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PROSPECTUS
Vardia Insurance Group ASA (a public limited liability company
organised under the laws of Norway)
A fully underwritten Offering of 375,000,000 New Shares, each
with a par value of NOK 0.08, through a Rights Issue and a Private
Placement
The listing of up to 275,000,000 Subscription Rights in the
Rights Issue for trading on Oslo Brs under the ticker symbol
"VARDIA T"
The listing of 375,000,000 New Shares offered in the Rights
Issue and the Private Placement on Oslo Brs
Subscription Price: NOK 1.00
Trading period for the Subscription Rights: From and including
13 May 2015 to 16:30 (CET) on 22 May 2015
Subscription and application Period: From and including 13 May
2015 to 16:30 (CET) on 27 May 2015
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This prospectus (the "Prospectus") has been prepared in order to
provide information regarding Vardia Insurance Group ASA ("Vardia"
or the "Company") and its business in connection with (i) the
offering of 375,000,000 new shares in the Company with a par value
of NOK 0.08 each (the "New Shares") through (a) the fully
underwritten rights issue of 275,000,000 New Shares (the "Rights
Issue") and (b) the fully underwritten private placement of
100,000,000 New Shares (the "Private Placement" and together with
the Rights Issue collectively referred to as the "Offering"), (ii)
the listing of up to 275,000,000 subscription rights in the Rights
Issue (the "Subscription Rights") issuable to shareholders who are
registered in the Company's shareholder register as at the end of
11 May 2015 (the Company's shareholders as at the end of the date
on which this Prospectus was approved, 7 May 2015, as evidenced in
the Norwegian Central Securities Depository ("VPS") in accordance
with normal T+2 settlement) (the "Record Date") on Oslo Brs, and
(iii) the listing of the New Shares on Oslo Brs. All offers and
sales in the United States will be made to "qualified institutional
buyers" ("QIBs") as defined in Rule 144A under the United States
Securities Act of 1933, as amended (the "U.S. Securities Act") in a
private placement as contemplated under Section 4(a)(2) under the
U.S. Securities Act or pursuant to another applicable exemption
from, or in a transaction not subject to, the registration
requirements of the U.S. Securities Act. All offers and sales
outside the United States will be made in reliance on Regulation S
("Regulation S") under the U.S. Securities Act. Investing in the
New Shares involves a high degree of risks. Prospective investors
should read the entire Prospectus and, in particular, consider
Section 2 "Risk Factors" when considering an investment in the
Company.
The New Shares have not been, and will not be, registered under
the U.S. Securities Act or with any securities regulatory authority
of any state or other jurisdiction in the United States, and may
not be offered or sold within the United States except to QIBs in
reliance on an exemption from the registration requirements of the
U.S. Securities Act, or outside the United States in compliance
with Regulation S. For certain restrictions on transfer, see
Section 15 "Selling and Transfer Restrictions".
SUBSCRIPTION RIGHTS NOT USED TO SUBSCRIBE FOR NEW SHARES BEFORE
THE END OF THE SUBSCRIPTION PERIOD 16:30 (CET) 27 MAY 2015, OR THAT
ARE NOT SOLD BEFORE THE END OF TRADING ON OSLO BRS 16:30 (CET) ON
22 MAY 2015, WILL LAPSE WITHOUT COMPENSATION TO THE HOLDER, AND
CONSEQUENTLY BE OF
NO VALUE.
IF THE PRIVATE PLACEMENT IS NOT RESOLVED AT THE COMPANY'S
GENERAL MEETING SCHEDULED TO BE HELD ON OR ABOUT 28 MAY 2015, THE
OFFERING WILL NOT BE COMPLETED AND THE SUBSCRIPTION RIGHTS
WILL LAPSE WITHOUT COMPENSATION TO THE HOLDER, AND CONSEQUENTLY
BE OF NO VALUE ________ ______ ______ ______ ______ ______ ______
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Manager
Pareto Securities
The date of this Prospectus is 7 May 2015
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Important information
This Prospectus has been prepared by the Company in connection
with the (i) Offering, (ii) listing of the Subscription Rights on
Oslo Brs and (iii) listing of the New Shares on Oslo Brs. For the
definitions of terms used throughout this Prospectus, see Section
17 "Definitions and Glossary of Terms" of this Prospectus.
_______________________
The Company has furnished the information in this Prospectus.
This Prospectus has been prepared in compliance with the Norwegian
Securities Trading Act of 29 June 2007 no. 75 (the "Norwegian
Securities Trading Act") and related secondary legislation,
including the Commission Regulation (EC) no. 809/2004 implementing
Directive 2003/71/EC of the European Parliament and of the Council
of 4 November 2003 regarding information contained in prospectuses,
as amended, and as implemented in Norway (the "EU Prospectus
Directive"). The Prospectus has been published in an English
version only with a Swedish summary. The Financial Supervisory
Authority of Norway (Nw.: Finanstilsynet) (the "FSA") has reviewed
and approved this Prospectus in accordance with Sections 7-7 and
7-8 of the Norwegian Securities Trading Act. The FSA has not
controlled or approved the accuracy or completeness of the
information included in this Prospectus. The approval by the FSA
only relates to the information included in accordance with
pre-defined disclosure requirements. The FSA has not made any form
of control or approval relating to corporate matters described in
or referred to in this Prospectus. Furthermore, the Prospectus has
been passported to Sweden through a notification to the Swedish
Financial Supervisory Authority (Sw.:Finansinspektionen) in
accordance with Section 7-9 of the Norwegian Securities Trading
Act.
The Company has engaged Pareto Securities AS (the "Manager") as
the manager for the Offering. All inquiries relating to this
Prospectus must be directed to the Company. No person other than
the Company is authorised to give any information, or make any
representation, on behalf of the Company in connection with the
Offering and, if given or made, such information or representation
must not be relied upon as having been authorised by the
Company.
The information contained herein is as of the date hereof and
subject to change, completion or amendment without notice. There
may have been changes affecting the Company or its subsidiaries
(collectively referred to as the "Group") subsequent to the date of
this Prospectus. In accordance with Section 7-15 of the Norwegian
Securities Trading Act, any new circumstance, material error or
inaccuracy relating to information included in the Prospectus,
which may have significance for the assessment of the Shares, and
arises between approval of the Prospectus and the listing of New
Shares, will be presented in a supplement to the Prospectus. Such
supplementary prospectus shall be approved by the FSA and be
published. Neither the delivery of this Prospectus nor the
completion of the Offering, including listing of the New Shares, at
any time after the date hereof will, under any circumstances,
create any implication that there has been no change in the Groups
affairs since the date hereof or that the information set forth in
this Prospectus is correct as of any time since its date.
