Hello, and welcome to the Storebrand Analyst Conference Call. My name is Jess, and I'll be your coordinator for today's event. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions. This can be done by pressing star one to register your question at any time. If you need assistance at any point, please press star zero on your telephone keypad, and you will be connected to an operator. I will now hand you over to your host, Daniel Sundahl, to begin today's call. Thank you.
Good afternoon, ladies and gentlemen. Welcome to Storebrand's fourth quarter 2019 conference call. My name is Daniel Sundahl, and I'm Head of Investor Relations at Storebrand. Together with me here today, I have Group CEO Odd Arild Grefstad, CFO Lars Løddesøl, Executive Vice President Heidi Skaaret, Chief Investment Officer and Head of Capital Management Trond Finn Eriksen, and Head of Finance and Strategy Kj etil Krøkje. In the presentation today, CEO Odd Grefstad will give an update on the main developments in the fourth quarter. CFO Lars Løddesøl will then give a deeper insight into the financial development and other technical aspects in the quarter. The slides will be similar to download this presentation released this morning, and are available on our web page. After the presentation, the operator will open up for questions.
To be able to ask questions, you will need to dial in to the conference call. I now give the word to Storebrand CEO, Odd Arild Grefstad, who will start the presentation on slide 2.
Thank you, Daniel. Storebrand presents a solid result of just about NOK 1 billion for the fourth quarter, and NOK 3.037 billion year to date. Operating profits in the fourth quarter is NOK 707 million, a considerable increase from the previous year. Performance-related income earned in Skagen in 2019 is booked in the fourth quarter, contributing positively to the result, while the insurance result is weakened by the group life results. Lars will revert to this. Our financial result is very strong in the fourth quarter, particularly in SPP. Overall, Storebrand has a strong growth. Asset management increased by NOK 124 billion to NOK 831 billion in 2019. Unit Linked reserve continued a strong growth with 23% during 2019.
Our solvency margin is 176% at year-end, and the Board proposes an ordinary dividend of NOK 3.25 per share. This represents a NOK 0.25 nominal increase compared to last year. If we then move to slide number 3. As usual, this is our twofold strategy. We actively manage the balance sheet and risk in the guaranteed products, and that are in long-term runoff. In the quarter, solvency at 176%, means that we are approaching the level for capital release to our shareholders, defined as a solvency level of 180%, and I will talk more about this shortly. We also maintain strong cost control and are committed to flat nominal costs from 2018 to 2020. Storebrand is well positioned for capitalized growth within savings.
Through our leading position in occupational pension and growth in Unit Linked in Norway and Sweden, as well as the retail market for savings in Norway. The growth in these business units contributes to additional growth in our asset management, which also grows through external institutional banks. Let's then move to slide number 4. As mentioned, the Board proposes an ordinary dividend of NOK 3.25 per share. This represents a NOK 0.25 nominal, nominal increase in the ordinary dividend compared to last year, and corresponding to an increase of 8.3% and a payout ratio of 73%, in line with our invest- dividend policy. The solvency margin was 176% at the end of year-end 2019. When the solvency margin reaches 180%, the Board has now stated that it intends to initiate a share buyback program.
A review of the solvency level and a related share buyback program will normally be conducted every six months at Q2 and Q4, starting in July 2020. Buybacks are subject to approval at the AGM and Storebrand and by the regulator. If we then move to slide number 5. Here we show that we continue our strong growth. The growth in Unit Linked continues with double digit premium growth, a strong underlying structural growth in Norway, good sales and transfers in Sweden, combined with strong return to our customers, gives an increase in Unit Linked volumes by 23% compared to previous year. Our asset management strengthens its position by as a leading Norwegian asset manager, with an increase in asset under management by 18% to NOK 831 billion during 2019.
