annual report 2002 - pfa pension pfa/annual reports english/pf… · customers. this is the...
TRANSCRIPT
a n n u a l r e p o r t
2 0 0 2
a n n u a l r e p o r t 2 0 0 2 | 3
Highlights of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customers getting a larger share of the net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DKK 5.8 billion in special bonus provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Activities in the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New organisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enhanced customer service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
More efficient service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
More resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expectations for 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension schemes should be comprehensible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PFA Pension – based on understanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New visual identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal embeddedness before external communication . . . . . . . . . . . . . . . . . . . . . . . .
2002 - External factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Focus on capital and risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating and financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5-year summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statements and reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yield of investments 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Board and Supervisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Please note that this is a translation of the Danish edition of the Annual Report 2002
Table of contents
4
5
5
6
6
6
7
7
8
8
9
9
10
10
11
14
15
16
20
28
36
39
40
42
43
53
55
4 | a n n u a l r e p o r t 2 0 0 2
• Gross premiums in PFA Pension rose in 2002
by 4 per cent to DKK 10.6 billion. The net
profit for the year came at DKK 1.0 billion,
against a net loss of DKK 3.6 billion in 2001.
• In 2002, PFA reported investment income of
5.7 per cent. Both in light of the development
in the financial markets and in relation to the
other providers of pension services, the yield
is highly satisfactory. The yield on investments
is the most imperative factor for an attractive
pension scheme.
• It is, furthermore, important that as much of
the added value as possible accrues to the
customers. This is the background for PFA’s
decision in 2002 to introduce special bonus
provision, allowing an even larger share of the
profit to accrue to the customers, combined
with an attractive minimum yield.
• To further provide the customers with value
while, at the same time, increasing PFA’s com-
petitiveness, the annual general meeting of
shareholders decided in May 2002 to transfer
DKK 4.8 billion to the customers, with effect at
the end of 2001.
• In 2002, another DKK 0.4 billion was trans-
ferred, an account which, given the addition
of interest, has increased to DKK 5.8 billion.
The amount benefits the customer groups
that choose to save up by way of special
bonus provisions. Thus, an absolutely attrac-
tive pension product has been developed, and
it is expected to be received very favourably
by the customers.
• At year-end, the balance sheet total was DKK
154.4 billion – a rise of 8.7 per cent on last
year. Shareholders’ equity increased from
DKK 2.7 billion to DKK 3.7 billion.
• At the end of 2002, PFA’s capital base was 75
per cent, or DKK 5.2 billion, higher than the
statutory solvency requirement. This comfort-
able excess solvency is important to the cus-
tomers, not least considering the difficulties
in September 2001.
Highlights of the year
Key figures
PFA Pension (in DKK billions, except per share data) 2002 2001
Gross premiums, incl. non-life insurance 10.6 10.2
Net profit/(loss) for the year 1.0 (3.6)
Total assets 154.4 142.0
Shareholders’ equity 3.7 2.7
Special bonus provisions 5.8 4.8
Capital base 11.8 9.2
Solvency requirement 6.6 6.1
Deposit interest after pension yield tax 4.5% 8.5%
Yield before pension yield tax 5.7% (4.9%)
Bonus reserve 5.6% 6.2%
Solvency margin 175% 149%
a n n u a l r e p o r t 2 0 0 2 | 5
Customers getting a larger share
of the net profit
As from 2002, the customers of PFA Pension
will get a larger share of the realised profit for
the year, whereas less will accrue to the own-
ers. This is possible due to the special bonus
provision applied by PFA.
Being a life insurance company, PFA must
make sure to maintain a certain capital base.
Previously, it was therefore necessary to allocate
funds to shareholders’ equity as the most im-
portant element of the capital base. Following
the Danish Financial Supervisory Authority’s in-
troduction of the rules of special bonus provi-
sions, it is now also possible to meet the capi-
tal base requirements through provision in the
form of the special bonus provision that belong
to the customers.
DKK 5.8 billion in
special bonus provision
At the end of 2001, PFA transferred DKK 4.8
billion and, at the end of 2002, another DKK
406 million was transferred from equity to the
customers’ special bonus provision. Thus, when
the realised profit for the year is distributed,
the customers get a higher share, whereas less
is allocated to equity. The distribution for 2002
is described in more detail on p. 20 of the ‘Op-
erating and financial review’ section. The
amount is then DKK 5.8 billion.
As shareholders’ equity, the special bonus
provision covers any losses which cannot be
covered through the customers’ distributable
reserves. As there is thus a risk of loss in rela-
tion to special bonus provision, a so-called entre-
preneurial profit – an extra bonus – is there-
fore allocated in line with shareholders’ equity.
Furthermore, special bonus provision carries in-
terest at the rate of its share of the year’s in-
vestment income.
PFA is going to allow the customers to build
up special bonus provision. This element of the
costumer’s savings will yield an interest rate that
corresponds to the yield on the shareholder’s
equity. The amount of 5.8 billion will partly be
used for increasing the value of the individual
insured’s special bonus provision savings and
partly serve as security for these savings, thus
exposing the customers to very limited risk.
The special bonus provision will be disbursed
when the insurance is paid out.
In 2002, PFA Pension implemented extensive
strategic efforts, on which the future develop-
ment is going to be based. The efforts resulted
in a number of projects which have already pro-
duced concrete results. The projects include:
• A new process-based organisation
• Process improvements to enhance efficiency
and reduce the time needed for administrative
case handling
• Innovation of PFA’s IT systems
• Drafting of a new value-based platform includ-
ing a vision, a mission and values and a concept
for the internal as well as the external commu-
nication
• A language programme aimed at improving
PFA’s communication with the customers
• Risk management and investment mix.
New organisation
In 2002, PFA Pension established a new organi-
sation with particular focus on the management
of cross-functional processes. The customer-re-
lated business processes Sale, Customer Ser-
vices and Administration were changed the
most. The new organisation was thus modelled
on the basis of the business processes which
PFA must master in order to render high-quality
services and restore the efficiency of the work.
At the same time, PFA set up the best possible
framework for introducing new technology.
The new organisation became effective 1 Au-
gust 2002. On 17-18 August, around 530 em-
ployees moved around in PFA’s main office, and
the new organisation was a physical reality.
One important result is a more focused organi-
sation in Sale & Customer Services, where four
divisions were merged into one unit. Another
important change was the establishment of a
central department for policy administration
and other administrative case handling.
Enhanced customer service
In 2002, PFA pursued a sales strategy with the
primary aim to provide the existing customers
with enhanced service in order to retain them.
New sales, on the other hand, were limited.
As part of our efforts to increase the level of
service, we arranged a number of feature meet-
ings in the first half of the year, aimed at cor-
porations and organisations. During these
meetings, we informed the customers of our
current situation and new initiatives to
strengthen our capital base, create a new or-
ganisation and reduce the time needed for ad-
ministrative case handling.
The new organisation brought about a stronger
focus on customer services. Today, many corpo-
rations and organisations are being serviced by
teams, allowing the team members to consult
each other in connection with current consultan-
cy and service. Such consultancy includes advice
Executive board
6 | a n n u a l r e p o r t 2 0 0 2
Activities in the year
Sales & Customer Services
Communication & Marketing
Administration
HumanResources
Business Development
Actuarial Department
Finance & Accounts
Technology Programme
Capital & Risk
Investments IT Compliance
PFA’s organisation
1 2 p r o c e s s a r e a s
a n n u a l r e p o r t 2 0 0 2 | 7
on efficient payments systems, social worker
services and legal services.
An increasing number of pension schemes are
being extended so as to include health cover
such as Coverage at Critical Illness, under which
a lump sum is paid to policyholders contracting
certain types of diseases, and PFA Health Insur-
ance allowing of quick treatment in a private clin-
ic or hospital. The number of policies providing
Coverage at Critical Illness rose in 2002 from
150,000 to over 170,000, whereas the number
of policies providing cover under the PFA Health
Insurance rose from 25,000 to 35,000.
Even if new sales were limited in 2002, current
premium payments in 2002 rose by 8 per cent to
DKK 9.4 billion on the year before. The increase is
partly due to the fact that the contribution per-
centage is being developed in many pension
schemes, and partly to the fact that contributions
are rising concurrently with pay trends. The num-
ber of individuals making current contributions to a
pension scheme in PFA is largely at the 2001 level.
As was expected, a certain number of cus-
tomers left PFA following the Company’s capital
problems in the autumn of 2001. However, the
number represented a few per cent only, and to-
wards the turn of the year, several corporate cus-
tomers having considered discontinuing their
pension schemes, chose to stay in PFA.
More efficient service
It is PFA’s aim to offer the market’s best and
most efficient service to our customers, and
during 2002, PFA took a number of efficiency-
enhancing steps. One important element was to
introduce new and more efficient working meth-
ods in the entire case-handling process from the
beginning to the end. We have used experience
and methods known from manufacturing busi-
nesses, and new, less complex and more ratio-
nal working procedures have increased the effi-
ciency by up to 30 per cent in several areas.
Long waiting times and piled-up cases have
been a considerable obstacle to the possibility
of providing our customers with satisfactory
services. Therefore, one important part target
has been for us to close piled-up cases during
the first half of 2003. Once such cases are
closed, the administrative case-handling time
will be reduced significantly.
Besides the direct improvement of the ser-
vices we provide, a streamlined and effective
organisation is very important if we are to
achieve the optimum effect of the forthcoming
technological innovation.
New technology
PFA Pension has plans to replace a number of
our existing IT systems over the next 3-5 years
– a task that will be solved in co-operation with
an external partner who will assume the role of
systems integrator. In competition with a num-
Case files
Target (estimated)
Realised
0
5000
10000
15000
20000
25000
30000
Week39/02 12/0301/03 20/03
The pile of case files is decliningThe figure shows the development
in the number of policies which areto be attended to. It appears fromthe figure that the pile is being re-
duced quicker than expected.
Number of policyholders
PFA Pension 2002 2001
Insurance taken out by
private individuals 55,257 57,052
Insurance taken out
through an employer 476,348 470,396
Hereof pensioners 45,700 44,200
Group life insurance 605,804 596,274
8 | a n n u a l r e p o r t 2 0 0 2
ber of enterprises, CSC Danmark A/S was cho-
sen as our systems integrator.
The coming systems solution will consist in a
number of integral IT systems which are to sup-
port PFA’s central business processes within,
among other areas, Administration, Sales & Cus-
tomer Services, Actuarial Department, Finance and
Accounts and Human Resources. The replacement
of existing systems will be paid for through further
efficiency-enhancing measures and will, in the
longer run, result in a reduction of the expenses
incurred to administer pension schemes.
More resources
Following the organisational changes, a number
of persons have been employed since mid-2002,
eg in the Business Development, Communica-
tions & Marketing, Actuarial, Technology, Capital
& Risk and Compliance departments. Great inter-
est has been displayed in the job opportunities
in PFA, and a profile advertisement in May 2002
resulted in more than 2,000 applications.
In the aggregate, 189 employees were re-
cruited in the year under review, including 12
trainees and nine recently graduated academics
in a trainee team. Given the 83 retired employ-
ees, the net addition was 106. Thus, the num-
ber of employees in the Group was 1,007 at
year-end, or – converted into full-time employ-
ees – 916. In PFA Pension, the corresponding
numbers are 905, or – converted into full-time
employees – 835, respectively.
Training activities were record high in 2002
for the fourth year in a row, having increased by
7 per cent. PFA’s employees participated in
course activities for almost eight days on aver-
age. Well over 30 per cent of the courses con-
cerned PFA’s introductory and basic training,
whereas 27 per cent of the courses were held
under the auspices of Forsikringsakademiet
(the Danish Insurance Academy). Other course
activities were distributed on a number of areas,
the team leader and IT courses accounting for a
total of 17 per cent.
Risk management
PFA considers a proactive attitude to risk iden-
tification and management a very important el-
ement of good corporate governance. PFA
monitors and manages risk from a broad per-
spective, taking into account five main risk
groups: Business, financial, insurance-related,
operational and legal risks.
The monitoring of financial risks is closely re-
lated to the investment mix, which is described
in more detail on p. 15.
As part of the organisational changes in
2002, PFA established a central compliance
function to which the central legal function was
transferred at the same time.
The persons in charge of the individual areas
are responsible for identifying and managing
risks. The central compliance function plays a
monitoring and advisory part, including best
practices, policies and procedures. The compli-
ance function is in charge of cross-functional
tasks, eg in relation to the Danish Financial Su-
pervisory Authority and the identification of
risks related to the drafting of annual strategy
plans. The function moreover attends to the busi-
ness procedure programme for the entire PFA.
The IT systems of PFA Pensioncan be broken down into sixgroups. Largely, all IT systemswill be replaced during thenext three to five years. Theinvestment in new systems ismade to improve service andefficiency and to ensure a con-tinued product development.
Webportal & CRM
Task management
Life insurance and pension
Management information
Finance & Accounts
and HR etc.
Systems architecture
a n n u a l r e p o r t 2 0 0 2 | 9
The beginning of 2003 has been characterised
by a high degree of hesitancy in the financial
markets, and it is still difficult for the pension
sector to achieve a satisfactory investment
yield. Against this background and considering
its existing reserves, PFA has planned a conser-
vative investment strategy for 2003, which
partly makes allowance for the hesitancy and
partly hedges risks related to liabilities.
The investment strategy will be re-evaluated
on an ongoing basis considering the trends in
the financial markets and in reserves, thus al-
lowing PFA to create the best possible basis up-
on which to maintain the announced deposit in-
terest rate of 4.5 per cent after pension yield tax.
In addition, PFA’s strategy for 2003 aims at
creating visible improvements for the cus-
tomers. Competitiveness must be enhanced
through the delivery of comprehensible prod-
ucts and the rendering of optimum services. An
inter-disciplinary language programme is to en-
sure that all communication is clear and unam-
biguous.
Additional risk and investment management
tools will be developed to ensure a continued
high yield for the customers.
The efforts to enhance the business process-
es and further improve their efficiency, which
were initiated in 2002 by means of the admin-
istrative processes, will be extended to other
areas as well.
Finally, PFA is going, in connection with the
innovation of the IT systems, to develop a new
unit-linked product to be offered to the cus-
tomers during the autumn of 2003. Focus will
be placed on user friendliness and flexibility as
well as on low administrative expenses and
transparency.
Pension schemes should
be comprehensible
Pension schemes are difficult to comprehend.
They are based on complex tax and pension sa-
ving rules. The entire sector is subject to a vast
number of regulations as to what type of infor-
mation is to be given in specific customer situa-
tions. Furthermore, there is a tradition in the sec-
tor that written communication must be techni-
cally correct, but such communication is often dif-
ficult to understand and often rather elaborate.
PFA Pension is determined to do away with
this tradition of inaccessibility – without com-
promising the correctness of the communica-
tion. To attain this end, PFA has launched a lan-
guage programme. All communication is to be
re-thought and re-worded on the basis of delib-
erations as to what the customers need to know
and how the information can be presented as
simply and non-complex as possible. Pension
schemes should not be so hard to comprehend.
The language programme will go through an
intensive phase in 2003, and all means of com-
munication – letters, brochures, forms, etc. –
will be drawn up anew. At the same time, PFA
is going to introduce new policies for its written
communication and the employees will attend
language courses. The aim is to increase the
customers’ satisfaction with PFA and to make
them appreciate the information about their
pension savings more.
Expectations for 2003
10 | a n n u a l r e p o r t 2 0 0 2
In 2002, PFA Pension formulated a platform for
what we want our communication and conduct
in the market to represent. The platform is
based on the business goals which we are de-
termined to meet. It embodies a new vision,
mission, four values and a communications
concept including a new graphic identity.
The essence of our new platform is reflected
in the sentence, ‘PFA – based on understand-
ing’. We wish PFA to become known as a com-
pany that gives our customers an overall view
of their pension arrangement by means of the
most competent advice, the best service and
clear and intelligible communication.
New visual identity
In order to support the new platform we have de-
veloped a new visual identity which will be launched
in 2003. The new line of design will apply to all
communication, thus making the Group appear as
a uniform, up-to-date and modern business.
Part of this process will be a change of our lo-
go. Last time we changed our logo was in 1973.
Over the years, the logo has been adjusted, but
today it appears slightly age-ridden. So we had to
design a new logo reflecting the words ‘PFA Pen-
sion’ in a more modern, friendly and simple fash-
ion. The new wine-red logo has been designed in
accordance with the new communications plat-
form weighting signals reflecting intelligibility,
PFA Pension – based on understanding
We have formulated our long-term goals or
vision for PFA Pension as follows:
We want to be the life insurance and pension
company which most enterprises, organisations,
employees and members find the best provider
of such products and services. We are going to
attain this goal by:
• understanding and meeting our customers’
needs for life and pension insurance better
than our competitors;
• constantly making efforts to improve our
processes and services, based on the changing
demands and requirements of our customers
and the external environment;
• considering each individual employee a valuable
asset and constantly inspiring our employees to
work in a proactive manner towards the fulfil-
ment of our shared mission;
• making sure that the market knows what PFA
represents.
