Good afternoon, ladies and gentlemen, and welcome to the Storebrand Third Quarterly Conference Call. My name is Anna, and I will be your coordinator for today's conference. For the duration of the call, you will be on listening only. However, at the end of the presentation, you will have opportunity to ask questions. If at any time you need assistance, please press star zero on your telephone keypad and you will be connected to an operator. I will now hand you over to Trond Finn Eriksen to begin today's conference. Thank you.
Good afternoon, and welcome to Storebrand Third Quarter 2014 Conference Call. My name is Trond Eriksen, and I'm Head of Investor Relations at Storebrand. Together with me, I have Group CEO, Odd Arild Grefstad, and Group CFO, Lars Aasulv Løddesøl. In the presentation today, Odd Arild Grefstad will give an overall view of the development in Q3, and Lars Aasulv Løddesøl will give some more details on some elements and results. The slides will be similar to the analyst presentation released this morning, are available on our webpage. After the presentation, operator will open up for questions. To be able to ask questions, you need to dial into the conference call. I will leave the word to Storebrand CEO, Odd Arild Grefstad, who will start the presentation on slide number 2.
Thank you, Trond. Start on slide number 2, the highlights. Storebrand deliver a group result of NOK 632 million for the third quarter, and NOK 2.11 billion year to date. The result is marked by growth in income and result from our main focus area, savings. The result growth is 64% year to date. There is an ongoing forceful shift in the earnings mix, where savings increase, while guaranteed income is decreasing according to plan. In addition, we have brought down cost with 3.9% nominally year to date, in line with our cost program. The balance sheet has been strengthened during the year and in the quarter.
The Solvency I ratio is now 182%, and reserves for increased longevity are increased by NOK 2.7 billion, whereof NOK 0.4 billion in this quarter. Falling interest rate has led to buffer building in the hold-to-maturity bond portfolio. An excess of balance sheet values in this portfolio is now above 10 billion NOK. Moving to slide number four, Lars will go through the results in more detail, so I skip this slide number three and go directly to slide number four. We have been working with a strategy to adapt and reduce our guaranteed back book for a while. At the same time, we are growing our non-guaranteed occupational pension business and our private financial products to our 1.9 billion pension customers.
Let me give you a quick update on both parts of our strategy, and start with turning to slide number 5, Managing the Balance Sheet. Let me go give some comments on our implemented measures in the third quarter. When it comes to capital and product optimization, we have continued to build down capital intensive products, with NOK 5 billion moved in, out of the balance sheet this quarter. This is mainly public sector defined benefit plans in Norway, and added together, it sums up to NOK 12.8 billion year to date and NOK 27 billion for the last 2.5 years, and this is before we open up transferring paid-up policies into investment choice. At the same time, we had success with our closed pension fund solutions to the public sector.
We have now sold administration and asset management solutions for NOK 9 billion after winning a new large contract in this area in the third quarter. The work on risk management is proceeding with full force. Targeted segmentation of portfolios to better adapt to longevity reserve strengthening and Solvency II are under full implementation. The cost reductions are, as you see, according to plan, and amounts now to NOK 349 million year to date, and I am confident that we will reach our NOK 400 million target at year end. Let's then turn to slide number 6. Longevity. It is well known that Storebrand has a need to strengthen its longevity reserves with a total of NOK 12.4 billion within seven years, starting in 2014.
As of the third quarter, the reserves amount to NOK 6.3 billion, which is based on the earlier reserves and NOK 2.7 billion in excess above the guaranteed rate of equity contribution year to date. I would like to emphasize that all contracts have been calculated in accordance with the FSA's new solidarity principle, and that previous reserves, though, has been reduced by NOK 0.5 billion, as we have earlier noticed you, too. Other buffer capital have strengthened during the quarter. The market value adjustment reserves are now NOK 3.8 billion, and as mentioned, the surplus value of bonds at amortized costs are now amounting to a total of NOK 10.1 billion. Then let's turn to slide 7. During the third quarter, we had an important regulatory clarification.
