Board's Report

Annual report

The Gjensidige Group achieved a good result and solid growth in premiums in 2013. Customer satisfaction increased to a new record-high level, and competitiveness was good.

Board’s Report

The Group’s general insurance operations achieved office in Oslo in Norway. The object of the business a good result in 2013. The profit after tax expense is to safeguard life, health and assets for customers was NOK 3.7 billion, corresponding to NOK 7.34 per in the private and commercial markets by offer share. ing competitive insurance products. In Norway the product offering also includes relation-building Profitability was weaker than in 2012 as a result of products within banking, pension and savings. a more normal weather situation throughout 2013. Gjensidige Forsikring is the parent company of the Earned premiums showed a solid increase from the Gjensidige Group (Gjensidige). year before, and the number of customers at the end of the year was on a par with the number at Gjensidige is the leading general insurance the end of 2012. The financial result was good de- company in Norway, and it is the biggest spite a substantial impairment loss on the invest Norwegian-owned general insurance company ment in Storebrand. The contribution to profits in the Nordic countries and the Baltic states. This from the Retail Bank and from Pension and Savings is Gjensidige’s defined market areas. The general increased significantly from 2012. The Board is insurance operations include general insurance satisfied that the Group achieved its financial and accident and health insurance. The Norwegian targets in 2013 as well. general insurance operations also include life nsurance, which is pure risk insurance with a The Board proposes a total dividend of NOK 6.4 duration of up to one year. Group life insurance is billion for the 2013 financial year, corresponding to the biggest product in this category. NOK 12.80 per share. Of this amount, NOK 6.80 per share is proposed on the basis of the profit for Gjensidige’s business model is based on an in- the year after tax expense and the current divi- tegrated value chain that includes the production dend policy. The remaining NOK 6.00 per share can of financial services and products, a high degree be ascribed to the distribution of excess capital in of direct distribution and customer dialogue, and accordance with the new capital strategy that was efficient claims settlements. adopted in autumn 2013. Customer orientation The Gjensidige Foundation’s share of the total Customer orientation is the core of Gjensidige’s dividend amounts to NOK 4.0 billion. The board strategic positioning. It is rooted in the Group’s of the Gjensidige Foundation has proposed that vision: ‘We shall know the customer best and care the dividend relating to underlying operations in most’. The brand platform, which was further deve 2013, after a deduction of expenses, be distri- loped in 2012, defines the Gjensidige Experience as buted to Gjensidige’s general insurance customers the Group’s framework for customer orientation. in Norway. The dividend relating to the distribution Our customers shall feel that we know them, care of excess capital will be managed by the Gjensidige about them, make things easy for them and help Foundation with the purpose of securing a long- them. Customer satisfaction is measured sys- term ownership of Gjensidige, making it possible tematically, at group level and down to the indivi to contribute capital in given situations and dual employee level, and improvement measures supporting a stable customer dividend. are implemented continuously.

Operations User-friendly self-service solutions are being deve Gjensidige Forsikring ASA (Gjensidige Forsikring) is loped to enable customers to buy and change in a Nordic general insurance company with its head- surance policies, seek advice and report claims

46 I Gjensidige Annual Report 2013 Annual report

Inge K. Hansen Chairman

Inge K Hansen (1946) has been Chairman of the Board of Gjensidige since 2008.

He is also Chairman of the Board of NorSun AS, Harding AS and Troms Kraft online and by mobile phone. At the same time, AS, and Deputy Chairperson of the internal work processes and new tools are being Board of Hydro. developed in order to ensure further rationalisa- Hansen has previously been an tion of customer service. Gjensidige is involved in executive vice president in Statoil and businesses and people’s lives, both before and after CEO of Aker Kværner. a claim arises, which is reflected in the communica- He is a graduate of the Norwegian tion concept ‘It is good to be prepared’. School of Economics (NHH). Hansen is up for election to the Board in 2014. Surveys show that people who have many Gjensidige products are the most satisfied As of 31 December 2013, Hansen held customers. Further development of the loyalty and 12,253 shares in Gjensidige Forsikring organisation customer programmes, a new office ASA, including any shares held by closely related parties. concept focusing on financial advisory services and the sale of a wide range of products, digitalisation of customer communication, and a number of other measures aimed at retaining customers shall further strengthen the existing good customer relations. ket share for pension contracts transferred was 37.1 Market position per cent for defined contribution group pension and Gjensidige is market leader in the Norwegian 10.0 per cent for individual pension savings. (Source: general insurance market, where the Group has Finance Norway, Statistics, third quarter 2013). very high brand recognition and brand strength. Gjensidige was the biggest player in Norwegian Distribution non-marine general insurance in 2013 as well, Norway with a market share of 25.4 per cent of an overall Gjensidige has approximately 750,000 customers market of NOK 50.3 billion, up from 25,3 per cent in the Private segment and more than 160,000 in 2012. (Source: Finance Norway). For the first customers in the Commercial segment in Norway. time for several years, Gjensidige’s market share Distribution mainly takes place via own distribution increased in 2013, which confirms Gjensidige’s good network or via agents and dealers/partners. Only competitiveness seen in light of the fact that the 3 per cent of Gjensidige’s Norwegian commercial Group prioritises profitability over growth. customers (18 per cent of the premium volume) are served indirectly through brokers. The Company had a market share of 23.0 per cent in the private market at the end of 2013. The Private and Commercial segments both The market share in the commercial market was distribute products and services through a 30.7 per cent. This includes the agricultural market, combination of telephony, the internet and local where the market share seen in isolation was 69.7 branch offices. The customers can choose their per cent of a total market of NOK 1.2 billion. point of contact and the service they want, and they shall experience the same quality and service The market shares in Denmark and Sweden were regardless of channel. The multi-channel model 5.6 per cent (based on the most recent stati- contributes to both good customer experiences and stics from the Danish Insurance Association as of cost-efficient distribution. 31 December 2012) and 1.3 per cent, respectively (source: Insurance Sweden as of 31 December 2013). Sales centres (outbound call centres) focus on new sales, while the customer centres (incoming In the Baltic general insurance market, Gjensidige call centres) deal with customers who contact had a market share of 8.0 per cent in 2013 (source: Gjensidige on their own initiative to make pur Insurance Supervisory Commission of the Republic chases or changes, or for advice. Gjensidige has of Lithuania; Latvian Insurers Association; Statistics 36 local branch offices that offer advisory services Estonia). in insurance and banking and can pass on queries about pensions and savings. The market share for defined contribution group pension (unit-linked) and individual pension sav The customer portals are becoming increasingly ing (unit-linked) were both 9.3 per cent. The mar- important in relation to Gjensidige’s contact with its

Gjensidige Annual Report 2013 I 47 Annual report

Gunnhild H. Andersen Board member

Gunnhild H Andersen (1949) has been a member of Gjensidige’s Board as an employee representative since 2008.

She is a customer adviser in Gjensidige, an employee representative in the Finance Sector Union and the senior In Sweden, general insurance products are distri- employee representative for the Claims/ buted to private customers both directly by telep- IT department. hone and the internet and through insurance Among other things, Andersen has mediators (partners and agents). In the commer- previously held positions as a customer cial market, distribution mainly takes place through adviser and claims handling consultant in Gjensidige, and has been secretary at insurance brokers and partners. AL Gartnerhallen. Baltics She was educated at Lunner municipal The most important distribution channels in the commercial college. Baltic states are direct sales and sales through in Andersen is up for election to the Board surance agents and brokers. The importance of in 2015 online sales as a distribution channel continues to As of 31 December 2013, Andersen held increase in the Baltic market. In order to rationalise 785 shares in Gjensidige Forsikring ASA, operations, priority is given to increasing online sales including any shares held by closely and sales via the call centres. related parties.

Gjensidige is also positioned to deliver products adapted to other distribution channels, both in Norway and in the other Nordic countries. Distribution is then mainly through agents and customers. Private and commercial customers have business partners such as shops, car dealers and a complete overview of their own products and can banks that wish to expand their product range with manage their own customer account, for example by insurance products under their own label (‘white reporting claims. Approximately 16 per cent of sales label’). to private customers in Norway are now initiated at gjensidige.no, and roughly one out of four private Information technology customers reports claims online. Customer service Efficient processing and utilisation of information staff contribute to an increased proportion of self- about markets, customers and risk factors is be- service by actively referring customers to the portal. coming an increasingly important competitive advantage in the insurance industry. Gjensidige is Nordic well positioned through a joint Nordic ICT platform, In cooperation with the Nykredit group, general in where all products and customer data are avail surance products are distributed in the private mar- able on the same system platform. It is also used by ket in Denmark. Sales are conducted via call centres the banking and pension and savings businesses. at Nykredit and Gjensidige, and via own underwriters This gives a high degree of flexibility and ensures a in the market. The strategic collaboration on distri- uniform customer experience across channels, at bution has a considerable potential for Gjensidige. the same time as it is cost-efficient.

