Vardia Insurance Group ASA

Transcription

1 INFORMATION MEMORANDUM Vardia Insurance Group ASA (Organisation number ) This information Memorandum has been prepared in connection with Vardia Insurance Group ASA's sale of its insurance portfolio in Sweden to Gjensidige Forsikring ASA THIS INFORMATION MEMORANDUM SERVES AS AN INFORMATION MEMORANDUM ONLY AS REQUIRED BY NORWEGIAN LAW AND REGULATIONS. THE INFORMATION MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO BUY, SUBSCRIBE OR SELL ANY OF THE SECURITIES DESCRIBED HEREIN, AND NO SECURITIES ARE BEING OFFERED OR SOLD PURSUANT TO IT. 10 June 2016

2 Important notice This information memorandum (the "Information Memorandum") has been prepared in order to provide information about Vardia Insurance Group ASA ("Vardia" or the "Company", and, together with its consolidated subsidiaries, the "Group") and its business in connection with the sale of the Company's Swedish insurance portfolio to Gjensidige Forsikring ASA. The Company has also entered into an agreement to acquire 100 % of the shares in Vardia Norge AS. This Information Memorandum has been prepared to comply with the requirement to prepare an information document pursuant to section 3.5 of the Continuing Obligations for Stock Exchange Listed Companies (the Continuing Obligations ). It has been submitted to the Oslo Stock Exchange for review before it was published. This Information Memorandum is not a prospectus and has neither been reviewed nor approved by the Norwegian Financial Supervisory Authority ( NFSA ) nor the Oslo Stock Exchange in accordance with the rules that apply to prospectuses. The Information Memorandum does not constitute an offer to buy, subscribe or sell any of the shares described herein, and no shares or other securities are being offered or sold pursuant to it. This Information Memorandum has been published in an English version only. The term Managers refers to ABG Sundal Collier ASA and Carnegie AS. The Company has furnished the information in this Information Memorandum. Unless otherwise indicated, the source of information included in this Information Memorandum is the Company. The Managers makes no representation or warranty, express or implied, as to the accuracy or completeness of such information, and nothing contained in this Information Memorandum is, or shall be relied upon as, a promise or representation by the Managers. The Managers disclaims all and any liability, whether arising in tort or contract or otherwise, which it might otherwise have in respect of the Information Memorandum or any such statement. All inquiries relating to this Information Memorandum should be directed to the Company. No other person has been authorized to give any information about, or make any representation on behalf of, the Company in connection with the Information Memorandum, and, if given or made, such other information or representation must not be relied upon as having been authorized by the Company. An investment in the Company involves inherent risks. Potential investors should carefully consider the risk factors set out in section 1 Risk Factors in addition to the other information contained herein before making any investment decision. An investment in the Company is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of their investment. The contents of this Information Memorandum are not to be construed as legal, business or tax advice. Any prospective investors should consult with their own legal adviser, business adviser and tax adviser as to legal, business and tax advice. The delivery of this Information Memorandum shall under no circumstance create any implication that the information contained herein is correct as of any time subsequent to the date of this Information Memorandum This Information Memorandum is subject to Norwegian law. Any dispute arising in respect of this Information Memorandum is subject to the exclusive jurisdiction of the Norwegian courts with Oslo District Court as legal venue in the first instance. The distribution of this Information Memorandum in certain jurisdictions may be restricted by law. The Company and the Managers require persons in possession of this Information Memorandum to inform themselves about and to observe any such restrictions. In the ordinary course of their respective businesses, the Managers and certain of its affiliates have engaged, and may continue to engage, in investment banking transactions with the Company and its subsidiaries.

3 TABLE OF CONTENTS 1. RISK FACTORS RESPONSIBILITY FOR THE INFORMATION MEMORANDUM OPPDATER CAUTIONARY NOTE REGARDING FORWARD- LOOKING STATEMENTS INFORMATION ABOUT THE TRANSACTION AND THE ACQUISITION FURTHER INFORMATION ABOUT THE SWEDISH PORTFOLIO PRESENTATION OF THE COMPANY FOLLOWNING THE CLOSING OF THE TRANSACTION AND THE ACQUISITION OF VARDIA NORGE AS INDUSTRY OVERVIEW BOARD OF DIRECTORS, MANAGEMENT AND CORPORATE GOVERNANCE SELECTED HISTORICAL FINANCIAL INFORMATION SHARES AND SHARE CAPITAL EXEMPTION FROM PRO FORMA FINANCIAL INFORMATION REGULATORY ENVIRONMENT LEGAL MATTERS ADDITIONAL INFORMATION

4 1. RISK FACTORS 1.1 GENERAL Investing in Vardia involves inherent risks. Prospective investors should consider, among other things, the risk factors set out in this Information Memorandum before making an investment decision. The risks described below are not the only ones facing the Company. Additional risks not presently known to the Company or that the Company currently deems immaterial may also impair the Company s business operations and adversely affect the price of the Company s shares (the "Shares"). If any of the risks actually occur, Vardia's business, financial position and operating results could be materially and adversely affected. A prospective investor should consider carefully the factors set forth below, and elsewhere in the Information Memorandum, and should consult his or her own expert advisors as to the suitability of an investment in the Shares. An investment in the Shares is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of the investment. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. Please refer to section 3 Cautionary Note Regarding Forward-looking Statements. 1.2 RISK RELATED TO THE COMPANY S BUSINESS AND THE INSURANCE INDUSTRY Market cyclicality The Norwegian non-life insurance market is historically cyclical with operating results of insurers having fluctuated significantly because of volatile and sometimes unpredictable events, some of which are beyond direct control of any insurance company. Future events may result in adverse fluctuations in Vardia's financial position and results of operations Competition Vardia faces significant competition in each of the Company's lines of business, from both domestic, Nordic and international insurance companies. If the Company is unable or is perceived to be unable to compete efficiently, the Company's competitive position may be adversely affected, which as a result, may have a material adverse effect on its business, results of operations and/or financial condition Legal and regulatory conditions The legal and regulatory systems under which Vardia operates and potential changes thereto may have a material adverse effect on the business. Vardia's ability to conduct business requires the holding and maintenance of certain licenses, permissions and authorisations and compliance with rules and regulations. Failure to comply with any of these rules and regulations could lead to disciplinary action, the imposition of fines and/or the revocation of the license, permission or authorisation to conduct business. Vardia s business depends on the continuing validity of several permits and its compliance with the terms of such permits. There is a risk that permits needed for the Company s business may not be issued or renewed or such issuance or renewal may be delayed. If the Company is unable to obtain, maintain or renew necessary permits, Vardia s business, results of operations and financial condition could be materially adversely affected. The insurance acts, regulations and policies, or the interpretation or enforcement thereof, may change at any time, which may have an adverse effect on the business. Vardia cannot predict the timing or form of any future changes or the effect it may have on the Company's financial position or results of operations. 3

5 1.2.4 Regulatory regime Norwegian authorities may at any time, within the frames of the EEA Agreement, introduce new legislation or implement measures that may affect the income and/or costs of the Company and the rest of the insurance industry for example through stricter solvency requirements or other specific requirements. This could have a material adverse effect on the Company's cash flows, business, results of operations and financial position Current solvency situation Vardia is subject to the following regulatory capital requirements according to the Norwegian regulations implementing Solvency II: (i) Minimum Capital Requirement (MCR) and Solvency Capital Requirement (SCR). Vardia is currently in breach of the SCR requirement. The NFSA has granted Vardia a dispensation from the SCR requirement until 1 July The Company is currently not in breach of the MCR requirement, but there is a risk that the Company will be in breach of this requirement by the end of June A continued breach of the SCR not remedied within 1 July 2016 (or an extended deadline if given), or a breach of the MCR, not remedied within 3 months, will result in Vardia being placed under public administration, which is the equivalent to a bankruptcy-procedure applicable to inter alia insurance companies. To remedy the situation Vardia has entered into the agreement to sell its Swedish insurance portfolio. The Company will following completion of this transaction comply with the MCR and SCR requirements. Please refer to section 1.6 "Risk Factors relating to the Transaction and the Acquisition" as regards transaction risk Tax and VAT-laws and regulations Norwegian authorities may at any time, within the frames of the EEA Agreement, introduce new legislation or implement measures related to tax or VAT legislation that may affect the income and costs of the Company and the rest of the insurance industry. One example is the taxation of dividends. Furthermore, the relevant authorities may interpret the tax- and/or VAT-legislation different than Vardia. Such difference in interpretation could inter alia relate to the Company's structuring of its operations into different subsidiaries and /or intra group services rendered. A difference in the interpretation of relevant tax and VAT legislation or other future changes to the current tax and/or VAT-regime could potentially have a material adverse effect on the Company's cash flows, business results of operations and financial position or Catastrophes, natural disasters and terrorist-related events, may cause the Company to incur substantial losses General insurance companies, such as Vardia, frequently experience losses from unpredictable events that affect multiple individual risks covered by them. Such events include among others windstorms, severe hail, severe winter weather, other weather related events, floods, fires, industrial explosions and other man-made disasters, such as terrorist attacks ("Catastrophes"). As a general rule, general insurance covers losses from Catastrophes, as a result of which catastrophic events may imply material adverse effect on the Company's cash flows, business, results of operations and financial position. The extent of losses from Catastrophes is a function of the frequency of catastrophic events and the severity of the individual events and the reinsurance arrangements in place. In Norway, Vardia's exposure to losses on buildings and contents due to natural perils is limited to the overall market share, as general insurance companies operating in Norway are obliged by law to participate in the Norwegian Natural Perils Pool (the "Norwegian Pool") through which losses on buildings and their contents are distributed among the participants. The Norwegian Pool buys natural catastrophe reinsurance on behalf of its members and the retention of the Norwegian Pool is distributed among the members in proportion to their market share based on the companies' fire insurance amounts as of July 1 of the claim year. Some Catastrophes, 4

