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![62 SpareBank 1 Gruppen
NOTE 30 – CREDIT RISK EXPOSURE FOR EACH INTERNAL RISK CLASS
The credit risk in SpareBank 1 Gruppen is mainly related to the operations of the business area factoring.
Work is being performed to prepare quantitative risk analyses for factoring. The credit risk in factoring is related to financing/lending risk and
risk related to domestic and foreign customer credit guarantees.
In connection with ICAAP, SpareBank 1 Gruppen uses the standard method for calculating credit risk. The internal credit model is a
combination of a risk model and effectiveness model (how well adapted is factoring and how efficiently can SpareBank 1 Gruppen run the
agreement). Thus the model is not directly transferable to a risk model with two dimensions/axes: rating on client/customer and security
coverage.
Risk matrix
Taking factoring's system for risk classification as a starting point, the following risk matrix is used as a basis for delegating credit
authorisations. Objective scores from Lindorff Decision and SpareBank 1 Gruppen Finans AS's internal rules of procedures, determines in
which risk class limited companies, sole proprietorships and personal businesses registered in the Register of Business Enterprises are placed.
Client rating /structure rating [4 - 5] [3,5 - 4> [3 - 3,5> [2 - 3> [1 - 2>
5 Low risk Low risk Low risk Medium risk High risk
4 Low risk Low risk Medium risk Medium risk High risk
3 Low risk Low risk Medium risk High risk High risk
2 Low risk Medium risk Medium risk High risk High risk
1 Medium risk High risk High risk High risk High risk
Non-performing High risk High risk High risk High risk High risk
Losses High risk High risk High risk High risk High risk
Description of the model:
On one axis the client rating based on the Lindorff Decision Score is used, where 1 is the worst and 5 is the best.
On the other axis, the structure is given a rating between 1 and 5, with 5 being the best. The structure rating means the factorability both in
connection with the efficient operation of the agreement and whether SpareBank 1 Gruppen has good collateral in the receivable. A model has
therefore been developed in which different parameters indicate whether or not the factorability is assessed and given a score.
The parameters considered are:
1. Debtor's credit worthiness
2. Repurchase rate
3. Credit note turnover rate
4. Age distribution
5. Business sector
The client and structure rating model results in a matrix, that determines whether something is low risk, medium risk or high risk, based on the
combination between client rating and structure rating.
Lending specified by risk classes:
Business area factoring
Client rating vs. Structure rating [4 - 5] [3,5 - 4> [3 - 3,5> [2 - 3> [1 - 2> Total Summarised
5 Low risk
Lending 2.0 % 5. 8 % 19.8 % 0.8 % 0.1 % 28.4 % 47.7 %
4 Low risk
Lending 3.4 % 6.5 % 28.1 % 0.7 % 0.0 % 38.7 % 47.7 %
3 Medium risk
Lending 1.5 % 7.9 % 5.6 % 0.9 % 0.1 % 16.0 % 44.7 %
2 High risk
Lending 0.8 % 2.8 % 6.4 % 2.1 % 0.0 % 12.1 % 6.6 %
1 High risk
Lending 0.3 % 2.0 % 0.6 % 0.9 % 0.0 % 3.8 % 6.6 %
Non-performing/exposed Non-performing/exposed
Lending 0.7 % 0.7 %
Losses Losses
Lending 0.1 % 0.1 %
The model divides the portfolio into the risk classes low, medium and high risk, as well as non-performing/exposed and losses in 2011.](https://image.slidesharecdn.com/annual-report-sparebank1gruppen2011-120525083621-phpapp02/75/Annual-Report-SpareBank-1-Gruppen-2011-62-2048.jpg)
Uploaded bySpareBank 1 Gruppen AS
Annual Report SpareBank 1 Gruppen 2011
1) SpareBank 1 Gruppen reported a pre-tax profit of NOK 387.3 million for 2011, down from NOK 985.1 million in 2010, due to weak financial markets and high claims. 2) SpareBank 1 Livsforsikring AS achieved its best result ever in 2011 despite falling markets, maintaining good buffers throughout the year. 3) SpareBank 1 Skadeforsikring Group had a negative insurance result in 2011 due to a high proportion of large claims, floods, and storms.
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Annual Report SpareBank 1 Gruppen 2011
- 1. 1 Annual Report 2011 SpareBank1 Gruppen
- 2. 2 SpareBank 1 Gruppen Content Board of Directors' Report 3 Note 28 Lending to and deposits with customers and financial Income statement 18 institutions 59 Statement of comprehensive income 18 Note 29 Net loan and guarantees loss provisions 61 Balance Sheet 19 Note 30 Credit risk exposure for each internal risk class 62 Consolidated statement of cash flow 20 Note 31 Maximum credit risk exposure, not taking into Statement of changes in equity 21 account pledged security 63 Note 32 Contractual maturity of financial liabilities 63 Note 1 General information 23 Note 33 Age distribution of overdue, but not impaired loans Note 2 Accounting policies 23 and premium revenues 64 Note 3 Financial risk management 29 Note 34 Market risk related to currency risk 65 Note 4 Critical accounting estimates and judgements 35 Note 35 Market risk related to interest rate risk 65 Note 5 Changes in Group structure 37 Note 36 Deposits from and liabilities to customers and Note 6 Segment information 41 financial institutions 66 Note 7 Net insurance premium income 42 Note 37 Subordinated loan capital and hybrid tier 1 capital 67 Note 8 Net commissions 42 Note 38 Securities issued 67 Note 9 Gains and losses from financial assets and liabilities 43 Note 39 Capital adequacy 68 Note 10 Net income from investment properties 44 Note 40 Reinsurance receivables 68 Note 11 Other operating income 44 Note 41 Insurance receivables from policyholders 69 Note 12 Operating costs 44 Note 42 Insurance liabilities in life insurance 69 Note 13 Shareholder structure 45 Note 43 Insurance provisions in P&C insurance 71 Note 14 Goodwill 45 Note 44 Liabilities related to reinsurance 73 Note 15 Other intangible assets 46 Note 45 Insurance risk in life insurance 73 Note 16 Investments in subsidiaries 47 Note 46 Insurance risk in P&C insurance 75 Note 17 Investments in associates and joint ventures 47 Note 47 Salaries and other remuneration of CEO and senior Note 18 Property, plant and equipment 48 executives 77 Note 19 Other assets 49 Note 48 Pensions 79 Note 20 Classification of financial assets and liabilities 50 Note 49 Number of employees and full-time equivalents 82 Note 21 Valuation hierarchy 51 Note 50 Taxes 83 Note 22 Securities at fair value 53 Note 51 Other liabilities 84 Note 23 Financial derivatives 54 Note 52 Material transactions with related parties 85 Note 24 Securities available for sale 55 Note 53 Events after the balance sheet date and legal disputes 88 Note 25 Bonds at amortised cost 56 Note 54 Revised balance sheet for SpareBank 1 Gruppen Note 26 Fair value of securities stated at amortised cost 57 Group as of 31 December 2010 89 Note 27 Investment properties 58 Auditor's Report 90
- 3. 3 Board of Directors’Report for 2011 SpareBank 1 Gruppen OPERATIONS IN 2011 to NOK 831.5 million in 2010. The result represents an annualised The weak development of the securities markets combined return on equity of 11.1%, compared to 18.7% for 2010. 2011 was with natural disasters and large claims resulted in reduced a year of weak financial markets and high claims ratios. In earnings for SpareBank 1 Gruppen addition to this, some larger items totalling NOK 245 million SpareBank 1 Livsforsikring AS's record result was due in part were recognised as income in 2010, including negative goodwill to a significantly improved administration result. The company of NOK 117.9 million in connection with the acquisition of maintained good buffers throughout the year Unison Forsikring AS. A high proportion of large claims, floods and storms resulted in a negative insurance result in SpareBank 1 Skadeforsikring SpareBank 1 Gruppen's total assets amounted to NOK 42.0 billion Group as of 31 December 2011. This represents growth of around 3% The debt collection company Conecto AS merged with Actor since 2010. Fordringsforvaltning AS with effect from 1 January 2011 Aggressive focus on national capital markets segment via SpareBank 1 Gruppen's capital adequacy ratio as of 31 December SpareBank 1 Markets AS 2011 was 16.2%, compared to 16.1% at year-end 2010. Its core SpareBank 1 Gruppen decided to establish its own card capital adequacy ratio at year-end 2011 was 14.6%, compared to company 12.5 % in 2010. SpareBank 1 Gruppen's capital situation is considered satisfactory and, in the opinion of the Board, the SpareBank 1 Gruppen AS is a holding company that produces, Group is well capitalised with regard to meeting the expected provides and distributes products in the fields of life and P&C requirements of the Solvency II regulations. insurance, fund management, capital markets, factoring, debt collection services and long-term monitoring. SpareBank 1 Livsforsikring AS achieved its best result ever in 2011 despite falling equity markets. SpareBank 1 Livsforsikring AS SpareBank 1 Gruppen AS is owned by SpareBank 1 Nord-Norge maintained good buffers throughout 2011, which helped ensure (19.5 %), SpareBank 1 SMN (19.5 %), SpareBank 1 SR-Bank the company was less affected by the market unrest during the (19.5%), Samarbeidende Sparebanker AS (19.5%), Sparebanken year. The company's financial performance shows a significantly Hedmark (12%) and the Norwegian Confederation of Trade Unions improved administration result in 2011. The company achieved and affiliated trade unions (10%). SpareBank 1 Gruppen AS's an investment result of NOK 368.5 million in 2011, which office address is in Tromsø, and the Group's primary market is represents an increase of NOK 51.2 million from 2010. SpareBank 1 Norway. Livsforsikring AS increased provisions for reserves due to longer life expectancy by NOK 187.3 million. The company saw tax In this Directors' Report, SpareBank 1 Gruppen AS refers to the income of NOK 97.8 million in 2011. This was due to the combined holding company and SpareBank 1 Gruppen refers to the Group. effect of the tax exemption method and provisions to the securities adjustment reserve now being subject to the Taxation Act's rule SpareBank 1 Gruppen reported a pre-tax profit of NOK 387.3 concerning the right to make deductions for insurance provisions. million for 2011, compared to NOK 985.1 million in 2010. The net The Ministry of Finance has proposed that the tax exemption profit for the period amounted to NOK 525.8 million, compared method should not apply to equities, etc. included in the group life
- 4. 4 SpareBank 1 Gruppen and investment choice portfolio of life insurance companies from separate company. It therefore decided in 2011 to establish a card and including 1 January 2012. The expected effect of this is that business area. the tax cost will approach the general taxation rate of 28%. SpareBank 1 Skadeforsikring Group experienced strong portfolio SPAREBANK 1-ALLIANCE growth in 2011 and strengthened its market shares within land- The SpareBank 1-alliance consists of a total of 15 independent based P&C insurance. Measured by premiums written, the growth banks, SpareBank 1 Gruppen AS and its subsidiaries, Bank 1 amounted to NOK 515 million or 11.0%. A high proportion of Oslo Akershus AS and BN Bank ASA. The independent banks in natural disaster claims and a greater number of large claims resulted the alliance are: in higher compensation costs than in 2010, meaning that the Samarbeidende Sparebanker (SamSpar) gross claims ratio in 2011 was 80.9%, an increase of 3.6 percentage Sparebanken Hedmark points since 2010. SpareBank 1 Nord-Norge SpareBank 1 SMN ODIN Forvaltning Group's total assets under management amounted SpareBank 1 SR-Bank to NOK 23.4 billion as of 31 December 2011. This is a reduction of NOK 8.9 billion, compared to 2010. ODIN Forvaltning Group SamSpar is a group of several smaller savings banks. These savings redeemed equity funds worth a net NOK 1.9 billion in 2011. banks are: Management fees amounted to NOK 303.5 million in 2011, which SpareBank 1 Buskerud-Vestfold is NOK 14.4 million lower than in 2010. SpareBank 1 Gudbrandsdal SpareBank 1 Hallingdal SpareBank 1 Markets Group experienced a loss of NOK 154.8 SpareBank 1 Lom og Skjåk million in 2011. It focused on investments during the year with the SpareBank 1 Modum aim of putting in place the required framework conditions for a SpareBank 1 Nordvest strong capital markets unit. All the business areas were significantly SpareBank 1 Nøtterøy-Tønsberg strengthened by investments in human capital and infrastructure. SpareBank 1 Ringerike Hadeland The result for the year was affected by the building up that took SpareBank 1 Søre Sunnmøre place, while a challenging market situation affected the earnings SpareBank 1 Telemark potential of all players in the industry. SpareBank 1 Østfold Akershus SpareBank 1 Gruppen Finans Group, which operates in the factoring, The alliance cooperates on banking services and products. As a debt collection and long-term monitoring business areas, achieved whole the alliance is one of the largest providers of financial a pre-tax profit of NOK 27.9 million in 2011. The factoring business products and services in the Norwegian market. The member banks area, organised in SpareBank 1 Gruppen Finans AS, was the in the SpareBank 1-alliance distribute the SpareBank 1 Gruppen’s country's third largest with a market share of 14.1 % in 2011, products and collaborate in key areas such as brands, work processes, compared to 11.6 % in 2010. The pre-tax profit of the debt competence building, IT operations, systems development and collection business area, organised in Conecto AS, was NOK 24.7 purchasing. The alliance has signed strategic cooperation agreements million in 2011, compared to NOK 19.5 million in 2010. Despite with the Norwegian Confederation of Trade Unions (LO) and LO's the reduced debt recovery fees and slightly lower number of affiliated unions, and delivers products and services to LO's referrals, the debt collection business area maintained its turnover members via the LOfavør advantage card scheme. through one-time income, higher recovery rates and a larger proportion of business referrals. Actor Fordringsforvaltning AS and The SpareBank 1-alliance's main goal is to ensure each bank’s Conecto AS were merged into an integrated debt collection independence and regional affiliation through strong competitive- company with effect from 1 January 2011. ness, profitability and financial soundness. At the same time, the SpareBank 1-alliance represents a complete competitive banking SpareBank 1 Gruppen has made strategic investments in important alternative at the national level. To achieve common goals, the product areas in recent years via a series of acquisitions and banks in the alliance have established a national marketing profile structural changes, with debt collection, factoring and capital and developed a common strategy for brand building and markets being the most recent examples of these. The goal is communication. This strategic marketing platform also forms the control of the product and value chain for the benefit of both basis for joint development of products and concepts. The marketing customers and owners. SpareBank 1 Gruppen also wishes to offer efforts are primarily aimed at the retail market, small and medium- products and services within the card and payment fields via a sized enterprises, and unions affiliated with LO.
- 5. 5 The product companiesestablished under SpareBank 1 Gruppen AS relevant to a company whose shares are not listed on a stock and the alliance banks have developed a common technology exchange. platform. Sharing lessons learned and expertise within the alliance, based on best practice, are key elements of the alliance's development. The Board's overall report on the company's corporate governance As part of these efforts, resource centres have been established for has been incorporated into the Norwegian version of 2011 annual credit management in Stavanger, payments in Trondheim, and report. training in Tromsø. Executive management teams The SpareBank 1-alliance managed assets totalling around NOK 710 SpareBank 1 Gruppen has two executive management teams the billion at year-end 2011, compared to around NOK 665 billion at group executive management team and the alliance executive year-end 2010. management team. The group executive management team is responsible for operating and developing the financial group, SpareBank 1 Gruppen's has two main functions in the SpareBank 1- and focuses on the results and operations of the companies in the alliance: Group. The alliance executive management team is responsible for Managing and developing the financial group with respect to the operational cooperation between SpareBank 1 Gruppen and the producing and delivering competitive products and services for SpareBank 1-banks. The head of the alliance executive management distribution via the alliance banks and other banks with a team is represented in the group executive management team. distribution agreement with companies in SpareBank 1 Gruppen, and LO. This work is performed by SpareBank 1 Gruppen AS. Information about remuneration Information about the remuneration of the CEO, group executive Manage and develop the alliance cooperation with respect to management team, Board, Supervisory Board and Control common management, development and execution of activities Committee is provided in the financial statements' note 47, and that provide economies of scale and competitive advantages. information about the auditor's remuneration is described in note 12. This work is performed by Alliansesamarbeidet SpareBank 1 DA. Dividend policy Selskapet Alliansesamarbeidet SpareBank 1 DA represents the SpareBank 1 Gruppen AS's long-term goal is to pay out 30–50% administrative superstructure of the alliance. The company handles of its profits, at a consolidated level, as a net dividend to its the financing and ownership of applications, concepts, contracts and owners. When fixing the net dividend for SpareBank 1 Gruppen, brands on behalf of the alliance partners. the focus is on maintaining satisfactory core and total capital adequacy in relation to planned growth, as well as maintaining a Alliansesamarbeidet SpareBank 1 DA is owned by: satisfactory overall financial position in relation to internal ICAAP SpareBank 1 SR-Bank (17.74%) calculations and the Group's liquidity. The target for the core SpareBank 1 SMN (17.74%) capital ratio, including hybrid tier 1 capital, is a minimum of SpareBank 1 Nord-Norge (17.74%) 11% and for the total capital adequacy ratio it is a minimum of Samarbeidende Sparebanker Utvikling DA (17.74%) 13%. SpareBank 1 Gruppen should achieve the capital adequacy Sparebanken Hedmark (11.3%) goals established by the Solvency II regulations by a good margin. SpareBank 1 Gruppen AS (10.0%) Bank 1 Oslo Akershus AS (7.74%) SPAREBANK 1 GRUPPEN – RESULTS AND KEY FIGURES SpareBank 1 Gruppen AS and the Group prepare their financial CORPORATE GOVERNANCE statements in accordance with the EU approved International Shares in SpareBank 1 Gruppen AS are not publicly traded, but Financial Reporting Standards (IFRS). as of 31 December 2011 the company did have a bond issue listed on Oslo ABM. The company has, as shown in the section on SpareBank 1 Gruppen reported a pre-tax profit of NOK 387.3 «Operations in 2011», a concentrated shareholder structure. All million in 2011, compared to NOK 985.1 million in 2010. shareholders and groupings of shareholders are represented on the Uncertainty and turbulence in the financial markets affected the Board, either directly or indirectly. There is continuous, good development of the financial results, which constitutes a contact with all shareholders and groupings of shareholders in the substantial part of the Group's value creation. Natural disasters and company. The Board of SpareBank 1 Gruppen AS has discussed large claims also affected the result in 2011. the «Norwegian Code of Practice for Corporate Governance» and has determined to comply with those sections that are The net profit for the period was NOK 525.8 million, which
- 6. 6 SpareBank 1 Gruppen provided a annualised return on equity of 11.1 %. The Group due to a strong increase in provisions for compensation for disability saw tax income of NOK 138.5 million in 2011, compared to a taxes within individual interest insurance and increased disability of NOK 153.6 million in 2010. The high level of tax income was compensation within group life insurance and group pension due in part to the calculated effect of the tax exemption method. insurance. The risk result improved within individual endowment insurance and individual life insurance. Financial performance: Administration result NOK million 2011 2010 The administration result amounted to a loss of NOK 65.9 million Profit before tax in subsidiaries: in 2011, which represents an improvement of NOK 121.0 million, SpareBank 1 Livsforsikring AS 414.1 350.4 SpareBank 1 Skadeforsikring Group 1) 185.3 641.1 compared to 2010. The improvement was due in part to the ODIN Forvaltning AS 21.8 64.6 profitability programme implemented in 2010, which identified SpareBank 1 Markets Group -154.8 -57.6 SpareBank 1 Medlemskort AS 12.1 11.1 possible cost savings and income increasing measures. Most of SpareBank 1 Gruppen Finans Group 2) 27.9 8.6 Group adjustments 28.7 17.8 the administration loss in 2011 occurred within the operation of Total profit before tax in subsidiaries: 535.1 1 036.0 group pension insurance. 1) Unison Forsikring AS was consolidated into SpareBank 1 Skadeforsikring with effect from 1 July 2010. Investment result 2) Conecto AS became 100% owned by SpareBank 1 Gruppen Finans AS with financial effect from 10 September 2010. Profit before this is recognised directly NOK 187.3 million of the return profit in 2011 was used to strengthen in equity. the premium reserve due to expected longer life expectancy. The corresponding provision in 2010 was NOK 45.3 million. The reserves SpareBank 1 Livsforsikring AS were built up gradually instead of strengthening supplementary SpareBank 1 Livsforsikring AS's products are primarily distributed provisions at year-end. The company had supplementary provisions through the banks in the SpareBank 1-alliance and the Norwegian of NOK 344.1 million at year-end 2011. Confederation of Trade Unions (LO). The value-adjusted capital yield in the group portfolio as a whole Financial performance: was 2.5% in 2011. The booked return on assets was 5.4%. The corresponding returns in 2010 were 7.1% and 5.2%, respectively. NOK million 2011 2010 The capital yield in the company portfolio was 4.3% in 2011, Risk result after technical provisions 241.4 325.4 compared to 4.5% in 2010. Administration result -65.9 -186.9 Interest result 368.5 317.3 Provisions -187.3 -45.3 Asset allocation per portfolio as of 31 December 2011: Remuneration for interest guarantee 22.7 29.9 Total result for supplementary provisions 379.4 440.4 Allocation to supplementary provisions - -125.3 Group portfolio Profit to customers -61.5 -36.3 2011 2010 Return on the company's funds 96.2 71.6 Shares 13.8 % 14.8 % Profit to customers before tax 414.1 350.4 Other -0.2 % 7.1 % Tax charge 97.8 -60.2 Property 21.0 % 21.5 % Profit to customers after tax 511.9 290.2 Bonds-Amortised costs 28.0 % 21.8 % Bonds-Market value 37.4 % 34.8 % Total value (NOK million) 15 707 16 030 SpareBank 1 Livsforsikring AS achieved its best result ever in Company portfolio 2011 despite falling equity markets. This was in part due to the 2011 2010 Shares 0.0 % 0.1 % company having built up and sustained good buffers throughout the Other -4.5 % 17.0 % Property 18.8 % 21.7 % year. The net profit to owner before tax amounted to NOK 414.1 Bonds-Amortised costs 24.8 % 11.1 % million in 2011, compared to NOK 350.4 million in 2010. The Bonds-Market value 60.9 % 50.1 % Total value (NOK million) 2 862 2 844 total net profit for the period amounted to NOK 511.9 million, which is an improvement of NOK 221.7 million on 2010. The Investment choice portfolio 2011 2010 company saw tax income of NOK 97.8 million in 2011, compared Shares 54.2 % 61.0 % Other -0.1 % 0.0 % to taxes of NOK 60.2 million in 2010. Part of the reason for the high Bonds 45.9 % 39.0 % level of tax income was the calculated effect of the tax exemption Total value (NOK million) 6 896 6 701 method for equity related investments. Solvency and capital situation Risk result The company's total assets amounted to NOK 26.6 billion as of 31 The net risk result decreased by NOK 84.0 million compared to 2010 December 2011. This represents an increase of 0.5% since 2010. and amounted to NOK 241.4 million in 2011. This was primarily
- 7. 7 Group portfolio Company portfolio Investment choice portfolio Total value: NOK 15.7 billion Total value: NOK 2.9 billion Total value: NOK 6.9 billion Bonds - Market value Bonds - Market value Bonds 13.8% Bonds - Amortised costs 18.8% Bonds - Amortised costs Shares 37.4% 21.0% Real estate 60.9% Real estate 45.9% 24.8% 54.2% Shares 28.0% The buffer capital, after the proposed application of the year's profit, SpareBank 1 Skadeforsikring Group achieved a pre-tax profit of amounted to NOK 1.7 billion, equivalent to 11.0% of insurance NOK 185.3 million for 2011, compared to NOK 614.1 million for provisions. By way of comparison, the buffer capital at year-end 2010. The portfolio grew strongly and, measured by premiums 2010 amounted to NOK 2.3 billion, equivalent to 14.6 % of written, the growth amounted to NOK 515 million, equivalent to insurance provisions. The main reason for the change was a fall 11.0 %. The growth via bank distribution, the Norwegian in the securities adjustment reserve from NOK 616.9 million in Confederation of Trade Unions (LO) and the subsidiary Unison 2010 to NOK 184.9 million in 2011. Forsikring AS was solid. The Group strengthened its market shares within land-based P&C insurance in 2011. The company's capital adequacy was 18.5% at year-end 2011, compared to 19.3% at year-end 2010. The entire subordinated loan Compensation costs comprises core capital. A time limited subordinated loan amounting The result for 2011 was strongly affected by natural disasters to NOK 200 million with a due date of 15 June 2016 was, with the caused by extreme weather in the fourth quarter and floods Norwegian Financial Supervisory Authority's approval, redeemed earlier in the year. Total gross compensation for natural disasters (call option) on 15 June 2011. In 2011, the company received amounted to NOK 184.3 million in 2011. This is a significant NOK 223.0 million in equity through group contributions. increase on previous years, and NOK 155.6 million higher than in 2010. Compensation linked to natural disasters accounted for 3.6 The company’s solvency margin capital ratio was 303.5% as of 31 percentage points of the Group's gross claims ratio in 2011. December 2011, compared to 290.1% for 2010. The minimum requirement for the solvency margin capital is 100%. At year-end Gross compensation, natural disasters (NOK million): 2011, the solvency margin requirement was NOK 794.6 million, 200 184.3 compared to NOK 859.0 million in 2010. 150 The company is continuously assessing the consequences of, and adapting to, the coming Solvency II regulations. 100 SpareBank 1 Skadeforsikring Group 59.7 SpareBank 1 Skadeforsikring Group is the leading Norwegian seller 43.1 50 of insurance via banks, but also sells directly to retail customers 32.5 28.7 and via broker channels to corporate market customers. 0 2007 2008 2009 2010 2011 Financial performance: NOK million 2011 2010 Gross overdue premiums 5 358.2 4 731.8 SpareBank 1 Skadeforsikring Group was also affected by an Accrued premiums for own account 4 695.9 4 184.4 Accrued compensation for own account -3 784.0 -3 208.5 unusually high proportion of large claims in 2011. There were 6 Insurance-related operating costs for own account -1 074.2 -880.6 large claims involving total compensation of more than NOK 10 Other insurance-related income/costs 31.8 132.0 Other technical provisions 93.2 39.6 million within the fire combined corporate market. Total Insurance result: -37.3 266.9 Net financial income 260.3 432.7 compensation for larger claims amounted to NOK 144 million and Other costs - -2.7 accounted for 2.8 percentage points of the Group's gross claims Operating result 223.0 696.9 Change in security provisions -37.7 -55.8 ratio in 2011. Claims submitted in connection with the 22 July Pre-tax profit 185.3 641.1 terrorist attack amounted to NOK 63.4 million. Tax charge -94.6 -60.1 Net profit for the period 90.7 581.1
- 8. 8 SpareBank 1 Gruppen The Group's gross claims ratio was 80.9% in 2011, representing 197.2 million in 2011, and a net loss for the period of NOK 158.0 an increase of 3.6 percentage points from 2010. million in 2011. The result both before and after tax was a loss of NOK 49.9 million in 2010. During 2011, Unison Forsikring AS Operating costs achieved strong growth in premium volumes and helped The gross cost ratio was 22.5% in 2011, representing an increase SpareBank 1 Skadeforsikring Group achieve a higher market share of 1.7 percentage points since 2010. Last year's cost ratio was for land-based P&C insurance. affected by a positive one-time effect on pensions of NOK 42.5 million, as well as the absence of profit commissions to distributors. ODIN Forvaltning Group ODIN Forvaltning Group is one of Norway's largest managers of Development of combined ratio for own account (%): equity funds. ODIN Forvaltning Group is a value-oriented equity 120 fund manager, which on behalf of its unit holders invests in 103.4 undervalued companies with good products, a strong cash flow, 96.2 97.7 100 94.6 94.0 solid balances and a high dividend capacity. 89.9 21.0 22.9 80 20.7 21.9 22.5 20.6 76.7 80.5 Financial performance: 73.9 72.1 73.7 60 69.3 NOK million 2011 2010 40 Management fees 303.5 317.9 Total operating income 303.5 317.9 20 Payroll costs -108.5 -104.2 Amortisation -23.5 -14.8 Other operating expenses -151.2 -137.8 0 Total operating costs -283.2 -256.8 2006 2007 2008 2009 2010 2011 Operating result 20.3 61.1 Net financial income 1.5 3.5 Pre-tax profit 21.8 64.6 Claims ratio Cost ratio Tax charge -7.0 -19.3 Net profit for the period 14.8 45.3 The combined ratio for own account, including natural disasters, was 103.4% in 2011, which was 5.7 percentage points higher than in 2010. ODIN Forvaltning Group achieved a pre-tax profit of NOK 21.8 million in 2011, compared to NOK 64.6 million in 2010. 2011 was Financial result a year characterised by a great deal of uncertainty and 2011 was affected by turbulent financial markets, which is reflected turbulence in the financial markets. This led to a decrease in total in the lower financial income compared to 2010. SpareBank 1 assets throughout the year and a fall in management fees. One-time Skadeforsikring Group's financial income totalled NOK 260.3 costs were also incurred from investments aimed at better equipping million in 2011, compared to NOK 432.7 million in 2010. The ODIN Forvaltning Group to deliver high quality services. During financial return on the Group's portfolio was 2.8%. The Group 2011, the Group took important steps to strength the management achieved a positive return of 3.7% in the fixed income portfolio, team, expand the fund portfolio to include one bond fund and but a negative return of minus 7.8% on the equity portfolio. three attractive combination funds, and further develop its invest- ment processes. Capital situation At year-end 2011, SpareBank 1 Skadeforsikring Group's total All self-managed equity funds produced weaker returns than their assets amounted to NOK 13.3 billion. This represents growth of respective benchmarks in 2011. This was largely due to «value 9.5% since 2010. The capital adequacy ratio was 32.8% at year- companies» developing more weakly than «growth companies» in end 2011, which corresponds to excess coverage of NOK 1,397 2011 as well. million in relation to the authorities' minimum requirements. The capital adequacy ratio was 0.3 percentage points stronger Total assets compared to year-end 2010. At year-end 2011, ODIN Forvaltning Group was managing a total of NOK 23.4 billion, NOK 22 billion of which was in equity funds. Unison Forsikring AS ODIN Forvaltning Group redeemed equity funds worth a net NOK Unison Forsikring AS is a wholly owned subsidiary of SpareBank 1.9 billion in 2011. 1 Skadeforsikring AS. The company is a specialised partner for organisations and their members, and offers a broad spectrum of The SpareBank 1-banks' broad distribution network, distribution P&C insurance. Unison Forsikring AS saw a pre-tax loss of NOK through other banks and distributors in Norway, Sweden and
- 9. 9 Finland, together withthe measures implemented in 2011, provide Financial performance: a good starting point for 2012. NOK million 2011 2010 SpareBank 1 Markets Group SpareBank 1 Gruppen Finans AS 12.2 -5.6 Management -5.9 -9.3 SpareBank 1 Markets Group is an analysis based capital markets Factoring 14.6 2.0 Portfolio 3.5 1.7 unit that is active within corporate finance, foreign capital and Conecto AS1) 24.7 19.5 stockbroking. SpareBank 1 Gruppen AS owned 97.2 % of the Total profit before tax in subsidiaries 36.9 13.9 Excess value amortisation -9.0 -5.3 shares in SpareBank 1 Markets AS at year-end 2011. The remainder Pre-tax profit 27.9 8.6 of the shares were owned by employees. Tax charge -8.8 -4.3 Net profit for the period 19.1 4.3 1) Conecto and Actor Fordringsforvaltning were merged with effect from 1 January Financial performance: 2011. Conecto was purchased with financial effect from 10 September 2010. NOK million 2011 2010 SpareBank 1 Gruppen Finans Group achieved a pre-tax profit of Total operating income 77.6 77.9 NOK 27.9 million, which is NOK 19.3 million better than in Other income 8.6 5.3 Payroll, bonus and other staff costs -159.6 -89.7 2010. Amortisation -8.0 -6.9 Other operating expenses -71.2 -43.2 Operating result -152.6 -56.6 SpareBank 1 Gruppen Finans AS Net financial income -2.2 -1.0 Pre-tax profit -154.8 -57.6 SpareBank 1 Gruppen Finans AS's operations in 2011 were Tax charge 41.7 16.8 characterised by consolidation and a focus on growth in order to Net profit for the period -113.1 -40.8 strengthen the company's market position. The company's total income in 2011 amounted to NOK 74.5 million, compared to The result for 2011 was a loss of NOK 154.8 million. Total turnover NOK 94.4 million in 2010. The 2010 income includes a group in 2011 amounted to NOK 86.2 million, compared to NOK 83.2 contribution of NOK 26.0 million in 2010. The pre-tax profit million in 2010. NOK 35.9 million of the turnover in 2011 came from amounted to NOK 12.2 million, compared to a loss of NOK 5.7 brokerage from equity and derivatives trading, NOK 29.6 million million in 2010. from corporate finance fees, NOK 15.1 million from foreign capital, and NOK 5.6 million from other operating income. Factoring The factoring business area is involved in funding within the SpareBank 1 Markets Group carried out restructuring approved by areas of factoring and guarantees. Its pre-tax profit amounted to the company's board and SpareBank 1 Gruppen AS in 2011. 2011 NOK 14.6 million in 2011, compared to NOK 2.0 million in 2010. was primarily spent putting in place the necessary framework for a The improvement in the result was due in part to lower lending strong capital markets unit. All the business areas were significantly losses. Losses on lending amounted to NOK 0.4 million in 2011, strengthened by investments in human capital and infrastructure. compared to NOK 10.4 million in 2010. The result for the year was affected by this, as well as a challenging market situation that affected the earnings potential of all players in Factoring achieved net operating income of NOK 58.1 million in the industry. 2011, which represents an increase of NOK 5.7 million since 2010. The business area is noticing pressure on margins both in Its competitiveness after the phasing in of new resources indicates its lending and factoring operations. Client turnover experienced that the company will start 2012 at full market power. a good increase of 29.9%. SpareBank 1 Gruppen Finans Group Portfolio SpareBank 1 Gruppen Finans AS produces, delivers and distributes The portfolio business area is involved in the acquisition of services within factoring, portfolio acquisition and portfolio portfolios of monetary claims that are then recovered by the management. The company's registered address is in Oslo and it runs Group's debt collection company. The pre-tax profit for 2011 was its factoring operations in Ålesund and Tromsø. SpareBank 1 Gruppen NOK 3.5 million, compared to NOK 1.7 million in 2010, representing Finans AS owns 100% of the shares in Conecto AS, which works an improvement of NOK 1.9 million. The turnover in 2011 increased within out of court and judicial debt collection. Both companies are by NOK 4.3 million in relation to 2010. The portfolio volume organised in a sub-group of SpareBank 1 Gruppen AS in which the increased by 86% and was NOK 1,152 million as of 31 December ownership and management lies in SpareBank 1 Gruppen Finans AS. 2011. The book value at year-end 2011 was NOK 78.3 million, which is an increase of NOK 43.8 million from 2010.