In addition, private insurance products are sold A flexible service architecture enables use of func- through a number of partners, especially travel tionality from the core system and information agents, car dealers and estate agents. The private from the customer system for self-service solutions, market incidentally is served via call centres and the internal user interfaces and other support systems, internet. and in the work on optimal customer and risk selection and tariff setting. In the Danish commercial market, sales are made in cooperation with brokers in addition to call centres Gjensidige’s ICT platform is a good basis for and dedicated underwriters in the market for small automation and standardisation of business and medium-sized customers and agricultural processes. It also has great potential in relation to customers. the focus area analysis-based insurance, meaning targeted sales, support and pricing based on the Distribution in the municipal market takes place analysis of large amounts of data. either directly or through brokers. The market is to a large extent based on competitive tendering.

48 I Gjensidige Annual Report 2013 Annual report

The year 2013 1 July 2014. The premium volume relating to the Increased customer satisfaction agreement amounted to approximately NOK 180 Gjensidige works continuously to improve the cus- million in 2013, and the customers have their insur tomer experience in all channels. Customers’ attitu- ance agreements directly with Gjensidige. Several des to the Company and advisers are measured sys- measures will be implemented to ensure new sales tematically, and it was pleasing to see that customer and to retain existing customers. satisfaction increased in both the private and the commercial markets in Norway for the second year Two portfolio acquisitions in a row. Among commercial customers, Gjensidige In 2013, Gjensidige acquired Gouda Travel Insurance stands out as a company that displays social respon- with a premium volume of approximately NOK 290 sibility. According to the survey, of the nine biggest million divided between the three Scandinavian general insurance providers in Norway, Gjensidige countries. The acquisition underpins the strategy of had the most satisfied customers in the private structural, profitable growth in the Nordic region. market. The improvement in this segment was re- The acquisition had accounting effect from lated to the criteria ’meets customer expectati- 1 November 2013. ons’. Customer satisfaction with claims settlements showed the biggest improvement, and satisfaction Furthermore, an agreement was entered into for with our advisers in the claims departments remai- the acquisition of Solid Forsäkringar’s motor and ned at a stable, high level. External surveys showed home content insurance portfolio in Sweden. The an improvement in customer satisfaction in Denmark acquisition represents a big boost for the business as well. Gjensidige’s own customer satisfaction survey in Sweden and underpins the growth strategy in was expanded to include Denmark in 2013, and from this market. Provided that the authorities approve 2014, developments in the Danish market can be it, the acquisition is expected to be completed in monitored in the same way as in Norway. the first quarter 2014.

New partnership agreements Awards for the brand initiative In 2013, the agreement with the Norwegian Gjensidige launched a new customer portal in Society of Engineers and Technologists (NITO) was Norway and a new visual profile for the Group renewed, and a new agreement was entered into at the start of 2013, and new customer portals with the Norwegian Association of Hunters and were launched in Denmark and Sweden in the first Anglers (NJFF). With 118,000 members, NJFF has a half-year 2013. Gjensidige won several awards great business potential for Gjensidige. In addition, for its brand renewal, including the Farmand active endeavours were made to further develop Award for ‘Best Norwegian website’, and it won ment of the cooperation with the Norwegian gold in the Norwegian Organization for Visual Trekking Association, entered into at the end of Communication’s annual Visuelt award for its web 2012. Gjensidige has a long-standing tradition for site. At the start of 2014, Gjensidige won a prize for and good experience of partnership agreements. best new Facebook page in Norway in 2013. The Experience shows that utilisation is high among Facebook page ‘Småbarnsliv’ (‘Life with small child- the members of affiliated organisations, and they ren’) was developed in collaboration with a dedica- are often Gjensidige’s most loyal customers. Good ted panel of parents. It targets the important custo- management of partnerships agreements will be mer group that parents of small children represent. given priority also in the time ahead. Sponsorship agreement with the Football Changed distribution agreements Association of Norway In Denmark, the cooperation agreement with In spring 2013, Gjensidige signed a three-year the Nykredit group was renegotiated with effect agreement with the Football Association of Norway from 1 April 2013. The new agreement entails that (NFF) as part-sponsor of the men’s national foot- Gjensidige will be responsible for conducting more ball team. The agreement will be used for team- of the direct customer dialogue itself. The change building and relations-building purposes internally is expected to contribute to increased sales and and externally. Together with the rights as the main customer satisfaction in the Danish private market. sponsor of the Norwegian women’s handball team, the agreement with NFF ensures media coverage Gjensidige’s distribution agreement with Spare for Gjensidige throughout the year. Gjensidige won banken Sogn og Fjordane expires with effect from the jury’s main prize at the Norwegian Sponsoring

Gjensidige Annual Report 2013 I 49 Annual report

Trond Vegard Andersen Board member

Trond Vegard Andersen (1960) has been a member of the Board of Gjensidige since 2009.

He is CEO of Fredrikstad Energi AS (FEAS), Chairman of the Board of all the subsidiaries of FEAS, a board member of Merger Gjensidiges Arbejdsskadeforsikring Værste AS and an elected member to the On 5 March 2013, Gjensidige was granted a licence General Meeting of the Gjensidige Foundation. to merge Gjensidige Forsikring ASA with Gjensidiges Arbejdsskadeforsikring A/S. The merger was ap- Among other things, Andersen has been proved by the general meeting on 25 April 2013. an auditor with PricewaterhouseCoopers.

He is a state-authorised public New capital strategy and updated financial accountant and holds an MBA from the targets Norwegian School of Economics (NHH). In October 2013, the Board of Gjensidige adopted a Andersen is up for election to the Board new capital strategy and updated financial targets, in 2014. including a new dividend policy.

As of 31 December 2013, Andersen held 1,778 shares in Gjensidige Forsikring ASA, The target return on equity was changed from at including any shares held by closely least 15 per cent before tax expense to at least 15 related parties. per cent after tax expense from and including 2015. The change requires strong capital discipline in the time ahead.

From and including 2014, the target is to distri- and Event Association’s annual awards. The jury bute high and stable dividends that, over time, emphasised Gjensidige’s long-term, comprehensive amount to at least 70 per cent of the profit after and commercial approach to sponsorship through tax expense. In addition any future excess capital its agreements with the Norwegian Handball over and above the capitalisation target will, over Association and the Football Association of Norway. time, be distributed.

New head office By capitalisation target is meant capitalisation that In November 2013, nearly 800 managers and staff is adapted to Gjensidige’s strategic targets and moved into the new head office in the centre of appetite for risk at all times. The Group shall main- Oslo. There is free seating and the staff work with tain its financial freedom of action while exercising out the use of paper, using modern ICT and inter stringent capital discipline. action solutions. The move has been well received and it is contributing to more dynamic coopera- The capitalisation target will be based on the most tion between staff. The office building is the first binding capital requirement plus a technical buffer in Norway to receive an ‘Excellent’ Breeam rating. and a strategic buffer to ensure financial flexibility Breeam is the world’s foremost environmental as- in relation to sessment method and rating system for buildings, - changed framework conditions with 250,000 buildings rated so far. - organic growth and minor acquisitions that are not financed by retained earnings Inspection report from the Norwegian - stabilisation of dividend over time Data Protection Agency In 2013, Gjensidige received an inspection report At year end, the strategic buffer amounted to from the Norwegian Data Protection Agency NOK 2.1 billion, after a deduction for the Board’s that states that aspects of the Group’s hand- dividend proposal. ling of personal data in connection with investiga- tions of possible insurance fraud warrant criticism. The customer dividend model will be Gjensidige does not agree with the Agency’s con- continued and further strengthened clusions, but has, with one exception, nonetheless Gjensidige’s biggest owner, the Gjensidige Foundation, chosen not to appeal the decision. Measures have has decided that dividend from Gjensidige related to been initiated to meet the Agency’s requirements underlying operations, shall be paid to Gjensidige’s by 1 March 2014 . Gjensidige appealed the part of general insurance customers in Norway as customer the decision that concerned the use of investiga- dividend. The Gjensidige Foundation also decided tion methods. Gjensidige believes it is in society’s in 2013 that dividend from Gjensidige related to interest that observation can be used in special deployment of excess capital shall be managed by cases where insurance fraud is suspected. the Foundation, among other things with a view to

50 I Gjensidige Annual Report 2013 Annual report

Hans-Erik F. Andersson Board member

Hans Erik F. Andersson (1950) has been a member of the Board of Gjensidige since 2008.

