like, to say good morning to everyone, and I welcome you to Storebrand's Capital Markets Day 2014. It's a pleasure to welcome you all here, both those of you who are actually here and those who are following us live on the webcast. On the screen behind me, you can see the agenda for today. We start off with the CEO, Odd Arild Grefstad, who will give his thoughts on the business and the direction and the pace he will lead Storebrand in. Then CFO, Lars Aa. Løddesøl, will tell about the financial position of the Storebrand Group. He will also present, for the first time, Storebrand's own economic Solvency II calculations.
After a leg stretch and a coffee break, we continue by getting an overview of the Storebrand commercial position by CCO Robin Kamark and EVP Staffan Hansén will tell us a little bit more about our, how he is building a sustainable asset management business. Then Odd Arild Grefstad will then give us some concluding remarks before we aim for having a light lunch at approximately 12:00 P.M., 12:15 P.M. So by that, I would just like to welcome you all once again and give the word to Storebrand's CEO, Odd Arild Grefstad.
Well, thank you, Trond, and thank you to all of you for being here today, and also a very well warm welcome to everyone on webcast. We very much look forward to report on our progress today, both on adapting to... Solvency II, but also how we are continue to build our business in a more capital efficient way. But first, some facts about Storebrand today. Storebrand is a focused player within occupational pension. We are the only listed Nordic life insurance company, and we are the largest player in the Norwegian market for private occupational pension. With more than 30% market share and have a strong position also in Sweden, Sweden through SPP. The life and pension business is supported by asset management of approximately 500 billion NOK asset under management. That is 50 billion GBP.
We are all of these assets are under sustainable screening, and we are a leading player within sustainable screening of assets, actually in the world. Furthermore, we have the insurance and the bank platform to support our life and pension offering. Storebrand is profitable and solid business with capital efficient growth. The results are increasing with increased underlying quality of earning, that is, results before profit sharing here. The growth of the balance sheet is strong, and the solidity, measured by the current Solvency I regime, is at 182%. In addition, we see a continuing shift from guaranteed products to non-guaranteed pensions, savings products, and risk products. This is a clear and important trend. That will continue going forward, and the CFO will return to the consequences and effects of this transition.
Let us do a quick recap of the current financial targets. Return on equity have been above 10% target for the last two years. Solvency I is well above the targets, and we have an A rating. We have not reached our target to pay our dividend, mainly due to preparation for Solvency II and a reserve, reserve strengthening for longevity. Storebrand's business model is undergoing a fundamental transformation. Looking forward, there are some important factors that shape our financial landscape and development. First, we capture growth and increase our revenue in capital efficient savings and insurance products. Second, the traditional sources of revenue, with also quite high margins from guaranteed business, are trailing off. Third, in a low margin world, cost control is essential to produce competitive results.... But here is also a great dilemma.
If we use cost control advice and do not invest for the future, we will not be able to capture the growth going forward. This means that this is no one-size-fits-all cost cuts, and it means that we will invest when it creates value for shareholders. Finally, it's Solvency II. As earlier stated, our number one goal is to enter into the new solvency regime without issuing new equity. Today, I'm more confident than ever that we will meet the new Solvency II requirements without having to raise new shareholder equity. We have four key takeaways for today, and I will go through the three first ones rather briefly, and, our CFO, Lars Aa. Løddesøl, will provide more insight in these topics in his presentation later on.
Then I want to use some time with you to share my thinking on how we will execute our dual strategy and the transformation of the business model going forward. First takeaway, regulatory uncertainty is reduced. We operate in a very regulated industry, so regulatory changes will always be a part of the agenda. But we have been through a period of extraordinary regulatory uncertainty lately. New solvency rules, increased longevity recharges, fundamental changes in the occupational pension legislation in Norway. This has been themes that has been on top of the agenda since I took over as CEO in 2012. As we now approach 2015, the majority of these regulatory issues are becoming much clearer. We formally started our longevity reserve strengthening plan this year, booking a NOK 90 million P&L effect on a quarterly basis.
We are ahead of the plan for the total reserve strengthening and will report to the market on the development on a quarterly basis. The occupational pension legislation is, for all practical purposes, clear. Most employees today find themselves in a defined contribution scheme. Increased savings rates are introduced, and we observe an increased interest from corporates to actually utilize these higher rates. The old defined benefit schemes is allowed to run off in the pace of the customer's decision. Paid-up policies with investment choices now are available, and we started our sales effort 1.5 months ago. This is basically a product where individual customers can choose their own asset allocation instead of having a guaranteed low return. On Solvency II, most is now clear on a European level.
On national level, the Norwegian FSA released a proposal for implementation of Solvency II in Norway in September. The proposal suggested that insurance companies can make use of the Volatility Adjustment rules. That is an adjustment for credit risk when calculating the value of the insurance liabilities for Solvency II purposes. They can also allow for lower stress on equities owned by the first of January 2016, for the next 7-year period. And last but not least, it's a suggestion, suggests a 16-year gradual transition to Solvency II value of the liabilities from Solvency I. The transition rules are still not finalized, and how they are finally implemented will obviously have an effect on our statutory solvency numbers. We expect this to be clarified shortly. Based on this, we want to use this opportunity now to guide on our solvency position under the new Solvency II regulations.
Solvency II is fast approaching. We have seen a framework that has been under constant development over the last 15 years. Still, there are some uncertainty, especially how the Norwegian transition rules will be finalized, but we feel that now, for the first time, it is enough clarity for us to share estimates on our Solvency II position with the market. And as of the Q3, our Solvency II estimate is 125%, using a standard model and a careful interpretation of the transition rules proposed by the Norwegian FSA. We are, of course, working hard to improve both the business and increase our sophistication of the modeling. At the implementation of Solvency II in 2016, based on this, we expect to be in the interval between 125 and 150.
And Lars will shed some more light on the sensitivities in his presentation... When the regulatory uncertainty is reduced and solvency measures are changed from Solvency I to Solvency II, it also makes sense to adjust the dividend policy. The board confirms a dividend target of more than 35% of the result after tax, but before amortization costs. The dividend policy is now linked to a Solvency II target. Given the short time period before finalization of Solvency II, the low interest rate environment, and the continued reserve strengthening for longevity, it is unlikely that the board of directors will propose a dividend for 2015, 2014. This means that we keep our financial targets, but we change the Solvency I target to Solvency II, and this new target is then active from January 1, 2015.
Then we are at the fourth takeaway for today. I will focus the rest of the presentation on how we will continue to deliver on our dual strategy. I will give an update on how we actively manage our guaranteed book of business, but my main focus will be on how we will reach our ambition to grow capital efficient savings and insurance. But first of all, we operate in a market with very attractive macro fundamentals, both in Norway and Sweden. The expected GDP growth is among the fastest in Europe. Unemployment rates are low compared to the rest of Europe. The state finances are solid. This gives growth impulses to our core markets. The recent drop in oil prices and relative lower investments in the oil industry have made some to question the strength of the Norwegian economy.
It is important to understand that the oil investment still is on a very high level the years to come, even if it's somewhat reduced from the historical top level in 2014. At the same time, the weakened Norwegian kroner and the continued investment in domestic infrastructure, keep the demand side of the economy still strong and give good prospects for growth also going forward. Being a pension provider, we benefit from a strong economy for several reasons. First, the growth in the economy leads to growth in wages and pension premiums. Second, it gives high participation in the workforce, and hence leads to increased occupational pension premiums. And third, a strong economy leads to good asset return and increased reserves. Our balance sheet consists of products with very different characteristics. We currently have NOK 257 billion of guaranteed reserves.
Some of these products, especially paid-up policies in the Norwegian back book, are, to a large extent, dependent upon creating profit, profit split between shareholders and customers for being profitable. With the current historic low interest rates, these products are both capital intensive and have a low profitability, as we speak. This sums up what we call the back book challenge here on the left-hand side. Opposite, we have an attractive front book consisting of NOK 94 billion of capital-light unit-linked products and insurance products. The market for defined contribution have grown significantly in the last years, and Storebrand are the market leader in a rather consolidated Norwegian market. The change in the occupational pension framework in Norway has also opened for increased savings rates in the defined contribution market, and we see strong increase in premiums.
On this backdrop, we reiterate and reinforce our strategic direction of the last 2.5 years. We have a dual strategy to manage the guaranteed balance sheets and continue to grow in savings and insurance. We manage the guaranteed balance sheet, now aiming for at least 130% solvency ratio. We will continue to grow in savings and insurance by leverage our position in an individualized occupational pension market. There have been and will be, continue to be a fundamental change in the business mix in Storebrand.... Let us now first see how we manage the back book. Our balance sheet has been significantly improved over the last two years. Our main challenge is dealing with low interest rates and paid-up policies under Solvency II.
I will revert to how we manage the business with low interest rates, and our CFO will shed more light on how to deal with paid-up policies. In the second half of 2012, we started a comprehensive program to manage the balance sheet. We divided our efforts in four main areas: risk reductions, cost reductions, product optimization, and capital optimization. A number of actions have been carried out. A selection of the largest, we have realized the conversion of NOK 27 billion from guaranteed products in Norway and Sweden on the portfolios, which is so far open for conversion, and this is before paid-up policies with investment choice. This includes the phase out of the public DB pension schemes and a transfer into more capital efficient products.
We have significantly been de-risking the guaranteed portfolio by reduction in the equity portion and an adjustment of asset allocation on a segment basis to ensure better matching towards the liabilities. That means increased healthy maturity and prolonged duration in the portfolio altogether. And we have implemented price increases in the guaranteed portfolios, both in Norway and in Sweden. In 2012, we launched a comprehensive cost cutting program that will reduce the cost by more than NOK 400 million by the end of 2014. Going forward, we have chosen to change to a cost income-based target, and our target is to keep our cost-to-income at a 60% level. The transition in our business model calls for investment to growth areas. At the same time, we need to keep a strong cost discipline in the run-off part of the business.
As we gradually are moving from guaranteed products with relative high PNL margins, but also high capital charges, into more capital effective products, you will see that this is quite an ambitious target. In nominal terms, we expect to have close to flat cost from 2014 to 2015. But again, if we see value creating business cases, we are in a position to invest. We are experiencing historically low interest rates, even though the Norwegian rates are at a higher level than the rest of the Europe. Our Swedish business operate in a mark-to-market environment, where assets and liabilities are well matched and has a strong buffer capital in conditional bonuses that reduces the risk for shareholder. In Norway, our liabilities are measured at book value. We have therefore built up a significant hold-to-maturity bond portfolio that currently yields at 4.8%.