- 10. 10 SpareBank 1 Gruppen Conecto AS while the total equity amounted to NOK 3,172 million. The Conecto AS is primarily involved in the collection of invoiced company had distributable equity amounting to NOK 1,202 claims. The company also provides fund management, legal debt million at year-end 2011. collection services and legal advice. Capital adequacy in 2011 was 40.0%, compared to 53.7% in Its pre-tax profit amounted to NOK 24.7 million in 2011, compared 2010. The company's core capital adequacy ratio was 35.4% in to NOK 19.5 million in 2010. Despite the reduced debt collection 2011 and 44.9% in 2010. fees and slightly lower number of referrals, the company maintained its turnover through one-time income, higher recovery rates and SpareBank 1 Gruppen a larger proportion of business referrals. The Group's cash and cash equivalents increased by NOK 185.0 million in 2011 to NOK 1,276 million. The increase was due to net SpareBank 1 Medlemskort AS cash flows from operating activities and financing activities of SpareBank 1 Medlemskort AS is tasked with operating the joint NOK 1,048 million and NOK 162,8 million, respectively, exceeding membership database of the unions affiliated to the Norwegian the cash flow of NOK 1,025 million from investing activities. Confederation of Trade Unions (LO) that is used to administer Investing activities in 2011 were mainly financed by operating membership card deliveries, collect premiums for group insurance, activities. and run and administer the LOfavør advantage card scheme for around 877,000 members. The company works closely with LO The largest changes between the operating result and cash flow and the unions, and delivers the advantage card concept, LOfavør, from operating activities in 2011 were due to an increase in to members on behalf of the unions and LO. The company has technical insurance provisions of NOK 677.2 million. Security three business areas: membership card administration, the holdings were reduced by a net NOK 1,006 million to NOK 30,077 LOfavør advantage card scheme, and systems and subsidiary million as of 31 December 2011. The portfolio of investment ledger operations. properties reduced by a net NOK 36.2 million to NOK 4,154 million. Liabilities arising from the issuance of securities increased Financial performance: by a net NOK 528.1 million to NOK 1,905 million. The dividend paid to owners amounted to NOK 440 million in 2011. NOK million 2011 2010 Operating income 58.5 62.2 SpareBank 1 Gruppen's total equity at year-end 2011 amounted to Payroll costs -6.6 -6.1 Operating costs Medlemskort -2.0 -2.8 NOK 4,942 million, compared to NOK 4,628 million at year-end Operating costs LOfavør -32.6 -36.4 2010. Recognised goodwill in the Group totalled NOK 861.1 Operating costs Reskontro -6.1 -6.5 Total operating costs -47.3 -51.8 million as of 31 December 2011, compared to NOK 850.8 million Operating result 11.2 10.4 Net financial income 0.9 0.7 at year-end 2010. Pre-tax profit 12.1 11.1 Tax charge -3.6 -3.1 Net profit for the period 8.5 8.0 The Group's capital adequacy ratio was 16.2% as of 31 December 2011, compared to 16.1% in 2010. The Group's core capital The pre-tax profit for the year amounted to NOK 12.1 million, adequacy ratio was 14.6% as of 31 December 2011, compared to compared to NOK 11.1 million for 2010. The net profit for the 12.5% as of year-end 2010. period was NOK 8.5 million, which is NOK 0.5 million better than in 2010. The annual accounts have been presented on the assumption that the company will continue as a going concern. The Board SpareBank 1 Gruppen AS finds that the prerequisites for such a going concern assumption In addition to shares in subsidiaries, SpareBank 1 Gruppen AS's are met by the financial statements for 2011 and the earnings assets consist of bank deposits and minor assets. The company had forecast for 2012. Beyond matters mentioned in this report, no liquidity reserves of NOK 414 million as of 31 December 2011. circumstances have arisen after the end of the accounting year that Unused credit facilities accounted for NOK 200 million of this would be of material significance to the company's position and amount. The liquidity reserves increased by around NOK 120 results. million, compared with 2010. The equity consists of share capital, a share premium reserve DIVIDENDS and retained earnings. The share capital in SpareBank 1 Gruppen The Board proposes that SpareBank 1 Gruppen AS distribute a AS amounted to NOK 1,870 million as of 31 December 2011, dividend of NOK 433.9 million for 2011. At the same time, a
- 11. 11 NOK 430.0 millionshare issue will be carried out aimed at share- Internal control in the Group is regulated by key mandatory guide- holders in order to maintain the company's solvency. lines, but are primarily defined as a line management responsibility. In accordance with the «Regulations on Risk Management and Internal Control» and the Group's own guidelines, risk factors in RISK FACTORS the operations are reviewed annually and action plans are prepared The operations of SpareBank 1 Gruppen are organised into different in all units, which are reported to the respective company boards. business areas through subsidiaries. There are major differences In addition, the Group also conducts surveys across the group with in the risk structure of the individual subsidiaries. The most regard to internal control, Personal Data Act, and security matters. important risk categories to which the Group is exposed are market SpareBank 1 Gruppen has outsourced internal auditing to Ernst & risk, insurance risk, ownership risk, operational risk, credit risk, Young AS. This has supplied added expertise to the Group. The liquidity risk, concentration risk, and strategic and commercial risk. internal auditing operations also encompass the subsidiaries. 2011 presented challenges in a number of areas for SpareBank 1 Gruppen. Given its substantial investment portfolio, the results Performance of risk management in 2011 were negatively affected by weak equity markets and a challenging As a financial group, SpareBank 1 Gruppen is subject to extensive interest rate market with widening credit spreads. The financial regulations which are under continuous development. New result for 2011 was therefore far lower than the financial result for regulations for calculating capital requirements, Solvency II, are 2010. The results were also affected by SpareBank 1 Markets AS being developed. undergoing a substantial strengthening process aimed at securing a position as a leading capital markets unit. The company is now Even though Solvency II is first expected to come into effect on 1 considered well equipped to establish itself as a strong player within January 2014, SpareBank 1 Gruppen's goal is to meet all off the capital markets segment. 2011 was characterised by high claim Solvency II's requirements from 2013 onwards. In the same way ratios for SpareBank 1 Skadeforsikring AS, both due to a large as the Basel II regulations have been of major importance for the number of large claims in the corporate segment and extra costs development of banks' risk management, Solvency II will have as due to the development of the subsidiary Unison Forsikring AS. least as large an effect on the calculation of capital requirements, as well as the need to develop new models for managing risk in Responsibility for risk management, compliance and control insurance companies. Substantial work is being done on developing The Group's Board is responsible for risk management and insurance companies in order to improve on new regulations, compliance in the Group. The company boards are responsible for including participation in regulatory trial projects. their own company's risk management and compliance. The parent company will also be covered by the coming regulations. Responsibility for the overall risk management within the This has resulted in a need to establish far stronger interaction organisation lies with the Director responsible for strategy, risk between the risk environments in the companies. This is necessary management and analysis in the parent company. This position to ensure more consistent and uniform risk management. It is also reports directly to the CEO of SpareBank 1 Gruppen AS. a means of trying to ensure there is better expertise throughout the Group. Risk management in SpareBank 1 Gruppen should support the Group's strategic development and achievement of its objectives, Risk categories and ensure the fulfilment of statutory capital requirements. Risk The Group's risk exposure is primarily related to market risk, management should ensure financial stability and sound asset insurance risk, ownership risk, credit risk and concentration risk, management. This is to be achieved by: as well as operation risk (including compliance risk), liquidity risk and strategic and commercial risk. Please refer to the financial A moderate risk profile statements' note 3, financial risk management, for an explanation A strong risk culture characterised by a high level of risk of the individual risk categories. management awareness Striving for an optimum application of capital within the Market risk adopted business strategy The Group’s consolidated market risk is measured and reported Exploiting synergy and diversification effects quarterly to the Board of SpareBank 1 Gruppen AS. The calculations Adequate core capital in accordance with the chosen risk are based on a VaR model. A corresponding model is used for the profile follow-up of each individual company. The subsidiaries in the Ensuring compliance with all regulatory capital and solvency Group manage and also monitor their own risk exposure in margin requirements accordance with their own models and routines.
- 12. 12 SpareBank 1 Gruppen The value-adjusted return in SpareBank 1 Livsforsikring AS's is risk associated with the servicing of rental agreements. The risk customer portfolios was 2.5%, while the booked return in the in this category is also considered to be limited. customer portfolios was 5.4%. SpareBank 1 Livsforsikring AS's securities adjustment reserve was reduced from NOK 616.9 The credit risk in SpareBank 1 Gruppen Finans AS is related to the million to NOK 184.9 million during 2011. The supplementary factoring activities. Overall the credit risk in this portfolio is provisions as of 31 December 2011 amounted to NOK 344.1 considered limited. million, compared to NOK 379.3 million at year-end 2010. The company made no significant changes to the equity portfolio, Concentration risk but the proportion of equity investments decreased due to a fall Both SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring in value over the year. The buffer capital in the life insurance AS are assumed to have some exposure to concentration risk on company as of 31 December 2011 amounted to 11.0 % of the the investment side, particularly related to investments in bonds insurance provisions, compared to 14.6% as of 31 December issued by financial institutions. SpareBank 1 Skadeforsikring AS 2010. The buffer capital was primarily reduced due to a reduction is exposed to a certain level of concentration risk associated with in the securities adjustment reserve. Despite this, the life insurance reinsurers. The capital needs for this risk have not been calculated company's buffer capital situation is considered satisfactory. as of 31 December 2011. SpareBank 1 Skadeforsikring AS's investment portfolio has a Insurance risk conservative investment profile and achieved a financial return of Insurance risk is an inherent part of the business of both SpareBank 2.8% in 2011, compared to 5.0% in 2010. At year-end 2011, the 1 Livsforsikring AS and SpareBank 1 Skadeforsikring AS. Losses company had an equity portfolio of 7.9%. The equity portfolio was in SpareBank 1 Skadeforsikring AS can arise as a result of 9.4% in 2010. The company's fixed income investments have a fluctuations in the year's claims ratio and prior-year losses. very short maturity. 12.7% of the company's investment portfolio SpareBank 1 Livsforsikring AS's insurance risk is mainly associated was placed in property, compared to 13.6% in 2010. The market with risk products without profit sharing. risk in the P&C insurance company is considered medium high. Both SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring Ownership risk AS reduce risk through reinsurance, partly by the reinsurers SpareBank 1 Gruppen AS's financial position is regarded as assuming portions of the risk within individual business satisfactory overall, given the current risk exposure. Financially, segments and partly by limiting the own account share for the parent company is deemed to have sufficient financial individual claims through reinsurance. The reinsurance also capacity to support the subsidiaries' adopted strategies. covers cumulative claims and disasters. The risk associated with the reinsurers’ creditworthiness is placed under credit risk. Credit risk The credit risk in SpareBank 1 Livsforsikring AS and SpareBank Insurance risk is deemed to be subject to satisfactory control 1 Skadeforsikring AS is related to investments in money market in both SpareBank 1 Skadeforsikring AS and SpareBank 1 instruments and bonds. Investments in this area are generally Livsforsikring AS. made in high rated papers. The exposure to the so-called PIGS countries is very limited. As of 31 December 2011, the life Operational risk insurance company's exposure to Spain amounted to 1.2% of Operational risk in the subsidiaries is documented in connection the total financial assets in the company and group life portfolios. with work relating to compliance with the «Regulations on Risk The exposure is to the Spanish state and Spanish covered bonds. Management and Internal Control». This work normally requires Despite the very turbulent credit markets, SpareBank 1 Gruppen the management group of a particular subsidiary and staff area in achieved a satisfactory return on its fixed income portfolio and has the holding company to identify operational risk both before and not experienced credit losses associated with the money market after the implementation of measures. This work did not identify instruments and bonds. any serious risk factors in the Group in 2011. The risk related to the other fixed income investments is limited In connection with the implementation of the Group's ICAAP to companies that have a high credit rating. The credit risk in this calculations, models were put in place for calculating necessary portion of the portfolio is considered to be low to moderate. The capital needs for operational risk. Reference is made to the Pillar insurance companies are also exposed to a credit risk associated 3 report for a more detailed description of these calculations. with various reinsurers. Their rating is monitored closely and the risk is considered to be low. In the real estate portfolio there All mandatory guidelines in the Group were updated in 2011.
- 13. 13 There is adedicated compliance function in the Group, which Third Pillar continuously works to ensure compliance with the law, regulations, Please refer to the separate Pillar 3 report for a more detailed industry standards and so on, including through following up review of the Group's capital and risk situation. The report is internal guidelines. Compliance with statutory risk processes produced in accordance with the requirements stipulated in part and an efficient implementation of these are ensured through IX, chapters 45 and 46, of the Capital Requirements Regulations, this work. At a group level, compliance risk is primarily followed up as well as to satisfy the market's stricter requirements concerning in the form of regular qualitative analyses, as well as continuously transparency and openness concerning risk issues in generally. The in day-to-day operations. At a company level, compliance reports Pillar 3 report is published on: http://investor.sparebank1.no. are also produced in connection with the management of the investment portfolios. Compliance reports are submitted to the Audit Committee, the board of the parent company, and the ORGANISATION AND WORKING ENVIRONMENT various subsidiaries on a quarterly basis. Organisation Liquidity risk SpareBank 1 Gruppen had a total of 1,272 employees and 1,237 Management of the Group's financial structure is based on an full-time equivalents at year-end 2011. The corresponding figures overall liquidity strategy that is assessed and approved by the for 2010 were 1,195 and 1,162 respectively. SpareBank 1 Gruppen Board at least annually. The liquidity risk is reduced by the AS had 234 employees and 229 full-time equivalents as of 31 diversification of loans in different markets, funding sources, December 2011. The number of full-time equivalents in SpareBank 1 instruments and maturity periods. The liquidity risk in SpareBank Skadeforsikring Group increased by 34, largely due to the claims 1 Gruppen in 2011 was primarily linked to the parent company settlement unit. SpareBank 1 Markets Group increased its full-time and is judged to be low. A group account scheme was established equivalents by 22 during 2011. in 2011, which overall reduces liquidity risk. The larger SpareBank 1-banks work together closely in the area of funding. Total turnover for the Group was 6.4% in 2011. The equivalent figure for 2010 was 9.9 %,and was influenced by a major Strategic and commercial risk profitability programme. Corrected for statutory early retirement SpareBank 1 Gruppen has established a contingency plan for pensions, retirement pensions and disability pensions the Group's handling sensitive public relations issues. Part of this is a list of turnover for 2011 was 4.9%, compared to 7.6% in 2010. relevant issues, which is reviewed and updated every quarter. Work on a concrete issue is initiated and led by the Director for HR strategy communication. SpareBank 1 Gruppen's HR strategy is based on the Group's vision and values. The main goal is to ensure that SpareBank 1 Together with the alliance's risk management forum, the Group Gruppen: will continue to focus on the establishment of quantitative models with a view to estimating the capital needs for the strategic and Attracts the right employees by focusing on the values «experts commercial risk in the Group. and close to you» Retains the best employees by giving them responsibilities, Changes in the regulations communicating with them and rewarding them for good Following the spin-off of Bank 1 Oslo Akershus AS, SpareBank 1 performance Gruppen AS is not duty bound to prepare ICAAP documentation Develops employees by involving them, giving them clear pursuant to the Basel II regulations. Nonetheless, some of objectives and following them up SpareBank 1 Gruppen's subsidiaries are duty bound to prepare ICAAP documentation. SpareBank 1 Gruppen prepared ICAAP The HR strategy follows the employment cycle of an employee and documentation pursuant to the applicable Basel II regulations contains frameworks and guidelines for how SpareBank 1 Gruppen in both 2011 and 2010. The consequence of this is that the as an employer should administer and develop its most important requirements for equivalent reporting in relevant subsidiaries resources, its employees. lapses, and that ICAAP documentation is only reported to Finanstilsynet at a Group level. The HR strategy contains guidelines intended to help SpareBank 1 Gruppen remain an attractive and inclusive workplace without SpareBank 1 Gruppen is regarded as an insurance dominated any form of discrimination. mixed financial group. The Group will thus, as mentioned, be covered by the future Solvency II regulations. Key elements of SpareBank 1 Gruppen's HR strategy are: the
- 14. 14 SpareBank 1 Gruppen trainee scheme, pay and remuneration, HSE, skills development, SpareBank 1 Gruppen continued its 'Inclusive Workplace' career opportunities, life phase policy and equality. agreements for the companies in the Group in 2011. The sick leave rate in 2011 was 3.8%, which is low compared to the rest of Trainee scheme the industry. Training in various HSE disciplines was provided for The trainee scheme was introduced in 2006 and has been active managers and safety coordinators, respectively, in 2011. This was ever since. A total of 20 trainees have concluded their trainee carried out in consultation with the individual working environment period since the start of the scheme. Several of these now work in key committees. positions in the Group. SpareBank 1 Gruppen had eight trainees in 2011 and will recruit a new group of trainees in 2012. The One occupational accident and injury was recorded in 2011. purpose of the trainee programme is to recruit future managers and Damage to buildings was reported in connection with the terrorist technical specialists who, during a two year trainee period, will attack in Oslo on 22 July 2011. The damage largely involved acquire wide-ranging expertise in the Group's various business damaged glass in facades. Apart from this, no further damage to areas. the company's buildings was reported in 2011. Pay and remuneration The SpareBank 1 Gruppen ethical guidelines specify rules for how Regular analyses are conducted to ensure that the Group offers the employees and representatives shall give notice if they competitive terms without being a leader. The incentive scheme become aware of matters that are in violation of laws, regulations and profit sharing at the group level and bonus scheme at the or the Group's internal rules. A separate notification routine has company level was continued in 2011. also been established. SpareBank 1 Gruppen has implemented changes in the Group's Skills development remuneration scheme pursuant to the Ministry of Finance's Joint HR and skills work in the alliance is organised via an HR regulations relating to remuneration schemes in financial Committee. The mandate of the HR Committee is to develop a institutions, which came into force on 1 January 2011. The shared general HR strategy that includes attracting the right remuneration policy in SpareBank 1 Gruppen was adopted by the employees and developing employees. Board. The most important changes in relation to previous remuneration practices are: SpareBank 1 Gruppen has its own overarching skills strategy. The measurement period/earnings period for financial bonus Technical and professional training and other skills-enhancement criteria has been changed from one year to two years for managers measures are initiated and run primarily in the individual A model for deferred payment has been introduced in which subsidiary as needed. Management development programmes half earned bonuses are given in the form of synthetic equity have also been established at different levels, and these are certificates (a curve of equity certificates) managed jointly by SpareBank 1 Gruppen AS on behalf of the companies. Similarly, SpareBank 1 Gruppen has a programme for A written report will be prepared each year on how the remuneration key resources. SpareBank 1 Gruppen also has a mentor programme scheme in SpareBank 1 Gruppen AS is practised. The report is in which key managers act as mentors for talented employees. presented to the Compensation Committee and the company's Board. Life phase and equality The Group has a life phase committee that, among other things, Working environment and sickness absence ensures compliance with the Gender Equality Act in the The Group’s working environment is generally considered to be organisation. The committee also focuses on how SpareBank 1 very good. Annual work organisation surveys are conducted in the Gruppen can be an attractive employer for employees in various Group, with further follow-up through systematic activities in the life phases. organisation to remedy any weaknesses identified in the surveys. The organisation survey is meant to provide a measure A life phase policy has been adopted for the Group in which one of the performance culture in order to support the culture the of the goals is to increase the actual retirement age in the Group. Group wants to cultivate. The aim is to reduce the need for recruitment and at the same time take advantage of valuable expertise. SpareBank 1 Gruppen has separate working environment committees in each company. The safety service in the companies Of the Group's employees, 46 % were women and 54 % were works actively, and a Workplace Anti-Alcoholism and Drug men as of 31 December 2011. 6.2% of female and 1.4% of male Addiction Dependency Committee has also been appointed. employees work part-time. Two of the nine members of the group
- 15. 15 executive management teamare women and three of the nine measures, safeguarding life, health and property, good products for members of the alliance executive management team are women. customers, business ethics, environmental impact, credit policy, The key management groups in the holding company and awareness campaigns and local commitment. subsidiaries have 23% female representation. The Group wants to increase the proportion of women in senior positions and has The environment, climate accounts and the Eco-Lighthouse initiated measures to achieve this. There was one woman among SpareBank 1 Gruppen's impact on the external environment, both the eight members of the Group's Board at the end of the year, direct and indirect, is limited. This includes through waste, while female representation on the subsidiary boards was on energy use, travel, transport, material choices, purchasing and average 36%. water consumption. SpareBank 1 Gruppen applies a method of assessing roles and SpareBank 1 Gruppen will, for the fourth year in a row, prepare positions in order to ensure it fixes pay levels objectively. Equal climate accounts based on the total energy consumed by the pay in relation to work of equal worth is also a topic in annual organisation's daily operations. A process to secure SpareBank 1 salary reviews. The main reason that the pay level of men is Gruppen Eco-Lighthouse certification from 2012 has also started. slightly higher than for women in the Group is that there Eco-Lighthouse certification is a Norwegian, official certification are more men in both senior positions and highly technical scheme. The scheme is supported and recommended by the positions. Ministry of the Environment. The climate accounts are published on: http://investor.sparebank1.no. As a member of the Norwegian Financial Services Association (FNH), SpareBank 1 Gruppen AS continued to participate in the Social engagement FUTURA programme in 2011. This is a development programme SpareBank 1 Gruppen has involved itself in a microcredit that aims to increase the share of women in the recruitment base company, Kolibri Kapital. Microcredit involves providing small for leading positions. loans to poor, enterprising people in developing countries that can be used to develop a business or improve living conditions. Attractive employer Kolibri Kapital raises money in Norway by continuously SpareBank 1 Gruppen is experiencing greater interest from young expanding its share capital. All the loans are made to microbanks employees. The Group regards this as a result of SpareBank 1's in South Africa, Asia and South America. SpareBank 1 Gruppen strong branding combined with the targeted marketing of contributes share capital. SpareBank 1 Gruppen as an attractive employer at universities and university colleges. 161 new employees were recruited in 2011, In 2011, SpareBank 1 Gruppen was the main sponsor of the of whom 59 were women and 102 were men. The majority of Norwegian Heart and Lung Patient Organisation's «A hearty those who were recruited have at least tree years' education after welcome» campaign which was aimed at women. The goal of the upper secondary school. Most of the new employees are in the campaign was to raise women's awareness about heart disease, and 26–35 age group, but the Group also recruited employees in all age raise money for research into heart disease in women. groups in 2011. The average age of employees in SpareBank 1 Gruppen was 42.5 in 2011. The banks in the SpareBank 1-alliance returned a total of NOK 416 million in 2011 to local communities through sponsorships and Efforts to promote the Group as an attractive employer with donation funds. exciting career opportunities and competitive terms will continue in 2012. CHANGES TO THE BOARD AND THE GROUP EXECUTIVE MANAGEMENT TEAM CORPORATE RESPONSIBILITY On 26 January 2011, Tor-Arne Solbakken, Vice President of the SpareBank 1 Gruppen undertakes to take into consideration how Norwegian Confederation of Trade Unions (LO), replaced Bente N. the Group's behaviour impacts people, society and the environment. Halvorsen as a board member. Terje Vareberg retired from the This responsibility entails setting targets that exceed those in the Board at the same time. Arne Austreid, CEO of SpareBank 1 legislation to which the financial markets are subject. Corporate SR-Bank from 1 January 2011, was at the same time elected to the responsibility covers everything from asset management and Board as the vice chairman. Arne Austreid was elected investments in inclusive workplaces and employee rights. Chairman of the Board in April 2011. He succeeded Hans Olav Karde, CEO of SpareBank 1 Nord-Norge, who had been the Corporate responsibility is also about fraud and loss prevention chairman since April 2010.
- 16. 16 SpareBank 1 Gruppen OUTLOOK SpareBank 1 Markets AS is undergoing a building up process. The The outlook for the Norwegian economy was uncertain at the Board is expecting a substantial improvement in the result in start of 2012. Nonetheless, there is reason to believe that 2012 will 2012. Its competitiveness after the phasing in of new resources also be a relatively good year for Norway with continued low indicates that the company will start 2012 at full market power. The unemployment, low interest rates and low price inflation. market situation is excepted to remain challenging in the Therefore, the macroeconomic conditions for profitable growth short-term, but it is assumed that the level of activity will should be relatively good in 2012. On the other hand, volatile gradually increase in 2012. The Board believes the conditions are financial markets are resulting in uncertainty about financial now right for SpareBank 1 Markets AS to establish itself as a results, which constitute a significant portion of value creation in leading capital markets unit in Norway, which is regarded as SpareBank 1 Gruppen. strategically important for the SpareBank 1-alliance. The Group will continue its work on cooperation right across In the opinion of the Board, SpareBank 1 Gruppen will be able to the companies to extract efficiency gains within costs, income and cope well with continued volatility in the financial markets in skills in 2012. 2012 as well. SpareBank 1 Gruppen is exposed to the securities market through its various subsidiaries, and the development of The breadth of SpareBank 1 Gruppen's product range, combined equity prices and interest rates have a major effect on the Group's with its partnership with the Norwegian Confederation of Trade earnings. Given a normal return in the securities market, the Unions (LO) and the SpareBank 1-banks' distribution network, Board expects a substantially improved result in 2012. means the Board believes that SpareBank 1 Gruppen is well positioned to increase its volume of business within life insurance. In the opinion of the Board, SpareBank 1 Gruppen is well capitalised and in a good position to satisfy the new, stricter Defined benefit pensions and paid-up policies currently face capital requirements due to the introduction of the Solvency II challenging regulations. These products have high annual regulations. guaranteed returns and will thus be capital-demanding pursuant to the Solvency II regulations. The authorities are working on changes to the regulations that could potentially result in better A WORD OF GRATITUDE profitability and reduced capital requirements. The employees displayed great drive in 2011, which was a demanding year for many of the business areas. Collaboration with The Board believes the outlook for 2012 is also good for profitable the employee organisations has been close and productive. The growth within P&C insurance. SpareBank 1 Skadeforsikring Group Board would like to thank all of SpareBank 1 Gruppen's employees is systematically working on various measures aimed at improving for their contributions in 2011. both the claims ratio and the cost ratio, and these are expected to have a positive effect on the P&C insurance group's combined ratio going forward. Oslo, 16 March 2012 Arne Austereid Hans Olav Karde Bjørn Engaas CHAIRMAN OF THE BOARD Finn Haugan Knut Bekkevold Richard Heiberg Tor-Arne Solbakken Sally Lund-Andersen Kirsten Idebøen CHIEF EXECUTIVE OFFICER NOTE: This translation from Norwegian has been prepared for information purposes only.
- 17. Financial statements 2011 SpareBank1 Gruppen
- 18. 18 SpareBank 1 Gruppen SPAREBANK 1 GRUPPEN – INCOME STATEMENT Parent company Group 2011 2010 NOK 1,000 Note 2011 2010 - - Gross insurance premium income 9 126 299 8 213 841 - - - reinsurers' share -604 478 535 217 - - Net insurance premium income 7 8 521 821 7 678 624 23 856 15 920 Interest income 138 293 98 447 86 758 61 422 Interest expense 111 643 85 196 -62 902 -45 502 Net interest income 9 26 650 13 251 - - Commissions 699 780 715 505 - - Commission costs -924 856 846 205 - - Net commissions 8 -225 076 -130 700 640 -1 310 Net income from financial instruments at fair value through the profit or loss 9 -250 111 1 547 267 - 3 641 Net income from financial assets available for sale 9 622 30 596 - - Net income from bonds at amortised cost 9 47 046 75 049 - - Net income from bonds held to maturity 9 242 977 259 255 - - Net income from investment properties 10 263 003 399 410 629 293 606 274 Share of profit and group contribution from subsidiaries 2 932 - - 4 Other operating income 11 340 974 384 321 567 031 563 107 Total net income 8 970 838 10 257 073 - - Insurance benefits and claims 7 238 159 7 496 694 - - Insurance claims recovered from reinsurers -406 294 -488 154 - - Securities adjustment reserve for life insurance -431 997 289 732 - - Transferred to policyholders - life insurance 31 104 142 363 - - Allocation to supplementary provisions - - - - Net loan loss provisions 29 326 10 405 61 554 -25 957 Operating costs 12, 47 2 001 689 1 674 173 26 337 33 325 Depreciation and amortisation 14, 15, 18 90 251 91 300 714 276 Other costs 60 461 55 427 88 606 7 644 Total costs 8 583 699 9 271 940 478 425 555 463 Operating result 387 139 985 133 Share of profit of associated companies and joint - - ventures accounted for by the equity method 17 150 - 478 425 555 463 Pre-tax profit 387 289 985 133 43 132 109 008 Tax charge 50 -138 506 153 586 435 293 446 455 Net profit for the year 525 795 831 547 Allocation of profit for the year: Shareholders of the parent company 529 905 841 025 Minority interests -4 110 -9 478 SPAREBANK 1 GRUPPEN – STATEMENT OF COMPREHENSIVE INCOME Consolidated income statement, costs and value changes Parent company Group 2011 2010 NOK 1,000 Note 2011 2010 435 293 446 455 Profit for the year 525 795 831 547 -29 774 -1 057 Actuarial gains/losses on pensions 48 -113 099 -76 215 - - Revaluation of properties 18 -2 700 -12 656 - - Adjustment of insurance liabilities - 3 228 - - Change in available for sale financial assets 20,24 -301 -814 - - Translation differences 2 450 - 8 337 296 Taxes 50 32 424 23 980 413 856 445 694 Total comprehensive income for the year 442 569 769 070 Shareholders' of the parent company 446 679 778 548 Minority interests -4 110 -9 478
- 19. 19 SPAREBANK 1 GRUPPEN– CONSOLIDATET BALANCE SHEET Parent company Group 31.12.11 31.12.10 NOK 1,000 Note 31.12.11 31.12.101) ASSETS 121 325 93 664 Deferred tax asset 50 8 026 - - - Goodwill 5, 14 861 140 850 819 - - Other intangible assets 15 233 984 146 883 4 985 194 4 469 691 Investments in subsidiaries 16 - - 10 147 10 147 Investments in associated companies and joint ventures 17 10 147 9 010 160 863 127 501 Property, plant and equipment 18 1 016 143 1 158 617 - - Reinsurance receivables 40 1 411 156 1 494 338 202 067 243 351 Other assets 19, 31 698 476 609 877 - - Investment properties 27 4 153 878 4 190 037 - - Bonds held to maturity 20, 25, 26, 31 4 522 630 4 679 131 - - Bonds at amortised cost 20, 25, 26, 31 1 368 467 1 249 291 17 583 17 583 Securities available for sale 20, 21, 24, 31 19 193 20 216 Lending to customers and deposits 152 580 122 580 with financial institutions 20, 26, 28, 31, 33 675 008 584 566 - - Securities at fair value 20, 21, 22, 31 24 155 423 22 991 554 2 003 692 Financial derivatives 20, 21, 23, 31 11 317 130 605 - - Insurance receivables from policyholders 41 1 568 003 1 394 441 213 717 93 520 Cash and cash equivalents 20, 26, 31 1 276 149 1 091 159 5 865 479 5 178 729 TOTAL ASSETS 41 989 140 40 600 545 EQUITY AND LIABILITIES 1 970 277 2 030 277 Shareholders equity 13 1 970 277 2 030 277 1 201 715 727 859 Retained earnings 2 974 364 2 510 676 - - Other equity - not recognised in the profit and loss account - 71 454 - - Minority interests -2 280 15 446 3 171 992 2 758 136 Total equity 4 942 361 4 627 853 283 568 433 846 Subordinated loan capital and hybrid tier 1 capital 20, 32, 37 483 568 848 846 - - Securities adjustment reserve 184 872 616 870 - - Insurance provisions in life insurance 42 22 620 517 22 325 986 - - Premium and claims provisions in P&C Insurance 43 9 120 199 8 305 494 99 419 74 966 Net pension liabilities 48 393 347 325 355 - - Deferred tax liability 50 - 172 515 - - Payable tax 50 168 744 98 447 1 905 025 1 376 914 Securities issued 20, 21, 32, 38 1 905 025 1 376 914 - - Liabilities related to reinsurance 44 74 017 77 706 - - Financial derivatives 20, 21, 23 244 800 160 265 405 475 534 867 Other liabilities 51 1 256 094 1 129 898 - - Deposits from and liabilities to customers and financial institutions20, 32, 36 595 596 534 396 5 865 479 5 178 729 TOTAL EQUITY AND LIABILITIES 41 989 140 40 600 545 1) The balance sheet as of 31.12.10 has been revised to show comparable figures. A detailed description of the change booked directly against equity can be found in note 2 «Accounting policies», in the section on «Changes in the policies for determining claim provisions». Please also refer to the description of changes in note 54. Oslo, 16 March 2012 Arne Austereid Hans Olav Karde Bjørn Engaas CHAIRMAN OF THE BOARD Finn Haugan Knut Bekkevold Richard Heiberg Tor-Arne Solbakken Sally Lund-Andersen Kirsten Idebøen CHIEF EXECUTIVE OFFICER NOTE: This translation from Norwegian has been prepared for information purposes only.
- 20. 20 SpareBank 1 Gruppen CONSOLIDATED STATEMENT OF CASH FLOW Parent company Group 2011 2010 NOK 1,000 Note 2011 20102)3) CASH FLOWS FROM OPERATING ACTIVITIES 435 293 446 455 Net profit for the year 525 795 831 547 Share of profit of associated companies and joint - - ventures accounted for by the equity method 17 150 - 26 337 33 325 Depreciation and amortisation 15, 18 90 251 91 300 - - Revision and depreciation of investment property values 27 13 154 -148 187 - - Net loan loss provisions 29 326 10 388 Difference between costs recognised pensions and -8 110 -4 250 receipts/payments in pension schemes 48 -47 501 -116 015 - - Increase in reinsurance receivables 40 - -343 496 - - Reduction in reinsurance receivables 40 83 182 - -30 000 - Increase in lending to customers 28 -90 768 - - 127 420 Reduction in lending to customers 28 - 20 685 974 - - Change in technical insurance provisions 42, 43 677 239 3 255 812 -93 924 -148 685 Change in accrued expenses and prepaid revenues -265 470 -667 403 Increase in deposits from and liabilities to - - customers and financial institutions 36 61 200 - Reduction in deposits from and liabilities to - -501 700 customers and financial institutions 36 - -16 924 534 329 596 -47 435 Net cash flow generated from operating activities 1 047 558 6 675 386 CASH FLOWS FROM INVESTING ACTIVITIES -1 311 -692 Increase in securities at fair value 22, 23 -1 044 582 - - - Reduction in securities at fair value 22, 23 - 1 125 580 - - Increase in securities at held to maturity 25 - -143 414 - - Reduction in securities at held to maturity 25 37 324 - - -2 248 Increase in securities available for sale 24 - - - - Reduction in securities available for sale 24 1 023 22 728 -525 608 -413 094 Payment of group contributions 1) - - - - Additions intangible assets 15 -123 586 -119 920 - - Reduction/(Increase) investment properties 27 18 799 778 659 -60 312 -50 546 Reduction/(Increase) property, plant and equipment 18 85 621 -868 295 -587 231 -466 580 Net cash flow used in investing activities -1 025 401 795 338 CASH FLOWS FROM FINANCING ACTIVITIES - - Receipts - subordinated loan capital - - -150 278 -250 046 Payments - redemption of subordinated loan capital 37 -365 278 -920 722 440 000 - Receipts - new equity 440 000 - - - Liquidity effect of demerged Bank 1 Oslo Akershus AS - -1 129 932 -440 000 -120 000 Payments - dividends -440 000 -120 000 528 111 876 383 Increase in securities issued 38 528 111 - - - Reduction in securities issued 38 - -5 503 564 377 833 506 337 Net cash flow from financing activities 162 833 -7 674 218 120 197 -7 678 Net receipts/payments of cash 184 990 -203 494 93 520 101 198 Cash and cash equivalents as of 1.1 1 091 159 1 294 653 213 717 93 520 Cash and cash equivalents as of 31.12 1 276 149 1 091 159 1) Group contribution payments are recognised as increases in investments in subsidiaries. Group contribution received by SpareBank 1 Gruppen are recognised through profit and loss 2) The balance sheet as of 31.12.10 has been revised to show comparable figures. A detailed description of the change booked directly against equity can be found in note 2 «Accounting policies», in the section on «Changes in the policies for determining claim provisions». Other changes are described in note 54. 3) Cash flow for the period ending 31.12.10 contains effects linked to sale of Bank 1 Oslo Akershus AS.
- 21. 21 STATEMENT OF CHANGESIN EQUITY Parent company Share Share premium Retained Total NOK 1,000 Note capital reserve earnings equity Equity as of 31 December 2009 1 782 400 827 096 822 945 3 432 441 Profit for the year - - 446 455 446 455 Year's comprehensive income - - -761 -761 Year's total comprehensive income - - 445 694 445 694 Capital increase - - - - Capital reduction/demerger of Bank 1 Oslo AS - -579 219 -420 781 -1 000 000 Dividend paid - - -120 000 -120 000 Total transactions with shareholders - -579 219 -540 781 -1 120 000 Other items booked directly against equity - - - - Corrections from previous years - - - - Other items booked directly against equity - - - - Equity as of 31 December 2010 1 782 400 247 877 727 859 2 758 136 Profit for the year - - 435 293 435 293 Year's comprehensive income - - -21 437 -21 437 Year's total comprehensive income - - 413 856 413 856 Capital increase 88 000 352 000 - 440 000 Capital reduction - -500 000 500 000 - Dividend paid - - -440 000 -440 000 Total transactions with shareholders 88 000 -148 000 60 000 - Other items booked directly against equity - - - - Corrections from previous years - - - - Other items booked directly against equity - - - - Equity as of 31 December 2011 1 870 400 99 877 1 201 715 3 171 992
- 22. 22 SpareBank 1 Gruppen Group Share premium Retained Revaluation Minority Total NOK 1,000 Note Share capital reserve earnings reserve interests equity Equity as of 31 December 2009 1 782 400 827 096 2 588 291 65 221 30 300 5 293 308 Profit for the year - - 841 025 - -9 478 831 547 Year's comprehensive income - - -55 689 -9 112 - -64 801 Year's total comprehensive income - - 785 336 -9 112 -9 478 766 746 Capital increase - - - - - - Capital reduction/demerger of Bank 1 Oslo Akershus AS - -579 219 -550 713 - - -1 129 932 Dividend paid - - -120 000 - - -120 000 Disposals minority interests - - - - -5 377 -5 377 Total transactions with shareholders - -579 219 -670 713 - -5 377 -1 255 309 Other items booked directly against equity - - 4 068 - - 4 068 Corrections from previous years - - -15 345 15 345 - - Other items booked directly against equity - - -11 277 15 345 - 4 068 Equity as of 31 December 2010 1 782 400 247 877 2 691 636 71 454 15 446 4 808 813 Changes booked directly against equity 1) - - -180 960 - - -180 960 Revised equity as of 31 December 2010 1 782 400 247 877 2 510 675 71 454 15 446 4 627 853 Profit for the year - - 529 905 - -4 110 525 795 Year's comprehensive income - - -11 772 -71 454 - -83 226 Year's total comprehensive income - - 518 134 -71 454 -4 110 442 569 Capital increase 88 000 352 000 - - - 440 000 Capital reduction - -500 000 500 000 - - - Dividend paid - - -440 000 - - -440 000 Received group contributions - - - - - - Disposals minority interests - - - - -13 616 -13 616 Total transactions with shareholders 88 000 -148 000 60 000 - -13 616 -13 616 Other items booked directly against equity 2) - - -114 446 - - -114 446 Corrections from previous years - - - - - - Other items booked directly against equity - - -114 446 - - -114 446 Equity as of 31 Desember 2011 1 870 400 99 877 2 974 364 - -2 280 4 942 361 1) Equity as of 31.12.10 has been revised to show comparable figures. A detailed description of the change booked directly against equity can be found in note 2 «Accounting policies», in the section on «Changes in the policies for determining claim provisions». Please also refer to the description of changes in note 54. 2) Other items booked against equity primarily concern changes in provisions for insurance (natural disaster claims, guarantees) and business mergers.
