The NorwegiaN FiNaNcial iNdusTry 2011

Contents

3

Welcome to The Norwegian Financial Industry 2011! 4

Status 5Norwegian economy back on track 6

Financial markets buffeted by european debt crisis 8

over a billion Bankaxept transactions 10

Brussels never sleeps 12

higher share prices bring better results 14

a profitable year despite high water losses 18

Topics 23New rules a challenge for job creation 24

water loss record smashed 26

directory of authorised financial advisers 28

young people need greater financial capability 30

a career boosted by Futura 31

Tomorrow’s industry 32

it does matter where returns come froms 33

New international accounting standards 34

More violent and more organised crime 36

guarantee fund in the melting pot 38

Towards european harmonisation 39

New rules for insurers 40

Tighter regulation of the financial industry 42

a true child of the financial crisis 44

Finance Norway 45This is Finance Norway 46

department structure 47

Management structure 48

committees and boards 49

Members of Finance Norway 50

Welcome to The Norwegian Financial Industry 2011!

Tighter regulation of the Norwegian financial industry

4

The financial crisis has put the financial industry and its role in the economy under the spotlight. All around the world, moves are being made to introduce stricter controls and, in many countries, downsize the industry.

The crisis exposed shortcomings in a number of big international banks’ risk management, but also in public regulation and supervision of the financial industry. Norwegian banks, though, came out of the crisis well.

Internationally, there is a strong political desire to tighten the regulation of the banks. The aim of this regulatory reform is to make the financial system more robust to economic shocks while reducing the likelihood of further crises. We share this goal.

The EU is working on regulatory changes for both banks (Basel III) and insurers (Solvency II). Many of the changes in the overall regulatory frame-work for insurers are related to the new Solvency II regime. The introduction of these rules will present major challenges for insurers, not only in terms of capital requirements but also when it comes to internal processes and requirements for governance and control. There will be more stringent requirements for organisation and documentation, oversight and reporting.

We need to follow EuropeIt is crucial that the authorities strike the right balance between regulation, supervision and control on the one hand, and upholding the industry’s role as a partner, intermediary and risk bearer for businesses, households and municipalities on the other. The lesson from the financial crisis is that a crisis originating abroad can still have a major impact on Norway. The same goes for

regulatory conditions. The Norwegian financial industry will be adversely affected if we have rules and regulations in Norway that are less favourable than elsewhere in Europe. The response to the Financial Crisis Commission’s report and the measures outlined in it will be critical for Norwegian financial institutions. Norway’s financial industry is not too big, and it needs a level playing field as much as any other industry.

Strong and well-runThe Norwegian financial industry is strong, efficient and well-run. It is an essential part of the infrastructure – the backbone – of modern society and shares its destiny. Accounting for around 2 per cent of employment and 6 per cent of mainland GDP, the Norwegian financial industry is a major cog in the machinery of society.

Taking social responsibilityAs such, the industry has a significant corporate social responsibility – and it is taking this responsibility seriously. Corporate social responsibility is ultimately about creating value and profitability without this being at the expense of people, ethics or the environ-ment. This responsibility is integral to firms’ everyday operations – it should not be separate from or run parallel to their business activities. Actively taking corporate social responsibility means that a firm responds to society’s challenges through its own core business. In January 2011 Finance Norway published a guide to corporate social responsibility in the financial industry which we hope and believe will extend an important helping hand to firms whose strategic corporate social responsibility work is not yet properly under way.

Together with its members, Finance Norway has taken action in a number of areas to tackle challenges relating to climate change, social responsibility and ethics. One example is the AFR authorisation scheme for financial advisers. More than 4 000 advisers from 140 different financial firms have passed its rigorous tests, documenting that they are qualified to provide financial advice. The scheme has given skills levels in the financial industry a historic boost. Almost 8 000 candidates have been registered under the scheme, which will benefit customers through the quality of the advice they are given.

The industry needs to find solutionsThe financial industry must not sit back and wait for the authorities to impose rules and requirements when it comes to taking corporate social responsibility. We need to find our own solutions and lead the way. Through openness, dialogue and insight into social developments, we need to help bring about sustainable development which takes account of climate change, workers’ rights, local communities, diversity and ethics. Authorities, consumers and society in general must be confident that the financial industry is strong, efficient and well-run in this area too.

Arne HyttnesManaging DirectorFinance Norway

STATUS

Mainland GDP, which excludes oil and shipping, grew by just over 2 per cent in 2010 after falling by just over 1 per cent in 2009. Unemployment has remained low by historical standards and is very low compared to other countries.

Greater purchasing powerNorwegian households have been little affected by the financial crisis, bar a moderate rise in unemployment. Real wage growth and the sharp decrease in interest rates have given households’ purchasing power a considerable boost over the past two years. Many house-holds nevertheless chose to step up saving and postpone purchases in the wake of the financial crisis. This changed in the second half of 2010, however, and consumption has grown rapidly of late. Private consumption accounts for a substantial share of activity in the Norwegian economy.

Norway is a small and very open economy with a high share of exports and imports. International developments are therefore very important for activity in the Norwegian economy, especially for export industries. The financial crisis therefore had its greatest impact on export-oriented manufacturing as well as the construction sector. The decline in Norwegian industrial production was nevertheless milder than in many other countries, and activity recovered during the course of 2010.

High cost levelsCost levels in Norway are high compared to other countries, due mainly to high wage levels. Unit wage costs in manufacturing in 2010 were 50 per cent higher in Norway than in our trading partners in the EU, measured in common currency. Norway has a relatively compressed wage structure, so wage differences are much smaller for skilled workers, including white-collar workers in the industry sector. At the same time, Norway has long had strong productivity growth which inter alia has helped boost competitiveness and made it easier to cope with high wage levels. If wages are to remain high, it will be essential to maintain high levels of productivity growth in the future. This will require investment in research, development, education and training. Higher investment activityMany Norwegian companies were hit by the global recession in the wake of the financial crisis. Investment by mainland companies fell by 20 per cent from late 2008 to early 2010 before turning around in the second quarter. The construction and power sectors have recovered most strongly to date. Brisk demand from both the public and private sector has fuelled the upswing in construction, while the power sector has stepped up investment in upgrading and expanding the electricity network, which will bring high levels of activity in the power sector in 2011 as well.

Slump in petroleum activityPetroleum investment has fallen markedly over the past two years, due primarily to many large oil platforms being completed in 2009 and new projects still being in their infancy. Exploration activity also slowed following the oil price drop in early 2009, but a number of new projects have started up in recent quarters.

Together with heavy investment in operational fields, this will help to push up petroleum investment.

Demand for creditThe rise in investment in the mainland economy has led to increased credit demand from non-financial companies. Credit growth plummeted in 2008 and 2009 but picked up again in 2010. By January 2011 the annual rate of corporate credit growth had risen to 3.8 per cent, and the upswing in the Norwegian economy will probably bring further growth in companies’ demand for credit.

Stable labour marketAction by the authorities and the sharp decrease in interest rates helped prevent the financial crisis from having a marked adverse impact on the labour market. Unemployment climbed around 1 percentage point from its low point in 2008 to 3.5 per cent at the beginning of 2010. The impact on employment was slightly greater, especially in sectors such as manufacturing and construction. Unemployment was relatively stable in 2010, while employment rose somewhat towards the end of the year. Employment has grown fastest in personal services and in health and social services.

Wage growth in Norway is highly cyclical and fell from 6 per cent in 2008 to 3.5 per cent in 2009. The final figures will probably show growth of around 3.5 per cent again in 2010. Wage growth is likely to accelerate somewhat as the economy improves. In previous upswings, wage growth has picked up first in manufacturing, with the service sector lagging slightly behind.

Norwegian economy back on trackgrowth in the Norwegian economy picked up in the second half of 2010. Norway was not hit as hard by the financial crisis as most other countries, and unemployment did not rise as far as many had feared.

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THE NORWEGIAN ECONOMY

Loosening the purse stringsAfter a slow start to 2010, household consumption grew rapidly in the second half of the year. The weak first half was probably due to a combination of high electricity prices and many households being uncertain about the economic outlook, partly in the light of the sovereign debt crisis in several countries in Europe. Despite solid growth in disposable income, many households therefore chose to step up saving and repay debt rather than increase consumption.

Growth in household debt has been relatively stable since 2009 at just over 6 per cent, but there were signs of acceleration towards the end of 2010. Strong demand in the housing market will probably lead to some increase in household debt growth going forward. The ratio of debt to disposable income in the Norwegian household sector is now record-high at around 200 per cent. However, this high level of debt needs to be seen in the light of around 80 per cent of Norwegian households owning their own homes. Residential mortgages account for almost 80 per cent of household debt. On average, Norwegian households also have high incomes and substantial buffers to cover higher interest and repayments on their mortgage debt.

Housing marketHomebuilding picked up again in 2010 after falling sharply in the wake of the financial crisis. However, the supply of new homes is insufficient to meet increased demand, especially in central areas. Together with low interest rates, this is contributing to high house price inflation. House prices rose sharply towards the end of 2010 and increased by more than 8 per cent from 2009 to 2010. Low interest rates and a gradual tightening of the labour market will probably lead to further growth in house prices.

House prices are now high by historical standards. Relative to income levels, house prices are now more than 15 per cent above the average for the past quarter of a century. Given the strong demand for housing and limited supply of new homes, it is nevertheless hard to conclude that house prices have departed from normal levels.

The very favourable tax treatment of housing is contributing to households investing a large share of their wealth in the housing market, which is pushing up prices. The flipside of this is that a smaller share of wealth is being invested financially, in bank deposits, shares and other securities. The absence of deep and liquid financial markets has implications for financial stability. Combined with persistently low interest rates, this can pose a risk of price bubbles in the housing market.

A slide in house prices – due to, say, a sharp economic downturn and rising unemployment – could have significant adverse distribution effects. Those who buy at the top of the market, and are then forced to sell for some reason, will be hit hardest by the drop in prices. Historically, however, only a very small proportion of households have defaulted on their mortgages. Instead, they have cut back on other outgoings, such as expenditure on consumer durables and travel. Decrease in house prices could therefore also have significant negative demand effects in the overall economy.

Rate increases drawing nearerNorges Bank cut its key policy rate markedly in 2008 and 2009 to cush-ion the impact of the financial crisis. The key rate hit its lowest-ever level of 1.25 per cent in June 2009. It has since been raised by a total of 0.75 percent-age points to 2 per cent, but this is still well below what can be considered a normal long-term level. Monetary policy is therefore still delivering a strong

stimulus to the real economy. Norges Bank plans to raise interest rates again as the economy improves.

The main target for monetary policy is annual consumer price inflation of approximately 2.5 per cent over time. Core inflation in the Norwegian economy fell in 2010 to around 1 per cent at the end of the year. Weaker external price impulses, falling wage growth, currency effects and low capacity utilisation all contributed to the decline. In isolation, this low inflation is serving to postpone further interest rate hikes.

Towards a more neutral fiscal policyThe financial crisis triggered a strong fiscal response in the form of a highly expansionary fiscal policy. The government’s “fiscal rule” requires petroleum revenue to be phased gradually into the Norwegian economy, roughly in line with the expected real return on the Government Pension Fund Global, estimated at 4 per cent. Spending of petroleum revenue in 2009 and 2010 was well above this 4 per cent path. As the economy recovers, the government is moving towards a more neutral fiscal policy and has indicated that it will return to the 4 per cent path in 2011.

The phasing in of petroleum revenue in line with the fiscal rule nevertheless makes a major contribution to growth in the Norwegian economy, including in periods with high capacity utilisation in the economy. In the future we face a substantial increase in expenditure due to an ageing population, partly because more and more pensioners will need higher and higher pensions, and partly because the need for health and care services will be higher with an ever older population. The question has therefore been raised as to whether the fiscal rule should be revised so that petroleum revenue is phased into the Norwegian economy somewhat more slowly. n

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THE NORWEGIAN ECONOMY

The authorities in a number of countries introduced expansionary fiscal measures during the financial crisis. This led to a sharp increase in public debt, and investors are concerned that some of these countries will not manage to service this debt. This concern relates primarily to the PIGS countries: Portugal, Ireland, Greece and Spain. Heavily indebted countries have there-fore seen a marked increase in interest rates on their borrowings. The turmoil also spilled over into the money and bond markets, where risk premiums increased.

In May 2010 Greece had to accept emergency financial support from the EU and the IMF. This helped reassure markets somewhat, but the turmoil returned in the autumn due to uncertainty about government finances in Ireland and Portugal. By the end of November it was clear that Ireland would need emergency financial support, and there are signs that Portugal may be headed the same way.

Volatile stock market The stock market was also affected by the debt crisis, resulting in substantial price movements during the year. Over 2010 as a whole, however, there was a clear upswing in share prices. The S&P Global 1200 index, which includes around 70 per cent of the world’s stock markets, climbed 12 per cent in 2010, while the Oslo Stock Exchange’s benchmark index gained 18 per cent. The Norwegian stock market is small and tends to fluctuate more than the big international stock markets. This is because foreign investors tend to migrate to large and more liquid markets in periods of uncertainty, and come back in periods of renewed risk appetite.

The bond marketAfter plummeting in connection with the financial crisis, government bond yields recovered somewhat in 2009 and early 2010 before turbulence returned in the spring. Despite rising towards the end of 2010, long-term government yields are still historically low in many countries. Norwegian government bonds are considered a very safe investment and have therefore fallen to record-low levels. The average yield on ten-year government bonds in 2010 was 3.5 per cent.

The increased risk associated with government bonds in some countries fed through to the market for corporate bonds, especially bank bonds, as several large European banks have significant exposure to government debt in the euro area. Norwegian banks have little direct exposure to the PIGS countries but were still hit by more general contagion effects. For example, the cost of long-term funding rose due to higher risk premiums. Risk premiums on Norwegian bank bonds were nevertheless much lower in 2010 than during the financial crisis.

Following the introduction of covered bonds in Norway, the country’s banks have raised extensive funding in this market. Risk premiums on covered bonds have been much lower than in the standard bond market, and covered bonds are becoming an ever more important source of funding for the banks.

The swap facility launched in 2008 enabling covered bonds to be exchanged for government securities will be phased out in the coming years, leading to an increased need to invest in bonds in this market. Investors will benefit if the covered bonds swapped are refinanced and returned to the market earlier and over a longer period than if all the swaps were held to maturity. Finance Norway has therefore called for banks to be

allowed to terminate the swaps before maturity.

Provided that they qualify as liquidity in the future regulation of banks’ liquidity requirements, covered bonds could come to play an important role in the Norwegian market. Due to the very limited volume of government bonds in Norway, there is a need for alternative fixed-income instruments with low risk and a liquid market. Finance Norway and the Norwegian Covered Bond Council aim to improve transparency and liquidity in the Norwegian market.

The money market Short-term borrowing in the money market accounts for a substantial share of banks’ funding. Money market rates generally mirror central bank rates with the addition of a risk premium. The risk premium on short-term funding increased as a result of the sovereign debt turmoil, but fell back somewhat towards the end of 2010. The premium is nevertheless still higher than before the financial crisis.

The Norwegian money and credit market is small, and Norwegian banks source considerable amounts of funding internationally. Net foreign debt therefore grew for many years, but in 2009 this trend came to an end, and net foreign debt was relatively stable in 2010. At the end of the third quarter, Norwegian banks, mortgage companies and other financial institutions had net foreign debt of NOK 1 100 billion. This high level of external funding makes the Norwegian financial industry sensitive to fresh turmoil in global financial markets.

Deposit quotas at Norges BankIn December 2010 Norges Bank decided to introduce a quota system for deposits in the central bank. Under the new system, the sight deposit rate will be applied to deposits only up to a certain

Financial markets buffeted by European debt crisis

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FINANCIAL MARKETS

global financial markets were buffeted by the european sovereign debt crisis in 2011. The Norwegian banking industry has little direct exposure to the countries in question but was affected indirectly.

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FINANCIAL MARKETS

Stronger bank resultsNorway’s banks posted strong results for 2010. Net earnings climbed from NoK 20.6 billion in 2009 to NoK 28.8 billion in 2010, or from 0.56 to 0.78 per cent of average total assets (aTa). The improvement was due partly to lower write-offs of loan losses and lower costs. The figures were also boosted by a substantial one-off gain from the merger of payment service providers Nordito in Norway and PBs in denmark.

Stable net interest incomeMoney market rates rose in the first half of 2010 but fell back slightly towards the end of the year to close 0.4 percentage points higher than at the beginning of the year. statistics through to the third quarter show that banks’ lending rates rose slightly less far than money market rates.

Norwegian banks generated net interest income of NoK 50 billion in 2010, or 1.35 per cent of aTa, compared with NoK 49 billion and 1.33 per cent in 2009. over the past six years, net interest income has been relatively stable between 1.30 and 1.50 per cent of aTa.

Loan losses reducedlosses on loans and guarantees totalled NoK 3.8 bil-lion in 2010, or 0.10 per cent of aTa, down from NoK 9.1 billion and 0.24 per cent in 2009. The decrease was associated with the general improvement in the economy.