6 such as explosions, occur in small geographic areas, while others, including windstorms and floods, may produce significant damage to large, heavy populated and/or widespread areas. The frequency and severity of catastrophes are inherently unpredictable, and a single Catastrophe or multiple Catastrophes in any one year could have a material adverse effect on the Company's business, results of operations and financial position. Losses related to Catastrophe insurances have historically been characterised by low frequency and high severity. In the event that the Company experience losses from Catastrophes this could have a material adverse effect on the Company's cash flows, business, results of operations and financial position. Vardia generally seeks to reduce its exposure to Catastrophes through purchasing reinsurance, utilizing selective underwriting practices and monitoring risk accumulation. However, Vardia's efforts to reduce exposure may not be successful and claims relating to Catastrophes could have material adverse effect on the cash flows, business, results of operations and financial position of Vardia. If Catastrophe risks insured by the Company occur with greater frequency or severity than has historically been the case, related claims could have a material adverse effect on the Company's cash flows, business, results of operations and financial position, as well as on its costs of reinsurance Change in availability of or cost of reinsurance coverage An important element of Vardia's risk management strategy is to purchase reinsurance, thereby transferring parts of the risk the Company underwrites to reinsurers. Under a reinsurance contract, the assuming reinsurer becomes liable to Vardia to the extent of the risk ceded although the Company remains liable to the insured as insurer. Any decrease in the availability and amount of reinsurance, increase in the cost of reinsurance and/or the inability or refusal of reinsurers to meet their financial obligations could materially adversely affect Vardia's business, results of operation and financial position. 1.3 OPERATIONAL RISK A material flaw in the Company's underwriting or operating controls or failure to prevent fraud could increase the frequency of claims and average claim payouts Vardia has operation procedures in place which its management believes are sufficient. However, any mismanagement, fraud or failure to satisfy fiduciary responsibilities or to comply with underwriting guidelines and authorization limits, or negative publicity resulting from these activities or accusations by a third part of such activities, could have material adverse effect on the Company's business, results of operations and/or financial condition. If the underwriting guidelines or internal control procedures are inefficient or if the employees do not properly follow these guidelines, the pricing policy of a product line may be incorrect and the Company may not have the proper reserves for claims attributable to the relevant product line. In addition, Vardia may not be able to adjust prices to avoid future losses. The Company is at risk both from customers who misrepresent or fail to fully disclose the risks against which they are seeking cover before such cover is purchased, and from employees who undertake or fail to follow procedures designed to prevent fraudulent activities. If the Company does not train its employees in claims management effectively or fails to implement an adequate counter-fraud strategy, its profits could be adversely affected as the frequency of claims and average payouts could increase. Furthermore, an attempt to recover such costs through increased premiums could result in a decrease in policy sales. 5

7 1.3.2 Underwriting and reserve risk Vardia's results depend significantly on whether the Company's claims experience is consistent with the assumptions used in underwriting, setting the prices for the products and establishing the liabilities for the obligations for future claims. To the extent that the Company's actual claims experience is less favourable than the underlying assumptions used in establishing such liabilities, the Company could be required to increase the reserves made for the liabilities, which could result in operating losses. To the extent that Vardia prices certain segments/business lines incorrectly this could have negative impact on the Company. Due to the nature and uncertain timing of the risks which the Company incurs in underwriting general insurance products, it cannot precisely determine the amounts that it will ultimately pay to meet liabilities covered by the insurance policies written. The Company's claims provisions may prove to be inadequate to cover the actual claims, particularly when payments of claims may not occur until well into the future. In accordance with industry practice and accounting and regulatory requirements, the Company maintains provisions to cover anticipated future claims payments (and related administrative expenses) with respect to losses or injuries incurred, but not fully settled at the end of any year. These include both losses and injuries that have been reported to the Company ("RBNS" reported but not settled) and those that have not yet been reported ("IBNR" incurred but not reported). Claims provisions represent estimates of the ultimate cost, including related expenses, to bring all pending and incurred but not reported claims to final settlement. These estimates are based on actuarial and statistical projections and assumptions, including the time required to learn of and settle claims, facts and circumstances known at a given time, as well as estimates of trends in claims severity. The estimates are also based on other variable factors, including changes in the legal and regulatory environment, results of litigation, changes in medical costs, the cost of repairs and replacement, and general economic conditions. Earnings depend significantly on the extent to which the Company's actual claims experience is consistent with the projections and the assumptions it uses in setting claims provisions and subsequent premium levels. Changes in these trends or other variable factors, including changes in legislation, could result in claims in excess of Vardia's claims provisions, which may require an increase in its reserves with a corresponding reduction of the Company's net income in the period in which the deficiency is identified. To the extent that the Company's current claims provisions are insufficient to cover actual claims or claims adjustment expenses, it will have to increase its claims provisions and incur a corresponding change to its earnings in the period in which the deficiency is identified. In addition, if the Company's claims provisions are excessive as a result of an over-estimation of risk, it may set premiums at levels too high to be able to compete effectively, which may result in a loss of customers and premium income. If the Company charges premiums that are insufficient for the cover provided, it will suffer underwriting losses, leading to volatility in earnings and unpredictable results. Vardia monitors liabilities on a continuously basis and adjusts established claims reserves periodically, using the most current information available to the management. Any adjustments resulting from changes in reserve estimates are reflected in the results of operations. Based on the information available to the management as at the date of this Information Memorandum, management believes that the claims reserves are adequate. However, because claims reserving is an inherently uncertain process, management cannot assure that the ultimate claims will not materially exceed current claims reserves and have material adverse effect on the Company's financial position Service providers Vardia has outsourced certain key functions to external partners, including certain IT, claims handling and accounting services. In the event that the Company's current outsourcing becomes unsatisfactory, or Vardia's third party suppliers are unable to fulfil their obligations to the Company, Vardia may be unable to locate new outsourcing partners on economically attractive terms on a timely basis. 6

8 1.3.4 Distributors and partners Prior to closing of the Transaction and the Acquisition (as defined in section 4.1) Vardia relies on Vardia Norge AS and Vardia Försäkring AB to market and sell the Company's insurance products pursuant to distribution agreements. In addition Vardia relies on other distributors that market and sell the Company's insurance products through partnerships ("Partners"). Vardia will following closing of the Transaction and the Acquisition, continue to relay on such Partners. Termination of or any change to these relationships may have a material adverse effect on Vardia's business, results of operations and financial condition Organisational development and terms of employment The Company s senior management team possesses extensive operating experience, industry knowledge and an in-depth understanding of the insurance industry. Vardia depends on its directors, executive officers and senior management for setting the Company's strategic direction and managing Vardia's business, which both are crucial to Vardia s success. Furthermore, the Company s continued success also depends upon its ability to attract and retain a large group of experienced professionals. The Company does not maintain any key person insurance on any of the Group s senior management or employees. The Company s ability to retain senior management as well as experienced personnel will in part depend on Vardia having appropriate staff remuneration and incentive schemes in place. Vardia cannot give any assurance that the remuneration and incentive schemes it has in place will be sufficient to retain the services of the Company s experienced personnel. The loss of the services of the Company's senior management or the Company's inability to replace, recruit, train or retain a sufficient number of experienced personnel could have an adverse effect on Vardia's operations, business, financial performance and prospects Loss of reputation The Company is dependent on the strength of its reputation with customers and distributors. Any negative publicity related to Vardia could adversely affect its reputation and the value of its brand. Vardia is exposed, among others, to the risk that litigation, employee's or officer's misconduct, operational failures, disclosure of confidential information, negative publicity, whether or not founded could damage its reputation. Any erosion of Vardia's reputation may have a material adverse effect on its business, revenues, and results of operations or financial conditions Profitability measures Vardia [will/may] focus on implementing profitability measures [in the future]. The Company may experience difficulties in implementing such measures and there can be no guarantee that any such measures will have the intended effect. Vardia may not be successful in implementing profitability measures and this could ultimately have a material adverse effect on Vardia s operations, business, financial performance and prospects. Vardia cannot give any assurance that the current operational and financial systems and controls will be adequate to handle the increased risk associated with possible profitability measures. This could ultimately have a material adverse effect on Vardia s operations, business, financial performance and prospects Vardia may be subject to litigation Vardia s business exposes the Company to litigation and lawsuits. The Company anticipates that the Company and the Group companies will in the future be involved in litigations and other disputes from time to time. The Company cannot predict with certainty the outcome or effect of any claim or other litigation or dispute. Any future litigation or dispute may have a material adverse effect on the Company s business, operations, financial position or results of operations, because of potential negative outcomes, the costs associated with prosecuting or defending such lawsuits or claims, and the diversion of management's attention to these matters. 7

9 1.3.9 Future dividends The Company s ability to pay dividends to its shareholders and service any indebtedness is dependent upon the Company receiving sufficient funds from operations and operating subsidiaries in both Norway and foreign jurisdictions. Funds may be transferred to the Company from subsidiaries by way of dividends, intra-group loans and/or group contributions, where possible. In several jurisdictions there are restrictions on a company s ability to pay dividends, or otherwise transfer funds, to parent and/or holding companies. Restrictions, by law or regulations can affect the Company s ability to receive funds to pay dividends to shareholders and/or service any indebtedness Audit report with reservation The Company's auditor has issued an audit report on the annual accounts for 2015 for the Company and the group with reservation. In the audit report the auditor is stating that the basis for the reservation is that the Company does not have adequate routines for ensuring the balancing of accounts receivable from customers in the professional system against the ledger. The auditor further states that the Company's daily bookkeeping has not been followed up in a satisfactory manner. This implies that the company has not had customer specifications as required by the Bookkeeping Act throughout The Company has initiated improvement initiatives within IT and finance to address these issues. 1.4 FINANCIAL RISKS Interest rate volatility Investment returns are an important part of Vardia's overall profitability. Interest rate volatility may adversely affect the value of the Company's investment portfolios, adversely impact the financial position and the results of operations and result in volatility in the results. Vardia has a conservative investment policy and has hired Grieg Investor as financial advisor. The investment portfolio is as at the date of this Information Memorandum invested in bank deposits. The interest rate risk in the investment portfolio is aligned with Vardia's current capital position Asset management risk The Norwegian regulation on asset management for non-life insurance companies implies limitations on Vardia's ability to invest in inter alia equities, bonds, security funds and hedgefunds. Equity investments are generally subject to higher returns and greater risk and more volatility than fixed income securities. General economic conditions, stock market conditions and many other factors beyond the Company's control may adversely affect the relevant markets for the Company's investments and thereby impair the value of the Company's investment portfolio. 1.5 RISK FACTORS RELATING TO THE SHARES The price of the Shares may fluctuate significantly The trading price of the Shares could fluctuate significantly in response to a number of factors beyond the Company s control, including quarterly variations in operating results, adverse business developments, changes in financial estimates and investment recommendations or ratings by securities analysts, significant contracts, acquisitions or strategic relationships, publicity about the Company, its products and services or its competitors, lawsuits against the Company, unforeseen liabilities, changes to the regulatory environment in which it operates or general market conditions. In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in the same industry. Those changes may occur without regard to the operating performance of these companies. The 8

