS FROM THE CODE OF PRACTICE) The Board has decided that the Norwegian Code of Practice for Corporate Governance shall be followed. Compliance with the Code of Practice is discussed in the Directors’ Report. Store- brand complies with the Code of Practice without any significant exceptions. One minor deviation has been accounted for below under section 3. 2. BUSINESS (NO DEVIATIONS FROM THE CODE OF PRACTICE) Storebrand ASA is the parent company in a financial group, and its statutory object is to manage its equity interests in Storebrand’s subsidiaries in compliance with the current legislation. Storebrand’s main business areas encompass pensions and savings, insurance and banking. The Articles of Association are available in their entirety on the Storebrand’s website www.storebrand.no. 198 Storebrand aims to be a world-class savings group that deliv- ers better pensions – simple and sustainable. Storebrand’s strategy and corporate values are described in the framework “Our driving force” which represents a common direction for how Storebrand will deliver attractive results to customers and owners. Storebrand’s strategy is to deliver profitable growth within established focus areas through simple and sustainable solu- tions. The Board conducts ongoing evaluations of the goals, strategy and risk profile. More information about “Our driving force” and focus areas can be found in the section on Store- brand in the annual report. Since 1995 Storebrand has been focussed on sustainable invest- ments, taking an active position on how both the customers and their own funds are invested. Storebrand believes that companies that integrate environmental, social and governance considerations in their business activities reduce risk and create new opportunities for the business activities and capital owners. Our work with sustainable investing is described in detail in section 3 of our annual report above. This includes our principles for sustainable investments, which are approved by the group board and integrated throughout the group’s operations. Storebrand has conducted a materiality assessment to define the most important focus areas. These are described in section 1 above. Increased diversity is an important part of Store- brand’s recruitment policy. Storebrand seeks to maintain and develop an organisation with real equality. Read more on our work with diversity in Section 5 above. Storebrand has its own code of ethics. Guidelines for whis- tle-blowing, social events, combating corruption, etc. have also been established. See section 6 Keeping Our House in Order for more information. STOREBRAND ANNUAL REPORT 2019SECTION 10. GOVERNANCE 3. EQUITY AND DIVIDENDS (DEVIATIONS FROM THE CODE OF PRACTICE) The Board of Storebrand ASA continuously monitors Store- brand’s capital adequacy in light of its goals, strategy and risk profile. Read more under the heading “Capital situation, rating and risk” in the Directors’ Report. The Board of Directors has adopted and made known a divi- dend policy whereby Storebrand aims to pay a dividend of over 50 per cent of the group profit after tax. The ambition of the Board is to pay an ordinary dividend per share of at least the same nominal level as in the previous year. Normally, dividends are paid when there is a sustainable solvency margin of more than 150 per cent. With a solvency margin above 180 per cent, the Board’s intention is to propose extraordinary dividends or the buyback of shares. The dividend is adopted by the General Meeting, based on a proposal put forward by the Board of Directors. The General Meeting may, by simple majority, authorise the Board of Direc- tors to distribute a dividend pursuant to Section 8-1, second paragraph of the Norwegian Public Limited Companies Act. This shall be based on the annual financial statements adopted by the General Meeting. This authorisation may not be granted for a period longer than until the next Annual General Meeting. In addition, the authorisation shall be based on the adopted divi- dend policy. The General Meeting was not requested to provide such authorisation in 2019. Storebrand ASA would like to have various tools available for its efforts to maintain an optimal capital structure for Storebrand to contribute to good shareholder returns and financial resilience. At the 2019 Annual General Meeting, the Board was granted authorisation to increase the share capital through issuing new shares for a total maximum value of NOK 233,906,991. This authorisation may be used for the acquisition of businesses in consideration for new shares or for increasing the share capital by other means. The Board of Directors may decide to waive the shareholders’ preferential rights to subscribe for new shares in accordance with the authorisation. This authorisation may be used for one or more new issues. This authorisation is valid until the next Annual General Meeting. At the same General Meeting, the Board of Directors was authorised to buy back shares for a maximum value of NOK 233,906,991. The total holdings of treasury shares must, however, never exceed 10 per cent of the share capital. The buyback of treasury shares may be a tool for the distribution of surplus capital to shareholders in addition to dividends. In addi- tion, each year Storebrand ASA sells shares to employees from its own holdings in connection with the share purchase scheme and long-term incentive schemes for employees of Storebrand. Accordingly, it is appropriate to authorise the Board of Direc- tors to buy shares in the market to cover the aforementioned needs or any other needs. This authorisation is valid until the next Annual General Meeting. Otherwise, there are no provi- sions in Storebrand ASA’s Articles of Association that regulate the buyback or issuance of shares. Deviation from the Code of Practice: The Board’s authorisations to increase the share capital and buy back shares are limited to defined purposes. However, no provision was made for the General Meeting to vote on each individual purpose to be covered by the authorisations. 4. EQUAL TREATMENT OF SHAREHOLDERS AND TRANSAC- TIONS WITH CLOSE ASSOCIATES (NO DEVIATIONS FROM THE CODE OF PRACTICE) Storebrand ASA has only one class of share. There are no specific restrictions on the ownership of shares or voting rights beyond the restrictions imposed by the Act on Finan- cial Undertakings and Financial Groups. Through their work, the management and Board of Directors of Storebrand focus strongly on the equal treatment of shareholders. The general competence rules for board members and execu- tive personnel may be found in the rules of procedure for the Board of Storebrand ASA, rules of procedure for the boards of subsidiaries, instructions for the CEO, guidelines for conflicts of interest and Storebrand’s code of ethics. Board members must inform the company if they have direct or indirect material interests in an agreement concluded by one of the compa- nies in the Storebrand Group. The Board shall ensure that an independent third party assesses the value of transactions that are not insubstantial in nature. Furthermore, the rules of procedure for the Board stipulate that no board member may 199 participate in discussions or a decision concerning matters that are of such material importance to them or a close associate that the member must be regarded as having a conspicuous personal or special financial interest in the matter. Each board member has a responsibility to continuously assess whether or not such a situation exists. Transactions with close associ- ates involving Storebrand’s employees and other officers of the Group are regulated by Storebrand’s code of ethics. Employ- ees shall on their own initiative immediately report conflicts of interest that may arise to their immediate superior as soon as they become aware of such a situation. In general, an employee is defined as disqualified if circumstances exist that could result in others questioning the person’s impartiality in relation to matters other than Storebrand’s interests. In the event of capital increases in accordance with the authori- sation set out in Item 3 above, the Board may decide that the shareholders’ preferential rights shall be waived. For a com- plete account of shareholder matters, see section 7 above. 5. FREELY NEGOTIABLE SHARES (NO DEVIATIONS FROM THE CODE OF PRACTICE) Shares in Storebrand ASA are listed on Oslo Børs (Oslo Stock Exchange). The shares are freely negotiable, and the Articles of Association do thus not contain any restrictions with regard to the negotiability of the shares. All the shares carry equal rights, cf. point 4 above. 6. GENERAL MEETING (NO DEVIATIONS FROM THE CODE OF PRACTICE) General Meeting Pursuant to the Articles of Association, Storebrand ASA’s General Meeting shall be held by the end of June each year. The General Meeting was held on 10th April 2019. All shareholders with a known address will receive notice of the General Meeting, which will be sent out no later than 21 days prior to the General Meeting. Pursuant to the Articles of Association, the deadline for giving notice of attendance shall be set at no later than five calendar days prior to the General Meeting. In accordance with Storebrand’s Articles of Association, the opportunity to make other agenda papers available on the Storebrand website is exercised, cf. Section 5-11a of the Norwegian Public Limited Companies Act. A shareholder may nevertheless demand to receive agenda papers by post. All shareholders may participate at the General Meeting. Store- brand’s Articles of Association allow shareholders to vote in advance by means of electronic communication, cf. section 5-8b of the Norwegian Public Limited Companies Act. It is also possible to vote by proxy. Provisions have been made so that the proxy form is linked to each individual item to be considered. We will seek whenever possible to design the form so that it also allows voting for candidates who are to be elected. The voting rules for the General Meeting allow sep- arate votes for each member of the various bodies. Further information about voting in advance, use of proxies and the shareholders’ rights to have matters discussed at the