Interim Report 2nd quarter and first half-year Gjensidige Insurance Group

Transcription

1 Interim Report 2nd quarter and first half-year 2013 Gjensidige Insurance Group

2 Group highlights First half-year and second quarter 2013 In the following, figures in brackets indicate the amount or percentage for the corresponding period the year before. The year to date Group Profit/loss before tax expense: NOK 1,617.6 million (2,645.4) Profit per share: NOK 2.42 (4.08) General Insurance Earned premiums: NOK 9,103.7 million (8,807.4) Underwriting result: NOK million (1,224.7) Combined ratio: 91.3 (86.1) Cost ratio: 15.5 (15.6) Financial result: NOK million (1,403.3) Second quarter Group Profit/loss before tax expense: NOK 1,076.9 million (1,217.9) Profit per share: NOK 1.78 (1.90) General Insurance Earned premiums: NOK 4,646.6 million (4,453.9) Underwriting result: NOK million (718.5) Combined ratio: 90.3 (83.9) Cost ratio: 15.3 (15.4) Financial result: NOK million (494.4) Special factors and events Claims following a flood in Norway affected the underwriting result by NOK million Result performance group NOK million 2 q q General Insurance Private ,439.1 General Insurance Commercial ,012.6 General Insurance Nordic General Insurance Baltics Corporate Centre/costs related to owner (74.2) (66.8) (151.8) (134.3) (294.3) Corporate Centre/reinsurance 1 (75.8) (53.7) (92.9) (49.2) (88.5) Underwriting result general insurance , ,607.8 Pension and Savings Retail Bank Financial result from the investment portfolio , ,005.1 Amortisation and impairment losses of excess value intangible assets (32.4) (31.9) (63.9) (64.3) (126.9) Other items (0.4) (0.1) (1.7) Profit/(loss) for the period before tax expense 1, , , , ,633.5 Key figures general insurance Large losses Run-off gains/(losses) Loss ratio % 68.5 % 75.8 % 70.5 % 69.9 % Cost ratio % 15.4 % 15.5 % 15.6 % 15.5 % Combined ratio % 83.9 % 91.3 % 86.1 % 85.3 % 1 Large losses in excess of NOK 30.0 million are charged to the Corporate Centre, while claims incurred of less than NOK 30.0 million are charged to the segment in which the large losses have occurred. The segment Baltics has a retention level of EUR 0.5 million. Large losses allocated to the Corporate Centre amounted to NOK million (74.6) year to date and NOK 83.4 million (69.7) in the quarter. Moreover, accounting items related to written reinsurance and reinstatement premium are included. 2 Underwriting result general insurance = earned premiums - claims incurred etc. - operating expenses 3 Excluding return on financial assets in Pension and Savings and Retail Bank. 4 Large losses = loss event in excess of NOK 10.0 million. Expected large losses for the quarter was NOK million. 5 Run-off gains/(losses) = changes in estimates from earlier periods. Reserving is based on best estimate, and expected run-off result over time is zero. 6 Loss ratio = claims incurred etc./earned premiums 7 Cost ratio = insurance-related operating expenses/earned premiums 8 Combined ratio = loss ratio + cost ratio 2 Gjensidige Insurance Group 2nd quarter and first half-year 2013

