The State Registered Nurses and Medical Secretaries Pension Fund

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1 Annual Report 2017 The State Registered Nurses and Medical Secretaries Pension Fund Approved at the Annual General Meeting of the Pension Fund on 24 April 2018 Chairman of the Meeting John Vagn Nielsen Tuborg Boulevard 3, DK-2900 Hellerup Central Business Reg. No

2 The State Registered Nurses and Medical Secretaries Pension Fund Contents Management Review 2 Management Statement 10 The independent auditor s report 11 Income Statement and Total Income Statement 15 Balance Sheet 16 Equity and Capital Base 18 Notes 19 Tuborg Boulevard 3, DK-2900 Hellerup Central Business Reg. No

3 2 Annual Report 2017 Management Review The State Registered Nurses and Medical Secretaries Pension Fund carries out pension fund activities. The Pension Fund accepts registered nurses, radiographers and medical secretaries as members; they are entitled and obliged to membership of the Pension Fund through their collective labour market agreement or contract of employment. Furthermore, as from 2016, persons who do not have an employer pension scheme, but are members of trade union organisations attached to the Pension Fund, are also admitted as members. The Pension Fund has organised its activities in the form of investment activities in affiliated companies. However, the results obtained by the Pension Fund Group as a whole decide a member s pension entitlement. The key figures in this report are thus given at Group level, unless otherwise specified. Profit for the year The Group s profit for 2017 amounted to DKK 1,014.5 mill. The Board of Directors proposes to carry the profit forward to next year. Members contributions, excluding deposits, and pension payments are increasing, which had also been expected. The Pension Fund continues to grow, since members contributions are 1.4 times higher than pension payments. The total return before the pension return tax on the Pension Fund s assets was 6.4 %. The profit for the year is deemed to be satisfactory and the Pension Fund remains well-consolidated. The year under review The economy In line with the Pension Fund 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 the EU-critical parties in these countries were going to get, thereby influencing economic forecasts. Elections in the Netherlands and France ended with middle-of-the-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 In the period from January to September, the Pension Fund s account interest rate was set at 5% before tax. In the period from October to December, the account interest rate was increased to 7% before tax. The account interest rate has been set at 7% before tax in 2018, and the expectation is that the account interest rate will be minimum 7% before tax in the coming four years. Private savings Members may place private savings with the Pension Fund. Such savings are a flexible supplement to members employer pension schemes and offer payment-guaranteed savings in the form of a lump-sum retirement amount, an instalment pension or a life-long retirement pension. The State Registered Nurses and Medical Secretaries Pension Fund

4 Annual Report Investment portfolio Return The total return in 2017 was 6.4 %, corresponding to DKK 7,067.6 mill. All asset classes generated a positive return in Shares and direct infrastructure contributed a double-digit return, while the return on mortgage bonds, properties, investment grade bonds and the absolute return were lower. Investments and social responsibility With the UN millennium goals and the Paris climate agreement, the focus is on fighting climate change and disseminating green technology. These goals are in line with the views of PKA members and their expectations that the Pension Fund helps move the world in a more sustainable direction, while generating good returns at the same time. That is why the millennium goals and the Paris agreement serve as benchmarks for the Pension Fund s climate strategy. In addition, the Pension Fund s guidelines for responsible investments are in line with the principles of the UN Global Compact. As an addition to the UN Global Compact, the Pension Fund 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 Meeting explains the development of the work on these guidelines and active ownership. The report is available on the Pension Fund s website. Active ownership is exercised by ongoing dialogue with the companies in which investments have been made and by ensuring that they comply with the Pension Fund s guidelines and contribute towards the development of their long-term value creation. If a company does not live up to the guidelines, the Pension Fund 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 Pension Fund s investment universe. On its website, the Pension Fund publishes the current list of companies which have been excluded, as well as those with which the Pension Fund has entered into a dialogue and companies under observation. 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 the Pension Fund dropped its investments in the first coalmine companies in 2015 because of both financial and climatic considerations, and the Pension Fund 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. The Pension Fund has excluded 70 companies so far, since these were not prepared to reduce their coal activities, while 37 companies have been retained within the Pension Fund 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 Pension Fund 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. The Pension Fund 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, the Pension Fund 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. With an investment of DKK 3 bn in the Walney Extension offshore wind farm, the PKA Pension Funds increased their investments in offshore wind turbines to a total of DKK 12 bn. Walney Extension, to be placed off the English coast, will be the biggest offshore wind farm in the world. The wind farm is expected to be ready in the second half of 2018 and will deliver green electricity to 500,000 UK households. The PKA Pension Funds previously invested DKK 200 mill. in the Climate Investment Fund, a public-private cooperation promoting Danish climate technology. In 2017, the fund invested in a new wind farm in the Gobi desert in Mongolia; this will reduce emissions by 200,000 tonnes of CO2 per year. All in all, the Pension Fund together with the other pension funds in the PKA cooperation has invested approx. DKK 19 bn in climate projects. The State Registered Nurses and Medical Secretaries Pension Fund

