gjensidige.com interim report first quarter Gjensidige insurance group

Transcription

1 gjensidige.com interim report first quarter 2010 Gjensidige insurance group

2 GROUP HIGHLIGHTS FIRST QUARTER 2010 A cold winter with a substantial increase in the frequency of water and frost damage contributed to a negative underwriting result A strong financial result in the quarter ensures a satisfactory profit for the Group The bank is developing in keeping with expectations and reported a profit for the first time since start-up Strong growth in assets under management for Pension and savings The acquisition of Nykredit Forsikring gives Gjensidige a significant position in the Danish general insurance market The encouraging improvements in the Norwegian Customer Barometer survey show that Gjensidige's focus on customer orientation gives measurable results Conversion to a public limited company was unanimously approved by the annual general meeting on 23 April. Final implementation is pending approval by the authorities Earned premiums general insurance NOK million % 4000 Underwriting result general insurance NOK million Bolig 0 1 q q q q Combined ratio for the general insurance operations was (97.4). Earnings were characterized by the harsh winter with damage of NOK 371 million above a normal level for the first quarter, which had a negative effect on the combined ratio of 9.7. The financial return in the quarter was 1.6 per cent (0.6 per cent). The Group s profit before tax expense for the quarter was NOK million (NOK million). 2 The cost ratio ended up at 16.7 (17.9). The expenses include a net positive effect on earnings of NOK 43.3 million as a result of taking early retirement (AFP) liabilities to income after the passage of the AFP-tilskuddsloven (Act no. 5 of 19 February 2010 relating to state subsidies to employees who take out an early retirement pension in the private sector, not yet translated into English), equivalent to an effect on the cost ratio of 1.1.

3 UNDERWRITING RESULT CHARACTERIZED BY COLD WINTER GROUP PROFIT PERFORMANCE The Group achieved a profit before tax expense of NOK million in the quarter, compared with a profit of NOK million in the equivalent period in The profit/(loss) from the general insurance operations, measured with the underwriting result, showed a decrease relative to the same quarter in 2009, from a profit of NOK 97.4 million to a loss of NOK million. The underwriting result was affected by the harsh winter, with damage of NOK 371 million higher than the normal level for the first quarter. The underwriting result also includes a net positive effect of NOK 43.3 million as a result of taking early retirement liabilities to income after the passage of the AFP-tilskuddsloven (Act no. 5 of 19 February 2010 relating to state subsidies to employees who take out an early retirement pension in the private sector, not yet translated into English). Adjusted for non-recurring items, the weakening of the underwriting result is mainly due to a weaker result in the Nordic business area. The net financial return improved considerably from NOK million in the first quarter last year to NOK million in the first quarter this year. equity and capital adequacy The Group s balance sheet total increased by NOK 4,409.0 million during the quarter to NOK 79,278.0 million. This increase is mainly attributed to growth in the Pension and savings and Online retail banking segments. The Group s equity totalled NOK 22,225.6 million at the end of the quarter. The return on equity (annualised) before tax ended up at 6.2 per cent in the quarter, compared with a return of 6.0 per cent in the same quarter a year ago. At the end of the quarter, the capital adequacy ratio was 17.4 per cent, compared with 18.9 per cent at the end of The solvency margin was per cent, compared with per cent at the end of In addition to testing the capital with regard to legal requirements, a calculation of the capital requirements and requirements to maintain an A-rating from Standard & Poor s is made on a quarterly basis. The calculation of the capital requirements is done in the Group s internal risk models, which are based on a financial valuation of assets and liabilities. Capital in excess of this amount constitutes the Group s excess capital. In order to determine the final excess capital, a deduction is made for estimated requirements for additional capital needed to maintain a rating and to satisfy capital adequacy requirements. At the end of the first quarter of 2010, the excess capital was calculated to be NOK 6.5 billion, the acquisition of Nykredit Forsikring taken into consideration. Result performance group NOK million General insurance Private Norway (223.1) General insurance Commercial Norway General insurance Nordic (122.8) General insurance Baltic (0.8) Corporate Centre (47.0) (30.0) (233.0) Underwriting result general insurance 1 (368.7) Pension and savings (11.3) (34.8) (107.8) Online retail banking 4.9 (20.4) (76.3) Health care services Return on financial assets ,723.2 Amortisation and impairment losses of excess value intangible assets (123.7) (25.9) (216.7) Other items (2.4) (0.9) (6.5) Profit/(loss) for the period before tax expense ,166.5 Key figures general insurance Loss ratio, net of reinsurance % 79.6 % 77.1 % Cost ratio, net of reinsurance % 17.9 % 17.7 % Combined ratio, net of reinsurance % 97.4 % 94.8 % 1 Underwriting result general insurance = earned premiums, net of reinsurance - claims incurred etc. - operating expenses 2 Excluding return on financial assets in Pension and savings and Online retail banking 3 Loss ratio, net of reinsurance = claims incurred etc./earned premiums, net of reinsurance 4 Cost ratio, net of reinsurance = insurance-related operating expenses/earned premiums, net of reinsurance 5 Combined ratio, net of reinsurance = loss ratio, net of reinsurance + cost ratio, net of reinsurance the general insurance segments offer general and personal insurance products. Private Norway and Commercial Norway also offer pure risk insurance products in the area of life insurance with duration of no longer than one year. 3

