Board's report

The Gjensidige Insurance Group achieved once more a strong result in 2016. Customer satisfaction increased to a record-high level, and competitiveness remained good.

Board's report 2016

The Gjensidige Insurance Group delivered a solid also offer banking, pension and savings products underwriting result in 2016. The return on financial and services. We build stronger relations by offering assets was satisfactory. The profit after tax expense customers a broad range of products and services. was a record-strong NOK 4.7 billion, corresponding Gjensidige Forsikring is the parent company of the to NOK 9.34 per share. Gjensidige Group (Gjensidige).

The underwriting result was NOK 3.7 billion, corre­ Gjensidige is the market leader in general insurance in sponding to a combined ratio of 83.4. The result was Norway, and one of the biggest insurance companies 8 per cent higher than in 2015, driven by premium in the Nordic region and the Baltics. These markets growth of 5.5 per cent and continued good custo- represent our defined market area for further growth. mer and risk selection, and risk pricing. The propor- tion of large losses was lower than expected, while The general insurance operations include both non- run-off gains were higher than the expected level. life and personal insurance. The Norwegian general insurance operations also include life insurance, The return on financial assets was 3.9 per cent, or which is pure risk insurance with a duration of up to NOK 2.2 billion, an increase of 44 per cent from 2015. one year. This is largely group life insurance.

The Retail Bank and Pension and Savings showed Gjensidige’s business model is based on an continued positive development, with strong integrated value chain that includes the develop- growth in volumes and profitability. ment and production of financial services and products, a high degree of direct distribution, The Board is satisfied that the Group met its service and customer dialogue, and efficient claims financial targets in 2016. settlements. Distribution in cooperation with our partners is an important part of the business The Board proposes that the Company pay a model, especially in Denmark and Sweden. dividend of NOK 3.4 billion for the 2016 financial year. That corresponds to NOK 6.80 per share and Customer orientation represents a distribution percentage of 73 per Gjensidige is working systematically to become the cent. Compared with the previous financial year, most customer-oriented company in the Nordic the proposal corresponds to an increase of 6.3 per general insurance field. Our vision is to ‘know the cent in nominal dividend based on the profit for the customer best and care the most’. Our customers shall year. feel that we know them, care about them, make things easy for them and help them. Customer satisfaction is The Gjensidige Foundation’s share of the dividend measured systematically, both at group level and down amounts to NOK 2.1 billion. Pursuant to the to the individual employee level, and improvement Foundation’s statutes, the dividend will be passed measures are implemented continually. Customer on to Gjensidige’s general insurance customers in satisfaction was once more record-high in 2016. The Norway. The customer dividend is adopted by the training of staff, development of digital services and Foundation’s general meeting in May. use of data and insight to ensure that we are relevant to our customers’ everyday lives are important tools in The business this context. Gjensidige Forsikring ASA (Gjensidige Forsikring) is a general insurance company with operations in the We are continually developing new user-friendly Nordic and Baltic states. The company has its head self-service solutions that can be used on PCs, mobile office in Oslo in Norway. The object of the business phones and tablets. This means that customers can is to safeguard life, health and assets for customers buy and amend insurance policies, seek advice and in the private and commercial markets by offering report claims on the internet whenever it suits them. insurance on competitive terms. In Norway, we At the same time, continuous efforts are being made

48 I Gjensidige annual report 2016 Board's report

Inge K. Hansen Chairman

Inge K Hansen (1946) has been Chairman to rationalise internal work processes so that we can of the Board of Gjensidige since 2008. He continue to improve our service to customers. In is also Chairman of the Board of addition to offering traditional insurance products, Siriusungen AS, Troms Kraft AS, Hotel Gjensidige has developed several value-adding and Restaurant Continental AS, Nets AS, services for the Norwegian private market that Arctic Securities AS and NorSun AS and contribute to brand preference and loyalty. Point Resources AS. He is board member of Fram Museum and Sissener AS. He Market position was elected Chair of the Year in Norway and the Nordic Countries in 2012. According to Finance Norway’s statistics, Gjensidige was the biggest player in Norwegian non-marine Hansen has previously been an executive general insurance also in 2016, with a market share vice president in Statoil and CEO of Aker of 25.6 per cent of a total market of NOK 56 billion. Kværner. He is a graduate of the Our market share increased, and our market position Norwegian School of Economics (NHH). relative to our biggest competitors was further strengthened in 2016. Gjensidige prioritises profitabi- Hansen is up for election to the Board in lity ahead of growth, so that the development of our 2017. Hansen held 12,253 shares in market share confirms the good competitiveness. Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016 (last change 10 Gjensidige had a market share of 24.5 per cent in December 2012). the private market at the end of 2016. The market share in the commercial market was 27.7 per cent. This includes the agricultural market, where Gjensidige has historically had a high market share.

The market shares in Denmark and Sweden were 6.6 Gjensidige’s commercial customers in Norway per cent (based on the most recent statistics from are primarily serviced through own sales channels the Danish Insurance Association as of 31 December (around 80 per cent of the premium volume). 2015) and 2.5 per cent, respectively (source: Other customers are mainly served via brokers. Insurance Sweden, as of 31 December 2016). Both the Private and Commercial segments distri- In the Baltic general insurance market, Gjensidige bute products and services through a combination had a market share of 11.3 per cent as of 30 of telephony, web-based solutions and local branch September 2016. (Source: Insurance Supervisory offices. The customers can choose their point of Commission of the Republic of Lithuania, Latvian contact and the service they want, and they shall Insurers Association, Statistics Estonia). experience the same quality and service regardless of which channel they choose. The market share for group unit-linked defined contribution pensions was 9.0 per cent, while the This model contributes to both positive customer market share for individual unit-linked pensions experiences and cost-efficient distribution. was 8.5 per cent. Our market share of transferred defined contribution pension agreements was The sales centres and customer service centres 16.6 per cent (source: Finance Norway, as of 30 are responsible for external sales and for serving September 2016). customers who contact us to buy or amend insurance policies as well as to seek advice. We have Distribution 32 local branch offices that offer advisory services in Norway the fields of insurance and banking. The offices can Gjensidige has approximately 770,000 customers refer customers to other departments if the queries in the Private segment and around 150,000 in the concern pensions and saving. Commercial segment in Norway. The customer portal gjensidige.no plays an increas- Sales and advisory services are mostly offered via our ingly important role in relations with our customers. own distribution network, but we also use agents In the portal, private and commercial customers can and dealers in some cases. We also cooperate obtain an overview of their insurance policies. They with several local mutual fire insurers. Gjensidige can manage the customer relationship themselves, has cooperation agreements with several large for example by reporting a claim or keeping track national trade unions and interest organisations. The of case processing on the internet. A considerable organisations’ members enjoy customer advantages proportion of sales to private customers in Norway is in Gjensidige through these agreements. now initiated at gjensidige.no. Almost 60 per cent of

Gjensidige annual report 2016 I 49 Board's report

Per Arne Bjørge Board member

Per Arne Bjørge (1950) has been a member of the Board of Gjensidige insurance agents and brokers. Sales via the internet since 2011. He is Chairman of the Board are increasing. Gjensidige aims to develop cost-ef- and general manager of PAB Consul- ficient, multi-channel distribution models also in ting AS. Bjørge is Chairman of the the Baltic market, with the emphasis on web-based board of Borgund Invest AS, Havskjer solutions and telephony. AS, Havskaar AS and Tanux Shipping KS and AS. He is board member of the Customer orientation, increased sales of a wider Gjensidige Foundation and of 3D range of products and access to customers through Perception AS and of Tafjord Kraft AS. strategic partners will be important growth drivers. Among other things, Bjørge has previously been a bank director with Other Kreditkassen (Nordea) and worked as Gjensidige is also positioned to deliver products an auditor. He has a bachelor in adapted to other distribution channels, both economics and is a qualified auditor. in Norway and in the other Nordic countries. Distribution largely takes place via agents, in addition Bjørge is up for election to the Board in to business partners, such as shops and car dealers 2017. Bjørge held 10,542 shares in that wish to expand their product range with insur­ Gjensidige Forsikring ASA, including ance products under their own label (‘white label’). any shares held by closely related parties as at 31 December 2016 (last change 10 December 2012). Gjensidige Bank plays an important role by offering simple, user-friendly banking services in the Norwegian market. Customers have access to the bank’s services through the online banking and mobile phone solutions, which are adapted for use on smart phones and tablets. Car financing and car customers use the internet at one or several points insurance are available in common digital solutions in the purchasing process, and more than half of all at car dealers and at gjensidige.no. frequency claims are reported online. Pension and Savings cooperates closely with the Nordic Commercial segment on the distribution of pension Gjensidige distributes general insurance products and savings products to small and medium-sized in Denmark through its own sales network and in enterprises in Norway. cooperation with the Nykredit group. In addition, private insurance products are sold through a number Technology and development of partners, especially travel agents, car dealers and Technological development and digitalisation estate agents. Otherwise, the private market is served continue with undiminished intensity. Gjensidige is directly via underwriters, call centres and the internet. always looking for new opportunities to improve its customer service and rationalise its operations. A greater proportion of the sales in the Danish commercial market take place in collaboration with Striking a balance between continuity and moderni- brokers. The market for small and medium-sized sation will continue to be important. New techn- customers and agricultural customers is served by call ology is providing more and more opportunities to centres and our dedicated underwriters. collect and utilise market and customer data and assess risk. Gjensidige is investing in technology and Distribution in the municipal market takes place expertise on a continuous basis in order to generate either directly or through brokers. The market is to a and utilise relevant insight. large extent based on competitive tendering. We have merged our development and technology In Sweden, general insurance products are distributed capacity and expertise to form a single effective to private customers both directly by phone and via group entity, Technology and Development. This entity the internet as well as through insurance mediators shall be a driving force for the realisation of projects (partners and agents). In the commercial market, in Gjensidige's strategic focus areas and shall ensure distribution mainly takes place through insurance increased use of best practice across the Group. brokers and partners. One important task is to develop and improve digital Baltics user interfaces and services for our customers. The most important distribution channels in the New developments and improvements in mobile Baltic states are direct sales and sales through interfaces and websites make it easier and easier for

