Ladies and gentlemen, welcome to the Storebrand Analyst Conference Call. My name is Jacob, and I will be your coordinator for today's conference. For the duration of the call, you will be on listen only, and at the end of the presentation, you will have the opportunity to ask questions. If at any time you need assistance, please press star zero to be connected with an operator. I will now hand you over to Trond Finn Eriksen to begin. Thank you.
Thank you, and good afternoon, ladies and gentlemen, welcome to Storebrand's first quarter 2014 conference call. My name is Trond Finn Eriksen, and I head all Investor Relations. Together with me, I have our Group CEO, Odd Arild Grefstad, and Finance Director, Sigbjørn Birkelund. As we have notified, the slide presentation will be running on the webcast available on storebrand.no. The slides are similar to the analyst presentation released this morning. In the presentation today, Odd Arild will give an overall overview of the development in Q1. After the presentation, the operator will open up for questions. Other than this, I leave the word to Group CEO, Odd Arild Grefstad.
Thank you, Trond, and welcome to the conference call. I'm starting on slide number two, and the group result is a strong one in the first quarter of NOK 728 million, and that is after we have allocated NOK 90 million to the longevity reserve strengthening according to the plan. There is an increase in the earnings, especially in the segment savings and insurance. And we also, this quarter, recognize a cost savings reduction according to the program, and we have a reduction in cost by 5.4% compared to the first quarter in 2013. During this quarter, there has also been a lot of regulatory elements that has fallen into place. On the second of April, the guidelines for longevity reservation was finalized.
This means that we now have a better picture of the cost allocated, cost associated with the longevity reservation going forward, and I will revert to that later on in the presentation. I'm especially very pleased to see that we also, in this quarter, was able to find a undistributed profit above the guarantee level of NOK 1.9 billion. That will mainly be used to strengthen the longevity reservation by the end of the year. Also, we recognize that the transformation of the balance sheet continues. Occupational defined contribution premiums increased by 16%, and the guaranteed liability is reduced by NOK 7 billion in the quarter. The reduction is mainly from the public sector transfers out in Norway and Sweden.
It's also satisfying to see that the corporate starts to use the new and higher savings rate within the defined contribution in Norway. This was opened up with the higher opportunities for savings rates from January 1, 2014, and already see that more than 130 companies has taken this new savings rate into effect. We expect to see a development going forward, where more and more companies actually use higher savings rate into the defined contribution. Moving to slide number three, as I said, it's a strong result for the quarter. There is some major special items I'd like to comment on. It's not one-off as such, but it's, as it's mostly a part of our day-to-day operation, but it helps explain the development in the quarter.
As stated, there is a strong risk result. NOK 70 million out of this result can be attributed to non-recurring items, and that is from the Swedish operation in SPP. The financial results are also very good, partly due to what we consider one-time effects by nature. So it includes then total, if you try to combine it, NOK 40 million in profitability from the sale of the SPP Kommune, as stated before. And on top of that, the strong development in the financial market, especially the bond portfolio, also give a high booked return. That gives approximately NOK 70 million in result above what is normally expected. Then we have a negative impact from loss provision in the bank, higher than expected in the quarter.
It's a loss of NOK 50 million in one single loan. If you take all this together, I would say that is around NOK 150 million in elements that can explain a higher than normal result in the quarter. Part of this was known by the market before, that is the sale of the SPP public sector pension company. And that also explains the difference between the expectations in the market, that is, around NOK 100 million lower than what we actually deliver. If you then move to the next slide, as an introduction of our strategy into what we actually do on the balance sheet quarter by quarter. I will move to slide number slide to see the development in the first quarter.
If you start at the top left corner, we see the development in downsizing the corporate guaranteed portfolio. NOK 7.3 billion has been transferred out in this quarter. NOK 5 billion is public sector Norway, NOK 1 billion is public sector Sweden, and on top of that, we also have had, especially in the Swedish market, a conversion from guaranteed to non-guaranteed product as an ongoing business. If you then move on the top right-hand side regards risk reduction. There is an extensive work in Storebrand these days to segment the portfolios, especially within paid-up policies, in terms of reserve requirements for increased life expectancy, and also to prepare the portfolios to the market for paid-up policies with the investment choice.
