ANNUAL REPORT 2001 Summary

Transcription

1 ANNUAL REPORT 2001 Summary

2 Försäkringsaktiebolag (publ) Business organisation no: Postaladdress: Box 1325 SE Stockholm Sweden Telephone: Facsimile: Visiting address: Torsgatan 12, Stockholm handelsbankenliv@handelsbanken.se Production: Corporate Communications Dept, Translation: Steven Wentworth, Svenska Handelsbanken

3 Contents Contents A WORD FROM THE MANAGING DIRECTOR 4 DEMUTUALISATION 6 DIRECTORS REPORT 8 5-YEAR REVIEW 12 PROFIT AND LOSS ACCOUNT 13 BALANCE SHEET 14 Annual Report Summary 3

4 A word from the Managing Director A word from the Managing Director This is the last year that s annual report comprises two companies, the mutual life insurance company and the unit-linked company. On 1 January 2002, Försäkringsaktiebolag and Handelsbanken Fondförsäkringsaktiebolag were merged into a profit-distributing life insurance company. Simultaneously, the owner Handelsbanken contributed SEK 1.1bn in new equity. So ended a process that had taken a decade. In 1992, Handelsbanken had acquired the former mutual life insurance company RKA from policyholders and changed the name of the newly formed subsidiary to. At the outset, the bank s aim was to demutualise the company as soon as legislative changes made it possible. The changes were made as at 1 January 2000, while work on demutualising the company was already underway by autumn On 1 January 2002 Försäkringsaktiebolag and Handelsbanken Fondförsäkringsaktiebolag were merged to form a profit-distributing life insurance company. One year later in autumn 2000, our customers voted on demutualisation. As many as 80% of customers participated in the voting, of whom 98% voted yes. In February 2001, Finansinspektionen, the Swedish Financial Supervisory Authority, approved our application for demutualisation and in April the Swedish government approved. Hence, we achieved the required authorisation and the internal demutualisation process could begin. Following the boom in stock markets in the 1990s, the start of the new decade was characterised by a worldwide fall in share prices. This applies especially to 2001, when stock prices fell precipitously in the third quarter following the terrorist attack in New York. Despite some recovery in the fourth quarter, the weighted total yield in the insurance sector was negative for the year as a whole -2.7%. In other words, the companies total insurance capital decreased. At the same time, bonus rates have been positive, which mean that customers savings have nonetheless increased in value. For insurance companies, this meant that the collective risk reserve had shrunk and for some companies had even become negative, which signifies that the companies assets are smaller than the customers allocated savings. The total yield for in 2001 was -2.1%. The negative total yield together with a positive average bonus rate of nearly 6% resulted in a solvency margin of 102% at year-end 2001 compared with 113% in This means in reality that customers with savings have already received most of the collective risk reserve during the year. The remaining collective risk reserve will be provided to our policyholders as part of demutualisation in the form of cash payment to risk insurance customers and an increase in insurance capital for customers with savings schemes. Is demutualisation still as attractive for our customers as before? Yes, I see no change. When the 4 Annual Report Summary

