SpareBank 1 Gruppen and DNB have entered into an agreement to amalgamate their insurance arms, thereby creating one of the country`s largest insurance companies.
The amalgamation of the insurance businesses will be achieved through the merger of DNB Forsikring with SpareBank 1 Skadeforsikring. The merged entity will have a virtually complete product portfolio in the field of risk insurance, catering to the retail market and the SMB market.
As part of the transaction, individual personal risk insurance policies from SpareBank 1 Forsikring (life insurer) and DNB Life Insurance, and company-paid personal risk insurance policies from SpareBank 1 Forsikring, will be transferred to the new company.
The merger agreement incorporates a conversion ratio of 80 per cent for SpareBank 1 Gruppen and 20 per cent for DNB. The conversion ratio is based on the negotiated market value of the two non-life insurers, including the value of the transferred personal risk products.
SpareBank 1 Gruppen will hold an ownership interest of 65 per cent and DNB 35 per cent in the new company. DNB has in addition secured an option to acquire an ownership interest of up to 40 per cent. The company will remain a subsidiary of SpareBank 1 Gruppen AS.
In the transaction the new non-life insurer is valued at NOK 19.75 billion, including the value of personal risk products that are transferred from the respective life insurers to the new company. The same value figure underlies DNB`s increase of its ownership interest from 20 to 35 per cent. The purchase amount for the 15 per cent increase will accordingly be NOK 2.96 billion.
Based on figures as at 31 December 2017 and pro forma consolidated financial statements, the merger and the above-mentioned transaction will in aggregate entail an increase of about NOK 6.9 billion in SpareBank 1 Gruppen`s equity capital at Group level. The majority`s (i.e. the SpareBank 1 banks` and The Norwegian Confederation of Trade Unions` - LO`S) share of the increase is NOK 4.3 billion. SpareBank 1 SMN`s share of this increase (19.5 per cent) is about NOK 831 million which will be recognised in the income statement or entered directly against equity in the Group accounts. However, isolated this brings virtually no change in the Group`s CET1 ratio, the reason being that the increased book value of the ownership interest in SpareBank 1 Gruppen increases the deduction from CET1 capital and increases risk weighted assets. Overall, this virtually neutralises the effect of the increase in book assets.
The parent company SpareBank 1 Gruppen will receive a tax-free gain of about NOK 2.65 billion as a result of the disinvestment to DNB. SpareBank 1 Gruppen`s basis for dividend payment rises by the same amount. SpareBank 1 SMN`s share of a possible dividend of NOK 2.65 billion comes to NOK 531 million. The gain will reduce the book value of the Group`s investment in SpareBank 1 Gruppen, thereby also reducing the deduction from CET1 capital in the calculation of the capital ratio. SpareBank 1 SMN`s capital ratio will accordingly rise. Based on SpareBank 1 SMN`s accounting figures as at 30 June 2018, the increase in the CET1 ratio will be an estimated 0,6 percentage points. Any dividend from SpareBank 1 Gruppen AS will be conditional on the capital situation and decisions by the company`s governing bodies and cannot be implemented until the second quarter of 2019 at the earliest.