50 I Gjensidige annual report 2016 Board's report

our customers to buy products, maintain an overview Area Target Achievement 2016 of their customer relationship, and report and follow Group up claims. Internal efficiency is constantly being Return on equity >15 per cent 21,4 per cent improved through the reuse of ICT solutions between Nominal high and stable. Nominal +6,3 per cent different entities in the Group and by using new Dividend* Payout ratio >70 per cent Payout ratio ~73 er cent technology that makes us increasingly more efficient. A rating confirmed Rating Maintain A rating from S&P We implemented a number of measures to auto- in June 2016 Solvency margin mate internal processes in 2016. These efforts will 115-140 per cent 147 per cent** continue with full force in 2017. We see cognitive Standard Formula computing as an exciting new area for further Solvency margin 120-175 per cent 180 per cent** improvement of internal processes and customer-ori- Internal Model ented activities. General insurance 83,4 per cent Combined ratio 86-89 per cent*** Products and customer data have been brought 84,6 adjusted**** together on the same system platform to ensure 14,2 per cent Cost ratio ~15 per cent uniform customer service across distribution channels, 15,5 per cent adjusted**** standardisation of work processes and cost-efficient * Dividends based on profit for the year. operation of ICT systems. A flexible service architecture ** Adjusted for proposed dividend for 2016. *** Combined ratio target on an undiscounted basis, assuming ~4 pp run-off gains next 3-5 years and enables us to use functionality from the core system normalised large losses impact. Beyond the next 3-5 years, the target is 90-93 given 0 pp run-off. and information from the customer system for, **** Adjusted for one off effects among other things, self-service solutions, common user interfaces for customer advisers, and in the work In connection with the introduction of the Solvency II on optimising risk selection and tariff setting. regulations with effect from 1 January 2016, Gjensidige also introduced solvency margin targets. Other The year 2016 financial targets are unchanged. The CR target of 86–89 Leading position in Norway strengthened reflects an expectation of average annual run-off gains Gjensidige strengthened its leading position in the in the region of NOK 900 million in the next 3–5 years. Norwegian market in 2016, both in absolute terms Without run-off gains, the CR target is 90–93. and relative to our major competitors, despite intense competition. Customer satisfaction was The cost ratio is expected to be around 15 per cent. greater than ever, and in combination with conti- Continuous efforts are being made to reduce the under- nued good profitability, this confirms Gjensidige’s lying cost base in order to create room for investments sound competitiveness in Norway. in new technology, the brand and relevant skills, and thereby ensure good competitiveness going forward. Scalable business model in the Nordic region and the Baltics Gjensidige aims to be the most customer-oriented In 2016, Gjensidige continued to develop opportuni- general insurance company in the Nordic region. At the ties for growth in the Nordic region outside Norway end of 2014, the Group launched six operational key and in the Baltics. The premium volume from this part targets for the period until 2018. The development has of the business amounted to 31 per cent of the total been positive for all the parameters throughout 2016. premium volume in general insurance operations. Digital Claims Claims Customers Gjensidige has a scalable business model. Utilisation cust- reported cost Customer with >4 GI of best practice across national borders represents a KPIs* CSI omers** online** reductions retention products potential for growth and profitability going forward. 2014 73.6 54 % 26 % Gjensidige has consolidated its position as a rational 2015 76.2 60 % 46 % On track Maintained Maintained challenger in the Danish market. In Sweden and the 2016 7 7.4 65 % 52 % On track Maintained Maintained Baltic states, measures have been introduced to Target 400–500 To be main- Maintain ensure the implementation of best practice and good 7 7.0 75 % > >50 % 2018 NOK million tained high profitability in the longer term. We are on track to achieve profitability in Sweden during 2017 and in the * Targets communicated at Capital Markets Day 25 November 2014. Baltics from 2018. New opportunities for growth, both ** Private Norway organic and structural, are continually assessed.

Goal attainment – financial and operational The target for the reporting of claims online was targets achieved already in 2016. In the long term, our The financial targets were achieved in 2016 as well. ambition is that 80 per cent of all frequency claims

Gjensidige annual report 2016 I 51 Board's report

will be reported online. Moreover, our ambition is we continue to facilitate the digital reporting of that the handling of 80 per cent of these claims claims for more and more insurance products. In will be fully automated, so that 64 per cent of all Denmark, we will simplify products, improve tariffs frequency claims will be processed entirely digitally. and make the renewal process easier for customers.

Three strategic focus areas Business intelligence and analytics towards 2020 In 2016, our expert groups in analytics, product and Gjensidige has defined three strategic focus areas price were brought together to form one dynamic in order to achieve its financial and operational entity. Increasing digitalisation results in exponen- goals: digital customer experiences, strengthen tial growth in the amount of data, and responsibi- business intelligence and analytics, and build dyna- lity for the data warehouse was transferred to the mic organisational capabilities. See pages 37–38 new entity. for a more detailed description of Gjensidige's strategy. A selection of measures and initiatives Combined with the ability to utilise new insight, that have been implemented in 2016 relating to access to and analysis of large amounts of data these focus areas is presented in the following. will be an important competitive advantage going forward. For example, Gjensidige has come far in The best digital customer experience utilising publicly available geographical and buil- in general insurance ding data in all relevant processes. This contributes Gjensidige is developing digital service solutions in to better pricing, customer- and risk selection and step with changes in customer preferences and to more efficient claims settlements. Many of the pri- make operations increasingly more efficient. For cing tariffs used outside Norway were modernised example, the proportion of claims reported online and improved during 2016. This work will continue or via mobile phone increased from 46 per cent to have high priority in 2017. to 52 per cent in the Norwegian private market in 2016. In addition, self-service sales increased Moreover, the trend towards a more analytical CRM by more than 45 per cent as a result of changes has contributed to better models for predicting in customer behaviour and continually improving loss of customers and more relevant initiatives in digital sales solutions. relation to our customers. CRM is an area with a considerable potential, also in the time ahead. The Danish online shop for car insurance was upgraded with a new design and simpler solutions The development of different products and services for checking prices and buying insurance. based on insight via ‘the internet of things’ and telematics in the fields of health, motor and pro- We use electronic mailboxes where possible. perty insurance will continue to be on the agenda In Denmark, we established a solution in 2016 going forward. for sending documents to E-boks, the market leading digital mailbox in Denmark. In Norway, an Dynamic organisational development increasing percentage of customers receive their Rapid development and changes make great documents through "Din Side". demands in terms of management, expertise, dynamic organisational development and the Gjensidige’s group-wide contact centre solution corporate culture. Increased technological ensures increasingly customised dialogue with understanding and mobility in the organisation customers via telephony, web-based and chat are prerequisites for our capacity for change and solutions. During 2016, this solution was developed development. further and new, improved functions were added in order to ensure a better customer experience Restructuring was carried out in 2016 in both the across staffed and self-service distribution management and the rest of the organisation to channels. be able to meet the future in an even better and more efficient way. Streamlining measures were In 2017, the automation of both internal and implemented that, among other things, entail customer-related processes has high priority. The a reduction of 230 full-time equivalents in staff aim is both to increase efficiency and to create and support functions. The intention is to create better customer experiences. room for investments in more digital day-to-day operations, including investing in technology, the In Norway, we are further developing the online brand and relevant competences. shopping portal by improving the customer experience and including more products, and

52 I Gjensidige annual report 2016 Board's report

Knud Peder Daugaard Board member

Knud Peder Daugaard (1950) has been a member of the Board of Gjensidige since 2016. He is a senior adviser with Nortura SA and chair of the board of a number of subsidiaries in the Nortura group. Daugaard has been a member Strategic workforce planning is an important of the General Meeting of the Gjensidi- foundation for competence and organisational ge Foundation since 2016. He was development. Management tools have been previously Executive Vice President and deputy CEO of Nortura, and Managing introduced that enable an analytical approach to Director of Gilde Agro Fellesslakteriet. competence and workforce planning. Measures in this context will include planned secondments and He is a holder of a master's degree in job rotation. A gradual shift will have to be made business economics (siviløkonom) from in-house learning programmes to innovative from Handelshøyskolen i Århus platforms that enable individual employees to learn (business school) in Denmark. to develop themselves. Employees are expected to take more responsibility for their own expertise Daugaard is up for election to the based on analyses of Gjensidige’s needs. A new Board in 2017. Daugaard held 3,000 learning portal has been developed in order to shares in Gjensidige Forsikring ASA, including any shares held by closely support this. related parties as at 31 December 2016 (last change 5 April 2016). As regards the Gjensidige Customer and Brand School, there will still be a great need for traditional sales training, but more and more of the training will have to gradually be transferred to digital learning methods. Transfer of best practice and increased cooperation between different depart- these customers are characterised by even higher ments in the Group, in combination with training loyalty than average. and courses, for example through the Gjensidige Customer and Brand School, will help to ensure Our most loyal insurance customers are those who that we have the right expertise in the right place have the most products. In Norway, the majority of at the right time, also in the years ahead. the most loyal private customers have more than four general insurance products with Gjensidige. In addi- In 2017, we will give priority to strengthening the tion to a broad range of insurance products, we offer work on developing digital and analytical skills, and banking, pension and savings products in Norway as to further developing a culture for mastery and part of our efforts to increase our product range and uniform performance management. the number of products individual customers buy. As much as 76 per cent of the Retail Bank’s lending Satisfied, loyal customers volume at year-end 2016 consisted of loans to gene- Brand recognition and preference for Gjensidige ral insurance customers, and most of the growth in in the Norwegian market are stable and higher volume comes from general insurance customers who than among our competitors. According to Ipsos’s are members of organisation- or loyalty programmes. annual surveys, we have the best reputation of Around 70 per cent of our pension and savings the biggest companies in the Norwegian financial customers are also general insurance customers. sector. In Denmark, determined efforts are being made to increase familiarity with Gjensidige. Loyalty is developing positively among customers in Unaided familiarity in the Danish market was 14 Denmark, but there is still a potential for developing per cent on average in 2016. longer-lasting customer relationships in both the private and commercial markets. The customer satisfaction rate showed positive development and increased from 76.2 in 2015 to a The customer dividend model promotes loyalty record-strong 77.4 in 2016. Satisfaction is highest The unique arrangement whereby our customers among customers who have reported a claim or receive customer dividend from Gjensidige’s largest been in dialogue with Gjensidige for other reasons. owner, the Gjensidige Foundation, contributes to both loyalty and our attractiveness. Every Customer satisfaction is high in Norway, which year since the Company was listed on the stock confirms high satisfaction with our services. Around exchange, The Gjensidige Foundation has paid 70 per cent of our private customers are members customer dividend to Gjensidige's Norwegian of an organisation- or loyalty programme, and general insurance customers based on how much

