PFA Holding Annual Report 2018

PFA Holding A/S Sundkrogsgade 4 2100 Copenhagen Denmark Tel.: (+45) 39 17 50 00 pfa.dk CVR No.: 22 43 80 18 PFA consolidates the ground- work for future returns During 2018, PFA continued expanding its holding of properties and alternative investments so that they now account for approximately 18.8 per cent of PFA’s total investment portfolio. These investments are key to stabilising the return when the market conditions are unfavourable and the return on equities and bonds is under pressure. 2018 was a good example of this as PFA’s properties and alternative investments contributed positively with approximately DKK 5.3 billion to the customers’ return contrary to the equity markets, which yielded a negative return.

One of PFA’s largest alternative investments is an equity interest in the offshore wind farm Walney Extension. PFA’s investment in the offshore wind farm, which covers an area of 149 km2 and supplies power for more than 600,000 English homes, amounts to approximately DKK 3 billion.

Another large investment is Danish Ship Finance, which PFA became co-owner of in 2016. See more examples of PFA’s alternative investments and properties in the illustrations in this report.

The cover photo shows the offshore wind farm Walney Extension and is kindly lended by Ørsted A/S. PFA Holding Annual Report 2018

Table of contents

Historical growth in difficult investment year...... 2 Highlights 2018...... 6

Management’s Review The financial statements in brief...... 10 The financial markets...... 14 Investment return...... 16 Status on Strategy2020...... 22 Business conditions...... 24 Products and services...... 26 Digitalisation and optimisation...... 34 Capital structure and solvency...... 38 Management and organisation...... 40 Expectations for 2019...... 46 Post balance sheet events...... 48

Financial statements 5-year summary for the PFA Group...... 50 Statement by the Executive Board and the Board of Directors on the Annual Report...... 51 Independent auditor’s report...... 52 Income statement...... 58 Balance sheet...... 59 Statement of changes in equity and capital structure...... 61 Notes to the income statement and balance sheet...... 62

The PFA Group Group structure...... 94 Managerial posts of the Board of Directors and the Executive Board ...... 96 Executive employees...... 102 Additional information...... 104

TRANSLATION: This is a translation of PFA Holding’s Annual Report 2018 in Danish. In case of any discrepancy between the Danish text and the English translation, the Danish text shall prevail.

PFA Holding Annual Report 2018 1 Historical growth in difficult investment year

It is said that it is not just the years in your life that count, but company, TDC, invest in modern shared office facilities in Lon- the life in your years. Looking at PFA, we can be pleased with don and finance the offshore wind farm Hornsea 1, which will both. In 2018, we did not just enter the year following our be the world’s largest when it is put into operation in 2020. 100th anniversary, but also a year where we consolidated our Overall, this means that we have now built a property and market position and could delight in the fact that we still enjoy alternative investments portfolio of approximately DKK 90 bil- great trust from our corporate and organisational customers lion. Thereby, we have created a versatile and robust portfolio, as well as our approximately 1.3 million individual customers. which we look forward to expanding further over the coming This trust places an obligation on us, and we do our very best years during which the returns are expected to be challenged to honour it. Therefore, we are very pleased that, in 2018, we by continued low interest rates and a more moderate develop- launched a number of important initiatives with the objective ment on the financial markets. of preparing us for the future and ensuring that we contin- uously convert our size, experience and customer-owned Digitalisation focused on the customer experience business model into maximum value for our customers. Concurrently with enhancing our investments, we continued the development of PFA’s IT systems and processes in 2018. Before we go into details with the different initiatives, let For example, we adapted our processes, rights and computer us take a look at the year from an investment perspective. systems in order to comply with the EU General Data Protec- After many years of prospering financial markets, 2018 was a tion Regulation (GDPR), which took effect in the spring. volatile year with significant negative fluctuations throughout The work with GDPR as well as other regulations takes place the year. Unfortunately, this made it difficult to generate pos- through our agile development setup, which today compris- itive returns for our customers. Thus, the market rate returns es more than 300 employees across the organisation. This stood at between -5.7 per cent and 0.3 per cent including PFA is a method of working that increases transparency about CustomerCapital (depending on investment profile and time our priorities to ensure that we quickly and effectively can horizon), while the total return amounted to DKK -5.3 billion. respond to new or altered needs. At the same time, the agile processes let us actively involve our customers in our product Volatile markets characterise the investment year development to ensure that we move both fast and in the Of course, we would have liked to see a more positive return right direction. development, but it should be noted that the development was not completely unexpected. At present, we are at the end Personal data is high on the EU agenda not least because of a historically long period of progress, which means that the society in recent years has seen an upsurge in products that savings of a typical customer in our recommended investment are supported by data-driven processes and algorithms. This profile C have been more than doubled over the past nine is also a key area for PFA, and we strive to be market leader years merely as a result of the return. Naturally, such progress when it comes to utilising data, artificial intelligence and will cease at some point to find its own level. This is also one robotics for assisted advisory services, case processing etc. We of the reasons why the industry has collectively decided to see a great potential in data-driven technological assistance, reduce the expectations of future returns from January 2019. and we are currently building on our experience to develop a Already during the autumn of 2018, PFA began notifying its dynamic pension solution than can use data on life incidents customers of this decision to ensure that the customers who to predict and map the need for advisory services. The objec- will be affected the most had time to prepare for their payouts tive is to strengthen the relevance of the many contact points being adjusted to the updated return prognoses. we have with our customers.

When the financial markets are facing turbulent periods, it is Continued focus on health and prevention important to look to sources of return that are less sensitive Just like technology can make life easier, it can also be a to market fluctuations than equities and bonds. Therefore, stressor that makes it difficult for us to unwind and relax. we have significantly upped our alternative investments in Therefore, we have in 2018, among other things, launched a properties, IT infrastructure, green energy, logistics etc. in new initiative and tools that help our customers put focus on recent years. This development was strengthened further healthy digital habits. The new solutions are an integral part during 2018 when we, among other things, utilised our size of our work with prevention and health, which will continue to and our strong Danish and international networks to purchase be an important focus area for us. a German property portfolio of approximately DKK 5.1 billion, become co-owner of Denmark’s biggest telecommunications

2 PFA Holding Annual Report 2018 Even though we have positive experience with PFA EarlyCare Also, we have continued our involvement in the public debate and have helped many customers return to work following as well as the work with developing a better framework for sickness absence, we must realise that stress and stress-relat- the senior citizens of the future, and, among other things, we ed illnesses pose a difficult collective challenge, which unfortu- joined the government’s new senior think tank in 2018. nately does not seem to diminish in future. When looking at health and accident insurance, it is clear that there is a long Historical growth in PFA way to go before we can generate satisfactory results. There- PFA was brought into the world with the objective to create fore, we will, on an ongoing basis together with our corporate value for our customers, and, therefore, we distribute the and organisational customers, look into how we can improve majority of our operating profit to our customers through PFA our health and preventive efforts for the benefit of the individ- CustomerCapital. In 2018, the amount totals DKK 974 million, ual, the workplace and society as a whole. At the same time, which corresponds to 87 per cent of our operating profit. we are very conscious of the fact that the insurance plans When we are able to forward such a significant profit for dis- create financial security for our customers, and, in 2018, we tribution among the customers, it is not least because of the paid out approximately DKK 2.9 billion to more than 70,000 efficiency and muscle power we have through our position as dependants or customers who were diagnosed with a critical one of the largest pension companies in Denmark and Europe. illness, whose occupational capacity was reduced, or who A position that has been further strengthened during 2018 needed treatment or surgery. with significant growth in payments and in the influx of new individual customers as well as corporate and organisational Better framework for life as a senior citizen customers. More specifically, the total payments increased For PFA, it is important that we keep pace with societal from DKK 34.1 billion in 2017 to DKK 37.4 billion in 2018, changes. Last year, we therefore established the Think Tank while we in the same period saw a net addition of more than – The New 3rd Age, which, among other things, looked at 50,000 private customers and 471 corporate and organisa- how professional life, living conditions, health and personal tional customers. This is a historically strong progress and a finances will change as our average age increases, the work- satisfactory result in a competitive market with limited growth. force gets older and technology speeds up the developments in society. We have followed up on this work in 2018 with the The 2018 progress is anchored in a strong and purpose-driven development of a range of new products and services that business model that provides a good framework for PFA’s em- help facilitate a secure framework for a good life as a senior ployees to put the customers’ interests first. We will continue citizen. For example, we have cut the first turf to new senior to do so during 2019, when we, together with our custom- housing, launched PFA Health Insurance for seniors and held ers, expect to reap the benefits of the many initiatives we two well-attended senior days and several +55 courses across launched during 2018. Denmark.

Yours sincerely

Torben Dalby Larsen Allan Polack Chairman of the Board of Directors Group CEO

PFA Holding Annual Report 2018 3 1,122 -5.3 DKK million DKK billion

Total insurance result Total investment return The total insurance result, covering the business areas The total investment return came to DKK -5.3 billion pension and health and accident insurance, showed a in 2018, driven primarily by negative returns on profit before tax of DKK 1,122 million. listed equities.

974 291 DKK million per cent

Customers’ share of the profit for the year Solvency ratio CustomerCapital’s share of the total insurance result The solvency ratio (Solvency II) for the PFA Group amounted to DKK 974 million. To this is added outlays was 157 per cent at end-2018, while it was 291 per from equity and investment return on PFA Customer- cent for PFA Pension. Capital. CustomerCapital thus received a total of DKK 1,088 million of the profit for the year.

-830 696 DKK million DKK

Results from health and accident insurance Lowest expenses in the industry Health and accident business showed a loss before tax Expenses per insured amounted to DKK 696, and of DKK 830 million, which is a deterioration of DKK 407 PFA thus maintained the lowest expenses among million compared to 2017. the commercial pension companies in Denmark.

Returns - PFA Invests The total market rate return (N2) amounted to -3.3 per cent, while average interest rate return (N1) amounted to 0.7 per cent. In 2018, the returns on investment profiles in the market rate environment, PFA Invests, stood at:

-0.7 % -2.4 % -4.1 % -5.7 %

The returns include PFA CustomerCapital and presuppose 30 years until retirement.

4 PFA Holding Annual Report 2018 Net influx of corporate and organisational customers 471 In 2018, PFA had a net influx of new corporate and organisa- net influx of new customers tional customers of 471. PFA maintained its position as the preferred pension supplier for Denmark’s largest companies and organisations.

Rising payments 9.7 In 2018, total payments to PFA increased to DKK 37.4 billion, per cent growth in payments equivalent to a 9.7 per cent growth compared to 2017.

Solid net payments 14.2 The total payments to PFA amounted to DKK 35.5 billion (excl. DKK billion in net payments health and accident insurance), while benefits paid amounted to DKK 21.3 billion. Thus resulting in net payments of DKK 14.2 billion.

No. 7 in Europe 571 PFA’s investment funds totalled DKK 571 billion at end-2018. DKK billion in investment funds According to Investment & Pension Europe, PFA is the 7th largest pension company in Europe.

Employee engagement 5.9 on a scale from 1-7

PFA Holding Annual Report 2018 5 Highlights 2018

2 February The recommendations from PFA’s Think Tank are ready The Think Tank – The New 3rd Age, which PFA is behind, 1 March releases its recommendations for how to ensure the PFA is behind urban devel- good senior life towards 2040. opment in Horsens PFA builds housing and commercial properties for DKK 126 million in central Horsens. Here, PFA is also developing new senior cohousing in close cooperation with Realdania. 9 April PFA becomes co-owner of TDC TDC’s shareholders accept to sell the company to a consortium that consists of PFA, ATP, PKA and Macquarie Infrastructure and Real Assets.

16 April PFA invests in shared office spaces in London PFA and two large international players buy innovative and high-tech shared office spaces in central London which will be operated according to WeWork’s world-renowned work- 20 April space concepts. PFA receives award for best digital customer solutions The price is awarded by the Danish news media Finanswatch and the consultancy and ana- lytics firm Wilke, which, among other things, emphasise PFA’s 7 June webpage, work with social me- PFA becomes part of new sustainability fund dia, My PFA and PFA’s innovative

capability. Together with six other pension companies, PFA invests in new government-backed fund. The objective is to support the UN’s Global Goals and, at the same time, ensure long- term returns for PFA’s customers. 8 June PFA cuts the first turf for student housing in Odense The student housing facilities will accommodate 300 stu- 14 June dents and is expected ready in the beginning of 2020. It will PFA forwards a profit of DKK be the first of four student housing facilities. The others will 2.5 billion to its customers be placed in Aarhus, Aalborg and Copenhagen. In June, PFA forwarded an extra DKK 939 million to the customers with CustomerCapital. The extra money means that the customers have received a total of DKK 2.5 billion through CustomerCapital for 2017, corresponding to a return of 16 per cent.

6 PFA Holding Annual Report 2018 15 June PFA has the best image in the industry PFA leaps from a 34th to a 17th place in Berlingske’s image sur- vey. Meaning that PFA now has the best image in the Danish 14 August financial sector among business PFA buys German properties at a price of DKK 5.1 billion leaders. It is a property portfolio of approximately 205,000 m2 in major German growth cities such as Munich, Dusseldorf and Berlin.

19 September PFA invests in giant offshore wind farm PFA takes part in financing the offshore wind farm 8 November Hornsea 1, which will be the largest in the world when PFA play a part in writing put into operation in 2020. The wind farm is expected political history to provide green electricity to approximately 1 million PFA hosts a reception in households. the Danish Parliament for a new book on Poul Schlüter’s term in office. The book is the fourth in a series which PFA sponsors about Danish ministries. 29 November PFA has the best employee image in the industry Shown by the report Medarbejderimage 2018 (Employ- ee image 2018), which is published by FinansWatch in cooperation with Wilke. The report looks at the largest financial companies’ image as a workplace among the employees within the sector. 5 December Award for alternative investments PFA receives international honour for its alternative invest- ments. The international industry medium, Investment & Pensions Europe, is behind the award, which covers the entire European pension sector. 12 December PFA selects the causes of the year

This year, PFA Brug Livet Fonden has opted to support 31 December five causes that all focus on helping children and young PFA Invest is still the Danish people who are struggling. In addition to financial sup- investment champion port, the causes also receive help with promotion. Just like 2017, PFA Invest ends the year as the top investment fund in Denmark according to the independent investment research company Morningstar.

PFA Holding Annual Report 2018 7 8 PFA Holding Annual Report 2018 PFA student housing in Odense To mark our 100th anniversary in 2017, PFA announced that we will build student housing in the four major university cities in Denmark - Odense, Aalborg, Aarhus and Copenhagen. The first student housing facility will be built in Odense. It is expected ready at the beginning of 2020 and will accommodate approximately 300 students. Next, student housing will be built in Aalborg, which is expected to be ready in April 2020.

Illustration: Arkitema Architects

PFA Holding Annual Report 2018 9 The financial statements in brief

Financial highlights for the PFA Group

Key figures (DKK million) 2018 2017

Income statement

Profit/(loss), pension 1,952 1,589

Profit/(loss), health and accident insurance (830) (423)

Total result on insurance business 1,122 1,166

Of this PFA CustomerCapital’s share 974 1,003

Equity’s other income etc., net (75) 180

Minority interests’ share (30) 56

Profit/(loss) before tax 43 399

Tax 41 (96)

Minority interests’ share 30 (56)

Net profit/(loss) for the period 114 247

Total payments 37,374 34,064

Total investment return (5,302) 26,340

Balance sheet

Total provisions for insurance and investment contracts 448,638 440,826

Provisions for claims 6,875 5,400

Equity, PFA Holding 5,663 5,549

PFA CustomerCapital 32,947 31,359

Total assets 575,820 596,268

Financial ratios

Rate of return related to market rate products (3.3) % 8.3 %

Rate of return on market rate profiles (5.7) to 0.3 % 5.2 to 13.5 %

Rate of return related to average interest rate products 1.4 % 1.5 % including accumulated value adjustment

Expense ratio on provisions 0.19 % 0.21 %

Expenses per insured DKK 696 DKK 733

Return on equity after tax 2.0 % 4.6 %

10 PFA Holding Annual Report 2018 Financial review Profit/(loss) before tax by business area Overall, the 2018 results came out as expected and were DKK million 2018 2017 acceptable despite low returns on the financial markets, which have impacted the return for our customers, PFA Customer- Pension 1,952 1,589

Capital and equity. Health and accident insurance (830) (423)

Total result on insurance business 1,122 1,166 Payments increased to DKK 37.4 billion from DKK 34.1 billion in 2017, while the expenses per insured dropped to DKK 696 Of this PFA CustomerCapital’s share 974 1,003 from DKK 733 in 2017. The rise in payments and the contin- Outlay – discretionary rebates (114) (160) ued decrease in the expenses per insured are considered very Equity’s other income, net 38 340 satisfactory. Minority interests’ share (30) 56

The insurance result stood at DKK 1,122 million compared to Profit before tax 43 399 DKK 1,166 million in 2017. The change is caused by improved results on the pension operations due to the continued growth, which is counterbalanced by a bigger loss on health Value creation for customers and accident insurance. The majority of the value generated by PFA goes back to the customers by way of a return on their savings. This is done Health and accident insurance comes to DKK -830 million, through: compared to DKK -423 million in 2017. This development is unsatisfactory and is caused by the competitive market for • Accrual of investment return on the customers’ deposits. corporate and organisational pension plans, the upward trend • Accrual of return through PFA CustomerCapital. PFA in claims expenses and the number of claims as well as the CustomerCapital receives the majority of PFA’s insurance declining number of reactivations. In addition, the underlying result for the year. investment result on health and accident insurance is DKK 226 million lower in 2018 than in 2017. The continued work with PFA CustomerCapital forms part of the customers’ total savings data history, models and update of assumptions for disability, in PFA. In 2018, the customers received DKK 974 million out reactivations and customer behaviour have altogether had a of PFA’s insurance results of DKK 1,122 million. To this comes positive non-recurrent effect on health and accident insurance. an outlay from equity for the year and a minor investment We continue the work with the initiatives for permanent im- return etc. on PFA CustomerCapital totalling DKK 114 million. provement of the results from health and accident insurance. Thus, PFA CustomerCapital received a total of DKK 1,088 mil- lion of the result for the year in 2018. The pre-tax profit amounted to DKK 43 million against DKK 399 million in 2017. After tax and deductions for the share at- Payments tributable to minority interests, the result was DKK 114 million The total payments amounted to DKK 37.4 billion against DKK against DKK 247 million in 2017. In 2018, the result after tax 34.1 billion in 2017, equal to a 9.7 per cent growth. The reg- and deduction for minority interests was positively affected by ular payments amounted to DKK 22.0 billion against DKK 21.0 non-recurring items relating to tax of DKK 23 million. billion in 2017, equal to a 4.5 per cent growth.

The Board of Directors recommends a dividend distribution of Single payments and transfers totalled DKK 15.4 billion against DKK 50,000 in PFA Holding. DKK 13.0 billion in 2017, equal to a 18.2 per cent growth.

Payments to market rate plans represented 89 per cent of the total payments. Thus, the share of payments to market rate plans was up by 2 percentage points compared to 2017.

PFA Holding Annual Report 2018 11 Total payments The return related to average interest rate products adjusted for the change in accumulated value adjustment for the period DKK billion 2018 2017 amounted to 1.4 per cent in 2018. The total return related to Market rate 33.4 29.8 average interest rate products (N1) amounted to 0.7 per cent.

Average interest rate 2.1 2.3 The deposit interest rate for customers in the average interest Health and accident insurance 1.9 2.0 rate environment is 2.0 per cent per year. Including the return Total payments 37.4 34.1 on Individual CustomerCapital of 10 per cent, this corresponds to a total deposit interest rate before tax of up to 2.4 per cent Payouts in 2018. Benefits paid decreased to DKK 21.3 billion in 2018 from DKK 21.4 billion in 2017. The decline is primarily due to a drop in For 2018, the customers in the market rate environment and the number of surrenders. the average interest rate environment with PFA CustomerCap- ital received a return of 10 per cent on Individual Customer- In 2018, the net payments excluding health and accident in- Capital. The customers have received a running return of 5 per surance amounted to DKK 14.2 billion against DKK 10.7 billion cent during 2018 and will receive the remaining 5 per cent in in 2017. Thus, PFA still presents a very solid and increasing April 2019. level of net payments. Cost development Gross claims paid from health and accident insurance in- The total costs for the PFA Group increased to DKK 2,246 mil- creased to DKK 1,394 million from DKK 1,245 million in 2017. lion from DKK 2,203 million in 2017. Among other things, the increase is due to considerable IT investments as part of PFA’s Investment return work with efficiency and sizeable expenses in connection with In 2018, the total investment return stood at DKK -5.3 billion. the implementation of GDPR. To this must be added continued investments in the investment area as part of the implementa- Investment return before tax tion of PFA’s investment strategy and as a result of increasing invested customer funds. Average Average annual annual 2018 2017 return return The insurance operating expenses, which form the basis of 2016- 2014- 2018 2018 the key expense ratios, declined to DKK 850 million from DKK

Market rate (3.3) % 8.3 % 3.7 % 5.5 % 865 million in 2017.

Average interest rate incl. accumulated 1.4 % 1.5 % 1.7 % 3.0 % Correspondingly, the expenses per insured dropped to DKK value adjustment 696 from DKK 733 in 2017. Average interest rate 0.7 % 3.5 % 3.6 % 5.6 %

Return on Individual Expenses amounted to 0.19 per cent of provisions, which is a 10.0 % 16.0 % 15.3 % 17.1 % CustomerCapital drop from 0.21 per cent in 2017.

In 2018, customers with market rate plans, PFA Invests, saw Developments in balance sheet items returns between -5.7 per cent and 0.3 per cent including a At end-2018, the balance sheet total amounted to DKK 576 10 per cent return on Individual CustomerCapital. The return billion against DKK 596 billion at end-2017. In total, provisions depends on the customer’s selection of investment profile for insurance and investment contracts increased due to net as well as time until retirement. Customers with investment payments. Provisions for insurance and investment contracts profile A received the highest return since profile A has the amounted to DKK 449 billion against DKK 441 billion at smallest share of high-risk assets. The total return related to end-2017. market rate products (N2) amounted to -3.3 per cent. Debt to credit institutions related to repo transactions, pend- ing security transactions and debt regarding derivatives with a

12 PFA Holding Annual Report 2018 negative market value amounted to DKK 80 billion against DKK The capital base in PFA Pension, which makes up the majority 110 billion at end-2017. Repo transactions declined by DKK of the Group’s capital base, primarily consists of equity 14 billion to DKK 54 billion at end-2018. and PFA CustomerCapital. The capital base in PFA Pension increased in 2018 mainly due to operational risk charge from Equity rose by DKK 0.2 billion to DKK 7.9 billion. Equity for PFA the portfolio of average interest rate plans and from net Holding A/S totals DKK 5.7 billion against DKK 5.5 billion at payments to CustomerCapital. As at 31 December 2018, the end-2017. capital base amounts to DKK 41.2 billion.

In total, PFA CustomerCapital increased by DKK 1.6 billion in At end-2018, the solvency capital requirement for PFA Pension 2018 and amounted to DKK 32.9 billion as at 31 December amounts to DKK 14.2 billion against DKK 17.5 billion at end- 2018. The increase is due to net payments as well as PFA 2017. At end-2018, the solvency ratio for PFA Pension is 291 CustomerCapital’s share of the net profit for the period. per cent against 215 per cent at end-2017.

Provisions for insurance and investment contracts As at 31 December 2018, the Group’s capital base and solven- In the past few years, PFA has been experiencing a strong cy capital requirement amount to DKK 22.6 billion and 14.4 growth in life insurance provisions for market rate plans. billion respectively, thus putting the Group’s solvency ratio at Life insurance provisions for market rate plans amounted to 157 per cent. DKK 238 billion against DKK 223 billion at year-end 2017. Internal transfers from the average interest rate environment The solvency ratio for the Group is lower than the solvency to the market rate environment amounted to DKK 3.6 billion, ratio for PFA Pension as only the part of PFA CustomerCapital of which transfer allowances accounted for DKK 0.9 billion that covers PFA Pension’s solvency capital requirement can corresponding to the additional value of guaranteed benefits be included in the Group’s capital base under the Solvency II relative to the savings as well as a share of the collective regulations. reserves.

Customers’ total savings in the market rate environment amounted to 55 per cent of the total life insurance provi- sions for market rate plans and average interest rate plans at end-2018. Thus, the share of savings in the market rate environment increased by 3 percentage points compared with end-2017.

At end-2018, the profit margin has increased from DKK 3 billion in 2017 to DKK 4.6 billion, which is a result of changes in the market value basis.

Life insurance provisions for average interest rate plans declined to DKK 197 billion from DKK 206 billion at year-end 2017. Among other things, this development is a result of the payouts exceeding the payments and funds still being transferred from the average interest rate environment to the market rate environment. The collective bonus potential stands at DKK 9.5 billion.

Solvency PFA still has a high solvency ratio, which ensures that PFA can live up to the customers’ guaranteed benefits and fulfil other obligations.

PFA Holding Annual Report 2018 13 The financial markets

2018 was characterised by increasing volatility and significant weakened global growth, heightened political uncertainty and price drops on the equity markets. In the wake of years of threats of increased duties on exports to the US. Among other progress, the negative development hit widely across regions. things, this was reflected in declining business confidence The plunge in equity prices must be seen in the light of more indicators especially within the more export-oriented manufac- moderate global growth expectations as well as a range of turing companies. political events that contributed to unsettled financial markets. Particularly the trade conflict between the US and China, The Italian government presented a budget deficit that con- difficult negotiations about the Brexit agreement and Italy’s flicted with previous agreements of balancing the national dispute with the EU Commission about the national budget debt. This led to a controversy with the EU Commission and deficit. On the other hand, tax relief and a very expansionary increased interest rates on Italian government bonds. Great fiscal policy in the US have contributed positively. Britain saw great internal disagreements on the specifics of the Brexit agreement with the EU, and the prospect of a During 2018, long-term interest rates in the US went up, while chaotic British exit from the EU in March 2019 weighted on they remained almost unchanged in Germany and Japan. This the markets. led to a strengthening of the US dollar and vast regional return differences. Among other things, the development reflects Beyond this, a reasonably steady development in the domestic that the US, Europe and Asia are at different points in the demand within the Eurozone continued to drive the economic business cycle. upswing. This resulted in employment growth and a drop in unemployment to 8.1 per cent in October 2018, which is the Development in global equities and 10-year Euro lowest level since 2008. interest rates The ECB maintains accommodative monetary policy 1 The European Central Bank (ECB) has throughout 2018

10 maintained an ultra-lax monetary policy based on negative interest rates and purchase of bonds. In October, the monthly 12 purchase was reduced from EUR 30 billion to EUR 15 billion,

Per ent and, at end-2018, the purchase programme was discontinued. 100 The ECB emphasises that it will continue to reinvest maturing nde

0 bonds for some time, and the expectation is that the interest rates will, at the earliest, be raised on the other side of sum- 00 mer 2019. This is because the inflation rate is – even though it will gradually increase – expected to be below the ECB’s 02 target of 2 per cent. The prospect of a continued long period with low interest rates took part in keeping the long-term

gloal euit inde la bond yield at a low throughout 2018.

- e uroone 10ear goernent ond interet rate ra

Strong growth in the US The Eurozone is weighed down by political uncer- The growth in the US economy accelerated during 2018 and, tainty in Q3, it reached 3.0 per cent compared to the same quarter The financial development in the Eurozone was disappoint- the previous year. This was higher than expected at the ing and the growth gradually abated – although from a high beginning of the year and above the 2017 growth rate, which level at the beginning of the year. In Q3, the growth in GDP stood at 2.2 per cent. Tax relief and an expansionary fiscal was 1.7 per cent compared to the same quarter the previous policy resulted in a significant rise in the domestic activity and year, which was the lowest growth rate since 2014. The 2018 contributed to a robust increase in employment. The unem- growth forecasts have been downgraded regularly as a conse- ployment rate dropped further and reached 3.7 per cent in quence of disappointing key economic indicators. November, which is the lowest level in 48 years. However, the housing market posed a weak spot as the number of The Eurozone was negatively affected by a combination of unsold properties followed an upward trend and the number

14 PFA Holding Annual Report 2018 of new constructions went down. Increased interest rates Selected equity indices and changed rules of deductibility may have dampened the nde 1 e 201100 demand.

