Storebrand Asa · OSL:STB
Storebrand Asa — Investor Day (December 2022)
60 slides from Storebrand Asa's investor day presentation, Dec 8, 2022
Slide 1: Enhanced Shareholder Value in a Higher Rate Environment
Enhanced Shareholder Value in a Higher Rate Environment On the right side of history - leading the way in sustainable value creation ✓Increased capital generation and cash flow ✓Increased capital distribution ✓Updated dividend policy CAPITAL UPDATE December 8, 2022 1
Slide 2: Summary
Summary ▪ Strengthened back-book contribution as the Guaranteed Back Book transforms into a Financial Asset at higher interest rates Increased capital ▪ Growing front book and changed business mix imply new dividend policy with lower solvency hurdle of 175% 1 generation and free for overcapitalisati
Slide 3: Agenda
Agenda Topic Presenter Page Chapter 1 Odd Arild Grefstad 4-14 Introduction Group CEO Chapter 2 Lars Aa. Løddesøl Enhanced shareholder value in a higher rate 15-41 Group CFO environment Chapter 3 Kjetil R. Krøkje 42-49 Reporting post IFRS 17 Group Head of Finance & Strategy Odd Arild Grefstad, Group
Slide 4: Introduction: Key Takeaways
Introduction ▪ Continued strategy to be a Nordic Savings and Insurance Group with a Key Takeaways compelling combination of self funded growth and capital release from the maturing back book ▪ We are well on track to deliver on our 2023 ambitions from CMD 2020 Chapter 1 ▪ Today's focus: Capital gene
Slide 5: Sustainable Nordic Savings and Insurance Group
Pursuing our Group Strategy: Leading The Way In Sustainable Value Creation to be a leading Sustainable Nordic Savings and Insurance Group A B C Future Storebrand Leading Provider Growth focus in Nordic Powerhouse in Growing Challenger in Occupational Pensions capital-light business Asset Management
Slide 6: The shift towards a high ROE Nordic capital-light growth business continues
The shift towards a high ROE Nordic capital-light growth business continues, stronger contribution from higher interest rates going forward FROM TO Norwegian market leader occupational Diversified Nordic capital-light growth pension business Low Return on Equity (ROE) High Return on Equity (ROE) Inc
Slide 7: Well on track to deliver on our profitable growth ambitions for 2021-23
Well on track to deliver on our profitable growth ambitions for 2021-23, as communicated at CMD 2020 A B C Future Storebrand Leading Provider Growth focus in Nordic Powerhouse in Growing Challenger in Occupational Pensions capital-light business Asset Management Norwegian Retail Market Norway & Swed
Slide 8: Double-digit growth in all of Future Storebrand
Double-digit growth in all of Future Storebrand, but financial markets reduce AUM growth in 2022 Unit Linked (Defined Contribution) Pensions Asset management +10% +4% +10% +19% 308 1,097 1,001 302 251 831 921 220 721 707 168 179 535 571 577 128 140 442 487 85 105 64 2012 2013 2014 2015 2016 2017 201
Slide 9: Strong net flow in challenging financial markets
Strong net flow in challenging financial markets Asset Management Net flow since last CMD update in 2020 (NOK billion) Stable net inflow from Defined Contribution ✓ pensions in structural growth +81 +89 (+5% CAGR) 1 001 -8 Successfully grown alternative assets (<0% CAGR) ✓ offering, especially withi
Slide 10: Confirming the Group NOK ~4bn 2023 target
Confirming the Group NOK ∼4bn 2023 target Group profit (before amortisation and tax, NOK billion) Other 1 Guaranteed Insurance Savings ∼ 4.0 ~ 4.0 3.0 1.4 2.0 0.3 0.6 0.4 1.0 1.0 0.1 0.2 2012 2019 2023 2023 target target at CMD 2020 confirmed 10 1 Profit in "Other" attributed to financial result for
Slide 11: Growth and margins communicated at CMD 2020 mostly on track
Growth and margins communicated at CMD 2020 mostly on track Future Run-off Storebrand business Savings Insurance Guaranteed Asset Unit Linked Bank Management Volume (NOK) AUM AUM Lending Premiums f.o.a.1 AUM Q3 2020 252 bn 921 bn 48 bn 4.3 bn 277 bn CAGR ✓ ✓ ✓ ✓ ∼ 8-12 % ∼ 7-11 % ∼ 5-10 % ∼ 10-15
Slide 12: Continue to grow high ROE business for increased capital and cash generation
