Solvency and Financial Condition Reports

CONTENTS Summary………………………………………………………………………………………………………………………………………………………………4 A. Business and Performance………………………………………………………………………………………………………………………………..6 A.1 Business ...... 6 A.2 Underwriting Performance ...... 7 A.3 Investment Performance ...... 10 A.4 Performance of other activities ...... 13 A.5 Any other information ...... 13 B. System of Governance……………………………………………………………………………………………………………………………………..14 B.1 General information on the system of governance ...... 14 B.2 Fit and Proper requirements ...... 21 B.3 Risk management system including the own risk and solvency assessment ...... 23 B.4 Internal control system ...... 30 B.5 Internal audit function ...... 31 B.6 Actuarial function ...... 32 B.7 Outsourcing ...... 32 B.8 Any other information ...... 33 C. Risk Profile………………………………………………………………………………………………………………………………………………………34 C.1 Underwriting risk ...... 34 C.2 Market risk ...... 40 C.3 Credit Risk ...... 44 C.4 Liquidity risk ...... 45 C.5 Operational risk ...... 45 C.6 Other material risks ...... 46 C.7 Any other information ...... 50 D. Valuation for Solvency Purposes……………………………………………………………………………………………………………………..51 D.1 Assets ...... 52 D.2 Technical provisions ...... 57

D.3 Other liabilities ...... 65 D.4 Alternative methods for valuation ...... 68 D.5 Any other information ...... 68 E. Capital Management……………………………………………………………………………………………………………………………………….69 E.1 Own funds ...... 69 E.2 Solvency Capital Requirement and Minimum Capital Requirement ...... 74 E.3 Use of the duration-based equity risk sub-module in the calculation of the Solvency Capital Requirement ...... 76 E.4 Differences between the standard formula and any internal model used ...... 76 E.5 Non-compliance with the Minimum Capital Requirement and non-compliance with the Solvency Capital Requirement 79 E.6 Any other information ...... 79

Summary

This report provides an overview of the solvency and financial position of management function, the compliance function, the actuarial function and Gjensidige Forsikring Group and Gjensidige Forsikring ASA. The figures the group security. The third line is the internal audit function. In 2020, presented for the Gjensidige Forsikring Group and Gjensidige Forsikring ASA some organizational changes have been implemented. All control functions will differ. The main reason for this is that Gjensidige Forsikring ASA's in the second line are gathered in a separate area that administratively and subsidiaries are treated as equity investments for Gjensidige Forsikring ASA, professionally reports directly to the CEO. In 2020, Gjensidige has while all balance sheet items in the subsidiaries are fully consolidated when outsourced some operational functions. One of the areas that has been the figures are calculated for the Gjensidige Forsikring Group. outsourced is the operation, development, sourcing and vendor management of information and communication technology services, where Gjensidige is a Nordic general insurer. The Group safeguards life, health and the service provider is our subsidiary, Gjensidige Business Services AB (GBS), assets in Norway, Denmark, Sweden, Lithuania, Latvia and Estonia. which is located in Sweden. Gjensidige Forsikring ASA is the parent company of the Gjensidige Forsikring Group. Gjensidige achieved strong results in a year characterised by the Non-life and health insurance constitute the highest risk and is the most Covid-19 pandemic. The company met all financial targets except for a slight significant element in the capital requirement, but also market risk shortfall in return on equity. The general insurance result in 2020 was NOK constitutes a large part of the capital requirement. All effects of Covid-19 are 5,076 million for the Gjensidige Forsikring Group compared to NOK 4,036 considered to be within what one can with a certain probability expect to million in 2019. The investment result for the investment portfolio1 in occur. The risk is mainly related to market risk, insurance risk and Gjensidige Forsikring Group in 2020 was NOK 1,341 million compared to operational risk. Based on current information, it is considered that the NOK 2,306 million in 2019. internal model captures risk related to Covid-19. Alternative scenarios have been implemented to assess possible downside scenarios related to Covid- The Gjensidige Forsikring Group consists of several legal entities and the 19, and Gjensidige is considered to be well capitalized to handle risk related system of governance encompasses the entire Group. The general principle to Covid-19. is that governing documents and guidelines approved by Gjensidige Forsikring ASA shall also be approved by the subsidiaries within the Group. Eligible own funds are assets less liabilities, but with the addition of The general meeting is the supreme decision-making body of Gjensidige subordinated loans. The valuation is based on market values in line with Forsikring ASA, while the Board is the highest authority in the management Solvency II principles. of the company. The Chief Executive Officer (CEO) has overall responsibility for the daily operation of Gjensidige Forsikring ASA. Gjensidige’s risk Gjensidige shall have a capitalisation that is aligned with the Group’s management system is centralized and is organized with three lines. The strategic targets and risk appetite at all times. The Group shall maintain its first line consists of the daily operation and management of the business. financial flexibility and at the same time exercise a stringent capital The second line consists of risk control functions and includes the risk

1 Investment result of the investment portfolio excluding the investment result from pension activities

discipline that supports the return on equity target. Gjensidige aims at 2020. The result for the year contributes positively, while dividends reduce paying high and stable nominal dividends to its shareholders. In addition, eligible own funds. The solvency capital requirement is stable from 2019 to Gjensidige will distribute surplus capital over time. The Group will make use 2020. Non-life and health insurance risk increased as a result of business of all forms of Tier 1 and Tier 2 capital, including subordinated debt, in a growth and changes in currency rates. Life insurance risk is reduced as a responsible and value-optimizing manner and in line with the limits set by result of the introduction of the individual pension account in Norwegian regulators and rating agencies. regulation. Market risk is reduced as a result of lower investment risk and a model change that has been implemented in the partial internal model. Details of the capital requirement, eligible own funds, capital surplus and solvency ratio are presented below for Gjensidige Forsikring Group and Gjensidige Forsikring Group and Gjensidige Forsikring ASA do not use Gjensidige Forsikring ASA. Eligible own funds have reduced from 2019 to volatility adjustments or transitional rules.

Tabell 1 – The amount of the SCR split by risk modules (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA 2020 2019 2020 2019 Total eligible own funds to meet the SCR 20,936 24,403 20,294 23,810 Non-life and health underwriting risk 8,649 7,560 8,491 7,396 Life underwriting risk 1,450 1,869 Market risk 6,501 7,772 5,876 7,232 Counterparty risk 332 501 303 479 Diversification effects (4,372) (4,936) (3,148) (3,494) Basic Solvency Capital Requirement 12,560 12,766 11,522 11,613 Operational risk 911 827 814 742

Adjustments (loss absorbing capacity of deferred tax and (2,969) (3,036) (2,678) (2,706) technical provisions)

Solvency Capital Requirement 10,502 10,558 9,658 9,649 Solvensmargin 199 % 231 % 210 % 247 %

A review of the capital calculations has also led to marginal changes in the solvency margin for Gjensidige Forsikring Group and Gjensidige Forsikring solvency capital requirement and the risk margin. In the annual report, the ASA was reported to be 198% and 209%, respectively.

A. Business and Performance

A.1 Business

Gjensidige is a Nordic general insurer. The Group secures life, health and Figure 1 – Simplified Group structure assets in Norway, Denmark, Sweden, Lithuania, Latvia and Estonia. In Norway pension and savings products are also offered.

Gjensidige Forsikring ASA is a public limited company listed on the Oslo Stock Exchange and is the parent company of the Gjensidige Forsikring Group. Gjensidige Forsikring ASA offers health and non-life insurance products. Pension, investment and savings products are offered through its subsidiary Gjensidige Pensjonsforsikring AS. More information on Gjensidige’s lines of business and geographical areas can be found in chapter A.2.

The supervisory authority responsible for financial supervision of both the Group and Gjensidige Forsikring ASA is Finanstilsynet, the Financial Supervisory Authority of Norway; e-mail: [email protected], telephone +47 22 93 98 00.

The external auditor as per December 31, 2020 is Deloitte AS; Contact details are provided at www.deloitte.no.

Gjensidigestiftelsen, located in Oslo, Norway, is the largest shareholder of Operation, development, procurement and follow-up of vendors related to Gjensidige Forsikring ASA, with an ownership of 62.2 per cent. There are no information and communication technology services are carried out in the other shareholders with an ownership greater than 10 per cent. Percentage subsidiary Gjensidige Business Services AB. of votes held is the same as percentage of interest held. The companies subject to the Solvency II regulation (implemented in Norway The figure 1 shows Gjensidige’s simplified Group structure. by Finansforetaksloven) are Gjensidige Forsikring ASA, ADB Gjensidige and Gjensidige Pensjonsforsikring AS.

A.2 Underwriting Performance

Underwriting result The Covid-19 pandemic had a positive impact on the Group’s claims, The underwriting result for the Gjensidige Forsikring Group is described estimated at approximately NOK 296 million, corresponding to 1.1 separately for general insurance and life insurance, where general insurance percentage points on the loss ratio. Claims related to cancellations and consists of non-life and health insurance as defined by the Solvency II home transportation increased significantly and were mainly allocated to regulation. the Corporate Centre. The negative effect was offset by less travel activity and less use of motor vehicles. In addition, premium growth in Denmark and General insurance the Baltics was subdued related to travel insurance in both segments. The underwriting result in 2020 for general insurance was NOK 5,076 million for the Gjensidige Forsikring Group and NOK 4,880 million for Gjensidige Earned premiums from general insurance increased by 10.2 per cent to NOK Forsikring ASA. The corresponding figures for 2019 were NOK 4,036 million 27,161 million (24,650) for the year. Measured in local currency, the for the Gjensidige Forsikring Group and NOK 3,762 million for Gjensidige premiums increased by 7.5 per cent. The underwriting result increased due Forsikring ASA. to higher premiums following solid renewals and effective and differentiated pricing measures, which in addition to more favourable weather conditions The landslide at Gjerdrum in Norway in December, defined as a natural peril for motor in Norway during the first quarter and the Covid-19 impact event, incurred a large loss of NOK 180.4 million net of reinsurance, of which mentioned above, resulted in a 4.5 percentage point improvement in the NOK 150.4 million was allocated to the Corporate Centre and the rest to the underlying frequency loss ratio. This was partly offset by higher large losses, Private and Commercial segments. The reinstatement premium on the lower run-off gains and higher operating expenses. reinsurance programme amounted to NOK 24.7 million, recorded in the Corporate Centre. The net effect of the event on the Group’s combined ratio The table below shows the underwriting performance at an aggregate level was 0.7 percentage points. and by material line of business for general insurance.

Table 2 – Earned premium and underwriting result2 for general insurance per line of business (figures in NOK millions)

Gjensidige Forsikring Group Gjensidige Forsikring ASA

Net earned premium Underwriting result Net earned premium Underwriting result Line of business Medical expense insurance 1,379 66 1,198 51 Income protection insurance 1,441 30 1,405 7 Workers' compensation insurance 1 023 466 1 023 463 Motor vehicle liability insurance 3,338 1,541 2,853 1,467 Other motor insurance 5,314 790 5,079 761 Marine, aviation and transport insurance 325 93 317 88

Fire and other damage to property insurance 9,132 1,575 8,944 1 545 General liability insurance 964 (2) 929 (17) Assistance 1,087 (212) 1,069 (219) Accepted non-proportional reinsurance: 131 59 156 47 Health insurance 1,557 316 1,557 311 Other general insurance 1,469 322 1,453 309 Annuities stemming from non-life insurance contracts (172) (143)

Expenses not allocated to lines of business (4) (32) Total per quantitative report (S.05.01) for general insurance 27,161 4,867 25,985 4,640 Administration expenses related to investments and received commissions for ceded reinsurance. 209 240 Total in accounting 27,161 5,076 25,985 4,880

2 Underwriting result is defined as “net earned premium” minus the sum of “net claims incurred”, “net changes in other technical provisions”, “expenses incurred” and “other expenses.”

The table below shows net earned premium and the underwriting performance by geographical area:

Table 3 – Earned premium and underwriting result by geographical areas (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA

Net earned premium Underwriting result Net earned premium Underwriting result Country / geographical area Norway 18,560 4,175 18,587 4,107 Denmark 5,755 605 5,755 579 Sweden 1,643 42 1,643 (15) Expenses not allocated to lines of (4) (32) business Total in quantitative report (S.05.02) for 25,958 4,819 25,985 4,640 general insurance Other countries 1,203 48 Investment management expenses 209 231 Received commissions for ceded 10 reinsurance and profit share Total accounting result 27,161 5,076 25,985 4,880

Life insurance The table below shows the underwriting performance at an aggregate level The underwriting result in 2020 for life insurance was NOK 131 million and the and by material line of business for life insurance. corresponding result in 2019 was NOK 155 million.

Table 4 – Earned premium and underwriting result for life insurance per Pensjonsforsikring AS. The investment portfolio is split into two parts: a line of business (figures in NOK millions) match portfolio and a free portfolio. The match portfolio is intended to correspond to the Group’s technical provisions. It is invested in fixed-income Gjensidige Pensjonsforsikring AS instruments with a duration and currency that match the duration and Line of business currency of the technical provisions. The free portfolio consists of various Net earned Underwriting assets. The allocation of assets in this portfolio must be seen in connection premium result with the Group’s capitalisation and risk capacity, as well as the Group’s risk Insurance with profit participation 334 (10) appetite at all times. Results from the use of derivatives for tactical and risk management purposes are assigned to the respective asset classes, Index-linked and unit-linked 580 (42) depending on whether the derivatives used are equity or fixed-income Total per quantitative reporting derivatives. 914 (52) (S.05.01) for life insurance Management income 182 In a manner similar to the portfolio of the Gjensidige Forsikring Group, Gjensidige Forsikring ASA’s investment portfolio is also split into two parts: a Net operating income (accounting) 131 match portfolio and a free portfolio.

The general rule is that the asset allocation in the subsidiaries in general insurance will only be used to hedge the technical provisions against interest The underwriting result represents the outcome from life insurance related rate and foreign exchange risk, with excess funds being invested in interest- activities. It excludes financial income from investments but includes bearing securities with low risk. For this reason, the match portfolio of the changes in asset values as a consequence of changes in liabilities due to Gjensidige Forsikring Group is larger than the match portfolio of Gjensidige financial fluctuations. Management income is distribution income received Forsikring ASA, while the free portfolio of the Gjensidige Forsikring Group from external fund managers which Gjensidige Pensjonsforsikring AS uses consists almost exclusively of the free portfolio of Gjensidige Forsikring ASA. for placing pension capital. The Pension segment generated a lower profit for the period, driven by lower insurance income and higher operating expenses. Gjensidige Pensjonsforsikring (GPF) operates under separate guidelines for asset management and investment strategy approved by the Board of GPF. A.3 Investment Performance These specify targets and limits for the organization of the investment management activities. GPF manages several portfolios including unit-linked, paid-up policies, other group policies and a company portfolio. The unit- Investments related to general insurance and life insurance are managed linked portfolio does not contain any guarantees on investment return, and separately. therefore investment risk for the unit-linked portfolio is very limited for Gjensidige. The other portfolios expose the Company’s equity to risk. The Gjensidige Forsikring Group’s investment portfolio includes all investment funds in the Group, except for investment funds in Gjensidige

The Covid-19 pandemic led to a significant downturn in the financial markets in the value of the bonds recognised at amortised cost, reflecting the lower towards the end of the first quarter, resulting in a broad decline in most interest rate level as well as the market movements in the first quarter. asset classes. Significant intervention by central banks and fiscal policy measures drove the market recovery during the rest of the year. Bonds recognised at amortised cost amounted to NOK 15.4 billion (14.9). Unrealised excess value amounted to NOK 1.0 billion (0.5) at the end of the The investment result for the investment portfolio3 of the Gjensidige period. The reinvestment rate for new investments in the portfolio of bonds Forsikring Group in 2020 was NOK 1,342 million compared to 2,306 in 2019. held at amortised cost was approximately 3.0 per cent on average for the For Gjensidige Forsikring ASA the result was NOK 1,015 million compared to year, and the running yield was 3.4 per cent at the end of the period. NOK 1,815 million in 2019.The table below shows the financial results and carrying amounts by asset class. Since the figures for the Gjensidige The average duration of the match portfolio was 3.4 years. The average term Forsikring Group and Gjensidige Forsikring ASA are quite similar, only the to maturity for the corresponding insurance liabilities was 4.0 years. Group figures are commented on below. Securities without an official credit rating amounted to NOK 7.7 billion (8.0). Of these securities, 11.9 per cent (4.3) were issued by Norwegian savings Match portfolio banks, while the remainder were mostly issued by Norwegian power The match portfolio amounted to NOK 36.4 billion (34.1) at the end of the producers and distributors, property companies, industry and municipalities. year. The portfolio yielded a return of 1.2 per cent (2.8), excluding changes Bonds with a coupon linked to the development in the Norwegian consumer price index accounted for 2.4 per cent (2.5) of the match portfolio.

3 The investment result for the investment portfolio, excluding the investment result in pension activities.

Table 5 – Financial results and carrying amounts by asset class (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA

Carrying amount Investment result Carrying amount Investment result Match Portfolio Fixed income – short duration (match pf.)4 4,949 93 4,949 93 Bonds at amortised cost 15,360 542 15,208 542 Current bonds5 16,071 (207) 14,927 (220) Match portfolio total 36,381 429 35,084 415 Free portfolio Fixed income – short duration (free pf.)4 4,987 72 4,697 69 Other bonds6 5,188 430 5,188 430 High yield bonds7 402 (36) 402 (36) Convertible bonds7 1,681 173 1,681 173 Current equities8 2,390 15 5,976 20 PE funds 1,206 (93) 1,206 (93) Properties 5,128 384 2,403 45 Other9 1,524 (31) 1,524 (7) Free portfolio total 22,507 913 23,077 600 Financial result from the investment portfolio 58,887 1,342 58,161 1,015 Financial income in Pension 36 Interest expense subordinated loan Gjensidige (30) Forsikring ASA Interest expense on the lease liability (30) (28) Net income from investments 1.318 987

4 The content of these items is identical as the previous items named Money market. The name change is related to the expected entrance of EU regulation 2017/1131 on money market funds into Norwegian law early 2021. The regulation involves a strict definition of money market instruments and, although concerning funds, is expected to restrict what one can label “Money market”. 5 The item includes discounting effects of the insurance liabilities in Denmark and Sweden and a mismatch between interest rate adjustments on the liability side in Denmark and the corresponding interest rate hedge. Investments include mortgage, sovereign and corporate bonds, investment grade bond funds and loan funds containing secured debt. 6 The item includes investment grade and current bonds. Investment grade and emerging market bonds are investments in internationally diversified funds that are externally managed. 7 Investments in internationally diversified funds that are externally managed. 8 Investments mainly in internationally diversified funds that are externally managed. The equity risk exposure is reduced by NOK 354.6 million due to derivatives. 9 The item includes currency hedging related to Gjensidige Sweden, Denmark and Baltic, lending, paid-in capital in Gjensidige Pensjonskasse, profit/loss effects from a total return swap with Gjensidige Pensjonskasse, hedge funds, commodities and finance related expenses. 12

Free portfolio Gains and losses recognized in other comprehensive The free portfolio amounted to NOK 22.5 billion (25.0) at the end of the income year. The return was 3.6 per cent (6.0), reflecting market developments, as The underwriting performance and investment performance are described well as a general de-risking of the portfolio in the first quarter, followed by above. In addition, exchange rate differences, changes in the employee some re-risking thereafter. pension liabilities and assets, and related tax effects are recognized as “Other comprehensive income” in the accounting figures. This amounts to Fixed-income instruments NOK 283.5 million for the Gjensidige Forsikring Group and NOK 187.8 million The fixed-income instruments in the free portfolio amounted to NOK 12.3 for Gjensidige Forsikring ASA respectively. billion (14.2), of which fixed income – short duration investments accounted for NOK 5.0 billion (6.8). The rest of the portfolio was invested in Norwegian Securitised investments government bonds and international bonds (investment grade, high yield The share of securitised investments in both the Gjensidige Forsikring Group and convertible bonds). The total fixed-income portfolio yielded a return of and Gjensidige Forsikring ASA is negligible. 4.2 per cent (4.4). A.4 Performance of other activities At the end of the period, the average duration in the portfolio was approximately 4.7 years. Securities without an official credit rating There are no other activities in the Gjensidige Forsikring Group other than amounted to NOK 2.4 billion (3.5). Of these securities, 17.4 per cent (10.1) those described above. There are no other material income and expenses. were issued by Norwegian savings banks, while the remainder were mostly Costs related to leases are expensed as part of operating expenses in issued by industry and municipalities. addition to an interest element that is recognized as part of the finance costs in accordance with IFRS16. Equity portfolio The total equity holding at the end of the period was NOK 3.6 billion (4.3), of A.5 Any other information which NOK 2.4 billion (3.0) consisted of current equities and NOK 1.2 billion (1.2) PE funds. The return on current equities was 0.6 per cent (15.6). PE All material information regarding Gjensidige’s business and performance is funds yielded a return of minus 7.7 per cent (plus 6.9), mainly driven by considered to have been provided above. weak performance of funds with exposure to the oil sector.