5 A word from the Managing Director financial markets recover and the total yield becomes positive, each customer will receive 90% directly and will not need to relinquish any part of the yield to build up new collective risk reserves for a future customer base. Clear pricing is also an advantage to note. In a mutual life insurance company, it is common that current fees on premiums and assets under management do not cover the company s total costs. Policyholders pay for potential deficits in the form of lower bonuses, which in the end affect the growth of the insurance funds. A deficit in a demutalised will not affect the customers bonus; instead it will affect the company s result. This puts pressure on expenses and also works in favour of an open price structure. As a demutualised company, we also offer our customers the opportunity to switch between saving in mutual funds and saving with a guaranteed yield. This provides new opportunities for our customers to for the Group. adapt their savings to the situation during the term of the insurance. Moreover, we are the first company to introduce the right of transfer to both new and existing customers with savings in mutual funds and savings at a guaranteed yield. We believe this is a reasonable requirement, which customers have a right to demand. However, it is up to each insurance company to decide whether to introduce the right of transfer and the conditions for its use. To achieve a more general right of transfer that includes existing savings in the insurance sector requires guidelines for the entire sector. This in turn requires a positive attitude towards right of transfer from the other companies. Unfortunately, this interest has been limited to date. Legislation might be required in this area so that the right of transfer will become the self-evident right that it should be for policyholders. Handelsbanken s acquisition of SPP Liv in early 2001 resulted in a great expansion for the Group in the Pension and Insurance business area. SPP Liv is a leading player in the occupational pensions area and focuses primarily on private pensions and asset protection schemes. Thus in early 2002, SPP took over the sales of occupational pensions from, which now focuses Handelsbanken s acquisition of SPP Liv in early 2001 means that the Pension and Insurance business area expanded greatly its operations on asset protection schemes, private pension savings and employee pensions. This created conditions for achieving in-depth comprehensive competence in our key business areas that will lead to increased quality and cost efficiency. Early 2000 was an extreme period with a boom in financial markets, which affected growth in premiums in the unit-linked endowment insurance area. The downward trend in financial markets during 2001 has naturally had a negative effect on this business. Thus, the volume of premiums for new capital insurance in the sector as a whole fell from SEK 35bn in 2000 to SEK 18bn in Since this is a key business area for, it was hard hit by falling income from premiums for unit-linked endowment insurance. In contrast, long-term pension savings had a positive growth. Total premium volumes for the company were just under SEK 6bn in 2001, compared with SEK 9bn in the previous year. The increased focus on asset protection schemes avails us the opportunity to develop products with a guaranteed yield to better meet the individual customer s diversification of risk over time. It also creates conditions for a more balanced premium flow. Now that has demutualised something very important is happening. Our customers are no longer part of a collective; instead, they are individual customers with unique needs and desires. The new profit-distributing company will be more personal, giving our customers greater freedom as well as increased security and fairness. Lastly, I want to take this opportunity to thank all staff members at for their commitment and hard work, which have made demutualisation possible. I also want to thank them for the loyalty that so many showed during the past year. Stockholm, April 2002 Barbro Johansson, Managing Director Annual Report Summary 5

6 Demutualisation Demutualisation was demutualised on 1 January This was the first time a life insurance company with savings insurance demutualised in Sweden. It ended a process that began more than ten years ago. HOW IT WAS DONE In 1990, cooperation started between Handelsbanken and the former RKA, Ränte- och kapitalförsäkringsanstalten, a mutual life insurance company. They jointly started a unit-linked insurance company with the name Fondförsäkrings AB. In mid-1991, banks were allowed to own life insurance companies whereby Handelsbanken purchased 1992 RKA from its policyholders. The company became a whollyowned subsidiary of Handelsbanken and was called. At the same time, the Ministry of Finance was modernising the Insurance Operations Act. One change allowed profit distribution by life insurance companies. Handelsbanken s express aim in purchasing RKA was to demutualise the company when this was permitted. Work on the new law was delayed and it was not until autumn 1999 that the Riksdag approved the changes. Beginning 1 January 2000, life insurance companies were permitted to distribute profits. Once the Riksdag had approved the change, work intensified on demutualising. The goal was to complete demutualisation by 1 January The law stipulates three conditions for implementing demutualisation: the decision to demutualise is taken at a general meeting of shareholders; a majority of customers are not opposed to demutualisation; and, the change cannot be assumed to be detrimental for policyholders. In spring 2000, the general meeting of shareholders approved demutualisation, whereby it was time to take the issue to customers. During autumn 2000, customers affected by demutualisation were given the opportunity to vote. Over 98% voted for demutualisation, and voter participation was nearly 80%. Following this clear mandate from policyholders, the matter was sent to the Finansinspektionen to obtain its opinion on whether demutualisation was detrimental to policyholders. After a thorough review, the Finansinspektionen approved our model. In April 2001, the Government finally approved demutualisation. One difference between a mutual life insurance company and our demutualised company is that policyholders are responsible for the risk capital in a mutual life insurance company. At the same time, policyholders wield limited influence since they do not own the company. With the demutualisation of Handelsbanken Liv, the collective risk capital is returned to policyholders and is replaced with new risk capital from Handelsbanken, which at the same time gains the right to distribute profits. Customers with insurance that includes savings schemes have previously forgone yields to build up risk capital. The collective risk capital is the difference between the market value of the assets at year-end and the value assigned to the policies. With demutualisation, the value of customers policies is adjusted to agree with the value of the assets. For policyholders without savings, reserves have been previously built up to meet future claims. The reserves belong to these policyholders and will be refunded to them in cash. Consequently, demutualisation does not affect ownership in the company, but means that the company assumes the risk previously shared by policyholders. With demutualisation, the demutualised company s stock of insurance is transferred to the unit-linked company, which at the same time changes its name to Försäkringsaktiebolag. This provides a more efficient form of administering the insurance business. It opens attractive opportunities for customers to take out new insurance policies that combine mutual funds and provide guaranteed interest management. WHAT THIS MEANS FOR OUR CUSTOMERS Demutualisation provides increased freedom, security and fairness for s customers. Freedom increases because we are the first insurance company in Sweden to offer right of transfer for unit-linked insurance and policies with guaranteed yield. 6 Annual Report Summary

