Based on understanding

a n n u a l r e p o r t 2 0 0 3

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 3

5-year summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2003 – A good year for PFA and our customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PFA's vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PFA's value creation model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Results in the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The customers and the market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

New product – CustomerCapitalTM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

New product – PFA Unit Linked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Distinctively enhanced customer service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

New model for broker-operated schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Considerably lower transfer charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PFA Customer Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Satisfied employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Expectations for 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increased growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PFA DitValg® (PFA YourChoice) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Moderately higher ratio of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PFA Pension – based on understanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2003 – External factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Focus on capital and risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating and financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The PFA Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statements and reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Yield on investments and breakdown of shareholding by sector and region . . . . . . . . . . . . . . . . .

Supervisory Board, Executive Board and process owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Please note that this is a translation of the Danish edition of the Annual Report 2003

Contents

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a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n4

PFA Group

Key figures (DKKm) 1999 2000 2001 2002 2003

Income statement

Premiums, net of reinsurance 9,429 10,432 11,307 11,757 12,345

Insurance benefits, net of reinsurance (5,468) (5,857) (6,220) (7,189) (8,554)

Change in life insurance provisions 1) (10,923) (4,156) (12,896) (12,169) (9,092)

Net operating expenses, net of reinsurance (505) (554) (705) (728) (860)

Balance on the technical account, life insurance 1) 460 460 (4,185) (198) 129

Balance on the technical account, non-life insurance (41) (59) (96) 47 (35)

Net profit/(loss) for the year 820 408 (3,649) 1,047 277

Balance sheet

Total assets 143,770 154,348 153,083 167,459 178,311

Shareholders' equity 6,128 6,577 2,976 4,002 4,279

Insurance provisions, net of reinsurance 1) 2) 131,591 140,909 145,140 156,346 168,214

PFA Pension

Key figures (DKKm) 1999 2000 2001 2002 2003

Income statement

Premiums, net of reinsurance 8,319 9,138 9,741 9,998 10,295

Insurance benefits, net of reinsurance (5,427) (5,795) (6,156) (7,095) (8,354)

Change in life insurance provisions 1) (9,746) (2,750) (11,308) (10,443) (7,133)

Change in life insurance provisions 1) (472) (518) (662) (681) (771)

Balance on the technical account, life insurance 1) (1,127) (128) (4,236) (240) 179

Balance on the technical account, non-life insurance (41) (59) (96) 47 (37)

Net profit/(loss) for the year 820 408 (3,649) 1,047 277

Balance sheet

Total assets 135,191 144,086 142,008 154,391 162,971

Shareholders' equity 5,938 6,346 2,697 3,723 4,000

Insurance provisions, net of reinsurance 1) 2) 126,090 134,096 136,894 146,356 155,612

Deposit interest rate in PFA Pension

after pension yield tax (p.a.) 4.5% 6.0% 8.5% 4.5% 4.5%

1)The figures for 1999-2001 have not been restated in accordance with the policy changes made in 2002.

2) Incl. provisions for unit-linked insurance policies.

5-year summary

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 5

• 2003 was a good year for PFA with many posi-

tive results for the customers.

• The PFA Group yielded a return on investments

of 6.5 per cent before pension yield tax – a

satisfactory yield relative to the market trend.

• The customers’ reserves were increased, and

the Group’s total reserves – the excess capital

base and the customers’ revenue reserves –

rose from DKK 7.2 billion to DKK 8.8 billion.

• The new product CustomerCapital™, which

gives the customers a greater share of the in-

crease in value, was widely accepted. Cus-

tomerCapital™ is already part of more than

110,000 savers’ pension schemes.

• In the Group, the customers’ savings, includ-

ing CustomerCapital™, yielded 6.2 per cent.

• Distinctively enhanced customer service – and

during the year, the level of customer satis-

faction and PFA's image improved considerably.

2003 – A good year for PFA and our customers

PFA PensionLuxembourg

PFA Pension

Share capital: DKK 100 million Dividend: DKK 350,000

PFAEjendomme

PFA Holding

Share capital: DKK 1 millionDividend: DKK 50,000

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%)

The PFA Fund (PFA-

Fonden) holds 49 per

cent of the shares in PFA

Holding. PFA Holding

holds all of the shares in

PFA Pension. PFA Pension

holds all shares in other

companies, except for

Lærernes Pension in

which PFA Pension holds

a 51 per cent interest.

The group enterprises are

domiciled in Copenhagen,

except for PFA Pension

Luxembourg, which is

domiciled in Luxembourg,

and PFA Soraarneq, which

is domiciled in Nuuk,

Greenland.

PFA Holding prepares a

separate annual report

and is not comprised by

this annual report of PFA

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

»It is not because things are difficult

that we do not dare, it is because we

do not dare that they are difficult«

Lucius Seneca (4 B.C. – 65 A.D.), Roman philosopher, poet and politician

It is our vision to be the customers’ preferred

provider of pension services:

We want to be the pension company which

most companies, organisations, employees and

members consider the best provider of life in-

surance and pension services.

To meet this end we need to be the pension

company that creates as much economic value

for our customers as possible.

Being owned by our customers places us in a

unique position compared to other commercial

enterprises. Because the value we create first

and foremost accrues to the customers – rather

than to the shareholders.

However, economic value is not enough.

We also want to be the company that best

understands and meets our customers’ pension

requirements.

Therefore, PFA puts focus on the develop-

ment of new products. In 2003, we introduced

CustomerCapital™ (KundeKapital®) and a new

Unit Linked product. In 2004, we are going to

put our new product platform, ‘PFA YourChoice’

(PFA DitValg®), on the market.

We are also determined to make our products

more intelligible. At the same time, our solu-

tions must match our customers’ situation and

meet their needs so that they get the pension

scheme most suited to them – whatever their

present life situation. This requires that we can

provide the most competent advisory services

and the most intelligible communication in the

market.

And we must offer the best services in the

market. We want PFA’s customers to feel they

get quick and efficient high-quality services.

Irrespective of whether they prefer to be serv-

iced personally or whether they would rather

serve themselves via the Internet.

PFA’s value creation model

As the guiding principle in our effort to fulfil

PFA’s vision, we are focusing on three funda-

mental, interacting elements.

The three elements are customer satisfaction,

economic value and employee satisfaction.

Only by optimising the interaction between

the three elements can PFA create maximum

value for our customers.

Satisfied customers create the basis for eco-

nomic growth – partly by their own efforts, and

partly by contributing to attracting new cus-

tomers.

Sound economic growth strengthens the ba-

sis for taking greater investment risks, thus pro-

viding the customers with a higher yield.

And a solid financial basis is a prerequisite if

management is to establish the framework suit-

ed to ensure a high degree of employee satis-

faction. Satisfaction which – for every single

employee – should be based on the possibility

of participating in and contributing to an inter-

esting operation and development of PFA to the

benefit of the customers.

Through their effort and commitment, com-

petent and satisfied employees create value for

PFA’s customers. That goes for all employees –

whether or not they have direct customer con-

tact, manage investments or work on projects

that are important to PFA’s development.

In this way the value-creating cycle is made

which is essential in order for us to fulfil our vi-

sion.

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 7

Customer satisfaction

Em

plo

yee

satisfactionEc

onom

icva

lue

Creation of

value to our

customersThe interaction of these

three fundamental ele-

ments makes the very

value-creating cycle that

is essential in order for

us to fulfil our vision.

PFA's vision

In 2003, PFA achieved many important results,

all of which are important steps on the road to

making our vision come through.

The customers and the market

The pension market is still growing. At the same

time, the market is characterised by still keener

competition and frequent tender rounds.

Premiums in the PFA Group rose in 2003 by

8.5 per cent excl. group life. PFA Pension saw a

rise of 7 per cent. The increase is due to growth

on the part of our existing customers and, to a

lesser extent, an influx of new customers.

In relation to the tender rounds initiated by

our customers in 2003, we are delighted that by

far the majority of these customers chose to

stay in PFA.

This trend was in complete agreement with

the expectations as a consequence of our focus

in 2003 on retaining and servicing our existing

customers as best we can.

Due to the fine results of our process im-

provement efforts, we were able in the second

half of the year to reduce the deadline for mak-

ing changes in existing pension schemes and for

establishing new schemes. Consequently, we

could increase our new sale activities, and the

results began to show at the end of the year.

We thus won several new schemes, which will

be launched in 2004.

Premiums on group life insurance fell in 2003

on the year before. Largely the entire decrease

relates to the fact that, effective 1 January

2003, Pen-Sam had its group life arrangement

transferred back. Previously, the group life in-

surance schemes for some of the pension

schemes in Pen-Sam would be taken out

through a scheme in PFA, but Pen-Sam wanted

to keep all the schemes under its own auspices.

The interest in improving the pension scheme

so as to make it include health insurance is still

on the increase. The number of policies which

include PFA Health Insurance, allowing quick

treatment in a private clinic or hospital, rose in

2003 from 35,000 to 40,000. The number of

policies which include Coverage at Critical Ill-

ness, under which a lump sum is disbursed in

relation to certain diseases, rose from 170,000

to almost 200,000.

New product – CustomerCapital™

(KundeKapital®)

Through CustomerCapital™ we make sure that

the customers get the maximum share of the

economic value we create. The product has

been very favourably received by our corporate

and organisational customers, and already in

the first quarter of 2004 will this new product

be part of the pension schemes of more than

110,000 employees in approx. 100 companies

and organisations.

Under a pension scheme that includes Cus-

tomerCapital™, an amount corresponding to 5

per cent of the pension contribution goes to In-

dividual CustomerCapital™. As this capital is

part of PFA's capital base, the customers’ return

on these funds will be very attractive.

The yield on CustomerCapital™ is the same as

the yield on PFA's shareholders’ equity. How-

ever, at present, the customers’ minimum yield

on Individual CustomerCapital™ is 9 per cent

p.a. after pension yield tax.

This yield is secured by an amount transferred

by PFA from shareholders’ equity to Collective

CustomerCapital™. Collective CustomerCapital™,

which is now DKK 6.3 billion, provides security

for the attractive yield on Individual Customer-

Capital™, which is expected for many years

ahead, and also covers any losses in relation to

Individual CustomerCapital™. In that way, Col-

lective CustomerCapital™ will, over the years, be

allocated to the customers having taken out a

policy that includes Individual CustomerCapi-

tal™.

It is up to PFA's business customers to decide

whether they wish their pension scheme to in-

clude CustomerCapital™. At the same time, the

enterprise may choose to allow their employees

to decline CustomerCapital™ individually.

In the Group, Lærernes Pension also makes

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n8

Results in the year

use of the special bonus provisions, as Customer-

Capital™ is denoted in terms of Danish law.

New product – ‘PFA Unit Linked’

‘PFA Unit Linked’ is a new, flexible savings prod-

uct, which we developed during 2003 and intro-

duced at the end of the year. The product allows

the customers to invest all or some of their pen-

sion savings in a number of different funds,

which include bonds and shares. The savings

yield the market rate of interest and there is no

guarantee. ‘PFA Unit Linked’ is a web-based pro-

duct, where the individual savers can, via the In-

ternet, get access to a number of tools helping

them pick the fund they would like to invest in.

Among the advantages of ‘PFA Unit Linked’

are the day-to-day trade, the possibility of mix-

ing the funds oneself or letting PFA mix the

funds according to various criteria, an independ-

ent advisory tool from Morningstar and very

competitive charges.

Distinctively enhanced customer service

In 2003, we improved our customer services

distinctively. As a result, the time needed for

administrative case handling has been signifi-

cantly reduced and the quality of our customer

services has increased.

To be able to follow up upon the deliveries

and the services to the customers, PFA has de-

veloped a Service Scorecard, which is a simple

means with which to document the actual prod-

uct and service process towards the company or

the organisation. The customers are allowed to

keep track of ongoing and completed assign-

ments, the targets set for the case handling

time and the extent to which such targets have

been met.

The enhanced service is the result of the ex-

tensive process improvements we have achieved

by using principles that are known in the manu-

facturing industry, but which have not so far

been used consistently in the finance sector.

We will continue our effort to improve our

processes to the benefit of our customers. As

our next move, we have initiated a quality proj-

ect which is to place PFA at the frontline as a

provider of quality services – again based on

principles and methods so far only applied in

the manufacturing industry. The results of these

efforts will benefit our customers in the course

of 2004.

New model for broker-operated

schemes

PFA wishes to create as high a degree of trans-

parency for our customers as possible. This is

the reason why we took the initiative in 2003

Individual Customer-

Capital™ is part of PFA’s

capital base and the

customers’ return will

thus be very attractive.

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 9

Capital base

The customers’

money

Company without CustomerCapital™

The customers’

money

Capital base

Company with CustomerCapital™

Please note that the proportion of the columns does not reflect the real breakdown.

Shareholders’ equity

Collective CustomerCapital™

The customers’ deposits

Individuel CustomerCapital™

Model of CustomerCapital™

for designing a new model for broker-operated

pension schemes, where the broker’s remunera-

tion reflects the actual distribution of tasks –

over time – between the pension company and

the broker.

As the first pension company, PFA is going,

effective 1 January 2004, to introduce the new

model for broker-operated pension schemes.

The model meets our desire to establish a more

balanced pay system. We have agreed on the

new model will all of the brokers with whom we

cooperate.

Under the new model, the brokers are paid

on a current basis, and their pay is calculated as

a share of the administrative contribution paid

by the customers. The brokers do not, as previ-

ously, get an initial commission, which is con-

siderably higher than the administrative contri-

bution, and which resulted in several loss-mak-

ing years for broker-operated pension schemes.

Considerably lower transfer charges

The charges payable on a transfer or surrender

of a pension scheme have been reduced con-

siderably. In doing so, we have done away with

the payment for non-depreciated acquisition

costs, which used to account for most of the

transfer charges in this sector. Low transfer

charges will increase competition in the sector –

to be benefit of both savers and companies. In

lowering the charges, we have furthermore

acted on one of the recommendations in the

Bremer report, ‘More freedom of choice for pen-

sion savers’, which was published in the spring

of 2003.

‘PFA Customer Board’

It was resolved at the Annual General Meeting

of shareholders in 2003 to set up a customer

board, and the new ‘PFA Customer Board’ held

its first meeting in June. The customer board

consists of nearly 50 members appointed by the

Supervisory Board. The customer board reflects

PFA's customer mix and consists of corporate

customers and customers affiliated with em-

ployers’ or employees’ organisations.

