Contents. The chief executive s comments 2 Administration report 4 Five-year overview 7

Transcription

1 Annual Report 2012

2 Contents The chief executive s comments 2 Administration report 4 Five-year overview 7 Financial reports Alternative income statement 9 Income statement 10 Statement of comprehensive income 10 Analysis of results 11 Balance sheet assets 12 Balance sheet liabilities 13 Statements of changes in equity 14 Cash flow statement 15 Notes 16 RECOMMENDED APPROPRIATION OF PROFITS 33 Auditors report 34 Board and management 35 Definitions 36 Handelsbanken Liv AB (publ) Corporate identity no.: Registered address: Stockholm This Annual Report is also available in Swedish. 1

3 The Chief Executive s comments The Chief Executive s comments In the past year, Handelsbanken Liv has made major advances. New products and packaging, simplifications and improvements have created an even better foundation for our business. But it is just as important to have the trust of the world around you when doing business. Once again in 2012, we had the most satisfied life insurance customers and we also received a number of excellent assessments from independent evaluation institutions. More about this later, but I want to stress that we do not intend to rest on our laurels in Quite the reverse we will continue our efforts to develop the competitive offerings we have for all pension customers: for private individuals and employees, sole traders and small and large companies. Highly ranked funds performed well Despite the euro crisis, weak growth and fiscal difficulties in the US, the past year was good for both equity and fixed income funds. Handelsbanken s equity funds had an average return of 14 per cent during the year. Fixed income funds had an average return of 4 per cent and our mixed funds have benefited from the rising equity markets with an average return of 11 per cent. This led to a positive increase in value for our unit-linked insurance in Since most of our Swedish customers assets are invested in mutual funds, it is of course important that the funds in which the insurance capital is invested are of high quality and provide returns. Competitive offerings for all pension customers It is therefore very pleasing that Handelsbanken s mutual funds continue to have good rankings. The independent fund rating company Morningstar has given our funds the highest three-year rating among the four large Swedish banks funds. In 2012, TNS Sifo Prospera performed its annual mutual fund saver survey showing that Handelsbanken Fonder is again the most popular mutual fund company. Return on the traditionally managed policies was poorer in 2012 than in the previous year. Significantly lower interest rates in 2011 led to good value growth in the life insurance companies bond portfolios. In 2012, interest rates were at a continuously low level and did not affect the value of the underlying bond portfolio to the same extent. For Handelsbanken Liv s traditionally managed insurance where the savings capital is to a large extent invested in bonds at a low risk, the return exceeded the guaranteed interest for a small number of policies only. The portfolio of traditionally managed insurance fell during the year. Handelsbanken Liv does not offer traditional insurance for new policies while a large proportion of customers with traditional insurance have started receiving their pension disbursements. Our total assets under managements rose to SEK 75 billion. Product changes during the year For unit-linked products we saw continued strong inflows in The declining inflow for portfolio bond insurance is because new capital has instead gone to the new savings form called Investment Savings Account which was launched on the Swedish market on 1 January It is important for us to continue to highlight the specific characteristics of endowment insurance, for example the possibility to direct the capital to surviving family members, and have it disbursed on a regular basis. During the year we saw growing demand from companies wishing to invest surplus liquidity in endowment insurance. After the summer of 2012, portfolio bond insurance was taken out with the Swedish parent company instead of as previously with our Irish subsidiary Handelsbanken Life & Pension Ltd. At the year-end, the whole portfolio was transferred from Ireland to Sweden. Having this insurance in Ireland now offers far fewer advantages than before. Processing is also easier for customers when this type of policy is located in Sweden. The Nordic unit-linked operations continued to perform well. The Finnish operations have experienced very good growth for investment insurance and in the year to come we will also launch company-paid insurance. In Norway, we are focusing on the transfer market and investment insurance. Previously, the unit-linked operations in Norway and Finland were conducted in our Danish subsidiary. On 30 November 2012, our Danish subsidiary was merged with our Finnish subsidiary and this company will now be the future base for our Nordic operations. Meet us where it suits you best at the branch, online or by phone Major focus on pensions In 2012, pensions were a major subject of focus on the radio, TV and in the press. In my opinion, it is excellent that this important subject is discussed in the media. Pensions are the salary we will live off later in life and are therefore very important. We often hear people say that it is difficult to understand how the pension system works and difficult to know how much their pension will be. To help solve this problem, in 2012 we produced a number of films explaining in simple terms how pensions work. The films are available in Swedish at handelsbanken.se. Another way to find out more is at the website minpension.se which is a collaboration between the Swedish state and the pension companies. This gives a good idea of the amount of your future pension. In 2012, we integrated minpension.se with our online service. Enhanced offering and free right of transfer The life insurance commission s proposal to the government in October 2012 brought the matter of freely transferrable pension capital in Sweden onto the agenda. For Handelsbanken Liv, it is natural that customers have had the right to move their insurance capital for the past ten years. 2 handelsbanken liv annual report 2012

4 Administration report In the past year we have continued our work with enhancing our offerings in the area of company-paid insurance, both through collective agreements and direct agreements with the company. One example of our focus is that since the beginning of the year we offer pension solutions with no capital and premium charges in the policy for high earners. This offering has already been very well received. Satisfied customers According to Swedish Quality Index (SKI), Handelsbanken Liv had the most satisfied private customers for the fifth consecutive year. This makes us very proud but we also feel respect for the task of continuing to have the most satisfied customers in the future. We aim to have an excellent range of products which are easy to understand and with the characteristics which our customers need. And we also want our customers to perceive us as easy to meet where it suits them best at a branch of Handelsbanken, online or by phone. You should never be far from good advice about pension savings at Handelsbanken. Lennart Söderberg Chief Executive Stockholm, March 2013 handelsbanken liv annual report

5 Administration report Administration report Handelsbanken Liv Försäkringsaktiebolag (Handelsbanken Liv), corporate identity number , is domiciled in Stockholm. The company is a wholly-owned subsidiary of Svenska Handelsbanken AB (publ), corporate identity number (Handelsbanken). Introduction Since 2002, Handelsbanken Liv has conducted both life insurance business with traditional insurance and unit-linked insurance in the same company. The company has been demutualised and run as a profit-distributing company since Operations Handelsbanken Liv offers customers a broad range of savings products in the life insurance area. This takes place within the framework of Handelsbanken s universal bank concept, where life insurance is a natural part of the customer offering with regard to long-term savings. Significant events during the year In 2012, Handelsbanken Liv s application to the Financial Supervisory Authority in Finland for a concession to form a unit-linked insurance company was approved. The company SHB Liv Försäkrings AB was formed during the spring and in November, the Finnish and the Norwegian unit-linked operations previously conducted in Handelsbanken Liv s Danish subsidiary SHB Liv Forsikrings A/S, were merged in the Finnish company SHB Liv Försäkrings AB. On 31 December, an intra-group portfolio transfer was made to Handelsbanken Liv regarding the portfolio bond insurance which until 31 December was administered by the Irish subsidiary, Handelsbanken Life and Pension Ltd. In June, Handelsbanken Liv acquired Handelsbanken Fastighets AB from Handelsbanken AB. In connection with the acquisition, Handelsbanken Liv received a capital injection of SEK 2,500 million from Handelsbanken. Handelsbanken Liv s Chief Executive Göran Holgerson left this position as at 31 December and Lennart Söderberg was appointed new Chief Executive from 1 January Financial performance Assets under management at year-end were SEK 75 billion (69). The positive net flow for unitlinked insurance continued in 2012 and totalled SEK 3.0 billion (7.6). Assets under management in unit-linked insurance increased by almost SEK 8 billion to SEK 49 billion (41) as a result of the net flow but also a positive growth in value during the year. For portfolio bond insurance, the net flow was negative and was SEK -1 billion (1). Nevertheless, assets under management in portfolio bond insurance increased by some 4 per cent to SEK 15 billion (15) due to positive growth in value. The assets in insurance with guaranteed interest fell from SEK 13 billion at the start of the year to SEK 11 billion at year-end; the net flow thus totalled SEK -2.0 billion (-6.7). Profit before tax was SEK 429 million (508). The lower profit is mainly due to a weaker financial result compared with For most policyholders, returns in the traditionally managed portfolios were below the guaranteed rate of interest and the company therefore received no yield split on these policies. The results for unitlinked and portfolio bond insurance remained good, and are increasing with growing volumes. Appropriation of profits The Board and Chief Executive propose that the entire amount at the disposal of the annual general meeting SEK 6,814,002,667 be carried forward to the next year. The detailed proposal for appropriation of profits is on page 33. INSURANCE OPERATIONS Market Handelsbanken Liv s business concept is to provide solutions that offer financial security through insurance via long-term savings and cover in the event of death, accident and sickness. Insurance is sold through the Bank s branches, by telephone and online. The company is continually developing its insurance savings offerings and making the products more accessible and easy to understand for customers. In 2012, Handelsbanken Liv continued developing its company-paid insurance business. At the beginning of the year, the Investment Savings Account was launched which is provided by the parent company, Handelsbanken. The product has a standard taxation amount just as for the endowment insurance products and it has taken sales volumes from endowment insurance, but customers who need and value the advantages and characteristics of endowment insurance continue to choose this product. During the year, the company also saw increased demand from companies wishing to invest funds in endowment insurance. The company also continued its focus in the pension area during the past year. For example, by means of collaboration with the public website for pension information, we have made it easier for Handelsbanken s customers to see their pension at minpension.se which is easy to access from Handelsbanken s website. It was very pleasing that for the fifth consecutive year, Handelsbanken Liv was ranked number one of all life insurance companies in the SKI (Swedish Quality Index) survey of satisfaction among private and life insurance customers. ASSET MANAGEMENT Since 2009, Handelsbanken Liv has had its insurance portfolio for policies invested in guaranteed interest solutions divided into sub-portfolios based on the guarantee level, the policyholder s age and tax bracket. Each sub-portfolio is managed in an asset portfolio linked to it. The assets are managed so that, based on the conditions for each sub-portfolio, they secure fulfilment of the company s insurance commitments to customers. The sub-portfolios are allocated the yield rate generated by the respective portfolio, meaning that customers have different yield rates. The assets continue to be managed in diversified portfolios consisting chiefly of fixed income securities, exchange-traded equity funds and alternative investments. Handelsbanken Liv s Board establishes the company s investment guidelines that define the overall frameworks for asset allocation. All the portfolios are based on interest-bearing bonds. In addition, a small part is invested in other assets with a higher risk level. The proportion of assets, in addition to interest-bearing, varies over time and among the sub-portfolios. The management portfolios are divided into three main categories: Insurance products with a guaranteed annual rate of 3 per cent. Insurance products with a final guaranteed rate of 3 per cent. Insurance products with a guaranteed annual rate of 5 per cent. 4 handelsbanken liv annual report 2012