Down on product optimization, we have then concluded the sale of SPP Pension Service this quarter, and we also see that the fact that we have new mortality tables in all contracts leads to better risk results quarter by quarter, and that is already recognized in the results for the first quarter of 2014. Last but not least, we see that the cost reduction comes through in the results, and that we now have realized NOK 335 million out of the total cost plan, and that is an increase from NOK 272 million by the fourth quarter of 2013. If we then move to longevity reservation, the final reservation plan is now clear.
It will be a longevity reserve strengthening that can have a maximum duration of seven years, that will say, up to 2020. The reserves may be funded through average holding from customer surplus, but the return above the interest rate guarantee on one contract cannot be used to strengthen reserves in another contract. In other words, there is no solidarity allowed. And the company contribution should be at least 20% of the increased reserves, and that should also be allocated on a contract level. The reserve strengthening must at minimum be linear during the period. It's then very satisfying to see that we have a high booked return in Q1, a booked return that allows NOK 1.8 billion above the guaranteed rate, which will primarily be used for longevity reservation at the end of the year.
In addition, the shareholders have allocated NOK 90 million direct, and there is estimated NOK 149 million indirect through foregone profit sharing for the period. We then have NOK 6 billion in total longevity reserves, and a reserve strengthening need of NOK 12.4 billion. As we have communicated previously, we are in the process of allocating longevity reserves down to each contract, and we will finalize that work during the second half of 2014. In that process, we estimate that some of this six billion will move from the longevity reservation into other reserves, such as additional statutory reserves.
But we estimate that to be at around maximum NOK 500 million, as such, due to the fact that some contracts already have the full reservation for longevity, and there will be then allocated reserves, used for other buffer capital building in that respect. We also have other buffers that can be used for longevity reservation, including NOK 2.8 billion in unrealized gains and NOK 6.7 billion of assets, on bonds held at amortized costs. Moving to slide seven, the asset allocation of the portfolio is shown on the left-hand side, and that is also the basis for the estimated return in the portfolio of NOK 4.4 billion.
Very important here is, of course, a running yield on the bonds at amortized cost of around 4.8%, and also the real estate running yield around 5.2%. This leads to an estimated expected return of something above 4.4% during the period. And that is also a return that does not take into account the unrealized gains in the beginning of the period. Moving down to slide number eight, that will be the last slide I actually talk about before we open up for questions. It's about paid-up policies with investment choice. We now have clarity around the rules for longevity reservation, and the industry is now waiting for the final rules around paid-up policies.
As I said earlier, we expect that to be clear before summer. Three elements have been for discussion, but we have not finalized the hearing period around it. I think it's fair to say that they have quite a clear picture around how these regulations will fall out. There will, of course, be regulations around financial advice in this product. We also are positive to see that there has come up solutions for payoff profiles for paid-up policies that will give opportunity for good customer values going forward. Finally, we expect that there will be a regulation saying that the paid-up policies will have to be fully paid, also for longevity reservation prior to conversion.
When we take these elements into account, and we work with the segmentation of our portfolio, we see that we have approximately NOK 30 billion that is available for a very good and sound advice, and have a very positive value proposition for our customers moving from paid-up policies into paid-up policies with investment choice. Around NOK 3 billion of this is already fully paid up for longevity. When we do our segmentation going forward, of course, we take into account the necessary use of buffer capital realization and also possible equity use. And we segment the portfolios to make sure that we have a sustainable portfolio that can be allocated and used for starting this market during 2014.
Of course, we have ambitions when it comes to converting paid-up Policies into paid-up policies with investment choice. With that, I will conclude and say that there is a strong result for this quarter. We're pleased to see that we have been able to also build on the longevity reserve quite substantially with NOK 1.9 billion. The cost is reduced by more than 5% in the quarter. And we also see that we are able to convert from guaranteed pension into non-guaranteed savings. This is, of course, reflected in the balance, but also in this quarter, we see that it reflects in which areas we really increase our results on the savings and insurance side, while we see a reductions in the results from the guaranteed pension area.
