PKA+ Pension Forsikringsselskab A/S

Transkript

1 Annual Report 2017 PKA+ Pension Forsikringsselskab A/S Approved at PKA+ s General meeting on 25 April 2018 Chairman of the Meeting Tomas Frydenberg Tuborg Boulevard 3, DK-2900 Hellerup Central Business Reg. No

2 PKA+ Pension Forsikringsselskab A/S Contents Management Review 2 Management Statement 9 The independent auditor s report 10 Income Statement and Total Income Statement 13 Balance Sheet 14 Equity and Capital Base 16 Notes 17 Tuborg Boulevard 3, DK-2900 Hellerup Central Business Reg. No

3 2 Annual Report 2017 Management Review (PKA+) operates a life assurance business. The Company s main objective is to create growth through new customer groups, thereby achieving economics of scale in the PKA community. The financial highlights in this report are given on a Group basis, unless otherwise explicitly specified. Profit for the year The Group s profit for 2017 was DKK 34.1 mill. The Board of Directors proposes to retain this profit. The total return before pension return tax was 6.1 %. The profit for the year is deemed to be satisfactory, and PKA+ is still well-consolidated. The year under review Economy In line with the Company s expectations, 2017 was characterised by increasing global growth and inflation, as well as a decline in unemployment. Against this background, stock markets increased by 19 % and 6 % in the US and Europe, respectively. All in all, the more risk-prone assets generated good returns in At the end of 2017, US interest rates were approx. 2 percentage points higher than in Europe as a result of monetary tightening carried out back in US interest rates remained unchanged in 2017 as a consequence of low inflation and demand for US bonds from investors in Europe and Japan. Conversely, European interest rates have gone up; for example, the interest rate on the German 10-year government bond increased by 0.25 percentage points. These increases have occurred as and when the European Central Bank announced that it was going to stop buying bonds, thereby tightening monetary policy. In early-2017, Donald Trump took office as president of the US, while Great Britain made the official announcement that they will be leaving the EU (Brexit) in So far, neither of these two events have affect the economy or the financial markets. The year under review also saw elections in the Netherlands, France and Germany. Prior to the elections, it was uncertain which influence right-wing and EU-critical parties in these countries were going to get, thereby influencing economic forecasts. Elections in the Netherlands and France ended with middle-ofthe-road governments; French president Macron, in particular, has launched a number of reforms. At this point in time, it would seem that, following a prolonged process, Germany will end with having a coalition government. Europe continues to have challenges, but the political development helps support the economic development. Account interest rate PKA+ s account interest rate was 5.0% before tax throughout The account interest rate was set at 5.0% before tax for Business basis In 2017, it was decided to change the strategy for PKA+. Against this background, the Company s main objective is to create growth through new customer groups, thereby increasing the economies of scale in the PKA community. Revenue PKA+ total income in 2017 from ongoing premium payments and lump sum deposits was a total of DKK 73.8 mill. against DKK mill. the year before. Deposits from individual clients in 2017 amounted to DKK 59.0 mill., a decline of DKK 54.0 mill. from Premium-paid insurance grew to DKK 13.0 mill. in 2017, while there was a decline in lump sum deposits from DKK mill. in 2016 to DKK 60.8 mill. in 2017.