Falling interest rates have led to a significant increase in customer buffer, including NOK 10.1 billion surplus value in the hold-to-maturity bond portfolio . This portfolio will contribute significantly to deliver returns above the guaranteed level in the short and medium term. Looking further ahead, the guaranteed portion of the balance sheet will be reduced. The guaranteed liability duration will be reduced, and the average interest rate guarantee will be reduced. So altogether, this means that we are well prepared to manage the guaranteed book of business in a low interest rate environment, both short term but also long term. So managing the back book is important short term. Long term, the main challenge and opportunity is to capture the growth in savings and insurance and replace the capital intensive income with income from capital efficient products.
So we have managed to grow our asset under management by 7.3% per year since 2011. And remember, this is a period with significant outflow from the guaranteed part of the business. As you saw, the NOK 27 billion outflow of guaranteed business on the other chart. The unit-linked asset has grown by 22% annually in the same time period. There has been limited annual growth of 3.7% in the bank in this period, but the insurance has grown by 9.2% annually the last three years. So all in all, I'm very pleased with the growth in the capital efficient part of the group so far. Going forward, it's important to continue the growth in savings and insurance. It means that we need to continue to offer attractive solution to our customers along three dimensions.
First, our bread and butter, our core competence, and our license to play, is to maintain our position in the private occupational pension market in Norway and Sweden. This is the pure B2B relationship. Second, the employees in our corporate pension contracts are our key individual customer group. The corporates give us access to talk to employees, so we can inform about pension, the most important employee benefit of the salary. We do this mostly through digital channels and call centers, but in addition, we use financial advisors to our leaders in their corporates. Capital certificates, paid-up policies with investment choice, and the Swedish tick-the-box pensions, are typical products that is paid for by the corporates, but decided upon by the individual employee.
Our goal is to give relevant information and advice, and add value for both employees and corporate customers, and this is our entrance ticket to the B2C relationship. Lastly, we have the pure retail B2C relationship with our customer. We use the data and the feedback given from employees to leverage retail distribution at low marginal cost. This is typically P&C, it's banking products, long-term savings through mutual funds, and unit-linked products. Let me start with our relation to Nordic corporates. We have offered occupational pension in Norway and Sweden since 1917, and we operate in an attractive market that grows by 7%-10% annually. Storebrand has a clear value proposition to our corporate customers. We believe that offering customer service beyond the client's expectation, coupled with unique Nordic pension competence, gives us an edge.
It means being able to handle a multitude of pension schemes and insurance arrangements for big multinational companies, and it means seamless integration and standard solutions for the SMEs, and everything in between. Another clear value proposition for our clients is sustainable investments. We have worked with sustainable investments since 1995, and we have now ensured this expertise to be an integrated part in our investment decisions in the front office. And also to use the expertise to develop Scandinavia's first sustainability mutual fund, based on positive screening of the top hundred companies in the world, based on our unique in-house methodology. Furthermore, this year we have introduced sustainability rating on internal and external mutual funds on our platforms, and in a wider sense, transparency in relations to all stakeholders is essential for success for us as a pension provider in the market.
What we sell is a promise of a pension, maybe 50 years from now. In this business, trust is the key. So why are individuals becoming more important in our pension centric business model? In Sweden, in the Swedish system, most employees make an individual choice of pension provider, both in the public system and in the private system. In the Norwegian private sector, assets in non-guaranteed paid-up policies, so-called capital certificates, are estimated, as you see here, to exceed assets in active defined contribution schemes in 2020. In addition, Norwegian employee now have the opportunity to convert unit-linked paid-up policies with investment choice. Within six weeks, our customers now have converted over, it's here, NOK 600 million of paid-up policies to paid-up policies with investment choice.
That is a stronger pace of conversion than we actually expected when we started this six weeks ago. These are all examples of the transition from defined benefit into unit-linked based pensions. This has led to a situation where more of the risk and the choices are handled by the individual employee. In an individualized market, there is a greater need for information. Pension providers need to inform employees together with their B2B customer, and 94% of our Norwegian B2B occupational pension customers has given Storebrand permission to enlist their employees in the employee loyalty program. This has enabled us to significantly increase our activity level towards employees. Going forward, our level of digital maturity and customer centricity will be the key lever, levers for success, and I will revert to this later on.
What we have been doing over the last couple of years is to build and formalize our methodology for selling in a B to B to C logic. Our data quality is steadily improving, and we are continuously improving the model. Already today, we observe that about 25% of the results before profit sharing is a pure retail result. On this backdrop, it's pleasing to note that the number of retail customers is growing after having been in decline for some years, and our CCO, Robin Kamark, will go into more detail about this topic in his presentation later on. We have implemented a number of measures to increase our digital maturity and customer centricity over the last two years. We are on a journey, and we need to do much more to ensure success in the savings and insurance market going forward.
Let me share some thoughts with you in how the management team and I approach this challenge. We started by implementing a new vision recommended by the customer in 2012. We have set clear customer growth targets. We recognize the strength in the Storebrand culture, but we also need to work towards a much fast-paced towards a more fast-paced digital culture, where the retail and the corporate logic is equally important. We have implemented an operating model that starts with the customer. In 2013, I did a change in our organizational model that meant that all sales, marketing, and product development was centralized in one customer organization in Norway, led by Robin Kamark, and one in Sweden, led by Sarah McPhee. Moving from a product-centric to a customer-centric business model is like flipping the organization on its side.
It has been and will be some coordination challenges. There will always be, because there is no operating model that suits all purposes. There will always be some pros and cons in how you choose to organize the business, but I strongly feel that our current model makes us able to transform Storebrand at this point in time. We are steadily refining our processes of activity-based sales and multi-channel customer journeys. The engine and infrastructure is now up and running. Some examples. In Norway, we now have more than five million digital dialogues with our customers this year. This is four times as many as three years ago. Next step is now to use the data from our customers to make customer journeys better, more intuitive, and increase the level of the digitalization.
One of the ways we do this, to interact with our customers when they establish their pension number. That is the targeted pension savings from all your pillar one, pillar two, and pillar three savings. 100,000 customers have used our web-based login solutions to calculate their pension and identify the gaps in their pension plan. This, in turn, enable us to offer the customer a more relevant solution that suits their situation. Two-speed IT. That means that we split the IT management of core systems and agile teams for new development. These agile teams will be cross-functional, consist of business and IT together in one team. They will be given a large degree of autonomy and operate towards clear goals. I have experienced that this approach significantly reduces time to market, ensure better results, and a more adaptive IT delivery.
We have used this process in our Solvency II modeling, and also to create the digital customer journey for becoming a paid-up policy with the investment choice customers. We will roll out this for selected customer journeys in the coming weeks. So we have a clear vision, we have defined customer goals, and we have implemented a customer-centric operating model. We have also formalized feedback loops for improvement of the operating model and for our culture. So we use our experienced Lean team to work with end-to-end processes. We have established Net Promoter Score as our main feedback loop towards our customers, and use the insight to improve the customers, to better understand the customer's behavior.
... We work with customer profitability and loyalty economics to truly understand the value of the customer. So we now have the setup we need, and we have demonstrated that we are seeing some early signs of success. But there is still a lot of work to do to reach our full potential. And for me, I must say, working with this potential and building stone by stone to continue the growth in savings and insurance, is inspiring and the most strategic important issue going forward. So to sum this up, as we approach 2015, the regulatory uncertainty is significantly reduced. Storebrand are well prepared for Solvency II. Dividend payments are now closely linked to Solvency II targets. We continue and reinforce our dual strategy of manage the guaranteed balance sheet and growing capital efficient savings and insurance. Thank you.
Well, good morning from me as well. I will take you through some historical figures, some of the transition taking place in the business, Solvency II numbers and sensitivities, cost program, what we have achieved and where we're going, as well as updated financial targets. Storebrand has shown consistent and solid growth for the last six years. Earnings have more than doubled, and the target earnings level of NOK 2.5 billion in result before profit sharing and loan losses for 2014, which we communicated on our capital markets day in 2011, is well within reach. In the same period, we have built solvency capital well above the regulatory requirements, and we now have a total of NOK 62 billion in capital, solvency capital, securing the liabilities to our customers.
A few years ago, we refined the categories of earnings of Storebrand to simplify and to give a better sense of predictability of earnings. Result before profit sharing and loan losses can be regarded as high quality earnings. This earnings component is based on the assets under management that we have, times the margin that we get paid, plus the underwriting result, minus the operating cost. Net profit sharing and loan losses will normally contribute an additional NOK 200 million-NOK 300 million to the results, but will be typically more volatile and dependent on financial markets. Large non-recurring items have been added as a separate element to avoid distortion of the other numbers.
On the previous picture, I mentioned the earnings target of NOK 2.5 billion in 2014, and you can see how the red area is likely to get there by the end of the year. However, the results in 2013 and 2014 in particular, have been positively impacted by the falling interest rate level, which has given an above normal return on company portfolios. Furthermore, the earnings derived from corporate banking and public sector defined benefit plans will disappear in line with the run-off strategy of these business lines. Also, revenues from Norwegian defined benefit plans are shrinking as these plans are being closed. Earnings from non-guaranteed business and underwriting are growing, but may not grow fast enough to replace all of the lost revenues, especially when we include the negative effect of longevity reserve strengthening.
This will put medium term profitability under pressure, and is an expected consequence of the strategic shift out of capital-intensive guaranteed business. As we have grown the business in terms of customers, balance sheet, and revenues, we have also improved the quality and predictability of earnings and strengthened the balance sheet. Group equity has been strengthened by 28% to NOK 23.6 billion, and the tangible equity by 57% to NOK 18.2 billion. The intangible equity, consisting mainly of the value in force from the acquisition of SPP in 2007, has been written down according to plan.
In the group capital structure, the growth has been funded by retained earnings, while the subordinated debts in the life company and in the bank, as well as the senior debt in the holding company, have stayed flat in the period, reducing the overall leverage. Our financial target is 10% return on equity after tax. We've been able to deliver on this target last year and year to date....As mentioned a few minutes ago, the results for 2013 and 2014 have been supported by strong returns in the company portfolios. Furthermore, we've had good results from profit split in the Swedish guaranteed portfolios as a consequence of rising bond prices. With a lower interest rate level, lost revenues from discontinued business and more equity, it will be more challenging to reach the return on equity goal for 2015.
A few years ago, we introduced three reporting segments to simplify and create a stronger link between value drivers and reported results. The three segments are savings, consisting of the unit-linked businesses, the retail bank, and the asset management. Insurance, consisting of one-year underwriting results from life and death, disability, health, and P&C. And three, guaranteed pensions. The guaranteed pensions is in long-term runoff and build down, while the savings and insurance areas are growing. Our goal is to replace the capital-intensive traditional earnings with capital-light earnings from savings and insurance. As you see from the graph on the right-hand side, earnings from guaranteed business as a percentage of the total has fallen by a quarter, and the earnings from savings have doubled in this period.
