Good morning, ladies and gentlemen. Welcome to Storebrand's Third Quarter 2012 Conference Call. My name is Trond Eriksen, I'm Head of Investor Relations at Storebrand. Together with me, I have Group CEO, Odd Arild Grefstad, Group CFO, Lars Løddesøl, and Managing Director of Storebrand Life Insurance, Geir Holmgren. As we have notified, the slide presentation will be running on the webcast available on www.storebrand.no/ir. The slides are similar to the analyst presentation released this morning. In the presentation today, Odd Arild will first give an overall view of the development in Q3, before Lars will give a take on the operational result development. Odd Arild will then give an overview of the measures Storebrand are implementing to improve operations and prepare for Solvency II. After the presentation, the operator will open up for questions.
To be able to ask questions, you will need to dial into the conference call. I will leave the word to Storebrand's CEO, Odd Arild Grefstad. Mr. Grefstad will now present the second quarter result for the Storebrand group, starting on slide number two.
Thank you, Trond. Then we'll start on slide two on the results. The results for the quarter show an underlying good development, despite the NOK 181 million charge to cover restructuring costs in accordance with the ongoing cost program. year-to-date, results before profit sharing and loan losses have grown by 19% compared to the same period last year, again, excluding any restructuring costs. On the operational side, as communicated in the presentation, for the second quarter, Storebrand have a wide range of measures and their implementation to adapt the business model into Solvency II, and increase the robustness in a low interest rate environment. Let me quickly mention some examples of implemented measures in the third quarter. The cost program is launched, and new initiatives are being implemented.
We implement price increases for Guaranteed products, both in Norway and Sweden, and we introduce new products and advise customers who will benefit from it, to move from Guaranteed products to Non-Guaranteed products in an expected higher return. In September and October, we have moved around NOK 500 million in Storebrand SPP to these Non-Guaranteed products. Positive equity markets, combined with the credit spread contraction, have led to a strong value-adjusted return this quarter and year-to-date. In Norway, this has led to a market value adjustment reserve of NOK 2.4 billion, and also a booked return above the guarantees with an undistributed return of NOK 1.1 billion. These two elements together are important buffers that can be realized in the fourth quarter.
On top of this, we have seen the health maturity reserve been growing by NOK 3.5 billion - NOK 5.3 billion. In Sweden, the conditional bonuses has increased so far this year by NOK 1.2 billion- NOK 8.4 billion. Altogether, a strong increase in buffer capital during the year. We move to slide number three. As a service to the analysts following the company, we have now added a column showing the third quarter results, excluding the restructuring costs in connection with the ongoing cost program. This makes it possible to look at the underlying results comparable from quarter- to- quarter. We see that the life insurance, bank, and not at least the Insurance segment, shows very strong results improvements this quarter.
The only segment with a disappointing development is Asset Management operations. We expect higher results than around the twenties on a quarter basis. We see that the income is reduced because of customer allocation from equities to fixed income. Costs, on the other hand, have increased due to adoption to new regulatory requirements. We also see that we have allocated NOK 52 million of the charged restructuring costs to Asset Management. This is a clear indication that we have a clear target for substantially cost reduction within our Asset Management business. We move to Lars.
Hello, I would like to start to jump over the different business units and go directly to the Storebrand group operational reporting on slide number 9. As you can see, the group result, or with this, this overview, you can see the group result split into the different components driving the earnings in the company. The result before profit sharing and loan losses is increasing, even if you include the provision for the cost program of NOK 181 million. Excluding this charge, there is an underlying growth of 19% year-to-date, which is quite strong. The fee and administration result shows an improvement in the quarter and has increased by 5% so far this year.
The increase is slightly lower than we have indicated previously, as a result of the lower income in the Asset Management company. However, as a result of the forward income projections, we can expect to see continued growth in this, in the fee and administration income, and with the cost programs implemented, the cost level should go down so that the fee and administration result will show a strong result in the years ahead. In the quarter, the holding company and company portfolio results are good, especially there has been a very strong return in the company portfolios, both in Norway and Sweden, which gives a good result from this business line. There is also lower cost in the holding company as such.