Vision Mission
We have formulated the road to the vision as
two sentences, which we refer to as our mis-
sion statement:
We make pension issues comprehensible through
a unique, easily accessible and relevant service.
Doing so can only be achieved by supplying the
most competent and clear advice in the market
and the most intelligible communication – and by
being flexible and efficient.
PFA Pension’s new logo was selected among severaldrafts as the one that best expresses intelligibility,modernity, accessibility and efficiency. It will be re-placing an almost thirty years old logo.
a n n u a l r e p o r t 2 0 0 2 | 11
modernity, accessibility and efficiency. The line of
design applies to all material displaying our logo.
Internal embeddedness before
external communication
The elements of the new platform will be em-
bedded internally in PFA in a planned process
over six months until the external launch in May
2003. The purpose of internal embeddedness is
to make each and every employee consider and
adopt the mission and the values to be reflected
by the PFA Pension brand.
The employees in all divisions are thus going to
discuss how they may contribute to PFA Pension’s
realisation of our long-term vision.
Four new values are linked to our mission. When combined, those values constitute the engine
driving our organisation, thus enabling PFA Pension to take up our new market position.
Competence means that we will use our extensive knowledge and experience in everything we do in order
to be considered competent – both internally and externally. Also, we need to constantly extend our knowl-
edge base and share our knowledge.
Efficiency means that we will provide efficient services through quick case administration and prompt an-
swers – and that our organisation is flexible, dynamic and open to change. Efficiency also means that we
help each other whenever required.
Relevance means that we contribute to making sure that the customer’s pension scheme is up to date – it
should make sense at whatever stage in life the customer is. Relevance also means that we will regularly in-
form our customers about new approaches and products which we consider an improvement of their pen-
sion schemes. Doing so requires that we constantly extend our knowledge about our customers and – cross-
wise of the organisation – use such knowledge to enhance our service to the customers.
Accessibility means that we will always communicate clearly and in an intelligible manner. And that we are
open-minded and frank – and aim at as much transparency as possible in all of our transactions. Accessibili-
ty also means that our customers should find it easy to get in contact with us, arrange meetings and that
they have ready access to all relevant information. This requires that we organise ourselves and make inter-
nal adjustments allowing us at all times to handle customer contacts quickly and efficiently.
Values
»The noblest pleasure is
the joy of understanding«
Leonardo Da Vinci (1452-1519), Renaissance artist
14 | a n n u a l r e p o r t 2 0 0 2
Again in 2002, the pension sector was
facing great challenges. The general
slowdown and hesitancy influenced the
international economic trends and the
developments in the financial markets.
Political tensions and the continued
war against terrorism as well as an in-
tensified American pressure on Iraq con-
tributed to increasing the hesitancy. And
so did a number of accounting scandals
in American corporations, leading to
general doubts as to the corporations’
earnings and trustworthiness.
The year started, on the other hand,
with positive expectations as regards
the US economy, but the recovery in
USA got winded, among other reasons
due to large capital losses in the stock
markets.
A severe weakening of the US dollar
contributed to spreading the US slow-
down to Europe – not least in Germany.
Fears that the slump might result in
deflation intensified the drops in inter-
est rates and share prices. As a reaction
to the poor growth prospects, the cen-
tral banks in USA and the Euro zone re-
duced the leading interest rates – in USA
to a record low for the last 40 years. The
low interest rates contributed to some
extent to keeping the economy on the
track, but far from enough to turn
around the adverse trend.
The global recession could be felt in
Denmark as well. In the autumn, the
country saw adverse growth trends, and
the forecasts for 2003 have been ad-
justed downwards on a current basis.
However, this situation does not change
the fact that the Danish economy is still
among the sturdiest economies in Eu-
rope. The rate of unemployment is rela-
tively low, and the Government finances
and the balance of payments are still in
the black.
Market trends
During the reporting period under re-
view, the share markets showed large
fluctuations, and global shares dropped
by more than 30 per cent. 2002 was the
third year in a row in which the yield on
the international share markets was
negative – a trend not seen since the
crisis in the 1930s. Danish shares man-
aged relatively better, dropping by ap-
prox. 20 per cent only.
The bond markets, on the other hand,
showed large capital gains as the inter-
est rates fell in 2002. The 10-year gov-
ernment bond rate fell by 1.25 percent-
age points in USA and by 0.8 percentage
points in Europe.
In 2002, exchange rates declined con-
siderably – particularly as regards US dol-
lar and Japanese yen, the former weak-
ening by approx. 16 per cent relative to
the Danish krone.
Sector factors
In a number of countries, including Den-
mark, recent years’ adverse market
trends drew considerably on the pen-
sion companies’ reserves. As a conse-
quence, many companies reduced their
financial exposure by, among other
measures, selling shares and acquiring
financial instruments to hedge their risk
exposure.
In Denmark, the wavering market did
not weaken the interest in pension sav-
ings. The sector noted a continued in-
crease in payments during the year.
The Danish Financial Supervisory Au-
thority continued to follow the pension
companies’ capital strength measured
through stress scenarios – the so-called
traffic lights.
The executive order concerning the fi-
nancial reporting of life and pension in-
surance companies was changed so as
to conform to the new market value
principles. As from 2003, such compa-
nies are required to apply market values,
but may adopt the new rules already for
2002. PFA Pension has chosen to do ex-
actly that. In connection with the new
accounting regulations, the Danish Fi-
nancial Supervisory Authority submitted
a new set of rules at the end of 2002
regarding insurance companies’ distribu-
tion of their realised results of opera-
tions between customers and owners
and between the customers themselves.
This happened after extensive dialogues
in the sector.
2002 – external factors
Movement in share prices 2000-2002
0
50
100
150
200
250
300
600
1000
1400
1800
KAX MSCI World
Jan 00 Dec 02
DKK
USD
a n n u a l r e p o r t 2 0 0 2 | 15
During 2002, PFA Pension continued to
strengthen and expand the monitoring
of its general financial exposure. Thus,
PFA established a special department at
the beginning of the year to currently
monitor the reserve situation in relation
to both assets and liabilities. At the
same time, the risk management in the
investment department was extended.
The aim is to closely balance the total
risks taken by PFA. It is important not to
take too large risks, which will put the re-
serves at risk. At the same time it is im-
portant to take some risks to ensure that
the customers get a competitive yield.
Investment risks must be closely bal-
anced with the yield potential. By doing
so, the specific investment decisions will
reflect the best application of the risks
that can be taken. Close, current moni-
toring further ensures that PFA may have
time to respond in time to changes in
the market conditions and adapt the risk
profile on the investments.
The daily risk monitoring is supple-
mented with long-term forecasts.
Current monitoring
of the total risk exposure
The Danish Financial Supervisory Au-
thority’s stress scenarios – the so-called
traffic lights – are part of the ongoing
monitoring of the total risk exposure.
The figure below shows the develop-
ment in PFA’s proportionate excess sol-
vency in the Danish Financial Supervisory
Authority’s stress scenarios. The inner col-
umn illustrates the size of the capital
base, whereas the surrounding colours
show the solvency requirement in the ini-
tial situation, adjusted for the changes
which the red, respectively, the yellow, risk
scenario imply for the excess capital base.
The computation method corresponds to
the Danish Financial Supervisory Authori-
ty’s guidelines for the computation of the
risk-adjusted solvency requirement.
It is a requirement that the excess capi-
tal base must always be positive. A pen-
sion company will be in the ‘red light’ if the
inner column (the capital base in the initial
situation) ends in the red area. The same
principle applies to yellow and green.
Increasing excess solvency
It appears from the figure that PFA Pen-
sion’s relative excess solvency was in-
creasing throughout 2002. In the first
half of the year, the relative excess sol-
vency remained largely unchanged. The
reason was the fact that the decrease in
share prices was mitigated by the contri-
bution of subordinate loan capital in the
second quarter of the year. In the second
half of the year, the effect on liabilities
from the interest-rate decline, a steeper
yield curve and the effect of the drop in
share prices was more than outweighed
by the increasing prices of bonds and
derivative financial instruments held to
hedge the interest rate risk.
As it appears, PFA Pension’s excess
solvency was more than three times the
red risk scenario at year-end.
Sensitivities
PFA is currently monitoring its sensitivity
towards changes in the interest rate and
share prices relative to the parallel shift
in the yield curve and relative to changes
in the form of the yield curve. PFA does
so to ensure optimum hedging at all
times of the different interest sensitivity
related to assets and liabilities.
Given the reserves and the invest-
ment mix at the end of 2002, PFA is well
prepared to handle changes in the fi-
nancial markets. Due to the small ratio
of shares relative to total investments,
share prices may drop much without se-
riously affecting PFA’s reserves. The
combination of the bond portfolio and
the financial instruments held to hedge
interest rate risks covers liabilities so
well that PFA may sustain considerable,
additional decreases in the interest rate.
PFA’s risk management also includes
the hedging of currency risks, thus re-
ducing PFA’s total financial exposure.
Focus on capital and risk
Excess solvency in the Danish Financial Supervisory Authority’s stress scenarios
Subordinate loan recognised as from 17 May 2002
0
50
100
150
200
250
300
opening 2002 31-03-02 30-06-02 30-09-02 31-12-020
50
100
150
200
250
300
Index
100 =
ris
k-ad
just
ed so
lven
cy r
equirem
ent
for
red li
ght
Red: A company is in the red light if it cannot stand a 12 per cent drop in shares, a 0.7per cent change in the interest rate, an 8 per cent decrease in property values as well ascertain other risks.
Yellow: A company is in the yellow light if it cannot stand a 30 per cent drop in shares, a1 per cent change in the interest rate, a 12 per cent decrease in property values as wellas certain other risks.
In 2002, PFA Pension generated a very
satisfactory investment yield of 5.7 per
cent before pension yield tax. The high
yield compared to the market in general
is the result of PFA’s investment strate-
gy to keep the ratio of shares low. The
ratio was reduced through sales, partic-
ularly in the first half of the year.
At the same time, PFA focused on
hedging the interest rate risk related to
the obligations towards customers and
thereby reducing its total financial expo-
sure. As a consequence, PFA extended the
duration of the bond portfolio, resulting –
combined with the portfolio of derivative
financial instruments – in a high interest
sensitivity approximating the interest sen-
sitivity related to the liabilities.
Leaving out the unit-linked insurance
policies under which the customers de-
termine the investment mix themselves,
the investment yield came at 6.1 per
cent before pension yield tax.
Changes in the portfolio
Due to the hesitancy in the stock mar-
kets, PFA reduced the ratio of shares
relative to total investments from 16 per
cent to 6 per cent during the year. Par-
ticularly in the first half, PFA sold foreign
shares while, at the same time, gradual-
ly reducing the Danish share portfolio as
well. PFA sold shares worth DKK 7 billion
in total, whereas the remaining reduc-
tion of the portfolio, totalling DKK 6 bil-
lion, resulted from adverse stock market
trends.
Through the injection of cash funds
and in connection with the sale of
shares, PFA acquired bonds. As a result,
the ratio of bonds relative to invest-
ments rose during the year. Another
contributory factor was the increase in
bond prices, which took place concur-
rently with the decline in interest rates.
PFA increased the portfolio of foreign
bonds, putting more weight on credit
bonds, which are expected to yield a
higher rate of return, while at the same
time contributing to hedge the interest
rate risk related to liabilities.
The fact that interest rates continued
to decline in the second half of 2002
made PFA fine-tune the risk profile of the
bond portfolio, among other measures by
investing in bonds limiting the risk of loss
prompted by increasing interest rates.
In addition, PFA gradually increased its
long-term investment in properties.
Shares
Whereas the performance of Danish and
foreign shares was below benchmark,
the predominance of Danish shares,
which yielded a better return than for-
eign shares in 2002, had a positive ef-
fect.
Danish shares
Positive for the relative yield relative to
benchmark was the exposure in Jyske
Bank, A.P. Møller Gruppen, DSV and EAC,
whereas the exposure in GN Store Nord,
Novozymes and Lundbeck had an ad-
verse effect on the relative yield.
Foreign shares
The performance should be seen in light
of the fact that the portfolio in the first
months of the year was predominantly
made up by growth shares. During the
first half of the year, the risk was re-
duced by converting the portfolio into
one that includes more companies and
deviates less from benchmark. In the
second half, the portfolio yield was in
line with benchmark.
Alternative investments
PFA Pension invested DKK 207 million in
unlisted shares in 2002 – partly directly
through holding companies and partly in-
directly through funds. PFA furthermore
expressed conditional undertakings to in-
vest DKK 186 million in funds offering
mezzanine financing, which is a cross be-
tween ordinary loans and equity financ-
ing targeted at enterprises.
The yield reflects the fact that the
market was negative and that invest-
ments in Private Equity funds must be
expected to be loss-making in the start-
up period due to set-up costs. Invest-
ments in Private Equity funds were initi-
ated in 1999.
Bonds
The performance reflects that the yield
on foreign bonds was slightly above
benchmark, whereas the yield on nomi-
nal Danish bonds and index-linked
bonds fell below benchmark.
16 | a n n u a l r e p o r t 2 0 0 2
Investment income 2002
Asset mix, end of 2001 and 2002
0 10 20 30 40 50 60 70 80
End of 2002End of 2001
Land and buildings
Listed Danish shares
Foreign shares
Nominal Danish bonds
Danish index-linked bonds
Foreign bonds
Market value (DKKbn)
a n n u a l r e p o r t 2 0 0 2 | 17
Nominal bonds
The total yield on nominal Danish bonds
and foreign bonds exceeded benchmark
slightly. The portfolio of foreign bonds
was well-composed, including high-yield
bonds in emerging markets and corpo-
rate bonds. The choice of security gener-
ated a positive yield contribution as well.
Index-linked bonds
Even though the yield on this portfolio is
below benchmark, it must still be con-
sidered satisfactory. Benchmark is com-
posed of the market’s five most liquid
securities, which increased most in the
improving market at the end of 2002.
The portfolio, on the other hand, is
composed of a broader range of securi-
ties, including also less liquid bonds that
are subject to fragmented pricing. The
performance should be seen in light of
the fact that the portfolio is less liquid
than benchmark.
Derivative financial instruments
In 2001, PFA began holding derivative fi-
nancial instruments to hedge the inter-
est rate risk related to liabilities. This
took place through the purchase of CMS
Floors, hedging the interest rate risk at a
nominal amount of DKK 50 billion.
These instruments, which are recog-
nised under ‘Other financial invest-
ments’, increased the result of opera-
tions by DKK 870 million in 2002.
Net assets with yield ratios
PFA Pension 2002 2001
(in DKK millions, Market value Ratio Yield Bench- Market value Ratio Yield Bench-
except per share data) Closing Closing mark Closing Closing mark
Nominal Danish bonds 72,945 48.6% 11.4% 11.7% 58,090 41.6% 7.5% 7.7%
Foreign bonds 31,054 20.7% 8.2% 7.0% 23,060 16.5% 9.9% 4.2%
Index-linked bonds 20,275 13.5% 10.1% 11.1% 18,770 13.4% 6.2% 5.7%
Total bonds 124,274 82.8% 10.4% 10.5% 99,920 71.6% 7.5%
Listed Danish shares 7,872 5.2% (22.6%) (20.2%) 16,748 12.0% (13.0%) (13.2%)
Unlisted Danish shares 452 0.3% (12.8%) - 339 0.3% (15.5%) -
Foreign shares 975 0.7% (35.9%) (32.5%) 5,608 4.0% (28.5%) (12.8%)
Total shares 9,299 6.2% (25.9%) (25.1%) 22,695 16.3% (23.4%)
Land and buildings 8,266 5.5% 7.9% - 7,592 5.4% 7.1% -
Other financial investments 5,572 3.7% 20.6% - 6,729 4.8% 4.5% -
Total investments 147,411 98.2% 6.1% - 136,935 98.1% (4.8%) -
Assets related to unit-linked insurance 2,294 1.5% (15.6%) 640 0.5% (22.0%)
Other assets and liabilities 403 0.3% - - 2,045 1.4% - -
Total net assets (N1) 150,108 100.0% 5.7% - 139,620 100.0% (4.9%) -
Benchmark
Nominal Danish bonds: A basket of long-term bonds.Nominal foreign bonds: In 2002, a basket of J. P. Morgan Global Government Index, excl. Danish bonds and long-term Euro bonds, J. P. MorganEmerging Markets Bond Index and J.P. Morgan Global High Yield Bond Index. In 2001, J. P. Morgan Global Government Index excl. Denmark.Index-linked bonds: A basket of bonds. Total bonds: 60% Danish bonds, 15% index-linked bonds and 25% foreign bonds. Not defined for the year 2001 for PFA Pension.Danish listed shares: In 2002, KAX total index on the Copenhagen Stock Exchange incl. dividends. In 2001, the KAX total index on the CopenhagenStock Exchange plus an estimated yield of 1.4%.Foreign shares: MSCI World Index, capital-weighted incl. dividends.Total shares: 56% Danish shares, 3% unlisted Danish shares and 41% foreign shares. Not defined for the year 2001 for PFA Pension.