The customer board is an important link be-

tween the customers and PFA. The board is a

forum for dialogue and discussion about pen-

sion-political topics and about how PFA can cre-

ate value for the customers in the best possible

way. A concrete example of the customer

board’s value is PFA's new product, Customer-

Capital™, which took shape through a dialogue

with the customer board.

Satisfied employees

Employee satisfaction is an important element

in PFA. Without motivated, committed and satis-

fied employees, we cannot create the highest

possible value for our customers. In PFA, man-

agement is therefore about placing focus on

shared efforts, about being results-oriented and

about providing the individual employee with a

fine potential for development. A staff survey

carried through in June 2003 drew a very posi-

tive picture of PFA as a working place. The main

conclusion was that PFA's employees have a

positive approach to change and that they are

generally loyal and like their jobs.

In 2003, PFA introduced performance pay

(Kompetenceløn), which supports the manage-

ment principles and the business objectives. It is

a visible way to reward the individual employee

for his or her performance and competencies as

well as the job requirements. Kompetenceløn

has been introduced in relation to specialists,

team leaders and consultants. A similar arrange-

ment aimed at the rest of the employees is ex-

pected to be put to the vote in the first half of

2004.

In 2003, the average number of employees in

the Group was 1,020 or – converted on a full-

time basis – 977. At year-end, the number was

989. The number of employees is not expected

to rise in 2004.

The Customer Board is an

important link between

the customers and PFA

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n10

Increased growth

PFA expects the Group’s gross premiums to in-

crease by 8-10 per cent in 2004, primarily de-

riving from existing customers and, to some ex-

tent, from an inflow of new customers.

We expect CustomerCapital™ to continue to

be a success as the product will gradually be in-

troduced to companies and organisations. We

also expect that many customers will choose our

new products ‘PFA Unit Linked’ and ‘PFA Your-

Choice’, which are outlined in more detail below.

PFA Pension has maintained the deposit in-

terest rate at 4.5 per cent after pension yield

tax from 1 January 2004.

PFA DitValg® (‘PFA YourChoice’)

In 2004, PFA is going to present an altogether

new product platform, integrating our products

in a simpler and more coherent model. We call

the new product platform ‘PFA YourChoice’.

People making pension savings aim to get as

high a return as possible. An aim that should be

balanced against the investment risk the cus-

tomer is willing to run. Many pension savers re-

frain from investing a large part of their savings

in shares, because they are not willing to run the

risk or invest the time and resources needed to

make specific investment choices themselves.

‘PFA YourChoice’ minimises the expenses and

the effort it takes to maximise one’s yield. It is

a concept which – in a simple and comprehen-

sible manner – helps the pension savers find a

solution that matches their wish to get the

highest possible yield while, at the same time,

ensuring that they feel secure and consider the

price reasonable. In ‘PFA YourChoice’, we develop

special web portals for the individual saver and

for the company’s pension administrator.

It is the company that sets the limits for the

employees’ options as regards ‘PFA YourChoice’

in accordance with the company’s pension pol-

icy. Those companies that would like to allow

their employees to choose a higher ratio of

shares than the one offered by PFA in the aver-

age interest environment may exploit the possi-

bilities that are built into ‘PFA YourChoice’. It is

possible, up to a certain ratio, to continue to

have a financial guarantee. If savers prefer a

higher ratio, the scheme must be placed in ‘PFA

Unit Linked’ at the market rate. Choices within

given limits also contribute to keeping down the

expenses to the benefit of the customers’ sav-

ings.

Moderately higher ratio of shares

The purpose of PFA’s investment strategy is to

yield the highest possible return on investments

while, at the same time, making allowance for

any restatements of liabilities due to changes in

the interest rate. This also goes for 2004. We

evaluate our strategy on a current basis in re-

sponse to the market trends and changes in the

reserves.

The ratio of shares has basically seen a mod-

erate increase on 2003. As for foreign shares,

we use a new benchmark – MSCI World All

Countries – which, as opposed to the previous

benchmark, also includes emerging markets.

Our aim is to spread the risk more and yield an

attractive return in these markets. We will con-

tinue to increase our alternative investments as

part of a long-term expansion of this asset

class.

As far as bonds are concerned, we are going

to increase the ratio of foreign bonds, including

high-coupon bonds.

‘PFA YourChoice’ helps the

customers find a solution

that matches their wish to

get the highest possible

yield while, at the same

time, ensuring that they

feel secure and consider

the price reasonable.

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 11

Expectations for 2004

Starting from our vision to be the pension sav-

ers’ preferred provider, we chose understanding

as the centre of rotation for our strategic and

operational efforts in 2003. We do not believe

that it is enough for a pension company to cre-

ate maximum economic value for the customers.

We must also make our customers familiar with

how they can save up and what the coverage is.

And we must do so in an intelligible way.

PFA’s choice of understanding as a central

element in the relationship with our customers

is an attempt to do away with a year-long tradi-

tion in the pension sector to communicate with

the customers in a formal way – using many le-

gal terms and piles and piles of paper. As this

tradition has been an obstacle between compa-

ny and customer, many pension savers today do

not know even the most elementary facts about

their own pension scheme. Nor do they have

the strength to study it.

Simplicity in product development

PFA focuses on understanding at all levels. For

instance, when developing the new ‘PFA Unit

Linked’, it was essential for PFA that the new

product would set a new standard for how intel-

ligible the investment universe can be repre-

sented. It is not just a question of being able to

write simple texts, but also to make the product

and procure tools making it as simple as possi-

ble for the customer to use.

When developing CustomerCapitalTM, we had

it as a success criterion to involve the customers

in the development phase, asking their opinion

on product facilities and the unrolling strategy.

What resulted was a product in keeping with the

requirements in the market.

Clear speech – and writing

We have carried through an extensive language

programme thoroughly addressing the way we

communicate in every respect. We have rewrit-

ten thousands of standard letters, gone care-

fully over annual surveys and other mass publi-

cations and drafted more than 50 new product

brochures and fact sheets. The programme also

addresses benefit proposal texts and pension

guides and – in the longer term – policy texts

and insurance terms. The entire text universe on

www.pfa.dk has been rewritten based on our

declaration of intent to make pension more

comprehensible to the individual policyholder.

And in 2004 we will once again go carefully

through our entire website as part of our new

product platform ‘PFA YourChoice’.

All employees with direct customer contact

attend ‘comprehensible communication’ courses,

and a web-based writing guide creates a corre-

lation, internally in PFA, between the grammati-

cal rules for good communication and the rules

for PFA’s written communication.

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n12

PFA Pension – based on understanding

What is the difference between an

instalment pension and an endowment

pension?

Without all these in-house activities and the

product development activities that start from

the customers’ requirements, it would not have

been possible to implement PFA’s branding

process with so positive results.

In 2003, we took a different route in our ex-

ternal communication, and in May we presented

a new corporate concept, which included a new

logo and a new communications platform. Mass

communication was, among other features,

supported by a number of television spots, in

which PFA’s own employees related what they

are doing to make pension intelligible.

Enhanced image

During 2003, our market communication had

made the general knowledge of PFA so wide-

spread that PFA was the pension company

which by far the most people could recal.

Our customers welcomed the enhanced serv-

ice level. The level of customer satisfaction and

PFA's image improved significantly during 2003.

The development is reflected in two analyses

made by an external market research agency in

May and December.

The image has been

analysed on a scale from

1-5, where 5 is ‘I com-

pletely agree’ that the

pension company lives up

to the statement con-

cerned. The figures

concern directly serviced

customers with more

than 20 employees.

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 13

Development of the image profile among own customers

Visibility in the media- advertisement and

press coverage

Innovation in thehealth area

Leading position withinconsultancy services

High yield comparedto the competitors

Leading position withinproduct development

Fine reputation

Clear differentiation in relation to others

0 2.5 3.0 3.5 4.0 4.5 5.0

PFA Pension December 2003PFA Pension May 2003

Neither nor

I mainly agree

I completely agree

Sourc

e: A

alund B

usi

ness

Rese

arch

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n14

»Man's main task in life is to

give birth to himself, to

become what he potentially is«Eric Fromm (1900-1980), German philosopher

å r s r a p p o r t 2 0 0 3 15

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n16

Beginning recovery

At the beginning of 2003, the global

economy was affected by recession. To

stimulate the economy, a number of

benchmark countries relaxed their fiscal

policy, and the central banks lowered the

leading interest rates. As a result, par-

ticularly USA saw a beginning recovery.

The recovery in USA spread to Europe in

the second half of 2003. However, the

growth in Europe was still considerably

lower than in USA at year-end. In recent

years, the Euro has gained significant

strength in relation to the dollar, which has

put a damper on the European growth.

China plays a still more important part

in the global economy. The high Chinese

growth rate has also stimulated growth

in the rest of the region, including Japan.

The global economic slowdown at the

beginning of 2003 also affected the

Danish economy in 2003. The economic

growth was negative relatively to the

year before, both in Q2 and Q3, and the

unemployment rate rose on 2002. How-

ever, the Danish economy is still among

the strongest in Europe, and higher

growth figures are expected for 2004.

The international recovery is expected

to continue into 2004. However, it is un-

certain whether the recovery will gradu-

ally become sustainable in the second

half of 2004, or if it will gradually get

winded as the effect of the fiscal relax-

ation abates during the year.

Higher share prices

The share prices in the international mar-

kets rose in 2003 after three years of

continuing decline. Measured in Danish

kroner, global shares rose by more than

10 per cent. Danish shares went up by

33 per cent, outperforming the global

shares once again.

In the bond markets, the 10-year in-

terest rates increased by approx. 0.25

percentage points in both USA and Eu-

rope. Due to the almost 16 per cent

weakening of the dollar relative to Dan-

ish kroner, the global treasury bonds

yielded a negative return measured in

Danish kroner.

Pension sector trends

The report ‘More freedom of choice for

pension savers’ was on the agenda in

much of the pension-political debate in

the past year. The challenges currently

facing the pension sector are analysed in

the report, which has been drawn up by

a committee of officials – the so-called

Bremer committee. At the same time,

the committee recommended a number

of changes in the pension system, which

now form the basis of a dialogue with

the sector and the two sides of industry.

PFA backs a number of the recommen-

dations, including the recommendation

that there should be greater freedom of

choice in the area of labour market pen-

sions and company pensions. However,

such freedom of choice should be based

on reflection – the benefits should bear

comparison with the expenses. Econo-

mies of scale in company pension

schemes, for instance, imply that the in-

dividual employee cannot move to an-

other pension company.

The committee recommends that the

expenses incurred to move from one pen-

sion company to another should be lower.

As already mentioned, we have introduced

a substantially lower transfer charge.

The committee’s recommendation that

the special bonus provisions, type B,

which we call CustomerCapital™ in PFA,

may be part of ’particularly good capital

elements’ in line with shareholders’ eq-

uity has been adopted. It allows PFA and

other customer-owned companies the

possibility of continued growth without

accumulating substantial net assets. In-

stead, the customers can get a greater

share of the companies’ profit – in com-

plete keeping with our intentions.

Detailed analysis of transfers and

guarantees

Following up on the Bremer report, the

Danish government is going to set up

two working groups, which will include

pension sector representatives. One of

the working groups is to evaluate better

transfer possibilities and an individuali-

sation of the collective bonus reserves,

whereas the other group is to look at fu-

ture pension guarantees.

2003 – External factors

Movements in share prices 2002-2003

150

175

250

225

200

275

300

1,500

2,000

2,500

3,000

KAX MSCI World

Jan 2002 Jan 2003 Dec 2003

DKK

USD

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 17

PFA makes a point of maintaining precise

statements of our obligations to the cus-

tomers and of the changes in the re-

serves. The more we can optimise the

way we employ capital, the more we can

optimise the value creation to the bene-

fit of our customers.

To ensure precise statements of our

commitments, we use the current yield

curve to make up the life insurance provi-

sions, instead of a fixed-term interest rate.

In the spring of 2003, we adjusted our

risk hedging to ensure a better match

between assets and liabilities.

PFA currently compares the hedging

with existing alternatives, as too much

hedging may be costly as a result of lost

returns. The challenge for us is to aim at

’suitably’ strong reserves, while at the

same time ensuring that the customers

get the best possible yield.

We have improved our forecast model

for the long-term assessment of, e.g.,

our capital strength. In 2003, we carried

through an extensive risk analysis of

assets and liabilities – a so-called ALM

study – including considerations of impli-

cations over a long span of years for

1,000 different financial scenarios. The

study is a supplement to the static analy-

ses. One of the aims is for us to be able

to plan the long-term investment strat-

egy in order to obtain the best possible

capital strength.

Increasing excess solvency

As the figure below shows, PFA's relative

excess solvency in the Danish Financial

Supervisory Authority’s stress scenarios

has increased.

The innermost column illustrates the

size of the capital base, whereas the

surrounding colours show the solvency

requirement in the initial situation, ad-

justed for the changes which the red, re-

spectively the yellow, risk scenario im-

plies for the excess capital base. The

computation method corresponds to the

Danish Financial Supervisory Authority’s

guidelines for the computation of the

risk-adjusted solvency requirement.

It is a requirement that the excess ca-

pital base must always be positive. A

pension company will be ‘in the red light’

if the innermost column (the capital

base in the initial situation) ends in the

red area. The same principle applies to

yellow and green.

The capital base in PFA Pension and

the customers’ savings are invested to-

gether. As for the total reserves, the in-

crease in the excess solvency of the

capital base may be related to the fa-

vourable trend in share prices. At the end

of 2003, PFA Pension's excess solvency

relative to the risk-adjusted solvency re-

quirement was more than three times

the red risk scenario.

Strong reserves

PFA Pension’s reserves and investment

mix were so strong at the end of 2003

that shares may drop by 100 per cent

without giving us any problem meeting

the solvency requirement. Similarly, the

interest rate may, seen in isolation, drop

by more than 2 percentage points. If an

interest level that low continues for a

long time, the entire sector will, how-

ever, be in trouble.

PFA uses a model for the use of bonus

potentials, which ensures that we do not

redistribute them among our customers.

However, this makes the model more

cumbersome for the capital base. Losses,

if any, concerning the customers must

first be covered out of the collective

bonus potential – the customers’ reve-

nue reserves. Losses may then be covered

using the bonus potential related to ben-

efits on paid-up policies. This is the

expected future profit for the premiums

Focus on capital and risk

Excess solvency in the Danish Financial Supervisory Authority’s stress scenarios

0

50

100

150

200

250

300

31/03/03 30/09/03 31/12/03

350

Index

100 =

ris

k-ad

just

ed s

olv

ency

req

uirem

ent

for

red li

ght

31/12/02 30/06/03

Red: A company is in the red light if it cannot stand a 12 per cent drop in the share price, a0.7 per 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 the shareprice, a 1 per cent change in the interest rate, a 12 per cent decrease in property values aswell as certain other risks.