Continue to grow high ROE business for increased capital and cash generation Future Run-off Storebrand business ILLUSTRATIVE Savings & Insurance Guaranteed4 Group Cash result1 (NOKm) 2 609 569 3 178 Allocated solvency equity (tangible uT1)2 5.5 21.6 27.0 (NOKbn) Pro forma Return on solvency 48% 3% 1
Slide 13: Increasing interest rates scenario has unfolded; more than NOK 10bn capital release by 2030
The increasing interest rates scenario from the CMD in 2020 has unfolded, the group is set to return more than NOK 10bn in capital release by 2030 Scenario Exp. Capital Release Description >10 Capital release to shareholders well underway (2020-2022) 1 Increasing rates ✓ Solvency strengthened from 1
Slide 14: Key Takeaways
Key Takeaways 175 New dividend policy: Lower threshold for extraordinary capital deployment % to 175% due to change in business mix Higher capital and cash generation with ambition to fund growth in ordinary dividend per share, organic growth initiatives and NOK 10bn in share buybacks by 20301 The b
Slide 15: Enhanced shareholder value in a higher rate environment
Enhanced shareholder value in a Key Takeaways higher rate environment ▪ Chapter 2.1 - Guaranteed back-book transforming into a Financial Asset Chapter 2 with higher interest rates ▪ Chapter 2.2 - Growing front-book and changed business mix ▪ Chapter 2.3 - Capital generation and distribution to suppo
Slide 16: Numbers presented today are based on current reporting and subject to various factors
Numbers presented today are based on current reporting and are subject to various factors outside of Storebrand's control Numbers presented today are based on Factors outside of Storebrand's control may influence current reporting numbers presented in this presentation Numbers in the presentation ar
Slide 17: Guaranteed back-book transforming into a Financial Asset
Guaranteed back-book transforming into a Financial Asset with higher Key Takeaways interest rates Chapter 2.1 ▪ Higher interest rates generate capital from buffer building and profit sharing in Guaranteed pensions ▪ Financial result from company capital increases with higher rates ▪ Run-off of Guara
Slide 18: High quality assets, with fixed income as the backbone
High quality assets, with fixed income as the backbone, provide secure returns for guaranteed pensions and company capital Invested assets1 on Storebrand's balance sheet Bonds Bonds and at amortised cost Money Market NOK 194 bn Equities 6% Real estate Average rating Book yield Average rating 12% Bon
Slide 19: Reduced interest rate sensitivity through longer dated bonds in Norway
In Norway, the higher interest rate environment has enabled us to reduce policyholders' and shareholders' interest rate sensitivity by investing more in longer dated bonds Longer duration of bonds at amortised cost More long dated bonds that gradually Reduced interest rate sensitivity1,2 has improve
Slide 20: Bonds at amortised cost is the main asset class for hedging long term guarantees
Bonds at amortised cost is the main asset class for hedging long term guarantees in Norway, providing high quality predictable returns and gradually reduced SCR Actively improved bond portfolio quality over Gradually (1) shorter duration and Introduction of IFRS 9 increases the flexibility the last
Slide 21: Financial result from Guaranteed pensions and company capital increases
Financial result (cash contribution) from Guaranteed pensions and company capital increase from higher interest rate level Financial result1 from Guaranteed products and company capital in Storebrand Group NOK Higher interest rates increase the expected ✓ financial result from approx. NOK 0.5bn to ~
Slide 22: In Norway, higher interest rates lead to excess returns over the customer guarantee
In Norway, higher interest rates lead to excess returns over the customer guarantee Increased expected return in Guaranteed pensions, Norway Higher investment return in combination with a decline in average guaranteed rate of return >4% Use excess returns to build buffer capital. Shields 3.5% Short
Slide 23: In Sweden, higher rates give a lower UFR drag which releases DCC