ALM study
As part of the monitoring of the total financial risk PFA is in
the process of preparing an actual ALM (asset/liability man-
agement) study for purposes of a long-term assessment of
its investment strategy, product mix, etc.
An ALM study is a long-term forecast of the developments in
assets and liabilities. The forecast incorporates rules relating
to investment strategy, profit distribution, bonus allocation,
etc. Assets and liabilities are then modelled by going over a
large number of scenarios on the basis of which various
probabilities may be calculated. Examples may be the prob-
ability of giving the customers a certain deposit interest
rate, of achieving a certain rate of return on equity and spe-
cial bonus provisions, of ending in the Danish Financial Su-
pervisory Authority’s ‘red light’, or of a sufficient hedging of
the mismatch between the interest sensitivity related to as-
sets and liabilities, etc.
18 | a n n u a l r e p o r t 2 0 0 2
Unit-linked
PFA Pension offers a broad range of sav-
ings funds on market terms. The funds
are administered by PFA or by external
fund managers. In February 2003, the
range was extended so as to include a
fund for high-yield bonds, administered
by PFA. The funds are described in more
detail on PFA’s website, where investors
may also keep track of the yield on such
funds.
The bond funds administered by PFA
generated a satisfactory yield in 2002 –
at benchmark level or higher. Seen over
a long span of years, the yield on most
of the funds is very satisfactory.
In 2002, PFA’s own share funds yield-
ed a return that was below benchmark.
However, the yield is satisfactory relative
to comparable investment funds and
pools – not least at 3-5 years’ sight.
Properties
Throughout 2002, the newly built domi-
ciles for Kromann Reumert and SAP/Tis-
cali in Kalkbrænderihavnen in Copen-
hagen and Siemens Mobile Phones,
stage II, in Aalborg were completed and
occupied by the lessees. During the year,
PFA made further investments in the
Danish Broadcasting Authority’s domicile
in the Frederiksberg district as well as in
two properties in Havneparken, Vejle.
Contract work in progress ran into well
over DKK 115 million at year-end, in-
cluding domiciles for Struers in Ballerup
and Danske Bank in Vejle. The relatively
modest project portfolio reflects the fact
that the supply of domicile projects has
been reduced as a result of the eco-
nomic slowdown.
In connection with the structural
changes in the PFA Group in 2001, 20
residential properties worth DKK 541
million were sold to a group subsidiary.
The sale triggered an obligation to offer
the leaseholds to the existing lessees.
Thus, lessees in six properties availed
themselves of the opportunity to ac-
quire the leaseholds on a housing soci-
ety basis.
Net additions of properties in 2002
totalled DKK 0.5 billion. The properties
were revalued in the amount of DKK 236
million, and the yield was 7.9 per cent.
The occupancy rate at year-end was
99 per cent – both in the Danish and
the foreign properties.
As a number of Danish properties and
the foreign properties are managed by
subsidiaries of PFA Pension, such prop-
erties are not included in the market val-
ue or in the yield on land and buildings.
If included in the statement of land and
buildings, such properties’ market value
rises to DKK 11.6 billion and the yield
changes to 7.3 per cent.
Ethical considerations in
relation to investment policy
As a supplement to its overall invest-
ment policy, PFA Pension has adopted a
Code of Ethics.
PFA finds it important to promote a
peaceful and democratic development
of society, the observance of fundamen-
tal human rights and a responsible con-
duct in relation to natural resources and
the environment. Ethical considerations
are an integral part of the individual
company’s investment strategy with re-
gard to the affairs of the company. PFA
does not publish these considerations
or strategies.
The 10 largest Danish shareholdings at the end of 2002
0
10
20
30
40
50
60
70
80
90
Acc. %
DKKm
Accumulated %
DKKm
0
200
400
600
800
1,000
1,200
1,400
1,600
A. P.
Mølle
r
Dan
ske
Ban
k
Novo
Nord
isk
TDC
H. Lu
ndbec
k
Jysk
e Ban
k
Carlsb
erg
Dan
isco
DSV ISS
»Your most unhappy
customers are your greatest
source of learning«
Bill Gates (1955- ), founder of Microsoft
20 | a n n u a l r e p o r t 2 0 0 2
Operating and Financial Review
Following the amalgamation of Danish
life insurance companies in 2001, most
of the PFA Group’s activities are gath-
ered in the parent company PFA Pension.
This review therefore gives an account of
the financial statements and activities of
the parent company. A brief outline of
group enterprises is given on p. 24.
As a result of the changes in the exec-
utive order on the financial reporting of
insurance companies, the accounting
policies of the Group and the parent
company are not consistent with those of
2001 in every respect. An account is giv-
en of the policy changes in a separate
section under the Group’s accounting
policies on pp. 28-33. Comparatives for
2001 have been restated in accordance
with the changed measurement of as-
sets. In accordance with the interim pro-
visions of the executive order, the
changed measurement of liabilities, on
the other hand, appears as a restatement
in the opening balance sheet for 2002.
Appropriation of profit
Due to the satisfactory investment in-
come, PFA Pension realised a profit of
DKK 2,471 million before pension yield
tax in 2002, to be allocated between the
customers and shareholders’ equity. In
2001, PFA realised a loss of DKK 8,546
million before pension yield tax.
The net investment income, which re-
flects the investment yield before pen-
sion yield tax net of expenses, etc., was
DKK 7,159 million. The realised profit re-
sults from deducting DKK 2,250 million,
which, in accordance with the basis of
calculation, has been added to the cus-
tomers’ deposits, and DKK 2,438 million
relating to the restatement of life insur-
ance provisions at market value, prompt-
ed by the low interest rate level in 2002.
Of the realised profit, the customers
first receive an amount of DKK 1,389
million, reflecting a preferential bonus
throughout the year, totalling DKK 2,533
million, and a bonus adjustment through
collective bonus potential of DKK –1,144
million.
In addition, the customers receive an
amount of DKK 1,101 million, transferred
to the special bonus provision. The cus-
tomers could not have had this share
without applying the principle of special
bonus provision, provided, however, that
the capital base remained the same. The
amount of DKK 406 million reflects an
extraordinary transfer from shareholders’
Profit/(loss) analysis
PFA Pension (DKKm) 2002 2001
Net investment income before pension yield tax 7,159 (7,614)
Addition in accordance with basis of calculation (2,250) (1,951)
Changes in restatement at market value (2,438) 1,019
Realised net profit/(loss) 2,471 (8,546)
Allocation to the customers
Preferential bonus 2,533 6,670
Bonus adjustment through collective bonus potential before pension yield tax (1,144) (15,636)
Total 1,389 (8,966)
Allocation to special bonus provision
Transfer from shareholders’ equity 406 4,802
Interest plus entrepreneurial profit before pension yield tax 695 0
Total 1,101 4,802
Customers’ share 2,490 (4,164)
Distributed to shareholders’ equity
Interest plus entrepreneurial profit 387 420
Transfer to special bonus provision (406) (4,802)
Equity’s share before tax (19) (4,382)
Contribution principle
The so-called contribution principle applies to all pension
schemes eligible for bonus. It lays down principles as to
how a company’s realised profit is to be allocated between
the customers and shareholders’ equity and special bonus
provision. At the turn of the year, the Financial Supervisory
Authority submitted a new executive order on the contribu-
tion principle.
PFA applies a set of rules according to which a proportion-
ate portion of the investment income is allocated to share-
holders’ equity and the special bonus provision – plus an en-
trepreneurial profit if the realised profit so allows. The entre-
preneurial profit is consideration for the risk of a potential
loss. The size of the entrepreneurial profit is based, among
other factors, on the reserves and on prevailing market con-
ditions. In PFA, most of the entrepreneurial profit accrues to
the customers by way of the special bonus provision.
If a loss is realised in the year, no entrepreneurial profit is
allocated to shareholders’ equity or the special bonus pro-
vision but, instead, set aside as an account receivable in a
shadow account outside the financial statements. Then,
next time the Company generates a profit, the entrepre-
neurial profit will be added.
equity. The remaining DKK 695 million
reflects the yield and entrepreneurial
profit for the year.
Thus, the customers receive a total of
DKK 2,490 million of the realised profit
before pension yield tax. Equity’s share is
DKK –19 million.
Although income taxes are fully cov-
ered by equity, PFA has decided to trans-
fer part of the restatement of the tax as-
sets to the customers’ special bonus
provisions. For financial reporting pur-
poses, this transfer took place by de-
ducting DKK 406 million from equity’s
share of the realised profit of DKK 387
million. Thus, equity’s share is DKK -19
million.
It was possible in 2002 to add the en-
trepreneurial profit fully to equity and
the special bonus provisions. Thus, no
entrepreneurial profit was receivable at
the end of 2002.
Capital strength
Relative to 2001, PFA Pension’s capital
strength rose by DKK 0.8 billion in 2002,
representing an increase from 4.8 per
cent to 5.1 per cent measured by refer-
ence to the share of the life insurance
provision. The restatement of liabilities at
market value is included in the increase.
At year-end, PFA’s capital base to-
talled DKK 11.8 billion, resulting in an
excess solvency ratio of DKK 5.2 billion
or more than 75 per cent relative to the
statutory solvency requirement. The col-
lective bonus potential, representing the
undistributed reserves for bonus adjust-
ment purposes, totals DKK 1.7 billion.
Thus, reserves totalled DKK 6.9 billion at
the end of 2002.
One of the reasons for the improved
capital base is the rise in special bonus
provision and shareholders’ equity as
well as the subordinate loan capital
made available at the beginning of 2002
by Nykredit and Jyske Bank. The restate-
ment of the booked tax assets is set off
when calculating the capital base. Thus,
the revaluation of tax assets does not
affect the Company’s capital strength.
The decrease in collective bonus poten-
tial should be seen in light of the restate-
ment of life insurance provisions at mar-
ket value, having increased by DKK 2.4 bil-
lion due to the lower interest rate level.
Premiums
Gross premiums in PFA Pension rose by 4
per cent from DKK 10.2 billion in 2001 to
DKK 10.6 billion in 2002. The rise is pri-
marily due to a growth in current premi-
ums payable under existing schemes, as
only very selective new sales are effected.
Single premiums and transfers from pen-
sion funds were below the 2001 level.
Gross premiums for non-life insurance
once again rose considerably in 2002 –
from DKK 301 million in 2001 to DKK 364
million in 2002, representing a 21 per
cent rise. The revenue growth is due to
the customers’ continued increasing inter-
est in the insurance products PFA Health
Insurance and Coverage at Critical Illness.
Insurance benefits
Total disbursed insurance benefits, net of
reinsurance, increased to DKK 7.1 billion,
against DKK 6.2 billion the year before.
The number of beneficiaries receiving
current pension and retirement benefits
was 45,700 at year-end, against 44,200
at the end of 2001.
Expenses
Net operating expenses went up from
DKK 662 million to DKK 681 million. As
mentioned in the section on market val-
ue restatement, deferred acquisition
costs are no longer deducted.
Acquisition costs rose from DKK 303
million in 2001 (before deduction of de-
ferred acquisition costs) to DKK 324 mil-
lion in 2002, whereas administrative ex-
penses remained unchanged at DKK ap-
prox. 357 million.
Measured by reference to gross premi-
ums, PFA Pension’s expenses were main-
tained at 6.7 per cent from 2001 to 2002.
Measured by reference to the life insur-
ance provisions, PFA Pension’s expenses still
represent 0.5 per cent. The figure may be
compared with the banks’ interest margin.
a n n u a l r e p o r t 2 0 0 2 | 21
Capital strength
PFA Pension (DKKm) 2002 Share of 2001 Share of
life insurance life insurance
provisions provisions
Shareholders’ equity 3,723 2.8% 2,697 2.1%
Subordinate loan capital 1,645 1.2% 0 0.0%
Special bonus provision 5,799 4.2% 4,802 3.8%
Tax assets, etc. 618 0.5% 1,652 1.3%
Capital base 11,785 8.7% 9,151 7.2%
Solvency requirement 6,579 4.9% 6,108 4.8%
Excess capital base 5,206 3.8% 3,043 2.4%
Collective bonus potential 1,742 1.3% 3,095 2.4%
Total reserves 6,948 5.1% 6,138 4.8%
Trends in premiums
PFA Pension (DKKm) 2002 2001
Life insurance and pension schemes:
Current premiums 9,447 8,773
Single premiums 743 1,089
Gross premiums 10,190 9,862
Non-life insurance:
Gross premiums 364 301
Total gross premiums 10,554 10,163
22 | a n n u a l r e p o r t 2 0 0 2
Customers joining a pension scheme in PFA will be guaran-
teed a minimum insurance cover and a retirement pension.
The guarantee applies if the customer pays the premiums
applicable under the scheme. Thus, the customer receives
the so-called guaranteed benefits.
The executive order has introduced a new market value
principle, which PFA has decided to adopt effective 1 January
2002. Consequently, PFA measures the customers’ pension
schemes at the prevailing market value instead of, as previ-
ously, on the basis of a rate which was fixed by the Financial
Supervisory Authority and which was changed occasionally.
PFA applies a zero coupon interest curve when making up
the market value of life insurance provisions. Applying an
interest curve, which implies interest rates with different
terms, provides a more precise measurement of long-term
pension liabilities than a fixed rate of calculation.
On the basis of the agreement on the customer’s insur-
ance benefits and premium payments, PFA calculates the
need for provisions by reference to the current interest
curve and realistic expectations as to the future develop-
ment as regards administrative expenses and insurance
risks. In accounting terms, this provision is called the value
of guaranteed benefits.
If this provision is lower than the actual savings in the
customer’s deposit, the excess savings reflect a potential,
future surplus, which is called a bonus potential because
the surplus may accrue to the customer.
If the value of the guaranteed benefits exceeds the ac-
tual savings in the customer’s deposit, the Company will
have to make an extra provision for an expected deficit. The
extra provision is, initially, drawn from the collective bonus
potential – previously called bonus adjustment provision –
which represents undistributed distributable reserves.
Two types of bonus potential
When a pension scheme is expected to generate a future
surplus, the so-called bonus potential is split up in two parts:
One which relates to premiums already paid – in accounting
terms called a bonus potential related to benefits on premi-
um-free policies – and one which relates to future premiums
– called a bonus potential related to future premiums.
The bonus potential related to benefits on premium-free
policies may, to some extent, be used as a buffer to cover
the part of a realised loss which is to be covered by the
customers. Roughly speaking, the principle is that losses
that concern the customers must, initially, be covered by
the collective bonus potential and, subsequently, through
drawings on the bonus potential related to benefits on pre-
mium-free policies. If such drawings are not sufficient,
shareholders’ equity and the special bonus provisions will
be applied to cover the rest of the loss.
Market values are more precise
Balance on the claims
experience account
The balance on the claims experience ac-
count totalled DKK 15 million in 2002,
net of provisions for extra dividend in re-
spect of experience rating of DKK 230
million to be distributed in 2003. The
balance is considerably lower than in
2001 where it was particularly high, DKK
423 million, mostly due to the low num-
ber of disability claims.
Non-life insurance
Non-life insurance activities generated a
profit of DKK 47 million in 2002, against
a loss of DKK 96 million in 2001. The im-
provement is primarily due to premium
increases. The premiums related to the
products Coverage at Critical Illness and
Cover at Loss of Occupational Capacity
were increased by 20 per cent in 2002,
whereas the accident insurance premium
was increased by approx. 30 per cent.
Taxation
Taxes in 2002 represent income of DKK
1.1 billion for PFA Pension. The taxable
income is mainly due to a revaluation of
the tax assets at the end of 2002, as
mentioned under ‘Accounting policies’.
As a result, tax assets were revalued by
DKK 812 million. In that connection, PFA
decided to transfer half of the amount to
the customers’ special bonus provision.
Net profit/(loss) for the year
PFA reported a pre-tax loss, including other
ordinary items as well, of DKK 33 million.
The net profit for the year came at DKK
1,047 million, which, net of a dividend dis-
tribution of DKK 350,000 to PFA Holding,
the Supervisory Board recommends be
transferred to shareholders’ equity.
Life insurance provisions
Life insurance provisions were up DKK 8.2
billion, rising from DKK 127.2 billion at
the end of 2001 to DKK 135.4 billion in
2002. Provisions for unit-linked insurance
policies represented DKK 2.3 billion.