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n18

that have already been paid on the poli-

cies. As for the policies that cannot cov-

er their share of a loss, the capital base

will cover the loss. If an individual cus-

tomer has an excess bonus potential re-

lated to benefits on a paid-up policy, this

cannot be applied to cover losses for

other customers. This means that only

part of the customers’ total bonus po-

tential related to benefits on paid-up

policies may be used in stress scenarios

such as the Danish Financial Supervisory

Authority’s so-called ‘traffic lights’.

Individual risks

Our sensitivity to various, individual

changes is shown in the figure. The sensi-

tivities cannot be summed up so as to

show the total risk in the traffic light state-

ments, because the impact on reserves is

dependent on whether the changes take

place together or individually.

As the figure shows, these individual

changes impact the capital base to a very

limited extent. The impact is primarily de-

termined by the capital base’s share of

the investment income, as the capital

base is invested together with the cus-

tomers’ savings.

The impact on the reserves that are

not part of the capital base is the change

in the collective bonus potential and the

change in the total bonus potential re-

lated to benefits on paid-up policies. The

size and the use of the bonus potential

related to benefits on paid-up policies

depend on the interest rate level and the

size of the loss. Therefore, the figures do

not, basically, say anything about the

change in the total reserves. Conse-

quently, the impact on interest rate

changes of well over DKK 4 billion pri-

marily derives from changes in the total

bonus potential related to benefits on

paid-up policies.

The effect of changes in the mortality

and disability rates, as shown at the bot-

tom of the figure, will affect the total life

insurance provisions. The change will al-

so affect the distribution between guar-

anteed benefits, the bonus potential on

future premiums and the bonus potential

related to benefits on paid-up policies.

PFA's central compliance function

monitors the management of the

Group’s other risks, including business

and operational risks.

Sensitivity information for PFA Pension

Risk (DKKbn) Maximum impact on Minimum impact

collective bonus potential on the capital

and bonus potential related base

to benefits on paid-up policies

0.7 percentage point increase in the interest rate 4.1 (0.5)

0.7 percentage point decrease in the interest rate (4.5) 0.5

12 per cent drop in the share price (1.5) (0.1)

8 per cent decrease of property values (0.7) (0.1)

Change in the rate of exchange with a

0.5 per cent probability in ten days (0.1) 0.0

8 per cent loss of credits and counterparties (0.9) 0.1

10 per cent decrease in the mortality rate (2.1) 0.0

10 per cent increase in the mortality rate 1.9 0.0

10 per cent increase in the disability rate (0.3) 0.0

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 19

In 2003, PFA Pension realised a satisfac-

tory return on investments, i.e. 6.3 per

cent before pension yield tax.

The yield, which is higher than we ex-

pected at the beginning of the year, ex-

ceeded the benchmark fixed for PFA's in-

vestments in 2003.

It is in particular the overweight of

Danish shares that has produced an ad-

ditional yield relative to the strategic

benchmark. At the same time, PFA’s yield

on both Danish and foreign shares and

bonds exceeded benchmark.

The PFA Group realised an investment

yield of 6.5 per cent.

Changes in the portfolio

In 2003, we gradually increased our ratio

of shares from a little over 6 per cent to

almost 10 per cent by purchasing foreign

shares for slightly over DKK 3 billion, im-

proving the ratio between Danish and

foreign shares. At the same time, the in-

creases in share prices contributed to a

gradual increase in the ratio of shares.

In addition, we mainly invested in Dan-

ish bonds, primarily mortgage credit

bonds, which produced an additional

yield relative to foreign bonds. In the

portfolio of foreign bonds, we increased

the ratio of investment grade bonds and

high-yield corporate bonds and emerging

markets bonds.

We further invested in unlisted Danish

and foreign shares, which are to account

for a larger share of total investments in

the years to come.

DKK 14.1 billion in shares

Our yield on listed shares contributed

significantly to the total yield in spite of

the relatively low ratio of shares. The

reason is partly an overweight of listed

Danish shares, which yielded a consider-

ably higher return than listed foreign

Investment income

Investment trends

0 10 20 30 40 50 60 70 80

End of 2003End of 2002

Land and buildings

Listed Danish shares

Foreign shares

Nominal Danish bonds

Danish index-linked bonds

Foreign bonds

Market value (DKKbn)

Ten largest Danish shareholdings at the end of 2003

0

10

20

30

40

50

60

70

80

90

Acc. %

DKKbnAcc. %

(DKKbn)

0

0.5

1.0

1.5

2.0

2.5

A.P

. M

ølle

r – M

ærs

k

Dan

ske

Ban

k

Novo

Nord

isk

TDC

Jysk

e Ban

k

DSV

Sydban

k

Dan

isco ISS

Ves

tas

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n20

shares, and partly the fact that our

choice of shares resulted in a higher

yield than the market in general.

Listed shares overperforming

Due to the 34.5 per cent yield on listed

Danish shares, we overperformed by 1.4

percentage points relative to benchmark.

One of the reasons is an overweight in

Jyske Bank, Sydbank, A. P. Møller-Mærsk,

DSV and EAC.

Our listed foreign shares yielded a re-

turn of 31.1 per cent, including the in-

come from currency hedging. The yield

without currency hedging is 15.5 per

cent, corresponding to an overperfor-

mance of 3.5 per cent relative to bench-

mark. The additional yield is due to our

investment in Chinese and Eastern Euro-

pean shares and our sector breakdown.

The geographical breakdown and the

sector breakdown are shown in the table

on p. 54.

Alternative investments for

DKK 1.7 billion

PFA Pension decided in 2003 to invest

DKK 0.9 billion in unlisted shares, includ-

ing commitments not yet utilised. At the

end of 2003, alternative investments ac-

counted for DKK 1.7 billion, including the

market value of unlisted shares, DKK 0.8

billion, and not yet utilised commitments

in respect of future investments, DKK 0.8

billion.

The negative yield on unlisted shares

is due to previous investments in venture

funds within, among other sectors,

biotechnology and IT, areas that are still

connected with considerable uncertainty.

DKK 128 billion in bonds

PFA yielded a 5.3 per cent return on

bonds including currency hedging. With-

out currency hedging the return on

bonds was 4.9 per cent, or 0.2 percent-

age points above benchmark.

Danish bonds performed well, primari-

ly due to the overweight of mortgage

credit bonds.

In the portfolio of foreign bonds, we

increased the ratio of corporate bonds.

Corporate bonds have a higher risk pro-

file, just as emerging markets bonds.

Corporate bonds yielded handsome ab-

solute returns in 2003.

Index-linked bonds yielded a higher re-

turn than nominal bonds in 2003, particu-

larly in the short end of the market. Our

overweight of this bond type yielded a

return slightly above benchmark.

Derivative financial

instruments, etc.

Derivative financial instruments held to

hedge the sensitivity to exchange-rate

fluctuations related to provisions yielded

a negative return of DKK 681 million in

2003, recognised in the item ‘Other fi-

nancial investments’.

Unit Linked offering 30 funds

PFA Pension offers a broad range of sav-

ings funds on market terms. The funds

are administered either by PFA or by ex-

ternal fund managers. The funds are de-

scribed in more detail on our website,

where investors may also keep track of

the yield on these funds.

In 2003, the bond funds administered

by PFA yielded a return at benchmark

level. Viewed over a long span of years,

the yield on the funds is very satisfac-

tory. The share funds administered by

PFA performed below benchmark in

2003. Seen from a long perspective, the

share funds have performed satisfactorily

compared to comparable investment

funds and unit trusts.

In 2004, our customers will get access

to PFA's new Unit Link. First we are going

to offer 11 internal funds and 19 exter-

nally administered funds. As something

new we will be offering – under the ex-

ternally administered funds – funds ad-

ministered outside Denmark both in rela-

tion to shares and bonds. Our range of

internally administered funds has not

changed. In addition, we offer three mixed

funds, where PFA will be in charge of the

investment mix – due regard being had

to the customers’ venture spirit, retire-

ment age, etc. We will evaluate and sup-

plement the range of funds on an on-

going basis.

Properties

In 2003, PFA completed two domicile

projects: One for Struers in Ballerup and

one for Danske Bank in Vejle. We have

furthermore invested in a new domicile

for Københavns Energi in the Orestad,

which we expect to complete at the end

of 2004.

Contract work in progress ran into DKK

300 million at year-end. The relatively

modest project portfolio reflects the fact

that the number of domicile projects has

been reduced as a result of the economic

slowdown.

The occupancy rate for Danish and for-

eign properties was 97 per cent at year-

end, representing a decline of 2 percent-

age points on the year before. One of

the reasons is the sluggishness in the

market for commercial property letting.

As almost all land and buildings are

held by subsidiaries of PFA Pension, they

are included in the table at the compa-

nies’ net asset value, which is lower than

the market value of the properties. The

PFA Group holds land and buildings at a

market value of DKK 11.5 billion. With

the exception of the properties in PFA

Pension’s subsidiaries, only properties in

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 21

Lærernes Pension are included, totalling

DKK 0.2 billion. The PFA Group’s return

on land and buildings was 6.2 per cent in

2003.

As a result of a strategic analysis of

the property area we took over the ad-

ministration and operation of housing

properties counting well over 2,400

leases to Dan-Ejendomme A/S. As previ-

ously, PFA administers commercial prop-

erties and foreign properties.

Ethical considerations in relation

to investment policy

As a supplement to our overall invest-

ment policy, PFA Pension has adopted a

Code of Ethics. We find it important to

contribute to the promotion of a peace-

ful and democratic development of soci-

ety, observe fundamental human rights

and show a responsible conduct in rela-

tion to natural resources and the envi-

ronment. Ethical considerations are an

integral part of the individual company’s

investment strategy with regard to the

affairs of the company. We do not make

public such considerations; nor all share-

holdings.

Return on investments

PFA Pension 2002 2003

Market value Ratio Yield Bench- Market value Ratio Yield Bench-

Closing, DKKbn mark Closing, DKKbn mark

Listed Danish shares 7.9 5.3% (22.6%) (20.2%) 9.4 6.0% 34.5% 33.1%

Unlisted shares 0.5 0.3% (12.8%) – 0.8 0.5% (10.5%) –

Foreign listed shares 0.9 0.6% (35.9%) (32.5%) 4.0 2.5% 31.1%* 12.0%

Total shares 9.3 6.3% (25.9%) (25.1%) 14.1 9.1% 31.2% 19.1%

Nominal Danish bonds 72.9 49.5% 11.4% 11.7% 79.1 50.8% 5.0% 4.7%

Foreign bonds 31.1 21.1% 8.2% 7.0% 27.9 17.9% 5.2% 3.4%

Index-linked bonds 20.3 13.8% 10.1% 11.1% 21.0 13.5% 6.8% 6.5%

Total bonds 124.3 84.3% 10.4% 10.5% 128.0 82.1% 5.3%** 4.7%

Other financial investments 5.6 3.8% 20.6% – 5.1 3.3% (10.6%) –

Land and buildings 8.3 5.6% 7.9% – 8.6 5.5% 6.6% –

Total investments 147.4 100.0% 6.1% – 155.9 100.0% 6.3% 5.7%

Reference is otherwise made to ‘Specification of assets and their yield at market value’ on page 54* Yield on foreign listed shares, excl. profit from currency hedging: 15.5%** Total yield on bonds excl. profit from currency hedging: 4.9%

Benchmark

Nominal Danish bonds: A basket of long-term bonds.Nominal foreign bonds: In 2003, a basket of JP Morgan Global Government Index, excl. Japanese bonds, long-term Euro bonds, a basket of investment gradebonds, JP Morgan Emerging Markets Bond Index and JP Morgan Global High Yield Bond Index. In 2002, almost the same basket, however excl. Danish bonds in JP Morgan Global Government Index and without a basket of investment grade bonds. Index-linked bonds: A basket of bonds.Total bonds: 60% Danish bonds, 15% index-linked bonds and 25% foreign bonds.Listed Danish shares: KAX total index on the Copenhagen Stock Exchange. Foreign listed shares: MSCI World Index, capital-weighted for developed markets. Total shares: In 2003 a mix of 66% Danish shares, 12% unlisted Danish shares and 22% foreign shares (average). In 2002 a mix of 56% Danish shares, 3% unlisted Danish shares and 41% foreign shares.

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n22

»Obstacles are those frightful things you see

when you take your eyes off your goal« Henry Ford (1863-1947), founder of the Ford Motor Company

å r s r a p p o r t 2 0 0 3 23

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n24

Due to the satisfactory investment in-

come in 2003, the PFA Group’s reserves

were increased in the year. Total reserves

– the excess capital base and collective

bonus potential – came at DKK 8.8 bil-

lion in 2003, against DKK 7.2 billion the

year before. Measured by reference to

the Group’s life insurance provisions, the

total reserves rose from 5.1 per cent to

5.8 per cent. In PFA Pension, total re-

serves are DKK 8.2 billion – an increase

of DKK 1.3 billion.

Maximum added value to the

customers

Being a customer-owned enterprise, PFA

– besides yielding a high return – makes

an effort to ensure that as large a share

of the added value as possible accrues

to the customers. In PFA Pension, the

customers’ savings – the insurance pro-

visions including CustomerCapital™ –

yielded a return of 6.1 per cent before

expense loading in 2003. The figure is

net of the yield transferred to sharehold-

ers’ equity and may be compared with a

total book investment income of 6.2 per

cent.

We make an effort to balance three

main areas in the financial statements,

cf. the figure. CustomerCapital™ contri-

butes to increasing the customers’ share

of the yield. While making savings, the

customers build up CustomerCapital™

and receive the money together with the

pension benefits. As a result, we are

able to remain financially strong, match-

ing the savings trends.

DKK 2.4 billion in balance on the

interest account and restate-

ments at market value

In PFA Pension, the customers’ share of

the investment income and the year’s

restatements at market value totalled

DKK 9.3 billion in 2003.

The amount is to cover the year’s ac-

cumulated deposit interest, yield to Cus-

tomerCapital™ and entrepreneurial profit

to be added to shareholders’ equity,

totalling DKK 6.9 billion.