4 Product groups Private Norge Gross premiums written year to date (same period last year) 7.0 % (6.5 %) 11.4 % Other (11.7 %) Agriculture Motor 32.4 % (31.7 %) Accident and health 31.1 % (32.3 %) Property 18.2 % (17.8 %) GENERAL INSURANCE PRIVATE NORWAY Earned premiums performed positively in the quarter with an increase of 3.6 per cent relative to the same period last year. The underwriting result in the quarter was negative as a result of a long period with low temperatures during the winter. The cost ratio was considerably improved. Profit performance The underwriting result for the quarter was a loss of NOK million, a decline from the same period in 2009 when the underwriting result was a profit of NOK 16.0 million. It was mainly the increase in the frequency of claims for frost and water damage that resulted in these losses. Combined ratio for the quarter was 111.5, an increase from 99.1 in the same period in Earned premiums Earned premiums amounted to NOK 1,936.2 million in the quarter, an increase from NOK 1,869.2 million in the same period in The positive trend is attributed to an improved growth in premiums in force compared with last year, together with the effect of premium increases that were carried out. In particular, the items of property sectors had a growth that was higher than the growth in the total segment, which was positive, given the tough competition in this market. Claims incurred Claims incurred amounted to NOK 1,863.3 million in the quarter, compared with NOK 1,518.4 million in the equivalent period in The claims results for the quarter were weak, with a loss ratio of 96.2 in the quarter, compared with 81.2 in the same period in Claims incurred in the quarter were charged with net claims for water and frost damage amounting to NOK 224 million above the normal level for the first quarter, equivalent to 11.5 percentage points of the loss ratio. In addition, claims incurred were affected by a higher level of large losses compared with the equivalent period last year, NOK 63 million and NOK 12 million respectively. Claims incurred were charged with a slight run-off loss* in the first quarter, compared with a slightly greater loss in the equivalent quarter in Operating expenses The cost ratio for the quarter was 15.3 and performed positively relative to the same quarter in 2009 when the cost ratio was The nominal operating expenses were NOK 38.6 million lower than in the first quarter of These figures include a positive net non-recurring effect of NOK 29.4 million related to taking the above-mentioned early retirement liabilities to income. Adjusted for the non-recurrent effect, the cost ratio for the quarter would have been NOK 16.8, which is still positive performance due to the efficiency improvement measures initiated in the segment. * Run-off gain/loss = changes in estimates for earlier periods general insurance Private Norway NOK million Gross premiums written 2, , ,035.3 Earned premiums, net of reinsurance 1, , ,856.2 Claims incurred etc. (1,863.3) (1,518.4) (6,007.4) Operating expenses (296.1) (334.7) (1,296.3) Underwriting result (223.1) Loss ratio, net of reinsurance % 81.2 % 76.5 % Cost ratio, net of reinsurance % 17.9 % 16.5 % Combined ratio, net of reinsurance % 99.1 % 93.0 % 1 Loss ratio, net of reinsurance = claims incurred etc./earned premiums, net of reinsurance 2 Cost ratio, net of reinsurance = operating expenses/earned premiums, net of reinsurance 3 Combined ratio, net of reinsurance = loss ratio, net of reinsurance + cost ratio, net of reinsurance 4