At the eighth of September, the Norwegian FSA proposed permanent and transitional measures for Solvency II. The proposal is in line with the proposal from the European Union and in line with the industry recommendations from Finance Norway. We are satisfied with the suggestions of transition rules, which help secure a robust transition to Solvency II. At the same time, it's important to emphasize that this is no excuse to reduce the activities in the transition of our business model and the business mix. Let me then turn to slide number eight. October the 15th, we launched a product and system solution for replacing the guaranteed paid-up policies with paid-up policies with investment choice. This will, for many, generate higher expected return on their policies.
On Monday, one and a half week after the solution were implemented, 700 customers amounting to NOK 160 million in reserves have transferred their funds to pay the policies with investment choice. Half of these transfers are done using our internet solutions only. Lars will go into the result in a bit more depth before we open up for questions. Lars?
Thank you. I'd like you to turn to page 10, where we look at the key figures, and you see in the result development, that result before profit sharing and loan losses, the stable contributor to earnings here continues to deliver more than NOK 600 million per quarter. Earnings per share is down compared to last year, and that is primarily, this is earnings per share after tax. And the main difference between the numbers last year and this year is that we have a normalized tax level of 19% year-to-date and 23% in the quarter. While last year, we did not have any significant tax payments or tax cost due to the fact that we sold some properties with tax-deductible losses.
I would also like to make sure that, or to emphasize that we're not actually paying any taxes yet, that we still have tax carry loss forward from previous years. On the solvency ratio, you see that the solvency ratio is up to 182% under the Solvency I rules. The falling interest rate in Sweden has been a negative contributor to the development since last quarter, while result, withheld result, and created result in the period has contributed positively. This is the capital is continued to build, and that's all the capital protecting policyholders, and it's now up to almost NOK 62 billion.
If you look at the customer buffers, they remain at a healthy level, and the main difference between the Norwegian and Swedish market is different product rules in the two countries. Moving over to page 11, we see the results broken down by type and by business line, and let's start by type. Fee and administration income is slightly up year-on-year, but it's nicely up in the third quarter after a slightly weaker second quarter. If we take away the corporate bank as well as the municipality pension business, which are both actively run down, the underlying growth in fee and administration income is 5%, despite the fact that we are transferring from defined benefit schemes to defined contribution schemes with lower margins.
Looking at the operational cost line, I, like, Odd Arild was saying, a moment ago, the cost continues to go down, and it's down nominally 3.9%. The financial result is significantly up from last year and strong in the third quarter as well. The result, or the strong results from financial, from the financial result line comes as a consequence of good returns in policy, no, in company portfolios, as well as in the quarter, we have, one of hedging effect, positive of NOK 20 million. So basically, we've hedged the euro down into Norwegian kroner, and the way the, this is accounted for, we get a NOK 20 million profit in the quarter.
The net profit sharing and loan losses is very strong year-to-date, primarily from the Swedish business, where we have booked returns of between 10% and 12%, which gives a profit split in those portfolios, in addition to the indexation fee that we take when these portfolios have a reasonable consolidation. Going over to the next box on result per line of business, we see this very significant growth in earnings from savings on guaranteed, which is up 65% quarter-on-quarter and 64% year-on-year. That shows the strong growth in both, or that's based on the strong growth both in assets under management and premiums and profitability from this business line. In reality, we're able to take on new funds with very low marginal cost.
So despite the fact that we have margin pressure in the business, in this business, we are able to grow in a profitable way, in a very profitable way, I should say. On the insurance business, we have seen some big fires in the third quarter, as well as a slight increase in disability, both in Norway and in Sweden. As a consequence of the slightly higher disability experience, we have decided to strengthen disability reserves by a total of approximately NOK 100 million across different business lines. In guaranteed pensions, the profitability is still rather strong, despite the fact that we are in this line, setting aside NOK 90 million per quarter, NOK 270 million year to date in longevity provisions for the cost of the shareholders.