In insurance, we see positive effects from growth initiatives within pure P&C, where premiums grew by 13% in 2019. The strong growth in 2019 creates a solid baseline for value creation in all business units for 2020. Let's then move to the next slide. Storebrand has worked with sustainable solutions for more than 25 years. We are therefore extremely proud to be ranked as the world's most sustainable insurance company and the most sustainable Nordic financial company in the Global 100 Index, published by Corporate Knights during the World Economic Forum in Davos this year. The respected award is a recognition of our work, and we are pleased to observe that our corporate and retail customers appreciate our sustainable solution. On slide number 7, we exemplify this. In Sweden, SPP continues to achieve solid growth in sales premiums and transfers received.
2019 is also the year where SPP decided to go fully fossil-free, meaning that more than 1/3 of Storebrand's assets under management, or NOK 277 billion, were invested in fossil-free funds at the end of 2019. The growth in fossil-free funds is a result of strong customer demand, especially from institutional investors in Sweden, but we also see increased interest in the rest of Europe. Moving then to the next slide, we have also shown that SPP does not only stand out with strong growth and sustainable solutions. SPP is also Sweden's most digital life insurance company, and this really contributes to the competitiveness of, and growth of the company. A solid proof of this is Sajna, SPP's fully digital tool for signing new occupational pension agreements, and the only provider to offer this in Sweden.
This is a unique customer solution and a highly cost-effective distribution platform for SPP. Sajna was awarded the Digital Project of the Year at the CIO Awards in Sweden, in December. With that, I give the word to Lars.
Thank you, Arild. Then I would like you to move to key figures on page 9. The group result of NOK 1,026 million is satisfactory. The strong results are supported by good financial markets and good performance fees for the full year. The operating result is hurt by weak insurance results and higher costs in the quarter, which I will go through in a moment. The earnings per share has improved during the fourth quarter, and the solvency is stronger. Good financial markets have led to strong returns. The excess return has been used to strengthen buffers in Norway and in Sweden. As you can see from the table on the lower right, customer buffers are up from 6.4% to 8.6% in Norway and from 8.7% to 10.7% in Sweden.
This is equivalent to value creation, not taken through the P&L, but pushed directly into the balance sheet. This strengthens the company's ability to withstand future market turbulence and secures customer returns in times of market volatility. Moving over to page 10. We entered the fourth quarter with 172% in solvency margin without transitional. Most changes and the subsequent changes have a neutral contribution during the quarter. There has been a strong increase in rates during the fourth quarter, with 35 bps on the 10-year swap spread in Norway and 39 bps on the same rate in Sweden. This gives a contribution of 9 percentage points. Reduced volatility adjustments, higher equity stress, and new capital requirements on mortgages on the life balance sheet pushed the solvency down by 7 percentage points.
These are all regulatory model changes and do not weaken the economic solvency of the group. Good risk management, strengthened buffers, and a positive development in the product composition gives a positive contribution of 2 percentage points, while operating profit gives another 1 percentage point after setting aside the dividend. As previously communicated, we no longer include subordinated loans that are coming to call in March. The solvency by the end of the quarter ends at 174% without transitionals and 176% with transitionals. The transitionals included here are related to the stocks we had into the Solvency II regime back in 2016. This transitional capital will largely be gone during 2020. Moving over to the following page 11 showing the movement from 2018 to 2019.
Looking at the solvency moving during the full year 2019, we still see model changes and assumption changes being neutral. The acquisition of Cubera pushed down the solvency by 1 percentage point. Changes in volatility adjustment, equity stress, lower UFR at the beginning of the year, and capital requirements on mortgage investments, pushed the solvency down by 8 percentage points. None of these changes actually weaken the economic solvency of the group. As communicated earlier, an optimization of our reinsurance program contributed 3 percentage points, while net repayments of subordinated loans gave a negative 1 percentage point effect. There were large swings in interest rates during 2019, but by the end of the year, long-term rates ended close to where they started. Short rates, however, were up, flattening the curve and bringing forward rates down. This gave a 5 percentage points negative effect on the solvency margin.
