PFA Pension, forsikringsaktieselskab Sundkrogsgade 4 Annual report 2007 DK - 2100 Copenhagen O PFA Pension Telephone (+45) 39 17 50 00 Fax (+45) 39 17 59 50 www.pfa.dk [email protected] CVR: 13594376

Text: Communication & Marketing Design: Kunde & Co Production: Boje & Mobeck

Based on understanding

Annual report 2007 PFA Pension

Please note that this is a translation of the Danish Annual Report 2007

Based on understanding 5-year summary

Key fi gures (DKKm) 2003 2004 2005 2006 2007

Income statement Premiums 10,496 10,670 11,569 12,955 14,182 Insurance benefi ts (8,554) (7,814) (8,134) (10,584) (11,565) Investment return 9,419 17,361 25,640 6,414 2,037 Total net operating expenses (771) (721) (781) (787) (818) Profi t/(loss) of reinsurance (1) (56) 70 (41) 22 Balance on the technical account 179 190 (352) 54 197 Balance on the technical account, non-life insurance (37) (76) (76) (7) (175) Net profi t/(loss) for the year 277 324 0 120 (212)

Balance sheet Total provisions for insurance and investment policies 156,924 173,669 198,265 205,344 208,980 Total equity 4,000 4,324 4,324 4,433 4,211 CustomerCapital 6,315 7,342 8,636 9,305 9,769 Capital base 10,563 11,706 12,212 13,114 12,710 Total assets 164,283 181,364 206,435 213,434 215,410 Deposit interest rate *) 4.5 % 4.5 % 4.5 % 4.5 % 4.5 %

*) after pension yield tax

Financial ratios 2003 2004 2005 2006 2007

Yield ratio Yield before pension yield tax 6.1 % 10.9 % 14.2 % 3.1 % 0.9 % Yield before pension yield tax of Equity and CustomerCapital - - - 3.5 % 1.1 % Yield before pension yield tax of customer funds 6.1 % 10.9 % 14.2 % 3.1 % 0.9 % Yield after pension yield tax 5.4 % 9.4 % 12.3 % 2.7 % 0.8 %

Customers’ cost ratios 1) Expense ratio on premiums 7.2 % 6.5 % 6.4 % 4.2 % 3.9 % Expense ratio on provisions 0.54 % 0.48 % 0.48 % 0.33 % 0.32 % Expenses per insured DKK 1,285 DKK 1,200 DKK 1,253 DKK 896 DKK 894 Balance on the cost account (0.13 %) (0.14 %) (0.15 %) 0.00 % 0.00 % Claims experience ratio 0.14 % (0.11 %) 0.24 % 0.00 % 0.00 %

Company’s cost ratios Expense ratio on premiums 7.3 % 6.7 % 6.7 % 6.1 % 5.8 % Expense ratio on provisions 0.56 % 0.49 % 0.50 % 0.48 % 0.47 % Expenses per insured DKK 1,319 DKK 1,239 DKK 1,315 DKK 1,298 DKK 1,322 Balance on the cost account (0.14 %) (0.15 %) (0.18 %) (0.15 %) (0.15 %) Claims experience ratio 0.15 % (0.10 %) 0.24 % (0.08 %) (0.05 %)

Consolidation ratios Bonus ratio 3.2 % 4.0 % 6.2 % 8.4 % 7.3 % CustomerCapital ratio 4.5 % 5.0 % 5.5 % 5.6 % 5.6 % Equity ratio 4.2 % 4.1 % 3.9 % 3.8 % 2.9 % Excess solvency ratio 2.7 % 3.0 % 2.7 % 3.1 % 3.1 % Solvency ratio 156 % 163 % 154 % 163 % 175 %

Return ratios Return on equity before tax 9.7 % 11.8 % 4.3 % 4.5 % 1.7 % Return on equity after tax 7.2 % 7.8 % 0.0 % 2.7 % (4.9 %) Pre-tax return on customers’ funds excl. CustomerCapital after expenses 2) 5.2 % 9.9 % 14.5 % 2.5 % 0.4 % Pre-tax return on subordinate loan capital 6.8 % 6.4 % 6.4 % 7.1 % 8.2 % Pre-tax return on CustomerCapital 10.5 % 17.2 % 17.6 % 4.6 % 1.6 % Pre-tax return on customers’ funds incl. CustomerCapital after expenses 2) 5.4 % 10.2 % 14.6 % 2.6 % 0.4 %

1) The customers’ cost ratios refl ect the customers’ actually paid expenses 2) Change in accounting policies in 2005 is included in the return on customers’ funds in the transaction year

2 ANNUAL REPORT • 2007 • PFA PENSION Contents

Management’s review Summary ...... 4 The outside world – from growth on the way towards a slowdown ...... 8 Sales – increased customer focus ...... 9 Premium payments – third successive year of growth ...... 10 Benefi t disbursements – 58,000 are receiving current benefi ts ...... 12 Health and preventive care ...... 16 Counselling leads to increased value ...... 17 Effi cient administration – shorter processing times ...... 20 Employer branding – developing managers and employees ...... 22 Expenses – low level of expenses means increased value ...... 26 Investments – warning signals were fl ashing during 2007 ...... 28 Corporate Social Responsibility, CSR ...... 35 Provisions and profi t for the year ...... 37 Capital strength and solvency ...... 39 Group structure ...... 40 Expectations for 2008 ...... 41 The Executive and Supervisory Boards ...... 42

Financial statements Financial statements and reports – Statement of the Executive and Supervisory Boards on the annual report as well as internal and independent auditors’ reports ...... 44 Income statement ...... 47 Balance sheet ...... 48 Statement of changes in equity and capital structure ...... 50 Notes, including accounting policies ...... 51

The Executive and Supervisory Boards’ assignments outside the PFA Group ...... 66 Executive employees ...... 67

ANNUAL REPORT • 2007 • PFA PENSION 3 Summary

Additional value to the customers pension due to age, disability or death while approx. In PFA, the philosophy is to create as much value to 15,500 customers used their healthcare insurance the customers as possible. Our ownership structure during the year. We approved twice as many treatments plays an important role in fulfi lling this vision. We are within the health area as in 2006. PFA holds approx. customer-owned and have established a unique model 105,000 healthcare insurance contracts while approx. for creating additional value, for instance by way of 350,000 employees have coverage in the event of keeping the customers’ contribution to shareholders’ disability included in their corporate benefi t plan. equity – the entrepreneurial profi t – at a minimum, and the customers’ costs of insurance coverage and Focus on healthcare reduces sickness absence on administration are relatively low. In combination with workplaces competitive investment returns – among the highest PFA focuses on health and preventive measures within the industry since 2002 – PFA’s value creation to with the objective to reduce absence rates as one of the customers is outstanding. the primary motives. We introduced a new product – PFA Preventive Care – which targets persons with PFA focuses on CustomerCapital, which is a unique PFA feature, symptoms that may lead to sickness absence. health and preventive provides customers with an additionally high ratio of healthcare and the value which we create together. The provision of Customer counselling recently introduced value from CustomerCapital will become of greater In 2007, we increased our counselling efforts to a new product importance in the years to come. both decision makers and individuals. Also, tripartite which targets minor dialogue and early intervention in connection with conditions and Pension is much more than just numbers and fi gures. long-term illness have proved to be very successful injuries in the neck, Fair and fast treatment in connection with claims is initiatives. back and lower back also an advantage which our customers benefi t from. as well as legs. We have an increasing focus on the value of preventive The counselling of individuals was increased by 20 per measures, and on how PFA can contribute to reducing cent. The personal pension consultations resulted in an sickness absence on workplaces. Sound and useful increase in premium payments of 21 per cent, and an advice from an insurance specialist or online access to increase of 31 per cent in single premiums compared to your corporate pension scheme are just some of the the previous year. Voluntary pension contributions in advantages which our customers can benefi t from. connection with the consultations have doubled since 2005, while the increase in single premiums is getting These are some of the reasons why we continue to close to a doubling. work on improving communication with our customers. In particular, we focus on the possibilities and Add to this that more than a quarter of a million persons opportunities which the internet provides in the shape contact us via telephone or e-mail. The majority of of layered information and direct access whenever the these inquiries are made via PFA’s Customer Services customers demand it. Centre, which has an average response rate of 98 per cent and answered all calls within an average of 28 Customers contributed DKK 1.2 billion more than seconds in 2007. the previous year The focus on pension and benefi t plans is felt at PFA, More effi cient administration and 2007 became another year of growth compared 2007 became a year in which focus was placed on to the reporting years 2002-04. With this, customers fast and effi cient completion of assignments, in contributed an additional DKK 1.2 billion, which is combination with shorter processing times. We reached a total of DKK 14.2 billion. Pension contributions to a milestone when we succeeded in reducing the number corporate benefi t plans grew 11.8 per cent. Premium of assignments to a level where no assignments were payments to market rate amounted to DKK 1.5 billion, older than 20 days within PFA. At the beginning of the which is an increase of 18.6 per cent compared to the year, more than 11,000 assignments were older than previous year. 20 days. The customers acknowledged this by giving us a score of up to 9.6 on a 10-scale in a satisfaction PFA disburses benefi ts of DKK 11.6 billion survey. More and more customers make use of their pension schemes and insurance policies with PFA, and in Payment Services Department maintained the low 2007 we disbursed benefi ts totalling DKK 11.6 billion. processing times in connection with administrative Approximately 58,100 customers are receiving a PFA procedures, and delivers answers and settlements