This leaves a profit of DKK 2.4 billion

before pension yield tax, which is trans-

ferred to the collective bonus potential –

Operating and financial review

CustomerCapital™ strengthens

our capital base, and the value

hereof is given back to

customers having chosen

CustomerCapital™ through

a higher proportion of

the yield.

CustomerCapital™

Investment income

Risk premiums

Administrative contributions

Deposit interest rate

To shareholders’equity

To

CustomerCapital™

Claims, etc.

Net operating expenses

Capital strength

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 25

the customers’ revenue reserves. These

reserves have an equalising function, as

in some years there may be a loss to be

covered out of the collective bonus po-

tential. PFA aims at a balance in the long

term.

The entrepreneurial profit to be added

to shareholders’ equity, DKK 158 million,

is the only part of the customers’ invest-

ment income that does not accrue to the

customers. It accounts for approx. 0.1

percentage points of the total invest-

ment income of 6.2 per cent. Our use of

CustomerCapital™ contributes signifi-

cantly to increasing the customers’ share

of the income. Otherwise, the DKK 607

million accruing to CustomerCapital™

would, all things being equal, have been

transferred to shareholders’ equity. The

yield on CustomerCapital™ before pen-

sion yield tax was 10.5 per cent in 2003.

The large share allocated to the cus-

tomers is also due to the fact that we

have fixed a low entrepreneurial profit.

As from 2003, we reduced it from 0.5

per cent to 0.3 per cent of the life insur-

ance provisions. The entrepreneurial pro-

fit is distributed proportionately between

shareholders’ equity and Customer-

Capital™, and almost two-thirds went to

CustomerCapital™ in 2003, and only a

little over one-third went to sharehold-

ers’ equity.

The new entrepreneurial profit rate re-

flects what we consider a fair considera-

tion for the risk of making capital avail-

able for the capital base.

Balance on the claims experience

account, DKK 0.2 billion

The balance on the claims experience ac-

count, net of provisions for extra dividend

in respect of experience rating, to be dis-

tributed in 2004 is a surplus of DKK 0.2

billion, which will be transferred to the

collective bonus potential. The balance

on the claims experience account in 2002

was a deficit of DKK 27 million.

The claims ratio for 2003 corresponds

to 0.15 per cent of the life insurance pro-

visions.

In the claims area, it is important to

the customers that we can offer competi-

tive prices regarding insurance coverage

based on a favourable claims experience.

We aim at balancing the balance on the

claims experience account. A surplus on

the claims experience account is not an

end in itself, and any surplus will be given

back to the customers in the form of

bonuses directly or by way of a collective

bonus potential.

Balance on the cost account,

DKK -0.2 billion

In 2003, the actual net operating ex-

penses relative to the administrative

Balance on the interest account and restatement at market value (DKKbn)

Investment income 8.9

Restatement at market value 0.4

Total 9.3

Deposit interest rate 6.2To CustomerCapital™ 0.6Entrepreneurial profit to shareholders’ equity 0.2

Total 7.0

To the customers’ revenue reserves 2.4

Balance on the claims experience account (DKKbn)

Insurance premiums 0.7 Claims, etc. 0.3

Claims experience rating 0.2

Total 0.5

To the customers’ revenue reserves 0.2

Balance on the cost account (DKKbn)

Administrative expenses 0.5 Net operating expenses 0.7

From the customers’ revenue reserves (0.2)

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n26

contributions resulted in a negative bal-

ance on the cost account, DKK 0.2 bil-

lion, which will be covered out of the col-

lective bonus potential. We aim at bal-

ancing the balance on the cost account

in the long term.

The expense ratio regarding premiums

rose from 6.7 per cent in 2002 to 7.3 per

cent in 2003. The expense ratio regard-

ing provisions – corresponding to an in-

terest differential – is 0.6 per cent. The

rise in expenses is especially due to in-

creasing development activities, also re-

sulting in increased payroll costs. The de-

velopment activities and the investments

made in IT innovation are also invest-

ments in improved efficiency of the ad-

ministration. After some time, this im-

proved efficiency may result in a decrease

in the expense ratio.

Capital base with a considerable

excess solvency

PFA Pension’s capital base is largely un-

changed, DKK 11.9 billion, or 8.4 per

cent of the life insurance provisions. The

Group’s capital base is DKK 12.5 billion.

Shareholders’ equity is DKK 4.0 billion,

representing an increase of DKK 277 mil-

lion on the year before, corresponding to

the net profit for the year. The profit al-

so includes entrepreneurial profit, yield,

other items and income taxes. The equi-

ty ratio, which reflects shareholders’ eq-

uity and the subordinate loan capital

relative to the life insurance provisions,

is still 4.2 per cent. The consolidated

shareholders’ equity is DKK 4.3 billion.

CustomerCapital™ increased to DKK

6.3 billion, making up more than half the

capital base. The rise is DKK 516 million,

as pension yield tax, DKK 91 million,

must be paid on the yield of DKK 607

million. The customer capital ratio, which

is CustomerCapital™ relative to the life

insurance provisions, is 4.5 per cent,

against 4.4 per cent the year before. The

PFA Group’s CustomerCapital™ rose by

DKK 0.7 billion to DKK 6.6 billion.

Tax assets, etc. which are part of the

capital base decrease concurrently with

capital gains are realised on shares and

the value of properties goes up. The

year’s positive share price trends have

therefore implied a decrease of DKK 0.8

billion in tax assets, etc., largely corre-

sponding to the increase in sharehold-

ers’ equity and CustomerCapital™.

The solvency ratio requirement goes

up by DKK 0.2 billion. The excess capital

base goes down similarly, representing

Capital base PFA Group PFA Pension

2002 2003 2002 2003

DKKbn Ratio of life DKKbn Ratio of life DKKbn Ratio of life DKKbn Ratio of life

insurance insurance insurance lnsurance

provisions provisions provisions provisions

Shareholders’ equity 4.0 2.8% 4.3 2.8% 3.7 2.8% 4.0 2.9%

CustomerCapital™ 5.9 4.2% 6.6 4.4% 5.8 4.4% 6.3 4.5%

Subordinate loan capital 1.6 1.2% 1.7 1.1% 1.7 1.2% 1.7 1.2%

Tax assets, etc. 0.9 0.6% (0.1) (0.1%) 0.6 0.5% (0.1) (0.1%)

Capital base 12.4 8.8% 12.5 8.3% 11.8 8.9% 11.9 8.5%

Solvency requirement 7.1 5.1% 7.4 4.9% 6.6 5.0% 6.8 4.9%

Excess capital base 5.3 3.7% 5.1 3.3% 5.2 3.9% 5.1 3.7%

The ratios are calculated by reference to the retrospective provisions, corresponding to the definitions of the consolidated financial ratios. The same applies elsewhere in

the report where reserve ratios are shown.

Total reserves

End of 2002 End of 2003DKKbn

Excess capital base

Collective bonus potential

0 2 4 6 8 10

PFA Group

PFA Pension

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 27

DKK 5.1 billion. This is a considerable ex-

cess solvency, and the ratio is 175 per

cent. The excess solvency ratio, which is

the excess capital base relative to the life

insurance provisions, was 3.7 per cent

against 3.9 per cent in 2002. The excess

capital base in the Group is DKK 5.1 bil-

lion as well.

Collective bonus potential, DKK

3.1 billion

In PFA Pension, the customers’ revenue

reserves – the collective bonus potential –

rose by DKK 1.4 billion to DKK 3.1 billion.

The rise derives from three main areas:

• DKK 2.4 billion from the balance on the

interest account and restatements at

market value

• DKK 0.2 billion from the balance on the

claims experience account

• DKK -0.2 billion from the balance on

the cost account.

The increase of DKK 1.4 billion is net of

pension yield tax, DKK 1.0 billion.

The financial ratio ‘bonus ratio’, which

is the collective bonus potential relative

to the life insurance provisions, is 2.2 per

cent – up from 1.3 per cent at the end of

2002. In the Group, the collective bonus

potential is DKK 3.7 billion.

Strengthened reserves

The PFA Group’s total reserves made up

as the excess capital base plus collective

bonus potential increased in the year

from DKK 7.2 billion to DKK 8.8 billion.

The current interest yield and the ex-

penses for deposit interest balanced by

and large in 2003. The yield curve be-

came slightly steeper during the year, re-

sulting in a loss on the interest hedging

which exceeded the market value re-

statement of the life insurance provi-

sions. In total, the increase in reserves

therefore mainly stems from the increases

in share prices.

Premiums PFA Group PFA Pension

DKKbn 2002 2003 Ændring 2002 2003 Ændring

Current premiums 10.1 10.8 6.8% 8.4 8.8 5.0%

Single premiums 0.8 1.1 29.7% 0.7 1.0 30.3%

Total 10.9 11.8 8.5% 9.2 9.8 7.0%

Group life 1.0 0.7 (33.1%) 1.0 0.7 (33.1%)

Total 11.9 12.5 5.0% 10.2 10.5 3.0%

Non-life insurance 0.4 0.4 2.2% 0.4 0.4 2.2%

Total revenue 12.3 12.9 4.9% 10.6 10.9 3.0%

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

0 5 10 15 20 25 30 35

years

31/12 2002

31/12 2003

%

Yield curves

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n28

Net profit for the year,

DKK 277 million

The pre-tax profit of PFA Pension came at

DKK 375 million in 2003. The amount in-

cludes an entrepreneurial profit of DKK

158 million, return on equity, DKK 231 mil-

lion, profit from non-life insurance busi-

ness, Unit Linked, as well as other ordinary

and extraordinary items totalling DKK -14

million. The tax charge for the year is DKK

98 million, and the net profit for the year

is DKK 277 million as in the Group.

The Supervisory Board recommends

that the general meeting of shareholders

resolve to distribute dividend of DKK

350,000 to PFA Holding and that the re-

maining profit be retained and transferred

to shareholders’ equity.

PFA Pension has no receivables in any

shadow account.

Premiums, DKK 12.9 billion

The PFA Group’s premiums rose in 2003

by 8.5 per cent excl. group life. Both cur-

rent premiums and single premiums in-

creased. Premiums on group life schemes

fell by about one third, which is largely

due to the fact that the group life

schemes which PFA used to write on be-

half of Pen-Sam’s customers were trans-

ferred back to Pen-Sam.

Total premiums in the Group are DKK

12.9 billion incl. non-life insurance. PFA

Pension’s premiums total DKK 10.9 billion.

Non-life insurance

Non-life insurance activities generated a

loss of DKK 37 million in 2003, against a

profit of DKK 47 million in 2002. The

poor performance is mainly due to the

losses realised on accident insurance

taken out through financial institutions,

where PFA has had, in a number of in-

stances, to recognise loss of occupational

capacity as a claim eligible for coverage.

Also policies providing coverage at criti-

call illness contributed to the poorer per-

formance in this segment.

Life insurance provisions, DKK

142.2 billion

Life insurance provisions in PFA Pension

went up DKK 6.8 billion to DKK 142.2 bil-

lion. The insurance benefits totalled DKK

8.4 billion in 2003, against DKK 7.1 bil-

lion in 2002.

When stating the life insurance provi-

sions at market value, we use a yield

curve, cf. the figure on p. 27. Consequent-

ly, future cash flows are discounted at the

going rate of interest for the maturities

that correspond to the payment dates.

The development of the yield curve

over the year reduced the need to

strengthen the life insurance provisions,

resulting in a positive market value re-

statement of DKK 0.4 billion. An increased

provision for disability pension due to a

new claims experience basis is included

as well.

The bonus potential related to bene-

fits on paid-up policies accounts for DKK

15.1 billion of the total life insurance

provisions. This bonus potential is the

expected future profits on the pension

agreements for the premiums already

paid. Part of this bonus potential may be

used as a buffer to cover the portion of

a loss, if any, which the customers must

bear.

PFA's prudent bonus practice, which

used to apply to policies with a basic in-

terest rate of 5 per cent, was introduced

in 2003 also as regards to policies with a

basic interest rate of 3 per cent. Due to

the prudent practice, bonus is added to

the deposit without the agreed benefits

being raised.

New financial ratios

A number of new financial ratios have

been introduced in accordance with the

Danish Financial Supervisory Authority’s

new executive order on the financial

presentation of life insurance compa-

nies. The new ratios are shown in the 5-

year summaries on p. 38.

One of the new ratios is ‘Return on in-

surance provisions excl. CustomerCapi-

tal™ before tax’, reflecting the return be-

fore administrative contributions on the

customers’ savings. The ratio is 5.9 per

cent for PFA Pension and 6.0 per cent for

the Group.

The ratio does not include Customer-

Capital™, which also belongs to the cus-

tomers, for which reason it is not fully

adequate for companies such as PFA

which makes use of CustomerCapital™.

We have therefore chosen also to show

the financial ratio ‘Return on insurance

provisions incl. CustomerCapital™ before

tax’. This ratio is 6.1 per cent for PFA

Pension and 6.2 per cent for the Group.

The difference between the two ratios

reflects the excess yield which the cus-

tomers get under the CustomerCapital™

arrangement.

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 29

The corporate structure in the Group ap-

pears from the figure on p. 5. The results

of operations and shareholders’ equity

of group enterprises are included in the

parent company’s income statement and

balance sheet according to the equity

method. More details are given in note

18 on p. 47.

Lærernes Pension

Lærernes Pension is still a growth busi-

ness. Premiums rose in 2003 by 19 per

cent to DKK 2.0 billion, and total assets

rose to DKK 12.8 billion at the end of the

year, against DKK 10.1 billion the year

before.

The increase in premiums is, among

other reasons, due to a net inflow of

13,000 new policyholders. Furthermore,

the contribution rates were increased in

several areas according to the collective

agreements in 2002. Consequently, most

policyholders’ pension contributions

were increased to 17 per cent or more of

their pay from August 2003.

The return on investments was 8.4 per

cent before pension yield tax. At the end

of 2003, the Company’s capital base was

DKK 0.9 billion, whereas the solvency

margin requirement was DKK 0.6 billion.

PFA Soraarneq

Premiums in the Greenland company are

DKK 22 million, and the number of poli-

cyholders is 2,000.

In 2003, the company entered into

several agreements with private compa-

nies. Also, agreements were made to ac-

cede the public sector employers’ pen-

sion agreement. These agreements are

going to increase premiums in 2004, and

so will tax-exempt transfers of pension

schemes, totalling DKK 17 million, from

PFA.