And in the line, other, we have decreasing cost in the holding company, and also good returns in the company portfolios. So that concludes a general overview of the numbers. And do you wanna? Yeah, I like to then go to slide number 19, actually, and show you also that we have done some changes in our pension scheme for our own employees in Storebrand. Yesterday, the board decided to change the pension plan for all Storebrand employees in Norway, over to a DC plan from the first of January 2015. And I'd like to show your attention to note number 6 in the third quarter report, to also have some guidelines on what this means for financial effects in the fourth quarter.
They are positive, of course. I'd like to move to slide number 20, to sum up before I open up for questions. The sum up is that there is a strong increase in fee and administration income in savings, and compensates the reduction in the guaranteed pension area. 64% increase in the result from savings year to date, and the cost control is strong, 3.9% nominal cost reduction year to date. Thank you. Thank you. All right, the operator will now open up for questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. If you change your mind and wish to withdraw your question, please press star one again. The first question comes from Peter Eliott from Berenberg. Please go ahead, your line is now open.
Thank you. I'll try to limit myself to three at this stage. Thank you very much. The first question, in force DB reserves have fallen pretty significantly, but I guess the more problematic paid up reserves are still increasing at sort of NOK 2 billion-3 billion per quarter. I'm just wondering whether you could give us a view on going forward, whether you know you think you might be able to combat that rate with transfers out, or whether we should expect the paid up reserves to continue increasing for the next couple of years? The second question was just on the disability reserve strengthening.
I think we've seen a sort of bit of volatility in those over the last couple of years, in sort of both directions. But I'm just wondering, perhaps if you could say sort of how comfortable you are with the sort of positions now and what we might expect in terms of the risk profile from there going forwards. And then perhaps the third question on Unit Linked. We saw a very strong increase in fee income, much more than the growth in assets under management. At the same time, costs also took a big drop. I'm just wondering how sustainable the very strong margins we've seen are, you know, both sides of that equation. Thank you very much.
Yeah. With respect to the paid up policy growth in assets under management, I think you've seen the experienced development in that portfolio as a consequence of the guaranteed return, as well as the creation of new paid up policies coming out of defined benefit plans. It's too difficult for us to say, or no, sorry, it's too early for us to say anything about the trend of paid up policies with investment choice. We've only been open for a week and a half.
But my guess is that you would still see some growth in this portfolio in terms of assets under management, but the exact size of that growth, we really need to see some more trend figures on the Paid-up Policy with Investment Choice before we can give any firm guidance on that. On the second question, disability reserve strengthening. The actuaries try to measure the actual level of disability and reactivation, i.e., how many disabled people are returning to an active duty where they work on an ongoing basis. This happens in Norway and in Sweden. It happens in the Defined Benefit portfolios and the Defined Contribution portfolios. And I wish I could steer them to be more stable, but there will always be somewhat adjustment of reserves here.
Obviously, we don't expect any big changes as we go forward. This is an ongoing adjustment to experience that we see in the market. And in terms of unit link fee income and the cost level, the fee income, there are certain one-offs that strengthen the quarterly result, and there are certain cost elements that are benefiting-
quarter. The underlying trend you see in the year-to-date numbers, I would say, is a good indication as to how this is developed going forward. And in any one quarter, you will have around the trend line, there will be some ups and some downs around that trend line. I think the trend line is quite clear. However, this quarter was exceptionally good, both on cost and income for certain smaller items.
Great. Thank you very much.
The next question comes from Daniel Do-Thoi from JP Morgan. Please, the line is now open.
Hi, good morning. I just have a couple of questions around paid-up, and then one on the corporate bank. In terms of paid-ups, you mentioned NOK 160 million relating to 700 customers. And I mean, from the very little that you've disclosed, I guess I can see that you've managed to convert quite sizable accounts, and by that I mean larger than the average on the back book. And secondly, that they appear to be fully or at least very well reserved for longevity, given while no obvious or no visible P&L impact. So I was just wondering whether, firstly, if that was the case, whether you could confirm that? Secondly, if you could maybe give us a bit more.