Robust growth paired with reduced corporation taxes helped raise the companies’ earnings and thus the equity prices. However, a more moderate outlook on the future contributed to a negative development on the equity market at the end of the year. The US administration came to an agreement with

Mexico and Canada on a revised NAFTA agreement, but, at the an Fe ar Apr a un ul Aug ep t o e same time, the trade conflict with China escalated as the US imposed duties on Chinese goods for USD 250 billion. erging aret enar 20 uroone uroto 0 R A P 00

At the mid-term election, the Democrats won the majority in the House of Representatives while the Senate remained Rising capacity pressure in Danish economy republican. With a torn congress, no major changes in the The activity in Danish economy saw moderate development fiscal policy are expected in the near future. The US growth is during the first three quarters of the year, and the growth for expected to slow down in 2019. all of 2018 is expected to be lower than in 2017, where the growth rate was 2.3 per cent. A warm and dry summer slowed Gradual monetary tightening by the Fed the agricultural production and, together with declining growth During 2018, the American central bank (Fed) has raised the on the export markets, contributed to the more moderate interest rates in four steps and maintained the signal that the development. On the labour market, the employment went interest rates may be raised again as a result of the relatively up and unemployment went down, which led to bottleneck high growth and limited available resources in the economy. issues and a beginning upward pressure on wages in some Throughout the year, the Fed has reduced its bond portfo- sectors. The private consumption primarily reflected the rise lio, which has been accumulated through several purchase in wages and employment, while credit growth was still dull. programmes, by gradually discontinuing the reinvestment of a Tighter regulation of new mortgage loans put a damper on the part of the maturing bonds. All things equal, this has contrib- housing market. uted to the increase in interest rates. China stimulates its economy The monetary tightening has happened at a moderate pace The Chinese growth gradually decreased from 6.9 per cent that reflects the rising financial activity combined with a in 2017 to approximately 6.5 per cent in 2018. One of the continued relatively moderate inflationary pressure. In future, reasons behind the weakened growth was the ongoing trade increasing capacity pressure is expected to result in gradually conflict with the US, which weighs down exports, production increasing inflation. In addition to this come imposed customs and investments. Over the year, the Chinese equity indi- duties, which will drive up the prices for consumers. ces dropped by approximately 25 per cent. The authorities introduced several stimulating initiatives in order to support growth, including tax relief and reduced reserve requirements for banks, which spark their lending capacity.

PFA Holding Annual Report 2018 15 Investment return

The negative development on the global financial markets lefts Solid returns on alternative investments its mark on the 2018 investment returns. PFA’s total invest- In 2018, alternative investments gave a total return of 7.8 ment return stood at DKK -5.3 billion, which can primarily per cent including foreign currency hedging. Especially Private be attributed to the significant price drops on listed equities. Equity, with a return of 10.7 per cent, contributed positively, In contrast, alternative investments and properties yielded but also loans generated a decent return of 6.6 per cent. decent positive returns. The return on bonds was generally Investments in infrastructure generated a more moderate modest due to low and rising interest rates. Currency hedging return of 4.8 per cent, which is mainly due to high start-up of US dollars contributed negatively to the return, while inter- costs in connection with some large new investments. est-rate hedging contributed positively. PFA is increasingly investing in unlisted companies and assets. Breakdown of PFA’s total investments at end-2018 We still assess that there are favourable opportunities within unlisted investments, and staffing up has let us capitalise on 28 2 these opportunities. However, the competition within these types of investments is strong, which necessitates a highly structured and selective approach to the market. 110 218 Throughout 2018, PFA completed a number of alternative 8 investments. In the spring of 2018, PFA invested in TDC, and, during the year, PFA invested in unlisted loans to, among oth-

108 ers, Scandlines and the offshore wind farm Hornsea 1. 2

The total alternative investment portfolio grew by DKK 11.6 12 billion in 2018 to a total of DKK 37.6 billion at end-2018. The high level of activity in 2018 has created a strong foundation 8 for attractive long-term returns, and, considering the maturity

- and risk of the portfolio, the return on alternative investments ited euitie is overall satisfactory. At the end of 2018, alternative invest- ani goernent and ortgage ond ments made up 7.8 per cent of PFA’s total investments. ndelined ond Foreign goernent ond Decent returns on properties redit ond PFA continues to be an active property investor globally. In Alternatie inetent 2018, the total value of the property portfolio grew by DKK Propertie 9.3 billion to DKK 53.1 billion at year-end. In 2018, the total nteretrate edging return on property investments stood at 7.0 per cent including ter inl liuidit foreign currency hedging.

Negative return on equities Again in 2018, the Danish property market experienced a very In 2018, listed equities gave a total negative return of 7.3 per high level of transactions, which positively affected property cent including foreign currency hedging. The negative devel- values. The rest of Europe was also characterised by a high opment was founded widely across regions, but especially level of activity, although the investment volume stabilised. Europe and Emerging Markets weighed down. US equities saw The US property market generated good, stable returns again less negative development, and the return determined in DKK in 2018, and the vacancy levels are now the lowest in 17 was boosted by a strengthening of the USD. However, a minor years. Also on the Asian market, the transaction volume hit part of the investments in US equities were hedged, which record high, and a heavy increase in the demand on the rental resulted in a negative contribution to the return on equities. market combined with very low vacancy rates meant rising rent levels and thus solid returns for almost all sectors within the region.

16 PFA Holding Annual Report 2018 At the end of 2018, properties made up 11 per cent of PFA’s has generated a total return of 41.9 per cent including PFA total investments. CustomerCapital, corresponding to an average annual return of 7.2 per cent. Mixed returns on bonds PFA’s Danish bond portfolio generated a total return of 1.0 per Average interest rate returns cent in 2018. This is primarily due to the holding of Danish Customers with average interest rate plans received a total mortgage bonds, which yielded a return of 1.2 per cent and return (N1) of 0.7 per cent in 2018. The return thus exceeded was backed by interest from, among others, foreign investors. the market rate return. The return is, for the most part, based The holding of Danish mortgage bonds is PFA’s largest single on bonds and properties, but also alternative investments holding of securities. and interest-rate hedging contributed positively. In contrast was a significant loss on foreign currency hedging, which was In 2018, credit bonds yielded a return of -4.3 per cent in- primarily caused by the strengthening of the US dollar. cluding foreign currency hedging. The return was backed by a strong selection of securities, however, the costs of foreign Interest rate groups 1-4 yielded investment returns between currency hedging, rising US interest rates and a widening cred- -0.7 per cent and 2.0 per cent. it spread dragged the return down significantly. Return and deposit interest rate in PFA’s interest Foreign government bonds yielded a total return of -0.4 per rate groups 2018 cent, which can primarily be attributed to foreign currency Deposit interest Interest rate group Return rate* hedging. 1 (0.2) % 2.4 %

Market rate returns 2 (0.7) % 2.4 % Customers with market rate plans (PFA Invests) received a 3 2.0 % 2.4 % return between -5.7 per cent and 0.3 per cent (before tax and including the return on Individual CustomerCapital) depending 4 1.9 % 2.4 % on the time horizon and investment profile. The customers * The deposit interest rate includes 5 % in Individual CustomerCapital and a return on Individual CustomerCapital of 10 %. with the lowest share of high-risk assets received the highest return. The total return on market rate products (N2) amount- The table overleaf shows the relation between the investment ed to -3.3 per cent in 2018. return and the deposit interest rate added to average interest rate plans for customers in interest rate group 1. Customer returns, market rate, PFA Invests 2018 The investment return amounted to -0.2 per cent in interest rate group 1 and was lower than the deposit interest rate. Years until retirement 30 15 5 -5 Therefore, it was necessary to use some of the customers’ unallocated bonus reserves. In addition, customers switching Profile D (5.7) % (5.7) % (2.3) % (1.7) % – high risk to PFA Plus received a share of the reserves in the form of a transfer allowance. Profile C (4.1) % (4.1) % (1.6) % (1.0) % – medium risk The investment return and operational risk charge etc. in Cus- Profile B (2.4) % (2.4) % (0.8) % (0.4) % – low risk tomerCapital (N7) totalled 3.4 per cent in 2018. The 10 per

Profile A cent interest rate on Individual CustomerCapital was there- (0.7) % (0.7) % 0.0 % 0.3 % –very low risk fore due to a transfer from Collective CustomerCapital of 6.5 The return includes 5 % in Individual CustomerCapital and a return on per cent. This is in line with the agreement with the Danish Individual CustomerCapital of 10 %. The return does not include payout protection cover. Financial Supervisory Authority on Collective CustomerCapital being transferred to Individual CustomerCapital over a number In the last five years, PFA has generated a total return in the of years. market rate environment that ensures us a continued top rating among our competitors. Over the past 5 years, the rec- ommended investment profile C with 30 years until retirement

PFA Holding Annual Report 2018 17 From return to deposit interest rate in PFA Pension Interest rate group 1 Individual Customers’ deposits CustomerCapital

Investment return (0.2) % (0.1) %

Collective pension yield tax 0.5 % -

Operational risk charge allocated to equity and CustomerCapital (0.5) % 1.7 %

Results from other activities - 2.0 %

Transfer allowance (0.9) % -

Change in value of insurance liabilities 0.3 % -

Transfer from customers’ unallocated bonus reserves/Collective 2.8 % 6.5 % CustomerCapital

Deposit interest rate before tax/return on 2.0 % 10.0 % Individual CustomerCapital

Deposit interest rate before tax including 2.4 % 5 % CustomerCapital

Savings products for available capital • The Paris Agreement (COP21) on reduction of greenhouse The mutual fund PFA Invest, which, among other things, offers gases funds for available capital, was also affected by the negative • The OECD’s Responsible Business Conduct for Institutional development on the financial markets in 2018. Only one of Investors five equity funds generated a positive return for the year, • The OECD’s tax principles for multinational companies just like only one of three bond funds ended with a positive (BEPS). return. The mixed funds (Balance AA, A, B, C and Akkumul- erende) yielded returns between -5.2 per cent and -1.5 per In 2018, it was specified in our responsible investment policy cent. The funds with the lowest risk faced the smallest losses. that PFA wishes to contribute to realising the UN’s Glob- An overview of PFA Invest’s returns can be found at al Goals for sustainable development. Also, a section was pfainvest.dk/afdelinger (in Danish only). added concerning responsible tax practice in connection with investments. Regardless of the negative development on the financial mar- kets, statistics from the analysis institute Morningstar show The responsible investment policy ensures that human rights, that PFA Invest kept its position as the best Danish mutual employee rights, management-related matters, environment, fund by risk-adjusted return in 2018. climate and tax are an integral part of PFA’s investment process across asset classes and investment vehicles. PFA’s Responsible investments equity and bond investments are screened regularly based on The work with responsible investments is a key part of PFA’s compliance with the international conventions and principles corporate responsibility. The responsible investment policy is that the policy is based on. based on the following conventions and principles: PFA’s Responsible Investment Board (RI Board) sets the tar- • The UN-backed Principles for Responsible Investment gets for and prioritises PFA’s work as a responsible investor. • The UN principles for responsible businesses (UN Global The RI Board monitors the implementation of policies and Compact) guidelines as well as assesses the ethical dilemmas that regu- • The UN’s Guiding Principles for Business and Human larly arise when working with responsible investments. Rights

18 PFA Holding Annual Report 2018 Active ownership Particular focus on critical dialogue in 2018 PFA wants to be an active owner of the companies in which As investor in Danske Bank, PFA has closely monitored the we invest. The work with this is prioritised according to the case on money laundering in Danske Bank’s Estonian branch, risk of violations of the responsible investment policy, the and, since March 2017, we have actively led a critical dialogue possibility of exerting our influence and the type of invest- with Danske Bank. From the beginning of this dialogue, we ment. As an active, responsible and long-term investor, PFA is have made it clear that we wish for the bank to be transpar- focused on promoting long-term value creation in the compa- ent about its investigations and the results hereof. Further- nies that we invest in. more, we have regularly inquired into the bank’s reviews of previous risky transactions as well as the specific allocation of PFA asserts its active ownership through direct dialogue resources to the bank’s anti-money laundering processes. The with companies, by using its voting rights at annual general results of the bank’s internal report, which was published on meetings, in cooperation with other investors or through our 19 September 2018, established that the extent of the money adviser within this field, Global Engagement Services (GES). laundering transactions was much greater and ran deeper than expected, which is something PFA has publicly criticised. PFA screens its investment portfolio on an ongoing basis and enters into dialogue with companies if it is unclear whether PFA recognises that Danske Bank is going through a trans- the companies comply with the international conventions that formation, and we will continue to take part in developing PFA’s responsible investment policy is based on. The screening Danske Bank in a more sustainable direction. Therefore, PFA is carried out in cooperation with the company GES, which has supported the adjustments made to the Board of Directors in 2018 evaluated 98 cases with indications of one of more in Danske Bank in order to establish a new management team violations of PFA’s policy. GES has been in dialogue with 51 that can bring focus to the core business and the impor- companies in PFA’s portfolio, of which it has been verified that tant relations with investors, customers and society. In that 18 companies have failed to comply with the policy. 16 cases connection, PFA supported the bank’s largest shareholder, A.P. with confirmed violation of the policy have been solved by the Møller Holding, in its efforts to elect a new chairmanship for companies changing their practices. the Board of Directors at the extraordinary general meeting which was held at the beginning of December 2018. In 2018, PFA has entered into direct dialogue with 13 compa- nies and has voted at 70 annual general meetings. Focus has Likewise, PFA has entered into critical dialogue with the been on management-related matters, human rights, employ- Australian investment bank Macquarie, which PFA cooperates ee rights, environment and climate. In 2018, PFA has complet- with on the ownership of TDC. This is after it was revealed in ed the critical dialogue with two companies upon confirmation October and November 2018 that Macquarie has seemingly that they no longer violate PFA’s policy. PFA’s membership of participated in unfounded payouts of dividend tax. Obviously, Nordic Engagement Cooperation (NEC) has led to dialogue this is completely unacceptable – and something that PFA with 12 companies, including proactive dialogue with four speaks out against. companies focused on transparency in the textile sector even though no breaches to PFA’s policy were confirmed. In 2019, Ever since we learned about the matter, PFA has been in a PFA will publish NEC’s annual report with a detailed description critical dialogue with the Macquarie management, which of all the cases and their relation to the UN Global Goals. also includes demanding a report on their involvement and a clarification of the possible structural, procedural, cultural and PFA screens and analyses government bonds in accordance managerial changes which they have implemented to ensure with PFA’s policy and guidelines for responsible investment that such behaviour will not happen again. in government bonds. PFA does not enter into engagement dialogues with countries as this is considered to be a foreign As for our investment in TDC, our co-ownership involves policy issue. At the end of 2018, PFA invested in government a general obligation towards all our customers in PFA, the bonds in 85 countries. The list of countries in which PFA employees of TDC and the overall Danish society to protect invests as well as a list of excluded countries are available at the investment. When entering the purchase agreement, we pfa.dk. entered into a binding agreement in partnership with the

PFA Holding Annual Report 2018 19 consortium behind the purchase of TDC to ensure that all tax payments will be made in accordance with the Danish tax rules. Already from the beginning, it was decisive to PFA to ensure that none of the investors in TDC can withdraw tax- free dividends without approval from the Danish authorities.

PFA will continue the critical dialogue with Macquarie on the dividend tax case and has decided not to enter into new co-operations with Macquarie until we have gotten to the bottom of the case. The result of this will, among other things, be decisive of whether we will enter into new business agreements with Macquarie in the future.

Environmental considerations in the investment process PFA wishes to live up to the Paris Agreement and has since 2015 worked on including environmental considerations in the investment processes. In 2018, PFA has systematically carried out carbon and 2 degrees scenario analyses of its equity port- folio. The objective is to assess whether PFA’s equity invest- ments are consistent with the expected energy mix necessary in order to limit the temperature rise to 2 degrees. PFA also includes environmental considerations in its active ownership through participation in “climate action 100+”, which is an international investor initiative that enters into dialogue with the 100 companies which account for the largest emission of greenhouse gases.

Read more about responsible investments and active owner- ship at english.pfa.dk/responsible-investments and in PFA’s CR report, available at english.pfa.dk/cr-report2018.

20 PFA Holding Annual Report 2018 90 Hudson, New York

In 2017, PFA purchased 49 per cent of the property, which is situated by the waterfront in Jersey City across from Manhattan. The property has easy access to public transportation and, at the time of the pur- chase, 100 per cent had been rented out on long leases. Since the pur- chase, space has been made available for retailing, which has increased the value of the property.

PFA Holding Annual Report 2018 21 Status on Strategy2020

At the end of 2015, PFA launched Strategy2020. The strategy To this must be added a rapid technological development, sets the direction and ambitions for PFA and must ensure that which offers new possibilities within almost all essential PFA is able to compete in a market with increased compe- business areas as well as increased focus on optimisation and tition, low interest rates, tighter regulation, an increasing cost reduction. We are now more than halfway through the number of elderly employees and a growing demand for strategy period and progress as planned. prevention and health solutions.

Strategy2020

Optimisation Denmark’s leading and digitalisation pension company

Customer promise More for you

Values Professional, Fair and Accountable Private customers’ Best at preferred long-term returns long-term savings partner

Strong business model and identity

22 PFA Holding Annual Report 2018 Status on target fulfilment • Introduction of PFA Optional, which is a new investment Strategy2020 supports our four overall ambitions, and the concept without gradual risk reduction that allows the 2018 results show that we are on the right path: customers to determine the investment risk associated with their savings. 1. We want to be No. 1 in terms of returns mea- • As the first company in Denmark, PFA has launched an sured over a 5-year period automated process for increasing insurance coverage, Over the past five years, PFA has generated an accumulated which lets the customers forward their health informati- return on PFA’s recommended investment profile C of 37.8 per on digitally and thus adjust their insurance coverage in a cent including PFA CustomerCapital for customers who are 20 simple and easy manner. years away from retirement. With this, PFA maintains its top • Development of a new digital onboarding flow which ranking on returns seen over the past five years. strengthens the customer relationship and offers the customers more possibilities of adjusting their plans. 2. Our annual net addition of customer funds must • Development of our advisory services model with da- be DKK 30 billion in 2020 ta-driven recommendations, which, for example, advise The total payments increased by 9.7 per cent to DKK 37.4 the customers on adjustments in connection with life billion in 2018. This development supports our target and events that may affect their savings and insurance needs. illustrates a satisfactory growth in a mature market. • Optimisation of our advisory services efforts by means of machine learning, which helps PFA segment the custo- 3. Our expenses must be among the lowest in the mers according to their need of advisory services. market • Increased use of robotics in the processing of customer The expenses per insured went down from DKK 733 in 2017 cases. to DKK 696 in 2018, which means that PFA is on target for • Enhancement of PFA’s offers for senior customers with Strategy2020 productivity improvements and maintains its senior residence, health insurance for seniors and a new position as the commercial pension company in Denmark with health solution with an annual health check as well as the lowest expenses per insured. help and guidance in connection with treatment through the Danish public health sector. 4. We want high employee engagement • Implementation of data initiatives that support the new The total 2018 score was 5.9 on a scale from 1-7, which is a requirements of proof of identity in relation to money small decline compared to the total 2017 score of 6.0, but still laundering and the new GDPR regulations on protection a satisfactory result. and storage of personal data. • Further development of a joint platform for all insuran- Important activities in 2018 ce and savings products in order to make the products The strategy is split into a number of tracks with separate simpler and less costly to administer as well as better business owners, milestones and targets in order to ensure integrated with My PFA and PFA’s other customer-focused focus and ongoing progress. In the following is mentioned digital solutions. some of the most important 2018 initiatives and results: • Organisational restructuring with a simpler structure, clear division of responsibility and increased coherence • Enlargement of PFA’s investment engine through between the value chains in order for PFA to meet the increased investments in properties and alternatives. objective to be best at customer services and best in the During 2018, the value of these investments increased market. by approximately DKK 21 billion to more than DKK 90 billion, which corresponds to 18.8 per cent of PFA’s total investments. • Future-proofing PFA CustomerCapital, which is PFA’s model for sharing risk and profit with the customers. With this, we ensure a more sustainable and durable balance between the customers’ savings in CustomerCapital and their other pension savings.

PFA Holding Annual Report 2018 23 Business conditions

With approximately 1.3 million private customers, 5,860 corpo- In addition, the turbulence on the financial markets during the rate and organisational customers and a market share of 18.7 year has heightened the customers’ interest in the companies’ per cent, PFA is one of the largest commercial pension compa- strategic investment ambitions, including their work with al- nies in Denmark and the 7th largest in Europe. The market for ternative investments, which may help stabilise returns during corporate and organisational pension plans is characterised by times with unfavourable market conditions. Moreover, we have intense competition and pricing pressure. In this market, our seen increased interest in the pension companies’ work with size constitutes a significant advantage as rapid technological corporate responsibility, focus on sustainable investments and developments, tighter regulation and a challenging investment ability to think long-term and make social considerations and environment have increased the need for specialised compe- commercial interests interplay. Therefore, we also see that tencies, increased consolidation and put greater focus on cost reputation is becoming a still more important factor when the efficiency. customers choose their pension supplier.

Historically strong growth PFA has built a strong profile within these areas, and we have Following PFA’s focus in 2017 on extending agreements with played a big part in setting the agenda both commercially our many existing organisational and corporate customers, and in our work with PR and press. Our efforts have been re- we have upped our sales efforts in the market throughout warded with advancement in Berlingske Business Guld Image, 2018. This has been instrumental in PFA welcoming a total which is an analysis that includes approximately 3,500 Danish of 526 new customers. At the same time, we have prolonged top executives. PFA leaped from a 34th place in 2017 to a agreements with 103 customers, while we have said goodbye 17th place in 2018, which is the best ranking among Danish to 55 customers. The strong sales combined with great loyalty pension companies and in the financial sector in general. among our existing customers meant a net growth of 471 corporate and organisational customers, thus reinforcing our Data-driven solutions boost competitive position position as one of the leading pension companies in Denmark. From a socio-economic perspective, 2018 was characterised by positive developments with growth in the customers’ per- PFA saw growth during a year where the pension industry was sonal finances, low unemployment rates and a record number characterised by strong consolidation, which, among other of job changes. This has resulted in strong competition for the things, was due to continued tighter regulation and the com- many millions of DKK placed in the Danes’ bank accounts as petition for attractive investment options. Also, more pension well as the many pension pots that are no longer covered by companies have tended towards customer ownership models a corporate pension agreement due to job change. Therefore, similar to that of PFA, and which gives the customers a part PFA has continued to work on the development of data-driv- of the companies’ profit. This contributes to intensifying the en solutions that can support proactive contact to customers competition and placing new demands on how we differenti- with a need for advisory services. We have also sharpened the ate ourselves from our competitors. offer for our banking customers and digitised the process for transfer of pension savings to PFA. Finally, 2018 has also given notice of new players that wish to take on the established pension companies with the help of PFA’s data-driven advisory services and proactive customer technology. Even though complex regulation, statutory require- contact have been a key reason why, again in 2018, more ments and a high level of specialisation make the pension funds have been transferred into PFA than out. The positive market difficult to disrupt, digitalisation can still reduce the net payments also attest to the customers being overall com- entry barriers and inspire new solutions. This is already reality fortable and happy with PFA’s solutions, communication and within areas such as fintech and healthtech, which are both advisory services. Among other things, this is also supported undergoing rapid development. by the latest loyalty analysis from Loyalty Group, which placed PFA at the top among the commercial pension companies Health, investment and reputation on the agenda in Denmark, making PFA one of the few pension companies Health and prevention are still high on the agenda of corpo- that have not experienced a decline in its loyalty score. PFA’s rate and organisational customers, which, to an increasing strong brand is also expressed in PFA’s PR score, which is 56 extend, demand strategic partnerships and targeted initiatives in 2018 and thus by far the best score among the commercial that can help increase job satisfaction and performance as pension companies in Denmark. well as minimise the employees’ sickness absence.

24 PFA Holding Annual Report 2018 Bank cooperation continues its growth savings products. In 2018, PFA implemented both of these PFA cooperates with a number of financial institutions on initiatives so that our pension solutions match the new in- offering pension and insurance cover to private customers dustrial standards from 1 January 2019. Concurrently, PFA has through the company Letpension A/S. This is a market with continued the implementation of the pension reform, which, keen competition but also with great potential. A potential among other things, has brought about new possibilities of that is expected to increase further in the years to come. deduction and changes in the annual payment limit for old age Therefore, this is a strategic key area for PFA, which, in 2017, savings plans. signed a new four-year cooperative agreement that, among other things, lets the co-owning banks and financial institu- tions offer PFA’s company pension plans to their corporate customers through the so-called FinansPlus agreement. Both Letpension and FinansPlus have continued to grow during 2018. In Letpension, the total payments are up by 3 per cent to DKK 3.7 billion, while its assets under management have increased by 22 per cent to DKK 10.7 billion. In addition, PFA has welcomed 166 new corporate customers through FinansPlus.

Like in the rest of the industry, digitalisation is key in the com- petition for the private pension customers. In 2018, Letpen- sion and PFA have therefore focused on improving the digital solutions and have, among other things, developed a new needs guide, which makes it easy for the customers to uncov- er their needs and thus determine their level of coverage. It has also become possible to submit health information elec- tronically, making it fast and simple to adjust insurance cover- age in connection with a pension consultation. In addition to the digital improvement, PFA and Letpension have together, in 2018, enhanced training so that more bank advisers are now ready to advise their customers on the possibilities offered through Letpension.

Implementation of new statutory requirements The pension industry is undergoing significant changes these days with tighter national and international statutory requirements. The statutory changes require a lot of resources from all market players. In 2018, PFA has primarily focused on implementing extensive EU regulations, for example changes in the anti-money laundering legislation, the Markets in Financial Instruments Directive (MiFID II), the new Insurance Distribution Directive (IDD) and the new General Data Protection Regula- tion (GDPR).

In addition, we have started the first part of the implemen- tation of the four new consumer initiatives that Insurance & Pension Denmark launched in the autumn of 2018. The first two initiatives that must be implemented concern changed return prognoses and a common risk labelling of the industry’s

PFA Holding Annual Report 2018 25 Products and services

In a competitive market, it is crucial that we continuously de- the High-risk and Low-risk fund. It is the same two funds as velop our offers so that the customers experience high quality the ones that form the basis of the investment profiles in PFA for their money in the form of products, advice and services Invests. PFA continuously rebalances the funds to ensure that that match their needs. Therefore, we have, in 2018, devel- the selected distribution between the funds is maintained. oped a number of new financial and non-financial solutions as The customers can change the selected distribution between well as strengthened our digital tools. the High-risk and Low-risk fund at My PFA at any time.

Savings The customers can change their investment selection at My PFA offers the market rate product PFA Plus, which makes PFA. Here, they can go through the investment guide and get it easy for the customers to match their need for financial qualified recommendations on the investment of their pension security with their return expectations. The customers can savings based on their risk appetite and overall financial follow the development in their savings at the digital platform situation. The customers can also choose You Invest, which My PFA. lets them select the funds in which they want to invest their savings. In all investment profiles, the risk is gradually reduced as retirement approaches and the need for security increases. The majority of our customers with market rate plans prefer On 1 January 2018, the gradual reduction was delayed 10 to let PFA manage the investment of their savings. However, years compared to previously so that the investment profiles a small part of the customers have chosen to change to PFA reflect the increase in longevity. The change optimises the Optional or place all or part of their savings in You Invest, investment mix as well as ensures that PFA complies with the which lets them decide on which funds their savings should prudent person principle of the Solvency II regulations, which be invested in. requires pension companies to arrange their investments so that the customers receive the pension benefits they have In 2018, PFA has adjusted a number of the funds in You been offered the prospect of. Invest. The change means that the funds, in future, will fall under the UCITS Directive, which applies to mutual funds. This New savings product means increased consumer protection for the customers. At On 1 April 2018, we launched PFA Optional, which is a new the same time, it plays a part in making the management of savings opportunity for customers who wish to avoid the au- PFA’s funds more efficient as the majority of these funds are tomatic risk reduction and decide on the distribution between also offered by PFA Bank.