PFA Pension Luxembourg

The subsidiary in Luxembourg is working

on a transfer of pension schemes to PFA

Pension, as the company does not have

enough schemes to generate a profit.

PFA Ejendomme

With the exception of properties in Lær-

ernes Pension, the Group’s portfolio of

Danish commercial and residential prop-

erties is managed under the auspices of

PFA Ejendomme. More details on proper-

ty investments are given on p. 20.

PFA Invest International

The company, which coordinates the

Group’s property investments outside

Denmark, is the parent company of eight

property companies, each of which rep-

resents a property investment.

PFA IT Service

The company’s objective is to make IT in-

vestments and investments in operating

equipment on behalf of the PFA Group in

connection with the innovation of PFA's

IT systems. The first part deliveries were

made in 2003 as planned. Most of the

development effort concerned the devel-

opment of PFA's new Unit Linked system.

PFA Group

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n30

å r s r a p p o r t 2 0 0 3 31

»Hope is the most significant fact of

life. It provides human beings with a

sense of destination and the energy

to get started«Norman Cousins (1915-1990), American author

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n32

General

Accounting policies

The Annual Report of PFA Pension and

the Group is presented in accordance

with the provisions of the Act on Insur-

ance Business and related executive or-

ders and standards concerning the finan-

cial reporting of life insurance companies

and insurance groups.

The Group’s accounting policies are

consistent with those applied in 2002.

As a result of amendments to the Dan-

ish Financial Supervisory Authority’s execu-

tive order on the financial presentation of

life insurance companies, the key figures

and financial ratios have been changed and

extended both in the Group’s and in PFA

Pension’s 5-year summary. Comparative

figures have been restated accordingly.

Net profit for the year

The Act on Insurance Business and the

rules laid down by the Danish Financial

Supervisory Authority by virtue of the Act

provide that realised profits must be split

on a fair basis between, on the one side,

the insurance portfolio eligible for bonus

and, on the other side, shareholders’ eq-

uity and customer capital, which cover

the Company’s risks pari passu with

shareholders’ equity.

Independently of the realised results of

operations in the year, shareholders’ eq-

uity and the customer capital and any en-

trepreneurial profit receivable (see below)

will carry the interest of the investment

income before pension yield tax. 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

is transferred to shareholders’ equity.

Within the limits of a positive realised

profit for the customers, an entrepre-

neurial profit is transferred to sharehold-

ers’ equity and the customer capital. The

entrepreneurial profit represents a share

of the life insurance provisions relating

to policies under which the policyholders

are entitled to bonus. The entrepreneu-

rial profit is part of the technical basis.

If the customers’ share of the realised

profit is not sufficient for the desired en-

trepreneurial profit to be added to share-

holders’ equity and the customer capital,

the deficit is recorded as a receivable

outside the financial statements. Any

entrepreneurial profit receivable is dis-

closed in the note to shareholders’ equi-

ty and in the note to CustomerCapital™.

The breakdown of the realised results

of operations in the year concerned is

detailed in the note to the net profit for

the year and in the ‘Operating and fi-

nancial review’.

Group structure

All subsidiaries 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 in-

to administration agreements with PFA

Pension, according to which PFA Pension

handles, wholly or in part, the adminis-

tration of the subsidiaries on a cost re-

imbursement basis.

Intra-group transactions falling within

the companies’ natural area of business

are conducted on the basis of written

agreements and on an arm’s-length basis.

Interest on intra-group transactions is

charged on an arm’s-length basis.

Consolidation

The consolidated financial statements in-

clude 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/

have a controlling interest.

The group structure appears from p. 5.

The activities of the Group include al-

most exclusively life and pension insur-

ance and related health and accident in-

surance. Therefore, the consolidated fi-

nancial statements are presented ac-

cording 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 accordance

with PFA Pension’s accounting policies.

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-

tra-group 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 proportion to the

percentage interest held.

Intra-group transactions conducted on

an arm's-length basis are not eliminated.

Gains or losses arising on intra-group

trading in securities, which could just as

well have taken place in the market, are

thus not eliminated.

Income statement

Income and expenses are cut off at the

balance sheet date in accordance with

generally accepted accounting principles.

Accounting policies

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 33

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 insurance

provisions. Labour market contributions

are not part of premiums.

Reinsurance

Ceded premiums and ceded claims are

set off in the respective items in the in-

come statement. The total profit or loss

on reinsurance is shown in a note to the

income 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 in-

cludes the profit from property opera-

tions, less property management expen-

ses. The item includes market rent for

the use of the Group’s own properties.

The rent is recognised as an expense un-

der net operating expenses.

Interest, dividends, etc. include inter-

est on securities, loans and cash as well

as current income from derivative finan-

cial instruments. For the parent compa-

ny, the item also includes interest on re-

ceivables from group enterprises. Fur-

thermore, the item includes dividends on

shares and indexation of bonds. Finally,

gains on repayment and redemption of

bonds and loans are included.

Realised and unrealised capital gains

and losses on investments are calculated

by reference to the opening balance plus

the cost in the year.

Insurance

Benefits paid and changes in provisions

for claims represent the expenses ac-

crued in the year.

Net operating expenses

Net operating expenses are the expenses

incurred in the year on acquisition, renew-

al and administration of the insurance

portfolio, including expenses related to the

disbursement of insurance benefits.

Investment management charges are

the portion of the administrative expenses

that relates to trading in and management

of investments on the basis of direct and

estimated resource requirements.

Expenses related to activities other than

life insurance business, which are primarily

expenses related to property operation

and expenses related to non-life insurance

business, are transferred to other items in

the income statement in accordance with

the executive order on the financial pres-

entation of life insurance companies and

the Group’s consolidation policy.

Other income statement items

Changes in life insurance provisions are

specified in the note to the balance

sheet item.

The change in the collective bonus po-

tential is the portion of the realised prof-

it accruing to the insurance portfolio be-

sides the bonus already allocated. In

years where the insurance portfolio’s re-

alised result is negative, net of bonus al-

ready allocated, the item includes the use

of collective bonus potential for which a

provision has been made in prior years.

Changes in CustomerCapital™ partly

include interest on provisions made in

prior years and partly the net amount

contributed by the customers during the

year. To this should be added amounts

which the Company may decide to allo-

cate for this purpose instead of transfer-

ring them to shareholders’ equity.

Exchange rate adjustments are a net

item, which includes those value adjust-

ments and gains/losses on sales that result

from exchange rate differences arising on

currency retranslation into Danish kroner.

Income and expenses in foreign cur-

rency are translated into Danish kroner

at the exchange rate ruling at the date of

the transaction. Balance sheet items in

foreign currency are translated at the ex-

change rates at the balance sheet date.

Pension yield tax includes tax on in-

vestment income and changes in the

provision for deferred pension yield tax.

Investment income transferred is de-

ducted from the balance on the technical

account to reflect the portion of the in-

vestment income that relates to sharehold-

ers’ equity and non-life insurance business.

The transferred amount is calculated

on the basis of the opening and closing

balance sheets, allowance being made

for atypical circumstances.

The balance on the technical account,

non-life insurance, is recorded in the fi-

nancial statements on one line. The bal-

ance is made up in accordance with the

rules applicable to non-life insurance

business and includes the above-men-

tioned portion of the investment income

transferred. The balance is specified in

the note to the income statement.

Other ordinary income includes reve-

nue and expenses related to accessory

business in accordance with the Act on

Insurance 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 in

the income statement regardless of

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n34

whether part of the profit for the year is

not taxed until in subsequent financial

reporting periods.

The taxable income in the Group’s prop-

erty companies is taxed in PFA Pension in

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 requirement is not met in

some years, the property company con-

cerned 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

in proportion to their taxable income

(proportional allocation).

Assets

Land and buildings

Land and buildings are measured at mar-

ket value.

The market value is fixed in accordance

with the relevant principles laid down by

the Danish Financial Supervisory Author-

ity, 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

discloses the highest and the lowest of

the yield requirements used for meas-

urement purposes.

Undeveloped land and properties un-

der construction and forests are meas-

ured at their estimated market value.

Shares in group enterprises and

associates

Shares in group enterprises are meas-

ured at the parent company's propor-

tionate interest in the enterprises (net

asset value), calculated in accordance

with the accounting policies applied by

PFA Pension.

Shares in associates owned 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

official price at the balance sheet date.

The most recently quoted daily average

price is applied to Danish listed securities.

Unlisted shares are measured at their

estimated market value based on the

most recently published financial state-

ments. The estimate is also based on the

most recently published quarterly finan-

cial statements or report.

Loans are measured at market value

on the basis of conservatively fixed in-

terest rates depending on the remaining

terms of the loans.

Unit trust certificates are measured at

market value of the assets and are

recognised in the balance sheet, corre-

sponding to the underlying assets.

Forward contracts, call-and-put op-

tions and other derivatives are measured

at the market value of the contracts at

the balance sheet date. Unlisted deriva-

tive financial instruments are measured

at their estimated market value.

Investments related to unit-linked in-

surance policies are the assets which

correspond to the insurance policies

where the policyholders determine the

investment mix and bear the related risk,

wholly or in part. The assets are meas-

ured at market value.

Other asset items

Intangible assets, which include acquired

and self-generated software and pro-

cesses having a positive value for the fu-

ture operations, are amortised on a

straight-line basis over the expected

useful life, however maximum eight

years. Self-generated assets consist of

direct internal project development costs.

Project development costs not exceeding

DKK 1,000,000 are written off imme-

diately.

Receivables are measured at nominal

value less provisions for bad debts.

Operating equipment is measured at

cost less amortisation made. Amortisa-

tion is provided according to the

straight-line method over the expected

useful life of the assets. Total acquisi-

tions 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 compa-

nies by reference to the technical basis

reported to the Danish Financial Supervi-

sory Authority. The provisions consist of

guaranteed insurance benefits, the

bonus potential related to future premi-

ums and the bonus potential related to

benefits on paid-up policies.

Guaranteed benefits represent the net

present value of the benefits guaranteed

under the policy as well as the net pres-

ent value of the expected future expenses

related to the administration of the in-

surance policy, less the net present value

of the agreed future premiums.

Guaranteed benefits include an esti-

mated amount to cover future insurance

benefits pertaining to insurance events

that have occurred during the financial

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 35

year, but which had not been reported at

the end of the financial year.

Bonus potential related to future pre-

miums includes the net present value of

commitments to pay bonus on agreed,

not yet overdue, premiums.

Bonus potential related to benefits on

paid-up policies includes the net present

value of commitments to pay bonus con-

cerning 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, using

a zero coupon interest rate structure in

the Euro, as the difference in relation to

the similar Danish interest rate structure

represents the necessary safety margin.

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.

Provisions for claims comprise unpaid

insurance benefits due for payment. The

amount includes an estimate of insur-

ance benefits due for payment, which

pertain 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 provisions

have been made for insurance policies

eligible for bonus, besides life insurance

provisions and provisions for claims.

CustomerCapital™ is part of the capital

base on equal terms with shareholders’

equity, but since it accrues, in due course,

to the policyholders, it is part of the in-

surance 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.

The actuarial methods used to calcu-

late insurance provisions are based on a

number of assumptions which are fixed

as the best possible estimates of, among

other factors, mortality, disability and

other insurance risks. The most recent

claims experience is taken into consider-

ation for purposes of such estimates.

Other liability items

Deferred pension yield tax is calculated

by discounting the anticipated future

pension yield tax on prior gains that are

subject to pension yield tax. If the de-

ferred net tax assets exceed the calculat-

ed amount, 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.

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 which are probable,

but uncertain as regards their size or the

time of payment. 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 Dan-

ish Financial Supervisory Authority’s ex-

ecutive order concerning insurance com-

panies’ 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

way of a full statement of liquidation 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 key figures and financial ratios re-

flected in the 5-year summary are com-

puted on the basis of the items in the fi-

nancial statements, adjusted for the ef-

fect from the portfolio of unit-linked in-

surance policies.

The yield ratios in the 5-year summary

are computed for all assets and liabilities

according to a money-weighted method,

whereas the yield broken down by asset

type in the yield form is computed for in-

vestments (i.e. excl. payables and various

assets) according to a time-weighted

balancing. Hedging of currency risk is

broken down by nature of investments in

the yield form.

»Power is the faculty or capacity to act, the

strength and potency to accomplish something.

It is the vital energy to make choices and

decisions. It also includes the capacity to

overcome deeply embedded habits and to

cultivate higher, more effective ones«Dr. Stephen R. Covey (b. 1932- ), American author

Key figures

Financial ratios – PFA Group 2003 2002 2001 2000 1999

Yield ratios

Yield before pension yield tax 6.4% 5.8% (4.7%) 5.5% 10.7%

Yield after pension yield tax 5.6% 5.1% (4.0%) 4.7% 9.8%

Cost ratios

Expense ratio on premiums 6.8% 6.1% 6.2% 5.3% 5.3%

Expense ratio on provisions 0.6% 0.5% 0.5% 0.5% 0.4%

Expenses per policyholder DKK 1,265 DKK 1,094 DKK 1,116 DKK 938 DKK 913

Balance on the cost account (0.14%) (0.09%) (0.10%) (0.03%) (0.03%)

Claims experience ratio 0.17% 0.09% 0.40% 0.04% 0.14%

Consolidation ratios

Bonus ratio 2.5% 1.4% 2.5% 15.0% 10.3%

Customer capital ratio 4.4% 4.2% 3.6% 0.0% 0.0%

Equity ratio 4.0% 4.1% 2.2% 5.4% 5.2%

Excess solvency ratio 3.4% 3.7% 2.3% 0.4% 0.3%

Solvency ratio 168% 174% 148% 109% 107%

Return ratios

Return on equity before tax 8.8% 0.5% (93.0%) 10.0% 19.7%

Return on equity after tax 6.7% 30.0% (76.4%) 6.4% 14.4%

Return on insurance provisions excl. CustomerCapital™ before tax 6.0% 5.0% (2.5%) 4.6% 13.5%

Return on subordinated capital contribution before tax 6.8% 7.9% 4.9% 8.1% _

Return on CustomerCapital™ before tax 11.7% 23.6% _ _ _

Return on insurance provisions incl. CustomerCapital™ before tax 6.2% 5.6% 0.8% 4.6% 13.5%