5 4 Annual Report 2017 In 2017, the PKA Pension Funds also invested almost DKK 1 bn in a fund which will build and operate infrastructure projects in Africa. This investment has been made in a partnership with A.P. Møller Holding and three other investors. The fund focuses on 10 African countries, including Nigeria, Tanzania, Kenya and Ghana, and is intended for form the basis for additional growth and jobs. The management of the fund has detailed knowledge and many years experience with building and operating infrastructure projects in Africa, and the partnership made helps secure the robustness of the investment. In the year under review, the PKA pension funds also increased their investment in micro-loan funds to DKK 500 mill. These funds lend out money in developing countries, so people can start up their own enterprise; most of the loan recipients are women. These funds help towards abolishing extreme poverty and towards gender equality. All in all, the PKA pension funds help lend money to approx. 5.5 million people in 14 developing countries, thereby giving them the opportunity to increase their standard of living. PKA is convinced that companies, employees and investors benefit from decent wages and working conditions. That is why PKA is working to help companies understand that investments in decent wages and working conditions contribute towards a company s long-term value creation. Employees become more productive and good, long-term returns are generated for investors. At the same time, the individual person and his or her family get better living conditions. In 2017, PKA had an ongoing dialogue with 44 companies in order to put the focus on wages and working conditions. Compared with the 2008 level, the PKA pension funds are in the process of reducing the average CO2 emission per m2 for Danish real property investments by almost two-thirds heading up to This protects members return for the future, while at the same time contributing towards green conversion. In addition to energy renovation of existing properties, an additional DKK 225 mill. has been invested in dwellings with the Danish Swan ecolabel in These dwellings are characterised by low energy consumption, a healthy indoor climate, and focus on sustainability throughout the life of the property. All materials live up to stringent requirements regarding the environmental and health-related impact of substances, thereby guaranteeing a healthy indoor climate. A total of DKK 335 mill. has been invested in 157 Swan ecolabel dwellings. Cooperation on investments and cash flow The Pension Fund s assets are managed by PKA A/S and, based on an agreement, the Pension Fund cooperates with other pension funds administered by PKA A/S on effective and rational management of its investments and cash flow, so as to obtain the highest possible return and the lowest possible costs. Derivative financial instruments The Pension Fund makes wide use of derivate financial instruments for investment and hedging purposes. Risks and solvency associated with the Pension Fund s business model Seen in a risk perspective, the Pension Fund s business model is simple. The model rests on a labourmarket-agreement-based, collective, solidarity-based labour market pension scheme. Furthermore, the Pension Fund is able to accept members outside the labour market agreement, as long as they are members of trade unions (PKAprivate). Members are able to place supplementary savings with the Pension Fund. The most significant risks are market risks, insurance-related risks and outsourcing risks. Market risks The Pension Fund offers an average interest rate product. New members are admitted at a base interest rate of 0 per cent, just as the Pension Fund still has a number of members with interest rates varying from 1.75 to 4.25 per cent. This involves interest risk exposure, which is hedged on an ongoing basis. The Pension Fund wishes to deliver robust pensions to its members. This is ensured through a long-term investment strategy, whose aim is to achieve high, stable returns in a responsible way; as a minimum, these investments must be able to meet the return requirement from the converted pensions. Long-term low returns on investment assets or major financial losses constitute a risk when it comes to delivering robust pensions. This exposure is the Pension Fund s market risk. This risk is mitigated by spreading investments to cover a wide range of different asset classes. Investments are made collectively for members. Any losses on investments must also be covered collectively; however, the Pension Fund s share of bonus potentials ensures that any losses on the financial The State Registered Nurses and Medical Secretaries Pension Fund

