Annual report 2016

200 years Gjensidige defended its market shares and achie- The ved record high customer satisfaction in 2016. Good and efficient operations year contributed to another 2016 strong result.

Sports sponsorship of the year International award to Gjensidige was named the "Stay focused"-campaign Sports sponsor of the Gjensidige together with year 2016 by the Trygg Trafikk was declared Norwegian Sponsoring winner of the CSR and and Event Innovation categories for the Association. "Stay focused"-campaign at Robot handles routine the Digital Communication tasks Awards 2016 in Berlin. For the first time Gjensidige put a robot in charge of handling routine tasks. The robot answers questions from other insurance companies about our customers’ Record-high bonus on motor insurance. customer satisfaction Customer satisfaction continued to improve in 2016. The scoring Customer dividend reached the highest Gjensidige’s general level since the survey insurance customers in was introduced in Norway received customer 2009. Customers who dividend for the seventh had a claim or were in consecutive year. The touch with us for other Gjensidige Foundation paid reasons were the most NOK 1.95 billion in dividend. satisfied. That equals 13.5 per cent of premiums paid from Norwegian customers the preceding year. About the reporting Financial

Gjensidige publishes a web-based annual calendar 2017 report on www.gjensidige.no/reporting. The annual report 2016 will not be printed. General Meeting 6 April

Find further information about the Ex dividend date 7 April

Group on www.gjensidige.no/group Q1-result 4 Mai

In case of any discrepancies, the Norwegian Q2-result 14 July version of the annual report shall prevail. Q3-result 26 October

Aqquisition in Sweden Gjensidige acquired the swedish general insurance Cyberinsurance portfolio from Vardia Gjensidige launched an Insurance Group. insurance to help companies minimize damages from a data 200 years breach. celebration In 2016, it was 200 years since the first fire mutual in the Gjensidige family Operations in was established. The Baltics integrated occation was The former PZU Lietuva celebrated in business was integrated arrangements in with Gjensidige’s other Denmark, Norway operations in the Baltics. and Sweden. Health 55+ We launched an insurance that combines traditional health insurance with innovative ways of preventing health Content problems. Key figures 2

Letter from the CEO 6

Operations in brief 8

Asset management 16

Additional information 18

Investor information 20

Corporate social responsibility 22

Corporate governance 36

The Board’s report 48

Financial statements and notes 73

Gjensidige annual report 2016 I 1 Key figures

Gjensidige recorded a profit after tax of NOK 4.7 billion in 2016, corresponding to a return on equity of 21.4 per cent. For the general insurance operation the premium growth was 5.5 per cent and the combined ratio was 83.4 per cent. The earnings per Key figures share was NOK 9.34 and the Board has proposed a dividend of NOK 6.80 per share.

Prot before tax Earned premiums general insurance NOK bn NOK bn 6 22

4 20

2 18

0 16 2013 2014 2015 2015 2016 2012 2013 2014 2015 2016

Return on equity Underwriting result general insurance % NOK bn 20 4

15 3

10 2

5 1

0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

Earnings per share Combined ratio general insurance NOK % 10 90 8 85 6 4 80 2 0 75 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

2 I Gjensidige annual report 2016 Key figures

6.80.. ...NOK per share in proposed dividend

Market value as at 31.12. Dividend per share Based on profit Distribution of NOK billion for the year excess capital 75 2016* NOK 6.80

55 2015 NOK 6.40 6.00 NOK

2014 NOK 5.90 35 2013 NOK 6.80 10.00 NOK

15 2012 NOK 6.85 2012 2013 2014 2015 2016 * Proposed

Total return*

400

336

272

208

144

80 Juli 2011 Juli 2012 Juli 2013 Juli 2014 Juli 2015 Juli 2016 Des 2010 Des 2011 Des 2012 Des 2013 Des 2014 Des 2015 Des 2016

Gjensidige Nordic general insurance**

* Dividend reinvested ** Non-weighted average in local currency for Tryg, Topdanmark, Sampo and Alm.Brand

Last two Since IPO Total return * Last year years 10.12.2010

Gjensidige 5 % 28 % 275 %

Nordic general insurance** 3 % 23 % 249 %

* Dividend reinvested ** Non-weighted average in local currency for Tryg, Topdanmark, Sampo and Alm.Brand.

Gjensidige annual report 2016 I 3 Key figures

Financial key figures

Result 2016 2015 2014 2013 2012

Earned premiums, general insurance NOK million 22,441.9 21,272.0 20,386.8 18,736.9 17,797.3

Other operating income NOK million 3,049.5 2,883.4 2,711.9 2,147.6 1,720.4

Net income from investments NOK million 2,196.1 1,473.3 2,475.6 2,538.1 3,055.8

Claims incurred, general insurance NOK million (15,515.9) (14,597.5) (14,470.4) (13,859.6) (12,437.7)

Other claims incurred, losses etc. NOK million (1,963.7) (1,927.8) (1,892.4) (1,435.7) (1,150.0)

Operating expenses, general insurance NOK million (3,191.4) (3,217.6) (3,054.0) (2,857.8) (2,751.8)

Other operating expenses NOK million (876.5) (836.0) (758.0) (695.4) (600.4)

Tax expense NOK million (1,474.1) (1,265.0) (1,210.0) (903.5) (1,353.5)

Profit for the year NOK million 4,665.9 3,784.7 4,189.6 3,670.6 4 ,280.1

Gains per share NOK 9.34 7.57 8.34 7.34 8.56

Regular dividend per share NOK 6.80 6.40 5.90 6.80 6.85 (Based on profit for the year) Special dividend per share NOK 6.00 10.00 (Based on distribution of excess capital)

Main figures general insurance 2016 2015 2014 2013 2012

Underwriting result 1 NOK million 3,734.6 3,456.9 2,862.3 2,019.6 2,607.8

Large losses 2 NOK million 871.8 880.3 823.3 906.6 581.1

Run-off results 3 NOK million 1,023.4 724.8 493.7 299.6 342.0

Combined ratio 4 % 83.4 83.7 86.0 89.2 85.3

Loss ratio 5 % 69.1 68.6 71.0 74.0 69.9

Cost ratio 6 % 14.2 15.1 15.0 15.3 15.5

Balance sheet 2016 2015 2014 2013 2012

Investment portfolio 7 NOK million 53,957.7 57,173.9 56,538.8 58,148.2 56,296.0

Provisions for unearned premiums, gross NOK million 13,654.9 13,097.2 11,944.6 11,049.2 10,141.6

Claims provisions, gross NOK million 32,447.5 33,178.5 32,926.9 31,749.6 29,562.3

Equity NOK million 22,326.0 23,330.6 21,656.8 26,287.8 25,617.7

Total equity and liabilities NOK million 135,926.6 129,264.4 113,982.0 108,946.3 94,207.1

Return 2016 2015 2014 2013 2012

Return on financial assets8 % 3.9 2.6 4.3 4.3 5.4

Return on equity 9 % 21.4 17.4 18.1 14.6 18.1

1 Underwriting result, general insurance = earned premiums - claims incurred etc. - operating expenses 2 Large losses = loss events in excess of NOK million 3 Run-off gains/(losses) = changes in estimates from earlier periods. Reserving is based on best estimate, and expected run-off result over time is zero. 4 Combined ratio = claims ratio + cost ratio 5 Loss ratio = claims incurred etc. /earned premium 6 Cost ratio = operating expenses/earned premium 7 Investment portfolio includes all investment funds in the Group, except Pension and Savings and Retail Bank 8 Return on financial assets = net financial income as a percentage of the average financial assets including property (excluding Pension and Savings and Retail Bank) 9 Return on equity, annualised = Shareholders’ share of net profit for the period/average shareholders’ equity for the period, annualised

4 I Gjensidige annual report 2016 Key figures

AnsaEmployeestte pe per landr country Employees per business area as at 31.12.2016 as at 31.12.2016

2,250 Norway 705 Denmark 3,786 General insurance 665 Baltics 144 Retail Bank 385 Sweden 75 Pension and Savings

Health, safety and the environment 2016 2015 2014 2013 2012

Sickness absence (Self-certified and doctor-certified), % 3.9 4.1 4.7 5.1 4.6 Gjensidige Forsikring Norway

Injuries, Gjensidige Forsikring Number 0 0 0 0 0

Turnover of employees, Gjensidige Forsikring % 9.7 9.6 8.7 9.7 16.6

Employees 2016 2015 2014 2013 2012

Number of employees in the Group Persons 4,005 3,908 3,525 3,377 3,163

Average age Gjensidige Forsikring Scandinavia Year 43.0 44.3 43.1 44.4 44.3

Average amount spent on skills development per employee NOK 15,0001 17,5001 17,5001 15,8001 13,2001

Participation in a training programme Days 7,487 5,524 7,400 8,900 6,200

1 Starting in 2013, the amount refers to the Group as a whole. Figures for 2012 are adjusted accordingly.

In addition to the financial statements according to IFRS, Gjensidige uses diffe- rent alternative performance measures (APM) to present the business in a more relevant way for its different stakeholders. The alternative performance measures have been used consistent over time, and relevant definitions have been disclosed in the quarterly reports. Comparable figures are provided for all alternative perfor- mance measures in the quarterly reports.

Gjensidige annual report 2016 I 5 Letter from the CEO

Record-high customer satisfaction by the end of the anniversary year

In 2016, we celebrated that it was 200 years since of stakeholders and topics, we identified which the first predecessor of our company was establis- areas we should give most priority to in our CSR hed. At the end of the anniversary year, Gjensidige work. had a solid position in the domestic market in Norway. Customer satisfaction was record-strong, As a major asset manager, it is especially impor- and customer loyalty was also at a high level. tant that we set requirements for socially respon- sible operation in the companies we invest in. At Gjensidige delivered sound results also in 2016, with the end of 2016, 85 companies had been excluded a total profit of NOK 4.7 billion. The results are still from our investment portfolio because they did not below the desired level in Sweden and the Baltics, meet our criteria. but we have made systematic efforts in a number of areas throughout 2016 to strengthen our posi- Technology and customer behaviour are changing tion in these two markets. We expect both areas faster than ever. There are many indications that to make a positive contribution to Gjensidige’s we are in a period of great change, where many profitability in the years ahead. new services are being automated. This has already had an impact on how we run our business, and it Our banking and pension businesses have both will probably also affect demand for our products. been in operation for ten years, and they are both The development entails challenges for us as a strong, ambitious players in the Norwegian market. socially responsible company, both as regards When it was established in 2007, the Retail Bank customers’ need for modern products and the need was the smallest of approximately 130 banks in for our staff to have up-to-date expertise. Norway. At the turn of last year, it had grown to number 14 among Norwegian mortgage banks. The year 2016 was not particularly costly in terms Our pension business was number four in the of natural disaster claims. In August, however, there market for defined contribution pensions at the was a torrential downpour in a limited part of the turn of the year. Both make positive contributions Oslo area that, in the course of just over an hour, to Gjensidige’s profit, with a total profit of NOK led to unusually large losses. We see this as part 553,9 million in 2016. of a trend where climate-related losses become more frequent and more extensive than before. Our customers are paid a large proportion of So far, the situation is not dramatic for us, but we our profit through the customer dividend model. are keeping a keen eye on developments, both in Since Gjensidige was listed in 2010, the Gjensidige terms of loss prevention and as regards the need to Foundation has given NOK 11 billion back to our change tariffs. customers in customer dividend. Strategic direction Social responsibility for 200 years In 2016, we carried out a new assessment of Social responsibility has always been a natural our strategic direction up until 2020. We wish to and important part of our activities. As a fire intensify the work on digitalisation of our products insurance provider, we have been passionate about and services, in order to be able to interact with our fire prevention for 200 years. In 2016, corporate customers in a smarter and more efficient way. We social responsibility became an integral part of our will invest further in analytically driven insurance annual risk mapping. Through an in-depth analysis operations. Data collection, data handling and

6 I Gjensidige annual report 2016 Letter from the CEO

good, facts-based analyses will form the basis for all our activities relating to pricing, claims settle- ment and customer service.

At the same time, we must strengthen the organisation’s ability to meet a future that requires modernisation and increasingly rapid changes.

We will increase our focus on accident and health insurance. It is an area that we expect to grow and develop in the Nordic countries for many years to come. An increased standard of living and higher life expectancy mean that there will be demand for more health services than the public health services can offer. This will create room for more solutions financed by private parties. Gjensidige will play a key role in this future situation.

Throughout 2016, we have carried out organisa- tional restructuring and staff downsizing, and we have worked on management development and competence-raising under the auspices of the Gjensidige Customer and Brand School. Everything has been done to prepare for a future characterised by stronger focus on technology and analytics.

We have high ambitions for the road ahead of us. We aim to be the best in the industry as regards customer orientation. We aim to deliver the best digital customer experience. We want to be relevant in people’s everyday lives and businesses’ day-to-day operations. We shall ensure that our customers are well prepared if something should happen. And we will help them when a loss or accident occurs. We shall know the customer best and care the most – also in 2017.

Helge Leiro Baastad CEO

Gjensidige annual report 2016 I 7 Operations in brief

Gjensidige is a Nordic general insurer. The Group safeguards life, health and assets for private and commercial customers in Norway, Den- Operations mark, Sweden, Lithuania, Latvia and Estonia. In Nor- way, products within in brief banking, pension and savings are also offered.

Gjensidige is market leader in the Norwegian Gjensidige’s position shall be further strengthened general insurance market, where the Group has high through the development of Gjensidige as a brand recognition and preference. Gjensidige was pan-Nordic general insurance player that also the leading player in Norwegian non-marine ­general takes its share of the growing accident and health ­insurance in 2016 as well, and has a solid position insurance market. Acquisitions shall supplement for further growth in the Nordic countries and Baltic organic growth and the achievement of the ­states. following financial targets after 2–3 years: • Return on equity above 15 percent The Group’s activities are divided into six segments. • Combined ratio in the interval 90-93 Management of the investment portfolio comes in addition. A fast pace and flexibility in the development of products, services and service models are necessary Strategy in order to be the preferred insurance provider. The A strong focus on customers is the core of automation of internal processes is intended to Gjensidige’s strategy. Backed by a down-to-earth ensure cost-efficiency and facilitate increased use business culture and analytically-driven core of self-service solutions by customers. operations, this will give Gjensidige a competitive advantage. Analytical use of data in order to offer attractive products and services and ensure profitable ope- rations is crucial if we are to realise our ambition of being the most customer-oriented general insurance company in the Nordic region.

Strategic platform

Customer Ecient orientation operations

Analytically-driven business processes

ICT platform

Brand

Leadership, capabilities and culture

8 I Gjensidige annual report 2016 Operations in brief

Income per segment

32.7 % Private 28.6 % Commercial 23.3 % Nordic 4.1 % Baltics 5.8 % Pension and savings 5.5 % Retail bank

The distribution is based on earned premiums /income, excluding corporate center and other income including eliminations.

Changes in technology and customer behaviour attitudes, our strategic ambitions cannot be reali- mean that increasingly close cooperation is sed. A higher pace of change – not least as regards required between our distribution channels. A good technology and customer behaviour – means that understanding of what customers are concerned a transition is needed from traditional training-ba- with in their everyday lives is a precondition for sed competence-raising measures to a dynamic being able to develop new, relevant services. learning culture driven by individual managers Customers’ needs and behaviour are changing and employees. Competence shall increasingly be faster than ever. It is therefore paramount to shared through data-driven work processes and reduce the time it takes to develop and launch new cooperation-based solutions. A stronger overall customer-oriented services. understanding shall be created through internal rotation of managers and staff. Information is a strategic resource for Gjensidige. The work on ensuring good data quality, efficient Gjensidige Bank and Gjensidige Pensjon og Sparing data collection processes, availability, reporting and play an important strategic role in relation to analysis will therefore be strengthened further. Gjensidige’s position in the Norwegian market. Exclusive customer solutions and concepts will Without motivated, committed managers and continue to be important in both the private and employees who possess the right expertise and commercial markets.

Financial targets

Area Target Achievement 2016

Group

Return on equity >15 per cent 21,4 per cent

Nominal high and stable. Nominal +6,3 per cent Dividend* Payout ratio >70 per cent Payout ratio ~73 er cent

Rating Maintain A rating from S&P A rating confirmed in June 2016

Solvency margin Standard Formula 115-140 per cent 147 per cent**

Solvency margin Internal Model 120-175 per cent 180 per cent**

General insurance 83,4 per cent Combined ratio 86-89 per cent*** 84,6 adjusted****

14,2 per cent Cost ratio ~15 per cent 15,5 per cent adjusted****

* Dividends based on profit for the year. ** Adjusted for proposed dividend for 2016. *** Combined ratio target on an undiscounted basis, assuming ~4 pp run-off gains next 3-5 years and normalised large losses impact. Beyond the next 3-5 years, the target is 90-93 given 0 pp run-off. **** Adjusted for one off effects

Gjensidige annual report 2016 I 9 Operations in brief

General Insurance Private

The Private Segment offers a wide range of general insurance products and services in the Norwegian private market. The products are sold mainly through own distribution channels. With loyal 2016 customers and a strong brand Gjensidige Customer orientation and measures aimed at retaining customers is the market leader in the general were the main priorities in the segment in 2016 as well. Efforts insurance market for private customers. to increase digitalization of customer processes to satisfy the customers’ expectations have been central to us. At the same time, continuous work on the tariffs and improved customer and risk selection contributed to better quality in the customer portfolio, growth and good profitability.

Outlook In the Private segment we work all the time with measures aimed at retaining customers and improving the quality of all customer processes. Improved availability, simplification of produ- cts and processes and more digitalisation are prioritised in order to support the Group’s financial targets and improve customer orientation. Competition is strong, both from established financial players and from some smaller niche players, but Gjensidige’s competitiveness in the Norwegian private market is still good.

Distribution Key figures Private earned premiums NOK million 2016 2015 2014

Earned premiums 8,291.3 8,152.3 8,124.1 43.3 % Motor Underwriting result 2,196.7 2,208.1 1,624.0 27.1 % Property 16.8 % Accident and health Loss ratio 60.7 % 60.2 % 67.3 % 12.8 % Leisure Cost ratio 12.8 % 12.7 % 12.7 %

Combined ratio 73.5 % 72.9 % 80.0 %

Market shares

24,5 % Gjensidige 19,3 % If 12,7 % Tryg 13,4 % SpareBank1 30,1 % Other

Source: Finance Norway, based on written premiums 4th quarter 2016

10 I Gjensidige annual report 2016 Operations in brief

General Insurance Commercial

The Commercial Segment offers a wide range of general insurance products to the commer­cial, agriculture and municipality 2016 markets in Norway. The sale is primarily Competitive sales activities and renewals were the main priorities in the through own distribution channels, and Commercial segment in 2016. In connection with the work on increasing customer satisfaction and improving risk pricing, the methodology for only 20 per cent of the premium volume is systematic risk management was further refined. New products and brokered business. Gjensidige is the digital solutions were launched in order to satisfy changing customer market leader within general insurance behavior. Strategic work force planning helped improve operational to the commercial market. The main part efficiency in the organisation. of the customer portfolio consists of small and medium-sized enterprises and Outlook agricultural customers. In the Commercial segment work is done particularly on improving risk pricing and analytical processes as a tool to enhance customer activities. Continuous initiatives to deliver the best customer experiences, in combination with analysis-based operations and efficient operation will help to ensure that the Company is forward-looking and customer-­ oriented.

The Norwegian Commercial market is characterized by fierce and somewhat increasing competition. Gjensidige, being the largest player, is faced with competition both from big, established players and a number of smaller players. The competition entails price pressure in all areas, and especially within Accident and health. Seen in light of the market conditions, Gjensidige is pleased with the renewals into 2017.

Distribution Key figures Commercial earned premiums

NOK million 2016 2015 2014 22,1 % Motor 37,4 % Property Earned premiums 7,257.4 7,076.8 6,847.2 26,5 % Accident and health Underwriting result 1,631.3 1,440.8 1,285.4 5,6 % Liability 4,4 % Marine/cargo 2,8 % Agriculture Loss ratio 66.5 % 68.2 % 70.0 % 1,2 % Other Cost ratio 11.0 % 11.4 % 11.3 %

Combined ratio 77.5 % 79.6 % 81.2 %

Market shares

27,7 % Gjensidige 24,7 % If 14,5 % Tryg 4,2 % SpareBank1 28,7 % Other

Source: Finance Norway, based on written premiums 4th quarter 2016

Gjensidige annual report 2016 I 11 Operations in brief

General Insurance Nordic

The Nordic segment comprises the Group’s operations in the Danish and Swedich private, commercial and municipality markets. Gjensidige has 2016 Important priorities in 2016 continued to include integration activities own distribution in these markets, as relating to companies and portfolios acquired in the last few years. well as distribution through a series of Further, work has been done towards continuous strengthening of the partners and via brokers. In Denmark the distribution collaborations and streamlining of operational processes. Nykredit Group is a central distribution The focus on continuous development of the business model, port- partner. Gjensidige has a scalable folio management and repricing contributed to a strengthening of business model in the Nordics, which the quality in the portfolios and the profitability development in the gives a good position for further growth. Swedish operations.

Outlook Gjensidige’s Nordic operations shall contribute to economies of scale, diversification of risk and increased competitiveness Pan-Nordic. The Nordic general insurance markets are relatively consolidated, but Gjensidige expects that it will be possible to grow selectively through a patient, rational approach to new opportunities. The implementation of new tariffs and steps to achieve a higher proportion of self-service will continue to be prioritised in 2017. There will be focus on integra- ting and capitalising on business synergies in connection with portfolio acquisitions and distribution collaborations, and the volatility in the Swedish portfolio will be further reduced.

Implemented measures to improve the profitability in the Danish port- folio will be closely monitored. Further measures will be implemented if necessary. There is strong competition in the markets Gjensidige operates in. The pressure on prices seems to have intensified, especially in the market for commercial customers and the municipal market.

Market shares Denmark Key figures Nordic

NOK million 2016 2015 2014

6.6 % Gjensidige Earned premiums 5,917.8 5,233.3 4,762.9 18.0 % Tryg 17.2 % Topdanmark Underwriting result 247.3 509.1 384.3 11.2 % Codan 9.7 % Alm Brand Loss ratio 80.1 % 74.6 % 75.4 % 37.3 % Other Cost ratio 15.7 % 15.6 % 16.6 %

Source: The Danish Insurance Association, based Combined ratio 95.8 % 90.3 % 91.9 % on gross premiums earned 4th quarter 2015

Market shares Sweden Distribution earned premiums

33,6 % Motor 2.5 % Gjensidige 35.5 % Property 30.2 % Länsförsäkringar 13.6 % Accident and health 18.3 % If 4.4 % Liability 15.1 % Trygg-Hansa 4.7 % Agriculture 16.5 % Folksam 8.2 % Leisure 17.4 % Other 0.1 % Other

Source: Insurance Sweden, based on earned premiums 2016

12 I Gjensidige annual report 2016 Operations in brief

General Insurance Baltics

Gjensidige’s Baltic operations offer general insurance products to private and commercial customers in Lithuania, 2016 Latvia and Estonia. The products are In 2016 the Baltic operations were characterized by integration distributed through own channels, processes as a result of the acquisition of PZU Lietuva the year agents and brokers. The Baltics in- before. The operations were integrated by the end of the year. surance market is immature, and Gjensidige is well positioned for future Outlook growth. Gjensidige’s goal is to be one of the leading insurance companies in the Baltic states. The market is relatively immature, and a signifi- cant proportion of both the private and the commercial segments is still uninsured. We expect the market to grow as the general economic situation improves and the standard of living increases. Initiatives relating to product development, tariff programmes, distribution, CRM and claims operation runs according to the plan that was laid out when acquiring PZU Lietuva.

The competition is fierce and there is considerable pressure on prices, but new and more sophisticated tariffs are expected to con- tribute to better portfolio quality. The Baltic operation is expected to be profitable from 2018.

Key figures Baltics Distribution earned premiums

NOK million 2016 2015 2014

Earned premiums 1,036.3 642.0 523.0 54.0 % Motor 20.6 % Property Underwriting result (99.5) (98.9) 0.6 15.4 % Accident and health 3.9 % Liability Loss ratio 72.2 % 81.8 % 72.1 % 6.2 % Other

Cost ratio 37.4 % 33.6 % 27.8 %

Combined ratio 109.6 % 115.4 % 99.9 %

Market shares

11.3 % Gjensidige 24.4 % PZU 12.9 % If 12.1 % Ergo 12.8 % BTA 25.5 % Other

Source: Baltics Insurance Supervisory Authorities of Latvia and Lithuania, Estonia Statistics, competitor reports, and manual corrections. Based on gross written premiums for 3rd quarter 2016.

Gjensidige annual report 2016 I 13 Operations in brief

Pension and Savings

Pension and Savings shall contribute to sales of a wide range of products to general insurance customers in Norway by offering pension and savings products, mainly to 2016 the Norwegian commercial market. The Pension and Savings offers defined contribution pension plans products are distributed directly by Gjensi- and good investment opportunities for companies, as well as dige and via selected cooperation partners. disability pension plans for individuals. Further development of Gjensidige is the fourth largest player in the solutions based on customers’ needs was prioritised in 2016, and Norwegian defined contribution pension helped create good portfolio growth. market. Outlook Pension and Savings is a priority area that helps to make Gjensidige a complete supplier of insurance and pension products to the Commercial segment. The business contributes to stronger customer relations and loyalty among the general insurance customers. In February 2017 the Savings operations Gjensidige Investeringsrådgivning was merged with Gjensidige Bank. The Pensions operations carry on as Gjensidige Pensjonsforsikring.

The market for defined contribution pensions is growing and Gjensidige is well-positioned to participate in it. The positive growth rate is expected to continue.

Assets under management Key figures Pension and Savings

NOK bn 40 NOK million 2016 2015 2014 Net insurance revenue 195.9 155.9 136.0 30 Net operating income 98.1 53.4 12.7 20 Profit/(loss) 125.4 84.2 43.9 10 before tax expence

0 2014 2015 2016

Market shares dened contribution*

9.2 % Gjensidige 32.0 % Storebrand 27.6 % DNB 14.8 % Nordea 8.7 % Sparebank1 7.9 % Other

Source: Finance Norway, 3rd quarter 2016, Assets under management * Unit linked

14 I Gjensidige annual report 2016 Operations in brief

Retail Bank

Gjensidige Bank is a pure internet bank which shall contribute to sales of a wide range of products to general insurance 2016 customers in Norway. The bank offers Product broadening towards the affinity customers in the general mortgages, car financing, unsecured insurance operation, and innovative solutions for combined sale of lending, savings, credit cards and car financing and insurance was central in 2016. Lending growth day-to-day banking services. Distributi- was high, and lending to the Group’s general insurance customers on is mostly online, and customer consisted 76 per cent of the total lending volume in the bank at the service may be reached on the phone, end of the year. via chat and at Gjensidige’s financial offices. Car financing is also distributed Outlook through car dealers. Gjensidige Bank shall first and foremost underpin the Norwegian general insurance business by making a wider product range available to existing general insurance customers in Norway. The bank will continue to offer a wide range of financial services through customer-friendly digital solutions, Gjensidige’s financial offices and cooperating car dealers.

Based on a full range of banking products and attractive terms for the private market, the bank shall contribute to the Group’s growth and profitability. Gjensidige Investeringsrådgivning was merged with the bank in February 2017. The merger is expected to help increase competitiveness in the savings market, and to improve efficiency at the Group level.

The market for banking in Norway is characterized by considerable competition and a growing number of players. Gjensidige Bank will continue to offer competitive terms in segments of strategic importance for the Group.

Deposits and lending as at 31.12. Key figures Retail Bank

NOK bn 40 NOK million 2016 2015 2014

30 Net interest income 797.3 721.2 613.8

20 Total income 871.6 725.2 663.2

10 Write-downs and losses (69.5) (62.3) (51.8)

Profit/(loss) 0 428.5 303.6 253.5 2014 2015 2016 before tax expense

Innskudd Utlån

Net interest margin

% 2,0

1,5

1,0

0,5

0,0 2014 2015 2016

NetRentenetto interest i marginprosent, annualisert= net interest = income/averagenetto renteinntekter total delt assets på gjennom-snit- tlig forvaltningskapital.

Gjensidige annual report 2016 I 15 Asset management

The purpose of the investment portfolio is primarily to cover the actuarial liabilities and to achieve the Group target return on equity. At the end of 2016, the portfolio totalled NOK 54.0 billion.

Asset management

The Group’s investment portfolio includes all The free portfolio consists of various assets. The investment funds in the Group, except for invest- allocation of assets in this portfolio must be seen ment funds in the Pension and Savings and Retail in connection with the Group’s capitalisation and Bank segments. A large part of the management risk capacity, as well as the Group’s risk appetite is outsourced to external managers, while the at all times. Results from the use of derivatives Group’s investment function concentrates on asset for tactical and risk management purposes are allocation, risk management and the selection of assigned to the respective asset classes, depending managers. Direct property investments are made on whether the derivatives used are equity or via the 50% owned property company Oslo Areal. fixed-income derivatives. Generally, currency risk in the investment portfolio is hedged close to 100 per The investment portfolio is split into two parts: a cent, within a permitted limit of +/- ten per cent match portfolio and a free portfolio. The match per currency. portfolio is intended to correspond to the Group’s technical provisions. It is invested in fixed-income At year-end 2016, the investment portfolio totalled instruments with a duration matched to the NOK 54.0 billion. The financial result was NOK 2.2 duration of the technical provisions. billion, which corresponds to a return on financial assets of 3.9 per cent.

16 I Gjensidige annual report 2016 Asset management

Financial assets and properties

Return in per cent Result NOK million 2016 2015 2014 2016 2015 2014

Match portfolio 3.5 2.8 3.2 1,264.5 982.0 1,071.2

Free portfolio 4.6 2.3 5.8 890.6 510.4 1,355.1

Financial result from the investment portfolio 3.9 2.6 4.3 2,155.1 1,492.4 2,426.3

Net income from investments 2,196.1 1,473.3 2,475.6

Portfolio composition as at 31.12.

2016 65.0 % 35.0 % NOK 54.0 bn

2015 63.0 % 37.0 % NOK 57.2 bn

2014 61.4 % 38.6 % NOK 56.5 bn

Match portfolio Free portfolio

Gjensidige annual report 2016 I 17 Additional information

Additional information

2016 2015 2014

Group Return on financial assets1 % 3.9 2.6 4.3 Equity NOK million 22,326.0 23,330.6 21,656.8 Return on equity, annual 2 % 21.4 17.4 23.3 Equity per share NOK 44.7 46.7 18.1 Total eligible own funds to meet the group SCR (SF) 3 NOK million 20,377.9 19,491.4 Group SCR margin (SF) 4 % 146.8 138.8 Total eligible own funds to meet the minimum consolidated group SCR (SF) 5 NOK million 14,065.2 14,088.3 Minimum consolidated group SCR margin (SF) 6 % 266.4 280.9

Gjensidige Forsikring ASA Total eligible own funds to meet the SCR (SF) 7 NOK million 18,625.0 18,659.7 SCR margin (SF) 8 % 181.5 176.9 Total eligible own funds to meet the MCR (SF) 9 NOK million 16,124.4 16,236.6 MCR margin (SF), Group 10 % 349.2 343.5

Share capital Issued shares at the end of the period Number 500,000,000 500,000,000 500,000,000 Earnings per share in the period, basis and diluted 11 NOK 9.34 7.57 8.38

General insurance Gross premiums written Private NOK million 8,375.9 8,269.1 8,296.3 Commercial NOK million 7,446.1 7,434.9 7,250.3 Nordic NOK million 6,262.4 5,430.0 4,961.4 Baltics NOK million 1,080.6 702.9 512.5 Corporate Centre/reinsurance NOK million 53.0 138.7 143.3 Total NOK million 23,218.0 21,975.6 21,163.8 Premiums, net of reinsurance 12 % 97.5 97.9 97.7 Earned premiums Private NOK million 8,291.3 8,152.3 8,124.1 Commercial NOK million 7,257.4 7,076.8 6,847.2 Nordic NOK million 5,917.8 5,233.3 4,762.9 Baltics NOK million 1,036.3 642.0 523.0 Corporate Centre/reinsurance NOK million (60.9) 167.7 129.6 Total NOK million 22,441.9 21,272.0 20,386.8 Loss ratio 13 Private % 60.7 60.2 67.3 Commercial % 66.5 68.2 70.0 Nordic % 80.1 74.6 75.4 Baltics % 72.2 81.8 72.1 Total % 69.1 68.6 71.0 Cost ratio 14 Private % 12.8 12.7 12.7 Commercial % 11.0 11.4 11.3 Nordic % 15.7 15.6 16.6 Baltics % 37.4 33.6 27.8 Total % 14.2 15.1 15.0

18 I Gjensidige annual report 2016 Additional information

2016 2015 2014

Combined ratio 15 Private % 73.5 72.9 80.0 Commercial % 77.5 79.6 81.2 Nordic % 95.8 90.3 91.9 Baltics % 109.6 115.4 99.9 Total % 83.4 83.7 86.0 Combined ratio discounted 16 % 82.4 82.3 83.4

Pension and Savings Assets under management pension, at the end of the period NOK million 23,237.3 20,033.0 17,196.3 of which the group policy portfolio NOK million 5,409.6 4,877.5 4,186.8 Assets under management savings, at the end of the period NOK million 15,141.6 15,555.1 15,018.2 Operating margin 17 % 30.47 19.37 5.43 Recognized return on paid-up policy portfolio 18 % 4.08 5.43 4.63 Value-adjusted return on paid-up policy portfolio 19 % 4.87 5.42 4.63 Customers with insurance agreements at the end of the period 20 % 70.0 84.5 84.6 Return on equity, annual 2 % 14.5 14.1 7.8

Retail Bank Gross lending, addition in the period NOK million 4,514.0 9,189.0 3,352.6 Deposits, addition in the period NOK million 1,913.1 2,653.9 1,765.1 Gross lending, at the end of the period NOK million 41,249.5 36,735.5 27,546.5 Deposits at the end of the period NOK million 21,270.4 19,357.2 16,703.4 Deposit-to-loan ratio at the end of the period 21 % 51.6 52.7 60.6 Net interest margin 22 % 1.85 2.12 2.17 Write-downs and losses 23 % 0.18 0.20 0.20 Cost/income ratio 24 % 42.9 49.5 54.0 Customers with insurance agreement at the end of the period 25 % 76.2 77.0 Capital adequacy 26 % 17.1 16.1 15.9 Core capital adequacy 27 % 15.0 14.2 14.1 Common equity Tier 1 capital ratio 28 % 13.5 12.7 14.1 Return on equity, annual 2 % 11.7 10.3 9.6

1 Return on financial assets = net financial income in per cent of average financial assets including property, excluding Pension and Savings and Retail Bank 2 Return on equity, annualised = Shareholders’ share of net profit for the period/average shareholders’ equity for the period, annualised 3 Total eligible own funds to meet the group SCR (SF) = Total eligible own funds to meet the group SCR under the Solvency II standard formula. Total comprehensive income is included, less a formulaic dividend pay-out ratio in first, second and third quarter of 70 per cent of net profit. 4 Group SCR margin (SF) = Ratio of total eligible own funds to group SCR under the Solvency II standard formula 5 Total eligible own funds to meet the minimum consolidated group SCR (SF) = Total eligible own funds to meet the minimum consolidated group SCR under the Solvency II standard formula. Total comprehensive income is included, less a formulaic dividend pay-out ratio in first, second and third quarter of 70 per cent of net profit. 6 Minimum consolidated group SCR margin (SF) = Ratio of eligible own funds to minimum consolidated group SCR under the Solvency II formula 7 Total eligible own funds to meet the SCR (SF) = Total eligible own funds to meet the SCR for Gjensidige Forsikring ASA under the Solvency II standard formula. Total comprehensive income is included, less a formulaic dividend pay-out ratio in first, second and third quarter of 70 per cent of net profit of the Group. 8 SCR margin (SF) = Ratio of total eligible own funds to SCR for Gjensidige Forsikring ASA under the Solvency II standard formula 9 Total eligible own funds to meet the MCR (SF) = Total eligible own funds to meet the MCR for Gjensidige Forsikring ASA under the Solvency II standard formula. Total comprehensive income is included, less a formulaic dividend pay-out ratio in first, second and third quarter of 70 per cent of net profit of the Group. 10 MCR margin (SF) = Ratio of eligible own funds to MCR for Gjensidige Forsikring ASA under the Solvency II formula 11 Earnings per share, basic and diluted = the shareholders’ share of the profit or loss for the period/average number of outstanding shares in the period 12 Premiums, net of reinsurance = gross premiums written, net of reinsurance/gross premiums written (general insurance) 13 Loss ratio = claims incurred etc./earned premiums 14 Cost ratio = operating expenses/earned premiums 15 Combined ratio = loss ratio + cost ratio 16 Combined ratio discounted = combined ratio if claims provisions had been discounted 17 Operating margin = operating result/(net insurance-related income + management income etc.) 18 Recognised return on the paid-up policy portfolio = realised return on the portfolio 19 Value-adjusted return on the paid-up policy portfolio = total return on the portfolio 20 Shared customers = customers having both pension and savings and general insurance products with Gjensidige 21 Deposit-to-loan ratio = deposits as a percentage of gross lending 22 Net interest margin, annualised = net interest income/average total assets 23 Write-downs and losses, annualised = write-downs and losses/average gross lending 24 Cost/income ratio = operating expenses/total income 25 Shared customers = customers having both bank and general insurance products with Gjensidige 26 Capital adequacy ratio = net primary capital/risk-weighted assets. The result of the period is not included in the calculation for the quarters, with the exception of fourth quarter. 27 Tier 1 capital ratio = Tier 1 capital/risk-weighted assets. The result of the period is not included in the calculation for the quarter, with the exception of fourth quarter. 28 Common equity Tier 1 capital ratio = common equity Tier 1 capital/risk-weighted assets. The result of the period is not included in the calculation for the quarter, with the exception of fourth quarter.

Gjensidige annual report 2016 I 19 Investor information

The Gjensidige share yielded a total return of 5 per cent in 2016. At year-end Gjensidige was the eighth largest company listed on Oslo Stock Exchange, with a market cap of NOK 69 billion. Earnings per share was NOK 9.34 in 2016, and the Board has proposed a dividend of NOK 6.80 per share.

Investor information

Gjensidige shall maintain an open dialogue with all Dividend for the 2016 financial year will be stakeholders and complies with the Oslo Børs Code approved by the Annual General Meeting on 6 April of Practice for IR. Established guidelines for investor 2017 and paid to shareholders registered on the relations can be found on www.gjensidige.no/ir date of the General Meeting. The Gjensidige share is traded ex dividend on 7 April 2017, the record Every quarter, the results and business operations date is 10 April 2017, and dividend is to be paid on are discussed in meetings with analysts and 20 April 2017. investors. As a main principle, investor relations is always present at these meetings, possibly in Customer dividend addition to the CEO and/or CFO or other relevant The Gjensidige Foundation is the largest sharehol- senior management from the company. der in Gjensidige with 62.2 percent of the shares. The Foundation distributes the regular dividends Dividend and dividend policy it receives from Gjensidige related to the annual Gjensidige targets high and stable nominal result, to Gjensidige’s general insurance customers dividends, over time a minimum of 70 per cent in Norway. Special dividends related to distribution of the profit after tax. When determining the size of excess capital is retained and managed by the of the dividend, the expected future capital need Gjensidige Foundation. will be taken into account. Over time, Gjensidige will also pay out excess capital above the targeted The customer dividend is distributed to the custo- capitalisation. mers based on insurance premiums paid for the accounting year the share dividend relates to. It is A total dividend of NOK 6.80 per share is proposed paid to those who are still customers of Gjensidige for the 2016 financial year. This corresponds to 73 at the time of the Gjensidige Foundation’s General per cent of the profit after tax. Meeting approving the customer dividend.

In addition, a special dividend of NOK 3.0 billion, Paid customer dividend in 2016, based on the corresponding­ to NOK 6.00 per share, was paid accounting year 2015, equalled 13.5 percent of throughout­ 2016, as distribution of excess capital. paid premiums in 2015.

Dividend 62.2 % 37.8 % Dividend

Other shareholders

Customer dividend Gjensidige’s general insurance customers in For the ownership policy of the Gjensidige Norway Foundation, see www.gjensidigestiftelsen.no

20 I Gjensidige annual report 2016 Investor information

Geographical distribution of shares as at 31.12 2016

40 % Norway 23 % North America 8 % UK 4 % Asia 23 % Europe excl. UK and Norway 2 % Other

DistributionDistribution ofof sharesshares excluding shares ownedexcluding by theshares Gjensidige owned by Foundation the Gjensidige Foundation

Ownership 20 largest shareholders At the end of 2016, Gjensidige had about 34,000 31 Desember 2016 1 shareholders. The 20 largest shareholders held a Per cent total of 85.6 per cent of the shares in Gjensidige. 1 Gjensidigestiftelsen 62.2

In its Articles of Association, the Gjensidige 2 Folketrygdfondet 4.3 Foundation has stipulated to have an ownership 3 Deutsche Bank 3.6 in Gjensidige of at least 60 per cent, and shall contribute to stable ownership and predictability. 4 Caisse de Depot et Placement du Quebec 3.3 5 Danske Bank 2.8 The Foundation expresses a willingness to consider reducing the holding in the event of any acquisiti- 6 BlackRock 1.8 ons or capital increases that are in accordance with 7 KLP 0.9 Gjensidige’s overall strategy. 8 State Street Corporation 0.8 The Gjensidige Foundation manages the ownership 9 Vanguard Group 0.8 of Gjensidige on behalf of Gjensidige’s general insurance customers in Norway. The Foundation 10 DnB 0.6 has an ownership policy that focuses on high value 11 Safe investment Company 0.6 creation over time, and expects a competitive dividend. 12 JPMorgan Chase & Co 0.6

13 Storebrand 0.6

14 Fidelity Worldwide Investment (FIL) 0.5

15 William Blair & Company 0.4

16 Nordea 0.4

Genossenschaftliche FinanzGruppe 17 0.4 Volksbanken Raiffeisenbanken

18 Thornburg Investment Mgt 0.4

19 BNP Paribas Group 0.4

20 Legal & General Group 0.3 General Meeting The next ordinary General Meeting 1 The list of shareholders is based on an analysis of the register of will be held at Gjensidige’s offices in shareholders in the Norwegian Central Securities Depository (VPS) as at 31 December 2016, carried out by Orient Capital Ltd. The analysis Schweigaards gate 21, Oslo, maps the owners behind the nominee accounts. There is no guarantee that the list is correct. An overview of the 20 largest shareholders as on 6 April 2017, at 17:00 CET. specified in VPS’s register of shareholders is available in Note 24 on page 143. For more detailed information about the governing bodies and/or the General Meeting, see page 36-47 and/or www.gjensidige.no/ir.

Gjensidige annual report 2016 I 21 Corporate social responsibility

Gjensidige’s object is to create value for society through safeguarding life, health and assets and by relieving customers of risk. We shall ensure that our experience and expertise in loss prevention benefit society at large. Our activities shall contribute to a good, sustainable society characterised by respect for human rights and the environment we live in.

Corporate social responsibility

Gjensidige follows Oslo Børs’s guidance on the We meet these stakeholders in various arenas, such as reporting of corporate social responsibility, which • Written correspondence was introduced in 2016. The report is based on an • Meetings analysis of the most important stakeholders we • Conferences interface with in our activities, and of CSR mat- • Presentations ters that are relevant to our relations with these • Phone calls stakeholders. The assessment of relevant topics is based on The analysis is part of our annual risk mapping. • what topics the stakeholders are concerned with It involves a number of key personnel in various • what consequences it will have for Gjensidige positions in the Group, including the Senior Group not to meet stakeholder expectations Management. • what consequences it will have for the stakehol- ders if we do not meet their expectations In 2016, approximately 30 stakeholder groups were assessed, and 5 of them were considered to be of The result of the analysis can be compiled in a particular importance to the risk analysis: table, where topics of great significance to both • Public authorities stakeholders and Gjensidige are placed in the top • Owners right-hand corner. Topics of less significance to • Employees Gjensidige and the stakeholders are placed in the • Customers bottom left-hand corner. • Partner organisations

The environment and climate Loss prevention Employment Socially responsible capital Direct and indirect taxes management Support for local communities Labour rights Discrimination Competence-raising Possibility of whistleblowing Product range Fair competition Protection of privacy

Renewable energy Talent mapping Waste handling Corruption Water consumption Money laundering Environmental emissions HSE Sustainable products Insurance for the financially Significance to to stakeholders Significance disadvantaged

Significance to Gjensidige

22 I Gjensidige annual report 2016 Corporate social responsibility

It is important to underline that all the above-men- We shall ensure as little negative impact on the tioned topics are important. The matrix must be environment and climate as possible. read as a prioritised overview of the areas in which The Board and the management have adopted it is natural to have expectations of Gjensidige, policies, guidelines and instructions that detail and how great a risk there is of Gjensidige not meeting specify the framework our employees must adhere expectations, and what the consequences could be to in different situations. Documents that are if the expectations are not met. particularly relevant to the exercise of our corporate social responsibility are listed in a table on page 35. One example of this could be waste handling, which is not considered material to us, although it A full version of the guidelines for corporate social is an important topic in general. Gjensidige does responsibility (CSR) and socially responsible invest- not have any processes that generate significant ments (SRI) is available at www.gjensidige.no. amounts of waste. Our waste production is largely related to office supplies, the running of cafeterias Several other chapters in this annual report are and hygiene. For that reason, it is not natural for relevant to understanding how Gjensidige exer- stakeholders to be very concerned with Gjensidige’s cises its corporate social responsibility. The most waste production. This does not mean that we important are: neglect the topic, however. We have sound systems • Corporate governance. Page 36 in place for separation at source and recycling, and • Note 3, Management of insurance risk and make constant efforts to minimise the amount of financial risk. Page 88 waste we generate. • Note 18, Pay and remuneration. Page 132 • Note 28, Share-based payment. Page 143 Measures and results Gjensidige offers general insurance products to The Company’s operations are described in more private and commercial customers in the Nordic detail on page 8. Our strategy, financial targets region and the Baltic states. In Norway, we also and key figures are described on pages 8 and 3, offer banking and savings services to private respectively. Capital management is described on customers and pension products to commercial page 16. customers. Loss prevention Gjensidige’s corporate social responsibility policy is Our core business – insurance – gives customers based on our role as one of the biggest insurance security by reducing or removing negative financial companies in the Nordic region with significant consequences of damage, injuries and accidents. engagement in investment activities with a global This is an important welfare need in modern focus. societies. It is nonetheless better for the customer, the insurance company and society as a whole Corporate social responsibility is an integral part to prevent such events occurring. Loss prevention of our business operations. We are an insurance is therefore a natural and important part of company and wish to use our expertise and influ- Gjensidige’s core activities and corporate social ence in areas where we can play a significant role. responsibility.

In line with this, Gjensidige shall contribute to safe Through our operations, we have acquired extensive communities where we operate and make arran- expertise in loss prevention. This know-how shall as gements so that our employees can demonstrate far as possible be used for the benefit of society at social commitment. All aspects of our activities large. shall be based on respect for human rights and employees’ right to meaningful work under safe Most insurance policies are designed to motivate conditions. the customer to avoid losses, both through incentives to reduce risk and through the customers Gjensidige’s employees must comply with laws and usually having to carry some of the financial risk regulations in the societies in which we do business, themselves. and act in accordance with ethical norms. Ethics and compliance with laws and regulations are key The price customers pay for their insurance is aspects of the internal training of our staff. normally strongly affected by the financial risk the customer represents. This risk is affected by the We shall seek to engage in dialogue with all interest customer’s choice of house, car and behaviour, groups affected by our activities. among other things. We reward a number of security measures by giving a discount on the

Gjensidige annual report 2016 I 23 DetteCorporate er Gjensidige social responsibility

insurance premium. Measures that contribute to Norway and abroad, that work on fire prevention, reducing the risk for both us and customers include prevention of water damage and other initiatives burglar alarms, inspections of electrical systems for the benefit of society. in buildings, the installation of equipment that reduces the risk of water damage in buildings, and For many years, we have been the main sponsor of tracking systems for cars. the Norwegian women’s national handball team, and in 2016, we also sponsored the men’s national Young drivers are especially at risk of being involved football team. We use these sponsorships to create in accidents. In order to reduce the number of activities for children and young people that can such accidents, Gjensidige therefore has several help to recruit new players into the sport and measures targeting this group in particular. thereby promote a healthier lifestyle.

In Norway, we give an insurance discount to Socially responsible young people who have practised driving with an capital management accompanying driver for a sufficient number of Our investment activities are globally oriented, and kilometres. we invest in countries where respecting human rights is not a matter of course. By doing so, we When they reach the age of 23, customers who risk becoming part-owner of companies that have driven claim-free for the past year or longer contribute to violating human rights through their will be paid an amount as a reward. The longer the production of goods and services or their treatment claim-free period, the bigger the reward. of employees, suppliers, the local community or other interest groups. We collaborate with the Norwegian Council for Road Safety (Trygg Trafikk) on awareness-raising The Board of Gjensidige Forsikring has adopted a campaigns in upper secondary schools several group policy for socially responsible investments. It places in Norway. states that our investment portfolio shall comply with internationally recognised guidelines for soci- We also collaborate with other insurance compa- ally responsible investments: The policy mentions nies on road safety through the industry organisa- the following areas in particular: tion Finance Norway. • Human rights • Labour standards In Latvia, Gjensidige contributes to improving road • The environment safety through an annual campaign that encoura- • Corruption ges pedestrians to wear reflectors. • Weapons

With the help of weather data, we send text The Group’s Chief Investment Officer is responsible for messages to customers likely to be affected by ensuring compliance with the guidelines. Follow-up bad weather. The messages are based on official requires both time and special expertise. We have weather data and our customer data, so that therefore hired two external consultancy firms to we avoid distributing false alarms. Every year, we carry out continuous monitoring of companies. The receive feedback from grateful customers who external consultants prepare lists of companies that have had time to secure their assets thanks to they believe Gjensidige should not invest in, and why. these messages. One member of the capital management team is Fire is something that severely affects our custo- responsible for reviewing and compiling all informa- mers, both financially and, not least, personally. tion from the external consultants. This employee Together with the Norwegian Fire Protection draws up a recommendation to the Chief Investment Association, the Directorate for Civil Protection and Officer and the Chief Risk Officer, who reach a final Emergency Planning (DSB) and local fire brigades, decision on whether to exclude the company in we organised the ‘Aksjon Boligbrann’ fire prevention question. campaign in autumn 2016. It involved visiting 40,000 homes. We also contributed to the develop- When a company is excluded, we will make sure that ment and marketing of educational material on the company is not part of any portfolios that we fire prevention for schools. Approximately 20,000 manage ourselves, either by not buying securities in children take part in this training every year. the company or by selling any securities we own. In connection with all individual investments in securi- Every year, Gjensidige is represented on a number ties, we check the exclusion list to avoid investing in of councils, committees and boards, both in companies that have been excluded.

24 I Gjensidige annual report 2016 Corporate socialDette responsibility er Gjensidige

Number of employees

Number 4,000 In the case of investments in funds managed by others and where Gjensidige does not decide the 3,600 framework conditions, we will enter into dialogue 3,200 with the fund manager with a view to excluding the company concerned. If the dialogue does not 2,800 lead to a satisfactory outcome, we will terminate 2,400 our investment in the fund. We also check the fund managers’ SRI policy when we consider entering into 2,000 2007 2009 2011 2013 2015 management agreements. 2008 2010 2012 2014 2016

Meetings on socially responsible investments are held every quarter and as needed. In 2016, it was decided to exclude 12 companies from Gjensidige’s invest- ment portfolio. At year-end, a total of 85 companies Diversity and discrimination had been excluded. We work to ensure that all employees in the Group have equal opportunities for personal and professi- Our real estate investments are made through the onal development. We do not tolerate discrimina- property company Oslo Areal, a company that tion on the basis of engages in property development in the Oslo area • gender and invests in environmentally friendly buildings near • age public transport hubs. The company uses the BREEAM • disabilities NOR environmental classification system for new • ethnic origin buildings and complete restorations. • sexual orientation • religion Labour rights and competence-raising Recruitment and HSE procedures ensure compli- Gjensidige aims to be a health-promoting work- ance with the Norwegian Anti-Discrimination and place where all employees are given opportunities Accessibility Act. for professional development and competence-rai- sing. We believe that people thrive when they can One measure aimed at ensuring such compliance use their abilities, develop and be part of a larger is the compilation of pay statistics to shed light group. It is our responsibility to facilitate this, but on any differences in pay for the same work or it is also a sound investment if Gjensidige is to work of equivalent value. Any nonconformities will succeed in the time ahead. be followed up by actions. No special measures relating to equality or discrimination have been At year-end 2016, the Group had a total of 4,005 necessary in 2016. employees. At year-end 2016, the number of women and men Under Norwegian law, employees of the Group among our employees was almost exactly the same. are entitled to be represented on the Company’s governing bodies. Employee representatives are The Group’s Board had ten members in 2016, five elected by and from among the employees. of whom were women. Of the seven representatives who were not elected by and from among the The cooperation between the Company’s manage- employees, three were women. ment and the employees’ trade unions is systema- tic and good, and it is based on a well-established Eight of the Senior Group Management’s nine structure with regular meetings of various commit- members were men. Of the male executive vice tees. Rules have been adopted for what processes presidents, one was acting as replacement for a and decisions employee representatives shall be female EVP on parental leave. involved in. Employee representatives are paid by the Company. In addition to the Senior Group Management, 395 employees in Norway, Sweden and Denmark held In 2016, 86 per cent of the Company’s employees executive positions in 2016. Of these, 64 per cent in Norway were covered by collective agreements. were men and 36 per cent women. In Denmark, approximately 90 per cent of our employees were covered by collective agreements, Gjensidige wishes to increase the proportion of and in Sweden nearly 100 per cent. women in executive positions, and this is well known among managers at all levels. This ambition

Gjensidige annual report 2016 I 25 DetteCorporate er Gjensidige social responsibility

has contributed to a higher proportion of female Parents are allowed to stay home from work when managers over time. their children are ill, as long as this is necessary and reasonable. In 2016 we surveyed differences between male and female employees in Gjensidige Forsikring Norway We take steps to ensure that employees can work when it comes to pay and working conditions.The from home, out of consideration for their family or survey showed that for other reasons. • 52 percent of employees are men, and 48 percent women Human capital and competence • 98 percent of male employees work full time development • 87 percent of female employees work full time Good management and continuous competen- • Average annual salary for full time employed ce-raising measures will give Gjensidige important women amounts to 84 percent of average competitive advantages. We also have a responsi- annual salary for full time employed men bility to each individual employee and to society to • Differences in pay between women and men are make sure that employees are sufficiently qualified highest among the employees of the higher age to be attractive employees. groups. There is no difference between employ- ees under 30 years of age In 2016, Universum named Gjensidige Norway • The percentage with higher education is higher the most attractive employer for economists in among men than women the insurance industry. When all professions and industries are included, we were number 39 on the We have an equality and discrimination commit- list, 5 places higher than the year before. tee that meets when necessary. The committee comprises staff from the HR department and Management and employee development is employee representatives. It is the Group’s HSE attended to by the staff entity the Gjensidige manager who decides when to convene the Customer and Brand School, which is part of HR committee. Employees reporting discrimination is a and is organised under the EVP of Group Staff and typical reason for holding a meeting. The commit- General Services. tee held one meeting in 2016. The topic was equal pay for women and men. No wage disparities on The HR Department is responsible for strategic the basis of gender were identified in Gjensidige. staffing planning, including mapping of critical roles and expertise in the Company. The plan ensu- Gjensidige shall be an inclusive workplace for all res that there are successors to all critical positions employees. We are an Inclusive Workplace (IW) in the Company, and that we always cultivate enterprise and cooperate with the Norwegian talents who can take over key positions. Labour and Welfare Administration (NAV) on job training for people who, for various reasons, We work systematically on talent recruitment and have been unemployed. NAV pays subsidies for have developed an employer branding strategy to employees who suffer from chronic illnesses but still this end. We make targeted efforts through digital manage to work. We have had employees on job channels to highlight Gjensidige as an employer. training through this programme in 2016. We visit relevant educational institutions with stands and presentations for students. All our big office buildings are of universal design in order to accommodate employees with disabilities. We have established an internship scheme, where students work for us for a whole academic year. In Gjensidige has measures in place that are aimed 2016, we had 13 students in internships. The work at helping to ensure that older employees can con- is intended to be relevant for their studies and to tinue working until retirement age. The measures contribute to putting theory into practice. vary between countries. Examples of measures include the possibility of reduced working hours Every year we organise the ‘Gjensidige Day’ at and extra holidays. The average retirement age has Gjensidige’s head office, which offers a varied increased over time, but fell somewhat in 2016 due programme for students. In 2016, 60 students to early retirement in connection with restructuring. participated in presentations, workshops, group interviews and a social event in the afternoon. A family-friendly company By law, parents are entitled to paid leave in The Gjensidige Customer and Brand School is the connection with childbirth in all the countries where Group’s tool for ensuring that all employees have Gjensidige has employees. the necessary prerequisites for implementing the

26 I Gjensidige annual report 2016 Corporate social responsibility

Group’s customer orientation strategy. All compe- We therefore work on preventing and following up tence-raising measures are aimed at this. sickness absence and on making adaptations for employees with disabilities. All new Gjensidige employees take part in an introduction day where the CEO and other key The work stations of all new employees are personnel talk about the Company’s strategy, inspected as soon as possible by a physiotherapist competence-building, culture, brand, ethics and or an ergonomist, if practically possible. The more practical information. purpose of this is to adapt the work station with a view to avoiding repetitive strain injuries and to Employees who are to work in sales and customer provide information about the prevention of health advice participate in a more extensive course problems. programme, leading up to an exam where profes- sional know-how, ethics and customer dialogue Our health-promoting measures include (varies are tested. Advisers targeting the private market from office to office): are certified in accordance with a national industry • Arrangements to facilitate cycling to work in the scheme for the sale of general insurance. The form of bicycle parking and changing rooms programmes are developed and organised by the • Gym rooms Gjensidige Customer and Brand School. • Competitions that motivate moderate physical activity on a daily basis The Gjensidige Customer and Brand School had • Short exercise breaks during working hours 7,113 course days in 2016. Almost 1,600 employees • Company sports club that organises a range of participated in courses organised by the Gjensidige activities Customer and Brand School in 2016. Special adaptation procedures have been adopted E-learning plays an increasingly important role for employees who have health problems that are in the school’s programmes. It is mainly used for aggravated by computer work or who wish to pre- training in insurance subjects, systems, ethics and vent such problems arising. The Company has not procedures. In 2016, staff have completed and been notified of any repetitive strain injuries in 2016. passed 11,538 e-learning courses. A total of 5,274 different competence tests were held. Sickness absence was 3.9 per cent in Norway, Denmark and Sweden in 2016. Our goal is to Customised management development program- reduce sickness absence to three per cent by 2019. mes have been developed for groups of managers with different experience backgrounds, from newly In 2016, we conducted three internal HSE audits in appointed managers to the senior management Norway, two in Denmark and two in Sweden. The group. The management training programme was result shows that the Company takes a systematic updated towards the end of 2016, with a view to approach to health, safety and the environment, making the training more adapted to the indivi- and that relevant measures are successfully dual. implemented. The nonconformities that were found will be addressed and closed. In all, we spent NOK 15,000 per employee on competence-raising measures in 2016, which is No work accidents resulting in personal injuries or somewhat less than in 2015. That was in part material damage occurred in 2016. because of cost reductions and in part because the number of employees increased due to acquisitions. The HSE work is monitored through external audits We have an active career development programme and followed up internally by employees with in the Company. Among other things, it facilitates special responsibility for HSE. All incidents that can internal mobility for the purpose of broadening the represent a risk must be reported in the Company’s employees’ range of competence and experience. nonconformity system.

Working environment issues are integrated in the Health, safety and the environment annual employee satisfaction survey. (HSE) Systematic health, safety and environmental work In 2016, 92 per cent of our employees in six is given high priority in Gjensidige. Our goal is not countries chose to take part in the survey. That only to prevent sickness absence and injuries, but is a very high response rate. The survey measures also to ensure that Gjensidige is a health-promo- various criteria on a scale from 0 to 100, where 100 ting workplace. indicates an optimal condition.

Gjensidige annual report 2016 I 27 DetteCorporate er Gjensidige social responsibility

The following are a selection of key results from the service is staffed by highly experienced claims 2016 survey: settlement personnel, who can take a fresh look at • Job satisfaction: 73 the case without being influenced by the original • Contentment: 72 case officer’s personal assessment. • Motivation: 74 The third level is the Norwegian Financial Services The industry average for corresponding criteria is Complaints Board (Finansklagenemnda), which is 67–68. a joint complaints board for the whole insurance industry that comprises representatives of the All managers review the survey with their staff consumer authorities, the financial industry and in cooperation with the HR department. Each independent experts. The composition ensures department defines an action plan that is followed that the independent representatives decide the up by the individual managers. outcome of cases in which the consumer authori- ties and the financial industry disagree. Customer satisfaction and product quality The number of complaints can provide an indica- It is Gjensidige’s goal to be the most customer-ori- tion of how well Gjensidige succeeds in its ambition ented company in the Nordic insurance industry. to deliver high-quality claims settlements. Customer orientation permeates our behaviour, priorities and communication at all levels of the The Financial Services Complaints Board received organisation. The focus on customers is a key part 389 complaints from Gjensidige customers in 2016. of product and service development, the training of They accounted for 12 per cent of all insurance-re- employees, advisory services, sales, claims settle- lated complaints to the Board. This must be seen ment and the handling of complaints. in conjunction with the fact that Gjensidige had a market share of 25,6 per cent in 2016. Customers’ satisfaction with the Company and individual advisers is measured on a continuous Of the cases reported to the Financial Services basis, and improvement measures are initiated Complaints Board, the Board found in favour of the based on feedback from the customers. Gjensidige customer in whole or in part in 21 per cent of the has defined clear goals for customer satisfaction. cases. A high percentage would indicate that the The level of goal attainment influences the threshold for succeeding with a complaint internally payment of bonuses to executive personnel and in Gjensidige was high. collective bonuses to all employees. Innovation and In 2016, Gjensidige’s customer satisfaction index technology development (KTI) was 77.4 at group level, which is an increase In order to ensure that our products and customer of 1.2 from 2015, and a very good result. service maintain a high international level at all times, we collaborate with research institutions The quality of insurance products is not directly on innovation. In the period 2015 to 2022, we are measureable. Quality for the individual customer participating in a research collaboration with, will depend on the extent to which their expectati- among others, the University of Oslo, the University ons are met in connection with claims settlements. of Bergen and the Norwegian Computing Centre on It is Gjensidige’s ambition that all customers shall several projects that we expect to give us new insight receive the right settlement as soon as possible. into topics relating to the processing of large data Both factors are important to their perception of volumes (big data). Examples include risk pricing, quality. forecast and trend analyses and insurance fraud.

The possibility of efficient but thorough complaints Other Norwegian companies and public bodies handling is part of delivering high-quality claims also participate in the project, which is called Big settlements. Gjensidige has established a Insight. complaints system whereby customer complaints can be considered at three levels. Customers and data protection The Norwegian Data Protection Agency has gran- The first level is the case officer. If the case officer ted Gjensidige a licence to process personal data, does not reverse his/her decision, the customer and laws and regulations regulate our collection, can complain to the second level – the customer storage and use of such data. A group policy and ombudsman – which is the Company’s internal instructions provide detailed guidelines on the complaints board. The customer ombudsman processing of personal data.

28 I Gjensidige annual report 2016 Corporate socialDette responsibility er Gjensidige

Gjensidige’s employees are bound by a statutory Whistleblowing is facilitated through two electronic duty of secrecy about all matters relating to our mailboxes: customers. Data protection training is mandatory • An internal mailbox for reporting ethics-related for all new employees and is also a part of the matters introductory programme. Access to personal custo- • An external mailbox for reporting irregularities mer data shall only be granted to employees who and malpractices need it in the course of their work. The Company shall not obtain other personal data than what it Notifications to the internal mailbox are dealt with needs to serve the individual customer. by the Company’s HR department based on clear procedures. Relevant matters are reported to the Personal data shall only be used and stored for as Group’s risk committee and the Board. long as this is necessary, and they shall be deleted immediately when they are no longer needed, Whistleblowers are protected by Norwegian law unless special exemptions are authorised by law. and the Company’s internal regulations, and employees who report such matters shall not be The Senior Group Management has overriding subjected to reprisals. responsibility for the processing of personal data and internal control relating thereto. Other mana- Notifications to the external mailbox are in principle gers are responsible for ensuring that employees anonymous, unless the whistleblower chooses to who have access to personal data have the provide his/her name. Employees may submit competence and other qualifications required to be notifications to this mailbox anonymously, as may able to comply with the regulations and protect the customers, suppliers and other external stakehol- customer’s personal data. ders.

The data protection officers have an independent Notifications of irregularities or malpractices are role and are in contact with the Norwegian dealt with by Gjensidige’s Internal Investigation Data Protection Agency and with customers and Unit. The department carries out a preliminary employees who have enquiries about personal investigation or assessment based on the content data. They also have an internal control function. of the notification.

Customers can request access to the information If the investigations uncover matters that warrant stored about them at any time, and they can criticism, HR will take over the case and ensure demand that incorrect information be corrected. that it is dealt with. The CEO will decide whether to The request for access may be rejected in special report employees to the police. cases following a concrete assessment, for example in connection with the investigation of insurance Ethical and customer-friendly fraud. business operations Gjensidige shall have a corporate culture where Our privacy statement is available at gjensidige.no. each individual employee exercises good judge- It describes how we handle personal data. ment and is able to handle difficult situations that may arise. Our value creation shall take place in The requirements for information security are revi- accordance with our ethical guidelines. They are sed at least once a year. Risk assessments relating set out in a number of policy documents that are to personal data shall be carried out on a regular managed by the EVP of Group Staff and General basis, as part of the Company’s ordinary internal Services. control process, and in connection with any change that can affect security. Our code of ethics describes our values and under- lines that all our activities must stand up to public Notification of matters scrutiny. Together with other documents, the code warranting criticism of ethics describes what is acceptable conduct and Employees are encouraged to report matters requires all employees to behave in a respectful, warranting criticism and matters they perceive as considerate and generally polite manner in relation ethically dubious. Everyone has a duty to report cri- to colleagues, competitors, customers and others. minal matters, or if life or health is at risk. A poster with instructions on procedures for whistleblowing The risk of criminal offences and violations of our is easily accessible on our intranet site. code of ethics is monitored as part of our internal control system. The Board carries out an annual review of our most important risk areas and

Gjensidige annual report 2016 I 29 DetteCorporate er Gjensidige social responsibility

internal control procedures. Risk management and ble and unacceptable behaviour, and assignments internal control are described in more detail on intended to contribute to reflection on difficult page 68 and in note 3. situations.

Zero tolerance for corruption It is not permitted to accept gifts worth more than Denmark, Sweden and Norway are all among the NOK 500. Regardless of the gift’s value, it must six countries in the world with the lowest perceived not be accepted if it means that the employee’s levels of corruption, according to Transparency partiality or independence can be placed in doubt. International. In Estonia, Latvia and Lithuania, cor- All gifts and hospitality activities must be registered ruption is perceived as a bigger problem, according in the Company’s gift and hospitality register. to the same ranking. All managers are responsible for establishing For Gjensidige, the risk of corruption will largely be procedures and processes in their area of responsi- related to the Company’s sale of insurance and bility in order to prevent and uncover irregularities investment advice to the private and public sector, and fraudulent acts, including corruption. Our entering into agreements and the procurement of Internal Investigation Unit is tasked with uncovering goods and services. corruption and it is responsible for investigating concrete cases where improper conduct is suspe- Our definition of corruption follows the definition used cted. The unit shall also contribute to establishing in Norwegian law: abusing one’s position to obtain and developing procedures and processes that can an advantage for the company, oneself or others. The prevent and uncover such matters. work on combating corruption requires clearly defined rules and active enforcement of the rules. The rules are available at gjensidige.no, on the intranet and in e-learning courses, and managers Gjensidige’s internal regulations state that the shall contribute to ensuring that employees are Company has zero tolerance for corruption and aware of the rules. The purpose is to prevent and anything resembling corruption. The regulations help to put a stop to activities that can entail a consist of instructions and a group policy adopted breach of the regulations at an early stage. by the Board. Group policies on ethical rules and a specification of ethical guidelines relating to All new employees in the Group participate in an hospitality activities, plus guidelines on welfare introductory course at which ethics and corruption measures, seminars and gifts are also relevant in are on the agenda. this context. Gjensidige does not make donations to politicians, It follows from this that our employees are not political parties or organisations with a mainly allowed to offer or receive bribes or facilitation political agenda. payments. The same applies to gifts that can be regarded as improper. The rules apply to managers Money laundering and and employees at all levels of the Company, also in financing of terrorism countries that are not covered by Norwegian law. In the field of insurance, Gjensidige is required to Special rules have been stipulated for employees take a risk-based approach to money laundering with responsibility for relations with customers and and financing of terrorism. That means that we suppliers. carry out a risk assessment in connection with the sale of insurance to new and existing customers, Other measures that, together with the regula- and the payment of claims. The risk assessment tions, make up our anti-corruption programme is comprehensive and is based on characteristics include: of the customer, the customer relationship, the • Risk assessments product, the transaction and other matters of • Internal control relevance. • The anti-corruption handbook • Whistleblowing procedures The risk assessment may result in more extensive • Procedures for handling nonconformities and customer due diligence measures. Customer service violations staff are subject to clear guidelines for when such • Dilemma training measures shall be initiated, and how to handle such • E-learning a situation.

The programme gives a detailed description of If such measures fail to clarify the situation, the what is meant by corruption, examples of accepta- Company will carry out more detailed investigati-

30 I Gjensidige annual report 2016 Corporate socialDette responsibility er Gjensidige

ons in order to clarify whether the transaction can that is in line with Gjensidige’s guidelines for ethical be carried out. The investigations are carried out by business operations. the Company’s Investigation department, which comprises employees who have previously worked The underwriting policy explicitly states that the in the police and have expertise in and experience Company shall not enter into insurance contracts of investigations. that form the basis for the payment of claims or other benefits to states or geographical areas In cases where there is a sufficiently strong subject to sanctions adopted by the UN or the EU. suspicion of money laundering or financing of terrorism, Gjensidige will report the matter to the Procurements and suppliers Norwegian National Authority for Investigation and We make equally strict ethical demands of our sup- Prosecution of Economic and Environmental Crime pliers as of ourselves. Procurements over a certain (Økokrim). size must be quality-approved by the Corporate Procurement department. Most purchasing If money laundering or financing of terrorism can agreements are the result of competitive tendering be substantiated, the Company will refrain from carried out in accordance with adopted guidelines. taking out insurance or settling claims, to the All our suppliers must sign a self-declaration on extent that such sanctions are permitted by law. corporate social responsibility.