The net profit sharing and loan losses shows a good result after profit sharing in the Swedish business as a result of strong returns there. Flipping over to the next page, key figures. We see that the result before profit sharing and loan losses, the blue element in the graph on the upper left-hand side, shows a satisfactory development, excluding the one-off charges, and the quality of earnings continued to strengthen in the quarter. Looking at earnings per share is NOK 0.87 after tax, before amortization. If we were to include, if we were to deduct the amortization, the result would be NOK 0.63 per share. The tax charge that we have used in the quarter is based on the old tax rules.
New tax rules were published on October eighth, and we will spend fourth quarter to implement the, implement them in the tax reporting that we have going forward. However, I would like to emphasize that we maintain the guiding on a tax charge of 20%-25% of the result before amortization. Furthermore, I would also like to reemphasize that we had NOK 7.7 million in net tax carryforwards at the beginning of the year, which will make us not have a payable tax charge for a number of years to come.
If we look at the solvency ratio and the solidity capital, the solidity capital has strengthened significantly in the quarter with a surplus return, with increase in the customer buffers in Norway and Sweden. And the solvency position has strengthened somewhat despite the growth in the balance sheets in Norway and Sweden, as well as the somewhat lower interest rate level in Sweden. So the buffer situation has developed favorably during the quarter, and I'll give the word back to Odd Arild.
Thank you, Lars. We move to slide 12, with the heading: Storebrand towards Solvency II. In connection with the release of the second quarter result, I spent some time on the main levers to transform the business from Solvency I to Solvency II. I will again focus on our internal measures that are being implemented to improve our competitiveness and comparability to the Solvency II world. First, one minute on the domestic and the EU level. First of all, the work to transform the Norwegian occupational pension system is still ongoing. This autumn, the Banking Law Commission is working on conversion routes for existing pension liabilities within defined benefit into the proposed new hybrid products. Of course, this is a challenging and complex task, but we have no reason to believe that there will be any delays.
So we still expect the new proposal to be out in the market before year-end. When it comes to Solvency II process, on the EU level, there's already been postponements in the process. Because of the delays we now see in the Omnibus II process, it is highly likely that the Solvency II, highly unlikely that the Solvency II will be implemented on the first of January, 2014. It's still not clear will if it will then be in 2015 or 2016. But it's quite interesting to read what Carlos Montalvo, the executive director of the European Insurance and Occupational Pensions Authority, the EIOPA, said some days ago. And I read from the paper, Mr.
Montalvo said, "If we were going for 2015, everything would have to be perfect, and only my wife is perfect." Adding that he expects Solvency II implementation now to be delayed until 2016. When it comes to Storebrand, and our perspective, we, we feel it's very important for us to keep up the momentum in the Norwegian legislative process, regardless of the European process. It also makes very much business sense for us to fulfill our cost programs and also do the conversion of the business into a more capital-light environment. So we have full focus on our internal measures towards 2014. I will spend the rest of the presentation now on our internal measures, moving to slide 12. First, let's remind ourselves of the ambition.
We have a clear target to manage the transition into Solvency II without raising new equity capital. Last quarter, we went through the four main categories to fulfill this ambition. First of all, capital optimization. These measures aim to take the capital in the group available under the coming Solvency II regulations. Then we have risk reduction. Main purpose is to adapt the asset allocation to the characteristics of the liabilities. This typically includes increased duration and reduced allocation to equities on a product level. Then cost reduction, reduced costs and increased profitability increases available capital with our own funds multiplication.
Then on the product side, this includes both moving customers to profitable products under Solvency II, but also changes in product terms and conditions and prices is important to increase the capital situation towards Solvency II. This quarter, we have worked with these different categories, and let me give you some examples of what we are implementing and have implemented already. Let's start on slide 13 on the cost program. Last quarter, we announced the target of annual cost savings of NOK 400 million. We'll then have a cost base in 2014 of NOK 3.5 billion. Focus in the third quarter has been to identify the levers to reduce costs to reach this target. As you see on the right-hand side, we have identified 75 different measures.