3 Solid premium growth and satisfactory result Group profit performance Year to date development The Group recorded a profit before tax expense of NOK 1,617.6 million (2,645.4) for the year to date. The profit from general insurance operations measured by the underwriting result was NOK million (1,224.7). The investment portfolio yielded a return on financial assets of 1.4 per cent (2.5), or NOK million (1,403.3). The tax expense amounted to NOK million (604.8), corresponding to an effective tax rate of 25.3 per cent (22.9). The effective tax rate was significantly affected by the recognition of an impairment loss on the investment in Storebrand in the first quarter. Realised and unrealised gains on equity investments in the EEA also affected the tax rate. The profit after tax expense was NOK 1,207.9 million (2,040.7), corresponding to NOK 2.42 (4.08) per share. The underlying profitability of the portfolio was satisfactory and it contributed to a good underwriting result in the first half-year. The decline in the result from the corresponding period last year is primarily due to a more normal claims trend and lower run-off gains. Earned premiums in the Private segment increased by 3.2 per cent as a result of higher premiums. However, an increase in claims expenses contributed to a somewhat weaker underwriting result than in the same period last year. Earned premiums in the Commercial segment increased by 1.7 per cent from last year as a result of higher premiums and growth in both the Norwegian and Swedish portfolios. Higher claims expenses contributed to a slight reduction in the underwriting result. Earned premiums developed in a positive direction in the Nordic segment, with premiums growing by 7.6 per cent, primarily as a result of an increase in the number of new customers. The somewhat weaker underwriting result was largely due to lower run-off gains. The Baltics recorded a positive profit performance as a result of an improvement in the Baltic insurance market, which also led to a growth in premiums of 14.5 per cent. The bank's profit performance was good in the first half-year, driven by volume growth, lower write-downs and efficient operations. Pension and Savings also recorded a positive profit performance in the first half-year. The investment portfolio's profit performance was weaker than in the same period last year, largely because of the recognition of an impairment loss on the investment in Storebrand of NOK million in the first quarter. Development during the quarter The Group recorded a profit before tax expense for the quarter of NOK 1,076.9 million (1,217.9). The profit from general insurance operations measured by the underwriting result was NOK million (718.5). For the investment portfolio, the return on financial assets was 1.1 per cent (0.9), or NOK million (494.4). The profit after tax expense was NOK million (950.1), corresponding to NOK 1.78 (1.90) per share. The reduction in the underwriting result was due to lower run-off gains combined with a more normal underlying claims trend. The proportion of large losses was somewhat lower than last year despite a major flood in Norway that resulted in claims of NOK million. Both Retail Bank and Pension and Savings improved their profit performance since the same period last year as a result of good commercial growth. The financial result was affected by a poor return on equities in the free portfolio and an increase in interest rates and international credit margins. Equity and capital adequacy The Group s equity amounted to NOK 23,680.5 million (22,787.7) at the end of the first half-year. The annualised return on equity before tax expense was 13.1 per cent (22.8). The capital adequacy was 16.3 per cent (15.8), and the solvency margin was per cent (518.4). In addition to testing the capital in relation to statutory requirements, a calculation is carried out quarterly of the risk-based economic capital requirement and the requirements for maintaining an A rating from Standard & Poor s. The risk-based calculation of the economic capital requirement is carried out using the Group s internal risk model, which is based on an economic valuation of assets and liabilities. Available capital in excess of this amount constitutes the Group s excess capital. To arrive at the final excess capital, a deduction is made for the higher of the estimated additional capital required to maintain the current rating and that required to meet the statutory capital adequacy requirements. At the end of the quarter, the excess capital was calculated to be NOK 5.1 billion. Other matters The preliminary control report from the Norwegian Data Protection Authority As reported to the market on 19 June 2013, Gjensidige has received a preliminary control report from the Norwegian Data Protection Authority that points out aspects of the Group's handling of personal data in connection with investigations of possible insurance fraud that warrant criticism. The report from the Norwegian Data Protection Authority describes some matters that Gjensidige agrees with and is already in the process of rectifying. However, the Data Protection Authority draws far-reaching conclusions on the basis of a review of a very small part of Gjensidige's operations. However, it is Gjensidige's opinion that the Group has a good internal control system for handling personal data. Gjensidige Insurance Group 2nd quarter and first half-year

4 Product groups Private Earned premiums year to date (same period last year) 9.0% (8.9) 17.6% (17.7) Lorem ipsum dolores 43.2% (43.2) Motor Property Accident and health Other 30.1% (30.2) General Insurance Private Year to date development The underwriting result for the year to date was NOK million (673.5). The combined ratio was 86.4 (81.6). The main reason for the decline in the underwriting result was an increase in claims expenses compared with the corresponding period last year. Earned premiums amounted to NOK 3,768.2 million (3,652.3). The number of customers remained stable, and the positive trend in earned premiums was driven by higher premiums. Claims incurred amounted to NOK 2,752.2 million (2,476.4). The loss ratio was 73.0 (67.8). The increase in the loss ratio was primarily due to a more normal claims development for the largest product groups compared with the same period last year. Claims incurred for the year to date were within the bounds of what can normally be expected, while the claims development in the first half-year of 2012 was particularly favourable. Development during the quarter The underwriting result for the period was NOK million (439.0). The combined ratio was 84.9 (76.5). Earned premiums amounted to NOK 1,933.6 million (1,871.2). The positive development in earned premiums was due to increased premiums, and earned premiums increased in all product areas. Claims incurred amounted to NOK 1,382.5 million (1,177.2). The loss ratio was 71.5 (62.9). The property product in particular recorded a higher loss ratio than in the corresponding period last year, but the motor product also had a higher loss ratio. This was due to a more normal claims development. Operating expenses amounted to NOK million (255.0). The cost ratio was 13.4 (13.6). Operating expenses amounted to NOK million (502.5), and the cost ratio was 13.4 (13.8). Part of the improvement in the cost ratio was due to the restructuring of the office channel that was carried out in the first half-year General Insurance Private NOK million 2 q q Earned premiums 1, , , , ,498.5 Claims incurred etc. (1,382.5) (1,177.2) (2,752.2) (2,476.4) (5,051.7) Operating expenses (258.5) (255.0) (504.9) (502.5) (1,007.7) Underwriting result ,439.1 Amortisation and impairment losses of excess value intangible assets (2.4) (2.4) (4.8) (4.8) (9.5) Large losses Run-off gains/(losses) Loss ratio % 62.9 % 73.0 % 67.8 % 67.4 % Cost ratio % 13.6 % 13.4 % 13.8 % 13.4 % Combined ratio % 76.5 % 86.4 % 81.6 % 80.8 % 1 Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from earlier periods 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio 4 Gjensidige Insurance Group 2nd quarter and first half-year 2013