Property portfolio At the end of the period, the exposure to commercial real estate in the portfolio was NOK 5.1 billion (4.8). The property portfolio yielded a return of 7.8 per cent (8.0).

B. System of Governance

The Gjensidige Forsikring Group encompasses all insurance companies in the B.1 General information on the system of Group, including Gjensidige Forsikring ASA, ADB Gjensidige and Gjensidige governance Pensjonsforsikring AS. These are all separate legal entities with their own system of governance. In practice, however, the system of governance of System of governance Gjensidige Forsikring Group is the same as for Gjensidige Forsikring ASA as The figure below shows the organizational structure of the Gjensidige governing documents approved by the Board or CEO of Gjensidige Forsikring Forsikring Group and Gjensidige Forsikring ASA for the most material ASA also shall be approved by the Boards or CEOs of the subsidiaries. companies within the group. The subsidiaries are followed up by their Similarly, the Board of each subsidiary approves all governing documents respective boards. More information on subsidiaries may be found in their and requirements concerning specific risk areas based on Group policies respective Solvency and Financial Condition reports. The general meeting taking into account local legislation. which is the supreme decision-making body of Gjensidige Forsikring ASA is open to all shareholders. This Chapter focuses therefore on the system of governance of Gjensidige Forsikring ASA. The Board of Gjensidige Forsikring ASA shall consist of ten members, three are elected by the employees, three are proposed by Gjensidige Forsikring ASA’s majority shareholder Gjensidigestiftelsen and elected by the shareholders at the general meeting, and four independent members are elected by the general meeting.

Figure 2 – The internal organizational structure of the Gjensidige Forsikring Group and Gjensidige Forsikring ASA

The nomination committee proposes four independent Board candidates. The Board has established an audit committee and a risk committee. The No member of the executive management is a Board member. The Board is audit committee is a preparatory and advising committee consisting of the highest authority in the management of the company. The Board selected Board members. The audit committee monitor the financial contributes to value creation and prevents value impairment in the Group. reporting process, the effectiveness of the systems for internal control and The Board typically meets ten to twelve times a year. The work of the Board risk management, as well as the Company’s internal audit function. The risk follows a fixed annual plan and approved Board instructions. These set out committee is a preparatory committee that assesses the group companies' more detailed rules for the working of the Board and how it addresses ability and desire to take risk, as well as ensures a clear coherence between issues, including what matters shall be considered by the Board, rules overall strategy, risk management and capital planning. The aim of both concerning notices of meetings and the conducting of meetings. The Board committees is to strengthen and increase the efficiency of the Board's provides guidance to the CEO on the allocation of roles and responsibilities. discussions and contribute to improvements in the future. In addition, a remuneration committee assists the Board in remuneration matters. The Board has the ultimate responsibility for ensuring that the Group's risk level is within approved risk appetite and accordingly oversees and utilizes The CEO has overall responsibility for the daily operation of Gjensidige the risk management activities that take place in the group. The Board Forsikring ASA. adopts an overall risk appetite for the most important risk areas in the group. As part of this work, it ensures that the necessary governing documents and routines are in place.

The risk management system is organised into three lines and is an integral part of corporate governance.

Figure 3 – The Corporate Governance system of the Gjensidige Forsikring Group

The Group’s Capital Management Committee is a body for oversight and use The CEO has an overall responsibility for the risk management of the group. of capital for the entire group and has an advisory role with regard to the assessment of and proposal of changes in the use of capital. The Group’s Responsibility for day-to-day risk management is delegated to the Risk Control Committee is a body for the Groups risk management and responsible line managers who must ensure that the risk management and internal control and shall assist in monitoring the group's risk situation, risk internal control system is established within their areas of responsibility and management and internal control. Both committees are chaired by the that relevant risk management activities are carried out. Furthermore, the Group CEO. Furthermore, a sustainability council has been established individual manager shall ensure that risk owners are designated and that headed by the Chief Sustainability Officer (CSO). This is an interdisciplinary necessary measures are implemented. body that ensures a comprehensive and uniform approach to sustainability issues in the group. Relevant issues related to sustainability are referred by All employees must, within their areas, contribute to the achievement of the sustainability committee to the Capital Management Committee or the corporate goals and to risk management in line with established guidelines. Risk Control Committee as appropriate. Procedures and guidelines have been established, which are to be complied

with. Risk management and internal control is therefore performed as a part the Chief Compliance Officer (CCO) who has a professional and of the daily work of the employees. Some functions such as the risk, independent reporting line to the CEO and the Board. compliance and security coordinators, the data protection officer, the anti- • The actuarial function is responsible for coordinating the calculation money laundry officer and quality assurance functions reviewing distribution and control of technical provisions but has no responsibility for and claims handling, are organized as a part of the first line organization in developing technical claim provision models or regular technical claim order to assist with the maintenance of that line’s responsibility for risk provision calculations. The function's responsibility is limited to control management and internal control. Treatment of deviations is part of risk activities, and the function shall be independent of the operational management and shall take place in accordance with established routines. activities with a separate reporting line. The head of the actuary function has a professional and independent reporting line to the CEO The various control functions in the second line are organized under the and additionally to the Board. Chief Risk Officer (CRO) in Gjensidige Forsikring ASA. The CRO has the overall • Group security is responsible for monitoring, reviewing and improving responsibility for establishing procedures for risk management and reporting the information security management system. Group security is headed of the various risk exposures, as well as responsibility for monitoring the risk by the Chief Security Officer (CSO). limits adopted by the board. The CRO has a professional and independent reporting line to the CEO and the Board. Real independence is ensured by the CEO appointing the head of the second line functions and determining their remuneration. Managers of second line The second line consists of centralized control functions for risk functions cannot be removed without the consent of the Board. Their salary management, compliance, actuarial issues, and Group Security: shall not be based on Gjensidige Forsikring ASA's financial performance.

• The risk management function is responsible for maintaining and The responsibility for all investment management is centralized in the further developing the group's risk management system so that the group's Investment Center organized under the Chief Financial Officer (CFO). system always is satisfactory and in accordance with regulatory A group-wide credit committee headed by the CFO has been established to requirements and the board's guidelines. The function should also set credit limits for individual issuers and general guidelines for counterparty organize and maintain a comprehensive and ongoing process for risk risk. The function for monitoring and reporting financial returns and assessment and follow-up, have an overview of the most material risks compliance with limits in financial management reports to the CRO to the Group is or may be exposed to, and what this means for Group ensure independent monitoring. solvency. The risk management function is headed by the CRO in Gjensidige Forsikring ASA. The CRO has responsibility for establishing The third line is the group’s internal audit function, which monitors the risk the procedures for performing risk management and reporting risk management and internal control system in the Group. Group Audit will, exposures as well as monitoring Board approved risk limits. through a risk-based approach, provide assurance to the organisation’s • The compliance function’s main tasks are to help ensure that legal board and senior management, over how effectively the organisation requirements, regulations or governing documents are complied with, assesses and manages its risks, including the manner in which the first and that operational risk incidents that are also compliance breaches are second lines operate. The function’s tasks cover all elements of an followed up and reported (including to the national data supervisor organisation’s risk management framework. Group audit reports directly to where necessary) and that the internal control system operates in the Board of Gjensidige Forsikring ASA. accordance with requirements. The compliance function is headed by

The control functions have sufficient authority and independence since the Guidelines for remuneration and career development shall be linked to control functions in the second line report professionally to the CEO and the achievement of the Group’s strategic and financial goals and core values, internal audit function reports to the Board. The control functions ensure and both quantitative and qualitative targets shall be taken into that the available resources are adequate by assessing the resource consideration. The measurement criteria shall promote the desired situation on a regular basis. corporate culture and long-term value creation, and, as far as possible, take actual capital costs into account. The remuneration system shall contribute A description of the implementation of the risk management system can be to promoting and providing incentives for good risk management, prevent found in B.3. excessive risk-taking and contribute to the avoidance of conflicts of interest. A fixed basic salary shall be the main element of overall remuneration, Assessment of the system of governance which also consists of variable remuneration, pension, insurance and The system of governance in the Gjensidige Forsikring Group is believed to payments in kind. Variable remuneration shall be used to reward function adequately taking into account the nature, scale and complexity of performance that has been agreed in score cards or that exceeds the risks inherent in the business. Gjensidige is organized with centralized expectations. In this process, both results and behaviour in the form of group control functions except for the business in the Baltics. This compliance with core values, brand promotion and management principles contributes to consistent management across the Group and provides are to be considered. consistent quality in processes and controls. Variable remuneration shall be performance-based without being a risk The organization is relatively flat, and there are established reporting lines driver and shall reflect the results and contributions to the company, which ensure that necessary information is passed on to top management division, department and at an individual level. Other elements in and the Board. compensation offered should aim to be attractive to both new and current employees. There is an upper limit for variable remuneration. Governing documents have been established within all important areas and controls are in place to ensure that these are followed. The senior group management members are defined as senior executives and they are responsible for activities that may be critical to the company's Remuneration risk exposure. The level of remuneration will take into account both qualitative criteria based on their role and quantitative criteria, as well as an The Group has established a remuneration system that applies to all individual assessment of their impact on the company's risk. employees. The system’s objective is to ensure that Gjensidige attracts and keeps employees who perform, develop, learn and share. Remuneration shall be competitive, but the Group shall not be a wage leader. Employees Decision making process are expected to view the remuneration and benefits offered by the Group The Board has established a remuneration committee consisting of three from a total overall perspective. The Group’s remuneration systems shall be members; the Chairman of the Board and two board members. open and performance-based, so that they, as far as possible, are perceived as being fair and predictable. The remuneration that is paid shall correspond to agreed performance.

The remuneration committee shall prepare matters for consideration by the for return on equity adjusted for extraordinary dividends and transactions, Board. It is primarily responsible for: as well as combined ratio and developments in customer satisfaction. In addition, it emphasizes the CEO’s personal contribution to the Group’s • The Board’s annual statement of Gjensidige’s remuneration policy; historical and future results and wealth creation, compliance with the • The annual evaluation of and matters concerning salary and other Group’s vision, values, ethical guidelines and management principles. remuneration to the CEO; • The annual evaluation of and matters concerning salary and Variable remuneration relating to Gjensidige’s performance is decided on remuneration to the company’s internal auditor; the basis of the past two years’ performance. Half of the variable • Guidelines for salary and other remuneration to senior executives; remuneration is given in the form of a commitment to receive shares in • Statement determining salary and other remuneration to senior Gjensidige Forsikring ASA, 1/3 of which will be released in each of the executives, including: following three years. Restricted variable remuneration that has not yet • Guidelines for determining salary and other remuneration for the been disbursed may be reduced if subsequent results and developments upcoming financial year; indicate that it was based on incorrect assumptions. The CEO does not • Guidelines for the Management Salary Policy that has been receive performance-based benefits over and above the above-mentioned followed during the previous financial year, including how the bonus but may receive payments in kind such as a company car and the guidelines for executive salary determination have been coverage of costs for electronic communication. Payments in kind shall be implemented; related to the CEO’s function in the Group, and otherwise be in line with • An account of the effect on the undertaking and on the market practice. shareholders of implementation/changes in share incentive scheme/share saving scheme; The retirement age of the CEO is 62. It is possible to step down after • Other important personnel matters relating to executive personnel; reaching the age of 60 if the Board or CEO so wishes. The CEO has pension • The Board’s treatment of completed HR processes, including talent rights pursuant to Gjensidige’s closed defined-benefit pension scheme. development and succession and strategic manpower management. Pursuant to the CEO’s employment contract, he is entitled to a pension corresponding to 100 per cent of his annual salary on retirement at the age Remuneration of the CEO of 62, which is then reduced in steps to 70 per cent upon reaching the age of The CEO’s salary and other benefits are stipulated by the Board on the basis 67 at full vesting period. of an overall assessment that takes into account Gjensidige’s remuneration scheme and market salary for corresponding positions. The fixed salary is On retirement at the age of 60, a corresponding agreed reduction applies assessed and stipulated annually on the basis of wage growth in society in from 100 per cent upon retirement to 70 per cent upon reaching the age of general and in the financial industry in particular. Variable remuneration 67. From the age of 67, the pension is calculated on the basis of the (bonus) is decided by the Board on the basis of agreed goals and deliveries. Company’s ordinary entitlement earning period of 30 years and is 70 per It can amount to up to 50 per cent of the fixed salary including holiday pay. cent of the fixed salary with a full earning period. Company car Variable remuneration is earned annually and is based on an overall arrangements and other benefits are retained until the age of 67. assessment of financial and non-financial performance over the last two years. Variable remuneration is excluded from the pension calculation. The assessment takes into account the enterprise’s overall performance targets

The CEO has a period of notice of six months and is not entitled to severance The individual variable remuneration may amount to up to 30 per cent of pay or termination benefits if he leaves the Company earlier. the annual salary including holiday pay. Variable pay is not included in the pension basis. Remuneration of executive personnel and employees who can materially influence the Group’s risk profile After consulting with the remuneration committee, the CEO may make Remuneration of the senior group management is stipulated by the CEO, in exceptions for special positions if this is necessary to be able to offer accordance with limits discussed with the remuneration committee and on competitive terms. Payments in kind to executive personnel shall be related the basis of guidelines issued by the Board. Likewise, the Group’s guidelines to their function in the Group, and otherwise be in line with market practice. are used as the basis for other executive personnel and employees who can materially influence risk. The retirement age for some members of the senior group management is 62, the others have a retirement age of 70. Of the current members of the The overall remuneration is decided on the basis of the need to offer senior group management, six are members of the closed Norwegian competitive terms in the various business areas. It shall contribute to defined-benefit pension scheme. Given the full earnings period, they are attracting and retaining executive personnel with the desired expertise and entitled to a pension of 70 per cent of final salary at the full vesting period of experience who promote the Group’s core values and development. 30 years at age 67. Four members are part of the Company’s defined- contribution pension scheme. The Company continues a previously agreed The fixed salary is assessed and stipulated annually based on wages growth individual pension agreement for one member of the senior group in society in general and in the financial industry in particular. Variable management. remuneration (bonus) to executive personnel is earned annually and is based on an overall assessment of financial and non-financial performance In Sweden, the general retirement age is 65 years, but is under over the two last years. The assessment takes into account a combination of consideration. In Denmark, the general retirement age is 70 years. the enterprise’s overall performance targets for return on equity adjusted for extraordinary dividends and transactions and combined ratio, as well as Members of the senior group management have a period of notice of six developments in customer satisfaction. In addition, it evaluates the target months. No members of the senior group management today have achievement of the business unit in question, as well as personal agreements of severance pay or payment of pay after termination of contribution in respect of compliance with the Group’s vision, values, ethical employment. guidelines and management principles. Half of the variable remuneration is in the form of a commitment to receive shares in Gjensidige Forsikring ASA, In accordance with market the practice in Denmark and the Baltic countries, one third of which are released in each of the following three years. there are certain individual agreements regarding severance pay in Restricted variable remuneration that has not yet been disbursed may be connection with resignation in Gjensidige Forsikring ASA in those countries. reduced if subsequent results and developments indicate that it was based on incorrect assumptions. Remuneration of personnel with supervisory tasks The remuneration of personnel with control and supervisory tasks shall be independent of the performance of the business area they are responsible for.

None of the executive personnel with supervisory tasks currently has a Material transactions variable bonus scheme. The fixed salary is based on the Group’s general There have been no material transactions during the reporting period with principles of competitive, but not market leading wages. shareholders, with persons who exercise a significant influence on the undertaking, and with members of the board. Pension benefits and payments in kind follow the Group’s general arrangement. B.2 Fit and Proper requirements

Remuneration of officers of the Company and other employees with The Fit and Proper policy of the Gjensidige Forsikring Group outlines the fit remuneration corresponding to executive personnel and proper requirements. The policy applies to Gjensidige Forsikring ASA as The remuneration shall follow the guidelines set out above. There are well as all subsidiaries in the Group. currently no such employees. The following persons are subject to the fit and proper requirements in the Binding guidelines for shares, subscription rights etc. for the upcoming Gjensidige Forsikring Group and Gjensidige Forsikring ASA: financial year Of the variable remuneration earned in 2020 by the CEO and other • Board members of Gjensidige Forsikring ASA and its subsidiaries subject employees covered by the Regulations relating to remuneration in financial to supervision institutions, 50 per cent of the gross earned variable remuneration will be • The CEO and other members of Senior Group Management given in the form of a commitment to be granted shares in Gjensidige • CEOs and de facto managers of subsidiaries subject to supervision Forsikring ASA. One third of the shares will be released in each of the • Heads of branch offices abroad following three years, provided that the conditions for allocation are • Chief Risk Officer fulfilled. • Chief Compliance Officer • Head of the actuarial function Share savings programme • Head of the group audit function The Board has decided to continue the Group’s share savings programme for • Persons in key functions who are subject to Fit and Proper assessments employees in 2021. The CEO and executive personnel are entitled to take under local law part in the programme on a par with other Gjensidige employees. Under the • Chief accountant current programme, employees can save through deductions from their • Chief investment officer. salary for the purchase of shares in Gjensidige Forsikring ASA of up to NOK 90,000 per year. Purchases take place quarterly following publication of the That a person is fit and proper means that the person in question has results. A discount of 25 per cent of the purchase price is offered, limited relevant professional qualifications and a record of good conduct and has upwards to NOK 7,500. For those who keep the shares and are still otherwise behaved in a manner that gives reason to assume that he/she will employed in the Group, one bonus share is awarded for every four share be able to carry out the duties of the position in a satisfactory manner. The they have owned for more than two years. fit and proper assessment must also take account whether the person in question:

• has been convicted of a criminal offence and the offence gives reason out a fit and proper assessment before appointing a CEO. The immediate to assume that he/she will not be able to carry out the duties of the superiors of a position shall carry out fit and proper assessments of other position or office in a satisfactory manner; managers or persons in key functions. • in his/her execution of any other office has behaved in a manner that gives reason to assume that he/she will not be able to carry out the CEOs in subsidiaries are responsible for compliance with the duty of duties of the position or office in a satisfactory manner. notification to the Financial Supervisory Authority of Norway for all persons subject to such a duty, including when changes take place. In connection When assessing whether a person has the necessary qualifications, account with the outsourcing of key functions, the duty of notification applies to the shall be taken of both professional and formal qualifications, knowledge and CEO alternatively another person in the company to whom responsibility for relevant experience from the insurance industry, other sectors of the the outsourcing has been assigned. The CEOs of subsidiaries shall have the financial industry or other enterprises. The assessment shall take account of same responsibilities in their role as immediate superior as described above. the respective duties with which the person is charged and, if relevant, his/her skills in areas such as insurance, finance, economics, accounting, The HR department is responsible for assisting immediate superiors in insurance mathematics, law, auditing and management. obtaining and assessing the fitness and propriety of employees to whom the fit and proper requirements apply on the basis of the employee’s completed The assessment of whether a person is fit and proper also involves an fit and proper form and transcript of police records: assessment of his/her trustworthiness and the soundness of his/her finances • in connection with recruitment of new employees based on documentation showing his/her character, personal and business • when employees are transferred to an area of responsibility to which conduct, and any criminal, financial or supervisory aspects relevant to the the fit and proper requirements apply. assessment. The HR department shall store the documentation of the completed The suitability assessment shall be based on, as a minimum, the following assessment electronically. This shall include the conclusion of each fit and information: proper assessment submitted to the Financial supervisory authorities in electronic format and the original police certificate. The HR department shall maintain an overview of all employees in the group who are subject to • Transcript of police records suitability assessments and their immediate superior who is charged with • Self-evaluation submitted in the form of a suitability form conducting such assessments. HR shall also ensure that suitability • CV and job description assessments for persons with an employee relationship in the Gjensidige • Reference checks. group are updated annually and is responsible for compliance with the duty of notification to the Financial Supervisory Authority of Norway for all In addition, it must be considered whether to carry out further investigation employees subject to such a duty, including any changes. based on the information obtained. The Corporate Governance department shall prepare and maintain The nomination committee is responsible for ensuring that fit and proper procedures detailing which factors are to be assessed and is responsible for assessments of candidates proposed for board membership are conducted ensuring that suitability assessments have been conducted of board in accordance with the applicable rules. The Board of Directors shall carry members of Gjensidige Forsikring ASA and those subsidiaries subject to

financial supervision, and that this can be documented. The Corporate Figure 4 - The three steps in Gjensidige’s Risk management process Governance Department shall ensure that suitability assessments for persons holding offices in the group’s governing bodies are updated annually. Moreover, the department is responsible for compliance with the duty of notification to the Financial Supervisory Authority of Norway for all board members subject to such a duty, including changes in the composition of the Board.

