All right, then I think most of you have found your seats. We'd want to, of course, wish you a good morning to everyone. It's a great pleasure to welcome you to Storebrand's Capital Markets Day 2018, both you here in the room and those who follow us on the webcast. My name is Kjetil Ramberg Krøkje, and I'm Head of IR at Storebrand. I'm gonna run you quickly through the agenda today before we get started. The story we're telling today, and indeed, the title of the presentation, is that Storebrand today is a combination of self-funded savings growth and a maturing back book that releases capital over time. Storebrand's CEO, Odd Arild Grefstad, will start with a strategic update covering growth, cost, and capital.
Chief Operating Officer, Heidi Skaaret, will share how we leverage technology for growth while keeping cost under control. Thereafter, Staffan Hansén will talk about how we grow capital-light in the occupational pension space, but also share with you a couple of new opportunities that we are looking at for growth at the moment. Wenche Martinussen will demonstrate how we use technology to build a personalized digital retail operation. Jan Erik Saugestad will conclude the growth story, talking about how we plan to grow and an already profitable and sustainable asset manager from both internal and external sources. CFO, Lars Løddesøl, will then sum up and demonstrate how we aim to create growing dividends from both operational results and capital release. And, with that short introduction, I'll leave the word to Group CEO, Odd Arild Grefstad.
Thank you, Kjetil, and thank you all for joining us at this Capital Markets Day 2018 of Storebrand. I will just start by giving you the key takeaways from my presentation. First of all, I want to show you that we have delivered on our financial target and also our operational ambitions, set here in this room, actually, in 2016. Then, I will use most of the time, actually, on showing how well positioned we are for capturing growth in the capital-light savings area in the Nordics going forward. And then finalize with the back book, show that it has reached its peak capital, that we have a solid capital position, and that we are ready to release substantial capital currently tied up in the back book.
But first, let me start by giving you an overview of Storebrand as it stands today. Storebrand is an integrated financial service group, and the only listed life insurer in the Nordics. If we start with the largest part here, the pension and savings, we are the largest actor in the Norwegian market for private sector occupational pension. We have more than 40,000 corporates. We have a market share of 31% in occupational pension in Norway, and also a strong position in Sweden under the brand name SPP with 12% market share. In these corporate schemes, we have all together close to 2 million individuals, and these individuals are increasingly also becoming retail customers in Storebrand.
If you look at our market share in the combined retail area, then I'm talking about the market for mutual funds and also private pension savings in Norway. We actually also have a strong position with 22% market share in that area. That's, of course, also fueled by the acquisition of SKAGEN, that we will revert to. If you move to asset management here, pension and savings assets, both from occupational pension and retail savings, is, of course, managed mainly by our in-house asset manager, which now have more than NOK 700 billion in assets under management. But also, 33% of these assets under management is managed for external clients. And all of these assets under management is under strict sustainability criteria. Then we come to the retail area in, especially Norway.
And to leverage both cost and capital synergies, as well as customer and data synergies, we offer insurance and retail banking solutions in Norway. Mainly, then again, for the employees in these occupational pension schemes, but also through cost-efficient digital distribution. So at our Capital Markets Day in 2016, we set these following financial targets. It was a return on equity at least 10%. It was a dividend payout ratio from the old dividend policy. We have just launched a new one, but at that time at least 35%, and a Solvency II ratio above 150%. And as you can see, we have delivered on all three financial targets, with a return on equity currently at 11%, a dividend payout ratio of 40%, and a Solvency II ratio of 172% end of year 2017.
At the same time, back in 2016, we also presented our operational ambitions. And I'm pleased to report today that we have maintained our leading market position in Norwegian occupational pension, as well as the number one position in asset management as the largest private asset manager in Norway. We also put forward some revenue and profit growth targets of NOK 150 million in revenue growth, and NOK 100 million in bottom line increase in asset management. And we are also delivering on this target, and that is even before we account for the positive effects from the SKAGEN acquisition. Moving to the insurance segment, the premium growth has been somewhat lower than our long-term target here. That's due to regulatory changes for disability pension in Norway, but also change in the distribution mix in the retail area.
On the other hand, we have met our target when it comes to the combined ratio level of 90%-92%. And we also set a quite, well, strong target for growth within the bank area. And we look at it now, we have been the fastest growing loan book in Norway when it comes to retail banking over the last couple of years. And we have almost twice as big now when it comes to retail loans compared to what we were when we had this capital markets day back in 2016. And the return on equity in this fast-growing bank is now approaching 10% return on equity. Lastly, but very important, we have managed the cost, and we have managed it to be nominally flat.
That means a real reduction in cost in this period, at around NOK 400 million or a 10% real cost reduction. Moving to the Nordic economy, we see that we operate in a market condition with very sound macro fundamentals. State finances are solid, and also the unemployment rates are very low. And being a pension provider, of course, strong economy, the growth in wages and high workforce participation is positive both for premiums and reserves. Also, taking a short look at the interest rates, we see that interest rates slowly are rebounding from record low levels. Higher interest rates is also very positive for our guaranteed book of business, both in terms of creating better pension for our customers, as well as increased potential for profit sharing from this back book.
But I also want to say that, even in this low interest rate level we have seen recently, we have demonstrated our ability to for balance sheet resilience, and we have developed over time now a very strong capital management toolbox that make me very secure that we will handle low rates for a very long time. Moving to demographics, because demographics is very important driver for pension for the pension markets. We see on the very left-hand side here that it's been a dramatic shift of the number of employees per pensioner over the last 50 years, and we expect this development to actually continue going forward.
Combined with this, we have seen a dramatic shift in also the pension system, because the contribution from the state pension, the so-called Pillar 1 pension, it's been significantly reduced with a set of pension reforms in especially Norway. And this is launched, of course, to secure the long-term sustainable state, state finances. We see that the replacement rate here has been falling quite substantially. In the same time, we have also seen the growth of occupational pension, the Pillar 2 pension, as we see up here, where everyone in Norway today have a mandatory occupational pension scheme. But still, the savings rate is quite modest. Half of the population in Norway are still at a 2% minimum savings rates compared to wages.
And if you look at our portfolio altogether, the average savings rates are at 4.7%, and there is great room within the regulatory framework and the tax framework to increase savings rate for occupational pension. Finally, looking at the Pillar 3 pension, the retail savings for pension, it was a really breakthrough in 2017 at the end of the year in Norway, when finally it was opened for tax incentivized retail pension savings. A new product was launched. And we worked very hard to capture our fair or unfair share of that market, and we became the market leader from day one in this market with a combined market share of 24%. I think that is very important because we, of course, has competition towards large banks with the distribution network they have.
And we were able to keep 24% market share, very much based on our methodology for direct digital distribution, as Wenche will revert to later on. So that was the transition of very much what's happening in the pension area, from Pillar 1 to Pillar 3. But it's also been a great transition when you look at our balance sheet over the last five years. So what you see here is actually a tremendous shift in our business mix, from capital consuming guarantees into capital-light savings and insurance products. And this is not just happening with it in itself; it's fueled by us, by active reduction of guarantees, guaranteed business, combined with a strong growth in unit -linked, in retail savings and banking, as well as at asset management and insurance.
This shift is well proven on this slide, showing that the development, both when you look at premiums, when you look at earnings, and when you look at the balance sheets. We see that more than half our earnings, here at the profits, now stem from the savings business. Just five years ago, this was just 15% of the profit in Storebrand. This slide is just another proof of that our strategy is working out. We are seeing very strong growth numbers on our growth areas. This annual growth of 21% in unit -linked is, of course, very strong in our core products.
This, together with the strong growth in external assets, has led to a 10% annual growth in our asset management business, even if this growth is somewhat dampened, of course, by the long-term run-off of the guaranteed business. Insurance has shown 6% growth, and bank, 12% annual growth in this same time frame. On this backdrop, let's move to an update on Storebrand's strategy and ambitions going forward. You will hear us talk about sustainability today. We strongly believe that green is good also for financial investors. The fight against climate change and the work to meet UN's 17 sustainability goals represents great business opportunities. The companies that understand risk and opportunities from these global challenges are well positioned to create profitable growth.
In Storebrand, we have an integrated approach toward sustainability, and we aim to have a sustainable strategy, and just not a sustainability strategy. For us, these three areas is especially material to ensure sustainable long-term value creation. It's all about how we manage to the value of our financial assets, how we manage the value of our relationship with both customers and the society in whole, and the value of our people and systems. We measure this, and report it, and how we really develop on all these three areas, and link it to the effect we can see toward UN's 17 sustainability goals. We continue our strategic direction of the last five years. We have a dual strategy to manage the guaranteed balance sheet and continue the growth within savings and insurance.
We are changing the wording somewhat now, to reflect the fact that the balance sheet is solid, and the solvency position now is solid. This means that we can use capital and cost going forward. The use of capital and cost going forward is driven by what we mean, create value for shareholder, rather than in the past, just to reduce risk. Starting with here, the cost and the capital. We manage the guaranteed balance sheet, aiming for at least 150% solvency ratio. And we also now manage for a gradual capital release, as the capital need for our guaranteed business has peaked. We will also continue to keep our cost nominally flat on existing business. But we will also be open to take on new, strong business cases or both on M&A, if we believe it creates shareholder value.
When it then comes to the front book, our direction is also very clear. Our aim now is to build a world-class savings group supported by insurance. And when I say world-class here, it doesn't mean the largest, obviously, but it means that we aim to be as good as the best when it comes to the areas where we like to grow. If we start with occupational pension area here, we will keep and, of course, further develop our strong position, both in Norway and in Sweden. As we now are in a normal capital position, we will be able to use the balance sheet more actively on opportunities that are risk manageable and where the return on capital is good. Staffan will revert today with deeper examples. But one example is the nominal low guarantees that we provide in Sweden.
Another example can be public sector occupational pension in Norway. The public sector occupational pension system is now completely being transformed into a contribution based system. This is actually a market with premiums twice the size of our private occupational pension market, and this represents exciting new opportunities for us. We expect double digit growth in our occupational pension business, and of course, opportunities like public sector in Norway can fuel this even further. The second part here is to utilize our occupational pension position to grow individual savings. With the acquisition of the fund manager, SKAGEN, Storebrand now have a strong position in both individual pension savings and mutual funds, and we expect strong double-digit growth in retail savings going forward. Of course, both occupational pension and retail savings fuel the growth in our asset management division.
