interim report fourth quarter and preliminary 2009 Gjensidige insurance group
GROUP HIGHLIGHTS FOURTH QUARTER 2009 The Group had a solid profit performance in the quarter. The profit before tax expense came to NOK 634.4 million, compared with a loss before tax expense of NOK 653.3 million in the same quarter in 2008 The cost performance is in keeping with the objectives that were set for reduction of operating expenses and claims incurred. Adjusted for non-recurring provisions, the cost ratio amounted to 16.2 in the quarter, compared with 18.0 in the same quarter in 2008. Likewise, the combined ratio amounted to 93.3 in the quarter, compared with 95.8 in the same quarter in 2008 The Board of Directors recommends that NOK 1,650.0 million be paid in dividends for 2009, corresponding to 70 per cent of the Group s profit for the year after tax Earned pemiums general insurance 1.2 % 16,000 Underwriting result general insurance 1,000 0.8 % 12,000 800 Person 600 8,000 4,000 (0.3) % Bolig 400 200 15.8 % Bolig 0 4q. 2009 4q. 2008 2009 2008 0 4q. 2009 4q. 2008 2009 2008 In connection with the ongoing restructuring process in the Group s staff and support areas and a reduction of office space and buying out of lease contracts at several office locations, a provision of NOK 72.1 million has been made in the quarter. When the effect of the non-recurrent provision is included, combined ratio for the general insurance operations amounted to 95.1 (95.8) for the quarter. For 2009 as a whole, combined ratio was 94.5 (94.4). The cost ratio came to 18.1 (18.0), whereas the equivalent figure for the year as a whole was 17.4 (17.0). Net income from investments increased in the quarter and amounted to NOK 648.6 million (minus NOK 751.6 million). For the year as a whole, net income from investment was NOK 2,788.0 million (minus NOK 258.7 million). The financial return for the quarter was 1.3 per cent, compared with a negative return of 1.6 per cent in the same quarter in 2008. For the year as a whole, the financial return was 5.5 per cent (minus 0.6 per cent). The Group s profit before tax expense in the quarter came to NOK 634.4 million (minus NOK 653.3 million). For 2009 as a whole, the profit before tax expense was NOK 3,217.0 million (NOK 307.2 million). 2 Gjensidige Forsikring Fourth quarter 2009
SOLID PROFIT PERFORMANCE GROUP PROFIT PERFORMANCE Profit before tax The Group achieved a profit before tax expense of NOK 634.4 million in the quarter, compared with a loss of NOK 653.3 million in the equivalent period in 2008. The profit from the general insurance operations, measured with the underwriting result, showed an increase relative to the same quarter in 2008, from NOK 165.2 million to NOK 191.3 million. The underwriting result was charged with an accounting provision of NOK 72.1 million in the fourth quarter of 2009. The provision was charged Corporate Centre. This provision was related to the ongoing restructuring process in the Group s staff and support areas. In addition, a decision was made to reduce office space in several locations, which entails a need for renovation and the buying out of existing contracts. The net financial return has improved considerably from a loss of NOK 752.5 million to a profit of NOK 621.4 million. For the year as a whole, the profit before tax expense was NOK 3,217.0 million, compared with NOK 307.2 million in 2008. The underwriting result came to NOK 866.7 million in 2009, compared with NOK 859.8 million in 2008. Tax expense Tax expense came to NOK 203.7 million in the quarter and NOK 875.8 million year-to-date. The effective tax rate for 2009 was 27.2 per cent. EQUITY AND CAPITAL ADEQUACY The Group s total assets increased by NOK 3,693.0 million during the quarter to NOK 74,868.9 million. This increase is mainly attributed to growth in the Pension and savings and Online retail banking segments. The Group s equity amounted to NOK 22,004.7 million at the end of 2009. The return on equity before tax expense came to 15.5 per cent in 2009, compared with a return of 1.5 per cent in 2008. At the end of the quarter, the capital adequacy ratio was 19.1 per cent, compared with 21.6 per cent at the end of 2008. The solvency margin was 706.9 per cent, compared with 666.7 per cent at the end of 2008. The solvency requirements were unchanged since last year. Increased solvency margin capital, primarily as a result of the profit for the year, thereby yields an increase in excess capital. In addition to testing the capital with regard to legal requirements, a calculation of the capital requirements for the Group s operations is made on a quarterly basis. This calculation is done in the Group s internal risk models, which are based on a financial valuation of assets and liabilities. The principles are consistent with that which is expected to apply after the introduction of the Solvency II regime. Capital in addition to 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 an A-rating from Standard & Poor s. At the end of 2009, the excess capital was calculated to be NOK 11,2 billion. Result performance group 4q. 2009 4q. 2008 1.1.-31.12.2009 1.1.-31.12.2008 General insurance Private Norway 195.2 220.8 552.4 775.0 General insurance Commercial Norway 53.4 (50.5) 305.0 59.7 General insurance Nordic 33.6 13.7 152.9 113.2 General insurance Baltic 6.3 15.8 40.5 37.1 Corporate Centre (97.3) (34.7) (184.1) (125.1) Underwriting result general insurance 1 191.3 165.2 866.7 859.8 Pension and savings (28.5) (30.6) (107.8) (133.2) Online retail banking (16.9) (19.5) (71.8) (85.1) Health care services 15.4 11.2 32.7 41.0 Return on financial assets 2 621.4 (752.5) 2,723.2 (276.1) Amortisation and impairment losses of excess value intangible assets (140.6) (27.6) (216.7) (107.4) Other items (7.7) (0.5) (9.3) 8.2 Profit / (loss) for the period before tax expense 634.4 (653.3) 3,217.0 307.2 Key figures general insurance Loss ratio, net of reinsurance 3 77.1 % 77.8 % 77.1 % 77.4 % Cost ratio, net of reinsurance 4 18.1 % 18.0 % 17.4 % 17.0 % Combined ratio, net of reinsurance 5 95.1 % 95.8 % 94.5 % 94.4 % 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. Gjensidige Forsikring Fourth quarter 2009 3
