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2013
The Norwegian Financial Industry
Portraits CF-Wesenberg/kolonihaven.no | Layout Plein | Print 07 | Copies 500 | April 2013
ContentsWelcome to The Norwegian Financial Industry 2013 4
Status 5Further growth in the Norwegian economy 6
Norwegian banks stand firm despite European turmoil 8
Regulatory changes and pension reform 12
Few fires and little bad weather 16
Topics 21The pension reform 22
Who will finance industry? 24
Savings bank foundations – the power to change 26
Getting to grips with climate change 27
Towards pan-European banking supervision 28
Financing infrastructure 30
Cybercrime demands vigilance 31
Own home a more distant dream for many young people 32
Fateful times for the financial industry 33
The financial industry and UN sustainability principles 34
Government approves BankID 35
Solvency II – still challenges to overcome 36
Helping young people make better financial decisions 38
New compenstation scheme for occupational injuries 39
Joint platform for ethics and Advisory Code of Conduct 40
Finance Norway 41This is Finance Norway 42
Organisation chart as of March 2013 43
Management structure 44
Board and committees 2013 45
Finance Norway’s members 46
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Welcome to The Norwegian Financial Industry 2013
We are Finance Norway
Finance Norway merged with the Norwegian Employers’ Association for the Financial Sector on 1st January 2013 to create a combined trade and employer federation. With 200 member companies, we represent practically the entire Norwegian financial industry, which employs some 40-50 000 people. While not as large as in some other countries, it is still an important sector.
Financial institutions make a major contribution to society, both through efficiency gains for the benefit of customers and through sizable tax revenue for the benefit of the wider community. We can be proud of what we deliver. Productivity in the industry is two-and-a-half times the average for the mainland economy (excluding oil, gas and shipping), and productivity growth has been formidable. From 1990 to 2011, productivity in financial services increased by 168 percent, compared with 45 percent for the mainland economy as a whole. During the same period, a sharp fall in banks’ interest margin led to total annual gains for our customers of around NOK 36 billion. This goes to show that this is an industry of huge importance to the Norwegian economy.
Norwegian industry increasingly features strong confederations that serve as both trade and employer organisations. In the financial industry, the first step towards this kind of integration was taken when the industry united under Finance Norway as a trade association in 2010, while employer-related matters were handled by the Norwegian Employers’ Association for the Financial Sector.
One bodyThe new, merged organisation is in a better position to get the best terms for member companies, helping them to remain competitive and profitable. We aim to contribute to the further development of a knowledge-based industry. Financial institutions need to offer attractive jobs for talented people, so skills development is paramount.
Norwegian financial institutions have a major role to play in industry.
Major challengesThe Norwegian life insurance industry faces major challenges. It is essential that we find a sustainable solution to the longevity issue and quickly put in place appropriate transitional rules tailored to the pension reform and Solvency II. We must quickly dispel uncertainty about the timetable for key parts of the rules, both nationally and at EU level. To ensure appropriate implementation and predictability for both employers and their employees, it is important for parliament to deal with the legislative proposals in the spring 2013 session so that the new rules can be in place on 1st January 2014. This will remove the uncertainty that has dogged the pension market in recent years in anticipation of the adjustment of defined-benefit pensions following the reform of state pensions.
We must succeed in optimising the adaptation and implementation of Solvency II for Norwegian life companies. Pensions are a long-term business, with obligations lasting 40 years. Solvency II is about matching liabilities as far as possible with assets of a similar duration in order to avoid an increased solvency capital requirement.
Flood of regulatory changesBanks face a flood of regulatory changes, and some have claimed that the industry is opposed to all new regulation. This is not true. We entirely agree that banks’ capital requirements need to be tightened, but the rules need to be as consistent as possible from country to country. This has also been one of the main aims of the international regulatory process, so as to avoid a shift in activity to the countries with the most relaxed requirements.
Our concern is that the Norwegian authorities are moving in the opposite direction and will introduce more stringent requirements and different measurement methods. As the back-
bone of the Norwegian economy, we would not be doing our job if we did not point out the consequences and costs of new regulatory requirements. It would be a travesty if Norwegian-based banks that are in reality more robust than their competitors in neighbouring countries were to appear less robust on paper simply because the Norwegian authorities have chosen to use a different method to measure their financial strength.
Housing bubble worriesMany are worried about a housing bubble in Norway. While there has been strong growth in mortgage lending over the past decade, most borrowers’ incomes have also grown substantially, enabling them to service higher levels of debt than before. Norway has one of the world’s highest levels of home ownership, which is a clear strength for Norwegian society. Stiff competition between banks and good banking practices have meant that most borrowers have been able to realise their housing dreams on reason-able financial terms. Even in times of crisis, loan losses on mortgages have been minimal.
Norwegian banks are preparing for tougher capital requirements. This will result in higher borrowing costs in general, and many businesses may find banks tightening their lending standards. The question is whether regulation that could have such an effect is appropriate.
We have said it before and we will say it again: the Norwegian authorities must not introduce unilateral rules that put a strong Norwegian financial industry in a weaker position than its competitors. The industry, its customers and the entire Norwegian economy would suffer.
Idar KreutzerManaging Director, Finance Norway
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Status
There was healthy growth in the Norwegian economy in 2012, but the debt crisis and the gloomy outlook for the real economy in Europe have led to uncertainty about future growth in Norway as well. With the oil price still at high levels, high activity in the petroleum sector provides a strong impulse to the mainland economy, where capacity utilization is estimated to be somewhat above the normal level.However, 3.5 percent GDP growth, y/y, in 2012 was somewhat below the central bank forecast and market consensus, mainly due to moderate growth in the fourth quarter, with weak developments in both private consumption and traditional exports of goods.
The labor market tightened through the first three quarters of 2012, with unemployment, measured by Statistics Norway’s Labor Force Survey (LFS), dropping from 3.3 percent in January 2012 to 3.0 percent in October 2012. However, the LFS-rate sharply increased in November and December and unemployment is currently at 3.6 percent (average of December 2012 – February 2013). On the other hand, registered unemployment at the job centers has not shown the same development, and is still at a low level. Wage growth has been solid, and is projected to remain at a level around 4 percent in the years to come. Private consumption growth has been moderate throughout 2012, and household saving has increased. House prices are still growing at an annual rate of approximately 7-8 percent.
A split economyNorway is a small and open economy. Due to slower growth amongst Norway’s main trading partners, traditional exports fell through the second half of 2012, also reflected in weak growth in industrial manufacturing. This is due to low international demand and higher wage
growth in Norway than in competing countries. However, the economy is markedly divided and in other industries prospects are brighter, especially amongst suppliers to the petroleum industry and other related industries. Petroleum investments grew strongly, by above 14 percent in 2012, partly due to new petroleum discoveries and persistently high oil prices.
Moderate consumption growth The combination of healthy nominal wage growth and low inflation led to strong real wage growth in 2012. Coupled with substantial rise in house prices, this enables households to increase their consumption. However, growth in private consumption was fairly moderate at 2.9 percent in 2012, slightly up on 2011 but weaker than anticipated. The household saving rate – saving as a percentage of disposable income – has risen in recent years and was between 8 and 9 percent in 2012. Statistics Norway expects the saving rate to hold in this interval through to 2015. Finance Norway’s expectations survey for the fourth quarter reveals that households’ willingness to repay debt is high – we have to go back to 1998 to find similar levels.
House prices still growingFollowing substantial growth in house prices through 2011, the trend continued through 2012 and into 2013, with an average y/y growth of 7.9 percent. In addition to high real income growth, the strong development is fuelled by continuing low interest rates and high population growth. There is still potential for further growth, perhaps at a slightly more modest pace going forward. Activity in construction picked up considerably in 2011, and this trend continued in 2012 with more than 30 000 housing starts during the year, an increase of around 2 000 from 2011.
Downside risk in the housing market should be viewed in light of the terms of trade, which is an important fundamental factor behind income growth. A substantial slide in oil prices or increasing import prices may lead to falling income growth and housing demand at home. On the other hand, increasing construction costs in the long run, due to weak productivity growth in the construction sector and shortage of land, due to increased centralization, may limit the downside risk in the real house price level.
Stable credit growthAggregate credit growth was fairly stable at around 7 percent y/y in 2012, until falling markedly in December and January 2013. Household credit growth has shown a stable development, currently growing at 7.2 percent y/y as of February 2013. Thus the drop in aggregate growth is due to lower credit growth to businesses which fell markedly during the last part of 2012 and into 2013.
The most important source of corporate credit is bank loans and lower growth in corporate debt may be explained by stricter banking regulation. In general corporate loans require more capital than mortgages, and banks may be inclined to cut back on credit to businesses in order to adjust the risk weighted balance sheet to meet the new, increased capital requirements.
Household credit growth is still higher than the wage growth. Thus the households’ debt burden continues to rise, although at a modest pace. The aggregate debt burden of the households is currently just below 200 percent, equal to an aggregate house-hold debt two times the size of the aggregate household disposable income. Authorities have expressed concern with the high level of household debt. However, a breakdown of the credit
Further growth in the Norwegian economyPersistently high oil prices and high activity in the petroleum sector is feeding through to the mainland economy, which is growing at a solid pace. Weak growth in Europe is nevertheless a source of uncertainty for the Norwegian economy.
THE NORWEGIAN ECONOMY
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growth and debt burden in households shows that the majority of household credit growth since the early 2000s stems from households in age groups above 45 years. Furthermore, vulnerable groups, households with low income and a high debt burden, make up less than 4 percent of total households. Growth in house prices over a long period of time have put Norwegian households in a significant net wealth position. DNB Markets estimates from August 2012 showed that household financial and real assets exceeded NOK 7 000 billion. At the same time aggregate household debt constituted approximately NOK 2 500 billion.
Persistent uncertainty abroadThe growth outlook deteriorated somewhat in 2012, especially in Europe. Interest rates abroad are set to remain very low for a long time to come, which is restricting Norges Bank’s freedom of action. At the beginning of 2012 the European Central Bank (ECB) held a second round of its LTRO programme to ease the funding situation for European banks, and during the summer the ECB announced plans to purchase government debt from heavily indebted countries. These measures helped reduce risk premiums in money and capital markets, and in Norway banks and non-financials experienced increased
access to long-term market funding. In addition, the Federal Reserve announced further rounds of quantitative easing during the fall, and there are signs of improvement in the US housing market.
Strong krone and low inflationThe Norwegian krone strengthened in 2012, reflecting a substantial interest rate differential throughout the year. One euro cost 7.34 kroner at the end of 2012, which means that the krone gained around 5 percent during the year. The krone ended the year around 10 percent stronger than the average for the past 20 years.
The operational target for Norwegian monetary policy is low and stable inflation of 2.5 percent over time. The low inflation of 2011 persisted through-out 2012, with the annual rise in the consumer price index adjusted for tax changes and energy prices (CPI-ATE) ranging between 0.7 and 1.5 percent during the year. This is well below the inflation target, and the moderate increase in consumer prices can be explained partly by the strong krone and low inflation abroad. High productivity growth in the production of goods and services in Norway probably also offset the price effect of wage growth.
Norges Bank delays first hikeAfter the 25 basis points cut in March 2012, the central bank has left the key policy rate unchanged at 1,5 percent ever since. However, at its latest meeting in March 2013 both inflation projections and growth forecasts among Norway’s main trading partners were revised down, resulting in a subsequent lowering of the forward guidance on the key rate, by approximately 20-60 basis points in 2013 and 2014. Thus the first hike was delayed yet again, now signaled to occur sometime during the spring of 2014. In addition to slow growth abroad and low inflation, negative effects from a strengthening of the Krone puts a downward pressure on monetary policy.
High petroleum revenue spendingIn 2012 the fiscal policy, measured as the change in the structural non-oil budget deficit as a share of trend GDP for mainland Norway, pro-vided an expansionary impulse of 0.8 percent. The 2013-budget predicts an expansionary impulse of 0.8 percent this year as well. Large petroleum revenues give the Norwegian govern-ment substantial economic freedom, and the financial crisis was met by strong fiscal stimulus in 2009. Since then, the structural non-oil deficit has remained at a high level. n
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THE NORWEGIAN ECONOMY
The Norwegian economy is in good shape, but could still be affected by the uncertain outlook for the global economy.
Financial turmoil abates The sovereign debt crisis in Europe eased somewhat in 2012 as the European Central Bank (ECB) took action to counter high and rising yields on government debt in heavily indebted countries. Loan programmes for banks and announced plans of sovereign debt purchases helped to reduce risk premiums in global capital markets. The recovery in financial markets also had a positive effect on Norwegian banks. Risk premiums on long-term funding fell markedly throughout the year, and the availability of new funding improved. However, banks have not lowered their
lending rates accordingly. There are several reasons for this. On average, banks’ funding costs are still relatively high. Upcoming new requirements for capital, funding structure and liquidity will also lead to higher costs for banks. Increased margins are one of a number of essential ways in which Norwegian banks can counter increasing costs resulting from stricter requirements.
Although the outlook for the real economy in Europe remains weak, and the US recovery in the wake of the financial crisis has been somewhat slower than originally assumed, equity markets have been more upbeat. The global S&P 1200 index climbed almost 17 percent in 2012 after falling by 5 percent in 2011, and the Oslo Stock Exchange benchmark index also gained nearly 15 percent.
Capital and liquidity rulesThe European Commission published its proposals for new capital and liquidity rules – CRR/CRD IV – on 20th June 2011. These need to be adopted by the European Parliament and Council of Ministers. Political concern about national flexibility and new regulatory proposals have meant that the decisionmaking process has dragged on. The timing of a decision in the EU has steadily been postponed, most recently to the second quarter of 2013.
Norwegian financial institutions are in a good position to satisfy the new requirements. The Norwegian economy is buoyant, unemployment is low, and the outlook for the domestic economy is bright. It is important to Norwegian institutions that future requirements are harmonised, that the requirements are
Norwegian banks stand firm despite European turmoil
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The European sovereign debt crisis eased somewhat in 2012, leading to recovery in
global financial markets, with positive effects for Norwegian banks.
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properly justified, and that overlapping instruments are avoided. The Norwegian authorities must let go of their old rules and introduce new requirements based on the new regulations. This is important for how the financial strength and risk for Norwegian institutions and the Norwegian economy are measured and assessed.
NIBORIt was revealed in 2012 that key inter-national interbank interest rates had been systematically manipulated. These rates are used as a benchmark for a wide range of contracts both within and beyond the financial sector. The aim was partly direct financial gain, but also to make the individual bank appear more creditworthy. Several big global banks have been handed heavy fines, and more are under investigation. The case has cast the spotlight onto the procedures for setting interest rates of this kind. Both in the EU and elsewhere, the need for public regulation and supervision of interest rate indicators and other bench-mark indices is now being considered.
The Norwegian variant, NIBOR, is a collection of interbank interest rates with maturities of between one week and one year calculated as the average of the rates that six leading banks say they would require for unsecured lending to other banks. Finance Norway assumed responsibility for the NIBOR rules in 2011, when they were based on inter-national practice. However, the rules will be reviewed during 2013 in the light of the work now under way internationally.
This revision will include assessing whether NIBOR rates adequately reflect actual market interest rate movements. The assessments will be performed partly by the industry and the authorities individually, and partly in consultation between the two.
Crisis managementThe European Commission presented a draft crisis management directive in June 2012. The proposals can be divided into four areas:
• Preventive measures, including closer supervision, a requirement for all institutions to draw up a recovery plan, and the preparation of a resolution plan for all institutions
• Rules giving the authorities the right to intervene at an early stage if problems arise
• Powers and tools for restructuring, splitting up and winding up institutions
• Financing of a publicly administered resolution fund through contributions and potentially loans between the various national resolution funds
The aim of the directive is to stop bank crises from leading to losses being passed on to governments and taxpayers. For example, shareholders and other investors should take losses before any other creditors.
The draft directive needs to be adopted under the EU’s co-decision procedure, which means that the European Parliament, Council of Ministers and European Commission must all agree on the new rules. The draft will be considered by the council and parliament during the first half of this year, and it is expected that the directive will be adopted fairly shortly afterwards. It will probably be adopted in parallel with the delayed guarantee fund directive. Together these directives will provide the basis for the Banking Law Commission’s work on proposals for new Norwegian legislation in this area.
Activity taxThe Financial Crisis Commission proposed in report NOU 2011:1 that the Norwegian authorities explore the basis and consequences of an activity tax on financial institutions’ profits and payrolls in order to tax the value added in the sector. The National Budget for 2013 contains a detailed discussion of the Ministry of Finance’s work on such a tax for the financial sector. Although the ministry does not present any concrete proposals in the budget, it notes that the matter may be taken up at a later date.
Finance Norway has urged the Norwegian authorities to wait and see what happens in the EU before considering the introduction of an activity tax. An unilateral activity tax could undermine Norwegian financial institutions’ competitiveness and ability to raise equity capital. There are no grounds to claim that the financial industry is under-taxed or makes excessive profits, and a tax of this kind would be highly complex to implement.
In the wake of the financial crisis, the European Commission has explored both an activity tax and a transaction tax for the financial sector. The introduction of an activity tax is not currently under consideration in the EU – the commission is working instead on a concrete model for a financial transaction tax in 11 member states with the consent of the remaining member states.
The Norwegian bond marketThey were very high levels of activ-ity in the Norwegian bond market in 2012. Including taps, bond issuance on Oslo Stock Exchange and Oslo ABM came to around NOK 700 billion. The total outstanding volume on the two marketplaces was over NOK 1 350 billion across 345 issuers at the end of the year.