Our asset manager are also winning external mandates based on strong performance and administration, and not at least, our edge within sustainable investments. Lastly, we have done two bolt-on M&As, SKAGEN and Silver, last year. We will continue to look for opportunities as we now build a very scalable, state-of-the-art operational platform in our asset management brands. We also have made some smaller, divestments. So we have our eyes open for opportunities, both for M&A activities and partnership, but I also like to stress that we don't have to do further acquisition to ensure growth in our front book, because we now have a front book delivering very strong growth in itself. Let me now then give a very short run through of these three, growing savings areas: so pension, retail savings, and asset management. Starting with occupational pension.
There has been, as you see, a very strong growth occupational pension, and we expect also strong growth going forward, based on clear identified growth impulses, that we should expect, growth here going forward in the area of 12%-15%. Staffan will revert in more detail into these different growth drivers, but this is our projection of this market in a normal situation going forward. I already touched upon our strong macroeconomic environment that contributes to wealthy Norwegian and Swedish households, as shown here in OECD's statistic for disposable income by country. However, without personal savings for retirement, Norwegians and Swedish citizens will see almost half of their income disappear in retirement. In Storebrand, we are committed to narrowing this gap, and we see a significant potential for growing savings going forward.
Also, as you see from this pie, Norwegians still tends to place most of their long-term savings in bank accounts. And you see, of course, a clear potential for reallocation from the bank deposits to mutual funds and other long-term savings insurance. So if we now take with us these areas, the mutual funds and the individual life and pension, into a new pie, shown at the left-hand side here, then we see that, and that is then a combination of the, individual savings, market, divided into pension savings and mutual fund savings. And as you can see, individual pension savings here accounts for approximately 40% of the Norwegian retail long-term savings market, when we then exclude bank accounts.
Storebrand has traditionally had a very strong and a growing market share and position in this 40% of the long-term savings market. We used, though, to have very small, well, to be a very small player when it comes to the larger part of the pie, the pure mutual fund space. But with the acquisition of SKAGEN, it's been a game changer for us, also in this market, with a strong position in that segment as well. And if we combine these two, after acquisition of SKAGEN, Storebrand has a total market share of 22% in the combined retail pension and mutual fund market in Norway. And as I said, this is a market where we expect strong double-digit growth, and our goal is also to become the number one provider in Norway in this long-term saving segment.
The third area is asset management, and asset management is becoming increasingly important for the group. As you can see here also, it has been a tremendous shift in the asset and the management mix over the last years. We see that external assets and unit linked assets now is the dominant part of the mix, with guaranteed business in strong decline. This shift is even more visible when we look at the revenue mix, where, of course, the SKAGEN acquisition really have fueled the external revenues lately. So we now have both mutual funds under the brand names, Storebrand, SPP, SKAGEN, and Delphi, with different asset management philosophies, giving us a strong position both in active managed funds, in index fund, and not at least, in the area of smart beta solutions.
Let me now show how we really commercialize sustainability on the next couple of slides, because that is a key area for our asset manager. Storebrand has an investment process, where risk and opportunities related to climate and other sustainability areas are embedded. We have developed our process over 20 years, and implemented it for all asset classes and all our clients. It's three core elements in our process. We exclude companies that is in breach with international norms and conventions, but also companies that has a very low score on our internal methodology for sustainability. We are active owners, and with acquisition of SKAGEN, even more active owners in companies that we see have the opportunity to move towards a more sustainable business model. As I said, we have our own methodology, giving us the tool to invest more in the most sustainable companies.
We also further commercializing sustainable enhanced solution. We have developed several fossil-free funds, and I've never seen a group of funds growing that fast in Storebrand, ever. The asset under management under these investments have in two years' time, reached NOK 60 billion, and that is 8.5% of our total asset under management. So this has gone from being a niche investment to a clear investment strategy for many institutional and public customers. And these funds will be, of course, the cornerstone of our new international strategy within asset management that Jan Erik will talk more about later on. So bringing all of this together, let me sum up what I've just said, and present the our ambitions for savings and insurance going forward. First of all, we will maintain our number one position in the market for occupational pension in Norway.
We will continue our challenger role in Sweden with double-digit annual growth, and Staffan will give you the insight into this later on. We aim to strengthen further our market position in the Norwegian retail market, as I said, moving from 22% to being a market leader in this market. And we do that heading for double-digit annual growth within savings. In our retail bank, we aim to achieve a return on equity at least 10% moving forward, and more of this from Wenche later on. For our asset management unit, we aim to maintain our leading market position in Norway, strengthen further our position in Sweden, while increasing our European footprint through our sustainability offering in combination with SKAGEN. And of course, Jan Erik will give you much more insight into this later on.
Meanwhile, we continue to see the importance of our insurance business as an add-on to our savings offering, both in the corporate and the retail market. We now aim for a long-term growth rate at 5% in our insurance business, and still a combined ratio of 90%-92%. If you now try to bring the front book and the back book together and see it all from a financial point of view, it's evident that it's all about growing the revenues when it comes to savings and insurance, where very modest part of our total capital is allocated to these, two segments, and this is based on our Solvency II calculation and our IFRS, capital. But when we look at the guaranteed business, it's the opposite.
We see that most of our capital, and really most of our tangible capital, is locked in to support our guaranteed book of business. This gives very strong return on equity when you look at the front book, where we are growing, while it, of course, it's a different story when it comes to the guaranteed business, where everything is about capital release. So the heavy capital consumption within guaranteed makes the capital release absolutely the core team for this segment. But I also want to mention that we see now clear potential also for profit sharing, that can lift the results within the guaranteed business. Bringing this together, a continued strategy with run off of capital heavy guaranteed business and growth in savings and insurance, will, of course, lead to increased earnings and reduce tied capital.
And then it's all just mathematics to understand that, that will create a good development in return on equity over time. And Lars will absolutely revert to this in more depth going later on. So based on the profitable front book growth, strict cost control, and gradually reduced capital need for the back book, we will be able to give increased dividend the next years, in parallel with increasing our solvency ratio to 180%. Our growth is capital-light, and only a limited part of the result will be needed to back this growth. We expect to be at a 180% solvency ratio in 2021, and estimate a total of NOK 10 billion capital release from the back book within the 10 years from now. And this is consistent with our dividend policy and our solvency thresholds.
So now I will end my presentation by stating our financial targets. We also aim for a return on equity above 10% and maintain our solvency ratio above 150%. With our new dividend policy, we aim to pay a dividend of more than 50% of the group result after tax. And also very important, the ambition is to pay a growing nominal ordinary dividend per share from the previous year. So bringing all of this together, I hope now I showed you that we meet our financial targets set forward, that we are very well positioned to capture the growth, both in occupational pension, in the retail savings market, and also then in our asset management business.
And also that we now have a back book that has peaked when it comes to capital need, that it is solid, and that it will distribute capital over time. Thank you, and with that, I give the word to COO, Heidi Skaaret.
Thank you, Odd Arild, and good morning to you all. You have heard from Odd Arild how Storebrand is well positioned for growth in a mature and strong market. Before we go into the different business areas, I will give you some insights of how Storebrand, over the last years, have aligned people and technology to build a customer-centric business model and a scalable technology platform for growth. In summary, and the key points that I want you to take away from my presentation is how we are, through our digitally advanced, scalable technology platform, how we are continuously developing and growing our organization, and our strong record for cost control, and our continued ambitions to keep costs at a nominally flat level. Let's start by taking a look back at what we have achieved.
Over the last five years, we have managed to maintain strict cost control and keeping costs nominally flat. We have taken out costs through IT, and business process outsourcing, and streamlining our processes and support functions throughout the group. At the same time, we have been growing our business substantially, here exemplified by assets under management. We are succeeding to grow at the heart of our, our strategic core through capital-light, savings, insurance, and pension products. Maintaining our leading position in the B2B market and growing our market share in the B2C market. As you see, the Nordic market is, as most of you know, both strong and a digitally mature one, well ahead of many countries in Europe. In this market, Storebrand has, for a long time, been a front runner in using technology to create friction-free customer processes and efficient back-end processing.
Here are some examples from our Norwegian business, where 98% of our B2B customers service pension contracts through digital solutions. 94% of all health declarations are processed through digital channels. 97% of pension certificate transfers from our competitors are done straight-through processing, and 70% of requests for starting pension payouts when you retire is both started and processed automatically. And after launching an AI chatbot last year, 50% of our chat requests from customers are now handled by that robot. Achieving the results that we have in terms of efficiency and user-friendly solutions, and also sustaining a competitive advantage in the fast-paced and ever-changing market, requires a healthy IT portfolio. Over the last years, we have actively sought to outsource that which is a commodity and not a differentiator to us, to leading global and regional partners.
As you can see, 69% of our IT budget is allocated to bought services, for cost efficiency, market synergies, and the ability to scale quickly and at marginal cost. Where most of our internal resources are focused on developing our front-end customer solutions, where we can differentiate. And just as importantly, the majority of our IT spend is focused on developing the business to create commercial value and customer loyalty for new and improved services. To transform our business to digital, we are continuously refining our platforms. On the pension side, we are digitizing and automating from the customer-facing front, all the way to the back-end core processes, catering for high degree of self-service and straight-through processing. And at the same time, transforming our operation to reduce costs by significant numbers, as you can see here.
In the asset management, after the acquisition of SKAGEN, we are already hard at work, building on our respective strengths to create the market's best digital platform for savings and mutual funds. My colleagues, Staffan and Jan Erik, will give more detail on these platforms, initiatives in their presentations. In the emerging technology space, there are many exciting developments, and for Storebrand, the business value of technology is what matters. We have embraced machine learning for developing our customers, and helping them better understand their financial needs, creating growth and value for our customers and our own business. Wenche will go into more detail of the success of our Next Best Activity program. We are also in the process of employing machine learning for, to strengthen and enhance our underwriting activities.
In the mobile space, we are working to digitize our whole value chain. Here is an example from our health insurance business, where our Get Well app is giving advice to the customers on how to stay healthy. It provides an online doctor help for minor medical problems, and a comprehensive medical network for all types of medical treatment. Through a strong digital platform and an extensive network of partners, we can operate our health insurance business with 140,000 customers across Norway and Sweden, with as little as 30 employees, and a combined ratio of 85%. Okay, let me spend some time talking about the people side of our business. Storebrand has been leading change, and constantly developed and changed our business over our more than 250 years of history.