B.3 Risk management system including the own risk and solvency assessment

Gjensidige's risk management system is an ongoing coordinated activity to ensure that the Group's risk profile is, at all times, within the Board approved risk appetite and tolerance. It can be described as a process, carried out by the Board, management and employees, used in strategy setting and across the business. The risk management system is designed to identify potential events that may affect Gjensidige, and to manage risk to ensure that it is in accordance with the Group's risk appetite. The purpose is to provide a reasonable degree of assurance that the business will achieve its goals. At the Group level, risk appetite varies for different types of risk, and this is Risk management system the basis for guidance as to which risk strategy to choose. Risk appetite shall The Gjensidige Forsikring Group shall have a comprehensive approach to risk be described in a Board approved risk appetite document that must be management. This is a part of the Group's business management and can be reviewed each year. divided into three steps: Risk assessments for various types of risk are performed and documented in • Identify, analyse and evaluate risks; accordance with current methodology. Materiality assessments and • Decide and implement actions; measures to deal with different types of risks shall be performed on a • Measure, monitor, communicate and report risks. continuous basis. Follow-up and reporting on the Group's risk level shall be in accordance with established guidelines.

Risk management will in many cases be executed through control measures. These measures can therefore be very different in nature and scope.

Figure 5 - Types of control measures • Skills and competences: There shall be activities, processes and documentation that ensures that all employees have the necessary skills and competences to perform assigned tasks. • Execution of tasks / task description: Managers at all levels must ensure that employees understand their responsibilities and what work tasks are to be performed through for example written role descriptions, job descriptions, functional descriptions, project management roles, scorecards, etc. • Fit and proper assessments: The Board, senior executives and key personnel are assessed individually. • Remuneration: There are documented remuneration schemes, with incentives that contribute to good risk management and discourage potential conflicts of interest. • Incidents: There are established procedures for identifying, reporting and managing incidents that occur in the Group. • Control assessments: Managers in all business areas continuously design, implement and monitor internal control within their area of responsibility and take proper control measures when necessary. • Internal reporting: There are established processes in order to ensure that internal management information is reliable, adequate and Control measures shall contribute to ensure the achievement of goals and to relevant. identify undesirable development. Different types of controls and control • External reporting. External reporting is complying with laws and activities are performed at all levels in the Group and are aligned with the regulations, as well as market requirements. risk level which is valid and acceptable at all times. Risk assessments are the • Governing documents specify overall rules for governance and control, starting point for estimating the level of control within a business area. Such roles and responsibilities. an assessment may result in an increased or reduced need for control activities being identified. Risk management function The risk management function is organized as a Group function, which Examples of general control elements in Gjensidige’s internal control means that the CRO, as leader of the function, also is responsible for system: carrying out risk managament function for the subsidiaries within the Gjensidige Forsikring Group. Service agreements between Gjensidige • Organizational structure: All business areas are organized in an Forsikring ASA and the subsidiaries have been established. Requirements for appropriate manner and clear reporting lines must exist. risk management are specified in the risk management and internal control • Authorization: There exists formal delegation of authority. policy and in the ORSA policy (ORSA – Own risk and Solvency Assessment), • Process and routine descriptions: There are process and/or routine both approved by the Boards in the different companies. descriptions for all significant business areas.

The risk management function should assess, monitor, provide guidance and Managing different types of risks report on the risk status. The function is also responsible for the risk The Gjensidige Forsikring Group and Gjensidige Forsikring ASA are exposed management framework for monitoring the overall risk situation in the to risks which can be categorized as underwriting risk, market risk, credit Group. The risk management function should continually, quarterly and in risk, liquidity risk, operational risk and strategic/business risk. Climate risk annual assessments follow up that systematic processes are performed to could affect all the previously mentioned risk areas. identify and assess different types of risks, controls and risk mitigating actions that are put in place in the whole Group. These processes are Managing underwriting risk integrated into the annual business planning process. Identified risk mitigating measures are followed up on the quarterly basis. Objectives and strategy The overall objective for the management of underwriting risk in Gjensidige The CRO is responsible for: is to ensure that the Group's risk level is within the approved risk appetite. Gjensidige has a high risk appetite within the core area of non-life insurance • the content, consistency and availability of governing documents, in the Nordic and Baltic countries. The risk appetite shall be highest in areas • facilitating and setting requirements for risk management and internal where we have a high level of expertise and access to relevant data. Other control processes in the group, including facilitating and setting business areas shall contribute to the Group's overall growth and requirements for the performance of risk management activities and profitability, but with limited risk appetite. the notification of operational incidents, • developing and evaluating methods and tools to identify, assess, A deductible limit specifies the maximum loss the Gjensidige Forsikring monitor and report on the risk situation, Group is willing to take and provides guidance at the level of Gjensidige's • performing the own risk and solvency assessment (ORSA), Gjensidige’s reinsurance program. The maximum deductible limit is specified in the internal model and for the Pillar 3 reports as defined by the Solvency II capital management policy approved by the Board. Reinsurance is regulation. purchased to protect the company from major individual events such as natural disasters and major individual claims and cumulation of multiple The CRO facilitates the Group Risk Committee and the Group Capital claims. Gjensidige's internal model takes into account the risks and capital Management Committee on behalf of the Group CEO, who is head of both requirements of the various underwriting products and is used to determine committees. The Committees have an advisory role in the monitoring and long-term profitability targets and to decide the reinsurance strategy. management of the most significant risks identified in the Gjensidige Forsikring Group and in assessing the Group’s capital situation and capital Process use. The underwriting policy approved by the Board provides guidelines for basic principles and responsibility for product and tariff development, risk The risk situation is reported quarterly to the Group CEO and the Board selection and the setting of terms and conditions and pricing of individual through a discrete risk management, compliance and capital report. Follow risks. Detailed requirements are further specified in various guidelines and up and potential actions are discussed if the level of risk is considered to be instructions within the various underwriting areas. The Division for Analysis, outside the risk appetite. The CRO is the secretary of the Board’s risk Product and Price at Gjensidige Forsikring ASA has overall responsibility for committee. following up the requirements of the underwriting policy on behalf of the

Group and regular meetings are held with the business areas to identify any Managing market risk changes in the development of reported claims. Reorganizations, process changes, etc. that may affect the level of technical provisions are also Objectives and strategy followed up on a regular basis. The primary purpose of the investment operations is to support the underwriting business by securing the value of the underwriting liabilities The policy for technical provisions approved by the Board gives the overall against fluctuations in market variables. Free assets are invested to principles for determining technical provisions. Gjensidige has a centralized contribute to the Group's overall profitability targets, with a controlled actuarial department where the chief actuary in Gjensidige Forsikring ASA downside risk. has overall responsibility for the Group's technical provisions. This ensures that all parts of the organization use the same principles and models for Process calculating technical provisions. The investment strategy is approved by the Board and sets limits for the allocation of investment assets. The investment strategy defines several risk Reporting and documentation limitations, both at the aggregate level and by different types of risks and Monitoring and assessments of underwriting result and underwriting risk, investments, for the purpose of achieving a diversified investment portfolio. compared to forecasts, are a central and integral part of the ongoing The investment portfolio consists of two parts: a match portfolio and a free management of underwriting risk. Reporting of results and forecasts, as well portfolio. The match portfolio, which is intended to correspond to the as separate risk reporting, are made regularly to management and the Group’s technical provisions, is invested in fixed income instruments whose Board. The Chief actuary prepare reports for the technical provisions. Actual duration and currency are adapted to match the technical provisions. A purchase of reinsurance is carried out by the reinsurance department. This is dynamic risk management model has been established that provides the documented and reported to the management and the Board each year and necessary framework for modifying risk in the event of changes in market the remaining reinsurance capacity is continually monitored. conditions and/or a weak development in financial income. The investments are also subject to continuous monitoring in accordance with our SRI policy Monitoring and compliance (SRI-Socially Responsible Investment). Limits on necessary access to liquid Several functions have been established in the organization to ensure funds have been set through the liquidity policy. compliance and quality in sales and claim settlement functions. For some areas, system controls have also been implemented to ensure compliance. Reporting and documentation The independent actuarial function performs control tasks in relation to Daily reports are prepared for the purpose of follow-up and monitoring of technical provisions. The actuarial function also conducts an assessment of Gjensidige's investments to ensure that these are within the limits at all the underwriting of insurance contracts and gives an opinion on the times. There are monthly reports to management and the Board. reinsurance program. The independent actuarial function's report documents the assessments. Monitoring and compliance The reporting to the management and the Board is carried out by a dedicated department under the CRO to ensure independent follow-up. Monitoring of risk also takes place through stress tests, where the buffer

capital must be sufficient at all times to be able to withstand the risk of a Process sharp simultaneous fall in the value of all asset classes. The starting point for identifying risks is key objectives, activities, deliverables and critical processes. The risk assessments are carried out Managing credit risk annually with a quarterly follow up within all business areas and Management of credit risk takes place as part of the management of market subsidiaries. As part of the company's strategy process, trends and scenarios risk. See above. related to globalization, technology, sustainability and demographics are identified and assessed. It is then considered how these factors could Managing liquidity risk influence the competitive position, context and the risk profile. Also, these Limits are set to secure access to liquid funds in Gjensidige's liquidity policy. risks are identified, assessed and prioritized by managers and professionals Liquidity risk is considered very low. The investment department is in accordance with the risk matrix. Rules have been implemented for those responsible for maintaining access to liquid funds. Cash and cash equivalents cases where the risk level is considered to be too high. In such cases, are continuously monitored and reported monthly to management and the business areas and subsidiaries must either implement risk mitigation Board. The reporting is carried out by a dedicated department under the measures or accept the relevant level of risk in writing. These decisions must CRO to ensure independent follow-up. be documented as part of the risk assessment. The results from the annual and quarterly risk assessments are documented and stored in a dedicated documentation system. In addition to the operational and strategic risk Managing operational and strategic/business risk assessments, a special "emerging risk" process is performed, where the purpose is to identify and monitor potentially emerging risks. Objectives and strategy The overall objective of managing operational and strategic / business risk in Reporting and documentation Gjensidige is to ensure that the Group's risk level is within the approved risk As a part of the company's annual assessment of operational and appetite. Operational risk shall be reduced as far as practicably possible strategic/business risk, the most significant risks are aggregated up to the within the areas that are assumed to have a negative effect on Gjensidige’s group level. These risks are followed up on an ongoing basis and reported to reputation. For other operational risks, a balanced approach shall be used as the Group's Risk Control Committee and the Board. The individual business a basis for efficient and future-oriented operations. Risk management is areas and subsidiaries' reporting of their own significant risks and risk- performed by identifying, assessing and managing the material risks. Overall mitigating measures are continually reported to the risk management risk appetite has been approved by the Board. The risk appetite is further function. operationalized in a Board-approved risk matrix. This matrix is used in the annual risk assessment process and in the ongoing follow-up that is carried out for the business areas and the subsidiaries. To manage risk effectively, Monitoring and compliance Gjensidige is organized with well-defined and clear reporting lines and Managers at Gjensidige are responsible for identifying, assessing and responsibilities. managing operational and strategic/business risks within their own area of responsibility. The impact of risk mitigation measures, as well as the need for any further measures, shall be assessed on an ongoing basis. It is the task of the second and third lines of defence to ensure that the risk management process is followed and that risk acceptance decisions are made at the correct level. If the second or third line of defence considers risk

management to be insufficient within a business area or in its subsidiaries, it Process has an autonomous reporting responsibility. Climate and environmental challenges represent new risks and opportunities for the insurance industry. More claims are expected as a result of several Managing climate risk weather events, especially precipitation. There is also uncertainty related to future customer behaviour and regulations. Providing financial security to Objectives and strategy customers and society in general in uncertain times also provides Gjensidige will help to ensure that we, our partners and customers work to opportunities for the sale of new products and services. Gjensidige reach the climate goals of the Paris Agreement and reduce environmental continuously assesses the opportunities and threats as part of financial risk. The Board has adopted targets for a reduction in climate emissions planning. Environmental and climate changes affect risk assessments and from its own operations and in the claims processes. the pricing of insurance products, and ongoing assessments consist of the effects of extreme weather and changes in risk exposure. Climate consequences are taken into account in all core processes from product Climate risk is a central part of Gjensidige’s sustainability strategy. The development, sales, risk assessment, claims processes and investments. strategy comprises the following focus areas: Good risk selection and the correct pricing of risk are crucial for solvency and profitability. • Increasing our knowledge about the consequences of climate change for our private and commercial customers, suppliers and society at Damage prevention is central to Gjensidige's strategy. Work is being large, and using our knowledge to develop targeted damage prevention performed on many different measures in order to reduce the risk of measures; damages occurring and the impact on the environment. Price reductions are • Cooperating with customers and suppliers/partners on the delivery of given when customers implement risk-reducing measures. sustainable solutions, and monitoring our own carbon footprint through continuous follow-up; • Investing in knowledge and competence-building for our staff and Damage prevention measures are based on both historical experience and customers and ensuring that our financial investments are socially forward-looking expert assessments using climate models and forecasts. For responsible and help to reduce the climate footprint. example, Gjensidige has collaborated with the Norwegian Computing Center (Norsk Regnesentral) in order to understand the consequences of expected climate change. The result of the work is integrated into tariffs in order to Gjensidige handles its own exposure to climate risk by having climate risk as contribute to the correct pricing of risks in the future. Gjensidige shares an integral part of the various strategies for the business. For the insurance damage data related to weather events with public authorities, and thus business, this means that climate risk is considered when developing contributes to increased knowledge about expected developments in claims products and when determining the price. Climate risk is also taken into as a result of climate change. account when purchasing reinsurance so that major damages and incidents related to climate risk will be covered by reinsurers. Similarly, climate risk is an integral part of investment activities, where climate risk is assessed and For many years, Gjensidige has demonstrated good preparedness in the taken into account for different types of investment. event of serious natural disasters and assists customers when houses and homes are affected. Effective claims settlement is central to the assessment of customer satisfaction.

Climate risk in investments is assessed and followed up on an ongoing basis. risk profiles of the Gjensidige Forsikring Group and Gjensidige Forsikring ASA Measurement of carbon intensity in equities and the real estate portfolio are within the approved risk appetite and risk limits. has been established. The ORSA process documents that Gjensidige, both at the Group level and at Reporting and documentation the level of Gjensidige Forsikring ASA, has the necessary capital to withstand Sustainability and climate risk are an integral part of the ongoing reporting large losses, both at a given moment in time and through the business plan and documentation within the various risk areas defined above. Quarterly period. The solvency need is assessed based on the partial internal model. In sustainability reporting is prepared, including climate accounts for own addition, both quantitative and qualitative analyses are performed to assess operations (scope 1,2, and 3), as well as climate accounts for claims if the solvency level is sufficient. processes (scope3), which are based on estimated material consumption related to frequency claims for motor and property (water and fire). The ORSA process comprises the totality of processes which the Gjensidige Responsible investments are followed up on an ongoing basis and are Forsikring Group and Gjensidige Forsikring ASA utilizes to identify, assess, included in the sustainability reporting. The Chief Sustainability Officer is monitor, manage and report risks in the short and long term, as well as responsible for the reporting. determining related capital requirements. The report also discusses capitalization countermeasures in stressed capital situations. Monitoring and compliance Sustainability is integrated into the group's strategy, and established policies The Board of Gjensidige Forsikring ASA owns the ORSA process, and it is and guidelines shall ensure satisfactory management and control. Code-of- structured so that the Board can make demands on the process and conduct (ethics) is an important foundation for complying with the challenge results. In addition, the Board considers the consequences for sustainability goals. The degree of goal achievement is included in the capital of the current strategy over the planning period. The Board approves remuneration committee's assessment of variable pay for group the final ORSA report and adopts the ORSA policy. management. The CEO of Gjensidige Forsikring ASA ensures that the ORSA process is The sustainability reporting has been verified by the external auditor for the carried out in line with the principles stated by the Board. The ORSA process first time in 2020. and results are reviewed regularly in the Capital Management Committee throughout the year. The CRO of Gjensidige Forsikring ASA has the More information on climate risk is provided in the "Integrated Annual responsibility for executing the ORSA process, while Group Audit reviews the Report 2020" for the Gjensidige Forsikring Group. ORSA report on an independent basis before final approval by the Board.

Own Risk and Solvency Assessment (ORSA) The ORSA process is carried out in an annual cycle. In the event of major The ORSA process (Own Risk and Solvency Assessment) is established as a changes in Gjensidige’s risk profile, an extraordinary ORSA process shall be strategic tool in Gjensidige Forsikring Group and Gjensidige Forsikring ASA. conducted. The requirement for an extraordinary ORSA will be based on the The purpose of the process is to ensure that the Board and Group judgement of the management and the Board. An extraordinary ORSA management have sufficient information to be able to assess whether the process shall nonetheless be carried out if the Solvency ratio according to the legal requirement is too low, as specified by the Capital Management

policy. An extraordinary ORSA process involves, as a rule, only revision of responsible for performing the validation. The CRO reports the findings from relevant capital assessments and proposals to bring capitalisation back into the independent validation, with proposed actions, to the CEO, Capital the target zone. Management Committee and Board.

Subsidiaries conduct their own ORSA processes in accordance with There have been no material changes in the partial internal model applicable legal requirements and local Board-approved policies. Group governance over the reporting period. ORSA is consistent with the conclusions made through these processes. B.4 Internal control system The Board is the primary receiver of the ORSA report. The report is sent to the Norwegian FSA after it has been approved by the Board. Gjensidige's internal control system is part of and builds on Gjensidige's risk management system. For a more detailed description of this system, please Governance of the partial internal model see the description given in Chapter B3. The partial internal model is a model used to quantify Gjensidige’s risk profile and to calculate the solvency capital requirement. The model is used The compliance function to determine the amount of capital required to manage Gjensidige’s risks, Compliance risk is the risk of financial losses, sanctions by authorities or loss and is also used to set profitability targets, assess reinsurance programs and of reputation as a result of failure to comply with internal and external for the investment strategy. The partial internal model is an important part regulations. of Gjensidige’s overall risk management system. All managers and employees are responsible for complying with relevant The Board is ultimately responsible for governance of the partial internal regulations, both those that are internal to the enterprise and external. model. The risk committee consists of designated Board members and Considerable emphasis is placed on ensuring that laws and regulations are prepares board matters related to risk and capital management. This observed and considered in the design and execution of work processes. The includes ensuring and assessing whether the partial internal model reflects compliance function shall assist the business areas by identifying, assessing, the company's risk profile at all times. advising, monitoring and reporting on the group’s compliance risk.

Governing documents approved by the Board specify responsibilities for the The Group policy for risk management and internal control describes the partial internal model within the organization. The CRO is responsible for the main principles for compliance responsibilities and organization of the daily operation and governance of the partial internal model. Matters compliance function. In addition, a function description has been regarding the partial internal model are reported to and discussed with the established. The compliance function shall prepare an annual plan for Capital Management Committee, headed by the CEO. compliance work. The annual plan shall cover the entire group and compliance work follows a risk-based methodology; i.e. selected areas of The partial internal model is validated at least once a year in order to ensure scrutiny are based on areas where compliance risk is identified as highest. that the internal model is fit for purpose and capable of producing a solvency capital requirement calculation which is not materially misstated. Major model changes are also validated. The actuarial function is

Non-compliance and violations of external or internal regulations are selection of audit projects, chosen approach, choice of audit activities, recorded in the incident register for operational risk. Compliance incidents, frequency, timing and reporting. including any violations, are summarized in a compliance report to the Group CEO and Board annually. In addition, the compliance function reports Group Audit fulfils the Company’s 3rd Line function as illustrated by the to the Group CEO and Board quarterly through the risk, compliance and figure in Chapter B.1. Group Audit shall perform an independent risk capital report. evaluation and shall encompass all the Group’s activities.

B.5 Internal audit function The CAE shall at least annually confirm to the Board of Gjensidige Forsikring ASA that Group Audit has been independent in the performance of audit Group Internal audit is an independent, objective assurance and advisory tasks. function which supports the Board and the Group CEO in discharging their responsibility to monitor and control the Group’s risk situation. Group Audit Responsibility and tasks is headed by the Chief Audit Executive (CAE) and shall, in accordance with Group Audit’s primary responsibility is to monitor and test the Gjensidige the Norwegian Law on Financial Institutions §18-1 (3), ensure that internal Forsikring Group’s processes for risk management, internal control and audit, encompassing the combined Group activities, including subsidiaries, is governance. Based on this, the Group Audit’s main responsibility is to organised and performs its tasks in a sound manner. The Board appoints and monitor and test to what extent: dismisses the CAE, based on the proposal of the Board’s Audit Committee, and approves the employment terms based on the proposal of the Board’s • The organisation’s strategy has been operationalised Remuneration Committee. The CAE is precluded from receiving pay based • The organisation’s operations and utilisation of resources are aligned on financial performance. with stated objectives • Statutory and regulatory requirements as well as policies and guidelines As a rule, the CAE shall have the same chief auditor position in those are complied with companies which are legally required to have an internal audit. • Financial and operational information is reliable and has a high degree of integrity Independence and objectivity • Assets are satisfactorily safeguarded The Board approves the function description for Group Audit as well as the • Routines, guidelines and the control structure for anti-money job description of the CAE. These documents regulate Group Audit’s laundering and terror financing are complied with. objective, organisation, methodology, responsibility and tasks, audit planning, reporting, rights and duties, cooperation and communication, Group Audit shall also provide assurance confirmations in accordance with ethics and security requirements as well as quality assurance of the function. regulatory requirements.

