Gjensidige Forsikring ASA, Norway’s largest insurer, will pay an extraordinary dividend and increase payouts after starting to sell down its stake in Storebrand ASA, bucking an industry trend towards higher capital reserves.
Gjensidige, based in Lysaker, will distribute 3 billion kroner ($505 million) to shareholders in May as an extraordinary dividend, equivalent to 6 kroner a share, while targeting a pay-out ratio of at least 70 percent of profit after tax from 2014, it said in a statement today. That compares with a previous payout policy of 50 percent to 80 percent of profit after tax.
“We won’t build up unnecessary capital buffers,” Chief Executive Officer Helge Leiro Baastad said in a presentation in Oslo today. Excess capital above the level required in a new capital model will also be paid out as extraordinary dividends in the future, he said.
The insurer, which is seeking to cut costs and boost earnings as it tries to increase market share in the Nordic region, reported third-quarter pretax profit of 1.67 billion kroner, up from 1.61 billion kroner a year earlier, it said in a separate statement. That compares with the 1.44 billion-krone average of 11 analyst estimates compiled by Bloomberg.
From next year the insurer will pay out any excess capital over and above its targeted capitalization to shareholders, it said. The insurer’s targeted capitalisation is based on “the most binding capital requirement plus a technical buffer and a buffer to ensure financial flexibility,” it said.
At the moment, the most binding capital requirement is the A-rating requirement from Standard & Poor’s, the insurer said. In addition to that, the company will maintain a technical buffer in excess of this requirement of five percent, it said.
Gjensidige also changed its return on equity target from a minimum of 15 percent pretax to a minimum of 15 percent after tax starting in 2015, it said.
Shares in Gjensidige gained as much as 10 percent to 111.8 kroner, the highest intraday level since the insurer sold shares in Oslo on Dec. 10, 2010. The stock was up 7.8 percent at 109.2 kroner as of 12:10 p.m., extending its gain to 32 percent during the last 12 months and giving Gjensidige a market value of 54.6 billion kroner.
“We consider the report very positive,” boosted by “lower large claims and higher run-off gains than expected,” Pareto Securities AS said in an e-mailed note. “We expect to make positive underlying estimate revisions post this report, due to the higher-than-anticipated growth.”
Gjensidige plans to sell down its 20 percent stake in Norwegian life insurance and pension provider Storebrand as it focuses on general insurance. It sold 19 million shares at 34.75 kroner apiece on Oct. 18 and has said it no longer views the holding as a strategic investment.
“Defined benefit pensions and guarantee business is not something that we have a strategic or financial appetite for,” Leiro Baastad said today. “We see that the changes in the traditional pension market will take a long time and that defined benefit arrangements will continue to represent a large part of that market for several years to come.”
Gjensidige won’t rush the process of selling down its stake in Storebrand, Norway’s second-largest insurer, the CEO said.
The combined ratio, a measure of claims and costs as a proportion of premiums, rose to 88.2 percent from 85 percent a year earlier, according to the statement. That’s still lower than the insurer’s 90 percent to 93 percent annual target.
The underwriting result from its general insurance operations increased to 852.5 million kroner from 780.3 million kroner, Gjensidige said.