5 Product groups Commercial Earned premiums year to date (same period last year) 1.9% (1.8) 5.4% (5.2) 13.4% (13.0) 3.5% (3.5) 25.4% (28.7) Lorem ipsum dolores 21.6% (20.8) 28.8% (27.0) Motor Property Accident and health Marine/cargo Liability Agriculture Other General Insurance Commercial Year to date development The underwriting result for the period was NOK million (439.5). The combined ratio was 90.0 (87.0). The reduction in the underwriting result is mainly due to higher claims expenses. Earned premiums increased to NOK 3,441.8 million (3,385.2). Both the Norwegian and Swedish commercial portfolios showed positive development compared with the same period last year. The growth was impaired by a wanted reduction in the Norwegian and Swedish municipal portfolios, and by the loss of a large accident and health agreement in the third quarter last year. Claims incurred amounted to NOK 2,685.5 million (2,535.9), which corresponds to a loss ratio of 78.0 (74.9). The increase was due to a higher claims level in motor and agriculture insurance, among other things as a result of a more normal weather situation. Last year was characterised by a low loss frequency and abnormally low claims expenses compared with what can be expected in a normal year. The claims development for the other main products was positive. Development during the quarter The underwriting result for the quarter was NOK million (202.0), corresponding to a combined ratio of 89.1 (88.1). Earned premiums increased to NOK 1,744.3 million (1,690.8) despite the reduction in the municipal portfolio. Claims incurred amounted to NOK 1,354.5 million ( ), which corresponds to a loss ratio of 77.7 (76.2). The effect of a lower proportion of large losses and a favourable claims trend for accident and health products was outweighed by a more normal claims development in agriculture and motor insurance. Operating expenses amounted to NOK million (200.5). The cost ratio was 11.4 (11.9). Operating expenses amounted to NOK million (409.8). The cost ratio was 12.0 (12.1). The segment is working on incorporating the Norwegian and Swedish municipal portfolios and the Swedish commercial portfolio. This led to somewhat higher operating ex penses in the period. General Insurance Commercial NOK million 2 q q Earned premiums 1, , , , ,764.8 Claims incurred etc. (1,354.5) (1,288.2) (2,685.5) (2,535.9) (4,943.1) Operating expenses (199.7) (200.5) (413.4) (409.8) (809.1) Underwriting result ,012.6 Large losses Run-off gains/(losses) Loss ratio % 76.2 % 78.0 % 74.9 % 73.1 % Cost ratio % 11.9 % 12.0 % 12.1 % 12.0 % Combined ratio % 88.1 % 90.0 % 87.0 % 85.0 % 1 Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from earlier periods 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio Gjensidige Insurance Group 2nd quarter and first half-year

6 Product groups Nordic Earned premiums year to date (same period last year) 2.5% (3.4) 0.5% (0.4) 7.0% (6.6) 21.9% (18.9) Lorem ipsum dolores 30.5% (32.8) Motor Property Accident and health Liability Agriculture Other 37.6% (37.9) General Insurance Nordic Year to date development The underwriting result was NOK million (290.4) for the year to date, corresponding to a combined ratio of 89.1 (80.1). The reduction in the result was largely due to lower run-off gains. Earned premiums increased to NOK 1,573.0 million (1,462.5). The increase is primarily due to an increase in the number of new commercial customers. Claims incurred amounted to NOK 1,135.2 million (918.7). The loss ratio was 72.2 (62.8). The higher loss ratio was due to a considerably lower run-off gain combined with a more normal weather situation and a change in the portfolio composition. Operating expenses amounted to NOK million (253.4). The cost ratio was 17.0 (17.3). The higher operating expenses were due, among other things, to non-recurring expenses in connection with the implementation of a new distribution agreement with the Nykredit Group. Development during the quarter The underwriting result was NOK million (189.2), corresponding to a combined ratio of 86.8 (74.4). A significant part of the decline in the result was due to a lower run-off gain. Earned premiums amounted to NOK million (740.3). The increase was primarily due to an increase in the number of new commercial customers. Changes, which entered into force with effect from April, have been made to the cooperation agree ment with the Nykredit Group. Among other things the changes mean that Gjensidige has taken over the first-line customer dialogue. This is expected to contribute to increased sales and customer satisfaction in the private market in the time ahead. Claims incurred amounted to NOK million (418.5). The loss ratio was 68.8 (56.5). The higher loss ratio was due to a lower run-off gain, a more normal claims picture and a change in the composition of the portfolio. Operating expenses amounted to NOK million (132.7). The cost ratio was 18.0 (17.9). The higher operating expenses were due, among other things, to non-recurring expenses in connection with the implementation of a new distribution agreement with the Nykredit Group. Gjensidige signed an agreement for the acquisition of Gouda Travel Insurance in June. The company has around NOK 290 million in earned premiums in the Nordic market. The acquisition is contingent on the approval of the authorities, and it is expected to be completed towards the end of The acquisition gives Gjensidige valuable expertise and an attractive portfolio in an area that is growing in the Nordic market. General Insurance Nordic NOK million 2 q q Earned premiums , , ,909.7 Claims incurred etc. (556.0) (418.5) (1,135.2) (918.7) (1,883.6) Operating expenses (145.8) (132.7) (266.9) (253.4) (506.1) Underwriting result Amortisation and impairment losses of excess value intangible assets (28.9) (28.3) (56.8) (57.2) (112.8) Large losses Run-off gains/(losses) Loss ratio % 56.5 % 72.2 % 62.8 % 64.7 % Cost ratio % 17.9 % 17.0 % 17.3 % 17.4 % Combined ratio % 74.4 % 89.1 % 80.1 % 82.1 % 1 Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of NOK 30.0 million per event are charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from earlier periods 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio 6 Gjensidige Insurance Group 2nd quarter and first half-year 2013