Okay. Thank you, Odd.
Operator, we now open up for questions.
Yes, 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, and you will be advised when to ask your question. The first question comes from the, of Peter Eliot from Berenberg. Please go ahead.
Thank you very much. I have three questions, please. First of all, on the longevity reserving, where, you know, you estimate that you've got NOK 12.4 billion in total, and, you know, at 4.4% return, it should be a sort of NOK 330 million run rate of cost. My understanding from your previous disclosure was that after the transfer out of the public schemes, the full amount, you you'd estimated at about NOK 12 billion, so net of that NOK 0.5 billion change, and a run rate of NOK 360. Appreciate you say you've been able to, you've done some work on segmentation, and you've got a better understanding now. But I'm wondering if there's anything you can say sort of specifically that's caused that change?
I guess, you know, the good booked return in Q1 has probably helped the run rate. But I'm just wondering if that's the main reason, or whether there's specific things you can give us on the changes to your assumptions, or whether I interpreted it wrong in the first place. Second thing was on the cost savings. I may be taking this far too literally, but on slide five, you show a bit of a plateau in the targeted savings going forward. I'm wondering if you could just sort of outline whether you expect to see cost savings coming through over the next few quarters, or indeed, whether there might be a slight lull, given the very strong achievements to date?
And then thirdly, I was just going to ask on the DB fee-based. I appreciate you've had some transfers out, but nevertheless, there was a bit of a decline in the overall profitability of that business in the quarter, and I'm just wondering what, whether what we're seeing is a run rate, or whether there's anything in particular going on there. Thank you very much.
If I may start answering your first question. I think you're correct, Peter, that when we reported the Q4, we said that there was NOK 12.5 billion of reserve strengthening need. That was after taking into account that some of the municipalities that has transferred away out in Q1, that was transferred out, it ended up being actually 12.4. But you are also correct that there are more municipalities left, and when they will leave, I think the final total reservation need at that time will be somewhat below the 12, the 12.0 billion. But that we will first be able to comment on when they have actually left us.
... So I think that's this, the discrepancy in those numbers.
If I then comment on the cost savings and the fee base, the cost savings first. This slide five is quite accurate actually, when it comes to the different measures and plans we have for cost reduction. So it's concrete tasks that is spread out in the process and over the quarters. And you're right that we expect a more flat development in the next couple of quarters, while we expect to also see the effects of cost reductions at the end of the year. And of course, we still expect to meet the NOK 400 million and the cost level of NOK 3.5 billion in total by the year end.
When it come to the fee-based business, I would say that the fee-based DB platforms, of course, we see a conversion from DB to DC in Norway. That is the same level and the same pace, I will say, as we have seen the previous years. By the first quarter this year, this has been around NOK 4 billion that has been transferred from DB into paid-up policies, and then started off with the DC savings. That was very much the same level that we saw in 2013, in the first quarter. And we also typically see that around half or more than half of the total transfers from DB to DC-
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Okay. Thank you. Sorry for that. We continue. I think was on the end of the question around the fee base. Summing up that the conversion that we have seen this year is very similar that we saw last year, and that more than half of the transfer from DB to DC typically happens in the first quarter. So, the conclusion is that we don't see any increased speed of conversion from DB to DC. It's very much the same pace that we have seen over the last couple of years. Great, thanks very much.
Thank you. The next question comes from the line of Matti Ahokas from Danske Bank. Please go ahead.
Yes, good afternoon. Matti Ahokas, Danske Bank Markets. Two questions, if I may. First, regarding the savings business. We've seen a bit of a slowdown in the growth of the unit link reserves, both in Norway and Sweden. Is there any seasonal effect here, or is the market just slowing? And also, if you could shed a bit light on what kind of growth rate should we expect going forward? They, of course, have been very high now in the beginning, but kind of into 2015, what kind of growth rate in unit link Sweden and Norway should we expect? The other question is regarding the paid-up policies with investment choice. This NOK 29 billion figure is a bit higher than you've previously said. What is the reason that this has increased?
During what time span do you expect that these NOK 29 billion will be converted into paid-up Policies with Investment Choice? Thanks.