A solid defence against money laundering is not Companies that provide services in connection only necessary because of official instructions. with claims payments for damaged buildings in In the insurance business, money laundering Norway must be certified in Startbank. Startbank is often goes hand in hand with insurance fraud. At a register of suppliers that is used by purchasers in Gjensidige, we look at the fight against money the fields of building, construction, public admi- laundering as a natural part of good risk selection, nistration, insurance and real estate. This ensures based on the principle ‘know your customers’. that qualified suppliers are law-abiding and that competition takes place on equal terms. The work to combat money laundering is prioritised at corporate management level. Internal regulati- All material procurements are ordered electroni- ons and risk analyses are managed by an executive cally. As far as possible, all suppliers shall use ele- vice president. Risk analyses are presented to ctronic invoicing. Documents relating to invitations the Senior Group Management once a year. The to tender, negotiations and agreements are stored importance of combating money laundering is electronically. Competitive tender procedures are clearly communicated at all levels. carried out with the help of online portals.

The money laundering regulations for banking The use of electronic tools ensures that all and investment services deviate slightly from the processes are documented and verifiable, and this insurance industry. Separate money laundering prevents irregularities. instructions have been established for Gjensidige Bank, as well as clear procedures for uncovering The environment and climate and dealing with suspected money laundering. An Gjensidige’s activities do not pollute the natural anti-money laundering officer has been appointed, environment to any great extent. Our CSR policy who follows up cases that the customer service states that the we shall have as little negative staff cannot resolve themselves. impact on the environment and climate as possible.

Employees who have contact with customers In order to ensure that we impact the environment undergo thorough training in money laundering as little as possible, all our 11 Norwegian offices regulations and procedures. This applies in all parts that have more than 30 employees are certified of the Group. Eco-Lighthouses. Eco-Lighthouse is a national environmental certification scheme run by the Underwriting policy Eco-Lighthouse Foundation. The foundation was Good risk selection is decisive for financial strength established by key organisations in the private and and profitability. Gjensidige’s underwriting policy is public sector. intended to provide the Company with an overview and control of its risk exposure. It is also intended to The offices that are certified Eco-Lighthouses use ensure that the Company complies with applicable an environmental management system for the laws and regulations, and that it acts in a way that handling and reduction of materials consumption, is generally perceived as fair and reasonable, and waste, energy consumption and transport.

Gjensidige annual report 2016 I 31 DetteCorporate er Gjensidige social responsibility

An annual environmental report is prepared for We have established a company car policy that all these offices that documents the status of entails that CO2 emissions from company cars implemented environmental measures and action cannot exceed 130 grams per kilometre. At our plans for the coming year. Among other things, the head office, we have three electric cars that report covers waste handling, energy consumption, employees can use in connection with meetings procurements, paper consumption, transport and and private errands, so that we reduce the use of climate accounts. taxis and private cars.

The offices must be recertified every three years. We help our employees to be environmentally It is an extensive process that is carried out by an friendly, both in the performance of their duties, external adviser certified by the Eco-Lighthouse as employees in general and in their spare time, Foundation. among other things through information published on our intranet site. The information includes tips Annual reporting and regular recertification ensure on how to reduce the production of waste and that our offices live up to the highest standards for how to recycle, how to achieve maximum energy environmentally friendly operations. savings and how to reduce the use of polluting transport and travel. At our Copenhagen office, systems and procedures for handling and sorting waste are approved by the The assets we insure, such as cars, buildings and City of Copenhagen’s environmental authorities. companies, will cause pollution to a varying extent. Sensible risk-pricing will usually have a favourable As a knowledge-based company, our direct emissi- environmental profile, in the sense that large objects ons are largely related to the running of offices and that are demanding in terms of resources have a hig- to travel and transport. her insurance premium than less demanding objects.

We work systematically to reduce our impact on By their nature, losses have a negative impact the natural environment by limiting our consump- on the environment, since resources are needed tion of energy and the generation of various types to repair the damage or replace the loss. The of waste, such as paper, office supplies, electrical insurance premium is affected by the risk of loss, appliances and household waste. and, together with our loss prevention work, this contributes to fewer losses and less harm to the The environmental measures focus on energy effici- environment. ency, reduced travel through increased use of video conferences, and responsible waste management Gjensidige did not cause illegal emissions or receive with extensive use of separation at source. fines or other sanctions relating to the environment in 2016. The Group’s energy consumption in 2016 was 12,000 MWh. Most of our energy consumption is Sustainable products related to lighting, heating and computers. The In cooperation with the Norwegian Automobile energy carriers are electricity, which in Norway is Federation (NAF), the member organisation for almost exclusively based on hydropower; district car owners, we have developed an environmentally heating, which is largely based on waste incinera- friendly car loan for hybrid, hydrogen and electric tion; and fuel oil. cars. The loan is distributed by NAF and furnished by Gjensidige Bank. The consumption breaks down as follows: • Electricity: 8,387 MWh We work continuously to increase the proportion • District heating: 1,811 MWh of ‘paperless’ customers, meaning customers who • Fuel oil: 95 MWh choose to receive information from us through digital channels instead of on paper. With the Approximately 63 per cent of the electricity was exception of information that is required by law consumed in Norway. to be distributed on paper, paperless customers receive all documentation and other information In the course of the year we reduced the energy by email, text messages or when they log into our consumption at our head office by a considerable web portal. amount by optimizing ventilation, cooling and heating. The energy consumption in our Baltic Digital customer communication improves the offices increased due to an acquisition. customer experience and contributes to reducing costs and paper consumption.

32 I Gjensidige annual report 2016 Corporate socialDette responsibility er Gjensidige

In 2016, the proportion increased from 60 to 65 per The use of electricity and district heating does cent. not cause greenhouse gas emissions, which must therefore be calculated on the basis of an assumed Climate change, trends energy mix. The production of hydropower does and insurance not cause emissions either. We have calculated Global warming and climate change will affect that our operations in 2016 caused emissions of our business, our customers and the society we are 2,164 tonnes of CO2 equivalents (scope 1 and 2), part of. The same applies to changes in technology, compared with 2,579 tonnes the year before. The demographics and a number of other factors. reduction in reported emissions is largely due to less use of heating oil and fewer emissions from In the countries where we do business, climate company cars. change will most likely lead to increased precipita- tion and more frequent storms. This will increase Social commitment the risk of both personal injuries and material Gjensidige and the Company’s employees support damage. Weather data and claims incurred in the and are engaged in various social causes both last 35 years indicate that this is already hap- locally and nationally. The purpose is to make a pening. positive contribution in the communities where we do business, and to underpin our social mission, We have funded and contributed to several studies which is to contribute to a safer society. of how this will affect Norway, and how well-pre- pared Norwegian society is for a ‘wilder and wetter’ In Oslo, Gjensidige cooperates with the Church City climate. Together with other major insurance Mission on creating a better and safer environ- companies in the Nordic region, we have funded ment in the city centre, where the Company’s the development of the climate tool ‘VisAdapt’, head office is located. On Gjensidige’s part, this which can help home owners and house builders in cooperation involves a financial contribution to the Nordic countries to adapt to the climate in the the Church City Mission and participation by our best possible way. employees. In 2016, employees from several offices all over the country contributed to the Church City Risk relating to such factors is largely addressed as Mission’s knitting campaign, which is organised part of ordinary underwriting operations and tariff before Christmas every year to get people involved setting. Examples of environmental and clima- and raise money for a Christmas celebration for te-related trends are the increase in the number disadvantaged people. of electric and hybrid cars, and the increase in the extent of damage to buildings due to more extreme Employees also participate in various activities weather. We also see an increased risk of higher under the auspices of the Church City Mission, prevalence of diseases, especially insect-borne including homework help and chess courses for diseases. children.

We continuously assess whether prices, terms and In 2016, the Company donated NOK 1 million as conditions and compensation rules need to be a Christmas gift to the Red Cross in support of the adapted as a consequence of these trends. organisation’s refugee work in Syria. The Company’s employees decided which cause would receive the Every year, Gjensidige conducts an emerging risk gift through a vote. analysis in order to identify risk relating to pheno- mena and trends that may represent new risk or In Denmark, Gjensidige supports the Christmas changed risk. The analysis is intended to describe Seal Homes foundation (Julemærkehjemmene), risks that can be significant, but that cannot be which helps around 750 children every year who are quantified with the help of experience-based met- victims of bullying or isolation. hods. We therefore use modelling tools to describe possible outcome scenarios. One example of this is In Lithuania, we cooperate with the aid organisa- climate change, where we have quantified possible tion Food Bank, which distributes food to the poor. costs under different scenarios. In 2016, Gjensidige celebrated its 200th anni- The emission of greenhouse gases from our ope- versary. In that connection, all the Company’s rations is extremely modest. We work continuously employees were given an opportunity to spend to further reduce our emissions, and we report our one working day on a humanitarian cause in their emissions to the Carbon Disclosure Project. local community. As many as 750 employees in Norway, Denmark and Sweden made use of the

Gjensidige annual report 2016 I 33 Corporate social responsibility

opportunity. Many organised bicycle rides for Contributing to a safer society residents in nursing homes, provided language Gjensidige helps to finance the public welfare tuition to immigrants and helped out with activities system by paying direct and indirect taxes and pay for people who struggle for various reasons. to employees. The Group’s payable tax expense Others performed practical work for charitable for 2016 amounted to NOK 1,377 million. A large organisations, and helped to create better local amount in value added tax comes in addition. communities. The initiative was called ‘Good deeds’ Pay and employee benefits amounted to and the feedback from both the employees who NOK 2,413 million. participated and those who in one way or another benefited from the good deeds was unequivocally Dialogue with authorities positive. Because the initiative was so well received, and the public we will enter into agreements with several of the Through the industry organisation Finance Norway, organisations, so that our employees can contact we coordinate our dialogue with the authorities on them to perform voluntary work in 2017 as well. matters concerning the financial industry. Finance Norway is also engaged in extensive work aimed at Gjensidige’s social commitment must be seen in schools and the general public to provide infor- conjunction with the Gjensidige Foundation, our mation about personal finances, economics and biggest owner. The Foundation makes substantial statistics from the financial industry. donations that are funded by the return on the capital that was freed up in connection with the In addition to the formal contact with our custo- stock exchange listing of Gjensidige Forsikring in mers, we seek dialogue through social media and 2010. email newsletters, and various customer events.

The Foundation aims to contribute to a safer society and is particularly concerned with preven- tive measures and activities for children and young people throughout Norway.

Governing documents of particular relevance to the exercise of corporate social responsibility

• CSR guidelines Ethics • Code of ethics for Gjensidige Protection of privacy • Specification of ethical guidelines relating to • Instructions for the processing of personal data gifts and hospitality activities • Group policy for the processing of personal data • Policy on prohibited restriction of competition • Instructions for employees’ processing of personal data Procurements • Group Procurement Policy Asset management • SRI – socially responsible investments, group Corruption policy • Group policy for handling irregularities and malpractices, including corruption Complaints handling • Instructions for handling irregularities and • Group policy – complaints handling malpractices, including corruption • Instructions for the customer ombudsman’s complaints handling Money laundering • Instructions for the companies’ complaints • Risk analysis, money laundering handling • Anti-money laundering officer, job description

Underwriting • Underwriting Policy

34 I Gjensidige annual report 2016 Corporate social responsibility

Key figures, CSR

Topic 2014 2015 2016

Value creation and resource use

Return on equity Per cent 18.1 17.4 21.4

Dividend * NOK millions 2,950 6,200 3,400

Distribution percentage ** Per cent 70.4 84.5 73.0

Tax NOK millions 853 1,057 1,377

Pay and employee benefits NOK millions 2,263 2,545 2,413

Customer satisfaction (KTI group) 74.8 76.2 7 7.4

The environment

Energy consumption MWh 8,060 11,131 11,988

CO2 emissions, Scope 1 and 2 *** Tonn 3,043 2,579 2,164

Paperless customers Per cent 57 60 66

Employees

Employees, proportion men/women *** Per cent 50/ 50 52/ 48 53/ 47

Managers, proportion men/women *** Per cent 59/ 41 63/ 37 64/ 36

Average pay full time employed women as a percentage of average pay full time employed men, Per cent 88 non-managers ****

Average pay full time employed women as a percentage of average pay full time employed men, Per cent 93 managers ****

Average duration of parental leave, women ***** Per cent 19

Average duration of parental leave, men ***** Per cent 10

Competence-raising per employee NOK 17,5 0 0 17,5 0 0 15,000

Average retirement age**** Years 63.5 64.4 63.2

Sickness absence*** Per cent 4.5 4.1 3.9

Socially responsible investments

Number of excluded companies Number 85 80 85

* Based on the Board’s proposal for 2016. ** Not included distribution of excess capital *** Emissions for 2014 deviates from reported emissions in the Annual report for 2014, when Norwegian only emissions were reported. **** Norway, Denmark and Sweden ***** Norway ****** Norwegian employees who have had parental leave

Gjensidige annual report 2016 I 35 Corporate governance

The Board bases its overall corporate governance on: - Optimising the Company’s assets in a long-term perspective - Equal treatment of all shareholders - Equal and assured access to reliable, relevant and up-to-date information about the Company’s business

Corporate governance

This statement follows the 1. Statement on corporate governance structure set out in the Norwegian The Financial Undertakings Act entered into force Accounting Act Section 3-3b: on 1 January 2016. Transitional rules were issued that applied until 1 January 2017. 1. The statement is submitted in compliance with the Norwegian Code of Practice for Corporate In accordance with the Storting’s recommendation, Governance of 30 October 2014. the Board proposed in 2015 that the general 2. The Code of Practice is available at http://www. meeting dispense with the Supervisory Board and nues.no/ its Control Committee with effect from 1 January 3. Any deviations from the Code of Practice and 2016. The general meeting adopted a resolution regulations are explained under each paragraph. in line with the Board’s recommendation, and 4. The main elements in the systems for internal this has brought the owners closer to the Board, control and risk management are described in which is the body that, by law, manages the section 10 of the statement; see section 10a Company. The Nomination Committee’s position below. The systems for internal control and risk has been strengthened, and it is working on management relating to the financial reporting adapting to its role and responsibility. The Board’s process are described separately in section 10b. audit committee has for many years served as a 5. The Company’s Articles of Association do not preparatory committee in relation to the Board’s contain provisions that in whole or in part control responsibility, and it maintains most of the expand on or deviate from the provisions functions of the Control committee. of Chapter 5 of the Public Limited Liability Companies Act. Under the Financial Undertakings Act, the Board 6. The annual report describes the composition of is obliged to establish a dedicated risk committee, the Board and the Board’s select committees. i.e. a preparatory committee corresponding to The main elements of the currently applicable the audit committee. While the audit committee instructions and guidelines for these bodies are is a retrospective committee, the risk committee described in sections 8 and 9 below. will take a forward-looking perspective in relation 7. The provisions in the Articles of Association that to the Company’s strategy, risk appetite and risk regulate the appointment and replacement ability. These committees are preparatory only. The of board members are described in section 8 purpose is to strengthen and make the Board’s below. discussions more efficient. The Board’s collective 8. The provisions in the Articles of Association responsibility remains unchanged. It was decided and authorisations that empower the Board to in 2016 to establish the risk committee with effect decide that the Company shall buy back or issue from 1 January 2017. The audit committee has own shares are explained in section 3 below. fulfilled both roles for many years, and the Board has started work on finding an appropriate work form for the future.

In addition to what has been discussed above and changes made as a consequence of the new Financial Undertakings Act, corporate governance is subject to annual evaluation and discussions

36 I Gjensidige annual report 2016 Corporate governance

by the Board. The Board discussed and prepared governance policy will improve the Group’s poten- this statement at a meeting on 8 February 2017 tial for value creation and increase the trust and and adopted it at a meeting on 8 March 2017. respect it enjoys in society over time. Gjensidige’s compliance with the individual items is also described. The Company’s work on corporate social responsibi- lity is described in more detail on pages 22-35 of the The Board’s statement on corporate governance annual report and at https://www.gjensidige.no/ in Gjensidige Forsikring ASA is available at www. group/. Selected quantitative results are presented gjensidige.no in the table on page 35.

Core values and social responsibility The Group’s efforts in relation to the working Gjensidige’s core values and social mission lie in its environment, equal opportunities and integration core business operations – to safeguard life, health are described in more detail on page 25 in the and assets through relieving customers of financial annual report. risk and providing active, helpful assistance when there is a risk of loss or when a claim has arisen. The Company’s financial investments shall comply Another important part of our social mission is to with generally accepted guidelines for socially contribute the expertise the Group possesses in the responsible investments (SRI). Gjensidige’s guide- field of loss prevention, to require safety measures lines for SRI cover human rights, labour rights, the to protect lives and assets, and to make other environment, corruption and weapons production. contributions that benefit society as a whole within Companies that fail to meet the requirements a commercially responsible framework. set out in the guidelines will be excluded from Gjensidige’s investment universe. This social responsibility shall be practised in line with society’s expectations of Gjensidige’s social We have celebrated Gjensidige’s 200th anniversary role. this year. It was not until 2010 that Gjensidige decided to focus its business activities through The Board has adopted guidelines for ethics and Gjensidige Forsikring ASA, and to strengthen its corporate social responsibility. Gjensidige’s commit- efforts for the benefit of society as a whole through ment will be further developed on the basis of the the Gjensidige Foundation. The Board is impressed expertise that it accumulates through conducting with the strong position the Gjensidige Foundation its core business. has achieved in such a short space of time as a public benefactor and Norway’s biggest founda- Through our operations, we have acquired extensive tion, and as the bearer of Gjensidige’s tradition for expertise in loss prevention. This know-how shall as supporting efforts to safeguard lives and health. far as possible be used for the benefit of society as a whole. Traffic and fire are especially important Deviations from the Code of Practice: None areas in which the Company’s expertise in loss prevention can help to save lives and assets. Other 2. The business important areas are awareness-raising campaigns Operations aimed at combating fraud and other crime, and Pursuant to its Articles of Association, Gjensidige can efforts to promote physical and mental health in engage in direct and indirect general and life insu- the population. The Company’s extra efforts in rance operations, including taking on pure risk insu- the area of corporate social responsibility will be rance with a duration of no more than one year in the concentrated on loss prevention in the broadest area of life insurance, owning companies that engage sense. in general insurance, life insurance, banking, financing and securities activities, taking over risk insurance and Gjensidige’s internal control systems include the reinsurance in general and life insurance to the extent Company’s core values and guidelines for ethics permitted by law, and other related business. and corporate social responsibility. A dedicated ethics suggestion box has been established for Vision and goals reporting relevant matters. Effective notification Gjensidige’s vision is to know the customer best procedures have also been established that make it and care the most. Its mission is to safeguard life, easy to notify the management and/or the Board health and assets, which has been the Company’s of inappropriate conduct that it has not been pos- value basis for two hundred years. sible to change through established management systems, and that also ensure that whistleblowers Gjensidige’s goal is to become the most custo- are protected and that matters that are raised mer-oriented general insurance company in the receive relevant follow-up. Nordic region, based on profitable operations and a leading position. The Group shall be characterised by high ethical standards. Its corporate governance shall be in accordance with best practice. A good corporate

Gjensidige annual report 2016 I 37 Corporate governance

Strategy Exclusive customer solutions and concepts will A strong focus on customers is the core of continue to be important in both the private and Gjensidige’s strategy. Backed by a down-to-earth commercial markets. business culture and analysis-based core operations, this will give Gjensidige a competitive advantage. Deviations from the Code of Practice: None

Gjensidige’s position shall be further strengthened 3. Equity and dividends through the development of Gjensidige as a Equity pan-Nordic general insurance player that also The Gjensidige Group’s equity amounted to NOK takes its share of the growing accident and health 22.3 billion at the end of 2016. insurance market. Acquisitions shall supplement organic growth and the achievement of of the Based on Gjensidige's understanding of the rules following financial targets after 2–3 years. and the way it has been implented in Norway, the • Return on equity above 15 percent Solvency margin was 147 per cent at year end • Combined ratio in the interval 90-93 based on the Standard formula, and 180 per cent based on the Partial internal model. A fast pace and flexibility in the development of products, services and service models are necessary The Board has adopted the following three perspe- in order to be the preferred insurance provider. The ctives to assess the Group’s capital needs: automation of internal processes is intended to • Legal requirements: Solvency II standard formula ensure cost-efficiency and facilitate increased use • Internal risk-based requirement: Solvency II of self-service solutions by customers. internal model • Rating requirements: Insurer financial strength Analytical use of data in order to offer attractive rating A from S&P or equivalent from other products and services and ensure profitable ope- rating agencies rations is crucial if we are to realise our ambition of being the most customer-oriented general At the turn of the year, the rating perspective insurance company in the Nordic region. resulted in the lowest excess capital.

Changes in technology and customer behaviour Dividend mean that increasingly close cooperation is Gjensidige’s goal is to distribute high, stable required between our distribution channels. A good nominal dividends, at least 70 per cent of the profit understanding of what customers are concerned after tax expense over time. When determining the with in their everyday lives is a precondition for size of the dividend, consideration will be given to being able to develop new, relevant services. expected future capital needs. Customers’ needs and behaviour are changing faster than ever. It is therefore paramount to In addition, any future excess capital over and reduce the time it takes to develop and launch new above the capitalisation target will be distributed to customer-oriented services. the owners over time. By the capitalisation target is meant capitalisation that is adapted to Gjensidige’s Information is a strategic resource for Gjensidige. strategic targets and appetite for risk at all times. The work on ensuring good data quality, efficient The Group shall maintain its financial freedom of data collection processes, availability, reporting and action, without this being at the expense of capital analysis will therefore be strengthened further. discipline.

Without motivated, committed managers and Adopted dividend for 2015 employees who possess the right expertise and A dividend of NOK 4.2 billion was adopted and attitudes, our strategic ambitions cannot be reali- disbursed in April for the 2015 financial year. That sed. A higher pace of change – not least as regards corresponds to NOK 8.40 per share, of which NOK technology and customer behaviour – means that 6.40 was based on the profit for 2015 and NOK a transition is needed from traditional training-ba- 2.00 was distribution of excess capital. sed competence-raising measures to a dynamic learning culture driven by individual managers Adopted dividend for 2016 and employees. Competence shall increasingly be On 25 October 2016, based on the current autho- shared through data-driven work processes and risation granted to the Board, the Board adopted a cooperation-based solutions. A stronger overall dividend of NOK 4.00 per share, corresponding to understanding shall be created through internal a total of NOK 2.0 billion. The dividend is related to rotation of managers and staff. the distribution of excess capital and was disbursed on 10 November 2016. Gjensidige Bank and Gjensidige Pensjon og Sparing play an important strategic role in relation to Proposed dividend for 2016 Gjensidige’s position in the Norwegian market. The proposed dividend for the 2016 financial year is NOK 3.4 billion. This corresponds to NOK 6.80 per

38 I Gjensidige annual report 2016 Corporate governance

share. The proposed dividend based on the profit for Existing shareholders have pre-emption rights when the year corresponds to 73per cent of the Group’s new shares are issued. With the approval of at least profit after tax expense. The Board’s proposal for the two-thirds of the total number of votes represented at distribution of dividend for the 2016 financial year is the general meeting, the general meeting can decide explained in more detail in the Board´s report. to set aside the pre-emption rights. Grounds must be stated for any proposal to set aside pre-emption Authorisations granted to the Board rights, and this must be documented in the case Gjensidige’s annual general meeting granted the document submitted to the general meeting. following authorisations to the Board in 2016: - Authorisation to purchase own shares in the In cases where the Board decides to issue new market with a total nominal value of up to shares and the pre-emption rights are set aside on NOK 1,000,000. The authorisation is valid the basis of an authorisation, the grounds will be until the next general meeting, no longer, disclosed in a stock exchange announcement in however, than until 30 June 2017. It can only connection with the share issue. be used for sale and transfer to employees of the Gjensidige Group as part of the Group’s The Board shall ensure that the Company complies share savings programme as approved by the with the Public Limited Liability Companies Act Board, or to executive personnel in accordance Sections 3-8 and 3-9 in agreements between the with the remuneration regulations and the pay Company and parties mentioned there. On ente- policy adopted by the Board. The minimum ring into not immaterial agreements between the and maximum amounts that can be paid per Company and shareholders, closely-related parties, share are NOK 20 and NOK 200, respectively. board members or members of the management The purpose of this measure is to promote a or close associates of such members, the Board good business culture and loyalty by making shall obtain an assessment from an independent employees part-owners in the Company. The third party. The same applies to agreements with authorisation was used to buy shares in 2016. group companies that have minority sharehol- The authorisation was considered as a separate ders. This follows from the rules of procedure for item at the Company’s annual general meeting. the Board, which are available at https://www. - Authorisation of the Board to decide the gjensidige.no/group/ distribution of dividend on the basis of the Company’s annual accounts for 2015. The aut- All board members and members of management horisation is valid until the next annual general shall immediately notify the Board if they, directly meeting, no longer, however, than until 30 June or indirectly, have an interest in a transaction or 2017. The authorisation is in accordance with agreement that the Company is considering ente- the Company’s adopted capital strategy and ring into. This applies even if the board member is dividend policy. It gives the Company flexibility deemed not to be disqualified from considering the and will mean that the Company can distribute matter These provisions are laid down in the rules additional dividends without having to call an of procedure for the Board. The objective is to avoid extraordinary general meeting. The authorisa- harming the Company’s reputation in connection tion was used in 2016. The authorisation was with investments where there may be circum- considered as a separate item at the Company’s stances that can be perceived as an unfortunate annual general meeting. close involvement, or a close relationship between - Authorisation to raise subordinated loans and the Company and a board member or executive other external financing limited upwards to NOK personnel. 3 billion and on the conditions stipulated by the Board. The authorisation was used in 2016. The Company’s trading in own shares must take place through a stock exchange or in other ways at When the Board proposes new authorisations to the the listed price. general meeting, they shall, in the same way as the existing authorisations, be considered as separate Deviations from the Code of Practice: None items at the Company’s annual general meeting, be limited to defined purposes and be valid during the 5. Freely negotiable shares period until the next annual general meeting. The shares in the Company are freely negotiable pursuant to the Articles of Association. Gjensidige Deviations from the Code of Practice: None is a Norwegian financial institution. Norwegian framework legislation contains general licensing 4. Equal treatment of all shareholders provisions that apply to all Norwegian financial The Company has only one class of shares and all institutions in connection with large acquisitions of shares carry equal rights in the Company. shares (ten per cent or more).

Each share carries one vote at the general meeting, Deviations from the Code of Practice: None unless otherwise stipulated by law or other official decision.

Gjensidige annual report 2016 I 39 Corporate governance

6. General meetings the meeting and at https://www.gjensidige.no/ The general meeting is Gjensidige’s supreme body. konsern.

The general meeting is open and accessible for all Pursuant to the Articles of Association, the Board shareholders. The annual general meeting shall may decide that shareholders can attend the gene- be held before the end of April every year. The ral meeting by means of electronic aids, including Company’s Articles of Association do not contain exercising their rights as shareholders electronically. provisions that expand on or deviate from the Members of the Board are present at the general provisions of the Public Limited Liability Companies meeting. In accordance with the Articles of Act Chapter 5. Association, the Chairman of the Board and the CEO will normally be present to answer questions. The general meeting is conducted in accordance with the Code of Practice: Deviations from the Code of Practice: Pursuant to - The Articles of Association stipulate that three the Code of Practice, the whole Board, the whole weeks’ notice must be given. The notice of Nomination Committee and the auditor should the meeting and case documents are made be present at the general meeting. It has so far available on the Group’s website https://www. not been necessary for all the above parties to be gjensidige.no/group/. Shareholders may nonet- present, but this may change depending on the heless demand that the case documents be circumstances around the matters to be conside- sent to them by post free of charge. The minutes red. In accordance with the Articles of Association, will be published at https://www.gjensidige.no/ the Chairman of the Board, the Chair of the group/ as soon as they are available. Nomination Committee, the Company’s auditor - The case documents shall be sufficiently detailed and the CEO will always be present to answer any to provide a basis for considering the matters questions. raised. - Shareholders who wish to attend the general 7. Nomination Committee meeting must notify the Company in writing at Gjensidige has decided in its Articles of Association least five days before the meeting. The registra- that the Company shall have a Nomination tion deadline is based on practical considerati- Committee consisting of four to six members ons in connection with the organisation of the elected by the general meeting. The Chair and general meeting. members of the Nomination Committee are - In connection with elections at the general mee- elected for a term of one year. ting, it will be possible to vote for one candidate at a time. At present, Gjensidige’s Nomination Committee - The CEO, the Chairman of the Board and consists of five members. All members are the Chair of the Nomination Committee are independent of the Board and other executive required to be present unless this is clearly personnel. According to the rules of procedure for unnecessary or they have valid grounds for not the Nomination Committee, the members should attending. reflect the interests of the shareholders as a whole. - The Company’s auditor will be present at the As majority owner, the Gjensidige Foundation is meeting. represented by two members. This recommenda- - If necessary, and if the nature of the matter tion was followed in 2016. so requires, the whole Board and the whole Nomination Committee will be present at the As of 31 December 2016, the Nomination meeting. Committee consisted of the following members: - Pursuant to the Articles of Association, the - Einar Enger (Chair) general meeting shall be chaired by the - Mai-Lill Ibsen Chairman of the Board or another person - John Ove Ottestad designated by the Board. - Torun Bakken Skjervø - Shareholders may be represented by proxy. The - Joakim Gjersøe notice of the meeting will contain more detailed information about the procedure for represen- One of the board members elected from among tation by proxy, including an authorisation form. the employees takes part as a permanent mem- In addition, a person will be appointed who can ber in discussions and proposals for the election vote by proxy on behalf of shareholders. of Chairman of the Board. The leader of the - Shareholders can vote electronically in advance Committee can invite other board members elected before the general meeting. Voting in advance from among the employees to certain important can be done via the Company’s website www. discussions about the election of the Chairman. gjensidige.no, and via VPS Investor Services. The Nomination Committee started work on More information about the use of proxy and preparations for the election in 2016 already in shareholders’ right to have matters considered by autumn 2015. A total of 11 meetings were held. the general meeting is provided in the notice of In order to arrive at the best possible basis for its

40 I Gjensidige annual report 2016 Corporate governance

assessments, the Nomination Committee had elected for one year at a time. Board members conversations with the Chairman of the Board, the elected by and from among the employees are board members and the CEO. elected for two years at time, but such that at least one member is up for election every year. The Nomination Committee shall contribute to the election of competent and engaged officers with a The Chairman of the Board is elected by the focus on the creation of value. The objective is that, general meeting. together, the elected officers shall be capable of challenging and inspiring the day-to-day manage- The Board of Gjensidige shall be broadly composed, ment in the Company’s business areas. and consideration shall be given to the Board’s ability to work well as a collective. In the rules of The Nomination Committee shall propose candi- procedure for the Nomination Committee, the dates for: general meeting sets out the following guidelines - the Board, including the Chairman of the Board for the Nomination Committee’s work: - the Nomination Committee, including the Chair • The Nomination Committee shall emphasise of the committee that all proposed candidates for the Board have - external auditor the necessary experience, qualifications and capacity to carry out the duties of the office in a A reasoned recommendation containing relevant satisfactory manner. personal details shall be enclosed with the notice of • When nominating members to the Board, the the meeting. principles for good corporate governance mean that emphasis should be placed on the overall The Nomination Committee wishes to ensure that interests of the shareholders and on reflecting the shareholders’ views are taken into account the composition of the shareholders. when members are nominated for the Board. In • The members of the Board should be independent addition to the Nomination Committee consulting of the Company’s day-to-day management. particularly active shareholders for proposals for candidates and support for its recommendations, Information about the members of the Board: all shareholders are invited to propose candi- dates for governing bodies via a request on the Number of Number of Company’s website. The deadline for submitting board Gjensidige meetings shares as of proposals is normally the turn of the year in order to attended 31 December ensure that proposed candidates are considered at 2016 the start of the process, and to have time to carry Inge K. Hansen 11 of 11 12,253 out the statutory suitability assessment and receive Trond Vegard Andersen necessary clearance from the financial authorities 1 of 3 1,805* (member until 4 April 2016) before the election. Hans-Erik F. Andersson 2 of 3 1,778* (member until 7 April 2016) The Nomination Committee shall recommend all remuneration to be decided by the general mee- Per Arne Bjørge 11 of 11 10,542 ting, including the remuneration of members of the Kjetil Kristensen 5 of 5 593* Nomination Committee, which is decided by the (member until 31 August 2016) general meeting, and submit a recommendation Gisele Marchand 10 of 11 1,481 concerning whether the proposal for the auditor’s Gunnar Mjåtvedt 11 of 11 1,975 fee shall be approved. Mette Rostad 11 of 11 1,550 Rules of procedure for the Nomination Committee’s Tine Gottlob Wollebekk 11 of 11 0 work have been drawn up and adopted by the Lotte Kronholm Sjøberg 11 of 11 429 general meeting. The rules of procedure are avail­ Knud Peder Daugaard able at https://www.gjensidige.no/group/ . 6 of 7 3,000 (member from 7 April 2016) John Giverholt Further information about shareholders’ right to 7 of 7 0 (member from 7 April 2016) submit proposals to the Nomination Committee is Anne Marie Nyhammer available at https://www.gjensidige.no/group/. (member from 4 of 4 0 1 September 2016) Deviations from the Code of Practice: None * As at time of resignation from the board.

8. Board, composition and Today, each gender has at least 40 per cent repre- independence sentation among the shareholder-elected members Composition of the Board of the Board. For a more detailed presentation of The Board of Gjensidige shall consist of ten mem- the board members, see pages 49 to 63 of the bers, three of whom are elected by the employees. annual report, and the Company’s website https:// The shareholder-elected board members are www.gjensidige.no/group/.

Gjensidige annual report 2016 I 41 Corporate governance

The Board’s independence remuneration committee. All members of the two No member of the Company’s general mana- committees are independent of the Company and gement is a member of the Board. All sharehol- its general management. A dedicated risk commit- der-elected board members are independent of tee was established in 2016. The committee executive personnel. Board members Knud Peder started its work on 1 January 2017. While the audit Daugaard, Per-Arne Bjørge and Mette Rostad committee is retrospective in its approach, the risk were elected on the proposal of the Company’s committee will be forward-looking. The purpose of biggest owner, the Gjensidige Foundation. All board the committees is to facilitate good and well-pre- members are independent of important business pared discussions at board meetings. associates. The audit committee Board members’ shareholdings The audit committee is a preparatory and advisory 7 of the board members own shares in the select committee that consists of board members Company; see the overview in the table. The board elected by the Board. The audit committee is members follow the general rules concerning tasked with preparing the Board’s follow-up of primary insiders, but they have all voluntarily the financial reporting process and improving the accepted and informed their closely related parties Board’s follow-up of the Group, among other things that trading in the Gjensidige share or derivative by contributing to thorough and independent instruments will only take place within a reasonable consideration by the Board of matters relating time frame after submission of the quarterly report, to financial reporting. The committee shall also so that trading can take place on the basis of the monitor the systems for internal control and risk same information about the Company and the management, as well as the Company’s internal Company’s financial position as is available to the audit function. The committee is also in continuous market in general. contact with the Company’s elected auditor about the auditing of the annual accounts, and it Deviations from the Code of Practice: None assesses and monitors the auditor’s independence; cf. Chapter 4 of the Auditors Act. The committee 9. The work of the Board shall state its opinion on the election of the auditor The work of the Board follows a fixed annual plan and the auditor’s fee. The committee held seven and is conducted in accordance with established meetings in 2016. rules of procedure. The rules of procedure are available at https://www.gjensidige.no/group/. As of 31 December 2016, the audit committee They set out more detailed rules for the work of the consisted of the following members: Board and how it handles matters, including what - Gisele Marchand (Chair) matters shall be considered by the Board, rules - Per Arne Bjørge concerning notices of meetings and the conducting - Gunnar Mjåtvedt of meetings. The Board has also issued instructions - Knud Peder Daugaard for the CEO, which regulate the internal division of - Tine G Wollebekk responsibility and tasks. The remuneration committee The Board holds regular physical board meetings The remuneration committee shall, within the limits and holds nine fixed meetings every year. Additional of the Board’s responsibility, strengthen the Board’s meetings may be held depending on matters at follow-up of the remuneration policy vis-à-vis hand and the situation. They can be held by phone the CEO, the senior management team and key or electronically using the Company’s board portal. personnel. In 2016, a total of 11 board meetings were held, 2 of which were extraordinary board meetings. One The committee shall prepare matters for the Board. of the ordinary meetings was an annual two-day It is primarily responsible for: strategy meeting. The Board also held two study • Drafting proposals for and following up compli- sessions to obtain external input on the Board’s ance with the Group’s guidelines and framework strategy revision. for remuneration • Annually preparing and proposing the remune- In matters where the Chairman of the Board is or ration of the CEO has been actively involved, another board member • Annually drafting proposals for the CEO’s shall chair the Board’s discussion of the matter. scorecard • Acting as adviser to the CEO in connection with The Board carries out an annual self-evaluat- the annual assessment of the remuneration of ion that is also submitted to the Nomination other executive personnel Committee for use as documentation in conne- • Drafting proposals for principles and a declara- ction with the committee’s work. tion on the stipulation of pay and other remu- neration for executive personnel, employees and The Board of Gjensidige Forsikring ASA has two officers of the Company who have duties that select committees – an audit committee and a are of material importance to the Company’s

42 I Gjensidige annual report 2016 Corporate governance

risk exposure, and other employees and officers 10. Risk management and internal with control tasks control • Considering other important personnel matters a) General relating to executive personnel The Board focuses on risk management and internal control, and this is an integral part of the Reference is otherwise made to the Board’s Board’s systematic work. The Board has adopted declaration on remuneration in Note 18 of the a group policy for risk management and internal annual report. control. Among other things, the document describes the main principles for risk management The committee is an advisory body to the Board. It and internal control, in addition to describing the held one meeting in 2016. division of responsibility. The document is available at https://www.gjensidige.no/group/ As of 31 December 2016, the remuneration committee consisted of the following members: The main purpose of risk management and internal - Inge K Hansen control is to provide reasonable assurance of goal - Mette Rostad attainment through the following methods: - Gunnar Mjåtvedt • Targeted, efficient operations. • Reliable, available management information The Gjensidige Group has been granted permission and correct external reporting. by the authorities to establish a joint remuneration • Compliance with internal and external regulati- committee for the whole Group, with effect from 1 ons. January 2017. • Loss limitation and safeguarding of assets

The Board’s impartiality Gjensidige’s internal control system includes the The Group’s rules of procedure for the Board Company’s core values, guidelines for ethics and regulate matters concerning board members’ social responsibility and other governing docu- impartiality. A board member is disqualified from ments. participating in considering or deciding matters that are of such great importance to the board The Board carries out an annual review of the member or his/her related parties that he or Group’s most important risk areas and its internal she must be deemed to have a direct or indirect control. The Board also receives quarterly reports personal or financial interest in the matter. The on the risk situation in the Group. The division of same applies to the CEO. Board members are also responsibility between the Board and the CEO is as disqualified when other special circumstances could follows: undermine trust in their motives for participating in deciding a matter. The Board’s responsibilities: • The Board has overall responsibility for ensuring Individual board members are obliged to ensure that Gjensidige has established expedient, they are not disqualified from considering a matter effective processes for risk management and on grounds of partiality. In cases of doubt, the internal control in accordance with recognised matter shall be presented to the Chairman of the frameworks. Board. The Chairman of the Board shall present • The Board shall ensure that such processes are cases of doubt relating to his or her own impartia- satisfactorily established, implemented and lity to the whole Board. followed up, among other things by considering reports prepared by the Risk Management and The Board shall approve agreements between the Compliance function that are submitted to Company and a board member or the CEO. The the Board by the CEO and the internal audit Board shall also approve agreements between function as direct reports to the Board. the Company and a third party in which a board • The Board shall ensure that risk management member or the CEO must be deemed to have a and internal control are integrated in the particular interest. Group’s strategy and business processes.

Introduction programme for new board The CEO’s responsibilities: members • The CEO shall ensure that Gjensidige’s risk Relevant information about the Company and the management and internal control are imple- work of the Board is made available to new board mented, documented, monitored and followed members on the Company’s web-based portal for up in a satisfactory manner. The CEO shall issue board members. In addition, new board members instructions and guidelines for how the Group’s will, by meeting key members of the management, risk management and internal control shall be be given an introduction to the organisation and carried out in practice and establish expedient running of the Company. control processes and functions.

Deviations from the Code of Practice: None

Gjensidige annual report 2016 I 43 Corporate governance

Centralised control functions have been established are identified and that the schedule continues to that are independent of business operations: the be expedient. Risk Management-, the Compliance- and the Actuary function. In addition, the internal audit As part of Gjensidige’s governing documents, function serves as an additional, independent an overall description has been prepared of the control level that reports directly to the Board. process relating to the closing of the accounts. Reporting instructions have also been prepared, The Compliance function is independent in relation including accounting principles that subsidiaries to operations, and it identifies, assesses, monitors, and branch offices must use in their reporting. The advises and reports on the Group’s compliance risk. internal control is based on the principle of division Assessing compliance risk is part of the Group’s of labour and dualism, and it is documented annual risk assessment process. through descriptions of processes and procedures in material areas. Authorisation structures, recon- The Risk and Compliance function is responsible ciliations and management reviews have been for monitoring the overall risk situation and the established. framework for risk management, including internal control and the quantification and aggregation of As part of the Board’s above-mentioned annual risk. review of the Group’s risk areas and internal control, an evaluation is also carried out of risk and control The internal audit function is an independent, obje- in the financial reporting process, and of whether ctive confirmatory and advisory function that shall measures are necessary. contribute to the organisation achieving its goals. The head of the internal audit function is appointed Consolidated accounts are prepared every month and dismissed by the Board and submits reports on and reported to the Board on a monthly basis, the Group’s risk management and internal control with comments on and explanations of each to the Board and the CEO at least once a year. The business segment. In this connection, Group Board approves resources and plans for the internal Accounts cooperates with the Actuary function, audit function annually. The Group Audit Director Group Performance Management, Reinsurance reports quarterly to the Board and the CEO on the and the controllers in the business areas on quality results of the audit work. The audit work is carried assurance of figures and comments. The insurance out in accordance with international internal provisions are assessed monthly by the Actuary auditing standards (IIA). function and reviewed annually by an external actuary. Accounting items that entail a varying The Group’s control functions are organised on the degree of discretionary judgement and assessment basis of the principle of three lines of defence. are reviewed and documented in advance of the quarterly closing of accounts. Discretionary b) Financial reporting and financial mana- accounting items are reviewed by the Board’s gement audit committee at quarterly meetings. The audit Among other things, the CFO is responsible for committee also considers the interim reports, asset management, risk and capital management, company accounts and consolidated accounts. the Actuary function, the planning process and The processes are identical for the Group and the financial performance. Among other things, the parent company. The annual accounts are adopted Executive Vice President of Group Staff and General by the respective general meetings. Services is responsible for financial reporting and follow-up of limits on the investment activities. This The Group has established a planning process for organisation is intended to ensure independence financial management whereby the CEO, the CFO between the leading premise setter for profit and the Chief Performance Officer meet with busi- performance and those who report the results. ness and support areas at least every quarter and review financial performance and goal attainment The Gjensidige Group publishes four interim reports as well as events that affect future development. in addition to the ordinary annual accounts The Among other things, they assess risks relating to accounts shall meet the requirements in laws and financial reporting, in both the short and long term. regulations and be prepared in accordance with The Senior Group Management reviews monthly adopted accounting principles. financial reporting, including developments in profit/loss and balance sheet items, goal attain- Publishing deadlines are stipulated by the Board. ment, the forecast for the year, risk assessment and The tasks that are carried out in the concluding analysis of and comments on results in business phase are set out in a schedule that specifies the and support areas. person responsible and the deadline for ensuring timely reporting. The schedule is reviewed prior to In connection with the outsourcing of material each quarter to ensure that any new circumstances work processes, such as payroll and ICT services,

44 I Gjensidige annual report 2016 Corporate governance

the Group obtains statements in accordance with intended to ensure that Gjensidige attracts and ISA3402 in order to assess the contracting party’s retains employees who perform, develop, learn and internal control. The purpose of this is to ensure share. The remuneration shall be competitive, but that the contracting party has satisfactory internal the Group shall not be a wage leader. Employees control. Gjensidige’s own security department are expected to see the remuneration and benefits also performs independent security checks of the offered by the Group as an overall whole. The contracting party relating to ICT systems, including Group’s remuneration systems shall be open and access control and the protection of sensitive data. performance-based, so that they, as far as possible, are perceived as being fair and predictable. The The Group is concerned with ensuring that remuneration that is paid shall correspond to the processes relating to financial reporting and agreed performance. financial management are carried out by personnel with the right expertise for the different tasks. Guidelines for remuneration and career develop- Professional updating in the form of self-studies, ment shall be linked to achievement of the Group’s courses and continuing education takes place strategic and financial goals and core values, and on the basis of the needs and complexity of the both quantitative and qualitative targets shall be position in question. The goal is that the Group taken into consideration. The measurement criteria shall have sufficient expertise and resources at shall promote the desired corporate culture and all times to be able to carry out timely closing of long-term value creation, and, as far as possible, the accounts without there being material errors take actual capital costs into account. The remu- in the consolidated and company accounts. This neration system shall contribute to promoting and involves fields such as IFRS, NGAAP and the Annual providing incentives for good risk management, Accounts Regulations for Insurance Companies etc. prevent excessive risk-taking and contribute to Gjensidige participates actively in various industry avoiding conflicts of interest. A fixed basic salary organisations for banks and life and general shall be the main element of the overall remune- insurance companies where topical issues are ration, which also consists of variable pay, pension discussed. and insurance schemes and payments in kind. Variable pay shall be used to reward achievements Deviations from the Code of Practice: None that exceed expectations, where both results and behaviour in the form of compliance with core 11. Remuneration of the Board values, brand and management principles will be The Nomination Committee proposes the remune- assessed. ration of the Board, which is decided by the general meeting. This remuneration is not dependent Variable pay shall be performance-based without on the Group’s performance, and none of the being a risk driver, and it shall reflect the results board members have share options issued by the and contributions of both the Company, the divi- Company. sion, the department and the individual employee. Other remuneration elements that are offered shall The remuneration of individual board members be perceived as attractive by both new and current is described in note 18 of the annual report. The employees. amount of the remuneration reflects the Board’s responsibility, expertise, time consumption and There is a ceiling on all variable remuneration. the complexity of the business. In addition, board members are paid a separate fee for participating The Board’s guidelines for stipulating the remu- in the Board’s audit committee and remuneration neration of the Senior Group Management and committee. executive personnel meet the regulatory require- ments. As a rule, board members or companies with which they are associated shall not take on specific The remuneration of the CEO is stipulated by the assignments for the Company in addition to their Board on the basis of an overall assessment that office as board member. If such assignments takes into account Gjensidige’s remuneration nonetheless arise, the whole Board shall be infor- system and the market salary for corresponding med about this. No such assignments were carried positions. The fixed salary is assessed and stipulated out in 2016, and no fees have therefore been paid annually on the basis of wage growth in society in to board members over and above the fee they general and in the financial industry in particular. receive as members of the Board. Variable remuneration (bonus) is decided by the Board on the basis of agreed goals and deliveries. Deviations from the Code of Practice: None It can amount to up to 50 per cent of the fixed salary including holiday pay. Variable remuneration 12. Remuneration of executive is earned annually and is based on an overall personnel assessment of financial and non-financial perfor- The Group has established a remuneration system mance over the past two years. Half of the variable that applies to all employees. The system is remuneration is in the form of a promise of shares

Gjensidige annual report 2016 I 45 Corporate governance

in Gjensidige Forsikring ASA, one third of which 13. Information and communication are allocated in each of the following three years. Gjensidige shall maintain an open dialogue with all Restricted variable remuneration that has not stakeholders. All financial market participants shall yet been disbursed may be reduced if subsequent have simultaneous access to correct, clear, relevant results and developments indicate that it was and detailed information about the Group’s histo- based on incorrect assumptions. rical results, operations, strategy and outlook. The information shall be consistent over time. The Board Remuneration of the Senior Group Management has adopted guidelines for the reporting of financial is stipulated by the CEO, in accordance with limits information and other information in the form of discussed with the remuneration committee and an IR policy. The guidelines are available at https:// on the basis of guidelines issued by the Board. www.gjensidige.no/group/investor-relations. Correspondingly, the Group’s guidelines are used as the basis for other executive personnel and Gjensidige has published all relevant ownership employees who can materially influence risk. information about the Group at https://www. gjensidige.no/group/. The overall remuneration is decided on the basis of the need to offer competitive terms in the different This is the most important means of providing business areas. It shall contribute to attracting identical, simultaneous and relevant information and retaining executive personnel with the desired to all stakeholders. A financial calendar is also expertise and experience who promote the Group’s published on the website, containing dates for the core values and development. announcement of financial information and infor- mation about the Company’s general meetings. The fixed salary is assessed and stipulated annually on the basis of wage growth in society in general The Company has a dedicated IR (investor and in the financial industry in particular. Variable relations) function that has a central place in remuneration (bonus) for executive personnel the Company’s management, and that ensures is earned annually and is based on an overall that there is regular contact with the Company’s assessment of financial and non-financial perfor- owners, potential investors, analysts and the mance over the past two years. Individual variable financial market. The goal is that the Company’s pay, including holiday pay, can amount to up to 30 information work shall be in accordance with best per cent of the annual salary. Variable pay is not practice at all times. included in the pension basis. Half of the variable remuneration is in the form of a promise of shares Quarterly financial results are presented directly via in Gjensidige Forsikring ASA, one third of which webcast and a telephone conference, which is open are allocated in each of the following three years. to anyone interested. The webcast may be followed Restricted variable remuneration that has not directly at https://www.gjensidige.no/investor yet been disbursed may be reduced if subsequent Recordings are made available at the same place. results and developments indicate that it was based on incorrect assumptions. A capital market day shall be held when it is considered expedient in order to keep the market The guidelines are submitted to the general up-to-date about the Group’s development, goals meeting as a separate item in accordance with and strategies. the Public Limited Liability Companies Act Section § 6-16 a. The general meeting’s decision on the Deviations from the Code of Practice: None guidelines in the statement on remuneration of executive personnel is advisory to the Board, except the part of the document that concerns share-based remuneration, which is binding. As a result, the general meeting holds an advisory vote on the Board’s statement on the stipulation of pay and other remuneration and the Board’s guidelines for the stipulation of pay for executive personnel, as well as a binding vote on the new guidelines for the allocation of shares, subscription rights etc. that the Board proposes pursuant to the Public Limited Liability Companies Act Section 6-16a first paragraph third sentence.

The Board’s complete declaration on the remune- ration of executive personnel is included on page 18 of the annual report.

Deviations from the Code of Practice: None

46 I Gjensidige annual report 2016 Corporate governance

14. Corporate takeovers 15. The external auditor The Company has one big owner, the Gjensidige The external auditor is elected by the general Foundation. The Foundation has laid down in its meeting on the Nomination Committee’s Article of Associations that its ownership interest recommendation. The audit committee, which in shall at least amount to 60 per cent of the shares practice is the external auditor’s most important issued in Gjensidige. liaison point, submits an opinion on the election to the Nomination Committee. Guidelines have been adopted for corporate takeo- vers. These guidelines ensure that all shareholders’ The external auditor normally performs an interim interests are attended to, and they contribute to audit every autumn in addition to auditing the equal treatment of shareholders. annual accounts. The interim audit focuses on the Company’s internal control relating to the presen- The guidelines are in compliance with the tation of the accounts. The accounting department Norwegian Code of Practice for Corporate and executive personnel have regular contact with Governance. The Board will obtain independent the auditor throughout the year. valuations and draft a recommendation on whet- her or not the shareholders should accept the bid. A number of regular meetings are held between the external auditor and the Company’s governing In conversations with the bidder and in its other bodies during the course of the year: actions, the Board shall endeavour to safeguard the interests of the Company and the shareholders The auditor presents the main elements in the as a whole. The Board shall ensure that all the audit plan to the audit committee on an annual Company’s shareholders are treated equally and basis. In addition, the audit committee considers kept up-to-date about relevant matters relating to the auditor’s assessment of internal control in the bid. The shareholders must receive information relation to financial reporting. as early as possible, to give them time to consider The auditor attends board meetings when the the bid. Endeavours will otherwise be made to annual accounts are considered. avoid undue disruption of other activities during a takeover process. At least one meeting is held every year between the Board and the auditor, and between the audit The Board shall not attempt to prevent bids being committee and the auditor, at which the CEO and made, and, as a rule, it shall seek to facilitate the other executive personnel are not present. implementation of bids that may be in the interests of the shareholders. The Board shall not take A policy and guidelines have been adopted for action as described in the Securities Trading Act relations with the elected auditor. At least every five Section 6-17 without obtaining instructions from years, several accounting companies will normally the general meeting. The Company shall not use be invited to tender for the contract for the authorisations to issue shares to prevent a bid. statutory auditing.

In order to safeguard the shareholders’ interests, Guidelines have been drawn up for the manage- the Board shall consider whether to initiate proces- ment’s right to use an external auditor for services ses that trigger competing bids in a manner that other than auditing. safeguards the shareholders’ interests. The auditor shall under no circumstances carry out As a rule, the Company shall engage the services advisory tasks or other services if this could affect of an independent legal adviser and an indepen- or give rise to doubts about the auditor’s indepen- dent financial adviser in the work of assessing a dence and objectivity. Nor shall the auditor act in submitted or notified serious bid. These advisers a manner that entails a risk that he/she will have cannot represent the Company’s shareholders in to audit the result of his/her own advisory services connection with the transaction. Grounds shall be or other services, or that entails a risk that he/she stated for the experts’ valuation. will perform functions that are part of the Group’s internal decision-making process. Deviations from the Code of Practice: None The audit committee shall also monitor the auditor’s independence, including what services other than auditing the auditor has provided. The breakdown between the auditor’s fee and consul- tancy fees for 2016 is described in note 17.

Deviations from the Code of Practice: None

Gjensidige annual report 2016 I 47 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 Gjensidige Insurance Group

Financial statements and notes

Gjensidige Insurance Group Gjensidige Forsikring ASA Page Page Consolidated income statement...... 74 Income statement...... 147 Consolidated statement of comprehensive income...... 75 Statement of financial position...... 148 Consolidated statement of financial position...... 76 Statement of changes in equity...... 150 Consolidated statement of changes in equity...... 77 Statement of cash flows...... 151 Consolidated statement of cash flows...... 78 Accounting policies...... 152 Accounting policies...... 79

Notes Notes 1 Equity...... 86 1 Equity...... 158 2 Use of estimates...... 87 2 Use of estimates...... 159 3 Management of insurance and financial risk...... 88 3 Management of insurance and financial risk...... 159 4 Segment information...... 110 4 Premiums and claims etc. in general insurance....160 5 Intangible assets...... 111 5 Intangible assets...... 161 6 Shares in associates...... 113 6 Shares in subsidiaries and associates...... 163 7 Owner-occupied property, plant and equipment.115 7 Owner-occupied property, plant and equipment.166 8 Financial assets and liabilities...... 116 8 Financial assets and liabilities...... 167 9 Loans and receivables...... 121 9 Loans and receivables...... 171 10 Cash and cash equivalents...... 121 10 Cash and cash equivalents...... 171 11 Restricted funds...... 121 11 Restricted funds...... 171 12 Shares and similar interests...... 122 12 Shares and similar interests...... 172 13 Insurance-related liabilities and reinsurers’ share. 125 13 Insurance-related liabilities and reinsurers’ share. 175 14 Pension...... 126 14 Pension...... 176 15 Provisions and other liabilities...... 130 15 Provisions and other liabilities...... 180 16 Tax...... 131 16 Tax...... 181 17 Expenses...... 133 17 Expenses...... 182 18 Salaries and remuneration...... 134 18 Salaries and remuneration...... 183 19 Net income from investments...... 138 19 Net income from investments...... 187 20 Contingent liabilities...... 139 20 Contingent liabilities...... 188 21 Hybrid capital...... 139 21 Hybrid capital...... 188 22 Related party transactions...... 140 22 Related party transactions...... 189 23 Events after the balance sheet date...... 142 23 Events after the balance sheet date...... 191 24 Shareholders...... 143 24 Shareholders...... 192 25 Share-based payment...... 144 25 Share-based payment...... 193 26 Earnings per share...... 145 27 Acquisition of Vardia...... 146 Declaration from the Board and the CEO...... 195 Auditor’s report...... 196

Gjensidige annual report 2016 I 73 Gjensidige Insurance Group

Consolidated income statement

NOK millions Notes 1.1.-31.12.2016 1.1.-31.12.2015

Operating income Earned premiums from general insurance 22,441.9 21,272.0 Earned premiums from pension 1,479.4 1,431.5 Interest income etc. from banking operations 1,408.0 1,311.0 Other income including eliminations 162.0 140.8 Total operating income 4 25,491.4 24,155.4

Net income from investments Results from investments in associates and joint ventures 6 184.1 49.7 Operating income from property 0.0 366.7 Interest income and dividend etc. from financial assets 1,262.0 1,199.3 Net changes in fair value on investments (incl. property) (1,040.3) 189.0 Net realised gain and loss on investments 1,920.8 (102.7) Expenses related to investments 17 (130.5) (228.8) Total net income from investments 19 2,196.1 1,473.3

Total operating income and net income from investments 27,687.5 25,628.7

Claims, interest expenses, loss etc. Claims incurred etc. from general insurance (15,515.9) (14,597.5) Claims incurred etc. from pension (1,283.5) (1,275.7) Interest expenses etc. and write-downs and losses from banking operations (680.1) (652.2) Total claims, interest expenses, loss etc. (17,479.6) (16,525.4)

Operating expenses Operating expenses from general insurance (3,191.4) (3,217.6) Operating expenses from pension (223.9) (222.0) Operating expenses from banking operations (373.6) (359.3) Other operating expenses (24.8) (45.1) Amortisation and impairment losses of excess value - intangible assets (254.2) (209.6) Total operating expenses 17 (4,068.0) (4,053.6)

Total expenses (21,547.5) (20,578.9)

Profit/(loss) before tax expense 4 6,139.9 5,049.7

Tax expense 16 (1,474.1) (1,265.0)

Profit/(loss) 4,665.9 3,784.7

Profit/(loss) attributable to: Owners of the company 4,670.4 3,788.8 Non-controlling interests (4.5) (4.1) Total 4,665.9 3,784.7

Earnings per share, NOK (basic and diluted) 29 9.34 7.57

74 | Gjensidige annual report 2016 Gjensidige Insurance Group

Consolidated statement of comprehensive income

NOK millions Notes 1.1.-31.12.2016 1.1.-31.12.2015

Profit/(loss) 4,665.9 3,784.7

Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurements of the net defined benefit liability/asset 14 (158.7) 69.0 Share of other comprehensive income from associates and joint ventures 0.3 Tax on items that are not reclassified to profit or loss 39.7 (17.5) Total items that are not reclassified subsequently to profit or loss (118.7) 51.5

Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations (391.3) 438.4 Exchange differences from hedging of foreign operations 127.5 Investments available for sale (12.5) 17.0 Tax on items that may be reclassified to profit or loss 66.7 (114.3) Total items that may be reclassified subsequently to profit or loss (337.1) 468.5

Total components of other comprehensive income (455.8) 520.0

Total comprehensive income 4,210.1 4,304.7

Total comprehensive income attributable to: Owners of the company 4,214.6 4,308.8 Non-controlling interests (4.5) (4.1) Total 4,210.1 4,304.7

Gjensidige annual report 2016 | 75 Gjensidige Insurance Group

Gjensidige Insurance Group

Consolidated statement of financial position

NOK millions Notes 31.12.2016 31.12.2015

Assets

Goodwill 5 3,140.2 3,224.5 Other intangible assets 5 1,360.5 1,343.6 Deferred tax assets 16 19.1 12.9 Investments in associates and joint ventures 6 1,601.6 1,547.8 Interest-bearing receivables from joint venture 6 1,420.2 1,538.0 Owner-occupied property 7 29.5 34.8 Plant and equipment 7 292.5 289.4 Pension assets 14 488.7 93.1

Financial assets Financial derivatives 8 1,335.4 486.5 Shares and similar interests 8, 12 6,892.1 7,202.3 Bonds and other securities with fixed income 8 30,385.8 30,626.4 Bonds held to maturity 8 1,625.9 2,635.6 Loans and receivables 8, 9 60,030.6 55,837.3 Assets in life insurance with investment options 8 17,780.0 15,109.6 Reinsurance deposits 0.3 0.9 Reinsurers' share of insurance-related liabilities in general insurance, gross 13 706.8 533.0 Receivables related to direct operations and reinsurance 9 5,621.5 4,997.4 Other receivables 9 945.9 502.7 Prepaid expenses and earned, not received income 9 91.3 96.7 Cash and cash equivalents 10, 11 2,158.7 3,151.9

Total assets 135,926.6 129,264.4

Equity and liabilities

Equity Share capital 999.9 999.9 Share premium 1,429.9 1,430.0 Other equity 19,876.3 20,876.5 Total equity attributable to owners of the company 22,306.2 23,306.3 Non-controlling interests 19.8 24.3 Total equity 1 22,326.0 23,330.6

Provision for liabilities Subordinated loan 21 1,946.8 1,547.2 Premium reserve in life insurance 13 4,127.0 3,867.2 Provision for unearned premiums, gross, in general insurance 13 9,527.9 9,230.0 Claims provision, gross 13 32,447.5 33,178.5 Other technical provisions 13 297.3 230.5 Pension liabilities 14 511.8 558.8 Other provisions 15 342.1 345.6

Financial liabilities Financial derivatives 8 1,191.8 403.5 Deposits from and liabilities to customers 8, 15 21,270.4 19,357.2 Interest-bearing liabilities 8, 15 19,596.5 17,804.7 Other liabilities 8, 15 1,368.5 1,065.4 Current tax 16 1,272.7 1,295.1 Deferred tax liabilities 16 871.7 835.8 Liabilities related to direct insurance and reinsurance 8, 15 555.2 619.4 Liabilities in life insurance with investment options 17,780.0 15,109.6 Accrued expenses and deferred income 8, 15 493.3 485.3

Total liabilities 113,600.5 105,933.8

Total equity and liabilities 135,926.6 129,264.4

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 76 | Gjensidige annual report 2016

Helge Leiro Baastad CEO 76 I Gjensidige annual report 2016 Gjensidige Insurance Group

Consolidated statement of changes in equity

Re- measure- ment of the Other Perpetual net defined Other Share Own Share paid-in Tier 1 Exchange benefit earned Total NOK millions capital shares premium capital capital differences liab./asset equity equity

Equity as at 31.12.2014 1,000.0 (0.1) 1,430.0 25.6 (13.2) (1,627.8) 20,842.3 21,656.8

1.1.-31.12.2015 Profit/(loss) (the controlling interests' share) 4.5 3,784.3 3,788.8

Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit 69.0 69.0 liability/asset Tax on items that are not reclassified to profit or loss (17.5) (17.5) Total items that are not reclassified 51.5 51.5 subsequently to profit or loss

Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 438.4 438.4 Exchange differences from hedging of foreign 127.5 127.5 operations Investments available for sale 17.0 17.0 Tax on items that may be reclassified to profit (114.3) (114.3) or loss Total items that may be reclassified 451.5 17.0 468.5 subsequently to profit or loss

Total components of other comprehensive 451.5 51.5 17.0 520.0 income

Total comprehensive income 4.5 451.5 51.5 3,801.2 4,308.8

Own shares 0.0 (9.9) (9.9) Paid dividend (2,949.6) (2,949.6) Remeasurement of the net defined benefit (6.7) 6.7 liability/asset of sold companies Equity-settled share-based payment transactions 6.0 6.0 Perpetual Tier 1 capital 298.2 294.3 Perpetual Tier 1 capital - interest paid (3.9) (3.9)

Equity as at 31.12.2015 attributable to the 1,000.0 (0.1) 1,430.0 31.6 298.8 438.3 (1,583.0) 21,690.7 23,306.3 owners of the company

Non-controlling interests 24.3

Equity as at 31.12.2015 23,330.6

1.1.-31.12.2016 Profit/(loss) (the controlling interests' share) 21.4 4,649.0 4,670.4

Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit (158.7) (158.7) liability/asset Share of other comprehensive income of associates 0.3 0.3 Tax on items that are not reclassified to profit or loss 39.7 39.7 Total items that are not reclassified (119.0) 0.3 (118.7) subsequently to profit or loss

Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations (391.3) (391.3) Investments available for sale (12.5) (12.5) Tax on items that may be reclassified to profit 66.6 0.1 66.7 or loss Total items that may be reclassified (324.7) (12.4) (337.1) subsequently to profit or loss

Total components of other comprehensive (324.7) (119.0) (12.1) (455.8) income

Total comprehensive income 21.4 (324.7) (119.0) 4,637.0 4,214.6

Own shares 0.1 (3.8) (3.7) Paid dividend (6,196.6) (6,196.6) Equity-settled share-based payment transactions 7.6 7.6 Perpetual Tier 1 capital 997.7 997.7 Perpetual Tier 1 capital - interest paid (19.6) (19.6)

Equity as at 31.12.2016 attributable to the 1,000.0 (0.1) 1,430.0 39.2 1,298.3 113.5 (1,702.0) 20,127.3 22,306.3 owners of the company

Non-controlling interests 19.8

Equity as at 31.12.2016 22,326.0

Gjensidige annual report 2016 | 77 Gjensidige Insurance Group

Consolidated statement of cash flow

NOK millions 1.1.-31.12.2016 1.1.-31.12.2015

Cash flow from operating activities Premiums paid, net of reinsurance 27,023.8 25,539.7 Claims paid, net of reinsurance (17,547.5) (16,314.5) Net payment of loans to customers (4,545.8) (9,167.6) Net payment of deposits from customers 1,848.1 2,653.9 Payment of interest from customers 1,326.3 1,283.8 Payment of interest to customers (264.7) (311.0) Net receipts/payments on premium reserve transfers (645.2) (759.2) Net receipts/payments from financial assets 953.5 (4,947.7) Net receipts/payments from properties 285.0 Net receipts/payments from sale/acquisition of investment property 130.2 Operating expenses paid, including commissions (4,400.0) (3,785.8) Taxes paid (1,376.5) (1,056.9) Net other receipts/payments 140.8 53.6 Net cash flow from operating activities 2,512.8 (6,396.4)

Cash flow from investing activities Net receipts/payments from sale/acquisition of subsidiaries, associates and joint ventures (92.2) 2,521.7 Net receipts/payments on sale/acquisition of owner-occupied property, plant and equipment and intangible assets (110.7) (21.9) Net receipts/payments on sale/acquisition of customer portfolios - intangible assets (45.5) (36.1) Net cash flow from investing activities (248.4) 2,463.8

Cash flow from financing activities Payment of dividend (6,152.7) (2,949.6) Net receipts/payments on subordinated loans Gjensidige Forsikring ASA 261.7 (36.9) Net receipts/payments regarding perpetual Tier 1 capital and non-controlling interests 997.0 297.1 Net receipts/payments on loans to credit institutions 2,003.6 7,554.7 Net receipts/payments on other short-term liabilities (19.9) 40.7 Net receipts/payments on interest on funding activities (310.4) (248.5) Net receipts/payments on sale/acquisition of own shares (3.7) (9.9) Net cash flow from financing activities (3,224.5) 4,647.7

Effect of exchange rate changes on cash and cash equivalents (33.1) 33.1 Net cash flow (993.2) 748.1

Cash and cash equivalents at the start of the year 3,151.9 2,403.8 Cash and cash equivalents at the end of the year 2,158.7 3,151.9 Net cash flow (993.2) 748.1

Specification of cash and cash equivalents Deposits with central banks 57.0 548.7 Cash and deposits with credit institutions 2,101.7 2,603.2 Total cash and cash equivalents 2,158.7 3,151.9

78 | Gjensidige annual report 2016 Gjensidige Insurance Group

Accounting policies 9 shall be measured using an expected loss model, instead of an Reporting entity incurred loss model as in IAS 39. The impairment rules in IFRS 9 will be applicable to all financial assets measured at amortised cost Gjensidige Forsikring ASA is a publicly listed company domiciled in or at fair value with the changes in fair value recognised in other Norway. The company’s head office is located at Schweigaardsgate comprehensive income. In addition, loan commitments, financial 21, Oslo, Norway. The consolidated financial statements of the guarantee contracts and lease receivables are within the scope of Gjensidige Insurance Group (Gjensidige) as at and for the year the standard. The measurement of the provision for expected credit ended 31 December 2016 comprise Gjensidige Forsikring ASA and losses on financial assets depends on whether the credit risk has its subsidiaries and Gjensidige’s interests in associates and joint increased significantly since initial recognition. At initial recognition ventures. The activities of Ggjensidige consist of general insurance, and if the credit risk has not increased significantly, the provision pension and savings and banking. Gjensidige does business in should equal 12-month expected credit losses. If the credit risk has Norway, Sweden, Denmark, Latvia, Lithuania and Estonia. increased significantly, the provision should equal lifetime expected credit losses. This dual approach replaces today’s collective The accounting policies applied in the consolidated financial impairment model. For individual impairment there are no significant statements are described below. The policies are used consistently changes in the rules compared with the current rules. During 2016, throughout Gjensidige with the exception of one difference that is Gjensidige Bank continued the process to analyse the need for permitted in accordance with IFRS 4 about insurance contracts. changes to the bank’s models and IT systems following the See description under the section Claims provision, gross. implementation of the new rules for impairment provisions. The work has started and is expected to continue during 2017. It is currently too early to estimate the expected impact to the group’s Basis of preparation financial statements. Preliminary expectations are that the implementation of IFRS 9 could lead to increased provisions for Statement of compliance credit loss due to the change from an incurred loss model to an The consolidated financial statements have been prepared in expected loss model. IFRS 9 is effective from 1 January 2018. accordance with IFRSs endorsed by EU, and interpretations that should be adopted as of 31 December 2016, and additional Amendments to IFRS 4 Applying IFRS 9 Financial Instruments disclosure requirements in accordance with the Norwegian with IFRS 4 Insurance Contracts (2016) Financial Reporting Regulations for Insurance Companies (FOR IFRS 9 addresses the accounting for financial instruments and is 2015-12-18-1775) pursuant to the Norwegian Accounting Act. effective for annual periods beginning on or after 1 January 2018. An insurer may apply the temporary exemption from IFRS 9 if the New standards and interpretations not yet activities are predominantly connected with insurance. Gjensidige’s banking operations amounts to a significant part of the group’s adopted turnover and Gjensidige will therefore most likely not be able to A number of new standards, changes to standards and apply the temporary exemption. interpretations have been issued for financial years beginning after 1 January 2016. They have not been applied when preparing these IFRS 15 Revenue from contracts with customers (2014) consolidated financial statements. Those that may be relevant to IFRS 15 covers all contracts with customers, but insurance Gjensidige are mentioned below. Gjensidige does not plan early contracts, among others, are exempted. Insofar as such contracts implementation of these standards. cover the provision of several services or other services closely related to the insurance operations are carried out, this may have a Amendments to IFRS 2: Classification and measurement of bearing on how Gjensidige recognises revenues in its accounts. share-based payment transactions (2016) IFRS 15 is effective 1 January 2018. Our preliminary assessment is IFRS 2 has been amended regarding the classification and that services beyond what is covered by IFRS 4 about insurance measurement of share-based payment transactions with a net contracts comprise an insignificant part of the income. Our settlement feature for withholding tax obligations. If the entity is preliminary assessment is that the standard is not expected to have obliged to withhold an amount for an employee’s tax obligation a significant effect on Gjensidiges’s financial statements. associated with a share-based payment, and transfer that amount in cash to the tax authority on the employee’s behalf, then the entity IFRS 16 Leasing (2016) shall account for that obligation as an equity-settled share-based IFRS 16 requires all contracts that qualify under its definition as a payment transaction. The amendments are effective from 1 January lease to be reported on a lessee’s balance sheet as right of use 2018. The tax obligation in the Group’s remuneration scheme will assets and lease liabilities. Earlier classification of leases as either be reclassified from liability to equity as at 1 January 2018. From operating leases or finance leases are removed. Short-term leases this date the tax obligation will be accounted for as an equity-settled (less than 12 months) and leases of low-value assets are exempt share-based payment transaction instead of a cash-settled share- from the requirements. A lessee shall recognise right-of-use assets based payment transaction. Our preliminary assessment is that the and lease liabilities. The interest effect of discounting the lease amendment is not expected to have a significant effect on liability shall be presented separately from the depreciation charge Gjensidige’s financial statements. for the right-of-use asset. The depreciation expense will be presented with the group’s other depreciations, whereas the interest IFRS 9 Financial instruments (2014) effect of discounting will be presented as a financial item. IFRS 16 IFRS 9 introduces new requirements for the classification and is effective 1 January 2019. The standard is expected to have an measurement of financial assets, including a new expected loss effect on the group’s financial statements, significantly increasing model for the recognition of impairment losses, and changed the group’s recognised assets and liabilities and potentially affecting requirements for hedge accounting. the presentation and timing of recognition of charges in the income statement. IFRS 9 contains three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive Based on our preliminary assessments and on the basis of income, and fair value through profit or loss. Financial assets will be Gjensidige’s current operations, other amendments to standards classified as either at amortised cost, at fair value through other and interpretation statements will not have a significant effect. comprehensive income, or at fair value through profit or loss, depending on how they are managed and which contractual cash Basis of measurement flow properties they have. IFRS 9 introduces a new requirement in The consolidated financial statements have been prepared based connection with financial liabilities earmarked at fair value: where on the historical cost principle with the following exceptions changes in fair value that can be attributed to the liabilities' credit risk are presented in other comprehensive income rather than over • derivatives are measured at fair value profit or loss. According to prevailing rules, impairment for credit • financial instruments at fair value through profit or loss are losses shall only be recognised when objective evidence of measured at fair value impairment losses exists. Impairment provisions according to IFRS

Gjensidige annual report 2016 | 79 Gjensidige Insurance Group

• financial assets available for sale are measured at fair value an arrangement, which exists only when decisions about the • investment properties are measured at fair value relevant activities require the unanimous consent of the parties sharing control. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the Functional and presentation currency net assets of the arrangement. The consolidated financial statements are presented in NOK. The mother company and the different branches have respectively Joint ventures are accounted for using the equity method and initial Norwegian, Swedish, Danish kroner and Euro as functional recognition is at cost. The investor’s share of the investee’s profit or currency. All financial information is presented in NOK, unless loss is recognised in the investor’s profit or loss. Distributions otherwise stated. received from an investee reduce the carrying amount of the investment. Due to rounding differences, figures and percentages may not add up to the total. See note 6 for a further description of Gjensidige’s joint venture.

