Financial industries 2012


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

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Financial industries 2012

  1. 1. The NorwegianFinancial Industry2012
  2. 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. 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. 4. STATUS
  5. 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. 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 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. 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. 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. 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. 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 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. 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 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. 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. 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. 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. 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