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Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
Financial industries 2012
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Financial industries 2012

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Topical articles and statistics from the banking and insurance industry in Norway. Published yearly.

Topical articles and statistics from the banking and insurance industry in Norway. Published yearly.

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  1. The NorwegianFinancial Industry2012
  2. CONTENTSContentsWelcome toThe Norwegian Financial Industry 2012 4Status 5Europe hits Norwegian economy 6Standing firm 8Weaker life results 12Profit despite bad weather 16Topics 21The financial hub of society 22The challenge of putting Solvency II into practice 24Proposed new capital adequacy rules 26The consequences of new technology 28Adapting to a changing climate 30New threats 32Long-term collaborative process 33Interesting times 34The Norwegian Motor Insurers’ Bureau is there for you 36Financial literacy among the young 38Donations of NOK 4.1 billion in eight years 40FNO 41This is Finance Norway 42Department structure 43Management structure 44Committees and boards 45Members of Finance Norway 46 3
  3. Welcome toThe NorwegianFinancial Industry 2012A strong, efficient and well-run industryThe Norwegian financial industry is time. Norway has emerged stronger extended ­ eriod of low interest rates pstrong, efficient and well-run. It is an from the crisis than maybe any other could therefore prove problematic. Thisessential part of the infrastructure of Western economy, thanks to a favourable ­ is a ­ ignificant challenge for both the sm­ odern society and shares its destiny. industrial structure, robust government ­ ­ authorities and the industry which must Accounting for around 2 per cent of finances, swift action from the authorities, ­ be adequately addressed.employment and 6 per cent of mainland strong financial institutions, and soundGDP, the Norwegian financial industry and comprehensive regulation and ­ Limited scope for unilateral rulesis a key contributor to society. It has also s ­ upervision. It is important to bear this in There is considerable internationalimproved its productivity considerably in mind when drawing conclusions about competition in the financial industry,recent decades. Measured as value added the financial crisis. as the mix of players in the Norwegianper hour worked in fixed prices, produc- When the crisis erupted, many market clearly shows. It is thereforetivity in financial services increased by countries had to pass the bill on to ­ crucial for Norwegian regulation to reflect150 per cent from 1990 to 2010, while taxpayers, but not in Norway. The the rules agreed internationally and theproductivity in the mainland economy as Norwegian state did not have to save any implementation timetable set by the EU.a whole grew by just over 45 per cent. banks from going under or lose money on More exacting or pre-emptive changes in The Norwegian Business School’s rescue operations. The financial industry Norway would erode the competitivenessresearch project “A knowledge-based was not a drain on the treasury during and market share of Norwegian players.Norway” singles out the financial industry the financial crisis – quite the opposite. Nordic harmonisation has to be seen asas one of the most profitable in Norway, ­ The state actually gained from the central an absolute minimum.noting its impressive track record of bank’s swap arrangement, and the risk to The financial industry is the backbonegrowth over the past decade. Despite the the state was limited. for all economic activity, ­ xtending loans efinancial crisis of 2008-09, growth in and credit, managing savings, executingvalue added has been faster than in other Action for a better bond market payments and offloading risk. Overlyindustries over the past ten years, and The problems that did arise in Norway heavy-handed or interventionist regulation ­employees, shareholders and government were not due primarily to the domestic ­ of the industry could undermine thehave all profited from this through higher situation but imported through our e ­ fficiency of the economic ­ ystem, swages, higher earnings and higher tax c ­ onsiderable dependence on global j ­eopardising the economy’s growthrevenue. financial markets as a source of funding. ­ p ­ otential and, ultimately, employment. Norwegian financial institutions had net The degree of regulation of the industryLessons from the financial crisis foreign borrowings of NOK 1 160 billion must therefore be balanced against theThe financial crisis brought home to at the end of the third quarter of 2011. need to sustain economic growth.everyone how vulnerable society is when Reducing this dependence on borrowing ­ A misfiring financial industry wouldfinancial markets collapse. The crisis abroad will make an important have serious consequences for households,was triggered by the implosion of the c ­ ontribution to strengthening financial businesses and others needing shelter fromsubprime mortgage market in the USA, stability in Norway. Among other things, risk. It is crucial that the financial sectorbut the seeds of the crisis were sown by Norway needs a larger, broader and more can continue to play its role as catalystthe considerable imbalances that had liquid bond market. and growth engine for the economy, notbeen allowed to build up in the global least in these turbulent times.economy over a number of years, leading New rules and low ratesto a sharply increased supply of liquidity, The EU has been working for a numberlow interest rates and the formation of of years on a brand-new set of capitalbubbles. adequacy rules for insurers, Solvency II. The global financial crisis has now Even under the new rules, the greatest ­been followed by a sovereign debt crisis u ­ nderlying risk for life companiesin a number of European countries. with long pension obligations will beThere is great uncertainty, and the whether they can generate the returns Arne Hyttnesconsequences will be with us for a long needed to pay guaranteed benefits. An Managing Director, Finance Norway4
  4. STATUS
  5. THE NORWEGIAN ECONOMYEurope hits Norwegian economyActivity in Norway has held up well, thanks to low interest rates, a buoyant oil sector ­and strong population growth, but there are signs that weak global growth is nowweighing on the Norwegian economy.Upswing in the Norwegian economy Especially anaemic growth is in 2011 and stood at 1.2 per cent inActivity in the Norwegian ­ conomy e anticipated in the euro area, and the risk ­ February 2012.continued to grow in 2011. ­ ainland M of a severe economic downturn in the The krone depreciated during theGDP, which excludes oil and ­ hipping, s region has increased. Other countries, ­ financial crisis but has since recovered toincreased by around 2½ per cent. including emerging markets, are ­ eing b high levels. A strong krone underminesE­ mployment rose rapidly, and hit by the financial turmoil and weaker competitiveness and makes it harderu­ nemployment was stable at just over export demand. Weak growth and for Norwegian companies to sell their3 per cent, which is very low by both fi ­ nancial unrest have prompted highly goods abroad. A unilateral interest ratehistorical and international ­ tandards. s expansionary monetary policy, and hike in Norway can result in a strongerHousehold ­ isposable income ­ncreased d i central bank rates in most ­ndustrialised i krone, and so the scope for changes insignifi­ antly, due partly to low c countries are close to zero. Several N ­ orwegian rates is heavily dependent oni­nterest rates, higher employment and ­ entral banks have also resorted to c those of our trading partners.s­ ubstantial real wage growth. Consumer quantitative easing to bring downspending ­ owever, disappointed with h long-term interest rates and stimulate Strong employment growthonly relatively weak growth in 2011. economic activity. Employment fell markedly during theActivity in the housing market was economic downturn that followed then­ evertheless high, with solid turnover Low interest rates here to stay financial crisis, decreasing by almostand strong price growth. The Norwegian central bank, Norges 50 000 people from the second half of Bank, has a target of annual consumer 2008 to the beginning of 2010, butTwo-speed industry price inflation of approximately 2.5 recovered strongly in 2011 to end the year2011 brought solid growth in the per cent over time. The bank cut its higher than before the downturn. Thereb­ usiness sector, but this is now key policy rate sharply in 2008 and was solid growth in both the private ande­ xpected to slow somewhat, and 2009 to counter the negative effects of public sectors, especially in constructionthere are clear signs of divergence in the ­ nancial crisis, taking it down to a fi and business services, and employmentindustrial ­ erformance. While lower p record-low 1.25 per cent in June 2009. in manufacturing stopped falling.activity and falling prices are being From late 2009 through to May 2011, Unemployment rose by roughly 1reported ­ articularly in export-oriented p it was gradually raised again by a total p ­ ercentage point from a low in 2008 toi­ndustries, there has been a marked of 1 percentage point as the economy 3.5 per cent at the beginning of 2010,increase in construction activity, ­ uelling f recovered. Due to the financial turmoil, but has dropped back somewhat sincestrong growth in housing ­nvestment. i higher risk premiums and a bleaker and held at around 3¼ per cent of theEngineering, ship-building and outlook for the global economy, the labour force during the course of 2011.r b­ ig-­ uilding companies have also been policy rate was then cut by half a point Global financial turmoil and weakerbooming, especially those supplying the in December 2011 to 1.75 per cent, and growth prospects in Norway’s exportoil sector. Petroleum investment soared it is expected to remain low. markets will probably lead to slightlyin 2011 and is now making a clear higher unemployment ahead.contribution to growth in the mainland Low inflation, strong currencyeconomy. Inflation fell markedly in 2010 and Cautious consumers r ­ emained low throughout 2011. Low Household consumption grew weaklyGreat uncertainty internationally inflation globally coupled with a in 2011 after rising strongly in 2010.The global economy is wracked with strong Norwegian krone has led to Lower consumption of electricity canuncertainty as a result of the debt crisis falling ­mport prices, and prices for i explain part of the downturn, butin Europe. Economic growth declined d ­ omestically produced goods and c ­ onsumption of other product groupstowards the end of the year, and the s ­ ervices are rising very slowly due to was also weak. This came despite highgrowth outlook has deteriorated. The limited cost pressure. Core inflation real wage growth, low interest rates andcoming years will see many countries as measured by the CPIXE (consumer low power prices.having to rein in public expenditure, and price index adjusted for tax changes and Households are increasingly choosing ­households in some countries face high excluding temporary changes in energy to save rather than to spend, and theunemployment and low wage growth. prices) ranged from 0.8 to 1.6 per cent savings ratio has risen to high levels.6
  6. THE NORWEGIAN ECONOMYThis has to be seen in the light of the in the household sector is now high at to be very flexible in its fiscal policy anduncertain economic times and growing more than 200 per cent. A growth rate step up public expenditure to counterpessimism among households. According in excess of 7 per cent means that debt downturns in the economy.to Finance Norway and TNS Gallup’s is rising faster than disposable income, The government’s “fiscal rule”indicator, household sentiment declined ­ urther increasing households’ debt f requires petroleum revenue to be phasedduring the course of 2011, but picked up burden. into the Norwegian economy gradu-somewhat in the first quarter of 2012. Debt growth in the business sector ally, roughly in line with the expected is highly cyclical and fell sharply in the real return on the Government PensionHigh levels of activity wake of the financial crisis. It picked Fund Global, estimated at 4 per cent.House prices in Norway have risen up again from early 2010, but higher However, the rule permits the spendingmarkedly since the financial crisis and b ­ orrowing costs and more restrictive of petroleum revenue to be adjusted incontinued to climb in 2011, ending the lending policies will probably put a line with the economic climate, with theyear 8.5 per cent up on a year earlier. damper on growth ahead. r ­ esult that it will typically move some-Demand for housing has outpaced what above the 4 per cent path whens­ upply in recent years, with low interest Solid growth in trade surplus times are tough and somewhat below itrates, strong income growth and high Better terms of trade have generated when the economy is thriving.population growth leading to rapidly substantial income for Norway in recent Thus the spending of petroleumrising demand for housing. years. This is because Norway is a net revenue was taken well above 4 per cent Residential construction spent exporter of goods for which prices have to counter the effects of the financialseveral years at very low levels, but risen sharply, including oil and gas, crisis, and the government has movedhousing starts picked up sharply in marine transport and metals. At the towards a more neutral fiscal policy as2011, ­ limbing 24 per cent from 2010. c same time, an increase in imports from the economy has recovered. A weaklyThis upswing in home-building will low-cost countries has brought markedly ­ expansionary budget has been presentedp­ romote a better balance between ­ upply s lower growth in prices for imported for 2012.and ­ emand in the housing market, d goods and services. The phasing in of petroleum ­ evenue rbut growth has slowed again in recent After peaking at close to NOK 450 in line with the fiscal rule makes a majormonths. billion in 2008, the trade surplus fell contribution to growth in the ­ orwegian N back in the aftermath of the financial economy, including in ­ eriods of ­ pDebt growing faster crisis but has since recovered strongly e ­ xtreme pressure on the economy. ­After bottoming out below 4 per cent in to almost NOK 400 billion. The trade H ­ owever, a substantial increase inMarch 2010, debt growth accelerated s ­ urplus depends mainly on developments e ­ xpenditure is expected in future years ­gradually in 2010 and 2011. Twelve- in the global economy and oil prices, due to an ageing ­ opulation, and there pmonth growth in gross domestic debt and will continue to grow if oil prices have been calls for the fiscal rule to be(C2) was 6.7 per cent in December hold at their current high levels. revised so that petroleum revenue is2011, up from 6.1 per cent a year earlier. phased into the Norwegian economy Growth in household debt is now Fiscal policy somewhat more slowly. nabove 7 per cent on a 12-month basis Norway has very strong public financesand at its highest since December 2008. thanks to its substantial revenue fromThe ratio of debt to disposable income North Sea oil, allowing the government 7
  7. BANKSStanding firmNorway’s banks are standing firm despite the economicturmoil in Europe but have plenty of challenges ahead.Norway’s banks emerged from 2011 policy rate. Yields on Norwegian banks’ Covered bondswith a stronger capital position, even bonds, including covered bonds, have There has been strong growth in thethough earnings were somewhat down also climbed as a result of the financial m ­ arket for covered bonds in ­ orway Nfrom 2010. A larger share of profits than t ­ urmoil. As banks gradually refinance since legislation in this area wasusual was used to bolster equity, and their debt at these higher rates, their i ­ntroduced in 2007. More than 20some banks raised capital in the market. funding costs will rise. N ­ orwegian mortgage companies haveBanks are working on developing the ­ Equity markets were hit by weaker been set up and are active issuers ofmarket for covered bonds so that they growth prospects, nervous investors and covered bonds, which are now the largestare better equipped for future challenges, ­ considerable volatility in 2011, with class of bonds in the Norwegian market,not least in terms of liquidity. Rapid prices falling sharply during the year. The larger than the market for governmenttechnological advances are giving rise S&P Global 1200 index, which includes bonds. All covered bonds issued into expectations of further efficiency around 70 per cent of the world’s stock Norway are listed on the Oslo Stockgains in payment services, tougher markets, lost 5 per cent in 2011, while Exchange or the alternative market Oslomortgage guidelines from the regulator, the Oslo Stock Exchange’s benchmark ABM. In time, growth in this marketthe ­ inancial Supervisory Authority of F index fell by 12.5 per cent. Share may make covered bonds the benchmarkNorway (Finanstilsynet), have attracted prices have bounced back strongly in for other fixed-income markets ratherconsiderable attention, and there is early 2012, however, and investors have than the government bond market.great uncertainty about the taxation b ­ ecome less nervous. Banks and mortgage companies relyof the financial industry. The worry is heavily on the bond market to fund theirthat changes will be bigger and quicker The bond market operations, because the proportion ofin Norway than in the countries from The importance of a well-developed loans financed through bank deposits iswhich key competitors operate. and well-functioning bond market has falling. The largest institutions borrow become ever more apparent in the light both in the domestic market and abroad.Sovereign debt crisis of new capital adequacy rules for banks Since the financial crisis in 2008, theand financial turmoil (CRD IV) and insurers (Solvency II). The international market has been highlyThe sovereign debt crisis and a weak national market for NOK-denominated volatile and sometimes unavailable toglobal growth outlook have led to bonds is currently limited in terms of private Norwegian issuers. This hasconsiderable uncertainty in financial both volumes and liquidity, but has i ­ncreased the importance of having amarkets. Government bond yields have strengths that suggest it has the potential large and liquid market in Norway.soared in countries with weak public to move in the right direction. Thanks to The new liquidity standards ­ eing bfinances and plummeted in those viewed the country’s strong economy and public introduced for Norwegian ­ nancial fias safe havens, such as Germany, the finances, both international and domestic i ­nstitutions need to be met withUSA and Norway. Meanwhile risk investors generally have considerable p ­ articularly liquid securities, whichp­ remiums in the money market have confidence in the Norwegian market. are currently scarce in the ­ orwegian Nr­ isen sharply. Banks’ funding situation ­ The bond market is of great m ­ arket. As banks’ operations arewas challenging at times in 2011, i ­mportance to society, most notably p ­ rimarily based on the krone, theyand new loans are now attracting as a source of capital for business. A need krone liquidity. The covered bondc­ onsiderable risk premiums. sound and efficient bond market will market is not currently sufficiently liquid The sovereign debt crisis in the euro a ­ dditionally serve as a good benchmark to satisfy the exacting requirements ofarea has led to more expensive funding ­ for the pricing of credit for Norwegian CRD IV.for banks in Norway as well. The industry. It is also important for financial Developing the Norwegian ­ overed ci­nterest rate a bank has to pay in the stability that there is a bond market that bond market so that it can meetmarket depends partly on general money can take the pressure off the banks if ­ tringent new liquidity standards will smarket rates and partly on the degree of they need to cut back on lending ­ ithout w be a major challenge, and important forrisk ­ ssociated with the bank. Changes a this leading to a sharp decrease in N ­ orwegian financial institutions’ abilityin central bank rates will normally ­ credit for the business sector. The more to comply with CRD IV. Both markethave a major influence on money ­ tringent new capital requirements for s participants’ actions and the authorities’market rates, but recently they have banks could have precisely this effect. i ­mplemen­ ation of the new rules will play trisen ­ndependently of Norges Bank’s i a key role.8