He is an adviser, Chairman of the Board of Cision AB, and Board member of underpinning the customer dividend model and con- Skandia Liv Mutual, Sintercast AB and tributing to stability of future customer dividends. Anticimex International AB. Among other things, Andersson has This unique model, which contributes to increased previously been managing director of loyalty amongst customers in Gjensidige, is there Skandia Insurance Company Ltd, Nordic manager for Marsh & McLennan, and fore continued and strengthened. In 2013, general Executive Director of Mercantile & insurance customers in Norway received a customer General Re plc. dividend from the Gjensidige Foundation correspon- Among other things, he studied ding to around 15 per cent of insurance premiums economics, statistics and business law paid in 2012. at Stockholm University, and has completed the INSEAD Executive Attractive share Programme. The Gjensidige share yielded a total return (including Andersson is up for election to the dividend) for the shareholders of 54.3 per cent in Board in 2014. 2013. The average number of shares traded daily As of 31 December 2013, Andersson via Oslo Stock Exchange was about 560,000, and held 1,778 shares in Gjensidige Forsikring the share is among the 25 most liquid shares listed ASA, including any shares held by closely on Oslo Stock Exchange. In addition, a significant related parties. number of shares are traded on other market places than the Oslo Stock Exchange.

Changes in framework conditions and the current capital adequacy regulations. Solvency II Work on preparing for the Solvency II regulations The requirements will ensure good risk management has been prioritised in 2013 as well. The regula- in general, and the reporting to the authorities and tions set new requirements for European insurance the market will make a positive contribution to high- companies in relation to the calculation of capital lighting the Company’s value creation. Gjensidige requirements, requirements for risk management wishes to make active use of the upcoming legisla- and reporting on the risk and capital situation. tive amendments to further strengthen overall risk management in the Group. The Solvency II regulations are still under development, but the main lines are clear. They are expected Norwegian pension legislation to be implemented from 1 January 2016, but tran- Changes in the maximum rates in the Act relating sitional rules will apply in important areas from as to Defined Contribution Pensions and new ‘cut-off early as 1 January 2014. They include a requirement points’ entered into force on 1 January 2014. The for an advance dialogue with the Financial Super rates are in line with what is permitted under the new visory Authority about the approval of an internal Act relating to Mandatory Occupational Pensions. For model for calculating capital requirements. The all existing agreements, adaptations to the new cut- transitional rules will also include requirements for off point must be implemented by 1 January 2017. risk management, the implementation of risk and For enterprises that establish a defined contribu- capital assessments (ORSA-Own Risk and Solvency tion pension plan after 1 January 2014, a new cut-off Assessment) and reporting requirements. point will apply. It is now also possible for the contri- butions to apply from the first krone. The changes will The Group is well prepared for the regulatory changes probably mean that even more enterprises will con- and will continue to adapt to the new regulations. vert their defined benefit pension plans into defined Gjensidige plans to apply for approval of an internal contribution plans, rather than waiting for the tran- model for calculating the regulatory capital requirement sitional rules for the new Act on Occupational pursuant to Solvency II for parts of its operations. Pensions to be adopted. This is seen as positive for Gjensidige’s internal model has been developed since Gjensidige Pensjonsforsikring AS, which has spec- 2004 and it is becoming increasingly important in the ialised in defined contribution pensions. Group’s risk and capital management. Amendments to the Act relating to Company Pension The new regulations are expected to entail requirements Schemes, which provides for unit-linked paid-up poli- for a higher capitalisation level than under Solvency I cies, have been distributed for consultation, and are

Gjensidige Annual Report 2013 I 51 Annual report

Per Arne Bjørge Board member

Per Arne Bjørge (1950) has been a member of the Board of Gjensidige since 2011.

He is Chairman of the Board and general manager of PAB Consulting AS, a board member of the Gjensidige Foundation and of 3D Perception AS, and Chairman The basis for the change is a decision by the European of the Board of Borgund Invest AS, Tanux Court of Justice that will lead to gender neutrality being Shipping KS, Tanux Shipping AS, required in a wider area than follows from Norwegian Havskjer AS and Havstål AS. legislation. For Norwegian private customers, gen- Among other things, Bjørge has der neutrality is already required in the stipulation of previously been a bank director with premiums for general insurance products such as motor Kredittkassen and lead auditor with Fiskernes Bank. insurance. Exceptions have been made, however, for accident and health insurance products, such as disability He is a university college graduate and is insurance, life insurance etc. The change will take ef- a qualified auditor. He has also fect once the authorities have adopted the necessary completed the Administrative Research Institute’s executive management amendments to the Norwegian regulations. Gjensidige programme, and is a graduate of the is preparing for the change by introducing gender neu Bank Academy. trality before the amendments are implemented. Bjørge is up for election to the Board in 2014. Statement on the annual accounts Gjensidige reports consolidated financial As of 31 December 2013, Bjørge held information pursuant to International Financial 10,542 shares in Gjensidige Forsikring ASA, including any shares held by closely Reporting Standards (IFRS). related parties. Pursuant to the requirements of Norwegian accounting legislation, the Board confirms that the requirements for the going concern assumption have been met and that the annual accounts have not expected to enter into force until spring 2014 at been prepared on this basis. the earliest. The authorities propose that the paid-up policies be fully provisioned in relation to the new The preparation of the accounts and application of mortality table before the conversion. If this is adop- the chosen accounting principles involve using as- ted, the conversion rate is expected to be lower than sessments and estimates and necessitate the ap- previously assumed until the paid-up policies have plication of assumptions that affect the carrying been fully provisioned (2018). Gjensidige will not offer amount of assets and liabilities, income and expen- this product until the final legislation is in place. ses. The estimates and the pertaining assumptions are based on experience and other factors. The Gender-neutral tariffs uncertainty associated with this means that the From January 2014, Gjensidige has introduced actual figures may deviate from the estimates. It is gender-neutral tariffs in connection with the sale especially the insurance liabilities that are associ of accident and health policies (disability, life insur ated with this type of uncertainty. ance etc.). At the same time, price differentiation has been introduced based on insurance holders’ Financial targets profession and education. The following financial group targets applied in 2013.

Target attainment Area Target 2013 2013

Group Return on equity before tax >15 per cent 18.3 per cent Maintain A rating A rating confirmed in Rating from S&P November 50–80 per cent of Dividend the profit for the year 174.4 per cent * after tax

General insurance Combined ratio 90-93 per cent 89.2 per cent Cost ratio 15 per cent by 2015 15.3 per cent

* Proposed total dividend consisting of dividend based on the profit of the year and dividend related to extraordinary distribution of excess capital .

52 I Gjensidige Annual Report 2013 Annual report

Profit/loss due to major weather-related events and a more The Group recorded a profit before tax expense of normal development for frequency claims. NOK 4,574.1 million (5,633.5). The profit from general insurance operations measured by the under- With the exception of claims provisions relating to the writing result was NOK 2,019.6 million (2,607.8). Danish workers’ compensation portfolio, Gjensidige’s For the investment portfolio, the return on finan- claims provisions are recognised at nominal value (not cial assets was 4.3 per cent (5.4), corresponding to discounted). In preparation for expected changes in NOK 2,480.9 million (3,005.1). IFRS and the introduction of Solvency II, Gjensidige has, with effect from the second quarter 2010, calcu- The tax expense was NOK 903.5 million (1,353.5), lated but not recognised the effect on the combined corresponding to an effective tax rate of 19.8 per ratio of discounting the claims provisions. For 2013 cent (24.0). The effective tax rate was affected by seen as a whole, the combined ratio on a discounted the recognition of an impairment loss on the invest basis would have been 85.9, compared with 89.2 in ment in Storebrand in the first quarter, in addition relation to the recognised nominal amount. to realised and unrealised gains from equity invest ments in the EEA. Expenses for research and development have not been charged to income in Gjensidige’s consolidated The profit after tax expense was NOK 3,670.6 million accounts in 2013 or 2012. Nor have such expenses (4,280.1), corresponding to NOK 7.34 (8.56) per share. been capitalised during these two financial years. The parent company has continued its collaboration with Satisfactory underlying profitability in the port- the Norwegian Computing Centre and SFI (Statistics folio contributed to a good underwriting result in for Innovation), which are carrying out projects rela- 2013. The decline in profits from 2012 was primarily ting to risk assessment and data analysis.

Profit performance group NOK million 2013 2012

General insurance Private 1,305.5 1,439.1 General insurance Commercial 992.9 1,012.6 General insurance Nordic 342.3 519.9 General insurance Baltics 35.7 18.9 Corporate Centre/costs related to owner (299.4) (294.3) Corporate Centre/reinsurance 1 (357.4) (88.5) Underwriting result general insurance 2 2,019.6 2,607.8

Pension and Savings 49.9 18.3 Retail Bank 191.0 113.0 Financial result from the investment portfolio 3 2,480.9 3,005.1 Amortisation and impairment losses of excess value – intangible assets (161.7) (126.9) Other items (5.5) 16.4 Profit/(loss) for the period before tax expense 4,574.1 5,633.5

Key figures general insurance Large losses 4 906.6 581.1 Run-off gains/(losses) 5 299.6 342.0

Loss ratio 6 74.0% 69.9% Cost ratio 7 15.3% 15.5% Combined ratio 8 89.2% 85.3%

1 Large losses in excess of NOK 30.0 million are charged to the Corporate Centre, while claims of less than NOK 30.0 million are charged to the segment in which the large losses occured. The segment Baltics has a retention level of EUR 0.5 million. Large losses allocated to the Corporate Centre amounted to NOK 373.6 million (111.8) in 2013. Moreover, accounting items related to written reinsurance and reinstatement premium are included. 2 Underwriting result general insurance = earned premiums - claims incurred etc. - operating expenses 3 Excluding return on financial assets in Pension and Savings and Retail Bank. 4 Large losses = loss events in excess of NOK 10.0 million. 5 Run-off gains/(losses) = changes in estimates from earlier periods. Reserving is based on best estimate, and expected run-off result over time is zero. 6 Loss ratio = claims incurred etc./earned premiums 7 Cost ratio = insurance related operating expenses/earned premiums 8 Combined ratio = loss ratio + cost ratio

Gjensidige Annual Report 2013 I 53 Annual report

Kjetil Kristensen Board member

Kjetil Kristensen (1970) has been a member of Gjensidige’s Board as an employee representative since 2008.