6 Annual Report markets are not charged to members deposits in individual years, but that instead members receive the account interest announced at any given time on their deposits. 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 Pension Fund s risk appetite in the form of a chosen investment strategy. The Pension Fund s risk appetite is decided on the basis of two goals. The Pension Fund protects the members pensions in the risk management model (PBG) and the Pension Fund complies with all applicable solvency rules (SCR). In its risk management policy, the Board of Directors decides the safety levels for the PBG limits which give the risk-related framework for the Pension Fund in relation to the converted pensions. Furthermore, in special cases, the solvency cover may provide the framework for the risktaking of the Pension Fund. The Pension Fund has a capital plan and an emergency plan based on the risk management model (PBG) and the solvency capital requirement (SCR). In the capital plan, the financial situation in the Pension Fund s strategic planning period is deemed to be reassuring. Insurance risks The Pension Fund provides life-long pensions, so in risk terms the Pension Fund is exposed to changes in life expectancy among its members. The Pension Fund is a solidarity-based scheme with disablement cover without any required health information upon admission, as long as the member is in one of the job groups that are comprised. In risk terms, the Pension Fund is exposed to the development in the number of anticipatory pension recipients among its members. The Pension Fund monitors developments in its insurance risks closely and makes provisions in accordance with the life expectancy benchmark laid down by the Danish FSA. Outsourcing The Pension Fund uses outsourcing to a considerable extent. Direct outsourcing goes to PKA A/S, which in turn has outsourced much of operations on to Forca A/S. The administration of real property investments has been outsourced to DEAS A/S, while the administration of alternative investments in private funds, co-investments and direct infrastructure investments has been outsourced to PKA AIP A/S. Risk is managed in the form of inspections and service delivery agreements. Capital Equity increased in 2017 by DKK 1,014.5 mill. to DKK 21,694.1 mill. The capital base is now DKK 22,654.9 mill. against DKK 21,493.0 mill in The SCR solvency requirement has been calculated using the standard model. As at 1 January 2017, SCR has been calculated to be DKK 4,744.2 mill., while at the end of 2017 it amounted to DKK 5,849.3 mill. Bonus policy The determination of interest rates is based on the objection of ensuring stable development of members pensions over time. The objective of the Board of Directors is to maintain an account interest rate of 7% until the end of The account interest rate may be reduced if required for financial reasons. Other rates are basically determined once a year. The bonus policy is also based on the assumption that maintenance of purchasing power requires a reasonable level of the pension to be adjusted. Pensions primarily based on a high level of interest rates and/or assumptions of shorter life expectancy will not necessarily require protection of purchasing power, given the present interest conditions and current assumptions on life expectancy. The Pension Fund equity is owned by the members. The principles for distribution of the year s profit between pension provisions and equity are thus not nearly as significant in a pension fund as in a life assurance enterprise. The full result obtained by a pension fund always accrues to its members. The State Registered Nurses and Medical Secretaries Pension Fund

7 6 Annual Report 2017 Superannuation provisions Superannuation provisions increased in 2017 by DKK 5,839.7 mill. to DKK 94,517.0 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. 4.2%. This change can be accommodated by the bonus potentials, and because of the Pension Fund s buffers, the risk margin and solvency capital requirement are not affected. 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 pension obligations and the valuation of unlisted, alternative investments and properties. Management finds that the assumptions made are responsible, but associated with uncertainty. 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 18. Events after the Balance Sheet date No events after the Balance Sheet date have any significant influence on the financial standing of the Pension Fund 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. The Pension Fund is robust and well-prepared for such challenges. Administration The Pension Fund and the affiliated companies are administered by PKA A/S. PKA A/S has outsourced some of its administrative tasks, e.g. to Forca A/S and PKA AIP A/S. The Executive Management and the appointed Actuary are employed by, but not paid by, the Pension Fund. The State Registered Nurses and Medical Secretaries Pension Fund