Corporate bonds and high-yield bonds have attracted particular attention over the past year. The outstanding volume of non-financial corporate bonds listed on Oslo Stock Exchange grew by 22 percent from 2011, the biggest increase since 2004, and this sector is now the largest private issuer behind covered bond companies.
The growing activity in the bond market has to be seen in the light of stricter credit standards at banks in anticipation of tougher capital require-ments (CRD IV), which will limit banks’ lending capacity, and this is already being reflected in slower growth in lending to non-financial enterprises. Thus the bond market is playing an increasingly important role in the supply of credit, including as a source of financing for Norwegian industry.
Covered bondsThe introduction of covered bonds has had a major impact on banks’ overall funding costs and has therefore been important in meeting the demand for credit in industry in recent years.
The market for covered bonds is now larger than that for government bonds, with an outstanding volume of around NOK 400 billion or around half of total covered bond issuance. The market for government bonds is worth
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around NOK 250 billion. Growth in the outstanding volume of covered bonds did slow somewhat in 2012 relative to the previous four years, but this is only natural as the market matures.
Contribution to financial stabilityThe introduction of covered bonds has considerably reduced refinancing risk in the banking industry. It has eased access to longer-term funding and has therefore helped to underpin financial stability. Coming regulatory require-ments for banks and insurers (CRD IV and Solvency II) are accentuating the need for a well-functioning, large and liquid national bond market. The absence of a significant market for government debt means that covered bonds play a particu larly important role in the Norwegian bond market. The development of the bond market and covered bonds in particular is therefore a priority for the industry and for Finance Norway. Work is under way on strengthening the regulatory framework and improving transparency and liquidity in the market. Finance Norway is also involved in exploring the possibility of establishing a Norwegian-based rating agency to meet the increased need for ratings as the regulatory changes enter into force.
Further growth in card useBankAxept, the Norwegian banks’ national system for card payments, is owned and managed by Finance Norway. The individual banks compete with each other both in the card issuing market and in the acquiring market. Eight out of ten card payments in Norway use the BankAxept system, and a total of 1.2 billion transactions were made through the system in 2012, with a total value of NOK 414 billion.
The use of BankAxept hits new record highs every year, partly because consumers are increasingly using cards for small purchases. Around a quarter of all BankAxept transactions are for amounts below NOK 100, and almost half for amounts below NOK 200, and the average size of a BankAxept transaction is NOK 352.
BankAxept cards can also be used to withdraw cash in many stores (cash back). As card usage grows, fewer and fewer people are using this facility: the number of in-store cash withdrawals has fallen by a fifth in the past four years alone. A similar trend is being seen in ATM transactions – while the number of ATMs is relatively stable, consumers are using them less and less.
Meanwhile the number of smart-phone-based payment solutions is growing, which will further reduce the
role of cash in payment for goods and services. This is good news for society, as cash payments are generally more costly than electronic payments.
Focus on contingency solutionsBankAxept is an efficient payment system that delivers a large number of payments quickly, securely and stably at low cost. The importance of the BankAxept system for customers and society in general necessitates high standards of stability and effective contingency solutions, and so consider-able resources are invested in safe-guarding stability and security in the card system.
High levels of attention are generally paid to contingency options in electronic payment systems. A payment transaction passes through several networks, each of which is critical for its execution. Telecom, power and bank networks must all be functioning. If there is a failure in one place, there are good backup solutions. It is therefore very rare for a network failure to have consequences for the public. The banking industry constantly assesses the need for further contingency measures. The focus of this work is on the ability to re-establish electronic payment systems quickly.
Profitability of BankAxept and BankID servicesBanks’ payment services are largely coordinated. The Norwegian banking industry has a long tradition of working together on IT solutions for processing both payments and information. Extensive shared operational infra structure has been built up. The individual banks offer and price their services in the market-place, and competition is fierce. The development of new user interfaces for the distribution of BankAxept and BankID services requires considerable investment, and there must be sufficient willingness to make the necessary investment. In the future it will there-fore be important to concentrate on both an organisation and a commercial orientation that give the individual bank scope to make a profit on its services.
Key role in the digitisation of societyThe digitisation of banks’ services has accelerated. Fully electronic loan application processes are efficient and reduce processing times to a fraction of what they were. Electronic opening of account increases competition between financial institutions. New online banking services have been launched, and banks are distributing their services
via smartphones, tablets and the like, increasing their availability to the public. In addition, banks will be both suppliers and users in the government’s ongoing work on digitising public services. The industry is keen to contribute to this work.
In autumn 2012 the financial industry concluded an agreement with the government on the use of BankID as eID when logging into the public sector’s ID-porten and Altinn portals. BankID has no fewer than 2.8 million users, who are accustomed to using BankID for online banking, so the threshold for logging into public services using BankID is therefore low. BankID boasts the highest levels of security and can also be used to sign documents. This should mean that there will be opportunities to offer public administration a broad range of services through these portals.
The government also aims to increase the use of electronic billing, and since summer 2012 government bodies have had to require their suppliers to issue electronic invoices. The authorities and the financial industry are also working together on a solution that enables citizens to opt into e-invoicing from all or selected government bodies with just a few keystrokes.
Electronic registrationsBanks are also users of public-sector digital services, and would have liked electronic registration of properties, mortgage law and other charges to have been given the same priority by the authorities as invoicing. Fully electronic procedures for granting loans which include the registration of a charge would simplify banks’ internal processes considerably and give customers better and more flexible services. There would also be considerable efficiency gains for the registration authorities. Pilot projects have been conducted where the bank obtains a physical charge document from the customer and sends this for registration in parallel with an electronic document that has not been signed. Banks now believe it is time to introduce “fully electronic” charge documents which the customer signs electronically. Unfortunately clarification is still needed on the legal side concerning the use of these documents for debt recovery in the event of default.
Immediate paymentsThe market has a growing expectation that payments should be made easier and quicker. Banks are therefore working on a service where payments are executed in such a way that the recipient has access to the funds within seconds. Banks could then be expected
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Good baNk reSultS iN 2012Banks’ earnings increased from 2011 to 2012.1 Net profit climbed from NOK 24 billion to NOK 27.8 billion, or from 0.65 to 0.68 percent of average total assets (ATA). A drop in the value of derivatives held to hedge interest and exchange rate risk put a damper on earnings growth. Return on equity increased by almost one percentage point from 10.5 percent in 2011 to 11.4 percent in 2012.
Stable Net iNtereSt iNcomeNet interest income was NOK 60 billion in 2012, an increase of around NOK 4.4 billion from 2011. Due to strong growth in assets in the largest banks, net interest income was nevertheless stable at 1.48 percent of ATA in 2012, against 1.49 percent in 2011. Falling money market rates and reduced risk premiums for market funding made a positive contribution, but premiums are still higher than before the financial crisis. Competition for customer deposits also remains fierce, which puts a pressure on deposit rates. The overall interest margin was more or less unchanged over the year.
loWer coStS aNd loaN loSSeSOperating costs fell from 1.11 percent of ATA in 2011 to 1.05 percent in 2012. Loan losses also fell, both in absolute terms and relative to ATA (from 0.19 to 0.16 percent). The ratio of costs to income has been falling for a number of years and decreased further by 3.2 percentage points to 53 percent in 2012.
HiGHer depoSit-to-loaN ratioCustomer deposits are the banks’ most important source of funding and increased by 7.4 percent from 2011 to 2012. Lending growth was slightly more subdued, with gross lending to customers (including banks’ covered bond vehicles) rising by 4 percent. Lending to domestic business customers increased by just 1.6 percent in 2012, which should be seen in the light of stricter capital adequacy requirements. The deposit-to-loan ratio rose from 53.9 to 55.9 percent (including banks’ covered bond vehicles).
iNcreaSed FiNaNcial StreNGtHBanks have retained substantial parts of their profits, and several banks raised new equity in the market during the first half year of 2012. Thus banks have increased their financial strength. The aggregate Core Tier 1 capital ratio was 11.1 percent at the end of 2012, against 9.9 percent a year earlier, and all banks fulfilled the minimum requirement of 9 percent.
Compliance with the requirement for liquidity buffers at Norwegian banks depends on which assets are included in the calculations. The Financial Supervisory Authority has calculated that the average Liquidity Coverage Ratio (LCR) based on the proposals for CRD IV was 72 percent at the end of 2012. However, Norwegian banks have substantial liquidity buffers if assets approved as collateral for loans from the central bank are included, and the average Liquidity Buffer Indicator (LBI) was 188 percent.
1 Income statement and balance sheet data for consolidated banking groups.
Source: The Financial Supervisory Authority of Norway
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to develop functionality for such a service in their applications for mobile platforms, or take the service a step further so that a mobile phone number can be used as an identifier for the recipient of funds.
FinansCERTBanks have worked together for many years on sharing information about criminal attacks on their online services. This collaboration is useful, as it leads to more rapid detection of fraud, and that more fraud attempts are blocked. The number of attacks on online banking services in Norway has increased substantially over the past two years, and banks are putting more and more resources into investigation, analysis, technical solutions and management of the growing number of incidents.
The rise in cybercrime requires firmer and clearer anchoring and organisation of financial institutions’ work to combat it. Under the auspices of Finance Norway, banks and life insurers have teamed up to create FinansCERT (Computer Emergency Response Team) with the main aim of promoting effective management of IT security incidents at banks and life companies and ensuring coordination when implementing joint measures.
More frequent clearing and settlement Whenever a customer uses a card, pays a bill or transfers money to someone at another bank, money needs to be transferred from one bank account to another. For money to flow between customer accounts at different banks, there must first be a settlement between the banks, which takes place through their accounts at the central bank, Norges Bank. Payment transactions are not normally settled individually but cleared through a clearing house, the Norwegian Interbank Clearing System (NICS). Each bank’s overall net position to all other banks participating in NICS is calculated, and the results are sent to Norges Bank for settlement between the banks. After settlement, the banks update their customer accounts.
In October 2012 a new fourth daily clearing circle was implemented in NICS. Banks’ deadline for delivering transactions for the new circle is 11 am, with settlement immediately thereafter. The deadlines for the other three circles are 5.30 am, 1.30 pm and 3.30 pm. The introduction of this fourth daily clearing round has further increased the speed of payments in Norway. n
BANKS
The Solvency II rules are still very much under development, especially when it comes to their implementa-tion in Norwegian law. The Banking Law Commission has presented proposals for new rules for defined benefit occupational pensions aimed at harmonisation with the new state retire-ment pension. There has also been work on transitional rules for the move from the current system to the new pension system. The idea is for the new rules to enter into force on 1st January 2014.
As part of the upward revision of assumptions for life expectancy, life companies substantially increased provisions for group pensions in 2012. These provisions are expected to be funded primarily through investment income and underwriting results.
Total insurance liabilities under private group pensions increased by 11 percent from 2011 to a total of NOK 386 billion, while those under municipal group pensions grew by 12 percent to NOK 377 billion.
Regulatory developments in 2012 2011 brought a reform of the Norwegian pension system, with changes to state pensions and revised rules for private occupational and early retire-ment pensions. Public sector pensions also underwent alterations, although much of the existing calculation model was retained.
2012 saw a great deal of work on developing new occupational pension products for the private sector and the Solvency II rules. The following are just some of the consultations on which Finance Norway worked during the year:
Regulatory changes and pension reform
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The life insurance industry faces some major changes in the legal framework, including tougher new capital requirements under Solvency II and the introduction of a new occupational pension product in Norway.
n Consultation on the implementation of Solvency II in Norwegian law Finance Norway believes that a broad set of measures are needed to ensure
a robust pension system under Solvency II. These must not only deal with the risk associated with a guaranteed annual return, but also cover the increased need for investment in long-duration assets as a result of Solvency II.
n Consultation on accounting for the new AFP scheme in the private sector Following the introduction of a new AFP early retirement pension scheme
in the private sector, a working party looked at some of the problems of accounting for it. Finance Norway notes and agrees that, for the time being, there is no need to account for the new AFP scheme as a defined-benefit scheme in the employer’s accounts.
n Consultation on proposals to limit the tax exemption for shares etc held by life and pension companies
Finance Norway believes that the proposals to abolish the tax exemption for income from equities in the group and unit-linked portfolio come at a highly inappropriate time for the industry. Any changes in the exemption will come on top of a new solvency framework and a low interest-rate regime which are already presenting major challenges for life and pension companies.
n Consultation on the reduction of the maximum guaranteed interest rate for life policies to 2 percent from 1st January 2013
Finance Norway advises against a reduction in the interest rate until new product rules and transitional solutions for existing company pension schemes are in place.
n Consultation on paid-up policies and capital requirements Finance Norway believes that the impact of the measures on the capital
requirement for existing and new paid-up policies will be limited. The conversion of paid-up policies to unit-linked products will depend partly on the time to maturity, the guaranteed interest rate, etc. Further work is needed to ease life companies’ challenges with paid-up policies under Solvency II. Conversion to unit-linked products will require good information and advice for the customer. Finance Norway is actively promoting high-quality advice in the industry.
n Consultation on the regulations on pensions for elected local government representatives
Finance Norway has no comments on the proposals.
n Consultation on pension legislation and the social security reform – NOU 2012:13
Finance Norway backs the main aims of the draft legislation on group occupational pensions, which build on the same fundamental principles as the new state retirement pension. A new state retirement pension where a living-age adjustment provides an incentive to stay in work longer is a key element in helping fund retirement benefits for a population that is living longer and longer.
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RESULTS BY CLASS OF BUSINESS
Year 2012 2011 2010 2009 2008
IPS pensions
Life insurers 1,600 1,300 900 500 100
Banks 700 700 700 700 700
Securities funds 2) 500 500 600 500 400
IPA pensions
Life insurers 53,000 55,000 57,000 55,000 60,000
1) The IPS individual pension scheme was introduced from 2008, while new business under the IPA individual pension scheme was suspended in 2006. The table shows IPS and IPA pensions together for banks and securities funds from 2008. 2) Securities fund management companies.
Source: Life insurers: Finance Norway’s “Provisional life statistics” for 2012 and 2011 and “Market shares – final figures and accounting statistics” for earlier years. Banks: Statistics Norway. Securities fund management companies: Norwegian Fund and Asset Management Association. Figures are rounded.
Insurance liabilities as at 31st December, IPA and IPS 1)
NOK million
Individual endowments This product is sensitive to movements in interest rates, and investments generally vary somewhat from year to year. Risk cover for death, which makes up the bulk of this class, saw a 3.9 percent increase in policy numbers in 2012, while risk cover for disability was largely unchanged. These covers account for more than 30 percent of gross premiums written in this class.
Individual pensions The option of having individual pensions paid from the age of 62 through an increase in the payout period was intro-duced in 2011. This means, for example, that payments can be combined with early unlocking of the state retirement pension, occupational pensions and AFP early retirement pensions.
There was a 30 percent increase in assets in IPS individual pension schemes from 2011 to 2012. Around 3 900 new IPS pensions were taken out with life insurers in 2012. Gross premiums written increased by 14 percent to NOK 253 million.
The relatively low level of individual pensions can be seen in the light of asymmetrical tax rules, low premium ceilings and negative media coverage over a number of years. New rules on the taxation of pensioners in 2011 have also led to limited marketing of this product.
As an alternative to individual pensions, the self-employed can choose
instead to save under the Defined-contribution Pensions Act with a higher premium ceiling, and this form of saving is included in the figures for group pensions.
Group pensions Almost 1.1 million Norwegians now have a defined-contribution pension. The number has grown every year since the Mandatory Occupational Pensions Act was passed in 2006.
A total of 12 100 defined-contribution pensions were taken out in 2012, and these accounted for 97 percent of new private occupational pensions during the year.
There is a still a trend in the private occupational pension market for defined-benefit schemes to convert to defined-contribution schemes. Around 290 000 people still have private defined-benefit pensions under the Company Pensions Act. Figures from Finance Norway show that more than 480 defined-benefit schemes converted in 2012, with around 16 800 people switching to defined contributions. This makes a total of around 4 340 schemes that have converted since 2002, not includ-ing schemes not covered by Finance Norway’s statistics. The conversion process often means that employees who are already members of a defined-benefit scheme remain in a “closed” defined-benefit scheme, so it is mainly new recruits who join the new defined-contribution scheme.
Most defined-contribution schemes are supplied by life companies, although some are managed and administered by securities fund management companies and banks. However, a large proportion of sales are made through banks on behalf of the life companies responsible for the pensions.
Statistics from Finance Norway for defined-contribution schemes at life companies, banks and securities funds show that the proportion of schemes with contributions at the minimum permitted rate is falling. At the end of 2012, 64 percent of schemes had contributions at the minimum rate, down from 76 percent in 2008 when the statistics began. This may be because many companies converting their schemes introduce rates above the minimum requirement. The statistics also show that more than 8 percent of schemes have contributions at the maximum permitted rate. In terms of members, almost 270 000, or close to 25 percent, are on the maximum rate, which indicates that a number of large companies have chosen this rate for their schemes. By way of comparison, only 6 percent of policies were at the maximum rate in 2008. Around 41 percent of members have linked disability cover to their defined-contribution pension, and only 5 percent of these qualify for paid-up benefits.
LIFE INSURANCE
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t
Year 2012 2011 2010 2009 2008
Defined-benefit
Life insurers 317,000 297,000 279,000 261,000 247,000
Pension funds n.a. 119,000 120,000 111,000 94,000
Defined-contribution
Life insurers 70,000 52,000 42,000 30,000 16,000
Banks 200 200 200 100 100
Securities funds* 1,600 12,500 9,800 1,400 800
*Securities fund management companies. Source: Life insurers: Finance Norway’s “Provisional life statistics” for 2012 and 2011 and “Market shares – final figures and accounting statistics” for earlier years. Banks: Statistics Norway. Securities fund management companies: Norwegian Fund and Asset Management Association. Figures are rounded.