Segment reporting Transactions eliminated on consolidation Intra-group balances and transactions, and unrealised income and According to IFRS 8, the operating segments are determined based expenses arising from intra-group transactions, are eliminated in on Gjensidige’s internal organisational management structure and the consolidated financial statements. Unrealised gains arising from the internal financial reporting structure to the chief operating transactions with equity accounted companies are eliminated decision maker. In Gjensidige Insurance Group, the Senior Group against the investment to the extent of Gjensidige’s interest. Management is responsible for evaluating and following up the Unrealised losses are eliminated in the same way, but only to the performance of the segments and is considered the chief operating extent that there is no evidence of impairment. decision maker within the meaning of IFRS 8. Gjensidige reports on six operating segments, which are independently managed by Business combinations managers responsible for the respective segments depending on Business combinations are accounted for by applying the purchase the products and services offered, distribution and settlement method. The cost of the business combination is the fair value at channels, brands and customer profiles. Identification of the the date of exchange of assets acquired, liabilities incurred and segments is based on the existence of segment managers who equity instruments issued by Gjensidige, in exchange for control of report directly to the Senior Group Management/CEO and who are the acquired company, and any expenses directly attributable to the responsible for the performance of the segment under their charge. business combination. Based on this Gjensidige reports the following operating segments If the fair value, after a reassessment of Gjensidige’s share in the • General insurance Private net fair value of identifiable assets, liabilities and contingent • General insurance Commercial liabilities exceeds the cost of the business combination, the excess • General insurance Nordic amount is recognised immediately in profit or loss. • General insurance Baltics • Pension and Savings • Retail Bank Cash flow statement

The recognition and measurement principles for Gjensidige’s Cash flows from operating activities are presented according to the segment reporting are based on the IFRS principles adopted in the direct method, which gives information about material classes and consolidated financial statements. payments. Inter-segment pricing is determined on arm’s length distance. Recognition of revenue and Consolidation policies expenses Operating income and operating expenses consist of income and Subsidiaries expenses in relation to the business in the different business areas, Subsidiaries are entities controlled by Gjensidige Forsikring. see below. Gjensidige Forsikring controls an investee when it is exposed, or has the rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power Earned premiums from general insurance over the investee. The subsidiaries are included in the consolidated Insurance premiums are recognised over the term of the policy. financial statements from the date that control commences until the Earned premiums from general insurance consist of gross date that control ceases. The accounting policies of the subsidiaries premiums written and ceded reinsurance premiums. have been changed when necessary, to align them with the policies adopted by Gjensidige. Gross premiums written include all amounts Gjensidige has received or is owed for insurance contracts where the insurance period starts before the end of the accounting period. At the end of Associates the period provisions are recorded, and premiums written that relate Associates are entities in which Gjensidige has a significant, but not to subsequent periods are adjusted for. a controlling, influence over the financial and operating policies. Normally this will apply when Gjensidige has between 20 and 50 Ceded reinsurance premiums reduce gross premiums written, and per cent of the voting power of another entity. Associates are are adjusted for according to the insurance period. Premiums for accounted for using the equity method, and are recognised initially inward reinsurance are classified as gross premiums written, and at cost. Gjensidige’s investment includes goodwill identified on are earned according to the insurance period. acquisition, net of any accumulated impairment losses. The consolidated financial statements include Gjensidige’s share of income, expenses, and movements in equity, after adjustments to Earned premiums from pension align the accounting policies with those of Gjensidige, from the date Earned premiums from pension consist of earned risk premium and that significant influence commences until the date that the administration expenses in relation to the insurance contracts. significant influence ceases. Interest income and credit commission Joint ventures income from banking operations Joint ventures are defined as companies where there exists a Interest income and interest expenses are calculated and recognised contractual agreement giving joint control together with one or more using the effective interest method. The calculation takes into account parties. Joint control is the contractually agreed sharing of control of arrangement fees and direct marginal transaction costs that form an

80 | Gjensidige annual report 2016 Gjensidige Insurance Group integral part of the effective interest rate. Interest is recognised in Foreign operations profit or loss using the effective interest method both for balance Foreign operations that have other functional currencies are sheet items that are measured at amortised cost and those that are translated to NOK by translating the income statement at average measured at fair value through profit and loss. Interest income on exchange rates for the period of activity, and by translating the impaired loans is calculated as the effective interest on the impaired balance sheet at exchange rates at the reporting date. Exchange value. differences are recognised as a separate component of equity. On disposal of the foreign operation, the cumulative amount of the Commission income from various customer services is recognised exchange difference recognised in other comprehensive income depending on the nature of the commission. Charges are relating to that foreign operation is recognised in profit of loss, when recognised as income when the services have been delivered or the gain or loss on disposal is recognised. when a significant proportion have been completed. Charges that are received for services provided are recognised as income in the Exchange gains and losses arising from a monetary item receivable period in which the service was performed. Commissions received from or payable to a foreign operation, the settlement of which is as payment for various services is recognised as income when the neither planned nor likely in the foreseeable future, are considered service has been performed. Commission expenses are transaction to form a part of the net investment in the foreign operation and are based, and are recognised in the period in which the service was recognised in other comprehensive income. received. Goodwill arising on the acquisition of a foreign operation and fair Claims incurred value adjustments of the carrying amount of assets and liabilities Claims incurred consist of gross paid claims less reinsurers’ share, in arising on the acquisition of the foreign operation are treated as addition to a change in provision for claims, gross, also less assets and liabilities of the foreign operation. reinsurers’ share. Direct and indirect claims processing costs are included in claims incurred. The claims incurred contain run-off gains/losses on previous years’ claims provisions. Tangible assets

Operating expenses Owner-occupied property, plant and Operating expenses consist of salaries and administration and equipment sales costs. Recognition and measurement Items of owner-occupied property, plant and equipment are Insurance-related operating expenses consist of insurance-related measured at cost less accumulated depreciation and accumulated administration expenses including commissions for received impairment losses. Cost includes expenditures that are directly reinsurance and sales expenses, less received commissions for attributable to the acquisition of the item. In cases where equipment ceded reinsurance and profit share. or significant items have different useful lives, they are accounted for as separate components. Net income from investments Financial income consist of interest income on financial Owner-occupied property is defined as property that is used by investments, dividend received, realised gains related to financial Gjensidige for conducting its business. If the properties are used assets, change in fair value of financial assets at fair value through both for Gjensidige’s own use and as investment properties, profit or loss, and gains on financial derivatives. Interest income is classification of the properties is based on the actual use of the recognised in profit or loss using the effective interest method. properties.

Financial expenses consist of interest expenses on loans that are Subsequent costs not part of the banking operations, realised losses related to Subsequent costs are recognised in the asset’s carrying amount financial assets, change in fair value of financial assets at fair value when it is probable that the future economic benefits associated through profit or loss, recognised impairment on financial assets with the asset will flow to Gjensidige, and the cost of the asset can and recognised loss on financial derivatives. All expenses related to be measured reliably. If the subsequent cost is a replacement cost loans are recognised in profit or loss using the effective interest for part of an item of owner-occupied property, plant and method. equipment, the cost is capitalized and the carrying amount of what has been replaced is derecognised. Repairs and maintenances are recognised in profit or loss in the period in which they are incurred. Foreign currency Depreciation Foreign currency transactions Each component of owner-occupied property, plant and equipment are depreciated using the straight-line method over estimated Every company in Gjensidige determines its functional currency, useful life. Land is not depreciated. The estimated useful lives for and transactions in the entities’ financial statements are measured the current and comparative periods are as follows in the functional currency of the subsidiary. • owner-occupied property 10-50 years Transactions in foreign currencies are translated to the respective • plant and equipment 3-10 years functional currencies of the respective Group entities at exchange rates at the date of the transaction. Depreciation method, expected useful life and residual values are reassessed annually. An impairment loss is recognised if the At the reporting date monetary items are retranslated to the carrying amount of an asset is less than the recoverable amount. functional currency at exchange rates at that date. Non-monetary items denominated in foreign currencies that are measured at historical cost, are retranslated using the exchange rates at the date Intangible assets of the transaction. Non-monetary items denominated in foreign currencies that are measured at fair value, are retranslated to the functional currency at the exchange rates at the date when the fair Goodwill value was determined. Goodwill acquired in a business combination represents cost price of the acquisition in excess of Gjensidige’s share of the net fair value of identifiable assets, liabilities and contingent liabilities in the Exchange differences arising on retranslations are recognised in acquired entity at the time of acquisition. Goodwill is recognised profit or loss, except for differences arising on the retranslation of initially at cost and subsequently measured at cost less financial instruments designated as hedge of a net investment in a accumulated impairment losses. foreign operation that qualifies for hedge accounting. These are recognised in other comprehensive income. Goodwill acquired in a business combination is not amortised, but is tested for impairment annually or more frequently, when indications of impairment losses exist.

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For investments accounted for according to the equity method, Impairment losses recognised for goodwill will not be reversed in a carrying amount of goodwill is included in the carrying amount of subsequent period. On disposal of a cash generating unit, the the investment. goodwill attributable will be included in the determination of the gain or loss on disposal. Other intangible assets Other intangible assets which consist of customer relationships, Technical provisions trademarks, internally developed software and other intangible assets that are acquired separately or as a group are recognised at historical cost less accumulated amortisation and accumulated Provision for unearned premiums, gross impairment losses. New intangible assets are capitalized only if The provision for unearned premiums, gross reflects the accrual of future economic benefits associated with the asset are probable premiums written. The provision corresponds to the unearned and the cost of the asset can be measured reliably. portions of the premiums written. No deduction is made for any expenses before the premiums written are accrued. Development expenditures (both internally and externally generated) is capitalized only if the development expenditure can In the case of group life insurance for the commercial market, the be measured reliably, the product or process is technically and provision for unearned premiums, gross also includes provisions for commercially feasible, future economic benefits are probable, and fully paid whole-life cover (after the payment of disability capital). Gjensidige intends to and has sufficient resources to complete the development and to use or sell the asset. Claims provision, gross The claims provision comprise provisions for anticipated future Amortisation claims payments in respect of claims incurred, but not fully settled Intangible assets, other than goodwill is amortised on a straight-line at the reporting date. These include both claims that have been basis over the estimated useful life, from the date that they are reported (RBNS – reported but not settled) and those that have not available for use. The estimated useful lives for the current and yet been reported (IBNR – incurred but not reported). The comparative periods are as follows provisions related to reported claims are assessed individually by the Claims Department, while the IBNR provisions are calculated • customer relationships 5–10 years based on empirical data for the time it takes from a loss or claim • trademarks 1–10 years occurring (date of loss) until it is reported (date reported). Based on • internally developed software 5–8 years experience and the development of the portfolio, a statistical model • other intangible assets 5–10 years is prepared to calculate the scope of post-reported claims. The appropriateness of the model is measured by calculating the The amortisation period and amortisation method are reassessed deviation between earlier post-reported claims and post-reported annually. An impairment loss is recognised if the carrying amount of claims estimated by the model. an asset is less than the recoverable amount. Claims provisions are not normally discounted. For contracts in Denmark with annuity payments over a long horizon, discounting is Impairment of non-financial assets performed. IFRS 4 permits the use of different policies within Gjensidige in this area. Indicators of impairment of the carrying amount of tangible and intangible assets are assessed at each reporting date. If such Claims provisions contain an element that is to cover administrative indicators exist, then recoverable amount of an assets or a cash expenses incurred in settling claims. generating unit is estimated. Indicators that are assessed as significant by Gjensidige and might trigger testing for an impairment Adequacy test loss are as follows A yearly adequacy test is performed to verify that the level of the provisions is sufficient compared to Gjensidige’s liabilities. Current • significant reduction in earnings in relation to historical or estimates for future claims payments for Gjensidige’s insurance expected future earnings liabilities at the reporting date, as well as related cash flows, are • significant changes in Gjensidige’s use of assets or overall used to perform the test. This includes both claims incurred before strategy for the business the reporting date (claims provisions) and claims that will occur from • significant negative trends for the industry or economy the reporting date until the next annual renewal (premium • other external and internal indicators provisions). Any negative discrepancy between the original provision and the liability adequacy test will entail provision for Goodwill is tested for impairment annually. The annual testing of insufficient premium level. goodwill is performed in the third quarter.

Recoverable amount is the greater of the fair value less costs to sell Provisions for life insurance and value in use. In assessing value in use, estimated future cash Technical provisions regarding life insurance in Gjensidige flows are discounted to present value using a pre-tax discount rate Pensjonsforsikring are premium reserve, claims provision and that reflects the time value of money and the risks specific to the additional provision. asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets generating cash inflows The technical provisions related to the unit linked contracts are that are largely independent of cash inflows from other assets or determined by the market value of the financial assets. The unit groups of assets (cash-generating unit). Goodwill is allocated to the linked contracts portfolio is not exposed to investment risk related to cash-generating unit expecting to benefit from the business the customer assets since the customers are not guaranteed any combination. return. In addition there is a portfolio of annuity contracts which have an average 3.5 per cent annually guaranteed return on Impairment losses are recognised in profit or loss if the carrying assets. amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses recognised in respect of Reinsurers’ share of insurance-related cash-generating units are allocated first to the carrying amount of liabilities in general insurance, gross goodwill and then proportionally to the carrying amount of each Reinsurers’ share of insurance-related liabilities in general asset in the cash-generating unit. Previously recognised impairment insurance, gross is classified as an asset in the balance sheet. losses are for assets except for goodwill, reversed if the Reinsurers’ share of provision for unearned premiums, gross and prerequisites for impairment losses are no longer present. reinsurers’ share of claims provision, gross are included in Impairment losses will only be reversed if the recoverable amount reinsurers’ share of insurance-related liabilities in general does not exceed the amount that would have been the carrying insurance, gross. The reinsurers’ share is less expected losses on amount at the time of the reversal if the impairment loss had not claims based on objective evidence of impairment losses. been recognised.

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income except for impairment losses, which are recognised in profit Financial instruments or loss.

Financial instruments are classified in one of the following Gjensidige has no financial assets in this category. categories

• at fair value through profit or loss Investments held to maturity • available for sale Investments held to maturity are non-derivative financial assets with payments that are fixed or which can be determined in addition to a • investments held to maturity fixed maturity date, in which a business has intentions and ability to • loans and receivables hold to maturity with the exception of • financial derivatives • financial liabilities at amortised cost • those that the business designates as at fair value through • financial liabilities classified as equity profit or loss at initial recognition

• those that meet the definition of loans and receivables Recognition and derecognition Financial assets and liabilities are recognised when Gjensidige Investments held to maturity are measured at amortised cost using becomes a party to the instrument’s contractual terms. Initial the effective interest method, less any impairment losses. recognition is at fair value. For instruments that are not derivatives or measured at fair value through profit or loss, transaction The category investments held to maturity comprises the class expenses that are directly attributable to the acquisition or issuance bonds held to maturity. of the financial asset or the financial liability, are included. Normally initial recognition will be equal to the transaction price. Subsequent to initial recognition the instruments are measured as described Loans and receivables below. Loans and receivables are non-derivative financial assets with payments that are fixed or determinable. Loans and receivables are Financial assets are derecognised when the contractual rights to measured at amortised cost using the effective interest method, cash flows from the financial asset expire, or when the Group less any impairment losses. transfers the financial asset in a transaction where all or practically all the risk and rewards related to ownership of the assets are Interest-free loans are issued to finance fire alarm systems within transferred. agriculture for loss prevention purposes. These loans are repaid using the discount granted on the main policy when the alarm system is installed. At fair value through profit or loss Financial assets and liabilities are classified at fair value through The category loans and receivables comprises the classes loans, profit or loss if they are held for trading or are designated as such receivables related to direct operations and reinsurance, other upon initial recognition. All financial assets and liabilities can be receivables, prepaid expenses and earned, not received income designated at fair value through profit or loss if and cash and cash equivalents and obligations classified as loans and receivables. • the classification reduces a mismatch in measurement or recognition that would have arisen otherwise as a result of different rules for the measurement of assets and liabilities Financial derivatives • the financial assets are included in a portfolio that is Financial derivatives are used in the management of exposure to measured and evaluated regularly at fair value equities, bonds and foreign exchange in order to achieve the desired level of risk and return. The instruments are used both for Gjensidige holds an investment portfolio that is designated at fair trading purposes and for hedging of other balance sheet items. Any value at initial recognition, and that is managed and evaluated trading of financial derivatives is subject to strict limitations. regularly at fair value. This is according to the Board of Directors’ approved risk management and investment strategy, and Gjensidige uses financial derivatives, amongst other to hedge information based on fair value is provided regularly to the Senior foreign currency exchanges arising from the ownership of foreign Group Management and the Board of Directors. subsidiaries with other functional currency.

The banking operation has established a liquidity portfolio which is Transaction expenses are recognised in profit or loss when they continuously measured and reported at fair value. The bank has a incur. Subsequent to initial recognition financial derivatives are goal of having low interest rate risk and plans and manages the measured at fair value and changes in fair value are recognised in interest rate risk so that one aggregates fixed-rate positions on profit or loss. deposits, loans and placements in a model, and then use interest rate swaps to balance out potential remaining risk. Interest rate Hedge accounting is applied on the largest branches and swaps are measured at fair value, and in order to avoid inconsistent subsidiaries. Gains and losses on the hedging instrument relating to measurement, bonds and certificates with fixed interest-rates the effective portion of the hedge are recognised in other issued before 2013 subject to interest rate hedging are measured at comprehensive income, while any gains or losses relating to the fair value. Hedge accounting is used for new bonds and certificates ineffective portion are recognised in profit or loss. If subsidiaries are with fixed interest-rates subject to interest rate hedging. disposed of, the cumulative value of such gains and losses recognised in other comprehensive income is transferred to profit or Transaction expenses are recognised in profit or loss when they loss. Where hedge accounting is not implemented, this implies a incur. Financial assets at fair value through profit or loss are divergent treatment of the hedged object and the hedge instrument measured at fair value at the reporting date. Changes in fair value used. Hedge accounting of the largest branches and subsidiaries are recognised in profit or loss. was terminated in the second half-year of 2015.

The category at fair value through profit or loss comprises the Fair value hedging has in 2015 been carried out to hedge the classes shares and similar interests and bonds and other fixed currency in fixed agreements of acquisition of operations. Gains income assets. and losses on the hedging instrument are recognised in profit or loss, together with the change in fair value of the fixed agreement. The change in fair value of the fixed agreement is recognised in Available for sale goodwill when the acquired operation is accounted for. Financial assets available for sale are non-derivative financial assets that have been recognised initially in this category, or are not The bank uses fair value hedging on interest rate risk. Changes in recognised initially in any other category. Subsequent to initial the fair value of the hedged object dedicated to the hedged risk are recognition financial assets in this category are measured at fair adjusting the hedged objects carrying amount and is recognised in value, and gain or loss is recognised in other comprehensive profit or loss.

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The category financial derivatives comprise the classes financial is made on each reporting date. Objective evidence might be derivatives at fair value through profit or loss and financial information about credit report alerts, defaults, issuer or borrower derivatives used as hedge accounting. suffering significant financial difficulties, bankruptcy or observable data indicating that there is a measurable reduction in future cash Financial liabilities at amortised cost flows from a group of financial assets, even though the reduction Financial liabilities are measured at amortised cost using the cannot yet be linked to an individual asset. effective interest method. When the time horizon of the financial liability’s due time is quite near in time the nominal interest rate is An assessment is first made to whether objective evidence of used when measuring amortised cost. impairment of financial assets that are individually significant exists. Financial assets that are not individually significant or that are The category financial liabilities at amortised cost comprises the assessed individually, but not impaired, are assessed in groups with classes subordinated loan, deposits from and liabilities to respect to impairment. Assets with similar credit risk characteristics customers, interest-bearing liabilities, other liabilities, liabilities are grouped together. related to direct insurance and accrued expenses and deferred income. Interest-bearing liabilities consist mainly of issued If there is objective evidence that the asset is impaired, impairment certificates and bonds, and buy-back of own issued bonds. loss are calculated as the difference between the carrying amount of the asset and the present value of estimated future cash flows discounted at the original effective interest rate. Financial liabilities classified as equity Gjensidige has perpetual tier 1 capital accounted for as equity. The Impairment losses are reversed if the reversal can be related instruments are perpetual, but the principal can be repaid on objectively to an event occurring after the impairment loss was specific dates, for the first time five years after it was issued. The recognised. agreed terms meet the requirements in the EU’s CRR/Solvency II regulations and the instruments are included in Gjensidige’s Tier 1 capital for solvency purposes. These regulatory requirements mean Available for sale that Gjensidige has a unilateral right not to repay interest or the For financial assets available for sale, an assessment to whether principal to the investors. As a consequence of these terms, the the assets are impaired is carried out quarterly. instruments do not meet the requirement for a liability in IAS 32 and are therefore presented on the line perpetual Tier 1 capital under If a decline in fair value of an available-for-sale financial asset, equity. Further, it implies that the interest is not presented under compared to cost, is significant or has lasted longer than nine Total interest expenses but as a reduction in other equity. months, the cumulative loss, measured as the difference between Correspondingly, seen in isolation, the benefit of the tax deduction the historical cost and current fair value, less impairment loss on for the interest will lead to an increase in other equity and not be that financial asset that previously has been recognised in profit or presented as a deduction under the line Tax expense, since it is the loss, is removed from equity and recognised in profit or loss even shareholder who benefits from the tax deduction. though the financial asset has not been derecognised.

Impairment losses recognised in profit or loss are not reversed Definition of fair value through profit or loss, but in other comprehensive income. Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in an orderly transaction between market participants at the measurements date. Dividend

Different valuation techniques and methods are used to estimate Dividend from investments is recognised when the Group has an fair value depending on the type of financial instruments and to unconditional right to receive the dividend. Proposed dividend is which extent they are traded in active markets. Instruments are recognised as a liability from the point in time when the General classified in their entirety in one of three valuation levels in a Meeting approves the payment of the dividend. hierarchy on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Provisions Quoted prices in active markets are considered the best estimate of an asset/liability’s fair value. When quoted prices in active markets Provisions are recognised when the Group has a legal or are not available, the fair value of financial assets/ liabilities is constructive obligation as a result of a past event, it is probable that preferably estimated on the basis of valuation techniques based on this will entail the payment or transfer of other assets to settle the observable market data. When neither quoted prices in active obligation, and a reliable estimate can be made of the amount of markets nor observable market data is available, the fair value of the obligation. financial assets/liabilities is estimated based on valuation techniques which are based on non-observable market data. Information about contingent assets are disclosed where an inflow of economic benefits is probable. Information about a contingent For further description of fair value, see note 8. liability is disclosed unless the possibility of an outflow of resources is remote. Definition of amortised cost Subsequent to initial recognition, investments held to maturity, Restructuring loans and receivables and financial liabilities that are not measured Provision for restructuring are recognised when the Group has at fair value are measured at amortised cost using the effective approved a detailed and formal restructuring plan which has interest method. When calculating effective interest rate, future commenced or has been announced. Provisions are not made for cash flows are estimated, and all contractual terms of the financial future expenses attributed to the operations. instrument are taken into consideration. Fees paid or received between the parties in the contract and transaction costs that are directly attributable to the transaction, are included as an integral Pensions component of determining the effective interest rate. Gjensidige has both defined contribution and defined benefit plans for its employees. The defined benefit plan has been placed in a Impairment of financial assets separate pension fund and is closed to new employees. Loans, receivables and investments held to The defined contribution plan is a post-employment benefit plan under which Gjensidige pays fixed contributions into a separate maturity entity and there is no legal or constructive obligation to pay further For financial assets that are not measured at fair value, an amounts. Obligatory contributions are recognised as employee assessment of whether there is objective evidence that there has benefit expenses in profit or loss when they are due. been a reduction in the value of a financial asset or group of assets

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The defined benefit plan is a post-employment benefit plan that generally recognised for all taxable temporary differences. Deferred entitles employees to contractual future pension benefits. Pension tax assets are generally recognised for all deductible temporary liabilities are determined on the basis of linear earning and using differences to the extent that it is probable that they can be offset by assumptions of length of service, discount rate, future return on future taxable income. If deferred tax arises in connection with the plan assets, future growth in wages, pensions and social security initial recognition of a liability or asset acquired in a transaction that benefits from the National Insurance, and estimates for mortality is not a business combination, and it does not affect the financial or and staff turnover, etc. taxable profit or loss at the time of the transaction, then it will not be recognised. Plan assets are measured at fair value, and reduce pension liabilities in the balance sheet. Any surplus is recognised if it is likely Deferred tax liabilities are recognised for temporary differences that the surplus can be used. An overfunding in a funded plan resulting from investments in subsidiaries and associates, except in cannot be offset against an underfunding in an unfunded plan. cases where Gjensidige is able to control the reversal of temporary differences, and it is probable that the temporary difference will not Any actuarial gains and losses related to defined benefit plan is be reversed in foreseeable future. Deferred tax assets that arise recognised in other comprehensive income. from deductible temporary differences for such investments are only recognised to the extent that it is probable that there will be sufficient taxable income to utilise the asset from the temporary Share-based payment difference, and they are expected to reverse in the foreseeable future. The fair value of share-based payment arrangements allocated to employees is at the time of allocation recognised as personnel costs, with a corresponding increase in equity. Share-based Current and deferred tax Current tax and deferred tax are recognised as an expense or payment arrangements which are recovered immediately are income in the income statement, with the exception of deferred tax recognised as expenses at the time of allocation. Vesting conditions on items that are recognised in other comprehensive income, are taken into account by adjusting the number of equity where the tax is recognised in other comprehensive income, or in instruments included in the measurement of the transaction amount cases where deferred tax arises as a result of a business so that, ultimately, the amount recognised shall be based on the combination. For business combinations, deferred tax is calculated number of equity instruments that eventually vest. Non-vesting on the difference between fair value of the acquired assets and conditions are reflected in the measurement of fair value, and no liabilities and their carrying amount. Goodwill is recognised without adjustment of the amount charged as expenses is done upon failing provision for deferred tax. to meet such conditions.

Share-based payment transactions in which Gjensidige receives Related party transactions goods or services as payment for Gjensidige’s own equity instruments are recognised as share-based payment transactions Intra-group balances and transactions are eliminated in preparing with settlement in equity, regardless of how the company has the consolidated financial statements. acquired the equity instruments. Share-based payment arrangements settled by one of the shareholders in the ultimate The provider of intra-group services, that are not considered core mother company is also recognised as a share-based payment activities, will as a main rule, allocate its incurred net costs (all costs transaction with settlement in equity. included) based on a Cost Contribution Arrangement as described in OECD Guidelines chapter 8 and on the basis of paragraph 13-1 See note 25 for a further description of Gjensidige’s share-based in the Norwegian Tax Act. payment arrangements. Identified functions that are categorized as core activities will be Tax charged out with a reasonable mark up or alternatively at market price if identifiable, comparable prices exist. Income tax expense comprises the total of current tax and deferred tax. Transactions with affiliated Current tax companies Current tax is tax payable on the taxable profit for the year, based on tax rates enacted or substantively enacted at the reporting date, The Fire Mutuals operate as agents on behalf of Gjensidige. For and any adjustment to tax payable in respect of previous years. these services commission is paid. The Fire Mutuals are also independent insurance companies with fire and natural damage on their own account. Gjensidige delivers support for this insurance Deferred tax operation. For handling this, and to reinsure the Fire Mutuals’ fire Deferred tax is determined based on differences between the insurance Gjensidige receives payment based on arm’s length carrying amount and the amounts used for taxation purposes, of distance. The same applies to other services delivered to the Fire assets and liabilities at the reporting date. Deferred tax liabilities are Mutuals.

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Notes

1. Equity Share capital Exchange differences At the end of the year the share capital consisted of 500 million Exchange differences consist of exchange differences that occur ordinary shares with a nominal value of NOK 2, according to the when converting foreign subsidiaries and branches, and when statutes. All issued shares are fully paid in. converting liabilities that hedge the company’s net investment in foreign subsidiaries and branches. The owners of ordinary shares have dividend and voting rights. There are no rights attached to the holding of own shares. Remeasurement of the net defined benefit liability/asset In thousand shares 2016 2015 Remeasurement of the net defined benefit liability/asset consists of Issued 1 January 500,000 500,000 the return of plan assets beyond interest income and gains/losses Issued 31 December 500,000 500,000 occurring by changing the actuarial assumptions used when calculating pension liability. Own shares In the column for own shares in the statement of changes in equity Other earned equity the nominal value of the company’s holdings of own shares is Other earned equity consists of this year’s and previous year’s presented. Amounts paid in that exceeds the nominal value is retained earnings that are not disposed to other purposes and charged to other equity so that the cost of own shares reduces the includes provisions for compulsory funds (natural perils fund, Group’s equity. guarantee scheme).

At the end of the year the number of own shares was 26,817 Natural perils capital (68.175). Operating profit/loss from the compulsory natural perils insurance shall be adjusted against the Natural perils capital. The Natural A total of 199,200 (259,515) own shares at an average share price perils capital can only be used for claims related to natural perils. of NOK 141.75 (128.51) have in 2016 been acquired to be used in Natural peril is defined as claim in direct relation to natural hazard, Gjensidige's share-based payment arrangements. Of these such as landslide, storm, flood, storm surge, earthquake or 169,093 (173,499) shares have been sold to employees, at the eruption. same price, but with a discount in the form of a contribution, see note 25. In addition 38,728 (48,579) shares have been allocated to Guarantee scheme executive personnel within the share-based remuneration scheme The provision for guarantee scheme shall provide security to the and 32,737 (32,841) bonus shares have been allocated to insured for the right fulfilment of claims covered by the agreement employees in the share savings programme in 2016. Own shares even after the agreement is terminated in Norway. are reduced by 41,358 (increased by 4,596) through the year. Dividend Share premium Proposed and approved dividend per ordinary share Payments in excess of the nominal value per share are allocated to share premium. NOK millions 2016 2015 As at 31 December

NOK 6.80 (6.40) based on profit for Other paid-in capital 1 3,400.0 3,200.0 Other paid in equity consists of wage costs that are recognized in the year profit and loss as a result of the share purchase program for NOK 4.00 (2.00) based on excess 2,000.0 1,000.0 employees. capital distribution

1 Proposed dividend for 2016 is not recognised at the reporting date, and it does not have Perpetual Tier 1 capital any tax consequences. Perpetual Tier 1 capital consists of a perpetual hybrid instrument in Gjensidige Bank ASA and Gjensidige Forsikring ASA, classified as equity. In connection with the issuance in 2016 and 2015, NOK 3.2 million and NOK 1.8 million were recognized as a deduction in equity.

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2. Use of estimates The preparation of the financial statements under IFRS and the Insurance-related liabilities application of the adopted accounting policies require that Use of estimates in calculation of insurance-related liabilities is management make assessments, prepare estimates and apply primarily applicable for claims provisions. assumptions that affect the carrying amounts of assets and liabilities, income and expenses. The estimates and the associated Insurance products are divided in general into two main categories; assumptions are based on experience and other factors that are lines with short or long settlement periods. The settlement period is assessed as being justifiable based on the underlying conditions. defined as the length of time that passes after a loss or injury Actual figures may deviate from these estimates. The estimates occurs (date of loss) until the claim is reported and then paid and and associated prerequisites are reviewed regularly. Changes in settled. Short-tail lines are e.g. property insurance, while long-tail accounting estimates are recognised in the period the estimates are lines primarily involve accident and health insurances. The revised if the change only affects this period, or both in the period uncertainty in short-tail lines of business is linked primarily to the the estimates change and in future periods if the changes affect size of the loss. both the existing and future periods. For long-tail lines, the risk is linked to the fact that the ultimate claim The accounting policies that are used by Gjensidige in which the costs must be estimated based on experience and empirical data. assessments, estimates and prerequisites may deviate significantly For certain lines within accident and health insurances, it may take from the actual results are discussed below. ten to 15 years before all the claims that occurred in a calendar year are reported to the company. In addition, there will be many Plant and equipment, owner-occupied instances where information reported in a claim is inadequate to property and intangible assets calculate a correct provision. This may be due to ambiguity Plant and equipment, owner-occupied property and intangible concerning the causal relationship and uncertainty about the injured assets are assessed annually to ensure that the depreciation party’s future work capacity etc. Many personal injury claims are method and the depreciation period used are in accordance with tried in the court system, and over time the level of compensation useful life. The same applies to residual value. If indications of for such claims has increased. This will also be of consequence to impairment losses are present, the recoverable amount of the asset claims that occurred in prior years and have not yet been settled. will be estimated. The risk linked to provisions for lines related to insurances of the person is thus affected by external conditions. To reduce this risk, Goodwill is tested for impairment annually or more often if there are the company calculates its claims liability based on various indications that the amounts may be subject to impairment. The methods and follows up that the registered provisions linked to testing for impairment entails determining recoverable amount for ongoing claims cases are updated at all times based on the current the cash-generating unit. Normally recoverable amount will be calculation rules. See note 3 (in the consolidated group accounts) determined by means of discounted cash flows based on business and 13. plans. The business plans are based on prior experience and the expected market development. See note 5 and 7. Pension The present value of pension liabilities is calculated on the basis of Financial assets and liabilities actuarial and financial assumptions. Any change in the assumptions The fair value of financial assets and liabilities that are not traded in affects the estimated liability. Change in the discount rate is the an active market (such as unlisted shares) is determined by means assumption most significant to the value of the pension liability. The of generally accepted valuation methods. These valuation methods discount rate and other assumptions are normally reviewed once a are based primarily on the market conditions at the reporting date. year when the actuarial calculations are performed unless there See note 8. have been significant changes during the year. See note 14.

Loans and receivables For financial assets that are not measured at fair value, it is assessed whether there is objective evidence that there has been a reduction in the value of a financial asset or a group of financial assets on each reporting date. See note 9.

Individual write-downs are assessed before the write-down on groups is determined. If there is objective evidence that a financial asset is impaired, a write-down is made for the estimated loss. Objective evidence means evidence of occurrences indicating that the loan is impaired. This may be information about damaged credit histories, bankruptcy or defaults. For a closer description of the bank, see note 3 in the consolidated group accounts.

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3. Management of insurance and financial risk Overview Figure 2 – Business structure Managing risk is an integral part of Gjensidige’s day-to-day operations. Identification, assessment, management and control of risk exposure as well as analyses of the effects of potential strategic decisions on the risk profile are an essential part of operations. The aim is to ensure that the level of risk-taking is in keeping with the approved risk appetite and to enhance value creation.

Overall management of risks ensures that risks are assessed and handled in a consistent way throughout the Group.

General insurance is Gjensidige’s core business and it accounts for the major part of its operations and risks in the Group. Gjensidige offers different insurance products aimed at private customers, and agriculture and commercial markets through Gjensidige Forsikring in Norway and its branches and subsidiaries in Sweden, Denmark and the Baltic region. Gjensidige also offers pension, investment Organisation and savings products through the subsidiaries Gjensidige The Board has overall responsibility for ensuring that the level of Pensjonsforsikring (GPF) and Gjensidige Investeringsrådgivning risk-taking in the Group is satisfactory relative to the Group’s (GIR). In addition, Gjensidige offers banking services through financial strength and willingness to take risks, and it has adopted a Gjensidige Bank. risk appetite statement that covers the most important types of risks. This entails ensuring that necessary governing documents, The basis of insurance is the transfer of risk, from the insured to the procedures and reporting are in place in order to secure satisfactory insurer. Gjensidige receives insurance premiums from a large risk management and compliance with laws and regulations and number of policy holders whom it is committed to compensating in that the risk management and internal control efforts are the event that a loss occurs. Hence, insurance risk is a major appropriately organised and documented. Financial Undertakings component of risk in the Group. Insurance premiums are received Act requires the Board to establish a separate risk committee, ie a in advance and set aside in order to cover future claims. These similar preparatory committee that the audit committee. Risk technical provisions and the Company’s equity are invested, which Committee will have a forward-looking perspective in relation to the means that the Group is exposed to market and credit risk as well. company's strategy, risk appetite and risk capacity. The committee was established by decision in 2016 with effect from 1.januar.2017. The subsidiary Gjensidige Pensjonsforsikring (GPF) takes insurance and financial risk in the areas of pensions, savings and The group CEO is responsible for overall risk management in the investment advice in the Norwegian market. In the commercial Group. The Group’s capital committee has an advisory role with market GPF offers defined-contribution occupational pensions with regard to the assessment and proposal of changes in use of capital. related risk coverage such as disability insurance, disability Similarly the Group’s risk committee has a supervisory role with pensions and child and spouse pensions. In addition GPF manages regard to the Group’s total risk situation and an advisory role in funds relating to paid-up policy portfolios. In the private market, relation to the group CEO with regard to risk management. Both GPF offers life and pension products and pure risk products, such committees are chaired by the group CEO. Responsibility for as disability pensions. Mortality and disability risks are the two main ongoing risk management is delegated to the responsible line insurance risks in GPF, whereas the greatest financial risk is related managers in their respective areas. Gjensidige has centralised risk to the guaranteed return on the paid-up policies. control functions, such as risk management, compliance and actuarial functions. The subsidiary Gjensidige Bank primarily offers banking products to private individuals and organisations in the Norwegian market. The risk management function is responsible for monitoring and Gjensidige Bank is mainly exposed to credit and liquidity risk. developing Gjensidige risk management and internal control system. In addition, the function shall have an overview of the risks Given the division of operations into operative and reporting Gjensidige is or may be exposed to, and what this means for the segments, the Group has chosen to divide the information in this group solvency. The compliance function shall detect and prevent note on the basis of the business areas general insurance, life risks related to compliance with external and internal regulations. insurance/savings and banking, with the exception of certain Head of the risk management function and head of the compliance contexts where it has been natural to present these areas together. function report to Group CEO when it comes to subject matters. The description of the management of financial risk in general insurance operations focuses on the Group’s total general The actuary function is responsible for control of the technical insurance operations and separate tables have not been produced provisions of the insurance companies and comment on for Gjensidige Forsikring ASA. This reflects the way in which the underwriting policy and reinsurance arrangements. The financial risk is managed. responsibility is centralised in the Group 's Actuary department. Head of the actuary function reports to Group CEO when it comes Figure 1 – Operational structure to subject matters.

In addition, the Group has an independent internal audit function, which monitors that the risk management and internal control systems function satisfactory. The internal audit function reports directly to the Board.

Responsibility for the execution of investments for the insurance operations is vested in the CFO’s organisation. The function for monitoring and reporting financial returns and compliance with investment risk limits reports to the Executive Vice President, Group Staff/General Services in order to ensure independent follow-up. Chief Risk Officer has overall responsibility for risk management and monitors the Board approved limits, with an independent reporting line to the Group CEO.

88 | Gjensidige annual report 2016 Gjensidige Insurance Group

Responsibility for all investment management is centralised in the The following are the target solvency margin ranges for the Group’s investment centre. A group-wide credit committee chaired Gjensidige Group: by the CFO has been established in order to set credit limits for individual issuers of credit and general guidelines for counterparty • Regulatory requirement based on standard formula: 115 -140 risk. per cent • Internal risk-based requirement based on partial internal All internal guidelines and requirements concerning risk taking are model: 120 -175 per cent based on comprehensive group policies and are subject to approval • Rating requirement, A-rating from Standard and Poor’s by the Board of each company based on local legislation. The Group’s solvency margins at the end of 2016 were calculated Figure 3 – The management system is organised with three to be: lines of defence • Regulatory requirement based on standard formula: 147 per cent • Internal risk-based requirement based on partial internal model: 180 per cent. • Rating requirement: A-rating from Standard and Poor’s: 109 per cent

The figures are adjusted according to proposed dividend of NOK 3.4 billion.

The capital position is calculated based Gjensidige’s understanding and interpretation of the requirements and premises given in the regulation.

Capital management Figure 4 – Excess capital in the group from different The core function of insurance is the transfer of risk, and the Group perspectives is exposed to risk in its insurance and investment operations. Identification, measurement and management of risk are essential parts of the operations. All insurance companies must adapt their risk exposure to their capital base. On the other hand, solvency capital, or equity, has a cost. A key objective of capital management is to balance these two aspects. Gjensidige’s overall capital management objectives are to ensure that the capitalisation of the Group can sustain an adverse outcome without giving rise to a financially distressed situation and that the Group’s capital is used in the most efficient way.

Requirements for Gjensidige’s capitalization are specified in a capital management policy approved by the Board. A department under the CFO is responsible for the capital management and must ensure that the requirements in the capital management policy are followed.

The capitalization for the Gjensidige group is determined on the basis of the strictest of three criteria: Regulatory requirements, risk- based requirements and rating requirements. Buffers are adopted Note that the solvency margin for 2015 has changed from the last for management purposes. annual report in the regulatory perspective based on standard formula and in the internal risk-based perspective based on the Excess capital is held to assure financial flexibility with regards to partial internal model. This is a result of changed principles for the organic growth and smaller acquisitions which are not financed by treatment of the guarantee scheme provision which currently is retained profit, in addition to stabilize dividend over time. Gjensidige treated as a liability after instruction from the FSA. There are in intends to maintain high and stable regular nominal dividend addition some changes in the principles for calculating tax effects payments to its shareholders. The Group’s goal is that over time, where tax effects are determined based on the difference in assets minimum 70 per cent of earnings after taxes should be used to pay and liabilities between Solvency II valuation and the valuation for out regular dividends. Dividend decisions will take into account tax purposes. expected future capital requirements. The necessary capital for the insurance business is allocated to the The Group has a strong capitalization with respect to all the three insurance products in order to set a more correct cost of capital for capital perspectives. pricing and assessments of profitability.

Insurance operations and the banking business are subject to capital requirements specified by the authorities. All legal entities within the Gjensidige group must fullfil regulatory requirements. Capital and solvency positions are reported for the Group and its subsidiaries to the relevant financial supervisory authorities.

The current regulatory requirement is based on the standard formula specified by the Solvency II regulation. Gjensidige aims for a partial internal model for calculating the regulatory requirement. Application for an approval is sent to the Norwegian financial supervisory authorities, and a decision is expected in 2017.

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Regulatory capital requirement The main differences between Solvency II valuation and valuation The regulatory capital requirement is calculated based on the according to accounting principles are that: standard formula specified in the Solvency II regulation. The capital requirement for the Gjensidige Group is NOK 13.9 billion. Eligible • Intangibles are valued to zero under Solvency II capital is NOK 20.4 billion. This gives a solvency margin of 147 per • Held-to-maturity-bonds are valued to market value under cent. The capital requirement for Gjensidige Forsikring ASA is NOK Solvency II, while amortized cost are used for accounting 10.3 billion. Eligible capital is NOK 18.6 billion. This gives a purposes solvency margin of 181 per cent. • Technical provisions are valued differently (see below for more details) Table 1 – Regulatory Solvency Capital Requirement for • Policyholders’ receivables are valued to zero according to Gjensidige Forsikring ASA and the Gjensidige Group Solvency II principles, as the related cashflows are included in the calculation of technical provisions (premium provision) Gjensidige Forsikring • The guarantee scheme provision is treated as a liability under Gjensidige Group ASA Solvency II, while it is treated as equity according to NOK millions 2016 2015 2016 2015 accounting principles • Different valuation of deferred tax as a result of the differences Total eligible own funds 18,625.0 18,659.7 20,377.9 19,491.4 above to meet the SCR

SCR 10,262.3 10,547.6 13,879.8 14,038.0 Capital surplus 8,362.8 8,112.1 6,498.2 5,453.3 According to Solvency II principles, technical provisions are derived SCR margin 181.5 % 176.9 % 146.8 % 138.8 % as the sum of a best estimate and a risk margin. For non-life and health insurance the best estimate of technical provisions consist of In addition to the Solvency Capital Requirement (SCR), there is a the premium provisions and the claims provisions. The tables below defined minimum level of capital. The latter is called Minimum show the technical provisions for Gjensidige Forsikring ASA and for Capital Requirement (MCR) for solo companies and minimum the Gjensidige Insurance Group according to accounting principles consolidated group Solvency Capital Requirement for insurance and Solvency II principles. groups. If the capital falls below this level, the company or group will be prohibited to continue the business any further. Minimum Table 4a - Technical provisions for Gjensidige Forsikring ASA consolidated group SCR applies for insurance groups excluding the bank sector. Gjensidige Forsikring ASA Accounting Table 2 – Regulatory Minimum Capital Requirement for NOK millions (NGAAP) Solvency II Difference

Gjensidige Forsikring ASA and the Gjensidige Group Claims provisions for non-life and 30,802.6 29,844.9 (957.7) health insurance Gjensidige Forsikring Premium provisions for non-life Gjensidige Group 8,642.2 1,768.2 (6,874.0) ASA and health insurance NOK millions 2016 2015 2016 2015 Risk margin 1,670.8 1,670.8 Total technical provisions 39,444.8 33,283.8 (6,161.0) Total eligible own funds to meet the MCR/minimum 16,124.4 16,236.6 14,065.2 14,088.3 consolidated group Table 4b - Technical provisions for Gjensidige Group SCR MCR/minimum consolidated group 4,618.0 4,726.2 5,280.5 5,015.3 Gjensidige Group SCR Accounting Capital surplus 11,506.4 11,510.4 8,784.7 9,073.1 NOK millions (IFRS) Solvency II Difference

Claims provisions for non-life and MCR margin 349.2 % 343.5 % 266.4 % 280.9 % 31,357.4 30,413.2 (944.2) health insurance Premium provisions for non-life 9,632.8 2,095.7 (7,537.1) Total eligible own funds to meet the group solvency capital and health insurance requirement (SCR) is excess of assets over liabilities calculated Technical provisions for life 23,189.6 21,457.7 (1,731.9) according to Solvency II principles, adjusted for proposed dividend insurance (best estimate) and subordinated liabilities. For the Gjensidige group eligible capital Risk margin 2,313.9 2,313.9 and capital requirement from the bank sector is added to eligible Total technical provisions 64,179.7 56,280.4 (7,899.4) capital and capital requirement for the insurance group in order to arrive at the Groups final capital figures. Claims provisions for non-life and health insurance are discounted in Solvency II, while the claims provisions (except claims provisions Table 3 - Eligible capital to cover the Solvency Capital for workers’ compensation product in Denmark) are undiscounted in Requirement the accounting figures. All other assumptions for Solvency II purposes are identical with the accounting assumptions. Gjensidige Forsikring Gjensidige Group ASA Premium provisions for non-life and health insurance are calculated NOK millions 2016 2015 2016 2015 as the current value of future cash-flows for unexpired risk for

Assets over liabilities contracts within contract boundaries. Premium provisions according according to Solvency 19,842.1 21,662.4 17,650.4 19,456.4 to accounting principles correspond to the unexpired proportion of II principles (insurance) premiums written for contracts in force at the valuation date, where Own shares (0.1) (0.1) (0.1) (0.1) no deductions are made for any expenses before the written Proposed dividend (3,400.0) (4,200.0) (3,400.0) (4,200.0) premiums are accrued. The practical consequence of this Subordinated liabilities 2,183.0 1,197.4 2,487.5 1,197.4 difference is mainly that future profit for the contracts Gjensidige is (insurance) liable for are included as eligible capital in the Solvency II balance Basic own funds 18,625.0 18,659.7 16,737.8 16,453.6 sheet. As the premium provisions according to Solvency II are Own funds of other 3,640.1 3,037.8 financial sectors discounted this will also result in a difference. Total eligible own funds to meet the 18,625.0 18,659.7 20,377.9 19,491.4 Technical provisions for life insurance are based on a market value SCR approach according to Solvency II principles, where future cash- flows are discounted using the Solvency II interest rate curve. This

90 | Gjensidige annual report 2016 Gjensidige Insurance Group is different from accounting principles where the guaranteed interest Table 6 - Eligible own funds to meet Minimum Capital rate is used. Also, the main difference between accounting and Requirement, split by tiers. Solvency II principles, for index- and unit-linked insurance, is the Gjensidige Forsikring inclusion of future profits in Solvency II. Gjensidige Group ASA A risk margin is added to the technical provisions according to NOK millions 2016 2015 2016 2015

Solvency II principles. The risk margin is calculated as the cost of Tier 1 15,200.8 15,291.3 13,009.1 13,085.3 holding the capital needed to cover the solvency capital Of this; Restricted tier 1 1,025.0 1,025.0 requirement through the entire run-off, if all business was capital terminated. Tier 2 923.6 945.2 1,056.1 1,003.1 Total eligible basic Note that the Solvency II interest rate curves with no volatility own funds to meet MCR/minimum 16,124.4 16,236.6 14,065.2 14,088.3 adjustment are used for determining the Solvency II technical consolidated group provisions, and that no transitional measures are used for the SCR calculations. The solvency capital requirement is based on different sources of Eligible own funds are divided into three capital groups according to risks. The main risks for Gjensidige Forsikring ASA and Gjensidige Solvency II regulations. Gjensidige has mainly tier 1 capital, which Group are non-life and health underwriting risk and market risk. is considered to be capital of best quality. Of the total amount of tier Non-life and health underwriting risk is mainly related to uncertainty 1 capital, NOK 1,025 million comes from the restricted tier 1 in underwriting result for the next year (premium risk) and the risk of category. This is the market value of bonds issued by Gjensidige the claims provisions not being sufficient (reserve risk). Forsikring ASA (nominal amount of NOK 1,000 million). For Counterparty default risk and operational risk also contribute to the Gjensidige Group the tier 1 capital also includes tier 1 capital from capital requirement. A diversification benefit is accounted for as all the bank sector. Restricted tier 1 capital for the bank sector is NOK risks will not occur at the same time. The capital requirement is also 298 million (nominal amount NOK 300 million) and consists of adjusted for future tax benefit which would occur if a loss equal to bonds issued by Gjensidige Bank ASA. the solvency capital requirement should occur. This tax benefit can only be accounted for if it is reasonable that the company is able to The tier 2 capital for the Gjensidige Group and Gjensidige continue with its business after such a loss. Forsikring ASA consists of natural perils capital and subordinated liabilities. Natural perils capital can only be used to cover claims Table 7 - Regulatory Solvency Capital Requirement related to natural perils, but can in an insolvent situation also be used to cover other liabilities. The subordinated liabilities comprises Gjensidige Forsikring Gjensidige Group of bonds issued by Gjensidige Forsikring ASA (nominal amount of ASA NOK 1,200 million), Gjensidige Pensjonsforsiking AS (nominal NOK millions 2016 2015 2016 2015 amount of NOK 300 million) and Gjensidige Bank ASA (nominal Capital available 18,625.0 18,659.7 20,377.9 19,491.4 amount of NOK 450 million). The market value of these bonds is Capital charge for non- 7,896.7 7,704.6 8,110.7 7,829.1 NOK 1,912 million per 31.12.2016. life and health uw risk Capital charge for life 1,323.7 944.7 Gjensidige has no tier 3 capital. uw risk Capital charge for 6,550.9 7,013.4 6,509.3 7,633.9 market risk Details regarding the hybrid capital are specified in note 21. Capital charge for 468.7 496.5 496.8 489.7 counterparty risk Table 5 - Eligible own funds to meet the Solvency Capital Diversification (2,779.5) (2,858.2) (3,757.0) (3,674.2) Requirement, split by tiers Basic SCR 12,136.8 12,356.3 12,683.5 13,223.2 Operational risk 857.9 871.8 936.9 966.1 Gjensidige Forsikring Gjensidige Group Adjustments (risk- ASA reducing effect of (2,732.5) (2,680.6) (3,115.3) (3,053.2) NOK millions 2016 2015 2016 2015 deferred tax) Gjensidige Bank / Tier 1 15,200.8 15,291.3 16,199.6 15,773.2 Gjensidige 3,374.8 2,901.9 Of this; Restricted tier 1 Investeringsrådgivning 1,025.0 1,025.0 Total capital capital from insurance 10,262.3 10,547.6 13,879.8 14,038.0 Of this; Restricted tier 1 requirement capital from other 298.2 294.4 financial sectors Solvency ratio 181.5 % 176.9 % 146.8 % 138.8 % Tier 2 3,424.2 3,368.3 4,178.4 3,718.1 Of this; Natural perils 2,266.2 2,171.0 2,266.2 2,171.0 capital The minimum capital requirement for Gjensidige Forsikring ASA is Of this; Subordinated NOK 4,618.0 million. The Minimum Capital Requirement shall be liabilities from 1,158.0 1,197.4 1,462.5 1,197.4 insurance between 25 per cent and 45 per cent of the SCR. The Minimum Of this; Subordinated Capital Requirement before applying the thresholds is NOK 4,654.6 liabilities from other 449.6 349.8 million. financial sectors Total eligible own 18,625.0 18,659.7 20,377.9 19,491.4 funds to meet SCR The minimum consolidated group solvency capital requirement for the Gjensidige Group is NOK 5,280.5 million.

There are restrictions on the tier 2 capital that can be used to cover the minimum capital requirement. Only 20 per cent of the MCR can be covered by tier 2 capital. The total eligible basic own funds to cover minimum consolidated capital requirement is therefore lower than total eligible own funds to meet solvency capital requirement.

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The regulatory capital surplus for the Gjensidige Group, Gjensidige • Calculation of technical provisions according to Solvency II Forsikring ASA and subsidiaries are given in the table below. principles was suggested in a letter from the FSA in June 2014. In August 2015 the Ministry of Justice cancelled a Table 8 - Capital in excess of legal requirements hearing regarding tax based on technical provisions calculated according to Solvency II principles, and the issue is postponed until further notice. According to Gjensidige’s assessment, NOK millions 2016 2015 transition to Solvency II principles should not involve Gjensidige Group 6,498.2 5,453.3 significant changes in the tax position and Gjensidige expects Gjensidige Forsikring ASA 8,362.8 8,112.1 that the final regulations will reflect this. • FSA argues that the guarantee scheme provision shall be Nykredit Forsikring A/S 198.3 211.6 treated as a liability. Gjensidige is of the opinion that the high ADB Gjensidige 94.9 198.2 level of domestic deposits which are actually equity elements Gjensidige Pensjonsforsikring AS 437.2 124.9 should be treated as eligible solvency capital. The company Gjensidige Bank Holding Group 258.7 130.0 will continue to pursue a regulatory framework in line with this. Until final clarification the guarantee scheme provision is Internal risk-based requirement treated as a liability under Solvency II. The internal risk-based requirement is based on Gjensidige’s partial internal model. The partial internal model covers market risk and Insurance risk non-life and health underwriting risk in Norway, Sweden and The risk under any insurance contract is the probability of the Denmark. Eligible capital is calculated according to Solvency II insured event occurring and the uncertainty concerning the amount principles, but differs slightly from the regulatory perspective as the of the resultant claim. By the very nature of an insurance contract, risk margin is calculated based on the internal model instead of the this risk is random and must therefore be estimated. For a portfolio standard formula. of insurance contracts where the theory of probability is applied in the calculation of prices and technical provisions, the principal risk Table 9 - Internal risk-based capital requirement for Gjensidige that the Group faces under its insurance contracts is that the actual Group claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency and/or severity of claims and benefits are greater than estimated. NOK millions 2016 2015 Insurance events are random, and the actual number and amount

of claims and benefits will vary from year to year from the level Capital available 20,670.9 19,893.0 Capital charge for non-life and calculated using statistical techniques. 6,168.5 5,634.3 health uw risk Capital charge for life uw risk 1,323.7 944.7 Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability around the expected Capital charge for market risk 5,953.0 6,587.8 outcome will be. In addition, a more diversified portfolio is less likely Capital charge for counterparty 496.8 489.7 risk to be affected by a change in any subset of the portfolio. Diversification (4,491.7) (4,350.4) Gjensidige has developed its steering documents for insurance risk Basic SCR 9,450.3 9,306.2 to diversify the types of insurance risks and, within each of these Operational risk 936.9 966.1 categories, achieve a sufficiently large population of risks to reduce Adjustments (risk-reducing effect (2,302.2) (2,104.2) the fluctuation in the expected outcome. of deferred tax) Gjensidige Bank / Gjensidige 3,374.8 2,903.6 Investeringsrådgivning The Group has an overall underwriting policy, approved by the Board of Gjensidige Forsikring ASA, with more detailed Total capital requirement 11,459.7 11,071.6

underwriting guidelines for each of the product segments, supported by strictly defined authorisation rules. Solvency ratio 180.4 % 179.7 % Factors that aggravate insurance risk include lack of risk Rating requirement diversification in terms of type and amount of risk, geographical The rating requirement results in the lowest excess capital at group location and type of industry covered. Unexpected rise in inflation level. Gjensidige’s target financial strength rating is ‘A’ (single A) rate will also have negative effect on claims and benefit payments. from Standard & Poor’s or the equivalent from another rating Gjensidige writes general insurance in Norway, Sweden, Denmark institution. This target has been achieved by an actual rating of A’ and the Baltics. General insurance in these countries has many (Stable) from Standard & Poor’s (unchanged since 1999, last similarities. The description of risks to the insurance business is, updated on 30 June 2016). The rating is subject to annual review. with a few exceptions, common for the Group. In case of significant Standard & Poor’s capital model is used as an approximation of the deviations between the countries, these are commented separately. capital requirements from this perspective, even though a number of other factors also play an important role in determining the General insurance Group’s rating. Based on data as of 31 December 2016, the excess Frequency and severity of claims capital relative to the targeted A rating is estimated at NOK 1.3 The frequency and severity of claims can be affected by several billion. factors. The different factors will depend on the products, or lines of business (LOB) considered. Gjensidige Bank ASA has its own rating (A- last updated on 30 June 2016), while covered bonds issued by Gjensidige Bank An increase in the frequency of claims can be due to seasonal Boligkreditt are rated AAA (last updated on 27 July 2016). effects and more sustainable effects. During the winter season snow and cold weather will cause an increase in the frequency of Introduction of the Solvency II-framework claims in Motor insurance. In Property insurance, a cold winter will The Solvency II regulation took effect 1 January 2016. The capital cause an increase in the frequency of claims due to frozen water position is calculated based on Gjensidge’s understanding of pipes and increased use of electrical power and open fire places for requirements and principles given in laws and prescriptions. heating of the houses. More permanent shifts in the level of claims frequency may occur due to e.g. change in customer behaviour and There is still some uncertainty about how the calculation of capital new types of claims. The effect on the profitability of a permanent requirements and eligible capital should be calculated under the change in the level of claims frequency will be high. In Motor new rules. For general insurance companies the main uncertainties insurance in Norway, for example, an increase of one percentage are related to any tax implications of the transition to Solvency II point in the level of claims frequency will increase the loss ratio by principles for calculating technical provisions and the treatment of three to four percentage points. the guarantee scheme provision:

92 | Gjensidige annual report 2016 Gjensidige Insurance Group

The severity of claims is affected by several factors. In some LOB, Table 10 – Gross premiums written per segment with relatively few claims, the severity may be heavily influenced by large claims. The number of large claims incurred during a year Gross Gross varies significantly from one year to another. This is typical of the premiums premiums commercial market. In most LOB the underlying development of the written Per cent written Per cent NOK millions 2016 of total 2015 of total severity of claims is influenced by inflation. General insurance Private 8,375.9 31.2% 8,269.1 33.0% Growth in severity of claims may be driven by the development of General insurance 7,446.1 27.8% 7,434.9 29.7% consumer price index (CPI), salary increases, social inflation and Commercial the price of materials and services purchased in connection with General insurance Nordic 6,262.4 23.3% 5,430.0 21.7% claims settlement. In Property insurance the severity of claims will General insurance Baltics 1,080.6 4.0% 702.9 2.8% be incluenced by inflation and specifically by increased building Pension and savings 3,604.2 13.4% 3,078.0 12.3% costs, which in the past has been slightly higher than CPI. For Corporate Center- 53.0 0.2% 138.7 0.6% accident and health the insurance policies are divided into two main /reinsurance groups, one with fixed sum insured and another part where the Total 26,822.2 100.0% 25,053.6 100.0% compensation is adjusted in accordance with a public/government Total Gjensidige 22,118.4 82.5% 21,251.1 84.8% index (in Norway: ‘G’ - the basic amount in the National Insurance Forsikring ASA Scheme). This is the case in Workers’ Compensation, for instance. The Group writes Workers’ Compensation insurance in Norway and Table 11a – Gross premiums written per line of business, Denmark. The regulation of this LOB is quite different in these Gjensidige Group countries. In Norway Workers’ Compensation covers both accident and diseases, while in Denmark diseases are covered by a Gross Gross governmental body. The compensation in Norway is exclusively in premiums premiums the form of lump sums, while in Denmark the compensation written Per cent written Per cent NOK millions 2016 of total 2015 of total consists of both lump sums and annuity payments. Annuity payments are calculated on the basis of assumptions about Medical expense insurance 481.1 1.8% 370.1 1.5% mortality, interest rate and retirement age. For bodily injuries the Income protection 1,218.4 4.5% 1,269.5 5.1% severity of claims is also influenced by court awards, which tend to insurance Workers' compensation increase the compensation more than the general inflation. This is 1,046.0 3.9% 1,068.6 4.3% also a significant factor, due to the long period typically required to insurance Motor vehicle liability settle these cases. 2,995.6 11.2% 3,300.9 13.2% insurance Other motor insurance 4,526.4 16.9% 4,128.4 16.5% Gjensidige manages these risks mainly through close supervision Marine, aviation and of the development for each LOB, underwriting guidelines and 286.0 1.1% 257.9 1.0% transport insurance proactive claims handling. The monthly supervision of the results for Fire and other damage to 7,855.1 29.3% 7,140.6 28.5% each LOB contains an overview of both premium and loss property insurance development. If there is an adverse development of the profitability, General liability insurance 648.1 2.4% 673.4 2.7% sufficient measures will be put in force. This includes necessary Other 4,161.3 15.5% 3,766.2 15.0% premium increases to ensure that the profitability is within the accepted level. Pension and savings 3,604.2 13.4% 3,078.0 12.3% Total 26,822.2 100.0% 25,053.6 100.0% The analysis of the profitability can be traced further to different groups of customers and portfolios. The underwriting guidelines Table 11b – Gross premiums written per line of business, endeavour to ensure that the underwritten risks are well diversified Gjensidige Forsikring ASA in terms of type and amount of risk, industry and location of the risks. Underwriting limits are in place to enforce appropriate risk Gross Gross selection criteria and to ensure that accepted risks are within the premiums premiums written Per cent written Per cent limits of the reinsurance contracts. NOK millions 2016 of total 2015 of total

Premiums, deductibles and elements in the conditions may be Medical expense insurance 321.2 1.5% 283.9 1.3% Income protection changed at the yearly renewal of policies. Insurance companies 1,059.5 4.8% 1,067.9 5.0% have the right to reject the payment of a fraudulent claim. insurance Workers' compensation Gjensidige has the right not to renew individual policies in cases of 1,046.0 4.7% 1,058.7 5.0% insurance insurance fraud, and in some instances legislation or policy Motor vehicle liability 2,572.6 11.6% 2,972.2 14.0% conditions give the company the right to terminate or not to renew insurance individual policies where special reasons indicate that such Other motor insurance 4,090.1 18.5% 3,718.1 17.5% termination is reasonable. In cases where a claim has been paid, Marine, aviation and 277.8 1.3% 254.3 1.2% Gjensidige is entitled to pursue any third parties liable for the transport insurance damage for payment of some or all costs (recourse claim). The Fire and other damage to 8,016.9 36.2% 6,623.7 31.2% underwriting policy and guidelines in all companies are within the property insurance Group’s approved risk level. General liability insurance 627.7 2.8% 625.0 2.9% Other 4,106.5 18.6% 4,647.2 21.9% The claims handling procedures also include a clear strategy and Total 22,118.4 100.0% 21,251.1 100.0% routines for the purchase of goods and services in an optimal manner. The routines are to use purchase agreements to ensure Other concentration risk is mainly related to aggregation of fire risks the quality of our benefits to our customers and to reduce the and Workers’ Compensation. These risks are assessed by inflation risk. analysing historical events and studying the insurance values exposed. They are managed through reinsurance programmes. Concentration of insurance risk The insurance portfolio of the Gjensidige Group is still concentrated The reinsurance programme for the Gjensidige Group, primarily in the Norwegian general insurance market, with operations in other non-proportional reinsurance, is based on calculated exposure, Nordic countries and the Baltic. claims history and capitalisation. The limits for the reinsurance programme for each year are set by the Board. In Norway the exposure to natural perils is limited through Gjensidige’s compulsory membership in the Norwegian Natural Perils Pool. Insurance risk is deemed to be moderate with the reinsurance cover the Group has in place.

Gjensidige annual report 2016 | 93 Gjensidige Insurance Group

Subsidiaries are reinsured by Gjensidige Forsikring ASA, and the Insurance contracts are often classified as risks that are short-tail subsidiaries’ reinsurance exposure is included in the reinsurance and risks that are long-tail. Short-tail risk is characterised by the programme for the Group. period between the occurrences, reporting and final settlement of claims being short. Long-tail risk is the opposite. The period Sources of uncertainty in the estimation between the occurrence, reporting and settlement of claims is long. of future claims payments In Property and Motor insurance (excluding bodily injury claims) the Gjensidige is liable for insured events that occurred during the term claims are reported soon after occurrence, while for Accident and of the contract, even if the loss is discovered after the end of the Health insurance the claims may be reported several years after the contract term, and claims are normally paid according to the policy occurrence and settled several years after they were reported. The conditions valid at the time of occurrence. As a result, claims are provisions for IBNR for short-tail risks are relatively small, while for settled over a long period of time. The provision for reported but not long-tail risks the provisions for IBNR may constitute a substantial settled claims (RBNS) is calculated based on the size of the claim; part of the total claims provision. another element of the claims provision relates to incurred but not reported claims (IBNR). The duration (average time between the date of loss until the claim is finally settled) differs significantly between the types of risk There are several variables that affect the amount and timing of considered. Long duration will increase the company’s exposure to cash flows from the insurance contracts. These variables mainly inflation. In Motor insurance, physical damage, the duration is less relate to the characteristics of the different types of risks covered than one year, while in Motor bodily injury claims the average and the risk management procedures applied. The compensation duration is almost eight years. In Property insurance the average paid is according to the terms specified in the insurance contract. duration is one to two years. In Workers’ Compensation in Norway Compensation for claims with respect to bodily injuries is calculated the average duration is six years. In Group life insurance the as the present value of lost earnings, rehabilitation expenses and duration differs significantly between death and disability coverage. other expenses that the injured party will incur as a result of the Workers’ Compensation in Denmark has a particularly long duration accident or disease. In most cases in Norway, and also in the other due to the annuity part. For the other lines of businesses (LOB) in countries where Gjensidige operates, personal injury claims are Gjensidige’s Nordic branches and subsidiaries the duration is in line paid as a lump-sum. An exception from this is Workers’ with the similar LOB in Norway. In the Baltic the duration is Compensation claims in Denmark, where claims may be paid as significantly shorter due to few bodily injury claims. annuity payments. The calculations for such claims will include information about the severity of the loss, mortality rates, the Figure 5 – Average duration per insurance product number of years until retirement age and assumptions about future Motor, PD social welfare inflation. Mortality rates are taken from tables Motor, BI approved by the supervisory authorities. Workers Compensation (NO)

The estimated cost of claims includes expenses to be incurred in Workers Compensation (DK) settling claims, net of the expected recourse amount and other Liability recoveries. Gjensidige takes all reasonable steps to ensure that it has appropriate information regarding its claims exposure. Accident However, given the uncertainty in establishing claims provisions, it Group Life, Death is likely that the final outcome will prove to be different from the Group Life, Disability original liabilities established. The liabilities in the financial statements relating to these contracts comprise a provision for Property, Private IBNR, a provision for reported claims not yet paid (RBNS) and a Property, Commercial provision for unexpired risks as of the balance sheet date (provision Marine, aviation and transport for unearned premiums). The amount for bodily injury claims is influenced by the level of court awards, particularly by the 0 2 4 6 8 10 development of legal precedence on matters of contract and tort. Years

Liability insurance contracts are also subject to the emergence of Process used to decide on assumptions new types of latent claims, but no allowance is included for this on The risks associated with insurance contracts are complex and the balance sheet date. subject to a number of variables that complicate quantitative sensitivity analysis. The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already Gjensidige uses standard actuarial models based on statistical notified (RBNS), where information about the claim is available. information. There may be cases where certain claims may not be apparent to the insured until many years after the event that gave rise to the The provisions related to reported claims are assessed individually claims. by a claims handler and registered in the claims system. The development of provisions for notified claims is supervised by the In estimating the liability for the cost of reported claims not yet paid, claims managers. In case of adverse development necessary Gjensidige considers any information available from claims reports, efforts are put in force. loss adjusters, medical certificates and information about the costs of settling claims with similar characteristics in previous periods. All Calculation of claims provisions is based on empirical data, where claims are assessed on a case-by-case basis by a claims handler. the basis is the development of claims cost over time. This includes Claims with potential for distortive effects of their development are development for both reported claims (RBNS provisions) and handled separately and projected to their ultimate by an additional incurred, but not reported claims (IBNR provisions). Based on provision (e.g. bodily injury claims in Motor insurance). Where experience and the development of the portfolio statistical models possible, Gjensidige applies multiple techniques to estimate the are prepared to calculate the claims provisions. The fit of the model required level of provision. This provides a greater understanding of is measured by looking at the deviation between earlier post- the trends inherent in the experience being projected. The reported claims and those estimated by the model. projections resulting from the various methodologies also assist in estimating the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year. The development of the estimate of ultimate claim cost for claims incurred in a given year is presented in Tables 14a and b. This gives an indication of the accuracy of Gjensidige’s estimation techniques for claims payments.

