2nd quarter 2001: Loss provisions and low financial income impact result
Loss provisions and low financial income impact result
· Operating profit NOK 79 million and Group net loss of NOK 343 million for the first six months
· Further loan loss provisions and low financial income Finansbanken affect 2nd quarter result
· Group insurance sales remain good. 7 per cent increase in life insurance premium volume in first half of 2001 and 22 per cent in 2nd quarter, compared to the same periods last year
· Market share of new mutual fund net inflows and position as market leader in Unit Linked products strengthened
· Lower sales levels in the savings products marked caused weaker earnings at Storebrand Bank
· If reports a profit for 2nd quarter 2001 due to improved technical result and higher financial yields
· Storebrand's Board of Directors has unanimously recommended that shareholders accept Sampo's offer for Storebrand. The offer has so far been accepted by 86.3 per cent of the shareholders.
Storebrand Group's operating profit for the first half of 2001 amounted to NOK 79 million. After the calculated allocation distribution to life insurance customers of NOK 422 million, the Group's net result was minus NOK 343 million. The Group result for the 1st quarter was minus NOK 189 million, while the Group result for the 2nd quarter was minus NOK 154 million. The Group profit for the first half of 2000 was NOK 561 million.
2nd quarter results are impacted by increased loan loss provisions related to Finansbanken's shipping portfolio, low financial income and the fact that unrest in the financial market resulted in low sales of savings products and thus lower commission income for Storebrand Bank. The financial market situation also resulted in Storebrand Kapitalforvaltning returning a weaker result. If Skadeforsikring (casualty and property) made a positive contribution in the 2nd quarter, so that Storebrand Skadeforsikring reported a significant improvement in results in the 2nd quarter.
The group's equity at the end of June amounted to NOK 10,308 million. The capital ratio rose to 13.1 per cent from 12.0 per cent at the end of the 1st quarter. Earnings per share were negative in the amount of NOK 1.12, compared to a positive NOK 1.39 at the end of the first half of last year.
Premium growth and cost control in life insurance
Storebrand Livsforsikring, the life insurance company, recorded an operating profit of NOK 664 million in the first half of the year. The policyholders' share is estimated at NOK 422 million, while the owner's share is NOK 242 million, compared to NOK 3,649 million and NOK 539 million respectively at the same time last year. The operating profit for the 2nd quarter was NOK 244 million, of which NOK 113 million is allocated to the owner.
The decline in profit in relation to both last year and the first quarter of this year is due primarily to financial income being lower. Booked yield in the first half of the year was 2.7 per cent, or 5.5 per cent on an annualised basis, compared to 6.0 per cent and 12.4 per cent respectively at the end of the first half of last year.
The value-adjusted yield in the first six months was minus 0.1 per cent, which is an improvement on the 1st quarter when it was minus 1.3 per cent. At the end of the first half of last year the value-adjusted yield was 3.1 per cent.
Total premium income, which includes premium reserves related to the transfer of policies from other companies, rose by 22 per cent in the 2nd quarter compared to the same period last year. The accumulated increase for the first six months of the year was 7 per cent. This first and foremost reflects premium reserves that have been transferred to the company. The ordinary premium growth was 3 per cent. Sales in the large corporate market have been strong throughout the first half of the year. In the private market, sales of traditional life insurance products stayed low in both the 1st and 2nd quarter. This trend is due to private customers increasingly opting for products based on the Unit Linked platform being sold through Storebrand Fondsforsikring AS. There is still some flow of premium reserves from Storebrand Livsforsikring AS to Storebrand Fondsforsikring AS, albeit at a declining rate. The 2nd quarter saw a positive flow of collective pension insurance to the company. For the first half of the year as a whole the flow was, however, negative. In the course of the year net transfers of premium reserves to the company of NOK 557 million have been reported but not yet recorded in the accounts.
The company's cost development in the 2nd quarter was positive and costs are now lower than in the same period last, both in absolute figures and in terms of average policyholders' funds. The latter amounted to 0.89 per cent in the first half of 2001 compared to 0.91 per cent at the end of the 1st quarter this year and at the end of the first half of 2000.
The stock market decline resulted in the market value adjustment reserve, which stood at NOK 2,998 million, being fully exhausted and thus the risk capital being reduced. The life insurance company's risk bearing capacity is satisfactory. The company focuses closely on risk management. The portfolio is constantly being monitored and adjusted in relation to the developments in the financial market. The life insurance company's capital ratio strengthened by 0.7 percentage points to 11.2 per cent in the 2nd quarter.