Cost levels improvedBanks’ costs have grown more slowly than aTa for a number of years. in 2010 operating costs totalled NoK

40.8 billion, or 1.10 per cent of aTa, compared with NoK 42.5 billion and 1.15 per cent in 2009. The decrease from 2009 to 2010 needs to be seen in the light of former aFP early retirement pension obligations being taken to income in 2010 without new provisions being calculated, leading to a reduction in operating costs.

Securities and foreign exchangeBanks recorded net gains on securities and foreign exchange of NoK 4.5 billion in 2010, or 0.12 per cent of aTa, compared with NoK 10.4 billion and 0.28 per cent in 2009. The decrease from 2009 to 2010 reflects the major gains made in 2009 as global financial markets recovered.

other important sources of income for the banks are commission and other revenue from banking and payment services.

Greater financial strengthThe big banks use internal methods to calculate minimum capital requirements. These banks had an average Tier 1 capital ratio of 9.0 per cent in the third quarter of 2010, up 0.5 percentage points on the same quarter in 2009. Banks using the standard method had an average Tier 1 ratio of 13.7 per cent, up 1.1 percentage points on the year before.

Rising deposit-to-loan ratiodeposits are banks’ most important source of funding. The deposit-to-loan ratio increased substantially in 2009 and 2010, due primarily to the introduction of covered bonds in Norway, and ended 2010 at 77 per cent, up from 71 per cent a year earlier.

level, and any deposits beyond this level will attract a lower rate of interest. The aim is to develop a better and more active money market in Norway.

Finance Norway noted in a consultation response that Norges Bank’s proposal would have a number

of negative effects. We argued that the proposal did not serve its intended purpose and that the functioning of the money market could be improved by other means. In general, we concluded that it would be very unfortunate for Norges Bank to drastically revise its

liquidity policy at a time when the market and regulatory authorities are requiring banks to hold more liquid reserves, and when the government bond swap facility is being phased out. n

Through 2010 goods and services worth a total of NOK 364 billion were paid for using BankAxept cards. The increase is due partly to growing use of cards for small purchases, and the average amount of card purchases decreased by NOK 5 in 2010. More than nine in ten card payments in Norway use the BankAxept system.

Norway has a well-developed and efficient payment system and it can deliver a large number of payments quickly, securely and stably at low cost. The national card system BankAxept has these qualities, and this is helping make Norway a world leader in the use of payment cards.

Using cards to purchase goods and services brings efficiency gains for banks, customers and society in general. The use of cash incurs costs for production, counting, sorting, storage, transport, security and more. Continued growth in card use will have further benefits for society, and banks in Norway aim to promote such growth through product development, pricing and new payment services.

BankAxept only on chip From 1 December 2011 all BankAxept-transactions will be chip-based, and the magnetic stripe will no longer be processed in the BankAxept scheme. The migration from magnetic stripe to chip technology increases security when using BankAxept cards and maintain strong confidence in BankAxept as a secure payment solution. With more than 100 000 point-of-sale terminals and more than 6 million BankAxept cards issued, the conversion to chip has been a major undertaking for the banking industry, merchants and terminal suppliers alike.

Anti-skimming law introduced Skimming – copying information from a card’s magnetic stripe – has been a growing problem in recent years. In December 2010 the Norwegian parliament closed a loophole in the penal code following a supreme court ruling that the code did not apply to those in possession of devices capable of being used to skim payment cards. The new law makes it a punishable offence to produce, import, export, transfer, possess or store skimming devices.

Faster payment services Autumn 2010 brought changes to the operating schedule for the Norwegian Interbank Clearing System (NICS). A new, third daily settlement has been added in the afternoon, and the dead-lines for submitting transactions for the final daily settlement have been extended by an hour. This has increased the speed in the payment system and means that more transactions can be credited to the beneficiary’s account the same day.

Even easier to switch bankThe Norwegian interbank rules on switching codes were brought into line with international principles from 1 January 2011. In December 2008 The European Banking Industry Committee

(EBIC) launched its common principles for how banks are to assist customers when they change banks. The change brings clearer and explicit requirements for informing customers about the bank switching scheme, an obligation for the new bank to support the customer with the switch if the customer ask for it, and the option for customers who are dissatisfied with a bank’s compliance with the switching rules to complain to the Finansklagenemda (the Financial Complaints Board).

2.4 million BankID users BankID is an eID and eSignature issued by banks in Norway to private customers (persons) as well as business customers. The vast majority of Internet-banking in Norway is now secured by BankID.

During 2010 the number of private customers using BankID increased by around 100 000 to more than 2.4 million. Excluding Internet banks, the number of websites using BankID for secure authentication and signing of contracts is around 200, and increasing this number is a clear goal. Almost 300 million BankID transactions were performed in 2010, equivalent to around 900 000 per day.

Still hoping for DifiIn 2010 the Norwegian Agency for Public Management and eGovernment (Difi) conducted a competitive dialogue concerning application of private sector eID solutions in “ID-porten”, an eID-portal for accessing the Norwegian public services. The banking industry participated in this process and offered BankID as a solution. However the BankID-offer was turned down due to the fact that message encryption services were not yet included in the product. Banks in Norway had not previously seen a need to include this functionality. Based on Difi’s requirements, however,

Over a billion BankAxept transactions

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PAYMENT SERVICES

Transactions from Bankaxept cards topped one billion for the first time in 2010. Norway is a world leader in the use of payment cards, and this marks a milestone for payment services.

the banking industry is now looking into the possibility of including message encryption in the solution so that BankID may be accepted for use in Difi’s eID portal.

BankID goes mobileA BankID solution for mobile phones launched jointly by the banking industry and phone company Telenor has now been in the market for almost two years. At the end of 2010 approximately 20 000 customers in two banks had BankID on their mobile. A substantial increase in the number of users is anticipated in 2011 as more banks introduce the service.

Efficient Internet and mobile phone paymentsBankAxess is a coordinated bank service for Internet and mobile phone payments. Payments are authorized using BankID, and unlike card-payments, BankAxess does not require the customer to enter an account number. Payments via BankAxess totalled NOK 239 million in 2010, up from NOK 67 million in 2009. BankAxess is currently used mainly for Internet purchases, but its use on mobile phones is expected to grow significantly in the years to come.

Electronic registrationElectronic registration of legal charges certificates will have major benefits for society, and so the banking industry has lent its support to proposals for legislation in this area. Electronic registration will mean that legal protection for charges can be established more quickly and cost-effectively. It will also make it possible for banks to develop rational and user-friendly ways of concluding loan agreements. The proposed legislation covers the registration of both real and personal property, and permits recovery on

electronic promissory notes and rental agreements without legal proceedings.

Joint complaints boardA new Financial Complaints Board was created on 1 July 2010, bringing together complaints relating to insurance, banking, financial services and securities funds. It is owned jointly by the Norwegian Consumer Council, Finance Norway, the Association of Norwegian Finance Houses and the Norwegian Fund and Asset Management Association. The Bank Complaints Board and Insurance Complaints Board will continue as independent, extrajudicial dispute resolution bodies.

The Bank Complaints Board and Insurance Complaints Board have clarified the legal position on many issues and contributed to banks, insurers and other financial institutions changing their procedures and practices. The secretariats’ advisory service for customers and institutions has helped increase awareness of both the law and the committees’ practices.

Data protectionOn 1 January 2011 the Norwegian Data Inspectorate introduced new licensing requirements for banks and other financial institutions’ use of personal information. The new requirements span areas such as customer administration, customer follow-up, risk classification of customers and credit portfolios, and a longer retention period for CCTV recordings. Banks must also now ensure that general information about their data protection procedures is readily available to customers and the public at all times.

Black economyNorway’s tax laws were amended from 1 January 2011 in a bid to reduce the size of the black economy. Consumers paying cash for services with a value

of more than NOK 10 000 can now be held jointly liable for the supplier’s tax obligations if these are evaded. This gives the consumer an incentive to pay for such services through a bank. Similarly, there will be no tax allowance for amounts above NOK 10 000 unless paid through a bank.

Illegal gamingThe Gaming Act was revised in 2010 to prohibit the provision of payment services for illegal games, including both stakes and winnings. On the basis of this, the Norwegian Gaming and Foundation Authority decided that banks must block transfers to and from certain accounts both in Norway and abroad.

The authority has subsequently specified that banks are to assume that payments to or from these accounts must be blocked whether the payments relate to gaming or not. For domestic payments, this action is to be taken by the bank that holds the account in question and not by the bank sending money to that account. A penalty clause applies if, having closed an account on the authority’s list, a bank transfers the balance from the account to the accountholder. However, the authority has stated that it will not react to such a transfer.

Organised crimeThe financial industry plays a key role in uncovering and preventing financial crime and will continue to work as one to fight it.

In a report to parliament on the battle against organised crime in 2010, the Norwegian government urged closer collaboration between industry and the police to combat organised crime. The financial industry has previously advocated such collaboration in its dialogue with the authorities and warmly welcomes this initiative. n

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PAYMENT SERVICES

The financial industry faced major challenges in adapting to the new rules when they came in, but the harmonisation of the regulatory frame-work has also improved the competitive environment with a more open market. Another consequence is a change in trading patterns and the use of market-places. The traditional exchanges have had strict requirements imposed for the publication of prices and trades (pre- and post-trade transparency), while the door has been opened to less closely regulated alternative marketplaces. An example of these new marketplaces is the emergence of broker networks and investors’ direct use of brokers’ member-ship of regulated marketplaces. Terms such as “dark pools” and “crossing networks” are increasingly cropping up, and the traditional exchanges have lost substantial market share to more informal trading systems with less transparency and disclosure.

Technological developmentsTechnological developments have also had an impact on the markets. Trading is increasingly robotic – using pre-programmed computers rather than human brokers. Due to the large volumes involved, the robots’ margins generate substantial earnings. The traditional market abuse rules are there-fore also being challenged: for example, two traders have been prosecuted for cracking a robot’s trading patterns. This may once again raise the issue of whether these robots in themselves can be said to manipulate markets. There is no doubt that the supervisory authorities and market participants will be closely monitoring developments.

Recent years’ legislative changesThe biggest and most widely reported reform has been the introduction of the EU’s Markets in Financial Instruments Directive (MiFID). Its rules

on investor protection have attracted particular attention. The Securities Trading Act implementing MiFID in Norway contains additional rules to protect investors and requirements for conduct of business. One key principle is that investment firms have a duty to act in their customers’ best interests. It is especially their advice, or more specifically their investment advice, that has been under the spotlight. The principle that advice should be in customers’ best interests is nothing new, as previous statutory and case law has established a strict professional responsibility. What is new with MiFID is its rules on how advice is to be given, in particular the “suitability test”.

Authorisation scheme for financial advisersFinance Norway began work on its authorisation scheme for financial advisers, AFR, even before MiFID. The scheme goes further than both the Securities Trading Act and MiFID in terms of product range and advisory context. In 2011 authorised financial advisers will have an opportunity to take a refresher test to update their expertise and keep up with changes in the law. The financial industry has invested substantial resources in raising employees’ skills levels in customers’ interests.

More changes from BrusselsThe European Commission is already well under way with revising MiFID, as the directive itself requires. A consultation document was published on 8 December 2010, and the changes are due to be implemented in spring 2011.

The main elements of the MiFID review are:

• developments in market structures in the form of new and different trading platforms

• disclosure of information (pre- and post-trade transparency) • coordinated market data• the commodity derivatives market• transaction reporting• investor protection• more effective supervision and

sanctions• third country firms’ access to EU

markets

The commission is reacting here to market developments, and this work is a natural part of the EU’s response to the financial crisis.

PRIPsThe European Commission is also continuing its work on harmonised legislation on advice and sales for investment products – the Packaged Retail Investment Products (PRIPs) initiative. The idea is that this should go further than MiFID by including investment products other than financial instruments. The commission published a consultation document on 26 November 2010, where the main thrust is that sales and advice must comply with the rules on investor protection and good business ethics in MiFID, while the disclosure requirements will be based on the rules for securities funds. The commission is focusing on “packaged” instruments and not investment as such. The following definition of a PRIP is proposed as a starting point:

“A PRIP is a product where the amount payable to the investor is exposed to fluctuations in the market value of assets or payouts from assets, through a combination or wrapping of those assets, or other mechanisms than a direct holding.”

Brussels never sleepsin recent years the securities market has seen numerous and extensive legislative reforms rooted in european law. These have brought changes in trading patterns and the use of new marketplaces, leading, in turn, to new regulations.

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THE SECURITIES MARKET

The work on PRIPs ties in well with the framework already set out as part of the AFR authorisation scheme in Norway.

Other initiativesA number of other initiatives are also under way in the EU covering:

• trading systems• securities registers• derivatives trading• cross-border recognition of rights to

securities• settlement systems• changes to the rules on cover under

investor compensation schemes

These measures run alongside the industry’s own initiatives to create a more coordinated market in terms of trading and securities rights.

The way forwardThere is no doubt that the industry in Norway will soon be faced with further rules from the EU. The trend is for new rules to be more detailed and more closely harmonised across the EU/EEA. Increasing use is being made of regulations that are to be implemented as they stand in the individual member states. These regulations are incorporated into Norwegian law by an act or regulation referring to them as applying as Norwegian law. This incorporation by reference presents challenges for the industry in that the rules are not as available as when they are transposed into national Norwegian rules. Another challenge is that it often takes time for these regulations to be translated into Norwegian. This lack of availability and delayed translation have competitive implications, as Norwegian firms effectively gain access to the rules later than those in EU countries.

Unilateral rules The extensive and detailed regulatory reforms in the EU also raise the issue of national authorities’ room for manoeuvre. The scope and need for unilateral measures in Norway are constantly decreasing. For one thing, unilateral rules are problematic in terms of a level playing field. Next, there is the question of which rules will apply to branches of foreign firms in Norway and branches of Norwegian firms abroad. One general principle is that unilateral national measures must be proportionate to what they are regulating – the rules should not go any further than is necessary.

Voice recordings – an exampleThe Norwegian rules in the Securities Trading Act on recording phone calls about investment services are a good example of a unilateral measure. Following the amendment of the Securities Trading Regulations on 16 December 2009, the rules on voice recordings have been extended to include all types of investment services, including investment advice.

The entry into force of these rules has twice been postponed but is now scheduled for 1 April 2011 barring amendment or further postponement. The rules go much further than MiFID, and probably also further than after the MiFID review, and will present considerable challenges for banks and others with complex operations. Banks’ branch networks provide general banking services such as opening accounts and issuing loans, as well as advice on products that do not come under the rules on investment advice and voice recordings under the Securities Trading Act. This business model is allowed for in the AFR authorisation scheme for financial advisers and will probably also be in the upcoming PRIPs rules.

For one thing, it will be hard for banks to find adequate technical solutions for calls using mobile phones. For another, compliance with the Personal Data Act’s requirements for the treatment of surplus information will be a big challenge, as made clear by the Data Inspectorate’s November 2010 guidance on the new rules.

The recording rules are also to apply to branches of foreign firms in Norway. Is it appropriate for the Norwegian authorities to ask more of foreign branches than MiFID does? Formally, this is possible, but it has to be seen in the light of Norwegian rules and the financial supervisory authority Finanstilsynet making more stringent demands for documentation in general. Do, then, the recording rules constitute a necessary and proportionate – and so permissible – measure? In addition, the rules are to apply to branches of Norwegian firms abroad. What happens if there are prohibitions or restrictions on making voice recordings in host countries? Would it then be necessary to stop using the telephone in order to comply with the rules? Finance Norway has asked for the new rules to be modified and hopes that this will be done before their scheduled entry into force on 1 April 2011.

There is no doubt that ever more extensive rules and regulations from the EU will present challenges to both the industry and the authorities. The advantage is that harmonised rules mean a more level playing field, which is important in an open and competitive securities market. Finance Norway considers it important that Norwegian firms are not subject to tougher rules than foreign firms and can compete on even terms. n

13

THE SECURITIES MARKET

14

LIFE INSURANCE

Earnings for the year before distributions to policyholders and tax came to NOK 12.8 billion, up from NOK 9.6 billion in 2009, while financial assets grew by NOK 11.1 billion following an upswing in the stock market and an increase in bond prices due to lower interest rates, reveals the financial supervisory authority Finanstilsynet’s annual report on Norwegian financial institutions for 2010.

The report also shows that companies have increased their equity exposure since 2008, which helped them generate higher returns as the stock market recovered. The realised return on policyholders’ funds was largely unchanged from 2009 to 2010 at 5.3 per cent, while the value-adjusted return climbed from 6.3 to 6.8 per cent. Returns were therefore back to the levels seen in the period 2003-07 before the global financial crisis.

This positive performance led to an increase in buffer capital of more than NOK 13 billion in 2010 to 5.8 per cent of total assets at the end of the year, but it is still lower than before the financial crisis. Life insurers had an overall capital ratio of 14.8 per cent at the end of the year. The asset mix of policyholders’ funds changed little during the year, although the allocation to equities increased by 3 percentage points to 17 per cent and bond holdings decreased, according to Finanstilsynet.