12 of them already have been implemented, as we show on the graph. We follow this on a monthly and quarterly basis to make sure that we fulfill that full cost savings of NOK 400 million. There's also a lot of focus on develop new tasks and measures that can make sure that we get the NOK 400 million and even more going forward. We have also been now clear to take the restructuring costs on the company level, adding up to NOK 181 million in connection with the cost program. The measures are ranging from a lot of different elements. Most important is, of course, the manning costs and also cost of sourcing of IT systems, and so on.
We gave the number of 300 people in the reduction to fulfill the NOK 400 million obligation. We have already, during the third quarter, been able to have voluntarily a layoff of 80 people employees to fulfill this cost program. Going forward, there's a lot of other measures in pipeline, and one of the important measures is to scale up our operations in Storebrand Baltic. This expansion will reduce the numbers of employees in Norway and Sweden accordingly. There is a complete cost breakdown in the provided in the appendix of this presentation that makes it possible for you to fulfill or follow the cost reduction program on a quarterly basis.
If we then move to slide fourteen, we implement, implement also forceful adjustments in the pricing of the Guaranteed products. This approach needs reviewed in a, also in a Solvency II context. As I said, in the second quarter, we have already introduced the increased cost, the increased prices on the public sector pension. This quarter, we also introduce a 20% lift in the price for interest guarantees and profit for risk. We also introduce a 2% upfront fee for all new Guaranteed paid-up policies that is issued from the first of March 2013.
There's also different measures taking place in SPP on the Guaranteed business, a 15% increase in management fees, and also doubling on the fixed fee on the different contracts. Altogether, this is forceful measures that is important for us to increase the profitability in the products and reduce the total capital need in the products in themselves. If we then move to slide number 15, and we see that the reduced cost and increased prices are two measures to improve the product profitability and strengthen the capital position under Solvency II. Another measure is to move customers from Guaranteed to Non-Guaranteed products. The benefit for the customer is very much that they will move into products with higher expected return.
Considerable sales force efforts in the quarter have been focused on moving customers to Non-Guaranteed products. Altogether, we have moved in Storebrand and SPP around NOK 500 million in these six weeks, altogether, really to make sure that we are able to lift paid-up policies in Norway from first of January 2013 into investment choice type of products. Let's move to slide number 16 to look a bit on this work. First of all, we have the products now clear for the customers. We use very much of the same products we do for defined contribution products, but we have also introduced a new life cycle product that is very well adapted into the new paid-up policy products.
We also have the marketing campaign and the sales campaign ready to launch, and very much our retail sales force is focused on this task during 2013. The operations are pretty a team in place to ensure a smooth writing on new contracts and IT solutions for the electronic conversion are also in place. Some more details on this. This is a big operation for us. We expect to send 220,000 letters, and around 30,000 emails, 220,000 calls, and arrange 42,000 personal meetings during 2013 in this campaign. I think I then move directly from slide 16 to slide 18 to sum this up. In total, this is a good quarter.
We have strong customer reserves and good underlying results. And especially, we see a strong development of the high quality earnings during the quarter. We have a significant strengthening of the balance sheet buffer capital, as I already have talked about, is increased a lot during the quarter and give flexibility during year end. We have also implemented a number of measures to create a more robust Storebrand. It's cost reductions, it's pricing elements on Guaranteed products, and it's moving customers from Guaranteed products to Non-Guaranteed products. And we are also ready and prepared for the battle of moving paid-up policies into paid-up policies with the investment choice from the first of January 2013. Thank you.
Thank you, Odd Arild. The operator will now open up for questions. To be able to ask questions, you need to dial into the conference call.
If you have a question, please press star one, star one. First question. Matti Ahokas, Handelsbanken.
Go ahead, please.