8 Annual Report The Pension Fund Group The Pension Fund s affiliated (wholly owned) companies as at 31 December 2017 can be seen from the Group chart. The State Registered Nurses and Medical Secretaries Pension Fund The State Registered Nurses and Medical Secretaries Property Company (plc) Dronningegården Property Company (plc) PKA State Registered Nurses and Medical Secretaries Anholt Havvindmøllepark K/S PKA State Registered Nurses and Medical Secretaries Gode Wind II K/S PKA State Registered Nurses and Medical Secretaries GP ApS The Pension Fund s property companies, limited companies These companies have the purpose of owning and running real property so as to obtain a long-term return on the invested capital. The companies result for 2017 was a profit of DKK mill., which amount was influenced by appreciation of the value of the properties concerned. The State Registered Nurses and Medical Secretaries Property Company plc participates in partnerships with other PKA-affiliated property companies. These partnerships do not publish independent annual reports in accordance with the provisions of the Danish Financial Statements Act. The partnerships are integrated on a pro rata basis in the financial statements of the partners. Anholt Havvindmøllepark, an offshore wind farm The company s activity is ownership of a 10.35% partnership share of Anholt Havvindmøllepark I/S. The company profit for 2017 was DKK mill., which is in line with expectations. Gode Wind II The company s activity is ownership of 24.8% of Gode Wind II Joint HoldCo P/S, which together with other investors owns 50% of a German offshore wind farm, OpCo German OHG. The company s profit for 2017 was DKK mill., which is in line with expectations. PKA - State Registered Nurses and Medical Secretaries GP ApS This company functions as general partner for the Pension Fund s investments via limited partnerships in the offshore wind farms. The result for 2017 was DKK 0.0 mill. Audit Committee In accordance with legislation, the Pension Fund must establish an Audit Committee. The chairman must be independent and at least one member must have qualifications in accounting or auditing. The chairman of the Audit Committee is Birgitte Tausen, who meets the requirements both for independence and for qualifications in accounting or auditing. The other members of the Audit Committee are Bent Hansen and Grete Christensen. 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 on equal representation if one gender is underrepresented on the Board. Such underrepresentation exists if either gender has less than 40% of the Board members. The State Registered Nurses and Medical Secretaries Pension Fund

9 8 Annual Report 2017 The rules of setting a target for gender representation on the board of directors are based on the board members elected by the general meeting; however, in the Pension Fund, the majority of board members are appointed by social partners concluding labour market agreements. That is why it will not be correct to adopt a target for the board members elected by the general meeting; consequently, the board has adopted a target for the gender composition of the board of directors as a whole. The board has decided that the target for men on the board of directors is to be at least 25 %, while the target for women on the board is to be at least 40 %. At the end of the year under review, the split on the board of directors was 36 % men and 64 % women on the board. The targets have thus been met. No policy has been adopted regarding equal representation in the management layers below the Executive Management of the Pension Fund. The Pension Fund is fully administered by PKA A/S. Following an organisational change at the end of 2017, PKA A/S has a gender split in the management layers below the Executive Management of 62% men and 38% women. Against this background, a policy is being prepared in the course of 2018 for equal gender representation in the other management layers of PKA A/S. The State Registered Nurses and Medical Secretaries Pension Fund

10 Annual Report Other management/board positions The members of Management hold the following other management/board positions: Managing Director Peter Damgaard Jensen Man. Dir. of PKA A/S Man. Dir. of four pension funds administered by PKA A/S Man. Dir. of the Healthcare Professionals Property Company plc Man. Dir. of the Social Workers, Social Pedagogues and Office Staff Property Company plc Chairman of the Board of PKA+ Pension Forsikringsselskab A/S 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. The members of the Board of Directors hold the following other management/board positions: Chairman of the Board Bent Hansen, member of the Audit Committee Chairman of the Board of Pensionskassernes Administration A/S Chairman of the Board of Grenaa Havn A/S Board member of Fonden bag udstilling af skulpturer ved Aarhusbugten Board member of Fonden Aarhus 2017 Board member of Ejendomsselskabet Moesgård A/S Board member of ATP Personal owner of Bent Hansen, lectures and consulting Vice-chairman Grete Christensen, member of the Audit Committee Vice-chairman of the Board of Pensionskassernes Administration A/S Chairman of the Board of Forbrugsforeningen af 1886 Chairman of the Board of Sygeplejerskernes Fritidsboliger A/S Chairman of the Board of A/S Knudemosen Vice-chairman of the Board of Hotel Koldingfjord A/S Board member of Lån og Spar Bank A/S Board member of PS! Improve ApS Board member Mogens Eduard Jespersen Board member of Pensionskassernes Administration A/S Executive Management MJ Autoservice Holding ApS Board member of Cemtec Fonden Board member Dorte Steenberg Board member of Sygeplejerskernes Fritidsboliger A/S Board member Jette Søgaard Nissen Board member of Pensionskassernes Administration A/S Board member Jacob Paludan Truelsen Personal owner of Paludan represented by/jacob Paludan Truelsen Board member Birgitte Tausen, chairman of the Audit Commitee The other Board members have no additional management/board positions The State Registered Nurses and Medical Secretaries Pension Fund