In 2002, most of the policyholders’
deposits in PFA Pension earned interest
at a rate of 4.5 per cent after pension
yield tax. On this basis, the deposit yield
totalled DKK 5.9 billion, against DKK 9.6
billion in 2001, in which year the deposit
interest rate was 8.5 per cent after pen-
sion yield tax. Besides the deposit yield,
the provisions rose, among other factors,
due to a DKK 2.4 billion change in the re-
statement at market value, resulting
from a lower interest rate level.
Restatement at market value
In accordance with the executive order
on the financial reporting of life insur-
ance companies, PFA has chosen to
measure all items in the financial state-
ments at market value as from 2002.
For purposes of measuring life insur-
ance provisions at market value, PFA
uses a yield curve.
The drop in the interest rate level in
2002 is reflected in the figure, which
shows the yield curve at the beginning
and at the end of the year. The move-
ments in the yield curve over the year
called for a strengthening of the life in-
surance provisions. At year-end, the ac-
cumulated restatement of life insurance
provisions was DKK 3.4 billion, against
DKK 1.0 billion at the beginning of the
year. As a matter of fact, this restate-
ment is in excess of the individually
structured provisions on policies with
policy elements on a 5 per cent basis,
where the bonus has been applied to se-
cure the benefits already guaranteed.
Furthermore, life insurance provisions
were restated in accordance with appli-
cable accounting regulations. In 2002,
the total restatement reduced the life in-
surance provisions by DKK 654 million,
which amount has been transferred to
collective bonus potential.
The restatement is the net amount
which comprises a number of items –
both implying savings and increases in
the life insurance provisions. Savings in-
clude a correction of the strengthening
of guaranteed benefits, because the in-
terest rate level, given the zero coupon
yield curve, is higher than the rate of cal-
culation at the end of 2001. Removing
the set-off for accrued acquisition costs
is one of the changes that increase the
life insurance provisions.
Special bonus provision
In 2002, interest and entrepreneurial
profits which, net of pension yield tax,
total DKK 591 million, were added to the
special bonus provisions. Moreover, an
amount of DKK 406 million was trans-
ferred from shareholders’ equity, result-
ing in a total increase of DKK 997 million.
a n n u a l r e p o r t 2 0 0 2 | 23
Yield curves
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0 5 10 15 20 25 30 35
Years
31-12-2001
31-12-2002
%
Collective bonus potential
Collective bonus potential fell in 2002 to
DKK 1,742 million. The restatement at
market value implied an increase, and
bonus adjustments implied a decrease of
DKK 2,007 million, comprising bonus ad-
justments of DKK 1,144 million before
pension yield tax and pension yield tax
totalling DKK 863 million.
When restating the assets at market
value by DKK 527 million, the excess val-
ues on bonds, etc. are recognised – as
previously in connection with the calcula-
tion of the bonus reserve. The restate-
ment of liabilities at market value, to-
talling DKK 654 million, corresponds to
the restatement of the life insurance
provisions at market value. Comparatives
have not been restated accordingly.
PFA Group
The results of operations and sharehold-
ers’ equity of group enterprises are in-
cluded in the income statement and bal-
ance sheet of the parent company ac-
cording to the equity method. More de-
tails are given in note 18.
Effective 1 January 2002, the corporate
structure of the Group was further sim-
plified, as PFA Personskade merged with
PFA Pension. The reason was that it is no
longer expedient to carry on non-life in-
surance business through a separate
company. At the same time, PFA Invest
Euro I, which did not carry on any activi-
ties, merged with PFA Pension. Compar-
atives have been restated accordingly.
Lærernes Pension
At 1 January 2002, Lærernes Pension be-
gan – as PFA Pension – to measure both
assets and liabilities at market value.
Lærernes Pension is still a growth busi-
ness. Thus, premiums rose from DKK
1,488 million in 2001 to DKK 1,675 mil-
lion in 2002, and total assets went up
from DKK 8,362 million at the beginning
of the year to DKK 10,123 million at
year-end.
Lærernes Pension’s portfolio of policy-
holders is still relatively young, including
relatively few pensioners. Thus, half of
the insured are under the age of 40, and
24 | a n n u a l r e p o r t 2 0 0 2
Collective bonus potential
PFA Pension (DKKm) 2002 2001
Collective bonus potential, end of preceding year 2,568 16,332
Restatement of assets at market value 527 1,386
Collective bonus potential, beginning of year 3,095 17,718
Restatement of liabilities at market value, beginning of year 654 -
Transfer to the income statement (2,007) (14,623)
Collective bonus potential, end of year 1,742 3,095
Key figures
PFA Group 2002 2001
(in DKK billions, except per share data)
Gross premiums,
incl. non-life insurance 12.3 11.7
Net profit/(loss) for the year 1.0 (3.6)
Total assets 167.5 153.1
Shareholders’ equity 4.0 3.0
Special bonus provision 5.9 4.8
Capital base 12.4 9.7
Solvency margin requirement 7.1 6.6
Deposit interest rate after pen-
sion yield tax in PFA Pension 4.5% 8.5%
Yield before pension yield tax 5.5% (4.7%)
Bonus reserve 5.4% 6.1%
Solvency ratio 175% 148%
pension benefits paid in 2002 represent-
ed DKK 66 million only.
In December 2001, the Danish Finan-
cial Supervisory Authority permitted that
the statutory solvency requirement can
be met partly through special bonus pro-
vision. Lærernes Pension began building
up special bonus provision at 1 January
2002. The provision is, until further no-
tice, built up by the policyholders’ share
of the realised results of operations, cor-
responding to 5 per cent of the premi-
um. At the same time, a non-guaranteed
5 per cent is added to the pensions.
PFA Soraarneq
Premiums in the Greenland subsidiary
rose from DKK 4 million in 2001 to DKK
22 million in 2002. The number of in-
sured totalled 1,566 at 31 December
2002, against 1,100 at the end of 2001.
The company’s balance sheet total is
expected to be affected positively in
2003, because the agreement regarding
tax-exempt transfer of pension schemes
from Denmark to Greenland expires at
the end of the year.
PFA Pension Luxembourg
PFA's subsidiary in Luxembourg has writ-
ten pension and annuity schemes for
employees in foreign jurisdictions, who
have relations with Danish enterprises.
However, as the scope of these insur-
ance activities has not proved profitable,
it has been decided to transfer the pen-
sion schemes to PFA Pension. It will be
assessed subsequently how to continue
the private portfolio in PFA Pension Lux-
embourg.
PFA Ejendomme
In 2002, the company changed its name
from PFA Boligejendomme A/S to PFA
Ejendomme A/S. The primary objective
of the company is to acquire, construct
and manage the PFA Group’s properties
in Denmark.
Most of PFA Pension’s properties will
be transferred to PFA Ejendomme at 1
January 2003 in order to gather most of
the PFA Group’s Danish property invest-
ments in one entity.
PFA Invest International
The company’s objective is to coordinate
the PFA Group’s acquisitions and real
property constructions outside Denmark.
PFA Invest International A/S is the parent
company for eight property companies
(see note 18, ‘Shares in group enter-
prises’), each of which represents a
property investment.
PFA IT Service
The company was established on 24 Oc-
tober 2002 by PFA Pension. Its objective
is to make IT investments and to invest in
operating equipment on behalf of the
PFA Group in connection with the forth-
coming innovation of PFA's IT systems.
The company’s activities must at any
time fall within the framework estab-
lished by the Act on Insurance Business.
a n n u a l r e p o r t 2 0 0 2 | 25
PFA PensionLuxembourg
PFAPension
PFAEjendomme
PFAHolding
PFASoraarneq
PFA InvestInternational
g r o u p s t r u c t u r e
p e n s i o n i n s u r a n c e p r o p e r t y c o m p a n i e s
PFAIT Service
LærernesPension(51%)
All companies are domiciled inCopenhagen except for PFA Pension Luxembourg, which isdomiciled in Luxembourg, andPFA Soraarneq, which is domiciledin Nuuk, Greenland. PFA Pensionis wholly owned by PFA Holding.All other companies are whollyowned by PFA Pension, except for Lærernes Pension. PFA Holding prepares a separateannual report and is not com-prised by this annual report ofPFA Pension and the PFA Group.
a d m i n i s t r a t i o n c o m p a ny
»Understanding human needs is
half the job of meeting them«
Adlai E. Stevenson Jr. (1900-1965), UN ambassador under John F. Kennedy
28 | a n n u a l r e p o r t 2 0 0 2
The Annual Report of PFA Pension and
the Group is presented in accordance
with the Act on Insurance Business and
related executive orders and standards.
The Group’s accounting policies have
been changed in consequence of the
changes in the executive order on the fi-
nancial presentation of life insurance
companies.
Consequently, fixed-interest securities
and insurance provisions are now mea-
sured at market value. Following this
policy change, all items in the balance
sheet – with the exception of a few lia-
bility items – are measured at market
value. Furthermore, the accounting esti-
mates for the statement of deferred tax
assets have been changed. The presen-
tation of unit-linked insurance policies
has also been changed in consequence
of a specification of the provisions in
the executive order. Finally, the compar-
atives for 2001 have been restated due
to mergers with subsidiaries at 1 January
2002. The changes are described in
more detail below, and an outline is giv-
en of the effect on the opening balance
sheet and of how the comparatives have
been restated.
Changes in accounting policies
Measurement of fixed-interest
securities at market value
The executive order prescribes that
life insurance companies must, as from
2002, measure all assets at market val-
ue. Previously, bonds and loans were
measured at cost plus mathematical val-
ue adjustments.
In accordance with the provisions of
the executive order, the comparatives
for 2001 have been restated at market
value, whereas the comparatives reflect-
ed in the 5-year summary have not been
restated for the years before 2001.
Measurement of insurance
provisions at market value
Life insurance companies can from 2002
– and must from 2003 – measure and
split up insurance provisions according
to a market value principle. PFA Pension
has chosen to adopt this principle for
purposes of the financial reporting for
2002. The market value principle implies
that the value of insurance provisions
depends on the current rate of interest.
Previously, insurance provisions were
measured by reference to a maximum
rate of calculation, fixed by the Financial
Supervisory Authority and changed oc-
casionally.
The changed measurement concerns
the net present value of future expens-
es relative to the future expense loading
of the customers and the net present
value of the benefits expected to be dis-
bursed to the customers – considering
the life expectancy.
In accordance with the interim provi-
sions of the executive order, PFA Pen-
sion has recognised the restatement in
the opening balance sheet for 2002.
Thus, the comparatives for 2001 and
prior years have not been restated. Sim-
ilarly, the change in the breakdown of
insurance provisions takes effect for
2002 onwards only.
Changes in accounting
estimates, presentation
and other comparatives
Statement of deferred
tax assets
In the financial statements for 2001, de-
ferred tax assets were measured in con-
sideration of the fact that the utilisation
of the underlying tax loss would result in
an increase in the pension yield tax
charge relating to the future results of
operations. An analysis shows that the
future net results of operations are, in
fact, not expected to be reduced by an
increase in the pension yield tax charge.
Presentation of unit-linked
insurance policies
As from 2002, provisions for unit-linked
insurance policies comprise all insurance
policies, related to investment funds,
under which the policyholders deter-
mine the investment mix themselves
and bear the investment risk wholly or
in part. Previously, PFA Pension’s provi-
sions for unit-linked insurance policies
included only those insurance policies in
respect of which the policyholders bore
the entire investment risk.
Provisions for other types of insur-
ance policies related to investment
funds were transferred at the beginning
of 2002 from the life insurance provi-
sions to the provisions for unit-linked in-
surance policies.
As from 2002, the requirements have
been tightened as regards the specifica-
tion of insurance provisions and the
yield and the assets that relate to unit-
linked insurance policies.
The changes relating to unit-linked in-
surance policies neither affect PFA’s re-
sults of operations nor shareholders’
equity.
Restatement of comparatives
due to mergers at 1 January 2002
Effective 1 January 2002, the sub-
sidiaries PFA Personskade and PFA Invest
Euro I (formerly Strandvejen 60-70)
were merged with PFA Pension.
In the financial statements of the par-
ent company and in the five-year sum-
mary, these structural changes have
been incorporated by preparing pro for-
ma figures – for 2001 and previously –
as they would have looked had the
structural changes already been effec-
tive in those years. The changes neither
affect prior year results of operations
nor shareholders’ equity.
Accounting policies
a n n u a l r e p o r t 2 0 0 2 | 29
Effect on the opening balance
sheet and results of operations
It was part of PFA Pension’s restoration
plan to allocate the restatements of
fixed-interest securities, resulting from
market value measurement, to the col-
lective bonus potential. In group enter-
prises where the changed measurement
results in a write-down, the amount has
been distributed between the collective
bonus potential and shareholders’ equi-
ty. The restatements concerned total
DKK 527 million in PFA Pension and DKK
501 million in the Group.
When choosing to measure insurance
provisions at market value, PFA Pension
decided that the restatements should
be transferred to the collective bonus
potential. The restatements concerned
total DKK 633 million in PFA Pension and
DKK 622 million in the Group.
Due to the changed estimate for the
measurement of deferred tax assets, the
deferred tax asset at the end of 2002
has – all things being equal – increased
by DKK 812 million. Even though the en-
tire income tax charge is covered by
shareholders’ equity in accordance with
the rules regarding the allocation of the
realised net profit, PFA Pension has de-
cided in this case to transfer half the
gain to the special bonus provision.
Thus, the total effect on the net profit
for the year is DKK 406 million.
As the other changes are merely re-
classifications of balance sheet items,
they neither affect shareholders’ equity,
the special bonus provision nor the col-
lective bonus potential.
Net profit for the year
The Act on Insurance Business and the
rules laid down by the Financial Supervi-
sory Authority by virtue of the act pro-
vide that realised profits must be dis-
tributed between, on the one side, the
parts of the insurance portfolio entitled
to bonus and, on the other side, share-
holders’ equity and the special bonus
provisions, type B, which cover the Com-
pany’s risks on equal terms with share-
holders’ equity. In consequence of the
measurement of insurance provision at
market value, these rules have been ad-
justed with effect for 2002. The adjust-
ment has resulted in a similar adjust-
ment of the Company’s rules regarding
the distribution of realised profits.
Independent of the realised results of
operations, the investment income be-
fore pension yield tax is transferred to
shareholders’ equity and the special
bonus provision and the entrepreneurial
profit receivable (see below), if any. For
this purpose, the investment income is
made up exclusive of income from the
portfolio of unit-linked insurance policies.
Furthermore, income from non-life in-
surance activities and income from the
portfolio of unit-linked insurance policies
are transferred to shareholders’ equity.
Within the limits of a positive realised
profit distributed to the customers, an
entrepreneurial profit of 0.5 per cent of
the life insurance provisions relating to
policies eligible for bonus is transferred
to shareholders’ equity and the special
bonus provisions.
If the customers’ share of the realised
profit is not sufficient for the desired
entrepreneurial profit to be added to
shareholders’ equity and the special
bonus provision, the lacking amount is
set aside as a receivable in a shadow ac-
count outside the financial statements.
Any entrepreneurial profit receivable is
disclosed in the note to shareholders’
equity and in the note to the special
bonus provision.
More details on the distribution of the
realised results of operations in the year
concerned are given in the section ‘Op-
erating and Financial Review’.
Group structure
All group enterprises are wholly owned
with the exception of Lærernes Pension
in which PFA Pension holds 51 per cent
of both the share capital and the voting
rights.
The group enterprises have entered
into administration agreements with PFA
Pension, according to which the admin-
istration of the enterprises is handled,
wholly or in part, by PFA Pension on a
cost reimbursement basis.
Changes in applied accounting policies
Gain on changed Restatement
measurement, of comparatives
beginning 2002 for 2001
(DKKm) PFA Pension Group
Measurement of life insurance
provisions at market value:
Lapse of deferred acquisition cost (1,083) (1,095) No
Interest and life 1,716 1,717 No
Change on measurement of life
insurance provisions at market value 633 622
Hereof transferred to collective bonus potential 654 644 No
Hereof financed through shareholders’ equity (21) (22) No
Measurement of bonds, etc. at market value:
Danish and foreign bonds and loans, etc. 527 501 Yes
Change on measurement of bonds, etc. at market value 527 501
Hereof transferred to collective bonus potential 527 501 Yes
Total changes in accounting policies 1,160 1,123
30 | a n n u a l r e p o r t 2 0 0 2
Intra-group transactions that all fall
within the natural business areas of the
companies are carried through on the
basis of written agreements and on an
arm’s-length basis.
Consolidation
The consolidated financial statements
comprise enterprises in which the parent
company or group enterprises, directly
or indirectly, hold(s) more than 50 per
cent of the voting shares or otherwise
has a controlling interest.
The group structure appears from p. 24.
The activities of the Group almost ex-
clusively comprise life and pension insur-
ance activities and related health and ac-
cident insurance activities. Therefore, the
consolidated financial statements are
presented according to the provisions
which apply to life insurance companies.