No action to approve, register or file the Prospectus has been
made outside Norway and Sweden. The distribution of this Prospectus
and the offering and sale of the New Shares may in certain
jurisdictions be restricted by law. Persons in possession of this
Prospectus are required to inform themselves about and to observe
any such restrictions. This Prospectus does not constitute an offer
of, or an invitation to subscribe or purchase, any of the New
Shares in any jurisdiction in which such offer or sale would be
unlawful. No one has taken any action that would permit a public
offering of shares to occur outside of Norway and Sweden.
The New Shares have not been and will not be registered under
the U.S. Securities Act, or with any securities authority of any
state of the United States, and may not be offered or sold except
pursuant to an exemption from,
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or in a transaction not subject to, the registration
requirements of the U.S. Securities Act and in compliance with any
applicable state securities laws. The New Shares are only being
offered pursuant to exemptions from, or in transactions not subject
to, registration under the U.S. Securities Act, including (i) in
the United States only to QIBs in reliance on an exemption from the
registration requirements of the U.S. Securities Act and (ii)
outside the United States only in offshore transactions (as defined
in, and in accordance with, Regulation S). The contents of this
Prospectus are not to be construed as legal, business or tax
advice. Each reader of this Prospectus should consult with its own
legal, business or tax advisor as to legal, business or tax aspects
of an investment in the New Shares. Each investor should consult
with his or her own advisors as to the legal, tax, business,
financial and related aspects of a purchase of the New Shares.
Neither the Manager, nor any of its advisers, make any
representation or warranty, whether express or implied, as to the
accuracy, completeness or verification of the information set forth
in this Prospectus, and nothing contained in this Prospectus is, or
shall be relied upon as, a promise or representation, whether as to
the past or the future, by the Manager. Neither the Company nor the
Manager, or any of their affiliates, representatives, advisers or
selling agents, is making any representation to any offeree or
purchaser of the New Shares regarding the legality of an investment
in the New Shares.
In the ordinary course of their respective businesses, the
Manager and certain of its affiliates have engaged, and may
continue to engage, in investment and commercial banking
transactions with the Group or companies in the Group.
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TABLE OF CONTENTS 1. SUMMARY
..........................................................................................................................................
4
2. RISK FACTORS
................................................................................................................................
13
3. RESPONSIBILITY FOR THE PROSPECTUS
.................................................................................
23
4. CAUTIONARY NOTE
......................................................................................................................
24
5. THE OFFERING
................................................................................................................................
25
6. PRESENTATION OF THE GROUP
.................................................................................................
44
7. INDUSTRY OVERVIEW
..................................................................................................................
58
8. BOARD OF DIRECTORS, MANAGEMENT, EMPLOYEES AND CORPORATE
GOVERNANCE
.................................................................................................................................
63
9. SELECTED OPERATING AND FINANCIAL INFORMATION
.................................................... 77
10. SHARES AND SHARE
CAPITAL....................................................................................................
96
11. REGULATORY ENVIRONMENT
.................................................................................................
104
12. SECURITIES TRADING IN NORWAY
.........................................................................................
108
13. NORWEGIAN TAXATION
............................................................................................................
111
14. LEGAL MATTERS
..........................................................................................................................
114
15. SELLING AND TRANSFER RESTRICTIONS
..............................................................................
115
16. ADDITIONAL INFORMATION
.....................................................................................................
120
17. DEFINITIONS AND GLOSSARY OF TERMS
..............................................................................
122
18. SAMMANFATTNING
....................................................................................................................
125
APPENDICES APPENDIX 1: SUBSCRIPTION AND APPLICATION FORM
......................................................................
134
APPENDIX 2: STATEMENT FROM THE COMPANY'S AUDITOR REGARDING
PROFIT ESTIMATE 136
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1. SUMMARY
Summaries are made up of disclosure requirements known as
"Elements". These elements are numbered in Sections A E (A.1
E.7).
This summary contains all the Elements required to be included
in a summary for this type of securities and issuer. Because some
Elements are not required to be addressed, there may be gaps in the
numbering sequence of the Elements.
Even though an Element may be required to be inserted in the
summary because of the type of securities and Issuer, it is
possible that no relevant information can be given regarding the
Element. In this case a short description of the Element is
included in the summary with the mention of "not applicable".
Section A Introduction and warnings
A.1 Introduction and warnings
This summary should be read as an introduction to the
Prospectus.
Any decision to invest in the New Shares should be based on
consideration of the Prospectus as a whole by the investor.
Where a claim relating to the information contained in the
Prospectus is brought before a court, the plaintiff investor might,
under the national legislation of the relevant European Union
member states, have to bear the costs of translating the Prospectus
before the legal proceedings are initiated.
Civil liability attaches only to those persons who have tabled
the summary including any translation thereof, but only if the
summary is misleading, inaccurate or inconsistent when read
together with the other parts of the Prospectus or it does not
provide, when read together with the other parts of the Prospectus,
key information in order to aid investors when considering whether
to invest in such securities.
A.2 Consent to the use of the prospectus by financial
intermediaries
Not applicable.
Section B Issuer and any guarantor
B.1 Legal and commercial name
The Company's legal name is Vardia Insurance Group ASA and is
also sometimes referred commercially to as "Vardia".
B.2 Domicile/ Legal form/ Legislation/ Country of
incorporation
Vardia is incorporated in Norway as a Norwegian Public Limited
Liability Company (nw. allmennaksjeselskap), and is registered with
the Norwegian Register of Business Enterprises with registration
number 994 288 962. The Company's registered office is Haakon VII's
gate 2, 0161 OSLO, Norway. Vardia is subject to Norwegian law,
hereunder inter alia the Norwegian Public Limited Liability
Companies Act.
B.3 Key factors of operations and principal activities
The Groups main focus is on the market for property and casualty
insurance for the retail and small & medium sized enterprises
(SME) segments in Norway, Sweden and Denmark. The Group 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.
B.4a Significant recent trends affecting the Issuer and the
Except for changes in EEA-legislation applicable to insurance
companies as further described in this Prospectus, there are no
known trends, uncertainties, claims, obligations or occurrences
which are likely to have a significant effect on Vardia or the
insurance industry.
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industry in which it operates
B.5 Description of group
Vardia is the parent entity in the Group which consists of the
following wholly owned subsidiaries:
- Vardia Forsikring AS (Norway) - Vardia Frskring AB (Sweden) -
Vardia Forsikringsagentur A/S (Denmark) - Vardia Eksterne Kanaler
AS (Norway) - Vardia Agencies AS (Norway) - Rein Forsikring AS
(Norway)
B.6 Notifiable voting rights
To the Company's knowledge, Aakvik Holding AS (1,674,733 shares,
5.19% of the share capital) is the only shareholder who directly or
indirectly has a notifiable shareholding. Each share yields one
vote at the Company's general meetings, regardless of the total
number of shares the shareholder owns.
To the Company's knowledge, the Company is not directly or
indirectly owned or controlled by anyone person or group.