7 Product groups Baltics Earned premiums year to date (same period last year) 2.8% (3.1) 4.3% (4.5) 15.3% (14.2) Motor 15.0% (15.6) Lorem ipsum dolores 62.6% (62.6) Property Accident and health Liability Other General Insurance Baltics Year to date development The underwriting result for the year to date was NOK 11.1 million (4.8). The combined ratio was 95.4 (97.7). The improvement in profit performance was largely due to a positive development in earned premiums. Earned premiums amounted to NOK million (210.1). Earned premiums in health and motor insurance developed particularly well, primarily as a result of an improvement in the Baltic insurance markets. Claims incurred amounted to NOK million (142.3), which corresponds to a loss ratio of 68.5 (67.7). Run-off gains were almost halved in relation to the same period last year. The underlying development was driven by a more normalised claims situation and better quality in the portfolio. Development during the quarter The underwriting result was NOK 9.4 million (8.9). The combined ratio was 92.4 (91.9). Earned premiums amounted to NOK million (109.2). The development in earned premiums was especially positive in health and motor insurance. Claims incurred amounted to NOK 81.6 million (68.2), which corresponds to a loss ratio of 65.8 (62.4). The loss ratio was affected by lower run-off gains and a change in the composition of the portfolio. The nominal operating expenses amounted to NOK 33.0 million (32.2), corresponding to a cost ratio of 26.6 per cent (29.4). The nominal operating expenses amounted to NOK 64.5 million (63.0), corresponding to a cost ratio of 26.8 per cent (30.0). Despite increased activity, cost-cutting measures that were implemented contributed to keeping the cost level stable. General Insurance Baltics NOK million 2 q q Earned premiums Claims incurred etc. (81.6) (68.2) (164.8) (142.3) (292.6) Operating expenses (33.0) (32.2) (64.5) (63.0) (125.4) Underwriting result Amortisation and impairment losses of excess value intangible assets (1.2) (1.2) (2.3) (2.4) (4.7) Large losses Run-off gains/(losses) Loss ratio % 62.4 % 68.5 % 67.7 % 67.0 % Cost ratio % 29.4 % 26.8 % 30.0 % 28.7 % Combined ratio % 91.9 % 95.4 % 97.7 % 95.7 % 1 Large losses = loss event in excess of NOK 10.0 million. Claims incurred in excess of EUR 0.5 million per event are charged to the Corporate Centre. 2 Run-off gains/(losses) = changes in estimates from earlier periods 3 Loss ratio = claims incurred etc./earned premiums 4 Cost ratio = operating expenses/earned premiums 5 Combined ratio = loss ratio + cost ratio Gjensidige Insurance Group 2nd quarter and first half-year

8 Asset allocation the group policy portfolio At the end of the period (same period last year) 83.1 % (78.3) Lorem ipsum dolores 7.8 % (16.3) 2.8 % (4.2) 6.3 % (1.2) Bonds held to maturity Money market Other financial investments Bonds classified as loans and receivables Pension and Savings Year to date development The profit before tax expense for the year to date was NOK 23.3 million (18.8). This positive development was due to an increase in revenues as a result of growth in the customer portfolio combined with a positive market development. At the turn of the year, Gjensidige Pensjonsforsikring took over two external defined contribution portfolios, which led to an increase in the assets under management of just over NOK 800 million. Net insurance revenue in the period amounted to NOK 62.3 million (69.3). The reduction was largely due to increased claims expenses as a result of changes in the estimates of future claims disbursements for the risk products. The management income increased to NOK 38.5 million (31.3) as a result of growth in the customer portfolio, for both the pension and savings areas, and positive market development. Operating expenses amounted to NOK 89.6 million (86.8). Financial income amounted to NOK 12.1 million (5.0). This includes the return on the group policy and corporate portfolio. This positive deviation is largely the result of increased revenues due to growth in the portfolio. The Company's share of the financial profit on the paid-up policy portfolio amounted to NOK 2.8 million in the period, and it was allocated in its entirety as a provision for higher life expectancy. The remaining provision required to meet the new mortality basis is estimated to be NOK 175 million, spread over a six-year period on a linear basis. It is regarded as probable that Gjensidige Pensjonsforsikring will be able to make the necessary provisions within the stipulated time period by using the return on financial assets to increase the provision. At the end of the period, the assets under management in the pension operations amounted to NOK 12,562.1 million (9,329.3). The group policy portfolio accounted for NOK 3,356.6 million (2,799.2) of this amount. The recognized return on the paid-up policy portfolio was 2.28 per cent (2.32). The average annual interest guarantee is 3.6 per cent. Assets under management for the savings operations amounted to NOK 11,158.5 million (9,543.8) at the end of the period. The total assets under management increased by NOK 3,241.8 million (1,125.4), amounting to NOK 23,720.6 million (18,873.1) at the end of the period. Development during the quarter The profit before tax expense for the quarter was NOK 13.6 million (10.0). This positive development is due to an increase in revenues as a result of growth in the customer portfolio and positive market development. Net insurance revenue amounted to NOK 31.1 million (37.0) in the period. This reduction is primarily due to increased claims expenses relating to the risk products. The management income in creased to NOK 19.7 million (16.0) as a result of growth in the customer portfolio, for both the pension and savings areas. Operating expenses amounted to NOK 44.1 million (44.2). Financial income amounted to NOK 6.9 million (1.2). Pension and Savings NOK million 2 q q Earned premiums Claims incurred etc. (188.6) (89.4) (366.2) (242.3) (574.9) Net insurance revenue Management income etc Operating expenses (44.1) (44.2) (89.6) (86.8) (170.4) Net operating income Net financial income Profit/(loss) before tax expense Run-off gains/(losses) 1 (15.7) Operating margin % 16.58% 11.11% 13.71% 0.19% Recognized return on the paid-up policy portfolio % 2.32% 4.76% Value-adjusted return on the paid-up policy portfolio % 2.38% 4.77% 1 Run-off gains/(losses) = changes in estimates from earlier periods 2 Operating margin = net operating income/(net insurance revenue + management income etc.) 3 Recognized return on the paid-up policy portfolio = realised return of the portfolio 4 Value-adjusted return on the paid-up policy portfolio = total return of the portfolio 8 Gjensidige Insurance Group 2nd quarter and first half-year 2013