  8. BANKSDeposit guarantee scheme the importance of rapid repayment of Supply-side regulation of this kindThe European Commission unveiled guaranteed deposits but noted that the has historically proven to be ill-suitedp­ roposals for a revised Deposit payment deadline should be harmonised as an ­nstrument of economic policy, iG­ uarantee Scheme Directive in summer with the new EU rules once they are and tougher equity requirements will ­2010. The directive is to be adopted finalised. The deadline should also be p ­ rimarily affect ­ rst-time buyers who fiusing the co-decision procedure, which realistic, and the planned tests should have good ­ arning capacity but are emeans that the European ­ arliament, P be performed and evaluated before any u ­ nable to obtain ­ dditional collateral or aCouncil of Ministers and European decision is taken on a new deadline. equity elsewhere.Commission must all agree on an Housing cooperatives OBOS andi­dentical text. Although there seems to New mortgage guidelines NBBL and the construction industrybe a consensus on the key features of Financial regulator Finanstilsynet were also critical of the changes, and thethe directive, there is still disagreement p ­ ublished revised and more stringent State Housing Bank and the ­ ssociation Aon some significant points, particularly guidelines for responsible mortgage of Local and Regional Authoritiesconcerning a number of financial matters l ­ending practices on 1 December 2011. expressed concern over the inclusion ofand the timing of repayments. The key changes are as follows: all loans in the recommended ­ aximum m From a Norwegian angle, the issue of LTV of 85 per cent, because this could • The loan-to-value ratio (LTV) mustwhether the existing guarantee scheme affect starter loans from the State not normally exceed 85 per cent ofcovering deposits up to NOK 2 million H ­ ousing Bank based on municipal credit a property’s market value and mustcan be retained is key. The authorities, ­ ratings. These are important means of include all loans secured against thebacked by Finance Norway, have helping young and disadvantaged people property.actively lobbied the various European to enter the housing market and are • An LTV above 85 per cent requiresbodies, but the outcome is still unclear. issued largely as a top-up loan together additional collateral to be provided orThe Norwegian guarantee fund is ­ with ordinary bank loans. a special assessment to be performed.s­ ignificantly larger than that proposed by Both a majority of the Parliamentary • Where the LTV exceeds 70 per cent,the EU, so an increase in minimum size Finance Committee and the Minister repayments of principal should bewould have no immediate consequences of Finance have, however, stated that required from the first payment.for Norway. as long as bank and municipal credit • The normal LTV for home equity However, while the Commission is ratings remain prudent, the changes to loans has been lowered from 75 toproposing a reduction in the payment Finanstilsynet’s guidelines should not 70 per cent of the property’s marketdeadline from 20 days to seven days, prevent the combined credit exceeding value.the Parliament is looking for a change 85 per cent of the property’s marketto five days (with some exceptions), and The revised guidelines are based on value as today.the Council is sticking to the existing 20 ­ roposals from Finanstilsynet that pdays. In Norway, the Ministry of Finance encountered opposition from several Taxation of the financial industryhas proposed, in line with the Financial quarters, and so the final decision took The national budget for 2012 ­ evealed rCrisis Commission, that the payment a relatively long time. Finance Norway that the Ministry of Finance hasdeadline is set at seven days. argued strongly that more stringent embarked on an internal process ­ In a consultation response to the guidelines will reduce the supply of to ­ xamine the Financial Crisis e­ inistry, Finance Norway stressedm credit and not the demand for credit. C ­ ommission’s proposals for new taxes t 9
  9. BANKS BankAxept goes chip-onlyt and duties for the financial industry. The has described the actions that it believes ministry’s analysis suggests that it would Magnetic stripes ceased to be used banks should take to avoid similar be possible both formally and practically for BankAxept transactions from 1 p ­ roblems in the future. Finance Norway ­ to introduce an activity tax, and the D ­ ecember 2011, and only smart cards and Finanstilsynet have engaged in design and consequences of such a tax with chips are now accepted. Chip dialogue to ensure increased operational are now being explored further. technology increases security and helps stability in the BankAxept system. One The ministry is also considering maintain confidence in BankAxept as a step taken by Finance Norway has whether it would be appropriate to secure payment solution. The transition been to start up a forum to promote i ­ntroduce a stability duty in Norway, from magnetic stripe to chip technology c ­ oordination and communication and whether such a duty would be was made without any major problems between key players in the processing of well-suited to the role described by the for consumers, merchants, banks or BankAxept payments. Financial Crisis Commission, namely terminal suppliers. to correct a market imbalance, ­ romote p More than 3 million BankIDs financial stability and help finance Special users BankID is an electronic ID issued g ­ overnment intervention in a crisis Some people are unable to open a bank by banks in Norway to household scenario. account or obtain a payment card, and ­ usiness customers. More than b The financial industry’s view is that generally because they lack the proof 2.7 ­ illion people have one or more m we must see the effects of ongoing of identity required under money-­ BankIDs, and the total number of r ­ egulatory initiatives and tax proposals laundering legislation. BankIDs issued passed the 3 million in the EU before reaching any decision Finance Norway has therefore drawn mark towards the end of 2011. Almost on new taxes for Norwegian financial up interbank rules on BankAxept cards 70 per cent of the population over the i ­nstitutions. The introduction of an for special users. These cards can be age of 15 now has a BankID. activity tax would fuel uncertainty and issued only to those receiving statutory BankID is used by 130 banks for impair the financial sector’s capacity benefits from the Norwegian Labour secure access to online banking and to comply with the new requirements. and Welfare Administration or a local p ­ urchases of goods. It is also used The main challenge at present is to social welfare office, asylum seekers and by more than 200 businesses, public strengthen banks’ capital and ­iquidity. l refugees. The welfare office loads the bodies and municipalities for secure Additional taxation would lead to payment card with the relevant amount i ­dentification and signing of contracts. undue distortion of competition to the of benefit and gives the card to the The Brønnøysund Register Centre and disadvantage of Norwegian banks and welfare recipient, who can use the card the Norwegian Mapping Authority make it harder to meet the authorities’ with a PIN in Norwegian cash machines are among the largest users of BankID expectations of an adequate supply of and in-store terminals. The card can be s ­ igning other than banks. Awareness credit to prevent an excessive reduction topped up again by the welfare office, of this feature is limited: a survey has in economic activity in a downturn. which remains the formal owner of the shown that fewer than 30 per cent of balance on the card. managers in the business and public Card use growing The individual banks develop and sectors know that BankID can be used to BankAxept, the Norwegian banks’ market the actual payment cards on the conclude legally binding contracts. national system for card payments, basis of these rules. is owned and managed by Finance BankID and ID-porten N ­ orway. The individual banks ­ ompete c Focus on stable operation In spring 2010 the Agency for Public with each other to issue cards and BankAxept is an efficient payment Management and eGovernment (Difi) process payments. Eight out of ten s ­ ystem that delivers a large number of rejected BankID’s bid to be part of the card payments in Norway use the payments quickly, securely and stably ID-porten eID portal for the Norwegian ­ BankAxept system. A total of 1.1 billion at low cost. The importance of the public sector because message t ­ ransactions were made through the BankAxept system for customers and e ­ ncryption services were not included s ­ ystem in 2011, with a total value of society in general necessitates high in the product. Message encryption NOK 387 billion. standards of operational stability and solutions are currently being explored so While the use of BankAxept is effective contingency solutions at every that BankID could be used in the portal. c ­ ontinuing to grow, international card stage of the transaction process, and so The public sector could see a sharp networks such as Visa and Master- considerable resources are invested in i ­ncrease in electronic communication ­ Card are gaining ground in Norway, safeguarding stability and security in the with the populace if BankID is accepted. p ­ robably because they often offer card system. customer ­ enefits such as interest-free b Downtime resulting in consequences BankID ever more mobile credit, discounts on purchases and free ­ for the general public is rare with the The number of customers with a mobile ­insurance. BankAxept system, this did happen at BankID solution, where the BankID is Easter 2011 when operational problems ­ stored on their phone’s SIM card and Fewer cash withdrawals at one of the companies involved, can be used without a one-time code The importance of cash as a means of prevented a large number of ­ ustomers c generator, more than trebled to 70 000 payment for goods and services is waning ­ from using their cards. The incident in 2011. DNB Bank, Skandiabanken and as the use of cards increases, and the showed that there was room for members of the Terra and SpareBank1 trend in recent years has been towards i ­mprovement in the infrastructure, and alliances now offer BankID for mobiles, fewer cash withdrawals from ATMs and corrective action was quickly taken. and more banks and telecom operators stores when we shop. Cash withdrawals In the wake of these problems, have plans to launch the service. have fallen by 37 per cent over the past F ­ inanstilsynet has taken a close look at 2011 saw work start on the decade from 232 million to 146 million banks and operators in the card system d ­ evelopment of an app enabling a year. This is good news for society, as and Finance Norway as owner and c ­ ustomers to shop and log in using their cash payments are generally more costly ­ m ­ anager of the BankAxept system. In BankID from tablets and smartphones than electronic card payments. ­ a circular to the banks, the regulator ­ with the iOS and Android operating 10
  10. BANKSsystems. This can be expected to be very GOOD RESULTS FOR NORWEGIAN BANK GROUPSpopular. Banks’1 earnings fell from NOK 26.5 billion in 2010 to NOK 24.3 billion inEqual status 2011, or from 0.76 to 0.65 per cent of average total assets (ATA). The figuresUnder Norwegian law, cash is the sole for 2010 were boosted by a substantial one-off gain from the merger ofform of legal tender. This means that payment service providers Nordito (BBS and Teller) in Norway and PBS increditors, such as shops, are not allowed Denmark to form Nets. Banks also reversed substantial provisions for AFPto refuse payment in notes and coins. early retirement pensions following changes in the law. Allowing for these However, the bulk of payments in non-recurring effects, earnings were largely unchanged relative to ATA fromNorway are made from deposits in 2010 to 2011.bank accounts, or electronic money.Along with three other organisations,Finance Norway asked the Ministry SLIGHT DECREASE IN NET INTEREST INCOMEof Finance to explore the possibility of Banks’ net interest income fell slightly relative to ATA in 2011. Net interestgiving electronic money equal statuswith cash. Traders could then choose income came to NOK 55.6 billion, or 1.49 per cent of ATA, compared withwhether to accept both electronic money NOK 53.0 billion and 1.51 per cent in 2010. Banks were not required to makeand cash or just one. This change in the payments into the Norwegian Banks’ Guarantee Fund in 2011. Allowing forlaw would have security and efficiency this, the drop in net interest income was somewhat larger.benefits for the individual merchant,employees and society in general. The ministry has decided against such LOW LOAN LOSSESa review out of concern that equal status Losses on loans and guarantees totalled NOK 6.9 billion in 2011, or 0.18 perwould undermine the predictability cent of ATA, compared with NOK 6.3 billion and 0.18 per cent in 2010.of cash and create problems for those­­ nable to settle in other ways.u Norwegians are world leaders in the STABLE COSTSuse of cards, and virtually all merchantshave card payment terminals. Norway Banks’ costs have grown more slowly than ATA for a number of years. In 2011is therefore in the best possible position operating costs totalled NOK 41.4 billion, or 1.11 per cent of ATA, comparedto become all but independent of cash with NOK 37.7 billion and 1.08 per cent in 2010. Note, however, that formerin day-to-day life. A review could have AFP early retirement pension obligations were taken to income in 2010shed light on the strengths and weak- without new provisions being calculated, leading to a substantial reductionnesses of giving electronic money and in operating costs that year. Allowing for this, there was a slight decrease incash equal status. costs relative to ATA in 2011.e-bills through all online banksIf a consumer has an online account SECURITIES AND FOREIGN EXCHANGEwith more than one bank, the customer’se-bills are viewable through all of these Banks recorded net gains on securities and foreign exchange of NOK 8.3banks, and the customer can then choose billion in 2011, or 0.22 per cent of ATA, compared with NOK 7.7 billion andfrom which bank to pay the bill. 0.22 per cent in 2010. Other important sources of income for the banks are Customers seem to be happy with this commission and other revenue from banking and payment services.solution. If a customer changes bank,e-bills will also be viewable throughthe new online bank. However, the SOUND CAPITAL POSITIONData Inspectorate has stated that it is Banks’ Tier 1 capital ratio (parent bank) was 11 per cent at the end of 2011,u­ nclear who is the data controller for the up from 10.7 per cent at the end of 2010, while the total capital ratio (parentpurposes of the Personal Data Act when bank) fell from 14.2 per cent at the end of 2010 to 13.6 per cent at the end ofpersonal data are available through all 2011.of the customer’s online banks. Finance Norway has drawn up newinterbank rules for e-bills with clear STABLE DEPOSIT-TO-LOAN RATIOr­ equirements for informing ­ onsumers cthat their e-bills will be viewable through Deposits are banks’ most important source of funding. Customer depositsall of their online banks. The rules at Norwegian banks increased by 7.6 per cent from 2010 to 2011, while thealso clarify the issue of who is the data deposit-to-loan ratio for banks and mortgage companies was stable at 54controller. In addition, Finance ­ orway N per cent.has produced templates for ­ nline ob­ anking agreements where the terms andconditions for viewing through all onlinebanks are clearly expressed, as well astemplates for information that banks canpublish on their websites. n 1 Bank groups, i.e. banks and mortgage companies combined. Source: Finanstilsynet 11
  11. LIFE INSURANCEWeaker life results2011 brought weaker results and reduced buffer capital at life insurers due tothe economic situation with low interest rates and turbulent stock markets.Life insurers posted weaker results for the new scheme, the deadline for In addition, Europe’s new Solvency IIin 2011. Earnings for the year before responses passing on 16 February rules will enter into force from 2013,distributions to policyholders and tax 2012. with reporting due to start up in 2014.came to NOK 6 billion, according to After a transition period, the new • The rules for occupational pensionsThe Financial Supervisory Authority of rules are expected to result in tougher for those born before 1954 andNorway, less than half the level in 2010. capital requirements for Norwegian life AFP early retirement pensions in theThe decline was due to lower long-term i ­nsurers. Finance Norway submitted public sector were aligned with theinterest rates during the year and falling a consultation response on 6 January pension reform for 2011.stock markets, leading to a low return 2012.on life companies’ securities portfolios. • The maximum guaranteed interest Proposals for new rules for paid-up ­Performance was, however, significantly rate for life policies, which is set by policies from the Banking Lawbetter in the fourth quarter than in the The Financial Supervisory Authority C ­ ommission (report NOU 2012:3third. The value-adjusted return, which of Norway, was lowered to 2.5 per “Paid-up policies and capital require-excludes unrealised gains, fell from 6.8 cent for all policies written after 1 ments”) are currently out for consul­per cent in 2010 to 2.8 per cent in 2011. January 2011. tation with a deadline for responses of A substantial proportion of policy­ • Changes to the Investment Manage- 25 April 2012. The plan is to introduceholders’ funds at life companies have ment Regulations for life insurers and new rules from 2013. In addition, thea guaranteed return. In order to fulfil pension funds entered into force on 1 commission is exploring new rules forthis guarantee, buffer capital was January 2011, with further amend- private occupational pensions, includings­ ignificantly reduced during the year, ments coming in from 1 July 2011. new insurance-based products, and isfalling by NOK 6 billion to NOK 43 These mainly concern the restrictions expected to consider changes to privatebillion, or 5 per cent of total assets, on investing in property through real schemes in the light of the new disabilityalthough levels varied considerably from estate investment trusts etc. scheme in the social security system.company to company. The allocation The Ministry of Labour is expected toto equities for policyholders’ funds fell • The Financial Supervisory Authority put proposed changes to the disabilityfrom 17 per cent at the end of 2010 to of Norway presented proposals on 8 scheme in public sector schemes out for13 per cent at the end of 2011 through March 2011 for a number of changes consultation in spring 2012. It is alsoa combination of sell-offs and lower to the Insurance Activity Act, includ- expected to publish a bill with new rulesprices. “This limits companies’ risk ing proposals for a new buffer fund. for public occupational pension schemesfrom any further fall in share prices,” • Finance Norway sent a letter to the for those born from 1954 onwards bycommented The Financial Supervisory Ministry of Finance on 13 April 2011 the end of this year.Authority of Norway. recommending various changes to the act. RESULTS BYRegulatory changes CLASS OF BUSINESS• Changes to the legislation on private • The Ministry of Finance consulted on report NOU 2011:8 on new ­ nancial fi Individual endowments pensions came in during the year, legislation with a deadline of 30 This product is sensitive to movements in allowing the flexible release of retire- S ­ eptember 2011. Finance Norway interest rates, and investments generally ment pensions from the age of 62 in duly submitted a response. vary somewhat from year to year. The combination with the social security risk cover for death makes up the bulk retirement pension and a private • The Ministry of Finance ­ntroduced i of this class and was largely unchanged AFP early retirement pension and/or a rule change in December from 2010, but the figures suggest continued employment. a ­ llowing companies to raise the increased interest in the risk cover for limit for ­ndividual accumulation of i disability in 2011. The number of invest-• A new AFP early retirement pension ­ upplementary provisions from 2 per s ments (new policies) grew by 15 per cent scheme for the private sector was cent to 3.5 per cent. in 2011. Several players compete solely introduced from 2011, designed as an add-on to the social security retire- • The same month, Parliament in the market for risk cover for death and ment pension without any offsetting a ­ pproved rules for a new disability disability, and these policies account for of earnings. The Ministry of Finance benefit in the social security system more than 30 per cent of gross premiums is currently consulting on accounting from 2015. written in this class.12
