Storebrand ASA rose to a 20-month high in Oslo as JPMorgan Cazenove upgraded its rating on Norway’s second-largest insurer, citing improved growth prospects and reduced risk on its guaranteed portfolio.
Shares in Storebrand gained as much as 3.4 percent to 34.29 kroner, the highest intraday level since Nov. 4, 2011. The stock was up 2.6 percent as of 12:20 p.m., making the insurer the biggest gainer on the Oslo stock exchange’s benchmark OSEBX index. Almost 1.2 million shares have been traded so far today, about 55 percent of the three-month average daily volume.
Storebrand’s leading position in defined contribution pensions in Norway “should put it in a strong position to capitalize on the expected growth in non-guaranteed pensions” after planned changes to rules regulating the industry, Daniel Do-Thoi, an analyst at JPMorgan Cazenove, said in an e-mailed note to clients. “We upgrade Storebrand to overweight from neutral and increase our price target to 36 kroner.”
Storebrand is seeking to transfer customers from pension products with guarantees to non-guaranteed based policies as low interest rates make it harder to generate returns and ahead of the introduction of capital rules known as Solvency II.
Implementation of those regulations has been delayed until 2016 or 2017 from 2014 because of objections from insurers about how much capital is required to back long-term guaranteed products such as annuities.
Storebrand transferred 8.3 billion kroner ($1.4 billion) from guaranteed pensions in the first half, it said on July 12.
The insurer has made progress strengthening its capital buffers and profitability while reducing risk in its existing portfolio of guaranteed policies, leading to lower investment risk and earnings volatility, wrote Do-Thoi. “We do not expect Storebrand to pay a dividend this year, but forecast a 4.3 percent yield in 2014,” he wrote.
Storebrand, which is aiming to cut annual costs by at least 400 million kroner by the end of 2014, is also building up its balance sheet to adapt to longer life expectancy in Norway. Moody’s Investors Service cut its outlook on the insurer’s debt to negative from stable on March 15, saying the increased reserve requirements will curb the company’s profitability.
Gjensidige Forsikring ASA, Norway’s largest insurer, owns 24 percent of Storebrand.