He is a senior customer adviser in Gjensidige and the senior employee representative for the Private Division. ment of up to NOK 1,100.6 million in various private Kristensen has previously been general equity investments and real estate funds, in addition manager of Alta IF Football. to the amounts recognised in the balance sheet. He has an education in IT and In order to increase the effectiveness of its capital economics from Finnmark University and risk management, the Group enters into finan- College. cial derivative contracts on a regular basis. They are Kristensen is up for election to the Board described in more detail in the notes to the accounts. in 2014. Cash flow As of 31 December 2013, Kristensen held Gjensidige is an insurance company in which invest 526 shares in Gjensidige Forsikring ASA, including any shares held by closely ments are part of the operational cash flow and related parties. therefore largely affected by strategic decisions. The Company’s ability to self-finance investments is good. The net cash flow from operational activities mainly consists of payments in the form of premiums and net payments/disbursements in connection with sales of investment assets, including lendings from Balance sheet and capital base banking operations, plus disbursements in the form The Group’s balance sheet total at the end of 2013 of claims settlement costs, purchases of reinsurance, was NOK 108,946.3 million (94,207.1). This increase administration expenses and tax. was mainly attributable to volume growth in the Retail Bank and Pension and Savings segments. The net cash flow from operational activities was Gjensidige’s equity amounted to NOK 26,287.8 negative in the amount of NOK 1,127.7 million million (25,617.7) as of 31 December 2013. (1,407.7) in 2013. The negative cash flow can largely be explained by a strong increase in lendings from The return on equity before tax expense was 18.3 the bank. There is a large positive cash flow from the per cent (23.8). The capital adequacy was 13.4 insurance operations. The difference between the per cent (16.8), and the solvency margin was operating profit and the operational cash flow is due 421.8 per cent (545.1). Both capital adequacy and to the nature of the business. An integral part of in- the solvency margin have been adjusted to take surance companies’ operations is to invest received account of the Board’s dividend proposal for the insurance premiums in financial assets, which means 2013 financial year. The statutory capital adequacy that cash flows relating to the management of such requirement is eight per cent. assets are included in the operational cash flow.

Available capital in excess of risk-based capital The net cash flow from investment activities mainly requirement calculated using the Group’s internal consists of payments made/received in connec- risk model constitutes the Group’s economic excess tion with the acquisition of subsidiaries and associa- capital. In addition, a deduction is made for the ted companies, owner-occupied property, plant and higher of the estimated additional capital required equipment, plus dividend from associated companies. to maintain the current rating (including a buffer The net cash flow from investment activities was NOK of five per cent) and the capital required to meet 643.8 million (negative 235.2) in 2013. the statutory capital adequacy requirements. The surplus in excess of this constitutes the strategic The net cash flow from financing activities mainly buffer. At the end of the year, the strategic buf- consists of payments made/received relating to ex- fer constituted NOK 2.1 billion, after deduction of ternal debt financing and the payment of dividend the Board’s proposed dividend for the 2013 finan- to shareholders. The net cash flow from financing cial year. activities was NOK 837.2 million (negative 2,339.0) in 2013. Off-balance sheet commitments and derivatives For 2013, the net cash flow was mainly affected by As part of the Group’s investment activities, an the disbursement of loans from the bank that are agreement has been entered into for the invest partly financed by the bank’s borrowings.

54 I Gjensidige Annual Report 2013 Annual report

The segments Gjensidige’s distribution agreement with Spare The operations in Gjensidige are divided into six banken Sogn og Fjordane will be terminated with ef- segments, in addition to management of the invest fect from 1 July 2014. The premium volume relating ment portfolio. The following is a summary of results to the agreement amounted to approximately NOK and outlook for each segment. It is emphasised that 180 million in 2013, and the customers have their there is always considerable uncertainty attached to policy agreements directly with Gjensidige. Several the assessment of future developments. measures will be implemented to ensure new sales and to retain existing customers in the region. General Insurance Private The Private segment offers a wide range of insurance Claims incurred amounted to NOK 5,466.5 million products and services in the Norwegian private mar- (5,051.7). The loss ratio was 70.1 (67.4). The property ket, including insurance relating to motor vehicles, product in particular recorded a higher loss ratio than property, travel/leisure and accident and health. the year before due to more water damage claims early in the year and some large fires and damage Customer orientation and measures aimed caused by precipitation in the third quarter. The total at retaining customers were again the main claims incurred were within the bounds of what can priorities in the segment in 2013. At the same normally be expected, while the claims development time, improved customer and risk selection contri- in 2012 was particularly favourable. buted to continued improved quality in the customer portfolio, good profitability and good compe- Operating expenses amounted to NOK 1,027.0 titiveness. The development in the number of million (1,007.7), and the cost ratio was 13.2 (13.4). customers was the best since 2006. Outlook and priorities Profit performance The Private segment is particularly focused on The underwriting result for 2013 was NOK 1,305.5 efforts to retain customers and improve the quality million (1,439.1). The combined ratio was 83.3 of all customer processes. Improved availability, (80.8). The main reason for the decline in the under- simplification of products and processes and a writing result was an increase in claims incurred. higher proportion of self-service are prioritised in order to support the Group’s financial targets and Earned premiums amounted to NOK 7,799.0 improve customer orientation. million (7,498.5). The increase was due to higher premiums. The number of customers at the end of The competition from established players continues the year was roughly on a par with 2012. to be strong, and small niche companies are active. Gjensidige’s competitiveness in the Norwegian private market is regarded as good.

General Insurance Private NOK million 2013 2012

Earned premiums 7,799.0 7,498.5 Claims incurred etc. (5,466.5) (5,051.7) Operating expenses (1,027.0) (1,007.7) Underwriting result 1,305.5 1,439.1

Amortisation and impairment losses of excess value – (9.5) (9.5) intangible assets Large losses 1 49.9 32.7 Run-off gains/(losses) 2 65.0 67.6

Loss ratio 3 70.1% 67.4% Cost ratio 4 13.2% 13.4% Combined ratio 5 83.3% 80.8%

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

Gjensidige Annual Report 2013 I 55 Annual report

General Insurance Commercial ment, mainly as a result of an increase in the num- The segment offers general insurance products in ber of products per customer. The growth was the areas of liability, property, agriculture, accident negatively affected by a reduction in the Swedish and health, and motor insurance, plus in coastal, municipal portfolio, in addition to the loss of two aquaculture and transport insurance. In 2013, the big accident and health schemes with effect from Swedish commercial and municipal portfolio and the second and third quarters, respectively, in 2012. the Norwegian municipal portfolio were moved from the Nordic to the Commercial segment. Claims incurred amounted to NOK 5,207.6 million (4.943.1), which corresponds to a loss ratio of 74.2 Work processes in the distribution model were (73.1). The effect of a favourable claims devel- simplified in 2013 and this contributed to improved opment in accident and health and property profitability in the segment. In order to increase insurance was counteracted by a weaker claims customer orientation, solutions were estab- development in agriculture insurance. A higher pro- lished that produce more detailed risk profiles for portion of weather-related claims and large losses customers. The self-service solutions were further in agriculture also had a negative effect on claims developed to become a natural part of the custo- incurred compared with 2012. mer dialogue from customers receiving an offer and being welcomed to advice and renewal. Increased Operating expenses amounted to NOK 821.3 automation and greater focus on servicing con million (809.1). The increase in expenses is partly re- cepts further improved the customer experience lated to the work on integrating the Swedish units. and led to improved efficiency in the organisation. The cost ratio was 11.7 (12.0).