- 23. 23 Notes NOTE 1 –GENERAL INFORMATION Standards, revisions and interpretations of current standards that have not come into effect and where the Group has not chosen As of 31 December 2011, the SpareBank 1 Gruppen Group consisted early adoption of the parent company SpareBank 1 Gruppen AS and its wholly The Group has not early adopted any new or revised IFRSs or IFRIC owned subsidiaries, SpareBank 1 Livsforsikring AS, SpareBank 1 interpretations. Skadeforsikring AS, ODIN Forvaltning AS, SpareBank 1 Medlemskort AS, Sparebankutvikling AS and SpareBank 1 Gruppen Finans AS, as IAS 19 Employee Benefits was revised in June 2011. The revision well as SpareBank 1 Markets AS (formerly Argo Securities AS) with means that all actuarial gains and losses are reported in the total an ownership interest of 97.22%. comprehensive income as they arise (no corridor), an immediate inclusion in the profit or loss of all costs relating to previous periods' Alliansesamarbeidet SpareBank 1 DA is recognised according to the accrued pension entitlements and forecast returns on pension plan equity method, and the Group's ownership interest is 10%. assets with a net interest amount calculated using the discount rate on net pension obligations (asset). SpareBank 1 Gruppen AS and SpareBank 1 Gruppen AS's registered office is in Tromsø. SpareBank 1 Gruppen Group currently report actuarial gains and losses in the total comprehensive income. Other than this, the Group has not SpareBank 1 Gruppen AS is a holding company that produces, yet completed its analysis of the consequences of the changes in IAS 19. provides and distributes products in the fields of life and P&C insurance, fund management, capital markets, factoring, debt collection IFRS 9 Financial Instruments regulates the classification, measurement services and long-term monitoring. The Group's primary market is and recognition of financial assets and financial liabilities. IFRS 9 was Norway. issued in November 2009 and October 2010, and replaces the parts of IAS 39 that relate to the recognition, classification and measurement The consolidated financial statements were authorised for issue by the of financial instruments. Under IFRS 9 financial assets shall be Annual General Meeting and Supervisory Board on 11 April 2012. The divided into two categories based on the measurement methodology: Annual General Meeting is the Group's supreme authority. those measured at fair value and those measured at amortised cost. The classification assessment is undertaken on initial recognition. Classification will depend upon the company's business model for NOTE 2 – ACCOUNTING POLICIES managing its financial instruments and the characteristics of the contractual cash flows from the instrument. The requirements for Statement of compliance financial liabilities are largely similar to IAS 39. The main changes, in The consolidated financial statements for SpareBank 1 Gruppen and those instances where fair value measurement has been chosen for the financial statement for the parent company for the fiscal year financial liabilities, are that the part of the change in fair value that is 2011 have been prepared in accordance with International Financial due to changes in the company's own credit risk is reported in the total Reporting Standards (IFRS) and appurtenant interpretations from the comprehensive income rather than the profit or loss, if this does not International Financial Reporting Interpretations Committee (IFRIC), cause an accrual error in measuring the result. The Group is planning as adopted by the European Union (EU), as well as in accordance with to apply IFRS 9 once the standard comes into force and is approved existing additional Norwegian regulations. by the EU. The mandatory effective date for the standard applies to accounting periods commencing on 1 January 2013 or later, however The consolidated financial statements have been prepared under the IASB has released a staff paper discussing the proposal to extend the historical cost principle, except for financial derivatives, financial mandatory start date to accounting periods beginning on 1 January 2015 assets and financial liabilities recognised at fair value with value or later. changes through the profit and loss and financial assets classified as available for sale, as well as properties owned for the purpose of IFRS 10 Consolidated Financial Statements is based on the current earning rental income or appreciating in value that are classified as policy of using control as the decisive criteria for determining investment properties and are recorded at fair value in accordance with whether a company is to be included in the consolidated financial IAS 40. statements. The standard provides additional guidance in assessing whether an entity controls one or more other entities in instances where Preparation of accounts in accordance with IFRS requires the use of it is unclear. The Group has not considered all the possible consequences estimates. Moreover, management is required to exercise judgement in of IFRS 10. The Group is planning to apply the standard to accounting applying the Group's accounting policies. Areas in which critical periods beginning on 1 January 2013 or later. judgements and estimates are required, containing high complexity, or areas in which judgements and estimates are material to the IFRS 12 Disclosure of Interests in Other Entities contains disclosure consolidated financial statements, are described in note 4. requirements for an entity's involvement in subsidiaries, joint arrangements, associated companies, unconsolidated SPEs/structured The consolidated financial statements have been presented on the entities. The Group has not considered the full extent of the effects of assumption that the company will continue as a going concern. IFRS 12. The Group is planning to apply the standard to accounting periods beginning on 1 January 2013 or later. New and revised standards applied by the Group There have been no new or revised IFRSs or IFRIC interpretations that IFRS 13 Fair value Measurement defines the term «fair value» in the have come into force in the 2011 financial year that are considered or context of IFRS, provides a consistent description of how fair value is anticipated to have a material effect on the Group. determined in the IFRS and specifies what additional information is to be disclosed when fair value is used. The standard does not expand SpareBank 1 Gruppen AS and SpareBank 1 Gruppen Group have the scope of fair value accounting but provides guidance on the chosen to present items in the total comprehensive income in a line measurement of fair value when its use is already required or permitted in the statement of changes in equity for the year and the previous year, under other IFRSs. The Group measures certain assets and liabilities cf. IAS 1.106 (d). at fair value. The Group has not considered the full extent of the effects of IFRS 13. The Group is planning to apply IFRS 13 to The revised version of IAS 24 on related party disclosures has been accounting periods beginning on 1 January 2012 or later. incorporated into the annual financial statements and comparable figures are shown for the previous year.
- 24. 24 SpareBank 1 Gruppen Besides these, there are no other IFRSs or IFRIC interpretations which at fair value, and gains and losses are recognised in the profit or loss. are not currently in effect and would be expected to have a material effect on the accounts. Associated companies Associated firms are firms where companies in SpareBank 1 Gruppen Foreign currency translation Group have significant influence, but not control. Significant influence Functional currency and presentation currency normally exists for investments where the Group has between 20 and The accounts for each unit in the Group are measured in the currency 50 per cent of the voting rights. Investments in associated companies used where the unit primarily operates (functional currency). are initially recognised at acquisition cost and subsequently measured Transactions in foreign currencies are translated into the functional using the equity method. Investments in associated companies currency using the exchange rate at the time of the transaction. The include goodwill identified at the date of acquisition, reduced there- consolidated financial statements are presented in Norwegian kroner after by any write-downs. (NOK) which is the parent company's functional currency and the presentation currency of the Group. Foreign companies that are The Group's share of profits or losses in associated companies is included in the Group and which use a different functional currency recognised in profit or loss and added to the carrying value of the are translated into Norwegian kroner using an average exchange rate investments, in addition to the share of the total comprehensive income for the year for the profit and loss account and the prevailing exchange in the associated company and the effect of any errors or policy changes. rate on the reporting date for the balance sheet. Any translation The Group does not recognise the share of losses if this would cause differences are reported in the total comprehensive income for the the carrying value of the investment to become negative. period and are disclosed separately under equity. All figures are presented in NOK thousand unless otherwise specified. Joint ventures Interests in joint ventures may consist of joint operations, joint venture Transactions and balance sheet items assets and joint venture activities. Joint control means that Transactions in foreign currencies are translated into the functional SpareBank 1 Gruppen through contractual agreements exercises currency using the exchange rate at the time of the transaction. shared control over economic activity with other participants. Joint Realised currency gains and losses on settlements and from the ventures are accounted for using the equity method. translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Investments in subsidiaries and associated companies recorded in profit or loss. If the currency position is considered to be a cash flow the parent company accounts hedge or regarded as hedging the net investment in a foreign business, Investments in subsidiaries and associated companies are valued in the appurtenant gains or losses are reported in the total comprehensive accordance with the cost method. income. If there is objective evidence of an impairment loss that is not Currency gains and losses in conjunction with loans, cash and cash temporary, the shares are then written down. A previously recognised equivalents are presented (net) as interest income or interest expense. impairment loss is reversed if the reason for the impairment no Changes in the fair value of bonds and certificates in foreign currencies longer exists. classified as available for sale are split between the effect of the currency translation of the amortised cost in the foreign currency and other Segment information changes in the carrying amount. Currency translation of the amortised Operating segments are reported differently in the note than in the cost is recognised in the profit and loss while other changes in the Board of Directors' Report. In the Board of Directors' Report the carrying amount are reported in the total comprehensive income. The segments are reported in the same way as for internal reports to the effects of changes in foreign exchange rates on non-monetary items Group's Board. (both assets and liabilities) are incorporated into the assessment of fair value. Exchange differences on non-monetary items, such as shares at The Group's business areas are divided into life insurance, P&C fair value through profit or loss, are recognised in the profit or loss as insurance, fund management, brokering activities, debt collection part of total gains and losses. Exchange differences on shares classified and factoring activities and other activities. The Group has no as available for sale are included in changes in value reported in the secondary segment reporting. These segments are reported in the note total comprehensive income. in the same way that they are accounted for under IFRS. Consolidation Loans and receivables Subsidiaries Acquired portfolios The consolidated financial statements include SpareBank 1 Gruppen Acquired portfolios are non-derivative financial assets with fixed or AS and all its subsidiaries. Subsidiaries are all the units where determinable payments that are not quoted in an active market. SpareBank 1 Gruppen Group has the power to govern the financial and These are accounted for at amortised cost using the effective interest operating policies of the entity, normally through ownership of more method. than half the voting rights. Subsidiaries are consolidated from the date at which control is ceded to the Group and unconsolidated when the Trade receivables from factoring activities control is lost. Trade receivables from factoring activities are evaluated in two ways. In those instances where the factoring business has not taken over the The acquisition method is used when accounting for acquisitions of credit risk (risk associated with debtors' inability to service and repay subsidiaries. Acquisition cost is measured as the fair value of assets their outstanding loans) only the prepayment that has been paid on transferred as consideration. Identified assets, assumed liabilities and receivables that have been transferred to the factoring company are assumed or incurred contingent liabilities are recognised at fair value recorded on the balance sheet, under «Lending to customers and at the acquisition date, irrespective of any minority interests. Costs of deposits with financial institutions». When the factoring business acquisition that exceed the fair value of identifiable net assets in the takes over the credit risk, the gross receivables are recorded and subsidiary are recognised in the balance sheet as goodwill. If the included in the balance sheet under «Other assets». The portion of acquisition cost is less than the fair value of net assets in the subsidiary, these trade receivables that is not financed is included in the the difference is recognised in the profit or loss. balance sheet under «Other liabilities». Material intragroup transactions, receivables and payables are eliminated. Provisions Provisions on loans and guarantees (debtors) are included under Transactions with minority interests are treated as transactions with «net loan loss provisions». third parties. The effect of all transactions with minority owners is reported in equity where there is not a change in control. Such Other receivables transactions will not result in goodwill or gains or losses. When Other receivables are recognised in the balance sheet at nominal control ceases, the remaining ownership interests are to be measured value less provisions for expected losses.
- 25. 25 Provisions for lossesare made on the basis of individual evaluations assets that have been selected for inclusion in this category or which of each receivable. have not been classified in any other category. Securities which have been classified in this category are also measured at fair value, while Securities and derivatives changes in value from the initial recognition are reported in the total The Group has financial assets in the trading portfolio, voluntarily comprehensive income. Shares classified as available for sale in the categorised at fair value through profit or loss, loans and receivables, Group are not actively traded in the market. investments held to maturity and securities available for sale. The principal rule is to classify investments at fair value through the Investments held to maturity profit or loss, either through the trading portfolio or voluntary Investments held to maturity are presented under «bonds held to classification. This corresponds with how the investments are maturity» in the balance sheet, gains/losses on sale are shown under followed up. Certain investments in bonds/certificates are nonetheless «net income from bonds held to maturity» in the ordinary profit classified into loans and receivables or held to maturity. This is under- or loss and any write-downs are included in «depreciation and taken in conjunction with the transaction. amortisation» in the ordinary profit or loss. Investments held to matu- rity are non-derivative financial assets quoted in an active Regular purchases and sales of investments are recognised on the trade market, with fixed or determinable payments and a fixed maturity date, which is the date on which the Group commits to purchase or sell which Group management positively intends to hold until maturity. the asset. All financial assets which are not recognised at fair value over These certificates and bonds are measured at amortised cost using the the profit or loss, are initially recognised at fair value, with the addition effective interest rate method. of appurtenant transaction costs. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and Impairment of financial assets transaction costs are expensed in the profit or loss. Investments are Assets recognised at amortised cost removed from the balance sheet when the right to receive cash flows The Group assesses at each balance sheet date whether there is from the investment ceases or when the right has been transferred and objective evidence that a financial asset, or a group of financial assets, the Group has transferred substantially all the risks and rewards is impaired. Impairment losses on financial assets or a group of incidental to ownership of the asset. Financial assets available for financial assets are recognised in profit or loss only if there is sale and financial assets recognised at fair value through profit or objective evidence of an impairment in value as a result of one or more loss are valued at fair value following initial recognition. Investments events that occurred after the initial recognition of the asset (a «loss held to maturity are recognised at amortised cost using the effective event») and this loss event (or events) has an impact on the estimated interest rate method. Bonds which the Group intends to hold to future cash flows that can be reliably estimated. For acquired maturity, but which for various reasons including not being traded in portfolios and investments in bonds held to maturity the amount of the an active market do not fulfil the criteria for held-to-maturity loss is measured as the difference between the asset's carrying amount portfolios under IAS 39, are classified as a separate line item in the and the present value of estimated future cash flows discounted at the balance sheet, «bonds at amortised cost». financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in The fair value of listed investments is based on the current bid price. profit or loss. If the impairment loss is subsequently reduced, and the If the securities market is not active (or if this applies to a security that reduction can be objectively connected to an event that took place is not listed) then the Group uses valuation techniques to determine after the impairment loss was recognised, the previously recognised the fair value. These include recently performed transactions at impairment loss is reversed in the profit or loss. market rates, reference to other instruments that are substantially identical, and the use of discounted cash flow analysis and option Assets classified as available for sale models. The techniques emphasize market information wherever The Group assesses at each balance sheet date whether there is possible and only use company-specific information where necessary. objective evidence that a financial asset, or a group of financial assets, is impaired. For debt instruments the Group uses the criteria referred Securities and derivatives at fair value through the profit or loss to in the section above. For equity instruments classified as available Securities and derivatives at fair value through the profit or loss are for sale, a substantial or long-term reduction in the fair value of the presented under «securities at fair value» and «financial derivatives» on instrument below acquisition cost will also be an indication that the the balance sheet, and changes in value are presented under «net value of the asset has become impaired. The Group regards a revenues from financial instruments to fair value through the profit or reduction in value of 20 per cent as being substantial and a reduction loss» in the ordinary profit or loss. in value that has persisted for more than six months as being long-term. If these indications exist, and impairment losses have previously This category has two subcategories: financial assets held for trading, been reported in the total comprehensive income, the accumulated and financial assets that management has classified at fair value losses that have been recognised in the total comprehensive income through the profit or loss. A financial asset is classified in this category shall be reclassified to the profit or loss. The amount is measured as if it has been acquired primarily for the purpose of generating a the difference between the acquisition cost and the current fair value, profit from short-term fluctuations in price, or if management elects less impairment losses previously recognised in the profit or loss. to classify it in this category when this is permitted by the regulations. Impairment losses recognised in the profit or loss for an investment in Classification of assets to their fair value – fair value option (FVO) – an equity instrument shall not be reversed through the profit or loss. applies to all financial assets that are acquired unless an alternative If the fair value of the debt instrument classified as available for sale classification has been made at the date on which the investment in a subsequent period increases, and the increase can be objectively was made. Derivatives that have not been designated as hedging linked to an event that took place after the impairment loss was instruments are classified as held for trading. recognised in the profit or loss, the impairment loss shall be reversed in the profit or loss. Gains or losses from fair value changes of assets classified as «financial assets to fair value through the profit or loss», including dividends, are Derivatives included in the profit or loss under «net revenues from financial The derivatives consist of currency and interest rate instruments, and instruments to fair value through the profit or loss» in the period in instruments connected with structured products. Derivatives are which they arise. recorded at fair value through the profit or loss on the date at which the derivatives are purchased. Subsequent changes in fair value are Securities available for sale recorded through the profit or loss. Securities available for sale are presented under the line item «securities – available for sale» in the balance sheet, and value Intangible assets changes are shown under «net income from financial assets held for Goodwill sale» in the total comprehensive income and any write-downs are Goodwill is the difference between the acquisition cost of a business included in «depreciation and amortisation» in the ordinary and the fair value of the Group's share of net identifiable assets in the profit or loss. Securities available for sale are non-derivative financial business at the date of acquisition. Goodwill arising from the
- 26. 26 SpareBank 1 Gruppen acquisition of subsidiaries is classified as an intangible asset. Goodwill Amortisation is tested annually for impairment, and carried at acquisition cost less Amortisation is calculated and expensed on a straight-line basis over a deduction for write-downs. Impairment losses on goodwill are not the estimated useful economic life of the intangible asset, unless its life- reversed. Gains or losses on the sale of a business include the time is unlimited. Intangible assets are amortised from the date on carrying amount of goodwill appurtenant to the business divestiture. which they are available for use. For subsequent impairment testing, goodwill is allocated to the cash-generating units or groups of cash-generating units that are Intangible assets with the exception of goodwill and intangible assets expected to benefit from the synergies of the combination which gave with indefinite lives have estimated lifetimes of between two and 10 rise to the goodwill. years. Research and development Intangible assets with the exception of goodwill and intangible assets Expenses relating to research activities conducted with the expectation with indefinite lives are subject to impairment testing in accordance of yielding new scientific or technical knowledge and understanding with IAS 36 when the circumstances warrant it. are expensed to the profit or loss in the period in which they arise. Development costs, where the research results are used in a plan or Tangible fixed assets model to produce new or substantially improved products or processes, The Group's tangible fixed assets consist of machinery, fixtures and are capitalised to the extent that the product or process is technically and fittings, vehicles and buildings used by the Group for its own commercially feasible. Costs which are capitalised include the costs activities. Buildings are revalued to fair value annually. The assessment of materials, direct salaries and a proportion of the overheads. Other of value is based on an internal valuation model described under development costs are expensed to the profit or loss in the period in investment properties. Buildings are depreciated following valuation. which they are incurred. Capitalised development costs are recorded at Other tangible fixed assets are recognised at acquisition cost, less cost less accumulated write-downs and impairment losses. depreciation. Acquisition cost includes costs directly linked to acquiring the fixed asset. Licences Licences have a limited useful economic life and are recognised on the Subsequent costs are added to the carrying value of the fixed asset or balance sheet at acquisition cost less accumulated depreciation. Licen- are recognised separately when it is probable that future economic ces are depreciated using the straight line method over their expected benefits linked to the cost will flow to the Group, and the costs can be useful economic lives. reliably measured. The carrying amount relating to replaced parts is expensed. Other repairs and maintenance costs are recorded through Edb programmes profit or loss in the period in which the costs are incurred. Standard edb software that fulfils the criteria for recognition in the balance sheet is recorded at acquisition cost (including expenses in An increase in the carrying value resulting from a revaluation of the conjunction with making the programme operative), and is depreciated buildings is reported in the total comprehensive income and under on a straight-line basis over its expected useful economic life. Software revaluation reserve. Decreases that offset previous fair value increases developed in-house principally follows the same policies as described on the same asset are treated for accounting purposes correspondingly. for research and development. Each year the difference between depreciation based on the revalued asset value (depreciation through profit or loss) and depreciation Expenses for maintaining the software are expensed as they are based on the tangible fixed assets acquisition cost is transferred from incurred. Expenses directly connected to developing identifiable and the revaluation reserve to retained earnings. unique software that is owned by the Group is recognised in the balance sheet as an intangible asset when the following criteria are Fixed assets are depreciated on a straight-line basis, with the tangible met: fixed assets acquisition cost, or revalued asset value being written down to the residual value over its expected useful economic life, which is: it is technically possible to complete the software so that it will be available for use Buildings 50 years management intends to complete the software and use or sell it Machinery, fixtures and fittings, and vehicles 3-10 years it can be demonstrated how the software will generate probable future economic benefits Tangible fixed assets which are depreciated are tested for impairment sufficient technical, financial or other resources are available to when there are indications that future earnings can not justify the complete and use or sell the software carrying value of the asset. The difference between the carrying the costs can be reliably measured. amount and the recoverable value is expensed as an impairment loss. The recoverable value is the higher of an asset's fair value less costs to Direct costs include personnel costs for software development sell and its value in use. At each reporting date, an assessment is made personnel and a portion of directly attributable overheads. Other as to whether there is an indication that previous impairment losses development costs that do not fulfil these criteria are expensed as on non-financial assets should be decreased. incurred. Development costs that are expensed may not be recognised in the balance sheet as an asset in subsequent periods. The carrying Investment property amount of software developed in-house is depreciated on a straight- Properties that are leased to tenants outside the Group are classified line basis over its expected useful economic life. as investment properties. Investment properties are measured at fair value. Changes in value are reported through profit or loss under the Other intangible assets line item «net income from investment properties». The properties are In conjunction with the acquisition of a business an analysis of excess evaluated individually on the basis of discounted cash flow projections. value is undertaken, and intangible assets that are identified are The required rate of return takes into account interest rates, the recognised in the Group balance sheet. The Group has identified general risk in the property market and the specific risk for the excess value linked to brands, customer relationships and software individual property. The fair value measurement is updated every six technology. The excess values are calculated using historical data months. Rental income, operating costs and the effect of value that has been extrapolated, adjusted for uncertainty and subsequently changes linked to investment properties are presented separately in discounted. Customer relationships and software technology are notes 10 and 27. depreciated on a straight-line basis over their useful economic lives. Impairment of non-financial assets Subsequent costs Intangible assets with indeterminable useful economic lives and Subsequent costs relating to the carrying value of intangible assets are goodwill are not amortised, but tested annually for impairment. capitalised only when they increase the future economic benefits Tangible fixed assets and intangible assets which are depreciated are flowing from the asset. All other costs are expensed in the period in tested for impairment when there are indications that future earnings which they are incurred. can not justify the carrying value of the asset. The difference
- 27. 27 between the carryingamount and the recoverable value is expensed Pensions as an impairment loss. The recoverable value is the higher of an The Group has both defined contribution pension plans and defined asset's fair value less costs to sell and its value in use. When testing for benefit pension schemes. The pension schemes are funded by impairment, the fixed assets are placed into the smallest identifiable payments to SpareBank 1 Livsforsikring AS. group of assets that generates cash inflows that are largely independent from the cash inflows from other groups of assets (cash-generating A defined contribution plan is a pension scheme in which the Group units). At each reporting date, an assessment is made as to whether makes a fixed payment to the insurance company. The Group does not there is an indication that previous impairment losses on non- have any legal or other obligation to make additional payments if the financial assets (except goodwill) should be reversed. insurance company does not have sufficient funds to pay all the employees the benefits that have accrued during current and prior Cash and cash equivalents periods. The contributions are accounted for as payroll expense as they Cash and cash equivalents include cash and bank deposits, other fall due for payment. short-term, highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are presented in A defined benefit plan is a pension scheme defining a pension benefit the line «deposits from and liabilities to customers and financial that an employee will receive upon retirement. The Group's defined institutions». benefit scheme ensures that the members receive a pension of 70 per cent of final salary up to an amount of 12 G (where G is the National Taxes payable and deferred taxes Insurance Scheme's basic amount). Salary payments exceeding 12 G are The tax expense comprises current and deferred tax. Tax is recognised secured by a defined contribution-based arrangement. The defined in the profit or loss, except to the extent that it relates to items reported benefit scheme was closed to new employees from 1 May 2005 onwards. in the total comprehensive income or recognised directly in equity. In these instances, tax is also reported in the total comprehensive In addition, there are obligations in conjunction with contractual income or recognised directly in equity. pensions (AFPs) and certain special agreements relating to early retirees and supplementary pensions. The old AFP provision contains Current tax for the period is calculated on the basis of the tax laws simply a provision for former employees aged between 63 and 67 enacted or substantively enacted at the balance sheet date. years old who are currently AFP retirees. Deferred tax is accounted for using the liability method. Deferred tax The liability recorded in the balance sheet linked to defined benefit is recognised on all temporary differences between the tax bases of schemes is the present value of defined benefits at the balance sheet assets and liabilities and their carrying amounts. If deferred tax arises date less the fair value of pension plan assets. The pension liability is on initial recognition of a liability or an asset in a transaction, which calculated annually by an independent actuary using a straight line is not a business combination, and at the date of the transaction does earnings method. The present value of the defined benefit obligations not affect either the financial result or the tax result then it is not is determined by discounting the estimated future cash outflows using recorded in the balance sheet. Deferred tax is determined using tax rates interest rates corresponding to a 10-year Norwegian government bond, and laws that have been enacted or substantively enacted by the at the reporting date, extended in duration to provide a term to balance sheet date and are expected to apply when the related maturity approximating the terms of the relevant pension liability. deferred income tax asset is realised or the deferred income tax liability is settled. Actuarial gains or losses (estimate discrepancies) due to new information or changes in the actuarial assumptions are recognised in the total Deferred income tax assets are recognised only to the extent that it is comprehensive income in the period in which they arise. probable that future taxable profit will be available against which the temporary differences can be utilised. Amendments to the pension plan's benefits are recognised through the income statement profit or loss or recognised in income on an ongoing When assessing the likelihood, historical earnings and estimated basis, unless the rights under the new pension scheme are conditional future margins are included in the evaluation. upon the employee remaining in service for a specific period of time (the vesting period). In this case, the cost linked to the change in benefits Deferred income tax is provided on temporary differences arising on is amortised on a straight-line basis over the vesting period. investments in subsidiaries and associated companies, except where the timing of the reversal of the temporary differences is controlled by A law on state subsidies to employees who take out contractual the Group and it is probable that the temporary differences will not pensions in the private sector (AFP-tilskuddsloven) came into force on reverse in the foreseeable future. 19 February 2010. Employees who take early retirement under the AFP scheme with effect from 2011 or later, will be given benefits under the Defended tax arising on changes in value of properties owned by new scheme. The new AFP scheme constitutes a lifelong entitlement Special Purpose Entities (SPE) is not calculated. Realisation of the in addition to the National Insurance Scheme and can be taken out from properties in practice will be through the sale of shares or interests. Any the age of 62. In the new AFP scheme the plan is for the company to gains or losses on realising shares or interests will not be taxable due pay a total premium based on the annual salary of the employee. The to the tax exemption method (with the exception of recognising 3 per premium is calculated based on a fixed percentage of annual salary cent of the net gain), and in the opinion of the Group the financial between 1 and 7.1 times the average National Insurance Scheme base statements provide the most fair representation of the information when amount. The annual premium rate for 2011 represents 1.4 per cent. the deferred tax is not recognised on these types of value changes. Premiums shall not be paid for employees after the year in which they become 61 years old. The accrued entitlements in the new scheme are Deferred tax assets and deferred tax shall be set off if there is a legal calculated based on the employee's lifetime income, which includes right to set off deferred tax assets against deferred tax, and deferred tax all prior work years in the basis for the pension entitlement. The new assets and deferred tax apply to income taxes imposed by the same tax scheme is funded by the Government covering 1/3 of the pension authority for either a taxable firm or different taxable firms that intend expenses and the employer covering 2/3. to settle tax liabilities and tax assets on a net basis. The new AFP scheme is treated for accounting purposes as a defined Long-term funding benefit multi-employer scheme. This means that each company shall Loans are initially recognised at cost, which is the fair value of the recognise its proportional share of the scheme's pension obligations, consideration less transaction costs. Fixed interest rate loans are pension plan assets and pension costs. If there are no calculations measured at fair value through the profit or loss, while variable relating to the individual components of the scheme and there is not interest rate loans are measured at amortised cost. Any differences a consistent and reliable basis for making an allocation, the new AFP between the cost and the settlement amount at maturity are thus scheme is accounted for as if it were a defined contribution plan. This accrued over the term of the loan by applying the effective interest rate is the present situation and the new AFP scheme has therefore been on the loan. expensed as a defined contribution plan.
- 28. 28 SpareBank 1 Gruppen Termination benefits that there should be a security margin in the reserves and the premiums. Termination benefits are paid when employment is terminated by The security margins in the premiums and reserves are not quantified, the Group prior to the normal date of retirement or when an employee but assessed by considering the levels of uncertainty and the maturities accepts voluntary retirement in return for these benefits. The Group of the liabilities. recognises termination benefits when it has demonstrably committed to either terminate the employment of current employees in accordance The ordinary premium reserve in the company is calculated using with a formal, detailed plan which the Group is irrevocably committed prospective policies on the same tariff basis as the premium tariff. IBNR to, or to provide termination benefits as a result of an offer that was and RBNS provisions have been made, using statistical methods based made to encourage early retirement. Termination benefits which are on SpareBank 1 Livsforsikring AS's own experience. due more than 12 months after the balance sheet date are discounted to their net present value. The securities adjustment reserve Provisions for the securities adjustment reserve correspond to the net Subordinated loans and hybrid tier 1 capital unrealised excess value of financial assets, with the exception of Subordinated loans have a lower priority than all other types of debt. investments in property, measured at fair value and included in the A time limited subordinated loan can account for 50 per cent of the Group portfolio of SpareBank 1 Livsforsikring AS. The net unrealised core capital in the capital adequacy ratio, while perpetual subordinated value is determined by undertaking a total assessment of the loans may account for up to 100 per cent of the core capital. Subor- portfolio. dinated loans are classified as a liability on the balance sheet and are measured at amortised cost. Insurance provisions in P&C insurance Insurance contracts shall be evaluated in accordance with IFRS 4. The Hybrid tier 1 capital is a bond with a nominal interest rate, where standard does not contain specific valuation principles beyond certain SpareBank 1 Gruppen is not under a duty to pay interest during limited conditions. It permits the use of accounting policies which the periods when dividends can not be disbursed, and neither is the entity has applied when preparing prior annual financial statements investor entitled to interest payments that have not been made, i.e. the under the condition that the insurance provisions are evaluated as interest does not accrue. Hybrid tier 1 capital is approved as a being sufficient according to Norwegian regulations, and not intended constituent of core capital, up to a limit of 15 per cent of total core to cover future claims payments under future contracts. This shows that capital. The Financial Supervisory Authority of Norway may require previously applied policies relating to insurance provisions for P&C that the hybrid tier 1 capital be written down proportionally with insurance may be applied. equity if SpareBank 1 Gruppen's core capital adequacy falls below 5 per cent or total capital adequacy is under 6 per cent. The written down The Financial Supervisory Authority of Norway has established minimum amount relating to the hybrid tier 1 capital shall be written up before requirements for the various types of provisions, and provisions have dividends can be disbursed to shareholders or the equity written up. been made for unearned premiums, claim provisions, security provisions Hybrid tier 1 capital is recognised at amortised cost. and reinsurance provisions. The minimum requirements for premium provisions and claim provisions have also been met for each industry, Insurance provisions in life insurance and for security provisions in each industry group. All the products in SpareBank 1 Livsforsikring AS are classified as insurance contracts. Changes in the policies for determining claim provisions During the course of 2011 there have been revisions in the regulations Insurance contracts shall be evaluated in accordance with IFRS 4. The of the Act on insurance activity to insurance provisions in P&C and life standard does not contain specific valuation principles beyond certain insurance. The regulation on claim provisions has been defined more limited conditions. Accounting policies applied by the accounting precisely to also include expected indirect costs of claims in connection entity in the preparation of prior financial statements are permitted on with incidents of harm which have occurred at a certain date but the condition that the insurance provisions are sufficient under have not yet been settled (IBNS losses). In addition, the regulations on Norwegian regulations. In order to document this, the company must technical insurance provisions no longer include the requirement for carry out an adequacy test. SpareBank 1 Livsforsikring AS carries administrative provisions. The transition to new regulations is out such a test annually. This shows that previously applied policies regarded as a change in policy and the effect of the policy change has relating to technical insurance provisions for life insurance may be been recognised directly in equity. Equity as of 31 December 2010 was applied. reduced by NOK 181 million due to this change in policy. Comparable figures have been prepared for the balance sheet as at 31 December The technical insurance provisions for life insurance consist of an 2010, changes in equity as at 31 December 2010, note 42 «Insurance insurance fund and security fund. The insurance fund includes a liabilities in life insurance» and note 43 «Insurance provisions in P&C premium reserve, supplementary provisions, a premium and pension insurance». regulation fund, claim provisions and other technical provisions. The new provision for expenses that are expected to be incurred but Critical assumptions and changes in technical insurance that are not allocated directly to the cost of a claim (ULAE – unallocated conditions: loss adjustment expenses) is presented in the balance sheet under the The guaranteed interest rate follows the regulations established by the line item «premium and claim provisions in P&C insurance» and Financial Supervisory Authority of Norway. From 1 January 2011 the «Insurance provisons in life insurance». The changes are recognised guaranteed interest rate is 2.5 per cent for new agreements, while the directly in equity. guaranteed interest rate on new accrued entitlements for group pensions will be 2.5 per cent from 1 January 2012. Moreover, new Administrative provisions have been disclosed under equity in earnings and accrued entitlements follow the maximum permitted previous years and the end of the provision does not require any guaranteed rate of interest that applied at the time the entitlements were changes to be made in equity. earned. Natural disaster provisions and guarantee provisions are not regarded The mortality assumptions are largely based on common surveys by as technical insurance provisions under IFRS 4. These provisions are Finance Norway (FNO), while the estimates for disability are chiefly disclosed under retained earnings. based on the company's own experience. The mortality assumptions for the disabled have taken account of the correlation between disability The reinsured's portion of technical insurance provisions is presented and mortality. A new industry tariff K2005 with security margins as a receivable in the consolidated financial statements under IFRS. that take into account higher life expectancy has been introduced from 2008 for group defined benefit pensions and paid-up policies from Provisions group defined benefit pensions. The Group recognises a provision when there is a present legal or constructive obligation that has arisen as a result of a past event, The reserve provisions and premiums are established based on a policy payment is probable and the amount can be estimated with sufficient
- 29. 29 reliability. Provisions areassessed at each balance sheet date and Events that take place until the date on which the accounts have adjusted to reflect the latest best estimates. been authorised for publication, and which affect conditions that were already known at the balance sheet date, will be incorporated into In instances where there are several liabilities of the same type, the like- the pool of information that is used when making accounting estimates lihood that the liabilities will be settled is determined by evaluating and are thereby fully reflected in the financial statements. Events such liabilities as a whole. Therefore a provision is made even though that affect conditions which were not known about at the balance the likelihood of a settlement associated with certain individual cir- sheet date are disclosed if they are material. cumstances may be low. The financial statements have been presented on the assumption that Provisions are measured at the discounted present value of the the company will continue as a going concern. In the opinion of the expected stream of payments to fulfil the obligation. An estimated Board, this prerequisite exists at the time when the financial statements risk-free interest rate is used as the discount rate before tax which were approved for presentation. reflects the current market situation and the specific risk linked to the liability. Share capital and share premium Ordinary shares are classified as equity. Expenses which directly Trade payables and other current liabilities relate to the issuance of new shares or options with tax deductions are Trade payables are measured at fair value on initial recognition. recognised as a reduction of compensation received in equity. Subsequent measurements of trade payables are made at amortised cost, determined using the effective interest method. Dividends The Board's proposed dividend distribution is included in the Deposits from and liabilities to customers and financial institutions Directors' Report and the statement of changes in equity. Proposed Deposits from and liabilities to customers and financial institutions are dividends to the parent company's shareholders are classified as largely valued at amortised cost. Certain smaller fixed rate deposits and equity until finally approved at the Annual General Meeting. From the loans are measured at fair value through the profit or loss. date on which the dividends are approved, they are classified as liabilities. Interest income and interest expense Interest income and interest expense linked to assets and liabilities Group contribution measured at amortised cost are recognised in profit or loss on an Group contributions to subsidiaries are recorded as an increase in ongoing basis based on the effective interest method. For deposits from investments in subsidiaries given that the transfer increases the value customers and financial institutions and liabilities to financial of the parent company's shares in the subsidiary. Proposed group institutions carried at fair value, the interest portion is expensed as contributions rendered are classified as equity until finally approved interest expense, while other value changes are classified as income at the Annual General Meeting. From the date on which the group from financial instruments. All fees in conjunction with interest- contributions are approved, they are classified as liabilities. bearing deposits and loans are included in the calculation of effective interest rates and are thus amortised over the expected maturities. Commission income and expenses NOTE 3 – FINANCIAL RISK MANAGEMENT Commission income and expenses are generally recognised on an accrual basis as the services are provided. Fees in conjunction with Reporting financial risk factors interest-bearing instruments are not recorded as commissions, but The note provides a description of the risk management work in are included in calculating the effective interest rate and recognised SpareBank 1 Gruppen Group. This note provides a description of: in the profit and loss accordingly. Fees from counselling are earned in accordance with counselling agreements, generally as the services Overarching goals are rendered. The same applies to ongoing management services. Organisation of the risk management function, and established Fees in conjunction with selling or acting as an intermediary for policy documents financial instruments, property or other investments which do not Description of SpareBank1 Gruppen Group's material risk exposu- generate balance sheet items in the SpareBank 1 Gruppen accounts, are res recognised in profit or loss when the transactions are completed. Following up and managing risk factors Plans for further developing the risk management function Revenues from debt collection operations Unresolved debt collection cases are evaluated in accordance with the Overarching goals percentage-of-completion method. This method requires revenues to Risk management in SpareBank 1 Gruppen Group shall support the be recognised in the accounting period in which the debt collection Group's strategic development and achievement of objectives, and services are rendered, in line with progress in the debt collection ensure the fulfilment of statutory capital requirements. Risk manage- case. The evaluation of earned income at the balance sheet date is ment shall ensure financial stability and sound asset management. This determined on the basis of an assessment of the debt collection cases' is to be achieved by: turnover rate, estimated degree of completion and actual fee income during the last six months. A moderate risk profile A strong risk culture characterised by a high level of risk manage- Fee income is recognised when payments from the debt collection cases ment awareness. are received. Changes in the carrying value of unresolved debt Striving for an optimal application of capital within the adopted collection cases are presented in the profit or loss under the line item business strategy «other operating income». Book value is recognised as current assets Exploiting synergy and diversification effects under the line item «other assets». Adequate core capital in accordance with the chosen risk profile Fulfilling the capital and solvency requirements established by Dividend income the authorities at all times Dividends are recognised as income in profit or loss when the right to receive payment is established. Organising the risk management function The responsibility for risk management and compliance in the Group Events after the balance sheet date is divided between the boards of the individual companies, the Group The financial statements are regarded as having been approved for Board and the line management. A risk management function has publication once they have been considered by the Board. The Annual been established at the Group level, which ensures for the consistent General Meeting, the Supervisory Board and regulating authorities may implementation of risk management in SpareBank 1 Gruppen Group, subsequently decide not to authorise the financial statements, but and focuses on specific risk exposures at the Group level. The may not change them. subsidiary company boards are responsible for overall risk management