I know it's only been two weeks, if you could give us a bit more detail on the characteristics of those early converters, I mean, even if just qualitatively. And then thirdly, I mean, do you expect this—how do you expect this run rate to change over time? Because, I mean, are we just seeing sort of low-hanging fruits, and should we see sort of smaller contracts and more costly conversions going forward, or should we expect the pace to be sustainable, even pick up as more customers build up longevity reserves from which you can then target customers? That was on paid-ups, and the second one was on the corporate bank, where you've had another quarter of very large transfers of loans to the life company.
Can you just comment maybe on a net basis, how you expect that to impact the running yield going forward, given that yields have come down quite a bit over the course of the quarter, and also what the net impact of that is on capital requirements? Thank you.
Thank you. Let's start on paid-up policies. We had NOK 160 million in transfer based on 700 customers for the first 1.5 weeks. And you are right, there are larger accounts than in the average in that transfer. And you will see that our sales force, of course, targets the customers that has a very good value proposition that is large accounts, and that also has quite a good situation when it comes to reservation for longevity reserves. And that is one part of the transfer. Another part of the transfer is that is what is done through internet directly, and half of this transfer is done by people directly without the help from our advisors.
And, I would say that is more early adopters. That is, they understand the financials very well. They are very well aware of what they have in paid-up policies and have been waiting to do this, this transfer. We have not been very massively out in the market yet. There has been limited activities from our side. So this is really people that has picked up, that we have opened up, and are starting to move their assets as soon as possible. But we see on a daily basis that there is a flow of people that really change their paid-up policies into investment choice on a daily basis. So this is not something that started over the first days and then leveled out again.
It seems to be a quite stable transfer going forward. You are right also that there's quite a limited need for longevity reserves in these contracts. I think it's somewhat around 3% in paid-up that is needed, something like that, to get these transfers going.
You won't see that in the third quarter numbers, obviously, because this is happening in the fourth quarter.
Yeah, and it's also taken account for that in the NOK 90 million, part of that for the NOK 90 million we already use as a run rate on the equity shorts, in the life insurance company.
Yes. And on your question on corporate bank, there has been NOK 1.9 billion worth of corporate loans sold to Storebrand Life in the third quarter. And if you look at that in the context of a portfolio of almost NOK 200 billion, obviously that's a fairly small, small amount. So the exact impact on the yield is negligible, but it's one of many things that we do to enhance the yield and to use our capital more in a more efficient way. So it's difficult to give an exact number, but it's going to be negligible in the big picture.
Okay, thanks. And just one follow-up on the paid-up policies. What was roughly the split of the 160 between self-service and targeted?
The split between?
Self-service converters and targeted converters, i.e., those that you actively targeted through your sales force?
I think I have it on the number of people that has transferred, and half of it is transferred directly on internet, and half of the numbers are transferred through help with our advisors. But I think also that you should assume that the average contract with by itself is somewhat smaller than the advice ones.
Okay. All right, I understand. Thank you.
The next question comes from David Andrich from Morgan Stanley. Please go ahead, your line is now open.
Hi, good afternoon. Thank you for taking my questions. First of all, I think you mentioned that you strengthened the disability reserves by about NOK 100 million across the different business lines. Could you kind of give a breakdown between, I guess, the DC and DB, how that was split? And just as a follow-up to that, just wondering what impact you anticipate the new disability cover that's expected in 2015 to have? And then just to follow up on the earlier question around unit linked margins and the one-offs coming through in the quarter supporting that. Just wondering if you could maybe quantify what the net impact was. Thank you.
Can you repeat the last question?
Sure. You mentioned that there was some that the Unit Linked margin was benefiting from both some one-offs in terms of revenue as well as cost benefits in the quarter. And I was just wondering if maybe you could quantify what that impact was.
Well, David, on the disability reserve strengthening, I think very roughly, you can divide the NOK 50 million that hits the risk result in the guaranteed pension, and NOK 50 million, which hits the insurance segment as such. However, you should be aware of that in the insurance segment, you have also some releases in the Swedish business, which compensate to a large extent the reserve strengthening.
Okay.