5 Product groups Commercial Norway Gross premiums written year to date (same period last year) 5.2 % (4.5 %) 8.5 % (10.3 %) Marine/ cargo Liability 14.2 % (14.6 %) Motor Accident and health 45.7 % (46.9 %) 25.8 % (22.9 %) Property Other 0.6 % (0.8 %) GENERAL INSURANCE COMMERCIAL NORWAY Decline of 5.5 per cent in earned premiums. Lower underwriting result as a result of many winter-related claims. Decline in nominal operating expenses. Profit performance The underwriting result in the quarter was NOK 25.0 million, compared with a profit of NOK 72.6 million in the equivalent quarter in The increase in the frequency of claims for frost and water damage had a negative effect on the claims results. Combined ratio weakened by 3.9 percentage points, from 93.8 in the quarter last year to 97.7 in the quarter this year. Earned premiums Earned premiums during the quarter came to NOK 1,111.2 million compared with NOK 1,175.3 million in the same period in 2009, which is equivalent to a decline of 5.5 per cent. A consistent focus on profitability, including through the major renewals at year-end, resulted in a greater loss of business than before and thus lower earned premiums so far in 2010 compared with The positive trend for the construction industries continues. The increase in earned premiums is attributed to both premium increases and new policies and is not least a result of the new rate that was introduced in the summer of Earned premiums also increased for the liability products. For the motor products, the earned premiums were lower compared with the equivalent period in The need for improved profitability in the heavy vehicle segment has resulted in reductions in premiums in force, and the competition in the traditional auto market is tough. The follow-up of individual customers before the due date has been intensified and expanded to apply to a more customer groups and further measures are under consideration. The work on the new car rate for the commercial segment is expected to be completed during the summer. Accident and health, with Workers compensation mandated by law being the biggest product, did not achieve the desired profitability. The accident and health portfolio constituted above 40 per cent of the total commercial portfolio. Therefore, it is a deliberate strategy to maintain a premium level that will be profitable in the long run and simultaneously reduce the proportion of accident and health portfolio relative to other products. As a result of Gjensidige s decision in 2008 to withdraw from the supply, offshore and foreign fishing products, the premiums in force for these products were reduced by NOK 100 million in In addition, some major cargo customers have chosen other providers starting at year-end. Earned premiums for these products were 36 per cent lower in the quarter compared with the equivalent quarter in Claims incurred Claims incurred amounted to NOK million in the quarter, compared with NOK million in the same quarter in The loss ratio for the quarter ended up at 85.2, compared with 80.4 in the equivalent quarter in Claims incurred in the quarter were charged with net claims for water and frost damage that were NOK 66 million higher than the normal level for the first quarter, equivalent to 5.9 percentage points of the loss ratio. The frequency of claims level has been too high for some time, and there is a need for further increases in the level of premiums in the construction industries. The level of large losses was lower in the quarter than in the equivalent period last year, NOK 13 million and NOK 74 million respectively. The level of run-off gains was approximately the same from the first quarter last year to the first quarter this year. Operating expenses The cost ratio for the quarter was 12.5, an improvement from 13.4 in the equivalent period in The nominal operating expenses were reduced by NOK 18.2 million relative to the first quarter of The operating expenses were positively affected by a net non-recurrent effect of NOK 13.9 million related to the above-mentioned taking of the early retirement liabilities to income. As a result of continuous improvement efforts, the costs of daily operation and personnel expenses were reduced by 11.6 per cent relative to the equivalent quarter last year. The number of full-time equivalents (FTEs) decreased and more processes were automated. So far, there has been little change in the level of bad debts that were attributed to bankruptcies, and the efforts to limit these losses have been further intensified. general insurance commercial Norway NOK million Gross premiums written 2, , ,003.8 Earned premiums, net of reinsurance 1, , ,737.3 Claims incurred etc. (946.8) (945.2) (3,819.0) Oerating expenses (139.3) (157.5) (613.3) Underwriting result Loss ratio, net of reinsurance % 80.4 % 80.6 % Cost ratio, net of reinsurance % 13.4 % 12.9 % Combined ratio, net of reinsurance % 93.8 % 93.6 % 1 Loss ratio, net of reinsurance = claims incurred etc./earned premiums, net of reinsurance 2 Cost ratio, net of reinsurance = operating expenses/earned premiums, net of reinsurance 3 Combined ratio, net of reinsurance = loss ratio, net of reinsurance + cost ratio, net of reinsurance 5

6 Product groups Nordic Gross premiums written year to date (same period last year) 7.5 % (6.5 %) 0.4 % (1.2 %) 15.8 % (36.0 %) Accident and health Liability Other 46.0 % (32.0 %) Property Motor 30.0 % (24.3 %) GENERAL INSURANCE NORDIC Satisfactory increase in earned premiums in the quarter. Reduced underwriting result because of a high proportion of winter claims and a major claim in Sweden. The cost ratio increases as a result of the growth in the Commercial segment in Sweden. The acquisition of Nykredit Forsikring doubles the Group s market share in the Danish market. Profit performance The underwriting result in the quarter was a loss of NOK million, compared with a profit of NOK 23.3 million in the equivalent quarter in The increase in the frequency of claims for frost and water damage had a negative effect on the claims results. Combined ratio weakened by 23.6 percentage points, from 95.8 per cent in 2009 to per cent in the same quarter in Earned premiums Earned premiums during the quarter came to NOK million compared with NOK million in the same period in This is equivalent to an increase of 13.3 per cent. In addition to a general growth in business, the fastest growth in premiums was in the commercial market in Sweden. Claims incurred Claims incurred during the quarter came to NOK million, compared with NOK million in the equivalent quarter in This gave a loss ratio of in the quarter, compared with 79.0 in the equivalent quarter in In general, the harsh winter with considerable snow and low temperatures gave rise to more claims than in a normal winter in both Denmark and Sweden. Claims incurred during the quarter were charged with net water and frost damage that was NOK 67 million higher than the normal level for the first quarter, equivalent to 10.6 percentage points of the loss ratio. The level of large losses in the quarter was approximately unchanged in the first quarter this year compared with the equivalent quarter last year, NOK 50 million and NOK 51 million respectively. The quarterly result also included a run-off gain that was considerably lower than the run-off gain in the equivalent period in Operating expenses The cost ratio amounted to 18.6 in the quarter, compared with 16.9 per cent in the same quarter in The nominal operating expenses amounted to NOK million in the quarter, an increase of NOK 23.5 million over the same quarter in This increase was mainly attributed to expenses related to the growth in the commercial market in Sweden and an increased percentage of partner-distributed business in the Norwegian white label business. Acquisition An agreement on the acquisition of Nykredit Forsikring was entered into on 8 March This acquisition will strengthen Gjensidige s ability to compete in the Danish market and help the Group achieve further cost synergies through economies of scale. Yearly cost synergies before tax of about DKK 210 million have been identified and are expected to be fully realised in These synergies are mainly associated with distribution, ICT, reinsurance, coordination of shared functions and implementation of Gjensidige s group functions. Integration costs were calculated to be DKK 160 million and will mainly be charged to the accounts in the period from 2010 to At the same time, Gjensidige and Nykredit Realkredit entered into a long-term strategic partnership, which entails that the Nykredit Group will sell and distribute Gjensidige s general insurance products in the Danish market. The acquisition will be recognised in the consolidated financial statements as from the second quarter of Goodwill An impairment loss of NOK 100 million on goodwill is recognised in the Nordic segment. After the acquisition of Tennant in 2007 the Norwegian branch has been turned into a pure white label company for Gjensidige. The changes through 2009, and especially in the first quarter of 2010, means that the original business model is significantly adjusted and the value from the time of acquisition is reduced. general insurance nordic NOK million Gross premiums written 1, , ,657.3 Earned premiums, net of reinsurance ,403.5 Claims incurred etc. (639.3) (442.3) (1,833.0) Operating expenses (118.1) (94.6) (417.5) Underwriting result (122.8) Amortisation and impairment losses of excess value intangible assets (120.4) (22.4) (109.9) Loss ratio, net of reinsurance % 79.0 % 76.3 % Cost ratio, net of reinsurance % 16.9 % 17.4 % Combined ratio, net of reinsurance % 95.8 % 93.6 % 1 Loss ratio, net of reinsurance = claims incurred etc./earned premiums, net of reinsurance 2 Cost ratio, net of reinsurance = operating expenses/earned premiums, net of reinsurance 3 Combined ratio, net of reinsurance = loss ratio, net of reinsurance + cost ratio, net of reinsurance 6