GENERAL INSURANCE PRIVATE NORWAY Earned premiums totalled NOK 1,961.8 million in the quarter, which is roughly equivalent to the same period in 2008 (NOK 1,984.2 million). The underwriting profit for the quarter was NOK 195.2 million, a decline compared with the same quarter in 2008 (NOK 220.8 million). The cost ratio was 15.8 in the quarter, an improvement over 17.0 in the same quarter in 2008. Profit performance The underwriting result for the quarter was NOK 195.2 million, a decline from the same period in 2008 when the underwriting result was NOK 220.8 million. Combined ratio for the quarter was 90.0, an increase over 88.9 in the same period in 2008. The change in the combined ratio was attributed to a combination of an improved cost ratio, 15.8 in the fourth quarter of 2009 compared with 17.0 for the same quarter in 2008, and a less favourable loss ratio, which increased from 71.8 in the fourth quarter of 2008 to 74.2 in the fourth quarter of 2009. For 2009, the underwriting result was NOK 552.4 million compared with NOK 775.0 million in 2008. Combined ratio came to 93.0, an increase of 2.8 percentage points over 2008. The profit in 2009 was affected by higher claim expenses and by the fact that the accounts were charged with run-off losses* from previous years in 2009, whereas there were run-off gains in 2008. Earned premiums Earned premiums amounted to NOK 1,961.8 million in the quarter, which was roughly equivalent to NOK 1,984.2 million in the same period in 2008. The market is characterised by increasing competition from new players. In September, Gjensidige began to use a new vehicle insurance rate, and during the last quarter, the Company has benefitted from the use of that new rate. It is expected that the new vehicle insurance rate will improve the competitive strength in certain segments and within groups with a low risk. In the fourth quarter, the work commenced on a new home insurance rate, which will help make the Company even more competitive in the various customer segments through a more correct pricing of risk. In 2009, Gjensidige established a separate customer and brand school for training and instruction of all salespersons and sales managers. This measure was devised in order to give Gjensidige a leading position in the development of concepts for the sale of services through a modern sales culture and high professionalism in the dialogue with customers. This comes in addition to other measures that have been launched, which are expected to increase the total market power after a while. In 2009, earned premiums amounted to NOK 7,856.2 million compared with NOK 7,911.4 million in 2008. Claims incurred Claims incurred amounted to NOK 1,455.7 million in the quarter, compared with NOK 1,425.6 million in the same period in 2008. The claims results for the quarter were weaker, with a loss ratio of 74.2 in the quarter, compared with 71.8 in the same period in 2008. The weak performance was mainly attributed to the child insurance product, for which there was also a substantial strengthening of the insurance related reserves for the current and previous claims years in the fourth quarter. The level of major claims was somewhat lower in the quarter compared with the same period in 2008, whereas the level of settlement gains was approximately the same in the fourth quarter of 2009 as in the same period in 2008. To reduce future claims incurred and improve the loss ratio, organisational and improvement efforts have been initiated in the settlement organisation. The organisation is now established with national settlement channels for motor and fire/combined, purchasing and specialised settlement. Previous organisation was regional with partly homogeneous functions in the five regions. New organisation is expected to yield substantial earnings through lower indemnity payments resulting from improved processes and increased quality in the claims processing. In 2009, the Company further developed its models for customer score in order to ensure a correct Product groups Private Norway Gross premiums written year to date (same period last year) 8.5 % (8.1 %) 11.4 % (12.1 %) Agriculture Accident and 17.0 % health (16.2 %) Other Property 20.1 % (20.2 %) Motor 43.0 % (43.3 %) pricing at the customer level. The model is used by the distribution system and is also integrated into the solution for a new vehicle insurance rate. The claims incurred increased from NOK 5,795.6 million in 2008 to NOK 6,007.4 million in 2009. The loss ratio increased from 73.3 in 2008 to 76.5 in 2009. The level of major claims was approximately unchanged from 2008 to 2009. However, the profit for 2009 was charged with run-off losses, mainly as a result of a strengthening of the insurance related reserves for the child insurance product, whereas there was a run-off gain in 2008. In addition, the claim expenses in 2009 were affected by a substantial strengthening of the underwriting reserves for the current year for the same product. Operating expenses The cost ratio for the quarter was 15.8 and underwent a positive trend relative to the same quarter in 2008 when the cost ratio was 17.0. Nominally, the operating expenses were reduced by NOK 26.8 million in the quarter compared with the same quarter in 2008. The cost ratio was reduced from 16.9 in 2008 to 16.5 in 2009. The efficiency improvement efforts that were initiated in the staff and support areas as well as in distribution and in the settlement organisation have resulted in a reduction in the nominal operating expenses of NOK 44.5 million in 2009 relative to 2008. * Run-off gain/loss = changes in estimates from earlier periods general insurance Private Norway 4q. 2009 4q. 2008 1.1.-31.12.2009 1.1.-31.12.2008 Gross premiums written 1,858.7 1,742.6 8,035.3 8,010.6 Earned premiums, net of reinsurance 1,961.8 1,984.2 7,856.2 7,911.4 Claims incurred etc. (1,455.7) (1,425.6) (6,007.4) (5,795.6) Operating expenses (310.9) (337.7) (1,296.3) (1,340.8) Underwriting result 1 195.2 220.8 552.4 775.0 Loss ratio, net of reinsurance 2 74.2 % 71.8 % 76.5 % 73.3 % Cost ratio, net of reinsurance 3 15.8 % 17.0 % 16.5 % 16.9 % Combined ratio, net of reinsurance 4 90.0 % 88.9 % 93.0 % 90.2 % 1 Underwriting result = earned premiums, net of reinsurance - claims incurred etc. - operating expenses 2 Loss ratio, net of reinsurance = claims incurred etc. / earned premiums, net of reinsurance 3 Cost ratio, net of reinsurance = operating expenses / earned premiums, net of reinsurance 4 Combined ratio, net of reinsurance = loss ratio, net of reinsurance + cost ratio, net of reinsurance 4 Gjensidige Forsikring Fourth quarter 2009