Good returns, buffer building, effective risk management, guaranteed business and runoff, growth in Unit Linked, as well as satisfactory operating results, collectively contributed 20 percentage points in solvency before dividends. On page 12, we see that there are no significant changes in sensitivities in the quarter. Moving over to page 13, we saw a 6% increase in top line revenues last year. Insurance results were weak. The increase in cost in the fourth quarter was partly seasonal and partly of a non-recurring nature. During the year, we had restructuring costs, the acquisition of Cubera, establishment of a common asset management platform, and performance-related bonuses. The last cost element, i.e., the performance-related bonuses, is positive, as it is a consequence of competitive returns to customers and performance fees to owners. We have large ambitions in Storebrand, and we run several exciting growth initiatives.
Nevertheless, we have few, 60 fewer full-time employees into 2020, and the management committed to deliver on the stated cost ambition. Financial results were good in the quarter and through 2019. The tax rate of 20% for the full year is as expected. On the following page, 14, shows the group results broken down in the 3 result areas: savings and insurance and guarantees. We see satisfactory developments in savings, weak performance in insurance, and a good year for guarantees. As there have been some questions on insurance, and in the interest of time, I'll jump to page 19, named Insurance. This area delivered behind 2018 and plans, both for the quarter and for the full year.
It is the same group life contract as we have previously commented on, that still caused us some trouble. We have further strengthened, strengthened buffers in the fourth quarter, and we have implemented significant pricing increases accepted by the clients. The other business lines show satisfactory profitability, and P&C have picked up growth above 10% in line with our ambition. Finally, let's take a quick look at page 22. The reserves in guarantees are in runoff. The apparent stability is a combination of long-term runoff and a short-term buffer building. The liabilities are improving, with declining average guarantees and shorter duration. Guaranteed reserves as a percentage of total pension reserves are now at 54.5%. At the time Mr. Grefstad took his job in 2012, the same number was well above 80%. And with that, I give the word back to Daniel.
Thank you, Lars and Odd Arild. O perator will now open up for questions.
If you would like to ask a question, please press star one on your telephone keypad. If you change your mind and wish to withdraw the question, please press star two. Please ensure your line is unmuted and clear, as you will be advised when to ask your question. We do have a couple of questions in the queue. The first question comes from the line of Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thank you very much, guys. So my first question, I guess, is perhaps unsurprisingly on the health and group life, and I'm just wondering if, because obviously, you know, you had good, very good results there in 2017 and 2018. And I'm just wondering, you know, if you can comment a little bit more on what sort of, you know, suddenly happened or else due to the fact that the claims suffer. Was it a case maybe you released a little bit more than you perhaps should have done, you know, in those earlier years? Or, you know, is there something that has sort of very specifically changed in that book across 2019? That was the first one. Thank you. Second question, just on the solvency walk.
Obviously, you had quite positive equity markets in Q4. I'm just wondering why you don't sort of split out the impact of equity markets and credit spreads in that walk and whether they did actually have an impact. I don't know if you can split out the 7 percentage points in terms of VA, equity stress, and other regulatory. Then finally, I was wondering if I could ask a couple of points on Skagen. I wonder if you could give us an update on the flows you're seeing there and the outlook. On the cost side, if I sort of take the NOK 280 million you reported and add back the NOK 26 million in performance fees, performance costs, I get to over NOK 300 million.
I'm just wondering if that's representative of the sort of quarterly run rate or, or if there's anything... Because I think the one-offs you mentioned were pre-Q4, so. And then just finally, is there anything that, you know, you can do or have in the pipeline with performance? Because I guess Skagen Global is performing very well, but the other funds sort of seem to be sort of consistently below benchmark, and I'm just wondering... Yeah, if you've got any time to address that. Thank you very much.