7 Product groups Baltic Gross premiums written year to date (same period last year) 5.9 % (5.0 %) 2.7 % (2.7 %) Liability Other 20.1 % (17.2 %) Accident and health 15.3 % (9.2 %) Property Motor 56.0 % (65.9 %) GENERAL INSURANCE - BALTIC Decline in earned premiums as a result of continued market decline in the Baltic insurance market. Diminished underwriting result as a result of the snowy winter. Improved cost ratio through initiation of more cost-cutting measures. Profit performance The underwriting result was a loss of NOK 0.8 million in the quarter, a decline from a profit of NOK 15.6 million in the same quarter in Despite deflation and somewhat higher run-off gains this year relative to last year, the increase in the frequency of claims for motor damage gave rise to considerably higher total claims incurred. Combined ratio for the quarter was compared with 91.6 in the same period in Earned premiums Earned premiums in the quarter came to NOK million, compared with NOK million in the equivalent quarter in The aggregate general insurance market in the Baltic declined considerably in 2009, and the decline continued in the first quarter of This also affected Gjensidige s operations, even though the trend in Gjensidige s earned premiums was better than the general market trend in the Baltic. Claims incurred Claims incurred in the quarter ended up at NOK 94.7 million, compared with NOK million in the same quarter last year. This was equivalent to a loss ratio of 73.3 in the quarter, compared with 60.2 in the same quarter in The snowy winter resulted in a substantial increase in claims compared with the milder winter in the same period last year. Claims incurred during the quarter were charged with claims for motor damage that were NOK 15 million greater than the normal level for the first quarter, equivalent to 11.6 percentage points of the loss ratio. The Baltic segment did not sustain large losses in the first quarter of 2010 or in the equivalent period in The quarterly results also include a somewhat higher run-off gain in the first quarter this year than in the equivalent quarter in Operating expenses The cost ratio during the quarter was 27.3, compared with 31.4 in the same quarter in The nominal operating expenses came to NOK 35.3 million during the quarter, compared with NOK 57.9 million in the same quarter in 2009, a reduction of 39.0 per cent. During 2009 and the first quarter of 2010, many cost-cutting measures were implemented, and this and the lower volume of business have helped reduce operating expenses. general insurance baltic NOK million Gross premiums written Earned premiums, net of reinsurance Claims incurred etc. (94.7) (111.1) (411.5) Operating expenses (35.3) (57.9) (211.4) Underwriting result (0.8) Amortisation and impairment losses of excess value intangible assets (1.6) (1.9) (100.2) Loss ratio, net of reinsurance % 60.2 % 62.0 % Cost ratio, net of reinsurance % 31.4 % 31.9 % Combined ratio, net of reinsurance % 91.6 % 93.9 % 1 Loss ratio, net of reinsurance = claims incurred etc./earned premiums, net of reinsurance 2 Cost ratio, net of reinsurance = operating expenses/earned premiums, net of reinsurance 3 Combined ratio, net of reinsurance = loss ratio, net of reinsurance + cost ratio, net of reinsurance 7