Some of you will recall that the earnings from savings grew 65% year-on-year as of the end of the Q3, and we expect the strong growth to continue. There are significant differences in the value drivers of our guaranteed and non-guaranteed savings business. We've listed some highlights here, but let me move directly on to some of the details. With this picture, I want to describe, or first of all, let me tell you that the cake figure charts here indicate profitability and capital intensity of the four groups of products, and I'll revert to that a little bit later. What I want to show you with this picture is to describe some of the dynamics in our balance sheet, and I'm starting with Norway.
Our pension business can largely be divided into two shown horizontally, guaranteed and non-guaranteed. It can also be divided into corporate plans and retail products, shown vertically. The retail products can either be derived from the corporate plans, like paid-up policies, or be pure retail products, like individual unit-linked plans. Last year, we received NOK 8.2 billion in premiums and paid out NOK 3.4 billion in pensions from the defined benefit plans. There were practically no transfers in or out of this market, apart from the public sector plans being transferred to KLP or pension funds. The premium income in this plan in these plans is shrinking as there are fewer members in the plans, and the payouts are increasing as the members reach retirement.
So you have, you know, reduced premium income coming in here, higher conversions, and also higher payouts to, for retirement, which is not indicated on the graph. The DB plans generated a total of NOK 8 billion in paid-up policies last year, and probably some more this year. The conversion here. This can be contributed to two things: companies closing their defined benefit plans and employees leaving an employer with a DB plan. Both will decrease in the next few years, as most of the companies that want to close their defined benefit plans have either already done so or are in the process of doing so. And also, the fact that there are fewer and fewer employees left in the remaining DB plans, so there are fewer people going, leaving those kind of plans.
As people grow older, there is typically less turnover in employment. So we see fewer going there, fewer coming out there. Furthermore, the payouts from the paid-up policy book are increasing as more employees are reaching retirement age. And last but not least, people are now allowed to transfer their paid-up policies to paid-up policies with investment choice, something we see a lot of people doing, as Odd Arild indicated a moment ago. In total, we believe the growth of the paid-up policies is decelerating and that the size of the stock will peak in 2016 or 2017. The non-guaranteed defined contribution plans are growing significantly. Premium income is increasing due to labor growth, salary growth, companies switching out of defined benefit plans, and contribution growth, which Robin will come back to a little later.
At the same time, the age distribution is such that there are few payouts for another couple of years. When employees leave a company with a defined contribution plan, they get a paid-up policy without guarantee, which we call a pension certificate. The pension certificate is, for all practical purposes, a pure unit-linked plan or pure unit-linked product. DC plans have a higher turnover than DB plans, so typically create more of these pension certificates. People that decide to switch out of a paid-up policy and into a paid-up policy with investment choice will get a similar product. We have retail pension products that are very much the same. So these three components, together with asset returns, will lead to significant additional growth for many years.
Indeed, we see that the retail unit-linked book grow, will grow past the defined contribution book in about five years, one of the pictures that Ulrik Årdal Zürcher also pointed to you a little bit earlier. The products in this square are priced for the retail market with higher margins than we get in the corporate plans. So, you know, to see the flow in this book, you have to look at the pay-ins, the payouts, and the flow between the boxes here, and they eventually all move towards this box. In our Swedish operation, there are fewer movements within the portfolio. Let me start on the right-hand side. Most of the growth in SPP comes from the non-guaranteed book, where SPP has a market-leading funds universe, competitive prices, and a strong brand name.
The portfolio is young, and payouts are much smaller than the premium, sorry, and the payouts are much smaller than the premiums coming in. Unfortunately, we see some customers shifting to other suppliers due to the fact that SPP, unlike many other providers, provide clients with transfer rights. Measures have been implemented, and the negative transfer development has been reduced. Last year, we saw SEK 6.9 billion in new premiums coming into this portfolio, and only SEK 1 billion payouts in for retirement. The middle box here, defined contribution guaranteed book, consists of closed, old, and unprofitable products with high guarantees, and products available for sale, with low guarantees and satisfactory profitability.
The Swedish market sometimes requires a combination of unit-linked products and guaranteed products, and if you do not offer the latter, you're not qualified to bid for the former. New business in SPP is written with 0.5% guarantees and a good risk-reward trade-off for customers and shareholders. Profits come from administration, risk result, and the 10% profit split of the booked return. Last year, we saw SEK 1.5 billion in new premiums and SEK 3.6 billion in retirement payouts. And typically, the retirement payouts come from the old high guarantee part of the book, while the new premiums come into the low guaranteed book. So you have an improvement in the book, and the payouts from this book, as I indicated, are more than double than the pay-ins.
Last, on the left-hand side, the defined benefit guarantee. This book is closed and in run-off. Profits come from administration, risk result, and indexation fees, subject to satisfactory consolidation. New premiums last year was only about NOK 0.5 billion, and there were almost NOK 2 billion in retirement payouts, i.e., three four times as much. This picture illustrates some of the points I've already commented upon. Premiums are shifting from guaranteed to non-guaranteed in Norway and in Sweden. The transition will accelerate in Norway in the next couple of years. Furthermore, the age distribution of individuals covered by guaranteed and non-guaranteed plans are such that the duration of the guaranteed plans are shrinking, and the flow is shifting from pay-ins to payouts. In the non-guaranteed plans, there are still strong growth as the bulk of customers are paying into the plans and few have come to retirement.
So the red area on the right-hand side here is the age distribution of non-guaranteed customers in Storebrand Life and SPP, and the gray area is the age distribution of customers with guaranteed products. At our investor and analyst update in the spring of 2013, we showed you a picture of a possible balance sheet transition, where the level of non-guaranteed business could overtake guaranteed business by 2017, if all of our plans succeeded. The picture was based on a regulatory condition of all defined benefit plans in Norway being closed within three years, and better transition rules for paid-up policies with investment choice. As the regulatory framework is now more or less in place, we see that these conditions are not fulfilled, and the guaranteed reserves will continue for longer.
However, we also see that we have managed to improve the profitability and reduce the capital requirements in many of our, of the guaranteed products, so that the important inflection point is not really the point where the guaranteed business crosses the non-guaranteed business, but the development of paid-up policies and non-guaranteed. As you can see, the bad guaranteed, the dark gray area, which is the paid-up policies in Norway, are peaking in the next couple of years, and our ability to deal with this product increases year by year through more income from other business lines. The total amount of pension liabilities, which is a dotted line here, continues to grow, but the composition of liabilities change. I will revert with more details on profitability and capital requirements of the different product groups in a moment. Over to Solvency II.
Storebrand is preparing to be fully compliant with Solvency II as of January 1, 2016. Our economic capital models are fully calibrated with our interpretation of the standard model in Solvency II. Storebrand Solvency II position as of the Q3 of 2014, is above 100% without the transition rules. The transition rules will lift the Solvency II position to a hundred and twenty five percent or more, depending on final clarification on how the transition rules will be implemented in Norway. Through planned measures to be implemented with effect between now and 2016, we will lift the solvency position with and without the transition rules, by an additional ten percentage points or more. This will give us a satisfactory cushion to the level of required capital.
Please note, I got this question before we started a while ago, this morning. Please note that the expected capital position at the introduction of Solvency II in 2016 is not very sensitive to interest rate fluctuations, as the effect of the transition rules will increase if the interest rates fall further. The board in Storebrand has decided to target a Solvency II level in excess of 130%. Here you see the current Solvency II position with a conservative estimate of the effect of the transition rules and the trajectory development to 2018. Furthermore, on the right-hand side, you see the estimated sensitivities to interest rates, equity market movements, and additional paid-up policies.
As I mentioned in the previous picture, the impact of financial market movements from now until the introduction of Solvency II in 13 months, will be subdued by the transitional rules. The sensitivities indicated here are therefore the sensitivities from January 2016 onwards. As you can see, a fall in the interest rate level will impact the Solvency II margin by 15-20 basis points. Some of you will see that unfortunately, in the book you have in front of you, these numbers and these numbers are switched. It's right on this picture, it's wrong in the books. You may want to correct that right away. A fall in interest rates will have a negative Solvency II impact of 15-20 basis points, sorry, percentage points, while an increase in interest rates will have obviously a positive impact.
An immediate drop in the equity market of 25% will have a negative impact of 12-18 percentage points on the Solvency II margin. If we were to get a significant higher conversion from defined benefit plans to paid-up policies in excess of what we expect, and as I've touched upon already, that will also have a negative effect of 5-7 basis points, sorry, percentage points. In this picture, we have divided the capital requirements by product groups. Unit-linked in Norway and Sweden, which have net Solvency II capital requirements of -2% to +2%, and three categories of guaranteed products, which have capital requirements from around 0-20%. As you can see, paid guaranteed, which is equivalent again to the paid-up policies in Norway, is a problematic product with high capital requirements and no returns.
This is the real dog, if you want, in our book, and it significantly reduces the return on economic capital in the group. Naturally, it also has the largest interest rate sensitivity, as the guarantees are fixed and the product is prepaid, and therefore it's not possible to reprice. Current paid-up policies have a capital requirement of up to 20%. However, new paid-up policies are issued at issued at new tariffs for longevity, and they typically have lower average guarantees and shorter duration. Therefore, new paid-up policies issued from 2014 onwards have capital requirements of around 12% on average. The total cost base was NOK 3.9 billion in 2012.
With a cost program initiated in the summer of 2012, we will have brought down the cost level by nominally NOK 400 million by the end of this year. The cost reductions have been realized through procurement, workforce reductions, by offshoring administrative and other services to our 100% subsidiary in Vilnius, Lithuania, and through improved efficiencies throughout the business. This picture describes the impact from the different cost measures in more detail. Worth noting is that the remaining effects to be realized in the Q4 will ensure that we meet the full year objective. Through the program we have now finished, we have brought down the cost level significantly.
In order to succeed in delivering on our front book and growth initiatives, we need to invest in digitalization, marketing, and automated processes, amongst others. While we will continue to improve efficiencies in our operation, cut costs in the back book, and reduce unit costs in the front book, we will free up investment resources by focusing on cost income. The way we define cost income is group operating cost over fee and administration income, plus net risk results from life and pension, plus premiums for own account, less claims for own account. We think this cost measure will give the market a good way to follow our continued cost focus and a reasonable balance between cost cutting and investments for the future. The cost income target is set at 60%, given today's balance between non-guaranteed and guaranteed earnings.
Our current financial targets are return on equity after tax of 10%, and after-tax dividend of more than 35%, a Solvency I margin in Storebrand Life Group in excess of 150%, and rating of Storebrand Life Insurance of A. Our revised targets are the same with one change relating to the new regulatory solvency requirements. The board has decided to set a new Solvency II capital requirement of minimum 130%. The board has further decided to link future dividend payments more closely to the solvency level of the group, as spelled out here. For the sake of clarity, I'm going to read this aloud. "Dividend is intended to give shareholders a competitive return. Dividends to shareholders will normally be above 35% of full year results after tax, but before amortization cost.
