Thank you very much. Good afternoon, ladies and gentlemen. Welcome to Storebrand's fourth quarter 2018 conference call. My name is Daniel Sundahl, and I'm part of Investor Relations team at Storebrand. Together with me, I have Group CEO Odd Arild Grefstad, CFO Lars Aa. Løddesøl, Executive Vice President and Managing Director Geir Holmgren, Executive Vice President Wenche Martinussen , and Head of Economic Capital Trond Finn Eriksen. In the presentation today, Odd Arild will give an update on development in the fourth quarter. CFO Lars Aa. Løddesøl will give an overall view of the financial development and dig into some of the more technical elements in the quarter. The slides will be similar to the analyst presentation released this morning and are available on our webpage. After the presentation, the operator will open up for questions. To be able to have questions, you will need to dial into the conference.
I now give the word to Storebrand CEO, Odd Arild Grefstad, who will start the presentation on slide two.
Thank you, Daniel, and good afternoon, everyone. 2018 has been a strong year for Storebrand, with a group result of NOK 3.2 billion, and a result of NOK 3.7 billion after taxes, due to a positive tax effect, as addressed in a separate stock exchange notification. This is all-time high results for Storebrand. Our Solvency II ratio is also all-time high, with 172% without any transition rules. And we increase our dividend to NOK 3.33 per share. The underlying growth in the business is strong. It reduced in the fourth quarter by the weak financial markets. Weak markets also negatively affect our profits, in addition to substantially reducing the performance fees compared to 2017.
On a positive note, the development in the financial market so far in 2019 has been strong, and to a large extent, reverse the effects from Q4. If we then move to the next slide, this picture was introduced in our Capital Markets Day in May. It is a picture of our twofold strategy with active management of the guaranteed business in run-off for capital release, and profitable growth in our capital life savings business. Through our position in occupational pension in Norway and Sweden, a growing retail savings market, and asset management business with over NOK 700 billion asset under management. Looking at the active management of our balance sheets, we continue to o ur strong cost control, with costs for the full year, just below NOK 3.8 billion.
Our Solvency II came in strong at 173% for the year. At our Capital Markets Day, we guided on reaching a solvency of 180% in 2021, all else equal. With a strong solidity development in 2018, we will, again, all else equal, start the capital release of our back book expected one year earlier. The growth in our front book has also continued through 2018, though somewhat reduced by the financial markets in Q4. We also continue our strategy with bolt-on M&As, and that leads me to next slide, slide number four. Lately, we have landed two transactions with a comparable size. We have sold Nordben, a Guernsey-based run-off portfolio of international pension schemes, of totally NOK 6 billion. The sales will give a positive effect on solvency of just under one percent point.
So we also sell a portfolio that is not strategically important to us. Meanwhile, we also buy a Nordic leading private equity company, Cubera. Cubera will strengthen our asset management offering in general, and especially benefit our focus on private markets going forward. The acquisition price was initially NOK 300 million, for a yearly earnings before tax on NOK 50 million. The buying price can increase with another up to NOK 225 million, depending on successful capital raise going forward. If we then move to slide number five, the acquisition of Cubera will, as I said, add depth to our asset management.
In addition to listed stocks, interest-bearing papers, and real estate, we see that assets equivalent to private debt, private equity, and infrastructure are becoming increasingly important, both to our own life insurance business and with regard to offering competitive asset management solutions to our institutional clients. Let's move to slide number six, and the growth. We have gotten used to seeing double-digit growth, both when it comes to savings and asset management. And the underlying growth is still strong in 2018, with a growth in premiums within unit-linked business of 7%. Normally, a positive return on equity will add to this growth, securing a growth in asset management well above 10%. We didn't see this positive market effect this year.
On the contrary, we had a fall in global equities with 11% year-over-year, and that make up for the final growth number of 7% when it comes to unit links. Asset management are hit by the same effects, in addition to a negative currency effect between Norway and Sweden, and negative net flows in SKAGEN. Our bank is maintaining a steady growth of 10% in 2018, and we now also see growth within our insurance business. The profit development have been strong, both when it comes to our banking and insurance operations this year. If we then move to the solvency movement on slide number seven. Our solvency has really strengthened this quarter, despite the volatile markets.