Regulatory changes Finanstilsynet decided in 2010 to lower the maximum guaranteed interest rate to 2.5 per cent for all life policies written after 1 January 2011. It has also decided that the maximum rate that Norwegian life insurers and pension funds may use to calculate premiums and technical provisions for new pension accruals under group annuity and pension policies will be 2.5 per cent from 1 January 2012. This rate may be adjusted in spring 2011 if interest rates depart significantly from the assumptions made when Finanstilsynet reached the decision.

The entry into force of the new European Solvency II rules in 2013 will present challenges for Norwegian life insurers. A fifth quantitative impact study (QIS 5) was carried out in autumn 2010. In its annual report on Norwegian financial institutions for 2010, Finanstilsynet writes that the analyses point to much higher capital require-ments for life insurers. In this context, Finanstilsynet presented proposals for changes in the rules for life insurers. Among other things, it recommends merging supplementary provisions and the market value fluctuation reserve into a new, larger buffer fund, and a new model for excess returns.

Finance Norway has been working for a number of years on solutions to the challenges facing life insurers in terms of the annual distribution of excess returns and the calculation of solvency capital under Solvency II. Among the solutions being considered are permitting more flexible accumulation and use of buffer capital and possible changes to the product rules. This work will continue in 2011 and will to a great extent run parallel to that of the Banking Law Commission, which has had its mandate extended as a consequence of official report NOU 2011:1 “Better positioned against financial crises”. The new mandate includes rapidly starting work “on reviewing the regulatory frame-work in order to resolve the uniquely Norwegian challenges in terms of solvency and costs relating to the interest rate guarantee, and the use of supple-mentary provisions and other factors for both group pensions and paid-up policies”.

In this context, Finance Norway believes that the proposals from Finans tilsynet for changes in the rules are interesting and need to be examined further by the Banking Law Commission.

Elsewhere, the new Investment Management Regulations will give life insurers and pension funds greater leeway in their asset management from 2011 as follows:

• greater scope to invest in unlisted securities

• limit for alternative investments increased from 7 to 10 per cent of technical provisions

• greater scope to invest in shares issued by companies owning or operating infrastructure

• greater scope to invest in bonds and bilateral loans secured against regis-tered movable property forming part of infrastructure investments

Higher share prices bring better resultslife insurers posted good results in 2010, thanks especially to the stock market upswing in the autumn.

“Although buffer capital grew in 2010, life insurers must still ensure a level of capital that provides sufficient room to manoeuvre in their asset management. The introduction of Solvency II will require increased levels of buffer capital.”

Bjørn Skogstad Aamo, director, Finanstilsynet

15

LIFE INSURANCE

Individual endowments As 2010 was a relatively good financial year, the portfolio of individual endowment policies grew by 8 per cent in 2010. This product is sensitive to movements in interest rates, and investments generally vary somewhat from year to year. For example, gross premiums written were almost twice as high in 2005 as in 2010. However, the number of investments was stable in 2010.

There is growing interest in linking death and disability cover to this product. More and more players are competing in this market alone, and death and disability premiums accounted for almost 30 per cent of gross premiums written in this class in 2010.

Individual pensions The Consumer Ombudsman launched new guidelines in 2010 for the marketing of individual pensions in consultation with the industry. The main aim is to ensure that marketing gives consumers as accurate a picture of the product as possible.

The option of having individual pensions paid from the age of 62 was introduced through an increase in the payout period. This means, for example, that payments can be combined with early unlocking of the social security retirement pension, private occupational pensions and AFP early retirement pensions in the private sector.

There was a decrease in assets in individual pensions from 2009 to 2010.

Around 7 036 new pensions were taken out with life insurers in 2010, while gross premiums written fell to NOK 239 million. Marketing this product is a challenge due to asymmetrical tax rules, low premium ceilings and negative media coverage, and the new rules for the taxation of pensioners from 2011 will make it even harder. Many life insurers therefore stopped marketing individual pensions in 2010.

The self-employed can also choose instead to save under the Defined-contribution Pensions Act with a higher premium ceiling than under the Indi-vidual Pensions Act, and this form of saving is included in the figures for group pensions.

Group pensions Flexible withdrawal of the social security retirement pension and private occupational pensions has been introduced from 2011.

Almost a million Norwegians now have a defined-contribution pension. The number of people with private defined-benefit pensions decreased in 2010, while the number of people with defined-contribution pensions increased. Approximately 7 300 defined- contribution pensions were taken out with life insurers in 2010, compared with 54 170 in 2006 when mandatory occupational pensions first came in. Almost all new private occupational pensions written are defined- contribution schemes, as has been the case since mandatory occupational pensions were introduced.

Most defined-contribution employer pensions are provided by life insurers, but some by securities fund management

companies and banks. However, a high proportion of sales go through banks on behalf of life insurers.

There is a still a trend in the private occupational pension market for defined-benefit schemes to convert to defined-contribution schemes. Figures from Finance Norway show that 374 defined-benefit schemes converted to defined-contribution schemes in 2010, and around 3 400 have converted since 2002. The conversion process often means that employees who are already members of a defined-benefit scheme remain in a closed defined-benefit scheme, and it is mainly new recruits who join the defined-contribution scheme.

Provisional statistics from Finance Norway show that 70 per cent of defined-contribution schemes with life insurers, banks and securities funds had contributions at the minimum permitted rate at the end of 2010,

while almost 7 per cent had them at the maximum permitted rate. The proportion of schemes at the maximum permitted rate has been rising gently since 2008 (when the statistics began), while the proportion at the minimum rate has been falling. This may indicate that many of those converting their schemes are introducing rates above the minimum requirement.

Figures for the number of insured show 52 per cent at the minimum contribution rate and 23 per cent at the maximum rate. Around 37 per cent have linked disability cover to their defined-contribution pension.

Data from Finance Norway’s member companies also show that the number of paid-up policies and pension capital certificates is growing significantly. This is due both to defined-benefit schemes converting to defined-contribution schemes and to many people changing employer.

Year 2010 2009 2008 2007 2006

IPA pensions

life insurers 56 800 56 200 60 400 68 900 67 300

Banks 700 700 700 700 700

securities funds 2) 600 500 400 700 800

IPS pensions

life insurers 900 500 100 n.a. n.a.

1) iPs and iPa individual pensions at banks and securities funds shown jointly from 20082) securities fund management companies

sources: life insurers: Finance Norway’s “Provisional life statistics” for 2010 and 2009 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.

Total assets as at 31 Desember for IPA and IPS 1)

NoK million

t

RESULTS BY CLASS OF BUSINESS

16

Year 2010 2009 2008 2007 2006

life insurers 40 000 29 200 16 300 11 700 6 000

Banks 200 100 100 50 20

securities funds* 9 800 1 400 800 600 400

* securities fund management companies.

sources: life insurers: Finance Norway’s “Provisional life statistics” for 2010 and 2009 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.

Total assets as at 31 December, defined-contribution schemes within the tax regulationsNoK million

Year 2010 2009 2008 2007 2006

Total assets 859 000 742 200 694 400 737 800 638 200

- of which additional reserves 22 600 19 000 13 200 24 800 20 000

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 – reinsurance3) Benefits paid = gross sums paid + changes in reserves + premium reserves transferred to others – reinsurance

sources: Finanstilsynet for 2010, 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.

Balance sheet as at 31 December NoK million

LIFE INSURANCE

Year 2010 2009 2008

Premium income 2) 79 500 70 300 75 100

Net return on policyholders’ funds 45 300 34 800 -7 500

Benefits paid 3) 50 400 44 200 62 700

insurance-related operating expenses 5 700 5 500 5 600

change in market value fluctuation reserves -10 700 -4 500 -15 200

earnings before distributions and tax 12 800 3 800 -1 600

Results 1) life companies (including unit-linked insurance)

Life insurersNoK million

Year 2010 2009 2008 2007 2006

equities, securities funds 39.5 29.8 28.5 43.6 34.1

Property 0.2 0.7 0.8 3.0 8.1

loans 6.0 9.1 6.0 3.8 3.0

Bonds 50.5 56.7 58.5 39.3 45.9

- of which certificates 2.7 2.5 2.8 n.a. n.a.

Bank deposits 2.0 2.7 4.1 4.8 3.7

other 1.8 0.9 2.1 5.5 5.3

source: statistics Norway. The statistics cover all Norwegian life insurers. From 2008 onwards the figures are for policyholders’ funds only. The figures for previous years also include own funds.

Allocation of assets in the collective portfolio as at 31 December, percentage of total

t

17

LIFE INSURANCE

Year 2010 2009 2008 2007 2006

Individual endowments

gross premiums due 8 700 8 800 7 000 14 500 14 600

gross benefits paid 6 500 5 500 21 300 19 600 11 800

Individual pensions

gross premiums due 1 800 2 200 2 200 4 300 5 400

- of which iPa pensions 200 250 650 1 000 1 500

- of which iPs pensions 250 250 100 n.a. n.a.

gross benefits paid 10 300 8 600 12 900 19 300 6 700

Group life

gross premiums due 3 500 3 500 3 400 3 300 3 000

gross benefits paid 2 700 2 500 2 400 2 000 2 000

Group pensions

gross premiums due 53 400 48 300 53 300 45 000 37 000

gross benefits paid 22 500 19 100 18 000 16 200 15 500

sources: Finance Norway’s “Provisional life statistics” for 2010 and 2009 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.

Premiums and benefits, life productsNoK million

Year 2010 2009 2008 2007 2006

death 2 700 2 500 2 600 2 100 2 100

insurance term expiry 900 800 1 000 1 000 900

Pensions, excl. disability pensions 21 000 18 500 17 400 16 300 15 800

lump-sum disability benefits 1 200 1 100 1 100 1 100 1 000

disability pensions 7 200 6 200 6 000 5 700 5 500

surrenders 9 000 6 600 26 400 30 900 10 700

Total 42 000 35 700 54 500 57 100 36 000

source: Finance Norway. 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 2010 2009 2008 2007 2006

individual endowments 980 000 970 000 990 000 967 000 939 000

group life (number of members) 2 500 000 2 550 000 2 600 000 2 841 000 2 553 000

Individual pensions

Policies not in payment 840 000 850 000 707 000 604 000 628 000

Policies in payment 210 000 210 000 223 000 259 000 278 000

Group pensions

active members 2 600 000 2 300 000 1 615 000 1 555 000 1 315 000

Pensioners 340 000 314 000 310 000 289 000 280 000

active, withdrawn from group schemes (paid-up policies and pension capital certificates) 1 354 000 1 104 000 983 000 802 000 686 000

source: Finance Norway’s statistics “Number of policies and number insured”. The statistics cover Finance Norway’s members, including branches of foreigncompanies and non-life insurers which sell life insurance. The figures for 2009 and 2010 are provisional. association insurance is included in the figures for individual pensions.

Number of life policies as at 31 December

18

NON-LIFE INSURANCE

Norwegian non-life insurers’ results for 2010 were good despite numerous winter-related losses and were an improvement on 2009. Investment income was slightly down on 2009 but markedly better than in 2008, when it was negative. The operating margin (operating profit relative to premium income) was just over 20 per cent in 2010, which was in line with 2009. The solvency margin (equity, contingency reserves and tax-free provisions relative to premium income) was better than in 2009 and back to the levels of 2005-07.

Natural perils, guarantee and administrative provisions became part of companies’ equity from 2009, with

the result that equity increased by almost NOK 16 billion from 2008. Equity amounted to almost NOK 50 billion at the end of 2010, an increase of around NOK 6 billion during the year. Following a disastrous 2008, 2009 and 2010 were two good years for investment income on a par with 2005. The cost ratio (costs relative to premium income) has fallen over a ten-year period as a result of companies taking action to make their operations more efficient. Costs in non-life insurance are now down to around 22 per cent of premiums, from around 26 per cent in the year 2000. Relative to annual premium income of around NOK 50 billion, this means that

costs are now more than NOK 2 billion lower than in the year 2000. At the same time, premiums have not kept up with inflation due to stiff competition.

Increase in residential and commercial property claimsThe cold winter of 2010 brought a substantial increase in claims in the house, apartment and leisure home segments. Almost 90 per cent of premiums collected in 2010 went out again on claims, compared to around 74 per cent in 2009. Add in costs of around 23-24 per cent of premiums, gives a loss of 12-13 per cent in these segments in 2010.

A profitable year despite high water lossesNorwegian non-life insurers posted good results for 2010 and delivered a profit despite heavy payouts following water damage to residential and commercial properties early in the year.

19

NON-LIFE INSURANCE

Frost increases water lossesThe extreme cold led to numerous frost-related claims right across the country in the house, apartment and leisure home segments. In normal years, such as 2008 and 2009, frost damage varies from area to area, whereas in 2010 virtually the entire country was affected from north to south. There was a particular increase in south-western and northern Norway. Claims paid on house, apartment and leisure home policies therefore increased. Water losses increased more than 150 per cent on 2009 in the leisure home segment, and just over 50 per cent in the house and apartment segments. Frost damage accounted for 35 per cent of all water losses in 2010, compared to 5 per cent in 2008 and 10 per cent in 2009.

Heavy fire lossesWinter 2010 also brought a sharp increase in fire losses. Fire claims increased by an average of 40 per cent from 2009 to 2010 in the house, apart-ment and leisure home segments, and accounted for a substantial share of overall claims in these segments.

Finance Norway’s statistics on the causes of fires reveal that almost 30 per cent of fires are due to household electrical appliances. Other electrical equipment, such as PCs, are also a common cause of fires at 15 per cent.

Elderly at greater riskThe numerous and large fire losses in houses, apartments and leisure homes often affect the elderly. According to the Directorate for Civil Protection and Emergency Planning, 63 people died in fires in 2009 and 67 in 2010, making a total of more than 200 in the period 2007-10, many of them elderly. Although the over-70s make up only around 11 per cent of the population, they account for 30-40 per cent of deaths in fires. In 2010 the ratio was as high as 62 per cent.

Action reduces break-ins After increasing from 2007 to 2009, claims on home policies following break-ins decreased in 2010. There is much to suggest that preventive measures helped bring about this decrease. More homes now have burglar alarms, and the police have taken coordinated action. Some break-ins and burglaries have been linked to organised crime originating in Eastern Europe. However, both the number and size of claims following break-ins and burglaries were still higher in 2010 than two years earlier. The average value of items stolen in 2010 was NOK 24 000 from houses, NOK 14 000 from apartments, and NOK 26 000 from leisure homes. It also appears that burglars are becoming more

targeted, stealing more valuable items than before.

Commercial policiesCommercial buildings also suffered extensive water damage in early 2010. Losses totalled almost NOK 1.6 billion, an increase of more than NOK 400 million on 2009. The year also brought a number of major fires, but the number of losses was down on 2009. Fire claims increased by just over NOK 500 million or 21 per cent from 2009. The loss ratio for commercial buildings and contents climbed from around 80 per cent in 2009 to around 90 per cent in 2010. The average claim was just over NOK 500 000 for fire losses and just over NOK 60 000 for water losses.

Fire losses by county relative to population and number of elderly

This chart shows the relationship between fire risk and old age by calculating the number of fires per inhabitant by county and comparing this with the proportion of elderly people in the county. except for Finnmark, where the number of elderly people is low, the statistics show that fire risk is high where the number of elderly is high.

Øst

fold

aker

shus

osl

o

hed

mar

k

opp

land

Bus

keru

d

Vest

fold

Tele

mar

k

aust

-agd

er

Vest

-agd

er

rog

alan

d

hor

dala

nd

sogn

og

Fjor

dane

Mør

e og

rom

sdal

sør-

Trøn

dela

g

Nor

d-Tr

ønde

lag

Nor

dlan

d

Trom

s

Finn

mar

k

12.0 %

10.0 %

8.0 %

6.0 %

4.0 %

2.0 %

0.0 %

Fire losses 2001-2010 as a percentage of the population

over-80s as a percentage of the population

Fire losses in 2010 as a percentage of the population

t

20

NON-LIFE INSURANCE

Economic climate and rear-end collisions

unemployment and rear-end collisions are countercyclical.

230220210200190180170160150140130120110100

90807060504030

Year 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

inde

x

t Motor claims stableDespite difficult driving conditions due to a severe winter, motor claims did not rise much from 2009 to 2010. The loss ratio was slightly lower than in 2009 at around 73 per cent for private cars. With a cost ratio of around 23 per cent, this gives a margin of 3-4 per cent before investment income. There are considerable regional variations in how winter affects the claims picture. In Troms the period from January to March sees tough driving conditions and a high number of losses. In Oslo losses are more evenly distributed, but the number of collisions is still higher in the winter than in the summer. The month with by far the fewest collision losses is July. Oslo has less traffic in July, which reduces the probability of collisions.

Analyses by Finance Norway reveal a relationship between sales of new cars and the number of collisions. Good times with high levels of new car sales

bring more collisions on the roads, especially rear impacts. The analyses look at losses during the summer, as winter-related losses tend to vary.