Risk-reduction model in PFA Invests

Percentage in the High-risk fund

100 Higri und ori und

Retirement

0

2

0 0 28 2 2 22 20 18 1 1 12 10 8 2 0 2 8 10 Years until retirement

26 PFA Holding Annual Report 2018 Breakdown of customers with payments to a market rate plan

Profile A Profile B Profile C Profile D You Invest

Number of customers 65,600 128,900 388,100 40,700 6,500

Savings DKK 23bn DKK 66bn DKK 119bn DKK 26bn DKK 4bn

New consumer initiatives facilitate greater trans- The combination of lower expectations of future returns and parency overall increased life expectancy means that the majority of Based on the wish to create a more uniform and transparent the customers will experience a decline in their expected fu- assessment of the pension companies’ investment profiles, ture pension payouts. The new societal assumptions will also the trade organisation Insurance & Pension Denmark has affect the customers’ Pension Estimate, which, in most cases, introduced a classification that will make it easier for the will be approximately 3-8 per cent lower. consumers to compare market rate products. Insurance & Pension Denmark has defined a risk label based on the 1-year Transfer allowance on transfers to a market rate investment risk. Investment profiles must be marked according plan to this risk labelling as from 1 January 2019. As a rule, PFA recommends that the customers save up in the market rate environment as we estimate that this, in the long The short-term risk figure illustrates the probability of the term, offers the most flexibility and the best return potential. value of the savings fluctuating during the coming year. The Therefore, PFA has a standing offer of a transfer allowance risk figure must be indicated to one place of decimal on a for customers who choose to transfer their savings from the scale from 1.0 to 5.9, with 5.9 representing the greatest risk average interest rate environment to a market rate plan or PFA of significant fluctuations. Additionally, a number of common Bank. Together with the savings in the average interest rate requirements have been introduced for the risk on life cycle environment, the transfer allowance equals the total financial products named high, medium and low risk. value of the average interest rate plan including the value of guaranteed benefits and a part of the collective reserves. The customers can see which types of assets that are included However, for certain product types in the average interest rate in the High-risk fund, the Low-risk fund, PFA Optional and the environment, such as collective plans, a transfer allowance is average interest rate environment, respectively, at pfa.dk. not offered.

Another element of the new consumer initiatives is an exten- In 2018, more than 6,300 private customers have agreed to sion and update of the societal assumptions that form the PFA’s offer to collect their pension savings in a market rate basis of the calculation of the prognoses of future payouts to plan. In 2018, DKK 3.6 billion has been transferred from the ensure that they are closer to the financial reality. The societal average interest rate environment to a market rate plan, of assumptions are prepared by an independent and special- this approximately DKK 0.9 billion in transfer allowances. This ist council appointed by Insurance & Pension Denmark and corresponds to an average transfer allowance of approximately Finance Denmark. DKK 143,700.

Risk labelling of investment profiles in PFA Invests

Risk label IPD Risk profile according 30 years 15 years 5 years Investment profile to IPD until retirement until retirement until retirement

A Low 1.8 1.8 1.5

B Low 2.8 2.8 1.9

C Medium 3.8 3.8 2.3

D High 4.9 4.9 2.7

Note: The risk figures include 5 per cent in CustomerCapital, which is treated as Global Equities in terms of risk.

PFA Holding Annual Report 2018 27 Breakdown of savings and payments

Savings as at 31 December 2018 Payments 2018

Amount in DKK billion* Percentage Amount in DKK billion Percentage

Average interest rate 197 45 % 2.1 6 %

Market rate 238 55 % 33.4 94 %

Total 434 100 % 35.5 100 %

* Life insurance provisions

Future-proofing PFA CustomerCapital In 2018, customers in PFA Invest got the opportunity to get PFA CustomerCapital has been adjusted to ensure that more a part of the return on PFA’s property portfolio. Within the customers will benefit from the model and, at the same time, mixed funds, approximately 8 per cent of the assets are in- that it is more future-proof and sustainable for PFA Pension vested in a bond that has an underlying exposure to primarily and our customers. The adjustment is carried out in two office buildings in Copenhagen. Often times, the property stages. On 1 January 2018, customers with savings placed in prices develop at a more steady rate than the equity prices, You Invest got the possibility of choosing CustomerCapital for which reduces the risk. Also, the rent is typically index-linked their future payments. From 1 January 2019, the return on and secured on long leases. This gives property investments Individual CustomerCapital will be deposited in the custom- a stability and protection from inflation that are difficult to er’s savings plan instead of Individual CustomerCapital, and achieve with traditional bonds. Property investments can be it will no longer be possible to have CustomerCapital apply to instrumental in ensuring solid and stable returns in the funds. savings that are transferred to PFA Plus in connection with in- ternal or external transfers. That part of the 2018 return which In 2018, the assets in PFA Invest passed DKK 13.6 billion, is added in April 2019 will, as previously, be deposited in the which corresponds to an increase of 19.7 per cent compared customers’ Individual CustomerCapital as the return is related to end-2017. According to the independent investment to 2018 savings. research company Morningstar, PFA Invest is the number one mutual fund in Denmark in terms of risk-adjusted return. In Economies of scale in PFA Invest the latest report from December 2018, the funds Balance A Customers with PFA Pension can choose to invest their avail- and B as well as Kreditobligationer received the highest five- able capital in PFA Bank, which offers investment advice and star rating. The remaining funds in PFA Invest have a four-star where they can buy and sell units in PFA Invest without securi- rating according to Morningstar, except for Europa Value Aktier, ty fees and commission. PFA Invest’s ambition is to be 20 per which has three stars. Overall, PFA Invest has an average of cent less costly than the average Danish mutual fund. 4.25 stars, which is the top ranking among Danish mutual The distribution fee is between 0.25-0.50 per cent for the funds. funds in PFA Invest, and, in addition, PFA Bank has introduced a model that gives the individual customer a rebate depend- Insurance cover ent on the size of the savings in PFA Invest. The rebate will The insurance field is an important part of PFA’s total value increase as the customer increases the investments in PFA proposition. These products offer financial security for our Invest. customers if they are injured, fall ill or pass away. In 2018, PFA paid out a total of DKK 2.9 billion to more than 70,000 The investment costs significantly impact the savings and, dependants or customers who were diagnosed with a critical even a minor difference, may greatly affect how much the illness, whose occupational capacity was reduced, or who customers profit from their investment in the long term. needed treatment or surgery. Therefore, PFA Bank has developed a cost calculator that lets the customers compare direct and indirect costs in the various funds to funds in the market. The cost calculator can be found at pfabank.dk and is available in Danish only.

28 PFA Holding Annual Report 2018 Overview of insurance payouts

Insurance Total payouts in DKK million Number of customers

PFA Occupational Capacity – regular payouts 1,424 12,000 incl. payment protection cover

PFA Occupational Capacity – lump sum 30 200

PFA Critical Illness 300 1,800

PFA Health Insurance, PFA Preventive Care and PFA Diagnosis 389 56,800

PFA Life 744 2,600

Total 2,887 73,400

Focus on early intervention customers have been offered the new PFA Health Insurance, In 2017, PFA launched the new concept PFA EarlyCare, which which was launched in 2017. The majority of the customers offers help to customers who are covered by PFA Occupational accepted the offer, which gives the employees more treatment Capacity already from the first day of a long-term sickness ab- options and the possibility of immediate help in connection sence. The customers can call PFA Health Guides and get help with stress symptoms. with clarifying their state of health and get advice on which initiatives that can help them return to work sooner and bet- Today, approximately 230,000 customers have PFA Health In- ter. The customers are offered an individual process based not surance and, hereof, approximately 27 per cent have received only on the immediate symptoms but also other health-related help with treatment, examination, surgery, rehabilitation ther- parameters, both work-related and non-work-related, so that apy etc. during 2018. This is an increase compared to 2017 the customers can be helped return to work in a good and where approximately 25 per cent of the customers received permanent manner, which benefits the individual customers, help through their Health Insurance. The increase is consistent the employer and PFA. with our focus on early and targeted efforts as this may help prevent or shorten long-term sickness absence. During 2018, PFA EarlyCare received approximately 1,750 inquiries, of which 620 customers have been through a course Physiotherapy and chiropractic still make up the majority of of treatment. Approximately 72 per cent of the inquiries con- the claims under PFA Health Insurance, but, during recent cerned mental issues, and the majority was related to stress. years, there has been an increase in treatments by a psy- Approximately 70 per cent of the customers who initiated chologist or psychiatrist - in particular stress-related treat- treatment through PFA EarlyCare in 2018 are no longer absent ments, which has increased by 66 per cent since 2014. In from work due to illness at year-end. The major corporate and 2018, treatments by a psychologist or psychiatrist accounted organisational customers have had the possibility of a dep- for 24 per cent of the total payouts from PFA Health Insur- ersonalised report of the use of PFA EarlyCare, including the ance. All inquiries related to stress and mental disorders are nature of the problems and which treatments the employees/ handled by a special team under PFA Health Centre to ensure members have been offered. This makes it possible to identify that the affected customers get the best help possible. relevant focus areas. Help for employees on long-term sick leave In 2018, PFA referred approximately 440 customers from PFA In 2018, many companies and organisations opted for the Health Insurance to PFA EarlyCare. This is primarily customers new PFA Occupational Capacity product that was launched in who are absent from work due to illness and who PFA Health 2017. The product offers extra security for the individual cus- Centre assesses have a need for further help, guidance and tomers by ensuring better financial coverage if the customer’s follow-up through PFA EarlyCare. occupational capacity is reduced and the customer participates in a public job rehabilitation programme or public job assess- Great backing for new Health Insurance ment programme. At the same time, the new product has a During 2018, a large part of PFA’s corporate and organisational better balance between price and coverage.

PFA Holding Annual Report 2018 29 Today, approximately 547,000 customers have an occupational the newest research and experience from health initia- capacity insurance, of which approximately 1,450 customers tives involving more than 600 corporate and organisational were awarded regular payouts from PFA Occupational Capacity customers. in 2018. The majority of the awards are due to mental illness- es, which is an increase of 15 per cent since 2015. Awards of During the year, PFA has cooperated with more than 250 regular payouts from PFA Occupational Capacity in 2018 are corporate and organisational customers on preventive and distributed in the following way: strategic initiatives, including the preparation and implementa- tion of health strategies. In 2018, we have particularly focused on stress, including the causes of stress and mental dissatis- faction. The companies that have implemented the targeted initiatives within stress management and prevention have

12 seen a reduction in stress-related sickness absence and need for treatment of up to 20 per cent.

We have entered into strategic cooperation with leading re- 1 searchers in order to heighten the awareness of stress preven- tion options. The objective of this is to prevent stress at our corporate and organisational customers as well as put stress and prevention on the public agenda. For example, we have, 2 in 2018, expanded our offers for corporate and organisation- al customers to also include open management courses on

- ental illnee stress management and prevention. More than 200 companies uuloeletal illnee and organisations have sent participants to these courses, aner which have been held in Copenhagen, Herning and Horsens. irulator dieae otorneurone dieae Market-leading advisory services and digital solu- ter tions PFA was elected digital pension company of the year in both 2016 and 2017 and received an award for best digital PFA has increased its focus on active claims handling, which customer solutions in 2018, which My PFA has contributed is a coordinated effort to help customers who have been greatly to. Among other things, it became possible for the absent from work due to illness for more than three months customers during 2018 to report claims and adjust insurance and thus consequently are or may be entitled to payouts from cover digitally. We have also developed a solution that lets the PFA Occupational Capacity. PFA uses targeted efforts when it customers transfer external pension savings to PFA through My may improve the individual customer’s situation and thereby PFA themselves. Approximately 3,000 customers have chosen increase the probability of the customer returning to work. to collect their savings in PFA using this solution and have, In 2018, courses of treatment were initiated for 114 custom- since April 2018, transferred approximately DKK 700 million. At ers through Active Claims Handling. At the same time, PFA has the end of 2018, it also became possible for the customers to worked targeted with our sub-supplier to improve the treat- make single payments through My PFA. ment and ensure that the treatment we offer is as effective as possible based on evidence, own data and new research. Moreover, we have developed a digital welcome programme to ensure that customers are reminded to decide on their Strategic health initiatives insurance cover and investment profile. The concept splits the PFA’s objective is to help the employees and members of our pension plan into smaller parts and explains each part in a corporate and organisational customers stay healthy or return simple and intelligible manner before guiding the customer to permanently to work following sickness absence. Our strategic My PFA. A check list continuously provides the customer with health initiatives are founded on our health strategy, which an overview of which parts that have been completed. is based on data from approximately 500,000 PFA customers,

30 PFA Holding Annual Report 2018 In 2018, approximately 2.1 million logins were made to My New offers for seniors PFA and the satisfaction rate is 7.9 on a scale from 1 to 10. During 2018, PFA developed a range of offers for seniors, who At the same time, the number of customers choosing online are becoming an increasingly large group of customers. For consultations where My PFA functions as a joint user interface example, PFA upgraded the advisers’ dissaving tool so that it has increased to 20 per cent of all consultations. PFA’s digital can also include a spouse or cohabiting partner’s data through solutions have been developed to play optimally together with PensionsInfo. This facilitates holistic advice to a greater extent, personal advice. For example, the new digital solutions help which focuses on optimising the household’s entire financial support PFA’s heightened focus on holistic advice that ac- situation, including taxes, pension savings, available capital, counts for the customer’s full financial situation. In 2018, PFA public benefits etc. Customers are also invited to PFA Senior carried out approximately 64,900 personal consultations with Day, which is about the transition into retirement. In 2018, an average customer satisfaction score of 9.1 on a scale from approximately 1,600 customers and partners attended PFA 1 to 10. PFA Advisory Services Centre received approximately Senior Day in Horsens and Copenhagen. 227,000 calls in 2018, and, on average, the customers waited less than 2 minutes in line. PFA Advisory Services Centre had a PFA wishes to include customers in the development of our of- response rate of 95 per cent and a customer satisfaction score fers for seniors, and we have therefore established a number of 8.8 over the phone. of fora that can contribute to the development of new prod- ucts and provide feedback on upcoming senior initiatives. We When customers need their insurance cover, they contact PFA established Studie60+, which is a targeted network where our Health Centre, which received approximately 273,000 calls corporate and organisational customers can share experience in 2018. The majority of the inquiries concerns PFA Health and draw inspiration for how to handle the challenges posed Insurance, and of these customers, approximately 85 per cent by the transition from working life to retirement. Networks get immediate clarification over the phone, which helps them have been established for corporate as well as organisational on to treatment quickly. Customer satisfaction with PFA Health customers. The networks consist of 12-13 participants, and Centre is high with a score of 9.0 on a scale from 1 to 10 each network has held three meetings. In addition, PFA has a to the question of whether PFA was forthcoming during the senior customer board that consists of 10 customers between conversation. ages 55 and 70, of which some are still on the labour market while others have retired. Approximately 4,800 customers have participated in PFA’s seminars, which are typically one-day events. The seminars Based on input from the senior customer board, among other look into both the legal and the financial aspects of the things, PFA has developed a range of offers for retired custom- pension plan as well as the personal considerations when ers. The offers also apply to the customers’ spouses and in- preparing for retirement. clude, for example, PFA Health Insurance, PFA Senior Health as well as IT Help & Security, which offers technical support and We are currently developing a new and more dynamic advisory anti-virus software. PFA Senior Health offers an annual health services model to give the customers proactive, individual check, health advice and personal advice if the customer falls recommendations by means of intelligent data. The advisory ill and needs treatment. services model is developed with help from, among other things, machine learning, which is used to uncover, formal- Moreover, PFA has developed a senior cohousing concept, ise, and try to predict the customers’ needs and life events. of which the first will be built in Horsens and is expected to The objective is to ensure that the customers get relevant, be ready in 2020. In addition, we have, with the help of the individual recommendations when they need it. With the new Danish Building Research Institute, further developed PFA advisory services model, our ambition is to make pension Seniorboligstandard, which lists 46 demands that ensures less complicated and simpler for the individual customer to that the housing is designed for old age. The purpose of understand his/her pension plan. Therefore, we use machine PFA Seniorboligstandard is to promote the development of learning to test which form of communication that works best senior-friendly housing in Denmark. At present, housing is for the individual customers in different situations to help us being built in accordance with PFA Seniorboligstandard at five improve our customer-targeted communication. locations in Denmark.

PFA Holding Annual Report 2018 31 Signing up for PFA Rental Housing In recent years, PFA has upped its investments in properties and has decided to give its customers preference to sign up for rental housing in the properties PFA owns. Customers sign up through My PFA, and, in 2018, more than 77,500 customers have visited the rental housing site, and more than 16,600 customers have signed up for a flat, which will be rented out at market level. New rental housing will become available as PFA invests in new properties. PFA will regularly inform customers of new rental housing at My PFA and in its customer programme, which approximately 225,000 customers receive currently.

32 PFA Holding Annual Report 2018 PFA Rental Housing

In May 2017, PFA launched PFA Rental Housing, which gives PFA’s customers preference to sign up for the more than 70 rental proper- ties that PFA owns. The customers sign up at My PFA, and more than 16,600 customers have already done so.

The image shows PFA’s rental property Vodroffslund 1-3, which forms part of a building block that can be found at My PFA under Vodroffsvej 37-41, Frederiksberg C.

PFA Holding Annual Report 2018 33 Digitalisation and optimisation

A key element in PFA’s business model is to create as much Expense ratio on provisions value as possible for our customers. Therefore, PFA continu- 0 ously focuses on identifying and implementing new initiatives to further cost reductions and improve the customer expe- 00 rience. This is reflected when we implement new statutory 02 requirements and often take the opportunity to optimise our 020 processes and ensure a minimum of administrative trouble for 01 our customers as well as PFA.

010

Focus on cost efficiency 00 PFA focuses on carrying out efficiency improvements and reap 000 the economies of scale benefits. In 2017 and 2018, we have 2014 2015 2016 2017 2018 made significant investments in the development efforts so that we, also in future, can offer our customers low costs. The % 0.27 0.25 0.22 0.21 0.19 gains in efficiency cover process optimisation, digitalisation, automation etc. Digital transformation and agile development PFA focuses on strengthening internal and external cus- For a number of years, the expenses per insured have de- tomer-focused solutions, including development of digital creased, and, from 2017 to 2018, the expenses per insured solutions, optimising administrative processes and performing have dropped from DKK 733 to DKK 696. Thus, PFA maintains quality assurance on the underlying data. Therefore, we have its position as the commercial company in Denmark with the in 2018 decided to collect the majority of PFA’s development lowest expenses per insured. We expect the expenses to drop resources in four agile business units: Digital Customer Ex- further in the coming years as a result of economies of scale, perience, Digitalisation & Management, Pension & Insurance increased use of administrative robots, process improvements Products and Data. Today, approximately 300 employees work and a higher degree of digitalisation. in the agile business units. The agile transformation is one of the biggest changes in PFA’s working method in years, and Expenses per customer it is a crucial initiative to ensure rapid business development, per inured greater adaptability and increased focus on customer needs. 800

During 2018, the agile business units have supplied a number of solutions that have improved our costs. For example, 0 streamlining of our IT systems and business processes, auto- 2 mated insurance acceptance and development of a complete

00 insurance and pension platform.

We have now worked with the agile development setup for 0 two years and experience shows that:

0 • the speed of development has increased.

201 201 201 201 2018 • solutions have become more customer-focused as both external and internal customers have been involved to a DKK 779 765 739 733 696 greater extent in the development of the solutions. The expenses calculated relative to provisions for pension and • transparency has increased significantly, which gives a insurance payouts have declined from 0.21 per cent in 2017 more systemic prioritisation of our development efforts. to 0.19 per cent in 2018. In 2018, we introduced PFA Customer Panel, which helps us become even better at supplying user-friendly digital solutions. The Customer Panel allows us to test hypotheses

34 PFA Holding Annual Report 2018 already during the development stage and, based on the faster case processing with fewer mistakes. In 2018, we have results, adapt the solution before it is launched to all of our developed an e-mail robot, which is to help the advisers select customers. In 2018, we have carried out 100 interviews and the correct e-mail template among approximately 300 variants. tests with PFA Customer Panel. This will provide the customer with a faster, more correct and uniform answer. Increased digitalisation of the customer experience In 2018, we have focused our efforts on digitalising more As mentioned earlier, PFA uses machine learning for further solutions to, to a greater extent, allow the customers to development of our advisory services model, and, in addition, administer their plans themselves through My PFA. We have we use artificial intelligence to improve the timing and quality improved the possibilities of reporting claims digitally, which of our advisory services. means that, today, approximately 60 per cent of claims for PFA Occupational Capacity and PFA Critical Illness are made Implementation of statutory requirements digitally. This have made it faster and easier for the custom- During 2018, focus has also been on the customer experi- ers to get help and apply for payouts and, at the same time, ence and optimisation in connection with the implementation made the subsequent case processing more efficient for PFA. of the statutory requirements related to the changes in the In August, it also became possible to report claims for PFA General Data Protection Regulation (GDPR), the Insurance Health Insurance digitally. Distribution Directive (IDD), the Danish Act on Measures to Prevent Money Laundering and Financing of Terrorism, the We have improved the experience for customers who wish to pension reform and MiFID II. Compliance with these statutory increase their insurance coverage by introducing an auto- requirements presents a comprehensive process which implies mated insurance acceptance process as the first company considerable pressure on resources in PFA as it affects all em- in Denmark. The new digital solutions mean that customers ployees with the Group and requires changes of business and who are recommended to increase their insurance coverage working procedures and of IT systems. through the Insurance Guide at My PFA can submit their health information, and, in 50 per cent of the cases, the increase will In connection with the implementation of the General Data be approved immediately. In cases with unsatisfactory health Protection Regulation, we have, among other things, devel- information or a need for further information, the customer oped system support for our duty to store and delete informa- will be notified that PFA needs to further assess the health tion. Moreover, we have developed a tool for secure dialogue information and that the customer will receive a reply as soon with our customers and management of the subsequent case as possible. processing. The tool is also used for dialogue with external business partners such as lawyers, doctors and private hospi- Over time, the majority of the communication with our cus- tals, which gives a more efficient case processing. tomers will be in digital form. After 1 September 2018, the customers, as a rule, receive all mail digitally either through We have also developed a new investment and insurance My PFA or through e-Boks. However, in connection with the guide for My PFA. These have been elaborated and improved implementation, there will be a transition phase during which as part of the implementation of the requirements of greater the customers can still receive ordinary mail. Customers can transparency and quality in the advisory services under MiFID II enter their contact information at My PFA so that they will and the Insurance Distribution Directive. The Investment Guide automatically be notified when new digital mail is available at focus on that the individual customer understands the recom- My PFA. mendation and any consequences of the investment. For example, the guide includes the customer’s investment Efficient use of new technology knowledge, wishes for involvement etc. Customers who want PFA aims to be a front runner in terms of digital solutions and to change their investment profile or change to PFA Optional have, therefore, in 2018, increased the use of, for example, or You Invest must complete the Investment Guide before the robotics for automating routine manual processes in connec- selection can be carried out. This way, we ensure that the in- tion with advisory services and case processing. We have set dividual customer always is aware of PFA’s Recommendations up a unit focused on implementation of robotics across PFA, and the consequences of his/her selection. and we have positive experience in the form of, for example,

PFA Holding Annual Report 2018 35 36 PFA Holding Annual Report 2018 PFA has ownership share in Nykredit A consortium headed by PFA, which consists of PFA, PKA, AP Pension, MP Pension and PensionDanmark, acquired 16.9 per cent of the shares in Nykredit at a value of DKK 11.6 billion during the spring of 2018.

PFA Holding Annual Report 2018 37 Capital structure and solvency

PFA has a substantial capital base, which ensures that PFA can the fact that CustomerCapital is fully recognised in PFA Pen- live up to the customers’ guaranteed benefits and fulfil other sion’s capital base, while only the part of CustomerCapital that obligations. covers PFA Pension’s solvency requirement can be included in the Group’s capital base. Strengthened capital base in 2018 The capital base in PFA Pension - which makes up the majority The Group’s solvency capital requirement totals DKK 14.4 bil- of the Group’s capital base - primarily consists of equity and lion at end-2018, compared to DKK 17.7 billion at end-2017, CustomerCapital with the addition and deduction of a number and the solvency ratio for the Group amounts to 157 per cent of differences between the financial balance sheet and the at end-2018, compared to 134 per cent at end-2017. Solvency II balance sheet. The solvency capital requirement in PFA Pension constitutes In 2018, the capital base in PFA Pension increased by DKK the majority of the Group’s solvency capital requirement. At 3.7 billion, amounting to DKK 41.2 billion at year-end 2018. end-2018, the solvency capital requirement for PFA Pension Among other things, the increase is due to a positive insur- amounts to DKK 14.2 billion against DKK 17.5 billion at end- ance result and positive net payments to CustomerCapital. In 2017. The excess coverage relative to the solvency capital addition, the corrections of the Solvency II balance sheet have requirement totals DKK 27.1 billion at end-2018, compared to increased primarily due to an adjusted risk margin estimate DKK 20.1 billion at end-2017, and the solvency ratio amounts and updated assumptions of policyholder behaviour. to 291 per cent at end-2018, compared to 215 per cent at end-2017. Equity for PFA Holding (excluding minority interests) increased by DKK 0.1 billion to DKK 5.7 billion at year-end 2018. A decline in the contribution from the risk module for market risks has contributed to a decline in the solvency capital re- Solvency quirement for PFA Pension in 2018. For the remaining financial PFA Holding A/S has, at the transition to Solvency II, obtained subsidiaries in the Group, the capital base and solvency capital permission from the Danish Financial Supervisory Authority to requirement have not changed of significance during the period. apply the so-called method 2 when calculating the solvency ratio for the Group (based on deductions and aggregations). The methodology used by PFA Pension is the standard When using this method, the Group’s solvency ratio is de- approach for calculation of the solvency capital requirement, termined as the difference between the Group companies’ but the model is adjusted using a partial internal model for aggregated capital base and aggregated solvency capital calculating the longevity risk. Under the Solvency II regula- requirements. tions, it is possible to apply a transitional scheme for equity stress, allowing the companies to apply reduced equity stress The Group’s solvency ratio is lower than the solvency ratio for to equities acquired before 1 January 2016. The transitional PFA Pension under the Solvency II regulations. This is due to scheme will be gradually phased out over the coming years. PFA Pension applies the transitional scheme to equity stress.

The PFA Group - financial strength

PFA Group PFA Pension

DKK billion, year-end 2018 2017 2018 2017

Capital base of financial subsidiaries 47.3 43.5 - -

Capital base employed on a dual basis (5.5) (5.5) - -

Other non-accepted capital at Group level (19.1) (14.3) - -

Capital base 22.6 23.8 41.2 37.5

Solvency capital requirement 14.4 17.7 14.2 17.5

Excess coverage 8.2 6.1 27.1 20.1

Solvency ratio (per cent) 157 134 291 215

38 PFA Holding Annual Report 2018 Solvency ratio – five-year summary

Determination at year-end 2018 2017 2016 2015 2014

Solvency ratio – PFA Group1 157 % 134 % 137 % 308 % 278 %

Solvency ratio - PFA Pension1 291 % 215 % 285 % 302 % 274 %

1) The solvency ratio is calculated for the PFA Group and PFA Pension as the Solvency II requirement during the years 2016-2018, whereas it is calculated as solvency ratio (Solvency I) during the years 2014-2015 according to the rules applicable at the balance sheet date.