9 Retail Bank Year to date development Profit before tax expense was NOK 91.0 million (47.7). The positive development was mainly due to the increase in the net interest income coming from the growth in customer lending, and also cost efficiency and lower write-downs. Net interest income was NOK million (214.1), as result of customer assets growth and decreasing financing costs. Net commission income and other income were NOK 20.5 million (20.2). There was an increase in the customer related commission income and the gains on the previously written off portion of the acquired unsecured lending portfolio. This improvement was offset by the decrease in income from financial instruments. Annualised net interest income in per cent of average total assets was 2.59 percent (2.52). This was a result of lower financing costs. Deposits and lending At the end of the period (same period last year) NOK million Lending Lending Deposits Deposits Operating expenses were NOK million (147.4). The increase was driven by volume growth and business development through the newly launched car financing product, partly offset by lower depreciation costs. Cost/income ratio was 56.1 per cent (62.9). The decline was driven by the increased income and expense efficiency. Total write-downs and losses were NOK 31.5 million (39.3), primarily related to the unsecured lending portfolio. The improvement was driven by lower provisioning levels as a result of improved expectation of customer repayments. Annualized write-downs and losses in per cent of average gross lending were 0.34 per cent (0.52). The decline was a result of improve ment in loss and provisioning levels as well as an increased share of the secured loans in the lending portfolio. The write-down and losses were in line with the bank s expectations. The weighted average loan to value 1 was estimated at 63.2 per cent for the mortgage portfolio. Gross lending increased with 34.2 percent year over year, amounting to NOK 20,899.0 million (15,575.7) at the end of the period. The lending activity saw a considerable boost during the last quarter. The growth is expected to slow somewhat in the second half-year. The bank s deposits increased with 19.9 percent year over year, reaching NOK 12,460.4 million (10,396.5) at the end of the period. Deposits to loans ratio was 59.6 percent (66.7). There is good access to external financing. Standard & Poor s upgraded Gjensidige Bank s long term rating in the beginning of July from BBB+ to A-, outlook negative. The development was based on their assessment of the support the bank receives from the parent company. This is expected to bring further improvements to the financing costs. The bank s core capital increased during the second quarter, following the growth of the business and the new regulations related to capital, in place starting July 1st. The increase amounted to NOK million. Development during the quarter Profit before tax expense was NOK 43.1 million (26.9). The net interest income was the main driver for the increased profitability. Net interest income was NOK million (108.8), as result of customer assets growth. Net commission income and other income were NOK 10.1 million (10.9). The decline was a result of reduced gains from financial instruments. There was an increase in the gains on the previously written off portion of the acquired unsecured lending portfolio. Operating expenses were NOK 82.5 million (72.4). The increase in the expenses was primarily driven by the volume growth and business development through the newly launched car financing product. Cost/income ratio was 58.0 per cent (60.5). Total write-downs and losses were NOK 16.8 million (20.4), primarily related to the unsecured lending portfolio. Loan growth was NOK 2,661.0 million (485.0) during the quarter while the deposits increased with NOK million (281.5). 1 The estimate is calculated based on the exposure at the reporting date and the property valuation at the time the loan was approved, including any higher priority pledge(s). Retail Bank NOK million 2 q q Interest income and related income Interest expenses and related expenses (137.9) (124.3) (264.3) (252.5) (506.7) Net interest income Net commission income and other income Total income Operating expenses (82.5) (72.4) (156.6) (147.4) (306.4) Write-downs and losses (16.8) (20.4) (31.5) (39.3) (68.4) Profit/(loss) before tax expense Net interest income, annualised % 2.52% 2.52% Write-downs and losses, annualised % 0.52% 0.43% Cost/income ratio % 60.5% 56.1% 62.9% 62.8% Capital adequacy % 13.3% 13.6% 1 Net interest income, annualised = net interest income/average total assets 2 Write-downs and losses, annualised = write-downs and losses/average gross lending 3 Cost/income ratio = operating expenses/total income 4 Capital adequacy = primary capital/basis of calculation for credit risk, market risk and operational risk. The result of the period is not included in the calculation for the quarters, with the exception of fourth quarter. Gjensidige Insurance Group 2nd quarter and first half-year