Yes, hi. Two questions, if I may. Firstly, on the Solvency II issues as we've discussed. What do you think, this continuous delay of Solvency II, how do you view it, from your point of view? Is it positive or is it negative? And how should one take it, this into account with the dividend payout of this year and next year? Obviously, you don't know which solvency regime to look at, and so it would be very interesting to hear your thoughts regarding this, and especially the dividend payout for this year.
Because, last year you said that the uncertainty regarding Solvency II was one of the reasons why you scrapped the dividend. And then the next question is on page number 14, a very interesting slide, by the way. What is the net impact of all of these, and how should one look at this, price increases? Does it mean that the, that the admin result on these different product lines goes up by, for example, in the, in the Defined Benefit, public sector by 25% or the premiums? It sounds good, but how should one, factor this in, into the model, and especially the result per product line? Thanks.
Thank you, Matti. Well, as I said, when it comes to the Solvency II process, we are very much doing in our balance sheet and also with our cost programs what we feel is the right thing to do with the business anyway. And we prepare with the same speed as we done if we thought the Solvency II would be in place in 2014. So this is the right direction for the business anyway, and we have full speed ahead of these different tasks. When it comes to dividend, we have already said that our main purpose is, of course, to make sure that we have the right capitalization into the new regime.
Then again, we also said that it's an abnormal situation for us not to be in the market paying dividends. And there's a lot of elements going on now. We have the new rules from the Banking Law Commission coming in the two months. And I think we have to revert to that situation saying that there is not a natural situation for Storebrand not to pay dividends. And I then think Geir likes to answer a part of the pricing issues.
Sorry, if I just may, may on the first question. But do you think it's positive or negative from your point of view that Solvency II is being delayed?
Quite balanced on it. On, on, one side, I think, of course, it's positive that the regulatory framework itself has a longer view, that is not a regulatory constraint that meets us on a very early stage here. We have more time before that becomes a real, a boundary on the, on the business, so to say. On, on the other side, of course, it's not good with the uncertainty. It's been uncertainty around on changes in the regulation on the EU level for a long time now, and uncertainty around future regulation is, of course, not a good thing in itself.
But anyway, I think the totality of it is we view it as slightly positive because we now have the time, and we also do the right measures without losing any speed in that direction, towards the right way of running the business that is very much aligned with the Solvency II regime.
Great, thanks.
Okay. The income from fees for the interest guarantee and the risk profit margin is on approximately around NOK 550 million on a yearly basis. But there will be a lot of changes in the balance sheet during 2013, because we expect transfer out for in the public sector approximately NOK 5 billion-NOK 6 billion during 2013, as a result of the pricing increase in that sector. In the private sector, we have the new fee on new paid-up from the first of March, and increase the level of the pricing for the interest guarantee. But it's hard to say that the effect during 2013, because we expect a lot of clients will actually convert from DB to DC.
During the last year, we have seen that on an annual basis, approximately five, around NOK 6 million have been new paid-up because of clients transferring the pension scheme from DB to DC. Our experience is that the clients actually do that in the beginning of the year, about 50%. The transfer out will probably happen during January and February in 2013, and the new fee for the pay debt will actually not apply for the pay debt from these transfers. Summing this up, we can probably expect an increase on the total income from the fees from price guarantees, interest guarantee, and for the profit margin. I expect perhaps closer to NOK 50 million a year than to NOK 100 million.
But as I said, it's a very hard number to estimate, and has a lot of uncertainty connected to it.
When it comes to the Swedish business, I think the measure is all together here is a net effect of around SEK 20, 20 million.
Great, that's very helpful. '
Next?
Robin Buckley, Deutsche Bank.
Go ahead, please.
Yes, good afternoon. Just a couple of questions, if I could. First of all, I didn't catch in that answer just then, but did you give a figure for how much of the Defined Benefit funds you expected to leave as a result of price increases? I thought I heard you say NOK 5 billion-NOK 6 billion, but if you could perhaps just confirm that. The second question is just related to what scope there is to increase pricing in your products from any other actions as well. And then the final question is just related to the upcoming Banking Law Commission report. Do you have any indications of what direction the thoughts are going, or any sort of update you can give around that? Thank you.