GENERAL INSURANCE COMMERCIAL NORWAY Earned premiums in the quarter declined by 4.1 per cent to NOK 1,160.7 million (NOK 1,210.7 million). Underwriting result was NOK 53.4 million, an improvement from the same period in 2008 (a loss of NOK 50.5 million). The cost ratio was reduced from 13.1 per cent in the fourth quarter of 2008 to 12.6 per cent in the same quarter in 2009. The portfolio composition was approximately stabile throughout the year. Profit performance The underwriting result in the quarter was NOK 53.4 million, compared with a loss of NOK 50.5 million in the same quarter in 2008. A strong focus on profitability has given benefits in the form of a substantial improvement in the underwriting result, both in the quarter and for the year as a whole. Combined ratio improved by 8.8 percentage points from 104.2 in the fourth quarter of 2008 to 95.4 in the fourth quarter of 2009. The positive trend is attributed to a reduction in both claims incurred and operating expenses. Underlying profitability in the commercial segment has improved in keeping with measures that have been initiated. For 2009 as a whole, the underwriting result was NOK 305.0 million, an improvement over NOK 59.7 million in 2008. Combined ratio for 2009 was 93.6, compared with 98.8 in 2008. Earned premiums Earned premiums during the quarter came to NOK 1,160.7 million compared with NOK 1,210.7 million in the same period in 2008, which is equivalent to a decline of 4.1 per cent. Profitability was given priority over growth, and in some products and customer segments Gjensidige chose not to follow current market prices. Together with the decision to liquidate the portfolio in supply ships, offshore and foreign fishing vessels, this has entailed a greater loss of business than normal and a reduction in earned premiums. The efforts to ensure the risk margin in building products has been underway for a long time, and both the rate level and the premium for these products have increased during the year, especially in the last quarter. As a result of this, the construction industries had positive performance both in the quarter alone and throughout the year. In connection with the ongoing efforts of renewal, special efforts are being made to improve the profitability in the accident and health and motor portfolios. This is a result of strong competition and profitability challenges. Earned premiums in 2009 came to NOK 4,737.3 million, compared with NOK 4,909.7 million in 2008. Claims incurred Claims incurred came to NOK 961.0 million in the quarter, a decline of 12.9 per cent from NOK 1,102.9 million in the same quarter in 2008. The loss ratio for the quarter came to 82.8, compared with 91.1 in the same quarter in 2008. The fourth quarter in 2008 was characterised by more major claims, whereas there were no major claims in the same quarter in 2009. The quarterly results for 2009 were affected by run-off gains, but with a lower amount than the run-off gains in the same period in 2008. The focus on profitability in the segment has resulted in a clear improvement in earnings in the underlying business. With the exception of the accident and health products, there was a clear improvement in profitability for all products. The largest improvement in profitability occurred in Product groups Commercial Norway Gross premiums written year to date (same period last year) 5.9 % (5.5 %) 7.3 % (8.3 %) Marine/ cargo 18.9 % (19.3 %) Motor 27.6 % (26.6 %) Liability Property Other Person 1.2 % (1.2 %) 39.0 % (39.1 %) building and property, where the extent of major claims was low in 2009 compared with the same period in 2008. New focus areas and work methods in personal injury settlements yielded results in the form of shorter processing times and increased volume of withheld compensation resulting from detected fraud. Claims incurred amounted to NOK 3,819.0 million in 2009, compared with NOK 4,219.7 million in 2008. The loss ratio was 80.6, an improvement over 85.9 in 2008. The level of major claims was lower in 2009 than in 2008. However, the level of run-off gains was lower in 2009 than in 2008. Operating expenses The cost ratio for the quarter was 12.6, an improvement over 13.1 in the same period in 2008. The operating expenses were nominally reduced by NOK 12.0 million in the quarter compared with the same quarter in 2008. A higher number of bankruptcies has resulted in an increase in losses on claims. Several measures have been implemented to avoid losses. These measures include enhanced financial assessment of new policies, more frequent updating of external financial information on customers, stricter routines for granting deferred payment, and closer monitoring of the payment of premiums. As a result of reduced earned premiums, the cost ratio for 2009 was slightly weakened than it was in 2008, increasing from 12.8 in 2008 to 12.9 in 2009. However, the nominal expenses were reduced by NOK 17.1 million in 2009 compared with 2008. general insurance commercial Norway 4q. 2009 4q. 2008 1.1.-31.12.2009 1.1.-31.12.2008 Gross premiums written 901.1 871.1 5,003.8 5,120.0 Earned premiums, net of reinsurance 1,160.7 1,210.7 4,737.3 4,909.7 Claims incurred etc. (961.0) (1,102.9) (3,819.0) (4,219.7) Oerating expenses (146.3) (158.3) (613.3) (630.4) Underwriting result 1 53.4 (50.5) 305.0 59.7 Loss ratio, net of reinsurance 2 82.8 % 91.1 % 80.6 % 85.9 % Cost ratio, net of reinsurance 3 12.6 % 13.1 % 12.9 % 12.8 % Combined ratio, net of reinsurance 4 95.4 % 104.2 % 93.6 % 98.8 % 1 Underwriting result = earned premiums, net of reinsurance - claims incurred etc. - operating expenses 2 Loss ratio, net of reinsurance = claims incurred etc. / earned premiums, net of reinsurance 3 Cost ratio, net of reinsurance = operating expenses / earned premiums, net of reinsurance 4 Combined ratio, net of reinsurance = loss ratio, net of reinsurance + cost ratio, net of reinsurance Gjensidige Forsikring Fourth quarter 2009 5