Ratios relating to non-life insurance

Claims ratio 89.5% 73.0% 85.4% 107.8% 119.6%

Expense ratio 15.3% 15.7% 18.1% 17.4% 18.4%

Financial ratios – PFA Pension

Yield ratios

Yield before pension yield tax 6.2% 6.0% (4.9%) 5.5% 10.7%

Yield after pension yield tax 5.4% 5.4% (4.1%) 4.7% 9.8%

Cost ratios

Expense ratio on premiums 7.3% 6.7% 6.7% 5.6% 5.6%

Expense ratio on provisions 0.6% 0.5% 0.5% 0.4% 0.4%

Expenses per policyholder DKK 1,319 DKK 1,156 DKK 1,157 DKK 959 DKK 926

Balance on the cost account (0.14%) (0.11%) (0.13%) (0.06%) (0.05%)

Claims experience ratio 0.15% 0.01% 0.35% (0.01%) 0.08%

Consolidation ratios

Bonus ratio 2.2% 1.3% 2.4% 15.3% 10.3%

Customer capital ratio 4.5% 4.4% 3.8% 0.0% 0.0%

Equity ratio 4.2% 4.2% 2.1% 5.5% 5.2%

Excess solvency ratio 3.7% 3.9% 2.4% 0.6% 0.5%

Solvency ratio 175% 179% 150% 113% 110%

Return ratios

Return on equity before tax 9.7% (1.0%) (99.1%) 9.9% 16.2%

Return on equity after tax 7.2% 32.7% (80.7%) 6.6% 14.8%

Return on insurance provisions excl. CustomerCapital™ before tax 5.9% 5.5% (2.5%) 5.0% 10.3%

Return on subordinated capital contribution before tax 6.8% 7.9% – – –

Return on CustomerCapital™ before tax 10.5% 22.9% – – –

Return on insurance provisions incl. CustomerCapital™ before tax 6.1% 6.1% (2.5%) 5.0% 10.3%

Ratios relating to non-life insurance

Claims ratio 89.5% 73.0% 85.4% 107.8% 119.6%

Expense ratio 15.3% 15.7% 18.1% 17.4% 18.4%

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n38

(DKKm) Group Parent company

Note 2003 2002 2003 2002

Premiums

1 Gross premiums 12,551 11,954 10,496 10,190

2 Ceded premiums (206) (197) (201) (192)

Premiums, net of reinsurance 12,345 11,757 10,295 9,998

Investment income

Income from group enterprises – – 507 -37

3 Income from land and buildings 690 630 0 402

4 Interest, dividends, etc. 7,605 6,670 7,173 6,287

5 Realised gains on investments 125 0 145 0

Total investment income 8,420 7,300 7,825 6,652

5 Unrealised gains on investments 2,767 3,799 2,199 3,992

Insurance benefits

6 Benefits disbursed (8,612) (7,377) (8,415) (7,286)

2 Reinsurers' share 201 150 200 150

Change in provisions for claims (143) 38 (139) 41

Insurance benefits, net of reinsurance (8,554) (7,189) (8,354) (7,095)

Change in life insurance provisions

30 Change in gross life insurance provisions (8,780) (12,113) (6,782) (10,390)

Change in life insurance provisions, net of reinsurance (8,780) (12,113) (6,782) (10,390)

Bonus

32 Change in collective bonus potential (1,831) 2,111 (1,355) 2,007

33 Change in CustomerCapital™ (693) (1,111) (516) (997)

Total bonus (2,524) 1,000 (1,871) 1,010

Change in provisions for unit linked insurance policies (312) (56) (351) (53)

Net operating expenses

7 Acquisition costs (397) (326) (395) (324)

7 Administrative expenses (463) (402) (376) (357)

Net operating expenses, net of reinsurance (860) (728) (771) (681)

Investment charges

8 Investment management charges (148) (114) (132) (97)

Interest expenses (282) (288) (162) (143)

5 Realised investment losses 0 (1,187) 0 (1,231)

Total investment charges (430) (1,589) (294) (1,471)

Exchange rate adjustment (374) (1,257) (311) (1,091)

9 Pension yield tax (1,281) (915) (1,155) (911)

10 Investment income transferred ( - ) (288) (207) (251) (200)

Balance on the technical account, life insurance 129 (198) 179 (240)

11 Balance on the technical account, non-life insurance (35) 47 (37) 47

10 Investment income transferred ( + ) 240 166 204 159

12 Other ordinary income 0 1 0 1

Pre-tax profit/(loss) from ordinary activities 334 16 346 (33)

13 Extraordinary income 29 0 29 0

14 Pre-tax profit/(loss) 363 16 375 (33)

15 Tax (86) 1,033 (98) 1,080

Net profit/(loss) before minority interests 277 1,049 277 1,047

Minority interests 0 (2) – –

Net profit/(loss) for the year 277 1,047 277 1,047

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 39

Income statement

(DKKm) Group Parent company

Note 2003 2002 2003 2002

Assets

16 Intangible assets 178 75 39 75

Investments

17 Land and buildings 11,520 11,575 24 7,621

18 Shares in group enterprises - - 9,017 1,017

Other financial investments

19 Shares 16,494 11,040 14,145 9,299

20 Bonds 137,717 132,209 128,010 124,274

21 Loans 530 586 530 586

Other 2,634 3,117 2,634 3,091

Total other financial investments 157,375 146,952 145,319 137,250

22 Total investments 168,895 158,527 154,360 145,888

23 Investments related to unit-linked insurance policies 2,989 2,679 2,645 2,294

Receivables

Receivables from policyholders 529 1,072 277 963

Receivables from insurance companies 2 1 2 1

Receivables from group enterprises - - 452 440

24 Other receivables 2,010 1,613 1,864 1,532

Total receivables 2,541 2,686 2,595 2,936

Other assets

Operating equipment 110 104 99 103

Cash and demand deposits 1,307 1,245 1,098 1,082

Total other assets 1,417 1,349 1,197 1,185

Prepayments

Interest receivable 2,028 1,875 1,879 1,747

Other prepayments 263 268 256 266

Total prepayments 2,291 2,143 2,135 2,013

Total assets 178,311 167,459 162,971 154,391

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n40

Balance sheet

(DKKm) Group Parent company

Note 2003 2002 2003 2002

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 2,655 2,378 2,655 2,378

PFA Pension's share 4,000 3,723 4,000 3,723

Minority interests 279 279 - -

28 Total shareholders' equity 4,279 4,002 4,000 3,723

29 Subordinate loan capital 1,805 1,805 1,800 1,800

Insurance provisions

Provision for unearned premiums, non-life insurance

Gross provisions 2 2 2 2

Provision for unearned premiums, net of reinsurance 2 2 2 2

Life insurance provisions

Guaranteed benefits 75,278 78,078 85,230 85,943

Bonus potential related to future premiums 58,199 51,653 41,798 38,341

Bonus potential related to benefits on paid-up policies 19,906 14,847 15,133 11,095

Gross provisions 93 118 0 -

30 Total life insurance provisions, net of reinsurance 153,476 144,696 142,161 135,379

Provision for claims

Gross provisions 1,350 1,110 1,340 1,102

Reinsurers' share (3) (4) (3) (4)

31 Provision for claims, net of reinsurance 1,347 1,106 1,337 1,098

32 Collective bonus potential 3,739 1,908 3,097 1,742

33 CustomerCapital™ 6,606 5,913 6,315 5,799

Provision for bonuses and rebates, non-life insurance 39 26 39 26

Other insurance provisions, net of reinsurance, non-life insurance

Provision for rising age 16 16 16 16

Other insurance provision, net of reinsurance 16 16 16 16

Total insurance provisions, net of reinsurance 165,225 153,667 152,967 144,062

Provision for unit-linked insurance policies

34 Provision for unit-linked insurance policies 2,989 2,679 2,645 2,294

Provision for unit-linked insurance policies, net of reinsurance 2,989 2,679 2,645 2,294

Provisions for other risks and charges

Other provisions 0 29 0 29

Total provisions for other risks and charges 0 29 0 29

Liabilities other than provisions

Payables, direct insurance operations 82 32 53 32

Payables to insurance companies 10 62 10 62

29 Payables to credit institutions 2,433 2,703 393 474

Payables to group enterprises 0 0 14 0

Income taxes 6 20 0 0

Other creditors 899 1,008 553 571

Total liabilities other than provisions 3,430 3,825 1,023 1,139

Deferred income 583 1,452 536 1,344

Total equity and liabilities 178,311 167,459 162,971 154,391

35 Contingent liabilities

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 41

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n42

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 has been presented in accordance with the provisions of the Danish Act on Insurance Business and the related executive orders and stan-

dards. We consider the accounting policies applied adequate. Against this background, it is our opinion that the Annual Report gives a true and fair view of

the Group’s and the Company's assets and liabilities, financial position and results of operations for the financial year ended 31 December 2003.

We recommend that the Annual Report be adopted by the Annual General Meeting of shareholders.

Copenhagen, 4 March 2004

Executive Board:Henrik Heideby Nina Christensen Niels Søbjerg Nielsen

Supervisory Board:Svend Askær, Chairman Jørn Neergaard Larsen, Deputy Chairman

Klavs Andreassen Carsten Bach Anker Christoffersen Lars Christoffersen Irene Damgaard Leif DollerisErik G. Hansen Torben Dalby Larsen Svend-Aage Nielsen Ole Skals Pedersen Poul Erik Pedersen Nina SmithOve Thuen

Report of the internal auditor

I have audited the Annual Report of PFA Pension, forsikringsaktieselskab, for the financial year.

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 Danish Financial Supervisory Authority’s executive order on the performance of audits in financial enterprises and

financial groups and generally accepted Danish Standards on Auditing. An audit includes assessing, on the basis of materiality and risk, the business procedures

established, the accounting policies used and the estimates made, as well as testing the evidence supporting the amounts and other disclosures in the Annual

Report. 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 gives a true and fair view of the Group's and the Company's financial position at 31 December 2003 and of the results of their

operations for the financial year in accordance with the accounting provisions of Danish legislation.

Copenhagen, 4 March 2004

Jørgen Madsen

Audit Manager

Report of independent auditors

To the Shareholder of PFA Pension, forsikringsaktieselskab:

We have audited the Annual Report of PFA Pension, forsikringsaktieselskab, for the financial year 1 January to 31 December 2003.

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 Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable

assurance that the Annual Report is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclo-

sures 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 Company's financial position at 31 December 2003 and of the results of

their operations for the financial period 1 January to 31 December 2003 in accordance with the accounting provisions of Danish legislation.

Copenhagen, 4 March 2004

KPMG C. Jespersen, Statsautoriseret Revisionsinteressentskab Deloitte, Statsautoriseret Revisionsaktieselskab

J.P. Bærentsen, Jesper Dan Jespersen Erik Holst Jørgensen, Birger Berg Nielsen

State Authorised Public Accountants State Authorised Public Accountants

(DKKm) Group Parent company

Note 2003 2002 2003 2002

1 Gross premiums

Total indirect insurance 81 38 81 37

Premiums, direct 10,704 10,062 8,767 8,393

Group life premiums, direct 680 1,017 680 1,017

Single premiums, direct 983 727 896 655

Pension fund transfers, direct 103 110 72 88

Total direct insurance 12,470 11,916 10,415 10,153

Total gross premiums 12,551 11,954 10,496 10,190

Analysis of direct insurance premiums:

Insurance taken out by private individuals 1,039 1,158 994 1,096

Insurance taken out through an employer 10,751 9,741 8,741 8,040

Group life insurance 680 1,017 680 1,017

Total 12,470 11,916 10,415 10,153

Policyholders resident in:

Denmark 12,280 11,718 10,269 10,016

Other EU countries 104 96 93 82

Other countries 86 102 53 55

Total 12,470 11,916 10,415 10,153

Premiums on bonus schemes 12,053 11,387 10,025 9,663

Premiums on non-bonus schemes 12 11 12 10

Unit-linked insurance policies 405 518 378 480

Total 12,470 11,916 10,415 10,153

Number of policyholders:

Insurance taken out by private individuals 58,547 57,988 55,471 55,257

Insurance taken out through an employer 577,416 561,068 478,168 476,348

Group life insurance 436,665 605,805 436,369 605,804

2 Reinsurance balance

Ceded premiums (206) (197) (201) (192)

Ceded claims 201 150 200 150

Total reinsurance balance (5) (47) (1) (42)

3 Income from land and buildings

Income from land and buildings includes profit on the operation

of properties net of property administration expenses.

4 Interest, dividends, etc.

Interest on securities, loans and borrowings 6,656 6,012 6,235 5,655

Interest on intra-group balances - - 15 18

Gain/(loss) on repayment and redemption (244) 38 (204) 38

Indexation 587 77 560 73

Dividends from shares 606 543 567 503

Total interest, dividends, etc. 7,605 6,670 7,173 6,287

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 43

Notes

(DKKm) Group Parent company

Note 2003 2002 2003 2002

5 Capital gains and losses

Land and buildings 48 208 1 236

Shares 3,345 (5,510) 2,891 (4,948)

Bonds 562 7,098 415 6,737

Loans (13) (13) (12) (13)

Other (1,050) 829 (951) 749

Total capital gains and losses 2,892 2,612 2,344 2,761

broken down in the income statement as follows:

Realised gains on investments 125 0 145 0

Unrealised gains on investments 2,767 3,799 2,199 3,992

Realised losses on investments 0 (1,187) 0 (1,231)

Total capital gains and losses 2,892 2,612 2,344 2,761

6 Benefits disbursed

Death benefits (493) (614) (484) (613)

Disability benefits (68) (128) (67) (128)

Benefits at maturity (337) (541) (327) (538)

Retirement and annuity benefits (3,824) (3,689) (3,793) (3,670)

Payment at surrender (3,290) (1,753) (3,143) (1,685)

Bonuses disbursed in cash (515) (582) (516) (583)

Expenses related to indirect insurance (85) (70) (85) (69)

Total benefits disbursed (8,612) (7,377) (8,415) (7,286)

7 Administrative expenses

Payroll costs (430) (342) (406) (337)

Pension contributions (72) (61) (68) (60)

Payroll tax, etc. (45) (38) (44) (38)

Commissions to brokers (104) (106) (104) (106)

Depreciation (87) (80) (85) (80)

Other expenses (375) (293) (350) (278)

Charges on insurance operations (4) (4) (3) (4)

Expenses before reimbursements and transfers (1,117) (924) (1,060) (903)

Expenses related to other activities 120 109 116 103

Reimbursements from group enterprises

– concerning life insurance - - 43 36

– concerning other activities - - 4 7

Transfer to investment activities 137 87 126 76

Expenses related to insurance operations (860) (728) (771) (681)