94 | Gjensidige annual report 2016 Gjensidige Insurance Group

The key statistical methods used are Table 12 – Sensitivity analysis insurance

• NOK millions 2016 2015 Chain ladder methods, which use historical data to estimate the proportions of the paid and incurred to date of the Change in CR (1%-point) ultimate claim costs. General insurance Private 82.9 81.5 • Expected loss ratio methods (e.g. Bornhuetter-Ferguson), which use Gjensidige’s expectation of the loss ratio for a line General insurance Commercial 72.6 70.8 of business in the estimation of future claims payments. General insurance Nordic 59.2 52.3 • Methods where “Chain ladder” and “Expected loss ratio” General insurance Baltics 10.4 6.4 methods are used in combination. One advantage of the use Pension and savings 14.8 14.3 of these methods is that more weight can be given to experience data when the run-off development of the actual Corporate Centre/reinsurance (0.6) 1.7 claim year has become more stable. Total 239.2 227.0 Total Gjensidige Forsikring ASA 213.5 205.8 The methods used will depend on the LOB and the time period of data available. To the extent that these methods use historical Change in loss frequency (1%-point) claims development information, they assume that the historical General insurance Private 459.5 467.6 claims development pattern will occur in the future. There are General insurance Commercial 1,080.2 1,044.5 reasons why this may not be the case, which, insofar as they can be identified, have been allowed for by modifying model General insurance Nordic 447.7 537.1 parameters. General insurance Baltics 55.0 10.8 Total 2,042.4 2,060.0 Such reasons include Total Gjensidige Forsikring ASA 1,987.4 2,049.2

• Economic, legal and social trends and social inflation ­ Change in severity of claims (+10%) (e.g. a shift in court awards) General insurance Private 503.1 490.9 • Changes in the mix of insurance contracts incepted General insurance Commercial 482.5 482.7 • The impact of large losses General insurance Nordic 474.0 386.1 IBNR provisions and provisions for outstanding claims are initially General insurance Baltics 74.8 52.0 estimated at a gross level, and a separate calculation is carried out Total 1,534.4 1,411.7 to estimate the size of reinsurance recoveries. Gjensidige Total Gjensidige Forsikring ASA 1,459.5 1,359.7 purchases almost exclusively non-proportional reinsurance contracts with sufficiently high retentions for only relatively few, Changes in the composition of the insurance portfolio will also have large claims to be recoverable. impact on changes in the frequency and severity of claims. In times when there are changes in the composition of the insurance Gjensidige has a centralised actuarial department, and the portfolio, the effect of changes in the frequency and severity of actuaries in the Gjensidige Group working with technical provisions claims will be influenced by the percentage share of the different meet regularly, as part of keeping a high professional level. Under insurance product types in the total portfolio. Solvency II Gjensidige has established an actuarial function to ensure that the technical provisions are at a sufficient level and are Sensitivity analysis – provision risk calculated according to current regulations. The estimation of technical provisions for an insurance portfolio represents an approximation of future cash flow for the claims Gjensidige has regular processes where external actuarial firms payments, and there will always be an element of uncertainty in calculate best estimates of the technical provisions. This is done to such calculations. Provision risks relate to this kind of uncertainty. get a second opinion on the level of the provision from independent, The uncertainty depends on the nature of the risk. Risk with a short recognised actuarial firms. duration is less exposed to changes that will affect the future payments. Bodily injury claims are on the other hand very sensitive Sensitivity analysis – underwriting risk regarding changes in e.g. inflation and court awards. The effects of Underwriting risk is the risk that an insurer does not charge court awards are taken into account as soon as they are known. In premiums appropriate for the insurance contracts. The pricing cases when a judgement is not yet final and legally binding, the processes for the different insurance products involve estimates of effect on the claims provision is based on a probability weighted future frequency and severity of claims, based on statistics from estimate of the possible outcomes. internal and external sources. Even if the underwriting criteria are adequate and the premium calculations are performed on a good Inflation is an underlying risk in most insurance products. The effect statistical basis, the claims cost may deviate from the expected will be different, depending on the characteristics of each product level, due to large claims, natural catastrophes etc. and the terms and conditions that apply to the claims settlement. For LOB with nominal long-tailed provisions the effect of a one Gjensidige Forsikring ASA and its subsidiaries have detailed percentage point increase in inflation will be significant, proportional underwriting guidelines, intended to ensure good quality in the to the average duration (in number of years). assessment and quantification of insured risks, and to define risk types and limits for sums insured that can be accepted, thus Interest risk is a significant risk factor associated with Workers’ ensuring control of the risk exposure in the insurance portfolio. Compensation business in Denmark. This risk is an expression for loss/profit due to changes in market rates. There is both interest Table 12 below shows the impact on profit or loss for the year, and and inflation risk associated with the liabilities (technical provisions). thereby on equity at year-end, of changes in Combined Ratio (CR). The risk is hedged by use of interest and inflation swaps. Tax impact is not included in the calculations. CR is the key measure of profitability in the general insurance business. The The sensitivity analysis shows the effect of a change in inflation rate calculations show the effect of a change of one per cent in CR for of one percentage point on the claim provision. The calculations do each segment. An increase in CR can be caused by an increase in not include the effect of inflation swaps. the loss frequency and/or an increase in the severity. In some LOB there is a risk that the loss frequency and the severity of claims are correlated so that an increase in the underlying insurance risk may affect both the frequency and severity of claims.

Gjensidige annual report 2016 | 95 Gjensidige Insurance Group

Table 13 – Sensitivity analysis claims provision Change in inflation (+/- 1%-point) NOK millions 2016 2015

General insurance Private 289.9 312.7 General insurance Commercial 337.2 374.1 General insurance Nordic 551.6 556.6 General insurance Baltics 4.5 2.2 Total 1,183.3 1,245.6 Total Gjensidige Forsikring ASA 1,170.9 1,235.9

Table 14a – Analysis of claims development, Gjensidige Group

NOK millions 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total

Gross Estimated claims cost At the end of the accident year 12,187.8 12,664.8 12,808.3 12,366.3 14,528.8 15,649.2 13,269.7 15,102.8 14,714.3 12,601.4 13,627.2 - One year later 12,047.2 12,700.3 12,884.4 12,310.9 14,398.9 15,886.2 13,225.9 14,995.8 14,346.3 12,569.9 - Two years later 11,974.4 12,575.0 12,792.5 12,153.6 14,426.0 15,928.5 13,150.4 14,821.4 14,229.0 - Three years later 11,787.5 12,515.2 12,769.5 12,161.4 14,351.8 15,749.8 12,983.6 14,628.4 - Four years later 11,776.9 12,534.2 12,728.1 12,021.4 14,272.6 15,552.9 12,809.5 - Five years later 11,791.2 12,457.4 12,601.3 11,961.0 14,166.2 15,434.4 - Six years later 11,746.3 12,367.5 12,558.1 11,916.0 14,044.0 - Seven years later 11,644.7 12,329.9 12,512.6 11,779.5 - Eight years later 11,607.5 12,281.7 12,426.6 - Nine years later 11,659.1 12,144.3 - Ten years later 11,477.4

Estimated amount as at 11,477.4 12,144.3 12,426.6 11,779.5 14,044.0 15,434.4 12,809.5 14,628.4 14,229.0 12,569.9 13,627.2 31.12.2016 Total disbursed 10,556.9 11,077.8 11,189.2 10,363.1 12,600.8 13,918.2 11,125.3 12,551.4 11,987.9 9,512.2 7,291.2 122,174.0 Claims provision 920.5 1,066.5 1,237.4 1,416.3 1,443.2 1,516.2 1,684.2 2,077.1 2,241.1 3,057.6 6,336.1 22,996.1 Prior-year claims provision and loss adjustment provision 6,737.7 Gjensidige Baltic 511.3 Total 30,245.1

Net of reinsurance Estimated claims cost At the end of the accident year 12,075.9 12,396.0 12,644.3 12,337.3 14,042.4 14,724.8 13,066.4 14,371.4 14,589.5 12,601.4 13,386.9 - One year later 11,931.4 12,432.1 12,730.2 12,282.1 13,938.8 14,900.7 13,017.0 14,225.7 14,215.5 12,569.7 - Two years later 11,816.4 12,289.4 12,643.7 12,130.5 13,964.0 14,996.5 12,956.5 14,137.2 14,102.1 - Three years later 11,622.7 12,233.8 12,615.8 12,138.3 13,890.7 14,878.8 12,784.1 13,941.4 - Four years later 11,606.9 12,252.7 12,574.6 11,998.8 13,810.6 14,677.9 12,605.0 - Five years later 11,621.3 12,178.5 12,448.3 11,937.2 13,699.9 14,559.4 - Six years later 11,579.3 12,088.6 12,403.8 11,892.3 13,577.7 - Seven years later 11,476.6 12,051.0 12,358.3 11,755.7 - Eight years later 11,439.4 12,002.8 12,272.2 - Nine years later 11,493.3 11,865.4 - Ten years later 11,311.5

Estimated amount as at 11,311.5 11,865.4 12,272.2 11,755.7 13,577.7 14,559.4 12,605.0 13,941.4 14,102.1 12,569.7 13,386.9 31.12.2016 Total disbursed 10,435.9 10,846.5 11,114.8 10,346.6 12,494.9 13,190.1 11,095.1 12,273.3 11,991.4 9,512.2 7,291.2 120,592.1 Claims provision 875.6 1,018.8 1,157.5 1,409.1 1,082.8 1,369.3 1,509.8 1,668.0 2,110.7 3,057.4 6,095.7 21,354.9 Prior-year claims provision and loss adjustment provision 8,077.2 Gjensidige Baltic 511.3 Total 29,943.4

96 | Gjensidige annual report 2016 Gjensidige Insurance Group

Table 14b – Analysis of claims development, Gjensidige Forsikring ASA

NOK millions 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total

Gross Estimated claims cost At the end of the accident year 11,710.0 12,263.3 12,243.1 11,713.2 13,655.7 14,463.0 12,648.1 14,257.0 14,097.2 11,950.8 12,980.6 - One year later 11,585.2 12,276.6 12,343.8 11,642.3 13,571.4 14,701.4 12,652.3 14,190.7 13,728.6 11,919.1 - Two years later 11,528.5 12,165.4 12,249.4 11,497.9 13,593.5 14,733.7 12,591.9 14,026.7 13,605.2 - Three years later 11,345.2 12,105.1 12,213.9 11,500.7 13,519.4 14,558.9 12,437.0 13,848.6 - Four years later 11,335.3 12,111.0 12,173.0 11,364.7 13,423.0 14,365.0 12,259.6 - Five years later 11,338.9 12,030.1 12,047.0 11,298.6 13,314.0 14,244.6 - Six years later 11,290.7 11,943.2 12,003.2 11,250.6 13,187.6 - Seven years later 11,187.7 11,903.6 11,956.4 11,109.6 - Eight years later 11,149.3 11,855.2 11,869.7 - Nine years later 11,198.1 11,715.7 - Ten years later 11,019.4

Estimated amount as at 11,019.4 11,715.7 11,869.7 11,109.6 13,187.6 14,244.6 12,259.6 13,848.6 13,605.2 11,919.1 12,980.6 31.12.2016 Total disbursed 10,099.0 10,651.8 10,636.1 9,703.0 11,754.6 12,740.7 10,583.1 11,789.7 11,405.6 8,961.1 6,913.1 115,237.8 Claims provision 920.4 1,063.9 1,233.6 1,406.6 1,433.0 1,504.0 1,676.6 2,058.8 2,199.6 2,958.0 6,067.6 22,522.0 Prior-year claims provision and loss adjustment provision 7,196.9 Total 29,718.9

Net of reinsurance Estimated claims cost At the end of the accident year 11,598.1 11,994.4 12,079.3 11,685.6 13,169.3 13,538.5 12,444.8 13,525.5 13,972.4 11,950.8 12,740.3 - One year later 11,469.4 12,008.4 12,189.8 11,614.9 13,111.2 13,715.9 12,443.4 13,420.6 13,597.8 11,918.9 - Two years later 11,370.5 11,879.9 12,100.8 11,476.2 13,131.6 13,801.7 12,398.0 13,342.4 13,478.3 - Three years later 11,180.4 11,823.6 12,060.4 11,479.2 13,058.3 13,687.9 12,237.4 13,161.5 - Four years later 11,165.4 11,829.6 12,019.4 11,343.4 12,961.0 13,490.0 12,055.1 - Five years later 11,169.0 11,751.3 11,893.9 11,276.3 12,847.7 13,369.7 - Six years later 11,123.7 11,664.4 11,849.0 11,228.4 12,721.4 - Seven years later 11,019.6 11,624.7 11,802.1 11,087.3 - Eight years later 10,981.3 11,576.3 11,715.3 - Nine years later 11,032.3 11,436.8 - Ten years later 10,853.6

Estimated amount as at 10,853.6 11,436.8 11,715.3 11,087.3 12,721.4 13,369.7 12,055.1 13,161.5 13,478.3 11,918.9 12,740.3 31.12.2016 Total disbursed 9,978.0 10,420.6 10,561.7 9,688.0 11,648.8 12,012.6 10,552.9 11,511.7 11,409.1 8,961.1 6,913.1 113,657.3 Claims provision 875.6 1,016.2 1,153.7 1,399.4 1,072.6 1,357.1 1,502.2 1,649.8 2,069.2 2,957.8 5,827.2 20,880.8 Prior-year claims provision and loss adjustment provision 8,536.3 Total 29,417.1

Life insurance Insurance risk GPF is exposed to mortality, longevity and disability risk Gjensidige Pensjonsforsikring AS (GPF) offers products, such as respectively because of the products survivor benefits, defined occupational pensions, including disability protection and survivor benefit pensions (with guaranteed payments until a given age, or benefit, individual disability protection and pension saving lifelong payments) and disability protection. The greatest risk products. Their purpose is to provide financial security after contributor is disability, followed by longevity and mortality. retirement, and protection in case of disability or death. Furthermore, GPF makes assumptions about the likelihood of Risk is transferred from the customer to GPF, and GPF is number of survivors (spouse, live-in partner and children), their compensated by charging a risk premium. The risk premium is age and benefit amounts. If empirical data deviates from the based on tariffs that reflect the actual risk. GPF use reserving assumptions, the premium reserve may be insufficient. The techniques to estimate future obligations. If data is scarce, liability duration, likelihood of claims and insured amounts create simplified reserving techniques may be used. Sufficient reserving the time span of cash out-flow, but also affect the risk. The is the foundation of GPF’s business. This is especially challenging following section describes the products that represent the for the paid-up policies that GPF also has on its balance sheet. greatest insurance risk for GPF. GPF has no possibility of charging additional premium so the premium reserve must suffice. GPF’s main business focus is occupational pension products. This can be mandatory pension plans, defined contribution plans Risk of insufficient premium reserve can arise when mortality and exceeding the minimum level and supplementary pensions such disability rates do not develop as expected. This is called as disability protection and survivor benefits. Furthermore, GPF insurance risk. administers a portfolio of paid-up policies, and offers individual disability pension and other pension savings products. Among (Life) Insurance risk can be divided into three elements: these products, the occupational pension’s supplementary coverage, paid-up policies and individual disability protection • Longevity risk - when mortality is lower than assumed represent the greatest insurance risk for GPF. • Mortality risk - when mortality is higher than assumed • Disability risk - when disability is higher than assumed

Gjensidige annual report 2016 | 97 Gjensidige Insurance Group

The tables below show the number of members and contracts for Mortality risk is caused by survivor benefit as part of occupational mandatory occupational pension and other defined contribution pension. This can be a widow/widower pension or survivor pension pension plans, respectively. to children. Survivor pension is most common supplementary coverage to defined contribution plans which exceed minimum Table 15a – Number of members and contracts 2016 levels (a contribution of 2 per cent of salary). The paid-up policies also contain some survivor benefit, but these benefits are generally Number of Number of lower. The duration of survivor benefit linked to an occupational members contracts pension is often limited. However, the duration of survivor benefit Compulsory occupational pensions 64,565 8,872 linked to paid-up policies is longer and benefits are often guaranteed for lifetime. Other defined contribution pensions 70,437 7,373

Total 135,002 16,245 Insurance risk is satisfactory per December 31 2016, and

provisions for claims are considered to be sufficient to account for Compulsory occupational pensions 48% 55% uncertainty. GPF protects itself against fluctuations in claims by a Other defined contribution pensions 52% 45% reinsurance contract where GF is the reinsurer. In addition, GPF benefits from exchanging knowledge with GF. Increasing data Table 15b – Number of members and contracts 2015 material enables GPF to observe significant changes in disability trends, for insured and uninsured, in early stages. Number of Number of members contracts Mortality and disability claims in 2016 amount to NOK 103 million Compulsory occupational pensions 62,022 8,750 (NOK 72 million in 2015). IBNR is NOK 1,090 million at end of year Other defined contribution pensions 61,822 7,248 2016 (NOK 864 million in 2015), and contributes to 52 per cent (49 per cent in 2015) of all disability and survivor benefit provisions Total 123,844 15,998 (excluding paid-up policies). Reported and settled claims (premium

Compulsory occupational pensions 50% 55% reserve) amount to NOK 1,009 million (NOK 908 million in 2015). They are estimated as the present value of future obligation and Other defined contribution pensions 50% 45% contribute to 48 per cent (51 per cent in 2015) of all provisions.

Occupational pensions are defined contribution plans which are Paid claims, reserves and IBNR continue to increase as expected, usually paid out within ten years. For this reason, occupational due to an increasing number of insured lives and risk years3. The pensions hardly expose GPF to any longevity risk. Most of the paid- number of retirees is expected to stay low, and benefits originate up policies which have been transferred to GPF have lifelong from defined contribution plans, paid-up policies or individual payment for the old-age pensioners and thus represent longevity pension saving products. risk.

4 1 Paid-up policies require a minimum return every year . The rate of As from 1 January 2014 GPF applies the mortality tariff «K2013» , minimum return is also used as the discount rate, and the FSA for the calculation of reserves for products that expose GPF to regulate the level of this rate. If a minimum return is not achieved, mortality and longevity risk. The tariff assumes that mortality GPF must add funding, or supplementary reserves can be used. changes over time (thus being a dynamic tariff). Hence, life The average level of minimum return is approximately 3.45 per cent expectancy is higher for those born this year compared to last for paid-up policies in GPF. This yearly guarantee exposes GPF to year. K2013 assumes lower mortality than the previous market risk. This is discussed further under the chapter calculation basis K2005; thus there is a need for GPF to increase “Management of financial risk”. its reserves. GPF has reported to the FSA and got the approval for a reserve building plan where the reserves will be increased Sensitivity analysis pension insurance gradually within 2020. A large part of the company’s surplus this GPF has been in business for ten years. Since the data material is year and the coming years will be withheld for this purpose. One increasing, GPF has adjusted the premium tariffs; one of the of the basic principles for this plan is that reserves need to be changes has been an increase in the premium for disability built individually per contract, and the company is required to coverage. contribute at least 20 per cent from own funds to the needed increase in reserves. On this basis GPF has registered a plan for Mortality risk increasing the reserves. The total calculated need for increase in Mandatory occupational pension contracts are signed on a yearly reserves is calculated to NOK 214 million. After the 2015 year basis, so GPF is able to adjust survivor pension premium tariffs at end NOK 22 million remain. GPF’s estimated contribution is NOK renewal if needed. Survivor pension claims are reported fairly 7 million, excluding contribution from the owner’s share of quickly, which makes it possible to adjust the premium tariffs in surplus. Approximately 70 per cent of the portfolio (in reserves) is time. Survivor pension only accounts for minor part of the business fully reserved as per 1.1.2017. For this case surplus will be and the majority of the risk premium is used for reserving. In distributed as normal which means that surplus will be used to build addition, GPF is exposed to mortality risk in paid- up policies. supplementary reserves, increase benefits and increase own funds. Longevity risk Occupational pensions may include a waiver of premium for The new K2013 mortality tariff is dynamic, which means that GPF 2 Disability and disability cover, which expose GPF to disability risk. will hold premium reserve for future development in mortality. Mandatory occupational coverage requires some disability Considering this, the new mortality tariff is considered a strong tariff. coverage, so a large proportion of disability risk is connected to these plans where annual payment is two per cent of the salary. Longevity sensitivity testing is performed for several purposes, and Some paid-up policies also include disability coverage where Solvency II calculations reveal a potential loss of approximately benefits originally were linked to salary. Disability risk premiums are NOK 135 million per Q4 2016, if the mortality rate decreases by 20 based on a tariff which is developed in collaboration with Gjensidige per cent. It is first and foremost the paid-up policies that require Forsikring ASA (GF). It is based on national statistics from social extra provisions in case of increased longevity. security and insurance claims primarily from GF. Disability reserves have been increased with NOK 444 million in 2016.

3 1 K2013 is based on predictions about life expectancy performed by Statistisk Risk year is the year where GPF has underwritten the insurance risk. First risk year for Sentralbyrå (Statistics Norway, SSB). Three different life expectancy alternatives were GPF is 2006 4 made, “High”, “Medium” and “Low”. K2013 uses the medium alternative. FSA required The rate of minimum return is also used as discount rate for the reserves and insurance companies to add safety margins to account for higher life expectancy in premiums. The FSA regulate the level of the rate. It has been reduced several times the insured population and their deviating dynamic development in mortality (compared to last few years, but changes usually just apply for future contracts. This means that reserves uninsured). 2 belonging to old contracts (contract made before a change in the discount rate) can use A waiver of premium for disability states that the insurance company will not charge another discount rate than current contracts. The average discount ratecan because of this the usual defined contribution premium in case of disability. deviate from the current discount rate.

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Disability risk Reinsurance Disability risk varies greatly within the insured population. Because Gjensidige purchases reinsurance to protect the Group’s equity of this, the price tariff for mandatory occupational pension groups capital and reinsurance is a capital management tool. The Group’s businesses by hazard categories. Provisions are dependent on established models and methodologies for evaluation of the internal recovery rates (rate of insured receiving disability benefit that risk based capital allocation are used to analyse and buy recover), and varying the recovery rate greatly vary the provisions. reinsurance. The maximum retention is Board approved.

Calculations show that disability provisions need to increase by Gjensidige’s reinsurance programme is non-proportional. The NOK 200 million if the disability rate increases by 35 per cent the maximum retention level for the Group was NOK 420 million in first year and then 25 per cent the following years. 2016, increased from NOK 400 million in 2015. As a general rule, Gjensidige buys reinsurance to limit any single claim or claim event Cash flow per insurance product to NOK 100 million. For some segments Figure 6 displays the compounded cash flow of the insurance Gjensidige will, periodically, purchases reinsurance that reduces the obligations. Increased liabilities as a result of reduced mortality (20 retention level to under 100 million. The reinsurance programme is per cent reduction of mortality rate) and increased disability (35 per each year based on analysis of exposure, claims history, model cent first year, then 25 per cent of disability rate) are also illustrated. simulations and Gjensidige’s capitalisation.

Figure 6 – Cash flow before and after the “stress scenario” Gjensidige Forsikring ASA acts as reinsurer for the group subsidiaries, and their exposure is included in the outward reinsurance programme for the Group. The reinsurance programme for property insurance also includes affiliated mutual fire insurers. The subsidiaries’ reinsurance programmes are adapted to each individual company’s size and capitalization.

In Norway the exposure to natural perils events is handled through compulsory membership of the Norwegian Natural Perils Pool. Through this arrangement, Gjensidige is exposed to its market share of the total aggregated claims for the Norwegian market. The pool each year, on behalf of its members, buys a reinsurance programme for the pool exposure. In 2016 Gjensidige, as per previous years, acts as reinsurers for the pool with a share equivalent to its market share. This exposure is included in Gjensidiges’ outwards reinsurance programme. In Gjensidige’s other geographies natural perils claims are included in the ordinary Figure 7 shows how the amounts saved in connection with funded property reinsurance coverage. An event resulting in claims in agreements will be paid out in the coming years, based on an several countries where Gjensidige does business will be assumed retirement age of 62 and a ten year payment period. aggregated into one event with respect to reinsurance.

Figure 7 – Cash flow for funded pensions Management of financial risk – general insurance operations Financial risk is a collective term for various types of risk relating to financial assets and liabilities. The different types of financial risk are described in greater detail below. Operational risk is monitored and controlled. Requirements for operational risk management are included in the guidelines for asset management approved by the Board.

Equity price risk is defined as a loss in value resulting from a fall in equity prices. This is analogous to real estate price risk. See the amounts in the stress test and sensitivity analysis below. Interest rate risk is defined as the loss in value resulting from a change in interest rates, and it is viewed both from an asset-only perspective and in relation to the interest rate sensitivity of the liabilities. Foreign exchange risk is defined as the loss resulting from a movement in Solvency II exchange rates. Credit risk is defined as the loss arising from an The standard formula in Solvency II is used for calculations of the issuer defaulting on its obligations or from increased risk premiums insurance risk. After these calculations GPF are mostly exposed to for bonds with credit risk. Liquidity risk is defined as the inability to risk of loss of future income due to movements of defined meet payments on the due date, or the need to realise investments contribution and pension capital (lapse risk). Of other insurance at a high cost in order to meet payments. The insurance operations risks, disability risk is the greatest. are exposed to these types of risk through the Group’s investment activities. They are managed at the aggregate level and handled The table below shows risk exposure within underwriting risk for the through the guidelines for asset management and investment Gjensidige Pensjonsforsikring based on standard formula strategies, which have been drawn up for the Gjensidige Group and calculations: its subsidiaries, and through resolutions by the Group’s credit Table 16 - Distribution of insurance risk Gjensidige committee. Pensjonsforsikring The investment strategy and risk management policies are approved by the Board of each company, but are closely Type of insurance risk 2016 2015 coordinated with the parent company’s overarching strategy and Mortality risk 0.2 % 0.3 % policies. The general rule is that the asset allocation in the Longevity risk 8.3 % 13.1 % subsidiaries in general insurance will only be used to hedge the technical provisions against interest rate and foreign exchange risk, Disability risk 12.3 % 7.6 % with excess funds being invested in interest-bearing securities with Lapse risk 74.9 % 72.6 % low risk. Exposures to market risk are recognised in the balance Expense risk 4.2 % 6.3 % sheet of Gjensidige Forsikring ASA. This is done in order to improve Catastrophe risk 0.0 % 0.1 % the efficiency of investment management and capitalisation in the Group. Total 100.0 % 100.0 %

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The table below shows an overview of the asset allocation for the Table 18 – TVaR utilization of risk limits in the liquid part of the insurance business at year-end 2016 and 2015. The asset free portfolio allocation is divided between a match portfolio, which purpose is to 2016 2015 cover insurance liabilities, and a free portfolio which can be viewed NOK millions Risk Limit Risk Limit as the Group’s invested equity. The actual allocation will vary throughout the year and follow movements in the market, tactical TVaR 45.1 100.0 62.9 75.0 allocation and risk situation. Stress testing In terms of concentration risk, one of the main risks for the Group is Regulatory changes with the Solvency II directive in effect from the the investments in SpareBank 1 SR-Bank ASA. This concentration beginning of 2016 caused larger changes in the internal stress test has been reduced significantly after Gjensidige sold shares in for the Group. Earlier the stress test has been to the capital January 2017. Furthermore, the portfolio involves substantial adequacy requirement for the Gjensidige Group, which was concentration in the fixed-income portfolio towards Norwegian calculated according with Norwegian GAAP. From 2016 the stress financial institutions, as well as exposure to office properties in the test is to the standard formula in the Solvency II directive. The Oslo area through the joint venture Oslo Areal AS. Concentration internal stress test is somewhat simplified compared with the risk is further analysed under the various market risk factors. standard formula, with the purpose of showing the Group’s remaining legal surplus capital in a scenario where market Table 17 – Asset allocation general insurance conditions put the balance sheet in significant stress. The stress test is reported regularly to the Board. 2016 2015 NOK NOK This stress test based on figures at year-end is shown below millions Per cent millions Per cent (Group figures). The stress parameters are partly based on the

standard formula and partly on Gjensidige’s internal model. One Match portfolio simplification is not explicitly calculating diversification effects. On Money market 5,159.5 9.6% 6,836.6 12.0% the other hand the value decrease in the stress scenario is reduced Bonds at amortised 17,491.3 32.4% 18,747.7 32.8% by lower tax, and the capital requirement after stress is calculated cost 1 on a lower balance. The time horizon in the stress test is one Current bonds 12,417.0 23.0% 10,454.4 18.3% quarter. Match portfolio total 35,067.8 65.0% 36,038.7 63.0% Equities include private equity, hedge funds, Sparebank 1 SR-Bank Free portfolio ASA, and a pertaining value-adjusted drop for equity derivatives. Money market 4,321.1 8.0% 4,066.4 7.1% The interest rate risk is calculated net of assets and liabilities, and Other bonds 2 3,689.5 6.8% 4,075.5 7.1% Gjensidige Pensjonsforsikring is included. The spread widening in High Yield bonds3 1,072.2 2.0% 2,475.9 4.3% the credit spread risk is based on the standard formula. Insurance Convertible bonds 4 1,045.3 1.9% 1,066.4 1.9% risk is modelled through Gjensidige’s internal model, while the stress for Gjensidige Bank is based on the banks ICAAP process. Current equities 5 2,870.3 5.3% 3,250.3 5.7% PE-funds 1,145.7 2.1% 1,383.7 2.4% The precise figures will generally vary with changes in asset Property 6 3,072.2 5.7% 3,188.1 5.6% allocation and year-to-date profit. A rule for capital management Other 7 1,673.5 3.1% 1,628.9 2.8% actions with escalation to the CEO or Board, is implemented if the Group’s capitalisation (solvency) fall below a stipulated level. Free portfolio total 18,889.9 35.0% 21,135.2 37.0% Investment portfolio 53,957.7 100.0% 57,173.9 100.0% total Table 19a – Stress test financial assets 2016 Decrease 1 The item includes the market value of the interest rate hedge in Denmark. NOK millions Scenario in value Investments include mortgage, sovereign and corporate bonds, investment grade bond funds and loan funds containing secured debt. Assets/risk 2 The item includes total investment grade and current bonds. Investment grade bonds are investments in internationally diversified funds that are externally managed. Equities, Private Equity, hedge 3 Investments in internationally diversified funds that are externally managed. funds and Sparebank 1 SR- 17% drop (922.5) 4 Investments in internationally diversified funds that are externally managed. Bank 5 The item includes the investment in SpareBank 1 SR-Bank ASA. Other investments Interest rate risk 50 bps increase 110.9 are mainly investments in internationally diversified funds that are externally managed. In addition, there is derivative exposure of NOK (15.7) million. Assets (846.3) 6 Gjensidige Forsikring ASA halved its property exposure through the sale of 50 per Liabilities 957.2 cent of Oslo Areal AS late 2015. In addition, there was a forward contract on the IPD index further increased Gjensidige's property exposure by NOK 1.6 billion throughout Property 10% drop (492.3) 2016, and total return swaps with Gjensidige Pensjonskasse and Gjensidige Pensjonsforsikring AS reducing the property exposure in total by NOK 200.0 million. Credit spread Spread widening (981.1) 7 The item includes currency hedging related to Gjensidige Sverige and Gjensidige Market risk (2,284.9) Denmark, lending, paid-in capital in Gjensidige Pensjonskasse, hedge funds and commodities. Insurance risk (life and non-life) Expected loss CR > 100 (645.0) Capital, Gjensidige Bank ICAAP (100.0) Positive effect of reduced Tax 501.8 The development of the financial results is measured continuously tax relative to the targets and risk limits set by the Board. In the liquid Reduction of capital Due to lower carrying 389.2 part of the free portfolio, risk is measured daily against limits in requirement after stress amount Reduction of surplus capital accordance with Tail Value at Risk (TVaR); see the table below. As (2,138.8) of 31 December 2016, NOK 45.1 million of the risk capacity after stress measured by TVaR was used. TVaR is a statistical measure of Effect on surplus capital expected loss in the for instance 5 per cent worst outcomes Available capital before stress 20,377.9 (confidence level) over a given period of time. For this purpose a Capital requirement before stress 13,879.8 confidence level of 95 per cent and 1-day time horizon is used. Surplus without buffer before stress 6,498.2 TVaR has fluctuated between NOK 40 and 65 million throughout the year. In the event of a significant negative development in the Surplus without buffer after stress 4,359.4 financial results, the limit on investments in risky assets will be Solvency ratio after stress 132.3 % lowered. The development in the financial results and asset Solvency ratio before stress 146.8 % allocation are measured and reported regularly to the Group management and the Board.

100 | Gjensidige annual report 2016 Gjensidige Insurance Group

Table 19b – Stress test financial assets 2015 board or advisory committees of the different funds. The portfolio Decrease consists of a mixture of venture and buy-out funds. NOK millions Scenario in value

Assets/risk Table 22a – Largest private equity funds 2016

Equities and hedgefund 20% drop (576.0) NOK millions 2016 Interest rate risk 150 bps change (837.0) Property 12% drop (496.7) HitecVision Private Equity V LP 94.1 Private equity 25% drop (345.9) Argentum Secondary III 91.4 12% change towards Currency (763.8) HitecVision Asset Solution KS 81.2 NOK HitecVision VI LP 58.7 Credit spread Spread widening (690.6) Verdane Capital VII KS 43.8 Total undiversified market risk (3,709.9) Total five largest 369.2 Diversification effect 1,312.6 Total private equity 1,145.7 Total market risk (2,397.3) Insurance risk General Internal model (404.5) Table 22b – Largest private equity funds 2015 insurance

SpareBank 1 SR-Bank ASA Internal model (301.0) NOK millions 2015 Capital subsidiaries (285.2) Pension commitments (298.0) HitecVision Private Equity V LP 125.0 Total undiversified insurance risk, major company Argentum Secondary III 98.5 (1,288.7) investments, subsidiaries and pension commitments HitecVision Asset Solution KS 74.1 Diversification effect market/insurance risk 418.1 HitecVision VI LP 64.6 Total decrease in value in stress scenario (3,267.9) Energy Ventures III LP 59.9 Buffer capital 5,589.1 Total five largest 422.1 Capital/surplus in stress scenario 2,321.2 Total private equity 1,383.7

Equity price risk In addition to the invested amounts, Gjensidige had committed The largest exposure is to SpareBank 1 SR-Bank ASA. Other capital, not invested, amounting to NOK 581.6 million as at 31 equity exposures are mainly investments are mainly investments in December 2016. internationally diversified funds, with the majority focusing on developed markets. The concentration risk is shown in the table Interest rate risk below. In the Group’s insurance companies, overall exposure to interest rate risk will be reduced by matching a portfolio of fixed-income Table 20a – Largest equity exposures 2016 instruments to the overall duration and the pay-out pattern of the insurance liabilities. Since the insurance liabilities are generally not NOK millions 2016 discounted in the balance sheet, this means that, from an

accounting perspective, insurance liabilities will be exposed to SpareBank 1 SR-Bank ASA 747.7 changes in inflation (but not directly to interest rates). An economic Point Resources 79.2 perspective, however, calls for hedging interest rate risk, because Atlantica Tender Drilling 73.7 the present value of the provisions will be exposed to changes in SOS International A/S 51.5 the real interest rate. From an accounting perspective, the risk of Ocean Installer 26.8 choosing this hedging strategy is reduced because a large part of the bond portfolio is recognised at amortised cost. Furthermore, Total five largest 979.0 from an economic perspective, the inflation risk is partly reduced Total equities 4,016.1 since some of these bonds carry a coupon linked to the development of the consumer price index. Table 20b – Largest equity exposures 2015 In the Danish Workers’ Compensation operations, the long-tail NOK millions 2015 Workers’ Compensation line of business is hedged against changes in the real interest rate through swap agreements. The real interest SpareBank 1 SR-Bank ASA 1,053.6 rate risk relates to outstanding premium and claims provisions of SOS International A/S 54.4 approximately NOK 5,000 million (discounted value), where a large Atlantica Tender Drilling 42.6 percentage of the claims are paid out as annuities, the payments of which are linked to the yearly increase in Danish workers Core Energy 34.1 compensation awards determined by the authorities (a function of READ Well Services 32.4 wage growth). The risk to the present value of these annuities is Total five largest 1,217.0 hedged through a series of swap agreements spread over Total equities 4,634.0 approximately 35 years and covering inflation and interest rate risk separately, so that the real interest rate risk is reduced. Most swap To illustrate the sensitivity of the equity portfolio to a fall in equity agreements have yearly coupon payments and security is provided prices, the table below shows the effect of a possible scenario. The for the outstanding market value between the parties, which figures show the effect on equity, but do not take taxation effects reduces counterparty risk. The fixed-income portfolio in the Danish into account. As shown in the table, the sensitivity is slightly branch is invested with a low duration in Danish covered mortgage reduced since 2015.This is mainly due to reduced investment in bonds and loan funds containing secured debt. In addition to the equities, among other things from sold shares in Sparebank 1 SR- invested amount, Gjensidige had commited capital, not invested, Bank ASA. amounting to NOK 552.8 million, in loan funds containing secured debt, as at 31 December 2016. Table 21 – Sensitivity analysis equity portfolio

NOK millions 2016 2015

10 per cent drop in equity prices (251.1) (266.5)

Gjensidige Forsikring invests in a number of private equity funds as well as fund of funds. The focus is on the Nordic region, and Gjensidige will seek to play an active role through a place on the

Gjensidige annual report 2016 | 101 Gjensidige Insurance Group

The table below shows the maturity profile of the Group’s fixed- Figure 8b – Payout pattern insurance liabilities, income portfolio. Gjensidige Forsikring ASA

Table 23 – Maturity profile (number of years) fixed-income portfolio NOK millions 2016 2015

Maturity 0-1 9,086.3 10,061.2 1-2 8,147.4 6,135.8 2-3 4,887.1 6,180.5 3-4 3,541.9 4,956.9 4-5 3,618.4 3,313.1 5-6 3,357.5 2,956.4 6-7 3,446.4 3,320.6 7-8 1,302.2 2,746.5 8-9 1,725.3 1,295.4 The match portfolio will match these cash flows, with a duration 9-10 1,956.7 2,293.5 mismatch limit, which also includes total pension commitments and >10 4,095.9 4,558.9 the investment portfolio of Gjensidige Pensjonskasse, of maximum Total 45,165.1 47,818.9 one year and a maximum net interest rate sensitivity of NOK 350 million. The table below shows this as of 30 November 2016. The The interest rate sensitivity of the fixed-income portfolio is also corresponding figure is changed by removing the subordinated shown in the table below. From 2016 onwards, only the fixed- loan. income portfolio in the free portfolio is included, for which the Board has set a limit of NOK 750 million for the interest rate sensitivity for Table 25a – ALM risk 2016 a 1 per cent shift in the yield curve. The corresponding figure is Total Limit changed to show the corresponding risk as at year-end 2015. Interest rate risk of the Tier 1 and Tier 2 loans that Gjensidige Hedge requirement 37,586.8 Forsikring ASA has issued is included. This table does not include Duration hedge requirement 4.3 the interest rate sensitivity in the match portfolio, includingthe effect Match portfolio 39,729.0 of the swap agreements in the Danish branch, as they have a reciprocal effect on the liabilities. The interest rate sensitivity in the Duration match portfolio 3.6 match portfolio is measured in ALM-risk fixed-income. Duration mismatch in years (0.6) 1.0 Duration mismatch in NOK (216.2) 350.0 Table 24 – Sensitivity fixed-income portfolio Mismatch in match portfolio and hedge 5.7% 10.0% requirement NOK millions 2016 2015 Table 25b – ALM risk 2015 100 bps parallell shift up (219.0) (337.7) Total Limit

Asset and liability management (ALM) risk fixed-income Hedge requirement 38,104.2 Figure 8a shows the expected pay-out pattern for the Group’s Duration hedge requirement 4.5 premium and claims provisions as at year-end 2016 and 2015, Match portfolio 40,050.3 respectively. Approximately one third of the provisions are expected Duration match portfolio 3.5 to be paid out within one year. Duration mismatch in years (0.8) 1.0 Figure 8a – Payout pattern insurance liabilities, Duration mismatch in NOK (314.0) 370.0 Mismatch in match portfolio and hedge Gjensidige Group 5.1% 10.0% requirement

Property price risk Real estate constitutes a significant part of Gjensidige Forsikring’s portfolio. The motivation for investing in real estate is primarily that it enhances the risk-adjusted return of the asset portfolio, through an expected rate of return that lies between bonds and equities, and that there is a modest correlation with both of them.

The Group owns most of its properties through Oslo Areal AS, although a small part of the portfolio is invested in property funds outside Norway. In addition to the amounts invested through funds, an additional NOK 11.8 million is committed, but not invested. The joint venture Oslo Areal AS manages the real estate portfolio. The portfolio consists of investment properties. The real estate portfolio has its largest concentration in offices in the Oslo area, but it also contains property in other major cities in Norway. In addition, there The next figure shows the corresponding pay-out pattern for was a NOK 1,600 million forward contract on the IPD index which Gjensidige Forsikring ASA. The average duration for Gjensidige expired at year-end 2016. Forsikring ASA is similar to that of the Group.

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Hedge fund Table 27a – Currency exposure 2016 Hedge fund is a generic term for funds that invest in most types of asset classes with few limitations on the use of derivatives, short Gross Net sales or leverage in order to earn a return that is partly independent position Gross position Net of (has a low correlation with) traditional market indexes. Gjensidige NOK in position Currency in position millions currency in NOK contracts currency in NOK utilises hedge funds to gain exposure to active risk in the individual asset classes and to take allocation risk between the individual USD 631.5 5,433.6 (623.3) 8.2 68.8 asset classes and/or risk premiums. Individual funds are used. GBP 128.4 1,365.7 (128.9) (0.5) (5.6) EUR 142.0 1,288.8 (140.4) 1.5 13.7 Table 26a – Largest hedge funds 2016 SEK 148.8 141.0 (142.4) 6.4 6.1

NOK millions 2016 Table 27b – Currency exposure 2015 Sector Healthcare - A USD 290.9 Gross Net Goldman Sachs Global Opportunities Offshore 205.8 position Gross position Net Winton Futures Fund- Lead Series 148.2 NOK in position Currency in position Sector EuroPower Fund Class A EUR 102.2 millions currency in NOK contracts currency in NOK

Incentive Active Value Fund Cl. A EUR Unrestricted 96.8 USD 679.6 6,008.2 (651.4) 28.2 247.3 Total five largest 843.9 EUR 149.9 1,441.4 (146.4) 3.5 33.4 Total hedgefunds 947.0 GBP 101.6 1,323.4 (97.9) 3.7 47.6 CNY (119.1) (162.4) (119.1) (162.4) Table 26b – Largest hedge funds 2015 Credit risk NOK millions 2015 Gjensidige is exposed to credit risk, i.e. the risk that a counterparty

is not able or willing to settle its liability on the due date or the risk Goldman Sachs Global Opportunities Offshore 432.4 that the credit spreads will increase (credit risk premium). The Sector Healthcare - A USD 267.1 Group is primarily exposed to credit risk in the investments in the Winton Futures Fund- Lead Series 162.5 insurance companies, and through receivables from insurance Sector EuroPower Fund Class A EUR 123.6 customers and reinsurers. Credit risk in Gjensidige Bank is covered Trient Global Macro Fund USD A-Class 114.6 in a separate section. Total five largest 1,100.2 For investments, risk limits for credit risk are set in several ways. As Total hedgefunds 1,294.4 a starting point a credit limit is set for designated counterparties. For issuers with an official credit rating from a recognised rating agency, Foreign exchange risk this is generally utilised as a criterion. The list of credit limits is Foreign exchange risk is defined as the financial loss resulting from approved by the CFO and used for all separate mandates and for fluctuations in exchange rates. Generally, foreign exchange risk in derivative counterparties. In addition, the board-approved asset the investment portfolio is hedged close to 100 per cent, within a allocation sets limits on global bonds, both bonds with high financial permitted limit of +/- ten per cent per currency, except for smaller strength ratings (investment grade) and other bonds (high yield). In mandates with active currency management. addition, there is a maximum limit on credit duration measured as a one per cent change in credit spreads, which include all fixed- The Group underwrites insurance in the Scandinavian and Baltic income assets in the balance sheet. This limit was NOK 2,000 countries, and thus has insurance liabilities in the corresponding million in 2016.The Group’s total fixed-income portfolio of NOK currencies. The foreign exchange risk, at both group and company 45,165.1 million as at 31 December 2016 (including the amortized levels, is generally hedged by matching technical provisions with cost portfolio, other bonds, certificates and deposits) consisted of investments in the corresponding currency. The focus of the NOK 6,251.9 million issued by government sector entities and NOK currency hedging strategy is to minimize currency risk in surplus 38,913.2 million issued by non-public entities. Most of the latter capital for the Group in accordance to the capital requirement which category was financial institutions. The distribution is shown in the is the most binding at any time (currently Rating). This is table below. implemented by adjusting assets in foreign branches and subsidiaries such that surplus capital in foreign currency is Table 28a – Credit spread risk 2016 minimized, which minimizes currency risk in the surplus capital for the Group. The effect of exchange rate movements on available Credit capital and the capital requirement will be of the same magnitude. duration, This minimizes fluctuations in surplus capital. The strategy has NOK millions years Risk Limit been efficient post implementation. Risk by 100 bps change in credit 3.3 (1,595.7) (2,000.0) spread The table below shows the foreign currency exposure by currency type. The gross positions show exposure from investments. Table 28b – Credit spread risk 2015 Currency positions related to the currency hedging strategy, where the surplus capital of the subsidiaries are minimised, together with Credit active currency management, are not included. duration, NOK millions years Risk Limit

A ten per cent strengthening of NOK against all other currencies will Risk by 100 bps change in credit 3.4 (1,719.9) (2,000.0) increase surplus capital by NOK 49.2 million and decrease profit or spread loss by NOK 9.4 million. Book equity in currency in foreign entities is approximately 6 billion, and a consequence of the currency Table 29 – Allocation of fixed-income portfolio per sector hedging strategy is that book equity is exposed to foreign exchange risk. A ten per cent strengthening of NOK would at year-end 2016 2015 decreased book equity by NOK 653.5 million. A weakening of NOK will have the opposite effect. . Government 13.8% 12.0% Banks and financial institutions 50.0% 52.9% Currency transactions are performed within strictly defined limits Corporates 36.1% 35.1% and are employed in both ordinary management and to hedge Total 100.0% 100.0% financial instruments. The table below shows both gross and net positions. Currency hedging is done primarily by using forward contracts or swaps. Currency positions are continuously monitored against exposure limits per currency.

Gjensidige annual report 2016 | 103 Gjensidige Insurance Group

The following tables show the allocation of the fixed-income Tabell 32b – Top ten issuers 2015 portfolio by rating category at year-end in 2016 and 2015. NOK millions 2015 Table 30 – Fixed-income portfolio per rating category Nordea Bank AB 3,161.0 NOK millions 2016 2015 DNB ASA 2,799.1 Nykredit Realkredit A/S 2,272.6 AAA 11,517.0 11,687.6 Danske Bank A/S 1,650.3 AA 4,397.5 4,707.8 Kongeriket Norge 1,452.6 A 8,088.7 11,070.4 BKK AS 1,280.5 BBB 3,709.2 3,201.2 JPMorgan Chase & Co. 1,257.9 BB 1,152.4 1,789.9 NIAM V Kjøpesenter I Holding AS 1,227.5 B 2,078.8 1,684.9 Lloyds TSB Bank PLC - Covered Bonds 1,062.5 CCC or lower 108.2 126.0 Realkredit Danmark A/S 974.5 Not rated 14,113.4 13,551.2 Total ten largest 17,138.5 Total 45,165.1 47,818.9 Credit risk in the insurance operation Table 31 – Fixed-income portfolio per rating category, internal The table below presents the age distributions of the receivables rating included arising from direct insurance operations and of the reinsurance receivables. NOK millions 2016 2015 Table 33 – Age distribution receivables insurance AAA 11,517.0 11,699.0 Direct AA 6,815.2 6,147.6 NOK millions insurance Reinsurance

A 11,067.4 14,411.0 2016 BBB 7,626.7 7,442.6 Installments not due 4,618.0 277.6 BB 1,222.7 1,860.1 <35 days 422.1 0.2 B 2,078.8 1,684.9 35-90 days 143.3 62.7 CCC or lower 108.2 126.0 > 90 days 96.7 1.0 Not rated 4,729.3 4,447.8 Total 5,280.0 341.5 Total 45,165.1 47,818.9 2015 A large part of the Norwegian fixed-income portfolio consists of Installments not due 4,514.4 28.7 issuers without a rating from an official rating company. However, <35 days 220.1 0.5 many asset managers and brokerages conduct their own internal 35-90 days 122.3 0.2 evaluation of the creditworthiness, and used to assign rating categories in the same way as rating agencies. For completeness, > 90 days 110.6 0.6 the second table also includes the allocation using the last received Total 4,967.4 30.0 internal rating of Gjensidige’s main asset manager, Storebrand Asset Management. The following tables show the largest issuers Reinsurance is used to manage insurance risk. However, this does as of 31 December 2016 and 31 December 2015, respectively. not discharge Gjensidige of its liability as primary insurer. If a reinsurer fails to pay a claim for any reason, Gjensidige remains Table 32a – Top ten issuers 2016 liable for the payment to the policyholder. The creditworthiness of reinsurers is assessed by reviewing their financial strength prior to finalisation of any contract. As a general requirement, all reinsurers NOK millions 2016 need to be rated ‘A-’or better by Standard & Poor’s (or the DNB ASA 2,992.5 equivalent from other rating agencies) when entering into a contract Nordea Bank AB 2,897.1 with Gjensidige. The figure below shows the breakdown of the purchased reinsurance capacity for 2016 and 2015, i.e. the rating of Nykredit Realkredit A/S 2,265.5 the reinsurers that would have been drawn on if the losses had Realkredit Danmark A/S 1,566.5 occurred. NIAM V Kjøpesenter I Holding AS 1,284.5 BKK AS 1,128.0 Figure 9a – Potential credit exposure reinsurance per rating category 2016 Lloyds TSB Bank PLC - Covered Bonds 1,023.6 Sparebanken Sør 959.0 E-CO Energi AS 923.7 Oslo kommune 910.6 Total ten largest 15,950.9

The overview of the largest issuers also includes the fixed-income portfolio for GPF and Gjensidige Bank because the individual counterparty risk is monitored at group level. Exposures also include mortgage bonds and covered bonds for groups that have issued such.

104 | Gjensidige annual report 2016 Gjensidige Insurance Group

Figure 9b – Potential credit exposure reinsurance per rating Table 35a – Liquidity investment assets 2016, Gjensidige category 2015 Forsikring ASA Minimum Excess NOK millions Total limit over limit

Bank deposits 1,237.4 Money market instruments 1,779.3 Bonds and certificates coupons 217.5 with maturity less than 6 months OECD-bonds with less than 5 400.6 years to maturity Covered bonds 3,129.1 Total 6,764.0 3,000.0 3,764.0

Table 35b – Liquidity investment assets 2015, Gjensidige Forsikring ASA Minimum Excess NOK millions Total limit over limit

Bank deposits 1,704.8 The following table provides an overview of the breakdown of Money market instruments 1,373.5 Bonds and certificates coupons reinsurance receivables and the reinsurers’ share of outstanding 303.6 claims per rating category. The exposure in the not-rated category with maturity less than 6 months OECD-bonds with less than 5 512.8 primarily relates to run-off business and is broken down between a years to maturity number of counterparties. The companies in run-off no longer have Covered bonds 1,160.4 a rating. Total 5,055.1 3,000.0 2,055.1 Table 34 – Reinsurance receivables and reinsurers’ share of claims provisions 2016 2015 Management of financial risk – Gjensidige NOK NOK Rating millions Per cent millions Per cent Pensjonsforsikring Overview and organisation AAA The organisation of asset management in Gjensidige AA 293.6 31.7% 235.9 45.4% Pensjonsforsikring AS is adapted to official requirements and endeavours to utilise the Gjensidige Group’s expertise in asset A 604.7 65.2% 251.0 48.3% management, risk management and control. It is underlined that BBB 1.0 0.1% 3.6 0.7% responsibility for the asset management rests with Gjensidige BB 0.4 0.1% Pensjonsforsikring AS, even though its performance may be B 0.6 0.1% contracted out to other companies in the Gjensidige Group. Not rated 28.3 3.0% 28.2 5.4% Total 927.6 100.0% 519.8 100.0% In Gjensidige Pensjonsforsikring AS, asset management is governed by four documents: ‘Policy for investment activities’,

‘Capital management policy’, ‘Investment strategy for portfolios with Liquidity risk equity risk’ and ‘Investment strategy for portfolios without equity For most general insurers, the liquidity risk is quite limited. Premium risk’. The documents are subject to approval by the Board of income is paid up front, and claims are paid out at a later stage. Gjensidige Pensjonsforsikring AS. The Board must carry out an Future payments are not based on contractual payment dates, but assessment of these four documents at least once a year. The rather on when claims arise and how long the claims handling Board’s assessment must be in writing and it must be included in takes. See the expected pay-out pattern presented in the previous the minutes of the board meeting. figure 8a and b. The liquidity risk in Gjensidige Bank is described separately. The policy for investment activities describes the scope of the company’s asset management, the purpose of the asset For a going concern, this will result in a positive net cash flow under management, organisation and responsibility, reporting, monitoring normal circumstances. Large net outflows would generally only and control, financial authorisations, asset classes and instruments, arise as a result of acquisitions or recapitalisation of subsidiaries. In derivatives, management and control of various risks relating to the event of a large claim or catastrophic event, the payments will asset management, the use of external managers, the entering into take place sometime after the event, and the reinsurers will cover of management agreements, liquidity policy, credit policy and SRI most of the amount within a short time of the payments having been criteria. made to the claimants. In an extreme scenario, reinsurers could fail to honour their obligations after a catastrophic event. The capital management policy sets out overarching principles for capital management and the company’s risk tolerance with respect Based on this kind of scenario, the Board has set a liquidity to capitalisation. It contains guidelines for the company’s requirement for 2016 of at least NOK 3,000 million in the most liquid capitalisation criteria, capital management elements and future assets, which includes deposits in banks, covered bonds (OMF), capital needs. bonds and certificates issued by OECD countries or guaranteed by these countries and money market instruments rated A or better The investment strategy document sets goals for asset that have a due date within six months. The current allocation meets these requirements. The table below shows the classification management in the current year and defines limits for the asset used and the amounts as at 31 December 2016 and 2015 for management. Gjensidige Forsikring ASA. Gjensidige Pensjonsforsikring AS also has a liquidity strategy that describes the company’s liquidity needs one year ahead. It is adopted by the Board. The purpose of the strategy is to ensure satisfactory liquidity management, so that the company has sufficient liquid assets at all times to meet its commitments when they fall due.

Gjensidige Pensjonsforsikring AS has separate strategies for each portfolio: the unit-linked, paid-up policy, other group policy and corporate portfolios. Gjensidige Pensjonsforsikring AS is not

Gjensidige annual report 2016 | 105 Gjensidige Insurance Group exposed to investment risk in connection with the unit-linked NOK 1,718.8 million. This gives a solvency margin of 134.0 per portfolio. Here, both positive and negative returns go uncurtailed to cent. the customers. The other portfolios expose the company’s equity to risk. Little risk is taken in connection with the corporate and other Table 36 - Capital requirement, Gjensidige Pensjonsforsikring group policy portfolios. The assets are placed in bank deposits, funds and fixed-income securities with high creditworthiness, and NOK millions 2016 2015 some property. The corporate portfolio is financed by the company’s equity. In addition to bank deposits and money market Eligible own funds to meet SCR 1,718.8 1,221.7 funds, it includes a trading portfolio of securities to support Solvency capital requirement (SCR) 1,282.9 1,216.2 deposits/withdrawals of funds in/from the customer portfolios. The Solvency capital surplus 436.0 5.5 other group policy portfolios are financed by the premium fund and SCR margin 134.0 % 100.4 % claims provisions for unreported and not settled claims. The paid-up policies pay a minimum guaranteed return to the customers, at the Financial risk is a generic term for several types of risk relating to same time as customers receive a share of any additional return financial assets. Financial risk can be broken down into market risk, over and above the minimum. credit risk and liquidity risk. Financial risk also includes the risk that the value of the insurance liabilities will develop differently from the The portfolios that expose the company’s equity to risk have a long assets. The different types of financial risk are described in more duration on the liability side. Deviations in duration between the detail below. The operational risk relating to asset management is asset and liability sides based on a market value valuation are monitored and managed. The requirements for operational risk significant. In a Solvency II perspective, the liability side is valued management are described in the policy for investment activities based on a swap curve up until 10 years and then with an adopted by the Board. interpolation of interest rates that ends in an ultimate forward rate of 4.2% at the 60-year point. Under the accounting rules, the liability Meeting its commitments to customers is a fundamental goal for the side is valued based on the base interest rate, and its value does company. To avoid losses against equity, assets must grow at least not change in the event of changes in the interest rate. The asset in step with liabilities (the insurance liabilities). The requirement side is valued at market value with the exception of bonds applies both on an annual basis and in the long term. The company recognised as held to maturity or loans and receivables. In the risk is subject to several regulatory regimes that must be taken into management, endeavours are made to balance the three different account in an ALM perspective. perspectives to achieve an operational strategy for the company. The paid-up policies have an annual interest guarantee that will be Capital Management allocated to the customer from the recognised return on the Identification, quantification and management of risk are an portfolio. The result is recognised in the company’s financial important part of the company's activities. All insurance companies accounts. Under the same accounting rules, the liabilities are must adapt their risk exposure to their capital base. Insurance recognised based on a fixed base interest rate. In practice, this companies must have sufficient solvency capital as a buffer against means that, in the accounting context, the liability side of the unfavourable outcomes, and this capital base must be adapted to balance sheet remains unchanged in relation to changes in the the risk level. On the other hand, solvency capital, or equity, has a interest rate. GPF has adapted to this by investing in loans and cost. An important goal of capital management is to balance these receivables that are subject to favourable accounting treatment in two aspects. Gjensidige Pensjonsforsikring AS’s goals for capital that the return is accrued over the term to maturity of the bonds. management are specified in the capital management policy adopted by the Board. The company’s capitalisation must satisfy the following requirements in order of priority: A purely market value-based valuation of both the asset and liability sides means that a yield model must be used to estimate long-term Norwegian interest rates. Long-term Norwegian interest rates are 1. The statutory requirements applicable at all times pursuant to the Financial Undertakings Act and the Regulations rarely traded, and their pricing is therefore associated with relating to minimum equity requirements for Norwegian uncertainty because there are few observable transactions. With insurance companies. today’s yield curve and with the models used to estimate long-term 2. Self-defined targets over and above the statutory Norwegian interest rates (rates beyond 20 years), the market- requirements, corresponding to 115 per cent of SCR. estimated interest rates will be significantly lower at the 60-year point than today’s UFR. Requirement 2 will by definition always be higher than requirement 1. Stock market risk is defined as a fall in value resulting from reduced equity prices. Interest rate risk is defined as a fall in value resulting Because of fluctuating business volume and the market’s from a change in the interest rate level, and it is viewed separately requirement to always be perceived as financially sound, the from both a purely asset perspective and in relation to interest rate company must have capital over and above the minimum sensitivity on the liability side. Currency risk is the risk of loss as a requirement in order to run the business area efficiently. The need result of changes in foreign exchange rates. Credit risk is defined as for capital in addition to statutory requirements depends, however, a loss that arises if an issuer fails to fulfil its obligations or because on the possibilities the company has to raise more capital and/or of increased risk premiums for bonds with credit risk. Liquidity risk is adaptation through reinsurance or adjusting the asset balance. This defined as an inability to make payments when they fall due, or must be seen in connection with the requirements for return on because investments have to be realised at a high cost in order to equity. make payments. The business is exposed to these types of risk through the company’s investment activities, and they are managed Gjensidige Pensjonsforsikring AS’s long-term goal is to distribute at the aggregated level and addressed in guidelines for asset dividends to its owner Gjensidige Forsikring ASA. The dividend will management and investment strategies developed for Gjensidige be assessed every year based on the company’s future capital Pensjonsforsikring AS. need and solvency margin. The most important components of the company’s financial risk The company uses a ‘traffic light’ system that indicates different relating to investments in the group policy portfolio are risk in levels of solvency capital in relation to SCR and pertaining connection with the interest rate level, interest rate risk, credit risk measures. and property risk in the paid-up policy portfolio. Gjensidige Pensjonsforsikring AS has an active management agreement with • Green zone SCR>115% Gjensidige Investeringsrådgivning AS for the development and • Yellow zone SCR <100-115%> management of the group policy portfolio in accordance with the • Red zone SCR<100% investment strategy adopted by the Board of Gjensidige Pensjonsforsikring AS. The Solvency II capital requirement for Gjensidige Pensjonsforsikring AS is NOK 1,282.9 million. Available capital is The strategy for the unit-linked portfolio for corporate customers, external agents and private customers is defined in the investment

106 | Gjensidige annual report 2016 Gjensidige Insurance Group strategy. The risk profile portfolios have an automatic reduction of A large part of the fixed income portfolio in Gjensidige risk in the portfolios in the last 7 to 10 years until final retirement Pensjonsforsikring AS has an official rating. These securities are age. In addition, an age-adapted risk profile has been introduced mainly invested in Norwegian banks and financial institutions. with a gradual reduction over 30 years.These portfolios do not expose Gjensidige Pensjonsforsikring AS’s equity to investment The largest single exposure per counterparty is included in the risk. group table.

Investment portfolios with equity risk include the corporate portfolio, Management of credit and financial risk – the paid-up policy portfolio for which no provision for longevity has been made, the paid-up policy portfolio for which provision for Gjensidige Bank longevity has been made, and other group policy portfolios. The Gjensidige Bank ASA is mainly exposed to credit risk, market risk, Board decides the strategy for these portfolios, assigning a weight liquidity risk and operational risk. The Board approves the risk to each asset class. The Board also adopts upper and lower limits appetite statement and the strategy and policies for managing the for each asset class, and asset allocation must be kept within these bank's risks. The largest material risk is credit risk. The Board of limits. Gjensidige Bank ASA has final responsibility for limiting and following up the risks in the bank. The bank’s management is Table 37 – Asset allocation excluding the unit-linked portfolio, responsible for implementing and adhering to strategy, policies, Gjensidige Pensjonsforsikring management and reporting related to the bank's risk management. NOK millions 2016 2015 The bank's risk areas are evaluated continuously, and the Money market 1 1,614.5 1,756.1 strategy for the risk areas is reviewed annually by the Board. As a Bank deposits 479.0 363.8 part of the ICAAP-process the bank uses different models to calculate capital requirements. The capital requirements are Bonds held to maturity 30.5 61.1 calculated for the risk areas for the entire strategy period in the Loan and receivables 3,149.7 3,122.6 current strategy plan, shown in the bank's ICAAP document, and Current bonds 332.1 26.4 capital adequacy is reported to the Board quarterly. The capital Equities 13.0 11.9 plan is constantly updated based on actual growth and updated Real estate 734.1 forecasts. Other 0.2 5.6 Credit risk Total 6,353.2 5,347.4 Credit risk refers to the risk the bank faces in the event of a

1 The money market exposure is reduced and property exposure increased through a borrower’s failure to repay a loan or credit or to meet their total return swap with Gjensidige Forsikring ASA with notional value of NOK 50.0 contractual obligation to the bank. The bank's credit risk originates (600.0) million. mostly from loans and credits to consumers in Norway. The bank is The investment portfolio of Gjensidige Pensjonsforsikring AS, also exposed to credit risk through limited commercial exposures exclusive the unit-linked portfolio amounted to 6,352.2 million at and through placements in the liquidity reserve. December 31, 2016. This is mainly invested in fixed income securities, real estate, money market funds and bank deposits, but The Board sets the overall limit for the bank's credit risk appetite also has a smaller proportion of shares in funds originating from a through its Credit Strategy and Policy and risk appetite statement. trading inventory portfolio in the company portfolio of Gjensidige Gjensidige Bank ASA offers a wide range of lending products Pensjonsforsikring AS. including secured as well as unsecured loans and credit to meet a variety of needs of consumers in the country. Table 38 – Sensitivity fixed-income and equity portfolio, Gjensidige Pensjonsforsikring Secured lending mainly comprises loans and credits secured by residential property. The bank most recent business is car finance NOK millions 2016 2015 launched in 2013 which includes loans and leasing secured by vehicles. 100 bps parallell shift up in the yield curve (14.6) (2.4) 10% drop in equity prices (1.3) (1.2) With the launch of the car finance, the bank has also started commercial lending in an exceptional basis to support the growth The accounting interest rate risk in Gjensidige Pensjonsforsikring of the standard loans and leasing offered within the car finance AS’ assets is very limited due to that the securities are invested in business and creates awareness in the market of the banks bonds held to maturity and loans and receivables, as well as other products. This includes products like dealer floor finance, fleet fixed-income securities are of short duration. Gjensidige finance to key players in the car dealer market and loans and Pensjonsforsikring AS is exposed to equity risk through a small leasing to a few corporates related to car business. Lending in the allocation in shares in funds in the company portfolio. commercial segment is usually secured exposures and in addition the bank may require guarantees prior to approving the exposure. The table above shows the effect of a ten per cent drop in the stock The bank also has a portfolio of unsecured consumer finance market and a one percentage point increase in interest rates on the lending which is moderate in size compared to the total lending equity in Gjensidige Pensjonsforsikring AS. Calculations do not take exposure in the bank. The bank has a higher return on this into account tax effects or that a share of the returns normally goes portfolio that is proportionate to the level of credit risk in the to the customers. portfolio. A large part of the credit losses are consequently related to the unsecured consumer finance lending portfolio. The bank Table 39 – Fixed-income portfolio per rating, Gjensidige uses risk-based pricing models driven by scores, and the portfolio Pensjonsforsikring shows healthy profitability.

NOK millions 2016 2015 The credit risk related to the bank’s liquidity portfolio is assessed as

low. AAA 1,346.2 1,145.7 AA 536.5 807.3 Models for monitoring credit risk A 738.8 1,801.5 The bank uses application score models based on internal BBB 865.6 1,277.1 and external customer information for decisions relating to BB 100.5 13.2 customers’ applications for a loan. In addition, the bank uses behaviour score models that predict the probability of default B 104.8 8.8 in customers for decisions related to top-ups, collections, CCC or lower 21.2 group write-downs and other portfolio management decisions. Not rated 1,892.4 276.5 For decisions related to commercial exposures, the bank uses Total 5,605.9 5,330.0 company rating provided by external agencies in addition to

Gjensidige annual report 2016 | 107 Gjensidige Insurance Group using internal models to assess the solidity, stability, liquidity The weighted average portfolio loan to value ratio is estimated at and profitability. 61.7 per cent for the mortgage portfolio. This estimate is based on the exposure on the reporting date as a ratio of the property value With the help of these score models, the lending portfolios in as estimated upon loan approval, including any higher priority the bank are grouped into risk classes, starting from the worst pledge(s). The bank’s credit policy is in accordance with the risk, based on their probability of default in addition to already regulation for new mortgage loans set by the Ministry of Finance on defaulted and unclassified. These risk categorisations are 15 June 2015. mainly intended to assist in various credit decisions. They are then further grouped into three main risk groups: Low risk, The table below shows the lending portfolio and write-downs as of Medium risk and High risk which are used in the bank's 31 December 2016 and 31 December 2015 segmented by risk monthly portfolio monitoring and reporting. groups.

The bank's maximum exposure to credit risk related to lending portfolio is NOK 48,261.2 million.

Table 40a – Risk classification banking operations 2016

Total off balance Other non- commitments to Individual write- customer Maximum credit NOK millions Gross lending Guarantees customers downs exposure exposure

Low 35,447.1 3.5 6,491.2 41,941.8 Medium 3,962.9 260.4 4,223.3 High 1,017.5 90.0 1,107.4 Not classified 355.1 536.2 891.3 Impaired and written down 466.9 9.0 475.9 Total 41,249.5 3.5 7,377.7 9.0 48,639.7 Group write-downs 378.5 378.5 Total net 40,871.0 3.5 7,377.7 9.0 48,261.2

Table 40b – Risk classification banking operations 2015

Total off balance Other non- commitments to Individual write- customer Maximum credit NOK millions Gross lending Guarantees customers downs exposure exposure

Low 32,184.6 78.5 4,954.1 37,217.2 Medium 3,035.8 1,185.2 4,221.0 High 953.3 68.0 1,021.3 Not classified 138.6 14.3 152.9 Impaired and written down 423.5 6.1 429.6 Total 36,735.8 78.5 6,221.6 6.1 43,042.1 Group write-downs 352.9 352.9 Total net 36,382.9 78.5 6,221.6 6.1 42,689.1

Table 41 – Payments overdue Interest-rate risk arises when the bank’s assets and liabilities have NOK millions 2016 2015 different remaining fixed-rate periods. The interest-rate risk is managed by adopting fixed-interest rate periods for assets and 0-30 days 798.2 555.9 liabilities. In addition, derivatives are used for hedging. Fixed- 30-90 days 187.4 163.1 interest assets and liabilities in millions multiplied by the remaining Over 90 days 399.5 339.2 interest rate period are used to measure interest-rate risk exposure. Total 1,385.1 1,058.2 This is known as ‘milli years’ (MY).

The interest rate risk limit for all time periods are plus/minus 1,500 MY. The bank’s limit for cumulative exposure to interest rate risk is Based on the above development, the Board considers the credit 1,500 MY. Interest rate risk under three months is measured and risk levels in the bank’s portfolio to be satisfactory reported, but the exposure is not included in the interest risk limits.