  12. LIFE INSURANCEIndividual pensions There was a 40 per cent increase asymmetrical tax rules, low premium ­The option of having individual ­ ensions p in assets in individual pension scheme ceilings and negative media coveragepaid from the age of 62 through an from 2010 to 2011. Around 3 900 over a number of years. New rules on theincrease in the payout period was new ­ ensions were taken out with life p taxation of pensioners also led to limitedi­ntroduced in 2011. This means, for i ­nsurers, down 44 per cent on 2010. marketing of this product in 2011.example, that payments can be ­ ombined c Gross ­ remiums written fell by 7 per cent pwith early unlocking of the social ­ ecurity s to NOK 223 million.retirement pension, occupational pensions ­ ­ The relatively low level of ­ndividual iand AFP early retirement pensions. ­ pensions can be seen in the light ofTotal assets as at 31 December, IPA and IPS pensions 1)NOK million Year 2011 2010 2009 2008 2007 IPA pensions Life insurers 55 800 56 800 54 500 60 400 68 900 IPS pensions Life insurers 1 300 900 500 100 Banks 700 700 700 700 700 Securities funds 2) 500 600 500 400 7001) 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 20082) Securities fund management companies.Source: Life insurers: Finance Norway’s “Provisional life statistics” for 2011 and 2010 and “Market shares – final figures and accounting statistics” for earlieryears. Banks: Statistics Norway from 2006. Securities fund management companies: Norwegian Fund and Asset Management Association. Figures are rounded. 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 ­ roportion p 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 c ­ ompanies, banks and securities funds show that the proportion of schemes with contributions at the minimum p ­ ermitted rate is falling. At the endAs an alternative to individual ­ ensions, p of new private occupational pensions of 2011, 68 per cent of schemes hadthe self-employed can choose instead d ­ uring the year. c ­ ontributions at the minimum rate,to save under the Defined-contribution There is still a trend in the private ­ down from 76 per cent in 2008 whenP­ ensions Act with a higher premium o ­ ccupational pension market for the statistics began. This may bec­ eiling, and this form of saving is defined-benefit schemes to convert to because many companies convertingi­ncluded in the figures for group defined-contribution schemes. Around their schemes introduce rates above the­pensions. 300 000 people still have private minimum requirement. The statistics defined-benefit pensions under the also show that more than 7 per centGroup pensions C ­ ompany Pensions Act. Figures from of schemes have contributions at theMore than a million Norwegians now Finance Norway show that 460 defined- m ­ aximum permitted rate, comparedhave a defined-contribution pension. The benefit schemes converted in 2011, ­ with 6 per cent in 2008. Around 37 pernumber has grown every year since the with around 15 000 people switching cent of members have linked disability ­Mandatory Occupational Pensions Act to defined ­ ontributions. This makes a c cover to their defined-contributionwas passed in 2006. total of around 3 860 schemes that have p ­ ension, and only 6 per cent of these Approximately 8 900 defined-contri- c ­ onverted since 2002, not including ­ qualify for paid-up benefits.bution pensions were taken out in 2011, schemes not covered by Financeand these accounted for 94 per cent Norway´s statistics. The conversion t 13
  13. LIFE INSURANCE Total assets as at 31 December, defined-contribution schemes within the tax regulationst NOK million Year 2011 2010 2009 2008 2007 Life insurers 52 000 42 000 29 500 16 300 11 700 Banks 200 200 100 100 50 Securities funds* 12 500 9 800 1 400 800 600 * Securities fund management companies. Source: Life insurers: Finance Norway’s “Provisional life statistics” for 2011 and 2010 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. Results 1) Life insurers NOK million Year 2011 2010 2009 2008 Premium income 2) 85 100 78 000 70 300 75 100 Net return on policyholders’ funds 20 000 44 800 34 800 -7 500 Benefits paid 3) 54 000 50 300 44 200 62 700 Insurance-related operating expenses 5 800 5 600 5 500 5 600 Change in market value fluctuation reserves 9 400 -10 500 -4 500 -15 200 Earnings before distributions and tax 6 000 4 800 3 800 -1 600 Balance sheet as at 31 December NOK million Year 2011 2010 2009 2008 2007 Total assets 904 000 852 200 742 200 694 400 737 800 - of which additional reserves 25 300 22 800 19 200 13 200 24 800 1) The introduction of new accounting regulations in 2008 means that comparative data for previous years cannot be provided 2) Premium income = gross premiums written + reserves transferred – reinsurance 3) Benefits paid = gross benefits paid + changes in provisions + premium reserves transferred out – reinsurance Source: The Financial Supervisory Authority of Norway for 2011, Finance Norway’s “Market shares – final figures and accounting statistics” for earlier years. The statistics cover only Norwegian life insurers. In previous reports, traditional life insurers and unit-linked companies were separated. The figures from Finance Norway include only Finance Norway’s members. Figures are rounded. Allocation of policyholders’ funds as at 31 December, percentage of total Year 2011 2010 2009 2008 2007 Equities, securities funds 36.6 39.4 29.8 28.5 43.6 Property 0.0 0.2 0.7 0.8 3.0 Loans 5.1 6.0 9.1 6.0 3.8 Bonds 55.5 50.6 56.7 58.5 39.3 - of which certificates 8.6 5.4 2.5 2.8 - Bank deposits 2.4 2.8 2.7 4.1 4.8 Other 0.4 1.0 0.9 2.1 5.5 Source: Statistics Norway. The statistics cover all Norwegian life insurers. Units in bond and money market funds are included under equities and securities funds. Prior to 2008 the figures include own funds. 14
  14. LIFE INSURANCEPremiums and benefits, life productsNOK million Year 2011 2010 2009 2008 2007 Individual endowments Gross premiums due 8 500 8 700 8 800 7 000 14 500 Gross benefits paid 6 900 6 300 5 500 21 300 19 600 Individual pensions Gross premiums due 1 600 1 800 2 200 2 200 4 300 - of which IPA pensions 150 150 250 650 1 000 - of which IPS pensions 200 250 250 100 n.a. Gross benefits paid 7 000 10 300 8 600 12 900 19 300 Group life Gross premiums due 3 600 3 500 3 500 3 400 3 300 Gross benefits paid 2 200 2 000 2 500 2 400 2 000 Group pensions Gross premiums due 58 500 53 400 48 300 53 300 45 000 Gross benefits paid 24 400 22 400 19 100 18 000 16 200 Source: Finance Norway’s “Provisional life statistics” for 2011 and 2010 and “Market shares – final figures and accounting statistics” for earlier years, and FinanceNorway’s benefits statistics. The statistics cover Finance Norway’s members, including branches of foreign companies and non-life insurers which sell life insurance.Benefits by causeNOK million Year 2011 2010 2009 2008 2007 Death 2 100 2 100 2 500 2 600 2 100 Insurance term expiry 900 900 800 1 000 1 000 Pensions, excl. disability pensions 22 600 21 000 18 500 17 400 16 300 Lump-sum disability benefits 1 000 900 1 100 1 100 1 100 Disability pensions 7 500 7 100 6 200 6 000 5 700 Surrenders 6 400 9 000 6 600 26 400 30 900 Total 40 500 41 100 35 700 54 500 57 100Source: Finance Norway. The statistics cover Finance Norway’s members, including branches of foreign companies and non-life insurers which sell life insurance. Number of life policies as at 31 December Year 2011 2010 2009 2008 2007 Individual endowments 990 000 980 000 980 000 990 000 967 000 Group life (number of members) 2 300 000 2 500 000 2 600 000 2 600 000 2 841 000 Individual pensions Policies not in payment 860 000 840 000 860 000 707 000 604 000 Policies in payment 250 000 210 000 210 000 223 000 259 000 Group pensions Active members 2 800 000 2 600 000 2 400 000 1 615 000 1 555 000 Pensioners 1) 370 000 340 000 310 000 310 000 289 000 Active, withdrawn from group schemes (paid-up policies and pension capital certificates) 1 500 000 1 350 000 1 100 000 983 000 802 0001) 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 foreignc­ ompanies and non-life insurers which sell life insurance. The figures for 2011 are provisional. Association insurance is included in the figures for individual pensions. 15
  15. Non-Life InsuranceProfit despite bad weatherDespite much bad weather and substantial water losses, Norwegiannon-life insurers made a profit in 2011. Storm Dagmar caused extensivedamage nationwide, especially in the southwest.Norwegian non-life insurers are The cost ratio has fallen over the past for all of the floods in ­ ummer 2011 was se­ stimated to have made a combined decade as a result of companies taking an extreme amount of rain falling in aprofit of NOK 7.6 billion in 2011, action to make their operations more very short space of time.down almost NOK 3 billion on 2010. efficient. Costs in non-life ­nsurance i Figure 1 on the following pageI­ nvestment income almost halved to are now down to around 20 per cent shows total claims on the Natural PerilsNOK 4 billion, and bad weather at the of ­ remiums, compared to around 25 p Pool from 1983 to 2011. It shows theend of the year brought an increase in per cent in 2002. Had the cost ratio i ­mportance of adjusting claims volumesclaims. still been up at 25 per cent in 2011, for increases in asset values: adjusting ­ The operating margin (operating costs would have been almost NOK 2.7 for inflation alone has less of an effectprofit relative to premium income) fell b ­ illion higher than they were. At the than also allowing for the value ofsharply from 2010 to 2011 due to lower same time, premiums have not kept up buildings and contents having riseninvestment income. Although investment with inflation due to stiff competition. faster than the consumer price index.income fell by almost 50 per cent in This full adjustment gives an idea of just2011, it was still a relatively good year Substantial natural disasters how large buildings and contents claimscompared to the disastrous year of 2008 There were a number of major natural would have been had a storm as severewhen investment income was negative. disasters in Norway in 2011, the greatest as that in 1992 hit in 2011. Other majorOperating profit was in line with the being Storm Dagmar over the Christmas events shown in the chart include theaverage for the past five years but down period, resulting in estimated claims of storm surge in the Oslo and Akershusalmost 30 per cent on 2010. almost NOK 900 million. There were area in 1987 and the storm in Nordland The loss ratio also rose following a few large natural disasters in Norway in in 2000.number of major natural disasters. The 2010, the biggest being the landslide insolvency margin (equity, contingency Lyngen with an estimated total cost close Lower loss ratioreserves and tax-free provisions relative to NOK 30 million. Total payouts from 2011 brought fewer water losses andto premium income) fell from 148.8 per the Natural Perils Pool for 2011 are lower fire claims than the cold wintercent in 2010 to 134.9 per cent in 2011, estimated at NOK 1.9 billion. This does of 2010, which saw heavy losses due towhile equity fell from just over NOK 50 not include consequential losses relating frost damage in the house, apartmentbillion to around NOK 46 billion. to boats, cars and business interruption. and leisure home segments. Almost 75 A number of adjustments were The Natural Perils Pool does not cover per cent of premiums collected in 2011made to the calculation of technical infrastructure such as roads, power lines, went out again on claims, compared top­ rovisions in 2011, with the ­ bolition a fixed and mobile telephony networks, or around 90 per cent in 2010.of ­ dministrative provisions and the a damage to forests and agricultural land.i­nclusion of both expected direct and Storm Dagmar affected large parts of Numerous water lossesindirect claims handling costs in claims the country, most notably the western Claims following water damage toprovisions. This led to ­ omewhat s county of Møre og Romsdal, which private residences fell by 14 per cent in­ncreased claims expenses and ai accounted for about half of the almost 2011 and fire claims by 7 per cent, butc­ orresponding decrease in operating 15 000 claims registered. Neighbouring water claims were still 34 per cent upcosts. Sogn og Fjordane accounted for almost on 2009. Fire claims have ­ raditionally t Premium income increased by 5 per 20 per cent of claims, and Østlandet in accounted for the largest number ofcent and claims expenses by 7 per cent, the southeast for 13-14 per cent. payouts on household policies, butpushing up the loss ratio from 71.4 per There were also several other major water losses exceeded fire losses forcent in 2010 to 72.9 per cent in 2011. events in 2011. These began with the first time in 2010. Water claimsWhile the cost ratio (costs relative to fl ­ ooding in March/April, followed by totalled NOK 2.7 billion in 2010 andpremium income) fell, the combined more severe floods in June estimated to almost NOK 2.4 billion in 2011, whiler­ atio (loss ratio plus cost ratio) still have cost more than NOK 200 million. fire claims came to just under NOK 2.7gained 0.8 percentage point. There was further flooding at the end of billion in 2010 and NOK 2.5 billion in July and again in August/September on 2011. the river Ålen in Trøndelag. Storm Berit also brought a storm surge in Nordland ­ in November. One common ­ enominator d16
  16. Non-Life InsuranceThe Norwegian Natural Perils PoolAll buildings and contents insured against Statutory schemefire are automatically also insured against The natural perils scheme is a statutory insurance scheme. All thosenatural disasters under the terms of the taking out fire cover for buildings and contents are therefore alsoNatural Perils Insurance Act. The scheme c ­ overed against natural perils. The upper limit for compensation for oneis administered by the Norwegian ­ atural N natural disaster event is NOK 12.5 billion.Perils Pool, of which all Norwegian ­n­ on-life insurers are members. The Equal premiumrate for allscheme provides compensation for losses The premium paid is the same whether you live in a high-rise in Oslo orcaused by landslides, storms, floods, out in the wilds on the west coast. From January 2012 the natural perilsstorm surges, earthquakes and volcanic premium is 0.07 per cent of the fire insurance premium.eruptions. ­Chart 1: Annual natural disaster payouts 1980-2011 (NOK million)4 5004 0003 5003 0002 5002 0001 5001 000 500 0 Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 *2011 Nominal payouts CPI-adjusted payouts Value-adjusted payoutsMore fires, lower payouts than in 1992 (inflation-adjusted), while peak in 2008, while the number of waterThe number of household fires rose by b ­ reak-in claims were almost unchanged. losses has trended upwards, peaking inalmost 17 per cent in 2011, but payouts The number of break-ins has trended years with high levels of frost damage,on fire claims fell by almost 7 per cent. d ­ ownwards since 1992, with a small such as 1996 and 2010.The higher number of fires was due tobad weather with numerous lightning Chart 2: Water losses and break-in lossesstrikes. Lightning strikes generally causeless damage than other types of fire, with 7 - 120 000the result that fire claims overall did not 6 - 100 000increase. 5Low number of break-ins - 80 000 Number of lossesThe number of homes suffering Claims index 4b­ reak-ins and burglaries was down by - 60 000around 5 per cent on 2010 and almost 38 per cent on 2009, and payouts fell in - 40 000 2nominal terms from NOK 619 million in2009 to NOK 490 million in 2011. 1 - 20 000Water losses up, break-ins down 0 - 0Figure 2 shows the number of water Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 *2011losses and the number of home ­ reak-ins band burglaries from 1992 to 2011.Water claims were six times higher in Water payouts Break-in payouts Water claims Break-in claims2010 and five times higher in 2011 t 17
  17. Non Life Insurance Commercial buildings Chart 3: Thefts of motor vehicles 2002-11t claims still high Claims in commercial insurance came to 700 - 18 000 82 per cent of premium income in 2011, - 16 000 down from 90 per cent in 2010. ­ wners O 600 of large commercial and industrial - 14 000 500 Payouts (NOK million) b ­ uildings often have a high deductible - 12 000 on their policies, with the result that 400 - 10 000 small losses are covered by the policy- holder rather than the insurer. These 300 - 8 000 tend to include break-ins, burglaries and - 6 000 water damage. Out of total payouts of 200 NOK 5.8 billion on commercial policies - 4 000 in 2011, fire claims accounted for NOK 100 - 2 000 3.3 billion, up 12 per cent from NOK 0 - 0 2.9 billion in 2010, while water claims Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 fell from NOK 1.6 billion to NOK 1.1 billion. Water claims fell in almost every county in Norway, with the largest Estimated payouts (NOK million) CPI-adjusted payouts Number of claims p ­ ercentage decrease in Nordland. Fire claims accounted for 57 per cent of commercial buildings payouts in 2011, and water claims for 20 per Glass claims stagnate and the insurance industry via Finance cent, down from 25 per cent in 2010. Windscreen and other glass claims N ­ orway is expected to bring further As in the residential sector, break-ins have been a growing problem, almost reductions in glass claims going forward. and burglaries have fallen markedly in doubling over the past decade. Payouts recent years in the commercial ­ ector, s in 2011 came to almost NOK 1.2 billion Fewer personal injury claims c ­ overing everything from shops to and 10 per cent of total motor claims, The number of personal injury claims industrial buildings. These losses do not, up from 2 per cent a decade ago. Part has fallen by around 25 per cent over however, account for a large proportion of the increase in the number of glass the past decade, while payouts have of overall claims, just 4 per cent in 2011. claims is due to more cars on the roads increased slightly in inflation-adjusted Payouts fell to around NOK 213 million and so heavier traffic, with the result terms. Growth appears to have in 2011, a drop of almost 40 per cent in that stones thrown up are more likely s ­ tagnated since 2007-08, due partly to two years, and the number of break-ins, to hit another vehicle. However, it is newer cars being safer than older ones. ­ urglaries and raids decreased by around b also a fact that some cars have had There was a relatively large increase 30 per cent during the same period due their ­ indscreens repaired or replaced w in the period 2000-04, due partly to to better security, especially at shops ­ without a true insurance loss. Steps have d ­ evelopments in case law and larger selling valuable goods. been taken to deal with this, and there payouts for future expenses. was a slight reduction in the number Better motor results of glass claims from 2010 to 2011. Til tross for et stort salg av nye biler This joint action by the motor industry Despite high new car sales in 2011, motor claims fell by NOK 417 million to just over NOK 11.8 billion. The Chart 4: Personal injury claims on motor policies 2000-11 loss frequency (number of motor losses relative to number of vehicles insured) is 18 000 - 2 500 just over 20 per cent over the course of a year, and fell from 22.7 per cent in 2010 16 000 to 22.1 per cent in 2011. - 2 000 14 000 Number of personal injuries Sharp decrease in car theft 12 000 Thefts of and from cars are ­ ccounting a - 1 500 for an ever smaller share of total claims 10 000 due to better car security – for ­ xample, e 8 000 all new cars are now fitted with - 1 000 i ­mmobilisers. Theft accounted for just 6 000 3 per cent of the total payouts of NOK 11.8 billion on motor policies in 2011, 4 000 - 5 000 compared with 8 per cent a decade 2 000 ago. Back then 13-14 000 cars were stolen each year, compared with just 0 - 0 over 6 500 in 2011, and there has been Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 a ­ imilar reduction in thefts from cars, s from roughly 20 000 a decade ago to Payouts (NOK million) CPI-adjusted payouts Number of personal injuries 8 700 in 2011. 18