10 price of the Company s Shares may therefore fluctuate based upon factors that have little or nothing to do with the Company, and these fluctuations may materially affect the price of its Shares. The market price of the Shares could decline due to sales of a large number of the Shares in the market or the perception that such sales could occur. Such sales could also make it more difficult for the Company to offer equity securities in the future at a time and at a price that is deemed appropriate Future issuances of Shares or other securities may dilute the holdings of shareholders and could materially affect the price of the Shares The Company may in the future decide to offer additional Shares or other securities in order to finance new capital-intensive projects, or in connection with unanticipated capital requirement, liabilities or expenses or for any other purposes. Any such additional offering could reduce the proportionate ownership and voting interests of holders of Shares, as well as the earnings per Share and the net asset value per Share of the Company, and any offering by the Company could have a material adverse effect on the market price of the Shares Limited liquidity There can be no assurance as to the liquidity of the Shares in the secondary market, the ability of the holders of the Shares to sell their Shares or the price at which the holders would be able to sell their Shares. The liquidity of the trading market in the Shares, and the market price quoted for the Shares, may be adversely affected by changes in the Company s financial performance or prospects or in the prospects for companies in Vardia s industry in general. As a result, holders cannot be certain that an active trading market will develop for the Shares Nominee accounts and voting rights Beneficial owners of the Shares that are registered in a nominee account (e.g., through brokers, dealers or other third parties) may not be able to vote for such Shares unless their ownership is re-registered in their names with the VPS prior to the Company s general meetings. The Company cannot guarantee that beneficial owners of the Shares will receive the notice for a general meeting in time to instruct their nominees to effect a re-registration of their Shares or otherwise arrange for votes to be cast for such Shares Difficulties for foreign investors to enforce non-norwegian judgements The Company is organised under the laws of Norway. As at the date of this Information Memorandum, all of its directors are residents of Norway, and the vast majority of its assets are in Norway. As a result, it may not be possible for non-norwegian investors to affect service of process on the Company or the Company's directors in the investor's own jurisdiction, or to enforce against them judgements obtained in non-norwegian courts. However, Norway is party to the Lugano Convention and a judgement obtained in another Lugano Convention state will in general be enforceable in Norway. However, there is no regulation providing for general recognition or enforceability in Norway of judgements of non-lugano Convention state courts, such as the courts of the United States Norwegian law may limit the shareholders' ability to bring an action against the Company The Company is a public limited company incorporated under the laws of Norway. The rights of holders of Shares are governed by Norwegian law and by the Articles of Association. These rights differ from the rights of shareholders in e.g. typical US corporations or companies incorporated in other jurisdictions. In particular, Norwegian law limits the circumstances under which shareholders of Norwegian companies may bring derivative actions. Under Norwegian law, any action brought by a company in respect of wrongful acts committed against the company takes priority over actions brought by shareholders in respect of such acts. In addition, it may be difficult to prevail in a claim against the Company under, or enforce liabilities predicated upon, U.S. securities laws or related to laws of other jurisdictions. 9

11 1.5.7 Shareholders outside of Norway are subject to exchange rate risk The Shares are priced in Norwegian kroner ( NOK ), the lawful currency of Norway, and any future payments of dividends on the Shares will be denominated in NOK. Accordingly, any investor outside Norway is subject to adverse movements in the NOK against their local currency, as the foreign currency equivalent of any dividends paid on the Shares or price received in connection with any sale of the Shares could be materially adversely affected Foreign shareholders may be diluted if they are unable to participate in future offerings Because US investors and investors in other non-norwegian jurisdictions may be unable to participate in future offerings, their percentage shareholding may be diluted. Unless otherwise resolved by the general meeting, shareholders in Norwegian public companies such as the Company have pre-emptive rights proportionate to the aggregate amount of the Shares they hold with respect to new shares issued by the Company. For reasons relating to U.S. securities laws or other factors, U.S. investors and investors in other non-norwegian jurisdictions may not be able to participate in a new issuance of Shares or other securities and may face dilution as a result The transfer of Shares is subject to restrictions under the securities laws of the United States and other jurisdictions The Shares have not been registered under the U.S. Securities Act or any US state securities laws or any other jurisdiction outside of Norway and are not expected to be registered in the future. As such, the Shares may not be offered or sold except pursuant to an exemption from the registration requirements of the U.S. Securities Act and applicable securities laws. 1.6 RISK FACTORS RELATING TO THE TRANSACTION AND THE ACQUISITION Vardia has incurred, and expects to continue to incur, significant costs in connection with the Transaction (as defined in Section 4) and the Acquisition (as defined in Section 4), including the fees of its professional advisors. The Company will also incur integration and restructuring costs as Vardia Norge AS' operations are integrated with Vardia's operations. The efficiencies anticipated to arise from the acquisition of Vardia Norge AS may not be achieved in the near term or at all, and if achieved, may not be sufficient to offset the costs associated with the acquisition. Unanticipated costs, or the failure to achieve expected efficiencies, may have an adverse impact on the results of the operations of the Company following completion of the acquisition. Furthermore, completion of the Transaction is conditional upon approval by the NFSA and the Swedish Competition Authority, completion of agreements related to IT licences and completion of the acquisition by Gjensidige of the shares in Vardia Försäkring AB, hence there is a risk that the Transaction is not consummated. If the Transaction fails to be consummated, there is a significant risk that Vardia will be subject to public administration, due to the solvency situation not being remedied, please see section regarding the current solvency situation. 10

12 2. RESPONSIBILITY FOR THE INFORMATION MEMORANDUM OPPDATER 2.1 STATEMENT BY THE BOARD OF DIRECTORS IN VARDIA INSURANCE GROUP ASA The board of directors of Vardia Insurance Group ASA (the "Board") hereby declares that, to the best of our knowledge, having taken all reasonable care to ensure that such is the case, the information contained in this Information Memorandum is in accordance with the facts and contains no omission likely to affect its import. 10 June 2016 The Board of Directors of Vardia Insurance Group ASA Åge Korsvold Chairman of the Board Karl Høie Board member Ragnhild Wiborg Board member Line Sanderud Bakkevig Board member Christer Karlsson Board member Terje Moen Board member 11

13 3. CAUTIONARY NOTE REGARDING FORWARD- LOOKING STATEMENTS This Information Memorandum and the documents incorporated by reference herein contain forward-looking statements. All statements other than statements of historical facts are statements that could be deemed forwardlooking statements, including statements preceded by, followed by or that include the words estimate, plan, project, forecast, intend, expect, anticipate, believe, think, view, seek, target, goal, or similar expressions; any projections of earnings, revenues, expenses, synergies, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations, including integration and any potential restructuring plans; any statements regarding completion (or non-completion) of the proposed Transaction and Acquisition, including the anticipated timing of approvals relating to the Transaction; any statements concerning proposed new products, services, developments or industry rankings; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements, whether expressed or implied, are subject to risks and uncertainties which could cause the actual results of the Company and its consolidated subsidiaries to differ materially from those implied by such forward-looking statements, due to a number of factors, many of which are beyond the Company's control. If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of the Company could differ materially from the expectations in these statements. The Company does not undertake any obligation to update these forward-looking statements, except as required by law. No forward-looking statements contained in this Information Memorandum should be relied upon as predictions of future events. No assurance can be given that the expectations expressed in these forward-looking statements will prove to be correct. Actual results could differ materially from expectations expressed in the forwardlooking statements if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealized. Some important factors that could cause actual results to differ materially from those in the forwardlooking statements are, in certain instances, included with such forward-looking statements and in section 1 Risk Factors. Readers are cautioned not to place undue reliance on the forward-looking statements contained in this Information Memorandum, which represent the best judgment of the Company s management as of the date of this Information Memorandum. Except as required by applicable law, the Company does not undertake responsibility to update these forward-looking statements, whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further public disclosures made by the Company, such as filings made with Oslo Børs or press releases. 12

14 4. INFORMATION ABOUT THE TRANSACTION AND THE ACQUISITION 4.1 BACKGROUND AND RATIONALE FOR THE TRANSACTION AND THE ACQUISTION As a result of the Company's solvency position, the Company announced on 29 February 2016 that it had initiated a strategic review. On 20 March 2016, it became clear that the Company was in breach of the capital requirement regulations as of 29 February Vardia has had an ongoing dialogue with the NFSA, and the Company was granted a time-limited dispensation from the solvency capital requirement by the NFSA on the basis that the Company was working towards remedying the situation through its ongoing strategic review. This process resulted in the Company entering into a portfolio purchase agreement with Gjensidige Forsikring ASA on 27 April 2016 (the "Portfolio Purchase Agreement"), pursuant to which the Company agreed to sell its Swedish insurance portfolio (the "Swedish Portfolio") to Gjensidige Forsikring ASA (the "Transaction"). This Transaction is a result of an extensive process where the Board has evaluated several options, including a sale of the entire Company. On the same date the Company entered into a share purchase agreement for the repurchase of Vardia Norge AS (including its subsidiaries Vardia Forsikring AS, Vardia Eksterne Kanaler AS, Vardia Skadeoppgjør AS and Vardia Fordel AS) (the "Acquisition"). Reintegration of the distribution activities is an important step for securing the competitiveness of Vardia going forward, and establishing a solid platform for the development of the Company. 4.2 THE COMPANY'S SOLVENCY SITUATION Vardia is subject to the following regulatory capital requirements according to the Norwegian regulations implementing Solvency II: (i) Minimum Capital Requirement (MCR) and Solvency Capital Requirement (SCR). Vardia is currently in breach of the SCR requirement and the NFSA has following the announcement of the Transaction granted Vardia a dispensation from the SCR until 1 July The Company is currently not in breach of the MCR, but there is a risk that the Company will be in breach of this requirement by the end of June A continued breach of the SCR not remedied within 1 July 2016 (or an extended deadline if given), or a breach of the MCR, not remedied within 3 months, will result in Vardia being placed under public administration, which is the equivalent to a bankruptcy-procedure applicable to inter alia insurance companies. The Company will following completion of the Transaction and the Acquisition comply with the SCR and MCR requirements. Following completion of the Transaction and the Acquisition the Company is expected to have a solvency ratio in excess of 130%, taking into account the purchase price received for the Swedish Portfolio, the effect on the Company s SCR, the cost of reintegrating the distribution business, transaction costs, and the expected operating loss in the period until closing including restructuring and other extraordinary costs. If the Transaction fails to be consummated, there is a significant risk that Vardia will be subject to public administration, due to the solvency situation not being remedied. 4.3 THE TRANSACTION Overview The Transaction comprises all insurance policies written by Vardia in Sweden prior to completion of the Transaction and all liabilities relating thereto. The Transaction further comprises all customer information and certain contracts relating to the Portfolio, including the distribution agreement with Vardia Försäkring AB under which the Company's distribution activities in Sweden has been carried out since the restructuring of the 13

15 Company in The Transaction will include all technical reserves associated with the Swedish Portfolio, and all customer and reinsurance receivables and liabilities. The Company has no employees dedicated solely to the Portfolio, and accordingly the Transaction does not include transfer of any employees. The consideration for the Swedish Portfolio is SEK 200,000,000 based on the assumption that the value of the transferred assets equals the value of the transferred liabilities. The consideration will be finally determined based on any deviations from this assumption as of completion of the Transaction Conditions for completion Completion of the Transaction is subject to the following conditions: (i) (ii) (iii) (iv) (v) (vi) that the parties' warranties are true and correct in all material respects; that the parties are not in material breach of their obligations under the Portfolio Purchase Agreement; that the acquisition of the Swedish Portfolio has been approved or lawfully deemed to be approved by the competition authorities in Sweden; that the acquisition of the Swedish Portfolio has been approved by the Norwegian Financial Supervisory Authority on terms not unreasonably onerous for Gjensidige Forsikring ASA, provided that (a) Gjensidige Forsikring ASA shall bear all risk relating to Gjensidige Forsikring ASA's own solvency and capital adequacy requirements and shall offer any financial remedies on itself that may be necessary to obtain approvals from the Norwegian Financial Supervisory Authority, and (b) Gjensidige Forsikring ASA shall not be required to acquire, provide equity or offer any other financial or other remedies to the Company or third parties; that Gjensidige Forsikring ASA enters in to an agreement with Contemi Group AS regarding a license to the IT insurance system (the Context platform) and appropriate IT support in such regard to the satisfaction of Gjensidige Forsikring ASA; and that Vardia Holding AB enters into a share purchase agreement for the sale of all the shares in Vardia Försäkring AB to Gjensidige Forsikring ASA and that all closing conditions under the share purchase agreement are satisfied or waived Indicative timetable and warranty period Subject to the fulfillment of the conditions set out above, the completion of the Transaction is expected to take place on 1 July The Company has agreed to customary warranties relating to the Swedish Portfolio. Other than for fundamental warranties relating to ownership etc., the warranty period is 18 months from completion of the Transaction Handling of reinsurance agreements With respect to reinsurance agreements relating to the Swedish Portfolio, the Transaction comprises the outwards protection and liabilities which arise, or are first required to be performed, after completion of the Transaction. The Company's existing reinsurance agreements relate to both the Swedish Portfolio and the Company's remaining portfolio. The Company shall be responsible for the handling of the relationship with the reinsurers after completion of the Transaction on a fully back-to-back basis, subject to one exemption. Under the reinsurance agreements, the Company is entitled to a commission from the reinsurers to cover the Company's costs of distribution. Several of the reinsurance agreements contain a level of commission which is preliminary estimated and paid as a provisional commission and thereafter finally determined based on the Company's final loss ratio for an applicable underwriting year several years after the expiry of an applicable underwriting year. Due to the fact that the scale from minimum commission to maximum commission is a non-linear scale and that the final loss ratio may be different for the Portfolio and the Company's remaining portfolio, it has been agreed 14