Insurance liabilities as at 31st December, private group pensionsNOK million
Year 2012 2011 2010 2009 2008
Gross premiums written 82,500 72,300 67,400 62,800 65,900
New business 6,700 6,400 6,400 6,400 6,100
Benefits paid 45,400 41,600 41,900 35,700 54,500
Insurance liabilities 877,000 801,000 760,000 663,000 609,000
Source: Finance Norway’s “Benefits”, “Provisional life statistics” for 2012 and 2011 and “Market shares – final figures and accounting statistics” for earlier years. Figures from Finance Norway include only its members. Figures are rounded.
Key figures as at 31st December, life insurersNOK million
Year 2012 2011 2010 2009 2008
Individual endowments 947,000 961,000 940,000 980,000 990,000
Group life (members) 2,300,000 2,400,000 2,500,000 2,600,000 2,600,000
Individual pensions
Policies not in payment 900,000 860,000 860,000 860,000 710,000
Policies in payment 240,000 250,000 210,000 210,000 220,000
Private group pensions
Active members 1,370,000 1,310,000 1,200,000 1,240,000 1,210,000
- of whom defined-benefit 290,000 300,000 310,000 340,000 350,000
- of whom defined-contribution 1,080,000 1,000,000 900,000 890,000 860,000
Paid-up policies and pension capital certificates 1,780,000 1,620,000 1,380,000 1,100,000 990,000
Pensions in payment 1) 290,000 260,000 340,000 310,000 310,000
Municipal group pensions
Active members 430,000 440,000 430,000 430,000 390,000
Leavers with rights accrued 240,000 230,000 220,000 220,000 180,000
Pensions in payment 1) 260,000 250,000 240,000 220,000 190,000
1) Prior to 2010 the number of pensioners is reported on this line.
Source: Finance Norway’s statistics “Number of policies and number of insured”. The statistics cover Finance Norway’s members, including branches of foreign companies and non-life insurers which sell life insurance. Association insurance is included in the figures for individual pensions.
Number of policies/members as at 31st DecemberNOK million
LIFE INSURANCE
15
Year 2012 2011 2010 2009 2008
Individual endowments
Gross premiums written 9,200 8,500 8,600 8,800 7,000
Gross benefits paid 8,600 7,200 6,500 5,500 21,300
Individual pensions
Gross premiums written 1,700 1,700 1,900 2,200 2,200
- of which IPA pensions 180 150 160 250 650
- of which IPS pensions 250 200 250 250 100
Gross benefits paid 6,800 7,000 10,300 8,600 12,900
Group life
Gross premiums written 3,700 3,600 3,500 3,500 3,400
Gross benefits paid 2,800 2,800 2,600 2,500 2,400
Private group pensions
Gross premiums written 29,500 27,000 25,000 24,500 26,200
- of which defined-benefit 16,800 16,100 15,400 15,500 18,500
- of which defined-contribution 12,700 10,900 9,600 9,000 7,700
Gross benefits paid 11,800 10,700 n.a. n.a. n.a.
Municipal group pensions
Gross premiums written 38,400 31,500 28,400 23,800 27,100
Gross benefits paid 15,400 13,900 n.a. n.a. n.a.
Source: Finance Norway’s “Benefits”, “Provisional life statistics” for 2012 and 2011 and “Market shares – final figures and accounting statistics” for earlier years. The statistics cover Finance Norway’s members, including branches of foreign companies and non-life insurers which sell life insurance. Figures are rounded.
Premiums and benefits as at 31st December, life productsNOK million
Year 2012 2011 2010 2009 2008
Death 2,800 2,700 2,700 2,500 2,600
Lump-sum disability benefits 1,300 1,300 1,200 1,100 1,100
Surrenders 1) 6,200 4,800 9,000 6,600 26,400
Insurance term expiry 900 1,000 900 800 1,000
Retirement, early retirement and survivor pensions 24,800 22,800 21,000 18,500 17,400
Disability pensions, including waiver of
premium/contribution 7,700 7,400 7,100 6,200 6,000
Transferred to premium/contribution funds 1) 900 700 n.a. n.a. n.a.
Other 800 900 n.a. n.a. n.a.
Total 45,400 41,600 41,900 35,700 54,500
1) Prior to 2011, amounts transferred to premium/contribution funds are included in surrenders.
Source: “Benefits” from Finance Norway. The statistics cover Finance Norway’s members, including branches of foreign companies and non-life insurers which sell life insurance. Figures are rounded.
Benefits by cause as at 31st DecemberNOK million
The operating margin (operating profit relative to premium income) increased in 2012, due mainly to lower claims and slightly higher investment income. Although investment income was 5 percent up on 2011, it was still some way off the peak year of 2009 when it was almost 80 percent higher than in 2012. Profit on ordinary activities was never-theless very good.
The solvency margin (equity, contingency reserves and tax-free provisions relative to premium income) climbed from 131.5 percent in 2011 to 143.0 percent in 2012, and equity from around NOK 43 billion to around NOK 51 billion.
Premium income rose by 3 percent, while claims expenses fell by 3 percent, resulting in a decrease in the loss ratio from 72.4 percent in 2011 to 68.2 percent in 2012. The cost ratio (costs relative to premium income) also fell, so the combined ratio (loss ratio plus cost ratio) dropped 4.7 percentage points to 87.0 percent. In other words, 87 percent of premiums received in 2012 went out in claims and operating expenses.
Chart 1Combined ratio 2002-2012
Chart 1 shows developments in the combined ratio from 2002 to 2012.
Lower loss ratioIn 2002, the loss ratio was 78 percent and the cost ratio was close to 25 percent. The cost ratio has fallen over the past decade as a result of companies taking action to make their operations more efficient. Costs in non-life insurance are now down to around 19 percent of premiums. Although some of the components of operating expenses have been reclassified as claims expenses during this period, the vast majority are the same.
By way of illustration, had the cost ratio in 2012 been just under 25 percent as it was in 2002, operating costs would have been almost NOK 3.2 billion higher. At the same time, premiums have not kept up with inflation due to stiff competition.
Chart 2Non-life premiums by class 2012
Premium income by classNon-life insurers derive the largest part (38 percent) of their premium income from motor policies, which cover all types of vehicle, including cars, trucks, buses and motorcycles. Insurances of the person account for 15 percent of premium income and include statutory occupational injury cover (5 percent), voluntary workmens compensation cover (3 percent) and personal accident cover (3 percent).
Child health, critical illness and medical insurance have been a growth area in recent years. Almost 360 000 people were covered against waiting lists for medical treatment in 2012, up from around 34 000 as recently as 2003. It is primarily employers that take out this kind of health insurance for their employees. Previously it covered only key persons, whereas now it is common for the entire workforce to be included.
What does medical insurance cover?The types of injury covered vary somewhat from insurer to insurer, but the cost of hospitalisation/surgery and physiotherapy/chiropractic account for the bulk of claims expenses. This form of insurance can to some extent be considered to supplement the public health service for conditions largely attributable to “wear and tear”. Many people have long periods of sickness absence due to problems with their back, neck, shoulders etc. Medical insurance ensures rapid treatment at a private hospital in Norway or abroad.
Few fires and little bad weather Provisional data for Norwegian non-life insurers indicate a combined pre-tax profit of NOK 15 billion in 2012. This is an increase of around NOK 8 billion on 2011, due mainly to low loss levels. The latter part of 2011 brought a lot of bad weather, resulting in heavy claims, while 2012 was a far better year with few fires or natural disasters, paving the way for strong underwriting results.
NON-LIFE INSURANCE
16
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
e
105.0
100.0
95.0
90.0
85.0
80.0
75.0
102.0
98.7
90.2 91.3 90.9
93.5 93.895.7
92.2 91.7
87.0
Source: Statistics Norway Source: Finance Norway
Motor 38 %
Household20 %
Commercial buildings15 %
Other12 %
Person15 %
Child 1 %
Critical illness 2 %
Personal injury 3 %
Occupational injury 5 %
Protection 3 % Medical 1 %
NON-LIFE INSURANCE
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Low loss ratio on household policies The winter of 2010 brought substantial payouts on household policies due to frost damage, but 2011 and 2012 brought fewer water and fire losses. Only around 60 percent of premiums collected in 2012 went out again on claims, compared to 75 percent in 2011 and no less than 90 percent in 2010. The low loss ratio in 2012 was due partly to fire claims being almost NOK 500 million lower than in 2011, reducing claims by 12 percent, while water claims were down around NOK 360 million on 2011 and no less than NOK 750 million on 2010.
Fewer fires and lower payoutsThe number of household fires in 2012 was around 8 percent lower than in 2010 and 2011, and fire claims were down 12 percent on 2011 and 18 percent on 2010 at NOK 2.2 billion.
Out of every thousand homes insured, seven to eight will be damaged by fire in any one year, but the degree of damage varies. A large number of lightning strikes in an area can lead to many small fires, but the extent and consequences of the damage are often fairly limited.
Water losses downClaims following water damage to private residences fell to NOK 2 billion in 2012 from NOK 2.5 billion in 2011 and a peak of more than NOK 2.7 billion in 2010, the first year in which water claims exceeded fire claims on household policies.
There were 15 water losses per thousand homes in 2012, down from a high of 23 in 2010.
Chart 5Water payouts on commercial policies by origin (NOK m)
Increase in break-ins and burglariesChart 4 shows the loss frequency for break-ins and burglaries from 2002 to 2012 per thousand household policies (buildings, contents, holiday homes). It has varied over time, reaching a provisional low in 2011 before rising again somewhat in 2012. It appears that burglaries are becoming more sophisticated, as the value of the items taken has increased.
Skadeprosent på næringsbygg normalisert Claims came to around 60 percent of premium income from commercial policies in 2012, down from 82 percent in 2011. This was due mainly to the absence of large losses. Out of total claims on commercial policies of NOK 4.6 billion in 2012, fire claims accounted for NOK 2.2 billion, down no less than NOK 1.2 billion on 2011 and NOK 700 million on 2010. Water losses, on the other hand, rose by 2.3 percent to NOK
1.2 billion in 2012. Despite an almost 20 percent decrease in the number of break-ins, burglaries and raids in 2012, claims increased. In other words, more expensive items were taken, suggesting more sophisticated thieves.
Where does water damage in commercial buildings start? Chart 5 shows where water damage originates. The main source of water losses in 2012 was metal pipes, whereas in 2011 it was pipe connectors and drains. It is important to note that commercial buildings include farm buildings in this context.
Chart 4 Break-ins and burglaries per thousand household policies
Chart 3Payouts on medical insurance
Source: Finance Norway
Surgery 41 %
Physiotherapy/chiropractic
25 %
Specialist/diagnostics
21 %
Psychologist/psychiatrist 3 %
Rehabilitation etc 10 %
400
350
300
250
200
150
100
50
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2011 2012
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
14.0
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12.0
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7.0
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Num
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Stable motor resultsDespite high new car sales in 2011 and almost as many in 2012, motor claims increased by 1.7 percent in 2012, with total payouts of NOK 12 billion for damage to 711 000 vehicles. The biggest percentage increase in claims was for glass damage, which climbed more than 10 percent to NOK 1.3 billion in 2012 across 225 000 claims. Despite a drop of almost 9 percent in the number of collision losses, claims rose by 5 percent. The loss frequency (number of motor losses relative to number of vehicles insured) is around 22 percent over the course of a year for all types of vehicle.
Sharp decrease in car theftThefts of and from cars are accounting for an ever smaller share of total claims, which is a natural result of better car security – for example, all new cars are now fitted with immobilisers. Theft accounted for just 3 percent of total payouts of NOK 12 billion on mo-tor policies in 2012, compared with 8 percent a decade ago. Back then, 13-14 000 cars were stolen each year, compared with just under 6 000 in 2012, and there has been a similar reduction in thefts from cars from roughly 20 000 a decade ago to 7 000 reported losses in 2012 (see Chart 6).
Fewer personal injury claimsThe number of personal injury claims has fallen by around 25 percent over the past decade, while payouts have increased slightly in inflation-adjusted terms. Chart 7 shows clearly that the number of claims has trended downwards even when taking account of the number of vehicles insured. The loss frequency was relatively stable in 2007 and 2008, but following a provisional peak in 2009 there has been a steady reduction, which can be put down to newer cars being safer than older ones. The decline in personal injury claims is also reflected in the number of fatal road accidents. A total of 154 people were killed in 2012, down 14 on 2011. Not since 1950 have so few people died on Norwegian roads.
What about pedestrians and cyclists? Although the number of personal injuries in road accidents has fallen steadily in recent years, there was an increase in the number of pedestrians and cyclists run over in 2012. Chart 8 shows the number of these “soft targets” hit relative to the number of vehicles insured. The increase in 2012 is supported by data from the Norwegian Public Roads Administration and the Institute of Transport Economics (TØI), which also show that some
NON-LIFE INSURANCE
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t
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Chart 7 Personal injury claims per thousand vehicles insured
Chart 8 Accidents involving pedestrians and cyclists per thousand vehicles insured
Estimated payouts (NOK m) CPI-adjusted payouts
Number of claims
Chart 6 Thefts of motor vehicles 2002-2012
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
700
600
500
400
300
200
100
0
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Payo
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
NON-LIFE INSURANCE
19
t
age groups are at particular risk, most notably elderly pedestrians and cyclists aged 10-14.
Where is it most hazardous to be a pedestrian or cyclist?Chart 9 shows in which counties it is most hazardous to be a pedestrian or cyclist, and where motorists hit pedestrians and cyclists most often. Naturally enough, it is most hazardous to be a pedestrian or cyclist in the cities, especially Oslo, although the risk is almost as high in Rogaland and Hordaland. There appear to be fewer accidents of this kind in Akershus, even though it has to be considered a relatively heavily built-up and densely populated county – perhaps it has better road safety measures? Oppland and the most northerly counties also perform well.
Fewer occupational injuriesAfter many years of statutory workmens compensation insurance, it finally seems that the trend in occupational injuries has turned. Workmens compensation claims take a long time to finalise. It can take time for an injury to be reported to the insurer, and it can take time to confirm the cause and assess the level of loss based on how permanent the injury proves to be. This is particularly the case when it comes to occupational diseases – at the end of 2012 there were still claims provisions outstanding for 1990 and 1991!
The apparent reduction in workmens compensation payouts may be due to a number of long-term factors, such as fewer workers in high-risk industries, fewer smokers and so fewer cases of COPD, and better health and safety efforts and follow-up by employers. The authorities have also taken various steps, such as the introduction of time-limited disability benefit in 2004 and the work assessment allowance from 2009.
Premiums for workmens compensation have fallen over the past five years (allowing for inflation), due to both lower claims levels and stiffer competition. Chart 10 presents premiums per FTE in both nominal and inflation-adjusted terms.
More travel pushes up travel claimsThe loss ratio for travel insurance is around 70 percent. Operating costs tend to be somewhat higher than for other types of private insurance because considerable support is often required to get the policyholder home.
Chart 11 Travel insurance payouts 2005-2012 (NOK million, inflation-adjusted to 2012 prices)
Payo
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(NO
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)Pr
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Sour
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Travel accident Cancellation Theft/loss of luggage Holiday illness
2005 2006 2007 2008 2009 2010 2011 2012
800
700
600
500
400
300
200
100
0
Chart 10 Occupational injury premiums per FTE insured(nominal and inflation-adjusted to 2012 prices)
Chart 9 Accidents involving pedestrians and cyclistsNumber per thousand vehicles registered and per thousand inhabitants
0.6
0.5
0.4
0.3
0.2
0.1
0
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Accidents per thousand vehicles
Accidents per thousand inhabitants (greatest hazard)
Inflation-adjusted premiums per FTE (2012 prices) Nominal premiums per FTE
2,500
2,000
1,500
1,000
500
0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
t
Non-life insurance results
Year NOK million 2012* 2011 2010 2009 2008 2007 2006 2005
ResultsGross premiums written 65,196 62,453 59,407 58,852 57,589 52,955 51,561 49,566 Net premiums earned 56,305 54,580 52,320 50,500 49,348 44,665 43,170 40,145 Net claims incurred 38,416 39,522 37,351 36,816 35,121 32,035 29,453 27,382 Net investment income 5,058 4,822 7,721 8,950 -285 5,484 6,792 7,415 Net operating costs 10,563 10,519 10,867 11,529 11,146 9,708 9,779 9,267 Operating profitt 15,042 6,708 10,579 9,671 1,907 4,035 9,035 7,708
Balance sheetPremium and loss provisions 92,037 90,649 83,940 80,199 77,821 75,110 66,614 65,099 Contingency reserves 29,341 28,779 27,371 26,256 24,813 26,928 24,644 24,274 Other tax-free provisions **) 12,461 9,315 8,800 8,574 Equity capital 51,200 42,991 50,473 43,618 27,643 30,519 29,876 25,518
Key figuresLoss ratio, net 68.2 72.4 71.4 72.9 71.2 71.7 68.2 68.2 Cost ratio, net 18.8 19.3 20.8 22.8 22.6 21.7 22.7 23.1 Operating profit margin 26.7 12.3 20.2 19.2 3.9 9.0 20.9 19.2 Solvency margin 143.0 131.5 148.8 138.4 131.5 149.5 146.7 145.4 Provision ratio 163.5 166.1 160.4 158.8 157.7 168.2 154.3 162.2
Total assets 201,604 192,992 190,069 180,518 175,497 166,719 142,630 134,445
** Provisional figures** Included in equity from 2009
NON-LIFE INSURANCE
20
Figure 11 shows travel claims from 2005 to 2012 adjusted to current prices using the consumer price index. Claims due to theft/loss of luggage have stabilised since 2008, while claims due to illness have rocketed, almost trebling since 2005. This is due to more elderly people travelling more, and many people visiting exotic destinations where the risk is higher.