11 10 Annual Report 2017 Management Statement We have today presented the Annual Report for The State Registered Nurses and Medical Secretaries Pension Fund 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 Pension Fund s assets, liabilities and financial position as at 31 December 2017, as well as the result of the Group s and the Pension Fund s activities in the 1 January 31 December 2017 financial year. We consider that the Management Review gives a true and fair view of developments in the Group s and the Pension Fund s activities and financial standing, the result for the year and the Group s and Pension Fund s financial position, as well as describing significant risks and uncertainty factors faced by the Group and the Pension Fund. We recommend that the Annual Report be adopted by the General Meeting. Hellerup, 13 March 2018 Management: Peter Damgaard Jensen Managing Director Hellerup, 13 March 2018 Board of Directors: Bent Hansen Chairman Grete Christensen Vice-chairman Henrik Thorup Gamst Mogens Eduard Jespersen Nathali Schaap Degn Dorte Steenberg Jacob Paludan Truelsen Jette Søgaard Nissen Birgitte Wildt-Andersen Lone Kjærgaard Birgitte Tausen The State Registered Nurses and Medical Secretaries Pension Fund

12 Annual Report The independent auditor s report To the members of the State Registered Nurses and Medical Secretaries Pension Fund Opinion In our opinion, the Consolidated Accounts and Financial Statements give a fair view of the Group s and the Pension Fund s assets, liabilities and financial position as at 31 December 2017, as well as of the result of the Group s and Pension Fund s activities 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 the State Registered Nurses and Medical Secretaries Pension Fund 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 the State Registered Nurses and Medical Secretaries Pension Fund at the General Meeting on 27 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 unlisted investments Unlisted investments consist of investments made indirectly through funds as well as direct ownership. Investments have been made primarily in infrastructure, including wind turbines and other types of energy, business properties and dwelling properties, private equity and disaster insurance. To a smaller extent, investments have been made in forests & agriculture, as well as direct loans to business enterprises. Investments form part of the account item entitled Investment properties, Investments in affiliated and associated companies, and Other financial investment activities. Directly owned, unlisted investments are measured How we have processed the central aspects in the audit Measuring of unlisted investments We reviewed and assessed procedures and internal controls for measuring unlisted investments. We assessed and tested the valuation models used by Management. We tested by sampling the connection between the assumptions used and the calculation of current values. In addition, we tested prices reported by external managers, just as we carried out internal follow-up on prices and market development. We challenged Management estimates used for calculating current values; we did this based on our knowledge of the portfolio and the market development. The State Registered Nurses and Medical Secretaries Pension Fund

13 12 Annual Report 2017 at an estimated current value, primarily based on valuation models and assumptions, including Management estimates, which are not observable for third parties. Unlisted investments owned directly through funds and associations and administered externally are measured at an estimated current value based on reports from investment managers, supplementary information about price developments, and analyses of valuations. We focused on measuring unlisted investments, because the calculation is complex and involves considerable Management estimates. Reference is made to the mention in Consolidated Accounts and Financial Statements of Accounting estimates in note 1, Investment properties in note 8, Shares in associated companies in note 15, and Other financial investment activities in note 9. Measuring of provisions for pension agreements and investment contracts Measuring of provisions for pension agreements and investment contracts The Pension Fund has provisions for pension agreements and investment contracts totalling DKK 94,517 mill., which is 72.8% of total provisions. Provisions consist primarily of pension 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, 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. Reference is made to the mention in the Consolidated Accounts and Financial Statements regarding Accounting estimates in note 1, as well as Pension provisions in note 13. We reviewed and assessed the Pension Fund 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 Pension Fund, 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 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. 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. The State Registered Nurses and Medical Secretaries Pension Fund

14 Annual Report 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 kind of 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 Pension Fund 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 Pension Fund or discontinue operations, or has no other realistic alternative than to do so. The auditor s responsibility for the audit of the Consolidated Accounts and 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 prepare 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 Pension Fund 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 The State Registered Nurses and Medical Secretaries Pension Fund

15 14 Annual Report 2017 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 Pension Fund 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 extreme 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, 13 March 2018 PricewaterhouseCoopers State-authorized Public Accountants, Partnership Central Business Reg. No Christian Fredensborg Jakobsen Per Rolf Larssen State-authorized Public Accountant State-authorized Public Accountant mne mne The State Registered Nurses and Medical Secretaries Pension Fund