With respect to new disability rules in Norway, that's the publicly financed disability support, which basically removes the need for disability insurance for low-paid people. So that is expected to reduce the level of premiums and coverage for basically the blue collar part of the population. But on the other hand, it's basically a fixed amount in disability coverage, which means that the need for disability coverage for white collar and well-paid people is increasing. As it seems right now, the rules are a bit delayed, so we don't know exactly when they will come about, and there will be a transition period, most likely, of some years. But that's in itself it should reduce premiums within disability and especially for blue collar, low-paid people.
Okay. And that's related to the DC plan, right?
No, that's the public sector, what you get from the public-
Oh, okay.
For, disability in Norway, regardless of what kind of occupational pension plan you have.
Okay.
With respect to your last question, there are many moving parts in the result. There was one fee that has been generated within Unit Link for basically when you send out invoices by paper, that we were able to include this quarter, and also with a period of the Posit- and we also charged in the second quarter, but that wasn't included in the second quarter, so that gives a positive one-off of a couple of a few NOK million for this quarter. The cost side, there was within asset management certain bonus reserves that were not used for the program of the restructuring program that were released, that decreased cost a few NOK million again in the quarter.
So it's not the Unit Linked margins as such, but it's certain one-offs that, well, impacted the income line as well as the cost line in a positive way in the quarter. But I repeat my guidance comment, that these things tend to go up and down on a quarterly basis, and the underlying strength in the earnings from savings is quite good, although they got a positive impact from these single effects in the quarter.
Okay. Thank you very much.
The next questions come from Gianandrea Roberti from Carnegie. Please go ahead, your line is now open.
Yes, good afternoon from me as well. I have three quick questions. The first one is on this new Akademikerne contract that you disclosed here in this presentation. I'm not sure if I dialed in a bit too late, but I'm trying to understand what's the financial impact of this? Is it correct, I assume these are mostly DB schemes. How much are reserves, and how should we model it going forward? Then my second question would be on this transfer possibility that you opened up a few days ago for you. I spoke briefly to DNB investor relations team this morning, and the numbers that they are giving me out are very, very, very low compared to the 700 clients and the NOK 160 million that you mentioned.
I'm just trying to figure out if. Of course, this is a key area for you, and it's probably less of a key area for them. But I'm just trying to understand if there are two very different strategy around this, or if they're being too cautious? I'm not sure how much you can add, because you've already spoken a bit about this, but any input would be useful. The final question is on your insurance segment. I appreciate you split it in three, and the most growth is coming from the P&C segment. But if I look forward, leaving aside 2014, would it be fair to assume that, I mean, if I look at the insurance segment as a whole, premiums are probably growing 5% or so? Thanks. That would be very helpful.
Thank you. I'll start with the Akademikerne and also the paid-up policies. Well, Akademikerne is a very important agreement we have made with some trade unions here in Norway. It's 11 umbrella, 11 different organizations, and they have more than 110,000 employees that have high skills, high education, and is in a very attractive area for us to give insurance products to. And we have made a deal that this corporate pension, this corporate insurance product will be moved into Storebrand by the first of January 2015. And that is approximately NOK 220 million in annual premiums. And then it's also a lot of individual products here, individual insurance products, a whole range of them.
They will be individually contacted by us to make an offer to transfer from today's provider, DNB, into Storebrand for all of these insurance products. So that is the potential we are seeing. And altogether, it's same level, I think, on the individual that will be transferred to us.
And if I can just add on that, here we already have 5%-7% growth in the insurance premiums going into next year.
So that was the Akademikerne. Now, when it comes to paid-up policies, I think it's fair to say that we have a different strategy than the different providers in Norway. We have been very clear that we open up to all our paid-up policy holders an opportunity to move into investment choice. And that means that you can go into our online solutions and do your process by yourself, while most of our competitors have a more targeted process. And some of them just also go to the contract that is fully reserved before they transfer into investment choice. And of course, that different attitude towards these clients also lead to very different results when it comes to transfer from paid-up policy to investment choice.
With respect to your last question on insurance growth, we'll talk a little bit more about that on Capital Markets Day. But as Trond just said, we'll have a head start with the Akademikerne coming into the portfolio as of year-end.
Thanks a lot.
The next questions come from Matti Ahokas from Danske Bank. Please go ahead. Your line is now open.