If I may start with the first question, Matti. I think, if you see where our growth comes from within the unit link, it's from premium growth, and it's from real asset returns. And what you see in the first quarter is actually a quite healthy growth in premiums, so 16% when it comes to the occupational pension line, and somewhat lower on the private lines, but still a good growth in the premiums. Then the second element is, of course, the asset return....
The asset return in the first quarter this year has been lower than it was the last or the average last year due to weaker equity markets, among other, the first quarter this year than for the average of last year. So, I think that it's no seasonality in that, but it's more dependent on or the growth of reserves are very dependent on financial market development.
When it comes to paid-up policies, the 29 billion is really when we segment the total portfolio and looks into who we are able to give a very clear advice, and that it will be profitable for them to move from today's paid-up policies into investment choice. That is very much to do with the time length before you move into pension age, and also it has to do with, of course, expected return that will be higher in the investment choice product and itself. That is quite an objective, in a way, segmentation of the portfolio. Of course, it's all about the final regulations that we have to wait for.
But it will take time before we have moved and talked to all these customers and really been able to give them the advice around moving from paid-up policies into investment choice. We are segmenting these portfolios now, and it's also very different of how much reservation needs there is in these different buckets.
What I was saying was that already today, there is NOK 3 billion that is already fully reserved, and there is, of course, also quite a number that is almost fully reserved, and that with some use of buffers and also slightly use of equity can be ready for transfers into investment choice without a heavy use of equity in moving them from paid-up policies into investment choice. So to be really taking all this portfolio, that would take, I would say, years.
My main message was that it's possible for us to start up, as we see it now, in the autumn, and with a substantial portfolio to work with, and to move from paid-up policies into investment choice.
Okay, great. Is there a specific date you could give us when you talk about autumn? Is it, or do we just have to wait and see?
Well, it's always very dangerous, of course, to give timelines that you don't control yourself. It's very much about the regulator, but we have been told by the regulator that day before summer, and I view that as the between June and July should be clarity in the regulation, final regulations around this. And then it's very much up to us, how much we need to change in our setting for paid-up policies with Investment Choice. But we expect to be in the market, let's say, around October, with this product anyway.
Great. Thanks a lot.
Thank you. The next question comes from the line of, David Andrich from Morgan Stanley. Please go ahead.
Hi, good afternoon. Two quick questions on my side. First of all, just in terms of the contribution from shareholders to longevity reserving, I'm just wondering, how should we think about that going forward? Do you guys, are you thinking about trying to keep it a fairly stable number and then kind of truing it up end of the year based on the actual returns throughout the year? Or should we expect some variation from quarter to quarter, based on kind of the annualized return? And then my second question, I was just wondering, now that we have a bit more clarity around the longevity reserving, how do you feel about your economic capital position ahead of Solvency II, in particular in relation to your dividend policy? Thanks.
Okay. When it comes to the contribution, direct contribution from shareholders to the longevity reservation, we stated in the press release that it will be between NOK 80 million and NOK 100 million in the quarter. In the first quarter, we booked NOK 90 million. We expect it to be around NOK 90 million quarter by quarter. Then, of course, if there are major shifts in the assumptions that are underlying this, then we might have to correct it, but it's we are aiming at keeping this stable from quarter to quarter. When it comes to capital position and Solvency II, you are absolutely right. There is more clearance now compared to what we have seen for a lot of quarters.
We're still waiting for the final regulations around Solvency II and how that is implemented in the Norwegian regulations, of course, and also about what we are discussing around paid-up policies into paid-up policies with investment choice. Our plan is to take all of this together, work it through our balance sheet, and have a Capital Markets Day with you during the year and in the autumn to be clear, much clearer on all these elements. And I think it's fair to wait to that before we comment more, more on the capital position and dividend capacity.
Okay, great. Thank you very much.
... Thank you. The next question comes from the line of Daniel De-Thoi from J.P. Morgan. Please go ahead.