The consolidated financial statements
are prepared on the basis of the audited
financial statements of all those sub-
sidiaries whose financial year-end coin-
cides with that of the parent company.
The financial statements included in the
consolidation are presented in accor-
dance with the accounting policies of
PFA Pension.
For consolidation purposes, the indi-
vidual items in the income statements
and balance sheets of subsidiaries are
added up on a line-by-line basis, less in-
tercompany transactions, balances and
shareholdings.
Associates managed by the Group to-
gether with one or more other enter-
prises are included in the individual
items of the consolidated financial
statements on a pro rata basis in pro-
portion to the holdings.
Intra-group transactions deriving from
ordinary trading on an arm's-length basis
are not eliminated. Gains or losses aris-
ing on intra-group security transactions
that could just as well have taken place
in the market are thus not eliminated.
Income statement
Income and expenses are recognised on
an accruals basis at the balance sheet
date in accordance with generally ac-
cepted accounting principles.
Booked gains and losses as well as re-
statements are recognised in the income
statement, whether realised or not.
Premiums
Premiums and single premiums are
recognised in the income statement at
the recorded due date. The accrual of
premiums is adjusted in the life insur-
ance provisions. Labour market contri-
butions are not part of premiums.
Reinsurance
Ceded premiums and ceded claims are
recorded through offsetting against the
respective items in the income state-
ment. The total results from reinsurance
business are shown in a note to the in-
come statement.
Income from investments
Income from group enterprises includes
PFA Pension’s share of the profit or loss
of subsidiaries, including restatements.
Income from land and buildings includes
the profit from property operations, less
property management expenses. The
item includes market rent for the use of
the Group’s own properties. The rent is
entered as an expense under net oper-
ating expenses.
Interest, dividends, etc. include interest
on securities, loans and cash. In the par-
ent company, the item also includes in-
terest on receivables from group enter-
prises. Furthermore, the item includes
dividends on shares and indexation of
bonds. Finally, gains on repayment and
redemption of bonds and loans are in-
cluded.
Realised and unrealised capital gains
and losses on investments are calculat-
ed by reference to the opening balance
plus the cost in the year.
Insurance benefits
Benefits paid and changes in provision
for claims represent accrued expenses in
the year.
Net operating expenses
Net operating expenses are the expenses
incurred in the year on acquisition, re-
newal and administration of the insurance
portfolio, including expenses related to
the disbursement of insurance benefits.
Investment management charges are
those administrative expenses that re-
late to trading in and management of in-
vestments on the basis of direct and es-
timated resource requirements.
Expenses related to activities other
than life insurance business, primarily
consisting of expenses related to prop-
erty operation and expenses related to
non-life insurance business, are trans-
ferred to other items in the income
statement in compliance with the exec-
utive order on the financial presentation
of life insurance companies and the
Group’s consolidation policy.
Other income statement items
Change in life insurance provisions are
specified in the note to the balance
sheet item.
Change in collective bonus potential is
the portion of the realised profit accru-
ing to the policyholders in excess of the
bonus already allocated. In the years
where the insurance portfolio’s realised
result is negative, net of bonus already
allocated, the item includes collective
bonus potential accrued in prior years.
Change in special bonus provision partly
includes interest on prior year provisions
a n n u a l r e p o r t 2 0 0 2 | 31
and partly the net amount contributed
by the customers during the year. To this
should be added amounts which the
Company might decide to allocate for
this purpose instead of transferring
them to shareholders’ equity.
Exchange rate adjustments is a net item
including the exchange rate adjustments
and sales gains or losses arising on cur-
rency retranslation into Danish kroner.
Income and expenses in foreign currency
are translated into Danish kroner at the
exchange rate ruling at the date of the
transaction. Balance sheet items in for-
eign currency are translated at the ex-
change rate at the balance sheet date.
Pension yield tax includes tax on invest-
ment income and changes in the provi-
sion for deferred pension yield tax.
Investment income transferred is de-
ducted from the balance on the techni-
cal account to reflect the proportion of
the investment income that relates to
shareholders’ equity and non-life insur-
ance business.
The transfer is calculated on the basis
of the opening and closing balance
sheets, allowance being made for atypi-
cal circumstances.
Balance on the technical account, non-
life insurance is recorded in the financial
statements on one line. The balance on
the technical account is made up in ac-
cordance with the rules applicable to
non-life insurance business and includes
the above-mentioned portion of the in-
vestment income transferred.
Other ordinary income includes revenue
and expenses related to accessory busi-
ness in accordance with the Act on In-
surance Business.
Tax
PFA Pension is taxed on a consolidated
basis with the Group’s wholly owned
Danish subsidiaries and PFA Holding.
The tax charge for the year is recognised
regardless of whether part of the profit
for the year will not be taxed until in
subsequent financial reporting periods.
The taxable income in the Group’s
property companies is taxed in PFA Pen-
sion in the years in which at least 90 per
cent of the individual company’s assets
and liabilities consist of real property. In
that case, a provision is made for both
the current and the deferred tax charge
in PFA Pension. If the 90 per cent re-
quirement is not met in some years, the
property company concerned will be
subject to tax on its income. In that
case, a provision is made for both the
current and the deferred tax charge in
the property company.
The current tax charge is allocated be-
tween the tax-consolidated companies
relative to their taxable income (propor-
tional allocation).
Assets
Land and buildings
Land and buildings are measured at
market value.
The market value is determined in ac-
cordance with the relevant principles laid
down by the Danish Financial Supervisory
Authority, based on the operating income
of the individual property and a yield re-
quirement related to the property.
The operating income is based on the
yield expected for the coming year, ad-
justed for atypical circumstances.
The note to the balance sheet item
discloses the weighted average of the
yield requirements used for measure-
ment purposes. Furthermore, the note
reflects the highest and the lowest of
the yield requirements used for mea-
surement purposes.
Undeveloped land and properties un-
der construction and forests are mea-
sured at the estimated market value.
Shares in group enterprises
and associates
Shares in group enterprises are mea-
sured at the parent company's propor-
tionate holding in the enterprises (net
asset value), calculated in accordance
with the accounting policies applied by
PFA Pension.
Shares in associates held through
subsidiaries are measured at their net
asset value in accordance with the most
recent financial statements.
Securities
Listed securities are measured at market
value. The market value is calculated on
the basis of the most recently quoted of-
ficial price at the balance sheet date. The
most recently quoted daily average price
is applied to Danish listed securities.
Unlisted shares are measured at the es-
timated market value based on the most
recently published financial statements.
Loans are measured at market value.
Unit trust certificates are measured at
the market value of the assets and are
entered in the balance sheet, corre-
sponding to the underlying assets.
Forward contracts, call-and-put options
and other derivatives are measured at
the market value of the contracts at the
balance sheet date. Unlisted derivative
financial instruments are measured at
their estimated market value.
Investments related to unit-linked insur-
ance policies are the assets which corre-
spond to the insurance policies where
32 | a n n u a l r e p o r t 2 0 0 2
the policyholders determine the invest-
ment mix and bear the related risk,
wholly or in part. The assets are mea-
sured at market value.
Other asset items
Intangible assets, which include acquired
and self-generated software and pro-
cesses having a positive value for the
future operations, are amortised on a
straight-line basis over the expected use-
ful life, however maximum five years.
Self-generated assets consist of direct in-
ternal project development costs. Project
development costs not exceeding DKK
1,000,000 are written off immediately.
Receivables are measured at nominal
value less provisions for bad debts.
Operating equipment is measured at
cost less amortisation made.
Amortisation is provided according to
the straight-line method over the ex-
pected useful life of the assets. Total ac-
quisitions at a cost not exceeding DKK
50,000 are written off immediately.
Liabilities
Insurance provisions
Life insurance provisions are calculated
by the actuaries appointed by the com-
panies by reference to the technical ba-
sis reported to the Danish Financial Su-
pervisory Authority. The provisions con-
sist of guaranteed benefits, the bonus
potential related to future premiums and
the bonus potential related to benefits
on premium-free policies.
Guaranteed benefits represent the net
present value of the benefits guaran-
teed under the policy as well as the net
present value of the expected future ex-
penses related to the administration of
the insurance policy, less the net pres-
ent value of the agreed future premi-
ums.
Guaranteed benefits include an esti-
mated amount to cover future insurance
benefits pertaining to insurance events
that have occurred during the financial
year, but which had not been reported at
the end of the financial year.
Bonus potential related to future premi-
ums includes the net present value of
commitments to pay bonus on agreed,
not yet due premiums.
Bonus potential related to benefits on pre-
mium-free policies includes the net pres-
ent value of commitments to pay bonus
concerning premiums, etc. already paid.
The net present value of the three ele-
ments of life insurance provisions is cal-
culated by reference to an interest rate
applicable to each time of payment, us-
ing a zero coupon interest rate structure.
As regards policy elements not exempt
from pension yield tax, the interest rate
thus calculated is reduced by 15 per cent
in pension yield tax. When making up the
time of payment for life insurance provi-
sions, no allowance is made for future
surrender cases.
When calculating the size of the provi-
sions, it is presumed that the expenses
incurred to administer the Company’s in-
surance portfolio will be covered by the
expense loading on the policies.
Provision for claims comprise unpaid in-
surance benefits due for payment. The
amount includes an estimate of insur-
ance benefits due for payment pertain-
ing to insurance events that have oc-
curred during the financial year, but
which had not been reported at the end
of the financial year.
Collective bonus potential is the policy-
holders’ share of the realised results of
operations, for which collective provi-
sions have been made for insurance poli-
cies eligible for bonus, besides life insur-
ance provisions and provision for claims.
Special bonus provision, type B is part of
the capital base on equal terms with
shareholders’ equity, but which, in due
course, accrue to the policyholders and
are, thus, part of the insurance provisions.
Provisions for unit-linked insurance poli-
cies basically represent the market value
of the corresponding assets. If the poli-
cies concerned comprise a commitment
to the effect that, at the time of maturi-
ty, the benefits will be calculated on the
basis of a value that is higher than the
current market value of the assets, then
the provisions will be measured with due
regard to the probability that the loss
may be recovered before maturity.
Other liability items
Deferred pension yield tax is calculated
by discounting the anticipated future
pension yield tax on prior gains which
are subject to pension yield tax. If the
deferred net tax assets exceed the
amount thus calculated, the deferred
pension yield tax is set off against the
deferred tax assets.
Deferred tax is measured according to
the balance-sheet-oriented liability
method of all temporary differences be-
tween the carrying amount and the tax
value of assets and liabilities at the bal-
ance sheet date.
Deferred tax assets, including the tax-
able value of tax loss carry-forwards, are
recognised in the balance sheet at the
value at which the tax assets are ex-
pected to be realised – either through
offsetting against deferred tax liabilities
or as net tax assets.
a n n u a l r e p o r t 2 0 0 2 | 33
Deferred taxes and deferred tax assets
are discounted in consideration of the
expected realisation pattern. The dis-
count rate is set at a conservatively esti-
mated reinvestment rate.
Other provisions cover losses, commit-
ments or expenses that are uncertain as
regards their size or the time of pay-
ment. Other provisions are measured at
nominal value.
Payables are measured at nominal value.
Capital base
PFA Pension and the Group’s capital
base is calculated in accordance with the
Financial Supervisory Authority’s execu-
tive order concerning insurance compa-
nies’ capital base. It appears from the
executive order that the capital base
must be reduced by booked tax assets.
Tax assets that can be disbursed in an
administration situation are added.
Tax assets that can be disbursed in an
administration situation are calculated
by means of a full statement of liquida-
tion of the Group’s tax situation at the
balance sheet date.
Key figures and financial ratios
PFA Pension prepares key figures and fi-
nancial ratios in accordance with the
provisions of the executive order on the
financial presentation of life insurance
companies.
The PFA Group prepares key figures
and financial ratios for the entire Group,
even though the Danish Financial Super-
visory Authority does not so require.
The consolidated key figures and fi-
nancial ratios can be used only for pur-
poses of comparison with other consol-
idated key figures and financial ratios.
The parent company's key figures and
financial ratios may be compared with
other companies' key figures and finan-
cial ratios.
Provisions for unit-linked insurance
policies under which the policyholders,
wholly or partially, bear the investment
risk are not included in the computation
of ratio no. 9, the bonus reserve, or ratio
no. 10, the equity reserve, as the policies
are not eligible for bonus and do not re-
quire any significant equity reserve.
A money-weighted yield based on
monthly calculations is applied to the
calculation of yield ratios (Hardy’s for-
mula). The annual yield is calculated by
reference to the monthly yields, using a
time-weighed balancing. In accordance
with the executive order, the yield on in-
vestments related to unit-linked insur-
ance policies is included on one line in
the yield form and is, thus, included in
the calculation of the Company’s aggre-
gate yield ratio.
The yield on investments related to
unit-linked insurance policies is broken
down by asset type in a separate yield
form.
»Only the understanding that comes
from within can lead to true insight«
Sokrates (469-399 b.c.), philosopher
36 | a n n u a l r e p o r t 2 0 0 2
Key figures (DKKm) 2002 2001 2000 1999 1998
Income statement
Premiums, net of reinsurance 9,998 9,741 9,138 8,319 8,460
Insurance benefits, net of reinsurance (7,095) (6,156) (5,795) (5,427) (4,982)
Change in life insurance provisions 1) (10,443) (11,308) (2,750) (9,746) (14,166)
Net operating expenses, net of reinsurance,
before deduction for deferred acquisition costs (681) (662) (518) (472) (472)
Balance on the technical account, life insurance 1) (240) (4,236) (128) (1,127) (295)
Balance on the technical account, non-life insurance 47 (96) (59) (41) (5)
Net profit/(loss) for the year 1,047 (3,649) 408 820 393
Balance sheet
Total assets 154,391 142,008 144,086 135,191 121,022
Shareholders' equity 3,723 2,697 6,346 5,938 5,119
Insurance provisions, net of reinsurance 1) 2) 146,356 136,894 134,096 126,090 109,488
Deposit interest rate in PFA Pension
after pension yield tax (p.a.) 4.5% 8.5% 6.0% 4.5% 8.2%
1) The figures for 1998-2001 have not been restated in accordance with the changed accounting policies.
2) Incl. provision for unit-linked insurance policies.
Financial ratios 2002 2001 2000 1999 1998
Yield ratios
1. Yield before pension yield tax 5.7% (4.9%) 5.5% 10.7% 6.5%
2. Yield after pension yield tax 5.1% (4.1%) 4.7% 9.8% 5.5%
3. Yield after adjusted pension yield tax 5.1% (4.0%) 4.6% 9.7% 5.4%
Cost ratios
4. Expense ratio 6.7% 6.7% 5.6% 5.6% 5.5%
5. Expenses calculated as interest differential 0.5% 0.5% 0.4% 0.4% 0.5%
6. Expenses per policyholder (per year/in DKK) DKK 1,156 DKK 1,157 DKK 959 DKK 926 DKK 988
7. Balance on the cost account (0.13%) (0.03%) 0.02% 0.01% (0.01%)
Claims experience ratios
8. Balance on the claims experience account 0.01% 0.35% (0.01%) 0.08% 0.20%
Consolidation ratio
9. Bonus reserve 5.6% 6.2% 15.2% 10.3% 7.9%
10. Equity reserve 3) (0.4%) (1.3%) 0.6% 0.5% 0.4%
11. Solvency ratio 3) 175% 149% 113% 110% 108%
Ratios relating to non-life insurance
Claims ratio 73.0% 85.4% 107.8% 119.6% 92.4%
Expense ratio 15.7% 18.1% 17.4% 18.4% 17.2%
3) Ratio no. 10 and 11 are inclusive of net tax assets. Computed without net tax assets, ratio no. 10 is -1.1% in 2002 and -2.9% in 2001.
Computed without net tax assets, ratio no. 11 is 161% in 2002 and 117% in 2001.
Ratios are defined in more detail on p. 38 . The accounting policy for ratios is detailed on p. 33.
PFA Pension 5-year summary
a n n u a l r e p o r t 2 0 0 2 | 37
Key figures (DKKm) 2002 2001 2000 1999 1998
Income statement
Premiums, net of reinsurance 11,757 11,307 10,432 9,429 9,470
Insurance benefits, net of reinsurance (7,189) (6,220) (5,857) (5,468) (5,015)
Change in life insurance provisions 1) (12,169) (12,896) (4,156) (10,923) (15,262)
Net operating expenses, net of reinsurance
before deduction for deferred acquisition costs (728) (705) (554) (505) (500)
Balance on the technical account, life insurance 1) (198) (4,185) 460 460 475
Balance on the technical account, non-life insurance 47 (96) (59) (41) (5)
Net profit/(loss) for the year 1,047 (3,649) 408 820 393
Balance sheet
Total assets 167,459 153,083 154,348 143,770 127,891
Shareholders' equity 4,002 2,976 6,577 6,128 5,277
Insurance provisions, net of reinsurance 1) 2) 156,346 145,140 140,909 131,591 113,531
Deposit interest rate in PFA Pension
after pension yield tax (p.a.) 4.5% 8.5% 6.0% 4.5% 8.2%
1) The figures for the 1998-2001 have not been restated in accordance with the changed accounting policies.