Product groups Nordic Gross premiums written year to date (same period last year) 4.1 % (10.3 %) 4.0 % (1.9 %) Liability Other 35.4 % (30.7 %) Property Accident and health 26.3 % (31.1 %) Motor 30.1 % (26.0 %) GENERAL INSURANCE NORDIC Earned premiums during the quarter came to NOK 654.0 million, an increase of 19.4 per cent compared with the same quarter in 2008 (NOK 547.9 million). The underwriting result came to NOK 33.6 million in the quarter, an improvement of 145.3 per cent over the same quarter in 2008 (NOK 13.7 million). The cost ratio improved from 19.9 per cent in 2008 to 18.2 per cent in the same quarter in 2009. Profit performance The underwriting result in the quarter came to NOK 33.6 million, compared with a profit of NOK 13.7 million in the same quarter of 2008. Combined ratio improved by 2.6 percentage points from 97.5 per cent in 2008 to 94.9 per cent in the same quarter in 2009. The underwriting result for the year as a whole increased from NOK 113.2 million in 2008 to NOK 152.9 million in 2009. Combined ratio for the year as a whole was 93.6 compared with 94.5 in the same period in 2008. Earned premiums Earned premiums during the quarter came to NOK 654.0 million compared with NOK 547.9 million in the same period in 2008. This is equivalent to an increase of 19.4 per cent. In addition to a general growth in business, the fastest growth in premiums was in the commercial sector in Sweden and Denmark and in the white label business in Norway. Earned premiums for the year as a whole amounted to NOK 2,403.5 million, compared with NOK 2,068.4 million in 2008, an increase of 16.2 per cent. Claims incurred Claims incurred in the quarter totalled NOK 501.4 million. This gave a loss ratio in the quarter of 76.7, compared with 77.6 in the same quarter in 2008. An increased volume of business resulted in generally increased claims incurred. The level of major claims was somewhat lower in the fourth quarter of 2009 compared with the same quarter in 2008. The profit for the quarter included a run-off gain that was somewhat lower that the run-off gain in the same period in 2008. The claims incurred for the year as a whole amounted to NOK 1,833.0 million compared with NOK 1,604.4 million in 2008. The unemployment insurance in Denmark suffered losses in 2009 after several good years. The level of major claims declined somewhat in 2009 compared with 2008, whereas the runoff gains in 2009 were higher than in 2008. The underlying trend in claims entailed a need for price adjustments, and measures have been implemented in the private market in Sweden. In Denmark, premium measures will be implemented during the first and second quarters. Operating expenses The cost ratio amounted to 18.2 per cent in the quarter, compared with 19.9 per cent in the same quarter in 2008. The nominal operating expenses amounted to NOK 118.9 million in the quarter, an increase of NOK 9.8 million over the same quarter in 2008. This increase was mainly attributed to expenses related to the growth in the commercial segment in Sweden and an increased percentage of partner-distributed business in the Norwegian white label business. The cost ratio increased from 17.0 in 2008 to 17.4 in 2009. This increase was attributed to the same factors as for the quarter alone. Goodwill An impairment loss is recognised in Gjensidige Sverige amounting to NOK 22.5 million. The impairment loss is of a technical nature due to utilization of tax losses carried forward in 2009 that were considered uncertain at the acquisition date, and therefore not recognised as a corresponding deferred tax asset. general insurance nordic 4q. 2009 4q. 2008 1.1.-31.12.2009 1.1.-31.12.2008 Gross premiums written 456.2 326.7 2,657.3 2,155.5 Earned premiums, net of reinsurance 654.0 547.9 2,403.5 2,068.4 Claims incurred etc. (501.4) (425.1) (1,833.0) (1,604.4) Operating expenses (118.9) (109.1) (417.5) (350.8) Underwriting result 1 33.6 13.7 152.9 113.2 Amortisation and impairment losses of excess value intangible assets (44.1) (22.3) (109.9) (85.3) Loss ratio, net of reinsurance 2 76.7 % 77.6 % 76.3 % 77.6 % Cost ratio, net of reinsurance 3 18.2 % 19.9 % 17.4 % 17.0 % Combined ratio, net of reinsurance 4 94.9 % 97.5 % 93.6 % 94.5 % 1 Underwriting result = earned premiums, net of reinsurance - claims incurred etc. - operating expenses 2 Loss ratio, net of reinsurance = claims incurred etc. / earned premiums, net of reinsurance 3 Cost ratio, net of reinsurance = operating expenses / earned premiums, net of reinsurance 4 Combined ratio, net of reinsurance = loss ratio, net of reinsurance + cost ratio, net of reinsurance 6 Gjensidige Forsikring Fourth quarter 2009
GENERAL INSURANCE - BALTIC Earned premiums in the quarter came to NOK 149.0 million (NOK 192.9 million). The underwriting result for the quarter was NOK 6.3 million (NOK 15.8 million). The cost ratio decreased slightly from 32.6 in the fourth quarter of 2008 to 28.1 in the fourth quarter of 2009. The acquisition of Länsförsäkringar s business in Latvia and Lithuania was carried out in November 2009. Profit performance The underwriting result was NOK 6.3 million in the quarter, a decline from NOK 15.8 million compared with the same quarter in 2008. Combined ratio for the quarter was 95.7, compared with 91.8 in the same period in 2008. The underwriting result for 2009 improved from NOK 37.1 million in 2008 to NOK 40.5 million in 2009. Combined ratio in 2009 was 93.9 compared with 93.7 in 2008. Earned premiums Earned premiums during the quarter were NOK 149.0 million compared with NOK 192.9 million in the same quarter in 2008. The overall general insurance market in the Baltic decreased considerably in 2009, and the decline was even sharper in the fourth quarter than it was earlier that year. This also affected Gjensidige s business, even though the trend in Gjensidige s earned premiums was better than the general market trend in the Baltic. Earned premiums for 2009 amounted to NOK 663.4 million, compared with NOK 592.4 million in 2008, an increase of 12.0 per cent. The acquisition of RESO Europa in 1 June 2008 is included and contributed to the growth in earned premiums in 2009. Claims incurred Claims incurred in the quarter totalled NOK 100.8 million. This gave a loss ratio of 67.7 in the quarter, compared with 59.2 in the same quarter in 2008. Gjensidige Baltic did not suffer any major claims in the fourth quarter of 2009 or in the same period in 2008. The profit for the fourth quarter of 2009 was affected in the accounts by assessments of reserves and by the effect of the acquisition of Länsförsäkringar s business in Latvia and Lithuania. A run-off gain was recognised in the quarter, whereas in the same period in 2008 a run-off loss was recognised. Claims incurred for the year as a whole came to NOK 411.5 million, which gave a loss ratio of 62.0 compared with 62.7 in 2008. In general, the financial crisis resulted in lower activity, and subsequently there have been fewer claims and a price drop in repair costs. There were no major claims in 2009 or 2008. The profit for 2009 was affected by a runoff gain, whereas there was a run-off loss in 2008. Operating expenses The cost ratio during the quarter was 28.1, compared with 32.6 in the same quarter in 2008. The nominal operating expenses came to NOK 41.9 million during the quarter, compared with NOK 62.9 million in the same quarter in 2008, a reduction of 33.4 per cent. During 2009, many cost-cutting measures were implemented, and this and the lower volume of business have helped reduce operating expenses. 