4 Annual Report Investment portfolio Return The total return in 2017 was 6.1%, corresponding to DKK mill. All asset classes generated positive returns in Shares contributed double-digit returns, while the return on mortgage credit bonds, real capital assets, investment grade bonds and the overall return were lower. Investments and social responsibility PKA+ s guidelines for responsible investments are in line with the principles of the UN Global Compact. As an addition to the UN Global Compact, PKA+ has adopted a policy of not investing in controversial weapons, coalmines or tobacco. In 2017, these guidelines were broadened to cover a new policy for taxes. The Board s report to the General Meetings of the pension funds in the PKA community explains the development of the work on these guidelines and active ownership. The report is available at Active ownership is exercised by ongoing dialogue with the companies in which investments have been made and by ensuring that they comply with PKA+ s guidelines and contribute towards the development of their long-term value creation. If a company does not live up to the guidelines, PKA+ enters into a constructive dialogue, so as to help provide solutions. If the company continues to infringe the guidelines and there are no prospects of improvements on the part of the company over time, the company concerned will be excluded from the investment universe. At is the current list of companies which have been excluded, as well as those with which the Company has entered into a dialogue and companies under observation. PKA+ s active ownership is pursued in cooperation with an international screening and commitment partner, which gives PKA+ extra clout when enforcing its guidelines. Further to PKA+ s guidelines, the partner also works to promote best practice through long-term dialogue with the companies in which PKA+ has invested. PKA+ s website contains more detailed statements regarding compliance with the guidelines and regarding active ownership. In recent years, the share prices of companies with coal activities have declined markedly if compared with the share market in general. That was why PKA+ dropped its investments in the first coalmine companies in 2015 because of both financial and climatic considerations, and the Company has subsequently entered into a dialogue with a number of companies with activities in coal. The purpose of this dialogue is for these companies to reduce their activities in coal and convert to more climate-friendly sources of energy. Typically, these companies are mining companies, utilities and energy companies. PKA+ has excluded 70 companies so far, since these were not prepared to reduce their coal activities, while 37 companies have been retained within the Company s investment universe. These companies have either presented a strategy for conversion of their business to more climate-friendly energy sources, or they have already begun such a conversion. In 2018, it will be decided whether the last 13 companies with coal activities are to be retained as investments, or be excluded or be placed on the observation list, so as to monitor their development. In 2017, the Company also started a dialogue with 64 selected oil and gas companies, so as to examine whether their business models have been adapted to a two-degree scenario i accordance with the climate goal of the Paris agreement. PKA+ reviews whether the companies have the required leadership focus and assesses the extent to which these companies investments are in line with the Paris agreement. This will provide an overview showing whether the companies remain attractive investments. Furthermore, PKA+ has excluded six companies in which a large proportion of their revenue comes from the extraction of oil sands. These companies are not deemed to be attractive investments. Risks and solvency associated with PKA+ Pension s business model In the year under review, PKA+ adopted a new strategy and business model. The Company s main objective is to give access to PKA s competences and brand for new customer groups in Denmark, which in terms of professional background do not fit naturally into the pension funds, but where value and loyalty for the owners can be created. The products offered consist of savings and insurance products, and the goal is to offer a product package adapted on an ongoing basis to the customer s life situation. The risk focus has been adapted to the Company s growth strategy. The most significant risks are market risks, insurance-related risks and outsourcing risks.

5 4 Annual Report 2017 Market risks PKA+ has a long-term investment strategy, where the goal is to achieve high, stable returns in a responsible way. Continued, low returns on investment activities or major financial losses are the Company s market risk. This risk is hedged by spreading investments into a number of different asset classes. Investments are made collectively for all of the Company s financial means, so there are no assets specifically allocated to specific customer groups. Any losses on investments are covered collectively within the individual customer groups and by the capital base, thereby ensuring that any losses on the financial markets are not passed on to customers deposits in individual years; instead, customers receive the account interest rate which has been announced. Risk-taking is a precondition for achieving an adequate return that will guarantee robust pensions. In this connection, the Board of Directors has a major task in deciding on the Company s risk appetite in the form of a chosen investment strategy. The Company s risk appetite is decided on the basis of two goals. The Company protects the solvency of the risk management model (SBG), which acts as early warning in relation to current solvency rules (SCR). In its risk management policy, the Board of Directors lays down the safety levels of the SBG thresholds, which provides the risk framework for the Company in regard to solvency. PKA+ has a capital plan and an emergency plan, based on the risk management model (SBG) and the solvency capital requirement (SCR). In the capital plan, the financial situation in the Company s strategic planning period is estimated to be reassuring. Insurance-related risks PKA+ is exposed to the risk of changes in life expectancy among its members. PKA+ is a solidarity-based scheme with disablement cover, basically without any required health information upon admission. In risk terms, the Company is exposed to the development in the number of anticipatory pension recipients among its customers. The Company monitors developments in its insurance risks closely and makes provisions in accordance with the life expectancy benchmark laid down by the Danish FSA. Outsourcing PKA+ uses outsourcing to a considerable extent. There is direct outsourcing to PKA A/S, which has further outsourced much of its operations to Forca A/S. Risk is managed in the form of controls and service delivery agreements. Capital Equity increased by the profit for the year, DKK 34.1 mill., so at the end of 2017 it amounted to DKK mill. The base capital is thus DKK mill. against DKK mill. in The SCR solvency requirement has been calculated using the standard model. As at 1 January 2017, the SCR was DKK mill, while at the end of 2017 it amounted to DKK mill. Provisions for insurance obligations Provisions for insurance and investment contracts grew in 2017 by DKK 61.2 mill to DKK 1,204.1 mill. In 2018, the Danish FSA intends to change the data period for benchmarking life expectancy assumptions from 30 years to 20 years. This change has not been recognised in the financial statements for 2017, but is expected to lead to an increase in provisions for guaranteed payments of approx. 0.1%. This change can be covered by the bonus potentials. The risk margin and solvency capital requirement are largely unaffected by this change. Uncertainty of recognition and measurement When the Annual Report is prepared, a number of estimates and assessments of future aspects are made; these have an influence on the accounting value of assets and commitments. The most significant areas concern the calculation of life assurance provisions. Management finds that the assumptions made are responsible, but associated with uncertainty.