Hereof acquisition costs 397 326 395 324

Total administrative expenses (463) (402) (376) (357)

Analysis of administrative expenses and acquisition costs:

Salary and remuneration, incl. pension contributions, Executive Board 10 7 10 7

Salary and remuneration, Supervisory Board 2 2 2 2

Fees to auditors appointed by the general meeting of shareholders:

Audit fee, KPMG C. Jespersen 1 1 1 1

Consultancy fee, KPMG C. Jespersen 1 2 1 2

Audit fee, Deloitte 1 1 1 1

Consultancy fee, Deloitte 1 1 1 1

Average number of employees (full-time)

– life insurance 906 790 897 781

– PFA IT Service A/S 28 0 0 0

– operation of properties 43 75 43 75

Total average number of employees (full-time) 977 865 940 856

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n44

Notes

(DKKm) Group Parent company

Note 2003 2002 2003 2002

8 Investment management charges

Trade charges and safe custody fees (6) (23) (6) (21)

Allocated expenses, cf. note 7 (137) (87) (126) (76)

Expenses in PFA Invest International (5) (4) - -

Total investment management charges (148) (114) (132) (97)

9 Pension yield tax

Change in provision for deferred pension yield tax 93 75 90 72

Change in pension yield tax asset (161) (984) (136) (977)

Pension yield tax in the year (1,209) (6) (1,105) (6)

Prior year adjustment of pension yield tax (4) 0 (4) 0

Total pension yield tax (1,281) (915) (1,155) (911)

10 Investment income transferred

Transferred investment income concerning shareholders' equity (240) (166) (204) (159)

Technical interest concerning non-life insurance (48) (41) (47) (41)

Total investment income transferred (288) (207) (251) (200)

11 Balance on the technical account, non-life insurance

Gross premiums 372 364 372 364

Ceded premiums (2) (8) (2) (8)

Change in the provisions for gross unearned premiums 0 11 0 11

Change in reinsurers' share of provisions for claims 0 (1) 0 (1)

Earned premiums, net of reinsurance 370 366 370 366

Technical interest, net of reinsurance 25 22 24 22

Gross claims disbursed (256) (221) (256) (221)

Reinsurers' share 1 0 1 0

Change in provisions for gross claims (99) (68) (99) (68)

Change in reinsurers' share of provisions for claims (1) 3 (1) 3

Change in provisions for claims due to discounting 24 19 24 19

Claims incurred, net of reinsurance (331) (267) (331) (267)

Change in other insurance provisions, net of reinsurance 0 (2) 0 (2)

Bonuses and rebates (42) (14) (43) (14)

Acquisition costs (29) (29) (29) (29)

Administrative expenses (28) (29) (28) (29)

Total net operating expenses, net of reinsurance (57) (58) (57) (58)

Total balance on the technical account, non-life insurance (35) 47 (37) 47

Gross run-off profit/(loss) 35 13 35 13

Ceded run-off 1 6 1 6

Run-off profit/(loss), net of reinsurance 36 19 36 19

The run-off profit/(loss) reflects the profit/(loss) on the

provisions for claims made in prior years.

12 Other ordinary income

Revenue 3 5 3 5

Overheads (3) (4) (3) (4)

Total other ordinary income 0 1 0 1

13 Extraordinary income

The amount concerns a reversal of the provisions made in the directors’ report for 1998.

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 45

(DKKm) Group Parent company

Note 2003 2002 2003 2002

14 Pre-tax profit/(loss)

Realised profit/(loss)

Balance on the interest account before bonus 4,799 3,818 4,103 3,824

Balance on the cost account before bonus 479 493 301 322

Balance on the claims experience account before bonus 1,120 987 981 763

Changes in restatements at market value, note 30 431 (2,434) 431 (2,438)

Realised profit/(loss) 6,829 2,864 5,816 2,471

Distribution to the customers

Preferential bonus 2,684 2,863 2,442 2,533

Transfer to the customers' reserves 2,965 (1,250) 2,378 (1,144)

Total distribution to the customers 5,649 1,613 4,820 1,389

Transfers to CustomerCapital™

Transfer to CustomerCapital™ before pension yield tax 98 80 0 0

Extraordinary transfer from shareholders' equity 76 444 0 406

Yield before pension yield tax 374 294 360 293

Entrepreneurial profit before pension yield tax 255 403 247 402

Total transfers to CustomerCapital™, note 33 803 1,221 607 1,101

Customers' share, total 6,452 2,834 5,426 2,490

Transfers to shareholders' equity

Yield before pension yield tax 266 222 231 163

Entrepreneurial profit before pension yield tax 187 252 158 224

Extraordinary transfer to CustomerCapital™ (76) (444) 0 (406)

Equity's share of the realised profit/(loss) 377 30 389 (19)

Non-life insurance, unit-linked insurance policies

and other ordinary and extraordinary income (14) (14) (14) (14)

Total pre-tax profit/(loss) 363 16 375 (33)

15 Tax

Tax for the year (10) (38) 0 0

Dividend tax paid (1) 0 0 0

Prior year adjustment of income taxes (6) 5 (13) 7

Change in the provision for deferred tax (69) 1,066 (85) 1,073

Total tax (86) 1,033 (98) 1,080

16 Intangible assets

Cost, opening 140 127 140 127

Additions in the year 149 13 9 13

Cost, closing 289 140 149 140

Amortisation and write-downs, opening (65) (32) (65) (32)

Amortisation and write-downs in the year (46) (33) (45) (33)

Amortisation and write-downs, closing (111) (65) (110) (65)

Intangible assets, closing 178 75 39 75

17 Land and buildings

Cost, opening 11,210 10,510 7,551 7,085

Additions in the year 141 896 0 478

Disposals in the year (69) (196) (7,514) (12)

Cost, closing 11,282 11,210 37 7,551

Revaluations, opening 902 822 633 456

Revaluations in the year 156 221 0 201

Reversed revaluations (99) (60) 0 (24)

Adjusted revaluations on disposals 0 (81) (633) 0

Revaluations, closing 959 902 0 633

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n46

Notes

(DKKm) Group Parent company

Note 2003 2002 2003 2002

17 Write-downs, opening (682) (723) (563) (621)

Write-downs in the year (125) (112) 0 (69)

Reversed write-downs 114 145 1 127

Adjusted write-downs on disposals 29 8 549 0

Write-downs, closing (664) (682) (13) (563)

Exchange rate adjustments, opening 145 346 0 0

Adjustments in the year (203) (201) 0 0

Exchange rate adjustments on disposals 1 0 0 0

Exchange rate adjustments, closing (57) 145 0 0

Land and buildings, closing 11,520 11,575 24 7,621

Property value according to the latest public land valuation 6,594 6,466 - 6,133

Non-valued properties 3,180 3,577 24 166

Properties used by group enterprises 311 286 - 286

For purposes of the valuation, the following yield requirements have been used:

Average weighted yield requirement 6.6% 6.4% - 6.1%

Highest yield requirement 11.0% 11.0% - 11.0%

Lowest yield requirement 1.0% 0.5% - 0.5%

The parent company has issued a letter of indemnity regarding the following

loans to lenders in relation to the Groups's property companies

with properties in other jurisdictions: - - 2,040 2,229

18 Shares in group enterprises

Investments, opening - - 285 255

Investments in the year - - 7,492 30

Investments, closing - - 7,777 285

Revaluations, opening - - 749 774

Revaluations in the year - - 530 (25)

Revaluations, closing - - 1,279 749

Write-downs, opening - - (17) (5)

Write-downs in the year - - (24) (12)

Write-downs reversed in the year - - 2 0

Write-downs, closing - - (39) (17)

Shares in group enterprises, closing - - 9,017 1,017

Shares in group enterprises Domicile Holding Profit/(loss) Equity

PFA Pension Luxembourg S.A. 1) Luxembourg 100% 2 45

PFA Invest International A/S 1) Copenhagen 100% (72) 524

Danske Hus Hamburg A/S 1) Copenhagen 100% (14) 12

125 Wood Street London A/S 1) Copenhagen 100% (30) 19

King's Pool York A/S 1) Copenhagen 100% 11 80

Aliffe House London A/S 1) Copenhagen 100% (20) 100

Abbey Gardens Reading A/S 1) Copenhagen 100% 8 147

Watling Court Estate London A/S 1) Copenhagen 100% (6) 33

31-47 Victoria Street London A/S 1) Copenhagen 100% 1 172

Great Minster East London A/S 1) Copenhagen 100% (18) 17

Irish Forestry Investments Holding A/S *) Copenhagen 33% 3 57

PFA Soraarneq, forsikringsaktieselskab 2) Nuuk, Greenland 100% 1 10

Lærernes Pension, forsikringsaktieselskab 3) Copenhagen 51% 0 569

PFA Ejendomme A/S 1) Copenhagen 100% 601 8,082

PFA IT Service A/S 1), 4) Copenhagen 100% (24) 65

*) The company is consolidated on a pro-rata basis. PFA Pension appoints one member to the Supervisory Board. 1) Henrik Heideby is Chairman of the Supervisory Board. 2) Henrik Hei-

deby is Deputy Chairman of the Supervisory Board, and Nina Christensen is a member of the Supervisory Board. 3) Henrik Heideby and Nina Christensen are members of the Supervisory

Board. 4) Niels Søbjerg Nielsen is Deputy Chairman of the Supervisory Board, and Nina Christensen is a member of the Supervisory Board.

The Executive Board of PFA Pension also constitutes the Executive Board of PFA Holding. In 2003, the members of the Executive Board of PFA Pension held the following executive offices

outside the Group: Henrik Heideby is Chairman of the Supervisory Board of Dansk Standard. Henrik Heideby is a member of the Supervisory Board of Dansk Kapitalanlæg A/S, Unomedical

A/S and investeringsfonden Hamton. Niels Søbjerg Nielsen is a member of the Supervisory Board of Forsikringsakademiet A/S and Pensionsinfo.

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 47

(continued)

(DKKm) Group Parent company

Note 2003 2002 2003 2002

19 Shares

Listed Danish shares 10,401 8,603 9,352 7,872

Unlisted Danish shares 476 452 476 452

Foreign listed shares 5,131 1,837 3,972 928

Foreign unlisted shares 486 148 345 47

Total shares 16,494 11,040 14,145 9,299

Cost, closing:

Listed Danish shares 7,250 7,776 6,376 6,984

Unlisted Danish shares 625 541 625 541

Foreign listed shares 5,651 2,634 4,345 1,396

Foreign unlisted shares 512 176 340 50

Total cost 14,038 11,127 11,686 8,971

At year-end, commitments not yet exercised to purchase unlisted shares totalled 990 360 830 214

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 statutory financial statements.

Group Parent company

Equity Holding Equity Holding

Amagerbanken Copenhagen 998 5.7% 998 5.7%

DSV Skibby 2,281 5.8% 2,281 5.4%

Danware Birkerød 285 5.2% 285 5.2%

Dansk Kapitalanlæg Copenhagen 1,397 10.4% 1,397 10.4%

Jyske Bank Silkeborg 7,537 5.1% 7,537 5.0%

BankInvest Biomedicinsk Venture II A/S Copenhagen 226 17.4% 226 17.4%

DOOR Partners Invest A/S Løgstør 180 29.0% 180 29.0%

Forsikringshøjskolen Rungstedgaard Rungsted 31 7.8% 31 7.8%

Internet Ventures Scandinavia A/S Hørsholm 141 9.3% 141 9.3%

KW Invest Investor ApS Copenhagen 163 35.7% 163 35.7%

Majorgården A/S Copenhagen 0 25.0% 0 25.0%

Polaris Management A/S Copenhagen 23 9.5% 23 9.5%

Privathospitalet Hamlet af 1994 A/S Frederiksberg 16 13.6% 16 13.6%

P/S BankInvest Biomedicinsk Venture III Copenhagen 865 14.8% 865 14.8%

P/S BankInvest IT Venture Copenhagen 107 13.9% 107 13.9%

P-LP 1999 A/S Copenhagen 352 13,5% 352 13.5%

P-LR 1999 A/S Copenhagen 20 13.5% 20 13.5%

P-M 2000 A/S Copenhagen 197 13.4% 197 13.4%

P-N 2000 A/S Copenhagen 47 13.3% 47 13.3%

P-N 2001 A/S Copenhagen 261 13.4% 261 13.4%

P-DD 2002 A/S Copenhagen 168 13.0% 168 13.0%

Refshaleøens Ejendomsselskab A/S Copenhagen 187 10.0% 187 10.0%

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n48

Notes

(DKKm) Group Parent company

Note 2003 2002 2003 2002

20 Bonds

Danish bonds 85,059 78,020 79,137 72,945

Foreign bonds 16,112 13,952 14,340 12,582

Foreign EUR bonds 14,362 19,091 13,553 18,472

Index-linked bonds 22,184 21,146 20,980 20,275

Total bonds 137,717 132,209 128,010 124,274

Cost:

Danish bonds 83,503 74,204 77,646 69,309

Foreign bonds 16,419 13,960 14,640 12,529

Foreign EUR bonds 13,865 18,069 13,091 17,482

Index-linked bonds 20,058 19,177 18,950 18,377

Total cost 133,845 125,410 124,327 117,697

21 Loans

Secured loans 66 82 66 82

Other loans 464 504 464 504

Total loans 530 586 530 586

Cost:

Secured loans 54 66 54 66

Other loans 456 494 456 494

Total cost 510 560 510 560

Loans to members of the Supervisory Board of PFA Pension

total DKK 22 thousand. The loans have been granted on usual

business terms and market terms at interest rates of 8.50% - 9.00%.

In 2003, the loans were reduced by DKK 108 thousand.

22 Investments

Exemption percentage 8% 9%

23 Investments related to unit-linked insurance policies

Breakdown, investment fund customers without guarantee

Listed Danish shares 114 74 114 74

Foreign shares 434 472 434 472

Danish bonds 77 41 77 41

Foreign bonds 20 11 20 11

Index-linked bonds 9 6 9 6

Breakdown, investment fund customers without guarantee, total 654 604 654 604

Breakdown, investment fund customers with guarantee

Listed Danish shares 326 233 302 211

Foreign shares 892 407 847 363

Danish bonds 743 987 541 751

Foreign bonds 198 207 149 141

Foreign EUR bonds 5 0 0 0

Index-linked bonds 152 225 152 224

Other 19 16 0 0

Breakdown, investment fund customers with guarantee, total 2,335 2,075 1,991 1,690

Total investments related to unit-linked insurance policies 2,989 2,679 2,645 2,294

Cost:

Listed Danish shares 307 403 284 367

Foreign shares 1,463 1,472 1,403 1,394

Danish bonds 804 976 605 752

Foreign bonds 223 222 173 155

Foreign EUR bonds 5 0 0 0

Index-linked bonds 145 215 145 215

Total cost 2,947 3,288 2,610 2,883

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 49

(DKKm) Group Parent company

Note 2003 2002 2003 2002

24 Other receivables

Deferred tax assets, net 1,379 1,508 1,370 1,502

Other receivables 631 105 494 30

Total other receivables 2,010 1,613 1,864 1,532

25 Share capital

The Company's share capital consists of a share certificate of DKK 100 million,

held by PFA Holding A/S, Sundkrogsgade 4, DK 2100 Copenhagen O.