Still, the shift to digital has a very important people aspect, which is crucial for the success to actually transform the organization. That is why we have developed a people first, digital always strategy, systematically investing in and upskilling and nudging the organization to achieve the full potential of our business strategy. Last year, the organization gathered around our newly defined purpose, a future to look forward to. This is a simple and powerful concept that give meaning and a vision for our employees on how they work to help our customers, but also how they contribute to a more sustainable world. There is solid research showing a strong link between employee engagement and customer satisfaction, leading to customer loyalty and positive impact on the bottom line.
Therefore, we are very pleased to see the results of the 2017 employee survey, putting us well ahead of the benchmark in the market and our industry. To further strengthen employee engagement, we place considerable emphasis on building a feedback culture. To support this, we have implemented a nimble and frequent Digital Pulse program, which allows managers and employees to have a better platform to discuss and develop both the organizational capabilities and the culture. Continuous learning is another pillar of our people strategy, and here we are focusing on the constant expansions of skills and competency to succeed in our a rapidly changing market. To further strengthen our capabilities, we have systematically been developing the way we work. Through agile methods at scale, we have created a Digital Garden in Oslo to support innovation and collaboration.
Our Sandbox program is one of the most attractive intern programs in the market. At the end of the day, the purpose of all of this is to generate innovation, agility, and speed to taking new ideas and services to the market that will delight our customers. Over the last years, there has been a significant change in the composition and competency mix of our organization. We have worked systematically, as you see, to shift resources from the back end to the customer front. We have also strengthened our business development and technology skills. At the same time, the total number of employees have been reduced by 27% since 2012. Our strategy centers around the shift from a guaranteed back book to capital-light growth products.
An important part of this has been the reallocation of resources from guaranteed to non-guaranteed products, as you can see here. As the back book continues to decline, we will continue this shift. The reallocation of resources, and hence costs, have provided capital release through Solvency II, and allowed for investment in growth initiatives. The financial services industry, as you know, is a highly regulated one. But the purpose of new legislation is to protect and empower the customer, and ensure healthy competition in the marketplace. This week, all over Europe, we celebrated the introduction of GDPR. We believe the legislation provides an opportunity to build digital trust in how we use data to create better products and services, and engage the individual customer. On the advisory side, the purpose of MiFID II and IDD is to provide better investment and insurance advice.
Here, we are putting in place revamped advisory tools, and believe the legislation can form a good framework for creating value-adding digital advisory services for the customers in the future. Within banking, the intention of the PSD2 directive is to increase competition in the payment space. Our IT platform is a service model, and our partner is developing the adaptations necessary to comply with the regulation. When it comes to new ecosystems in banking, though, Storebrand has already started that journey. Last year or this year, we launched a partnership with a fintech company, Dreams, where we provide all the banking services. It's a good example of opportunities arising with the introduction of PSD2. So, the way forward. Looking ahead, we have a range of initiatives that we believe will help us sustain growth, as you will hear much more from my colleagues to follow.
While investing in the future, we recognize that cost efficiency is key to sustaining competitiveness and profitability. Hence, we are strongly committed to maintain the strict cost control, and holding costs at a nominally flat level on our running business into 2020. Should new opportunities arise, though, like in the example of SKAGEN, they will be treated as a separate business case. It's important to note that the cost reductions will be realized in the same areas where we have already achieved good results, within automation, digitalization, and outsourcing. So, to conclude, I revert back to the key messages where I started. Storebrand is well positioned for growth and with a digitally advanced, scalable technology platform, and a strong and competent organization. By leveraging our platform, partners, and people, and maintaining strict cost control, we can continue our track record of profitable growth going forward.
Thank you. With that, I leave the floor to Staffan Hansén.
Thank you, Heidi, and good morning to you all. My name is Staffan Hansén, and I am heading Storebrand's subsidiary, SPP, in Sweden. In this session, I will cover our occupational pension businesses or the so-called Pillar 2 businesses in Sweden and Norway. Let me point out that all the figures in this presentation cover both Sweden and Norway, so sum up Swedish and Norwegian figures, unless explicitly, explicitly stated otherwise. Present today is also Geir Holmgren, who is heading the Norwegian part of occupational pensions, and Geir will join me afterwards in taking questions. First of all, let me zoom out and get back to some of the key facts that Odd Arild mentioned in the beginning. Storebrand has 40,000 corporate customers, two million individual policyholders, and receives NOK 20 billion of annual pension premiums.
A strong corporate offering is important, not only in itself, but also as it, as it generates a continuous stream of individual employees into our retail segment that Wenche will pick up. Wenche, where are—where is Wenche? There is Wenche, will pick up in the next session. And it also generates assets into our asset management. Now, I don't even dare to look where Jan Erik is. There he is. So by that, let me continue by going through the key takeaways from this presentation. We enjoy strong profit growth, driven by savings, insurance, and cost reductions. The attractive structural market growth is expected to continue. End-to-end digitalization will secure our income, the Swedish market being more mature when it comes to occupational pensions. But it is also a fact that the growth is well in line with GDP growth and inflation.
The shift from old guarantees to unit-linked hasn't been as strong as in Norway, but it has still been a strong shift. It is important to note, however, that 40% of the Swedish market is still classified as guaranteed savings, and I will later return on how we want to approach this market to generate further profitable growth in a significant part of the Swedish market. Next, let us look at Storebrand's position. As you can see, we see a tremendous shift in our business mix as capital-light savings and insurance add-ons, such as health insurance and group life, are and have been replacing the old guaranteed business. So what kind of profits are we then generating from our unit-linked? In 2012, we generated NOK 350 million in profits from our unit-linked businesses.
In 2017, that figure was NOK 850 million. We see a well-balanced mix between savings and insurance, and insurance is adding the additional attractive feature that the profits are totally uncorrelated with movements in the financial markets. The drivers of profits in the market are increased savings, assets under management, and increasingly important insurance add-ons, with not only disability insurance being important, but explicitly, health insurance and group life. And also, cost reductions not only contribute to profit growth, but also positions us for price competition. So let's get back to one of the pictures that Odd Arild brought up in the beginning. And as Odd Arild said, we see a reserve growth of 12%-15% going forward.
It is important to point out that when in the forward-looking terms, we elaborate with expected market returns, when we look backwards, past figures, they are influenced by realized market returns. Over the period 2013 to 2017, obviously, market returns were significantly higher than expected market returns. The figures, the percentage figures, should not be interpreted as reduced. The majority of our premiums are generated by active policies, and growth is driven by, to name a few, increased salaries and savings rates. Population growth, age distribution of policyholders, younger policyholders mean fewer going into pension and pension disbursements. We still see turnover-fueled DB conversions in Norway, new sales is a strong driver, and a positive transfer balance is, of course, something that needs, we need to have in order to grow our net flows.
So, in our markets, we are the undisputed market leader in Norway, with a 31% market share measured in premium income. In Sweden, we are a strong contender with a 12% market share. It can, however, be noted that in Sweden, in new sales in the first quarter this year, SPP was placed number three, less than 1 percentage point behind number two. We are the strongest growing company in Sweden when it comes to growth in new sales or annual premium equivalents. And that is extremely important because new sales is the foundation for future premium income. So it's an early indicator on where we are heading, and we are capturing market share in Sweden. So if we look a little bit further, both in Sweden and Norway, we are prized and recognized for a strong value proposition in our markets.
Getting back to sustainability, that Odd Arild put a lot of emphasis on in the beginning. We see in the corporate market that sustainability is becoming more and more important for us to gain competitive edge in corporate pension scheme tenders. This was a lot about facts and figures. Let us now move over to explore some selected areas where we want to and where we need to succeed. The first is obviously digitization, that Heidi covered in the previous session, and that I will explore a little bit further. In Sweden, we are in the midst of replacing our old IT platform. The new one will act as a strong enabler for a digitized, customer-friendly front end and a fully automated process back end. In Norway, we have initiated a three-year similar Digital to the Core program.
Our targets are a simplified infrastructure with straight-through processing that enables faster development, faster time to market, and a far better foundation for automation and digitalization going forward. From the IT efforts, we expect approximately NOK 100 million in cost reductions by 2021, so we get better and cheaper. That's a good combination. We target a full self-service customer interface, where the corporate customer and policyholder will be able to do everything digitally. So far, we are on time and on budget, both in Sweden and in Norway. Next, let us move on to Norway and the so-called individual pension account that will be introduced in 2020. The first question to be cleared out is obviously, obviously, what the individual pension account really is about.
Well, in short, all pension certificates of a company's employees will automatically be transferred to the company's DC scheme provider, unless the employee has actively reserved against such a transfer. Okay? So the market will obviously change and become even more individualized. So the obvious question is, what kind of market dynamics do we expect? Well, we expect increased competition for market shares as the DC scheme opens up gates to pension certificates. And we expect all pension companies to further strengthen the relationship with their individual policyholders to safeguard the pension certificates. What are then the important Storebrand measures? Well, we are number one in Norway, and we intend to leverage and maintain our number one position in the corporate market, which in itself, everything else being equal, opens up a vast gate of pension certificates.
Another thing that is important is continued cost efficiency and end-to-end digitalization to meet price pressure in the future and to be well-positioned. The individual pension account is both a challenge, but also a huge opportunity to Storebrand, and we are extremely well-positioned as the market leader. With good relationship with our individual customers, that Wenche will elaborate further on in the next session. Moving on to Sweden again, as I said in the beginning, guaranteed savings still comprise 40% of the market, and the share of that market is expected to remain stable. We don't think it's going to decrease very fast. And obviously, we want to cover 100% of the pension market in Sweden. So how do we do that? Well, there is great flexibility in the product design of the guaranteed element to make it basically as capital efficient as unit-linked insurance.
SPP's response is capital-light low guarantees. In a simplified way, the principal capital is guaranteed after approximately 13 years of savings, which makes the product, product's capital charge comparable with that of unit-linked insurance. So capital-light guarantees allows SPP to tap a huge part of the market and obviously increase profitable growth in Sweden. Let us next move over to Norway again. We shift back and forth here, and to regulatory change. Regulatory change will create opportunities in the Norwegian public sector occupational pensions market. Today, the public sector occupational pensions are monopolized in Norway. But as you can see, the annual premium from public sector occupational pensions are NOK 45 billion annually, compared to NOK 27 billion from the private sector occupational pensions. We expect a partial end to the monopoly, and we expect annual premium growth of somewhere around 5% going forward.
