Strong top-line growth and good underlying operational performance
Required change of accounting policies necessitates a rights issue to cover capital requirements

Vardia Insurance Group ASA (VARDIA:OSE) experienced strong growth in Norway, Sweden and Denmark in 2014. Gross written premiums in the fourth quarter of 2014 was NOK 340.5 million. This implies a growth of 94.9 percent compared with the fourth quarter of last year. Gross written premium in 2014 was 1,166.6 million, compared with 571.7 million in 2013, an increase of 104.4%. Earned premiums for own account in the fourth quarter 2014 at 70.4 million, a growth rate equivalent to 123.2%.

The result for the fourth quarter of 2014 and the preliminary annual report for 2014 is affected by the fact that the Compnay's auditor, came with surprising ammendments to the company's accounting principles (see below for further explanation) and very close to the the quarterly release. This change means that the total result for the fourth quarter of 2014 was a loss of NOK 218.9 million, and a total loss for 2014 at NOK 247.8 million. As a result of the change the company must strengthen the equity capital with NOK 275 million.

  • Vardia experienced a growth in 2014 that few other Nordic insurance companies can demonstrate. We are planning to continue this growth for many years to come. It is therefore regrettable that the auditor's new interpretation of the accounting principles overshadows the good development the company now is experiencing. The last few days have been challenging and we have been working intensely to clarify the situation, and we have had close dialogue with relevant authorities. We emphasize that it is absolutely key for us to follow relevant rules and regulations. It is also important for us to emphasise that the company's underlying operational performance is doing well, says Ivar S. Williksen, Chief Executive Officer of Vardia Insurance Group ASA.

Description of the situation

In connection with the audit of the annual statement for 2014, the company's auditor notified, to Vardia's surprise, matters relating to the classification of variable sales expenses and capitalization of commissions. After the notice, the Company immediately retained a secondary leading professional firm to obtain relevant advice on the issues raised and  the capitalization of this balance sheet item.

A very short time before Q4 report for 2014 was to be made public, the auditor finally concluded that the changed accounting principles would have to be applied in the financial statements for 2014. The company's auditor required an amendment which had impact to the primary capital of the group, in such a magnitude that the company no longer meets the current solvency requirement at group level. The company has close dialogue with the FSA and the Oslo Stock Exchange about the situation that has occurred. For the sake of clarity we would like to emphasize that Vardia on company level has a very satisfactory solvency. It was quickly determined that it would be virtually impossible to announce the fourth quarter results on February 26 and taking the amended accounting policies into consideration. The changed accounting policies will have a negative impact on the historical consolidated financial statements. The company will therefore publish the adjusted figures for previous accounting periods as soon as practically possible.

From the company was founded in 2009, all of Vardia's financial statements have been revised by the same auditor, without special comments in the audit report. These financial statements have also been subject to a financial due diligence in connection with the listing of Vardia during the spring of 2014. The company is therefore very surprised that this issue first arises in connection with the audit of the fourth quarter and preliminary annual results for 2014.

The company's underlying operations are doing well and Vardia continues to offer their customers the same products and good service as before. The company will comply with the requirements and change its principle for the consolidated financial statements accordingly, but continues to have a more detail dialogue with the auditor about the scope of the change.

Amended accounting principles

The amendment to the accounting principles is related to the classification of variable internal sales cost. Where sales cost previously where activited over the consolidated balance sheet, it will now be activated to a lesser degree. The adjusment has no effect for the operational subcompanies nor the mother company (Vardia Insurance Group ASA) and their accounts, but will have a large impact when the accounts are consolidated at group level.

The balance sheet item at group level item in question amounts to NOK 271.5 millions, which equals a consolidated Solvency Margin capital at NOK -111 millions, while the Solvency Margin requirements is NOK 114.2 millions. The impariment will impact the capital requirements for the group. The capital ratio is -24 prosent. At group level the Solvency Margin Capital is NOK 277 millions, while the requirement is NOK 114,2 millioner, Solvency Margin is 242,5 % and Capital Ratio is 35,9 prosent.

Ensuring capital requirement

AS Vardia recieved the final notice from the auditor, the company immedieately retained Pareto Securities AS as financial advisor, with the request of obtaining a consortium of underwriters to guarantee a right issue. The guarantee amounts to NOK 275 millions, to ensure the capital requirements will fullfill with a buffer on consolidated group level.

The companys ambition is to have the consortium establies within the week.

Vardia has in dialog with Financial Supervisory Authority obtained a conditional and temporary exemption from the capital requirements, assuming the the consortium of guarantees is established according to plan. The rights issue will be put forward to the annual general assembly on March 25th. The company maintain fully operational under same liscence and conditions as earlier.

Enclosed is the interim report and investor presentation for the fourth quarter of 2014.

Vardia Interim Report Q4 2014

Vardia interim presentation Q4 2014

Contact information:

Aleksander H. Nordahl, Communications director

Tlf: +47 91 33 81 86

Aleksander.nordahl@vardia.no

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