In Sweden, higher rates give a lower UFR1 drag which releases DCC2, and a rapid return to profit sharing for increased capital generation Net profit sharing, Guaranteed Sweden (NOK m) A close to perfectly matched portfolio in ~300 Sweden means limited impact from changes in interest rates DCC releas
Slide 24: Higher interest rates expected to give NOK ~700m annual profit contribution from company capital
Higher interest rates expected to give NOK ~700m in annual profit contribution from company capital Company capital (NOK bn) P&L impact (NOK bn) Investment returns Bonds at fair value and Loans Bonds at amortised cost Total expected return Company Portfolio 32 2023-2025 of ~4% (attributable to P&L)
Slide 25: Back book policyholders at retirement age; pension withdrawals continue
The average back book policyholder is at retirement age and pension withdrawals will continue at a steady and predictable pace Policyholders are retiring, with more guaranteed reserves to be The guaranteed reserves run-off is expected to continue until paid out as pensions 2050 and beyond % of reser
Slide 26: Stronger cash result contribution transforms the back-book into a financial asset
Stronger cash result contribution from Guaranteed pensions and company capital, with increased capital release from run-off business, transforms the back-book into a financial asset Stronger cash result contribution from Higher ROE potential Increased captial release from Guranteed prodcuts in run-o
Slide 27: Growing front-book and changed business mix
Growing front-book and changed Key Takeaways business mix ▪ Balance sheet transformation to capital light Savings and Insurance Chapter 2.2 continues ▪ New business mix is strongly capitalised and less volatile, reducing solvency threshold for excess capital distribution to 175% 27
Slide 28: Transition from capital consumptive Guaranteed business to capital light Savings and Insurance
The Group has transitioned from capital consumptive Guaranteed business to capital light Savings and Insurance business Premiums Storebrand1 Profit Storebrand2 Shift in total Storebrand AUM3 33 309 3 241 1 001 17% 17% 24 584 47% 15% 1 898 36% 67% 22% 65% 442 15% 27% 26% NOK bn NOK m NOK m 14% 49% 63
Slide 29: Continued growth will be capital-light and change the balance sheet composition
Continued growth will be capital-light and change the balance sheet composition The business mix and balance sheet shift changes the composition of the solvency capital requirement (SCR) 9% 9% 13% SCR has remained stable despite double 2% 3% 4% ✓ digit growth 22% 23% 24% Shift from high capital cons
Slide 30: Solvency II and CRD IV subsidiaries are strongly capitalised
Solvency II and CRD IV subsidiaries are strongly capitalised under their regulatory capital frameworks, but the CRD IV business dilutes the Group's Solvency II ratio Contribution from CRD IV Contribution from Solvency II Storebrand Group regulated companies regulated companies Q3 2022 Solvency ratio
Slide 31: Adjusted top end of normal capital range to 175%
Adjusted top end of normal capital range to 175% due to strongly capitalised and less volatile business mix SCR Buffer over SCR 'Future Storebrand' 'Run-off business' Solvency 2 Group (Q3 2022) New Solvency 2 target range Low volatility business with less Interest rate sensitive business in run- Las
Slide 32: Capital generation and distribution to support value creation for shareholders
Capital generation and distribution to support value creation for shareholders ▪ Strong capital generation and cash remittance to Hold co. since the introduction of Solvency II has enabled growth and increasing returns to shareholders Key Takeaways ▪ Higher capital generation is expected going forwa
Slide 33: Strong capital generation has built solvency in parallel with capital distribution
Strong capital generation has been instrumental to build solvency in parallel with capital distribution and growth Stable SCR1 despite high growth Strong Solvency capital2 generation Significant improvement in the since the introduction of Solvency II since the introduction of Solvency II Solvency r
Slide 34: Our cash result has been close to fully remitted to Hold co.