The chart below shows movements in the economic indicators of unemployment and new car sales and the frequency of losses due to rear-end collisions. The loss frequency is the number of losses relative to the number of policies. Both the loss frequency and the economic indicators are indexed to the base year 1992 (=100). New car sales in 2010 were almost as high as in 2007, but were much lower in 2008 and 2009. It appears that the financial crisis in 2008 caused many to postpone the purchase of a new car until 2010.

The number of car thefts rose slightly from 2008 to 2009 but fell again in 2010. Around 2 000 fewer cars are now being stolen each year than five years ago, despite there being more cars on the roads. The decrease is probably due

to cars being more modern and more secure.

There has been a clear increase in motor-related personal injury claims in recent years, from around 14 per cent of motor claims in the late 1990s to around 17 per cent today. Payouts on personal injury claims are now estimated at around NOK 1.9 billion a year, an increase of around NOK 1 billion since the late 1990s. Part of the increase can be put down to a higher number of cars and general inflation, but even allowing for this, annual growth has been around 3 percentage points above normal. Growth appears to have stagnated since 2007 and was greatest in the period 2000-04, which was due partly to developments in case law and larger payouts for future expenses. More modern and safer cars may partly explain the stagnation since 2007.

rear-end collisions New car sales unemployment

21

NON-LIFE INSURANCE

t

Higher travel claims due to illness The loss ratio for travel insurance rose again in 2010 and is now close to 70 per cent.

The chart above shows that theft and loss of luggage have stabilised since 2004, while claims for holiday illnesses have exploded since 2005. The increase is a result of several elderly people travelling more and due to many people visiting exotic destinations where the risk is higher.

Fiercer competition in occupational injuryOccupational injury results have been relatively stable over the past five years, but there has been a gentle rise in the loss ratio due to fiercer competition pushing down premiums over the past couple of years. The largest insurers are losing market share to smaller players: five years ago the largest companies

commanded around 95 per cent of the market, compared to 70 per cent today. Meanwhile premiums have fallen by almost 20 per cent in real terms.

Natural perils Norway has a dedicated equalisation scheme for damage to fire-insured buildings and facilities due to natural disasters: the Norwegian Natural Perils Pool. The natural perils premium is the same for all parts of the country, all types of activity, and all insurers. The individual insurer settles claims from its policyholders, but preparedness is coordinated for major events.

Natural disasters in Norway were few in number but considerable in scope in 2010. The biggest was the landslide in Lyngen, with an estimated total cost close to NOK 30 million. Events of this kind trigger compensation from the Norwegian Natural Perils Pool,

including for business interruption and relocation expenses. Damage to vehicles and various other assets is not covered by the scheme.

The official report NOU 2010:10 “Adapting to a changing climate” recommends a review of the Natural Perils Pool to give it a more preventive bias. The industry is keen to help meet future climate challenges both by looking more closely at the pool and through other initiatives.

Market developmentsCompetition in non-life insurance remains fierce, and the number of players in the Norwegian market is growing. The four largest companies’ market share fell from 92 per cent in 2005 to 81 per cent in 2010, and the increase in competition pushed down the average premium for consumer policies in real terms during this period. At the same time, premium levels will also be affected by developments in claims and changes in the value of the assets insured.

House insurance premiums increased somewhat from 2009 to 2010 as a result of higher fire claims in 2007 and 2008. Given the rise in frost-related water damage and fire claims in 2010, a further increase in premiums is expected in 2011.

Travel insurance claims

700

600

500

400

300

200

100

0Year 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

No

K m

illio

n, in

flatio

n-ad

just

ed

holiday illness Theft/loss of luggage etc

22

NON-LIFE INSURANCE

Non-life insurance results

Year NOK million 2010* 2009 2008 2007 2006 2005 2004

Results

gross premiums written 57 737 58 852 57 589 52 955 51 561 49 566 47 760

Net premiums earned 51 222 50 500 49 348 44 665 43 170 40 145 37 994

Net claims incurred 36 937 36 816 35 121 32 035 29 453 27 382 25 622

Net investment income 7 752 8 950 -285 5 484 6 792 7 415 3 674

Net operating costs 11 103 11 529 11 146 9 708 9 779 9 267 8 655

operating profit 10 598 9 671 1 907 4 035 9 035 7 708 2 546

Balance sheet

Premium and loss provisions 85 184 80 199 77 821 75 110 66 614 65 099 55 813

contingency reserves 26 818 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 49 878 43 618 27 643 30 519 29 876 25 518 22 682

Key figures

loss ratio, net 72.1 72.9 71.2 71.7 68.2 68.2 67.4

cost ratio, net 21.7 22.8 22.6 21.7 22.7 23.1 22.8

operating profit margin 20.7 19.2 3.9 9.0 20.9 19.2 6.7

solvency margin 149.7 138.4 131.5 149.5 146.7 145.4 137.7

Provision ratio 166.3 158.8 157.7 168.2 154.3 162.2 146.9

Total assets 188 170 180 518 175 497 166 719 142 630 134 445 117 218

** Provisional figures as at 11 February 2011 ** included in equity from 2009

t Average premiums written, selected consumer segments6 000

5 000

4 000

3 000

2 000

1 000

0Year -05 -06 -06 -06 -06 -07 -07 -07 -07 -08 -08 -08 -08 -09 -09 -09 -09 -10 -10 -10 -10 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

Pric

e-ad

just

ed p

rem

ium

s

car Motorcycle house

home contents Travel Boat Total

ToPics

by Sissel Rødevand

24

THE PENSION REFORM

The social security systemFrom 2011 the old age pension in the social security system can be taken from the age of 62 if sufficient entitlements have been accrued, without any reduction for income from employment. Previously the old age pension was not available until the age of 67. By continuing to work after 62, it is possible to accrue further pension rights until reaching the age of 75. Pensioners can choose between 20, 40, 50, 60, 80 and 100 per cent of the full pension and can change this level once a year.

It is entirely possible to keep on working while drawing the old age pension, and the number of hours worked is completely independent of the level of pension taken out.

Figures from the Norwegian Labour and Welfare Administration (NAV) show that 17 200 people aged 62-67 have chosen to claim the old age pension in the social security system from January 2011, and that 83 per cent of these have opted for a full pension. NAV does not yet have a full picture of whether these people also continued to work.

Private pensionsFrom 2011 private occupational pensions can also be taken from the age of 62. This applies to both defined-contribution (DC)/defined-benefit (DB) employer schemes and individual pensions under the Individual Pensions Act (IPS pensions). However, the old rules still apply to individual pensions under the Tax Act (IPA pensions). Pension providers have been given a transition deadline of 1 June 2011 to comply with the new rules.

The rules for private pensions provide a different degree of flexibility to those for the social security system. The amount of pension taken can be set at any level, irrespective of social security drawings, but

can be changed only once before the age of 67 and then only to 100 per cent.

The unlocking of a private retirement pension is not dependent on claiming the social security retirement pension. As with the social security pension, those who stay in work will continue to accrue pension rights.

Workers in the private sector who are covered by the AFP early retirement pension can also receive this pension, now as a lifelong add-on to old age pensions in the social security system, occupational and individual pensions.

During the first few months of 2011 Finance Norway’s members have reported only a few hundred people asking to unlock their occupational pensions early. Life insurers do not yet have a full picture either of how many of these people who are continuing to work.

Public pensions Generally speaking, the existing occupational pension system for employees in the public sector will be retained, meaning that the retirement pension can normally be drawn only from the age of 67.

In principle, public employees cannot receive a full public pension and continue to work full-time. AFP early retirement pension payments will be reduced for income from employment. Public employees wanting to draw a full pension cannot continue to work, but can retire with an AFP pension from the age of 62.

Those wanting to combine job and pension can take a partial AFP pension or full or partial old age pension from the social security system. Central government employees can receive a partial AFP pension up to a maximum of 40 per cent, but there is no such ceiling in the local government sector.

As in the private sector, public employees can take their old age pension from the social security system from the age of 62 and continue to work. The annual pension will then be lower than if it had been taken later. Although the public schemes aim, in principle, to provide a pension of 66 per cent of salary including the social security benefits, they will not compensate for the old age pension in the social security system being lower as a result of early withdrawal.

Public employees will not continue to accrue occupational pension rights beyond a certain level after the age of 67. However, those who have not accrued full rights by the age of 67 and do not take the social security pension will gain a higher lifelong occupational pension if they continue to work until 70. Public employees who take their pension from 67 can neverthe-less continue to work and accrue pension entitlements in the private sector, without any reduction in the pension received.

The rules for occupational pensions and AFP early retirement pensions for public employees born after 1953 have yet to be adapted to the changes in the social security system.

No data are yet available for how many public employees have chosen to take their old age pension from the social security system early and continue to work in the public sector.

Further changes under wayThe social security systemTemporary new rules for disability and survivor pensions in the social security system were introduced from the beginning of the year, but the government is expected to table proposals in April 2011 for new disability benefits and permanent rules for transferring disability pensioners to the old age pension in the social security system, and the rules for short-term benefits and pensions are also expected to be reviewed.

The government has signalled that the survivor pension will be reviewed once all of the other parts of the pension reform fall into place.

New rules a challenge for job creation

The option of drawing a retirement pension early while continuing to work is now a reality. Other changes are also under way, and creating jobs for older employees could prove a challenge in the future.

Private pensionsThe Banking Law Commission is currently looking at further amendments to the legislation on private pensions, including important changes such as adjusting the maximum contribution rates for defined-contribution (DC) schemes and other aspects of private occupational pensions to the new rules for the social security retirement pension.

Once the new permanent rules for disability benefits and transferring disability pensioners to the social security retirement pension are finalised, the rules for private disability pensions will also need to be reviewed.

The commission has also been asked to look at a new halfway house between defined-benefit (DB) and defined- contribution (DC) pensions – hybrid pensions – as proposed in official report NOU 2009:13 “Broader Pension Schemes”.

In this process the industry will be keen to see a regulatory framework for new products that takes due account of future rules for solvency and insurance operations (cf. the Banking Law Commission’s extended mandate from the Ministry of Finance to consider this area as proposed by the Financial Crisis Commission in official report NOU 2011:1 “Better positioned against financial crises”).

In parallel with the Banking Law Com-mission’s work on new occupational pen-sion legislation, work is under way in Eu-rope on new solvency rules for life insurers, Solvency II, which are expected to enter into force on 1 January 2013 and impose stringent new capital requirements for

insurers. The challenge is particularly great for traditional with-profits products (paid-up policies and old individual products), as insurers are unable to collect an annual premium for the interest rate guarantee.

No final deadline has been set for the Banking Law Commission’s work, but it is expected to be completed after the summer.

Public pensionsThe press is speculating about a fresh battle over occupational pensions in the public sector, but either way it is clear that the rules for those born after 1953 need to be revised.

A number of small public sector schemes also need to be adjusted, such as the pension scheme for members of parliament.

The labour market Part of the idea behind the changes in the social security pension system is to get people to stay in work longer. Pensions are being adjusted in line with life expectancy, and younger cohorts will need to work for longer to get the same pension as older cohorts.

However, there is the issue of whether there will actually be enough jobs for people to continue working after reaching the age of 67 – it is already a challenge for workers to stay in work after 62.

At the same time that the new rules for the pension system came in, the Working Environment Act gave workers aged 62 and over the right to work shorter hours if they wish, which ties in with flexible withdrawal of the social security retirement

pension. The only situation where an employer can refuse to allow these workers to go part-time is set out in section 10-2 (4) of the act, which reads as follows (our emphasis):

“An employee who has reached the age of 62, or has a need for health, social or other important welfare reasons, has the right to have his or her working hours reduced if the reduction in working hours can be achieved without major inconvenience to the employer…”.

Taken together with other changes for older employees, such as shorter working hours, longer holidays and extra days off, this part-time requirement may make it unattractive for employers to employ those over the age of 62.

There are therefore many challenges when it comes to building a forward- looking and well-functioning labour market for older workers in the future. n

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Need to find out more about your pension? Visit www.norskpensjon.no and/or www.nav.no.

There you will find information about both private and public retirement pensions.

THE PENSION REFORM

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Break-in Travel Motor Occupational Leisure Fire Water injury boats

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Class of insurance CPI

Growth in claims payments

Claims payments for water damage have grown fastest by far. The consumer price index (CPI) rose by 39 per cent during the same period.

WATER LOSSES

In 2008 a total of 49 600 water losses in Norwegian homes and holiday homes were reported to insurers. In 2010 the figure was 78 000, an increase of 57 per cent in two years. Claims payments grew by 79 per cent from NOK 1 540 million in 2008 to NOK 2 752 million in 2010, when there was a water loss in someone’s home every seven minutes. Holiday homes fared a little better, going 70 minutes between each loss. Shops, restaurants and offices, meanwhile, were hit every 23 minutes, making a total of 23 000 losses in 2010.

Water losses climbing fastestFigures from the National Office of Building Technology and Administration show that three in four cases of damage to buildings are due to water or moisture, and the insurance industry’s own statistics show that water is a growing problem too. The chart shows growth in claims payments per policy for traditional insurance classes from 1992-94 to 2008-10.

The reasons are many. The number of appliances connected to mains water is rising. We are installing baths in apartments that originally had only a kitchen sink. Some are doing the work themselves without the necessary skills. Others employ workmen who have the skills but fail to apply them. New types of pipe fittings sometimes also prove more profitable for the manufacturer than reliable for the consumer. These are just some of the reasons for the higher loss frequency.

Parquet flooringThe size of water losses is also growing. A leak in an open-plan kitchen with non-stop parquet flooring from worktop to lounge window often means that the floor needs to be replaced in the lounge too. Unlike before, pipes are generally run inside walls or under floors, so these have to be opened up for pipes to be replaced, and then reinstated. It may look nice, but it is also much more expensive.

FrostThe cold winter of 2009-10 resulted in panicked homeowners and busy plumbers in areas with limited experience of extreme cold. In places that are used to cold winters, the problem was more manageable – homeowners knew how to protect themselves.

We go away for the weekend leaving the laundry room without sufficient heating and with the air vents open even when the mercury is plummeting. A litre of water in the pipes becomes 1.1 litres of ice, and this expansion has immense power, causing the pipes to burst. When the room warms up again, the ice melts. Water sprays out and continues to do so until the main stopcock is shut off.

It seems that public awareness of how to prevent burst pipes and sanitary ware is limited. The Valuables Recovery Service, set up primarily to reduce secondary damage following fires, gives a good indication of this. After 26 years, the The Valuables Recovery Service is now for the first time getting twice as many callouts following water damage as following fire damage.

Water loss record smashed There was one water loss every seven minutes in Norway in 2010, and the number of water losses reported to insurers has risen by 57 per cent over the past two years. In no other area have losses grown so fast, giving the insurance industry cause for concern.

by Andreas Pihl

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WATER LOSSES

Action to prevent water losses The insurance industry and society in general are mutually dependent, which creates an expectation of input from all areas of society that can help reduce losses.

• Back in 1982 insurers were behind the creation of the Water Damage Office at what is now SINTEF Building and Infrastructure. The office provides services and information for consumers, insurers, building contractors and the authorities. Damage-proof solutions are far from a technical impossibility, and the office’s goal is to increase the use of such solutions.

• The insurance industry is working with the Norwegian Association of Plumbing, Heating and Ventilating Contractors on charting the causes of problems, initiating action plans at plumbing companies, building professional networks, producing industry standards and providing training.

• The new Planning and Building Act and associated Technical Building Regulations of 26 March 2010 introduced more stringent require-ments for the design of wet rooms, pipe ducts, the use of moisture-resistant materials and the detection of leaks. The regulations also require that leaks from rooms other than wet rooms trigger automatic shut-off of the water supply. The act and regulations have personal safety as their primary goal, and less attention has been given to protecting property. For example, the regulation does not include criteria for the equipment that is to shut off the water supply. The Norwegian Insurance Approval Board is therefore publishing a new standard for leak protection systems. The aim is to enable plumbers, consumers and insurers to choose systems capable of stopping leaks the day they occur.

Wilder, wetter and warmerClimate change is bringing wilder, wetter and warmer weather. More intensive precipitation, coupled with undersized drains, culverting of watercourses, inadequate retention areas and installations that reduce the ground’s infiltration capacity, will result in more flood damage to homes and commercial buildings. Official report NOU 2010:10 “Adapting to a changing climate” therefore encourages the insurance industry to take preventive action. This is an excellent opportunity for the industry to demonstrate its social responsibility by taking on an active role in dealing with new and demanding climate challenges. n

by Siv Seglem

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AUTHORISATION OF FINANCIAL ADVISERS

Directory of authorised financial advisers

From 12 April 2011 it will be easy for consumers to check whether their financial adviser is authorised, as the AFR authorisation scheme for financial advisers will be launching an online directory as part of an industry-wide drive to raise the skills of financial advisers in recent years.

The directory covers the whole country and can be found on the AFR scheme’s website; www.autorisasjonsordningen.no. Customers can look up their advisers by name and find out whether they are authorised. The directory also shows which firm the adviser is employed by.