11.2 % (9.6 %) 9.6 % (3.7 %) Property Product groups Baltic Gross premiums written year to date (same period last year) 4.6 % (2.4 %) 3.2 % (7.8 %) Accident and health Liability Other Motor 71.4 % (76.5 %) For 2009, the cost ratio was 31.9, compared with 31.0 in 2008. For the year as a whole, the nominal operating expenses increased by 15.0 per cent from NOK 183.9 million in 2008 to NOK 211.4 million in 2009. The increase in expenses was attributed to several factors, including increased provisions for losses on claims (unpaid premiums), the integration of RESO Europa into the Group and increased VAT in Latvia and Lithuania. Goodwill In June, a letter of intent to take over Länsförsäkringar s business in Latvia and Lithuania was signed. This agreement was carried out in November 2009. Negative goodwill of NOK 14.7 million was recognised in connection with this acquisition. Because of the unstable macroeconomic situation and the general uncertainty associated with future developments in the Baltic, an impairment loss of goodwill of NOK 107.7 million was recognised in the fourth quarter. However, there are no aspects of the underlying operations of Gjensidige Baltic that indicate an impairment loss and a recognition of an impairment loss of the carrying amounts. general insurance baltic 4q. 2009 4q. 2008 1.1.-31.12.2009 1.1.-31.12.2008 Gross premiums written 107.4 181.2 592.2 657.7 Earned premiums, net of reinsurance 149.0 192.9 663.4 592.4 Claims incurred etc. (100.8) (114.2) (411.5) (371.3) Operating expenses (41.9) (62.9) (211.4) (183.9) Underwriting result 1 6.3 15.8 40.5 37.1 Amortisation and impairment losses of excess value intangible assets (94.8) (2.2) (100.2) (9.3) Loss ratio, net of reinsurance 2 67.7 % 59.2 % 62.0 % 62.7 % Cost ratio, net of reinsurance 3 28.1 % 32.6 % 31.9 % 31.0 % Combined ratio, net of reinsurance 4 95.7 % 91.8 % 93.9 % 93.7 % 1 Underwriting result = earned premiums, net of reinsurance - claims incurred etc. - operating expenses 2 Loss ratio, net of reinsurance = claims incurred etc. / earned premiums, net of reinsurance 3 Cost ratio, net of reinsurance = operating expenses / earned premiums, net of reinsurance 4 Combined ratio, net of reinsurance = loss ratio, net of reinsurance + cost ratio, net of reinsurance Gjensidige Forsikring Fourth quarter 2009 7
12.3 % (0.0 %) Asset allocation the group policy By the end of the period (same period last year) 14.4 % (32.4 %) Other financial investments Current bonds Bonds held to maturity 42.1 % (45.0 %) Money market 22.5 % (17.5 %) Equity funds PENSION AND SAVINGS Earned premiums underwent rapid growth in the quarter, as a result of the increase in the portfolio, to NOK 49.1 million (NOK 24.7 million). Assets under management increased by NOK 778.3 million during the quarter (NOK 340.4 million) to NOK 6,050.9 million (NOK 2,846.5 million) by the end of the period. The profit margin for the savings business declined from 2.1 per cent in 2008 to 0.9 per cent in 2009. This decline was mainly attributed to a change in the demand for products. The loss before tax was NOK 28.5 million during the quarter, which is an improvement over the same period in 2008 (a loss of NOK 30.6 million). Profit performance There was a loss before tax of NOK 28.5 million in the quarter, compared with a loss of NOK 30.6 million in the same period in 2008. The positive deviation was mainly attributed to a rapid growth in income and a positive return on the collective portfolio. For 2009, the loss before tax expense came to NOK 107.8 million, compared with a loss before tax expense of NOK 133.2 million for 2008. In this case as well, the improvement was attributed to the increase in income, the return on the group policy and cost reductions that were carried out. The profit margin for savings was 0.9 per cent for the year as a whole, compared with 2.1 per cent in 2008. This decline was mainly attributed to lower underwriting commissions and a general shift in demand toward savings products with less risk and lower management fees. However, the value-adjusted return on the paid-up policy portfolio showed positive performance, increasing from minus 3.2 per cent in 2008 to plus 7.1 per cent in 2009. This is considered to be an adequate result. 8.6 % (5.1 %) Gjensidige offers two alternatives for the management of a defined-contribution pension: combined and active management. Within each of these alternatives, the customers can choose between three different risk profiles. The average return for the profiles in combined management was 18.7 per cent for the year, which was 7.5 percentage points better than the reference index. Equivalent figures for active management were 19.9 per cent, 8.7 percentage points better than the index. Earned premiums and management income Gross premiums written in the pension business consist of savings deposits in private group and individual pensions and premiums for risk products related to group and individual pensions. Premium reserves transferred from other companies are also included for transferred contracts. Gross premiums written totalled NOK 481.0 million for the quarter, including NOK 236.9 million in transferred funds. By comparison, the total gross premiums written in the same period in 2008 came to NOK 367.9 pension and savings 4q. 2009 4q. 2008 1.1.-31.12.2009 1.1.