6 Administration report In the category with a guaranteed annual rate of 3 per cent, the average return for 2012 was +3.0 per cent (+3.6); for insurance products with a guaranteed final rate of 3 per cent, +4.3 per cent (+6.6); and for insurance products with a guaranteed annual rate of 5 per cent, it was +3.0 per cent (+7.8). For savings in unit-linked and portfolio bond insurance, Handelsbanken Liv provides no guarantees in terms of value growth. For their investments, our unit-linked insurance customers are primarily offered mutual funds managed by Handelsbanken Fonder. Portfolio bond customers may invest their premiums in mutual funds, equities, equity-linked bonds, bonds, certificates, warrants and options. In 2012, the performance of mutual funds with a high proportion of equities, and of much portfolio bond insurance, was positive. Solvency Solvency is a measure of an insurance company s financial position and strength. The purpose of the solvency measure is to demonstrate how big a margin, in other words the available solvency margin, the company has in order to meet its commitments in accordance with the terms and guarantees in the insurance contracts. The solvency margin for the Handelsbanken Liv was SEK 5,646 million (2,557) as at 31 December This should be placed in relation to the required solvency margin, which was SEK 953 million (1,024). The solvency ratio was thus 5.93 (2.50). The current solvency calculation is regulated in the Swedish Insurance Business Act and in regulations issued by the Swedish Financial Supervisory Authority. A new directive for solvency regulations, called Solvency II, was passed by the European Parliament in The implementation of the Solvency II regulations has been delayed and they will not be implemented until January At present it is not clear when the directive will be part of Swedish legislation. Some of the regulations can be expected to be implemented as part of the regulatory authority s practical supervision as of January The aim of the legislator is to strengthen protection for policyholders by linking the solvency requirement more clearly to how insurance companies identify, measure and manage all risks that occur in the companies, such as market, insurance, credit and operational risks. During the year, Handelsbanken Liv worked to adapt the company to Solvency II according to a previously established internal time schedule, and this work will continue in The work will focus on the parts of the regulations that may be expected to be implemented in January EMPLOYEES At the end of 2012, Handelsbanken Liv had 194 employees, with some 87 per cent of them employed in Sweden. Principles and processes for remuneration to senior management are presented in note 13, Operating expenses. CAREER DEVELOPMENT At Handelsbanken, the employees are the Bank, not the products. The Bank takes a longterm view of its employees. In order to retain staff, the right conditions must exist for development in their work, different career opportunities must exist and consideration must be taken of the employee s stage of life. At Handelsbanken Liv, employees are responsible for their own competence development, and for sharing their competence with others in the Handelsbanken. The knowledge acquired by employees in their daily work is the most important source of increased professionalism. For Handelsbanken Liv, competence refers to the ability to solve the tasks employees meet at work. All employees should take part in their unit's business planning process to create a sense of involvement in achieving set targets. Guided by the business plan, employees meet their immediate superior for a personal development dialogue. This involves a discussion of the employee s contribution to operational goals and the conditions required to deal with specific tasks. The discussion results in an individual action plan which is continuously followed up. GENDER EQUALITY Handelsbanken Liv complies with the Handelsbanken s equal opportunity policy which states that equal conditions must apply to men and women regarding career development within the. The goal is for the proportion of female and male managers to correspond to the overall gender distribution at Handelsbanken Liv. 62 per cent of employees are women and 55 per cent of the total number of managers are women. The work of promoting equality aims to make it easier for both men and women to combine employment with parenthood. Employees who take parental leave have the same right to salary development as other staff. WORK ENVIRONMENT AND HEALTH Handelsbanken Liv complies with the Handelsbanken s working environment policy. The overall objective for the working environment is a focus on health. The aim is to have a working environment where the employees enjoy good health, develop on a personal level and function in an optimal way. This is a longterm goal that includes factors such as balance in life, clear and honest communication, that the employees feel secure in their actions based on Handelsbanken s culture, the skills and competence needed to perform tasks and deal with work-related situations, pride in one s work, and trust and respect. Health promotion activities are an important factor in staff care and health care. The aim is to make employees more active. The company subsidises all forms of exercise approved by the Swedish Tax Agency. ETHICAL STANDARDS Handelsbanken Liv complies with Handelsbanken s ethical guidelines that state that operations must observe high ethical standards. Employees must conduct themselves in a manner that upholds confidence in the company. Handelsbanken s Board annually ratifies the ethical guidelines. A basic premise is that operations and employees comply with the laws and regulations that govern the operations in various ways. Directives and general recommendations from the Swedish Financial Supervisory Authority and other authorities must be observed when drafting procedures and instructions. All employees have a clear responsibility for their actions, professionally and in social and ethical issues. The success of the company depends on the trust of the public and authorities. ENVIRONMENTAL RESPONSIBILITY Handelsbanken Liv follows the decisions taken by its parent company, Handelsbanken, regarding environmental issues. Handelsbanken aims to promote a long-term environmentally sustainable development. As in other areas at Handelsbanken, responsibility for practical environmental issues is decentralised. All managers in the Handelsbanken have primary responsibility for environmental issues at their units and all employees have a responsibility for the environment as part of their duties. Environmental issues are a vital element in the Handelsbanken s operations, in terms of the direct environmental impact of the Bank s operations and any indirect impact. Action is taken to cause as little negative impact on the environment as possible, by minimising energy use, choosing environment-friendly materials and products, and minimising residual products. One example of this is the increasing use of video conferencing to reduce the need to travel. Handelsbanken has signed and complies with a number of voluntary agreements that are at the heart of our environmental activities. These include the ICC Business Charter for Sustainable Development and the United Nations Environmental Program Finance Initiative (UNEP FI), "Banks and the Environment". UNEP FI states that economic development must be compatible with social welfare and a sound environment. Environmental considerations are included in all decisions on investments and purchases. To facilitate the drafting of specifications for suppliers, a template for supplier agreements has been produced, which also deals with how to specify environmental requirements. Paper consumption is reduced by a greater degree of communication via online boxes for customers. ENVIRONMENTAL IMPACT Carbon dioxide emissions are an area where Handelsbanken Liv s operations have a direct impact on the environment. For several years, Handelsbanken Liv has measured the carbon dioxide emissions generated by its own operations. The direct impact mainly derives from business travel and the use of heating and electricity. handelsbanken liv annual report

7 Administration report Waste separation at source was introduced in 2006 and has been fully implemented since We continually co-ordinate our customer information to reduce the number of letters being sent. When rebuilding, we recycle building materials as far as possible. RESPONSIBILITY IN INVESTMENT ACTIVITIES Through active ownership, Handelsbanken Liv aims to help create sustainable development in economic, ecological and social terms, and considers that a responsible attitude is essential to long-term value creation in a company. Responsible investments are therefore a vital prerequisite for achieving the company s goal of generating good long-term returns. Handelsbanken Liv also regards responsible investments as a prerequisite for meeting customer demands. Handelsbanken Liv s guidelines for responsible investments are based on international standards for the environment, human rights and working conditions, corruption, and controversial weapons. These standards have been expressed in the UN s conventions and agreements and can then be applied to a company s environmental and social responsibility. The UN Principles of Responsible Investment (UNPRI) also provide guidance in matters of responsible investment. The guidelines are reviewed annually and can then be revised to take into account changes in the market or in customer requirements. The guidelines cover direct investments made by funds and portfolios in Swedish and foreign equities and corporate bonds. For indirect investments, for example holdings in funds, structured products and derivatives, the guidelines should be applied to as many of the investments as possible. For fund-of-fund management, the guidelines are applied to that part of the portfolio comprising funds managed internally. Index funds managed passively are not covered by the guidelines, but their holdings are used to exert influence on companies with whom Handelsbanken Liv, through its fund manager, has chosen to maintain a dialogue as an active owner. The company also offers ethical index funds which have the expressed objective of complying with customers specific requirements to exclude companies operating in certain industries. For its insurance capital relating to management at a guaranteed rate of return, Handelsbanken Liv engages the services of Handelsbanken Asset Management, a department of Svenska Handelsbanken AB (publ). In Handelsbanken Liv s unit-linked insurance products, the majority of funds on offer are Handelsbanken Fonder s funds. CORPORATE GOVERNANCE structure In addition to the parent company Handelsbanken Liv, at the start of 2012, the Handelsbanken Liv comprised the wholly-owned subsidiaries SHB Liv Forsikringsaktieselskab and Handelsbanken Life and Pension Ltd. During the year a subsidiary called SHB Liv Försäkrings AB was started in Finland with a contribution of EUR 3 million. The company has received an insurance permit from the Finnish financial supervisory authority. Until November 2012, SHB Liv Forsikrings A/S in Denmark provided life insurance products through branches in Norway and Finland. On 30 November 2012, the Norwegian and Finnish operations previously run in SHB Liv Forsikrings A/S were merged in SHB Liv Försäkrings AB in Finland. Risk insurance in Norway and Finland continues to be sold through branches of the parent company Handelsbanken Liv. Until the end of the year, Handelsbanken Life and Pension Ltd provided Handelsbanken Liv s portfolio bond products. At the year-end, all portfolio bond insurance was transferred from Handelsbanken Life and Pension Ltd to the parent company, Handelsbanken Liv. After the portfolio transfer, Handelsbanken Life and Pension Ltd will no longer run insurance operations and the company will de-register its insurance license and then be liquidated. During the year, all shares in Handelsbanken Fastigheter AB were acquired. The company conducts management of properties which are mainly rented by Handelsbanken and its subsidiaries. Handelsbanken Liv s unit-linked capital is principally invested in Handelsbanken s mutual funds. Handelsbanken Liv purchases services from its parent company Handelsbanken. These are mainly IT services, HR services and asset management. These services are settled in accordance with established internal prices within Handelsbanken which are based on generally accepted transfer pricing principles according to the cost price principle but never exceeding the market price. Annual general meeting 2012 The annual general meeting was held on 16 April Board The composition of the Board was changed during the year. Thommy Mossinger succeeded Håkan Sandberg as the new Chairman in 2012 and Håkan Sandberg retired from the Board. The Board s activities The Board has convened at eight ordinary meetings and three extraordinary Board meetings. The Board regularly discusses the financial situation of the company and the company s strategy for the short term and the longer term. During the year the Board was kept continually informed as to how Handelsbanken Liv s work to adapt the company to the forthcoming Solvency II regulations has been progressing. Mats Arvidsson, Handelsbanken actuary and member of Handelsbanken Liv s Board, has had a supporting role in the company s work with qualitative questions relating to Pillar II of the Solvency II regulations. management Göran Holgerson was Chief Executive until 31 December inclusive. From 1 January 2013, Lennart Söderberg is Acting Chief Executive. Auditors Anders Bäckström is principal auditor for KPMG AB. Compensation The company complies with the compensation policy adopted by Handelsbanken Liv s Board. Internal control and risk management The Handelsbanken Liv s operations include insurance risks, operational risks and financial risks. The financial risks include market risks, liquidity risks and credit risks. Handelsbanken Liv continually works with measuring, following up and limiting these risks for the entire, including the subsidiaries. There is a department for independent risk control and a compliance function. Together with the business operations, these are responsible for identifying risks, and for independently and regularly checking and reporting to the company s Chief Executive and Board. A review of the company s risks and their significance for operations is presented in note 2, Risks and risk management. Independent risk control The department for independent risk control has the overall responsibility for ensuring that Handelsbanken Liv maintains good management and control of the various risks. The aim is to ensure via internal controls that company operations are carried out in line with established goals and requirements. This department has an independent position in relation to business operations, and it reports directly to the Chief Executive and Board. The work complies with the general guidelines of the Swedish Financial Supervisory Authority on governance and control of financial companies and general guidelines on reporting significant events. Compliance The Compliance unit is responsible for independently examining issues relating to compliance. Compliance refers to the observance of laws, regulations and internal rules as well as accepted business practices or norms related to the operations that are subject to a license. Internal Audit Internal Audit performs an independent and impartial audit of the operations and financial reporting of Handelsbanken Liv. The emphasis is on assessing and verifying internal control in the company due to the large number of transactions processed by the business operations. 6 handelsbanken liv annual report 2012

8 Five-year overview Five-year overview Profit/loss according to the alternative income statement Administration result Risk result Financial result Other result Profit before tax Profit/loss according to the statutory income statement Premiums written Net investment income in insurance business 1,260 1,338 1, Claims incurred Operating expenses Balance on the technical account, life insurance business Profit for the year Financial position Property 3,794 1,140 1,260 1,150 1,185 Shares and participating interests 1,358 1,229 2,101 2,866 3,855 Bonds and other interest-bearing securities 9,744 11,529 16,444 22,129 22,306 Derivatives Total investment assets 14,911 14,080 19,849 26,185 27,890 Investments for which the policyholder bears the risk 63,714 55,892 55,605 41,922 26,908 Unit-linked commitments 48,610 41,314 39,562 30,580 21,240 Conditional bonus for portfolio bond insurance 15,104 14,578 16,044 11,362 5,668 Provisions for life insurance and conditional bonuses 11,866 13,627 19,497 25,486 26,277 Equity 7,077 4,211 3,786 3,571 3,637 Deferred tax Subordinated loans 1,129 1,129 1,129 1,129 1,129 Total solvency capital 8,234 5,340 4,915 4,700 4,766 Available solvency margin for the insurance group 5,646 2,557 3,581 3,274 1,985 Required solvency margin for the insurance group 953 1,024 1,183 1,446 1,493 Solvency ratio Key figures Management expense ratio, % Total yield, savings insurance with guaranteed rate of interest, %* Total yield, savings insurance with a guaranteed annual rate of 3%, average for the category Total yield, savings insurance with a guaranteed final rate of 3%, average for the category Total yield, savings insurance with a guaranteed annual rate of 5%, average for the category Premiums paid Guaranteed interest ,450 1,705 Risk insurance Life insurance management** Unit-linked insurance 6,167 10,386 9,312 4,111 3,328 Portfolio bond insurance 1,839 2,533 3,630 3,934 - Total 8,772 14,024 14,694 10,114 5,859 Assets under management Guaranteed interest 11,102 12,863 18,896 25,238 27,134 Life insurance management** Unit-linked insurance 48,610 41,314 39,562 30,580 21,240 Portfolio bond insurance 15,104 14,578 16,044 11,362 5,668 Total 75,399 69,329 74,922 67,180 54,042 * During 2009, Handelsbanken Liv changed its investment strategy for savings insurance with a guaranteed rate of return; instead of a common asset portfolio it adapted its investments to take into account the age of the policyholder and the level of the guaranteed rate. As a result, the insurance capital is now managed in several separate sub-groups, each with a separate investment strategy so that the returns yielded are allocated to the policyholders in each of the respective sub-groups. Any yield split for the company is also calculated separately for each portfolio. ** Life insurance management is a new management form from Collective consolidation ratio is not stated since it is not a relevant indicator for a profit-distributing life insurance company. Yield (direct yield) is not stated since it does not provide a fair picture. Instead, total yield is stated which includes both yield and changes in value. The accounting data for 2009 and 2010 is presented in accordance with full IFRS. For restatement to full IFRS has not been done since the restatement effects are not assessed to be material. handelsbanken liv annual report

9 Five-year overview Five-year overview Profit/loss according to the alternative income statement Administration result Risk result Financial result Other result Profit before tax Profit/loss according to the statutory income statement Premiums written Net investment income in insurance business 980 1, Claims incurred Operating expenses Balance on the technical account, life insurance business Profit for the year Financial position Property - 1,140 1, Shares and participating interests 5,056 1,727 2,618 4,308 5,361 Bonds and other interest-bearing securities 9,302 10,987 15,930 21,605 22,263 Derivatives Other investment assets Total investment assets 15,032 14,033 19,847 26,396 28,638 Investments for which the policyholder bears the risk 60,942 38,930 36,944 27,221 19,076 Unit-linked commitments 45,838 38,930 36,944 27,242 19,077 Conditional bonus for portfolio bond insurance*** 15, Provisions for life insurance and conditional bonuses 11,866 13,627 19,497 25,485 26,277 Equity 6,933 4,009 3,647 3,490 3,600 Deferred tax Subordinated loans 1,129 1,129 1,129 1,129 1,129 Total solvency capital 8,075 5,138 4,776 4,619 4,729 Available solvency margin 5,544 2,380 3,463 3,237 1,970 Required solvency margin 947 1,006 1,172 1,432 1,480 Solvency ratio Key figures Management expense ratio, % Total yield, savings insurance with guaranteed rate of interest, %* Total yield, savings insurance with a guaranteed annual rate of 3%, average for the category Total yield, savings insurance with a guaranteed final rate of 3%, average for the category Total yield, savings insurance with a guaranteed annual rate of 5%, average for the category Premiums paid Guaranteed interest ,455 1,713 Risk insurance Life insurance management** Unit-linked insurance 5,696 10,023 8,862 3,504 2,821 Portfolio bond insurance Total 6,604 11,128 10,614 5,578 5,360 Assets under management Guaranteed interest 11,102 12,863 18,896 25,238 27,134 Life insurance management** Unit-linked insurance 45,838 38,930 36,944 27,242 19,077 Portfolio bond insurance*** 15, Total 72,627 52,367 56,260 52,480 46,211 * During 2009, Handelsbanken Liv changed its investment strategy for savings insurance with a guaranteed rate of return; instead of a common asset portfolio it adapted its investments to take into account the age of the policyholder and the level of the guaranteed rate. As a result, the insurance capital is now managed in several separate sub-groups, each with a separate investment strategy so that the returns yielded are allocated to the policyholders in each of the respective sub-groups. Any yield split for the company is also calculated separately for each portfolio. ** Life insurance management is a new management form from *** Portfolio bond insurance is a new management form in the parent company from Collective consolidation ratio is not stated since it is not a relevant indicator for a profit-distributing life insurance company. Yield (direct yield) is not stated since it does not provide a fair picture. Instead, total yield is stated which includes both yield and changes in value. 8 handelsbanken liv annual report 2012