Hi, good afternoon. Three questions from my side. The first one is just following up on what David just asked. You mentioned the major shifts in assumptions. Just wanted to confirm what those are. Is it just largely the investment return, i.e., the 4.4%? And then secondly, on the paid-up policies, you mentioned NOK 29 billion, which have a clear value proposition from converting to investment choice. In arriving at that number, do you also consider the economics of the shareholder? And if not, what proportion of the NOK 29 billion can you expect, or can, or do you expect to be transferred in a way that is economical to shareholders as well? And then lastly, on costs, you mentioned the NOK 3.5 billion cost target for 2014 year end.
Could you just again confirm what that equivalent number is, based on your new reporting format? Thank you.
Okay, well, I, when it comes to the assumptions, then, of course, the investment return is the most important, and the 4.4 is what we expect over the average of the seven years. But going down a couple of years, and of course, this could change, but we do not expect it to change dramatically from quarter to quarter.
So it's quite a stable number, as we assume it, and we also see that we have taken into account some use of shareholders' equity to fuel the paid-up policy conversion into investment choice in that number of NOK 90 million in the quarter. But to comment on your second questions, the NOK 29 billion is just a view on the clear value proposition on the customer level. It's not taking into account economic considerations around the use of equity to make that happen. What I said was that there's already NOK 3 billion that has been fully reserved, and of course, can be moved out of this NOK 29 billion into investment choice without any need for more reservations, either by returns or by shareholders' contribution.
But we expect to have quite a much higher portfolio than NOK 3 billion, maybe a portfolio around NOK 5 billion-NOK 10 billion as a starting point for conversions, when we start this at in autumn. And that will also lead to of course the work we do with segmentation, make sure that we realize the gains that is needed to make this happen. And we are also prepared to have some shareholders' contribution to make this conversion happen. But very much is taken into account when we look at the NOK 90 million. Don't expect any significant change in that number come in the first place based on the plans for conversion into investment choice.
When it comes to the last question around the cost target, as well, the cost target for the group is three point to have costs below NOK 3.5 billion. And then, to that is somewhat different numbers from what you did read out of our result as operational costs. The operational costs to be equivalent with NOK 3.5 , should be between NOK 3.1 billion and NOK 3.2 billion. And just to remind you, the difference is costs that goes into products with profit sharing, and it's costs associated with some of the subsidiaries, which is not consolidated line by line into the group results, for instance, student health insurance.
So, that's the difference, and the difference is between NOK 300 million-NOK 400 million. So, the operational cost last should be between NOK 3.1 billion-NOK 3.2 billion.
Okay, that's clear. Just on, on point number two, paid-up policies, can you perhaps take any initial guess at what proportion of the NOK 29 billion could be economically transferred over the next or in the near term, so to speak, without taking into consideration some of the revenue synergies that you mentioned here in your presentation? Just from a capital perspective.
Well, as I said, I think if we start with a portfolio, let's say, between NOK 5 billion-NOK 10 billion, and then we actually have quite a lot of customers. I will say that that will be equal to maybe 20,000-30,000 customers that we can work with. And of course, that is the starting point. Then we can add on this portfolio in the segmentation after we realize gains and after we also harvest some returns in the market. And that will lead to a process where we can fill up the portfolio with customers and assets that are close to fully reserved for longevity. So that is very much the way I view it.
A starting portfolio with NOK 5 billion-NOK 10 billion will be very much to work with, so to say, for the distribution network in 2014, and I will say also in the first part of 2015 as well.
Okay, okay. And just one last thing, just related to that. Hypothetically speaking, if you had a very strong investment returns in the second half of the year or from now going forward, would you have the capacity to convert more, assuming that, more than NOK 5 billion-10 billion of that paid up policy, of the NOK 29 billion, were close to being fully reserved?
Yes, that's clearly in that, of course, as more we are realizing gains, making the contract by contract closer to be fully reserved, it will be easier, of course, seen from an economic standpoint, to make sure that we can do that conversion, based on very limited extra use of shared equity. That is something that we are have the opportunity to do and that we control ourselves, going forward.
Okay, but from a distribution point of view, so from your side, in terms of your sales force, there's no limitations with regards to how many?