Changes to the discount curve in 2019 Pension is expected to decline to approximately 250 per cent. The risk-free yield curve with addition of the risk-adjust- For the PFA Group, only a limited effect on the solvency ratio ed credit spread is used for measurement of life insurance is expected. provisions. Risk monitoring In 2017, EIOPA decided, as part of the ongoing adjustment The Boards of Directors of the individual subsidiaries have of the Ultimate Forward Rate, to change the rate from 4.20 determined the overall targets and relevant operational risk per cent to 3.65 per cent. The change is made by a gradual frameworks relative to solvency. The PFA Group met the introduction towards 2021. The rate was changed from 4.2 targets and had sufficient capital base to cover the solvency per cent at end-2017 to 4.05 per cent at the beginning of capital requirement throughout 2018. 2018. At the beginning of 2019, the rate will be changed to 3.90 per cent. On an ongoing basis, PFA monitors the customers’ reserves and the capital base excess coverage relative to the solvency EIOPA has announced that it will, in 2019, change the cal- capital requirement. Developments in these figures over time culation method for the risk-adjusted credit spread for DKK are reported to the Board of Directors and the day-to-day (Volatility Adjustment, VA). This entails that the addition of management team. Ongoing internal stress tests are carried the VA to the discount curve will, in future, account for option out and reported on to ensure that the company is able to adjustment of Danish mortgage bonds. As part of the ongoing cover the solvency capital requirement in the event of sub- adjustment, the underlying model portfolio weights will also stantial losses on equity and credit exposures combined with be updated. major fluctuations in the interest rate level.

Seen in relation to year-end 2018, the VA addition for DKK Please refer to note 33 in the financial statements for a de- and the long-term interest rates in the risk-free yield curve scription of the Group’s risk management. will thus be reduced in 2019. The lower discount curve implies that the life insurance provisions will increase, which will negatively impact the solvency ratio. The solvency ratio for PFA

PFA Holding Annual Report 2018 39 Management and organisation

PFA provides pension and insurance products to approximately areas in which the company operates etc. On this basis, the 1.3 million customers and is thus entrusted with the task of Board decides on the company’s policies. providing financial security for many people in Denmark. This is why we base our business on the trust of our customers, The PFA Pension Board of Directors and the PFA Holding employees and society in general, and, in this connection, the Board of Directors are identical. This Board is composed of integrity of our company is an important precondition. nine members elected by the annual general meeting and five members elected by the employees. Trust and integrity rest on the behaviour of each of PFA’s employees. This means that PFA must run its business in a fair The Board of Directors’ duty is to oversee the company’s busi- and responsible manner towards its employees, customers ness activities and ensure that the company is run responsibly and society as a whole. PFA acts in compliance with Danish and in compliance with statutory provisions and the articles of legislation, industrial standards and the international principles association. The Board of Directors appoints and dismisses the on corporate responsibility and sustainability under which PFA company’s Executive Board, Chief Actuary and Internal Auditor. has chosen to run its operations. PFA’s work with corporate responsibility is addressed in the 2018 CR Report, which can Board members elected by the annual general meeting are be found at english.pfa.dk/cr-report2018. elected for one year at a time, and board members elected by the employees are elected for four years at a time. Board mem- PFA’s business model bers can be re-elected. The age limit for board members is 70. PFA was founded by employers’ and employees’ organisa- tions with the purpose of ensuring financial security for the Changes to the Board of Directors in 2018 employees and their families when they became too old to At the annual general meeting on 14 March 2018, Lone Eng- work, became unable to work or changed jobs. Therefore, the berg Thomsen and Peter Ibsen resigned from the Board of Di- owners chose to waive their share of the profit PFA generates rectors. As new members of the Board of Directors, the annual in order to ensure that as much as possible of PFA’s profit was general meeting elected Claus Oxfeldt and Mogens Steffensen, distributed to the customers. This continues to be the case who were nominated by the Board of Directors. today, where customers receive a part of PFA’s profit through PFA CustomerCapital. Since 2013, Claus Oxfeldt has been President of the Danish Police Union and chaired Politiforeningen 2007-2013. In addition to this, PFA generates value for its customers through professional advisory services, flexible insurance plans Mogens Steffensen is Professor and Head of Section for and active investment of the savings, which make use of PFA’s Insurance and Economics in the Department of Mathematical professional investment expertise and economies of scale to Sciences at the University of Copenhagen. He holds a Master generate favourable risk-adjusted returns at low costs. (1997) and PhD (2001) in Actuarial Mathematics from the Uni- versity of Copenhagen. Mogens Steffensen has been elected An overview of the Group’s legal structure and units can as board member with special actuarial competencies. be found in the section Group Structure on page 94 of this report. Karsten Dybvad Dalsjö has resigned from the Board of Direc- tors as at 12 December 2018. General meeting and Board of Directors PFA’s highest authority is the general meeting, and the ordi- Chairmanship nary annual general meeting is held every year in March. The chairmanship consists of the Chairman and the two The annual general meeting elects the Board of Directors, Vice-Chairmen of the Board of Directors, who, together with which manages the company’s affairs. the Executive Board, prepare the board meetings.

The Board of Directors decides on the company’s business As at 31 December 2018, the chairmanship consists of: model and strategy, including targets for the nature, scope and complexity of the company’s risks and activities, the com- • Torben Dalby Larsen, Chairman pany’s size, structure, business activities and the geographical • Lasse Grønbech, Vice-Chairman • Niels-Ulrik Mousten, Vice-Chairman

40 PFA Holding Annual Report 2018 The chairmanship held 17 meetings during 2018. ongoing follow-up on previously approved investments – espe- cially property investments and alternative investments – as Group Audit Committee and Audit Committee well as ensuring that PFA has sufficient processes for risk As at 31 December 2018, PFA’s Group Audit Committee and management and reporting within the investment area. Audit Committee consist of three board members: PFA’s Investment Committee held 11 meetings during 2018. • Niels-Ulrik Mousten, Chairman • Lasse Grønbech Remuneration Committee • Mogens Steffensen PFA’s business model focuses on creating value for its custom- ers through the highest possible investment return and the PFA Holding’s Group Audit Committee was established in June lowest possible direct and indirect costs. 2015. One of its tasks is to serve as a monitoring function of the financial reporting process at Group level and to oversee Remuneration throughout the PFA Group’s companies is based that the Group’s internal control systems and risk manage- on the principles of fairness and proper conduct. Employ- ment systems function effectively and are dealt with at Group ees are remunerated with due regard to PFA’s objective of level. Furthermore, the Group Audit Committee must mon- generating maximum value for its customers, both in the short itor and control auditors’ independence. PFA’s Group Audit and long term. Accordingly, remuneration is not to include Committee held 4 meetings during 2018. Internal and external incentives that could induce employees to assume unneces- audit participated in all the meetings. sary risks.

PFA Pension’s Audit Committee was established in 2009, and At the same time, the PFA Group wishes to ensure competi- its responsibilities include monitoring the financial reporting tive remuneration throughout the organisation to match the process and the statutory audit of the financial statements value generated. Remuneration should conform to the market as well as overseeing the efficiency of the company’s internal and be fixed in consideration of PFA’s desire to be able to controls, internal audit and risk management systems. Further- attract and retain qualified employees at all times. Together more, the Audit Committee must monitor and control auditors’ with other employment terms, remuneration should reflect independence. the customers’ and the company’s interests and promote the long-term objective of creating value for customers as well as PFA Pension’s Audit Committee held 4 meetings during 2018. promoting sound and efficient risk management. Internal and external audit participated in all the meetings. As at 31 December 2018, PFA’s Remuneration Committee con- Investment Committee sists of five board members, one of whom has been elected As at 31 December 2018, PFA’s Investment Committee con- by the employees: sists of four board members: • Torben Dalby Larsen, Chairman • Peder Hasslev, Chairman • Helle Valentin Hasselris • Lars Christoffersen • Mette Hyllekrog Risom • Niels-Ulrik Mousten • Laurits Kruse Rønn • Claus Oxfeldt • Per Tønnesen

PFA’s Investment Committee was originally established as part On behalf of the Board of Directors, the Remuneration Com- of the Audit Committee in 2016, but, on the basis of the gen- mittee carries out the preliminary work in connection with eral increase in complexity and significance of asset manage- determining the rules of remuneration, including submitting ment of PFA Pension’s customer funds, it was separated into the salary policy to the Board of Directors for approval and its an independent investment committee in 2017. recommendation on the Executive Board’s remuneration. In its preliminary work, the Committee is attentive to the company’s Among other things, the Investment Committee is tasked with long-term interests. Furthermore, the Committee may perform handling investment recommendations and preparing drafts other tasks relevant to the Committee’s ability to assess for the investment strategy before board meetings, ensuring remuneration.

PFA Holding Annual Report 2018 41 The Remuneration Committee reports to the Board of Directors after the ordinary annual general meeting. The report will be on a regular basis and held four meetings in 2018. For infor- available at pfa.dk/afloenningsrapport2018, however, please mation about remuneration issues, please refer to the 2018 note that the report will be available in Danish only. Remuneration Report, which will be published in March 2019

Board and committee meetings in PFA Holding and PFA Pension in 2018

Board meetings

Board member Participation

Torben Dalby Larsen 11

Lasse Grønbech 11

Peter Ibsen (resigned as at 14 March 2018) 1

Niels-Ulrik Mousten 10

Carsten Bach 11

Lars Christoffersen 11

Karsten Dybvad Dalsjö (resigned as at 12 December 2018) 7

Peder Hasslev 10

Carsten Holdum 11

Claus Oxfeldt (elected as at 14 March 2018) 8

Hanne Sneholm 9

Mette Hyllekrog Risom 11

Laurits Kruse Rønn 10

Lone Elisabeth Engberg Thomsen (resigned as at 14 March 2018) 0

Mogens Steffensen (elected as at 14 March 2018) 9

Per Niels Tønnesen 6

Helle Valentin Hasselris 8

Number of meetings 11

Note: A total of 11 board meetings were held in PFA Holding and PFA Pension in 2018. Out of the 11 board meetings, 8 were held in both PFA Holding and PFA Pension, while 3 separate board meetings were held in PFA Pension.

42 PFA Holding Annual Report 2018 Chairmanship meetings Participation Board member

Torben Dalby Larsen 17

Lasse Grønbech (elected as Vice-Chairman as at 14 March 2018) 9

Peter Ibsen (resigned as at 14 March 2018) 6

Niels-Ulrik Mousten 16

Number of meetings 17

Audit Committee meetings Participation Board member

Lars Christoffersen (resigned as at 14 March 2018) 1

Karsten Dybvad Dalsjö (resigned as at 12 December 2018) 2

Lasse Grønbech 3

Niels-Ulrik Mousten 4

Mogens Steffensen (elected as at 14 March 2018) 3

Number of meetings 4

Group Audit Committee meetings Participation Board member

Lars Christoffersen (resigned as at 14 March 2018) 1

Karsten Dybvad Dalsjö (resigned as at 12 December 2018) 2

Lasse Grønbech 3

Niels-Ulrik Mousten 4

Mogens Steffensen (elected as at 14 March 2018) 3

Number of meetings 4

Investment Committee meetings Participation Board member

Lars Christoffersen (elected as at 14 March 2018) 7

Karsten Dybvad Dalsjö (resigned as at 12 December 2018) 8

Peder Hasslev 11

Peter Ibsen (resigned as at 14 March 2018) 4

Niels-Ulrik Mousten 10

Claus Oxfeldt (elected as at 14 March 2018) 5

Number of meetings 11

PFA Holding Annual Report 2018 43 Remuneration Committee meetings Participation Board member

Torben Dalby Larsen 4

Mette Hyllekrog Risom 4

Laurits Kruse Rønn 3

Lone Elisabeth Engberg Thomsen (resigned as at 14 March 2018) 0

Per Niels Tønnesen (elected as at 14 March 2018) 0

Helle Valentin Hasselris 4

Number of meetings 4

Executive Board The key areas are broken down into overall targets (KPIs). The PFA’s Executive Board consists of four persons: KPIs are followed up on quarterly, so that the Board of Direc- tors and Executive Board as well as executive staff members • Allan Polack, Group CEO and other employees get information on how PFA performs. • Anders Damgaard, Executive Vice President, CFO The KPIs are also incorporated into bonus models, and bonus- • Jon Steingrim Johnsen, Executive Vice President, COO es are thus dependent on PFA’s overall performance. • Mads Nicolai Kaagaard, Executive Vice President Together with the overall goals, a plan has been made for The managerial posts of the Board of Directors and each key area, stating the central initiatives that are to be the Executive Board implemented to make it possible to adhere to the strategy. A list of the managerial posts of the Board of Directors and We take a structured approach to the development plans with Executive Board is shown on page 96 in this Report. ongoing reporting and adjustments depending on needs and progress. Customer Board PFA has a Customer Board with up to 80 key decision-makers PFA’s Executive Board communicates the overall strategic from our largest corporate and organisational customers. As direction towards 2020. Executives and employees are briefed at 31 December 2018, the Chairman of the Customer Board is on a regular basis through the intranet and at dialogue Lone Elisabeth Engberg Thomsen, who chairs Teknisk Lands- meetings on the status of the overall goals and development forbund (The Danish Association of Professional Technicians). plans. In addition, PFA’s management system and the ongoing processing of strategic developments will ultimately cause the The Customer Board serves as a liaison between customers policy to be firmly rooted at all organisational levels. and PFA’s Management and ensures close relations with our customers. Targets for female representation at management level The Customer Board held four meetings in 2018, during which PFA has set targets for the so-called underrepresented gender it discussed pension policy issues, new products and services. on the management team – in practice, this means the share of women – and adopted a policy to increase the share of Anchoring the strategy women at all levels of management. In 2015, PFA drafted a new strategy, Stratey2020. The strategy sets out a number of strategic objectives for PFA organised PFA’s focus is on attracting female candidates for both seats into five key areas, each having its own goals. The key areas on the Board of Directors and management positions in are: identity, corporate and organisational customers, private general, and, over time, attaining the desired target figures. customers, investment and productivity. The work with gender diversity is described in PFA’s CR Report, which also contains a review of fulfilment of the PFA Group’s targets and policy for the underrepresented gender

44 PFA Holding Annual Report 2018 at management level. In addition, a statement on this subject can be found at pfa.dk.

A breakdown by gender for PFA’s executive levels is as follows for 2018: 46 per cent female managers, 33 per cent female senior managers and 24 per cent female vice presidents.

The organisation Employee turnover measured over the year for all types of staff exits was 14.2 per cent against 16.0 per cent in 2017. The turnover rate for employees who chose to resign was 8.8 per cent against 10.1 per cent in 2017. In total, PFA took on 178 new employees in 2018 against 290 in 2017. The average number of full-time employees at PFA was 1,337 in 2018 against 1,296 in 2017.

Whistleblower scheme PFA’s whistleblower scheme is intended to provide an extra option for uncovering illegal or irresponsible matters that violate PFA’s set of values or rules, and also to improve the employees’ possibility to take action – in a safe and confiden- tial manner – without being put in an uncomfortable situation.

The employees can report incidents or pass on information on violations or potential violations of legislation, significant breaches to safe working practices, physical violence, sexual harassment, other dishonest or unfair circumstances etc.

The cases may be reported confidentially and anonymously to the Chairman of the Group Audit Committee and the Chief Compliance Officer or other members of the Group Audit Committee, who will examine the issues in further detail and report to the Board of Directors.

The scheme was launched and implemented in 2012. In 2014, a whistleblower portal was launched, offering confidential, anonymous and electronic reporting. In 2018, two cases where reported, which have been processed and completed.

PFA Holding Annual Report 2018 45 Expectations for 2019

We expect the increased competition for corporate, organisa- PFA will continue to focus on improving the customer expe- tional and private customers to continue in 2019. rience in the form of more relevant messages and custom- er-friendly digital solutions, which offer an overview of the In 2018, we have seen increased focus on alternative and pension plan as well as the opportunity to customise the responsible investments. This is a tendency that we expect to recommendations so that the individual customer get even continue during 2019 concurrently with continued significant better self-service options. volatility on the financial markets. The market for private savings will still be challenged by the historically low interest During 2019, an updated Pension Estimator, a savings guide rates, and, therefore, customers are expected to be drawn and more will improve My PFA. In addition, the platform will be towards professional and low-cost investment solutions. updated with a new module on will and inheritance that pro- vides the customers with an overview of how their assets are Also, 2019 will be marked by Great Britain’s exit from the EU distributed between statutory inheritance and assets available on 29 March 2019. The Brexit consequences will to a large for testamentary freedom. In addition, the customers will get degree be contingent on the rules of a potential transition pe- the possibility of designating and changing beneficiaries at riod as well as the final exit agreement. The negotiations have My PFA. In 2019, the customers will also get the possibility to yet to be finalised, and PFA has therefore prepared for several follow their case with PFA at My PFA. scenarios where the exit is either happening on the basis of a “divorce settlement” that includes a transition period or a Implementation of new legislation so-called “hard Brexit” without an agreement and appertaining In 2019, we will focus on further developing the prognoses transition period. for future payouts at My PFA to ensure that they comply with the consumer initiatives introduced by Insurance & Pension Intensified competition for customers Denmark that must be implemented by 1 January 2020. The We expect the competition on the market for pension plans prognoses will become more elaborate so that they, in future, for companies and organisations to intensify further during also show the payout with a high and a low investment return 2019 with some pensions suppliers having grown in size while as well as the average, which is the expected return. This will the number of suppliers has declined. Therefore, we will have illustrate the uncertainty of the prognosis more clearly and focus on continuing to be an attractive pension supplier for thus give the customers a better basis for determining wheth- our existing corporate and organisational customers and offer er their savings are sufficient. At the same time, the pension them even greater value through market leading health and prognosis will be extended to also include risk labelling of the preventive products, flexible savings products, user-friendly payout risk for the individual customer. digital solutions and insurance cover that reflect the custom- ers’ needs. Investment climate We estimate that the global economic upswing will continue At the same time, we will focus on attracting new customers, during 2019, although at a slower pace than in previous years. and, in that connection, we have great expectations for the This may lead to a continued reduction of idle capacity in the possibility of selling pension plans for corporate customers global economy and rising inflationary pressure. The US central through Letpension. bank is expected to continue to gradually and slowly raise interest rates. The tendency to gradually increased bond rates Strengthened digital solutions is supported by the European Central Bank having discontin- The wave of digitalisation means a better customer experience ued its purchase of new bonds and potentially raising interest and reduced expenses in many companies. It is our expec- rates during the second half of the year if the economy tation that this tendency will continue in 2019, and that a develops as expected. The equity markets are expected to be strong digital solution will be of increasing importance to win supported by the prospects of continued growth and increas- the battle for the customers. Therefore, we are speeding up ing earnings for companies, although on a smaller scale than the use of artificial intelligence further with the establishment in previous years, which dampens the return expectations. For of PFA AI Center of Excellence. the year as a whole, PFA expects a positive investment return with high-risk assets yielding higher returns than bonds.

46 PFA Holding Annual Report 2018 However, the volatility on the financial markets is expected to increase during 2019, and there is an elevated risk of negative market corrections and a mild recession as we are currently moving towards the end of an upswing. Among other things, the risks can be attributed to increased insecurity about mon- etary tightenings, high valuation of assets, the US’ America First policy and China’s growing debt. Add to this the risks specific to Europe that stem from Brexit and Italy’s high level of debt. In contrast, a positive development for these risks could heighten the risk appetite.

Result for the year In 2019, the pre-tax result for the year is expected to be on a par with 2018. The result will depend on the development on the financial markets, developments in longevity, and thus whether operational risk charge can be recognised as income for the portfolio of average interest rate plans as well as the development in claims expenses and initiatives to improve health and accident insurance. The solvency ratio is expected to remain at a high level.

PFA Holding Annual Report 2018 47 Post balance sheet events

Management has not identified any events that significantly impact the company’s financial position from 31 December 2018 until the signing of the financial statements.

48 PFA Holding Annual Report 2018 PFA becomes co-owner of TDC In the spring of 2018, PFA purchased TDC A/S together with ATP, PKA and Macquarie Infrastructure and Real Assets. PFA’s investment totalled DKK 3.5 billion. The investment is to play a part in furthering Denmark’s position as digital front runner and, at the same time, generate solid returns for PFA’s customers.

Photo: Jon Norddahl

PFA Holding Annual Report 2018 49 5-year summary for the PFA Group

Key figures (DKK million) 2014 2015 2016 2017 2018

Income statement

Premiums 23,820 27,001 29,837 32,077 35,505

Insurance benefits (22,037) (20,041) (17,159) (21,362) (21,329)

Investment return 46,082 13,616 26,519 26,340 (5,302)

Total insurance operating expenses (860) (856) (846) (865) (850)

Profit on ceded business 54 101 100 81 72

Technical result 914 699 560 460 829

Technical result of health and accident insurance (196) (644) (481) (423) (830)

Profit before tax 1,216 239 372 399 43

Net profit/(loss) for the year 470 (574) 219 247 114

Balance sheet

Total provisions for insurance and investment contracts 363,683 356,167 410,541 440,826 448,638

Total equity 7,394 7,440 6,944 7,731 7,906

CustomerCapital 24,469 25,803 28,838 31,359 32,947

Total assets 552,258 545,266 607,178 596,268 575,820

Financial ratios

Rate of return related to average interest rate products 15.6 % 2.2 % 6.6 % 3.5 % 0.7 %

Rate of return related to market rate products 10.0 % 6.7 % 6.5 % 8.3 % (3.3) %

Risk on return related to market rate products - - 4.25 4.25 4.25

Expense ratio on provisions 0.27 % 0.25 % 0.22 % 0.21 % 0.19 %

Expenses per insured DKK 779 DKK 765 DKK 739 DKK 733 DKK 696

Return on equity after tax 1) 7.5 % (9.2) % 4.2 % 4.6 % 2.0 %

Return on CustomerCapital, which receives return like equity 1) 17.1 % 2.6 % 9.3 % 7.4 % 3.4 %

1) The Danish Financial Supervisory Authority’s enforcement order of 18 June 2013 does not imply any changes of the contribution (allocation of profit or loss), for which rea- son the 2014 return ratios were not impacted. For 2015, the income statement has been adjusted according to the description in the accounting policies, and the return ratios have been adjusted accordingly. The key figures and financial ratios for 2014 aand 2015 have neither been adjusted according to the latest Danish Executive Order on the Presentation of Financial Statements applicable as at 1 January 2016 nor any subsequent executive orders of amendment.

50 PFA Holding Annual Report 2018 Statement by the Executive Board and the Board of Directors on the Annual Report

We have today presented the Annual Report of PFA Holding In our opinion, the Management’s Review gives a fair pres- A/S for the financial year 1 January – 31 December 2018. entation of the development in the Group’s and Parent Com- pany’s activities and financial position as well as a description The annual report has been presented in accordance with the of material risks and elements of uncertainty that may affect Danish Financial Business Act. the Group and the Parent Company.

We consider the consolidated financial statements and the We recommend that the Annual Report be approved by the financial statements to give a true and fair view of the Group’s Annual General Meeting. and the Parent Company’s assets, liabilities, financial position and results.

Copenhagen, 7 February 2019

Executive Board:

Allan Polack Anders Damgaard Jon Steingrim Johnsen Mads Nicolai Kaagaard Group CEO Executive Vice President, CFO Executive Vice President, COO Executive Vice President

Board of Directors:

Torben Dalby Larsen Lasse Grønbech Niels-Ulrik Mousten Chairman Vice-Chairman Vice-Chairman

Carsten Bach Lars Christoffersen Helle Valentin Hasselris Peder Hasslev

Carsten Holdum Claus Oxfeldt Mette Hyllekrog Risom Laurits Kruse Rønn

Hanne Sneholm Mogens Steffensen Per Niels Tønnesen

PFA Holding Annual Report 2018 51 Independent auditor’s report

To the shareholders of PFA Holding A/S auditor’s report. We are independent of the Group in accord- Opinion ance with the International Ethics Standards Board of Account- We have audited the consolidated financial statements and ants’ Code of Ethics for Professional Accountants (IESBA Code) the parent financial statements of PFA Holding A/S for the and additional requirements applicable in Denmark, and we financial year 1 January to 31 December 2018, which comprise have fulfilled our other ethical responsibilities in accordance the income statement, statement of comprehensive income, with these requirements. We believe that the audit evidence balance sheet, statement of capital and notes, including the we have obtained is sufficient and appropriate to provide a summary of significant accounting policies, for the Group as basis for our opinion. well as the Parent. The consolidated financial statements and the parent financial statements are prepared in accordance To the best of our knowledge and belief, we have not provid- with the Danish Financial Business Act. ed any prohibited non-audit services as referred to in Article 5(1) of Regulation (EU) No 537/2014. In our opinion, the consolidated financial statements and the parent financial statements give a true and fair view of the We were appointed auditors of PFA Holding A/S for the first Group’s and the Parent’s financial position at 31 December time on 7 May 2002 for the financial year 2002. We have 2018 and of their financial performance for the financial year been reappointed annually by decision of the general meeting 1 January to 31 December 2018 in accordance with the Danish for a total contiguous engagement period of 17 years up to Financial Business Act. and including the financial year 2018. We were reappointed after a tendering process at the Annual General Meeting on 23 Our opinion is consistent with our audit book comments April 2014. issued to the Audit Committee and the Board of Directors. Key audit matters Basis for opinion Key audit matters are those matters that, in our professional We conducted our audit in accordance with International judgement, were of most significance in our audit of the con- Standards on Auditing (ISAs) and additional requirements solidated financial statements and the parent financial state- applicable in Denmark. Our responsibilities under those stand- ments for the financial year 1 January to 31 December 2018. ards and requirements are further described in the Auditor’s These matters were addressed in the context of our audit of responsibilities for the audit of the consolidated financial the consolidated financial statements and the parent financial statements and the parent financial statements section of this statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

52 PFA Holding Annual Report 2018 Measurement of unlisted investments How the matter is addressed in our audit

Unlisted investments amount to DKK 89.6 billion at 31 Decem- Based on our risk assessment, we have audited Management’s ber 2018 (DKK 68 billion at 31 December 2017) and consist measurement of unlisted investments. of properties, property funds, private equity funds, infrastruc- ture funds, unlisted shares, corporate bonds and loans. We Our audit procedures included the following elements: have assessed measurement of unlisted investments to be a key audit matter as the measurement is affected by manage- • Test of key controls concerning the determination by Ma- ment estimates, including assessments and assumptions and nagement of assumptions, including whether key controls management choice of methodology applied and the data have been designed and implemented appropriately and used. Changes in assumptions and the methodology applied operate effectively during the financial year. may have a material impact on the measurement of unlisted • Assessment of the methodology applied based on the investments. characteristics of the investments, our industry knowled- ge and experience. The most material judgements are: • Test of the completeness and accuracy of data used on a sample basis. • Choice of methodology. • Assessment of key assumptions, including trends, • Assessment of future cash flows, including rental income, budgets, external market data and testing of underlying idle levels, earnings, etc. documentation on a sample basis. • Assessment of required rate of return, including il- liquid premium and investment-specific risk premium expectations. • Assessment of valuation multiples. • Management has further described principles and as- sumptions regarding the measurement of unlisted invest- ments in the accounting policies.