4 ANNUAL REPORT • 2007 • PFA PENSION within a very short period of time. Satisfaction in Customers with CustomerCapital received a very connection with processing times, which is key when it advantageous interest in 2007 and the customers’ own comes to good customer service, increased from 8.3 to share of CustomerCapital carried a return of 20 per cent 8.8 on a 10-scale. before tax. Since the introduction of CustomerCapital, customers have received an additionally high interest Employee development from PFA. With this, the interest on CustomerCapital We work very targeted and systematically to develop amounted to 17.2 per cent in 2004 and 29.4 per cent in and improve PFA as a place of work. We do this by 2005 and 2006. making the best resources available to assist the development of managers, employees and teams. Financially stable These activities are very essential when we recruit new PFA Pension’s overall capital strength was improved employees to PFA. The employees’ commitment and even more in 2007. The increase in interest rates levels job satisfaction in PFA are also higher than the average meant that value adjustments to agreed benefi ts were labour market. reduced by DKK 5.5 billion. This profi t was reduced by losses on bonds and interest rate hedging. Including Return and expenses value adjustments of liabilities, investment return for Investments of customers’ funds yielded a return of the year amounted to 3.7 per cent. 1.2 per cent in 2007. Return ratio amounted to 0.9 per cent. Over fi ve years, this return amounted to 40 per Throughout 2007, PFA was in the green light of cent, of which more than 37 percentage points were the Danish Financial Supervisory Authority’s risk passed on to the customers, which is in line with PFA’s scenarios. At the end of the 2007, excess capital base value creation model. in PFA Pension could stand a decrease in interest rates of more than two percentage points combined In PFA, customers do not pay higher expenses for with a decline in share prices of 30 per cent without administration and insurance coverage than the encountering any problems meeting the statutory amounts which are charged on their deposits. solvency requirements. Seen in isolation, excess Expenses increased less than premium payments, capital base can stand a decline in share prices of 70 Customers pay a which means that both customers’ and company’s per cent before encountering any problems meeting substantially smaller cost ratio dropped in comparison to 2006. Customers’ the statutory solvency requirements at the end of amount for savings expenses correspond to 0.3 per cent of the provisions 2007. at market rate in and 3.9 per cent of the premium payments. PFA than with other Higher interest rates in PFA in 2008 pension suppliers. We reduced direct expenses signifi cantly in PFA Unit In the light of the growth in customers’ reserves within Linked in 2007. With this, total expenses in PFA are the last fi ve years, PFA increased the deposit interest signifi cantly lower compared to the industry, when rate to 6.5 per cent before pension yield tax. Add to expenses are measured over the entire savings period this that the increase in interest rate levels means that until retirement. we are able to reverse previous provisions for agreed benefi ts. The new deposit interest rate came into 2007 became a year in which a combination of average effect on 1 February 2008 and is subject to change at interest rate and market rate yielded the highest return. one month’s notice. PFA DitValg 1 (PFA YourChoice), a product in which 100 per cent of the savings are placed at average interest In all probability, the interest on the customers’ own rate, carried a return of the deposit interest rate of CustomerCapital will be fi xed at 20 per cent before 5.3 per cent before tax. PFA DitValg 4, in which half of tax in 2008. This means that the customers in PFA will the savings is placed at average interest rate and half receive a return on their savings at the rate of 6.5 – 7.2 at market rate in PFA Invest, yielded a return of 5.6 per cent as at 1 February depending on their volume of per cent. In PFA DitValg 7, the entire savings are placed saved CustomerCapital. at market rate in PFA Unit Linked, and customers with more than 15 years until retirement received a return of 2.6 per cent. Viewed over a number of years, it has been an obvious advantage to have a somewhat larger share ratio in pension schemes than pure savings at average interest rate.

ANNUAL REPORT • 2007 • PFA PENSION 5

Pension is much more than just numbers and fi gures, and an advantage which you obviously benefi t from, is also a fast and fair treatment in connection with claims. Sound and useful advice from a specialist within benefi t plans, or online access to your corporate pension scheme, are just some of the advantages which you can benefi t from. The outside world – from growth on the way towards a slowdown

2007 became a remarkable year in many ways. Even though global economic growth was high, the year came to an end with more and more signs that an economic slowdown, particularly in the US, was on the way.

2007 also became the year with a substantial The primary focus area in PFA’s strategy for the next fi nancial crisis, large fl uctuations on share markets, years is the development of a new pension product, a tendency of increasing infl ation and a falling dollar which will allow us to match competition and demands rate. The fi nancial crisis accelerated in the middle of of the market in cooperation with additional welfare the year. The reason for this was the sub prime crisis – products. signifi cant losses on risky mortgage credit loans to US homeowners. The uncertainties surrounding the losses New tax legislation – administrative hassle lead to the banks limiting their lending operations. The In order to give equal status to both pension companies Federal Reserve System responded with signifi cant in other EU countries and Danish pension companies, monetary policy relaxations. In Europe, the crisis the Danish parliament ‘Folketinget’ amended meant that the European Central Bank maintained the the Danish Pension Yield Tax Act. The taxation is leading monetary policy interest rates even though an restructured from a corporate level to an individual increasing infl ation strain warranted a higher interest level, which will become a signifi cant administrative rate. strain for the entire line of business.

At the end of 2007, the liquidity situation in both the PFA tried unsuccessfully to recommend a far simpler US and Europe continued to be very tight, and the solution. In cooperation with the sector, we succeeded fi nancial instability was by no means over. in going through with a number of simplifi cations, among other things by passing one tax rate, whereas Even though the fi nancial crisis gave rise to decreasing the legislation put forward two different rates. It was share prices in the second half year of 2007, global also decided to move the effective date one year to share prices measured in DKK remained unchanged, 2010. On the other hand, the issue with overlapping of while Danish share prices rose by approx. 7 per cent. On taxes in connection with foreign dividend, which may 10-year government bonds in Europe, the interest rate affect savers in customer-owned companies, was not increased from 4.0 per cent to 4.3 per cent, whereas resolved. The Danish Minister of Taxation promised US bonds dropped from 4.7 per cent to 4.0 per cent. that he would take the initiative to solve the problem in 2009, unless a double taxation agreement solves it. Danish economy was characterised by continued growth and an increasing lack of manpower in 2007. The Danish State compensates pension customers for The majority of the Danish population has very strong losses incurred in connection with the cancellation personal fi nances, even though the drop in house and of tax exemption on index-linked bonds. In total, apartment prices has decreased many homeowners’ it amounts to a DKK 760 million compensation to signifi cant equities. PFA Pension’s customers. The compensation will be ascribed to the customers’ deposits in the course of Pension market – a growth market 2008. For the individual customer, the compensation The primary focus The pension market is a growth market with increasing will amount up to approx. 0.5 per cent of the deposit, area in PFA’s strategy premium payments from existing customers. The less the share which is exempt from pension yield tax. is the development remaining market for corporate and organisational of a new pension benefi t plans is very limited, and price competition product, which will among pension suppliers is very tough. allow us to match competition and Life expectancy is increasing and so is the number of demands of the wealthy seniors who have the resources to ensure their market in cooperation own welfare. The demand on healthcare and other with additional welfare products is growing, and the same applies to welfare products. service and counselling on benefi t plans and welfare among employees and retirees.

8 ANNUAL REPORT • 2007 • PFA PENSION Sales – increased customer focus

The interest in saving for retirement continues to grow among decision makers at companies and among the parties on the labour market. Both are demanding more fl exible options and want to include new products in their benefi t plans. This is also the case with individual savers who take an interest in their benefi t plans, and make use of the possibilities within their schemes to a much larger degree.

The positive interest in pension savings and increase in With the cooperation, FunktionærPension gained the With the new sales customer activities are felt at PFA. At the same time, we possibility of developing pension offers to members, organisation, PFA have increased focus on innovation and development an improved communication effort and an increased is more committed of new products and services. With this, counselling to focus on counselling of both members, trade union to labour market b ot h d e c i si o n m a ke r s a n d i n d i v i d u a l s a v e r s g r e w r a p i d l y representatives and affi liated unions and employers’ pension schemes in 2007, just as we launched a line of new services, organisations. In the fall, FunktionærPension and sales via pension product features and a new preventive healthcare completed a reorganisation to a new market rate brokers. product. In 2007 alone, we adapted and changed 375 based pension scheme. corporate benefi t plans and labour market pension schemes, which involved approx. 160,000 savers. In addition to the three main business areas, PFA has another business area which solely focuses on Specialist within corporate benefi t plans the sale of group insurance to private customers PFA’s business is divided into three parts of almost in fi nancial institutions. In July, PFA renewed the equal size. Approximately one third is labour market cooperation agreements with the fi nancial association pension schemes, one third is corporate benefi t Lokale Pengeinstitutter, just as we entered into new plans that are serviced via a pension broker and the agreements with the fi nancial institutions Jyske Bank remaining third is corporate benefi t plans that are and Spar Nord on PFA group insurance in the event serviced directly via PFA’s pension advisers. of death and loss of occupational capacity, as well as critical illness insurance. Within the area of fi nancial We attach equal importance to the market of labour institutions, PFA now has approx. 330,000 customers, market pension schemes, which have typically been who in total make pension contributions of approx. entered into via parties of the labour market, as to DKK 703 million. corporate benefi t plans, just as the two types of schemes often coexist in many companies. A new sales Focus on healthcare and market rate products organisation effective as at 1 February 2008 provides Customers demand more tailored service and improved organisational frames to be committed more counselling offers, just as we are experiencing an actively to the labour market pension schemes and increasing unbundling of services, especially when sales via pension brokers. larger companies ask for quotes on savings, insurance and counselling separately. Improved position in the market In the fi rst half year, PFA improved its position within The market is placing greater focus on healthcare labour market pension schemes by entering into a insurance, including preventive health products as a new strategic partnership with FunktionærPension. supplement to the benefi t plan. Another tendency is FunktionærPension was founded by the Danish the interest in the possibility of a higher return, which Employers’ Confederation ’Dansk Arbejdsgiverforening’ lies in connection with savings at market rate. and the Union of Commercial and Clerical Employees ‘HK’, and together they insure approx. 100,000 members on the private labour marked. The company holds approx. 45,000 active policies with annual premium payments amounting up to approx. DKK 1 billion.

ANNUAL REPORT • 2007 • PFA PENSION 9 Premium payments – third successive year of growth

I 2007 customers contributed DKK 14.2 billion to their pension schemes which is an additional DKK 1,2 billion compared to the previous year. Growth is not an objective as such, but it is however the result of our efforts to improve customer relations by way of better service and counselling.

