Base Prospectus - Malta Financial Services Authority

According to current parameters for life insurance operations in Norway, Vital carries the risk
of fulfilling the company’s commitments in contracts with policyholders. The return on financial
assets must be sufficient to meet the guaranteed annual return to the company’s policyholders. If
this is not the case, additional allocations will have to be used, representing buffer capital built up
from profits in previous years. Alternatively, the shortfall could be charged to equity.
The purpose of risk management is to achieve the highest possible return for policyholders
and the owner in the long term, subject to an acceptable risk level. The risk situation for Vital is
followed closely, including daily updates on returns on financial assets and forecasts for future
developments. The group executive vice president responsible for Vital and the Board of Directors
of Vital will ensure that Vital’s risk management and financial strategy are consistent with the
Group’s risk profile.
Risk management in Vital Forsikring implies that market risk in the balance sheet is geared to
the level of capital in excess of statutory requirements. Analyses have shown that in the longer
term, such dynamic risk management will improve risk-adjusted returns. The probability of a highly
negative outcome has been reduced, while there are good chances of benefiting from an upswing
in stock markets.
New operating parameters for life insurance companies will involve major changes for the
industry, most importantly a sharper distinction between policyholders’ funds and the company’s
own funds, a clearer distribution of risk between policyholders and the company and more
transparent pricing of life insurance products. Kredittilsynet has proposed that statutory provisions
on pricing and profit sharing should not enter into force until 1st January, 2008.
Operational risk
Operational risk is the risk of losses due to deficiencies or errors in processes and systems,
errors made by employees or external events.
Operational risk is a risk category which covers most costs associated with shortcomings in
the quality of the Group’s operations. As for other risk categories, DnB NOR aims to document low
risk and high quality. Thus, great emphasis is placed on risk and quality in the operation and
management of the Group. The Board of Directors lays down the conditions for risk management
in the Group and receives periodic reports on the current status and developments in the Group’s
risk situation.
Special sections have been established in all business areas and support units, carrying
responsibility for the practical aspects of operational risk management.
Contingency and business continuity plans are central tools in operational risk management
and subject to continual quality control.
Business risk
Business risk is the risk of losses due to external factors such as the market situation or
government regulations. This risk category also includes reputational risk.
DnB NOR has chosen to calculate risk-adjusted capital for business risk as a separate
category. This is in line with Pillar 2 under the Basel II regulations, requiring that financial
institutions consider the effect on capital of risk categories not included under Pillar 1.
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