Dividends shall be adjusted to ensure that the group has a proper capital structure, and this is then confirmed by the board." The new capital structure, Solvency II target of minimum 130%, as I commented upon. The board also wants to guide the market at this stage, that given the short period, time period before finalization of Solvency II regulations, the low interest rate environment, and the continued reserve strengthening for longevity, it is unlikely that the board of directors will propose a dividend for 2014. In summary, Storebrand has delivered on previously announced ambitions, despite regulatory and financial market setbacks. We have grown our front book and managed our back book in a challenging environment.
We are transforming the business from guaranteed to non-guaranteed, and the transition happens in parallel in the income, the revenue, and in the balance sheet. We are prepared for Solvency II, and we will have satisfactory buffers to the regulatory requirements at the introduction of Solvency II. We have delivered on our cost-cutting objectives, and will continue to operate a cost-efficient operation, driving cost from the back book to future growth. We update our financial targets to the new regulatory environment, and we link future dividend payments more directly to the solvency requirements. So with that, I say thank you, and I don't know, should we take some questions now before we move for lunch, no, talk or coffee?
I think so. Thank you, Lars. Both you and Odd Arild has been very efficient giving your presentations, so I think we will have time for some questions. David?
I think there's a mic. Thank you. Yeah, I was just wondering if you could give maybe a bit more color in terms of the 60 and of 125-150. If you could just give a bit more color on the assumptions around the conversion of the defined benefit to paid up and from paid up to investment choice. Particularly given the forecast that you have on page 41. I think it looks like you've made an assumption about NOK 8 billion conversion from paid up, sorry, from defined benefit to paid up, but it looks like the paid up forecast peaks a bit above NOK 100 billion in 2017. So I was just wondering if you could give a bit more color around those interactions.
And then, second of all, the discount curve that you used to calculate Solvency II, I was wondering what the assumptions were for that based on the last liquid point, as well as the convergence period with the UFR. Thank you.
Can I turn the question? Yeah. The numbers that you see here are calibrated, so it should all be consistent. If you look here, I mentioned the premium income of NOK 8 billion last year is going to go down. Then you have conversion, which was NOK 8 billion last year. I said it was probably going to be a little more, I think probably NOK 10 billion around that level this year, and then gradually going down as for the two reasons I mentioned. But then remember, you also have to add the guaranteed return in terms of how the balance, how these assets grow.
So if you add those components together, you should end up with something that looks very much like this in terms of a peak here, oops, in 2016 or 2017, and then going down, and the peak should be in excess of NOK 100 billion, I should say. I wish it was NOK 100 million. On the other question, on the ultimate forward rate, all these calculations are updated with the latest from EIOPA. So, that means that you reach UFR after six years.
When it comes to paid-up policy during the investment choice and the conversion there, we had set a target for NOK 500 million this year, and we are already on NOK 600 million. Going forward, we have said that we expect to see around NOK 1 billion a quarter for the next year. And then, of course, it will be higher expected conversion from the, from the assets that actually close down the DB scheme to a DC scheme, because then you are in an interaction with employees at that time. But that is a number we have used in our conversion.
New question over here.
Thank you, Matti from Danske Bank. On the dividend side, could you clarify a bit the fact that obviously now you have the 130% solvency target? Should we interpret that once you are above 130, we'll pay the normal dividend, 35% payout ratio, or is there a fact that, you know, it might potentially be lower, depending on how much you're above the 130 level? Just trying to get some sensitivities on this, this issue.
I think for this time now, it was important for us to set a clear goal, set a clear target for Solvency II, and link our solvency or our dividend policy to that target. And the board has stated the dividend policy as you see here, so that is not changed at all. But I think the important message to get here is more about the introduction of the new dividend, of dividend, when we are starting to pay it, and that is linked to the 130%.
still, if it's above 130, it should mean that 35% of the profit-
Well, 130 is the target we have set, and of course, when we introduce it, then we introduce the dividend, and that is the statement that stands here.
Great. Thanks.
Yeah, it's Bengt from Swedbank. One question to the slide on capital requirements. Can you just explain why you arrive at the zero capital requirements for the good guaranteed?
The good guarantee is Ytelsespensjon, or defined benefit plans in Norway, where we can reprice the price for the interest rate guarantee, subject to movements in financial markets. That is indeed what we have done over the last several years. When we model our ability to reprice these products, we get a profitability which gives capital.
Builds your Value in Force, yeah.
Yeah, builds Value in Force, which meets the capital requirement on the guarantee. So the net result is around zero.
Hi, I have a question regarding the Solvency II number. Is there any assumption for volatility adjustment? If yes, we know EIOPA proposed 22 basis points. Probably the spread is lower now. Are you assuming 22 for the period from now up to 2016, or?
The volatility adjustment figure that has been included here is 16 basis points for Norway and one basis points for Sweden, and that's being updated as we get new information. Then you have a credit, or what's it called, credit, deduction of 10 basis points.
It's quite limited impact on this number-
Yeah
Actually, as it stands now. Very limited impact.
All the capital requirement is based on the standard formula, or is there any correlation between them?
Well, this is all based on our economic capital, but our economic capital is calibrated with the Solvency II regulations and the standard model as we understand it. It's fully calibrated as the, the way we understand the standard model and the Solvency II requirements.
Thank you.
Hi, I just have one follow-up question on the dividend. And that was around... well, both the solvency target of 130% and the more or less unchanged 35% or greater than 35% payout ratio, and to what extent those two targets have been set in coordination with the regulator? And I guess the reason I ask is because, at least on the banking side, it seems that the regulator, the FSA, has been a lot more strict on both metrics during the capital accumulation process. Thanks.
This is the target we have set based on our view on our economic situation and the board's view on Storebrand. It's not a calibration we do with the regulator. We operate the business the way we think it should be operated, and this is the target we set, and we mean it's proper to set based on the situation for Storebrand and based on our solidity.
Thanks. Peter from Berenberg. Just one quick follow-up question on that capital requirement behind the good policies. I mean, you mentioned you could flex the price according to as interest rates moved and, you know, the cost of the guarantee. But as you push up the price, you risk pushing people into the bad guarantee policies. I'm just wondering whether that's also captured by the capital requirements on that slide?
Yes. You will see that we have increased prices in this product by almost double for over the last few years. And so you see the impact of the actual experience flow into defined contribution plans as a consequence of increased price in defined benefit plans. That's very much modeled in here. And as practically all of the defined benefit plans are closed, you have typically old employees left in the defined benefit plan and young employees in a defined contribution plan in the same company. So if you want to do a hard close, that's a much higher hurdle to do that, and the positive impact of doing so is smaller and smaller as longer as you go, when you have fewer people left in the DB part of the plan.
And typically, you will have to give an additional. If you do a hard close, you can only have one defined contribution plan for the whole company, which means that you have to have the same savings percentages for all employees. So if you want to give a reasonable compensation for the older employees you take out of the defined benefit plans, you need to increase prices for all the ones on, or the saving rates on all the people left on the defined contribution plan. Which means that there is not automatically a savings for the company to close the defined benefit plan if it has soft closed a while ago. You understand the difference? I'm sorry, this is becoming a little bit technical, but it's so this, yes, the question is, it's been modeled in based on the experience that we have.
Hi, this is Gianandrea Roberti from Carnegie. I'm sorry. I have a few questions on capital and dividends. It seems like sometimes the devil is in the details here. The first question, I was looking at 125 you published today, and of course, rates long bond yields in Norway are down 30 basis points from the end of Q3. So my numbers, you were already 110-115, but then you're telling us that that's not correct because transition rules impact more the ratios, so basically offset the fall in rates from the end of the Q3 to now. Is this a thinking that we need to do longer term, or is it only in the run-up to 2016, and that changes? Can you just clarify firstly that point for me?
Well, it certainly is from now until 2016, because the transitional rules will be based on the difference between Solvency I requirements and Solvency II requirements at the introduction of Solvency II.
Mm.
If there's a bigger difference, you have more Transition Rules.
Mm.
Then what you do afterwards depends a little bit on whether you have a recalculation of that at a later stage or not.
Mm.
So EIOPA has opened up for a recalculation of the transitional rules at later stages. So if they indeed were to put that into the final regulation, then you could get a calibration where this is part of the case also later.
Okay. Then on the capital requirements, basically, on all lines, I have questions. I'm sorry. In the unit-linked , you're showing from -1 to 2. It's a small amount, but how can you have a -1 capital charge in there? It seems like they're giving you money almost to write this business. How, how can it be minus, minus one?
I think if it stands on its own feet, it probably can't be -1. But if you look at it together in a book with diversification effects and everything else, it can be. And typically, it, it creates future margins and future profitability, which you can use as, as part of the capital. But then you have to stress it, that if you, if 70% of the most profitable customers immediately move out, then you will be stuck with the cost according to the framework, but you will lose the revenues, and that's where the stress comes from and the cost comes from.
Right. What is the charge for paid-up at the moment? Because you're showing there 12-20. You know, we're talking about billions of numbers flying around here if we assume 12, 15, 18, or 20. So what is the average charge with everything that we know that we should assume as it is now?
The current book is towards the 20% range, but as I said, new paid-up policies are towards the 12% end of the range.
Right. And finally, on DB, I'm sorry, I'll get you back to that one. But your key competitor in Norway tells me that I should use 8%-10% because the FSA is saying, "Look, these companies have to capture the risk that a good chunk of this DB book becomes paid-up policies." And now you're telling us 0%. Again, NOK billions that fly around here.
But I think that is one way of calculating, because that is introduced in the paid-up policy charge for us. Because the transformation from DB to DC and the charges for that actually to happen is included in the numbers in the paid-up policies for us. So when we look at the DB, it's a pure DB type of calculation. So I think it's not that different, actually.
Just the last question, and then I stop here. You're talking about Solvency II target of a minimum 130. That's again, also, it's a bit in the details here. I mean, do we need to expect that if you are 132, 133, you were thinking of paying a dividend? Or then suddenly, this minimum 130 means that you won't be paying a dividend until 150 or something? Because I guess there is a reason why you put minimum in there, right? There is a reason why you put minimum in there.
It's difficult to predict, especially about the future. But you know that we have this target is with transitional rules, and you know that the transitional rules will gradually be reduced. So I think the board needs to look at the results for the year, the actual level of solvency reported at the end of the year, information after year-end, as well as the effect of transitional rules going away for the next year. And then they would probably end up with a an answer to that question. But you cannot possibly put all of that thinking beforehand into a policy, so this is the best we can do, and then you probably have to live with a little bit of uncertainty within that range.