If I just try to sum it up, I think, first of all, we talked about the public sector in the second quarter, and of course, what we did with the price elements there was very clear about the going out more or less from the public sector Guaranteed business. And we expect that to leave us in a situation where around NOK 5 billion-NOK 6 billion transfers out this year. When it comes to the price issues, that is the down bulk when it comes to the public, the private sector, for the increase of the price of the interest guarantee, and also introducing this fee on paid-up policies. That is very much aligned with what we see other players do in the market.
So this is not increasing in our mind, the transfers from DB into DC in itself. But there is, of course, an ongoing process, that we have seen already for years, that there has been closed DB books and a start of DC books in itself. But this price element is also very much what you can expect to see with the low interest rate level we have in the market, and with the right price of the interest rate guarantee going forward. So I think the sum of what Geir said was that all the balances going forward and use the numbers from this year, you could expect maybe NOK 200 million in increased results.
But because of the movements in the balances here, we expect that to be a lower number, mainly because of the outflow in the public sector, but also because of the conversion we see on other elements, and also the introduction first from first of March on the paid-up policies. So it is more likely to be around the NOK 100 million number, I think, for the Norwegian business. Then you have the NOK 20 million on the Swedish business on top of that. If you look at all the price elements, of course, there is a lot of price elements, both in Norway and in here. We have now been running through very much of the Guaranteed business at the price adjustment that we do on an annual basis on the defined benefit scheme.
And so is a new price element based on the solvency fee on the paid-up policies. We have a lot of tools, of course, available to pricing. This is what we now introduce for 2013. Of course, there is a competition also going on here, and we have to look at the competition in the markets as a part of all of these pricing issues. Then the last question was about the Banking Law Commission. The Banking Law Commission. Yes, of course, the Banking Law Commission now is working with a third phase of the work. First phase was paid-up policies, and we expect the law to be clear now on Friday.
Then the second phase was to introduce the hybrid products directly before summer, and we expect them now to be able to be out in the market with the conversion rules from DB into the new products by year end. I would say it's a process with high speed. It would not be right from us to comment on have any speculation, I think, about the process at this stage, but we expect to have the outfall from that before Christmas.
Okay, thanks very much.
Next?
Blair Stewart, Bank of America Merrill Lynch.
Go ahead, please.
Thanks very much, and good afternoon. A few questions from me. Just picking up on the impact of the price increases that you're putting through. Just to confirm, you did comment that you thought that you were moving in line with competitors. That was the first thing I wanted to pick up. Secondly, on the paid-up policies, the 2% upfront fee, I just wonder how significant that is, given there's hardly any new paid-up contracts at the moment, I believe, and probably even fewer going into the future if the legislation goes the way you expect. So just trying to get some clarity around there. And I suppose more generally, there seems to be a lot of moving parts on your profit expectations.
You know, you've talked in the past about the business being capable of generating around NOK 3 billion or so of earnings. I just wonder where we are relative, you know, to that number. Are the cost cuts and the price increases that you're implementing intended to maintain a business that can earn, roughly speaking, NOK 3 billion of earnings before tax? So sorry, that's a very detailed first question or set of questions. The second one is really just drilling down into the Investment Management business. This is a business that's been earning of the order of NOK 250 million-NOK 300 million. You know, clearly, we're a fraction of that level at the moment in terms of run rate.
I just wonder how quickly you're expecting that to bounce back. You know, what is your thinking in terms of the outlook for earnings for that business over the next couple of years? Are we going to be of the order of NOK 100 million, or is it going to go back to the NOK 200 million-NOK 300 million level? Thanks very much.
Thank you. Starting with the price issues. First of all, yes, we have the impression that what we do in the market now when it comes to the private sector, also for the paid-up policies, is very much in line with what we see, competition, and the competitors do in the market. When it comes to paid-up policies and the development there, there is very few - there's not a transfer market for paid-up policies. But of course, as you have still defined benefit schemes that are being hard closed into defined contribution, that creates new paid-up policies. And you also have a turnover in the different companies that have active paid-up active defined benefits.