Number of employees with market rate PFA has experienced a very strong growth since 2004. In 2007, growth reached a satisfactory 9.3 50,000 per cent – almost three times as high as three years 40,000 ago, and just under the record growth level in 2006. Pension contributions in corporate benefi t plans grew 30,000 almost 12 per cent to a total of DKK 12.2 billion, while 20,000 individual schemes amounted to a decreasing share 10,000 of the pension contributions. This is in line with our strategy to primarily focus on corporate benefi t plans 0 2006 2007 and labour market pension schemes.

Up-selling to existing customers Growth in premium payments Growth in pension contributions is in particular DKKm attributable to up-selling to existing customers, 1,500 while new sales amounted to a smaller part. Primarily employees from medium and large companies made 1,200 additional contributions. 900 A new product concept, PFA BasisPlus and PFA Preference, which targets small companies, was 600 launched at the end of the year. With this product concept, we are able to target these customers more 300 A new product effi ciently in future. The concept may be employed 0 concept which targets both at customers that are serviced directly by PFA and 2003 2004 2005 2006 2007 small companies was customers serviced by brokers. launched at the end of 2007. Almost 41,000 employees and members have selected Number of insured savings at market rate in PFA. That is an increase of 18 per cent compared to the previous year. Pension 600,000 contributions rose correspondingly by 19 per cent to a 500,000 total of DKK 1.5 billion. 400,000 300,000 Return to customers 200,000 2007 became a year in which a combination of average 100,000 interest rate and market rate yielded the best return. 0 PFA DitValg 1 (PFA YourChoice), which is a product in Employees Individual Group term which 100 per cent of the savings are placed at average policyholders life insurance

Premiums

DKKm 2006 2007 Growth Per cent

Current premiums 10,879 11,477 598 5.5 % Single premiums 2,101 2,707 606 28.8 % Total pension contributions 12,980 14,184 1,204 9.3 % Of this to market rate 1,274 1,511 237 18.6 % Pension contributions from corporate and labour market pension schemes 10,917 12,200 1,283 11.8 %

10 ANNUAL REPORT • 2007 • PFA PENSION interest rate, carried the deposit interest rate of 5.3 pension schemes than pure savings at average interest per cent before tax. PFA DitValg 4, in which half of the rate. savings are placed at average interest rate and half at market rate in PFA Invest, yielded a return of 5.6 per I 2007, return on the deposit in PFA DitValg 5-7 cent. amounted between 2.6 per cent and 4.4 per cent for savers with more than 15 years until retirement. Viewed over a number of years, it has been an obvious advantage to have a somewhat larger share ratio in

Accumulated return in PFA DitValg (PFA YourChoice) 2003-2007

PFA DitValg 1 ...... 29.5 per cent Over the last few PFA DitValg 2 ...... 44.5 per cent years, it has been an PFA DitValg 3 ...... 54.9 per cent advantage to have PFA DitValg 4 ...... 69.4 per cent a somewhat larger share ratio in pension PFA DitValg 5 ...... 44.8 per cent schemes than pure PFA DitValg 6 ...... 53.2 per cent PFA DitValg 7 ...... 79.2 per cent savings at average interest rate. The stated numbers and fi gures for DitValg 5-7 are PFA Sammensætter (PFA Selects) with a long investment horizon. PFA DitValg was launched in the middle of 2004, and previous numbers and fi gures are estimated.

ANNUAL REPORT • 2007 • PFA PENSION 11 Benefi t disbursements – 58,000 are receiving current benefi ts

When you save for retirement, you do so in anticipation of a long and healthy life. Most people will lead such a life, but not all are that fortunate.

In total, PFA disburses DKK 11.6 billion in connection Disbursements with retirement benefi ts and different types of DKKm 2006 2007 insurance coverage as well as surrender of policies - Disbursements 10,584 11,565 which is approx. DKK 1 billion more than the previous year.

Musculoskeletal disorders and conditions lead to Current disbursements disability pension Well over 350,000 customers have a disability pension Number as part of their benefi t plan, and it comes into force Disability benefi ts 6,700 when long-term or permanent illness results in loss Retirement benefi ts 38,200 Death benefi ts 13,200 of occupational capacity. In total, 6,700 persons are Total 58,100 receiving disability pensions from PFA.

Musculoskeletal disorders and conditions are the reason of approximately four out of ten new disability pensions, whereas mental disorders account for PFA decided to let the capital base cover any losses approx. 20 per cent. In comparison to six years related to risk, so that the customers only pay direct ago, the number of mental disorders tripled, while contributions to insurance coverage in the event of musculoskeletal disorders and conditions doubled. In death and disability. connection with healthcare and claims handling, PFA is working on a number of initiatives to prevent damage An additional 30 per cent have PFA Health and injuries, with a particular view to stress-related Insurance conditions. 105,000 persons have a PFA Health Insurance, which is 30 per cent more than in 2006, and the number of Expenses in connection with disability pension surpass decisions that are made has almost doubled since 2006. earnings. Even though death coverage showed positive Health Insurance gives access to treatment at doctors, revenue, PFA incurred a total loss on the risk account clinics and hospitals in Denmark and abroad. As an of DKK 79 million. Results have been signifi cantly additional optional coverage, it is possible to include improved compared to 2006, in which losses relating treatments at physiotherapists or chiropractors. to experience amounted to DKK 185 million. Prices on Stress and other mental disorders are very much on individual disability coverage have been additionally the increase in these years. increased by 10 per cent from 1 January 2008 in order to sustain the improvement of the experience loss. Approx. 205,000 persons have a PFA Critical Illness insurance, which gives access to a cash amount if you are diagnosed with a number of serious illnesses. The amount is tax free and may in most cases be paid out Reasons of award of disability pensions Pains in the back, one month after the diagnosis has been made. Approx. arms and legs are Cancer/ 1,200 were awarded coverage of a critical illness in Musculoskeletal tumours the reason of four system 2007. 10% Other out of ten new 38% 13% awards of disability While the sale of healthcare insurance is on the rise, Lung pension. 5% and heart customers’ use of the benefi ts from their insurance diseases increased even more. For instance, the number of 15% courses of treatment at a psychologist per 1,000 19% Nervous and customers has more than doubled compared to 2006. sensory system Mental disorders (e.g. stress) In the light of the many new claims and a relatively low price on insurance coverage, we renewed the product

12 ANNUAL REPORT • 2007 • PFA PENSION Awards Distribution of claims on PFA Health Insurance 43 per cent of the Number claims on PFA Health PFA Health Insurance 15,500 Other Examination/ treatment/ Insurance result PFA Critical Illness 1,200 Psychologist 10% operation in treatment at a 12% 35% physiotherapist or chiropractor.

15% Chiropractor and increased prices with an average of approx. 18 per cent. At the same time, we discontinued experience 28% reports. The price on PFA Critical Illness was also Physiotherapist increased, just as the product was further developed to include three new diagnoses.

Cooperation with Falck Healthcare We expect that these initiatives will lead to a better In September 2007, we entered into a cooperation with balance between income and expenses so that balance Falck Healthcare, who will now service customers with on the non-life insurance account will be improved. a Health Insurance, who are entitled to physiotherapy, 2007 ended with a loss of DKK 175 million compared chiropractic or psychologist assistance. With the to a loss of DKK 7 million in 2006, which was a special massive growth in awards, effi cient administration and year, as changes in provisions kept the loss at a low good service concepts are paramount. Among other level. things, Falck Healthcare will be able to control the quality at treatment facilities to a much better extent, and ensure that the customers have easy access to treatment through online treatment booking.

ANNUAL REPORT • 2007 • PFA PENSION 13 PFA increased focus on healthcare and the value of preventive healthcare to reduce sickness absence as one of the reasons. In 2007, we introduced a new product – PFA Preventive Care – which targets persons with increasing absence rates. With PFA Preventive Care, employees will have easy and fast access to cross-professional treatment at physiotherapists, chiropractors, zone and massage therapists as well as a risk profi le.

Health and preventive care

Most people traditionally associate benefi t plans with retirement and old age. But a benefi t plan should also be of value while you are saving up for retirement.

Healthcare insurance is very much of value, as In 2007, musculoskeletal disorders and conditions were employees can make use of it while they are on the the most common reason why 140,000 employees labour market. It is not only a matter of treatment, were reported unfi t for work every day on the Danish when the damage is done. It is most certainly a matter labour market. On an annual basis, work related of a stronger preventive effort to avoid far more sickness absence costs Danish society an amount in serious damage or injury. the proximity of DKK 26 billion.

PFA’s products within the healthcare area should be With PFA Preventive Care, employees have access to Danish employees seen in connection with a new preventive product cross-professional treatment at physiotherapists, demand preventive – PFA Preventive Care – which targets employees chiropractors, zone and massage therapists. healthcare offers with increasing sickness absence and addresses Additionally, Preventive Care includes a risk profi le from their employers, musculoskeletal disorders and conditions. PFA Health which reveals if an employee may be prone to any such as chiropractic, Insurance targets employees with sickness absence of health risks. The treatment does not require a doctor’s physiotherapy, a short duration, and gives access to examinations and referral. nutritious food, treatments, whereas PFA Critical Illness and disability psychologist and pension are intended for employees with long-term PFA Preventive Care has been developed in cooperation medical check-ups. sickness absence. with Falck Healthcare, who also services and manages treatment at the company’s treatment facilities across PFA Preventive Care – an early intervention the country. The purpose of PFA Preventive Care is to prevent minor problems and disorders from turning into illnesses and PFA expects that the preventive efforts will lead to conditions, which may require medical treatment, and lower disbursements from PFA Health Insurance and result in a disability pension in the worst case. fewer disability pensions in the long-term.