The CAE has established and maintains detailed procedures for Group Audit shall perform its work in accordance with applicable laws and implementation of the overall requirements set out in the function regulations for internal audit in financial institutions, including international description. Group Audit’s activities shall be performed free from professional standards for the practice of internal audit. unwarranted influence by the organisation. This applies both to the

Audit plan When the technical provisions are validated an independent calculation of The Board shall approve Group Audit’s annual plan based on the the level of the provision is performed together with assessments of recommendation of the Audit Committee. The annual audit plan shall take whether the applied methods and assumptions are appropriate, whether account of an assessment of risk and materiality, as well as budgeted costs, the data quality is sufficient and whether the processes and systems used and internal and external resource requirements for the budget period. are well established and controls are effective.

Reporting When validating the internal model an assessment is performed whether Upon completion of the audit a report is sent to the responsible manager of the level of the capital requirement is sufficient, both in total and for the area and to the Head of the applicable division. The report provides a individual risks. In addition, methods, assumptions, data, systems/IT, description of the work performed, a total conclusion on the current status, governance and the use of the model are validated. positive findings as well as detailed recommendations of activities which may improve the quality of processes and strengthen risk management. The A description of how the actuarial function is positioned in the responsible manager is committed to implementing improvements within a organizational structure was given in Chapter B.1. given time frame or may choose to accept the risk. The Actuarial Function prepares an Actuarial Function report at least Group Audit shall, at least once a year, deliver a report to the Board and annually. The report includes a description of all significant tasks performed Group CEO informing whether the Group’s risk management, internal by the Actuarial Function, as well as the results of the work that have been control and governance is in accordance with internal and external performed. The report indicates any significant deficiencies and makes guidelines. recommendations as to how these should be followed up. In addition, the Actuarial Function prepares a validation report that summarizes the review Group Audit shall report quarterly to the Board and Group CEO the results of of Gjensidige's internal model. The CEO and the Board are the main the audits performed. The report includes a summary of the audits which recipients of the Actuarial Functions’ reports. have been performed and any deviations from the audit budget and annual plan. The report also provides the current status of improvements which B.7 Outsourcing management has committed itself to implement in the detailed audit reports. Requirements and principles for outsourced functions or activities are specified in the “Group Policy on Outsourcing”, which has been approved by B.6 Actuarial function the Board. The policy ensures compliance with the requirements of the outsourcing provisions in Norwegian law and Solvency II regulations. The Actuarial Function is an independent control function responsible for actuarial tasks. This includes the validation of technical provisions, validation All functions and activities that are not defined as core functions and of Gjensidige’s internal model and statement of opinion on the underwriting activities may be outsourced provided that Gjensidige retains full policy and reinsurance program. responsibility for the discharging of the entity’s obligations.

When outsourcing the following shall be assessed and documented: • The operation, development, sourcing and vendor • How a vendor of sufficient quality is to be selected management of information and communication technology services, • Elements that must be included in the written agreement where the service provider is our subsidiary, Gjensidige Business • How outsourcing will be managed and monitored Services AB (GBS), which is located in Sweden. • Contingency plans (for both the enterprise and vendor). • Through our subsidiary GBS outsourcing of business process operations within claims handling and Outsourcing shall not: sales, where the service provider is located in India. The contract has • Significantly impair the quality of Gjensidige’s management been signed, but the scope of outsourced tasks is currently very limited. • Unduly increase operational risk • Through our subsidiary GBS outsourcing of operating and development • Impede supervision of outsourced activities of the insurance core system in Denmark, where the service provider is • Undermine continuous and satisfactory service to policyholders. located in Israel. Currently, this includes very few insurance policies, but it is planned that this will increase in scope. Intra-group outsourcing shall always be in line with relevant market prices • Asset management: where the service provider is located in the and conditions, in other words the same conditions shall apply as for jurisdictions of Norway, Denmark and Lithuania. outsourcing to an external party. Special care should be taken when • Claims settlement: where the service provider is located in Sweden. considering intra-group outsourcing so that potential conflicts of interest are • Complaint handling: where the service provider is located in Finland. identified and mitigated. B.8 Any other information Gjensidige’s centralised purchasing function, Group Procurement, shall be notified of all outsourcing and shall have an updated overview of all All material information regarding the system of governance is considered to outsourcing agreements. The function ensures that the agreements are in have been provided above. accordance with internal requirements. The Group Procurement function is also responsible for informing the Financial Supervisory Authority (FSA) when such notification is required.

The Group Procurement function shall report annually to the Board with an overview of all the outsourcing agreements reported to the FSA. Furthermore, the Group Procurement function shall, on behalf of the Executive Vice President Group Staff and General Services of Gjensidige Forsikring ASA, provide a status report, at least annually, to the Group CEO.

Gjensidige has currently outsourced/entered into an outsourcing agreement the following critical or important operational functions: • Information and Communication Technology (ICT); where the service provider is located in the jurisdictions of Norway, Sweden and Denmark.

C. Risk Profile

The description of the risk profile given in this chapter is based on the Life insurance is sold through Gjensidige Pensjonsforsikring AS. Life approved partial internal model. underwriting risk is relatively small compared to the non-life and health underwriting risk, as life insurance is a relatively small portion of the group’s The table below shows the risk profile of the Gjensidige Forsikring Group total business. and Gjensidige Forsikring ASA. Gjensidige’s assets are invested in financial markets, and the risk related to Table 6 – Risk profile of Gjensidige Forsikring Group and Gjensidige these investments represents a significant part of Gjensidige’s risk profile. Forsikring ASA (figures in NOK millions) Market risk includes interest rate and currency risk related to the technical provisions. Gjensidige Gjensidige

Forsikring Group Forsikring ASA Counterparty risk is limited as Gjensidige has limited exposure to Non-life and health 8,649 8,491 underwriting risk counterparties. Recoverables from reinsurance are relatively small. Life underwriting risk 1,450 Market risk 6,501 5,876 Operational risk is the risk related to the operation of the business. Counterparty risk 332 303 Diversification effects (4,372) (3,148) Diversification effects reduce risks. Basic Solvency Capital 12,560 11,522 Requirement A large financial loss will give rise to a deferred tax benefit that can be Operational risk 911 814 utilized provided that the business is able to continue its operations after the financial loss. This effect is accounted for in the calculation of the capital Adjustment for loss-absorbing requirement. effects of deferred tax and (2,969) (2,678) technical provisions C.1 Underwriting risk Solvency Capital 10,502 9,658 Requirement Underwriting risk consists of risks related to general insurance and risks related to life insurance.

Gjensidige’s core business is general insurance, and the risk related to non- General insurance life and health underwriting risk is therefore a major part of the risk General insurance covers non-life and health insurance contracts. The Gjensidige is exposed to; however, this risk is limited as Gjensidige is mainly Gjensidige Forsikring Group is exposed to non-life and health underwriting exposed to the private market and to the small and medium-sized risk in Norway, Sweden, Denmark and the Baltics. Gjensidige’s current risk commercial market. Reinsurance is a risk-mitigating tool that reduces risk. appetite is high in the core area of general insurance in the Nordic and Baltic

countries. The risk appetite is the highest in the areas in which Gjensidige • Court judgments: Compensation for personal injury claims is influenced has high competence and access to relevant data. Other business areas shall by court judgments concerning contracts and right for compensation. contribute to the Group’s total growth and profitability, but within a limited New court judgments may result in higher compensation. risk appetite. • New types of latent claims: Contracts are subject to the emergence of latent claims not previously identified. This is especially applicable to In the following paragraphs, a description of the most important risk liability insurance. components within general insurance has been provided: reserve risk, premium risk and lapse risk. In addition to the above factors, there will be uncertainty in respect of the timing of payments and claims inflation. The duration (average time Reserve risk between the date of loss until the claim is finally settled) differs significantly Reserve risk is the risk that the current claims provisions are not sufficient to between the types of risk under consideration. cover the development of already incurred claims and related expenses. Reserve risk reflects the emergence of uncertainty related to: Long duration will increase the company’s exposure to inflation. Risk contained in insurance contracts may be classified as short-tailed or long- • Actual claims' size being higher than expected for reported, but not yet tailed. Short-tailed risks are risks for which the period between the settled claims (RBNS), occurrence, reporting and final settlement of claims is short and therefore • Claims incurred but not yet reported (IBNR) being greater than the final outcome is at the outset more certain. Long-tailed risks are expected, and characterised by the period between the occurrence, reporting and • Claims payments being paid out at a different time to that which was settlement of claims being long and therefore the final outcome is at the assumed. outset more uncertain. In Property and Motor insurance (excluding bodily injury claims) claims are reported soon after occurrence, whereas in the case Uncertainty in the amount of reported, but not settled claims (RBNS) will be of Accident and Health insurance the claims may be reported several years caused by uncertainty in the various unresolved factors contributing to the after the occurrence of the insured event and settled several years after final claim. they were initially reported. Inflation risk is greater for long-tailed products as increased inflation will result in larger final claim payments than initially expected. Uncertainty in IBNR is generally related to the following risk factors:

• Insufficient data and lack of track record. This is especially relevant when new products are launched. • Misjudgement of trends in claims costs. Customer behaviour and changes in terms and conditions may result in changes to claims trends that were not correctly captured when initially estimating the claims provisions. • Changes in the portfolio composition that have not been captured.

The figure below shows the average duration of different products. Premium rates may be less than expected due to market competition or inadequacies in the pricing models used. The premium rates can to a large Figure 6 – Average duration of different products extent be specified by the company, and for most insurance products the main source of premium risk is related to claims’ costs. Motor Insurance Workers Compensation (NO) Claims frequency will generally depend on the products, or lines of business, Workers Compensation (DK) under consideration. An increase in the frequency of claims can be either Liability seasonal, weather related or of more permanent nature, driven by changes Accident in the underlying risk due to changes in the portfolio composition. For Group Life, Death instance, a cold winter may cause an increase in the frequency of claims Group Life, Disability within property insurance due to frozen water pipes and increased use of Property, Private electrical power and open fireplaces for heating houses. More permanent Property, Commercial shifts in the level of claims frequency may occur due to e.g. changes in Marine, aviation and transport customer behaviour and new types of claims. The effect on the profitability of a permanent change in the level of claims frequency will be high. In Motor 0 2 4 6 8 10 insurance in Norway, for example, an increase of one percentage point in Years the level of claims frequency will increase the loss ratio by three to four It should be noted that the risk profile is calculated in relation to risk arising percentage points based on the current level of claims. in the following year, and not the ultimate risk. This means that reserve risk is the risk that claims already incurred will be judged to have higher costs Claims severity is affected by a number of factors. For some lines of one year ahead compared with the current expectation. The one-year risk business, severity may be heavily influenced by a few large claims. The will usually be lower than the ultimate risk, as trends and changes to claims number of large claims incurred during a year varies significantly from one often emerge over a longer period of time than one year. year to another. This is typical in the commercial market. For most lines of business, the underlying development of claims severity is influenced by Premium risk inflation. For bodily injuries claims severity is also influenced by court Premium risk relates to future exposures, future claims and their related judgments, which tend to increase the compensation by more than general expenses. Exposure arises on unexpired risk from contracts already inflation. underwritten (i.e. the “unearned” exposure) and from future underwritten contracts. Gjensidige is also exposed to catastrophe claims, which are defined as claims affecting several lines of business simultaneously. Storm risk is the most Premium risk originates from the following factors: significant catastrophe risk. Catastrophe risk is deemed to be moderate • Uncertainty in premium rates given the existing reinsurance coverage for the Gjensidige Forsikring Group. • Uncertainty in claims frequency More information regarding reinsurance is given under the description of • Uncertainty in claims severity risk mitigation below. • Uncertainty in the timing of claims payments • Uncertainty in operating and claims handling expenses.

The uncertainty in the timing of payments may result in costs being higher Lapse risk than expected due to inflation. Lapse risk is defined as the risk of a change in value caused by deviations in the actual rate of policy lapses from their expected rates, i.e. an increase in There is uncertainty with respect to the estimate for operating and claims the level of customers leaving the company. Gjensidige considers lapse risk handling expenses. These expenses are related to sales, claims handling, IT to be limited for non-life and health insurance business, as the main effect of and the cost of other services needed to run an insurance company. As higher lapse rates will be a reduction in future profit. operating costs are low compared to claims’ costs, the risk of these costs being higher than expected is not a significant risk factor for Gjensidige.

Figure 7 – Risk exposure within underwriting risk for general insurance (based on allocated Basic Solvency Capital Requirement, calculated by the partial internal model)

Gjensidige Forsikring Group Gjensidige Forsikring ASA 0,3 % 3,6 % 0,3 % 0,1 %

15,8 % 15,5 % Reserve risk Reserve risk

33,0 % 33,3 % Premium risk - non- Premium risk - non- catastrophe catastrophe Premium risk - catastrophe Premium risk - catastrophe

Lapse risk Lapse risk

47,6 % Health products similar-to- 50,5 % Health products similar-to- life techniques life techniques

Risk exposure to fire and other damage to property, and the rest is related to other Reserve risk and premium risk are both material risks. Lapse risk contributes products. The portfolio consists mainly of private insurance and insurance only marginally to the total risk exposure for both the Gjensidige Forsikring related to small and medium-sized commercial enterprises. Group and Gjensidige Forsikring ASA. For reserve risk most of the claims provisions and related risk exposure are related to lines of business exposed Risk mitigation to personal injury, as it takes a long time to close such claims. A large part of Underwriting risk is mitigated through several arrangements, i.e. the reserve risk is related to lines of business such as “Workers' reinsurance and inflation hedging. compensation insurance”, “Income protection insurance”, and “Motor vehicle liability insurance”. In the case of premium risk, the risk exposure is Reinsurance mainly related to “Fire and other damage to property insurance” and Gjensidige Forsikring ASA buys reinsurance as a protection against “Motor insurance”. catastrophic events (such as windstorms) and large claims (such as major fires). The reinsurance programme is mainly bought to protect the Group’s The figures above show the risk exposure within general insurance for the equity capital. Gjensidige purchases almost exclusively non-proportional Gjensidige Forsikring Group and Gjensidige Forsikring ASA. reinsurance contracts with sufficiently high retentions so that only relatively few, large losses are covered. Subsidiaries are reinsured by Gjensidige There have been no material changes in underwriting risk assessments Forsikring ASA, and the subsidiaries’ reinsurance exposure is included in the within non-life and health insurance. reinsurance programme for the Gjensidige Forsikring ASA. The maximum retention level per loss/event for the Group, approved by the Board, was Risk concentration NOK 500 million in 2020, unchanged from 2019. The reinsurance program Gjensidige’s general insurance portfolio is largest in Norway, but Gjensidige for 2020 is placed within this limit, where the general retention per loss/loss also has a significant part of its general insurance business in Denmark, occurrence is NOK 100 million. For catastrophe events such as natural perils Sweden and the Baltics. the retention is NOK 200 million. For some insurance risks Gjensidige purchases reinsurance coverage that will reduce the retention level to under Gjensidige has developed governing documents for insurance risk. The 100 million. Decisions concerning the reinsurance programme are based on purpose is to diversify the types of insurance risks, and within each of these an analysis of exposure, claims history, Gjensidige’s partial internal model categories achieve a sufficiently large volume of risks to reduce the simulations and Gjensidige’s capitalization. As a general requirement, all fluctuation in the outcome. There are detailed guidelines that ensure that reinsurers must be rated A- or better by Standard & Poor’s (or the the risks underwritten are within Gjensidige’s risk appetite. equivalent from other rating agencies) when Gjensidige enters into a reinsurance contract. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability of the outcome (compared to the Hedging of inflation rate for Danish workers’ compensation expectation) will be. Furthermore, a more diversified portfolio is less likely Gjensidige is exposed to the risk of increased inflation on most of its to be affected by a change in any subset of the portfolio. Gjensidige has a technical provisions. Increased inflation will result in higher future claim well-diversified portfolio both between countries and between products. payments than previously expected. A large part of this inflation risk is About a third of the portfolio is related to motor insurance, a third is related related to Danish workers' compensation, which is hedged through inflation swaps.

Risk sensitivity Disability risk A risk sensitivity analysis is performed at the level of the Gjensidige Disability risk is the risk that actual disability is higher than expected and/or Forsikring Group. This is further described in Chapter C.6. the recovery is lower than expected. Higher disability rates, but also lower recovery rates will increase the claim payments. Both individual and Life insurance collective disability products expose Gjensidige Pensjonsforsikring AS to The Gjensidige Forsikring Group is exposed to life insurance risk through disability risk. Apart from lapse risk, disability risk is one of the major products sold in Gjensidige Pensjonsforsikring AS. Gjensidige insurance risks for Gjensidige Pensjonsforsikring AS. Pensjonsforsikring AS has a relatively large risk appetite within occupational defined contribution plans and collective disability and survivor benefits, Catastrophe risk moderate risk appetite within individual disability plans and low risk Catastrophe risk is defined as the risk of an immediate increase in mortality appetite within capital-intensive and complicated products (paid-up defined due to a catastrophic event. Mortality risk is in general low, and the benefit policies). In order to describe life insurance risk, the most important catastrophe scenario for catastrophe risk will have a very small impact on components are elaborated below, and these are: mortality, longevity, Gjensidige Pensjonsforsikring AS’ portfolio. disability, catastrophe, lapse and expense risk. Lapse risk Mortality risk Lapse risk is the risk of an increase in lapse rates, i.e. the risk of an increase Mortality risk is the risk that actual mortality rates are higher than expected. in the number of customers leaving the company. This is mainly relevant in It is defined as a permanent increase in mortality rates for all ages. Higher the Solvency II aspects because Solvency II takes into account expected mortality rates will result in higher claim payments to the surviving spouse future profit. Lapse risk reflects the risk of a potential reduction of the or children. Mortality risk in Gjensidige Pensjonsforsikring AS is low as there expected future profit if customers leave the company. is a limited amount of policies covering mortality risk. In addition, mortality rates are low, so an increase in these will have a limited impact. This means Lapse risk is mainly related to unit-linked products and represents an that it is not the risk of increased mortality that is dominant for Gjensidige important risk for the company under Solvency II. However, if a large Pensjonsforsikring AS, but the risk of decreased mortality: longevity risk. number of customers choose to leave the company it would lead to a loss of assets under management and expected future profit, but at the same time risk will be reduced. Longevity risk Longevity risk is the risk that actual mortality rates are lower than expected. Expense risk Lower mortality will result in a higher sum of pension payments for Expense risk is the risk of actual expenses being higher than expected. The guaranteed products. The company cannot charge additional premium for risk is related to the administration result which is the expected contractual periods previously entered into. The risk for the company is that administration income minus the expected expenses for the whole lifetime the provisions made to cover all future claims are insufficient. of the products that fall within the contract boundary. Expense risk is larger in Solvency II respects because the contract boundary is longer. For some Gjensidige Pensjonsforsikring AS is especially exposed to longevity risk linked products, the company cannot increase the administration fee if the to the paid-up policies, where Gjensidige Pensjonsforsikring AS is liable to expenses increase (e.g. guaranteed paid-up policies). For other products, the pay a defined benefit until death or other agreed time.

company can increase the administration fee for the future and thereby Risk Concentration reduce the losses. Life insurance consists of policies in the Norwegian market. The portfolio derives mainly from small and medium-sized commercial customers Risk Exposure throughout the country and in different industries. Risk concentration is The dominating life insurance risk is lapse risk, which comes from unit-linked therefore considered to be limited. products. Disability and longevity risk only contribute marginally to the overall risk profile since the portfolio of products carrying this risk is much Risk Mitigation smaller. Expense risk is also a minor risk. Mortality risk and catastrophe risk The risk for life insurance is limited. Gjensidige Pensjonsforsikring AS account for a very small share of the life insurance risk and in the total, they purchases reinsurance from Gjensidige Forsikring ASA, but this is considered represent less than 1 %. Lapse risk is reduced since the last reporting. This is an intra-group transaction. In addition, the company has entered into a caused by the introduction of individual pension account in 2021 leading to reinsurance contract to cover disability risk associated with the child pension a reduction in modelled future profit. Individual pension account is further product. The reinsurance result is reported quarterly. There exist guidelines described in Chapter C.6. and routines for the calculations of results and reporting. More details are found in Gjensidige Pensjonsforsikring AS’ Solvency and Financial Condition Figure 8 – Risk exposure within underwriting risk for life insurance in Report. Gjensidige Forsikring Group (based on allocated Basic Solvency Capital Requirement) Risk Sensitivity Risk sensitivity analysis is performed at the level of the Gjensidige Forsikring Risk exposure for life insurance Group. This is further described in Chapter C.6. 0 % 0 % 5 % 4 %4 % Mortality risk C.2 Market risk

Longevity risk Market risk is the risk of experiencing losses due to changes in macroeconomic conditions and/or changes in value of financial asset and Disability risk liabilities. Gjensidige is exposed to these types of risk through the Group’s investment activities. The risk is managed at the aggregate level and Lapse risk managed through the guidelines for asset management and investment strategy, which have been drawn up for Gjensidige Forsikring ASA and its Expense risk subsidiaries. The primary purpose of the investments made is to support the 87 % insurance business by securing the value of insurance liabilities against Catastrophe risk fluctuations in market variables. Some investments are also made to help achieve the Group's overall profitability goals, with a controlled downside risk. There have been no material changes in underwriting risk assessments within life insurance.