8 Asset allocation the group policy portfolio At the end of the period (same period last year) 12.8 % (0.0 %) 31.1 % (42.5 %) Other financial investments Bonds classified as loans and receivables Bonds held to maturity 37.8 % (38.5 %) PENSION AND SAVINGS Earned premiums performed positively during the period. Very satisfactory increase in assets under management. The profit margin for the savings business remained roughly the same, while the value-adjusted return on the paid-up policy portfolio performed positively. Profit performance There was a loss before tax expense of NOK 11.3 million in the quarter, compared with a loss of NOK 34.8 million in the same period in The positive performance was mainly attributed to a strong growth in income, a positive return on the group policy portfolio and a lower cost level. Earned premiums and management income Gross premiums written totalled NOK million for the quarter, including NOK million in transferred funds. The growth is attributed to higher premiums in force related to group definedcontribution pensions, as well as sales of fund pensions and transfers of paid-up policies. The management income in the savings business amounted to NOK 5.0 million in the quarter, compared with NOK 1.7 million in the same period in The first quarter last year was affected by the financial crisis, which significantly affected the demand for savings products. The profit margin for savings was 0.16 per cent for the quarter, compared with 0.19 per cent for the same quarter in The reduction is attributed to rapid growth in assets under management as a result of increased sales to institutional customers with reduced underwriting and management commissions. Operating expenses Expenses totalled NOK 39.5 million in the quarter, of which NOK 28.0 million were insurance-related. Expenses for the same quarter last year amounted to NOK 44.7 million, of which NOK 26.6 million were insurance-related. The cost trend was as expected. The reason for the cost reduction was attributed to a combination of general efficiency improvements and workforce reductions. Assets under management Assets under management in the pension business increased by NOK million during the quarter, compared with an increase of NOK million in the same quarter in The pension business has contributed through increased sales of fund pensions and paid-up policies as well as an increase in premiums in force related to group defined-contribution pensions. Assets under management in the pension business amounted to Money market Equity fund Current bonds 5.5 % (3.8 %) 1.0 % (15.2 %) 11.6 % (0.0 %) a total of NOK 5,143.9 million at the end of the quarter. The group policy portfolio constituted NOK 1,662.3 million of this amount. The average interest-rate guarantee was 3.5 per cent. The value-adjusted return on the paid-up policy portfolio performed positively, increasing from 0.54 per cent in the quarter in 2009 to 1.42 in the quarter in This is regarded as a satisfactory result relative to the risk exposure, which more than accommodates the guaranteed return. The average return on the management of a definedcontribution pension through the combined and active profiles was 3.4 per cent, which amounted to an average of 0.3 percentage points lower than the reference index. Equivalent figures for active management were 3.4 per cent, 2.4 percentage points better than the index. Assets under management in the savings business increased by NOK 3,030.4 million in the quarter, compared with NOK million in the same quarter in Assets under management in the savings business amounted to a total of NOK 4,710.9 million at the end of the quarter. The savings business had good sales activity throughout the year, especially with institutional customers. In addition, the management of the funds in Gjensidige Pensjonskasse was taken over effective 31 March pension and savings NOK million Gross premiums written ,077.3 Earned premiums, net of reinsurance Claims incurred etc. (46.1) (18.7) (121.5) Operating expenses (28.0) (26.6) (102.7) Underwriting result (8.6) (25.0) (107.9) Management income Net financial income Other income Other expenses (11.5) (18.1) (76.3) Profit/(loss) before tax expense (11.3) (34.8) (107.8) Profit margin savings, in per cent Recognised return on the paid-up policy portfolio Value-adjusted return on the paid-up policy portfolio Profit margin savings, in per cent = management income/average assets under management savings 2 Recognised return on the paid-up policy portfolio = realised return of the portfolio 3 Value-adjusted return on the paid-up policy portfolio = total return of the portfolio 8

9 Online retail banking Deposits and lending at the end of the period (same period last year) NOK million 12,221.9 (7,214.7) Lending Deposits 6,702.0 (6,242.8) ONLINE RETAIL BANKING Increase in gross lending and deposits during the quarter. Substantial improvement in the net interest rate as a result of the acquired consumer loan portfolio. Profit before tax expense for the first time since start-up in January Profit performance The profit before tax expense in the quarter was NOK 4.9 million, whereas there was a loss of NOK 20.4 million for the same period in This was equivalent to an improvement in earnings of NOK 25.3 million. The main reason for the improvement in earnings was increased income and better operating margins. Given that Online retail banking is still in a development phase, the profit performance is in keeping with expectations. Net interest and credit commission income Net interest and credit commission income in the quarter amounted to NOK 96.6 million, a substantial increase from NOK 11.3 million in the equivalent quarter in The main reason for the positive performance was increased volume and higher margins, where a greater proportion is associated with the acquired consumer loan portfolio that was taken over in the fourth quarter of The bank s net interest income amounted to 2.97 per cent in the quarter, compared with 0.59 per cent in the same period in At year-end 2009, the net interest income was 0.63 per cent. Operating expenses The operating expenses for the quarter were NOK 78.2 million, whereas operating expenses were NOK 34.1 million in the equivalent period in Salary and administrative expenses have increased as a result of more employees and a larger organisation. The operating expenses also increase as a result of expenses associated with integration of the acquired consumer loan portfolio. Loss on loans/guarantees The quarterly results were charged with individual and group write-downs for a total of NOK 23.0 million. Equivalent figures in the first quarter last year came to NOK 0.9 million. The increase during the quarter came as a result of estimated expected losses in the consumer loan portfolio. The loss situation was satisfactory, and recognised losses in the quarter were below expectations at the start of the year. Lending and deposits Gjensidige Bank had a steady increase in lending, and at the end of the quarter gross lending amounted to NOK 12,221.9 million. The lending portfolio increased by NOK million in the quarter, compared with NOK million in the same quarter in The bank s deposits increased by NOK million in the quarter to NOK 6,702.0 million at the end of the quarter. The deposit-to-loan ratio at the end of the quarter was 54.8 per cent, a slight decline from 56.6 per cent at the end of the fourth quarter. The decline in the deposit-to-loan ratio was mainly attributed to the acquisition of the consumer loan portfolio. For further information on the results for the bank, cf. the interim report for Gjensidige Bank at www. gjensidige.com. ONLINE RETAIL BANKING NOK million Interest income and related income Interest expenses and related expenses (79.6) (79.5) (265.8) Net interest and credit commission income Net financial income and other income Operating expenses (78.2) (34.1) (147.2) Loss on loans/guarantees (23.0) (0.9) (3.0) Profit/(loss) before tax expense 4.9 (20.4) (76.3) Net interest income in per cent, annualised Capital adequacy Net interest income in per cent, annualised = net interest and credit commission income/average assets under management 2 Capital adequacy = primary capital/basis of calculation for credit risk, market risk and operational risk 9