Six out of ten employees on the Danish labour market Healthcare insurance is a supplement to experience regularly pains in the back, arms and legs, public offers which seriously affects employees’ quality of life. PFA believes that private healthcare insurance is a Illnesses and musculoskeletal disorders and conditions supplement to the public healthcare system, and that are the most common reason why such a large number the obvious advantage is that employees have the of employees are awarded disability pension or public funds to start treatment as soon as possible, so that early retirement every year. The same conditions sickness absence from work is reduced to a minimum. account for 38 per cent of the disability pensions which PFA awards. Today, customers demand preventive products and treatment offers from their place of work. There is indeed a very large demand, as more than 7 out of 10 to some or a great extent demand chiropractic/ Danish employees’ requests for health and service offers physiotherapy, nutritious food, psychologist, medical from their employer check-ups, detox programmes for abuse of alcohol and other intoxicants and stop smoking programmes Chiropractic/physiotherapy – which are the majority of the preventive products Nutritious food and treatment offers which the survey includes. Psychologist Medical check-ups Detox programmes for alcohol and other intoxicants Stop smoking programmes Weight loss programmes Childcare Couples therapy Private home cleaning 0 20406080100

The above percentages represent persons who have answered ‘to some extent’ or ‘to a high extent’. Source: Epinion

16 ANNUAL REPORT • 2007 • PFA PENSION Counselling leads to increased value

A benefi t plan should be of additional value and use to the customers. This is the centre of focus for all activities in PFA.

A benefi t plan should be of value to a company or Premium payments in connection with pension consultations organisation, as they use part of the salary resources Premium to save for retirement. The individual customer’s advantages are more obvious, as it provides a safety DKKm Personal pension net when it comes to the employee’s health and the 250 consultations family’s private fi nances via a corporate benefi t plan, resulted in an 200 or a labour market scheme with a low level of expenses increase in premium and possibilities of a high return. The value which a 150 payments of 21 per benefi t plan provides is much more than personal cent and an increase 100 fi nancial freedom. It is also the value which comes in single premium from professional advice, preventive healthcare or the 50 payments of 31 per possibility of gaining an overview of ones benefi t plan. 0 cent compared to the 2005 2006 2007 previous year. This is why personal pension consultations with individual savers and counselling to decisions makers Single premium matter greatly. The number of personal pension consultations with individual savers concerning their DKKm benefi t plan was increased by 20 per cent in 2007, in 1,500 which the number of consultations reached almost 1,200 37,000. Consultations lead to an increase in premium payments of 21 per cent and an increase in single 900 premiums of 31 per cent compared to the previous 600 year. Voluntary premium payments in connection with 300

0 2005 2006 2007 Satisfaction among decision makers

10

8 the consultations have doubled since 2005, while single premium payments are getting close to a doubling in 6 the same period. 4 A special group of pension advisers focus on special 2 counselling, including counselling of savers with a 0 Overall Follow-up Specialist large fortune or with sizeable pension contributions. In satisfaction knowledge particular, we want to meet with savers who have fi ve to ten years until retirement. This group accounts for approx. 10 per cent of all consultations. Satisfaction with pension consultations A personal consultation on the telephone 10 Add to this that more than a quarter of a million persons 8 contact us via telephone or e-mail. The majority of these inquiries are made via PFA’s Customer Services 6 Centre which had an average response rate well over 98 4 per cent and an average waiting time of 28 seconds.

2 In 2007, we established a new team in the Customer 0 Personal Follow-up Overall satisfaction Services Centre which consists of pension advisers consultation from PFA with PFA who are involved in canvassing. The target group is

ANNUAL REPORT • 2007 • PFA PENSION 17 employees in small companies and they also participate Participants’ satisfaction with senior seminars in information campaigns in companies, if the corporate 5 benefi t plan is being modernised or changed in another way. The new team of pension advisers contributed 4 with approx. 5,500 consultations in 2007. 3

Pension seminars and other offers 2 PFA’s offers to hold seminars that are paid by the 1 participating companies or employees, and in 2007, 0 PFA arranged more than 100 seminars with a total Relevance Quality of 3,750 participants. The seminars are either senior seminars, which target employees older than 55 years, or a new seminar, which has been developed to focus on employees between 40 and 50 years. 2008, have created much uncertainty and insecurity among our customers on how this will affect them. Large companies are offered in-house senior seminars Since the rules were changed in the summer of 2007, which are reserved for their own employees. This is PFA has been using seminars and our homepage to also a good opportunity to focus on the companies’ inform about the new rules, just as we inform about the own senior policy. Another possibility is to register new rules in the annual survey, which was forwarded employees for open seminars, which they can attend to customers at the beginning of 2008. across the country. The new rules and regulations are very extensive, but At the two-day seminars, we discus public old-age the essence is that customers will have larger freedom pension, early retirement benefi ts and fi nancial of decision on who should inherit them. Furthermore, freedom. We also address subjects such as inheritance it is now possible to appoint a cohabiting partner, with and wills, dreams and plans, moving outside Denmark, whom you live as if you were married, as benefi ciary. interests and family as well as diet, exercise and quality of life. The +40 seminar prepares participants to make Counselling and technology the necessary decisions and selections, while there is To an increasing extent, PFA uses electronic solutions still plenty of time. The participants will gain insight in to service and offer consultations to customers. The how they make the most of their benefi t plan – both centre of rotation is the pension universe Min Pension now and in future. In addition to this, focus is on the (My Pension) at pfa.dk, where customers can see their rules and regulations in connection with inheritance up-to-date fi gures and numbers, and make their own and appointment of benefi ciaries, information about calculations using their own pension information. In preventive healthcare in connection with stress and addition to the above, we offer the possibility of using tools to plan their life. account manager portals to savers and administration portals to pension administrators at companies and in The new rules of inheritance and benefi ciaries, which organisations. were passed in 2007 and took effect on 1 January In 2007, we developed a new pension portal, PFA Partnernet, which is a description of the company’s own benefi t plan on the customer’s own intranet. In Satisfaction with PFA’s Customers Services Centre this way, information is brought as close as possible to the customers, and technology renders it possible 10 PFA’s Customer to update documents centrally. PFA Partnernet will Services Centre 8 gradually be offered to the large companies and had an average 6 organisations. response rate of 4 98 per cent and in We developed and launched a new online booking combination with 2 portal, which makes it possible to book pension their professionalism, consultations via the customers’ own intranet. So far, 0 this resulted in high Service- Easy to Specialist it has been implemented at more than 40 companies. mindedness understand knowledge customer satisfaction. And fi nally we issued a new electronic newsletter, ’Den

18 ANNUAL REPORT • 2007 • PFA PENSION røde tråd’, which targets individual savers. We also Initial diagnosis developed a fi nancial newsletter, ’Finansudsigten’, A case study which discusses the development on fi nancial Isolated depression 28 illustrates the markets. Adaptation reaction 19 potential of early Anxiety attack 4 intervention. 80 Recurring depression 3 Customers acknowledged PFA’s focus on electronic per cent returned to Schizophrenia 1 communication throughout the years by rating PFA’s their own job after Alcohol abuse 1 online services as “best in class” in a satisfaction treatment and with Fit and healthy 1 survey across the sector, called the corporate pension signifi cantly lower barometer (Firmapensionsbarometret). This both absence rates. applies to the possibilities available to the decision Diagnosis after treatment makers as well as at the employees. Fit and healthy 44 PFA participates in the joint initiative, Pensionsinfo, Anxiety attack 4 which is an electronic information service with Recurring depression 3 information on savings for retirement, including most Schizophrenia 1 public benefi ts. PFA was a cofounder of Pensionsinfo Alcohol abuse 1 in the 1990s and actively participated in the new and improved edition at the end of 2007. More and more suppliers are included in Pensionsinfo, which means that it will be fully developed in 2008. A case study including 53 customers with a PFA Tripartite dialogue and early intervention Health Insurance, who received treatment at a private A special part of PFA’s counselling concept includes psychiatric clinic, called Psykiatrisk Privatklinik, social counselling to the companies. Social counselling illustrates the potential of early intervention. Eighty was further developed and extended in 2007, and per cent returned to an ordinary job after treatment the counselling now also targets decision makers in with signifi cantly lower absence rates. Treatment was combination with counselling at a corporate level to initiated within one week, and average treatment an increasing extent. Topics are usually the pension consisted of 10 consultations of 50 minutes duration. policy with increased focus on stress management and The treatment included conversation, medicine and preventive healthcare. dialogue with the employer.

PFA’s counselling in connection with disbursement The average sickness absence dropped from 22 weeks of benefi ts is at the same time aimed at the decision to 9 weeks after we introduced new measures such as makers, and at the employee or member in question. tripartite dialogue and early intervention. Early efforts, and the fact that both employers and employees are involved in connection with long-term illness, are an advantage to all parties.

PFA developed the qualifi cations and skills to handle early preventive healthcare through our own social advisers, medical consultants and nurses. In addition to this, we have entered into a cooperation with the leading players within preventive healthcare in connection with musculoskeletal conditions and disorders and within mental illnesses.

Long-term sickness absence is often due to depression which leads to health complications. One of the main objectives with early intervention is in fact to prevent depressions and after-effects, such as disability and sickness absence.

ANNUAL REPORT • 2007 • PFA PENSION 19 Effi cient administration – shorter processing times

PFA focuses on solving assignments and problems effi ciently and thereby reducing processing times in both our Customer Services and Payment Services Departments.

Our Customer Services Department prepares Our secondary objective was to solve 90 per cent and changes pension agreements for companies, of all cases within fi ve working days, not including organisations and brokers. The department also any waiting time due to external parties. Due to the works with assignments in connection with individual increasing number of assignments during the last few savers such as underwriting, changes and pension months, and the decision to keep focus to our fi rst contributions from customers, which are distributed objective, we did not succeed in reaching this goal. among the individual policies. In 2007, the employees In the fourth quarter of the year, service compliance in our Customer Services Department processed of this goal reached 70 per cent, and in 2008 we will approx. 160.000 policies. reach the 90 per cent.

The reason for the The efforts which our Customer Services Department The reason for these quite good results was an upward low processing have made over the year represent a great advance in spiral of increased job satisfaction and improved times in 2007 was increasing productivity signifi cantly, which in the end productivity. And the results from this area contributed an upward spiral leads to shorter processing times. Our overall objective to increase the overall scores signifi cantly, when of increased job for the year was to reduce the number of assignments it comes to employee commitment in PFA’s annual satisfaction and and tasks, so that no assignments were older than 20 satisfaction survey. improved productivity days. At the end of 2007, we reached our goal. in our Customer Fast and fair service in connection with benefi t Services Department. disbursement Our Payment Services Departments maintained the low level of processing times and delivers fast answers and decisions. This is essential when it comes to satisfactory customer service, and our customers also Satisfaction survey – Payment Services Department acknowledged this with a high satisfaction score.