Okay, I'll start with a group question. You are correct that in 2017 and 2018, we have had the reserve releases due to to an apparent good development in this particular portfolio. It turns out that for some reason, in this particular portfolio, people they claim their disability capital later than is usual. So therefore, we thought that the year 2015, 2016 was better than expected since we didn't get claims in 2017 and 2018. And then the claims came in towards the end of 2018 and in during 2019 instead. So the later claim ratio or claims or a longer claims period in this portfolio than we are used to.
That fooled us, and retrospectively, we released too much reserves in 2017 and 2018, which we had to correct in 2019. Now, however, we have more data on this portfolio, and we feel that we are adequately reserved for based on the experiences that we've seen.
Okay. When it comes to your second question, regarding the - 7% on page 10 of the presentation. Volatility adjustments in Norway moved from 45 to 46. That created approximately 3 percentage points of the solvency ratio. Equity stress levels went from 37% to 39%, and that's just another 2 percentage points, roughly, on the solvency ratio. Then we have some new regulations in Norway, where we have another capital charge on the mortgage loans that are on the life balance sheet, which contributes another 1 percentage point roughly.
And we had also some new regulation around surrender charges in Sweden that made us change the surrender charges on some of the guarantees there, which also contributes a bit less than 1 percentage point. So those four combined up to 7 percentage points.
On your last question on Skagen, there has still been outflow during 2019, however, decreasingly so, and the outflow has been mostly in some of the institutional portfolios, while the retail portfolio is stable. In terms of performance fees, the actual performance fees were NOK 225 million in performance-related income. And then you have to deduct a total during the year of NOK 84 million in performance-related OpEx. So the net contribution is NOK 141 million. But in the fourth quarter, you have this other effect of NOK 225 million, which is the whole year income, and then a reversal of some of the charges for performance-related OpEx taken in the previous quarters. So you have an income for reversed performance-related OpEx of NOK 26 million.
So in the quarter, you have the NOK 250 million impact. That's not very clear. This is the same asymmetry we've seen on this line, previously.
When it comes to the performance, of course, we're very pleased to see that Skagen doing well and also Skagen m2 too, which is ranked to be the best real estate fund in Europe. It's performing very well in Skagen. We keep our philosophy in Skagen, as we do with our all our boutiques, Delphi, Storebrand, SPP as well. We work with our processes, of course, but we stick to the value approach that we have in Skagen. Of course, we have seen now for a while that value-based investment haven't been not creating as much value as growth companies have done. And it's also been very focused on some few companies that have created the value of our index.
So, I would say we strengthen our processes, we work with the teams, but we are keeping our philosophy in Skagen.
That, that's great. Thank you very much. Perhaps I can follow up, I'll follow up offline on the, the Skagen costs. But maybe just, just quickly, I don't know, Trond, if, if you can comment quickly on the, the contribution from, you know, other market movements other than interest rates, because, you know, just, I was just a bit puzzled that we didn't see, you know, a positive from equity markets, for example, on that, on that solvency walk.
Yeah. You will find good equity markets in the 2 percentage points for the business mix and asset allocation paper. The thing about good equity markets is that they build buffer capital, which is very positive. You see that buffer cash flow is strengthening in the quarter. On the same time, good equity markets also increase Unit Linked reserves, which in isolation are very, very good and very good.
But, at the same time, since you then get increased lapses on those products, it in general doesn't necessarily strengthen the solvency position of the group, although it's very good for the solvency of the group as a whole. So I don't know if that made any sense.
Yeah. Okay. No, that, that, that's great. And obviously, we just sort of apply the sensitivities that you give, which, which sort of shows a significant one to equities. But I understand it comes through those bars instead. Thank you.
The next question comes from the line of Matti Ahokas from Danske Bank. Please go ahead.
Yes, good afternoon. A couple of questions from me as well. First, beyond the capital release and your comments regarding the buybacks as the preferred tool for capital release, does this mean that extra dividends are totally off the table? And what kind of authorization do you believe you need in order to be able to kind of significantly adjust the excess capital once that's top it off? The second question is that you believe that you could actually start the buyback already now in July 2020, or if things continue as you expect them to, or will this be more a thing in one year's time, so after the 2020 full year results? Thanks.