B.7 Selected historical key financial information
Except for the table included under the heading "Summary of
gross turnover" which are not sourced from the Company's
consolidated annual accounts, the below tables show condensed
versions of Vardia's (i) consolidated income statements, (ii)
consolidated balance sheets, and (iii) consolidated cash flow
statements for the last three financial years. Please be advised
that the figures are mainly extracted from the Company's
consolidated annual accounts for 2014 as the Company has amended
certain of its accounting principles.
Summary of gross turnover NOK millions (unaudited) 2012 2013
2014 Turnover
...................................................................................
345.1 717.8 1.322.6 Agency business and premiums on sold policies
for next year (171.9) (146.1) (156) Gross written premiums
........................................................... 173.2
571.7 1,166.6
Consolidated income statements
(NOK millions) 2012 (IFRS audited)
2013 (IFRS audited)
2013 (IFRS, restated)
2014 (IFRS audited)
Gross written premiums
........................................................... 173.2
571.2 571.7 1,166.6 Premiums reinsured
................................................................
(129.3) (426.9) (426.9) (869.5) Premiums written for own
account........................................... 43.9 144.9 144.9
297.1 Premiums earned for own account
........................................... 14.9 98.1 98.1 224.3
Profit/(loss) from technical accounts before changes in security
reserve
................................................................
(46.4) (57.9) (149.9) (183.0) Profit/(loss) from technical accounts
................................ (49.5) (68.8) (160.7) (198.2)
Profit/(loss) before tax
..............................................................
(49.7) (70.0) (162.0) (187.1) Profit/(loss) for the period (36.2)
(50.0) (163.0) (188.8)
Gross combined ratio
(%)...................................................... 204.4
118.4 141.8 129.8
Combined ratio for own account (%)
................................ 549.9 162.7 256.5 191.2
Consolidated balance sheets
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(NOK millions) 2012 (IFRS
audited) 2013 (IFRS
audited) 2013 (IFRS,
restated) 2014 (IFRS
audited) Total assets
.............................................................................
390.7 1,017.4 852.3 1,632.7 Total equity
............................................................................
99.5 249.1 41.9 26.7 Total liabilities
................................................................
291.1 768.3 810.4 1,606.0
Total equity and liabilities 390.7 1,017.4 852.3 1,632.7
Consolidated cash flow statements (NOK millions) 2012 (IFRS)
2013 (IFRS) 2014 (IFRS) Net cash flow from operating activities
(54.0) (35.6) (65.6) Net cash flow from investing activities (13.8)
(20.8) (42.3) Net cash flow from financing activities 80.1 143.7
160.9
Net cash flow for the period 12.2 87.3 53.0 Cash and cash
equivalents at the end of the period 43.8 131.1 185.0
B.8 Pro forma financial information
Not applicable.
B.9 Profit forecast or estimate
The Group's result for Q1 2015 is estimated by the Company to be
a total loss of approximately NOK 50-60 million.
B.10 Audit report qualifications
Not applicable.
B.11 Working capital As at the date of this Prospectus, the
Group does not have sufficient working capital for its present
requirements for the next twelve months. For the purposes of this
working capital statement, when using the term "working capital"
the Company not only includes the capital required to fulfill its
obligations when they fall due, but also the capital required to
operate in compliance with the applicable requirements for solvency
margin capital and capital adequacy. The Group expects to be able
to pay its obligations as they fall due; however, the Company is
not guaranteed to be able to fully comply with the capital adequacy
requirements and/or solvency margin requirements applicable for the
Company for the next twelve months, if the Company continues to
grow at its current pace.
Based on the Company's current estimates (which includes the net
proceeds from the guaranteed Offering), the Company will if no
actions are successfully taken be in non-compliance with its
solvency margin requirements (or the applicable capital
requirements under Solvency II) during the third quarter of 2015.
The Companys shortfall of working capital in order to be in
compliance with its solvency margin requirement for the next twelve
months is estimated to be approximately NOK 50 million, but will be
reduced to the extent that the below counter measures reduce the
Company's costs or the Company's solvency margin requirement. The
Company's shortfall could also be affected by the introduction of
Solvency 2, which will be implemented 1 January 2016, inter alia
with respect to the treatment of any subordinated debt obtained by
the Company.
In order to secure continued compliance with the Company's
solvency margin requirements, the Company plans to raise a
subordinated Tier 2 loan of around NOK 75 million. Furthermore, the
Company has initiated a number of measures in order to reduce cost
and improve performance going forward. The Company expects the
placement of a subordinated Tier 2 loan and the abovementioned cost
reductions to be sufficient to secure
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that the Company will fulfill its solvency margin requirements
for at least the twelve months' following the date of this
Prospectus.
Should the above measures prove insufficient to secure the
Groups working capital requirements, the Company will evaluate
alternative actions such as reducing growth, increased reinsurance,
additional equity offerings, sale of assets, corporate
reorganization and/or sale of parts of its portfolio.
Based on the above and the information available on the date of
this Prospectus, the Company is confident that the above actions
will be successful in providing sufficient working capital for its
present requirements for the next twelve months.
The Company will have to rely on the above measures to remain
compliant with its solvency margin requirements. If none of the
above financing measures are carried out or successful, the Company
expects to breach the abovementioned requirements by end of the
third quarter of 2015. In such event, the implications for the
Company may include the FSA impose a stop of new sales, the Company
losing its license to be an insurance company or the FSA demanding
that the Company's insurance portfolio is sold in part or in
full.
Section C Securities
C.1 Description the type and the class of the securities and the
security identification code
The Company has one class of shares in issue. The New Shares
offered in the Offering will in all respect be equal to the
existing Shares of the Company, once the New Shares have been
issued and registered with the Norwegian Register of Business
Enterprises and the VPS. The Company's Shares are registered in VPS
under ISIN NO 0010593544.
C.2 Currency The offer price in the Offering is denominated in
Norwegian kroner.
C.3 Number of issued shares and par value
At the date of the Prospectus the issued share capital is NOK
2,579,359.04 divided into 32,241,988 Shares, each with a nominal
value of NOK 0.08. All the issued Shares are fully paid.
C.4 Rights attached to the shares
All issued Shares have the same rights. The Shares to be issued
under the Offering will have the same rights as the other Vardia
Shares as of the registration of the share capital increase with
the Norwegian Register of Business Enterprises.
C.5 Restriction on the free transferability of the shares
Except for statutory ownership limitations and approval
requirements at certain ownership thresholds, which are applicable
to all insurance companies, and any lock up agreements entered
into, Vardia's Shares are freely transferable.
C.6 Application for admission to trading on a regulated
market
The Company's existing Shares are listed on Oslo Brs.
The Company expects commencement of trading in the New Shares on
Oslo Brs on or about 10 June 2015. The Company has not applied for
admission to trading of the Shares on any other stock exchange or
regulated market.
C.7 Dividend policy Vardia is currently in a growth phase, but
expects to distribute dividends in the future. The Company has to
date not distributed any dividends since its incorporation.