So it's a huge opportunity and a huge market to tap. Storebrand is well positioned for this market opportunity. We know the market very well, and already today, we deliver asset management and a broad range of services to closed funds in the public sector. To sum up, even if details are not yet set, we see an attractive potential to achieve profitable growth in the public sector as the monopoly ends. So to sum up, we continue to expect our gross premium income in occupational pensions to grow with 9% annually, which is well above market average. Our targets are to maintain number one market position in Norway, to generate double-digit growth in Sweden, or a growth of 11% compared with a market that grows approximately 2%.
To deliver a continued stream of employees to retail segments and to Wenche, and to generate asset growth in our asset management that Jan Erik can take care of. So to sum up, we enjoy strong profit growth driven by savings, insurance, and cost reductions. The attractive structural market growth is continue, and end-to-end digitalization will secure and strengthen our competitive edge. Thank you, and now I hand over to Wenche. Please.
I'm so sorry I confused you, Staffan, but I am here. I can assure you. Good morning. I believe it's still morning. I'm very excited to be here today to talk to you about the retail side of the business in Norway. My name is Wenche Martinussen. I'm responsible for the consumer retail in Norway, and together with me, I have Jostein Dalland, who's responsible for digital business development and also the product offering. We are uniquely positioned in a growing savings retail market, as many have mentioned already today. Staffan touched upon that we have built a leading market position within occupational pensions, and this is a solid fundament for growth within retail, and then again, fueling the asset management business in Norway.
In order to do so, we have defined a very clear digital-first strategy, and this we have defined as a really good platform in a scalable fashion. Today, I will guide you through three different areas, and I will give you an understanding of how our retail model works and create efficiency, but also scalable growth. First, I will give you more insight in our customer base in Norway and how we do... Secondly, I will describe how we are building this digital-first scalable platform, and then I will, of course, tell you about our ambitions within, savings growth built on a multi-product offering. We believe that this is taking a huge, share of the customer's life cycle. All these three we do to create long-term customer relationships. But first, let me set the stage about some facts about the Norwegian market.
Odd Arild touched upon this earlier on as well. Norway is a maturing population. We are living longer. As my life expectancy is to be 88 years old, my mother's generation is only 85. We also see that the Norwegian population is a very digital, mature population, and that almost all consumers use online banking and online in general. Only 10% of all transactions in Norway are now done in cash, and 75% of all Norwegians state that they have done online shopping during the last 12 months. In addition, we have established a national standard for a national infrastructure for digital trust in Norway called BankID. It's actually a national ID that you can use for all signatures and all identification, which makes it easier to buy across vendors. As you know, the government in Norway has undergone a full-scale pension reform as of 2011.
While Norwegians are living longer, fuller, and healthier lives, the old platform did not scale. With this reform, much more of the financial responsibility for savings to retirement have shifted onto the individual. While those retiring today can expect to get 2/3 of their salary in pension, my daughter can only expect to have 50%, and this is a huge, huge shift. Norwegians have to save more to get the retirement that they want, but still too many are saving in banks. This is one of the reasons why the government in 2017 launched a product called IPS, Individual Pension Savings, connected to the Pillar 3. A product with tax incentives to enhance savings in mutual funds, more long-term savings, and of course, with expected higher returns.
These are the shifting marketing conditions that we are facing, but I will now explain to you how we see this as an opportunity going forward. But first, our customers. Our 1.3 million customers consist of 30% of the Norwegian population over the age of 18. We also see from our analysis that our customers differ quite a bit from the average Norwegian. They have, in general, much higher household income, they have a much higher household assets, and in addition, they have a 28% higher employment rate than the average. These 1.3 million customers come from three sources, and I will guide you through this. The 33% are those that have actively chosen to buy a retail product within Storebrand.
The 23% are those that are customers through their occupational pension, and the 44% are those that either have a paid-up policy or have a pension certificate within Storebrand. Over the past three years, we have experienced strong retail growth in the Norwegian market, and we have had an increase in 39% retail customers. We also see strategy from focusing on these 1.3 million customers. Four out of five of the saving customers that we are recruiting are coming from this customer base. So we have a tight connection with these 1.3 million customers, and most of all, they give us a lot of insight and a lot of data that we can use, and I will now try to guide you through how we use this. We believe that... I will go there.
We believe that using machine learning to personalize and increase sales is one of our biggest competitive advantages. By using machine learning built on sophisticated models, and we pair it with our artificial intelligence solutions for our customers, we are much more able to personalize the customer experience through all relevant offerings, and we are able to target our communication much more accurately in all communication as well. This platform is the foundation of our multi-channel distribution, and it's enabling us also to communicate coherently and consistently throughout platforms and channels. Heidi introduced earlier today the next best activity, the NBA methodology that we are using. This is a work that started as a pilot in 2016, and we saw immediately an increased sales. In 2017, we state that 9% of all sales comes from using this methodology.
We also see that the customers approached by an NBA are 29% more satisfied than those that are not. The best thing that we have only just started. I would like to share with you a concrete example of how this next best methodology works. As mentioned, a new product for private savings with tax incentives were launched in the Norwegian market in 2017. Storebrand set the goal to become the market leader, and I will now briefly guide you through how we managed to become exactly that. Meet our customer, Anna. Like 2/3 of all Norwegians, she has no idea what her pension would be like, but she knows that she has to save more to get the retirement that she wants. We also know that, and we also know that Anna needs to save more.
So that's why we have enough information to send her an email to trigger that, "Anna, you have to start thinking about saving for retirement." When at work the same day, Anna goes to a newspaper online, and she sees an ad for the IPS products. She starts reading about IPS, and she goes onto our website to read even more. We have now identified Anna, and we know that she has been interested through many different channels already, meaning that the NBA scores is getting higher. We now know that she's so warm that we send her a more specific email, targeted for her age group and for women. Anna again clicks onto the link and starts going into the buying process. Now we know that Anna is really, really warm, that she's really interested in buying. But for some reason she terminates the process.
We now get a net -skilled advisor to call Anna up within 30 minutes, and helps her to start the saving. We became the market leader with 24% for IPS using this methodology. We know that it's given proven higher sales, but most of all, it's given proven higher satisfaction for the customers that we are in contact with. In my introduction, I spoke to you about this digital maturity of Norwegians. We have to remember that these digital customers are our customers, and that means that we have to build all solutions built on a digital-first approach to satisfy them and, of course, to make the customer journeys as easy as possible. As an example, we no longer have any physical branches. In order to build this digital-first approach, we have invested quite a bit, and Heidi touched upon that.
But what it does, it enables us to build customers, and it makes it possible for us to ease... The focus on this digital customer interface has proved really, really good results. We have had a 76% increase in the digital sales from 2016 to 2017. And we can see that the share of digital sales, compared to all sales, has increased from 17% in 2016 to a 39% so far this year. We expect the digital sale to surpass the advisor-assisted sales within 2019. We build all our products and services on this digital-first approach, as I explained with IPS, and then it's very nice to know that we get awarded for it. The BearingPoint International Benchmark awarded us for our insurance solutions the last year.
To the biggest question: How are we personal in a digital-first strategy, and what does this digital first really mean? First of all, all our customers, all our advisors, all our robots, they use the same platform. They have the same insights, and this means a seamless communication across all channels. Secondly, as Heidi mentioned, we use technology to digitize, automate, and robotize. And we do this, of course, to reduce costs, but most of all, to build a scalable platform for growth. For instance, as Heidi mentioned, this chatbot, I call him James. We introduced James just under a year ago to take care of open chats. It's very, it's very clear for the customer that this is a robot. What we immediately saw that impressed us was that 67% of all customers chose the robot before the advisor online.
Up to now, James is taking 50% of all the online chats. What we do is that we always makes it possible for James to pass on the chats to a skilled advisor when James no longer has the competence. But we see that only 8% of all chats are actually transferred to an advisor. With that said, we believe that highly skilled advisor as a complement to digital solutions should always be possible, and that we will always ensure that the customers are assisted by an advisor if they feel it relevant or needed. We believe that the added value comes when the advisor can have the same platform, get the insights of all the customer journeys, and use these insights for better advice and, of course, for increasing sales.
We believe that this gives us a business model that is both personal and scalable. I slightly touched upon earlier, engaging customer through the life cycle journey. We do believe that a multi-product offering across the life cycle is building trust and more long-term customer relationships, from insurance and banking to the various saving needs. We have an advantage from our foundation within pensions, and as mentioned, we became the market leader for IPS in 2017. As Staffan mentioned, we are very well positioned for the individual pension accounts. And thirdly, we have an online service called My Pension Number, which gives a really good overview of your pension and savings. We are also building a position within the retirement management.
We are giving the market best overview of your pension and savings before you retire, and we give a personalized financial advice for retiring, entering the retirement period. Through this, we believe that we play a bigger role in the whole customer life cycle, and that this includes the payout period. What are our future goals within savings, when we are capitalizing on this digital first scalable platform? As I told you, we see that we have a good standpoint from the pension side when it comes to savings, and we therefore aim to take a significant share of this growing savings market going forward. The market for retail savings is today approximately NOK 380 billion, and it's growing rapidly. If you look back to the last four years, this market and Storebrand has grown 18% annually.
We have done a conservative estimate for the market growth for the next five years, and we see that it will be a double -digit growth. But we aim to take a huge share of that market and have a strong growth and a more than a double digit, and more than a market. With the Storebrand, and with the SKAGEN acquisition, we have also strengthened our market position and, of course, the product offering. In addition, as Odd Arild mentioned, we believe that companies that are well prepared to meet the global challenges are better to create profitable growth than those that are not. We will use our sustainability expertise as a competitive advantage also going forward.
So summarized, our strengthened market position, combined with our sustainability focus, will enable us to grow more than the markets, and thereby have a strong double-digit growth in the retail savings going forward. With the acquisition of SKAGEN, and of course, also Silver, we became a number two player in the market, and with a 22% market share. We have had a flat development in the market shares with insurance due to the changes in distribution mix, as also Odd Arild mentioned, and we have doubled the loan book the last years. As mentioned, we believe that the key to building trust and a long-term customer relationship is through a multi-product offering across this life cycle to specifically our 1.3 million customers. Our numbers shows that multiple products reduces churn, and I guess that is quite obvious.
But we see that if a savings customer has bought an additional retail product, he is 5x less likely to churn. Today, 35% of our savings customer has another retail product, and this is the reason why we have set a goal within the next three years that 50% of all the savings customers should have an additional retail product. As you understand, we are turning our attention into significant growth within savings, while we are building on a profitable foundation of our multi-product offering through the life cycle. In summary, our goals for the Retail Norway going forward are, one, to grow more than a market within retail savings, and thereby have more, a strong double-digit growth in AUM. We will do this by building growth with our strategy as told between the business side and the retail side.
