Good morning, ladies and gentlemen, and welcome to Storebrand's Investor and Analyst Update 2013. My name is Trond Eriksen, I'm Head of Investor Relations at Storebrand, and on behalf of Storebrand, I would like to thank you for spending this morning with us. We have divided this morning into two sessions. In session one, CEO Odd Arild Grefstad will give an update on Storebrand strategy, focusing more on what's on Storebrand's own measures to change the business more than on regulatory changes. Then CFO Lars Aasulv Løddesøl will give you the main takeaways from today's published Embedded Value calculations, and show how the measures Odd Arild Grefstad spoke about will, over time, have a substantial effect on the balance sheet. We will then have a 15-minute break.
Storebrand's brand new CEO, Robin Kamark, will kick off session two, sharing his thoughts on the Norwegian saving markets and the process to change the distribution and marketing from a B2B thinking to a more B2B2C organization, including the value proposition of the transfers to non-guaranteed business. Finally, Managing Director of SPP, Sarah McPhee, will give us an update on the Swedish saving markets and how SPP is succeeding in the unit-linked market, highlighting the similarities in customer approach in Norway and Sweden. After Sarah, Odd Arild will give a short summary, and I guess then the time will be around 11:30 A.M. And we will then have also a Q&A session. We're then having a light lunch at approximately no later than 12:00 P.M. With this, I give the word to Group CEO Odd Arild Grefstad.
Thank you, Trond, and thank you also from me, all of you, being here today. I'll start focusing on some key drivers for our business, including an update on the regulatory changes we are seeing in Norway, especially today, and also give an update on the market development. I will focus very much on the actions we are carrying out, both to manage our margins and our balance sheets. I also would like to use this opportunity to focus a bit on the proactive side, and how we are transforming Storebrand into a more individualized market, where corporates and the retail market actually merge together. Start with an overview of Storebrand today. We are a company focused on savings for retirement, and that makes Storebrand quite unique in the Nordic area.
We are the only pure player based on this, and all our competitors are bank-owned life insurance companies with a bancassurance model. We believe this makes a difference, both of the focus of the company and how we serve our customers. Storebrand has a strong market position, both in Norway and in Sweden. We have NOK 450 billion assets under management, all assessed to SRI criteria. We are 2,200 employees in the group, and as Trond said, our traditional business model has been very much a B2B type of business, based on defined benefit logic, where the individuals didn't have very much to say and to focus on when it comes to pension. That logic has changed a lot in the recent years, and we are much more now into a B2B2C type of market, where the corporate and the retail market merge together.
This is shown by the house here, where we have altogether 40,000 active corporates in Norway and Sweden. 17,000 of them in Sweden, 23,000 of them in Norway. In these corporates, there is employees and former employees of 1.9 million. And our strategy going forward is, of course, to serve both the corporates and the individuals within this pension solution with pension and risk coverage. As this slide shows, Storebrand is a solid and profitable company with good growth. Our results are increasing with an improved quality of earnings due to a shift toward capitalized unit-linked products and significant de-risk guaranteed portfolios. Norway and Sweden are our markets, and both of these countries have managed the economic turbulence very well. Norway and Sweden are in the unique situation with negative net liabilities.
Unemployment rates are low, and if you look at Norway, the wage increase the recent years has been above a 4% annual growth rate. All of this leads to a strong GDP growth, both now and expected going into the future. So GDP growth, labor participation, a strong wage inflation, actually a strong population growth, and general demographic development, it leads to a healthy growth in occupational pension and retail savings. And we expect this growth to continue in the years ahead, and that there are strong impulses for unit linked based savings, both in occupational pension and in retail savings. If you look at this slide, you also see that there is a big difference between the Swedish and the Norwegian market. The Swedish market is a much more mature savings market.
This is shown by a larger portion of mutual funds and direct investment in stocks as retail savings. While in Norway, we see that the saving is very dominated by bank deposits. This, of course, represents a potential in itself. Then let's move into the vital trends that we see is important for pension and for the growth of this market going forward. The balance sheet of Storebrand is still strongly influenced by guaranteed pension savings, and of course, the risk of these guarantees increases while the interest rate level decreases. I want to use this opportunity to show you an update on the margins we are seeing in our guaranteed products, and also how the reinvestment levels are. I'll return to that in a few minutes. Demographic trends are also very important for our business.
On the one hand side, increased life length result in need for reservation for lifelong pension schemes. On the other hand, a reduced value of the National Insurance Scheme, combined with increased periods as pensioner, also result in significant need for savings, both through Pillar Two and Pillar Three. Another trend, I will say, is regulations, and we are now facing both international and domestic regulatory changes. I'll use this opportunity to give you an update on those, processes and also clarify what is now known, what is still outstanding, and naturally, give you an update on the longevity reservation plan announced less than one week ago. If we then move more directly into the business, we see that there is a massive shift from defined benefit to defined contribution unit linked, and a clear individualization of pension.
This has been a clear trend for many years, and we tend to use a lot of time talking about the guaranteed and the guaranteed products. If you look at our members in the schemes, more than two-thirds of the total members of the schemes already today in Norway have unit-linked defined contribution pension. But of course, they have started the savings, typically back in 2006, when the mandatory pensions came, scheme came in place, and the savings are growing rapidly, but it's still on a lower level compared to the guarantee when you look at the balance sheet. But what is more important is that this change to a DC-based pension scheme does a lot with the communication, not only to the corporates, but also directly to the individuals under the corporates.
And it is a massive need for advice and for different asset allocation advices that opens up commercial opportunities for Storebrand. Technology and IT is essential both for the success of further cost reduction in the company through standardization, automation of manual processes, and through the further development of web-based sales and service processes. So it is an important source, both for further cost reduction, and yes, we have plans for further cost reduction above the NOK 400 million cost program that we have launched half a year ago. And it is also an important source for increased sales customer satisfaction. The last trend I have put forward here is transparency, and it goes without saying, transparency is important in everything we do and towards all stakeholders. This goes far beyond an investment on sustainable investments.
It spreads throughout the whole business and is a guideline for our customer promises, the way we do our advisory, and how we also develop our external reporting to match more, more closely to the internal information and value drivers. Last, we'll revert to how we develop that going forward. Okay, let's take a look then of the the reinvestment rates and the running yields. If we then move into the guaranteed business and look at how the running yield and how the reinvestment rates has developed the last couple of years. We see here the held-to-maturity bond portfolio. First of all, I'd like to say that in Sweden, there is a well-matched guaranteed portfolio with mark-to-market, both on assets and liability.
So when we are talking about this risk for low interest rate, it's very much a discussion about the Norwegian business and how to mitigate the annual interest rate guarantees, on average 3.4%. Then, of course, it's helpful to see that the Norwegian swap rates are well above the European and also the Swedish level. It's around 3.4%-3.5% in this period. And that, of course, is the basis when we are doing investment in long-term bonds and putting into the balance sheet on the held-to-maturity. And the held-to-maturity bond portfolio is very much the backbone of our guaranteed portfolios, with allocation now at approximately 40%. We have been able, during this 2-year period with low interest rates, to keep a running yield in this portfolio just above 5%.
The duration of the portfolio is approximately six years, and a large part of the portfolio has maturity with a due date after 2019. This ensures a stable, good yield in the portfolios for the next years to come. You should also bear in mind that there's a strong credit quality in the portfolio. The rating is between double A and triple A, as shown here, and it's actually been increased towards a triple A during the last quarters. 80% of the investments are state guaranteed or covered bonds. Let's then move to regulation. This slide tries to give you an updated view of the timeline on the different important regulatory changes with impact on Storebrand. I will revert in more depth into the longevity reservation and also the occupational product framework.
I would like to make the point here, when it comes to the timeline, that the new occupational pension product, including the rules for conversion in existing rights into the new regulatory framework, is now on a hearing process. The official timeline here is that the new regulation shall come into force from 2014. That is a very tight timeline, and 2013 is also an election year in Norway, so we expect actually 2015 to be a more realistic starting point for this new regulation. For pension certificates or paid-up policies, the act to ensure voluntarily move into investment choice is passed, but the Minister of Finance are working with regulations before the law is set into force. The expectation is that that will happen no later than in 2014.
The Banking Law Commission has been working with all these changes. They are, these days, working with the fourth phase of their regulation, and that is to adapt the risk products in the occupational pension system to a new regulatory framework. Finally, when it comes to Solvency II, I would say that both the timeline and the content seems undecided, undecided. As we speak, a new impact study is carried out regarding long-term guarantees, and we see substantial different specification in that study compared to QIS5. And it's expected, of course, that the outcome from this study also will have impact on the final Solvency II regulations. Let's take a closer look then into the longevity reservation.
First of all, the mortality table, mortality tables put forward a week ago is for the whole industry, of course, and it's set by the FSA in Norway. The timeline is now that the new mortality table were launched a week ago and will come into effect from January 1, 2014. There is a reservation period for five years, but basically, there's been a three years period already, so altogether, it's an eight-year time frame for this reservation. It's also important to see that this reservation plan, as stated by the FSA, is based on today's regulation.
We know that the new legislation around the occupational pension, that we just talked about, might come in place in 2014, or more likely in 2015, have a lot of elements that might affect the timeline of both the original plan when it comes to new set of stepper plans with possible longer time frame, and also more flexible build-up and use of buffer capital. We will then enter into new legislation during this reservation period that might have impacts on both the time frame and the way the reservation will be done. The outcome is known. The mortality tables from the FSA has stronger security margins compared to what the industry, the pension industry, and also what we put forward when we communicated our fourth quarter results.
With the security margin we have put forward, we estimated a NOK 10 billion total reservation. FSA puts stronger security margin on more elements. I don't, will not go into detail about it now, but altogether, that, led to a total of NOK 11.5 billion in reservation for Storebrand. I will like to add, though, that these kind of security margins on top will, if it's in excess what is needed and what is expected in a dynamic, outcome of longevity going forward, it will result in positive risk results, and 50% of that will be passed back to the policyholders, and 50% of that will then be reserved for shareholder going forward. There is a 20% contribution from the company, and that also include loss of profit sharing from paid up policies.
To look at some numbers about this, I feel it's four main takeaways when it comes to this reservation plan. First of all, we have been able, in a three-year period, to build up buffers before we actually enter into the reservation periods. The expectation now is really that we are able to build almost half of the customer contribution in buffer capital before we actually enter into the reservation period. That, of course, is a very good starting point. Second, as we have shown from the held-to-maturity bond portfolio, there is a strong yield with also quite a de-risked portfolio. The running yield in this portfolio are above the needed running yield when it comes to create the surplus on the policyholder's funds.
We have estimated around a 4% return on an annual basis in these six years, is the needed return to cover up for the policyholder's participation in this buildup. The running yield in these portfolios are well above that level. Third, if needed, there are buffers in the system that can be allocated to this reserve building. As we reported in the fourth quarter, we have been able to build reserves in the life insurance company in Norway from NOK 8 billion- NOK 16 billion during 2012. A large part of these buffers we'll be able to tap into, if needed, during this reservation period. As an example, market value adjustment reserve can be realized and taken into the results. We also have surplus value when it comes to the bonds at amortized cost.
Of course, realizing these kind of bonds will also realize that kind of result on our PNL, that then can be set aside as surplus results for this kind of reservation. And then last comment on this, again, is that the new legislation have included some elements where also additional statutory reserves can be used as a reservation, but that is due to the new legislation and the outcome of that hearing process going forward. So four elements, both a clear and large part of the reservation will be done before we started into the process. A strong running yield in the portfolio, above needed guarantee. Additional buffers are available to create higher results in the period, and also legislation with additional buffers is expected to be available during the period.
If we then move from longevity into the new framework for occupational pension, this is how we view that going forward. New rights within occupational pension will either be the ordinary DC pension products with higher possible savings rates than we see today, or the new hybrid product that also is capital light, DC-based products. Today's defined benefit schemes will be discontinued in a transitional period of three years. When it comes to the paid-up policies, they will be converted into pension certificates. The product details is yet not known, but the goal is to create greater flexibility in terms of time period of the guarantees and increased flexibility, both to build up and use buffers in these products going forward. Additionally, of course, it will also be an opening to make voluntarily-...
movements, transfers from these guaranteed pension certificates into pension certificates with investment choice, which is a pure unit-linked product. So to sum this up, all new pension rights will be earned in new guaranteed products. The existing pension rights will continue in a type of pension certificate, and all guaranteed rights, both in DB and in the pension certificates, will be open for transfer into non-guaranteed products. I think this slide about how the three pillars of the pension system in Norway has been used, I think I've used it myself for the last three capital market days. But what we really are seeing now is that the transfer from this pyramid into a much more balanced setting between the different elements in the system is really coming through.