10 Observance of our service goals is at a satisfactory level 8 and by and large in line with our stated objectives.

6 IT development 4 Since 2003, PFA has carried on an IT development 2 programme in order to gradually replace the existing IT systems. Part of the programme has been based on 0 Overall Processing IT systems from SAP, where we developed a new salary satisfaction times system, an accounting system and an HR system. In December 2007, we put a new disbursement service system into use, which streamlines the disbursement process to PFA’s customers and supports the new Customers are very electronic tax deduction cards which were introduced satisfi ed with PFA’s Satisfaction survey – Customer Services Department on 1 January 2008. processing times in 10 both our Payments In addition to this, we also developed several successful Services Department 8 portals to be used by both savers and decision makers, and our Customer 6 as well as a new workfl ow system, which made process Services Department. automation possible, of which all contributed to 4 Customer satisfaction in improve customer services in 2007 also. A new premium our Customer Services 2 payment system and a Unit Linked system based on Department’s many the insurance system, AIA, have also been added to 0 sub-divisions rates from Overall Follow-up Processing PFA’s IT system portfolio since 2003. All systems are satisfaction times 6.4 to 9.6 on a 10-scale. build on a newly developed underlying service oriented

20 ANNUAL REPORT • 2007 • PFA PENSION IT architecture, which allows the various new systems carried through a decision-making process with the to interact. purpose of clarifying and settling the new product’s commercial contents and defi ne the IT mainframe in In September, it was decided to shift focus from the detail. We expect to launch the new product on the continuous development of the new insurance platform market in the new insurance system in 2009. For more and instead focus on the development of PFA’s new information about this, please see the change in IT product concept. In the last months of the year, we cooperation on page 41.

ANNUAL REPORT • 2007 • PFA PENSION 21 Employer branding – developing managers and employees

PFA focuses on attracting, developing and maintaining skilful managers and employees. The development of employees and managers in PFA is based on the individual’s needs for qualifi cations and requests for any future career possibilities. This is done with the involvement of the employee’s manager.

Recruitment today A high level of employment and a record low level Finally, we have focused on improving cooperation is very much about of unemployment mean that we place emphasis on and increasing the ability to create results in individual communication and creating an image of ourselves as an attractive place teams by employing special development activities, giving a coherent and of work, and an attractive employer to work for. When which at the same time serve the purpose of integrating interesting picture companies recruit new employees, there are typically the many new employees. of the company as three items on the agenda – which positions needs a workplace, as well to be fulfi lled, which qualifi cations are needed and Career paths and personal development in PFA as explaining what where do we fi nd potential candidates. PFA has added The large-scale focus on professional and personal separates it from other a fourth item to the agenda – what are we able to offer development helps to retain skilled employees in companies. which makes PFA unique? PFA. Targeted development begins with rendering the professional qualifi cations visible that are necessary In this way, recruitment today is very much about in fulfi lling the various positions. In 2007, we initiated communication. It is about giving a coherent and the process of describing the various qualifi cation interesting picture of PFA as a company and a profi les in PFA. The fact that qualifi cation levels are workplace, as well as explaining what makes PFA visible shows the possibility of job development, the interesting in the eyes of potential employees. It is possibility of other jobs in PFA as well as the possibility also a matter of being present at the same place and of making a career. time as the potential new employees, and in 2007, we prioritised visibility among potential candidates both PFA’s executive programme ran for the second at conferences, career fairs and in networks. year in a row. The programme mainly consists of a basic management course, theme workshops The overall result of the many activities has been on management in PFA, individual coaching of the that today, we are not only present in the minds and participants who also have one of the senior managers awareness of potential candidates, but also in the appointed as mentor. At the same time, participants minds of our interested parties. More educational must work on a specifi c managerial assignment institutions have also shown an interest in PFA as a throughout the course of the programme, which is workplace, and in the way we enter into dialogue with presented to the Executive Board and other senior candidates. managers when the course is completed.

Organised development of employees Managerial development All new employees participate in an organised Good management in PFA is embedded in fi ve introduction course. The majority continues with PFA’s management competences, which are deeply rooted in basic education – a training course which focuses on PFA’s business and managerial goals. The development the tasks and assignments in connection with pension of individual managers is based on targeted agreements etc. The basic education focuses on development plans, in which managers are able to use putting new employees in a position to quickly attend an extensive management development catalogue as to specifi c tasks and assignments. Subsequently, inspiration and prepare their own plans. we broaden the perspective and place emphasis on building a strong expertise during the fi rst years. Among other things, we carried through a 360° survey in 2007, which is a survey in which the managers in In order to support the development of employees, question is evaluated by both their superior manager managers and employees prepare personal as well as their subordinate employees. The survey development plans in cooperation, just as we arrange is based on the fi ve management competences as staff development interviews every year. The interview a starting point, and included a very large number focuses on dialogue about business goals and targets, of PFA’s managers in 2007. We also put more overall as well as the development which the employee needs management development initiatives into effect, in order to be able to contribute in realising these. such as improvement of communication and business

22 ANNUAL REPORT • 2007 • PFA PENSION Employee commitment and satisfaction survey (DMI survey)

Employees’ Assessment evaluation of 100 PFA Pension 2007 PFA Pension 2006 Labour market in general their managers, cooperation and 80 PFA’s reputation are all factors 60 which form part of producing a very high 40 level of employee commitment in PFA. 20

0 Reputation Top Manager Cooperation Day- Salary and Professional management to-day employment and personal work conditions development

understanding. In order to promote knowledge sharing the majority of the employees in PFA are experiencing on best practice, and to provide managers with a a healthy balance between their professional and forum to continue their leadership development, we private lives. established a network for all middle managers and project managers in PFA. These networks are operated In the process of continuing to develop PFA as a place in-house. of work, we continue to focus on the day-to-day work. Among other factors, in 2008 we will place particular New managers are offered management introduction focus to make sure that: courses. The courses consist of a basic management course, an internal management seminar and • Employees’ skills and qualifi cations are used to their workshops with case-based training in the managerial full potential assignment. • Employees’ are happy with the workload which is part of the job Larger employee commitment and job • Employees’ have suffi cient infl uence on their day- satisfaction to-day assignments and tasks. In order to possess the ability to retain and attract new employees, it is important that PFA is recognised as an PFA’s business development throughout the last attractive place to work. For the second year in a row, few years has implied an increase in the number the results of the annual employee satisfaction survey, of employees. In 2007, PFA appointed 220 new referred to as the DMI survey (the Danish Employee employees, and in average, there were 1,124 fulltime Index Survey), showed an increasing job satisfaction in employees in PFA. PFA. And this is at a time, in which job satisfaction on the Danish labour market has been on the decrease. Job satisfaction was at index 74, which was one point higher compared to the previous year and four points higher than the average at other Danish workplaces.

The employees’ evaluation of the possibilities of professional and personal development, and the evaluation of managers in particular, was much more positive in PFA compared to the Danish labour market in general. However, factors such as PFA’s reputation and the assessment of the top management are also better rated in PFA. The survey also documents that

ANNUAL REPORT • 2007 • PFA PENSION 23

We work very targeted and systematically to develop PFA as a place of work. It is all about making the best possibilities available to develop managers, employees and teams. These activities are the foundation, when it comes to the recruitment of new employees. Employees’ commitment and job satisfaction are at a higher level in PFA compared to the Danish labour market in general. Expenses – low level of expenses means increased value

As a customer-owned company, it is PFA’s objective to create a much value as possible to the customers, among other things by way of a low level of expenses and a low entrepreneurial profi t.

For instance, we create fi nancial value to the customers Expenses in current DKK after a savings period of 30 years by keeping the entrepreneurial profi t and expenses at a very low level. In PFA, only 0.5 percentage points PFA sammensætter (PFA Selects) - market rate are deducted from the customers’ gross return to Direct expenses 17,800 entrepreneurial profi t, expenses etc. Indirect expenses 34,150 Total expenses 51,950 How much do the customers pay? In PFA, customers do not pay higher expenses for Source: Kirstein Finansrådgivning. Assumptions: Basic administration and insurance coverage than the scenario with an annual premium payment of DKK 48,000 amounts which are charged on their deposit. before labour market contribution. Annual real-earnings Customers do not pay indirect expenses via the increase 1 %, annual infl ation 2 %, discount ratio: 30-year- old zero-coupon interest. unallocated reserves. Any costs and expenses in excess of the charged amounts are covered by a correspondingly smaller growth in the capital base. This increases customers’ net return and improves Expenses in market rate transparency, when indirect expenses are not charged In 2007, PFA reduced direct expenses in PFA Unit via the unallocated reserves. Linked signifi cantly, and indirect expenses in the funds are also very low compared to the sector. Among other Administrative expenses may be viewed in the deposit things, this is due to the fact that PFA returns the account statement in the annual survey or at www. agency commission – also referred to as “kick back” pfa.dk. Expenses did not increase as much as premium – to the customers. This means that PFA’s customers payments, which is why both the customers’ and the with external funds receive an additional net return of company’s cost ratio decreased by 0.3 percentage approx. 0.5 percentage points in average annually. points in comparison to 2006. With the new prices, total expenses in PFA on savings PFA has a low level High net return to the customers for retirement for a duration of more than 30 years of expenses. For Return on pension savings should be seen from a amounted to approx. DKK 52.000 in current value as instance, customers long-term point of view. Over three years, net return shown in the table. With this, expenses in PFA are with market rate pay on customers’ funds amounted to 18.0 per cent, and signifi cantly lower compared to the expenses at other signifi cantly lower over fi ve years, net return amounted to 37.1 per cent. pension suppliers. expenses in PFA than As the table will show, the margin for entrepreneurial customers with other profi t and expenses etc. in PFA has been very low over Direct expenses appear from the deposit account pension suppliers. the last few years. statement, and the indirect expenses (investment

Low margin for expenses and entrepreneurial profi t etc.