We will utilize our position as the number two player, and we will offer our customers a multi-brand platform within mutual funds. We will deliver a 50% profit growth within retail insurance, and we will do this by prioritizing profitability in all our actions. We'll also continue to automate all back-end process and also do cost review of all end-to-end processes. We will prioritize, of course, and target increased digital sales. We will deliver a 10% return on equity within the retail banking, and we will do this in the same way, in prioritizing profitability in everything we do. We will automate all mortgage processes end to end, and we are getting there, quite soon, I hope, and we will broaden our product portfolio. So a revisit to my key takeaways in my introduction.
We will ensure long-term customer relationships, and we will do that by creating personalized customer experiences for our 1.3 million customers. We will continue to strengthen our digital scalable platform, and we will deliver multi-product offering to engage customers throughout the life cycle. This will enable us, we believe, to build strong retail results also going forward. Thank you. Kjetil, I believe I was-
Yep.
You were the next on.
Yes. I guess due to a very efficient executive management team at Storebrand, we are actually a little bit ahead of schedule. We can have a break now, and we try to commence again at 10:45 A.M.
Ladies and gentlemen, could I ask you all to slide towards your seats again? And then we can commence with the rest of the program. Okay, then I think we are ready to start again. I won't have a long introduction this time around. I'll just hand the word over to Jan Erik Saugestad, who will give us more insight in our asset management business.
Thank you, Kjetil. Ladies and gentlemen, my name is Jan Erik Saugestad. I'm the CEO of Storebrand Asset Management, and responsible for the asset management activities in the group. It's great to have the slot after coffee and, not the least, before lunch. But I am even more delighted and excited to bring you into how we are going to grow the asset management business, and how we are going to build a European presence. As Odd Arild has already shown you, we have the ambition to build an asset manager with a strong competitive position and clear growth opportunities. The asset management business is fueled by both the pension and savings activities of the group, in addition to its own commercial activities. It's become a core part of the Storebrand Group.
It has delivered, and will deliver, client value and growth through sustainable investment solutions and a multi-boutique platform. Currently, we manage more than NOK 700 billion. One quarter of the assets are external capital, and even more, 2/3 of the revenues are actually, are coming from external clients. There are three key takeaways I want you to give you. One, is we have a strong competitive position, driven by the revenue growth we have realized, the cost control we have managed, and also the client value we have delivered. There are clear growth opportunities, both through the sustainable investment solutions, but also through the recent acquisition of SKAGEN. Thirdly, we see opportunities to build further scale as a multi-boutique platform. So let me start by giving you an overview of the asset management activity.
We manage NOK 430 billion in captive assets from the pension side, divided between the Norwegian and the Swedish pension distribution. In addition, we have NOK 247 billion on behalf of institutional clients, and NOK 45 billion from direct retail clients. SKAGEN, the SKAGEN acquisition added NOK 49 billion to the institutional side, and as much as NOK 30 billion into the retail savings side. These are all numbers by year-end. As mentioned, the external share is then 1/3, the equity share is 1/3. Including our fixed income portfolios, as much as 2/3 of our assets are managed with an objective to outperform. We have managed to secure a strong revenue growth. The component annual growth rate has been 8% since 2012, while at the same time, we managed to actually reduce cost by 1%.
I'm particularly happy with the fact that we managed to maintain the net revenue margins. And we've done that through bringing new alternative asset classes to our clients, and product innovations, not the least within the sustainable space. At the same time, the growth and cost control has led to a reduction in costs per AUM, from 14 basis points down to a level of nine. Of course, acquiring SKAGEN has a different cost base. So the current levels in terms of cost per AUM are higher, and I'll come back to measures that we take to reduce them again. I mentioned client value, and of course, as an asset manager, the only way to survive is to provide client value.
We have successfully managed to deliver both market returns and a positive, sustainable impact in the solutions that are targeting index and ESG. We have delivered market value... Sorry, client value in our smart beta multi-factor space, which is one of the fastest growing areas within asset management. The boutiques, whether it's Delphi or SKAGEN, has delivered long-term value to clients. And even covering the alternative space and fixed income space, there is clear value added for clients. This, of course, is a prerequisite for a strong position going forward. I will also expand on sustainability. Sustainability has been core of asset management for many years. Actually, we were a pioneer when we started with sustainable investments back in 1995. The life portfolio adopted a sustainability standard as early as 2001 for all assets.
We were among the founding principles of UNPRI back in 2006. All our mutual funds adopted a sustainable standard in 2010, and it's, as you can see, it's been a journey going from exclusions to solutions and of course, increasingly now also, active ownership, engagement, and creating an impact. And we will continue. The SKAGEN acquisition has put us in a position as a sizable active owner in several companies where we can contribute. And of course, we will continue the path of innovation that we have done in the course of the last 20 years. Growing the business, we have identified five strategic priorities. One is to strengthen the institutional, international capability or capacity. Second is to broaden the audience for our sustainable solutions and funds. Thirdly, to strengthen the position in retail in Scandinavia.
Wenche has already gone into depth in the Norwegian market. I'm sure I will share some thoughts in other markets. Of course, continue the path in order to grow volume and realize scale and gain cost advantages. And as I've already mentioned, we will, in an opportunistic way, look at bolt-on acquisitions and partnerships that could grow the business further. So let me go a bit into each one of these. Firstly, to strengthen the institutional client offering and pursue international growth. We currently have a strong position in Norway, 22% market share, and if you look at the pension schemes, we have a 30% market share. We are in a position where we can actually provide a turnkey solution, including administration, together with pension services of Storebrand Life, which puts us in a very unique position.
In Sweden, we are capturing a disproportionate share of the net flows. Basically, in the course of many years, you can see that we have captured a share of the net flow that is about twice the size if you look at our market share. And we are doing so predominantly on our sustainable solutions, and we are gaining a lot of institutional clients, particularly among municipalities and cities, as they are putting sustainability clearly on the agenda. So there are ample growth opportunities, both in Norway and in Sweden, in this institutional space. But we also see potential in bringing some of our solutions to a wider audience. And through the acquisition of SKAGEN, we now have offices both in Copenhagen, London, and Amsterdam.
We have more than 20 skilled resources to service international clients, and we do believe we have strong products and solutions to provide. To add to that, we are also in the process of establishing a full-fledged Luxembourg platform that will provide institutional clients with a familiar domicile and security. We are piloting improved online reporting solutions for this set of clients. And as mentioned, we do believe we have attractive, both boutique brands, but not the least, scalable, sustainable solutions for an international audience. After these, participating as a signatory to UNPRI back in 2006, as much as $70 trillion have now committed to UNPRI. And it's not only commitment, as much as 1/4 of assets invested or under management in developed markets are invested in a sustainable fashion.
And although I already shared with you the growth we experienced in some of these solutions, as a proof that there is a sizable market. And we do believe we are in, if not a unique, at least a very strong position. We have a proven range of solutions covering all asset classes. We have a proven process and credible process for sustainable investments, covering both exclusions, solutions, and engagement. And I think we're unique when it comes to the track record and history. There are not many asset managers that actually have more than 20 years of experience on scale or with scale. Now, I've covered both the institutional growth and the international dimension. I've covered the opportunity for sustainable investment and growth. The third leg I mentioned was retail savings beyond Norway.
We currently have a number two position in the mutual fund market in Norway through our three brands, Storebrand, Delphi, and SKAGEN. In Sweden, we hold a number five position that we built successfully since the establishment of SPP Fonder back in 2009. So it's gone from NOK 30 billion to NOK 180 billion. In Denmark, SKAGEN has a small position, but it's still a market, as you can see, where the assets in the mutual fund market is NOK 914 billion. So in that respect, it's larger than the Norwegian market. And we look at this opportunity. The Norwegian potential has been covered, but clearly the NOK 380 billion market we have a sizable position.
We can, however, nurture and nudge the position of SKAGEN, and clearly strengthen the position of both Storebrand funds and Delphi funds, as their market share is only 4%. That's a great upside, and we are taking measures to address that. The Danish opportunity, I wanted to share some data on that. The equity market in Denmark is about NOK 350 billion. The current share of index solutions or low-cost solutions is only 5%. Compared to other markets, it's easy to conclude that maybe as much as 10% to NOK 35 billion is on the move, or potentially on the move in this market.
Given the fact we now have both offices and an infrastructure and experience in how to list and make products and mutual funds available in the Danish markets, which is kind of a unique or different market, we are well on the way in bringing some of our own funds into that market. So that will be an interesting and exciting opportunity that we are pursuing. Part of the success in terms of achieving the targets, in terms of profit, is, of course, tight cost control. I spoke, you know, a lot about revenue growth, so let me just address cost. We are well on the way in realizing the ambitions when it comes to cost synergies with SKAGEN. Clearly, building one operational platform is a key driver in realizing these synergies, and for that matter, to continue to be cost efficient.
We are building a common web front for the retail side, multi-brand strategy. We are consolidating unitholder registries and portfolio systems. And of course, we are making sure that we have a common data sourcing and shared basic infrastructure. All in all, we expect a decline in cost per AUM of 10% in the course of the coming years. And, of course, you can here see the effect of including SKAGEN, the 9 basis points then became in excess of 14, and we will work hard to bring it down again. The positive effect that's not on the graph is, of course, that the revenue margin has also a similar positive shift.
The last point I wanted to make when it comes to creating growth is, of course, that there is a lot of market dynamic going on in the asset management industry. Firstly, the asset mix is changing. It creates a lot of new opportunities within alternative space, as one example, and it's a great potential to participate into new business initiatives and new boutiques that are established in that space. The flip side is, of course, that there is a pressure on conventional active management, equity management, leading or maybe even forcing boutiques to become even more focused in order to create value. And if they are supposed to become more focused, they have to become part of offering, allowing them to focus. So these two forces at work is creating a lot of M&A activity.
The second force at work to create M&A activity is, of course, the pressure on margins. Up until a few years ago, the ability to reduce costs to offset the pressure on margins. In the course of the last years, we see that the pressure on revenue margins is larger than the ability to reduce costs, pushing the net margin down, and leading more and more asset managers into larger and larger structures, creating also increased M&A activity. We have ample growth opportunities with our existing business. But of course, it is smart to keep an eye open to see what opportunities that might arise in terms of further build scale on the multi-brand platform that we already have in place. And we look at opportunities, both from a scale, volume, cost perspective.