The vast majority of firms that sell or provide financial savings products to household customers are participating in the AFR scheme. A list of participating firms can be found on the website. Participating firms undertake to authorise financial advisers and managers with professional support responsibilities.

No walk in the park Experience from two years of the authorisation scheme is that the tests require considerable personal effort from the advisers and organisation on the part of employers – a challenge to which both have risen. The syllabus for the tests is equivalent to half a year of full-time study, or 30 points. Most candidates take around a year to become authorised.

As at 1 January 2010, 5 287 candidates had been registered under the scheme. By 1 January 2011, 3 102 had been granted authorisation.

To become authorised, advisers must have at least one year’s relevant professional experience and document the necessary expertise by passing two tests:

1. A theory test with six main subjects. 2. A practical test where the candidate is

assessed on the provision of financial advice. The candidate must also be able to consider ethical dilemmas, demonstrate sound product knowledge, and master the firm’s procedures, processing systems and documentation requirements.

Now that the level of input required is known, it is particularly impressive that many financial firms are registering more candidates than strictly need to become authorised. They are choosing to focus on breadth in their organisation rather than a small number of specialised financial advisers. More than 3 000 candidates who have been registered have yet to complete the tests or lack sufficient experience.

The aim of the scheme is to improve the quality of the financial advice given to customers, and ensure that individual financial advisers have the necessary knowledge, attitudes and skills. The number of candidates submitted shows that the financial industry is taking this aim seriously.

Continuous process New advisers are becoming authorised all the time. Meanwhile the first advisers to gain authorisation must now pass a refresher test in autumn 2011. To remain authorised, financial advisers must:

• undergo regular refresher courses and keep their knowledge updated

• pass a national refresher test every two years

• adhere to good advisory practice, the industry’s self-imposed standard for all customer advice

Managers play a key role in support-ing their authorised financial advisers, improving their skills and ensuring that the advice given complies with good advisory practice. In the event of serious breaches of good advisory practice, the firm has a duty to report this to AFR. In the worst cases the adviser’s authorisation may be withdrawn, while in other cases a warning may be issued.

Keen interest in the scheme AFR and its owner organisations are not the only ones to have an interest in the scheme and ensuring that it works well:

• Both the Financial Supervisory Authority of Norway and the Norwegian Consumer Council have shown considerable interest in the development of the scheme and the industry’s drive to raise skills. Regular contact with the consumer authorities and financial supervisory authorities is therefore a priority.

• Participating firms are arranging training and organising the parts of the scheme that are their responsibility. They are also involved in working groups, AFR’s governing bodies and evaluation processes.

• Candidates themselves and their efforts are helping to increase the quality of advice to customers. They can justifiably feel a sense of professional pride.

All of those involved in the scheme are delighted to report that there are now more than 4 000 authorised financial advisers in Norway.

One challenge for the future is for management is to ensure that all further measures (such as marketing and human resources policy) support the expertise in which the company has invested and take account of customers’ interests. Every new adviser passing the authorisation tests represents an increase in the quality of financial advice, which will translate into more interest from customers and greater confidence in the financial industry. n

Definition of financial advice:

«Personal guidance and recommendations on the investment of

a customer’s financial wealth»

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AUTHORISATION OF FINANCIAL ADVISERS

AFR conducts regular inspections to ensure that the authorisation tests are being implemented acceptably. A total of 12 theory tests and 23 practical tests were observed in 2010, and the conclusion was that the tests are being performed in line with established procedures in virtually all respects.

Key figures for the AFP authorisation scheme launched on 1 January 2009:

31 December 2009 31 December 2010 1 March 2011

Participating firms 135 138* 138

Registered candidates 5 287 7 332 7 619

Theory tests passed** 1 471 4 735 5 140

Authorised financial advisers 583 3 112 3 617

* In 2010 nine savings banks merged, reducing the number of participating firms by five. ** The first theory tests were held in April 2009.

The AFR scheme is owned by Finance Norway, the Norwegian Fund and Asset Management Association and the Finance Sector Union of Norway.

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PERSONAL FINANCES

by Hilde Elisabeth Johansen

Young people need greater financial capability

A survey by Norstat on behalf of Finance Norway in autumn 2010 reveals a need to improve the way young people manage their personal finances. One in ten under 30 say that they do not always pay bills on time even though they have sufficient income.

There is therefore much to suggest that young people lack the knowhow to manage their finances properly, and this goes beyond mere financial literacy. Researchers have started to use the term financial capability, which also includes attitudes, skills and financial behaviour – everything that goes to make up financial competence.

Overview and controlFirst it is about having an overview and control of your personal finances. You need to know how much money you have available, and check that the right amounts are going in and out of your account. But it also means paying bills on time and recognising the consequences of failing to do so. Overview and control are also about setting aside enough money to cover unforeseen expenses or reductions in income. Failure to master this can easily lead to financial problems, which can escalate over time. Experience, both in Norway and abroad, has shown that attitudes are more important than money and prosperity when it comes to keeping one’s finances in order.

PlanningFinancial competence is also about planning. Financial planning requires an ability to envisage what needs you might have in the future, and go without something now in order to have something later. The importance of saving is key in this context.

When it comes to young people, we also need to include education decisions. Completing further education or going on to higher education is very significant for people’s future personal financial position. The decision to work full-time or part-time will also have long-term financial consequences for the individual.

Choosing productsBut this is not enough. The individual must also be capable of making good choices of financial products. This includes being in a position to identify which products meet your needs and which provider is the best. The level of knowledge required to do this will depend on how many products you need and how much money you want to invest or borrow. As a minimum, people need to be able to understand and calculate interest rates and grasp the concept of compound interest.

Economic developmentsPeople also need to be encouraged to keep up with economic developments and learn how movements in inflation and interest rates will affect their personal finances, and how the economic climate can impact on their employment. All of this is essential knowledge for sound financial planning.

Going into schoolsPersonal finance education is ultimately about getting children to understand the value of money, and giving them the necessary skills to be able to live independently as adults. The financial industry believes that this is an area of general knowledge that can help people to avoid financial pitfalls.

Attitudes and habits form early in life, but the financial side of children’s upbringing varies considerably. In some homes it is normal to talk to children about finances and give them pocket money so that they can learn to make their own priorities. Other families do not discuss these matters and so the children miss the opportunity to learn.

Personal finance education in schools ensures that everyone receives a basic grounding. It should begin in secondary schools so that everyone gains the necessary skills, given that one in three pupils leave school before completing further education. It should be a systematic process where the aim is for people to be able to manage their finances effectively throughout their lives. The teaching should therefore cover attitudes and behaviour as well as knowledge and skills.

Financial industry keen to helpThe challenge is to create more space for personal finance education in a curriculum already overflowing with other useful and important subjects. Some teachers also lack the necessary expertise. Part of the solution is to build a good relationship between the education sector and the financial industry, including both banks and insurers. Collaboration can make the subject more immediate and pertinent. It is still possible to find space in today’s teaching plans, and our experience is that most children find the classes more interesting and relevant when external experts take part. Teachers also benefit from this. Personal finances and an understanding of risk are part of the financial industry’s core expertise, and we are keen to share this with young people. n

Stine Fjell has had an exciting career. When she joined Futura’s first cohort in 2006, she was Head of Investor Contact at the Oslo Stock Exchange. Since 2008 she has worked for Nordea, first as Senior Vice President at Nordea Corporate Merchant Bank and from autumn 2010 as Head of HR Norway.

“My career hasn’t been down to chance,” she says. “I’ve always wanted to work in the financial industry, and it’s been important for me to broaden my skills set. I can now benefit from having previously had line management responsibilities – I know the day-to-day reality of working in line management, and this helps me provide the support needed.”

Breadth and networksStine Fjell has worked actively to develop her all-round skills, including as a former broker and adviser. In autumn 2010 she became an authorised financial analyst under the AFA programme.

“I’m probably one of very few HR managers to have completed this programme.” she says. But she can transfer her experience across the financial industry, and she is clear that broadening employees’ skills is an ever more important competitive factor.

“It’s going to be important to plan for employees staying in work longer. We must therefore ensure that they can develop their all-round skills.”

Networking is also more and more important. The talents who take part in the Futura programme build relationships and networks which can subsequently be of great help, and Stine Fjell is no exception.

“My participation in Futura has always been useful for me, especially the network it gave me. I’ve used it many times to bounce ideas around and get good advice.”

Challenges“Everything is possible” is the mantra at Futura. To take the next step in your career, it can also help for someone to say that they believe in you. Stine Fjell has seen that for herself and knows how much it means.

“Receiving encouragement has been crucial for me, motivating me to press on and try new things, such as when I was advised to apply for the post of Head of HR – I couldn’t let the opportunity slip away.”

In this context she is keen to develop manager-employee sessions into an even better tool for personal career development.

“We’re not good enough at showing people that we believe in them, so it’s important to include a development perspective in these sessions.”

ProfileThe Futura programme aims to increase the proportion of women in senior management and on companies’ boards. Stine Fjell has long realised how important it is to have good, high-profile role models in the financial industry.

“At Nordea, female executives like Gunn Wærsted have been important internal motivators.”

Elsewhere in the industry, the likes of Olaug Svarva at Folketrygdfon-det and Bente Landsnes at the Oslo Stock Exchange are good examples. It is important for women to hold these important posts in the financial sector, but only when a woman finally becomes head of a securities house can the industry truly say that it is getting there on gender equality.

But Stine Fjell would not call it a women’s issue. “Why are people still

asking whether it’s important to get women into key positions in industry? Is this really necessary? We applaud work to get more men into schools and nurseries. Nobody questions the importance of diversity when it comes to looking after children or in the construction and oil sectors, where it is considered a benefit to bring in people of both sexes. The Norwegian financial industry is a forward-looking sector. If we can bring the diversity issue into the industry’s management, this will help to strengthen the industry further.”

Futura and career developmentStine Fjell believes that the Futura programme has a natural place here. At Nordea, Futura is one of many components of career development.

“So far we haven’t used Futura in recruitment. For us, it’s important to show that Nordea is an attractive employer for everyone, and we’re not doing anything specifically aimed at women. However, we have seen our Futura talents running across exciting candidates and recommending that they apply to us, making them good recruitment agents for the group.

“The financial industry launched Futura back in 2006, and we’re now able to reap the rewards of this joint initiative and use it in our own recruitment work. It’s opening up all kinds of exciting possibilities.” n

A career boosted by Futuraby Hilde Elisabeth Johansen

Stine Fjell is a good example of the women who have taken part in the Futura programme. Couple with a strong professional back-ground and a high level of personal ambition, Futura has helped further her career.

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FUTURA

by Tonje Westby

CORPORATE SOCIAL RESPONSIBILITY

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Tomorrow’s industry

It is not just the financial crisis and its after-effects that are bringing uncertainty and a need for change in the financial industry.

There is also climate change, an ageing population, new migration flows and people’s perception of who is responsible for finding solutions. There may be companies that try to bury their heads in the sand and continue to operate as before, but there is little chance of them being the companies of tomorrow.

Risks and opportunitiesMany stakeholders – regulators, investors, employees, consumers and society at large – have different expectations and demands today to just a few years ago. Naturally people expect the financial industry to give them security and a return on their savings, but the industry is also now expected to share the authorities’ responsibility for managing and overcoming challenges in areas such as health and the environment. The companies that see this as an opportunity and manage the associated risk are the companies of tomorrow.While the financial crisis prompted a deluge of new proposals for the regulation of the financial industry, requirements for socially responsible operation have not been defined in the same way in laws and regulations – but this makes it no less important for future profitability.

Profitability and sustainability“We believe that the leading global companies of 2020 will be those that provide goods and services and reach new customers in ways that address the world’s major challenges – including poverty, climate change, resource depletion, globalization, and demo-graphic shifts.” Such is the manifesto for tomorrow’s global business formulated by the World Business Council for Sustain-able Development (WBCSD), a CEO-led global association of some 200 compa-nies from more than 30 countries and 20

major industrial sectors. Their main aim is to find ways of bridging profitability and sustainability – not because they feel morally obliged to do so, but because it makes good business sense.

As the challenges facing society change, so will companies’ operating conditions. It will be very risky not to assess the degree to which climate change, corruption, breaches of human rights, ethics and social responsibility should impact on operations and strategy.

Strategic approach Like an increasing number of companies around the globe, those behind the WBCSD realize that addressing business risks in a proactive manner will gain them a competitive advantage, and that the key principles of sustainable business success are to:

• shift from a philanthropic add-on approach to corporate social responsibility (CSR) to a strategic approach, where CSR activities complement – or maybe even become – the core of business;

• that the vision and strategy must be accompanied by changes in the company’s organisational structures, processes, performance and measurement systems, as well as communications, employee and management development programmes designed to encourage sustainable valuation creation thinking, skills and practices;

• and they must work in partnerships that combine private, public and civil sector resources, skills and expertise to enfuse their mainstream practices and thinking.

Business practioners that have succeeded in doing so report benefits like improve-

ment of the corporate brand differentiation from competitors, increased operational efficiency, attraction and retension employees, innovation of products and services and access to new or under-served markets and customer segments.

CSR guideMany of Finance Norway’s member companies have come a long way with a strategic approach to corporate social responsibility and are working on integrating it into their day-to-day operations and core business, while others are not there yet. Finance Norway has therefore published a detailed guide to help financial companies to think and act strategically when it comes to CSR.

Own house in orderIt is important to accept that different companies can choose different approaches depending on their history, markets, skills levels and so on. The key is that CSR is made a central strategic issue and that this work is carefully thought out.

One natural starting place for CSR work is to ensure that your own house is in order. This provides the foundations on which other work can build. Systematically mapping a company’s footprint in various areas increases awareness and soon leads to goals for improvements. Having your own house in order means making responsible use of financial, human and natural resources. It is also about transparency, both internally and externally.

Companies must first obtain a good picture of their own business from a social perspective and then embark on a structured process to address, exercise and report on their social responsibilities.

Finance Norway’s members must be part of tomorrow’s industry and hence future-proof their business. n

It does matter where returns come from

RESPONSIBLE INVESTMENT

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by Marit Sagen Åstveit

t

The financial industry is convinced that social responsibility should be an integral part of everyday business operations. This is expressed through responsible investment – where the environment, people and society are part of the investment decision.

Financial firms have a shared responsibility for investee companies’ compliance with global minimum standards and ethical guidelines. Human rights, employee rights, the environment, anti-corruption, and weapons and tobacco production are the main focus areas. The financial industry’s guidelines for responsible investment are anchored in the UN Global Compact, the UN’s Principles for Responsible Investment (PRI) and the OECD’s Guidelines for Multinational Enterprises.

Responsible investment also builds on the premise that responsible business pays off in the long run: short-term gains can easily undermine long-term performance. The financial industry manages vast assets on behalf of customers – and often with a very long investment horizon when it comes to the likes of pensions. Sustainable investment management is therefore the most important responsibility the industry has to its customers.

Minimum level In its guidelines and analyses, the Government Pension Fund Global – Norway’s petroleum fund – has established a minimum level at which it is practically feasible for all financial firms to work on responsible investment. Small firms, which will struggle to have the resources and skills to conduct their own analyses, can rely on the work done by the fund. Larger companies generally have greater ambitions because they have the potential to build up their own analytical environments. They follow the market carefully and adopt varying approaches.

Negative screeningSome monitor the market continuously and intervene in the event of serious incidents or systematic failings. The idea is always to steer companies in a positive direction, giving them the opportunity to account for themselves and put things right. This process often involves the following requirements:

1. The offending behaviour must end.2. The behaviour and its consequences

need to be addressed responsibly.3. There must be systems and procedures

to prevent recurrence. 4. A third party must verify points 1 to 3.

In the event of an unwillingness to put things right, the company will be excluded. This approach is known as negative screening.

Positive screeningOther financial firms also use positive screening, where companies are compared and the best performers are chosen. Companies are ranked on the basis of their environmental management systems, anti-corruption activities, corporate governance principles, approach to employee and human rights, and so on. These firms see negative screening as a first step and believe that more is required to ensure sustainable development in a world of strong population growth and struggling ecosystems.

Different practicesPractices vary when it comes to publishing analyses and assessments. Some firms are open about their guidelines and about which companies are excluded and why. Information is published regularly, and the aim is to influence the market. Others choose not to disclose this information. The

reasoning is that it is easier to engage with companies when this information is not made public. It also makes it easier to keep working with excluded companies so that they can again be included in the portfolio.

Some financial firms integrate responsible investment into their active ownership work. Through dialogue they aim to steer investee companies in the right direction. Problems are brought up at investor meetings and at general meetings where firms naturally also make active use of their voting rights. Firms report that sustainability, human rights and similar issues are increasingly being raised at general meetings.

Another of the tools for this work is collaboration – such as through the Sustainable Value Creation initiative, which brings together the largest institutional investors in Norway. The aim is to encourage Norwegian listed companies to create not only economic but also environmental and social value. Members believe that this is essential for future financial returns. All in all, the initiative’s members represent assets of NOK 2.5 trillion, of which NOK 1 trillion is invested directly in the Norwegian market (source: Oslo Stock Exchange).