If you break this down, the movement from 166% to 172%, we see that the market development in the quarter has put a strain on our solvency. Through a 14% fall in the world index, a 20 basis point reduction in the 10-year interest swap rates in Norway, and in addition, of widening spreads. We have executed active risk management measurements, and have maintained buffers in a very good way in our life insurance company. All this together, though, has reduced the solvency ratio with six percent points. Then we know that the EIOPA has, due to market conditions on a quarterly basis, is adopting new stresses for equities and for volatility adjustments. And these new elements from EIOPA this quarter has given a positive development on the six percent points upward.
And then you see that the volatility adjustments and the reduced stress for equities has really then taken out the negative market condition altogether. On top of this, we have a strong result of the tax in the fourth quarter. And this is mainly due to the tax income of NOK 1.6 billion that we noted the market with in a separate press release. And this added a six percent point to the solvency for the quarter. And altogether then, a solvency ratio of 172, and a minor adjustment for transitional groups lead us to 173.
If you then look a bit closer into the solvency sensitivities on slide number eight, we see that the sensitivities is very much on the same levels as we saw in Q3. We can notice that a fall in the interest rate of 50 basis point from today's level will entail that we, that the transitionals once again take effect for interest rates, and in fact, lead to increase on the total solvency ratio. Then, at last, before I give the word to Lars, if you look at the solvency movement for 2018 on slide number nine we see that there's been a very strong development for the year on a 22 percent point increase for the full year before dividends. Substantially more than our guidance on 10-12 percent points on annual increase before dividends. So by that, I give the word to Lars Aa. Løddesøl.
Thank you, Odd Arild. Let me briefly go through some of the papers with you. The profit before amortization, this is on the key figures, page 10. The profit before amortization at NOK 563 million is rather weak. The ordinary operating profit at NOK 654 million is okay, but will usually be higher in the fourth quarter due to book performance fees. Adjusted for performance fees, the operating profit is NOK 565 million, so much weaker than our guiding. If you look at the earnings for the full year, we've had three quarters delivering better than guidance, and one weaker. Looking forward, the full year operating profit divided by four gives a reasonable guiding on the earnings power going forward. The main reason behind the weak quarter numbers are slow financial markets and poor one-offs.
In Norway, we have a regulatory retail equity savings scheme called ASK. Storebrand and SKAGEN have each developed its own platform for ASK. As part of the integration with SKAGEN, we have established that the SKAGEN platform will be rolled out for the whole group, and we take a one-off charge for the closing down of our own development work. Second, in the fourth quarter, we have booked approximately NOK 20 million in advisory fees, primarily related to the Nordben sale announced in December, and the Cubera acquisition announced Monday. Three, furthermore, we've taken a charge for a renegotiation, a renegotiated remuneration scheme for our sales force. This will not lead to higher costs going forward, but it's a one-off compensation. And finally, we have booked too much regulatory fees in the paid-up policy book during the year.
This income had to be reversed by NOK 38 million in the fourth quarter, and reduces the income line. The full year number is correct, and we are reviewing our processes to avoid a similar adjustment in the future. The final financial results, the financial result is weak in the quarter, very much in line with financial markets and with normal financial market volatility. Worth to notice, is that increased credit spreads gives a short term negative mark to market on our company portfolios, but a long term pickup in returns. As long as there are no defaults, there is no long-term effect.
... Furthermore, the positive financial market since year end has more or less neutralized the fall in assets under management that we saw in the fourth quarter. Flipping over to the next page 11, this is a more traditional presentation of the results, and we see that fee and administration income is down in the quarter, primarily as a consequence of lower performance fees in 2018 compared to 2017. For the year as a whole, the income is up 5%. The insurance result is up by 13% during 2018. The cost level is up due to the inclusion of SKAGEN, but is below the targeted NOK 3.8 billion for the year as a whole. This means that adjusted for SKAGEN, the cost level has been nominally flat for six years in a row, since 2012.