10 Portfolio split At the end of the period (same period last year) Geographic distribution match portfolio At the end of the period 1.6 % 6.8 % 30.7% (33.0) Match portfolio 8.8% (8.8) Lorem ipsum dolores 60.4% (58,3) Assosiated companies Free portfolio 6.7 % 3.7 % 27.1 % Lorem ipsum dolores 48.4 % Norway Sweden Denmark USA UK Baltics Others 5.8 % Management of financial assets and properties The Group s investment portfolio includes all investment funds in the Group except for investment funds in the Pension and Savings segment and the Retail Bank segment. The investment portfolio consists of three parts: a match portfolio, a free portfolio and associated companies. The match portfolio is intended to correspond to the Group's actuarial provisions. It is invested in fixed-income instruments whose duration is adapted to the disbursement of the actuarial provisions. The free portfolio consists of various assets. The allocation of assets in this portfolio must be seen in connection with the Group's capitalisation and pertaining risk capacity, and its ongoing risk management. Associated companies largely comprise the holdings in Storebrand and SpareBank 1 SR-Bank. Year to date development At the end of the period, the investment portfolio amounted to NOK 55,516.5 million (54,506.4). The financial result was NOK million (1,403.3), which corresponds to a return on financial assets of 1.4 per cent (2.5). The return for the period was affected by the impairment loss recognised on the investment in Storebrand in the first quarter. Match portfolio The match portfolio amounted to NOK 33.6 billion (31.8). The portfolio yielded a return of 1.7 per cent (2.1) excluding changes in the value of the part of the portfolio recognised at amortised cost. Unrealised excess value from bonds valued at amortised cost amounted to NOK 1,022.0 million (549.8) at the end of the period. The average duration of the match portfolio was 3.3 years, while the average term to maturity for corresponding insurance debt was 3.6 years. The distribution of counterparty risk and credit rating is shown in the charts on page 11 and 12. Of the securities without an official credit rating, 20.2 per cent were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or governmentguaranteed companies. Bonds with a coupon that is adjusted on the basis of the Norwegian consumer price index accounted for 13.0 per cent of the match portfolio. The geographical distribution of the match portfolio is shown in the above chart. At the end of the second quarter, there are no direct investments in the so-called PIIGS countries. Financial assets and properties Result 2 q. Result Carrying amount 30.6 NOK million Match portfolio Money market , ,724.9 Bonds at amortized cost , ,249.4 Current bonds 1 (0.7) , ,781.6 Match portfolio total , ,755.8 Associated companies (281.8) , ,787.5 Free portfolio Money market , ,370.0 Other bonds 2 (18.6) , ,794.8 Convertible bonds (11.0) Current equities 8.2 (129.3) (20.4) 1, ,321.8 PE funds , ,321.2 Property , ,016.6 Other 4 (14.7) 17.3 (27.0) Free portfolio total , ,963.0 Financial result from the investment portfolio , , ,506.4 Financial income in Pension and Savings and Retail Bank Net income from investments , The item includes the discounting effects of insurance obligations in Denmark and mismatch between interest rate adjustments on the liability side in Denmark versus the interest rate hedge. 2 The item consist of total investment grade, high yield and current bonds. Investment grade and high yield are investments in internationally diversified funds externally managed. 3 Investments in internationally diversified funds externally managed. 4 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Denmark, and lendings, paid-in capital in Gjensidige Pensjonskasse and hedge funds. 10 Gjensidige Insurance Group 2nd quarter and first half-year 2013

11 Geographic distribution fixed income instruments in free portfolio At the end of the period 0.1% 11.9% 22.1% 17.1% Lorem ipsum dolores 45.0% Norway Sweden USA UK Baltic Other Counterparty risk fixed income instruments At the end of the period Per cent Industry Banks/ financial institutions Government/ public sector 3.8% 0 Match portfolio Free portfolio Free portfolio The free portfolio amounted to NOK 17.1 billion (18.0) at the end of the period. The return was 2.6 per cent (2.8). Fixed-income instruments The fixed-income instruments in the free portfolio amounted to NOK 8.1 billion (9.8) and yielded a return of 1.5 per cent (3.0). Other bonds yielded a significantly lower return compared with the corresponding period last year. The main reason for this was a weaker return on high-yield and investment grade bonds as a result of higher interest rates and international credit margins. The average duration of the portfolio was approximately 1.9 years at the end of the period. The distribution of counterparty risk and credit rating is shown in the charts above and on page 12. Of the securities without an official rating, 8.8 per cent were issued by Norwegian savings banks, while the remainder were mostly issued by Norwegian power producers and distributors, property companies or government- guaranteed companies. The geographical breakdown of the fixed-income instruments in the free portfolio is shown in the chart above. Bond investments in the PIIGS countries through funds amounted to NOK million at the end of the period. Equity portfolio The total equity exposure at the end of the period (including private equity, but excluding associated companies) was NOK 3.5 billion (2.6). The return on current equities was 6.4 per cent (a negative return of 1.7). This includes the profit from derivatives used for hedging purposes. The return on private equity was 8.2 per cent (5.9), partly driven by realised gains. Property portfolio At the end of the period, the property portfolio amounted to NOK 5.0 billion (5.0). The property portfolio yielded a return of 2.5 per cent (2.7). The return on directly owned properties was good, while the return on property funds was negative. The general required rate of return in connection with the valuation of the properties was 6.5 per cent (6.6). The individual valuations resulted in a net increase in value in the first half year of NOK 54.5 million. External valuations of ten of the properties were carried out at the end of the period. The portfolio is concentrated in office properties in Oslo, but it also includes office properties in other Norwegian cities and one office building in Copenhagen. In addition, a small part of the portfolio is invested in international property funds. Return per asset class Per cent 2 q q Match portfolio Money market Bonds at amortized cost Current bonds 1 (0.0) Match portfolio total Associated companies (5.8) Free portfolio Money market Other bonds 2 (0.7) Convertible bonds (1.6) Current equities 0.4 (10.1) 6.4 (1.7) 8.5 PE-funds Property Other 4 (1.6) 1.7 (3.0) Free portfolio total Return on financial assets The item includes the discounting effects of insurance obligations in Denmark and mismatch between interest rate adjustments on the liability side in Denmark versus the interest rate hedge. 2 The item consist of total investment grade, high yield and current bonds. Investment grade and high yield are investments in internationally diversified funds externally managed. 3 Investments in internationally diversified funds externally managed. 4 The item includes currency hedging of Gjensidige Sverige, Gjensidige Baltic and Gjensidige Denmark, and lendings, paid-in capital in Gjensidige Pensjonskasse and hedge funds. Gjensidige Insurance Group 2nd quarter and first half-year