26 Contingency fund

The contingency fund may be applied only to cover losses on the settlement

of insurance-related obligations or in ways otherwise benefiting the policyholders.

The entire contingency fund has been set aside out of taxed funds.

27 Reserve fund

Reserve fund, opening 2,378 1,331 2,378 1,331

Transfer from the income statement 277 1,047 277 1,047

Reserve fund, closing 2,655 2,378 2,655 2,378

28 Shareholders' equity

Shareholders' equity, opening 3,723 2,676 3,723 2,676

Net profit/(loss) for the year 277 1,047 277 1,047

PFA Pension's share, total 4,000 3,723 4,000 3,723

Minority interests

Transfer from prior years 279 277 - -

Net profit/(loss) for the year 0 2 - -

Minority interests, total 279 279 - -

Shareholders' equity, closing 4,279 4,002 4,000 3,723

Capital base and solvency margin requirement:

Shareholders' equity 4,279 4,002 4,000 3,723

Intangible assets (178) (75) (39) (75)

Subordinate loan capital (25% of solvency margin requirement) 1,695 1,646 1,694 1,645

Booked tax and pension yield tax assets, closing (1,379) (1,508) (1,370) (1,502)

Capital base in group enterprises - - 496 404

Equity holding in group enterprises - - (346) (343)

Solvency margin requirement, subsidiaries - - (352) (300)

CustomerCapital™ 6,606 5,913 6,315 5,799

Tax assets that can be disbursed in an administration situation 1,473 2,441 1,473 2,434

Capital base 12,496 12,419 11,871 11,785

Solvency margin requirement (7,442) (7,141) (6,775) (6,579)

Excess capital base 5,054 5,278 5,096 5,206

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 1,805 1,800 1,800

Liabilities to credit institutions 1,121 1,709 0 86

Total liabilities falling due after more than 5 years after the balance sheet date 2,926 3,514 1,800 1,886

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n50

Notes

(DKKm) Group Parent company

Note 2003 2002 2003 2002

30 Life insurance provisions, net of reinsurance

Life insurance provisions, opening 144,696 132,582 135,379 124,990

Accumulated restatement, opening (3,424) (990) (3,439) (1,001)

Retrospective provisions, opening 141,272 131,592 131,940 123,989

Change in the year due to:

Gross premiums 12,146 11,436 10,146 9,710

Addition of interest 6,469 6,220 6,162 5,887

Insurance benefits (8,450) (7,189) (8,354) (7,120)

Expense loading after cost bonus (631) (582) (550) (511)

Balance on the claims experience account after risk bonus (230) (125) (192) (15)

Transfer to CustomerCapital™ (93) (80) 0 0

Retrospective provisions, closing 150,483 141,272 139,152 131,940

Accumulated restatement, closing 2,993 3,424 3,009 3,439

Life insurance provisions, net of reinsurance, closing 153,476 144,696 142,161 135,379

Guaranteed benefits 75,278 78,078 85,230 85,943

Bonus potential related to future premiums 58,199 51,653 41,798 38,341

Bonus potential related to benefits on paid-up policies 19,906 14,847 15,133 11,095

Gross provisions 93 118 - -

Life insurance provisions, net of reinsurance, closing 153,476 144,696 142,161 135,379

Since the bonus potential related to future premiums and the bonus

potential related to benefits on paid-up policies cannot be negative

per policy, the provisions have been increased by:

Bonus potential related to future premiums 2 7 2 7

Bonus potential related to benefits on paid-up policies 3,502 4,176 3,502 4,176

Gross life insurance provisions, indirect insurance, opening 776 730 776 730

Change in the year 28 46 28 46

Gross life insurance provisions, indirect insurance, closing 804 776 804 776

31 Provisions for claims

Provisions for claims, life insurance, closing 483 342 473 335

Provisions for claims, non-life insurance, closing 867 768 867 767

Reinsurers' share (3) (4) (3) (4)

Provisions for claims, net of reinsurance, closing 1,347 1,106 1,337 1,098

32 Collective bonus potential

Collective bonus potential, opening 1,908 3,375 1,742 3,095

Restatement of liabilities at market value, opening 0 644 0 654

Transfer from/to the income statement, cf. note 14 2,965 (1,250) 2,378 (1,144)

Pension yield tax (1,134) (861) (1,023) (863)

Collective bonus potential, closing 3,739 1,908 3,097 1,742

33 CustomerCapital™

CustomerCapital™, opening 5,913 4,802 5,799 4,802

Additions, CustomerCapital™, cf. note 14 803 1,221 607 1,101

Disbursement of CustomerCapital™ (5) 0 0 0

Pension yield tax (105) (110) (91) (104)

Total transfer from the income statement 693 1,111 516 997

CustomerCapital™, closing 6,606 5,913 6,315 5,799

Entrepreneurial profit receivable 0 0 0 0

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 51

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n52

(DKKm) Group Parent company

Note 2003 2002 2003 2002

34 Provisions for unit-linked insurance policies

Provisions for unit-linked insurance policies, opening 2,679 2,623 2,294 2,241

Accumulated restatement, opening 0 34 0 34

Retrospective provisions, opening 2,679 2,657 2,294 2,275

Changes in the year due to:

Gross premiums 405 518 350 480

Addition of interest 258 (315) 237 (314)

Insurance benefits (305) (149) (199) (126)

Expense loading after cost bonus (26) (25) (24) (22)

Balance on the claims experience account after risk bonus (22) (7) (13) 1

Retrospective provisions, closing 2,989 2,679 2,645 2,294

Accumulated restatement, closing 0 0 0 0

Provisions for unit-linked insurance policies, closing 2,989 2,679 2,645 2,294

Provision for investment fund customers without guarantee 654 604 654 604

Provision for investment fund customers with guarantee

Guaranteed benefits (1,057) (1,512) (1,057) (1,512)

Bonus potential related to future premiums 1,980 2,376 1,980 2,376

Bonus potential related to benefits on paid-up policies 1,068 826 1,068 826

Investment fund customers in Luxembourg 344 385 - -

Provision for investment fund customers with guarantee 2,335 2,075 1,991 1,690

Provisions for unit-linked insurance policies, closing 2,989 2,679 2,645 2,294

Since the bonus potential related to future premiums and the bonus

potential related to benefits on paid-up policies cannot be negative

per policy, the provisions have been increased by:

Bonus potential related to future premiums 0 0 0 0

Bonus potential related to benefits on paid-up policies 0 0 0 6

Unit-linked insurance policies comprise all policies related to investment

funds where the policyholder bear the investment risk wholly or in part.

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 169,285 158,333 157,107 148,181

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 14,923 2,102 12,519 89

Rent, lease and operating commitments do not exceed 35 35 35 35

The Company is jointly and severally liable for the total tax charge

together with the other tax-consolidated group enterprises and for

VAT commitments with the jointly registered companies.

Notes

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n 53

Specification of assets and their yield at market value 2003

Yield in % p.a.

Net before pension

(DKKm) Opening Closing investment yield tax and

income taxes

Land and buildings, directly owned 11,575 11,520 101 6.2%

Total land and buildings 11,575 11,520 101 6.2%

Listed Danish shares 8,603 10,401 (902) 34.1%

Unlisted Danish shares 452 476 93 (13.7%)

Foreign listed shares 1,837 5,131 3,347 28.0%

Unlisted foreign shares 148 486 345 (6.8%)

Total other shares 11,040 16,494 2,883 30.1%

Nominal bonds in DKK 78,020 85,059 7,125 5.0%

Bonds in another foreign currency than EUR 13,952 16,112 2,929 5.7%

Bonds in EUR 19,091 14,362 (4,602) 4.4%

Index-linked bonds in DKK 21,146 22,184 95 6.7%

Total bonds 132,209 137,717 5,547 5.4%

Secured loans 82 66 (11) 5.1%

Other financial investments 4,866 4,404 586 (12.3%)

Total investments 159,772 170,201 9,106 6.5%

Assets related to unit-linked insurance policies 2,679 2,989 81 11.1%

Percentage breakdown of shareholding by sector and region in 2003

Denmark Other North Japan Other Other Total

Europe America Far East countries

Energy 0.0% 1.1% 0.9% 0.0% 0.0% 0.0% 2.0%

Materials 0.9% 0.6% 1.1% 0.2% 0.0% 0.3% 3.1%

Industry 21.7% 0.8% 1.8% 0.5% 0.0% 0.0% 24.8%

Durables 0.3% 0.7% 2.0% 0.6% 0.0% 0.1% 3.7%

Consumer goods 3.9% 0.7% 1.5% 0.1% 0.0% 0.0% 6.2%

Health 10.6% 0.9% 2.0% 0.1% 0.0% 0.0% 13.6%

Finance 16.8% 4.8% 4.3% 0.4% 0,0% 0.2% 26.5%

IT 0.1% 0.5% 2.8% 0.6% 0.0% 0.1% 4.1%

Telecommunications 4.1% 0.7% 0.5% 0.1% 0.0% 0.0% 5.4%

Supply 0.7% 0.6% 0.5% 0.0% 0.0% 0.0% 1.8%

Not broken down 2.9% 0.6% 0.2% 0.0% 1.9% 3.1% 8.8%

Total 62.0% 12.1% 17.6% 2.5% 1.9% 3.9% 100.0%

Yield on investmentsand breakdown of shareholding by sector and regionPFA Group

a n n u a l r e p o r t 2 0 0 3 · p f a p e n s i o n54

Specification of assets and their yield at market value 2003

Yield in % p.a.

Net before pension

(DKKm) Opening Closing investment yield tax and

income taxes

Land and buildings, directly owned 7,621 24 (7,598) 3.1%

Property companies 645 8,606 7,432 6.6%

Total land and buildings 8,266 8,630 (166) 6.6%

Other subsidiaries 372 411 60 (7.9%)

Listed Danish shares 7,872 9,352 (1,000) 34.5%

Unlisted Danish shares 452 476 93 (13.7%)

Foreign listed shares 928 3,972 3,224 31.1%

Unlisted foreign shares 47 345 285 1.5%

Total other shares 9,299 14,145 2,602 31.2%

Nominal bonds in DKK 72,945 79,137 6,257 5.0%

Bonds in other foreign currency than EUR 12,582 14,340 2,506 5.1%

Bonds in EUR 18,472 13,553 (4,787) 4.4%

Index-linked bonds in DKK 20,275 20,980 (201) 6.8%

Total bonds 124,274 128,010 3,775 5.3%

Secured loans 82 66 (11) 5.1%

Other financial investments 5,118 4,647 481 (11.2%)

Total investments 147,411 155,909 6,741 6.3%

Assets related to unit-linked insurance policies 2,294 2,645 379 11.9%

Percentage breakdown of shareholding by sector and region in 2003

Denmark Other North Japan Other Other Total

Europe America Far East countries

Energy 0.0% 1.0% 0.8% 0.0% 0.0% 0.1% 1.9%

Materials 0.7% 0.6% 0.4% 0.2% 0.0% 0.2% 2.0%

Industry 22.4% 0.7% 1.9% 0.4% 0.0% 0.0% 25.4%

Durables 0.2% 0.6% 1.9% 0.5% 0.0% 0.1% 3.4%

Consumer goods 4.2% 0.6% 1.5% 0.1% 0.0% 0.0% 6.4%

Health 10.9% 0.9% 2.0% 0.1% 0.0% 0.0% 13.9%

Finance 17.9% 4.3% 4.6% 0.3% 0.0% 0.2% 27.2%

IT 0.1% 0.4% 2.6% 0.5% 0.0% 0.1% 3.9%

Telecommunications 4.2% 0.6% 0.5% 0.1% 0.0% 0.0% 5.5%

Supply 0.8% 0.6% 0.5% 0.0% 0.0% 0.0% 1.9%

Not broken down 3.3% 0.4% 0.0% 0.0% 1.9% 3.0% 8.7%

Total 64.7% 10.8% 16.7% 2.2% 1.9% 3.7% 100.0%

Yield on investmentsand breakdown of shareholding by sector and regionPFA Pension

Executive Board, Supervisory Board and process owners

Supervisory Board:

Svend Askær, Chairman

Jørn Neergaard Larsen, Deputy Chairman

Klavs Andreassen

Carsten Bach

Anker Christoffersen

Lars Christoffersen

Irene Damgaard

Leif Dolleris

Erik G. Hansen

Torben Dalby Larsen

Svend-Aage Nielsen

Ole Skals Pedersen

Poul Erik Pedersen

Nina Smith

Ove Thuen

Retired from the

Supervisory Board in 2003:

Verner Aggerholm

Erik Behn

Karl Hjortnæs

Lida Hulgaard

Karsten Nielsen

Flemming Nordengaard

Jørgen Søndergaard

PFA Pension, forsikringsaktieselskab

Sundkrogsgade 4

DK 2100 Copenhagen O

Telephone +45 39 17 50 00

Fax +45 39 17 59 50

www.pfa.dk

pension@pfa.dk

CVR 13 59 43 76

The Annual General Meeting of

shareholders is held on 21 April 2004.

Executive Board:

Henrik Heideby, Managing Director

Nina Christensen

Niels Søbjerg Nielsen

Process owners in PFA:

Anne Broeng, Capital & Risk

Michael Braagaard, Business Development

Anette Damgaard, Legal

Søren P. Espersen, Communication & Marketing

Jan Holst-Pedersen, Compliance

Niels Saaby Johansen, IT Innovation

Hasse Jørgensen, Investments

Dick Magnussen, Sales & Customer Services

Peter Nielsen, Administration

Finn Scheibye, Finance & Accounts

Lasse Solgaard, IT Systems & Services

Torben Vang, Human Resources

Flemming Windfeld, Actuarial Department

Print: Datagraf Auning AS