2) Incl. provision for unit-linked insurance policies.
Financial ratios 2002 2001 2000 1999 1998
Yield ratios
1. Yield before pension yield tax 5.5% (4.7%) 5.5% 10.7% 6.6%
2. Yield after pension yield tax 4.9% (3.9%) 4.7% 9.7% 5.5%
3. Yield after adjusted pension yield tax 4.8% (3.8%) 4.6% 9.6% 5.4%
Cost ratios
4. Expense ratio 6.2% 6.2% 5.3% 5.3% 5.2%
5. Expenses calculated as interest differential 0.5% 0.5% 0.5% 0.4% 0.5%
6. Expenses per policyholder (per year/in DKK) DKK 1,100 DKK 1,116 DKK 938 DKK 913 DKK 974
7. Balance on the cost account (0.05%) (0.01%) 0.03% 0.03% 0.00%
Claims experience ratios
8. Balance on the claims experience account 0.09% 0.41% 0.04% 0.14% 0.22%
Consolidation ratio
9. Bonus reserve 5.4% 6.1% 14.8% 10.4% 7.4%
10. Equity reserve 3) (0.4%) (1.2%) 0.5% 0.3% 0.3%
11. Solvency ratio 3) 175% 148% 109% 107% 106%
Ratios relating to non-life insurance
Claims ratio 73.0% 85.4% 107.8% 119.6% 92.4%
Expense ratios 15.7% 18.1% 17.4% 18.4% 17.2%
3) Ratio no. 10 and 11 are inclusive of net tax assets. Computed without net tax assets, ratio no. 10 is -1.1% in 2002 and -2.9% in 2001.
Computed without net tax assets, ratio no. 11 is 162% in 2002 and 118% in 2001.
PFA Group 5-year summary
38 | a n n u a l r e p o r t 2 0 0 2
Yield ratios
‘The yield ratios are based on the yield cal-
culated by reference to the return on as-
sets and changes in the price, measured at
market value corresponding to the invest-
ment income reflected in the financial
statements. There are three key figures for
the Company’s yield, as most companies
apply a so-called transitional allowance
where the pension yield tax is reduced in
proportion to the share of savings deriving
from the period before the real interest tax
was introduced (1982).
The yield before pension yield tax shows the
yield before pension yield tax as a percent-
age of the funds invested, measured at
market value. Thus, this yield shows the
yield which the Company would have
achieved, pursuing an unchanged invest-
ment strategy, if no pension yield tax was
payable.
The yield after pension yield tax shows the
yield as a percentage of the funds invest-
ed, measured at market value and after
pension yield tax. This yield reflects the
year’s actual yield including the Company’s
current transitional allowance.
The yield after adjusted pension yield tax
shows the yield as a percentage of the
funds invested, measured at market value,
which the Company would have achieved
had the transitional allowance been zero.’
Cost ratios
‘The Company’s expenses may be covered
on the basis of several sources. For in-
stance, part of the premiums (current pre-
miums and single premiums) may be used
to cover expenses, and so may part of the
yield for the year.
If such contributions exceed the expenses
actually incurred, part of the excess
amount may be transferred back as part of
the Company’s bonus to the policyholders
(cost bonus). A cost account may thus be
made, showing the contributions made to
cover the Company’s expenses less the ex-
penses incurred and the cost bonus.
The expense ratio shows the expenses in
proportion to the premiums for the year.
This ratio thus reflects the portion of the
premiums which would have to be applied
for administrative purposes if premiums
were the only source through which the
expenses could be covered.
The expenses calculated as interest differ-
ential show the expenses in proportion to
the life insurance provisions (the funds
provided for insurance commitments). This
ratio shows how much the Company’s abil-
ity to yield a return would be reduced if the
yield was the only source through which
the expenses could be covered.
The expenses per policyholder show each
policyholder’s contribution if the expenses
were distributed evenly among them.
The balance on the cost account may be
interpreted as the balance on the cost ac-
count in proportion to the life insurance
provisions.’
Claims experience ratio
’As regards risks, claims experience ac-
counts may be prepared by adding up the
contributions made to hedge the risk expo-
sure and deducting the costs incurred in re-
lation to the risks and the dividend in re-
spect of experience rating.
The balance on the claims experience ac-
count may be interpreted as the balance on
the claims experience account in proportion
to the life insurance provisions. This ratio
shows how much the Company’s ability to
produce a yield would be increased if the
entire balance on the claims experience ac-
count was used for bonus purposes. The
balance on the claims experience account
does not reflect the price related to hedg-
ing of risk exposure in the Company; nor
whether the incidence of death and disabil-
ity has been higher for the policyholders
than for a normal group of policyholders.’
Consolidation ratios
‘The bonus reserve reflects the undistrib-
uted reserves in proportion to life insur-
ance provisions.
The equity reserve shows how much the
adjusted shareholders’ equity (equity plus
the subordinate loan capital) exceeds the
statutory minimum requirement in propor-
tion to the life insurance provisions.
The solvency ratio shows the ratio of equi-
ty relative to the statutory minimum re-
quirement (the solvency margin).
The bonus reserve reflects values to be
used for the benefit of the policyholders.
The equity reserve reflects additional val-
ues belonging to the Company.
The key figures thus contribute to an as-
sessment of the Company’s bonus ability
and financial standing, eg its ability to re-
sist fluctuations in yields and to meet un-
foreseen insurance and financial risks.’
Key figures relating to
non-life insurance
‘The claims ratio reflects the aggregate
claims expenses in proportion to premiums
in the year.
The expense ratio reflects the expenses in
proportion to premiums in the year.’
Definitions
a n n u a l r e p o r t 2 0 0 2 | 39
(DKKm) Group Parent company
Note 2002 2001 2002 2001
Premiums
1 Gross premiums 11,954 11,433 10,190 9,862
2 Ceded premiums (197) (126) (192) (121)
Premiums, net of reinsurance 11,757 11,307 9,998 9,741
Income from investments
Income from group enterprises - - (37) 93
3 Income from land and buildings 630 537 402 320
4 Interest, dividends, etc. 6,670 7,595 6,287 7,169
Total income from investments 7,300 8,132 6,652 7,582
5 Unrealised gains on investments 3,799 0 3,992 0
Insurance benefits
6 Benefits disbursed (7,377) (6,308) (7,286) (6,243)
2 Reinsurers' share 150 98 150 97
Change in the provision for claims 38 (10) 41 (10)
Insurance benefits, net of reinsurance (7,189) (6,220) (7,095) (6,156)
Change in life insurance provisions
30 Change in gross life insurance provisions (12,113) (12,896) (10,390) (11,308)
Change in life insurance provisions, net of reinsurance (12,113) (12,896) (10,390) (11,308)
Bonus
32 Change in collective bonus potential 2,111 14,920 2,007 14,623
33 Change in special bonus provisions (1,111) (4,802) (997) (4,802)
Total bonus 1,000 10,118 1,010 9,821
Change in provision for unit-linked insurance policies (56) - (53) -
Net operating expenses
7 Aquisition costs (326) (182) (324) (180)
8 Administrative expenses (402) (401) (357) (359)
Net operating expenses, net of reinsurance (728) (583) (681) (539)
Investment charges
9 Investment management charges (114) (95) (97) (81)
Interest expenses (288) (204) (143) (27)
5 Realised losses on investments (1,187) (10,201) (1,231) (10,039)
Total investment charges (1,589) (10,500) (1,471) (10,147)
5 Realised losses on investments 0 (4,904) 0 (4,544)
Exchange rate adjustment (1,257) 114 (1,091) 103
10 Pension yield tax (915) 1,071 (911) 1,044
11 Investment income transferred ( - ) (207) 176 (200) 167
Balance on technical account, life insurance (198) (4,185) (240) (4,236)
12 Balance on technical account, non-life insurance 47 (96) 47 (96)
11 Investment income transferred ( + ) 166 (162) 159 (153)
13 Other ordinary income 1 0 1 0
14 Pre-tax profit /(loss) 16 (4,443) (33) (4,485)
15 Tax 1,033 842 1,080 836
Net profit/(loss) before minority interests 1,049 (3,601) 1,047 (3,649)
Minority interests (2) (48) - -
Net profit/(loss) for the year 1,047 (3,649) 1,047 (3,649)
Income statement
40 | a n n u a l r e p o r t 2 0 0 2
(DKKm) Group Parent company
Note 2002 2001 2002 2001
Assets
16 Intangible assets 75 95 75 95
Investments
17 Land and buildings 11,575 10,955 7,621 6,920
18 Shares in group enterprises - - 1,017 1,025
Other financial investments
19 Shares 11,040 24,646 9,299 22,695
20 Bonds 132,209 106,014 124,274 99,920
21 Loans 586 783 586 783
Other 3,117 2,197 3,091 2,200
Total other financial investments 146,952 133,640 137,250 125,598
22 Total investments 158,527 144,595 145,888 133,543
23 Investments related to unit-linked insurance policies 2,679 1,022 2,294 640
Receivables
Receivables from policyholders 1,072 651 963 588
Receivables from insurance companies 1 6 1 6
Receivables from group enterprises - - 440 639
24 Other receivables 1,613 1,868 1,532 1,833
Total receivables 2,686 2,525 2,936 3,066
Other assets
Operating equipment 104 117 103 115
Cash and demand deposits 1,245 2,840 1,082 2,747
Total other assets 1,349 2,957 1,185 2,862
Prepayments
Interest receivable and accumulated rent 1,875 1,566 1,747 1,480
Other prepayments 268 323 266 322
Total prepayments 2,143 1,889 2,013 1,802
Total assets 167,459 153,083 154,391 142,008
Balance sheet
a n n u a l r e p o r t 2 0 0 2 | 41
(DKKm) Group Parent company
Note 2002 2001 2002 2001
Equity and liabilities
Shareholders' equity
25 Share capital 100 100 100 100
26 Contingency fund 1,245 1,245 1,245 1,245
27 Reserve fund 2,378 1,352 2,378 1,352
PFA Pension's share 3,723 2,697 3,723 2,697
Minority interests 279 279 - -
28 Total shareholders' equity 4,002 2,976 3,723 2,697
29 Subordinate loan capital 1,805 4 1,800 0
Insurance provisions
Provision for unearned premiums, non-life insurance
Gross provisions 2 13 2 13
Reinsurers' share 0 (1) 0 (1)
Total provision for unearned premiums, net of reinsurance 2 12 2 12
Life insurance provisions
Guaranteed benefits 78,196 - 85,943 -
Bonus potential related to future premiums 51,653 - 38,341 -
Bonus potential related to benefits on premium-free policies 14,847 - 11,095 -
Gross provisions - 134,804 - 127,225
30 Total life insurance provisions, net of reinsurance 144,696 134,804 135,379 127,225
Provision for claims
Gross provisions 1,110 1,079 1,102 1,074
Reinsurers' share (4) (1) (4) (1)
31 Total provision for claims, net of reinsurance 1,106 1,078 1,098 1,073
32 Collective bonus potential 1,908 3,375 1,742 3,095
33 Special bonus provision, type B 5,913 4,802 5,799 4,802
Provision for bonuses and rebates, non-life insurance 26 33 26 33
Other insurance provisions, net of reinsurance, non-life insurance
Provision for rising age 16 14 16 14
Total other insurance provision, net of reinsurance 16 14 16 14
Total insurance provisions, net of reinsurance 153,667 144,118 144,062 136,254
Provision for unit-linked insurance policies
34 Provision for unit-linked insurance policies 2,679 1,022 2,294 640
Total provision for unit-linked insurance policies, net of reinsurance 2,679 1,022 2,294 640
Provisions for other risks and charges
Other provisions 29 29 29 29
Total provisions for other risks and charges 29 29 29 29
Liabilities other than provisions
Payables, direct insurance operations 32 26 32 26
Payables to insurance companies 62 25 62 25
29 Payables to credit institutions 2,703 2,924 474 522
Income taxes 20 7 0 0
Other creditors 1,008 1,136 571 1,068
Total liabilities other than provisions 3,825 4,118 1,139 1,641
Deferred income 1,452 816 1,344 747
Total equity and liabilities 167,459 153,083 154,391 142,008
36 Contingent liabilities
42 | a n n u a l r e p o r t 2 0 0 2
Statements and reports
Statement by the Supervisory and Executive Boards on the Annual Report
We have presented the Annual Report of the Group and the parent company, PFA Pension forsikringsaktieselskab, on the date written below. The Annual Report
of the Group and the parent company has been presented in accordance with the provisions of the Danish Act on Insurance Business and the related executive
orders and standards. We consider the accounting policies applied adequate. Against this background, it is our opinion that the Annual Report of the Group and
the parent company gives a true and fair view of the Company's assets and liabilities, financial position and results of operations for the year ended.
We recommend that the Annual Report be adopted by the Annual General Meeting of shareholders.
Copenhagen, 28 March 2003
Executive Board:
Henrik Heideby Nina Christensen Niels Søbjerg Nielsen
Supervisory Board:
Svend Askær, Chairman Lida Hulgaard, Dep. Chairman Jørn Neergaard Larsen, Dep. Chairman
Verner Aggerholm Klavs Andreassen Carsten Bach Erik Behn Anker Christoffersen Irene Damgaard
Leif Dolleris Erik G. Hansen Karl Hjortnæs Torben Dalby Larsen Karsten Nielsen Svend-Aage Nielsen
Flemming Nordengaard Ole Skals Pedersen Nina Smith Jørgen Søndergaard
Report of internal auditor
I have audited the Annual Report of the Group and the parent company, PFA Pension, forsikringsaktieselskab, for the financial year ended 31 December 2002.
The Annual Report is the responsibility of the Company's Supervisory and Executive Boards. My responsibility is to express an opinion on the Annual Report
based on my audit.
Basis of opinion
I conducted my audit in accordance with the executive order on the performance of audits in financial enterprises and financial groups, issued by the Danish Fi-
nancial Supervisory Authority, and in accordance with Danish Auditing Standards. During my audit, I assessed, on the basis of materiality and risk, the business
procedures established, the accounting policies used and the accounting estimates made. I further tested the evidence supporting the amounts and disclosures
in the Annual Report of the Group and the parent company. I believe that my audit provides a reasonable basis for my opinion.
My audit has not resulted in any qualification.
Opinion
In my opinion, the Annual Report of the Group and the parent company gives a true and fair view of the Group's and the parent company's financial position
at 31 December 2002 and of the results of the Group's and the parent company's operations for the financial year then ended in accordance with Danish statu-
tory accounting requirements.
Copenhagen, 28 March 2003
Jørgen Madsen
Audit Manager
Report of independent auditors
To the Shareholders of PFA Pension, forsikringsaktieselskab
We have audited the Annual Report of the Group and the parent company, PFA Pension, forsikringsaktieselskab, for the financial year ended 31 December 2002.
The Annual Report is the responsibility of the Company's Supervisory and Executive Boards. Our responsibility is to express an opinion on the Annual Report
based on our audit.
Basis of Opinion
We conducted our audit in accordance with Danish Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable as-
surance that the Annual Report is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the Annual Report. An audit also includes assessing the accounting policies used and significant estimates made by the Supervisory and Executive Boards, as
well as evaluating the overall annual report presentation. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not resulted in any qualification.
Opinion
In our opinion, the Annual Report gives a true and fair view of the Group's and the parent company's financial position at 31 December 2002 and of the results
of the Group's and the parent company's operations for the financial year then ended in accordance with the Danish Financial Statements Act.