Section D Risks
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D.1 Key risks relating to the issuer and its business
Vardia is exposed to inter alia risk factors related to: -
Market cyclicality - Competition - Legal and regulatory conditions
- Regulatory regime - Risks related to changes of applicable
accounting principles/standards or
interpretations thereof - Tax and VAT-laws and regulations -
Risks related to the recent changes to Vardias accounting
principles - Catastrophes, natural disasters and terrorist related
events - Change in availability of or cost of reinsurance coverage
- Material flaws in the Group's underwriting or operating controls
or failure to
prevent fraud - Underwriting and reserve risk - Service
providers - Organisational development and terms of employment -
Loss of reputation - Risks related to growth and growth management
- Risks related to Deferred acquisition costs and liability
adequacy test - Litigation - Future dividends - Interest rate
risk
D.3 Key risks relating to the shares
The Shares are exposed to inter alia risk factors related to: -
Fluctuation in the share price - Existing Shareholders who do not
participate in the Offering may experience
significant dilution in their shareholding - An active trading
market in the Subscription Rights may not develop on Oslo
Brs and/or the market value of the Subscription Rights may
fluctuate - If the Offering is withdrawn, the Subscription Rights
will no longer be of value - Future issuances of shares or other
securities - Limited liquidity - Nominee accounts and voting rights
- Difficulties for foreign investors to enforce non-Norwegian
judgements - Limitations on the shareholders' ability to bring
actions against the Company - Exchange rate risks - Dilution -
Transfer restrictions
Section E Offer
E.1 Net proceeds and estimated expenses
The gross proceeds to the Company from the Offering will be NOK
375 million.
The total costs and expenses in relation to the Offering and the
listing of the Subscription Rights and the New Shares are estimated
to be approximately NOK 34 million. The costs and expenses will be
paid by the Company.
Consequently, the expected net proceeds to the Company from the
Offering will be NOK 341 million.
E.2a Reasons for the offer and use of proceeds
In connection with, and shortly before the completion of, the
Company's financial audit of its annual accounts for 2014, Vardia
had to make changes in the accounts, which lead to a significant
weakening of the Companys capital adequacy and solvency margin on
group level.
First, the financial audit concluded that in the parent company,
Vardia Insurance Group ASA, the activated costs had to be written
down as a result of the booked sales cost being
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underestimated. The total impairment for 2012, 2013 and 2014 was
NOK 144 million, of which NOK 49 million relates to previous
years.
Second, in the opinion of the auditor, the accounting of direct
variable sales cost in previous years group annual accounts was not
in line with applicable accounting standards. Total impairment of
this record is NOK 135.6 million in the Group's consolidated
balance sheet, of which NOK 109 million relates to previous
years.
Furthermore, IAS 12 pt. 35 sets out strict requirements for
recognition of deferred tax assets from tax losses. As at 31
December 2014, these requirements were assessed to not be
fulfilled. The tax benefit of NOK 49.0 million in the balance sheet
as at 31 December 2013 is therefore not recognized in the restated
balance sheet and consequently reduced to NOK 0.
The above matters, came as a surprise both to the board of
directors and the management. The Company has been audited by the
same auditor since start of operations in 2009, and has received
unqualified auditor statements without remarks in all previous
accounting years, including 2013, and the group consolidated
accounts were also subject to thorough review by other external
advisors in connection with the initial public offering in 2014
without any issues raised related to the accounting items in
question.
The final conclusion to change the accounts made the board of
directors aware that the group would no longer meet the regulatory
minimum requirements relating to capital adequacy and solvency
margin on a group level.
On a Group level, the Company is in breach of the capital
adequacy and solvency margin as at 31. December 2014; however, the
Group has obtained an exemption from these requirements from the
FSA until 31 May 2015. As at 31 March 2015, Vardia Insurance Group
ASA is in breach of the solvency margin on a company level, and the
Company has obtained an exemption from this requirement from the
FSA until 31. May 2015. The exemptions are conditional upon inter
alia that the financial situation of the Group does not deteriorate
materially in the relevant period.
On this basis it was immediately established and implemented a
plan for restoring the minimum requirements with a buffer. The
Company has been in a close and constructive dialogue with the FSA
and Oslo Brs regarding the situation. As a consequence of the
changes in accounts, the Company has to strengthen its equity with
NOK 275 million in new capital.
The reasons for the Private Placement, and consequently the
increase of the total gross proceeds from the Offering by NOK 100
million, are as follows:
The audited figures deviated from the preliminary 2014 results
with about NOK 12 million. The deviations were due to a stricter
interpretation and a correction of the Companys receivables.
The strict interpretation of accounting principles, which will
also give a negative effect on the 2015 results due to a larger
part of the sales cost having to be accounted for directly instead
of amortized.
In order to control cancellations of insurance policies, the
Company has changed the basis for its invoicing of sales
commissions within the Group. Commissions will be calculated based
on written premiums and not sold premiums. This will implicate
higher costs in 2015, while the benefit of the change is that
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cancellations will be corrected immediately.
Vardias business model continues to generate growth and it is
the Company's board of directors view that as long as Vardia builds
portfolio value will be created and the Company will be profitable.
The board of directors wants to ensure that the Company has an
adequate capital buffer to support the growth going forward.
The net proceeds from the Offering of NOK 341 million will be
used to strengthen the Company's equity in order to ensure
compliance with the minimum capital adequacy and solvency margin
requirements applicable to the Company for the next twelve
months.
E.3 Terms and conditions of the offer
The Offering comprises an offering of 375,000,000 New Shares,
with a par value of NOK 0.08 each, at a subscription price of NOK 1
per New Share. Shareholders who are registered in the Companys
shareholder register as at the end of the Record Date will be
granted tradable Subscription Rights for the New Shares offered in
the Rights Issue. No separate subscription rights will be issued in
relation to the New Shares offered in the Private Placement.
In order to secure the Company sufficient subscriptions in the
Rights Issue and sufficient applications in the Private Placement,
the Company, together with the Manager, has established two
underwriting consortiums consisting of existing shareholders and
certain external investors.
The Subscription Period for the Offering commences on 13 May
2015 and expires at 16:30 (CET) on 27 May 2015 and may not be
closed prior to this date or extended.
The Subscription Rights will be issued and registered in the VPS
under ISIN NO 001 0734031, and will be listed for trading on Oslo
Brs under the ticker symbol "VARDIA T" from 13 May 2015 to 16:30
(CET) on 22 May 2015. The Subscription Rights will be delivered
free of charge and the recipient will not be debited any
charges.
The allocation of New Shares in the Rights Issue will be made by
the board of directors of the Company by applying the following
criteria:
a) Allocation will be made to subscribers on the basis of
granted and acquired Subscription Rights which have been validly
exercised during the Subscription Period.
b) If not all Subscription Rights are exercised, subscribers who
have exercised Subscription Rights and oversubscribed will be
allocated additional shares proportionally based on the number of
Subscription Rights exercised by each such subscriber. To the
extent that proportional allocation is not possible, the Company
will determine the allocation by the drawing lots.
c) Shares not allocated pursuant to sub-items (a) and (b) will
be allocated to subscribers who does not hold Subscription Rights
and who are participants in the guarantee consortium for the Rights
Issue. Allocation will be made pro rata based on the number of
shares subscribed for.
d) Shares not allocated pursuant to sub-items (a), (b) and (c)
will be allocated to subscribers who does not hold Subscription
Rights and who are not participants in the guarantee consortium for
the Rights Issue. Allocation will be made pro rata based on the
number of shares subscribed for.