Well, first of all, we have, of course, been talking to a lot of investors, and with them about the preferred way of doing capital release back to shareholders. And we hear that there is a preference for share buybacks when it comes to this excess capital. It doesn't mean that we cannot, of course, use a combination of buybacks and additional dividends over time. But you should expect us to do this with the share buybacks here, but when we have a good start to do this. We on the Board said that they will review this situation twice a year. They will do it first time in Q2 2020.
Of course, you have seen some reduction in the interest rates during the first quarter of 2020. That will have some negative impact on the solvency position. But you also see that we had a 20% increase in the solvency position due to good results, buffer building and so on during 2020. Of course, we don't take 2019. Of course, we don't see that coming through in 2019 due to exceptional good markets in 2019. But we have a strong growth in solvency capital in the group, and we of course work very hard to do as much as possible as value creation and capital creation, solvency creation as we can.
But I think to be able to do some share buybacks already in the second half of 2020, you also need to see some movements in the interest rate levels from the levels we see today.
Uh, great.
Yeah. Well, when it comes to the permissions, I think it's very easy that we can ask the AGM to have the same permission as we have today to buy back up to 10% of the outstanding shares. We do that on annual basis, have that permission today, and we'll ask to have that permission also going after the new AGM. And then, of course, we have to also have permission from the regulator to start doing share buyback.
Just out of curiosity, have you done buybacks? I can't remember. My memory is not that great, but, in history.
We actually did a small one last year for our share incentive program. That was the last time we did one, and then we have done share buybacks historically, but that's some years ago now.
Okay, that's what I remembered. If I just may have a follow-up. Obviously, we've seen a very kind of fortunate situation in the market with huge growth in your Unit Linked reserves and also the assets under management. But if we look forward from here now on, what kind of assets under management growth, assuming kind of normalized market, do you think is, or would you be satisfied with, both in terms of Unit Linked reserves and also the asset management, AUM?
If you remember from the Capital Markets Day in May 2018, we showed at the time and even up to today that we've had around 20% annual growth in Unit Linked reserves. We also said that looking forward, we expect that to be at a lower level between 12%-15% per annum. So that will obviously depend on market returns, but there is still a structural growth in the portfolio where most of the people with a Unit Linked contract are younger people saving into the plans, and very few people reaching retirement age and therefore taking money out of those plans. So structurally, there's an underlying strong growth, and you should expect 10%-15% growth with normalized financial markets, and even higher when financial markets. And on the asset management. Sorry.
Go ahead, sorry.
On the asset management as a whole, you will have the structural effect of some of the guaranteed liabilities running out and the structural effect of growth in Unit Linked. Then together with the growth of external mandates, which of course is harder to predict, but obviously we wouldn't expect as high growth rate in asset management as you would expect in Unit Linked.
Great. Thanks a lot.
The next question comes from the line of Ashik Musaddi from JP Morgan. Please go ahead.
Yeah. Hi, thank you, and good afternoon, everyone, and Lars. Just a few questions. So first of all, I mean, if I think about the capital position at the moment, 176%, I mean, there are some headwinds with respect to EIOPA review, especially related to interest rate risk and maybe related to Last Liquid Point as well. And then on top of that, I mean, interest rates going down in first quarter, not very helpful. So, I mean, what is your confidence level to do a buyback even like early next year? I mean, if interest rates don't change, let's say from here, what's your confidence level? What needs to happen for you to do a buyback?
Because if I think about your capital generation net of dividend, we are talking about, say, like in a normal market, about, say, 4 points a year. So your 176 at best goes to one seven... I mean, 180, and then there is some drag from interest rate year to date. And on top of that, there is uncertainty on this EIOPA review. So what gives you confidence to think about a buyback early next year or announce a buyback at that point? So that's number one. Secondly, can you give some clarity around this individual pension account related risk, where there is a regulation change expected, which you—I think you mentioned in the report, that the pension certificates will now be moved into employers, whereas you will lose some bargaining power on the pricing.