Market leader in Unit Linked
The company launched its defined contributions pension product in the second quarter, and this involved a high level of activity. The product has been well received. Accounts for the first half of the year show an operating loss of NOK 14.6 million. For the 2nd quarter seen in isolation the operating loss was NOK 7.6 million. The negative result is due to investments in the new product and related system solutions, and thus in line with expectations.
As a result of the financial markets condition, Unit Linked sales declined somewhat in the 2nd quarter. Nevertheless, the company has strengthened its position as market leader by increasing its market share by 0.7 percentage points, to 21.1 per cent, measured in terms of gross premium written including reserves transferred.
Strong health insurance growth
In the first six months of the year, Storebrand Helseforsikring recorded a 64 per cent growth in sales compared to the same period last year. Growth was registered in both the Norwegian and the Swedish markets, but it was higher in Sweden.
Euroben, which is Storebrand's and SPP Liv's joint venture company in Dublin, is fully operative and has written its first contracts for both Swedish and Norwegian customers.
Storebrand Helseforsikring and Euroben together made a NOK 10 million negative impact on the accounts for the first half of the year, of which NOK 5 million in the 2nd quarter.
Asset management characterised by weak market
Storebrand Kapitalforvaltning returned a pre-tax profit of NOK 3.5 million in the first half of 2001 compared to NOK 37 million in the same period last year. The result for the 2nd quarter was a negative NOK 4.4 million. This weak result is mainly due to the decline in the stock markets, a generally weak market for sales of fund units and a fall in result-based fees.
The market share of mutual funds net inflows at the end of the first half of the year was 28.9 per cent, a marked increase from 17.4 per cent at the end of the 1st quarter. All in all, Storebrand's share of the mutual funds market rose by 0.5 percentage points in the 2nd quarter. At the end of June its market share was 9.0 per cent, including Delphi Fondsforvaltning the market share was 10.0 per cent. Net new inflows by Storebrand Fondene totalled NOK 554 million in the 2nd quarter and approximately NOK 1.2 billion in the first half of the year. Storebrand Fondene had NOK 12.6 billion in total assets at 30 June 2001.
In all, Storebrand Kapitalforvaltning (including Delphi Fondsforvaltning) had NOK 146.5 billion under management in the first half of 2001, representing an increase of NOK 700 million in the 2nd quarter. This increase is related to external assets, which at the end of the first half of the year totalled NOK 23.2 billion.
Decline in Storebrand Bank's result
The result for the first six months of the year was a loss of NOK 68 million. At the end of the same period last year the profit was NOK 22 million. In the 2nd quarter the deficit amounted to NOK 64 million. The result was affected by weak financial markets, bringing about lower sales of mutual funds, Unit Linked products and share price-indexed bonds, and thus also in the bank's commission income. This was partially compensated for by higher net interest income. Operating expenses rose as a result of implementing the Advisory Bank concept. The 2nd quarter results include a NOK 34 million write-down on shares in Acta ASA as a result of Acta's stock exchange listing.
The parent bank's loss at the end of the first six months was NOK 72 million, including extraordinary dividend from Storebrand Finans AS in the amount of NOK 31 million. Storebrand Finans AS recorded a profit of NOK 35 million.
Net loans at the end of the period totalled NOK 10.1 billion. This is NOK 0.9 billion higher than at the beginning of the year. Deposits totalled NOK 6.3 billion, up NOK 0.6 billion during the first half of the year. Total assets at the end of June 2001 amounted to NOK 11.7 billion.
Shipping losses tap Finansbanken
Finansbanken Group had a profit before losses of NOK 131 million in the first half of 2001 compared to NOK 153 million in the same period last year. After losses the result was minus NOK 103 million. Taking into account the amortisation of goodwill in Storebrand, the result after losses was minus NOK 117 million in the first half of the year, of which NOK 147 million in the 2nd quarter.
Net interest income developed in a positive manner throughout the last three-month period. Net interest income amounted to NOK 216 million compared to NOK 185 million in the first half of 2000. Other income developed weakly in the period, primarily because of the financial market's performance. Operating expenses developed as expected and have been affected by the increased concentration on Private Banking.
Loan loss provisions were increased by NOK 211 million in the 2nd quarter, of which NOK 150 million in unspecified loss provisions. Subsequent to the 2nd quarter provisions, aggregate loan loss provisions amount to NOK 595 million, of which NOK 305 million is unspecified. The increase in loss provisions follows a new review of future market prospects for the bank's shipping portfolio. The shipping strategy stands firm and the bank's shipping exposure is being reduced.