7 Demutualisation Private customers can transfer their policies to another insurance company. All customers can switch between unit-linked insurance and guaranteed interest management within the company. Security increases when Handelsbanken provides risk capital and assumes the risk for the guaranteed interest capital previously taken on by the customers. The new equity at the time of demutualisation was SEK 1.5bn. There is an increase in fairness for customers in the transfer from a collective system to an individual system, where customers need not forgo their yield to the collective capital. The entire insurance capital becomes strictly individual and no other customer than the policyholder receives the yield. In the future, the total yield is shared with the company. If the total yield is greater than the guaranteed yield, the customer receives 90% of the total yield, while the company receives 10%. At the same time, the company assumes responsibility for the administrative result and the risk result. WHAT THIS MEANS FOR THE COMPANY This sharing of the yield with customers means that the company receives 10% of the total yield - if the total yield exceeds the guaranteed yield. The company can thereby receive a yield on its equity if the yield is good. This opportunity does not exist with a mutual life insurance company. The company is also responsible for the administrative result, which is the difference between the fees paid by customers and the company s true operating costs. This opens the possibility for the company to create a surplus by making sales and administration more efficient. The risk result, which is the difference between the risk premiums paid by customers and the true costs for claims, goes entirely to the company. An efficient, high-quality risk management can offer customers competitively priced risk insurance, while providing the company the opportunity to create a surplus. In sum, by demutualizing we are leaving the traditional way of conducting life insurance business. This opens opportunities for product development that provide our staff with a stimulating and modern work environment. Annual Report Summary 7

8 Directors report Directors report The Board of Directors of Försäkringsaktiebolag (publ), (), herewith submit their annual report for 2001, the company s tenth year of operations. GENERAL is a wholly-owned subsidiary of Svenska Handelsbanken (publ), (Handelsbanken), registered corporate identity number In 2001, engaged in traditional life insurance activities according to mutual principles, which means that the company s surplus goes back to its policyholders in the form of bonuses and/or collective reserve. In April 2001, the company received the Swedish government s authorisation to change the company s articles of association, whereby profits can be distributed to shareholders beginning in The company s products are integrated with those of its associated company, Fondförsäkringsaktiebolag (Handelsbanken Fond Liv). These products are marketed jointly under the name of, primarily to Handelsbanken s customers. is the parent company of a subsidiary that runs a property management operation. The company has a contract with Handelsbanken to purchase data processing and asset management and IT services on market terms. LIFE INSURANCE MARKET In 2001, total premium income for new traditional life insurance policies in Sweden was SEK 19.9bn (17.6). This represents an increase of 13% compared with Total premium income including renewal premiums was SEK 61bn (47) for traditional life insurance. s total premium income was SEK 2 350m (2 260). New insurance policies represented SEK 979m (1 033) of total premium income. Measured in new premiums, the company s market share was 4% (6). NORDIC COUNTRIES Within the framework of Handelsbanken s universal banking concept, has also offered life insurance products in the other Nordic countries. In Norway, personal risk insurance is marketed via a branch, while in Denmark and Finland, various group life products are marketed on a cross-border basis from Sweden. Premium income in the Nordic countries was SEK 38m (26) in PRODUCTS has offered life insurance products in the form of pensions via Handelsbanken Private Insurance and Handelsbanken Occupational Pension Plan. It offered special products for asset protection purposes, and risk protection insurance via group life insurance, largely in the form of loan protection insurance. Several of these products also include unitlinked arrangements via Handelsbanken Fond Liv. Handelsbanken s individual pension savings scheme, IPS, is yet another product offered by Handelsbanken Liv. DEMUTUALISATION On 1 January 2000, Swedish legislation on insurance operations was changed. The new law enables traditional life insurance operations to be converted into profit-distributing operations and for unit-linked and traditional insurance operations to be run in the same company. In addition, customers are now able to transfer their funds to a different company. believes that demutualisation is beneficial for both customers and the company. Therefore, informed all customers entitled to vote, some , of the consequences of demutualisation. The response rate was high. Around 80% of all customers made an active choice by voting. Some 97.8% of these voted in favour of the proposed change. The government gave its authorisation in April Policyholders will receive refunds as at 31 December For policyholders with insurance that includes savings schemes, the refunds will take the form of a write-up of the policy value. This refund will be made as at 1 January For policyholders 8 Annual Report Summary