So that leads also in a situation where we have new paid-up policies coming into the balance sheet. So it's quite, and I think if you look at the last quarter, it was NOK 2 billion increase or something in paid-up policies. So there is an increase in that portfolio that will be effective on the result line with such an instrument as the 2% charge that we see here. When it comes to the guidance, I think first of all, we are planning to have a Capital Markets Day in March where we have to look at all the different parts and pieces again, and especially, of course, the new rulings from the Banking Law Commission will have quite an impact.
Let me give you an example. If you have a movement now from the existing defined benefit schemes that moves into more or less partly this hybrid products, then you will have a lower, I expect, price for interest rate guarantee, but then again, also a lower capital need in the business. So there is changes in the balance sheet and in the reserve generation. What we see when we have the line we draw from 2012 to 2013, we are very well in line with the estimates on the existing business with the existing setup. But of course, new rules and changes in regulation will have to be taken into account in 2014, when the new regulation is active.
Just you, you mentioned NOK 3 billion, Blair, and obviously the NOK 2.5 billion core earnings, that's the goal that we've set on the last capital markets day, and we are progressing in towards that in 2014, one year behind plan, as we've previously announced. The other NOK 0.5 billion you take is from a net profit sharing and loan losses. As we are de-risking the business and building buffers with all surplus return, obviously, that amount is going to look a little lower. And then, as Odd Arild says, with changes in the regulatory framework in 2014, we need to update the core forecast with new regulations. On your last questions, the Asset Management business.
The Asset Management business showed a weak earnings development in the second quarter and more so now in the third quarter. Some of these issues are related to one-off charges or issues both on the income side and cost side. Nevertheless, the results are weak. The results will pick up with booked profit-sharing bonuses in the fourth quarter, as we usually book that in the fourth quarter. And with the measures that we're now implementing, both on the cost side and on the income side, and on the income side, there are a couple of different things happening. One thing is, the fact that we have a quite strong growth in assets under management, that is positive.
The other thing is that when we are now implementing these programs on transferring business from Guaranteed schemes to Non-Guaranteed schemes, you will see a shift from investments with no risk and no equities at all, into products with a much more long-term, sound pension investment balance or allocation, which means about 50% equities. So that in itself will also increase the margins in that business over some time. So we expect the Asset Management business to pick up again and continue the positive development that we've seen over the last few years after a different 2003--2012.
Okay, thank you.
Next?
David Andrich at Morgan Stanley.
Hold, please.
Hi, good afternoon. I was wondering if you could maybe comment on how the development of the NOK 400 million in savings will come through in 2013. Do you expect it to start coming through materially in the first quarter or sooner? And do you think it'll be fairly evenly spread or quite chunky? Second, I noticed that you sold down a significant portion of your GIIPS exposure in terms of Italy, Ireland, and Spain. And I was wondering if you could give some comment on what the impact of that was in the quarter. And finally, would you mind giving us an update on the longevity provisions that you spoke about in the first quarter? Thank you.
On the NOK 400 million, the program has been put in place to have a lower cost level from 2014, and you will get the full impact by 2014. The impact will come gradually and increasingly through to 2013, i.e., you will see not too much in the first quarter and successively more through the second, third, and fourth quarter, and you will see the full effect in 2014. With respect to the BRICS exposure, we've not sold down, but there were a number of bonds maturing, coming to maturity.
And, as we've said all along, we are building down the portfolio in a careful manner and waiting for some of these papers to go to maturity, which they have to a large extent done this quarter. We will continue to drift down the portfolio, but not force the selling at this stage. And on your third question on longevity, the FSA in Norway has indicated that they are going to publish a new mortality table in the fourth quarter. However, we see that the Ministry of Finance are looking at mortality tables and longevity in connection with the new occupational pension scheme.
We do not know exactly what is going to happen, whether we are going to get these new mortality tables in the fourth quarter, or whether mortality tables will be built into the new occupational pension schemes.
Okay, great. Thank you.