10 financial reports Alternative income statement The traditional income statement in an insurance company is normally difficult to understand and analyse. Handelsbanken Liv has therefore produced an alternative income statement to make it easier to understand how the results arise and develop Administration result Risk result Financial result Other result Profit before tax The profit/loss is based on the Handelsbanken Liv s profit/loss before tax. Link to statutory income statement Profit before tax Tax Profit for the year Administration result Fee income Other income Net fee and commission income Expenses Total The administration result is the difference between the fees charged on the insurance contracts and the company s expenses. 2 Risk result Premiums written Change of claims outstanding Insurance claims paid Result of reinsurance Other Total The risk result is the difference between the fees which the company charges to cover the insurance risks (mortality, longevity, morbidity and accident) and the actual cost of these. 3 Financial result Capital contribution Other Total The insurance capital is managed in several separate sub-groups, each with a separate investment strategy so that the returns yielded are allocated to the policyholders in each of the respective sub-groups. Any yield split for the company is also calculated separately for each portfolio. This is reported under the Other heading. 4 Other result Return on equity Interest expense on subordinated loans Profit/loss Handelsbanken Fastigheter AB 88 - Total handelsbanken liv annual report

11 financial reports Income statement Technical account, life insurance business Premiums written (net of reinsurance) Note Investment income Note 8 1,432 1,482 1,148 1,467 Unrealised gains on investment assets Note Increase in value of investment assets for which policyholders bear the investment risk Assets for conditional bonus 1, Unit-linked insurance assets 4,105-3,894 - Other technical income Note Claims incurred (net of reinsurance) Note Changes in other technical provisions Note 12-6,821 6,939-4,931 4,244 Operating expenses Note Investment charges Note Unrealised losses on investment assets Note Decrease in value of investment assets for which the policyholder bears the investment risk Assets for conditional bonus - -2, Unit-linked insurance assets - -5, ,549 Other technical expenses Investment income transferred to financial operations Balance on the technical account, life insurance business Non-technical account Balance on the technical account, life insurance business Investment income Note Unrealised gains on investment assets Note Investment income transferred from insurance operations Investment charges Note Unrealised losses on investment assets Note Profit before appropriations and tax Appropriations Profit before tax Tax Note Profit for the year Statement of comprehensive income Profit for the year Other comprehensive income Translation differences for the year Total comprehensive income for the year handelsbanken liv annual report 2012

12 financial reports Analysis of results Occupational pension insurance Direct insurance of Swedish risks Other life insurance Direct insurance of foreign risks Received reinsurance Technical account, life insurance business Total 2012 Definedcontribution traditional insurance Unit-linked insurance Occupational linked disability insurance and premium waiver insurance Individual traditional life insurance Unit-linked insurance Noncancellable disability and accident insurance and premium waiver insurance life and occupational group life insurance Premiums written (net of reinsurance) Investment income 1, Unrealised gains on investment assets Increase in value of investment assets for which the policyholder bears the investment risk, portfolio bond Increase in value of investment assets for which the policyholder bears the investment risk 3,894-2, , Other technical income Claims incurred (net of reinsurance) Change in other technical provisions -4, , , Operating expenses Investment charges Unrealised losses on investment assets Investment income transferred to financial operations Balance on the technical account, life insurance business PREMIUMS WRITTEN Premiums written (gross) Premiums ceded Total premiums written (net of reinsurance) CLAIMS INCURRED Insurance claims paid Gross of reinsurance Reinsurers share Change in provision for claims outstanding Gross of reinsurance Reinsurers share Total claims incurred (net of reinsurance) Technical provisions 31 Dec 2012 Provisions for life insurance 10,207 6, , Provision for claims outstanding ,680 6, , Technical provisions for which the policyholder bears the risk 31 Dec 2012 Conditional bonus 16, , Unit-linked commitments 45,838-23, , , ,741-15,879 22, handelsbanken liv annual report

13 financial reports Balance sheet assets Assets Intangible assets Goodwill Note Other intangible assets Note Investment assets Property Note 21 3,794 1,140-1,140 Shares and participating interests in companies Note , Shares and participating interests Note 23 1,358 1,229 1,357 1,207 Bonds and other interest-bearing securities Note 24 9,744 11,529 9,302 10,987 Other loans Derivatives Note ,911 14,080 15,032 14,033 Investment assets for which the policyholder bears the investment risk Conditional bonus for portfolio bond insurance Note 33 15,104 14,578 15,104 - Unit-linked insurance assets Note 34 48,610 41,314 45,838 38,930 63,714 55,892 60,942 38,930 Reinsurers share of technical provisions Claims outstanding Receivables Receivables referring to direct insurance operations Note Receivables referring to reinsurance Tax claims Note Other receivables Note Other assets Property and equipment Note Liquid funds Note 29 5,423 5,325 5,175 5,172 5,425 5,328 5,177 5,175 Prepaid expenses and accrued income Accrued interest income Other prepaid expenses and accrued income Total assets 84,612 75,653 81,698 58,432 The items intangible assets, property and equipment, other loans and most of the bonds and other interest-bearing securities have a longer life than one year. Other items expire within one year. 12 handelsbanken liv annual report 2012

14 financial reports Balance sheet liabilities Equity, provisions and liabilities Equity Share capital (100,000 shares) Statutory reserve Translation reserve Retained earnings 6,613 3,687 6,389 3,527 Profit for the year Total equity 7,077 4,211 6,933 4,009 Untaxed reserves Tax allocation reserve Subordinated liabilities Perpetual subordinated loans 1,129 1,129 1,129 1,129 Actuarial provisions (gross of reinsurance) Provisions for life insurance Note 30 10,207 11,692 10,207 11,692 Provision for claims outstanding Note ,680 12,187 10,680 12,187 Life insurance provisions for which the policyholder bears the risk Conditional bonus Note 32 1,659 1,935 1,659 1,935 Conditional bonus for portfolio bond insurance commitments Note 33 15,104 14,578 15,104 - Unit-linked commitments Note 34 48,610 41,314 45,838 38,930 65,373 57,827 62,601 40,865 Provisions for other risks and charges Provisions for taxes Note Deposits from reinsurers Liabilities Liabilities referring to reinsurance Other liabilities Note Accrued expenses and deferred income Other accrued expenses and deferred income Note Total equity, provisions and liabilities 84,612 75,653 81,698 58,432 Perpetual subordinated loans, Provisions for life insurance, Conditional bonus and Unit-linked commitments have a longer life than one year. Other items expire within one year. handelsbanken liv annual report

15 financial reports Statements of changes in equity Share capital Translation reserve Retained earnings Total Opening balance 1 Jan ,681 3,786 Profit for the year Other comprehensive income Total change before transactions with the owners Shareholder contribution received - Total transactions with the owners - Closing balance 31 Dec ,113 4,211 Opening balance 1 Jan ,113 4,211 Profit for the year Other comprehensive income Total change before transactions with the owners Shareholder contribution received 2,500 2,500 Total transactions with the owners 2,500 2,500 Closing balance 31 Dec ,982 7,077 The translation reserve is entirely composed of the effects of changed exchange rates when translating foreign operations financial reports to the currency of the consolidated accounts. Restricted equity Unrestricted equity Share capital Statutory reserve Translation reserve Retained earnings Total Opening balance 1 Jan ,523 3,647 Profit for the year Other comprehensive income Total change before transactions with the owners Shareholder contribution received Total transactions with the owners - Closing balance 31 Dec ,889 4,009 Opening balance 1 Jan ,889 4,009 Profit for the year Other comprehensive income -1-1 Total change before transactions with the owners Shareholder contribution received 2,500 2,500 Total transactions with the owners 2,500 2,500 Closing balance 31 Dec ,814 6,933 The translation reserve is entirely composed of the effects of changed exchange rates when translating foreign operations financial reports to the currency of the parent company s accounts. 14 handelsbanken liv annual report 2012

16 financial reports Cash flow statement OPERATING ACTIVITIES Profit before appropriations and tax Adjustment for non-cash items in profit/loss: Depreciation, amortisation and impairments Unrealised gains/losses on investment assets Translation difference in comprehensive income Paid income tax Change in the assets and liabilities of operating activities: Investment assets, net ,769-1,180 5,814 Conditional bonus Provisions for life insurance -1,485-5,466-1,485-5,466 Unit-linked insurance assets -7, ,012-1,986 Unit-linked commitments 7, ,012 1,986 Other assets Other liabilities Cash flow from operating activities -2, , INVESTING ACTIVITIES Investment in subsidiaries Investment in tangible non-current assets Investment in intangible non-current assets Cash flow from investing activities FINANCING ACTIVITIES Shareholder contribution 2,500-2,500 - Dividend paid Cash flow from financing activities 2,500-2,660 - Cash flow for the period Liquid funds at beginning of period Note 29 5,325 5,049 5,172 4,949 Cash flow from operating activities -2, , Cash flow from investing activities Cash flow from financing activities 2,500-2,660 - Liquid funds at end of period 5,423 5,325 5,175 5,172 Investment assets Property Note 21 3,794 1, ,140 Shares and participating interests Notes 22, 23 1,358 1,229 5,056 1,727 Bonds and other interest-bearing securities Note 24 9,744 11,529 9,302 10,987 Derivatives Note Other financial assets Net investment assets 14,911 14,080 15,032 14,033 Information concerning interest paid and received Interest received during the period Interest paid during the period Total In addition to paid income tax of SEK -19 million (67) in the parent company and SEK 11 million (76) in the, SEK 220 million (274) has been paid in and out for yield tax. See note 35, Taxes. handelsbanken liv annual report

17 Notes Notes NOTE 1 Accounting policies LEGISLATION AND REGULATIONS The annual report was issued as at 31 December 2012 and covers the period from 1 January 2012 to 31 December Handelsbanken Liv conforms with the stipulations of the Swedish Annual Accounts Act for Insurance Companies and the regulations and general guidelines regarding the annual accounts of insurance companies issued by the Swedish Financial Supervisory Authority (FFFS 2008:26). This means that the consolidated accounts are prepared according to IFRSs approved by the EU and RFR1. In the parent company, RFR2, Accounting for legal entities is applied. The annual accounts and the consolidated accounts were authorised for publication by the Board on 14 March The s income statement and balance sheet and the parent company s income statement and balance sheet will be presented for adoption at the annual general meeting on 22 April The stated accounting policies are applied in both the consolidated accounts and the parent company and are applied consistently for all periods presented in the financial reports unless otherwise stated. CHANGE IN ACCOUNTING POLICIES The account policies are unchanged compared to the accounting policies that were applied in the 2011 annual report. As of the 2013 financial year, the revised IAS 19 Employee benefits will come into effect for application within the EU. This will have an impact on how Handelsbanken Liv reports defined-benefit pension plans since the corridor method for accrual accounting of actuarial gains and losses is being removed. Actuarial effects will instead be recognised directly in Other comprehensive income. In addition, the current assumption for the return on plan assets is being replaced by an estimated yield equivalent to the discount rate for the pension liability. This will have an impact on the calculation of the pension cost reported in the income statement. Due to this change of policy, the s opening equity for 2013 will decrease by SEK 147 million. The comparison figures will be adjusted. Pension costs for defined-benefit plans for January December 2012 will thus decrease by SEK 2 million. For 2013, reported pension costs for definedbenefit plans are estimated to decrease by SEK 1 million compared with the policies applied during BASIS FOR VALUATION OF ASSETS AND LIABILITIES The functional currency is Swedish kronor and the financial reports are presented in Swedish kronor. Unless otherwise stated, all amounts are rounded off to the nearest million. Financial assets and liabilities, property invested on behalf of policyholders, and financial liabilities in unit-linked insurance are measured at fair value. Properties held for investing the company s equity are measured at cost of acquisition. Other assets and liabilities are measured at amortised cost. Assets and liabilities in foreign currency are valued at the closing-day rate. IMPORTANT ESTIMATES AND ASSUMPTIONS The assumptions used when calculating the technical provisions give rise to the most significant effect on the amounts presented in the financial statements. When calculating technical provisions, assumptions are made concerning interest rates, mortality, morbidity, taxes, charges and other measurements of risk that affect the valuation. Changes in these assumptions may affect existing provisions and the company s reported profit. A more detailed description of the s risks is given in note 2, Risks and risk management. CONSOLIDATED ACCOUNTS The consolidated accounts include all companies in which Handelsbanken Liv directly or indirectly has a controlling influence. A controlling influence normally exists when the holding amounts to more than 50 per cent of the voting rights. The consolidated accounts were prepared in accordance with the acquisition accounting method. When acquiring subsidiaries, identifiable assets, liabilities and contingent liabilities are recognised at fair value on the acquisition date. The part of the acquisition cost that exceeds the fair value of identifiable net assets is recognised as goodwill. All foreign operations have activities that could cause their functional currency to deviate from the currency used by the. Salary payments and purchases are normally made in local currency. The current method was used in translating the foreign operations balance sheets and income statements. This means that assets and liabilities are translated at the closing day rate. Equity is translated at the exchange rate on the date of investment or earning respectively. The income statement has been translated at the average annual rate. Exchange differences are recognised as a component of comprehensive income and are included in the translation reserve in equity. RECOGNITION OF ASSETS AND LIABILITIES An asset is defined as a resource over which there is control as a result of past events and that can be expected to provide future economic benefit. Assets are recognised in the balance sheet when it is probable that the future economic benefits related to the asset will accrue to the company and when the value or acquisition cost of the asset can be reliably measured. Liabilities are the company s existing obligations which as a result of past events are expected to lead to an outflow of resources from the company. A liability is recognised in the balance sheet when, in order to fulfil an existing obligation, it is probable that the company must surrender a resource with a value that can be reliably measured. Financial assets and liabilities are recognised in the balance sheet when the becomes a party to the contractual provisions of the asset or liability. Purchases and sales of money market and capital market instruments on the spot market are recognised on the trade date. The same applies to derivatives. Other financial assets and liabilities are normally reported on the trade date. When there no longer are criteria for reporting assets and liabilities in the balance sheet, the asset or liability is removed from the balance sheet. ACCOUNTING FOR INSURANCE CONTRACTS AND FINANCIAL CONTRACTS Contracts with significant insurance risk are classified in the consolidated accounts and in the parent company as insurance contracts. Insurance risk is viewed as significant if the event insured, in any scenario that is of commercial substance for the, entails an obligation to pay compensation that is significant in comparison with the compensation that would have been paid if the insured event had not taken place. Contracts that do not transfer significant insurance risk are classified as investment contracts. All insurance products are constructed so that it is simple to distinguish between the insurance and savings components. The financial components of the contracts are disclosed separately from the insurance components. The risk component is normally valued using the risk-taking in the premium calculation and is therefore zero. If there is reason to use assumptions which deviate from the assumptions used in the premium calculation, a special provision is made for the risk component. The premium for risk insurance and the special provision for the risk component in investment agreements are recognised as premiums written in the income statement while payments made (savings premiums) and disbursements relating to the customers savings capital are recognised directly in technical provisions in the balance sheet. 16 handelsbanken liv annual report 2012

