STB - Q3 2008: Financial crisis producing weak results
The Board of Director's interim report for Q3 2008 and the analyst presentation are attached on http://www.newsweb.no
Storebrand will today host a press and analyst conference in Oslo at Felix Conference Centre, Bryggetorget 3, at 0900 CET (in Norwegian). An international conference call will be hosted at 1500 CET. To participate in the conference call please use link on http://www.storebrand.no/ir, or call in and register 10 minutes before the presentation starts. Dial: +47 80080119 (from Norway) or +47 23000400 (from Norway or abroad).
Q3 2008: Financial crisis producing weak results
"Storebrand's interim result is affected by the situation in the financial market, resulting in very weak financial results in Storebrand Life Insurance and SPP. Nonetheless, the capital situation in Storebrand is satisfactory and our competitiveness and market position are good," says CEO Idar Kreutzer.
Results affected by financial instability
The result of Storebrand Life Insurance was driven by the turbulence in the financial markets. The company's equity was charged in Q3 to cover the customers' guaranteed return.
The return in SPP for the year to date has been lower than the guaranteed interest, and the financial hedging has not been sufficient to compensate for the weak return.
The result from the asset management activities was characterised by major instability in the financial markets. The primary reasons for the lower volume-based income in the quarter were net realisations and changes in assets under management.
Write-down of SPP value
A significant proportion of the purchase price that exceeds the booked equity in SPP was associated with the surplus value of the insurance policies. The negative developments in the financial markets have affected SPP's results in 2008. New calculations of the surplus values associated with the acquisition as per Q3, in which the financial markets' current volatility has been taken into account, indicates a reduced book value of SPP in the financial accounts. The intangible assets in SPP have therefore been written down by NOK 2.5 billion.
In these calculations a robust assessment of future volatility has had a negative effect on the options and guarantees associated with the purchased insurance policies. Any future reduction in market volatility may result in a reversal of this write-down.
Good liquidity and solidity in Storebrand Bank
Storebrand Bank's liquidity situation was satisfactory at the close of Q3 and in October the banking group has obtained a further NOK 1.25 billion through the issuance of covered bonds in the Norwegian market. The bank's capital ratio at the close of the quarter was 10.7% with a tier 1 capital ratio of 8.0%.
Capital injection for Storebrand Life Insurance
Powerful measures have been implemented in line with the principles for dynamic risk management. In Storebrand Life Insurance (excl. SPP) the equities exposure (taking derivatives into account) in customer portfolios with a guaranteed return has been reduced by 9.7 percentage points since the close of Q2 to 5.1% at the close of Q3. Similarly, the exposure in the company portfolio has been reduced by 6.5 percentage points to 2.4%. The change means that Storebrand Life Insurance's portfolios of liquid equity assets had been sold at the close of the quarter.
The proportion of equities in the defined benefit portfolio in SPP was 15.4% at the close of the quarter, while for the defined contribution portfolio it was 24.6%, which represents a small reduction in the quarter. However, the proportion of equities was significantly reduced at the beginning of Q4.
Capital base strengthened
Storebrand Life Insurance Group's capital adequacy (incl. SPP) as per Q3 was 13.4% versus 13.7% as per Q2. Storebrand Life Insurance Group's solvency margin was 129% at the close of Q3 versus 136% at the close of 2007. The board of Storebrand ASA decided to inject NOK 1,000 million in equity in the life insurance company in October through a private placement in order to ensure an optimal capital structure and improve the solvency margin in Storebrand Life Insurance. This injection of capital increases the solvency margin by 12 percentage points.
Development for the life insurance activities in October
The financial crisis has worsened in October. This has resulted in very turbulent equity and fixed income markets, including markedly falling long-term interest rates in Sweden. This has had a negative impact on the administration and financial results in the life insurance business. Up to 24 October, the solvency margin in Storebrand Life Insurance Group has fluctuated in the range of 130-140%. Running yield in the investment classes bonds held to maturity, real estate, interest rates and the money markets is good, and in total running yield increased whilst risk in the portfolio was reduced.
Good competitiveness and operations
In the life insurance business group pensions sold well during the quarter, but sales of individual pension policies were weak partly due to the instability in the financial markets. Premium income developed well in the occupational pensions market. Group insurance products with investment choice have grown 38% in the year to date and grew by 46% in Q3 compared with the equivalents periods last year.
Storebrand Investments had NOK 225 billion under management at the close of Q3; a reduction including value changes in the portfolios of NOK 2 billion since Q2. External discretionary assets and funds amounted to NOK 60.7 billion, an increase of NOK 0.5 billion compared with Q2.
Storebrand Bank has strengthened its market position although the growth in volume in the retail market was lower than in 2007. The bank experienced an increase in net interest income compared with the year before.
Sales of insurance policies in Storebrand Skadeforsikring were also good in Q3. During the quarter, the company increased its insurance portfolio by 8,000 contracts. The company now has more than 25,000 customers. The total portfolio premium has increased by 69% for the year to date.
Storebrand Helseforsikring experienced a growth in premium income in Q3 of 22% compared with the same period last year.
Oslo, 29 October 2008
EVP Corporate Communications Egil Thompson: Mobile (+47) 93 48 00 12
Head of Investor Relations Trond Finn Eriksen: Mobile (+47) 99 16 41 35
Enclosure: Board's Interim Report for Q3 2008