Investments for general insurance and life insurance are managed investment risk for the unit-linked portfolio. The other portfolios expose the separately. Market risk related to general insurance and life insurance is Company’s equity to risk. described separately where appropriate. The total assets of the Gjensidige Forsikring Group and Gjensidige Forsikring The investment portfolio for general insurance is split into two parts: a ASA have been invested in accordance with the “prudent person principle”. match portfolio and a free portfolio. The match portfolio is intended to As pointed out above, the portfolios are split into a match portfolio and a correspond to the Group’s technical provisions in order to reduce interest free portfolio in order to ensure the value, quality, liquidity and profitability rate risk, currency risk and to some extent inflation risk. It is invested in of the portfolio as a whole. Assets held to cover technical provisions in the fixed-income instruments with a duration matched to the duration of the match portfolio are invested in a manner appropriate to the nature and technical provisions. The free portfolio consists of various assets. The duration of the insurance liabilities. Derivatives are used predominantly to allocation of assets in this portfolio must be seen in relation to the Group’s hedge interest rate, currency and inflation risks. Concentration risk is capitalisation and risk capacity, as well as the Group’s risk appetite at all limited. times. Risk exposure Gjensidige Pensjonsforsikring AS manages several portfolios including a unit- The figure below shows the risk exposure of the Gjensidige Forsikring Group linked portfolio, a paid-up policy portfolio, a collective policy portfolio and a (including Gjensidige Pensjonsforsikring AS) and Gjensidige Forsikring ASA. company portfolio. Gjensidige Pensjonsforsikring AS does not carry Currency risk and concentration risk account for a very small share of the market risk and in the total, they represent less than 1.5 %.

Figure 9 – Risk exposure within market risk (based on allocated Basic Solvency Capital Requirement, calculated by the partial internal model).

Gjensidige Forsikring Group Gjensidige Forsikring ASA 0 % 0 % 1 % 3 % 1 % 2 %

Interest rate risk Interest rate risk

Equity risk 32 % Equity risk 36 %

43 % Property risk Property risk

50 % Spread risk Spread risk

Currency risk Currency risk 15 % 17 % Concentration risk Concentration risk

Within market risk the largest risks are equity risk and spread risk for the Table 8 – Allocation of the fixed-income portfolio per rating category Gjensidige Forsikring Group and Gjensidige Forsikring ASA. Holdings in related undertakings are in general treated as equity risk in Gjensidige Gjensidige Gjensidige Forsikring Group Forsikring ASA, while the risk is fully consolidated for the Gjensidige Forsikring ASA Forsikring Group. Futhermore, equity risk is greatest for Gjensidige AAA 34 % 35 % Forsikring ASA. The investments in property through Oslo Areal AS AA 14 % 15 % contribute to property risk. There is also some interest rate risk, while the currency risk and concentration risk contribute only marginally to the total A 18 % 15 % risk exposure. BBB 12 % 12 % BB 0 % 0 % There have been no material changes in in the principles underlying market B 0 % 0 % risk assessments, except for the transition to use the approved partial CCC or lower 0 % 0 % internal model. Not rated 23 % 23 % Spread risk Total 100 % 100 % Spread risk is the risk related to the values of assets, liabilities and financial instruments due to changes in the level or volatility of credit spreads over the risk-free interest rate term structure. It is the fixed-income portfolio that Issuers without a rating from an official rating company are mainly is exposed to spread risk. investments in the Norwegian fixed-income portfolio. These are mainly investments in Norwegian savings banks, municipalities, property companies The tables 7 and 8 show allocation of the fixed-income portfolio per sector and Norwegian power producers and distributors. and per rating category as of December 31, 2020. Investments in fixed- income funds are not included in the tables. Equity risk Equity risk is the risk related to the values of assets, liabilities and financial instruments as a result of changes in the level or volatility of the market Table 7 – Allocation of the fixed-income portfolio per sector price of equities.

Gjensidige Forsikring Gjensidige For both the Gjensidige Forsikring Group and Gjensidige Forsikring ASA the Group Forsikring ASA equity exposures are mainly investments in Norwegian equity funds and internationally diversified funds, with the majority invested in developed Government bonds 19 % 18 % markets. There are also investments in several private equity funds as well Corporate bonds 81 % 82 % as fund-of-funds, focused on the Nordic region.

Total 100 % 100 % The equity portfolio has no significant exposures to single shareholdings.

Property risk investment return. However, the sensitivity to interest rates in Gjensidige Property risk is the risk related to the value of assets, liabilities and financial Pensjonsforsikring AS has a hedging effect at the group risk level. instruments due to changes in the level or volatility in the market prices of property. Currency risk Foreign exchange risk is the risk related to the value of assets, liabilities and The motivation for investing in real estate is primarily that it enhances the financial instruments due to changes in currency exchange rates. risk-adjusted return, through an expected rate of return on real estate that lies between bonds and equities, with a modest correlation to both. Gjensidige Forsikring Group underwrites insurance in the Scandinavian and Baltic countries, and thus has insurance liabilities in the corresponding Property risk is material to the Gjensidige Forsikring Group and Gjensidige currencies. The foreign exchange risk, at both group and company level, is Forsikring ASA. Gjensidige Forsikring ASA has a 50 per cent share in Oslo generally hedged by matching technical provisions with investments in the Areal AS, which is fully consolidated in the Solvency II figures. The Group corresponding currency. owns most of its properties through Oslo Areal AS. In addition, a part of the portfolio is invested in property funds. The real estate portfolio managed by Risk Concentration Oslo Areal AS consists of investment properties. The real estate portfolio has The risk concentration regarding financial investments is defined as risk its largest concentration in office buildings in the Oslo area, but it also regarding the accumulation of exposures within the same geographical area, contains property in other major cities in Norway. industry sector etc.

Interest rate risk For both the Gjensidige Forsikring Group and Gjensidige Forsikring ASA Interest rate risk is the risk related to the value of assets, liabilities and sector concentration of fixed income securities are regulated by the financial instruments due to changes in the term structure of interest rates guidelines for credit exposure, which is a part of the Group Credit policy. The or interest rate volatility. For both the Gjensidige Forsikring Group and guidelines define a number of industry sectors together with allocation Gjensidige Forsikring ASA interest rate risk is small as the maturity of the limits to each sector in order to ensure diversification in the total portfolio. fixed income portfolio is aligned with the insurance obligations. For the The current allocation of fixed-income securities meets the guidelines’ Group, there is a further reduction in interest rate risk as the interest rate requirement. exposure in the non-life and life insurance business to hedge each other. The equity investments in Gjensidige Forsikring ASA are mainly investments As mentioned, the match portfolio is intended to correspond to the in internationally diversified funds. Investments are both in developed and Gjensidige Forsikring Group’s technical provisions in order to reduce interest emerging markets, together with funds in the Norwegian market. The rate risk. There is also some interest rate risk in the free portfolio. degree of diversification, both for sector and geographical concentration, is thus dependent on the composition in the fund structure. As opposed to general insurance the risk for Gjensidige Pensjonsforsikring AS is a reduction of interest rate levels. This risk arises in the portfolio of paid-up policies which guarantees an annual investment return. A decrease in the interest rate level increases the risk of not achieving the guaranteed

Geographical concentrations of fixed-income securities in the match purpose of minimizing effects on surplus capital as a consequence of portfolios of the Gjensidige Forsikring Group and Gjensidige Forsikring ASA changes in foreign exchange rates. This is implemented by using internal are mainly proportional to the amount of technical provisions in the various loans between the parent company and branches and use of forward countries, in which business is conducted. contracts and/or options.

Geographical concentration of fixed-income securities in the free portfolio is Hedging inflation exposure monitored by using a look-through approach in respect of the fixed-income As described under insurance risk, inflation risk related to Danish workers' funds. Fixed-income funds consist of internationally diversified funds in asset compensation is for the most part hedged through inflation swaps. classes such as investment grade, high yield and convertible bond funds. Hedging interest rate exposure in Denmark Each counterparty shall have a credit limit defined in NOK applicable to the Interest rate risk is a significant risk factor associated with the Workers’ Gjensidige Forsikring Group. The guidelines for establishment of the Group’s Compensation business in Denmark due to the high volume and duration of credit limits are regulated by the Group Credit policy. The purpose is to technical provisions related to the product. Most of the interest rate risk ensure that the loss risk in the Group does not exceed the risk appetite. It is exposure in technical provisions is hedged using interest rate swaps. The continuously monitored that the exposure does not exceed the credit limits. advantage of using interest rate swaps in contrast to bonds is that instruments with the desired duration are available in the Danish swap The fixed income – short duration portfolio mainly consists of Norwegian market, but not in the bond market. bonds and certificates, thereby ensuring liquid assets are held in the portfolio. Hedging equity exposure Put options are used for tail hedging of equity exposure. For tactical purpose Risk Mitigation futures may be used. The Gjensidige Forsikring Group and Gjensidige Forsikring ASA use several risk mitigation techniques. The match portfolio is intended to correspond to Risk Sensitivity the Group’s technical provisions in order to reduce interest rate risk, Risk sensitivity analysis is performed at the level of the Gjensidige Group. currency risk and to some extent inflation risk. It is invested in fixed-income This is further described in Chapter C.6. instruments with a duration matched to the duration of the technical provisions. C.3 Credit Risk

An overview of other risk mitigation techniques is given below. Credit risk in this context refers to possible losses due to the unexpected default of various counterparties and debtors. Credit risk associated with Hedging exchange rate exposure fixed income securities was covered in Chapter C.2 under “Spread risk”. In Limits have been defined for managing currency risk. Financial derivatives, this chapter counterparty default risk is described. primarily forward contracts, are used in the ongoing management to keep the exposure within the defined limits. For investments in foreign The Gjensidige Forsikring Group and Gjensidige Forsikring ASA are exposed subsidiaries and branches, a strategy has been implemented with the to counterparty default risk through investments made in securities and

derivatives, cash at banks, and through receivables from intermediaries and claimants. In an extreme scenario, reinsurers could fail to honour their under reinsurance contracts. obligations after a catastrophic event (see Chapter C.3).

Risk exposure Gjensidige Forsikring ASA has a liquidity policy regarding assets, and limits Counterparty default risk is limited. Gjensidige has mainly excess of loss have been set for the necessary access to liquid funds. These are taken into reinsurance contracts, with limited exposure, and a relatively minor account in the strategic asset allocation. There are no specific liquidity exposure to counterparties. requirements at the level of the Gjensidige Forsikring Group, but each subsidiary has its own liquidity policy. Risk mitigation When buying and selling shares and bonds, Delivery Versus Payment (DVP) is In addition, future profit is accounted for when determining eligible capital mainly used which minimizes counterparty risk on settlement. The over-the- under Solvency II. Future profit is not immediately available and may be counter (OTC) derivatives are covered by ISDA Master agreements, which regarded as an illiquid asset. Expected profit on future premiums, within the set out standard terms that apply to all the transactions entered between contract boundary, is estimated at NOK 2,895 million for the Gjensidige the parties. The Master Agreement allows parties to limit their financial Forsikring Group and NOK 1,756 million for Gjensidige Forsikring ASA as of exposure under OTC transactions on a net basis. The Credit Support Annex December 31, 2020. (CSA) is a legal document that defines the rules under which collateral is posted or transferred between swap counterparties to mitigate the credit Risk exposure risk arising from derivative positions. The liquidity policy defines easily sold (liquid) assets as bank deposits, OECD government and government-guaranteed securities that mature within 5 C.4 Liquidity risk years, money market instruments with at least an A rating that mature within 6 months, cover bonds with at least an AA rating that fall due within 2 Liquidity risk is defined as arising from the inability to meet payments when years, as well as coupons that fall due within 6 months on bonds and due, or from the need to realize investments at a lower value to meet covered bonds with at least an A rating. payment commitments. For most general insurers, liquidity risk is quite limited. Premium income is paid up front, and claims are paid out at a later There have been no material changes in the assessment of liquidity risk. stage. Future payments are not based on contractual payment dates, but rather on when claims arise and how long the claims handling takes. For a Based on the above definition the most liquid assets of Gjensidige Forsikring going concern, this will result in a positive net cash flow under normal ASA amounted to NOK 8,131 million as of December 31, 2020. circumstances. Large net outflows would generally only arise as a result of acquisitions or the recapitalization of subsidiaries. In addition, liquidity C.5 Operational risk needs may arise in connection with margin payments for financial instruments. In the event of a large claim or catastrophic event, payments Operational risk is the risk of economic losses and/or loss of reputation due will take place sometime after the event, and the reinsurers will cover most to weaknesses or faults in processes and systems, human errors, or external of the cost a short time after the payments have been made to the events. In order to reduce the risk, Company is organised in such a way that ensures well-defined reporting lines and a clear division of responsibility. In

addition, control measures and purchasing of an insurance coverage are Market risk actively used as risk mitigation actions. There is for example acquired a Gjensidige was affected by the economic fall in the financial markets in the cyber insurance to limit our exposure to cyber-attacks. Further, there are 1st quarter of 2020, but the rest of year gave positive investment results. established regular reporting and follow up routines by management and Gjensidige is still exposed to negative market movements, but the risk level the Board. with the current asset allocation is moderate compared to the adopted limits and capacity. Risk management is operated as before with dynamic An operational risk scenario analysis is performed, as a part of the ORSA management based on market development and the portfolio's return. process in order to test the robustness of the partial internal model’s capital requirement for operational risk. Based on the assessment of the potential Operational risk impact of operational risk scenarios, unexpected losses are considered as The majority of employees have worked at home offices well as the capital requirement needed to act as a buffer to cover these throughout the Covid-19 period. The operation of the Group has been more losses. or less normal throughout the period after the outbreak of Covid-19. At the beginning of the shutdown, there were very many claims related to travel C.6 Other material risks insurance that led to increased processing time, and there were some less significant technical challenges that arose that were resolved relatively Risk related to Covid-19 quickly. Now there is more or less normal operation of all operations in the The outbreak of the corona virus, Covid-19, and the measures taken to limit group, and there is reason to believe that the operations will function as infection have affected the results for the financial year 2020. All effects of normal also going forward, even if the government measures are prolonged. Covid-19 are considered to be within what one with a certain probability If employees should become infected and ill from Covid-19, crisis plans have may expect can occur. The risk is mainly related to market risk, underwriting been prepared, and the group's crisis management has been in full risk and operational risk. Based on current information, the internal model is operation throughout the Covid-19 period. considered to capture the risk related to Covid-19. Alternative scenarios have been implemented to assess possible downside scenarios related to Climate risk Covid-19, and Gjensidige is considered to be well capitalized to handle risk Climate risk is the risk relating to climate change. Climate risk may have an related to Covid-19. impact on, and is part of, insurance risk, financial risk, operational risk and business and strategic risk. In accordance with the Task Force on Climate- related Financial Disclosures (TCFD) we distinguish between physical risks, Underwriting risk transition risks and liability risks. Covid-19 could result in an increased amount of claims within some lines of business. However, so far in the pandemic Covid-19 has resulted in improved underwriting results for the insurance business as a whole. Insurance largely consists of one-year contracts that enable the Company to Despite increased claim payments for travel insurance, lower activity in change prices and coverage as the need arises. In simplified terms, one society generally will lead to fewer claims. could say that increased insurance risk as a result of climate change is not necessarily problematic, since increased claims payments will be compensated for by higher premiums or changes in coverage. In a longer- term perspective and not least from a perspective of the society, significantly higher claims payments as a result of climate change will be

problematic, as it may ultimately lead to insurance premiums simply natural disaster claim is limited upwards to NOK 16 billion. Because becoming too expensive or to certain areas not being insurable in practice. Gjensidige will only be charged corresponding to its share of the market and the Company has taken out reinsurance for natural disaster claims, Physical risks: Gjensidige’s losses relating to such claims will be very limited. Changes in value arising from physical damage/injury as a result of climate change, both acute and chronic. May arise as The greatest economic climate risk for Gjensidige's investment portfolio is a result of natural disasters or long-term developments assumed to arise in the transition to a low-emission society where climate rendering areas unsuitable for their original use. Property and regulation, stricter emission requirements, a different cost situation and business owners may also experience negative changes in changes in market preferences can affect the value of the investments. value. Gjensidige has a large proportion invested in renewable energy, such as Transition risks: hydropower, which is expected to be positively affected in such a scenario. Financial risk arising from the transition to a low-emission Gjensidige has a strategy of including ESG and climate risk in all our society. Sectors with high greenhouse gas emissions may face investment decisions and analyses. challenges relating to policies and regulation, for example Physical risks – threats and opportunities from higher emission costs. At the same time, support may be granted for competing technologies. This will represent a Threat Opportunity risk for owners of fossil energy, among others. If insurance contracts fail to Correct risk pricing and terms and reflect increased climate risk, this conditions of subscription can Liability risks: can have negative consequences increase Gjensidige’s business Financial risk relating to financial liability/claims for for the underwriting result. volume and earnings. With the compensation for losses due to climate change. An Different risks can become so use of data and expertise, underlying company that is held accountable for its negative great that they are no longer Gjensidige can prevent losses. environmental impact, for example through a climate lawsuit, insurable, resulting in loss of business and customers having to may face major claims for compensation, which may carry the risk themselves. negatively affect the value of the company. Transition risks – threats and opportunities

A special arrangement in Norway is the Norwegian Natural Perils Pool, which Threat Opportunity New risks arise as a result of the We understand the consequences is regulated by the Natural Perils Insurance Act. Membership of the Pool is green transition and because it is of the green transition and price compulsory for all insurance companies that sell property insurance (fire difficult to identify more long- new risks correctly, and act as a insurance) in Norway. The Pool is an equalisation mechanism whereby term consequences of the green driving force in the transition claims and costs are distributed between the member companies in transition process. proportion to their share of the market. The following natural perils are Liability risks – threats and opportunities covered by the Pool: storms, landslides/avalanches, floods, storm surges, Threat Opportunity earthquakes and volcanic eruptions. In accordance with the pertaining Risk of more lawsuits as a We understand risks and adapt regulations, each natural disaster claim will only be covered up to a certain consequence of product liability or our terms and conditions to amount, which limits Gjensidige’s losses relating to such claims. As of 1 directors and officers liability. ensure that the insurance risk is acceptable. January 2020, the insurance companies’ total liability for an individual

Individual pension account The stress test for 2020 shows a drop in the solvency margin of 26 percentage points before and after stress. By comparison, the solvency On 9 April 2019, the Norwegian Parliament resolved on changes in the margin increased by 2 percentage points, all else being equal, in the first defined contribution law (individual pension account) that comes into force quarter 2020 in connection with the outbreak of the Covid-19 virus. on 1 January 2021. According to the new rules, individual pension Negative results in the quarter was counteracted by a lower capital certificates will be transferred to, and managed by, either the employer’s requirement as a result of lower market values for the investments and a pension manager or a supplier chosen by the employee himself. It is reduction in investment risk. uncertain how individual pension accounts will affect the market. The product opens for new providers not being traditional life companies, and competition will intensify. The change affects the eligible capital and the The following assumptions apply: capital requirement for the life insurance business. The implementation of • The equity risk stress is 20 per cent. It includes stress on all equities individual pension account has been included in the solvency calculations as including hedge funds, private equity and commodities. at 31.12.2020. • Interest rate risk is calculated on a 100 bp change in the interest rates. It includes effect on both assets and liabilities. The interest rate Stress test scenario is the strictest of an interest rate increase or decrease. Stress testing and sensitivity analysis is done at the level of the Gjensidige • The property stress is 10 per cent. Forsikring Group. There are no separate stress tests for Gjensidige Forsikring • Credit spread risk: 0 per cent loss on government bonds and ASA. municipality bonds. 1 per cent increase in the credit spread for other bonds. • Insurance risk: For non-life and health insurance business the stress is The stress test for the Gjensidige Forsikring Group is defined in the Capital based on 3 percentage points annual increase in combined ratio. For life Management policy approved by the Board. The main objective of the stress insurance business the stress is based on a 20 per cent annual increase test is to demonstrate the adequacy of capital as a result of extreme but in disability. plausible events. The stress test is performed by summing up probable • Tax effect: A loss equal to the stress scenario results in a tax benefit that losses from the various areas of the business. Stress parameters for will have a positive effect. investments are chosen in order to reflect a loss probability of 1 in 200 on a quarterly basis. Diversification is accounted for by choosing diversified The outcome of the stress test at year-end 2020 is presented below. parameters. Tax effects are taken into account as a deferred tax asset would arise after a large financial loss.