6 Annual Report The accounting estimates are described in more detail in note 1, while sensitivity information for a number of the assumptions used can be seen from note 22.. Events after the Balance Sheet date No events after the Balance Sheet date have any significant influence on the financial standing of the Company or the Group. Expectations regarding the future The prospects of global growth continue to be positive. In the US as well as in Europe, growth and inflation are expected to continue their upward trend, while unemployment will decrease even further, especially in Europe. On the basis of continued growth and increasing inflation, additional interest rate increases are expected, as and when the expansive monetary policy is rolled back. The challenge for central banks is to increase interest rates at a speed that does not influence the economic upturn. Economic prospects are thus looking positive. The global political situation, on the other hand, is a potential source of financial unrest. The US government still has its mind set on implementing trade sanctions, e.g. against China; this may lead to lower growth. To this must be added the threat of a conflict with North Korea. In Europe, two events may influence the economic development. Firstly, Italy holds an election and the outcome as regards EU-critical parties has been uncertain. However, the latest reports would seem to indicate that no major consequences are to be expected. Secondly, the UK process for leaving the EU is continuing, which may give rise to challenges in 2018 if durable, political solutions are not found. PKA+ is robust and well-prepared for such challenges. Group 100 % 100 % PKA+ Anholt Havvindemøllepark K/S under voluntary liquidation PKA+ GP ApS under voluntary liquidation Anholt Havvindmøllepark K/S under voluntary liquidation In the year under review, the company sold its partnership share of Anholt Havvindmøllepark I/S, which is why the company is under voluntary liquidation. The company s profit for 2017 was DKK 1.6 mill. PKA+ GP ApS under voluntary liquidation Anholt Havvindmøllepark K/S is under voluntary liquidation, and PKA+ GP ApS is not a general partner in any other context, which is why this company is also under voluntary liquidation. Staff and administration PKA+Pension has an administration agreement with PKA A/S. PKA A/S has outsourced some of its administrative assignments to Forca A/S. Management and the actuary in charge are employed, but not paid, by PKA+ Pension Costs The total costs of the PKA+ Group amounted to DKK 3.7 mill. in 2017 against DKK 9.5 mill. in The decline in costs is a result of a low level of activity for much of the year. Costs are expected to go up in 2018 as a result of the changed strategy.

7 6 Annual Report 2017 Audit Committee In accordance with legislation, PKA+ Pension must establish an Audit Committee. At least one member must have qualifications in accounting or auditing. The chairman of the Audit Committee is Susanne Kure, who is in compliance with the requirement for qualifications in accounting or auditing. In addition to Susanne Kure, the Audit Committee consists of Peter Damgaard Jensen. Progress report on compliance with the goal regarding the underrepresented gender at management level The Financial Services Act requires that financial companies must set a target for gender representation on the board of directors and prepare a policy for equal representation in the running of the company. The Board of PKA+ Pension has four members. The Board has decided that the goal for men and women on the Board is to be 25%, corresponding to one person of one gender and three of the other gender. At the end of the year, the gender division on the Board said 50% men and 50% women. The company is thus in compliance with the goal set out. No policy has been adopted regarding equal representation in the management layers below the executive management of PKA+ Pension. PKA+ Pension is fully administered by PKA A/S. Following an organisation change at the end of 2017, the gender distribution in the management layers below the executive management is 62% men and 38% women; against this background, a policy for equal gender representation in the other management layers of PKA A/S is being prepared in the course of 2018.

8 Annual Report Other management/board positions: The Management holds the following other positions: Managing Director Tomas Frydenberg Man. Dir. and board member of Farmapension A/S The Board members hold the following other positions: Chairman of the Board Peter Damgaard Jensen Man. Dir. of PKA A/S Man. Dir. of four pension funds administered by PKA A/S Man. Dir. of the State Registered Nurses and Medical Secretaries Property Company plc Man. Dir. of the Healthcare Professionals Property Company plc Man. Dir. of the Social Workers, Social Pedagogues and Office Staff Property Company plc Man. Dir. of the Dronningegården Property Company plc Chairman of the Board of A/S Kjøbenhavns Ejendomsselskab Chairman of the Board of Forstædernes Ejendomsaktieselskab Chairman of the Board of PKA AIP A/S Chairman of the Board of Poppelstykket 12 A/S Chairman of the Board of PKA Skejby Komplementar ApS Chairman of the Board of PKA Skejby P/S Chairman of the Board of Farmapension A/S Vice-chairman of the Board of Forca A/S Board member of Forsikringsorganisationernes Fællessekretariat F.M.B.A. Board member Michael Nellemann Pedersen Manager of the State Registered Nurses and Medical Secretaries Property Company plc Manager of the Healthcare Professionals Property Company plc Manager of the Social Workers, Social Pedagogues and Office Staff Property Company plc Manager of the Dronningegården Property Company plc Manager and Board member of A/S Kjøbenhavns Ejendomsselskab Manager and Board member of Forstædernes Ejendomsaktieselskab Manager and Board member of OPP HoldCo ApS Man. Dir. and Board member of PKA AIP A/S Chairman of the Board of the Pharmaconomicsts Property Company plc Board member of Hotel Koldingfjord A/S Board member of Refshaleøen Holding A/S Board member of Refshaleøens Ejendomsselskab A/S Board member of Margretheholmen P/S Board member of Komplementarselskabet Margretheholm ApS Board member of PKA Skejby P/S Board member of PKA Skejby Komplementar ApS Board member of P/S PKAE Ejendom Board member of Komplementarselskaber PKA AE ApS Board member of Investeringsselskabet af 24. februar 2015 A/S Board member of Poppelstykket 12 A/S Board member of Dansk Skibskredit A/S Board member of Danmarks Skibskredit Holding A/S Board member of SAS Pilot & Navigatør Pensionskasse Board member Annegrete Birck Jakobsen Board member of A/S Kjøbenhavns Ejendomsselskab Board member of Forstædernes Ejendomsaktieselskab Board member of PKA Skejby Komplementar ApS Board member of PKA Skejby P/S Board member of Aktieselskabet af 1. december 2004 Board member of Poppelstykket 12 A/S Board member of Farmapension A/S