General Meeting is available both in the notice of the General Meeting and on Storebrand’s website. The Chairman of the Board, at least one representative from the Nomination Committee and the external auditor must attend the General Meeting. The board members of Store- brand ASA are not obligated to attend, but are encouraged to attend. The Group Chief Executive Officer, executive manage- ment team and the Group Legal Director participate from the management. The minutes of the General Meeting are avail- able on Storebrand’s website in both Norwegian and English. The General Meeting is opened by the Chairman. The Board of Directors endorses an independent meeting chairman elected by the General Meeting. The General Meeting shall: • • • • • • • consider the annual accounts, consisting of the income statement, the balance sheet and the annual report, including the consolidated income statement and balance sheet, and the auditor’s report, decide upon adoption of the income statement and balance sheet, decide upon adoption of the consolidated income state- ment and balance sheet, decide upon the allocation of profit or manner of covering losses in accordance with the adopted balance sheet, and upon the distribution of dividends, elect the auditor, appoint members to the Nomination Committee, and this should include the Chairman of the Nomination Commit- 200 STOREBRAND ANNUAL REPORT 2019SECTION 10. GOVERNANCE • • • tee, elect members to the Board of Directors, and this should include the Chairman of the Board Directors, consider the Board’s statement on the fixing of salaries and other remuneration to executive personnel, adopt the remuneration of the members of the Board of Directors and board committees, adopt the remuneration of the members of the Nomina- tion Committee, adopt the remuneration of the auditor, • • and transact any other business listed on the agenda. Decisions are generally made on the basis of an ordinary majority. Pursuant to Norwegian law, however, a special majority is required for certain decisions, including decisions about setting aside pre-emptive rights in connection with any share issues, mergers, spin-offs, amendments to the Articles of Association or authorisations to increase or reduce the share capital. Such decisions require approval by at least two-thirds of both the votes cast and the share capital represented at the General Meeting. 7. NOMINATION COMMITTEE (NO DEVIATIONS FROM THE CODE OF PRACTICE) Storebrand ASA’s Articles of Association regulate the Nomina- tion Committee, which consists of four or five members and an observer elected by the employees. For 2019-2020 election period, the Nomination Committee has four members. The Chairman of the Nomination Committee and the other members are elected annually by the General Meeting. The employees’ representative will participate as a permanent member of the Committee in discussions and nominations concerning the election of the Chairman of the Board of Direc- tors, as well as in other contexts where this would be natural, in accordance with an invitation from the Chairman of the Com- mittee. The majority of the Nomination Committee is independent of the Board of Directors and the management. The Nomina- tion Committee is composed with a view to safeguarding the interests of the community of shareholders. In the General Meeting’s rules of procedure for the Nomination Committee, there are provisions concerning the rotation of members of the Nomination Committee. The Articles of Association stipulate that the Nomination Com- mittee should work in accordance with the rules of procedure adopted by the General Meeting. The Nomination Committee’s rules of procedure were adopted at the 2019 Annual General Meeting. In accordance with the rules of procedure, the Nom- ination Committee shall, for example, give attention to the following when preparing nominations for representatives for the companies’ governing and controlling bodies: expertise, experience, capacity, gender distribution, independence and the interests of the community of shareholders. More informa- tion about the members has been published on Storebrand’s website. The Nomination Committee annually writes to the Company’s 30 largest shareholders with an invitation to suggest candi- dates for the Board of Directors and Nomination Committee. A corresponding request to the shareholders is published on the company’s website. The Nomination Committee is tasked with proposing candidates and remuneration for the Board of Direc- tors and Nomination Committee, through recommendations to the General Meeting. An attempt is made to adapt the remuneration of the members of the Nomination Committee to the nature of the tasks and time spent on committee work. The Nomination Committee held 14 meetings in 2019. 8. THE COMPOSITION AND INDEPENDENCE OF THE BOARD OF DIRECTORS (NO DEVIATIONS FROM THE CODE OF PRAC- TICE) The Articles of Association stipulate that between five and seven Board members shall be elected by the General Meeting based on nominations from the Nomination Committee. The Board Chairman shall be elected by the General Meeting. Two members, or three members if the General Meeting elects six or seven board members, shall be elected by and from among the employees. The board members are elected for one year at a time. The day-to-day management is not repre- sented on the Board of Directors. At the end of 2019, the Board consisted of nine members (four women and five men). None of the members elected by the General Meeting have any employment, professional or consultancy relationship with 201 Storebrand beyond their appointment to the Board of Direc- tors. The backgrounds of the individual board members are described in the annual report and on Storebrand’s website. The composition of the Board of Directors satisfies the inde- pendence requirements set forth in the Code of Practice. There are few instances of disqualification during the consideration of matters by the Board (none in 2019). An assessment of the individual board members’ independence is noted in the list of governing and controlling bodies under the heading “Members of Storebrand ASA’s Board of Directors and Com- mittees”. An overview of the number of shares in Storebrand ASA owned by members of governing bodies as at 31 Decem- ber 2019 is included in the notes to the financial statements for Storebrand ASA (Information on related parties). None of the board members have held office for more than ten years. The work of the Board is regulated by special rules of procedure for the Board, which are reviewed annually. In order to ensure sound and well-considered decisions, importance is attached to ensuring that meetings of the Board are well prepared so that all the members can participate in the decision-making process. The Board prepares an annual schedule for its meet- ings and the topics it will consider. The agenda for the next board meeting is normally presented to the Board based on the approved schedule for the year and a list of matters carried forward from previous meetings. The final agenda is fixed in consultation with the Chairman of the Board. Time is set aside at each board meeting to evaluate the meeting without the management present. The Board is entitled to appoint external advisers to help it with its work whenever it deems this neces- sary. The Board has also drawn up instructions for the CEO. 9. WORK OF THE BOARD OF DIRECTORS (NO DEVIATIONS FROM THE CODE OF PRACTICE) Duties of the Board of Directors In 2019, eleven board meetings were held, of which two meet- ings were conducted at the subsidiary SPP in Stockholm. The aggregate rate of Board member participation in 2019 was 99%. Storebrand’s future strategy is discussed at the Board’s annual strategy meeting, which establishes guidelines for the manage- ment’s preparation of plans and budgets in connection with the annual financial plan, which must be approved by the Board. The Board shall stay informed about Storebrand’s financial position and development, and it shall ensure that the Com- pany’s value creation and profitability are safeguarded in the best possible manner on behalf of the owners. The Board shall also ensure that the activities are subjected to adequate control and ensure that Storebrand has adequate capital based on the scope of, and risks associated with, its activities. The Board has established guidelines that give board members and senior employees a duty to familiarise Storebrand with the essential interests they may have in matters that the Board is to consider. This also applies to interests that do not imply dis- qualification, but which may be necessary to take into account when matters are considered. Reference is made to Item 4 above. The Board conducts an annual evaluation of its work and methods, which provides a basis for changes and measures. The report from the Board’s evaluation, or relevant excerpts, will be made available to the Nomination Committee, which will use the evaluation in its work. Board Committees The Board has established three subcommittees in the form of the Compensation Committee, Audit Committee and Risk Committee. The composition helps ensure a thorough and independent consideration of matters that concern internal control, financial reporting, risk assessment and remuneration of executive personnel. The committees are preparatory and advisory working committees and assist the Board with the preparation of items for consideration. Decisions are made, however, by the full Board. The committees are able to hold meetings and consider matters at their own initiative and without the participation of company management. The Compensation Committee assists the Board with all matters concerning the Chief Executive Officer’s remuneration. The Committee monitors the remuneration of Storebrand’s executive personnel and proposes guidelines for fixing execu- tive personnel remuneration and the Board’s statement on the fixing of executive personnel remuneration, which is presented to the General Meeting annually. In addition, the Committee safeguards the areas required by the Compensation Regula- tions in Norway and Sweden. The Compensation Committee held three meetings in 2019. 