10 Health care services Operating income year to date (same period last year) 1.6 % (2.4 %) 23.1 % (24.4 %) 19.1 % (19.7 %) Private hospital and specialist services Work environment surveys Personal security alarm srevices Corporate health care services 56.1 % (53.5 %) HEALTH CARE SERVICES Operating income remained roughly the same from the first quarter last year to the first quarter this year. EBITA 1 was slightly improved. Profit performance EBITA for the first quarter came to NOK 8.8 million, compared with NOK 8.5 million in the same period in This yielded an EBITA margin of 6.9 per cent in the quarter, compared with 6.7 per cent in the first quarter a year ago. The increase in the margin is attributed to a combination of higher employment of the HSE consultants as a result of higher demand, and the effect on costs of implemented measures in The business area Hjelp24 NIMI has established new service areas in rehabilitation and cardiology during the quarter. In the start-up phase, this will have a negative effect on the margin. Operating income Health care services had operating income of NOK million in the quarter, compared with NOK million in the equivalent quarter in The reduction in turnover of 0.4 per cent is attributed to a slightly lower turnover for three of the business areas. The largest business area, Hjelp24 HSE, had an increase in turnover of 4.4 per cent relative to the same quarter in The introduction of enhanced trade regulations and the focus on the efforts to reduce absence due to illness in the companies resulted in increased turnover. However, one of the biggest customers of Hjelp24 HSE has cancelled their contract effective 1 May after a competitive tender that resulted in a substantial price reduction. As a result of a focus on profitability, Hjelp24 chose to not reduce the prices to the new level. The loss of the contract will entail less organic growth in The business area Hjelp24 NIMI had a slower growth in its customer base than expected from projects such as NAV Styrket (Strengthening the Norwegian Labour and Welfare Administration), whereas Hjelp24 Respons had a decline in demand from the Active concept of over 20 per cent compared with the equivalent period last year. Operating expenses The operating expenses came to NOK million in the quarter, compared with NOK million in the equivalent quarter in The Hjelp24 brand was launched on 1 January 2005, and the 5th anniversary was celebrated with a national convention for the Group with 450 persons attending in January This was an important event for the Group, as well as an investment in the cultural development of the company, which is now the country s leading player in the private health sector. Operating expenses during the quarter were charged with NOK 1.6 million in expenses related to this convention. In spite of this, operating expenses on the whole were reduced as a result of the effect of the workforce adjustments that were carried out in the second quarter last year. HEALTH CARE SERVICES NOK million Operating income Operating expenses (117.9) (118.7) (476.5) EBITA Amortisation of excess value - intangible assets (1.6) (1.7) (6.7) EBITA margin in per cent EBITA = earnings before interest, tax and amortisation 2 EBITA margin in per cent = EBITA/operating income 10