We aim to maintain the same nominal level at least until 2020. The operating result for the year is up 4%. Adjusted for currency fluctuation in Skagen, the underlying Storebrand operating result is up by 14% and confirms the strong underlying growth. Under tax, we have a, have a positive contribution of NOK 900 million, following the tax gain of NOK 1.6 billion announced in January. This is a consequence of new tax rules for life and pension businesses, separating the tax accounting for customers and pension providers. With this change, we will have a more predictable tax charge of 21%-23% per annum going forward, and large tax differences, both assets and liabilities, have been removed from our balance sheet. Net, net, we still have approximately NOK 8 billion in tax loss carry forward, tax losses carried forward.
Although the fourth quarter results were weak, 2018 comes out as one of the best years we've ever had. Furthermore, the solvency position has been strengthened, we're paying out more dividends, and the market position is strong.
Thank you, Lars and Arild. The operator will now open up for questions.
So the next question comes from the line of Peter Eliot from Kepler Cheuvreux. Please go ahead.
Odd. So the first... I have three questions, if I may. The first one was, I was just wondering about how you now think about the sort of the balance between growing volumes and margin. I mean, in the report, you make a few comments about margin pressure in unit link asset management and in insurance. And I'm not, I'm, I've, I think I'm right, that DNB has been cutting unit link fees quite heavily. I mean, I guess in insurance a few years ago, you were sort of forecasting double-digit growth rates there. That you've had some distribution issues, but those should now be over.
You know, going forward in those three areas, how should we think, you know, are you thinking you need to take the foot off the accelerator a little bit to protect margin? Do you think there's risks to margins? I mean, can margins be maintained? Just wondering if you could talk about that a little bit. Sorry, that's a long one. My second two are very short. The second one is, Skagen net flows. Would you be able to give us the number for Q4 and maybe any comments on the outlook? And the third final one was, I was surprised with the dividend, that it was all normal, but very welcome. I'm guessing that kind of says to me that you think you currently have a sustainable EPS of NOK 6.
So I'm not quite. I mean, it seems quite punchy, and that's probably the wrong way to think about it. But I was just wondering if you could explain your thinking behind, you know, setting it all as normal. Thank you very much.
Okay. Should we start, if we talk about margins, I think first of all, you need to recognize that our business is very much a corporate pension that is already on quite low margins in the Norwegian market. And the bulk of the business is really within defined contribution. I think DNB has done something on their direct mutual fund fees for the retail market, but it's also a mixed bag because it's somewhat reduced ordinary fees, but it's also introducing performance fees for, as I understand, almost all of their mutual funds.
We have, of course, an ongoing process looking into our fees for the retail market, when it comes to mutual funds, both in active funds and for more beta type of funds. And we feel that we have a, well, a pricing that is giving the right value to the customers, as we speak. But that is, of course, an ongoing process. I think when I look at the more pension market, it's, of course, more like high competition in the market, and also a process that in 2021, we will have our Own Pension Account coming into the market. Where the active management of Defined Contribution will be combined with the paid-up policies, without investment choice.
That is, will be combined in an account for the customers, and that is a very attractive market of course, that we feel that we are very well positioned for, with our 31% market share. But that is also an attractive market, of course, for everyone else around us. So that is a battle that we are into and that we like to fight going forward. So I feel that we are in a market that is really growing very fast, and the growth within our pension market will continue to go forward in the Norwegian market and in the Swedish market, and we will take our share of that growth.
The market, the margins we are seeing in the pension area is quite sustainable, I think, going forward in the well, short and the near time future. When it comes to SKAGEN, the net flow for the year was - NOK 40 billion. 14. NOK 14 billion when it comes to the net flow. Most of that was early in the year, where we had some changes in the portfolio managers. At the end of the year, we saw that both performance and stability in the funds was much higher. And, I think we said earlier today, that in December, in separate, we had a plus inflow in our flagship from Kon-Tiki.