PFA Pension (average interest rate) 2007 Acc. 3 years Acc. 5 years Investment return on customer funds 1) 0.9 % 18.8 % 39.8 % Entrepreneurial profi t and expenses 0.5 % 0.7 % 2.7 % Net return 2) 0.4 % 18.0 % 37.1 % 1) Sector ratio N1F, 2) Financial ratio N15 inclusive of CustomerCapital

26 ANNUAL REPORT • 2007 • PFA PENSION expenses) are deducted from the return in the Interest to the customers’ own CustomerCapital underlying funds, in which investments are made. In 30 an expense survey, which may be viewed at www.pfa. dk, we have illustrated both the direct and indirect 25 expenses in the market rate environment. 20

Higher return to customers than to the owners 15 In PFA, our top priority is to consider the customers, 10 who have received a higher net return than the shareholders’ equity over the last fi ve years. As the 5 fi gure shows, over fi ve years, customers received a net 0 return of 37.1 per cent, which is more than 1 percentage 2004 2005 2006 2007 point higher than return on the shareholders’ equity of Customers receive an additionally high interest on their 35.9 per cent. CustomerCapital. In 2004 17.2 per cent and in 2005 and 2006 29.4 per cent whereas the interest amounted to 20 per cent in 2007. Additional interest to CustomerCapital The CustomerCapital, which customers accumulate themselves, receives a very advantageous interest in 2007, as in previous years. With the additional interest, interest is transferred from Collective CustomerCapital. the interest on Individual CustomerCapital amounts to Collective CustomerCapital started as a transfer 20 per cent p.a. before tax for the year. from shareholders’ equity of approx. DKK 5 billion in 2001 as a gift to the customers. That amount has The additional interest is an example on how now increased to DKK 8.4 billion and over a number CustomerCapital contributes to increase the value of years, it will be distributed among the customers. creation to customers, which was the original purpose Collective CustomerCapital acts as a safety net for when CustomerCapital was created. The additional Individual CustomerCapital.

ANNUAL REPORT • 2007 • PFA PENSION 27 Investments – warning signals were fl ashing during 2007

2007 became a year with continued high economic growth which ended with more and more signs that an economic slowdown, particularly in the US, was on the way. The year also showed a tendency of increasing infl ation.

2007 also became a year which was characterised by above benchmark and satisfactory. Currency hedging uncertainty and turbulence on the fi nancial markets up improved profi t with approx. 1.2 percentage points. If to a number of times. The fi rst time was in February currency hedging results on insurance provisions are and March, when global share prices dropped approx. ignored, profi t would have amounted to 2.7 per cent. 7 per cent. Then followed a relatively calm period, in which share prices rose quite substantially again. In Return ratio on customers’ funds, which are calculated July and August, the fi nancial crisis accelerated once according to a money-weighted method proportional more. The reason for the crises was signifi cant losses to net assets, amounted to 0.9 per cent. on risky mortgage credit loans (sub prime loans) to US homeowners. The crisis developed into a dead Foreign shares yielded an impressive additional return cash and credit crisis, and the Federal Reserve System of 3.5 per cent and alternative investments yielded yet responded with signifi c a n t m o n e t a r y p o l i c y r e l a x a t i o n s . again in 2007 a return above 10 per cent, which is a In Europe, the crisis meant that the European Central very satisfactory result seen in comparison with listed Bank maintained the leading monetary policy interest shares. Other asset classes yielded sound absolute r a te s i n t h e s e co n d h a l f y e a r, e v e n t h o u g h a n i n c r e a si n g returns with the exception of index-linked bonds, which infl ation strain warranted a higher interest rate. At were affected by cancellation of the tax exemption. the beginning of 2008, the liquidity situation in both the US and Europe continued to be very tight, and the However, in 2008 there will be a signifi cant fi nancial instability was by no means over. compensation to customers from the Danish state for losses incurred in connection with cancellation of Even though the fi nancial crisis gave rise to decreasing the tax exemption on index-linked bonds. In total, a share prices in the second half year of 2007, global compensation of approx. DKK 760 million will be paid share prices measured in DKK remained unchanged, to PFA Pension’s customers with average interest rate. while Danish share prices rose by approx. 7 per cent. On the 10-year government bonds in Europe, the Investment strategy interest rate increased from 4.0 per cent to 4.3 per In the investment strategy for 2007, share ratio in the cent, whereas US bonds dropped from 4.7 per cent to strategic benchmark was increased to 20 per cent. 4.0 per cent. In the autumn of 2007, we had scheduled to further increase the share ratio up to 25 per cent in 2008, but Investment results 2007 – return of 1.2 per cent in the light of the increasing uncertainty surrounding The investment profi t for the year on customer the development of US economy and signifi cant market funds amounted to 1.2 per cent. That is 0.2 per cent fl uctuations, the scheduled purchase of shares was suspended at the end of the year.

In the investment strategy for 2008, listed share ratio in the strategic benchmark has therefore been fi xed at 20 PFA’s return on Distribution of investment assets at the end of 2007 per cent. This will also allow for the possibility of share customers’ funds hedging. Add to this that alternative investments of 2 Property Other originates from 68.4 per cent have now been separated into an individual 4.3% Shares per cent bonds, 22.3 5.0% asset class. 22.3% per cent shares, 5 per cent property Listed shares resulted in a profi t and land, and 4.3 per In 2007, share markets were positive, but increases cent other fi nancial in prices were somewhat modest compared to investment assets. 68.4% the previous year. At the same time, the markets experienced larger fl uctuations than in previous years, Bonds due to the increasing uncertainty surrounding future

28 ANNUAL REPORT • 2007 • PFA PENSION Return on customer funds 2007 PFA Pension

Market value Return currency Year-end, DKKbn Ratio hedged Return Benchmark Listed Danish shares 11.7 6.2 % 6.0 % 6.0 % 7.1 % Listed foreign shares 26.2 13.8 % 7.8 % 4.2 % 0.7 % Unlisted investments 4.5 2.4 % 14.0 % 11.1 % - Total shares 42.5 22.3 % 8.2 % 5.8 % 3.7 % Danish bonds 56.7 29.8% 1.7 % 1.7 % 1.8 % Index-linked bonds 15.8 8.3 % (4.9 %) (4.9 %) (5.2 %) Foreign bonds 57.6 30.3 % 2.2 % 0.8 % 1.1 % Total bonds 130.1 68.4 % 1.1 % 0.5 % 0.7 % Land and buildings 9.5 5.0 % 3.8 % 3.8 % - Other fi nancial investment assets 8.2 4.3 % (27.4 %) (6.9 %) - Total customer funds 190.3 100.0 % 1.2 % 1.2 % 1.0 %

For “Return, currency hedged”, results of currency hedging are included in share and bond return. For “Return”, currency hedging is included under “Other fi nancial investment assets”. For total customer funds, the stated return is the return that is used in connection with comparison with benchmark.

fi nancial developments, which were recorded in the Large shares included in the OMXC-20 index showed second half year 2007 in particular. satisfactory movements in market prices during the In 2007, share year. On the other hand, small and medium shares had markets were The Danish share market rose by 7.1 per cent, while a challenging year with movements in market prices, positive, but with global markets (MSCI-All Countries) rose by 0.7 per which were somewhat weaker than the market in larger fl uctuations cent in DKK. On the foreign markets, Emerging Markets general. and smaller price in particular rose signifi cantly by 25.7 per cent in DKK. increases than the PFA’s Danish share portfolio yielded a return of 6 per previous years. Danish shares rose more than the global markets cent, which is below benchmark. The portfolio was In 2007, listed Danish shares yielded yet again a return, negatively affected by the small share ratio in D/S which was above the global market. The uncertainty Norden and TDC and the large share ratio in GN St. surrounding future fi nancial developments, in particular Nord. On the other hand, the portfolio was positively in the US, also affected the Danish share market in the affected by the large share ratio in Vestas, Novo year. This meant that the market moved satisfactory Nordisk and FLSmidth, and the small share ratio in a upwards in the fi rst half year, and decreased slightly number of fi nancial shares, including the fi nancial throughout the second half year. institution, Roskilde Bank.

Share prices: Denmark and World Share prices: Denmark (In DKK and inclusive of dividend) (In DKK and exclusive of dividend)

140 125 Denmark KAX World (MSCI All Countries) OMXC20 130 120 KFMX

120 115

110 110

100 105

90 100

80 95 Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec

ANNUAL REPORT • 2007 • PFA PENSION 29 Share prices: World and Emerging Markets in Securitas, Assa Abloy and Novartis contributed (In DKK and exclusive of profit) negatively. At the same time, the portfolio’s 150 performance was positively affected by the overall Emerging Markets World individual share selection. 140

130 Bonds and foreign currency were characterised by irregular interest developments 120 2007 became a year that was characterised by a somewhat irregular interest development and a 110 considerable drop in US interest rates, in combination 100 with the increasing interest rates in Europe. This was also noticeable in the movements in exchange rates, 90 Feb Apr Jun Aug Oct Dec in which EUR was improved by just under 10 per cent against USD.

