annual report 2003 Based on understanding

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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 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

2003 – A good year for PFA and our customers

PFA Pension Luxembourg

PFA Pension Share capital: DKK 100 million

Dividend: DKK 350,000

PFA Ejendomme PFA Holding

Share capital: DKK 1 million Dividend: DKK 50,000 PFA Soraarneq PFA Invest International G R O U P ST R U CT 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 PFA IT Service Lærernes Pension (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.

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»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

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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.

Customer satisfactio_n

E m p lo y e e s_a tis fa ct_io n Ec ono mic va lue Creation of value to our customers

The 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

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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 existmak-ing 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

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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 lettmix-ing 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™

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for designing a new model for broker-operated pension schemes, where the broker’s remunera-tion reflects the actual distriburemunera-tion 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

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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.

Expectations for 2004

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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, macompa-ny 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.

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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.

Development of the image profile among own customers Visibility in the media

- advertisement and press coverage Innovation in the health area Leading position within consultancy services High yield compared to the competitors Leading position within product 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 2003 PFA Pension May 2003

Neither nor I mainly agree I completely agree Sour ce: A alund Busine ss R e se ar ch

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»Man's main task in life is to

give birth to himself, to

become what he potentially is«

Eric Fromm (1900-1980), German philosopher

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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 penpen-sions. 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

DK

K

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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 = r isk-adjus ted s olv ency r equir emen t f o r r ed lig h t 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, a 0.7 per cent change in the interest rate, an 8 per cent decrease in property values as well as certain other risks.

Yellow: A company is in the yellow light if it cannot stand a 30 per cent drop in the share price, a 1 per cent change in the interest rate, a 12 per cent decrease in property values as well as certain other risks.

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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

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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 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 2003 End 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. % DKKbn Acc. % (DKKbn) 0 0.5 1.0 1.5 2.0 2.5 A.P. Møller – Mærsk

Danske Bank _{Novo Nordisk}

TDC Jyske Bank DSV Sydbank Danisco ISS Vestas

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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

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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 propprop-erties.

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 grade bonds, 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.

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»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

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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 bilbil-lion 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 savmatch-ings 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

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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 6.2

To CustomerCapital™ 0.6

Entrepreneurial 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)

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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 – correspondregard-ing 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 2003 DKKbn Excess capital base Collective bonus potential 0 2 4 6 8 10 PFA Group PFA Pension

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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

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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.

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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 inin-vestments 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.

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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