11 28.8 % (32.1 %) Asset allocation At the end of the period (same period last year) 11.9 % (12.5 %) 4.3 % (0.0 %) Loans and receivables Real estate Bonds held to maturity 2.7 % (3.2 %) Hedgefund and other fin. instr. Equities 12.9 % (6.9 %) Money market Current bonds 22.0 % (26.3 %) 17.5 % (19.0 % Equities Return by assets classes Money market 1st quarter 2010 Current bonds Bonds held to maturity Loans and receivables Real estate Hedgefund and other fin. investments 3.5 % 0.4 % 2.1 % 1.7 % 1.3 % 1.2 % 1.2 % MANAGEMENT OF FINANCIAL ASSETS AND INVESTMENT PROPERTIES Good result for the investment portfolio. The financial return in the quarter was 1.6 per cent, compared with 0.6 per cent in the first quarter last year. Investment portfolio The Group s investment portfolio includes all investment funds in the Group, except for Pension and Savings and Online retail banking. At the end of the quarter, the investment portfolio amounted to NOK 52,650.4 million. The fixed-income portfolio amounted to NOK 38.2 billion at the end of the first quarter and consisted of four subsets: money market instruments, current bonds, bonds held to maturity and loans and receivables. The counterparty risk in the fixedincome portfolio breaks down into 10.8 per cent central government and other public sector, 71.5 per cent banks and financial institutions and 17.7 per cent industrial concerns. A breakdown by credit rating gives 77.1 per cent classified as so-called investment grade and 3.2 per cent classified as high yield, while the remaining 19.8 per cent do not have any official credit rating. In the latter category, 32.5 per cent were issued by Norwegian savings banks, while the remainder were issued by power producers and distributors, property companies or government-guaranteed companies. At the end of the quarter, equity exposure was NOK 6.8 billion and consisted primarily of shares in Storebrand and equity certificates in SpareBank1 SR- Bank, as well as fund investments in private equity and short-term investments. The investments in Storebrand and SpareBank1 SR-Bank are classified as associated companies. At the end of the quarter, the shareholding in Storebrand was recognised at NOK 3,011.9 million. The equivalent figure for the investment in SpareBank1 SR-Bank was NOK million. Real estate investments amounted to NOK 6.3 billion at the end of the quarter and were concentrated in office properties in Oslo, but also included shopping centres and office properties in other Norwegian cities and an office building in Copenhagen, Denmark. In addition, a small portion of the portfolio was invested in international real estate funds. Financial return on the investment portfolio The financial earnings for the investment portfolio amounted to NOK million during the quarter, compared with earnings of NOK million in the same quarter in This gave a financial return of 1.6 per cent in the first quarter, compared with a return of 0.6 per cent in the same quarter in Reduced credit spreads yielded a good return of 1.5 per cent on the fixed-income portfolio during the quarter, which was equivalent to the return on the fixed-income portfolio in the first quarter of In the equity portfolio, a profit of NOK million was recognised for associated companies. Gjensidige s share of Storebrand s profit for the first quarter including amortisation amounted to NOK 82.1 million of this, whereas Gjensidige s estimated share of SpareBank1 SR-Bank s quarterly profit amounted to NOK 35.2 million. Furthermore, the private equity investments yielded a profit in the quarter of NOK 76.8 million. The average guaranteed return for valuation of the real estate portfolio was unchanged from 2009 and amounted to 6.75 per cent. There were no special conditions that affected the real estate portfolio in the first quarter. The international real estate funds were written down by NOK 13.2 million in the quarter. financial assets and investment properties Carrying amount NOK million Equities ,770.7 Money market ,188.0 Current bonds ,586.0 Bonds held to maturity ,163.9 Loans and receivables ,255.6 Real estate ,275.6 Hedgefund and other financial investments ,410.5 Other financial items Management costs (12.2) Financial profit/(loss) on the investment portfolio ,650.4 Financial income in Pension and savings and Online retail banking 9.7 Net income from investments Including associates. 2 The item primarily consists of the discounting effects of insurance obligations in Denmark, mismatches between interest rate and inflation adjustments on the liability side in Denmark versus interest rate and inflation hedging, and currency hedging of Gjensidige Sverige and Gjensidige Baltic. Carrying amount corresponds to the market value of interest rate and inflation swaps in Denmark. 11

12 ORGANISATION The Group had a total of 3,680 employees at the end of the first quarter of 2010, which was a decrease from 3,780 employees at the end of the fourth quarter. The reduction is attributed to workforce adjustments in several of the group companies. The number of employees breaks down to 2,041 employees in general insurance operations in Norway (2,055 at the end of the fourth quarter), 131 employees in Gjensidige Bank (135), 46 employees in Gjensidige Pensjon og Sparing (49), and 598 (644) in the health care area. The Gjensidige Group had 224 (246) employees in Denmark, 153 (153) employees in Sweden and 487 (498) employees (excluding agents) in the Baltic States. The acquisition of Nykredit Forsikring adds 320 employees to the Group as from the second quarter. CONVERSION AND STOCK EXCHANGE LISTING In accordance with the proposal from the Board of Directors, the annual general meeting passed a resolution on 23 April to convert Gjensidige Forsikring from a mutual company to a public limited company. At the same time, it was resolved that the Gjensidige Foundation should be converted from a charitable foundation to a financial foundation that shall continue the customers ownership of the Company. After the conversion, the financial foundation will own all of the shares of Gjensidige Forsikring. The conversion is pending approval by the authorities. It is expected that this approval will be granted by the end of June. The Board of Directors has also asked the administration to prepare a stock exchange listing of the Company during the second half of 2010, provided that the situation in the stock market is still satisfactory. In the event of a stock exchange listing, the foundation will sell between 25 and 40 per cent of the shares on the market. The purpose of the stock exchange listing is to give the Group greater freedom of action and opportunities to participate in the structural changes that affect the financial industry in the Nordic region. While it will also place a value on Gjensidige, a stock exchange listing will establish a security that can be used in the event of any acquisition that may occur or in some other manner to finance the Group s growth strategy in breadth as well as geographically. EVENTS AFTER THE BALANCE SHEET DATE No significant events have occurred after the end of the period, except for the annual general meeting s approval of the conversion. OUTLOOK The insurance operations have reported poor results in the first quarter of 2010 as a result of the harsh winter throughout all of the Nordic countries and the Baltic. A normal trend in the insurance operations is expected for the rest of the year. The Nordic and Baltic general insurance market will still be marked by tough competition. Planned and implemented measures for improving the risk margin and reduced operating expenses put Gjensidige in a good position to face the increased competition, and it is also expected to contribute to insurance profits. The banking business reported a profit for the first time since it started up, which is satisfactory performance. The bank has achieved a volume that should make it possible to operate profitably in the coming years. Pension and savings also reported better results. The focus on the whole range of products will strengthen the Group s position and provide a good foundation for further growth in Norway. The return in the financial markets was good in the first quarter. Most of the stock exchanges had a marked upswing during the quarter, and there was also a significant reduction in credit spreads with a good return on the credit portfolios. The real economic development is now in an upswing phase that appears to be self-sustaining, which entails that the policy measures involving substantial monetary and fiscal stimuli that were initiated can now be gradually reduced. There will always be uncertainty as to the effects that these changes in economic policy will have on the financial markets. There is also uncertainty with regard to the drastically weakened fiscal position in which a number of countries are currently mired. Gjensidige has substantial capital buffers, with regard to both internal risk models and legal capital adequacy requirements. The Board considers the Group s capital situation and financial strength to be strong. Sollerud, 11 May 2010 The Board of Directors of Gjensidige Forsikring BA 12