The Swedish commercial organisation was integra- Outlook and priorities ted in the segment in 2013, and the sales organisa- Together with even better risk pricing, simplification in Sweden was strengthened during the year. tion and automation are intended to ensure a forward-looking and customer-oriented company. Profit performance Better customer experiences and more effici- The underwriting result amounted to NOK 992.9 ent service processes will be important elements million (1,012.6) in 2013. The combined ratio was in supporting the Group’s targets and ensuring 85.9 (85.0). The reduction in the underwriting result good competitiveness in the commercial market. was largely due to increased claims incurred. Established companies offering a broad range of products and competition for market shares from Earned premiums increased to NOK 7,021.8 million individual players mean that there is still pressure (6,764.8). Both the Norwegian and Swedish on prices in parts of the market. commercial portfolios showed a positive develop-

General Insurance Commercial NOK million 2013 2012

Earned premiums 7,021.8 6,764.8 Claims incurred etc. (5,207.6) (4,943.1) Operating expenses (821.3) (809.1) Underwriting result 992.9 1,012.6

Large losses 1 346.6 341.7 Run-off gains/(losses) 2 120.2 75.2

Loss ratio 3 74.2% 73.1% Cost ratio 4 11.7% 12.0% Combined ratio 5 85.9% 85.0%

56 I Gjensidige Annual Report 2013 Annual report

General Insurance Nordic Claims incurred amounted to NOK 2,417.0 million The segment comprises the Group’s operations in (1,883.6). Of the increase NOK 83.5 million was the Danish private and commercial markets, and due to changes in the exchange rate. The loss ratio the Swedish private market. was 72.7 (64.7). The higher loss ratio was mainly due to substantially lower run-off gains, a higher Strengthening distribution through the implemen proportion of weather-related claims and a change tation of a new, improved distribution agreement in the composition of the portfolio, resulting in a with the Nykredit group and through the acqui- higher proportion of accident and health products. sition of Gouda Travel Insurance were important events in 2013. Continued focus on portfolio re- Operating expenses amounted to NOK 567.1 structuring and repricing contributed to even better million (506.1). Of the increase NOK 22.3 million quality in the portfolios and a satisfactory under- was due to changes in the exchange rate. In lying profitability development. addition, the expenses increased as a result, among other things, of the acquisition of Gouda Travel Profit performance Insurance. The cost ratio was 17.0 (17.4). The underwriting result was NOK 342.3 million (519.9) in 2013, corresponding to a combined ratio Outlook and priorities of 89.7 (82.1). The decline in the underwriting result The Nordic operations shall contribute to economies was largely due to lower run-off gains and a higher of scale, diversification of risk and increased compe- proportion of weather-related claims. titiveness. The Nordic general insurance markets are relatively consolidated, but Gjensidige expects Earned premiums increased to NOK 3,326.4 that it will be possible to grow selectively through million (2,909.7), NOK 128.2 million of which was a patient, rational approach to new opportunities due to changes in the exchange rate. The under- for growth. With a normalisation of the Danish lying increase was primarily due to an increase in property market, organic growth is expected to be the number of new commercial customers and slightly above market growth. The implementation the acquisition of Gouda Travel Insurance with of new tariffs and steps to achieve a higher pro- accounting effect from 1 November 2013. At the portion of self-service will be prioritised in 2014 time the agreement was signed, annual premiums as well. Work on integrating and capitalising on in the portfolio amounted to approximately NOK business synergies relating to the two above- 290 million. mentioned bought portfolios and the distribution agreement with Nykredit will also be given priority.

General insurance Nordic NOK million 2013 2012

Earned premiums 3,326.4 2,909.7 Claims incurred etc. (2,417.0) (1,883.6) Operating expenses (567.1) (506.1) Underwriting result 342.3 519.9

Amortisation and impairment losses of excess value – (147.2) (112.8) intangible assets Large losses 1 132.8 88.8 Run-off gains/(losses) 2 130.8 221.8

Loss ratio 3 72.7% 64.7% Cost ratio 4 17.0% 17.4% Combined ratio 5 89.7% 82.1%

Gjensidige Annual Report 2013 I 57 Annual report

Gisele Marchand Board member

Gisele Marchand (1958) has been a member of the Board of Gjensidige since 2010.

She is President and CEO of Eksport- finans ASA, a board member and chair of the audit committee of Selvaag Bolig ASA and a board member of Eiendoms- Profit performance spar AS, Victoria Eiendom AS and the The underwriting result amounted to NOK 35.7 Norwegian Refugee Council. million (18.9). The combined ratio was 93.0 (95.7). Marchand has previously been CEO of The improvement in profit performance is largely the Norwegian Public Service Pension due to a positive development in earned premiums. Fund, managing director of the Bates Group and has held various management positions with Den norske Bank. Earned premiums amounted to NOK 510.8 million (436.9). Of the increase NOK 17.5 million was due She is a graduate of Copenhagen to changes in the exchange rate. Earned premiums Business School. in accident and health and motor insurance deve Marchand is up for election to the Board loped particularly well. in 2014. Claims incurred amounted to NOK 342.5 million As of 31 December 2013, Marchand held 1,481 shares in Gjensidige Forsikring ASA, (292.6). Of the increase NOK 11.7 million was due including any shares held by closely to changes in the exchange rate. The loss ratio was related parties. 67.1 (67.0). Run-off gains were more than halved compared with the year before.

The nominal operating expenses amounted to NOK 132.5 million (125.4). Of the increase NOK 5.0 General Insurance Baltics million was due to changes in the exchange rate. Gjensidige’s Baltic operations offer general insur The cost ratio was 25.9 (28.7). ance products to the private and commercial markets in Latvia, Lithuania and Estonia. The target Outlook and priorities customers are people with medium to high income Gjensidige’s goal is to be one of the leading insur in the private market, and small and medium-sized ance companies in the Baltic states. The market is enterprises in the commercial market. relatively immature, and a significant proportion of both the private and the commercial segments is Targeted efforts to rationalise operations and the still uninsured. Sound growth is expected in step with restructuring and repricing of portfolios have contri- an improvement in the general economic situation buted to improved profitability in 2013. and an increase in the standard of living. Work on rationalising and streamlining distribution and more efficient processing of claims will continue in 2014.

General Insurance Baltics NOK million 2013 2012

Earned premiums 510.8 436.9 Claims incurred etc. (342.5) (292.6) Operating expenses (132.5) (125.4) Underwriting result 35.7 18.9

Amortisation and impairment losses of excess value – (4.8) (4.7) intangible assets Large losses 1 3.7 6.1 Run-off gains/(losses) 2 10.0 20.4

Loss ratio 3 67.1% 67.0% Cost ratio 4 25.9% 28.7% Combined ratio 5 93.0% 95.7%

1 Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of Euro 0.5 million per event are charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from earlier periods 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio

58 I Gjensidige Annual Report 2013 Annual report

Pension and Savings savings portfolio and positive market development. Pension and Savings is a growth area for Gjensidige in Norway. The segment offers various pension Operating expenses amounted to NOK 182.0 and savings products, mainly to the commercial million (170.4). The increase in expenses was mainly market. The pension products include defined due to higher distribution costs. contribution plans in the field of group occupational pensions, individual pensions, individual dis Financial income amounted to NOK 25.3 million ability pensions and the management of paid-up (18.0). This includes the return on the group policy policies and pension capital certificates. Gjensidige portfolio and corporate portfolio. The reason for the Investeringsrådgivning is an independent fund pro- growth was a higher return on the corporate port- vider that offers saving and investment solutions to folio as a result of reinvestments and growth in the the private and commercial markets. rest of the group policy portfolio. The company’s share of the financial profit on the paid-up policy The increase in profit in 2013 was very satis- portfolio was allocated in its entirety as a provision factory despite provisions being made for higher for higher life expectancy. life expectancy and disability. 85 per cent of the customers were also general insurance customers. At the end of the period, the assets under manage ment in the pension operations amounted to NOK Profit performance 13,953.8 million (10,408.8). The group policy port- The profit before tax expense was NOK 49.9 million folio accounted for NOK 3,553.2 million (3,163.8) (18.3). The positive development was due to an of this amount. increase in revenues as a result of growth in the customer portfolio combined with a positive mar- The recognised return on the paid-up policy port- ket development. At the start of 2013, Gjensidige folio was 4.57 per cent (4.76) in the period. The Pensjonsforsikring took over two external defined con- average annual interest guarantee is 3.6 per cent tribution portfolios, which led to an increase in assets under management of more than NOK 800 million. Assets under management for the savings operations amounted to NOK 11,896.4 million (10,070.0) Net insurance revenue in the period increased to at the end of 2013. NOK 124.4 million (105.8) as a result of higher administration costs due to growth in the portfolios. The total assets under management increased by NOK 5,371.3 million (2,731.2), amounting to NOK The management income increased to NOK 82.2 25,850.2 million (20,478.9) at the end of 2013. million (65.0) as a result of growth in the pension and

Pension and savings NOK million 2013 2012

Earned premiums 904.0 680.7 Claims incurred etc. (779.7) (574.9) Net insurance revenue 124.4 105.8 Management income etc. 82.2 65.0 Operating expenses (182.0) (170.4) Net operating income 24.6 0.3 Net financial income 25.3 18.0 Profit/(loss) before tax expense 49.9 18.3

Run-off gains/(losses) 1 (15.7)

Operating margin 2 11.89% 0.19% Recognised return on the paid-up policy portfolio 3 4.57% 4.76% Value-adjusted return on the paid-up policy portfolio 4 4.67% 4.77%