During the ten-year period from 2005 to 2015, the whole Norwegian pension system will be completely reformed. The contribution from the National Insurance Scheme is greatly reduced, especially for younger people, and the outcome of having an occupational pension will vary a lot from individual to individual based on how, what kind of scheme and how, which kind of contribution your employer actually is giving. It will vary from a 2% minimum deposit on the annual basis, up all the way, actually, to 26% with tax shield. And of course, this will result in a situation where pension will be very different from different individuals. On top of that, the individuals will have a lot of choices going forward compared to what they used to do, to have.
They have the choice, what kind of investment they are going to do, what kind of pension fund they are going to provide for their pension savings. They also have the opportunity to take out pension from 62 years, or they can wait until they are 70, and they can both take out pension and still be in work and combine this in a much more flexible way than we used to see in the past. For Storebrand, of course, this means that the pillar two and the pillar three savings in Norway will increase. It also means the individualization of pension makes a massive need for advice and holistic solutions for pension. And again, corporate and the retail market merges together, and this brings commercial opportunities for Storebrand going forward. Then a few words about the transparency trends. Sustainability is a part of Storebrand's DNA.
The Global 100 list of the Most Sustainable Companies in the World is launched every year in Davos during the World Economic Forum. The analysis is based on a triple bottom line approach that rates both governance, social, and environmental performance. In 2012, Storebrand is proud to find ourselves at number six on this list of the Most Sustainable Companies in the World. We have worked with sustainable investment since 1995, and we now have widened our expertise to be an integrated part of an investment decision in asset management, and use this expertise also to develop Scandinavia's first sustainable fund, based on not negative, but positive screening. It's called the Storebrand Trippel Smart. However, transparency in relation to all stakeholders is key to success for a pension provider. We actually sell promises of pension maybe 40 years from now.
Because of that, trust is essential. The high focus on ethics, internal control, shall ensure a robust advice going forward, and this will be even more important as the broad market for movement from guaranteed products in paid-up policies into investment choice comes in place. We also intend to enhance our reporting, as I already mentioned, to investors and analysts by further developing the alternative operational reporting and clarify the value drivers for each section. In that way, the internal and external monitoring and reporting become more consistent. Then I think it's time to move from trends and look at really the actions we are carrying out to manage both the balance sheet and developing the business going forward. We have divided our response in these two elements. Within managing the balance sheets are the actions to improve margins and reduce capital requirements central.
We have made a plan to ensure that we can manage the anticipated increase in capital requirement from Solvency II, an increase in reserves from longevity without raising new equity capital. We report quarterly on our actions, and also want to use this opportunity to give you an update on where we stand in that respect. However, I also will introduce the proactive side, the commercial plan we are working with. With a strong position on savings for retirement, we are developing solution for both businesses and individuals in pension schemes that will ensure strong growth and profitability in capital light products going forward. But let me start with the left-hand side of this slide. By the end of 2012, we started this comprehensive program to actively manage the balance sheet. We divided our efforts into four main areas.
It's all about risk reduction, cost reduction, product, and capital optimization. During these six months, at the end of 2012, we carried out a lot of actions. A selection of the largest, significant de-risking of the guaranteed products portfolios by reducing equity portion, as an example. We also launched a comprehensive cost program with cost cutting to reduce the cost by more than NOK 400 million by the end of 2014. During 2012, we were able to have an annualized cost reduction of NOK 68 million ahead of the schedule at that time. We also introduced price elements and price increases for our guaranteed portfolios in both Norway and Sweden. This will, of course, have an effect on, for example, the price for interest rate guarantee when we move into 2013.
We have improved our services in defined contribution, both in Norway and Sweden, with shared solution, solutions for life cycle products that has been well received in the market. Next, by the end of the year, we had realized a conversion of NOK 1.5 billion from guaranteed to non-guaranteed products in Norway and Sweden on the portfolio that so far is open for conversion. And last but not least, we also had a clear decision about moving out from the public sector DB schemes and are in the process of doing that as we speak. More important, what has happened after 2012, the first couple of months in 2013? First of all, we are pleased to see that the transfer from guaranteed to non-guaranteed products continue.
So far this year, we have been able to move NOK 0.8 billion from the guaranteed to the non-guaranteed portfolio, and Sweden are really increasing the pace doing that. Going forward, also Sweden is very interesting in that respect, because in March, SPP became electable in the largest pension platform called ITP in Sweden. This pension platform includes SEK 1.9 million , and SPP has SEK 12.5 billion under asset management in this platform from the past, where we were electable some years ago. In the last years, SPP has not been able to work with this client because we have not been electable.
Going forward, that has led to, as we have seen the last years, increased lapses in SPP because the clients had no opportunity to do changes within the scheme, then they had to move out from SPP and to another provider that was electable in the scheme. There was also no opportunities for us to proactively contact these customers and give them a value proposition concerning conversion from guaranteed to non-guaranteed products. This is now solved, and we expect effects on increased new sales, reduced lapses, and an increased potential for change from guaranteed to non-guaranteed products due to the new position where Storebrand, again, is electable in Sweden. Our cost program is also delivering results ahead of plan so far in 2013, and we see that the accumulated effect on the cost program is actually doubled from Q4.
It now stands at NOK 137 million. Again, it's ahead of the plan we have set to have this more than NOK 400 million altogether. On top of that, we also have been able to successfully re-negotiate some IT agreements that will have effect from 2014, so it's not included in this NOK 137 million, with annual effect of NOK 35 million. I also like to here stress that we have actually in SPP, divided our business in a non-guaranteed and a guaranteed company. The value drivers is very different for a guaranteed business and a non-guaranteed business. On the guaranteed business side, it's all about cost reductions, it's about asset liability matching, and conversion from guaranteed to non-guaranteed products, while on the non-guarantee business, it's cost efficient growth that is the important driver.
We believe that this split will enable us to further reduce costs and to be focused on these different divisions with different value drivers going forward. What's in the future when it comes to this program? I have a clear ambition for this program also going forward, and there's a lot of work we are doing with the total business today that, for natural reasons, cannot be specified very clearly here today. What I can say is that, of course, the increase in conversion from guaranteed to non-guaranteed products will continue, and the real opening of that market is dependent on the opening of paid-up policies into paid-up policies with investment choice. Also, the effect of SPP being on the ITP platform will have effect, as we view it, for the opportunity to move to non-guaranteed products going forward.
We started a strategic pricing project back in 2012. That will continue, and we do a review of all the elements possible for pricing when it comes to both guaranteed and non-guaranteed products going forward. When it comes to product development, I will say that we follow a plan that we call read, listen, and build approach. That means that we need to understand the final regulation before we start to build new product solutions. And we also are very focused, having a very thorough discussion with our clients. So make sure that we build the product that is asked for in the market, and we're also very clear that we will not build the whole range of the product that came out from the regulation.
We will focus on the cost-effective solutions that most of our customers will ask for. I also believe that the logic we have seen from SP, when we divide the business into guaranteed and non-guaranteed business, makes a lot of sense when we draw that into Norway. This will realize substantial cost reduction on top of the NOK 400 million that we already have targeted for in the current program. When we conduct this split, we will also review, include a field review of our asset management business to ensure that our asset management business best support our core business going forward. It's also clear to us that the retail banking is a very integrated part of our non-guaranteed offerings and a very integrated part of our retail market strategy going forward.
But I'll also be very clear that, when it comes to exposure towards corporate banking, that will be reduced going forward. The split will also increase our opportunities to reduce IT costs. IT cost accounts for 25% of the total cost base. Limited resource allocation into the legacy systems, combined with mutual development of the new guaranteed solutions in Norway and Sweden, will, in my view, also including more sourcing solutions, reduce the cost in that area going forward. Then finally, some words on the right-hand side, the more proactive side of the toolbox going forward. Sarah and Robin will, of course, give much more input on that in their sessions. I just want to confirm that Storebrand's position is based on savings for retirement.
The base for this is a strong market share and a market position for occupational pension, and due to the individualizations, it means increased business opportunities to fill the needs for employees and former employees in the corporations. Our market and sales concepts and distribution are now changed to utilize this position in these targeted groups. This means that we will maintain a strong position in the market for occupational pension. This is our license to play with a market share of over 30% in Norway and 12% of the new sales market in Sweden. The next phase, then, is to ensure that we greatly increases the proportion of active individual customers among the 700 employees in our companies and among the 1.2 billion that are former employees and owner of paid-up policies.
There is a good growth of new employees, and about 60,000 enter actually into these schemes on an annual basis, and they represent, in that respect, new prospect for us. As you can see, this represents an integrated business model across corporate and individuals. Robin and Sarah are eager to tell you more about how we do this on a daily basis and the results so far. But first, Lars is ready to elaborate more on the financial position and development going forward. Thank you.
Okay, good morning, everyone. Then I will go through the next phase of the presentation. Starting with, as Odd Arild has already emphasized, Storebrand is a profit, a profitable and solid company. We've built improving quality of earnings over the last five years. Furthermore, we have built solidity capital and maintained a strong solvency ratio in our life business, despite turbulent markets and adverse regulatory changes in the way this ratio is calculated. Importantly, we have also built strong customer buffers, which shield shareholder equity and protect shareholders from shareholder values in adverse markets. Understanding the profitability in long-term life and pension business is complicated. Investments made today may hurt short-term IFRS profitability, while at the same time building significant value for the future. A way to estimate the value in life and pension business is through Embedded Value .
Storebrand uses the Market Consistent Embedded Value method and has it verified and signed off by the internationally renowned advisory firm, Towers Watson. The Embedded Value numbers for 2012 show a fall of 12.4% to NOK 21.8 billion by the end of 2012. The main change from 2011 is the inclusion of taxes, which reduced the Embedded Value by NOK 4.6 billion. Furthermore, the new tariff for longevity has a negative impact on Embedded Value of NOK 2 billion. Lower interest rates also contribute in a negative way. This is balanced out by risk reduction and other measures to strengthen the economic value. The most important takeaways from last year's EV report is the increased value in unit link products and the improvements in value of new business.
By adding the life group Embedded Value to the shareholder capital of the other group entities, we arrive at a Storebrand group value of NOK 54.8 per share. Let's look at the different components explaining the difference between the 2011 figures and the 2012 figures. As I mentioned, taxes take off 4.6% of the value. In this number, we have not given value to the NOK 7.2 billion we have in tax loss carryforwards. This implies that the negative effect of the tax change will be significantly lower than the NOK 4.6 billion included here. The expected return gives a positive contribution of NOK 1.7 billion, pretty much as expected.
New business contributes NOK 426 million after tax and NOK 580 million before tax, a significant improvement from NOK 390 million in 2011. The lower interest rate level slices NOK 1.7 billion of the economic value, but is compensated by good returns in 2012, giving a contribution of NOK 3 billion. The de-risking and buffer capital building that we've done through 2012 contributes 2.5 billion. The increased and planned lapse in public sector guaranteed business, combined with a model change, reflecting that most companies have now closed defined benefit plans, reduces the value of NOK 2.4 billion. Increased assumptions on longevity cut the economic value, as I mentioned, by NOK 2 billion.
The fact that customers are loyal and tend to stay with us longer than assumed, improves the economic value by NOK 350 million. This is a strong positive development in non-guaranteed defined contribution business in Norway, and a small negative movement in Sweden, which Odd Arild touched upon with relation to the ITP plan. A number of charges related to the turnaround program have led to higher cost in 2012, weakening administration results. The effect of the cost program should come through successively in the next couple of years and we should see a positive development on this line already this year. Finally, there have been some model improvements and changes, including a capital contribution to the life group of NOK 550 million, contributing a total of NOK 300 million altogether.
To give you a little background on the change taking place in Storebrand, I have included a picture that some of you will be familiar with from before, showing you the shift in the business from guaranteed to non-guaranteed over the last six years. As you can see, traditional profit-sharing business has gone from 84% of insurance reserves to 50%, while non-guaranteed had almost doubled from 12%- 21%. There is an even bigger shift in premiums, and the low interest rate level means that practically all of the value of inforce now stems from the non-guaranteed business. Here is another picture showing the exact same conversion, but giving you every year, so you see how it moves from year to year.
