DNB Livsforsikring – Increase in shareholder contribution for higher life expectancy

On 2 April 2014, DNB Livsforsikring ASA received a letter from Finanstilsynet (the Financial Supervisory Authority of Norway) regarding "Guidelines for the strengthening of reserves and the use of surplus returns to cover higher provisions within group pension insurance".

According to the letter, DNB Livsforsikring can use surplus returns above the guaranteed rate of return to finance the required increase in reserves to reflect higher life expectancy for a period of seven years starting in 2014, which is two years longer than in Finanstilsynet’s original plan.

Based on DNB Livsforsikring’s current capital management strategy, expected returns over the next three years will be in the range of 4.5-5.0 per cent for paid-up policies and just over 4.0 per cent for defined-benefit pensions. Customers’ share of provisions for higher life expectancy in the public sector occupational pension market was almost fully financed at year-end 2013.

Thus, only the shareholder contribution remains. If the expected returns are achieved throughout the escalation period, the shareholder contribution will represent approximately 36 per cent of the total required increase in reserves of NOK 13.3 billion. This is higher than the 20 per cent shareholder contribution which the Norwegian Ministry of Finance found to be reasonable and which has been used in DNB Livsforsikring’s investor communication. 36 per cent represents approximately NOK 4.8 billion (or approximately NOK 0.7 billion per year), while 20 per cent represented approximately NOK 2.6 billion. Thus, the shareholder contribution will increase by some NOK 2.2 billion (or by approximately NOK 0.3 billion per year).

The table below shows estimated shareholder contributions based on various levels of return. As a result of the decision to wind up public sector occupational pension operations, a shareholder contribution totalling approximately NOK 0.3 billion will be charged to the accounts before year-end 2015, of which NOK 0.1 billion will be charged to the income statement for the first quarter of 2014. With respect to paid-up policies and defined-benefit pensions, the shareholder contribution will be charged to the income statement on a straight-line basis during the seven-year period, provided that annual returns are stable.

Future returns determine the size of the shareholder contribution. The table below shows sensitivities based on different levels of return for paid-up policies and defined-benefit pensions in the corporate market, taking account of the NOK 0.3 billion shareholder contribution for public market operations, but not the former shareholder contribution of NOK 0.3 billion for paid-up policies.

Return Shareholder contribution   in
  NOK billion over seven years 1)
Shareholder contribution   in
  NOK billion per year 1)
Shareholder contribution   in
  per cent 1)
4.0% 6.8 1.0 51%
Average return 4.8 0.7 36%
4.5% 4.3 0.6 32%
5.0% 3.2 0.5 24%
5.5% 2.8 0.4 21%

1)     Including loss of profitsharing in Paid-ups.

In light of Solvency II, DNB Livsforsikring will remain a well capitalised company and be on schedule to reaching a solvency ratio in excess of 100 per cent once Solvency II is implemented on 1 January 2016.

Further details about the sub-portfolios will be available on DNB’s IR-website www.dnb.no/ir.

For further information, please contact:

Anders Skjævestad, CEO, DNB Livsforsikring AS, tel. (+47) 934 07403

Jan Erik Gjerland, Investor Relations, tel: (+47) 23 26 84 08

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DNB is Norway's largest financial services group and offers financial products and services, including loans and deposits, mutual funds and asset management, life insurance and pension savings, payment and financing services, real estate broking and services related to the money and capital markets.