202 STOREBRAND ANNUAL REPORT 2019SECTION 10. GOVERNANCE The Audit Committee assists the Board by reviewing, evaluat- ing and, where necessary, proposing appropriate measures with respect to the Group’s overall controls, financial and oper- ational reporting, risk management/control, and internal and external auditing. The Audit Committee held nine meetings in 2019, including a joint meeting with the Risk Committee. The external and internal auditors participate in the meetings. The majority of the Committee members are independent of the company. for areas such as risk management, internal control, finan- cial reporting, handling inside information and share trading by primary insiders. Guidelines and information about infor- mation security, contingency plans, measures against money laundering and other financial criminality have also been drawn up. Storebrand is subject to statutory supervision in the coun- tries where it has operations that require a licence, including the Financial Supervisory Authority of Norway, as well as its own supervisory bodies and external auditor. The main task of the Risk Committee is to prepare matters to be considered by the Group’s Board of Directors in the area of risk, with a special focus on Storebrand’s risk appetite and risk strategy, including the investment strategy. The Committee should contribute forward-looking decision-making support related to the Board’s discussion of risk taking, financial fore- casts and the treatment of risk reporting. The Risk Committee held seven meetings in 2019, including a joint meeting with the Audit Committee. 10. RISK MANAGEMENT AND INTERNAL CONTROL (NO DEVIATIONS FROM THE CODE OF PRACTICE) Management and control The Board of Directors has drawn up general policies and guidelines for management and control. These policies deal with the Board’s responsibility for determining Storebrand’s appetite for risk and risk profile, approval of the organisation of the business, assignment of areas of responsibility and author- ity, requirements concerning reporting lines and information, and risk management and internal control requirements. The Board’s and Chief Executive Officer’s areas of responsibility are defined in the rules of procedure for the Board and the instruc- tions for the Chief Executive Officer, respectively. The Board of Directors has drawn up instructions for Storebrand’s subsid- iaries that are to ensure that they implement and comply with Storebrand’s management and control policies and guidelines. The Investor Relations guidelines ensure reliable, timely and identical information to investors, lenders and other stake- holders in the securities market. As an extension of the general policies and guidelines, a code of ethics has been drawn up that applies to all employees and representatives of Storebrand, in addition to corporate rules Risk management and internal control The assessment and management of risk are integrated into Storebrand’s corporate governance. This management system shall ensure that there is a correlation between goals and actions at all levels of Storebrand and the overall policy of cre- ating value for Storebrand’s shareholders. Storebrand’s financial and operational goals are defined annu- ally in a board-approved business plan. The business plan builds on separate decisions on risk strategy and investment strategies, and includes three-year financial forecasts, budgets and action plans. The Board of Directors receives ongoing reports on the status of the strategy implementation. Storebrand Compass is the company’s monitoring tool. It pro- vides comprehensive reports for management and the Board concerning financial and operational targets. In addition, the Board of Directors receives risk reports from the risk manage- ment function, which monitors the development of key figures for risk and solidity. Risk assessment forms part of the managerial responsibilities in the organisation. Its purpose is to identify, assess and manage risks that can hinder a unit’s ability to achieve its goals. The process covers both the risk of incurring losses and failing prof- itability linked to economic downturns, changes in the general conditions, changed customer behaviour, etc., and the risk of incurring losses due to inadequate or failing internal processes, systems, human error or external events. Developments in the financial markets are important risk factors in relation to Store- brand’s earnings and solvency position. In addition to assessing the effects of sudden shifts in the equity markets or interest rate levels (stress tests), scenario analysis is used to estimate the effect of various sequences of events in the financial markets 203 on Storebrand’s financial performance and solvency. This pro- vides important premises for the Board’s general discussion of risk appetite, risk allocation and capital adequacy. The responsibility for Storebrand’s control functions for risk management and internal control lies with the Chief Risk Officer function under the management of the Group Chief Risk Officer. The Group Chief Risk Officer reports directly to the Chief Executive Office. The Chief Risk Officer function is responsible for supporting the Board and group management team with respect to the establishment of a risk strategy and operationalisation of the setting of limits and monitoring of risk raking across Storebrand’s business areas. Storebrand has a common internal audit function, which conducts an independent review of the robustness of the management model. The internal audit function’s instructions and annual plan are determined by the Board pursuant to the current legislation, regulations and international standards. The internal audit function produces quarterly reports for the boards of the respective Storebrand companies. influences by Storebrand’s accounting results. The division of work involved in the preparation of the financial statements is organised in such a way that the Consolidated Accounts Unit does not carry out valuations of investment assets. Instead it exercises a control function in relation to the accounting pro- cesses of the group companies. A series of risk assessment and control measures have been established in connection with the preparation of the finan- cial statements. Assessments relating to significant accounting items and any changes in principles etc. are described in a sep- arate document (assessment item memo). The Board’s Audit Committee conducts a preparatory review of interim financial statements and annual financial statements, focusing in par- ticular on the discretionary valuations and estimates that have been made prior to consideration by the Board. Monthly and quarterly operating reports are prepared in which the results by business area and product area are analysed and assessed against set budgets. The operating reports are recon- ciled against other financial reporting. The appraisal of all Storebrand employees is integrated into corporate governance and is designed to ensure that the adopted strategies are implemented. The policies for earning and paying any variable remuneration to Storebrand’s risk managers comply with the regulations relating to remunera- tion in financial institutions, cf. Section 12 below. The Chief Risk Officer and employees with control functions related to risk management, internal control and compliance only have fixed salaries. Financial information and Storebrand’s accounting process Storebrand publishes four interim financial statements, in addi- tion to the ordinary annual financial statements. The financial statements must satisfy legal and regulatory requirements and be prepared in accordance with the adopted accounting poli- cies and be published according to the schedule adopted by the Board of Storebrand ASA. 11. REMUNERATION OF THE BOARD OF DIRECTORS (NO DEVIATIONS FROM THE CODE OF PRACTICE) The General Meeting fixes the Board’s remuneration annu- ally on the basis of the recommendations of the Nomination Committee. The fees paid to the members of the Board are not linked to earnings, option schemes or similar arrange- ments. Members of the Board and Board Committees do not receive incentive-based remuneration; instead they receive a fixed annual compensation, either per year or per meeting the member attends, or a combination of such remuneration. The shareholder-elected members of the Board do not participate in Storebrand’s pension schemes. None of the sharehold- er-elected members of the Board carry out any duties for Storebrand beyond their appointment to the Board. More detailed information on the remuneration, loans and share- holdings of board members can be found in Note 23 (Group) and Notes 6 and 17 (ASA). Board members are encouraged to hold shares in the company. Storebrand’s consolidated financial statements are prepared by the Consolidated Accounts Unit, which reports to the Group Chief Financial Officer. Key managers in the Consolidated Accounts Unit have fixed annual compensation that is not 12. REMUNERATION OF EXECUTIVE PERSONNEL (NO DEVIA- TIONS FROM THE CODE OF PRACTICE) The Board determines the structure of the remuneration of 204 STOREBRAND ANNUAL REPORT 2019SECTION 10. GOVERNANCE executive personnel at Storebrand, and a statement on the fixing of remuneration (executive remuneration statement) is presented to the General Meeting. The executive remuneration statement shall clearly specify which guidelines are binding and which are advisory. The General Meeting shall vote separately on the binding and advisory guidelines. The remuneration con- sists of fixed salaries, variable remuneration, pension schemes and other fringe benefits deemed to be natural in a financial group. The aim of the remuneration is to motivate greater efforts to ensure long-term value creation and resource utili- sation in the company. In the opinion of the Board, the overall remuneration shall be competitive, but not leading. An annual assessment is carried out based on external market data to ensure remuneration is adequate in relation to equivalent posi- tions in the market. Storebrand shall have an incentive model that supports Company strategy, with emphasis on the customer’s interests and long-term perspective and an ambitious model of cooper- ation, as well as transparency that enhances the Storebrand’s reputation. The Group’s executive management only receive fixed salaries and use a percentage of their fixed salaries to pur- chase shares in Storebrand with a lock-in period of three years. This is to clarify that the Storebrand’s top management acts in accordance with the long-term interests of the owners. The employees’ performance and achievements are regularly followed up against the operational goals of the individual busi- ness areas, directly related to Storebrand’s strategy. This helps to further strengthen agreement between the owners and the management. More detailed information about the remuneration of exec- utive personnel may be found in Note 23 (Group) and Notes 6 and 17 (ASA), and in the Board’s statement on the fixing of salaries and other remuneration to executive personnel, which is included in the notice of the General Meeting and available at www.storebrand.no. Executive personnel are encouraged to hold shares in Storebrand ASA, even beyond the lock-in period. 