Chart 12 shows that the number of losses tends to reflect levels of economic activity. Claims peaked in 2008, especially for theft/loss of luggage, while the number of claims due to illness levelled off only slightly in 2009 before climbing again. The number of travel illness claims reported has now caught up with the number of claims for theft/loss of luggage. Around 12 percent of policyholders put in a claim in 2012, compared with a provisional peak of around 16 percent in 2008.
Market developmentsCompetition in non-life insurance remains fierce, and the number of players in the Norwegian market is rising. The four largest companies’ market share fell from 92 percent in 2005 to 75.5 percent in 2012. Chart 13 shows that the remaining companies together had almost as big a slice of the market as If Skadeforsikring and Gjensidige at around 25 percent.
Chart 13 Market share, four largest insurers and remaining insurers combined
If Skadeforsikring Gjensidige Tryg SpareBank 1 Forsikring
Others
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
40 %
35 %
30 %
25 %
20 %
15 %
10 %
5 %
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Chart 12 Travel insurance claims 2005-2012
2005 2006 2007 2008 2009 2010 2011 2012
120,000
100,000
80,000
60,000
40,000
20,000
0
Num
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Travel accident Cancellation Theft/loss of luggage Holiday illness
topics
EMPLOYERS, EMPLOYEES and pension providers have long been waiting for new product rules and transition rules for existing company schemes.
The commission has attached importance to businesses still being able to choose insurance-based pension schemes for their employees as an alternative to defined-contribution products, and schemes suited to their wage-paying capacity. The introduction of the new schemes will help ensure the sustainability of pension schemes for the private sector, as well as the predicta-bility of future pension levels for the individual employee. On the other hand, the rules are fairly complex, especially from the customer’s perspective, meaning that life companies and the rest of the industry will need to put a lot of time and resources into information and advice in the years ahead. Before parliament in autumn 2013The Banking Law Commission’s proposals for a new Occupational Pensions Act and transition rules for existing company pensions are set out in two separate reports and are due to be submitted to parliament in a single bill in autumn 2013.
Finance Norway assumes that the new occupational pension rules, transition rules and proposals for higher maximum contribution rates for defined-contribution schemes will go through parliament and enter into force together. We consider it important for a new sustainable pension system to be put into place as soon as possible and take effect from 1st January 2014.
Key questions still need to be answered when it comes to adapting the regulatory framework for the Norwegian life sector to Europe’s Solvency II rules. Consideration for Solvency II and other future EU rules
did not play a major role in the Banking Law Commission’s latest report on transition rules. The emphasis is on getting things moving, even though the EU’s timetable for implementing Solvency II is still unclear.
Demanding economic climate 2012 was another year of low interest rates and uncertainty in global equity and financial markets. Today’s company pension rules were developed in a very different economic climate where market interest rates were considerably higher than the maximum guaranteed interest rate. When the Pension Commission, headed by Sigbjørn Johnsen, now finance minister, began its review of the pension system in 2001, market rates were up at 7-8 percent (three-month NIBOR) and the maximum guaranteed interest rate set by regulator Finanstilsynet was 3 percent for new business and just under 4 percent on average for existing contracts. By way of comparison, market rates were down at 2-3 percent in 2012, while the maximum guaranteed rate was 2.5 percent for new business and around 3.5 percent on average for existing contracts. Market rates have been below the maximum guaranteed rate for life insurance since 2009, and this naturally presents a major challenge for the industry.
In June 2012 the Banking Law Commission proposed new (hybrid) insurance-based occupational pension products for the private sector. These are intended as an alternative to defined-contribution products and a replacement for existing defined-benefit products in the private sector. Proposals for transition rules from the old company pension system to the new Occupational Pensions Act followed in January 2013.
The new rules will have major consequences for the product range and the structure of the pension market in the years ahead. It is still hard to gauge the impact of the proposals, given the prevailing uncertainty about the new solvency regulations. Finance Norway’s experience is that there are similar levels of uncertainty in a number of other European countries. However, the proposed new product rules reduce life expectancy risk and financial risk for the life sector and largely address the challenges of tougher capital require-ments under Solvency II.
Adjustments to individual countries’ product rules are needed in response to new pan-European regulation of the life insurance market. The aim of Solvency II is to replace the wide diversity of national rules in Europe in this area with a common European regulatory framework. The overall objective of this framework is to safeguard employees’ pension rights.
Finance Norway is keen to stress the importance of the solutions we end up with nationally in Norway together creating as robust and sustainable a pension system as possible.
To ensure a stable Norwegian pension system, a sustainable pension framework must feature:
• A robust and balanced answer to rising life expectancy
• A guarantee structure that protects accrued rights and ensures good growth in the value of future pensions while ensuring that the capital requirements under Solvency II are manageable
• Appropriate adaptation to new European capital requirements under Solvency II
• Efficient transition from the old to the new system
Further answers are expected in 2013, and the contours of the new pension system are becoming ever clearer. However, both public-sector and private-sector occupational pensions need to be modified further in various ways and through various processes to achieve these aims.
The pension reform
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The Banking Law Commission has published proposals for a new Occupational Pensions Act and transition rules for existing company pensions. These represent an important step forward for the pension reform and are due to go before parliament together in autumn 2013.
STEFI KIERULF PRYTz
New products and transition rulesAround 11 400 businesses and 302 500 active employees have company pensions supplied by a life company (2011 figures). These businesses need to ascertain as soon as possible which type of pension scheme best meets their needs. They need to decide, for example, whether to retain their existing company pension scheme for up to three years, have higher pension accrual for older employees in a new occupational pension product, choose the new occupational pension product or have defined- contribution pensions for other or all staff.
The draft transition rules do not propose the dismantling of existing company pension schemes. It is proposed that these schemes be allowed to continue for up to three years after the law enters into force. However, it is important for all companies to review their pension arrangements in the coming years.
Further work in 2013It is crucial that work on adapting to Solvency II continues with undiminished vigour both internationally and nationally. It is also important to keep working on the processes needed to ensure sustainable product rules. Adjustments due to changes in state disability pensions will play a key role in this spring’s phase of the Banking Law Commission’s work on private
occupational pensions. It has also been announced that transfer rules will be on the agenda. Finance Norway looks forward to this process and will contribute actively to ensure a more sustainable system for all involved. Public occupational pensionsPublic-sector pension schemes, which cover more than 800 000 employees, are also an important element of a complete and sustainable pension system.
Draft legislation for public-sector disability pensions and a consultation document with proposals for the remaining rules for public-sector retirement pensions (for those born after 1953) were due to be presented in 2012. However, the Ministry of Labour is still working on these rules, and both may possibly fall into place during the course of 2013.
New state disability pensionIt has been decided that a new state disability pension will come in from 2015. New private disability schemes will need to be adjusted in line with this, Solvency II and a new product range.
It is expected that the change will be funded by taxing the new state disability pension in the same way as wages. The government has invited the unions to discuss solutions for this. The ministry will presumably also consider other changes and
updates to the disability scheme in its work. When it comes to the remaining rules on retirement pensions, these will build on the agreements from the 2009 pay settlement.
Other possible changesThe Norwegian Confederation of Trade Unions (LO) has announced that it wishes to make pensions, including the issue of negotiated levels, a topic for the 2014 pay settlement.
The government has previously signalled that the state survivor pension will be reviewed at a later date, but has not said anything about when. A number of minor schemes also still need adjustment. There have been signals from various quarters that there will eventually be a need to look again at the solutions chosen for the public sector.
Public-sector schemes are also due to be evaluated in 2017. Schemes with special age limits may eventually need to be reviewed.
Finance Norway looks forward to parliament’s consideration of the new Occupational Pensions Act, transition rules and changes to the Defined-contribution Pensions Act scheduled for autumn 2013. These are important changes for the private occupational pension market, and Finance Norway considers it both desirable and necessary for them to be made as quickly as possible. n
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BUSINESSES FINANCE their activities through a mixture of equity and loan capital. Norwegian businesses obtain loan capital mainly from banks, although bonds and commercial papers are also an important source. Bank financing has traditionally been the most important source of credit for industry in many European countries.
Banks in the euro area are now cutting back on lending to businesses, while the amount of capital companies are raising in the bond market is rising rapidly. This may be because many European banks’ lending capacity has been weakened by the financial crisis, with heavy write-downs and loan losses. However, tighter regulatory requirements are also having a significant effect on banks’ credit standards. Norwegian banks had low levels of loan losses during this period, but businesses’ bond financing is growing here too, while bank financing is lowered.
Regulatory requirementsNew requirements for banks’ capital, liquidity and funding structure will probably be passed in the EU during the course of 2013. These will also affect Norway via the EEA Agreement. The new, stricter requirements will result in higher costs for banks and higher prices for their customers. The proposals may necessitate structural changes at Norwegian banks, and many banks will probably take a variety of different actions in order to meet the requirements. For example, tougher capital adequacy requirements will reduce banks’ lending capacity.
The capital adequacy ratio is a fraction, where the numerator is a bank’s equity and the denominator is its risk-weighted assets. This ratio can be increased in four
main ways: banks can (i) increase their equity by retaining all or part of their earnings, (ii) raise new capital, (iii) cut down on lending in general or sell off assets in order to reduce their unweighted balance sheet, or (iv) alter the composition of their assets to bring risk-weighted assets down while the unweighted balance sheet remains unchanged or increases. Banks will probably opt for a combination of the above.
Norwegian banks have based their capital planning on international recommen dations, but the decision-making process in the EU is not yet complete, and the Norwegian authorities have also signalled an interest in early adoption and
stricter requirements. There is therefore great uncertainty about both the timing andlevel of the requirements, and so whether banks’ future earnings will be sufficient to meet coming capital requirements.
At the same time, raising new capital is normally an expensive form of financing, and if many banks need to raise capital at the same time, the cost could be even higher. It is therefore likely that many banks will need to adjust their balance sheets. If banks opt to maintain their over-all lending capacity so that their earnings are not substantially reduced, one alterna-tive is to tighten their lending standards on loans that bind most capital. In other words, in order to reduce risk-weighted assets, credit standards are tightened for business customers, while the proportion of residential mortgages in the loan portfolio increases. Thus a shift in the supply of credit to different borrower groups is being driven by changes in capital adequacy rules.
Chart 1 presents changes in banks’ credit standards for non-financial enterprises and the contribution from capital requirements to changes in these standards1. Adaptation to capital requirements has been a very
Who will finance industry?
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A more developed bond market in Norway would have many benefits, but it is not expedient for economic activity that growth in this market is fuelled by regulatory requirements that greatly restrict businesses’ access to bank credit. Finance Norway supports a variety of proposals to make the financial industry more robust, but regulation must not undermine the role of banks as a financial intermediary for industry.
Chart 1 Percentage change in credit standards and contribution to change from capital requirements
1 Change in credit standards and contribution to credit standards taken from Norges Bank’s Survey of Bank Lending. The net percentage balances in the chart are calculated by weighting the responses to the survey and will vary between +100 and -100 percent.
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DAG HENNING JACOBSEN
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important explanatory factor for tighter credit standards for business customers since the fourth quarter of 2011.
Risk weights for mortgages In December 2012 the Ministry of Finance asked the financial regulator Finanstilsynet to draw up proposals for risk weights for mortgages of at least 35 percent, which entails a substantial increase in risk-weighted assets for banks using their own models to calculate capital require-ments. Corporate risk weights will remain higher than those for loans secured on dwellings. Some banks will probably have to reduce their lending capacity in the business market in order to bring down risk- weighted assets in the light of tougher capital requirements (option iv above). Hence, if risk weights for mortgages increase, an even larger share of lending will be moved into mortgages so that banks can achieve the same target level for risk-weighted assets. Another possible effect is a general tightening of banks’ lending practices if the cost of a regulatory increase in mortgage risk weights is distributed between different borrower groups. Higher risk weights for mortgages could, in other words, further decrease banks’ business lending capacity.
Banks’ special roleBanks are defined by offering deposits to the public and have a particularly important function in the payment system. They also play a key role in the economy by transforming deposits and other savings into long-term loans. However, there are also other financial intermediaries, and many non-financial companies can borrow in Norwegian and international securities markets.
One unique feature of banks is that they specialise in processing large quantities of information and invest in technology that enables them efficiently to assess loan applications and monitor the projects for which they have granted credit. This ability to obtain and organise information means that banks are better than others at dealing with the challenge of borrowers having more information about their own behaviour and project quality than lenders.
The Bundesbank in Germany published a research study in 2007 looking at banks’ lending to businesses (relationship lending). The analysis was based on a very large dataset covering German businesses and banks over a number of years. The researchers found that the younger, smaller and/or more R&D-intensive a firm is, the greater the chances that it would be financed primarily through bank loans. In other words, where the information gap between borrower and lender is widest, the use of bank financing is greatest. The analysis also found that these businesses 2 An enterprise is a legal entity that may consist of more than one business.
Chart 2 Norwegian small and medium-sized (fewer than 100 employees) and large (100 or more employees) enterprises 2010
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were not less creditworthy than others; in fact the probability of default was lower. In other words, banks helped channel savings into projects that generally proved viable.
Norwegian SMEs also face a significant information barrier, and often they will not have access to any form of credit other than that offered by banks. By acquiring information, not least through a close relationship with the borrower, typically built up over a long period, banks can overcome these informational asymmetries. This activity creates a very clear distinction between the role of banks in the provision of capital and the role of securities markets.
Implications for the economy The consequences of banks sharply tightening their credit standards for businesses can be considerable for businesses that depend on bank financing. Many projects that could have been realised will be cancelled. If the change in credit standards means that society’s savings will be allocated to alternative investments with lower returns, economic growth will be impaired.
In Norway, 97 percent of enterprises have fewer than 20 employees, and 99.5 percent have fewer than 100 (2010 figures), see Chart 22. If we define small and medium-sized enterprises (SMEs) as those with fewer than 100 employees, this means that SMEs account for 54 percent of annual sales and 61 percent of total employment in enterprises. Since a substantial proportion of SMEs are dependent on bank loans to fund projects, the necessary adjustments to coming regulatory capital requirements may have a negative effect on economic activity. Large
companies will also be affected by tighter credit standards, but are better able to source capital in the bond market.
Supervisory responsibilities In the aftermath of the financial crisis, great attention has been paid to risk factors associated with financial intermediation and the costs of financial instability. Many new regulations are in the pipeline which aim to reduce the likelihood of further financial crises.
Finance Norway supports many of these proposals, provided a level playing field between countries. A level playing field in the Nordic countries is an absolute minimum. The authorities need to balance different effects in the concrete design of new rules. New regulations may result in a smaller chance of a financial crisis, but could also hamper the economy’s growth capacity. The proposals for higher risk weights for mortgages could both put a damper on growth and have an unintended negative effect on the outlook for financial stability.
The legislation establishing the new macro-prudential authority in the UK, the Bank of England’s Financial Policy Committee, gives it responsibility for making the financial system robust, but also specifies that its recommendations and decisions must not have “a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy”.
Finance Norway supports a variety of proposed regulations to make banks more robust, but the Norwegian authorities must also consider the economy’s growth capacity when designing and applying new rules. n
Savings bank foundations – the power to change
Recent years have seen the emergence of a new force in society. Savings bank foundations are local, capital-rich and influential players charged with owning savings banks, managing assets for the community and channelling profits into good causes. They have the potential to make a key contribution to strengthening civil society, modernising philanthropy in Norway and bringing about a change in attitudes in society.
THE vERY FIRST savings bank foundation saw the light of day in 1975 when Vest-landsbanken acquired Oslo Nye Sparebank and the purchase price was the starting capital for a charitable foundation. The next, Sparebankstiftelsen DNB NOR, came about in 2001 as a result of the formation of Gjensidige NOR, but it was not until the changes in the savings bank legislation in 2009 that the door was properly opened to savings bank foundations as part of the solution to structural change in the savings bank industry.
More and more new foundationsThe changes in the law led to a rise in the number of banks merging, and with this an increase in the number of foundations. A further 19 have been started up since 2009, taking the total to 21, and together they manage assets of more than NOK 20 billion.
Even without the benefits of a crystal ball, it is safe to assume that this trend will continue. Even now, when one in five institutions in the savings bank sector is a foundation, this is changing the very nature of the industry.
Giving back to the local communityLocal communities now have a new benefactor alongside their bank. This has
great potential if used properly, but also presents some challenges. The savings banks’ most important contribution to society is to provide good and efficient banking services. The return of a share of their profits to the community is a distinguishing feature of the savings bank sector, but not its most important output.
If the savings bank foundations are to work well as social benefactors, this must be in coordination with the new bank. If successful, this will result in both an active bank that meets the needs of the local community and businesses, and a solid owner, manager and investor in the foundation. The foundations have greater scope to play the role of high-profile social enterprise and help safeguard the key values and reputation of the savings bank move-ment.
With a foundation behind it, the bank is assured of clear local/regional owner-ship. The foundation can help when capital is needed, and boost trading and interest in equity certificates. The bank and the foundation benefit from greater control and predictability when it comes to the distri bution of profits, thus increasing the chances of strengthening the community’s capital base. This must, of course, be reconciled with the local community’s expectations for the contributions of the bank and foundation to good causes etc.
ChallengesThe biggest challenge for the founda-tion model is balancing the community’s expectations of the foundation with its role as owner and manager of the bank. Good long-term governance is crucial for strengthening and developing the savings banks’ role locally and regionally. Conflicts may arise between the foundation and the bank. If the bank’s expectations of the foundation in terms of meeting its capital needs exceed the foundation’s capacity and inclination, this could create challenges. There could also be disagreement over dividend policies and the bank’s future. Shortcomings in the foundation’s manage-ment that erode the community’s capital base must be avoided. The pressure of expectation from local communities could also impinge on the foundations’ ownership
role. Balancing expectations and realities will be a key success criterion for the foundations.