  18. Non Life InsuranceFewer occupational injuries Chart 5: Travel insurance claims 2005-11Both the number and size of NOK million (CPI-adjusted to 2011 money)o­ ccupational injury claims seem to have 800fallen somewhat in 2011. Adjusted forincreases in the social security ­ ultiplier, mpremiums have fallen over the past 700five years, due mostly to increasedc­ ompetition but also to payouts not 600having grown as quickly as in the late1990s. Occupational injury claims take a 500long time to finalise. It can take time foran injury to be reported to the insurer, 400and it can take time to confirm the causeand assess the level of loss based onhow permanent the injury proves to be. 300 The apparent reduction ino­ ccupational injury payouts may be due 200to a number of long-term factors, suchas: 100• Fewer workers in high-risk industries• Fewer smokers and so fewer cases of COPD 0• Better health and safety initiative/ Year 2005 2006 2007 2008 2009 2010 2011 attempt/effort (EHS) at employersThe authorities have also taken Travel accident Cancellation Theft/loss of luggage Holiday illnessn­ umerous steps to reduce the number ofpeople not working due to incapacity,such as the introduction of time-limiteddisability benefit in 2004 and the work p ­ olicies in real terms during this period. p ­ roducts. House insurance premiumsassessment allowance from 2009. At the same time, premium levels will have increased somewhat in recent also be affected by developments in years as a result of higher fire and waterHigher travel claims claims and changes in the value of the claims, and house prices have outpacedThe loss ratio for travel insurance is assets insured. CPI inflation, which is also reflected inclose to 70 per cent. Operating costs Figure 6 shows CPI-adjusted average premiums.tend to be somewhat higher than for p ­ remiums for selected consumerother types of private insurance becauseconsiderable support is often required toget the policyholder home. Chart 6: Average premiums written Figure 5 shows travel claims from Selected consumer segments2005 to 2011 adjusted to current pricesusing the consumer price index. It can 6 000be seen that claims due to theft and lossof luggage have fallen since 2008, while 5 000claims due to illness have rocketed since2005. This is due to more elderly people Price-adjusted premiumstravelling and many people visiting 4 000exotic destinations where the risk ishigher. Claims due to illness accountedfor 25 per cent of total payouts in 2005 3 000and 44 per cent in 2011. Around 12 percent of policyholders reported a claim in2011, compared with a peak of around 2 00016 per cent in 2008.Market developments 1 000Competition in non-life insurancer­ emains fierce, and the number of 0p­ layers in the Norwegian market is Year -05 -06 -06 -06 -06 -07 -07 -07 -07 -08 -08 -08 -08 -09 -09 -09 -09 -10 -10 -10 -10r­ ising. The four largest companies’ 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4market share fell from 92 per cent in2005 to 78 per cent in 2011, and the Car Motorcycle House i­ncrease in competition pushed down Home contents Travel Boat Totalthe average premium for consumer t 19
  19. Non Life Insurance Non-life insurance resultst Year NOK million 2011* 2010 2009 2008 2007 2006 2005 2004 Results Gross premiums written 61 780 59 407 58 852 57 589 52 955 51 561 49 566 47 760 Net premiums earned 54 863 52 320 50 500 49 348 44 665 43 170 40 145 37 994 Net claims incurred 39 982 37 351 36 816 35 121 32 035 29 453 27 382 25 622 Net investment income 4 003 7 721 8 950 -285 5 484 6 792 7 415 3 674 Net operating costs 11 050 10 867 11 529 11 146 9 708 9 779 9 267 8 655 Operating profit 7 582 10 579 9 671 1 907 4 035 9 035 7 708 2 546 Balance sheet Premium and loss provisions 91 600 83 940 80 199 77 821 75 110 66 614 65 099 55 813 Contingency reserves 27 864 27 371 26 256 24 813 26 928 24 644 24 274 21 449 Other tax-free provisions **) 12 461 9 315 8 800 8 574 8 196 Equity capital 46 158 50 473 43 618 27 643 30 519 29 876 25 518 22 682 Key figures Loss ratio, net 72.9 71.4 72.9 71.2 71.7 68.2 68.2 67.4 Cost ratio, net 20.1 20.8 22.8 22.6 21.7 22.7 23.1 22.8 Operating profit margin 13.8 20.2 19.2 3.9 9.0 20.9 19.2 6.7 Solvency margin 134.9 148.8 138.4 131.5 149.5 146.7 145.4 137.7 Provision ratio 167.0 160.4 158.8 157.7 168.2 154.3 162.2 146.9 Total assets 192 710 190 069 180 518 175 497 166 719 142 630 134 445 117 218 ** Provisional figures ** Included in equity from 2009 20
  20. TOPICS
  21. SOCIAL RESPONSIBILITYThe financialhub of societyBy Marit Sagen ÅstvedtBack in the mid-1980s a certain member of Finance Norway’s staff can see for themselves whether a particular a ­ dviser is authorised in the directory atworked at a local savings bank. At that time the big new thing was www.autorisasjonsordningen.no.paying for petrol at the pump using an ATM card. While we may To reinforce this work, the boardchuckle at what now seems to be the dim and distant past, this of Finance Norway decided recently to c ­ oordinate the different schemes in theexample illustrates just how far the financial industry has come over industry, including the three insurancethe past quarter of a century. a ­ uthorisation programmes predating the AFR and GSR schemes. The idea is to make it easier for the public to navigate theTHE INDUSTRY HAS MOVED from the Besides delivering services, financial different parts of the industry and under-p­ roduction of transactions to self-service institutions nationwide contribute to ­ocal l stand the information provided.and knowledge-intensive processes, from development through their expertise, The financial industry also supplies dataa domestic focus to a global ­ orizon. h involvement in local communities and to the Finansportalen website operated byT­ echnological leadership, flexible d ­ onations to good causes, both directly the Consumer Council of Norway, whiche­ mployees and a capacity for development and through their foundations. enables consumers to compare banking,have made the financial industry what it is investment and non-life insurance productstoday. Through its central role in society, Education and make informed choices.the industry has made a key contribution The industry is more than just its core Information is also being provided into the emergence of modern Norway. b ­ usiness. Both independently and through other areas. Many financial ­nstitutions i The ultimate role of bankers and alliances with others, bankers and ­nsurers i work actively with schools to teachi­nsurers is to provide financial security are engaged in a wide range of social children about personal finances and giveand freedom of action at every level. The activities. Education is one. them a solid foundation on which to buildi­ndustry manages critical infrastructure Society has grown more and more during adult life. Healthy personal financesand so paves the way for the growth and c ­ omplex with time. Our personal finances are one of the keys to a happy life, but itdevelopment underlying our common have become more complicated in the can be difficult to take the first steps as anwelfare. It is the link between all economic sense that there is much more to keep tabs economically independent individual. Theactors in society when it comes to loans on than before. The need for ­nformation i financial industry is therefore using its coreand credit, managing savings, ­ xecuting e is therefore greater. Modern financial expertise at schools, providing informationpayments, offloading risk and safe­ uarding g i ­nstitutions are knowledge organisations and promoting responsible attitudes tolives and property. It is ­mpossible to i offering both basic and advanced products. money. Young Enterprise is an importantc­ onceive of a well-functioning ­ ociety s When it comes to more straightforward partner for the financial industry in thisw­ ithout a well-functioning financial ­ services, customers can serve themselves; area. As at 1 January 2012, more than 60i­ndustry. Almost every one of us will with more complex services, they need financial institutions stated that they have abe a bank customer and an insurance help. formal alliance with one or more schools.policyholder throughout our lives. Most Financial advice and advice on Working with schools is also aboutof us would be unable to buy our own n ­ on-life insurance have been a priority c ­ ontributing to long-term local ­ usiness bhome without a bank behind us. Without ­ for the financial industry in recent years. ­ development. Around 40 financialn­ on-life insurers, it would be hard to S ­ tandards have been introduced at industry institutions are working with schools ondeal with the financial ­ onsequences of c level to ensure that the public benefits enterprise programmes, offering advice ands­ erious accidents. It would also be difficult from relevant and documented expertise. mentoring for pupils’ business initiatives.to protect our income or safeguard our ­ The goal is customer satisfaction in line The insurance industry, which knowsfamilies financially without the help of with the requirements the industry has more about accidents, losses and theirlife insurers. And similar ­ rguments can a set itself. The financial industry set up the causes than most, is also keen to sharebe made for customer groups other than AFR authorisation scheme for financial its knowledge. Work on general losshouseholds. The financial industry is an advisers and the approval scheme for sales p ­ revention, attitudes, road safety ande­ ssential cornerstone for the value added representatives and advisers in non-life fire safety is key given the fundamentalby others, and accounts for around 2 per insurance back in 2009. As at 1 March premise that prevention is better than cure.cent of employment and 6 per cent of 2012, 5 833 employees had been granted The insurance industry has close ­ elations rmainland GDP by itself. It makes a major authorisation, and 11 non-life insurers had with the Norwegian Fire Protectioncontribution to society. had their training systems approved. When A ­ ssociation, the Norwegian Council for it comes to the AFR scheme, the public Road Safety, the Water Damage Office at22
  22. SOCIAL RESPONSIBILITY Penger forplikter Finansnæringens samfunnsansvarSINTEF ­ uilding and Infrastructure, and B r ­ esponsibility an independent strategic Environment’s work on its parliamentarythe ­ orwegian Safety Forum. The aim is to N f ­ ocus area for the industry. The ­ tarting s report on adapting to a changing climate.ensure that people are insured as effectively point for this work is the CSR guide Responsible investment is another areaas possible against accidents and losses. Penger forplikter. Long-term, forward- being given high priority by many financial Life insurance is a complex field for looking, ­ ustainable business requires s institutions. By signing up to internationalo­ utsiders, which most of us are. Given active participation in the development ­ initiatives such as the UN Global Compact,that it is in the individual’s interest to of society. For the industry, this means these companies are undertaking to complybe insured against loss of income during i ­nvesting in future competitiveness – and with international standards in areas suchretirement or due to disability or the loss for the community, it means helping to as the environment, human rights, labourof a provider, for example, there is a need overcome society’s challenges. rights and anticorruption.for extensive information. Norsk Pensjon The financial industry is concerned The financial industry has evolvedis a non-commercial Internet portal which about climate change and the environment. continuously over the past 25 years inaims to give the public an overview of the Work is under way on environmental order to fulfil its crucial role in society.individual’s rights under different pension ­ c ­ ertification, and some companies offer Paying for petrol at the pump with a cardschemes. Since starting up in 2008, the green products. Non-life insurers will has developed into one of the world’s mostwebsite has had a million visitors, and be stepping up work on weather- and efficient payment systems. As the ­ ustodian ct­ raffic grew by no less than 56 per cent climate-related losses in 2012, first and of critical infrastructure, the industryfrom 2010 to 2011. foremost through a pilot project to make will continue to be a driver for social use of claims data on sewage back-up and d ­ evelopment. Technological leadership,Challenges ahead surface water damage due to more intense knowledge development and change willThe financial industry is a key player precipitation. Networks are also being be key in the future too. nin ­ ociety, and so the board of Finance s built, and considerable effort is being putN­ orway has decided to make social into contributions to the Ministry of the The financial industry plays a key role in our lives: • 3.1 million Norwegians over the age of 15 are now “their own bank manager” thanks to online banking solutions, virtually all of them logging in using their own electronic ID – BankID. • Non-life insurers handle an average of almost 3 500 claims a day. • More than 2 million customers have savings in equity funds (Norwegian Fund and Asset Management Association data for 2010) • Eight out of 10 people pay by card when they shop • Life companies provide occupational pensions for 1.6 million workers (1.2 million in the private sector and around 435 000 in the public sector) • Pension funds also supply occupational pensions to more than 142 000 workers (69 000 in the private sector and 73 000 in the public sector) 23
  23. SOLVENCY IIThe challenge of puttingSolvency II into practiceBy Martin Carlén and Kari MørkSolvency II has a lot going for it in theory, but its practical large fluctuations in annual returns. There is therefore a need to adapt the currenti­mplementation may prove problematic. product and operating rules to Solvency II to obtain a pension system that isSolvenCY II is a new EU directive which Tougher reporting requirements a ­ ppropriate for all parties.represents a fundamental overhaul of the The introduction of Solvency II ­ ntails e Finance Norway is working onsupervision of the insurance industry. challenges not only in the form of a ­ lternative solutions in the form of changesN­ orwegian pension contracts with long- i ­ncreased capital requirements but also to the rules on companies’ interest rateterm obligations and annual allocation when it comes to internal processes, guarantees. One possibility is permittingof guaranteed returns and profits already s ­ upervision and control. There will be more flexible accumulation and use ofp­ resent major challenges for insurers, ­extensive ­requirements for ­organisation buffer capital, or changes to the productthanks to today’s low interest rates and and documentation, oversight and rules. For example, the rules could allowshortage of investment opportunities ­reporting. products where the annual interest ratecapable of providing adequate long-term The Solvency II rules also require all guarantee is replaced with a final valuereturns. The introduction of Solvency II i ­nsurers to perform a regular Own Risk guarantee that applies throughout themust not make it even harder to maintain a and Solvency Assessment (ORSA) at insurance term.robust pension system. least annually. The idea is to identify and e ­ valuate all risks to which the company is Long-term investment opportunitiesNew rules, new challenges or may become exposed, and to assess the For companies to be able to adjust theirOne of the greatest weaknesses of resultant need for capital. A company’s investments in line with their long-termthe current rules, Solvency I, is that a ­ strategy and decisions are to build on the pension obligations, they must also be ablen­ umber of key risks – such as market results of this process. to invest in interest-sensitive assets withrisk, credit risk and operational risk – are a sufficiently long duration. These assetsnot adequately captured. The lack of ­ The need for a robust pension system must be denominated in Norwegian kronerrisk sensitivity in the rules means that ­ One fundamental principle of the Solvency to avoid a further capital requirement duec­ ompanies do not have incentives to II rules is that both assets and liabilities to currency risk. Norway has only a smalli­mprove their risk management, and does are to be carried at market value in the market in fixed-income securities issued bynot promote the optimal allocation of balance sheet. This means that the present the public sector, so Norwegian insurerscapital. value of technical provisions will need to have limited scope to close the duration Solvency II brings a more risk-based, be calculated using the current risk-free ­ gap by investing in assets with low risk andmarket-consistent approach to insurance ­nterest rate rather than the guaranteed i high duration. Steps need to be taken tosupervision. The overall aim is to build a interest rate set by Finanstilsynet as is correct this imbalance.more proportional solvency framework the case today. The value of technicalwhere all risks are identified in such a way p ­ rovisions will therefore fluctuate with Tailored to Norwegian conditionsthat the solvency capital requirements changes in market interest rates, and The methodology for calculating thereflect the actual risk to which insurers d ­ ifferences in interest rate sensitivity ­ r ­ isk-free interest rate curve used to valueare exposed. The new rules also bring ( ­ duration) between the two sides of future insurance obligations will be thea number of challenges that need to be ­ the balance sheet will trigger a capital same for all currencies, but the parameters­addressed: r ­ equirement for interest rate risk. will vary from currency to currency due For life insurers with long-term ­ ension p to differences in the breadth and depthTougher capital requirements obligations, a logical adjustment to the of bond markets. It is important that theThe results of quantitative impact studies ­ capital requirements under Solvency p ­ arameters for Norway take as muchand stress tests have shown that ­ apital c II would be to invest in fixed-income a ­ ccount as possible of the limitations of ther­ equirements will be tougher under s ­ ecurities with the same maturity as these Norwegian market for long-term fixed-S­ olvency II than under the current regime. obligations, so that the value of the latter income instruments, and Finance NorwayThe Norwegian regulator ­Financial moves in line with the former. has been actively lobbying for this for aS­ upervisory Authority of Norway However, long-term investments of number of years. The Ministry of Finance­(Finanstilsynet) sees a particular need for this kind are not compatible with current too noted the importance of this in itslife insurers to strengthen their capital Norwegian life insurance rules, where the l ­etter to Finanstilsynet of 21 Decemberp­ osition before Solvency II enters into requirement of annual satisfaction of a 2011.force. return guarantee means that companies must invest in low-duration assets to avoid24