- 30. 30 SpareBank 1 Gruppen in their own companies, where separate functions for risk and material, and which are encompassed by the Group's risk management compliance management have been established. The duties and systems, are described below. responsibilities of the risk management and compliance functions are regulated by the governing documents prepared at the Group Market risk level, and for the individual company. Responsibility for the overall The risk of losses caused by changes in observable market variables, the risk management within the Group lies with the Group Director of most important of which are interest rates, currency exchange rates, strategy, risk management and analysis in the parent company. This security prices and property. position reports directly to the Chief Executive of SpareBank 1 Gruppen AS. Ownership risk Ownership risk is defined as the risk that arises as a result of being an owner of a company, for example relating to the risk that the product SpareBank 1 Gruppen AS companies assume in their operations, as well as the risk of a need for the injection of new equity into one or more of these companies. Risikostyring/ compliance Credit risk The risk that the company’s borrowers, intermediaries and reinsurers are SpareBank 1 SpareBank 1 SpareBank 1 SpareBank 1 ODIN unable to fulfil their obligations to SpareBank 1 Gruppen Group. Credit Livsforsikring AS Skadeforsikring Markets AS Gruppen Finans Forvaltning AS 100 % konsern 100 % 97,2 % konsern 100 % 100 % risk also includes the risk of changes in general credit prices, the so- called spread risk, and reinsurance risk in the insurance companies. Risikostyring/ Risikostyring/ Risikostyring/ Risikostyring/ Risikostyring/ compliance compliance compliance compliance compliance Concentration risk The risk associated with major commitments, industry concentration and geographic concentration in credit or investment portfolios. The organisation of the risk management function in SpareBank 1 Gruppen Group Insurance risk Premium risk is the uncertainty concerning the frequency and cost of futu- The control committee re insurance claims, and the risk of extreme events (disasters), in com- The committee shall supervise that the company's activities are conducted parison with the premium income from the insurance business. Reser- in an appropriate and reasonable manner in accordance with laws and ve risk is the uncertainty linked to reserves which have already been regulations, the articles of association, guidelines established by the allocated for insurance events that have arisen. Supervisory Board and the Annual General Meeting, and directives issued by the Financial Supervisory Authority of Norway. Operational risk Risk that is due to inadequate or failing internal processes, failures by The audit committee humans, or failures in systems or external events. The definition also The purpose of the audit committee is to function as a preparatory encompasses legal risk. organ for the Group Board in matters which relate to monitoring financial information and the Group's internal control and risk Liquidity risk management. The risk of not managing to refinance obligations or to finance any increased funding needs without substantial added cost. Policy provisions Policy documents that have been approved by the Board at the Group Strategic and commercial risk level form the basis for the structure and risk management limits for Strategic and commercial risk is the risk of losses resulting from subsidiaries. Currently policy provisions have been established at the changes in external circumstances beyond the control of the company, Group level in the following areas: such as regulatory matters, or inadequate earnings or supply of capital due to an erosion of confidence and the company’s reputation in the Policy for internal control market, i.e. with customers, counterparties, shareholders and the Policy for compliance authorities (reputation risk). Strategic risk also includes the risk of Policy for capital management errors of judgement in connection with company acquisitions or Policy for ICAAP large IT investments for example. Contingency plan for liquidity and capital management Strategy connected to the use of financial instruments Further policy documents will be prepared in order to meet the The Group actively uses financial instruments to take positions in the requirements laid down in the Solvency II regulations. This particularly market and to reduce risk. The use of financial instruments is limited to applies to more detailed governing documents for insurance risk. The aim those instruments for which the risk and market value can be measured is for the Group to have fully established overarching governing and monitored by the Group's risk management and profitability documents by the first quarter of 2013, in accordance with Solvency II. measurement systems. Derivatives which are not traded in an active The risk management function in SpareBank 1 Gruppen AS ensures for market are used solely for hedging purposes or if the Group seeks compliance and control of the policy provisions designed in the physical settlement of the underlying asset/liability. The contracts are not subsidiaries. recorded using hedge accounting. Risk exposure in SpareBank 1 Gruppen Group Capital management SpareBank 1 Gruppen Group is chiefly an insurance Group. Financial risk The Board of SpareBank 1 Gruppen AS has adopted a common risk arises as a result of uncertainty in connection with the achievement of management policy for the group, which is subject to an annual review. objectives during the ordinary activities of the Group's companies. A strategy, policies and limits have been established in connection with Naturally enough, the Group's greatest exposure is related to life and each of the risk factors in the individual legal entities. Strategic P&C insurance activities. The risk associated with insurance operations decisions are also made in relation to asset allocations within each arises as a result of the uncertainty concerning the frequency and amount company. Also refer to note 39 on capital adequacy. of the payments in comparison with the companies' revenues. The insurance premium is invested in order to produce a return, and there- Risk-adjusted capital fore also creates financial exposure to market risk. At the same time, SpareBank 1 Gruppen AS determines its capital requirements based events connected to operational and strategic risks, involving the on the different risk categories. The risk-adjusted capital requirements possibility of negative consequences for the Group's reputation, will are calculated for each subsidiary and for the group overall. Statistical potentially be risks inherent in the Group's activities. methods and expert assessments and judgements are used as a basis when performing these calculations. It is not very likely that all the loss events The risk exposures that SpareBank 1 Gruppen Group regards as being would occur simultaneously, and there is therefore a diversification
- 31. 31 effect when consideringall the risk categories as a whole. Risk capital Interest rate risk shall cover the unexpected losses and correspond to 99.5 per cent of Interest rate risk is the risk of loss incurred due to changes in interest possible losses in all risk categories for a time horizon of one year. rates. The risk primarily arises as a result of investments in fixed income securities, from fixed rate loans, financing using fixed income Capital requirements securities, and from using derivatives. SpareBank 1 Gruppen AS must have sufficient capital to cover unexpected losses. The Group is subject to the regulations for minimum Value at Risk is given as the value of an asset multiplied by the levels of capital adequacy and solvency. The Capital Requirements asset's sensitivity to changes in interest rates multiplied by the Regulations also stipulate that the capital requirements must be assessed maximum negative change in interest rates for a given holding period in relation to both the risk profile and the quality of risk management and and confidence level. control systems. The capital management policy is subject to annual updates and Board approval, and was most recently updated and The bond portfolio is weighted by duration in the following time approved by the Board in May 2011. The capital management policy shall intervals: (1–3 months), (3–12 months), (1–3 years), (3–5 years) and ensure that SpareBank 1 Gruppen Group has an optimal level of equity (over 5 years). The duration expresses each interval's price sensitivity in relation to the defined risk tolerance, risk profile and scope of the in relation to a change in interest rates. Based on time series data of business. monthly historical interest rates dating back to 1994, the standard deviation of the complete interest rate time series is calculated, and SpareBank 1 Gruppen Group uses risk-adjusted return as one of several average interest rates are calculated to match the intervals. financial management parameters. The risk-adjusted return for the Group as a whole and for each subsidiary is noted in the quarterly risk Based on the duration-weighted exposure, historical interest rate reports. The use of risk-adjusted returns will become increasingly fluctuations, the holding period and confidence level, VaR is calculated important under the introduction of the Solvency II regulations. for each time interval, and subsequently aggregated to a total VaR on fixed income securities. Monitoring and managing risk factors Market risk Sensitivity analysis of market risk linked to interest rate risk The Group’s consolidated market risk is measured and reported quarterly SpareBank 1 Gruppen Group is exposed to market risk linked to to the Board of SpareBank 1 Gruppen AS. The calculation is based on a interest rate risk. Interest rate risk is primarily linked to the investment VaR model. A corresponding model is used for the follow-up of each portfolios in SpareBank 1 Livsforsikring AS and SpareBank 1 Skade- subsidiary, and each company in the Group also follows up and forsikring Group. Shown below is a sensitivity analysis of interest rate manages its own risk exposure in accordance with its own models and risk associated with each entity. routines. Below figure 1 is a description of the model (VaR model) and definitions for calculating the Group's overarching risk, as well as the The table below figure 2 shows an estimate of the expected effect on actual exposure at year-end. the income statement of an immediate change in interest rates. The table has been prepared in connection with internal risk monitoring Estimates and assumptions in the VaR model in SpareBank 1 Gruppen AS. The calculations are based on changes The Board has decided that risks are to be reported at a 99.5% confidence in value and changes in cash flows 12 months ahead on money market level. The holding period is 12 months. Correlations are also calculated and bond portfolios in SpareBank 1 Livsforsikring AS, SpareBank 1 using a similar method to last year's. The securities adjustment reserve, Skadeforsikring Group and SpareBank 1 Markets AS. For SpareBank 1 additional provisions, investment returns and interest rate guarantees Gruppen AS and SpareBank 1 Gruppen Finans Group the effect on the have not been taken into account. income statement is linked to net interest-bearing liabilities. Market risk is calculated using the following formula: Spread risk VaR = Value * σ * √T * nc. Spread risk is the risk of changes in the market value of bonds and σ = Standard deviation, asset commitments as a result of general changes in credit spreads. Spread T = Duration/ownership risk has been incorporated into SpareBank 1 Gruppen Group's VaR nc = Standard deviation given confidence level model since 2010, and is included in calculations in accordance with (99.5 % single tailed standard deviation = 2.58) the Capital Requirement Regulations. Refer to the Pillar 3 report for further information about spread risk. Figure 1 The table below shows gross market risk (i.e. before making deductions for the securities adjustment reserve and additional provisions) based on the VaR model: Market risk 99,5% SpareBank 1 Gruppen Group Amount in NOK million 2011 2010 Interest rate risk 1 601 1 656 Equity risk 1 451 1 432 Currency risk 48 65 Risk linked to property 914 995 Diversification -540 -570 Total market risk 3 475 3 578 Diversification as a percentage 13.5 % 13.7% Figure 2 SpareBank 1 SpareBank 1 SpareBank 1 SpareBank 1 Skade- Livs- SpareBank 1 Gruppen Gruppen forsikring forsikring Markets Finans Parameter AS Group AS AS Group Total Change in result in NOK million before tax 1 % increase in interest rate -22 27 -157 3 -2 -151 1 % reduction in interest rate 22 -27 157 -3 2 151
- 32. 32 SpareBank 1 Gruppen Equity risk Ownership risk The equity risk of securities is the risk of loss that arises from changes Ownership risk is defined as the risk that arises as a result of being an in the value of shares and other equity instruments in which the owner of a company. SpareBank 1 Gruppen AS’s ownership risk in sub- Group has invested. For the purposes of calculating risk, the shares are sidiaries is related to the risk that the individual product companies divided into Norwegian and international shares. assume in their operations, as well as the risk of a need for the injec- tion of fresh capital into one or more of these companies. Policies for Historical returns for Norwegian and foreign shares are calculated capital management at the Group level have been established to ensure separately dating back to 1994 based on a Norwegian index and a world that the companies operate in accordance with the owner's capacity and index. The returns are used to determine a standard deviation, which appetite for risk. is adjusted for the holding period and confidence level and subsequently multiplied by the exposure in the various classes of Credit risk equity. The exposure corresponds to the market value of the share The Group's credit risk is primarily linked to SpareBank 1 Livsforsikring portfolio at the balance sheet date. AS and SpareBank 1 Skadeforsikring Group, and the business activities in SpareBank1 Gruppen Finans AS. In order to be based on the volatility of the indices, SpareBank 1 Gruppen Group assumes a well-diversified portfolio of equity The credit risk in SpareBank 1 Skadeforsikring Group and SpareBank 1 instruments within the classes of equity, equivalent to ß=1. SpareBank 1 Livsforsikring AS is related to money market investments (bonds and Gruppen Group considers it to be a reasonable assumption that the certificates), and reinsurance. The Boards of these companies have portfolios in SpareBank 1 Livsforsikring AS and SpareBank 1 Skade- adopted limits for the various securities issuers. In addition, a minimum forsikring Group are well-diversified. level for the credit ratings within the different issuing groups has been stipulated. Detailed regulations regarding the permitted levels of Currency risk risk on investments have been issued in a separate mandate to external Currency risk is the risk of loss arising from changes in exchange managers. rates. The Group measures currency risk on the basis of net positions in the different currencies. Shown is an overview of the 10 largest exposures to issuers. Market value NOK million as at 31.12.11 Historical foreign exchange rates are used to determine the volatility SpareBank 1 SpareBank 1 of the pertinent currencies, which forms a basis for calculating the risk Livs- Skade- Share forsikring forsikring Total of total exposure, for a given level of confidence. Issuer AS Group value portfolio Risk linked to property Den norske stat 834,7 834,7 4,5 % SpareBank 1 Group has substantial property exposure in both DNB Bank ASA 315,7 184,8 500,5 2,7 % SpareBank 1 livsforsikring AS and SpareBank 1 Skadeforsikring DNB Boligkreditt AS 351,6 351,6 1,9 % Group. The property portfolio is part of the ongoing allocation of Nordea Eiendomskreditt AS 304,8 304,8 1,6 % assets in the companies, which aims to achieve the highest possible Kreditanstalt Fuer return for the exposure. In SpareBank 1 Livsforsikring AS responsibility Wiederaufbau 263,6 263,6 1,4 % for the management is assigned to a separate property department with SpareBank 1 SR-Bank 255,2 255,2 1,4 % seven employees. For SpareBank 1 Skadeforsikring Group, management Sparebanken Sør 248,5 248,5 1,3 % of the properties has been outsourced in its entirety to external Sparebanken Møre 235,9 235,9 1,3 % managers. Sparebanken Øst 222,7 222,7 1,2 % Swedbank Hypotek AB 220,5 220,5 1,2 % The Group's properties are exposed to risk from changes in the property Sparebanken Vest 213,3 213,3 1,2 % market. The value of the property portfolio is affected by a number of Helgeland Sparebank 212,5 212,5 1,1 % factors, including local economic development, the properties' KLP Kommunekreditt AS 201,1 201,1 1,1 % locations, maintenance and competition in the local property market. Landshypotek AB 201,0 201,0 1,1 % SpareBank 1 SMN 194,4 194,4 1,1 % Property volatility is calculated based on the historical performance General Electric Capital Corp 175,6 175,6 0,9 % of property prices for offices and commercial properties respectively Totens Sparebank 169,1 169,1 0,9 % drawn from price indices published by Statistics Norway. The risk Møre Boligkreditt AS 167,5 167,5 0,9 % linked to property is treated separately when preparing SpareBank 1 SpareBank 1 Boligkreditt AS 165,0 165,0 0,9 % Gruppen's ICAAP. Also refer to note 4 for information about the sensitivity of these Refer to notes 30, 31 and 33 for further information about the credit risk figures and note 27 for information on exposure. in SpareBank 1 Gruppen Group. Hedge funds Concentration risk The risk associated with hedge funds is determined on the basis of the The Group is considered to have a low level of concentration risk. The volatility in an international hedge fund index. The risk is calculated insurance portfolio in SpareBank 1 Skadeforsikring Group is deemed in accordance with a similar method to that used for securities. Expo- to be relatively well diversified through a large number of customers, sure to hedge funds has been significantly reduced in recent years. and the insurance contracts relate to different geographic areas and a number of different products. A concentration risk in P&C insurance is Correlation – Portfolio risk market risk the exposure to natural disasters, but in Norway this is very limited via Based on the time series, a correlation matrix is calculated between the participation in the Norwegian Natural Perils Pool. The insurance different asset classes in market risk. The correlations are determined portfolio in SpareBank 1 Livsforsikring AS is well-diversified as by analysing historical data going back to 1994, or as far back as data regards insurance risk. It is largely comprised of individual insurances is available, based on a 12 month moving average. In order to make the and group insurances where the insurance risk is not concentrated. calculations more conservative, an average of the average correlations There is some concentration risk linked to the life insurance company's and the highest correlation in the period is used. Based on the corre- investment portfolio, largely to the finance industry. From the view- lation matrix, a covariance matrix is calculated which is used to point of the Group, other companies have only a modest exposure to determine the Value at Risk (standard deviation) of the total portfolio. concentration risk. Also refer to notes 34 and 35 for further information on market risk in Liquidity risk and counterparty risk SpareBank 1 Gruppen Group. Management of the Group's financial structure is based on an overall liquidity strategy that is assessed and approved by the Board at least annually. Each subsidiary has a corresponding liquidity strategy, with
- 33. 33 the associated Boardapproval. The liquidity risk is reduced by the Insurance risk diversification of funding sources, instruments and maturity periods. The risk in an individual insurance contract is the probability that an A Group account scheme in SpareBank 1 Gruppen Group has been event takes place and the uncertainty in relation to the amount of the established in order to reduce liquidity risk. This scheme was set up compensation. Part of the nature of insurance contracts is that risk is in the fourth quarter of 2011. random and therefore has to be estimated. For a portfolio of insurance contracts where probability theory has been used in determining the The liquidity risk in SpareBank 1 Gruppen Group is mainly linked to price and technical insurance provisions, the largest risk the company the parent company, and is considered to be low to moderate. faces in relation to insurance contracts is that the actual claim payouts exceed the provisions that have been made. The risk relating to insurance The guidelines for liquidity management are subject to annual review, contracts depends upon how the contract has been written. There is and are updated and approved by the Board in February 2012 at the greater uncertainty associated with so-called long-tailed products latest. The contingency plan for capital adequacy and liquidity with long claims settlement times, than short-tailed products where the management seeks to highlight the overarching liquidity management final compensation amount is more quickly determined. The insurance in the Group, as well as identify and explain events that can occur company is also exposed to large claims, but these are covered by and prepare plans to meet these events. The contingency plan also reinsurance contracts for the most part. provides a clear description of the division of responsibilities. Events that may affect liquidity levels include: The results from the insurance business in 2011 were negatively impacted by a number of factors including a high proportion of large Identified losses in subsidiaries that require an injection of capital claims within the fire combined corporate market, the 22 July incident, Liquidity buffers under target levels and a weaker natural perils result due to floods. Within the main Cancellation of uncommitted lines of credit products of houses and cars, the claims ratio is lower compared with the previous year, and a series of measures have been introduced aimed The guidelines for SpareBank 1 Gruppen Group are based on the at further improving the claims ratio. The financial performance of the group having sufficient liquidity buffers to cover one year of ordinary corporate market has weakened compared to 2010. In addition, the operating costs and interest expenses. claims ratio in Unison forsikring AS is at a high level. Through the rein- surance programme SpareBank 1 Skadeforsikring Group will The daily liquidity management requirements specify that the parent continue to reduce the uncertainty relating to portfolio growth, company must have a liquidity buffer of NOK 150 million at all times stabilise the technical insurance results and reduce the uncertainty in (the requirement as at 31 December 2011 was for NOK 400 million, industries with high standard deviations. During 2011 there have not reduced to NOK 150 million in January 2012). The liquidity buffer shall been any major changes in the Group's reinsurance programme, and consist of bank deposits and marketable securities which are subject portfolio growth has been moderate. SpareBank 1 Skadeforsikring to continuous trade. In addition, the liquidity buffer may comprise Group is adequately protected against catastrophes and large claims committed credit facilities. The liquidity buffer exceeded NOK 400 through the reinsurance programme. million as at 31 December 2012. Market risk The Chief Financial Officer is responsible for monitoring that the The investment strategy describes the target risk profile, and defines liquidity buffer is within target levels. If the liquidity buffer is more limits that are tailored to the Group's risk tolerance. Market risk is than 20 per cent under the target level, it must be reported to the CEO therefore continually assessed in relation to the Group's risk capital, in SpareBank 1 Gruppen AS. A plan must be drawn up which and is monitored by stress tests that are based on provisions of the asset specifies how the liquidity buffer can be restored to its target level as management regulation in addition to the Group's own risk models. quickly as possible. The plan must be delivered to the Group executive SpareBank 1 Skadeforsikring Group does not use currency instruments management. The requirements as set out in the guidelines have been as a general rule, but makes an exception when hedging underlying fulfilled during the period, and the liquidity situation in the parent investments. Foreign investments are hedged against currency risk to company is considered to be good. the maximum extent possible. The Group's allocation of investments between different instruments has been stable during the year. SpareBank 1 Gruppen Group has established a close collaboration with SpareBank 1 Skadeforsikring Group's exposure in shares is limited in the SpareBank 1 banks for funding purposes. Through this type of relation to the Group's solvency. The Group's total exposure to market close collaboration, the chance of resolving any liquidity challenges risk is considered to be moderate. is substantially improved. The collaboration agreement with the SpareBank 1 banks has been taken into account when establishing the Liquidity risk liquidity buffer and is the reason that it has been reduced from NOK The majority of the Group's investment portfolio is invested in money 400 million to NOK 150 million, with effect from January 2012. market instruments with good liquidity. The Group's liquidity risk is therefore low. The Boards have prepared guidelines for what propor- Refer to note 32 for further information on liquidity risk and settlement tion of the investment portfolio should comprise liquid investments risk in SpareBank 1 Gruppen Group. at any time. The Group's insurance activities Credit risk and counterparty risk As the Group is largely an insurance-based entity, this section will SpareBank 1 Skadeforsikring Group is primarily exposed to counter- provide further information about the Group's risk management party risk through fixed income securities in the investment portfolio, activities in life and P&C insurance. the reinsurance portion of technical insurance provisions and actual claims against reinsurers. The reinsurance programme aims to reduce SpareBank 1 Skadeforsikring Group counterparty risk through a recommended minimum rating of A(-) from The company's Solvency II activities during the course of 2011 have S&P, at the same time as exposure to certain entities is evaluated. As been related to work on further developing and implementing a result of the turbulent times in recent years, counterparty risk is solutions in a number of areas including regulatory risk modelling, closely monitored. Investments are undertaken with financially sound Own Risk and Solvency Assessment (ORSA) and reporting. SpareBank counterparties. The reinsurance market has been stable in 2011, 1 Skadeforsikring Group has also started a dialogue with the Financial without any major changes in the reinsurance programme or in the Supervisory Authority of Norway about the use of internal models for credit evaluation statuses of SpareBank 1 Skadeforsikring Group's calculating capital requirements under Solvency II. The Group aims most important counterparties. There have not been any losses in the to be granted early approval for its partly internal model, and to fulfil credit portfolio in 2011, and the risk is presently considered to be low. the requirements under Solvency II. As a result of the transitional The specified investment limits are involved in determining counter- scheme for regulatory capital requirements that has been announced party risk, and the portfolio is regarded as being well diversified. by the authorities, the bulk of the approval process for internal models Moreover, there have not been any material breaches of the investment will be completed during 2013. limits in 2011.
- 34. 34 SpareBank 1 Gruppen Gross overdue premiums per P&C insurance product Figures in NOK 1,000 Onshore property 1 804 979 Industrial fire insurance 10 410 Marine 244 Motor 1 790 602 Onshore property Commercial 377 520 Energy/Oil - Yacht 75 934 Motor commercial 280 564 Total in. Reass. 59 Accident insurance 164 079 Liability 54 863 Total marine, energy, reass 303 Travel insurance 336 029 Workman's compensation 167 342 Other retail insurance 23 683 Safety 89 606 Natural perils / Pool 120 957 Other 61 306 Total retail lines 4 195 307 Total commercial lines 1 041 612 Total gross overdue premimums 5 358 180 Refer to note 46 for further information on insurance risk in P&C insurance. Concentration of insurance risk revenue targets. The company has defined trading rules for measures SpareBank 1 Skadeforsikring Group has prepared contractual to reduce risk if the return falls short of the minimum requirements or regulations that stipulate which insurance items the companies accept the buffer capital utilisation reaches predefined levels. in their portfolios. Checks are performed to ensure that these contractual regulations are complied with. In addition, the insurance Interest rate risk system incorporates automatic checks on accumulated balances when The company's financial risk mainly relates to whether the company signing a new portfolio. Reinsurance coverage is adjusted in relation is able to fulfil its annual interest rate guarantee. The company has to the risk exposure in the insurance portfolio. assumed a substantial interest rate risk in its interest rate and pension insurance. The company's average annual interest rate guarantee is for SpareBank 1 Livsforsikring AS 3.13 per cent, calculated using an average insurance fund. New SpareBank 1 Livsforsikring AS provides pension products that contain contracts in 2011 are offered with a guaranteed interest rate of 2.5 per interest rate guarantees, i.e. the customers are guaranteed a minimum cent. Persistent low interest rates will increase the risk connected to return each year. The company's average yearly guaranteed interest rate the interest rate guarantee. If the annual return looks to be less than the is 3.13%. The investment strategy and thus the market risk for the interest rate guarantee, financial measures are enacted to ensure that various portfolios in SpareBank 1 Livsforsikring AS is adjusted to the the return is at the same level as the interest rate guarantee. The company's risk tolerances for various products, contracts and primary securities adjustment reserve will act as a buffer. If this is insufficient, capital. Active risk management in the customer portfolios reduces funds will be taken from the supplementary provisions to cover the the likelihood of failing to reach the interest rate guarantee. The guarantee. Any negative returns must be covered by the company's Department for Risk Management monitors market risk in the company equity. In good financial years, part of the profits are allocated to and follows up the limits and guidelines that apply to the company. supplementary provisions. This is regulated to a maximum of 12% of the contract's premium reserve. The company's investment strategy contains limits for how the company shall invest and manage its assets, including permitted Average interest rate guarantee 2011 markets, asset classes and financial instruments. The investment strategy also contains guidelines and limits for credit exposure, Individual endowment insurance 2.36% counterparty exposure, currency risk and the use of derivatives in Individual annuity and pension insurance 3.64% hedging strategies. The company's investment strategy is adopted by Group pension insurance 2.91% the Board. Group life insurance 0.00% Accident insurance 0.00% The risk management in SpareBank 1 Livsforsikring AS is tasked Total 3.13% with contributing to the highest possible returns for customers and owners within an acceptable level of risk, by securing good management The table above shows the average interest rate guarantee per product and control of the risk that the company is exposed to. The risk level group for 2011. shall correspond with the Board's appetite for risk. Risk management should support the company's strategic development and achievement Insurance risk of its objectives, secure financial stability and sound capital manage- For the majority of product groups, the company offers disability ment. cover, either through a disability pension, premium exemption or disability capital. Whole life insurance is offered within individual The company's strategy for risk management has been adopted by the contracts and group life insurance. In group pensions the company Board and includes processes, limits and trading rules that the offers survivor pension benefits that come into effect in the event of company must adhere to when the risk exposure in the company the insured party's death. Changes in the payment regulations in the exceeds specific levels. The risk management function is handled by National Insurance Scheme for disability payments etc. will have a the Department for Risk Management, with responsibility for substantial effect on disability numbers and provisions. In relation to monitoring and following up financial risk, reporting and compliance. the change in the risk of mortality, the steadily increasing longevity The Department is organised in the section for Finance and Risk affects whether the date on which payments actually commence Management and is independent from operational functions. The matches the forecasts. With a continuously increasing lifespan, the company's total risk exposure is described in the company's risk company's future old age pension payments will be rising, compared report which is considered by the Board. SpareBank 1 Gruppen AS has with prior years. the overarching responsibility for risk management in the Group. Managing insurance risk Market risk Risk manuals have been prepared which contain guidelines for SpareBank 1 Livsforsikring AS continuously assesses the market risk risk assessments including health and contractual regulations when in the company through the use of stress tests. The company also uses acquiring potential customers. A health assessment of the insured other statistical tools and methods to assess market risk. The company party is carried out when signing individual risk products. The result is working on developing models to measure and monitor risk. The of this assessment is reflected in the level of the risk premium required. company also manages market risk through a minimum required rate When signing group agreements with risk cover, an assessment is of return which will contribute to the company achieving predefined carried out of the firm's risk (underwriting). When underwriting, the
- 35. 35 company's financial position,industry and sickness and disability history are evaluated. SpareBank 1 Gruppen Group will, in conjunction with the alliance's forum for risk management, continue to focus on establishing In the company's existing portfolio, the insurance risk is monitored for quantitative models with a view to estimating capital requirements for each product group. The risk result from each product group is the strategic and commercial risk in the Group. divided into mortality, disability and survival elements. Risk result performances are monitored throughout the year. For each type of risk Correlation - Portfolio risk the ordinary risk result for a period is the difference between the risk Not all events are expected to take place at the same point in time. premiums that the company has received for the period and the Therefore it is reasonable to take into account the diversification compensation paid relating to the period. Insurance incidents which effects between different classes of assets. A correlation matrix between the company has not been notified about, but which are likely to the asset classes is used, in which correlations between market risk, have occurred based on experience, are included in this assessment. credit risk, insurance risk and property are calculated. In connection with risk-based supervision, the company has prepared a framework for managing and controlling insurance risk. Further development Towards the end of 2011 SpareBank 1 Gruppen Group launched a Reinsurance project to further integrate and coordinate risk management in the The company has a reinsurance strategy that is considered annually Group. This work will focus on improving effectiveness and optimising by the Board. The strategy includes targets for the company's reinsurance the risk management processes in the Group and the companies. It is programme and specifies how the reinsurance programme is to be also an overarching goal for SpareBank 1 Gruppen Group to fulfil all monitored. the requirements at a Group level that are expected under Solvency II by the end of 2013, even though they will not be introduced before 1 The company has signed reinsurance cover on quotas, reinsured January 2014. amounts, and excess of loss/catastrophic risk. Concentration risk The insurance portfolio is well-diversified as regards insurance risk. NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND It is largely comprised of individual insurances and group insurances JUDGEMENTS where the insurance risk is not concentrated. The Group prepares estimates and makes assumptions concerning the Refer to note 40 for further information on receivables from reinsurers, future. These estimates and judgements are continually re-evaluated and notes 45 and 46 on insurance risks for life and P&C insurance and are based on historical experience and a number of other factors respectively. such as future expectations believed reasonable given the current circumstances. Yet, as per definition, these accounting estimates will Operational risk seldom fully match the actual results. Estimates and assumptions that Operational risk is defined as the risk of losses resulting from represent a significant risk of material adjustments to the carrying inadequate or failed internal processes or systems, human error or amounts of assets and liabilities for the next financial year are discussed external events. In SpareBank1 Gruppen Group legal risk is included below. in operational risk. All companies in the Group are exposed to operational risk. Fair value of derivatives and other financial instruments The fair values of financial instruments that are not traded in an active Operational risk in the subsidiaries is currently documented in market are determined using varying valuation techniques. The Group connection with work relating to compliance with the regulations on considers, and chooses, techniques and assumptions reflecting market risk management and internal control. The work undertaken in conditions on the balance sheet date as closely as possible. For a connection with risk reporting is primarily documented through the number of financial assets classified as available for sale yet not traded annual ICAAP report, and at the same time an annual internal control in an active market, the Group has used discounted future cash flows for report which is approved by management is also presented. Databases valuation. The valuations require a high degree of judgement. When for managing and following up measures in connection with reports assessing whether fair value is lower than cost, the Group takes into from the Financial Supervisory Authority of Norway, internal audit and consideration, among other factors, the future prospects in the relevant internal control have been implemented. industry, the company’s financial position and technological develop- ment. In addition, SpareBank 1 Gruppen Group has a separate compliance function in the parent company, while the subsidiaries also have a Investment properties compliance function. The compliance forum meets regularly at the The insurance companies in SpareBank 1 have large property investment Group level, and is attended by the compliance manager in each of the portfolios. Most of the properties are organised as their own limited companies. The work on compliance shall ensure that SpareBank 1 companies. Properties in subsidiaries and associated companies are Gruppen Group complies with and adheres to the relevant laws and assessed individually using the company's internal valuation model by regulations, industry standards and internal guidelines. The work discounting estimated future net cash flows by the required rate of also encompasses the task of monitoring developments in the areas, and return for the individual investment. The required rate of return takes explaining the potential consequences of failing to follow up changes account of the level of interest rates, general risk in the property market in these areas. Compliance risk is the risk that the Group incurs public and risk specific to the individual property. The fair value calculation is sanctions, financial loss or its reputation becomes tarnished as a updated at the close of each financial year. For control purposes, result of failing to comply with and adhere to the relevant laws and external valuations are carried out for a sample of properties in the regulations, industry standards and internal guidelines. Compliance portfolio in parallel with the internal valuation. The sample consists risk is regarded as part of operational risk. Compliance is reported of a randomly selected, predefined number of properties. The sample quarterly to the Board of SpareBank 1 Gruppen AS, in accordance with subject to external valuation is rolled over for a period of 3 years. compliance templates for the Group. Deferred tax has not been calculated for unrealised changes in value Strategic and commercial risk because the properties are owned through limited companies subject Strategic and commercial risk in capital requirement calculations to the tax exemption method. However, the effect of latent tax in the has been determined on a discretionary basis to date. A process for limited companies is calculated outside the valuation model in quantifying the risk associated with this has not yet been established. connection with the valuation of shares. The latent tax in the companies SpareBank 1 Gruppen Group is working on finding parameters in often results in a discount in relation to the property value when order to calculate strategic and commercial risk in a quantitative trading such companies. Latent tax is calculated at 7% of the difference manner. between fair value and taxable value, reduced by booked deferred tax
- 36. 36 SpareBank 1 Gruppen in the company financial statements for the properties. This is in line individual insurance contract, and the calculation is done according with normal industry practice. The net effect is treated as a write-down to the Act on premiums and insurance funds in life insurance. The of the value of shares in property companies. maximum accepted basic interest rate is reviewed by the authorities considering the interest on long term government bonds. Potential Property used by the owner is revalued at fair value every year using changes in the basic interest rate will affect the size of the liabilities. the company's internal valuation model. Annual depreciation is calculated for owner-used property. An increase in carrying amount The mortality assumptions are largely based on common surveys by due to revaluation is recognised through other comprehensive income Finance Norway (FNO), while the estimates for disability are chiefly and the company portfolio's share is added to the fund for valuation based on the company's own experience. differences. Downwards adjustments of previous increases in value in the balance sheet for the same property are recognised in the same way. There are claim provisions for all products, including both reported but not settled (RBNS) and incurred but not reported (IBNR) losses. Please also refer to note 27 Investment properties. IBNR provisions and RBNS provisions are calculated using statistical methods based on the company’s own experience. Sensitivity of properties Properties are especially sensitive to the discount rate. If no other Insurance provision estimates in P&C insurance parameters change, a raise of 0.25% will reduce the values by The use of estimates in the calculation of insurance provisions for P&C approximately NOK 132 million, or approximately 3.5%. After an insurance is primarily related to claim provisions. Insurance existing tenancy expires, premises are leased out again on the current products are classified in two main groups: short-tailed business and market terms. If cash flow after expiry is reduced by 1%, the market long-tailed business. The classification is based on the time span value is reduced by approximately 0.75%. from when a loss or damage occurs until the loss or damage is reported and finally settled. Long-tailed business primarily involves Pensions insurance related to personal injuries. The net present value of pension liabilities depends on several factors as determined by actuarial assumptions. The assumptions used in The basis for the claim provisions in SpareBank 1 Skadeforsikring AS calculating net pension cost (income) include among other things, the is the expected loss from claims incurred or future claims based on discount rate. Changes in these assumptions affect the value of the reported damages. In addition to ongoing follow-up related to current pension liabilities in the balance sheet. claims, an assessment of all unsettled claims shall be performed annually. Provisions for IBNR and potential additional provisions The Group determines a suitable discount rate at the end of each related to long-tailed businesses are measured using models. year. This discount rate is used to calculate the net present value of Regression models are used as a starting point for vehicle or bodily future estimated cash out-flows needed to settle the pension liabilities. injury, occupational injury and safety. An assessment of potential The suitable discount rate is determined in reference to 10-year issues related to changes in the portfolio is also performed. For Norwegian government bonds adjusted for the average remaining short-tailed businesses, the IBNR is determined based on reviews of period of service. the experience data pertaining to the lag in the risk group during previous years, in addition to changes in the portfolio, the frequency Other pension assumptions are partly based on market conditions. of claims, major injuries and so on. A retrospective measurement is also More detailed information is given in note 48. made to assess the estimates for the claims provision against the development of the factors involved in the calculation: paid claims, Potential changes regarding expected annual increases in salaries, individual provisions for reported claims and IBNR. discount rates and so on, can have a significant impact on the calculated employee pension liabilities. The guidance note issued by Provisions for losses related to a reinsurer's bankruptcy are measured the Norwegian Accounting Standards Board specifies that changes of at net present value. The parameters in the basis of the calculation are +/- 1 % in the discount rate represent a change of 15 – 20 % in total future expected dividends, inflation and the payment status of the pension liabilities. claim. Estimated impairment of goodwill Sensitivity analysis of the asset side in the life insurance company The Group performs annual impairment tests to identify any The asset side of SpareBank 1 Livsforsikring AS is stress tested to possible impairment of goodwill (as described in note 14). The indicate what the effect on the owner's profit would be if the following recoverable amount of cash generating units is determined by scenarios were to occur: 20% fall in equity markets, 1.5% increase in calculating discounted future cash flows. These calculations require interest rates and 12% fall in property market. These stress factors estimates consistent with the Group's market valuation. match the stress factors in Stress Test II for equivalent risks. The stress test scenarios were calculated as of 31 December 2011. Insurance provision estimates in life insurance Insurance provisions in life insurance are based on factors such as life Scenario Impairment NOK million expectancy, expectations of mortality rate, disability rate, and interest rates. Changes in such assumptions affect the size of the insurance Fall in equity markets (-20%) 423 provisions. The premium provision is calculated as the cash value of Climbing interest rates (+1.5%) 233 the company’s liabilities less the cash value of future premiums. Fall in property values (-12%) 450 The basic interest rate used in the calculation that valid for the
- 37. 37 NOTE 5 –CHANGES IN GROUP STRUCTURE 2011 Skandia Helseforsikring In January 2010, SpareBank 1 Skadeforsikring AS acquired Skandia Lifeline Norway's entire health insurance business from Skandia Insurance Company Ltd. The agreement was contingent upon the necessary approvals being granted by the Norwegian and Swedish authorities. These approvals were granted in October 2010. For practical purposes, the takeover date was set as 1 November 2010. The acquisition analysis had not been completed as of 31 December 2010 and Skandia was included in the financial statements of SpareBank 1 Skadeforsikring AS for 2010 with preliminary figures. At year-end 2010, the taken over health insurance business had been integrated into SpareBank 1 Skadeforsikring AS's existing portfolio. The taken over business sells health insurance to corporate customers and retail customers. The health insurance guarantees treatment within a given timeframe for specified illnesses and injuries. SpareBank 1 Skadeforsikring AS bought the business because it wants to focus on a growing segment in the Norwegian insurance market. The acquisition provides SpareBank 1 Skadeforsikring AS with a share of the health insurance market, and SpareBank 1 Skadeforsikring AS's distributors will be able to offer health insurance on a equal footing with SpareBank 1 Skadeforsikring AS's other insurance cover. The acquisition was finally completed in April 2011. The acquisition is a transfer of business regulated by IFRS 3R. The acquisition cost is stated at the fair value of the assets transferred as remuneration. Identified assets and liabilities are recognised at their fair value on the acquisition date. The final acquisition analyses indicated the following fair values for identified assets and liabilities: Book value Book value reclassified Fair value Fair value NOK 1,000 01.11.10 01.01.11 01.01.11 adjustments Statistics and products - - 3,318.0 3,318.0 Goodwill - - -10,476.3 -10,476.3 Trade receivables 1,247.3 1,247.3 1,247.3 - IT 21.0 - - - Art 20.8 - - - Cash and cash equivalents 29,502.2 29,502.2 29,502.2 - Total assets 30,791.3 30,749.5 23,591.2 -7,158.3 Premium reserve additions - 5,000.0 - -5,000.0 Claim processing costs - 3,200.0 - -3,200.0 Other equity - -41.7 - 41.7 Cost price - - 1,000.0 1,000.0 Total equity - 8,158.3 1,000.0 -7,158.3 Provisions - personnel 509.8 509.8 509.8 - Other liabilities 218.9 218.9 218.9 - Premium reserve 13,687.3 8,687.3 8,687.3 - Claim provisions 16,375.2 13,175.2 13,175.2 - Total equity and liabilities 30,791.2 30,749.5 23,591.2 -7,158.3 The negative goodwill is primarily a result of a favourable acquisition, i.e. the value of the identifiable assets and liabilities exceeds the total remuneration. According to the revised IFRS 3.34, negative goodwill should be recognised as income on the day of the takeover. The final acquisition analysis was completed in April 2011 and negative goodwill of NOK 10.5 million was recognised as income in the consolidated financial statements under «Other operating income». The health insurance business contributed the following figures in the consolidated financial statements: NOK 1,000 2011 Gross premiums 33,517 Premiums earned for own account 32,853 Pre-tax profit -3,363 Total profit -2,421 Costs totalling NOK 1.55 million associated with the takeover were recognised as costs. Of this, NOK 1.26 million was recognised as costs in 2010. Acquisition of SB Securities LLP SB Securities LLP was acquired by SpareBank 1 Markets AS in 2011. The acquisition method is used when accounting for acquisitions of subsidiaries in the consolidated financial statements. The acquisition cost is stated at the fair value of the assets transferred as remuneration. Identified assets and liabilities are recognised at their fair value on the acquisition date. The company was consolidated with effect from 3 June 2011. The company's offices are at 1 Bow Churchyard in London, and it is a securities company that primarily focuses on Nordic equities. The company was established in July 2008 under the name US Securities London LLP. As a result of the acquisition its name was changed to SB Securities LLP on 16 August 2011. The company had 4 employees as off 31 December 2011, and 2 new employees joined on 1 January 2012. The value in the company lies in its established organisation and human capital, as well as the network of customer relationships it has built up within the institution segment in London. There are no identifiable assets pursuant to IFRS 3R, and the entire difference between identifiable assets and the purchase price is therefore recognised as goodwill.