18 Notes FINANCIAL INSTRUMENTS At the time of initial recognition, financial assets and liabilities are classified on the basis of the purpose for which the instrument was acquired and are valued in accordance with the classification applied. Financial assets and liabilities at fair value through the income statement This category contains two sub-categories: heldfor-trading financial assets and liabilities, and other financial assets and liabilities that the company has initially decided to place in this category (according to what is known as the fair value option). Both categories are measured on a regular basis at fair value with value changes recognised in the income statement. The first sub-group contains derivatives with positive/negative fair values. The second subgroup contains all other investment assets and unit-linked insurance commitments. Handelsbanken Liv s principle is to value financial assets and liabilities at fair value in the income statement. This is because the company regularly evaluates the asset management operations on the basis of fair values and also because, where interest-bearing assets are concerned, this reduces some of the inconsistency and volatility in accounting terms that would otherwise arise when life insurance technical provisions are regularly revalued. Customer receivables and other receivables Other financial assets, such as customer receivables and other receivables, which have payments that have been or can be established and that are not listed on an active market, are measured at amortised cost at the amounts expected to be received. Other financial liabilities Borrowing and other financial liabilities, such as accounts payable and other liabilities, are included in this category. The liabilities are measured at amortised cost. RECOGNITION AND MEASUREMENT OF INVESTMENT ASSETS Financial investment assets measured at fair value Purchases and sales of money market and capital market instruments on the spot market are subject to trade date accounting. Valuation is primarily at the listed market price, where market data for liquid instruments has been obtained from independent external sources such as stock exchanges, valuation agencies or independent brokers. Secondarily, model valuation is applied based on observable market data which is based on underlying independent market data such as yield curves and other valuation information. Thirdly, valuation is partly made on the basis of non-observable market data. The last group includes unlisted securities in the form of equities, private equity funds, infrastructure funds and property funds, where the valuation is based on an external valuation mainly applying the valuation principles adopted by the European Venture Capital & Private Equity Association (EVCA). The distribution of booked assets and liabilities according to the respective valuation method is shown in note 5, Fair value measurement of financial instruments. Changes in value, both realised and unrealised, are recognised in the income statement under the headings Investment income (realised gains and losses) and Unrealised gains/losses on investment assets. Derivative transactions with a positive fair value on the closing date are recognised under Investment assets, and transactions with a negative fair value are recognised under Liabilities. Shares and participating interests in companies Shares and interests in companies are measured at the cost of acquisition (taking into account impairment testing). Property At the start of 2012, all of Handelsbanken Liv s properties were part of the policyholders investment assets measured at fair value on the basis of annually performed external valuations. Changes in value are recognised in the income statement. Income and expense from properties are reported under investment income in the income statement. These properties were divested during the year. At the end of 2012, Handelsbanken Liv s holdings of properties comprised properties acquired during the year as an investment asset for the company s equity. Valuation is performed in accordance with IAS 40. Upon initial recognition, the cost method is chosen for valuation, which means that the value of the building is subject to component depreciation (see Depreciation property). In the closing accounts, impairment testing is performed against a fair value assessment for properties performed annually by external property valuers, taking into account cash flows. Income and expense from properties are reported under investment income income/expenses in the non-technical income statement. INCOME Income is recognised in the income statement when it is probable that future economic benefits will be gained and these benefits can be reliably measured. PROVISIONS Provisions are reported as a consequence of past events when it is probable that an outflow of resources will be required to settle the obligation. The provision is valued at the amount estimated to be most probable, taking into account the time of settlement. Technical provisions are described in a separate section. LEASES Handelsbanken Liv is a lessee in a number of leasing transactions which are all classed as operating leases. This means that lease payments made are recognised as operating expenses on a straight-line basis over the lease period. PENSION COSTS The company s pension obligations to employees after their employment has ceased are classified either as defined-contribution plans or definedbenefit plans. Defined-contribution plans are where the value change risk lies with the employee after the contribution has been paid. This means that there are no further obligations after the contributions have been paid. Contributions for defined-contribution plans are reported for both the and the parent company in the income statement and no pension assets or pension liabilities are reported in the balance sheet. For defined-benefit plans, the present value of the pension obligations is calculated and reported as a provision in the consolidated accounts. Both legal and informal obligations arising due to general practices are taken into account. The calculation is performed according to the Projected Unit Credit Method. In this method, future compensation is split into service periods. From the provision is deducted the fair value of the assets, plan assets, that are reserved to cover the obligations and actuarial losses that are not recognised in profit/loss. Staff costs are charged with the net amount of employment costs, interest expense on the obligations, expected return on the plan assets and depreciation of actuarial losses. The calculations are based on actuarial assumptions established by the, these being the s best assessment of future developments. If the actual outcome deviates or the assumptions change, actuarial gains and losses arise. The net amount of these is not recognised in the income statement until it exceeds 10 per cent of the higher of the present value of the obligations or the value of the plan assets. The recognition in the income statement is made over the employees remaining period of service which at Handelsbanken Liv is calculated to be 18 years at present. In the parent company, contributions for definedbenefit plans are reported directly in the income statement. No pension assets or pension liabilities for employees are carried in the balance sheet. COSTS FOR DEVELOPING SOFTWARE AND INTANGIBLE ASSETS Investments in software developed in-house are recognised as an expense on a current basis where the expenditure refers to maintenance of existing business operations or an existing intangible asset. In the case of development of new intangible assets, or new business operations for existing intangible assets, the direct expenditure which arises is capitalised from the time when it is probable that economic benefit will arise. DEPRECIATION AND AMORTISATION Depreciation property Investment property is valued in accordance with IAS 40.52, at cost with a deduction for accumulated depreciation. Depreciation relating to the value of the building is based on the estimated useful lives of the assets. The estimated useful lives are tested annually and are split into various sub-components with different estimated useful lives as follows: handelsbanken liv annual report

19 Notes Note 1 Cont Heating Ventilatio Electricity Cooling Water and drains Exterior Roof Lifts Structure Building fixtures and fittings 25 years 25 years 25 years 25 years 35 years 25 years 30 years 20 years 100 years 10 years The identified surplus value over and above the acquisition value of the net assets referring to buildings in the subsidiary Handelsbanken Fastigheter AB is depreciated in the consolidated accounts according to an estimated useful life of 67 years. This represents an annual depreciation of 1.5 per cent. The useful life has been calculated as a weighted average based on the residual value of the various sub-components in Handelsbanken Fastigheter AB. Depreciation and amortisation of other property, equipment and intangible assets All assets classified as property and equipment are depreciated on a straight-line basis over an estimated useful life. The property and equipment that consists of various components with different estimated periods of useful life are divided into different categories with separate depreciation plans. Personal computers are depreciated over three years and other equipment over five years. Intangible assets are divided into two categories. The first category applies to assets for which it is possible to establish an estimated useful life. These are amortised on a straight-line basis over the useful life of the asset. The other category is intangible assets for which it is not possible to establish a definite useful life. These are not amortised but are instead subject to annual impairment testing. The amortisation period is tested on an individual basis at the time of new acquisition and also on a continuous basis if there are indications that the useful life may have changed. The intangible assets carried by Handelsbanken Liv are amortised according to an estimated useful life of five years. IMPAIRMENT TESTING For shares in subsidiaries and for property and equipment and intangible assets, the value of the asset is tested individually when there are indications of a change in value, or at least annually. Impairment losses are recognised when the recoverable amount is less than the carrying amount. The recoverable amount is calculated as the higher of an asset s useful life or fair value less costs of sale. TECHNICAL ACCOUNT Premiums written Premiums and premium fees for contracts that are classified as insurance contracts according to IFRS 4 are recognised as premiums written. Investment income and unrealised gains and losses Investment income and unrealised gains and losses from the return on assets managed on behalf of policyholders are recognised in the technical account. Other technical income Other types of income in the insurance operations are reported here. Capital fees and other fees (not tax) are included as other income. Fees charged to customers for investment contracts are recognised as income at the rate the company provides the service with even distribution over the life of the contracts. Claims incurred Risk costs regarding contracts that are classified as insurance according to IFRS 4 are reported as claims incurred. Change in other technical provisions This item reports distributed yield referring to insurance with a guaranteed rate of interest and unit-linked insurance as well as the change in provisions for surplus premiums. Operating expenses Operating expenses consist mainly of administration, asset management and acquisition costs. The latter comprises commission paid to bank branches for acquiring and selling new insurance policies. No acquisition costs are capitalised. NON-TECHNICAL ACCOUNT Investment income and unrealised gains and losses that do not refer to return on assets managed on behalf of policyholders are recognised in the non-technical account. PROVISIONS FOR LIFE INSURANCE Liabilities related to insurance with a guaranteed rate of interest are calculated for each policy as the higher of the insurance capital and amortised cost. The amortised cost is calculated at the contracted, guaranteed rate of interest. In addition, the amortised cost is affected by assumptions on yield tax, charges, mortality and other risk measurements. The guaranteed rate and all assumptions are agreed on when the policy is taken out. The company has different guaranteed interest rates in its portfolio, 3 per cent and 5 per cent being the predominant rates. The assumption on charges depends on the product and is generally in line with the percentage charges applied. The assumption concerning tax varies depending on when the insurance policies were taken out and the tax levy applicable at the time. The assumption on tax and charges reduces the guaranteed rate of interest applied. Provision for life annuities Assumptions concerning future mortality are adapted to an industry standard (DUS06). The provision for life annuities, which is part of the life insurance provision, consists of the calculated extra cost for life annuities taking into account the new forecasts made in relation to the initial pricing of traditional life insurance that was based on older mortality forecasts. PROVISION FOR CLAIMS OUTSTANDING The provision for claims outstanding consists of provisions for sickness annuities, established claims, non-established claims and a claims handling reserve. When valuing provisions for sickness annuities, a risk-free market rate is used, taking into account future indexation of disbursements. Provision for established claims refers to reported and approved claims that have not yet been paid. Non-established claims are claims that have not yet been reported but which, using statistical methods, are calculated as having occurred. The claims handling reserve comprises estimated operating expenses the company has for settling outstanding claims. CONDITIONAL BONUS Conditional bonus is the part of the insurance assets in traditional life insurance which is not guaranteed and liabilities in portfolio bond insurance where the value is established using current fair values for the assets which the policyholders have in their portfolio bond insurance. Value changes are recognised in the income statement. UNIT-LINKED COMMITMENTS This item includes liabilities for investment contracts in unit-linked insurance. Unit-linked commitments are measured at fair value. The fair value is established using current fund values for the mutual funds which the policyholders have in their unit-linked insurance. Value changes are recognised in the income statement. TAXES The company conducts life insurance operations and is taxed according to the Swedish Act on Yield Tax on Pension Funds and the Income Tax Act. Yield tax is calculated on the assets managed on behalf of the policyholders and which belong to the insurance categories that are subject to yield tax. The tax paid by the company is based on a standard amount on current assets at the start of the taxation year and is charged to each policy that is liable for yield tax. In addition, assets related to provisions for life insurance which are not exempted from yield tax and are thus not subject to income tax, are subject to yield tax. The net of total yield tax and the yield tax charged to policyholders is reported in the income statement as an operating expense. The return on equity and result from the insurance categories, mainly risk insurance, that are not subject to yield tax are taxed for the income year 2012 at a rate of 26.3 per cent and are reported in the income statement as taxes. Deferred taxes are reported in the consolidated accounts as untaxed reserves (tax allocation reserves) and temporary differences between taxrelated and accounting-related residual values in property assets in subsidiaries. The part which is deferred tax has been recalculated at the new income tax rate of 22 per cent which applies as of the income year beginning 1 January No deferred taxes are reported in the parent company. 18 handelsbanken liv annual report 2012