Copenhagen, 28 March 2003
KPMG C. Jespersen Deloitte & Touche, Statsautoriseret Revisionsaktieselskab
Jørgen Peter Bærentsen Jesper Dan Jespersen Erik Holst Jørgensen Birger Berg Nielsen
State Authorised Public Accountants State Authorised Public Accountants
a n n u a l r e p o r t 2 0 0 2 | 43
(DKKm) Group Parent company
Note 2002 2001 2002 2001
1 Gross premiums
Total indirect insurance 38 38 37 37
Premiums, direct 10,062 9,270 8,393 7,795
Group life premiums, direct 1,017 941 1,017 941
Single premiums, direct 727 1,045 655 973
Pension fund transfers, direct 110 139 88 116
Total direct insurance 11,916 11,395 10,153 9,825
Total gross premiums 11,954 11,433 10,190 9,862
Analysis of direct insurance premiums:
Insurance taken out by private individuals 1,158 1,210 1,096 1,133
Insurance taken out through an employer 9,741 9,244 8,040 7,751
Group life insurance 1,017 941 1,017 941
Total 11,916 11,395 10,153 9,825
Policyholders resident in:
Denmark 11,718 11,191 10,016 9,691
Other EU member states 96 93 82 78
Other countries 102 111 55 56
Total 11,916 11,395 10,153 9,825
Premiums on bonus schemes 11,387 11,168 9,663 9,647
Premiums on non-bonus schemes 11 8 10 8
Unit-linked insurance policies 518 219 480 170
Total 11,916 11,395 10,153 9,825
Number of policyholders:
Insurance taken out by private individuals 57,988 57,571 55,257 57,052
Insurance taken out through an employer 553,941 534,095 476,348 470,396
Group life insurance 605,804 596,971 605,804 596,274
2 Reinsurance balance
Ceded premiums (197) (126) (192) (121)
Ceded claims 150 98 150 97
Total reinsurance balance (47) (28) (42) (24)
3 Income from land and buildings
Income from land and buildings includes profit on the operation of properties
less property administration expenses. It should be noted with regard to the
operation of properties that staff costs are analysed as follows:
Payroll costs, etc. 14 16 13 14
Pension contributions 2 2 2 2
Total 16 18 15 16
Number of employees (full-time) on the properties 38 41 38 41
Plus employees working at the head office 37 39 37 39
Total number of employees, operation of properties 75 80 75 80
4 Interest, dividends, etc.
Interest on securities, loans and borrowings 6,012 4,847 5,655 4,433
Interest on intra-group balances - - 18 122
Gain on repayment and redemption 38 76 38 73
Indexation 77 555 73 529
Dividends from shares 543 2,117 503 2,012
Total interest, dividends, etc. 6,670 7,595 6,287 7,169
Notes
44 | a n n u a l r e p o r t 2 0 0 2
(DKKm) Group Parent company
Note 2002 2001 2002 2001
5 Capital gains and losses
Land and buildings 208 131 236 170
Shares (5,510) (16,153) (4,948) (15,645)
Bonds 7,098 772 6,737 737
Other loans (13) (12) (13) (12)
Other 829 157 749 167
Total capital gains and losses 2,612 (15,105) 2,761 (14,583)
analysed in the income statement as follows:
Unrealised gains on investments 3,799 0 3,992 0
Realised losses on investments (1,187) (10,201) (1,231) (10,039)
Unrealised losses on investments 0 (4,904) 0 (4,544)
Total capital gains and losses 2,612 (15,105) 2,761 (14,583)
6 Benefits disbursed
Death benefits (614) (523) (613) (520)
Disability benefits (128) (134) (128) (134)
Benefits at maturity (541) (516) (538) (512)
Retirement and annuity benefits (3,689) (3,463) (3,670) (3,446)
Payment at surrender (1,753) (1,097) (1,685) (1,055)
Bonus amounts disbursed in cash (582) (524) (583) (525)
Expenses related to indirect insurance (70) (51) (69) (51)
Total benefits disbursed (7,377) (6,308) (7,286) (6,243)
7 Acquisition costs
Transfer from administrative expenses (326) (304) (324) (303)
Deferred acquisition costs 0 122 0 123
Total acquisition costs (326) (182) (324) (180)
8 Administrative expenses
Payroll costs (342) (327) (337) (324)
Pension contributions (61) (54) (60) (53)
Payroll tax, etc. (38) (35) (38) (35)
Commissions to brokers (106) (100) (106) (100)
Depreciation (80) (96) (80) (96)
Other expenses (293) (267) (278) (248)
Charges on insurance operations (4) (3) (4) (3)
Expenses before reimbursements and transfers (924) (882) (903) (859)
Expenses related to other activities 109 99 103 96
Reimbursement from group enterprises
– concerning life insurance - - 36 29
– concerning other activities - - 7 3
Transfer to investment activities 87 78 76 69
Expenses related to insurance operations (728) (705) (681) (662)
Hereof acquisition costs 326 304 324 303
Total administrative expenses (402) (401) (357) (359)
Analysis of administrative expenses and acquisition costs:
Salary and remuneration, including pension contributions, Executive Board 6 6 6 6
Salary and remuneration, Supervisory Board 2 2 2 2
Fees to auditors elected by the general meeting:
Audit fee, KPMG C. Jespersen 1 1 1 1
Consultancy fee, KPMG C. Jespersen 2 2 2 2
Audit fee, Ernst & Young 0 1 0 1
Consultancy fee, Ernst & Young 0 1 0 1
Notes
a n n u a l r e p o r t 2 0 0 2 | 45
(DKKm) Group Parent company
Note 2002 2001 2002 2001
Audit fee, Deloitte & Touche 1 0 1 0
Consultancy fee, Deloitte & Touche 1 0 1 0
Average number of employees in the year (full-time):
– life insurance 790 767 781 760
– operation of properties, cf. note 3 75 80 75 80
Total 865 847 856 840
9 Investment management charges
Trade charges and safe custody fees (23) (13) (21) (12)
Allocated expenses, cf. note 8 (87) (78) (76) (69)
Expenses in PFA Invest International (4) (4) - -
Total investment management charges (114) (95) (97) (81)
10 Pension yield tax
Change in provision for deferred pension yield tax 75 (197) 72 (191)
Pension yield tax on interest, etc. (1,618) (637) (1,587) (606)
Pension yield tax on capital gains 628 1,782 604 1,719
Prior year adjustment of pension yield tax 0 123 0 122
Total pension yield tax (915) 1,071 (911) 1,044
The real interest tax charge was affected in 1994 by a changed statement on a transfer
of a portfolio to the former PFA Pension II in 1993. The Danish Central Customs and Tax
Administration has not yet expressed a final opinion on the changed statement.
11 Investment income transferred
Transferred Investment income concerning shareholders' equity (166) 162 (159) 153
Technical interest concerning non-life insurance (41) 14 (41) 14
Total Investment income transferred (207) 176 (200) 167
12 Balance on the technical account, non-life insurance
Gross premiums 364 301 364 301
Ceded premiums (8) (2) (8) (2)
Change in provision for gross unearned premiums 11 (5) 11 (5)
Change in reinsurers' share of provision for unearned premiums (1) (1) (1) (1)
Earned premiums, net of reinsurance 366 293 366 293
Technical interest, net of reinsurance 22 (44) 22 (44)
Gross claims disbursed (221) (162) (221) (162)
Reinsurers' share 0 10 0 10
Change in provision for claims, gross (68) (102) (68) (102)
Change in reinsurers' share of provision for claims 3 (27) 3 (27)
Change in provision for claims due to discounting 19 31 19 31
Claims incurred, net of reinsurance (267) (250) (267) (250)
Change in other insurance provisions, net of reinsurance (2) (9) (2) (9)
Bonuses and rebates (14) (33) (14) (33)
Acquisition costs (29) (24) (29) (24)
Administrative expenses (29) (29) (29) (29)
Total net operating expenses, net of reinsurance (58) (53) (58) (53)
Total balance on the technical account, non-life insurance 47 (96) 47 (96)
Gross run-off profit/(loss) 13 (13) 13 (13)
Ceded run-off 6 (1) 6 (1)
Run-off profit/(loss), net of reinsurance 19 (14) 19 (14)
The run-off profit/(loss) reflects the profit/(loss) on the provision for claims
made in prior years.
46 | a n n u a l r e p o r t 2 0 0 2
(DKKm) Group Parent company
Note 2002 2001 2002 2001
13 Other ordinary income
Revenue 5 4 5 4
Overheads (4) (4) (4) (4)
Total other ordinary income 1 0 1 0
14 Pre-tax profit/(loss)
Realised profit/(loss)
Investment income and expenses, etc. before pension yield tax 7,230 (7,870) 7,159 (7,614)
Addition in accordance with the basis of calculation (1,932) (1,710) (2,250) (1,951)
Changes, restatement at market value (2,434) 1,077 (2,438) 1,019
Realised profit/(loss) 2,864 (8,503) 2,471 (8,546)
Distribution to the customers
Preferential bonus 2,863 6,995 2,533 6,670
Bonus adjustment via collective bonus potential before pension yield tax (1,250) (15,960) (1,144) (15,636)
Total distribution to the customers 1,613 (8,965) 1,389 (8,966)
Transfers to special bonus provisions
Transfer to special bonus provisions before pension yield tax 80 0 0 0
Extraordinary transfer from shareholders' equity 406 4,802 406 4,802
Yield and entrepreneurial profit before pension yield tax 735 0 695 0
Total special bonus provisions 1,221 4,802 1,101 4,802
Customers' share, total 2,834 (4,163) 2,490 (4,164)
Transfers to shareholders' equity
Yield and entrepreneurial profit in the year, transferred to equity 436 462 387 420
Extraordinary transfer to special bonus provisions (406) (4,802) (406) (4,802)
Equity's share of the realised profit/(loss), total 30 (4,340) (19) (4,382)
Non-life insurance, unit-linked insurance policies and other ordinary income (14) (103) (14) (103)
Pre-tax profit/(loss) 16 (4,443) (33) (4,485)
15 Tax
Tax for the year (38) (8) 0 3
Dividend tax paid 0 (31) 0 (29)
Adjustment, prior year income taxes 5 (165) 7 (172)
Change in provision for deferred tax 1,066 1,046 1,073 1,034
Total tax 1,033 842 1,080 836
Tax paid in the year (17) (246) 0 (225)
16 Intangible assets
Cost, opening 127 66 127 66
Additions in the year 13 61 13 61
Cost, closing 140 127 140 127
Amortisation and write-downs, opening (32) (4) (32) (4)
Amortisation and write-downs in the year (33) (28) (33) (28)
Amortisation and write-downs, closing (65) (32) (65) (32)
Intangible assets, closing 75 95 75 95
17 Land and buildings
Cost, opening 10,510 9,362 7,085 6,248
Additions in the year 896 1,550 478 1,350
Disposals in the year (196) (402) (12) (513)
Cost, closing 11,210 10,510 7,551 7,085
Revaluations, opening 822 668 456 428
Revaluations in the year 221 306 201 162
Reversed revaluations (60) (133) (24) (61)
Adjusted revaluations on disposal (81) (19) 0 (73)
Revaluations, closing 902 822 633 456
Notes
a n n u a l r e p o r t 2 0 0 2 | 47
(DKKm) Group Parent company
Note 2002 2001 2002 2001
Write-downs, opening (723) (674) (621) (612)
Write-downs in the year (112) (181) (69) (155)
Reversed write-downs 145 132 127 123
Adjusted write-downs on disposal 8 0 0 23
Write-downs, closing (682) (723) (563) (621)
Exchange rate adjustment, opening 346 288 0 0
Adjustments in the year (201) 58 0 0
Exchange rate adjustment, closing 145 346 0 0
Land and buildings, closing 11,575 10,955 7,621 6,920
Property value according to the latest public land valuation 6,466 4,470 6,133 4,070
Non-valued properties 3,577 6,255 166 2,761
Properties used by group enterprises 286 232 286 232
For purposes of the valuation, the following yield requirements have been used:
Average weighted yield requirement 6.4% 6.4% 6.1% 6.2%
Highest yield requirement 11.0% 10.0% 11.0% 10.0%
Lowest yield requirement 0.5% 1.0% 0.5% 1.0%
The parent company has issued a letter of indemnity regarding the following loans to
lenders in relation to the Group's property companies with properties in other jurisdictions: - - 2,229 2,401
18 Shares in group enterprises
Investments, opening - - 255 753
Investments in the year - - 30 (498)
Investments, closing - - 285 255
Revaluations, opening - - 775 677
Adjustment, opening (1) 0
Revaluations in the year - - (25) 98
Revaluations, closing - - 749 775
Write-downs, opening - - (5) 0
Write-downs in the year - - (12) (5)
Write-downs, closing - - (17) (5)
Shares in group enterprises, closing - - 1,017 1,025
Shares in group enterprises Activity Domicile Holding Profit/(loss) Equity
PFA Pension Luxembourg S.A.1)
Life insurance Luxembourg 100% (11) 43
PFA Invest International A/S1)
Property company Copenhagen 100% (50) 596
Danske Hus Hamburg A/S1)
Property company Copenhagen 100% (17) 26
125 Wood Street London A/S1)
Property company Copenhagen 100% (22) 24
King's Pool York A/S1)
Property company Copenhagen 100% 14 75
Aliffe House London A/S1)
Property company Copenhagen 100% (5) 130
Abbey Gardens Reading A/S1)
Property company Copenhagen 100% (3) 154
Watling Court Estate London A/S1)
Property company Copenhagen 100% (20) 39
31-47 Victoria Street London A/S1)
Property company Copenhagen 100% 8 183
Great Minster East London A/S1)
Property company Copenhagen 100% 0 10
Irish Forestry Investments Holding A/S*) Property company Copenhagen 33% 2 54
PFA Soraarneq, forsikringsaktieselskab2)
Life insurance Nuuk 100% 2 10
Lærernes Pension, forsikringsaktieselskab2)
Life insurance Copenhagen 51% 3 569
PFA Ejendomme A/S1)
Property company Copenhagen 100% 23 49
PFA IT Service A/S1) 3)
Internal IT development Copenhagen 100% (1) 29
*) The company is consolidated on a pro-rata basis. PFA Pension appoints a member to the Supervisory Board.
1) Henrik Heideby is chairman of the Supervisory Board.
2) Henrik Heideby is a member of the Supervisory Board.
1) Niels Søbjerg Nielsen is deputy chairman of the Supervisory Board and Nina Christensen is a member of the Supervisory Board.
48 | a n n u a l r e p o r t 2 0 0 2
(DKKm) Group Parent company
Note 2002 2001 2002 2001
19 Shares
Listed Danish shares 8,603 17,645 7,872 16,748
Unlisted Danish shares 452 339 452 339
Foreign shares 1,985 6,662 975 5,608
Total shares 11,040 24,646 9,299 22,695
Cost, closing:
Listed Danish shares 7,776 12,414 6,984 11,679
Unlisted Danish shares 541 363 541 363
Foreign shares 2,810 7,108 1,446 6,060
Total cost 11,127 19,885 8,971 18,102
At year-end, undertakings not yet exercised to purchase unlisted shares totalled 360 0 214 0
Shares
PFA Pension and the Group hold more than 5% of the share capital or the voting rights in the following companies,
whose shareholders' equity has been made up in accordance with the most recent financial statements.
Group Parent company
Equity Holding Equity Holding
Amagerbanken Copenhagen 956 5.5% 956 5.5%
Jyske Bank Silkeborg 6,174 5.3% 6,174 5.3%
DSV Skibby 2,037 5.7% 2,037 5.4%
Danware Birkerød 257 5.3% 257 5.2%
Dansk Kapitalanlæg Copenhagen 1,579 10.4% 1,579 10.4%
BankInvest Biomedicinsk Venture II A/S Copenhagen 274 17.4% 274 17.4%
Forsikringshøjskolen Rungstedgaard Rungsted 29 7.8% 29 7.8%
Majorgården A/S Copenhagen 2 25.0% 2 25.0%
Polaris Management A/S Copenhagen 19 9.5% 19 9.5%
Privathospitalet Hamlet af 1994 A/S Frederiksberg 26 13.1% 26 13.1%
P/S BankInvest Biomedicinsk Venture III Copenhagen 927 14.8% 927 14.8%
P/S BankInvest IT Venture Copenhagen 116 13.9% 116 13.9%
P-LP 1999 A/S Copenhagen 260 13.5% 260 13.5%
P-LR 1999 A/S Copenhagen 1 13.5% 1 13.5%
P-M 2000 A/S Copenhagen 259 15.4% 259 15.4%
P-N 2000 A/S Copenhagen 33 13.5% 33 13.5%
P-N 2001 A/S Copenhagen 102 13.4% 102 13.4%
P-DD 2002 A/S Copenhagen 173 13.0% 173 13.0%
DOOR Partners Invest A/S Løgstør 217 29.0% 217 29.0%
KW Invest Investor ApS Copenhagen 145 35.2% 145 35.2%
(DKKm) Group Parent company
Note 2002 2001 2002 2001
20 Bonds
Danish bonds 78,020 61,996 72,945 58,090
Foreign bonds 33,043 24,372 31,054 23,060
Index-linked bonds 21,146 19,646 20,275 18,770
Total bonds 132,209 106,014 124,274 99,920
Cost:
Danish bonds 74,204 61,796 69,309 57,862
Foreign bonds 32,029 24,117 30,011 22,786
Index-linked bonds 19,177 18,580 18,377 17,733
Total cost 125,410 104,493 117,697 98,381
Notes
a n n u a l r e p o r t 2 0 0 2 | 49
(DKKm) Group Parent company
Note 2002 2001 2002 2001
21 Loans
Secured loans 82 98 82 98
Other loans 504 685 504 685
Total loans 586 783 586 783
Cost:
Secured loans 66 80 66 80
Other loans 494 673 494 673
Total cost 560 753 560 753
Loans to members of PFA Pension's Supervisory Board - - 0.1 0.1
The loans have been granted on usual business terms and market terms at interest
rates of 8.75% - 9.50%. In 2002, the loans were reduced by DKK 60,000.