As you can see, the shift from 2008, from two, to 2000 and, sorry, from 2007 till 2008, is explained by a regulatory change, but the trend is continuous every year in the period thereafter as well. Another way of looking at this is the value of in force per product group and the development over the last few years. The positive value development in non-guaranteed savings and risk products have continued. The positive development in fee-based unit link and risk products can be explained by several factors. One, a good return in 2012. The main portfolio in defined contribution in Norway gave 11.6% return last year.
By low lapses, by a good value of new business, by a positive development in conversions from DB to DC plans, and people employed in existing plans, and the turnover in those plans. And furthermore, a model change incorporating the fact that when a person leaves a defined contribution contract in Norway, another person will be employed in the same contract afterwards. It's a so-called steady-state assumption. In Sweden, we do not make the same steady-state assumption, as the new employees can choose between different pension providers in Sweden.
The negative development in Defined Benefit can be explained by the fact that we are leaving the public sector guaranteed market, and that we have removed the same steady-state assumption mentioned earlier, as most companies have closed their DB schemes for new employees, so that when a DB person or a person employed in DB contract leaves, it's not going to be replaced by a new person in DB. In the traditional profit-sharing business, there is a negative contribution from growing reserves and lower interest rates, and a positive contribution from de-risking and buffer building. The 2012 numbers are after tax, while the numbers before are also after tax, but there weren't taxes at the time, so for practical purposes, before tax. The taxes reduce the overall value by NOK 4.6 billion, as I explained earlier.
As the biggest values are in fee-based and risk products, this is also the area hardest hit by taxes with NOK 3.9 billion. The final picture on economic value shows the sensitivities. There has been a reduction in most of the sensitivities caused by the introduction of tax. The exception is mortality shock, where, which increases as a result of the new mortality tables that were introduced by the regulator last week. The MCEV methodology uses a parallel shift of 100 basis points in the interest rate level.
Knowing that the long end of the curve is a model, is model-based, and that there is an extrapolation between the model-based part of the curve and the market rates, a shift in the market rates has an actual EV sensitivity, which is lower than the model shift, as illustrated by the dark gray graph on the top. So we've included three sensitivities, or three graphs for the two, first line here, interest rates up and down. A shift to the Smith Wilson curve with 4%, 4.2% ultimate forward rate from year 20 would reduce the Embedded Value by 18%.
The full EV reports are available on the web, and I think in the back of the room. We are obviously available to discuss the economic value details, or the economic value in more details, either in the breaks or in one-on-one meetings later on. How does the balance sheet of insurance reserves develop if we extrapolate today's movements and customer behavior? The forecast is generally based on the same assumptions as we use in Embedded Value , including a risk-free rate of return. However, we have modeled that we will be able to maintain our market shares, i.e., we have not modeled the lapses that we have in Embedded Value .
Furthermore, we have made an assumption of the transition into the new occupational pension schemes described by the Banking Law Commission and expected to come into effect between 2014 and 2016. As you can see, the guaranteed reserves start to fall in a year or two, while the non-guaranteed reserves grow steadily, and the two cross each other in 2023. The total reserves, the line on the top here, continues to grow throughout the forecast period. We have stated an ambition of converting up to 25% of the paid-up policies to non-guaranteed paid-up policies. That, together with the work that we are doing on other guaranteed savings products in Norway and Sweden, can significantly reduce the guaranteed book over the next few years.
In fact, it can shift the balance sheet value by 12 years compared to if we do nothing. In non-guaranteed savings, the model gives us some NOK 250 billion in reserves by 2027. If DC premiums grow by only 1 percentage points from today's level of around 3% of salary, i.e., to 4% of salary, that adds some NOK 50 billion in reserves. If the saving levels of DC gradually grows to current DB levels over time, at around 13%-14% of salaries, that may add another NOK 100 billion more in the way we set it up here. If we succeed with the conversion illustrated in the previous picture, you get another NOK 50 billion. Sweden gives additional upside, not illustrated on this picture.
Illustrating the last few slides in the common picture, you can see that conversion out of guarantees into non-guarantees, combined with a growth strategy within the non-guaranteed part of the book, can lead to a significant shift in the balance between guaranteed insurance reserves and non-guaranteed insurance reserves in a few years. In fact, we can see a possible shift in the balance between guarantees and non-guarantees already in 2017, an improvement of years. Will we succeed with everything? Not likely. But the objective is crystal clear, and the measures are under implementation. Summing up the last few pictures, we will work to reduce the guaranteed liabilities and grow the fee-based and risk business.
Some key performance indicators you should look for are: our ability to maintain revenue from traditional business through price increases and a conversion period over the next few years. Strengthened profitability during the conversion phase through cost cutting and intelligent margin management. An increased profitability from the new savings and risk products through customer-centric and commercial solutions, adding value to our clients and increasing sales, cross sales, conversion, and loyalty. So how are you going to report on the development, and how can you see if we are on the right path? Traditionally, we have reported according to business areas. That gives limited information about group value creation, as margins can be reflected in different places, and internal pricing may impact results. Furthermore, you have to follow many different value drivers for the different business units, which makes it harder to understand the overall picture.
Two years ago, we introduced a new operational reporting format. It gives you an easier way to look at the overall value creation in the group, divided into high quality earnings and more volatile earning elements, which typically will fluctuate with financial markets and the economy. The positive development in result before profit sharing and loan losses is quite clear, and the reliance on profit sharing and market-related profits is going down. Now, we take this one step further, and we'll show you the profitability split into guaranteed business, non-guaranteed savings, and insurance and risk. This way, you can follow the transition from guaranteed integrated products into non-guaranteed savings and risk products. By the way, all of these numbers refer to profit before amortization and tax. The shift from guaranteed to non-guaranteed occupational pensions, or savings, is clearly illustrated by the premium development shown to the right here.
As you can see to the left here. As you can see, the growth comes from the non-guaranteed book. The guaranteed premiums have been held up by salary increases and by a reduction in guarantees. The transition between the two will accelerate in the coming years, and I remind you that Odd Arild said that now two-thirds of all the employees with occupational pension contracts in Storebrand have DC contracts rather than DB contracts. On the right-hand side, I've included an interesting picture showing the age distribution amongst those of our clients having guaranteed savings products and those with not, in non-guaranteed schemes. You see that in both Norway and Sweden, the non-guaranteed population is up and coming, while the guaranteed population is approaching retirement age. Today's guaranteed occupational pension products include built-in coverage for death, long life, disability, and widows and dependables.
When we enter into the new world of non-guaranteed savings, we will have to ensure that we can still provide our customers with the coverage that they need in a transparent, trusted, and profitable way. Furthermore, the state disability coverage will change, and we have to develop new products that meet customer requirements under changing circumstances. Through good underwriting and strategic product focus, we shall keep the claims ratio acceptable, add automation, digitalization, and general cost control, and we see good profitability in risk and insurance. This is the operational reporting we introduced two years ago. It splits the business between result before profit sharing and loan losses, and the more market dependent result elements. Now, we take this one step further and split between guaranteed business, non-guaranteed savings, and risk and insurance.
Here's the new setup, where the non-guaranteed savings here include the retail bank and the asset management business. The incorporated risk products embedded in the traditional occupational pension products are still reported as part of guaranteed savings. In the column Other, we include the holding company, the corporate bank, and the company portfolios in the group. This format will make it easier to follow the development of the cost program. You can see the non-guaranteed savings and risk and insurance already contributing similar results as the guaranteed products before profit sharing. We appreciate that it takes some time for you to get familiar with this format, and we look forward to discussing it with all of you, one-on-one and in more detail in due course.
In the following couple of pages, I will break down some of the numbers a little further, but I will go through it briefly at this stage. I think we all, or I think you probably need to discuss this with us in more detail as you get familiar with the setup. In the upper left-hand corner here, you see that the key segment components, the product groups horizontally, and vertically, the income, cost, and financial result, summing up to the result before profit sharing and loan losses. This will make it easier for you to follow the main profit components, value drivers, and product groups. Below, in the bottom left-hand corner, you see some key figures on premium income, growth, assets under management, et cetera.
On the right-hand side, we have included important value drivers or some relevant market information, including our strong market position and recent awards. Profitable growth in non-guaranteed savings is very important for Storebrand and has our highest priority. We experience a massive shift from guaranteed to non-guaranteed savings across Norway and Sweden, both in the retail and corporate market. Guarantees are costly, and no one seems to be willing to pay that cost when the cost or the price becomes transparent. The future is non-guaranteed. Here, as in the last picture, you see the main figures on the left-hand side and some key value drivers on the right-hand side. Double-digit premium growth, combined with improvements in the cost ratio and lower claims, have led to a good development in our insurance business.
Important value drivers are increasing cost efficiency and automation, as well as risk differentiated pricing and high-quality underwriting. This is the same for traditional business. Main product categories and result elements on the upper left-hand corner, key figures below, and value drivers on the right-hand side. I've chosen to include the conversion programs taking place in Norway and Sweden. I remind you that these have just started, and that we expect a lot more from them going forward. The guaranteed savings is the backbone in the Norwegian and Swedish life business. Historically, a sound business, but challenging in the current low interest rate environment, and not sustainable under the new capital adequacy rules, that is Solvency II.
Last, we have other, including the commercial banking and the commercial bank, and the holding company, and group portfolios, and net debt. The main drivers here include freeing up capital, reducing cost, and making sure the capital and legal structures are optimal. As I now come to a conclusion, I'd like to sum up. We are a solid and profitable company in a growing industry.
... the industry is going through a very significant transition phase in terms of products, guarantees, and regulations. Storebrand has implemented a number of actions to manage the transition and create a competitive platform for the future. We introduce new and increased transparency in reporting based on value drivers. The new reporting format will be fully implemented in the reporting for the second quarter in July, i.e., in the first quarter, we will not be able to give you a full transition in the reporting, but it will come in the second quarter. That sums up what I want to share with you this morning. And then I think we're going for a break. But first, Trond want to say a few words.
Let's see. Can we have this one turned on, please? I think we are good on time, so I thought we could open up for a short Q&A session. And I see there are—there is a couple of questions here, so let's start it off.
Christopher Adams from SEB. Could you please talk a bit about the pricing? You mentioned that several times in your presentation without, without being very specific. Can you say what you're doing in terms of pricing and the challenges you're facing there? In terms of the fee-based business.
In terms of the fee-based business. Well, first of all, we launched already in 2012 a lot of components when it comes to both paid-up policies and the fee-based business in Norway with increased prices. As I said, we are now going through the whole set of price components, also looking at it not only on a product level, but also a customer level, to be able to make sure that we focus on profitability and not volume growth in these different elements. So we are doing that, and of course, there will be a significant effect on price for interest rate guarantee also from 2011 to 2012.
As Lars said, going forward, we need to be transparent and increase the prices on guaranteed products, make sure that we have the right pricing of those elements, and also give the right incentives for movement from guaranteed to non-guaranteed products. I think also Robin will be touching upon this, as he, as a commercial responsibility, has the opportunity to see the total pricing elements on a customer basis, on a customer level going forward.
Well.
Thank you. I'm Peter Elliott from Berenberg. Two questions, please, both which I sort of partially discussed with your colleagues offline beforehand, but perhaps I could get your views on the fuller picture. First thing, on the new mortality tables, be interested to hear your views on how that impacts on your ability to pay a dividend or how that impacts on your dividend thinking. I mean, clearly, you know, up until now, policyholders have taken the lion's share, you know, going forward, shareholders will have to take a bigger burden. Does that free you up a little bit? Second question, just on numbers on the Embedded Value. If we, if we want to add back in the impact of the tax losses carried forward, should we, should...
Can we just take the present value of that, sort of, divided a couple of years, or is there anything else that we should sort of build in when we wanted to make that adjustment ourselves?
I can start on the dividend, and you prepare for the Embedded Value . If you look at the split here, the 20% contribution for shareholders into the reservation plan, you should bear in mind that the paid-up policies, and the payout or the not doing the profit sharing is a part of that contribution. If you look at the NOK 2.3 billion altogether, it should be expected that maybe half of it should be covered by this kind of surplus in the paid-up policies. And when you then do the math and look at the normal results compared to what we had last year, in the life insurance business, I think it's around 10% of the total result in this year.