16 Annual Report Income Statement and Total Income Statement All amounts in DKK mill. Pension Fund Consolidated Note Gross member contributions 3 3, , , ,747.8 Total member contributions, own account 3, , , ,747.8 Income from affiliated companies Income from associated companies 1, , , ,269.2 Income from investment properties Interest income and dividend, etc. 5, , , ,851.8 Price adjustments , ,085.3 Interest costs Administration costs in connection with investment activities Total return on investment 6, , , ,177.8 Pension return tax , ,388.8 Pension payments -2, , , ,594.6 Total pension payments, own account -2, , , ,594.6 Change to pension provisions, own acc. 5-5, , , ,388.0 Change to profit margin Change to surplus capital Administration costs Pension-related operating costs, own acc Transferred return on investment , ,354.7 TECHNICAL PENSION RESULT Investment return on equity 1, , , ,594.7 PROFIT BEFORE TAX 1, , , ,594.7 Pension return tax, equity PROFIT FOR THE YEAR , ,354.7 Capital movements (reassessment) in affiliated companies Capital movements (reassessment) in associated companies Divided into insurance and investment contracts Pension return tax on other total income OTHER TOTAL INCOME TOTAL INCOME FOR THE YEAR 1, , , ,370.3 Realised profit 7 Profit for the year is transferred to equity. The State Registered Nurses and Medical Secretaries Pension Fund

17 16 Annual Report 2017 Balance Sheet ASSETS All amounts in DKK mill. Pension Fund Consolidated Note Investment properties 8 2, , , ,521.0 Capital investment in affiliated companies 15 7, ,336.7 Capital investment in associated companies 15 48, , , ,370.1 Loans to associated companies 2, , , ,626.6 Total investment in affiliated and associated companies 57, , , ,996.7 Capital investment 15, , , ,364.7 Mutual trust investment 5, , , ,347.9 Bonds 27, , , ,776.9 Secured loans Other loans 8, , , ,726.7 Deposits with credit institutes 3, , , ,127.1 Derivative financial instruments 7, , , ,395.1 Total other financial investment assets 9 67, , , ,738.8 TOTAL INVESTMENT ASSETS 128, , , ,256.5 Receivables related to direct pension business with pension savers Receivables from affiliated companies Receivables from associated companies Other receivables TOTAL RECEIVABLES 1, , Cash in hand and at bank OTHER ASSETS, TOTAL Interest receivable Other prepayments and accruals TOTAL PREPAYMENTS AND ACCRUALS TOTAL ASSETS 129, , , ,124.1 Guarantees 10 Contingent asset 11 The State Registered Nurses and Medical Secretaries Pension Fund

18 Annual Report Balance Sheet LIABILITIES All amounts in DKK mill. Pension Fund Consolidated Note Reserves Profit carried forward 21, , , ,664.0 TOTAL EQUITY 21, , , ,679.6 Surplus capital TOTAL SUBORDINATE LOAN CAPITAL Pension provisions 13 94, , , ,677.3 Profit margin on pension provisions TOTAL PR0VISIONS FOR PENSION AGREEMENTS AND INVESTMENT 94, , , ,677.3 Defered pension return tax Provisions for taxes TOTAL PROVISIONS FOR COMMITMENTS Debt concerning financial derivatives 9 5, , , ,654.3 Debt to credit institutes 6, , , ,904.3 Debt to affiliated companies Pension return tax payable 1, , Other debt TOTAL DEBT 12, , , ,703.4 PREPAYMENTS AND ACCRUALS TOTAL LIABILITIES 129, , , ,124.1 Accounting policies 1 Financial highlights and key ratios for the last five years 2 Contingencies 14 Affiliated and associated parties 15 Risk and risk management 16 Specification of assets and their return 17 Sensitivity information 18 The State Registered Nurses and Medical Secretaries Pension Fund

19 18 Annual Report 2017 Equity and Capital Base All amounts in DKK mill. Pension Fund Consolidated Equity Equity as at 1 January 20, , , ,309.3 Transferred from profit distribution , ,354.7 Other total income Total equity 21, , , ,679.6 Pension Fund Consolidated Capital base Equity 21, , , ,679.6 Surplus capital Total capital base 22, , , ,493.0 The State Registered Nurses and Medical Secretaries Pension Fund