1 Run-off gains/(losses) = changes in estimates from earlier periods 2 Operating margin = net operating income/(net insurance revenue + management income etc.) 3 Recognized return on the paid-up policy portfolio = realised return of the portfolio 4 Value-adjusted return on the paid-up policy portfolio = total return of the portfolio

Gjensidige Annual Report 2013 I 59 Annual report

Outlook and priorities result of volume growth. Efficient operations and Pension and Savings is a growth area that helps to somewhat lower write-downs and losses also con- make Gjensidige a complete supplier of insurance tributed to the positive development. and pension products. The area contributes to stronger customer relations and loyalty among our Net interest income amounted to NOK 546.1 million general insurance customers. (442.9), primarily driven by lending growth. Net commission income and other income amounted to Increased maximum rates in the Act relating to NOK 53.3 million (44.8). Customer-related commis- Defined Contribution Pensions, combined with the sion income and the gains from the previously absence of transitional rules relating to the new written-off loans in the unsecured lending port- act on group occupational pensions, are expected folio contributed to an increase in net commission to lead to a higher rate of conversion from defined income and other income that was partly offset by benefit to defined contribution pension plans. This a reduction in income from financial instruments. will increase the market for occupational pensions in which the company has specialised. The net interest margin was 2.42 per cent (2.52). The reduction was due to significant increase in the Retail Bank proportion of secured loans in the portfolio in 2013, Gjensidige Bank’s business is geared towards the partly offset by lower financing costs. private market in Norway. The bank offers a full range of day-to-day banking services, mortgages, Operating expenses amounted to NOK 341.3 savings products and car and consumer financing. million (306.4). The increase in expenses was primarily driven by volume growth and costs relating The growth in lendings was very good throughout to the newly launched car financing product. The 2013, driven by competitive lending terms, espec- cost/income ratio was 56.9 per cent (62.8). The ially in the second and third quarters. The bank reduction in the cost/income ratio was due to both launched a new product for car financing through increased revenues and more efficient operations. car dealers in 2013. At year end, 45 per cent of the bank’s customers were also general insurance The bank expensed NOK 67.1 million (68.4) in customers. write-downs and losses, primarily related to the unsecured lending portfolio. Annualised write- Profit performance downs and losses as a percentage of average gross Profit before tax expense was NOK 191.0 million lending amounted to 0.32 per cent (0.43). The (113.0). The positive development was primarily improvement was due to an increase in payments due to an increase in net interest income as a from customers on previously written-off loans,

Retail Bank NOK million 2013 2012

Interest income and related income 1,135.0 949.7 Interest expenses and related expenses (588.9) (506.7) Net interest income 546.1 442.9 Net commission income and other income 53.3 44.8 Total income 599.5 487.7 Operating expenses (341.3) (306.4) Write-downs and losses (67.1) (68.4) Profit/(loss) before tax expense 191.0 113.0

Net interest margin, annualised 1 2.42% 2.52% Write-downs and losses, annualised 2 0.32% 0.43% Cost/income ratio 3 56.9% 62.8% Capital adequacy 4 14.6% 13.6%

1 Net interest margin, annualised = net interest income/average total assets 2 Write-downs and losses, annualised = write-downs and losses/avarage gross lending 3 Cost/income ratio = operating expenses/total income 4 Capital adequacy = primary capital/basis of calculation for credit risk, market risk and operational risk.

60 I Gjensidige Annual Report 2013 Annual report

combined with a higher proportion of loans secured Management of financial assets and properties by a residential mortgage. The weighted average The Group’s investment portfolio includes all invest loan to value was estimated to be 64.4 per cent for ment funds in the Group except for investment the mortgage portfolio. funds in the Pension and Savings and Retail Bank segments. A large part of the management is Gross lendings increased by 39.7 per cent and outsourced to external managers, while the Group’s amounted to NOK 24,193.9 million (17,324.3) at investment function concentrates on asset alloca- the end of the year. The bank experienced particu- tion, risk management and the selection of man larly good growth in lendings in the second and third agers. Direct property investments are made via the quarters. Deposits increased by 29.0 per cent and wholly owned property company Oslo Areal. amounted to NOK 14,938.3 million (11,580.5) at the end of the year. The deposit-to-loan ratio was 61.7 per cent (66.8). Access to external financing is good. The investment portfolio consists of three parts: a match portfolio, a free portfolio and associa- At the beginning of July 2013, Standard & Poor’s ted companies. The match portfolio is intended upgraded Gjensidige Bank’s rating from BBB+ to A-, to correspond to the Group’s actuarial provisions. with a ‘negative’ outlook. The upgrade was based It is invested in fixed-income instruments whose on a new assessment of the parent company’s duration is adapted to match the disbursement of support for the bank. The covered bonds issued by the actuarial provisions. The free portfolio consists of Gjensidige Bank Boligkreditt have an AAA rating. various assets. The allocation of assets in this portfolio must be seen in connection with the Group’s As a result of growth and new capital requirements capitalisation and pertaining risk capacity, as well as from 1 July, the bank received a total of NOK 341.0 the Group’s ongoing risk management. Associated million in new equity from the parent company companies mainly comprised the holdings in during 2013. Storebrand and SpareBank 1 SR-Bank.

Outlook and priorities At the end of 2013, the investment portfolio to- Gjensidige Bank shall support the Norwegian talled NOK 58,148.2 million (56,296.0). The finan- general insurance operations by helping to provide cial result was NOK 2,480.9 million (3,005.1), which a wider range of products to existing general insur corresponds to a return on financial assets of 4.3 per ance customers in Norway. The bank will continue cent (5.4). The contribution from current equities to develop customer-friendly online banking services was significantly higher than in 2012, while the con- and to increase the range of products offered tribution from other bonds was considerably lower through Gjensidige’s distribution system. Based on a as a result of higher interest rates. The return was full range of banking products and attractive terms also affected by the impairment loss recognised on for the private market, the bank shall contribute to the investment in Storebrand in the first quarter. the Group’s growth and profitability. Match portfolio The improved rating of the bonds issued by The match portfolio amounted to NOK 33.2 billion Gjensidige Bank Boligkreditt AS is also expected (33.5). The portfolio yielded a return of 3.6 per to have a positive effect on margins in thelonger cent (3.9) excluding changes in the value of the term. The bank will continue its work to ensure part of the portfolio recognised at amortised cost. efficient operations and lower losses on loans. Unrealised excess value from bonds valued at amortised cost amounted to NOK 1,032.5 million (1,046.8) at year end.

The average duration of the match portfolio was 3.5 years, the same as the average term to maturity for corresponding insurance debt. The distribution of counterparty risk and credit rating

Gjensidige Annual Report 2013 I 61 Annual report

Gunnar Mjåtvedt Board member

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

He is also Gjensidige’s senior employee representative.

Mjåtvedt has previously held positions as The geographical distribution1 of the fixed-income a sales consultant and senior consultant, instruments in the free portfolio is shown in the and he has nearly 20 years’ experience of chart on page 63. Bond investments through funds the insurance sector. in the PIIGS countries amounted to NOK 347.1 He studied mathematics and science million at the end of the period. subjects at upper secondary school. Mjåtvedt is up for election to the Board in 2014. Equity portfolio The total equity exposure at the end of the year As of 31 December 2013, Mjåtvedt held (including private equity, but excluding associated 1,820 shares in Gjensidige Forsikring ASA, companies) was NOK 3.9 billion (2.9). The return on including any shares held by closely related parties. current equities was 18.6 per cent (8.5). This includes the return on derivatives used for hedging purposes. The return on private equity was 10.3 per cent (16.7).

Property portfolio At the end of 2013, the property portfolio is shown in the charts on page 63. Of the securi- amounted to NOK 5.1 billion (4.9). The property ties without an official credit rating, 22.1 per cent portfolio yielded a return of 5.7 per cent (5.0). The were issued by Norwegian savings banks, while the return on directly owned properties was good, while remainder were mostly issued by Norwegian power the return on property funds was negative. The ge- producers and distributors, property companies neral required rate of return in connection with the or government-guaranteed companies. Bonds valuation of the properties was 6.5 per cent (6.6). with a coupon that is adjusted on the basis of the The individual valuations resulted in a net increase Norwegian consumer price index accounted for in value of NOK 81.5 million. External valuations 13.0 per cent of the match portfolio. of more than 90 per cent of the properties were carried out at the end of 2013. The portfolio is The geographical distribution 1 of the match port- concentrated in office properties in Oslo, but it also folio is shown in the chart on page 63. At the end of includes office properties in other Norwegian cities the year, there were no direct bond investments in and one office building in Copenhagen. the PIIGS countries. Associated companies Free portfolio Associated companies amounted to NOK 4.8 billion The free portfolio amounted to NOK 20.1 billion (17.7) (5.0) at the end of the year. The shareholding at the end of 2013. The return was 5.8 per cent (7.0). in Storebrand was recognised in the amount of NOK 3,306.3 million. The corresponding figure Fixed-income instruments for the investment in SpareBank 1 SR-Bank was The fixed-income instruments in the free portfolio NOK 1,423.0 million. The return on associa- amounted to NOK 9.6 billion (9.1) and yielded a re- ted companies was 4.0 per cent (9.3), which turn of 4.0 per cent (6.9). Investment grade bonds corresponds to NOK 192.7 million (441.5). An and money market instruments in particular yielded impairment loss on the investment in Storebrand a poorer return as a result of higher interest rates, was recognised in the amount of NOK 611.0 million while high yield and convertible bonds yielded a in the first quarter. Further the return included a good return in 2013 as well. gain of NOK 35.3 million on the subsequent sale of shares in Storebrand. Gjensidige’s estimated share The average duration in the portfolio was approxi of Storebrand’s profit/loss for the year amounted mately 1.9 years at the end of the year. The dis- to a loss of NOK 22.1 million, including the amor- tribution of counterparty risk and credit rating is tisation of excess value. Gjensidige’s estimated shown in the charts on page 63. Of the securities share of SpareBank 1 SR-Bank’s profit/loss for the without an official rating, 9.7 per cent were issued year amounted to NOK 179.0 million, including the by Norwegian savings banks, while the remainder amortisation of excess value. were mostly issued by Norwegian power producers and distributors, property companies or government-guaranteed companies.