We look at opportunities to what extent it will help us commercialize our sustainable solutions. We look at opportunities to what extent it will increase our institutional or maybe even international capabilities, and also how it can shift our position or strengthen our position when it comes to retail in Scandinavia. And as you can see, SKAGEN actually fits all of these dimensions. And going forward, we might find opportunities with similar characteristics, or at least that will strengthen us in some of these dimensions. To conclude, Odd Arild made it clear that we had set ambitious targets back, actually, in this room, back in 2016. We are on route in terms of delivering on these ambitions, both when it comes to the position, the revenue growth, and operating profit.
I've shared with you the five initiatives that will provide for future growth. Of course, we will maintain and have the ambition to maintain the number one position. We have also an ambition to build a European presence in a profitable way. The new profit target is to increase operating profit by NOK 250 million in the time perspective up until 2021. That will actually bring the operating profit of the asset management activities, including SKAGEN, from in excess of NOK 750 million in 2017 to NOK 1 billion in 2021. So I'll leave you with that key message and hand over to Lars. Thank you.
Thank you, Jan Erik. I'm Lars Løddesøl, Group CFO, and we're now moving into the last leg of our presentation before we open up for Q&A. I will go through some of the numbers to substantiate how the business generates distributable dividends. As you have seen throughout the morning, the occupational pension business generates cash, but also generates an increasing number of retail customers, which in turn generates additional profitability, a growing part of which comes through the asset management business. All of the subsidiaries are well capitalized, and the growth is capital-light, which in turn means that the cash remittance to the holding company is high, which leads to increasing dividend capacity in the coming years.
More specifically, I will go through how we see continued growth in capital-light savings and insurance, which, combined with strict cost control, will lead to improved operating results. I will also touch on how higher interest rates will lead to gradually increasing profit split in the guaranteed products. Our investments are structured to give sufficient return to cover the guarantees and build additional solvency. We have a solid capital position, low leverage, and high quality of capital. This means that subsidiary dividend remittance is close to 100%. In summary, we generate increasing profits from capital-light products, combined with capital-light release, sorry, with capital release from the old guaranteed back book, creating two sources of free capital generation for shareholders. Before I go into these areas in detail, I will go through some general topics and illustrations.
Storebrand has integrated our sustainability reporting in the financial reporting. The financials, the customers and community relations, as well as measures related to people and systems, are all published in our annual report. Furthermore, the measures and objectives are linked to the UN Sustainable Development Goals, and as CFO, I personally signed Prince Charles's Accounting for Sustainability Declaration. You can find more details on our reporting and sustainability work in the annual report and on our web pages. The sustainability reporting is important for transparency versus our customers, employees, and all the stakeholders, but also because it contributes to hard financial value creation for customers and shareholders. My colleagues have already mentioned a number of different regulatory changes that may affect the industry and us in the years ahead. EIOPA has suggested changes to the standard model.
The two most important areas, from their paper, from our point of view, are the additional interest rate stress and the treatment of tax. The latter will most likely have very limited effect for Storebrand, while the former, i.e., the interest rate stress test, seems to have been postponed until a larger revision in 2021. Regardless of the delay, we have identified a number of tools and actions that will limit the impact of the proposed changes. On paid-up policies in Norway, the government is considering changes to increase the risk-bearing capacity in the product. The proposed changes will increase expected returns and profitability in the products. Staffan has mentioned the possible change in Norwegian municipality pensions. Without repeating what Staffan said, it's enough to repeat that this is a large potential organic growth area.
Picking up this picture from Odd Arild's presentation, we see how the growing savings and insurance businesses are generating very high ROEs. The long-term run of guaranteed business also generates good profit, but ties up a lot of capital and creates insufficient ROE. As we now have passed peak guaranteed reserves and capital consumption in these products, we will gradually release the capital in the coming years. This should generate superior dividend capacity and growing ROEs. Before digging deeper into the numbers, I want to illustrate the transformation taking place with some simpler pictures. On the top left-hand side, you see the very significant shift in premiums in the Norwegian pension business, with 2/3 of the guaranteed premiums disappearing in only six years. In parallel, the unit link premiums have almost tripled.
Furthermore, on the right-hand side, you can see how the age distribution for the guaranteed pension beneficiaries in Norway and Sweden is a lot older than the beneficiaries in the guaranteed plans, in the non-guaranteed plans. The average customer with guarantees is now 63 years old, and almost half of them are already in retirement. This, in turn, means that we are now paying out more in pensions that we receive in premiums for guaranteed, while the opposite is true for non-guaranteed. The combination of the facts that, one, the non-guaranteed products, itself, or product itself is young in Norway, and two, that the population with non-guaranteed plans is young, means that we receive a lot more new premium than what we are paying out in pensions.
Taking it one step further, we look at future net flows by making a projection of future premiums and claims, i.e., pension payments, based on our current business. The picture does not include market returns. As you see on the top graph, net outflows in the guaranteed portfolio is expected to increase from around NOK 11 billion to NOK 14 billion over the next five years. In the non-guaranteed portfolios, the net inflow is estimated at NOK 13 billion and growing. On top of this, market returns should generate around 5%-6% for non-guaranteed portfolios, while only the guaranteed rate for the guaranteed portfolios, and the new business will obviously come in addition. The last introductory picture I want to show you is a familiar balance sheet projection that we have shared a number of times since our capital markets day five years ago.
It confirms that the guaranteed portfolio has reached reserves and Solvency II peak capital consumption, and that the growth will come in non-guaranteed products that largely are funding themselves from a Solvency II capital standpoint. This means increasing cash flow, free cash flow and growing dividend capacity. I will now dig into the five different topics, starting with the drivers in the P&L development, the growth areas, savings and insurance, and strict cost control. There, non-guaranteed savings have grown sixfold in earnings and from 14% to over 50% of total earnings, despite the increase in cost and resource allocation. The significant improvement in 2017 is partly explained by the acquisition of SKAGEN, but also from improving results in the other savings product lines.
Insurance had been a relatively stable contributor, despite some negative structural changes in Norwegian disability products and changes in our own distribution setup. Earnings from guaranteed products show volatility linked to financial returns, but clearly trend downwards from more than 50% of total earnings in 2012 to around 25% in 2017. Worth noting is also the resilience in results in savings and insurance during the financial turmoil we saw in 2015. Another way of looking at earnings is to look at the high quality operating profit, which excludes financial items, risk results from the fat -tail risk products, and the special items. This result element has had a flat development for some years, as the profit from guaranteed has fallen more or less in parallel with the increasing profits from non-guaranteed.
Last year, the profits from savings increased significantly, partly because of the acquisition of SKAGEN, but also from increasing profits from the other businesses, more than making up for the declining operating profits from the guaranteed business. Looking ahead, we expect continued growth in operating earnings and gradually improved financial results from higher rates and profit sharing. This is a picture familiar to many of you. It shows a simplistic overview of our P&L, which we include in every quarter presentation. We expect fee and administration income to continue to trend upwards, with higher volumes, partly offset by continued margin pressure and declining income from the guaranteed business. The insurance results should also grow modestly in the coming years. As we intend to keep the operating costs flat, this will lead to increasing profits.
Financial items will depend on financial markets, but if the interest rates continue to go up, we may see gradually increasing contribution from profit-sharing products. Please note, however, that we will continue to prioritize building buffers to ensure the solvency and strengthen our ability to weather future volatility in financial markets. Amortization will stay just above NOK 400 million per year. Taxes are expected to be at around 20%, but may be lower in some years, as we've seen historically. Deferred taxes are close to zero for another four to five years due to historical tax losses. My second theme is the guaranteed book, our asset liability management, and the liability-driven investment approach.
I hope this section will leave you with the following key, key takeaways: sufficient expected return, robust buffer levels, efficient risk management, and an ability to plan for the long term with high quality assets. Let's start with the last point, quality of assets. In order to achieve necessary returns in different financial scenarios, we use significant resources on liability-driven investment strategies, and we have some extremely talented people working on this. We have a total of NOK 179 billion in assets backing the guaranteed liabilities in Norway and some NOK 80 billion backing the same in Sweden. As illustrated, the investments are different in the two countries due to regulatory differences. All of the investments are of high quality and monitored closely. We have extremely low historical losses in these portfolios, confirming the quality of the investment process.
In Sweden, we manage duration mainly by swap exposure and take credit exposure in floaters. In Norway, we have a large hold-to-maturity portfolio to manage the annual guarantees in addition to swap exposure. We have almost no exposure to Italy, for those of you who are interested in that these days. In general, we have, over the last few years, moved the portfolio towards asset classes with high expected return relative to capital charge under Solvency II. That means credit bonds rather than equities and several forms of illiquidity premiums. The current allocation to loans is 15% for the Norwegian portfolio and 10% for the Swedish portfolio. The loans include both low-risk, asset-backed residential and commercial mortgages, as well as private debt. The portfolios are fully FX hedged. In this, in the appendix, you can find additional information about our high-quality bond portfolios.
I will not go into a lot of detail here, except emphasizing the sophistication of the risk management process through some examples. This picture shows how the Norwegian paid-up policies are divided in sub-portfolios, depending on the buffer levels, the required return, and the duration of the policies. As you can see, sub-portfolios four and five have low guarantees and sufficient buffers to take market risk. This leads to higher expected returns, which in turn should create surplus returns and profit split over time. Sub-portfolio one has lower buffers and higher guarantees. This portfolio is largely invested in bonds at amortized cost that ensure the required return, but with very little upside. In Sweden, we're actually able to be even more granular in our risk management and make a single investment portfolio per customer.
The different sub-portfolios will have different risk profiles to optimize the balance between solvency and customer returns. This also illustrates that if Norwegian authorities improve the regulatory constraints on the products, as mentioned earlier, we will be able to increase expected customer returns without hurting solvency. Storebrand has a long history of implementing liability-driven investments and asset liability management under different regulatory regimes. Liability-driven investments for Storebrand can be translated to risk management with a double purpose, where we have to handle both. A, the long-term perspective with risk management of own funds under the and the solvency capital requirements under Solvency II. And B, the shorter term IFRS perspective with risk management of the financial results and buffers. These two perspectives are different in Norway because IFRS accounting use book values for assets and liabilities. This guides the mechanics of buffer building.
In Sweden, there is more consistency between the IFRS and Solvency II perspectives. Priorities in this dual risk management are set by our financial targets. We aim to contribute to increased solvency from the back book, while keeping within an acceptable IFRS result, risk level, i.e., we optimize the balance between risk and returns in the short and long-term perspective. Moving one step further, this picture illustrates that Solvency II capital and IFRS results are generated differently. What matters in the Solvency II perspective, or the solvency perspective, is that assets must grow at least as fast as the value of liabilities. Therefore, one target to beat is the solvency discount rate for the liabilities. To minimize variability in the solvency ratio, we have to hold sufficient buffers and match assets and liabilities.