I appreciate that. Thanks a lot.
... Thank you. Thanks. Just to follow up on the capital requirements. I guess that these assumptions that you made, that you make, have to be approved by the FSA. For instance, the repricing assumption. Have you put this forward to the FSA already, or when can we expect to get the approval or you can expect to get the final approval of the models?
If you apply for an internal model, you have to have the internal model approved by the FSA. If you use the standard model, you don't need, according to the regulations, an approval as such.
They have no say on your assumptions here, like the repricing?
According to the regulations, as long as we follow the standard methodology, we should, we don't need to get that approved because that has already been set by the regulator.
But there, of course, is a very tight following up process by the regulator for the company altogether, on a permanent basis. And we, of course, tell or show how we are doing our calculations. We also use our internal audit very close to do an external check of our models as we go on. And it might be, we don't know the outfall yet, but it might be a kind of quality check as we have had for our embedded value numbers for a long time. You should also expect to have some kind of quality check on the solvency numbers, and we are implementing that and using that with our internal audit from EY as we speak.
I would, I would also like to add that, the FSA has for several years had this, risk-based, supervisory, where they have, put out a stress test level, and, we have calibrated the solvency figures towards those simplified, stress, stress levels, and that, that adds up quite well. So, so we feel, to the that extent, kind of confident.
Okay. Then I think we'll have a 30 minutes break, and we start up again at quarter to 11. Thank you.
Thank you. Then I think, everyone is, have got some, coffee or drink, and, we are ready to start again, now with, Chief Commercial Officer, Robin Kamark, and I just leave the word to you.
Thank you. It's still sort of 10:45, 10:50, so, I may also wish you a good morning. I have the pleasure of taking you through the commercial agenda and the commercial strategy. I will work through the business side of it and then also go into the retail individual side of it. Before I kick off, I just want to go through the three, four top main objectives that we have on the commercial agenda. One is that we still have an ambition to become or be able to maintain our position as a market leader in the occupational pension. In Sweden, we have the aim of becoming a top three player.
When it comes to customer satisfaction, which here is measured as Net Promoter Score, which is a widely used methodology across industries, we have an ambition to become top three. We will continue our strong retail growth in the marketplace, and with a quite focused approach in the marketplace, worksite distribution, et cetera, which I will come back to. We have a clear goal of reducing our unit cost from today's level. So if I go into depth of this one, which is... We launched the strategy, the current strategy, in 2012. What we have done now is to really now reiterate the strategy for even more aggressive customer propositions. The cornerstone, as this—our CEO said, is save for retirement. Then we have the three main dimensions.
First, we use the corporate relation, which is the key to this, to give value with regards to occupational pension, both to the corporate and to the employees. Through these relations, we aim to gain access to employees, which we have done through a great high rate. 94% of all corporates give us access to their employees, which is very, very important, and the reasoning behind that, I will also come back to. And we try then to enhance the employees' understanding and knowledge on issues influencing their pension savings and retirement. Paid up policies, pension certificates, extra saving options is examples of products and services that would build a knowledge and an understanding of.
Furthermore, and based on the relationship between the corporate and Storebrand as a provider, we give the companies and their employees very good offers on product and services, i.e., P&C insurance, banking off services, loan offers, and other risk products offers. Our corporate relation is a license to play in this marketplace. That is the door into the employees, and it's a key success factor. Working further through the employees dimension gives us a focus and a targeted approach that will enable us to have a very competitive distribution cost. Here is a picture of the development, when it comes to the occupational pension market, and we see we are in a quite healthy market. Healthy in the sense that it is very good growth figure, and we see a clear shift from defined towards defined contribution.
There is also a very hard proportion of paid up policies, which is a challenge, and which we have discussed previously today, and I will come back at how we in Storebrand solve that issue. Market shares, we are a major player in the market. In Norway, we are a number one player. We have been so for four five years, and we clearly have an aim of maintaining that position. In Sweden, we are currently a number four player. We have a target of closing the gap and becoming a top three player in the marketplace. We also see that defined contribution is now the clear number one choice. We see a clear shift both in Norway and Sweden, and a shift to non-guaranteed products in both countries.
The trend has been evident for a number of years and will continue. What I will now do is use Norwegian example throughout my presentation. However, I just want to emphasize that commercial approach in Norway and Sweden is very similar, but I will use Norwegian figures and examples. This is a figure and a picture of the changing saving rates in the pension market when it comes to DC schemes. Previously, on the left-hand side, was that you had from 2%-5% between one and six G, the 5%, the maximum. And then, between six and 12 G, you had a possibility to go between 2% and 8%. January 1, this year, this was changed.
The two issues that changed was that now you could have savings from zero and up to 7.1 G, and then increase the rate from five to seven, and between seven and 12 G, we increased from the previously eight to now the possibility of top savings on 25.1%. This, of course, makes it far more possible for corporates to offer a very competitive and attractive DC schemes, and we have seen a switch in the marketplace, and I will now present the slide. The left-hand slide of this, the left-hand part of this slide, there is just one slide, but the left-hand part of this one is what we showed on the capital market in 2013.
And here we see that the changes that the new saving scheme has, or the saving rate has enabled us, is to see that when it comes to the minimum part of the scheme, the 2%, fewer contracts, fewer individuals, and less part of the total premium is now correlated with the minimum saving rates. We see far more switching toward the medium and toward the top bracket of the saving rates. And for the last 2-3 quarters, when this has been in the marketplace, it takes some time, of course, the corporate have discussions internally with their unions, and then they decide if they want to increase the rates or not.
But what we have seen for the last two three quarters is actually now consisting in, within Storebrand, 7% of the total premiums is related to, saving rate, which is above the previous maximum. So we see a clear shift, towards that, and we anticipate that this trend will continue. Okay, so how do we work, with our corporate customers? This is a picture, a one slider, and I'll try to take you through how we work with them. We have a B to B to C strategy and we have had that for a number of years now, and it's a very, I was going to say, a very good reason why we have it. Of course, there is, for us now, 450,000 individuals within the schemes where Storebrand provides, the pension.
40,000 new members come automatically into that scheme every year, based at, people, hire more people, et cetera. Then, roughly 40,000 members go out of the scheme. The beauty of the model, of course, when we use the B to B to C, is that even though you go out of the model, or you quit a company that has a pension relation to Storebrand, you still have a relationship with Storebrand through the individual part, based on paid-up policies, based, based on pension certificates.... and we have previously retirees and the holders of pension certificates, 700,000. So we have a quite big universe that we work with. So how do, and what do we then do? Based on the different needs to the corporates, and that we recognize through our segmentation model.
This is not sort of Einstein theory, it's a two-dimensional segmentation model, where the requirements, the needs for product features, et cetera, is on one dimension, and the size of the company is on the other dimension. And what do we then use this one for? What we do is based on the needs and the requirements, we then design concepts, which I've tried to illustrate on this side of the, of the slide. And there are concepts which are general concepts, which we offer the market to all companies. That is the corporate basic package, which is the occupational pension plan. Then we have what we call Storebrand Loyalty, which is our program and how we interact with the employees.
Then we have something called Storebrand Pluss, which is a specific package to management. Those are three general packages which we offer broadly in the marketplace. Then, based on specific industry needs or corporate needs, we design other concepts which we offer specific to, for example, a large multinational company, and they need an international package concept. So we then offer them. A small SME may not need that or don't demand that, so then we try to distinguish the offering we do. The sales strategy is also quite structured, quite easy to understand. You have to recruit a company, there's no hassle about that. Then we develop and cross-sell to the corporate, and then we start with the loyalty building. This is the key: How do we build loyalty?
We have chosen the B to B to C, because it's very imperative to have both a relation with the corporate and with the employees. The more individual decisions the employees must take and will take, the more imperative is that you see that as one, because the corporates don't want themselves to get involved giving advice when it comes to pensions, savings, investments to their employees. They want to have a professional provider that does that on their behalf. That's why the access rate, which is extremely high, 94%, with Storebrand to our customers, they give us access because they see that value. Then for some customers, through our profitability model, we find out that and with the company, there is no bearing in a long-term relationship with that specific corporate, and then we agree to close that cooperation.
So that is the sales strategy, very overall. Okay, so if we now stand outside and look into the company and ask: So what do the customers want? How do they rate the players? What is their needs? And we ask them, and we have done so. We asked 1,600 companies, "What do you value? What is most important for you when you make decision, when it comes to pension investments, et cetera, et cetera?" That is the left side of the slide. It's, and it's perceived value, I just have to reiterate, perceived value from the corporate customers. The right-hand side of the slide is actually a score from the latest survey when it comes to Norwegian Customer Index. I will come back, and I'll explain that one also.
The left-hand side tells us that the top five, when it comes to their demands and needs and what they want to have sold, is investment return on the pension funds. It's solution and service for employees, and here we come, that is for the first time, become the top five list. Has never been there before. So it's very important for the corporates that the provider have very good solutions for their employees, based on the reasoning that the individuals need to take their own decisions. Pension competence, that they can speak to a provider that has competence on this. And then, of course, we have two, you may call them hygiene factors, but it's also very important for the different corporates. It's reputation and financial solidity. It's a long-term relationship, it's long-term money, so they are very concerned about that.
And of course, which goes across all industries, value for money. Those are the issues that the corporates, based on 1,600 corporates, small, medium, big corporates in Norway, have said and told us that they want the value. The good thing, of course, which is last thing I got to say on that one, is that they rate Storebrand very high on all those factors, number one and two, so we are very pleased with that, and we are ranked as number one. When it comes to the right-hand side of the model, this is the Norwegian Customer Index, where customer gives feedback. It's a long-established research survey that's done in Norway, being done each year. And we score a very high level, consistent high level, and we have a good increase-...
and stable and good increase from last year. So we are, we are able to deliver good quality, competitive service to our corporate clients, which, of course, they have said is very important. Okay, so more to the retail side of this. Again, B to B to C. Again, we highlight the importance of having both a relationship between the corporate, us, and the employees. Same structure, same thinking. However, when we activate and have relationship with the employees, it is for us, three things that is important when it comes to the employee relationship. One, is to help and assist the employees so they understand the fundamentals of pension, investment, paid-up policies, pension certificates. Two, is to help them and guide them to how could I, as an employee and an individual, influence my pension savings? That's second part.
Third part is, of course, based on the relationship between the corporate and Storebrand as a provider, we give them some very good competitive commercial rates on the number of product services that we have. But that's the third aspect. The two first ones is extremely important, and that has high value towards the employer, that we really give that value when it comes to understanding, when it comes to how I can influence. And we may, in this room, think about sort of pension, savings, investments as quite sort of easy to understand and no problem, not that complex. But for 999 of 1,000 people out there, it's a jungle. They don't understand it.