Yes, good afternoon. It's Matti from Danske here. Two questions, if I may. Firstly, more of a kind of philosophical one, and regarding the buffer capital in the guaranteed business. Obviously, we're at very high levels at the moment, partly because of the declining bond yields. But how should we look at the buffer capital going forward? Any kind of target levels, and what should one think about this overall? Second question is, if you could give me an update on how many of the current paid-up policies are fully reserved for longevity? Thanks.
Yes. Maybe start on the philosophic one then. Well, as you say, when we have declining interest rates, that leads in our balance sheet to increase in buffers for policy for our healthy maturity bond portfolio. And that is a very direct and a good match towards our guaranteed portfolio. And a large part of our guaranteed portfolio today has an asset mix with around 50% of this kind of as a maturity products.
It's important, of course, part of our risk management strategy, as we see that the guaranteed products will have a run-off pace, that we will have lower guarantees over time, and that we are able to match the runoff of our guaranteed products with also a large part of held-to-maturity bond portfolio with a high annual running yield. And that is a direct match between, of course, interest rates and the overall surplus values in this portfolio. And there is no targeted level on that. Then, of course, it's also important for us to have as high a level of value-adjusted market value adjustment reserves. That is the most flexible buffer we have.
It can be used on a rainy day if we fall below the guarantee level in some portfolios to realize some gains. It's also a very important buffer for us to utilize if needed when it comes to the-
on a high level today, and, of course, we hope for good markets and opportunity to build that, even further going forward.
It is fair to assume that the market value adjustment is probably gonna be lower in this quarter than in Q3, providing that the markets stay where they are?
Providing that equity markets falls, then you will automatically use some of the market adjustment reserve. On the other hand, as some other elements on the credit spreads, et cetera, are moving, we wait and see. But ultimately, big way this work is that when equity markets falls, well, then the market adjustment reserves falls, but the market grows, then these reserves also grows.
There's also the fact that they have quite a limited asset mix when it comes to shares in our guaranteed portfolio. It was even reduced at the end of the third quarter. So the direct impact on our guaranteed products from depreciations in equities very limited to what it used to be some years ago.
With respect to the paid-up policies being fully reserved, I think it was NOK 5 billion that we announced last quarter that was fully reserved. At the same time, we said that there was a high or a good value proposition to move into paid-up policies with investment choice for approximately NOK 30 billion worth of paid-up policies.
Great. Thanks a lot.
Ladies and gentlemen, a kind reminder before we let the next person through. If you would like to ask a question, please press star one on your telephone. The next question comes from Blair Stewart from Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Thank you very much, and good afternoon. I've got a couple of smaller questions. The first one is just on fee and admin income in a couple of the segments. The first one is in the Norwegian DB book, where the. I think the fee and admin income figure was NOK 270 million. Now, that's higher than it was in Q1 and Q2, despite the fact that you've got significantly lower reserves. So just wondering what's going on there. Is there anything one-off? And I'm sorry to return to this, Lars, but just the question on the fee and admin income in the unit-linked book in Norway.
It was NOK 118 million in Q3, and I realize there is some volatility, but NOK 118 million is about 40% higher than it's been averaging the last six quarters before that. So it is an outlier. I know you've talked about NOK a few million here and there, but it wouldn't quite explain why it's so high. So apologies for going back to that, but I wonder if you can think again, if there's another answer you can give. The second question is on the performance fees and asset management. From time to time, you do give an indication of what has been accrued but not yet booked by way of performance fees and asset management for Q4. I wonder if you've got anything to say there.
And finally, just a small point. You talked about, in the insurance business, obviously, you had the disability reserves, but you also talked about higher than expected fire costs. I wonder if you could put a number on the, on the fire costs. Thanks.
If I could start with the performance fee in the asset management. I think it states in the interim report as well. There, it's recognized, but not booked, NOK 61 million as of Q3.