We currently hold 11% more in assets than the market value of our guaranteed liabilities, not counting shareholder capital. With the illustrated expected excess return, this will grow to 17 to more than 17% over the next 10 years. In the picture on the bottom half, we see that the expected book return exceed the annual IFRS requirement. In addition, we have buffers to draw on to manage downturns in financial markets. That means we can smooth returns over time, and that we have very low IFRS earnings risk in the Norwegian regime. Summing it up, we are confident that our investment risk management can control short-term IFRS risk, increase buffers, and contribute to improved solvency. The third topic I will cover is the increasing solvency capital generation.
Over the last four and a quarter years, we have grown our capital margin without transitionals, from 101% to 160%, an increase of 66 percentage points when you're including what has been paid out in dividends. In the years up until 2016, when Solvency II was legally introduced, the extraordinary improvements came from significant changes in the business, general risk management adapted to the new capital requirement framework, and a number of model improvements. Since then, the improvement has been relatively stable and predictable. This is an interesting picture. On the left-hand side, the graph shows the own funds and the solvency capital requirement of the group. The own funds are split up between hard capital, including equity and subordinated loans, and VIF, or Value in Force, i.e., the embedded future profits in existing business.
The solvency capital requirement is split between the three business areas: savings, insurance, and guaranteed. Please note that these issues are illustrated in a lot more detail in the appendix. Keep in mind that there are two major sources of solvency capital requirements under Solvency II, in a little simplified, or in simplified guarantees and lapse. Lapse means that you lose a profitable customer and the assets under management related to that customer, and also the embedded future profitability. In parallel, you will also lose the capital requirements, since you cannot lose the same client or the same AUM twice. The savings and insurance business, businesses are low risk to shareholders. The capital requirements come from stressing that the profitable contracts will move away. Similarly, the own funds come from future profitability in the existing contracts.
You could argue that the contracts need less than 150% solvency margin, and that they are, in fact, fully self-funded. That means that all of our tangible or hard equity can be allocated to the guaranteed business, which would then achieve a solvency margin of 186%. The point here is that we have a solid capital position, with adequate capital backing our hard guarantees and back book, and that the growing front book is pretty much self, fully self-funding, and reduce solvency volatility as it grows further. When we make projections for the future, we clearly see the shift in capital needs. As the back book is in run-off and the average guarantees are declining, the business will need less capital. The front book, on the other hand, will continue to grow.
The front book growth will be more or less fully funded by a parallel growth in future profits, which are part of own funds. In other words, the capital requirements in need of hard capital are in decline, and the part of the business, which is more or less self-funding from a capital standpoint, is growing. This picture shows the decline in guaranteed liabilities and the even sharper decline in capital consumed by the guaranteed business. The reasons the capital requirements are falling faster than liabilities are that both the interest rate guarantee and the duration of the liabilities are falling. The picture confirms our previous guiding on approximately NOK 10 billion in capital release from the back book in the next 10 years. Furthermore, we see that the timing of the first capital release is coming closer. We expect to see tangible capital release from 2020 onwards.
In summary, we expect around 10% to tend to pay out a minimum of. This is based on the business as is. We will continue to look for value-enhancing measures to do better. Potential measures are M&A, modeling, risk management, changes in the business mix, and more. Furthermore, raising interest rate, rising interest rates may contribute. My fourth topic is to document our strong balance sheet and high subsidiary remittance ratio. Since 2011, we have more than doubled our tangible equity base and reduced our leverage ratio. We have a very strong IFRS balance sheet. Also, our Solvency II balance sheet is of the strongest kind, with unrestricted Tier 1 capital, making up more than the total solvency capital requirement.
With subordinated loans accounting for less than 20% of the capital, we have a strong interest coverage ratio of around 8x , well above the A rating hurdle of 4x. Furthermore, holding company net debt is zero. With low leverage, we have available room for additional funding under the Solvency II regulations and rating limitations. This means a high degree of financial flexibility. Storebrand ASA is a holding company and relies on dividends or remittance from subsidiaries to cover running costs and shareholder dividends. After some years of restrictions on the life company due to longevity reserve strengthening, all of the subsidiaries are now paying most of their net profits and dividends to the holding company. As you can see from the graph, the remittance ratio for 2017 was 85%.
The holding company has limited expenses and the net debt level through to shareholders. It is worth noting that SPP has paid dividends to Storebrand Life well above 100% of their earnings for the last two years, as capital was released from that business. The same thing with Storebrand Bank, which has been exiting corporate banking altogether and therefore reducing the risk in the business. As the subsidiaries are adequately capitalized and further growth is light, the earnings generated can continue to be upstreamed to the holding company. My fifth and last topic is how this all ends up with two sources of capital to generate shareholder dividends. After some years of not paying a dividend due to adaptation to Solvency II, Storebrand restored dividends for 2016.
For 2017, we paid a dividend of 40% of IFRS earnings in excess of our dividend policy at the time. At the same time, the Storebrand board updated the dividend policy, stating that we will pay more than 50% of IFRS earnings after tax, and that the ordinary dividends will be at least, of at least the same amount as last year. In addition, we will pay special dividends on top of that when the solvency ratios, ratio reaches 180%, or if there are other special effects that justifies an additional dividend. Last year, the special dividend came as a result of extraordinary good financial return and some large tax gains. The IFRS results generated from the operating business provides the base for ordinary dividends.
Over the last eight years, the group has, on average, achieved its target of 10% ROE. As the solvency is now at an adequate level, the IFRS results generates a strong dividend-paying capacity. On a normalized level, we still struggle to meet the 10% ROE level. However, as we gradually continue to grow the high ROE capital-light business, combined with releasing the capital from the back book, the running ROE will increase. Furthermore, we will do our best to exceed the running normalized operating results. Through M&A profits, profit splits, excess returns and other means, we have been able to generate surplus returns over the last few years, despite challenging comments on our ROE target during the Capital Markets Day two years ago. We will continue to work hard to meet the set targets and to surprise on the upside.
I believe most of you are familiar with the heat map we introduced on Capital Markets Day in 2016. With current plans and markets, as I've shown you, we'll continue to generate solvency capital. When we receive, when we reach a solvency margin of 180%, the board will consider increased dividends, share buybacks, or a combination. Brings us to the conclusion of the presentation. Our projections, based on the material we have presented today and assuming normalized financial markets, indicate that we will release around NOK 10 billion in capital from the guaranteed business over the next 10 years. The release will happen gradually and more in the latter years than in the next few years.
Nonetheless, our solvency should reach 100% around 2021, which will allow us to start returning this excess capital to shareholders, in addition to most of what we make from the operating business. Obviously, there are things that may not develop the way we expect. There is always some regulatory risk, both positive and negative. Interest rates seems to be moving slowly upwards, but the trend may change, for better or worse. Financial markets will be better or worse than planned. There is margin pressure in all parts of our business. Margin pressure is built into the plans, but may become more or less severe than we expect. Finally, I want to leave with you our financial targets and our dividend policy.
I hope we, through our presentation today, have documented and substantiated how we will continue to create good growth in high quality earnings, in addition to releasing capital from our back book, to create two sources of free capital for increasing dividends in the coming years. With that, I hand it over to Kjetil, who will lead the Q&A.
Perfect. Thank you, Lars. I then propose that we will open up for Q&A. Lars and Odd Arild, you can step over in this direction, and I will take the podium. So, I think we are ready to start, so please, feel free to ask questions. The rest of Storebrand management is, of course, also available for questions. Yes, Blair?
Thanks very much. It's Blair Stewart from Bank of America. Thanks for the update. Really good presentation. Thank you. A couple of points, questions to ask. Firstly, on SKAGEN, the performance, I think you showed over the long term is very good, but it's been a little bit more challenged in the near term. Can you maybe comment on that and how the flow outlook there is progressing? And secondly, maybe some of the risks on the solvency side from the interest rate stress. Could you comment on that and how that might impact your headline ratio? And finally, could you talk a little bit about the asset liability management risks? You talked, Lars, that that seems to be well managed today.
I remember there was a reinvestment risk, though, and you used to show that in your presentations, you know, you know, over the next three, four, five years, where that might fall down to. How does the reinvestment risk specifically look today, given the liabilities are still longer duration than the assets? How do you see that? Thank you.
Should I start with SKAGEN? SKAGEN has developed very well according to our business plan. Actually ahead of the business plan, we put forward in the acquisition of SKAGEN. It's of course a situation where SKAGEN had substantially higher asset under management a few years ago. That was a part of what we saw when we bought SKAGEN. It was especially institutional mandates abroad that was declining. We see that is less the situation now in 2018. There is still some outflow, but in a more modest way compared to what we saw in the past in SKAGEN. The good thing is that there's a very strong inflow in SKAGEN. So as soon as now the outflow is reduced, there is a strong inflow in SKAGEN.
That will, of course, turn the situation. But then again, this is very much in line with what we saw when we bought SKAGEN and in line with our projections, what is going to happen for the SKAGEN situation. I also want to say that we... The progress in the way we now deal with SKAGEN as a, of course, independent boutique is going very well. We have found a lot of synergies also when we work with the operational platform. For example, some of the systems SKAGEN use in the customer with customer interface is really that good that we now utilize them and work with them with all our boutiques and asset management setup. So that is an additional synergy that we found and are implementing now.
On the interest rate stress, EIOPA announced a plan to increase the stress for interest rates. Obviously, increasing the stress would be negative, but as I mentioned during my speech, we also have identifiable measures to counter that. On the J.P. Morgan conference yesterday, EIOPA said that the interest rate stress will be postponed to the general revision of the standard model in 2021, so this is not going to come about now. On ALM and reinvestment risk, it's correct that we still have about a year or two in ALM mismatch between our liabilities and assets.
But now with higher interest rates in Norway and Sweden over the last six months or so, we see that we can continue to invest long-term and hold to maturity bonds pretty much at the future guaranteed levels. So, it's that risk has been reduced with higher interest rates as we've seen over the last six months.
Have you got the top? We'll start with Vegard, since I saw him.
Thank you, Kjetil. I was just wondering, it's very interesting what you're saying there about the municipality product. Do you have any timeline or how should we think about when you take the decision, and what are you weighing when you're taking that decision?
Now, it's quite new that it came out an agreement with the parties in the workforce here about the new, more defined contribution-based products. So, this is quite new for us. But then again, we know this market very well. We have been in the market all the time, actually, with our closed fund solutions.
W e actually have also a couple of municipalities still on our balance sheets, that has—we was in that market five years ago, and two of them has never actually left us. So, so we know the product, we know the systems, and we know the clients to work with here. So it's up to the final agreement around specification around the product, and of course, also important to see that there will be real competent, real, more c ompetition in the market, because it's tend to be a low volume of municipalities that has put their pension providing out for tenders.
And we need to see more of that also happening going forward. But it's a very interesting market. I will assume within a year or two we have all the well, in a year, we should know the product very well, and made a final agreement of how we pursue in that market going forward. It's important to note, obviously, that this, we're looking at a less capital-intensive product that we will be able to generate good profits on, otherwise, it's not interesting.
Everything is capitalized, always. Yes.
That's understood. And also on page 98, with the different paid-up policy, so especially the two ones to the left or to the top.
I think we presented on an average level in the supplementary every quarter, so you can see the figures there, but I don't want to break that into different portfolios, which may change over time as well.
But is it-
I think just to comment on it, it's not only the guarantee level that's different in the different buckets, it's also the buffer levels and the duration. So in that sense, it's more variables that goes into each allocation.
Yes. But is it fair to assume that for the ones that you have more buffers and, to the top and to the left, they have lower guarantees in general?
Yes, in general, that's true.
Thank you.
Thank you. Johan Strøm, to follow up on the last question there, in terms of timing for potential profit sharing on the Norwegian portfolio, didn't hear any comments on that. Can you say anything more on this side?
Should you go or me?
I'm a little bit more conservative.
Yeah, so
Can we start to the left perhaps?
Johan, we have had profit sharing for the last couple of years. When we make conservative projections on the financial markets, we see that we will gradually get profit sharing through in some portfolios, and gradually, more and more portfolios should come through. But as I said, also in my presentation, we'll continue to build buffers as a first priority, to be able to weather financial turmoil when in the years ahead, to make sure that we can also stand, you know, financial turmoil. But we should expect to see profit sharing coming in more and more portfolios and more and more contracts as we go forward. But I'm not going to give you a number as to exactly how much, because unfortunately, there are too many moving parts.
Would you like to comment as well?
I really want to. No, but it's very interesting to see. I know, of course, it's creating buffers is extremely healthy also for shareholders because it means that the solvency ratios is increasing faster. So it's always a balancing act about how fast you should increase your solvency ratio versus taking it out also in an IFRS result. But as Lars said here, two of these segments now start to have a very, well, more healthy asset allocation, and that is a good indication that the buffers in this portfolio starts to be quite good. And as Lars said, we are already into a profit sharing situation for these portfolios, and I hope to see more of that next year compared to this year.
Okay. Thank you. And then just quickly on the subordinate loan capacity, what is the total capacity now, and should we expect you to be active on this side, given low spreads, low interest rates in general so?
We have done financings and somewhat over the last 12 to 16, 12 to 18 months. We're happy at this, this level, but we see that the risk capacity to do more if, if we, if we want to. So that gives us financial flexibility, but we don't have any immediate plans to do additional. In terms of how much capacity, you can measure that in different ways, but I think if you look at the peer group, in, in Europe, they're typically at 25%-30%. And as I said, we're below 20%, so there's a fair bit of, like, peer analysis capacity. If you look at the capacity on the Solvency II, it can be 50% of the capital, so it's, it's quite a lot of capacity under Solvency II.
Thank you.
Yes, Niklas in the DNB Markets. Out of these NOK 10 billion that you expect to be released from the back book, most of it is expected to come in the form of dividends. But at the same time, you have this opportunistic M&A strategy. Could you say something about how much of these NOK 10 billion you will allow to be consumed by M&A?
I think it's very hard to make projections about that 10 years from now. Of course, if there is great opportunities, like we saw with the SKAGEN situation, we like to create shareholder value, with that. But standing here now and looking forward, we expect to, to share most all or all of this NOK 10 billion with our shareholders. So that is the starting point. But of course, we are active in the market, looking all opportunities. So I think that is the answer on that.
Thank you. Roy Tilley from Arctic. Two questions, well, three or four maybe, but too high level. Firstly, on the capital generation, I see you say it's expected to be 5-10 percentage points a year going forward. But I think for the last few quarters, you've been running at 10-12 somewhere. Is that just you being conservative, or is there something else there?
Well, we didn't say 5%-10%. We said 10%, of which half will be paid out in dividends. So I think the last on capital markets, the last time was 3% - 6%. Yeah, after dividends. Yeah. And, and 5%-10% before dividends. So, so to that extent, it's been going up. But yes, it's correct that we have created more solvency capital lately than we are indicating there. But I also said specifically that this is on the normalized assets business, and we are going to continue to look for ways to create some additional solvency capital. And I also mentioned a number of different ways that we could potentially find ways to create additional solvency. But on the ongoing book, with normalized market conditions, in the next two years, we're talking about around 10% before dividends.
Okay, thank you. And then a question on insurance. The 90%-92% combined ratio target, could you want to be more specific in the different segments there? Which product areas are will be above and which will be below? If you have any... For example, the P&C, what's your expectation there?
I think we want to optimize within the portfolio we have, and we have six major product categories within our insurance reporting. So we have P&C and individual life, which is one group. Then we have group life, workers' comp, and health insurance, which is the second group. And then we have disability insurance in Norway and Sweden, which is the third group. And so that's like six components of three major groups that we report on. So it's correct to say that personal life in Norway is very profitable. Health insurance is pretty profitable, as Heidi mentioned earlier.
Some of the other product lines are less profitable, but we have to optimize within this group and not break it down with too many detailed objectives on each one of them that creates or that takes away the necessary flexibility in running the business.
Okay. Yeah, thank you.
Yes, good morning, it's Thomas Svendsen from Nordea Markets. You're guiding for flat costs ahead, strong growth in profits within asset management, strong top line growth. So could you give some guidance on what you see in the base case of your operating profits in 2021? And also, could you comment on what you see about possible margin pressure on the products where you intend to grow strongly, and also the income reduction within guaranteed pensions? So but maybe the guidance on the pre-tax profit in 2021.
I think we leave that up to you, Thomas. It's your job to make those predictions. So, uh-
But Lars gave quite clear indication on the different lines here.
Mm-hmm.
What is going to grow and what is not going to grow. So I think that is the basic indications. In margin pressure, we, you know, you could, again, in, in our supplementary information, you find pretty much our net margins on all the different product categories. You can see trends. We look at the trends, and we look at the regulatory regime when we try to make projections for our own financial planning. And as I said, things may go better or worse, but we try to make it on, you know, pretty predictable trends that you could find also from the detailed information you already have.
So the target we have put forward has, of course, embedded these trends we are seeing also when it comes to margins.
Because one might imagine that since you are intending to take market shares, that someone else will respond to that.
They often do.
Yeah.
No, but we are very well positioned in these markets where we have the high ambitions, like the corporate pension market, like now the position in the combined retail market, and also for asset management. So it's basic, based on that and based on the, well, cost advantage we also have on the scalable platforms, that we believe we are very good, situated to take this growth without additional costs.
Thank you.
So, one more in the front to the right for you, Mariana.
Thank you. Good morning, sir. It's Steven Hayne from HSBC. Could you give a bit more color on your bolt-on kind of M&A strategy, what you're looking for there, what you might be missing in terms of products or maybe region, country exposure as well? And where would you like to expand there? And then secondly, you mentioned that your normalized ROE is slightly below 10%, and the run-off of your guaranteed book is going to sort of bring the ROE up over time. Could you give an indication of when the normalized will get to about 10%, and how much, in terms of percentage points increase, maybe per year or every, every five years, that ROE could possibly go up in the future? Thank you.
Let's start with the mid M&A. I think it's starting point is very important, what I also said in my presentation, that we have the positions we want, and we have a front book that really is growing with double-digit growth, as a total. We don't need to do any M&A to ensure the growth of the group going forward. But then again, especially on, I would say, on the asset management side, we now both have and building even a stronger operational platform that makes it easy for us to add on other type of boutiques, asset managers, that can reduce their own costs, and on total, be a part of our offering.
We have high market shares, actually, in Norway, but we are also very interesting in the rest of the Nordic market, with our strong position in Sweden, as an example, to grow that even further. Jan Erik talked about Denmark here. So I would say that is the obvious route for us to follow and look at when we are talking about M&As from this point. And on the ROE, I think you can read from the different analyst reports how the IFRS earnings are expected to develop going forward. And we now have said that we'll start repatriate the excess capital from the guaranteed book starting in 2021 onwards.
I think there are, again, maybe on Capital Markets Day a couple of years ago, when we are very close to start paying that out, we can say more projections about it, but it's too early to give you a five-year projection on ROE.
One more question in the front.
That's two, actually, if it, if it's okay. I was wondering about cost. You have given us quite a good, guidance or indicators for asset management part. But could you tell us something else about the segments where you expect to make the most of the cost cuts? Where do you expect to take cost most down, and then one more afterwards.
Well, it's of course obvious what we are growing and what is in decline. And we will reduce costs in the areas where we also are in decline, like our guaranteed business. So we have clear programs with all the occupational guaranteed products in Norway. And as Staffan told about also how we reduce cost by system changes, outsourcing, and digitalization altogether in the total setup, but especially on the guaranteed business. Then again, it's important for us to use that freed capacity to invest in digitalization and the front-end solutions. So it's even if the cost is flat year, it is an absolute reallocation of cost from the guaranteed book into the growing part, and especially on the digital front end.
Okay, thank you. And just lastly, on page 66, you have the 50% profit growth in the P&C. And as I remember, you have a combined ratio there of 86, 87, and not much growth. So how, which parameter are you going to change to increase that by 50%?
Just quickly, it's on the target, it's for the combined line of both P&C and individual life. So that's the target sits on. And we've seen very little growth in both individual life and P&C over the last years. Changes in distribution, I think, is the main reason. So the profit need, growth needs to comes from both sources. We need to have more growth in both lines, the individual life line and the P&C line, together with more or less the margins we're seeing today. I think that's at least the starting point.
Okay, thank you.
Any further questions? All right. Then, before we go and get a little lunch, I would like to thank you all for coming here today, and also thank everyone who followed the webcast. So, with that, we wish you a good day, and we will end our presentation here. Thank you.
Thank you.