Commitment to good causes – unique to savings banksSavings banks are committed to donating a substantial share of their profits to good causes. These span everything from aid work and social welfare through cultural, ecclesiastical and sports facilities to thousands of small donations to local clubs and societies. A growing and well-run savings bank sector has contributed to strong growth in charitable donations in recent years. More than NOK 5 billion has been distributed over the past decade, and annual donations are now up at NOK 700-800 million. The foundations will handle more of this task in the future, which should lead to greater professionalism and better “quality control” in the allocation of funding. This will benefit the entire industry.
Creating opportunitiesIn time, a growing number of foundations and the merger of more and more savings banks may lead to the savings banks’ social development role changing and being toned down. This would be a challenge for the banks, as they compete on delivering more than just profits.
The authorities in post-war Norway have sought to make philanthropy and charitable traditions redundant. The savings bank foundations should have the revitalisation of aspects of Norwegian civil society as their ambition. This will contribute to greater diversity and less concentration of power. With visions such as “Creating value together” and “Unleashing the power of good”, the savings bank foundations are shaping and redefining modern philanthropy, where the emphasis is on creating opportunities and realising dreams.
The foundation model has exciting potential to take the savings bank sector in a positive direction. What is good for the bank is good for the foundation and good for the community. However, the new kid on the block will need to play its role well if this relationship is to be a success. n
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OLE MORTEN GEvING
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CLIMATE
Getting to grips with climate change
Wetter, warmer, wilder – this is what the experts predict for our climate in the years ahead. This is a challenge that demands action and a challenge that the financial industry is rising to, with climate change one of Finance Norway’s top priorities for 2013.
THIS MEANS, for example, that Finance Norway will be an active player in the climate debate, ensure that the industry has adequate information about its own risk exposure and new business opportunities, and implement a pilot project to make use of insurance loss data in the water and drainage field.
Exciting pilot projectThe number of losses in Norway due to natural disasters and water damage is rising, and it is frustrating for insurers and policyholders alike when the same type of loss keeps occurring in the same place because the necessary maintenance or preventive measures have not been introduced.
Insurers are beginning to lose patience and are calling for action and clearer responsibilities to avoid repeated losses. The industry itself wishes to contribute by starting up a pilot project which aims to bring together all non-life insurance data concerning climate-related losses and making them available to municipalities.
Finance Norway will be entering into an agreement with contract research institute Vestlandsforskning on the project, which will be implemented in collaboration with the Department of Geography at the University of Trondheim and the Bjerknes Centre for Climate Research at the University of Bergen. The overall aim of the project is to identify the potential and requirements for improving the prevention of climate-related losses in the municipalities. We plan to test the value of the insurance industry’s loss statistics in a selection of municipalities.
The focus of the project is on surface water and sewage back-up problems, but other types of natural disaster such as landslides, storms, floods and storm surges will also be included. The project will explore both current climate challenges and expected future climate changes. It will also look at how access to loss data
from the insurance industry can strengthen municipalities’ work on operating, maintaining and investing in public infra-structure and preventing climate-related losses through local spatial planning.
No decision has yet been taken on which municipalities will participate in the pilot project, but there will be between six and ten, and the emphasis will be on obtaining a broad cross-section in terms of the issues to be studied, namely:• Natural vulnerability: Capturing
variations in current climate-related natural disasters (landslides, floods, storms, storm surges)
• Economic vulnerability: Capturing variations in the degree of exposure of physical infrastructure to climate-related natural disasters (e.g. urban/rural, high/low maintenance backlog)
• Institutional vulnerability: Capturing variation in the capacity to prevent climate-related natural disasters (determined primarily by population)
If everything goes to plan, the project will be completed by March 2014.
Dialogue with other playersThe insurance industry has attached importance to dialogue with research bodies and authorities in its climate work. This has been both useful and entirely necessary. The challenges associated with the environment and climate change affect the whole of society. The more that we as an industry know about what other players are thinking and doing, the easier it will be to define our own role and what unique knowledge and experience we can contribute to the benefit of both customers and society in general.
The aim of this process is to find our place as an industry in the work on climate adaptation. This work has also led to active networks with public bodies, research institutions and industry, which will benefit all concerned going forward and are an asset in themselves.
The insurance industry’s approach to climate change is based on both the commercial challenges facing the industry and the individual insurer and the needs of customers. This entails an approach that recognises that long-term climate challenges and climate effects are a growing problem for the industry.
The industry wants as much as possible to be insurable so that it has the largest possible customer base. This, in turn, means that the industry needs to orient its operations towards sustainable pricing of risk. Climate change is making this task particularly demanding. In neighbouring Denmark we are already seeing examples of customers being refused insurance or forced to pay substantially higher premiums because they live in areas at particular risk due to climate change. The industry will increasingly need to be prepared to deal with challenges of this kind. How they are handled will be among the success criteria for the industry’s climate credibility.
Having climate challenges as one of the key priorities for Finance Norway in 2013 will help both the industry as a whole and the individual insurer to gain sufficient knowledge about both their own risk exposure and new business opportunities.
Long-term workClimate change and the hunt for the best possible solutions for all parties concerned present a challenge that demands not only patience and long-term cooperation, but also the will to pull together for the good of the community. Active climate engagement has already had a number of results for both Finance Norway and the insurance industry:
• The Climate Contract from the Copenhagen conference in 2009 where we undertake to work on climate change at Nordic level
• Participation in and membership of various public climate projects
• A more high-profile player in the eyes of our main stakeholders
• Social responsibility is on the agenda• A commitment to follow the UN’s
Principles for Sustainable Insurance n
MIA EBELTOFT OG OvE RØINESDAL
The idea of pan-European banking supervision is not new, and the prevailing economic situation has given the European Commission a chance to breathe life into its old ambition. The aim of a single supervisory mechanism is to avoid future banking crises, restore confidence in the financial system and protect depositors. It is intended as a first step towards the creation of a European banking union – but is a full banking union practically or politically feasible?
THERE IS LITTLE DOUBT that the European Commission feels that national supervisors in a number of countries have failed to deliver adequate financial over-sight and stability, and that this has under-mined Europe’s economic development.
Acute problems avoidedThe euro area is struggling. The ten-year yield on Spanish government debt crept above 6 percent during the summer of 2012, a level which is not sustainable. Spain needed lower interest rates, reduced government debt and access to funding. Drastic monetary policy action was taken by the European Central Bank (ECB), and the European Commission tabled proposals for a banking union. Together, these measures helped quickly return Spanish government bond yields to more moderate levels.
For the EU, the situation in Spain had become acute. Default on Spanish govern-ment debt would undoubtedly have had dramatic consequences for both the euro and the European economy. For Spain, uncertainty about the country’s banking sector and the government’s exposure to it was a significant problem.
The challenge for the EU was to find a way of recapitalising Spanish banks
without further inflating the country’s government debt. The solution on which the politicians agreed on 13th December 2012 – to establish a single European banking supervisor – will give Spanish banks direct access to funding from the European Stability Mechanism (ESM). In this way, the EU has succeeded in reducing the individual government’s direct exposure to its own banks. In return, the country’s authorities have lost the power to supervise these banks.
Banking unionThe model is based on a single rule book and identical supervisory practices across the banking union. There will also be common schemes for crisis resolution and guarantee funds. The ECB will have the ultimate supervisory responsibility, while the European Banking Authority (EBA) will produce technical standards and more detailed rules. Although it appears that the EBA will continue to play a key role, it seems clear that considerable power will shift to the ECB.
The exercise of monetary policy and banking supervision by one single-organisation raises a number of issues. In concrete terms, this could emerge in the relationship between interest rate setting and quantitative monetary policy measures on the one hand, and new macro- prudential measures for banks on the other (countercyclical buffers, systemic risk charges etc). Questions have also been raised about whether the role as super-visor could compromise the central bank’s independence when it comes to monetary policy.
It is also politically interesting that more power will be transferred to Germany, not only because it is the largest contributor to the ESM but also because of the close relationship between the ECB and the Bundesbank. It should be remembered that, in its consideration of CRD IV, the European Parliament has been keen to build considerable national leeway into the new rules and has opposed the European Commission’s original proposal for full harmonisation (single rule book). Incidentally, the Norwegian authorities have expressed a similar position. The
commission’s proposals for a banking union, which are supported by the Council of Ministers, are therefore presenting a challenge to its relationship with the European Parliament.
Politically feasible? Most advanced economies wish to retain a national banking sector of a certain size to finance the real economy. Handing over supervisory responsibility for their own banking sector is an undesirable prospect for many countries – particularly, perhaps, because it means ceding national control to the “hawks” at the ECB.
Nevertheless, Germany is the only country in the euro area to have expressed any real scepticism about the concept. The German view is that it is not appropriate for all banks to be subject to pan-European supervision, thinking particularly of the savings banks. Thus the key question is whether all 6 000 banks in Europe should be included, or just those that are considered systemically important.
Unsurprisingly, though, the greatest opposition has come from the euro- outsiders. The UK, Poland and Sweden have expressed scepticism about the whole concept. These countries have limited influence at the ECB, and the euro countries will also have a qualified majority at the EBA.
The European Commission’s proposals mean that the authorities in countries outside the euro area will be able to enter into agreements with the ECB on participating in the union on a voluntary basis. If the ECB’s supervision comes to be seen as best practice, it may prove difficult to remain outside the union.
The Swedish government has expressed concern that the solution will undermine the competitiveness of Swedish banks with operations in Estonia and Finland, which are both part of the currency union. However, the UK has been clearest in its opposition, fearing that the City of London will lose its position as a financial centre. Some 40 percent of global trade in euros takes place in the City, more than in the entire euro area, which does not please the euro countries. Banque de France governor Christian Noyer has argued that the bulk
Towards pan-European banking supervision
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ERIK JOHANSEN
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of trading in euros should take place within the euro area out of consideration for the central bank’s capacity to supply liquidity, as well as control its own currency.
Agreement on mechanismOn 13th December 2012 the EU’s finance ministers reached agreement on a single supervisory mechanism (SSM) which will probably enter into force in summer 2014. They managed to find a model to which none of the 27 EU member states is opposed.
As a first step, the ECB will take over the supervision of banks that are not defined as “less significant” – those that have assets of no more than EUR 30 billion or 20 percent of domestic GDP, and that neither the national supervisor nor the ECB considers significant for other reasons. Banks that have received support via the European Financial Stability Facility (EFSF) or ESM are also excluded.
The ECB will nevertheless directly oversee the three “most significant” banks in each country and may decide to take over the supervision of each and every institution. According to the European Commission, the ECB will initially have direct supervisory responsibility for around 150 banks, which is a consider-able practical and operational challenge in itself. Close collaboration with national supervisors is planned. Whether it is practically feasible for all European banks to be supervised by a single body remains to be seen.
Compulsory for euro countriesParticipation will be compulsory for euro countries. Non-euro countries that choose to participate will still not be represented on the ECB’s governing council, but will have an equal say in a new supervisory board, which will be the body that reaches decisions on supervision in practice. The EBA will continue to be the main rule- making body. The interests of countries
outside the banking union will be safe-guarded through a requirement that EBA decisions require the support of a majority of these countries.
The creation of a single supervisory mechanism requires changes to the rules governing the activities of the ECB and the EBA. The European Commission’s proposals are currently being considered by the Council of Ministers and the European Parliament, and this process is expected to be completed by Easter 2013.
Both Sweden and the UK have announced that they do not wish to participate in a single supervisory mechanism based on the model adopted, but say that they can live with this agreement. Denmark has not yet decided whether to take part. Although the agreement is in place politically, there remain a number of important practical issues, including the constitutional side. If the banking union requires changes to EU treaties, it will probably take several years before all the formalities are in place. n
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Financing infrastructure
NORWAY HAS A LARGE unmet need for investment in infrastructure in the areas of energy, transport, water and drainage. At the same time, life insurers and pension funds have a growing need to invest pension capital in assets matched to the liabilities they have in their balance sheets. This is due partly to financial conditions (low interest rates), demographic conditions (an ageing population) and regulatory conditions (Solvency II). However, there is currently a shortage of good investment alternatives that can meet Norwegian life insurers’ needs in this area.
Both in Norway and abroad there has been a growing debate about whether investments in infrastructure might be suitable for meeting these needs. These investments may have a number of characteristics that life insurers are looking for, including a stable long-term return in Norwegian kroner. Finance Norway has long advocated better regulatory conditions for such investments.
Current rulesRegulation No 1457 of 17th December 2007 on asset management in life insurance companies and pension funds was amended with effect from 1st January 2011 to permit investments in infrastructure. Section 3-1 item 14 of the regulation allows up to 5 percent of policyholders’ funds to be invested in shares in companies without debts beyond normal operating credit that carry on business limited to infrastructure investments as defined in section 1-2 item 10 of the regulation. Infrastructure investments are defined as “Direct invest-ments in physical installations and facilities that meet important societal needs. The investment must give a long-term, stable and predictable return.” However, all such infrastructure investments require approval from the financial supervisory authority, Finanstilsynet.
Strict interpretationIt has subsequently emerged that the Ministry of Finance is interpreting the rules very strictly. In autumn 2011 it refused municipal pension fund KLP permission to acquire a 35 percent stake in Trønder-Energi Nett AS, a company that builds and operates transmission networks. The decision was based on an interpretation of the 15 percent limit on ownership of a company that carries on non-insurance-related business (cf sections 6-1 and 6-2 of the Insurance Companies Act). The Ministry argued that the statutory require-ment for network companies to have their own manpower and largely handle their own operational management indicates that this is a business not naturally associated with insurance. The Ministry found that the nature of this business clearly differs from insurance, and opined that the fact that it is regulated and subject to special revenue caps does not override this. Nor did the Ministry find any other reason to grant exemption from the restriction in section 6-1. Approval was, however, granted for the purchase of a 15 percent stake in the company.
In a letter to parliament dated 16th December 2011 on insurers’ asset management, the finance minister added that the ministry would continue to work on the basis for infrastructure investments in the Asset Management Regulations in the light of experience. When the matter of infrastructure investments was raised during question time in parliament on 23rd January 2013, however, the Finance Minister said that the ministry had no concrete plans to amend the Asset Management Regulations’ provisions in this area.
Relationship to Solvency IIIt is unclear how infrastructure investments will affect companies’ capital require-ments under Solvency II. Solvency II does not contain any explicit regulation of
infrastructure investments, but as the rules stand, these investments will not be a viable alternative to long-term bonds. This is because they result in a disproportionately high capital requirement (on a par with private equity) and lack the duration needed to cover long-term liabilities.
In a letter to parliament dated 23rd January 2012, the Finance Minister stressed that it is not possible to say anything defini-tive about the capital requirements different infrastructure investments will trigger under Solvency II.
The ban on national requirements for investment categories in Solvency II, together with the requirement for full harmonisation, would indicate that the quantitative limit on the right to hold shares in companies carrying on non- insurance-related business in the second paragraph of section 6-2 of the Insurance Companies Act needs to be lifted. This was also noted in Finanstilsynet’s consultation paper of 12th August 2011 on the implementation of Solvency II. However, the Banking Law Commission’s proposal for a new Financial Enterprises Act retains this provision.
Need for regulatory changesIn a letter dated 27th March 2012, the Ministry of Finance asked Finanstilsynet for a detailed assessment of whether the regulatory conditions for Norwegian insurers are more restrictive than those in comparable countries. Finanstilsynet’s conclusion is that the Asset Management Regulations as such seem to provide more options for infrastructure investments than in the other countries considered, but that section 6-2 of the Insurance Companies Act severely restricts the use of these options.
In practice, this means that the scope to make such investments is more limited for Norwegian life insurers and pension funds than in the other countries. If the financing of long-term infrastructure is to be an attractive investment option for Norwegian pension capital, the legal basis for such investments will need to be revisited. n
In theory there is a good match between pension capital and the need for long-term financing of infrastructure. In practice, regulatory constraints make this type of investment unattractive.
MARTIN CARLÉN
No country is immune to cybercrime, and the past couple of years have seen an increase in attempts to access Norwegian bank accounts. Customers without updated software are the weak point.
ALTHOUGH THE NUMBER OF attacks has grown, losses due to Trojan horse attacks on Norwegian online banking customers are still very small. Part of the reason for this is that the banking industry has taken effective steps to counter online banking fraud, with the result that successful swindles are few and far between. Security measures are in place at multiple levels.
Although the vast majority of attacks are blocked, there has been a substantial increase in the number of customers who have had their PCs infected with online banking Trojans without necessarily having been defrauded. Dealing with these incidents demands considerable resources.
The banking industry is carefully monitoring developments and is enhancing its security precautions.
Small losses to dateJust how small a risk there is of being affected by this type of crime can be illustrated by looking at overall usage of online banking. Considering the very high use of e-banking solutions in Norway, cybercrime is not a widespread problem, thanks to good work by individual banks, good collaboration between banks, good dialogue with the police, and good use of international intelligence. In 2011 a total of NOK 1 185 trillion was channelled through e-banking solutions for private customers, while total losses at all banks in the first half of 2012 due to Trojans and other forms of cybercrime came to just NOK 2 million, according to figures from Finance Norway and the Norwegian Banks’ Standardisation Office (BSK).
Collaboration and new point of contact In several respects Norway is an attractive target for criminals. Collaboration to prevent this type of crime is therefore essential, and resources are being used more and more efficiently. On several occasions the financial industry has uncovered major conspiracies by working together.