When the limit is fully utilised, the loss for the bank given a one Gross lendings in default for more than 90 days amounted to NOK percentage point change in the yield curve will be NOK 15 million. 399.5 million by the end of the year, compared to NOK 339.2 million Utilisation of this limit is reported monthly to the Board. in 2015. The total written-down balance on loans in 2016 amounted to NOK 387.6 million compared with NOK 359.1 million in 2015. Gross lendings in default for more than 90 days amounted for 1.0 As of 31 December 2016, the bank has a negative interest rate per cent of gross lending as of the end of the year, compared to 0.9 exposure of 111 MY in the 3 months to one year interval. The net per cent in 2015. accumulated interest rate exposure over three months is a positive 360 MY as of 31 December 2016. By investing in sound securities with short-term maturity and with expectations that the value will be Market risk Market risk is the risk of losses associated with movements in less exposed to changes in the credit spread, the bank limits its market prices, which, in this context relate to positions and activities spread risk on its assets. The market value of the bank’s own in the interest-, currency-, credit and stock markets. bonds varies with changes in the credit spreads.

The bank's finance strategy set by the Board provides guidelines Currency risk is the risk of loss due to changes in exchange and limits for managing market risk. rates. The risk arises from the bank's bond in foreign currency. The bank manages this risk by using derivatives. The bank changes from currencies into NOK with an approved The bank’s market risk is substantially related to currency risk, counterparty on both principal and interest through "cross interest-rate risk and spread risk (credit risk). currency rate swaps". In practice this means that a combination of a bond in currency and cross-currency rate swap rate swap,

108 | Gjensidige annual report 2016 Gjensidige Insurance Group the bond is converted from currency into a bond in NOK based tested regularly. Responsibility for follow-up of internal control rests on NIBOR. Under IFRS the changes in the fair value of the with the Internal Control Manager. derivative related to changes in cross currency basis swaps are recognised as value change in financial instruments. The bank’s management regularly reviews its internal controls. The bank has a complex IT infrastructure that must function at all times. As of 31 December 2016 the bank has outstanding bonds in It therefore has a particular focus on risks related to ICT/security. Swedish krone of 800 million. Liquidity risk Gjensidige Bank ASA does not have stock market risk. Gjensidige Liquidity risk is the risk of the bank not being able to meet its debt Bank ASA does not have market risk under Pillar 1 because the obligations when due and/or not being able to finance growth of its bank does not have a trading portfolio. assets without incurring a substantial increase in costs.

Concentration risk The bank's finance strategy approved by the Board provides Concentration risk is the risk of losses due to the bank having large guidelines and limits for managing the bank's liquidity risk. The bank parts of its lending tied to a single borrower or to limited geographic has established guidelines and limits for liquidity risk and risk or business areas. The concentration risk is managed using the tolerance, guidelines for liquid assets, guidelines for stable long- bank’s risk framework and is measured and assessed through term funding and contingency plans. Stress tests are used to test annual stress tests / scenario analyses in the credit area. the robustness of the bank's liquidity situation.

As of 31 December 2016, the portfolio is geographically diverse, The liquidity risk due to lack of access to liquidity is managed by with the greatest lending in the most populous areas of the country. having sufficient liquid assets to cover liabilities that reach maturity. The largest loan is about NOK 290.0 million. The exposure related The bank shall have a liquidity reserve (buffer) in short-term to the ten largest loans (limit) is about NOK 555.3 million. The deposits, liquid securities and/or committed credit facilities that, in bank's liquidity reserves are mainly placed in securities issued by an acute liquidity freeze in the market, allow sufficient time to the Norwegian government and Norwegian covered bonds (OMF). implement the necessary measures.

Operational risk As of 31 December 2016 the liquidity reserve was NOK 4,315.2 Operational risk is the risk of losses resulting from inadequate or million, divided between NOK 120.0 million in bank deposits and failing internal processes or systems, human error or external NOK 4,195.2 million in debt securities. Of these assets NOK 661.1 events. The bank has its own loss and event database for the million were investments in covered bonds from Gjensidige Bank evaluation, follow-up and storage of operational incidents. Boligkreditt AS (eliminated in the consolidated accounts). The net liquid assets were at an adequate level that covers the bond debt Departmental managers in the various operational areas are that will fall due in the next 20 months. Stress tests have also been responsible for identifying, limiting and managing the operational carried out to demonstrate the bank’s liquidity need based on future risks within their respective areas. Operational risks are identified scenarios involving a general recession and/or a bank specific and communicated via the bank's internal procedures which are crisis.

Table 42a – Liquidity profile banking operations 2016 1-3 3-12 No fixed NOK millions < 1 month months months 1-5 years > 5 years maturity Total

Loans to and claims on credit institutions 63.0 63.0 Loans to and claims on customers 335.0 660.7 2,951.5 13,846.5 33,183.9 250.5 51,228.1 Certificates, bonds and other interest-bearing securities 103.3 6.8 710.0 2,440.5 405.8 3,666.5 Other financial assets 34.5 132.3 166.9 Derivatives – gross inflows 290.3 11.2 1,149.7 1,233.4 2,684.6 Total financial assets 763.2 678.7 4,811.2 17,520.4 33,589.7 445.8 57,809.0

Deposits and liabilities to customers 17,301.8 998.2 2,995.3 21,295.3 Liabilities opened for the issue of securities 3.5 66.6 1,221.3 17,284.0 2,983.6 21,559.0 Loan offers and unused credit facilities 8,239.3 8,239.3 Derivatives – gross outflows 139.9 15.6 68.5 46.9 271.0 Total liabilities 25,684.5 1,080.4 4,285.1 17,330.9 2,983.6 51,364.6

Table 42b – Liquidity profile banking operations 2015 1-3 3-12 No fixed NOK millions < 1 month months months 1-5 years > 5 years maturity Total

Loans to and claims on credit institutions 77.5 77.5 Loans to and claims on customers 333.4 643.9 2,597.2 12,038.2 31,160.7 180.3 46,953.7 Certificates, bonds and other interest-bearing securities 101.7 6.7 699.1 2,403.0 105.1 3,315.6 Other financial assets 37.0 175.9 212.9 Derivatives – gross inflows 1.5 6.8 97.7 327.0 145.5 578.5 Total financial assets 473.6 657.4 3,394.0 14,768.3 31,411.2 433.6 51,138.2

Deposits and liabilities to customers 16,702.4 536.8 2,118.1 19,357.2 Liabilities opened for the issue of securities 10.2 458.1 834.3 15,101.1 2,927.0 19,330.8 Loan offers and unused credit facilities 7,527.2 7,527.2 Derivatives – gross outflows 0.7 16.3 61.4 216.8 74.8 369.9 Total liabilities 24,240.4 1,011.2 3,013.8 15,317.9 3,001.8 46,585.1

Gjensidige annual report 2016 | 109 Gjensidige Insurance Group

4. Segment information

The group has six reportable segments, as described below, which Estonia, including insurances related to motor, property and offers different products and services within different geographical accident/health. areas. The Groups reportable segments are identified based on the Group’s internal reporting. The Group CEO holds regular meetings Pension and Savings with its reporting managers for the different segments, concerning Pension and Savings shall contribute to sales of a wide range of performance management, which focuses on future measures to products to general insurance customers in Norway by offering ensure performance and deliveries. pension and savings products, mainly to the Norwegian commercial market. The pension products include defined contribution pensions General insurance is the Group’s core activity. General insurance is and related risk for disability and death, private pension savings and divided into four segments, mainly based on the customer’s individual disability pensions. The savings products include ready- geographical placement. Other operational segments deliver fund packages, funds from reputable asset managers and asset products and services mainly to customers in Norway. management.

Description of the segments Retail Bank General Insurance Private Gjensidige Bank is online pure internet bank which shall contribute The Private segment offers a wide range of general insurance to sales of a wide range of products to general insurance customers products and services in the Norwegian private market, including in Norway. The bank offers mortgages, car financing, unsecured insurances related to motor, property, accident and health and lending, savings, credit cards and day-to-day banking services. leisure. Description of the segments income and General Insurance Commercial expenses The Commercial segment offers a wide range of general insurance Segment income is defined as earned premiums for general products to the commercial, agriculture and municipality markets in insurance, earned premiums and management income etc. for Norway, including insurances related to motor, property, accident Pension and Savings and interest income and other income for and health and marine/cargo. Retail Bank.

General Insurance Nordic Segment expenses are defined as claims incurred for general The Nordic segment includes the Group’s operations in the Danish insurance and for Pension and Savings, interest expenses etc. for and Swedish private, commercial and municipal markets, including Retail Bank, operating expenses for all segments, and net income insurances related to motor, property, accident and health, liability for investments for Pension and Savings as well as Retail Bank. and leisure. The segment result is defined as the underwriting result for general General Insurance Baltics insurance, and the profit before tax expense for Pension and Gjensidige’s Baltic operations provide general insurance products Savings and Retail Bank. to the private and commercial markets in Latvia, Lithuania and

General insurance Private Commercial Nordic Baltics Pension and Retail Bank Eliminations etc. 1 Total Savings NOK millions 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Segment income Segment income – external 8,291.3 8,152.3 7,257.4 7,076.8 5,917.8 5,233.3 1,036.3 642.0 1,605.6 1,551.0 1,437.0 1,330.0 (54.1) 170.0 25,491.4 24,155.4 Segment income – group 2 Total segment income 8,291.3 8,152.3 7,257.4 7,076.8 5,917.8 5,233.3 1,036.3 642.0 1,605.6 1,551.0 1,437.0 1,330.0 (54.1) 170.0 25,491.4 24,155.4

- Claims, interest expenses, loss etc. (5,030.8) (4,908.5) (4,825.1) (4,826.7) (4,739.6) (3,905.2) (748.4) (524.8) (1,283.5) (1,275.7) (680.1) (652.2) (172.0) (432.4) (17,479.6) (16,525.4) - Operating expenses (1,063.8) (1,035.7) (801.1) (809.3) (930.9) (819.0) (387.4) (216.0) (223.9) (222.0) (373.6) (359.3) (287.2) (592.3) (4,068.0) (4,053.6) + Net income from investments 27.3 30.8 45.3 (15.0) 2,123.5 1,457.4 2,196.1 1,473.3

Segment result/profit/(loss) before tax 2,196.7 2,208.1 1,631.3 1,440.8 247.3 509.1 (99.5) (98.9) 125.4 84.2 428.5 303.6 1,610.3 602.8 6,139.9 5,049.7 expense

Impairment loss goodwill (13.5) (1.5) (1.5) (13.5)

1 Eliminations etc. consist of internal eliminations and other income and expenses not directly attributable to one single segment and large losses of NOK 205.5 million (382.5).

2 There is no significant income between the segments at this level in 2016 and 2015.

110 | Gjensidige annual report 2016 Gjensidige Insurance Group

5. Intangible assets

Other Customer intangible NOK millions Goodwill relationship Trademark Software assets Total

Cost As at 1 January 2015 3,084.4 1,023.5 44.9 1,122.4 299.1 5,574.4 Additions 16.5 73.5 56.0 146.0 Additions through business combinations 497.1 75.4 184.3 756.8 Additions from internal development 156.2 156.2 Disposals/reclassifications (227.5) (5.8) (0.8) (244.9) (2.5) (481.5) Exchange differences 177.1 59.2 2.1 25.3 28.8 292.5 As at 31 December 2015 3,531.1 1,168.8 46.2 1,132.6 565.7 6,444.4 Uncompleted projects 118.0 118.0 As at 31 December 2015, including uncompleted 3,531.1 1,168.8 46.2 1,250.6 565.7 6,562.4 projects

Amortisation and impairment losses As at 1 January 2015 (265.4) (615.7) (37.7) (673.5) (149.4) (1,741.7) Amortisations (104.7) (7.0) (171.1) (71.7) (354.6) Disposals/ reclassifications (17.6) 5.8 0.8 199.8 2.5 191.4 Impairment losses recognised in profit or loss during the (13.5) (13.5) period Exchange differences (10.2) (38.3) (2.2) (12.1) (13.2) (75.9) As at 31 December 2015 (306.6) (752.9) (46.0) (656.9) (231.8) (1,994.3)

Carrying amount As at 1 January 2015 2,819.0 407.8 7.2 558.7 149.7 3,942.4 As at 31 December 2015 3,224.5 415.9 0.2 593.7 333.9 4,568.0

Cost As at 1 January 2016 3,531.1 1,168.8 46.2 1,132.6 565.7 6,444.4 Additions 54.1 178.2 212.4 444.8 Additions through business combinations 78.7 56.4 135.2 Additions from internal development 45.8 45.8 Disposals/reclassifications (46.4) (10.8) (0.1) (48.3) (11.3) (117.0) Exchange differences (171.7) (60.4) (2.1) (27.3) (33.4) (295.0) As at 31 December 2016 3,391.7 1,208.1 44.0 1,281.0 733.4 6,658.2 Uncompleted projects 126.3 126.3 As at 31 December 2016, including uncompleted 3,391.7 1,208.1 44.0 1,407.3 733.4 6,784.5 projects

Amortisation and impairment losses As at 1 January 2016 (306.6) (752.9) (46.0) (656.9) (231.8) (1,994.3) Amortisations (144.6) (0.2) (168.8) (129.8) (443.3) Disposals/reclassifications 46.4 10.8 0.1 16.0 2.2 75.5 Impairment losses recognised in profit or loss during the (1.5) (1.5) period Exchange differences 10.2 38.7 2.1 14.1 14.7 79.8 As at 31 December 2016 (251.5) (848.0) (44.0) (795.6) (344.7) (2,283.8)

Carrying amount As at 1 January 2016 3,224.5 415.9 0.2 593.7 333.9 4,568.0 As at 31 December 2016 3,140.2 360.1 0.0 611.6 388.7 4,500.7

Amortisation method I/A Straight-line Straight-line Straight-line Straight-line Useful life (years) I/A 5-10 1-10 5-8 5-10

The Group’s intangible assets are either acquired or internally The group has in 2016 acquired the Swedish insurance portfolio of developed. Goodwill, customer relationships, trademarks and parts the Vardia insurance group and the company Vardia Forsäkring AB. of other intangible assets are all acquired through business In 2015, PZU Lietuva in Lithuania and Mondux in Denmark were combinations, and are a result of a purchase price allocation of acquired. In addition 50 percent of Oslo Areal was sold in the fourth initial cost of the acquisition. Internally developed software is quarter. The remaining investment is after the sale classified as developed for use in the insurance business. External and internal joint venture and recognised according to the equity method. assistance used in relation with implementation or substantial upgrade of software, including adjustment of standard systems, are None of the intangible assets has indefinite useful life. capitalized as intangible assets. Amortization is included in the accounting line Expenses.

Gjensidige annual report 2016 | 111 Gjensidige Insurance Group

Impairment testing goodwill The management’s method As far as possible, the management has sought to document the The carrying amount of goodwill in the Group as at 31 December assumptions upon which the models are based through external 2016 is NOK 3,140.2 million. See table. information. External information is first and foremost used in the assessment of discount rate and exchange rates. When it comes to NOK millions 2016 2015 future cash flows, the management has also considered the degree of historical achievement of budgets. If expected budgeted results Goodwill Segment are not achieved, the management has conducted a deviation analysis. These deviation analyses are reviewed by the Board of Gjensidige Forsikring, Nordic 1,465.3 1,548.2 Directors of the respective subsidiaries, as well as the management Danish branch in Gjensidige Forsikring. Nykredit Forsikring Nordic 842.0 876.2 Gjensidige Forsikring, Nordic 160.4 158.2 Swedish branch Level of combined ratio (CR) Gouda portfolio Nordic 81.5 85.8 The expected CR level is both in the growth period and when estimating the terminal value considered to be from 87.2 to 100.3. Vardia portfolio Nordic 63.4 ADB Gjensidige Baltics 398.9 425.8 CR-level when Gjensidige Bank Retail Bank 1.5 CR-level in calculating Cash-generating units growth period terminal value Gjensidige Forsikring, white Private 128.7 128.7 label Gjensidige Forsikring, Danish branch 87.2-91.2% 91.2% Total 3,140.2 3,224.4 Nykredit Forsikring 91.3-94.1% 91.3%

Gjensidige Forsikring, Swedish branch 90.2-100.3% 92.7% Each of the units above is the smallest identifiable group of assets ADB Gjensidige 93.0-99.9% 93.0% that generates cash inflows and are considered as separate cash- Gouda portfolio 89.1-94.3% 90.1% generating units. The annual assessment of impairment losses was carried out in the third quarter of 2016. An indication assessment was also carried out in the other quarters in order to assess Growth rate in terminal value calculation whether new circumstances calls for new impairment testing of The growth rate is determined to 2.5 per cent in Scandinavia and goodwill. 3.0 per cent in Baltics. This is the same growth as in 2015.

Recoverable amount for the cash-generating units is determined Discount rate based on an assessment of the value in use. The value in use is The discount rate is before tax, and is composed of a risk-free based on a discounting of future cash flows, with a relevant interest rate, a risk premium and a market beta. The risk-free rate is discount rate that takes into account maturity and risk. equivalent to a ten-year interest rate on government bonds in the respective countries where the subsidiaries and branches operate Budgets/prognoses and the period for which the cash flows in and in addition a risk premium is added. The risk premium varies are projected so that the discount rate is 7.5 per cent for all companies. This The projection of cash flows is based on budget and forecast for the corresponds to the discount rate of the group. In 2015 the discount next five years reviewed by the management and approved by the rate that was used was 7.5 per cent for Denmark and Sweden and Board of Directors. In the period after 2020 a lower annual growth 8.5 per cent for Baltic. In 2016 the country-risk has been adjusted has been used than in the budget period. The terminal value is directly in the cash flow of all units. calculated in 2025. The cash flows are estimated to a normal level before a terminal value is calculated. Gjensidige normally has a ten- Sensitivity analysis to key assumptions year horizon on its models, as the acquired companies are in a The excess values related to the acquisitions are based on different growth phase and a shorter period will give a less correct view of key assumptions. If these assumptions change significantly from expected cash flows. In 2016 the profitability in the Danish market expected in the impairment models, a need for impairment may has been challenged more than in other markets, which has arise. See table. resulted in several actions in the autumn 2016. These will be completed in 2017/2018 and are primarily focused on improving the claims ratio through better tariffing and risk-selection.

Growth reduces by 2% Discount rate compared to CR increases All circumstances Sensitivity table goodwill increases by 1% expected next 3 years by 2% next 3 years occur simultaneously

Need for impairment Gjensidige Forsikring, Danish branch No need for impairment No need for impairment No need for impairment app. NOK 249 million Need for impairment Need for impairment Need for impairment Need for impairment Nykredit Forsikring app. NOK 207 million app. NOK 31 million app. NOK 4 million app. NOK 312 million Gjensidige Forsikring, Swedish branch No need for impairment No need for impairment No need for impairment No need for impairment ADB Gjensidige No need for impairment No need for impairment No need for impairment No need for impairment Gouda porfolio No need for impairment No need for impairment No need for impairment No need for impairment

112 | Gjensidige annual report 2016 Gjensidige Insurance Group

6. Shares in associates and joint ventures

Carrying Carrying Registered Cost amount Cost amount NOK millions office Interest held 31.12.2016 31.12.2016 31.12.2015 31.12.2015

Associates 1 Tromsø, Vervet AS including subordinated loan 25.0% 35.3 11.2 Norway Ballerup, FDC A/S 33.3% 5.2 27.8 5.2 27.7 Denmark

Joint ventures Oslo Areal AS Oslo, Norway 50,0 % 1,086.9 1,573.8 1,086.9 1,509.0

Total shares in associates and joint 1,092.2 1,601.6 1,127.4 1,547.8 ventures

1 Subordinated loan of NOK 24.0 million is included in cost.

Profit/(loss) Share of NOK millions Assets Equity Liabilities Revenues Profit/(loss) recognised stock value

For the whole company 2016

Associates - additional information Oslo Areal AS, pro & contra settlement (1.3) N/A shares Vervet AS, profit sale of shares and 8.8 N/A subordinated loan FDC A/S 171.3 54.2 117.1 373.9 3.7 1.7 N/A

Joint ventures - additional information Oslo Areal AS 175.0

Total shares in associates and joint 171.3 54.2 117.1 373.9 3.7 184.1 ventures

For the whole company 2015

Associates - additional information Bilskadeinstituttet AS (liquidated in 2014) 2.0 Vervet AS 100.0 4.3 95.7 0.7 (1.7) 6.0 N/A FDC A/S 249.3 80.1 169.2 432.3 (12.2) (12.8) N/A

Joint ventures - additional information Oslo Areal AS (November-December 2015) 2 54.6

Total shares in associates and joint 349.2 84.4 264.8 433.0 (13.9) 49.7 ventures

2 Profit recognised for the period as a joint venture.

For the whole company

Joint ventures - additional information Oslo Areal AS NOK millions 2016 2015

Income statement Operating income 423.0 419.8 Operating expenses (75.4) (75.5) Interest income 2.1 1.5 Interest expenses (65.4) (71.5) Fair value adjustments property 111.9 271.7 Gains/losses on sale of property 27.0 3.7 Depreciation and amortisation (3.9) (8.8) Profit/(loss) before tax expense 419.4 540.9 Tax expense (69.4) (92.0) Profit/(loss) 350.0 448.9 Components of other comprehensive income 134.8 0.1 Total comprehensive income 484.8 449.0

Statement of financial position - items Current assets 34.6 93.0 Fixed assets 6,691.6 6,821.5 Cash and cash equivalents 46.2 30.7 Short term liabilities 784.4 820.6 Long term liabilities 2,840.4 3,076.1 Equity 3,147.6 3,018.0

Gjensidige annual report 2016 | 113 Gjensidige Insurance Group

Receivables from joint ventures Oslo Areal AS NOK millions 2016 2015

Gjensidige's share of loan 1,420.2 1,538.0 Total receivables from joint ventures 1,420.2 1,538.0

Percentage of votes held is the same as percentage of interest held There are contractual commitments regarding development of for all investments. investment properties in Oslo Areal AS amounting to NOK 30.0 million (71.0). The commitment falls due during the period until 31 In 2015, Gjensidige sold 50 per cent of the shares in Oslo Areal to December 2017. AMF Pensionsforsäkring (AMF). The transaction implies that Gjensidige and AMF will own Oslo Areal together as a joint venture, There are some restrictions on Gjensidige Forsikring ASA’s ability as each party has rights to its share of the net assets of the to access or use the Group’s assets, as well as settling its arrangement. The parties will make joint investments in the obligations. Group contributions added together with dividends Norwegian real estate market through Oslo Areal. The investment must not exceed justifiable payment of dividend based on a is recognised according to the equity method at NOK 1.6 billion at company’s financial strength and operations. Distributions from life year end. Gjensidige Forsikring has granted a loan to Oslo Areal insurance companies must be within profit for the year. If it is amounting to NOK 1.4 billion at year end. The loan is interest- desired to distribute more than this, then it has to be approved in bearing. advance by the Financial Supervisory Authority. The regulatory framework for capital and solvency margin must be complied, as Part of the agreement is that Gjensidige, through a price-adjustment well as asset management regulations that set requirements which mechanism, will be exposed to the property market development must be met in order to cover the technical provisions. In addition, with an amount corresponding to half of the proceeds during the Gjensidige shall fulfil the capital requirements for an A rating, which period until 31 December 2016. Gjensidige will therefore have a ties additional capital. higher property-exposure in this period than the 50 per cent holding in Oslo Areal. The exposure that this agreement represents is not An insurance company may not grant loans or provide guarantees recognised. The agreement is recognised at fair value and the for another company in the Group beyond settlement accounts in unrealised gain was NOK 54.5 million (16.2) as at 31 December the Group bank unless there exist exceptions based on regulations 2015. and/or individual decisions by the Financial Supervisory Authority.

114 | Gjensidige annual report 2016 Gjensidige Insurance Group

7. Owner-occupied property, plant and equipment

Owner- occupied Plant and NOK millions property equipment 1 Total

Cost As at 1 January 2015 326.5 609.1 935.6 Transferred from/(to) investment property 6.4 6.4 Additions through business combinations 11.0 5.7 16.7 Additions 6.5 102.0 108.4 Disposals (308.9) (43.3) (352.2) Exchange differences 0.9 8.5 9.4 As at 31 December 2015 42.6 682.1 724.7 Uncompleted projects 27.6 27.6 As at 31 December 2015, including uncompleted projects 42.6 709.6 752.3

Depreciation and impairment losses As at 1 January 2015 (45.8) (386.8) (432.6) Depreciation for the year (11.7) (59.2) (70.9) Disposals 50.1 31.3 81.3 Exchange differences (0.2) (5.4) (5.5) As at 31 December 2015 (7.8) (420.2) (428.0)

Carrying amount As at 1 January 2015 280.7 321.1 601.8 As at 31 December 2015 34.8 289.4 324.2

Cost As at 1 January 2016 42.6 682.1 724.7 Additions through business combinations 5.3 5.3 Additions 5.3 43.3 48.6 Disposals (17.1) (180.2) (197.3) Exchange differences (0.9) (9.0) (9.9) As at 31 December 2016 29.9 541.4 571.3 Uncompleted projects 61.2 61.2 As at 31 December 2016, including uncompleted projects 29.9 602.6 632.5

Depreciation and impairment losses As at 1 January 2016 (7.8) (420.2) (428.0) Depreciation for the year (0.4) (60.2) (60.6) Disposals 7.5 164.6 172.1 Exchange differences 0.3 5.7 6.0 As at 31 December 2016 (0.4) (310.1) (310.5)

Carrying amount As at 1 January 2016 34.8 289.4 324.2 As at 31 December 2016 29.5 292.5 321.9

Depreciation method Straight-line Straight-line Useful life (years) 10-50 3-10

1 Plant and equipment consist mainly of machinery, vehicles, fixtures and furniture.

NOK millions 2016 2015

Market value of land and owner-occupied property 45.6 50.2 Carrying amount of land and owner-occupied property 29.5 34.8 Excess value beyond carrying amount 16.1 15.4

Each component of owner-occupied property, plant and equipment There are no restrictions on owner-occupied property, plant and are depreciated using the straight-line method over estimated equipment. Owner-occupied property, plant and equipment are not useful life. Land is not depreciated. Estimated useful life for the pledged as security for liabilities. period and comparable periods are between ten and 50 years for property, with technical installations having the highest depreciation The market value of land and owner-occupied property exceeds the rate, and between three and ten years for plant and equipment. carrying amount as shown above. For plant and equipment there is no material difference between the carrying amount and the market Owner-occupied property in Gjensidige Group mainly consists of value. Some equipment, such as furniture, is fully depreciated, but leisure houses and cottages, in addition to owner-occupied property still in use. in the Baltic.

Gjensidige annual report 2016 | 115 Gjensidige Insurance Group

8. Financial assets and liabilities Fair value Valuation based on non-observable market data Financial assets and liabilities measured at fair value are carried at When neither quoted prices in active markets nor observable the amount each asset/liability can be settled to in an orderly market data is available, the fair value of financial assets/liabilities is transaction between market participants at the measurements date estimated based on valuation techniques which are based on non- at the prevailing market conditions. observable market data.

Different valuation techniques and methods are used to estimate A financial asset/liability is considered valued based on non- fair value depending on the type of financial instruments and to observable market data if fair value is estimated without being which extent they are traded in active markets. Instruments are based on quoted prices in active markets or observable market classified in their entirety in one of three valuation levels in a data. Financial assets/liabilities valued based on non-observable hierarchy on the basis of the lowest level input that is significant to market data are classified as level three in the valuation hierarchy. the fair value measurement in its entirety. The following financial assets are classified as level three in the valuation hierarchy The different valuation levels and which financial assets/liabilities that are included in the respective levels are accounted for below. • Unlisted private equity investments. The private equity investments that are not organized as funds are valued using Quoted prices in active markets cash flow analysis, price multiples and recent market Quoted prices in active markets are considered the best estimate of transactions. The private equity investments that are an asset/liability’s fair value. A financial asset/liability is considered organized as funds are valued based on NAV (Net Asset valued based on quoted prices in active markets if fair value is Value) as reported by the fund administrators in accordance estimated based on easily and regularly available prices and these with IPEV guidelines (International Private Equity and Venture prices represent actual and regularly occurring transactions at capital Valuation. The NAV are estimated by the fund arm’s length principle. Financial assets/liabilities valued based on administrators by using the valuation techniques best suited to quoted prices in active markets are classified as level one in the estimate fair value, given the actual circumstances of each valuation hierarchy. underlying investment. Because of late reporting from the funds, the NAV from the previous quarterly reporting are used The following financial assets are classified as level one in the in estimating fair value. The NAV is then assessed for valuation hierarchy discretionary adjustments based on objective events since the last reporting date. Objective events may be the development • Listed shares in underlying values of listed companies since the last • Norwegian government/government backed bonds and other reporting, changes in regulations or substantial market fixed income securities movements. By substantial market movements in general or in • Exchange traded funds individual sectors, as measured by the development in various stock market indices, it is predictable that the value of PE Valuation based on observable market data investments will be affected as well. On the basis of what this When quoted prices in active markets are not available, the fair produces of information a final valuation is made. value of financial assets/ liabilities is preferably estimated on the • Real estate funds. The real estate funds are valued based on basis of valuation techniques based on observable market data. reported NAV values as reported by the fund administrators. Because of late reporting from the funds, the NAV values from A financial asset/liability is considered valued based on observable the previous quarterly reporting are used in estimating fair market data if fair value is estimated with reference to prices that value. are not quoted, but are observable either directly (as prices) or • Gjensidige’s paid-in capital in Gjensidige Pensjonskasse. The indirectly (derived from prices). paid-in capital is valued at nominal value.

The following financial assets/liabilities are classified as level two in The valuation process for financial assets classified as level the valuation hierarchy three In consultation with the Investment Performance and Risk • Currency derivatives, equity options and forward rate Measurement department, the Chief Investment Officer decides agreements, in which fair value is derived from the value of which valuation models will be used when valuing financial assets underlying instruments. These derivatives are valued using classified as level three in the valuation hierarchy. The models are common valuation techniques for derivatives (option pricing evaluated as required. The fair value and results of the investments models etc.). and compliance with the stipulated limits are reported weekly to the • Equity funds, bond funds, hedge funds and combination funds, Chief Financial Officer and Chief Executive Officer, and monthly to in which fair value is estimated based on the fair value of the the Board. underlying investments of the funds. • Bonds, certificates or index bonds that are unlisted, or that are listed but where transactions are not occurring regularly. The Sensitivity financial assets level three The sensitivity analysis for financial assets that are valued on the unlisted instruments in this category are valued based on basis of non-observable market data shows the effect on profits of observable yield curves and estimated credit spreads where realistic and plausible market outcomes. General market downturns applicable. or a worsening of the outlook can affect expectations of future cash • Interest-bearing liabilities (banking activities) measured at fair flows or the applied multiples, which in turn will lead to a reduction value. These liabilities are valued based on observable credit in value. A fall in value of ten per cent is deemed to be a realistic spreads. and plausible market outcome for shares and similar interests, as • Listed subordinated notes where transactions are not well as bonds and other securities with a fixed return that are occurring regularly. included in level three of the valuation hierarchy.

116 | Gjensidige annual report 2016 Gjensidige Insurance Group

Carrying Fair Carrying Fair amount as at value as at amount as at value as at NOK millions Notes 31.12.2016 31.12.2016 31.12.2015 31.12.2015

Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 1,335.4 1,335.4 434.3 434.3 Financial derivatives subject to hedge accounting 0.0 0.0 52.2 52.2

Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 12 6,892.1 6,892.1 7,202.3 7,202.3 Bonds and other fixed income securities 30,385.8 30,385.8 30,626.4 30,626.4 Shares and similar interests in life insurance with investment options 16,002.8 16,002.8 13,720.6 13,720.6 Bonds and other fixed income securities in life insurance with investment 1,777.2 1,777.2 1,389.0 1,389.0 options

Financial assets held to maturity Bonds held to maturity 1,625.9 1,702.3 2,635.6 2,800.5

Loans and receivables Bonds and other fixed income securities classified as loans and receivables 9 19,045.5 20,530.5 16,173.2 17,439.1 Loans 9 40,985.0 41,005.0 39,664.1 39,973.7 Receivables related to direct operations and reinsurance 9 5,621.5 5,621.5 4,997.4 4,997.4 Other receivables 9 945.9 945.9 502.7 502.7 Prepaid expenses and earned, not received income 9 91.3 91.3 96.7 96.7 Cash and cash equivalents 10, 11 2,158.7 2,158.7 3,151.9 3,151.9

Total financial assets 126,867.3 128,448.6 120,646.4 122,386.8

Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 1,191.8 1,191.8 403.5 403.5

Financial liabilities at fair value through profit or loss, designated upon initial recognition Debt in life insurance with investment options 17,780.0 17,780.0 15,109.6 15,109.6

Financial liabilities at amortised cost Subordinated debt 21 1,946.8 1,904.9 1,547.2 1,485.5 Deposits from and liabilities to customers, bank 15 21,270.4 21,270.4 19,357.2 19,357.2 Interest-bearing liabilities 15 19,596.5 19,649.2 17,804.7 17,616.7 Other liabilities 15 1,368.5 1,368.5 1,065.4 1,065.4 Liabilities related to direct insurance 15 555.2 555.2 619.4 619.4 Accrued expenses and deferred income 15 493.3 493.3 485.3 485.3

Total financial liabilities 64,202.5 64,213.3 56,392.3 56,142.7

Gain/(loss) not recognised in profit or loss 1,570.5 1,990.0

Gjensidige annual report 2016 | 117 Gjensidige Insurance Group

Valuation hierarchy 2016

The table shows a valuation hierarchy where financial assets/liabilities are divided into three levels based on the method of valuation.

Level 1 Level 2 Level 3 Valuation Valuation techniques techniques Quoted prices based on based on non- in active observable observable NOK millions markets market data market data Total

Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 1,335.4 1,335.4

Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 820.4 3,764.6 2,307.0 6,892.1 Bonds and other fixed income securities 10,840.6 18,211.7 1,333.5 30,385.8 Shares and similar interests in life insurance with investment options 15,993.6 9.2 16,002.8 Bonds and other fixed income securities in life insurance with investment 1,764.3 12.9 1,777.2 options

Financial assets at amortised cost Bonds held to maturity 382.8 1,319.5 1,702.3 Bonds and other fixed income securities classified as loans and receivables 20,529.0 1.5 20,530.5 Loans 41,005.0 41,005.0

Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 1,191.8 1,191.8

Financial liabilities at fair value through profit or loss, designated upon initial recognition Debt in life insurance with investment options 17,757.9 22.1 17,780.0

Financial liabilities at amortised cost Subordinated debt 1,904.9 1,904.9 Interest-bearing liabilities 19,649.2 19,649.2

Valuation hierarchy 2015

The table shows a valuation hierarchy where financial assets/liabilities are divided into three levels based on the method of valuation.

Level 1 Level 2 Level 3 Valuation Valuation techniques techniques Quoted prices based on based on non- in active observable observable NOK millions markets market data market data Total

Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 434.3 434.3 Financial derivatives subject to hedge accounting 52.2 52.2

Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 1,139.8 4,118.8 1,943.7 7,202.3 Bonds and other fixed income securities 11,440.1 17,011.7 2,174.6 30,626.4 Shares and similar interests in life insurance with investment options 13,709.6 11.0 13,720.6 Bonds and other fixed income securities in life insurance with investment 1,377.7 11.3 1,389.0 options

Financial assets at amortised cost Bonds held to maturity 810.2 1,990.3 2,800.5 Bonds and other fixed income securities classified as loans and receivables 17,437.5 1.6 17,439.1 Loans 3,364.6 36,609.1 39,973.7

Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 403.5 403.5

Financial liabilities at fair value through profit or loss, designated upon initial recognition Debt in life insurance with investment options 15,087.3 22.3 15,109.6

Financial liabilities at amortised cost Subordinated debt 1,485.5 1,485.5 Interest-bearing liabilities 17,616.7 17,616.7

118 | Gjensidige annual report 2016 Gjensidige Insurance Group

Reconciliation of financial assets valued based on non-observable market data (level 3) 2016

Amount of net realised/ Net realised/ unrealised gains unrealised recognised in profit or gains loss that are recognised Transfers Cur- attributable to As at in profit or Purch- Settle- into/out of rency As at instruments held as at NOK millions 1.1.2016 loss ases Sales ments level 3 effect 31.12.2016 31.12.2016

Shares and similar interests 1,943.7 (342.8) 905.7 (199.3) (0.3) 2,307.1 (303.9) Bonds and other fixed income securities 2,174.6 (114.4) 324.2 (119.2) (832.9) (98.7) 1,333.5 24.0 Total 4,118.3 (457.2) 1,229.9 (318.5) (832.9) (99.0) 3,640.6 (279.9)

Sensitivity of financial assets valued based on non-observable market data (level 3) 2016

NOK millions Sensitivity

Shares and similar interests Decrease in value 10% 230.7 Bonds and other fixed income securities Decrease in value 10% 133.4 Total 364.1

Reconciliation of financial assets valued based on non-observable market data (level 3) 2015

Amount of net realised/ Net realised/ unrealised gains unrealised recognised in profit or gains loss that are recognised Transfers Cur- attributable to As at in profit or Purch- Settle- into/out of rency As at instruments held as at NOK millions 1.1.2015 loss ases Sales ments level 3 effect 31.12.2015 31.12.2015

Shares and similar interests 2,131.6 (132.5) 278.3 (333.6) 1,943.7 (226.9) Bonds and other fixed income securities 406.1 56.0 1,749.7 (37.3) 2,174.6 32.8 Total 2,537.7 (76.5) 2,028.0 (370.9) 4,118.3 (194.1)

Sensitivity of financial assets valued based on non-observable market data (level 3) 2015

NOK millions Sensitivity

Shares and similar interests Decrease in value 10% 194.4 Bonds and other fixed income securities Decrease in value 10% 217.5 Total 411.8

Gjensidige annual report 2016 | 119 Gjensidige Insurance Group

variations of issued fixed rate obligations due to changes in the rate Hedge accounting level. Interest rate swaps designed as hedging instruments are measured at fair value through profit or loss. The changes in fair Net investment in the foreign operation value for the hedging object linked to the hedged risk are accounted Gjensidige Forsikring utilized hedge accounting of currency as addition or deduction to the carrying value and in profit or loss. exchange differences on the net investment in the foreign operation Interest rates swaps are renewed every quarter. until the second half-year of 2015. The net investments were hedged through designated currency-related contracts that were Fair value hedging has in 2015 been carried out to hedge the renewed every quarter at a principal equal to the value of the currency in fixed agreements of acquisition of the operations investment. In this way, the hedging efficiency was measured per Mondux and PZU. Gains and losses on the hedging instrument are hedging object. The credit risk associated with the hedging recognised in profit or loss, together with the change in fair value of derivatives was within the limits of Gjensidige's credit policy. the fixed agreement. The change in fair value of the fixed agreement is recognised in goodwill when the acquired operation is Fair value hedging accounted for. Gjensidige Bank utilizes fair value hedge accounting to manage its interest rate risk. Hedging is performed to prevent from valuation

Fair value hedging Gain/loss 2016 NOK millions Fair value Gain Loss

Gjensidige Bank ASA, group Interest rate swaps - hedging instruments 125.0 (35.2) Obligation debt - hedging object 35.9 Net gain/loss recognised in profit or loss 0.7

Net investment in the foreign operation Market value as at 31.12.2015 Inefficiency recognised in NOK millions Principal Asset Liability profit or loss Nykredit Forsikring A/S Currency-related contracts - hedging instruments 0.0 0.0 0.7 Hedging object 0.0

Fair value hedging Gain/loss 2015 NOK millions Fair value Gain Loss

Gjensidige Bank ASA, group Interest rate swaps - hedging instruments 144.7 8.1 Obligation debt - hedging object (8.1) Net gain/loss recognised in profit or loss 0.0

Fair value hedging Gain/loss 2015 NOK millions Gain Loss

Mondux Assurance Agentur A/S Currency futures - hedging instruments 2.1 Acquisition liability - hedging object (2.5) Net gain/loss recognised in profit or loss (0.4)

Fair value hedging Gain/loss 2015 NOK millions Gain Loss

PZU Lietuva SA Currency futures - hedging instruments 48.3 Acquisition liability - hedging object (47.8) Net gain/loss recognised in profit or loss 0.5

120 | Gjensidige annual report 2016 Gjensidige Insurance Group

9. Loans and receivables

NOK millions 2016 2015

Loans and receivables Mortgage loans 34,081.0 31,256.4 Bonds classified as loans and receivables 19,045.5 19,295.8 Other loans 121.3 163.2 Subordinated loans 3.9 3.7 Provision for impairment losses (396.1) (360.9) Loans for consumer goods and auto financing 7,175.0 5,479.1 Total loans and receivables 60,030.6 55,837.3

Receivables related to direct operations and reinsurance Receivables from policyholders 5,280.0 4,967.4 Receivables related to reinsurance 341.5 30.0 Total receivables related to direct operations and reinsurance 5,621.5 4,997.4

Other receivables Receivables in relation with property 54.5 16.2 Receivables in relation with asset management 700.0 279.4 Other receivables and assets 191.4 207.0 Total other receivables 945.9 502.7

Prepaid expenses and earned, not received income Earned, not received interest income 46.9 46.7 Other prepaid expenses and earned, not received income 44.4 50.0 Total prepaid expenses and earned, not received income 91.3 96.7

Mortgage loans consist mainly of loans from the Gjensidige Bank The loans for consumer goods are loans without a collateral Group. Primarily this is loans with floating rate to customers in the requirement offered to private customers. The loans for auto private segment. financing are loans secured by motor vehicles, primarily cars. All loans are mainly given with floating rate. Bonds are securities classified as loans and receivables in accordance with IAS 39. Gjensidige considers the credit and liquidity risk associated with receivables to policyholders to be small, since the outstanding Of other loans NOK 80.3 million (101.6) are loans given to amount per policyholder is relatively small. Provisions for potentially agricultural customers. The loans are in their entirety intended for irrecoverable amounts have been made. installment of fire detection systems with these customers. There is no mortgage attached to the loans, and the terms vary from one Receivables related to reinsurance arise when Gjensidige issues year to over 20 years. Gjensidige Forsikring has not offered this claims towards reinsurers in accordance with reinsurance contracts. type of loan to its customers since 2008. The default rate is 1.47 Provision for potentially irrecoverable amounts has been made. (1.00) per cent at year end. Note 3 table 33 shows the age distribution of these receivables. Included in other loans are also NOK 40.0 million (60.7) in loans given with regard to sale of subsidiaries. A considerable amount of receivables in relation with asset management as at 31 December 2016 is short-term receivables in relation with sale of securities.

10. Cash and cash equivalents

NOK millions 2016 2015

Deposits with financial institutions 57.0 960.6 Cash and bank deposits 2,101.7 2,191.3 Total cash and cash equivalents 2,158.7 3,151.9

Cash and bank deposits are cash and bank deposits available for Weighted average rate for interest earned on cash, bank deposits day to day business. Deposits with financial institutions consist of and deposits with financial institutions is approximately 0.7 per cent short-term currency deposits and other short-term credit deposits. (0.8). The interest rate is calculated at company level and we are regarding this as attributable to group level as well.

11. Restricted funds

NOK millions 2016 2015

Restricted bank deposits Source-deductible tax accounts 85.7 85.6 Total restricted bank deposits 85.7 85.6

Gjensidige annual report 2016 | 121 Gjensidige Insurance Group

12. Shares and similar interests

Organisation Interest NOK millions number beyond 10% 31.12.2016

Gjensidige Forsikring ASA Norwegian financial shares Sparebank 1 SR-Bank ASA 937 895 321 747.7 Sparebank 1 SMN 937 901 003 6.8 Sparebank 1 BV 944 521 836 6.6 Aker ASA 886 581 432 5.8 Sparebanken Vest 832 554 332 4.4 Total Norwegian financial shares 771.5

Other Norwegian shares Statoil ASA 923 609 016 8.4 Petroleum Geo-Services ASA 916 235 291 4.1 Kongsberg Gruppen ASA 943 753 709 4.1 Telenor ASA 982 463 718 4.1 Yara International ASA 986 228 608 3.4 Norwegian Air Shuttle ASA 965 920 358 3.3 XXL ASA 995 306 158 2.9 DNO ASA 921 526 121 2.1 Total other Norwegian shares 32.4

Other foreign shares Deutsche Wohnen AG 11.3 Vonovia SE 10.3 LEG Immobilien AG 9.5 Novo Nordisk A/S 8.7 Grand City Properties SA 8.4 Telefonaktiebolaget LM Ericsson 3.0 Total other foreign shares 51.2

Equity funds Fisher Emerging Markets Equity Fund USD 281.5 Storebrand Global Indeks I 989 133 241 281.4 Nordea Stabile Aksjer Global 989 851 020 258.4 Nordea 1 SICAV Stable Emg. Market Equity B1- USD 231.0 Winton UCITS Funds plc - Winton Global Equity Fund 212.9 Danske Invest Norske Aksjer Institusjon I 981 582 020 174.1 Storebrand Norge 938 651 728 170.0 Sector Global Equity Kernel Fund Class P USD 150.0 INVESTEC GS GLOBAL EQTY-I$ 148.4 DB Platinum CROCI World ESG Fund 69.0 VanEck Vectors Gold Miners Etf 10.8 Total equity funds 1,987.3

122 | Gjensidige annual report 2016 Gjensidige Insurance Group

Organisation Interest NOK millions number beyond 10% 31.12.2016

Private equity investments 1 HitecVision Private Equity V LP 94.1 Argentum Secondary III 91.4 HitecVision Asset Solution KS 81.2 HitecVision VI LP 58.7 SOS International A/S 51.5 Verdane Capital VII KS 43.8 Norvestor V LP 42.2 BaltCap PEF LP 39.9 HitecVision Private Equity IV LP 37.5 Altor Fund II LP 33.3 Viking Venture III DIS 33.1 Norvestor VI LP 32.0 CapMan Buyout X 31.4 Energy Ventures III LP 27.4 Partners Group European Buyout 2005 (A) LP 26.7 Northzone VII L:P 24.1 Argentum Secondary II 22.7 HitecVision VII 21.2 CapMan BO IX LP 20.1 Northzone VI L.P. 17.4 Procuritas Capital Investor V 17.2 Teknoinvest VIII C IS 16.5 Sector Asset Management AS 887 139 342 15.9 NPEP1 IS (Altor fund III) 14.9 FSN Capital II LP 14.9 Norvestor VII LP 14.8 Verdane Capital VI KS 14.4 Partners Group Direct Investments 2006 LP 14.4 Energy Ventures II B IS 14.3 Energy Ventures IV LP 13.8 Norvestor IV LP 13.7 LGT Crown European Private Equity PLC 12.6 NPEP Triton IV IS 12.3 Axcel IV 11.5 Nordic Additonal Funding Programme IS 9.1 NPEP NeoMed V (Neomed V LP og N5 invest IS) 9.0 NPEP EQT VII IS 8.6 Scalepoint Technologies Limited 7.1 Helgeland Invest AS 939 150 234 6.7 Nord II IS 6.1 Energy Ventures II KS 988 015 105 5.7 NPEP Accent Equity 2012 IS 5.5 Viking Venture II AS 987 493 550 5.6 Teknoinvest VIII B DIS 5.4 Teknoinvest VIII KS (inkl. Teknoinv. VIII (GP) KS) 984 641 516/984 641 494 5.2 Viking Venture II B IS 4.4 Energy Venture V LP 3.8 Tun Media AS 982 519 985 3.7 Northzone VIII L.P. 2.8 Northzone IV KS 2.7 Norinnova Technology Transfer AS 957 915 035 2.1 Midvest I A 991 773 754 2.1 NPEP Verdane IX IS 1.5 Fjord Invest AS 983 527 833 1.4 Midvest II A 991 773 762 1.3 Norinnova Invest AS 991 080 961 1.3 Kapnord Fond AS 989 533 800 1.1 Viking Venture II AS (C-shares) 987 493 550 1.1 Other private equity investments 5.5 Total private equity investments 1,139.5

1 Norwegian Private Equity funds organised as internal partnerships doesn't have organisation number

Gjensidige annual report 2016 | 123 Gjensidige Insurance Group

Organisation Interest NOK millions number beyond 10% 31.12.2016

Hedge funds Sector Healthcare - A USD 290.9 Goldman Sachs Global Opportunities Offshore Fund 205.8 Winton Futures Fund- Lead Series 148.2 Sector EuroPower Fund Class A EUR 102.2 Incentive Active Value Fund Cl. A EUR Unrestricted 96.8 Sector Zen Fund NOK 90.5 Sector Speculare IV Fund Class A USD 9.2 Sector Speculare II Fund Class A USD 2.7 Sector Spesit I Fund Class A USD 0.5 Total hedge funds 947.0

Real estate funds CEREP III 35.8 La Salle 13.0 Total real estate funds 48.8

Combination funds Shenkman Finsbury Global 1,045.3 Total combination funds 1,045.3

Other investments Gjensidige Pensjonskasse 94.7 % 111.0 Total other investments 111.0

Shares and similar interests owned by branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 0.3 Total shares and similar interests owned by branches 0.3

Total shares and similar interests owned by Gjensidige Forsikring ASA 6,134.4

Total shares and similar interests owned by other group companies Shares and similar interests owned by Gjensidige Pensjonsforsikring AS 747.1 Shares and similar interests owned by Nykredit Forsikring A/S 5.8 Shares and similar interests owned by Gjensidige Bank ASA 4.6 Total shares and similar interests owned by other group companies 757.6

Total shares and similar interests owned by the Gjensidige Insurance Group 6,892.1

124 | Gjensidige annual report 2016 Gjensidige Insurance Group

13. Insurance-related liabilities and reinsurers' share

NOK millions 2016 2015

Insurance-related liabilities, gross Premium reserve in life insurance 4,127.0 3,867.2 Provision for unearned premiums, gross from general insurance 9,527.9 9,230.0

Claims reported and claims handling costs 16,978.8 18,331.2 Claims incurred, but not reported 15,468.8 14,847.2 Total claims provision, gross 32,447.5 33,178.5

Other insurance-related provisions 297.3 230.5

Total insurance-related liabilities, gross 46,399.7 46,506.2

Insurance-related liabilities, reinsurers' share Reinsurers' share of unearned premiums, gross 120.1 40.7

Claims reported and claims handling costs 586.6 486.5 Claims incurred, but not reported 0.1 5.9 Total reinsurers' share of claims provision, gross 586.7 492.3

Total reinsurers' share of insurance-related liabilities, gross 706.8 533.0

Insurance-related liabilities net of reinsurance Premium reserve in life insurance 4,127.0 3,867.2 Provision for unearned premiums from general insurance 9,407.8 9,189.3

Claims reported and claims handling costs 16,392.1 17,844.8 Claims incurred, but not reported 15,468.7 14,841.4 Total claims provision, net of reinsurance 31,860.8 32,686.2

Other insurance-related provisions 297.3 230.5

Total insurance-related provisions, net of reinsurance 45,692.9 45,973.2

2016 2015 Reinsurers' Net of re- Reinsurers' Net of re- Movements in insurance-related liabilities and reinsurers' share Gross share insurance 1 Gross share insurance 1

Claims and claims handling costs Claims reported and claims handling costs 18,331.2 (486.5) 17,844.8 16,709.4 (523.1) 16,186.3 Claims incurred, but not reported 14,847.2 (5.9) 14,841.4 16,217.5 16,217.5 Total as at 1 January 33,178.5 (492.3) 32,686.2 32,926.9 (523.1) 32,403.7

Acquisitions through business combinations 348.3 (247.7) 100.6 283.3 (60.4) 222.9 Claims paid, prior year claims (6,289.8) 417.8 (5,872.0) (7,085.1) 333.3 (6,751.8)

Increase in liabilities Arising from current year claims 18,311.9 (477.3) 17,834.6 16,564.7 (140.2) 16,424.5 - of this paid (11,042.1) 191.9 (10,850.3) (8,632.0) 2.2 (8,629.8) Arising from prior year claims (run-off) (1,033.2) 9.8 (1,023.4) (653.3) (71.4) (724.8) Other changes, including effects from discounting 239.4 239.4 (0.5) (0.5)

Transfer of pension savings (680.1) (23.5) (703.6) (805.6) (805.6) Exchange differences (585.2) 34.6 (550.7) 580.2 (32.7) 547.5 Total as at 31 December 32,447.5 (586.7) 31,860.8 33,178.5 (492.3) 32,686.2

Claims reported and claims handling costs 16,978.8 (586.6) 16,392.1 18,331.2 (486.5) 17,844.8 Claims incurred, but not reported 15,468.8 (0.1) 15,468.7 14,847.2 (5.9) 14,841.4 Total as at 31 December 32,447.5 (586.7) 31,860.8 33,178.5 (492.3) 32,686.2

Provisions for unearned premiums in general insurance As at 1 January 9,230.0 (40.7) 9,189.3 8,536.3 (28.7) 8,507.6 Additions through acquisitions 342.0 (251.2) 90.8 Increase in the period 23,185.0 (439.6) 22,745.4 22,255.4 (464.8) 21,790.7 Release in the period (23,031.6) 589.7 (22,441.9) (21,724.8) 452.8 (21,272.0) Exchange differences (197.5) 21.6 (175.9) 163.0 163.0 Total as at 31 December 9,527.9 (120.1) 9,407.8 9,230.0 (40.7) 9,189.3

1 For own account.

NOK millions 2016 2015 Discounted claims provision, gross - workers' compensation insurance in Denmark 4,905.2 5,067.4 Nominal claims provision, gross - workers' compensation insurance in Denmark 5,449.1 5,794.7

Gjensidige annual report 2016 | 125 Gjensidige Insurance Group

The claims provisions shall cover future claims payments. The claims for occupational injuries in Denmark are paid either as claims provisions for workers’ compensation insurance in Denmark annuities or as lump-sum indemnities (which are calculated mainly are converted to present value (discounted), whereas other as discounted annuities). Therefore, it is most expedient to regard provisions are undiscounted. the whole portfolio as annuities. The discount rate used is the swap rate. The reason why the claims provisions for workers’ compensation insurance in Denmark are discounted is that this portfolio consists Over the next 3-5 years, average annual run-off gains are expected exclusively of Danish workers’ compensation business with very to be around NOK 900 million, moving the expected reported long payment flows and substantial future interest income. The combined ratio to the lower end of the 86-89 corridor (undiscounted). 14. Pension

Gjensidige Forsikring is required to have an occupational pension liability is the difference between the present value of the future plan pursuant to the Norwegian Act relating to Mandatory pension benefits and the fair value of the pension assets. A Occupational Pensions. The Company’s pension plans meet the provision is made for employer’s National Insurance contributions requirements of the Act. during periods when underfunding arise. The net pension liability is shown in the balance sheet on the line for Pension liabilities. Any The defined benefit pension plan is a closed plan. New employees net excess funding in the funded plan is recognised as Pension become members of the defined contribution pension plan. assets.

Defined contribution plan The difference between the estimated pension liability and the Defined contribution pension is a private pension plan that estimated value of pension assets as of the previous financial year supplements the National Insurance scheme. Benefits from the and the actuarial pension liability and the fair value of the pension pension plan come in addition to retirement pension from the assets as of the beginning of the year is recognised under Other National Insurance scheme. The retirement age is 70. comprehensive income. In 2016, this had a negative effect on equity of approximately NOK 26 million. In addition, non-available excess funding of approximately NOK 133 million was recognised, Disability pension, spouse/cohabitant pension and child’s pension so that the sum of the negative effect on equity was approximately are also included in the plan subject to more detailed rules. NOK 159 million. In 2015, this had a positive effect on equity of approximately NOK 70 million, which was primarily due to a With effect from and including 2016, Gjensidige changed its increased discount rate. contribution rates and cut-off point as an adaptation to the new Act relating to Company Pension Schemes. The new rates are seven Actuarial assumptions per cent of earnings between 0 and 7.1 times the National The discount rate is based on a yield curve stipulated on the basis Insurance basic amount (G) and 20 per cent of earnings between of the covered bond yield. The discount rate is based on observed 7.1 and 12 G. interest approximately ten years ahead. The market’s long-term view of the interest rate level is estimated on the basis of the Gjensidige Forsikring’s branches and some of its subsidiaries have required real interest rate, inflation and future credit risk. An a defined contribution pension plan corresponding to the plan in interpolation has been made in the period between the observed Gjensidige Forsikring in Norway. interest and long-term market expectations. A discount curve has thus been calculated for each year in which pensions will be Contributions to the defined contribution plan are recognised as an disbursed. The discount rate for a pension payment is 2.44 per cent expense in the year the contribution is paid. (2.55) in year 10, 2.77 per cent (2.89) in year 15, 3.02 per cent (3.05) in year 20, 3.19 per cent (3.16) in year 25, 3.31 per cent Defined benefit plan (3.22) in year 30, and 3.46 per cent (3.30) in year 40. Description of the plan Together with benefits from the National Insurance scheme and any The discount rate is the assumption that has the greatest impact on paid-up policies from former employment relationships, the the value of the pension liability. Wage growth, pension increases retirement pension amounts to approximately 70 per cent of the and the adjustment of the National Insurance basic amount are final salary, given a full earning period of 30 years. The retirement based on historical observations and expected future inflation. age is 70, but it is 65 for underwriters. Wage growth is set at 3.1 per cent, like the year before, and is adjusted for age based on a decreasing trend. The year-on-year Disability pension, spouse/cohabitant pension and child’s pension nominal wage growth 2016/17 is calculated to be 1.5 per cent, are also included in the plan subject to more detailed rules. In which is a decrease from last year’s 1.6. The reason for the low addition, Gjensidige has pension liabilities to some employees over wage growth is that the pension plan is closed to new members and and above the ordinary group pension agreement. This applies to that the average age of employee members is 56.6 years. employees with a lower retirement age, employees who earn more than 12 times the National Insurance basic amount (G) and Gjensidige uses GAP07, which is a dynamic mortality model that supplementary pensions. takes account of the expected development in life expectancy. The assumptions on which the model is based are tested at regular The ordinary retirement pension is a funded plan where the intervals. employer contributes by paying into the pension assets. Pension over and above the ordinary group pension agreement is an The sensitivity analysis is based on only one assumption being unfunded plan that is paid for through operations. changed at a time, while all the others remain constant. This is seldom the case, since several of the assumptions co-vary. The With effect from 2016, Gjensidige removed the clause concerning sensitivity analysis has been prepared using the same method as CPI indexing of current pensions. This was recognised as a plan the actuarial calculation of the pension liability in the balance sheet change in the accounts. Income in the amount of approximately is based on. NOK 480 million was recognised in the pension expense and the pension liability was reduced correspondingly. Risk The risk in the net pension liability is a combination of the pension Recognition plan itself (including regulatory risk), the pension liability, pension Pension liabilities are valued at the present value of the future assets, financing level and the co-variation between pension pension benefits that, for accounting purposes, are deemed to have liabilities and pension assets. been accrued on the reporting date. Future pension benefits are calculated on the basis of the expected salary at the time of Gjensidige’s pension assets are managed by Gjensidige retirement. Pension assets are valued at fair value. The net pension Pensjonskasse as an investment choice portfolio. This means that

126 | Gjensidige annual report 2016 Gjensidige Insurance Group

Gjensidige decides itself how the pension assets are invested within Based on the same stress tests as for the pension assets, the a set of limits that are approved by the board of the pension fund. liabilities would decrease by approximately 11.7 per cent based on Gjensidige has a separate investment committee that decides how a widening of spreads of 0.9 per cent. the pension assets are allocated. The investment choice portfolio entails a financial risk for Gjensidige Forsikring. In total, the reduction in the liabilities would be slightly higher than the fall in the value of the pension assets. The financial risk is related to investments in equities, interest- bearing securities and property. Most of the investments are in Stock market risk securities funds and bonds. The financial risk comprises stock Over the year, the pension fund has been exposed to stock market market, interest rate, credit, currency and liquidity risk. risk through unit trusts and purchase options. The exposure was 1.4 per cent (3.7) at the end of the year. Derivative contracts bring Financial risk in pension assets is estimated using defined stress the market exposure up to 20 per cent. The pension assets have parameters for each asset class and assumptions about how the low exposure to the stock market. The greatest stock market risk is development of the different asset classes will co-vary. deemed to be the risk of a fall in the stock market.

The largest risk factor is interest rate risk. Currency risk All investments in foreign fixed-income funds are currency Interest rate risk hedged. Investments have been made in currency-hedged The pension assets’ exposure to interest rate risk is deemed to be funds. Foreign equity investments shall as a rule be currency moderate because the market value-weighted duration is hedged. Amounts due to the pension assets in Norwegian kroner approximately three years. The portfolio value will fall by shall at all times correspond to at least 70 per cent of the actuarial approximately three per cent in the event of a parallel shift in the provisions. At year end, approximately one per cent of the pension yield curve of plus one percentage point. assets were exposed to currency risk.

The pension liabilities measured in the pension fund’s accounts The pension liabilities are only exposed to Norwegian kroner have a duration of approximately 12 years. The pension liabilities (NOK). are exposed to interest rate risk. The discount rate is composed of market interest rates for ten years, while, from year 20, it is based Liquidity risk on long-term equilibrium interest rates, and between year ten and The liquidity risk in the pension assets is deemed to be low, since year 20, it is interpolated linearly between market interest rates and there are short-term investments at all times that exceed short-term long-term equilibrium interest rates. A shift in the market interest liabilities. The investments are deemed to be sufficiently liquid. rates will thereby directly affect the value of the cash flows until year ten and then have a falling effect for the next ten years. From year Life expectancy and disability 20, the market interest rates will only have a marginal effect. The life expectancy assumptions are based on the table GAP07 developed by Gabler AS, a firm of actuarial consultants. This table An interest rate fall is the biggest risk, due to the long duration of has been used since 31 December 2007. The assumptions on the liability. The pension liability will increase by 11.1 per cent in the which the table is based are systematically followed up every year. event of a parallel shift in the whole yield curve of minus one The table is unbiased and dynamic, so that life expectancy is percentage point. The value will fall by 9.2 per cent in the event of improved every year. an interest rate increase of one percentage point. No information has become available in 2016 to indicate that Because of the relationship between pension liabilities and pension GAP07 should be changed. A thorough review of GAP07 is assets, Gjensidige has an asset ceiling, since not all pension assets scheduled to take place in 2017, however, and life expectancy can be used to pay future premiums. This means that the effect of a assumptions for the population and in the banking and insurance decrease in the interest rate will be limited to liabilities attributable to sector will be reassessed. There is uncertainty about how life current employees and that liabilities attributable to retired expectancy will develop, especially for men. The Financial employees will remain relatively unchanged. An interest rate fall is Supervisory Authority of Norway has adopted separate minimum the biggest risk, due to the long duration of the liability. An increase requirements for life expectancy prices (K2013) for pension plans. in the interest rate leads to a fall in the pension liabilities, but much These requirements concern the minimum price a life insurance of the fall will lead to a potential pension increase. 35 per cent of the company or pension fund shall charge to insure benefits. These pension assets are attributable to current employees. With time, minimum prices thereby affect the size of the contributions that however, employees will represent an increasingly lower proportion must be made towards the annual earnings and for the minimum of the pension assets as a result of employees leaving or retiring. A requirement for pension assets. greater proportion of the return will thereby go to retired and former employees, and less to the employer. This has been incorporated in GAP07 has a shorter life expectancy than K2013. Everything else the asset ceiling assessment. being equal, this will mean that payment of the minimum requirement for pension assets will be based on a higher life Credit risk expectancy than the corresponding measurement of the liability. The pension assets’ exposure to credit risk is deemed to be This means that a future increase in pensions will be included in the moderate. The credit risk is managed by setting limits on the liability as a result of the payment being based on a longer life biggest commitment and rating for individual investments. Most of expectancy. the pension fund’s fixed-income investments shall be within “investment grade”. Approximately five per cent of the total pension The disability frequency is based on table IR73. It measures assets are global high-yield bonds. If the credit risk on a global disability in the long term. The prevalence of disability is low basis were to increase by a factor corresponding to the factor used compared with many other employers. in stress tests for pension funds (equal to a deterioration in relation to the 99.5 percentile), this would lead to a fall of approximately nine In 2016, the realised value of disability events was lower than per cent in the bond portfolio. This corresponds to an average expected (gain). Deaths led to a higher realised value than widening of spreads of 1.9 per cent. expected (loss). Realised life expectancy was somewhat lower than expected (gain). Overall, a small gain has been recognised for this The pension liabilities are exposed to some credit risk because the type of risk. Norwegian covered bond yield, which forms the basis for determining the discount rate, entails a certain credit risk. Gjensidige’s employees could be involved in big disaster-like events such as plane crashes, bus crashes, as spectators at sporting The credit mark-up (on ten-year swaps) at 31 December 2016 was events or through incidents in the workplace. If such an event 0.67 per cent. occurs, the pension liability could significantly increase. Gjensidige has invested in disaster insurance that means that it will receive compensation if such an event occurs.

Gjensidige annual report 2016 | 127 Gjensidige Insurance Group

Wage growth A number of amendments to the Norwegian regulations were Future pension benefits depend on future wage growth and the proposed in 2016. The amendments have not been adopted yet. development of the National Insurance basic amount (G). If wage One of the proposed amendments is to make pension assets in the growth in the Company is lower than the increase in G, the benefits pension fund subject to a funding requirement in line with Solvency will be reduced. The Group assumes that wage growth is age- II. The level of the pension assets is entering a period of political dependent. A younger employee can expect higher annual wage risk. growth than an older employee. Low interest rates can lead to the Financial Supervisory Authority Wage growth is based on expectations of growth in real wages in instructing Gjensidige Pensjonskasse to lower interest rates from 2 Norway and inflation in Norway. Inflation is also part of the interest per cent to 1.5 per cent, or 1 per cent for new earned benefits. rate. An increase in inflation will thus influence both wage growth Gjensidige expects there to be a high risk of the interest rates being and the increase in the interest rate. Normally, this could reduce the reduced to 1 per cent if long-term government bond yields remain pension liability somewhat. at the 1.3 per cent level.

Real wage growth is estimated for Norway and is largely based on Gjensidige assumes that a continued low interest rates in future and macroeconomic projections. The prevailing consensus in changes in EU based rules could entail an increase in future macroeconomic circles is that it should be in the range of 1.5 to 2 contributions to the funded pension plan. per cent. The average for the last 20 years has been 1.9 per cent. Private collective pension (AFP) Real wage growth is corrected for the age effect, so that the real As a member of Finance Norway, Gjensidige has a collective (AFP) wage growth for younger employees is stronger than for older pension agreement for its employees. AFP is a tariff-based pension employees. A pension plan rarely has the same age composition as plan for private sector employees. The benefit is life-long and can the economy as a whole. This is particularly the case for be drawn from the age of 62, provided that the conditions in the Gjensidige’s pension plan, which is closed to new entrants. AFP statutes are met. AFP is therefore a defined benefit pension plan. Real wage growth will lead to an increase in the liabilities. Higher inflation will lead to an increase in wages, pensions and the The AFP plan is based on a tripartite cooperation between the discount rate. employers’ organisations, the trade unions and the state. The state covers one-third of the pension expenses for the AFP plan, while Gjensidige manages employees’ wage growth based on collective the enterprises affiliated to the plan cover two-thirds collectively. agreements and individual agreements. Salary levels can increase strongly from one year to the next. The premium the enterprises pay to the plan is stipulated so that it covers current pension expenses and also provides a basis for Operational risk building up a pension fund. The fund shall provide sufficient security Responsibility for administering the pension plans has been for the coverage of expected future liabilities. transferred to Gjensidige Pensjonskasse. Gjensidige Pensjonskasse has its own employees and makes substantial In 2016, the premium was 2.5 per cent (2.4) of employees’ earnings purchases of services from professional suppliers of pension fund between 1 and 7.1 times the National Insurance basic amount (G). management and asset management services. The pension fund is subject to internal control. Gjensidige considers the operational risk The administrator of the pension plan has not presented to be low. calculations that allocate the pension assets or liabilities in the plans to the individual member enterprises. Gjensidige therefore Minimum requirement for the level of pension assets recognises the plan as a defined contribution plan. The pension assets must meet certain minimum requirements defined in Norwegian laws, regulations and in orders issued by the If the administrator of the AFP plan presents such allocation figures, Financial Supervisory Authority of Norway (FSA). this could result in the plan being recognised as a defined benefit plan. It is difficult, however, to arrive at an allocation key that is If the level of the pension assets falls below a lower limit, Gjensidige acceptable to Gjensidige. An allocation key based on the will have to pay extra pension contributions to bring them up to the Gjensidige’s share of total annual pay will not be acceptable since lower limit. On certain conditions, Gjensidige will also be repaid such a key is too simple and will not adequately reflect the financial pension assets. liabilities.

Unfunded Unfunded NOK millions Funded 2016 2016 Total 2016 Funded 2015 2015 Total 2015

Present value of the defined benefit obligation As at 1 January 2,275.7 555.9 2,831.6 2,335.5 588.1 2,923.7 Correction of the opening balance 0.8 0.8 Current service cost 33.2 13.8 46.9 35.9 11.3 47.1 Employers' national insurance contributions of 4.7 1.9 6.6 5.1 1.6 6.6 current service cost Interest cost 62.5 13.6 76.0 57.3 13.0 70.3 Actuarial gains and losses 6.9 6.4 13.3 (63.0) (11.8) (74.8) Benefits paid (91.6) (39.2) (130.7) (90.2) (41.7) (131.9) Employers' national insurance contributions of (16.7) (5.3) (22.0) (0.0) (5.9) (5.9) benefits paid Removed CPI indexing of current pensions (449.3) (33.3) (482.6) Business combinations (3.2) (3.2) (4.8) (2.0) (6.8) The effect of the asset ceiling 132.7 132.7 Foreign currency exchange rate changes (2.4) (2.4) 2.5 2.5 As at 31 December 1,954.9 511.5 2,466.3 2,275.7 555.9 2,831.6

Amount recognised in the balance sheet Present value of the defined benefit obligation 1,954.9 511.5 2,466.3 2,275.7 555.9 2,831.6 Fair value of plan assets (2,443.2) (2,443.2) (2,366.0) (2,366.0) Net defined benefit obligation/(benefit asset) (488.3) 511.5 23.2 (90.3) 555.9 465.6

128 | Gjensidige annual report 2016 Gjensidige Insurance Group

Unfunded Unfunded NOK millions Funded 2016 2016 Total 2016 Funded 2015 2015 Total 2015

Fair value of plan assets As at 1 January 2,366.0 2,366.0 2,405.0 2,405.0 Interest income 66.4 66.4 60.2 60.2 Return beyond interest income (12.7) (12.7) (5.4) (5.4) Contributions by the employer 135.1 5.3 140.4 0.0 5.9 5.9 Benefits paid (91.6) (91.6) (90.2) (90.2) Employers' national insurance contributions of (16.7) (5.3) (22.0) (0.0) (5.9) (5.9) benefits paid Business combinations (3.4) (3.4) (3.7) (3.7) As at 31 December 2,443.2 2,443.2 2,366.0 2,366.0

Pension expense recognised in profit or loss Current service cost 33.2 13.8 46.9 35.9 11.3 47.1 Interest cost 62.5 13.6 76.0 57.3 13.0 70.3 Interest income (66.4) (66.4) (60.2) (60.2) Removed CPI indexing of current pensions (449.3) (33.4) (482.7) Employers' national insurance contributions 4.7 1.9 6.6 5.1 1.6 6.6 Total defined benefit pension cost (415.4) (4.1) (419.5) 37.9 25.9 63.8

The expense is recognised in the following line in the income statement Total operating expenses (415.4) (4.1) (419.5) 37.9 25.9 63.8

Remeasurement of the net defined benefit liability/asset recognised in other comprehensive income Cumulative amount as at 1 January (2,167.5) (2,229.8) Return on plan assets (12.7) (5.4) Changes in demographic assumptions 6.1 1.3 Changes in financial assumptions (19.4) 73.0 Sold companies (6.7) The effect of the asset ceiling (132.7) Cumulative amount as at 31 December (2,326.2) (2,167.5)

Actuarial assumptions Discount rate 2.77% 2.80% Future salary increases 1 3.10% 3.10% Change in social security base amount 3.10% 3.10% Future pension increases 0.00% 1.90%

Other specifications Amount recognised as expense for the defined 202.6 150.7 contribution plan Amount recognised as expense for 26.4 25.5 Fellesordningen LO/NHO Expected contribution to Fellesordningen 27.3 25.5 LO/NHO next year Expected contribution to the defined benefit plan 0.0 0.1 for the next year

1 Future salary increases represent our expected average future salary increase for the industry. Since Gjensidige has a closed plan, average future salary increase for our population is 1.5 per cent (1.6). See explanation under Actuarial assumptions.