20 Notes Note 2 Risks and risk management Handelsbanken Liv is a profit-distributing insurance company (demutualised) that is fully consolidated into the Handelsbanken and comprises an integral part of the s universal bank strategy. Handelsbanken s goals, policy and organisational structure are also fundamental to Handelsbanken Liv. Handelsbanken Liv has a low risk tolerance. A restrictive view of risk means that the company avoids high-risk transactions, even if the rewards from a short-term perspective are high, and that the company constantly tries to reduce the level of risk. The company must therefore have good control of the risks related to its operations and thereby prevent unexpected or undesirable effects on financial performance and falls in value, and also aim for a low fluctuation in financial performance. Low risk tolerance also means that the company continually adapts the risks in the guaranteed portfolio. Handelsbanken Liv aims to have a high percentage of fixed income assets to better match the undertakings to the policyholders. Equity investments are made only in exchange-traded funds (ETFs) and not in individual stocks. For portfolio bond insurance and unit-linked insurance products, the customers choose the investment alternative and bear the price risk themselves. Risks and risk management framework The Board of Handelsbanken Liv annually adopts policy documents in the field of risk. These documents identify and classify the essential risks of the operation and how each risk will be managed. The Chief Executive is responsible for implementing these policies in the operation, through the Chief Executive s guidelines, which describe management of various risks in greater detail. The Board further instructs the Chief Executive to form an independent risk control function with adequate resources for fit-for-purpose follow-up of the company s risks. The principles for measurement, monitoring, control and reporting of risks, including how risk control in the company is organised, is regulated in more detail in the Board s policy and the Chief Executive s guidelines for independent risk control at Handelsbanken Liv. At departmental and functional levels, procedures and instructions relating to the respective governing documents are updated annually at the policy and guideline level. The company s compliance function is responsible for independently reviewing observance of laws, regulations and internal rules as well as accepted business practices or norms related to the operations. Handelsbanken Liv s risk environment Policies, guidelines and instructions Board Chief Executive Dept. head Compliance General risk policy Identifies risk categories Policy for managing financial risks Policy for operational risk Policy for insurance risk Policy for independent risk control Guidelines for managing financial risks Guidelines for operational risk Guidelines for insurance risk Guidelines for independent risk control Instructions Financial risks Instructions The respective department Instructions Actuary department Instructions independent risk control Risk categories The overall risk policy classifies risks at Handelsbanken Liv in three main areas: Financial risks Insurance risks Operational risks Other types of risks are also found that are not included in the above. They are referred to as other risks and consist of changed conditions for engaging in business that are not attributable to the risks mentioned above. The following analysis of the company s risks addresses the financial and insurance risks of the parent company, while operational risk applies to the entire. The financial risks in the subsidiaries are extremely limited since savings are in portfolio bond insurance or unit-linked insurance policies where the policyholder bears the value change risk. However, unit-linked and portfolio bond insurance is associated with some indirect market risk because future income, primarily fees on assets under management, is affected by the value growth of the asset. The parent company bears the insurance risk. Financial risks Handelsbanken Liv s Board establishes the annual investment guidelines for the company, and this is the ultimate controlling document for allocation of the company s investment assets. The purpose of the investment guidelines is to provide instructions on how the assets are to be invested given the undertakings to the policyholders and the statutory requirements of the Swedish Insurance Business Act and the applicable directives of the Swedish Financial Supervisory Authority. The company s assets are managed by Handelsbanken s Asset Management and are regulated by contract for services. Management is divided into management with a guarantee, equity management, management of risk insurance and traditional life insurance (discretionary management without a guarantee). For savings in unit-linked or portfolio bond insurance, the policyholder bears the entire financial risk. Equity can be invested in bank deposits and in properties. Funds set aside to cover Swedish insurance risk can be invested in bank deposits. Funds set aside to cover Norwegian insurance risk can be invested in bank deposits and fixed income funds. Financial risks Market risk Market risk is the risk that price and volatility changes in financial markets such as interest rates, property, equities, currencies and commodities lead to changes in the value of the company s investment assets or its commitments. The impact of investment assets on total return is stress tested on a regular basis. The table below indicates the change in results a given instantaneous outcome would cause at year-end. The change in result refers to the total of the change in the deferred capital contribution that the company must inject in order to comply with the annual guarantee and the change in yield split that the company receives. If interest rates rise by 0.5 percentage points, the change in result will be SEK 31 million. Scenario Financial performance Interest rate up 100 basis points -64 Interest rate up 50 basis points -31 Equities, Property, Hedge funds down 10% -35 Currency down 10% -8 Volatility up 10% 0 Credit spread up 100 points -28 handelsbanken liv annual report

21 Notes Note 2 Cont. Currency exposure is in EUR and USD, and primarily arises through investments in unlisted funds. The exposure is limited by regular hedging. Net exposure at year-end was EUR 26 million and USD 9 million. Equity investments are made only in well-diversified exchange-traded funds (ETFs) and not in individual stocks. This means that no concentration risk arises for individual shares. Total market risk relating to both assets and liabilities measured as Value at Risk is the dominant risk for the company (see Value at Risk). Allocation, investment assets in % 31 Dec Dec 2011 Equities 1 1 exchange traded funds Fixed income interest-bearing instruments Property 0 10 directly-owned property Alternative assets 8 8 private equity, infrastructure funds, hedge funds and property funds Total Maturity analysis 31 Dec yrs 5 10 yrs yrs yrs Over 25 yrs yrs Total Provisions for life insurance and conditional bonuses 2,954 2,793 2,188 1, ,530 11,866 The above distribution refers to reported values and shows remaining contractual time to maturity. The majority of other financial assets and liabilities, except other loans and perpetual subordinated loans, are expected to mature within one year. Net exposure, interest rate adjustment periods Assets¹ Liabilities² Net exposure³ <3 mths 1,535 1, ,328 1, mths 471 2, , yrs 7,335 6, ,675 6,921 3, yrs ,267-2,141-1,864-1,387 >10 yrs ,771-7,864-8,771-7,759 Total 9,744 11,529-11,866-13,627-2,122-2,098 Maturity analysis 31 Dec yrs 5 10 yrs yrs yrs Over 25 yrs yrs Total Provisions for life insurance and conditional bonuses 3,696 3,064 2,368 1,614 1,097 1,788 13,627 The above distribution refers to reported values and shows remaining contractual time to maturity. The majority of other financial assets and liabilities, except other loans and perpetual subordinated loans, are expected to mature within one year. 1) Bonds and other interest-bearing instruments. 2) Life insurance provision and conditional bonus. 3) Net exposure managed using derivatives. Financial risk Credit risk/counterparty risk Credit risk is the risk that a counterparty cannot fulfil its commitments. To limit credit risk, exposure is limited to individual issuers and exposures to issuers with lower credit ratings. Another form of counterparty risk arises from OTC derivative transactions if the counterparty cannot fulfil contractual obligations. This risk is limited because transactions may only be carried out with approved counterparties and related ISDA and CSA agreements. At the end of the year, the parent company had no outstanding OTC derivative transactions relating to interest rate derivatives. Outstanding currency forwards/futures were SEK 804 million. In the below table showing credit risk split into credit ratings there are holdings without the corresponding rating at fund level. The underlying holding in these funds is at the lowest BBB-(investment grade) or equivalent based on the Bank s credit valuation. Credit risk Rating of bonds and other interest-bearing securities (Standard & Poor s rating classes or equivalent) 31 Dec 2012 AAA AA+ AA A+ A A- AA- BBB+ BBB No rating*) Total Public sector 3, ,375 Financial institutions 4, ,422 Other issuers Total 8, ,302 *Unrated holdings: HBF Kortrta A1 144 HBF Långrta A1 37 HBF Likviditet 93 HBF Obligasjon Credit risk Rating of bonds and other interest-bearing securities (Standard & Poor s rating classes or equivalent) 31 Dec 2011 AAA AA+ AA A+ A A- AA- BBB+ BBB No rating*) Total Public sector 5, ,514 Financial institutions 2, ,209 4,366 Other issuers ,107 Total 8, ,209 10,987 *Unrated holdings: HB Fonder Abs Return 175 HBF Kortrta A1 402 HBF Långrta A1 446 HBF Likviditet 89 HBF Obligasjon 97 1, handelsbanken liv annual report 2012

22 Notes The ten largest holdings per issuer in fair value, SEK as at 31 Dec 2012 Issuer/company Asset type Country Fair value, 1. Swedish government Bonds Sweden 1, Kommuninvest Bonds Sweden 1, SEB Bolån Bonds Sweden 1, SCBC Bonds Sweden 1, Swedbank Hypotek Bonds Sweden 1, Nordea Hypotek Bonds Sweden Länsförsäkringar Hypotek Bonds Sweden KFW Banking Bonds Germany Handelsbanken Funds Shares Sweden Nordic Capital Shares Sweden 337 The ten largest holdings per issuer in fair value, SEK as at 31 Dec 2011 Issuer/company Asset type Country Fair value, 1. Swedish government Bonds Sweden 5, Handelsbanken Funds Shares Sweden 1, Swedbank Hypotek Bonds Sweden Nordea Hypotek Bonds Sweden SCBC Bonds Sweden SEB Bolån Bonds Sweden Nordic Capital Shares Sweden Kommuninvest Bonds Sweden KFW Banking Bonds Germany Credit Suisse Shares USA 248 Financial risk Liquidity risk Liquidity risk is the risk that Handelsbanken Liv will not be able to meet its payment obligations when they fall due without being affected by unacceptable costs or losses. Liquidity risks are managed by daily monitoring of future disbursements and by investing a large part of the company s investment assets in listed securities with very good liquidity. It is assessed that at least 75 per cent of assets in the policyholders portfolios (guaranteed commitments and life insurance management) can be converted into cash within three days. For equity and financial resources allocated to cover insurance risks, 100 per cent is available within three days. Financial risk Payment risk According to the investment guidelines and the contract for services with the asset manager, Handelsbanken Asset Management bears the payment risk in management. Financial risk Solvency Solvency risk is the risk that the company does not have enough capital to meet its commitments to policyholders. The solvency ratio varied during the year between 6.05 and As at the yearend, the solvency ratio was 5.85 for the parent company and 5.93 for the. In addition, the company monitors the available solvency margin to ensure that it is adequate in accordance with the Swedish Financial Supervisory Authority s traffic light model. Financial risk Liability coverage Handelsbanken Liv s Board sets the liability coverage policy for how the company maintains the statutory liability coverage records required for insurance companies that run direct insurance operations. It also sets how the company must monitor and report on liability coverage. As at the year-end, liability coverage was per cent for occupational pensions and per cent for other life insurance. Description of guarantee provided in traditional insurance In traditional insurance with guaranteed interest, Handelsbanken Liv bears the risk of the financial guarantees entailed by the insurance terms not being fulfilled. Most of the guarantees are 3 per cent or 5 per cent, which means that the guaranteed capital must yield interest annually at the guaranteed interest rate. If the return exceeds the guaranteed interest rate, the policy is allocated the greater of 90 per cent of the yield and the agreed interest rate. In such cases the difference between the yield on the asset portfolios and the allocated yield goes to Handelsbanken Liv. The financial guarantee means that a capital contribution is made to the value of the insurance contract at specific points in time when the value is less than the guaranteed value of the insurance. Any capital contributions are realised at the year-end or when there is an insurance event. In periods when the allocated yield exceeds the guaranteed interest, a risk buffer, called conditional bonus, is built up. No capital contribution can be applied until all the conditional bonus has been used up. The conditional bonus is distributed per insurance contract and cannot be used to cover the deficit on other insurance contracts. Apart from the risk of not achieving a yield such that a capital contribution is avoided at the next year-end, there is the risk that the company will not be able to meet its commitments in the long term. If the company does not have assets managed on behalf of the policyholders which at least correspond to the present value of future guaranteed disbursements, the company s capital base will be undermined. To a large extent, the present value is dependent on current market interest rates. The erosion of the capital base may be regarded as a capital contribution at company level. Unlike the capital contributions described above at insurance contract level, a capital contribution of this type can be recovered if the market conditions improve at a later stage, through rising interest rates for example. Market risk for the company is measured in terms of the overall sensitivity of the capital contributions to market disruptions. Model for risk management and control Value at Risk The risk management model used by Handelsbanken Liv weights the risk of a capital contribution at insurance contract level together with the risk of a capital contribution at company level due to the high present value of future guaranteed amounts. Market risk for the company is measured in terms of the overall sensitivity of the capital contributions to market disruptions. Market risk arises within Handelsbanken Liv in the management of assets and from the fact that valuation of the company s obligations is sensitive to interest rate changes. The goal of asset management is to secure the company s obligations to the policyholders while maintaining low management costs. The total market risk at Handelsbanken Liv is calculated using VaR with a 99.5 per cent confidence level and a holding period of one quarter. Risk for capital contribution is measured daily in the VaR model, where the largest value of contributions to policyholders or contributions due to solvency constitutes risk utilisation. Sub-categories of risks include interest risk, equity risk, credit risk, property risk and currency risk. Each risk is attributable to one of these categories. Factors affecting risk utilisation are interest rates, achieved return and risk buffer in the form of conditional bonuses. The stock of guarantee products is divided into a number of portfolios with different maturities and guaranteed interest rates. The company manages these risks by actively adjusting the allocation of each portfolio according to risk tolerance with regard to the scenario outcomes of the VaR model. At year-end, risk measured as VaR was SEK 995 million. The predominant risk was the risk of capital contribution for solvency at the parent company level, which was due to risk of falling market interest rates. Checking and reporting financial risks Market risks at Handelsbanken Liv are monitored daily by the department for independent risk control by checking risk exposure in relation to the limit specified by the Board. Moreover, the department for independent risk control conducts daily checks of compliance with the Board s investment guidelines regarding restrictions on the percentage of each asset class, that no transactions involve unauthorised instruments, that completed transactions are at correct prices and that the specified duration interval of interest-bearing investments are followed. The solvency ratio, traffic light and liability coverage are also checked at least weekly. Reports are submitted regularly to the Board and the Chief Executive. INSURANCE RISKS Insurance companies set their premiums based on assumptions regarding the size of costs for future insurance events. Insurance risk is the risk handelsbanken liv annual report