Gjensidige annual report 2016 I 53 Board's report

John Giverholt Board member

John Giverholt (1952) has been a member of the Board of Gjensidige since 2016. He is Managing Director of Ferd AS. Giverholt holds a Bachelor’s degree in business economics from the University of Manchester and the exam for stateauthorised auditors from the Norwegian School of agreement with Interdan gives Gjensidige direct Economics (NHH). He was previously access to more than one-third of the market for CFO of the same company, Executive new car sales, doubling our previous access. The Vice President at DNB and Deputy agreement with Dansk Supermarked is exclusive Finance Director at Norsk Hydro. and gives us access to a unique platform for incre- ased brand recognition, development of a digital Giverholt is Chairman in Elopak AS and platform and CRM activities contributing to further Ortomedic AS. He is a board member organic growth in Denmark. in Aars AS and A Wilhelmsen AS. Growth through acquisitions Giverholt is up for election to the Board in 2017. Giverholt did not hold Gjensidige has clear ambitions for growth in any shares in Gjensidige Forsikring the Nordic region and the Baltics. Since 2005, ASA, including any shares held by Gjensidige has acquired 17 small and medium-sized closely related parties as at 31 companies and/or portfolios in these markets. With December 2016. accounting effect from the second half-year 2016, Gjensidige acquired the Swedish general insurance portfolio from Vardia Insurance Group, including the distribution company Vardia Försäkring AB, which they pay in insurance premiums. During this period, has an annual premium volume of around SEK 650 customers have received an annual amount million. Our market share in the Swedish market corresponding to 11–16 per cent of their premium. increased from 1.6 per cent to 2.5 per cent as a We measure customers’ awareness of the customer result. dividend on an ongoing basis. At year-end 2016, 90 per cent of customers were aware of the customer The acquisition of complementary portfolios dividend model and more than 70 per cent stated enables us to utilise best practice across the Group that the model is one of the reasons why they based on a scalable business model. continue to be Gjensidige customers. Awareness of the customer dividend system among potential At the beginning of 2017, Gjensidige acquired customers was around 60 per cent. Mølholm Forsikring A/S, which is the market leader in health insurance in Denmark, with 18 per cent Partnership agreements of the market for health insurance and a premium – renewals and new agreements volume of around DKK 400 million. The acquisition is Gjensidige has many years’ experience of part- in line with Gjensidige’s strategy of securing a solid nership agreements, and at the turn of the year, position in the growing market for accident and our partner organisations had a total of 1.6 million health insurance in the Nordic region. members. In 2016, Gjensidige signed an agreement with NITO (the Norwegian Society of Engineers and Further capital and balance sheet optimisation Technologists) for accident and health insurance, Gjensidige works continuously on balance sheet and and it is now the complete supplier of insurance and capital optimisation in order to ensure attainment of banking services to the organisation. the Group’s financial targets as well as an efficient capital structure and sufficient financial flexibility. In the commercial segment, we have a number of partnership agreements with industry associations In April 2016, a dividend totalling NOK 4.2 billion was and individual companies. New agreements were distributed, of which NOK 3.2 billion was related to established and existing agreements renewed in 2016. the profit of the year 2015 and NOK 1 billion was related to the distribution of excess capital. Gjensidige works closely with its strategic partners, and good management of partnership agreements In August 2016, Gjensidige became the first insurance will be given priority also in the time ahead. company in Europe to issue a perpetual subordinated loan under the Tier 1 criteria in the Solvency II regula- At the beginning of 2017, Gjensidige signed tions, which entered into force on 1 January 2016. The important partnership agreements in Denmark with placement of NOK 1 billion was done on favourable Interdan and Dansk Supermarked, respectively. The

54 I Gjensidige annual report 2016 Board's report

Gisele Marchand Board member

Gisele Marchand (1958) has been a member of the Board of Gjensidige since 2010. She is CEO in the lawfirm Haavind AS, a board member and chair of the audit committee of Norgesgruppen AS and Selvaag Bolig ASA, and a board member of Eiendomsspar AS and terms corresponding to 3-month NIBOR + 360bp. The Victoria Eiendom AS. She has previous loan was listed on Oslo Børs in October. experience from several Boards, e.g Norske Skog ASA and Oslo Børs AS. Gjensidige more than halved its holding in Sparebanken1 SR-Bank in October 2016. This was Marchand has previously been CEO of part of the strategy of reducing the concentration of Eksportfinans AS, the Norwegian Public bank exposure in the investment portfolio. Service Pension Fund, the Bates Group and EVP with Den norske Bank. She is a In November 2016, in the wake of the issuing of the graduate of Copenhagen Business School. loan and the sale of the shareholding, the Board used its authorisation from the general meeting to Marchand is up for election to the Board distribute excess capital in the form of a dividend of in 2017. Marchand held 1,481 shares in NOK 2 billion. Gjensidige Forsikring ASA, including any shares held by closely related parties as The issuing of a subordinated loan, the sale of the at 31 December 2016 (last change 10 holding in Sparebanken1 SR-Bank and the distribu- December 2012). tion of excess capital were part of the balance sheet and capital optimisation.

At year-end 2016, the remaining capacity to issue Tier 1 loans amounted to NOK 1.6 billion. It is not Gjensidige’s ambition to fully utilise this capacity, changes, and capitalisation is satisfactory in relation but will consider the possibility of issuing further to the new requirements. dept provided that market terms are satisfactory. The capacity to issue Tier 2 loans was fully utilised. We have applied for approval of a partial internal In addition, other balance sheet and capital opti­ model (PIM) for calculating the regulatory capital misation measures will be continually assessed. requirement for parts of the business. We expect an answer from the Financial Supervisory Authority of An attractive share Norway during 2017. The internal model gives a good The Gjensidige share yielded a total return for the picture of the Company’s risk situation and capital shareholders of 5 per cent in 2016. The return on needs. Oslo Børs was 12 per cent in the same period. Since the Company was listed on the stock exchange in Although the regulations have entered into force, December 2010, the Gjensidige share has yielded there is still some uncertainty in regards to how the a total return of 275 per cent. The average daily calculation of capital requirement and available capi- trading volume on Oslo Børs was around 440,000 tal will take place under the new rules. For Gjensidige, shares in 2016, and the share is one of the 25 most the main remaining uncertainty is whether provisions liquid shares listed there. In addition, a substantial for the guarantee scheme will be included in eligible number of shares are traded in other marketplaces. own funds. Gjensidige pursues a shareholder-friendly capital and dividend policy, and the Gjensidige share is and The Financial Supervisory Authority takes the view should be a dividend-paying share. that the guarantee scheme provisions shall be treated as a liability. In Gjensidige's opinion, special Changes in framework conditions Norwegian provisions that are actually an equity Solvency II element must be treated as solvency capital. We Solvency II entails new rules for calculating capital will continue to make endeavours to ensure that the requirements and eligible own funds, risk manage- regulations are in line with this view. ment requirements and requirements for reporting the risk and capital situation. The regulations have A proposal was submitted in 2015 to change the tax been implemented in Norwegian law through the deduction right with effect from 1 January 2016. Financial Undertakings Act and pertaining regula- The proposal meant that the deduction right would tions. They entered into force on 1 January 2016. be limited to provisions calculated in accordance Gjensidige has been well prepared for the regulatory with the Solvency II regulations. In its original form,

Gjensidige annual report 2016 I 55 Board's report

the proposal could have had significant negative tax In the insurance field, there will still be several consequences for Gjensidige, both upon its introdu- reasonable reasons for contacting customers, ction and in the future. including lack of payment, double insurance and information about circumstances that mean that The decision was postponed as a result of consul- the conditions for being covered by an insurance tation submissions received. The Ministry of Finance policy are no longer met. This will make it difficult decided that a more thorough assessment is needed to draw the line between the Company’s lawful of the factors that were pointed out during the con- provision of information and advisory services to sultation round. The Ministry has indicated that new customers and illegal marketing. rules will not be introduced until 2017 at the earliest because of this work. It is still unclear whether the As a consequence of several objections to the new deduction rules will be changed and, if so, how. amendments, a transitional period of six months is proposed from the resolution is adopted until the Until such time as new rules are adopted, a tax amendments enter into force. The Norwegian parli- deduction is granted for technical provisions calcula- ament will consider the proposal in spring 2017. ted on the basis of the current applicable provision rules, provided that the provisions are deemed to be Statement on the annual accounts necessary. Gjensidige reports consolidated financial informa- tion pursuant to International Financial Reporting Taxes Standards (IFRS). In December 2016, a new Financial Tax was introduced by the Norwegian Government. The Pursuant to the requirements of Norwegian new Financial Tax means that Gjensidige’s taxable accounting legislation, the Board confirms that the income will continue to be taxed at a rate of 25 per requirements for the going concern assumption cent. Furthermore, it will entail Gjensidige having have been met and that the annual accounts have to pay increased payroll tax. The increase is 5 per been prepared on this basis. cent and will be deductible for tax purposes leading to an effective increase of 3.75 per cent in payroll The preparation of the accounts and application expenses, corresponding to approximately NOK of the chosen accounting principles involve using 65 million in isolated net profit effect based on assessments and estimates, and necessitate the the 2016 full-year accounts. Gjensidige has taken application of assumptions that affect the carrying measures to minimise the negative effects of the amount of assets and liabilities, income and expen- implementation of this Financial Tax. ses. The estimates and the pertaining assumptions are based on experience and other factors. The Proposed rule changes for telephone sales uncertainty associated with this means that the In December 2016, the Government adopted a actual figures may deviate from the estimates. It is proposal for a legislative amendment that will especially the insurance liabilities that are associa- tighten the rules that apply to telemarketing. The ted with this type of uncertainty. proposal aims to protect consumers who have opted out of this type of telemarketing from such Profit/loss marketing. The Group recorded a profit before tax expense of NOK 6,139.9 million (5,049.7). The profit from gene- The proposal means that enterprises can no longer ral insurance operations, measured by the under- engage in telemarketing services to own customers writing result, was NOK 3,734.6 million (3,456.9), who have opted out in the Central Marketing corresponding to a combined ratio of 83.4 (83.7). Exclusion Register, unless they have confirmed that they wish to receive such calls. It will still be permit- A restructuring provision of approximately NOK ted to call customers to provide factual information 164 million was made in the second half-year to about their customer relationship, as this is not cover the downsizing of staff and support functions defined as marketing. Such calls that proceed to by 230 full-time equivalents. The downsizing is marketing and purchases will also be permitted, as part of the communicated strategy to reduce the long as the main purpose of the call was to provide underlying cost base in order to create room for factual information. investments in technology, the brand and new

56 I Gjensidige annual report 2016 Board's report

Gunnar Mjåtvedt Board member

Gunnar Mjåtvedt (1960) has been a member of Gjensidige’s Board as an employee representative since 2007. He is also Gjensidige’s senior employee representative.