That will be reduced due to the fact that we have this reservation plan and also have to do the contribution based on DB schemes. That in itself will not impact the dividend payouts as such. That will be enough of, enough results and in itself and the creation of capital in the system that will cover up both for this reservation plan and also give surplus to shareholders. What I said when we give out also the fourth quarter number was that, of course, our main topic, what we are focusing on, is to make sure that we have the right. That, that we are able to both meet the longevity reservation and also the future capital needs in Solvency II by what we have in the business and not ask for new capital.
That is still the main object. And also said that when we enter into this reservation plan in 2014, we are in a normalized situation with a clear dividing between shareholders and policyholders of the build-up phase of the longevity, and 2013 is more like a transition year into that phase. And then again, of course, we are early in 2013. This will be a discussion the board will have early in 2014, based on what will happen actually during 2013. If I just can add one comment to that. If you remember the profitability model in paid-up policies, it's a small administration fee, and then there's a profit split. So you remove the profit split, and that's the contribution from equity.
But then you didn't have the profit split for the last couple of years anyway, so it doesn't really change anything. In the Defined Benefit book, the profitability model is we take a small administration fee, et cetera, but we take the fee for the interest rate guarantee. Last year, that was about NOK 550 million. Now we have to return maybe half of that, or NOK 230 million or so, back into longevity reserve strengthening. So that's a way of thinking out of those two portfolios. So it reduces the profitability, but it's not like a, it's not fresh equity money or anything coming from that that needs to be put in, but it reduces profitability going forward. Then over to the other part of your question, the value of the tax carry loss forward, tax loss carry forward.
I guess you could take the net present value of NOK 7.2 billion times 28% over the next four or five years on a group level. However, Embedded Value is for the life company, so therefore, with a background of the very short period of time we had from the mortality tables came last Friday until we had the board meeting yesterday, we weren't able to make the calculations on how that exactly impacts Embedded Value in the life company. So we took it away. But from a shareholder point of view, the tax loss carry forwards reduce the tax for the whole group, not only the life company, and therefore, you can look at the net present value of the total, as you suggested.
Yeah. Vegard Toverud from Pareto . I have two questions, please, and the first one is on the reorganization. Is that a reorganization in your reporting, or is it also an organizational and legal reorganization?
Well, as I said, we have already done that split in Sweden, and that is a legal split between, the guaranteed and the non-guaranteed business. We are doing that split for a reporting now for the whole group. And as I indicated also, we see that it's a very different value drivers, very different customer that needs to be cultivated, when it comes to non-guaranteed business and the guaranteed business. So what we learned from the Swedish business, and also what we see from our reporting, is that we are planning to do the same split in Norway, maybe not, with a company setup, but anyway, with operational setup going forward.
So does that mean that the organization has also been slightly divided, or that your resources are clearly allocated to either guaranteed traditional or new non-guaranteed products in Sweden?
In Sweden? In Sweden, we have the organizational split between them, and gradually we will have a different culture in these two companies. So far, we have kept very much of the people into one total group, allocated them to the different companies. I think in Norway, we will also use this as an opportunity to be much clearer, as I said, about the value drivers going forward and the different value drivers, cost versus growth in these two elements. And that we see that when we do that through the whole company, it will make opportunities to have further cost reduction above the NOK 400 million program that we have already talked about.
Thank you. And one more question. Picking up on the longevity estimates, your versus the FSA estimates, what would be your best estimates for the increased need of longevity?
Yeah. Well, we, we gave a number when we came with the fourth quarter results. That was based on insured population and added a 10% margin on top of that. You can discuss it. Should you have a 10% margin on a population based on the insured people? But, but we included that. Then we used the middle alternative. That in itself is quite harsh because it takes into account the reductions in mortality for the last two, three decades and uses that for all time going forward. There's no stopping it. It's a dynamic model, meaning that a 30-year-old person, 10 years from now, will have increased life length compared to a 30-year-old person today. And it's actually, typically, in 30-40 years, it makes four or five to six years differences.
So this, in my view, and it's always the, the dangerous to say that, but in my view, this is the final table for mortality into the guaranteed schemes in Norway. When it comes to what I feel is right, I will say that the NOK 10 billion we put forward is has also security margins in it. And on top of this kind of security margin, on the starting point, the FSA included security margin of the normal alternative. So they put also that it should be not one times the normal, mid alternative, but 1.1 times that alternative. So both the starting point and the curve in itself has security margins on it. And on top of that, it's also put security margin on the debt elements, and you can't both live and die.
So, it's security, the margin on both areas here. And the combination of these three security margins make it a very strong tariff, make it at least NOK 1.5 billion, but even more actually with the security margin we have put in, as our estimate on the midpoint for what is a reasonable reservation.
If you take your estimate without the security margin, where would you then be? Would you be more at 3%?
No, on 3% of,
Your total, insurance reserves, or?
We came up to 8% now.
Yeah, and I know that you include with your security margins previously communicated 7%. So I'm curious if you have a number without your security margins.
I don't have now the element, what does it means, the 10% security margin on top of the portfolio today. But it's not down to a 3%. I will say that expect more like 6%-7% is the right type of reservation here.
Thank you.
Fridtjof Berents from Arctic Securities. Three questions, if I may. At page 13, you show an annual investment return of 4.1% will be sufficient to cover the interest rate guarantee and longevity reservation. Is there any particular reason why you don't split on paid ups and DB? Or is it just a way of presenting it easier for us to have this on a more average base? The second question is related to Embedded Value . If you could say something more, please, on the net margin you have in the DC portfolio, and if you see any need, if this was part of the Solvency II calculation of contract boundary or something related to that.
The third question is related to page 33, where you show the reduction in guaranteed business, and you have showed a fall or decline in such. Could you say something what you expect in increases in paid-ups going forward, following conversion or movement from DB to DC schemes? And in that respect, a higher number when it comes to percentage point of conversion from paid-up. So if you have a 20% conversion ratio, and if you see a increase in paid-ups as people move from DB to DC schemes over the next couple of years, or if you have not such increase at all in your estimates here.
I can start with the split, DB, these, DB and paid up. What we have done so far is just giving an average estimate. You know, there's a different also interest rate guarantee in the DB portfolio compared to the DC portfolio. That comes into place here. But in average, if you look at the 3.4% in guarantee, it's needed, on average, then a 0.7% increase from that level to mitigate the policyholders' part of the reservation during this six years period. I'm not sure I got the full extent of your second question.
In your Embedded Value calculation, you have a NOK 12 billion value of the DCs, DC schemes.
Yeah.
What sort of net margin do you... How do you calculate that NOK 12 billion?
I don't have all those figures in my head, but it's the average margin that we have on active contracts, and then it's the average margin that we have on paid-up policies coming out of the defined contribution contracts. They have a higher margin than the active contracts. So it's a combination of the two, plus the risk elements included with the disability component that lies in defined contribution contracts, less the cost allocated on this. Obviously, yeah. The third one, the increase in paid-up policies, Robin is going to show you a picture showing paid-up policies and active contracts in balance. So I suggest we revert to that when Robin comes up a little bit later.
I also like to say that with the new legislation, more or less all earned rights, on guaranteed basis will enter into a kind of, pension certificate, with or without a sponsor. But it's been really much the same as the guaranteed business moves along with the regulation, in 2014 or 2015.
Matti Ahokas, Handelsbanken. A couple of very interesting slides that, Lars, you presented, 35 and 36. I'm just thinking that the shift in reserves after the conversion, are you not worried that this will have a negative impact on the IFRS earnings as well, even though you have a positive kind of ROE and Embedded Value impact? And is there anything that you could do to mitigate the situation? If you look at from 2014 to 2017, there seems to be a kind of a dip in the kind of overall reserves, because the guarantees are falling so fast. Does this mean that the IFRS earnings will fall as well? And as I said, is there anything you can do to mitigate this?
I think this picture really sums up the answer to that question. We have to maintain the earnings from the guaranteed portfolio in a conversion period. We have to reduce the costs and manage the income and margins in the transition period, and we have to grow the non-guaranteed book as soon as possible, or as soon as, as, well, as soon as we can. Your question is valid, though. There are higher margins in the guaranteed business, but compared to the capital required in that business, it's clearly in the best interest of shareholders to do the conversion into the capitalized products as soon as we can.
... Is it fair to assume that 2050 is kind of the worst year in terms of that conversion or is it 60? Can you say anything about that?
No, it's hard to give a prediction as to what is the toughest point. As the regulations and the market change all the time, I'm sure there are gonna be other things that will impact things, outside what we can predict in a picture like this.
Thanks.
Thank you. I know there is a lot of further questions out there. Due to the time management, we'll have a 10-minute break now, and we will have a Q&A session again later on today. We have 15 minutes, and start again at 10:45 A.M. Thank you.
Okay, welcome back, everyone. Now I'd like to introduce to you, Robin Kamark. He's been with the company just for a few months. He's responsible for the Norwegian sales and market operations across all business lines and also across corporate and retail sales. He is also responsible for information and e-commerce in Storebrand. Robin is a former commercial director in SAS, and now he's ready to talk about how we are doing on the proactive side on Storebrand going forward. The floor is yours, Sir Robin.
Thank you. You could, you could come there. Thanks. Okay, good morning to you all. I have the pleasure to take you through the commercial agenda. What I will do today is to mainly take you through the Norwegian market, and then Sarah will come on the stage and speak through the Swedish markets. My presentation is divided into four sections. I will give you a brief and short status view, then I will describe the underlying market potential as we in Storebrand see it. I will describe our strategic position and the decisions we have taken for the years ahead. And finally, I will go through the sort of the commercial goals that we have put forward for the years from 2013 and until 2016. Okay, then we go.
Here we see an attractive and growing pension market in Norway. The market consists actually of 110,000 companies, scaling from the large corporations to the small one, two, three person businesses, goes within the private sector. The market also has 20 providers of pensions, 10 of those which have assets above NOK 1 billion. We see a clear growth in defined contribution, and then there is a switch towards individualized, individualized pension rights. The takeaway is there is a rapidly growing market? There's a clear shift within defined contribution. We see an 8%-10% growth in the market, and we believe that that growth figure will actually increase. As I said, we see a switch toward more individualization in the marketplace.
Clear market shift towards defined contribution, rapid growth in annual premiums. Odd Arild and Lars mentioned, actually, the 75% is already within defined contribution, which we see up in the left side graph. 1 million of 1.3 million members are already on defined contribution. Defined contribution is the largest market by far for new savings, and we see also gradually decline in defined benefit schemes. However, the key uncertainty in the marketplace now is how corporate with the defined benefit scheme will act. Will they go over to the new hybrids? Will they go to the contribution scheme? It's a bit unclear as we speak today. Storebrand has a strong market position both in the defined benefit and defined contribution, and is very good positioned for the years ahead.
We have proven in 2006 that we can execute new product regulations effectively in the marketplace. This gives us confidence with regards to the regulatory changes that we now, that now lies ahead. On the left-hand side, we see the scheme as it is today. We have 2%-5%, so the 18.1% comes, is covered by the, the public pension system. Then you have range and ratio from 2%-5% within the limit of until 7G, or 6G, and then you have 2%-8% above. The new proposals goes increase from 2%-5% to 2%-8%, and from 2%-8% to 26%, which is a quite huge increase in the saving rates.
This enable us or enables the market, given that the new schemes will pass in the market, the shift to high rates, creates a significant, growth opportunity for the providers and for Storebrand. As we see on the slide, at the left, 57% of all contracts have low annual pension savings. With increased awareness in the marketplace for the need to save more, many employees will either demand, demand improved pension, schemes covered by the employer or save more themselves. This will, for sure, create, a more individual awareness, in the marketplace. One percentage, one percentage in the average premium, as a percentage of salary, provides NOK 1 billion in additional potential savings for Storebrand. Huge potential. It's a significant growth potential that will prevail in the marketplace.
There is a significant growth in savings, and it's an increased awareness of long-term savings, as you see in the graph. And we also see here that 34% are more and more interested in savings for pensions and 15% in long-term savings. This will entail that the retail savings in Norway, it is growing and will grow rapidly in the years to come. Pension and long-term savings are increasingly important for Norwegians, and bank savings is actually currently today a significant part of how Norwegians save, and Storebrand will and are present in that market also. So the question is now: how will Storebrand leverage its strong market position? We will do that based on four main value drivers. One is the top line growth. Two, we will have a more efficient and decrease the unit cost.