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11
e) Shares not allocated pursuant to sub-items (a), (b), (c) and
(d) above, will be subscribed by, and allocated to, the
underwriters listed in section 5.19 in accordance with the
guarantee commitments of the respective underwriters.
The allocation of New Shares in the Private Placement will be
made by the board of directors of the Company by applying the
following criteria:
a) Allocation will first be made to subscribers who have (i)
exercised subscription rights in the Rights Issue, (ii)
oversubscribed in the Rights Issue, and (iii) been allocated less
shares in the Rights Issue than their total subscription.
Allocation will be made proportionally based on the number of
subscription rights exercised by each such subscriber in the Rights
Issue. To the extent that proportional allocation is not possible,
the Company will determine the allocation by drawing lots.
b) Shares not allocated pursuant to sub-item (a) will be
allocated to subscribers who does not hold subscription rights in
the Rights Issue and who are participants in the guarantee
consortium for the Private Placement. Allocation will be made pro
rata based on the number of shares subscribed for.
c) Shares not allocated pursuant to sub-items (a) and (b) will
be allocated to subscribers who does not hold subscription rights
in the Rights Issue and who are not participants in the guarantee
consortium for the Private Placement. Allocation will be made pro
rata based on the number of shares subscribed for.
d) Shares not allocated pursuant to sub-items (a), (b) and (c)
above, will be subscribed by, and allocated to, the underwriters
listed in section 5.19 in accordance with the guarantee commitments
of the respective underwriters.
Subscriptions of New Shares in the Offering will first be
allocated to the Rights Issue, then to the Private Placement. No
distinction will be made between allocated and acquired/purchased
Subscription Rights.
The allocation of New Shares will take place after the expiry of
the Subscription Period on or about 28 May 2015 and notifications
of allocation will be issued by post on or about 28 May 2015.
The payment for the allocated New Shares falls due on 3 June
2015.
The Offering is fully underwritten. Pursuant to the underwriting
agreements, the underwriters shall receive an underwriting fee
equal to 3% of the aggregate amount underwritten by the
underwriters. Certain primary underwriters in the Private Placement
may in addition receive an additional 3% underwriting fee for their
commitment.
E.4 Interests material to the offer
The Manager or its affiliates have provided from time to time,
and will provide in the future, investment and commercial banking
services to the Company and its affiliates in the ordinary course
of business, for which they may have received and may continue to
receive customary fees and commissions. The Manager, its employees
and any affiliates may currently own Shares in the Company.
Further, in connection with the Offering, the Manager, its
employees and any affiliate acting as an investor for its own
account may receive Subscription Rights (if they are Shareholders)
and may exercise their right to take up such Subscription Rights
and acquire New Shares, and, in that capacity, may retain, purchase
or sell New Shares and any other securities issued by the Company
or other investments for their own account and may offer or sell
such securities (or other
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12
investments) otherwise than in connection with the Offering. The
Manager does not intend to disclose the extent of any such
investments or transactions otherwise than in accordance with any
legal or regulatory obligation to do so. The Manager will receive a
commission in connection with the Offering and, as such, have an
interest in the Offering.
Furthermore, the Underwriters' and the PP Underwriters'
obligation to subscribe for New Shares will be determined based on
the demand for New Shares in the Offering. Consequently, the
Underwriters may as such have an interest in the Offering.
Except for the above, the Company is not aware of any natural or
legal person having an interest in the Offering which is material
in the context of the Offering.
E.5 Selling entity and lock-up agreements
In connection with their underwriting, the Underwriters and the
PP Underwriters have undertaken lock-up obligations until the
earlier of (i) the expiry of the Subscription Period in the
Offering, and (ii) 31 May 2015.
E.6 Dilution The percentage of immediate dilution resulting from
the Offering for the Company's shareholders is expected to be
approximately 92.1% based on the issuance of 375,000,000 New
Shares.
E.7 Expenses charged to the investor
Not applicable. The expenses related to the Offering will be
paid by the Company.
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13
2. RISK FACTORS
2.1 GENERAL
Investing in the New Shares involves a number of risks.
Prospective investors should carefully consider, among other
things, the specific risk factors set out in this Section and the
information elsewhere in the Prospectus before making an investment
decision. The risks described below are risks concerning the
Company, the Group, the Companys and/or the Group's industry and
the Company's Shares, that are deemed material by the Company and
that the Company is aware of as at the date of this Prospectus. If
any of the risks described below materialise, individually or
together with other circumstances, the Companys and/or the Group's
business, financial position, cash flow, results of operations
and/or prospects could be materially adversely affected, which may
cause a decline in the value and trading price of the Shares that
could result in a loss of all or part of any investment in the
Shares.
A prospective investor 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.
The order in which the below risk factors are presented is not
intended to give any indication of the likelihood of their
occurrence nor of their severity or significance.
2.2 RISK RELATED TO THE GROUPS BUSINESS AND THE INSURANCE
INDUSTRY
2.2.1 Market cyclicality
The Scandinavian general 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 the
Group's financial position and results of operations.
2.2.2 Competition The Group faces significant competition in
each of the Group's lines of business, from both domestic, Nordic
and international insurance companies. If the Group is unable or is
perceived to be unable to compete efficiently, the Group'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.
2.2.3 Legal and regulatory conditions The legal and regulatory
systems under which the Group operates and potential changes
thereto may have a material adverse effect on the business. The
Group'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.
The Groups business depends on the continuing validity of
several permits and exemptions and its compliance with the terms of
such permits and exemptions. There is a risk that permits and
exemptions needed for the Groups business may not be issued or
renewed or such issuance or renewal may be delayed, or that such
permits and exemptions are revoked. If a company in the Group is
unable to obtain, maintain or renew necessary permits and
exemptions, the Groups 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 Group's financial position or results of
operations.
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14
2.2.4 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 costs of the Group and the rest of the
insurance industry. One example is that the authorities introduce
measures that may affect the Group's business, for example through
stricter solvency requirements or other specific requirements.
The European Union (EU) is in the process of implementing a new
prudential regime for insurance undertakings. As a first step, the
Solvency II Directive (2009/138/EC) was adopted by the Council of
the European Union and the European Parliament in November 2009.
Revisions to the Solvency II Directive are adopted in the Omnibus
II Directive and scheduling the application date of the Solvency II
Directive for 1 January 2016.
