Embedded value modesty affected by the financial crisis

  • Embedded value of the Storebrand Life Group was NOK 23.0 billion in 2008, down from the restated year-end 2007 value of NOK 26.5 billion.
  • Return on embedded value for 2008 on minus 20%, mainly as a result of the financial crisis.
  • Operations gave a positive contribution to the embedded value of NOK 1.8 billon.
  • Value of new business amounted to NOK 395 million in 2008.


    About embedded value
    Embedded value (EV) is an actuarially determined estimate of the value of a company excluding any value attributable to future new business. The calculation of embedded value requires the use of a number of assumptions with respect to the business, economic conditions and financial markets.

    Storebrand provides a separate EV report with detailed information. The EV report from Storebrand has been prepared in cooperation with the actuarial consulting firm Towers Perrin, using a market consistent approach (MCEV).

    Restatement of embedded value for 2007
    Two model changes are introduced from 2008, which lead to a change in the 2007 MCEV. The most important of these changes is related to the inclusion of a cost of capital for risks that the company cannot insure against (cost of non-hedgeable risk). This is a cost of capital that is not captured elsewhere in the calculations. The other change in the model is the projection of the interest rate curve. The new model, which was introduced in SPP in December 2007 is now also being used in MCEV. On the basis of these changes in the calculations, the previously published MCEV is reduced with minus NOK 3.4 billion, to NOK 26.5billion.

    Embedded value - results
    The MCEV result is influenced by the financial turmoil. Fall in equity markets during 2008 reduced the buffer capital in the life business. At the same time, a lower interest rate level and increased volatility in the market reduce the value of expected future earnings. In total, economic variances contributes negatively to the result with NOK 7.1 billion.

    During 2008 operations and new business have given a positive MCEV result contribution of NOK 1.8 billion. The development is positive in part as a result of the new investment strategy in SPP. Costs incurred with the separation of SPP from Handelsbanken and the integration with Storebrand pull down the result mainly because the calculation method for MCEV takes into account all separation costs, but excludes future synergies.

    Value of new busines
    Value of new business is NOK 395 million for 2008. The sale has been positive both in the Norwegian and Swedish life business with subscriptions of new premiums measured in APE of NOK 1 583 million and NOK 516 million respectively. In relation to comparable figures for 2007, the margins are increasing in the Norwegian operations, and the value of new business is estimated to NOK 504 million.

    For SPP the value of new business is NOK 109 million negative. The reason for this is mainly that new sales still are too low to cover the costs associated with new sales. At the same time, the interest rate level is reduced. Measures are put in place in SPP is expected to improve the value of new business. Among other, these measures include cost reductions and reduced interest guarantee on new sales.

    Additional information
    Storebrand will today arrange a combined press and analyst conference in Oslo at Felix Conference center, Bryggetorget 3, at 0900 CET

    An international conference call will be held at 1500 CET. To participate in the call, please use link at www.storebrand.com/ir or register 10 minutes before the conference begins. Please call (+47) 80080119 (from Norway) or (+47) 23000400 (from Norway or abroad).

    MCEV presentation and disclosure document is enclosed http://www.newsweb.no.
    These documents are also available at www.storebrand.com.



    Oslo, 4 March 2009

    Contact persons:

    EVP Corporate Communications Egil Thompson: Mobil (+47) 93 48 00 12
    Head of Investor Relations Trond Finn Eriksen: Mobil (+47) 99 16 41 35