The growing number of attacks on Norwegian computers has meant that the banking industry is planning a new body, FinansCERT, to promote effective handling of IT-related incidents by coordinating information between different players. FinansCERT will work closely with BSK, individual financial institutions and Finance Norway, and will serve as a point of contact with various official bodies working on preventing cybercrime.
Warning the public about threatsTrojan attacks and other types of online banking fraud are generally perpetrated by criminal organisations from outside Norway. The criminals attempt to gain control over computers by exploiting vulnerable software, normally with a view to transferring money to foreign accounts, either directly or through transit accounts in Norway. Trojans can be spread in various ways, such as by fooling users into clicking a link to a harmful webpage, but also by compromising entirely normal webpages.
On a number of occasions banks individually or collectively have actively used the media and their own websites to give the public advice on online bank-ing and updating software and other security tips. Several times in the past year the industry and police have warned the public against acting as “money mules” – making their bank accounts available to criminals to help launder their ill-gotten gains. Criminals often attempt to conceal their activities by passing money through multiple accounts in this way.
Key Supreme Court rulingIn December 2012 the Supreme Court increased the sentence handed down to an Estonian cybercriminal by Eidsivating Court of Appeal to 22 months’ imprisonment plus reparations. The Supreme Court considers online banking fraud to be a serious crime and wrote in its judgment:
“Online banking fraud is often a cross-border activity as in this case. The server controlling the Trojans on the infected computers can be located anywhere in the world, and the money tapped from the online bank can be transferred to accounts abroad. In the same way as with cross-border property crime, there are limited chances of retrieving the assets that the perpetrator has acquired through the offence and removed from the country. This too warrants a strong response.”
Cybercrime is a problem for society and not just for banks and the financial industry. It is also on the increase, and this is affecting online banks. Society in general and banks in particular need protection in place, and we are preparing for further attempts at such crimes.
New challengesWell-organised networks of criminals are often behind this advanced form of crime. Security measures must therefore be continuously improved and upgraded, and individual customers and consumers must also play their part. Banks’ internal systems are secure – it is at the level of the individual PC user that the challenges arise when it comes to online banking fraud.
It is crucial for people to ensure that their software is up-to-date and that they follow security advice from their bank. Increased vigilance on the part of online banking users will help make life harder for the fraudsters. n
Cybercrime demands vigilance
31
CYBERCRIME
STINE NEvERDAL
Own home a more distant dream for many young people
Getting onto the property ladder became much harder for first-time buyers in 2012, thanks to further strong growth in house prices and even higher loan-to-value (LTv) require-ments. One in three below the age of 40 needs financial help from family to enter the property market.
THE NUMBER OF PEOPLE under 40 who have had financial support from family has rocketed over the past three years, from 15 percent in 2009 to 35 percent in 2012, and in some areas the levels are much higher, reveals a survey conducted by Norstat for Finance Norway in autumn 2012.
Two main reasonsThe main reasons for this trend are clear. First, property prices have continued to spiral. Homes cost an average of 8.8 percent more in December 2012 than a year earlier, and the fastest growth has been in prices for apartments, which are often the choice of the first-time buyer. Second,
the financial supervisor authority Finans-tilsynet tightened its mortgage guidelines in December 2011, which included making a minimum 15 percent deposit the standard for new mortgages. This is not an absolute requirement, but for a higher LTV the bank must perform a special assessment based on predetermined criteria.
Banks adhering to guidelinesBanks have largely applied these mortgage guidelines, and the number of high-LTV mortgages has fallen markedly over the past couple of years. Finanstilsynet’s annual mortgage survey in August 2012 revealed that the share of new mortgages with an LTV above 85 percent was 27 percent (excluding supplementary collateral). The same survey a year earlier showed that 38 percent of mortgages had an LTV in excess of 90 percent.
Housing bubble?In its justification for more stringent mortgage guidelines, Finanstilsynet argued that the rapid rise in house prices and household debt had increased the risk of financial instability. Some commentators have even claimed in the past year that we may be facing a housing bubble in Norway.
Against this background, Finance Norway performed an analysis in autumn 2012 looking at house prices in Norway and at households’ debt levels and financial vulnerability. The results revealed that developments in factors such as mortgage rates, household incomes, unemployment and housing supply explain most of the increase in property prices over a long period – in other words, we found no indications of a price bubble.
Can handle more debtStrong growth in incomes over the past five years means that, on average, households can now service higher levels of debt than before. In addition, much of this debt is held by those who can most afford it. However, the most vulnerable households are those with a combination of large debts and small incomes. The high-risk group of low-income households with debts in excess of three times their gross income accounted for 3.8 percent of all households in 2010.
Not sustainableHowever, the strong growth we have seen in both property prices and debt over a long period is unsustainable in the longer term. It is primarily property price inflation that is pushing up household debt, so political means should be used to put a damper on housing demand and pave the way for more homebuilding. Demand-driven credit growth suggests that measures acting on banks’ supply of credit will have little effect.
Confidence in personal financesThe media focus on fast-rising house prices, higher LTVs and uncertainty and recession in the global economy has not gone unnoticed among Norwegian households, even though domestically we have low unemployment, healthy wage growth and rock-solid government finances. However, most Norwegians have great faith in their personal finances. Finance Norway and TNS Gallup’s quarterly expectations survey for the fourth quarter of 2012 confirmed that confidence in personal finances over the coming year is high.
Considerable interest in repaying debt However, the same survey shows that we have to go right back to 1998 to find a similar level of interest in paying off debt. Lending rates were then close to 10 percent in the wake of the economic crisis in Asia and Russia and the ensuing turmoil in financial markets.
The repayment of loans leads to increased saving, and the household saving rate – saving as a percentage of disposable income – has risen in recent years. It stood at between 8 and 9 percent in 2012, and Statistics Norway expects it to hold at this level through to 2015. In addition to these relatively high levels of saving in recent years, the rapid rise in property prices has further strengthened household wealth.
There is therefore much to suggest that more and more young people are saving for a home, while their parents are busy paying off their own mortgages. Is this so that they can help their children when they enter the housing market? n
HOUSING
32
ROLF MÆHLE
Fateful times for the financial industry
Scarcely any other sector of society has more points of contact with consumers, businesses and communities than the financial industry. Its role as financial intermediary, risk pooler and asset manager is crucial for a modern and efficient economy and impacts on both employment and output. Quite rightly, therefore, the financial industry is often referred to as the backbone of the economy.
THE FINANCIAL INDUSTRY
33
THE NORWEGIAN ECONOMY is robust and well placed to deal with a global downturn. Despite the global financial crisis in 2008, Norway is thriving. While other countries are battling with high unemployment and government debt and low growth, Norway continues to enjoy strong growth, low unemployment and solid budget surpluses.
Effective regulation, strong banks, good risk management and limited exposure to risky foreign investments are the main reasons why Norway coped so well during the financial crisis. In 2008 and 2009 Norwegian banks rode out the world’s biggest financial downturn for many decades without any appreciable losses. Experience and lessons learned from the banking crisis of the early 1990s have created Europe’s most robust and modern bank sector. Increases in long-term funding and financial strength have left Norwegian banks even better equipped today to tackle with future challenges than they were in 2008.
Implications for competition in the banking marketThese are fateful times for the financial industry. The outcome of ongoing regulatory processes could have major implications for the Norwegian-based financial industry, both banks and insurers.
Coming changes through CRD IV and Basel III will have a major impact on banks’ risk management, capitalisation and liquidity, and how they adapt will have strategic consequences.
If the Norwegian authorities introduce new capital requirements earlier or make them more stringent than in neighbour-ing countries, this will distort competition in the banking market and limit banks’ opportunities to finance Norwegian industry, which would serve to undermine future growth and competitiveness throughout the economy.
The Norwegian market for covered bonds is crucial for banks’ funding. In a situation where the supply of government bonds is very limited, covered bonds make a key contribution to good long-term funding. The basis for a well-functioning covered bond market must therefore be secured.
Demanding times for the life sectorThe Norwegian life insurance industry faces some major challenges. Increased life expectancy, low market interest rates, domestic pension rules out of step with European rules, new accounting regulations, uncertainty about the future pension market and Solvency II with its big increase in capital requirements – all are putting today’s defined-benefit schemes under considerable pressure. It is essential that we find a sustainable solution to the longevity issue and quickly put in place appropriate transition rules tailored to the pension reform and Solvency II.
There are also substantial challenges associated with paid-up policies and defined-benefit occupational pensions in the private sector. This situation is creating great uncertainty, and failure to agree on good solutions will have serious negative consequences for Norwegian workers, employers and pension providers. A sustainable Norwegian occupational pension system hangs on changes to the rules for private pension products.
Need for rules that are tough but fairThe Norwegian financial industry has always been positive about better regulation and more stringent capital requirements.
Harmonised rules inter nationally will have major benefits, resulting in competition on level terms and making it easier to compare financial institutions in different countries.
In general, it seems that the new regulatory requirements will reduce banks’ profitability and increase their need for expertise. Norwegian banks have increased their capital levels and long-term funding since 2008, putting them in a better position than their foreign competitors.
However, this advantage is being undermined by the Norwegian authorities signalling plans to introduce tougher capital requirements earlier than our neighbours. This will put Norwegian banks at a competitive disadvantage in the domestic market. It will not contribute to greater financial stability or a more robust bank sector, nor will it help Norwegian industry when it comes to sourcing financing for promising projects.
Higher costs and lower returnsThe government has signalled an increase in the taxation of the bank sector and is asking banks to finance a larger guarantee fund. This will mean substantially higher costs and lower returns for banks, and higher prices for their customers. The efficiency gains that the banking industry has made and passed on to customers through lower interest margins and charges have been one of many factors that have helped make Norwegian industry competitive. If the authorities now increase the tax pressure on the sector, this will ultimately push up costs in Norwegian industry. There is no basis to claims that the financial industry in Norway is under-taxed and should therefore be required to pay an activity tax.
Financial institutions make a major contribution to society, through efficiency gains for the benefit of customers, sizable tax revenue and large numbers of skilled jobs. If the financial industry is to continue to help enhance the growth capacity of the Norwegian economy, the authorities need to ensure fair and equal terms. The entire country stands to benefit. n
OLE MORTEN GEvING
The financial industry and UN sustainability principles
Finance Norway is required by its charter to promote “sound development of the financial industry nationally as well as internationally” and is therefore a signatory to both the Principles for Sustainable Insurance and the Principles for Responsible Investment developed by the United Nations Environment Programme’s Finance Initiative (UNEP FI).
SUSTAINABILITY
34
PRINCIPLES FOR SUSTAINABLE INSURANCE (UNEP FI PSI)• Wewillembedinourdecision-makingenvironmental,socialandgovernanceissuesrelevanttoourinsurancebusiness
• Wewillworktogetherwithourclientsandbusinesspartnerstoraiseawarenessofenvironmental,socialandgovernanceissues, manage risk and develop solutions
• Wewillworktogetherwithgovernments,regulatorsandotherkeystakeholderstopromotewidespreadactionacrosssocietyon environmental, social and governance issues
• Wewilldemonstrateaccountabilityandtransparencyinregularlydisclosingpubliclyourprogressinimplementing the Principles
PRINCIPLES FOR RESPONSIBLE INvESTMENT (UNEP FI PRI)• WewillincorporateESGissues1 into investment analysis and decision-making processes
• WewillbeactiveownersandincorporateESGissuesintoourownershippoliciesandpractices
• WewillseekappropriatedisclosureonESGissuesbytheentitiesinwhichweinvest
• WewillpromoteacceptanceandimplementationofthePrincipleswithintheinvestmentindustry
• WewillworktogethertoenhanceoureffectivenessinimplementingthePrinciples
• WewilleachreportonouractivitiesandprogresstowardsimplementingthePrinciples
1 Environmental, social and governance issues
MARIT SAGEN ÅSTvEDT
UNEP FI is a global partnership between the UN Environment Programme and the financial sector. More than 200 banks, insurers and fund managers are working with UNEP to identify and understand the impacts of environmental, social and governance issues on the financial industry’s operations. The aim is to identify, promote and realise best environmental and sustain-ability practice at all levels of the financial industry.
Sustainable insurance The Principles for Sustainable Insurance (PSI) were launched as part of the Rio+20 conference in June 2012, and a Norwegian institution was among those actively in-volved in their formulation. On the recom-mendation of the Life and Pension Commit-tee and the Risk and Non-life Committee, the Executive Board of Finance Norway endorsed the principles in autumn 2012, making Finance Norway a PSI Supporting Institution. It is up to the individual insurer to decide whether it wishes to become a signatory to the PSI, but through Finance
Norway the industry as a whole has lent its support to the PSI and is encouraging its members to consider signing up. Finance Norway for its part has made the following commitment:
“Finance Norway aims at contributing actively to a sustainable business sector and will focus on environmental, social and governance issues both in the public arena and in the insurance industry. Finance Norway will promote UNEP FI PSI and encourage Norwegian insurance companies to sign the principles.”
Government approves BankIDHege Steinsland, BankID Norway
BANKID
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2.8 million users are now able to log onto public services using their BankID after the solution was chosen as an electronic ID supplier for the ID-porten portal.
From 27th November 2012 BankID has given users access to more than 270 online public service providers, alongside MinID, Buypass and Commfides. This will help ensure that more people make use of digital public services in the future, as the threshold for using online services will be lower when the population can use the same solution for banking and public services online.
Secure health dataThe government also wants to make health data available online. BankID has been given the highest security clearance and will enable 2.8 million people to access this sensitive data.
Important milestoneThe contract with the government is an important milestone for the banks, both as a source of revenue and in terms of its marketing impact for the potential uses of BankID. Now that tax returns can be delivered using a BankID, both consumers and businesses will know that it can be used for more than just online banking. n
Responsible investmentThe UN’s Principles for Responsible Invest-ment (PRI) were launched in 2006. As of February 2013, around 1 170 companies worldwide had signed up to the principles, including 11 in Norway. The PRI mission states that:
“We believe that a sustainable global financial system that is efficient in economic terms is a necessity for long-term value creation, rewards long-term responsible investment and benefits the environment and society as a whole.”
The main target group for the PRI is investors, asset managers and their service providers. Organisations that do not belong to one of these categories can lend their support as a PRI Network Supporter, which Finance Norway has now become. As such, Finance Norway will promote greater awareness of responsible investment in Norway. We will also work on the rela-tionship between social responsibility and banks/insurers’ operations, especially when it comes to asset management.
NorsifThe Norwegian Sustainable Investment Forum (Norsif) was started up in January 2013. Its founders include several of the big financial institutions. Norsif is an independent grouping of investors, managers, service providers and industry associations which aims to raise awareness and contribute to the development of responsible investment. Among other things, it will serve as a point of contact with initiatives such as the PRI. Finance Norway will be working closely with Norsif.
The forum has sister organisations in many countries, including Swesif, Dansif and Finsif in the Nordic region. n
1,200
1,000
800
600
400
200
0
35
30
25
20
15
10
5
0 Apr 06 Apr 07 Apr 08 Apr 09 Apr 10 Apr 11 Apr 12
No Signatories
Assets under management (US$ trillion)
SOLVENCY II
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Solvency II – still challenges to overcome
SOLvENCY II represents a fundamental overhaul of European insurance supervision. The aim of the new regulations is to increase protection for policyholders and increase the stability of financial markets. Finance Norway is working to ensure that Solvency II is adapted appropriately to the Norwegian insurance industry.
BackgroundOne of the greatest weaknesses of the current regime, Solvency I, is that it is simple and factor-based, and a number of key risks – such as market risk, credit risk and operational risk – are not adequately captured. The lack of risk sensitivity in Solvency I means that companies do not have incentives to improve their risk management, and does not promote optimal allocation of capital.
Solvency II brings a more risk-based, market-consistent approach to insurance supervision. The aim is to build a more proportional solvency framework where all risks are identified in such a way that the solvency capital requirements reflect the actual risk to which insurers are exposed.
StructureThe final version of the Solvency II Directive (also known as Level I) was formally adopted on 25th November 2009, replacing the 14 existing insurance and reinsurance directives in the EU. It is a framework directive, and therefore requires a series of implementing measures (Level 2) elaborating on many of the 300-plus articles in the directive. These will be adopted directly by the various member states without the possibility of national adjustments.
The European Insurance and Occupational Pensions Authority (EIOPA) is responsible for drawing up further guidance on the Solvency II Directive (Level 3). Some of the guidelines will be binding technical standards that must be followed
by insurers and supervisors, while others will not have to be fully implemented.
The new solvency rules have a three-pillar structure corresponding to the Basel II rules for the banking sector:
• Pilar 1: Quantitative requirements, including
solvency capital requirements, require-ments for calculating technical provisions and minimum capital requirements
• Pilar 2: Qualitative requirements regarding
corporate governance and risk management of insurers, as well as the super vision of insurers. Permits more individual capital requirements tailored to the individual insurer’s risk. Also includes rules on internal control and self-assessment of risk and solvency
• Pilar 3: Rules on market discipline and
transparency, including regulatory and public disclosure
ChallengesRobust pension system under Solvency II The fundamental Solvency II principle of measure both assets and liabilities at market value, means that the present value of technical provisions will need to be calculated using the current risk-free interest rate curve rather than the guaranteed interest rate, as is the case in Norway today. The value of technical provisions will therefore fluctuate with changes in market interest rates, and differences in interest rate sensitivity (duration) between the two sides of the balance sheet will trigger a capital require-ment for interest rate risk.
For life insurers with long-term pension liabilities, a logical adjustment to the capital requirements under Solvency II would be to invest in fixed-income securities with the same maturity as these liabilities, so that the value of the latter moves in line with the former.