-31.12.2008 Gross premiums written 481.0 367.9 2,077.3 1,562.6 Earned premiums, net of reinsurance 49.1 24.7 116.3 58.1 Claims incurred etc. (58.5) (9.8) (121.5) (39.0) Operating expenses (29.2) (26.5) (102.7) (104.9) Underwriting result 1 (38.6) (11.7) (107.9) (85.7) Management income 4.2 3.5 11.2 14.7 Net financial income 24.6 (2.0) 48.2 6.3 Other income 5.4 2.4 17.0 2.4 Other expenses (24.1) (22.8) (76.3) (70.8) Profit / (loss) before tax expense (28.5) (30.6) (107.8) (133.2) Assets under management pension, addition in the period 546.8 325.7 2,329.8 1,443.4 Assets under management savings, addition in the period 231.6 14.7 874.6 193.0 Assets under management pension, at the end of the period 4,370.3 2,040.5 of which the group policy 1,514.6 620.1 Assets under management savings, at the end of the period 1,680.6 806.0 Profit margin savings, in per cent 2 0.90 2.07 Recognised return on the paid-up policy 3 5.97 (3.20) Value-adjusted return on the paid-up policy 4 7.08 (3.20) 1 Underwriting result = earned premiums, net of reinsurance - claims incurred etc. - operating expenses 2 Profit margin savings, in per cent = management income / average assets under management savings 3 Recognised return on the paid-up policy = realised return of the policy 4 Value-adjusted return on the paid-up policy = total return of the policy 8 Gjensidige Forsikring Fourth quarter 2009
million. The growth is attributed to higher premiums in force related to group defined-contribution pensions, as well as sales of fund pensions (former Individual Pension Agreement [IPA] schemes) and transfers of paid-up policies. For 2009 as a whole, gross premiums written amounted to NOK 2,077.3 million, compared with NOK 1,562.6 million in 2008. The management income in the savings business amounted to NOK 4.2 million in the quarter, compared with NOK 3.5 million in the same period in 2008. The main explanation for the increased income is that the fourth quarter of 2008 was affected by the outbreak of the financial crisis, which significantly affected the demand for savings products. In 2009, the income amounted to NOK 11.2 million, compared with NOK 14.7 million in 2008. The reduction in income was mainly attributed to lower underwriting commissions as a result of a change in demand for products; cf. the comments above. Pensions and savings attracted 7,388 new customers during the quarter. For 2009 as a whole, the number of customers increased by 18,298. A large percentage of the customers, 84.6 per cent, were also insurance customers. Assets under management Assets under management in the pension business increased by NOK 546.8 million during the quarter, compared with an increase of NOK 325.7 million in the same quarter in 2008. Assets under management in the pension business amounted to a total of NOK 4,370.3 million at year-end. The collective portfolio constituted NOK 1,514.6 million of this amount. The average interest-rate guarantee was 3.8 per cent. The pension business has contributed through increased sales of fund pensions and paid-up policies, as well as an increase in the premiums in force related to group defined-contribution pensions. Assets under management in the savings business increased by NOK 231.6 million in the quarter, compared with NOK 14.7 million in the same quarter in 2008. Assets under management in the savings business amounted to a total of NOK 1,680.6 million at year-end. The savings business has had good sales activity throughout the year. Together with a general positive trend in the financial market the capital from savings has doubled during the year. Total assets amounted to NOK 6,050.9 million at the end of 2009, compared with NOK 2,846.5 million at the end of 2008. Pension funds under management are recognised in the Group s balance sheet, whereas investment funds under management in the savings business are not recognised. Operating expenses Expenses totalled NOK 53.3 million in the quarter, of which NOK 29.2 million were insurance-related. The cost performance was as expected. Expenses year-to-date totalled NOK 179.0 million, of which NOK 102.7 million were insurance-related. Gjensidige Forsikring Fourth quarter 2009 9
Online retail banking Deposits and lending by the end of the period (same period last year) 11,575.6 (6,711.4) Lending Deposits 6,550.4 (6,131.4) ONLINE RETAIL BANKING Gross lending increased by NOK 3,294.3 million during the quarter (NOK 430.5 million). At the end of the quarter, gross lending totalled NOK 11,575.6 million (NOK 6,711.4 million). The deposit-to-loan ratio was 5.6 per cent in the quarter. At the end of the period, the deposit-to-loan ratio was 56.6 per cent. The loss before tax expense for the quarter was NOK 16.9 million (a loss of NOK 19.5 million). Acquisition of Citibank s Norwegian consumer financing business was recognised starting in the middle of December and strengthens the concentration on the consumer credit market in Norway. Profit performance The loss before tax expense in the quarter was NOK 16.9 million, whereas the loss was NOK 19.5 million for the same period in 2008. The improvement in results was mainly attributed to higher net interest income and credit commission income. For 2009 as a whole, the loss before tax expense was NOK 71.8 million, compared with NOK 85.1 million in 2008. The improvement in the results was attributed to increased income and low losses on loans. Given that the bank is in a start-up phase, performance is in keeping with expectations. The acquisition of Citibank s Norwegian portfolio of consumer loans was carried out on 15 December 2009. Through the acquisition, Gjensidige Bank received a customer portfolio of nearly 26,000 consumer loan customers with a total loan portfolio of NOK 2,710.2 million. In addition, the bank took over more than 80 employees, lease contracts and fixed assets. The acquisition was financed through a combination of an injection of equity and external loans. The acquisition will strengthen the bank s position in the market and is expected to yield positive synergies related to cross sales, product development and cost savings. At the end of the fourth quarter of 2009, the bank had 75,945 customers. The customer growth during the quarter alone came to 27,434 customers. The main reason for the high customer growth in the quarter was the acquisition of Citibank s portfolio of consumer loans. The banking services provided are well received in the market, and customer satisfaction surveys show that the customers who have transferred