23 Notes Note 2 Cont. that the actual and assumed risk costs differ. The ultimate controlling document is the Board s insurance risk policy, which specifies the amounts in which insurance policies may be issued. Insurance risk at Handelsbanken Liv is related to the following insurance events: Mortality payment to beneficiaries in the event of the death of the insured person. Longevity payment that is dependent on the insured person living, e.g. pension disbursements. Morbidity payment in the event of illness or work incapacity. Accident payment in the event of accident. Following a ruling by the court of justice of the European Union, as of 21 December 2012, gender is no longer permitted as a risk factor when setting premiums in insurance risks. Previously, it was possible to differentiate premiums due to gender if the difference was based on relevant and correct actuarial and statistical information. The ban does not apply to occupational pension insurance and only to new policies. It is still permitted to collect and use information about gender to calculate technical provisions and to check the composition of the portfolio from the perspective of aggregated pricing. Limiting insurance risks To be able to offer insurance at reasonable premiums, both profitably and in the long term, Handelsbanken Liv conducts a medical risk assessment of the party to be insured before risk insurance can be taken out, where the insurance risks are mortality or morbidity. The purpose is to assess whether and on what terms the insured party can be granted insurance on the basis of their state of health. The insurance applied for must meet the policyholder s insurance needs and ability to pay. To further limit the insurance risks in both death benefit insurance and sickness/disability insurance, the largest individual exposures are reinsured. Risk concentration Small companies and private individuals represent a significant portion of Handelsbanken Liv s policyholders. Another significant share of the risks consists of Handelsbanken s loan protection insurance with Handelsbanken s borrowers as the insured. Both categories of insured parties are mainly spread throughout Sweden, and to a lesser extent in Norway, Finland and Denmark. No risk concentration in terms of insurance risks has been identified other than that the risks are mainly located in Sweden. Future risks Mortality in Sweden is gradually falling, which is positive with regards to death benefit insurance. But for life insurance (pension insurance), this could become an economic burden for the company as it means that average life expectancy is rising and that pension disbursements must be made over a longer period. Försäkringstekniska Forskningsnämnden (FTN an industry organisation for the Swedish insurance industry) conducted an analysis of mortality in 2006 among policyholders in Sweden and how this mortality could change in the future. FTN s mortality study (DUS06) and its forecast of future mortality provide Handelsbanken Liv with a good basis for pricing both death benefit insurance and pension insurance. A reliable mortality forecast is a fundamental factor in all pricing of insurance with longevity risk, since the products are often designed so that the mortality on which the premium calculation is based applies throughout the insurance period. This applies especially to the pension and occupational pension insurance that is included in the company s contracts. Most of Handelsbanken Liv s insurance policies with mortality risk are priced annually. This means that the company can unilaterally change the premium from year to year. Thus, an incorrect mortality assumption for these policies can be corrected with a quick impact on the result. This does not generally apply to traditional life insurance with savings. The mortality assumption applied when calculating the premium provides the basis for pricing mortality and longevity risk during the period the financial guarantees apply. The mortality assumptions used in these cases are almost entirely variants of M90, the mortality survey carried out by the insurance industry at the end of the 1980s. The investigations carried out within the company clearly show that the fixed pricing will lead to losses in the future. The present value of the future losses up to and including 2050 was estimated at SEK 149 million in the 2012 annual accounts, and technical provisions were made totalling the corresponding amount. If mortality in general were to be 10 per cent lower than the assumption, the present value of future losses would be approximately SEK 55 million. The future is not as predictable when it comes to sickness/disability (morbidity) insurance. Changes in morbidity occur much more rapidly than changes in mortality. This is partly due to the difficulties in determining the underlying reason and degree of morbidity. The rapidly rising cases of sickness in the early years of the 2000s led to major premium increases in the sector. Several insurance companies doubted whether they would be able to offer voluntary sickness/disability insurance in the future. The sickness/disability insurance operations subsequently entered a more balanced phase, and morbidity has fallen and periods of sick leave have become shorter in recent years. Sickness/disability insurance products are generally designed in such a way that the premium can be changed annually. This gives the company considerable opportunity to compensate for rapid changes in morbidity relatively efficiently. Risk exposure for insurance risks To ensure that insurance companies have sufficient capital to fulfil their obligations, the Swedish Financial Supervisory Authority requires insurance companies to perform stress tests on their entire insurance operations using the traffic light model. The test analyses the company s power of resistance in the case of certain, very negative, events. This includes changes in market interest rates and share prices as well as possible changes in mortality and morbidity. The levels are selected to reflect the risk that the company less frequently than once in 200 years would be unable to completely meet its commitments. Handelsbanken Liv reported the traffic light test as at 31 December 2012, when the mortality risk was calculated at SEK 278 million and the morbidity risk at SEK 99 million. The mortality risk corresponds to the present value of the economic consequences if the insured parties live longer than we currently expect. The stress test entails a 20 per cent reduction in applied mortality. The morbidity risk is calculated using a changed assumption regarding recovery, a 20 per cent reduction in the number on sick leave, and an assumption of a 50 per cent increase in new cases of sickness. The traffic light also measures the cancellation risk, that is, the risk of lower income due to cancellations. According to the test s computational model, the contribution of the cancellation risk to the total capital requirement was SEK 109 million. Risk result for 2012 The risk result can be divided into longevity result, mortality result, morbidity result, accident result and other. Longevity result 0 Mortality result 121 Morbidity result 65 Accident result 3 Other 7 Total 196 The mortality result is determined by risk premiums paid, the cost of cases of death occurring and changes in provisions for unknown claims. If the company receives an equal amount in risk premiums paid as its expenses for deaths occurred, then the company will have a zero result. If there are more deaths than expected, the result will be negative and vice versa. The income item in the longevity result is the capital that the company receives when the insured person dies without a survivor s pension. The expense item is contributed risk compensation, which is the compensation for the risk that the capital is lost when the insured person dies. If the contributed risk compensation and the capital returned to the company in the case of death are equal, then the longevity result is zero. If more people die than in the assumptions, there will be a positive contribution to the result, while a lower number of deaths means a negative contribution to the result. The morbidity result is determined by risk premiums paid in, the estimated costs of cases of sickness and changes in provisions for known (ongoing with periodic disbursements) and unknown claims. The calculation of the provisions is partly due to assumptions about the probability of the sickness case ceasing. This may occur either due to recovery or death. The result therefore depends 22 handelsbanken liv annual report 2012

24 Notes both on how many insured persons fall ill (and the amount of their compensation) and how many recover in relation to the assumptions applied. The morbidity result for 2012 was SEK 65 million, where SEK 59 million is attributable to cases of sickness that occurred during the year, SEK 3 million to winding down existing cases and the remaining SEK 3 million to cases which have occurred but have not yet been reported. Reporting and monitoring insurance risks The chief actuary is responsible for monitoring the financial outcome of insurance risk in conjunction with each month-end financial report, when the risk result is divided per product and into subresults per insurance event, as described above. The chief actuary also produces an annual technical report to the Board. In addition, the department for independent risk control regularly monitors compliance with the Board s policy. Operational risks Operational risks are defined as the risk of losses caused by inadequate or erroneous internal processes and system solutions, as well as mistakes made by the company s own employees. They may also be caused by external events and legal risks. Operational risks may lead to financial losses and a drop in confidence among customers and in the market. The ultimate controlling document is the Board s operational risk policy. Responsibility for managing operational risks is part of managerial responsibility at all levels. This includes identifying, assessing, reporting, acting upon and controlling operational risks. A high level of expertise and appropriate work methods are crucial for keeping the company s operational losses at a low level. Every year, each unit carries out a survey of the operational risks at the unit. The survey shows the unit s operational risks, their possible consequences and action planned to eliminate or reduce them. Implementation and monitoring of action taken is subsequently performed in the daily operations. Sound management of operational risks is a means of assuring internal control in the company. A key starting point is that division of responsibility and work duties must be defined on the basis of control aspects. For example, one person must not handle a transaction throughout the entire processing chain. The company also has procedures for managing operational incidents and operational losses and uses the same systems as the rest of the Handelsbanken. The company has appointed an officer to be responsible for information security and physical security. In addition to ongoing control of operational risk, all departments conduct an annual selfevaluation of the internal control environment. New and major changes in products, services, processes and IT systems undergo risk analysis including operational risk. Outsourced activities are managed in accordance with the Board s established policy for service contracts. Contingency and continuity plans are in place in all parts of the company for dealing with serious disruptions. A permanent crisis staff has been appointed. Monitoring and reporting operational risks The independent risk control department has the overall responsibility for the methods used to identify and quantify operational risks, as well as for monitoring these and assisting the units in their work on operational risks. This department is also responsible for the units carrying out annual self assessments of the internal control environment. Twice a year, an overall review of the company s operational risks and incidents occurred is performed. The findings of the review are reported to Handelsbanken Liv s Board and the Central Board of Handelsbanken. Other risks Other risks refers to the risk of unexpected variations in income and expenses that are not attributable to the risk categories described above. Other risks thus relate to unexpected variations in income and expenses in the company that may arise if, for example, demand or competition changes unexpectedly, resulting in lower volumes and narrower margins. Other risks may also arise from changes in customer behaviour; for example, customers buy back or move their insurance contracts or cease to pay premiums for their contracts with the company to an extent that was not foreseen. The Board manages other risks by setting annual goals and strategies for Handelsbanken Liv. This activity includes management of business risk through competitor and market intelligence, intentional product design and annual operational planning within each unit and overall for the company. Note 3 Net gain/net loss per category of financial instrument Financial assets Financial assets identified at fair value in income statement Held for trading Loan receivables Available-forsale financial instruments Total Shares and participating interests Bonds and other interest-bearing securities Loans to credit institutions Investment assets for which the policyholder bears the investment risk 5,507 5,507 Derivatives Other receivables - Other financial assets 1,058 1,058 Impairment losses on available-for-sale financial assets - Reversal of impairment losses on available-for-sale interest-bearing financial assets - Total 6, ,807 Financial liabilities Held for trading Other liabilities Total Unit-linked commitments - Due to credit institutions - Bonds - Derivatives - Other liabilities - Total Net gain or loss on available-for-sale financial assets recognised directly in equity (fair value fund). - - The amounts in the above tables are a specification of the amounts for financial instruments recognised in the income statement as (i) investment income, (ii) unrealised gains on investment assets, (iii) investment charges, (iv) unrealised losses on investment assets except for (a) any depreciation/impairment losses and (b) asset management charges. handelsbanken liv annual report

25 Notes Note 4 Classification of financial assets and liabilities At fair value in the income statement divided into At fair value in the income statement divided into Trading Fair value option* Loans and customer receivables Total Trading Fair value option* Loans and customer receivables Total Assets Liquid funds 5,423 5, ,325 5,325 Property 3,794 3,794-1,140-1,140 Shares and participating interests 1,358 1,358-1,229-1,229 Bonds and other interest-bearing securities 9,744 9,744-11,529-11,529 Derivatives Unit-linked insurance assets 48,610 48,610-55,892-55,892 Conditional bonus for portfolio bond insurance 15,104 15,104 Other assets Accrued interest income Total financial assets 15 78,798 5,794 84, ,988 5,476 75,646 Trading Fair value option* Other financial liabilities Total Trading Fair value option* Other financial liabilities Total Liabilities Subordinated liabilities 1,129 1,129 1,129 1,129 Derivatives Unit-linked commitments 48,610 48,610 55,892 55,892 Conditional bonus for portfolio bond insurance 15,104 15,104 Other liabilities Total financial liabilities 63,714 1,482 65,196 55,892 1,428 57,320 * Classified to be measured at fair value in the income statement. Note 5 Fair value measurement of financial instruments 2012 Level 1 Listed market price Level 2 Valuation based on observable market data Level 3 Valuation partly based on non-observable market data Total 2011 Level 1 Listed market price Level 2 Valuation based on observable market data Level 3 Valuation partly based on non-observable market data Total Assets Shares and participating interests , ,062 1,229 Bonds and other interest-bearing securities 8,741 1,003 9,744 10,263 1,266 11,529 Derivatives Liabilities Derivatives - Instruments whose values are partially based on non-observable market data, level Shares and participating interests Total 2011 Shares and participating interests Total Carrying amount at beginning of year 1,062 1,062 1,278 1,278 Changes in value recognised in the income statement New acquisition Sold during the year Issued during the year Matured during the year Transfer from valuation category 1 or Transfer to valuation category 1 or Transfer between positive and negative market values Carrying amount at end of year ,062 1,062 Realised and unrealised profit/loss from level 3 holdings are reported in the technical income statement on the lines for investment income and unrealised gains and losses respectively. The proportion of realised value change on divested assets was SEK -84 million (-9). 24 handelsbanken liv annual report 2012