13 CONSOLIDATED INCOME STATEMENT NOK million Notes Operating income Earned premiums from general insurance 3, , ,660.4 Earned premiums from pension Interest income and credit commission income from banking operations Operating income from health care services Other income including eliminations Total operating income 3 4, , ,670.7 Net income from investments Income from investments in associates (188.6) Net operating income from property Interest income and dividend etc. from financial assets ,385.9 Net changes in fair value on investments (incl. property) Net realised gain and loss on investments (147.3) Expenses related to investments (30.3) (37.0) (155.9) Total net income from investments ,788.0 Total operating income and net income from investments 5, , ,458.7 Claims, loss etc. Claims incurred etc. from general insurance 5, 6 (3,544.1) (3,014.9) (12,071.0) Claims incurred etc. from pension (46.1) (18.7) (121.5) Interest expenses etc. and loss on loans/quarantees from banking operations (102.6) (80.3) (268.8) Total claims, interest expenses, loss etc. (3,692.8) (3,114.0) (12,461.4) Operating expenses Operating expenses from general insurance (635.8) (676.9) (2,771.5) Operating expenses from pension (28.0) (26.6) (102.7) Operating expenses from banking operation (78.2) (34.1) (147.3) Operating expenses from health care services (117.9) (118.7) (476.5) Other operating expenses (19.7) (22.4) (116.1) Amortisation and impairment losses of excess value - intangible assets (123.7) (25.9) (216.7) Total operating expenses (1,003.3) (904.6) (3,830.8) Total expenses (4,696.0) (4,018.5) (16,292.1) Profit/(loss) for the period before tax expense ,166.5 Tax expense (87.1) (126.0) (861.8) PROFIT/(LOSS) FOR THE PERIOD ,304.8 Earnings per equity certificate, NOK (basic and diluted) (restated for 1 q. 2009)

14 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME NOK million Profit/(loss) for the period ,304.8 Components of other comprehensive income Exchange differences (6.8) (99.3) (102.5) Share of other comprehensive income of associates 26.3 (4.6) (8.6) Actuarial gains and losses on pension Tax on other comprehensive income (24.1) (254.1) Total components of other comprehensive income 0.2 (103.9) 77.5 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ,

15 CONSOLIDATED statement of financial position NOK million Noter assets Goodwill 1, , ,507.5 Other intangible assets Investments in associates 3, , ,783.3 Owner-occupied property Plant and equipment Investment properties 5, , ,509.9 Financial assets Financial derivatives Shares and similar interests 4, , ,728.6 Bonds and other securities with fixed income 17, , ,562.4 Bonds held to maturity 15, , ,816.0 Loans and other receivables 14, , ,349.5 Assets in life insurance with investment options 3, , ,823.4 Reinsurance deposits Reinsurers' share of insurance-related liabilities in general insurance, gross Receivables related to direct operations and reinsurance 4, , ,435.8 Other receivables Prepaid expenses and earned, not received income Cash and cash equivalents 5, , ,103.5 TOTAL ASSETS 79, , ,868.9 EQUITY AND LIABILITIES Equity Equity certificates 1, , ,000.0 Other equity 21, , ,968.2 Total equity 22, , ,968.2 Provision for liabilities Provision for unearned premiums, gross 8 10, , ,671.7 Claims provision, gross 7 26, , ,857.2 Provision for premium discounts Pension liabilities , Other provisions Financial liabilities Financial derivatives Deposits from and liabilities to customers 6, , ,550.4 Interest-bearing liabilities 5, ,916.1 Other liabilities 1, , ,245.9 Current tax Deferred tax liabilities 1, ,205.6 Liabilities related to direct insurance , Accrued dividend Liabilities in life insurance with investment options 3, , ,823.4 Accrued expenses and deferred income Total liabilities 57, , ,900.7 TOTAL EQUITY AND LIABILITIES 79, , ,868.9 Sollerud, 11 May 2010 The Board of Directors of Gjensidige Forsikring BA 15