New longevity assumption for group pension insurance
On 8 March 2013, Finanstilsynet (the Financial Supervisory Authority of Norway) announced the introduction of a new longevity assumption for group pension insurance.
Finanstilsynet has used Statistics Norway’s medium alternative for life expectancy projections as a basis, but added a 10 per cent safety margin. In addition, the initial mortality rate has been adjusted by 12 per cent. The new calculation base gives a total required increase in reserves of approximately NOK 14.4 billion, of which NOK 3.8 billion had been set aside as at 31 December 2012. The remaining required increase in reserves represents approximately 6.5 per cent of policyholders’ funds for the relevant contracts.
There will be a five-year escalation period, starting in 2014. Including the 2011-2013 period, this implies a total period of eight years for financing the increase in reserves.
20 per cent of the financing must be in the form of shareholder contributions. With respect to paid-up policies, the increase in reserves will thus reduce the owner’s basis for profit sharing. With respect to contracts under defined-benefit schemes, an equal share of DNB Livsforsikring’s contribution will be added to the relevant contracts each year during the escalation period, resulting in a total shareholder contribution of NOK 2.9 billion, of which NOK 1.2 billion refers to paid-up policies, based on the current volume of such policies. NOK 0.2 billion referring to paid-up policies was charged to equity in 2011 and 2012. For contracts under defined-benefit schemes, the shareholder contribution will be distributed equally over a five-year period starting in 2014, while there will be reduced profit sharing for paid-up policies during the 2013 through 2018 period.
There is still some uncertainty regarding the interpretation of the letter from Finanstilsynet. DNB will cooperate with Finance Norway to clarify these matters as soon as possible.
Even though the new longevity assumption will have a negative impact on DNB’s financial performance, it will not affect the Group’s long-term financial targets.
For further information please contact:
Anders Skjævestad, CEO of DNB Livsforsikring, tel. +47 934 07 403
Jan Erik Gjerland, Investor Relations DNB, tel. +47 46 930 410