9 8 Annual Report 2017 Board member Susanne Kure, Chairman of the Audit Committee Board member of the Social Workers, Social Pedagogues and Office Staff Pension Fund Board member and Chairman of the Audit Committee of the Pharmaconomists Pension Fund Board member of Investeringsselskabet af 24. februar 2015 A/S Board member of Genan Holding A/S

10 Annual Report Management Statement We have today presented the Annual Report of for the 1 January 31 December 2017 financial year. The Annual Report is submitted in accordance with the Danish Financial Business Act. We find that the consolidated accounts and financial statements give a true and fair view of the Group s and the Company s assets and liabilities and financial position as at 31 December 2017, as well as the result of the Group s and Company s activities in the financial year 1 January 31 December We consider that the Management Review gives a true and fair view of developments in the Group s and the Company s activities and financial standing, the result for the year and the Group s and Company s financial position, as well as describing significant risks and uncertainty factors faced by the Group and the Company. We recommend that the Annual Report be adopted by the General Meeting. Hellerup, 6 March 2018 Management: Tomas Frydenberg Managing Director Hellerup, 6 March 2018 Board of Directors: Peter Damgaard Jensen Chairman Annegrete Birck Jakobsen Michael Nellemann Pedersen Susanne Kure

11 10 Annual Report 2017 The independent auditor s report To the shareholders of In our opinion, the Consolidated Accounts and Financial Statements give a fair view of the Group s and the Company s assets, liabilities and financial position as at 31 December 2017, as well as of the result of the Group s and Company s activities and the Group s cash flows in the 1 January 31 December 2017 financial year in accordance with the Danish Financial Business Act. Our opinion is in line with our long-form audit report to the Audit Committee and the Board of Directors. What have we audited The Consolidated Accounts and Financial Statements of PKA+ Pension Forsikringsselskab A/S for the financial year from 1 January 31 December 2017, comprising the Income Statement and Total Income Statement, the Balance Sheet, the Equity Statement and Notes, including Accounting Policies ( the Financial Statements ). Basis for our opinion We have carried out our audit in accordance with international audit standards (ISA) and the additional requirements in force in Denmark. Our responsibility according to these standards and requirements is described in more detail in the section of this auditor s report entitled The auditor s responsibility for the audit of the financial statements. We find that the audit proof we have secured is adequate and suitable as a basis for our opinion. Independence We are independent of the Group in accordance with international ethical rules for auditors (IESBA s Ethical Rules) and the additional requirements in force in Denmark, just as we are in compliance with our other ethical commitments i accordance with IESBA s Ethical Rules. In our best conviction, no prohibited non-audit services, as specified i Article 5 (1) of Regulation (EU) No. 537/2014, have been performed. Appointment We were first appointed as the auditor for PKA+ Pension Forsikringsselskab A/S at the General Meeting on 28 April 2017 for the 2017 financial year. Central aspects of the audit Central aspects of the audit are the aspects which, in our professional assessment, were the most significant ones in our audit of the 2017 Financial Statements. We dealt with these aspects as part of our audit of the Financial Statements as a whole and the wording of our opinion on the said audit. We offer no separate opinion on these aspects. Central aspects of the audit Measuring of provisions for insurance and investment contracts How we have processed the central aspects in the audit The Company has provisions for insurance and investment contracts totalling DKK 1,204 mill., which is 59.6% of the total commitments. Provisions consist primarily of life assurance provisions towards guaranteed payments, individual bonus potential, collective bonus potential, and risk margin. The calculation is based on actuary principles and involves significant accounting estimates linked to the actuary assumptions regarding the timing and scope of future payments to policyholders. The actuary assumptions cover, most significantly, the interest graph for discounting, life expectancies, We reviewed and assessed the Company s procedures and internal controls established in order to ensure that provisions for pension agreements and investment contracts are measured correctly. In connection with the audit, we used our own actuaries to assess the actuary models and assumptions used by the Company, as well as the calculations made, including future payment flows. We assessed and challenged the most significant actuary assumptions, such as the interest graph for discounting, life expectancies, mortality, disablement, buy-back probability and costs based on our experience and knowledge of the industry, so as to be able to assess whether these assumptions are in