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 provisions, 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
The Solvency II Directive is a principle based framework
directive which will be supplemented by implementing measures from
the EU Commission and technical standards and guidance by the
European Insurance and Occupational Pensions Authority (EIOPA). On
10 October 2014 the Commission adopted a Delegated Act containing
implementing measures for Solvency II.
The Solvency II Directive will be implemented into Norwegian law
in a new act on financial institutions and financial groups, which
was adopted by the parliament on 7 April 2015, and the new act will
enter into force on 1 January 2016. The FSA has provided the
Ministry of Finance with a proposal for new regulations, which was
subject to public consultation until 20 March 2015. Due to the
delay of the implementation of Solvency II, EIOPA has issued
preparatory guidelines for the application of parts of the Solvency
II rules from 1 January 2014. The guidelines regards the forward
looking assessment of own risks (based on ORSA principles), pre
application of internal models, submission of information to the
national supervisory authorities and the system of governance. The
purpose of the preparatory guidelines is to ensure effective
preparation for Solvency II, so that when Solvency II is
applicable, the requirements can be fully complied with. The FSA is
expecting that the Norwegian insurance companies comply with the
guidance from EIOPA.
Further information about the Solvency II regime is available on
http://ec.europa.eu/internal_market/insurance/index_en.htm,
https://eiopa.europa.eu/ and www.finanstilsynet.no.
2.2.5 Risks related to changes of applicable accounting
principles/standards or interpretations thereof The Company
prepares its annual accounts (and interim reports) in accordance
with International Financial Reporting Standards ("IFRS") which is
a set of accounting standards developed by an independent,
not-for-profit organization called the International Accounting
Standards Board ("IASB"). The IFRS and related rules and
regulations are subject to potential changes both in the standards
themselves as well as in the interpretation thereof. Furthermore,
differences may arise between the Company and its auditor or other
advisors with respect to the interpretation of IFRS and/or other
applicable rules and regulations. As evidenced by recent events,
changes in the Company's accounting principles or the
interpretations thereof may have a material adverse effect on the
Group's business and its compliance with capital and solvency
margin requirements. The Group's ability to conduct business
requires the holding and maintenance of certain capital
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15
and solvency margin requirements on both company and
consolidated level. 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.
Moreover, the preparation of financial statements in accordance
with IFRS requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, as well
as the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates. Uncertainties include impairment
reviews, evaluation of useful lives of assets, income taxes and
provisions Changes in key assumptions could lead to the recognition
of additional impairment losses. Changes in evaluation of the
useful lives of assets may change depreciation and amortization
going forward.
Vardia cannot predict the timing or form of any future changes
of IFRS or its interpretation nor the effect it may have on the
Group's financial position or results of operations.
2.2.6 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 Group's income and costs of the 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 Group'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
Group's financial position or results of operations.
2.2.7 Risks related to the recent changes to Vardias accounting
principles As set out in Section 5.1 "Reasons for the Offering and
use of proceeds", Vardia recently had to make changes to the
accounting principle related to activated sales cost at a group
consolidated basis, leading to a significant weakening of the
Companys group equity and also having the effect that the trading
price for the Shares fell significantly upon announcement of the
change. There can be no assurance that no claims and/or proceedings
will be initiated against the Company in relation to the changes to
the accounting principles, and such claims and/or proceedings could
have a material adverse effect on the Group's financial position
and results of operations.
2.2.8 Catastrophes, natural disasters and terrorist-related
events, may cause the Group 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 Group'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, the Group'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
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16
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, 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 Group'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 Group experience losses from Catastrophes, its financial
results for any fiscal quarter or year could experience volatility
which could have a material adverse effect on the Group's business,
results of operations and financial position.
The Group generally seeks to reduce its exposure to Catastrophes
through purchasing reinsurance, utilizing selective underwriting
practices and monitoring risk accumulation. However, the Group's
efforts to reduce exposure may not be successful and claims
relating to Catastrophes could have material adverse effect on the
business, results of operations and financial position of the
Group.
If Catastrophe risks insured by the Group occur with greater
frequency or severity than has historically been the case, related
claims could have a material adverse effect on the Group's cash
flows, business, results of operations and financial position, as
well as on its costs of reinsurance.
2.2.9 Change in availability of or cost of reinsurance coverage
An important element of the Group's risk management strategy is to
purchase reinsurance, thereby transferring parts of the risk the
Group underwrites to reinsurers. Under a reinsurance contract, the
assuming reinsurer becomes liable to Vardia to the extent of the
risk ceded although the Group 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 the Group's results of operation and financial
position.
2.3 OPERATIONAL RISK 2.3.1 A material flaw in the Group's
underwriting or operating controls or failure to prevent fraud
could increase the frequency of claims and average claim
payouts
The Group 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
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 Group may not have the proper reserves for claims
attributable to the relevant product line.
In addition, the Group may not be able to adjust prices to avoid
future losses. The Group 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 Group 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.
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17
2.3.2 Underwriting and reserve risk The Group's results depend
significantly on whether the Group'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 Group's
actual claims experience is less favourable than the underlying
assumptions used in establishing such liabilities, the Group could
be required to increase the reserves made for the liabilities,
which could result in operating losses. To the extent that the
Group prices certain segments/business lines incorrectly this could
have negative impact on the Group.
Due to the nature and uncertain timing of the risks which the
Group 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 Group'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 Group 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
Group ("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 Group'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 the
Group's claims provisions, which may require an increase in its
reserves with a corresponding reduction of the Group's net income
in the period in which the deficiency is identified. To the extent
that the Group'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 Group'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 Group 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 Prospectus, 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 Group's financial
position.
2.3.3 Service providers Vardia has outsourced certain key
functions to external partners, including IT, claims handling and
accounting services. In the event that our current outsourcing
becomes unsatisfactory, or Vardia's third party suppliers are
unable to fulfil their obligations to the Group, Vardia may be
unable to locate new outsourcing partners on economically
attractive terms on a timely basis.
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18
2.3.4 Distributors Vardia somewhat uses distributors to market
and sell the Group's insurance products particularly within SME
insurance. Termination of or any change to these relationships may
have a material adverse effect on the Group.
2.3.5 Organisational development and terms of employment The
Groups 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 Group's strategic
direction and managing the Group's business, which both are crucial
to Vardias success. Furthermore, the Groups continued success also
depends upon its ability to attract and retain a large group of
experienced professionals.
The Group does not maintain any key person insurance on any of
the Groups senior management or employees. The Groups ability to
retain senior management as well as experienced personnel will in
part depend on the Group 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 Groups experienced
personnel.
The loss of the services of the Group's senior management or the
Group's inability to replace, recruit, train or retain a sufficient
number of experienced personnel could have an adverse effect on the
Group's operations, business, financial performance and
prospects.
2.3.6 Loss of reputation The Group 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. The Group 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.
2.3.7 Risks related to growth and growth management The Company
acquired Saga Forsikring AS in December 2013 and Rein Forsikring AS
in January 2014. Vardia may acquire or contract additional
insurance companies, enterprises or insurance agents in the future.