However, long-term investments of this kind are not compatible with current Norwegian life insurance rules, where the required annual guarantee means that companies must invest in low-duration assets to avoid large fluctuations in annual returns. There is therefore a need to adapt the current product and operating rules to Solvency II to obtain a pension system that is appropriate for all parties. Finance Norway is working on finding good solutions.
Long-term investment opportunitiesFor companies to be able to adjust their investments in line with their long-term pension liabilities, they must also be able to invest in interest-sensitive assets with a sufficiently long duration. These assets must be denominated in Norwegian kroner to avoid a further capital requirement due to currency risk. Norway has only a small market in fixed-income securities issued by the public sector, so Norwegian insurers have limited scope to close the duration gap by investing in assets with low risk and high duration. Steps need to be taken to correct this imbalance.
It is also important for Solvency II to be adapted so that investments in infra-structure do not trigger excessive capital requirements. Solvency II does not contain any explicit regulation of infrastructure investments, but as the rules stand, these investments will not be a viable alternative to long-term bonds. This is because they result in a disproportionately high capital requirement (on a par with private equity), without the duration needed to match long-term liabilities.
Interest rate curve adjusted to Norwegian conditionsThe methodology for calculating the risk-free interest rate curve used to value future insurance liabilities will be the same for all currencies, but the parameters will vary from currency to currency due to differences in the breadth and depth of bond markets. It is important that the parameters for Norway take as much account as possible of the limitations of the Norwegian market for long-term fixed-income instruments, and Finance Norway
Large parts of Solvency II are in place, but there are still challenges to overcome. The postponed implementation until 2015 will give more time for adjustments.
MARTIN CARLÉN
SOLVENCY II
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has been actively working for this over a number of years. The Ministry of Finance too noted the importance of this in its letter to the Norwegian financial supervisory authority, Finanstilsynet, of 21st December 2011.
National flexibility The scope for national adjustments to Solvency II for contracts entered into under the existing life insurance and solvency regime is currently uncertain. Although Solvency II is, in principle, to be fully harmonised, it is important for the Norwegian authorities to explore whether there is still some room for manoeuvre, and to what extent this should be exploited to ease the challenges faced by the country’s insurers.
No ratings One further challenge presented by Solvency II is its potential impact on the supply of funding in the Norwegian capital market. The capital requirement for insurers’ investments in bonds, structured credit products and credit derivatives will depend partly on how the credit rating agencies rate the issuer’s creditworthiness. Unlike what is common elsewhere in Europe most Norwegian savings banks do not have such a rating.
The absence of a rating means that bonds issued by these banks will trigger a higher solvency capital requirement for insurers, making them a less attractive investment. This, in turn, could give Norwegian savings banks problems with their funding.
Unrated bonds issued by Norwegian local government bodies are also treated the same as other unrated investments under
Solvency II and will similarly trigger a high solvency capital requirement. Finance Norway believes that one possible solution would be for bonds issued by unrated financial institutions (including Norwegian savings banks) to be assigned a national rating.
ProgressThe European Commission has been working on implementing measures for the Solvency II Directive since 2009. The timing of a decision on these measures is uncertain, as it will depend on when the Omnibus II Directive is approved. Omnibus II was presented by the European Commission in connection with the restructuring of the supervisory bodies in the EU in late 2010, early 2011, and entails changes to existing directives, including Solvency II.
DelaysThe European Commission, the Council of the European Union and the European Parliament have been in talks for some time on the provisions of Omnibus II that particularly affect products with long-term guarantees. The debate has centred mainly on various proposals for adjusting the interest rate curve for discounting liabilities with the aim of reducing fluctuations in companies’ capital and capital require-ments.
On 12th July 2012 the decision was taken to perform an impact assessment of the proposals. This has been carried out between 28th January and 2nd April 2013, and Finanstilsynet asked five Norwegian companies to take part. The negotiations on the Omnibus II Directive have been
postponed until the results of the assess-ment are released in June, and the parties are not expected to reach agreement before the first quarter of 2014. This means that the publication of the final draft Level 2 implementing measures for Solvency II cannot be expected before the first half of next year, and the Level 3 guidelines have also been delayed.
In its letter sent out on 4th February 2013, Finanstilsynet stated that the delays to Omnibus II probably mean that full implementation of Solvency II will not take place any earlier than 1st January 2015, and that further delays cannot be ruled out.
Interim measures In the light of the delayed implementation of Solvency II, EIOPA is planning interim measures so that parts of the Solvency II rules can be applied from 2014. These may include requirements for companies’ risk management and internal control, including own risk and solvency assessment (ORSA), supervisory activities, pre-application of internal models, and reporting to super-visors.
EIOPA expects national supervisors to ensure that companies have effective governance and risk management systems in place. They must also review companies’ self-assessment of risk and, where relevant, their readiness for internal model applications. In addition, EIOPA is urging national supervisors to request the information necessary to apply a prospective and risk-based supervisory approach, which could lead to additional reporting requirements.
EIOPA will issue guidelines to national authorities in the abovementioned areas, and these were released for consultation at the end of March 2013. Finanstilsynet plans in principle to follow EIOPA’s recommendations, but will consider them in more detail once the actual guidelines are available. Finanstilsynet believes that these interim measures could be applied in Norway through adjustments to supervisory processes without changes to existing regulation. n
Helping young people make better financial decisions
SOME OF THESE MATERIALS have been developed in-house and others in collaboration with other organisations. Together with the Norwegian State Housing Bank and the Norwegian Labour and Welfare Administration, we have created the digital learning tool Run Your Own Life. Along with the Consumer Ombudsman, we have produced On Your Own Two Feet, a guide to personal finances tailored to young adults. We are also now starting work on a digital financial literacy test for young people.
Keen to know moreYoung people want to know more, but the material and information need to be tailored to this age group. They want to be taken seriously, and the knowledge must seem relevant to them. They want concrete advice and better support from banks than they feel they get today.
It is not easy to manage, prioritise and keep control of your personal finances. Young people also need to learn about saving, borrowing and financial planning
– not least when the time comes to buy a home. Good information can make it easier to prepare for that first meeting with the bank and ask the key questions. With today’s high property prices and tougher loan-to-value requirements, it can be hard to get onto the property ladder, and it can be hard to see the connection between the choices you make today and your future finances. For this reason, Finance Norway teamed up with the Norwegian State Housing Bank and the Norwegian Labour and Welfare Administration to produce the digital tool Run Your Own Life, which teaches youngsters about the relationship between income, spending and saving and the consequences of different financial choices. It has been developed with support from the Finance Market Fund.
Personal finances and housing choicesTogether with Junior Achievement - Young Enterprise Norway (JA-YE), Finance Norway is now developing a related tool for schools called Personal Finances and Housing Choices. Here, pupils need to budget their income and see how their lifestyle and spending habits help decide what their future might look like. For example, their choice of housing and transportation and how often they eat out will affect their financial freedom. How much money can they afford to save, and how big a mortgage could they service? The effects of these choices are seen immediately. The program can be used by teachers together with bank representatives.
On your own two feet Working with the Consumer Ombudsman, Finance Norway has produced a guide with information that young people aged 16-25 should get from their bank, regardless of the statutory minimum. The guide is intended as a recommendation for what the bank and its staff should tell and discuss with young adult customers. This is the
essential basic information about personal finances that young people need to know when they come of age, leave home and come to stand on their own two feet.
Banks already have good information initiatives in place for this target group, but the Consumer Ombudsman and Finance Norway are keen to see a more systematic approach. One element may be to invite customers to an 18th birthday chat, which can be based on the guide. It can also pro-vide a basis for a dialogue between young people and their parents. The guide covers everything from leaving school, motorbikes and cars to day-to-day use of banks for savings, loans, credit and insurance.
The partners hope that banks will use the guide in their work on preventing money problems. Experience shows that ill- adapted information and a lack of advice on financial services and personal finances can contribute to young people having payment difficulties. We assume that young people who attain sufficient financial literacy will stand a better chance of avoiding the most common pitfalls. And if they do still run into problems, there will be a greater chance that they will cope with them, either independently or because they know where to go for help.
Financial literacy testBased on input from young people themselves and as an extension of its partnership with the Consumer Ombuds-man, Finance Norway is now developing a digital financial literacy test. Youngsters themselves have suggested that they should be able to take some kind of “financial literacy test”. The test will be based on the topics from On Your Own Two Feet. Starting from what we consider to be the essentials of personal finances on the road to an independent adult life, we ask the question: what do you know about personal finances?
The test is intended for young people who want to check their own knowledge before making a visit to their bank. Bank staff could also use the test when working with young adult customers, and it may be a useful aid for teachers and bank staff when assessing pupils’ knowledge levels in connection with teaching. n
YOUTH AND ECONOMY
38
By talking to young people about their personal finances, Finance Norway knows that they both need and want to learn more. We have therefore developed a range of information and educational materials that they can use to improve their financial literacy.
HILDE ELISABETH JOHANSEN
New compensation scheme for occupational injuries
OCCUPATIONAL INJURIES
39
Far-reaching changes to Norway’s occupational injury scheme have been in the melting pot for many years. The design and organisation of the new scheme will be crucial for employees, employers and insurers alike.
EMPLOYEES ARE CURRENTLY entitled both to benefits from the Norwegian Labour and Welfare Administration (general and specific) and to compensation from their employer’s insurer through statutory occupational injury insurance.
Proposals to simplify the system by merging the public and private schemes were presented in a report (NOU 2004:3) as far back as 2004. It was proposed that insurers underwrite compulsory insurance and handle the settlement of claims, and that a new appeals body be set up.
There has also been lengthy discussion of whether the scheme should be expanded to include more conditions, as proposed in a report published in 2008 (NOU 2008:11), with a particular focus on wear-and-tear injuries.
Different viewsFinance Norway believes that these proposals would result in a simpler and better compensation scheme for workers and their dependents. They would also entail a reasonable division of labour between public benefits and privately financed, market-based insurance schemes.
However, there have been other views on the proposals, as has emerged through several consultation rounds. It has been argued, for example, that the scheme should be greatly expanded in terms of eligible conditions. Others have claimed that the proposed expansion goes too far, and some have argued that diseases should be financed on a pay-as-you-go basis and not covered by insurance. There have also been calls for claims to be handled not by the underwriting insurers but by a public claims office.
The government’s proposalsIn the revised national budget in May 2012 the government presented how it envisaged the final design of the new compensation scheme. The idea was to win approval from parliament so that concrete proposals for the necessary legislative changes etc could be drafted.
In brief, the government’s proposals were as follows:
• Today’s two-track solution should be merged into a single scheme where insurers bear the risk through employers having a statutory duty to take out insurance
• The scheme should be established with a view to future dynamic and research-based expansion of the conditions and diseases covered. Employers and the unions should be involved with the aim of bringing about a sound basis for future regulatory changes
• A new body should be created to handle all claims (except minor claims for compensation for some types of additional expenses etc)
The government’s proposals were an attempt to cut through the known disagree-ment and get a new scheme in place.
Finance Norway’s view is that the government’s proposed model is not appropriate when it comes to the organisation of claims processing, a view that has been clearly endorsed by representatives of claimants. We believe that the government’s idea of having claims processed by a new central claims office would result in unnecessary complexity for both the claimant and the insurer. Under this model, the claimant would have to deal with more different bodies than is necessary. This applies if the claimant is covered only by statutory insurance, and even more so if the employer has taken out additional cover, as is often the case. Such a model would also lead to a certain amount of doubling-up by the claims office and insurer.
Parliament’s viewBased partly on feedback from Finance Norway and the Personal Injury Association, parliament decided not to reach a final decision on the government’s organisational proposal, stating that it “assumes that the bill will contain a broad discussion and review of the scheme, and that it will also provide a detailed account of the organisational solution, including alternatives to it and the views of consultees.”
The Ministry of Labour’s follow-up workThe Ministry of Labour has since worked on the matter with a view to tabling a bill in spring 2013, and has been in dialogue with several key players as part of this. On 4th December 2012 Minister of Labour Anniken Huitfeldt wrote as follows in a response to MP Anette Trettebergstuen:
“The new occupational injury scheme requires a lot of work, and there is still much to be done, especially on how the new scheme is to be organised and run. The challenges relating to its organisation are also noted in parliament’s consideration of the revised national budget.”
The Minister expects the bill tabled in spring 2013 to be limited to bringing together the material rules on the right to compensation in a single act (together with descriptions of an organisational solution). A new bill covering the remaining aspects of the occupational injury reform will follow at a later date.
New proposals from Finance NorwayAs a contribution to the ministry’s assessment of the organisational solution, Finance Norway has published proposals for an alternative way of organising claims processing. In brief, we propose that all cases are processed by the insurance companies, and diseases are considered in conjunction with the new expert body that will need to be set up anyway to further develop the rules on eligible conditions. This will make life much simpler for employees, ensure a fair division of labour and less doubling-up, and, not least, be much easier to establish than the proposed major new claims centre. n
ØYvIND FLATNER
40
Joint platform for ethics and Advisory Code of Conduct
STANDARDS OF ETHICS in the distribution system are particularly important for financial institutions to fulfil their role, be taken seriously and maintain a good reputation.
Advisory skills have been a priority area in recent years. Standards have been introduced at industry level to ensure that the public benefits from relevant and documented expertise. 2012 saw work on coordinating the authorisation scheme for financial advisers and the approval scheme for non-life insurance advisers. Ethics and Good Advisory Practice is now defined as a separate subject with the same content in both schemes.
Ethics as a disciplineSome think that a good upbringing, legal expertise and gut feeling are sufficient tools when faced with an ethical dilemma. Not so – ethics is a discipline in its own right. At a practical level, it boils down to the ability to analyse difficult situations in a way that enables you to justify your decisions. The skills needed to identify and analyse ethical dilemmas have to be developed.
Ethics in the financial industry can be viewed from three perspectives: • the financial industry as a whole has a
responsibility• the individual institution has a
responsibility• the individual employee has a personal
responsibility Everyone working in the industry should have a high level of awareness of his or her particular contribution to the industry’s credibility. The financial industry’s ethical performance is judged by the outside world on the sum of the decisions it takes in practice, both big and small, and not the values and attitudes set out in corporate documentation. This is why ethics is given plenty of room in the authorisation and approval schemes.
Hand in handAs the financial industry sees it, ethics and Good Advisory Practice go hand-in-hand. Good Advisory Practice is the industry’s operationalisation of ethics. The rules are organised in such a way that they follow the advisory process from preparation, through identification of needs and presentation of a solution, to documentation of the meeting and follow-up of the customer. The practical tests in the authorisation and approval schemes, where candidates are tested in customer meetings, have the same structure. The aim is to ensure that all advice in the industry is based on thorough assessment of the customer’s current and future situation, and that the proposed solution is tailored to the individual customer.
Broader scopeThe first version of the Good Advisory Practice rules were launched in 2004 when recommended standards for financial advisers were introduced. The rules
were reworked in 2012 to cover non-life insurance too. Good Advisory Practice currently applies primarily to staff covered by the existing authorisation and approval schemes, but Finance Norway believes that it expresses general principles that should also apply to advice on and sales of other types of product and service, supplemented with any special requirements for individual product groups. We therefore expect Good Advisory Practice to be integrated into the planned sector agreement on advising on paid-up unit-linked policies.
Organisational requirements and management responsibilitiesThe reputation of the individual financial institution depends largely on high-quality customer-facing work. An understanding of ethics and Good Advisory Practice is important but not sufficient. Work on incentive systems, attitudes and values, together with requirements for follow-up by the immediate superior, are also crucial. With clear signals in these areas, manage-ment marks out the lines within which sales and advisory staff are to work. It is important to avoid actions that may pay off in the short term but jeopardise the institution’s reputation and market position in the longer term. n
GOOD ADVISORY PRACTICE
tHe FiNaNcial iNduStry’S joiNt etHical platForm
Targets for awareness and understanding Targets for abilities
The financial industry meets key needs in society. It is the link between all of the economic actors when it comes to loans and credit, managing savings, executing payments, offloading risk and safeguarding lives and property. High levels of expertise are essential for those who work in the industry.
Candidates must 1. Understand the industry’s role and
social responsibility2. Know what it means to be professional
and see the relationship between the behaviour of the individual and the public status of the profession
3. Grasp various ethical concepts and principles and the need for reflection
4. Appreciate how differences in power and knowledge can affect the relationship with the customer
5. See the connection between ethics and finances
6. Have an excellent knowledge of the behavioural rules for customer relations and understand the considerations they address
Candidates must 1. Be able to identify ethical dilemmas in
their day-to-day work2. Be able to use ethical concepts
and frameworks to make reasoned decisions
3. Be able to explain their own ethical viewpoints and discuss ethical dilemmas with colleagues
4. Be able to apply Good Advisory Practice and relevant laws and guidelines in their day-to-day work
MARIT SAGEN ÅSTvEDT
Finance Norway
This is Finance Norway
Finance Norway represents more than 200 financial institutions and groups active in the Norwegian market that are members of the two parent organisations: the Norwegian Savings Bank Association and the Norwegian Financial Services Association. They span a wide range of financial services providers:
• savings banks • commercial banks • life insurers • non-life insurers • finance companies • securities fund management companies • investment firms • financial groups
ObjectiveFinance Norway’s role is to:• ensure that member companies/groups
are afforded working conditions and opportunities for further development that provide a basis for profitable and sound operation, enabling them to offer their customers the best possible service
• ensure an equal legal framework for all financial enterprises competing in the same market, independent of size and ownership
• ensure that Norwegian-based financial enterprises are able to operate on equal terms with their international competitors and that these terms are adjusted to developments in the EEA
• promote sound development of the financial industry nationally as well as internationally
• promote high professional and ethical standards in the financial industry and a wide understanding of the importance of the financial industry in society
• further the interests of members in matters relating to their employees’ remuneration and terms of employment
Finance Norway’s board includes senior executives from many of the largest financial groups in Norway, but also representatives of smaller players. The management structure also encompasses various industry committees, technical committees, project committees and steering groups.