Responsible investmentResponsible investment is not incompatible with competitive returns. Financial firms believe that short-term returns are unaffected, whereas long-term trends suggest that there is a positive relation-ship between responsible investment and returns. It is hardly a sustain-able strategy to invest in companies that breach international conventions and are unwilling to clean up after themselves. Responsible investment is crucial for future competitiveness.

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t

New international accounting standardsBig changes are being made to international accounting standards in the coming years, and these will have a significant impact on financial institutions’ financial reporting.

The UN’s Principles for Responsible Investment (PRI)

The starting point for the Pri is that responsible investors integrate environmental, social and governance (esg) issues into their work.

1. we will incorporate esg issues into investment analysis and decision-making processes.

2. we will be active owners and incorporate esg issues into our ownership policies and practices.

3. we will seek appropriate disclosure on esg issues by the entities in which we invest.

4. we will promote acceptance and implementation of the Principles within the investment industry.

5. we will work together to enhance our effectiveness in implementing the Principles.

6. we will each report on our activities and progress towards implementing the Principles.

by Herborg Horvei

Since 2005 listed companies in the EU and EEA have had to present consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) drawn up by the International Accounting Standards Board (IASB). These standards have under-gone continuous revision since being introduced in Europe, and there will be many more changes in the coming years, including those most relevant to financial institutions. The standards on accounting for financial instruments and insurance contracts stand out as particularly important.

Financial instrumentsIAS 39 “Financial Instruments: Recognition and Measurement” has long come in for heavy criticism. The main objections are that it is too rule-based and too complex, and that the solutions espoused do not give users sufficiently useful information. Criticism of IAS 39 increased during the financial crisis.

It was therefore decided to conduct a complete review of the rules for financial instruments and replace IAS 39 with a brand-new standard, IFRS 9. The project has three main parts:

1. Classification and measurement 2. Impairment of financial assets3. Hedge accounting

Classification and measurementThe IASB has published new rules for

the classification and measurement of financial assets and liabilities. It has been decided to retain a “mixed measurement” approach, which means that all financial instruments are to be recorded either at amortised cost or at fair value. Measure-ment at amortised cost means that the value of an instrument is calculated on the basis of the amount at initial recognition adjusted for principal repayments, cumulative amortisation of any fees and commissions (from the use of the effective interest rate method), and impairment.

Financial assets that have basic loan features are to be measured at amortised cost unless the fair value option is chosen, while other financial assets are to be measured at fair value. Financial liabilities are to be accounted for more or less as today.

The changes make the rules more principle-based and more manageable. There have still been some objections to the new rules, however, most notably that certain financial assets that would most appropriately be measured at amortised cost are instead required to be measured at fair value.

Impairment of financial assetsThe current impairment model, which is based on losses actually incurred, was criticized during the financial crisis for preventing banks from reporting losses early enough. The IASB therefore proposes replacing the existing rules with an expected loss model. Finance Norway appreciates the motives behind this proposal, but fears that it will have serious

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ACCOUNTING STANDARDS

and unforeseeable consequences for banks, the market and the real economy. These consequences will to some extent be of a technical nature, but they will also concern institutions’ financial position and reporting to the market.

Hedge accountingThe IASB has also published an exposure draft considering hedge accounting. Among other things, it proposes simplified documentation requirements and broader eligibility for hedge accounting. The IASB proposes aligning hedge accounting more closely with companies’ actual risk management. Rules for portfolio hedging will be discussed in a separate exposure draft.

Entry into forceThe IASB has announced that a complete version of IFRS 9 will be available by the end of June 2011 for mandatory application from 2013, but the timing of mandatory application is due to be reviewed. Many believe that IFRS 9 should come in to force at the earliest from 2015 because the standard entails extensive systemic changes.

Insurance contractsWhen the EU decided that all listed companies should publish consolidated financial statements in accordance with IFRSs from 2005, the pressure was on for the IASB to complete an accounting standard for insurance contracts. IFRS 4 is the result of phase I of the project and is intended as an interim standard making a number of limited improvements to the accounting treatment of insurance contracts in anticipation of phase II of the project being completed. In principle, IFRS 4 allows companies to continue to use their existing accounting policies with a few exceptions.

Phase IIThe IASB has published an exposure draft with proposals for complete rules for the recognition and measurement of insurance contracts. The draft describes a detailed model for all types of insurance contract, but with a modified approach for some short-duration contracts. The starting point for the measurement of insurance contracts is the cash flows involved in fulfilling contractual obligations to the policyholder over the life of the contract. The model is based on the following four building blocks:

• an unbiased probability-weighted estimate of future cash flows expected to arise as the insurer fulfils its obligations

• the time value of money • risk adjustment for the effects of

uncertainty about the amount and timing of future cash flows

• an amount to eliminate any gain at the inception of the contract (residual margin)

Det antas at forslaget vil føre til økt volatilitet i forsikrings selskapenes regnskaper.

Entry into forceThe IASB aims to publish the final standard in June 2011, but an implementation date has not yet been set. The date will be considered and coordinated with other standards that are under development and are expected to be published in their final form in 2011. The IASB intends to provide enough time to implement the standard. n

36

ORGANISED CRIME

More violent and more organised crime

The financial industry closely monitors developments in crime and works hard to uncover and combat criminal activity.

In February 2011 banks revealed an increase in Trojan horse attacks on Norwegian PCs. The matter attracted considerable attention, and the public were informed through the media and online banking websites. The criminals used a Trojan called SpyEye to try to access Norwegian online banking customers’ PCs. Although the number of unauthorised transactions was very limited, extensive information was provided about the attacks, reminding the public to update their anti-virus software and beware fake login screens.

More bank robberiesThere were a total of ten bank robberies in 2010, twice the number the year before. Norway still sees few bank robberies compared to most other countries, due partly to limited cash at the counter, good security at branches and devices to help the police identify robbers. The rise in 2010 is worrying, however, not least in terms of the hazards to employees and customers. It is very stressful to be caught up in a bank raid, and great importance is attached to helping employees who have been in this position.

Skimming and new legislationA number of ATMs were used for skimming during the year, and the industry has introduced various countermeasures.

It is good news that the police have worked hard over the past year to investigate cases of card fraud. Just before Christmas, an important change in the law entered into force, prohibiting the purchase and possession of skimming devices in Norway. The penal code previously contained a loophole, as it

did not cover the import of skimming devices or equipment for the production of counterfeit bank cards if purchased abroad and then brought into Norway.

Fraud networks exposed The first sentences have been passed in a big mortgage fraud case in Østfold in South Norway, where a number of people stand accused of obtaining mortgages on false pretences and providing false information to insurers. Prison sentences have been handed down, and damages awarded to banks and insurers.

The sentences confirm that the activities uncovered by our members were extensive in scope. It is positive that the police have investigated these cases so thoroughly, and this is a good example of close collaboration between the industry and the police.

A number of fraud cases over the past year have featured familiar faces, and the key players are often connected. An example of a major insurance fraud illustrates this.

In recent years insurers have worked hard to crack a major “crash for cash” ring behind staged traffic accidents. Working together, insurers analysed a series of accidents where the parties deliberately collided, and found that many of those behind them came from the same back-ground. Several of them are also behind other types of crime.

The results of the project have been handed over to the police’s organised crime unit.

New proceduresTo stop criminal elements from infiltrating the financial industry, it is important to have a thorough recruitment process. The industry as a whole has given considerable

attention to these challenges and has produced concrete recommendations to guide individual firms. This includes obtaining relevant information. The financial industry needs to continue to work actively on internal procedures to counter employee dishonesty.

Finance Norway has asked the Ministry of Finance to consider granting financial institutions greater access to police records when recruiting. At present this access is limited to a small number of positions.

Together against organised crimeThose behind organised crime are often very professional, and crime knows no borders. It is therefore important to build networks and contacts between countries and professions to combat such crime. In a report to parliament on the battle against organised crime in 2010, the government urged closer collaboration between Finance Norway and the police. The Ministry of Justice sees a need for a forum for collaboration between the ministry, the police, the prosecution authorities and the industry. It believes that this collaboration needs to be formalised and structured more clearly and made more binding.

The ministry cites Finance Norway as a key player in exposing and preventing financial crime.

New challengesThe criminal world is constantly evolving, as must the financial industry if it is to combat crime. Norway is also an affluent country with a social structure that makes it an attractive target for criminal acts.

Collaboration is essential. By working more closely together we can make better use of resources. The industry has already uncovered major cases by working together on a number of occasions, and this fruitful work is continuing. It is pleasing to see that the authorities are recognising the importance of close collaboration with the financial industry and industry in general. n

Crimes against the financial industry are increasingly being committed by organised networks. Skimming, fraud, a large “crash for cash” ring and an increase in Trojan horse attacks on Norwegian PCs are among the challenges faced in the past year, and the number of bank robberies is also rising.

by Stine Neverdal

37

ORGANISED CRIME

38

DEPOSIT GUARANTEE SCHEME

Guarantee fund in the melting pot

by Einar Kleppe

An extensive process to revise the international regulation of Deposit Guarantee schemes has been under way for a number of years, and in summer 2010 the European Commission published a proposal for changes to the directive that applies to the schemes. This proposal is expected to have its final hearing in the European Parliament in summer 2011.

A harmonised and mandatory deposit guarantee equivalent to EUR 100 000 is the most important change from a Norwegian perspective, as the amount guaranteed in Norway will fall from NOK 2 million to around NOK 800 000. The NOK 2 million ceiling and the size of the guarantee fund were factors that helped prevent the financial crisis from triggering runs on banks in Norway, thus contributing to financial stability.

Fair competition for deposits is the European Commission’s rationale for complete harmonisation of the deposit guarantee limit. The counterargument from Norway is that both subsidiaries and branches of foreign banks can benefit from the Norwegian scheme. The rules for the scheme also ensure that foreign branches of Norwegian banks cannot offer better terms than in the host country. In other words, the current Norwegian scheme does not distort competition.

The Norwegian finance minister has pressed hard for Norway to be allowed to retain the NOK 2 million ceiling, and Finance Norway supports the ministry’s efforts to retain the existing deposit guarantee.

Exemptions The European Commission’s proposal includes a number of exemptions from the deposit guarantee rules. For example, individual countries have the option of introducing full cover for pension products,

as is already the case in Denmark. Member states can also temporarily exceed the EUR 100 000 limit for special deposits relating to property transactions and in connection with life events such as marriage, invalidity and inheritance.

Payment deadlineWhen a bank becomes insolvent, the commission proposes a limit on the length of time before guaranteed deposits are paid out. In Norway there is currently a three-month payout deadline, which is to be reduced to 20 working days. The commission has proposed a further reduction to just seven calendar days.

Contributions and size of fundAt the heart of the European Commission’s proposal are rules on the financing of the annual contribution and the size of the funds. The rules in these areas do not depart significantly from the Norwegian scheme, and adapting the Norwegian scheme accordingly would not present any problems. It is significant that all European countries must finance three-quarters of their fund with de-posits and only a quarter with guarantees. All in all, the fund must eventually consist of 1.5 per cent of guaranteed deposits, which is less than under the Norwegian scheme.

Collaboration between guarantee funds The European Commission is launching several alternative forms of collaboration between member states’ deposit guarantee schemes. For example, a mutual borrowing facility is to be in place by the end of 2020. Neither the European Forum of Deposit Insurers nor the European Banking Federation and the European Savings Banks Group support this proposal, arguing that it would be more natural to have a national loan scheme through the central bank. The commission is therefore proposing that this facility is made voluntary. The most radical proposal – merging the various deposit guarantee schemes – is to be discussed no earlier than 2015.

When a bank switches guarantee fund, the EU proposes that a dowry system is intro - duced, whereby the fund the bank is joining receives the equivalent of one year’s contri-butions from the fund the bank is leaving.

Framework for crisis managementThe key principle for distressed banks is set out in a communication from the European Commission dated 20 October 2010:

“Banks must be allowed to fail. Authorities must be equipped with tools that enable them to prevent systemic damage to the economy.”

The background to this is the authorities’ need to take action if large banks go under, because this can create formidable social problems.

The guiding principle for bank resolution is that all banks, whatever their size, should be covered by the authorities’ rules for resolution models. It is particularly important that systemically important institutions are subject to rules with the same effect on shareholders and creditors in the event of insolvency as smaller banks.

The EU proposes the creation of national resolution funds financed by contributions from the banks in order to prevent the authorities from having to bear the cost of bank crises. New liquidity and capital requirements and increased requirements for the size of deposit guarantee funds will help strengthen the banking sector, making the need for well-capitalised bank resolution funds smaller.

Future role of the guarantee fundThe relationship between deposit guarantee funds and bank resolution funds is another topical issue. The commission’s proposal is for deposit guarantee funds also to be used to resolve bank crises, as is the case in Norway. However, the aims of these funds differ. A deposit guarantee fund’s primary role is to protect depositors, and under the proposed new European rules it cannot help with solutions that are more expensive than pure deposit protection. Bank resolution funds are there to safeguard financial stability. There may therefore be instances of conflicts in the choice of solution and which fund is to bear the financial burden. One possibility would be for individual countries to merge the two funds. n

by Olav Vannebo

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Towards European harmonisation

INSURANCE GUARANTEE SCHEMES

Differing practices for insurance guarantee schemes are an issue in the EU, and how they can be harmonised is a recurring topic of debate. The final solution will also affect insurance in Norway.

The European Commission has been working on European harmonisation of insurance guarantee schemes for a number of years now. There is still some way to go before a directive falls into place, but the signs are that it is just a matter of time.

Today’s guarantee schemesNorway has a statutory guarantee scheme for non-life insurance for more than 20 years. The scheme was revised five years ago and reduced in size, while compulsory membership for Norwegian branches of foreign insurers was made clearer. The option in the legislation to set up guarantee schemes for life insurance and pension funds as well has not been exercised. There was a guarantee scheme for credit insurance for a few years, but it was discontinued.

Fewer than half of EU member states (13 out of 27) have some form of insurance guarantee scheme. These schemes vary and consist of:

• general schemes for both life and non-life insurance

• general schemes for non-life insurance only

• general schemes for life insurance only • schemes covering only specific aspects of

non-life insurance

Norway is the only non-EU country in Europe to have an insurance guarantee scheme.

European harmonisationBig differences between countries are the main reason why the European Commission is calling for European harmonisation. In summer 2010 it published a white paper which leaves little doubt that the commission wishes to introduce regulation at EU level to make countries’ guarantee

schemes more alike. The white paper contains little in the way of concrete proposals for how the schemes should be designed, but the commission does express some preferences which will guide future work.

At the very least, the commission wants a harmonisation directive based on the home country principle, which means that the guarantee scheme in an insurer’s home country covers consumers in other countries in which it operates. The directive will require member states to establish national guarantee schemes to limit the losses to consumers (and maybe also small businesses) if an insurer has payment problems and cannot fulfil its obligations. The commission believes that both life and non-life insurers should be covered, but not pension funds. It would prefer ex ante funding through payments into a guarantee fund, but does not rule out the possibility of ex post contributions from members of the scheme.

Divided opinionsThe white paper has been out for consultation but the commission has yet to collate the results of the process. The prevailing view in the European insurance industry is that it is neither necessary nor desirable to harmonise insurance guarantee schemes. This is clear, for example, from position papers from the European insurance and reinsurance federation CEA. The main argument is that Solvency II will improve the protection of policyholders. Finance Norway endorses the CEA’s view.

British MEP Peter Skinner’s report to the European Parliament urges the commission to proceed with the matter and publish a draft directive. This directive should be limited to protecting consumers and should not restrict member states’ freedom of action when it comes to funding. Skinner supports the home country principle but is also concerned about the differences this could lead to in the host countries and therefore calls on the regulatory authorities to work together to ensure as consistent an approach as possible.

The further process will probably not progress at any great speed: the CEA has

been informed by Hungary’s permanent representation to the EU that the issue will not be a priority during the country’s presidency of the EU, and possibly not during Poland’s presidency after that either.

Impact on NorwayThe biggest difference to the current situation is that life insurance will be covered by a guarantee scheme. As group pensions are such an important part of life companies’ operations, it is hard to imagine a scheme in Norway without there also being a scheme for pension funds. If it is a minimum harmonisation directive as assumed, the Norwegian authorities could implement it in a way that also covers pension funds.

On the non-life side, harmonisation will require changes to the existing guarantee scheme. The transition from a host country to a home country basis will be the most important change. Some of the big players in the Norwegian market are branches of foreign companies (If and Tryg). Today’s guarantee scheme based on the host country principle means that Norwegian branches of foreign companies are members of the scheme. With a home country system, If will be a member of the Swedish scheme and Tryg a member of the Danish scheme. From having just the one scheme to deal with today, Norwegian consumers would have to consider multiple guarantee schemes.