And the development so far in 2019 has been very good, both when it comes to absolute return and relative return in the funds in SKAGEN altogether. Dividends. Well, this year, we have really had a very strong year when it comes to capital upstreaming to the holding company. We have a very solid position. I think we have also quite a solid result generation going forward. We feel comfortable about meeting our target of having a nominal growth in the dividends, or at least the same level as we had last year. And based on our expectation of the results from the company, that should be a sustainable position going forward.
Thanks.
Thank you.
The next question comes from the line of Matti Ahokas from Danske Bank. Please go ahead.
Yes, good afternoon. I'd like to continue on the same topic as Peter earlier on. On the dividends, you obviously have the strongest solvency margin you've basically ever had, and a lot of positive one-offs. And if I understood you correctly, you had already mentioned that the capital release from the guaranteed back book would already start a year earlier than you originally forecasted. So, I'm still a bit puzzled on why the dividend isn't higher than it is, taking into account all these factors that has been mentioned. Second question is regarding the performance fees in the savings business, obviously down by around 200 million NOK. Is the underlying level, I know it's probably difficult to say, but, but is it closer to NOK 200 million or the NOK 300 million it was in 2017 going forward, in your opinion? Thanks.
Can you repeat that question, which segment or which slide were you referring to?
So the savings business, you write in the report that the performance fees altogether was NOK 90 million versus NOK 300 million in 2017 for the full year 2018. So is the underlying level closer to NOK 200 million or the NOK 300 million we saw? I guess the NOK 90 million in 2018 is probably not what we should be looking for in the future.
Thank you. We start with the dividend. We have been very clear that we see that the levels of 180% in solvency is the level where we feel that we have a level where we can start give extraordinary dividend based on the capital release from the back book. And everything equal based on having a underlying solvency ratio of 172% as we speak. We expect that by mathematics, more to say to come one year closer based on the guidance we gave on our capital market today.
I have to say that, the result we gave out, the dividend we gave out now is actually 68% of the result before we take into account the extraordinary element from tax. That is a bit special. So, if Lars will answer on more asset management and performance fees. Maybe just like add one comment. You mentioned that there were lots of positive one-offs, and the fourth quarter was basically a number of negative one-offs, not positive one-offs. So in the beginning of the year, we had a positive one-off on longevity reserve strengthening of NOK 149 million. But there has been a more balanced number of one-offs, positive and negative one-offs after that.
And I would also say that the tax effect, and the positive contribution from the tax effect, has given an opportunity to take out an additional dividend from the life company to the holding company, which strengthened the liquidity in the holding company going forward. So although, yeah, so that's a positive consequence of that. When it comes to performance fees, performance fees are the, the fees that are not certain before they are booked at the end of the year. And if you look at SKAGEN in isolation, they have been between close to zero and above NOK 1 billion for the last five or six years. So there's some, a, a wide difference between the upside and, and, and, and the downside of the book zero.
In Delphi, the fees has been between about NOK 50 million and NOK 150 million on an annual basis for the last several years. So that's really the outcome is a broad range here. What we have said that if they, if Delphi and Skagen delivers approximately benchmark performance, they will deliver in excess of NOK 200 million on an annual basis. But obviously, over time, we do expect performance over and above the benchmark. That's why we take risk, and therefore, we do expect more over time. But there will be, this will be a volatile element, and there's nothing called normalized in that space.
Very clear. Thank you. If I may follow up on Narum's dividend answer. The extra in 2017 was based, I guess, then on the old dividend policy, so we should be kind of looking at the NOK 180 level as the kind of hard threshold for anything extra in the future.
Well, the dividend policy now is paying off more than 50% than of the result of the tax and having an increased dividend on an annual basis, a nominal increase in the number. The threshold that we have put forward is that normal dividends will be paid between 130 and 180% in solvency. And when we move above 180% in solvency, we start releasing capital from the back book. And as we said in our Capital Markets Day, within a 10-year horizon, we expect to release around NOK 10 billion from our back book.
Got it. Thank you very much.
The next question comes from the line of Ashik Musaddi from JP Morgan. Please go ahead.