12 Annual Report mortality, disablement, buy-back probability and costs. We focused on measuring provisions for pension agreements and investment contracts, because the calculation of these provisions is complex and involves considerable accounting estimates. accordance with market practices as well as regulatory and accounting-related requirements. This work included an assessment of the continuity of the basis for calculating provisions. Reference is made to the Consolidated Accounts and Financial Statements as they mention Accounting estimates in note 1 and Life assurance provisions in note 16. Statement regarding the Management Review Management is responsible for the Management Review. Our opinion about the Financial Statements does not cover the Management Review and we express no opinion with any certainty on the Management Review. When we carry out our audit of the Financial Statements, it is our responsibility to read the Management Review and, in this connection, to consider whether the Management Review is significantly inconsistent with the Financial Statements or seems to contain material misstatements given the knowledge we have obtained in our audit or in any other way. Furthermore, our responsibility includes considering whether the Management Review contains the required information as specified in the Danish Financial Business Act. Based on our work, we find that the Management Review is in accordance with the Financial Statements and has been prepared in accordance with the requirements of the Danish Financial Business Act. We have found no material misstatements in the Management Review. The solvency cover key figure Management is responsible for the solvency cover key figure specified in the financial highlights and key ratios in note 2 of the Financial Statements. As stated in the financial highlights and key ratios in note 2, the solvency cover key figure is exempted from audit requirements. Consequently, our opinion on the Consolidated Accounts and Financial Statements does not cover the solvency cover key figure and we express no opinion with any certainty on this key figure. In connection with our audit of the Financial Statements, it is our responsibility to consider whether the solvency cover key figure is significantly inconsistent with the Financial Statements, or seems to contain material misstatements given the knowledge we have obtained in our audit or in any other way. If, on this basis, we find that the solvency cover key figure contains material misstatements, we must report this. We have nothing to report in this connection. Management s responsibility for the Financial Statements Management is responsible for preparing and presenting Consolidated Accounts and Financial Statements that give a true and fair view in accordance with the Danish Financial Business Act. Furthermore, Management is responsible for the internal controls which Management deems to be necessary for the preparation of Financial Statements without material misstatements regardless of whether such misstatements are the result of fraud or error. When preparing the Financial Statements, Management is responsible for assessing the ability of the Group and the Company to continue operations, for giving information about matters regarding continued operation, where this is relevant, and for preparing the Financial Statements on the basis of the accounting principles for a going concern, unless Management either intends to liquidate the Group or the Company or discontinue operations, or has no other realistic alternative than to do so. The auditor s responsibility for the audit of the Financial Statements Our aim is to achieve a high degree of certainty that the Financial Statements as a whole are free of material misstatements, regardless of whether such misstatements are the result of fraud or error, and to pre-

13 12 Annual Report 2017 pare an audit report with our opinion. A high degree of certainty means a high level of certainty, but involves no guarantee that an audit carried out in accordance with international auditing standards and the additional requirements in Denmark will always discover material misstatements if such exist. Misstatements may arise as a result of fraud or error and may be considered significant if it is reasonably to be expected that, individually or jointly, they will have an influence on financial decisions made by users of the accounts on the basis of the Financial Statements. As part of an audit carried out in accordance with international audit standards and the additional requirements in Denmark, we make professional assessments and maintain a professional scepticism during our audit. In addition: We identify and assess the risk of material misstatements in the Financial Statements, regardless of whether such misstatements are the result of fraud or error, and we plan and carry out audit action as a reaction to these risks and achieve audit proof which is adequate and suitable to form the basis of our opinion. The risk of not discovering material misstatements caused by fraud is higher than if material misstatements are the result of error, since fraud may come from conspiracy, forgery, deliberate omissions, misguidance or disregard for internal controls. We obtain an understanding of the internal controls that are relevant to the audit, so as to be able to carry out audit action, which is suitable in the circumstances, but not in order to be able to offer an opinion about the efficiency or effectiveness of the Group s and the Company s internal controls. We decide whether the accounting policies applied by Management are suitable, and whether the accounting estimates and associated information prepared by Management are reasonable. We conclude whether Management s preparation of the Financial Statements on the basis of a going concern accounting principle is suitable and whether, on the basis the audit proof obtained, there is any significant uncertainty associated with events or matters which may create substantial doubts about the Group s and the Company s ability to continue operations. If we find that significant uncertainty exists, our audit report must give information about this in the Financial Statements or, if such information is not adequate, we must modify our opinion. Our opinions are based on the audit proof obtained up to the date of our audit report. However, future events or matter may mean that the Group and Company will not longer be able to continue operations. We assess the overall presentation, structure and contents of the Consolidated Accounts and Financial Statements, including the Notes, and whether the Consolidated Accounts and Financial Statements reflect the underlying transactions and events in such a way that a fair view is given thereof. We obtain adequate, suitable audit proof in regard to the financial information in the companies or the business activities of the Group, so as to be able to give an opinion about the Consolidated Accounts. We are responsible for managing, supervising and performing the Group audit. We have sole responsibility for our audit opinion. We communicate with the Executive Management, for example about the planned scope and timing of the audit, as well as about significant observations during our audit, including any significant deficiencies in regard to internal controls which we may identify during our audit. We also make a statement to the Executive Management specifying that we have complied with relevant ethical requirements concerning independence and we inform the Executive Management about all relations and other matters which may reasonably be thought to influence our independence and, where relevant, we inform about any precautions taken. Based on the matters communicated to the Executive Management, we decide which matters were the most significant ones in the audit of the Financial Statements for the period concerned and were thus the central aspects in our audit. We describe these aspects in our audit report, unless legislation or other regulations excludes such publication, or if in extremely rare cases we may decide that aspects are not to be communicated in our audit report, because the negative consequences thereof could reasonably be expected to outweigh the advantages the public interest in such communication. Copenhagen, 6 March 2018 PricewaterhouseCoopers State-authorized Audit Partnership Central Business Reg. No Christian Fredensborg Jacobsen Per Rolf Larssen State-authorized Public Accountant State-authorized Public Accountant mne mne 24822