The stress test is performed on a monthly basis. A rule has been set for management action with escalation to the CEO or the Board if the solvency margin is below the predefined levels (see chapter E.1).

The stress test is performed for the Gjensidige Forsikring Group, including Gjensidige Pensjonsforsikring AS.

Risk sensitivity Table 9 – Stress test financial assets (figures in NOK millions) A risk sensitivity analysis is performed at the Gjensidige Forsikring Group Decrease in level. The aim of the sensitivity analysis is to show how pre-defined Scenario value scenarios affect the solvency margin calculated by approved partial internal Market risk (3,603) model. The following assumptions are made for the different risk drivers: Insurance risk (life and non-life) (881) Positive effect of • Equities: It is assumed that the market value of equities Tax 885 reduced tax increases/decreases, which has an effect on both eligible capital and the capital requirement. Reduction of capital Due to lower carrying 563 • Interest rates: It is assumed that the yield curve, taken as a whole, requirement after stress amount changes with one percentage point. The effect on both eligible capital Salary, G-regulation, Pension liabilities (79) and the capital requirement is taken into account including tax effects. mortality • Inflation: The whole inflation rate curve is changed with one percentage Reduction of surplus capital point. It is assumed that technical provisions increase, which decreases (3,114) after stress the eligible capital and increases the capital requirement. The effect on Effect on surplus capital the value of inflation swaps and deferred tax is also taken into account. Available capital before stress 20,936 It is assumed that inflation does not affect pension liabilities or Gjensidige Pensjonsforsikring AS. Capital requirement before 10,502 • Spread: It is assumed that credit spreads increase/decrease, which has stress an effect on both the eligible capital and the capital requirement. The Surplus without buffer before stress 10,434 bonds that are affected are those defined by the spread risk module in Surplus without buffer after the approved partial internal model. 7,320 stress Solvency ratio after stress 174 % The figure below shows the relevant scenarios used in the sensitivity analysis Solvency ratio before stress 199 % as well as the effect on the solvency margin.

Figure 10 – Solvency margin sensitivity analysis for Gjensidige Forsikring Group.

215% 211% 210%

205% 203%

200% 199% 195% 195% 195% 190% 192%

185% 188%

180%

175% Interest Spread Spread Equity Equity Interest Inflation up rate down level level down 20 % up 20 % rate up 100bp 100bp 100bp down 100 bp up 100 bp 195% 203% 195% 199% 211% 188% 192%

C.7 Any other information

All material risks related to the insurance business are described above.

D. Valuation for Solvency Purposes

This Chapter gives a brief overview of the main differences between the Note also that the Solvency II balance sheet for the Gjensidige Forsikring accounting balance sheet and the Solvency II balance sheet. Group is prepared on the insurance companies within the Gjensidige Forsikring Group. Figures for Gjensidige Forsikring ASA and figures for the Gjensidige Forsikring Group differ as subsidiaries are treated as equity holdings for The table below gives a summary of the Solvency II balance sheet, with Gjensidige Forsikring ASA, while the balance sheet in the subsidiaries are assets versus liabilities. fully consolidated in the balance sheet for Gjensidige Forsikring Group.

Table 10 – The balance sheet: Assets and liabilities according to Solvency II and accounting principles (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA Accounting Accounting Solvency II Difference Solvency II Difference (IFRS) (NGAAP) Assets Intangible assets 4,906 0 (4,906) 3,677 0 (3,677) Property plant and equipment for own use 1,150 1,150 - 971 971 - Total investment assets 65,303 67,176 1,873 56,531 59,636 3,105 Assets held for index-linked and unit-linked 34,586 34,586 - 0 0 - contracts Loans and mortgages 6 6 - 6 6 - Reinsurance recoverables 1,062 1,062 (0) 557 556 (1) Cash and cash equivalents 2,861 2,926 65 2,365 2,365 - Total receivables 7,960 2,782 (5,178) 7,544 2,503 (5,041) Any other assets not elsewhere shown in this 478 475 (2) 433 433 0 table Total assets 118,312 110,162 (8,150) 72,084 66,471 (5,613) Liabilities Subordinated loans 1,499 2,526 1,027 1,199 2,224 1,025 Technical provisions 82,218 73,012 (9,207) 38,979 30,335 (8,644) Deferred tax liabilities 956 2,127 1,171 1,199 2,396 1,197 Any other liabilities 8,354 9,188 834 12,664 8,545 (4.120) Total liabilities 93,027 86,853 (6,175) 54,042 43,501 (10,541) Excess of assets over liabilities 25,285 23,310 (1,975) 18,043 22,971 4,928

D.1 Assets

In general assets are valued on an “economic value” basis under Solvency II, Intangible assets (including goodwill) which is consistent with the fair value principle. Market prices are used Goodwill is valued at zero under Solvency II. Other intangible assets can only where assets are traded in active markets and prices are publicly available, have a value higher than zero if they can be sold separately and if there is a however for some assets where the market is inactive, other valuation quoted market price in an active market for the same or similar intangible methods are used to determine the market value. assets. None of the intangible assets are considered to be possible to sell resulting in a valuation of zero in the Solvency II balance sheet. An active market is defined as a market where all of the following criteria are satisfied: Deferred tax assets Deferred tax assets consist of a tax loss carried forward from ADB • Items traded in a market are homogenous Gjensidige, which are valued at zero under Solvency II • Willing buyers and sellers usually exist at any point in time • Prices are publicly available. Pension benefit surplus Pension benefit surplus consists of assets less liabilities for the funded part Most of Gjensidige’s assets are valued according to quoted market prices in of Gjensidige’s pension obligations. The pension benefit surplus is calculated the Solvency II balance sheet since they are traded in active markets. according to IAS 19, and is identical to the accounting figures. The risk in the Property and “private equity” are asset classes considered as not having pension benefit surplus is related to a combination of the pension plan itself, active markets. Other valuation methods are therefore used for these the pension liability, the pension assets and the covariation between assets, and these methods are described below. liabilities and pension assets. The duration of the pension liabilities is long, and the largest risk factor is considered to be interest rate risk. There is also Note that Norwegian bonds are considered to be quoted in an active risk related to the following factors; credit risk, equity risk, currency risk, market. Although prices for Norwegian bonds from some issuers are not liquidity risk, life expectancy, disability rate and wage growth. More publicly available, the prices can be derived from public information. information regarding the defined benefit pension plan is given in Chapter D.3 and in the integrated annual report. For the majority of assets, the Solvency II valuation will be consistent with the accounting principles in NGAAP and IFRS, however, there are some Property, plant and equipment held for own use differences. These are briefly explained below and will be common for both Property, plant and equipment held for own use consists of office buildings Gjensidige Forsikring ASA and the Gjensidige Forsikring Group. and equipment owned by Gjensidige, as well as the value of the rental contracts of Gjensidige’s business office properties (right-off-use property). The nature and risk of these assets is related to property investments. In The table 11 shows the differences between the Solvency II valuation and addition, the risk of the latter asset is related to the value of the rental the accounting valuation of assets. agreements, and is influenced, among other things, by changes in property prices and changes in interest rates.

Table 11 – Assets according to Solvency II and accounting principles (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA Accounting Accounting (IFRS) Solvency II Difference Solvency II Difference (NGAAP) Intangible assets (including 4,906 - (4,906) 3,677 - (3,677) goodwill) Deferred tax assets 21 - (21) - - - Pension benefit surplus 339 339 - 336 336 - Property, plant & equipment held 1,150 1 150 - 971 971 - for own use Investments – Property 5,089 5,488 398 3,453 5,488 2,035 Investments – Holding in related - - - 2,498 2,502 4 undertaking Investments – Equities 981 981 - 977 977 - Investments – Bonds 43,90 45,339 1,440 37,073 38,139 1,066 Investments – Collective 13,843 13,843 - 11,040 11,040 - Investment Undertakings Investments – Derivatives 1,294 1,294 - 1,294 1,294 - Investments – Deposits other than 192 192 - 192 192 - cash equivalents Investments – Other investments 4 39 35 4 4 - Assets held for index-linked/unit- 34,586 34,586 - - - - linked contracts Loans and mortgages 6 6 - 6 6 - Reinsurance recoverables 1,062 1,062 - 557 556 (1) Deposit to cedants ------Insurance and intermediaries 7,600 2,419 (5,181) 7,371 2,330 (5,041) receivables Reinsurance receivables 120 120 - 116 116 - Receivables (trade, not insurance) 240 242 2 57 57 - Cash and cash equivalents 2,861 2,926 65 2,365 2,365 - Own shares - 0 - - 0 - Other assets 118 137 18 97 97 - Total 118,312 110,162 (8,150) 72,084 66,471 (5,613)

Investments – Property The main risk in related undertakings is associated with insurance The majority of Gjensidige’s investments consist of Norwegian investment operations. Separate reports on Solvency and Financial Condition are properties. These are mainly office buildings in the Oslo area. Markets for available for these companies. property investments are considered to be inactive. Valuation is based on net rental income and valuations of the properties. A proprietary valuation Investments – Equities model has been developed and is updated each quarter. The model Equities include listed equities in developed markets, unlisted private equity discounts income and costs over an investment horizon of 19 years. The investments not organised as funds, and paid-in capital in Gjensidige valuation model depends on several expert judgements, of which the most Pensjonskasse. The risk associated with equity investments was treated in important are related to required rate of return, rental income, costs, Chapter C.2. landlord adjustment costs and project investments. There is uncertainty related to all parameters; income, interest rate, Consumer Price Index (CPI), Listed equities in developed markets are measured at fair value. Fair value is probability of the lessee going bankrupt etc. External appraisal valuations based on quoted market prices in active markets. are obtained frequently. The most recent external appraisal valuation was as at December 31, 2020. Unlisted “private equity” investments are measured at fair value. Valuation is based on non-observable market data. In the accounting figures, Gjensidige’s holding in Oslo Areal is treated as an equity participation both for Gjensidige Forsikring ASA and for the Cash flow analysis, price multiples and recent market transactions are used. Gjensidige Forsikring Group.

Investments – Bonds Unlike under accounting principles, the risk related to Oslo Areal is treated Bonds include Government bonds and Norwegian corporate bonds as a property risk for both Gjensidige ASA and the Gjensidige Forsikring measured at fair value, Government bonds and Norwegian corporate bonds Group under Solvency II principles. Gjensidige’s holding (50%) in Oslo Areal measured at amortised cost, Norwegian money market instruments, Danish is fully consolidated in the Solvency II balance sheet for Gjensidige Forsikring mortgage-backed securities and loans secured in real estate. The risk ASA and the Gjensidige Forsikring Group (both assets and liabilities). The risk associated with fixed income securities was treated in Chapter C.2. associated with property investments was described in Chapter C.2.

Government bonds and Norwegian corporate bonds, measured at fair value, The property value in the Solvency II perspective is higher because the mainly consist of bonds issued by central government, bonds issued by local underlying exposure to property in Oslo Areal is higher than the accounting authorities, and bonds issued by corporations. If a bond is listed, and value. transactions occur regularly, then quoted market prices are used as the basis for fair value. If a bond is listed, and transactions do not occur regularly, Investments - Holdings in related undertakings then valuation is based on observable market data, using observable yield The Solvency II value of insurance subsidiaries is the excess of assets over curves and estimated credit spreads. liabilities for each subsidiary according to Solvency II principles. Under accounting principles, the cost method is used to value all subsidiaries. Government bonds and Norwegian corporate bonds, measured at amortised cost mainly consist of bonds issued by central governments, bonds issued by

Norwegian local authorities and bonds issued by corporations. Under Convertible bond funds are measured at fair value and consist of funds accounting principles, bonds held to maturity or bonds classified as loans invested in listed convertible bonds. Fair value of funds is estimated based and receivables are measured at amortised cost while they are measured at on the fair value of the underlying investments. If the underlying investment market value under Solvency II. is listed, and transactions occur regularly, then quoted market prices are used. If the underlying investment is listed, and transactions do not occur Norwegian money market instruments are measured at fair value. If a bond regularly, then valuation is based on observable market data, using is listed, and transactions occur regularly, then quoted market prices are observable yield curves and estimated credit spreads. used as fair value. If a bond is listed, and transactions do not occur regularly, then valuation is based on observable market data, using observable yield Investment grade bond funds are measured at fair value and consist of funds curves and estimated credit spreads. invested in listed investment grade bonds. Fair value of funds is estimated based on the fair value of the underlying investments. If the underlying Danish mortgage-backed securities are measured at fair value. All bonds are investment is listed, and transactions occur regularly, then quoted market listed and are approximately evenly split between fixed and floating rate prices are used. If the underlying investment is listed, and transactions do bonds. Quoted market prices are used as fair value. not occur regularly, then valuation is based on observable market data, using observable yield curves and estimated credit spreads. Loans secured in real estate are measured at fair value. Fair value is based on NAV (Net Asset Value) as reported by the administrators. High yield bond funds are measured at fair value and consist of funds invested in listed high yield bonds. Fair value of funds is estimated based on Investments – Collective Investment Undertakings the fair value of the underlying investments. If the underlying investment is The category Collective Investment Undertakings includes Developed listed, and transactions occur regularly, then quoted market prices are used. markets equity funds, Emerging markets equity funds, Convertible bond If the underlying investment is listed, and transactions do not occur funds, Investment grade bond funds, High yield bond funds, Loan funds, regularly, then valuation is based on observable market data, using Private Equity funds, Hedge funds, and Real estate funds. The risk associated observable yield curves and estimated credit spreads. with collective investment undertakings was treated in Chapter C.2. Loan funds are measured at fair value and consist of funds invested in senior Developed markets equity funds are measured at fair value and consist of secured debt. Fair value of funds is estimated based on the fair value of the funds invested in listed equities in developed markets. Fair value is underlying investments. The underlying investments are valued based on estimated based on the quoted market price of the underlying investments observable market data, using observable yield curves and estimated credit of the funds. spreads.

Emerging markets equity funds are measured at fair value and consist of Private equity funds are measured at fair value. Fair value is based on NAV funds invested in listed equities in emerging markets. Fair value is estimated (Net Asset Value) as reported by the fund administrators in accordance with based on the quoted market price of the underlying investments in the IPEV (International Private Equity and Venture capital valuation) guidelines. funds. The NAV is estimated by the fund administrators by using the valuation techniques best suited to estimate fair value, given the actual circumstances

of each underlying investment. Because of late reporting from funds, the Over-the-counter derivatives are non-standardised contracts that are traded NAV from the previous quarterly reporting is used in estimating fair value. directly between two parties. Fair value is derived from theoretical models The NAV is then assessed for discretionary adjustments based on objective using observable market data. events since the last reporting date. Objective events may be the development in underlying values of listed companies since the last Investments – Deposits other than cash equivalents reporting, changes in regulations or substantial market movements. It is Deposits are measured at fair value and consist of short-term currency assumed that the value of private equity will be affected by substantial deposits and other short-term credit deposits. Fair value is derived from market movements either in general or in individual sectors, as measured by theoretical models using observable market data. The risk associated with the changes in various stock market indices. Based on this information a this type of assets was treated in Chapter C.2. final valuation is made. As the market is inactive, the valuation of private equity is uncertain. Investments – Other investments Other investments include unsettled transactions. There is little risk Hedge funds are measured at fair value and consist of funds that invest in associated with this type of assets as the amount on the balance sheet is most types of asset classes with few limitations on the use of derivatives, very low. shorting or leveraging in order to earn a return that is partly independent of (has a low correlation with) traditional market indexes. Fair value of funds is Assets held for index-linked/unit-linked contracts estimated based on the fair value of the underlying investments. Assets held for index-linked/unit-linked contracts include invested customers’ funds. The main type of risk associated with these assets is lapse Real estate funds are measured at fair value and consist of funds invested in risk related to the future profit in this portfolio. The future profit recognized commercial real estate. Fair value is based on NAV values as reported by the in the basic own funds will be reduced if customers cancel the contracts. fund managers. Because of the late reporting from the funds, the NAV values from the previous quarterly reporting are used in estimating fair Loans and mortgages value. Loans and mortgages include loans for financing fire alarm systems etc. There is little risk associated with this type of asset. Investments – Derivatives Derivatives are measured at fair value. Financial derivatives are used in the Reinsurance recoverables management of exposure to equities, bonds and foreign exchange in order Reinsurance recoverables are related to the reinsurance recoverables that to achieve the desired level of risk and return. The instruments are used are outstanding. There is therefore counterparty default risk associated with both for trading purposes and for hedging of other balance sheet items. this type of assets. Both exchange-traded and over-the-counter derivatives are used. The risk associated with derivatives was treated in Chapter C.2. Insurance and intermediaries receivables The insurance and intermediaries receivables mainly consist of policyholder Exchange-traded derivatives are standardised contracts that are transacted receivables. This relates to outstanding insurance premiums for current on an organised exchange. For these derivatives quoted market prices are insurance exposure. used as representing fair value.

Only the amount overdue is included in the Solvency II balance sheet, as D.2 Technical provisions policyholder receivables generally form a part of premium provisions under Solvency II. There is little risk associated with these assets. For an insurance company, insurance provisions are a significant part of the balance sheet. Insurance provisions mainly represent the company’s Receivables (trade, not insurance) expected future payments to its policyholders and beneficiaries at the time Gjensidige’s share of receivables in Oslo Areal is fully consolidated in the of valuation. Solvency II balance sheet resulting in minor differences to the accounting figures. Solvency II requires all balance sheet items to be valued at market value, which is not entirely consistent with generally accepted accounting Cash and cash equivalents principles as defined by NGAAP and IFRS. The main differences between Cash and cash equivalents consist mainly of bank deposits. Gjensidige’s accounting and Solvency II principles for the components that make up the share of Oslo Areal is fully consolidated in the Solvency II balance sheet technical provisions are briefly explained below and will be common for resulting in minor differences to the accounting figures. both Gjensidige Forsikring ASA and for the Gjensidige Forsikring Group.

Own shares According to Solvency II principles, technical provisions are calculated as the Gjensidige Forsikring ASA owns a very limited amount of its own shares. The sum of a best estimate and a risk margin. For non-life and health insurance accounting value and Solvency II value are the same. the best estimate of technical provisions consists of the premium provisions and the claims provisions. Other assets Other assets consist of prepaid expenses and earned, not received income. From the third quarter of 2018, Gjensidige has, in line with feedback from This is mainly related to commissions and expenses related to office the Financial Supervisory Authority of Norway, changed the official Solvency buildings and rental costs. The risk of these assets is associated with II reporting. The reporting is now based on a best estimate for technical counterparty default risk. provisions that does not include planned run-off gains. The planned run-off gains are instead included as eligible own funds. Gjensidige’s share of other assets in Oslo Areal is fully consolidated in the Solvency II balance sheet resulting in minor differences to the accounting The table 12 shows the technical provisions for Gjensidige Forsikring ASA figures. and for the Gjensidige Forsikring Group according to accounting principles and Solvency II principles.

Solvency II yield curves with no volatility adjustment are used to determine the calculations or temporary deductions. Neither the Gjensidige Forsikring the Solvency II technical provisions. No transitional measures are used for Group nor Gjensidige Forsikring ASA uses a matching adjustment.

Table 12 – Technical provisions (gross) according to Solvency II and accounting principles (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA

Accounting Accounting Solvency II Difference Solvency II Difference (IFRS) (NGAAP)

Claims provisions for non-life 28,534 26,105 (2,429) 28,097 25,670 (2,428) and health insurance Premium provisions for non-life 11,734 3,556 (8,178) 10,882 3,220 (7,662) and health insurance

Technical provisions for life 41,950 40,763 (1,188) - - - insurance (best estimate) Risk margin - 2,587 2,587 - 1,445 1,445

Total technical provisions 82,218 73,012 (9,207) 38,979 30,335 (8,644)

Claims provisions but not reported (IBNR). The claims provisions also include provision for (non-life and health insurance) future expenses in relation to claims incurred, called Loss Adjustment Claims provisions are discounted under Solvency II, whereas they, with Expenses (LAE). minor exceptions, are undiscounted10 under accounting principles. All other assumptions used in Solvency II calculations are identical with the The cost of reported claims not yet paid (RBNS) is estimated by a claims accounting assumptions, except for planned run-off gains which are not handler for each individual claim and is based on relevant information included as described in the introduction. available from claims reports, loss adjusters, medical certificates and information about the costs of settling claims with similar characteristics in The claims provisions are the best estimate of future payments for claims previous periods. These provisions are set by the Claims department. incurred up to, and including, the balance sheet date. These include both claims that have been reported to the company (RBNS) and those incurred

10 Danish workers' compensation and Swedish motor vehicle liability insurance are exceptions as the claims provision is discounted in the accounting figures.