I think I'd like to also add to that that we are able to build and specify the reservation last year on NOK 1.5 billion towards this potential longevity reserving. And of course, with the buffers, we now see in the second quarter about NOK 1.2 billion in allocate in the return above the guarantee level.
And also NOK 2.4 billion in unrealized gains. There is a good opportunity to also do quite a strong reserving at year end 2012.
Great. Thank you.
Next?
Colm Morris, KBW.
Go ahead, please.
Good afternoon. I just have a couple questions. One, could you update us on when we should be expecting the new tax legislation to come into force? Whether it's gonna be in the fourth quarter or early next year. I understood it was gonna be till this year. And secondly, in terms of the price increases in the DB book, from your guidance of NOK 100 odd million in extra revenues coming through, you imply that, well, that certainly implies that you're certainly expecting some of the reserves to transfer into paid ups. And I actually thought that, you know, Storebrand would want to avoid that at all costs. So the timing of these price increases probably encourages that to happen.
So I just wanted to get your thoughts on that and why, you know, you're potentially putting the price increases through the book, which will encourage that sort of behavior.
Let me start on the second one, and then Lars will comment on the tax issue afterwards. First of all, the price on the interest rate guarantee is very much aligned with the model we have in place. A reduced interest rate will have a very large impact on that. So that is giving a normal price increase, and that is also seen from our competitors in the market. When we have transfer out from this portfolio, that is very much from the public sector. And the public sector has no paid-up policy issues. There is no paid-up policies for the public sector products. So that is a clear transfer out from us into typically KLP, the more or less monopolist in the public sector.
So we don't expect these price elements on the defined benefit to encourage for moving towards defined contribution and increased paid-up policies. That is not our expectation, but there is a turnaround in the portfolio that will still have the effect from moving from defined to defined contribution as such.
If I just may add, the 2% upfront fee for paid-up policies only applies to Guaranteed paid-up policies. So, if you get the transfer to paid-up policies with investment choice, then employer doesn't need to pay the 2% upfront fee. In this way, Storebrand's incentives are the same as the employers, which also could be helpful.
On the tax issue, a white paper was published of all days on Sunday, January first this year, saying that the tax increases would be valid from January first, the same day. Then there has been some work on making this into a new law, and that was published on October eighth. So the law has effect from January first this year, but we have to rebuild our reporting to the final text of the law, which we've not been able to do since the short period since October eighth. So that will happen in the fourth quarter, and we will have full tax reporting according to the new rules by year end.
But as I said in my comment a little bit earlier here, we can maintain the guidance that we will be paying, or that we will be charged, 20%-25% of results before amortization in tax, going forward, and that we will be able to use the tax carryforwards that we have, for three or four years, before we come into a situation with payable taxes.
Great, thank you.
At this time, no further questions. If you opt for questions, please press star one.
Peter Elliott, Berenberg Bank.
Go ahead, please.
Thank you very much. I'm afraid I sort of. I've been, my line disconnected, a couple of times, so I'm sorry if I, go over ground that's already been covered. I apologize in advance for that. But, if I could ask a few questions. Firstly, on the pricing side, could you just. I know you've, I think you've said that others are doing sort of similar price increases. Can you talk about, given that you don't want PUPs, is there any reason that you couldn't increase the price even more than the 2% that you're currently charging? Second thing on the net impact, I know you've given some figures. I'm, again, I'm sorry if I missed this, or I've been a little confused.
But based on the current book, if you ignore any sort of future transfers out, are you able to say what the current net impact would be on the business as you see it today? And then, again, is there any reason that shouldn't drop to the bottom line? And given that you've announced these price increases now, I mean, I appreciate that some of them will take impact March next year, is there any reason that we shouldn't see the price increases having a similar impact on capital to the cost savings that you've announced? And is there any reason or, in terms of the timing, that these will flow through to the embedded value?
Can we expect, given they've already been announced, can we expect some of these to come through at the EV at the end of this year? Thank you.
Okay, your first question about the 2% increase in, for paid-up policies from, from first of March 2013. What is important for us is to continue the good dialogue with our clients in the situation now, and they are actually waiting for the new pension product, which will come from 2014. We will not force any con, transfer from defined benefit to defined contribution. The level of 2% is actually trying to balancing the need for increased income from paid-up policies, but also a factor like having a good dialogue and giving good advice to our main, main customers on having still DB plans.
On your second question, the price increases, if they are lasting, lastingly increasing the profitability of the products, I think that will increase the margins and therefore the Solvency II own funds and capital and EV, et cetera. However, if the price increases leads to changed behavior for the clients, so that, for example, the lapse rate increase, which we do expect from the Guaranteed products and which we want from the Guaranteed products, then obviously some of the effects will be reduced by the lapse rates. And that's why we need a little bit more time to model this in an appropriate way and get back to you in the normal MCEV reporting in March, and also increasingly giving you Solvency II numbers as they come forward here.
I think you also asked, what with the beating act, if you just looked at, well, a normal year like 2012. And, of course, I think as we already have said, a 20% increase or NOK 550 million, that would have been, a NOK 110 million in increased result directly on the, on that line. And then on top of that, if we have on a full year, let's say a NOK 45 billion increase in paid-up policies, the 2% charge, that will add another NOK 100 million. That's why we say that this could have been up to, NOK 200 million, implemented for this year.
But then again, there is a 4-month period we need to use towards our clients before this is started up, and that is first of March 2013. And we expect some conversion to DB to paid-up policy that happened before that. And also, to have this special situation with the public sector volumes that we expect to be run off over a 2-year period and around NOK 5 billion-NOK 6 billion by the start of 2013. So that is complicating the picture somewhat, and that's why we say that we expect this NOK 200 million+ to be more close to NOK 100 million.
Thank you very much, and sorry for repeating, going over previous ground there.
Well done.
Thank you.
Next?
Matti Ahokas, Handelsbanken. Go ahead, please.
Yes, sorry, two follow-up questions, if I may. Firstly, on the Swedish tax rate cut, and the impact on SPP, will that have any impact on SPP next year? And obviously on the group results as well. Then a more detailed question on the life insurance, the NOK 88 million restructuring provision, how is that split up between the different business lines, i.e., the DB DC and the paid-ups? Thanks.
On the first question, the Swedish tax rate has been lowered. That's obviously positive. We have tax optimized the group structure to the old tax regime, and we will obviously make sure that we optimize the group structure with the new regime. I don't want to go. We will come back to you with reporting on that when we get to the fourth quarter. With respect to the life, we haven't split up the 88, except for one thing. We've said that NOK 9 million of the NOK 88 million will be taken in products with profit split and indirectly therefore, be covered by, in the customer return.
So NOK 79 million will hit shareholder return, but apart from that, we haven't done a further split.
Okay, but if I look at on page 13, the admin result for DB in Q3 is -NOK 64 million. So this is not the restructuring provision here?
Yes, it's correct that the restructuring provision is split out in the supplementary information out of the different product lines as part of the result. But I haven't got the split of that compared to the other elements lying in the same figure.
Okay. Great, thanks. Next.
Blair Stewart, Bank of America Merrill Lynch.
Go ahead, please.
Thanks. Just a quick one. The NOK 400 million of cost savings that you're targeting, what's your own expectations as to how much of that will fall down to the bottom line?
We expect all of that to fall down to the bottom line. That is total cost reduction that we expect to be fully taken out in the bottom line. Of course, a part of this has an impact also on the income side, and that is mainly then the public sector, because a part of this is really taking into account that we lose NOK 20 billion asset under management on public sector, and that is the main element that also has an income element in it. Of course, as we said, when we viewed on, looked at this in the second quarter, we saw that this was not a profitable product, taking into account the capital constraint in the product altogether.
Okay. That's, that's great. Thanks very much.
At this time, no further questions.
I would like to thank you all for joining us on this call this afternoon. We'll remind those of you located in London that we will be at the Chartered Insurance Institute tomorrow at 2:00 P.M. Hope to see you there. Have a fine afternoon. Bye. Bye.