14 Annual Report Income Statement and Total Income Statement All amounts in DKK mill. Company Group Note Gross premiums Surrendered reinsurance premiums Total premiums, own account Income from affiliated companies Interest income and dividend etc Price adjustments Interest costs Administration costs related to investment activities Total return on investment Pension return tax Benefits paid Re-assurance cover received Insurance payments for own account, Change to life assurance provisions, own account Change to profit margin Acquisition costs Administration costs Insurance-related operating costs for own account, total Transferred return on investment TECHNICAL RESULT ON LIFE ASSURANCE Return on investment, equity PROFIT BEFORE TAX Tax PROFIT FOR THE YEAR Other total income TOTAL INCOME FOR THE YEAR Realised profit 8 The profit for the year is transferred to equity

15 14 Annual Report 2017 Balance Sheet ASSETS All amounts in DKK mill. Company Group Note Shares in affiliated companies Total investments in affiliated companies Shares Unit trust shares Bonds 1, , Deposits with credit institutes Derivative financial instruments Total other financial investment assets 1, , , ,886.9 TOTAL INVESTMENT ASSETS 9 1, , , ,886.9 Reassurance parts of provisions for insurance contracts Receivables related to direct pension business with pensionholders Other receivables TOTAL RECEIVABLES Corporate tax receivable Deferred corporate tax asset Cash in hand and at bank TOTAL OTHER ASSETS Interest receivables Other prepayments and deferrals TOTAL PREPAYMENTS AND DEFERRALS TOTAL ASSETS 2, , , ,936.1 Guarantees 10 Contingent asset 11

16 Annual Report Balance Sheet LIABILITIES All amounts in DKK mill. Company Group Note Share capital Premium at emission Profit carried forward EQUITY Subordinate loan capital TOTAL SUBORDINATE LOAN CAPITAL Life assurance provisions 16 1, , , ,142.9 Profit margin on life assurance provisions TOTAL PROVISIONS FOR INSURANCE AND INVESTMENT CONTRACTS 1, , , ,142.9 Provisions for taxes TOTAL PROVISIONS FOR COMMITMENTS Debt regarding derived financial instruments Pension return tax payable Corporate tax payable Other debt TOTAL DEBT PREPAYMENTS AND DEFERRALS TOTAL LIABILITIES 2, , , ,936.1 Accounting policies 1 Five-year overview and financial highlights 2 Contingencies 18 Affiliated and associated parties, etc. 19 Risk and risk management 20 Specification of assets and their return 21 Sensitivity information 22

17 16 Annual Report 2017 Equity and Capital Base All amounts in DKK mill. Company Group Equity Equity as at 1 January Transferred to life assurance provisions, start of year Corrected equity, start of year Transfer from distribution of the year's Other total income Total equity Company Group Capital base Equity Subordinate loan capital Total capital base