Three, we will work with capital relief. And four, we will invest and work with brand preference, top-of-mind issues of Storebrand as a brand in the marketplace, and it's increasingly important since the two markets, two segments, B to B and B to C, will melt into one. So you need to have a top brand awareness in the marketplace to succeed. That maintains and our strategic position is save for retirement. The strategic, the strategy is tailored to maximize the value of Storebrand. We focus on saving for retirement as a category. We are focused with a strategy. I'll come back to that one. We will and are transparent, and we will and are be long term oriented. And in order to maintain, our attractiveness in the marketplace, we will develop customer and market concepts, which is linked to saving for retirement.
Again, those concepts will be based on the customer's financial situation and life cycle situation. In our world, with the save for retirement is a fairly broad definition. What I mean with that is that saving for retirement means different, depending on your financial situation and where you are in the life cycle. E.g., if you are quite young, just buying a house, taking a mortgage, saving for retirement may be to down payment on that loan. If you are in the middle age and you want to secure your family, you do other issues. You can invest in funds to secure your pension. So depending on where you are in your life cycle, depending what sort of financial situation you have, different concepts will be developed. I'll come back to that later in the presentation also.
We have four cornerstones in our strategy. One, we have a very attractive market, which I've tried to describe to you. There's growth in the marketplace, there is an interest and a growing interest for long-term savings and pensions. It goes from towards the more individualized approach. Each and everybody of us needs to have a sort of realistic view on the savings. Two, we have a strong market position, both in defined benefit segment and in the defined contribution segment. Three, we'll have a very focused distribution strategy, where we go through the corporates towards the individuals within that corporate and work with them. And four, we have many attractive concepts today, and we are currently developing further concepts. The market for retirement saving is attractive, with strong underlying growth, as I said.
We are a market leader in occupational pensions, with cost effective, cost effective access to actually 500,000 individuals that work in the corporates we have agreements with. We have access to 600,000 former employees. And with an increasing need for individuals to save for retirement, corporates actually ask us and want us to provide advice for their employees on the need for additional retirement savings and risk coverage. This presents a unique opportunity for Storebrand, and there is a pull effect in the marketplace for advice, for concepts, for products, in order to meet the demand that we see there now. And actually, it is a sort of a double effect. The corporates want us to advise the employees.
They want to give the employees the best products and the best advice in order for them to invest. The other side of it is that there is also strength for the employer in the sense that the better solution they can offer their employees, the more competitive they become from an employee viewpoint. And that sort of a significant shift you also start to see now. But the takeaway from this is actually that there is a high demand from the marketplace to go through the corporates and into their individuals. And so that is what we are doing now, and we have achieved a pole position in the marketplace. We are the market leader, and we are the market leader, both when it comes to the defined benefit scheme and also when it comes to the defined contribution.
Storebrand is, as I said, the market leader. With the transition to defined contribution, Storebrand has managed to become the market leader in the next generation of the product families, and managed to effectively navigate new product rules, on the introduction of mandatory occupational pensions. This gives us confidence that we will manage the next transition stage to the new product structure, which is on the table now. Having a strong position in both the defined benefit and defined contribution is vital in the transition period. With many companies having both products, we expect many companies to select one supplier, for all their occupational pension needs. As I said, Storebrand is well positioned, and we are in a pole position, which we intend to utilize.
We have attractive value propositions, and we have actually, although this is subjective, we have excellent customer service. The reason for that is that we ask our customers, and we have a high customer insight. There is excessive pension investment returns, we have a strong value proposition to our corporate customers, with high customer satisfaction and loyalty. We have shown that we are able to deliver strong returns over long run in defined contribution, with a return above indexes. To our strategy framework, as I said, a focused strategy, leveraging on our strong corporate position to reach the individuals in a cost-effective way with attractive concepts. That is what we, in other words, call from B2B to B2C, B2B to B2C. We have relationship with 23,000 companies in Norway.
We are the market leader in defined contribution and defined benefit. We have a relationship with 1.1 million individuals. 40,000-50,000 new ones come into the scheme each year. We know there is a need to advise the companies and their employees. The companies want us to do so, the same do the employees. Consumer insight gives us unique knowledge, what the customers want, and we leverage all this with a very focused distribution strategy. And in a sense, you kill two birds with one stone, because we have direct access, not only to the corporate market, but also through our corporates to the retail market directly there, which is a very cost-effective way to work in the marketplace. We will be in the channels where our customers are.
However, we will focus on the digital channels. We have a multi-channel distribution strategy. Through the corporates, we have one-to-one meeting, corporate sales meetings. Through the corporate door, we will reach the individuals and the employees, through town hall meetings, through CRM activities, mass communication digitally, through one-to-one meetings if they want to do so, through one-to-one advice if they want to do so, both digitally and in person, depending on. But again, we have access to the market. We have access both to the corporate, and through the corporate, we have access to the individuals. We have an integrated the retail and corporate distribution channel and incentives across those channels. We are increasing our distribution effectiveness, as I said, through town hall meetings and digital platform and CRM activities.
Web will be increasingly important for Storebrand, and we will invest in our digital capabilities. Unnecessary to say at this stage, but the digital world is here, and we'll, we all know it, like it or not. When it comes to the digital world, Scandinavia, as such, is a well-matured market. Almost 90% of the population use the internet. Even my mother, which is 88, uses internet, and that tells us a lot about the potentials in the digital world. Then we have something called the BankID in Scandinavia. For those who don't know what this is, it's more or less a personal electronic signature, and what that does is to actually. It enables us to have quite both standard, easy product and services through internet, but also quite complex products and services can be done digitally.
Actually, self-declaration can be delivered by internet by using BankID, loans, et cetera, which that, again, the effect of that is that paper, cumbersome, transaction, it will become obsolete in this process. We have roughly 7 and slightly less than 7.5 million users, and what we see as a clear trend is a shift from which platforms the traffic enters into Storebrand. Mobile traffic have gone from 9%-25% and is increasing as we speak. The figures, figures I've mentioned shows that Scandinavia, that the Scandinavian market is well positioned for the next step towards a more sophisticated, product and service offerings through a digital platform. So who will be the winner in the digital race? Well, those who are able to create a competitive edge through their digital platform will probably be the winners.
The complex thing with long-term savings and with pensions is that many of the individuals out there think it's very, very complicated. So I think one of the guiding principles that we have decided upon in a new digital strategy is that we want to, one, it should be easy to understand, common sense. Two, it should be easy to use, common sense. Three, should be easy to buy. Again, fairly common sense. And four, should be personalized. So if you go around and you can check the different websites around the world, I'm not so sure if you find many with those three or four factors, and that is the key. The key is to do the complex world quite easy on a digital platform, then you will be attractive to the retail customer and the individuals.
You must be, in the future, attractive to the individuals in order to be a successful player in the marketplace. I've actually taken the liberty to show you one slide of actually how do we work with customer insights, from customer insight to customer loyalty. Our aim is, of course, to use the customer insight knowledge in order for us to constantly improve our customer processes. The examples on the slide behind me is actually how the this is the operational slide. So how do we do it? Well, we take out a cluster of customers, and we send them, if you see the top example, how to do prospecting. We took a cluster of customers, 125,127 thousand, sent them an email and asked about information. Surprisingly, actually, 35,000 of them answered, gave us...
Then you can add these numbers if you take larger clusters. But they gave us quite detailed information of their life, married, children, needs, and financial information. And then what we did, as 15,000 of the 35,000 answered the survey and asked us to contact them. Again, think about distribution and how instead of going broad in the marketplace, you are starting to get very, very targeted. So we went back to those 15,000. They have asked us, we did so. Of those 15,000, 35% bought product and services based on this, this one smart prospecting. The latter part is actually how we work with the customer retention. In other words, how we try to increase our customer loyalty, and that we have something called Net Promoter Score.
Again, we asked customers what they, as a, what about their experience with Storebrand? We sent out, this is again, an operational example, 120,000 SMS. Actually, that was 120,000 customers we sent SMS, and then we asked them to rate us from 0 to 10. And scale is 9 to 10, then they are satisfied with the service, then they are loyal, customers. 35,000 answered. Again, it's coincidence, it's the same, it's not the same 35,000, though. 19 of them scored us 9 and 10. What we so did was to take a cluster of those again, of the 35,000, and, we took 2,000 in-depth interviews where we got feedback from the customer, because it's, you can get a lot of information if you're really working with customer insights.
We got 2,000 of them in this example, in-depth interviews, asking about the processes, the quality, et cetera, about Storebrand. That feedback is so taken back into the organization from on the operational side, on the commercial side, in order to improve processes. This will be a continual, continuous structure within Storebrand in order for us to really be close to the market. When we say that we are customer-oriented, we want really to be so, and that will become a, a competitive edge when the market moves from where we are or historically were, and, and within, towards the individual marketplace. You need to know what the cust- what really ticks with the customer. Not sophisticated, but structured. What you see behind me now is an effect of customer insight.
We have developed a number of customer and market concepts, and we are developing new ones. We believe strongly that this will gives us an edge. It's based on the needs that we know that the market has, and the customer have, and the individual has. What is my number up in the left-hand corner is actually a concept that familiarize the individual with the word pension, with the word long-term saving, trying to show for the individuals how much do I really need to invest or save long term, getting familiarized with the facts. 500,000 individuals have been on these, on that site in order to start to familiarize them with the facts and figures of their own pension.
We have our life cycle portfolio approach, which automatically changes the investment portfolio tailored for you and your age with a sense that we take care of you. Use Storebrand, we will invest for you based on your age profile. We have Storebrand Plus, which is in effect, it's an executive concept, where we go to the executives within companies, group management, management teams, et cetera, to tailor-made based on their needs. When it comes to pension savings, when it comes to risk coverage, those concepts are already quite successful in the marketplace. And based on the customer insight that we are gathering all the time, we will develop new concepts. And we strongly believe that that will enable us to keep our competitive edge and increase it.
We have a good track record when it comes to transferring guaranteed products to products with investment choice. And we have started systematically targeting transfer balances out of guaranteed products to give our customer an improved value proposition and prepare Storebrand for a Solvency II regulation. The first product we started with yielded a transfer rate of 52%. When a new regulation is implemented for paid-up policies, we will start to systematically work through the rest of the portfolios. And there is NOK 70 billion at hand. And when you see the age distribution on the left, down left-hand side, you see that a huge part of that is towards quite the younger or middle-aged population, and the value proposition for they, for those are quite good.
As I said, we have started with the paid-up policies, and I'll show you this one. A large potential with paid-up policies to products with investment choice. What we have done, we have analyzed our paid-up policy customer base to identify what segment will benefit most from transfer to a product with investment choice. Looking at customers between 24 and 65, we have sort of identified reserves at NOK 33.2 billion. We will, and this is important, only proactively advise those most likely will experience at least 30% increase in their pension by going from a guaranteed portfolio to a product with investment choice.
So in effect of the NOK 17 billion, we see 23.3 have a value proposition, which is 130% or above compared to their current paid-up policy. For those, we will advise them to go for a product with investment choice. Those between the ratio of 110 and 130, we will have a neutral position. We'll tell them about the advantages of doing it and the pros, and we will also inform them, of course, with the cons. We will act very transparently in the marketplace. For those customers and individuals that have a value proposition, which is below 110%, we will advise them not to convert. So transparent, balanced, neutral advice based on the value proposition as we see it.
When it comes to track record, we have a proven track record, and although on the slide on the left-hand side, it's small numbers, it's a clear trend shift. In 2010, we had net negative customer into the Storebrand as a group. In 2011, the net numbers, more customer came in, 3,000 of them, and in 2012, with a new strategy coming into place, actually, that number increased further. So we know and have a track record of saying that what we now have started to implement in the marketplace actually is working.
Another thing which is quite sort of interesting, through corporate relation, which means that our position in the marketplace, through the companies we have dealings with, are significant higher than the market in general. Of course, as a market leader, that means most of the companies, which for us is very good. But if I compare the general market and the numbers, it was flat. When I go to the segment where we have a corporate relationship, we had a significant increase in the individuals signing up and coming into Storebrand as a provider. That is the basis that we are so strong and so focused that we want to work through the corporate relation, the B2 B2 C in one. It's a stronger commercial value proposition, it's a more focused approach, and it's a more cost-effective effective approach.