16 that any payment or repayment of commissions resulting from deviations from the provisional commissions shall be the sole expense or benefit of the Company Other terms and conditions for the Transaction If requested by Gjensidige Forsikring ASA, the Company will provide certain transitional services to Gjensidige Forsikring ASA relating to IT services and certain other additional services if and to the extent that transitional services are required to enable Gjensidige Forsikring ASA to continue business as usual for the Portfolio and provided that the services have been performed by the Company in relation to the Portfolio prior to completion of the Transaction. Under the Portfolio Purchase Agreement, the Company has agreed, for a period of three years from completion of the Transaction, to refrain from being engaged in any business that competes with the non-life insurance business of the Company in the Swedish market as carried out by the Company immediately prior to completion of the Transaction. The restrictions do not apply to existing or future shareholders of the Company. In addition to the Portfolio Purchase Agreement, the Company and Gjensidige Forsikring ASA will enter into a trademark license agreement under which Gjensidige Forsikring ASA will be entitled to use the trademark "Vardia" in Sweden for an initial period of three years and with an option for Gjensidige Forsikring ASA to prolong the term of the agreement for an additional two year period Significance of the Transaction As set out in Section 4.2 "The Company's solvency situation" above completion of the Transaction will remedy the Company's solvency situation. The effect of the Transaction is described in the Q interim report where the Swedish operation is presented as discontinued operations. The Q interim report is incorporated by reference and the figures are presented in section 9 "Selected Historical Financial Information" Agreements for the benefit of close associates The Board and management will not receive any benefits from the Transaction. 4.4 THE ACQUISITION The Company has on 27 April 2016 entered into a share purchase agreement for the repurchase of Vardia Norge AS (including its subsidiaries Vardia Forsikring AS, Vardia Eksterne Kanaler AS, Vardia Skadeoppgjør AS and Vardia Fordel AS). The acquisition was completed on 23 May The sellers have given customary warranties relating to Vardia Norge AS and the two largest sellers are subject to non-compete clauses for a period of one year after completion of the transaction. Vardia Norge AS was divested in August 2015 as part of the restructuring of the Company that enabled the Company to account for the sales costs in a manner that under the prevailing regulations, were beneficial from a capital perspective. Following the divestment of the Swedish Portfolio, the Company will have the capacity to reintegrate the distribution business in Norway, and establish an integrated business with a strong distribution platform. Since the separation from Vardia, Vardia Norge AS has developed and started to implement a cost reduction plan for the distribution activities. As of 31 December 2015, Vardia Norge AS had approx. 250 employees and operations in six locations. Vardia will accelerate the implementation of the cost reduction plan, in addition to the implementation of additional measures, in order to secure a cost effective, competitive, and integrated value chain in the Norwegian operation. Current plans calls for a reduction in number of locations from six to three, and the number of employees in the distribution activities is expected to be reduced with about 20%. 15

17 5. FURTHER INFORMATION ABOUT THE SWEDISH PORTFOLIO In 2015 Vardia had gross premiums written of NOK 611 million in Sweden, primarily relating to the property and motor segments. The portfolio had a loss ratio for own account in 2015 of 89.5%. The table below details selected financial metrics for the Swedish Portfolio for the years 2014 and 2015 as reported in the Company s 4 th quarter report for NOKm Gross written premium Earned premium for own account Incurred claims and operating expenses for own axxount Combined ratio for own account 144.5% 179.9% Since the restructuring of the company in 2015 the Swedish Portfolio has been handled by Vardia Försäkring AB through a distribution agreement. The distribution agreement will be transferred together with the Swedish Portfolio as part of the agreement with Gjensidige. The assets to be transferred to Gjensidige include all Swedish insurance policies written by Vardia prior to closing of the Transaction The Portfolio Transaction will include all technical reserves associated with the Swedish portfolio, and all customer and reinsurance receivables and liabilities. The table below details the balance sheet items that will be included in the Portfolio Transaction. NOKm Receivables in connection with direct insurance and reinsurance Reinsurance share of gross technical reserves Other assets 13.6 Cash and cash equivalents Total assets Gross premium reserve Gross claims reserve Liabilities in connection with direct insurance and reinsurance Other liabilities 17.9 Total liabilities 784.4

18 6. PRESENTATION OF THE COMPANY FOLLOWNING THE CLOSING OF THE TRANSACTION AND THE ACQUISITION 6.1 OVERVIEW The following overview presents Vardia Insurance Group ASA and the Group following closing of the Transaction and the Acquisition. The Company is an insurance company incorporated as a public limited liability company (Nw: Allmennaksjeselskap) under the Norwegian Public Limited Liability Companies Act and the Norwegian Insurance Companies Act, with registration number NO Vardia was incorporated 8 June 2009 and the Company s head office is located in Oslo, Norway with its registered address at Haakon VII's gate 2, P.O. Box 1860 Vika, 0124 Oslo, Norway, phone: , website: Vardia has been listed on the Oslo Stock Exchange since April The Company s main focus is on the market for property and casualty insurance for the retail and small & medium sized enterprises (SME) segments in Norway and Denmark. Vardia distributes its products mainly through proactive call centres, in addition to insurance agents, insurance brokers and price aggregators, both as part of white label partner agreements and under the Vardia brand. The Company is the parent company in the Group. Following completion of the Transaction and the Acquisition the Company will be the owner of 100% of the shares in Vardia Norge AS and Vardia Forsikringsagentur A/S in Denmark, in addition to Vardia IT AB in Sweden. Vardia Norge AS is the owner of 100% of the shares in Vardia Fordel AS, Vardia Forsikring AS, Vardia Skadeoppgjør AS and Vardia Eksterne Kanaler AS. The Group is headquartered in Oslo, Norway, with a number of call centres across Norway and Denmark following completion of the Transaction and the Acquisition. 6.2 GROUP HISTORY AND DEVELOPMENT OF THE COMPANY The following summarises key events in the Company s history, from incorporation in 2009 to date: 2009 June August 2010 Scandinavian Insurance Group AS (SIG) was established as a sales agent by Børge Leknes, Rune Arneberg and Pål Lauvrak, each with 1/3 ownership. Hired 50 employees and took over the infrastructure in Sortland from 1881 AS. April Agreements with new partners, incl. Ole Erik Alnæs, Sigmund Romskoug and Ivar S. Williksen. June September December 2011 April May 2012 Entered into agency agreement with Unison Forsikring ASA for sale of insurance in the Norwegian market. Vardia Försäkring AB established in Sweden. Received licence from FSA to operate as an insurance company, subject to capitalisation. Final approval from FSA to operate as an insurance company after successful capital increase of NOK 55 million. Started underwriting for own account in Sweden. April Vardia Försäkring AB was awarded Swedish non-life insurance company of the year August Terminated agency agreement with Unison Forsikring ASA; the Company started underwriting for own account in Norway. 2

19 November 2013 January February May June November December 2014 January February April 2015 June July August September Vardia Agencies AS established; Lloyds Aquaculture binder transferred from Vardia Forsikring AS. SIG signed a strategic cooperation agreement with Mekonomen Group for the Scandinavian region. SIG signed strategic cooperation and partnership agreements with Stampen AB and Sector Alarm in Sweden. SIG signed strategic cooperation and partnership agreement with Komplett.no. Vardia Forsikringsagentur A/S established in Denmark. Scandinavian Insurance Group AS changes name and converts into Vardia Insurance Group ASA. Acquisition of insurance agent Saga Forsikring AS in Norway. Acquisition of insurance agent Rein Forsikring AS in Norway. Vardia Forsikringsagentur A/S (Denmark) commences operations. Signed strategic partnership agreement with OK in Denmark The Company is listed on the Oslo Stock Exchange Fully underwritten rights issue of 275,000,000 new shares in the Company and fully underwritten private placement of 1,000,000,000 new shares Successful placement of a subordinated loan with par value of NOK 75 million Espen Husstad is appointed new CEO Agreements are entered into (subject to approval by the Company's general meeting) to restructure the Group through the sale of the distribution activities in Norway and Sweden to its management and the entering into exclusive distribution agreements The general meeting approves the restructuring of the Group The Company merge with its wholly-owned subsidiaries Vardia Eksterne Kanaler 2914 AS and Rein Forsikring AS (following a merger between Saga Skadeforsikring AS Vardia Eksterne Kanaler 2014 AS) December 2016 January March April The subsidiary Vardia Agencies AS is subject to a management buyout, leaving the employees as 100% owners of the company with effect from 31 December 2015 Bård Standal replaces Terje Finholdt as CFO It became clear that Vardia was in breach of the solvency capital requirement and was granted a time-limited dispensation from the NFSA The Company enters into an agreement to sell its Swedish insurance portfolio to Gjensidige Forsikring ASA The Company enters into an agreement to acquire 100% of the shares in Vardia Norge AS May The Company was granted a new dispensation from the solvency capital requirement until 1 July 2016 from the NFSA 3