So what sort of headwind are we talking about, and how do you plan to address that? Because if I understand correctly, we are talking about NOK 200 million-NOK 300 million of revenue headwind. That's basically 10% of your profit. So because I don't think there will be any cost associated with it. So any thoughts on that would be the second one. And third one would be around, say, cost. Now, you are still maintaining your cost guidance flat for 2020. Now, what should be the base for 2020? I mean, if I think about, like, 2019, there was NOK 100 million of performance cost plus Cubera. So let's say that is a new scope thing, so 3.8 becomes 3.9 in the new scope. But is 3.9 a good cost base for 2020?
Which I'm a bit surprised because on an underlying basis, you did NOK 4 billion for this year. So shouldn't cost be moving up with higher assets in the savings business, et cetera? Would be great to know what sort of absolute level, of course, we should care about. Thank you.
Yes. I'll start, actually, on the, solvency generation, just to, to kick off that question. I think when you look at our solvency capital generation, we have roughly 10% from, results, and then we also expect to harvest some risk premiums, above the risk-free rate when we, we roll forward. So the next capital generation should be larger than the, the 4% you alluded to during, during, a, normal year. And then in the EIOPA, there is a process. We know that, interest rate and Last Liquid Point are things that are being discussed, and we are, of course, looking, looking into it. But, at the end of the day, this is the, this is the same business, before and after, any changes in regulation as such.
We will, of course, adapt to the new regulation, both on how we set our targets and how we adapt our AUM.
So sorry, just to be clear on that. So what you're saying is, if regulation changes your solvency ratio, so then your 180% could be a fluid number, so that can change as well?
I think what we see now is that there's still quite a long process in front of us, Ashik, so I'm not going to preempt any changes in that. But it's a valid point that the business doesn't really change from changes in regulation.
Okay.
Good. If we then move to Own Pension Account, there's nothing new in this quarter around that issue. I think we discussed it also in the last quarter. It's, of course, a huge opportunity, I would say, for us in the retail market. We are collecting all the assets for the individual, both when it comes for the defined contribution and from the pension certificates. Then it's, of course, different elements of pricing here. It's the corporate pricing element, it's administration cost elements, it's the pricing of the asset management fees, both when it comes to the retail part and the corporate part. And also, it's additional insurance products that is linked to this defined contribution part.
And when we have changes in pricing in one of these elements, it's, of course, natural for us to look at all these elements and ensure that we have a good profitability in the total offering of a defined contribution or Own Pension Account going forward. And we will do that, but that is, of course, a process that we need to have internally before we go externally.
With respect to the cost base, your thinking is correct, that we have basically NOK 3.8 billion, plus the Cubera cost, plus any performance-related bonuses. And if they are higher than NOK 100 million, that will be good because that will generate, you know, about 3x as much as performances. If they are smaller, then it's good for the cost base, but less good for the excess performance. So it's a fluid number, but your thinking is correct, ending with your parameters around NOK 3.9, that makes sense.
So what it means is, if the performance fees is still the same, let's say, in 2020 versus 2019, then the cost base we should be baking in our model is NOK 3.9 billion. Is that correct? Because somehow I think you are running ahead of that cost base at the moment. It's not that run rate. You're running a bit NOK 100 million-NOK 150 million ahead of that. So is it fair to say that you'll be cutting costs in this year rather than maintaining a flat versus 2019?
It's fair to say that we've incurred some additional costs during 2019 in order to make sure that we have a run rate which enable us to end up there during 2020. So it's not like we're going to cut costs from this level, but it's correct that the costs we incurred during 2019 looks like it's on a trajectory which is slightly higher. But the restructuring costs that we had has ensured fewer employees. The asset management platform that we have established has ensured lower running costs. And we had a cost overrun of that project of NOK 20 million which was written off in the fourth quarter.