13. INFORMATION AND COMMUNICATION (NO DEVIATIONS FROM THE CODE OF PRACTICE) The Board has issued guidelines for the company’s reporting of financial and other information and for contact with share- holders other than through the General Meeting. Storebrand’s reporting with regard to sustainable investments goes beyond the statutory requirements. Storebrand’s financial calendar is published on the Internet and in the company’s annual report. Financial information is published in the quarterly and annual reports, as described under Item 10 above – Financial informa- tion and Storebrand’s accounting process. Documentation that is published is available on Storebrand’s website. All report- ing is based on the principle of transparency and takes into account the need for the equal treatment of all participants in the securities markets and the rules concerning good stock exchange practices. Storebrand has its own guidelines for han- dling insider information, see also Item 10 – Management and control, above. 14. TAKEOVERS (NO DEVIATIONS FROM THE CODE OF PRACTICE) The Board of Directors has prepared guidelines for how to act in the event of a possible takeover bid for the company. These guidelines are based on the Board of Directors ensuring the transparency of the process and that all the shareholders are treated equally and given an opportunity to evaluate the bid that has been made. It follows from the guidelines that the Board of Directors will evaluate the bid and issue a statement on the Board’s opinion of the bid, in addition to obtaining a valuation from an independent expert. In addition, the Board of Directors will, in the event of any takeover bid, seek whenever possible to maximise the shareholders’ assets. The guidelines cover the situation before and after a bid is made. 15. AUDITOR (NO DEVIATIONS FROM THE CODE OF PRACTICE) The external auditor is elected by the General Meeting of Storebrand ASA and is responsible for the financial auditing. The external auditor issues an auditor’s report in connection with the annual financial statements and conducts limited audits of the interim financial statements. The external auditor attends board meetings in which interim financial statements are reviewed and all meetings of the Audit Committee, unless the items on the agenda do not require the presence of the auditor. The Board has decided that the external auditor must rotate the partner responsible for the audit assignment every seven years. The external auditor’s work and independence are evaluated annually by the Board’s Audit Committee. The auditor shall also meet with the Board of Directors at least once a year without the management being present. The other com- panies in Storebrand use the same auditor as Storebrand ASA. 205 OTHER As one of the largest investors in the Norwegian stock market, Storebrand has considerable potential influence over the development of listed companies. Storebrand attaches impor- tance to exercising its ownership in listed companies based on straightforward and consistent ownership principles that place considerable emphasis on sustainability. Storebrand applies the Norwegian Code of Practice for Corporate Governance in this role. Storebrand has had an administrative Corporate Gov- ernance Committee since 2006. The Committee is responsible for ensuring good corporate governance across Storebrand. Storebrand Asset Management AS has had a Corporate Gov- ernance Committee for several years. The Committee has a mandate to set the level of ambition and establish frameworks for corporate governance. The Committee shall coordinate Storebrand’s use of voting rights, including prioritising matters and ensuring consistency in the work. The Committee shall meet every quarter. Storebrand has issued guidelines with respect to employees holding positions of trust in external companies, which regulate, for example, the number of exter- nal board positions. Further information on Storebrand’s corporate governance may be found at www.storebrand.no > About Storebrand > Facts on Storebrand, where we have also published an overview of the members of Storebrand’s govern- ing and controlling bodies, CVs for the members of Storebrand ASA’s Board of Directors, the Articles of Association, and own- ership policies. Statement in accordance with Section 3-3b, second paragraph of the Norwegian Accounting Act 1. The principles for Storebrand’s corporate governance have been prepared in accordance with Norwegian law, and they are based on the Norwegian Code of Practice for Corporate Governance published by the Norwegian Corporate Gover- nance Board (NUES). 2. The Norwegian Code of Practice for Corporate Governance is available at www.nues.no. 3. Any deviations from the Code of Practice are commented on under each section in the statement above, see the devia- tions discussed in Item 3. 4. A description of the main elements of Storebrand’s systems for internal control and risk management related to the financial reporting process is discussed in Section 10 above. 5. Provisions in the Articles of Association that refer to the provisions in Section 5 of the Norwegian Public Limited Com- panies Act with regard to the General Meeting are discussed in Item 6 above. 6. The composition of the governing bodies and a description of the main elements in the current rules of procedure and guidelines can be found in Items 6, 7, 8 and 9 above. 7. The provisions in the Articles of Association that regulate the appointment and replacement of board members are dis- cussed in Item 8 above. A summary of the matters that Storebrand is to report on in accordance with Section 3-3b, second paragraph of the Nor- wegian Accounting Act follows below. The items follow the numbering used in the provision. 8. Provisions in the Articles of Association and authorisations granting the Board the authority to buy back or issue the Group’s own shares are discussed in Item 3 above. 206 STOREBRAND ANNUAL REPORT 2019SECTION 10. GOVERNANCE Companies in the Storebrand Group Organisation number Ownership interest STOREBRAND ASA Storebrand Livsforsikring AS Storebrand Holding AB SPP Konsult AB SPP Spar AB SPP Pension & Försäkring AB SPP Fastigheter AB 1) SPP Hyresförvaltning Storebrand & SPP Business Services AB Storebrand Eiendomsfond Invest AS Storebrand Eiendom Trygg AS Storebrand Eiendom Vekst AS Storebrand Eiendom Utvikling AS Storebrand Finansiell Rådgivning AS Storebrand Pensjonstjenester AS Storebrand Infrastruktur AS AS Værdalsbruket 2) Norsk Pensjon AS Benco Insurance Holding BV Euroben Life & Pension DAC Storebrand Bank ASA Storebrand Boligkreditt AS Ring Eiendomsmegling AS Storebrand Asset Management AS SPP Fonder AB Storebrand Fastigheter AB SKAGEN AS Cubera Private Equity AS Storebrand Forsikring AS Storebrand Facilities AS Storebrand Helseforsikring AS 1) Euroben Life & Pension DAC owns 7.3% 2) Storebrand ASA owns 25.1 per cent and Storebrand’s total ownership interest is 100 per cent for AS Værdalsbruket. 916 300 484 958 995 369 556734-9815 556045-7581 556892-4830 556401-8599 556745-7428 556883-1340 556594-9517 995 871 424 876 734 702 916 268 416 990 653 402 989 150 200 931 936 492 991 853 545 920 082 165 890 050 212 34331716 953 299 216 990 645 515 987 227 575 930 208 868 556397-8922 556801-1802 867 462 732 989 580 353 930 553 506 924 353 554 980 126 196 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 74.9% 25.0% 89.96% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 50.0% 207 11 Sustainability assurance 210 TCFD index 212 GRI index 218 Auditor’s statement on sustainability SECTION 8. ANNUAL ACCOUNTS AND NOTES 209209 TCFD Index Governance Strategy Disclose Storebrand’s gover- nance around climate-related risks and opportunities. Disclose the actual and potential impacts of climate-related risks and opportunities on Store- brand’s businesses, strategy, and financial planning where such information is material. TCFD Recommended Disclosures Page Reference TCFD Recommended Disclosures a Describe the board’s oversight of climate-related risks and opportunities 72-73 a Describe the climate-related risks and opportunities Store- brand has identified over the short, medium and long term b Describe the management’s 72-73 b Describe the impact of role in assessing and managing climate-related risks and oppor- tunities climate-related risks and opportunities on Storebrand’s businesses, strategy, and finan- cial planning Page Reference 18-23 14-17, 20-23, 27-31 c Describe the resilience of Storebrand’s strategy, taking into consideration different climate-related scenarios 14-17, 20-23, 27-31 210 STOREBRAND ANNUAL REPORT 2019SECTION 11. SUSTAINABILITY ASSURANCE Risk Management Metrics and Targets Disclose how Storebrand identifies, assesses and manages climate-related risks. Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. TCFD Recommended Disclosures Page Reference TCFD Recommended Disclosures Page Reference a Describe Storebrand’s pro- cesses for identifying and assessing climate-related risks 20-21 a Disclose the metrics used by 20-23, 33, 57, 61 Storebrand to assess climate- related risks and opportunities in line with its strategy and risk management process. b Describe Storebrand’s 18-23 b Disclose Scope 1, Scope 2 and 33, 61 processes for managing climate-related risks Scope 3 GHG emissions, and the related risks c Describe how processes for identifying, assessing and managing climate-related risks are integrated into Storebrand’s overall risk management 19, 72-73 c Disclose the targets used by Storebrand to manage climate-related risks and opportunities and performance against targets 20-23, 33, 57, 61 211 GRI Index An index of the GRI indicators we are reporting on and where the report contains information about the indicators follows below. GRI STANDARDS - COMPULSORY INDICATORS Text Section Subsection Disclosure Storebrand ASA GRI Index GRI Index Professor Kohts vei 9, Lysaker, Oslo, Norge GRI Index GRI Index Full This is Storebrand Our purpose and vision Full This is Storebrand Our purpose and vision Full Director's Report Companies in the Storebrand Group This is Storebrand Our purpose and vision This is Storebrand Our purpose and vision People Director's Report Key Performance Indicators Group Financial Results for 2019 Full Full Full Full Full People People Keep Own House in Order Committed and Coura- geous Employees Partial Key Performance Indi- cators Good Environmental and Working Conditions Throughout the value Chain Full Group CEO Foreword Group CEO Foreword Full This is Storebrand Climate Risk and Opportunity Finanical Capital and Our Investment Universe Sustainability as Core Business Climate Risk and Oppor- tunity A Driving Force for Sustainable Investments Full GRI Ref. Title Organizational Profile 102-1 102-2 102-3 Name of the organisation Activities, brands, pro- ducts, and services Location of headqu- arters 102-4 Location of operations 102-5 Ownership and legal form 102-6 Markets served 102-7 Scale of organisation 102-8 Information on employees and other workers 102-9 Supply chain Significant changes to 102-10 the organisation and its supply chain 102-11 Precautionary Princi- ple or approach 212212 STOREBRAND ANNUAL REPORT 2019SECTION 11. SUSTAINABILITY ASSURANCE Section Subsection Disclosure GRI Ref. Title Text UN PRI UN Global Compact Global Reporting Initiative UN Sustainable Development Goals Task Force on Climate-Related Financial Disclosures (TCFD) Paris Agreement 2015 Carbon Disclosure Project Global 100 UN Principles for Responsible Business This is Storebrand Sustainability as Core Conduct Keep Our Own House Business 102-12 External initiatives UN Declaration for Human Rights in Order (all sub-sections) Full UN environmental conventions Director’s Report Corporate Governance UN Principle for Sustainable Insurance UNEP Finance Initiaitive Portfolio Decarbonisation Coalition Accounting for Sustainability UN Convention Against Corruption ILO’s Fundamental Conventions Montreal Pledge Tobacco-Free Portfolios UN Women Empowerment Principles UNEP FI investor goup on TCFD Climate Action 100+ This is Storebrand Sustainability as Core Net-Zero Asset Owner Alliance Climate Risk and Business Global Real Estate Sustainability Bench- Opportunity Climate Risk and Oppor- mark(GRESB) NORSIF Finanical Capital tunity Full and Our Investment A Driving Force for PRI Investor Commitment to Support a Universe Sustainable Investments Just Transition on Climate Change CEO Foreword CEO Foreword Full This is Storebrand Keep Our Own House in Order Director’s Report Sustainability as Core Business (all sub-sections) Corporate Governance This is Storebrand Director’s Report Organisation Executive Management Board of Directors & Committees Risk Corpo- rate Governance Full Full 213213 102-13 Membership of associations Strategy 102-14 Statement from senior decision maker Ethics and integrity 102-16 Values, standards, principles and norms Governance 102-18 Governance structure Text Section Subsection Disclosure GRI Ref. Title Stakeholder Engagement 102-40 102-41 102-42 102-43 List of stakeholder groups Collective bargaining agreements Identifying and selecting stakeholders Approach to stakehol- der engagement 102-44 Key topics and con- cerns raised Reporting Practice 102-45 102-46 Entities included in the consolidated financial statements Defining report content and topic Boundaries 102-47 List of material topics 102-48 Restatements of infor- mation 100% in Norway and 100% in Sweden GRI Index GRI Index Material Issues This is Storebrand Material Issues This is Storebrand Material Issues This is Storebrand All Material Issues ”Why” section at begin- ning of each sub-section Director's Report Group Financial Results for 2019 This is Storebrand Material Issues This is Storebrand Material Issues Finanical Capital and Our Investment Universe Keep Own House in Order Key Performance Indicators Key Performance Indicators 102-49 Changes in reporting No significant changes GRI Index 102-50 Reporting period 1st January 2019 - 31st December 2019 GRI Index GRI Index GRI Index 102-51 Date of previous report 1st January 2018 - 31st December 2018 GRI Index GRI Index 102-52 Reporting cycle Annually GRI Index GRI Index 102-53 Contact point 102-54 Claims of reporting in accordance with the GRI Standards https://www.storebrand.no/en/investor- relations GRI Index GRI Index This is Storebrand Material Issues 102-55 GRI content index This table is the GRI Index GRI Index GRI Index 102-56 External assurance Auditor's statement Auditor's statement 214214 Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full Full STOREBRAND ANNUAL REPORT 2019SECTION 11. SUSTAINABILITY ASSURANCE GRI STANDARDS- PERFORMANCE INDICATORS GRI Ref. Title Economic Performance 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 201-1 Direct economic value genera- ted and distributed 201-2 Financial implications and other risks and opportunities due to climate change Anti-corruption 103-1 103-2 103-3 205-2 Explanation of the material topic and its Boundary The management approach and its components Evaluation of the management approach Communication and training about anti-corruption policies and procedures Emissions 103-1 Explanation of the material topic and its Boundary 103-2 The management approach and its components 103-3 Evaluation of the management approach 305-4 GHG emissions intensity Text Section Subsection Disclosure Director’s Report This is Storebrand Financial Capital and our Investment Universe Director's Report Risk; Corporate Governance Climate Risk and Opportunity; Scena- rio Analysis Providing a return to our owners and customers Directors’ Report, Section 2 Financial capital and our investment universe Financial Capital and our Investment Universe Director’s Report Providing a return to our owners and customers Corporate Governance Financial Capital and our Investment Universe Director’s Report Providing a return to our owners and customers Group Financial Results for 2019 Climate Risk and Oppor- tunity Financial Capital and our Investment Universe Climate Risk and Opportunity A Driving Force for Sustainable De- velopment Keep Own House in Order Corruption Keep Own House in Order Corruption Keep Own House in Order Corruption Keep Own House in Order Corruption Financial Capital and our Investment Universe Keep Own House in Order Financial Capital and our Investment Universe Keep Own House in Order Financial Capital and our Investment Universe Keep Own House in Order A Driving Force for Sustainable Investments Reducing our Internal Carbon Foot- print A Driving Force for Sustainable Investments Reducing our Internal Carbon Foot- print A Driving Force for Sustainable Investments Reducing our Internal Carbon Foot- print Financial Capital and our Investment Universe Keep Own House in Order Key Performance Indicators Key Performance Indicators Full Full Full Full Full Full Full Full Full Full Full Full Full 215215 Full Full Full Full Full Full Full Full Full Full Full Full Full GRI Ref. Title Diversity and Equal Opportunity 103-1 103-2 103-3 405-1 405-2 Explanation of the material topic and its Boundary The management approach and its components Evaluation of the management approach Diversity of governance bodies and employees Ratio of basic salary and remu- neration of women to men Human Rights Assessment 103-1 Explanation of the material topic and its Boundary The management 103-2 approach and its components 103-3 Evaluation of the management approach Significant investment agre- ements and contracts that 412-3 include human rights clauses or that underwent human rights screening Public Policy Text Section Subsection Disclosure People People People People People Diversity Diversity Diversity Key Performance Indicators Key Performance Indicators Financial Capital and our Investment Universe Financial Capital and our Investment Universe Financial Capital and our Investment Universe A Driving Force for Sustainable Invest- ments A Driving Force for Sustainable Invest- ments A Driving Force for Sustainable Invest- ments Financial Capital and our Investment Universe A Driving Force for Sustainable Invest- ments 103-1 103-2 103-3 Explanation of the material topic and its Boundary Keep Our Own House in Order The management approach and its components Keep Our Own House in Order Evaluation of the management approach Keep Our Own House in Order Anti-Corruption; Anti- money Laundering; Corporate Citizenship Anti-Corruption; Anti- money Laundering; Corporate Citizenship Anti-Corruption; Anti- money Laundering; Corporate Citizenship 415-1 Political contributions GRI Index GRI Index 216216 STOREBRAND ANNUAL REPORT 2019SECTION 11. SUSTAINABILITY ASSURANCE GRI Ref. Title Marketing and Labeling 103-1 103-2 103-3 Explanation of the material topic and its Boundary The management approach and its components Evaluation of the management approach Incidents of non-compliance 417-2 concerning product and service information and labeling Incidents of non-compliance 417-3 concerning marketing commu- nications Customer Privacy 103-1 103-2 103-3 418-1 Explanation of the material topic and its Boundary The management approach and its components Evaluation of the management approach Substantiated complaints con- cerning breaches of customer privacy and losses