The key winner in this market, the key winner in the years to come, is that provider who really understands that what will drive revenue streams into the business is the understanding of the individual. Is to take the loop within the company, with the employers, and to understand that this is complex. Okay. We work with customer centricity as our core. I've tried to explain to you the way we work, this is, in a way, another way of showing the B2B2C. We go first through the corporate side of it. We have the relationship, we satisfy the requirements the corporate have, then we start to work with the employees. And based on the tight connection between us and the employees, we then, of course, at the end of the day, also sell them some products.
The main focus for us, the two first steps, is actually to give the managers in that company and the leaders in that company an understanding of the pension part of it, so they could have discussion with them and their employees. Because if not, they are not able to have a good conversation with them, with their employees. Secondly, after that, this is done through a specific concept called Storebrand Pluss in Norway, where we have specially designed a concept for management teams in corporates. Two, then we go to the employees, and then after that, we introduce the loyalty features. We work in a multi-channel environment. We use digital features, we use phone, we use emails, we use digital meetings, we use physical meetings. We want to preside, and we preside where the customer want us to be.
Of course, we have a tilt towards the digital part. But if some customers, for some reason, wants to have meetings with us, of course, we have that possibility, and we do so. What we call one-to-many meetings, where we meet their employees, we have lessons, and take them through the sort of the fundamentals of, of pensions, et cetera. But it, there, it's a multi-channel journey. Then, of course, we develop, as many others, digital solution on dynamic platforms. That is the key today. And we do this on the worksite distribution part of it. And what this enables us to do is actually to triple fold the number of contacts we can have with customers on the same cost base, which we have been done. We have gone from two to five million email contacts.
We have increased our out—also, this is our advisor, calling customers. We had a maximum capacity of 20,000-25,000 a short time back. Now we are surpassing 100,000 with the same base of cost. We have 430,000-450,000 incoming calls, and we have almost seven million users on our net solution. That enables us to really increase the number of customer contacts at the same cost base, getting more customers in, having a tighter relationship between the corporates and us, and between us and the employees, and thereby, you will reduce your unit cost over time. No doubt about that. Okay. This slide, there is a significant change from collective to individual approach on this one. Odd Arild, our CEO, went through this one.
Again, this is the fundamentals that I, as an individual, I can't rely, rely on, on, that collective solutions or the-- my sort of way forward to my pension and retirement. I need to take responsibility myself. I need to get to dig into the details of the pension system. I don't-- I cannot just surpass that and push that in front of me anymore. That will entail more interest, more interest in having a one-stop shop supplier. Solutions where I can gather all my different pension saving programs, those sort of aspects, it becomes more retail-oriented, even though the start of it comes from the business relation. That's why we think it's very important for us that we work with a B2B2C.
Also, for as an example, the pension capital certificates will surpass 50% of the total defined contribution assets by 2020. Then, it increases very rapidly. Okay, to something which I know is of interest to our customers and also to some of you in this room, but this is a very good value proposition to Norwegian paid-up policyholders. We are, per se, the only company in Norway that gives an offer to all paid-up policyholders. And of course, this is a win-win situation. It's good for Storebrand as a provider, you go from capital-heavy products to light products, and it is a very good value proposition for the customers.
We have a base of NOK 90 billion, and not all of these NOK 90 billion are we able to convert, because there are a proportion of that, which is in policies starting to be paid out to pension. Part of the paid-up policies is a risk element, which is not eligible for conversion. And then we have put a bracket on 60 years, which we have said, those of our customers that have reached 60 years, we don't advise to convert. Which means that we have roughly, of this portfolio, NOK 45 billion, that is a potential conversion amount. And what we have done, we have been on the...
We've done different calculations, seen the value propositions, that we, that we want the customers to have, and we have then come forward with that we estimate that around NOK 25-26 billion, of this amount, we will recommend our policyholders to convert. Then, on the other hand, there are a number of policyholders that have policies, and for some reason, we, we advise them not to convert. So... We have done this on a very rigid matter. We are very stringent with ourselves when it comes to objective advice to the customers. We have built a very comprehensive digital platform.
And by the way, I'll come back to the numbers, but 25% of our customers go through the digital platform, checking and listening to the advice that we give them, and have converted on the digital platform. It's a very high number. It's quite interesting, with such a complex product, I have to say. Then, of course, pending, from a customer point of view, it's sort of three rules of thumb what I should think about. First, my age, meaning the number of years until retirement.
That is a factor, and what we have done is to say, "Okay, below 60, we may recommend depending on your policy, but above 60, we don't recommend, regardless, if it is, from a financial point of view, good to convert." But we have given a 60-year bracket. Then, of course, it's the risk appetite for each individual customer and their knowledge. And the third point is the size of the paid-up policy. I'm not meaning the size itself as such, but I mean the size combined of how big proportion of my final pension payout is this particular paid-up policy. Because it tends to be like this, if it's a high amount of the total proportion, then the risk level tends to go down.
But if I have a sort of a small, medium-sized paid-up policy that I want to convert, I mean, it's a small portion of my total pension payout, then my risk level increases. Okay, so how has the result been? And our Odd Arild mentioned it, we have so far surpassed our targets for the year. We are now above NOK 600 million. It's been very, very good. Many customers have been able to receive a product that will give them far better value, and we're very pleased with that result. So we will now continue, of course, our discussions with customers.
We will continue to have good, quality dialogues with the customers. I just wanted to bear in mind the target that we have for conversion for 2015 is that we want to convert—we have an aim of converting NOK 5 billion by the end of 2015. With the pace that we today see, and with the results that we have achieved so far, that is achievable. Okay, I have discussed the importance of understanding pension. I have discussed the importance of the loyalty program. I just wanted to emphasize again, and the Storebrand Loyalty program, which we work with employees in a very structured way. We then, of course, give the employee overview. We have a direct dialogue with the employee, and the most important is actually here.
This brings the value, which is the counseling. That mean to build understanding. So I, as an employee, understand what I am doing, which decisions I am taking. And the other side of that coin is that the employers understand that we build value into the organization by giving their employees this knowledge. The third point is, actually the good rates and the commercial offering that we have towards this group. But we see this model works well. I just also want to mention the pension number. It's many, maybe many in this room that hasn't heard about that. It's a way of try to familiarize all in with individual, with the concept of pension. In essence, it is...
So what is my—based on my requirements, what is the amount of fund I need to have when I retire to have a good retirement life based on the requirements I put into the model? And it's a very simple message, in very easy terms, done to explain to the, to the public. 600,000 people have been into that calculator and into that solution, and, that tells us one thing, at least, and, from a commercial viewpoint, it will tell me two things. Then I'll start with the two, is that, the concept is quite good when 600,000 really are into it. The first thing, which is more important, is that the knowledge hunt, the hunt for more knowledge, the hunt for information, the help I need as an individual to really influence my pension is very, very high.
100,000 of those 600 has actually established their numbers. So what they have done is to say, "Okay, I want to retire when I'm X. I want to have a this Y in the pension payouts each year, and I have these policies and this solution today in my portfolio." Then the system calculates, and the system then comes to a delta, to a difference, and say, "Okay, Mr. Y, you have these wishes. If you want to have this amount when you retire, you need to save X, Y, Z. And by the way, we can help you with that, and we'll offer you this one." So it's been very good. The proof in the pudding that the strategy works is that we have a good growth figures.
Employees with loyalty program is our target customer group, which I've said several times now. We have had a 14% increase since January 2013, and when it comes to retail customers, the retail growth in total is increasing, and we see that the number of customers from our core strategic group, which is the employees in companies that we have a relation to, have increased by 25%, 24%, so we are very pleased with that. Then I want to briefly mention this one. It's a very interesting new deal that we just have signed, and it's with a federation of a Norwegian professional association. It's a federation of white-collar workers in Norway. It's a very attractive group to work with. The deal is a combined deal.
It's both a collective deal and an individual part of it, and the total amount of the deal is worth around NOK 400 million, and the collective part of this deal is NOK 200 million. Again, just to show, our strategy has enabled us to grow, and it will continue to do so. We have had success in unit-linked . We have had success in on the insurance side. We have had success on the asset management side. Of course, there is still untapped potentials, and especially within the retail banking side, which we will come back to during 2015. But I also want to say that we expect growth, the continued growth in 2015 in all of these business areas.
Okay, finally then, I have finished the presentation with the same slide that I started with. Please remember to take away with you these three factors: that we aim to maintain our market leader position, that we aim to become a top three player in Sweden. That we really want and will become a top three player when it comes to customer satisfaction measured by NPS, Net Promoter Score. That we will continue to have the quite strong growth in the retail market as we have had, and where we have proven that we are able to do so. And the last point is that we have a competitive cost base. We have been able to utilize and to increase our contact base in how we work commercially.
That will enable us to reduce our unit cost over time when compared to today's level. Thank you for your attention.
Thank you, Robin. Next, I have the pleasure to take you through the secrets behind the asset management and the mysterious paths assets are taking when finding their way to Storebrand Asset Management. Storebrand Asset Management operates with three brand names. We have Storebrand Funds, SPP Funds, and Delphi Funds. All funds produce mutual funds and comprise the fund offering of Storebrand. We manage all funds under the same umbrella, under the same management, and then comprise Storebrand's fund family. Despite the different brand names, we only have one offering, mutual fund offering to our clients. Many of the funds are offered both in Sweden and Norway. Altogether, we have NOK 503 billion under assets under management, and next, let's look at where these assets come from. We call them business channels. Which are the business channels that lead the assets into asset management?
First of all, we have the assets where we act as a captive with respect to Storebrand. It's the assets coming from SPP Life and Storebrand Life, as Robin was talking about in the previous session. As we have heard before, we have NOK 257 billion in guaranteed assets and NOK 76 billion in unit-linked assets. We have previously seen a figure of NOK 94 billion. The difference is because Storebrand Asset Management manages NOK 76 billion all out of 94 in unit-linked. NOK 18 billion is invested in external funds, funds that Storebrand doesn't produce itself, so it's external partners that we use for diversifying our offering where we don't produce funds ourselves.
If we look at the growth, we see that the guaranteed assets have grown or declined this year by NOK 7 billion, and that is the sum of net flows and the change in market value. Net flows are obviously dictated by Storebrand Life and SPP Life. The market value development is, of course, also impacted by asset management and the management of the assets. When it comes to unit-linked, we have a net growth this year of NOK 7 billion, net flows plus change in market value. Besides that, we have NOK 63 billion of other internal funds, and these are mainly shareholder capital that we manage, and a couple of subsidiaries. We have one subsidiary on Ireland, Euroben, and one on Guernsey, Nordben.