At the end of June, gross loans amounted to NOK 17.4 billion, reflecting a 2.8 per cent growth since the turn of the year. Deposits from customers were somewhat lower than at the beginning of the year, totalling NOK 7.6 billion. At 30 June 2001, total assets amounted to NOK 20.5 billion.
The Board of Directors of Finansbanken has initiated a process for dividing the traditional banking and credit area and the private banking area into two separate business units. It is expected that this will be completed in the 3rd quarter. The changes that are planned will contribute to increased focus on Finansbanken's strategic priority areas. Gunnar Henriksen has been appointed Acting Managing Director as of 1st August. A search for a new managing director is underway.
Improvements in If continue
Storebrand Skadeforsikring's operating profit for the 2nd quarter amounted to NOK 47 million, a NOK 45 million improvement on the 2nd quarter of last year and NOK 238 million better than in the 1st quarter of 2001. The operating loss in the first six months was NOK 144 million, which is NOK 217 million lower than in the same period last year.
The positive development in the 2nd quarter results is due to an improvement in If Skadeforsikring's results. Storebrand's share (44 per cent) of If's profit, in accordance with the equity method of accounts, amounted to NOK 37 million in the 2nd quarter. If's improved results come from continued improvement in the technical result and higher yields on shares. The combined ratio was 109.0 in the 2nd quarter, which is 2.2 percentage points better than in the 2nd quarter of last year. The improvement in the technical result is because premium increases and the fact that costs have been reduced by dedicated efforts. A somewhat higher claims frequency and higher average claims in some lines negatively impacted the quarter.
Oslo Reinsurance Company reported a pre-tax profit for the first six months of NOK 22 million after releasing NOK 31 million from security reserve etc. This represents an operating loss of NOK 9 million for the first half of 2001. The company's main activity is to run-off its reinsurance portfolios. During the course of the second quarter the company terminated/commuted certain major single contracts, and this brought about a material reduction in its risk exposure.
Storebrand owns 50 per cent of Fair Forsikring, which is engaged in non-life insurance in the Danish private market. The operating loss for the first half of the year was NOK 27 million, of which a loss of NOK 16 million was recorded in the 2nd quarter. Fair Forsikring was consolidated with effect from the 2nd quarter of last year, with an operating loss of NOK 5 million.
Storebrand ASA
The pre-tax result in the first half of the year was minus NOK 210 million compared to minus NOK 182 million in the same period last year. The impairment in the result is due to net financial items totalling minus NOK 104 million at the end of June 2000, compared to minus NOK 50 million at the same time last year. Operating expenses were reduced by NOK 26 million compared to the first half of last year, to NOK 106 million in the first half of this year. The result for the 2nd quarter was minus NOK 78 million. This is NOK 54 million better than in the 1st quarter and is due to a significant increase in financial income. Liquidity was strengthened in the first half of the year in as much as last year's group contributions and dividends from subsidiaries have been transferred. Liquid assets totalled NOK 1.9 billion at the end of June 2001. The parent company also established a loan facility of Euro 225 million during the period.
Sampo's offer
On 21 May 2001, Sampo published its bid for Storebrand of NOK 75 per share, with settlement in the form of 77 per cent cash and 23 per cent Sampo shares. The value of the bid depends on the performance of the Sampo share. The offer has so far been accepted by 86.3 per cent of the shareholders. Sampo has extended the offer period to 28 September.
Storebrand's Board has unanimously recommended that Storebrand's shareholders accept Sampo's offer. Strategically, the Board considers that the proposed solution with Sampo is strong. It builds on the Storebrand organisation's competence and the company's growth strategy in the long-term savings market. The overall solution is viewed to be positive for employees, customers and shareholders alike. The solution contributes to a strengthening of Storebrand's market position in Norway, due to increased cost efficiency, a broader product range and improved quality of products and services. This will benefit Storebrand's customers and will contribute to a strengthening of competition in the Norwegian market. The EU competition authorities have approved Sampo's acquisition of Storebrand. Sampo has submitted a licence application to own Storebrand to the Norwegian authorities.
For complete pressrelease with tables, please follow enclosed link:
Oslo, 15 august 2001 <BR> <BR>For further information contact: <BR> <BR>Lars Aa Løddesøl, Director of Finance: tel.: + 47 22 31 56 24, mobile + 47 934 80 151 <BR> <BR>Egil Thompson, Director Corporate Communications: tel.: +47 22 48 95 86, mobile + 47 934 80 012