Mjåtvedt has previously held positions as a sales consultant and senior competencies, and thereby ensure competitiveness consultant, and he has more than 20 in the long term. The provision is expensed to the years’ experience of the insurance Corporate Centre. Furthermore, a provision in the sector. He studied mathematics and amount of NOK 23.0 million related to increased science subjects at upper secondary payroll tax, applicable from 2017, was made in School, and is authorized insurance the fourth quarter, mainly affecting costs in the adviser within health and pension. Corporate Centre. Mjåtvedt is up for election to the The removal of an annual minimum regulation Board in 2018. Mjåtvedt held 1,975 clause for pension payments under the defined shares in Gjensidige Forsikring ASA, including any shares held by closely benefit plan contributed non-recurring income of related parties as at 31 December 2016 NOK 476.6 million in the first quarter. The amount (last change 7 November 2016). was classified as a reduction in operating expenses and recognised in full in the Corporate Centre.

Adjusted for the non-recurring effects mentioned above, the underwriting result amounted to NOK 3,445.0 million, corresponding to a combined ratio The return on financial assets was 3.9 per cent (2.6) of 84.6. The result was thereby on a par with the or NOK 2,155.1 million (1,492.4). record-strong result in 2015.

Profit performance Group NOK millions 2016 2015

General Insurance Private 2,196.7 2,208.1 General Insurance Commercial 1,631.3 1,440.8 General Insurance Nordic 247.3 509.1 General Insurance Baltics (99.5) (98.9) Corporate Centre/costs related to owner (10.6) (331.8)

Corporate Centre/reinsurance 1 (230.6) (270.5) Underwriting result general insurance 2 3,734.6 3,456.9

Pension and Savings 125.4 84.2 Retail Bank 428.5 303.6 Financial result from the investment portfolio 3 2,155.1 1,492.4 Amortisation and impairment losses of excess value – intangible assets (254.2) (209.6) Other items (49.5) (77.7) Profit/(loss) for the period before tax expense 6,139.9 5,049.7

Key figures general insurance Large losses 4 871.8 880.3 Run-off gains/(losses) 5 1,023.4 724.8

Loss ratio 6 69.1% 68.6% Cost ratio 7 14.2% 15.1% Combined ratio 8 83.4% 83.7%

1 Large losses in excess of NOK 30.0 million are charged to the Corporate Centre, while claims of less than NOK 30.0 million are charged to the segment in which the large losses occur. As a main rule, the Baltics segment has a retention level of EUR 0.5 million. Large losses allocated to the Corporate Centre amounted to NOK 205.5 million (382.5) for the year as a whole. Accounting items related to written reinsurance and reinstatement premium are also included. 2 Underwriting result general insurance = earned premiums - claims incurred etc. - operating expenses 3 Excluding the return on financial assets in Pension and Savings and Retail Bank. 4 Large losses = loss events in excess of NOK 10.0 million. Expected large losses for the quarter were NOK 318.0 million. 5 Run-off gains/(losses) = changes in estimates from earlier periods. Provisions are based on best estimates, and the expected run-off result over time is zero. 6 Loss ratio = claims incurred etc./earned premiums 7 Cost ratio = insurance related operating expenses/earned premiums 8 Combined ratio = loss ratio + cost ratio

Gjensidige annual report 2016 I 57 Board's report

The tax expense was NOK 1,474.1 million (1,265.0), million (23,330.6) as of 31 December 2016. The corresponding to an effective tax rate of 24.0 per reduction was mainly due to the fact that the cent (25.1). The effective tax rate was influenced by dividend paid in 2016 exceeded the profit for 2016. realised and unrealised gains and losses on equity investments in the EEA. The return on equity was 21.4 per cent (17.4).

The profit after tax was NOK 4,665.9 million From 1 January 2016, the Company became (3,784.7), corresponding to NOK 9.34 (7.57) per subject to the Solvency II regulations. Based on share. Gjensidige’s understanding of the regulations and how they are implemented in Norway, the solvency The underwriting result was positively influenced by margin1 at the end of the year was 147 per cent a solid growth in premiums of 5.5 per cent, and ear- based on the standard formula and 180 per cent ned premiums increased to NOK 22.4 billion (21.3). based on the Company’s partial internal model. The result also reflects continued good control of The guarantee scheme is classified as a liability customer and risk selection, and risk pricing. Large under Solvency II. If it had been included as solvency losses were below expectations, and somewhat capital, the solvency margin would be 150 per cent lower than last year. Run-off gains exceeded the based on the standard formula and 183 per cent expected run-rate. based on the Company’s partial internal model.

The return on financial assets was satisfactory, and Available capital in excess of the risk-based higher than 2015. This was largely due to increased requirement calculated using the Group’s partial returns on current equities and bonds, partly offset internal model constitutes the Group’s economic by negative returns on private equity investments. excess capital. The Retail Bank and Pension and Savings also made a positive contribution to the profit performance. In addition, a deduction is made for the higher of the estimated additional capital required to main- With the exception of claims provisions relating tain the current rating and the capital required to to the Danish workers’ compensation portfolio, meet the statutory capital adequacy requirements. Gjensidige’s claims provisions are recognised at nominal value (not discounted). In preparation for Excess capital above and beyond this constitutes expected changes in IFRS and the introduction of the strategic buffer. At the end of the year, this Solvency II, Gjensidige has, with effect from the amounted to NOK 1.3 billion. Adjusted for the second quarter 2010, calculated but not recognised acquisition of Mølholm Forsikring A/S at the start of the effect on the combined ratio of discounting the 2017, the strategic buffer would be NOK 0.9 billion. claims provisions. For 2016, the combined ratio on a discounted basis would have been 82.4, compared Solvency margins and the strategic buffer are with 83.4 based on the recognised nominal amount. deducted from the Board’s dividend proposal of NOK 3.4 billion for the 2016 accounting year. Expenses for research and development have not been charged to income in Gjensidige’s consolidated Off-balance sheet commitments and derivatives accounts in 2016 or 2015. Nor have such expenses As part of the Group’s investment activities, an been capitalised during these two financial years. The agreement has been entered into for the invest- parent company has continued its collaboration with ment of up to NOK 1,174.3 million (1,643.6) in the Norwegian Computing Centre and SFI (Statistics dept funds with secured loans and various private for Innovation), which are carrying out projects equity and real estate fund investments, in addition relating to risk assessment and data analysis. to the amounts recognised in the balance sheet.

Balance sheet and capital base Cash flow The Group’s balance sheet total at the end of 2016 Gjensidige is an insurance company in which was NOK 135,926.6 million (129,264.4). This incre- investments are part of the operational cash flow ase was mainly attributable to volume growth in and therefore largely affected by strategic deci­ the Retail Bank and Pension and Savings segments. sions. The Company’s ability to self-finance invest- Gjensidige’s equity amounted to NOK 22,326.0 ments is good. The net cash flow from operational

1 Solvensmargin for Gjensidige Forsikring ASA

58 I Gjensidige annual report 2016 Board's report

Anne Marie Nyhammer Board member

Anne Marie Nyhammer (1964) has been a member of Gjensidige’s Board as an employee representative since 2016. She is technical manager in Gjensidige and employee representative.

Nyhammer has previously been activities mainly consists of payments in the form employed in DnB and in Norsk Hydro/ of premiums and net payments/disbursements Leirvik Sveis. in connection with sales of investment assets, including lending from banking operations, plus Nyhammer is up for election to the disbursements in the form of claims settlement Board in 2018. Nyhammer did not hold costs, purchases of reinsurance, administration any shares in Gjensidige Forsikring expenses and tax. ASA, including any shares held by closely related parties as at 31 The net cash flow from operational activities was December 2016. NOK 2,512.8 million (minus 6,396.4) in 2016. There is a large positive cash flow from the insurance operations. The difference between the operating profit and the cash flow from operational activities financing activities was minus NOK 3,224.5 million is due to the nature of the business, whereby invest- (4,647.7) in 2016. The change is largely due to two ments in financial assets are part of operations. opposite effects; a higher distribution of dividend The change in the cash flow in 2016 can largely be in 2016 and more lending from credit institutions explained by the fact that less has been invested in 2015. in securities because of the payment of a higher dividend in 2016 than in 2015. The segments Gjensidige’s business is organised in six operational The net cash flow from investment activities mainly segments. Management of the investment port- consists of payments made/received in connection folio comes in addition. A summary of the results with the acquisition of subsidiaries and associated for the individual segments follows below. companies, owner-occupied property, plant and equipment, plus dividend from associated compa- General Insurance Private nies and joint ventures. The net cash flow from The Private segment offers a wide range of general investment activities was minus NOK 248.4 million insurance products and services in the Norwegian (2,463.8) in 2016. The change was mainly due to a private market, including insurance for motor sale of 50 per cent of Oslo Areal AS in 2015. vehicles, property, travel/leisure and accident and health. The products are largely sold through our The net cash flow from financing activities mainly own distribution network. consists of payments made/received in connection with external debt financing and the payment of dividend to shareholders. The net cash flow from