12 Credit rating fixed income instruments At the end of the period Per cent No official rating High yield Investment grade Match portfolio Free portfolio Associated companies Associated companies amounted to NOK 4.9 billion (4.8) at the end of the period. The shareholding in Storebrand was recognised in the amount of NOK 3,530.1 million. The corresponding figure for the investment in SpareBank 1 SR-Bank was NOK 1,322.5 million. The return on associated companies was minus 5.8 per cent (plus 4.6), which corresponds to minus NOK million (plus 209.9). An impairment loss on the investment in Storebrand was recognised in the amount of NOK million in the first quarter. Gjensidige's share of Storebrand's profit for the half-year amounted to NOK million, including the amortisation of excess value. Gjensidige's estimated share of Sparebank 1 SR-Bank's profit in the first half-year amounted to NOK 78.8 million, including the amortisation of excess value. Development during the quarter The financial result for the total investment portfolio was NOK million (494.4) in the quarter. This resulted in a return on financial assets of 1.1 per cent (0.9). The return on the match portfolio was 0.9 per cent (1.0), excluding changes in the value of the portfolio valued at amortised cost. The return on the free portfolio was 0.6 per cent (0,4). It was negatively affected by weak results for equities and bonds. The return on associated companies was 4.2 per cent (1.9), including a positive estimate deviation from the first quarter of NOK 6.8 million. Key risk and uncertainty factors Emphasis is placed on clear lines of reporting and a clear division of responsibility in the organisation of the business. Risk assessments are carried out on a regular basis, and the status is reported quarterly to the management. Insurance risk General insurance operations account for the lion s share of the Group's business and risk. The result of the general insurance operations is affected by developments in the portfolio and premium levels, as well as by developments in the frequency and the average size of claims, and the extent of large individual claims or events. The insurance markets in which the Group operates will continue to be characterised by keen competition. The risk of the general premium level not being satisfactory is monitored continuously. The same applies to developments in the frequency and average size of claims, and methods are continuously being developed in order to set prices more precisely. The reinsurance programme is decided on the basis of the need to protect the equity against loss events over and above an amount deemed to be justifiable, and the need to reduce fluctuations in earnings. The insurance risk is deemed to be moderate based on the reinsurance coverage the Group has purchased. The Group continuously endeavours to set the actuarial provisions at the correct level. There is nonetheless an inherent risk that the actuarial provisions will be insufficient. In order to reduce this risk, efforts are continuously made to improve the actuarial methods used. External actuaries are used at times to conduct independent reviews of the provisions. The external reviews have confirmed that the actuarial provisions are sufficient, and that the risk of substantial run-off losses is low. Financial risk Financial investments are vulnerable to changes in macroeconomic factors and more short-term changes in the market s appetite for risk. At the end of the period, the financial investments largely consisted of interest-bearing investments, property, equities in addition to holdings in associated companies that are recognised in accordance with the equity method. Continuous monitoring of the financial performance in relation to adopted performance requirements and the expected development of profit performance, combined with a large proportion of highly liquid assets, makes it possible to adapt the risk level quickly in the event of negative developments. This entails a moderate fluctuation risk for future financial results. A framework has been adopted for necessary access to liquid funds for all the group companies, and there is a substantial liquidity reserve in Gjensidige Forsikring ASA. Liquidity forecasts are prepared continuously in order to reduce the risk. For the Group as a whole, the liquidity risk is deemed to be small. The Group is exposed to credit risk through investments in the bond and money market and through its lendings, including through Gjensidige Bank, as well as in connection with outstanding claims against the Group s reinsurers. Limits have been set for credit operations, and reinsurers are required to have at least an A rating from Standard & Poor s or an equivalent rating. Credit losses have been very low so far. 12 Gjensidige Insurance Group 2nd quarter and first half-year 2013