We have also written down some previous systems that we are no longer using and no longer having running costs on as a consequence of this investment management platform. So we are confident that we have a trajectory which will lead us to be within the stated cost targets for 2020.
Absolutely clear. Many thanks for this.
The next question comes from the line of Blair Stewart from Bank of America. Please go ahead.
Thank you. Good afternoon, gentlemen. I've got a few questions. Firstly, could you summarize the tax issues that are discussed in note 9 of the report? There's a lot of detail there, but really what I'm trying to ask is, what are the shareholder risks here if the rulings go against you? Because I understand that part of this accrues to the policyholder, so I'm interested in what the shareholder risks are for the various tax issues. My second question is on the consolidation ratio in SPP. I notice it's now at 109. What does that imply? Does that allow you to take an additional 40 basis points on the relevant reserves? Third question is on the buyback.
It seems to me at least, that you need to do a significant amount of buyback activity to get anywhere close to your 10% ROE target. So I can understand why that's important. Is there any initial view from the regulator on whether a buyback would be palatable, you know, to them? Have you had any early discussions? And finally, just on the question of pension certificates and the margins in the Unit Linked segment in Norway. I know there's a lot of moving parts, but I think the margins, the revenue margin has been going down now almost every year for the last five years. Is that a trend that you expect to continue? Perhaps albeit offset by a higher top line, but the margin certainly has been going down. Thank you.
If I start with the tax, we think we have stated it quite clearly in the notes to the quarterly report, this time. It's quite an extensive discussion about three different elements of the tax, the outstanding tax issues. The downside risk is at NOK 1.2 billion cost to the shareholders, as stated. However, we are quite sure, and the Board is quite sure, based on internal and external expertise, that this interpretation of the tax law will end in our favor, in which case we have an upside rather than a downside. However, again, this probably has to be taken through the legal system in order to find this final solution, which means that a clarification may take three or four years before finalization.
So the three different elements in the tax issues, as stated in the quarterly report and in the notes, they have about NOK 1 billion of upside and about NOK 1 billion of downside. But we are... Well, it, it's going to take some time to get a final clarification on all of them.
Does that mean that in the meantime, you're in a tax payable position?
Not this year, but likely 2020. Or not for 2019, but likely for 2020.
Okay.
Consolidation, you are correct that.
If you win the tax ruling, you move back into a non-tax payable position. Is that right?
That's correct.
Is that the other upside?
Yep.
Thank you.
On the consolidation ratio in SPP, yes, that is, well above 108 now, which means that we are able to take out the 40-50 mentioned , which again, means about NOK 25 million per quarter, from SPP. And the consolidation, will fluctuate with, first and foremost, interest rates, but also with excess returns in the portfolios where we harvest excess returns from equities or credits, et cetera.
When it comes to the share buyback program, first of all, we of course have regular contact with the regulators. We also annually send them our own risk and solvency assessment or document that takes into account both the solvency position and of course the different types of stresses that we apply to this solvency position. So they rely on our position and our statements that we gave to the markets today.
When it comes to the combination of buybacks and additional dividends, of course, we are able to use both tools. But as I said, we are very firm that we will start out with doing share buybacks for excess capital talking points.
Do you think it's realistic to hit your ROE target without doing buybacks?
Without doing buybacks? You are correct that the R and the E is important to make the ROE target, and it will help do something on both.
Absolutely. So we are very committed to do that. When it comes to.
Could you hit the ROE target in the medium term without doing a buyback?
We have already, I think last year and the year before that, we made over 10% return on equity, so-
That was good luck. That was good luck, though, Arild. You can't get good luck. Okay, no problem. I get it.
Okay.
Thank you.
When it comes to Unit Linked segments, t he margins, you asked the right call. So we turn onward, then I think it's very fair to say that the margins in Norway for pure defined contribution they are extremely low compared to also the different countries that it's easy for us to compare to. And that is due to the fact that there are of course very good margins in the pension certificates. All of this changes now, and then we also have to change the way we're doing the pricing of these contracts.