The challenge will be to combine forces at Nordic level so that the Nordic countries have schemes that are as similar as pos-sible. Ideally such a Nordic solution would stick as closely as possible to the direc-tive’s minimum requirements. This would be an advantage for customers, as they would then not have to worry too much about which guarantee scheme covers their policies. It would also be an advantage that competition between insurers would not be distorted to any great degree by differences in the design of national guarantee schemes. n

SOLVENCY II

The EU is working on bringing together all of the main directives on insurance into a single new directive. Many of the changes in the overall regulatory framework for insurers are related to the new Solvency II regime. The main aim of Solvency II is for the solvency capital requirement to be more of a reflection of the actual risk to which insurers are exposed.

The new Solvency II rules have a three-pillar structure corresponding to the Basel II rules for banks and cover the following areas:• Pillar 1: Quantitative financial require-

ments, including requirements for solvency capital, technical provisions and minimum capital

• Pillar 2: Qualitative financial require-ments and rules for supervision and governance. Permits more individual capital requirements tailored to the individual insurer’s risk. Also includes provisions on internal controls and rules for self-assessment of risk and solvency

• Pillar 3: Rules on market discipline, including regulatory and public disclosure

Who is coveredThe Solvency II directive will apply, in principle, to all insurers in the EU/EEA, with the exception of companies that meet all of the following criteria:

• annual gross premium income below EUR 5 million

• total technical provisions no more than EUR 25 million (either for the individual company or for the group if the company is part of one)

• business does not include liability or credit insurance

• business does not include reinsurance

National authorities may nevertheless decide that rules corresponding to Solvency II are to apply to companies that meet these criteria.

In principle, pension funds will not be covered by the new solvency rules, but this is currently being discussed.

The main changesValuationThe Solvency II rules require assets and liabilities to be measured at market value. When it comes to insurance liabilities, this is substantially different from the current regime, as it is based on the amount that an insurer would have to pay to transfer these liabilities to another company (exit value). This is defined more precisely as the sum of a best estimate and a risk margin. The best estimate is to be calculated as the expected present value of future cash flows using a relevant risk-free interest rate. The risk margin is to be calculated using the cost of capital method and reflect the cost of holding capital until run-off of the portfolio.

Calculation of solvency capital requirementThe framework directive for Solvency II sets out two types of capital requirement: a solvency capital requirement (SCR) and a minimum capital requirement (MCR). If a company’s capital drops below the MCR, its licence will immediately be revoked. If it falls below the SCR, the supervisory authorities will demand that the company takes action to restore its financial strength.

The SCR will be calculated in such a way that it covers all types of risk to which an insurer may be exposed: insurance risk, market risk (including equity, fixed income and property), credit risk and operational risk. The calculation of the different types of risk takes account of some of these risks impacting on one another with the result that the overall risk is not necessarily as large as the sum of its parts. The SCR is to be set such that there is only a 0.5 per cent probability of the company incurring losses in excess of the SCR on a one-year horizon.

It will also be possible for companies to calculate all or parts of the capital requirement using internal models, but this requires approval from the supervisory authorities.

Own fundsThe Solvency II rules also make some changes in the requirements for regulatory capital in that it is to be ranked into three tiers:

• Tier 1 is capital of the highest quality and is similar to today’s core capital

• Tiers 2 and 3 are capital of lower quality, in other words capital that is less available or subject to restrictions (ring-fenced)

Timetable and the way forward The final version of the Solvency II directive was formally adopted in 2009. It is a framework directive, and a series of implementing measures are required to flesh out the general rules in the directive. The European Commission has been working on draft measures since 2009, but much of the work is being under-taken under the European Insurance and Occupational Pensions Authority (EIOPA), which has issued technical advice on the implementing measures and held three rounds of consultation on different proposals for these measures. The commission’s proposals for implementing measures are expected to be adopted in autumn 2011.

In parallel with this, EIOPA has also drawn up proposals for supplementary guidelines relating to the implementing measures. The Financial Supervisory Authority of Norway (Finanstilsynet) believes that in practice these may become binding technical standards. The guidelines are expected to be published by December 2011.

In preparation for Solvency II, there have been five rounds of quantitative impact studies where insurers in the EU/EEA have been asked to calculate the impact of the proposed new rules. The final impact study (QIS5) was carried out

New rules for insurers

40

by Martin Carlen and Kari Mørk

SOLVENCY II

41

in August-November 2010, and Finans-tilsynet urged all Norwegian insurers to take part. Finanstilsynet published the national results of QIS5 in February 2011, and the overall European results were released the following month.

Solvency II is due to enter into force from 1 January 2013, but there may be various transitional rules.

Challenges under Solvency II The introduction of these rules will present major challenges for insurers, not only in terms of capital requirements but also when it comes to internal processes and requirements for governance and control. There will be requirements for organisation and documentation, oversight and reporting. At the same time, the insurer must perform a detailed own risk and solvency assessment (ORSA) as an integral part of its business strategy.

As part of the preparations for Solvency II, Finanstilsynet in Norway has produced a plan for risk-based supervision and stress tests. These tests are to give insurers a basis for assessing capital and risk in a stress-based scenario for the various capital and risk components.

Insurers that have already introduced some form of risk management and participated in the European Commission’s impact studies for the quantitative and qualitative solvency requirements will have a good starting point.

For life insurers with long-term pension obligations, the logical adjustment to the capital requirements in Solvency II would be to invest in fixed-income securities with the same maturity as the pension obligations, such that the value of the obligations moves in line with the value of the securities. However, long-term investments of this kind clash with the current Norwegian system where companies are dependent on a stable annual return because the surplus is to be distributed annually.

Companies that continue to adjust with investments that are less interest-sensitive on the asset side than on the liability side will therefore trigger a substantial capital

requirement for interest rate risk under Solvency II. Finance Norway is working on finding alternative solutions in the form of changes to the rules on companies’ interest rate guarantees. The solutions being considered include permitting more flexible accumulation and use of buffer capital, and changes in the product rules to allow products where the annual interest rate guarantee is replaced with an end value guarantee covering the whole insurance term. In the wake of the Financial Crisis Commission’s report NOU 2011:1 “Better positioned against financial crises”, the Banking Law Commission has been asked by the Ministry of Finance to review the regulatory framework in order to resolve the uniquely Norwegian challenges in terms of solvency and costs relating to the interest rate guarantee, as well as other areas, such as supplementary provisions.

In addition, the Solvency II directive will lead to changes to the current rules for investments at life insurers, the maximum guaranteed interest rate, the calculation of technical provisions, and so on. Finans-tilsynet has assessed how this will impact on the rules for insurance operations and sent its proposals for legislative changes to the Ministry of Finance on 8 March 2011. These include a new and more flexible buffer fund, voluntary conversion to unit-linked pension capital certificates, and a higher limit for individual accumulation of supplementary provisions, but Finans-tilsynet is not proposing the introduction of an end value guarantee. One possible consequence of the new rules is that Norway will keep its customer accounts under the current accounting rules for life insurers, supplemented with solvency accounts and separate IFRS-compliant financial accounts for relevant companies.

When it comes to non-life insurance, there is still some work to be done before the rules can be considered acceptable from the industry’s viewpoint. In general, there is concern about how extensive and complex the technical calculations will be, especially for small and medium-sized insurers. Work is also under way on using company- specific parameters in the technical

calculations in areas such as disaster risk (natural and man-made disasters) and the capital that is necessary.

The industry, supervisory authorities and the European Commission are working together to find methods and rules for the practical implementation of Solvency II.

One further challenge presented by Solvency II is its potential impact on the supply of funding in the Norwegian capital market. The capital requirement for insurers’ investments in bonds, structured credit products and credit derivatives will depend partly on how the credit rating agencies rate the issuer’s creditworthiness, and unlike elsewhere in Europe most Norwegian savings banks do not have such a credit rating. The absence of a rating means that bonds issued by these banks will trigger a higher SCR for insurers, making them a less attractive investment. This, in turn, could give Norwegian savings banks problems sourcing funding.

Unrated bonds issued by Norwegian local government authorities are also treated the same as other unrated investments under Solvency II and will similarly trigger a higher SCR. Finance Norway believes that one possible solution would be for bonds issued by unrated financial institutions (including Norwegian savings banks) to be assigned a national rating.

More detailed information on Solvency II can be found on Finans-tilsynet’s website. n

by Erik Johansen

42

BASEL III

The financial crisis exposed shortcomings in a number of big international banks’ risk management, but also in public regulation and supervision of the financial industry. Not since the Great Depression of the 1930s has the world has seen such turmoil in financial markets.

A number of countries had for many years generated substantial income from having a large financial industry. This changed rapidly when the crisis struck, and government expenditure on bailing out the industry in 2008 and 2009 equated to a significant share of the same countries’ GDP. Internationally there is a strong political desire to tighten the regulation of the banks. This took concrete shape when the leaders of the G20 countries gave the Basel Committee on Banking Supervision a mandate to develop rules that ensure that taxpayers “never again” have to foot the bill for the banks.

Necessary countermeasuresNorway’s banks coped well with the financial crisis thanks to sound operation, good regulation and effective supervision. However, Norwegian banks borrow heavily in global capital markets – to the tune of around NOK 1 100 billion – and the turmoil abroad soon fed through to the Norwegian market in the form of higher pricing and lower availability of funding. Countermeasures from the Norwegian authorities effectively stabilised the Norwegian markets and provided the necessary funding for the banks without incurring costs for the Norwegian taxpayer.

The swap facility enabling covered bonds to be exchanged for government securities and the creation of the Government Bond Fund and the State Finance Fund were necessary and appropriate measures when the financial crisis hit.

International reformsThe aim of the regulatory reform is to make the financial system more robust to economic shocks while reducing the likelihood of further crises.

The final version of the new standard, Basel III, was adopted in December 2010. The standard applies in the first instance to large international banks and will be followed up by the EU in the form of changes to the Capital Adequacy Directive. These changes will then also apply to all Norwegian banks through the EEA Agreement.

To macro-prudential supervisionBasel II, in force since 1 January 2007, builds on the principle that each bank’s capital requirement should correspond to the risk associated with that bank’s business. The rules include strong incentives for banks to use their own mathematical models for risk management and the calculation of capital adequacy. The more advanced their models and internal risk management, the lower their capital requirement, other things being equal. Basel II was the result of an extensive and time-consuming process with the aim of eliminating the shortcomings of the previous rules, Basel I. One particular goal was to ensure better capital allocation at banks and, therefore, in the economy as a whole.

The Basel II rules have come in for considerable criticism, but the financial crisis showed that the greatest shortcomings in the regulatory system related to areas of risk that the Basel II process did not address. This applied particularly to the quality of the regulatory capital that is to provide a buffer against losses. The capital requirement for market risk also proved too low following a sharp downturn in securities markets. In some

countries hit hard by the financial crisis, Basel II had not been introduced or had not been properly implemented.

While the capital requirements in Basel II are based on the risk to the individual bank, the fundamental change with Basel III is that it also includes capital requirements to cover national systemic risk. This macro-prudential approach represents a whole new way of thinking when it comes to bank regulation.

Introduction of countercyclical buffersNew countercyclical buffers are intended to protect the banking system against credit bubbles and house price bubbles by becoming available in an economic down-turn. Banks are to build up these buffers as an add-on of 0-2.5 percentage points to the individual bank’s Tier 1 capital requirement when credit growth is above trend. This add-on is to apply to all banks, whatever their particular contribution to credit growth. Foreign subsidiaries and branches are also to be required by the home country authorities to meet counter-cyclical capital requirements for lending in the host country as determined by the host country.

Another example of a macro-prudential measure is the imposition of restrictions on banks’ lending in the form of an upper limit on the size of mortgage loans relative to the value of the collateral. Requirements of this kind have already been introduced in Norway in the form of Finanstilsynet’s guidelines for mortgage collateral, which, in principle, set a maximum loan-to-value ratio of 90 per cent.

Tighter requirements When it comes to bank-specific changes, the most significant are tighter requirements for the level and quality of regulatory capital and the introduction of quantitative liquidity requirements.

The quality of regulatory capital is to be increased through an emphasis on common equity Tier 1 capital, which must now be at least 4.5 per cent. Total Tier 1 capital, which can include hybrid capital, must be at least 6 per cent. On top of this comes

Tighter regulation of the financial industry

a 2.5 per cent capital conservation buffer consisting of common equity. Altogether, these tighter requirements mean that banks need to hold minimum common equity of 7 per cent and total capital of 10.5 per cent. If the bank’s common equity falls below the 7 per cent level, the conservation buffer will be activated and the bank’s freedom to pay dividends and bonuses will be restricted. The further below the 7 per cent require-ment the bank falls, the more of its earnings will need to be retained. In this way the Basel Committee hopes to force banks to build buffers.

Another important lesson from the financial crisis was that a number of large international banks operated with a low level of common equity despite meeting the Tier 1 capital requirement by a good margin. The strong focus on return on equity had led to many banks’ regulatory capital consisting of instruments other than capital with true loss-absorbing capacity. To prevent excessively high levels of debt and allow for model uncertainty, the Basel Committee has decided to introduce an unweighted capital requirement – the leverage ratio – as a supplement to the risk-weighted requirement. To comply with this rule, banks must have Tier 1 capital equivalent to at least 3 per cent of total on- and off-balance-sheet exposures. For institutions with a high proportion of low-risk loans, such as the Norwegian mortgage companies, this new gross requirement presents a major challenge. Another key objection to the unweighted leverage ratio is that it provides incentives for higher risk-taking.

The new quantitative liquidity requirements consist of a liquidity coverage ratio (LCR) and net stable funding ratio (NSFR). The LCR is to ensure that banks have sufficiently large and liquid receivables of high credit quality to withstand a 30-day stress period. The NSFR is a requirement for stable funding for at least one year ahead to reduce differences in the duration of assets and liabilities. The aim of the NSFR is to reduce banks’ dependence on short-term market funding.

Balancing actBasel III enters into force between 2013 and 2019. Critics claim that the new rules should be introduced much more quickly and are not tough enough. What is certain is that the Basel Committee has faced a tricky balancing act. On the one hand it has had to come up with rules that make the financial system more robust, while on the other hand it must not introduce such stringent requirements that credit capacity in the economy is appreciably reduced, especially in a period of already low growth in large parts of the global economy. If the requirements are too tough, this will also provide incentives for credit to be issued outside the regulated financial system and in the securities market.

Norwegian banks are in a good position to comply with the tighter capital requirements but will probably still need to further strengthen their Tier 1 capital. This is due partly to uncertainty in capital planning for the countercyclical buffer requirement, partly to uncertainty about the use of capital other than common equity Tier 1 capital, and also, not least, the fact that banks will always aim to exceed the minimum requirements set by the authorities by a good margin. Banks defined as systemically important must also count on additional capital requirements over and above the general minimum.

Challenges for Norwegian banksThe greatest challenge for Norwegian banks is the introduction of quantitative liquidity requirements. The Basel Committee itself has expressed considerable uncertainty about the effects of the new liquidity requirements, not least in terms of banks’ behaviour and adjustment. This applies particularly to the long-term requirement, the NSFR, which could undermine one of banks’ most important functions in the economy, maturity transformation. The committee has therefore announced that it will conduct further studies before implementing this requirement, and that it will come in no earlier than 2018.

It would be reasonable for a similar approach to be taken to the introduction of rules in Norway. Both Norges Bank and Finanstilsynet have called for the new liquidity requirements to be introduced early in Norway on the grounds that the global financial crisis led to a liquidity crisis in Norway. It is understandable for the supervisory authorities to want to avoid banks relying on short-term market funding for long-term loans, given the significant refinancing risks this represents. At the same time, it is difficult to accept that this premise applies to Norwegian banks with a high proportion of stable deposit funding. Most important of all, though, is that Norway begins by analysing the structural reasons for Norwegian banks’ significant reliance on the international capital market.

When it comes to the short-term liquidity indicator, the LCR, it will quite simply be very difficult for Norwegian banks to comply with the requirement as it stands. This is due primarily to a shortage of government securities in the Norwegian market as a consequence of the Norwegian government not having a borrowing requirement. Sound private alternatives, such as covered bonds, do not meet the criteria for market depth etc.

The new tighter requirements will result in reduced profitability for the banks. The short-term liquidity requirement will bring a weaker return on the liquidity portfolio as a result of lower risk in the portfolio, while compliance with the long-term indicator will mean more expensive funding due to an increase in long-term funding. The tighter capital requirements will also reduce the return on equity. Whether investors will be willing to fund banks’ substantial capital needs in the years to come remains to be seen. n

43

BASEL III

by Sverre Dyrhaug (Finance Norway) and Kjell Marstein (Norwegian Employers’ Association for the Financial Sector)

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REMUNERATION RULES

From 1 January 2011 Norway introduced unilateral rules on remuneration schemes applying to all financial firms. The rules for the financial sector are more stringent than the equivalent rules for listed companies in other sectors.

There is a clear aim internationally to avoid incentive structures at financial firms that might encourage inappropriate risk exposure. The Norwegian financial industry has endorsed the intentions behind this international process all along the line. International experience from the financial crisis unfortunately showed that regulation of this type is necessary in terms of both stability in global financial markets and confidence in the financial system.