General Insurance Private NOK millions 2016 2015

Earned premiums 8,291.3 8,152.3 Claims incurred etc. (5,030.8) (4,908.5) Operating expenses (1,063.8) (1,035.7) Underwriting result 2,196.7 2,208.1

Amortisation and impairment losses of excess value – intangible assets (25.8) (12.0) Large losses 1 56.2 45.1 Run-off gains/(losses) 2 377.5 261.0

Loss ratio 3 60.7 % 60.2 % Cost ratio 4 12.8 % 12.7 % Combined ratio 5 73.5 % 72.9 % 1 Large losses = loss events in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from previous years 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio

Gjensidige annual report 2016 I 59 Board's report

Mette Rostad Board member

Mette Rostad (1964) has been a member of the Board of Gjensidige since 2012. She is self-employed. Rostad is chairman of the board of Innherred Boligbyggelag and Visit Innherred. She is deputy chairman of Innherred Renovasjon. Claims incurred amounted to NOK 5,030.8 million Rostad has previously been CFO of Aker (4,908.5). The loss ratio was 60.7 (60.2). Motor Verdal, managing director of Aker FDV, insurance and property insurance showed increases and managing director of Clean-Tech in the underlying loss ratio from very benign levels Mid-Norway. She is a graduate of the in 2015. For leisure insurance and accident and Norwegian Business School BI. health insurance, loss ratios were relatively stable. Overall, the weather situation was benign also in Rostad is up for election to the Board 2016, resulting in a lower frequency claims impact in 2017. Rostad held 1,550 shares in than can normally be expected. Gjensidige Forsikring ASA, including any shares held by closely related parties as at 31 December 2016 Operating expenses amounted to NOK 1,063.8 mil- (last change 10 November 2015). lion (1,035.7) and the cost ratio was 12.8 (12.7).

General Insurance Commercial The Commercial Segment in Norway offers a wide range of general insurance products to the commercial, agricultural and municipal markets in Norway. Sales primarily take place through dedi- Development during the year cated distribution channels, and only about 20 per The underwriting result was 2,196.7 million cent of the premium volume is brokered business. (2,208.1). Increased premiums and run-off gains Gjensidige is the market leader in general insurance were offset by a slightly less favourable underlying for the commercial market. Most of the customer frequency claims development. The combined ratio portfolio consists of small and medium-sized was 73.5 (72.9). enterprises, and agricultural customers.

Earned premiums amounted to NOK 8,291.3 Development during the year million (8,152.3). Premiums showed an increase The underwriting result increased to NOK 1,631.3 in all main product lines. Gjensidige’s competitive million (1,440.8). The increase in the underwriting position remained strong, and the number of result was driven by premium growth combined customers increased slightly in the period despite with a somewhat more favourable underlying fierce competition. frequency claims level and higher run-off gains. The combined ratio was 77.5 (79.6).

General Insurance Commercial NOK millions 2016 2015

Earned premiums 7,257.4 7,076.8 Claims incurred etc. (4,825.1) (4,826.7) Operating expenses (801.1) (809.3) Underwriting result 1,631.3 1,440.8

Large losses 1 448.6 384.7 Run-off gains/(losses) 2 486.5 341.8

Loss ratio 3 66.5 % 68.2 % Cost ratio 4 11.0 % 11.4 % Combined ratio 5 77.5 % 79.6 %

1 Large losses = loss events in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from previous years 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio

60 I Gjensidige annual report 2016 Board's report

Lotte Kronholm Sjøberg Board member

Lotte Kronholm Sjøberg (1972) has been a member of Gjensidige’s Board as an employee representative since 2015. She is chair of the staff union in Gjensidige Forsikring Denmark.

Among other things, Kronholm Sjøbrg Earned premiums increased to NOK 7,257.4 million has previously held position as a (7,076.8) mainly due to new business initiatives. consultant in the change and Growth was partly offset by softening market ownership-departement in Nykredit conditions, affecting accident and health insurance Forsikring. Among other things, she has in particular. studied at Copenhagen Business School and has a Master Degree in Claims incurred amounted to NOK 4,825.1 million mediation and conflict resolution from (4,826.7) and the loss ratio was 66.5 (68.2). Faculty of Law, Copenhagen University. Adjusted for increased run-off gains and the Sjøberg is up for election to the Board impact from large losses, the underlying level in 2017. Sjøberg held 429 shares in of frequency claims was somewhat better than Gjensidige Forsikring ASA, including in 2015. This is very satisfactory given the fierce any shares held by closely related competition. parties as at 31 December 2016 (last change 9 November 2016). Operating expenses amounted to NOK 801.1 million (809.3), corresponding to a cost ratio of 11.0 (11.4).

General Insurance Nordic The segment includes the Group's operations in the Danish and Swedish private and commercial contributed to the weaker result. The combined markets. The segment offers general insurance pro- ratio was 95.8 (90.3). ducts in the areas of motor, property, accident and health, liability, agriculture and leisure insurance, Earned premiums increased to NOK 5,917.8 million among other things. (5,233.3), of which NOK 164.5 million was related to currency effects. The Mondux acquisition increa- Development during the year sed earned premiums by NOK 116.2 million, while The underwriting result was NOK 247.3 million the Vardia acquisition contributed NOK 304.1 mil- (509.1). The decline in the underwriting result lion. The premiums in the Danish portfolio accoun- was driven by a higher proportion of large losses ted for around 78 per cent of total premiums in the and a less favourable underlying frequency claims segment. They increased organically by 5.1 per cent development in Denmark. The Vardia portfolio also in local currency. The growth was especially driven by property and motor insurance in the commercial

General Insurance Nordic NOK millions 2016 2015

Earned premiums 5,917.8 5,233.3 Claims incurred etc. (4,739.6) (3,905.2) Operating expenses (930.9) (819.0) Underwriting result 247.3 509.1

Amortisation and impairment losses of excess value – intangible assets (216.8) (175.2) Large losses 1 161.6 68.0 Run-off gains/(losses) 2 150.7 145.8

Loss ratio 3 80.1 % 74.6 % Cost ratio 4 15.7 % 15.6 % Combined ratio 5 95.8 % 90.3 %

1 Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from previous years 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio

Gjensidige annual report 2016 I 61 Board's report

portfolio. The underlying premium development in The underwriting result was minus NOK 99.5 million the Swedish portfolio was negative, mainly due to (minus 98.9). The underwriting result was negati- repricing measures implemented to improve the vely affected by several medium-sized frequency profitability of the commercial portfolio. The private claims, and investments related to integration portfolio developed positively. activities. The combined ratio was 109.6 (115.4). After the acquisition of PZU Lietuva, the new joint Claims incurred amounted to NOK 4,739.6 million organisation is on track with the integration of IT (3,905.2). Currency effects had a negative impact systems and initiatives related to claims handling of NOK 119.9 million on claims. The loss ratio was and distribution channels. The number of FTEs has 80.1 (74.6). The higher loss ratio was due to a been reduced by 49. higher proportion of large losses in combination with a less favourable underlying frequency Earned premiums increased to NOK 1,036.3 million claims development in Denmark in commercial (642.0), driven by the PZU Lietuva acquisition. NOK motor insurance, property insurance and product 20.8 million of the increase was related to currency insurance. Profitability improved in the Swedish effects. The underlying premium development was portfolio compared with the year before, mainly positive, influenced by portfolio re-underwriting driven by private motor insurance and commercial and repricing activities. The relative proportion of property insurance. The Swedish portfolio is on property insurance in the portfolio has increased track to achieve profitability during 2017. after the acquisition.

Operating expenses were NOK 930.9 million Claims incurred amounted to NOK 748.4 million (819.0). Currency effects had a negative impact of (524.8). NOK 17.0 million of the increase was NOK 25.7 million. The cost ratio was 15.7 (15.6). related to currency effects. The loss ratio was 72.2 (81.8), positively affected by run-off gains. The General Insurance Baltics loss ratio was negatively affected by a number Gjensidige's Baltic operations offer general of medium-sized property and motor insurance insurance products to the private and commercial claims. Tariffs based on group best practice were markets in Latvia, Lithuania and Estonia. The target introduced in Latvia at the end of 2015 and customers are people with medium to high income in Lithuania during April 2016, with the aim of in the private market, and small and medium-sized improving profitability in a highly price-sensitive enterprises in the commercial market. market. Improvements have taken place in frequ- ency claims levels and further improvements are Development during the year

General Insurance Baltics NOK millions 2016 2015

Earned premiums 1,036.3 642.0 Claims incurred etc. (748.4) (524.8) Operating expenses (387.4) (216.0) Underwriting result (99.5) (98.9)

Amortisation and impairment losses of excess value – intangible assets (14.9) (22.4) Large losses 1 Run-off gains/(losses) 2 12.8 (30.1)

Loss ratio 3 72.2% 81.8% Cost ratio 4 37.4% 33.6% Combined ratio 5 109.6% 115.4%

1 Large losses = loss events in excess of EUR 0.5 million. Claims incurred in excess of this per event are as a rule charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from previous years 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio

62 I Gjensidige annual report 2016 Board's report

Tine Gottlob Wollebekk Board member

Tine Gottlob Wollebekk (1962) has been a member of the Board of Gjensidige since 2014. She is a Senior Vice President responsible for Global Financial Services in Telenor Group. Wollebekk is chair of the board of Tameer Microfinance Bank. She is member of the board of expected as more portfolio is underwritten using Telenor Kapitalforvaltning AS, Aars AS, improved tariffs. Digital Money Myanmar and Finn Clausen Gruppen AS. Operating expenses amounted to NOK 387.4 million (216.0). NOK 7.0 million of the increase in Among other things, Wollebekk has operating expenses was related to currency effects. previously had several managing The cost ratio was 37.4 (33.6). The increase in the positions in Skandinaviska Enskilda cost ratio was mainly due to a higher cost ratio Banken, latest as CEO in SEB Kort and run-rate in the acquired company, combined with Country Manager for SEB Norway. She holds a Master of Science degree in increased investments in IT systems, distribution International Business from Copenha- improvements and pan-Baltic rebranding initiati- gen Business School. ves. Numerous initiatives have been implemented in 2016 that are expected to improve profitability Wollebekk is up for election to the going forward. Board in 2017. Wollebekk did not hold any shares in Gjensidige Forsikring The Baltic segment is on track to deliver profitability ASA, including any shares held by from and including 2018. closely related parties as at 31 December 2016. Pension and Savings Pension and Savings shall contribute to the sale of a wide range of products to general insurance custo- mers in Norway and shall offer pension and savings products, mainly to the Norwegian commercial million (119.5). The positive development was market. The products are distributed either directly driven by higher volumes and reclassification of by Gjensidige or via selected partners. Gjensidige income previously reported as financial income is the fourth biggest provider in the Norwegian following clarification from the Norwegian FSA. defined contribution pension market. Operating expenses were essentially flat at NOK Development during the year 223.9 million (222.0). The profit before tax expense increased to NOK 125.4 million (84.2). Net financial income, including the return both on the group policy portfolio and the corporate Net insurance revenue was NOK 195.9 million portfolio, amounted to NOK 27.3 million (30.8). (155.9) and management income was NOK 126.2 The decrease was due to the above mentioned

Pension and Savings NOK millions 2016 2015

Earned premiums 1,479.4 1,431.5 Claims incurred etc. (1,283.5) (1,275.7) Net insurance revenue 195.9 155.9 Management income etc. 126.2 119.5 Operating expenses (223.9) (222.0) Net operating income 98.1 53.4 Net financial income 27.3 30.8 Profit/(loss) before tax expense 125.4 84.2

Operating margin 1 30.47 % 19.37 % Recognised return on the paid-up policy portfolio 2 4.08 % 5.43 % Value-adjusted return on the paid-up policy portfolio 3 4.87 % 5.42 % 1 Operating margin = net operating income/(net insurance revenue + management income etc.) 2 Recognised return on the paid-up policy portfolio = realised return on the portfolio 3 Value-adjusted return on the paid-up policy portfolio = total return on the portfolio

Gjensidige annual report 2016 I 63 Board's report

reclassification of income. Underlying financial The Retail Bank income grew due to higher insurance reserves, a Gjensidige Bank is one of Norway’s leading online narrowing bond portfolio spread and increased banks. By offering competitive prices over time and return on real estate investments. The company’s a range of products and services that meet retail share of the profit relating to the paid-up policy customers’ banking needs, the Retail Bank shall portfolio was allocated in its entirety as a provision contribute to the sale of a wide range of products for longevity. to Gjensidige’s general insurance customers in Norway. At the end of the period, pension assets under management amounted to NOK 23,237.3 million Development during the year (20,033.1) including the group policy portfolio of The profit before tax expense increased to NOK NOK 5,409.6 million (4,877.5). 428.5 million (303.6). The increase was a result of higher income driven by portfolio growth and The recognised return on the paid-up policy port- improved returns on financial instruments. folio was 4.08 per cent (5.43). The average annual interest guarantee was 3.5 per cent (3.5). Net interest income amounted to NOK 797.3 million (721.2). The improvement was driven by Savings assets under management amounted to business growth. NOK 15,141.6 million (15,555.1) at the end of the period. Net commission income and other income incre- ased to NOK 74.3 million (4.1). The increase was In total, assets under management increased by the result of gains on financial instruments, partly NOK 2,790.7 million. Total assets under mana- offset by higher acquisition costs. The improvement gement amounted to NOK 38,378.8 million also included a gain on the Visa Europe sale to Visa (35,588.1) at the end of the year. Inter-national, of which Gjensidige Bank’s share was NOK 12.3 million. In order to strengthen the solvency capital ratio and to optimise the capital structure, Gjensidige The net interest margin was 1.85 per cent (2.12). Pensjonsforsikring AS (GPF) issued a subordinated The decrease was driven by overall margin pressure. bond (Tier 2) of NOK 300 million in June. Operating expenses were NOK 373.6 million (359.3). The increase was mainly driven by business

1 The estimate is based on the exposure at the reporting date and the property valuation at the time the loan was approved, including any higher priority pledge(s).

Retail Bank NOK millions 2016 2015

Interest income and related income 1,408.0 1,311.0 Interest expenses and related expenses (610.7) (589.8) Net interest income 797.3 721.2 Net commission income and other income 74.3 4.1 Total income 871.6 725.2 Operating expenses (373.6) (359.3) Write-downs and losses (69.5) (62.3) Profit/(loss) before tax expense 428.5 303.6

Net interest margin, annualised 1 1.85% 2.12% Write-downs and losses, annualised 2 0.18% 0.20% Cost/income ratio 3 42.9% 49.5%

1 Net interest margin, annualised = net interest income/average total assets 2 Write-downs and losses, annualised = write-downs and losses/average gross lending 3 Cost/income ratio = operating expenses/total income

64 I Gjensidige annual report 2016 Board's report

growth, changed employees’ pension scheme and In order to gain access to international capital somewhat increased depreciation. The cost/income markets, Gjensidige Bank established, through ratio decreased to 42.9 per cent (49.5). its subsidiary Gjensidige Bank Boligkreditt, a Euro Medium Term Covered Bond Programme amoun- Total write-downs and losses amounted to NOK ting to EUR 2 billion during the second quarter. 69.5 million (62.3), an increase driven by portfolio growth. Write-downs and losses were primarily Management of financial assets and properties related to the unsecured lending portfolio. The The Group’s investment portfolio includes all bank agreed to sell NOK 14.6 million of impaired investment funds in the Group, except for invest- customer loans in the first quarter. The sale led to ment funds in the Pension and Savings and Retail the release of the provisions made for this group Bank segments. of loans. The portfolio continues to be of high quality. Write-downs and losses were 0.18 per cent The investment portfolio consists of two parts: a (0.20) of average gross lending. Adjusted for the match portfolio and a free portfolio. The match above-mentioned sale of impaired customer loans, portfolio is intended to correspond to the Group’s the ratio was 0.21 per cent. The weighted average technical provisions. It is invested in fixed-income loan-to-value ratio was estimated to be 61.7 per instruments whose duration is adapted to match cent (63.7) for the mortgage portfolio. the technical provisions. The free portfolio consists of various assets. The allocation of assets in this Gross lending increased by 12.3 per cent and portfolio must be seen in connection with the amounted to NOK 41,249.5 million (36,735.5) Group’s capitalisation and risk capacity, as well as at the end of 2016. Deposits increased by 9.9 per the Group’s risk appetite at all times. Results from cent, reaching NOK 21,270.4 million (19,357.2) at the use of derivatives for tactical and risk mana- the end of 2016. The deposits to loans ratio was gement purposes are assigned to the respective 51.6 per cent (52.7). asset classes, depending on whether the deriva- tives used are equity or fixed-income derivatives. Business growth led to an increased need for Foreign-exchange risk in the investment portfolio capital during the period. The total capital was is generally hedged close to 100 per cent, within a increased by NOK 300 million, split between the permitted limit of +/- ten per cent per currency. issuing of a Tier 2 subordinated bond amounting to NOK 100 million and an equity increase of NOK 200 Development during the year million from the parent company. At the end of 2016, the investment portfolio totalled NOK 54.0 billion (57.2). The financial result At the end of the second quarter, S&P Global for the full year was NOK 2,155.1 million (1,492.4), Ratings raised its long-term and short-term which corresponds to a return on total assets of 3.9 counterparty credit ratings for Gjensidige Bank ASA per cent (2.6). and its subsidiary Gjensidige Bank Boligkreditt AS to 'A/A-1' from 'A-/A-2'. The outlook remained Match portfolio stable. This was driven by the reassessment of The match portfolio amounted to NOK 35.1 billion Gjensidige Bank's strategic position within the (36.0). The portfolio yielded a return of 3.5 per cent parent company. (2.8), excluding changes in the value of the bonds recognised at amortised cost. Gjensidige Bank ASA received a licence from the Norwegian Financial Supervisory Authority to Bonds recognised at amortised cost amounted to provide investment services in order to pursue a NOK 17.5 billion (18.7). Unrealised excess value merger with Gjensidige Investeringsrådgivning AS. amounted to NOK 1,338.3 million (1,416.3) at The merger plan was officially registered with the the end of the period. The reinvestment rate for Brønnøysund Register Centre, and the merger was new investments in the portfolio of bonds held at approved in the first quarter 2017. The merger is amortised cost was approximately 2.8 per cent on expected to improve competitiveness in the savings average during the year, and the running yield was market and ensure more efficient operations within 4.5 per cent at the end of the year. the Group.

Gjensidige annual report 2016 I 65 Board's report

Financial assets and properties Return in per cent Result Carrying amount 31.12 NOK million 2016 2015 2016 2015 2016 2015

Match portfolio

Money market 2.2 0.8 130.8 48.4 5,159.5 6,836.6

Bonds at amortized cost 4.7 4.9 858.4 929.5 17,491.3 18,747.7

Current bonds 1 2.3 0.0 275.3 4.1 12,417.0 10,454.4

Match portfolio total 3.5 2.8 1,264.5 982.0 35,067.8 36,038.7

Free portfolio Money market 1.0 0.7 43.8 26.5 4,321.1 4,066.4

Other bonds 2 8.1 3.2 296.5 68.8 3,689.5 4,075.5

High yield bonds 3 11.5 (2.3) 208.7 (37.4) 1,072.2 2,475.9

Convertible bonds 4 1.1 2.5 10.2 20.8 1,045.3 1,066.4

Current equities 5 15.1 (10.3) 410.1 (376.5) 2,870.3 3,250.3

PE funds (12.5) (6.8) (150.6) (102.0) 1,145.7 1,383.7

Property 6 7.9 16.6 250.8 974.8 3,072.2 3,188.1

Other 7 (11.0) (6.1) (179.0) (102.0) 1,673.5 1,628.9

Free portfolio total 4.6 2.3 890.6 510.4 18,889.9 21,135.2

Financial result from the invesment portfolio 3.9 2.6 2,155.1 1,492.4 53,957.7 57,173.9

Financial income in Pension and Savings and Retail Bank 72.6 15.9 Interest expenses subordinated loan (31.6) (35.0) Gjensidige Forsikring ASA

Net income from investments 2,196.1 1,473.3

1 The item includes the discounting effects of insurance obligations in Denmark and mismatch between interest rate adjustments on the liability side in Denmark, versus the interest rate hedge. 2 The item consist of total investment grade, high yield and current bonds. Investment grade and high yield are investments in internationally diversified funds externally managed. 3 Investments in internationally diversified funds externally managed. 4 Investments in internationally diversified funds externally managed. 5 The item includes the investment in SpareBank 1 SR-Bank and effect on profit of the sale of shares in Storebrand. 6 Gjensidige halved its property exposure through the sale of 50 per cent of Oslo Areal AS during the fourth quarter 2016. In addition there is a forward contract on the IPD index, further increasing Gjensidige’s property exposure of approximately NOK 1.6 billion throughout 2016. 7 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Danmark, and lendings, paid-in capital in Gjensidige Pensjonskasse, profit or loss effects from total return swaps with Gjensidige Pensjonskasse and Gjensidige Pensjonsforsikring AS, hedge funds and finance related expenses.