  24. SOLVENCY IINational flexibility 1 or Tier 2). Guarantee provisions are 3), some of which may become ­ inding bThe scope for national adjustments to the another uniquely Norwegian scheme which t ­ echnical standards. Most of the guide-rules for contracts entered into under the will qualify as Tier 2 capital, but there is a lines are ­ xpected to be put out for ecurrent life insurance and solvency rules is wish for greater flexibility so that they can public ­ onsultation once the ­mplementing c icurrently uncertain. Although Solvency II be counted as Tier 1 capital in line with p ­ rovisions have been approved, whichis, in principle, to be fully harmonised, it Sweden’s security reserves. means no earlier than the second quarteris important for the Norwegian authorities The current Norwegian rules for the of 2012.to explore whether there is still some room calculation of security provisions will be The timing of the implementationfor manoeuvre, and to what extent this abolished and replaced in part by a risk of Solvency II and possible ­ ransition tshould be exploited to ease the challenges supplement. It would be desirable for these a ­ rrangements are being discussed infaced by the country’s insurers. provisions to be allocated to a separate c ­ onnection with Omnibus II. Final s ­ ecurity fund which satisfies the require- c ­ onfirmation will not be available until theNo ratings ments for Tier 1 capital. In general, there is Omnibus II Directive has been adopted,One further challenge presented by concern about how extensive and complex but the Solvency II rules are expected toS­ olvency II is its potential impact on the technical calculations will be, especially be implemented in national rules by 1the supply of funding in the Norwegian for small and medium-sized insurers. Work January 2013. General transition arrange-capital market. The capital requirement for is also under way on using company-­ ments will probably be introduced soi­nsurers’ investments in bonds, structured specific parameters in the ­ echnical t that the capital requirements and some ofcredit products and credit derivatives will c ­ alculations in areas such as disaster risk the other ­ equirements under Solvency II rdepend partly on how the credit rating (natural and man-made) and the necessary do not apply until 1 January 2014. It isagencies rate the issuer’s ­ reditworthiness, c capital unclear which requirements will apply toand unlike elsewhere in Europe most c ­ ompanies from 2013, but FinanstilsynetNorwegian savings banks do not have such Progress has indicated that it will require statusa rating. Internationally reports from companies to ensure that they The absence of a rating means that The European Commission has been will be in a position to comply with thebonds issued by these banks will trigger ­ w ­ orking on proposals for rules to flesh new rules. Various transition rules beyonda higher solvency capital requirement for out the Solvency II directive – level 2 2014 are also being discussed, ­ncluding ii­nsurers, making them a less attractive ­ i ­mplementing measures – since the directive ­ a seven-year transition period for theinvestment. This, in turn, could give was formally adopted in ­ ovember 2009. N capital requirement for equity risk andN­ orwegian savings banks problems A final decision on these measures is the new ­nterest rate curve for discounting i­sourcing funding. expected in the first half of 2012, although ­insurance obligations. Unrated bonds issued by Norwegian ­ the exact timing is ­ ncertain and will u l ­ocal government authorities are also depend on when the Omnibus II Directive Nationally t ­ reated the same as other unrated is adopted. The consultation deadline on Finans­ i ­nvestments under Solvency II and will Omnibus II was presented by the tilsynet’s proposals for the implementation similarly trigger a higher solvency capital European Commission in connection with of Solvency II in Norwegian law expired requirement. Finance Norway believes that the overhaul of the supervisory structure on 6 January 2012. The regulator’s express one possible solution would be for bonds in the EU at the end of 2011 and aims to aim is to produce a draft regulation with issued by unrated financial institutions h ­ armonise the rules for all supervisory detailed rules on the implementation of (including Norwegian savings banks) to be bodies in the financial sector. The ­ irective d Solvency II in Norway by the end of the assigned a national rating. entails changes to existing directives, first quarter of 2012, with a view to these including Solvency II, and needs to be being finalised and approved by the end ofNon-life insurance adopted before level 2 and 3 measures the year. Finanstilsynet has also stated thatWhen it comes to non-life insurance, r ­ elating to Solvency II can be introduced. it aims to draw up guidelines in the secondthere is still some work to be done before It is expected to be approved during the half of 2012.the rules can be considered accept- second quarter of 2012. The Ministry of Finance plans toable from the industry’s viewpoint. This In parallel with this work on implement the Solvency II rules in aapplies ­ articularly to the inclusion of p i ­mplementing measures, the European new Financial Institutions Act, and thenatural perils provisions at the individual Insurance and Occupational ­ ensions P a ­ ssociated legislative process will thereforec­ ompany, and the extent to which they A ­ uthority (EIOPA) has published have consequences for the publication ofcan be counted as regulatory capital of the p ­ roposals for supplementary guidelines Finanstilsynet’s proposed regulations. nhighest or second-highest standard (Tier on the implementing measures (level ­ 25
  25. CRD IVProposed new capital adequacy rulesBy Mette Blomberg Wæringsaasen and Per Erik StokstadThe final form of the new Capital Requirements Directive (CRD requirements may only be introduced in ­ onnection with the supervisory cIV) has yet to be decided by the EU, but the Ministry of Finance a ­ uthorities’ surveillance and evaluation ofis ­ lready looking at its implementation into Norwegian rules. a financial institutions under Pillar 2. PillarP­ ending a decision, the EU has introduced temporary capital 2 does allow for differing ­nterpretations i of the new rules, but the commissionr­ equirements with short deadlines for compliance. has urged member states to minimise d ­ epartures that affect or erode the principleCRD IV brings new and more stringent for capital buffers are also part of the of maximum harmonisation.requirements for capital and liquidity directive.at financial institutions. The cost of the Regulatory uncertaintyreform is increased both by the uncertainty Some of the key proposals are: The EU is still working on the text ofprevailing in international capital markets • Strenghtened requirements on core CRD IV, and until it enters into force theand as a result of uncertainty about future c ­ apital (including loss-absorbing E ­ uropean Banking Authority (EBA) hasregulation. ­capacity). recommended temporary measures in • New requirements for capital buffers, response to the sovereign debt crisis. TheBackground to CRD IV including countercyclical capital buffers. EBA recommended in December 2011After the last financial crisis, there was • New requirements for reporting a non that large banks in the EU should hold ainternational agreement on the need to risk based leverage ratio. t ­ emporary capital buffer of 9 per cent coreintroduce a harmonised reform programme • Stricter requirements for rules on Tier 1 capital by June 2012. ­Financial(Basel III) for the financial sector. CRD d ­ eductions from the capital base. Supervisory Authority of Norway,IV is part of this reform. In December • More stringent requirements for Finanstilsynet, meanwhile, has announced2010, the Basel Committee on Banking ­counterparty risk. that all ­ orwegian financial institutions NS­ upervision published recommendations • New liquidity requirements. should meet this requirement by the samefor new capital and liquidity require- • Extended requirements for risk date. The Norwegian authorities havements for large and internationally active a ­ ssessments and capital requirements previously advocated a Nordic harmoni­i­nstitutions. One key aim is to reduce the (Pillar 2). sation, but when it comes to the EBAprobability and consequences of future • Extended requirements for the recommen­ ation the Nordic countries have dfinancial crises, by making financial d ­ isclosure of information (Pillar 3). chosen different calculation rules. Pendingi­nstitutions more robust to new financial final rules from the EU, several countriesand economic shocks etc. On 20 July The Basel Committee’s ­ ecommended r have already decided to introduce national2011, the European Commission published requirements on systemically ­mportant i requirements for large banks, includingproposals for new capital adequacy and financial institutions (SIFIs) are also the UK and Sweden. In addition, severalliquidity rules, CRD IV, implementing the e ­ xpected to be included in CRD IV. countries have expressed a desire for lessBasel III recommendations. CRD IV will R ­ equirements for national SIFIs are stringent requirements to protect the retailreplace the current Capital Requirements currently being explored by the EU. segment (households and SMEs) andDirectives (2006/48/EC and 2006/49/EC), CRD IV also contains proposals for greater flexibility with regard to size andand it is proposed that it takes the form of the continuation of the transitional rule ­ complexity (proportionality). Authoritiesa regulation and a directive. (Basel 1 floor) until the end of 2015. in several countries believe that the capital The transition rules are not finalised and ­ requirement rules should continue as aMain content of CRD IV p ­ roposals will be changed up to final directive, giving individual countries theCRD IV contains provisions on capital d ­ ecisions are made. option of setting higher standards than therequirements, liquidity, large exposures Although the Basel III recommen­ minimum, rather than a regulation where(Pillar 1) and the disclosure of information dations are intended to apply to large standards are set at a European level.(Pillar 3), which is intended to be covered and internationally active institutions, ­ The EBA recommendation brings a needby a regulation. The directive also covers the European Commission has advised ­ for new capital even before the CRD IVgeneral operational rules, the internal risk that CRD IV should apply to all credit requirements for equity instruments haveand capital assessment process (ICAAP i ­nstitutions and investment firms to been finalised and approved. ­ ifferences Din Pillar 2), and official supervision and ensure level competitive playing field. in the design and introduction of newsanctions. Provisions on the relationship The commission’s regulatory proposals ­ capital and liquidity requirements resultsbetween supervisory authorities in home are also intended to prevent regulatory in uncertainty about the implementation inand host countries and new requirements arbitrage within the EU. Stricter national Norway. The Pillar 2 requirements are also26
  26. CRD IVinsufficiently detailed in terms of standards CRD IV requires numerous ­ echnical tand instruments. Pillar 2 was designed as standards relating to key proposals. Draftpart of the Basel II reform, the idea being standards are to be drawn up by the EBA,that financial institutions should also hold and adopted by the European ­ ommission. Ccapital for risks not covered by the Pillar The EBA’s role is to ­ roduce ­ uidelines p g1 requirements. It may seem that Pillar 2 and recommendations. ­ owever, to some His now also overlapping the new capital e ­ xtent the EBA is also to take ­ ecisions, dbuffer requirements in the Basel III reform. concerning national ­ upervisory ­ uthorities s a whether covered bonds with less thanThe Ministry of Finance has previously or financial institutions. For Norwegian a year to maturity will qualify as stablestated that a consistent application of the financial institutions, it is important funding.rules is important for financial stability. that there is a level playing field, with Norwegian financial institutions are the Norwegian authorities faithfully ­ financially sound, and the vast majority areIntroduction in Norway f ­ ollowing the same supervisory practice expected to meet the new minimum capitalThe Norwegian authorities have not and interpretation of the rules as intended ­ requirements without having to raise newannounced how quickly the CRD IV by the EU. In Finance Norway’s view, equity. However, there may be a need forrequirements will be introduced, how the capital requirement rules should be additional capital due to the requirementstringent they will be, or whether there h ­ armonised, with unilateral national for countercyclical capital buffers andwill be any unilateral Norwegian require- rules only where strictly necessary due to supplementary requirements as part ofments. One of the main tasks for the EBA uniquely ­ orwegian factors. N the supervision of individual institutions.is to take a leading role in the pursuit of The EU’s target is to adopt the There is also a need to clarify that thea fully harmonised regulatory framework rules by June 2012. The Ministry of Equity Certificates issued by Norwegianfor financial institutions in the EU. This F ­ inance has ­ndicated that proposals for i savings banks still will qualify as Commonwill be no easy task. The debt crisis in the ­ orwegian regulations will be sent out N Equity (CET1).international economy, the rollout of the for consultation during spring 2012. The ­ The financial industry has noted thatBasel III reform, the EBA’s requirements for idea is for CRD IV to enter into force from the supplementary non risk based capitalrecapitalising European banks, measures in 1 January 2013 with the same transition requirement (leverage ratio) will provideother countries leading to less harmonised provisions as Basel III. incentives for higher risk-taking rathercapital requirements in the EU and the than the use of better and more advancedNordic region – all are creating uncertainty Norwegian challenges risk management models. The leverageabout the implementation of CRD IV in For Norwegian financial institutions ratio will be a particular challenge forNorway. the most challenging part of the new covered bond issuers and other financial r ­ egulation is expected to be the new institutions with low-risk operations,Implementation in Norwegian law q ­ uantitative liquidity requirements. The such as mortgage lending and lending toThe Norwegian authorities and the liquidity coverage ratio (LCR) requires public bodies. The European CommissionN­ orwegian financial industry have financial institutions to have much will ­ ssess the consequences for ­ow-risk a le­ xpressed clear support for more stringent larger holdings of Norwegian government ­ b ­ usiness models before any bindingand harmonised capital requirements in the s ­ ecurities. As the Norwegian government l ­everage ratio is introduced.EU. The Ministry of Finance has already has large petroleum revenues and thus The Norwegian authorities haveconsulted on proposals for legislative no need of borrowing to finance govern- not presented a comprehensive ­ nalysis achanges to introduce CRD IV in Norway, ment spending, the market for govern- ­ of the effects of the new capital andthus anticipating rules that have yet to be ment securities is very small. Less than ­ l ­iquidity requirements, so it is too earlyfinalised. The Norwegian authorities have half of the LCR can consist of private to tell what the overall impact will beassumed that the CRD IV regulation will securities considered particularly liquid for financial institutions in the form ofbe incorporated by reference. However, and safe. Furthermore, it is currently reduced lending capacity, lower returns tothe regulation needs to be translated into uncertain whether any Norwegian private s ­ hareholders or higher funding costs. TheN­ orwegian and published in the EEA s ­ ecurities will meet the proposed criteria. size of these ­ ffects for borrowers, and eS­ upplement to the Official Journal. It is The net stable ­ nancing ratio (NSFR) will fi for the ­ orwegian economy, will depend Ni­mportant for financial institutions to e ­ specially affect mortgage companies that partly on how stringent the requirementsbe able to relate to official Norwegian finance loans by issuing covered bonds, are and partly on whether or not theytranslations for both competitive and legal and financial institutions that currently are ­ntroduced suddenly, time-varying or ireasons. use very short-term market funding. For phased in gradually in line with the Basel c ­ overed bond issuers, the key issue is III ­recommendations. n 27
  27. PAYMENT SERVICESThe consequences ofnew technologyBy Tor Johan BjerkedalInnovation and technology are Social responsibility Transformed by new technology Through this collaboration on ­ ayments, p The mobile phone is predicted to have agiving us more and more ways the banking sector has taken on a bright future as a payment instrument,of paying, with contactless s ­ ignificant social responsibility. Self-­ and we concur. We all have one, and wepayments and various uses of regulation in this area has led to Norway take it everywhere. But there is a long having one of the world’s most efficient way to go from the launch of an idea tomobile phones now coming in. ­ and best-coordinated payment systems. it ending up as a usable payment serviceBut effective payment systems Those who have spent long periods abroad for the ­ ajority of people. Ten to 15 years mare about much more than will have experienced this at first hand, ago some people thought that the telecom while the rest of us take it for granted. industry would take over banks’ role innew widgets and apps – it is Other countries have endured long processing payments, but this prophecy hasthe ­ elationship between the r periods of pronounced dissatisfaction not been fulfilled.t­ echnology and the execution of among users of payment services, leading to various actions by the authorities in the More communication technologythe actual payment that decides form of direct regulation or other kinds Banks are not suppliers of information andwhether an innovative payment of intervention to ensure that consumer communication technology (ICT), but theysolution is a success. needs are met. In Norway, the various user are at the forefront of the application of groups appear to be happy with banks’ ICT in the production and distribution of payment services. We take this as a sign their services.CONVENIENCE AND CONFIDENCE are that the banking sector’s self-regulation Payment services have many similaritiesessential for a new payment solution to be takes due account of user needs and social with the telecom business. Both involvea success. Convenience is not just about responsibility. the transfer of information between twothe user experience. The solution must be p ­ arties. Like banks, telecom companiesavailable where the customer is shopping, Prices work together to make it possible toeven if buyer and seller are using different ­ Pricing has been a major factor in t ­ ransfer information between networks.suppliers of financial services, and this c ­ ustomers benefiting from efficient But there is one fundamental ­ ifference. drequires coordination. Confidence requires and convenient payment services. The For telecom companies, the content ofa payment solution to be safe to use, and f ­ unction of prices is to give customers an the information transferred is generallyto work every time. The customer must feel o ­ pportunity to choose between services i ­mmaterial. For banks, the content ofsure that transactions using the solution with different production costs. Customers the information received from ­ ustomers care secure. will tend to choose those that are cheapest is critical. This information triggers a and most convenient, encouraging banks multitude of processes and controls at theCollaboration on infrastructure to be cost-effective, customer-focused and payer’s bank, in the infrastructure andA bank that wishes to offer payment innovative. The result is more efficient use at the payee’s bank with the end-resultservices to its customers needs to work of society’s resources. that a financial claim is transferred fromtogether with other banks, because Appropriate pricing is part of our c ­ ustomer to customer. Claims are alsonot everyone is a customer of the same social responsibility. In this respect, it is transferred between banks and settledbank. The result of this collaboration u ­ nfortunate that banks are ­ ecreasingly d through their accounts at the central bank.is a shared infrastructure consisting of b ­ eing paid directly for customers’ userules on how payments are to take place, of payment services. Banks then have Roles in the value chaint­ echnical standards and joint operations. less interest in investing in efficient ­ When it comes to payments, manyIn ­ orway, this infrastructure is managed N new services, and customers have less ­ d ­ ifferent players from different sectorsand developed through Finance Norway. ­ i ­ncentive to use new cost-effective services. need to work together to ensure thatIt ensures that banks can always offer ­ M ­ ispricing leads to cross-subsidisation and new technology really is usable. The firstpayment services that meet the needs of macroeconomic loss. c ­ hallenge is to clarify who provides whatcustomers and the public sector for usable, ­ Changing people’s way of paying is – in other words, who belongs wheresecure and rational payment services. about changing habits, and this takes in the value chain when executing the time. When it is free for customers to use ­transaction. existing payment solutions, it will take For straightforward services such as longer to get them to switch to new ways mobile banking, the value chain ­ iscussion d of paying. is less relevant, as the phone is simply being used as a means of ­ ommunication c28