On the right-hand side, we see also the customer satisfaction, which has been improving, significantly improving through 2012, and we intend to keep that trend. So all of this ends up in our goals. The goals that we have put forward is that we want and have an aim of still to have the number one position in the market when it comes to private occupational pension schemes. That is a very, very ambitious target. As a number one leader, you will always need to be slightly better than the rest of the providers. We think that we have the strategy. We think that we have chosen the right focus. We know from the proven track record in 2011 and 2012, that it has started to yield.
That's why we are fairly sure that this ambitious target we will reach. And I know, it will come a day when we know the answer, but we are confident that that will be the case... Two, we want to have the top preferred brand when it comes to savings to retirement. You need to be top of mind with individuals. We need to work with the brand exposure in the marketplace, and we need to be focused that Storebrand Group is the group when you're after services for saving through retirement.
And three, we want to be top three in our industry when it comes to how we work with Net Promoter Score, as I said, in order to get the customer insight, in order to get the loyal customer to us, because loyal customer means stable customers, means growing customer base, means better financial yielding and results. No common sense could argue something else than that. So that means that we will have a double-digit growth in customers, in individuals coming into Storebrand Group, significantly increase in new customers coming in. We will reduce customer acquisition cost and customer service cost by the strategy and the focus strategy. We will improve our top line with investment. It will start to yield from 2014 and onwards.
We will work, as I have shown you, with our customers when it comes to converting from today's paid-up policies to policy or to products with investment choice. We think, or we know, these are ambitious targets, but well, as I said, we're fairly confident that the strategy that we have put in place will enable us to reach these goals. With those words, I will say thank you, and I will say welcome to Sarah McPhee on the stage. Thank you.
All right, let's see. Hello? You? Okay. Good morning, or soon it's lunch. Just for those of you who don't know me, I do not speak good English. I'm an American, so, don't be impressed. I have lived in Sweden for 32 years, so, I got stuck there. That was just to keep your mind on what we wanna talk about today, and that is what's happening in the Swedish portion of the Storebrand business, with the acquisition which was made five years ago. What I'm gonna talk about today is primarily the transformation to the unit-linked, how we're working on increasing customer loyalty, or for those of you who are fans of MCEV duration, and, how we're working on the conversion market.
It's very similar to my colleague, Robin, and of course, a lot of the concepts that he showed you today are copied in Sweden, or we do them together, basically. I'd like you also to sort of change your mindset immediately that we—when we're talking about guaranteed products in Sweden, the DB reform, the whole DB system was changed in all the agreements, except the bank employees in 2006 and 2008, I'm going to say. So, there are really no active DB schemes except for bank employees, and there. But of course, there are still active premiums going into the DB schemes. So when I'm talking about guaranteed products, it's what Lars was talking about earlier. On many of the slides, you see it. We're talking about fee-based guaranteed products.
That is, where you guarantee an interest rate. You're not guaranteeing a portion of the salary or anything. And as Odd Arild mentioned earlier, those guarantees are at zero. They're not yearly, so it's a different system. So when you see the words guarantee, just keep that in mind. We're talking about guarantees of interest rates. Now, how is this market built up? It's quite different from the Norwegian market. I do believe it's quite different from the U.K. market, because a long time ago, the Swedish corporates decided to have a third-party management of their assets. So they're not. And when they left DB, of course, they left behind this type of profit-sharing that was characteristic. And very early on, the market became individualized. So what does this slide tell us? This slide is a pic...
On the far left, you have. Let's see if I get this right. Yes. Yes. On the far left, you have the annual premium revenues for 2012 in the market. So, the market is divided into three major areas, really. At the bottom, you have what's called the tick-the-box. That is, the unions and the Confederation of Employers create options for anyone who's unionized. And literally, you tick the box. You either do it online, or you get a letter, and you say, "I'd like to save in that company or the other company." You compete to be a part of those offerings. Some of them are open for all insurance companies, and as Odd Arild was talking about earlier, we are now eligible in ITP.
We're in fact eligible in all of the union agreements, and I think they're put up here. At the top, you have the white collar, the soft yellow is the blue collar, the KAP-KL is the municipal workers, and the PA is the government workers. So, SPP can be chosen in any of those offerings, but and so therefore, suddenly you're in a retail type of trying to attract people to make them tick the box. They wanna save at SPP. So I'm gonna talk quite a bit about what are our selling points. That's a portion of the market, about 45% of the market, and then you have the red picture of the corporate pension market, sometimes called the other occupational pension market.
The corporate pension market is both brokers, it's, it's corporations like Volvo and AstraZeneca, who do their own, their own negotiating of pension schemes, but they will never have only one supplier, as they do in perhaps the U.K. or in Norway. It's also small and medium enterprises, so it's a mixture of anything that's outside of the unionized agreement. As you can see, it's a significant portion of the market. We have the retail pension, which is a tax shield, where you can save up to NOK 12,000 deductible per year in the retail market. That's typically more of a bank market, but we are growing rapidly there also. The first point was to say that this market is segmented into these groups, but we have learned, being outside of the ITP market, that it...
To be competitive, it's quite important in your corporate relations to be eligible in all the agreements, and you can move, follow people up their income scale, because sooner or later, their income is high enough that they come into the corporate pension area. So that's one point. And the other point is that 76% of the premiums that we get in SPP come from individual choices. Either they're in a broker offering where they're choosing between four or five suppliers, or they're at AstraZeneca, Volvo, or something like that, choosing between two or three suppliers, or they're in the union, choosing between two or three suppliers.
So it's very important that while we're distributing often through corporates, that we have a retail bent on the way we appear in the market, despite the fact that, unlike in Norway, we have really today no significant retail product. And as you know, in Norway, we have the non-life, and we have the bank, and so forth. And I'll come back to that. Now, how are we doing in this market? Let's see if I can handle this. We are now today, after five years of hard work and lots of advertising as well, one of the leading players in the corporate pension market, which, as you recall, is SEK 60 billion of premiums in 2012.
So the red box in the high upper left-hand corner, or in the upper left-hand corner, shows you that we are now, in terms of new sales, the second main—second largest player in the corporate pensions market. And in terms of premiums, we're still at the fifth, but as you know, these kinds of processes are very, very slow in terms of moving premiums into the balance sheet. But I will show you some of the dynamics behind that when we go farther. So one important point is that we are one of the leading players in the corporate pensions market, and we believe that by being eligible in the tick-the-box markets, we will also be able to attract stronger relationships and create more sales with corporations of the larger variety. And we have...
I'll come back to that, how we're working with the sales processes for the small and mediums. The other point of this is to show what's happening in the Swedish market in terms of unit links. So as I said initially, on the left-hand side, you have the unit link premiums written. On the right, you have the guaranteed premiums written, and that would be both DB premiums and the interest rate guarantee type of schemes, although the latter will dominate in the market, typically. As you can see, the growth in the last five years of the unit-linked market has been very significant and much higher at 7.5%, 7.3% than the guaranteed market.
Even though in the guaranteed market, the light gray boxes shows you that unionized employees are forced to invest in a guaranteed solution in the tick-the-box schemes. But despite that, the growth has not been significant. And the other thing that actually did surprise me a little bit is that typically, when you have these very worrisome equity markets, the unit-linked solutions become less popular. And that did happen last quarter, but which is a little late in the game, to say the least. But that was probably more the fact that Skandia regained some sort of luster, I would say. But in truth, the unit-linked solutions have now become the preferred solution. And that solution is typically not a default portfolio of the type that you see in Norway.
It's a real fund offering where you choose funds, perhaps a little bit more like the 401 solutions in the States, as little I know a little about them. So what's happening to our market share? Well, you might ask, why would I show the picture on the left, where you can see the market share where Skandia is going through the roof, and SPP is the second largest? This is the new sales market share. And as you can see, we passed Länsförsäkringar, which is one of our major competitors, in the last year. But if you look on the right-hand side, you will see that actually Skandia is barely a competitor. I will say they're still on our heels, as you can see, but it's not, it's...
They're losing quite a bit of market share in the unit-linked market, and they're not interested in the unit-linked market. They're interested in the guaranteed market. They're creating a whole new identity as the guaranteed solution, and that is excellent for SPP because we are both in the corporate pensions market. We can differentiate ourselves as the ultimate unit-linked solution, and Skandia can get on with it and be the ultimate guaranteed solution. And you can also see that SEB and Länsförsäkringar, which are major competitors, are losing ground consistently. So we see this as very positive trends for the SPP business. That's the market. Now, I wanna tell you about what are we doing with the balance sheet? What are we doing with the customers in terms of transforming ourselves into a unit-linked corporation?
Odd Arild showed you this picture on the left, upper left-hand side, previously, what's happening to the premiums flowing into the Swedish business. As you can see, we've lost more than 9% of premiums into the guaranteed business, which is exactly the way we want to have it. Equivalently, we have gained 8.4% of premiums in the unit-linked market. Now, if you add these up at home, when you come home and have something exciting to do tonight on Friday, you can add up the premiums to see how things are going. You'll see that, despite the fact that we removed a product, which we now allow people to keep their unit-linked solutions when they've retired, which decreases the premiums into the guaranteed portfolio.
We have d espite the fact that we're not eligible in the ITP, now our premiums are growing again. So they grew by 5% last year, and they look to grow again this year. When we become eligible in ITP, there will be an even more rapid growth. So not only are we shifting the balance sheet, but we're starting to recover from a few of the structural issues that we had initially after the purchase. The other thing is that we have a very happy, solvency-friendly type of age structure in the balance sheet, as you can see by the net flow of assets. Don't confuse the net flow of assets with net transfers alone. Net flow of assets is the sum of pension payments, premium payments, and net transfers. So it's everything that's flowing in and out of the balance sheet.
And there you can see that we have a accelerating and rapid flow out of the guaranteed products, and that will be because of the age distribution that you see on the right-hand side, where you can see that about 5% of the balance sheet will be going into retirement from the guaranteed portfolio each year, these coming years. On the other hand, we have a net inflow, which is growing to some degree into the unit link, and will grow faster if we can reduce the net transfers in the unit-linked solutions, which in every way is related to ITP. Because we've had an increasing rate of net transfers out in the last 3 years, and of those, about 70% are ITP customers who are being stolen away from banks.
Those banks, which are Nordea and Handelsbanken, are not eligible starting in July. So we will have an immediate cessation of that pressure. So what are we selling? Why would anyone go to SPP for their unit-linked solution when there are banks, when there are all kinds of other players out there? Just keep an eye on the time. The first thing is that from the asset management in Storebrand, we have... And partly due to the purchase that we made initially, we have a funds company, which is actually quite unique. Now, just to give you an example of how unique it is, and how well they are doing, in the last two months in Sweden, we had SEK 14 billion going into equity funds from bond funds. Of those, SEK 1.8 billion went to SPP.
That was an 8% market share, whereas others have had. Normally, we have about a 3% market share. So we're growing our market share of the mutual fund market. Now, why are we doing that? Because we have a very aggressive index tracking equity fund, where we have cheaper or more competitive funds. There are funds that are free, but we keep a competitive rate on those funds, and they're very attractive for institutional investors, they're very attractive for retail investors. The head of the Swedish Stock Exchange himself told me he insisted on having SPP because he wanted to have the basic of his pension in our index funds, and that has to do with the fact that you can combine them with active funds, obviously, to create a good portfolio.
The other thing is that the sustainability issue in Sweden is very, very, very big. We are much. We've become very mature in that market. We've had sustainable types of competitors for about 15 years, I would say. But Storebrand is coming with something very unique because we have our own sustainability an analyst, and now we're moving into ESG type of solutions. This is something that nobody can copy because we've been doing it for 15 years, and these are real people sitting with us. It's not an outsourced agency, which everyone else has. So that's the basis. And then we go into the Unit Linked, and what are the selling points there that can be copied or not copied? Oh, we have a diversified solution. Lots of people have that. We choose the best in each category.
Lots of people try to do that, but if you look at the four medals we've won, and we were in second place this year, the four medals are based on the fact that our fund selection capabilities in the team in Storebrand are so exceptional that we beat every competitor every year. That's unique. That's unique. That cannot be copied. And we always have an inexpensive alternative, and though anybody could copy that, nobody does. It's the only ones who do it are the mavericks like Avanza and Nordnet. The next thing is the simplicity, that you it should be easy for you to manage your, your pension. It's very complicated in Sweden because everyone has these unit-linked solutions, everyone changes jobs, and you have lots and lots of accounts everywhere. So you can do the selection yourself.