Geographic distribution match Geographic distribution xed income portfolio at the end of 2016 instruments in free portfolio at the end of 2016

47.7% Norway 39.9% Norway 5.6% Sweden 1.3% Sweden 21.9% Denmark 1.9% Denmark 7.1% USA 36.5% USA Lorem 8.5% UK 16.0% ipsum 9.1% UK dolores 1.7% Baltics 0.5% Baltics 7.5% Other 10.7% Other

Credit rating xed income instruments Counterparty risk xed income Kredittrating renteinstrumenter at the end of 2016 Motpartsrisikoinstruments at renteinstrumenter the end of 2016 ved utløpet av 2014 ved utløpet av 2014 Per cent Per cent Prosent 100 Prosent100 100 100 80 80 80 No official 80 Industry 60 Banks/financial rating 60 60 60 High yield institutions 40 40 Investment 4040 Government/

20 grade public sector 20 20 20

00 0 SikringsporteføljeMatch portfolio Fri porteføljeFree portfolio 0 Sikringsportefølje Fri portefølje Match portfolio Free portfolio

66 I Gjensidige annual report 2016 Board's report

The average duration of the match portfolio was The geographical distribution1 of the fixed-income 3.5 years. The average term to maturity for the cor- instruments in the free portfolio is shown in the responding insurance liabilities was 3.7 years. The chart on page 66. distribution of counterparty risk and credit rating is shown in the charts on page 66. Securities without Equity portfolio an official credit rating amounted to NOK 11.5 bil- The total equity exposure at the end of the period lion (11.5). Of these securities, 10.2 per cent (13.5) was NOK 4.0 billion (4.6), of which NOK 2.9 billion were issued by Norwegian savings banks, while the (3.3) was current equities and NOK 1.1 billion (1.4) remainder were mostly issued by Norwegian power PE funds. The return on current equities was 15.1 producers and distributors, property companies or per cent (minus 10.3). The good return on equities municipalities. A third-party internal rating existed was due to a combination of a strong return on the for 64.7 per cent (67.4) of the portfolio without remaining equity holding in SpareBank 1 SR-Bank an official rating. Bonds with a coupon linked to and a moderate return on the diversified equity the development in the Norwegian consumer price portfolio which was mostly exposed to international index accounted for 10.1 per cent (11.2) of the equities, including emerging markets. In October match portfolio. 2016, approximately half of the investment in SpareBank 1 SR-Bank was sold at NOK 46 per share The geographical distribution 1 of the match port- with a limited realised gain in the fourth quarter, folio is shown in the chart on page 66. resulting in an ownership at year-end of 4.8 per cent. In January 2017, the stake was further redu- Free portfolio ced to 0.9 per cent through a sale at NOK 61 per The free portfolio amounted to NOK 18.9 billion share with a limited realised gain in the first quarter (21.1) at the end of the year. The return was 4.6 2017. The proceeds have been reinvested such that per cent (2.3). concentration risk in the portfolio is reduced. The return on PE funds was minus 12.5 per cent (minus Fixed-income instruments 6.8). The negative return was particularly driven The fixed-income instruments in the free port- by a fall in the net asset value of funds exposed to folio amounted to NOK 10.1 billion (11.7), of the oil sector during the first quarter. Exposure to which money market investments, including cash, oil-related PE funds was around NOK 600 million at accounted for NOK 4.3 billion (4.1). The rest of the end of the year. the portfolio was invested in international bonds (investment grade, high yield and convertible Property portfolio bonds). The total fixed-income portfolio yielded At the end of the year, the exposure to commercial a return of 5.2 per cent (1.2). It was positively real estate in the portfolio was NOK 3.1 billion (3.2) affected by good returns on investment grade and plus a forward contract of NOK 1.6 billion. The high yield bonds and a moderate return on money forward contract matured on 31 December 2016. market investments and convertible bonds. The property portfolio yielded a return of 7.9 per cent (16.6). The sale of 50 per cent of the shares in At the end of 2016, the average duration in the Oslo Areal explains the high return in 2015. portfolio was approximately 2.5 years. The distribu- tion of counterparty risk and credit rating is shown Total return swaps have been entered into between in the charts on page 66. Securities without an Gjensidige Forsikring ASA (GF), Gjensidige Pensjon official credit rating amounted to NOK 2.6 billion og Sparing AS (GPS) and Gjensidige Pensjonskasse (2.1). Of these securities, 12.4 per cent (11.1) (GPK), whereby GPS and GPK will receive a return were issued by Norwegian savings banks, while the on property, while GF will receive a return on money remainder were mostly issued by Norwegian power market instruments plus a margin. The underlying producers and distributors, property companies or amount in the agreements is NOK 0.2 billion. municipalities. A third-party internal rating existed for 74.4 per cent (65.7) of the portfolio without an Risk factors official rating. Risk is defined as the possibility of a potential event affecting the Group’s goal attainment. In order to understand and manage risk, an assessment is therefore carried out of both the probability of

1 The geographical distribution is related to issuers and does not reflect actual currency exposure.

Gjensidige annual report 2016 I 67 Board's report

the event occurring and its consequences. Through More and more is expected of our staff and the Group’s risk management and internal control managers in terms of expertise. There is a risk that framework, a structure has been established that inadequate or insufficiently adapted expertise will systematically identifies, assesses, communicates reduce our chances of realising commercial and and manages risk throughout the Group. The risk strategic ambitions. There is also competition to assessment process is coordinated with the Group’s attract and retain capable employees. Targeted strategy processes. efforts are therefore being made to ensure that we have the right expertise at all levels of the organi- Risk management is based on specified goals and sation, including through systematic staffing and strategies and the limits on risk exposure adopted succession planning and arrangements that ensure by the Board. good internal mobility among employees.

The Risk Management function shall ensure that The Gjensidige Customer and Brand School is the senior group management and the Board responsible for competence-raising and manage- have sufficient information about the Group's risk ment development in Gjensidige. The school offers profile at all times. The Group has a moderate risk training for sales personnel, claims handlers and profile and, in the Board’s view, no individual events managers based on the Group’s strategic focus will be capable of seriously harming the Company’s and development areas. New employer branding financial position. measures have been implemented and recruitment processes have been further developed and made Strategic risk more targeted. Performance-based remunera- Gjensidige’s strategy is monitored continuously in tion models have been introduced for groups of relation to changes in performance, developments employees, and individual scorecards have also in the market and competition, and changes in been introduced. Systematic work is being done on framework conditions. Factors that have been the corporate culture and management develop- identified as critical to the Company’s goal attain- ment, and on firmly establishing requirements and ment are monitored particularly closely. To ensure expectations of managers and staff. that Gjensidige is ahead of developments, strategic risk is managed through continuous monitoring of Insurance risk competitors and the market, follow-up of profi- The risk in individual insurance contracts is the tability, and through product development and probability of an event occurring that affects the planning processes. insured party, and uncertainty concerning the size of the subsequent compensation amount. The In the insurance market, Gjensidige faces challen- insurance risk relating to special types of major risks ges from both traditional Norwegian financial play- or exposure is managed through authorisations ers and new companies. Increased digitalisation and lines of reporting for ordinary operations. and new business models entail new challenges. Clear guidelines have been established for what Emphasis is therefore placed on Gjensidige’s ability insurance policies can be taken out. The risk of a to quickly adapt to consumer demand for new generally unsatisfactory premium level is monitored service channels and its ability to utilise modern on a continuous basis by the product and actuary technology and support systems in an efficient department, and increasingly precise methods for manner. pricing are being developed.

Continuous efforts are being made to develop new The Board stipulates annual limits for the Group’s products and service solutions that are adapted to reinsurance programme. The limits are defined customer needs, at the same time as the organi- based on the need to protect equity against large sation, processes and value chains are reviewed loss events or other significant negative develop- and standardised to reduce costs and increase ments. Reinsurance is also used to safeguard efficiency. There is a risk that Gjensidige will not the underwriting result and provide protection manage to adapt to the changes in time and in line against the frequency of medium-sized and large with market expectations. In order to reduce this losses. The reinsurance programme is described in risk, Gjensidige keeps close track of developments more detail in Note 3 to the consolidated annual in the insurance market. accounts.