  28. PAYMENT SERVICES the ­ arket. Actions and investments need m to be coordinated to lift both sides of the market simultaneously. Closed systems PayPal is an example of a supplier of p ­ ayment services that has built its own closed (proprietary) payment system. P ­ ayments are transferred directly between the payer’s account and the payee’s account internally in the supplier’s own system, and so the supplier does not need to take account of other players when designing its payment services. The disadvantage is that the payer must first source money from elsewhere to top up his balance in the closed system so that money can be transferred to others with accounts in that system. Customers will have little interest in holding large amounts in accounts in a closed system like this, and so payers will often source money from bank accounts to use in the system. The payee in turn will quickly transfer the ­ oney received to his bank ­ ccount. m a Closed systems therefore represent a detour – and those who recall the poor c ­ oordination between banks and the old postal giro system in Norway will have experienced the drawbacks and additional costs of such detours.with your own bank. The picture is more An understanding of the technology Challenges aheadcomplex when the phone is used as a is different to an understanding of the Payment instruments based on newmeans of paying for purchases of goods clearing and settlement systems needed by t ­ echnology are on their way. Both contact-in stores in the same way as a payment financial institutions to execute a payment. less payments and various ways of usingcard. The value chain discussion and the A number of technologically good ideas mobile phones as a payment instrumentclarification of roles and responsibilities are for new ways of paying have foundered on have sprung up, and these are not gimmicks.now crucial. Mobile operators will be keen these points. Many of these new forms of pay­ ment will -to ensure that banks are not encroaching be useful for both payer and payee.on their area, and vice versa. Network effects The challenge now is to ensure the The supply of payment services is all necessary coordination of initiatives andLinking use and infrastructure about networks. For the consumer, it is solutions without stifling innovation, aThe payment service for which a important that a payment service can be balancing act that the banking sector hast­ echnology is to be used needs to be linked used in many different places. For the performed well to date. The complexity ofto the financial infrastructure, otherwise merchant, it is ­mportant that many of i the technology is growing and the rangemoney cannot be transferred from payer to its customers can use the service. This of players wanting in on this value chainpayee. A payment service has to be offered leads to a chicken-and-the-egg scenario. is growing, so the balancing act is set toby the player responsible for the money One critical success factor for a service is grow ever tougher. Failure to coordinatewith which the payer is to pay, and this that it meets the needs of both payers and effectively will lead to fragmentation of therequires a licence. payees. Suppliers collectively must also ­ payment system, an unfortunate develop- have a broad ­nterface with both sides of i ment that would not benefit society. n 29
  29. CLIMATE CHANGEAdapting to achanging climateBy Mia EbeltoftThe insurance industry is necessarily playing a key role in ­ limate c which means that particular care needs to be taken in areas liable to floodingchange adaptation. Natural disasters and water damage must and ­andslides, and municipalities may lr­ emain insurable, and we need to share our experience and subsequently be held to account if thesee­ xpertise with other relevant players. considerations are not addressed. A unique natural perils schemeCLIMATE CHANGE is bringing more new climate. An inter-ministerial project All natural disaster losses in Norwayextreme weather, more droughts, more led by the Ministry of the Environment is are covered by a statutory natural perilscloudbursts, more flooding. Some parts of due to result in a parliamentary report on scheme unlike any other in Europe orthe world will see a complete absence of climate adaptation in Norway later this beyond. The Natural Perils Pool equalisesrain, resulting in famine and refugees with year, drawing on report NOU 2010:10 ­ all losses between companies and cana reduction in cultivated land and changes “A changing climate”. The parliamentary c ­ oordinate adjustment work followingin habitation patterns. Here in the north, report will serve as a guide for future m ­ ajor events. One key aspect of suchwe have to expect wilder, wetter, damper ­adaptation measures. a scheme is that insurers can offloadweather. The insurance industry is ­ ecessarily n their own risk exposure through the In its fifth assessment report in 2013, playing a key role in work on climate pool by purchasing (re)insurance fromthe Intergovernmental Panel on Climate change adaptation. Natural disasters and i ­nternational reinsurers for the largestChange (IPCC) will look at the role of water damage must remain insurable, events, making the risks calculable andsettlements, infrastructure and spatial and we need to share our experience and manageable.planning in work on reducing emissions of expertise with other relevant players.greenhouse gases. In its fourth assessment C ­ ollaboration is essential when ­ ddressing a Water losses a growing problemreport in 2007, the IPCC noted that for the challenges associated with climate There has been much interest in lossesthe first time in history more than half of change. caused by natural disasters, quite simplythe world’s population lives in cities. This because they are dramatic and can causeshare is expected to grow, creating major 2011 – an extreme year? loss of life and the complete destruction ofchallenges for the entire infrastructure, We have already begun to see the people’s homes. These losses are unpredict-especially in cities and areas growing fast c ­ onsequences of climate change in Norway. able, and here the natural perils scheme hasdue to migration. Storm Dagmar, storm Berit and two big proved a useful and efficient instrument. In Norway, the number of losses due rounds of flooding in 2011 pushed natural However, the insurance industry facesto natural disasters and water damage disaster payouts up to around NOK 1.9 bigger challenges when it comes to ­ amage dis rising, and it is frustrating for insurers billion, their highest since 1992. It was a caused by surface water and sewageand policyholders alike when the same year when natural disasters were large in back-up in people’s basements. This is nottype of loss keeps occurring in the same both number and scale. considered flood damage and is thereforeplace because the necessary maintenance So is this what we have to expect in the not covered by the natural perils scheme,or preventive measures have not been future? The events of 2011 have sparked but is still caused by strong and intensiveintroduced. Insurers are beginning to lose questions and debate about whether rainfall.patience and are calling for action and homes and other buildings have been built Finance Norway’s statistics show thatclearer responsibilities. The industry wishes and located appropriately so that they over the longer term these losses result into contribute itself by bringing together all can withstand the next big storm, and much higher payouts than those definednon-life insurance data concerning climate- whether municipalities are doing enough as natural disaster losses. 2010 was a yearrelated losses, as statistics of this type can to prevent damage from natural disasters. with a very high number of water losses,be used by municipalities when planning It is a problem when municipalities permit ­ with payouts soaring to NOK 4.3 billion.and prioritising measures locally. d ­ evelopment in areas that they should Frost damage accounted for NOK 1.3 know are susceptible to flooding, rising sea b ­ illion of this, and 20-30 per cent of allParliamentary report levels and landslides. water losses were due to surface waterThe media and the political debate in Last year brought a new Planning flooding and sewage backing up.Norway have long highlighted the need and Building Act, and together withfor reduced carbon emissions and systems new provisions in the Civil Protection ­ Maintenance backlogfor trading emission allowances, but more Act this has increased municipalities’ At the current rate it will take 200 years torecently there has been more interest in responsibilities. Municipalities must now renew today’s mains water and seweragethe question of how we are to adapt to a have an overview of risks and exposures, network, according to the aforementioned30
  30. CLIMATE CHANGEofficial report NOU 2010:10. The report happen. County councils also play an knowledge centre Norwegian Water’sestimates the replacement cost of the important role and need to exercise their calls for sector-specific legislation for themunicipal water and sewerage network at supervisory role over municipalities more water and sewerage sector. The ­ tandards smore than NOK 500 billion. This includes actively. Spatial plans and budgets need to and supply obligations that apply to35 000 km of sewerage pipes and 17 000 take account of the backlog and climate m ­ unicipalities need to be set out in greaterkm of surface water pipes. adaptation. Some municipalities are doing detail. Section 9.2 of the report sums up the a great deal, but most are doing too little.situation as follows: “Climate change How can insurers contribute?will increase the risk of disruptions in the Liability unclear The insurance industry understands thatwater supply and sewerage services. A Both the media and the courts have looked customers get frustrated when their excessdisruption in the water supply will quickly at the issue of how far municipalities’ goes up with each sewage back-up claim.affect private households and the business l ­iability extends. The letter of the law The industry possesses statistics andcommunity, and a disruption of sewerage is clear: “The owner of the installation risk expertise that many municipalitiesprocessing can have serious consequences is liable regardless of fault for damage believe could provide useful informationfor health and the environment. It is there- caused by a waste water installation due on ­ otspots, and the statistics could also hfore essential for the entire community ­ to insufficient capacity or inadequate ­ be used for long-term planning. NOUthat the water supply and sewerage sector ­maintenance” (Pollution Control Act 2010:10 has challenged the industry toadapts to climate change. The water section 24a). The courts, however, have share its data, and the industry is willings­ upply and sewerage sector currently has a interpreted the rules on maintenance and to oblige, but the data need to be quality-s­ ignificant maintenance backlog, creating ­ capacity differently, and in the latter case assured and handled in a way that takesan adaptation deficiency. Fragmented the customer must demonstrate negligence account of their commercially sensitiveareas of responsibilities, lack of resources on the part of the municipality. This is a nature.and prioritisation entail that this sector highly inappropriate solution which results For the data to be useful for municipali-is the infrastructure sector that has been in limited predictability and little ­ nancial fi ties, they must also be linked to precipita-evaluated as most vulnerable to climate incentive for the municipality to take tion data and calibrated. This will providechange.” ­action. a useful picture of losses further ahead. The message is clear. National and local Liability in the water and ­ ewerage s The Insurance Bureau of Canada (IBC)authorities are now well aware that there is sector must be made clearer, and this is is in the process of developing a uniquea maintenance backlog resulting in sewage ­ p ­ rimarily a political issue rather than tool which will give the insurance industryback-up problems, contamination of a matter for the courts. Norwegian a better basis on which to assess the riskd­ rinking water, and consumer frustration. m ­ unicipalities have long neglected this of losses in each municipality, and at the Municipalities have neither the means s ­ ector, so now they now face major same time provide that municipality withnor the capacity to replace all of the pipes c ­ hallenges from a vulnerable infrastructure. information and a better understanding ofthat need renewing. Water and sewerage The question is what incentives are needed where it needs to take action.services are priced on a cost basis, but for things to improve. With a changing Finance Norway has had the projectthere is little political will at municipal climate, we will see more and more water presented to it, along with Norwegianlevel to raise charges. Finance Norway losses and frustrated households. It is not authorities and municipalities, and will bebelieves that municipalities need some form just about insurance payouts – it also has working further with IBC. Work on ­ limate cof incentive scheme from central govern- major social and economic implications. adaptation and the search for a solutionment. The political signals, however, are Finance Norway would like to see a that can be considered optimal for allthat it is municipalities’ own responsi­ ility b national surface water authority. There parties concerned is a demanding processto fund local infrastructure for water and are currently too many parties involved, and will require patience and long-termsewerage. Finance Norway believes that l ­eading to fragmentation of ­ esponsibility r collaboration between insurers, researcherscentral government must deploy both and the absence of an overall strategy. and motivated municipalities. nthe whip and the carrot for anything to F ­ inance Norway supports municipal 31
  31. FRAUDNew threatsBy Stine NeverdallMore and more crime Both the National Authority for­ Norway. This type of activity tends to I ­ nvestigation and Prosecution of ­ conomic E come in waves, and there is nothingc­ ommitted in Norway is and Environmental Crime and the ­ irector D extraordinary about the current ­ ituation. so­ rganised, often with links or of Public Prosecutions have noted the Constant attempts at fraud are part andbases abroad. This includes i ­mportance of the financial industry parcel of banks’ everyday reality, and they k ­ eeping up the pressure and reporting monitor these attempted crimes usingfraud, money-laundering, suspicious transactions. These reports are multiple lines of defence.i­nsurance swindles and often important pieces of a puzzle that It is also important for the generali­ncreased Trojan horse attacks may eventually be put together into a case, p ­ ublic to keep the software on their PCs and there are numerous examples of major up-to-date, especially antivirus programs.on Norwegian PCs. criminal and money-laundering cases People must also follow the general advice where these reports have proved crucial. not to open attachments from unknown senders, and adhere to their bank’s THE THREAT PICTURE faced by the Training in document control r ­ ecommendations on the use of onlinefinancial industry is constantly ­ volving. e Identity crime is now a well-known banking.It is important for the industry not only p ­ roblem affecting different sectors of In the event of unlawful access to ato learn from experience nationally and society. Fighting this type of crime is a joint c ­ ustomer’s online banking account, thei­nternationally but also to ­ nticipate a social responsibility in which the industry bank will cover any loss to the customerp­ otential future threats and security has a stake. due to unauthorised payments provided­challenges. Identity crime can lead to financial loss that the customer has not been negligent. Over the past year the industry has for both the industry’s customers and the had a particular focus on employment and industry itself in cases of pure fraud. The Insurance swindles recruitment procedures. industry needs to focus on good procedures ­ Every year insurers uncover attempted for verifying the identity of both swindles running into the hundreds ofFocus on recruitment procedures i ­ndividuals and businesses. This will help m ­ illions of kroner.Thorough reference checks, background reduce both the risk and potential losses The vast majority of customers arechecks and, where necessary, extended to the industry through fraud and other honest, and there is an expectation thatchecks for specific positions need to be crimes using false or fictitious identities. insurers will work actively to catch thosep­ erformed when recruiting new staff. It Banks and insurers have been ­ orking w who attempt to defraud the majority inis also important to follow up employees on this problem for a number of years this way. Recent years have brought awhen promoted internally or given new and taken a variety of steps. These number of large cases relating to personalduties. include courses in document control, and injury and disability products, with some Dual control for large transfers and some individual players have ­nvested ­ i fraudulently claiming millions. In terms ofeffective procedures for granting authority in advanced document verification ­ the number of cases, motor insurance isand access are essential. Priority should ­equipment. still an area where some people try it on.also be given to good internal controls There is extensive contact with the Last winter there were several places inand work on attitudes to prevent cases of experts at the Norwegian Centre for the west of the country where numerousdishonesty. Information Security (NorSIS), part of the cars were found dumped in the fjords, and government’s work on information security some of these cases are probably related toMeasures to prevent money-laundering in Norway. The industry has also worked insurance fraud.Work on preventing money-laundering will actively in various ways to get an official As mentioned in the introduction, thebe a priority once again in 2012. Courses database of stolen and lost Norwegian criminal world is constantly evolving, andand training in the money-laundering rules passports in place. so must the financial industry if it is toare being arranged both locally at banks combat new crime trends. We believe inand insurers and through Finance Norway. Trojan horse attacks on Norwegian PCs working together, including with players An important part of risk mitigation is Banks have recently uncovered a ­ umber n outside the industry, and have a fruitfulto analyse products, systems and customer of attempts by criminals to access r ­ elationship with the police and othergroups to identify areas where there is N ­ orwegian online banking customers’ players from both the private and publicthe greatest risk of money-laundering or accounts using malicious programs called sectors in Norway. We believe that thisfinancing of terrorism. Trojan horses on customers’ PCs. This type is essential to tackle the challenges of of crime is familiar from other European ­tomorrow. n countries but has been less common in32
  32. LOSS PREVENTIONLong-termcollaborative processBy Hildegunn BjerkeLoss prevention is a natural of the causes and consequences of losses. organisations, insurance companies,part of the insurance industry’s Collaboration with other players leads to industry and the public sector to work better prevention work. t ­ ogether for a safer community. Focusactivities. For it to be ­ ffective, e Among the more important alliances areas include preventing drownings, thethe industry depends on established on the industry’s initiative are: elderly, children and safe communities.c­ ollaboration with other parties. The Norwegian Fire Protection Association The Water Damage OfficeIt has worked for many years on The Norwegian Fire Protection ­ ssociation A The Water Damage Office is part ofloss prevention, both through works for a safer society. Through SINTEF Building and Infrastructure andjoint projects within the industry i ­nformation, training and advice, it helps provides services and information for people, businesses and organisations c ­ onsumers, insurers, building contractorsand with the external players on to take responsibility for their own fire and the authorities.which it relies. safety. Alongside various national fire safety campaigns, the association provides ­ Actions get results i ­nformation for nurseries, schools, home- Fire safety checks in the woodworkingMORE THAN ANYTHING, the industry owners, minorities and health institutions. industry are an example of the benefitswants to help make policyholders and of reducing risks. Regular controls andother people less vulnerable. The challenge The Norwegian Council for Road Safety appropriate risk-mitigating measures haveis to get information across on preventive The Norwegian Council for Road Safety led to a decrease in the number of fires.measures and change actual behaviour. ensures that children receive regular and Equivalent schemes should be introduced in e ­ ffective education in road safety, other industries.Initiatives within the industry e ­ ncourages motorists to drive safely, and In 2012 Finance Norway has startedOne important prevention initiative is the puts road safety on the agenda for all up a joint solution for electrical checks inNorwegian Insurance Approval Board road users. Driver behaviour in terms of commercial buildings to help increase the(FG), which coordinates insurers’ efforts. speed, intoxication and the use of safety number of checks carried out and correctFG’s role is to draw up rules and approve e ­ quipment is highly significant for both faults that could cause fires.safety equipment and firms in order to the number and severity of accidents.reduce the risk of fire, water and break-in The council organises a wide range of Long-term perspectivelosses. FG also represents insurers’ interests ­ road safety campaigns targeting children, Loss prevention is about avoidingin dealings with the authorities and t ­ eenagers and adults alike. u ­ nwanted situations and events, ­ romoting p­relevant industries. safety and preventing damage. It requires The Valuables Recovery Service (RVR) The Norwegian Safety Forum patience and a long-term perspective. is an alliance between the country’s fire The Norwegian Safety Forum is an Individual behaviour and interest in service and insurers coordinated by i ­ndependent national meeting place and avoiding incidents are crucial in reducing F ­ inance Norway, and is a good example of knowledge centre for the development of the number of accidents and losses. The practical collaboration between public and loss prevention activities in Norway, industry for its part is working actively to private sectors. Fire brigades are locally bringing together players from voluntary achieve this. n situated and can quickly attend sites where losses occur, and RVR has 19 call-out v ­ ehicles at fire stations the length and breadth of Norway. Given insurers’ need How often do things go wrong? to attend to both injured parties and their Statistics show that in Norway: own economic interests, the two sides of • Every 10 minutes there is a water loss the RVR alliance complement each other • Every 20 minutes there is a fire loss well. • Every hour some NOK 500 000 is paid out on fire claimsBroad cooperation • Every day five people lose their lives in accidents (road accidents, drowning,The Norwegian insurance industry’s loss fire, falls, poisoning)prevention work has its roots in the old fire • Every year some 500 000 people are treated by a doctor for an injury, ofinsurance funds of the 19th century. With whom 36 000 have permanent problems and around half of these are leftwell over a million claims handled each with some degree of disabilityyear, the industry has a sound knowledge 33