2007 will especially be remembered as the year in Largest increases in Foreign shares affected by the falling dollar rate which the credit differential – the additional interest share prices were In 2007, listed foreign shares displayed very modest on bonds with credit risk – was fi nally increased. That recorded in Emerging movements in market prices in DKK, strongly affected gab grew signifi cantly, triggered by the sub prime Markets, which rose by a fall in the American dollar. On foreign markets, crisis in the US. The credit crisis developed into a cash by 25.7 per cent. Europe rose by 2.7 per cent in DKK, while Japan fl ow crisis and the Federal Reserve System, the FED, dropped by 13.6 per cent in DKK. The largest increases responded promptly with signifi cant interest rate cuts were recorded in Emerging Markets, which rose by 25.7 on both the offi cial discount rates and FED funds, and per cent in DKK. the 2-year state interest rates actually dropped close to 2 percentage points during 2007 to just under 3 per PFA Pension’s portfolio yielded a return of 4.2 per cent, cent. which is an additional return compared to benchmark of 3.5 per cent. The portfolio profi ted from the strong The European Central Bank, ECB, continued to clamp- development in Emerging Markets, in which there has down, but refrained from increasing the short-term been a large share ratio throughout the year. interest rates additionally. They remained unchanged at 4 per cent throughout the year. With the risk of In the remaining part of the portfolio, European infl ation just around the corner, the interest rates on exposure and corporate exposure contributed long-term bonds remained at a higher level, and as a positively. In this case, large share ratios in for result, yield curves steepened. 10-year US interest instance Sonova, Veolia Environment and Piræus rates therefore “only” dropped just over 0.5 percentage Bank contributed positively, while low share ratios points to 4.3 per cent, while 10-year European interest

Development in interest rates in Europe, 10−year interest rates

Interest rate Interest rate differential 5.0 1.25

4.5 0.75

4.0 0.25

3.5 -0.25

10−year German government bonds Interest differential government bonds. US Germany (right axis) 3.0 -0.75 29-12-06 17-02-07 08-04-07 28-05-07 17-07-07 05-09-07 25-10-07 14-12-07

30 ANNUAL REPORT • 2007 • PFA PENSION rates actually rose almost 0.5 percentage points to 4.3 Our portfolio of hedge funds yielded a return of 6.6 per cent. The difference between the European and per cent in local currency in 2007, which is satisfactory US bond interest was thereby equalled out in the long- with low volatility. The hedge fund portfolio has just term. recently been compounded with regard to the smaller return fl uctuations in comparison to the listed shares The cash fl ow crisis continued to give off warning signs, portfolio, and with a volatility of 4.3 per cent, this and at the end of the year, it turned into a regular credit was achieved. It is PFA Pension’s objective to develop crisis with signifi cant downward adjustments from the a larger hedge fund portfolio, which can sustain fi nancial sector. This was partly due to structured bond fl uctuations in listed markets. products that were no longer transferable, and this widened the credit gaps. In connection with investment PFA Pension’s investments in Private Equity yielded a grade bonds, the differential was increased by almost return of 24.5 per cent in 2007. Within the last years, 1 percentage point and more than 2.5 percentage we have only made very selective investments within points, as far as High Yields were concerned. this market, as we believe that they are priced very highly. Therefore, we have instead made commitments PFA’s bond portfolio performed satisfactory through- to “Secondary Funds”, which invests in mature Private out 2007 and yielded a positive return after currency Equity funds, which were closed to subscription some hedging on almost all asset classes – a total return on years earlier. PFA Pension believes that this segment is bonds of 1.1 per cent. The primary reason was that sup p l y-dr i ve n. T h e refo re, it is n ot wis e to inc re as e o n e s PFA solely invested in traditional bond products and exposure too quickly, but instead one should select not structured bonds. the best investment fund managers over time. The same strategy will most likely be employed in future Danish index-linked bonds were the exception, as the years. pension yield tax exemption was lifted, which lead to large capital losses on index-linked bonds in 2007. Since Properties yielded a return of 3.8 per cent then, the Danish Parliament (Folketinget) decided that PFA Pension’s properties are mainly owned by PFA customers should be compensated for this loss, and Ejendomme and PFA Invest International. Return on with that decision, the owners of index-linked bonds property companies (land and buildings) and equity subject to pension yield tax will fi nish off with a profi t. interests in property funds in PFA Pension amounted to 3.8 per cent, after translation adjustments of DKK Sound year for alternative investments -0.1 billion. 2007 became a sound year for alternative investments (unlisted investments) with a return of 14.0 per cent. Results should be viewed in the light of the fact that Net investments amounted to DKK 1.9 billion, of which the prices on Danish business property essentially total alternative investments amounted to DKK 4.4 remained stable. In regard to foreign property markets, billion at the end of 2007. The statement of unlisted the UK in particular was characterised by a drop in investments includes a small property investment prices, following the development on the fi nancial of DKK 0.1 billion. In addition to these investments, markets. investments of DKK 2.6 billion were engaged. Alternative During the year, PFA has entered into an agreement investments amount At the end of the year, investments totalling DKK 2.1 to purchase a property project from Sjælsø Gruppen, to DKK 4.4 billion and billion in infrastructure were engaged via funds in the a property development company. The offi ce building, yielded a return of UK and US. As expected, return on these investments which is located just across PFA’s headquarter, is 14.0 per cent. was negative in 2007 due to initiation expenses, approx. 10,000 m2 and is expected to be taken over at and the fact that only part of the engagement was the end of 2008. invested during the year. PFA Pension believes that these investments will provide fi ne cover of future As part of the reinvestment from the profi t in liabilities, with a certain infl ation hedging and a connection with the property sale in 2006, PFA in satisfactory return. In future years, PFA Pension will cooperation with ATP acquired a large property increase investments within this area, and PFA takes a portfolio from TDC. PFA’s share of the acquisition price great interest in seeing if investing in this segment will amounts to DKK 2.0 billion. become a possibility in Denmark.

ANNUAL REPORT • 2007 • PFA PENSION 31

In PFA, customers do not pay higher expenses for administration and insurance coverage than the amounts which are charged on their deposits. Both customers’ and company’s cost ratio dropped in comparison to 2006. Customers with market rate in PFA pay signifi cantly lower expenses than customers with other pension suppliers. PFA invested DKK 9.5 Outside Denmark, PFA has made commitments to billion in land and the property fund, ProLogis European Properties buildings. Return Fund, which invests in large well situated distribution amounted to 3.8 per facilities in Europe. In total, PFA Ejendomme bought cent. and sold property of DKK 2.0 billion and DKK 1.0 billion respectively, and invested DKK 0.5 billion in property funds.

In connection with property rental, PFA’s property of 31,600 m2 in Glostrup, Denmark, became vacant on 1 January 2007, when the Danish counties were discontinued. During the year, the property was re- rented to among others the Court in Glostrup.

The occupancy rate for Danish and foreign property, viewed as one, was 95 per cent at the end of the year. This is a drop of 1 percentage point compared to the previous year.

34 ANNUAL REPORT • 2007 • PFA PENSION Corporate Social Responsibility, CSR

PFA phrased a CSR policy which serves as a managerial basis as to how PFA acts as a socially responsible business partner, employer and member of society. The policy contains a number of overall objectives, within categories such as customers and market, employees, society and environment.

PFA complies with the recommendations from the Stock RI policy – ethical considerations Exchange’s Committee for Corporate Governance – the Investments are made with the purpose of ensuring so-called Nørby Committee – which are of relevance that the pension savers receive the largest return to a customer-owned pension company. On only very possible. At the same time, PFA Pension is very much few points for instance regarding share trading and aware of the social responsibility which comes from the composition of the Supervisory Board, the largest administering a signifi cant share of the Danish pension shareholders have decided that PFA will not comply funds. In addition to complying with the applicable with the recommendations, considering its position as laws and regulations, PFA Pension places emphasis on a customer-owned company. promoting:

In 2008, we will map out and analyse overall activities, • A peaceful and democratic development of society with a view to CSR, within the different areas’ plans without resorting to violence of action. The purpose is to phrase more specifi c • Observation of basic human rights objectives within CSR. • A responsible conduct in relation to natural resources and the environment Investment policy – Responsible Investments • Fight against corruption. In 2007, we revised the investment policy and adopted a new RI policy. As an integral part of the investment As part of selecting new investments, and in policy, we have incorporated a set of ethical guidelines the assessment of the existing portfolio, these and a Corporate Governance policy. considerations and others are made.

The investment policies ensure that the overall Ethical considerations are made at a corporate objective to create the largest possible returns is met level. Companies are assessed with regard to their in consideration of the fact that PFA is aware of the products, production and trade circumstances responsibility towards society, which comes from and we place emphasis on the fact that they work administering a signifi cant share of the Danish pension towards a sustainable fi nancial development and funds. create orderly conditions for both their employees and their business partners. Cultural, production and We view the investment policies on ethics, social fi nancial considerations that often differ signifi cantly considerations, environment and Corporate Governance from Danish circumstances, form part of the overall as correlative issues, and therefore we refer to them assessment. as our “RI policy” (Responsible Investments). It is diffi cult to gain knowledge of all activities within It is our philosophy that Companies who show large companies, but we base our decisions on ethical, social and environmental considerations in available facts and other available information which their conduct and consciously focus on Corporate we may be able to procure, including information from Governance, including Shareholder Value, will in the external advisers. long-term produce the highest return. Companies, who We want to be known as an objective and loyal investor, show ethical, social Investment policies form part as an integral part of the who is also a critical investor. Should we become aware and environmental investment process, whenever specifi c investments of any circumstances that act to the contrary of our considerations are evaluated and assessed, which means that it is an ethical guidelines, we will seek to use our infl uence in their conduct integral part among many, in the analysis which we through a constructive dialogue with the management and consciously make, before a specifi c investment is made. of the company, with an eye to obtaining a long-term focus on Corporate effect. Should a dialogue prove to be impossible, we Governance, will will reconsider our investment in preparation for a in the long-term sale. produce the highest return.

ANNUAL REPORT • 2007 • PFA PENSION 35 Should we become We want to be an active investor, who enters into the possibility of maximising long-term investment aware of any dialogue with the company’s management and exerts return, more specifi c. The main areas in the policy circumstances that infl uence on the development in the companies, in are attitudes towards the company’s management, act to the contrary which we invest and thereby optimise long-term value incentive programmes, capital structure and a policy of our ethical creation. As a main rule, we want to make the outcome on information and communication. guidelines, we will of our assessments public. Once every year, we publish seek to use our a list of our share investments in connection with the The Corporate Governance policy is an integral part of infl uence through Annual Report. the investment process in connection with analysing a constructive investment possibilities, which form part as a fi xed dialogue with the RI policy - Corporate Governance component in connection with the current dialogue management of the The Executive Board in PFA Pension decided in 2004 with the companies. PFA Pension does not wish to company. to introduce a Corporate Governance policy with the publish, or have a public dialogue with the management overall purpose to make those areas, which increase on the contents of our assessments.