68 I Gjensidige annual report 2016 Board's report

The statutory actuary function is carried out by For more detailed information about financial risk the Group’s actuary department. The actuary and stress tests, see Note 3 to the consolidated function is responsible for controlling technical annual accounts. provisions, including that the data used to calculate technical provisions are of sufficient quality. It shall Limits have been defined for the necessary access also state an opinion on guidelines for taking out to liquid assets. They are taken into account in the insurance policies and reinsurance schemes in the strategic allocation of assets. The liquidity risk is insurance companies. This responsibility has been considered to be very low. The Group is exposed to centralised to the Group’s actuary department. credit risk through investments in the bond and In order to ensure the actuary function’s indepen- money market and through lending. The Board has dence, employees included in this function are not defined limits for the credit operations. Credit losses responsible for calculating the technical provisions. have been insignificant to date. Outstanding claims This is done by other employees in the actuary against the Group’s reinsurers may also represent department. The head of the actuary function a substantial credit risk. Counterparty risk in the reports to the CEO. reinsurance market is continuously assessed. The Group’s reinsurers shall at least have an A rating The technical provisions are intended to cover from Standard & Poor’s or an equivalent rating claims that have arisen and been reported to the from one of the other reputable rating companies. Company, and claims that have arisen but not yet been reported. There will always be a risk that these The Board has assessed the risk of losses on provisions will be insufficient. Gjensidige therefore loans, guarantee liabilities and other receivables, makes continuous efforts to further develop and necessary provisions have been made in the methods and models based on new experience and accounts. knowledge. External actuaries are sometimes used to perform independent calculations of the best Operational risk estimate for technical provisions. Operational risk is the risk of losses due to weak- nesses or faults in processes and systems, errors The insurance risk is deemed to be moderate made by employees, or external events. In order based on the reinsurance coverage the Group has to reduce the risk, emphasis has been placed on purchased. having well-defined and clear lines of reporting and a clear division of responsibility in the organisation Financial risk of the business. Set procedures have been esta- Financial risk concerns exposure relating to blished for conducting risk assessments, and the financial investments in the insurance operations. Board evaluates the status annually as part of the The counter entry in the balance sheet consists Company’s internal control system. An indepen- of actuarial liabilities, other liabilities and equity. dent Compliance function has been established to The investments mainly consisted of fixed-income help the Group to avoid official sanctions, financial investments, property and equity investments. losses or a loss of reputation as a result of failure to The value of the investments can be affected by comply with laws, regulations and standards. The changes in macroeconomic factors. Compliance function identifies, assesses, advises on, monitors and reports on the Group’s risk of Through the Board’s adoption of strategic allocati- non-compliance with laws, regulations and internal ons of assets, with pertaining limits for the different guidelines. An incidents database has been created risk types and a dynamic risk management model, in order to close, handle and, not least, learn from limits are set that make it possible to rapidly undesirable incidents. adjust risk to changed macroeconomic assump- tions. Price, interest rate and currency risk is also Ethical issues are discussed at training courses followed up through stress tests, where the buffer for new employees and they are also discussed capital must be sufficient at all times to be able to regularly by management groups and at depart- withstand sharp simultaneous falls in equity and mental staff meetings. This is intended to reduce bond prices. the risk of breaches of procedures and guidelines, while also contributing to a good working environ- ment. Employees have also signed a personal data

Gjensidige annual report 2016 I 69 Board's report

discipline statement relating to the use of the processes have been established relating to Group’s information and IT systems. employees’ health, safety and working environ- ment. Information about the working environment, Gjensidige works actively to combat corruption, equality, discrimination and the natural environ- and a dedicated anti-corruption programme has ment, cf. the Accounting Act Section 3-3 (ninth to been established to reduce the risk of irregularities twelfth paragraphs), is provided on pages 22–35 in and corruption. The programme consists of a the report on corporate social responsibility. combination of preventive activities, control and detection activities, and a clear and consistent Outlook follow-up and sanctions system. The Group targets a 15 per cent return on equity after tax. There is always considerable uncertainty Gjensidige has established an internal audit associated with the assessment of future develop- function. On behalf of the Board, this function has ments. However, the Board remains confident in been assigned the role of monitoring and assessing Gjensidige’s ability to deliver solid earnings and whether the risk management and internal control dividend growth over time. Strong underwriting systems function as intended. profitability is expected to offset a challenging environment as regards achieving investment For a more detailed description of risk manage- returns. ment, reference is made to Note 3 to the consoli- dated annual accounts. 1. Organic growth is expected to be in line with nominal GDP growth in Gjensidige’s market Corporate governance areas in the Nordic countries and the Baltic sta- Good corporate governance is a priority for the tes over time. In addition, profitable growth will Board. The Board has based the Group's corporate be achieved by pursuing a disciplined acquisition governance on the Norwegian Code of Practice strategy, as has been done successfully over the for Corporate Governance as most recently past ten years. amended on 30 October 2014, and it has made 2. The annual combined ratio is expected to be at adjustments to ensure that it complies with the the lower end of the target corridor of 90–93 Code in all areas. A more detailed account of how (undiscounted and given zero run-off effects). Gjensidige complies with the Code of Practice and The target cost ratio is around 15 per cent. A the Norwegian Accounting Act's requirements for reduction is expected in the underlying cost reporting on corporate governance is provided on ratio and loss ratio, but Gjensidige will aim to pages 36–47 of the annual report, and in a sepa- strike a balance between good profitability and rate document that is available on the Group's increased investments in order to ensure strong website www.gjensidige.no/corporate-governance. competitiveness going forward. Extraordinary circumstances relating to the weather and Employees, corporate social the proportion of large losses and run-off can responsibility and the environment contribute to a combined ratio above or below Gjensidige follows Oslo Børs’s guidance on the the target range. reporting of corporate social responsibility. Our 3. Over the next 3-5 years, average annual run-off work on corporate social responsibility is described gains are expected to be around NOK 900 in a separate statement on pages 22–35 of the million, moving the expected reported combined annual report. The Board of Gjensidige has adopted ratio to the lower end of the 86-89 corridor guidelines for how the Company shall exercise (undiscounted). social responsibility. The guidelines and the group 4. Regulatory uncertainty relating to Solvency II policy for socially responsible investments are has decreased. All else being equal, this supports available at www.gjensidige.no/group. the already strong capital position.

Gjensidige aims to be a developing and health-pro- Over time, dividend pay-outs will reflect moting workplace. Systematic work is carried out Gjensidige’s policy not to build capital in excess of on competence-raising measures for managers the targeted capitalisation. and employees, and a number of measures and

70 I Gjensidige annual report 2016 Board's report

It is Gjensidige’s ambition to become the most financially sound and has a high proportion of customer-oriented general insurance company in its business in the Norwegian general insurance the Nordic region, based on profitable operations market. Although the macroeconomic situation and a leading position. is challenging, the outlook for the Norwegian and Nordic general insurance operations is still regarded The strategic priorities in the period up until 2020 are: as good.

• Digital customer experiences There are still some outstanding uncertainties • Business intelligence and analytics relating to changes to the regulatory framework for • Building organisational capabilities the financial sector in Norway and internationally. The Solvency II regulations were implemented In order to support the three strategic priorities and in Norway on 1 January 2016. Gjensidige has ensure strong competiveness in future, efficiency submitted an application to use its own partial measures are being taken to create room for internal model (PIM), and approval is expected in increased investments primarily in the fields of 2017. Endeavours will continue to be made to win technology, competence development and brand acceptance for inclusion of the guarantee provision strength. as solvency capital.

Efforts to deliver the best digital customer experien- The Group has satisfactory capital buffers in ces in the Nordic general insurance industry will be relation to internal risk models, statutory solvency strengthened. At the same time, Gjensidige intends requirements and its target rating. The Board to increase its presence in the growing market for considers the Group’s capital situation and financial health and personal insurance. strength to be good.

Competition is still increasing in the Norwegian Events after the balance sheet date general insurance market. Gjensidige has managed No significant events have occurred after the to capitalise on its position as market leader in balance sheet date. Norway, and its competitiveness remains good. It has strengthened its leading position relative Allocation of the profit before other to its main competitors in parallel with delivering income and expenses good profitability and high customer satisfaction. The Group’s profit for the year after tax expense The growth rate is expected to remain subdued amounted to NOK 4,665.9 million. The Board has in the short to medium term, although an uptick adopted a dividend policy that forms the basis for in inflation and growth will lead to increased the dividend proposal submitted to the general insurance premiums. Continued efforts to maintain meeting. The Board proposes a dividend of NOK 3.4 and further strengthen Gjensidige’s position in billion for the 2016 financial year. This corresponds the Norwegian market will be prioritised, with to NOK 6.80 per share, or 73 per cent of the particular focus on ensuring cost-efficiency and Group’s profit after tax. In addition, excess capital improving digital customer experiences. At the of NOK 2 billion, corresponding to NOK 4.00, was same time, new, profitable opportunities for growth distributed in November 2016. will be considered in the Nordic region and the Baltic states in order to ensure good utilisation of a Gjensidige’s goal is to distribute high and stable scalable business model and best practice. Strong nominal dividends to its shareholders, at least emphasis will also be placed on further developing 70 per cent of the profit after tax expense over cooperation with partners and distributors. time. When determining the size of the dividend, consideration will be given to expected future Low interest rates and financial challenges in seve- capital needs. In addition, any future excess ral key economies as well as in the Nordic countries capital over and above the capitalisation target reflect an uncertain economic situation and remain will be distributed to the owners over time. By the a source of uncertainty. Gjensidige has a robust capitalisation target is meant capitalisation that is investment strategy, although returns are affected adapted to Gjensidige’s strategic targets and risk by challenging market conditions. The Group is appetite at all times. The Group shall maintain its

Gjensidige annual report 2016 I 71 Board's report

financial freedom of action, without this being Other components of income and expense as at the expense of good capital discipline. presented in the income statement are not included in the allocation of profit. It is proposed that the parent company’s profit before other components of income and The Board has decided to pay employees of expense of NOK 4,278.0 million be allocated as Gjensidige Forsikring ASA a collective bonus follows: corresponding to NOK 20,700, including holiday NOK millions pay, per full-time employee. The bonus is based on the combined ratio achieved and on the Proposed dividend (3,400.0) development of the portfolio and customer Transferred to undistributable reserves (115.3) satisfaction in 2016. Transferred to other retained earnings (762.6) Allocated (4,278.0) The Board wishes to thank each individual employee for their contribution to Gjensidige’s good results in 2016.

Oslo, 8 March 2017 The Board of Gjensidige Forsikring ASA

Inge K. Hansen Per Arne Bjørge Knud Peder Daugaard John Giverholt Gisele Marchand Chair

Gunnar Mjåtvedt Anne Marie Nyhammer Mette Rostad Lotte Kronholm Sjøberg Tine Gottlob Wollebekk

Helge Leiro Baastad CEO

72 I Gjensidige annual report 2016