1 Geographical distribution is related to issuers and does not reflect the actual currency exposure.

62 I Gjensidige Annual Report 2013 Annual report

Financial assets and properties Return in per cent Result Carrying amount 31.12 NOK million 2013 2012 2013 2012 2013 2012

Match portfolio

Money market 1.9 3.0 86.4 120.9 4,473.4 4,528.3

Bonds at amortized cost 5.1 5.0 1,054.0 1,001.2 19,604.0 21,346.3

Current bonds 1 0.7 1.5 61.5 113.9 9,160.6 7,648.9

Match portfolio total 3.6 3.9 1,201.9 1,236.0 33,237.9 33,523.6

Associated companies 4.0 9.3 192.7 441.5 4,772.0 5,036.1

Free portfolio Money market 1.7 2.4 87.4 146.8 4,911.4 5,141.4

Other bonds 2 4.1 14.5 121.4 494.4 3,606.5 3,068.0

Convertible bonds 3 16.5 9.8 161.5 69.5 1,121.0 851.9

Current equities 18.6 8.5 360.9 107.5 2,272.2 1,483.5

PE funds 10.3 16.7 161.3 220.5 1,665.3 1,432.0

Property 5.7 5.0 288.8 253.0 5,097.1 4,914.7

Other 4 (9.8) 3.6 (94.9) 35.9 1,464.8 844.9

Free portfolio total 5.8 7.0 1,086.3 1,327.6 20,138.3 17,736.4

Investment portfolio total 4.3 5.4 2,480.9 3,005.1 58,148.2 56,296.0

Financial income in Pension and Savings and Retail Bank 57.2 50.8

Net income from investments 2,538.1 3,055.8

1 The item includes the discounting effects of insurance obligations in Denmark and mismatch between interest rate adjustments on the liability side in Denmark, versus the interest rate hedge. 2 The item consist of total investment grade, high yield and current bonds. Investment grade and high yield are investments in internationally diversified funds externally managed. 3 Investments in internationally diversified funds externally managed. 4 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Danmark, and lendings, paid-in capital in Gjensidige Pensjonskasse and hedge funds.

Geographic distribution match portfolio Geographic distribution xed income at the end of 2013 instruments in free portfolio at the end of 2013

48.6% Norway 47.3% Norway 6.1% Sweden 4.9% Sweden 28.6% Denmark 2.8% USA 2.5% USA 17.7% UK 6.2% UK 5.4% Baltics 1.9% Baltics 21.9% Other 6.1% Other

Credit rating xed income Counterparty risk xed income instruments at the end of 2013 instruments at the end of 2013

100% 100%

80% 80%

60% 60%

40% 40%

20% No official rating 20% Industry High yield Banks/financial institutions 0% 0% Match portfolio Free portfolio Investment grade Match portfolio Free portfolio Government/public sector

Gjensidige Annual Report 2013 I 63 Annual report

Risk factors have a negative effect on the return on capital and Risk is defined as the possibility of an event af- other key figures. Emphasis is therefore placed on fecting the Group’s goal attainment positively or Gjensidige’s ability to quickly adapt to consumers’ negatively. In order to understand and manage wishes for new service channels, and its ability to risk, an assessment is therefore carried out of both utilise modern technology and support systems in the probability of the event occurring and its con- an efficient manner. Continuous efforts are made sequences. Through the Group’s risk management to develop new, customer-adapted products and and internal control, a structure has been estab- service solutions, at the same time as the organisa- lished that systematically identifies, assesses, com- tion, processes and value chains are reviewed and municates and manages risk throughout the standardised to reduce costs and achieve greater Group. The risk assessment process is integrated efficiency. with the Group’s budget and business plan process. The customers have greater and greater expectati- Risk management is based on specified goals and ons of the employees’ expertise. There is a risk that strategies and the limits on risk exposure stipulated inadequate or insufficiently adapted expertise will by the Board. Responsibility for good risk manage reduce chances of realising commercial and stra- ment and internal control primarily rests with the tegic ambitions. There is also competition to attract first-line management, the CEO and allmanagers and retain capable employees. Active and targeted and employees in the operational units, who carry competence-raising measures are therefore carried out their work in accordance with the authori- out at all levels of the organisation, and compet- sations, instructions and guidelines that apply to ence requirements have been defined for different each of them. A Risk Management function has roles. The Gjensidige Customer and Brand School is been established at group level. It is responsible responsible for competence-raising and manage for monitoring the Group’s risk management sys- ment development in Gjensidige. The school offers tem and for maintaining an overview of the risks training of sales personnel, claims handlers and that the Group is or may be exposed to. The Risk managers based on the Group’s business and brand Management function shall ensure that the senior strategy. Performance-based remuneration mo- group management and the Board have suffi dels have been introduced for groups of employees, cient information about the Group’s risk profile at and individual scorecards have also been introdu- all times. The Group has a moderate risk profile ced. Systematic work is being done on the corpo- whereby, in the Board’s view, no individual events rate culture and management development, and will be capable of seriously harming the Company’s on firmly establishing requirements and expecta financial position. tions of managers and employees.

Strategic risk Insurance risk Gjensidige’s strategy is monitored continuously The insurance risk relating to large individual losses in relation to changes in performance, develop- or events is managed through authorisations and ments in the market and competition, and changes guidelines for ordinary operations. Clear guidelines in framework conditions. Factors that have been have been established for what insurance policies identified as critical to the Company’s goal attain- can be taken out. The risk of a generally unsatis- ment are monitored particularly closely. To ensure factory premium level is monitored on a continuous that Gjensidige is ahead of developments, strategic basis by the product and actuary department, and risk is managed through continuous monitoring of increasingly precise methods for pricing are being competitors and the market, and through product developed. development and planning processes. The Board stipulates annual limits for the Group’s In the insurance market, Gjensidige is challenged by reinsurance programme. The limits are decided on both established Norwegian financial players and the basis of the need to protect the equity against new companies. A loss of business combined with loss events over and above an amount deemed to reduced profitability in the insurance operations will be justifiable, and of the need to reduce fluctua-

64 I Gjensidige Annual Report 2013 Annual report

tions in earnings. The insurance risk is deemed to be money market and through lendings. The Board has moderate based on the reinsurance coverage the defined limits for the credit operations. Credit losses Group has purchased. The reinsurance programme have been insignificant to date. Outstanding claims is described in more detail in Note 3 to the conso- against the Group’s reinsurers may also represent lidated annual accounts. a substantial credit risk. Counterparty risk in the reinsurance market is continuously assessed. The The Group’s Actuary function carries out calcula- Group’s reinsurers shall at least have an A rating tions and assessments of the actuarial provisions from Standard & Poor’s or an equivalent rating from and develops and maintains adequate models and one of the other reputable rating companies. methods for estimating losses that have occur- The Board has assessed the risk of losses on loans, red, but that have not yet been reported to the guarantee liabilities and other receivables, and ne- Group. There is a considerable inherent risk of the cessary provisions have been made in the accounts. provisions being inadequate, but the Group works continuously to improve actuarial methods, and Operational risk external actuaries are used from time to time to Operational risk is the risk of losses due to weaknes- conduct independent reviews of the provisions. ses or faults in processes and systems, errors made by employees, or external events. In order to reduce Financial risk the risk, emphasis has been placed on having well- Gjensidige had NOK 58.1 billion in financial inves- defined and clear lines of reporting and a clear tments in the insurance operations as of 31 division of responsibility in the organisation of the December 2013. The counter entry in the balance business. Set procedures have been established for sheet consists of the actuarial provisions and equity. conducting risk assessments, and the Board evalua- The investments mainly consisted of fixed-income tes the annual status as part of the internal control investments, property, shares and holdings in as- system. An independent Compliance function has sociated companies. The value of the investments been established to help the Group to avoid official can be affected by changes in macroeconomic sanctions, financial losses or a loss of reputation as factors. a result of failure to comply with laws, regulations and standards. The Compliance function identifies, The Board’s adoption of strategic allocations of as- assesses, advises on, monitors and reports on the sets and a dynamic risk management model define Group’s risk of non-compliance with laws, regula- limits that make it possible to rapidly adjust risk tions and internal guidelines. to changed macroeconomic assumptions. Price, interest rate and currency risk is partly followed up Ethical issues are discussed at training courses for through stress tests, where the buffer capital must new employees and they are also discussed regu- be sufficient at all times to be able to withstand larly by management groups and at departmen- sharp simultaneous falls in share and bond prices. tal staff meetings. This is intended to reduce the risk of breaches of procedures and guidelines, while For more detailed information about financial risk also contributing to a good working environment. and stress tests, see Note 3 to the consolidated Employees have also signed a personal data disci- annual accounts. pline statement relating to the use of the Group’s information and IT systems. Limits have been defined for the necessary access to liquid assets. They are taken into account in the On behalf of the Board, Gjensidige’s internal audit strategic allocation of assets. The liquidity risk is function has been assigned the role of monitoring considered to be very low. The Group is exposed to and assessing whether the risk management and credit risk through investments in the bond and internal control system function as intended.