Hi, good afternoon. I just have few questions on, So first of all, on solvency to capital generation, which is on slide number nine. Can you help us, like, this 10 percentage point capital generation on, like, group result, excluding the tax impact? I mean, what does it include? Does it include the tax benefit? Sorry, does it include the, the UFR? Does it include any release of capital? Can you give a bit more clarity on that? Because this number was a bit higher last year, I think 11 or 12%, and now it went down with your SCR coming down as well. So can you just give us a bit of composition of this number, 10%? That's number one. Secondly, I'm sorry to go back to the asset management.
Can you just remind us as to what your normalized earnings for asset management, excluding the, the performance fees of Skagen and Delphine, Delphi? So what would be the normalized asset management earning, excluding those two items? And thirdly is, I mean, if you think about, the combined ratio, I mean, clearly your guidance is around 90%-92%, but you have been doing, below that for quite some time. So how should we think about combined ratio in the P&C business going forward? Thank you.
Okay. Thank you. Let me start with the first question about the capital generation. The way we have choose to show the capital generation in this picture is merely taking the group results as it comes from the equity generation in the life or in the group balance sheet. If you take this year's results and add on amortization of intangibles and divide on the SCR, then you will get to 16%, which you can then again can be divided between those 10% and 6% coming from the tax element. So that's how we have shown to or chosen to shown it. You could also show it in a different manner, where you separate what is expected to result in the solvency models, and that is capital generation. About that, we have not chosen to do that here.
Sorry, just to follow up on that. So what you're saying is, this group results still don't include any release of capital. And if I remember correctly, your release of capital was earlier planned from 2021, and now it is bring forward to 2020. Is that correct? And that would be around NOK 1.3 billion, NOK 1.4 billion.
That's correct. When it comes to the dates you're mentioning, I don't want to comment on your capital release in billion.
Okay. Then on asset management earnings?
Yeah. The normalized earnings in the asset management business, you can derive from the numbers we present, which is roughly NOK 500 million based on today's AUM and with no performance fees whatsoever. And then there will be performance fees on top of that, and the AUM has been growing over time. And we are doing a lot of measures to improve both profitability and growth in that business. We also have a target that was announced on the capital markets day, which was... Well, I think we was close to NOK 1 billion in results in 2022. Yeah. So that says something about the big growth. And the one billion does include performance fees.
B ut nevertheless, we have a strong, growth agenda within asset management. And the last one on, combined ratio. Combined Ratio, going forward, we said all along that we've had a number of years now, or a couple of years anyways, with, very good Combined Ratio numbers, and that we are long-term aiming for 90%-92%. Which means that when we've had a Combined Ratio below that, we've been able to, adjust prices on certain products and, to invest somewhat more in growth. What we have done, one of the things we've done, in terms of growth in the fourth quarter last year, is to cooperate with a sales partner that has an agent that is selling more insurance on for us, and that has negatively contributed to earnings, but positively contributed to the growth that is starting to pick up now in the fourth quarter.
Okay, thank you.
The next question comes from Blair Stewart , from Bank of America. Please go ahead, your line is now open.
Thank you. Good afternoon. I've got three questions, I think. The first one, just drilling down into movements in capital requirements, I think it's on page 35 of the interim report. The capital requirements reduced in the year, but that was mainly due to the market elements. I just wonder if, Trond, perhaps you can go into a little bit more detail there, and given the equity markets have recovered, does that capital requirement go back up? And I guess aligned to that, and talking now about the possibility of additional capital release, you know, the 2021 guidance, I took to be twofold. Firstly, that 2021 was the date when you expected to reach 180, but also that 2021 was the time where you expected to, you know, to be physically seeing the back book rolling over and starting to release capital that way.
So my question is, you know, when we get to 2020, which is a year earlier, we may well be at the 180 threshold for solvency, but will we really be seeing capital falling off the back book at that time? Sorry, I hope that's clear. And my final question was really just on the holdco liquidity. Is that something I think you've said in the past, that you wanted to run that with around zero net debt? I just wonder if that's still the target or what, how we should be thinking about that additional liquidity that's been pumped into the holdco from the, you know, from the life company, dividend. Thank you.