PFA Holding Annual Report 2018 53 Measurement of provisions for insurance and investment contracts How the matter is addressed in our audit Provisions for insurance and investment contracts amount to Based on our risk assessment, we have audited Management’s DKK 449 billion at 31 December 2018 (DKK 441 billion at 31 measurement of provisions for insurance and investment December 2017). We have assessed measurement of provi- contracts. sions for insurance and investment contracts to be a key audit matter as the calculation is complex and the measurement is Our audit procedures included the following elements, where significantly affected by management estimates, including as- we also made use of our internationally qualified actuaries: sumptions of future events, the methodology applied and data used. Changes in assumptions, the methodology applied and • Test of key controls concerning the determination by Ma- data used may have a material impact on the measurement of nagement of assumptions, including whether key controls provisions for insurance and investment contracts. have been designed and implemented appropriately and operate effectively during the financial year. The most material judgements and assumptions are: • Assessment of basis and process for determination of assumptions for risk and profit margin. • Assessment of future cash flows on concluded insurance • Assessment of the applied disability and mortality rates, and investment contracts, including determining risk and reactivation assumptions and surrender probabilities com- profit margin. pared to historical data and market practice. • Determining life expectancy. • Assessment of assumptions and methodology applied • Determining expected surrender probabilities. compared to generally accepted actuarial standards and • Determining expected disability rates and reactivation historical trends. intensities. • Test of completeness and accuracy of the underlying data and examining the actuarial calculations and models on a Management has provided further information about policies sample basis. and assumptions for the statement of provisions for insurance • Based on analyses made by the Company, we have asses- and investment contracts in the accounting policies and note sed the trends in provisions for insurance and invest- 23 ”Life insurance provisions”. ments contracts compared to last year and the trends in industry standards and practice.

54 PFA Holding Annual Report 2018 Management’s responsibilities for the consolida- financial statements, whether due to fraud or error, ted financial statements and the parent financial design and perform audit procedures responsive to those statements risks, and obtain audit evidence that is sufficient and Management is responsible for the preparation of consoli- appropriate to provide a basis for our opinion. The risk dated financial statements and parent financial statements of not detecting a material misstatement resulting from that give a true and fair view in accordance with the Danish fraud is higher than for one resulting from error, as fraud Financial Business Act, and for such internal control as Man- may involve collusion, forgery, intentional omissions, mis- agement determines is necessary to enable the preparation representations, or the override of internal control. of consolidated financial statements and parent financial • Obtain an understanding of internal control relevant to statements that are free from material misstatement, whether the audit in order to design audit procedures that are ap- due to fraud or error. propriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s In preparing the consolidated financial statements and the and the Parent’s internal control. parent financial statements, Management is responsible for • Evaluate the appropriateness of accounting policies used assessing the Group’s and the Parent’s ability to continue as and the reasonableness of accounting estimates and a going concern, for disclosing, as applicable, matters related related disclosures made by Management. to going concern, and for using the going concern basis of • Conclude on the appropriateness of Management’s use of accounting in the preparation of the consolidated financial the going concern basis of accounting in the preparation statements and the parent financial statements unless Man- of the consolidated financial statements and the parent agement either intends to liquidate the Group or the Company financial statements, and, based on the audit evidence or to cease operations, or has no realistic alternative but to obtained, whether a material uncertainty exists related do so. to events or conditions that may cast significant doubt on the Group’s and the Parent’s ability to continue as a going Auditor’s responsibilities for the audit of the concern. If we conclude that a material uncertainty exists, consolidated financial statements and the parent we are required to draw attention in our auditor’s report financial statements to the related disclosures in the consolidated financial Our objectives are to obtain reasonable assurance about statements and the parent financial statements or, if such whether the consolidated financial statements and the disclosures are inadequate, to modify our opinion. Our parent financial statements as a whole are free from material conclusions are based on the audit evidence obtained misstatement, whether due to fraud or error, and to issue an up to the date of our auditor’s report. However, future auditor’s report that includes our opinion. Reasonable assur- events or conditions may cause the Group and the Com- ance is a high level of assurance, but is not a guarantee that pany to cease to continue as a going concern. an audit conducted in accordance with ISAs and the additional • Evaluate the overall presentation, structure and content requirements applicable in Denmark will always detect a mate- of the consolidated financial statements and the parent fi- rial misstatement when it exists. Misstatements can arise from nancial statements, including the disclosures in the notes, fraud or error and are considered material if, individually or in and whether the consolidated financial statements and the aggregate, they could reasonably be expected to influence the parent financial statements represent the underlying the economic decisions of users taken on the basis of these transactions and events in a manner that gives a true and consolidated financial statements and these parent financial fair view. statements. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities As part of an audit in accordance with ISAs and the additional within the Group to express an opinion on the consolida- requirements applicable in Denmark, we exercise professional ted financial statements. We are responsible for the direc- judgement and maintain professional scepticism throughout tion, supervision and performance of the group audit. We the audit. We also: remain solely responsible for our audit opinion.

• Identify and assess the risks of material misstatement We communicate with those charged with governance re- of the consolidated financial statements and the parent garding, among other matters, the planned scope and timing

PFA Holding Annual Report 2018 55 of the audit and significant audit findings, including any signifi- Danish Financial Business Act. We did not identify any material cant deficiencies in internal control that we identify during our misstatement of the management’s report. audit. Copenhagen, 7 February 2019 We also provide those charged with governance with a state- ment that we have complied with relevant ethical require- ments regarding independence, and to communicate with Deloitte them all relationships and other matters that may reasonably Statsautoriseret Revisionspartnerselskab be thought to bear on our independence, and, where applica- Business Registration No 33 96 35 56 ble, related safeguards.

From the matters communicated with those charged with gov- Kasper Bruhn Udam Michael Thorø Larsen ernance, we determine those matters that were of most sig- State-Authorised State-Authorised nificance in the audit of the consolidated financial statements Public Accountant Public Accountant and the parent financial statements of the current period and MNE no mne29421 MNE no mne35823 are therefore the key audit matters. We describe these mat- ters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequenc- es of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Statement on the management’s report Management is responsible for the management’s report.

Our opinion on the consolidated financial statements and the parent financial statements does not cover the management’s report, and we do not express any form of assurance conclu- sion thereon.

In connection with our audit of the consolidated financial statements and the parent financial statements, our respon- sibility is to read the management’s report and, in doing so, consider whether the management’s report is materially in- consistent with the consolidated financial statements and the parent financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

Moreover, it is our responsibility to consider whether the man- agement’s report provides the information required under the Danish Financial Business Act.

Based on the work we have performed, we conclude that the management’s report is in accordance with the consolidated financial statements and the parent financial statements and has been prepared in accordance with the requirements of the

56 PFA Holding Annual Report 2018 Købmagergade Post Office In 2014, PFA purchased Købmagergade Post Office at a price of DKK 400 million. From 1780 to 1912, the building was the headquarters of the Post and Telegraph Office and subsequently it functioned as post office until 2011. After purchasing the building, PFA has renovated it, and, in 2017, it was valued at approximately DKK 1.4 billion.

PFA Holding Annual Report 2018 57 Income statement Income statement Note (DKK million) PFA Group PFA Holding 2018 2017 2018 2017

1 Gross premiums 35,505 32,077 - - Ceded insurance premiums (135) (182) - - Total premiums, net of reinsurance 35,370 31,895 - -

Income from group enterprises (114) (29) 128 262 Income from associates 1,223 799 - - Income from investment properties and other tangible investment assets 890 565 - - 2 Interest income and dividends, etc. 11,814 12,105 0 0 3 Value adjustments (17,741) 14,158 (1) (0) Interest expenses (178) (114) (0) (0) 6 Administrative expenses related to investment activities (1,196) (1,143) 0 (0) Total investment return (5,302) 26,340 127 262 4 Pension yield tax 1,016 (3,712) - -

5 Claims and benefits paid (21,329) (21,362) - - Reinsurance cover received 208 263 - - Total insurance benefits, net of reinsurance (21,121) (21,099) - -

23 Change in life insurance provisions 9,542 9,347 - - 24 Change in life insurance provisions, market rate (14,413) (36,566) - - Change in life insurance provisions (4,871) (27,219) - -

Change in profit margin (1,647) (1,792) - - 22 Change in CustomerCapital (1,588) (2,519) - -

Acquisition costs (357) (321) - - Administrative expenses (493) (544) (21) (18) 6 Total insurance operating expenses, net of reinsurance (850) (865) (21) (18)

7 Transferred investment return (177) (568) - -

TECHNICAL RESULT 829 460 107 244 8 TECHNICAL RESULT OF HEALTH AND ACCIDENT INSURANCE (830) (423) - - 7 Investment return on equity 40 268 - - Other income 67 148 - - Other expenses (64) (54) - -

9 PROFIT/(LOSS) BEFORE TAX 43 399 107 244 10 Tax 41 (96) 7 4 Net profit/(loss) for the year before minority interests 84 304 114 247 Minority interests' share 30 (56) - -

NET PROFIT/(LOSS) FOR THE YEAR 114 247 114 247

Value adjustment of owner-occupied property (0) 7 - - Value adjustment of infrastructure facilities - - - - Exchange differences in connection with foreign currency translations (15) 1 - - Other comprehensive income transferred to provisions for insurance contracts 15 (8) - - Total other comprehensive income 0 (0) - -

COMPREHENSIVE INCOME FOR THE YEAR 114 247 114 247

Recommended distribution of the profit/(loss): Dividend 0 0 Transfer to equity 114 247 Comprehensive income for the year 114 247

58 PFA Holding Annual Report 2018 Balance sheet Balance sheet Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 ASSETS

Intangible assets 273 227 28 28

11 Equipment 32 58 - - 12 Owner-occupied properties 589 496 - - Total tangible assets 621 554 - -

13 Investment properties and other tangible investment assets 17,873 12,693 - -

Investments in group enterprises and associates 14 Equity investments in group enterprises - - 5,512 5,428 15 Equity investments in associates 7,081 6,698 - - Loans to associates 2,941 1,005 - - Total investments in group enterprises and associates 10,022 7,703 5,512 5,428

Other financial investment assets Equity investments 25,413 31,073 - - 16 Bonds 186,419 195,827 106 87 17 Secured loans 254 268 - - 17 Other loans 3,906 944 - - 18 Deposits with credit institutions 2,847 8,207 - - 19 Miscellaneous 19,383 21,538 - - Total other financial investment assets 238,223 257,856 106 87

TOTAL INVESTMENT ASSET 266,117 278,253 5,618 5,515

20 INVESTMENT ASSETS RELATED TO MARKET RATE PRODUCTS 280,881 285,842 - -

Receivables Receivables from policyholders 388 395 - - Receivables from insurance companies 71 72 - - Other receivables 727 274 - - Total receivables 1,186 741 - -

Other assets Current tax assets 171 50 16 11 10 Deffered tax assets 1,960 155 10 10 Cash and cash equivalents 21,374 26,848 4 8 Total other assets 23,505 27,054 31 28

Prepayments and accrued income Interest receivable and accumulated rent 2,584 3,165 0 0 Other prepayments and accrued income 654 432 - 2 Total prepayments and accrued income 3,238 3,597 0 2

TOTAL ASSETS 575,820 596,268 5,677 5,574

PFA Holding Annual Report 2018 59 Balance sheet Balance sheet Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 EQUITY AND LIABILITIES

Equity 21 Share capital 1 1 1 1 Contingency fund 1,245 1,245 - - Revaluation reserve, owner-occupied properties 2 2 - - Retained earnings 4,415 4,301 5,662 5,548 Proposed dividend 0 0 0 0 Equity, PFA Holding 5,663 5,549 5,663 5,549 Equity, minority interests 2,244 2,182 - - Total equity 7,906 7,731 5,663 5,549

Subordinate loan capital 22 CustomerCapital 32,947 31,359 - - Subordinate loan capital 32,947 31,359 - -

Provisions for insurance and investments contracts Provisions for unearned premiums 1,704 1,293 - - 23 Life insurance provisions 196,785 206,350 - - 24 Life insurance provisions, market rate 237,605 223,207 - - 25 Profit margin on life insurance and investment contracts 4,644 2,974 - - 26 Provisions for claims 6,875 5,400 - - Risk margin on non-life insurance contracts 1,025 1,602 - - Total provisions for insurance and investment contracts 448,638 440,826 - -

Provisions 10 Deferred tax liabilities - - - - Total provisions - - - -

Liabilities other than provisions Payables, direct insurance operations 40 56 - - 27 Payables to credit institutions 54,030 67,958 - - Bond loans 2,703 - - - Payables to group enterprises - - 15 24 Current tax liabilities 483 4,112 - - 28 Other payables 28,558 43,430 - 0 Total liabilities other than provisions 85,815 115,557 15 24

Accruals and deferred income 514 796 - -

TOTAL EQUITY AND LIABILITIES 575,820 596,268 5,677 5,574

29 Collateral recieved and contingent assets 30 Collateral and contingent liabilities 31 Related parties 32 Breakdown of assets and returns 33 Risk management and sensititivity information 34 5-year summary, see page 50

60 PFA Holding Annual Report 2018 Statement of changes in equity and capital structure Statement of changes in equity and capital structure

(DKK million) PFA Group

Equity, Contingency Retained Equity, minority Share capital fund earnings PFA Holding interests Total equity

Equity 1 January 2017 1 1,245 4,056 5,302 1,642 6,944

Profit/(loss) for the year - - 247 247 56 304 Other comprehensive income - - 0 0 - 0 Comprehensive income - - 247 247 56 304 Distributed dividend - - (0) (0) - (0) Cash capital increase and capital disposals - - - - 484 484 Equity 31 December 2017 1 1,245 4,303 5,549 2,182 7,731

Profit/(loss) for the year - - 114 114 (30) 84 Other comprehensive income - - (0) (0) - (0) Comprehensive income - - 114 114 (30) 84 Distributed dividend - - (0) (0) - (0) Cash capital increase and capital disposals - - - - 92 92 Equity 31 December 2018 1 1,245 4,417 5,663 2,244 7,906

Operational risk charge receivable, which according to present rules is depreciated on a straight-line basis over a period of five years from 2016, provided it is not possible to recognise the amount as income in the year in question. 2018 2017

Operational risk charge, equity 42 63 Operational risk charge, CustomerCapital 171 256

(DKK million) PFA Holding

Equity, Contingency Retained Equity, minority Share capital fund earnings PFA Holding interests Total equity

Equity 1 January 2017 1 - 5,301 5,302 - 5,302

Profit/(loss) for the year - - 247 247 - 247 Other comprehensive income ------Comprehensive income - - 247 247 - 247 879.75 Distributed dividend - - (0) (0) - (0) Equity 31 December 2017 1 - 5,548 5,549 - 5,549

Profit/(loss) for the year - - 114 114 - 114 Other comprehensive income ------Comprehensive income - - 114 114 - 114 Distributed dividend - - (0) (0) - (0) Equity 31 December 2018 1 - 5,662 5,663 - 5,663 Of which proposed dividend 0 0

The potential distribution of dividend by PFA Holding A/S is impacted by a tied-up contingency fund in PFA Pension of Note (DKK million) PFA Holding DKK 1,245 million. DKK 50,000 has been allocated for dividend in PFA Holding in 2018 (2017: DKK 50,000).

2018 2017 Capital base and capital requirement Capital base of financial subsidiaries 47,300 43,526 Capital base employed on a dual basis (5,512) (5,494) Other non-accepted capital (19,141) (14,257) Group capital base 22,647 23,776

The Group’s capital base is calculated according to method 2 of the Solvency II regulations.

PFA Holding Annual Report 2018 61 Notes to the income statement and balance sheet

Accounting policies Information about risk sensitivity has been adjusted to the sensitivity stress tests in the Solvency II reports instead of the General information so-called traffic light scenarios, which were discontinued in The Annual Report is presented in accordance with the Danish connection with the introduction of Solvency II as at 1 January Financial Business Act and the Executive Order on Financial 2016, although maintained in the Danish Executive Order on Reports for Insurance Companies and Multi-Employer Occu- the Presentation of Financial Statements until now. pational Pension Funds (the Danish Executive Order on the Presentation of Financial Statements). All amounts in the financial statements are presented in whole DKK million. Every figure is rounded off separately and, for Compared to the 2017 Annual Report, the accounting policies that reason, minor differences between the stated totals and have been changed and adjusted in 2018 as PFA has decided the sum of underlying figures may occur. to, before time, implement certain provisions in the Executive Order on Change of the Executive Order on Financial Reports Accounting estimates for Insurance Companies and Multi-Employer Occupational Pen- The preparation of the financial statements requires that sion Funds, which otherwise takes effect on 1 January 2019. management performs a number of estimates and assess- ments concerning future conditions that may have a signifi- The following changes have been made to the accounting cant impact on the accounting value of assets and liabilities. policies: The areas in which management’s critical estimates and assessments have the most significant impact on the financial • Tangible assets that are not held for the purpose of use statements are: within the company but that are investment objects are presented under assets as Investment properties and • liabilities regarding insurance contracts other tangible investment assets. The operating pro- • fair value of financial instruments fit hereof is recognised under Income from investment • fair value of properties properties and other tangible investment assets, and the value adjustments are recognised under Value adjust- Liabilities regarding insurance contracts ments under Total investment return. The determination of liabilities concerning insurance con- tracts is based on a number of actuarial calculations. These The changes do not imply a change of neither the net profit or calculations include assumptions on a number of variables loss for the year or equity in 2018 nor the comparable figures. such as mortality and disability. The assumptions are based on the Danish Financial Supervisory Authority’s 20-year longevity The following adjustments have been made to the accounting benchmark and empirical data from the existing insurance policies: portfolio and are updated at least once a year.

• During the year, bond loans have been issued, which For health and accident insurance, the insurance liabilities are recognised under Bond loans. Issued bond loans are are calculated taking into account expectations regarding the measured at the fair value of the underlying investment scope of future recoveries and reopenings of old cases. The assets, which primarily consist of investment properties expectations are based on empirical data from the Group’s ex- that are owned for the purpose of rental income and/or isting insurance portfolio and are updated at least once a year. capital gains. As from 1 January 2016, PFA will base its calculation of the In addition to this come a few clarifications of what is inclu- current value of insurance provisions on a yield curve produced ded under specific items. according to principles and on the basis of data that must be assumed to lead to a curve that, to the extent possible, does Other adjustments not deviate from the published curve from EIOPA. In practice, Information about solvency ratio has been included in the provisions for regular life insurance are calculated using the management’s review in the section Capital Structure and Danish Financial Supervisory Authority’s yield curve. For insur- Solvency instead of both in the management’s review and the ance plans with payout protection cover in PFA Plus, provisions notes.

62 PFA Holding Annual Report 2018 are in practice calculated by using a discount yield curve calcu- expected longevity improvements, however, the inclusion of lated by PFA on the basis of market data following the same data from two new companies in the data means an increase principles as EIOPA’s yield curve without volatility adjustment in the mortality benchmark, especially for women. This affects changes. Any effects of EIOPA’s yield curve which appear after PFA’s mortality assumptions for the high age intervals with the closing of the accounts will only be included if deemed agreement with the benchmark and has resulted in a decrease significant for the assessment of the financial statements. in life expectancy of, for example, just below 0.1 years for 60-year-old men and 0.2 years for 60-year-old women Fair value of financial instruments compared with the assumptions previously applied, which For financial instruments where the valuation is based on were based on the Danish Financial Supervisory Authority’s observable market data to a minor extent only, the valuation 2016 benchmark. A 60-year-old man is thus expected to live is affected by estimates. This is for instance the case for another 27.2 years, while a 60-year-old woman is expected to unlisted equity investments, alternative investments as well as live another 29.0 years. In addition, a risk margin is includ- certain derivative financial instruments. The basis for making ed in the calculation in case of an increase in remaining life estimates is described under Investment assets below. expectancy, which amounts to approximately 0.5 years for a 60-year-old. Fair value of properties The fair value of properties is calculated using the return The update means an overall reduction in the value of guar- method based on the properties’ expected operating return anteed benefits of approximately DKK 0.6 billion compared to and a required rate of return fixed individually for each prop- the previously reported longevity assumptions. erty in accordance with Appendix 7 in the Danish Executive Order on the Presentation of Financial Statements. The Except from a marginal effect from the company’s remaining Discounted Cash Flow (DCF) method is used for a number of life annuities without bonus, the total life insurance provisions residential properties. Fair value calculated on the basis of the were not affected as the reduction is counterbalanced by an DCF method is calculated on a systematic assessment and is increase in the collective customer reserves. based on the current value of the properties’ expected cash flows. Current value is calculated by means of discounting on Profit margin the basis of a, for each property, individually determined re- The 2018 update of the assumptions applying to the estimate turn requirement (rate of return) and the expected long-term concerning profit margin, including adjustment of the param- average inflation. eters for policyholder behaviour, resulted in a reduction in the profit margin in the average interest rate environment of DKK Changes in accounting estimates 0.2 billion and an increase in the profit margin in the market Life insurance provisions rate environment of DKK 1.8 billion. For the calculation of life insurance provisions for 2018, the Danish Financial Supervisory Authority’s updated longevity Health and accident insurance benchmark has been used, where both the observed present In 2018, health and accident insurance has been subject to mortality rate and the expected improvements in longevity a reassessment of accounting estimates concerning the as- were updated in relation to the 2017 assumptions. The as- sumptions used for calculation of provisions for premiums and sumptions concerning disability, reactivations and policyholder claims as well as for risk margin. behaviour have also been updated. The annual update of actuarial assumptions for disability, reac- PFA’s mortality model is lower than the benchmark mortality tivations and policyholder behaviour has resulted in a increase rate for men under the age of 100 and for women under the in the provisions for premiums and claims of a total of DKK 29 age of 80, while the mortality rate for men over the age of million. As a result of improved data history and models DKK 100 and for women over the age of 80 matches the bench- 291 million as well as clarification of estimates and modelling mark mortality. Already last year, PFA switched to a 20-year DKK 598 million, including adjustment to a lower Solvency II estimation period for the longevity improvements in the Dan- risk margin level, the risk margin concerning provisions for pre- ish Financial Supervisory Authority’s longevity benchmark. The miums and claims is further reduced, which positively affects 2018 benchmark updates only include minor changes in the the health and accident insurance results for the year.

PFA Holding Annual Report 2018 63 In addition to effects of re-evaluation of accounting estimates, The reported principle for equity’s share of realised results the provisions for unearned premiums for expected losses may be deviated from in any one year for the benefit of Cus- and related risk margin have increased as a result of contract tomerCapital and/or collective bonus potential. renewals and new contracts where provisions are made for the agreed contract period. This has affected the health and Interest rate groups accident insurance results for the year negatively by DKK 502 If the sum of an interest rate group’s profit margin which is million. Due to the increase in provisions for claims, the asso- not included in the retrospective provisions and collective ciated risk margin increased by DKK 102 million. bonus potential is positive after the realised partial result has been included and reduced by the amount that, in advance, In total, this has affected the health and accident insurance has been added to the policyholders’ deposits as an interest results for the year positively by DKK 256 million. rate bonus, consolidations and transfer allowances, the operational risk charge for equity and CustomerCapital will be Net profit or loss for the year and contribution deducted from this. The company has notified the Danish Financial Supervisory Authority of the principles used for distribution of the realised If profit margin and bonus potential still exist in an interest results in accordance with the Danish Executive Order on the rate group after deduction of the operational risk charge Contribution Principle. for the year, any reported losses and losses that have been carried forward will be eliminated. The elimination will firstly The total portfolio of insurance policies subject to contribu- cover losses for equity and CustomerCapital reported in tion in the average interest rate environment is divided into previous years, and secondly any drain on profit margin and homogeneous groups based on the calculation elements of bonus potential in the retrospective provision in the group to interest rate, risk and costs. A collective bonus potential is the extent that losses have been covered. The elimination for linked to each group. The insurance policies are divided into the insurance plans in the group on one side and equity and four interest rate groups and into a number of risk and cost CustomerCapital on the other side is based on how these have groups. A profit margin may also be provided for the interest contributed to covering the losses. rate groups. If the year ended with a positive realised result, a potential The share of the realised result before tax attributed to equity remaining non-recognised shadow account from year-end and CustomerCapital for insurance plans subject to contribu- 2015 may be recognised here in full or in part, to the extent tion consists of the investment return on their separate assets that funds exist after the compensation for equity and with the addition of operational risk charge and deduction of CustomerCapital. any losses. The remaining part of the realised partial result is split among the contribution groups (interest rate, risk and The operational risk charge is allocated proportionally to cost groups). equity and CustomerCapital. Absent operational risk charge cannot be carried forward to later years. Losses for equity and CustomerCapital consists of special bonus provisions, type B, CustomerCapital can, on notification to the Danish Financial in accordance with Section 2 (2) of the Danish Executive Order Supervisory Authority, be carried forward to be recognised in on Calculation of Group Capital Base for group 1 insurance later years. This amount is not interest-bearing. companies etc. (Bekendtgørelsen om opgørelse af kapitalgrun- dlag for gruppe 1-forsikringsselskaber m.v.). CustomerCapital Risk and cost groups is liable in the same manner as equity and is divided into In the risk and cost groups, the realised result is firstly reduced Collective CustomerCapital and Individual CustomerCapital. by the amount that has been allocated in advance to custom- ers in the form of bonus etc. Health and accident insurance results, results from market rate products as well as other income and expenses are allocat- If the group’s remaining realised result is positive, it is reduced ed proportionately to equity and Collective CustomerCapital. by the targeted operational risk charge allocable to equity and Outlays as a result of financing of discretionary rebates are CustomerCapital. If the remaining realised result is positive, it covered by equity alone. is transferred to the group’s collective bonus potential.

64 PFA Holding Annual Report 2018 If the realised result is negative, it is covered by the group’s Foreign currency translation collective bonus potential. If the group’s collective bonus The company’s functional currency and reporting currency is potential is insufficient to cover the negative amount, the neg- Danish kroner (DKK). Transactions in foreign currencies are ative balance will be covered by equity and CustomerCapital on translated using the exchange rate at the date of transaction. a pro-rata basis. Monetary balance sheet items in foreign currencies are trans- lated using the exchange rates of the Bank of England (GMT Group structure and related parties 1600) prevailing on the balance sheet date. Any exchange The consolidated financial statements include companies and differences in connection with foreign currency translations assets in which the Parent Company has direct or indirect con- are recognised in the income statement. The fair value of trol. PFA’s activities mainly relate to life and pension insurance. forward exchange transactions is calculated by discounting the value to the balance sheet date based on the relevant money The consolidated financial statements are prepared on the market rates. basis of the financial statements or other reporting for all the companies that are part of the consolidation, calculated Foreign entity translations according to the Group’s accounting policies. Assets and liabilities in foreign entities are translated into Danish kroner at the rate at the balance sheet date. Income The consolidation is made by combining uniform items line and expenses are translated using the exchange rates prevail- for line and by eliminating intercompany balances as well as ing at the dates of the transactions. Foreign exchange gains intergroup income and expenses. and losses on conversion of the net investment in a foreign entity are recognised under other comprehensive income. Equity investments in group enterprises will be eliminated with The part of the amount which is distributed to bonus-eligible the parent company’s share of the group enterprise’s carrying insurance and investment contracts is recognised in other equity values calculated at the end of the year. comprehensive income and is then transferred to the relevant balance sheet items. Associates are companies in which the Group holds equity investments and exerts significant influence but does not have Insurance and investment contracts control. Companies are, as a rule, classified as associates if Life insurance policies are divided into insurance and in- a company in the Group directly or indirectly holds between vestment contracts. Insurance contracts are contracts with 20 and 50 per cent of the voting rights. Jointly controlled significant insurance risks or which entitle the policyholder to enterprises are recognised in one line under the item Equity a bonus. Investment contracts are contracts with insignificant investments in associates. insurance risk and can be established as either a market rate product, where the policyholder carries the investment risk, or When a company is acquired, the acquired assets and liabili- as an average interest rate product with a right to bonus. ties are recognised and measured at fair value at the date of acquisition. Goodwill arising on the acquisition is recognised General principles of recognition and measurement in the balance sheet, while negative goodwill is recognised In the income statement, all income is recognised as it is as income in the income statement. The uniting-of-interests earned, and all expenses – including insurance benefits, chang- method is used in the case of a merger between companies es in provisions and changes in bonus – as they are incurred. in the PFA Group, meaning that the financial statements are prepared for the period in which the merger occurred as if the Assets are recognised in the balance sheet when it is probable companies had been merged as from the earliest accounting that future benefits will flow to the company, and when the period covered by the financial statements. value of the asset can be measured reliably. Liabilities are rec- ognised in the balance sheet when it is probable that future Intercompany transactions financial benefits will flow out of the company, and when the Intercompany transactions in the PFA Group are entered into value of the liability can be measured reliably. on market conditions or according to a cost recovery principle and follow a contractual agreement between the companies. Market rate plans where life insurance and health and accident insurance are established together are measured together.