9 Directors report TOTAL RETURN GROUP Market value Net Value Market value Direct Total Average investments Change yield return SEK m % SEK m SEK m % SEK m % SEK m % SEK m % % Fixed-income , , ,4 6,4 Equities , , ,9 18,2 Properties , , ,1 15,2 Total Investments , , ,0 10,8 Other Total , , ,1 10,7 - Total yield is a unit of measure defined and agreed on by the insurance sector. - Yield expressed as a percentage is computed as yield in relation to the opening market value plus a monthly weighted average of net investments minus the direct yield for the year. - Total return is the sum of the yield and change in value in relation to the opening market value plus a monthly weighted average of net investments minus the direct yield for the year. with insurance that does not includes savings schemes, a cash refund will be made during spring On 1 January 2002, transferred its entire stock of insurance to Handelsbanken Fond Liv via an inventory assignment in accordance with the Insurance Operations Act. The latter subsequently conducts its operations with unit-linked and insurance with guaranteed yield in the same company. OCCUPATIONAL GROUP LIFE INSURANCE On 31 December 2001, transferred its stock of insurance of occupational group life insurance to SPP Liv Försäkrings AB. ASSET MANAGEMENT Total return was -2.1% (0.2). The average total yield during the past five years is 10.7%. The market value of assets under management was SEK m (20 264m) as at 31 December 2001, of which Swedish interest-bearing investments represented 47%, international fixed-income investments 6%, Swedish equities 18%, international equities 26% and property investment 3%. FIXED-INCOME INVESTMENTS At year-end, interest rate levels in Sweden and internationally were essentially unchanged compared with levels at the beginning of the year. The yield on the Swedish bond portfolio was 3.6%. Due to the weakening of the Swedish krona in relation to foreign currencies, the yield for the foreign fixed-income portfolio was 12.3%. The market value of the Swedish fixed income portfolio amounted to SEK 9 511m at the end of Government bonds represented 79% of this amount, mortgage bonds 17%, and other bonds 4%. The market value of the international fixed-income portfolio was SEK 1 102m at the end of EUR accounted for 34% of this total, USD 28%, JPY 27% and other currencies 11%. EQUITIES Stock markets had an erratic year in The worldwide fall in stock markets culminated in the weeks following September 11 and subsequently recovered. There was a great difference in the development of different sectors. The decline in technology related equities that began in 2000 continued through The total return from the equities portfolio was -9.9%. The return from the Swedish equities portfolio was -10.5%, and the return on the international equities portfolio was - 9.3% The market value of the total equities portfolio was SEK 8 968m, comprising SEK 4 023m in Swedish equities and SEK 4 945m in international equities. The international equities portfolio was distributed as follows: North American equities 57%, European equities 30%, and other equities 13%. Annual Report Summary 9

10 Directors report INDEX DEVELOPMENT BY TYPE OF INVESTMENT 2001 PROPERTIES The existing portfolio consists of two properties in central Stockholm. No changes have taken place in the property portfolio during the year. As at 31 December 2001, the market value of the property portfolio was SEK 557m (470m) and accounted for 3% of total assets under management. OPERATING EXPENSES ALLOCATION OF ASSETS, MARKET VALUE AS AT 31 DECEMBER 2001 Operating expenses were SEK 348m (279) in the insurance operation, an increase of 25%. The operating expenses include compensation for sales as well as the cost of acquisitions, administration and claims adjustment. The increase in operating expenses was primarily due to higher IT expenses in connection with demutualisation. The administrative cost ratio was 1.7% (1.4). TAXES INTERNATIONAL EQUITIES PER COUNTRY AS AT 31 DECEMBER 2001 The company pays a standardised income tax regardless of its result. The figure on which the tax is based consists of the market value of all assets at the beginning of the fiscal year less financial liabilities at the same time. This figure is then multiplied by the average return on government securities for the previous year. The computed income figure is then taxed at a rate of 15% in the case of pension policies and 30% (calculated at 90% of the tax base and equivalent to a tax rate of 27%) in the case of capital endowment insurance policies. Group life insurance and health and accident insurance are taxed at 28%, calculated on the surplus generated by these business areas. In 2001, these business areas showed losses. Tax claims have not been entered on use of future losses carried forward, since the entire insurance portfolio was transferred in the demutualisation process to Handelsbanken Fond Liv as at 1 January The Group s tax charge was SEK 168m (156). In addition, a special premium tax of SEK 3m (4) was paid on group life insurance. 10 Annual Report Summary