22 Investments
Exemption percentage - - 8.9% 10.1%
23 Investments related to unit-linked insurance policies
Breakdown, investment fund customers without guarantee
Listed Danish shares 74 79 74 79
Foreign shares 472 504 472 504
Danish bonds 41 37 41 37
Foreign bonds 11 15 11 15
Index-linked bonds 6 5 6 5
Breakdown, investment fund customers without guarantee, total 604 640 604 640
Breakdown, investment fund customers with guarantee
Listed Danish shares 233 37 211 0
Foreign shares 407 53 363 0
Danish bonds 987 217 751 0
Foreign bonds 207 65 141 0
Index-linked bonds 225 0 224 0
Other 16 10 0 0
Breakdown, investment fund customers with guarantee, total 2,075 382 1,690 0
Total investments related to unit-linked insurance policies 2,679 1,022 2,294 640
Cost:
Listed Danish shares 403 128 367 81
Foreign shares 1,472 694 1,394 620
Danish bonds 976 257 752 37
Foreign bonds 222 76 155 15
Index-linked bonds 215 5 215 5
Total cost 3,288 1,160 2,883 758
24 Other receivables
Deferred tax assets, net 1,508 1,321 1,502 1,317
Other receivables 105 547 30 516
Total other receivables 1,613 1,868 1,532 1,833
25 Share capital
Share capital, opening 100 25 100 25
Reduction of share capital without distribution 0 (25) 0 (25)
Increase in connection with contribution of assets 0 100 0 100
Share capital, closing 100 100 100 100
The Company's share capital consists of a share certificate at DKK 100 million,
held by PFA Holding, aktieselskab, Sundkrogsgade 4, DK 2100 Copenhagen O.
50 | a n n u a l r e p o r t 2 0 0 2
(DKKm) Group Parent company
Note 2002 2001 2002 2001
26 Contingency fund
Contingency fund, opening 1,245 11 1,245 11
Transfer from share premium account 0 1,234 0 1,234
Contingency fund, closing 1,245 1,245 1,245 1,245
The contingency fund may be applied only to cover losses on the settlement of
insurance-related obligations or otherwise in ways benefiting the policyholders.
The entire contingency fund has been set aside out of taxed funds.
27 Reserve fund
Reserve fund, end of preceding year 1,352 68 1,352 68
Change in connection with contribution of assets 0 1,259 0 1,259
Transfer from share premium account 0 4,908 0 4,908
Restatement at market value (21) 0 (21) 0
Reserve fund, opening 1,331 6,235 1,331 6,235
Change in connection with contribution of assets 0 (1,234) 0 (1,234)
Transfer to/from the income statement 1,047 (3,649) 1,047 (3,649)
Reserve fund, closing 2,378 1,352 2,378 1,352
28 Shareholders' equity
Shareholders' equity, end of preceding year 2,697 179 2,697 179
Contribution from PFA Holding 0 6,167 0 6,167
Restatement at market value (21) 0 (21) 0
Shareholders' equity, opening 2,676 6,346 2,676 6,346
Net profit/(loss) for the year 1,047 (3,649) 1,047 (3,649)
PFA Pension's share, total 3,723 2,697 3,723 2,697
Minority interests
Transfer from prior years 279 231 - -
Restatement at market value (2)
Net profit/(loss) for the year 2 48 - -
Minority interests, total 279 279 - -
Shareholders' equity, closing 4,002 2,976 3,723 2,697
Capital base and solvency margin requirement:
Shareholders' equity 4,002 2,976 3,723 2,697
Intangible assets (75) (95) (75) (95)
Subordinate loan capital (25% of the solvency margin requirement) 1,646 0 1,645 0
Booked tax and pension yield tax assets, closing (1,508) (1,321) (1,502) (1,317)
Capital base in group enterprises - - 404 -
Equity holding in group enterprises - - (343) -
Solvency margin requirement, group enterprises - - (300) (279)
Special bonus provisions (type B) 5,913 4,802 5,799 4,802
Tax assets that can be disbursed in an administration situation 2,441 3,345 2,434 3,343
Capital base 12,419 9,707 11,785 9,151
Solvency margin requirement (7,141) (6,609) (6,579) (6,108)
Excess capital base 5,278 3,098 5,206 3,043
Entrepreneurial profit receivable 0 0 0 0
29 Liabilities falling due after more than 5 years after the balance sheet date
Subordinate loan capital 1,805 4 1,800 0
Liabilities to credit institutions 1,709 2,255 86 175
Total liabilities falling due after more than 5 years after the balance sheet date 3,514 2,259 1,886 175
Notes
a n n u a l r e p o r t 2 0 0 2 | 51
(DKKm) Group Parent company
Note 2002 2001 2002 2001
30 Life insurance provisions, net of reinsurance
Life insurance provisions, end of preceding year 134,804 122,680 127,225 116,308
Transfer to provisions for unit-linked insurance policies (1,576) (341) (1,576) 0
Restatement at market value (646) 0 (659) 0
Life insurance provisions, opening 132,582 122,339 124,990 116,308
Accumulated restatement, opening (990) 0 (1,001) 0
Retrospective provisions, opening 131,592 122,339 123,989 116,308
Change in the year due to:
Gross premiums 11,436 11,433 9,710 9,862
Addition of interest 6,220 9,958 5,887 9,637
Insurance benefits (7,189) (6,318) (7,120) (6,252)
Expense loading after cost bonus (662) (574) (511) (498)
Balance on the claims experience account after risk bonus (125) (526) (15) (423)
Change in accounting estimates 0 (3,269) 0 (3,211)
Change in provision for guaranteed benefits 0 909 0 909
Strengthening, extended life expectancy identified 0 1,283 0 1,283
Retrospective provision, closing 141,272 135,235 131,940 127,615
Accumulated restatement, closing 3,424 0 3,439 0
Transfer to provisions for unit-linked insurance policies 0 (309) 0 (268)
Changes in deferred acquisition costs 0 (122) 0 (122)
Life insurance provisions, net of reinsurance, closing 144,696 134,804 135,379 127,225
Guaranteed benefits 78,196 - 85,943 -
Bonus potential related to future premiums 51,653 - 38,341 -
Bonus potential related to benefits on premium-free policies 14,847 - 11,095 -
Gross provisions - 134,804 - 127,225
Life insurance provisions, net of reinsurance, closing 144,696 134,804 135,379 127,225
The bonus potential related to future premiums has been increased by DKK 7 million
and the bonus potential related to benefits on premium-free policies has been increased
by DKK 4,176 million as a result of the requirements laid down in section 52a(7) and (8)
of the executive orders applicable to life insurance.
Gross life insurance provisions, indirect insurance, opening 730 689 730 689
Change in the year 46 41 46 41
Gross life insurance provisions, indirect insurance, closing 776 730 776 730
31 Provision for claims
Provision for claims, life insurance, closing 342 380 335 375
Provision for claims, non-life insurance, closing 768 699 767 699
Reinsurers' share (4) (1) (4) (1)
Provision for claims, net of reinsurance, total 1,106 1,078 1,098 1,073
32 Collective bonus potential
Collective bonus potential, end of preceding year 2,874 16,905 2,568 16,332
Restatement of assets at market value 501 1,390 527 1,386
Collective bonus potential, opening 3,375 18,295 3,095 17,718
Restatement of liabilities at market value, opening 644 - 654 -
Transfer to the income statement (2,111) (14,920) (2,007) (14,623)
Collective bonus potential, closing 1,908 3,375 1,742 3,095
33 Special bonus provision
Special bonus provision, opening 4,802 0 4,802 0
Addition in the year 80 0 0 0
Interest, special bonus provision 594 0 591 0
Extraordinary transfer from shareholders' equity 437 4,802 406 4,802
Transfer from the income statement, total 1,111 4,802 997 4,802
Special bonus provision, closing 5,913 4,802 5,799 4,802
Entrepreneurial profit receivable 0 0 0 0
52 | a n n u a l r e p o r t 2 0 0 2
(DKKm) Group Parent company
Note 2002 2001 2002 2001
34 Provisions for unit-linked insurance policies
Provisions for unit-linked insurance policies, end of preceding year 1,022 372 640 372
Transfer from life insurance provisions 1,576 342 1,576 0
Restatement at market value 25 0 25 0
Provisions for unit-linked insurance provisions, opening 2,623 714 2,241 372
Accumulated restatement, opening 34 0 34 0
Retrospective provisions, opening 2,657 714 2,275 372
Change in the year due to:
Gross premiums 518 0 480 0
Addition of interest (315) 0 (314) 0
Insurance benefits (149) 0 (126) 0
Expense loading after cost bonus (25) 0 (22) 0
Balance on the claims experience account after risk bonus (7) 0 1 0
Retrospective provisions, closing 2,679 714 2,294 372
Accumulated restatement, closing 0 308 0 268
Provisions for unit-linked insurance policies, closing 2,679 1,022 2,294 640
Provision for investment fund customers without guarantee 604 640 604 640
Provision for investment fund customers with guarantee
Guaranteed benefits (1,512) - (1,512) -
Bonus potential related to future premiums 2,376 - 2,376 -
Bonus potential related to benefits on premium-free policies 826 - 826 -
Investment fund customers in Luxembourg 385 382 - -
Provision for investment fund customers with guarantee 2,075 382 1,690 -
Provisions for unit-linked insurance policies, closing 2,679 1,022 2,294 640
The bonus potential related to benefits on premium-free policies has been increased
by DKK 6 million as a result of the requirements laid down in section 52a(7) and (8)
of the executive orders applicable to life insurance.
The definition of unit-linked insurance policies was, cf. 'Accounting policies', changed
in 2002. As from 2002, unit-linked insurance policies comprise all policies related to
investment funds where the policyholders bear the investment risk, wholly or in part.
Previously, unit-linked insurance policies only comprised policies where the policy-
holders bore the entire investment risk.
35 Contingent liabilities
To cover the insurance provisions and as security for contingent
liabilities, assets were registered at year-end at a total carrying amount of 158,333 145,255 148,181 136,670
Registered assets cover both insurance provisions, net of reinsurance,
and insurance provisions for unit-linked insurance policies.
Unsettled purchase and sales agreements concerning trading
in securities and foreign currency total 2,102 200 89 200
Rent, lease and operating commitments do not exceed 35 40 35 40
The Company is jointly and severally liable for the total tax charge with the other tax-con-
solidated group enterprises and for VAT commitments with the jointly registered companies.
36 Executive offices held by members of the Executive Board
In 2002, the Executive Board of PFA Pension held executive offices, approved by the Supervisory Board.
The Executive Board of PFA Pension also constitutes the Executive Board of PFA Holding. Executive offices within the PFA Group are stated in note 18.
Executive offices outside the PFA Group:
Henrik Heideby is Chairman of the Supervisory Board and the Committee of Representatives of Dansk Standard.
Henrik Heideby is a member of the Supervisory Board of Dansk Kapitalanlæg A/S and Forsikringsakademiet A/S (the Danish Insurance Academy).
Notes
a n n u a l r e p o r t 2 0 0 2 | 53
Group
Specification of assets and their yield at market value Yield in % before
pension yield
(DKKm) Cost Market value tax and in-
Opening Closing Opening Closing come taxes
Land and buildings, directly owned 10,510 11,210 10,955 11,575 7.3%
Total land and buildings 10,510 11,210 10,955 11,575 7.3%
Danish listed shares 12,193 7,776 17,423 8,603 (22.6%)
Danish unlisted shares 363 541 339 452 (12.8%)
Foreign shares 6,565 2,810 6,224 2,011 (30.7%)
Total shares 19,121 11,127 23,986 11,066 (25.4%)
Nominal bonds in DKK 61,193 74,204 61,378 78,024 11.4%
Index-linked bonds in DKK 18,378 19,177 19,443 21,146 10.0%
Bonds in foreign currency 23,993 32,029 24,253 33,047 8.0%
Total bonds 103,564 125,410 105,074 132,217 10.3%
Secured loans 80 66 98 82 8.4%
Other financial investments 5,520 3,880 5,731 4,841 26.5%
Total investments 138,795 151,693 145,844 159,781 5.9%
Other assets related to unit-linked insurance policies 2,862 3,303 2,622 2,679 (14.0%)
Other assets: 4,620 5,007 4,620 5,007 0.0%
Total assets 146,277 160,003 153,086 167,467 5.4%
Liabilities other than provisions, etc. 4,934 7,082 4,934 7,082 (3.1%)
Total net assets 141,343 152,921 148,152 160,385 5.5%
Group unit-linked
Specification of assets and their yield at market value Yield in % before
pension yield
(DKKm) Cost Market value tax and in-
Opening Closing Opening Closing come taxes
Danish listed shares 350 403 338 307 (25.6%)
Foreign shares 1,237 1,472 993 879 (36.6%)
Total shares 1,587 1,875 1,331 1,186 (33.9%)
Nominal bonds in DKK 861 976 871 1,028 11.2%
Index-linked bonds in DKK 207 215 211 231 10.4%
Bonds in foreign currency 197 222 199 218 1.1%
Total bonds 1,265 1,413 1,281 1,477 9.4%
Other financial investments 10 16 10 16 1.7%
Total investments 2,862 3,304 2,622 2,679 (14.0%)
Yield on investments 2002
54 | a n n u a l r e p o r t 2 0 0 2
PFA Pension
Specification of assets and their yield at market value Yield in % before
pension yield
(DKKm) Cost Market value tax and in-
Opening Closing Opening Closing come taxes
Land and buildings, directly owned 7,085 7,551 6,920 7,621 9.1%
Property companies 136 136 672 645 (3.8%)
Land and buildings 7,221 7,687 7,592 8,266 7.9%
Other subsidiaries 149 149 353 372 (2.0%)
Danish listed shares 11,457 6,983 16,530 7,872 (22.6%)
Danish unlisted shares 363 541 339 452 (12.8%)
Foreign shares 5,516 1,447 5,167 975 (35.9%)
Total shares 17,336 8,971 22,036 9,299 (25.9%)
Nominal bonds in DKK 57,258 69,309 57,478 72,945 11.4%
Index-linked bonds in DKK 17,531 18,377 18,565 20,275 10.1%
Bonds in foreign currency 22,662 30,011 22,935 31,054 8.2%
Total bonds 97,451 117,697 98,978 124,274 10.4%
Secured loans 79 66 98 82 8.4%
Other financial investments 6,060 4,154 6,276 5,118 23.1%
Total investments 128,296 138,724 135,333 147,411 6.1%
Assets related to unit-linked insurance policies 2,456 2,883 2,241 2,294 (15.6%)
Other assets 4,434 4,686 4,434 4,686 0.0%
Total assets 135,186 146,293 142,008 154,391 5.6%
Liabilities other than provisions, etc. 2,388 4,283 2,388 4,283 (1.7%)
Total net assets 132,798 142,010 139,620 150,108 5.7%
PFA Pension unit-linked
Specification of assets and their yield at market value Yield in % before
pension yield
(DKKm) Cost Market value tax and in-
Opening Closing Opening Closing come taxes
Danish listed shares 303 367 298 285 (25.7%)
Foreign shares 1,164 1,394 945 835 (35.8%)
Total shares 1,467 1,761 1,243 1,120 (33.4%)
Nominal bonds in DKK 644 752 648 792 11.3%
Index-linked bonds in DKK 207 215 211 230 10.4%
Bonds in foreign currency 138 155 139 152 2.8%
Total bonds 989 1,122 998 1,174 9.9%
Total investments 2,456 2,883 2,241 2,294 (15.6%)
Yield on investments 2002
Executive Board and Supervisory Board
PFA Pension, forsikringsaktieselskab
CVR no. 13594376
The Annual General Meeting of shareholders is
held on 24 April 2003
PFA Pension
Sundkrogsgade 4
DK 2100 Copenhagen O
Telephone +45 39 17 50 00
Telefax +45 39 17 59 50
www.pfa.dk
Product
ion:
Dat
agra
f A
unin
g A
S
Executive Board:Henrik Heideby, Managing Director
Nina Christensen
Niels Søbjerg Nielsen
Supervisory Board:Svend Askær, Chairman
Lida Hulgaard, Deputy Chairman
Jørn Neergaard Larsen, Deputy Chairman
Verner Aggerholm
Klavs Andreassen
Carsten Bach
Erik Behn
Anker Christoffersen
Irene Damgaard
Leif Dolleris
Erik G. Hansen
Karl Hjortnæs
Torben Dalby Larsen
Karsten Nielsen
Svend-Aage Nielsen
Flemming Nordengaard
Ole Skals Pedersen
Nina Smith
Jørgen Søndergaard
42723_PFA_omslag/UK.qxd 23/04/03 10:28 Side 2