PFA Holding Annual Report 2018 65 This means that profit margin on the savings part of a plan is bonds, alternative investments, loans and derivative financial reduced by the part of a potential provision for losses on the instruments. health and accident insurance plan, which may be included in the profit margin in market rate before reduction. A plan is Interest expenses comprises interest payable on subordinate defined as groups of policies established through the same loan capital and other payables. company or groups of policies established through group plans for small companies with uniform conditions. Administrative expenses of investment activities comprises portfolio management fees payable to asset managers, direct transaction and custody costs as well as own administrative Income statement expenses related to investment activities.

Premiums Pension yield tax covers individual pension yield tax, which is Premiums and single premiums are recognised in the income calculated on the periodical crediting of interest to customers’ statement at the recorded due date. Transfers between the deposits and Individual CustomerCapital as well as collective company’s individual insurance portfolios are not recognised in pension yield tax, which is calculated on accumulated value the premium revenue unless tax has been paid on the transfer adjustments, transfers to collective bonus potential and in accordance with the Danish Pension Tax Act. Reinsurers’ Collective CustomerCapital. The pension yield tax rate is 15.3 shares of premiums are deducted. Premiums from investment per cent. contracts are recognised directly in the balance sheet. Insurance benefits, net of reinsurance, comprises paid bene- Transfer allowances for plans transferred from guaranteed fits for the year including adjustment of the year’s change in plans to market rate products have been calculated on the the claims provisions and after deduction of reinsurers’ share basis of the Danish Financial Supervisory Authority’s order on as well as amounts that have been repaid or are to be repaid calculation of the financial value of a policyholder’s prod- due to the claims experience. Insurance benefits relating to uct in the event of a change to another plan with certain investment contracts are recognised directly in the balance adjustments based on the new Order on Financial Reports for sheet. Insurance Companies and Multi-Employer Occupational Pen- sion Funds. The applied method has been discussed with and Change in life insurance provisions, net of reinsurance, covers reported to the Danish Financial Supervisory Authority. the year’s change in life insurance provisions.

Investment return Change in profit margin includes movements for the year in Income from group enterprises and associates comprises the the calculated present value at the beginning and end of the Group’s and the Parent Company’s share of the relevant com- financial year. panies’ results after tax including value adjustments. Change in CustomerCapital comprises the return on assets Income from investment properties and other tangible in- allocated to CustomerCapital, the net amount contributed by vestment assets comprises the results from the operation of customers during the year as well as the year’s added opera- investment properties and other tangible investment assets tional risk charge, the share of the results of other activities after deduction of expenses for property management and and any transfers from equity. before mortgage interest. Insurance operating expenses Interest income and dividends etc. comprises the year’s inter- Acquisition costs comprises expenses associated with the est income from securities and loans as well as dividends from acquisition and renewal of the insurance portfolio. Admin- equity investments after dividend tax. istrative expenses comprises other expenses relating to the insurance operations. Value adjustments consists of the year’s value adjustment of equity investments, investment properties, owner-occupied The distribution of costs not directly attributable to either ac- properties, tangible assets that are not held for the purpose quisitions or administration is undertaken in accordance with of use within the company but that are investment objects, an allocation key based on activities.

66 PFA Holding Annual Report 2018 The Group’s contributions to the defined contribution plans other companies as well as other income not attributable to for employees are recognised in the income statement in step the company’s insurance portfolio or investment assets. with the contributions being earned by the employees. Other expenses comprises costs in connection with the Bonus to employees is recognised in the income statement for administration of other companies as well as other expenses the year during which the bonus entitlement is earned. not attributable to the company’s insurance portfolio and investment assets. A share of the total operating expenses, based on direct and estimated resource consumption, is recognised under Admin- Taxation istrative expenses of investment business and Technical result The PFA Group’s Danish companies are taxed jointly in ac- of health and accident insurance. cordance with the applicable tax rules. PFA has not opted for international joint taxation. Current tax is distributed among Transferred investment return the profit-yielding jointly taxed companies, which also refund Transferred investment return comprises the share of invest- the tax base of losses to the loss-making companies. ment return related to equity as well as health and accident insurance. Investment return on equity comprises the return Deferred tax is recognised on the basis of temporary differenc- on investment assets allocated to equity. Investment return es between the carrying values and tax bases of assets and on health and accident insurance is calculated as described in liabilities on the balance sheet date. the section regarding health and accident insurance. The Danish taxable income of the PFA Group’s property Technical result of health and accident insurance companies forms part of the owning life insurance company’s Earned premiums, net of reinsurance, are recognised in the taxable income, provided that at least 90 per cent of the income statement on the due date. Earned premiums are stat- individual property company’s assets consist of property in ed on an accrued basis. Alterations in provisions for unearned accordance with Section 3 A in the Danish Corporation Tax Act. premiums are included in earned premiums, net of reinsur- In that case, provisions for both current and deferred taxes are ance. Under premium provisions, present value of expected made in the owning company. cash flow caused by future insurance events and administra- tion in the parts of the contractual risk periods that have not Investments in property companies are revised in connection elapsed for health and insurance cover is stated. In the cases with the recognition according to the equity value method where there is no apparent contractual risk period, it will be in the Parent Company as well as the consolidation in the assumed to be 12 months. consolidated financial statements. Provided that the property companies are not comprised by the rule in Section 3 A of the Claims incurred, net of reinsurance, comprises the claims paid Danish Corporation Tax Act at the balance sheet date, a revi- for the year following adjustment for the year’s change in sion will be made so that the deferred tax which is associated provisions for claims, including gains or losses on previous with value adjustments of investment properties is reversed in years’ provisions. Furthermore, this item includes expenses the owning company as these are already recognised via the in connection with the assessment of claims, claims control so-called limitation of deductibility. expenses and an estimate of expected expenses in connection with the administration and claims processing of the insurance In acquired property companies where deferred tax on his- contracts entered into by the company. The reinsurers’ share torical value adjustments of business properties is allocated is set off against the total gross claims. before the acquisition, the deferred tax will be transferred and allocated in the owning company when these property compa- The transferred investment return is calculated as a propor- nies meet the conditions of being comprised by Section 3 A of tionate share of the investment return from a special asset the Danish Corporation Tax Act. portfolio which is equal to the health and accident provisions as well as provisions for other provisions of a marginal size Other comprehensive income relative to the company’s total balance sheet. Other comprehensive income is listed separately at the end of the income statement. Moreover, changes attributable to the Other income comprises income from the administration of item Other comprehensive income are shown in the statement of changes in equity.

PFA Holding Annual Report 2018 67 Other comprehensive income comprises items which are car- Depreciation of owner-occupied properties is undertaken on a ried directly to equity and make up foreign exchange gains and straight-line basis based on the property’s residual value along losses on conversion of the net investment in a foreign entity with an estimated useful life of 100 years. and value adjustments of owner-occupied properties. Investment assets Value adjustments related to insurance and investment con- Investment properties are properties that have been acquired tracts are transferred to life insurance provisions. to obtain rental income and/or capital gains. Investment prop- erties are initially recognised at cost. Subsequently, investment properties are measured at fair value. Balance sheet Fair value is calculated on the basis of the returns method Assets and, for a number of housing properties, the Discounted Cash Intangible assets Flow (DCF) method pursuant to the principles in the Danish Goodwill occurring in connection with the acquisition of equity Executive Order on the Presentation of Financial Statements. investments in group enterprises is determined as the positive The returns method is based on the individual property’s oper- difference between the total cost and the fair value of the ating income and a return requirement related to the property net assets at the date of acquisition. Annual impairment tests (rate of return). The operating income is based on the coming are performed, and any write-downs for such impairment are year’s expected return adjusted for exceptional circumstances. recognised in the income statement. Fair value calculated on the basis of the DCF method is Acquired and self-developed software is recognised in the calculated on a systematic assessment based on the current balance sheet at cost after the deduction of accumulated value of the properties’ expected cash flows. Current value is amortisation and accumulated impairment losses. The cost of calculated by means of discounting on the basis of a, for each self-developed software consists of direct and internal project property, individually determined return requirement (rate of development expenses. Amortisation is made in accordance return) and the expected long-term average inflation. with the straight-line method over the expected useful life, which is between 0 and 7 years. Any impairment losses are Properties that have been scheduled for sale have been estimated on the basis of impairment tests. The costs attrib- measured at the expected selling price in consideration of the utable to maintaining intangible assets are recognised as an timeframe. expense in the year that they are incurred. The required rate of return has been determined on the basis Tangible assets of best estimate, taking into account the special characteris- Equipment mainly consists of cars. Equipment is recognised in tics of the relevant property so as to correspond to the return the balance sheet at cost after the deduction of accumulated requirements reflected by transactions in the property market depreciation and accumulated impairment losses. Depreciation in the period leading up to the date of valuation. is calculated on a straight-line basis over the expected useful life, typically four years. Other tangible investment assets covers tangible infrastructure investments and are initially recognised at cost and, subse- Owner-occupied properties are properties that the PFA Group quently, measured at fair value according to the DCF method uses for administration etc. Owner-occupied properties are based on expected income and expenses over the expected initially recognised at cost. Subsequently, the owner-occu- lifetime of the infrastructure facility. pied properties are measured at fair value. Increases in the revalued amount are recognised under the item Other compre- Investments in group enterprises and associates are recog- hensive income unless the increase is equal to a decrease in nised at cost at the date of acquisition and subsequently value which has previously been recognised in the income measured at the equity value most recently known in accord- statement. Decreases in the revalued amount are recognised ance with the Group’s accounting policies. The proportionate in the income statement, unless the decrease is equal to an ownership shares of the companies’ equity are included under increase in value which has previously been recognised under Equity investments in group enterprises and Equity invest- Other comprehensive income. ments in associates, and the proportionate shares of the

68 PFA Holding Annual Report 2018 individual companies’ results after tax are recognised under Listed bonds which have been drawn are measured at the Income from group enterprises and Income from associates. present value of the amount drawn by discounting them at the money market rate. Other financial investment assets Financial instruments are recognised in the balance sheet at Unlisted unit trust certificates are measured at the fair value of cost at the trade date, excluding expenses, corresponding to the underlying net assets. the fair value and are subsequently calculated at fair value after initial recognition. Information about prices etc. which The fair value of unlisted derivative financial instruments is appears after the closing of the accounts will only be included recognised on the basis of the fair value determined by exter- if deemed significant for the assessment of the financial nal parties, with the exception of OTC derivatives. statements. The fair value of alternative investments, other unlisted se- Unit trust certificates are included in the individual items of curities, equity investments and OTC derivatives is measured the balance sheet corresponding to the basis of the underly- in accordance with recognised methods, including standards ing assets. determined by the European Private Equity and Venture Capital Association (EVCA) and the Danish Venture Capital Association Derivative financial investment assets are included under Oth- (DVCA). Investments in unlisted equities are valued individ- er financial investment assets if the market value of the asset ually at fair value using recognised valuation methods. The is positive. If the market value is negative, the asset is includ- valuation is based on a combination of a Discounted Cash ed under Other payables. If a netting agreement has been Flow analysis, a listed peer group analysis and an analysis of made with counterparties in connection with the settlement of previous M&A transactions for comparable companies. one type of derivative investment assets, the net value of the total transactions under the agreement is included under Oth- The fair value of unlisted investments is calculated on the ba- er financial investment assets in case of a combined positive sis of the reports, financial statements and other information market value or under Other payables in case of a combined most recently received for the individual company. negative market value. Loans to associates and Loans are initially recognised at fair The fair value of listed financial assets is calculated on the ba- value. Subsequently, they are also measured at fair value. sis of the closing price at the balance sheet date. In the event Changes in the fair value are recognised in the income state- that there is no relevant closing price on the balance sheet ment on an ongoing basis. date, another relevant price on the balance sheet date is used or, alternatively, the price on one of the immediately preceding Investment assets linked to market rate products comprises days. In the event that there is no other relevant price, the fair assets in market rate products. Investment assets related to value can be estimated on the basis of the closing prices of market rate products are measured using the same principles comparable financial instruments on the balance sheet date. as for the remaining investment assets.

On the purchase and sale of financial assets, the trade date Receivables is used as the recognition date. When the trade date is used, Receivables is measured at amortised cost, which usually cor- a liability corresponding to the agreed price is recognised – at responds to the nominal value less any write-down to provide the same time as the purchase of a financial asset is recog- for losses. nised. Likewise, an asset corresponding to the agreed price is recognised in connection with the sale of a financial asset. The liability or asset ceases to be recognised in the balance Other assets sheet as at the settlement date. As a consequence of using Assets in temporary possession comprises tangible assets or the trade date as a recognition criterion, coupon interest and groups of tangible assets as well as subsidiaries and asso- drawings are considered cash and cash equivalents at the ciates that are only in temporary possession and await sale time when information about completion of the transaction is within a short period of time, and where a sale is highly likely. received. Assets in temporary possession are measured according to

PFA Holding Annual Report 2018 69 the lowest value of the previous carrying amount and the fair Provisions for insurance and investment contracts value including deductions from costs of sale. Provisions for unearned premiums constitute best estimate of the present value of expected cash flow caused by future Current tax assets and Deferred tax assets are determined in insurance events and administration in the parts of the risk accordance with applicable tax law. periods that have not elapsed for health and accident insur- ance. In the cases where there is no apparent contractual risk Tax assets relating to losses carried forward are only recog- period, it will be assumed to be 12 months. nised in deferred tax if it is probable that they can be used. Life insurance provisions include best estimate of the present Equity and liabilities value of the expected cash flows for insurance agreements Equity entered into using best estimate of all relevant parameters The contingency fund can only be used to cover losses such as longevity, disability frequency, reactivation, surrender incurred to pay the insurance obligations or otherwise for the and lapse of premium. The present value of the expected cash benefit of the insureds. The entire contingency fund consists flows comprises guaranteed payments and additional expected of retained taxed reserves. payments (for instance bonus) as well as costs and pension yield tax. The present value does not include expected future Proposed dividend comprises dividend that the Board of profit. Directors recommends for adoption by the general meeting. The amount is recognised as a separate reserve under equity. Life insurance provisions are determined in consideration of When the general meeting has adopted a resolution to distrib- an age-dependent probability that the individual insured will ute dividend, the amount is recognised as a liability. surrender his/her policy or change it into a paid-up policy.

Subordinate loan capital Profit margin amounts to the calculated present value of the CustomerCapital forms part of the capital base on a par with expected future profit in the remaining term of contract for equity, but accrues to the insureds over time. the life insurance and investment contracts concluded. Profit margin is calculated for both market rate and average interest CustomerCapital is included in the item Subordinate loan rate. capital. The market rate profit margin is fixed based on the expected CustomerCapital consists of a collective part, Collective Cus- income from investment management, including the expected tomerCapital, and an individualised part, Individual Customer- changes in investment expenses and income, reduced by risk Capital. Collective CustomerCapital was established by means margin. The average interest rate profit margin is fixed through of a transfer from equity in 2001, and customers have since a cost of capital approach based on the expected income and 2004 had the option of paying five per cent of their payments the solvency capital requirement for the individual interest rate to savings to Individual CustomerCapital. group.

The share of the realised result before tax attributed to equity Provisions for claims represents best estimate of expect- and CustomerCapital for insurance plans subject to contribu- ed payouts and past due, but not paid, insurance benefits. tion consists of the investment return on their separate assets Provisions for claims concerning health and accident insurance with the addition of operational risk charge and deduction of comprises provisions for administrative expenses in connection any losses. The operational risk charge is allocated proportion- with the settlement of claims and is determined as the pres- ally to equity and CustomerCapital. ent value of expected future payments, including estimated expenses to settle claims liabilities. It has been notified to the Danish Financial Supervisory Authority that Collective CustomerCapital is allocated to the Risk margin is determined as the amount that PFA on the customers’ Individual CustomerCapital by way of a continuous market would be expected to pay to an acquirer of PFA’s addition of preliminary interest and extra interest added after insurance portfolio in order for the acquirer to take on the the Annual General Meeting in the spring. risk that the costs of settling the portfolio diverge from the

70 PFA Holding Annual Report 2018 present value of best estimate of the cash flow that settles liabilities and various assets) according to a time-weighted the portfolio. Determination of risk margin is made through method. an adjustment of longevity and the age-specific probabilities of surrender, conversion into a paid-up-policy, reactivation and Currency hedging is included in the returns table under Other disability as well as an adjustment of the expected profit from financial investment assets. asset management in the market rate environment. Interest receivable is included in the value of the individual Payables and provisions bond classes in the returns table. Payables and provisions are measured at amortised cost, which generally corresponds to the nominal value.

Payables to credit institutions Payables to credit institutions, among other things, include repo transactions.

Bond loans Issued bond loans are measured at the fair value of the underlying investment assets, which primarily consist of in- vestment properties that are owned for the purpose of rental income and/or capital gains.

Repo transactions Bonds sold are recognised in the balance sheet as if the bonds were still part of the portfolio if the sale is made sub- ject to a right of repurchase. The amount received is recog- nised under Payables to credit institutions. Repo transactions are recognised and measured at fair value.

Current and deferred tax liabilities Current and deferred tax liabilities are determined in accord- ance with applicable tax law.

Contingent liabilities Contingent liabilities means a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events which are not wholly within the control of the company or a present obligation that arises from past events but is not recognised, because it is either not probable that settling the obligation will mean drawing on the company’s financial resources or the amount of the obligation cannot be measured with sufficient reliability.

Financial ratios and returns table The financial ratios stated in the 5-year summary are calculat- ed for all assets and liabilities according to a money-weighted method, whereas returns broken down by asset type in the re- turns table are calculated for investment assets (i.e. excluding

PFA Holding Annual Report 2018 71 Notes Notes Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 1 Gross premiums Total indirect insurance 13 24 - - Direct: Premiums 20,034 18,964 - - Group term life premiums 74 73 - - Single premiums and transfers 15,384 13,017 - - Total insurance 35,492 32,053 - - Total gross premiums 35,505 32,077 - -

Breakdown of premiums, direct insurance contracts Insurance taken out through employers 32,804 29,690 - - Insurance taken out by individuals 2,614 2,291 - - Group term life insurance 74 73 - - Total 35,492 32,053 - -

All premium income is from Danish/Greenlandic direct insurance.

Insurance with bonus plans 1,514 1,815 - - Insurance without bonus plans 617 471 - - Market rate contracts 33,361 29,766 - - Total 35,492 32,053 - -

Number of insureds, direct insurance Insurance taken out through employers 799,935 781,819 - - Insurance taken out by individuals 440,687 401,705 - - Group term life insurance 48,861 51,619 - -

2 Interest income and dividends, etc. Interest income 8,564 9,898 0 0 Dividends 3,250 2,206 - - Total interest income and dividends, etc. 11,814 12,105 0 0

3 Value adjustments Investment properties and other tangible investment assets 1,006 1,352 - - Owner-occupied properties 4 5 - - Equity investments (4,931) 8,571 - - Bonds (1,510) (6,629) (1) (0) Loans (84) (71) - - Other derivative financial instruments (12,227) 10,931 - - Total value adjustments (17,741) 14,158 (1) (0)

4 Pension yield tax Collective pension yield tax 664 (246) - - Individual pension yield tax 352 (3,433) - - Adjustment of pension yield tax for previous year(s) 1 (33) - - Total pension yield tax 1,016 (3,712) - -

72 PFA Holding Annual Report 2018 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 5 Claims and benefits paid Death benefits (744) (766) - - Disability benefits, etc. (30) (33) - - Benefits at maturity (1,229) (1,374) - - Retirement and annuity benefits (7,476) (7,227) - - Surrender (11,377) (11,620) - - Bonuses disburdes paid in cash (375) (256) - - Total direct insurance contracts (21,230) (21,276) - - Benefits, indirect insurance (98) (86) - - Total claims and benefits paid (21,329) (21,362) - -

6 Insurance operating expenses, net of reinsurance Total expenses include Salaries (991) (902) - - Pension contributions (171) (162) - - Other social security costs and taxes (165) (148) - - Total staff expenses (1,327) (1,211) - -

Salary and remuneration to the Executive Board PFA Group Allan Anders Jon Steingrim Mads Nicolai 2018 Polack Damgaard Johnsen Kaagaard Total Salary 6.422 4.007 4.105 3.719 18.253 Pension contributions 1.204 0.764 0.763 0.695 3.425 Fixed salary components 7.626 4.771 4.868 4.413 21.678

Bonus for 2018 (cf. below) 0.359 0.227 0.226 0.206 1.018 Variable salary components 0.359 0.227 0.226 0.206 1.018 Total salary and remuneration 7.985 4.998 5.094 4.619 22.696

Allan Anders Jon Steingrim Mads Nicolai 2017 Polack Damgaard Johnsen Kaagaard I alt Salary 6.242 3.893 3.990 3.570 17.695 Pension contributions 1.163 0.738 0.737 0.662 3.301 Fixed salary components 7.406 4.631 4.727 4.233 20.996

Bonus for 2017 (cf. below) 1.317 0.833 0.831 0.746 3.728 Variable salary components 1.317 0.833 0.831 0.746 3.728 Total salary and remuneration 8.723 5.463 5.559 4.979 24.724

Comments All members of the Executive Board are qualified for uniform performance-related bonus schemes. Bonus is granted based on an assessment of overall performance – both on company and personal level. Both financial and non-financial goals are part of the assessment. The bonus allocated is paid over a 5-year period (cf. Section 77a of the Danish Financial Business Act).

The company can terminate the employment of members of the Executive Board at a notice of between 6 and 12 months, with 0 to 12 months’ severance pay. All members of the Executive Board may terminate their employment at between 5 and 6 months’ notice.

PFA Holding Annual Report 2018 73 Note (DKK million)

6 Insurance operating expenses (continued) Remuneration, the Board of Directors Board of Audit Investment Remuneration Directors Committee Committee Committee 2018 2017 PFA Group

Torben Dalby Larsen (Chairman) 0.720 - - 0.080 0.800 0.800 Lasse Grønbech (Vice-Chairman) 0.336 0.120 - - 0.456 0.360 Niels-Ulrik Mousten (Vice-Chairman) 0.360 0.180 0.120 - 0.660 0.640 Karsten Dybvad 0.228 0.114 0.114 - 0.457 0.440 Peder Hasslev 0.240 - 0.180 - 0.420 0.280 Claus Oxfeldt 0.192 - 0.096 - 0.287 - Laurits Rønn 0.240 - - 0.060 0.300 0.300 Mogens Steffensen 0.192 0.096 - - 0.288 - Per Tønnesen (Paid to HK Retail and Wholesale) 0.240 - - 0.048 0.288 0.260 (Danish Association of Professional Technicians) Helle Valentin 0.240 - - 0.060 0.300 0.200 Lars Christoffersen 0.240 0.025 0.096 - 0.360 0.320 Carsten Holdum 0.240 - - - 0.240 0.100 Carsten Bach 0.240 - - - 0.240 0.066 Mette Risom 0.240 - - 0.060 0.300 0.300 Hanne Sneholm 0.240 - - - 0.240 0.240 Peter Ibsen (Resigned as at 14 March 2018) 0.074 - 0.025 - 0.098 0.480 Lone E. Engberg (Resigned as at 14 March 2018) 0.049 - - 0.012 0.061 0.280 Svend Askær (Resigned as at 26 April 2017) - - - - - 0.080 Jens Due Olsen (Resigned as at 26 April 2017) - - - - - 0.140 Charlotte Dahlstrøm Hovgaard (Resigned as at 31 July 2017) - - - - - 0.140 Ebbe Poulsen (Resigned as at 22 September 2017) - - - - - 0.174 Total remuneration 4.310 0.535 0.630 0.320 5.795 5.600 Salary and remuneration including pension contributions to employees whose activities have a significant impact on the company’s risk profile 2018 2017

Salary 50.883 52.073 Pension contributions 9.531 9.799 Fixed salary components 60.414 61.872

Variable salary components 8.117 7.702 Total salary and remuneration 68.531 69.574

Number of persons 31.3 33.1

Reference is also made to pfa.dk/afloenningsrapport2018, which will be published in April 2019. Until then, reference is made to the 2017 remuneration report (the remuneration reports are available in Danish only).

Average number of employees (full-time) for the year PFA Pension 1,215 1,171 PFA Asset Management 93 79 Other business activities 29 46 Total average number of employees (full-time) for the year 1,337 1,296

Fees to Deloitte, the auditor appointed by the Annual General Meeting Fees for statutory audit of the financial statements (5) (4) Fees for other assurance engagements (1) (1) Fees for tax consultancy (1) (1) Fees for other services (1) (1) Total fees to Deloitte (7) (8)

Fees for non-audit-related services by Deloitte Statsautoriseret Revisionspartnerselskab to the Group amount to DKK 2.5 million (2017: DKK 3.7 million). The services consist of reviews of statutory assurance, reviews of tax-related statements, due diligence related to accounting and tax in connection with property investments, due diligence related to accounting and solvency in connection with unlisted investments as well as other advisory services related to accounting, VAT and tax.

74 PFA Holding Annual Report 2018 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 7 Transferred investment return Investment return transferred to equity (40) (268) - - Investment return transferred to health and accident insurance (137) (300) - - Total transferred investment return (177) (568) - -

8 TECHNICAL RESULT OF HEALTH AND ACCIDENT INSURANCE Gross premiums 1,870 1,987 - - Change in provisions for unearned premiums (368) (239) - - Change in profit margin and risk margin 550 (94) - - Total earned premiums, net of reinsurance 2,052 1,654 - -

Gross claims paid (1,394) (1,245) - - Change in provisions for claims (1,415) (885) - - Change in risk margin 74 (21) - - Claims incurred, net of reinsurance (2,735) (2,152) - -

Bonus and premium rebates (0) 0 - - Acquisition costs (71) (69) - - Administrative expenses (66) (72) - - Total insurance operating expenses, net of reinsurance (137) (140) - -

Technical result (820) (638) - -

Investment return (10) 216 - - TECHNICAL RESULT OF HEALTH AND ACCIDENT INSURANCE (830) (423) - -

Premium income from Danish insurance 1,870 1,987 - -

Claims, health and accident insurance Number of policies 1,074,069 1,030,605 - - Number of claims 86,534 106,065 - - Average compensation for claims incurred, in DKK 31,601 20,288 - - Claims frequency 8.1 % 10.3 % - -

Run-off profit/(loss), net of reinsurance (585) (89) - -

The run-off profit/(loss) reflects the profit/(loss) on the provisions for claims made in previous year(s). In 2018, the number of reactivations proved lower than expected, which increases the allocated provisions for claims from previous years and thus negatively affects the run-off profit/(loss).

Mølholm Forsikring A/S Mølholm Forsikring A/S’ gross premiums, paid gross claims etc. are included in the technical result of health and accident insurance in the PFA Group up to and including April 2017. Exclusive of Mølholm Forsikring A/S, the number of claims would be 68,855, and the average compensation for claims incurred would be DKK 29,521 for 2017.