The thing or the business channel that I will put a bias on in this session, that is the external funds, where we're not—where Storebrand Asset Management is not captive when it comes to Storebrand, but where the offering is to external clients that necessarily don't have any other relationship with Storebrand. We have in the asset management organization, we have a sales team of nine persons, six in Norway, three in Sweden, who are selling asset management assignments and mutual funds directly to institutional investors and through external distributors to the retail market. Altogether, this external business comprises, sums up to NOK 107 billion, and the growth this year, up until the end of September, is NOK 11 billion. It's an extremely, it's a huge business when it comes to a sales force of nine persons.
When you look at the figures, if you break them up, these NOK 107 billion, NOK 65 billion is institutional clients, NOK 40 billion is external retail investors. And out of curiosity, of these NOK 65 billion institutional, almost all those funds are in Norway, NOK 55 billion out of NOK 65 billion, but Sweden is growing rapidly. When it comes to the retail part, in external distribution, of these NOK 40 billion, NOK 35 billion is in Sweden. We have a pretty good match, and we have an extremely interesting growth opportunity in Sweden when it comes to institutional assignments and when it comes to retail, the external distribution in Norway. What's the story about-- behind asset management? Why is asset management attractive, not only to Storebrand Group, but also to external clients? Next, let's look at the value proposition. The basis behind the value proposition is focus.
Number one, focus. Number two, focus. Number three, focus. We only do what we feel we are good at. We have reduced the fund offering this year from roughly 60 to 50 funds. All the funds are being categorized into four categories: active equity funds, factor funds, some of you are perhaps more familiar with smart beta funds or enhanced index funds, then index funds, and active fixed income funds. When it comes to active equity funds, we only have active equity funds in Norwegian equities and through our concept, Delphi, which builds on a combination of momentum and fundamental value. When it comes to factor funds or smart beta, those are funds, capitalizing or extracting risk premia out of well-documented risk premia, like small cap, volatility, momentum, and value.
The fifth one that we are trying and attempting to build into this concept is ESG as a risk—as a source for increased risk premia, systematic risk premia. When it comes to index funds, we actually don't have a single index fund that can be categorized as an index fund. Reason being, that all our funds are subject to sustainability screening, and also in these index funds, all those companies that we don't invest in are also excluded from the index funds. Nevertheless, institutional clients rely on our index funds, use our index funds as building blocks in their portfolios, so the tracking error that comes out of sustainability screening doesn't impact the sale in any material way, or not even in an immaterial way. Active fixed income we do on the back of the big fixed income operations we have for the guaranteed portfolios.
Everybody can't be best at everything. We acknowledge that, and that means that those funds that we don't produce ourselves, those funds are sourced into Storebrand. Currently, we have a team that has sourced roughly 40-50 funds that are in the offering by the unit-linked companies that can be used in their portfolios. The fund selection team was last week selected the best fund selection team in Norway, 2014. The third one, that is one of our unique selling points, that is reporting, and why? Because when we listen, especially to our institutional external clients, next to return, reporting is perhaps the most important thing. And important reporting is a little bit subtle, because when it comes to simple mutual funds, reporting is pretty simple.
You just get the Morningstar report, and you can produce a report for the fund on the back of that. But when you have institutional discretionary assignments, reporting can be quite complex. Institutional investors, they require attribution, analysis, and so on. Our ambition is to be extremely good at reporting because it creates added value and loyalty. On the same time, it doesn't only produce added value to our clients, it produces added value to us, because when we are transforming our reporting, we can optimize processes, we'll be more efficient, and we're working on standardizing and making everything we do as simple and operationally efficient as possible. The fourth thing is two niche products, real estate and private equity. We have NOK 32 billion in real estate under management.
That is on the back of the life insurance companies, because we have a huge, roughly NOK 22 billion of real estate in Norway and some NOK 8 billion in Sweden. On top of that, four years ago, we launched a limited partnership where external clients can co-invest with us in Norwegian equity. In four years, we have grown that part of the business from zero to NOK 3.2 billion. So now we have NOK 3.2 billion of external pension fund capital in this real estate limited partnership. Private equity, we have put up private equity vintages for 14 years, so we have 14 Storebrand International private equity vintages, where we act as a fund of fund, where each vintage is invested in 10-15 external private equity senior managers. This business is NOK 9 billion.
Two years back, out of these assets, 10% were by external clients. At the end of this year, 35% is external money. So the private equity family, fund family, has been built on external capital, but due to the track record, proven track record we have and the confidence in the market, we attract more and more external capital into our private equity family. So both these, real estate and private equity, are an extremely good complement to the mutual funds because they build loyalty, and clients, customers in the mutual funds might be quite quick money. Customers in real estate and private equity is much more long term, and we want to build long-term relationships. So all these unique selling points apply to all our business channels. They apply to our internal, Storebrand Life, SPP Life, and to our external clients.
So we have the same value proposition in all business channels, but all business channels have some kind of unique perspectives that creates a possibility for us to take out synergies and extrapolate from the platform we work at. For example, when it comes to the guaranteed portfolios, we have NOK 200 billion of bonds in the guaranteed portfolios. Almost all of these bonds are Swedish or Norwegian krona denominated, so we have the scale to build them in, build on in the bond market. We know krona market. Nobody knows krona market in bond better than we do. And we can extrapolate that knowledge into fixed income solutions that meet the requirements by external clients as well, which means we are quite strong in fixed income, not only towards our guaranteed business, but also externally.
When it comes to the unit-linked, the unit-linked business in SPP Life and Storebrand Life is not actually offering active funds. They are packaging funds into investment solutions and life cycle products that pension savers mainly invest through. So our mutual funds are building blocks for the unit-linked business that they build portfolios out of. When it comes to external, we don't only sell for ourselves, we also have an extremely good relationship and work today together with Storebrand Pension Services in order to be able to create turnkey supplier solutions to closed-end pension funds. I'll get back to that a little bit later. If you remember the previous slide, there was one part of the slide, sustainability, that I didn't touch upon. That's because I leave an entire page for that.
Because sustainability is at the forefront, it's probably one of the most important and valued unique selling points that we have. When it comes to sustainability, our total investment universe is 3,500 companies globally. For 19 years, we have been working with exclusions. With exclusions, the same way most investors do. There are a number of companies, for example, breaching UN conventions, that we just don't invest in. So those are excluded as they are in breach. The other part of sustainability work is not to exclude, but to include, to identify and find the best companies that are prepared for future challenges from a sustainability point of view. We have an in-house proprietary methodology for attaining a sustainability score to all those companies we invest in.
This part, the value-based screening, the inclusion part, is currently being applied on 2,400 out of these 3,500 companies. This means that we give a sustainability score to all companies. 100 is the, is the highest, 0 is the lowest. We divide these companies into sectors, and the best companies in each sector are those that we feel are best in class, well-positioned, that we don't want to do something positive with in all our investment portfolios. The worst in class, in all sectors, those add to those in breach that we don't invest in. Currently, we have altogether 177 companies out of these 3,500 that we don't invest in. We don't invest in them in any investment portfolios that we manage ourselves, our own funds, our own asset management assignments.
Of course, when it comes to the fund selection and external funds, we can't place all the same requirements on the external fund manager, but we have requirements on them as well. So the next step we are taking is that we take this sustainability scoring from a company level up to a fund level. We aggregate all the companies in a fund, and thereby, we're able to give a sustainability score to each and every fund that we operate with. And this is the added value that our clients, our customers, can look up from our fund menus, the sustainability score. This replaces the previous butterfly for having some kind of threshold that it exceeds.
Now you have a much more granular way to look at the sustainability level and how well a fund is positioned for the future. This was rolled out in Sweden in September. It will be rolled out in Norway in January. We have NOK 503 billion of assets under management. Back in 2000, this was NOK 151 billion. In 2008, roughly NOK 150 billion came on top of those previous funds as a result of the acquisition of SPP. All of these NOK 503 billion, this milestone was reached in the spring when we reached NOK 500 billion in assets altogether. SPP Funds, the subsidiary in Sweden, stands for over SEK 100 billion of those 500.
This means that SPP Funds, as part of these 500, is the fifth biggest fund company in Sweden, and you know, the Swedish fund market is huge. So after the four big banks, SPP Funds in Sweden is the fifth biggest fund company. And that's pretty amazing because it has grown from SEK 37 billion back in 2008 to over SEK 100 billion today. If we look at revenues in relationship with assets, we see that in external assets, we have 21% of the assets are external, 15% unit- linked, and 51% the old guaranteed portfolios. If we look at the revenues, we see from the external assets, 31% of the revenues come from external assets. 22% of the revenues come from the unit- linked.
So the growing part of the assets has a better margin than the old part of the assets. So we are growing as a profitable business, both in assets and in revenue terms. If we look at the external assets, we have an ambition to grow in the neighborhood of 10% in increased annual net revenues yearly for the external assets managed. When it comes to unit-linked, as Robin was talking about in the previous session, very much of the upside in Norway comes from increased savings rates. And that's a good thing because that's not a redistribution of funds, that's new funds entering the market.
So if we take a couple of examples to get a little bit more of touch and feel on how we gather and aggregate external assets into asset management, first, we have the case of closed pension funds in Norway. Closed pension funds might be municipal funds, other public funds, and corporate pension funds. The total market is NOK 311 billion, and at the end of this year, we will have NOK 31 billion, so exactly 10% of this market. What we can offer to this market is turnkey solutions, not only asset management, but asset management together with actuarial services, administrative solutions, and integrated system solutions. This we do together with Storebrand Pension Services.
This year, there have been three tenders in the Norwegian market, three big municipalities that have tendered for the turnkey solutions for their closed pension funds. We won all three, and we won all three on quality. We are extremely good quality, we have a full service concept, and as you see, this means that assets will grow from NOK 23 billion at the end of 2013 to NOK 31 billion at the beginning of 2015. When it comes to external distribution, this is part of the external distribution in Sweden, where we offer funds through e-trade platforms. We didn't have any at all funds distributed through external e-trade platforms at the end of 2012, except from the PPM, but that's a different story, the PPM system.
I won't go into that right now, but you can feel free to ask questions afterwards about the PPM. The good thing with external distribution is that it's low cost and it's wide reach. If you have good, a good setup, a good operational setup, and the marginal cost for taking in assets is close to zero, then even if we have cheap funds, it's a very good thing, way to add up assets and still produce profit to the company. In 2013, we had net flows, net inflows of SEK 2.2 billion. In 2014, up until now, SEK 2.6 billion. So we have grown this segment of the Swedish retail market from zero to SEK 5.6 billion in less than two years, in one year and nine months. That adds on top of everything else.
So what I said on the previous slide, in order to be able to gather assets, you need to be efficient, and efficiency can be measured in terms of marginal costs for taking in assets under management. It's extremely cheap to take in assets in an existing mutual fund. It's a little bit more expensive to put up a discretionary mandate for an institutional client with all the extra work added into that. It's even more expensive to put up a fund wrapper for an external institution if they want their own in-house investments in a fund provided by us. When it comes to mutual funds, we are pretty close to zero marginal cost. If we get NOK 100 million into one existing mutual funds, there are no variable costs associated with that.