Change in Change in pension pension benefit benefit obligation obligation Per cent 2016 2015

Sensitivity 10% increased mortality (3.6%) (4.3%) 10% decreased mortality 2.7% 3.3% + 1% point discount rate (9.2%) (11.1%) - 1% point discount rate 11.1% 14.7% + 1% point salary adjustment 4.0% 4.3% - 1% point salary adjustment (3.0%) (3.3%) + 1% point social security base amount (1.5%) (1.6%) - 1% point social security base amount 1.7% 1.8% + 1% point future pension increase 9.1% 11.9% - 1% point future pension increase 0.0% (9.4%)

Gjensidige annual report 2016 | 129 Gjensidige Insurance Group

Valuation hierarchy 2016 Level 1 Level 2 Level 3 Valuation Valuation techniques techniques Quoted prices based on based on non- in active observable observable Total as at NOK millions markets market data market data 31.12.2016

Shares and similar interests 58.6 58.6 Bonds 1,798.2 513.1 2,311.3 Bank 9.8 9.8 Derivatives 63.5 63.5 Total 1,798.2 645.0 2,443.2

Valuation hierarchy 2015 Level 1 Level 2 Level 3 Valuation Valuation techniques techniques Quoted prices based on based on non- in active observable observable Total as at NOK millions markets market data market data 31.12.2015

Shares and similar interests 88.5 88.5 Bonds 965.8 1,169.3 2,135.1 Bank 54.9 54.9 Derivatives 87.5 87.5 Total 965.8 1,400.2 2,366.0

15. Provisions and other liabilities

NOK millions 2016 2015

Other provisions and liabilities Restructuring costs 1 194.9 85.8 Other provisions 147.2 259.8 Total other provisions and liabilities 342.1 345.6

Deposits from and liabilities to customers Deposits from and liabilities to customers without maturity date, bank 16,614.7 16,233.4 Deposits from and liabilities to customers with maturity date, bank 4,655.7 3,123.8 Deposits from and liabilities to customers 21,270.4 19,357.2

Interest-bearing liabilities Liabilities to bond debt, bank 19,596.5 17,804.7 Total interest-bearing liabilities 19,596.5 17,804.7

Other liabilities Outstanding accounts Fire Mutuals 30.4 40.0 Accounts payable 247.4 185.7 Liabilities in relation with properties 3.4 1.2 Liabilities in relation with asset management 5.1 0.0 Liabilities to public authorities 507.9 354.1 Other liabilities 574.2 484.4 Total other liabilities 1,368.5 1,065.4

Liabilities related to insurance Liabilities related to direct insurance 487.0 531.6 Liabilities related to reinsurance 68.2 87.8 Total liabilities related to insurance 555.2 619.4

Accrued expenses and deferred income Liabilities to public authorities 35.8 28.3 Accrued personnel cost 300.2 276.3 Other accrued expenses and deferred income 157.3 180.7 Total accrued expenses and deferred income 493.3 485.3

Restructuring costs 1 Provisions as at 1 January 85.8 7.1 New provisions 163.9 84.9 Provisions used during the year (53.8) (7.1) Exchange rate differences (1.0) 0.9 Provision as at 31 December 194.9 85.8

1 In 2016, 163.9 NOK million is allocated to restructuring provision, due to a decision of changes in processes in the group. The processes have been communicated to all entities affected by the changes.

130 | Gjensidige annual report 2016 Gjensidige Insurance Group

16. Tax

NOK millions 2016 2015

Specification of tax expense Tax payable (1,419.9) (1,139.3) Correction previous years (23.3) (9.9) Change in deferred tax (30.9) (115.7) Total tax expense (1,474.1) (1,265.0)

Deferred tax liabilities and deferred tax assets Deferred tax liabilities and deferred tax assets are offset when there is a legally enforceable right to offset those assets/liabilities and when deferred tax liabilities/deferred tax assets relate to the same fiscal authority. The amounts offset are as follows

Taxable temporary differences Property, plant and equipment and intangible assets 96.2 466.1 Shares, bonds and other securities 196.9 119.2 Profit and loss account 210.7 229.5 Pension assets 29.6 Security provision etc. 3,437.3 3,439.6 Total taxable temporary differences 3,970.7 4,254.4

Deductible temporary differences Loans and receivables (111.7) (98.5) Provisions for liabilities (342.1) (332.1) Pension liabilities (362.4) Insurance-related liabilities (15.0) (17.8) Other deductible temporary differences (58.4) (86.6) Total deductible temporary differences (527.3) (897.4) Loss carried forward (54.8) (71.4) Valuation allowance of deferred tax assets (0.3) Net temporary differences 3,388.3 3,285.6

Net deferred tax liabilities/(deferred tax assets) 852.6 822.9 Of this non-assessed deferred tax assets 19.1 12.9 Deferred tax liabilities 871.7 835.8

Reconciliation of tax expense Profit before tax 6,139.9 5,049.7 Estimated tax of profit before tax expense (25% in 2016 and 27% in 2015) (1,535.0) (1,363.4)

Tax effect of Different tax rate in foreign subsidiaries (13.6) (9.2) Change in tax rate 76.6 Valuation allowance and reversal of loss carried forward in subsidiaries (26.5) (7.6) Dividend received 38.0 18.9 Tax exempted income and expenses 81.3 42.7 Associates and joint ventures 23.4 Impairment loss on goodwill and recognition of negative goodwill (2.0) Non tax-deductible expenses 5.0 (34.5) Correction previous years (23.3) (9.9) Total tax expense (1,474.1) (1,265.0) Effective rate of income tax 24.0 % 25.1 %

Loss carried forward 2017 2018 2019 2020 2021 Later or no due date 54.8 71.4 Total loss carried forward 54.8 71.4

Gjensidige annual report 2016 | 131 Gjensidige Insurance Group

NOK millions 2016 2015

Change in deferred tax Deferred tax liabilities as at 1 January 822.9 1,284.1 Change in deferred tax recognised in profit or loss 30.9 115.7

Change in deferred tax recognised directly in the balance sheet Pensions (39.6) 17.5 Companies sold and purchased 40.6 (593.9) Exchange rate differences (2.2) (0.5) Net deferred tax liabilities as at 31 December 852.5 822.9

Tax recognised in other comprehensive income Deferred tax pensions 39.6 (17.5) Tax payable on hedge accounting (34.4) Tax payable on exchange rate differences 66.6 (79.9) Total tax recognised in other comprehensive income 106.2 (131.8)

Tax cost means that the tax payable for 2010 is reduced by around NOK 35 In connection with the conversion of Gjensidige Forsikring BA to a million. The tax will be further reduced for the ensuing years, by a public limited company the Ministry of Finance has consented to an total of around NOK 137 million at known tax rates. exemption from capital gains taxation on the transfer of business to Gjensidigestiftelsen received a similar decision, and we have been the newly formed public limited company under certain conditions. informed that they have appealed the decision on the grounds that The consequences of the tax relief decision have been incorporated there is no basis for the change and that the tax office has based its into the tax expense and tax liabilities from the fourth quarter 2010. decision on an incorrect valuation. Gjensidige agrees with The tax relief decision involves greater complexity and discretionary Gjensidigestiftelsen’s assessment. Changing the decision assessments, which entails a greater degree of uncertainty with concerning Gjensidigestiftelsen will have tax consequences for respect to the tax expense and tax liabilities until all the effects have Gjensidige in relation to the above-mentioned figures, which will ultimately been evaluated by the tax authorities. then not materialize. The appeal is still being processed by the tax office. In February 2015, Gjensidige received a decision from the Central Tax Office for Large Enterprises in connection with the calculation of a tax gain as a result of the conversion of Gjensidige Forsikring BA into a public limited company (ASA) in 2010. The decision

132 | Gjensidige annual report 2016 Gjensidige Insurance Group

17. Expenses

NOK millions 2016 2015

Operating expenses Depreciation and value adjustments (note 5 and note 7), excl. depreciation properties 247.9 426.7 Employee benefit expenses (note 18) 2,411.0 2,545.0 Fee for customer representatives 3.3 6.7 Software costs 496.5 470.9 Auditor’s fee (incl. VAT) 7.6 5.2 Consultants’ and lawyers’ fees 82.3 114.1 Commissions 683.5 789.6 Other expenses 1 136.0 (304.5) Total operating expenses 4,068.0 4,053.6

NOK millions 2016 2015

Expenses related to investments Depreciation and value adjustments (note 5 and note 7) 0.4 11.8 Employee benefit expenses (note 18) 0.3 14.4 Software costs 0.4 Auditor’s fee (incl. VAT) 1.1 Consultants’ and lawyers’ fees 2.9 Commissions 0.7 Other expenses 129.1 198.3 Total expenses related to investments 130.5 228.9

NOK millions 2016 2015

Other specifications

Employee benefit expenses Wages and salaries 2,137.0 1,922.9 Social security cost 451.1 383.9 Pension cost - defined contribution plan (note 14 incl. social security cost) 229.0 176.2 Pension cost - defined benefit plan (note 14 incl. social security cost) (419.5) 63.3 Share-based payment (note 25) 13.7 13.0 Total employee benefit expenses 2,411.3 2,559.4

Auditor's fee (incl. VAT) Statutory audit 5.5 5.0 Other assurance services 0.1 0.1 Other non-assurance services 1.9 0.5 Tax consultant services 0.1 0.7 Total auditor's fee (incl. VAT) 7.6 6.3

1 Other expenses include cost reductions for Gjensidige Forsikring ASA in connection with duties performed for subsidiaries and cost allocations to claims and finance.

Gjensidige annual report 2016 | 133 Gjensidige Insurance Group

18. Salaries and remuneration

The average number of employees in the Group was 4,029 (3,970). Gjensidige’s remuneration scheme and market salary for corresponding positions. The Board’s statement on the stipulation of The fixed salary is assessed and stipulated annually on the basis of pay and other remuneration the wage growth in society in general and in the financial industry in Gjensidige’s remuneration policy particular. Variable remuneration (bonus) is decided by the Board The Group has established a remuneration system that applies to on the basis of agreed goals and deliveries. It can amount to up to all employees. The system shall secure that Gjensidige attracts and 50 per cent of the fixed salary including holiday pay. Variable keeps colleagues who performs, develops, learns and shares. The remuneration is earned annually and is based on an overall remuneration shall be competitive, but the Group shall not be a assessment of financial and non-financial performance over the last wage leader. Employees are expected to see the remuneration and two years. Variable pay is not included in the pension basis. The benefits offered by the Group as an overall whole. The Group’s assessment takes into account the enterprise’s overall performance remuneration systems shall be open and performance-based, so targets for return on equity adjusted for extraordinary dividends and that they, as far as possible, are perceived as being fair and transactions and combined ratio, as well as developments in predictable. The remuneration that is paid shall correspond to the customer satisfaction. In addition, it emphasizes the CEO’s agreed performance. personal contribution to the Group’s development and results, compliance with the Group’s vision, values, ethical guidelines and Guidelines for remuneration and career development shall be linked management principles. to achievement of the Group’s strategic and financial goals and core values, and both quantitative and qualitative targets shall be Variable remuneration relating to Gjensidige’s performance is taken into consideration. The measurement criteria shall promote decided on the basis of the past two years’ performance. Half of the the desired corporate culture and long-term value creation, and, as variable remuneration is paid in the form of a promise of shares in far as possible, take actual capital costs into account. The Gjensidige Forsikring ASA, 1/3 of which will be released in each of remuneration system shall contribute to promoting and providing the following three years. Restricted variable remuneration that has incentives for good risk management, prevent excessive risk-taking not yet been disbursed may be reduced if subsequent results and and contribute to avoiding conflicts of interest. A fixed basic salary developments indicate that it was based on incorrect assumptions. shall be the main element of the overall remuneration, which also The CEO does not receive performance-based benefits over and consists of variable pay, pension and payments in kind. Variable above the above-mentioned bonus, but may receive payments in remuneration shall be used to reward performances beyond the kind such as a company car and the coverage of costs for expected, where both results and behaviour in form of compliance electronic communication. Payments in kind shall be related to the of with the company values, brand and management principles are CEO’s function in the Group, and otherwise be in line with market to be assessed. practice.

Variable remuneration shall be performance-based without being a The retirement age of the CEO is 62. It is possible to step down risk driver, and shall reflect the results and contributions on after reaching the age of 60 if the Board or CEO so wishes. The company, division, department and individual level. Other elements CEO has pension rights pursuant to Gjensidige’s closed defined- of compensation offered should be considered attractive from both benefit pension scheme. Pursuant to the CEO’s employment new and current employees. contract, he is entitled to a pension corresponding to 100 per cent of his annual salary on retirement at the age of 62, which is then The senior group management should always be regarded as reduced in steps to 70 per cent upon reaching the age of 67 at full executive employees. By decision of which functions of the vesting period. company that shall be defined as employees with tasks of crucial importance for the company’s risk exposure, both qualitative criteria On retirement at the age of 60, a corresponding agreed reduction related to the role and quantitative criteria related to the level of applies from 100 per cent upon retirement to 70 per cent upon remuneration is to be taken into account. There must also be an reaching the age of 67. From the age of 67, the pension is individual assessment of each employee’s impact on company risk. calculated on the basis of the Company’s ordinary entitlement earning period of 30 years and is 70 per cent of the fixed salary with Decision-making process a full earning period. Company car arrangements and other benefits The Board has established a remuneration committee consisting of are retained until the age of 67. three members; the Chairman of the Board and two board members. The CEO has a period of notice of six months, and is not entitled to severance pay or termination benefits if he leaves the Company The remuneration committee shall prepare matters for earlier. consideration by the Board. It is primarily responsible for: Remuneration of executive personnel and employees who can • Drafting proposals for and following up compliance with the materially influence the Group’s risk Group’s guidelines and framework for remuneration Remuneration of the senior group management is stipulated by the • Annually considering and proposing the remuneration of the CEO, in accordance with limits discussed with the remuneration CEO committee and on the basis of guidelines issued by the Board. • Annually considering and drafting proposals for the CEO’s Correspondingly, the Group’s guidelines are used as the basis for scorecard other executive personnel and employees who can materially • Acting as adviser to the CEO in connection with the annual influence risk. assessment of the remuneration of the senior group management The overall remuneration is decided on the basis of the need to • Considering the management’s proposed ’Statement on the offer competitive terms in the various business areas. It shall stipulation of pay and other remuneration for executive contribute to attracting and retaining executive personnel with the personnel’ cf. the Public Limited Liability Companies Act desired expertise and experience who promote the Group’s core section 6-16a values and development. • Considering other important personnel matters relating to executive personnel The fixed salary is assessed and stipulated annually on the basis of wage growth in society in general and in the financial industry in Guidelines for the upcoming financial year particular. Variable remuneration (bonus) to executive personnel is Remuneration of the CEO earned annually, and is based on an overall assessment of financial The CEO’s salary and other benefits are stipulated by the Board on and non-financial performance over the two last years. The the basis of an overall assessment that takes into account assessment takes into account a combination of the enterprise’s overall performance targets for return on equity adjusted for

134 | Gjensidige annual report 2016 Gjensidige Insurance Group extraordinary dividends and transactions and combined ratio, as Remuneration of personnel with supervisory tasks well as developments in customer satisfaction. In addition, it The remuneration of personnel with supervisory tasks shall be evaluates the target achievement of the business unit in question, independent of the performance of the business area they are in as well as personal contribution relating to compliance with the charge of. Group’s vision, values, ethical guidelines and management principles. Half of the variable remuneration is in the form of a None of the executive personnel with supervisory tasks currently promise of shares in Gjensidige Forsikring ASA, one third of which has variable bonus schemes, but they get to participate in the are released in each of the following three years. Restricted collective bonus scheme in the same manner as other employees. variable remuneration that has not yet been disbursed may be The fixed salary is based on the Group’s general principles of reduced if subsequent results and developments indicate that it was competitively, but not leading wages. based on incorrect assumptions. Pension benefits and payments in kind follow the Group’s general The individual variable remuneration may amount to up to 30 per arrangement. cent of the annual salary including holiday pay. Variable pay is not included in the pension basis. Remuneration of officers of the Company and other employees with remuneration corresponding to executive personnel After consulting with the remuneration committee, the CEO may The remuneration shall follow the guidelines set out above. There make exceptions for special positions if this is necessary to be able are currently no such employees. to offer competitive terms. Payments in kind to executive personnel shall be related to their function in the Group, and otherwise be in Binding guidelines for shares, subscription rights etc. for the line with market practice. upcoming financial year Of the variable pay earned in 2016 by the CEO and other The retirement age for members of the senior group management employees covered by the Regulations relating to remuneration in is 62, but one member of the group management has a retirement financial institutions, 50 per cent of the gross earned variable pay age of 70, in accordance with the national labour legislation. Of the will be given in the form of a promise of shares in Gjensidige current members of the senior group management, five are Forsikring ASA. One third of the shares will be released in each of members of the closed Norwegian defined-benefit pension scheme. the following three years. Given the full earnings period, they are entitled to a pension of 70 per cent of final salary at the full vesting period of 30 years. Three Share savings programme members are part of the Company’s defined-contribution pension The Board has decided to continue the Group’s share savings scheme. The Company continues a previously agreed individual programme for employees in 2016. The CEO and executive pension agreement for one member of the senior group personnel are entitled to take part in the programme on a par with management. other Gjensidige employees. Under the current programme, employees can save through deductions from their salary for the Members of the senior group management have a period of notice purchase of shares in Gjensidige Forsikring ASA for up to NOK of six months. One of the members has an agreement of up to 12 75,000 per year. Purchases take place quarterly following months payment if the person concerned has been given notice, publication of the results. A discount of 20 per cent of the purchase price is offered, limited upwards to NOK 1,500 in 2016 and NOK given that the termination of employment is not due to a substantial 3,000 from 2017. For those who keep the shares and are still breach of contract. Other members of the senior group employed in the Group, one bonus share is awarded for every four management have no such agreements of severance pay or share they have owned for more than two years. payment of pay after termination of employment.

With exception from one employee in the Group, there are no severance pay arrangements for executive personnel who leave Report on executive remuneration in the their position in Gjensidige Forsikring ASA. In accordance with preceding financial year practice in Denmark and the Baltic, there are certain individual In accordance with the guidelines, one employee in the finance agreements on severance pay in connection with resignation in department has been offered up to 50 per cent variable Gjensidige Forsikring ASA in Denmark and the Baltic. remuneration. The Board confirms that the guidelines on the remuneration of executive personnel for 2016 set out in last year’s statement have been complied with.

Gjensidige annual report 2016 | 135 Gjensidige Insurance Group

Key management personnel compensation 2016 Rights earned in the Calcu- financial Num- lated year Annual ber of Num- value of according vesting shares Num- ber of Retire Earned total to defined share- assign- ber of shares Num- -ment Fixed varia- benefits benefit based ed, not shares not re- ber of con- salary/ ble other than pension pay- re- re- deem- shares di- NOK thousands fee salary cash plan 5 ment leased leased ed 6 held tions

The senior group management Helge Leiro Baastad, CEO 4,927.7 998.9 129.2 1,594.7 1,119.0 8,109 11,465 18,662 43,491 2 Jørgen Inge Ringdal, Executive Vice President 2,582.6 339.3 196.4 722.5 380.3 2,399 3,864 5,948 19,811 2 Martin Danielsen, Executive Vice President (1.1.16-30.09.16) 1 1,810.6 19.3 560.0 2,286 3,501 5,325 3 Kim Rud-Petersen, Executive Vice President 2,940.0 423.7 231.6 617.6 421.7 3,123 4,021 6,871 9,698 Hege Yli Melhus Ask, Executive Vice President (1.1.16-01.10.16) 9 2,668.1 247.7 160.6 470.9 260.6 1,039 3,221 3,375 11,204 3 Catharina Hellerud, Executive Vice President 2,910.2 360.6 165.0 486.7 404.2 2,835 4,387 6,949 15,055 3 Cecilie Ditlev-Simonsen, Executive Vice President (1.1.16-11.11.16) 1 1,874.7 146.4 423.2 2,295 3,358 5,341 3 Sigurd Austin, Executive Vice President 2,725.5 375.2 132.0 614.9 397.8 2,809 3,821 6,524 9,349 3 Kaare Østgaard, Executive Vice President 2,732.3 304.9 171.3 763.6 324.7 2,432 3,866 6,127 11,103 3 Mats C. Gottschalk, Executive Vice President 2,913.3 379.6 157.5 486.2 425.4 3,135 4,441 7,391 10,569 3 Jostein Amdal, Executive Vice President (1.10.16-31.12.16) 1 781.1 104.4 40.8 97.5 117.2 32 38 283 13,193 3 Krister Georg Aanesen, Executive Vice President (1.10.16-31.12.16) 1, 10 662.3 90.5 37.7 57.5 80.7 25 197 854

The Board Inge K. Hansen, Chairman 544.8 7.3 12,253 Trond V. Andersen (1.1.16-6.4.16) 1 139.8 7.9 Hans-Erik Andersson (1.1.16-6.4.16) 1, 7 180.0 4.5 Gisele Marchand 8 412.5 1.5 1,481 Knud Peder Daugaard (7.4.16-31.12.16) 1, 8 159.8 3.6 3,000 John Giverholt (7.4.16-31.12.16) 1 135.5 1.5 Anne Marie Nyhammer, staff representative (1.9.16-31.12.16) 1 22.6 Kjetil Kristensen, staff representative (1.1.16-31.8.16) 1, 4, 8 317.2 Gunnar Mjåtvedt, staff representative 4, 8 364.0 1,975 Per Arne Bjørge 8 364.0 2.9 10,542 Mette Rostad 268.0 2.1 1,550 Tine Wollebekk 1, 8 299.6 1.5 Lotte Kronholm Sjøberg, staff representative 4 268.0 5.9 429

The Board, deputies Tore Vågsmyr, staff representative (1.1.16-6.4.16) 1, 4 702 Ellen Kristin Enger, staff representative (1.1.16-6.4.16) 1, 4 577

The control committee and supervisory board are liquidated as of 1 January 2016.

1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 4 For staff representatives only remuneration for the current position is stated. 5 Everyone in the senior group management except for one is part of the Group’s pension plans, benefit or contribution based. 6 Including bonus shares in the share saving's programme for employees. See note 25 for terms and further description of the scheme. 7 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 144.5 thousand for 2016. 8 Remuneration includes participation in the Audit Committee honored with NOK 96.0 thousand for 2016. 9 Hege Yli Melhus Ask has been on leave from 1 October to 31 December. Her remuneration is presented for the whole year. 10 Constituted Executive Vice President for Hege Yli Melhus Ask from 1 October to 31 December.

136 | Gjensidige annual report 2016 Gjensidige Insurance Group

Key management personnel compensation 2015 Rights earned in the Calcu- financial Num- lated year Annual ber of Num- value of according vesting shares Num- ber of Earned total to defined share- assign- ber of shares Num- Retire- Fixed varia- benefits benefit based ed, not shares not re- ber of ment salary/ ble other than pension pay- re- re- deem- shares con- NOK thousands fee salary cash plan 6 ment leased leased ed 7 held ditions

The senior group management Helge Leiro Baastad, CEO 4,800.4 1,006.1 65.8 1,897.6 1,152.6 7,943 13,703 20,438 36,851 2 Jørgen Inge Ringdal, Executive Vice President 2,521.1 285.7 175.4 851.6 345.7 2,621 4,598 6,931 17,167 2 Martin Danielsen, Executive Vice President 12 2,425.1 275.4 160.3 670.3 334.2 2,400 4,434 6,236 17,863 3 Kim Rud-Petersen, Executive Vice President 2,882.0 515.3 223.6 583.0 522.9 2,869 3,997 7,194 7,463 Hege Yli Melhus Ask, Executive Vice President (11.5.15-31.12.15) 1, 10 2,572.6 111.1 158.4 255.5 150.2 1,422 4,604 5,286 9,366 3 Catharina Hellerud, Executive Vice President 2,838.8 340.6 163.1 268.2 407.3 3,088 5,154 7,931 12,135 3 Cecilie Ditlev-Simonsen, Executive Vice President 2,266.3 272.5 176.6 299.2 328.8 2,376 2,688 5,973 6,389 3 Sigurd Austin, Executive Vice President 2,618.5 337.4 75.3 711.9 377.9 2,785 4,354 7,000 6,805 3 Kaare Østgaard, Executive Vice President 2,625.2 302.7 169.0 921.0 364.8 2,792 4,556 7,052 8,926 3 Mats C. Gottschalk, Executive Vice President 2,838.8 378.5 156.4 255.0 449.7 3,243 3,269 8,092 7,621 3 Hans G. Hanevold, Executive Vice President (1.1.15-11.5.15) 1, 11 912.9 66.4 385.0 10.6 886 37 1,064 7,508

The Board Inge K. Hansen, Chairman 538.5 4.8 12,253 Trond V. Andersen 282.5 9.3 1,805 Hans-Erik Andersson 8 416.5 1.5 1,778 Gisele Marchand 9 369.5 1.5 1,481 Gunnhild H. Andersen, staff representative (1.1.15-28.5.15) 1, 5 230.8 Kjetil Kristensen, staff representative 5, 9 369.5 578 Gunnar Mjåtvedt, staff representative 5, 9 369.5 1,907 Per Arne Bjørge 9 369.5 3.1 10,542 Mette Rostad 275.5 6.8 1,550 Tine Wollebekk 268.5 1.5 Lotte Kronholm Sjøberg, staff representative (28.5.15-31.12.15) 1, 5 88.3 283

The Board, deputies Tore Vågsmyr, staff representative 5 655 Ellen Kristin Enger, staff representative (28.5.15-31.12.15) 1, 5 495

Control committee Sven Iver Steen, Chairman 172.5 1,778 Hallvard Strømme 108.0 1.7 Lieslotte Aune Lee 108.0 Vigdis Myhre Næsseth, Deputy 97.5

Supervisory board 4 Bjørn Iversen, Chairman 171.3 1.5 890 Christina Stray, Deputy Chairman 41.8

In addition 19 representatives from the company/Fire Mutuals/organisations/employees.

1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 4 Annual fee of NOK 93.5 thousand for Chairman and NOK 41.8 thousand for Deputy Chairman. In addition, fee as Chairman of the Nominating committee. 5 For staff representatives only remuneration for the current position is stated. 6 Everyone in the senior group management except for one is part of the Group’s pension plans, benefit or contribution based. 7 Including bonus shares in the share saving's programme for employees. See note 25 for terms and further description of the scheme. 8 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 141.0 thousand for 2015. 9 Remuneration includes participation in the Audit Committee honored with NOK 94.0 thousand for 2015. 10 Hege Yli Melhus Ask has been on leave from 1 January to 11 May. Her remuneration is presented for the whole year. 11 Constituted Executive Vice President for Hege Yli Melhus Ask from 1 January to 11 May. 12 Borrower in Gjensidige Bank ASA with NOK 4,474.0 thousand outstanding. Applicable conditions are 2.40% in interest rate and loan maturity 31.01.2021.

Gjensidige annual report 2016 | 137 Gjensidige Insurance Group

19. Net income from investments

NOK millions 2016 2015

Net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures Net income from subsidiaries, associated companies and joint ventures 47.7 Net gains/(losses) from sale of subsidiaries, associated companies and joint ventures 184.1 2.0 Total net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures 184.1 49.7

Net income and gains/(losses) from buildings and other real estate Investment properties Rental income from investment properties, excl. unrealised gains/(losses) 348.0 Net revaluation investment properties 38.4 208.0 Net gains/(losses) from sale of investment properties 355.9 Administration expenses related to investment properties (52.7) Total net income and gains/(losses) from investment properties 38.4 859.1

Owner-occupied properties Rental income from owner-occupied properties 0.1 18.6 Net gains/(losses) from sale of owner-occupied properties 0.4 33.8 Administration expenses related to owner-occupied properties (0.1) (16.4) Total net income and gains/(losses) from owner-occupied properties 0.4 36.0

Total net income and gains/(losses) from buildings and other real estate 38.8 895.1

Net income and gains/(losses) from financial assets at fair value through profit or loss, designated Shares and similar interests Dividend income 46.8 72.1 Unrealised gains/(losses) from shares and similar interests (369.8) (493.5) Realised gains/(losses) from shares and similar interests 553.0 615.7 Total net income and gains/(losses) from shares and similar interests 230.0 194.3

Bonds and other fixed-income securities Net interest income/(expenses) from bonds and other fixed-income-securities 288.9 289.5 Unrealised gains/(losses) from bonds and other fixed-income securities 175.8 (447.1) Realised gains/(losses) from bonds and other fixed-income securities 239.3 81.5 Total net income and gains/(losses) from bonds and other fixed-income securities 704.0 (76.1)

Derivatives Net interest income/(expenses) from derivatives 24.3 (26.9) Unrealised gains/(losses) from derivatives 231.7 156.3 Realised gains/(losses) from derivatives 9.6 (792.0) Total net income and gains/(losses) from derivatives 265.6 (662.6)

Total net income and gains/(losses) from financial assets at fair value through profit or loss, designated 1,199.7 (544.4)

Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 137.3 132.3 Unrealised gains/(losses) from bonds held to maturity 2.1 (2.0) Realised gains/(losses) from bonds held to maturity (5.1) 0.3 Net gains/(losses) from changes in exchange rates on bonds held to maturity 181.2 376.7 Total net income and gains/(losses) from bonds held to maturity 315.6 507.3

Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 749.9 741.1 Net gains/(losses) from loans and receivables (3.2) 67.4 Net gains/(losses) from changes in exchange rates on loans and receivables (21.6) 51.7 Total net income and gains/(losses) from loans and receivables 725.1 860.1

Net income and gains/(losses) from financial liabilities at amortised cost Net interest income/(expenses) from subordinated debt (37.9) (43.8) Total net income and gains/(losses) from financial liabilities at amortised cost (37.9) (43.8)

Net other financial income/(expenses) 1 10.1 (251.2) Discounting of claims provision classified as interest expense (44.9) (57.1) Change in discount rate claims provision (194.5) 57.6

Total net income from investments 2,196.1 1,473.3

Specifications Interest income and expenses from financial assets and liabilities not recognised at fair value through profit or loss Interest income from financial assets not recognised at fair value through profit or loss 886.7 874.5 Interest expenses from financial assets not recognised at fair value through profit or loss (40.7) (309.3)

Specification of other financially related income and expenses not recognised in net income from investments Commission arising from the investment of assets on behalf of individuals 39.4

1 Net other financial income/(expenses) include financial income and expenses not attributable to individual classes of financial assets or liabilities, and financial administration costs.

138 | Gjensidige annual report 2016 Gjensidige Insurance Group

20. Contingent liabilities

NOK millions 2016 2015

Guarantees and committed capital Gross guarantees 0.1 0.1 Committed capital, not paid 1,174.3 1,643.6

As part of its ongoing financial management, Gjensidige has Gjensidige Forsikring is liable externally for any insurance claim undertaken to invest up to NOK 1.174,3 million (1,643.6) in loan arising in the cooperating mutual fire insurers' fire insurance funds containing senior secured debt and various private equity and operations. real estate investments, over and above amounts recognized in the balance sheet. According to the agreement with Gjensidige Pensjonskasse the return, if not sufficient to cover the pension plans guaranteed The timing of the outflow of capital is dependent on when the funds interest rate, should be covered from the premium fund or through are making capital calls from their investors. Average remaining contribution from Gjensidige Forsikring. operating time for the funds, based on fair value, is slightly less than four years (four) and slightly less than six years (six) in average including option for of extension.

21. Hybrid capital

Subordinated debt

FRN Gjensidige FRN Gjensidige Gjensidige Bank FRN Gjensidige FRN Gjensidige Bank ASA Bank ASA ASA 2016/2026 Pensjonsforsikring Forsikring ASA 2014/2024 SUB 2015/2025 SUB FRN C SUB AS 2016/2026 SUB 2014/2044 SUB ISIN NO0010713118 NO0010735715 NO00010765027 NO0010767429 NO0010720378 Gjensidige Gjensidige Bank Gjensidige Bank Gjensidige Issuer Gjensidige Bank AS Pensjons- ASA ASA Forsikring ASA forsikring AS Principal, NOK millions 250 100 100 300 1,200 Currency NOK NOK NOK NOK NOK Issue date 17/06/2014 21/05/2015 19/05/2016 23/06/2016 02/10/2014 Maturity date 17/06/2024 21/05/2025 19/05/2026 23/06/2026 03/10/2044 First call date 17/06/2019 22/05/2020 19/05/2021 23/06/2021 02/10/2024 Interest rate NIBOR 3M + 1.55% NIBOR 3M + 1.65% NIBOR 3M + 2.55% NIBOR 3M + 2.90% NIBOR 3M + 1.50%

General terms Regulatory regulation CRD IV CRD IV CRD IV Solvency II Solvency II Regulatory call Yes Yes Yes Yes Yes

Perpetual Tier 1 capital

FRN Gjensidige Gjensidige Bank Gjensidige Bank Forsikring ASA ASA 15/PERP FRN ASA 15/PERP FRN 2016/PERP C C HYBRID C HYBRID HYBRID ISIN NO0010735707 NO0010744295 NO0010771546 Gjensidige Bank Gjensidige Bank Gjensidige Issuer ASA ASA Forsikring ASA Principal, NOK millions 150 150 1,000 Currency NOK NOK NOK Issue date 21/05/2015 15/09/2015 08/09/2016 Maturity date Perpetual Perpetual Perpetual First call date 22/05/2020 15/09/2020 08/09/2021 Interest rate NIBOR 3M + 3.15% NIBOR 3M + 3.40% NIBOR 3M + 3.60%

General terms Regulatory regulation CRD IV CRD IV Solvency II Regulatory call No No No

Gjensidige annual report 2016 | 139 Gjensidige Insurance Group

22. Related party transactions

Overview Gjensidige Forsikring ASA is the Group's parent company. As at 31 December 2016 the following companies are regarded related parties. Registered office Interest held

Ultimate parent company Gjensigestiftelsen holds 62.24 per cent of the shares in Gjensidige Forsikring ASA Oslo, Norway

Subsidiaries ADB Gjensidige (merged company of Gjensidige Baltic AAS and PZU Lietuva SA) Vilnius, Lithuania 100.0 % Ejendomsselskabet Krumtappen 2 A/S Copenhagen, Denmark 100.0 % Försäkringsakademin JW AB Stockholm, Sweden 100.0 % Försäkringshuset Amb & Rosèn AB Stockholm, Sweden 100.0 % Gjensidige Bank Holding AS Oslo, Norway 100.0 % Gjensidige Investeringsrådgivning ASA Oslo, Norway 100.0 % Gjensidige Norge AS Oslo, Norway 100.0 % Gjensidige Pensjon og Sparing Holding AS Oslo, Norway 100.0 % Lokal Forsikring AS Oslo, Norway 100.0 % Mondux Assurance Agentur A/S Copenhagen, Denmark 100.0 % Mondux AB Malmö, Sweden 100.0 % NAF Forsikringsformidling AS Oslo, Norway 66.0 % Nykredit Forsikring A/S Copenhagen Denmark 100.0 % Samtrygd Eigedom AS Oslo, Norway 100.0 % Vardia Försäkring AB Stockholm, Sweden 100.0 %

Joint ventures Oslo Areal AS Oslo, Norway 50.0%

Other related parties Fire Mutuals All over the country, Norway Gjensidige Pensjonskasse Oslo, Norway 94.7%

Percentage of votes held is the same as percentage of interest held.

Transactions Income statement The table below shows transactions with related parties recognised in the income statement.

2016 2015 NOK millions Income Expense Income Expense

Gross premiums written ADB Gjensidige 32.4 18.8 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 5.5 4.0 Nykredit Forsikring A/S 1,041.8 1,037.2

Gross paid claims ADB Gjensidige 0.3 3.9 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 12.6 45.3 Nykredit Forsikring A/S 812.4 760.3

Change in gross provision for claims ADB Gjensidige 8.7 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 10.8 5.9 Nykredit Forsikring A/S 40.1 44.8

Administration expenses Försäkringshuset Amb & Rosèn AB 0.5 9.4 0.4 7.3 ADB Gjensidige 0.6 0.4 Gjensidige Bank ASA owned by Gjensidige Bank Holding AS) 30.4 32.3 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding 3.8 1.4 AS) Gjensidige Pensjon og Sparing Holding AS 8.6 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 61.5 42.2 Gjensidigestiftelsen 5.0 4.6 Mondux Affinity Aps 12.9 Mondux Assurance Agentur A/S 44.8 69.9 25.4 Mondux AB 0.4 0.5 NAF Forsikringsformidling AS 0.3 0.5 Nykredit Forsikring A/S 344.3 260.5 316.3 238.5 Vardia Försäkring AB 55.7 Oslo Areal AS 0.1 0.8 Tennant Assuranse AS (owned by Lokal Forsikring AS) 0.9 11.7

140 | Gjensidige annual report 2016 Gjensidige Insurance Group

2016 2015 NOK millions Income Expense Income Expense

Interest income and expenses Oslo Areal AS 32.7 66.2

Cooperating companies 1 Fire Mutuals 20.7 142.7 18.6 140.1 Gjensidige Pensjonskasse 5.9 32.1

Total 1,665.7 1,389.5 1,608.1 1,275.2

1 Cooperating companies are defined as companies with which Gjensidige Forsikring has entered into a long-term strategic alliance.

Loans As at 31 December 2016 employees have loans in Gjensidige Bank amounting to NOK 1,501.0 million (1,225.3). The loans are offered on normal commercial conditions.

Income and losses The table below shows a summary of contributions/dividends from/to related parties as well as other gains and losses.

2016 2015 NOK millions Received Given Received Given

Group contributions Gjensidige Pensjon og Sparing Holding AS 8.8 0.9 Mondux AB 7.9 Tennant Assuranse AS (owned by Lokal Forsikring AS) 0.3 5.9

Dividends Gjensidige Pensjon og Sparing Holding AS 32.0 Gjensidige Pensjonskasse 9.5 9.5 Gjensidigestiftelsen 3,858.9 1,836.1 Nykredit Forsikring A/S 58.2 Oslo Areal AS 110.0

Total group contributions and dividends 119.8 3,875.6 105.5 1,837.0

In addition, the shares in Gjensidige Investeringsrådgiving AS (GIR) were distributed as dividend from Gjensidige Pensjon og Sparing Holding AS to Gjensidige Forsikring ASA. This was done according to accounting continuity and booked as a share split of Gjensidige Pensjon og Sparing Holding AS.

2016 2015 NOK millions Gains Losses Gains Losses

Gains and losses in connection with sale and liquidation Bilskadeinstituttet AS (liquidated in 2014) 2.0 Oslo Areal AS 1.3 379.1 Vervet A/S 8.8

Impairment losses Gjensidige Baltic AAS (merged into ADB Gjensidige in 2016) 13.5

Total gains and losses in connection with sale, liquidation and impairment losses 8.8 1.3 720.6 10.4

Intercompany balance The table below shows a summary of receivables/liabilities from/to related parties. 2016 2015 NOK millions Receivables Liabilities Receivables Liabilities

Intercompany non-interest-bearing debts and receivables ADB Gjensidige 4.6 3.4 Gjensidige Bank ASA (owned by Gjensidige Bank Holding AS) 0.9 Gjensidige Pensjon og Sparing Holding AS 11.6 31.6 0.9 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 16.5 3.1 21.1 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding 0.1 0.1 AS) Gjensidigestiftelsen 0.8 1.0 Mondux Affinity Aps 11.6 Mondux Assurance Agentur A/S 16.0 5.0 Mondux AB 1.9 10.5 NAF Forsikringsformidling AS 0.1 0.5 Nykredit Forsikring A/S 56.9 31.1 Vardia Försäkring AB 7.6 Samtrygd 4.4 Tennant Assuranse AS (owned by Lokal Forsikring AS) 0.6 7.3 Total intercompany non-interest-bearing debts and receivables 89.5 43.1 77.9 38.7

Gjensidige annual report 2016 | 141 Gjensidige Insurance Group

2016 2015 NOK millions Receivables Liabilities Receivables Liabilities

Intercompany interest-bearing debts and receivables Oslo Areal AS 1,420.2 1,538.0 Total intercompany interest-bearing debts and receivables 1,420.2 1,538.0

Reinsurance deposits Nykredit Forsikring A/S 457.5 523.7 Total reinsurance deposits 457.5 523.7

Claims provision ADB Gjensidige 19.1 11.0 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 25.2 14.3 Nykredit Forsikring A/S 457.5 523.7 Total claims provision 501.8 549.0

Total intercompany balances within the Group 1,967.2 544.9 2,139.6 587.7

Cooperating companies Fire Mutuals 30.7 39.9 Gjensidige Pensjonskasse 2 111.0 111.0 Total intercompany balances with cooperating companies 111.0 30.7 111.0 39.9

Total intercompany balance 2,078.2 575.5 2,250.6 627.6

2 Gjensidige Forsikring ASA is a sponsor of Gjensidige Pensjonskasse and has contributed with funds equiavelt to NOK 111.0 million.

NOK millions Purchaser Seller 2016 2015

Other transactions Interest on bank deposits Gjensidige Bank ASA Brannkassene 0.2 0.3 Försäkringproduktion i Portfolios Gjensidige Forsikring ASA 10.0 Sverige AB Nordisk Forsikrings Service Portfolios Gjensidige Forsikring ASA 48.1 AS Interest on mortgage loans Gjensidigestiftelsen Gjensidige Bank ASA 0.7 0.6 Gjensidige Management fees Gjensidigestiftelsen 6.5 6.7 Investeringsrådgivning AS Gjensidige Management fees Gjensidige Pensjonskasse 1.0 1.4 Investeringsrådgivning AS

NOK millions Claimant Debtor 2016 2015

Other intercompany balances Bank deposits Brannkassene Gjensidige Bank ASA 12.7 15.5 Gjensidige Receivables Gjensidigestiftelsen 1.1 2.2 Investeringsrådgivning AS Gjensidige Receivables Gjensidige Pensjonskasse 0.1 Investeringsrådgivning AS

Guarantees Gjensidige Forsikring is responsible externally for any insurance claim arising from the cooperating mutual fire insurers' fire insurance business, see note 20.

23. Events after the balance sheet date

No significant events have occurred after the balance sheet date.

142 | Gjensidige annual report 2016 Gjensidige Insurance Group

24. Shareholders

The 20 largest shareholders as at 31 December 2016.

Investor Number of shares Ownership in %

Gjensidigestiftelsen 311,200,115 62.24% Folketrygdfondet 20,275,005 4.06% State Street Bank And Trust Co. Nominee 17,521,401 3.50% State Street Bank And Trust Co. Nominee 13,814,079 2.76% State Street Bank And Trust Co. Nominee 4,658,816 0.93% Danske Invest Norske Instit. II. 4,454,140 0.89% Clearstream Banking S.A. Nominee 3,719,697 0.74% State Street Bank And Trust Co. Nominee 3,402,995 0.68% State Street Bank And Trust Co. Nominee 3,068,158 0.61% State Street Bank And Trust Co. Nominee 2,840,680 0.57% Fidelity Funds - Global Dividend 2,570,000 0.51% Citibank, N.A. Nominee 2,389,008 0.48% J.P. Morgan Chase Bank N.A. London Nominee 1,963,375 0.39% Danske Invest Norske Aksjer Inst. 1,889,209 0.38% Klp Aksje Norge Indeks 1,841,787 0.37% State Street Bank And Trust Co. Nominee 1,813,611 0.36% J.P. Morgan Chase Bank N.A. London Nominee 1,807,859 0.36% Odin Norge 1,300,972 0.26% State Street Bank And Trust Co. Nominee 1,281,574 0.26% Nordea Nordic Fund 1,278,225 0.26% Number of shares 20 largest shareholders 403,090,706 80.62% Total number of shares 500,000,000 100.00%

The shareholder list is based on the VPS shareholder registry as of 31 December 2016. A shareholder list showing the owners behind nominee accounts can be found on page XX.

Gjensidige annual report 2016 | 143 Gjensidige Insurance Group

25. Share-based payment Description of the share-based payment Equity-settled share savings program for employees Gjensidige has established a share savings programme for arrangements employees of the Group with the exception of employees of As at 31 December 2016, Gjensidige has the following share-based Gjensidige Baltic. All employees are given an opportunity to save payment arrangements: an annual amount of up to NOK 75,000. Saving take the form of fixed deductions from salary that is used to buy shares four times a year. The employees are offered a discount in the form of a Share-based remuneration for executive personnel with settlement in equity and cash (remuneration scheme) contribution of 20 per cent, limited upwards to NOK 1,500 kroner Gjensidige has established equity-settled share-based payment for per year, which corresponds to the maximum tax-exempt discount. the group management and more explicitly defined executive Employees will receive one bonus share for every four shares they personnel. have owned for more than two years, provided that they are still employed by the Company or have become retired. As described in the Board’s statement on the stipulation of pay and other remuneration in note 18, half of the variable remuneration is The fair value at grant date is based on the market price. The paid in the form of shares in Gjensidige Forsikring ASA, one third of discount is recognised as payroll expenses at the time of allocation. which can be sold in each of the following three years. Of this, The value of the bonus shares is recognised as payroll expenses rather on the big side 50 per cent is distributed as equity and only over the vesting period, which is two years. just 50 per cent is distributed as cash in order to pay tax liabilities (net of tax settlement). Fair value measurement The fair value of the shares allocated through the share-based The fair value at the grant date is measured based on the market payment for executive personnel is calculated on the basis of the price. The amount is recognised as payroll expenses at grant date. share price at grant date. The amount is recognised immediately. No specific company-related or market-related entitlement criteria The cash-settled share is adjusted consecutively based on the apply to the shares, but the Company may carry out a share price at the reporting time. reassessment if subsequent results and development suggest that the bonus was based on incorrect assumptions. The expected Fair value of the bonus shares allocated through the share savings allocation is set to 100 per cent. The value of the cash-settled share program is calculated on the basis of the share price at grant date, is adjusted at each reporting period based on the share price at this taking into account the likelihood of the employee still being time. The number of shares is adjusted for dividend paid. employed after two years and that he/she has not sold his/her shares during the same two-year period. The amount is recognised during the vesting period which is two years.

The following assumptions were used in the calculation of fair value at the time of calculation

Remuneration scheme Share savings programme 2016 2015 2016 2015

Weighted average share price (NOK) 143.60 131.40 141.86 128.91 Expected turnover N/A N/A 10% 10% Expected sale N/A N/A 5% 5% Lock-in period (years) 3 3 2 2 Expected dividend (NOK per share) 1 6.67 5.41 6.67 5.41

1 The expected return is based on the Group's actual profit/loss after tax expense as of the third quarter, grossed up to a full year, plus the maximum distribution of dividend corresponding to 70 per cent of the profit after tax expense. This was carried out as a technical calculation because the Company's forecast for the fourth quarter result was not available at the time the calculations were carried out.

Payroll expenses

NOK millions 2016 2015

Share-based remuneration for key personnel 8.0 8.3 Share savings programme for employees 5.7 4.7 Total expenses (note 17) 13.7 13.0

Share savings programme

2016 2015

The number of bonus shares Outstanding 1 January 76,655 72,144 Granted during the period 41,881 43,012 Released during the period (32,737) (32,841) Cancelled during the period (1,751) (923) Forfeited during the period (3,192) (4,737) Outstanding 31 December 80,856 76,655 Exercisable 31 December 0 0

Average remaining life of outstanding bonus shares 0.96 1.00 Weighted average fair value of bonus shares granted 122.90 112.88 Weighted average share price of bonus shares released during the period 142.43 128.75

Weighted average exercise price will always be 0, since the scheme comprises bonus shares and not options.

144 | Gjensidige annual report 2016 Gjensidige Insurance Group

Remuneration scheme

Number of Number of Number of cash-settled Number of cash-settled shares 2016 shares 2016 shares 2015 shares 2015

The number of shares Outstanding 1 January 69,312 63,673 87,603 80,907 Granted during the period 27,573 25,201 26,861 24,527 Forfeited during the period (38,728) (35,730) (48,579) (43,903) Quantity adjusted during the period 601 (601) Modification dividend during the period 5,280 5,032 2,826 2,743 Outstanding 31 December 63,437 58,176 69,312 63,673 Exercisable 31 December 0 0 0 0

Average remaining life of outstanding shares 0.73 0.73 0.85 0.85

2016 2015

Weighted average fair value of shares granted 2 143.60 131.40 Weighted average share price of shares released during the period 143.59 126.87 Fair value of shares granted that are to be settled in cash 149.20 142.10

2 The fair value is calculated based on the market value of the share at the time of allocation.

Weighted average exercise price will always be 0, since the scheme comprises shares and not options.

26. Earnings per share

NOK millions 2016 2015

Profit/(loss) for the year 4,670.4 3,788.8

Weighted average number of shares 1 499,972,344 499,933,831 Weighted average number of diluted shares share-based payment 121,343 123,852 Weighted average number of shares, diluted 1 500,093,687 500,057,683

Earnings per share (NOK), basis 9.34 7.57 Earnings per share (NOK), diluted 9.34 7.57

1 Holdings of own shares are not included in the calculations of the number of shares.

Gjensidige annual report 2016 | 145 Gjensidige Insurance Group

27. Acquisition of Vardia

On 27 April 2016, Gjensidige Forsikring ASA agreed to acquire the of the acquisition, Gjensidige’s market share in Sweden will Swedish insurance portfolio of Vardia Insurance Group ASA. increase from approximately 1.6 per cent to approximately 2.5 per Gjensidige has also entered into an agreement to acquire 100 per cent based on 2015 numbers. Gross premiums written for the cent of the shares in Vardia Försäkring AB from Vardia Holding AB. Swedish portfolio were approximately SEK 600.0 million in 2015, of which 75 per cent were retail premiums and 25 per cent were The acquisition price for the insurance portfolio and the shares were commercial SME premiums. SEK 200.0 million adjusted for net debt and SEK 54.2 million respectively, with a conditional additional purchase price for the The accounting of the acquisition was based on the acquisition shares of maximum SEK 30.0 million. method. The analysis of acquired assets and liabilities is presented in the table below and is considered to be temporary. The The distribution company Vardia Försäkring AB is responsible for difference between the acquisition price and the identifiable new sales, customer support, product development and claims acquired assets and assumed liabilities is recognised as goodwill in handling. In addition to being a general agent for Vardia Insurance the consolidated financial statement. Group ASA in Sweden, Vardia Försäkring also distributes for another risk carrier a premium volume corresponding to Excess value is identified for customer relationships and databases approximately SEK 40 million. Vardia Försäkring AB has some 125 for claims history. Provisions were made for deferred tax liability for employees. The voting share is equal to the ownership share. excess value with the exception of goodwill. Goodwill consists of Through its voting rights and in the absence of any contractual expected synergies from the merging of the Private and arrangements, Gjensidige has control over Vardia Försäkring AB. Commercial business areas and optimization of the reinsurance cover for the Group as a whole. All terms and conditions related to the acquisition were clarified and the payment was transferred the first of July, so the acquisition date Profit before tax expense for Vardia Försäkring AB for the period 1 was set at 1 July 2016. The Vardia portfolio and Vardia Försäkring January 2016 to 31 May 2016 amounted to SEK 4.5 million. AB are recognised in the consolidated accounts of Gjensidige Forsikring as from that date. The acquisition is a result of the Group’s intention to expanding its presence and distribution power in the Swedish market. As a result

Fair value of each major class of transaction price Vardia Försäkring

AB including Vardia portfolio

Carrying amount Fair value Fair value at the NOK millions before the transaction adjustment acquisition date

Goodwill 35.2 35.2 Intangible assets 3.8 277.9 281.7 Insurance realeted assets 454.9 454.9 Receivables etc 237.2 237.2 Cash 14.4 14.4 Total assets 710.3 313.1 1,023.4 Liabilities related to insurance 806.0 806.0 Deferred tax liabilities 5.2 5.2 Other liabilities 118.2 118.2 Total liabilities 924.2 5.2 929.4

Net defined assets and liabilities (213.9) 307.9 94.0 Transaction price 94.0

Acquired goodwill is not considered to be tax deductible.

146 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

Income statement Gjensidige Forsikring ASA

Restated NOK millions Notes 1.1.-31.12.2016 1.1.-31.12.2015

Premiums Earned premiums, gross 4 21,930.6 21,024.4 Ceded reinsurance premiums (578.0) (447.2) Total earned premiums, net of reinsurance 21,352.6 20,577.2

General insurance claims Gross claims 4 (15,205.3) (14,055.3) Claims, reinsurers' share 497.1 53.9 Total claims incurred, net of reinsurance (14,708.2) (14,001.4)

Insurance-related operating expenses Insurance-related administration expenses incl. commissions for received reinsurance 4, 17 (2,973.4) (3,117.5) and sales expenses Received commission for ceded reinsurance and profit share 23.7 4.6 Total insurance-related operating expenses (2,949.7) (3,112.9)

Profit/(loss) of technical account general insurance 3,694.8 3,462.8

Net income from investments Income from investments in subsidiaries, associates and joint ventures 113.3 777.3 Impairment losses of investments in subsidiaries, associates and joint ventures (94.2) Interest income and dividend etc. from financial assets 1,266.1 1,275.8 Net operating income from property 11.9 Changes in fair value on investments (1,053.4) 8.6 Realised gain and loss on investments 1,889.6 (365.4) Administration expenses related to investments, including interest expenses (218.9) (272.0) Total net income from investments 19 1,902.5 1,436.2

Other income 11.9 11.2 Other expenses (9.2) (9.7)

Profit/(loss) of non-technical account 1,905.2 1,437.7

Profit/(loss) before tax expense 5,600.0 4,900.5

Tax expense 16 (1,322.0) (1,098.5)

Profit/(loss) before components of other comprehensive income 4,278.0 3,801.9

Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit liability/asset 14 (159.2) 69.0 Tax on items that are not reclassified to profit or loss 39.8 (17.1) Total items that are not reclassified subsequently to profit or loss (119.4) 51.9

Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operation (273.0) 293.9 Exchange differences from hedging of foreign operation 62.7 Tax on items that may be reclassified to profit or loss 66.6 (96.7) Total items that may be reclassified subsequently to profit or loss (206.5) 259.9

Total comprehensive income 3,952.1 4,113.7

Gjensidige annual report 2016 | 147 Gjensidige Forsikring ASA

Statement of financial position Gjensidige Forsikring ASA Restated NOK millions Notes 31.12.2016 31.12.2015

Assets Goodwill 1,587.0 1,676.7 Other intangible assets 955.5 846.9 Total intangible assets 5 2,542.5 2,523.6

Investments Buildings and other real estate Owner-occupied property 7 19.0 19.0 Subsidiaries and associates Shares in subsidiaries 6 5,741.7 5,421.2 Shares in associates and joint ventures 6 1,086.9 1,098.4 Interest bearing receivables within the group incl. joint venture 22 1,420.2 1,538.0 Financial assets measured at amortised cost Bonds held to maturity 8 1,226.8 1,797.1 Loans and receivables 8, 9 16,018.9 16,338.3 Financial assets measured at fair value Shares and similar interests (incl. shares and similar interests measured at cost) 8, 12 6,134.4 7,130.6 Bonds and other fixed-income securities 8 23,108.2 24,205.7 Financial derivatives 8 1,207.8 327.8 Reinsurance deposits 457.8 524.6 Total investments 56,421.6 58,400.7

Reinsurers' share of insurance-related liabilities in general insurance, gross Reinsurers' share of provision for unearned premiums, gross 13 115.5 32.0 Reinsurers' share of claims provision, gross 13 512.2 361.7 Total reinsurers' share of insurance-related liabilities in general insurance, gross 627.7 393.7

Receivables Receivables related to direct operations 8 4,983.0 4,671.0 Receivables related to reinsurance 8 340.1 25.7 Receivables within the group 22 89.5 61.0 Other receivables 9 833.5 367.2 Total receivables 6,246.0 5,124.8

Other assets Plant and equipment 7 273.8 274.7 Cash and cash equivalents 8, 10, 11 1,143.0 1,704.5 Pension assets 14 486.2 93.1 Total other assets 1,903.0 2,072.4

Prepaid expenses and earned, not received income Earned, not received interest income 22.2 Other prepaid expenses and earned, not received income 4.2 3.5 Total prepaid expenses and earned, not received income 4.2 25.7

Total assets 67,745.0 68,540.9

148 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

Restated NOK millions Notes 31.12.2016 31.12.2015

Equity and liabilities Paid in equity Share capital 1,000.0 1,000.0 Own shares (0.1) (0.1) Share premium 1,430.0 1,430.0 Perpetual Tier 1 capital 999.2 Other paid in equity 36.7 29.3 Total paid in equity 3,465.9 2,459.2

Retained equity Funds etc. Natural perils capital 2,266.2 2,171.0 Guarantee scheme provision 628.9 616.2 Other retained earnings 11,318.2 12,885.7 Total retained earnings 14,213.3 15,672.9

Total equity 1 17,679.1 18,132.1

Subordinated loan 21 1,197.7 1,197.4

Insurance-related liabilities in general insurance, gross Provision for unearned premiums, gross 4, 13 8,585.9 8,238.4 Claims provision, gross 4, 13 30,802.6 31,652.5 Provision for premium discounts and other profit agreements 56.3 44.5 Total insurance-related liabilities in general insurance, gross 39,444.8 39,935.4

Provision for liabilities Pension liabilities 14 493.2 528.7 Current tax 16 1,149.4 1,145.6 Deferred tax liabilities 16 905.4 934.9 Other provisions 15 327.2 335.8 Total provision for liabilities 2,875.1 2,945.1

Liabilities Liabilities related to direct insurance 8 289.6 392.1 Liabilities related to reinsurance 8 88.2 82.7 Financial derivatives 8 1,173.1 366.3 Accrued dividend 3,400.0 4,200.0 Other liabilities 8, 15 1,252.9 970.4 Liabilities to subsidiaries and associates 8, 22 43.1 22.2 Total liabilities 6,246.9 6,033.7

Accrued expenses and deferred income Other accrued expenses and deferred income 8, 15 301.4 297.2 Total accrued expenses and deferred income 301.4 297.2

Total equity and liabilities 67,745.0 68,540.9

The security provision was reclassified from liabilities to equity and provision for deferred tax on the security provision was recognised. These changes were implemented from 1 January 2016 and the corresponding figures have been changed accordingly. This was caused by changed legislation which also applies for some other minor changes. Discounting of reserves and introduction of risk margin are expected to be implemented at a later stage in Group and company accounts, in connection with the implementation of IFRS 17 Insurance Contracts.

Gjensidige annual report 2016 | 149 Gjensidige Forsikring ASA

Statement of changes in equity Gjensidige Forsikring ASA

Remeasu- rement of the net Other Perpetual defined Other Share Own Share paid-in Tier 1 Exchange benefit earned Total NOK millions capital shares premium capital capital differences liab./asset equity equity

Equity as at 31.12.2014 1,000.0 (0.1) 1,430.0 22.8 59.2 (1,611.2) 15,263.4 16,164.2

Reclassified security provision 2,818.0 2,818.0 Deferred tax (760.9) (760.9) Equity as at 1.12.2015 1,000.0 (0.1) 1,430.0 22.8 59.2 (1,611.2) 17,320.5 18,221.4

1.1.-31.12.2015

Profit/(loss) before components of other 3,801.9 3,801.9 comprehensive income

Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit 69.0 69.0 liability/asset Tax on items that are not reclassified to profit or loss (17.1) (17.1) Total items that are not reclassified 51.9 51.9 subsequently to profit or loss

Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations 293.9 293.9 Exchange differences from hedging of foreign 62.7 62.7 operations Tax on items that may be reclassified to profit 1.8 (96.7) or loss Total items that may be reclassified 259.9 259.9 subsequently to profit or loss

Total components of other comprehensive 259.9 51.9 311.8 income

Total comprehensive income 259.9 51.9 3,801.9 4,113.7

Own shares (0.0) (9.9) (9.9) Accrued and paid dividend (4,199.6) (4,199.6) Equity-settled share-based payment transactions 6.5 6.5

Equity as at 31.12.2015 1,000.0 (0.1) 1,430.0 29.3 319.1 (1,559.3) 16,912.9 18,132.1

1.1.-31.12.2016

Profit/(loss) before components of other 11.1 4,266.9 4,278.0 comprehensive income

Components of other comprehensive income Items that are not reclassified subsequently to profit or loss Remeasurement of the net defined benefit (159.2) (159.2) liability/asset Tax on items that are not reclassified to profit or loss 39.8 39.8 Total items that are not reclassified (119.4) (119.4) subsequently to profit or loss

Items that may be reclassified subsequently to profit or loss Exchange differences from foreign operations (273.0) (273.0) Tax on items that may be reclassified to profit 66.6 66.6 or loss Total items that may be reclassified (206.5) (206.5) subsequently to profit or loss

Total components of other comprehensive (206.5) (119.4) (325.9) income

Total comprehensive income 11.1 (206.5) (119.4) 4,266.9 3,952.1

Own shares 0.1 (3.8) (3.7) Accrued and paid dividend (5,396.6) (5,396.6) Equity-settled share-based payment transactions 7.3 7.3 Perpetual Tier 1 capital 997.1 997.1 Perpetual Tier 1 capital - interest paid (8.9) (8.9)

Equity as at 31.12.2016 1,000.0 (0.1) 1,430.0 36.7 999.2 112.6 (1,678.7) 15,779.4 17,679.1

150 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

Statement of cash flow Gjensidige Forsikring ASA

NOK millions 1.1.-31.12.2016 1.1.-31.12.2015

Cash flow from operating activities Premiums paid, net of reinsurance 21,273.0 20,709.6 Claims paid, net of reinsurance (15,563.1) (14,629.4) Net receipts/payments from financial assets 3,890.5 (2,025.6) Operating expenses paid, including commissions (3,245.1) (2,988.9) Taxes paid (1,251.0) (891.3) Net other receipts/payments 0.5 22.1 Net cash flow from operating activities 5,104.8 196.5

Cash flow from investing activities Net receipts/payments from sale/acquisition of subsidiaries and associates (96.6) 931.7 Net receipts/payments on sale/acquisition of owner-occupied property, plant and equipment (63.9) (75.5) Net receipt/payments from sale/acquisition of customer portfolios (45.5) Dividends from subsidiaries 58.2 Dividends from associated companies 32.0 Group contributions received 4.9 26.0 Group contributions paid (1.5) Net cash flow from investing activities (169.1) 938.8

Cash flow from financing activities Payment of dividend (6,139.5) (2,949.6) Net receipts/payments on bonds and commercial papers issued (31.4) (36.9) Net receipts/payments on other short-term liabilities 1,532.7 Payments regarding intra-group equity transactions (291.8) 369.1 Net receipts/payments on sale/acquisition of own shares (3.7) (9.9) Net receipts from issuance of perpetual Tier 1 capital 997.0 Payments of interest issued perpetual Tier 1 capital (11.9) Net cash flow from financing activities (5,481.3) (1,094.6)

Effect of exchange rate changes on cash and cash equivalents (16.0) 11.7 Net cash flow (561.5) 52.4

Cash and cash equivalents at the start of the year 1,704.5 1,652.1 Cash and cash equivalents at the end of the year 1,143.0 1,704.5 Net cash flow (561.5) 52.4

Gjensidige annual report 2016 | 151 Gjensidige Forsikring ASA

Accounting policies comprehensive income. In addition, loan commitments, financial Reporting entity guarantee contracts and lease receivables are within the scope of the standard. The measurement of the provision for expected credit Gjensidige Forsikring ASA is a publicly listed company domiciled in losses on financial assets depends on whether the credit risk has Norway. Gjensidige’s head office is located at Schweigaardsgate increased significantly since initial recognition. At initial recognition 21, Oslo, Norway. The activities of Gjensidige consist of general and if the credit risk has not increased significantly, the provision insurance. Gjensidige does business in Norway, Sweden and should equal 12-month expected credit losses. If the credit risk has Denmark. increased significantly, the provision should equal lifetime expected credit losses. This dual approach replaces today’s collective The accounting policies applied in the financial statements are impairment model. For individual impairment there are no significant described below. The policies are used consistently throughout changes in the rules compared with the current rules. Preliminary Gjensidige with the exception of one difference that is permitted in expectations are that the implementation of IFRS 9 could lead to accordance with IFRS 4 about insurance contracts. See description increased provisions for credit loss due to the change from an under the section Claims provision, gross. incurred loss model to an expected loss model. IFRS 9 is effective from 1 January 2018.

Basis of preparation Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (2016) Statement of compliance IFRS 9 addresses the accounting for financial instruments and is The financial statements have been prepared in accordance with effective for annual periods beginning on or after 1 January 2018. the Norwegian Accounting Act and Norwegian Financial Reporting An insurer may apply the temporary exemption from IFRS 9 if the Regulations for Insurance Companies (FOR-2015-12-18-1775). activities are predominantly connected with insurance. Gjensidige’s The Norwegian Financial Reporting Regulations for Insurance banking operations amounts to a significant part of Gjensidige’s Companies is to a great extent based on IFRSs endorsed by EU, turnover for the Group and Gjensidige will therefore most likely not and interpretations. apply the temporary exemption for the financial statements for the company either. New standards and interpretations not yet IFRS 15 Revenue from contracts with customers (2014) adopted IFRS 15 covers all contracts with customers, but insurance A number of new standards, changes to standards and contracts, among others, are exempted. Insofar as such contracts interpretations have been issued for financial years beginning after cover the provision of several services or other services closely 1 January 2016. They have not been applied when preparing these related to the insurance operations carried out, this may have a financial statements. Those that may be relevant to Gjensidige are bearing on how Gjensidige recognises revenues in its accounts. mentioned below. Gjensidige does not plan early implementation of IFRS 15 is effective 1 January 2018. Our preliminary assessment is these standards. that services beyond what is covered by IFRS 4 about insurance contracts comprise an insignificant part of the income. Our Amendments to IFRS 2: Classification and measurement of preliminary assessment is that the standard is not expected to have share-based payment transactions (2016) a significant effect on Gjensidige’s financial statements. IFRS 2 has been amended regarding the classification and measurement of share-based payment transactions with a net IFRS 16 Leasing (2016) settlement feature for withholding tax obligations. If the entity is IFRS 16 requires all contracts that qualify under its definition as a obliged to withhold an amount for an employee’s tax obligation lease to be reported on a lessee’s balance sheet as right of use associated with a share-based payment, and transfer that amount assets and lease liabilities. Earlier classification of leases as either in cash to the tax authority on the employee’s behalf, then the entity operating leases or finance leases are removed. Short-term leases shall account for that obligation as an equity-settled share-based (less than 12 months) and leases of low-value assets are exempt payment transaction. The amendments are effective from 1 January from the requirements. A lessee shall recognise right-of-use assets 2018. The tax obligation in Gjensidige’s remuneration scheme will and lease liabilities. The interest effect of accounting the lease be reclassified from liability to equity as at 1 January 2018. From liability shall be presented separately from the depreciation charge this date the tax obligation will be accounted for as an equity-settled for the right-of-use asset. The depreciation expense will be share-based payment transaction instead of a cash-settled share- presented with Gjensidige’s other depreciations, whereas the based payment transaction. Our preliminary assessment is that the interest effect of discounting will be presented as a financial item. amendment is not expected to have a significant effect on IFRS 16 is effective 1 January 2019. The standard is expected to Gjensidige’s financial statements. have an effect on Gjensidige’s financial statements, significantly increasing Gjensidige’s recognised assets and liabilities and IFRS 9 Financial instruments (2014) potentially affecting the presentation and timing of recognition of IFRS 9 introduces new requirements for the classification and charges in the income statement. measurement of financial assets, including a new expected loss model for the recognition of impairment losses, and changed Based on our preliminary assessments and on the basis of requirements for hedge accounting. Gjensidige’s current operations, other amendments to standards and interpretation statements will not have a significant effect. IFRS 9 contains three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income, and fair value through profit or loss. Financial assets will be Basis of measurement classified as either at amortised cost, at fair value through other The financial statements have been prepared based on the comprehensive income, or at fair value through profit or loss, historical cost principle with the following exceptions depending on how they are managed and which contractual cash flow properties they have. IFRS 9 introduces a new requirement in • derivatives are measured at fair value connection with financial liabilities earmarked at fair value: where • financial instruments at fair value through profit or loss are changes in fair value that can be attributed to the liabilities' credit measured at fair value risk are presented in other comprehensive income rather than over • financial assets available for sale are measured at fair value profit or loss. According to prevailing rules, impairment for credit • investment properties are measured at fair value losses shall only be recognised when objective evidence of impairment losses exists. Impairment provisions according to IFRS 9 shall be measured using an expected loss model, instead of an incurred loss model as in IAS 39. The impairment rules in IFRS 9 will be applicable to all financial assets measured at amortised cost or at fair value with the changes in fair value recognised in other

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Functional and presentation currency allocated return on investments is transferred from the non- The financial statements are presented in NOK. The mother technical account to the technical account. company and the different branches have respectively Norwegian, Swedish and Danish kroner as functional currency. All financial Claims incurred in general insurance information is presented in NOK, unless otherwise stated. Claims incurred consist of gross paid claims less reinsurers’ share, in addition to a change in gross provision for claims, also less Due to rounding differences, figures and percentages may not add reinsurers’ share. Direct and indirect claims processing costs are up to the total. included in claims incurred. The claims incurred contain run-off gains/losses on previous years’ claims ­provisions.

Segment reporting Insurance-related operating expenses According to IFRS 8, the operating segments are determined based Insurance-related operating expenses consist of insurance-related on Gjensidige’s internal organisational management structure and administration expenses including commissions for received the internal financial reporting structure to the chief operating reinsurance and sales expenses, less received commissions for decision maker. In Gjensidige Insurance Group, the Senior Group ceded reinsurance and profit share. Management is responsible for evaluating and following up the performance of the segments and is considered the chief operating Net income from investments decision maker within the meaning of IFRS 8. Gjensidige reports on Financial income consist of interest income on financial two operating segments, General insurance Private and General investments, dividend received, realised gains related to financial insurance Norway, which are independently managed by managers assets, change in fair value of financial assets at fair value through responsible for the respective segments depending on the products profit or loss, and gains on financial derivatives. Interest income is and services offered, distribution and settlement channels, brands recognised in profit or loss using the effective interest method. and customer profiles. Identification of the segments is based on the existence of segment managers who report directly to the Financial expenses consist of interest expenses on loans, realised Senior Group Management/CEO and who are responsible for the losses related to financial assets, change in fair value of financial performance of the segment under their charge. In addition assets at fair value through profit or loss, recognised impairment on Gjensidige comprises a Swedish and Danish branch that is financial assets and recognised loss on financial derivatives. All reported as a part of the segment Nordic in the consolidated expenses related to loans are recognised in profit or loss using the financial statements. effective interest method.