Inflicted from outside NorwayWhen work began on the Norwegian legislation, finance minister Sigbjørn Johnsen noted that the financial crisis was not created in Norway or by Norwegian financial firms but inflicted on Norway from outside. The crisis did not expose significant shortcomings in either the supervision or the operation of financial firms in Norway. Nor has it been shown that salary and bonus schemes at Norwegian financial firms – which have been moderate by international standards – played any role in risk-taking or losses. It is therefore important to bear in mind the international perspective.

Thus there is no reason for the new rules in Norway to be any more stringent than in neighbouring countries or elsewhere in the EU. The aim in practice should be for the Norwegian rules to be applied in line with the EU directive and guidelines from the EU supervisory authorities in order to promote a high degree of international harmonisation in this fiercely competitive area.

A sensible approachThe Norwegian authorities have generally stuck to the sensible approach outlined by the finance minister. The new remuneration regulations were issued by the Ministry of Finance on 20 December 2010, and Finanstilsynet outlined how the regulations will be interpreted and applied in practice in a circular on 21 February 2011. The industry is pleased to note that:

• the Norwegian regulations do not include such stringent transitional rules as would create unnecessary problems with existing contracts

• the rules are, in principle, the same for banks and securities houses, meaning that there is no unfavourable distortion of competition in the labour market between different suppliers of investment services

• the Norwegian authorities have signalled a willingness to monitor developments in rules and practices in neighbouring countries in order to avoid problems for foreign players covered by home country regulations

• in some areas the Norwegian rules meet the need for simplification for smaller firms – for example, they do not have to create a separate remuneration committee

• a number of “general remuneration schemes” (schemes under a set size that cover all employees) are exempt from the rules

In other areas, however, we feel that the Norwegian authorities may have been less successful. We do not believe, for example, that it is a good idea for Finanstilsynet to require one member of the remuneration committee at large financial firms to come from outside the board of directors. This does not tie in well with standard practice for board committees as expressed in the Norwegian Code of Practice for Corporate Governance. It is important that the new remuneration rules underpin the board’s ultimate authority.

Unresolved issuesThe regulations and circulars leave

a number of issues wholly or partially unresolved, possibly because they have not been resolved internationally either. For example, many firms would have liked better guidance from the authorities concerning which employees have “can exert influence on the institution’s risk profile”. We do, however, consider it positive that Finanstilsynet’s circular attempts to provide some rules of thumb in this context.

As another example, the regulations’ state that variable remuneration is to be given in the form of shares or other equity instruments issued by the firm/group or in the form of “instrument that adequately reflect the credit quality of the institution”. We have found that some firms are uncertain about what qualifies as such “conditional capital” and about this scheme more generally.

Although a number of questions have still to be answered, Finance Norway and the Norwegian Employers’ Association for the Financial Sector (FA) expect all financial firms to comply fully with the new rules. Any matters of interpretation that arise should be raised either with Finanstilsynet or the industry’s own organisations: FA and Finance Norway. By the same token, we trust the authorities to understand that in some cases it will take time for firms to develop and implement all necessary systems to their full satisfaction. n

A true child of the financial crisis

This is Finance Norway

The reason for establishing Finance Norway is to strengthen the financial sector in Norway. The regulatory environment for financial activities becomes ever more complicated and comprehensive. This requires top competence and a professional and dedicated staff in the trade associations.

Finance Norway represents some 180 financial institutions and financial groups that are active in the Norwegian market. The institutions operate within different sectors of financial activity:

• savings banks• commercial banks• life insurance companies• non-life insurance companies• finance companies• management companies for securities

funds• investment firms• finance groups

Finance Norway’s purpose is to strive for a strengthened Norwegian financial industry. The legal framework is getting ever more complex and comprehensive. Thus, specialist expertise is needed, as well as a solid professional environment within the trade associations.

Finance Norway’s ObjectivesFinance Norway’s role is to safeguard the interest of the financial services industry in Norway in relation to the authorities, other organisations, the media, the general public and in international forums.

In particular, Finance Norway’s objectives are:

• to ensure that financial institutions are afforded working conditions and opportunities for further development that provide a basis for profitable and sound operation, enabling them to offer their customers the best possible service,

• to ensure equal legal framework for all financial enterprises competing in the same market, independent of size and ownership,

• to ensure that Norwegian based financial enterprises are able to operate on equal terms and conditions with their international competitors, and that these terms and conditions are adjusted to the developments in the EEA area,

• to promote a sound development of the financial industry nationally as well as internationally,

• to promote a high professional and ethical standard in the financial industry and a wide understanding of the importance of the financial industry in society.

Part of a larger European CommunityThe European financial services industry is undergoing a period of profound and rapid change, both in the market place and in the regulatory framework. Through the EEA Agreement, changes in EU legislation will have exactly the same consequences for Norwegian financial institutions as for institutions located within the EU.

To safeguard the interest of the Norwegian financial sector Finance Norway participates in a larger European community. Finance Norway is a member with the European Savings Banks Group (ESBG), the European Banking Federation (EBF) and the European Insurance and reinsurance federation (CEA).

Finance Norway’s Areas of Activity• Economic and regulatory framework

for Norwegian-based financial services• International regulatory framework,

with a particular emphasis on EEA rules

• Division of work between the public and private sectors

• Capital adequacy, security and accounting rules for financial institutions

• Capital markets, pensions, savings and asset management

• Finance markets, financial instruments and securities settlements

• Payment systems, clearing and settlement

• Risk management, including actuarial management risk

• Loss prevention• Prevention and detection of insurance

fraud and other financial crimes• Guarantee schemes and guarantee

funds• Statutory insurance• Consumer issues• Holding and use of personal details,

including health details• Structure and competitive conditions in

the financial services industry• Fiscal and monetary policy• Tax• Corporate social responsibility,

including environmental issues• Education – financial illiteracy

Common projectsIn the insurance area, Finance Norway is the secretariat for a number of common projects financed by the insurance companies, e.g.:

• Remaining Value Salvage• Pool Office • Motor Assessment• Health Assessment Committee• FG – Insurance Companies’ Approvals

Board• Norwegian Motor Insurers’ Bureau• Norwegian Occupational Injury

Insurers’ Bureau • Fraud Prevention Office• Norwegian Interbank Clearing System

Finance Norway was established January 1st 2010 by the Norwegian savings Banks association and the Norwegian Financial services association. almost all professional and administrative staff of the two associations was transferred to the new organization. Finance Norway have a highly competent staff of almost 100 persons, with expertise in all fields of the financial sector, and will - for all practical purposes - represent the total financial sector in Norway.

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Department structure

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Administrationand IT

accountcommunal services

iT

The Management Team

Managing director Arne Hyttnes

director Lene Magnussen

Communication Director Leif Osland

director Marit Sagen Åstvedt

director Sissel Rødevand

director Jan Digranes

director Geir R. Trulserud

Management

Banking andCapital Markets

Banking and economics

Payments and infrastructures

Financial Markets

legal

Communication Life Insuranceand Pension

statisticsPolicy life

Corporate Responsibility

GeneralInsurance

Non-life legal affairs

Fraud Prevention office

statistics

loss Prevention

Motor assessment

Pool office(Natural Perils Pool)

The Norwegian Motor insurers Bureau/

The Norwegian injury insurers Bureau

t

t t t t t

t

Management structure

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FINANCE NORWAY

Technical sub-comitees

accounting

actuary life

actuary non-life

Bankid

Bankid legal affairs

Bodily insurance

clearing and settlement

credit

corporate social responsibility (csr)

documentary credit

document (loans and guarantees)

economic fraud

information

insurance Fraud

Joint committee for Payment systems

legal affairs Payment systems

life lawyers

liquidity

Norwegian Bank security committee

solvency

Trade finance (documentary credit)

General Meeting

The Board

Administration

Steering Committees

approval – hot work

approval Board – Fire Protection

approval Board –Theft Protection

authorisation claims consultant

authorisation consultants

authorisation pensions insurance consultant

Fire safety Projects

health evaluation

Motor-vehicle insurance claim

Natural Perils Pool

Norwegian Motor insurers’ Bureau

Norwegian occupational injury Bureau

remaining value salvage

Traffic safety projects

t

t

t

t

t

t t

t

t

Committees

Banking and payment systems

life and pension

asset management and financial markets

risk and non-life

t

tBoards

legal affairs

t t tt

Banking and payment systemsliv Fiksdahl, leader dnB Nor Bank asaanne stark-Johansen Nordea Bank Norge asaarvid andenæs sparebanken sogn og Fjordanehans Kjensjord spareBank 1 ModumJan-Frode Janson Fokus Bankleif gripsgård handelsbankenlisbet K. Nærø BNbank asaoddmund Åsen spareBank 1 Nord-Norgestein Klakegg sparebanken VestTom høiberg Terra BoligkredittØyvind Thomassen skandiaBanken aB

Asset management and financial marketsottar ertzeid, leader dnB Nor Marketsaage elmenhorst-schaanning KlP Kapitalforvaltning asanders Mathisen Terra Kapitalforvaltning asaeivind lorgen Nordea investment Management & Funds Norgegeir inge solberg acta holding asahans aasnæs storebrand Kapitalforvaltning asainger oddny Nergård Fokus BankKjetil Korneliussen sparebanken søroliver siem eksportfinans asaove hobbesland handelsbanken livPål Bergskaug seB Privatbanken asastian helgøy spareBank 1 sr-Banklasse ruud (observer) Verdipapirfondenes Forening

Life and pensiongeir holmgren, leader storebrand livsforsikringBjørn asp gjensidige Pensjonsforsikringida espolin Johnson KlPBjørn atle haugen dnB Nor (Vital)hanne Fjellheim handelsbanken livÅmund lunde oslo Pensjonsforsikringaud lysenstøen spareBank 1 livsforsikringJan Petter opedal danica PensjonJørund Vandvik livsforsikringsselskapet Nordea liv NorgeMikkel Berg silver Pensjonsforsikring

DeputiesOn behalf of The Norwegian Savings Banks Association:1. anlaug Johansen, Marker sparebank 2. ivar Fjærtoft, spareBank 1 gran

On behalf of The Norwegian Financial Services Association:1. stein ole larsen, Terra-gruppen 2. Kirsten idebøen, spareBank 1 gruppen 3. raimond Pettersen, Bank 2

The composition of the board by March 28 2011

Committees and boards

rune Bjerke (chairperson) dnB Norstein hannevik (deputy chairperson) sparebanken Plusshelge leiro Baastad gjensidigehelge roar dalen drangedal og Tørdal sparebankolav arne Fiskerstrand sparebanken MøreKjerstin Fyllingen Tryg ForsikringFinn haugan spareBank 1 sMNline M. hestvik if skadeforsikringidar Kreutzer storebrandTrond F. Mellingsæter Fokus Banksverre Thornes KlPdag Tjernsmo handelsbankengunn wærsted Nordea Bank Norge

Risk and non-lifeivar Martinsen, leader if skadeforsikringhans Martin hovden KlPivar K. Z. Pedersen Nemilars Fritzøe Jernbanepersonalets ForsikringMartin danielsen gjensidige ForsikringTom g. granquist storebrandTore Tenold spareBank 1Truls holm olsen Tryg Forsikringsverre Bjerkeli Protector ForsikringBjørn Thømt Frende skadeforsikring

Principal advisory committee Legal affairsThorbjørn gjerde, leader Fokus Bankcamilla Bredrup if skadeforsikring nufida louise skaurum Mo KlPivar sagbakken Nordea Bank Norge asaJens Feiring eksportfinans asaJørn hammer gjensidige Forsikring asa Kjell r. hannevik Terra-gruppen asKjetil Myhrvold Tryg Forsikringline schytte sætre sparebanken MøreMartha Magistad handelsbankenolav heldal dnB Nor Bank asa Tor g. Birkeland spareBank 1 gruppen asolav Breck (observer) sparebankforeningen

on the board

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FINANCE NORWAY

andebu sparebankarendal og omegns sparekasseaskim sparebank aurland sparebank aurskog sparebankBamble og langesund spb.Berg sparebankBien sparebank as Birkenes sparebankBjugn sparebankBlaker sparebankBud, Fræna og hustad sparebankBø sparebankcultura sparebankdnB Nor asadrangedal og Tørdal sparebankeidsberg sparebanketne sparebanketnedal sparebank evje og hornnes sparebankFana sparebankFlekkefjord sparebankFornebubankengildeskål sparebankgjerstad sparebank grong sparebankgrue sparebankhalden sparebankhaltdalen sparebankharstad sparebankhaugesund sparebankhegra sparebankhelgeland sparebank

hjartdal og gransherad spb.hjelmeland sparebank hol sparebankholla og lunde sparebankhøland og setskog sparebank hønefoss sparebank indre sogn sparebankJernbanepersonalets sparebankKlepp sparebankKlæbu sparebank Kragerø sparebank Kvinesdal sparebanklarvikbanken Brunlanes spb.lillesands sparebank lillestrøm sparebanklofoten sparebankspareBank 1 lom og skjåkluster sparebankMarker sparebankMeldal sparebankMelhus sparebankNes Prestegjelds sparebankNesset sparebankodal sparebank ofoten sparebankopdals sparebankorkdal sparebankrindal sparebankrygge-Vaaler sparebank rørosbanken røros sparebanksandnes sparebankselbu sparebankseljord sparebank

skudenes & aakra sparebanksoknedal sparebankspareBank 1 gudbrandsdalspareBank 1 hallingdalspareBank 1 Buskerud-VestfoldspareBank 1 sMNspareBank 1 ModumspareBank 1 Nord-NorgespareBank 1 NordVestspareBank 1 Nøtterøy-TønsbergspareBank 1 ringerike hadelandspareBank 1 sr-BankspareBank 1 søre sunnmørespareBank 1 TelemarkspareBank 1 hardangersparebanken hedmarksparebanken hemnesparebanken Møresparebanken Narviksparebanken Plusssparebanken sogn og Fjordane sparebanken sør sparebanken Vest sparebanken Østsparebankstiftelsen dnB Norsparebankstiftelsen gransparebankstiftelsen helgelandsparebankstiftelsen Jevnaker lunner Nittedalsparebankstiftelsen ringerikesparebankstiftelsen saudasparebankstiftelsen Tingvoll spareskillingsbanken

spydeberg sparebankstadsbygd sparebankstrømmen sparebanksunndal sparebank surnadal sparebanksøgne og greipstad sparebankTime sparebankTinn sparebankTolga- os sparebankTotens sparebank Trøgstad sparebankTysnes sparebankValle sparebankVang sparebank Vegårshei sparebank Vestre slidre sparebankVik sparebank Voss sparebank Ørland sparebank Ørskog sparebankØystre slidre sparebankÅfjord sparebankaasen sparebank

Ordinary membersace european groupacta asaBank 1 osloBank2Bank NorwegianBNbank asaBNP Paribas oslo Branch Boligbyggelagenes Forsikring a/scardif skadeforsikring NuFcitibank international plc, Norway codan as (dK)danica PensjondnB Nor asaeksportfinans asaeuro insurances ltd.Fokus BankForex Bank aBFrende livsforsikring asFrende skadeforsikring asFörsäkringsaktiebolaget skandia nuf

ge Money Bankgenworth FinancialgieK Kredittforsikring asgjensidige Forsikringgouda reiseforsikring NuFhandelsbanken handelsbanken livif skadeforsikringindustriforsikring as inter hannoverJernbanepersonalets Forsikring KlP KNiF Trygghet forsikringlandbruksforsikring aslandkredittlivforsikringsselskapet Nordea liv Norge asMøretrygd gjensidig Forsikring - VoldaNeMi forsikring asaNordea Bank Norge asa

Norsk hussopp-ForsikringNorthern capital asoslo PensjonsforsikringPareto Bank asaProtector ForsikringseB Privatbanken asasilver PensjonsforsikringskandiaBanken aB skandinaviska enskilda Banken aB spareBank 1 gruppen asstorebrand asastorebrand helseforsikring asswedbank NorgeTelenor Forsikring asTennant Forsikring nufTerra-gruppen asTrygVesta Forsikringunison Forsikring asaVerdibanken asaVoss Veksel- og landmandsbank asaya Bank og Forsikring

Trade organization membersFinansieringsselskapenes ForeningVerdipapirfondenes Forening

Associated membersKommunekreditt Norge aslandkreditt Bank asNordlandsbanken asaNorgeskreditt as

Cross border members aioi insurance company of europe ltd.altraplan luxembourg s.a. avd. Norge sterling life ltd.

Members of The Norwegian savings Banks association

Members of Finance Norway

Members of Norwegian Financial services association

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Photos: Front page © Steinar Haugberg/Samfoto - Portraits © Vivian Olsen - Page 27 © Sintef Byggforsk | layout Plein | Print Wittusen&Jensen | copies 600 | May 2011

Finance Norway

Hansteens gt. 2 • Telephone +47 23 28 42 00 • Telefax +47 23 28 42 01 • P.O.Box 2473 Solli, N-0202 Oslo • Org.no NO 994 970 925 • www.fno.no