Gjensidige Annual Report 2013 I 65 Annual report

Mette Rostad Board member

Mette Rostad (1964) has been a member of the Board of Gjensidige since 2012.

She is self-employed, a board member of Gjensidigestiftelsen and of Innherred Renovasjon, and Chair of the Board of Visit Innherred.

Rostad has previously been CFO of Aker Verdal, managing director of Aker FDV, and managing director of Clean-Tech Mid-Norway.

She is a graduate of the Norwegian Business School BI.

Rostad is up for election to the Board in 2014.

As of 31 December 2013, Rostad held employees, and a number of measures and proces- 2,794 shares in Gjensidige Forsikring ses have been established relating to employees’ ASA, including any shares held by closely health, safety and working environment. related parties. Information about the working environment, gender equality, discrimination and the natural environment, cf. the Accounting Act Section 3-3 (ninth to twelfth paragraphs), is provided in the report on corporate social responsibility For a more detailed description of risk manage ment, reference is made to Note 3 to the consoli Outlook dated annual accounts. In October 2013, Gjensidige communicated a target return on equity after tax expense of 15 Corporate governance per cent with effect from and including 2015. Good corporate governance is a priority for the Gjensidige’s profitability targets for its general Board. The Board has based the Group’s corporate insurance operations remain unchanged. Over governance on the Norwegian Code of Practice for time, the annual combined ratio shall be within the Corporate Governance dated 23 October 2012, and corridor 90–93. has adapted to the Code of Practice and subsequent amendments in all areas. A more detailed Competition remains strong in the Norwegian account of how Gjensidige complies with the general insurance market, not least from estab- Code of Practice and the Norwegian Accounting lished financial players that are increasingly focus Act’s requirements for reporting on corporate ing on general insurance. Gjensidige’s competi governance is included on pages 30-43 of the an- tiveness is regarded as good, however. Among nual report and in a separate document that is other things, this was confirmed by a stable custo- available on the Group’s website www.gjensidige. mer development in the Private segment throug- no/konsern. In 2012, Gjensidige won the Norwegian hout 2013, in addition to a good volume develop- Corporate Governance Board’s award for best cor- ment in the renewal processes in the Commercial porate governance reporting in Norway. and Nordic segments at the start of 2014. Work on maintaining and strengthening the customer Employees, corporate social base and position in the Norwegian market con- responsibility and the environment tinues unabated, in parallel with continuously as- Gjensidige’s work on corporate social respons- sessing new, profitable opportunities for growth ibility is described in a separate statement on pages in other geographical areas. Optimal utilisation of 22-29 of the annual report. The Board of Gjensidige partnerships and distribution collaborations has has adopted guidelines for how to exercise social high priority. responsibility. The guidelines and the group policy for ethical investments are available at The group-wide programmes for analytical pricing, www.gjensidige.no/konsern. customer and risk selection, and the simplification of processes and products will continue. Gjensidige aims to be a developing and health- Investments are continuously being made in for- promoting workplace. Systematic work is carried ward-looking digital service solutions in order to out on development measures for managers and meet customer needs. Considerable attention is

66 I Gjensidige Annual Report 2013 Annual report

Mari Skjærstad Board member

Mari Skjærstad (1969) has been a member of the Board of Gjensidige since 2010.

She is a partner in the law firm Johnsrud Skjærstad & Co AS, chair of the board of, inter alia, Mesta AS, BoligPartner AS, Østlandsforskning AS, Øyhovden Invest AS, Hamarregionen Næringsforum, Ervod Production & Distribution AS, and Hamar Troll AS, and a board member of, inter alia, Furnes Hamjern SCC AS, Munck Cranes AS, HRR Miljø AS and Randers Jernstøperi AS.

Among other things, Skjærstad has previously been a lawyer with Wikborg Rein and assistant judge at Stjør- and Verdal District Court. being devoted to measures aimed at further ra- She holds a law degree from the tionalising operations and thereby ensuring con- University of Oslo. tinued good competitiveness. Priority is given to Skjærstad is up for election to the Board continuous competence-raising measures in order in 2014. to ensure that Gjensidige still has the right composition of expertise going forward. As of 31 December 2013, Skjærstad held 0 shares in Gjensidige Forsikring ASA, including any shares held by closely Uncertainty about the international economic related parties. situation, combined with financial challenges in several key economies, remains a source of uncertainty for Gjensidige as well. Gjensidige has a robust investment strategy, however. It is financially sound and has a high proportion of its business in the Norwegian general insurance market. tion of the sale, Gjensidige will not hold any shares The macroeconomic situation with respect to the in Storebrand. Besides this there are no significant Norwegian general insurance operations is still events that have occurred after the end of the regarded as good. The Danish property market is period. improving, and the Baltic economies continue to show positive development. There is still uncertainty Allocation of the profit before relating to changed framework conditions for the other income and expenses financial sector in Norway and internationally. The The Group’s profit after tax expense amounted to Solvency II regulations are expected to be imple- NOK 3,670.6 million. The Board has adopted a di- mented in Norway in 2016. New Norwegian pension vidend policy that forms the basis for the dividend legislation entered into force on 1 January 2014. proposal submitted to the general meeting. The goal for 2013 is that between 50 and 80 per cent of The Group has substantial capital buffers in re- the profit for the year will be distributed as dividend. lation to internal risk models, statutory capital adequacy requirements and its target rating. Based The Board proposes that a total dividend of NOK on a financial assessment, Gjensidige has deci- 6,400 million be distributed for the 2013 financial ded to increase the Group’s retention level relating year, corresponding to NOK 12.80 per share. Of this to weather-related events from NOK 100 to NOK amount, NOK 6.80 per share is proposed on the 200 million with effect from and including 2014. basis of the profit for the year after tax expense and By weather-related events is meant storms, floods, the current dividend policy. The calculation basis avalanches/landslides etc. The rest of the reinsur has been adjusted for the effect of the impairment ance programme is largely unchanged. The Board loss of NOK 611 million on the investment in considers the Group’s capital situation and financial Storebrand in the first quarter. The remaining NOK strength to be good. 6.00 per share can be ascribed to the distribution of excess capital in accordance with the new capital Events after the balance sheet date strategy as communicated on 22 October 2013. On 26 February 2014 Gjensidige sold the holding in Storebrand. Accounting gain from the transaction A new dividend policy applies with effect from the was around NOK 115 million. Following the comple- 2014 accounting year, as described on page 33.

Gjensidige Annual Report 2013 I 67 Annual report

It is proposed that the parent company’s profit Other components of income and expense as pre- before other components of income and expense of sented in the income statement are not included in NOK 3,160.7 million be allocated as follows: the allocation of profit.

NOK million The Board has decided to pay employees of Gjensidige Forsikring ASA a collective bonus Dividend (after a deduction for dividend on (6,399.5) corresponding to NOK 22,500, including holiday own shares) pay, per full-time employee. The bonus is based on Transferred from undistributable reserves 207.8 the combined ratio achieved and on the develop- Transferred from other earned equity 3,030.9 ment in the portfolio and in customer satisfaction in 2013. Allocated (3,160.7)

The Board wishes to thank all employees for their efforts and their contribution to Gjensidige’s good results in 2013.

Oslo, 12 March 2014 The Board of Gjensidige Forsikring ASA

Inge K. Hansen Gunnhild H. Andersen Trond Vegard Andersen Hans-Erik F. Andersson Per Arne Bjørge Chairman

Kjetil Kristensen Gisele Marchand Gunnar Mjåtvedt Mari T. Skjærstad Mette Rostad

Helge Leiro Baastad CEO

68 I Gjensidige Annual Report 2013