Our cash result has been close to fully remitted to Hold co. Profit is close to fully remitted as cash to Hold co 5 years cumulative values for 2017-2021 13.7 13.4 Cash remitted to Hold co. for maximum fungibility ✓ between subsidiaries Hold co. cash can be returned to shareholders or ✓ invested in
Slide 35: Acquisitions supporting the transformation towards a capital-light growth business
The group has strengthened the business with acquisitions supporting the transformation towards a capital-light growth business since 2017 2017 2017 2019 2020 2021 2022 2022 Capital Skagen Silver Cubera Insr Danica Kron1 Investment Traditional Asset Asset Pension & life Savings asset Pension managem
Slide 36: Transactions created significant value; continue disciplined M&A approach
Together these transactions have created significant value to shareholders, continue disciplined M&A approach going forward Significant value creation from bolt-ons M&A historically Disciplined M&A-approach going forward Storebrand bolt-ons2 2017-2020 (NOK million) ~3 100 ✓ Continue our disciplined
Slide 37: Higher capital generation expected from earnings growth and run-off
Higher capital generation expected with a compelling combination of earnings growth and run-off of Guaranteed business Average annual solvency generation medium term1 (%-points) ILLUSTRATIVE Cash Earning pre-dividend ~13-14% Increasing solvency generation from earnings as transformation to capital-l
Slide 38: Reaffirming commitment to deliver growing ordinary dividends
Reaffirming our commitment to deliver growing ordinary dividends to shareholders "Storebrand aims to pay an ordinary dividend of more than 50 per cent of Group Average annual solvency generation medium term1 profit after tax. The Board of Directors’ ambition is to pay ordinary dividends per (%-point
Slide 39: Maximise shareholder value with disciplined capital allocation
Maximise shareholder value with disciplined capital allocation Average annual solvency generation medium term1 Capital allocation (%-points) (after ordinary dividends) ILLUSTRATIVE Earnings and net generation Growth in entities outside of ~15-16% from SII-entities Organic growth Solvency II and furt
Slide 40: Free cash flow available to shareholders will increase in growth and steady state scenarios
Taking the long view, free cash flow available to shareholders will increase in both a growth and a steady state scenario Free cashflow available to ILLUSTRATIVE Scenario Description shareholders (next 10 years) NOK billion ~221 ▪ High earnings growth across the ~15-20 business Growth scenario: 1 Mo
Slide 41: Group capital management and dividend policy adjusted to 175% solvency
Group capital management and dividend policy adjusted to reflect lower top end of solvency capital range of 175% Solvency 2 ratio ▪ Intention to return excess capital through share buybacks when the solvency ratio is above 175% 175% 174% ▪ Ordinary dividend of >50% of Group profit after tax Q3 2022
Slide 42: Reporting post IFRS 17: Key Takeaways
Reporting post IFRS 17 ▪ Storebrand’s fundamentals will remain unchanged under IFRS 17 and IFRS 9 Key Takeaways ▪ IFRS 17 (insurance contracts) will supplement existing reporting standards in Storebrand, and IFRS 9 (financial instruments) will be an integral part of all reporting Chapter 3 ▪ Unit Li
Slide 43: Storebrand's fundamentals remain unchanged under IFRS 17 and IFRS 9
Key message l Storebrand’s fundamentals remain unchanged under IFRS 17 and IFRS 9 No fundamental impact. Cash generation, solvency margin and dividend will all remain unchanged Fundamentals under the new standard. No implications for strategy, risk appetite and business plans Main focus for Storebra
Slide 44: IFRS 17 impacted business lines in Insurance and Guaranteed segments
IFRS 17 impacted business lines are reported in the Insurance and Guaranteed segments under the existing reporting PRELIMINARY Reporting segment Line of business Chosen measurement models % of Storebrand products2 Unit linked Norway1 No significant insurance risk under IFRS 17, Unit linked Sweden re
Slide 45: Balance sheet closer to Solvency II
Balance sheet closer to Solvency II Balance sheet comparison Highlights ILLUSTRATION ▪ Equity reduced primarily due to the requirement to set up a CSM and RA with uT1 offset from changes to the measurement of liabilities Equity Own Funds ▪ ~20%2 less equity under IFRS 17 compared to IFRS 4, but simi
Slide 46: IFRS 17 earnings higher and more volatile, cash results similar
IFRS 17 earnings higher and more volatile, Cash results similar as today. Higher RoE PRELIMINARY Expected Current KPIs 2023 Comments Effect Today's Group profit (before amortisation and tax) will be Group profit Group cash result ➔ similar to the sum of statutory accounts - IFRS 17 Profit Group pr