18 Annual Report Notes All amounts in DKK mill. Note 1 Accounting Policies The Annual Report for the Group and the Company has been prepared in accordance with the provisions of the Danish Financial Business Act and the executive accounting order from the Danish Financial Supervisory Authority on financial reporting from insurance companies and pension funds. The accounting policies are unchanged from The Annual Report is presented in millions of Danish kroner with one decimal. Each figure is rounded off separately. Consequently, variations may exist between the totals and the sum of the underlying figures. Principles regarding the distribution of profits and/or losses A bonus regarding interest, risk and administration is given in advance to clients in relation to the bonus rates notified to the Danish FSA. The accounting profit for the year is then distributed among clients and equity on the basis of the following rules. The part of the realised profit for the year that goes to equity consists of a return corresponding to the investment return before pension return tax plus a risk return supplement of 0.4% of the average life assurance provisions for the bonus-entitled insurance policies. If the result obtain is not enough to grant equity and special bonus provisions this risk return, the remaining return may be collected from the collective bonus potential of the individual groups. Losses concerning the individual contribution groups covered, which losses are covered by equity may be retrieved in the subsequent financial year, if possible, from the collective bonus potential of each group, if possible. The shares transferred from individual and collective bonus potentials in the subsequent financial year are reported to the Danish FSA. As from , a group division has been introduced for bonus-entitled insurance, cf. the executive order on contributions. The above-mentioned principles are thus applied on a group basis. Consolidated Accounts The Consolidated Accounts comprise the Company and affiliated companies, where the Company has a decisive influence. The Consolidated Accounts are made by combining (consolidating) accounting items with a uniform content in the Company and the affiliated company, while eliminating intra-group share holdings, inter-company accounts and interest. Intra-Group services are changed on market terms or cost-covering terms. Intra-Group trading in securities and other investment assets is charged at market value. Translation of currencies Transactions in foreign currencies are translated at the exchange rate of the transaction date. Balance Sheet items in foreign currencies are translated at the closing exchange rate of the Balance Sheet date. All currency gains and losses are included in the Income Statement under exchange rate regulation. General principles for recognition and measurement Assets are recognised in the Balance Sheet if future gains are likely to accrue to the company and the value of the asset can be measured reliably. Commitments are recognised in the Balance Sheet if future gains are likely to be paid by the company and the commitment can be measured reliably. The Income Statement recognises all income as it is earned, while costs are recognised by the amounts that concern the financial year under review. Purchase and sale of financial instruments are recognised on the transaction date and such recognition ends when the right to receive/pay cash flows from the financial asset or liability has expired, or if it has been assigned. Purchase or sales transactions which had not yet been carried out on the Balance Sheet date are recognised in the Income Statement in the form of their loss or gain. In the first recognition, financial instruments are measured at current value. Measurement after first recognition is made as described under each accounting item below.

19 18 Annual Report 2017 Accounting estimates and uncertainties of recognition and measurement The calculation of the accounting value of certain assets and commitments is made on the basis of methods and with assumptions, which involve the use of accounting estimates. These estimates are made by Management in accordance with the accounting policies defined and on the basis of historical experience and assumptions deemed by Management to be responsible and realistic. As a result of the nature of these estimates, the assumptions used may turn out to be incomplete, just as unexpected future events or circumstances may arise. This includes the possibility that others may reach other estimates. Measuring of life assurance provisions The determination of the accounting value of life assurance provisions is associated with estimates, especially regarding the discounting interest graph. The current best estimate for disablement has been determined by drawing on experience from the pension funds in the circle of owners. Income Statement Gross premiums Gross premiums cover the premiums paid in the year under review. Return on investment Income from affiliated companies comprises the Company s share of the operating result of the affiliated company after tax. Interest and dividend, etc., include the interest earned and the dividend received, etc., in the year under review. Price adjustments consist of realised and unrealised gains on investment assets. Pension return tax Pension return tax is recognised in the Income Statement by an amount calculated on the basis of the customers share of the PAL-payable return of the year under review. Benefits paid Pension benefits comprise handled and paid-out pension benefits. Administration The Company pays a fixed annual price (rate) per policy to PKA A/S for the agreed administrative services; this amount includes salaries and fees to Management and Board, as well as audit costs. In addition, the Company pays a fixed fraction of a percent of the net asset current value to cover portfolio management. The rate and the fraction of a percent are determined on market terms. The costs of security administration are recognised as administration costs in connection with investment activities. Transferred return on investment The transferred investment return is calculated on the basis of equity s share of the realised profit and is recognised under the item called Equity s return on investment. Corporate tax When the total income tax is divided, the complete distribution method is used according to which a company making a profit credits a company making a loss for the calculated tax from utilising the loss. Tax on the profit for the year is recognised with a correction for non-taxable income and non-deductible costs. The tax is recognised as an inter-company co-taxation account (amount receivable or payable), while deferred corporate tax (tax asset or tax liability) is recognised in the Balance Sheet. Any supplementary payment or refund in connection with payment of taxes is considered a financial item and is not included in the calculated corporate tax.