26 Notes Note 6 Related-party transactions Handelsbanken Liv purchases a large amount of IT services and other services from the parent company Handelsbanken. Internal prices within insurance operations comply with the rules and guidelines applied within the Handelsbanken. Prices are set at cost, although never higher than market prices. The charge for asset management is based on market prices. Summary of related-party transactions 2012 Sales of goods/ services to related parties Purchases of goods/services from related parties Other (e.g. interest, dividends) Handelsbanken Handelsbanken s other subsidiaries Total SHB Liv A/S Life and Pension Handelsbanken Fastigheter 1-11 Handelsbanken Handelsbanken s other subsidiaries Total Summary of related-party transactions 2011 Sales of goods/ services to related parties Purchases of goods/services from related parties Other (e.g. interest, dividends) Handelsbanken Handelsbanken s other subsidiaries Total SHB Liv A/S Life and Pension Handelsbanken Handelsbanken s other subsidiaries Total * Information on outstanding transactions at the year-end is reported in note 27 and note 36. Note 7 Premiums written (net of reinsurance) Premiums paid or recognised Total premiums written (gross of reinsurance) Premiums ceded Total premiums written (net of reinsurance) (of which premiums written from companies) (236) (250) (236) (250) All premiums refer to risk insurance and are periodic premiums. Of total premiums written (net of reinsurance), SEK 107 million (113) refers to other EEA countries. Premiums written for direct insurance Note 8 Investment income Rental income from property Dividends received 1, Interest income Bonds and other interest-bearing securities Other interest income Total interest income (Of which interest income from companies) (10) (13) (10) (13) Foreign exchange gain, net Capital gain, net Shares and participating interests Bonds and other interest-bearing securities Total capital gain, net Total investment income 1,432 1,482 1,148 1,467 Note 9 Periodic premiums Unrealised gains on investment assets One-off premiums Property Shares and participating interests Bonds and other interest-bearing securities Derivatives Total Note 10 Other technical income Periodic premiums One-off premiums Contracts for which the policyholder bears the investment risk 3,608 4,476 3,619 9,534 Contracts for insurance with guaranteed rate of interest Total 3,745 4,476 3,958 9,534 * The amounts stated for 2011 were incorrect in the previous year s annual report. An adjustment has therefore been made to the correct figures for Premium fees Capital fees Other fees Risk income Total Information about premiums paid reported in the balance sheet Premiums paid or recognised 8,221 13,492 6,052 10,595 Total 8,221 13,492 6,052 10,595 handelsbanken liv annual report

27 Notes Note 11 Claims incurred (net of reinsurance) Claims paid (gross of reinsurance) Operating expenses for claims management Reinsurers share Total claims paid (net of reinsurance) Changes in provision for claims outstanding (gross) Reinsurers share Total change in provisions for claims outstanding (net of reinsurance) Total claims incurred (net of reinsurance) Information about claims paid reported in the balance sheet Insurance claims paid -3,059-2,767-2,439-2,486 Cancellations and surrenders -5,047-8,620-2,705-7,140 Total -8,106-11,387-5,144-9,626 Minimum lease fees Total amount for future minimum lease fees for operating leases. / Lease payments recognised in the income statement Maturing within 1 year Maturing 1 to 5 years Future minimum lease fees Lease agreements refer to leases for passenger cars. The normal lease period for passenger cars is 36 months. Staff costs Salaries and fees Social security costs Pension costs Provision to profit-sharing foundation Other staff costs Total Pension costs in the parent company relate to paid pension premiums. The pension plan for employees follows the plan for bank employees. Note 12 Change in other technical provisions Of which salaries and fees Chief Executive and Board Other senior management Total Allocated yields for unit-linked and portfolio bond insurance -6,404 7,776-4,515 5,081 Allocated yields for insurance with guaranteed rate of interest Other changes Total -6,821 6,939-4,931 4,244 The Other changes item, in the case of life insurance provisions and conditional bonuses calculated for statutory purposes which are based on the market value defined by the Swedish Financial Supervisory Authority, would be SEK -1,923 million (-2,198) in the parent company and SEK -1,924 million (-2,198) for the. Note 13 Operating expenses Technical expenses Acquisition costs Administrative expenses Reinsurance commissions and profit participating interests Total operating expenses Operating expenses for claims management Asset management charges Property management charges Total operating expenses Operating expenses for claims management are reported under the heading Claims incurred, and operating expenses related to treasury management are reported under Investment charges. Non-technical expenses Operating costs in Handelsbanken Fastigheter AB Total operating expenses Operating expenses in Handelsbanken Fastigheter AB are reported under Investment charges. Pension costs Chief Executive and Board Other senior management Total The Chief Executive of Handelsbanken Liv was paid a total salary of SEK 2.8 million (2.3), which included other benefits amounting to SEK 0.1 million (0.1). Pension costs were SEK 0.4 million (0.4). The s figures for the Chief Executive and Board include salary to the Chief Executives of the subsidiaries Handelsbanken Ltd, Ireland and SHB Liv AB, Finland. Total salaries including other benefits to Chief Executives of the subsidiaries were SEK 1.3 million (1.1). Pension costs were SEK 0.1 million (0.5). Compensation to independent board members in the subsidiaries was SEK 0.6 million (0.5). Principles and decision-making process for compensation to senior management The compensation levels for senior management are revised annually according to the decision-making process that applies throughout the Handelsbanken. One main principle in the process is that compensation may only be issued in the form of fixed salary and customary employee benefits. Variable compensation benefits such as bonuses and percentage of profits are not paid. The Board of Handelsbanken Liv determines the terms and conditions for the Chief Executive. Terms and compensation for senior management The current Chief Executive s pension is paid according to the same pension plan as other employees as described below. The company is charged annually for the cost at the same rate as the pension is accrued. In the event of retirement before the stipulated retirement age, a paid-up policy is issued for the pension accrued. The Chief Executive and other senior managers, in common with other employees in the Handelsbanken, are entitled to compensation in the form of units in Handelsbanken s profit-sharing system Oktogonen. Allocations are subject to the Handelsbanken achieving its goal of higher return on equity than the average return of other listed Nordic and UK banks. For more detailed information, please refer to Handelsbanken s Annual Report. 26 handelsbanken liv annual report 2012

28 Notes Number of employees (average during the year) Sweden Norway Denmark Finland Ireland Total Gender distribution Men Women Men Women Sweden Norway Denmark Finland Ireland Total Gender distribution Men Women Men Women Sweden Norway Total Gender distribution, senior management Men Women Men Women Senior managers Board Gender distribution, senior management Men Women Men Women Senior managers Board Fees to auditors KPMG AB, Audit KPMG AB, Tax consultations KPMG AB, Other assignments Internal audit Handelsbanken Total Audit assignments refer to audits of annual accounts and accounting records, the administration of the Board and the Chief Executive and also other duties that according to the law are the responsibility of the company s external auditor. Everything else is deemed to be supplementary assignments in the form of tax consultations or other assignments. Pensions From the age of 65, a retirement pension is paid in accordance with the pension agreement between the Employer s Association of the Swedish Banking Institutions (BAO) and the Financial Sector Union and between BAO and SACO (the Swedish Confederation of Professional Associations). The amount is 10 per cent of the annual salary up to 7.5 income base amounts. The retirement pension is 65 per cent of the annual salary on the portion of the salary in the interval income base amounts, and 32.5 per cent of the annual salary in the interval income base amounts. On the portion of the salary in excess of 30 income base amounts, no retirement pension is paid. The following provisions for pension obligations/pension costs are reported for the. Net pension assets, Pension obligations Fair value of plan assets Pension obligations minus plan assets Retained actuarial gains (+)/losses (-) Allocated for pensions The fact that the total of Allocated for pensions is a negative amount means that a pension asset is reported in the balance sheet. Pension costs Pensions accrued during the year 8 6 Interest on pension provision 9 10 Expected return on plan assets -9-9 Write-off of retained actuarial gains (+)/losses (-) 7 5 Pension costs, defined-benefit plans Pension costs, defined-contribution plans 9 9 Salary tax, other pension costs 4 5 Total pension costs The actuarial calculation of pension obligations and pension costs is based on the following main assumptions: Discount rate, % Expected salary increase, % Expected rate of return on plan assets, % Pension indexing, % Income base amount, % Staff turnover, % Expected remaining years of employment Pension obligations, plan assets and provisions for pensions and net actuarial gains/losses for the defined-benefit plans have developed as follows. Funds paid to the employer refer to funds paid for the employer s pension costs. Pension obligations Opening balance Pensions earned during the year 9 6 Interest expense 9 10 Paid benefits -5-6 Actuarial gains(-)/losses(+) Closing balance Plan assets Opening balance Expected return on plan assets 10 9 Funds contributed by the employer 9 15 Funds paid directly to employees -5-6 Actuarial gains (+)/losses (-) 3-3 Closing balance handelsbanken liv annual report

29 Notes Note 13 Cont. Return on plan assets Expected return on plan assets 10 9 Actuarial gains (+)/losses (-) 3-3 Real return 13 6 The plan assets mainly comprise shares and interest-bearing securities. Provision for pension obligations Opening balance Pension costs, defined-benefit plans Paid benefits - - Funds contributed by the employer Closing balance Net actuarial gains/losses Opening balance, actuarial gains (+)/losses (-) Actuarial gains (-)/losses (+) to be recognised 7 5 Actuarial gains (+)/losses (-), pension obligations Actuarial gains (+)/losses (-), plan assets 3-3 Closing balance, actuarial gains (+)/losses (-) Note 16 Investment income Dividends received Interest income Bonds and other interest-bearing securities Other interest income Total interest income (of which interest receivable from companies) (65) (87) (69) (81) Foreign exchange gain, net Capital gain, net Shares and participating interests Interest-bearing securities Total capital gain, net Income from property operations Total investment income History Pension obligations Fair value of plan assets Pension obligations minus plan assets Actuarial gains (+)/losses (-) for the period, pension obligations of which experience adjustments of which changed actuarial assumptions Actuarial gains (+)/losses (-) for the period, plan assets of which experience adjustments of which changed actuarial assumptions Outcome 2012 Note 14 Investment charges Forecast 2013 Expected premium payments 9 11 Operating costs for buildings and land Asset management charges Interest expense Other interest expense Total interest expense (of which costs to companies) Exchange losses, net Capital losses, net Shares and participating interests Bonds and other interest-bearing securities Total capital losses, net Total investment charges NotE 15 Unrealised losses on other investment assets Property Shares and participating interests Bonds and other interest-bearing securities Derivatives Total Note 17 Unrealised gains on investment assets Shares and participating interests Derivatives Interest-bearing securities Total unrealised gains on investments Note 18 Investment charges Asset management charges Interest expense Other interest expense Total interest expense (of which costs to companies) (-40) (-42) (-40) (-42) Capital losses, net Shares and participating interests Interest-bearing securities Total capital losses, net Expenses from property operations Total investment charges Note 19 Unrealised losses on investment assets Shares and participating interests Derivatives Interest-bearing securities Total unrealised losses on investment assets handelsbanken liv annual report 2012

30 Notes Note 20 Intangible assets Goodwill Cost of acquisition at beginning of year Acquired during the year Divested during the year Cost of acquisition at end of year Accumulated amortisation at beginning of year Divested during the year Amortisation for the year Accumulated amortisation according to plan Book value Goodwill comprises capitalised goodwill on acquisitions referring to compensation paid by Handelsbanken Liv for the portfolio bond insurance operations taken over from Handelsbanken Life and Pension. Other intangible assets Cost of acquisition at beginning of year Acquired during the year Divested during the year Cost of acquisition at end of year Accumulated amortisation at beginning of year Divested during the year Amortisation for the year Accumulated amortisation according to plan Book value Other intangible assets consist of internally generated devolopment costs. Note 21 Property Cost of acquisition at beginning of year 1,183 1,183 1,183 1,183 Acquired during the year 3, Transferred from new facilities in progress Divested during the year -1, ,183 - Cost of acquisition at end of year 3,816 1,183-1,183 Accumulated depreciation at beginning of year Divested during the year Depreciation for the year according to plan Accumulated depreciation according to plan Market value adjustment at beginning of year Divested during the year Change in market value during the year Closing market value adjustment Cost of acquisition at beginning of year Investments in new facilities in progress Utilised new facilities New facilities in progress Book value 3,794 1,140-1,140 Market value 4,046 1,140-1,140 Distribution between land and buildings Land 1, Buildings 1, Book value 3,794 1,140-1,140 Other information Vacancy rate 1.4% 7.0% - 7.0% Direct yield 2.5% 6.8% - 6.8% Proportion of area external tenants 5.0% 53.0% % Proportion area within Handelsbanken 95.0% 47.0% % The properties owned by Handelsbanken Liv at the end of 2011 were part of the investment assets held on behalf of the policyholders and were measured at fair value based on external valuations. The property portfolio comprises two properties located in central Stockholm. In April 2012, the whole portfolio was sold to an external purchaser after an open bidding process. Rental income and operating expenses related to these properties are reported in Note 8, Investment income, and Note 14, Investment charges, respectively. In June 2012, Handelsbanken Fastigheter AB was acquired. Its property portfolio comprises 10 properties in central Stockholm, Malmö, Gävle and Umeå. The majority of the rental area in the properties is utilised by the Handelsbanken. From Handelsbanken Liv s perspective, these are investment properties which have been acquired as an investment asset for the company s equity. The method chosen for reporting of the investment properties upon initial recognition is IAS 40 and the cost method. This means that component depreciation is applied supplemented with impairment testing. At the end of the year, all properties in the property company were externally valued based on discounting expected cash flows related to the properties. The forecasts concerning expected cash flows are based on assumptions such as future rents, vacancy levels, operating and maintenance costs, yield requirement and interest. The assumptions are based on local analyses of comparable property purchases. All assumptions are in line with the assessments that the market could be expected to make under the prevailing market situation. The market value of the properties after an adjustment for deferred tax is specified above. Rental income and operating expenses related to these properties are reported in the non-technical account note 16, Investment income, and note 18, Investment charges, respectively. Note 22 Shares in companies Specification of the parent company s direct holdings of shares in subsidiaries Company Corporate identity number Domicile Number Share of capital 2012 Cost of acquisition 2011 Cost of acquisition 2012 Book value 2011 Book value Handelsbanken Life & Pension Ltd Dublin 45,000, % Svenska RKA International Insurance Services AB Stockholm % SHB Liv Forsikringsaktieselskab Copenhagen SHB Liv Försäkrings AB Helsinki 1, % Handelsbanken Fastigheter AB Stockholm 50, % 3,151-3,151-3, , The fair value of the parent company s direct holdings of shares in subsidiaries corresponds to the book value. During the year, SHB Liv Forsikringsaktieselskab was merged with SHB Liv Försäkrings AB. handelsbanken liv annual report