The Company may experience difficulties in integrating these
additional assets, businesses and employees into the Groups
existing operations. Furthermore, there can be no guarantee that
any existing insurance portfolio of acquired insurance companies
and/or agents will have the development expected when fixing the
value of such portfolio in connection with the acquisition of such
insurance company and/or agent.
Vardia has experienced significant growth since its
incorporation, and there is a risk that the Company does not have
the required competence, capacity, routines and systems to manage
its current business and monitor the Companys fulfilment of capital
adequacy and other requirements on an ongoing basis and in an
efficient manner, and this could have a material adverse effect on
the Groups operations, business, financial performance, prospects
and quality of its reporting.
The Group's future growth will depend upon a number of factors,
both within and outside of the Companys control. It may not be
successful in expanding its operations, and any expansion may not
be profitable, or may result in losses for the Company. This could
ultimately have a material adverse effect on the Groups operations,
business, financial performance and prospects.
As the Group's operations continue to expand, the Group may need
to increase the number of employees and enhance the scope of
operational and financial systems to handle the complexity and
expanded geographic area of the Groups operations. Vardia cannot
give any assurance that it will be able to retain and attract
qualified management and employees or that the Groups current
operational and financial systems and controls will be
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19
adequate as the Group grows. This could ultimately have an
adverse effect on the Groups operations, business, financial
performance and prospects.
2.3.8 Deferred acquisition costs and liability adequacy test The
current principle for recognizing sales costs in the group implies
that direct variable sales costs which includes the below costs are
being amortized over a period of 12 months. The total amount
recognised as an asset per 31 December 2014 was NOK 64 million.
Commissions to internal sales agents above a guaranteed minimum
salary level
Telephone costs on a 50% basis and postage expenses on a 78%
basis
Commissions to external agents on a 100% basis
Certain other direct sales costs on a 95-100% basis
In the parent company the current principle for estimation of
capitalised sales costs treats all commissions paid to the
subsidiaries as external costs. The annulation effect (a client
terminates the policy before the end of the 12 months period) is
estimated based on the relationship between earned premiums written
in the year as a percentage of unearned premiums at the end of the
period. Based on this, approximately 55% per 31 December 2014 is
estimated as the share of paid but unearned premiums which is on
risk. The percentage is applied to total provision paid for 2014
risks and provisions paid for later periods are added resulting in
a total deferred acquisition costs recognized on the balance sheet
of NOK 204 million per 31 December 2014.
Vardia performs a quarterly liability adequacy test to assess
whether the recognized insurance liabilities (less related deferred
acquisition costs and intangible assets) are adequate using
estimates of future cash flows at the end of each reporting period.
If required, deferred acquisitions costs will be impaired and
expensed in the profit and loss account.
2.3.9 The Group may be subject to litigation Vardias business
exposes the Group to litigation and lawsuits. The Group anticipates
that it in the future will 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 Groups 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.
2.3.10 Future dividends The Companys 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 companys ability
to pay dividends, or otherwise transfer funds, to parent and/or
holding companies. Restrictions, by law or regulations can affect
the Companys ability to receive funds to pay dividends to
shareholders and/or service any indebtedness.
2.4 FINANCIAL RISKS
2.4.1 Interest rate volatility
Investment returns are an important part of the Group'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.
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20
Vardia has a conservative investment policy and has hired Grieg
Investor as financial advisor. The investment portfolio is as at
the date of this Prospectus invested in bank deposits. The interest
rate risk in the investment portfolio is aligned with Vardia's
current capital position.
2.4.2 Asset management risk
The current 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.
2.5 RISK FACTORS RELATING TO THE SHARES
2.5.1 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 Companys 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, the Group, its products and services
or its competitors, lawsuits against the Company or a company in
the Group, 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
price of the Companys Shares may therefore fluctuate based upon
factors that have little or nothing to do with the Company or the
Group, 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.
2.5.2 Existing Shareholders who do not participate in the
Offering may experience significant dilution in their
shareholding
Subscription Rights that are not exercised by the end of the
Subscription Period will automatically lapse without compensation
to the holder. To the extent that an existing shareholder does not
exercise its Subscription Rights prior to the expiry of the
Subscription Period, whether by choice or due to a failure to
comply with procedures set forth in Section Feil! Fant ikke
referansekilden. "The Offering", or to the extent that an existing
shareholder is not permitted to subscribe for New Shares as further
described in Section 15 "Selling and Transfer Restrictions", such
existing shareholders proportionate ownership and voting interests
in the Company after the completion of the Offering will be
diluted. Even if an existing shareholder elects to sell its
unexercised Subscription Rights, or such Subscription Rights are
sold on its behalf, the consideration it receives on the trading
market for the Subscription Rights may not reflect the immediate
dilution in its shareholding as a result of the completion of the
Offering.
2.5.3 An active trading market in the Subscription Rights may
not develop on Oslo Brs and/or the market value of the Subscription
Rights may fluctuate
An active trading market in the Subscription Rights may not
develop on Oslo Brs. In addition, because the trading price of the
Subscription Rights depends on the trading price of the Shares, the
price of the Subscription Rights may be volatile and subject to the
same risks as described for the Shares elsewhere in this
Prospectus. The existing volatility of the Shares may also have an
effect on the volatility of the Subscription Rights.
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The sale of Subscription Rights by or on behalf of existing
shareholders may result in a reduction in the market price of the
Subscription Rights and the Shares and increased volatility in the
Shares.
Certain existing shareholders may be unable to take up and
exercise their Subscription Rights as a matter of applicable law.
The Subscription Rights of such existing shareholders, with the
exception of Subscription Rights held through financial
intermediaries, may be sold on their behalf in the market by the
Manager pursuant to instructions from the Company, as further
described in Section 5.8, but no assurance can be given as to
whether such sales may actually take place or as to the price that
may be achieved. Other holders of Subscription Rights may also
choose not to exercise their Subscription Rights and therefore sell
them in the market. The sale of Subscription Rights by or on behalf
of holders of such rights could cause significant downward pressure
on, and may result in a substantial reduction in, the price of the
Subscription Rights and the Shares.
2.5.4 If the Rights Issue is withdrawn, the Subscription Rights
will no longer be of value The Rights Issue may be withdrawn if the
conditions for the Rights Issue are not met or if the underwriting
agreements are terminated for any reason. See Section 5.4 for a
description of the conditions for completion of the Offering and
Section 5.19 for a description of the underwriting agreements.
If the Rights Issue is withdrawn, all Subscription Rights will
lapse without value, subscriptions for, and allocations of, New
Shares that have been made will be disregarded and any subscription
payments made will be returned without interest or any other
compensation. The lapsing of Subscription Rights would be without
prejudice to the validity of any trades in Subscription Rights, and
investors would not receive any refund or compensation with respect
to Subscription Rights purchased in the market.
2.5.5 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.