Thank you Blair. First on your first question regarding reduced stress levels from the market element. Yes, you're correct, right, that given now strong equity markets, what will happen is that we will increase the holdings in unit link business. That will generate more profitable business and will increase the SCR stemming from that business. So, again, on increased equity markets, you will both have more profitable business that will increase the SCR. And it will probably also have a negative effect on solvency number from increased equity stress levels, which is all-time low now, at this quarter in the 32.9%.
And you know that the basic stress is 39%. So, equities, yes, the other element is credit. And you will have also a positive contribution this quarter from increased volatility adjustments that goes into that line as well. So, you're perfectly correct that strong international markets will increase the SCR from the market stress. Saying that, you should also bear in mind that we will, in strong equity markets and strong credit markets, have been more buffer capital, which is really positive to the total risk mitigation of the Storebrand Group. And that leads partly into, I think I'll leave it there.
Thank you.
The next question comes from Kevin Ryan, from Bloomberg Intelligence. Please go ahead, your line is now open.
Sorry, we haven't answered the previous question.
Oh, I'm so sorry. Could the person just please just "press star one" again, and I will transfer him back to the call.
Yeah, when it comes to the next question, Blair, which was release of the back book. There will be a release of the guaranteed back book, at least in the estimate. Now, that will then go from have a reduction of the reserves. It will comes from that we expect to the interest rates to increase with the forward rate, which will then decrease a capital or the SCR from that book. And also now with strong equity markets in the first month of 2019, we have also built a lot of new cover capital, which also relieve- reduced system, the capital requirements from the guaranteed back book. So, so, there will be a true reduction, in the SCR coming from the back book.
But as we've illustrated, it's not a binary thing, it's a concave. It gradually happens over time, and we start releasing capital on the Swedish book this year, and we start releasing more capital from other places gradually next year and into the next numbers.
Yeah. And when it comes to the liquidity, it's true that we have a net debt ratio of zero, but the aim for the life for the holding company. We use this opportunity now with the extraordinary results in the life insurance company, also due to the tax results, to put some more cash in the holding company. That is helpful when it comes to ensure that we are able to meet our obligation, also going forward, to have a nominal growth in the dividend, even if you have a more weak year.
Also it is a very good position to be in, to be able to also release capital above the nominal results when it comes to taking up results from the life insurance company, based on our capitalization above 180%.
I do think it was Stewart. Yes, Stewart from Bank of America. Your line is open if you want to continue asking questions.
Yeah, thank you. Maybe I can just come back on the point about excess capital return. So just to be clear, so you think if all going well, you should be reaching 180 sometime next year, and there will be scope for some capital to be released from the back book, although I take the point, Lars, that it's likely to be small. And then, you know, that you've talked about that NOK 10 billion, but that's gonna ramp up over time. But presumably, you can also think about just paying a higher proportion of your earnings as a dividend, you know, which would be just, you know, not adding the retained earnings to your solvency.
I think just to answer on that, first of all, of course, anything equal, you see that this year has been a very strong year when it comes to adding solvency ratios, 22 percent points. We have guided on long term a 10%-12% growth in the solvency ratio annually, and with 50% payout of dividend, that is reduced then to 5%-6%. And, as you said, the more you pay out in the normal dividend, of course, the less you will have to increase the solvency position to get above 180%. So, this is, of course, how it works.
And based on these numbers, our estimate is that we will need to towards 2019 and 2020 to now, in a normal situation, reach above 180%. There is a lot of moving factors into that estimate, of course, but that is just being equal to what we said on our capital markets day. We're now 172% in solvency. That is much better than we had when we had our capital markets day back in May. This seems everything equal to have become one year earlier compared to our guidance on capital markets day.
Yep. Yep. Okay. Thank you very much.
Thank you. Next question, please.
The next question comes from Kevin Ryan, from Bloomberg Intelligence. Please, Kevin, your line is open.