PFA Holding Annual Report 2018 75 Note (DKK million)

8 TECHNICAL RESULT OF HEALTH AND ACCIDENT INSURANCE (CONTINUED) Health and accident Health 2018 insurance insurance Total Gross premiums 1,523 346 1,870 Gross premiums earned 1,870 181 2,052 Gross claims incurred (2,309) (426) (2,735) Gross insurance operating expenses (79) (58) (137) Technical result (518) (302) (820) Number of policies 726,773 347,296 1,074,069 Number of claims 2,862 83,672 86,534 Average compensation for claims incurred, in DKK 806,797 5,086 31,601 Claims frequency 0.4 % 24.1 % 8.1 %

2017 Gross premiums 1,469 517 1,987 Gross premiums earned 1,193 461 1,654 Gross claims incurred (1,718) (434) (2,152) Gross insurance operating expenses (67) (73) (140) Technical result (593) (46) (638) Number of policies 703,047 327,558 1,030,605 Number of claims 2,877 103,188 106,065 Average compensation for claims incurred, in DKK 597,032 4,208 20,288 Claims frequency 0.4 % 31.5 % 10.3 %

Health and accident insurance, key figures Key figures (DKK million) 2014 2015 2016 2017 2018 Gross premiums earned 1,568 1,748 1,710 1,654 2,052 Gross claims incurred (1,634) (2,186) (2,159) (2,152) (2,735) Total insurance operating expenses (141) (158) (165) (140) (137) Techincal result (204) (574) (614) (638) (820) Investment return after technical interest 8 (70) 134 216 (10) Run-off profit/(loss) 41 35 106 (89) (585) Total techincal provisions 3,143 4,077 7,174 8,292 9,599

Key ratios Gross claims ratio 104.2 % 125.1 % 126.3 % 130.1 % 133.3 % Gross expense ratio 9.0 % 9.1 % 9.7 % 8.5 % 6.7 % Combined ratio 113.2 % 134.1 % 135.9 % 138.6 % 140.0 % Operating ratio 113.0 % 132.4 % 135.9 % 138.6 % 140.0 % Relative run-off profit/(loss) 2.0 % 1.2 % 2.8 % (2.0) % (10.8) %

76 PFA Holding Annual Report 2018 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 9 Profit/(loss) before tax (sum of insurance companies) Realised results Interest result before bonus from the income statement (2,328) 4,364 - - Cost result before bonus 170 194 - - Risk result before bonus 358 228 - - Change in accumulated value adjustment 1,433 (4,161) - - Realised results for PFA Plus, market rate 1,562 1,387 - - Total realised results 1,195 2,012 - -

Distribution to customers Allocation to policyholders' savings during the year 443 287 - - Transfer to collective bonus potential (1,439) (1,436) - - Total distribution to customers (996) (1,149) - -

Distribution to CustomerCapital Customers' contributions to CustomerCapital 1,613 1,448 - - Return for the year before pension yield tax (33) 972 - - Operational risk charge for the year before pension yield tax, incl. - - risk and expenses 532 491 Total distribution to CustomerCapital 2,112 2,911 - -

Total customers' share 1,117 1,761 - -

Distribution to equity via the income statement Return for the year before tax (6) 164 - - Operational risk charge for the year before tax, incl. risk and expenses 84 86 - - Equity's share of the realised results 78 250 - -

Operational risk charge receivable, equity Interest rate group 4, basic interest rate of 4.0 per cent or more 42 63 - - Total operational risk charge receivable, equity 42 63 - -

Operational risk charge receivable, CustomerCapital Interest rate group 4, basic interest rate of 4.0 per cent or more 171 256 - - Total operational risk charge receivable, CustomerCapital 171 256 - -

PFA Holding Annual Report 2018 77 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 10 Tax Current corporation tax (0) (10) 6 4 Change in deferred tax for the year 17 (103) 1 (0) Adjustment, current corporation tax related to previous year(s) 24 8 0 0 Change in deferred tax related to previous year(s) - 9 - (0) Total tax 41 (96) 7 4

Effective tax rate Current tax rate 22.0 % 22.0 % 22.0 % 22.0 % Share of the results after tax, group enterprises 0.0 % 0.0 % (28.5) % (23.6) % Non-taxable income (379.2) % (122.6) % 0.0 % 0.0 % Non-deductible expenses 206.8 % 112.3 % 0.1 % 0.1 % Adjustment of taxes related to previous year(s) 55.2 % 0.0 % 0.0 % 0.0 % Total effective tax rate (95.1) % 11.7 % (6.3) % (1.6) %

Deferred tax Intangible assets 89 72 - - Tangible assets (351) (450) - - Collective pension yield tax receivable 668 - - - Individual pension yield tax receivable 1,020 - - - Tax loss 522 522 10 10 Miscellanous 12 12 - - Total deferred tax assets 1,960 155 10 10

Tangible assets - - - - Deferred tax liabilities - - - - Total deferred tax 1,960 155 10 10

11 Equipment Cost, beginning of year 100 105 - - Additions during the year - 11 - - Disposals during the year (30) (16) - - Cost, end of year 70 100 - -

Impairment and depreciation, beginning of year (41) (37) - - Impairment and depreciation for the year (16) (17) - - Reverse impairment and depreciation on disposals during the year 19 13 - - Impairment and depreciation, end of year (38) (41) - - Equipment, end of year 32 58 - -

12 Owner-occupied properties Revaluation value, beginning of year 496 469 - - Additions during the year 93 20 - - Disposals during the year - - - - Depreciation (4) (5) - - Value adjustment via other comprehensive income - 7 - - Value adjustment via income statement 4 5 - - Owner-occupied properties, end of year 589 496 - -

The weighted average of the rates of return applied in determining the fair value of owner-occupied properties amounts to 3.8 % 5.4 % - -

In connection with measuring the value of the owner-occupied properties, valuations have been obtained from external valuers.

78 PFA Holding Annual Report 2018 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 13 Investment properties and other tangible investment assets Investment properties Fair value, beginning of year 21,157 17,341 - - Additions during the year 7,353 2,613 - - Disposals during the year (90) (95) - - Value adjustment to fair value for the year 903 1,298 - - Investment properties, end of year 29,323 21,157 - - Other tangible investment assets 307 285 Investment properties and other tangible investment assets, total 29,629 21,443

Of which placed under Investment assets related to market rate products in the balance sheet 11,756 8,749 - -

The weighted average of the rates of return applied in determining the fair value of individual properties valued according to the returns method amounts to: Office properties 4.6 % 4.7 % - - Retail properties 3.1 % 3.1 % - - Hotel properties 4.8 % 5.0 % - - Other business properties 5.1 % 5.2 % - - Residential properties 4.0 % 3.5 % - -

For residential properties and other tangible investment assets valued according to the Discounted Cash Flow method, the weighted average of the rates of return applied in determining the fair value of individual properties amounts to: Residential properties, return, beginning of year 2.8 % 2.3 % - - Residential properties, return, end of year 3.7 % 3.9 % - - Other tangible investment assets 5.0 - 6.0% 5.0 - 6.0% - -

In connection with measuring the value of the investment properties, valuations have been obtained from external valuers.

14 Equity investments in group enterprises Registered Ownership Profit/ PFA Holding Activity office interest (loss) Equity PFA Pension, forsikringsaktieselskab Life insurance company Copenhagen 100.0 % 92 5,108 PFA Asset Management A/S Asset management company Copenhagen 100.0 % 78 301 PFA Bank A/S Credit instituition Copenhagen 100.0 % 3 112

Stated profit/(loss) and equity are from the companies’ most recently published annual reports.

PFA Holding Annual Report 2018 79 Note (DKK million)

15 Equity investments in associates Registered Ownership Profit/ Group Activity office interest (loss) Equity Altius Real Asset S.C.A, Sicav-SIF (ARAF) Investment company Luxembourg 56.6 % 21 218 Blue Equity II K/S Investment company Kolding 31.6 % (16) 135 Borgen Shopping P/S Property company Sønderborg 40.0 % 4 341 Carlsberg Byen P/S Property company Copenhagen 30.0 % 125 1,918 Danmarks Skibskredit Holding A/S Holding company Copenhagen 32.7 % 217 1,466 Ejendomsselskabet Norden VIII K/S Property company Copenhagen 32.8 % 93 521 Garland Center Property company USA 27.5 % 24 333 IP Infra Investors LP Investment company USA 25.4 % 412 2,230 K/S Kristensen Partners I Property company Aalborg 20.0 % 173 771 Kirk & Thorsen Invest A/S Investment company Vejle 32.3 % 72 333 Ejendomsudvikling Kronborg Strand P/S Property company Copenhagen 47.0 % 2 114 Moorfield Audley Real Estate Fund "B" L.P. Property company England 45.0 % 283 1,991 PF I A/S Holding company Copenhagen 40.0 % (0) 942 Sares Regis Multifamily Value-Add Fund II Property company USA 32.9 % 75 1,428 SE Blue Equity I K/S Investment company Kolding 24.0 % 80 497 SE Blue Renewables K/S Investment company Copenhagen 50.0 % 25 343 TS Q205 Holdings SCSp Property company Luxembourg 55.6 % 153 1,276 Grosvenor London Office Fund Property company England 49.8 % 44 1,101 Ejendomspartnerselskabet Haraldsborg Property company Frederiksberg 49.0 % 32 229 Ejendomspartnerselskabet C.F Richsvej 99-101 Property company Frederiksberg 49.0 % 22 193 Ejendomspartnerselskabet Munken P/S Property company Frederiksberg 49.0 % 18 140 Ejendomspartnerselskabet Søborg Huse Property company Frederiksberg 49.0 % 29 135 P/S Høeghsmindes Parkbebyggelse Property company Frederiksberg 49.0 % 31 174 Ejendomspartnerselskabet Ved Boldparken Property company Frederiksberg 49.0 % 73 472 Galatyn Parent L.P. Property company USA 49.0 % (58) 653 90 Hudson Waterfront, LLC Property company USA 49.0 % (8) 574 Anno 2017 Joint Holding (UK) Ltd. Holding company England 50.0 % (25) 2,051 ATPFA K/S Property company Copenhagen 49.7 % 623 5,831 Ejendomsselskabet Portland Towers P/S Property company Copenhagen 33.3 % 42 499

In addition to the above-listed equity investments, PFA also owns some minor associates, which appear from the list of shares at pfa.dk/om-pfa/finansiel-information/aarsrapporter (available in Danish only).

Stated profit/(loss) and equity are from the companies’ most recently published annual reports. Of which placed under Investment assets related to market rate products in the balance sheet. 10,616

80 PFA Holding Annual Report 2018 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 16 Bonds Total bonds 309,610 335,525 106 87 Of which bonds sold as part of repo transactions 53,856 67,709 - -

Of which placed under Investment assets related to market rate products in the balance sheet 123,190 139,698 - -

17 Loans Secured loans 254 268 - - Other loans 9,906 2,101 - - Total loans 10,160 2,369 - -

Of which placed under Investment assets related to market rate products in the balance sheet 6,000 1,157

18 Deposits with credit institutions Total deposits with credit institutions 10,693 24,492 - - Of which reverse transations 10,693 24,492 - -

Of which placed under Investment assets related to market rate products in the balance sheet 7,846 16,284 - -

19 Miscellaneous Positive Negative Type of instrument Expiry Principal market value market value Share options 2019-2020 1 1,269 (772) Credit Default Swaps 2019-2026 18,508 133 (359) Futures 2019-2024 607 16 (58) Swaps 2019-2052 2,029,799 17,449 (12,937) Swaptions 2019-2062 142,374 7,894 (1,594) Currency options 2019-2031 50,029 534 (227) Forward exchange contracts 2019-2025 223,602 1,015 (2,362) Forward Rate Agreement 2019-2020 173,734 11 (17) Total derivate financial instruments 28,320 (18,326) Of which placed under Investment assets related to market rate products in the balance sheet 8,937 (8,859)

Agreements regarding derivative financial instruments have been made on the basis of ISDA agreements. Collateral agreements have been made in respect of derivative financial instruments. In this connection, collateral in the amount of DKK 11,755 million (2017: DKK 14,436 million) has been received.

PFA Holding Annual Report 2018 81 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 20 Investment assets related to market rate products Investment properties 11,467 8,464 - - Infrastructure facilities 290 285 - - Equity investments in associates 10,616 7,736 - - Loans to associates 1,216 1,035 - - Equity investments 111,319 100,680 - - Bonds 123,190 139,698 - - Loans 6,000 1,157 - - Deposits with credit institutions 7,846 16,284 - - Miscellaneous 8,937 10,502 - - Total investment assets related to market rate products 280,881 285,842 - -

Other items Other receivables 13,233 13,468 - - Other receivables related to market rate products 1,500 1,085 - - Other payables related to market rate products (54,897) (76,071) - - Total net investment assets related to market rate products 240,717 224,324 - -

Sold bonds pertain to repo liabilities. The sold bonds have been included in the bond portfolio at a fair value of DKK 43,406 million (2017: DKK 54,979 million). Of these repo transactions, an amount of DKK 37,292 million (2017: DKK 39,908 million) has been recognised in PFA Investment Fund.

21 Share capital

PFA Holding A/S The company’s share capital consists of 90 shares in the denomination of DKK 5,000, 500 shares in the denomination of DKK 1,000 and 250 shares in the denomination of DKK 200.

PFA Fonden, Sundkrogsgade 4, 2100 Copenhagen Ø, Denmark and The Confederation of Danish Employers (DA), Vester Voldgade 113, 1552 Copenhagen V, Denmark own more than 5 per cent of PFA Holding’s share capital.

An allocation of DKK 50,000 has been made for dividend for PFA Holding in 2018 (2017: DKK 50,000).

22 CustomerCapital CustomerCapital, beginning of year 31,359 28,838 - - Additions on merger with Bankpension - 2 - - Distribution to CustomerCapital 2,112 2,911 - - Disbursement of CustomerCapital (871) (770) - - CustomerCapital's share of other activities 589 773 - - Pension yield tax (242) (394) - - Total transfer from the income statement 1,588 2,519 - - CustomerCapital, end of year 32,947 31,359 - -

82 PFA Holding Annual Report 2018 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 23 Life insurance provisions Life insurance provisions, beginning of year 206,350 215,696 - - Profit margin, beginning of year 1,857 - - - Total technical provisions, beginning of year 208,207 215,696 - - Collective bonus potential, beginning of year (10,518) (12,339) - - Accumulated value adjustment, beginning of year (65,903) (61,842) - - Retrospective provisions, beginning of year 131,786 141,514 - -

Retrospective provisions transferred from transfer of portfolio/merger (0) 1 Accumulated value adjustment transferred from transfer of portfolio/merger 20 (0) Collective bonus potential transferred from transfer of portfolio/merger (20) (6) - - Profit margin transferred from transfer of portfolio/merger (23) - - -

Changes during the year due to Gross premiums 2,144 2,311 - - Transfer to life insurance provisions, market rate (3,607) (5,455) - - Addition of return 3,511 3,701 - - Insurance benefits (9,492) (10,025) - - Taxes related to endowment pensions 3 (427) - - Expense loading after addition of cost bonus (456) (456) - - Risk profit after addition of risk bonus 16 135 - - Customers' contributions to CustomerCapital, net 421 482 - - Other changes (0) 4 - - Total changes (7,459) (9,729) - - Retrospective provisions, end of year 124,326 131,786 - - Accumulated value adjustment, end of year 64,491 65,903 - - Collective bonus potential, end of year 9,500 10,518 - - Total technical provisions, end of year 198,317 208,207 - - Profit margin, end of year (1,532) (1,857) - - Life insurance provisions, end of year 196,785 206,350 - -

Breakdown of changes in gross life insurance provisions Change in retrospective provisions (7,459) (9,729) - - Change in accumulated value adjustment (1,433) 4,061 - - Change in collective bonus potential (998) (1,815) - - Change in profit margin 348 (1,857) - - Retrospective provisions transferred from transfer of portfolio/merger (0) 1 - - Accumulated value adjustment transferred from transfer of portfolio/merger 20 (0) - - Collective bonus potential transferred from transfer of portfolio/merger (20) (6) - - Profit margin transferred from transfer of portfolio/merger (23) - - - Change in gross life insurance provisions (9,565) (9,346) - - Of which transferred from other comprehensive income (0) 7 -

Guaranteed benefits have been calculated taking into account the conversion of contracts into paid-up policies and surrendered policies. The probability that the individual customers surrender or transfer their insurance agreement is estimated based on the company’s observations, exclusive of intercompany transfers to market rate, for individual customers between the ages of 30 and 64, both ages included. Interest rate group and gender-dependent surrender percentages between 1 and 5 per cent per year are applied until age 65, where the surrender percentages are fixed at 0 per cent. In overall terms, the surrender percentages are highest in interest rate group 1 and lowest in interest rate groups 3 and 4. The surrender percentage in the individual interest rate groups is at its highest in the early thirties for both men and women. An age-dependent probability of conversion into a paid-up policy is used which declines concurrently with increasing age and which amounts to approximately 25 per cent per year for a 50-year-old customer in interest rate group 1, and approximately 8 per cent for a 50-year-old customer in interest rate groups 3 and 4. The calculation of probabilities includes a risk charge of 10 per cent for surrender and 25 per cent for conversion into a paid-up policy.

The interest on average interest rate pension plans is stable and there is a guaranteed minimum payout (guaranteed benefit) once the retirement pension is paid out. With average interest rate savings, the money is invested at a relatively low risk to ensure the guaranteed minimum payout. Average interest rate plans that include the possibility of a bonus are divided into different groups (contribution groups) based on rules fixed by the Danish Financial Supervisory Authority. The policies are placed in an interest rate group, a risk group and a cost group, respectively.

PFA Holding Annual Report 2018 83 Note (DKK million) PFA Group PFA Holding

23 Life insurance provisions (continued) Interest rate groups: PFA Pension has four interest rate groups, and each policy is placed in one of these groups. Placement in the interest rate groups is based on a calculation of the policy's weighted basic interest rate, which is an expression of the size of the guaranteed benefits relative to the savings.

- Interest rate group 1: Policies with a weighted basic interest rate of up to 2.0 % - Interest rate group 2: Policies with a weighted basic interest rate over 2.0 and up to 3.0 % - Interest rate group 3: Policies with a weighted basic interest rate over 3.0 but less than 4.0 % - Interest rate group 4: Policies with a weighted basic interest rate of 4.0 % and above.

Risk groups: PFA Pension has three risk groups, and each policy is placed in one of these groups:

- Policies covered by an agreement on special risk profit or a so-called pooling arrangement - Policies with regular risk calculation - Group term life insurance

Cost groups: PFA Pension has three cost groups, and each policy is placed in one of these groups:

- Policies in the payout phase as well as other policies without regular payments - Policies with regular payments - Group term life insurance

In addition, PFA Pension holds some groups of plans which are exempt from contribution.

Life insurance provisions, net of reinsurance 2018 Guaranteed Individual Collective Under contribution benefits bonus potential bonus potential Risk margin Interest rate group 1, basic interest rate of up to 2 % 71,119 515 6,776 458 Interest rate group 2, basic interest rate over 2 % and up to 3 % 14,744 18 952 110 Interest rate group 3, basic interest rate over 3 % and under 4 % 18,134 5 274 194 Interest rate group 4, basic interest rate of 4 % or more 79,732 6 1,061 1,216 Risk groups 405 Cost groups 33

Outside contribution Miscellaneous 1,032 4 Total 184,760 544 9,500 1,981 Total life insurance provisions, net of reinsurance 196,785

2017 Guaranteed Individual Collective Under contribution benefits bonus potential bonus potential Risk margin Interest rate group 1, basic interest rate of up to 2 % 73,374 579 8,582 657 Interest rate group 2, basic interest rate over 2 % and up to 3 % 15,985 17 1,074 179 Interest rate group 3, basic interest rate over 3 % and under 4 % 21,122 5 165 365 Interest rate group 4, basic interest rate of 4 % or more 80,092 6 151 1,741 PFA Soraaneq A/S (liquidated 2018) 570 65 96 7 Risk groups 417 Cost groups 33

Outside contribution Miscellaneous 1,063 6 Total 192,207 671 10,518 2,955 Total life insurance provisions, net of reinsurance 206,350

84 PFA Holding Annual Report 2018 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 23 Life insurance provisions (continued) Rate of return in interest rate groups Interest rate group 1, basic interest rate of up to 2 % (0.2) % 4.7 % - - Interest rate group 2, basic interest rate over 2 % and up to 3 % (0.7) % 3.4 % - - Interest rate group 3, basic interest rate over 3 % and under 4 % 2.0 % 2.3 % - - Interest rate group 4, basic interest rate of 4 % or more 1.9 % 2.7 % - - PFA Soraarneq A/S (liquidated 2018) - 4.0 % - -

Bonus rations in interest rate groups Interest rate group 1, basic interest rate of up to 2 % 11.8 % 14.2 % - - Interest rate group 2, basic interest rate over 2 % and up to 3 % 8.1 % 8.4 % - - Interest rate group 3, basic interest rate over 3 % and under 4 % 2.4 % 1.2 % - - Interest rate group 4, basic interest rate of 4 % or more 2.8 % 0.4 % - - PFA Soraarneq A/S (liquidated 2018) - 16.5 % - -

Risk groups Risk result after addition of risk bonus (60) (215) - - Risk result after addition of risk bonus in per cent (0.0) % (0.1) % - -

Cost groups Expense loading after addition of cost bonus 348 360 - - Insurance operating expenses for the year (393) (413) - - Cost result (44) (53) - - Cost result in per cent (0.02) % (0.03) % - -

Return on customer funds, average interest rate products Pre-tax return on customer funds after expenses 0.4 % 3.2 % - -

24 Life insurance provisions, market rate Market rate insurance contracts Life insurance provisions, market rate, beginning of year 223,207 186,639 - - Profit margin, beginning of year 1,117 1,182 - - Total technical provisions, beginning of year 224,324 187,820 - - Accumulated value adjustment, beginning of year 1,354 1,181 - - Retrospective provisions, beginning of year 225,678 189,001 - -

Retrospective provisions transferred from Bankpension - 1 Accumulated value adjustment transferred from Bankpension - (0) , Changes during the year due to Gross premiums 33,361 29,766 - - Transfer from average interest rate products 3,607 5,455 - - Addition of return (6,973) 13,774 - - Insurance benefits (11,840) (10,912) - - Expense loading (369) (389) - - Risk result 212 141 - - Customers' contributions to CustomerCapital, net (1,164) (1,159) - - Total changes 16,834 36,676 - - Of which transferred from other comprehensive income (15) 1 - - Retrospective provisions, end of year 242,513 225,678 - - Accumulated value adjustment, end of year (1,796) (1,354) - - Total technical provisions, end of year 240,717 224,324 - - Profit margin, end of year (3,112) (1,117) - - Total life insurance provisions, market rate 237,605 223,207 - -

Of which technical provisions related to market rate products 1,760 1,400 - - Of which provisions for market rate products excluding technical provisions 235,844 221,807 - - Risk margin related to market rate products amounts to 2,096 2,091 - -

For policies with payout protection cover, the payout protection cover is gradually phased in, based on a technical return of up to 0.5 per cent, during the last 10 years before retirement.

PFA Holding Annual Report 2018 85 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 24 Life insurance provisions, market rate (continued) Breakdown of changes in life insurance provisions, market rate Change in retrospective provisions 16,834 36,676 - - Change in accumulated value adjustment (441) (174) - - Change in profit margin (1,995) 65 - - Retrospective provisions transferred from Bankpension - 1 - - Accumulated value adjustment transferred from Bankpension - (0) - - Change in gross life insurance provisions 14,398 36,568 - - Of which transferred from other comprehensive income - (1) - -

With market rate pension plans, the individual customer has co-determination when it comes to how the savings are to be invested depending on the risk profile requested by the customer. The customers bear the investment risk as well as the risk that the average life expectancy will change, which implies increased investment freedom providing the possibility of a higher return.

Customers with a market rate plan have the possibility of choosing among four investment profiles for which the asset mix is fixed by PFA Pension. Investment profiles A, B, C and D offer different return potentials and different degrees of risk. Profile A comes with the lowest risk and the lowest potential for a high return. Profile D has the greatest possibility of a high return – but also the highest risk. The investment profiles are life cycle products, in which the share of investments with the highest risk will be gradually reduced as the customer approaches retirement. In the market rate environment, the customers also have the possibility of selecting the product PFA Optional, which lets the customer select the share of risky investments, or the product You Invest, which lets the customers make the investment selections.

PFA offers customers with a market rate plan that they may include payout protection cover, which ensures that that the customer’s payouts will not drop below a certain level irrespective of the development on the financial markets. Usually, the payout protection cover can be included in savings in investment profiles A and B. The payout protection cover will generally be phased in from 10 years before the customer’s retirement.

2018 2017 2018 2017 Return on customer funds, market rate products Pre-tax return on customer funds after expenses (3.0) % 8.0 % - -

Return and risk, market rate products Profile D Per cent of average Years until retirement provisions Return in per cent Risk 30 years 0.2 % (6.5) % 4.75 15 years 0.4 % (6.5) % 4.50 5 years 0.3 % (3.0) % 3.75 5 years after 0.1 % (2.3) % 3.50

Profile C Per cent of average Years until retirement provisions Return in per cent Risk 30 years 0.6 % (4.8) % 4.25 15 years 2.1 % (4.8) % 4.25 5 years 1.2 % (2.2) % 3.50 5 years after 0.2 % (1.6) % 3.50

Profile B Per cent of average Years until retirement provisions Return in per cent Risk 30 years 0.2 % (3.0) % 3.75 15 years 1.1 % (3.0) % 3.75 5 years 1.0 % (1.3) % 3.25 5 years after 0.2 % (0.9) % 3.25

Profile A Per cent of average Years until retirement provisions Return in per cent Risk 30 years 0.1 % (1.3) % 3.25 15 years 0.3 % (1.3) % 3.25 5 years 0.4 % (0.6) % 3.25 5 years after 0.1 % (0.2) % 2.00

86 PFA Holding Annual Report 2018 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 25 Profit margin on life insurance and investment contracts Profit margin on average interest rate products 1,532 1,857 - - Profit margin on market rate products 3,112 1,117 - - Profit margin on life insurance and investment contracts 4,644 2,974 - -

26 Provisions for claims, net of reinsurance Health and accident insurance, gross 6,875 5,400 - - Total provisions for claims, net of reinsurance 6,875 5,400 - -

27 Payables to credit institutions Payables related to agreements for the repurchase of bonds (repo) 54,030 67,958 - - Total payables to credit institutions 54,030 67,958 - -

Sold bonds pertain to repo liabilities. The sold bonds have been included in the bond portfolio at a fair value of DKK 53,856 million (2017: DKK 67,709 million). Of these repo transactions, an amount of DKK 42,066 million (2017: DKK 40,281 million) has been recognised in PFA Investment Fund.

28 Other payables Winding-up of funds 8,122 22,712 - - Derivative financial instruments 18,326 19,187 - - Other costs payable 2,109 1,531 - 0 Total other payables 28,558 43,430 - 0 Payables falling due more than 5 years after the balance sheet date - - - -

29 Collateral recieved and contingent assets

Collateral received Reverse transactions are recognised in the balance sheet under deposits with credit institutions 10,693 24,492 - -

Agreements regarding derivative financial instruments have been made on the basis of ISDA agreements. Collateral agreements have been made in respect of derivative financial instruments. In this connection, collateral has been received in the amount of 11,755 14,436 - -

Contingent assets The Group has a tax loss carryforward of DKK 7,649 million (2017: DKK 7,627 million), equal to a tax asset of DKK 1,683 million (2017: DKK 1,678 million). Of which DKK 522 million (2017: DKK 522 million) has been included in the balance sheet.

PFA Pension will apply for a refund of VAT with reference to the ruling of the EU Court of Justice in the “ATP case”. The case is ongoing, and settlement is not expected until 2019 at the earliest.

Outlay from equity to Collective CustomerCapital amounts to DKK 114 million in 2018 against DKK 160 million in 2017 before pension yield tax and tax effects.

PFA Holding Annual Report 2018 87 Note (DKK million) PFA Group PFA Holding

2018 2017 2018 2017 30 Collateral and contingent liabilities

Collateral Assets as security for the insureds’ savings were registered at year-end at a total balance sheet value of 452,157 460,870 Registered assets include both technical provisions, net of reinsurance, and provisions for market rate products

Bonds sold as part of repo transactions, recognised in the balance sheet 53,856 67,709

Ceeded security in connection with contracts for unlisted financial instruments 14,103 11,564

Of which ceded out of the collateral received 2,114 10,463

The Group is voluntarily registered for VAT purposes concerning certain properties. In this connection, the Group has an outstanding 460 379 VAT adjustment liability of

Contingent liabilities Other guarantees 5,090 3,922 Rent and operating commitments do not exceed 1,074 251 The company has made commitments to participate in investments in unlisted securities amounting to 22,370 19,748 Total contingent liabilities 28,535 23,921 - -

The PFA Group is party to various legal proceedings and disputes. The cases are assessed continuously and the necessary provisions are made based on the estimated risk of loss. The pending legal proceedings are not expected to impact the Group’s financial position.