of customer data Active ownership Text Section Subsection Disclosure Customer and Community Relations Customer and Community Relations Customer and Community Relations Financial Freedom in all Stages of Life; Digital Trust Financial Freedom in all Stages of Life; Digital Trust Financial Freedom in all Stages of Life; Digital Trust Customer and Community Relations Digital Trust; Key performance Indicators Customer and Community Relations Digital trust Customer and Community Relations Customer and Community Relations Customer and Community Relations Digital Trust; Financial Freedom in all Stages of Life Digital Trust; Financial Freedom in all Stages of Life Digital Trust; Financial Freedom in all Stages of Life Full Full Full Partial Full Full Full Full Customer and Community Relations Financial Freedom in all Stages of Life; Digital Trust; Key performance Full Indicators 103-1 103-2 103-3 Explanation of the material topic and its Boundary Financial Capital and our Investment Universe The management approach and its components Financial Capital and our Investment Universe Evaluation of the management approach Financial Capital and our Investment Universe Providing a return to our owners and customers; A Driving Force for Sustaina- Full ble Investments Providing a return to our owners and customers; A Driving Force for Sustaina- Full ble Investments Providing a return to our owners and customers; A Driving Force for Sustaina- Full ble Investments Percentage and number of companies held in the insti- FS10 tution's portfolio with which the reporting organisation as interacted on evironmental or social issues. Percentage of assets subject to FS11 positive and negative environ- mental or social screening Financial Capital and our Investment Universe A Driving Force for Sustainable Invest- ments; Key Performance Indicators Financial Capital and our Investment Universe A Driving Force for Sustainable Invest- ments; Key Performance Indicators Full Full 217217 To: Board of Directors in Storebrand ASA Independent statement regarding Storebrand ASA’s sustainability reporting We have examined whether Storebrand ASA has developed GRI Index for 2019 and measurements and reporting of key performance indicators for sustainability (sustainability reporting) per 06.02.2020. Storebrand’s GRI Index for 2019 is an overview of which principles, aspects and indicators from the The Global Reporting Initiative guidelines that Storebrand ASA use to measure and report on sustainability; together with a reference to where material sustainability information is reported. Storebrand’s GRI Index 2019 is available on Storebrand’s website (www.Storebrand.no/sustainability/reports). We have examined whether Storebrand has developed a GRI Index for 2019 and whether mandatory disclosures are presented according the Standards published by The Global Reporting Initiative (www.globalreporting.org/standards) (criteria). Key performance indicators for sustainability are the tables containing sustainability indicators that Storebrand ASA measure and control. The tables are available and included in Storebrand ASA’s annual report 2019, specifically at the end of the four chapters titled «Financial capital and our investment universe», «Customer and community relations», «People» and «Keeping our house in order». Storebrand has defined the key performance indicators and explained how they are measured in the tables (criteria). We have examined the basis for the measurements and checked the calculations of the measurements. Tasks and responsibilities of management Management is responsible for GRI Index 2019 and that the Index is developed in accordance with the Standards published by The Global Reporting Initiative. Management is also responsible for key performance indicators for sustainability and that these are developed in accordance with the definitions given in the tables at the end of the chapters «Financial capital and our investment universe», «Customer and community relations», «People» and «Keeping our house in order». Their responsibility includes developing, implementing and maintaining internal controls that ensure the development and reporting of the GRI Index and key performance indicators for sustainability. Our independence and quality control We are independent of the company in accordance with applicable laws and regulations and the Code of Ethics for Professional Accountants (IESBA Code) and with the ethical requirements that are relevant to our independent statement, and we have fulfilled our ethical obligations in accordance with these requirements and IESBA Code. We use ISQC 1 - Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements and maintains a comprehensive quality control system including documented policies and procedures of the ethical standards, professional standards and applicable legal and regulatory claim. The Auditors responsibilities Our responsibility is to express an opinion on Storebrand ASA’s sustainability reporting based on our control. We have performed our work and will issue our statement in accordance with the Standard on 218218 PricewaterhouseCoopers AS, Postboks 748 Sentrum, NO-0106 Oslo T: 02316, org. no.: 987 009 713 MVA, www.pwc.no Statsautoriserte revisorer, medlemmer av Den norske Revisorforening og autorisert regnskapsførerselskap STOREBRAND ANNUAL REPORT 2019 Assurance Engagements ISAE 3000: “Assurance engagements other than audits or review of historical financial information". Our work involves performing procedures to obtain evidence that Storebrand’s GRI Index 2019 and key performance indicators for sustainability are developed in accordance with the Standards published by The Global Reporting Initiative and the criteria for reporting and measurement that are given in relation to each table containing key performance indicators. The procedures selected depend on our judgement, including assessments of the risks that the sustainability reporting as a whole are free from material misstatement, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the preparation of the subject matter. Therefore, we design procedures that are appropriate to the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. Our control also includes an assessment of whether the applied criteria are appropriate and an assessment of the overall presentation of the subject matter. Our controls include meetings with representatives from Storebrand ASA that are responsible for the key areas covered by the sustainability reporting, including responsible for investing, HR and those responsible for the sustainability reporting for Storebrand ASA’s own operations and real estate portfolios; evaluating internal controls and procedures for reporting key performance indicators for sustainability; collecting and reviewing relevant information that supports the presentation of key performance indicators; evaluating the completeness and accuracy of the key performance indicators; and controlling the calculations of key performance indicators based on an assessment of the risk that the key performance indicators contain information that is incorrect. In our opinion, sufficient evidence has been obtained and we consider that our work provides an appropriate basis to form our conclusion. Conclusion In our opinion GRI Index 2019 is, in all material respects, developed and presented in accordance with the requirements of the Standards published by The Global Reporting Initiative; and Key performance indicators for sustainability are, in all material aspects, developed, measured and reported in accordance with the definitions and explanations provided in relation to each table containing key performance indicators. Oslo, 11 February 2020 PricewaterhouseCoopers AS Magne Sem State authorized public accountant (This translation from Norwegian has been made for information purposes only) (2) 219219 12 Appendix 222 Definitions key performance indicators 224 Executive management CVs 228 Group board of directors CVs SECTION 8. ANNUAL ACCOUNTS AND NOTES 221221 Definitions key performance indicators These definitions refer to the tables of key performance indicators in sections 3-6 of this report. 3. FINANCIAL CAPITAL AND INVESTMENT UNIVERSE Return On Equity: Return on equity Solvency II: Common European regulatory framework for insurance regulation. Under Solvency II, the size of the capital requirement will be determined by how much risk the company is exposed to. Dividends: (see Dividend Policy on p.70) Percentage AuM screened for sustainability: All companies in our investment universe is screened for sustainability according to our standards:https://www.storebrand.no/en/sustainability/investments. Fossil-free products: These companies should not have more than 5% revenue from the production or distribution of fossil fuels, and fossil reserves should not exceed 100 million tonnes of CO2. Carbon footprint from investments: Results per Q3 2018 based on TCFD’s definition. Total carbon footprint is the sum of the companies’ carbon emissions over the companies’ revenues, weighted for our ownership in the respective companies. The measurement unit shows carbon emissions per million fund currency in NOK. The method is the same for equities and bonds. Investment in solutions (solution companies, Green Bonds, and real estate with Green Building Certificate): clean tech and renewable energy and green bonds in both equity and interest investments in Storebrand and SPP. Direct Real Estate investments under operational control in Norway and Sweden with a Green building certification. Investment in green bonds: Green Bonds enable capital-raising and investment for new and existing projects with environmental benefits. Investment in solution companies: Investments in sustainable companies through our portfolio of clean tech and renewable energy investments in Storebrand and SPP. Certified green property: Direct real estate investments under operational control in Norway and Sweden with a Green building certification. Energy intensity, real estate investments: Temperature corrected energy consumption per gross square meter of heated property area in direct real estate investments under operational control in Norway and Sweden. Consumption measured by energy suppliers (electricity, district heating/cooling and other) and registered in the environmental monitoring system. 