11 Directors report RESULTS The Group result for the year was SEK m (-1 257). The negative result was primarily due to a -2.1% decline in total yield, policyholders guaranteed assets being written up by between 3 and 5%. At year-end, the solvency margin was 102% (113). In 2001, the average bonus was 5.8% (13.5). INSURANCE RISKS The company insures for the following risk events: death, surviving individuals, illness, and accident. Risk assessment is carried out by the company s risk assessment unit in accordance with its risk assessment policy. Risk control is carried out and reported to the Board by the company s chief actuary. Risk control mainly involves the outcome for various risk events, risk diversification, reinsurance and the terms governing risk premium settlement. The company has entered into the following types of reinsurance agreement: Maximum reinsurance on death and sickness risks. This type of reinsurance implies that the company is responsible for the total risk exposure per insured party up to an agreed level and that the reinsurance company will cover the remaining risk. Catastrophe reinsurance. This type of reinsurance aims to limit payments by the company in connection with an accident that leads either to the deaths or long-term invalidity of several of the company s policyholders. Reinsurance pools - here, a number of insurance companies allocate their risk costs among themselves in proportion to their premium income. This pool agreement applies to only a relatively small number of group insurance policies. Annual Report Summary 11

12 Five-year review 5-year review GROUP EXTRACTS FROM THE PROFIT AND LOSS ACCOUNT SEK m Premium income Investment income Insurance claims Bonus Result on technical account - life insurance business Net profit for the year FINANCIAL POSITION SEK m INVESTMENT ASSETS Buildings and land Shares and participations Bonds Other investment assets Total investment assets Technical provisions KEY FINANCIAL FIGURES AND RATIOS Total yield, % -2,1 0,2 21,6 18,7 14,9 Direct yield, % 3,1 3,5 3,7 4,6 5,2 Management expense ratio, % 1,7 1,4 1,3 1,3 1,4 Expense ratio, % Bonus rate, average for the year before deduction of tax and operating costs, % 5,8 13,5 11,3 14,0 10,3 Collective solvency margin, % Collective reserve COLLECTIVE RESERVE SEK m Shareholders equity Bonuses Deferred tax Unrecorded life insurance provisions due to application of transition rules Total collective reserve Annual Report Summary

13 Profit and loss account Profit and loss account GROUP PARENT COMPANY SEK TECHNICAL ACCOUNT OF LIFE INSURANCE OPERATIONS Premium income, after ceded reinsurance Investment income Unrealised gains on investments Other technical income Claims incurred, after ceded reinsurance Change in life insurance provisions Bonus Operating expenses Investment income, expenses Unrealised losses on investments Result on technical account - life insurance business NON-TECHNICAL ACCOUNT Result on technical account - life insurance business Appropriations Profit before taxes Taxes Net profit for the year Annual Report Summary 13

14 Balance sheet Balance sheet 31 December GROUP PARENT COMPANY SEK ASSETS Investment assets Buildings and land Investment in Group companies and associated companies Shares and participations in Group companies Loans to Group companies Other financial investments Shares and participations Bonds and other fixed-income securities Other loans Derivative instruments Reinsurer s share of technical provisions Life insurance provisions Unsettled claims Receivables Receivables in respect of direct insurance Receivables in respect of reinsurance Other receivables Other assets Tangible assets Cash and bank deposits Prepaid expenses and accrued income Accrued interest income Prepaid acquisition costs Other prepaid expenses and accrued income Total assets Annual Report Summary

15 Balance sheet Balance sheet 31 December GROUP PARENT COMPANY SEK SHAREHOLDERS EQUITY, PROVISIONS AND LIABILITIES Shareholders equity Share capital (1 500 shares each with nominal par value of SEK ) Untaxed reserves Tax allocation reserve Bonuses Bonus reserve Reserve for unrealised gains Other funds Net profit for the year Technical provisions (before ceded reinsurance) Life insurance provisions Provisions for unsettled claims Provisions for taxes Liabilities Liabilities related to direct income Liabilities related to reinsurance Derivative instruments Other liabilities Accrued expenses and deferred income Total equity, provisions and liabilities Assets and other comparable collateral pledged for own liabilities and for commitments reported as provisions Other pledged assets Contingent liabilities Other commitments Annual Report Summary 15

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