  33. PENSIONSInteresting timesBy Stefi Kierulf PrytzThese are interesting times for the Norwegian life insurance economic obligations. The key issue is whether or not those who draw a pensioni­ndustry. While 2011 brought a more flexible retirement pension early continue to work. The governmentsystem with new rules for old-age pensions, key elements of the has said that it will monitor the situationpension reform have yet to fall into place, and coming EU rules closely, and that further action will be considered if the reform does not have thewill also need to be implemented in Norwegian pension legislation. intended effect.The pension reform is therefore far from complete. The number of people taking private occupational pensions early in 2011 was more modest. Statistics from Finance IT IS NOW POSSIBLE to take an early l ­ong-term returns on the capital managed N ­ orway show that around 9 300 peopleretirement pension from the state, an by life insurers. aged 62-66 did so in 2011.AFP private early retirement pension and Today’s pension rules were developed Rules on a new disability benefit ina ­ rivate occupational pension while p in a very different economic climate to the social security system were approvedc­ ontinuing to work, but there are still key today’s. Market interest rates were well in December 2011 and will come intoelements of the new pension system that above the guaranteed interest rate used to force from 2015. There will be a newneed to fall into place. Much of this should calculate insurance premiums. This rate, way of calculating disability benefit, andbe finalised during the course of 2012. set by regulator ­Financial ­Supervisory it will no longer be based on retirementBoth public and private occupational A ­ uthority of Norway (Finanstilsynet), p ­ ensions. The new disability benefit willpension schemes need to undergo further is the minimum level of return that also be taxed as income from employment.changes of various kinds and through c ­ ompanies have undertaken to distribute to Recipients of the benefit will be transferred­various processes. pension contracts each year. to the state retirement pension at the age The solutions eventually settled on need The combination of pension reform and of 67. Existing disabilities will, however, to ensure a robust and sustainable pension low interest rates is making it ­ articularly p be partially shielded from the living-age system. It is important for policyholders difficult to gauge how the latest changes adjustment that will apply to previous and life companies alike that the rules will impact. There is no certainty capacity for work. p ­ romote sound management of long- about how the system as a whole or its No decision has been taken on what term investments. The new system must c ­ onstituent parts will function. In such form the disability pension will take when also take account of the main aim of the a situation it is a challenging – but also it comes to occupational pension schemes p ­ ension reform, which is to get people exciting – task to find sustainable solutions – this work remains to be done. For public to stay in work longer while taking due that put the industry in a better position to sector schemes, the government has invited account of tomorrow’s labour market and meet the tougher new capital requirements the parties to discuss adjustments, and the tomorrow’s pensioners. under Solvency II. Ministry of Labour is expected to publish a consultation paper during the spring.Changes during a difficult period Changes made in 2011 Changes to disability pensions in the2011 brought low interest rates and Major changes were made to the social private sector will probably be discussedturbulent equity and financial markets the s ­ ecurity system in 2011. It is now possible through the Banking Law Commission, butworld over. Today’s low interest rates are a to draw a retirement pension flexibly from it is unclear whenchallenge for the Norwegian life insurance the age of 62, and a retirement pensionindustry due to the annual allocation of can be combined with continued employ- Private occupational pensionsguaranteed returns and profits, and long- ment and an AFP private early retire- In 2011 the Banking Law Commissionterm obligations under pension contracts. ment pension and a private occupational ­ looked into adjustments to the currentThe challenge is particularly acute for ­pension. rules for paid-up policies. If the rulesdefined-benefit occupational pensions, Figures from the Norwegian Labour remain unchanged, these policies willpaid-up policies and “old” individual and Welfare Administration (NAV) show result in high capital requirements for lifep­ ensions, because the current low interest that around 36 000 people aged 62-66 i ­nsurers under Solvency II. To addressrate regime means that insurers are unable chose to claim the state retirement pension the industry’s challenges, a change in theto cover the annual cost of the interest rate in 2011. Most of these (82 per cent) opted regulations was introduced in Decemberguarantee on these products. for a full pension, which is much higher 2011 giving insurers greater scope to build The situation is also demanding because than the government assumed in its budget up supplementary provisions (individu-the Norwegian market lacks the investment ­ for 2011. The model is intended to have ally) from 2 per cent to 3.5 per cent foropportunities needed for adequate a neutral impact on the government’s contracts with low or no supplementary34
  34. PENSIONSprovisions. The commission’s report NOU occupational pensions, based on the income from employment. The ministry is2012:3 “Paid-up policies and capital proposals in official report NOU 2009:13 expected to produce a consultation paperrequirements” also proposes additional “Broad pension schemes”. Here too the in spring 2012. It also aims to finalise newmeasures. The proposed changes seem industry is keen to see a regulatory frame- rules for public occupational pensions forlikely to enter into force from 1 January ­ work that takes account of coming EU those born from 1954 onwards during the2013. The commission proposes, for rules for solvency capital and the activity course of this year.example, that individual portfolio choice rules for insurers.be permitted for retirement pension capital In addition the commission will look Other changes to the pension rulesin paid-up policies, and simplification of into adapting the maximum contribution The government has signalled that survivorthe rules for “small” paid-up policies. The rates for defined-contribution schemes pensions need to be reviewed. This willindustry largely supports the proposed – which need to be increased – and probably happen once the other parts ofmeasures but has also noted that their other adjustments to private occupational ­ the pension reform fall into place, but noimpact is uncertain and has therefore asked p ­ ensions to reflect the new social security date has yet been set. Adjustments are alsothe authorities to consider additional and system. needed to a number of minor schemes,more stringent measures. and it is possible that the solutions decided The Banking Law Commission will Public occupational pensions on for the public sector will need to bec­ ontinue to examine new occupational The Ministry of Labour is currently reviewed afresh, such as schemes withpension products in 2012. It is important reviewing the rules for disability ­ ensions p special age limits. There is still a need forthat new products are tailored not only in public schemes, which need to be some changes to private pensions, and thisto the newly reformed social security adapted to the changes to the disability is expected to be dealt with by the Bankingsystem but also to the tougher new capital arrangements in the social security system Law Commission. All in all, 2012 looksr­ equirements under Solvency II. from 2015 approved in December 2011. like being an exciting year for work on the The commission will also consider In particular, the government wants to pension reform. nnew product solutions in the gap between compensate for the taxation of disabilitydefined-benefit and defined-contribution benefit in the social security system as 35
  35. MOTOR INSURANCEThe Norwegian MotorInsurers’ Bureau is therefor youBy Roger StensethThe Norwegian Motor Insurers’ Bureau (TFF) is there to help if the • The insurance guarantee allows you to drive into a member state withoutcar that hits you is uninsured, unidentified or foreign. Besides these having to take out new insurance covertraditional areas, TFF is evolving in line with society itself and is now when crossing the border. In 32 memberalso working on much more. states (the EEA countries, Andorra, Croatia and Switzerland), the car’sWE TAKE A LOT FOR GRANTED. When the number of accidents involving number plate is taken as evidence ofwe take our car to another country, we do uninsured vehicles reported to TFF in 2011 valid insurance. When driving in thenot worry about what might happen if we (418) suggests a much lower number. other 23, a valid Green Card must behave an accident. Fortunately international TFF also covers losses caused by carried.agreements and collaboration ensure easier unidentified vehicles. Personal property is • The compensation guarantee ensuressettlement of claims from consumers. not covered, however, nor is hit-and-run that an injured party is compensatedC­ omplex systems have been developed so parking damage. Payouts nevertheless ran when a Norwegian vehicle causes anthat Norwegian and foreign citizens can to more than NOK 112 million in 2011, accident abroad or when a foreign carhave their claims settled in their home almost three-quarters of this relating to causes an accident in Norway.country as far as possible. damage to road furniture such as signs and railings. Foreign-registered vehicles in NorwayUninsured, unidentified, foreign When it comes to foreign vehicles – If a vehicle visiting from a member stateLosses caused by uninsured vehicles are both those visiting Norway and ­ orwegian N causes an accident in Norway, TFF orcovered by TFF. The bureau then claims vehicles abroad – TFF has agreements with its designated representative will ­ rocess pthe money back from the owner of the 45 other countries through the Green Card and settle the claim on behalf of theuninsured vehicle. TFF works with the system. Each of these countries has an foreign ­nsurer that issued the third-party ivehicle licensing authorities to identify equivalent motor insurers’ bureau. i ­nsurance cover for the vehicle. The ­ otor mwhich vehicles are uninsured. ­ ccording ­ A The Green Card agreements ­ egulate r insurers’ bureau in the vehicle’s hometo the national register, there are 130 000 a guarantee of insurance cover and country then covers TFF’s costs.u­ ninsured motor vehicles in Norway, but s ­ ettlement of claims: Norwegian-registered vehicles abroad If a Norwegian-registered vehicle causes an accident in a member state, the local bureau will settle the claim in line with that country’s rules. TFF then covers the bureau’s costs. Number plate sufficient, Green Card not needed Green Card needed36
  36. MOTOR INSURANCEOther servicesUnder the EU’s Fourth and Fifth MotorInsurance Directives, the authoritieshave given TFF the role of: • compensation body • information centre • central bodyIn 2003 a new scheme came in underthe Fourth Motor Insurance Directive.One change is that a Norwegian residentv­ isiting another EEA country who isinjured by a vehicle can return home to • Information centre TFF is responsible for accidents causedNorway and file his claim with a claims Those involved in a road accident by such vehicles.representative in Norwegian. The claims can turn to TFF for information onrepresentative is appointed by the insurer where the vehicle was insured. As an • TFFAutoof the foreign vehicle. information centre, TFF One of the more important Under the directive, all insurers in the - collects and distributes information c ­ ontributions TFF has made in recentEEA must appoint a claims representative on the insurance status of foreign times is the development of thein the other EEA countries. The claims vehicles database TFFAuto, where insurersrepresentative must issue a reasoned reply - keeps a register of the insurance record the ­ tatus of vehicles in terms of swithin three months if the injured party’s status of Norwegian vehicles compulsory third-party cover. ­claim is rejected. • Central body Started up in 2007, TFFAuto has• Compensation body This is similar to the role of around 19 000 users and serves as As a compensation body, TFF steps in i ­nformation centre but covers an electronic communication ­ hannel c and processes claims when ­domestic matters. between motor insurers’ various ­ - a foreign insurer’s Norwegian r ­ epresentative does not fulfil its • Frontier insurance t ­ echnical systems and the government’s obligations Through the customs service, TFF motor vehicle register (Autosys). - a Norwegian insurer’s representative issues frontier insurance for: TFFAuto is business-critical with up to abroad does not fulfil its obligations - foreign vehicles not covered by the 84 000 transactions daily and results in - an accident is caused by an Green Card system considerable savings for the ­nsurance i u ­ ninsured or unidentified vehicle - vehicles on Norwegian export or industry through greatly reduced customs plates o ­ perating costs. n The Norwegian Motor Insurers’ Bureau (TFF) is an independent legal entityTFF IN FIGURES: established in 1927 and best-known for covering losses caused by three types of vehicle: 2011 Claims Payouts reported (NOK m) • U n in su r edUninsured 376 18 • U n id ent if iedUnidentified 8 252 113 • F or eignForeign – via TFF 418 14 TFF covers losses caused by both foreign vehicles in Norway and NorwegianForeign – via GC vehicles abroad. All insurers offering motor insurance in Norway are requiredcorrespondents 3 294 32 by law to be members of TFF. The number of members varies around 30. 37
  37. Financial literacyFinancial literacyamong the youngBy Hilde E. Johansen and Rolf MæhleThe financial industry is very must therefore learn more about how to people. House prices have climbed by more manage their everyday finances, prioritise than 20 per cent over the past three years,interested in young people day-to-day expenses and make sensible use and at least 15 per cent of the purchaseand their finances, and puts of credit. price must normally now be paid as ac­ onsiderable resources into deposit. This has made it harder for younginformation and education at Lack of knowledge people to get onto the property ladder: they Research, both in Norway and abroad, must either save more and for longer, putschools nationwide. Finance shows that many young people lack the off buying their own home, or seek helpNorway wishes to improve and necessary knowhow, and there is little from their parents.promote financial ­nstitutions’ i doubt that it can be hard to cope on your A recent survey by Norstat on behalf own if you do not get the right attitudes of Finance Norway revealed that almost aefforts in this area, and and information from your school or third of young homeowners had financiale­ ncourages members to work parents on how to manage your personal help from their parents to help buy theirwith schools. finances. For example, if you are used home.1 The proportion receiving this kind to spending liberally while still at home, of assistance has grown, but not everyoneAS A TRADE ASSOCIATION, we have this may quickly become an issue if your can seek help from well-off parents. It hasa good relationship in these areas with i ­ncome is then not enough to cover a therefore become even more important tothe likes of Junior Achievement -Young s ­ imilar level of expenditure. save, and future homebuyers – especiallyE­ nterprise Norway (UE), the Norwegian The problem becomes very clear if the young – need to understand why it isLabour and Welfare Administration (NAV) we look at the number of young people so important to begin planning at an earlyand the Norwegian State Housing Bank, s ­ truggling with credit card debt: 17 500 stage.and we want to share our good experience. people aged 20-24 together have debts of Finance Norway is keen to improve NOK 530 million, an average of NOK Saving more importantyoung people’s financial literacy: 30 000 each. Of these, 4 000 have no BSU is a special savings scheme intended income but, with combined debts of specifically to encourage young people to• The young face numerous financial around NOK 100 million, owe an average save towards their own home. It is good challenges when they leave home and of NOK 25 000 each. Credit card debt and to see initiatives that can help the young set up on their own. The transition consumer loans account for a large part of to appreciate the importance of saving. In from youth to adulthood is financially this debt. the light of rising house prices and tougher demanding, and it is easy to go wrong Some of these people should obviously LTV requirements, this scheme is now even without the right knowledge. not have been given a credit card. The more important than before.• The challenge for young people in financial industry must take ­ esponsibility r The government should therefore the short term is getting to grips with for this in its marketing and advice, but extend the scheme to bring it more into their everyday personal finances. In the young people too must learn that they line with today’s house prices and LTV longer term it is about obtaining suf- should not take on a commitment unless r ­ equirements. A couple of examples ficient capital to buy their own home. they can honour it. And if they are unable i ­llustrate why this is necessary. A 75 More and more young people are to do so, they have a responsibility to square metre apartment currently costsg­ etting black marks on their credit records contact the bank or credit card company as about NOK 2.5 million on average, so theafter leaving home. For example, 25 per soon as possible so that the problem can be NOK 150 000 limit on savings in the BSUcent of those registered with debt collection ­ dealt with quickly. scheme is just 6 per cent of that. Even withagency Lindorff for the ­ ollection of c This means that young people also a more modest apartment costing NOKunpaid debts are below the age of 25. need to know what happens if they do 1.75 million, the current upper limit is justOf course there can be many reasons not pay their bills. Some are not aware of 9 per cent of the price.why young people end up in financial the consequences of a black mark on their ­ Starting BSU savings at an early aged­ ifficulties. Some have problems ­ esisting r credit record, such as the risk of being is important for young people to be ablepeer pressure, and if this is combined refused a loan, credit card or mobile phone to enter the property market. The schemewith an inability or unwillingness to keep account. also provides an opportunity for thoseup with payments, it is easy to get into who do not have wealthy parents behindtrouble. Own home a more distant dream them. Some people begin working young, In these cases it may be easy to turn Soaring house prices and tougher loan-to- and the tax advantages of the BSU schemeto short-term credit in the belief that this value (LTV) rules have made it harder for give them a good incentive to begin savingwill solve the problems. Young people first-time buyers, most of whom are young young too. Banks for their part offer very38