222222 Water intensity, real estate investments: Water consumption in cubic meters per square meter of heated property area in direct real estate investments under operational control in Norway and Sweden. Consumption measured and registered in the environmental monitoring system. CO2 emissions real estate investments: GHG emissions from direct real estate investments, per square meter of gross heated area. Includes direct and indirect emissions (scope1-3), including tenants’ energy and water consumption as well as waste production. The carbon footprint is calculated by CemaSys AS according to the GHG protocol. Nordic mix emission factor is the basis for the calculation of emissions from electric power with ”location based” method. Percentage waste sorted for recycling: Rate of waste from building operations including tenants, sorted at the source for recycling. The rest fraction is further sorted mechanically at the waste recycling centre, where non-recyclables goes to incineration with heat recovery. Includes direct real estate investments under operational control in Norway. 4. CUSTOMER AND COMMUNITY RELATIONS Net Promoter System: Net Promoter System (NPS) is a measurement tool for customer satisfaction where the customer gives a score from 0 to 10 with 10 as the best result. Market Share: Savings, Retail Market Norway Based on Q3 figures from Finance Norway and VFF (Verdipapirfondenes forening). Market Position: Pension, Corporate Market Norway: Based on Q3 figures from Finance Norway. Percentage female: pension savings: Share of female customers who are saving for pension. Recognised for sustainable value creation: Results from survey asking how many connect the Storebrand brand name with sustainability, environmental stewardship and corporate responsibility. Expected pension as percentage of salary: The pension percentage (median) is the customers expected pension from all sources (including private savings, folketrygden, AFP and defined benefit/defined contribution pension), as a percentage of customer’s existing salary. STOREBRAND ANNUAL REPORT 2019 SECTION 12. APPENDIX 5. PEOPLE Sick leave: Number of sick leave hours divided by number of hours worked Storebrand/SPP. Number of employees: Number of employees working at Storebrand Norway + SPP Sweden as of 31.12.19. Gender balance, management: Share of female employees. Defined as a management position with personnel responsibilities. Project managers are not included. Management level 1-3: Level 1= Chief Executive Officer Level 2 = Executive management Level 3 = Reporting to executive management Turnover rate: Number of exits (excluding retirement) from 1st January to 31st December / average number of employees during the same period. New hires: Number of hires during from 1st January to 31st December in Norway and Sweden. Hay Grade: The figures only applies for Storebrand in Norway. Hay Grade above 24 is not included, as only men are represented here (applies f or 3 positions only). Hay Grade is a widely recognised method to ena ble organisations to map and align roles. The system is used by several organisations in Norway and internationally. The systems allows for comparisons of salaries for positions with similar demands to competence, experience and complexity. The system is used for comparing salaries for positions across the organisation and similar positions with similar Hay Grade in the labor market. CEO - Average Worker Pay Ratio: Basic salary as a ratio of mean average salary for all employees. 6. KEEPING OWN HOUSE IN ORDER Environmentally-certified procurement: Percentage og spend for contracts with a total value exceeding 1 million NOK with active suppliers certified or fulfilling requirements according to one or several of the following environmental certifications: Miljøbas, Eco-Lighthouse, Svanen, ISO 14001, CO2 neutral, ISO 14001. GHG emissions (tonnes CO2e / tonnes CO2e per FTE): GHG emissions pr. FTE from the Group’s Norwegian and Swedish operations. Includes direct and indirect emissions, including airtravel and other transportation, energy consumption and waste (scope1-3). The carbon footprint is calculated by CemaSys AS according to the GHG protocol. Nordic mix emission factor is the basis for the calculation of emissions from electric power with ”location based” method. CO2e emissions from air travel: Total CO2e emissions from air travel divided by the average number of number of full-time equivalent employees in Norway and Sweden from 1st January to 31st December. Scope 1 emissions: Ton CO2-equivalents, measured in accordance to Greenhouse gas protocol, per FTE. Scope 2 emissions: Ton CO2-equivalents, measured in accordance to Greenhouse gas protocol, per FTE. Scope 3 emissions: Ton CO2-equivalents, measured in accordance to Greenhouse gas protocol, per FTE. Energy use: Temperature corrected energy consumption per square meter heated area in head offices in Norway and Sweden. Consumption measured by the energy suppliers, electricity and district heating/cooling and registered in the environmental monitoring system. Water use: Water consumption in cubic meters per square meter of heated area in head offices in Norway and Sweden. Consumption measured and registered in the environmental monitoring system.. Amount of waste sorted for recycling: Rate of waste sorted at the source for recycling in head offices in Norway and Sweden. Non-sorted waste is further sorted mechanically at the waste recycling centre, where non-recyclables go to incineration with heat recovery. Includes direct real estate investments under operational control in Norway. Paper use: Consumption of office paper (copy- and bond paper), envelopes, advertising, including externally reprinted and regulatory letter attachments in Kg per full time employee in Norwegian and Swedish operations. CDP rating: Rating received from CDP. E-learning completed: Employees who are registered as having completed the e-learning course in our learning management system. Number of complaints handled by the Norwegian Financial Services Complaints Board: Complaints being handled by Norwegian Financial Services Complaints Board (Finansklagenemda) throughout the year. 223223 Executive management CVs ODD ARILD GREFSTAD (1965) LARS AA. LØDDESØL (1964) Group Chief Executive Officer Group Chief Financial Officer HEIDI SKAARET (1961) Executive Vice President, Storebrand ASA Education Storebrand ASA Education Retail Market Education State-Authorised Public Accountant MSc in Economics and Business Administration, Authorised Financial Analyst (AFA) BI Norwegian Business School Previous positions 2011–2012: Managing Director, Storebrand Life Insurance MBA, Thunderbird School of Global Management, USA (AGSIM) Previous positions 2008–2011: Executive Vice President Finance and 2008–2011: Executive Vice President, Life and Legal, Storebrand ASA Pensions Norway and Managing Director, 2002–2008: Executive Vice President Finance, Storebrand Livsforsikring AS MSc in Economics and Business Administration, University of Washington, USA Previous positions 2008–2012: Lindorff Group AB, Executive Vice President, Scandinavia Region, Managing Director of Lindorff AS in Norway. 2001–2008: IKANO Finans ASA, Managing Director 1987–2000: Managerial positions at Den norske Storebrand ASA 2004–2008: Executive Vice President, Corporate Bank ASA 1998–2002: Manager of the Group Controller Market Life Insurance, Storebrand Livsforsikring AS Unit, Storebrand ASA 2001–2004: CFO, Storebrand ASA 1997–1998: Group Controller, Life Insurance, 1994–2001: Vice President/Relationship Storebrand ASA Manager, Citibank International plc 1994–1997: Vice President, Internal Auditing, 1990–1994: Asst. Treasurer, Scandinavian Storebrand ASA Airlines Systems 1989–1994: External Auditing, Arthur Andersen 1986–1987: Financial Services Officer, Bank of America, San Francisco, USA 1981–1983: Nord-Video (Aftenposten, Gyldendal, Mortensen), Sales Secretary Ownership in Storebrand Number of shares as at 31 December 2019: & Co Ownership in Storebrand 69,690 Number of shares as of 31 December 2019: Ownership in Storebrand 10,0026 Number of shares as of 31 December 2019: 162,269 224 STOREBRAND ANNUAL REPORT 2019 SECTION 12. APPENDIX STAFFAN HANSÉN (1965) Executive Vice President, SPP Education Licentiate degree (Economics), Åbo Academy, Finland PhD studies at the Finnish Doctoral programme in Economics Stockholm School of Economics Previous positions 2013 to present: EVP, SPP Livförsäkring AB 2011–2013: CIO, Storebrand Livsforsikring AS 2008–2011: CIO, SPP Livförsäkring AB 2006–2008: Responsible for strategic allocation, SPP Livförsäkring AB 2003–2006: Head of Government and Covered JAN ERIK SAUGESTAD (1965) Executive Vice President, Asset Management Education MSc in Engineering, Norwegian University of TERJE LØKEN (1975) Executive Vice President Digital & Innovation Education Master Computer Science, NTNU Norway Science and Technology (NTNU) Previous positions MBA (INSEAD in France) 2017-2019: Chief Digital Officer (CDO), Previous positions Storebrand Livsforsikring AS 2013-2016: Head of Digital and Mobile IT, 2006–2015: Investment Director, Storebrand Storebrand Livsforsikring AS Asset Management 1999–2006: Senior Portfolio Manager, Storebrand Asset Management 1997–1999: Sector Head Equities, Energy/ Shipping, Handelsbanken Markets 1995–1997: Partner, Marsoft Capital 1992–1995: Head of Research, Christiania Markets (now: Nordea Markets) 2009-2013: Chief Architect (CTO), Storebrand Livsforsikring AS 2008-2009: Enterprise Architect, Storebrand Livsforsikring AS 2001-2008: Technology Manager (previously Technical Lead, Sr. Software Engineer, Software Engineer), Fast Search & Transfer 1999-2001: Computer Engineer, Sintef Tele Bond trading, Svenska Handelsbanken 1990–1991: Junior Consultant, McKinsey & og Data 1996–2003: Head of Fixed Income, Alfred Berg Company Finland 1994–1996: Trainee, Pohjola Bank (OKOBANK) Ownership in Storebrand Ownership in Storebrand Number of shares as at 31 December 2019: 66,689 Number of shares as of 31 December 