20 6.3 DESCRIPTION OF THE GROUP S OPERATIONS The Group provides standard insurance products for private and commercial customers in Norway and Denmark.The Group s main operations include distribution and underwriting of property and casualty insurance. Through its call centres, insurances are sold under white label brands and co-brands, named as Partners, in addition to the Vardia brand. Following closing of the Transaction, Vardia will have operations in Norway and Denmark. In Norway Vardia has located its call centres in small towns as such locations represent opportunities to operate at lower costs and with a more stable sales force compared to similar operations in the larger cities in Norway. The administrative office for the operation in Denmark is located in Copenhagen. As Vardia s premium portfolio has grown, call centre activity has increasingly included services to handle incoming calls, maintain renewals of existing customers and improve sale of additional products. All sales and renewals are based on strict underwriting guidelines, developed and maintained at the Company's headquarter in Oslo, which is also the base for reinsurance and general group management Norway In the Norwegian market, Vardia commenced operations in 2009 as an insurance agent, distributing insurances on behalf of If until 17 May 2010 and AIG until In June 2010, the Company signed an agency agreement with Unison Forsikring ASA, where Vardia sold insurance on behalf of Unison Forsikring ASA. This agreement was terminated in August 2012, when the Company started to write Norwegian business for own account. The Company sells a wide range of insurance products to the retail segment for both private and commercial. For Commercial, Vardia is mainly operating in the SME-segment. The product range includes Motor, Property, Accident and Health, including Life, Liability, and Affinity-products. In addition to distribution under the Vardia brand, Partners in the Norwegian market includes, but are not limited to entities such as Fjordkraft, BBL, Visma, Komplett.no, Verdibanken and LHL (The Norwegian Heart and Lung Patient Organization). The main distribution channels in the Norwegian market is call centre sales, agents and insurance brokers. In 2015, Vardia's Norwegian operations had a gross written premiums of NOK 800 million, with a gross loss ratio of 92 % Denmark Vardia established Vardia Forsikringsagentur A/S in Denmark in June As at the date of this Information Memorandum, the Company sells a full range of insurance products to the Danish retail market. The first insurance policies were sold in February Vardia Denmark sells insurances in two brands Vardia and Nordjylland Forsikring. The brand Vardia is sold through call center, internet and car dealers. The brand Nordjylland Forsikring is sold through call center, internet and the agent NF agentur. Vardia Denmark is also handling two other brands: ICare which is white label and sold through the agent ICare and OK Forsikring, which is a run-off portfolio, previously sold through a partnership with OK benzin. Vardia Denmark has entered into strategic partnership agreements with serveral partners: Santander Consumer Bank, Danske Torpare, AutoOffer.dk, Nordjyske medier and 26 car dealers. As at the date of this Information Memorandum, the Danish operation counts 31 employees. 6.4 SEGMENTATION AND UNDERWRITING GUIDELINES Vardia aims to generate profitable growth by strictly following its segmentation and underwriting guidelines, which seeks to identify attractive customers with low claims ratio, with potential to sell several products per customer and with high renewal rate thereby generating an attractive combined ratio for the Group. 4

21 In general, the underwriting guidelines determine which risks and prices are acceptable to underwrite. The guidelines typically addresses criteria such as age of the insured, occupation, geography, type of car, type and value of residential house, credit scoring, claims history etc. The underwriting guidelines are under constant review, and are regularly updated based on experience. 6.5 PRICING AND TARIFFING POLICY The Company has carried out detailed plans for its tariffing and pricing of the various insurance products. The tariffing principles are seen in relation to the Company s underwriting guidelines and proactive distribution model, where the most attractive segments of the insurance market is targeted. Within the retail segment, tariffing is based on a market customary pricing and underwriting methodology, combined with a tailored distribution targeting defined customer groups. For the SME segment, the principles are similar to retail, but with additional factors such as type of business and industry (defined in cooperation with reinsurers), estimated maximum loss in relation to individual risks, credit scoring and claims history, in addition to limitations in Vardia s reinsurance programme. 6.6 REINSURANCE Vardia has a reinsurance programme consisting of quota share reinsurance contracts in addition to excess of loss ( XL ) coverage related to insurance risk not ceded under quota share. The reinsurance program has been designed to represent a balanced risk offload relative to the Group s capitalisation. Quota share reinsurance is an effective tool both to offload the Company for single risk frequency and larger exposure and additionally balance out the capital. The current reinsurance program is in force as from until when the underwriting year expire. The reinsurance is based upon risk attaching cover so that the reinsurance is in force until the individual policy natural expire (mostly 12 months policy). As part of the quota share arrangement, 75% of all premiums are ceded to the reinsurers, which similarly cover 75% of all claims and claims cost from external claims handler. As part of the current program, Vardia receives a commission of an average of ca 20 % of the premiums ceded, depending on the claims performance of the various lines of business. The reinsurance commissions received are booked as a negative expense, representing the difference between gross and net operating expenses. The Company s risk related to the retained 25% of premiums is limited through an XL reinsurance coverage, protecting the Company from large single claims. The cost related to XL coverage is deducted from gross premiums. In case a single claim expense exceeds certain levels and thereby triggers the XL coverage, the Company will be subject to reinstatement fees in order to restore its XL coverage. Current reinsurance program limits Vardia s exposure to one single claim to NOK 2.5 million within motor in Sweden, NOK 1.25 million within motor Norway and Denmark. NOK within property in Sweden, Norway and Denmark. For the employee benefit program the exposure for one single event is NOK The quota share and excess of loss covers all lines of business offered by Vardia part from Affinity solutions and Pet insurance: Line of business 75% quota share Excess of loss Property Motor & Liability Workers Compensation and Commercial Personal accident Personal Accident, Sickness and Travel 5

22 Group life (one year risks), Other illness and Child insurance Medical Expenses Individual life and disability (one year risk) Natural Catastrophes XL For 2015, the Company ceded NOK million of premiums, related to both its quota share and excess of loss programmes. The main reinsurers from 2016 are Swiss Re (AA-), Scor (A+) and Tokio Millenium Re (A). Strong credit ratings of reinsurance counterparts represent reduced capital requirement related to the Company s counterparty risk, hence Vardia will aim to maintain its relationship to highly rated reinsurers. Over recent years, several of the Scandinavian peers have reduced their use of reinsurance, limiting premium supply to the global reinsurers. Vardia, as a relatively young insurance company, represents an opportunity for increased reinsurance premium for the reinsurers as the major companies have reduced their ceded volume. The occurrence of a change of control in Vardia is reduced by the ownership requirements for insurance companies, as further described in Section 12.3 "Ownership requirements". 6.7 CLAIMS HANDLING Claims handling is a complex and demanding operation. Vardia takes great pride in having built a solid and dynamic claims department with high focus on the customer experience. Vardia appreciates that efficient, correct and reliable claims handling is essential to the Company s reputation. 6.8 SOLVENCY, CAPITALISATION AND DIVIDEND POLICY The Group is licensed as an insurance company by the Norwegian Financial Supervisory Authority and is subject to solvency and capital adequacy requirements. Vardia is subject to the following regulatory capital requirements according to the Norwegian regulations implementing Solvency II: (i) Minimum Capital Requirement (MCR) and Solvency Capital Requirement (SCR). Vardia is currently in breach of the SCR requirement and the NFSA has following the announcement of the Transaction granted Vardia a dispensation from the SCR until 1 July The Company is currently not in breach of the MCR, but there is a risk that the Company will be in breach of this requirement by the end of June A continued breach of the SCR not remedied within 1 July 2016 (or an extended deadline if given), or a breach of the MCR, not remedied within 3 months, will result in Vardia being placed under public administration, which is the equivalent to a bankruptcy-procedure applicable to inter alia insurance companies. The Company will following completion of the Transaction and the Acquisition comply with the SCR and MCR requirements. Following completion of the Transaction and the Acquisition the Company is expected to have a solvency ratio in excess of 130%, taking into account the purchase price received for the Swedish Portfolio, the effect on the Company s SCR, the cost of reintegrating the distribution business, transaction costs, and the expected operating loss in the period until closing including restructuring and other extraordinary costs. If the Transaction fails to be consummated, there is a significant risk that Vardia will be subject to public administration, due to the solvency situation not being remedied. 6

23 6.9 RISK MANAGEMENT Risk management procedures Vardia has established detailed risk management procedures, approved by the Board, tailored to the type, extent and complexity of the Company s operations. Key elements include: The established risk management and internal control shall ensure that Vardia s management and Board have a balanced risk exposure in light of the Company s ability to take and appetite for risk. Risk management and internal control shall ensure that the Company s risk exposure is within the limits approved by the Board, by ensuring that the Company understands its risk exposure, how the risk can affect the Company and which risk mitigations should be implemented. All managers shall at all times have a good overview of the most important risk factors within their business areas and ensure implementation of required measurements and follow-up of these. An annual review of the Company s most important risks for all areas of operation, in addition to a review of the Company s risk profile. The Company has detailed risk management procedures for all parts of its operations, including contingency plans to manage unforeseen events: Legal; at all times have a good understanding of all future regulatory requirements, prevailing laws, rules etc., and ensure that Vardia is in compliance with such requirements. Financial; monitor the Company s ability to underwrite risk for own account, based on the capital situation at any time. Counterparty; Vardia shall have strict requirements as to counterparties financial strength and solidity when establishing a customer or cooperative relationship. Financial market; Financial investments will be allocated in line with guidelines given the FSA and the Board. Operational risk; Losses due to weaknesses or mistakes in procedures and systems, made by employees or external parties shall be limited through efficient organisation and clearly defined areas of responsibility. Liquidity risk; detailed routines have been established to ensure that the Company can meet its liquidity requirements and financial obligations at any time. The Company aims to limit investment risk so that financial assets can be realised within short notice. Reinsurance credit risk; Vardia s general underwriting guidelines state that the minimum rating of all reinsurance partners shall be A-. The Company receives regular updates from reinsurance brokers on rating development and solvency among the Company s reinsurers. Insurance risk; high claims ratio volatility during the Company s early stages and with limited premium portfolio is aimed to be reduced through the reinsurance programme. Business risk; Vardia continuously monitors its prevailing market strategy, access to customer prospects and the organisation s compliance with the underwriting guidelines. Organisational risk; Vardia continuously monitors its organisation and employees, recruitment strategy, employee satisfaction and performance remuneration model. Vardia regularly evaluates the efficiency of the organisation structure. 7

24 Market risk; Vardia continuously monitors the market and the competitors development in addition to the Company s market position and reputation Vardia's Own Risk and Solvency Assessment The Company performs risk and solvency assessments on a yearly basis TREND INFORMATION Vardia is not aware of any trend, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on Vardia's prospects for the current financial year other than a trend towards stricter governmental regulations of direct sale of insurance products and customers to a larger extent using online services to subscribe for insurance. 8

25 7. INDUSTRY OVERVIEW Following the closing of the Transaction, the Norwegian general insurance market is the Company s principal market, representing approximately 95% of the Company s gross premiums written in the financial year 2015 when excluding the Swedish portfolio. In addition, the Company has a smaller portfolio in the Danish general insurance market, representing approximately 5% of the Company s gross premiums written in the financial year 2015 when excluding the Swedish portfolio. 7.1 THE GENERAL INSURANCE MARKET IN NORWAY Market size and growth As at 31 December 2015, the Norwegian general insurance industry premium portfolio, excluding marine insurance, was NOK 55.7 billion, according to FNO. Motor insurance was by far the largest line of business, representing 36.9% of total premiums. The following table sets out the size of the main segments of the general insurance market in Norway, in absolute amounts and as a percentage of total premium portfolio, as at 31 December 2015: Line of business Premium portfolio (NOK billion) Percentage of premium portfolio Motor total Private fire & special perils Commercial fire & special perils Special (1) Workers' compensation Accident Medical treatment & critical illness Other (2) Total Source: FNO ( (1) (2) Including leisure travel, leisure boat, cargo and fish farming industry. Children, safety, liability and other lines According to FNO, average gross premium growth in the Norwegian general insurance market, excluding children, medical treatment and critical illness insurance, has been 3.1% year-on-year in the period 2005 to The growth declined until 2007 but began increasing again in 2008 and reached 5.8% in The growth was negative in 2014 and As indicated by the table below, the overall loss ratio in Norway decreased in the period from 2005 to The main reasons for this trend are more stringent underwriting, increased pricing and a relatively low incidence of large weather-related claims. The cost ratio has shown positive development and the main reasons for this trend are economies of scale, as well as a general improvement in claims handling processes. Overall, the Norwegian general insurance industry has experienced a decrease in combined ratio during the period from 2009 to 2014, with a slight increase in The following table sets out the premium growth and trends in loss ratio, cost ratio and combined ratio in the general insurance market in Norway: (in %) Premium growth Loss ratio Cost ratio Combined ratio