51. Thank you.
When it comes to the fee and admin income on the unit link business in Norway, I just can confirm what Lars said, and it's a really smaller item, but where you get the two quarters of approximately NOK 5 million a quarter into this quarter. So the run rate in itself will be higher due to that, you should expect approximately NOK 5 million additional revenues every quarter. But this quarter you got an additional NOK 5 million on top of that. So that's why this seems so maybe a bit higher than what it used to be.
And with respect to fee and administration income in the defined benefit book, you're quite right that the charge that we have booked or the fee that we have booked for the interest rate guarantee and risk margin is up in the quarter, which also surprised me a little bit when I saw it the first time, due to the fact that exactly as you say, that this business is run down and also the public sector, the municipalities are moving out. However, that is due to two things. One thing is that we booked slightly too little risk margin in the first half, which is made up for now.
And the second is that because of salary increases, you have one-off premiums on the people still in Defined Benefit plans, which also carries an interest rate guarantee and a risk margin, and those were booked in the third quarter, or a larger proportion than normal was booked in the third quarter. So salary increase in Defined Benefit books, as well as a periodic effect, on risk margin between first half and the third quarter, the third.
Okay, great. And the fire loss?
I don't have an exact figure, but there were lots of thunderstorms in Norway, and that hit us as well as the other insurance providers in the Norwegian market in the third quarter. Okay, that doesn't sound-
It's a limited number compared to-
It doesn't sound significant. Yeah, yeah.
What we discussed around disability is, of course, a very limited number compared to that.
Yeah. Okay, that's great. I think that's fine. Thanks very much. See you tomorrow.
The next question comes from Peter Elliott from Berenberg. Please, the headline is now open.
Thank you for the opportunity to follow up. I just want to follow up quickly, first of all, on one of your answers to Gianandrea's question on the transfers. It sounded like anybody who wanted to transfer into paid-up with investment choice could do so online. I'm just wondering whether there are, in fact, sort of controls in place for policies that are not well reserved for longevity. And perhaps you could just clarify whether there is, you know, any risk of literally anybody transferring. And then perhaps if I could come back with two more quick questions of my own. You mentioned in the report some competition emerging in the health insurance space.
And I note that your underwriting results in 2014 have been sort of significantly worse than the last couple of years. I'm just wondering if perhaps you could sort of talk about your view of the underwriting results there going forward, and you know, whether that's a sort of 2014 phenomenon. And then sorry, perhaps I could also just ask on the cost development. And I know your chart on slide 5 shows those costs sort of flattening out in line with your plan. But I'm just trying to square that with the sort of 4% reduction that you're reporting.
And also sort of going forwards with the sort of NOK 50 million run rate you expect to get sort of by the end of the year, just to clarify whether that should come through, you know, whether we should see that in Q4 earnings. Thank you. Sorry, that was a bit more than a couple of short ones.
No, that's fine. Starting on paid-up policies, you're absolutely right. We have made it clear that we are open for everyone that likes to move from today's paid-up policies into investment choice. Although we, of course, monitor this on a daily basis, and we very well know what kind of clients that is moving from paid-up policies into investment choice. And we also use our own multi-channel sales force on targeted groups based on, of course, a very green situation when it comes to value creation by moving, but also taking into account the level of longevity reserves in the contract. Altogether, so far, we see that this moves in a very good direction with a good control.
But we have the opportunity, of course, if we see that this is moving into a wrong direction, to put some boundaries on that. We don't see any reason why we should do, though, so as we speak, but we monitor it and follow it tight. And it's a very important value proposition for our clients. And we also stand out as a very customer-friendly company in Norway by offering this opportunity for everyone that wants to move from a guarantee, a low guarantee, into an opportunity to free choice when it comes to investments.
With respect to the health insurance margin and competition, I don't have any specific answer to your question. There is no strategic change in the market as such. We continue to have a healthy market, which is growing, and we continue to have a healthy development in that business. There was some strengthening of the reserves earlier on also that had some impact on top margin and we expect healthy margins on the health insurance going forward.