Of course, there is limitation in that. And what we are doing now is to start out with a more targeted approach due to the fact that this is a segmented portfolio where we are target directly on the customers. If we should go broad on the portfolio, it would be more based on functionality and call center functionality based on it. So this is a more targeted approach compared to what we talked about when we viewed this, and maybe was in a situation where we thought it would be a conversion also allowed, even if we didn't have a full full longevity reservation in hand.
So, there will take some time to really work this through in this targeted way. But then again, we have put all our resources in the sales force and also in our own call centers are ready when this product is clear to start working with this portfolio and these clients. And we do also believe that it will lead to cross sales and opportunity to really have a large part of our portfolio, that today is a sleeping portfolio, so to say, and we'll be able to get the cross sales and more activity out to the customers by this transfer. We have seen that from Sweden, and I hope to use that knowledge also into the Norwegian market.
Okay, great. Thank you.
Thank you. And the next question comes from the name of, Blair Stewart from Bank of America. Please go ahead.
Thanks. Thanks very much. Good afternoon. I've got a couple of questions following on from some of the others. Firstly, Odd Arild, on the paid-up transfers, what work, if any, have you done speaking to customers in advance of any conversion? And what feedback have you had from them? And I'd be interested also in what type of illustrations you're going to be giving the customers. Are you going to be talking? I know there's a potential for higher returns, but they are also giving up what could be a valuable pension guarantee. So I'm just wondering how you're going to guard against the risk of bad advice.
I'd be interested in what you think the of the NOK 29 billion you've identified, what you think the reserving need is, and is there any coincidence with the NOK 1.8 billion that you've transferred in, in this quarter? That's the first set of questions. The second question is on the new sale that you expect over the summer. Do you expect a redefinition of the guarantee within paid-up? You've talked in the past about perhaps that guarantee being redefined as an endpoint guarantee compared to an annual guarantee. And if we have time, I'd be interested in the opportunity you see from increased DC contributions. You talked about the 130 businesses already using the higher contribution level.
I just wonder how you expect that to continue to gear up over the next, the next couple of years. Thank you.
Thank you, Blair. Starting to... We have, we have done a lot of research with our customers, and been asking them, of course, giving them a lot of illustrations and discussions around the transfer from paid up to paid up with the investment choice. Of course, it's a different thing to have a theoretical research and asking them about what really is necessary for them to move from the guaranteed product to the investment choice. When we do that, in this green area where we have this NOK 29 billion, we see that, in theoretically, around half of them, or 40%-50% of them, say that they are willing to move from the guaranteed to the non-guarantee.
Then again, as I said, that is the research, and of course, it's a different situation when you come to the real life. But anyway, it gives some indication that there should be quite a large potential for this transfer.
It, of course, depends on what will be the press image of this and what different stakeholders in the market also have on comments and how this whole market really opens up when it starts. When it comes to the NOK 29 billion, that was portfolio customers that have, where there's a very good value proposition for changing to investment choice. When Odd Arild Grefstad was referring to NOK 3 billion, that was part of the paid-up policies that were fully reserved so far.
Yeah, as a part of the 29.
As part of the 29. So, and then we are in a process of going through every contract. There are 500,000 customers in this in the paid-up policies and allocating the different reserves. So we do not have the full overview of all the different parts of the portfolio, where the reserving is. It's based on model, it's based on portfolio modeling of the entire portfolio. But if there are, you know, a number of groups that are close to being fully reserved as well. So we're working out, and there's really no connection to this 8, 1.8, either.
No.
That's just the excess return in the first quarter that will be allocated.
Yeah, and the questions about VC and the use of higher savings rates are very interesting, of course, to view and look at that for us. I think it's very early days. Three months is a very short time period. We see that larger corporates typically use six, nine, 12 months in the process when they are changing their pensions for their employees. So typically what we have seen now is early movers in this market, typically smaller and medium-sized corporates that has been able to utilize the higher savings rate. And I was positively...
Well, a positive reaction when I actually saw that, almost 140 corporates already, just three months after, the new savings rate was ready in the market, has moved into the higher savings rate. That's also very positive to see that half of them actually have gone all the way up to the more or less maximum savings rates. And it's a huge increase, as you know, from 8% up to 25% in savings rate in that respect. So it's, of course, difficult to see if what happens going forward, but I have a lot of discussions with also larger clients about utilizing the higher savings rate.