26 Source: FNO ( Includes marine insurance and data from all Norwegian insurance companies Competition The following table sets out the market shares based on premium portfolio in the general insurance market in Norway: (in %) ) Gjensidige If Tryg SpareBank Other Total Source: FNO ( Includes most insurance companies in Norway. Vardia figures not included in the statistics. (1) Unison Forsikring included in SpareBank 1 market shares as of Unison had a market share of 1.0% in both 2011 and The general insurance market in Norway is characterized by high concentration, with the top four insurers collectively accounting for approximately 70.5% of the Norwegian market as at 31 December 2015, according to FNO. The Company s primary competitors in the general insurance market in Norway are other general insurance companies. The Company also faces competition from banks and life insurers distributing general insurance products, including Eika, DNB, Storebrand and KLP Insurance, as well as from smaller niche players. In 2015, Vardia had a market share in the Norwegian general insurance market of approximately 1.5%, making Vardia the 12 th largest insurer in the Norwegian general insurance market, compared to those reporting to FNO. Source: FNO ( Includes most insurance companies in Norway. Vardia figures not included in the statistics. 7.2 THE GENERAL INSURANCE MARKET IN DENMARK Market size and growth In Denmark, the average annual premium growth of the general insurance market in terms of gross written premiums generated from 2004 to 2014 was 2.7% according to the Danish Insurance Association. The loss ratio was at 74.3% in 2005 and has since fallen to 70.1% in Motor insurance was the largest line of business representing 25.4% of the total general insurance market in 2014, a market generating a total of DKK 49.4 billion in gross written premiums. The following table sets out the premium growth and trends in loss ratio and combined ratio in the general insurance market in Denmark: (in %) Premium growth Loss ratio Combined ratio Source: Danish Insurance Association ( anchen.aspx). Based on company annual reports. 10

27 The Company started selling insurance in Denmark in 2014, and had no operations in the Danish market prior to that Competition The following table sets out the market shares based on premium portfolio in the general insurance market in Denmark: (in %) (1) Tryg Topdanmark Codan Alm. Brand Others Total Source: Danish Insurance Association ( /sider/skadeforsikring_i_alt_kvartalsvise_markedsandele.aspx) (1) Q market share The general insurance market in Denmark is more fragmented than the Norwegian market, and has a lower market concentration, with the top four insurers collectively accounting for approximately 56.6% of the Danish market as at 31 March In Denmark, Vardia's largest competitors are Tryg, Topdanmark, Codan and Alm. Brand, which (as of March 2015) held market shares of 18.1%, 17.4%, 11.3% and 9.7%, respectively. 11

28 8. BOARD OF DIRECTORS, MANAGEMENT AND CORPORATE GOVERNANCE 8.1 BOARD OF DIRECTORS The table below sets forth the composition of the Company's Board: Name Åge Korsvold Karl Høie Ragnhild Wiborg Christer Karlsson Line Sanderud Bakkevig Position Chairman of the Board Board member Board member Board member Board member Terje Moen Board member (employee representative) Vardia's business address functions as a C/O-address for the board members. Board members Åge Korsvold (born 1946), Chairman of the Board Åge Korsvold has served as Chairman of the Board of Directors since Korsvold holds an MBA from the University of Pennsylvania, He started working for Storebrand as a financial analyst in He was a director of Orkla Industrier from 1977 and a financial advisor in Fondsfinans from From 1992 to 1994 he was partner and owner of Procorp AS, before he became the CEO of UNI Storebrand in Korsvold was the CEO of Kistefos AS from 2001 to 2011, and the CEO of Orkla ASA from April 2012 to February Karl Høie (born 1957), Deputy chairman of the Board Karl Høie has served as a member of the Board since Høie holds an MSc in Business and Economics from Copenhagen Business School. Høie, who is from Haugesund on the West coast of Norway, joined Quartz+Co as a result of the merger with Innovation AS in He has worked for 18 years in A.T. Kearney (Partner) and 6 years as Partner at Booz Allen, before he joined Innovation AS. In his career, he has worked with major transformation and operational excellence projects within e.g. oil and gas, fast moving consumer goods, telecommunications, manufacturing, the food industry, the chemical industry, industrials, retailers and shipping. Høie has many years of management experience, from different leadership positions within consultancy. Line Sanderud Bakkevig (born 1971), Board member Line Sanderud Bakkevig has served as a member of the Board of directors since Bakkevig is a senior advisor and board member at RAW Trening AS. She is also Manager in Innovemus, a private investment company for industrial investments. Previously she was Senior Vice President in Storebrand Livsforsikring from 2006 until Bakkevig has broad experience from operational business development, process optimalization and general management from insurance, financial and industrial services and media. Bakkevig holds a Master of Science in Engineering and Chemistry from Norwegian University of Science and Technology (NTNU) and a Master in Management and Strategy from BI Norwegian Business School. Ragnhild Wiborg (born 1961), Board member Ragnhild Wiborg was elected member of the Board at the extraordinary general meeting held on 12 January Wiborg is currently Chairman of the Board of EAM Solar ASA and holds 7 other board memberships of listed companies. Some of them are REC Silicon ASA, Borregaard ASA, Gränges AB and Intrum Justitia AB. She is also the Chairperson of the audit committee of REC and Borregaard. In addition she holds several board 12

29 memberships of private companies, among them Kistefos. Wiborg has 30 years of experience from financial markets as CIO and portfolio manager at Odin Forvaltning and Wiborg Kapitalförvaltning, and several positions within investment banks in the UK and Nordic region. Wiborg holds a BSc in Economics and Business Administration from the Stockholm School of Economics. Wiborg is a Swedish citizen and lives in Oslo. Christer Karlsson (born 1967), Board member Christer Karlsson was elected member of the Board at the extraordinary general meeting held on 12 January Karlsson is currently working as a consultant within finance and management. Karlsson has extensive experience from management assignments in the insurance industry, where he has held roles like CFO, Acting CEO, Business Unit Director and Board member. Some of the insurance companies Karlsson worked at were Tennant Forsikring, Gjensidige Forsikring, RSA (Trygg-Hansa/Codan) and Folksam. Previously Karlsson worked within PwC as an auditor and also as an Investment Manager in a private equity firm. Karlsson holds a BSc in Finance & Accounting from Stockholm University. Christer is a Swedish citizen and lives in Stockholm. Terje Moen (born 1957), Board member (employee representative) Terje Moen has been member of the Board (employee representative) since February Moen is currently Controller at the Company. He has 36 years of experience from insurance and reinsurance accounting. Moen has worked for companies such as Storebrand, Gjensidige, Gabler and Nemi Forsikring. Moen has a financial education. Moen is a Norwegian citizen and lives in Oslo. 8.2 THE BOARD MEMBERS' SHAREHOLDING The table below shows the members of the Board's direct and indirect ownership in Vardia as at the date of this Information Memorandum: Name Position Shares owned Åge Korsvold Chairman 7,854,504 1 Karl Høie Board member 6,016,832 Ragnhild Wiborg Board member 0 Line Sanderud Bakkevig Board member 31,577 Christer Karlsson Board member Terje Moen Board member (employee representative) 1) 7,759,776 of the shares are owned through the wholly owned company Gyljandi AS. 19, MANAGEMENT Members of senior management The table below sets forth the composition of the Group's senior management as at the date of this Information Memorandum: Name Espen Husstad Bård Standal Jonas Billberg Position CEO of Vardia CFO of Vardia Executive Vice President & COO of Vardia Vardia's business address functions as a C/O-address for the senior management. 13

30 Espen Husstad (born 1968), CEO of Vardia Espen Husstad has been CEO of Vardia since Husstad has extensive experience from the insurance industry. Before he joined Vardia, he was managing director of AON Norway from Husstad has also had various leading positions in If. Husstad has a doctorate in mathematics from NTNU in Husstad is a Norwegian national and citizen. Bård Standal (born 1974), CFO of Vardia Bård Standal has been CFO of Vardia since Prior to joining Vardia, Standal has served as Senior Vice President Finance in the Orkla Group, Senior Vice President for Strategic Execution in Statkraft and Chief Legal Officer in Statoil Fuel & Retail. He has also held management positions in If P&C including head of If's tied agent distribution network. Standal has a Master of Law degree from the University of Oslo and an MBA from the Norwegian School of Economics. Standal is a Norwegian national and citizen. Jonas Billberg (born 1973), Deputy CEO & COO of Vardia Jonas Billberg has been Deputy CEO and COO of Vardia since Billberg has extensive experience from insurance industry operations. Prior to joining Vardia he had a number of leading positions in If P&C, during his 16 years in the company. The majority of the time in If P&C Billberg served as Senior Vice President, heading the private business in Sweden. He has a Master of Business Administration from the School of Business, Economics and Law at the University of Gothenburg. Billberg is a Swedish national and citizen Senior management shareholdings and share options The table below shows the senior management s direct and indirect ownership in Vardia: Name Position Shares owned Espen Husstad CEO 1,949,848 Bård Standal CFO 0 Jonas Billberg Deputy CEO & COO 70,000 The table below shows the senior management's share options: Employee Number of options Number of options vested Exercise price granted in total and outstanding Jonas Billberg 1,500, ,000 NOK 1,62 Bård Standal 1,500, ,000 NOK 1,70 Espen Husstad 3,000, ,000 NOK 1,67 Total 6,000,000 1,375, Benefits upon termination of employment contracts Pursuant to their employment contracts, if they resign at the request of the Company: Mr. Husstad will receive compensation equal to 9 months' salary and other compensation benefits, Mr. Standal and Mr. Billberg will receive compensation equal to 6 months' salary and other compensation benefits. There are no board members that have service contracts with the Company or any of its subsidiaries providing for benefits upon termination of employment except for the above named members of senior management. 8.4 CORPORATE GOVERNANCE Vardia complies fully with the Code from 30 October 2014, applicable to companies listed on the Oslo Stock Exchange. 14