On the cost program, we initiated the cost program with many hundred different initiatives, and some of those initiatives did not conclude within the period that we set, but we are not closing them despite that. So they will continue into the fourth quarter and into next year with a full year effect in 2015 and even in 2016. But what we are saying is that, where we haven't been able to conclude one initiative, we have found another initiative that will be concluded in time. So overall, the cost program that we put in place, saving NOK 400 million annually, will be delivered by the end of this quarter. However, the after effects or the tail of that is going to positively impact the cost level in 2015 and 2016.
I think that's also the reason why you see the picture on point 5 being flat. Although we see in our accounts that the costs are continuing down because what we have implemented so far gives effect in or full effect in Q3, while there are still some more effects to be implemented in Q4.
Great. Thanks.
The last question comes from Daniel Do-Thoi from JP Morgan. Please, the headline is now open.
Hi, thanks. Just two more questions. First one is on DB scheme closures, and the second one on the financial results. I'll start with the DB. You mentioned that you'll be switching your employees over to DB schemes at the beginning of next year. But I just wanted to hear from you, you know, what your sense is in discussion with customers of the level of urgency in doing similar. Because one of your peers estimated a decline in their DB funds by about a third or so by 2016. Just wondered if that's sort of in line with your expectations or your thinking. And then on the financial results, I know that received an uplift this quarter from falling yields and from tightening credit spreads.
But what should we expect to be a normal level here? And to what extent can you improve that, given you're able to refinance your debt at a lower cost? Thank you.
I think he talked before talking to that.
Okay, I can start on the first question. You're absolutely right. We close around DB schemes, starting off DC schemes from January 1, 2016. And there are some, of course, quarter by quarter companies that are doing that. I don't see a trend shift in the market. It's still the same mechanisms as I talked about earlier. You see typically that the companies with a large portion of their employees in the DB book have a better opportunity to move into defined contribution. And use also significant higher savings rate in defined contribution, as we are doing when we're moving to the new C scheme.
While companies that have done their soft close a while ago will then have also to give a large uplift in the savings rate from the ones that have been coming into the company for maybe the last 5, 6, 7, 8 years. So there is individual views in every company while they are doing soft closes or hard closes. There is individual discussion based on a lot of elements. So there is no clear trend shift in that, as I view it, and the level we have now of transfer from defined benefit into defined contribution, it's a one-way train, of course, but it's not a massive change in the activities as we view it in the market.
The last question, can I, can I repeat that, please?
The last question was just on the financial results. So, basically, my question was, what do you see as a normalized level, given that you received a benefit or a tailwind from, tighter spreads, falling yields, et cetera, this quarter? What should we expect on this line going forward in 2015? And also, what's the opportunity to further reduce that, given you can refinance, at lower yields?
We don't have the financial results as such, especially within the guaranteed pension and not to the owners, if you look at the graph. But are you talking about the, the running yields on the guaranteed portfolios?
No, no. So just in your summary P&L, the financial result, which if I understand correct, is the return on your corporate portfolio, your interest expense, and your return on your-
Okay. Sorry.
Yeah.
In the third quarter, it was one- off effect caused by some basis swaps of approximately NOK 20 million. I think, if you subtract that from the result, I think you're pretty close to the line. You are not probably so much too strongly in insurance this quarter as well. So, if you deduct roughly NOK 30 million or so, and then you start to. It really depends a lot on how you are viewing or talking into next year is some of the difficult. Well, what you can say about next year is, first of all, we have had good returns due to falling interest rates.
So there, there's a short-term bond portfolio there, which has given more than normalized returns this year. Next year, we have a very expensive loan in the Storebrand Life Company, which is running at the LIBOR plus 775 basis points, which was refinanced back in 2008, in the summer of 2008, which we will repay. And obviously, we can borrow much cheaper than that now. So that should reduce borrowing expense, which will impact positively the net figure in this line.
Okay, that's clear. Thank you.
The last question you have?
That was my last question. Thanks.
There are no further questions coming through, so I will hand the call back to Trond Finn Eriksen for any concluding remarks. Thank you.
I'd like to thank everyone who was joining the call today. Have a nice evening.
Welcome to the Capital Markets Day on 26 November in London.
Yeah. See you then.
Thank you for joining today's conference. You may now replace your handsets to end the call. Thank you.