to Gjensidige Bank are satisfied with the banking services they have received (source: Customer satisfaction survey, June 2009). At the end of the period, 47.4 per cent of the registered customers were also insurance customers. Net interest income and credit commission income Net interest income and credit commission income amounted to NOK 25.1 million in the quarter, compared with NOK 13.6 million in the same quarter in 2008. The main reasons for the improvement in profits were a higher volume, the acquisition of the loan portfolio and an increase of equity. Net interest income (annualised) was 0.63 per cent for the fourth quarter of 2009, compared with 0.74 per cent in the same period in 2008. In 2009, the net interest income and credit commission income was NOK 57.5 million, compared with NOK 45.4 million in 2008. The improvement in profits can be explained by an increased volume and the acquisition of the loan portfolio. ONLINE RETAIL BANKING 4q. 2009 4q. 2008 1.1.-31.12.2009 1.1.-31.12.2008 Interest income and related income 90.9 124.6 323.3 392.9 Interest expenses and related expenses (65.9) (111.0) (265.8) (347.6) Net interest income and credit commission income 25.1 13.6 57.5 45.4 Net financial income 2.7 2.9 16.5 11.2 Operating expenses (45.3) (37.4) (142.7) (134.8) Loss on loans / guarantees 0.6 1.4 (3.0) (6.8) Profit / (loss) before tax expense (16.9) (19.5) (71.8) (85.1) Gross lending, addition in the period 3,294.3 430.5 4,864.2 3,330.0 Deposits, addition in the period 186.1 954.2 419.1 4,430.3 Gross lending at the end of the period 11,575.6 6,711.4 Deposits at the end of the period 6,550.4 6,131.4 Deposit-to-loan ratio, in the period 1 5.6 221.6 8.6 133.0 Deposit-to-loan ratio at the end of the period 1 56.6 91.4 Net interest income in per cent, annualised 2 0.63 0.74 Capital adequacy 3 17.8 18.7 1 Deposit-to-loan ratio = deposits as a per centage of gross lending 2 Net interest income in per cent, annualised = net interest income and credit commission income / average assets under management 3 Capital adequacy = primary capital / basis of calculation for credit risk, market risk and operational risk 10 Gjensidige Forsikring Fourth quarter 2009
Gjensidige Bank has had a steady increase in lending, and at the end of the fourth quarter gross lending amounted to NOK 11,575.6 million. The loan portfolio increased by NOK 3,294.3 million during the quarter, where the acquired consumer loan portfolio constituted NOK 2,672.2 million (at the end of the quarter) of the growth. In addition to the acquired portfolio, the lending increased by NOK 622.1 million during the quarter, compared with NOK 430.5 in the same quarter in 2008. For the most part, the lending consisted of loans with floating interest rates. The bank only issues loans to private and agricultural customers, primarily loans secured by mortgages. Aside from the consumer loans, the average loan commitment was just under NOK one million. There was no single exposure over NOK ten million. The bank s deposits increased by NOK 186.1 million during the quarter to NOK 6,550.4 million at the end of 2009. The deposit-to-loan ratio at the end of the quarter was 56.6 per cent, a decline from 76.9 per cent at the end of the third quarter. The decline in the deposit-to-loan ratio was attributed to the acquisition of the consumer loan portfolio. In the coming years, the bank will engage in active marketing to ensure stable customer growth, and more banking products will be included in Gjensidige Forsikring s customer programmes. Net financial income includes commissions, fees and fair value adjustments. Operating expenses The operating expenses amounted to NOK 45.3 million in the quarter, compared with NOK 37.4 million in the same quarter in 2008. The increase was mainly attributed to higher wage costs and administrative expenses. In 2009, the operating expenses came to NOK 142.7 million, compared with NOK 134.8 million in the same period in 2008. The cost increase in 2009 was attributed to increased depreciation and other expenses. Performance was in keeping with expectations. The provision for individual impairment losses related to individual commitments was reduced by NOK 2.5 million in the quarter, compared with an increase in the provision of NOK 0.7 million in the same period in 2008. At the end of 2009, the provision for individual impairment losses amounted to NOK 0.8 million, compared with NOK 0.7 million at the end of 2008. In addition, losses on loans worth NOK 1.2 million were confirmed in the quarter. Confirmed losses were not recognised in 2008. Impairment losses on groups of loans increased by NOK 0.6 million in the fourth quarter, compared with a reduction of NOK 2.0 million in the same period in 2008. The consolidated impairment losses shall cover expected losses on loans in the portfolio that have not been individually identified as doubtful. At year-end, the consolidated impairment losses amounted to NOK 14.5 million, compared with NOK 12.9 million at the end of 2008. Capital adequacy At the end of 2009, the bank had a capital adequacy of 17.8 per cent, compared with 17.1 per cent at the end of the previous quarter. The increase in the capital adequacy was attributed to a capital increase of NOK 449.5 million during the quarter. The capital increase was carried out in order to finance the acquisition of Citibank s consumer loan portfolio. One of the bank s objectives is to have a core capital adequacy of at least 12 per cent. Issues of debt securities and treasury bills Net issues of debt securities amounted to NOK 4,366.7 million at the end of the quarter. At the end of the third quarter, the net issues of debt securities amounted to NOK 1,624.6 million, which gives an increase in the issues of debt securities of NOK 2,742.1 million in the fourth quarter. The increase was mainly attributed to the financing of Citibank s consumer loan portfolio. Of the net issues of debt securities worth NOK 4,366.7 million, the certificate debt constituted NOK 2,369.3 million. Gjensidige Bank has a portfolio of bonds with preemptive rights (OMF) worth NOK 1.5 billion issued by Gjensidige Bank Boligkreditt, of which NOK 500 million were purchased in the fourth quarter. Of the portfolio of OMF, NOK 586.6 million were utilised in Norges Bank s swap arrangement. The swap arrangement has provided the Group with an increase of NOK 513.1 million in liquid treasury bills. Liquidity At the end of 2009, Gjensidige Bank had net liquid assets worth NOK 1,992.9 billion divided between NOK 413.9 million in bank deposits and NOK 1.579,0 million in bonds, certificates and money market funds. NOK 913.4 million of this were investments in OMF from Gjensidige Bank Boligkreditt AS that were not utilised in the swap arrangement with Norges Bank. The net liquid assets are sufficient to cover the debt payments that will fall due for about the next ten months. Gjensidige Forsikring Fourth quarter 2009 11