31 Notes Note 23 Shares and participating interests Fair value Swedish shares and participating interests Foreign shares and participating interests Total 1,358 1,229 1,357 1,207 Of which unlisted shares and participating interests 853 1, ,062 Cost of acquisition Swedish shares and participating interests Foreign shares and participating interests 1, , Total 1,628 1,534 1,627 1,512 Of which unlisted shares and participating interests 1,138 1,362 1,138 1,362 Note 24 Bonds and other interest-bearing securities Note 25 Fair value Derivative instruments with positive values Equity index options Equity index futures Interest swaptions Interest rate futures Currency forwards Total Of which cleared Nominal value Equity index options Equity index futures Interest swaptions - 3,190-3,190 Interest rate futures Currency forwards 938 1, Total 1,411 5,075 1,277 4,920 Of which cleared Fair value Swedish government 3,314 5,452 3,314 5,452 Swedish mortgage institutions 4,412 2,873 4,412 2,873 Other Swedish issuers 839 1, ,555 Foreign governments Other foreign issuers 852 1, Total 9,744 11,529 9,302 10,987 Of which unlisted Amortised cost Swedish government 3,279 5,300 3,279 5,300 Swedish mortgage institutions 4,292 2,803 4,292 2,803 Other Swedish issuers 825 1, ,555 Foreign governments Other foreign issuers Total 9,512 11,296 9,074 10,751 Of which unlisted Remaining maturities Nominal value 2012 Nominal value 2011 Nominal value 2012 Nominal value 2011 <3 mths 1,411 2,880 1,277 2, mths - 2,195-2, yrs yrs >10 yrs Total 1,411 5,075 1,277 4,920 Note 26 Receivables referring to direct insurance operations Receivables from policyholders Total Book value Book value exceeding nominal amount Book value below nominal amount Note 27 Other receivables Interest rate adjustment periods as at 31 December Fair value Claim on companies Other receivables Total <3 mths 1,535 1,898 1,094 1, mths 471 2, , yrs 7,335 6,485 7,335 6, yrs >10 yrs Total 9,744 11,529 9,302 10, handelsbanken liv annual report 2012

32 Notes Note 28 Property and equipment Note 32 Conditional bonus Cost of acquisition at beginning of year Acquired during the year Divested during the year Exchange rate differences Cost of acquisition at end of year Depreciation at beginning of year Depreciation for the year Divested during the year Exchange rate differences Accumulated depreciation according to plan Book value Opening balance 1,935 2,339 1,935 2,339 Year s change Closing balance 1,659 1,935 1,659 1,935 Conditional bonus for statutory purposes, which is based on the market value defined by the Swedish Financial Supervisory Authority, was SEK 986 million (1,072) in the parent company and in the. Note 33 Conditional bonus for portfolio bond insurance commitments Note 29 Liquid funds Funds in accounts with companies 5,379 5,287 5,133 5,134 Other liquid funds Total 5,423 5,325 5,175 5,172 Opening balance 14,578 16, Commitments sold during the year Incoming payments 1,840 2, Outgoing payments -2,700-1, Change in value, including dividends 1,642-2, Other changes* ,961 - Closing balance 15,104 14,578 15,104 - Of which maturing within 12 months 2,797 1,352 2,797 - Note 30 Provision for life insurance * Other changes for the parent company includes SEK 14,961 million referring to the transfer of the portfolio from the subsidiary Handelsbanken Life & Pension. Opening balance 11,692 17,158 11,692 17,158 Incoming payments 803 1, ,756 Outgoing payments -2,243-7,087-2,243-7,087 Allocated yield Other changes Closing balance 10,207 11,692 10,207 11,692 Liabilities related to insurance with a guaranteed rate of interest are calculated for each policy as the higher of the insurance capital and amortised cost. Provisions for life insurance for statutory purposes, which are based on the market value defined by the Swedish Financial Supervisory Authority, were SEK 12,765 million (14,693) in the parent company and in the. Note 34 Unit-linked commitments Opening balance 41,314 39,562 38,930 36,944 Commitments sold during the year Incoming payments 6,167 10,386 5,696 10,023 Outgoing payments -3,162-2,812-2,899-2,539 Change in value, including dividends 4,736-5,343 4,512-5,081 Other changes Closing balance 48,610 41,314 45,838 38,930 Of which maturing within 12 months 3,721 2,970 3,413 2,675 Note 31 Provision for claims outstanding and Nonestablished claims Provision for damage, life and sickness annuities Notified claims Total 2012 Total 2011 Opening balance Year s change Closing balance handelsbanken liv annual report

33 Notes Note 35 Taxes Note 36 Other liabilities Tax claims Total Provision for income tax Provision for deferred taxes Total Tax expenses recognised in income statement Tax expense for the year Adjustment of tax relating to previous years Deferred tax, change in temporary differences Total Explanation of effective tax Profit before tax Minus profit subject to yield tax Adjusted profit/loss before tax Tax expense for the year Effective tax rate, % Nominal tax rate Sweden, % Difference * The difference comprises different tax rates in foreign subsidiaries and branches, expenses which are not tax-deductible, other income not subject to income tax, most of which refers to the operations which are subject to yield tax. Disclosure concerning yield tax Yield tax Yield tax levied Total Handelsbanken Liv (parent company) is mainly taxed according to the Act on yield tax on pension funds. The tax base is the market value of the assets at the beginning of the tax year. Note 37 Other accrued expenses and deferred income Accrued operating expenses Accrued commission expenses Accrued interest expenses Other accrued expenses and deferred income Total Note 38 Assets pledged and received Registered investment assets held on behalf of the policyholders 79,102 74,043 76,329 57,078 Other pledged assets Total 79,188 74,131 76,415 57,166 Note 39 Other commitments Received unsettled premiums Liability to companies Other liabilities Total Investment commitments for alternative investments Total handelsbanken liv annual report 2012

34 Recommended appropriation of profit Recommended appropriation of profit The following amount is available in the parent company for distribution by the annual general meeting: Retained earnings SEK 6,388,860,410 Profit for the year SEK 425,142,257 SEK 6,814,002,667 The Board and Chief Executive propose that the entire amount at the disposal of the annual general meeting SEK 6,814,002,667 be carried forward to the next year. Stockholm, 14 March 2013 Thommy Mossinger Chairman Mats Arvidsson Actuary Lennart Söderberg Chief Executive Anna Hjelmberg Employee Representative Our auditor s report was submitted on 14 March KPMG AB Anders Bäckström Authorised Public Accountant handelsbanken liv annual report

35 Auditor s report Auditor s report To the annual general meeting of Handelsbanken Liv Försäkringsaktiebolag, corporate identity number Report on the annual accounts and the consolidated accounts We have performed an audit of the annual accounts and the consolidated accounts of Handelsbanken Liv Försäkringsaktiebolag for the year Responsibilities of the Board of Directors and the Chief Executive for the annual accounts and the consolidated accounts The Board of Directors and the Chief Executive are responsible for the preparation and fair presentation of the annual accounts in accordance with the Annual Accounts Act for Insurance Companies, and for the fair presentation of the consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act for Insurance Companies, and for such internal control as the Board of Directors and the Chief Executive deem necessary to be able to prepare annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the annual accounts and the consolidated accounts are free from material misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and the consolidated accounts. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the annual accounts and the consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company s preparation and fair presentation of the annual accounts and the consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Chief Executive, as well as evaluating the overall presentation of the annual accounts and the consolidated accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the annual accounts have been prepared in accordance with the Swedish Annual Accounts Act for Insurance Companies and present fairly, in all material respects, the financial position of the parent company as at 31 December 2012 and its financial performance and cash flows for the year then ended in accordance with the Swedish Annual Accounts Act for Insurance Companies. The annual accounts have been prepared in accordance with the Swedish Annual Accounts Act for Insurance Companies and present fairly, in all material respects, the financial position of the as at 31 December 2012 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and in accordance with the Swedish Annual Accounts Act for Insurance Companies. The Administration Report is consistent with the other parts of the annual accounts and the consolidated accounts. We therefore recommend that the annual general meeting of shareholders adopt the income statement and balance sheet of the parent company and the. Report on other legal and regulatory requirements In addition to our audit of the annual accounts and the consolidated accounts, we have also performed an audit of the proposed appropriations of the company s profit or loss and the administration of the Board of Directors and the Chief Executive of Handelsbanken Liv Försäkringsaktiebolag for the year Responsibilities of the Board of Directors and the Chief Executive The Board of Directors is responsible for the proposal for appropriations of the company s profit or loss, and the Board of Directors and the Chief Executive are responsible for administration under the Companies Act and the Swedish Insurance Business Act. Auditor s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors proposed appropriations of the company s profit or loss, we examined the Board of Directors reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act. As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and the consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Chief Executive has any financial liabilities towards the company. We also examined whether any member of the Board of Directors or the Chief Executive has, in any other way, acted in contravention of the Companies Act, the Swedish Insurance Business Act, the Swedish Annual Accounts Act for Insurance Companies or the Articles of Association. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions We recommend to the annual general meeting of shareholders that the profit be appropriated in accordance with the proposal in the Administration Report and that the members of the Board of Directors and the Chief Executive be discharged from liability for the financial year. Stockholm, 14 March 2013 KPMG AB Anders Bäckström Authorised Public Accountant 34 handelsbanken liv annual report 2012

36 Board and management Board THOMMY MOSSINGER, year of birth 1951 Chairman Executive Vice President of Handelsbanken Board member since April 2012 MATS ARVIDSSON, year of birth 1948 Actuary at Handelsbanken Board member since 2011 ANNA HJELMBERG, year of birth 1969 Employee Representative Board member since 2007 Management LENNART SÖDERBERG, year of birth 1951 Chief Executive of Handelsbanken Liv TOMMY HOLMQVIST, year of birth 1965 Head of Financial Control and Legal MARIA HÅRD AF SEGERSTAD, year of birth 1969 Head of Business Development JAN LARSSON, year of birth 1960 Head of Private Market including Collective agreement pensions Deputy Chief Executive of Handelsbanken Liv LISE-LOTTE JAKOBSSON, year of birth 1963 Head of Administration JAN STARCK, year of birth 1967 Personnel Officer LENNART OLSSON, year of birth 1953 Head of Corporate Market Chief actuary ANETTE MORS-DAHLSTRÖM, year of birth 1967 Chief Actuary handelsbanken liv annual report

37 Definitions Definitions ACTUARIAL PROVISIONS The overall designation for the following items: provisions for life insurance, provision for claims outstanding, conditional bonus and unit-linked commitments. AVAILABLE SOLVENCY MARGIN Consists of shareholders equity, untaxed reserves and subordinated debentures. When calculating the available solvency margin, the provision for deferred tax is reversed. CONDITIONAL BONUS In insurance with a guaranteed rate of interest, conditional bonus is the difference between the insurance capital and the guaranteed capital. In portfolio bond insurance, the full value of the insurance is conditional bonus. GUARANTEED CAPITAL Guaranteed capital is part of the insurance assets in insurance policies with a guaranteed rate of interest. This capital grows by the guaranteed rate of interest and by premium payments. Fees and taxes and claims incurred are deducted from this. GUARANTEED INTEREST The interest rate (before deduction for fees and taxes) used for calculating the increase in the guaranteed capital in an insurance policy with a guaranteed rate of interest. MANAGEMENT EXPENSE RATIO Operating expenses for administration, purchases and claims management in relation to the average value of assets under management. PROFIT-DISTRIBUTING In a profit-distributing company, the shareholders bear the responsibility for the risk capital and it is permitted to distribute profits. In a mutually operated life insurance company, the policyholders are responsible for most of the risk capital and profit distribution is not permitted. PROVISION FOR CLAIMS OUTSTANDING The estimated value of incurred insurance claims that have not yet been paid. PROVISIONS FOR LIFE INSURANCE The value of future guaranteed insurance benefits (pension amounts and other guaranteed disbursements) minus the value of future agreed premium payments. SOLVENCY RATIO The solvency ratio is a measure of the company s equity in relation to the current statutory requirements regarding solvency capital. A solvency ratio of 1 means that the company meets these requirements. The solvency ratio for a demutualised, profit-distributing life insurance company cannot be compared with the solvency ratio for a mutual life insurance company. The solvency ratio is the available solvency margin divided by the required solvency margin. The available solvency margin is mainly shareholders equity in the company and any subordinated debentures. The required solvency margin is primarily the sum of 4 per cent of the value of guaranteed commitments plus 1 per cent of the conditional bonus plus per cent of mortality risks. The solvency ratio must be at least 1. TOTAL YIELD The sum of changes in value and return on investments managed for savers with a guaranteed rate of interest. The yield is calculated after deduction of fees related to the asset management. 36 handelsbanken liv annual report 2012

38 +46 (8) Box 1325 SE Stockholm, Sweden