The recognition and measurement principles for Gjensidige’s segment reporting are based on the IFRS principles adopted in the Foreign currency consolidated financial statements. Foreign currency transactions Inter-segment pricing is determined on arm’s length distance. Transactions in foreign currencies are translated to the respective functional currencies at exchange rates at the date of the Subsidiaries, associated transaction. companies and joint ventures At the reporting date monetary items are retranslated to the functional currency at exchange rates at that date. Non-monetary Subsidiaries, associated companies and joint ventures are items denominated in foreign currencies that are measured at recognised using the cost method. historical cost, are retranslated using the exchange rates at the date of the transaction. Non-monetary items denominated in foreign currencies that are measured at fair value, are retranslated to the Cash flow statement functional currency at the exchange rates at the date when the fair value was determined. Cash flows from operating activities are presented according to the direct method, which gives information about material classes and Exchange differences arising on retranslations are recognised in payments. profit or loss, except for differences arising on the retranslation of financial instruments designated as hedge of a net investment in a foreign operation that qualifies for hedge accounting. These are Recognition of revenue and recognised in other comprehensive income. expenses Foreign branches Foreign branches that have other functional currencies are Premiums translated to NOK by translating the income statement at average Insurance premiums are recognised over the term of the policy. exchange rates for the period of activity, and by translating the Gross premiums written include all amounts Gjensidige has balance sheet at exchange rates at the reporting date. Exchange received or is owed for insurance contracts where the insurance differences are recognised as a separate component of equity. On period starts before the end of the accounting period. At the end of disposal of the foreign operation, the cumulative amount of the the period provisions are recorded, and premiums written that relate exchange difference recognised in other comprehensive income to subsequent periods are adjusted for in Change in gross provision relating to that foreign branch is recognised in profit of loss, when for unearned premiums in the income statement. the gain or loss on disposal is recognised.

Ceded reinsurance premiums reduce gross premiums written, and Exchange gains and losses arising from a monetary item receivable are adjusted for according to the insurance period. Premiums for from or payable to a foreign operation, the settlement of which is inward reinsurance are classified as gross premiums written, and neither planned nor likely in the foreseeable future, are considered are earned according to the insurance period. to form a part of the net investment in the foreign branch and are recognised in other comprehensive income. Allocated return on investments The allocated return on investments is calculated based on the Goodwill arising on the acquisition of a foreign portfolio and fair average of the technical provisions throughout the year. The value adjustments of the carrying amount of assets and liabilities average yield on government bonds with three years remaining until arising on the acquisition of the foreign branch are treated as assets maturity is used for the calculation. The Financial Supervisory and liabilities of the foreign operation. Authority of Norway has calculated the average technical yield for 2015 and 2014 to be 0.76 and 1.55 per cent respectively. The

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Tangible assets Amortisation Intangible assets, other than goodwill is amortised on a straight-line basis over the estimated useful life, from the date that they are Owner-occupied property, plant and available for use. The estimated useful lives for the current and equipment comparative periods are as follows Recognition and measurement Items of owner-occupied property, plant and equipment are • customer relationships 5–10 years measured at cost less accumulated depreciation and accumulated • trademarks 1–10 years impairment losses. Cost includes expenditures that are directly • internally developed software 5–8 years attributable to the acquisition of the item. In cases where equipment • other intangible assets 5–10 years or significant items have different useful lives, they are accounted for as separate components. The amortisation period and amortisation method are reassessed annually. An impairment loss is recognised if the carrying amount of Owner-occupied property is defined as property that is used by an asset is less than the recoverable amount. Gjensidige for conducting its business. If the properties are used both for Gjensidige’s own use and as investment properties, classification of the properties is based on the actual use of the Impairment of non-financial assets properties. Indicators of impairment of the carrying amount of tangible and Subsequent costs intangible assets are assessed at each reporting date. If such Subsequent costs are recognised in the asset’s carrying amount indicators exist, then recoverable amount of an assets or a cash when it is probable that the future economic benefits associated generating unit is estimated. Indicators that are assessed as with the asset will flow to Gjensidige, and the cost of the asset can significant by Gjensidige and might trigger testing for an impairment be measured reliably. If the subsequent cost is a replacement cost loss are as follows for part of an item of owner-occupied property, plant and equipment, the cost is capitalized and the carrying amount of what • significant reduction in earnings in relation to historical or has been replaced is derecognised. Repairs and maintenances are expected future earnings recognised in profit or loss in the period in which they are incurred. • significant changes in Gjensidige’s use of assets or overall strategy for the business Depreciation • significant negative trends for the industry or economy Each component of owner-occupied property, plant and equipment • other external and internal indicators are depreciated using the straight-line method over estimated useful life. Land is not depreciated. The estimated useful lives for Goodwill is tested for impairment annually. The annual testing of the current and comparative periods are as follows goodwill is performed in the third quarter.

• owner-occupied property 10-50 years Recoverable amount is the greater of the fair value less costs to sell • plant and equipment 3-10 years and value in use. In assessing value in use, estimated future cash flows are discounted to present value using a pre-tax discount rate Depreciation method, expected useful life and residual values are that reflects the time value of money and the risks specific to the reassessed annually. An impairment loss is recognised if the asset. For the purpose of impairment testing, assets are grouped carrying amount of an asset is less than the recoverable amount. together into the smallest group of assets generating cash inflows that are largely independent of cash inflows from other assets or groups of assets (cash-generating unit). Goodwill is allocated to the Intangible assets cash-generating unit expecting to benefit from the acquisition. Goodwill Impairment losses are recognised in profit or loss if the carrying Goodwill acquired in acquisition of portfolios represents cost price amount of an asset or cash-generating unit exceeds its estimated of the acquisition in excess of Gjensidige’s share of the net fair recoverable amount. Impairment losses recognised in respect of value of identifiable assets, liabilities and contingent liabilities in the cash-generating units are allocated­ first to the carrying amount of acquired portfolio at the time of acquisition. Goodwill is recognised goodwill and then proportionally to the carrying amount of each initially at cost and subsequently measured at cost less asset in the cash-generating unit. Previously recognised impairment accumulated impairment losses. losses are for assets except for goodwill, reversed if the prerequisites for impairment losses are no longer present. Goodwill acquired in acquisition of portfolios is not amortised, but is Impairment losses will only be reversed if the recoverable amount tested for impairment annually or more frequently, when indications does not exceed the amount that would have been the carrying of impairment losses exist. amount at the time of the reversal if the impairment loss had not been recognised.

Other intangible assets Impairment losses recognised for goodwill will not be reversed in a Other intangible assets which consist of customer relationships, subsequent period. On disposal of a cash generating unit, the trademarks, internally developed software and other intangible goodwill attributable will be included in the determination of the gain assets that are acquired separately or as a group are recognised at or loss on disposal. historical cost less accumulated amortisation and accumulated impairment losses. New intangible assets are capitalized only if future economic benefits associated with the asset are probable Technical provisions and the cost of the asset can be measured reliably. Provision for unearned premiums, gross Development expenditures (both internally and externally The provision for unearned premiums, gross reflects the accrual of generated) is capitalized only if the development expenditure can premiums written. The provision corresponds to the unearned be measured reliably, the product or process is technically and portions of the premiums written. No deduction is made for any commercially feasible, future economic benefits are probable,and expenses before the premiums written are accrued. Gjensidige intends to and has sufficient resources to complete the development and to use or sell the asset. In the case of group life insurance for the commercial market, the provision for unearned premiums, gross also includes provisions for fully paid whole-life cover (after the payment of disability capital).

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Claims provision, gross At fair value through profit or loss The claims provision comprise provisions for anticipated future Financial assets and liabilities are classified at fair value through claims payments in respect of claims incurred, but not fully settled profit or loss if they are held for trading or are designated as such at the reporting date. These include both claims that have been upon initial recognition. All financial assets and liabilities can be reported (RBNS – reported but not settled) and those that have not designated at fair value through profit or loss if yet been reported (IBNR – incurred but not reported). The provisions related to reported claims are assessed individually by • the classification reduces a mismatch in measurement or the Claims Department, while the IBNR provisions are calculated recognition that would have arisen otherwise as a result of based on empirical data for the time it takes from a loss or claim different rules for the measurement of assets and liabilities occurring (date of loss) until it is reported (date reported). Based on • the financial assets are included in a portfolio that is experience and the development of the portfolio, a statistical model measured and evaluated regularly at fair value is prepared to calculate the scope of post-reported claims. The appropriateness of the model is measured by calculating the Gjensidige holds an investment portfolio that is designated at fair deviation between earlier post-reported claims and post-reported value at initial recognition, and that is managed and evaluated claims estimated by the model. regularly at fair value. This is according to the Board of Directors’ approved risk management and investment strategy, and Claims provisions are not normally discounted. For contracts in information based on fair value is provided regularly to the Senior Denmark with annuity payments over a long horizon, discounting is Group Management and the Board of Directors. performed. IFRS 4 permits the use of different policies within Gjensidige in this area. Transaction expenses are recognised in profit or loss when they incur. Financial assets at fair value through profit or loss are Claims provisions contain an element that is to cover administrative measured at fair value at the reporting date. Changes in fair value expenses incurred in settling claims. are recognised in profit or loss.

Adequacy test The category at fair value through profit or loss comprises the A yearly adequacy test is performed to verify that the level of the classes shares and similar interests and bonds and other fixed provisions is sufficient compared to Gjensidige’s liabilities. Current income assets. estimates for future claims payments for Gjensidige’s insurance liabilities at the reporting date, as well as related cash flows, are Available for sale used to perform the test. This includes both claims incurred before Financial assets available for sale are non-derivative financial the reporting date (claims provisions) and claims that will occur from assets that have been recognised initially in this category, or are not the reporting date until the next annual renewal (premium recognised initially in any other category. Subsequent to initial provisions). Any negative discrepancy between the original recognition financial assets in this category are measured at fair provision and the liability adequacy test will entail provision for value, and gain or loss is recognised in other comprehensive insufficient premium level. income except for impairment losses, which are recognised in profit or loss. Reinsurers’ share of insurance-related Gjensidige has no financial assets in this category. liabilities in general insurance, gross Reinsurers’ share of insurance-related liabilities in general insurance, gross is classified as an asset in the balance sheet. Investments held to maturity Reinsurers’ share of provision for unearned premiums, gross and Investments held to maturity are non-derivative financial assets with reinsurers’ share of claims provision, gross are included in payments that are fixed or which can be determined in addition to a reinsurers’ share of insurance-related liabilities in general fixed maturity date, in which a business has intentions and ability to ­insurance, gross. The reinsurers’ share is less expected losses on hold to maturity with the exception of claims based on objective evidence of impairment losses. • those that the business designates as at fair value through profit or loss at initial recognition Financial instruments • those that meet the definition of loans and receivables

Financial instruments are classified in one of the following Investments held to maturity are measured at amortised cost using categories the effective interest method, less any impairment losses.

• at fair value through profit or loss The category investments held to maturity comprises the class • available for sale bonds held to maturity. • investments held to maturity • loans and receivables Loans and receivables • financial derivatives Loans and receivables are non-derivative financial assets with • financial liabilities at amortised cost payments that are fixed or determinable. Loans and receivables are measured at amortised cost using the effective interest method, Recognition and derecognition less any impairment losses. Financial assets and liabilities are recognised when Gjensidige becomes a party to the instrument’s contractual terms. Initial Interest-free loans are issued to finance fire alarm systems within recognition is at fair value. For instruments that are not derivatives agriculture for loss prevention purposes. These loans are repaid or measured at fair value through profit or loss, transaction using the discount granted on the main policy when the alarm expenses that are directly attributable to the acquisition or issuance system is installed. of the financial asset or the financial liability, are included. Normally the initial recognition value will be equal to the transaction price. The category loans and receivables comprises the classes loans, Subsequent to initial recognition the instruments are measured as receivables related to direct operations and reinsurance, other described below. receivables, prepaid expenses and earned, not received income, cash and cash equivalents, bonds and other fixed income securities Financial assets are derecognised when the contractual rights to classified as loans and receivables and receivables within cash flows from the financial asset expire, or when Gjensidige Gjensidige. transfers the financial asset in a transaction where all or practically all the risk and rewards related to ownership of the assets are Financial derivatives transferred. Financial derivatives are used in the management of exposure to equities, bonds and foreign exchange in order to achieve the desired level of risk and return. The instruments are used both for

Gjensidige annual report 2016 | 155 Gjensidige Forsikring ASA trading purposes and for hedging of other balance sheet items. Any are not available, the fair value of financial assets/ liabilities is trading of financial derivatives is subject to strict limitations. preferably estimated on the basis of valuation techniques based on observable market data. When neither quoted prices in active Gjensidige uses financial derivatives, amongst other to hedge markets nor observable market data is available, the fair value of foreign currency exchanges arising from the ownership of foreign financial assets/liabilities is estimated based on valuation subsidiaries with other functional currency. techniques which are based on non-observable market data.

Transaction expenses are recognised in profit or loss when they For further description of fair value, see note 8. incur. Subsequent to initial recognition financial derivatives are measured at fair value and changes in fair value are recognised in Definition of amortised cost profit or loss. Subsequent to initial recognition, investments held to maturity, loans and receivables and financial liabilities that are not measured Hedge accounting is applied on the largest branches. Gains and at fair value are measured at amortised cost using the effective losses on the hedging instrument relating to the effective portion of interest method. When calculating effective interest rate, future the hedge are recognised in other comprehensive income, while cash flows are estimated, and all contractual terms of the financial any gains or losses relating to the ineffective portion are recognised instrument are taken into consideration. Fees paid or received in profit or loss. If subsidiaries are disposed of, the cumulative value between the parties in the contract and transaction costs that are of such gains and losses recognised in other comprehensive directly attributable to the transaction, are included as an integral income is transferred to profit or loss. Where hedge accounting is component of determining the effective interest rate. not implemented, this implies a divergent treatment of the hedged object and the hedge instrument used. Hedge accounting of the largest branches was terminated in the second half-year of 2015. Impairment of financial assets Fair value hedging has in 2015 been carried out to hedge the Loans, receivables and investments held to currency in fixed agreements of acquisition of operations. Gains and losses on the hedging instrument are recognised in profit or maturity loss, together with the change in fair value of the fixed agreement. For financial assets that are not measured at fair value, an The change in fair value of the fixed agreement is recognised in the assessment of whether there is objective evidence that there has cost price of the share when the acquired operation is accounted been a reduction in the value of a financial asset or group of assets for. is made on each reporting date. Objective evidence might be information about credit report alerts, defaults, issuer or borrower The category financial derivatives comprise the classes financial suffering significant financial difficulties, bankruptcy or observable derivatives at fair value through profit or loss and financial data indicating that there is a measurable reduction in future cash derivatives used as hedge accounting. flows from a group of financial assets, even though the reduction cannot yet be linked to an individual asset.

Financial liabilities at amortised cost An assessment is first made to whether objective evidence of Financial liabilities are measured at amortised cost using the impairment of financial assets that are individually significant exists. effective interest method. When the time horizon of the financial Financial assets that are not individually significant or that are liability’s due time is quite near in time the nominal interest rate is assessed individually, but not impaired, are assessed in groups with used when measuring amortised cost. respect to impairment. Assets with similar credit risk characteristics are grouped together. The category financial liabilities at amortised cost comprises the classes subordinated loan, other liabilities, liabilities related to direct If there is objective evidence that the asset is impaired, impairment insurance and reinsurance, accrued expenses and deferred income loss are calculated as the difference between the carrying amount and liabilities within Gjensidige. of the asset and the present value of estimated future cash flows discounted at the original effective interest rate. Financial liabilities classified as equity Gjensidige has perpetual tier 1 capital accounted for as equity. The Impairment losses are reversed if the reversal can be related instruments are perpetual, but the principal can be repaid on objectively to an event occurring after the impairment loss was specific dates, for the first time five years after it was issued. The recognised. agreed terms meet the requirements in the EU’s CRR/Solvency II regulations and the instruments are included in Gjensidige’s Tier 1 Available for sale capital for solvency purposes. These regulatory requirements mean For financial assets available for sale, an assessment to whether that Gjensidige has a unilateral right not to repay interest or the the assets are impaired is carried out quarterly. principal to the investors. As a consequence of these terms, the instruments do not meet the requirement for a liability in IAS 32 and If a decline in fair value of an available-for-sale financial asset, are therefore presented on the line perpetual Tier 1 capital under compared to cost, is significant or has lasted longer than nine equity. Further, it implies that the interest is not presented under months, the cumulative loss, measured as the difference between Total interest expenses but as a reduction in other equity. the historical cost and current fair value, less impairment loss on Correspondingly, seen in isolation, the benefit of the tax deduction that financial asset that previously has been recognised in profit or for the interest will lead to an increase in other equity and not be loss, is removed from equity and recognised in profit or loss even presented as a deduction under the line Tax expense, since it is the though the financial asset has not been derecognised. shareholder who benefits from the tax deduction. Impairment losses recognised in profit or loss are not reversed Definition of fair value through profit or loss, but in other comprehensive income. Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in an orderly transaction between market participants at the measurements date. Dividend

Different valuation techniques and methods are used to estimate Dividend from investments is recognised when Gjensidige has an fair value depending on the type of financial instruments and to unconditional right to receive the dividend. Proposed dividend is which extent they are traded in active markets. Instruments are recognised as a liability in accordance with the Accounting Act and classified in their entirety in one of three valuation levels in a Regulations on Simplified Application of International Accounting hierarchy on the basis of the lowest level input that is significant to Standards (FOR 2008-01-21 nr. 57). This implies that dividend the fair value measurement in its entirety. reduces equity in the fiscal year the dividend provision relates to.

Quoted prices in active markets are considered the best estimate of an asset/liability’s fair value. When quoted prices in active markets

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Provisions Tax

Provisions are recognised when Gjensidige has a legal or Income tax expense comprises the total of current tax and deferred constructive obligation as a result of a past event, it is probable that tax. this will entail the payment or transfer of other assets to settle the obligation, and a reliable estimate can be made of the amount of Current tax the obligation. Current tax is tax payable on the taxable profit for the year, based on tax rates enacted or substantively enacted at the reporting date, Information about contingent assets are disclosed where an inflow and any adjustment to tax payable in respect of previous years. of economic benefits is probable. Information about a contingent liability is disclosed unless the possibility of an outflow of resources is remote. Deferred tax Deferred tax is determined based on differences between the carrying amount and the amounts used for taxation purposes, of Restructuring assets and liabilities at the reporting date. Deferred tax liabilities are Provision for restructuring are recognised when Gjensidige has generally recognised for all taxable temporary differences. Deferred approved a detailed and formal restructuring plan which has tax assets are generally recognised for all deductible temporary commenced or has been announced. Provisions are not made for differences to the extent that it is probable that they can be offset by future expenses attributed to the operations. future taxable income. If deferred tax arises in connection with the initial recognition of a liability or asset acquired in a transaction that Pensions is not a business combination, and it does not affect the financial or taxable profit or loss at the time of the transaction, then it will not be recognised. Gjensidige has both defined contribution and defined benefit plans for its employees. The defined benefit plan has been placed in a separate pension fund and is closed to new employees. Deferred tax liabilities are recognised for temporary differences resulting from investments in subsidiaries and associates, except in cases where Gjensidige is able to control the reversal of temporary The defined contribution plan is a post-employment benefit plan differences, and it is probable that the temporary difference will not under which Gjensidige pays fixed contributions into a separate be reversed in foreseeable future. Deferred tax assets that arise entity and there is no legal or constructive obligation to pay further from deductible temporary differences for such investments are only amounts. Obligatory contributions are recognised as employee recognised to the extent that it is probable that there will be benefit expenses in profit or loss when they are due. sufficient taxable income to utilise the asset from the temporary difference, and they are expected to reverse in the foreseeable The defined benefit plan is a post-employment benefit plan that future. entitles employees to contractual future pension benefits. Pension liabilities are determined on the basis of linear earning and using assumptions of length of service, discount rate, future return on Current and deferred tax plan assets, future growth in wages, pensions and social security Current tax and deferred tax are recognised as an expense or benefits from the National Insurance, and estimates for mortality income in the income statement, with the exception of deferred tax and staff turnover, etc. on items that are recognised in other comprehensive income, where the tax is recognised in other comprehensive income, or in Plan assets are measured at fair value, and reduce pension cases where deferred tax arises as a result of a business liabilities in the balance sheet. Any surplus is recognised if it is likely combination. For business combinations, deferred tax is calculated that the surplus can be used. An overfunding in a funded plan on the difference between fair value of the acquired assets and cannot be offset against an underfunding in an unfunded plan. liabilities and their carrying amount. Goodwill is recognised without provision for deferred tax. Any actuarial gains and losses related to defined benefit plan is recognised in other comprehensive income. Related party transactions Share-based payment Intra-group balances and transactions are eliminated in preparing the consolidated financial statements. The fair value of share-based payment arrangements allocated to employees is at the time of allocation recognised as personnel The provider of intra-group services, that are not considered core costs, with a corresponding increase in equity. Share-based activities, will as a main rule, allocate its incurred net costs (all costs payment arrangements which are recovered immediately are included) based on a Cost Contribution Arrangement as described recognised as expenses at the time of allocation. Vesting conditions in OECD Guidelines chapter 8 and on the basis of paragraph 13-1 are taken into account by adjusting the number of equity in the Norwegian Tax Act. instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised shall be based on the Identified functions that are categorized as core activities will be number of equity instruments that eventually vest. Non-vesting charged out with a reasonable mark up or alternatively at market conditions are reflected in the measurement of fair value, and no price if identifiable, comparable prices exist. adjustment of the amount recognised as expenses is done upon failing to meet such conditions. Transactions with affiliated Share-based payment transactions in which Gjensidige receives companies goods or services as payment for Gjensidige’s own equity instruments are recognised as share-based payment transactions The Fire Mutuals operate as agents on behalf of Gjensidige with settlement in equity, regardless of how Gjensidige has Forsikring. For these services commission is paid. The Fire Mutuals acquired the equity instruments. Share-based payment are also independent insurance companies with fire and natural arrangements settled by one of the shareholders in the ultimate damage on their own account. For handling this and to reinsure the mother company is also recognised as a share-based payment Fire Mutuals’ fire insurance Gjensidige receives payment based on transaction with settlement in equity. arm’s length distance. The same applies to other services delivered to the Fire Mutuals. See note 25 for a further description of Gjensidige’s share-based payment arrangements.

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Notes

1. Equity Share capital Exchange differences At the end of the year the share capital consisted of 500 million Exchange differences consist of exchange differences that occur ordinary shares with a nominal value of NOK 2, according to the when converting foreign branches, and when converting liabilities statutes. All issued shares are fully paid in. that hedge the company’s net investment in foreign branches.

The owners of ordinary shares have dividend and voting rights. Remeasurement of the net defined benefit There are no rights attached to the holding of own shares. liability/asset Remeasurement of the net defined benefit liability/asset consists of In thousand shares 2016 2015 the return of plan assets beyond interest income and gains/losses Issued 1 January 500,000 500,000 occurring by changing the actuarial assumptions used when Issued 31 December 500,000 500,000 calculating pension liability.

Own shares Other earned equity In the column for own shares in the statement of changes in equity Other earned equity consists of this year’s and previous year’s the nominal value of the company’s holdings of own shares is retained earnings that are not disposed to other purposes and presented. Amounts paid in that exceeds the nominal value is includes provisions for compulsory funds (natural perils fund, charged to other equity so that the cost of own shares reduces the guarantee scheme). Group’s equity. Natural perils capital At the end of the year the number of own shares was 26,817 Operating profit/loss from the compulsory natural perils insurance (68,175). shall be adjusted against the Natural perils capital. The Natural perils capital can only be used for claims related to natural perils. A total of 199,200 (259,515) own shares at an average share price Natural peril is defined as claim in direct relation to natural hazard, of NOK 141.75 (128.51) have in 2016 been acquired to be used in such as landslide, storm, flood, storm surge, earthquake or Gjensidige's share-based payment arrangements. Of these eruption. 169,093 (173,499) shares have been sold to employees, at the same price, but with a discount in the form of a contribution, see Guarantee scheme note 25. In addition 38,728 (48,579) shares have been allocated to The provision for guarantee scheme shall provide security to the executive personnel within the share-based remuneration scheme insured for the right fulfilment of claims covered by the agreement and 32,737 (32,841) bonus shares have been allocated to even after the agreement is terminated in Norway. employees in the share savings programme in 2016. Own shares are reduced by 41,358 (increased by 4,596) through the year. Dividend Proposed and approved dividend per ordinary share Share premium Payments in excess of the nominal value per share are allocated to NOK millions 2016 2015 share premium. As at 31 December NOK 6.80 (6.40) based on profit for the 3,400.0 3,200.0 Other paid-in capital year Other paid in equity consists of wage costs that are recognized in NOK 4.00 (2.00) based on excess profit and loss as a result of the share purchase program for 2,000.0 1,000.0 employees. capital distribution

Perpetual Tier 1 capital Perpetual Tier 1 capital consists of a perpetual hybrid instrument, classified as equity. In connection with the issuance in 2016 transactions costs amounting to NOK 3.2 million was recognized as a deduction in equity.

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2. Use of estimates The preparation of the financial statements under IFRS and the Insurance-related liabilities application of the adopted accounting policies require that Use of estimates in calculation of insurance-related liabilities is management make assessments, prepare estimates and apply primarily applicable for claims provisions. assumptions that affect the carrying amounts of assets and liabilities, income and expenses. The estimates and the associated Insurance products are divided in general into two main categories; assumptions are based on experience and other factors that are lines with short or long settlement periods. The settlement period is assessed as being justifiable based on the underlying conditions. defined as the length of time that passes after a loss or injury Actual figures may deviate from these estimates. The estimates occurs (date of loss) until the claim is reported and then paid and and associated prerequisites are reviewed regularly. Changes in settled. Short-tail lines are e.g. property insurance, while long-tail accounting estimates are recognised in the period the estimates are lines primarily involve accident and health insurances. The revised if the change only affects this period, or both in the period uncertainty in short-tail lines of business is linked primarily to the the estimates change and in future periods if the changes affect size of the loss. both the existing and future periods. For long-tail lines, the risk is linked to the fact that the ultimate claim The accounting policies that are used by Gjensidige in which the costs must be estimated based on experience and empirical data. assessments, estimates and prerequisites may deviate significantly For certain lines within accident and health insurances, it may take from the actual results are discussed below. ten to 15 years before all the claims that occurred in a calendar year are reported to the company. In addition, there will be many Plant and equipment, owner-occupied instances where information reported in a claim is inadequate to property and intangible assets calculate a correct provision. This may be due to ambiguity Plant and equipment, owner-occupied property and intangible concerning the causal relationship and uncertainty about the injured assets are assessed annually to ensure that the depreciation party’s future work capacity etc. Many personal injury claims are method and the depreciation period used are in accordance with tried in the court system, and over time the level of compensation useful life. The same applies to residual value. If indications of for such claims has increased. This will also be of consequence to impairment losses are present, the recoverable amount of the asset claims that occurred in prior years and have not yet been settled. will be estimated. The risk linked to provisions for lines related to insurances of the person is thus affected by external conditions. To reduce this risk, Goodwill is tested for impairment annually or more often if there are the company calculates its claims liability based on various indications that the amounts may be subject to impairment. The methods and follows up that the registered provisions linked to testing for impairment entails determining recoverable amount for ongoing claims cases are updated at all times based on the current the cash-generating unit. Normally recoverable amount will be calculation rules. See note 3 and 13. determined by means of discounted cash flows based on business plans. The business plans are based on prior experience and the Pension expected market development. See note 5 and 7. The present value of pension liabilities is calculated on the basis of actuarial and financial assumptions. Any change in the assumptions Financial assets and liabilities affects the estimated liability. Change in the discount rate is the The fair value of financial assets and liabilities that are not traded in assumption most significant to the value of the pension liability. The an active market (such as unlisted shares) is determined by means discount rate and other assumptions are normally reviewed once a of generally accepted valuation methods. These valuation methods year when the actuarial calculations are performed unless there are based primarily on the market conditions at the reporting date. have been significant changes during the year. See note 14. See note 8.

Loans and receivables For financial assets that are not measured at fair value, it is assessed whether there is objective evidence that there has been a reduction in the value of a financial asset or a group of financial assets on each reporting date. See note 9.

3. Management of insurance and financial risk

For information about insurance and financial risk please refer to note 3 in the consolidated financial statements that cover both Gjensidige Forsikring ASA and Gjensidige Insurance Group.

Gjensidige annual report 2016 | 159 Gjensidige Forsikring ASA

4. Premiums and claims etc. in general insurance For segment information according to IFRS 8 please refer to note 4 in the consolidated financial statements. The information below is worked out based on the requirements in the Norwegian Financial Reporting Regulations for Insurance Companies.

Non-life insurance and reinsurance obligations (direct business and accepted proportional reinsurance)

Marine, Fire and Work- aviation other Income ers' Motor and damage pro- compen vehicle Other tran- to General Miscell- Medical tection sation liability motor sport property liability aneous Health exp. in- in- in- in- in- in- in- in- Assi- financial in- NOK millions surance surance surance surance surance surance surance surance stance loss surance

Premiums written Gross - direct business and accepted 321.2 1,059.5 1,046.0 2,572.6 4,090.1 277.8 8,016.9 627.7 1,008.5 1,179.9 1,465.4 proportional reinsurance Reinsurers' share (0.6) (7.4) (43.5) (42.6) (403.5) (15.4) (1.6) Net 321.2 1,058.9 1,038.7 2,529.1 4,090.1 235.2 7,613.5 612.2 1,008.5 1,178.2 1,465.4

Premiums earned Gross - direct business and accepted 307.9 1,066.0 1,034.8 2,590.6 4,060.6 279.2 7,891.9 639.0 993.1 1,156.6 1,461.8 proportional reinsurance Reinsurers' share (0.6) (7.4) (43.6) (42.6) (412.3) (14.8) (1.6) Net 307.9 1,065.4 1,027.4 2,547.0 4,060.6 236.6 7,479.6 624.2 993.1 1,155.0 1,461.8

Claims incurred Gross - direct business and accepted (229.0) (673.2) (815.2) (1,205.2) (2,742.9) (105.3) (6,442.0) (344.0) (686.1) (783.4) (953.4) proportional reinsurance Reinsurers' share 7.1 42.7 31.1 414.5 1.8 Net (229.0) (673.2) (808.0) (1,162.5) (2,711.8) (105.3) (6,027.6) (342.1) (686.1) (783.4) (953.4)

Gross claims incurred (229.0) (673.2) (815.2) (1,205.2) (2,742.9) (105.3) (6,442.0) (344.0) (686.1) (783.4) (953.4) Incurred during the year (235.4) (751.7) (951.2) (1,566.6) (2,791.0) (115.0) (6,536.3) (370.4) (728.1) (918.8) (1,023.3) Incurred previous years 6.4 78.4 136.0 361.4 48.0 9.6 94.2 26.4 42.0 135.4 69.8

Provision for unearned premiums, gross 111.0 400.6 297.8 1,268.1 2,029.5 42.6 2,920.8 221.2 447.3 365.9 357.9 Claims provision, gross 153.5 4,417.1 9,992.0 7,785.3 572.9 135.9 4,322.8 906.3 193.0 394.6 1,494.4

Non-proportional reinsurance obligations Marine, aviation, Casualty transport Property Pool Health re- re- re- re- arrange- NOK millions insurance insurance insurance insurance ments Total

Premiums written Gross - direct business and accepted proportional reinsurance 300.1 21,965.7 Gross – accepted non-proportional reinsurance 6.0 12.0 7.6 126.9 152.6 Reinsurers' share (3.2) (52.0) (569.8) Net 6.0 12.0 7.6 123.7 248.0 21,548.6

Premiums earned Gross - direct business and accepted proportional reinsurance 296.5 21,778.0 Gross – accepted non-proportional reinsurance 6.0 12.0 7.6 126.9 152.6 Reinsurers' share (3.1) (52.0) (578.0) Net 6.0 12.0 7.6 123.8 244.5 21,352.6

Claims incurred Gross - direct business and accepted proportional reinsurance (149.5) (15,129.4) Gross – accepted non-proportional reinsurance (29.7) (3.9) (42.3) (76.0) Reinsurers' share 497.2 Net (29.7) (3.9) (42.3) (149.5) (14,708.2)

Gross claims incurred (29.7) (3.9) (42.3) (149.5) (15,205.3) Incurred during the year (29.7) (3.9) (42.3) (138.6) (16,202.2) Incurred previous years (10.9) 996.9

Provision for unearned premiums, gross 123.3 8,585.9 Claims provision, gross 25.2 16.3 116.7 276.6 30,802.6

NOK millions Norway Sweden Denmark

Breakdown of revenue by geographical area Gross premium written direct business 15,775.6 1,449.6 3,688.8

160 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

5. Intangible assets

Other Customer intangible NOK millions Goodwill relationship Trademark Software assets Total

Cost As at 1 January 2015 1,668.7 577.5 37.7 821.7 23.9 3,129.4 Additions 16.5 41.0 50.1 107.6 Additions internal 15.6 24.4 40.0 Additions from internal development 156.2 156.2 Disposals/reclassifications (244.9) (244.9) Exchange differences 92.4 31.9 1.5 25.0 4.8 155.5 As at 31 December 2015 1,776.7 650.3 39.2 799.0 78.8 3,343.9 Uncompleted projects 99.2 99.2 As at 31 December 2015, including uncompleted 1,776.7 650.3 39.2 898.2 78.8 3,443.1 projects

Amortisation and impairment losses As at 1 January 2015 (100.0) (291.3) (31.3) (425.5) (3.1) (851.3) Amortisations (60.5) (6.2) (143.0) (25.8) (235.5) Disposals/reclassifications 199.8 199.8 Exchange differences (17.1) (1.6) (11.9) (1.9) (32.5) As at 31 December 2015 (100.0) (369.0) (39.0) (380.6) (30.9) (919.5)

Carrying amount As at 1 January 2015 1,568.7 286.2 6.4 482.1 20.7 2,364.0 As at 31 December 2015 1,676.6 281.3 0.2 517.5 47.9 2,523.6

Cost As at 1 January 2016 1,776.7 650.3 39.2 799.0 78.8 3,343.9 Additions 54.1 145.6 191.3 391.1 Additions internal 2.5 0.7 9.0 12.1 Additions from internal development 45.8 45.8 Disposals/reclassifications (10.7) (47.6) (7.0) (65.3) Exchange differences (92.2) (32.4) (1.5) (25.2) (11.1) (162.3) As at 31 December 2016 1,687.0 662.0 37.7 917.6 261.0 3,565.4 Uncompleted projects 116.0 116.0 As at 31 December 2016, including uncompleted 1,687.0 662.0 37.7 1,033.7 261.0 3,681.4 projects

Amortisation and impairment losses As at 1 January 2016 (100.0) (369.0) (39.0) (380.6) (30.9) (919.5) Amortisations (91.0) (0.2) (139.8) (48.6) (279.5) Disposals/reclassifications 10.7 15.3 25.9 Exchange differences 17.8 1.5 12.1 2.8 34.2 As at 31 December 2016 (100.0) (431.5) (37.7) (493.0) (76.6) (1,138.9)

Carrying amount As at 1 January 2016 1,676.7 281.3 0.2 517.5 47.9 2,523.6 As at 31 December 2016 1,587.0 230.5 540.7 184.4 2,542.5

Amortisation method I/A Straight-line Straight-line Straight-line Straight-line Useful life (years) I/A 5-10 1-10 5-8 5-10

The company’s intangible assets are either acquired or internally The company has in 2015 acquired the Swedish insurance portfolio developed. Goodwill, customer relationships and parts of other of the Vardia insurance group and the company Vardia Forsäkring intangible assets are all acquired through business combinations or AB. In 2015, PZU Lietuva in Lithuania and Mondux in Denmark mergers, and are a result of a purchase price allocation of initial were acquired. In addition 50 percent of Oslo Areal was sold in the cost of the acquisition. Internally developed software is developed fourth quarter. The remaining investment is after the sale classified for use in the insurance business. External and internal assistance as joint venture and recognised according to the equity method. used in relation developed software is developed for use in the insurance business. External and internal assistance is used in None of the intangible assets has indefinite useful life. relation with implementation or substantial upgrade of software, including adjustment of standard systems, are capitalized as intangible assets. Amortisation is included in Insurance-related administration expenses including commissions for received reinsurance and sales expenses.

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Impairment testing goodwill The carrying amount of goodwill in the company as at 31 December The management’s method 2016 is NOK 1,587.0 million. See table. As far as possible, the management has sought to document the assumptions upon which the models are based through external NOK millions 2016 2015 information. External information is first and foremost used in the assessment of discount rate and exchange rates. When it comes to Goodwill future cash flows, the management has also considered the degree Gjensidige Forsikring, Danish branch 1,149.5 1,213.0 of historical achievement of budgets. If expected budgeted results Gouda portfolio 81.5 85.8 are not achieved, the management has conducted a deviation analysis. These deviation analyses are reviewed by the Board of Gjensidige Forsikring, Swedish branch 227.3 249.2 the respective subsidiaries, as well as the management in Gjensidige Forsikring, white label 128.7 128.7 Gjensidige Forsikring. Total 1,587.0 1,676.7 Level of combined ratio (CR)

Each of the units above is the smallest identifiable group of assets The expected CR level is both in the growth period and when that generates cash inflows and considered as separate cash- estimating the terminal value considered to be from 87.2 to 100.3. generating units. The annual assessment of impairment losses was carried out in the third quarter of 2016. There has also been carried out indication assessments during other quarters in order to assess CR-level when whether there is new evidence that calls for a new impairment CR-level in calculating assessment. Cash-generating units growth period terminal value Gjensidige Forsikring, Danish branch 87.2-91.2% 91.2% Recoverable amount for the cash-generating units is determined Gouda portfolio 89.1-94.3% 90.1% based on an assessment of value in use. The value in use is based Gjensidige Forsikring, Swedish branch 90.2-100.3% 92.7% on a discounting of future cash flows, with a relevant discount rate that takes into account maturity and risk. The growth rate in terminal value calculation Budgets/prognoses and the period for which the cash flows The growth rate is determined to 2.5 per cent in Scandinavia and are projected the same that was used in 2015. The projection of cash flows is based on budget and forecast for the next four years reviewed by the management and approved by the Discount rate Board. In the period after 2020 an annual growth of two and a half The discount rate is before tax, and is composed of a risk-free and three per cent has been projected until 2025. The terminal interest rate, a risk premium and a market beta. The risk-free rate is value is calculated in 2025. The cash flows are estimated to a equivalent to a ten-year interest rate on government bonds in the normal level before a terminal value is calculated. Gjensidige respective countries where the subsidiaries and branches operate normally has a ten-year horizon on its models, as the acquired in and in addition a risk premium is added. The risk premium is companies are in a growth phase and a shorter period will give a increased somewhat from 2015 due to the decline in interest rate less correct view of expected cash flows. In 2016 the profitability in on government bonds. The discount rate that has been used is 7.5 the Danish market has been challenged more than in other per cent. This corresponds to the discount rate of the group. markets, which has resulted in several actions in the autumn 2016. These will be completed in 2017/2018 and are primarily focused on Sensitivity analysis to key assumptions improving the claims ratio through better tariffing and risk-selection. The excess values related to the acquisitions are based on different key assumptions. If these assumptions change significantly from what they are expected to be in the impairment models, a need for impairment may arise. See table.

Growth reduces by 2% Discount rate compared to expected CR increases by 2% All circumstances Sensitivity table goodwill increases by 1% next 3 years next 3 years occur simultaneously Need for impairment Gjensidige Forsikring, Danish branch No need for impairment No need for impairment No need for impairment app. NOK 249 million Gouda portfolio No need for impairment No need for impairment No need for impairment No need for impairment Gjensidige Forsikring, Swedish branch No need for impairment No need for impairment No need for impairment No need for impairment Gjensidige Forsikring, white label No need for impairment No need for impairment No need for impairment No need for impairment

Gjensidige annual report 2016 | 162 Gjensidige Forsikring ASA

6. Shares in subsidiaries, associates and joint ventures

Carrying Carrying Registered Cost amount Cost amount NOK millions office Interest held 31.12.2016 31.12.2016 31.12.2015 31.12.2015

Subsidiaries Gjensidige Bank Holding AS Oslo, Norway 100% 2,131.4 2,152.7 1,931.4 1,952.7 Gjensidige Norge AS Oslo, Norway 100% 195.7 1.2 195.7 1.2 Gjensidige Pensjon og Sparing Holding AS Oslo, Norway 100% 724.7 704.1 741.0 742.7 Gjensidige Baltic AAS ¹ Riga, Latvia 100% 351.5 347.8 Samtrygd Eigedom AS Oslo, Norway 100% 6.9 6.9 6.9 6.9 Lokal Forsikring AS Oslo, Norway 100% 31.4 11.3 31.4 11.3 Copenhagen, Nykredit Forsikring A/S 100% 1,625.1 1,391.4 1,625.1 1,485.6 Denmark Copenhagen, Krumtappen A/S 100% 1.1 1.1 Denmark Stockholm, Försäkringshuset Amb & Rosèn AB 100% 5.1 5.1 5.1 5.1 Sweden Piteå, Försäkringsproduktion i Sverige AB 100% 14.4 16.9 Sweden NAF Forsikringsformidling AS Oslo, Norway 66% 47.0 54.9 47.0 54.9 Copenhagen, Mondux Affinity Aps 100% 77.2 77.2 Denmark Copenhagen, Mondux Assurance Agentur A/S 100% 204.9 213.1 129.0 137.2 Denmark Copenhagen, Mondux Service A/S 100% 0.6 0.6 Denmark Vilnius, PZU Lietuva SA ¹ 99,9% 628.8 581.0 Lithuania Vilnius, ADB Gjensidige ¹ 100% 1,068.7 1,017.3 Litauen Stockholm, Vardia Försäkring AB 100% 80.0 80.0 Sweden Stockholm, Försäkringsakademin JW AB 100% 47.3 47.3 Sweden Gjensidige Investeringsrådgivning AS ³ Oslo, Norway 100% 25.0 47.3 Total subsidiaries 6,202.2 5,741.7 5,785.0 5,421.2

Associates Tromsø, Vervet AS including subordinated loan ² (sold in 2016) 25% 35.3 11.5 Norway

Joint ventures Oslo Areal AS Oslo, Norge 50% 1,086.9 1,086.9 1,086.9 1,086.9

Total associates and joint ventures 1,086.9 1,086.9 1,122.2 1,098.4

1 Gjensidige Baltic AAS and PZU Lietuva SA were merged into ADB Gjensidige in 2016. 2 Subordinated loan of NOK 24.0 million is included in cost. ³ Gjensidige Investeringsrådgivning AS was distributed as dividend from Gjensidige Pensjon og Sparing Holding AS to Gjensidige Forsikring ASA during 2016.

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Share of NOK millions Assets Equity Liabilities Revenues 4 Profit/(loss) stock value

For the whole company 2016

Subsidiaries - additional information Gjensidige Bank Holding (group) 44,753.1 3,192.9 41,560.1 805.2 322.2 N/A Gjensidige Norge AS 0.2 0.2 N/A Gjensidige Pensjon og Sparing Holding (group) 24,350.0 675.6 23,674.4 1,479.4 85.6 N/A Samtrygd Eigedom AS 6.7 6.5 0.2 0.3 N/A Lokal Forsikring (group) 10.0 9.4 0.6 0.3 N/A Nykredit Forsikring A/S 1,405.4 344.0 1,061.4 52.9 42.4 N/A Försäkringshuset Amb & Rosèn AB 4.2 3.2 1.0 2.9 N/A NAF Forsikringsformidling AS 80.2 60.1 20.0 (10.5) N/A Mondux Assurance Agentur A/S 59.7 38.1 21.6 16.1 N/A Mondux AB 12.9 10.7 2.2 0.2 N/A ADB Gjensidige 2,007.7 777.3 1,230.4 1,040.6 (132.3) N/A Gjensidige Investeringsrådgivning AS 32.2 23.5 8.7 42.6 7.9 N/A Krumtappen A/S 1.5 1.4 0.1 0.5 0.3 N/A Vardia Försäkring AB 30.0 (12.0) 42.1 (6.2) N/A Försäkringsakademin JW AB 11.7 9.9 1.8 0.2 N/A Total shares in subsidiaries 72,765.6 5,140.8 67,624.7 3,421.2 329.3

For the whole company 2015

Subsidiaries - additional information Gjensidige Bank Holding (group) 40,487.8 2,695.8 37,792.0 663.4 225.9 N/A Gjensidige Norge AS 0.1 0.1 N/A Gjensidige Pensjon og Sparing Holding (group) 20,770.0 596.2 20,173.8 1,431.5 59.9 N/A Gjensidige Baltic AAS 935.5 277.7 657.8 532.3 (78.4) N/A Samtrygd Eigedom AS 6.3 6.2 0.1 N/A Lokal Forsikring (group) 18.2 17.5 0.7 0.1 4.3 N/A Nykredit Forsikring A/S 1,454.5 308.9 1,145.5 51.8 (14.9) N/A Försäkringshuset Amb & Rosèn AB 0.8 0.5 0.3 0.8 N/A Försäkringsproduktion i Sverige AB 8.8 3.5 5.3 N/A NAF Forsikringsformidling AS 4.6 (0.1) 4.7 (8.0) N/A Mondux Affinity Aps 21.9 9.9 12.0 4.5 N/A Mondux Assurance Agentur A/S 18.2 13.0 5.2 7.2 N/A Mondux Service A/S 0.7 0.7 N/A Mondux AB 4.7 0.1 4.6 0.4 N/A PZU Lietuva SA 787.8 157.0 630.9 109.7 (38.1) N/A Total shares in subsidiaries 64,520.0 4,086.8 60,433.2 2,788.9 163.8

Share of NOK millions Assets Equity Liabilities Revenues 6 Profit/(loss) stock value

For the whole company 2015

Associates - additional information Vervet AS 100.0 4.3 95.7 0.7 (1.7) N/A Total shares in associates 100.0 4.3 95.7 0.7 (1.7)

4 Operating income. For companies where financial income is operating income, financial income is included. For other companies financial income is not included.

164 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

For the whole company

Joint ventures - additional information Oslo Areal AS NOK millions 2016 2015

Income statement Operating income 423.0 419.8 Operating expenses (75.4) (75.5) Interest income 2.1 1.5 Interest expenses (65.4) (71.5) Fair value adjustments property 111.9 271.7 Gains/losses on sale of property 27.0 3.7 Depreciation and amortisation (3.9) (8.8) Profit/(loss) before tax expense 419.4 540.9 Tax expense (69.4) (92.0) Profit/(loss) before components of OCI 350.0 448.9 Other income and expenses 134.8 0.1 Total comprehensive income 484.8 449.0

Balance sheet items Current assets 34.6 93.0 Fixed assets 6,691.6 6,821.5 Cash and cash equivalents 46.2 30.7 Short term liabilities 784.4 820.6 Long term liabilities 2,840.4 3,076.1 Equity 3,147.6 3,018.0

Receivables from joint ventures Oslo Areal AS NOK millions 2016 2015

Gjensidige's share of loan 1,420.2 1,538.0 Total receivables on joint ventures 1,420.2 1,538.0

Percentage of votes held is the same as percentage of interest held There are contractual commitments regarding development of for all investments. investment properties in Oslo Areal AS amounting to NOK 30.0 million (71.0). The commitment falls due during the period until 31 In 2015, Gjensidige sold 50 per cent of the shares in Oslo Areal to December 2017. AMF Pensionsforsäkring (AMF). The transaction implies that Gjensidige and AMF will own Oslo Areal together as a joint venture, Theree ar some restrictions on Gjensidige Forsikring ASA’s ability as each party has rights to its share of the net assets of the to access or use the Group’s assets, as well as settling its arrangement. The parties will make joint investments in the obligations. Group contributions added together with dividends Norwegian real estate market through Oslo Areal. The investment must not exceed justifiable payment of dividend based on a is recognised at cost of NOK 1.1 billion at year end. Gjensidige company’s financial strength and operations. Distributions from life Forsikring has granted a loan to Oslo Areal amounting to NOK 1.4 insurance companies must be within profit for the year. If it is billion at year end. The loan is interest-bearing. desired to distribute more than this, then it has to be approved in advance by the Financial Supervisory Authority. The regulatory Part of the agreement is that Gjensidige, through a price-adjustment framework for capital and solvency margin must be complied, as mechanism, will be exposed to the property market development well as asset management regulations that set requirements which with an amount corresponding to half of the proceeds during the must be met in order to cover the technical provisions. In addition, period until 31 December 2016. Gjensidige will therefore have a Gjensidige shall fulfil the capital requirements for an A rating, which higher property-exposure in this period than the 50 per cent holding ties additional capital. in Oslo Areal. The exposure that this agreement represents is not recognised. The agreement is recognised at fair value and the An insurance company may not grant loans or provide guarantees unrealised gain was NOK 54.5 million as at 31 December 2016 for another company in the Group beyond settlement accounts in (16.2). the Group bank unless there exist exceptions based on regulations and/or individual decisions by the Financial Supervisory Authority.

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7. Owner-occupied property, plant and equipment

Owner- occupied Plant and NOK millions property equipment 1 Total

Cost As at 1 January 2015 108.2 561.7 669.9 Additions 0.4 99.0 99.3 Disposals (86.0) (42.0) (128.0) Exchange differences 5.8 5.8 As at 31 December 2015 22.8 624.6 647.3 Uncompleted projects 27.6 27.6 As at 31 December 2015, including uncompleted projects 22.8 652.1 674.8

Depreciation and impairment losses As at 1 January 2015 (29.0) (348.2) (377.2) Depreciation for the year (2.6) (56.8) (59.5) Disposals 28.1 31.1 59.2 Exchange differences (3.5) (3.5) As at 31 December 2015 (3.8) (377.4) (381.2)

Carrying amount As at 1 January 2015 79.2 312.3 391.5 As at 31 December 2015 19.0 274.7 293.7

Cost As at 1 January 2016 22.8 624.6 647.3 Additions through business combinations 1.5 1.5 Additions 5.1 33.5 38.6 Disposals (8.7) (177.0) (185.7) Exchange differences (0.2) (6.1) (6.3) As at 31 December 2016 19.0 476.5 495.4 Uncompleted projects 61.2 61.2 As at 31 December 2016, including uncompleted projects 19.0 537.6 556.6

Depreciation and impairment losses As at 1 January 2016 (3.8) (377.4) (381.2) Depreciation for the year (52.8) (52.8) Disposals 3.6 162.5 166.2 Exchange differences 0.2 3.8 3.9 As at 31 December 2016 (263.9) (263.9)

Carrying amount As at 1 January 2016 19.0 274.7 293.7 As at 31 December 2016 19.0 273.8 292.7

Depreciation method Straight-line Straight-line Useful life (years) 10-50 3-10

1 Plant and equipment consist mainly of machinery, vehicles, fixtures and furniture.

NOK millions 2016 2015

Market value of land and owner-occupied property 35.1 34.6 Carrying amount of land and owner-occupied property 19.0 19.0 Excess value beyond carrying amount 16.1 15.6

Each component of owner-occupied property, plant and equipment eThere ar no restrictions on owner-occupied property, plant and are depreciated using the straight-line method over estimated equipment. Owner-occupied property, plant and equipment are not useful life. Land is not depreciated. Estimated useful life for the pledged as security for liabilities. period and comparable periods are between ten and 50 years for property, with technical installations having the highest depreciation The market value of owner-occupied property exceeds the carrying rate, and between three and ten years for plant and equipment. amount as shown above. For plant and equipment there is no material difference between the carrying amount and the market Owner -occupied property in Gjensidige Forsikring ASA mainly value. Some equipment, such as furniture, is fully depreciated, but consists of leisure houses and cottages. still in use.

Gjensidige annual report 2016 | 166 Gjensidige Forsikring ASA

8. Financial assets and liabilities Fair value Valuation based on non-observable market data Financial assets and liabilities measured at fair value are carried at When neither quoted prices in active markets nor observable the amount each asset/liability can be settled to in an orderly market data is available, the fair value of financial assets/liabilities is transaction between market participants at the measurements date estimated based on valuation techniques which are based on non- at the prevailing market conditions. observable market data.

Different valuation techniques and methods are used to estimate A financial asset/liability is considered valued based on non- fair value depending on the type of financial instruments and to observable market data if fair value is estimated without being which extent they are traded in active markets. Instruments are based on quoted prices in active markets or observable market classified in their entirety in one of three valuation levels in a data. Financial assets/liabilities valued based on non-observable hierarchy on the basis of the lowest level input that is significant to market data are classified as level three in the valuation hierarchy. the fair value measurement in its entirety. The following financial assets are classified as level three in the valuation hierarchy The different valuation levels and which financial assets/liabilities that are included in the respective levels are accounted for below. • Unlisted private equity investments. The private equity investments that are not organized as funds are valued using Quoted prices in active markets cash flow analysis, price multiples and recent market Quoted prices in active markets are considered the best estimate of transactions. The private equity investments that are an asset/liability’s fair value. A financial asset/liability is considered organized as funds are valued based on NAV (Net Asset valued based on quoted prices in active markets if fair value is Value) as reported by the fund administrators in accordance estimated based on easily and regularly available prices and these with IPEV guidelines (International Private Equity and Venture prices represent actual and regularly occurring transactions at capital Valuation. The NAV are estimated by the fund arm’s length principle. Financial assets/liabilities valued based on administrators by using the valuation techniques best suited to quoted prices in active markets are classified as level one in the estimate fair value, given the actual circumstances of each valuation hierarchy. underlying investment. Because of late reporting from the funds, the NAV from the previous quarterly reporting are used The following financial assets are classified as level one in the in estimating fair value. The NAV is then assessed for valuation hierarchy discretionary adjustments based on objective events since the last reporting date. Objective events may be the development • Listed shares in underlying values of listed companies since the last • Norwegian government/government backed bonds and other reporting, changes in regulations or substantial market fixed income securities movements. By substantial market movements in general or in • Exchange traded funds individual sectors, as measured by the development in various stock market indices, it is predictable that the value of PE Valuation based on observable market data investments will be affected as well. On the basis of what this When quoted prices in active markets are not available, the fair produces of information a final valuation is made. value of financial assets/ liabilities is preferably estimated on the • Real estate funds. The real estate funds are valued based on basis of valuation techniques based on observable market data. reported NAV values as reported by the fund administrators. Because of late reporting from the funds, the NAV values from A financial asset/liability is considered valued based on observable the previous quarterly reporting are used in estimating fair market data if fair value is estimated with reference to prices that value. are not quoted, but are observable either directly (as prices) or • Gjensidige’s paid-in capital in Gjensidige Pensjonskasse. The indirectly (derived from prices). paid-in capital is valued at nominal value.

The following financial assets/liabilities are classified as level two in the valuation hierarchy The valuation process for financial assets classified as level three • Currency derivatives, equity options and forward rate In consultation with the Investment Performance and Risk agreements, in which fair value is derived from the value of Measurement department, the Chief Investment Officer decides underlying instruments. These derivatives are valued using which valuation models will be used when valuing financial assets common valuation techniques for derivatives (option pricing classified as level three in the valuation hierarchy. The models are models etc.). evaluated as required. The fair value and results of the investments • Equity funds, bond funds, hedge funds and combination funds, and compliance with the stipulated limits are reported weekly to the in which fair value is estimated based on the fair value of the Chief Financial Officer and Chief Executive Officer, and monthly to underlying investments of the funds. the Board. • Bonds, certificates or index bonds that are unlisted, or that are listed but where transactions are not occurring regularly. The unlisted instruments in this category are valued based on Sensitivity financial assets level three The sensitivity analysis for financial assets that are valued on the observable yield curves and estimated credit spreads where basis of non-observable market data shows the effect on profits of applicable. realistic and plausible market outcomes. General market downturns • Interest-bearing liabilities (banking activities) measured at fair or a worsening of the outlook can affect expectations of future cash value. These liabilities are valued based on observable credit flows or the applied multiples, which in turn will lead to a reduction spreads. in value. A fall in value of ten per cent is deemed to be a realistic • Listed subordinated notes where transactions are not and plausible market outcome for shares and similar interests, as occurring regularly. well as bonds and other securities with a fixed return that are included in level three of the valuation hierarchy.

Gjensidige annual report 2016 | 167 Gjensidige Forsikring ASA

Carrying Fair Carrying Fair amount as at value as at amount as at value as at NOK millions Notes 31.12.2016 31.12.2016 31.12.2015 31.12.2015

Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 1,207.8 1,207.8 275.6 275.6 Financial derivatives subject to hedge accounting 52.2 52.2

Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 12 6,134.4 6,134.4 7,130.6 7,130.6 Bonds and other fixed income securities 23,108.2 23,108.2 24,205.7 24,205.7

Financial assets held to maturity Bonds held to maturity 1,226.8 1,286.3 1,797.1 1,925.0

Loans and receivables Bonds and other fixed income securities classified as loans and receivables 9 15,895.8 17,160.4 16,173.2 17,439.1 Loans 9 123.1 123.1 165.1 165.1 Receivables related to direct operations and reinsurance 5,323.0 5,323.0 4,696.7 4,696.7 Receivables from Group companies 22 89.5 89.5 61.0 61.0 Other receivables 9 833.5 833.5 367.2 367.2 Prepaid expenses and earned, not received income 4.2 4.2 25.7 25.7 Cash and cash equivalents 10, 11 1,143.0 1,143.0 1,704.5 1,704.5

Total financial assets 55,089.2 56,413.4 56,654.6 58,048.4

Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 1,173.1 1,173.1 366.3 366.3

Financial liabilities at amortised cost Subordinated debt 21 1,197.7 1,155.8 1,197.4 1,135.7 Other liabilities 15 1,252.9 1,252.9 970.4 970.4 Liabilities related to direct insurance and reinsurance 377.8 377.8 474.8 474.8 Accrued expenses and deferred income 15 301.4 301.4 297.2 297.2 Liabilities within the group 22 43.1 43.1 22.2 22.2

Total financial liabilities 4,346.0 4,304.1 3,328.3 3,266.6

Gain/(loss) not recognised in profit or loss 1,366.1 1,455.5

168 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

Valuation hierarchy 2016

The table shows a valuation hierarchy where financial assets/liabilities are divided into three levels based on the method of valuation.

Level 1 Level 2 Level 3 Valuation Valuation techniques techniques Quoted prices based on based on non- in active observable observable NOK millions markets market data market data Total

Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 1,207.8 1,207.8

Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 807.6 3,764.6 1,562.2 6,134.4 Bonds and other fixed income securities 6,711.7 15,063.0 1,333.5 23,108.2

Financial assets at amortised cost Bonds held to maturity 1,286.3 1,286.3 Bonds and other fixed income securities classified as loans and receivables 17,158.9 1.5 17,160.4 Loans 123.1 123.1

Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 1,173.1 1,173.1

Financial liabilities at amortised cost Subordinated debt 1,155.8 1,155.8

Valuation hierarchy 2015

The table shows a valuation hierarchy where financial assets/liabilities are divided into three levels based on the method of valuation.

Level 1 Level 2 Level 3 Valuation Valuation techniques techniques Quoted prices based on based on non- in active observable observable NOK millions markets market data market data Total

Financial assets Financial derivatives Financial derivatives at fair value through profit or loss 275.6 275.6 Financial derivatives subject to hedge accounting 52.2 52.2

Financial assets at fair value through profit or loss, initial recognition Shares and similar interests 1,092.2 4,110.6 1,927.9 7,130.7 Bonds and other fixed income securities 7,462.6 14,568.6 2,174.5 24,205.7

Financial assets at amortised cost Bonds held to maturity 1,925.0 1,925.0 Bonds and other fixed income securities classified as loans and receivables 17,437.5 1.6 17,439.1 Loans 165.1 165.1

Financial liabilities Financial derivatives Financial derivatives at fair value through profit or loss 366.3 366.3

Financial liabilities at amortised cost Subordinated debt 1,135.7 1,135.7

Gjensidige annual report 2016 | 169 Gjensidige Forsikring ASA

Reconciliation of financial assets valued based on non-observable market data (level 3) 2016

Amount of net realised/un- realised gains Net recognised in realised/ profit or loss unrealised Trans- that are gains fers attributable to recognised into/out instruments As at in profit or Purch- Settle- of Currency As at held as at NOK millions 1.1.2016 loss ases Sales ments level 3 effect 31.12.2016 31.12.2016

Shares and similar interests 1,927.9 (350.7) 171.8 (186.8) 1,562.2 (303.9) Bonds and other fixed income securities 2,174.5 (114.3) 324.2 (119.2) (832.9) (98.7) 1,333.5 24.0 Total 4,102.4 (465.0) 496.0 (306.0) (832.9) (98.7) 2,895.7 (279.9)

Sensitivity of financial assets valued based on non-observable market data (level 3) 2016

NOK millions Sensitivity

Shares and similar interests Decrease in value 10% 156.2 Bonds and other fixed income securities Decrease in value 10% 133.4 Total 289.6

Reconciliation of financial assets valued based on non-observable market data (level 3) 2015

Amount of net realised/un- realised gains Net recognised in realised/ profit or loss unrealised Trans- that are gains fers attributable to recognised into/out instruments As at in profit or Purch- Settle- of Currency As at held as at NOK millions 1.1.2015 loss ases Sales ments level 3 effect 31.12.2015 31.12.2015

Shares and similar interests 2,124.9 (142.3) 278.3 (333.0) 1,927.9 (226.9) Bonds and other fixed income securities 406.0 56.1 1,749.7 (37.3) 2,174.5 Total 2,306.4 63.3 692.0 (530.8) 2,531.0 (85.7)

Sensitivity of financial assets valued based on non-observable market data (level 3) 2015

NOK millions Sensitivity

Shares and similar interests Decrease in value 10% 192.8 Bonds and other fixed income securities Decrease in value 10% 217.4 Total 410.2

Hedge accounting Net investment in the foreign operation hedged through designated currency-related contracts that were Gjensidige Forsikring utilized hedge accounting of currency renewed every quarter at a principal equal to the value of the exchange differences on the net investment in the foreign operation investment. In this way, the hedging efficiency was measured per until the second half-year of 2015. The net investments were hedging object. The credit risk associated with the hedging derivatives was within the limits of Gjensidige's credit policy.

170 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

9. Loans and receivables

NOK millions 2016 2015

Loans and receivables Bonds classified as loans and receivables 15,895.8 16,173.2 Other loans 121.3 163.2 Subordinated loans 3.9 3.7 Provision for impairment losses (2.1) (1.8) Total loans and receivables 16,018.9 16,338.3

Nominal value Cost Market value NOK millions 2016 2015 2016 2015 2016 2015

Subordinated loans Midvest I 1.0 1.0 1.0 1.0 1.1 1.1 Midvest II 1.0 1.0 1.0 1.0 1.1 1.1 Norinnova Invest 1.5 1.5 1.5 1.5 1.7 1.5 Vervet AS 24.0 24.0 Total subordinated loans 3.5 27.5 3.5 27.5 3.9 3.7

Vervet AS was sold in 2016. Interest accrues only on Midvest I og Midvest II.

NOK millions 2016 2015

Provision for impairment losses Provision for impairment losses as at 1 January 1.8 2.8 Change in provision for impairment losses for the period 0.3 (1.0) Provision for impairment losses as at 31 December 2.1 1.8

Other receivables Receivables in relation with asset management 700.0 272.0 Receivables SOS International 19.4 21.3 Receivables regarding to real estate 54.5 16.2 Other receivables 59.5 57.7 Total other receivables 833.5 367.2

Bonds are securities classified as loans and receivables in Included in other loans are also NOK 40.0 million (60.7) regarding accordance with IAS 39. loans given with regard to sale of subsidiaries.

Of other loans NOK 80.3 million (101.6) are loans given to The recognition of impairment losses is done on each loan agricultural customers. The loans are in their entirety intended for individually on the basis of objective evidence. Impairment instalment of fire detection systems with these customers. There is assessments are not done on groups of loans. no mortgage attached to the loans, and the terms vary from one year to over 20 years. Gjensidige Forsikring has not offered this Beyond the liabilities that arise from insurance contracts, Gjensidige type of loan to its customers since 2008. The default rate is 1.47 per Forsikring has not issued guarantees for which provisions have cent (1.00) at year end. been made.

10. Cash and cash equivalents

NOK millions 2016 2015

Deposits with financial institutions 353.4 737.1 Cash and bank deposits 789.6 967.5 Total cash and cash equivalents 1,143.0 1,704.5

Cash and bank deposits are cash and bank deposits available for Weighted average rate for interest earned on cash, bank deposits day to day business. Deposits with financial institutions consist of and deposits with financial institutions is approximately 0.7 per cent short-term currency deposits and other short-term credit deposits. (0.8).

11. Restricted funds

NOK millions 2016 2015

Restricted bank deposits Source-deductible tax accounts 72.6 70.5 Total restricted bank deposits 72.6 70.5

Gjensidige annual report 2016 | 171 Gjensidige Forsikring ASA

12. Shares and similar interests

Organisation Interest NOK millions number beyond 10% 31.12.2016

Gjensidige Forsikring ASA Norwegian financial shares Sparebank 1 SR-Bank ASA 937 895 321 747.7 Sparebank 1 SMN 937 901 003 6.8 Sparebank 1 BV 944 521 836 6.6 Aker ASA 886 581 432 5.8 Sparebanken Vest 832 554 332 4.4 Total Norwegian financial shares 771.5

Other Norwegian shares Statoil ASA 923 609 016 8.4 Petroleum Geo-Services ASA 916 235 291 4.1 Kongsberg Gruppen ASA 943 753 709 4.1 Telenor ASA 982 463 718 4.1 Yara International ASA 986 228 608 3.4 Norwegian Air Shuttle ASA 965 920 358 3.3 XXL ASA 995 306 158 2.9 DNO ASA 921 526 121 2.1 Total other Norwegian shares 32.4

Other foreign shares Deutsche Wohnen AG 11.3 Vonovia SE 10.3 LEG Immobilien AG 9.5 Novo Nordisk A/S 8.7 Grand City Properties SA 8.4 Telefonaktiebolaget LM Ericsson 3.0 Total other foreign shares 51.2

Equity funds Fisher Emerging Markets Equity Fund USD 281.5 Storebrand Global Indeks I 989 133 241 281.4 Nordea Stabile Aksjer Global 989 851 020 258.4 Nordea 1 SICAV Stable Emg. Market Equity B1- USD 231.0 Winton UCITS Funds plc - Winton Global Equity Fund 212.9 Danske Invest Norske Aksjer Institusjon I 981 582 020 174.1 Storebrand Norge 938 651 728 170.0 Sector Global Equity Kernel Fund Class P USD 150.0 INVESTEC GS GLOBAL EQTY-I$ 148.4 DB Platinum CROCI World ESG Fund 69.0 VanEck Vectors Gold Miners Etf 10.8 Total equity funds 1,987.3

172 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

Organisation Interest NOK millions number beyond 10% 31.12.2016

Private equity investments 1 HitecVision Private Equity V LP 94.1 Argentum Secondary III 91.4 HitecVision Asset Solution KS 81.2 HitecVision VI LP 58.7 SOS International A/S 51.5 Verdane Capital VII KS 43.8 Norvestor V LP 42.2 BaltCap PEF LP 39.9 HitecVision Private Equity IV LP 37.5 Altor Fund II LP 33.3 Viking Venture III DIS 33.1 Norvestor VI LP 32.0 CapMan Buyout X 31.4 Energy Ventures III LP 27.4 Partners Group European Buyout 2005 (A) LP 26.7 Northzone VII L:P 24.1 Argentum Secondary II 22.7 HitecVision VII 21.2 CapMan BO IX LP 20.1 Northzone VI L.P. 17.4 Procuritas Capital Investor V 17.2 Teknoinvest VIII C IS 16.5 Sector Asset Management AS 887 139 342 15.9 NPEP1 IS (Altor fund III) 14.9 FSN Capital II LP 14.9 Norvestor VII LP 14.8 Verdane Capital VI KS 14.4 Partners Group Direct Investments 2006 LP 14.4 Energy Ventures II B IS 14.3 Energy Ventures IV LP 13.8 Norvestor IV LP 13.7 LGT Crown European Private Equity PLC 12.6 NPEP Triton IV IS 12.3 Axcel IV 11.5 Nordic Additonal Funding Programme IS 9.1 NPEP NeoMed V (Neomed V LP og N5 invest IS) 9.0 NPEP EQT VII IS 8.6 Scalepoint Technologies Limited 7.1 Helgeland Invest AS 939 150 234 6.7 Nord II IS 6.1 Energy Ventures II KS 988 015 105 5.7 NPEP Accent Equity 2012 IS 5.5 Viking Venture II AS 987 493 550 5.6 Teknoinvest VIII B DIS 5.4 Teknoinvest VIII KS (inkl. Teknoinv. VIII (GP) KS) 984 641 516/984 641 494 5.2 Viking Venture II B IS 4.4 Energy Venture V LP 3.8 Tun Media AS 982 519 985 3.7 Northzone VIII L.P. 2.8 Northzone IV KS 2.7 Norinnova Technology Transfer AS 957 915 035 2.1 Midvest I A 991 773 754 2.1 NPEP Verdane IX IS 1.5 Fjord Invest AS 983 527 833 1.4 Midvest II A 991 773 762 1.3 Norinnova Invest AS 991 080 961 1.3 Kapnord Fond AS 989 533 800 1.1 Viking Venture II AS (C-shares) 987 493 550 1.1 Other private equity investments 5.5 Total private equity investments 1,139.5

1 Norwegian Private Equity funds organised as internal partnerships doesn't have organisation number

Gjensidige annual report 2016 | 173 Gjensidige Forsikring ASA

Organisation Interest NOK millions number beyond 10% 31.12.2016

Hedge funds Sector Healthcare - A USD 290.9 Goldman Sachs Global Opportunities Offshore Fund 205.8 Winton Futures Fund- Lead Series 148.2 Sector EuroPower Fund Class A EUR 102.2 Incentive Active Value Fund Cl. A EUR Unrestricted 96.8 Sector Zen Fund NOK 90.5 Sector Speculare IV Fund Class A USD 9.2 Sector Speculare II Fund Class A USD 2.7 Sector Spesit I Fund Class A USD 0.5 Total hedge funds 947.0

Real estate funds CEREP III 35.8 La Salle 13.0 Total real estate funds 48.8

Combination funds Shenkman Finsbury Global 1,045.3 Total combination funds 1,045.3

Other investments Gjensidige Pensjonskasse 94.7 % 111.0 Total other investments 111.0

Shares and similar interests owned by branches Shares and similar interests owned by Gjensidige Forsikring ASA, Danish branch 0.3 Total shares and similar interests owned by branches 0.3

Total shares and similar interests owned by Gjensidige Forsikring ASA 6,134.4

174 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

13. Insurance-related liabilities and reinsurers' share

NOK millions 2016 2015

Insurance-related liabilities, gross Provision for unearned premiums, gross 8,585.9 8,238.4

Claims reported and claims handling costs 15,593.1 17,038.3 Claims incurred, but not reported 15,209.4 14,614.3 Total claims provision, gross 30,802.6 31,652.5

Other insurance-related provisions 56.3 44.5

Total insurance-related liabilities, gross 39,444.8 39,935.4

Insurance-related liabilities, reinsurers' share Reinsurers' share of unearned premiums, gross 115.5 32.0

Claims reported and claims handling costs 512.2 356.1 Claims incurred, but not reported 5.7 Total reinsurers' share of claims provision, gross 512.2 361.7

Total reinsurers' share of insurance-related liabilities, gross 627.7 393.7

Insurance-related liabilities, net of reinsurance Provision for unearned premiums 8,470.4 8,206.4

Claims reported and claims handling costs 15,080.9 16,682.2 Claims incurred, but not reported 15,209.4 14,608.6 Total claims provision, net of reinsurance 30,290.3 31,290.8

Other insurance-related provisions 56.3 44.5

Total insurance-related liabilities, net of reinsurance 38,817.0 39,541.7

2016 2015 Reinsurers' Net of re- Reinsurers' Net of re- Movements in insurance-related liabilities and reinsurers' share Gross share insurance 1 Gross share insurance 1

Claims and claims handling costs Claims reported and claims handling costs 17,038.3 (356.1) 16,682.2 15,930.5 (501.0) 15,429.5 Claims incurred, but not reported 14,614.3 (5.7) 14,608.6 16,051.4 16,051.4 Total as at 1 January 31,652.5 (361.7) 31,290.8 31,981.9 (501.0) 31,480.9

Acquisitions through business combinations 348.3 (247.7) 100.6 50.5 50.5 Claims paid, prior year claims (5,941.3) 92.1 (5,849.2) (6,592.7) 199.8 (6,392.9)

Increase in liabilities Arising from current year claims 16,202.2 (479.2) 15,723.0 14,739.6 (2.6) 14,736.9 - of this paid (10,163.7) 485.5 (9,678.2) (8,327.0) 2.2 (8,324.8) Arising from prior year claims (run-off) (996.9) (18.0) (1,014.8) (736.2) (30.8) (767.0) Other changes, including effects from discounting 239.4 239.4 (0.5) (0.5) Exchange differences (538.0) 16.8 (521.2) 536.9 (29.3) 507.6 Total as at 31 December 30,802.6 (512.2) 30,290.3 31,652.5 (361.7) 31,290.8

Claims reported and claims handling costs 15,593.1 (512.2) 15,080.9 17,038.3 (356.1) 16,682.2 Claims incurred, but not reported 15,209.4 15,209.4 14,614.3 (5.7) 14,608.6 Total as at 31 December 30,802.6 (512.2) 30,290.3 31,652.5 (361.7) 31,290.8

Provisions for unearned premiums As at 1 January 8,238.4 (32.0) 8,206.4 7,836.7 (28.7) 7,808.0 Additions through acquisitions 342.0 (251.2) 90.8 Increase in the period 22,079.9 (431.5) 21,648.4 21,320.2 (449.9) 20,870.3 Earned in the period (21,930.6) 578.0 (21,352.6) (21,024.4) 447.2 (20,577.2) Exchange differences (143.8) 21.2 (122.6) 105.9 (0.6) 105.3 Total as at 31 December 8,585.9 (115.5) 8,470.4 8,238.4 (32.0) 8,206.4

1 For own account.

NOK millions 2016 2015 Discounted claims provision, gross - workers' compensation insurance in Denmark 4,905.2 5,067.4 Nominal claims provision, gross - workers' compensation insurance in Denmark 5,449.1 5,794.7

The claims provisions shall cover future claims payments. The claims for occupational injuries in Denmark are paid either as claims provisions for workers’ compensation insurance in Denmark annuities or as lump-sum indemnities (which are calculated mainly are converted to present value (discounted), whereas other as discounted annuities). Therefore, it is most expedient to regard provisions are undiscounted. the whole portfolio as annuities. The discount rate used is the swap rate. The reason why the claims provisions for workers’ compensation insurance in Denmark are discounted is that this portfolio consists Over the next 3-5 years, average annual run-off gains are expected exclusively of Danish workers’ compensation business with very to be around NOK 900 million, moving the expected reported long payment flows and substantial future interest income. The combined ratio to the lower end of the 86-89 corridor (undiscounted).