20 Annual Report Balance Sheet Assets Capital participation in affiliated companies Capital participation in affiliated companies is measured at intrinsic value (the equity method). Using this method, the operating results of affiliated companies are recognised in the Company s Income Statement. The Company s profit and equity are thus identical to those of the Group. The accounting results from affiliated companies result from using recognition and measurement methods identical to the principles used in the Pension Fund. Listed shares are measured at the value of stock exchange closing prices on the Balance Sheet date. Unlisted shares are measured at current value based on an individual assessment of the companies with a view to determining the price which such shares are expected to fetch. Measurement is based on the key ratios and valuation methods normally used when measuring companies. Units in mutual trusts Units in mutual trusts are measured at the value of the stock exchange closing prices on the Balance Sheet date. Bonds Fixed-interest bonds, convertible bonds and indexed bonds plus index-related adjustments are measured at the value of the stock exchange closing prices on the Balance Sheet date. The current value of drawn bonds is based on the present value of the bonds, which is close to the nominal value of the bonds. Derivative financial instruments Derivative financial instruments used for interest risk hedging and other purposes are measured at current value. Instruments with a positive current value are recognised as assets under Derivative financial instruments, while instruments with a negative current value are recognised under Debt related to derivative financial instruments. Other items under assets Accounts receivable are recognised at face value minus write-downs to cover expected losses. Liabilities Provisions for insurance and investment contracts Provisions for insurance and investment contracts are calculated by the Company s actuary in charge. On , the Company switched from using the EIOPAS basic discounting interest graph and is now using the EIOPAS discounting interest graph with VA supplement when calculating provisions. Interest rates on the interest graph with VA supplement have not changed much from late Seen in isolation, the changes concerning the interest graph have led to a decline of DKK 22.3 mill. in the accumulated value adjustment. Life assurance provisions consist of the following elements: Guaranteed Payments, Individual Bonus Potential, Collective Bonus Potential and Risk Margin. The life assurance provision element entitled Guaranteed Payments is calculated in that, for each insurance policy, the market value of the expected, guaranteed payment flows is calculated. The market value is calculated by discounting individual payments using the interest rate calculated by EIOPA, the European supervisory authority, plus a Volatility Adjustment supplement and minus the pension return tax. Guaranteed Payments contain an estimated amount to cover future insurance payments stemming from insurance events which occurred during the financial year, but where no claim had yet been filed on the date of the Balance Sheet. Individual Bonus Potential contains the value of obligations to grant a bonus on the basis of the amount deposited under the individual insurance policy qualifying for the bonus.

21 20 Annual Report 2017 Collective Bonus Potential contains the share of the insurance holding of realised results which has been set aside as a collective provision for the insurance policies qualifying for the bonus. This amount has not yet been ascribed to the individual member. The Risk Margin contains the amount which the Company must expect to have to pay to another insurance company to take over the risk of settling the holding. As far as possible, the Risk Margin is obtained primarily from the Individual or Collective Bonus Potential or alternatively from the capital base. In the assumptions for best estimate, it is not possible to draw conclusions on the frequency of disablement and mortality on the basis of the Company s own observations. That is why experience from the pension funds in the circle of owners is used when determining the current best estimate. Furthermore, mortality assumptions take account of the Danish FSA s benchmark for expected life expectance improvements. The discounting interest graph is the assumption with the highest impact when measuring provisions. Profit margin The profit margin shows the present value of profit not yet earned by the Company on insurance policies which are to be recognised in the Income Statement over time. The profit margin is segregated from the life assurance provisions. Other items under liabilities Debt is measured at amortised cost, which normally corresponds to the face value. Key ratios and sensitivity information Key ratios and sensitivity information are prepared in accordance with the rules of the Danish FSA s executive accounting order on financial reports covering insurance companies.

22 Annual Report Note 2 Five-year overview and financial highlights The Company Premiums Insurance payments * Return on investment Total insurance operating costs Result of reinsurance Technical result Profit for the year Total provisions for insurance and investment contracts * 2,555 1,534 1,608 1,143 1,204 Total equity Total assets 3,276 2,977 2,391 1,936 2,019 The Group Premiums Insurance payments * Return on investment Total insurance operating costs Result of reinsurance Technical result Profit for the year Total provisions for insurance and investment contracts * 2,555 1,534 1,608 1,143 1,204 Total equity Total assets 3,276 2,977 2,391 1,936 2,019 Financial highlights*** Return related to average interest products * % Cost as a percentage of provisions * % Costs per policy-holder kr Return on equity after tax % Solvency cover * ** % , * The ministerial order on financial statements was changed as from With reference to Sect. 84 (2) of the misterial order, it has not been found to be practically possible to change the five-year overview, so as to make the figures for the period before 2016 in line with the new method. Consequently, the figures for are not directly comparable with ** The key figure called solvency cover is exempted from the audit requirement, cf. ministerial order no. 937 of 27 July 2015 on financial reporting of insurance companies and transverse pension funds, so no audit has been performed. *** Key ratios are given for the Company, while key ratios are not prepared for the Group, since the Group only consists of one life assurance company.