13 Organisation The Group had a total of 3,218 employees at the end of the period, compared with 3,129 employees at the end of the first quarter. The number of employees broke down as follows: 1,983 (1,963) in general insurance operations in Norway, 136 (128) in Gjensidige Bank, 50 (50) in Gjensidige Pensjon og sparing, 543 (472) in Denmark, 102 (99) in Sweden and 404 (417) in the Baltic states (excluding agents). (The figures in brackets refer to the number of employees at the end of the previous quarter.) The increase in the number of employees in Norway is due to increased efforts on the customer centre channel in the Commercial segment and the office channel and customer centres in the Private segment. In Denmark, the number of employees increased as a result of employees being taken over from the Nykredit Group in connection with the change to the distribution agreement. Gjensidige Bank has more employees as a result of its increased efforts on car financing. Events after the balance sheet date No significant events have occurred after the end of the period. Outlook Gjensidige's profitability targets remain unchanged, and profitability is prioritised over growth. Over time, the annual combined ratio shall be within the corridor The Group's competitiveness is regard ed as good, and a great deal of attention has been devoted to the work of implementing measures and investments that will put the company in a position to meet customers' future needs and service requirements. In order to underpin Gjensidige's long-term profitability goal, strategic group programmes for optimal tariff setting, simplification, automation and self-service solutions have been initiated in recent years. Together with the relaunching of the Gjensidige brand in December 2012, these initiatives will strengthen the platform for future growth and help to position Gjensidige as the most customeroriented general insurance company in the Nordic region. Optimal utilisation of partnerships has a central place in the company's strategy, together with continuous assessment of new opportunities for growth. There is still uncertainty about the international economic situation, and several of the major economies are experiencing financial challenges. This creates uncertainty for Gjensidige as well. The trend of falling interest rates shows signs of changing, and interest rates have increased since their lowest level. Gjensidige has a robust investment strategy, at the same time as the Group is financially sound and has a high proportion of its business in the Norwegian general insurance market. The macroeconomic situation with regard to the Norwegian general insurance operations is still regarded as good, and the Danish housing market continues to show signs of improvement. The Baltic economies continue to show positive development. There is still uncertainty relating to changed framework conditions for the financial sector in Norway and internationally. The Solvency II Regulations are not expected to be implemented in Norway until 2016 at the earliest. New Norwegian pension legislation is expected to enter into force in The Group has substantial capital buffers in relation to internal risk models, statutory capital adequacy requirements and the target rating. The Board considers the Group s capital situation and financial strength to be good. Sollerud, 15 July 2013 The Board of Gjensidige Forsikring ASA Inge K. Hansen Gunnhild H. Andersen Trond Vegard Andersen Hans-Erik F. Andersson Per Arne Bjørge Chair Kjetil Kristensen Gisele Marchand Gunnar Mjåtvedt Mari T. Skjærstad Mette Rostad Helge Leiro Baastad CEO Gjensidige Insurance Group 2nd quarter and first half-year

14 Consolidated income statement NOK million Notes 2 q q Operating income Earned premiums from general insurance 4, , , , ,797.3 Earned premiums from pension Interest income etc. from banking operations Other income including eliminations Total operating income 3 5, , , , ,517.7 Net income from investments Results from investments in associates (281.8) Operating income from property Interest income and dividend etc. from financial assets ,610.1 Net changes in fair value on investments (incl. property) (246.7) (198.5) (25.3) (109.2) (301.2) Net realised gain and loss on investments ,150.0 Expenses related to investments (33.9) (37.7) (68.5) (81.7) (179.5) Total net income from investments , ,055.8 Total operating income and net income from investments 5, , , , ,573.5 Claims, loss etc. Claims incurred etc. from general insurance 5,6 (3,487.3) (3,050.4) (6,901.6) (6,212.6) (12,437.7) Claims incurred etc. from pension (188.6) (89.4) (366.2) (242.3) (574.9) Interest expenses etc. and write-downs and losses from banking operations (154.7) (144.7) (295.9) (291.8) (575.1) Total claims, interest expenses, losses etc. (3,830.5) (3,284.5) (7,563.7) (6,746.8) (13,587.7) Operating expenses Operating expenses from general insurance (710.8) (685.0) (1,410.7) (1,370.1) (2,751.8) Operating expenses from pension (44.1) (44.2) (89.6) (86.8) (170.4) Operating expenses from banking operations (82.5) (72.4) (156.6) (147.4) (306.4) Other operating expenses (1.5) (4.1) (4.9) Amortisation and impairment losses of excess value - intangible assets (32.4) (31.9) (63.9) (64.3) (126.9) Total operating expenses (871.4) (837.6) (1,725.8) (1,660.5) (3,352.3) Total expenses (4,701.9) (4,122.1) (9,289.6) (8,407.3) (16,940.0) Profit/(loss) for the period before tax expense 3 1, , , , ,633.5 Tax expense (185.7) (267.8) (409.7) (604.8) (1,353.5) Profit/(loss) for the period , , ,280.1 Earnings per share, NOK (basic and diluted) Gjensidige Insurance Group 2nd quarter and first half-year 2013