PFA Holding is jointly registered with the group enterprises in respect of settlement of payroll tax and VAT, and all entities are jointly and severally liable for such tax and VAT. Note (DKK million) PFA Group PFA Holding PFA Holding is the administrative company for the purpose of joint Danish taxation. Therefore, PFA Holding is liable for any 31 Relatedcommitments parties to deduct tax at source from interest, royalties and dividends for the jointly taxed companies according to the PFArules Fonden, laid down Sundkrogsgade in the Danish 4, Corporation 2100 Copenhagen Tax Act. Ø, Denmark owns 49 per cent of the share capital of PFA Holding.

Transactions with related parties in the financial year Transactions with related parties are entered into on an arm's length basis or according to a cost recovery principle and following a contractual agreement between the companies.

PFA Pension provides administrative services, including IT, policy administration and marketing for the remaining group companies. PFA Asset Management A/S provides asset management and portfolio administration services with respect to shares, bonds and related derivatives for the remaining group companies.

Intercompany balances and transactions of major significance between PFA Holding and related parties in the financial year:

PFA Holding

2018 2017

Group enterprises Administrative services (20) (17)

88 PFA Holding Annual Report 2018 Note (DKK million)

32 Breakdown of assets and returns

Assets related to average interest rate products Carrying amount Return in per cent p.a. before pension yield PFA Group Beginning of year End of year tax and corporation tax Land and buildings 16,586 19,804 9.2 % Listed equity investments 19,096 11,062 (9.8) % Unlisted equity investments 6,628 8,518 14.2 % Total equity investments 25,724 19,580 (1.4) % Government and mortgage credit bonds 103,626 98,455 2.1 % Index-linked bonds 16,890 8,822 4.0 % Credit and emerging market bonds 35,159 34,746 1.5 % Loans etc. 2,810 5,602 4.5 % Total bonds and loans 158,486 147,625 2.3 % Demand deposit 3,331 2,728 - Repo and Reverse (7,190) (2,181) - Miscellaneous 1,291 (830) - Other financial investment assets (2,569) (283) - Derivative financial instruments for hedge of net change in assets and liabilities 10,652 11,119 -

Assets related to market rate products Carrying amount Return in per cent p.a. before pension yield PFA Group Beginning of year End of year tax and corporation tax Land and buildings 22,166 26,126 11.3 % Listed equity investments 78,719 89,014 (8.5) % Unlisted equity investments 13,992 15,827 10.5 % Total equity investments 92,711 104,841 (6.0) % Government and mortgage credit bonds* 71,141 54,449 1.0 % Index-linked bonds 9,901 15,280 4.1 % Credit and emerging market bonds 27,590 24,655 0.5 % Loans etc. 2,460 8,225 5.1 % Total bonds and loans 111,092 102,610 1.4 % Demand deposit 1,041 3,644 - Repo and Reverse (8,522) (1,367) - Miscellaneous 1,915 (939) - Other financial investment assets (5,566) 1,339 - Derivative financial instruments for hedge of net change in assets and liabilities (1) 18 -

* The bond portfolio in PFA Investment Fund is included in the net investment of DKK 6,882 million, on the basis of which the return in per cent is calculated. The total bond portfolio in PFA Investment Fund amounts to DKK 35,997 million as a result of recognised repo transactions.

The note has been prepared according to the same principles as those used for monitoring the investment assets and can therefore not be compared with figures in the financial statements.

PFA Holding Annual Report 2018 89 Note (DKK million) PFA Group

33 Risk management and sensitivity information The purpose of the Risk Committee is to, on an ongoing basis, assist the Executive Board in monitoring and discussing risks Tight risk management across products and organisational units in the Group. The The Group’s business areas encompass pension, insurance, Risk Committee has set up four sub-committees that regularly asset management and banking, among other activities. Thus, discuss and analyse financial risks, insurance risks, operational PFA’s risk management activities take into account and deal risks and legal risks (which in PFA are categorised under opera- with a variety of risks. tional risks) respectively.

Pension is the Group’s core business area. The overall objective The purpose of the Commercial Committee is to ensure that of risk management in the pension area is to ensure that cus- significant commercial decisions are made on an informed basis tomers receive a competitive return, while their pension savings with focus on profitability and commercial risks. are responsibly invested. This gives our customers the best basis for maintaining a healthy financial situation upon retirement. Identifying and assessing risks The Board of Directors performs an annual risk assessment For customers with an average interest rate plan, risk manage- by identifying and quantifying major company risks. The risk ment ensures the right balance between total reserves and identification process is carried out in the company’s respective investment risks at all times. For customers who have opted business areas in which the persons responsible for the busi- for a market rate plan, risk management maintains a focus on ness areas in question have identified the risks in connection matching investments to the individual customer’s personal with the company’s business activities. After this, each risk is circumstances including age, estimated time until retirement described qualitatively and is assessed quantitatively based on and risk tolerance. probability and consequence.

Risk management environment Risks are categorised and consolidated in one of the four risk Risk management is an integral part of PFA’s business. To categories: financial risks, insurance risks, operational risks or provide the strongest risk management settings, PFA clearly de- commercial risks. The result of this will be dealt with in the fines responsibilities and roles. The board of directors of each relevant committees and sub-committees, and the consolidated company is responsible for determining the overall framework scenario is dealt with by the Risk Committee. This way, all risk for risk management and risk tolerance. On this basis, the categories are anchored in the Executive Board in addition to individual companies’ management teams handle the overall the primary anchorage in the risk management system. The day-to-day control and monitoring. results of the risk identification process will serve as input in the preparation of the Board of Directors’ assessment of the As a part of the risk management system in the individual Group’s risk and solvency. The assessment contributes to the Group companies, the Executive Board has appointed two executive management’s treatment and further monitoring of committees on group-wide level with related sub-committees risks as well as to determine the propriety of PFA’s risk profile (see illustration below). Committees are advisory bodies for the relative to PFA’s business activities, organisation, resources and Executive Board and operations. the relevant market conditions. The assessment of the Group’s

Management Executive Board

Committee Risk Committee Commercial Committee

Investment Insurance Operational Legal Sub-committee risks risks risks risks

Financial Insurance Operational Commercial Identified risks risks risks risks risks

90 PFA Holding Annual Report 2018 Note (DKK million) PFA Group

own risk and solvency is made once a year or when required in pension plans. Insurance risks constitute the risks of losses connection with change in risk profile, financial situation etc. in connection with changes in disability, longevity and critical illness. Most significant risks The most significant risk in the PFA Group derives from average The assessments indicate that the most essential risks are con- interest rate products in the pension field due to the risk asso- nected to extended longevity. Extended longevity represents ciated with offering guaranteed benefits. The average interest a risk to the established policies as it may mean that provi- rate environment is divided into several interest rate groups sions and payments are insufficient for covering the payout for which attempts are made, to a wide extent, to hedge the requirements. Changes in the number of deaths and sickness related guaranteed benefits through the selected investment absence cases lead to changes in the payout of life insurance strategies for the relevant interest rate group. For the compa- and disability pensions. The assumptions related to insurance nies in the PFA Group within asset management and banking, risks are analysed on an ongoing basis and are compared to the most significant types of risks are operational, commercial the actual development, and provisions are adjusted annually in and other risks. accordance with the observed actual development in longevity.

Overall, financial market risks refer to the impact of financial Operational risk is defined as the risk of an incident which market fluctuations on investment assets and insurance liabil- occurs due to inexpedient or insufficient internal procedures, ities. The financial risks are mostly linked to equity price expo- human errors, system errors or external events, including legal sure and credit spread risk, which is reflected in a deliberately risks. PFA is aiming to identify activities and operational risks managed exposure. Equity price exposure refers to the risk of by implementing in-house controls, procedures and operations. loss from listed and unlisted equities. Credit spread risk refers The control environment is monitored by Compliance, Opera- to the risk of loss as a result of expansions in credit spread on tional Risk, DPO & Information Security. bonds, loans etc. and the risk of loss as a result of individual issuers/borrowers neglecting their loans. Interest rate risks are Commercial risks include the risk of loss of business due to reported with a little less weight, and they refer to loss of in- external, but also internal, factors such as changes in the mar- terest rate sensitive assets and changes in insurance liabilities, ket and competitor circumstances or in PFA’s reputation. PFA mainly as a result of the interest rate sensitivity of the guar- aspires to create openness and transparency in communication anteed benefits in the average interest rate environment. The with customers, and individual business areas actively take part most significant underlying interest rate risks consist of drops in the ongoing monitoring and handling of risks to reduce the in the general interest rate level, changes in the shape of the risk of financial losses as a result of commercial risks. interest rate curve as well as basic risks, which refer to the risk of interest rates in different currencies developing in different The sensitivities towards a number of risk factors are shown directions. The risks related to interest rate level, interest rate below. curve and the basic interest rate risks have in common that PFA is regularly monitoring and controlling them. In this way, PFA The events listed in the table are determined in accordance can regularly adjust its hedging strategies and thus the expo- with the standard model, cf. Solvency II. Stress of mortality sure against these types of interest rate risks. Other financial intensity is determined in accordance with a partial internal market risks which are reported with less weight include prop- model, which PFA uses for determining the solvency capital re- erty risks, currency risks, volatility risks and correlation risks. quirement. The consequences of the events listed in the table are stated in DKK million and are calculated as the effect on In the market rate environment, customers typically bear the equity, which corresponds to the effect on PFA’s result. market risk attached to their own savings, and the company is thus primarily exposed to the operational and commercial risks. The calculation has been made in compliance with the reported With the market rate product PFA Plus, some customers have regulations. Furthermore, it is assumed that the risks will occur the option of adding payout protection cover, which is gradually as immediate events, for which reason the effects are calculat- phased in as retirement approaches. The payout protection ed using an all-other-things-being-equal scenario based on the cover is hedged through the customer’s own investment mix. balance sheet at the balance sheet date.

The PFA Group is exposed to various insurance risks as cus- The method for determination of the events listed in the tomers frequently have various insurance cover linked to their table has been changed compared to previous years. This is a

PFA Holding Annual Report 2018 91 Note (DKK million) PFA Group

consequence of a change in the Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupa- tional Pension Funds.

The risk factors’ effect on equity

Incident (Solvency II) DKK million

Increase in interest rates (30)

Decrease in interest rates (11)

Decrease in equity prices (Type 1 and Type 2) (269)

Change in credit spread (619)

Decrease in property values (228)

Decrease in exchange rates (56)

Decrease in mortality intensity (129)

92 PFA Holding Annual Report 2018 German property port- folio of DKK 5.1 billion In 2018, PFA purchased one of the largest property portfo- lios in Germany, which cover 205,000 square metres. The investment of DKK 5.1 billion holds development potential of approximately DKK 1 billion and provides PFA with unique exposure to both housing and commercial properties in a fast growing property market in the leading economy in Europe.

PFA Holding Annual Report 2018 93 Group structure Group chart as at 31 December 2018

PFAFonden ter areolder PFA rug iet Fonden

1

PFA Holding A/S

PFA an A PFA Pension, PFA Aet forsikringsaktieselskab anageent A

800

PFA urope Real PFA PFA en 1020 PFA ore PFA apital PFA nratrutur PFA arna P tate Hig A oliger a A doe a A rer orening Holding Ap inl uidiarie inl uidiarie inl 2 uidiarie inl 11 uidiarie

PFA urope Real PFA PFA Anpartelaet PFA netent PFA arna tate ediu A oliger H A endoe H A a Fund opleentar inl uidiarie 28 eruar 2018 Ap P

PFA urope Real PFA oerue PFA ollegier apitaloreningen PFA pelia tate o A Ap Ap anpenion Atier net inl uidiarie 2018

PFA Real apitaloreningen PFA pelia tate ediu P anpenion net erging aret 2018 P Ap Atier

opleentar apitaloreningen elaet anpenion PFA Real ligationer tate ediu Ap

PFA netering R n oreningen PFA net Onership is 100 unless otherise stated PFA Pension is not the sole investor in PFA Kapitalforening

PFA’s history dates back to 1917. The share capital of the As at 1 January 2018, PFA Soraarneq, which was PFA’s Green- parent company PFA Holding amounts to DKK 1 million, and landic pension company, transferred its insurance portfolio the annual dividend distributable by the company is limited to etc. to PFA Pension with a view to offering the customers a maximum of 5 per cent of the share capital, corresponding more up-to-date products, better return opportunities and to DKK 50,000. This way, the ownership structure supports lower costs. After the transfer, PFA Soraarneq was without any PFA’s objective to create the greatest possible value for its activity and, as a natural consequence hereof, the company’s customers. concession was submitted to the Danish Financial Supervisory Authority, and the company entered into voluntary liquidation. The shareholders of PFA Holding are PFA-Fonden and other At the extraordinary general meeting of 27 August 2018, a shareholders, which primarily comprise the founding organisa- final decision was made to dissolve PFA Soraarneq, and the tions from 1917, whose members and employees for the most company has now been discontinued and deregistered with part are customers in PFA. the Danish Business Authority and the Danish Financial Super- visory Authority. Most important adjustments of the PFA Group in 2018: the PFA Group’s property companies were restructured during Q1 This Annual Report concerns the PFA Group and comprises the 2018 for the purpose of making an appropriate division of the following companies/legal entities: property investments that reflects PFA’s investment categories within the property area. Hereafter, the property companies • PFA Holding A/S (parent company) are primarily organised under PFA DK Ejendomme Høj and • PFA Pension, forsikringsaktieselskab Lav, PFA DK Boliger Høj and Lav, PFA Europe Real Estate High, • PFA Asset Management A/S Medium and Low, respectively. PFA student housing and PFA’s • PFA Bank A/S holiday homes are placed in separate legal entities, PFA Koll- • PFA DK Ejendomme Lav A/S and subsidiaries egier ApS and PFA Sommerhuse ApS, repectively, as these do • PFA DK Ejendomme Høj A/S and subsidiaries not form part of PFA’s investment portfolio. • PFA DK Boliger Lav A/S and subsidiaries

94 PFA Holding Annual Report 2018 • PFA DK Boliger Høj A/S PFA Bank A/S • PFA Europe Real Estate Medium A/S The bank offers advisory services about savings and invest- • PFA Europe Real Estate High A/S and subsidiaries ments of taxed funds to PFA’s individual customers. The • PFA Europe Real Estate Low A/S and subsidiaries bank’s advisory services and products target customers with • PFA US Real Estate Medium P/S and related general pension savings that are being paid out or are close to the partner time of payout as well as handling the customers’ investments • PFA U.S. REIT, Inc. in connection with savings based on available capital. • PFA Sommerhuse ApS Thus, the PFA Group offers its customers a comprehensive • PFA Kollegier ApS package of savings and investment advice comprising all the • PFA Infrastruktur Holding ApS and subsidiaries customers’ savings. • PFA U.S. Holding, LLC • PFA Barnaby P/S and related general partner Property companies, companies for the purpose of • PFA Ophelia Invest CO I 2018 K/S and related general alternative investment and capital associations partner The PFA Group comprises a number of property compa- • PFA DK Core Erhverv I K/S and related general partner nies and companies for the purpose of alternative invest- • Kapitalforeningen Bankpension Aktier ments at home and abroad as well as capital associations • Kapitalforeningen Bankpension Emerging Markets Aktier (kapitalforeninger). • Kapitalforeningen Bankpension Obligationer • PFA Soraarneq, forsikringsaktieselskab (discontinued as Through the property companies, investments are made at 27 August 2018). primarily in housing properties, office and retail in Denmark and abroad, while investments in, for example, infrastructure in Denmark and abroad are made through companies related Description of material subsidiaries to alternative investments. The number of property companies PFA Pension, forsikringsaktieselskab and companies for the purpose of alternative investments in PFA Pension was founded in 1917 by a number of employers’ the PFA Group continues to increase as a result of a high level and employees’ organisations with the purpose of ensuring of activity within these areas. financial security for the employees and their families when they became too old to work, became unable to work or With respect to the capital associations, investments are made changed jobs. This continues to be the objective, and it is with a view to the highest possible return balanced against done through professional advisory services, active invest- risk. The associations’ funds are invested in cash equivalents, ments of the customers’ savings and insuring the customers including currency, or in such instruments as mentioned in throughout their lives. PFA’s owners have waived their share appendix 5 in the Danish Financial Business Act in accordance of the profit that we create to ensure that as much as possi- with the associations’ investment policy and risk profile. ble is returned to the customers.

PFA Asset Management A/S PFA Asset Management A/S was established in 2014 through a merger between the former PFA Kapitalforvaltning, fonds- mæglerselskab A/S and PFA Portefølje Administration A/S. The company is authorised to manage alternative investment funds (FAIF) and Danish UCITS, and is subject to the supervi- sion of the Danish Financial Supervisory Authority. The com- pany offers asset management of equities, bonds and related derivatives as well as management of investment funds and alternative investment funds. PFA Pension and PFA Kapital- forening are the company’s largest customers.

PFA Holding Annual Report 2018 95 Managerial posts of the Board of Directors and the Executive Board As at 31 December 2018 Board of Directors

Torben Dalby Larsen (Chairman)1 Born 1949 Chief Editor, CEO, Sjællandske Medier A/S Joined the Board of Directors in 1992 • Up for election in 2019 CEO: Sjællandske Medier A/S Chairman: Dagbladenes Bureau, Sjællandske Medier’s eight wholly-owned subsidiaries, PFA Brug Livet Fonden, PFA-Fonden Board member: ATP, Byportalerne.dk ApS (vice-chairman), The Danish Broadcasting Corporation (DR), The Danish Newspapers’ and Media Employers’ Association (DMA), Deal.dk A/S, Liselundfon- det, Gefion/Sjællandsgruppen A/S, The Danish Employees’ Guarantee Fund (LG), Radio Køge ApS Other posts: Member of ATP’s Board of Representatives, member of Sparekassen Sjælland-Fyn A/S’ Board of Representatives

Lasse Grønbech (Vice-Chairman) Born 1965 CEO, Lasse Grønbech Holding ApS, Lasse Grønbech Power Electronics ApS Joined the Board of Directors in 2016 • Up for election in 2020 CEO: Lasse Grønbech Holding ApS, Lasse Grønbech Power Electronics ApS Board member: PFA-Fonden Other posts: Member of The Danish Society of Engineers IDA’s Board of Representatives

Niels-Ulrik Mousten (Vice-Chairman) Born 1963 CEO, Netsuom ApS Joined the Board of Directors in 2016 • Up for election in 2019 CEO: Netsuom ApS Chairman: FinPro ApS, Fondsmæglerselskabet CABA Capital A/S, Investeringsforeningen Nykredit Invest, Investeringsforeningen Nykredit Invest Engros, Investment Management Distribution ApS, Kapitalforeningen Nykredit Invest, Kapitalforeningen Nykredit Invest Engros, Mercurius Interna- tional / Mercurius International Group (Dubai), Novaro ApS, Placeringsfonden Nykredit Invest (kapitalforening) Board member: Advanced Cooling A/S, Advanced Cooling Investment A/S, Hovedstadens Liberale Erhvervsklub, PFA-Fonden, Retail Brands ApS, Wide Invest ApS Other posts: Member of the Advisory Board in Thylander Gruppen, member of Nordic Eye’s in- vestment committee, senior policy advisor in InvestIn, SICAV-RAIF, Sub-Fund Nykredit Infrastructure (Luxembourg)

1 Torben Dalby Larsen has, as at 31 December 2018, left his position as Chief Editor and CEO in Sjællandske Medier A/S, just like he, as at 31 December 2018, has resigned from the Board of Directors for Sjællandske Medier’s eight wholly-owned subsidiaries, Byportalerne.dk ApS, Dagbladenes Bureau, The Danish Broadcasting Corporation (DR), The Danish Newspa- pers’ and Media Employers’ Association (DMA), Deal.dk A/S, Gefion/Sjællandsgruppen A/S and Radio Køge ApS

96 PFA Holding Annual Report 2018 Carsten Bach Born 1964 Key Account Manager, PFA Pension Elected by the employees since 2017 • Up for election in 2019 No other managerial posts

Lars Christoffersen Born 1972 Representative of employee organisation, PFA Pension Elected by the employees since 2003 • Up for election in 2019 Board member: Forsikringsforbundet’s General Council

Helle Valentin Hasselris Born 1967 Managing Director and Global Account Partner, IBM Corporation Joined the Board of Directors in 2017 • Up for election in 2019 Board member: IBM Danmark, Royal BAM Group nv Other posts: Member of Royal BAM Group nv’s Nomination Committee and Remuneration Committee

Peder Hasslev Born 1963 Managing Director, Saminvest, Sweden Joined the Board of Directors in 2017 • Up for election in 2019 Managing Director: Saminvest, Sweden Chairman: Inlandsinnovation AB, Fourier Transform AB

Carsten Holdum Born 1967 Consumer Economist, PFA Pension Elected by the employees since 2017 • Up for election in 2019 No other managerial posts

PFA Holding Annual Report 2018 97 Claus Oxfeldt Born 1962 Union President, The Danish Police Union Joined the Board of Directors in 2018 • Up for election in 2019 Union President: The Danish Police Union Board member: A/S Knudemosen, Lån & Spar Bank A/S (vice-chairman), Lån & Spar Fond, The Danish confederation of public employees of 2010 (CO10) (vice-chairman), Forbrugsforeningen af 1886, The Collective Negotiation Community of Central and Local Government Employees (SKAF) Other posts: Member of the Executive Committee in The Danish Officials’ Loan Association (For- retningsudvalget i Tjenestemændenes Låneforening)

Mette Hyllekrog Risom Born 1969 Head of Advisory Services Centre, PFA Pension Elected by the employees since 2011 • Up for election in 2019 No other managerial posts

Laurits Kruse Rønn Born 1963 Director, The Danish Chamber of Commerce Joined the Board of Directors in 2012 • Up for election in 2020 Director: The Danish Chamber of Commerce, Dansk Erhverv Arbejdsgiver, Dansk Erhvervs Admini­ strationsselskab A/S Chairman: Foreningen Pension for Funktionærer Board member: The Confederation of Danish Employers (DA), Dansk Erhvervs Administrationssel- skab A/S

Hanne Sneholm Born 1958 Senior Risk Consultant, PFA Pension Elected by the employees since 2007 • Up for election in 2019 No other managerial posts

Mogens Steffensen Born 1970 Professor and Head of Section for Insurance and Economics in the Department of Mathe- matical Sciences at the University of Copenhagen Joined the Board of Directors in 2018 • Up for election in 2019 Other posts: Member of the Danish Financial Supervisory Authority’s advisory audit committee for insurance and pension, member of The Danish Society of Actuaries’ audit and solvency committee

98 PFA Holding Annual Report 2018 Per Niels Tønnesen Born 1960 President, HK Retail and Wholesale Joined the Board of Directors in 2013 • Up for election in 2020 President: HK Retail and Wholesale Board member: Foreningen Pension for Funktionærer (vice-chairman), HK Danmark’s Executive Committee, The Danish Confederation of Trade Unions (LO)’s General Council, Nordisk Komité, UNI Europa, UNI Europa Handel, UNI World, UNI World Handel Other posts: Member of HK’s Daily Management and Executive Committee, member of the Dan- ish Confederation of Trade Unions (LO)’s Negotiation Committee, Treasurer at Nordisk Handel

PFA Holding Annual Report 2018 99 Executive Board

Allan Polack Group CEO

Chairman: PF I A/S, PFA Asset Management A/S, PFA DK Boliger Høj A/S, PFA DK Boliger Lav A/S, PFA DK Ejendomme Høj A/S, PFA DK Ejendomme Lav A/S, PFA Europe Real Estate High A/S, PFA Europe Real Estate Low A/S, PFA Europe Real Estate Medium A/S, PFA Kapitalforening, PFA Kollegier ApS, PFA US Real Estate Medium P/S Board member: Axcelfuture, Fonden F&P Formidling (vice-chairman), Insurance & Pension Denmark (vice-chairman), Forsikringsorganisationernes Fællessekretariat F.M.B.A (vice-chairman), La Banque Postale Asset Management SA, PFA Brug Livet Fonden, The Stockholm Environment Institute SEI, Valdemar Frænkel og moder Emmy Polack, f. Berendts Mindelegat Other posts: Member of the Advisory Board in the Pension Research Centre - PeRCent

Anders Damgaard Executive Vice President, CFO

Chairman: PFA Sommerhuse ApS Board member: Blue Equity Management A/S, Danmarks Skibskredit A/S, Danmarks Skibskredit Holding A/S, PFA Asset Management A/S, PFA DK Boliger Høj A/S, PFA DK Boliger Lav A/S, PFA DK Ejendomme Høj A/S, PFA DK Ejendomme Lav A/S, PFA Europe Real Estate High A/S, PFA Europe Real Estate Low A/S, PFA Europe Real Estate Medium A/S, PFA Kapitalforening, PFA Kollegier ApS, PFA US Real Estate Medium P/S

Jon Steingrim Johnsen Executive Vice President, CCO

Chairman: PFA Bank A/S Board member: Forsikringsakademiet, Letpension A/S, Ringkjøbing Landbobank A/S

Mads Nicolai Kaagaard Executive Vice President

Board member: Letpension A/S, PFA Sommerhuse ApS

100 PFA Holding Annual Report 2018 Chief Actuary

Peter Holm Nielsen Chief Actuary

No other managerial posts

Group Chief Auditor

Morten Bendtsen Group Chief Auditor

Board member: The Institute of Internal Auditors, Denmark

PFA Holding Annual Report 2018 101 Executive employees

Pia Irene Andreasen Rasmus Bessing Michael Bruhn Vice President Executive Director and COO Executive Director HR PFA Asset Management A/S PFA Ejendomme

Dorthe Bundgaard Jacob Carlsen Mikkel Friis-Thomsen Vice President Vice President Vice President Group Legal Department Risk Communications & External Relations

Jens Gammelmark Nina Groth Morten Winther Hansen Vice President Vice President Vice President Product & Digital Offering Customer & Pension Services Product & Process Management

Christian Lindstrøm Lage Thomas Dyhrberg Nielsen Peter Ott Executive Director and CIO Vice President Executive Director PFA Asset Management A/S Finance & Actuarial Department PFA Bank A/S

102 PFA Holding Annual Report 2018 Henrik Nøhr Poulsen Peter Rosenlind-Nissen Jesper Steensen Executive Director and CIO Vice President Vice President PFA Asset Management A/S Advisory Services Corporate Customers

Morten Bruun Steiner Vice President Data & IT (employed as at 1 January 2019)

PFA Holding Annual Report 2018 103 Additional information

Contact information Allan Polack, Group CEO, (+45) 39 17 50 01 Anders Damgaard, Executive Vice President and CFO, (+45) 39 17 50 06 Thomas Dyhrberg Nielsen, Vice President, Finance, (+45) 39 17 62 80 Mikkel Friis-Thomsen, Vice President, Communication, (+45) 39 17 47 85

Links PFA Pension pfa.dk PFA Asset Management pfaassetmanagement.dk PFA Bank pfabank.dk PFA Ejendomme pfaejendomme.dk PFA Brug Livet Fonden pfabruglivetfonden.dk PFA Invest pfainvest.dk Mit PFA mit.pfa.dk Pension for funktionærer pff.pfa.dk

Financial reports etc. Annual reports and the CR report are available at english.pfa.dk/about-pfa.

Financial calendar Publishing dates for quarterly announcements, interim report etc. are available at pfa.dk/finanskalender (in Danish only).

104 PFA Holding Annual Report 2018

PFA Holding A/S Sundkrogsgade 4 2100 Copenhagen Denmark Tel.: (+45) 39 17 50 00 pfa.dk CVR No.: 22 43 80 18