  38. Financial literacyfavourable interest rates on BSU accounts which can affect their personal finances for curriculum to teach young people aboutbecause these are such long-term savings. many years to come. personal finances, it is not an explicit learning goal, which makes it somewhatNeed for education Key role for schools arbitrary which pupils will benefit. MuchAction is needed to help prevent problems The aforementioned researchers also found currently depends on the individual schooland make young people more responsible. ­ that many are unable to answer ­ elatively r and what contacts it has with banks.Financial literacy is currently overly straightforward questions, such as Lessons in personal finances must bedependent on what young people learn at c ­ hoosing the correct definitions of nominal made interesting and relevant, and not justhome. and effective interest rates. This lack of about theory. The best way of preparing However, some parents are more knowledge brings a considerable risk of young people for an independent life assavvy than others, so it is not certain that people making poor and costly financial adult consumers is to teach them to see thewhat they teach their children is correct. decisions. To address this and prevent financial consequences of different choices.There are also big variations in how much more people from ending up in difficulties, The financial industry has an importantfamilies talk about money and finances. children and teenagers need to be given a role to play here. nWhen researchers2 asked people where thorough grounding in personal finances.they learned about personal finances, the This should be viewed as part of their 1 In a nationally representative questionnaire survey,number one answer is that they taught compulsory education. 29 per cent of homeowners below the age of 40 saidthemselves. This should give cause for Schools are an ideal arena for learning that they received financial assistance from theirconcern when so many key financial about these matters, and personal finances parents when buying their home. Source: Norstat/ Finance Norway, November 2011.d­ ecisions are taken early in our adult lives should be part of the curriculum at every– decisions that are too important to be level. They could also be an ­ndependent i 2 “Prosjektet: Finansiell kunnskap i Norge”left to trial and error. A lack of knowledge subject in secondary schools with the [Project: Financial Literacy in Norway] by Ellen Katrine Nyhus from the University of Agder andcan easily cause young people to make i ­ntroduction of more elective subjects. Christian Poppe from the National Institute formistakes when it comes to loans and credit Although there is scope within the existing Consumer Research (SIFO). 39
  39. CHARITABLE DONATIONSDonations of NOK 4.1billion in eight yearsBy Ragnar FalckCharitable donations are an important part of the savings bank The latest survey reveals that the industry donated some NOK 735 millions­ ector’s unique ethos. Each year the banks donate large sums to a in 2010, making a total of more than NOKvast range of good causes. 4.2 billion over the eight years the survey has been conducted. LOCAL AND REGIONAL cultural activities, The Norwegian Savings Bankssports and all kinds of clubs and societies ­ A ­ ssociation began annual surveys of how More for large projectsreceive funds. Considerable donations much profit members actually donate back Donations vary in size from NOK 1 000are also made to the health sector, to in 2003. The results revealed that more to NOK 10-15 million. Recent years havefund positions at regional colleges and ­ than 6 per cent of earnings were paid to seen a growing share of donations going tou­ niversities, and to promote local and local good causes, making a total of NOK large projects, with around 80 per cent ofregional commercial development. 213 million. Cultural activities received donations now larger than NOK 10 000. Norway’s savings banks have their the largest slice of the pie at 34 per cent,very roots in social responsibility. The first closely followed by sports at 32 per cent. Prizes and scholarshipsbanks aimed to make life a little easier for Other clubs and societies received 18 Alongside these charitable donations, thethe least privileged in society, as clearly per cent, while 8 per cent went towards savings banks fund almost 250 prizese­ xpressed in the objects of the country’s c ­ ommercial development and 7 per cent to and scholarships each year in the fields ofvery first savings bank, ­ hristiania C the health sector. e ­ nterprise, culture, sport and education.S­ parebank, founded in 1823, which were The annual surveys have shown that Around 80 per cent of these are worthto promote “industry, economy and ­ banks generally donate money to the same more than NOK 10 000, and some more­morality”. causes, but there has been rapid growth in than NOK 100 000. n By saving, people would be in a better the total amount paid out in recent years. position to fend for themselves during hard times, old age and periods of illness. The civil servants behind this first savings bank Charitable donations 2003-10 could see the conditions under which large 800 parts of Oslo’s population were living, and shouldered their social responsibility by giving the public a chance to improve their 700 living standards by encouraging savings and lending money for various necessities. 600 The surplus generated by the banks was used partly to shore up their reserves, with the remainder donated to good causes in 500 the local community. NOK millionCharitable donations 400Hvor stor andel av sparebankens Howmuch of a savings bank’s profits could be 300earmarked for charitable purposes waslong regulated by law, and until 2009 therewas a limit of 25 per cent. New rules mean 200that it is now up to the individual bank todecide for itself – responsibly – how much 100of its surplus should be distributed to goodcauses. 0 Year 2003 2004 2005 2006 2007 2008 2009 201040
  40. FNO
  41. FNOThis is Finance NorwayFinance Norway (FNO) is a trade association for the Norwegian Finance Norway’s Areas of Activity • Economic and regulatory frameworkfinance industry and represent more than a 180 financial companies for Norwegian-based financial servicesand financial corporations that are active in the Norwegian market. • International regulatory framework, with a particular emphasis on EEA rulesFinance Norway was established ­ anuary J Finance Norway’s Objectives • Division of work between the public1st 2010 by the Norwegian Savings Finance Norway’s role is to safeguard the and private sectorsBanks Association and the Norwegian interest of the financial services industry • Capital adequacy, security andFinancial Services ­ ssociation. Almost all A in ­ orway in relation to the authorities, N a ­ ccounting rules for financialp­ rofessional and administrative staff of other ­ rganisations, the media, the general o ­institutionsthe two associations was transferred to the public and in international forums. • Capital markets, pensions, savings andnew organization. Finance Norway have In particular, Finance Norway’s asset managementa highly competent staff of almost 100 ­objectives are: • Finance markets, financial instrumentsp­ ersons, with expertise in all fields of the and securities settlements • to ensure that financial institutionsfinancial sector, and will – for all ­ ractical p • Payment systems, clearing and are afforded working conditions andpurposes – represent the total financial ­settlement o ­ pportunities for further developments­ ector in Norway. • Risk management, including actuarial that provide a basis for profitable and The reason for establishing Finance ­ management risk sound operation, enabling them toN­ orway is to strengthen the ­ nancial fi • Loss prevention offer their customers the best possibles­ ector in Norway. The regulatory • Prevention and detection of insurance service,e­ nvironment for financial activities fraud and other financial crimes • to ensure equal legal framework for allbecomes ever more complicated and ­ • Guarantee schemes and guarantee financial enterprises competing in thec­ omprehensive. This requires top funds same market, independent of size andc­ ompetence and a professional and • Statutory insurance ownership,d­ edicated staff in the trade associations. • Consumer issues • to ensure that Norwegian based Finance Norway represents some 180 • Holding and use of personal details, fi ­ nancial enterprises are able to operatefinancial institutions and financial groups including health details on equal terms and conditions withthat are active in the Norwegian market. • Structure and competitive conditions in their international competitors, andThe institutions operate within different the financial services industry that these terms and conditions aresectors of financial activity: • Fiscal and monetary policy a ­ djusted to the developments in the• savings banks EEA area, • Tax• commercial banks • to promote a sound development of the • Corporate social responsibility,• life insurance companies financial industry nationally as well as i ­ncluding environmental issues• non-life insurance companies internationally, • Education – financial illiteracy• finance companies • to promote a high professional and• management companies for securities ethical standard in the financial Common projects funds i ­ndustry and a wide understanding of In the insurance area, Finance Norway is• investment firms the ­mportance of the financial industry i the ­ ecretariat for a number of ­ ommon s c• finance groups in society. projects financed by the insurance c ­ ompanies, e.g.:Finance Norway’s purpose is to strive Part of a larger European Community • Remaining Value Salvagefor a strengthened Norwegian financial The European financial services industry • Pool Officei­ndustry. The legal framework is getting is undergoing a period of profound and • Motor Assessmentever more complex and comprehensive. rapid change, both in the market place and • Health Assessment CommitteeThus, ­ pecialist expertise is needed, as well s in the regulatory framework. Through the • FG – Insurance Companies’ Approvalsas a solid professional environment within EEA Agreement, changes in EU legislation Boardthe trade associations. will have exactly the same consequences • Norwegian Motor Insurers’ Bureau for Norwegian financial institutions as for • Norwegian Occupational Injury institutions located within the EU. ­Insurers’ Bureau To safeguard the interest of the • Fraud Prevention Office N ­ orwegian financial sector Finance • Norwegian Interbank Clearing System Norway ­ articipates in a larger European p ­ • BankAxept, the National Card Scheeme c ­ ommunity. Finance Norway is a member • BankID – eID issued by banks with the ­ uropean Savings Banks Group E • The Norwegian Covered Bond Council (ESBG), the European Banking Federation (EBF) and the European Insurance and r ­ einsurance federation (CEA).42
  42. FNODepartment structure Management The Management Team Managing Director Arne Hyttnes t Director Lene Magnussen Communication Director Leif Osland Director Marit Sagen Åstvedt Director Stefi Kierulf Prytz Administration Director Jan Digranes t and IT Director Geir R. Trulserud Account Communal Services IT t t t t t Corporate Banking and Communication Life Insurance General Responsibility Capital Markets and Pension Insurance Banking and Economics Policy Life Fraud Prevention Office Financial Markets Statistics Loss Prevention Legal Motor Assessment Payments and Non-Life Legal Affairs Infrastructures Pool Office (Natural Perils Pool) Statistics The Norwegian Motor Insurers Bureau/ The Norwegian Injury Insurers Bureau 43
  43. FNOManagement structure General Meeting t t The Board t t t t t t Boards Administration Committees t t t t Legal affairs t Banking and capital markets Life and pension Payments and infrastructure Risk and non-life t t Technical sub-comitees Steering Committees Accounting Approval – Hot work Actuary life Approval Board – Fire Protection Actuary non-life Approval Board –Theft Protection BankID Legal affairs Authorisation claims consultant Bodily insurance Authorisation consultants Clearing and settlement Authorisation pensions Credit insurance consultant Corporate Social Responsibility (CSR) Fire Safety Projects Documentary credit Health evaluation Document (loans and guarantees) Motor-vehicle insurance claim Information Natural Perils Pool Insurance Fraud and Criminality Norwegian Motor Insurers’ Bureau Joint Committee for Payment systems Norwegian occupational Injury Bureau Legal Affairs Payment systems Remaining value salvage Life lawyers Traffic safety projects Liquidity Norwegian Bank Security Committee Solvency Trade finance44
  44. FNOCommittees and boardsOn the boardRune Bjerke (chairperson) DNB DeputiesStein Hannevik On behalf of The Norwegian Savings Banks Association:(deputy chairperson) Sparebanken Pluss 1. Hans Kjensjord, Modum SparebankHelge Leiro Baastad Gjensidige 2. Hans Kristian Glesne, Nes Prestegjeld SparebankJon Håvard Solum Grong SparebankArvid Andenæs Sparebanken Sogn og Fjordane On behalf of the Norwegian Financial Services Association:Kjerstin Fyllingen Tryg Forsikring 1. Kirsten Idebøen, SpareBank 1 GruppenFinn Haugan SpareBank 1 SMN 2. Bjørn Thømt, Frende SkadeforsikringLine M. Hestvik If SkadeforsikringIdar Kreutzer StorebrandTrond F. Mellingsæter Fokus BankSverre Thornes KLPDag Tjernsmo HandelsbankenGunn Wærsted Nordea Bank Norge The composition of the board by March 16 2012Payments and infrastructure Risk and non-lifeKaj-Martin Georgsen, leader DNB Ivar Martinsen, leader If SkadeforsikringArne Austreid SpareBank 1 SR-Bank Hans Martin Hovden KLPPål Bergskaug SEB Lars Fritzøe Jernbanepersonalets ForsikringAudun Bø Terra-Gruppen Martin Danielsen Gjensidige ForsikringJan-Frode Janson Fokus Bank Tom G. Granquist StorebrandStein Klakegg Sparebanken Vest Tore Tenold SpareBank 1Aage Elmenhorst Schaanning KLP Truls Holm Olsen Tryg ForsikringJohn Sætre Nordea Bank Norge Sverre Bjerkeli Protector ForsikringTiril Haug Villum Pareto Bank Bjørn Thømt Frende SkadeforsikringHans Aasnæs Storebrand Principal advisory committee Legal affairsBanking and capital markets Thorbjørn Gjerde, leader Fokus BankSvein Ivar Førland, leader Sandenes Sparebank Camilla Bredrup If Skadeforsikring nufErlend Molde Jensen DNB Ida Louise Skaurum Mo KLPGeir Bergskaug Sparebanken Sør Ivar Sagbakken Nordea Bank Norge ASALorang Eriksen Terra-Gruppen Jørn Hammer Gjensidige Forsikring ASA Leif Gripsgård Handelsbanken Kjell R. Hannevik Terra-Gruppen ASGro Elisabeth Lundevik Nordea Bank Norge Olav Heldal DNB Bank ASA Bernt Pettersen Fokus Bank Tor G. Birkeland SpareBank 1 Gruppen ASEldar Skjetne SpareBank 1 Gruppen Gunnar Heiberg Storebrand ASAMagnar Øyhovden Skandiabanken Pål Pedersen Sparebanken Vest Torjus Moe Handelsbanken Carine Lindmann Eksportfinans ASALife and pension Anne Østberg Vikøren Tryg ForsikringGeir Holmgren, leader Storebrand Livsforsikring Olav Breck (observer) SparebankforeningenBjørn Asp Gjensidige PensjonsforsikringRoar Engen (observatør) KLPBjørn Atle Haugen DNB LivsforsikringHanne Fjellheim Handelsbanken LivÅmund Lunde Oslo PensjonsforsikringAud Lysenstøen SpareBank 1 LivsforsikringJan Petter Opedal Danica PensjonJørund Vandvik Livsforsikringsselskapet Nordea Liv NorgeMikkel A. Berg Silver Pensjonsforsikring 45
  45. FNOMembers of Finance NorwayMembers of Norwegian Financial Services AssociationOrdinary members Försäkringsaktiebolaget Skandia, NEMI forsikring ASA Trade organizationACE European Group Ltd. filial Norge Nordea Bank Norge ASA membersActa Holding ASA GE Money Bank Norsk Hussopp-Forsikring Finansieringsselskapenes ForeningBank 1 Oslo AS Genworth Financial Oslo Pensjonsforsikring AS Verdipapirfondenes ForeningBank2 ASA GIEK Kredittforsikring AS Pareto Bank ASABank Norwegian AS Gjensidige Forsikring ASA Protector Forsikring ASA Associated membersBN Bank ASA Gouda Reiseforsikring SEB Privatbanken ASA Kommunekreditt Norge ASBNP Paribas Oslo Branch Handelsbanken Silver Pensjonsforsikring AS Landkreditt Bank ASBoligbyggelagenes Forsikring AS Handelsbanken Liv SkandiaBanken AB Nordlandsbanken ASACardif Skadeforsikring If Skadeforsikring Skandinaviska Enskilda Banken AB Norgeskreditt ASChartis Europe SA Industriforsikring AS SpareBank 1 Gruppen ASCitibank International plc, Inter Hannover Storebrand ASA Cross members Branch Norway Jernbanepersonalets Forsikring Storebrand Helseforsikring AS Aioi Insurance CompanyCodan Forsikring KLP (Kommunal Swedbank Norge of Europe Ltd.Danica Pensjon AS Landspensjonskasse) Telenor Forsikring ASA Altraplan Luxembourg S.A.DNB ASA KNIF Trygghet Forsikring AS Terra-Gruppen AS avd. NorgeEksportfinans ASA Landbruksforsikring AS Tryg Forsikring RJ Kiln & Co. Ltd.Euro Insurances Ltd. Landkreditt Unison Forsikring ASAFokus Bank Livforsikringsselskapet Verdibanken ASAFrende Livsforsikring AS Nordea Liv Norge AS Voss Veksel- og Landmandsbank ASAFrende Skadeforsikring AS Møretrygd Gjensidig Forsikring yA Bank ASMembers of The Norwegian Savings Banks AssociationAndebu Sparebank Hjelmeland Sparebank SpareBank 1 Buskerud-Vestfold Sparebankstiftelsen SaudaArendal og Omegns Sparekasse Hol Sparebank SpareBank 1 Gudbrandsdal Sparebankstiftelsen SpareBank 1Askim Sparebank Holla og Lunde Sparebank SpareBank 1 Hallingdal Nord-NorgeAurland Sparebank Høland og Setskog Sparebank SpareBank 1 Modum Sparebankstiftelsen SR-BankAurskog Sparebank Hønefoss Sparebank SpareBank 1 Nord-Norge Sparebankstiftelsen TingvollBamble og Langesund Spb. Indre Sogn Sparebank SpareBank 1 NordVest SpareskillingsbankenBerg Sparebank Jernbanepersonalets Sparebank SpareBank 1 Nøtterøy-Tønsberg Spydeberg SparebankBien Sparebank AS Klepp Sparebank SpareBank 1 Ringerike Hadeland Stadsbygd SparebankBirkenes Sparebank Klæbu Sparebank SpareBank 1 SMN Strømmen SparebankBjugn Sparebank Kragerø Sparebank SpareBank 1 SR-Bank Sunndal SparebankBlaker Sparebank Kvinesdal Sparebank SpareBank 1-Stiftinga Kvinnherad Surnadal SparebankBud, Fræna og Hustad Sparebank Larvikbanken Brunlanes Spb. SpareBank 1 Søre Sunnmøre Søgne og Greipstad SparebankBø Sparebank Lillesands Sparebank SpareBank 1 Telemark Time SparebankCultura Sparebank Lillestrøm Sparebank SpareBank 1 Østfold Akershus Tinn SparebankDNB Lofoten Sparebank Sparebanken Hedmark Tolga-Os SparebankDrangedal og Tørdal Sparebank SpareBank 1 Lom og Skjåk Sparebanken Hemne Totens SparebankEidsberg Sparebank Luster Sparebank Sparebanken Møre Trøgstad SparebankEtne Sparebank Marker Sparebank Sparebanken Narvik Tysnes SparebankEtnedal Sparebank Meldal Sparebank Sparebanken Pluss Valle SparebankEvje og Hornnes Sparebank Melhus Sparebank Sparebanken Sogn og Fjordane Vang SparebankFana Sparebank Nes Prestegjelds Sparebank Sparebanken Sør Vegårshei SparebankFlekkefjord Sparebank Nesset Sparebank Sparebanken Vest Vestre Slidre SparebankFornebubanken Odal Sparebank Sparebanken Øst Vik SparebankGildeskål Sparebank Ofoten Sparebank Sparebankstiftinga Fjaler Voss SparebankGjerstad Sparebank Opdals Sparebank Sparebankstiftinga Hardanger Ørland SparebankGrong Sparebank Orkdal Sparebank Sparebankstiftinga Sogn og Fjordane Ørskog SparebankGrue Sparebank Rindal Sparebank Sparebankstiftelsen DNB Øystre Slidre SparebankHaltdalen Sparebank Rørosbanken Røros Sparebank Sparebankstiftelsen Gran Åfjord SparebankHarstad Sparebank Sandnes Sparebank Sparebankstiftelsen Halden Aasen SparebankHaugesund Sparebank Selbu Sparebank Sparebankstiftelsen HelgelandHegra Sparebank Seljord Sparebank SparebankstiftelsenHelgeland Sparebank Skudenes & Aakra Sparebank Jevnaker Lunner NittedalHjartdal og Gransherad Spb. Soknedal Sparebank Sparebankstiftelsen Ringerike46
  46. Photo: page 3 Edyta Linek | page 13 Vaidas Bucys | page 20 and 31 Regine Mørk | page 37 Claudio Divizia | portraits Vivian Olsen, FNOLayout Plein | Print Wittusen & Jensen | Copies 500 | April 2012
  47. Finance NorwayHansteens 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

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