2019: 58,411 Ownership in Storebrand Number of shares as of 31 December 2019: 8,921 225 GEIR HOLMGREN (1972) Executive Vice President, Corporate Market Education TRYGVE HÅKEDAL (1979) Executive Vice President Technology Education Cand. Scient degree with actuarial qualifications, Master of Science, Advanced Computing, University of Oslo, Norway MBA, Griffith University Brisbane, Australia Previous positions Imperial College London Bachelor of Science, Computing Science, Newcastle University KARIN GREVE-ISDAHL (1979) Executive Vice President Sustainability, Communications and Industry Policy Education Master of International Relations, Bond University, Australia Bachelor of Communications, Bond University, Australia 2013–2015: Executive Vice President, Previous positions Guaranteed Pension, Storebrand ASA 2016-2019 SVP IT Strategy & Architecture, 2011–2012: Manager Customer Service and Storebrand Group Product, Storebrand Livsforsikring AS 2013-2015 Chief Architect & Head of IT Strategy, 2003–2011: Product Manager, Storebrand Group Storebrand Livsforsikring AS 2009-2013 Enterprise Architect, Storebrand Group 2002–2003: Product Manager Unit linked 2008-2009 Analyst, Goldman Sachs Insurance, Storebrand Livsforsikring AS 2006-2008 Consultant, Accenture Previous positions 2014–2017: Vice President Communications, Opera Software 2009–2014: Communications Director, SN Power 2008–2009: Business Reporter, TV 2 2005–2008: TV Reporter, CNBC/FBC Media 2004–2005: Researcher, CNBC Europe 2000–2002: Product Manager Defined Contribu- 2003-2004 Project Test Manager, Opera Software Ownership in Storebrand Ownership in Storebrand Number of shares as of 31 December 2019: 8,034 Number of shares as of 31 December 2019: 12,861 tion Pensions, Storebrand Livsforsikring AS 1998–2000: Sales International Life Insurance, Storebrand Livsforsikring AS 1997–1998: Actuary Trainee, Storebrand Livsforsikring AS 1995–1997: Teacher, University of Oslo Ownership in Storebrand Number of shares as at 31 December 2019: 67,089 226 STOREBRAND ANNUAL REPORT 2019SECTION 12. APPENDIX TOVE SELNES (1969) Executive Vice President People Education Master in Law, Oslo University Previous positions 2015- 2019: HR Director, Storebrand Livsforsikring 2007-2015: Group Driector HR, Opera Software 2004-2007: HR Director, Eltel Networks 1997-2004: HR Manager East Norway Region, Avinor 1995-1997: Legal Advisor, Aetat Ownership in Storebrand Number of shares as of 31 December 2019: 14,964 227 Group Board of Directors CVs DIDRIK MUNCH (1956) LAILA S. DAHLEN (1968) Board Chairman Storebrand ASA since 2017 Board member Storebrand ASA since 2013 Position Self-employed Education Norwegian Police University College Cand. jur law degree Previous positions Group Chief Executive Officer, Schibsted Norway (2011–2018) Group Chief Executive Officer, Media Norway (2008–2011) Chief Executive Officer, Bergens Tidende (1997–2008) Division Director, Corporate Market, DNB (1995–1997) Regional Bank Manager, Corporate Market Bergen, DNB (1992–1995) Various managerial roles at Nevi and DNB (1987–1992) Attorney, Kyrre AS (1987–1987) Police intendant I/II, the Bergen Police Department (1984–1986) Police inspector, the Oslo/Bergen Police Department (1979–1984) Positions of trust Board Chairman, NWT Media AS Board Director, Grieg Star Shipping Board Director, Lerøy Seafood Group Board Chairman, SH Holding (Solstrand Fjord Hotel) Ownership in Storebrand Number of shares as at 31 December 2019: 32,000 Position CPO, Schibsted News Media Education State-Authorised Public Accountant, Norwegian School of Economics (NHH) MSc in Economics and Business Administration, BI Norwegian Business School Master of Science in Finance, University of Wisconsin, USA Previous positions SVP Product and UX, Schibsted Marketplaces/Adevinta ASA (2017-2019) Product Director, Finn.no AS (2011–2017) COO, Kelkoo/Yahoo London (2007–2009) VP Marketplace, Yahoo Europe London (2006–2007) Regional Manager Scandinavia and the Netherlands, Kelkoo/Yahoo Stockholm (2003–2006) VP International Operations, Kelkoo Paris (2000–2001) Manager, PricewaterhouseCoopers Oslo (1993–2000) Positions of trust Board Director, FINN.no AS Board Chairman, Schibsted Marketplaces Products & Technology AS Board Director, Lendo AS Board Director, E24 AS Ownership in Storebrand Number of shares as at 31 December 2019: 12,500 228 STOREBRAND ANNUAL REPORT 2019SECTION 12. APPENDIX SECTION 6. GOVERNANCE KARIN BING ORGLAND (1959) Board member Storebrand ASA since 2015 Position Self-employed Education MSc in Economics and Business Administration Norwegian School of Economics (NHH) LIV SANDBÆK (1962) Board member Storebrand ASA since 2018 Education State-Authorised Public Accountant Norwegian School of Economics (NHH) MSc in Economics and Business Administration BI Norwegian Business School Previous positions Senior Managing Director & Technology Lead, Financial Services, EALA, Top Manager Programme (IMD, BI and Management in Lund) Accenture (2015–2018) Previous positions Chief Technology Officer, Accenture Operations (2013–2015) Executive Vice President of DNB, and various managerial positions in the same Managing Director, Technology, Financial Services, EALA, Accenture group (1985–2013) (1999–2013) Consultant, the Ministry of Trade and Shipping (1983–1985) Employee of Accenture (1990–1998) Ownership in Storebrand Number of shares as at 31 December 2019: 0 Board Director and Chairman of the Audit Committee at Norske Skog ASA Board Director, Norwegian Finance Holding ASA Board Director, Scatec Solar ASA Board Director, HAV Eiendom AS Director of Boligselskapet INI AS, Grønland Board Chairman of Røisheim Hotell AS and director at Røisheim Eiendom AS Chairman of Visit Jotunheimen AS Positions of trust Board Chairman, Entur AS Board Chairman, GIEK Board Director and Chairman of Audit Committee, KID ASA Board Director and Chairman of Audit Committee , Grieg Seafood ASA Ownership in Storebrand Number of shares as at 31 December 2019: 17,000 229 KARL SANDLUND (1977) Director of the Board at Storebrand ASA since 2019 Position Executive Vice President & CCO, SAS Education MARTIN SKANCKE (1966) Board member Storebrand ASA since 2014 Position Independent consultant Education MSc Industrial Engineering and Management, University of Linkõping Authorised Financial Analyst Norwegian School of Economics (NHH) Previous positions EVP Commercial, SAS (2017-2019) EVP & Chief Strategy Officer, SAS (2014-2017) Vice President, Network, SAS (2009-2014) Vice President, Commercial, SAS (2007-2008) Vice President, Corporate Development, SAS (2006-2007) Director, Business Strategies, SAS (2004-2006) Consultant, McKinsey & Company (2001-2004) Ownership in Storebrand Number of shares as at 31 December 2019: 3,000 MSc Econ,London School of Economics and Political Science Intermediate level Russian,University of Oslo International Finance Programme,Stockholm School of Economics MSc in Economics and Business Administration (MBA) Norwegian School of Economics (NHH) Previous positions Special Adviser, Storebrand (2011–2013) Deputy Director General and Director General, the Ministry of Finance (1994–2001, 2006–2011) Director General, the Office of the Prime Minister (2002–2006) Management consultant, McKinsey & Company (2001–2002) Positions of trust Board Director, Norfund Board Chairman of the Principles for Responsible Investment (PRI) Board Director, Storebrand Livsforsikring AS Board Director, Summa Equity AB Ownership in Storebrand Number of shares as at 31 December 2019: 22,000 230 STOREBRAND ANNUAL REPORT 2019 SECTION 12. APPENDIX SECTION 6. GOVERNANCE MAGNUS GARD (1978) ARNE FREDRIK HÅSTEIN (1973) Employee Representative of the Board at Storebrand ASA since 2019 Employee-elected board member Storebrand ASA since 2014 Position Sales Manager Pensions and Investment, Storebrand Finansiell Rådgivning AS Position Senior employee representative at Storebrand Education Education Master of Arts in International Finance and Accounting, MSc Economics and Business Administration (NHH) University of Newcastle upon Tyne Previous positions Authorised Finanical Advisor, Storebrand (2007 – 2014) Account Manager, Mamut ASA (2004 – 2007) Sales Executive, Rosa Index AS (2004) Internship, Centennial AS (2003-2004) Ownership in Storebrand Number of shares as at 31 December 2019: 613 Bachelor of Business Administration, Norwegian Business School (Bl) / University of Texas at Austin Authorised Portfolio Manager, Norwegian School of Economics (NHH) / NFF Specialisation in Valuation, Norwegian School of Economics (NHH) / NFF Previous positions Expert Adviser, Savings and Pensions, Storebrand Livsforsikring AS (2014–2017) Sales Manager and Product Manager, Delphi Fondene (2009–2014) Sales Manager and Key Account Manager, Storebrand Kapitalforvaltning AS (2005–2009) Senior Financial Adviser, Focus Bank AS (2003–2005) Senior Financial Adviser, Storebrand Livsforsikring AS (1999–2003) Positions of trust Board Member, Finance Sector Union of Norway at Storebrand Board Member, Storebrand Art Association Ownership in Storebrand Number of shares as at 31 December 2019: 5,404 HEIDI STORRUSTE (1965) Employee-elected board member Storebrand ASA since 2013 Position Agile Coach, Digital & Innovation at Storebrand Livsforsikring Education Bachelor of Management, Norwegian Business School (Bl) Certified Executive Coach, Coach Team AS DNCF Certified Coach, Metaresource AS Business Economist, Norwegian Business School (Bl) Previous positions Team Champion, Digital Business Development , Storebrand Livsforsikring AS (2017 – 2019) Senior employee representative, Finance Sector Union of Norway, Storebrand/Storebrand Livsforsikring AS (2013–2017) Project manager, Storebrand Bank ASA (2011–2013) Process Owner, Storebrand Bank ASA (2008–2011) Senior Consultant, Retail Market Credit , Storebrand Bank ASA (1998–2008) Financial Consultant, Retail Market Credit, Gjensidige Bank AS (1996–1998) Customer Consultant at Sparebankenes Kredittselskap AS (1987–1996) Ownership in Storebrand Number of shares as at 31 December 2019: 3,925 231 Main office: Professor Kohts vei 9 Postboks 500, 1327 Lysaker, Norway Phone: +47 915 08 880 storebrand.no

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