Provisions for incurred, but not report claims (IBNR) are based on the calculate the provision for loss adjustment expenses. This method assumes company’s empirical data and standard actuarial methods. The key that upcoming expenses can be estimated as a percentage of the statistical methods used for calculating IBNR are: unreported claims as well as a percentage of the reported but not settled claims. • “Chain ladder” methods, which use historical data to estimate the proportions of the paid and incurred to date of the ultimate claim costs. Note that the Danish workers' compensation insurance contains a • Expected loss ratio methods (e.g. “Bornhuetter-Ferguson”), which use capitalisation option, which gives the claimant the right to capitalise up to 50 Gjensidige’s expectation of the loss ratio for a line of business in the % of the loss of earning capacity provided that the loss of earning capacity is estimation of future claims payments. greater than or equal to 50%, in cases where the claimant is awarded loss of • Methods where “Chain ladder” and “Expected loss ratio” methods are earning capacity due to a work-related claim. Under the current Danish used in combination. One advantage of the use of this method is that capitalisation rules, it is both favourable for the claimant as well as the more weight can be given to historical data when the run-off insurance undertaking if the claimant chooses to use this capitalisation development of the actual claim year has become more stable. option. The reason is that the company can pay a lower compensation (reduced by the tax the customer normally should pay if the compensation The methods used will depend on the line of business and the time period of was paid out as an annuity) and the claimant receives more social benefits. data available. In the calculation of claims provisions either empirical However, there is a risk that claimants might change their behaviour payment data or incurred11 data can be employed. Parameter selection is regarding exercising the option (where permissible) or changed generally made on the basis of historical data combined with business circumstances may prevent claimants from making use of the option as a insight and expert judgment with respect to the line of business modelled. result, for example, of receiving temporary compensation for loss of earning The claims provisions are modelled within the same country per line of capacity (something that has been experienced in recent years). The claims business and not across countries, since pricing, coverage and claims provision regarding Danish workers' compensation accounts for this option compensation are different between the countries where Gjensidige offers and the risks associated with it. insurance. The table below provides an overview of the claims provisions across lines of Provisions for loss adjustment expenses are made to cover unallocated business for Gjensidige Forsikring ASA and for the Gjensidige Forsikring expenses in relation to already incurred, but not fully settled claims. The Group. The difference between the accounting figures and the Solvency II New-York Method is a broadly used method and is applied in order to figures relates to the discounting effect and run-off gains.

11 Incurred data consist of payment data and registered case reserves (RBNS-Reported But Not Settled).

Table 13 – Claims provisions per line of business according to Solvency II and accounting principles (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA No Line of business Accounting Accounting (IFRS) Solvency II Difference Solvency II Difference (NGAAP) 1 Medical expense 233 233 (0) 224 223 (0) 2 Income protection 3,825 3,595 (230) 3,823 3,593 (230) 3 Workers’ compensation 6,012 5,197 (816) 6,012 5,197 (816) 4 Motor vehicle liability 5,911 4,685 (1,226) 5,653 4,425 (1,228) 5 Other Motor 733 725 (8) 706 699 (8) 6 Marine, aviation and transport 109 102 (7) 106 100 (7) Fire and other damage to 7 4,883 4,872 (12) 4,827 4,816 (12) property 8 General liability 1,436 1,432 (4) 1,412 1,408 (5) 9 Credit and suretyship 10 10 0 - - - 11 Assistance 192 192 (0) 192 191 (0) 12 Miscellaneous 416 412 (4) 413 410 (4) Non-proportional health 25 - - - 44 35 (9) reinsurance Non-proportional casualty 26 11 8 (2) 58 56 (2) reinsurance Non-proportional marine, 27 aviation and transport - - - 1 1 0 reinsurance Non-proportional property 28 124 99 (25) 136 111 (25) reinsurance 29 Health insurance 1,787 1,725 (62) 1,787 1,725 (62)

33 Annuities from non-life health 2,703 2,682 (22) 2,703 2,682 (22)

Annuities from non-life other 34 148 136 (12) - - - than health Other technical provisions ------Total 28,534 26,105 (2,429) 28,097 25,670 (2,427)

Premium provisions Contracts within the contract boundaries are identified as: (non-life and health insurance) Premium provisions according to generally accepted accounting principles • Contracts in force correspond to the unexpired proportion of premiums written for contracts • Contracts under renewal under which Gjensidige is liable for the terms in force at the valuation date. No deductions are made for any expenses and price given to the customer before the written premiums are accrued. • New tenders and contracts under which Gjensidige is liable for the terms and price given to the customer. Under Solvency II principles premium provisions are calculated as the current value of future cash flows for unexpired risk for contracts within The following assumptions are made for each line of business when contract boundaries. In practice, this implies that premium provisions are determining the cash flows: reduced with the expected future profit on the contracts for which Gjensidige is liable. Furthermore, the Solvency II premium provisions are • Premium payments are assumed to be paid at the starting date or discounted. Note that policyholder receivables are treated as an asset in the renewal date of the contract. For contracts with several instalments, the accounting figures, while policyholder receivables are included as future cash flow for the premium income is calculated based on the number of premium cash inflows in the determination of the premium provisions under remaining instalments over the lifetime of the contract. Solvency II. The difference between the accounting figures and the Solvency • It is assumed that a certain proportion of the contracts in force are going II figures for premium provision should therefore be assessed together with to be terminated before the contract expires generating a cash outflow. the item “insurance and intermediaries receivables” on the asset side. • It is assumed that a proportion of the contracts under renewal will not be renewed. Premium provisions according to Solvency II principles are negative when • Cash outflow is calculated by assuming a loss ratio that is obtained from premiums (cash inflow) related to future exposure is larger than claim the budget / forecast for the individual line of business in question. payments (cash outflow). This applies typically to insurance contracts where • An operating expense ratio is assumed in order to determine the cash all the premium amounts have not been paid already. flow for operating expenses. The operating expense ratio is different for contracts already in force, contracts under renewal and for contracts that Table 14 below provides an overview of the premium provisions across lines have been sent out as tenders. of business for Gjensidige Forsikring ASA and for the Gjensidige Forsikring • Churn rates used in the calculation are calculated with available data Group under both accounting and Solvency II principles. when these are assumed to be accurate. Otherwise expert opinions have been used. Churn rates are calculated on a product level for each Premium provisions are the sum of discounted cashflows for future country. exposure of contracts within the contract boundaries.

Table 14 – Premium provisions per line of business according to Solvency II and accounting principles (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA No Line of business Accounting Accounting (IFRS) Solvency II Difference Solvency II Difference (NGAAP) 1 Medical expense 428 172 (256) 351 134 (217)

2 Income protection 534 149 (384) 517 144 (373)

3 Workers’ compensation 273 56 (217) 273 56 (217)

4 Motor vehicle liability 1,409 203 (1,206) 1,222 43 (1,179)

5 Other Motor 2,791 573 (2,218) 2,675 511 (2,165) Marine, aviation and 6 46 7 (38) 44 6 (38) transport Fire and other damage to 7 4,346 2,109 (2,237) 4,256 2,055 (2,201) property 8 General liability 333 143 (190) 318 135 (183) 9 Credit and suretyship 9 8 (1) 0 - - 11 Assistance 421 49 (372) 413 49 (364) 12 Miscellaneous 356 149 (207) 355 150 (205)

Non-proportional health 25 0 2 2 0 2 2 reinsurance

Non-proportional property 28 0 0 - 0 - - reinsurance 29 Health insurance 368 (65) (433) 368 (65) (433) Annuities from non-life 33 0 0 - 0 - - health Other technical provisions 419 0 (419) 89 - (89) Total 11,734 3,556 (8,178) 10,882 3,220 (7,662)

Technical provisions for life insurance (best estimate) The cash flows for the guaranteed benefits start at retirement age or at Technical provisions for life insurance relate to Gjensidige Pensjonsforsikring occurrence of disability, and ends at death or earlier, according to the AS and are included in the group figures. There are no technical provisions agreement with the customer. The liability is the present value of the cash for life insurance related to Gjensidige Forsikring ASA. The technical flows, which is the same as the discounted cash flows. However, there will provisions in Solvency II deviate from provisions used for accounting be differences between the Solvency II liabilities and the accounting purposes because of varying assumptions. liabilities due to different assumptions for interest rates and mortality. Solvency II uses the mortality tariff “K2013” (published by Finans Norge), The table below provides an overview of the technical provisions (best without safety margins, while the accounting provision has the imposed estimate) for life insurance. safety margin. Solvency II uses the interest rate curve, which is published by EIOPA, for discounting, and not the rate used for accounting. The disability Table 15 – Technical provisions for life insurance per line of business according to Solvency II and accounting principles (figures in NOK tariff used in Solvency II is equal to that in accounting, and it is reported to million) the Financial Supervisory Authority.

Gjensidige Forsikring Group Future discretionary benefits are calculated by simulating future results and No Line of business Accounting distribution of results, where future yield is stochastic. Future, discretionary Solvency II Difference (IFRS) benefits include regulation of the guaranteed benefits given in future result Life insurance distributions, as well as the payment of buffer fund to customers. Accounted 30 with profit 7,364 8,334 970 liabilities make no provision for future discretionary benefits, other than participation earned results.

Index- and unit- The Solvency II balance sheet includes liabilities within the contract 31 34,586 32,428 (2,158) linked insurance boundary, which in some cases extend beyond the contract boundary used for accounting. This also creates a difference between accounting and Other technical Solvency II liabilities. 300 - (300) provisions Total 42,251 40,763 (1,488) Liabilities for index-linked and unit-linked insurance are calculated by finding cash flows for:

• Expected pension benefits to the customer Technical provisions for life insurance consist of a best estimate of future • Administration income and administration costs. cash flows (taking into account the time value of money) and a risk margin. For insurance with profit participation, cash flows consist of: The present value of expected pension benefits to the customer in Solvency II corresponds to the accounting provision, which also corresponds to the • Guaranteed benefits; market value of the assets. However, the Solvency II technical provision is • Future discretionary benefits (for example, benefit regulation); lower because the present value of future administration income and cost • Risk and administration income; reduce the liability, which in practice means that Gjensidige • Costs.

Pensjonsforsikring AS expects the administration income to be higher than Risk margin the administrative costs. A risk margin is added to the technical provisions according to Solvency II principles. The risk margin is calculated as the cost of holding the capital Administration income and administration costs are based on today's needed to cover the solvency capital requirement through the entire run- portfolio, historical data and expectations for the future. Expected lapse is off, if all business was terminated. The risk margin for the group is the sum included in all cash flows and lapse probabilities are based on historical data. of the risk margins for the underlying subsidiaries.

Gjensidige Pensjonsforsikring AS does not have index-regulated insurance. The table below shows risk margin per line of business.

Table 16 – Risk margin per line of business according to Solvency II (figures in NOK millions) No Line of business Gjensidige Forsikring Group Gjensidige Forsikring ASA 1 Medical expense 11 7 2 Income protection 162 160 3 Workers’ compensation 338 338 4 Motor vehicle liability 345 325 5 Other Motor 26 19 6 Marine, aviation and transport 6 6 7 Fire and other damage to property 153 147 8 General liability 60 58 9 Credit and suretyship 0 11 Assistance 5 5 12 Miscellaneous 15 15 25 Non-proportional health reinsurance 5 5 26 Non-proportional casualty reinsurance 11 11 Non-proportional marine, aviation and transport 27 0 0 reinsurance 28 Non-proportional property 21 21 29 Health 178 178 30 Life insurance with profit participation 277 0 31 Index- and unit-linked insurance 821 0

33 Annuities from non-life health 152 150 Total 2,587 1,445

Recoverables from reinsurance contracts and special above for gross technical provisions. The reinsurance recoverables are minor purpose vehicle compared to the gross figures, as Gjensidige has, almost exclusively, excess Recoverables from reinsurance contracts is the portion of technical of loss reinsurance contracts with relatively high retention levels (usually provisions that is covered by reinsurers. The amount is an asset in the NOK 100 million or NOK 200 million). Gjensidige’s exposure to large claims is balance sheet. Recoverables from reinsurance are calculated in the same limited. The majority of the reinsurance treaties run for 12 months and are way as for gross figures. The solvency II value of the reinsurance share renewed on 1st of January, every year. deviates from the accounting figures for the same reasons as explained

Tabell 17 – Reinsurer’s share of technical provisions according to Solvency II and accounting principles (figures in NOK millions)

Gjensidige Forsikring Group Gjensidige Forsikring ASA Accounting Accounting (IFRS) Solvency II Difference Solvency II Difference (NGAAP)

Recoverables from reinsurance contracts 1,062 1,062 (0) 557 556 (1)

Uncertainty in technical provisions but improvements in internal procedures are performed in order to achieve All calculations of technical provisions will contain a degree of uncertainty. a full automatization of all processes so that manual intervention can be Uncertainty can arise from the choice of model, random variations in the reduced to a minimum. data used or in the estimation of parameters in the model. D.3 Other liabilities The uncertainty in technical provisions is evaluated by assessing each line of business separately. Typical long-tailed lines of business such as Motor Third The Solvency II valuation of liabilities other than technical provisions is Party Liability, Worker’s compensation and Child insurance show a higher overall consistent with the “fair value” principle as defined under NGAAP level of uncertainty in technical provisions, compared to short-tailed lines of and IFRS accounting principles, however there are some differences. These business, like Property- and Travel insurance. Life and pension liabilities in arise from the different treatment of the guarantee scheme provision at the Gjensidige Pensjonsforsikring AS are generally long-tailed. The one-year risk instruction of the supervisory authorities, the different valuation of deferred is in general lower than the ultimate risk. tax liabilities and the differences related to the consolidation of Oslo Areal in the Group figures. The methods used for calculating technical provisions are in general widely used in the market, and are considered to be proportionate to the nature, There have not been any other material changes in the accounting or scale and complexity of the risks. No significant data deficiencies are known, valuation of other liabilities in the reporting period.

The table below shows the differences between the Solvency II valuation and the accounting valuation of other liabilities.

Table 18 – Liabilities according to Solvency II and accounting principles (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA Accounting Accounting (IFRS) Solvency II Difference Solvency II Difference (NGAAP) Provisions other than technical 301 301 - 289 289 - provisions Pension benefit obligations 717 721 4 713 713 - Deferred tax liabilities 956 2,127 1,171 1,199 2,396 1,197 Derivatives 767 767 - 767 767 - Financial liabilities other than debts 2 95 93 2 67 65 owed to credit institutions Insurance & intermediaries 685 685 - 428 428 - payables Reinsurance payables 98 98 - 70 70 - Payables (trade, not insurance) 1,560 1,580 20 1,502 1,502 - Subordinated liabilities 1,499 2,526 1,027 1,199 2,224 1,025 Any other liabilities, not elsewhere 4,223 4,940 717 8,893 4,708 (4,184) shown Total 10,809 13,841 3,032 15,062 13,165 (1,897)

Provisions other than technical provisions The defined contribution pension plan is a private pension plan that This amount is related to the costs of restructuring and is the same in the supplements the National Insurance scheme. Contributions to the defined statutory accounts and the Solvency II balance sheet. Most of these contribution plan are recognised as an expense in the year the contribution liabilities are expected to be paid out during the next year. The uncertainty is paid, and there is no liability on the balance sheet related to this pension related to this item is considered to be low. plan.

Pension benefit obligations The defined benefit pension plan is mainly a funded arrangement, where Gjensidige Forsikring ASA is required to have an occupational pension plan pension obligations for salaries up to 12 times the National Insurance basic pursuant to the Norwegian Act relating to Mandatory Occupational amount (G) are funded by contribution payments to the pension fund in Pensions. New employees become members of the defined contribution Gjensidige Pensjonskasse. The pension benefit surplus for the funded part is pension plan. The defined benefit pension plan is a closed plan. recognised as an asset on the asset side of the balance sheet. The pension

benefit obligations consist of the unfunded pension obligations, which is Forsikring Group and Gjensidige Forsikring ASA are unsettled transactions in pension in excess of the common collective agreement paid through the the Danish portfolio. In addition, there is a difference for the Gjensidige operations. The duration of pension benefit obligations is long and Forsikring Group due to the fact that Oslo Areal is fully consolidated in the uncertainty arises in respect of interest rates, wage growth, disability rate Solvency II figures. and life expectancy. More information is given in Gjensidige’s annual report. Insurance and intermediaries payables The reason why the pension benefit obligations according to Solvency II This item consists of various debts to policyholders. For example, some principles for the Gjensidige Forsikring Group differ from the value in the policy holders have repayment agreements if their underwriting results are statutory accounts is because Oslo Areal is fully consolidated in the Solvency good. Some of the debt is also related to expired policies and unsettled II balance sheet. payments. The amounts are expected to be paid out in the short term with negligible risk. These figures are the same in the statutory accounts and the Deferred tax liabilities Solvency II balance sheet. Deferred tax in the statutory accounts is related to temporary differences between the carrying amount and the amounts used for taxation purposes. Reinsurance payables Reinsurance payables consist of reinsurance premiums that are to be paid The deferred tax liabilities according to Solvency II principles are in addition out and it is the same in the statutory accounts and the Solvency II balance adjusted for any other differences in the balance between the statutory sheet. The amounts are expected to be paid out in the short term with accounts and the Solvency II accounts. negligible risk.

Derivatives Payables (trade, not insurance) Financial derivatives are used in the management of exposure to equities, This item consists of current tax payable. Current tax is corporation tax bonds and foreign exchange in order to achieve the desired level of risk and payable on the taxable profit for the year, based on tax rates enacted or return. The instruments are used both for trading purposes and for the substantively enacted at the reporting date, adjusted for any tax payable in hedging of other balance sheet items. Any trading of financial derivatives is respect of previous years. The amounts are expected to be paid out within subject to strict limitations. The Group uses financial derivatives, amongst one year with low risk. The difference between the statutory accounts and other instruments, to hedge foreign currency exposure arising from the Solvency II balance sheet for the Gjensidige Forsikring Group is because Oslo ownership of foreign subsidiaries with another functional currency. There Areal is fully consolidated in the Group figures. are no differences between the gross market value of the derivatives in the statutory accounts and in the Solvency II balance sheet, neither for the Subordinated liabilities Gjensidige Forsikring Group nor for Gjensidige Forsikring ASA. The tier 1 loan is treated as equity in the accounting balance sheet, while the loan is treated as a liability under Solvency II. In addition, subordinated Financial liabilities other than debts owed to credit institutions liabilities are booked at amortised cost in the accounting balance sheet, This item consists of net unsettled payments. The amounts are expected to while market value is used for the Solvency II balance sheet. The market be paid out in the short term with negligible risk. The difference between value is determined by using the latest trading price. However, as the the statutory accounts and Solvency II balance sheet for the Gjensidige market for this bond is limited, and it is disputable whether the market is active or not, expert judgment is also exercised in order to arrive at the final

market value. Expert judgment is based on trading prices for similar bonds in Valuation uncertainty the market. Terms and conditions regarding expected timing of outgoing The items under “Other liabilities” are mainly based on IFRS valuation cashflows are given in Chapter E. principles. The uncertainty in market value is in general considered to be low. The largest uncertainty is the market value for derivatives. However, Any other liabilities, not elsewhere shown derivatives on the liability side must be assessed together with the In the statutory accounts, this item consists of debt to public authorities derivatives on the asset side. The net value of all derivatives is low. (including Motor insurance tax to Norwegian Motor Insurers’ Bureau TFF), debt to suppliers/contractors and debt related to employee salaries. The In addition, there is uncertainty in the market value of pension benefit item consists also of Gjensidiges leasing contracts. Gjensidige has no obligations and the subordinated loans. Pension benefit obligations are financial leases, but Gjensidige has entered into a number of operating calculated based on assumed future development in salaries, inflation rates leasing contracts. The main contracts are leasing of property for the head and interest rates, and the duration of the obligations is long. The office and regional offices. Other operating leasing contracts are car-leasing, subordinated liabilities are based on the latest trading price and on expert ICT-hardware, photocopiers etc. For Gjensidige Forsikring ASA, this item judgment. It is difficult to know the exact market value if the total debt were includes additionally the dividend accrual, while the Solvency II balance to be redeemed. sheet does not include the accrued dividend. Changes in the Solvency II regulation Furthermore, the guarantee scheme is treated as a liability under Solvency II EIOPA has suggested several changes in the calculation of the capital after requirements from the Financial Supervisory Authority of Norway, requirement and eligible own funds. These changes are not expected to while the guarantee scheme is treated as own funds in the statutory have any major impact on the capital position of Gjensidige based on accounts. The liability shall cover general insurance claims from customers in Gjensidige’s current balance sheet. a situation where a Norwegian general insurance company becomes bankrupt. The value is determined according to Norwegian regulation. The D.4 Alternative methods for valuation probability of a general insurance company becoming bankrupt is currently assessed to be extremely low. The valuation of all assets and liabilities in the Solvency II balance sheet are Uncertainty in other liabilities based on market values according to Solvency II principles. Other alternative methods for valuation than the ones described above have not been There is both estimation uncertainty and uncertainty related to possible considered. changes to the Solvency II regulation. D.5 Any other information

All material information is believed to be covered by the descriptions above.