Gjensidige annual report 2016 | 175 Gjensidige Forsikring ASA

14. Pension

Gjensidige Forsikring is required to have an occupational pension assets as of the beginning of the year is recognised under Other plan pursuant to the Norwegian Act relating to Mandatory comprehensive income. In 2016, this had a negative effect on Occupational Pensions. The Company’s pension plans meet the equity of approximately NOK 26 million. In addition, non-available requirements of the Act. excess funding of approximately NOK 133 million was recognised, so that the sum of the negative effect on equity was approximately The defined benefit pension plan is a closed plan. New employees NOK 159 million. In 2015, this had a positive effect on equity of become members of the defined contribution pension plan. approximately NOK 70 million, which was primarily due to a increased discount rate. Defined contribution plan Defined contribution pension is a private pension plan that Actuarial assumptions supplements the National Insurance scheme. Benefits from the The discount rate is based on a yield curve stipulated on the basis pension plan come in addition to retirement pension from the of the covered bond yield. The discount rate is based on observed National Insurance scheme. The retirement age is 70. interest approximately ten years ahead. The market’s long-term view of the interest rate level is estimated on the basis of the required real interest rate, inflation and future credit risk. An Disability pension, spouse/cohabitant pension and child’s pension interpolation has been made in the period between the observed are also included in the plan subject to more detailed rules. interest and long-term market expectations. A discount curve has thus been calculated for each year in which pensions will be With effect from and including 2016, Gjensidige changed its disbursed. The discount rate for a pension payment is 2.44 per cent contribution rates and cut-off point as an adaptation to the new Act (2.55) in year 10, 2.77 per cent (2.89) in year 15, 3.02 per cent relating to Company Pension Schemes. The new rates are seven (3.05) in year 20, 3.19 per cent (3.16) in year 25, 3.31 per cent per cent of earnings between 0 and 7.1 times the National (3.22) in year 30, and 3.46 per cent (3.30) in year 40. Insurance basic amount (G) and 20 per cent of earnings between 7.1 and 12 G. The discount rate is the assumption that has the greatest impact on the value of the pension liability. Wage growth, pension increases Gjensidige Forsikring’s branches and some of its subsidiaries have and the adjustment of the National Insurance basic amount are a defined contribution pension plan corresponding to the plan in based on historical observations and expected future inflation. Gjensidige Forsikring in Norway. Wage growth is set at 3.1 per cent, like the year before, and is adjusted for age based on a decreasing trend. The year-on-year Contributions to the defined contribution plan are recognised as an nominal wage growth 2016/17 is calculated to be 1.5 per cent, expense in the year the contribution is paid. which is a decrease from last year’s 1.6. The reason for the low wage growth is that the pension plan is closed to new members and Defined benefit plan that the average age of employee members is 56.6 years. Description of the plan Together with benefits from the National Insurance scheme and any Gjensidige uses GAP07, which is a dynamic mortality model that paid-up policies from former employment relationships, the takes account of the expected development in life expectancy. The retirement pension amounts to approximately 70 per cent of the assumptions on which the model is based are tested at regular final salary, given a full earning period of 30 years. The retirement intervals. age is 70, but it is 65 for underwriters. The sensitivity analysis is based on only one assumption being Disability pension, spouse/cohabitant pension and child’s pension changed at a time, while all the others remain constant. This is are also included in the plan subject to more detailed rules. In seldom the case, since several of the assumptions co-vary. The addition, Gjensidige has pension liabilities to some employees over sensitivity analysis has been prepared using the same method as and above the ordinary group pension agreement. This applies to the actuarial calculation of the pension liability in the balance sheet employees with a lower retirement age, employees who earn more is based on. than 12 times the National Insurance basic amount (G) and supplementary pensions. Risk The risk in the net pension liability is a combination of the pension The ordinary retirement pension is a funded plan where the plan itself (including regulatory risk), the pension liability, pension employer contributes by paying into the pension assets. Pension assets, financing level and the co-variation between pension over and above the ordinary group pension agreement is an liabilities and pension assets. unfunded plan that is paid for through operations. Gjensidige’s pension assets are managed by Gjensidige With effect from 2016, Gjensidige removed the clause concerning Pensjonskasse as an investment choice portfolio. This means that CPI indexing of current pensions. This was recognised as a plan Gjensidige decides itself how the pension assets are invested within change in the accounts. Income in the amount of approximately a set of limits that are approved by the board of the pension fund. NOK 480 million was recognised in the pension expense and the Gjensidige has a separate investment committee that decides how pension liability was reduced correspondingly. the pension assets are allocated. The investment choice portfolio entails a financial risk for Gjensidige Forsikring. Recognition Pension liabilities are valued at the present value of the future The financial risk is related to investments in equities, interest- pension benefits that, for accounting purposes, are deemed to have bearing securities and property. Most of the investments are in been accrued on the reporting date. Future pension benefits are securities funds and bonds. The financial risk comprises stock calculated on the basis of the expected salary at the time of market, interest rate, credit, currency and liquidity risk. retirement. Pension assets are valued at fair value. The net pension liability is the difference between the present value of the future Financial risk in pension assets is estimated using defined stress pension benefits and the fair value of the pension assets. A parameters for each asset class and assumptions about how the provision is made for employer’s National Insurance contributions development of the different asset classes will co-vary. during periods when underfunding arise. The net pension liability is shown in the balance sheet on the line for Pension liabilities. Any The largest risk factor is interest rate risk. net excess funding in the funded plan is recognised as Pension assets. Interest rate risk The pension assets’ exposure to interest rate risk is deemed to be The difference between the estimated pension liability and the moderate because the market value-weighted duration is estimated value of pension assets as of the previous financial year approximately three years. The portfolio value will fall by and the actuarial pension liability and the fair value of the pension

176 | Gjensidige annual report 2016 Gjensidige Forsikring ASA approximately three per cent in the event of a parallel shift in the The pension liabilities are only exposed to Norwegian kroner yield curve of plus one percentage point. (NOK).

The pension liabilities measured in the pension fund’s accounts Liquidity risk have a duration of approximately 12 years. The pension liabilities The liquidity risk in the pension assets is deemed to be low, since are exposed to interest rate risk. The discount rate is composed of there are short-term investments at all times that exceed short-term market interest rates for ten years, while, from year 20, it is based liabilities. The investments are deemed to be sufficiently liquid. on long-term equilibrium interest rates, and between year ten and year 20, it is interpolated linearly between market interest rates and Life expectancy and disability long-term equilibrium interest rates. A shift in the market interest The life expectancy assumptions are based on the table GAP07 rates will thereby directly affect the value of the cash flows until year developed by Gabler AS, a firm of actuarial consultants. This table ten and then have a falling effect for the next ten years. From year has been used since 31 December 2007. The assumptions on 20, the market interest rates will only have a marginal effect. which the table is based are systematically followed up every year. The table is unbiased and dynamic, so that life expectancy is An interest rate fall is the biggest risk, due to the long duration of improved every year. the liability. The pension liability will increase by 11.1 per cent in the event of a parallel shift in the whole yield curve of minus one No information has become available in 2016 to indicate that percentage point. The value will fall by 9.2 per cent in the event of GAP07 should be changed. A thorough review of GAP07 is an interest rate increase of one percentage point. scheduled to take place in 2017, however, and life expectancy assumptions for the population and in the banking and insurance Because of the relationship between pension liabilities and pension sector will be reassessed. There is uncertainty about how life assets, Gjensidige has an asset ceiling, since not all pension assets expectancy will develop, especially for men. The Financial can be used to pay future premiums. This means that the effect of a Supervisory Authority of Norway has adopted separate minimum decrease in the interest rate will be limited to liabilities attributable to requirements for life expectancy prices (K2013) for pension plans. current employees and that liabilities attributable to retired These requirements concern the minimum price a life insurance employees will remain relatively unchanged. An interest rate fall is company or pension fund shall charge to insure benefits. These the biggest risk, due to the long duration of the liability. An increase minimum prices thereby affect the size of the contributions that in the interest rate leads to a fall in the pension liabilities, but much must be made towards the annual earnings and for the minimum of the fall will lead to a potential pension increase. 35 per cent of the requirement for pension assets. pension assets are attributable to current employees. With time, however, employees will represent an increasingly lower proportion GAP07 has a shorter life expectancy than K2013. Everything else of the pension assets as a result of employees leaving or retiring. A being equal, this will mean that payment of the minimum greater proportion of the return will thereby go to retired and former requirement for pension assets will be based on a higher life employees, and less to the employer. This has been incorporated in expectancy than the corresponding measurement of the liability. the asset ceiling assessment. This means that a future increase in pensions will be included in the liability as a result of the payment being based on a longer life Credit risk expectancy. The pension assets’ exposure to credit risk is deemed to be moderate. The credit risk is managed by setting limits on the The disability frequency is based on table IR73. It measures biggest commitment and rating for individual investments. Most of disability in the long term. The prevalence of disability is low the pension fund’s fixed-income investments shall be within compared with many other employers. “investment grade”. Approximately five per cent of the total pension assets are global high-yield bonds. If the credit risk on a global In 2016, the realised value of disability events was lower than basis were to increase by a factor corresponding to the factor used expected (gain). Deaths led to a higher realised value than in stress tests for pension funds (equal to a deterioration in relation expected (loss). Realised life expectancy was somewhat lower than to the 99.5 percentile), this would lead to a fall of approximately nine expected (gain). Overall, a small gain has been recognised for this per cent in the bond portfolio. This corresponds to an average type of risk. widening of spreads of 1.9 per cent. Gjensidige’s employees could be involved in big disaster-like events The pension liabilities are exposed to some credit risk because the such as plane crashes, bus crashes, as spectators at sporting Norwegian covered bond yield, which forms the basis for events or through incidents in the workplace. If such an event determining the discount rate, entails a certain credit risk. occurs, the pension liability could significantly increase. Gjensidige has invested in disaster insurance that means that it will receive The credit mark-up (on ten-year swaps) at 31 December 2016 was compensation if such an event occurs. 0.67 per cent. Wage growth Based on the same stress tests as for the pension assets, the Future pension benefits depend on future wage growth and the liabilities would decrease by approximately 11.7 per cent based on development of the National Insurance basic amount (G). If wage a widening of spreads of 0.9 per cent. growth in the Company is lower than the increase in G, the benefits will be reduced. The Group assumes that wage growth is age- In total, the reduction in the liabilities would be slightly higher than dependent. A younger employee can expect higher annual wage the fall in the value of the pension assets. growth than an older employee.

Stock market risk Wage growth is based on expectations of growth in real wages in Over the year, the pension fund has been exposed to stock market Norway and inflation in Norway. Inflation is also part of the interest risk through unit trusts and purchase options. The exposure was rate. An increase in inflation will thus influence both wage growth 1.4 per cent (3.7) at the end of the year. Derivative contracts bring and the increase in the interest rate. Normally, this could reduce the the market exposure up to 20 per cent. The pension assets have pension liability somewhat. low exposure to the stock market. The greatest stock market risk is deemed to be the risk of a fall in the stock market. Real wage growth is estimated for Norway and is largely based on macroeconomic projections. The prevailing consensus in Currency risk macroeconomic circles is that it should be in the range of 1.5 to 2 All investments in foreign fixed-income funds are currency per cent. The average for the last 20 years has been 1.9 per cent. hedged. Investments have been made in currency-hedged funds. Foreign equity investments shall as a rule be currency Real wage growth is corrected for the age effect, so that the real hedged. Amounts due to the pension assets in Norwegian kroner wage growth for younger employees is stronger than for older shall at all times correspond to at least 70 per cent of the actuarial employees. A pension plan rarely has the same age composition as provisions. At year end, approximately one per cent of the pension the economy as a whole. This is particularly the case for assets were exposed to currency risk. Gjensidige’s pension plan, which is closed to new entrants.

Gjensidige annual report 2016 | 177 Gjensidige Forsikring ASA

Real wage growth will lead to an increase in the liabilities. Higher Gjensidige assumes that a continued low interest rates in future and inflation will lead to an increase in wages, pensions and the changes in EU based rules could entail an increase in future discount rate. contributions to the funded pension plan.

Gjensidige manages employees’ wage growth based on collective Private collective pension (AFP) agreements and individual agreements. Salary levels can increase As a member of Finance Norway, Gjensidige has a collective (AFP) strongly from one year to the next. pension agreement for its employees. AFP is a tariff-based pension plan for private sector employees. The benefit is life-long and can Operational risk be drawn from the age of 62, provided that the conditions in the Responsibility for administering the pension plans has been AFP statutes are met. AFP is therefore a defined benefit pension transferred to Gjensidige Pensjonskasse. Gjensidige plan. Pensjonskasse has its own employees and makes substantial purchases of services from professional suppliers of pension fund The AFP plan is based on a tripartite cooperation between the management and asset management services. The pension fund is employers’ organisations, the trade unions and the state. The state subject to internal control. Gjensidige considers the operational risk covers one-third of the pension expenses for the AFP plan, while to be low. the enterprises affiliated to the plan cover two-thirds collectively.

Minimum requirement for the level of pension assets The premium the enterprises pay to the plan is stipulated so that it The pension assets must meet certain minimum requirements covers current pension expenses and also provides a basis for defined in Norwegian laws, regulations and in orders issued by the building up a pension fund. The fund shall provide sufficient security Financial Supervisory Authority of Norway (FSA). for the coverage of expected future liabilities.

If the level of the pension assets falls below a lower limit, Gjensidige In 2016, the premium was 2.5 per cent (2.4) of employees’ earnings will have to pay extra pension contributions to bring them up to the between 1 and 7.1 times the National Insurance basic amount (G). lower limit. On certain conditions, Gjensidige will also be repaid pension assets. The administrator of the pension plan has not presented calculations that allocate the pension assets or liabilities in the plans A number of amendments to the Norwegian regulations were to the individual member enterprises. Gjensidige therefore proposed in 2016. The amendments have not been adopted yet. recognises the plan as a defined contribution plan. One of the proposed amendments is to make pension assets in the pension fund subject to a funding requirement in line with Solvency If the administrator of the AFP plan presents such allocation figures, II. The level of the pension assets is entering a period of political this could result in the plan being recognised as a defined benefit risk. plan. It is difficult, however, to arrive at an allocation key that is acceptable to Gjensidige. An allocation key based on the Low interest rates can lead to the Financial Supervisory Authority Gjensidige’s share of total annual pay will not be acceptable since instructing Gjensidige Pensjonskasse to lower interest rates from 2 such a key is too simple and will not adequately reflect the financial per cent to 1.5 per cent, or 1 per cent for new earned benefits. liabilities. Gjensidige expects there to be a high risk of the interest rates being reduced to 1 per cent if long-term government bond yields remain at the 1.3 per cent level.

Unfunded Unfunded NOK millions Funded 2016 2016 Total 2016 Funded 2015 2015 Total 2015

Present value of the defined benefit obligation As at 1 January 2258.8 528.7 2787.6 2,318.5 558.6 2,877.1 Current service cost 32.3 10.1 42.4 34.9 10.7 45.7 Employers' national insurance contributions of 4.6 1.4 6.0 4.9 1.5 6.4 current service cost Interest cost 62.0 12.9 74.9 56.8 12.3 69.1 Actuarial gains and losses 7.0 6.1 13.2 (63.6) (11.1) (74.7) Benefits paid (91.5) (38.0) (129.4) (89.5) (40.2) (129.7) Employers' national insurance contributions of (16.5) (5.1) (21.6) (5.7) (5.7) benefits paid Removed CPI indexing of current pensions (445.8) (31.0) (476.8) Business combinations (3.6) 10.4 6.7 (3.2) (3.2) The effect of the asset ceiling 132.7 132.7 Foreign currency exchange rate changes (2.4) (2.4) 2.5 2.5 As at 31 December 1,940.1 493.2 2,433.2 2,258.8 528.7 2,787.6

Amount recognised in the balance sheet Present value of the defined benefit obligation 1,940.1 493.2 2,433.2 2,258.8 528.7 2,787.6 Fair value of plan assets (2,426.3) (2,426.3) (2,352.0) (2,352.0) Net defined benefit obligation/(benefit asset) (486.2) 493.2 7.0 (93.1) 528.7 435.6

Fair value of plan assets As at 1 January 2,352.0 2,352.0 2,389.0 2,389.0 Interest income 66.0 66.0 59.9 59.9 Return beyond interest income (13.4) (13.4) (5.3) (5.3) Contributions by the employer 133.5 5.1 138.6 5.7 5.7 Benefits paid (91.5) (91.5) (89.5) (89.5) Employers' national insurance contributions of (16.5) (5.1) (21.6) (5.7) (5.7) benefits paid Business combinations (3.8) (3.8) (2.1) (2.1) As at 31 December 2,426.3 2,426.3 2,352.0 2,352.0

178 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

Unfunded Unfunded NOK millions Funded 2016 2016 Total 2016 Funded 2015 2015 Total 2015

Expense recognised in profit or loss Current service cost 32.3 10.1 42.4 34.9 10.7 45.7 Interest cost 62.0 12.9 74.9 56.8 12.3 69.1 Interest income (66.0) (66.0) (59.9) (59.9) Removed CPI indexing of current pensions (445.8) (476.8) Employers' national insurance contributions 4.6 1.4 6.0 4.9 1.5 6.4 Total defined benefit pension cost (412.9) (6.5) (419.5) 36.8 24.5 61.4

The expense is recognised in the following line in the income statement Insurance-related adm. expenses including provisions for received reinsurance and sales (412.9) (6.5) (419.5) 36.8 24.5 61.4 expenses Remeasurement of the net defined benefit liability/asset recognised in other comprehensive income Cumulative amount as at 1 January (2,138.1) (2,207.1) Return on plan assets (13.4) (5.3) Changes in demographic assumptions 5.8 2.6 Changes in financial assumptions (19.0) 71.7 The effect of the asset ceiling (132.7) Cumulative amount as at 31 December (2,297.3) (2,138.1)

Actuarial assumptions Discount rate 2.77% 2.80% Future salary increases 1 3.10% 3.10% Change in social security base amount 3.10% 3.10% Future pension increases 0.00% 1.90%

Other specifications Amount recognised as expense for the defined 188.5 142.1 contribution plan Amount recognised as expense for 24.1 23.3 Fellesordningen LO/NHO Expected contribution to Fellesordningen 25.0 23.3 LO/NHO next year Expected contribution to the defined benefit plan 0.0 0.0 for the next year

1 Future salary increases represent our expected average future salary increase for the industry. Since Gjensidige has a closed plan, average future salary increase for our population is 2.0 per cent (2.6). See explanation under Actuarial assumptions.

Change in Change in pension pension benefit benefit obligation obligation Per cent 2016 2015

Sensitivity 10% increased mortality (3.6%) (4.3%) 10% decreased mortality 2.7% 3.3% + 1% point discount rate (9.2%) (11.0%) - 1% point discount rate 11.0% 14.7% + 1% point salary adjustment 3.9% 4.3% - 1% point salary adjustment (3.0%) (3.3%) + 1% point social security base amount (1.5%) (1.6%) - 1% point social security base amount 1.7% 1.8% + 1% point future pension increase 9.0% 11.9% - 1% point future pension increase 0.0% (9.4%)

Gjensidige annual report 2016 | 179 Gjensidige Forsikring ASA

Valuation hierarchy 2016 Level 1 Level 2 Level 3 Valuation Valuation techniques techniques Quoted prices based on based on non- in active observable observable Total as at NOK millions markets market data market data 31.12.2016

Shares and similar interests 58.2 58.2 Bonds 1,785.7 509.5 2,295.3 Bank 9.7 9.7 Derivatives 63.1 63.1 Total 1,785.7 640.5 2,426.3

Valuation hierarchy 2015 Level 1 Level 2 Level 3 Valuation Valuation techniques techniques Quoted prices based on based on non- in active observable observable Total as at NOK millions markets market data market data 31.12.2015

Shares and similar interests 88.0 88.0 Bonds 960.1 1,162.3 2,122.4 Bank 54.6 54.6 Derivatives 87.0 87.0 Total 960.1 1,391.9 2,352.0

15. Provisions and other liabilities

NOK millions 2016 2015

Other provisions and liabilities Restructuring costs 1 186.4 85.8 Other provisions 140.8 250.1 Total other provisions and liabilities 327.2 335.8

Other liabilities Outstanding accounts Fire Mutuals 30.4 40.0 Accounts payable 236.6 182.5 Liabilities in relation with properties 3.5 1.2 Liabilities in relation with asset management 5.1 Liabilities to public authorities 499.8 340.7 Other liabilities 477.5 406.0 Total other liabilities 1,252.9 970.4

Other accrued expenses and deferred income Liabilities to public authorities 21.6 21.3 Accrued personnel costs 270.1 258.4 Other accrued expenses and deferred income 9.7 17.4 Total other accrued expenses and deferred income 301.4 297.2

Restructuring costs 1 Provision as at 1 January 85.8 7.1 New provisions 145.4 84.9 Provisions used during the year (44.0) (7.1) Exchange rate difference (0.8) 0.9 Provision as at 31 December 186.4 85.8

1 In 2016 NOK 145.4 million is allocated to restructuring provision, due to a decision of changes in processes in Norway, Denmark and Sweden. The processes have been communicated to all entities affected by the changes.

180 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

16. Tax Restated NOK millions 2016 2015

Specification of tax expense Tax payable (1,309.6) (895.4) Correction previous years (4.0) (14.5) Change in deferred tax (8.5) (188.7) Total tax expense (1,322.0) (1,098.5)

Deferred tax liabilities and deferred tax assets Deferred tax liabilities and deferred tax assets are offset when there is a legally enforceable right to offset those assets/liabilities and when deferred tax liabilities/deferred tax assets relate to the same fiscal authority. The amounts offset are as follows:

Taxable temporary differences Property, plant and equipment and intangible assets 846.1 1,214.1 Shares, bonds and other securities 133.8 227.6 Profit and loss account 210.8 229.5 Pension assets 45.8 Security provision 2,823.4 2,823.4 Total taxable temporary differences 4,059.9 4,494.5

Deductible temporary differences Loans and receivables (111.3) (97.9) Provisions for liabilities (327.2) (231.5) Pension liabilities (425.5) Total deductible temporary differences (438.5) (754.9)

Net temporary differences 3,621.4 3,739.7

Deferred tax liabilities/(deferred tax assets) 905.4 934.9

Reconciliation of tax expense Profit before tax 5,600.0 4,900.5 Estimated tax of profit before tax expense (25% in 2016 and 27% in 2015) (1,400.0) (1,323.1)

Tax effect of Dividend received 38.0 43.2 Tax exempted income and expenses 45.5 170.8 Non tax-deductible expenses (1.7) (39.5) Change in tax rate 64.5 Correction previous years (4.0) (14.5) Total tax expense (1,322.0) (1,098.5) Effective rate of income tax 23.6% 22.4%

Change in deferred tax Deferred tax liabilities as at 1 January 934.9 (31.1) Change in Norwegian Financial Reporting Regulation for Insurance Companies 760.9 Change in deferred tax recognised in profit or loss 8.5 188.7

Change in deferred tax recognised directly in the balance sheet Pensions (39.8) 17.1 Exchange differences (0.4) (0.6) Other changes 2.1 Net deferred tax liabilities/(deferred tax assets) as at 31 December 905.4 934.9

Tax recognised in other comprehensive income Deferred tax pensions 39.8 (18.4) Change in tax rate on pensions from 27% to 25% 1.4 Tax payable on hedge accounting (16.9) Tax payable on exchange rate differences 66.6 (79.8) Total tax on items in other comprehensive income 106.4 (113.8)

Tax cost In February 2015, Gjensidige received a decision from the Central Tax In connection with the conversion of Gjensidige Forsikring BA to a public Office for Large Enterprises in connection with the calculation of a tax limited company the Ministry of Finance has consented to an exemption gain as a result of the conversion of Gjensidige Forsikring BA into a from capital gains taxation on the transfer of business to the newly public limited company (ASA) in 2010. The decision means that the tax formed public limited company under certain conditions. The payable for 2010 is reduced by around NOK 35 million. The tax will be consequences of the tax relief decision have been incorporated into the further reduced for the ensuing years, by a total of around NOK 137 tax expense and tax liabilities from the fourth quarter 2010. The tax relief million at known tax rates. Gjensidigestiftelsen received a similar decision involves greater complexity and discretionary assessments, decision, and we have been informed that they have appealed the which entails a greater degree of uncertainty with respect to the tax decision on the grounds that there is no basis for the change and that expense and tax liabilities until all the effects have ultimately been the tax office has based its decision on an incorrect valuation. evaluated by the tax authorities. Gjensidige agrees with Gjensidigestiftelsen’s assessment. Changing the decision concerning Gjensidigestiftelsen will have tax consequences for Gjensidige in relation to the above-mentioned figures, which will then not materialize. The appeal is still being processed by the tax office.

Gjensidige annual report 2016 | 181 Gjensidige Forsikring ASA

17. Expenses

NOK millions 2016 2015

Insurance-related administration expenses incl. commissions for received reinsurance and sales expenses Depreciation and value adjustments (note 5 and note 7), excl. depreciation properties 332.3 292.2 Employee benefit expenses (note 18) 2,001.7 2,238.6 Fee for customer representatives 3.3 4.8 Software costs 398.2 350.2 Auditor’s fee (incl. VAT) 3.2 3.9 Consultants’ and lawyers’ fees 66.8 93.5 Commissions 483.5 626.9 Other expenses 1 (315.5) (492.5) Total insurance-related operating expenses incl. commissions for received reinsurance and sales 2,973.4 3,117.5 expenses

Of which sales expenses Employee benefit expenses 662.7 679.3 Commission 323.4 315.4 Other sales expenses 432.5 446.7 Total sales expenses 1,418.5 1,441.4

NOK millions 2016 2015

Other specifications

Employee benefit expenses Wages and salaries 1,844.1 1,662.3 Social security cost 378.2 339.6 Pension cost - defined contribution plan (note 14 incl. social security cost) 188.5 165.4 Pension cost - defined benefit plan (note 14 incl. social security cost) (419.5) 61.4 Share-based payment (note 25) 10.5 10.0 Total employee benefit expenses 2,001.7 2,238.6

Auditor's fee (incl. VAT) Statutory audit 2.6 2.6 Other assurance services 0.1 0.1 Other non-assurance services 0.5 0.5 Tax consultant services 0.1 0.7 Total auditor's fee (incl. VAT) 3.2 3.9

Administration expenses related to financial assets, excl. interest expenses, incl. administration expenses properties Depreciation and value adjustments (note 5 and note 7) 2.9 Other expenses 126.1 160.5 Total administration expenses related to financial assets, excl. interest expenses, incl. administration 126.1 163.4 expenses properties

1 Other expenses include cost reductions for Gjensidige Forsikring ASA in connection with duties performed for subsidiaries and cost allocations to claims and finance.

182 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

18. Salaries and remuneration

The average number of employees in the Group was 2,948 (2,926). Gjensidige’s remuneration scheme and market salary for corresponding positions. The Board’s statement on the stipulation of The fixed salary is assessed and stipulated annually on the basis of pay and other remuneration the wage growth in society in general and in the financial industry in Gjensidige’s remuneration policy particular. Variable remuneration (bonus) is decided by the Board The Group has established a remuneration system that applies to on the basis of agreed goals and deliveries. It can amount to up to all employees. The system shall secure that Gjensidige attracts and 50 per cent of the fixed salary including holiday pay. Variable keeps colleagues who performs, develops, learns and shares. The remuneration is earned annually and is based on an overall remuneration shall be competitive, but the Group shall not be a assessment of financial and non-financial performance over the last wage leader. Employees are expected to see the remuneration and two years. Variable pay is not included in the pension basis. The benefits offered by the Group as an overall whole. The Group’s assessment takes into account the enterprise’s overall performance remuneration systems shall be open and performance-based, so targets for return on equity adjusted for extraordinary dividends and that they, as far as possible, are perceived as being fair and transactions and combined ratio, as well as developments in predictable. The remuneration that is paid shall correspond to the customer satisfaction. In addition, it emphasizes the CEO’s agreed performance. personal contribution to the Group’s development and results, compliance with the Group’s vision, values, ethical guidelines and Guidelines for remuneration and career development shall be linked management principles. to achievement of the Group’s strategic and financial goals and core values, and both quantitative and qualitative targets shall be Variable remuneration relating to Gjensidige’s performance is taken into consideration. The measurement criteria shall promote decided on the basis of the past two years’ performance. Half of the the desired corporate culture and long-term value creation, and, as variable remuneration is paid in the form of a promise of shares in far as possible, take actual capital costs into account. The Gjensidige Forsikring ASA, 1/3 of which will be released in each of remuneration system shall contribute to promoting and providing the following three years. Restricted variable remuneration that has incentives for good risk management, prevent excessive risk-taking not yet been disbursed may be reduced if subsequent results and and contribute to avoiding conflicts of interest. A fixed basic salary developments indicate that it was based on incorrect assumptions. shall be the main element of the overall remuneration, which also The CEO does not receive performance-based benefits over and consists of variable pay, pension and payments in kind. Variable above the above-mentioned bonus, but may receive payments in remuneration shall be used to reward performances beyond the kind such as a company car and the coverage of costs for expected, where both results and behaviour in form of compliance electronic communication. Payments in kind shall be related to the of with the company values, brand and management principles are CEO’s function in the Group, and otherwise be in line with market to be assessed. practice.

Variable remuneration shall be performance-based without being a The retirement age of the CEO is 62. It is possible to step down risk driver, and shall reflect the results and contributions on after reaching the age of 60 if the Board or CEO so wishes. The company, division, department and individual level. Other elements CEO has pension rights pursuant to Gjensidige’s closed defined- of compensation offered should be considered attractive from both benefit pension scheme. Pursuant to the CEO’s employment new and current employees. contract, he is entitled to a pension corresponding to 100 per cent of his annual salary on retirement at the age of 62, which is then The senior group management should always be regarded as reduced in steps to 70 per cent upon reaching the age of 67 at full executive employees. By decision of which functions of the vesting period. company that shall be defined as employees with tasks of crucial importance for the company’s risk exposure, both qualitative criteria On retirement at the age of 60, a corresponding agreed reduction related to the role and quantitative criteria related to the level of applies from 100 per cent upon retirement to 70 per cent upon remuneration is to be taken into account. There must also be an reaching the age of 67. From the age of 67, the pension is individual assessment of each employee’s impact on company risk. calculated on the basis of the Company’s ordinary entitlement earning period of 30 years and is 70 per cent of the fixed salary with Decision-making process a full earning period. Company car arrangements and other benefits The Board has established a remuneration committee consisting of are retained until the age of 67. three members; the Chairman of the Board and two board members. The CEO has a period of notice of six months, and is not entitled to severance pay or termination benefits if he leaves the Company The remuneration committee shall prepare matters for earlier. consideration by the Board. It is primarily responsible for: Remuneration of executive personnel and employees who can • Drafting proposals for and following up compliance with the materially influence the Group’s risk Group’s guidelines and framework for remuneration Remuneration of the senior group management is stipulated by the • Annually considering and proposing the remuneration of the CEO, in accordance with limits discussed with the remuneration CEO committee and on the basis of guidelines issued by the Board. • Annually considering and drafting proposals for the CEO’s Correspondingly, the Group’s guidelines are used as the basis for scorecard other executive personnel and employees who can materially • Acting as adviser to the CEO in connection with the annual influence risk. assessment of the remuneration of the senior group management The overall remuneration is decided on the basis of the need to • Considering the management’s proposed ’Statement on the offer competitive terms in the various business areas. It shall stipulation of pay and other remuneration for executive contribute to attracting and retaining executive personnel with the personnel’ cf. the Public Limited Liability Companies Act desired expertise and experience who promote the Group’s core section 6-16a values and development. • Considering other important personnel matters relating to executive personnel The fixed salary is assessed and stipulated annually on the basis of wage growth in society in general and in the financial industry in Guidelines for the upcoming financial year particular. Variable remuneration (bonus) to executive personnel is Remuneration of the CEO earned annually, and is based on an overall assessment of financial The CEO’s salary and other benefits are stipulated by the Board on and non-financial performance over the two last years. The the basis of an overall assessment that takes into account assessment takes into account a combination of the enterprise’s overall performance targets for return on equity adjusted for

Gjensidige annual report 2016 | 183 Gjensidige Forsikring ASA extraordinary dividends and transactions and combined ratio, as Remuneration of personnel with supervisory tasks well as developments in customer satisfaction. In addition, it The remuneration of personnel with supervisory tasks shall be evaluates the target achievement of the business unit in question, independent of the performance of the business area they are in as well as personal contribution relating to compliance with the charge of. Group’s vision, values, ethical guidelines and management principles. Half of the variable remuneration is in the form of a None of the executive personnel with supervisory tasks currently promise of shares in Gjensidige Forsikring ASA, one third of which has variable bonus schemes, but they get to participate in the are released in each of the following three years. Restricted collective bonus scheme in the same manner as other employees. variable remuneration that has not yet been disbursed may be The fixed salary is based on the Group’s general principles of reduced if subsequent results and developments indicate that it was competitively, but not leading wages. based on incorrect assumptions. Pension benefits and payments in kind follow the Group’s general The individual variable remuneration may amount to up to 30 per arrangement. cent of the annual salary including holiday pay. Variable pay is not included in the pension basis. Remuneration of officers of the Company and other employees with remuneration corresponding to executive personnel After consulting with the remuneration committee, the CEO may The remuneration shall follow the guidelines set out above. There make exceptions for special positions if this is necessary to be able are currently no such employees. to offer competitive terms. Payments in kind to executive personnel shall be related to their function in the Group, and otherwise be in Binding guidelines for shares, subscription rights etc. for the line with market practice. upcoming financial year Of the variable pay earned in 2016 by the CEO and other The retirement age for members of the senior group management employees covered by the Regulations relating to remuneration in is 62, but one member of the group management has a retirement financial institutions, 50 per cent of the gross earned variable pay age of 70, in accordance with the national labour legislation. Of the will be given in the form of a promise of shares in Gjensidige current members of the senior group management, five are Forsikring ASA. One third of the shares will be released in each of members of the closed Norwegian defined-benefit pension scheme. the following three years. Given the full earnings period, they are entitled to a pension of 70 per cent of final salary at the full vesting period of 30 years. Three Share savings programme members are part of the Company’s defined-contribution pension The Board has decided to continue the Group’s share savings scheme. The Company continues a previously agreed individual programme for employees in 2016. The CEO and executive pension agreement for one member of the senior group personnel are entitled to take part in the programme on a par with management. other Gjensidige employees. Under the current programme, employees can save through deductions from their salary for the Members of the senior group management have a period of notice purchase of shares in Gjensidige Forsikring ASA for up to NOK of six months. One of the members has an agreement of up to 12 75,000 per year. Purchases take place quarterly following months payment if the person concerned has been given notice, publication of the results. A discount of 20 per cent of the purchase given that the termination of employment is not due to a substantial price is offered, limited upwards to NOK 1,500 in 2016 and NOK breach of contract. Other members of the senior group 3,000 from 2017. For those who keep the shares and are still management have no such agreements of severance pay or employed in the Group, one bonus share is awarded for every four payment of pay after termination of employment. share they have owned for more than two years.

With exception from one employee in the Group, there are no Report on executive remuneration in the severance pay arrangements for executive personnel who leave their position in Gjensidige Forsikring ASA. In accordance with preceding financial year In accordance with the guidelines, one employee in the finance practice in Denmark and the Baltic, there are certain individual department has been offered up to 50 per cent variable agreements on severance pay in connection with resignation in remuneration. The Board confirms that the guidelines on the Gjensidige Forsikring ASA in Denmark and the Baltic. remuneration of executive personnel for 2016 set out in last year’s statement have been complied with.

184 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

Key management personnel compensation 2016 Rights earned in the Calcu- financial Num- lated year Annual ber of Num- value of according vesting shares Num- ber of Earned total to defined share- assign- ber of shares Num- Retire- Fixed vari- benefits benefit based ed, not shares not re- ber of ment salary/ able other than pension pay- relea- relea- deem- shares con- NOK thousands fee salary cash plan 5 ment sed sed ed 6 held ditions

The senior group management Helge Leiro Baastad, CEO 4,927.7 998.9 129.2 1,594.7 1,119.0 8,109 11,465 18,662 43,491 2 Jørgen Inge Ringdal, Executive Vice President 2,582.6 339.3 196.4 722.5 380.3 2,399 3,864 5,948 19,811 2 Martin Danielsen, Executive Vice President (1.1.16-30.09.16) 1 1,810.6 19.3 560.0 2,286 3,501 5,325 3 Kim Rud-Petersen, Executive Vice President 2,940.0 423.7 231.6 617.6 421.7 3,123 4,021 6,871 9,698 Hege Yli Melhus Ask, Executive Vice President (1.1.16-01.10.16) 9 2,668.1 247.7 160.6 470.9 260.6 1,039 3,221 3,375 11,204 3 Catharina Hellerud, Executive Vice President 2,910.2 360.6 165.0 486.7 404.2 2,835 4,387 6,949 15,055 3 Cecilie Ditlev-Simonsen, Executive Vice President (1.1.16-11.11.16) 1 1,874.7 146.4 423.2 2,295 3,358 5,341 3 Sigurd Austin, Executive Vice President 2,725.5 375.2 132.0 614.9 397.8 2,809 3,821 6,524 9,349 3 Kaare Østgaard, Executive Vice President 2,732.3 304.9 171.3 763.6 324.7 2,432 3,866 6,127 11,103 3 Mats C. Gottschalk, Executive Vice President 2,913.3 379.6 157.5 486.2 425.4 3,135 4,441 7,391 10,569 3 Jostein Amdal, Executive Vice President (1.10.16-31.12.16) 1 781.1 104.4 40.8 97.5 117.2 32 38 283 13,193 3 Krister Georg Aanesen, Executive Vice President (1.10.16-31.12.16) 1, 10 662.3 90.5 37.7 57.5 80.7 25 197 854

The Board Inge K. Hansen, Chairman 544.8 7.3 12,253 Trond V. Andersen (1.1.16-6.4.16) 1 139.8 7.9 Hans-Erik Andersson (1.1.16-6.4.16) 1, 7 180.0 4.5 Gisele Marchand 8 412.5 1.5 1,481 1, 8 Knud Peder Daugaard (7.4.16-31.12.16) 3,000 John Giverholt (7.4.16-31.12.16) 1 Anne Marie Nyhammer, staff representative (1.9.16-31.12.16) 1 Kjetil Kristensen, staff representative (1.1.16-31.8.16) 1, 4, 8 317.2 Gunnar Mjåtvedt, staff representative 4, 8 364.0 1,975 Per Arne Bjørge 8 364.0 2.9 10,542 Mette Rostad 268.0 2.1 1,550 Tine Wollebekk 1, 8 299.6 1.5 Lotte Kronholm Sjøberg, staff representative 4 268.0 429

The Board, deputies Tore Vågsmyr, staff representative (1.1.16-6.4.16) 1, 4 702 Ellen Kristin Enger, staff representative (1.1.16-6.4.16) 1, 4 577

The control committee and supervisory board are liquidated as of 1 January 2016.

1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 4 For staff representatives only remuneration for the current position is stated. 5 Everyone in the senior group management except for one has pension plans, benefit or contribution based. 6 Including bonus shares in the share saving's programme for employees. See note 25 for terms and further description of the scheme. 7 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 144.5 thousand for 2016. 8 Remuneration includes participation in the Audit Committee honored with NOK 96.0 thousand for 2016. 9 Hege Yli Melhus Ask has been on leave from 1 October to 31 December. Her remuneration is presented for the whole year. 10 Constituted Executive Vice President for Hege Yli Melhus Ask from 1 October to 31 December.

Gjensidige annual report 2016 | 185 Gjensidige Forsikring ASA

Key management personnel compensation 2015 Rights earned in the Calcu- financial Num- lated year Annual ber of Num- value of according vesting shares Num- ber of Earned total to defined share- assign- ber of shares Num- Retire- Fixed vari- benefits benefit based ed, not shares not re- ber of ment salary/ able other than pension pay- relea- relea- deem- shares con- NOK thousands fee salary cash plan 6 ment sed sed ed 7 held ditions

The senior group management Helge Leiro Baastad, CEO 4,800.4 1,006.1 65.8 1,897.6 1,152.6 7,943 13,703 20,438 36,851 2 Jørgen Inge Ringdal, Executive Vice President 2,521.1 285.7 175.4 851.6 345.7 2,621 4,598 6,931 17,167 2 Martin Danielsen, Executive Vice President 12 2,425.1 275.4 160.3 670.3 334.2 2,400 4,434 6,236 17,863 3 Kim Rud-Petersen, Executive Vice President 2,882.0 515.3 223.6 583.0 522.9 2,869 3,997 7,194 7,463 Hege Yli Melhus Ask, Executive Vice President (11.5.15-31.12.15) 1, 10 2,572.6 111.1 158.4 255.5 150.2 1,422 4,604 5,286 9,366 3 Catharina Hellerud, Executive Vice President 2,838.8 340.6 163.1 268.2 407.3 3,088 5,154 7,931 12,135 3 Cecilie Ditlev-Simonsen, Executive Vice President 2,266.3 272.5 176.6 299.2 328.8 2,376 2,688 5,973 6,389 3 Sigurd Austin, Executive Vice President 2,618.5 337.4 75.3 711.9 377.9 2,785 4,354 7,000 6,805 3 Kaare Østgaard, Executive Vice President 2,625.2 302.7 169.0 921.0 364.8 2,792 4,556 7,052 8,926 3 Mats C. Gottschalk, Executive Vice President 2,838.8 378.5 156.4 255.0 449.7 3,243 3,269 8,092 7,621 3 Hans G. Hanevold, Executive Vice President (1.1.15-11.5.15) 1, 11 912.9 66.4 385.0 10.6 886 37 1,064 7,508

The Board Inge K. Hansen, Chairman 538.5 4.8 12,253 Trond V. Andersen 282.5 9.3 1,805 Hans-Erik Andersson 8 416.5 1.5 1,778 Gisele Marchand 9 369.5 1.5 1,481 Gunnhild H. Andersen, staff representative (1.1.15-28.5.15) 1, 5 230.8 Kjetil Kristensen, staff representative 5, 9 369.5 578 Gunnar Mjåtvedt, staff representative 5, 9 369.5 1,907 Per Arne Bjørge 9 369.5 3.1 10,542 Mette Rostad 275.5 6.8 1,550 Tine Wollebekk 268.5 1.5 Lotte Kronholm Sjøberg, staff representative (28.5.15-31.12.15) 1, 5 88.3 283

The Board, deputies Tore Vågsmyr, staff representative 5 655 Ellen Kristin Enger, staff representative (28.5.15-31.12.15) 1, 5 495

Control committee Sven Iver Steen, Chairman 172.5 1,778 Hallvard Strømme 108.0 1.7 Lieslotte Aune Lee 108.0 Vigdis Myhre Næsseth, Deputy 97.5

Supervisory board 4 Bjørn Iversen, Chairman 171.3 1.5 890 Christina Stray, Deputy Chairman 41.8

In addition 19 representatives from the company/Fire Mutuals/organisations/employees.

1 The stated remuneration applies to the period the individual in question has held the position/office. 2 Age 62, 100 per cent salary reducing gradually to 70 per cent at age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 3 Age 62, 70 per cent salary until age 67 according to time of earning, then Gjensidige Forsikring's ordinary pension terms will take effect. 4 Annual fee of NOK 93.5 thousand for Chairman and NOK 41.8 thousand for Deputy Chairman. In addition, fee as Chairman of the Nominating committee. 5 For staff representatives only remuneration for the current position is stated. 6 Everyone in the senior group management except for one has pension plans, benefit or contribution based. 7 Including bonus shares in the share saving's programme for employees. See note 25 for terms and further description of the scheme. 8 Remuneration includes participation as Chairman in the Audit Committee honored with NOK 141.0 thousand for 2015. 9 Remuneration includes participation in the Audit Committee honored with NOK 94.0 thousand for 2015. 10 Hege Yli Melhus Ask has been on leave from 1 January to 11 May. Her remuneration is presented for the whole year. 11 Constituted Executive Vice President for Hege Yli Melhus Ask from 1 January to 11 May. 12 Borrower in Gjensidige Bank ASA with NOK 4,474.0 thousand outstanding. Applicable conditions are 2.40% in interest rate and loan maturity 31.01.2021.

186 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

19. Net income from investments

NOK millions 2016 2015

Net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures Net income from investments in subsidiaries, associated companies and joint ventures 110.4 99.0 Impairment investments in subsidiaries, associated companies and joint ventures (94.2) Net gains/(losses) from sale of investments in subsidiaries, associated companies and joint ventures 2.9 681.4 Total net income and gains/(losses) from investments in subsidiaries, associated companies and joint ventures 19.1 780.4

Net income and gains/(losses) from buildings and other real estate Investment properties Rental income from investment properties, excl. unrealised gains/(losses) 12.0 Net revaluation investment properties 38.4 16.2 Net gains/(losses) from sale of investment properties 15.2 Administration expenses related to investment properties (1.4) Total net income and gains/(losses) from investment properties 38.4 41.9

Owner-occupied properties Rental income from owner-occupied properties 4.9 Net gains/(losses) from sale of owner-occupied properties 33.8 Administration expenses related to owner-occupied properties (3.6) Total net income and gains/(losses) from owner-occupied properties 35.1

Total net income and gains/(losses) from buildings and other real estate 38.4 77.0

Net income and gains/(losses) from financial assets at fair value through profit or loss, designated Shares and similar interests Dividend income 46.8 72.1 Unrealised gains/(losses) from shares and similar interests (369.8) (488.7) Realised gains/(losses) from shares and similar interests 556.8 578.1 Total net income and gains/(losses) from shares and similar interests 233.8 161.5

Bonds and other fixed-income securities Net interest income/(expenses) from bonds and other fixed-income-securities 260.7 265.1 Unrealised gains/(losses) from bonds and other fixed-income securities 137.5 (415.6) Realised gains/(losses) from bonds and other fixed-income securities 227.5 96.5 Total net income and gains/(losses) from bonds and other fixed-income securities 625.7 (54.0)

Derivatives Net interest income/(expenses) from derivatives 24.3 (26.9) Unrealised gains/(losses) from derivatives 208.7 156.3 Realised gains/(losses) from derivatives 29.2 (721.5) Total net income and gains/(losses) from derivatives 262.2 (592.1)

Total net income and gains/(losses) from financial assets at fair value through profit or loss, designated 1,121.7 (484.6)

Net income and gains/(losses) from bonds held to maturity Net interest income from bonds held to maturity 119.7 128.2 Unrealised gains/(losses) from bonds held to maturity 0.3 Net gains/(losses) from changes in exchange rates on bonds held to maturity 181.2 376.7 Total net income and gains/(losses) from bonds held to maturity 300.9 505.2

Net income and gains/(losses) from loans and receivables Net interest income/(expenses) from loans and receivables 739.2 800.5 Net gains/(losses) from loans and receivables (3.2) 67.4 Net gains/(losses) from changes in exchange rates on loans and receivables (21.6) 51.7 Total net income and gains/(losses) from loans and receivables 714.5 919.5

Net income and gains/(losses) from financial liabilities at amortised cost Net interest income/(expenses) from subordinated debt (31.6) (34.6) Total net income and gains/(losses) from financial liabilities at amortised cost (31.6) (34.6)

Net other financial income/(expenses) 1 (21.1) (327.1) Discounting of claims provision classified as interest expense (44.9) (57.1) Change in discount rate claims provision (194.5) 57.6

Total net income from investments 1,902.5 1,436.2

Specifications Interest income and expenses from financial assets and liabilities not recognised at fair value through profit or loss Interest income from financial assets not recognised at fair value through profit or loss 858.4 929.7 Interest expenses from financial assets not recognised at fair value through profit or loss (34.3) (35.7)

1 Net other financial income/(expenses) include financial income and expenses not attributable to individual classes of financial assets or liabilities, and financial administration costs.

Gjensidige annual report 2016 | 187 Gjensidige Forsikring ASA

20. Contingent liabilities

NOK millions 2016 2015

Guarantees and committed capital Gross guarantees 0.1 0.1 Committed capital, not paid 1,146.1 1,643.6

As part of its ongoing financial management, Gjensidige has Gjensidige Forsikring is liable externally for any insurance claim undertaken to invest up to NOK 1,146.1 million (1,643.6) in loan arising in the cooperation mutual fire insurers' fire insurance funds containing senior secured debt and various private equity and operations. real estate investments, over and above amounts recognized in the balance sheet. According to the agreement with Gjensidige Pensjonskasse, the return, if not sufficient to cover the pension plans guaranteed The timing of the outflow of capital is dependent on when the funds interest rate, should be covered from the premium fund or through are making capital calls from their investors. Average remaining contribution from Gjensidige Forsikring. operating time for the funds, based on fair value, is slightly less than four years (four) and slightly less than six years (six) in average including option for extension.

21. Hybrid capital

Subordinated debt Perpetual Tier 1 capital

FRN Gjensidige Forsikring FRN Gjensidige Forsikring ASA 2014/2044 SUB ASA 2016/PERP C HYBRID ISIN NO0010720378 NO0010771546 Issuer Gjensidige Forsikring ASA Gjensidige Forsikring ASA Principal, NOK millions 1,200 1,000 Currency NOK NOK Issue date 02/10/2014 08.09.2016 Maturity date 03/10/2044 Perpetual First call date 02/10/2024 08.09.2021 Interest rate NIBOR 3M + 1.50% NIBOR 3M + 3.60%

General terms Regulatory regulation Solvency II Solvency II Regulatory call Yes No

188 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

22. Related party transactions

Overview Gjensidige Forsikring ASA is the Group's parent company. As at 31 December 2016 the following companies are regarded related parties.

Registered office Interest held

Ultimate parent company Gjensigestiftelsen holds 62.24 per cent of the shares in Gjensidige Forsikring ASA Oslo, Norway

Subsidiaries ADB Gjensidige (merged company of Gjensidige Baltic AAS and PZU Lietuva SA) Vilnius, Lithuania 100.0 % Ejendomsselskabet Krumtappen 2 A/S Copenhagen, Denmark 100.0 % Försäkringsakademin JW AB Stockholm, Sweden 100.0 % Försäkringshuset Amb & Rosèn AB Stockholm, Sweden 100.0 % Gjensidige Bank Holding AS Oslo, Norway 100.0 % Gjensidige Investeringsrådgivning ASA Oslo, Norway 100.0 % Gjensidige Norge AS Oslo, Norway 100.0 % Gjensidige Pensjon og Sparing Holding AS Oslo, Norway 100.0 % Lokal Forsikring AS Oslo, Norway 100.0 % Mondux Assurance Agentur A/S Copenhagen, Denmark 100.0 % Mondux AB Malmö, Sweden 100.0 % NAF Forsikringsformidling AS Oslo, Norway 66.0 % Nykredit Forsikring A/S Copenhagen Denmark 100.0 % Samtrygd Eigedom AS Oslo, Norway 100.0 % Vardia Försäkring AB Stockholm, Sweden 100.0 %

Joint ventures Oslo Areal AS Oslo, Norway 50.0%

Other related parties Fire Mutuals All over the country, Norway Gjensidige Pensjonskasse Oslo, Norway 94.7%

Percentage of votes held is the same as percentage of interest held.

Transactions Income statement The table below shows transactions with related parties recognised in the income statement.

2016 2015 NOK millions Income Expense Income Expense

Gross premiums written ADB Gjensidige 32.4 18.8 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 5.5 4.0 Nykredit Forsikring A/S 1,041.8 1,037.2

Gross paid claims ADB Gjensidige 0.3 3.9 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 12.6 45.3 Nykredit Forsikring A/S 812.4 760.3

Change in gross provision for claims ADB Gjensidige 8.7 2.7 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 10.8 5.9 Nykredit Forsikring A/S 40.1 44.8

Gjensidige annual report 2016 | 189 Gjensidige Forsikring ASA

2016 2015 NOK millions Income Expense Income Expense

Administration expenses Försäkringshuset Amb & Rosèn AB 0.5 9.4 0.4 7.3 ADB Gjensidige 0.6 0.4 Gjensidige Bank ASA owned by Gjensidige Bank Holding AS) 30.4 32.3 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding 3.8 1.4 AS) Gjensidige Pensjon og Sparing Holding AS 8.6 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 61.5 42.2 Gjensidigestiftelsen 5.0 4.6 Mondux Affinity Aps 12.9 Mondux Assurance Agentur A/S 44.8 69.9 25.4 Mondux AB 0.4 0.5 NAF Forsikringsformidling AS 0.3 0.5 Nykredit Forsikring A/S 344.3 260.5 316.3 238.5 Vardia Försäkring AB 55.7 Oslo Areal AS 0.1 0.8 Tennant Assuranse AS (owned by Lokal Forsikring AS) 0.9 11.7

Interest income and expenses Oslo Areal AS 32.7 66.2

Co-operating companies 1 Fire Mutuals 20.7 142.7 18.6 140.1 Gjensidige Pensjonskasse 5.9 32.1

Total 1,665.7 1,389.5 1,608.1 1,275.2

1 Cooperating companies are defined as companies with which Gjensidige Forsikring has entered into a long-term strategic alliance.

Loans As at 31 December 2016 employees have loans in Gjensidige Bank amounting to NOK 1,501.0 million (1,225.3). The loans are offered on normal commercial conditions.

Income and losses The table below shows a summary of contributions/dividends from/to related parties as well as other gains and losses.

2016 2015 NOK millions Received Given Received Given

Group contributions Gjensidige Pensjon og Sparing Holding AS 8.8 0.9 Mondux AB 7.9 Tennant Assuranse AS (owned by Lokal Forsikring AS) 0.3 5.9

Dividends Gjensidige Pensjon og Sparing Holding AS 32.0 Gjensidige Pensjonskasse 9.5 9.5 Gjensidigestiftelsen 3,858.9 1,836.1 Nykredit Forsikring A/S 58.2 Oslo Areal AS 110.0

Total group contributions and dividends 119.8 3,875.6 105.5 1,837.0

In addition, the shares in Gjensidige Investeringsrådgiving AS (GIR) were distributed as dividend from Gjensidige Pensjon og Sparing Holding AS to Gjensidige Forsikring ASA. This was done according to accounting continuity and booked as a share split of Gjensidige Pensjon og Sparing Holding AS.

2016 2015 NOK millions Gains Losses Gains Losses

Gains and losses in connection with sale and liquidation Bilskadeinstituttet AS (liquidated in 2014) 2.0 Byggeriet Forsikringsservice A/S 0.8 Nordisk Forsikrings Service AS 2.3 Oslo Areal AS 1.3 718.6 Vervet AS 8.2 Försäkringproduktion i Sverige AB 4.0

Impairment losses Gjensidige Baltic AAS (merged into ADB Gjensidige in 2016) 13.5 Nykredit Forsikring A/S 94.2

Total gains and losses in connection with sale, liquidation and impairment losses 8.2 99.5 720.6 16.5

190 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

Intercompany balance The table below shows a summary of receivables/liabilities from/to related parties.

2016 2015 NOK millions Receivables Liabilities Receivables Liabilities

Intercompany non-interest-bearing debts and receivables ADB Gjensidige 4.6 3.4 Gjensidige Bank ASA (owned by Gjensidige Bank Holding AS) 0.9 Gjensidige Pensjon og Sparing Holding AS 11.6 31.6 0.9 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 16.5 3.1 21.1 Gjensidige Investeringsrådgivning AS (owned by Gjensidige Pensjon og Sparing Holding 0.1 0.1 AS) Gjensidigestiftelsen 0.8 1.0 Mondux Affinity Aps 11.6 Mondux Assurance Agentur A/S 16.0 5.0 Mondux AB 1.9 10.5 NAF Forsikringsformidling AS 0.1 0.5 Nykredit Forsikring A/S 56.9 31.1 Vardia Försäkring AB 7.6 Samtrygd 4.4 Tennant Assuranse AS (owned by Lokal Forsikring AS) 0.6 7.3 Total intercompany non-interest-bearing debts and receivables 89.5 43.1 77.9 38.7

Intercompany interest-bearing debts and receivables Oslo Areal AS 1,420.2 1,538.0 Total intercompany interest-bearing debts and receivables 1,420.2 1,538.0

Reinsurance deposits Nykredit Forsikring A/S 457.5 523.7 Total reinsurance deposits 457.5 523.7

Claims provision ADB Gjensidige 19.1 11.0 Gjensidige Pensjonsforsikring AS (owned by Gjensidige Pensjon og Sparing Holding AS) 25.2 14.3 Nykredit Forsikring A/S 457.5 523.7 Total claims provision 501.8 549.0

Total intercompany balances within the Group 1,967.2 544.9 2,139.6 587.7

Cooperating companies Fire Mutuals 30.7 39.9 Gjensidige Pensjonskasse 2 111.0 111.0 Total intercompany balances with cooperating companies 111.0 30.7 111.0 39.9

Total intercompany balance 2,078.2 575.5 2,250.6 627.6

2 Gjensidige Forsikring ASA is a sponsor of Gjensidige Pensjonskasse and has contributed with funds equivalent to NOK 111.0 million.

NOK millions Purchaser Seller 2016 2015

Other transactions Försäkringproduktion Portfolios Gjensidige Forsikring ASA 10.0 i Sverige AB Byggeriet Portfolios Gjensidige Forsikring ASA 48.1 Forsikringsservice A/S

Guarantees Gjensidige Forsikring is responsible externally for any insurance claim arising from the cooperating mutual fire insurers' fire insurance business, see note 20.

23. Events after the balance sheet date

No significant events have occurred after the balance sheet date.

Gjensidige annual report 2016 | 191 Gjensidige Forsikring ASA

24. Shareholders

The 20 largest shareholders as at 31 December 2016.

Investor Number of shares Ownership in %

Gjensidigestiftelsen 311,200,115 62.24% Folketrygdfondet 20,275,005 4.06% State Street Bank And Trust Co. Nominee 17,521,401 3.50% State Street Bank And Trust Co. Nominee 13,814,079 2.76% State Street Bank And Trust Co. Nominee 4,658,816 0.93% Danske Invest Norske Instit. II. 4,454,140 0.89% Clearstream Banking S.A. Nominee 3,719,697 0.74% State Street Bank And Trust Co. Nominee 3,402,995 0.68% State Street Bank And Trust Co. Nominee 3,068,158 0.61% State Street Bank And Trust Co. Nominee 2,840,680 0.57% Fidelity Funds - Global Dividend 2,570,000 0.51% Citibank, N.A. Nominee 2,389,008 0.48% J.P. Morgan Chase Bank N.A. London Nominee 1,963,375 0.39% Danske Invest Norske Aksjer Inst. 1,889,209 0.38% Klp Aksje Norge Indeks 1,841,787 0.37% State Street Bank And Trust Co. Nominee 1,813,611 0.36% J.P. Morgan Chase Bank N.A. London Nominee 1,807,859 0.36% Odin Norge 1,300,972 0.26% State Street Bank And Trust Co. Nominee 1,281,574 0.26% Nordea Nordic Fund 1,278,225 0.26% Number of shares 20 largest shareholders 403,090,706 80.62% Total number of shares 500,000,000 100.00%

The shareholder list is based on the VPS shareholder registry as of 31 December 2016. A shareholder list showing the owners behind nominee accounts can be found on page XX.

192 | Gjensidige annual report 2016 Gjensidige Forsikring ASA

25. Share-based payment Description of the share-based payment Equity-settled share savings program for employees Gjensidige has established a share savings programme for arrangements employees of the Group with the exception of employees of As at 31 December 2016, Gjensidige has the following share-based Gjensidige Baltic. All employees are given an opportunity to save payment arrangements: an annual amount of up to NOK 75,000. Saving take the form of fixed deductions from salary that is used to buy shares four times a Share-based remuneration for executive personnel with year. The employees are offered a discount in the form of a settlement in equity and cash (remuneration scheme) contribution of 20 per cent, limited upwards to NOK 1,500 kroner Gjensidige has established equity-settled share-based payment for per year, which corresponds to the maximum tax-exempt discount. the group management and more explicitly defined executive Employees will receive one bonus share for every four shares they personnel. have owned for more than two years, provided that they are still employed by the Company or have become retired. As described in the Board’s statement on the stipulation of pay and other remuneration in note 18, half of the variable remuneration is The fair value at grant date is based on the market price. The paid in the form of shares in Gjensidige Forsikring ASA, one third of discount is recognised as payroll expenses at the time of allocation. which can be sold in each of the following three years. Of this, The value of the bonus shares is recognised as payroll expenses rather on the big side 50 per cent is distributed as equity and only over the vesting period, which is two years. just 50 per cent is distributed as cash in order to pay tax liabilities (net of tax settlement). Fair value measurement The fair value at the grant date is measured based on the market The fair value of the shares allocated through the share-based price. The amount is recognised as payroll expenses at grant date. payment for executive personnel is calculated on the basis of the No specific company-related or market-related entitlement criteria share price at grant date. The amount is recognised immediately. apply to the shares, but the Company may carry out a The cash-settled share is adjusted consecutively based on the reassessment if subsequent results and development suggest that share price at the reporting time. the bonus was based on incorrect assumptions. The expected allocation is set to 100 per cent. The value of the cash-settled share Fair value of the bonus shares allocated through the share savings is adjusted at each reporting period based on the share price at this program is calculated on the basis of the share price at grant date, time. The number of shares is adjusted for dividend paid. taking into account the likelihood of the employee still being employed after two years and that he/she has not sold his/her shares during the same two-year period. The amount is recognised during the vesting period which is two years.

The following assumptions were used in the calculation of fair value at the time of calculation

Remuneration scheme Share savings programme 2016 2015 2016 2015

Weighted average share price (NOK) 143.60 131.40 141.86 128.91 Expected turnover N/A N/A 10% 10% Expected sale N/A N/A 5% 5% Lock-in period (years) 3 3 2 2 Expected dividend (NOK per share) 1 6.67 5.41 6.67 5.41

1 The expected return is based on the Group's actual profit/loss after tax expense as of the third quarter, grossed up to a full year, plus the maximum distribution of dividend corresponding to 80 per cent of the profit after tax expense. This was carried out as a technical calculation because the Company's forecast for the fourth quarter result was not available at the time the calculations were carried out.

Payroll expenses

NOK millions 2016 2015

Share-based remuneration for key personnel 5.2 5.6 Share savings programme for employees 5.3 4.4 Total expenses (note 17) 10.5 10.0

Share savings programme

2016 2015

The number of bonus shares Outstanding 1 January 71,537 67,370 Granted during the period 38,533 39,841 Movement to/(from) during the period (7) Released during the period (30,713) (30,770) Cancelled during the period (1,623) (896) Forfeited during the period (2,925) (4,008) Outstanding 31 December 74,802 71,537 Exercisable 31 December 0 0

Average remaining life of outstanding bonus shares 0.96 1.00 Weighted average fair value of bonus shares granted 122.90 112.88 Weighted average share price of bonus shares released during the period 142.43 128.75

Weighted average exercise price will always be 0, since the scheme comprises bonus shares and not options.

Gjensidige annual report 2016 | 193 Gjensidige Forsikring ASA

Remuneration scheme

Number of Number of Number of cash-settled Number of cash-settled shares 2016 shares 2016 shares 2015 shares 2015

The number of shares Outstanding 1 January 47,131 43,514 59,145 54,863 Granted during the period 17,873 16,517 17,824 16,435 Forfeited during the period (26,831) (24,859) (32,211) (29,225) Quantity adjusted during the period 420) (420) Modification dividend during the period 3,537 3,302 1,953 1,861 Outstanding 31 December 41,710 38,474 47,131 43,514 Exercisable 31 December 0 0 0 0

Average remaining life of outstanding shares 0.73 0.73 0.85 0.85

2016 2015

Weighted average fair value of shares granted 2 143.60 131.40 Weighted average share price of shares released during the period 143.59 126.87 Fair value of shares granted that are to be settled in cash 137.00 142.10

2 The fair value is calculated based on the market value of the share at the time of allocation.

Weighted average exercise price will always be 0, since the scheme comprises shares and not options.

194 | Gjensidige annual report 2016 Erklæring fra styret og daglig leder

DeclarationDeclaration from from the the Board Board and the and CEO the CEO

Today, the Board and the CEO have considered and approved the Board’s Report and the Annual Accounts for Gjensidige Forsikring ASA, the Group and the parent company, for the calendar year 2016 and as per 31 December 2016.

The consolidated accounts have been prepared in accordance with the EU-approved International Financial Reporting Standards (IFRS) and interpretations, together with the additional disclosure requirements that derive from the accounting regulation non-life insurance undertakings pursuant to the Norwegian Accounting Act and that shall be adopted as per 31 December 2016. The annual accounts for the parent company were submitted in accordance with the Accounting Act and the Regulations concerning accounting regulation for non-life insurance undertakings as per 31 December 2016. The Board’s Report for the Group and the parent company, including The Boards statement on corporate governance and corporate social responsibility, is in accordance with the requirements of the Accounting Act and Norwegian Accounting Standard no. 16 as per 31 December 2016.

To the best of our knowledge: • the annual accounts for 2016 for the Group and the parent company have been prepared in accordance with current accounting standards • the information in the accounts gives a true and fair view of the Group’s and the parent company’s assets, liabilities and financial position and results as a whole as per 31 December 2016 • The Board’s Report for the Group and the parent company gives a true and fair summary of: - the development, results and position of the Group and the parent company - the most important risk and uncertainty factors that the Group and parent company are currently facing

8 March 2017

The Board of Gjensidige Forsikring ASA

Inge K. Hansen Lotte K. Sjøberg Knud Peder Daugaard Chairman Board member Board member

John Giverholt Per-Arne Bjørge Gisele Marchand Board member Board member Board member

Gunnar Mjåtvedt Anne Marie Nyhammer Mette Rostad Board member Board member Board member

Tine G. Wollebekk Board member

Helge Leiro Baastad CEO

Gjensidige annual report 2016 I 195 Board'sRevisjonsberetning report

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Auditor’s Responsibilities for the Audit of the Financial Statements

196 I Gjensidige annual report 2016 Revisjonsberetning Auditor's Report - 2016 Gjensidige Forsikring ASA

Claims provision

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Value of goodwill

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Board's report Auditor's Report - 2016 Gjensidige Forsikring ASA

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4 Gjensidige annual report 2016 I 199 Board's report Auditor's Report - 2016 Gjensidige Forsikring ASA

(ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information

State Authorised Public Accountant

[Translation has been made for information purposes only]

5 200 I Gjensidige annual report 2016 Board's report

Gjensidige annual report 2016 I 201 Photo: Jo Michael de Figueiredo • Illustrations: byHands

Gjensidige is a leading Nordic insurance group listed on the Oslo Stock Exchange. We have about 4,000 employees and offer insurance products in Norway, Denmark, Sweden and the Baltic states. In Norway, we also offer banking, pension and savings. Operating income was NOK 25.5 billion in 2016, while total assets were NOK 136 billion.

Gjensidige Forsikring ASA Schweigaardsgate 21, 0191 Oslo P.O.box 700, Sentrum, 0106 Oslo Phone +47 22 96 80 00