31 9. SELECTED HISTORICAL FINANCIAL INFORMATION 9.1 ACCOUNTING PRINCIPLES The following selected financial information has been extracted from the Company s consolidated audited financial statements as of, and for the years ended, 31 December 2015, 2014 and 2013 (the "Financial Statements") and the Q interim report (the "Interim Report") included by reference in this Information Memorandum. The Financial Statements have been prepared in accordance with IFRS. The Company s current auditor is PricewaterhouseCoopers AS ("PWC"), Dronning Eufemias gate 8, 0191 Oslo, Norway. PWC's partners are members of The Norwegian Institute of Public Accountants (Nw.: Den Norske Revisorforening). PWC has audited the annual accounts for the year ended 31 December 2015, while the Company's previous auditor BDO AS ("BDO"), Munkedamsveien 45A, 0250 Oslo, Norway, has audited the annual accounts for the years ending 31 December 2013 and 2014.The auditors' reports are included in the Financial Statements. The Interim Report has not been audited and neither PWC nor BDO has audited, reviewed or produced any report on any other information provided in this Information Memorandum. The selected financial information included herein should be read in connection with, and is qualified in its entirety by reference to the Financial Statements and the Interim Report. For information regarding accounting policies and the use of estimates and judgments, please refer to note 1 of the Financial Statements. It should be noted that the Swedish Portfolio is reported as "held for sale" and "discontinued operations" in the Company's interim report for Q The result and balance sheet items related to the discontinued operations have been reported on separate lines in the incomes statement and statement of financial position. As required by IFRS, comparable figures for the income statement for previous periods has been represented in the Q interim report, while comparable balance sheet figures for such previous periods have not been represented. 9.2 CONSOLIDATED INCOME STATEMENT Set out below are the Company s consolidated income statement for the three years ended 31 December 2015, 2014 and

32 Year ended 31 December (NOK millions) Gross written premiums Premiums reinsured... (1074.9) (869.5) (426.9) Premiums written for own account Change in premium reserves gross... (142.4) (247.3) (178.0) Change in premium reserves ceded Premiums earned for own account Allocated return on investment transferred from nontechnical accounts Other insurance-related income Gross claim paid... (988.8) (603.6) (229.2) Reinsurance share Change in gross claims reserve... (273.0) (207.8) (111.5) Sum claims incurred for own account... (314.4) (185.2) (91.7) Sales costs... (429.2) (364.9) (141.6) Change in prepaid direct sales costs Insurance-related administrative costs... (119.6) (57.8) (75.8) Commission received Sum insurance-related operational costs for own account... (242.3) (243.7) (159.7) Profit/(loss) from technical accounts before changes in security reserve... (192.8) (183.0) (149.8) Changes in security reserve.... (14.8) (15.3) (10.9) Profit/(loss) from technical accounts... (207.6) (198.3) (160.7) Net financial income Allocated return on investment transferred to technical accounts... (2.5) (3.2) (1.6) Non-technical result... (5.4) 11.2 (1.2) Profit/(loss) before tax... (213.1) (187.1) (161.9) Tax (0.9) (1.7) Other result components... (2.4) (0.8) 0.7 Profit/(loss) for the period (212.1) (188.8) (163.0) Gross claims ratio (%) Gross cost ratio (%) Gross combined ratio Claims ratio for own account (%) Cost ratio for own account (%) Combined ratio for own account Set out below are the Company s adjusted consolidated income statements for the three month period ended 31 March 2016 and 2015 and the year ended 31 December Adjustments have been made to account for the divestment of the Swedish Portfolio which are presented as discontinued operations in the table set out below. 16

33 Three months ended 31 March Year ended 31 December (NOK millions) Gross written premiums Premiums reinsured... (155.4) (126.0) (498.0) Premiums earned for own account Other insurances-related income Gross claims paid... (115.0) (119.5) (444.0) Reinsurance share Claims incurred for own account... (53.3) (44.8) (189.7) Sales costs... (47.6) (44.7) (253.1) Change in prepaid direct sales costs Insurance-related administration costs... (27.8) (28.5) (83.8) Commission received Sum insurance-related operational costs for own account. (45.6) (50.3) (168.8) Technical result before changes in security reserve etc.... (46.9) (41.2) (139.9) Change in security reserve (2.0) (14.8) Technical result... (46.9) (43.2) (154.6) Profit/(loss) sale of subsidiaries Interest income and dividends on financial assets (2.6) 0.0 Total financial income (2.6) 1.1 Other income (0.6) (1.6) Other expenses (5.0) Non-technical result (3.2) (5.5) Profit/(loss) before tax... (46.3) (46.4) (160.1) Tax Profit before components of comprehensive income... (46.3) (46.4) (156.7) Exchange rate differences (2.4) Profit from continued operations (46.3) (46.3) (159.1) Profit from discontinued operations (23.7) (9.3) (53.0) Profit/(loss) for the period (70.0) (55.6) (212.1) Gross claims ratio (%) Gross cost ratio (%) Gross combined ratio Claims ratio for own account (%) Cost ratio for own account (%) Combined ratio for own account CONSOLIDATED STATEMENT OF FINANCIAL POSITION Set out below are the Company s consolidated statements of financial position for the three years ended 31 December 2015, 2014 and 2013 as historically reported. As of 31 December (NOK millions) Goodwill Other intangible assets

34 Investments Reinsurers part of gross technical reserves Receivables Tangible fixed assets other than buildings and real estate Cash and bank deposits Deferred tax benefit Prepaid expenses and accrued interest Total assets Paid equity Earned equity... (742.9) (530.8) (342.0) Total equity Gross technical reserves Pension liabilities Insurance and reinsurance liabilities Subordinated debt Other liabilities Other incurred expenses and prepaid income Total liabilities Total equity and liabilities Set out below are the Company s adjusted consolidated statements of financial position as of 31 March Adjustments have been made to account for the divestment of the Swedish Portfolio which is presented as assets held for sale in the table set out below. As of 31 March (NOK millions) 2016 Goodwill Other intangible assets Investments Reinsurers part of gross technical reserves Receivables Tangible fixed assets other than buildings and real estate Cash and bank deposits Deferred tax benefit Prepaid expenses and accrued interest Assets held for sale Total assets... 2,395.1 Paid equity Earned equity... (766.5) Total equity Gross technical reserves Pension liabilities Insurance and reinsurance liabilities Subordinated debt 74.0 Other liabilities Other incurred expenses and prepaid income Assets held for sale Total liabilities... 2,214.0 Total equity and liabilities 2,

35 9.4 STATEMENT OF CASH FLOW CONSOLIDATED The table below summarizes the Company s consolidated statements of cash flow for the three years ended 31 December 2015, 2014 and 2013 as historically reported. Year ended 31 December (NOK millions) Cash flow from operating activities Premiums paid, net of reinsurance... 1, , Claims paid, net of reinsurance... (974.2) (579.1) (217.4) Expenses paid to suppliers... (426.6) (257.5) (156.9) Expenses paid to employees, pension schemes and payroll taxes... (196.8) (221.7) (129.7) Investments in money market funds (189.8) Net interest and financial income Other insurance-related income... (81.7) (29.8) 6.9 Net cash flow from operating activities (496.3) (65.6) (35.6) Cash flow from investing activities Net cash flow from acquisitions of intangibles and plant and equipment... (26.0) (42.3) (19.8) Net cash flow from investing activities (26.0) (42.3) (20.8) Cash flow from financing activities Proceeds from subordinated loan Proceeds from capital increase Net cash flow from financing activities Net cash flow for the period (60.2) Effect of currency fluctuations Net movement in cash and cash equivalents... (58.5) Net movement in cash and cash equivalents Cash and cash equivalents at the start of the period Cash flow in the period... (58.5) Cash and cash equivalents at the end of the period The table below summarizes the Company s adjusted consolidated statements of cash flow for the three months ended 31 March 2016 and 2015 and year ended 31 December [Adjustments have been made to account for the divestment of the Swedish portfolio. Three months ended 31 March Year ended 31 December (NOK millions) Cash flow from operating activities Net cash flow from operational activities... (57.7) (77.4) (230.2) Net cash flow from investment activities... (1.4) (4.5) (26.5) Net cash flow from financial activities Net change in cash and cash equivalents... (57.4) (81.9) Cash and cash equivalents at the beginning of the

36 period... Cash and cash equivalents at the end of the period Net cash flow for the period... (57.4) (81.9) Cash in bank and liquidity funds Net cash flow from operating activities STATEMENT OF CHANGES IN EQUITY - CONSOLIDATED The table below sets out the changes in equity for the years ended 31 December 2015, 2014 and 2013 as historically reported. (NOK millions) Total Share capital Share premium account Other paid equity Other earned equity Minority interests Natural perils reserve Guarantee scheme Equity as of (538.3) Increase in equity Equity issue related costs... (7.3) 0.0 (7.3) Expensed stock options Changes in provisions in (7.0) 0.0 (0.4) 7.4 Other comprehensive income/(cost)... (2.4) (2.4) Net profit/(loss)... (209.7) (209.7) Equity as of (757.3) Equity as of (343.9) Increase in equity Equity issue Equity issue related costs... (11.4) 0.0 (11.4) Changes in provisions in (5.6) Expensed stock options Other comprehensive income... (0.8) (0.8) Net profit/(loss)... (187.9) (187.9) Equity as of (538.3) Equity as of (179.1) Increase in equity Changes in par value per share (1.0) Change in provisions in (1.8) Expensed stock options Other comprehensive income/(cost) Net profit/(loss)... (163.7) (163.7) Equity as of (343.9)

37 9.6 SEGMENT INFORMATION The table below sets out geographic segment information for the years ended 31 December 2015 and 2014 as historically reported. Norway Sweden Denmark Gross written premiums Premiums earned for own account Allocated investment returns Other insurance-related income Claims incurred for own account Operating costs Operating profit/(loss) (68.1) (91.6) (51.5) (64.8) (73.2) (26.6) The table below sets out geographic segment information for the three months ending 31 March 2016 and Norway Sweden Denmark Gross written premiums Premiums earned for own account Other income Incurred claims and operating expenses for own account... (87.0) (77.9) (70.8) (42.0) (6.8) (17.2) Technical profit/(loss) (37.8) (24.9) (28.7) (9.3) (4.1) (16.3) Cost ratio... 78% 66% 81% 62% 109% 1735% Loss ratio % 86% 88% 76% 148% 54% Net combined ratio % 152% 169% 138% 257% 1789% 9.7 SIGNIFICANT CHANGE IN VARDIA'S FINANCIAL OR TRADING POSITION On 27 April 2016, the Company entered into the agreement to sell the Swedish Portfolio and the agreement to purchase 100 % of the shares in Vardia Norge AS. Other than this, there has been no significant change in the financial or trading position of Vardia that has occurred since 30 March LIQUIDITY AND CAPITAL RESOURCES The Company believes its cash generating capability and financial condition will be adequate to meet its operating, investing and financing needs Capital resources The Company s historical source of liquidity have been cash generated from its operations, proceeds from sales of marketable securities and financial assets, equity issuances and the issuance of a subordinated bond loan. The Company has raised gross proceed of NOK 375 million through a private placement and a rights issue in May 2015 and NOK 50 million through a private placement in October Vardia has further raised gross proceeds of NOK 75 million through the issuance of a subordinated bond loan in June Cash generated from the Company's operations and proceeds from sales of marketable securities and financial assets continues to be Vardia's primary source of funding. 21