- 38. 38 SpareBank 1 Gruppen Ownership Currency 1,000 Date NOK GBP interest Price Cost price on acquisition date 03.06.2011 9,000 1,024 99.9% 8.7848 Identifiable assets (99.9%) 03.06.2011 179 20 99.9% 8.7848 Goodwill on acquisition date 1,004 Goodwill 31.12.2011 9,321 1,004 9.2829 SpareBank 1 Markets AS holds the following book value of shares in SB Securities LLP as of 31 December 2011. Ownership Currency 1,000 Date NOK GBP interest Price Cost price of shares 03.06.2011 9,000 1,024 99.9% 8.7848 Share issue 12.12.2011 2,711 300 99.9% 9.0372 Book value of shares 31.12.2011 11,711 1,324 2010 Unison Forsikring AS SpareBank 1 Skadeforsikring AS acquired all the shares in Unison Forsikring AS in 2010. On 9 june 2010, SpareBank 1 Skadeforsikring AS submitted a bid for all the shares and by the end of the month it had received the advance acceptance of more than 95% of the then current shareholders. In July 2010, a private placement was carried out by Unison Forsikring AS towards SpareBank 1 Skadeforsikring AS worth NOK 150 million. Unison Forsikring AS was consolidated from 1 July 2010, despite the transaction date being 19 July 2010. Unison Forsikring AS is a Norwegian P&C insurance company that offers cover to retail customers, organisations and companies. The company develops bespoke solutions for organisations and associations, and, via them, their members. SpareBank 1 Skadeforsikring AS's expressed strategy is to strengthen its presence in new distribution channels and it therefore wants Unison Forsikring AS to act as the company's extended arm into the market outside the bank and Norwegian Confederation of Trade Unions (LO). Unison Forsikring AS shall also, as a subsidiary of SpareBank 1 Skadeforsikring AS, operate as an independent unit in the market. The acquisition is a transfer of business regulated by IFRS 3R. The acquisition method is used when accounting for acquisitions of subsidiaries in the consolidated financial statements. The acquisition cost is stated at the fair value of the assets transferred as remuneration. Identified assets and liabilities are recognised at their fair value on the acquisition date. The acquisition costs of the shares in Unison Forsikring AS was NOK 56.4 million. The final acquisition analyses indicated the following fair values for identified assets and liabilities: Book value Fair value Fair value Million NOK 30.06.10 30.06.10 adjustments Customer relationships - 14.0 14.0 Goodwill - -117.9 -117.9 Intangible assets 8.6 8.6 - Financial assets 283.2 283.2 - Reinsurer's share of gross unearned premium 33.0 33.0 - Reinsurer's share of gross claim provisions 366.6 366.6 - Receivables policyholders 79.1 79.1 - Receivables in connection with reinsurance 44.7 44.7 - Other receivables 1.1 1.1 - Other assets 78.4 78.4 - Deferred tax asset 16.9 130.0 113.1 Total assets 911.6 920.8 9.2 Share capital 56.4 - - Administrative provisions 10.9 - - Provisions for natural disaster fund 5.6 - - Provisions for guarantees 8.2 - - Security provisions 40.3 - - Other retained earnings -53.8 - - Total equity 67.7 56.4 -11.3 Deferred tax 25.4 22.8 -2.6 Provisions for unearned premiums 122.7 122.7 - Gross claim provisions 635.2 635.2 - Pension liabilities 13.2 15.0 1.8 Liabilities in connection with reinsurance 30.8 30.8 - Administrative provisions for run-off portfolio - 6.3 6.3 Liability reinsurance contract (MYML) - 15.0 15.0 Other liabilities 16.6 16.6 - Total equity and liabilities 911.6 920.8 9.2 The negative goodwill is primarily a result of tax losses carried forward in Unison Forsikring AS amounting to approximately NOK 400 million. According to the revised IFRS 3.34, negative goodwill should be recognised as income on the day of the takeover. The final acquisition analysis was completed in November 2010 and negative goodwill of NOK 117.9 million was at that time recognised as income in the consolidated financial statements under «Other operating income».
- 39. 39 The following figureswere included from Unison Forsikring AS in the consolidated financial statements for 2010 after the acquisition on 1 July: NOK 1,000 2010 Gross premiums 116,765 Premiums earned for own account 105,771 Pre-tax profit -19,489 Other comprehensive income -1,876 Total profit -21,365 If the takeover date had been 1 January 2010, SpareBank 1 Gruppen's consolidated financial statements would have shown the following figures: NOK 1,000 2010 Gross premiums 4,899,795 Premiums earned for own account 39,546 Pre-tax profit 620,936 Other comprehensive income -63,377 Total profit 502,002 A total of NOK 13.5 million was recognised as costs in the Group in 2010 in connection with the takeover: NOK 6.2 million in SpareBank 1 Skadeforsikring AS and NOK 7.3 million in Unison Forsikring AS. Of the NOK 7.3 million in Unison Forsikring AS, NOK 2.5 million concerned the private placement towards SpareBank 1 Skadeforsikring AS, which could not be activated pursuant to IAS 39 because of negotiations concerning the size of the amount. Skandia Helseforsikring In January 2010, SpareBank 1 Skadeforsikring AS announced it had acquired Skandia Lifeline Norway's entire health insurance business from Skandia Insurance Company Ltd. The agreement was contingent upon the necessary approvals being granted by the Norwegian and Swedish supervisory authorities. Approval of the transaction was granted in November 2010. The taken over health insurance business was integrated into SpareBank 1 Skadeforsikring AS's existing portfolio in 2010. The acquisition analysis had not been completed as of 31 December 2010. Therefore, Skandia was included in the financial statements of SpareBank 1 Skadeforsikring AS for 2010 with preliminary figures. The acquisition cost of the business was NOK 1 million. Conecto AS SpareBank 1 Factoring AS, Actor Portefølje AS and SpareBank 1 Gruppen Finans Holding AS merged with effect from 1 January 2010. The new company took the name SpareBank 1 Gruppen Finans AS. SpareBank 1 Gruppen Finans AS entered into an agreement to purchase the company Conecto AS in June 2010. The payment for the company included a combination of cash and an earn-out agreement on with the sellers. Earn-outs are mainly related to the company's future earnings performance. The aim of the acquisition was to create an operator that is among the three largest in Norway’s debt market. Conecto AS was taken over on 9 September 2010 with effective consolidation into SpareBank 1 Gruppen group from that date. A preliminary acquisition analysis in accordance with IFRS 3R has been made as a basis for the annual accounts for 31 December 2010. A review would be conducted within Q3 2011, which is within the 12 month period after the acquisition date pursuant to IFRS 3R. Identified assets and liabilities are recognised at their fair value on the acquisition date. The cost of the shares, with the assumptions concerning future earn-out, is estimated to be NOK 154.8 million. In addition to the identified value, the company also acquired human capital. A business organisation is a non-identifiable asset under IAS 38 and may therefore not be recorded as such. This is clearly evident in the comments about start-up costs in IAS 38 paragraph 69. There is a long-standing and clear practice that the values inherent in an established organisation are mainly regarded as goodwill in a business combination. Please refer to the identified value in the table below for our preliminary acquisition analysis. Calculations based on fair values NOK 1,000 2010 Acquisition cost 130 000 Correction based on uncertainty at acquisition date -7 391 Interest until payment date 690 Estimation on earn out 31 535 Estimated total acquisition cost per 31.12.2010 154 834 Equity on acquisition time 17 859 SpareBank 1 Gruppen Finans shares on 100% basis -17 859 Excess value: Brand 5 629 Customer relationships 32 096 Technology, processes and routines 4 808 -42 173 Deferred taxes 11 808 Acquisition goodwill 106 611 -which «Assembled Workforce» 13 607 Identified Excess Value 42 173 Total Goodwill and Excess Value 148 784
- 40. 40 SpareBank 1 Gruppen The final acquisition analyses indicated the following fair values for identified assets and liabilities: Oversikt over virkelig verdi justeringer Book Fair Fair Fair Value Value Value verdi incl. NOK 1,000 09.09.10 09.09.10 adjustment Def. tax Research & Development 1) 8 264 - -8 264 - Deferred tax asset 230 230 - 230 Brand 1) - 5 269 5 269 5 269 Technology, process and routines 1) - 13 072 13 072 13 072 Customer relationships 1) - 32 096 32 096 32 096 Goodwill 2) - 81 196 93 004 93 004 Assembled workforce (part of goodwill) 2) - 13 607 13 607 13 607 Furniture and fixtures 2 395 2 395 - 2 395 Account receivables 9 536 9 536 - 9 536 Other receivables 2 493 2 493 - 2 493 Cash part of working capital 13 444 13 444 - 13 444 Excess cash 6 430 6 430 - 6 430 Total Assets 42 792 179 768 148 784 191 576 Equity 3) 17 858 154 834 136 976 154 834 Debt to financial institutions 8 096 8 096 - 8 096 Account payable 3 704 3 704 - 3 704 Payable tax 4 292 4 292 - 4 292 Public debt 5 514 5 514 - 5 514 Deferred tax liability - - 11 808 11808 Other short term liabilities 3 328 3 328 - 3 328 Total shareholders equity and libabilities 42 792 179 768 148 784 191 576 1) Total Excess values er NOK 42,173 thousand. 2) Goodwill is NOK 106,611 thousand. 3) NOK 154,834 thousand under the Fair Value column is the acquisition cost for Conecto AS. SpareBank 1 Gruppen Group has consolidated Conecto AS's results from and including 9 September 2010. The result from 9 September 2010 to 31 December 2010 was a loss of NOK 3.7 million before tax. If the takeover date had been 1 January 2010, the consolidated financial statements would have shown the following figures: NOK 1,000 2010 Total income 86 636 Total expenses -78 156 Net operating income 8 481 Profit before tax 8 487 Tax -2 238 Profit after tax 6 249
- 41. NOTE 6 –SEGMENT INFORMATION Debt collections of old claims and factoring Life insurance P&C insurance Fund management Brokering business business Other operations Eliminations Total NOK 1,000 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 Total income 1) 3 735 761 5 240 876 4 629 528 4 437 243 295 722 307 431 86 271 84 264 225 584 172 207 626 426 626 109 -628 455 -611 057 8 970 838 10 257 073 Segment result 442 537 363 002 185 321 641 144 21 842 64 628 -154 793 -57 562 27 875 8 600 490 520 566 598 -626 163 -601 277 387 139 985 133 Net profit for the period 531 041 299 159 90 699 581 054 14 782 45 325 -113 117 -40 765 19 076 4 311 443 851 454 275 -460 537 -511 813 525 795 831 547 Minority interests share of the profit - - - - - - -4 110 -9 478 - - - - - - -4 110 -9 478 Assets per segment 26 607 066 26 482 903 13 265 200 12 096 732 223 200 299 213 507 089 301 923 997 598 911 153 5 894 272 5 315 966 -5 505 285 -4 807 345 41 989 140 40 600 545 Total liabilities 23 970 633 24 219 954 9 889 606 8 691 961 74 139 103 426 360 046 212 321 604 109 501 482 2 707 727 2 543 527 -559 481 -480 939 37 046 779 35 791 732 1) Costs directly related to income are included. Operating segments are reported differently in the note than in the Board of Directors' Report. In the Board of Directors' Report the segments are reported in the same way as for internal reports to the Group's Board. These segments are reported in the note in the same way that they are accounted for under IFRS. 41
- 42. 42 SpareBank 1 Gruppen NOTE 7 – NET INSURANCE PREMIUM REVENUE SpareBank 1 SpareBank 1 Livforsikring AS Skadeforsikring Group Group NOK 1,000 2011 2010 2011 2010 2011 2010 Gross premium income 3 986 259 3 646 233 5 140 040 4 567 608 9 126 299 8 213 841 - reinsurers' share 160 365 152 037 444 113 383 179 604 478 535 217 Total net premium income for own account 3 825 894 3 494 196 4 695 927 4 184 429 8 521 821 7 678 624 LIFE INSURANCE The distribution of SpareBank 1 Livsforsikring AS's earned premium income from different business is as follows: Ind. Annuity Individual Group Individual Group NOK 1,000 and pension endowment pension life life Total Gross premium income 2011 375 589 776 182 2 030 465 199 576 604 446 3 986 258 of which new subscriptions: 89 613 126 473 74 388 31 418 13 284 335 176 Gross premium income 2010 388 633 760 182 1 725 561 184 145 587 710 3 646 233 of which new subscriptions: 86 668 150 209 47 353 29 940 7 589 321 759 P&C INSURANCE The distribution of SpareBank 1 Skadeforsikring Group's earned premium income from different product categories is as follows: Retail lines of which Total Onshore third party Travel Personal NOK 1,000 property Motor liability Yacht Accident insurance Other Lines Earned premium 2011 1 728 618 1 689 545 722 845 73 383 161 269 327 344 21 979 4 002 139 Earned premium 2010 1 579 951 1 500 805 627 641 66 572 155 053 294 957 21 611 3 618 949 Corporate lines Onshore Onshore of which Workmen's Total property property third party compen- Commercial NOK 1,000 insdustrial commercial Motor liability Liability sation Safety Other Lines Earned premium 2011 10 766 368 459 272 380 89 179 51 256 162 177 89 040 60 413 1 014 491 Earned premium 2010 11 180 329 163 227 627 68 679 24 969 126 620 68 054 30 650 818 263 Other Lines Total Total Energy/ Re- Natural Other NOK 1,000 Marine oil insurance perils tool Lines Earned premium 2011 - - 59 123 350 123 410 Earned premium 2010 1 068 -7 52 129 283 130 396 NOTE 8 – NET COMMISSIONS Group NOK 1,000 2011 2010 Commissions Management fees 540 905 566 418 Guarantee commissions 13 545 15 060 Other commissions 145 330 134 027 Total commissions 699 780 715 505 Commission costs Distributor commissions paid 921 900 845 299 Other commission costs 2 956 906 Total commission costs 924 856 846 205 Total net commissions -225 075 -130 700
- 43. 43 NOTE 9 –GAINS AND LOSSES FROM FINANCIAL ASSETS AND LIABILITIES Parent company Group 2011 2010 NOK 1,000 2011 2010 Net income from financial instruments at fair value through the profit or loss Equities and units - - Dividends from equities and units 35 349 13 289 - - Net gains from realisation of equities 170 408 151 972 - - Net unrealised gains/losses from equities and units -1 056 847 909 494 - - Total net gains/losses from equities and units -851 090 1 074 754 Bonds and commercial paper - - Interest received and earned 380 378 248 515 - - Net gains/losses from realisation of fixed income securities 138 510 217 949 - - Net unrealised gains/losses from fixed income securities -11 627 31 066 Total net income from bonds, commercial paper, interest - - funds and other fixed income securities 507 262 497 530 Other financial instruments - - Interest received and earned 124 384 1 348 640 -1 310 Net gains/losses from realisation of derivatives and other financial assets 61 256 -36 600 - - Net unrealised gains/losses from derivatives and other financial assets -91 923 10 234 640 -1 310 Total derivatives and other financial assets 93 717 -25 018 Net income and gains/losses from financial instruments at fair 640 -1 310 value through the profit or loss -250 111 1 547 267 Net income from bonds stated at amortised cost - - Interest received and earned from bonds held to maturity 236 612 252 498 - - Net gains/losses from realisation of bonds held to maturity 6 365 6 757 - - Net income from bonds held to maturity 242 977 259 255 - - Interest received and earned from other bonds at amortised cost 52 427 38 310 - - Net unrealised gains/losses from other bonds at amortised cost -1 178 35 327 - - Net gains/losses from realisation of other bonds at amortised cost -4 202 1 412 - - Net income and gains/losses from bonds at amortised cost 47 046 75 049 Net income from securities available for sale - 3 641 Dividends from equities 622 12 993 - - Net gains from realisation of equities - 17 603 - 3 641 Net income and gains/losses from securities available for sale 622 30 596 Income from lending and receivables Interest income from lending to customers and deposits 1 951 1 881 with financial institutions 58 941 58 408 16 001 4 709 Interest income from bank deposits 77 109 40 052 - - Interest income from other receivables 2 243 -14 5 903 9 330 Interest income from internal loans - - 23 856 15 920 Total interest income from lending and receivables 138 293 98 447 Costs from financial liabilities Interest costs from deposits from customers and liabilities -16 370 -9 509 to financial institutions -30 170 -17 748 -48 103 -24 624 Interest costs from securities issued -48 103 -24 624 -22 285 -27 289 Interest costs from subordinated loans -32 919 -37 864 - - Interest costs from other financial liabilities -451 -4 961 -86 758 -61 422 Total interest costs from financial liabilities -111 643 -85 196
- 44. 44 SpareBank 1 Gruppen NOTE 10 – NET INVESTMENT PROPERTIES INCOME Group NOK 1,000 2011 2010 Lease income from investment properties 323 309 320 724 Revision of investment property values -29 352 148 187 Costs from investment properties1) -30 953 -69 501 Total net income from investment properties1) 263 003 399 410 Also see Note 27 «Investment properties» for further information. 1) Direct operating costs (incl. maintenance costs) that stem from investment properties that do not generate lease income amounted to NOK 6.4 million in 2011. NOTE 11 – OTHER OPERATING INCOME Parent company Group 2011 2010 NOK 1,000 2011 2010 - - Management of LOfavør concept 58 480 62 227 - - Brokerage fee 36 038 37 384 - - Income from debt capital 14 969 16 644 - - Remuneration Corporate Finance 29 588 18 184 - - Sundry income life insurance 23 589 24 405 - - Income from debt collection business 146 621 96 788 - - Actuarial calculations - 4 - - Acquisition of Unison Forsikring AS resulted in negative goodwill - 117 900 - - Late payment charges 1 747 2 040 - 4 Other 29 942 8 745 - 4 Total other operating income 340 974 384 321 NOTE 12 – OPERATING EXPENSES Parent company Group 2011 2010 NOK 1,000 2011 2010 44 047 52 481 Employee compensation and benefit expenses 988 670 831 543 -1 391 -429 IT costs 258 582 286 132 2 929 640 Marketing 153 059 144 485 15 969 -78 649 Other operating costs1) 601 379 412 013 61 554 -25 957 Total operating costs 2 001 689 1 674 173 Remuneration to auditor 523 511 Statutory auditing 3 261 3 791 154 28 Other certification services 469 468 272 16 Tax advice 1 084 276 - 346 Other services 295 863 Remuneration to auditor includes VAT Personnel costs 158 029 166 980 Salaries 664 077 645 092 27 518 25 699 Employer's NI contributions 146 049 122 160 22 597 -1 475 Pension costs 82 301 -9 159 -178 006 -151 588 Refund salaries, pensions subsidiaries - - 3 225 2 805 Social costs 44 823 46 467 10 684 10 060 Other personnel costs 51 420 26 983 44 047 52 481 Total personnel costs 988 670 831 543 Specification of pension costs 8 631 8 499 Defined contribution plans 37 106 31 365 13 966 -9 974 Defined benefit plans 45 195 -40 524 22 597 -1 475 Total pension costs 82 301 -9 159 1) In 2010 SpareBank 1 Gruppen AS also entered as income a repayment of NOK 43,664 thoousand related to payroll tax which were earlier covered by the company on behalf of First Securities AS.
- 45. 45 NOTE 13 –SHAREHOLDER STRUCTURE Shareholder structure in SpareBank 1 Gruppen AS as of 31 December 2011: Number Ownership of shares interest SpareBank 1 Nord-Norge 364 728 19.50 % SpareBank 1 SMN 364 728 19.50 % SpareBank 1 SR-Bank 364 728 19.50 % Samarbeidende Sparebanker AS 364 728 19.50 % Sparebanken Hedmark 224 448 12.00 % Norwegian Confederation of Trade Unions (LO)/affiliated unions 187 040 10.00 % Total number of shares 1 870 400 100 % The nominal value of the share is NOK 1,000. Voting rights match ownership interest. Shareholder structure in SpareBank 1 Gruppen AS as of 31 December 2010: Number Ownership of shares interest SpareBank 1 Nord-Norge 347 568 19.50 % SpareBank 1 SMN 347 568 19.50 % SpareBank 1 SR-Bank 347 568 19.50 % Samarbeidende Sparebanker AS 347 568 19.50 % Sparebanken Hedmark 213 888 12.00 % Norwegian Confederation of Trade Unions (LO)/affiliated unions 178 240 10.00 % Total number of shares 1 782 400 100 % The nominal value of the share is NOK 1,000. Voting rights match ownership interest. 2011 2010 Dividend paid per share 232 247 NOTE 14 – GOODWILL 2011 2011 2011 2010 NOK 1,000 Cost Additions Impairment Book Value Book value Goodwill from acquisition of SpareBank 1 Livsforsikring AS 378 656 - - 199 953 199 953 Goodwill from acquisition of 49% of ODIN Forvaltning AS 158 263 - - 79 131 79 131 Goodwill ODIN from acquisition of Rahastotori/Fondex 50 060 - - 49 896 49 896 Goodwill from acquisition of SpareBank 1 Skadeforsikring AS 553 616 - - 264 003 264 003 Goodwill from acquisition of SpareBank 1 Gruppen Finans AS 10 245 - - 10 245 10 245 Goodwill from acquisition of SpareBank 1 Markets AS 42 709 - - 42 709 42 709 Goodwill from acquisition of SB Securities LLP - 9 321 - 9 321 - Goodwill from acquisition of Conecto AS 204 882 1 000 - 205 882 204 882 Total goodwill 1 398 431 10 321 - 861 140 850 819 Conecto AS and Actor Fordringsforvaltning AS merged as of 1 January 2011. The additions in 2011 to Conecto AS of NOK 1 million are linked to paid earn-out in 2011. When acquiring control in a business (business merger) all identifiable assets and liabilities are recorded at fair value in accordance with IFRS 3R. A positive difference between the fair value of the acquisition price and fair value of net identifiable assets and liabilities is recorded as goodwill, while a negative difference would be recorded as income at the time of the acquisition. Goodwill is acquired when there is a difference between the fair value of the acquisition price when acquiring a business and the fair value of net identifiable assets and liabilities. Goodwill is assumed to have an indefinite useful life. Company acquisitions are, in part, based on factors such as strategic adaptation and expected economic profitability over a long time period. Goodwill is allocated to cash generating units. Goodwill is not subject to amortisation, but is subject to annual impairment testing with the purpose of identifying any indications that impairment may have occurred, in accordance with IAS 36. Determination of recoverable amount: Cash flow forecasts (before tax) based on 5 year projections are used. The recoverable amount on the balance sheet date is assessed annually for goodwill with an indefinite useful life. The value of each of the cash generating units was assessed as of 31 December 2011. In determining the recoverable amount of cash generating units, SpareBank 1 Gruppen takes into account the pricing of comparable financial institutions (taking into consideration companies that have performed better than market expectations for the past few years), dividend policies, SpareBank 1 Gruppen's ownership structure, and the distributors of insurance products. For SpareBank 1 Gruppen, there will be a considerable variation in the values depending on whether the value assessments are based on a going concern assumption or as part of a transaction of structure. The value assessments results in three scenarios; a pessimistic value, an expected value and an optimistic value. The calculated value is significantly higher than the book value, and the analysis indicates no sign of impairment. For SpareBank 1 Markets AS, a valuation has been performed based on expected cash flows for the company in the period 2012 - 2015, with a calculated residual value of the company at the end of the period. The calculation is sensitive with regard to the level of expected cash flows and the hurdle rate. The calculation uses a hurdle rate of 12%. Based on these assumptions, the calculated value of the company is NOK 360 million. The sensitivity related to the given assumptions are as follows: +/- 10% change in net cash flow = +/- NOK 50 million in value +/- 1% change in required rate of return = +/- NOK 166 million in value
- 46. 46 SpareBank 1 Gruppen NOTE 15 – OTHER INTANGIBLE ASSETS IT Self-developed Insurance systems insurance systems under NOK 1,000 in use Licences systems development Group1) Total Acquisition cost as of 1.1.20112) 99 254 45 101 13 848 15 927 81 173 255 303 Correction acquisition cost OB 1.1.2011 537 -1 - 8 525 - 9 061 Revised acquisition cost 1.1.2011 99 791 45 100 13 848 24 452 81 173 264 364 Additions 20 087 27 051 21 366 51 364 3 718 123 586 Of which developed internally 257 - 21 366 - - 21 623 Of which bought separately 19 830 27 051 - 51 364 - 98 245 Of which intangible assets upon acquisition - - - - 3 718 3 718 Disposals - - - - Acquisition cost as of 31.12.2011 119 878 72 151 35 214 75 816 84 891 387 950 Accumulated depreciation and amortisation as of 1.1.2011 66 099 21 184 - - 21 136 108 419 Correction OB depreciation and amortisation as of 1.1.2011 8 069 1 - 993 - 9 063 Revised depreciation and amortisation as of 1.1.2011 74 168 21 185 - 993 21 136 117 482 Year's depreciation 11 182 11 243 - 1 568 12 368 36 361 Year's amortisation - - - - - - Disposals depreciation and amortisation - 123 - - - 123 Accumulated depreciation and amortisation as of 31.12.2011 85 350 32 551 - 2 561 33 504 153 966 Translation differences - - - - - Carrying amount as of 31.12.2011 34 528 39 600 35 214 73 255 51 387 233 984 Useful life and straight line depreciation method 3 - 5 years 5-7 years 10 years 5 years 1) Concerns goodwill in the consolidated financial statements in connection with the acquisition of Actor Fordringsforvaltning AS and Conecto AS linked to brands, software and customer relationships. SpareBank 1 Skadeforsikring AS also has goodwill linked to customer relationships. 2) Adjusted OB for acquisition cost and accumulated depreciation in SpareBank 1 Skadeforsikring AS and SpareBank 1 Livsforsikring AS. OB is corrected by NOK 3,950 thousand from the note for 2010, cf. note 54. IT Self-developed Insurance systems insurance systems under NOK 1,000 in use Licences systems development Group1) Total Acquisition cost as of 1.1.2010 147 091 26 316 - - 42 985 216 392 Additions 15 174 18 798 13 848 15 927 56 173 119 920 Of which developed internally - - - - - - Of which bought separately - - - - - - Of which intangible assets upon acquisition 8 600 - - - 14 000 22 600 Disposals -63 011 - - - -17 985 -80 996 Translation differences - -13 - - - -13 Acquisition cost as of 31.12.2010 99 254 45 101 13 848 15 927 81 173 255 303 Accumulated depreciation and amortisation as of 1.1.2010 109 175 15 332 - - 27 993 152 500 Year's depreciation 9 143 5 855 - - 6 663 21 661 Year's amortisation 10 792 - - - - 10 792 Disposals depreciation and amortisation -63 011 - - - -13 520 -76 531 Accumulated depreciation and amortisation as of 31.12.2010 66 099 21 184 - - 21 136 108 419 Translation differences - -3 - - - -3 Carrying amount as of 31.12.2010 33 155 23 917 13 848 15 927 60 037 146 883 Useful life and straight line depreciation method 3 - 5 years 5-7 years 10 years 5 years 1) Concerns goodwill in the consolidated financial statements in connection with the acquisition of Actor Fordringsforvaltning AS and Conecto AS linked to brands, software and customer relationships. SpareBank 1 Skadeforsikring AS also has goodwill linked to customer relationships.
- 47. 47 NOTE 16 –INVESTMENTS IN SUBSIDIARIES 2011 NOK 1,000 Business Ownership Nominal value Book Companies office share (%) Share capital per share value SpareBank 1 Livsforsikring AS Oslo 100 348 400 200 2 797 997 SpareBank 1 Skadeforsikring AS Oslo 100 132 000 100 1 266 034 SpareBank 1 Medlemskort AS Oslo 100 150 50 1 600 Sparebankutvikling AS Oslo 100 100 1 000 100 Odin Forvaltning AS Oslo 100 9 238 1 000 176 045 SpareBank 1 Gruppen Finans AS Oslo 100 212 200 1 000 389 699 SpareBank 1 Markets AS (formerly Argo Securities AS)1) Oslo 97,22 60 000 1 000 353 719 Total investments in subsidiaries 4 985 194 SpareBank 1 Gruppen AS increased its ownership interest in SpareBank 1 Markets AS in 2011 from 76.75% to 97.22%. 2010 NOK 1,000 Business Ownership Nominal value Book Companies office share (%) Share capital per share value SpareBank 1 Livsforsikring AS Oslo 100 348 400 200 2 637 396 SpareBank 1 Skadeforsikring AS Oslo 100 132 000 100 1 100 000 SpareBank 1 Medlemskort AS Oslo 100 150 50 1 600 Sparebankutvikling AS Oslo 100 100 1 000 100 Odin Forvaltning AS Oslo 100 9 238 1 000 176 045 SpareBank 1 Gruppen Finans AS Oslo 100 212 200 1 000 389 699 SpareBank 1 Markets AS (formerly Argo Securities AS)1) Oslo 76,75 20 000 1 000 164 851 Total investments in subsidiaries 4 469 691 SpareBank 1 Gruppen Finans Holding AS was the parent company of SpareBank 1 Factoring AS, Actor Portefølje AS and Actor Fordringsforvaltning AS. Actor Portefølje AS owned in turn Actor Verdigjenvinning AS. In 2010, SpareBank 1 Gruppen Finans Holding AS and Actor Portefølje AS merged with SpareBank 1 Factoring AS. SpareBank 1 Factoring AS was the acquiring company. The acquiring company changed its name to SpareBank 1 Gruppen Finans AS at the same time. Actor Verdigjenvinning AS merged with Actor Fordringsforvaltning AS by transferring all of its assets, rights and obligations to the latter. 1) A shareholder agreement exists between SpareBank 1 Gruppen AS and employee shareholders. The shareholders in the company have pre-emptive rights when capital increases are carried out in line with the principles in the Limited Liability Companies Act. NOTE 17 – INVESTMENTS IN ASSOCIATES AND JOINT VENTURES Allianse- samarbeidet Total owner- 2011 SpareBank 1 ship interest DA in joint NOK 1,000 10,00 % ventures As of 1.1 9 010 9 010 Correction of OB 987 987 Share of profit/loss 150 150 As of 31.12 10 147 10 147 Voting rights match ownership interest. The Alliansesamarbeidet SpareBank 1 DA's registered office is in Oslo. Allianse- samarbeidet SpareBank 1 Total owner- 2010 SpareBank 1 Boligkreditt ship interest DA AS in joint NOK 1,000 10,00 % 2,81 % ventures As of 1.1 16 862 103 692 120 554 Increase/reduction in ownership interest -7 853 -103 692 -111 545 Correction of OB 1 137 - 1 137 Share of profit/loss previous years -1 137 - -1 137 As of 31.12 9 010 - 9 010 SpareBank 1 Boligkreditt AS is no longer a SpareBank 1 Gruppen joint venture since it was Bank 1 Oslo AS that had the ownership interest in the company. Voting rights match ownership interest. Alliansesamarbeidet SpareBank 1 DA's registered office is in Oslo.
- 48. 48 SpareBank 1 Gruppen Financial information about joint ventures Allianse- 2011 samarbeidet SpareBank 1 NOK 1,000 DA Assets 547 584 Liabilities 442 118 Income 577 341 Net profit for the period 1 501 Ownership interest 10.00% Allianse- 2010 samarbeidet SpareBank 1 NOK 1,000 DA Assets 380 791 Liabilities 276 825 Income 418 517 Net profit for the period 1 500 Ownership interest 10.00% The parent company has the following receivables and liabilities with joint ventures NOK 1,000 2011 2010 Receivables Alliansesamarbeidet SpareBank 1 DA 110 165 95 454 Total receivables from joint ventures 110 165 95 454 Investments in joint ventures in the parent company SpareBank 1 Gruppen AS NOK 1,000 2011 2010 Units in Alliansesamarbeidet SpareBank 1 DA 10 147 10 147 Total equities and units in joint ventures 10 147 10 147 Units in Alliansesamarbeidet SpareBank 1 DA's are, following the changeover to IFRS, recognised at original cost and tested for impairment in the parent company's financial statements. No basis impairment was found at year-end 2011, or year-end 2010. NOTE 18 – PROPERTY, PLANT AND EQUIPMENT 2011 Parent company Group Machinery, Machinery, Buildings equipment equipment and other and vehicles NOK 1,000 and vehicles properties Total 335 632 Acquisition cost or valuation as of 1.1.2011 482 974 998 818 1 481 792 - Reclassified to investment properties - -187 041 -187 041 - Reclassified from investment properties - 1 244 1 244 107 594 Additions 139 800 519 140 319 -167 723 Disposals -178 052 -2 400 -180 452 - Year's revision of property value - -2 700 -2 700 - Translation differences 2 138 - 2 138 275 503 Acquisition cost or valuation as of 31.12.2011 446 858 808 440 1 255 298 -208 131 Accumulated depreciation and amortisation as of 1.1.2011 -303 870 -19 305 -323 175 -26 337 Year's depreciation -53 709 -182 -53 891 119 828 Year's disposals 124 477 13 426 137 903 - Year's amortisation - - - - Translation differences 8 - 8 -114 640 Accumulated depreciation and amortisation as of 31.12.2011 -233 094 -6 061 -239 155 160 863 Carrying amount as of 31.12.2011 213 764 802 379 1 016 143 Value adjustment reserve as of 31.12.2011 - Value adjustment fund -
- 49. 49 Collateral The company hasnot pledged any fixed assets as security or guarantees. Unused buildings and other real estate All the space in activated buildings is in use. 2010 Parent company Group Machinery, Machinery, Buildings equipment equipment and other and vehicles NOK 1,000 and vehicles properties Total 252 457 Acquisition cost or valuation as of 1.1.2010 519 707 414 467 934 174 87 001 Additions 102 466 808 144 910 610 -3 826 Disposals -139 558 -211 137 -350 695 - Year's revision of property value - -12 656 -12 656 - Translation differences 358 - 358 335 632 Acquisition cost or valuation as of 31.12.2010 482 973 998 818 1 481 792 175 502 Accumulated depreciation and amortisation as of 1.1.2010 383 083 16 865 399 948 33 325 Year's depreciation 54 466 4 381 58 847 -695 Year's disposals -133 926 -1 942 -135 868 - Year's amortisation - - - - Translation differences 248 - 248 208 132 Accumulated depreciation and amortisation as of 31.12.2010 303 871 19 304 323 175 127 501 Carrying amount as of 31.12.2010 179 102 979 514 1 158 617 Value adjustment reserve as of 31.12.2010 80 618 Value adjustment fund 71 454 Collateral The company has not pledged any fixed assets as security or guarantees. Unused buildings and other real estate 1% of the space in activated buildings was not in use. NOTE 19 – OTHER ASSETS Parent company Group 2011 2010 NOK 1,000 2011 2010 66 57 Accrued income 45 673 71 515 - - Prepaid costs 80 980 21 866 - - Prepaid claims SOS travel 13 186 17 035 - - Receivables management companies 118 168 - 113 471 - Receivables Alliansesamarbeidet SpareBank 1 DA 113 471 - - - Receivables linked to financial instruments1) 215 917 170 415 5 212 2 398 Trade receivables 32 664 12 801 79 102 239 922 Other receivables 72 500 307 933 4 216 974 Other 5 917 8 313 202 067 243 351 Total other assets 698 476 609 877 1) Receivables linked to securities trading in SpareBank 1 Markets AS.
- 50. 50 SpareBank 1 Gruppen NOTE 20 – CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES Group 2011 Loans and Held to Fair value Fair value Available Amortised NOK 1,000 Note receivables maturity trading FVO for sale cost Total Financial assets Cash and cash equivalents 26, 31 1 276 149 - - - - - 1 276 149 Equities and units 21, 22, 24, 31 - - 1 925 682 4 812 847 19 193 - 6 757 722 Bonds and commercial paper 21, 22, 25, 26, 31 1 368 467 4 522 630 1 037 309 16 350 251 - - 23 278 657 Other financial assets 21, 22, 31 - - 32 530 -3 196 - - 29 334 Lending to financial institutions 21, 26, 28, 31, 33 64 233 - - - - - 64 233 Lending to customers 21, 26, 28, 31, 33 610 775 - - - - - 610 775 Financial derivatives 21, 23, 31 - - 11 317 - - - 11 317 Total financial assets 3 319 624 4 522 630 3 006 838 21 159 902 19 193 - 32 028 187 Financial liabilities Subordinated loans and hybrid tier 1 capital 26, 32, 37 - - - - - 483 568 483 568 Liabilities to financial institutions 21, 26, 32, 36 - - - - - 344 392 344 392 Deposits from and liabilities to customers 21, 26, 32, 36 - - - - - 251 204 251 204 Securities issued 21, 22, 26, 32, 38 - - - 133 204 - 1 771 820 1 905 025 Financial derivatives 21, 23 - - 163 949 80 851 - - 244 800 Total financial liabilities - - 163 949 214 055 - 2 850 984 3 228 989 Group 2010 Loans and Held to Fair value Fair value Available Amortised NOK 1,000 Note receivables maturity trading FVO for sale cost Total Financial assets Cash and cash equivalents 26, 31 1 091 159 - - - - - 1 091 159 Equities and units 21, 22, 24, 31 - - 3 055 697 4 365 815 20 216 - 7 441 728 Bonds and commercial paper 21, 22, 25, 26, 31 1 249 291 4 679 131 1 123 184 14 385 756 - - 21 437 362 Other financial assets 21, 22, 31 - - 38 158 22 945 - - 61 103 Lending to financial institutions 21, 26, 28, 31, 33 95 246 - - - - - 95 246 Lending to customers 21, 26, 28, 31, 33 489 320 - - - - - 489 320 Financial derivatives 21, 23, 31 - - 130 605 - - - 130 605 Total financial assets 2 925 016 4 679 131 4 347 644 18 774 516 20 216 - 30 746 523 Financial liabilities Subordinated loans and hybrid tier 1 capital 26, 32, 37 - - - - - 848 846 848 846 Liabilities to financial institutions 21, 26, 32, 36 - - - - - 185 641 185 641 Deposits from and liabilities to customers 21, 26, 32, 36 - - - - - 348 755 348 755 Securities issued 21, 22, 26, 32, 38 - - - 134 654 - 1 242 260 1 376 914 Financial derivatives 21, 23 - - 160 265 - - - 160 265 Total financial liabilities - - 160 265 134 654 - 2 625 502 2 920 421 Parent company 2011 Loans and Held to Fair value Fair value Available Amortised NOK 1,000 Note receivables maturity trading FVO for sale cost Total Financial assets Cash and cash equivalents 26, 31 213 717 - - - - - 213 717 Equities and units 21, 22, 24, 31 - - - - 17 583 - 17 583 Lending to financial institutions21, 26, 28, 31 152 580 - - - - - 152 580 Financial derivatives 21, 23, 31 - - 2 003 - - - 2 003 Total financial assets 366 297 - 2 003 - 17 583 - 385 883 Financial liabilities Subordinated loans 26, 32, 37 - - - - - 283 568 283 568 Securities issued 21, 22, 26, 32, 38 - - - 133 204 - 1 771 820 1 905 025 Financial derivatives 21, 23 - - - - - - - Total financial liabilities - - - 133 204 - 2 055 388 2 188 593
- 51. 51 Parent company 2010 Loans and Held to Fair value Fair value Available Amortised NOK 1,000 Note receivables maturity trading FVO for sale cost Total Financial assets Cash and cash equivalents 26, 31 93 520 - - - - - 93 520 Equities and units 21, 22, 24, 31 - - - - 17 583 - 17 583 Lending to financial institutions 21, 26, 28, 31 122 580 - - - - - 122 580 Financial derivatives 21, 23, 31 - - 692 - - - 692 Total financial assets 216 100 - 692 - 17 583 - 234 375 Financial liabilities Subordinated loans 26, 32, 37 - - - - - 433 846 433 846 Securities issued 21, 22, 26, 32, 38 - - - 134 654 - 1 242 260 1 376 914 Financial derivatives 21, 23 - - - - - - - Total financial liabilities - - - 134 654 - 1 676 106 1 810 760 NOTE 21 – VALUATION HIERARCHY Group 2011 LEVEL 1 LEVEL 2 LEVEL 3 Quoted prices Valuation based Valuation in active on observable based on non- markets market observable market NOK 1,000 information information Total Securities available for sale - 591 18 602 19 193 Securities held for trading 2 961 534 11 752 22 253 2 995 538 Securities stated at fair value through profit or loss (FVO) 20 682 008 477 876 - 21 159 885 Financial derivatives 7 154 4 163 - 11 317 Total assets 23 650 696 494 382 40 855 24 185 933 Securities issued - 133 204 - 133 204 Financial derivatives 80 851 163 949 - 244 800 Total liabilities 80 851 297 153 - 378 004 Reconciliation of level 3 Investment Securities Secruities stated in securities held for at fair value available for trading throug profit NOK 1,000 sale information or loss (FVO) Financial instruments at fair value Opening balance 19 822 19 823 - Net gains/losses on financial instruments recognised in profit or loss -1 210 2 430 - Net change in value recognised in comprehensive income against equity (see change in equity) -10 - - Additions/acquisitions - - - Disposals - - - Closing balance 18 602 22 253 - Group 2010 LEVEL 1 LEVEL 2 LEVEL 3 Quoted prices Valuation based Valuation in active on observable based on non- markets market observable market NOK 1,000 information information Total Securities available for sale - 394 19 822 20 216 Securities held for trading 4 143 389 53 827 19 823 4 217 039 Securities stated at fair value through profit or loss (FVO) 17 067 315 1 707 200 - 18 774 515 Financial derivatives 126 048 4 557 - 130 605 Total assets 21 336 752 1 765 978 39 645 23 142 375 Securities issued - 134 654 - 134 654 Financial derivatives - 160 265 - 160 265 Total liabilities - 294 919 - 294 919
- 52. 52 SpareBank 1 Gruppen Reconciliation of level 3 Investment Securities Secruities stated in securities held for at fair value available for trading throug profit NOK 1,000 sale information or loss (FVO) Financial instruments at fair value Opening balance 23 844 17 876 - Net gains/losses on financial instruments recognised in profit or loss - 22 837 - Net change in value recognised in comprehensive income against equity (see change in equity) -814 - - Additions/acquisitions 2 248 - - Disposals -5 456 -20 889 - Closing balance 19 822 19 823 - Parent company 2011 LEVEL 1 LEVEL 2 LEVEL 3 Quoted prices Valuation based Valuation in active on observable based on non- markets market observable market NOK 1,000 information information Total Securities available for sale - - 17 583 17 583 Financial derivatives - 2 003 - 2 003 Total assets - 2 003 17 583 19 585 Securities issued - 133 204 - 133 204 Total liabilities - 133 204 - 133 204 Reconciliation of level 3 Investment in securities NOK 1,000 available for sale Financial instruments at fair value Opening balance 17 583 Net change in value recognised in comprehensive income against equity (see change in equity) - Additions/acquisitions - Disposals - Closing balance 17 583 Parent company 2010 LEVEL 1 LEVEL 2 LEVEL 3 Quoted prices Valuation based Valuation in active on observable based on non- markets market observable market NOK 1,000 information information Total Securities available for sale - - 17 583 17 583 Financial derivatives - 692 - 692 Total assets - 692 17 583 18 275 Securities issued - 134 654 - 134 654 Total liabilities - 134 654 - 134 654 Reconciliation of level 3 Investment in securities NOK 1,000 available for sale Financial instruments at fair value Opening balance 15 335 Net change in value recognised in comprehensive income against equity (see change in equity) - Additions/acquisitions 2 248 Disposals - Closing balance 17 583 Definition of levels used to measure financial instruments at fair value Level 1 - Valuations are arrived at based on using quoted prices in an active market for identical assets/liabilities. A financial instrument is considered quoted in an active market if the price is easily accessible from a stock exchange, trading agency, broker, industrial classification agency, valuation service or governmental institution, and these prices also represent reliable and frequent market transactions based on the arm's length principle. The category includes listed equities, bonds, commercial papers, etc. Level 2 - Valuations are arrived at based on information for the asset/liability that can be directly or indirectly observed and that is not covered by level 1 (derived prices). Where there is no accessible quoted price for active markets, the instruments are primarily measured using valuation methods based on observable input and/or similar instruments/products. The pricing of commercial paper and bonds, including fixed-rate loans are based on interest rate curves published in active markets.
- 53. 53 Level 3 -Valuations are arrived at based on data that is not observable market information. If a valuation cannot be arrived at based on level 1 and level 2, then valuation methods based on non-observable market data are used. Securities available for sale (levels 2 and 3) Securities available for sale consist of equities and valuations are based on non-observable information. Valuations are based on expected future cash flows. Securities held for trading (levels 2 and 3) This category encompasses equities, bonds and commercial papers. The securities are primarily valued using valuation methods based on information that can be observed and/or similar instruments/products. The pricing of commercial paper and bonds is based on interest rate curves published in active markets. Securities classified as level 3 consist of equities where the valuation is based on expected future earnings. Securities stated at fair value through profit or loss (FVO) (levels 2 and 3) Securities classified as level 2 are mainly bonds. The pricing of interest-bearing papers is based on interest rate curves published in active markets. Securities classified as level 3 consist of equities where the valuation is based on expected future earnings. Financial derivatives (level 2) The financial derivatives mainly consist of currency futures, interest rate swaps and currency swaps. The valuation is based on observable market data and/or prices for similar instruments/products. Securities issued (level 2) Valuations are based on interest rate curves published in active markets. NOTE 22 – SECURITIES AT FAIR VALUE Group EQUITIES AND UNITS 2011 2010 Acquisition Book value/ Acquisition Book value/ NOK 1,000 cost fair value cost fair value Norwegian equities 371 128 339 286 442 006 470 547 Norwegian unit trusts 1 143 279 1 279 817 1 095 987 1 659 472 Foreign equities 521 778 531 482 456 804 470 987 Foreign unit trusts 4 360 904 4 587 943 4 019 710 4 820 506 Total equities and units at fair value 6 397 089 6 738 529 6 014 507 7 421 512 BONDS AND COMMERCIAL PAPER 2011 2010 Acquisition Book value/ Acquisition Book value/ NOK 1,000 cost fair value cost fair value Norwegian Government and government guaranteed 0% 1 101 627 1 110 434 1 427 175 1 440 699 Government enterprises 10 % - - 35 466 35 576 Financial institutions and banks 10 % 222 378 223 963 - - Norwegian guaranteed bonds 10 % 1 494 838 1 512 557 1 171 482 1 178 296 Municipalities and counties 20 % 128 762 133 803 433 740 438 684 Financial institutions and banks 20 % 4 755 469 4 796 781 4 546 609 4 615 643 Bond funds 20 % 2 226 829 2 237 473 2 160 278 2 153 856 Money market funds 20 % 2 486 505 2 485 441 1 869 970 1 863 350 Bond funds 50 % 640 388 714 253 596 258 611 526 Financial institutions and banks 100 % 298 015 303 707 143 086 151 979 Bond funds 100 % 102 994 102 638 - - Money market funds 100 % 398 800 397 771 426 333 427 498 Corporate 100 % 770 256 783 916 479 371 493 598 Total Norwegian bonds and commercial papers 14 626 860 14 802 738 13 289 768 13 410 705 Foreign Government and government guaranteed 0% 878 086 895 359 711 350 712 022 Foreign guaranteed bonds 10 % 503 186 519 135 545 274 556 834 Municipalities and counties 20 % 83 002 83 303 2 391 2 344 Financial institutions and banks 20 % 417 984 398 724 512 510 497 087 Bond funds 20 % 178 897 211 060 143 288 157 409 Bond funds 100 % 240 000 257 164 - - Corporate 100 % 222 080 220 078 167 963 172 538 Total foreign bonds and commercial papers 2 523 235 2 584 823 2 082 776 2 098 234 Total bonds and commercial papers at fair value 17 150 095 17 387 560 15 372 544 15 508 939
- 54. 54 SpareBank 1 Gruppen Group OTHER FINANCIAL INSTRUMENTS 2011 2010 Acquisition Book value/ Acquisition Book value/ NOK 1,000 cost fair value cost fair value Hedge funds 6 565 4 300 19 875 16 642 Deposits and other receivables -6 203 -6 203 25 143 24 638 Bank fund investment choice portfolio 20 100 22 253 20 100 19 823 Other financial assets 9 280 8 985 - - Total other financial securities at fair value 29 742 29 334 65 118 61 103 Total financial assets at fair value 23 576 927 24 155 423 21 452 169 22 991 554 Group LOANS 2011 2010 Acquisition Book value/ Acquisition Book value/ NOK 1,000 cost fair value cost fair value Securities issued 125 500 133 204 125 500 134 654 Total financial liabilities at fair value 125 500 133 204 125 500 134 654 Parent company LOANS 2011 2010 Acquisition Book value/ Acquisition Book value/ NOK 1,000 cost fair value cost fair value Securities issued 125 500 133 204 125 500 134 654 Total financial liabilities at fair value 125 500 133 204 125 500 134 654 NOTE 23 – FINANCIAL DERIVATIVES General description Currency futures: Contracts to buy or sell a specific amount in foreign currency on a specified future date at a fixed price. Interest rate swaps: An agreement regarding the swapping of interest rate conditions over an agreed period and on a fixed amount. Options: Contracts where the seller gives the buyer the right, but not the obligation to buy (call option) or sell (put option) a financial instrument or currency before or on a specified date at a predetermined and fixed price. All derivatives are stated at fair value through profit or loss. Gains are recorded as assets and losses are recorded as liabilities for all interest rate derivatives. Group 2011 Fair value Fair value NOK 1,000 Contract total assets liabilities Equity instruments Derivative underlying CDOs 370 000 - 162 400 Options 27 756 2 161 1 549 Total equity instruments 397 756 2 161 163 949 Foreign exchange instruments Currency futures (forwards) 4 087 547 3 973 74 224 Total foreign exchange instruments 4 087 547 3 973 74 224 Interest rate instruments Interest rate swaps, incl. cross-currency swaps 5 158 815 5 183 6 627 Total interest rate instruments 5 158 815 5 183 6 627 Total financial derivatives 9 644 118 11 317 244 800
- 55. 55 Group 2010 Fair value Fair value NOK 1,000 Contract total assets liabilities Equity instruments Derivative underlying CDOs 370 000 - 157 600 Options 10 651 3 865 2 665 Total equity instruments 380 651 3 865 160 265 Foreign exchange instruments Currency futures (forwards) 4 560 727 120 897 - Total foreign exchange instruments 4 560 727 120 897 - Interest rate instruments Interest rate swaps, incl. cross-currency swaps 2 057 500 5 843 - Total interest rate instruments 2 057 500 5 843 - Total financial derivatives 6 998 879 130 605 160 265 Parent company 2011 Fair value Fair value NOK 1,000 Contract total assets liabilities Interest rate instruments Interest rate swaps, incl. cross-currency swaps 65 000 2 003 - Total interest rate instruments 65 000 2 003 - Total financial derivatives 65 000 2 003 - Parent company 2010 Fair value Fair value NOK 1,000 Contract total assets liabilities Interest rate instruments Interest rate swaps, incl. cross-currency swaps 65 000 692 - Total interest rate instruments 65 000 692 - Total financial derivatives 65 000 692 - NOTE 24 – SECURITIES AVAILABLE FOR SALE 2011 Parent company Group Acquisition Book value/ Acquisition Book value/ cost fair value NOK 1,000 cost fair value - - Norsk Pensjon AS 1 600 994 16 530 16 530 Eiendomsverdi AS 16 530 16 530 1 053 1 053 Other 1 978 1 669 17 583 17 583 Securities available for sale 20 108 19 193 2010 Parent company Group Acquisition Book value/ Acquisition Book value/ cost fair value NOK 1,000 cost fair value - - Norsk Tillitsmann 919 1 210 - - Norsk Pensjon AS 1 600 945 16 530 16 530 Eiendomsverdi AS 16 530 16 530 1 053 1 053 Other 1 781 1 531 17 583 17 583 Securities available for sale 20 830 20 216
- 56. 56 SpareBank 1 Gruppen NOTE 25 – BONDS AT AMORTISED COST Group 2011 2010 Acquisition Book Fair Acquisition Book Fair NOK 1,000 cost value value cost value value Bonds held to maturity 4 377 291 4 398 085 4 603 016 4 527 549 4 545 378 4 676 404 Accrued interests on bonds held to maturity - 124 545 - - 133 753 - Total bonds held to maturity 4 377 291 4 522 630 4 603 016 4 527 549 4 679 131 4 676 404 Other bonds at amortised cost 1 343 889 1 342 386 1 369 567 1 230 663 1 229 840 1 222 471 Accrued interests on bonds at amortised cost - 26 081 - - 19 451 - Total other bonds at amortised cost 1 343 889 1 368 467 1 369 567 1 230 663 1 249 291 1 222 471 Total bonds at amortised cost 5 721 180 5 891 097 5 972 582 5 758 212 5 928 422 5 898 875 2011 2010 Risk Acquisition Book Fair Acquisition Book Fair NOK 1,000 weight cost value value cost value value Government and government guaranteed 0% 333 364 340 531 353 902 294 550 301 771 297 901 Norwegian and foreign bonds with collateral 10 % 1 333 349 1 365 008 1 394 504 1 002 434 1 023 319 1 021 839 Municipalities and counties 20 % 289 885 298 198 313 477 374 972 383 761 383 898 Financial institutions and banks 20 % 2 268 946 2 351 358 2 345 308 2 616 317 2 711 259 2 693 595 Manufacturing loans 100 % 1 496 636 1 536 002 1 565 391 1 469 938 1 508 312 1 501 641 Total bonds and commercial papers 5 722 180 5 891 097 5 972 582 5 758 212 5 928 422 5 898 875 Of which listed instruments 4 466 002 4 606 202 4 657 544 3 991 154 4 122 124 4 096 992 Changes in holdings during the year 2011 2010 Opening balance as of 1.1 5 928 422 5 785 006 Additions 316 060 617 238 Disposals -357 574 -483 663 Year's accrued premium/discount (amortisation) 4 190 9 841 Closing balance as of 31.12 5 891 097 5 928 422 2011 2010 P&C Life P&C Life Insurance Insurance Insurance Insurance business business business business Duration 3.4 5.3 3.0 5.5 Average effective interest rate 4.1 3.9 4.4 4.6 Parent company The parent company had no bonds at amortised cost in 2011 or 2010.
- 57. 57 NOTE 26 –FAIR VALUE OF SECURITIES STATED AT AMORTISED COST Parent company Group 2011 2010 2011 2010 Book Fair Book Fair Book Fair Book Fair value value value value NOK 1,000 value value value value Assets Loans and deposits with 152 580 152 580 122 580 122 580 financial institutions 64 233 64 233 95 246 95 246 Loans to and receivables - - - - from customers 610 775 610 775 489 320 489 320 - - - - Bonds at amortised cost 5 891 097 5 907 053 5 928 422 5 898 875 213 717 213 717 93 520 93 520 Cash and cash equivalents 1 276 149 1 276 149 1 091 159 1 091 159 366 297 366 297 216 100 216 100 Total financial assets 7 842 254 7 858 210 7 604 147 7 574 600 Liabilities - - - - Liabilities to financial institutions 344 392 344 392 185 641 185 641 Deposits from and liabilities - - - - to customers 251 204 251 204 348 755 348 755 1 771 820 1 764 242 1 242 260 1 244 072 Securities issued 1 771 820 1 764 242 1 242 259 1 244 072 Subordinated loan capital 283 568 281 374 433 846 431 929 at amortised cost 483 568 454 674 848 846 803 543 2 055 388 2 045 617 1 676 106 1 676 002 Total financial liabilities 2 850 984 2 814 512 2 625 501 2 582 011 Off balance sheet liabilities and 387 253 133 000 guarantee commitments 359 838 318 318 750 000 200 000 Unused drawing rights 988 892 613 927 Assets pledged as security 713 473 628 634 Amortised cost is the measurement of a financial asset or liability by cumulative amortisation of cash flows estimated at initial recognition adjusted for depreciation. These measurements are not always consistent with market participant's measurements of the same instruments. Different views on macroeconomic development, market conditions, risk, expected rate of return and access to information might lead to such differences. The table above displays an overview over calculated fair value of line items stated at amortised cost. The value is calculated by using internal models that are calculated based on either a theoretical value in absence of an active market or on a comparison of the instrument's last traded prices in the market against the value registered in the portfolio. An estimate based on judgement is made where no relevant price information is available. High uncertainty is connected to fair value measurements. Bonds at amortised cost Bonds at amortised cost mainly consist of CDOs. The CDOs are divided into a principal and a derivative. The principal is recognised as a bond stated at amortised cost, while the derivatives part is recognised as a financial asset stated at fair value. The CDOs fair value adjustments are based on probability of default published by established rating agencies. Liabilities to financial institutions and deposits from customers Liabilities to financial institutions and deposits from customers are stated at amortised cost. Minor deposits with index-linked returns (BMB) are stated at fair value. The fair value of currently priced deposits equals amortised cost. Securities issued and subordinated loan capital Securities issued with fixed interests rates are designated at fair value, while securities issued with a floating interest rate and subordinated loan capital are stated at amortised cost. The valuation of debt measured at amortised cost is either based on broker quotes or calculated on the basis of swap curves published by Reuters. Similar to lending, the value of assumed new issuance is used.
- 58. 58 SpareBank 1 Gruppen NOTE 27 – INVESTMENT PROPERTIES Group SpareBank 1 Gruppen's total property portfolio consisted of 237,168 m2 in 21 buildings as of 31.12.2011. Of this SpareBank 1 Gruppen uses 31,664 m2 for its own business. The total vacancy rate is 5.7%. The weighted remaining tenancy period for the entire portfolio is 5.3 years. Note 4 «Critical accounting estimates and judgements» discusses sensitivity in more detail. NOK 1,000 2011 20101) Additions/disposals and value adjustments Acquisition cost as of 1.1 3 472 146 4 315 004 Year's additions 185 621 7 171 Year's disposals -208 626 -850 029 Acquisition cost as of 31.12 3 449 141 3 472 146 Accumulated depreciation as of 1.1 -7 849 - Year's ordinary depreciation -7 849 -7 949 Accumulated depreciation as of 31.12 -15 798 -7 949 Accumulated value adjustments as of 1.1 725 840 578 641 Year's revision of property value -5 305 147 203 Accumulated value adjustments as of 31.12 720 535 725 844 Book value as of 31.12 4 153 878 4 190 037 1) Aberdeen real estate fund was classified as equities in 2011. The figures for 2010 take into account the reclassification. Note 54 provides a more detailed description of the reclassification. 2011 Average Book Lease Area end NOK 1,000 City/area Cost price value income in m2 of lease Type of building Office building Oslo City Centre 1 097 502 1 250 216 19 623 55 956 2014 Office building Skøyen 368 406 549 542 80 574 23 559 2014 Office building Rest of Oslo 217 522 261 071 19 307 9 296 2022 Office building Tønsberg 12 233 25 481 1 476 2 503 2013 Office building/shops Oslo City Centre 573 245 635 217 39 049 37 141 2015 Office building/shops Skøyen 700 236 953 619 92 383 52 318 2016 Shopping centre Rest of Oslo 282 046 288 726 24 288 19 054 2017 Office building/shops Akershus 111 828 145 922 14 414 16 560 2017 Other Oslo 41 190 44 084 2 622 - 2096 Total 3 404 208 4 153 878 293 736 216 387 2010 Average Book Lease Area end NOK 1,000 City/area Cost price value income in m2 of lease Type of building Office building Oslo City Centre 645 818 846 516 85 365 32 672 2016 Office building Skøyen 1 068 642 1 460 668 102 363 75 877 2015 Office building Rest of Oslo 397 528 472 570 33 600 18 013 2023 Office building Tønsberg 12 233 25 427 2 389 2 503 2011 Shopping centre Rest of Oslo 282 046 289 919 24 570 19 054 2016 Office building/shops Oslo City Centre 482 676 731 812 48 163 31 090 2013 Office building/shops Akershus 111 828 141 271 14 946 16 362 2015 Other Oslo 124 658 126 628 9 328 60 2096 Total 3 125 429 4 094 812 320 724 195 631 The company utilises an internal cash flow model to calculate fair value for the properties. In the model, a 30-year cash flow is estimated on the basis of expected future costs and income for each property. After the end of the 30th year of the cash flow, a terminal value is calculate. The cash flow and terminal value are then inflated to correct for expected increase in prices and discounted with a required rate of return consisting of risk free interest and a risk premium. The risk premium is set separately for each property. More about the most important assumptions: Lease income The company uses a special model for office space, which accounts for the largest category of floor space in the portfolio, to estimate the expected long-term cash flow after expiry of the current leases. The basic data contains both the individual property's price history from real, signed contracts and market statistics for the same geographic area, and this is used to estimate the expected future rent for the space. The expected rent per square metre in the area is estimated by calculating the average market rent per square meter over the last 10 years, adjusted for the present value of the NOK. The area's expected rent is then adjusted for the individual property. The adjustment is based on rents from real, signed contracts, which are compared with the historic market rent for the same area. This results in an expected cash flow per office space based on the real trends for the prevailing willingness to pay and cash flow for space in the area. The company's own assessments are used to determine future income for categories of space not covered by rent statistics.
- 59. 59 Costs Expected costs areestimated on the basis of the average historic operating costs and the company's expectations per property. OPAK's estimates are used o estimate representative market expectations if the historic costs have been lower or higher than OPAK's limits for normal owner costs. Owner costs are assumed to climb with a property's age and grow linearly to OPAK's limit for high owner costs over the duration of the cash flow. Required rate of return The required rate of return, hurdle rate, consists of the risk free interest rate, which changes over the duration of the cash flow, and the risk premium, which is individual to each property. Risk free interest rate Observations from the transactions market indicate that property is relatively insensitive to changes in market interest rates. Instead, it is the long-term expectations concerning interest rate levels that appear to provide the basis for any price changes for properties. The reason for this could be that even the longest market interest rates are relatively short in relation to the expected duration of a commercial property. The company has chosen to use a 10 year swap rate for the first 10 years of the cash flow, and an estimated long-term normal rate of 5% for the last 10 years and for the final value. Interpolation between the two rates is used for the years in-between, i.e. from year 10 to year 20. Risk premium The company uses a categorisation tool to estimate the risk premium per property. Location, contract length, and the assumed degree of the cyclical nature of the cash flow for the individual property are all elements used to place a property's weighted risk properties on a points scale. A property's placement on the points scale is then used to find the property's specific risk premium within a range between an estimated high and low risk premium in the market. This range is calibrated against observed key figures from the transactions market. Categorisation and calibration must together contribute to market-related and consistent value assessments at fair value, both across properties and over time. Parent company The parent company had no investment propeties in 2011 and 2010. NOTE 28 – LENDING TO AND DEPOSITS WITH CUSTOMERS AND FINANCIAL INSTITUTIONS Lending to and deposits with financial institutions NOK 1,000 2011 2010 Lending to and deposits with financial institutions without agreed maturity 64 233 95 246 Lending to and deposits with financial institutions with agreed maturity - - Total lending to and deposits with financial institutions 64 233 95 246 Specification of lending and deposits by most important currencies NOK 57 740 94 299 SEK 2 190 813 GBP 293 170 EUR 3 557 -48 CAD - 2 Other currency 452 11 Total 64 233 95 246 Lending to customers NOK 1,000 2011 2010 Lending specified Cash advances and bank overdrafts 532 840 468 570 Other lending 256 98 Portfolio of outstanding receivables 78 368 34 252 Gross lending to and deposits from customers 611 465 502 920 Write-downs/loss provisions -690 -13 600 Net lending to and deposits from customers 610 775 489 320 Total lending to customers and financial institutions 675 008 584 566 Lending to and deposits from customers by market 2011 2010 Employees 78 368 34 252 Divided by industry 533 096 468 667 Gross lending to and deposits from customers 611 465 502 920 Write-downs/loss provisions -690 -13 600 Net lending to and deposits from customers 610 775 489 320
- 60. 60 SpareBank 1 Gruppen Gross lending by geographic area 2011 2010 Akershus 15 493 7 021 Oslo 6 209 8 565 Møre og Romsdal 221 770 192 183 Other 367 993 295 152 Total gross lending by geographic area 611 465 502 920 Gross lending by sector and industry 2011 2010 No industry affiliation 86 214 43 868 Agriculture 2 082 762 Fishing and fish processing 6 106 1 365 Services related to extraction of crude oil and natural gas 7 767 - Manufacturing 278 145 258 594 Building and construction, power and water supply 17 160 24 673 Wholesale and retail trade 79 920 40 533 Hotel and restaurant - 925 Transport and storage 106 421 93 372 Business services 7 399 13 906 Property management 19 1 Information and technology 7 905 10 258 Finans 7 864 11 085 Other sectors 4 462 3 579 Total gross lending by sector and industry 611 465 502 920 Individual write-downs/loss provisions by sector and industry 2011 2010 Employees, etc - - Manufacturing - - Building and construction - - Wholesale and retail trade - - Hotel and restaurant - - Transport and storage - - Business services - - Property management - - Information and technology - - Other sectors - - Specific loss provisions SpareBank 1 Gruppen Finans AS 690 13 600 Total individual write-downs/loss provisions by sector and industry 690 13 600 SpareBank 1 Gruppen's lending portfolio was in its subsidiary SpareBank 1 Gruppen Finans AS in 2011 and 2010. Parent company NOK 1,000 2011 2010 Subordinated loan to First Securities AS 32 580 32 580 Credit line for SpareBank 1 Markets AS 120 000 90 000 Total lending 152 580 122 580 Loans are recognised at amortised cost.
- 61. 61 NOTE 29 –NET LOAN AND GUARANTEES LOSS PROVISIONS Group NOK 1,000 2011 2010 Incurred losses and provisions for calculated losses Debtors: Incurred losses on loans with previous write-offs - specified loss provisions - - Incurred losses on loans with previous write-offs - unspecified loss provisions - - Incurred losses on loans with no previous write-offs 39 16 Incurred losses 39 16 Specified provisions 1.1 50 15 - Reversed previous write-offs specified losses -50 -15 + Period's specified losses 326 50 Specified provisions 31.12 326 50 Unspecified provisions 1.1 - - - Incurred losses - - + Period's unspecified provisions - - Unspecified provisions 31.12 - - NOK 1,000 2011 2010 Clients: Incurred losses on loans with previous write-offs - specified loss provisions 13 016 505 Incurred losses on loans with previous write-offs - unspecified loss provisions - - Incurred losses on loans with no previous write-offs - - Incurred losses 13 016 505 Fixed income recognised as income - - Specified provisions losses clients 1.1 13 600 3 619 - Reversed previous write-offs specified losses -13 600 -619 + Period's specified losses 690 10 600 Specified provisions losses clients 31.12 1) 690 13 600 - Reversed previous write-offs group write-downs clients - - - Included in previously incurred losses -94 -133 Income/losses in profit or loss 326 10 405 1) Specified provisions in 2010 are primarily due to a single standing event in 2010. Gross net loan and guarantees loss provisions by sector and industry NOK 1,000 2011 2010 Agriculture, forestry, fishing and hunting at sea 106 - Manufacturing and mining -94 -233 Building and construction, power and water supply - 100 Wholesale and retail trade, hotel and restaurant trade - 10 486 Transport and other services - - Financing, property management and other business services - - Other countries 314 51 Retail market - - Group write-downs corporate - - Group write-downs retail - - Gross net loan and guarantees loss provisions to customers 326 10 405 Non-performing and impaired loans 2011 2010 2009 2008 2007 Non-performing loans (more than 90 days overdue) 78 3681) 34 2521) 416 568 268 741 112 378 Other impaired loans - - 23 038 131 855 53 444 Total impaired loans 78 3681) 34 2521) 439 606 400 596 165 822 Individual write-downs - - 149 485 88 323 42 004 Net impaired loans 78 3681) 34 2521) 589 091 312 273 123 818 1) The portfolio consists of acquired non-performing demands (all demands over 90 days) in SpareBank 1 Gruppen Finans AS's business area Portfolio in 2011, and the same is true for 2010. Fulfilment of the claims in the portfolios depend on the debtors ability to fulfil. Parent company The parent company has no net loan and guarantees loss provisions.
- 62. 62 SpareBank 1 Gruppen NOTE 30 – CREDIT RISK EXPOSURE FOR EACH INTERNAL RISK CLASS The credit risk in SpareBank 1 Gruppen is mainly related to the operations of the business area factoring. Work is being performed to prepare quantitative risk analyses for factoring. The credit risk in factoring is related to financing/lending risk and risk related to domestic and foreign customer credit guarantees. In connection with ICAAP, SpareBank 1 Gruppen uses the standard method for calculating credit risk. The internal credit model is a combination of a risk model and effectiveness model (how well adapted is factoring and how efficiently can SpareBank 1 Gruppen run the agreement). Thus the model is not directly transferable to a risk model with two dimensions/axes: rating on client/customer and security coverage. Risk matrix Taking factoring's system for risk classification as a starting point, the following risk matrix is used as a basis for delegating credit authorisations. Objective scores from Lindorff Decision and SpareBank 1 Gruppen Finans AS's internal rules of procedures, determines in which risk class limited companies, sole proprietorships and personal businesses registered in the Register of Business Enterprises are placed. Client rating /structure rating [4 - 5] [3,5 - 4> [3 - 3,5> [2 - 3> [1 - 2> 5 Low risk Low risk Low risk Medium risk High risk 4 Low risk Low risk Medium risk Medium risk High risk 3 Low risk Low risk Medium risk High risk High risk 2 Low risk Medium risk Medium risk High risk High risk 1 Medium risk High risk High risk High risk High risk Non-performing High risk High risk High risk High risk High risk Losses High risk High risk High risk High risk High risk Description of the model: On one axis the client rating based on the Lindorff Decision Score is used, where 1 is the worst and 5 is the best. On the other axis, the structure is given a rating between 1 and 5, with 5 being the best. The structure rating means the factorability both in connection with the efficient operation of the agreement and whether SpareBank 1 Gruppen has good collateral in the receivable. A model has therefore been developed in which different parameters indicate whether or not the factorability is assessed and given a score. The parameters considered are: 1. Debtor's credit worthiness 2. Repurchase rate 3. Credit note turnover rate 4. Age distribution 5. Business sector The client and structure rating model results in a matrix, that determines whether something is low risk, medium risk or high risk, based on the combination between client rating and structure rating. Lending specified by risk classes: Business area factoring Client rating vs. Structure rating [4 - 5] [3,5 - 4> [3 - 3,5> [2 - 3> [1 - 2> Total Summarised 5 Low risk Lending 2.0 % 5. 8 % 19.8 % 0.8 % 0.1 % 28.4 % 47.7 % 4 Low risk Lending 3.4 % 6.5 % 28.1 % 0.7 % 0.0 % 38.7 % 47.7 % 3 Medium risk Lending 1.5 % 7.9 % 5.6 % 0.9 % 0.1 % 16.0 % 44.7 % 2 High risk Lending 0.8 % 2.8 % 6.4 % 2.1 % 0.0 % 12.1 % 6.6 % 1 High risk Lending 0.3 % 2.0 % 0.6 % 0.9 % 0.0 % 3.8 % 6.6 % Non-performing/exposed Non-performing/exposed Lending 0.7 % 0.7 % Losses Losses Lending 0.1 % 0.1 % The model divides the portfolio into the risk classes low, medium and high risk, as well as non-performing/exposed and losses in 2011.
- 63. 63 NOTE 31 –MAXIMUM CREDIT RISK EXPOSURE, NOT TAKING INTO ACCOUNT PLEDGED SECURITY The below table displays maximum credit risk exposure for the different balance sheet items, derivatives included. The exposure is before assets pledged as security and allowed offsetting. Parent company Group Gross exposure Gross exposure 2011 2010 NOK 1,000 2011 2010 ASSETS 213 717 93 520 Cash and cash equivalents 1 276 149 1 091 159 - - Loans and deposits with financial institutions 64 233 95 246 152 580 122 580 Loans to and receivables from customers 610 775 489 320 - - Securities stated at fair value through profit or loss (FVO) 21 159 902 18 774 516 - - Securities held for trading 2 995 521 4 217 039 2 003 692 Derivatives 11 317 130 605 - - Securities held to maturity 4 522 630 4 679 131 - - Securities at amortised cost 1 368 467 1 249 291 17 583 17 583 Securities available for sale 19 193 20 216 202 066 243 351 Other assets 698 476 609 877 587 949 477 726 Total financial assets 32 726 663 31 356 400 LIABILITIES - - Financial guarantee contracts 74 008 111 953 - - Unused credit lines - - - - Loan commitments 285 831 206 360 - - Total financial guarantees 359 839 318 313 587 949 477 726 Total credit risk exposure 33 086 502 31 674 713 NOTE 32 – CONTRACTUAL MATURITY OF FINANCIAL LIABILITIES Group 2011 On Less than 3 3–12 More than Without NOK 1,000 demand months months 1–5 years 5 years maturity Total Deposits from and liabilities to customers and financial institutions - 631 117 - - - - 631 117 Securities issued 14 525 595 545 430 784 960 764 - - 2 001 618 Derivatives - 51 305 - 169 810 -783 - 220 332 Other liabilities - 132 154 13 926 - 6 010 - 152 090 Subordinated loan capital and hybrid tier 1 capital 283 568 - - - - 200 000 483 568 Loan commitments 285 831 - - - - - 285 831 Total financial liabilities 583 924 1 410 121 444 710 1 130 574 5 227 200 000 3 774 556 Interest rate as of year-end 2011 is used to calculate the cash flow for the subordinated loan capital. Cash flow for perpetual subordinated loan capital is calculated from 1 to 5 years. The total amount is added without maturity. Group 2010 On Less than 3 3–12 More than Without NOK 1,000 demand months months 1–5 years 5 years maturity Total Deposits from and liabilities to customers and financial institutions 6 473 59 215 - - - - 65 688 Securities issued 11 413 185 896 476 626 817 359 - - 1 491 294 Derivatives 2 664 - - 131 200 26 400 - 160 264 Other liabilities - 21 578 5 616 - - - 27 194 Subordinated loan capital and hybrid tier 1 capital 283 846 4 603 13 657 222 780 212 747 200 000 937 633 Loan commitments 206 360 - - - - - 206 360 Total financial liabilities 510 756 271 292 495 899 1 171 339 239 147 200 000 2 888 433 Interest rate as of year-end 2010 is used to calculate the cash flow for the subordinated loan capital. Cash flow for perpetual subordinated loan capital is calculated from 1 to 5 years. The total amount is added without maturity.
- 64. 64 SpareBank 1 Gruppen Parent company 2011 On Less than 3 3–12 More than Without NOK 1,000 demand months months 1–5 years 5 years maturity Total Deposits from and liabilities to customers and financial institutions - - - - - - - Securities issued 14 525 595 545 430 784 960 764 - - 2 001 618 Derivatives - - - - - - - Subordinated loan capital 283 568 - - - - - 283 568 Loan commitments - - - - - - - Total financial liabilities 298 093 595 545 430 784 960 764 - - 2 285 186 Interest rate as of year-end 2011 is used to calculate the cash flow for the subordinated loan capital. Parent company 2010 On Less than 3 3–12 More than Without NOK 1,000 demand months months 1–5 years 5 years maturity Total Deposits from and liabilities to customers and financial institutions - - - - - - - Securities issued 11 413 159 334 476 626 817 359 - - 1 464 732 Derivatives - - - - - - - Subordinated loan capital 283 846 1 195 3 545 168 700 - - 457 286 Loan commitments - - - - - - - Total financial liabilities 295 259 160 529 480 172 986 059 - - 1 922 018 Interest rate as of year-end 2010 is used to calculate the cash flow for the subordinated loan capital. NOTE 33 – AGE DISTRIBUTION OF OVERDUE, BUT NOT IMPAIRED LOANS AND PREMIUM REVENUES The table below shows overdue amounts on loans, overdrafts on credits/deposits and premium revenues broken down on number of days after the due date that are not due to delays in payments transfers. Group 2011 NOK 1,000 Upon request Up to 30 days 31–60 days 61–90 days Over 91 days Total Loans to and receivables from customers Retail market 1) - - - - 78 368 78 368 Corporate market - - - - - - Overdue but not paid insurance premiums 30 954 110 554 3 451 1 007 9 069 155 035 Total 30 954 110 554 3 451 1 007 9 069 233 403 1) The portfolio consists of acquired non-performing demands (all demands over 90 days) in SpareBank 1 Gruppen Finans AS's business area Portfolio. Payment depends on the debtor's ability to redeem the claim. Group 2010 NOK 1,000 Upon request Up to 30 days 31–60 days 61–90 days Over 91 days Total Loans to and receivables from customers Retail market 1) - - - - 34 252 34 252 Corporate market - - - - - - Overdue but not paid insurance premiums - 26 147 1 716 - - 27 863 Total 34 252 26 147 1 716 - - 62 115 1) The portfolio consists of acquired non-performing demands (all demands over 90 days) in SpareBank 1 Gruppen Finans AS's business area Portfolio. Payment depends on the debtor's ability to redeem the claim.
- 65. 65 NOTE 34 –MARKET RISK RELATED TO CURRENCY RISK It is primarily SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring Group in SpareBank 1 Gruppen Group who are exposed to currency risk. This risk primarily relates to the investment portfolios in the companies concerned. As part of the companies' risk management strategy, they try to neutralise the currency risk in the underlying portfolios through currency futures. Since the currency exposure in Skadeforsikring AS is absolutely marginal, the currency exposure shown here is only that of SpareBank 1 Livsforsikring AS. The exposure is as follows: 2011 2010 Net Change in Net Change in currency result by a currency result by a positions 3 % change positions 3 % change in NOK in exposure NOK 1,000 in NOK in exposure Currency 85 181 2 555 EUR 72 222 2 167 175 740 5 272 USD 139 648 4 189 40 718 1 222 Other 49 569 1 487 301 639 9 049 Total 261 439 7 843 The table above shows an estimate of the expected effect on the income statement of an immediate change in exchange rates. The table has been prepared in connection with internal risk monitoring in SpareBank 1 Gruppen Group. The calculations are based on money market instrument and bond portfolios in SpareBank 1 Livsforsikring AS which actually have some exposure. NOTE 35 – MARKET RISK RELATED TO INTEREST RATE RISK SpareBank 1 Gruppen Group is exposed to market risk linked to interest rate risk. The main part of the interest rate risk in SpareBank 1 Gruppen is linked to the investment portfolios in SpareBank 1 Livsforsikring AS and SpareBank 1 Skadeforsikring Group. Below we show a sensitivity analysis per unit related to interest rate risk. SpareBank 1 SpareBank 1 SpareBank 1 SpareBank 1 Skade- Livs- SpareBank 1 Gruppen Gruppen forsikring forsikring Markets Finans Parameter AS Group AS AS Group Total Change in result in NOK million before tax 1% increase in interest rate -22 27 -157 3 -2 -151 1% reduction in interest rate 22 -27 157 -3 2 151 The table above is an estimate of the expected profit and loss impact in the event of an immediate change in interest rates. The table is prepared in connection with monitoring risk in SpareBank 1 Gruppen AS. The calculations are based on changes in value and changes in cash flow 12 months into the future in money market instrument and bond portfolios in SpareBank 1 Livsforsikring AS, SpareBank 1 Skadefor- sikring Group and SpareBank 1 Markets AS. For SpareBank 1 Gruppen AS and SpareBank 1 Gruppen Finans Group the profit and loss effects is related to net interest bearing debt.
- 66. 66 SpareBank 1 Gruppen NOTE 36 – DEPOSITS FROM AND LIABILITIES TO CUSTOMERS AND FINANCIAL INSTITUTIONS Parent company Group 2011 2010 NOK 1,000 2011 2010 - - Loans and deposits from financial institutions without agreed maturity date 344 392 149 559 - - Loans and deposits from financial institutions with agreed maturity date - 36 082 - - Bank deposits from and liabilities to customers without agreed maturity 118 220 115 289 - - Bank deposits from and liabilities to customers with agreed maturity - - - - Liabilities to policyholders 132 984 233 466 - - Total deposits from and liabilities to customers and financial institutions 595 596 534 396 2011 2010 2011 2010 Deposits Deposits NOK 1,000 Deposits Deposits - - Deposits from and liabilities to customers without agreed maturity 118 220 115 289 - - Deposits from and liabilities to customers with agreed maturity - - - - Total deposits from customers 118 220 115 289 - - Employees, etc 1 358 1 370 - - Agriculture - - - - Fishing and fish processing 7 824 17 677 - - Oil related industry - - - - Manufacturing 44 706 60 763 - - Power and water supply 331 - - - Building and construction, power and water supply 29 990 6 094 - - Wholesale and retail trade 14 163 7 251 - - Hotel and restaurant 128 4 - - Transport and storage 3 791 643 - - Business services 5 822 4 041 - - Property management 21 - - - Public sector - - - - Shipping - - - - Shipbuilding industry - - - - Information and technology 5 462 9 863 - - Finans 4 468 7 167 - - Other sectors 156 416 - - Total deposits by sector and industry 118 220 115 289 Deposits by geographic area - - Akershus 9 760 4 930 - - Oslo 2 952 2 080 - - Hedmark 1 538 725 - - Buskerud 218 - - - Oppland 1 809 428 - - Østfold 1 989 8 159 - - Vestfold 7 089 117 - - Telemark 172 - - - Øst-Agder 16 - - - Vest-Agder 86 487 - - Rogaland 838 54 - Hordaland 6 504 7 199 - - Sogn og Fjordane 17 351 28 261 - - Møre og Romsdal 30 119 38 160 - - Sør Trøndelag 5 969 5 012 - - Nord Trøndelag - - - - Nordland 16 942 1 269 - - Troms 11 315 6 176 - - Finnmark 3 098 11 703 - - Other 455 529 - - Total deposits by geographic area 118 220 115 289
- 67. 67 NOTE 37 –SUBORDINATED LOAN CAPITAL AND HYBRID TIER 1 CAPITAL Parent company Group 2011 2010 NOK 1,000 Interest rate Call date Maturity 2011 2010 Term subordinated loan capital - 150 145 21.12.2006 - Norsk Tillitsmann ASA NIBOR plus 0.53% 21-12-11 21-12-16 - 150 145 - - 28.06.2006 - BN Bank ASA NIBOR plus 0.60% 28-06-11 28-06-16 - 15 000 - - 15.02.2006 - Norsk Tillitsmann ASA NIBOR plus 0.45% 15-06-11 15-06-16 - 200 000 - 150 145 Total time-limited - 365 145 Perpetual 83 230 83 197 Owner bank and Sparebanken Vest NIBOR plus 2.25% perpetual 83 230 83 197 200 338 200 504 Owner bank, Sparebanken Vest and Swedbank NIBOR plus 3.00% perpetual 200 338 200 504 283 568 283 701 Total perpetual 283 568 283 701 Hybrid tier 1 capital 15.06.2006 - Hybrid tier 1 capital - - Norsk Tillitsmann ASA NIBOR plus 1.17% perpetual 200 000 200 000 - - Total hybrid tier 1 capital 200 000 200 000 283 568 433 846 Total subordinated loan capital and hybrid tier 1 capital 483 568 848 846 NOTE 38 – SECURITIES ISSUED Parent company Group Average Average Average Average interest interest interest interest 2011 2011 2010 2010 NOK 1,000 2011 2011 2010 2010 Commercial papers and 635 000 3.39% 605 000 3.08% other short-term loans 635 000 3.39% 605 000 3.08% 1 255 500 4.04% 760 500 3.60% Bond debt 1 255 500 4.04% 760 500 3.60% 2 673 - 2 002 - Value adjustments 2 673 - 2 002 - 11 852 - 9 412 - Accrued interest 11 852 - 9 412 - 1 905 025 - 1 376 914 - Total securities issued 1 905 025 - 1 376 914 - Liabilities by maturity date - 605 000 2011 - 605 000 980 000 350 000 2012 980 000 350 000 100 000 - 2013 100 000 - 525 500 125 500 2014 525 500 125 500 285 000 285 000 2015 285 000 285 000 - - 2016 - - - - 2017 - - 2 673 2 002 Value adjustments 2 673 2 002 11 852 9 412 Accrued interest 11 852 9 412 1 905 025 1 376 914 Bond debt and other loans 1 905 025 1 376 914
- 68. 68 SpareBank 1 Gruppen NOTE 39 – CAPITAL ADEQUACY SpareBank 1 Gruppen Group is subject to the same capital requirements rules as insurance companies and other financial institutions. The requirement is 8% regulatory capital in relation to a risk weighted assets. Parent company Group 2011 2010 NOK 1,000 Weighting 2011 2010 Risk weighted assets - - Government, central banks, etc 0% - - - - Securities 10 % 354 185 253 434 56 799 43 220 Financial institutions 20 % 2 302 693 2 385 947 - - Secured loans, etc 50 % 357 362 314 518 5 710 999 4 869 048 Fixed assets 100 % 13 528 894 12 722 948 - - Other assets 150 % 47 223 66 524 233 325 93 664 Goodwill and other intangible assets - - - - Assets related to investment choices 20 % 1 379 172 1 340 103 6 001 123 5 005 932 Total risk weighted assets 17 969 529 17 083 473 -233 325 -93 664 Excluding goodwill and other intangible assets - - 77 916 40 203 Posting outside the balance sheet 4 353 50 516 Net basis for calculation for institutions reporting - - in accordance with Basel II 2 001 138 1 593 587 - - Unrealised gains on financial investments -218 338 - -27 136 - Deduction for regulatory capital in other financial institutions -27 136 -9 228 Total recorded assets and postings outside the 5 818 578 4 952 471 balance sheet and weighted assets 19 729 546 18 718 348 5 865 479 5 178 728 Total recorded assets 41 989 140 40 600 545 2 736 698 2 758 135 Equity 4 379 939 3 701 048 - - Hybrid tier 1 capital 200 000 200 000 -13 568 - - 50% deduction for regulatory capital in other financial institutions -13 568 -4 614 - - - Minimum requirement for reassurance coverage -37 306 -34 341 -433 900 -440 000 - Deduction for suggested dividends -433 900 -440 000 - - - Deduction for unrealised gains on investment properties/tangible fixed assets -128 978 -71 454 -233 325 -93 664 - Deduction for deferred tax asset - - - - - Intangible assets and goodwill -1 092 658 -993 752 2 055 905 2 224 471 Total Tier I capital 2 873 529 2 356 887 283 000 283 000 Perpetual subordinated loans 283 000 283 000 - 150 000 Time limited subordinated loans - 350 845 - - 45% of unrealised value of properties 56 326 32 154 - - 45% of unrealised gain on equities - - -13 568 - - 50% deduction for regulatory capital in other financial institutions -13 568 -4 614 269 432 433 000 Total supplementary capital 325 758 661 385 2 325 337 2 657 471 Net regulatory capital 3 199 287 3 018 272 40.0 % 53.7 % Capital adequacy ratio 16.2 % 16.1 % 1 859 851 2 261 273 Surplus of regulatory capital 1 620 923 1 520 804 NOTE 40 – REINSURANCE RECEIVABLES Group NOK 1,000 2011 2010 Reinsurance receivables in P&C Insurance 107 204 294 855 Reinsurance receivables in life insurance 152 459 148 801 Reinsurer's share gross claims provisions 985 268 1 034 542 Reinsurer's share gross unearned premium 168 328 179 531 Reclassified reinsurance provisions -2 103 -163 391 Total reinsurance receivables 1 411 156 1 494 338
- 69. 69 NOTE 41 –INSURANCE RECEIVABLES FROM POLICYHOLDERS Group NOK 1,000 2011 2010 Due invoiced receivables P&C Insurance 472 871 370 607 Due unbilled receivables P&C Insurance 990 859 902 205 Accounts receivable life insurance 104 273 121 629 Total insurance receivables from policyholders 1 568 003 1 394 441 NOTE 42 – INSURANCE LIABILTES IN LIFE INSURANCE Group 2011 Premium fund, Gross contribution fund premium Additional and pensioners' Claims Security NOK 1,000 reserve provisions profit fund provision provision Total Individual annuity and pension 5 929 666 93 752 1 172 355 200 - 6 379 790 - Profit model pursuant to section 9-9 of the Insurance Activity Act 64 686 319 - - - - Profit model pursuant to previously applicable provisions of the Act of 10 June 1988 relating to insurance activity, section 8-1, and relevant regulations. 4 169 087 93 432 1 172 22 458 - - Contracts without right to profit sharing 175 940 - - 332 742 - - Investment choice 1 519 953 - - - - Individual endowment 2 096 684 8 307 - 186 123 540 2 291 654 - Profit model pursuant to section 9-9 of the Insurance Activity Act 321 254 - - - - - Profit model pursuant to previously applicable provisions of the Act of 10 June 1988 relating to insurance activity, section 8-1, and relevant regulations. 590 389 8 307 - 68 846 540 - Contracts without right to profit sharing - - - 117 092 - - Investment choice 1 185 041 - - 185 - Group pension 11 463 703 242 063 485 606 322 472 - 12 513 844 - Defined benefit-based pension schemes without investment choice 3 118 807 167 414 264 466 107 567 - - Paid-up policies 3 696 710 74 649 - 34 500 - - Defined contribution-based pension schemes (incl. pension capital certificates without investment choice 440 660 - 23 985 10 971 - - Defined contribution-based pension schemes (incl. pension capital certificates with investment choice 4 074 660 - 197 155 89 028 - - Contracts without right to profit sharing 132 866 - - 80 407 - Group life 398 235 - - 720 479 - 1 118 714 Accident insurance - - - 258 777 57 738 316 515 - Contracts without right to profit sharing - - - 258 777 57 738 Total all industries 19 888 288 344 121 486 778 1 843 051 58 279 22 620 517
- 70. 70 SpareBank 1 Gruppen Group 2010 Premium fund, Gross contribution fund premium Additional and pensioners' Claims Security NOK 1,000 reserve provisions profit fund provision provision Total Individual annuity and pension 6 430 913 104 084 1 764 214 906 - 6 751 668 - Profit model pursuant to section 9-9 of the Insurance Activity Act 51 816 321 - - - - Profit model pursuant to previously applicable provisions of the Act of 10 June 1988 relating to insurance activity, section 8-1, and relevant regulations. 4 386 797 103 763 1 764 22 450 - - Contracts without right to profit sharing 131 717 - - 192 456 - - Investment choice 1 860 583 - - - - Individual endowment 2 338 902 9 490 - 185 421 679 2 534 492 - Profit model pursuant to section 9-9 of the Insurance Activity Act 353 666 - - - - - Profit model pursuant to previously applicable provisions of the Act of 10 June 1988 relating to insurance activity, section 8-1, and relevant regulations. 621 726 9 490 - 80 364 679 - Contracts without right to profit sharing 68 - - 104 872 - - Investment choice 1 363 442 - - 185 - Group pension 10 625 774 265 680 416 373 344 617 - 11 652 445 - Defined benefit-based pension schemes without investment choice 3 548 018 192 602 268 975 107 567 - - Paid-up policies 3 254 126 73 078 - 34 500 - - Defined contribution-based pension schemes (incl. pension capital certificates without investment choice 344 175 - 14 484 10 422 - - Defined contribution-based pension schemes (incl. pension capital certificates with investment choice 3 386 947 - 117 709 103 157 - - Contracts without right to profit sharing 92 508 - 15 205 88 972 - Group life 393 386 - - 695 561 - 1 088 947 Accident insurance - - - 244 117 54 317 298 434 - Contracts without right to profit sharing - - - 244 117 54 317 Total all industries 19 788 975 379 255 418 137 1 684 623 54 996 22 325 986
- 71. NOTE 43 –INSURANCE PROVISIONS IN P&C INSURANCE Group 2011 1 PERSONAL LINES 2 COMMERCIAL LINES Of which TOTAL Onshore Onshore Of which Workmen's TOTAL 3 4 5 Natural Onshore third party Travel PERSONAL property property third party compen- COMMERCIAL Total Energy/ Total Perils NOK 1,000 property Motor liability Yacht Accident insurance Others LINES industrial commercial Motor liability Liability sation Safety Other LINES Marine oil reinsurance pool TOTAL Gross unearned premium provisions as of 1.1.11 556 389 793 219 325 971 32 802 37 279 120 582 12 854 1 553 125 4 818 156 545 118 597 32 448 7 398 62 762 4 553 14 728 369 402 - - - 39 293 1 961 820 Gross unearned premium provisions as of 31.12.11 632 750 893 770 385 771 36 818 40 090 131 344 11 016 1 745 788 4 462 165 579 127 531 41 110 11 005 67 928 6 552 12 676 395 734 - - - 38 440 2 179 962 Gross claims provisions as of 1.1.11 944 084 1 477 788 1 116 074 20 037 325 967 132 095 10 354 2 910 324 12 982 345 564 232 471 156 276 88 302 913 243 250 353 48 051 1 890 966 157 823 68 242 47 769 48 818 5 123 942 Gross claims provisions as of 31.12.2011 1 110 124 1 650 686 1 248 813 32 479 359 156 162 109 12 300 3 326 852 10 637 422 895 292 421 207 026 78 759 976 912 295 274 30 602 2 107 500 102 529 55 815 43 312 159 240 5 795 249 Security provisions as of 1.1.11 500 480 251 285 1 224 - 14 208 - 767 198 Statutory minimum requirements as of 1.1.11 500 480 251 285 1 224 - 14 208 - 767 198 Security provisions as of 31.12.11 582 824 211 578 2 273 - 8 222 - 804 897 Statutory minimum requirements as of 31.12.11 560 021 208 642 2 273 - 8 222 - 779 158 Other technical provisions as of 1.1.11 452 531 452 531 Other technical provisions as of 31.12.11 340 091 340 091 Total as of 1.1.11 8 305 494 Total as of 31.12.11 9 120 199 71
- 72. 72 Group 2010 1 PERSONAL LINES 2 COMMERCIAL LINES Of which TOTAL Onshore Onshore Of which Workmen's TOTAL 3 4 5 Natural Onshore third party Travel PERSONAL property property third party compen- COMMERCIAL Total Energy/ Total Perils NOK 1,000 property Motor liability Yacht Accident insurance Others LINES industrial commercial Motor liability Liability sation Safety Other LINES Marine oil reinsurance pool TOTAL Gross unearned premium provisions as of 1.1.10 495 302 686 310 294 824 30 477 36 284 112 142 8 147 1 368 662 4 847 125 520 88 886 28 520 4 647 34 778 3 924 2 405 265 009 - - - 41 235 1 674 906 Gross unearned premium provisions as of 31.12.10 556 389 793 219 325 971 32 802 37 279 120 582 12 854 1 553 125 4 818 156 545 118 597 32 448 7 398 62 762 4 553 14 728 369 402 - - - 39 293 1 961 820 Gross claims provisions as of 1.1.10 725 412 1 253 902 998 037 19 783 256 023 97 531 4 567 2 357 218 5 719 336 874 187 755 139 007 24 421 644 081 230 160 3 573 1 432 583 340 52 296 40 732 55 126 3 938 296 Gross claims provisions as of 31.12.10 944 084 1 477 788 1 116 074 20 037 325 967 132 095 10 354 2 910 324 12 983 345 564 232 471 156 276 88 302 913 243 250 353 48 051 1 890 967 157 823 68 242 47 769 48 818 5 123 943 Security provisions as of 1.1.10 469 225 231 474 - - 10 721 711 421 Statutory minimum requirements as of 1.1.10 469 225 231 474 - - 10 721 711 421 Security provisions as of 31.12.10 500 480 251 285 1 224 - 14 208 767 198 Statutory minimum requirements as of 31.12.10 500 480 251 285 1 224 - 14 208 767 198 Other technical provisions as of 1.1.10 497 337 497 337 Other technical provisions as of 31.12.10 452 531 452 531 Total as of 1.1.10 6 821 959 Total as of 31.12.10 8 305 494 SpareBank 1 Gruppen
- 73. 73 NOTE 44 –LIABILITIES RELATED TO REINSURANCE Group NOK 1,000 2011 2010 Reinsurance liabilities in life insurance 30 356 33 301 Reinsurance liabilities in P&C insurance 43 661 44 405 Total liabilities related to reinsurance 74 017 77 706 NOTE 45 – INSURANCE RISK IN LIFE INSURANCE Important assumptions and changes in assumptions The guaranteed interest rate complies with rules laid down by the Financial Supervisory Authority of Norway From 1 January 2011 the guaranteed interest rate was 2.5% for new agreements, while the guaranteed interest rate on new accrued entitlements for group pensions will be 2.5% from 1 January 2012. Moreover, new earnings and accrued entitlements follow the maximum permitted guaranteed rate of interest that applied at the time the entitlements were earned. The mortality assumptions are largely based on common surveys by the FNO, while the estimates for disability are chiefly based on the company's own experience. The mortality assumptions for the disabled have taken account of the correlation between disability and mortality. As of 2008, group defined benefit pension and paid up policies term group defined pensions, follow the new industry tariff K2005 with security margins that take info increased expectancy. A new mortality basis for group life pension, K2013, is being developed under the auspices of the FNO. As a consequence of this, a process has begun to build up provisions for defined benefit pensions and paid-up policies. A new mortality basis for individual annuity and pension that takes account of greater life expectancy is also being developed under the auspices of the FNO. As a consequence of this, a process has begun to build up provisions for this business. The reserve provisions and premiums are established based on a policy that there should be a security margin in the reserves and the premiums. The security margins in the premiums and reserves are not quantified, but assessed by considering the levels of uncertainty and the maturities of the liabilities. The company's ordinary premium provisions are calculated according to prospective principles based on the same tariff terms as the premium tariff. IBNR- and RBNS-provisions have been made, using statistical methods based on the company's own experience. Management of risk due to insurance contracts Assessment of insurance risk Risk manuals have been prepared which contain guidelines for risk assessments including health and contractual regulations when acquiring potential customers. A health assessment of the insured party is carried out when signing individual risk products. The result of this assessment is reflected in the level of the risk premium required. When signing group agreements with risk cover, an assessment is carried out of the firm's risk (underwriting). When underwriting, the company's financial position, industry and sickness and disability history are evaluated. Controlling insurance risk In the company's existing portfolio, the insurance risk is monitored for each product group. The risk result from each product group is divided into mortality, disability and survival elements. Risk result performances are monitored throughout the year. For each type of risk the ordinary risk result for a period is the difference between the risk premiums that the company has received for the period and the compensation paid relating to the period. Insurance incidents which the company has not been notified about, but which are likely to have occurred based on experience, are included in this assessment. In connection with risk-based supervision, the company has prepared a framework for managing and controlling insurance risk. Risk result in 2011 Individual Individual annuity and endow- Group Group NOK million pension ment pension Accident life Total Risk of death (incl. accident risk) -14.866 -171.626 4.949 - 63.328 225.037 Disability -72.314 -8.233 -3.534 - 78.434 -5.637 Individual life - - - 57.640 57.640 Risk result before technical provisions -87.180 163.403 1.414 57.640 141.762 277.040 The table below shows the total risk result for 2011 with a reduction in mortality of 10% and 20%, respectively, or an increase in disability of 10% or 20%, respectively. Individual Individual annuity and endow- Group Group NOK million pension ment pension Accident life Total 10% reduction in mortality -87.598 177.556 5.762 57.640 165.719 319.079 20% reduction in mortality -88.016 191.709 10.109 57.640 189.677 361.119 10% increase in disability -110.673 157.099 15.189 57.640 127.942 216.820 20% increase in disability -134.166 150.795 -31.792 57.640 114.123 156.600 The effect that the risk result has on the result to the shareholders depends on which profit model is applied for the various products.
- 74. 74 SpareBank 1 Gruppen Reinsurance The company has a reinsurance strategy that is considered annually by the Board. The strategy includes targets for the company's reinsurance programme and specifies how the reinsurance programme is to be monitored. The company has the following type of reinsurance cover: Quota reinsurance In quota reinsurance the risk is divided between two parties, meaning that an agreement-specific proportion of the risk is transferred to a reinsurer. Surplus reinsurance An excess is fixed in contracts according to the type of risk. All risk that exceeds the excess is reinsured. Surplus reinsurance is, like quota reinsurance, a proportional arrangement, but differs because the percentage varies in the different contracts. Surplus reinsurance is particularly used for individual contracts. Excess of loss/catastrophe reinsurance Through excess of loss, the reinsurer covers the amount that exceeds the company's risk amount, often limited to a specified maximum level. A claim can be defined per risk or per event. An example of an excess of loss is a catastrophe reinsurance. In those circumstances where the claim is defined per risk, excess of loss can be very similar to surplus reinsurance. Sufficiency test IFRS 4 requires the company to carry out a sufficiency test of the company's reserves. This test has been performed using the same principles since 2004. The calculations are based on forecasts from the company's finance model, where both assets and liabilities are included. This model is extrapolated to 2015. The administration result and the risk result is assumed to be on the average level of the period 2011-2015, and the financial return is assumed to be 5.2%. As life expectancy increases, the reserves for retirement pensions are expected to be too low for both individual and group pensions. The provisions for long life have been built up for individual pensions, but the final calculations for incorporated in the system remain to be may, so there may be adjustments. 2% of the premium reserve has been set aside in 2011 to build up provisions, both for group defined benefit pensions and paid-up policies group defined pensions. It is estimated that around 4% needs to be built up for each of these types of business over 2 years. The sufficiency test indicates that the premium reserve is sufficient based on the assumed assumptions. Conditions and terms in insurance contracts Insurance risk For the majority of product groups, the company offers disability cover, either through a disability pension, premium exemption or disability capital. Whole life insurance is offered within individual contracts and group life insurance. In group pensions the company offers survivor pension benefits that come into effect in the event of the insured party's death. Changes in the payment regulations in the National Insurance Scheme for disability payments etc. will have a substantial effect on disability numbers and provisions. In relation to the change in the risk of mortality, the steadily increasing longevity affects whether the date on which payments actually commence matches the forecasts. With a continuously increasing lifespan, the company's future old age pension payments will be rising, compared with prior years. Interest rate risk The company has assumed a substantial interest rate risk in its interest rate and pension insurance. The company's average annual interest rate guarantee is for 3.13 %, calculated using an average insurance fund. New contracts in 2011 are offered with a guaranteed interest rate of 2.5 %. Persistent low interest rates will increase the risk connected to the interest rate guarantee. If the annual return looks to be less than the interest rate guarantee, financial measures are enacted to ensure that the return is at the same level as the interest rate guarantee. If this is insufficient, funds will be taken from the supplementary provisions to cover the guarantee. Any negative returns must be covered by the company's equity. In good financial years, part of the profits are allocated to supplementary provisions. This is regulated to a maximum of 12 % of the contract's premium reserve. Average interest rate guarantee 2011 Individual endowment insurance 2.63 % Individual annuity and pension insurance 3.64 % Group pension insurance 2.91 % Group life insurance 0.00 % Accident insurance 0.00 % Total 3.13 % • Profit models The company has models with and without rights to profits according to the rules in the Insurance Act. - New profit model: group pension, defined contribution pension with return guarantee, guarantee account, Individual saving products entered into from 2008 and group life with profit fund. - Modified profit model: paid-up policies terminated from group pension. - Profit sharing according to previous rules: individual endowment and Individual pension with profit sharing entered into prior to 2008. - Without right to profits: group life (without group life with profit fund), group risk pension insurance without paid-up policy, individual annuity, individual endowment and life insurance. - With investment choice: defined contribution schemes with investment choice, individual endowment and Individual annuity.
- 75. 75 • Profit allocation The allocation of profit to each customer is determined by which product group the contract belongs to. For individual endowment insurance, the profits will be accumulated on the different contracts and paid out with the amount insured. For individual annuity and pension insurance, the secured contribution is written up with the profit. Individual contracts terminated from group pension treated in the same way. For group pension, the profits are allocated to the scheme's premium reserve and the pensioner's profit reserve in accordance with the regulations set in the Company Pension Scheme Act. For schemes without these regulations the profits are allocated to the premium fund. • For products without profit rights the company will be exposed for the product's cost risk and insurance risk. • The right to transfer insurance between companies, where the time limit for settlement is only two months after the delay of cancellation for contracts where the transaction value is above NOK 300 million, can represent a liquidity risk if one or more of the greater contracts are transferred within a short amount of time. Transaction fee has an upper limit of NOK 5,000. Bigger outward transactions than inward transactions over a defined time period will affect the future cash flow. • In general, changes in framework conditions for the industry can influence future cash flows. For instance, changes in the Pensions Act result in the termination of defined benefit-based pensions or in transfers to the defined contribution-based pension. • Maturity analysis The best estimate for when the liabilities for savings products are due for payment. In the estimate disposals have been taken into account. New accrued entitlements are not taken into account in group defined benefit pensions. 2011 Book NOK million value 0-5 years 5-10 years 10-15 years 15-20 years >20 years Payments (not discounted) 4 894 2 979 2 185 1 652 3 144 Total net premium reserves (discounted) 12 392 Insurance risk concentration • The insurance portfolio is well diversified with respect to insurance risk. It is largely comprised of individual insurances and group insurances where the insurance risk is not concentrated. NOTE 46 – INSURANCE RISK IN P&C INSURANCE The insurance risk in each contract is the probability that the insured event will occur and the uncertainty surrounding the resulting claim. The nature of the insurance contract is such that the risk is random and therefore must be estimated. For insurance contracts portfolios utilising probability theory to calculate price and technical provisions, the biggest risk facing the company in connection with insurance contracts is that the actual compensation will exceed the amount set aside to cover claims. Insurance events strike randomly and the observed number of events and degree of compensation will naturally vary from year to year in relation to that estimated using statistical techniques. Empirically, a larger portfolio of standard insurance contracts will have expected results that vary less. A more diversified portfolio will have less chance of interference from changes in a sub-portfolio. The Group's subscription strategy is designed to reduce variability in the expected result by increasing the spread between different types of insurance risk through a sufficiently large insurance stock within each sector. The Group's reinsurance cover is intended to protect it against large claims/events. Quota reinsurance is also used to stabilise product dimensions. Sensitivity to insurance risk The table below shows the impact on earnings and equity (before tax) of a 1% change in gross premiums earned and 1% change in the Combined Ratio for own account. Combined Ratio is the most widely used criterion for measuring profitability in P&C insurance. A change in the Combined Ratio can result of a change in the injury frequency, compensation level and / or administrative costs. Sensitivity analysis – P&C insurance Effect in Profit effect before tax (for own account) NOK million 1 percentage point change in combined ratio Private +/- 39.6 1 percentage point change in combined ratio Corporate +/- 6.4 1 % change in premium level +/- 46.1 Concentration of insurance risk The Group has prepared contractual regulations that stipulate which insurance items the companies accept in their portfolios. Checks are performed to ensure that these contractual regulations are complied with. In addition, the insurance system incorporates automatic checks on accumulated balances when signing a new portfolio. Reinsurance coverage is adjusted in relation to the risk exposure in the insurance portfolio.
- 76. 76 SpareBank 1 Gruppen Gross premiums written per insurance product NOK 1,000 Onshore property 1 804 979 Industrial fire insurance 10 410 Marine 244 Motor 1 790 602 Onshore property commercial 377 520 Energy/oil - Yacht 75 934 Motor commercial 280 564 Total opening reass. 59 Accident insurance 164 079 Liability 54 863 Total marine, energy, reass 303 Travel insurance 336 029 Workman's compensation 167 342 Other retail insurance 23 683 Safety 89 606 Natural perils pool 120 957 Other 61 306 Total gross overdue Total retail lines 4 195 307 Total commercial lines 1 041 612 premiums 5 358 180 Claims provisions Claim provisions are measured at an unbiased level, such that no security buffer is included in the provisions. Based on the Financial Supervisory Authority of Norway's rules for technical insurance provisions, the Group must at all times have provisions that fully cover the Group's technical insurance liability and other risk derived from the insurance business. The Group must at all times have provisions that, as a minimum, correspond to the minimum requirements for the premium reserve and claim provisions for own account (after deductions for reinsurance) stipulated by the Financial Supervisory Authority of Norway, within all product lines. The premium reserve must cover the risk, that has not been run-off, of losses that have not yet occurred in existing insurance contracts on the balance sheet date. Claim provisions have not been discounted, except within marine insurance. The security provisions must cover extraordinary fluctuations and shall together with the actual claim provisions cover the company’s technical insurance liabilities with a likelihood of 99 %. Analysis of claims trends NOK million 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total GROSS CALCULATED COMPENSATION COSTS At start of claim year 2,319.7 2,303.4 2,312.0 2,525.3 2,786.8 2,844.2 3,061.3 3,505.3 4,070.2 One year later 2,258.1 2,254.0 2,324.6 2,518.3 2,787.2 2,905.4 3,167.4 3,657.4 - Two years later 2,250.7 2,170.2 2,257.2 2,456.8 2,740.5 2,990.3 3,090.9 - - Three years later 2,229.9 2,145.5 2,224.6 2,431.5 2,813.3 2,955.1 - - - Four years later 2,241.6 2,128.9 2,218.5 2,474.8 2,773.2 - - - - Five years later 2,250.7 2,118.5 2,211.2 2,420.4 - - - - - Six years later 2,257.0 2,120.4 2,205.5 - - - - - - Seven years later 2,256.2 2,119.4 - - - - - - - Eight years later 2,254.2 - - - - - - - - Calculated amount as at 31.12.2011 2,254.2 2,119.4 2,205.5 2,420.4 2,773.2 2,955.1 3,090.9 3,657.4 4,070.2 Total paid to date 2,188.7 2,014.6 2,049.9 2,186.3 2,409.5 2,500.6 2,497.7 2,755.9 2,051.4 Claims provisions UB 65.6 104.8 155.6 234.1 363.7 454.5 593.2 901.5 2,108.7 4,891.7 Claims provisions for claims before 2003 - - - - - - - - - 304.0 Total claims provisions land-based - - - - - - - - - 5,195.7 Claims provisions Marine/Energy/Opening Re in Runoff - - - - - - - - - 184.7 Claims provisions pools - - - - - - - - - 150.2 Indirect claims handling costs - - - - - - - - - 264.7 Total 5,795.2
- 77. 77 NOK million 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total FOR OWN ACCOUNT CALCULATED COMPENSATION COSTS At start of claim year 1,518.5 1,661.8 1,781.9 2,356.4 2,546.8 2,643.7 2,775.9 3,212.1 3,651.2 One year later 1,489.1 1,618.8 1,782.4 2,355.1 2,541.0 2,695.9 2,848.8 3,383.9 - Two years later 1,473.8 1,547.7 1,723.8 2,305.4 2,496.4 2,722.6 2,793.9 - - Three years later 1,452.5 1,524.7 1,696.0 2,280.4 2,523.5 2,693.9 - - - Four years later 1,457.6 1,513.9 1,694.8 2,298.1 2,491.6 - - - - Five years later 1,459.9 1,507.7 1,689.6 2,250.9 - - - - - Six years later 1,463.7 1,510.3 1,680.9 - - - - - - Seven years later 1,461.8 1,508.3 - - - - - - - Eight years later 1,461.7 - - - - - - - - Calculated amount as at 31.12.2011 1,461.7 1,508.3 1,680.9 2,250.9 2,491.6 2,693.9 2,793.9 3,383.9 3,651.2 Total paid to date 1,438.9 1,452.5 1,570.0 2,045.0 2,198.2 2,336.3 2,306.4 2,595.4 1,918.4 Claims provisions UB 22.8 55.8 110.9 205.9 293.5 357.5 487.5 788.5 1,732.8 4,055.1 Claims provisions for claims before 2003 - - - - - - - - - 253.3 Deduction XL-reassuranse - - - - - - - - - -31.5 Total claims provisions land-based - - - - - - - - - 4,276.9 Claims provisions Marine/Energy/Opening Re in Runoff - - - - - - - - - 118.7 Claims provisions pools - - - - - - - - - 150.0 Indirect claims handling costs - - - - - - - - - 264.7 Total 4,810.3 NOTE 47 – SALARIES AND OTHER REMUNERATION OF CEO AND SENIOR EXECUTIVES Other Accrued remuner- pension NOK 1,000 Pay Bonus1) ation cost Group executive management team Kirsten Idebøen 3 147 650 460 785 Torbjørn Martinsen 2 656 507 392 542 Aud Lysenstøen 2 379 437 360 521 Tore Tenold 2 242 445 303 809 Leif Ola Rød 2 148 2 047 66 - Thoralf Granerød 1 904 366 292 385 Jarle Haug 2 035 417 312 270 Øyvind Aass 2 071 353 279 461 Sigurd Aune 2 061 386 310 360 Total 2011 20 643 5 608 2 774 4 133 Total 2010 18 980 3 843 2 622 2 704 Board Finn Haugan 176 - - - Hans Olav Karde 181 - - - Bjørn Engaas 190 - - - Bente N. Halvorsen, board member until 26.01.11 70 - - - Knut Bekkevold 844 48 144 - Venche Johnsen 132 - - - Tor-Arne Solbakken, board member until 26.01.11 38 - - - Steinar Karlsen, attending substitute board member 148 - - - Sally Lund-Andersen 106 - - - Richard Heiberg 174 - 4 - Total 2011 2 059 48 148 - Total 2010 1 615 - 82 - Terje Varberg, board member until 26.01.11, and Arne Austreid, board member from 26.01.11, did not receive board member pay. Vivi Ann Pedersen, substitute board member received no payments in 2011. Control committee Dag Nafstad 155 - - Knut Ro 115 - - Ivar Listerud 115 - - Odd Broshaug 115 - - Rolf Røkke 115 1 - Total 2011 615 1 - Total 2010 590 - -
- 78. 78 SpareBank 1 Gruppen Other Accrued remuner- pension NOK 1,000 Pay Bonus1) ation cost Supervisory Board Halvorsen Per 639 50 31 - Petersen Kjell Olav 52 - - - Hagerud Trond 7 - - - Stenrud Ellen 7 - - - Elvegård Kyrre 692 81 94 - Martinsen Gunnar 14 - - - Leite Helge 7 - - - Eidesvik Kristian 7 - - - Sundnes Trine Lise 7 - - - Koch Per Axel 14 - - - Sollie Bjørg Marit 14 - - - Vyrmo Bjørn 385 27 57 - Bourne Philip 773 50 - - Stubne Liv Berit 535 46 29 - Nordstrøm Even 14 - - - Aske Øyvind 21 - - - Supervisory Board 2011 3 190 254 211 - Supervisory Board 2010 113 - - - 1) The bonus amount is the bonus paid out in the 2011 financial year. The maximum achievable bonus amount for senior executives, who are defined as the group executive management team, with an individual bonus agreement is 1-3 months' salary in SpareBank 1 Gruppen. The bonus for meeting targets in 2011 will be paid out in accordance with the Ministry of Finance's regulations relating to remuneration schemes in financial institutions. This means half of the achieved bonus amount will be paid out in 2012 and the remaining half will be paid out, in accordance with the pro rata principle, in 2013, 2014, and 2015. The deferred bonus payments will be related to the returns on selected equity certificates in SpareBank 1 Gruppen's owner banks. Employee elected board members in SpareBank 1 Gruppen are covered by the general bonus scheme for other employees of the company. Board members otherwise receive no other form of variable remuneration. The CEO is entitled to a pension amounting to 70% of annual salary from the year she turns 60. The right is earned on a pro rata basis. The CEO's salary and bonus are based on an overall evaluation of a combination of the Group's profit, the Group's target achievement compared to other comparable financial institutions, the CEO's individual performance, and average salary for comparable management positions. Any bonus is decided by the Board and an assessment of the bonus that will be paid out for one financial year must be made before the next financial year ends. No obligation exists to award the Chairman of the Board any special remuneration upon resigning, or changes being made to, the post. No do any agreements exist concerning bonuses, profit sharing, options or similar benefits for the Chairman of the Board. Loans to employees are granted by Bank 1 Oslo Akershus AS and the collateral provided satisfies the requirements of section 2-15 of the Financial Institutions Act. Employees are granted loans with a 20% discount compared to ordinary customers. The various companies in the Group are charged for their proportion of the discount. Employee discounts are granted for loans and some insurance services. Benefits awarded to senior executives and board members do not differ from the benefits awarded to other employees. All loans to employees and the Board are approved by the Control Committee. The discounts given are about 25% of the terms for ordinary customers. SpareBank 1 Livsforsikring AS offers no discounts to employees or board members. All insurance contracts are based on the ordinary terms for customers. SpareBank 1 Gruppen AS's sole business is to administer its interests in its subsidiaries. All transactions with related parties are entered into on normal business terms. All intergroup payments not related to sales and portfolio management are priced at cost. See note 52. Insurance premium SpareBank 1 Skadeforsikring AS 2011 Group Other executive Control Associated related NOK 1,000 management Board committe companies parties Annual premium 157 860 160 442 36 658 See note 52 143 634 Claims 61 444 60 285 - See note 52 146 109 Insurance premium SpareBank 1 Skadeforsikring AS 2010 Group Other executive Control Associated related NOK 1,000 management Board committe companies parties Annual premium 151 773 146 163 26 775 See note 52 116 139 Claims 18 062 233 903 40 699 See note 52 23 111
- 79. 79 NOTE 48 –PENSIONS General description of the company's pension liabilities: The employees are part of SpareBank 1 Gruppen's pension scheme which is administrated by SpareBank 1 Livsforsikring AS. The defined benefit plan ensures most of the employees a pension payment that constitutes 70 % of the expected final salary until the age of 77 with a future decrease in payments. In addition, a defined contribution plan has been established for employees from 01.01.2005. The defined benefit plan was closed for new employees as of the same date. For the parent company, the defined benefit plan includes 97 current employees and 76 pensioners. For the total group the defined benefit plan inclueds 482 current employees and 487 pensioners. 824 employees are covered by the Group's defined contribution scheme. Estimates are used for preparing the valuation of the pension retirement benefit and for the resulting excess or deficit. Adjustments to these values are made on a yearly basis and in accordance to statements of the transfer value from the life insurance company and actuarial valuations of the liability's size. The costs are calculated based on the assumptions made for the opening balance. The pension liabilities are revised and calculations updated as of 31.12 according to the assumptions made at year end. Actuarial gains and losses (changes in estimates) are presented in the statement of comprehensive income. The period's pension costs consist of the pension entitlements accrued in the period and interest costs on the pension liabilities, less the expected return and accrued employer's national insurance contribution. Payments according to the defined contribution scheme are registered through profit and loss in the year of payment. A new act relating to state subsidies to workers who take a statutory early retirement pension in the private sector came into force on 19.02.10. Workers who take early retirement from 2011 or later will be given benefits under the new scheme. The new pension scheme constitutes a lifelong entitlement from the National Insurance Scheme and can be taken from age of 62. Employees earn the right to a statutory early retirement pension retirement annually at a rate of 0.314% of pensionable income up to 7.1G at the age of 62. Vesting of the new scheme is calculated on the basis of the worker's lifetime income, so that all earlier working years are included in the accrual basis. The new scheme will be financed by the state covering 1/3 of pension expenditure and 2/3 which shall be borne by the employers. Employers' premiums will be determined as a percentage of salaries between 1G and 7.1G. The new pension scheme is, for accounting purposes, considered a defined benefit multi-employer scheme. This means that each entity should account for its proportionate share of the scheme's pensions liabilities, pension funds and pensions costs. In the absence of estimates of the individual components and a consistent and reliable basis for allocation recorded, the new pension scheme is recognised as a defined contribution scheme. When the new act was implemented, the previous scheme was, for accounting purposes, considered closed and under termination, and will be treated in accordance with the rules for curtailment and settlement. For employees born after 31.12.1948, the effect of the new scheme is accounted for in the first half of 2010. For retired employees with previous scheme, the accounting remains unchanged. As a result of this, the parent company entered an income of NOK 10 million and the Group NOK 46 million at the end of the first half of 2010. Child and spouse insurance were closed in 2010. This resulted in a gain of NOK 13.3 million and NOK 45.7 million in the parent company and the Group, respectively.