Thank you. I just had a question about the retail funds platform, please. Could you give us some guidance on whether the costs of that have now been fully expensed, or whether we can expect some additional costs this year? And also, can you offer some guidance as to how we should think about the volume from that platform? Thanks.
This was a regulatory framework in Norway changed to a law for an ASK in 2017. And we've built two platforms through 2017 and 2018, one for Storebrand and one for Skagen. Now that we've merged the two, we are writing off the investments in the Storebrand platform. The Skagen platform do have some costs that is on the balance sheet, and that will be written off over time, and we'll continue to develop the joint platform together. So there is nothing extraordinary related to that. That's a normal development and adjustment to the market. And in terms of volumes, this is a way to place your equity investments, whether it's equity investments directly or through mutual funds.
And it's a way to help individuals without large fortunes, to be able to have the same benefits as if you were a wealthy individual and you had your own investment company, where you could trade in and out of equities without releasing tax. So this is a way to allow normal people to invest in equity-based savings instruments without releasing tax when they switch in between the two. So the overall market for equity-related investments should go up as a consequence. And our aim, together with the investment in SKAGEN, is that we have a number one position in that market over time. We currently have around 20% market share, which we aim to increase to about 25% market share in a growing market.
Thanks.
Thank you. Next question, please.
Ladies and gentlemen, there is no question at the moment, so please "press star one" on your telephone keypad to ask a question. We do have a quick response from Peter Eliot from Kepler Cheuvreux. Please go ahead. Your line is now open.
Thank you very much. I just wonder if I could just clarify the timing. I mean, I know there's very un- lots of uncertainties here, but I mean, if you allow for the recovery of markets at the start of this year and your sort of five percent points net of dividend guidance and everything seems, I thought was sort of pointing towards the start of 2020, when you're, you know, in that position of the 180% in a position to start returning. When you said to, in answer to Blair's question, you said you needed 2019 and 2020 to get there, so that implies the end of 2020.
So I just wanted to check whether there's a, you know, we're talking about something different there or what that was. And then if I could ask another question. You reported a negative financial result in both unit-linked pots and in retail banking. I was just a bit surprised, actually. I mean, I didn't really expect to see financial results going through those. So I was wondering if you could just explain what caused that? Thank you.
I'll start with the guiding. I must apologize with my English, that it was a bit confusing here. I don't, I didn't mean to say that it was end of 2020 or in the middle of 2020. I think it's very difficult to be as precise as that when it comes to really the solvency, but it's more like saying that adding, well, five percent points solvency in 2019, well, move us up to around 177, 178. And then you also need to have some time in 2020 to reach up to the 180% solvency. But that is, again, as you said, a lot of moving parts into that calculations. But that is the thinking, in a way, when it comes to trying to explain it.
And with respect to the negative financial return in unit-linked and banking, there is one product with a small product with a limited interest rate guarantee, which lies in the unit-linked platform for technical reasons, which had a negative contribution in the fourth quarter. You should not expect that going forward. But that was what was booked in the fourth quarter. With respect to the bank and the negative financial return there, it's related to a way to account for the... It's IS- no, IFRS 9, and the way you account for losses in the book, where we made a model change, which increases the reserves for the, in the bank. So it's not related to any change in the expected losses, but an adjustment to the IFRS 9 regulations as to how you model or how you reserve for losses in the retail portfolio.
Okay. Thanks a lot.
The next questions come from Matti Ahokas from Danske Bank. Please go ahead, your line is now open.
Yes, a quick follow-up. I just noticed on Bloomberg that Storebrand Bank is planning on an AT1 and subordinated debt issue. Is it just normal refinancing, or are you planning on changing the capital structure in the bank and maybe upstreaming more dividends out of there? Thanks.
It's just normal refinancing.
Got it. Thanks.
We will do another reminder, ladies and gentlemen. If you would like to ask a question, please "press star one" on your telephone keypad now. Thank you. There are no further questions coming through, so I will hand the call back to you. Thank you.
Thank you very, very much. Before we end, I would like to remind you that we will be present in London tomorrow, and we hope to see several of you there. Thank you very much. Bye.