Slide 47: Continuation of current accounting standard in statutory accounts
Continuation of current accounting standard in statutory accounts means close-to-cash earnings reported today will continue Storebrand legal entities Group accounts Statutory accounts Storebrand ASA IFRS 17 Storebrand Storebrand Group and Storebrand Livsforsikring Group will Livsforsikring AS1 repor
Slide 48: IFRS 17 will serve as an additional source of information
IFRS 17 will serve as an additional source of information together with existing reporting in Storebrand Current reporting standards will continue IFRS 17 will be additional reporting from Q1 2023 Most subsidiaries will continue to report their company accounts under the current standard Insurance c
Slide 49: Implementation of new accounting standards according to plan
Implementation of new accounting standards according to plan First quarterly reporting Monthly parallel runs under IFRS 17 & 9 with throughout the year deep dive 2022 May 10, 2023 2017 --> Dec 8, 2022 2023 --> Planning, implementation Capital Update: IFRS 17 & 9 Continued reporting under & testing i
Slide 50: Key Takeaways
Key Takeaways 175 New dividend policy: Lower threshold for extraordinary capital deployment % to 175% due to change in business mix Higher capital and cash generation with ambition to fund growth in ordinary dividend per share, organic growth initiatives and NOK 10bn in share buybacks by 20301 The b
Slide 51: Q&A
Q&A Please join the MS Teams Webinar to participate in the Q&A session Group CFO Group CEO Group Head of Head of Strategy & Finance Investor Relations & Rating Lars Aa. Løddesøl Odd Arild Grefstad Kjetil R. Krøkje Daniel Sundahl 51
Slide 52: Appendix
▪ Solvency Capital allocation main products ▪ Profit sharing dynamics ▪ Balance sheet shift Appendix ▪ IFRS 17 & 9 l High-level preliminary P&L and balance sheet implications ▪ IFRS 17 measurement models ▪ IFRS 17 and 9 abbreviations 52
Slide 53: Solvency Capital allocation main products
Solvency Capital allocation main products ILLUSTRATIVE PRO FORMA ALLOCATION BASED ON 175% SOLVENCY RATIO Hard capital to Contribution Solvency ratio Reserves have target Run off/ to Own Funds SCR – before use of (NOK bn) Solvency ratio1 Growth ('VIF') hard capital (NOK bn) Back book Paid up policies
Slide 54: Excess returns in Norwegian Guaranteed pensions generate buffer capital
Excess returns in Norwegian Guaranteed pensions generate capital through increased buffer capital in Norway; profit sharing will increase gradually 2023-2024 2025 → Prioritise gradual rebuild of buffer capital from excess returns, profit sharing will increase gradually Profit sharing for ~2/3 of the
Slide 55: Balance sheet shift continues as the back book is in run-off
The balance sheet shift continues as the mature back book of guaranteed pensions is in run-off Guaranteed pension reserves are declining, but buffers have grown over the years from strong returns NOK bn1 Run-off reserves expected to grow with guaranteed 292 282 ✓ return of NOK ~8bn annually. Pension
Slide 56: IFRS 17 & 9 high-level preliminary P&L and balance sheet implications
IFRS 17 & 9 l High-level preliminary P&L and balance sheet implications1 ▪ Higher group earnings due to amortisation of CSM (Contractual Service Margin) in Norwegian Guaranteed products, no significant P&L impact from products reported under the Savings segment ▪ Increased earnings volatility in Nor
Slide 57: IFRS 17 products accounted under VFA and PAA measurement models
The vast majority of Storebrand’s IFRS 17 products will be accounted for under the VFA and PAA measurement models Changes High-level description Financial Technical Key characteristics assumptions assumptions Default model where profit contribution is GMM recognised through CSM amortisation. General
Slide 58: IFRS 17 and 9 abbreviations
IFRS 17 and 9 abbreviations PPA Premium Allocation Approach (measurement model) GMM General Measurement Model (measurement model), VFA Variable Fee Approach (measurement model) CSM Contractual Service Margin – balance sheet liability, containing deferred discounted future profits of in-force busines
Slide 59: Important Information
Important Information This document may contain forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that may be beyond the Storebrand Group’s control. As a result, the Storebrand Group’s actual fu
Slide 60: Leading the way in sustainable value creation
Leading the way in sustainable value creation Investor Relations contacts Lars Aa Løddesøl lars.loddesol@storebrand.no Group CFO +47 9348 0151 Kjetil R. Krøkje kjetil.r.krokje@storebrand.no Group Head of +47 9341 2155 Finance & Strategy Daniel Sundahl daniel.sundahl@storebrand.no Group Head of +47 9