HEALTH CARE SERVICES Operating income totalled NOK 139.3 million in the quarter, a slight decline from the same quarter in 2008 (NOK 143.1 million). EBITA for the quarter was NOK 15.4 million, which corresponds to an EBITA margin of 11.0 per cent (NOK 11.2 million and 7.8 per cent, respectively). EBITA EBITA for the quarter was NOK 15.4 million compared with NOK 11.2 million in the same quarter in 2008. The EBITA margin for the quarter was 11.0 per cent, which was the highest ever. In the fourth quarter of 2008, the EBITA margin was 7.8 per cent. The good earnings in the fourth quarter of 2009 were mainly attributed to a very high level of activity throughout the autumn, including the fourth quarter. In particular, vaccination in connection with the swine flu outbreak generated considerable income in November and December. At the Hjelp24 NIMI private hospital, the turnover in December was 13.6 per cent higher than in the same month in 2008. This was attributed to a high level of activity at the hospital as well as substantial deliveries to the Norwegian Labour and Welfare Administration project «Raskere tilbake» (Back to work faster). For 2009 as a whole, EBITA was NOK 32.7 million, compared with NOK 41.0 million in 2008. This gave an EBITA margin of 6.4 per cent for 2009 compared with 8.1 per cent in 2008. Operating income The health care services had operating income amounting to NOK 139.3 million in the quarter, compared with NOK 143.1 million in the same quarter in 2008. The turnover in the last quarter showed a positive trend compared with the first half of 2009 and was substantially better than expected. The decline of NOK 3.8 million compared with the same quarter in 2008 was mainly related to a lower turnover for the corporate health services and work environment survey areas. However, the workforce has been cut back so that the employment rate has increased. In the autumn of 2009, there was a debate about the rapid increase in government expenses as a result of increased sick leave. It is expected that this debate will continue until new measures are presented in connection with the extension of the IA agreement (Inclusive Working Life Agreement) on 1 March 2010. The sick leave debate and the expansion of the trade regulations for the corporate health services starting 1 January 2010, where ten new business sectors were required by law to introduce the use of corporate health services, serve as important growth drivers for corporate health services in the coming years. In the fourth quarter, it was clarified that the Hjelp24 NIMI private hospital had lost the surgery agreement with the Southeastern Norway Regional Health Authority for the next three years. This constitutes an annual loss of turnover on the order of NOK ten million. However, active efforts are being made with several players in order to generate new turnover at the Hjelp24 NIMI private hospital. In addition, one of the Group s objectives is to generate further growth through an increased patient throughput of customers who have treatment insurance with Gjensidige. The operations in personal security alarm services have lost the municipality of Trondheim as a customer effective September 2010. As a result, a new, common alarm centre will be established to replace the three previous alarm centres. This will improve the coordination, training and development of new services related to the alarm infrastructure. Operating income came to NOK 509.1 million in 23.0 % Private (23.0 %) hospital and specialist services 19.4 % (18.8 %) Health care services Operating income year to date (same period last year) 1.9 % (0 %) Work environment survays Personal security alarm services Corporate health care services 55.7 % (58.3 %) 2009, compared with NOK 503.9 million in 2008. The rather weak performance in 2009 was attributed to the financial crisis, and this was especially true of the first half. A number of projects and deliveries were either delayed or cancelled by the corporate customers because their attention was focused on downsizing and dismissals. This particularly affected the corporate health services and work environment survey areas. In the second half, the levels of deliveries normalised, and in addition, there was a high level of activity in connection with vaccination against swine flu. In addition, the Hjelp24 NIMI private hospital increased its activity 50 per cent from 2008 to 2009 as a result of increased demand from private customers and insurance customers. Operating expenses Operating expenses amounted to NOK 124.0 million in the quarter, compared with NOK 132.0 million in the same quarter in 2008, a cost reduction of 6.1 per cent. The cost cutting measures initiated prior to the summer of 2009 are now taking full effect. For 2009 as a whole, operating expenses amounted to NOK 476.5 million, compared with NOK 462.9 million in 2008, an increase of 2.9 per cent. In 2009, the accounts were charged with expenses related to the establishment of new corporate health service offices in the Norwegian towns of Haugesund and Kristiansund. These new businesses gave a negative or only slightly positive margin in the start-up phase. Expenses have also been incurred in 2009 in connection with the renovation of the NIMI private hospital in order to meet new requirements. HEALTH CARE SERVICES 4q. 2009 4q. 2008 1.1.-31.12.2009 1.1.-31.12.2008 Operating income 139.3 143.1 509.1 503.9 Operating expenses (124.0) (132.0) (476.5) (462.9) EBITA 1 15.4 11.2 32.7 41.0 Amortisation of excess value - intangible assets (1.8) (3.1) (6.7) (12.8) EBITA margin in per cent 2 11.0 7.8 6.4 8.1 1 EBITA = earnings before interest, tax and amortisation 2 EBITA margin in per cent = EBITA / operating income 12 Gjensidige Forsikring Fourth quarter 2009