You can have a managed saving portfolio, which is like, a private banking type of service, which you pay quite a lot for. So if we can get you to start thinking, "Gee, I don't wanna do this myself," you can go from, for example, a margin of about 60 basis points to a margin of 140 basis points when you choose the saving portfolios. And then we have a lifecycle portfolio, which we developed together with a Norwegian lifecycle portfolio, but adapted a little bit to the Swedish, sort of, more equity and more exciting unit link offerings that we use. But it's the same principle, and that's unique because it's every year you can reduce your equity portion. And then finally, we will be developing this year a savings platform.
Now, why would we develop and invest in a savings platform in the middle of a cost reduction? Because we need to increase customer loyalty. It's all too easy to move in and out of companies as an individual, and we believe that we have a, we have a platform now to build ourselves as the long-term retirement savings place, where you can get sustainable investments, you have the best fund selection capabilities, and we have the best call center. Now, you'll probably say, "Who needs a good call center?" This is extremely important. An average Swede at 40 has had eight places of work. That means they can have their retirement savings in 8 unit-linked different solutions. And it's a lot of money. A woman who works on the shop floor will have SEK 1 million when she's 55.
So it's, it's much more important than managing your direct savings, and therefore, it's important to have a call center that can help you understand what your commitments are and where your money is. Where is my money? How is it managed? And that is what the call center in the savings platform will do, and of course, it will be a web platform, and it will have custodial accounts. We hope to have equity trading in it, because as you know, Swedes like to do that. Now, that was our unit-linked transformation. How do we build our relationships with corporates? I think this could be self-evident to most of you, but I think I just wanna point out what's unique in this.
On the one hand, mostly, we are retirement and long-term savings, pension schemes, tax-sheltered schemes, and then we will add a private savings platform. But in the corporate, when we go to the corporates, we can also provide them with insurance solutions. For example, we have our very successful program of executive health, which is really a lot of advice to benefit managers about how much insurance does a CEO actually need? They're usually over-insured. And then we have our consultancy business, which is unique. Nobody else in Sweden has it.
We have our screening, and then we also have an expatriate offering, so that if you are Volvo, if you are AstraZeneca—AstraZeneca is probably not a good example because it's a U.K. company, but if you are Scania, you'll have people who will be moving around outside Sweden, and you can get insurance, life insurance for them and their families through us. I won't go in depth through the slides. Same principle as Robin told you, we have about 20,000 new employees. We have 180,000 active accounts. They're very interested in the retail pensions. We have 540,000 individuals who have paid up policies, which we can work on, and we have concepts, developing concepts, and most of them I've talked about. Most everything on this picture is also. You're now acquainted with.
It's the same idea, just a few different concepts. I just have to get some water. Investment savings accounts, that's what's going to be in the SPP savings platform. Let me check that. Global 100 is the same thing as Triple Smart. But I think the interesting thing here with the SME 5-10 , we're gonna be the first company to fully digitalize all our small and medium enterprise sales processes. So if you start in Sweden, I'm sure it's the same in the U.K., we have an awful lot of white-collar people who get laid off from the banking industry. They start a consultancy with two or three people. Click, click, click, you can get your occupational pension. You probably don't even wanna do anything but click, click, click.
So that will be coming during this year, and then we have the responsive mobile solutions, and that will be in the telephone sometime in Q2. We work very hard on communication about me, myself, and I. Take time for your pension because this is important to manage. It's the most savings you'll ever have. It's all on. You can get it on the unit-linked platform and manage it yourself. All right. That was what we're doing with corporates. That's what we're doing with the unit-linked transformation. You heard about the market. Now you wanna know about the money, the conversion, the solvency issues. How do we talk to... We've been very, very successful in the conversion in the few months we've been doing it, as you saw in the pictures.
I can say that, I get a weekly report on conversion, and the slope of the curve is still increasing. In particular, the efficiency of the slope of the curve, because we're doing. We were, we are succeeding with about 10% of this was being done on telephone. Now it's 15% on telephone, even though the numbers are increasing. But what are we saying to the customers? Well, the first thing that we can say to the customers in the Swedish type of guarantee is that, okay, you have perhaps a 2% guarantee, let's say. So yes, next year you'll have 2% more in capital. If you look at the gray portion of the graph on the left, upper left-hand.
But the fact is, if interest rates are rising, you will start losing your conditional bonus, obviously, because when it's re-market valued, your actual even though you're getting your 2% return, you're gonna lose a lot of the conditional bonus that you've accumulated as an individual. So it's probably better to take your conditional bonus and put it into either you can put it into a non-guaranteed short-term interest rate mutual fund, so you can save for later if you're older and don't wanna take any risk, or you can put it into our life cycle portfolio and get your equity portion reducing as you go forward. The other obvious thing is that we have de-risked these portfolios, and you might want to have more equity exposure.
In the ones with the very lowest guarantees, we have, I think, 28% equities, but for a Swede, that's still an extremely low portion. Don't forget that the government default solution in the premium pension plan is a leveraged equity portfolio. That's what Swedes have in their pension schemes from the government. So, to have 30% equities is really not satisfactory for most Swedes. So that's another option. If you just want to increase your equity portion, you should get into a unit-linked scheme. But the third one, I would like you to look at it because Robin was into the same idea. I hope you can see how this... You have your package. If you click into your pension in SPP today, this is what you see.
And as I said before, it's very important because, you will see—you can click on that thing that says, "Tjänstepension " and behind that, you'll see all the funds, all the returns that you've gotten. It's just exactly like regular direct savings, and that will make you want to move your money to SPP. Because it's so complicated, you really want to be able to see your whole, whole portfolio. And when we set up the savings platform, you can have the same portfolio there so that you have consistent long-term portfolio structure, and obviously, we want to put them into default portfolios with implicit, advisory, capabilities.
The other thing that is truly unique is that you can see which insurance you have in terms of life and health insurance, which I can say that nobody else offers, and most Swedes don't know at all what they have in the way of life and health because it's always packaged with their occupational pension. So the transparency argument is actually the strongest argument for anyone because you see the money, and I think anyone who's left a DB scheme starts to understand this. Swedes have, like I said, been out of it for 10 years. So, how are we doing? I think Odd Arild's already mentioned the figures. We are doing very well. The slope of the curve is also increasing.
We have about NOK 30 billion assets in the guaranteed schemes, and now I'm just talking about the interest rate guaranteed schemes. We have a DB scheme, which we are still looking at, but we have from a legal standpoint, because nobody in Sweden, if DB scheme, it's still a policy. It belongs to the employer, even when it goes into paid-up policy. But we believe we'll be able to create conversion there, too. We have about NOK 30 billion assets that we know are potentially convertible. 12 of those, Alderal said 12 of them were in ITP, but that's including the unit-linked portion of ITP. We have almost NOK 9 billion in the ITP scheme. So from the first of August, we can start talking to the ITP employees that are at SPP, or customers, excuse me.
And we think maybe we can, we can convert somewhere around 20% of that. So, and so far, we're almost on track, and we just started. And as I said earlier, the call center started by being 10% of the conversion, now they're 15% of the conversion. And to another interesting aspect of it is that actually, sales are increasing. The sales director said, "I wanna have lower sales targets while we're doing the conversions," but actually, they're selling more than they have previously because of the conversions. So it's been a great way of building relationships for us. 7,300 individuals have converted. So finally, back to what Robin was talking about, we can't have the ambitions of Norway because we're not a market leader yet, but we have still very ambitious targets to be the top three within corporate pensions.
You saw that we're there basically in new sales, but we want to get there in premiums as well. We wanna be top three in preference, and we want, obviously, to have our net promoter scores up a lot higher than they have been traditionally, and I think we should hope to see it in the next measurement. But for MCEV and for all kinds of reasons, we need to increase customer loyalty. They need to think of SPP as their permanent savings house, and we would like to have a 20% market share of corporate pensions in unit-linked, and of course, we will want double-digit growth in unit-linked every year until 2016. Thank you very much.
Okay. Can you hear me? It's better, yeah. I'll be very quick now to leave time for questions. I'd just like to sum up very briefly. And first of all, I'd like to give you our financial target that we've met to the market within the fourth quarter. It's more or less restating the previous one. Expect a lower return on equity target than historically. Storebrand are now in a period of rapid changes in the pension industry, and we will change, too. For a period of time, we will see impact on return on equity, but also, as Lars showed you, there is an upside when we are getting these lines to cross each other going forward. So there's a lot of change taking place for the life and the pension market in Scandinavia, and especially in Norway.
Among others, need for longevity reservation, a new set of product legislation, and still unclear transition rules. What we have said today is not that you should neglect these changes. We are certainly not. But what we are been telling you today is how we, through several measures, will work to optimize the operation and reduce the risk from the old participating business, focusing on our measures like risk reduction, cost reduction, and product and capital optimization. But we hope also that we have given you the insight in the upside, because unlike the pulp and the paper industry, the pension market is growing. It's growing rapidly, and Storebrand is very well positioned as a top pension provider in the part of the market that is growing most rapidly, namely the defined contribution market. And we will actively grow the capital light products offering further.
Storebrand will succeed in maintaining the first position as a pension provider for Norwegian and Swedish corporates. But also be more focused on being the individual's preferred pension provider through our market concepts and to the employers of our corporate pension schemes. So now we have described the market we operate in and the major trends. We are not able to give you all the answers today. Much of the regulatory framework is still in the making. However, what we can assure you is that, independently of the regulatory changes, Storebrand will strive to achieve our goals every day, namely, to be the most recommended by our customers and to optimize businesses to create shareholder value. Thank you for that attention today, and then I'll ask my colleagues to enter the podium and open up for a round of questions.
Thanks. Peter Elliott from Berenberg again. Just, just one question on the advice, Robin, that you're giving in Norway. I mean, we've heard before that you are sort of talking to customers and laying out options. But I hadn't heard before, it was new to me, that, you know, where potentially there's 30% upside, you can actively advise them, you know, that this could be a better option. I'm just thinking ahead, you know, if equity markets don't pan out as planned in the assumption, what is the risk or what's the regulatory framework around life companies giving advice? And you know, what is-- why should we not worry about a mis-selling claim further down the road?
I mean, there's, if you go back then, some years, 2008, 2007, 2008, and 2009, there's been a lot of cases branded as mis-selling. That's why we're very, you know, sort of, transparent in the advice that we give to customers. Now, when it comes to the NOK 70 billion, which I mentioned, I mean, the kickoff hasn't started yet. We are based on discussions that we have with individuals, because this is an individual decision. Frankly, it is a value proposition based on the calculations and assumptions you put into the equation, that basis is the ground for those bases.
And the feedback, based on the customer insight, because we have had an interview with, it's actually 3,000 individuals on this before we came out with a suggestion, is that that level of consistency and a value proposition will be the level that we will go out in the marketplace, given that the regulations doesn't come up with even more, if I can say, surprises than what's on the table today. But the start button has been pushed, and it will probably not be pushed until the start of 2014, as we think it will be now.
I think also add that, if you look at what happened in the market from 2006 to now, with the MiFID regulations coming into place, with a whole new structure of how this really is taken out in the different companies, there is much more robust systems for that kind of advice from the corporates. And also, the regulator is very clear about these issues, that it should be documented, internal control around it, to be able to do this advice from guaranteed to non-guaranteed products. And as you see also, as Robin has put in, quite a high margin to be able to give active advice. And then, of course, it's opportunities for everyone if they choose themselves to do a change. And Storebrand will not be the only player in this market.
This will be a tremendous interesting market for a lot of players. We, of course, hope to convert as much as possible from our guaranteed to non-guaranteed products, but of course, being a high market share as we have in these paid-up policies, we also expect that other players will take a part of this market going forward.
Hi, good morning, David Andrich from Morgan Stanley. Sorry, could you just remind us when the price increases on the guaranteed products are going to be coming through? Should we start to see that in kind of Q1 of this year? Second, when should we expect to see further news in terms of the restructuring in the Norwegian business? And finally, I was just wondering, in terms of the ITP pension platform, what kind of retention do you expect to see coming through from the electability there? And when do you expect to see that happen? Thank you.
If we start with the first question, if you meant the price increases in the guaranteed portfolios in Sweden, is that what you're talking about?
For the Norwegian business,
Oh, okay.