Especially the part of the market in Norway, I would say, all service market, where you have more for talent or for new engineers, their pension is used as a part of the important elements to attract new employers into these corporates. And we see that they typically take into use the higher savings rate in the first place.
Okay, thank you. And the point about the definition of the paid-up guarantee?
At the moment, there is no official timeline as to whether, you know, last year was all these different white papers from the banking commission, which suggested the changes to the structure. Both the industry and the FSA said in our hearing process that we thought it was a good idea, but then it was not a part of the proposal for this new law that came into force from the first of January this year. There is no official process as such to change it.
But the industry and, as far as we know, also the FSA are still talking to the Ministry of Finance to get that ball back and rolling. This is not nothing that we have a time frame for or that is very likely to happen very soon.
Okay, thank you. And just, sorry, just to come back on the NOK 1.8 billion. You say that that's excess return that will be allocated. Is there a timeline for having to allocate that, or is that NOK 1.8 at your disposal for as long as you need it?
Oh, it's the process over seven years is linear. So, we out of the NOK 12.4 billion, we have to one-seventh of that will have to be reserved every year. And we can use of the reserve we have of altogether NOK 6 billion, we can use of that reserve to use the first year and second year and so on. So, that's the process, the way the process goes.
But presumably, if you did see a pickup in paid-up transfers, conversions to paid-up with investment choice, you could use that NOK 1.8 at your discretion. You could use the entire reserve at your discretion to facilitate those transfers.
Yep, that's correct. So we can kind of go ahead of the plan. But and then Odd Arild Grefstad talked a little about the reasons why we might do that and not do that, and so on. But the mechanics of the reserving is one system linear in, in the bottom of the—from the regulation.
Great. Thank you very much indeed.
Thank you.
Thank you. The next question comes from the line of Gianandrea Roberti from Carnegie. Please go ahead.
... Yes, good afternoon from me as well. I have three relatively short question. The first one really refer to the fee and admin result, which seems a bit below expectation, both in DB Norway and in SPP. And I'm just wondering, it's somewhat complicated because on a quarterly basis, your numbers are volatile. But actually, especially in DB Norway, has been relatively stable for the first three quarters of 2013. Then obviously, there were all the one-off in the last quarter last year, and now is down quite a bit. So if you can offer some comment, it would be useful. Secondly, the growth in the insurance segment has somewhat stalled, and I'm just wondering, you have a 10% long-term growth. Is this still valid? How do you see the market?
What are the opportunities for growing? And the last thing, it's a more, general question. Do you think if I look at 2015, do you think at that point, your savings result will be higher than, than guaranteed in a normal, normal, development, obviously? Thanks a lot.
If I start with your first question, Andrea. Yeah, if you see the balance sheet development within the defined benefit portfolio in Norway, you see that that is sliding down. The same goes for the SPP guarantees product. So that you see also top line coming somewhat down is a part of that. Also, when it comes to the Defined Benefit product in Norway, I think it's not fair to see it against the fourth quarter last year, since you had some one-offs in that quarter, but see it as an average of the last year.
In that respect, you see that the top line comes somewhat down, but very much what to some extent to what you should expect looking at the transfer out of the product. When it comes to the paid-up policy, you see that the top line is actually growing somewhat due to the increased assets.
When we are talking about growth and the conversions from guaranteed to non-guaranteed, also in respect of the results, I would say that there's a large change in the balance sheet going on. And our aim is to make sure that we are doing that change in the balance sheet in a way that makes it possible for us to keep the top line on the same level as we see it. That means that we have a very solid and strong growth in insurance and not least savings. But it also means that we will see reduced results from of course the guaranteed products as we move forward.
Compared to what we believed for, well, a year ago or something, when we thought that the guaranteed products in Norway would be, by law, taken down in a three years period, that is very much changed now. We see more a normal conversion from guaranteed into defined contribution products. So, I still, in 2015, expect that we will see higher results from the DB portfolios, especially in Norway, compared to the savings and such. But the main point is that we should be able to do that in a controlled way, where we see reductions in DB results, and are able to maintain the growth in DC and the retail sector, that can cover up for that change and that reduction.