Idar Kreutzer took over as managing director on 1st September 2012.
Representing membersFinance Norway is an umbrella organi-sation for collaboration in the financial industry. Our role is to safeguard members’ interests in relation to the authorities, other organisations and the media, and represent them in international forums.
Party to collective agreements Finance Norway is party to the financial industry’s collective agreements with the Finance Sector Union of Norway and the Norwegian Confederation of Trade Unions. We represent the financial industry and employers’ interests in the annual negotiations with these organisations on the remuneration and terms of employment of around 40 000 people.
Part of a wider communityInternationally competitive terms are a key objective for Finance Norway in its work on regulation of the financial industry.
Through the EEA Agreement, EU rules also apply to Norwegian financial institutions. New European directives are implemented in Norwegian law each year with a direct impact on the industry, and from time to time the European Commission and the European financial industry agree on industry standards that are not statutory but nevertheless become part of the ground rules for Norwegian financial institutions in practice.
To monitor and influence developments in Europe, Finance Norway is a member of various European organisations, including the European Banking Federation, the European Savings Bank Group and Insurance Europe.
Key consultationsEach year Finance Norway submits around 100 consultation responses on proposed regulatory and legislative changes. In some cases the Norwegian authorities request opinions on regulatory proposals under consideration in the EU. This can mean that the industry is involved as a consultee at two levels: first in connection with the process in the EU, and then in connection with the implementation of the European rules into Norwegian law.
Organisational changesOn 1st January 2013 all staff at the Norwegian Employers’ Association for the Financial Sector became part of a new Employer Issues department at Finance Norway. Employees at the Norwegian Savings Banks Association were also integrated into Finance Norway in a separate Savings Banks department. At the same time, Motor Assessment and Remaining Value Salvage were hived off into a separate legal entity, an association under the name of FNO Skadedrift.
Finance Norway’s areas of activity • Economic and regulatory framework for
Norwegian-based financial services • International regulatory framework, with
a particular emphasis on EEA rules• Capital adequacy, security and accounting
rules for financial institutions• Structural and competitive conditions in
the financial industry• Capital markets, pensions, savings and
asset management• Financial markets, financial instruments,
securities trading and settlement• Payment systems, payment infrastructure,
clearing and settlement • Risk management, including actuarial risk• Loss prevention• Prevention and detection of insurance
fraud and other financial crimes • Guarantee schemes and guarantee funds• Statutory insurance• Consumer issues• Information and advice for financial
institutions• Holding and use of personal details,
including health data• Fiscal and monetary policy• Tax• Division of labour between the public and
private sectors• Employer issues
Joint initiatives Finance Norway is involved in a variety of joint projects and operational solutions in the banking and insurance field:• Pool Office • Health Assessment Committee• Insurance Companies’ Approvals Board • Norwegian Motor Insurers’ Bureau • Norwegian Occupational Injury Insurers’
Bureau • Fraud Prevention Office• Norwegian Interbank Clearing System
(NICS)• BankAxept, the national payment card
system • BankID, Norwegian banks’ eID solution• Norwegian Covered Bond Council
Finance Norway is a combined trade and employer federation for the Norwegian financial industry formed through the merger of the trade association Finance Norway and the Norwegian Employers’ Association for the Financial Sector on 1st January 2013.
FINANCE NORWAY
42
Organisation chart as of March 2013
Administrationand IT
AccountingCommunal Services
IT
Management Team
Managing Director Idar Kreutzer
Director Lene Magnussen
Communication Director Leif Osland
Director Marit Sagen Åstvedt
Director Stefi Kierulf Prytz
Director Jan Digranes
Director Geir R. Trulserud
Director Jan S. Asker
Director Ole Morten Geving
Management
t
t t t
t t t t
t
FINANCE NORWAY
43
Corporate Responsibility
Banking andCapital Markets
Banking and Economics
Financial Markets
Legal
Payments and Infrastructures
Communication GeneralInsurance
Fraud Prevention Office
Loss Prevention
Non-Life Legal Affairs
Pool Office(Natural Perils Pool)
Statistics
The Norwegian Motor Insurers Bureau/
The Norwegian Injury Insurers Bureau
EmployerDepartment Savings BanksLife Insurance
and Pension
Policy Life
Statistics
Management structure
Technical Sub-committees
Accounting
Actuary Life
Actuary Non-life
BankAxept Infrastructure
Bodily Insurance
Clearing and Settlement
Corporate Social Responsibility
Credit
Documentary Credit
Documents (Loans and Guarantees)
ICT and BankID Legal Affairs
Information
Insurance Fraud and Criminality
Joint Committee for Payment Systems
Legal Affairs Payment Systems
Life Lawyers
Liquidity
Norwegian Bank Security Committee
Securities Market
Solvency
Trade Finance
General Meeting
Board
Administration
Steering Committees
Approval – Hot work
Approval Board – Fire Protection
Approval Board –Theft Protection
Authorisation Claims Consultant
Authorisation Consultants
Authorisation Pensions
Insurance Consultant
Fire Safety Projects
Health Evaluation
Natural Perils Pool
Norwegian Motor Insurers’ Bureau
Norwegian Occupational Injury Bureau
Traffic Safety Projects
t
t
t
t
t
t t
t
t
Committees
Banking and Capital Markets
Life and Pensions
Payments and Infrastructure
Risk and Non-life
Employer Issues
t
t
Principal Advisory Committee
Legal Affairs
t t tt
FINANCE NORWAY
44
Banking and Capital MarketsKaj-Martin Georgsen, chairman DNBArne Austreid SpareBank 1 SR-BankPål Bergskaug SEBAudun Bø Terra-GruppenJens Petter Olsen Danske Bank Stein Klakegg Sparebanken VestAage Elmenhorst Schaanning KLP John Sætre Nordea Bank NorgeTiril Haug Villum Pareto BankHans Aasnæs Storebrand Kapitalforvaltning
Payments and InfrastuctureSvein Ivar Førland, chairman Sandnes SparebankErlend Molde Jensen DNBGeir Bergskaug Sparebanken SørLorang Eriksen Terra-GruppenLeif Gripsgård HandelsbankenGro Elisabeth Lundevik Nordea Bank NorgeBernt Pettersen Danske BankEldar Skjetne SpareBank 1 GruppenMagnar Øyhovden Skandiabanken
Life and PensionsÅmund Lunde, chairman Oslo PensjonsforsikringGeir Holmgren Storebrand LivsforsikringTorstein Ingebretsen Gjensidige PensjonsforsikringRoar Engen KLPBjørn Atle Haugen DNB LivsforsikringHanne Fjellheim Handelsbanken LivMagne Nilsen SpareBank 1 LivsforsikringJan Petter Opedal Danica PensjonJørund Vandvik Livsforsikringsselskapet Nordea Liv NorgeMikkel A. Berg Silver Pensjonsforsikring Sverre Gjessing Frende Livsforsikring
Deputy membersNorwegian Savings Banks Association:1. Hans Kristian Glesne Nes Prestgjeld Sparebank2. Bjørn Engaas SpareBank 1 Nøtterøy-Tønsberg
Norwegian Financial Services Association:1. Hege Toft Karlsen Terra-Gruppen2. Kirsten Idebøen SpareBank 1 Gruppen3. Ole Lauritz Lønnum Landkreditt4. Åmund Lunde Oslo Pensjonsforsikring
The composition of the board by 16th March
Board and committees 2013
Helge Leiro Baastad, chairman Gjensidige ForsikringFinn Haugan, vice-chairman SpareBank 1 SMNRune Bjerke DNBGunn Wærsted Nordea Bank NorgeStein Hannevik Sparebanken PlussJon Håvard Solum Grong SparebankArvid Andenæs Sparebanken Sogn og Fjordane Sverre Thornes KLPDag Tjernsmo HandelsbankenTone Lunde Bakker Danske BankOdd Arild Grefstad StorebrandIvar Martinsen If SkadeforsikringTor Magne Lønnum Tryg Forsikring
Risk and Non-lifeTruls Holm Olsen, chairman Tryg ForsikringSverre Bjerkeli Protector ForsikringMartin Danielsen Gjensidige ForsikringGunnar Rogstad Storebrand ForsikringTurid Grotmoll SpareBank 1 SkadeforsikringHans Petter Madsen DNB SkadeforsikringMorten Thorsrud If SkadeforsikringMagne Nordgård Terra ForsikringBjørn Thømt Frende SkadeforsikringScott Ørmen Codan Forsikring
Principal Advisory Committee on Legal AffairsThorbjørn Gjerde, chairman Danske BankTor Birkeland SpareBank 1 GruppenCamilla Bredrup If SkadeforsikringIda Louise Skaurum Mo KLPJørn Hammer Gjensidige ForsikringKjell R. Hannevik Terra-GruppenGunnar Heiberg Storebrand ASAOlav Heldal DNBTorjus Moe HandelsbankenAnne Østberg Vikøren Tryg ForsikringPål Pedersen Sparebanken VestIvar Sagbakken Nordea Bank Norge
Employer IssuesSolveig Hellebust, chairwoman DNB BankBjørn Brennesvik Storebrand LivsforsikringStine Fjell Nordea Bank NorgeKirsten Grutle KLPAstrid Holm If SkadeforsikringEldar Kjendlie Sparebanken HedmarkPer-Espen Magnussen Gjensidige ForsikringRagndi Robøle Nets NorwayLars Kåre Smith SpareBank 1 GruppenBjørn Smørås Tryg ForsikringHanne Thaugland HandelsbankenEven Kokkvoll Røros Sparebank
FINANCE NORWAY
45
Finance Norway’s board
Finance Norway’s members
FINANCE NORWAY
46
Ordinary membersBank 1 Oslo Akershus ASBN BANK ASACodan ForsikringDanica Pensjonsforsikring ASDanske BankDNB ASAEksportfinans ASAFortis Bank SA/NV Norwegian BranchFrende ForsikringGE Money BankGjensidige Forsikring ASAHandelsbankenIf SkadeforsikringJernbanepersonalets Forsikring gjensidigKLP (Kommunal Landspensjonskasse)KNIF Trygghet forsikring ASLandbruksforsikring ASLandkreditt SALivsforsikringsselskapet Nordea Liv Norge ASMøretrygd Gjensidig ForsikringNordea Bank Norge ASA SkandiaBanken AB Skogbrand Forsikringsselskap GjensidigSpareBank 1 Gruppen ASStorebrand ASAStorebrand Helseforsikring ASTerra Gruppen ASTryg ForsikringVoss Veksel- og Landmandsbank ASAyA Bank AS
Trade-only membersACE European Group limitedAgasti Holding ASAAIG Europe LimitedBank Norwegian ASBank2 ASACardif SkadeforsikringCitibank International plc Norway BranchEuro Insurances ltdGenworth FinancialGIEK Kredittforsikring ASGouda ReiseforsikringHandelsbanken Liv Industriforsikring ASInter HannoverNBBL Fulltegningsforsikring ASNEMI forsikring ASNorsk Hussopp Forsikring gjensidigOslo Forsikring ASOslo Pensjonsforsikring ASPareto Bank ASAProtector Forsikring ASA Silver Pensjonsforsikring ASSkandinaviska Enskilda Banken AB (publ) OslofilialenSwedbank NorgeTelenor Forsikring ASTroll Forsikring ASUnison Forsikring ASVerdibanken ASAW. R. Berkley Insurance Norway
Employer-only membersAgria DyreforsikringAndebu Brannkasse GjensidigeAtradius NUFBankenes StandardiseringskontorBud og Hustad Forsikring gjensidigEidsberg Gjensidige BrannkasseEksportkreditt Norge ASEnterCard Norge ASGabler ASGE Capital ASGjensidige Forsikring Nordmøre og RomsdalGjensidige Forsikring SurnadalGjensidige HallingdalGjensidige Hemne BrannkasseGjensidige Marker BrannkasseGjensidige Oppdal-Rennebu BrannkasseGjensidige Orkla ForsikringGjensidige Stjørdal BrannkasseGjensidigestiftelsenHadeland Gjensidige BrannkasseHalsa Gjensidige BrannkasseHavtrygd Gjensidig ForsikringHobøl Gjensidige BrannkasseIkano Bank AB (publ), Norway BranchIndre Sunnmøre Gjensidige BranntrygdelagJ.P. Morgan Europe Limited, Oslo BranchKontanten ASKreditorforeningen Vest SALindorff ASModum, Sigdal og Krødsherad Gjesidige Brannkasse
Nets Norway ASNord Odal Gjensidige BrannkasseNordea Finans Norge ASNordlys Forsikring GjensidigNorsk Pensjon ASNorske Folk Pensjonsforsikring AS (NFP)Norwegian Hull Club - Gjensidig AssuranseforeningRakkestad og Degernes Brandkasse GjensidigeSamarbeidende Sparebanker Fellestjenester ASSantander Consumer Bank ASSG Finans ASSPAMA ASSpareBank 1 Kundesenter ASSparebanken Finans Nord-Norge ASSykkylven Gjensidige TrygdelagTromstrygd Gjensidig SjøforsikringsselskapValdres Gjensidige BrannkasseVolvo Finans Norge AS
International membersAioi Insurance Company of Europe LtdAltraplan Luxembourg S.A Avd NorgeR J Kiln & Co Limited
Trade association membersAssociation of Norwegian Finance Houses Norwegian Fund and Asset Management Association
Members of the Norwegian Financial Services Association
Finance Norway’s members are formally members of either the Norwegian Financial Services Association or the Norwegian Savings Banks Association and fall into the following membership categories:
• MembersoftheNorwegianFinancialServicesAssociation- Ordinary members- Trade-only members- Employer-only members- International members- Trade association members
• MembersoftheNorwegianFinancialServicesAssociation
Andebu SparebankArendal og Omegns SparekasseAskim SparebankAurland SparebankAurskog SparebankBamble og Langesund SparebankBerg SparebankBien Sparebank ASBirkenes SparebankBjugn SparebankBlaker SparebankBud Fræna og Hustad SparebankBø SparebankCultura SparebankDNB ASADrangedal og Tørdal SparebankEidsberg SparebankEtne SparebankEtnedal SparebankEvje og Hornnes SparebankFana SparebankFlekkefjord SparebankFornebu SparebankGildeskål SparebankGjerstad SparebankGrong SparebankGrue SparebankHaltdalen SparebankHarstad SparebankHaugesund SparebankHegra SparebankHelgeland SparebankHjartdal og Gransherad SparebankHjelmeland SparebankHol SparebankHøland og Setskog Sparebank
Hønefoss SparebankIndre Sogn SparebankJernbanepersonalets SparebankKlepp SparebankKlæbu SparebankKragerø SparebankKvinesdal SparebankLarvikbanken Brunlanes SparebankLillesands SparebankLillestrøm SparebankLofoten SparebankLuster SparebankMarker SparebankMeldal SparebankMelhus SparebankNes Prestegjelds SparebankNesset SparebankOdal SparebankOfoten SparebankOppdalsbankenOrkdal SparebankRindal SparebankRøros SparebankSandnes SparebankSelbu SparebankSeljord SparebankSkudenes & Aakra SparebankSoknedal SparebankSpareBank 1 Buskerud-VestfoldSpareBank 1 GudbrandsdalSpareBank 1 Hallingdal ValdresSpareBank 1 Lom og SkjåkSpareBank 1 ModumSpareBank 1 Nord-NorgeSpareBank 1 NordvestSpareBank 1 Nøtterøy - Tønsberg
SpareBank 1 Ringerike HadelandSpareBank 1 SMNSpareBank 1 SR-BankSpareBank 1 Søre SunnmøreSpareBank 1 TelemarkSpareBank 1 Østfold AkershusSpareBank 1-Stiftinga KvinnheradSparebanken HedmarkSparebanken HemneSparebanken MøreSparebanken NarvikSparebanken PlussSparebanken Sogn og FjordaneSparebanken SørSparebanken VestSparebanken ØstSparebankstiftelsen BienSparebankstiftelsen DNB NORSparebankstiftelsen GranSparebankstiftelsen HaldenSparebankstiftelsen HelgelandSparebankstiftelsen Jevnaker Lunner NittedalSparebankstiftelsen RingerikeSparebankstiftelsen SaudaSparebankstiftelsen SMNSparebankstiftelsen Sparebank 1 Nord-NorgeSparebankstiftelsen SR-BankSparebankstiftelsen Telemark - GrenlandSparebankstiftelsen Telemark – Holla og LundeSparebankstiftelsen TingvollSparebankstiftelsen Østfold AkershusSparebankstiftinga Fjaler
Sparebankstiftinga HardangerSparebankstiftinga Sogn og FjordaneSpareskillingsbankenSpydeberg SparebankStadsbygd SparebankStrømmen SparebankSunndal SparebankSurnadal SparebankSøgne og Greipstad SparebankTime SparebankTinn SparebankTolga-Os SparebankTotens SparebankTrøgstad SparebankTysnes SparebankValle SparebankVang SparebankVegårshei SparebankVestre Slidre SparebankVik SparebankVoss SparebankØrland SparebankØrskog SparebankÅfjord SparebankAasen Sparebank
Members of the Norwegian Financial Services Association
FINANCE NORWAY
Finance Norway
Hansteens gt 2 • Telephone +47 23 28 42 00 • Telefax +47 23 28 42 01 • P.O.Box 2473 Solli, N-0202 Oslo • Org.no NO 994 970 925 • www.fno.no