Or either, I guess. Yeah.
Or maybe that was... I think maybe Odd Arild was talking about this. We'll figure this out. Anyway, in Sweden, we raised prices for the guaranteed business. I think it's about eight months ago now, and we also have another... I'd have to check the figure, but we have another over NOK 10 billion from customers, which we did not raise prices for, due to, if I call it, sales attitude or customer relationships. And we are going to review those. So, we believe that we can increase prices in the guaranteed portfolios further. But that's, of course, much more of a question of long-term sustainability of the business, because it only is on new premiums. It's not previous premiums. And your... If I do the ITP, and then we hand it over to the Norwegian.
The ITP platform, if you say that the retention, we're losing about, in the lapse, the lapse assumptions that are in the MCEV are about 4% on Unit Linked. And if I said that 70% of those who leave us in Unit Linked are ITP, I can't do the figures in my head, because ITP is only, what did I say? NOK 12 billion. And that, that means that a huge portion of ITP has been going out the door during this period. So I'm saying that I would anticipate that our retention would go back to normal levels, which is probably about 98% or something like that. So we would halve again that kind of lapse, and that's because there's only one bank eligible in the ITP.
Obviously, the banks have a very good opportunity to work the customers, and that's Swedbank, and they do not have the base of these customers, basically. So, all things considered, I would assume from August next year, we're going to see totally different transfer rates. But of course, I will have to verify that when the time comes.
In terms of the price increases for the guaranteed portfolios in Norway, we did the price increases in the fall, and they will come through in the first, second, and third quarter during the year. And we will do additional price increases as a result of the new mortality tables and also update everything else. However, you must also remember that 75% of the customers are now in DC, so new premiums in defined benefit are going down. So we increase the prices, but on a lower volume.
When it comes to the organization, we are gradually working with that now, had already introduced this in Sweden. It's absolutely change we like to do during this year, so we are in the phase of working with the organization and be much more clear about what is guaranteed and non-guaranteed business.
It's Bengt Kirkøen from Swedbank First Securities. A question related to the conversion of the paid-up policies and the longevity increased provisions. If a client wants to convert his paid-up policy to a non-guaranteed product, do you then have to reserve, make the total reservation on day one? So if you are successful there, then you have to make the reservations earlier than over the five-year period.
That is a very interesting question. The regulator has been very clear when they came out with the numbers a week ago, that they have not looked into the transfer market implication of it up to now. They will come with that later on. Today, that is unclear. Of course, we believe that there need to be some part or compensation for the ones that moves from a paid-up policy into a paid-up policy with a investment choice. How this really works out and how this is going to be working in the market with equity portion and also policyholder portion, that is unclear today.
Thanks, thanks very much. Blair Stewart from Bank of America Merrill Lynch. I was also going to ask that question. I think it's interesting, and it seems very likely to me that you would have to-
Very-
It seems very likely to me that you would have to make the, the longevity, the provisioning fully good before any, any transfer, but as you say, there's uncertainty. Mike, a couple of more questions. Your ROE target was set before the news recently on longevity. So, you know, how do you feel about that, given there's an additional NOK 230 million reduction to profits? Should we be excluding that because it's perhaps a short-term issue? First question. Second question is on going back to the value in force. You've got 12 billion, roughly, of value in force on DC. And I was looking just to see what the profitability of the DC book is today. It's maybe NOK 150 million pre-tax.
Just trying to link the two. I mean, there's a big difference there. I guess there's future premiums coming in, but it's just a huge difference between this. I know people are living for a long time, but, anyway. And finally, just on the capital structure of the group, you've not talked about that today. You've talked in the past about possibly reviewing that, given the tax changes and the way that the SPP transaction was financed to take advantage of tax rules at that time. Those have changed. How comfortable are you with the capital structure of the group? Thanks.
I can do the ROE target, and you do the rest, Lars. When we put this ROE target, we take into account that it was a supply from also the shareholder into that reservation. So that was taken into account, and when we put the 10% goal into the market, that was a part of the calculation. Somewhat higher than we had expected. That means that we have to put even stronger emphasis on the cost program and the additional cost program that also have introduced today, and also with the other margin elements that we have been talking about. But 10% return on equity target, that stands also with the new longevity legislation in place.
On your second questions on Embedded Value , your observation is good, obviously. The fact is that when I mentioned that the steady state assumption, where you have a person in a defined contribution scheme, and that person leaves the scheme, is being replaced by a new person coming into the scheme. At the same time, the person leaving the defined contribution scheme goes into a pension certificate, is what we call them in English. And as I also mentioned, the pension certificates are rather profitable. Also, we see the turnover of employees in these businesses with the defined contribution schemes and the production of new pension certificates.
So that's important parts to get into the equation and then look at the length of how long they will stay with us. And the pricing of pension certificates, we have very competitive prices on that in the market, around 75 basis points in a fee, and then a fixed charge for the administration cost. And there are a number of small pension certificates that's generating a lot of small fees. And the third question was...
Capital structure.
Oh, capital structure. Yeah. I, I think I showed you a picture, under other, my second last picture, saying that having the optimal capital structure and financial structure is important in terms of value creation going forward, indicating that we obviously will look at that, in, in light of the tax changes and, and other changes taking place. And we'll revert to that as soon as we have something meaningful to say about it.
Okay, thanks. But maybe while I've got the mic, just a last one, final one. You've got a cost base of NOK 3.6 billion. If you look at that against the technical reserves or whatever, it's about 100 basis points cost base for the company. I can think of worse cost ratios, but I can think of better ones, too. How do you think about that 100 basis points as a, you know, as a base?
It's too high.
Correct. But by the-
That's why we have the cost programs and the growth programs, and the two taken together will reduce the cost level significantly. And the cost ratio that we show in the life companies is around 70 basis points rather than 100 basis points. And that's competitive according to, amongst other, HSBC study that was done, recently. However, it has to go down, and it will go down.
Okay, great. Thanks.
Thank you. Fridtjof Berents again from Arctic Securities. If we just go back to Sweden, because I've... It was a very interesting presentation there. If I recall correctly, when one moved into SPP, at that time, the tick the box market was one of three bullet points for expanding Sweden or Swedish exposure. Then one lost, if I understand correctly, lost a little traction of the market when one lost out of SPP in December 2008, I think it was. Now you're moving into ITP again. Explain—when we go back to 2009, I think the explanation was also slightly that the margins were so much under pressure, so you didn't really cry any tears of falling out of that part of the business at that time.
So the first question is, are there any changes, as you see, to the market now, when it comes to fee structure and so on, making this more interesting now? The second question relates to the corporate pension market, as you mentioned, Volvo, AstraZeneca, those type of products. Because if you, if you're interested in getting more of those products, the transfer market could be of importance. Transfer market has been not very significant in Sweden for many years. There is a new report out, and there's a debate in Sweden now, if I understand correctly, going on now, about the transfer market. If you could please just update, update me a little or us a little on, on that.
Okay, we learn things, too. I think that's the answer to the tick-the-box, and what's the- How do we look at the tick-the-box market today? First of all, we thought the tick-the-box market, as did all Swedes, we all thought the tick-the-box market would take over a lot of the market, but there is really not that trend. It will obviously become signi- maybe a little more significant, but it hasn't grown faster than the corporate pension market. The margins are not high in the tick-the-box market. They're very low. But on the other hand, the distribution is fully electronic, so it's a que- it's questionable that it's really might have s- a pretty good margin relative to corporate pensions because there are no whistles and bells and so forth. It's really just a savings platform that you're offering.
And where we land in this is that in order to retain all of our customers, number one, you have to be eligible in all the platforms. That way, you're not gonna be raided all the time by those who, for three or four years, have eligibility. And for us, ITP is the most important because our history is the white-collar agreement. The other aspect of it is that as time has gone by, we have more and more realized that SPP's brand has a very strong relationship with the corporates. When we do these NPS studies and any kind of study we do, including our consultancy business, corporate benefit managers, SPP is on the top of their list. So they, all they want is for us to have good products, good services, and so forth, so that they can continue to use us.
But for them, if they're gonna sell in SPP as one of their providers, it's very important that we can cover all of the employees. So this eligibility is really a lot about a window. We won't be able to acquire new savers in any great extent because the way the unions have structured it, very, very political, it's almost impossible to choose as a new... You have to sit down at home and say, "Gee, I really wish I had SPP for my occupational pension. Where is that site? I go to that site, and then I'm gonna choose it," and so forth. And that's the portion which has become more and more politically tweaked, so we don't believe that it's going to be any enormous acceleration in new, attractive tick-the-box individuals.
But we do believe that going over the corporate relationship, we can drill down and be able to give on-site advice to all employees. Let's see. That was one. The other one was the transfer market. The reason the transfer market is not that huge is because most of the companies do not allow net transfers, so for anything prior to 2006, and for other—and lots of other barriers. They can charge exorbitant transfer fees and so forth and so on. So the minister doesn't like this, and there is now a process to create legislation to allow for free transfers, not free in without fee, but freedom of movement. And we're right in the middle of that lobbying situation.
What is, what is pretty clear is that it will be retroactive transfer possibilities, everything will be transferable, and you'll have to have transparent pricing on those transfers. Except for the DB, the real, genuine DB schemes will probably not be transferable, although we are lobbying for that. I think this will change the dynamics of the market, definitely. I think SPP is well on the road because we are the one—we and Handelsbanken are the only companies that allow full net transfer. It's part of our transparency identity that we're driving with the brand. But it will also mean that we need to work even more with our distribution strategies and our strategies for customer loyalty, and that's where the savings platform comes in and the sustainability identity comes in.
It will be very, very important to create customer loyalty. So that's... But net transfers 2015, there will definitely be a loosening up.
Good afternoon, Thomas Svendsen from Nordea Markets. Question to the bank. It seems quite light capitalized, especially if you consider the new stricter rules for market weights in Norway. So what is your plan there? Is it to run off the corporate part of the bank to release capital there, or do you plan to do equities in the bank by the mother company?
You're talking about the comment around the corporate bank portfolio. What I said was that we will reduce the capital attached to corporate loans. It's clearly not an integrated part of our strategy, and it's not supporting what we have been talking about here today, so we will reduce, reduce that going forward. In what shape and form we are doing that, that is a bit open. We are working with that internally, and we will come back to you more about when that really unfolds. It's a lot of opportunities that is open, but you will see that we will reduce the size and also the capital tied up in corporate banking going forward.
And if I may add on, the retail bank, we have applied for IRB, but we have not received IRB confirmation yet. And therefore, we already have a risk weighting of 35% for our mortgages and retail lending, and therefore, this is not going to be a penalty of the new set of rules. We won't get the capital release that we were expecting, but there won't be an additional need for capital in the bank as a consequence of the interpretations these days.
Okay, but if the target gets 12.5%, there's another target. There is a different, much lower target on the transition rule, so-
Then we're already pretty close to that target, and we are releasing capital from the corporate bank, as Odd Arild just said, so we should be okay on that.
Just another question on the long life again. To what degree do you think the 20% on the 5 years are up for discussion?
We look upon this as the way we are now transforming or putting our plan into the market. Of course, this has been discussed between the Minister of Finance and the FSA, so this is the rule that is put forward. It uses the expression should and not shall, so it is opening in the way it's put forward to the market. I don't think it's the time to be really thinking too much about that. This is what is put forward. This is what we prepare for. If there come changes or another situation, there is some opening in the way it's written. I think we'll cross that bridge when it comes.
I think we have the time for our... We are past the timer, we have time, but let's have one final question over here, and then we round up and have some light lunch. And of course, the management will then be available also for questions out in the lunch area.
Yeah. I'm Vegard Toverud from Pareto again. Could my question have sub-questions?
No.
Okay. Could you just give us a... You indicate that your pension certificates have a fee level now of 75 basis points, administration fee in addition. Could you give us an indication of what those pension certificates could earn forward if we're thinking about the new pension certificates? So on top of the 75 basis points, if that will be the same level, how much could you have on the administration side?
We go on capital certificates, right? So the capital certificates is what comes out of the defined contribution plan today. The future is going to be pension certificate coming out of the guaranteed plans, with or without a sponsor, or with or without investment choice. I cannot say exactly what the new products are going to look like. That's still in the regulatory process. In terms of the certificates, the capital certificates that we were just discussing, we have a customer-friendly and competitive pricing today, and the competitive situation may change in the future.
Thank you.