Sorry, Daniel, just to clarify, when you say you're expecting 15 to see higher earnings in DB Norway compared to savings as such, I guess you refer to just Unit Linked Norway, right? Not to the overall savings segment.
I didn't just understand that...
I mean, the what you call savings in the reporting segment, it's Unit Linked Norway, Unit Linked Sweden, Asset Management and Retail Bank. And I guess the sum of these four is very likely to be higher than DB Norway standalone in 2015.
Yes, I'm talking about the guaranteed result altogether, that was around NOK 300 million-
Right.
in the quarter.
Right.
Combined with NOK 586 million in the savings,
Right.
And in that respect, of course, there is a strong growth in the savings result. I expect to see that also going forward. But it should be quite proportional, how we are able to move with the reduction in the one compared to the increase in the other.
Thanks a lot.
Thank you. The next question comes from the name of Berkant Medyas from Pareto. Please go ahead.
Hello, I have three questions. Two of them on the risk results. We've gotten a slight different historical representation of the risk results, as far as I can read in the supplementary information. Therefore, I would like to have a comment on the risk result in SPP, and whether the risk result we see in this quarter is something that we should consider normalized. Also, due to the new mortality tables, I was expecting a slight more uptake on the risk result for DB in Norway. It seems to be a quite significant uptick on the paid-up policies. If you could give us some comment or some flavor of what you expect on those lines as well, that would be helpful.
And thirdly, on the equity contribution that you have been referring to a couple of times, in this call, if you are giving extra equity contribution to some contracts, will you be able to get it back at a later stage, say, within the year or even in the coming year? Thank you.
I think, through we prepare for the risk result comment, I can comment on the equity proposed contribution. If we use equity to fully make sure that the different contracts are covered for longevity reservation, that is not a clawback opportunity in itself in the coming years. But what happens, of course, is that you then have a client on a performing fee-based contract that will give you return on an annual basis, as long as you have the customer in that product in the company. So, of course, it gives good value when it comes to capital release, and it also gives good value into the running results going forward. So it's just a way of looking at that, the fuller picture.
But there's no clawback opportunity in itself when you first have used the equity to make sure that you get the conversion. When it comes to the risk results on the different portfolios, it's there are the Defined Benefit portfolio policy is larger than the Defined Benefit portfolio. And there's also very different segments. In the Defined Benefit, there are, you know, larger corporations and so on, with different risk and disability and so on profile. So it's not easy to, from quarter to quarter, to exactly say how much the effect of the new Mortality Tables will affect the different risk results in those portfolios.
But overall, I think we can say that the new mortality tables will contribute in the area of NOK 150 million a year in better results. And that results will be, half of that results will go back to the customers and to the reservation, and the other half will go into the risk utilization fund, so to the owners. But those are kind of rough numbers from how we see it now, and that might be adjusted going forward. If not to go too much into the details of the different numbers, but the risk result in the Swedish business over the last few quarters have typically been around NOK 30 million.
Then you have some quarters with reserve releases that have brought that up, for instance, the first quarter of this year and third quarter last year. So, the underlying, if like in this quarter, it was 82, if you look at the old reporting format, while I would say at normalized, underlying would be maybe in or around NOK 30 million. So it was a strength. Then if you look at some of the other tables behind there, there are some other elements from the administration or the income and some of the costs, which is also transferred over to the insurance reporting.
I have to sit down with you at a later stage to go through those figures to make them match up. I don't think the conference call is right, is for us to take it.
Thank you. I will look forward to that.
Thank you. We currently have no more questions coming through. As a reminder, ladies and gentlemen, please press star one if you would like to ask a question.
If no further questions, I think we will thank you all for joining the conference call today. I'm looking forward to talk more about the insurance results going forward. Have a nice day. Bye. Goodbye. Bye. Bye.
Ladies and gentlemen, thank you for joining this call. You may now disconnect your line.