- 80. 80 SpareBank 1 Gruppen Parent company Group 2011 2010 NOK 1,000 2011 2010 Pension liabilities related to defined benefit pensions 213 972 238 365 Present value of pension liabilities as of 1.1 974 623 1 003 252 - - Pension liabilities additions - 25 434 12 565 12 169 Pension entitlements accrued in the period 41 248 41 499 6 650 7 846 Interest costs on pension liabilities 32 037 35 950 - - Terminated pension plans - -11 26 319 -32 382 Actuarial losses/gains 128 266 -50 623 -10 413 -12 025 Benefits paid -64 545 -79 661 - - Other changes - -1 217 249 090 213 972 Present value of pension liabilities as of 31.12 1 111 629 974 623 217 217 186 546 of which fund-based 991 182 870 551 31 876 27 426 of which not fund-based 120 447 104 072 Pension assets 148 106 147 651 Pension assets as of 1.1 692 924 689 043 - - Pension assets additions - 9 272 6 974 8 067 Expected return in the period 33 542 38 389 - - Terminated pension plans - - 221 -12 620 Actuarial losses/gains 29 143 -33 409 10 972 10 097 Employer's NI contributions 51 086 40 905 -4 478 -5 089 Benefits paid -39 966 -50 059 - - Other changes - -1 217 161 795 148 106 Pension assets as of 31.12 766 729 692 924 Financial status as of 31.12 249 090 213 972 Present value of pension liabilities as of 31.12 1 111 629 974 623 161 795 148 106 Pension assets as of 31.12 766 729 692 924 87 295 65 866 Net pension liabilities as of 31.12 344 900 281 699 87 295 65 866 Net pension liabilities as of 31.12, excl. employer's NI contributions 344 900 281 699 9 100 12 604 Employer's NI contributions as of 1.1 39 689 44 458 - - Employer's NI contributions additions - 2 059 1 726 1 685 Costs related to employer's NI contributions 5 451 5 508 - - Net employer's NI contributions related to terminated pension plans - - 3 679 -2 786 Actuarial losses/gains 13 976 -2 395 -2 384 -2 402 Benefits paid -10 669 -9 941 - - Other changes - - 12 120 9 100 Employer's NI contributions as of 31.12 48 448 39 689 - - Other changes - 3 967 99 419 74 966 Net pension liabilities in the balance sheet 393 347 325 355 Pension costs for the period 12 565 12 169 Accrued defined benefit-based pensions 41 248 44 843 6 650 7 846 Interest costs on pension liabilities 32 037 36 401 -6 974 -8 067 Expected return on pension assets -33 542 -38 769 12 240 11 947 Net defined benefit-based pension costs without employer's NI contributions 39 743 42 475 1 726 1 685 Accrued employer's NI contributions 5 451 5 974 13 966 13 631 Net defined benefit-based pension costs recognised in profit or loss 45 195 48 449 - applied to secured defined benefit pension costs 9 270 10 202 including employer's NI contributions 36 453 33 017 8 631 8 499 Defined contribution-based pension costs, incl. employer's NI contributions 37 106 31 365 22 598 22 131 Pension costs in the period recognised in the income statement 82 301 79 814 - -10 271 Run-off gain due to cessation of salary increases, incl.employer's NI contribution - -44 988 - -13 335 Run-off gains upon termination and issuance of paid-up policies - -43 985 22 598 -1 475 Total pension costs defined benefit and contribution pensions, incl. run-off gains 82 301 -9 159 Estimated pension costs defined benefit and contribution pensions for 2011, 19 679 19 424 incl. employer's NI contributions 78 693 74 157 60 405 65 019 Pensionable salary 273 494 298 805
- 81. 81 2011 2010 NOK 1,000 2011 2010* Actuarial losses/gains -21 438 761 Actuarial gains/(losses) for the period, recognised in equity after tax -81 432 -54 882 -90 206 -68 768 Actuarial gains/(losses), recognised in equity after tax -425 476 -344 044 Composition of pension assets 21,90 % 20,40 % Buildings and real estate 21,90 % 20,40 % 22,20 % 18,40 % Investments held to maturity 22,20 % 18,40 % 10,60 % 15,70 % Equities and units 10,60 % 15,70 % 48,80 % 43,20 % Bonds and other fixed-income securities 48,80 % 43,20 % -3,50 % 2,30 % Other assets -3,50 % 2,30 % 100,00 % 100,00 % Total pension assets 100,00 % 100,00 % * Incl. comparative figures for Unison Forsikring AS in 2010 6 974 8 067 Actual return on pension assets 33 542 38 389 Assumptions 2,40 % 3,50 % Discounting rate 2,40 % 3,50 % 3,90 % 4,60 % Expected return on pension assets 3,90 % 4,60 % 4,00 % 4,00 % Future salary growth rate 4,00 % 4,00 % 3,75 % 3,75 % Adjustment of national insurance basic amount (G) 3,75 % 3,75 % 0,60 % 1,30 % Pension adjustment 0,60 % 1,30 % 14,10 % 14,10 % Employer's NI contributions 14,10 % 14,10 % 4% and 2% 4% and 2% Staff turnover 4% and 2% 4% and 2% 40,0 % 40,0 % Expected statutory early retirement pension acceptance from age 62 40,0 % 40,0 % Demographic assumptions K2005 K2005 Mortality K2005 K2005 IR2003 IR2003 Disability IR2003 IR2003 Development during the last five years for the Group's defined benefit-based pension plan 2011 2010 NOK 1,000 2011 2010 2009 2008 2007 Present value of pension 249 090 213 972 liabilities as of 31.12 1 111 629 974 623 1 272 038 1 265 003 1 105 713 161 795 148 106 Pension assets as of 31.12 766 729 692 924 868 457 845 748 838 876 87 295 65 866 Deficit 344 900 281 699 403 581 419 255 266 837 Experienced adjustments on 26 319 -32 382 pension liabilities 128 266 -50 623 -32 286 98 632 -5 277 Experienced adjustments on 221 -12 620 pension assets 29 143 -33 409 -40 416 -92 357 7 738
- 82. 82 SpareBank 1 Gruppen NOTE 49 – NUMBER OF EMPLOYEES AND FULL-TIME EQUIVALENTS Average nbr. Full-time Average nbr. fulltime Employees equivalent of employees equivalents 31.12.2011 31.12.2011 in 2011 in 2011 SpareBank 1 Gruppen AS 234 229 227 221 SpareBank 1 Livsforsikring AS 249 241 248 239 SpareBank 1 Skadeforsikring AS 394 382 379 367 Unison Forsikring AS 35 34 32 32 ODIN Forvaltning AS 60 60 59 58 SpareBank 1 Medlemskort AS 9 8 9 8 SpareBank 1 Gruppen Finans AS 50 48 49 47 Conecto AS 144 138 147 141 SpareBank 1 Markets AS (formerly Argo Securities AS) 92 92 84 84 SB Securities LLP 1) 5 5 3 3 Total 1 272 1 237 1 231 1 197 Average nbr. Full-time Average nbr. fulltime Employees equivalent of employees equivalents 31.12.2010 31.12.2010 in 2010 in 2010 SpareBank 1 Gruppen AS 220 213 219 213 SpareBank 1 Livsforsikring AS 246 238 249 242 SpareBank 1 Skadeforsikring AS 363 353 375 366 Unison Forsikring AS 2) 29 30 14 14 ODIN Forvaltning AS 57 57 54 54 SpareBank 1 Medlemskort AS 9 8 9 9 SpareBank 1 Gruppen Finans AS 47 45 45 42 Conecto AS 84 81 84 81 Actor Fordringsforvaltning AS 65 63 62 59 Argo Securities AS 75 75 71 71 Total 1 195 1 162 1 181 1 150 1) SpareBank 1 Markets AS acquired a 99.9% ownership interest in SB Securities LLP, which has offices in London, in Q2 2011. 2) SpareBank 1 Skadeforsikring AS acquired Unison Forsikring AS with effect from 01.07.10. Average number of employees and full-time equivalents in Unison Forsikring AS in 2010 has thus only be calculated for the period SpareBank 1 Skadeforsikring AS has owned Unison Forsikring AS.
- 83. 83 NOTE 50 –TAXES Connection between pre-tax profit and tax base Parent company Group 2011 2010 NOK 1,000 2011 2010 478 425 555 463 Pre-tax profit 387 289 985 133 24 030 -11 742 Change in temporary differences 254 945 -182 228 -657 958 -600 950 Permanent differences 143 325 -647 805 304 741 433 743 Received group contributions with tax effect - - 74 760 -17 789 Loss allowance carried forward -208 469 87 053 -941 - Correction for previous years -25 808 61 707 223 057 358 725 Basis for payable tax in the income statement 551 282 303 860 -223 057 -358 725 Distributed group contribution with tax effect - - - - Effect of policy changes 56 885 - - - Other differences -5 511 - - - Basis for payable tax in the balance sheet 602 656 303 860 - Payable tax as of 31.12.10 85 081 - Revised due to policy changes 13 366 - Payable tax as of 1.1.11 98 447 - - Tax payable 168 744 85 081 -19 324 8 269 Change in deferred tax asset -266 088 58 826 62 456 100 443 Taxable distributed group contributions - - - - Insufficient/excess tax provision previous years -66 399 3 484 - 296 Other tax effects (net) 25 237 6 195 43 132 109 008 Total tax -138 506 153 586 43 132 109 008 Tax before other income elements -138 506 153 586 -8 337 -296 Tax on other income elements -32 424 -23 980 Of which related to: -8 337 -296 Estimate variances in the pension agreement -31 668 -21 340 - - Revaluation of properties -756 -3 544 - - Adjustment of insurance liabilities - 904 34 795 108 712 Total tax including other income elements -170 930 129 606 Net deferred tax asset as of 31.12 - - Fixed assets 189 20 049 - 9 Securities 2 937 16 720 - - Shares in associated companies - 75 631 - - Insurance provisions (equity) 358 742 464 524 - - Other changes 1) 29 470 197 383 - 9 Total deferred tax 391 339 774 307 -56 283 -53 200 Fixed assets -65 866 -56 397 -267 - Securities -64 560 -10 130 - - Shares in associated companies -267 - - - Receivables -145 -17 - - Provisions -16 206 -12 084 -27 837 -24 467 Pension liabilities -110 924 -95 306 - - Other changes - - -84 387 -77 667 Total deferred tax asset -257 968 -173 935 -36 938 -16 006 Deferred tax asset linked to tax losses carried forward and unused allowance -146 771 -351 911 -121 325 -93 664 Deferred tax asset -13 400 248 461 -121 325 -93 664 Deferred tax asset -13 400 - - - Deferred taxes - 248 461 - - Deferred tax asset, not recorded 5 374 4 956 -121 325 -93 664 Net deferred tax asset -8 026 253 417 -93 664 Net deferred tax asset as of 31.12.10 253 417 - Revised due to policy changes -80 902 -93 664 Net deferred tax asset as of 1.1.11 172 515
- 84. 84 SpareBank 1 Gruppen Parent company Group 2011 2010 NOK 1,000 2011 2010 Reconciliation of total tax 133 959 155 530 28% of pre-tax profit 107 335 276 884 -184 228 -168 266 Permanent differences (28%) 40 131 -181 653 85 328 121 448 Tax on group contribution - - -264 - Correction for previous years -222 974 44 355 8 337 296 Transactions directly against equity 16 208 2 872 - - Other differences 2) -79 207 2 708 - - Change in unused dividend carried forward - 8 420 43 132 109 008 Calculated total tax -138 506 153 586 The deferred tax benefit in the parent company is recognised in the balance sheet since our expectations for results in subsidiaries are such that we can realise the benefit within a 3–5 year perspective. The Group's payable tax will insofar as it is possible be offset with group contributions. However, the tax effects of group contributions are not recognised before the year a decision is made, since both their approval and amounts are uncertain. Therefore, the Group's payable tax will, assuming the group contributions are approved in 2012, be reduced by the tax effect of the group contributions. 1) In 2010, tax relief was claimed for provisions allocated to the securities adjustment reserve amounting to NOK 289.7 million in SpareBank 1 Livsforsikring AS. When the tax cost was calculated, a correction was made for the uncertainty that existed at the time concerning whet- her or not the tax authorities would approve the deduction of NOK 634.6 million. 2) Other differences in 2011 were primarily linked to the tax effects that follow from the disappearance of temporary differences in the con- version of subsidiaries from associated companies to limited companies, and the effects linked to changes in the Taxation Act concerning the 3% rule in the tax exemption method. NOTE 51 – OTHER LIABILITIES Parent company Group 2011 2010 NOK 1,000 2011 2010 111 316 111 616 Accounts payable 140 040 150 821 10 430 9 066 Advance tax deduction 54 398 56 367 9 904 7 342 Governmental fees 41 587 31 852 20 927 18 061 Owed salaries and holiday pay 146 660 113 492 27 860 25 177 Other accruals 145 006 204 541 - - Commission liabilities 101 811 73 486 - - Margin payments or other account arrangements with customers 50 195 70 273 223 057 358 725 Provision for group contributions - - - - Occupational injury insurance claim to RTV 36 038 56 796 - - Premium deposits 138 846 133 847 1 981 4 880 Other liabilities 401 513 238 423 405 475 534 867 Total other liabilities 1 256 094 1 129 898
- 85. 85 NOTE 52 –MATERIAL TRANSACTIONS WITH RELATED PARTIES Org. Ownership OWNERS OF SPAREBANK 1 GRUPPEN AS REGARDED AS RELATED PARTIES number interest SpareBank 1 SR-Bank 937 895 321 19.5% SpareBank 1 Nord-Norge 952 706 365 19.5% SpareBank 1 SMN 937 901 003 19.5% Sparebanken Hedmark 920 426 530 12.0% Samarbeidende SpareBanker AS 977 061 164 19.5% SUBSIDIARIES, JOINT VENTURES AND ASSOCIATED COMPANIES, ETC. Org. Ownership OF OWNERS OF SPAREBANK 1 GRUPPEN AS REGARDED AS RELATED PARTIES number interest SPAREBANK 1 SR-BANK: SpareBank 1 SR-Finans AS 925 102 512 100.0% EiendomsMegler 1 SR-Eiendom AS 958 427 700 100.0% Westbroker Finans AS 950 475 978 100.0% SR-Forvaltning AS 983 054 560 100.0% SR-Investering AS 989 005 464 100.0% SpareBank 1 SR-Forretningsservice AS 990 945 748 100.0% Kvinnherad Sparebank Eigedom AS 977 242 304 100.0% SPAREBANK 1 NORD-NORGE: SpareBank 1 Nord-Norge Invest AS 935 491 533 100.0% SpareBank 1 Finans Nord-Norge AS 930 050 237 100.0% EiendomsMegler 1 Nord-Norge AS 931 262 041 100.0% North-West 1 Alliance Bank (25% owned by Saint-Petersburg Commercial Bank «Tavrichesky». The bank is registered in Russia and regulated by Russian law) - 75.0% SpareBank 1 Nord-Norge Forvaltning ASA 982 699 355 100.0% SNN Økonomihus Holding AS 997 580 095 100.0% Consis Alta AS (owned by SNN Økonomihus Holding AS) 983 381 138 60.0% SPAREBANK 1 SMN: SpareBank 1 SMN Finans AS 938 521 549 100.0% SpareBank 1 Bilplan AS (owned by SpareBank 1 SMN Finans AS) 979 945 108 100.0% Berg Data AS (owned by SpareBank 1 Bilplan AS) 983 257 542 80.0% SpareBank 1 SMN Invest AS 990 961 867 100.0% GMA Invest AS (owned by SpareBank 1 SMN Invest AS) 994 469 096 100.0% EiendomsMegler 1 Midt-Norge AS 936 159 419 87.0% SpareBank 1 SMN Kvartalet AS 990 283 443 100.0% SpareBank 1 SMN Regnskap AS 936 285 066 100.0% Allegro Finans ASA 980 300 609 90.1% SpareBank 1 Bygget Steinkjer AS 934 352 718 100.0% SpareBank 1 Bygget Trondheim AS 993 471 232 100.0% SpareBank 1 SMN Card Solutions AS 990 222 991 100.0% SpareBank 1 SMN - Investments in associated companies: PAB Consulting AS 967 171 344 34.0% Molde Kunnskapspark AS 981 036 093 20.0% Sandvika Fjellstue AS 993 952 451 50.0% Grilstad Marina AS 991 340 475 35.0% GMN 1 AS 994 254 596 35.0% GMN 4 AS 994 254 626 35.0% GMN 51 AS 996 534 316 35.0% GMN 52 AS 996 534 413 35.0% GMN 53 AS 996 534 502 35.0% GMN 54 AS 996 534 588 35.0% GMN 6 AS 994 254 707 35.0% Hommelvik Sjøside AS 992 469 943 40.0% Polaris Media ASA 992 614 145 23.5% SPAREBANKEN HEDMARK: Hedmark Eiendom AS 945 727 306 100.0% SpareBank 1 Finans Østlandet AS 975 963 748 100.0% Consis AS 967 661 643 100.0% Vato AS 932 378 094 100.0% Sparebanken Hedmark - Investments in associated companies: Fageråsen Invest AS 990 375 410 36.0% Engerdal Høvleribygg AS 954 333 582 20.0%
- 86. 86 SpareBank 1 Gruppen SUBSIDIARIES, JOINT VENTURES AND ASSOCIATED COMPANIES, ETC. Org. Ownership OF OWNERS OF SPAREBANK 1 GRUPPEN AS REGARDED AS RELATED PARTIES number interest Sparebanken Hedmark - Investments in joint ventures: Torggt 22 AS 982 786 150 50.0% SAMARBEIDENDE SPAREBANKER AS: Samarbeidende SpareBanker Fellestjenester AS 992 258 381 100.0% OTHER JOINT VENTURES AND ASSOCIATED COMPANIES OWNED BY SPAREBANK 1 GRUPPEN'S OWNERS Org. Ownership (who in turn treat SpareBank 1 Gruppen AS as a joint venture) number interest Alliansesamarbeidet SpareBank 1 DA 986 401 598 SpareBank 1 Boligkreditt AS 988 738 387 SpareBank 1 Næringskreditt AS 894 111 232 Bank 1 Oslo Akershus AS 910 256 351 BN Bank ASA 914 864 445 Org. Ownership SUBSIDIARIES OF SPAREBANK 1 GRUPPEN AS REGARDED AS RELATED PARTIES number interest SpareBank 1 Skadeforsikring AS 915 651 232 100.0% SpareBank 1 Livsforsikring AS 915 651 321 100.0% ODIN Forvaltning AS 957 486 657 100.0% SpareBank 1 Medlemskort AS 964 422 206 100.0% SpareBank 1 Gruppen Finans AS 948 396 882 100.0% SpareBank 1 Markets AS 992 999 101 97.2% Sparebankutvikling AS 975 966 453 100.0% Org. Ownership SUBSIDIARIES OF SUBSIDIARIES OF SPAREBANK 1 GRUPPEN AS number interest SPAREBANK 1 SKADEFORSIKRING AS: Unison Forsikring AS 983 336 027 100.0% Falck Ytters Plass Eiendom AS 979 275 617 100.0% Herkules tomt AS 982 749 522 100.0% Teglverkstomta AS 982 749 549 100.0% Tårnhuset AS 987 004 339 100.0% Sjølyst Forretningsbygg Senterdrift AS 976 102 363 100.0% Bøler Senter Næring AS 988 329 932 100.0% Bøler Sentrum AS 934 007 069 100.0% Kongeveien 49 Kolbotn AS 988 330 116 100.0% Grev Wedelsgate 3 AS 996 963 772 100.0% Jernbanetorget 2 AS (1% owned by SpareBank 1 Livsforsikring AS) 997 666 445 99.0% Hammersborggata 9 AS (50% owned by SpareBank 1 Livsforsikring AS) 996 860 779 50.0% Storgaten 33 Oslo AS (89% owned by SpareBank 1 Livsforsikring AS) 997 671 643 11.0% Drammensveien 130 Bygning 9 AS (99% owned by SpareBank 1 Livsforsikring AS) 997 666 399 1.0% SPAREBANK 1 LIVSFORSIKRING AS: Calmeyersgate 1 AS 996 901 505 100.0% Hammersborggata 9 AS (50% owned by SpareBank 1 Skadeforsikring AS) 996 860 779 50.0% Ørn Eiendom AS 980 390 764 100.0% Tordenskioldsgate 2 Oslo AS 888 455 442 100.0% Storgaten 1 AS 876 855 712 100.0% Storgaten 1 Eiendom AS (100% owned by Storgaten 1 AS) 889 496 932 100.0% Hammersborggata 2 AS (1% owned by Ørn Eiendom AS) 997 666 267 99.0% Tukthuset DA (99% owned by Hammersborggata 2 AS. Title holding company for Hammersborggata 2 AS) 979 945 132 1.0% Tukthuset II DA (1% owned by Ørn Eiendom AS. The company is being wound up) 986 534 318 99.0% Storgaten 33 Oslo AS (11% owned by SpareBank 1 Skadeforsikring AS) 997 666 267 89.0% Storgaten 33 Oslo DA (11% owned by SpareBank 1 Skadeforsikring AS. Title holding company for Storgaten 33 Oslo AS) 965 742 891 89.0% Drammensveien 130 Bygning 9 AS (1% owned by SpareBank 1 Skadeforsikring AS) 997 666 399 99.0% Bygning 9 DA (1% owned by SpareBank 1 Skadeforsikring AS. Title holding company for Drammensveien 130 Bygning 9 AS) 960 200 497 99.0% Jernbanetorget 2 AS (99% owned by SpareBank 1 Skadeforsikring AS) 997 666 445 1.0% Jernbanetorget 2 DA (99% owned by SpareBank 1 Skadeforsikring AS. Title holding company for Jernbanetorget 2 AS) 963 431 902 1.0% Provita AS 975 918 173 100.0% Ostara AS 975 918 106 100.0% Saturna AS 975 918 254 100.0% Ramira AS 975 918 211 100.0% Benull AS 974 483 769 100.0%
- 87. 87 Org. Ownership SUBSIDIARIES OF SUBSIDIARIES OF SPAREBANK 1 GRUPPEN AS number interest Norsk Moteforum AS (100% owned by Benull AS) 977 363 004 100.0% Moteuka DA (99% owned by Norsk Moteforum AS and 1% by Senterforeningen) 992 079 487 100.0% ODIN FORVALTNING AS: Fondex OY, Finland - Separate Finnish company and only liable for tax in Finland 1628289-0 100.0% ODIN Fonder - Swedish branch of ODIN Forvaltning AS - 100.0% SPAREBANK 1 GRUPPEN FINANS AS: Conecto AS 952 226 010 100.0% SPAREBANK 1 MARKETS AS: SB Securities LLP 99.9% Group's transactions with related parties: The general principle for transactions between SpareBank 1 Gruppen AS and related parties is that these must be carried out on ordinary business terms and conditions. The cost division principle is used, without a profit premium, for services provided directly to group companies, as well as common services that SpareBank 1 Gruppen AS provides for subsidiaries and the alliance through Alliansesamarbeidet SpareBank 1 DA. A premium and other market considerations are used to set the price for other transactions between SpareBank 1 Gruppen AS and group companies. Parent company Group NOK 1,000 Sales of services (income): 2011 2010 2011 2010 Parent company - - - - Companies with joint control or significant influence over the company - - - - Subsidiary 120 166 100 238 - - Associated companies 475 723 337 759 - - Joint ventures in which the company is a participant - - - - Key personnel in the management of the company or the company's parent company - - - - Other related parties - 139 78 133 62 501 Purchases of services (costs): 2011 2010 2011 2010 Parent company - - - - Companies with joint control or significant influence over the company - - -481 908 -539 675 Subsidiary -24 503 -22 330 - - Associated companies - - - - Joint ventures in which the company is a participant - - - - Key personnel in the management of the company or the company's parent company - - - - Other related parties - - -154 612 -23 807 Balance sheet items due to sales or purchases of services 2011 2010 2011 2010 Parent company - - - - Companies with joint control or significant influence over the company - - -1 537 - Subsidiary - - - - Associated companies - - - - Joint ventures in which the company is a participant - - - - Key personnel in the management of the company or the company's parent company - - - - Other related parties - - -62 408 -29 105 Lease income 2011 2010 2011 2010 Parent company - - - - Companies with joint control or significant influence over the company - - - - Subsidiary 26 270 17 339 - - Associated companies - - - - Joint ventures in which the company is a participant - - - - Key personnel in the management of the company or the company's parent company - - - - Other related parties - 14 955 - - Disposals of fixed assets 2011 2010 2011 2010 Parent company - - - - Companies with joint control or significant influence over the company - - - - Subsidiary - - - - Associated companies - - - - Joint ventures in which the company is a participant - - - - Key personnel in the management of the company or the company's parent company - - - - Other related parties 47 274 - - -
- 88. 88 SpareBank 1 Gruppen Lending, receivables and other financial transactions 2011 2010 2011 2010 Parent company - - - - Companies with joint control or significant influence over the company - - - - Subsidiary 180 930 161 868 - - Associated companies - - - - Joint ventures in which the company is a participant - - - - Key personnel in the management of the company or the company's parent company - - - - Other related parties 125 484 18 120 183 540 279 071 Loans, liabilities and other financial transactions 2011 2010 2011 2010 Parent company - - - - Companies with joint control or significant influence over the company - - - - Subsidiary -223 057 -358 725 - - Associated companies - - - - Joint ventures in which the company is a participant - - - - Key personnel in the management of the company or the company's parent company - - - - Other related parties -817 - -1 322 -996 The remuneration of executive employees in the group executive management team, Board, Control Committee and Supervisory Board are discussed in: Note 47 - Salaries and other remuneration of CEO and senior executives. NOTE 53 – EVENTS AFTER THE BALANCE SHEET DATE AND LEGAL DISPUTES Events after the balance sheet date No events have been registered after the balance sheet date that would have a material effect on the consolidated financial statements of SpareBank 1 Gruppen Group. Legal disputes As of 31.12.11, SpareBank 1 Gruppen Group was party to 18 legal disputes. All of these are disputes with policyholders and other insurance companies, and concern claims settlements in insurance contracts. Provisions are made in the insurance companies' accounts for these disputes as they occur, and the outcome of these cases is immaterial for the Group's financial position.
- 89. 89 NOTE 54 –REVISED BALANCE SHEET FOR SPAREBANK 1 GRUPPEN GROUP AS OF 31 DECEMBER 2010 Group Revised Balance Re- balance sheet NOK 1,000 Sheet classifications 31.12.10 ASSETS Deferred tax asset - - - Goodwill 850 819 - 850 819 Other intangible assets 1) 142 933 3 950 146 883 Investments in subsidiaries - - - Investments in associated companies and joint ventures 9 010 - 9 010 Property, plant and equipment 1) 2) 3) 4) 1 340 389 -181 772 1 158 617 Reinsurance receivables 1 494 338 - 1 494 338 Other assets 4) 616 077 -6 200 609 877 Investment properties 2) 4 094 812 95 225 4 190 037 Bonds held to maturity 4 679 131 - 4 679 131 Bonds at amortised cost 1 249 291 - 1 249 291 Securities available for sale 20 216 - 20 216 Lending to customers and deposits with financial institutions 5) 658 452 -73 886 584 566 Securities at fair value 3) 6) 23 024 332 -32 778 22 991 554 Financial derivatives 130 605 - 130 605 Insurance receivables from policyholders 1 394 441 - 1 394 441 Cash and cash equivalents 5) 6) 985 375 105 784 1 091 159 TOTAL ASSETS 40 690 221 -89 676 40 600 545 EQUITY AND LIABILITIES Shareholders equity 2 030 277 - 2 030 277 Retained earnings 7) 2 691 636 -180 960 2 510 676 Other equity - not recognised in the profit and loss account 71 454 - 71 454 Minority interests 15 446 - 15 446 Total equity 4 808 813 -180 960 4 627 853 Subordinated loan capital and hybrid tier 1 capital 848 846 - 848 846 Securities adjustment reserve 616 870 - 616 870 Insurance provisions in life insurance 7) 22 315 681 10 305 22 325 986 Premium and claims provisions in P&C Insurance 7) 8 067 303 238 191 8 305 494 Net pension liabilities 325 355 - 325 355 Deferred tax liability 7) 253 417 -80 902 172 515 Tax payable 7) 85 081 13 366 98 447 Securities issued 1 376 914 - 1 376 914 Liabilities related to reinsurance 77 706 - 77 706 Financial derivatives 160 265 - 160 265 Other liabilities 1 129 898 - 1 129 898 Deposits from and liabilities to customers and financial institutions 5) 624 072 -89 676 534 396 TOTAL EQUITY AND LIABILITIES 40 690 221 -89 676 40 600 545 1) Intangible assets with booked amount NOK 3,950 thousand originally classified as property, plant and equipment were reclassified to other intangible assets. 2) Book value of Hammersborggt 9 of NOK 95,225 thousand was reclassified from property, plant and equipment to investment properties. 3) Bank fund investment choice portfolio with book value of NOK 88,797 thousand was reclassified from property, plant and equipment to securities at fair value. 4) NOK 6,200 thousand was reclassified from other assets to property, plant and equipment. 5) Reclassification in 2010 of lending and liability accounts of NOK 89,676 thousand were reclassified to lending to customers and deposits with financial institutions NOK 73,886 thousand and cash and cash equivalents NOK 15,790 thousand. 6) Bank accounts linked to the investment portfolio in the life insurance company with a balance of NOK 121,575 thousand were reclassified from securities at fair value to cash and cash equivalents. 7) Change in regulations for technical insurance provisions in P&C insurance and life insurance resulted in increased provisions. The changes are regarded as policy changes and the effect of the policy changes were corrected against equity as of 31.12.2010. Taking into account the tax effects in the changes, the equity was reduced by NOK 180,960 thousand.
- 90. 90 SpareBank 1 Gruppen Independent auditor's report To the Annual Shareholders' Mee g of SpareBank 1 Gruppen AS etin k n Independent auditor s r e report Repo on the Financial Statements ort We have audited the accompanyin financial statements of SpareBank 1 Gruppen AS, which comprise ng fi k the fin ncial statements of the parent company and the financial statements of the group. The na rent c financial statements of the parent company and the financial statements for of group com rise the c t y fi mp balan e sheet as at 31 December 2011, income statement, statement of comprehensive income, nc t c chang in equity and cash flow fo the year then ended, and a summary of significant accounting ges or policies and other explanatory infformation. s Responsibility for the Financial Statements fo a The Board of Directors and the M Managing Director are respon ible for the preparation and fair ns d presentation of these financial sta ements in accordance with International Financial Reporting at Standards as adopted by EU, and for such internal control as the Board of Directors and the Managing d Direc or determine is necessary to enable the preparation of financial statements that are free from ct fi e mater al misstatement, whether d e to fraud or error. ri du Our r onsibility is to express an opinion on these financial s atements based on our audit. We resp fi st conducted our audit in accordance with laws, regulations, and auditing standards and pra tices c wi d ac gener lly accepted in Norway, including International Standa ds on Auditing. Those standards require ral d c t t l dard t d d that w comply with ethical requirements and plan and perform the audit to obtain reason le we nab assurance about whether the finan ial statements are free from material misstatement. nc m An audit involves performing procedures to obtain audit evidence about the amounts and disclosures u v d in the financial statements. The pr judgment, in luding the nc assessment of the risks of materia misstatement of the financial statements, whether due to fraud or s al c error. In making those risk assessments, the auditor considers internal control relevant . s s prepa tion and fair presentation of the financial statements in order to design audit procedures that ara fi i c are appropriate in the circumstan es, but not for the purpose of expressing an opinion on the p nc trol. An audit also includes evaluating the appropr ateness of ri accounting policies used and the rreasonableness of accounting estimates made by management, as e well a evaluating the overall pres as sentation of the financial statements. fi t We be ve that the audit evidence we have obtained is sufficie and appropriate to provide a basis for elie e ent our audit opinion. u Opinion i In our opinion, the financial state nts are prepared in accor ance with the law and regulations and eme rd present fairly, in all material respects, the financial position fo the parent company and the group fi or Spare nk 1 Gruppen AS as at 31 December 2011, and its fina ial performance and its ca h flows for eBa k anc as PricewaterhouseCoopers AS, Postboks 748 Sentrum, NO-0106 Oslo 74 NO T: 02316, www.pwc.no 3 Org.no.: 987 009 713 MVA, Medlem av Den norske Revisorforening
- 91. 91 Independent auditor's report - 2011 - SpareBank 1 Gruppen AS, page 2 the ye then ended in accordance with International Financial Reporting Standards as adopted by ear EU. Repo on Other Legal and Regulatory Requirements ort s and statement of corporate governance principles and of practices ti Based on our audit of the financia statements as described above, it is our opinion that the d fi al inform tion presented in the Boar of Directors report and statement of corporate govern nce ma rd t na principles and practices concerning the financial statements and the going concern assum tion, and mp the pr posal for the allocation of the profit is consistent with the financial statements and complies ro f d with the law and regulations. Opinion on Regis ration and Documentation i st Based on our audit of the financia statements as described above, and control procedures we have d fi al , s consid d necessary in accordan e with the International Sta ard on Assurance Engagements ISAE dered nc and e our op nion that management has fulfilled its duty to produce a proper and clearly set out registration pi s and documentation of the companny bookkeeping standards and practices generally accepted in Norway. Oslo, 16 March 2012 PricewaterhouseCoopers AS e Magn Sem ne State Authorised Public Accounta (Norway) ant Note: This translation from Norw gian has been prepared for information purposes only. : we fo (2)