E. Capital Management E.1 Own funds

Gjensidige shall have a capitalisation that is aligned with the Group's model, the FSA requires the use of the standard formula to calculate storm strategic targets and risk appetite at all times. The Group shall maintain its risk, and to specify the correlation between market and underwriting risk. financial flexibility and at the same time exercise a stringent capital The approved partial internal model is therefore more conservative than the discipline that supports the return on equity target. Gjensidige aims at model Gjensidige applied for. Gjensidige believes that the partial internal paying high and stable nominal dividends to its shareholders. In addition, model, without the imposed conditions from the FSA, provides a better Gjensidige will distribute surplus capital over time. representation of risk, and therefore also states figures for its own partial internal model in this chapter. The target zone for the solvency margin is between 150 per cent and 200 per cent. This target applies to both the regulatory approved model (legal The regulatory solvency capital requirement for 2020 and comparative perspective) and the model with its own calibration (own partial internal numbers for 2019, which is presented in this report, is based on the model). Solvency margin levels shall support an A-rating from Standard & approved partial internal model. Poor's, stabilize regular dividends over time, ensure financial flexibility for smaller acquisitions and organic growth that is not funded through retained Gjensidige is well capitalized and falls within the target zone, when using earnings, and provide a buffer against regulatory changes. both the approved partial internal model and its own partial internal model.

All subsidiaries will be capitalised in line with the respective regulatory The Group’s solvency margins at the end of 2020 were calculated to be: requirements, while capital in excess of the requirements will, as far as possible, be held in the parent company Gjensidige Forsikring ASA. The • 199 per cent based on Gjensidige’s approved partial internal model Group will make use of all forms of Tier 1 and Tier 2 capital, including • 247 per cent based on Gjensidige’s own partial internal model. subordinated debt, in a responsible and value-optimising manner and within the limits set by regulators and rating agencies. The originally proposed dividend for the financial year 2019 was NOK 6.125 billion. Covid-19 led to the proposed dividend being reduced to NOK 3.625 Requirements for Gjensidige’s capitalisation are specified in a capital billion, and this assumption was the basis for the capital figures in the management policy approved by the Board. A department under the CRO is solvency and financial condition report for 2019, and which also is the basis responsible for capital management and must ensure that the requirements for the comparable figures per 2019 in this report. Note that the originally in the capital management policy are followed. proposed dividend of NOK 6.125 billion was paid out in September 2020.

Gjensidige received in 2018 an approval by the Financial Supervisory There have been no material changes in the capital strategy over the Authorities (FSA) to use a partial internal model to calculate the regulatory reporting period. solvency capital requirement. In their approval to use the partial internal

The solvency margin was 199% at the end of 2020 compared with 231% at Gjensidige‘s appeal of the Financial Supervisory Authority of Norway’s the end of 2019. decision on the calibration of market risk was partly approved in the third quarter of 2020. The impact of the change is a reduction in the total The result for the year increases the solvency margin. Lower risk in the solvency capital requirement by approximately NOK 0.2 billion, based on the investment portfolio also contributes positively to the solvency margin, solvency capital requirement as at 30 September 2020. while the dividend of NOK 7.4 billion reduces the solvency margin. The dividend of NOK 7.4 billion consists of a dividend of NOK 2.5 billion which The introduction of an individual pension account in the Norwegian was not taken into account in the figures as of 2019, but which was paid out regulation from 1 January 2021 results in lower eligible capital and a lower in September 2020, as well as NOK 1.2 billion in dividend paid out in capital requirement. Individual pension account is described in Chapter C.6. February 2021, and the proposed dividend for 2020 of NOK 3.7 billion. The table below shows total eligible amount of own funds to cover Solvency Capital Requirement.

Table 19 – Total eligible amount of own funds to cover the Solvency Capital Requirement (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA 2019 2019 2020 2019 Tier 1 16,812 20,220 16,473 19,931 Ordinary share capital (gross of own shares) 1,000 1,0 1,000 1,0

Share premium account related to ordinary share capital 1,430 1,430 1,430 1,430 Reconciliation reserve 13,367 16,764 13,028 16,475 Restricted tier 1 capital from insurance 1,015 1,026 1,015 1,026 Tier 2 4,124 4,184 3,822 3,879 Natural perils capital 2,613 2,676 2,613 2,676 Subordinated liabilities from insurance 1,511 1,507 1,209 1,203

Total eligible own funds to meet SCR 20,936 24,403 20,294 23,810

Eligible own funds are divided into three capital groups according to issued by Gjensidige Forsikring ASA. The reconciliation reserve may be Solvency II regulations. Gjensidige has mainly tier 1 capital, which is regarded as the retained earnings based on Solvency II principles, which considered to be capital of the best quality. Tier 1 capital consists of ordinary arises partly from earnings based on historical premiums, and partly from share capital, share premium account related to ordinary share capital and earnings related to the expected profit on future premiums. Retained the reconciliation reserve. The Tier 1 restricted capital consists of bonds earnings related to historical premiums are immediately available, while

expected profit on future premiums is not immediately available for Details of the subordinated liabilities are given in the tables below. The covering losses. Remaining tier 1 capital is immediately available. Gjensidige Forsikring Group has an option to defer payment of accrued interest. In addition, the bonds may be utilised to absorb losses by a The tier 2 capital consists of natural claims capital and subordinated reduction of principal amounts pursuant to applicable regulations and liabilities. Natural claims capital is capital that can only be used to cover supplemental regulations. Details of terms and conditions regarding the claims related to natural perils, but that in a situation of insolvency may also subordinated loans are given in the loan agreement. be used to cover other liabilities. The table below show key terms and conditions of the restricted tier 1 capital instruments and the subordinated loans issued.

Table 20 – Key terms and conditions for Gjensidige’s tier 1 and tier 2 subordinated debt FRN Gjensidige Forsikring ASA FRN Gjensidige Forsikring ASA 2016/ FRN Gjensidige Pensjonsforsikring

2014/2044 SUB PERP C HYBRID AS 2016/2026 SUB ISIN NO0010720378 NO0010771546 NO0010767429 Issuer Gjensidige Forsikring ASA Gjensidige Forsikring ASA Gjensidige Pensjonsforsikring AS Principal, NOK millions 1,200 1,000 300 Currency NOK NOK NOK Issue date 02.10.2014 08.09.2016 23.06.2016 Maturity date 03.10.2044 Perpetual 23.06.2026 First call date 02.10.2024 08.09.2021 23.06.2021 Interest rate NIBOR 3M + 1.5% NIBOR 3M + 3.6% NIBOR 3M + 2.9% Regulatory framework Solvency II Solvency II Solvency II Regulatory call Yes Yes Yes Tier Tier 2 Tier 1 Tier 2

Write-down upon breach of the solvency capital requirement or minimum capital requirement. The Write-down upon insolvency and Write-down upon insolvency and after write-down is linear from solvency Trigger point and loss absorbency after Tier 1 capital has been written Tier 1 capital has been written down margin 100% until the principal mechanism down for Gjensidige Pensjons- for Gjensidige Forsikring ASA amount is fully written down at forsikring AS solvency margin of 75%. The principal amount is fully written down upon breach of the minimum capital requirement.

Gjensidige has no tier 3 capital and no ancillary own fund items. The following table shows eligible own funds available to cover the Minimum Capital Requirement for the Gjensidige Forsikring Group and Eligible own funds decrease from 2019 to 2020. Profit for the year Gjensidige Forsikring ASA. contributes positively, while the dividend for 2019 and 2020 reduce eligible own funds. No instruments have been redeemed during the year.

Table 21 – Eligible own funds to cover the Minimum Capital Requirement for the Gjensidige Forsikring Group and Gjensidige Forsikring ASA (figures in NOK millions)

Gjensidige Forsikring Group Gjensidige Forsikring ASA 2020 2019 2020 2019 Tier 1 16,812 20,220 16,473 19,931 Of this; restricted tier 1 capital 1,015 1,026 1,015 1,026 Tier 2 1,024 1,005 869 849

Eligible own funds to meet MCR 17,836 21,224 17,342 20,779

There are a number of differences between valuation according to accounting The table below shows differences to equity capital as shown in the financial principles and valuation according to Solvency II principles, which were statements compared with the excess of assets over liabilities as calculated explained in detail in Chapter D. for Solvency II purposes.

Table 22 – Bridging equity as shown in the financial statements and the excess of assets over liabilities as calculated for solvency purposes (figures in NOK millions)

Gjensidige Forsikring Group Gjensidige Forsikring ASA Period end equity (accounting) 25,285 18,043 Tier 1 loan (accounting value) (1,002) (1,002) Intangible assets (4,927) (3,677) Fair value adjustments assets 1 375 3.037 Claims provisions, discounting (general insurance) 2,429 2,428 Premium provisions and policyholders’ receivables 2,578 2,532 Solvency II calculation of technical provisions, life 1,488 - Risk margin (general and life insurance) (2,587) (1,445) Adjustment deferred tax liabilities (1,171) (1,197) Holdings in related undertakings - 4 Miscellaneous adjustments (incl. guarantee scheme provisions) (157) (650) Foreseeable dividend - 4,900 Assets over liabilities 23,310 22,971 Proposed dividend (4,900) (4,90) Subordinated liabilities (tier 1 and tier 2) 2,526 2,224 Own shares 0 0 Eligible own funds to meet SCR 20,936 20,294

No transitional arrangements have been used. Forsikring Group are limited by the regulatory capital requirement applicable to each legal undertaking of the Group. There are no significant restrictions affecting the fungibility and transferability of own funds within Gjensidige Forsikring ASA. However, The table below shows eligible own funds, the solvency capital requirement, capital related to expected future profit is uncertain and is not immediately surplus and Solvency ratio for all insurance companies in the Gjensidige available. In addition, it might take some time to sell some assets if capital is Forsikring Group. Intra-group transactions are eliminated when needed. Fungibility and transferability of own funds within the Gjensidige consolidating insurance group figures.

Table 23 – Regulatory Solvency capital requirement (figures in NOK millions)

Gjensidige Forsikring Gjensidige Pensjonsforsikring Gjensidige Forsikring ASA ADB Gjensidige Group AS

Eligible capital 20,936 20,294 2,081 556

Capital Requirement 10,502 9,658 1,424 293 Surplus 10,434 10,636 657 263 Solvency ratio 199 % 210 % 146 % 190 %

E.2 Solvency Capital Requirement and Minimum contribute to the capital requirement. A diversification benefit is accounted for as all risks will not occur at the same time. The capital requirement is Capital Requirement also adjusted for future tax benefit which would occur if a loss equal to the SCR should occur. This tax benefit can only be accounted for if it is The Gjensidige Forsikring Group and Gjensidige Forsikring ASA have been reasonable that the company is able to continue with its business after such granted approval by the Financial Supervisory Authority of Norway (FSA) to a loss. use a partial internal model for calculating the solvency capital requirement under the Solvency II regulation. Determination of the capital requirement is performed according to Solvency II principles. The capital requirements for the Gjensidige Forsikring In addition to the Solvency Capital Requirement (SCR), there is a defined Group are slightly higher than for Gjensidige Forsikring ASA. The main minimum level of capital. The latter is called the Minimum Capital reason is that subsidiaries are treated as strategic investments for Gjensidige Requirement (MCR) for solo companies and minimum consolidated Solvency Forsikring ASA, which means that the equity investment is given a 22% Capital Requirement for insurance groups. If the capital falls below this level, capital charge. For the Gjensidige Forsikring Group, insurance companies are the company or group will be prohibited from continuing in business any fully consolidated. further. The table below shows the amount of the Solvency Capital Requirement The main risks for the Gjensidige Forsikring Group and Gjensidige Forsikring split by risk modules, as of December 31, 2020. ASA are non-life and health underwriting risk and market risk. Non-life and health underwriting risk is mainly related to uncertainty in the underwriting result for the next year (premium risk) and the risk of the claims provisions not being sufficient (reserve risk). Market risk is the risk of experiencing losses due to changes in macroeconomic conditions and/or changes in financial asset values. Counterparty default risk and operational risk also

Table 24 – The amount of the SCR split by risk modules (figures in NOK millions) Gjensidige Forsikring Group Gjensidige Forsikring ASA 2020 2019 2020 2019 Non-life and health underwriting risk 8,649 7,560 8,491 7,396 Life underwriting risk 1,450 1,869 Market risk 6,501 7,772 5,876 7,232 Counterparty risk 332 501 303 479 Diversification effects (4,372) (4,936) (3,148) (3,494) Basic Solvency Capital Requirement 12,560 12,766 11,522 11,613 Operational risk 911 827 814 742

Adjustments (loss absorbing capacity of deferred (2,969) (3,036) (2,678) (2,706) tax and technical provisions)

Solvency Capital Requirement 10,502 10,558 9,658 9,649

The SCR has decreased from 2019 to 2020. The main reasons for the The inputs to the MCR for Gjensidige Forsikring ASA are as follows: changes are as follows: • For the non-life and health similar to non-life portfolio the net best • Increased capital requirement for non-life and health underwriting risk, estimate of the technical provisions, and the net earned premiums for primarily driven by growth in the portfolio and changes in currency the last 12 months have been used. The values are multiplied by the rates. stress parameters defined by the Solvency II framework. These • Reduced capital requirement for life insurance risk driven by lower parameters are different per line of business. lapse risk and changed assumptions as a result of the introduction of • For the life and health similar to life portfolio the net best estimate of individual pension account in the Norwegian regulation from 1 of total Solvency II provisions as well as the total Capital-at-risk have been January 2021. Individual pension account is described in Chapter C.6. used. The values are multiplied by the stress parameters defined by the • Lower market risk as a result of lower risk in the investment portfolio, Solvency II framework. These parameters are different per line of and that the Norwegian Financial Supervisory Authorities in the third business. quarter of 2020 approved an internal model change that reduced the • The final MCR is the sum of the figures above with a floor of 25% of the capital requirement for market risk. SCR and a cap of 45% of the SCR applied.

The MCR is also calculated according to the requirements in the Solvency II The minimum consolidated SCR for the Gjensidige Forsikring Group is the directive, and represents the minimum capital required to stay in business. sum of the MCR for the underlying insurance companies within the Group.

Table 25 – Minimum Capital Requirement and Minimum Consolidated E.4 Differences between the standard formula and SCR (figures in NOK millions) Gjensidige Forsikring Gjensidige Forsikring any internal model used

Group ASA 2020 2019 2020 2019 Use of the partial internal model MCR/Minimum 5,119 5,023 4,346 4,243 The partial internal model is an important part of Gjensidige's risk consolidated SCR management system. The model is used for risk and capital assessments, MCR/Minimum including calculating the regulatory capital requirement and for defining risk consolidated SCR 348 % 423 % 399 % 490 % appetite and risk limits. The partial internal model is also used for business margin and strategic decision-making. The model is used for defining long-term

There are only minor changes in the MCR and minimum consolidated SCR. profitability targets, for reinsurance assessments and for assessing the The MCR/Minimum consolidated SCR margin is reduced from 2019 to 2020. investment strategy and investments limits. The internal model is therefore This is mainly due to a reduction in eligible capital as a result of the dividend. an integral part of Gjensidige’s ORSA process. When appropriate Gjensidige’s own partial internal model is used instead of the approved No undertaking-specific parameters are used in the calculation of SCR and partial internal model. MCR. However, some simplifications have been applied. This is related to the following areas in the module for Health underwriting risk similar to life Scope of the partial internal model techniques. Simplifications are applied when stressing annuities from Danish The approved partial internal model covers most market risk and non-life Workers’ Compensation and annuities in ADB Gjensidige. The simplifications and health underwriting risk in Norway, Sweden and Denmark. Risks not used are according to the regulation. covered by the partial internal model are covered by using the standard formula. The standard formula is used for risks related to life insurance E.3 Use of the duration-based equity risk sub- (Gjensidige Pensjonsforsikring AS), risks from the acquisition of Mølholm module in the calculation of the Solvency Capital Forsiking A/S and risks related to the Baltic business. The standard formula is Requirement also used for lapse risk, storm risk, concentration risk, counter-party default risk and operational risk. The figure below shows the coverage of the The duration-based equity risk sub-module is not used in the calculation of internal model. the Solvency Capital Requirement for the Gjensidige Forsikring Group or Gjensidige Forsikring ASA.

Figure 11 – Partial internal model scope in percent of allocated capital for Gjensidige’s internal model is based on Gjensidige’s own data and reflects the specified risk types (calculated by the approved partial internal model). therefore Gjensidige’s risk profile. The standard formula is based on Pan- Market risk and non-life and health underwriting risk are risks covered by European data and does not in general reflect Gjensidige’s risk profile the internal model. sufficiently.

Gjensidige Forsikring Group Market risk is modelled at an aggregated level under the standard formula, while Gjensidige’s partial internal model is based on an Economic Scenario 1 % Generator (ESG) which uses stochastic simulations to model real market 4 % 7 % behaviour more realistically. It uses financial models that are technologically Market risk advanced, ensuring that the models perform consistently with historical observations whilst providing a realistic representation of extreme events. 33 % Non-life and health uw To reflect the geographic allocation of the investment portfolio, models risk have been developed for each of the following economies: Norway, Life insurance risk Denmark, Sweden, Europe (the euro zone), Great Britain and the USA. Bonds are modelled separately by grouping them according to rating, maturity and Operational risk currency. The rest of the assets are modelled at an index level, which means that the assets are grouped into different asset classes, and that each asset 55 % Other risk class is modelled according to a market index relevant for that asset class. Simulated interest rates, inflation rates and currency rates are used consistently throughout the model for both market and underwriting risk.

Premium and reserve risk in the standard formula is calculated by using Method used for partial internal model and differences to the standard percentages of premium written and percentages of best estimate for formula technical provisions. Different percentages are specified for a limited Both the partial internal model and standard formula are based on the risk amount of lines of business. Correlation and diversification effects are measure defined by the Solvency II requirements, which is the 99,5 % Value- accounted for using simple correlation matrices with “rounded” values. at-Risk on a one-year horizon. This means that the capital requirement is defined as the capital – under Solvency II referred to as own funds – Gjensidige’s partial internal model consists of 35 lines of business, and required to ensure that the insurance company will be able to meet its premium and reserve risk are calculated for each of these lines of business. obligations over the next 12 months with a probability of at least 99.5% (that Stochastic modelling is used based on acknowledged actuarial modelling is that there is only one chance in two hundred that there are circumstances techniques. Premium risk is modelled based on assumed future exposure where the insurer would end up holding liabilities that exceed the value of and estimated claim amounts for attritional, large and catastrophe claims. its assets). For both reserve risk and premium risk correlation between and within lines of business are modelled by a commonly applied inflation exposure. In addition, explicit correlation is applied between modelled risk sources. More detailed modelling, the use of Gjensidige’s own data and modelling of the

different risk sources directly means that Gjensidige’s partial internal model recovered and reinstatement premiums) due to the excess-of-loss is judged to give a better representation of Gjensidige’s unique risk profile. reinsurance programs are modelled in detail based on modelling of individual losses. This gives a more correct risk modelling. Catastrophe risk is in the standard formula modelled explicitly based on input and model assumptions that vary between specified catastrophe The standard formula correlation of 25 percent is used for aggregating types. In the internal model catastrophe risk is modelled explicitly based on market risk and underwriting risk in the approved partial internal model. input, model assumptions and expert judgments that vary between catastrophe types. The partial internal model includes the following risk The internally modelled part of the partial internal model is integrated with types which are not explicitly calculated by the standard formula: freeze, the risks calculated by the standard formula, using correlations that are rain flood, storm surge, landslide, spring flood and natural claims not consistent with the standard formula. The method implemented covered by Norwegian Natural Perils Pool in Norway and flash floods in corresponds to the "consistent standard formula replication" method Denmark. Modelling these catastrophes explicitly gives a better specified by EIOPA. representation of Gjensidige’s risk profile. The figure below shows the internal model structure. Market risk is Reinsurance is accounted for in the standard formula by using modelled separately for different asset classes, while underwriting risk is approximations based upon rough distributional assumptions. This means modelled separately for 35 lines of business. Direct relations between that some reinsurance arrangements (excess-of-loss contracts) are not common risk factors and correlation between different risks are accounted captured correctly. In the partial internal model cash-flows (claims for when aggregating the capital requirement.

Figure 12 – Structure of the approved partial internal model.

E.5 Non-compliance with the Minimum Capital Requirement and non-compliance with the Solvency Capital Requirement E.6 Any other information

The Gjensidige Forsikring Group and Gjensidige Forsikring ASA are in All material information regarding the solvency and financial condition is compliance with both the Minimum Capital Requirement and the Solvency considered provided in this report. Information disclosed to the public and Capital Requirement. to the supervisory authorities is consistent.

Gjensidige is a leading Nordic insurance group listed on the Oslo Stock Exchange. We have about 3,700 employees and offer insurance products in Norway, Denmark, Sweden and the Baltic states. In Norway, we also offer pension and savings.

The Group’s operating income was NOK 28 billion in

2020, while total assets were NOK 118 billion.

Gjensidige Schweigaardsgate 21, 0191 Oslo P.O. box 700, Sentrum, 0106 Oslo Phone +47 915 03100