38 9.8.2 Description of interest bearing debt The Company issued a NOK 75 million subordinated bond loan in June The bond loan has a maturity of 10 years and a coupon of 3M NIBOR % payable on 3 January, 3 April, 3 July and 3 October each year Working capital The Company is of the opinion that the working capital available to the Company is sufficient for its requirements, and for the next 12 months following the date of this information memorandum. 9.9 THE AUDITOR'S REPORT ON THE ANNUAL ACCOUNTS FOR 2015 The Company's auditor PricewaterhousCoopers AS has issued an audit report on the Company's annual accounts for 2015 with reservation. The following reservations have been made: "Basis for conclusion with reservations The company does not have adequate routines for ensuring the balancing of accounts receivable from customers in the professional system against the ledger. Because of this fact, we have been unable to determine whether there might be a need for adjustment of accounts receivable from customers entered in the accounts or related items in the profit and loss account, the balance sheet, the list of changes to equity, and the cash flow statement." "Negative conclusion on registration and documentation The daily bookkeeping in Vardia Insurance Group ASA has not been followed up in a satisfactory manner. This has implied that the company has not, throughout 2015, had customer specifications as required by the Bookkeeping Act, that the company has not been up-to-date with the balancing between insurance systems and the ledger as required by the Bookkeeping Act, and that it has been difficult to trace the entries in the ledger back to its supporting documentation. Several other violations of the bookkeeping rules have also occurred. Because of the importance of the matters referred to in the paragraph above, we are of the opinion that the management has not fulfilled its obligation to ensure adequate and clear registration and documentation of the company's accounting information according to law and generally accepted accounting principles in Norway." The Company has initiated improvement initiatives within IT and finance to address these issues. 22

39 10. SHARES AND SHARE CAPITAL 10.1 GENERAL The issued share capital of the Company is NOK 35,829, divided into 447,866,988 Shares fully paid with a nominal value of NOK 0.08 and issued in accordance with Norwegian law. The Shares are registered in the VPS register with ISIN NO The Shares are equal in all respects and each Share carry one vote at the Company s general meeting SHARE CAPITAL DEVELOPMENT The following table presents the historical development in share capital and number of Shares issued by the Company: Year Type of change in share capital Change in issued share capital (NOK) Change in number of Shares Par value per Share (NOK) Total issued share capital (NOK) Total number of issued Shares following change Subscription price per Share (NOK) 2013 Exercise of warrants 8, , , ,616, Private placement 77, ,729, , ,345, Repair issue 63, ,327, , ,673, Private placement 122, ,290, , ,963, Bonus issue 959, ,919, ,963, Share issue in connection with acquisition of Saga Forsikring AS (contribution in kind) 157, ,861, ,076, ,824, Share issue in connection with exercise of options 3, , ,080, ,000, Share issue in connection with acquisition of Rein Forsikring AS (contribution in kind) 24, ,242, ,104, ,243, Reverse share split ,104, ,310, Share issue in connection with exercise of options 474, ,931, ,579, ,241, Rights issue and private placement 30,000, ,000, ,579, ,241, Private placement 3,250,000 39,625, ,829, ,866,

40 10.3 LARGE SHAREHOLDINGS Shares Shareholders owning 5% or more of the Shares have an interest in the Company's share capital that is notifiable pursuant to the Securities Trading Act. As of the date of this Information Memorandum the following have an ownership interest of more than 5% of the Company's share according to the Company's share register: Shareholder Number of Shares % 1 D. Carnegie AB 25,341, The Company is not aware of any other persons or entities that, directly or indirectly, have an ownership interest of 5% or more of the share capital. 24

41 11. EXEMPTION FROM PRO FORMA FINANCIAL INFORMATION In the Company's interim report for Q the Swedish Portfolio are reported as "held for sale" and "discontinued operations", The Q interim report covers all relevant periods for which pro forma financial information is required pursuant to section of the Continuing Obligations for listed companies. The results and balance sheet items related to the discontinued operations has been reported on separate lines in the income statement and balance sheet. The income statement and balance sheet therefore represent continued operations in an accurate manner. As required by IFRS, comparable figures for the income statement for previous periods has been represented in the Q interim report, while comparable balance sheet figures for such previous periods have not been represented Oslo Børs has granted an exemption form the requirement to prepare pro forma financial information in section of the Continuing Obligations for listed companies on the basis that sufficient information is provided in the Company's interim report for Q

42 12. REGULATORY ENVIRONMENT 12.1 GENERAL Regulations on insurance companies fall under the Insurance Companies Act 2005, the Financial Enterprises Act 2015 ("FEA"), the Act on Supervision of Financial Institutions etc. 1956, the Insurance Agreements Act 1989, the Act on Personal Information 2000 and the Marketing Control Act 2009 and other relevant acts, with additional regulations. A purchase of the majority of the shares in the Company will not affect the public licenses of the Company and its subsidiaries. However, under the FIAA a change of ownership of qualified holdings in financial institutions requires an authorization, see below for details. Insurance companies fall within the definition of financial institutions LICENSE REQUIREMENTS The carrying out of insurance activities requires a public license under the FEA. The Company holds a license to carry on non-life insurance activities within the following insurance classes: 1. Accident 2. Sickness 3. Land vehicles (other than railway rolling stock) 4. Railway rolling stock 5. Aircraft 6. Ships (sea, lake and river and canal vessels) 7. Goods in transit (including merchandise, baggage, and all other goods) 8. Fire and natural forces 9. Other damage to property 10. Motor vehicle liability 11. Aircraft liability 12. Liability for ships (sea, lake and river and canal vessels) 13. General liability (All liability other than those forms mentioned under Nos 10, 11 and 12) 16. Miscellaneous financial loss 17. Legal expenses 18. Assistance Additionally, the Company is licensed to provide insurances within the following life insurance classes, with a maximum of one year duration: Group or individual capital insurance, with the exception for disability insurance, to be paid following on the policyholder's death Disability insurance, including waiver of premiums 12.3 APPROVAL OF PORTFOLIO TRANSFERS Pursuant to the FEA section 12-27, agreements regarding transfers of insurance portfolios must be approved by the Ministry of Finance if the portfolio makes up a significant part of the transferor and/or transferee company's activities. However, pursuant to section 12-1 in the proposal for a new Financial Enterprises Regulation which 26

43 is expected to be adopted shortly, an approval is always required when the portfolio in question has been underwritten pursuant to the freedom of establishment or the freedom to provide cross-border services i.e. for such portfolios an approval is required irrespective of whether the portfolio is significant. Further procedures which must be complied with when transferring an insurance portfolio are set out in regulation no. 506 of 22 Mai 1996 (which will be replaced by provisions in the new Financial Enterprises Regulations ; sections 12-1 and 12-2 in the proposal). The European Union (EU) has recently implemented a new prudential regime for insurance undertakings through the Solvency II Directive which came into force on 1 January The directive consolidates and harmonises existing EU insurance directives including life and non-life directives, the reinsurance directive and various others. The directive is hugely important as it provides a framework for a new, harmonised solvency and supervisory regime for the insurance sector. The EU's intention is that this new regime will provide higher and more uniform levels of consumer protection, as well as promote competitive equality. Solvency II is based on a three pillar structure, which can be summarized as follows: Pillar 1: Quantitative requirements, including valuation of assets and liabilities, technical reserves, and calculation of capital requirements Pillar 2: Requirements to the governance and risk management of the insurance companies, and supervisory control and review Pillar 3: Supervisory reporting and public disclosure Further information about the Solvency II regime is available on and For information on the Company's solvency capital requirement, please see note 7 to the Company's annual accounts for the financial year ending 31 December SOLVENCY REQUIREMENTS The European Union (EU) has recently implemented a new prudential regime for insurance undertakings through the Solvency II Directive which came into force on 1 January The directive consolidates and harmonises existing EU insurance directives including life and non-life directives, the reinsurance directive and various others. The directive is hugely important as it provides a framework for a new, harmonised solvency and supervisory regime for the insurance sector. The EU's intention is that this new regime will provide higher and more uniform levels of consumer protection, as well as promote competitive equality. Solvency II is based on a three pillar structure, which can be summarized as follows: Pillar 1: Quantitative requirements, including valuation of assets and liabilities, technical reserves, and calculation of capital requirements Pillar 2: Requirements to the governance and risk management of the insurance companies, and supervisory control and review Pillar 3: Supervisory reporting and public disclosure Further information about the Solvency II regime is available on and For information on the Company's solvency capital requirement, please see note 7 to the Company's annual accounts for the financial year ending 31 December

44 13. LEGAL MATTERS 13.1 DISPUTES As an insurance company, Vardia's business involves and inherent risk of disputes and litigation in connection with claims handling from time to time. However, neither the Company nor any company in the Group is, as at the date of this Information Memorandum, involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Group is aware), and has not been involved in any such proceedings during the previous twelve months, which may have, or have had in the recent past, significant effects on the Company and / or the Group s financial position or profitability MATERIAL CONTRACTS There are no material contracts, other than contracts entered into in the ordinary course of business, to which the Company or any member of the Group is a party, for the two years immediately preceding the date of this Information Memorandum. 28

45 14. ADDITIONAL INFORMATION 14.1 DOCUMENTS ON DISPLAY Copies of the following documents will be available for inspection at the Company s registered office during normal business hours from Monday to Friday each week (excluding public holidays) for a period of 12 months from the date of this Information Memorandum: i. the Memorandum of Association and Articles of Association of the Company; ii. the historical financial information of the Company and its subsidiary undertakings for each of the two financial years preceding the publication of this Information Memorandum, iii. stock exchange notices, including quarterly reports, distributed by the Company through Oslo Børs information system after the submission of the application for listing. iv. all reports, letters, and other documents and statements prepared by any expert at Company s request any part of which is included or referred to in the Information Memorandum 14.2 THIRD PARTY INFORMATION The information in this Information Memorandum that has been sourced from third parties has been accurately reproduced and, as far as the Company is aware and able to ascertain from the information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. 29

46 14.3 DOCUMENTS INCORPORATED BY REFERENCE The information incorporated by reference in this Information Memorandum should be read in connection with the cross reference list as set out in the table below. The following documents have been incorporated hereto by reference: Section in Information Memorand um Disclosure requirements of the Information Memorandum Reference document and link Page (P) in reference document Section 9 Section 9 Section 9 Section 9 Audited historical financial information (Annex I, Section 20.1) Audit report (Annex I, Section ) Accounting policies (Annex I, Section 20.1) Interim financial information (Annex I, Section ) Vardia financial statements 2015: Vardia Director's report Vardia financial statements %C3%85rsregnskap-2014-med-erkl%C3%A6ring.pdf Vardia Director's report %C3%85rsregnskap-2014-med-erkl%C3%A6ring.pdf Vardia financial statements Vardia Director's report Vardia Auditor's report Vardia Auditor's report %C3%85rsregnskap-2014-med-erkl%C3%A6ring.pdf Vardia Auditor's report Vardia Accounting principles Vardia first quarter financial statements 2016, with comparable figures for the same period in Vardia The Board and CEO's statement P P P P. 3-7 P P P P P P P P

47 Registered office Vardia Insurance Group ASA Haakon VII's gate 2 N-0161 OSLO Norway Phone: