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Storebrand Plans to Meet Capital Targets Without New Equity

Storebrand ASA, Norway’s second-largest publicly traded insurer, said it plans to reduce costs as it tries to meet stricter European capital requirements without selling new shares.

Storebrand will cut costs by at least 400 million kroner ($65.4 million) by 2014 and lower risk in its investment portfolios to meet proposed Solvency II requirements due to come into effect within the next two years, the Oslo-based company said in its second-quarter report today.

“Storebrand’s target is to manage the transition to Solvency II without raising new equity capital,” the insurer said. The company is also considering a “price increase to customers in the public sector,” it said, without providing further detail. Storebrand will cut about 300 jobs as part of the plan, Chief Executive Officer Odd Arild Grefstad said today.

European regulators plan to impose common capital standards for insurers in Europe through rules known as Solvency II from next year, with full application coming in 2014. The rules require insurers not to set aside any capital for holdings of sovereign debt from countries within the European Economic Area, which includes the 27 members of the European Union as well as Iceland, Liechtenstein and Norway.

Second-quarter net income declined to 136 million kroner from 445 million kroner a year earlier, Storebrand said today. That missed the 179 million-krone average estimate of 11 analysts surveyed by Bloomberg.

‘Risk Manageable’

Net premium income rose to 5.8 billion kroner from 5.7 billion kroner a year earlier.

Norway is planning changes to occupational pension product rules to ensure life insurers can adjust to the stricter capital requirements as well as longer life expectancy. The changes to insurance-based products include two alternative models for regulating cost and risk-sharing among insurers, employers and workers, the Banking Law Commission said on June 28.

Storebrand is “positive” to the changes, which are “better adapted to new capital requirements through Solvency II than existing defined benefit-based pensions,” the company said. “Capital requirements arising from the new products will be risk-manageable,” it said.

Shares in Storebrand gained as much as 11 percent, the most since June 20, and traded 8.1 percent higher at 23.99 kroner as of 2:40 p.m. in Oslo, making it the biggest winner today on the Oslo Stock Exchange’s benchmark OBX index. Shares in the insurer have gained 46 percent since falling to a 2012 low of 16.62 kroner on June 12, giving the company a market value of 11 billion kroner.

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