Okay, I think that's it. Thank you very much.
Thank you.
The next question comes from the line of Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thank you very much. I think Blair must have been looking over my shoulder, actually, yeah, identical to my second lot of questions. But if I can maybe just ask one follow-up. I was just wondering if you could give us your view of where the solvency ratio is today. I mean, obviously, you've, you've talked about the interest rate falls, and you've had the NOK VA falling another 4 basis points as well, maybe slightly offset by a bit, a bit more favorable equity stress. Yeah, just wondering, putting everything together, can you give us a rough, rough feel for how you think it's, it's changed year to date?
I think all else equal, Peter, somewhat lower interest rates with the solvency ratio lower and also asset side and the UFR sensitivity will also take the solvency ratio a couple of percentage points lower. And then, of course, we have already earned some money year to date, which makes up for some of that. And then, of course, technical factors affect the solvency ratio direction wise, as to the way it pointed. But we, you know, we don't have an exact estimate on this point in time.
We give the sensitivities, and then it's up to you to make that call.
Yeah. No, I was, it was worth a try. I knew you had your monitor in the management headquarters that gave a fairly constant update, but it was worth a try. Thank you.
Thank you.
There are currently no further questions in the queue. But as a final reminder, if you would like to ask a question, please press star one on your telephone keypad. And we have had another question come through from the line of Ashik Musaddi from JP Morgan. Please go ahead.
Yeah, hi. Sorry, just a couple of additional questions, if possible. One is, NOK 150 million of net performance fees from Skagen, you were saying last year, probably nothing. Is this what is in line with your expectation when you bought it, or do you think that this is still low? And I'm just looking for net performance fee rather than the NOK 225 million growth. So any thoughts on that? Do you think it's low or, or it's acceptable? The second one would be this strengthening of buffers in the guaranteed book. I mean, till when would you continue to do it? Is there a number, is there a, like a ceiling where you will go, and you'll stop there, or it will just go on forever? Thank you.
In terms of the Skagen performance fees, they are different in different funds. If you reach a normal, just benchmark return, it will be in the order of NOK 150 million plus in net performance fees. However, running an alpha fund, we want to have above benchmark returns, in which case you should have higher performance fees as well. But the way we run the business, we run it for a break even on a fixed-to-fixed basis, and then we create an environment where additional performance should be available, if possible, to create additional value for policyholders, customers, and shareholders.
I mean, what I'm trying to understand is when you acquired it, do you think that it would be NOK 150, or would you, would have targeted a higher number in a normal course of business?
One way to look at this, Ashik , is that we paid roughly NOK 1.5 billion for the company.
Okay.
That, that could go up to a larger number if the performance fees are very high and the returns are greater. And then there's the symmetry there. But I think on a PE basis, it's reasonably fair, NOK 150 million on NOK 1.5 billion in purchase price. So it, it's fair and open within the parameters we set when we acquired Skagen.
Yeah, that's clear. Yeah.
In terms of buffers, we have had a very strong year for 2019 in terms of financial return, and also this year, it makes sense when we run our sensitivity and our risk management to continue to build buffers, as I've gone through earlier in the presentation. I guess we are reaching an area where we don't need... in some portfolios, we don't need additional buffers, but in other portfolios, there is still room to build additional buffers.
Okay, so it can continue in the near future. Okay, that's clear. Thank you.
There are no further questions in the queue, so I'll hand back over to your hosts for any closing remarks.
Thank you very much. Before we end, I would like to invite all of you to our Capital Markets Day conference in London on June ninth this year. Registration and more information is available on our website, storebrand.com/ir. I'd also like to remind you that we will be present in London and Frankfurt tomorrow, and Stockholm on Friday, and we hope to see several of you there. Thank you for joining the call. Goodbye.