2.5.6 Limited liquidity There can be no assurance as to the
liquidity of the Shares on Oslo Brs, 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 Companys financial
performance or prospects or in the prospects for companies in
Vardias industry in general. As a result, holders cannot be certain
that an active trading market will exist in the future for the
Company's shares.
2.5.7 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 Companys 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.
2.5.8 Difficulties for foreign investors to enforce
non-Norwegian judgements The Company is organised under the laws of
Norway. As at the date of this Prospectus, 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,
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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.
2.5.9 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 may 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. For instance, 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. 2.5.10
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.
2.5.11 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, if they have been allotted Shares in
the Offering, may be diluted. Under Norwegian law, unless otherwise
resolved by the general meeting (or the board of directors pursuant
to an authorization from 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 cash
consideration. 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.
2.5.12 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. See Section 15
"Selling and Transfer Restrictions". In addition, there is no
assurances that shareholders residing or domiciled in the United
States or other jurisdictions will be able to participate in future
capital increases or rights offerings.
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3. RESPONSIBILITY FOR THE PROSPECTUS
The board of directors of Vardia Insurance Group ASA 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 Prospectus is in accordance with the facts and
contains no omission likely to affect its import.
7 May 2015
The Board of Directors of Vardia Insurance Group ASA
ge Korsvold Chairman of the
Board
Karl Hie Deputy chairman of
the Board
Line S. Bakkevig Board member
Nina C. Gullerud Board member
Nils Aakvik Board member
Ole Erik Alns Board member
(Employee representative)
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4. CAUTIONARY NOTE
4.1 FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking" statements,
including, without limitation, projections, estimates, plans and
expectations regarding the Groups future financial position,
business strategy, plans and objectives. All forward-looking
statements included in this Prospectus are based on information
available to the Company, and views and assessments of the Company,
as at the date of this Prospectus. The Company expressly disclaims
any obligation or undertaking to release any updates or revisions
of the forward-looking statements contained herein to reflect any
change in the Companys expectations with regard thereto or any
change in events, conditions or circumstances on which any such
statement is based, unless such update or revision is prescribed by
law.
When used in this document, the words "anticipate", "believe",
"estimate", "expect", "seek to", "may", "plan" and similar
expressions, as they relate to the Group, or its management, are
intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the actual
results, performance or achievements of the Group, or, as the case
may be, the industry, to materially differ from any future results,
performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements are
based on numerous assumptions regarding the Groups present and
future business strategies and the environment in which the Group
will operate. Factors that could cause the Groups actual results,
performance or achievements to materially differ from those in the
forward-looking statements include but are not limited to, the
competitive nature of the markets in which the Group operates,
technological developments, government regulations, changes in
economical conditions or political events. These forward-looking
statements reflect only the Companys views and assessment as at the
date of this Prospectus. Except for mandatory legal requirements,
the Company expressly disclaims any obligation or undertaking to
release any updates or revisions of the forward-looking statements
contained herein to reflect any change in the Companys expectations
with regard thereto or any change in events, conditions or
circumstances on which any such statement is based. Factors that
could cause the Groups actual results, performance or achievements
to materially differ from those in the forward-looking statements
include, but are not limited to, those described in Section 2 "Risk
Factors" and elsewhere in the Prospectus.
Given the aforementioned uncertainties, prospective investors
are cautioned not to place undue reliance on any of these
forward-looking statements. Forward-looking statements are included
in sections 1, 5, 6, 9, 10 and 11.
4.2 INFORMATION SOURCED FROM THIRD PARTIES
The information in this Prospectus that has been sourced from
third parties has been accurately reproduced and as far as the
Company is aware and able to ascertain from information published
by that third party, no facts have been omitted which would render
the reproduced information inaccurate or misleading. The source of
third party information is identified where used.
4.3 DISCLAIMER BY THE MANAGER
The Manager assumes no responsibility for the accuracy or
completeness or the verification of this Prospectus and accordingly
disclaims, to the fullest extent permitted by applicable law, any
and all liability whether arising in tort, contract or otherwise
which it might otherwise be found to have in respect of this
Prospectus or any such statement.
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5. THE OFFERING
5.1 REASONS FOR THE OFFERING AND USE OF PROCEEDS
5.1.1 Reasons for the Rights Issue In connection with, and
shortly before the completion of, the Company's financial audit of
its annual accounts for 2014, Vardia had to make changes in the
accounts, which lead to a significant weakening of the Companys
capital adequacy and solvency margin on group level. The matters
raised by BDO, the Company's auditor at that time, came as a
surprise both to the board of directors and the management. The
Company has been audited by the same auditor since start of
operations in 2009, and has received unqualified auditor statements
without remarks in all previous accounting years, including for the
financial year 2013. The Group's consolidated accounts were also
subject to thorough review by other external advisors in connection
with the initial public offering in 2014 without any issues raised
related to the accounting items in question.
First, the financial audit concluded that the Company's
activated costs had to be written down as a result of the booked
sales cost being underestimated in the profit and loss statement
meaning that the cancellations of insurance policies sold had been
larger than anticipated. The total impairment for 2012, 2013 and
2014 was NOK 144 million, of which NOK 49 million relates to
previous years.
Second, in the opinion of the BDO, the accounting of direct
variable sales cost in previous years group annual accounts was not
in line with applicable accounting standards. The Company has
discussed and reviewed the matter related to the relevant
accounting rules with several third party auditors. Both the extent
of qualifying sales cost has been considered, in addition to the
period of amortisation of such activated cost. The board of
directors noted that different experts had different opinions
regarding the extent of qualifying cost, and that BDOs
interpretation was stricter than the interpretation of applicable
accounting standards by other experts. Following a thorough
assessment, the board of directors approved the annual accounts for
the financial year 2014 for the Company and the Group based on BDOs
strict interpretation of the accounting standards. Total impairment
of this record is NOK 135.6 million in the Group's consolidated
balance sheet, of which NOK 109 million relates to previous
years.
Total impairment of both these conditions for the financial year
2014 was NOK 279.5 million (NOK 144 million + NOK 135.6 million).
The balance sheet item in question has therefore been adjusted by
NOK 279.5 million at the Group consolidated level. These amendments
are also further described in note 2 to the Company's consolidated
annual accounts for 2014 and in the Directors report for 2014.
Furthermore, IAS 12 pt. 35 sets out strict requirements for
recognition of deferred tax assets from tax losses. As at 31
December 2014, these requirements were assessed to not be
fulfilled. The tax benefit of NOK 49.0 million in the balance sheet
as at 31 December 2013 is therefore not recognized in the restated
balance sheet and consequently reduced to NOK 0.
The final conclusion made the board of directors aware that
Vardia would no longer meet the regulatory minimum requirements
relating to capital adequacy and solvency margin on a group level.
On this basis it was immediately established and implemented a plan
for restoring the minimum requirements with a buffer. The Company
has been in a close and constructive dialogue with the FSA and Oslo
Brs regarding the situation
The Co