When it comes to institutional and funds, well, it has a small, it can always be depressed, and we always need to see that we add on assets and are always aware of the costs related with putting up new investment structures. So the goal is clear. It's to get as small marginal cost for increasing assets under management as possible. And we are on track. Storebrand Asset Management has actually had two rounds of cost reductions, one in 2012, and one during the last year. In this process, the staff has been reduced from 228 to 180 at the end of 2014.
On top of that, we have had a rotation from Norway to Vilnius in the Baltics, where roughly 20 headcounts have been added as a result of the rotation. This means that the cost base has been reduced from NOK 543 million in 2012, to an expected NOK 466 million at the end of this year. These cost reductions, the other part, is petering out. We're not there yet. We still have a lot of work to do, especially when it comes to optimization and standardization, but we feel that we're on a solid ground going forward with the operation and the organization that we have. So if we look at the metrics, and analytics are always interesting in metrics, so here's the picture for you.
When it comes to revenues, the revenues have been growing in absolute terms. The costs have come down in asset management in absolute terms. In relative terms, we see a margin compression. We see that margins are coming down as a percentage of assets under management. But we're well positioned because we are already at such a low level of fund fees that we don't have the problem that many of the huge, the big providers have in adapting the business model to reduced margins. So even if the margins have come down, also the cost margin has come down, so our net revenue margin is actually increasing on back of this increased revenues and reduced costs. So to sum up, we have strong growth in external assets, complementing the captive business that we conduct on behalf of the Storebrand Group.
We have an ambition to increase revenues, net revenues from external assets, with roughly 10% yearly. We attempt to build scalability and efficiency in the operation in order to reach a marginal cost for growth in assets under management, approaching zero. Of course, if we raise our ambitions, then it might be that we need to raise also the cost ambitions. But with the ambitions we have today, we're pretty confident that we are on the big ballpark, we have a good and solid setup. Finally, sustainability is at the forefront. We're taking the next step in making sustainability more commercial in the way that our customers can view the funds that they invest in. Thank you for the attention.
Well, thank you, Staffan.
Thank you.
Then I'll just quite shortly wrap up, wrap up before we also have the opportunity to have some questions at the end of the session. I think it's some clear takeaways from today. First of all, the regulatory uncertainty is significantly reduced. A lot of regulatory changes have been concluded. There is still, still some news flows around Solvency II, and especially then when it comes to the Norwegian transition rules. But we anyway feel that at this point in time, is the right time for us to switch our reporting to you, the market, towards a Solvency II regime. We have set a target for Solvency II of 130%. We have stated that our Solvency II numbers by the Q3 is 125%, and that we expect to be above the ratio during 2015.
Our dividend policy is now linked to the Solvency II target. Then we have used much time today talking about our dual strategy, how we are managing our guaranteed back book, how we have done that in the past, and how we are going to do that also going forward. How we feel that we are robust towards a low interest rate level, both short term, term, but also long term. And how we actually deal with the paid-up policies in our back book, both when it comes to conversion to paid-up policies with investment choice, but also how this portfolio gradually will be reduced and will have lower capital charge upon it. And as you have seen, in this period, we have actually been able to grow the tangible equity by 57% over the last few years.
Then we have used a lot of time at the end of the day, talking about how we actually are going to grow the business. We are seeing strong growth in our savings, asset management, and in our insurance business. And we use our B2B2C concept, as you heard from Robin, to really ensure that we will also take part of this growth going forward. We have tried to show you how we actually work with the company, with the corporates, and to the individuals, to really make sure that this growth comes through.
I hope you understand that we also have used a lot of time on solvency, too, on capital, and I feel this is a shift where we are talking more about the growth of the business going forward, and I expect to do that more in the future with you, compared to what we have done. Thank you, and are we open for questions from here?
Let's do so.
Lars, maybe you join me.
Hi. Thank you. David Andrich from Morgan Stanley again. I just wanted to follow up on the, you know, the NOK 26 billion in policies that you anticipate could be converted over to investment choice. And I was just wondering what proportion of those policies have been contacted already? I know it's still early days, it's only been six weeks, but I was just trying to get a sense of what the conversion ratio has been in, in terms of the % of policies you've contacted so far. And I just want to also ask, in terms of the transition rules, how long would you guys be comfortable making use of the transition rules for?
How does that interact with the 125-150 guidance in 2016, i.e., I just want to clarify that if that takes into account the transition transition rules already as they unwind, when you have to make up the difference, essentially. Thank you.
You sort of-
Yeah, I can start off with the paid-up policies. What we have done is actually to segment the NOK 26 billion of the policies into different brackets and categories. Based on the size and the complexity of the policy as such, then we divide that into two different brackets, and some of them are sent to our financial advisors, where we go directly on outgoing calls. But we are starting in a very slow pace, I have to say, to see how the market works, to get to a learning curve of this, and to see how our digital solution works.
If I could use this expression, the pace of the way we go in the market and the number of policies that we have actually gone out with is of a small proportion so far. We will gain the experience, and then we will kick off really up to sort of the 100% level when we get into the quarter one of next year. This is a learning period for us.
And we just-
Sorry, but so there's no indication then, as to what proportion of those contacts have been converted?
We have so we have converted 2,500 paid-up policies of roughly 17,000 that we have had so far.
But I think it's a bit difficult also to talk about the direct hit ratios here because you use a multi-channel, on your customers. You talk with them, directly, but you also use internet, you use emails, and altogether, and you also see that some customers use maybe a week or a month or two months after, contact before they actually are mature to do the conversion. So it's hard to actually use the hit ratio numbers on the, on these kind of projects.
When you say that this... Also, we are 5, 6, 7 weeks in a live period of this feature, and so far, I will say that the hit numbers are very high.
With respect to the transition rules, the FSA in Norway wrote a letter to the Minister of Finance saying that it's all or nothing. You use 16 years or nothing. So it's basically what we have built into our calculations as well, that we have a 16-year transition period. However, with respect to the lesser stress on equities, that's a 7-year period, as described by EIOPA.
Just to follow up on the guidance to 125-150, is that I'm assuming that the 1/16 step up in new liabilities over the next two years?
That's right.
Yes.
1/7 of the equities that you bring into the period, and 1/16 in terms of the rest.
Yes, hello, Thomas Nilsson from Nordea Markets. Question on costs. Could you give some more details on how much you expect to cut on the back book that you intend to reinvest in the new initiatives over the next couple of years? And, also, what you plan for in terms of personnel reductions over the next couple of years.
Now, actually, we now state the cost income ratio, and you see a run-off of the guaranteed business, and you should expect that the costs then run off at least at the same number. You know, this will be stepwise. As an example, we are now, in these days, ending more or less the EB schemes for public sector. But it's a big difference when you have somewhat in there left compared to when you actually follow the last customer out of the door, and you can actually close down a lot of that operation or hold that operation. So this goes a bit stepwise. It's very hard to be very precise on actually how many hundred millions or how many people that will be a part of that transition.
... but, we manage this on the cost income level to be able to actually monitor that in the transition from the guaranteed business into the non-guaranteed business, as on an ongoing basis.
Matti Hokkanen, Danske Bank. Two questions, if I may. Firstly, if you could open a bit the 130% solvency target. Why was it 130, why not 120 or 140? Where did, where did the figure come, or was it just that it was nicely below or slightly above the current level? The second question is regarding the unit-linked reserves. We've seen, as you showed, a very, very nice growth in, in, in that business. However, it seems to be slowing down a bit. And kind of, you know, looking forward for the next 2-3 years, what kind of growth rate should we, should we be looking at in, in, in, in those reserves?
Should I start on the 130?
Okay.
Well, well, you can, of course, also elaborate on that. I think it's a lot of elements that led to 130. We have to look at our business in itself. How volatile is it? We have done calculations on that. It's also a cross-check towards, I would say, rating agencies, and our ambition to have an A rating all the time. So all of these elements together, internal views, and also views upon what is needed externally to have an A type of capital is based on that calculation up to 130.
With respect to unit-linked, the reserves have continued to grow nicely. There are two things that has led to a somewhat lower growth than we hope to see going forward. One thing is what I mentioned earlier, in the Swedish operation, we saw that we had some movements out of the unit-linked portfolio. That has been. We've implemented some measures, and we have reduced the flow out of unit-linked savings in Sweden. The other explanation is linked to. If you look at the premium development in Norway, has been fairly like in the Q1 and the Q2 this year, it looked flat 12 for a 12-month period.
That was due to the fact that we had lots of one-off premiums into unit-linked products back in 2013 and 2012, which has stopped. We have now moved all of our distribution towards savings contracts, i.e., savings plans, rather than one-off savings, which tend to have a higher transition out again as well. As we moved from one-off premiums to upland people, to more savings plans, like Robin explained to a number of people, we had, in this 12-month period, lower one-off premium sales, which impacted the total premiums. Now in the Q3, you saw that premiums started going up again on a rolling basis, and we continue to see that going forward.
As I also indicated, you should see premiums grow even faster into next year with the, like Robin also mentioned, higher level of savings per employee and more employees on unit-linked plans.
Can you give me a figure on what you expect the growth could be in kind of going forward, kind of the underlying growth, adjusted for all these factors?
Well, I gave you the numbers on the flow into the different parts of the portfolio. The number you have to give me is the return on equity markets and bond markets going forward.
Seven percent.
Sorry, if I just may continue on the rating. Why do you need a rating? Is it because you want to have it, or is it actually critical for the business to have an A rating?
It's a good question. Obviously, it has, it, it's related to the cost of debt, but it's also related to the trust in the business. And what Robin said, you know, it's name of the game in this business when we do business with people for 50, 60, 70 years, is trust. And we have calibrated that to having an A rating is an important part of that, trust, message. At the same time, we see that the business is challenged by a low interest rate environment and the amount of paid policies that we have. So, we are A minus with a negative outlook, so it's borderline.
It's not critical for the business if it's triple B, but it's certainly our objective to maintain it at an A level in order to find the balance between cost of debt and long-term trust with our clients. And I think you've probably seen the comments from the rating agencies, that they comment on the things that we do in a positive way, but they're they have been more worried about the interest rate level, which is a bit outside my control.
Any further questions? It doesn't seem like that. So then I think, on behalf of Storebrand, I thank you everyone for showing up today and for good questions and good discussions. We will now have a lunch outside for those of you who want to join that. Also, some of you have been asking for one-on-one meetings with the management. I think those of you have gotten a mail on that. Otherwise, you can contact myself or Henrik, we are at the bottom back of the room here, for getting updates on that. Thank you very much.
Thank you.