36 ANNUAL REPORT • 2007 • PFA PENSION Provisions and profi t for the year

In the average interest rate environment, unallocated reserves and value adjustment of life insurance provisions ensure that customers receive a stable deposit interest rate and the agreed retirement benefi ts. In some years, we withdraw funds from the unallocated reserves, which for instance we did in 2007, and in other years we transfer funds to the unallocated reserves.

Life insurance provisions are calculated at market increase in disability intensity of 10 per cent will result value using an interest rate based on the Danish yield in a maximum reduction in collective bonus potential curve published by the Danish Financial Supervisory of DKK 20 million. Under both circumstances, there will Authority, and assumptions used in connection with be no effect on the capital base. disability, life expectancy and surrender are currently analysed. In this connection, life expectancy was Life insurance provisions amounted to DKK 178.2 adjusted in 2007 on the basis of our experiences from billion at the turn of the year, or DKK 3.0 billion more the last fi ve years. than the previous year. Provisions for Unit Linked insurance policies increased from DKK 4.9 billion to The value adjustment of life insurance provisions DKK 6.1 billion. decreased on a net basis in 2007 and released provisions of DKK 5.5 billion compared to DKK 7.1 billion Due to the reversed value adjustment of the provisions, in 2006. The decrease is due to the increase in interest it is only necessary to withdraw a minor amount from rates in 2007, which means that smaller provisions the customers’ collective bonus potential to cover the must be made for future pension disbursements. year’s addition of interest. The withdrawal amounts to DKK 1.3 billion after tax, and collective bonus potential PFA’s customers also live longer, and this has the hereafter amounts to DKK 12.6 billion at the end of opposite effect. The annual update in connection with 2007. The addition of deposit interest amounts to observed duration of life resulted in an increase of the DKK 7.8 billion corresponding to 5.3 per cent before value adjustment of approx. DKK 450 million in 2007. tax. For the second year in a row, customers received an appendix with the annual survey, which shows the The statement of market value margin, which is connection between return and the deposit interest included in the life insurance provisions, is related rate. to insurance risks in connection with mortality and disability primarily. We take account of an increase Increase in excess capital base in life expectancy via a current decrease in mortality PFA’s excess capital base increased DKK 0.4 billion to corresponding to approximately 0.5 per cent per year. DKK 5.5 billion in spite of the repayment of subordinate PFA’s customers live loans of DKK 0.9 billion in the fi rst half year. This should longer and due to As the risk table in note 31 will show, an additional be seen in the light of the relaxation of the solvency the increase in life decrease in mortality intensity of 10 per cent, requirement calculation in 2007. expectancy, we made corresponding to an increase of one year in life additional provisions expectancy, will result in a maximum reduction in In 2007, CustomerCapital increased by DKK 464 million of approx. DKK 450 collective bonus potential of DKK 1.2 billion. An to DKK 9.8 billion. Shareholders’ equity decreased by million.

From return to deposit interest rate

DKKm 2006 2007

Return before investment expenses 5,899 3.2% 2,096 1.1% Investment expenses (255) (0.1%) (360) (0.2%) Investment return to customers 5,644 3.1% 1,735 0.9% Tax (691) (0.4%) (142) (0.1%) Transfer to shareholders’ equity and CustomerCapital (559) (0.3%) (571) (0.3%) Balance on the cost and risk account 0 0.0% 0 0.0% Change in value of insurance liabilities 7,144 3.8% 5,492 2.9% Transfer to/from unallocated reserves (4,123) (1.7%) 1,286 1.1% Deposit interest rate after tax 7,415 4.5% 7,800 4.5%

ANNUAL REPORT • 2007 • PFA PENSION 37 CustomerCapital DKK 222 million to DKK 4.2 billion. The decrease is due Profi t or loss for the year increased to DKK 9.8 to reduction in the corporate tax rate which reduces Profi t for the year before tax amounted to DKK 72 billion in 2007. the value of PFA’s tax assets. This does not affect million compared to DKK 196 million in 2006. At the the capital base, as it is determined as exclusive tax beginning of the year, profi t before tax was expected assets. to be at the same level as in 2006. The smaller profi t was, among other factors, due to lower investment The return on CustomerCapital before tax amounts returns caused by the development on the fi nancial to 1.6 per cent compared to 4.6 per cent in 2006. markets, and greater losses on non-life insurance than Return on Shareholders’ equity before tax amounts anticipated. to 1.7 per cent compared to 4.5 per cent in 2006. CustomerCapital and shareholders’ equity’s profi t or Tax for the year amounts to DKK 284 million, of which loss for the year before tax appears from the sum of only a smaller part is tax on the year’s income. As the year’s investment return, entrepreneurial profi t, expected, reduction on the corporate tax rate from 28 payment of losses on the expense and risk account, per cent to 25 per cent resulted in a decrease in the and profi t or loss from other activities. Return is also value of PFA’s tax assets of DKK 257 million. Profi t or deducted from the shareholders’ equity. loss for the year after tax therefore amounts to a loss of DKK 212 million. Collective CustomerCapital covers any losses in connection with individual CustomerCapital. Invest- The Supervisory Board recommends that the Annual ment return before pension yield tax on shareholders’ General Meeting of Shareholders adopt a distribution equity and CustomerCapital, which are invested in a of the year’s dividend of DKK 10 million as in 2006. separate portfolio, amounts to 1.1 per cent compared to 3.5 per cent in 2006.

38 ANNUAL REPORT • 2007 • PFA PENSION Capital strength and solvency

The purpose of risk management is to ensure customers the highest yield possible, combined with suffi ciently strong reserves.

Throughout 2007, PFA was in the green light of the Capital strength Danish Financial Supervisory Authority’s risk scenarios. PFA’s overall capital At the end of the year, excess solvency of the capital PFA Pension (DKKbn) 2006 2007 strength was greatly Shareholders’ equity 4.4 4.2 base was four times the risk adjusted solvency improved in 2007. CustomerCapital 9.3 9.8 requirement for the red risk scenario. Subordinate loans 1.8 0.9 Tax assets etc. (2.4) (2.2) The risk table in note 31 shows the effect of various Capital base 13.1 12.7 events, including changes in interest rates, decreases in share prices, changes in disability and mortality Solvency requirements (8.0) (7.2) intensity. Effects are broken down into the effect on Excess capital base 5.1 5.5 the capital base, collective bonus potential and bonus potential on paid-up policy benefi ts. Collective bonus potential 13.9 12.6 Total reserves 19.0 18.1 PFA’s overall capital strength was additionally improved Bonus potential on paid-up policy benefi ts 12.7 22.3 in 2007. The increasing interest rates meant that value adjustments of agreed benefi ts were reduced by DKK 5.5 billion. This profi t was reduced by the losses on bonds and interest hedging. Total reserves, consisting of excess capital base and collective bonus potential, 2007, customers made net contributions of DKK 0.4 were therefore marginally reduced from DKK 19.0 billion to the customers’ individual CustomerCapital, billion to DKK 18.1 billion. But when bonus potential on which increased to DKK 1.3 billion at the end of 2007. paid-up policy benefi ts increased from DKK 12.7 billion This ensures that customers receive a larger share of to DKK 22.3 billion due to the increase in interest the value creation in PFA. rates, PFA Pension’s total capital strength improved signifi cantly. To some extent, bonus potential on paid- Collective CustomerCapital, which was created in up policy benefi ts is also able to cover any losses for 2001 by way of a gift close to DKK 5 billion from the customers. shareholders’ equity to the customers, acts as a safety net for individual CustomerCapital and is distributed CustomerCapital ensures that customers receive as an additional interest on the customers’ individual a larger share of the value creation CustomerCapital over the years. Furthermore, CustomerCapital amounts to DKK 9.8 billion and collective CustomerCapital and shareholders’ equity therefore represents the largest part of the total will cover any losses on the risk and expense account capital base, which amounts to DKK 12.7 billion. In and other activities.

ANNUAL REPORT • 2007 • PFA PENSION 39 Group structure

PFA Pension is 100-per-cent-owned by the parent company, PFA Holding, whose sole activity is to own PFA Pension with subsidiaries.

FunktionærPension now forms part of the Group as Ownership and management a new company. In 2007, FunktionærPension and PFA The share capital of the parent company, PFA Holding, Pension entered into a strategic partnership and as amounts to DKK 1 million. According to the Articles part of this, PFA Pension acquired 52 per cent of the of Associations, the dividend to be distributed to the shares of FunktionærPension Holding on 1 July 2007. shareholders cannot exceed 5 per cent, corresponding to DKK 50,000. The limitation on dividend forms part With effect from the beginning of 2008, PFA Pension of the basis of PFA’s position as a customer-owned sold the ownership share in Lærernes Pension, which company and supports the objective to create as up until now was 51-per-cent-owned by PFA. The much value as possible to customers. By way of an handing over proceeded satisfactory and did not entail agreement, the largest shareholders ensure that this any problems or inconveniences for the customers. basis is carried on, among other measures by rules applying to Supervisory Board elections and by limiting revenue of company shares. The companies of the PFA Holding Group are domiciled Up to half of the shares of PFA Holding are owned by Share capital: DKK 1 million in Copenhagen, employers’ and employees’ organisations, along with Dividend: DKK 0 Denmark, with the a few companies where the majority of members and exception of PFA employees are customers of PFA. The PFA Foundation Soraarneq, which is owns approx. 49 per cent of the shares. PFA Holding domiciled in Nuuk, PFA Pension owns all the shares in PFA Pension. PFA Pension owns Share capital: DKK 100 million Greenland. After the all the shares, directly or indirectly, in the Group’s other Dividend: DKK 10 million spin-off of Lærernes companies, with the exception of FunktionærPension, Pension, the new where the ownership interest is 52 per cent. group structure looks Pension Insurance like this. PFA Pension and PFA Holding have interlocking PFA Soraarneq directorates. Information concerning the Supervisory Board and board assignments etc. may be viewed on FunktionærPension (52%) page 66.

Property Companies PFA Ejendomme

PFA Invest International

Administration company PFA IT Service

40 ANNUAL REPORT • 2007 • PFA PENSION Expectations for 2008

The ongoing fi nancial crisis and the expected economic slowdown in the US mean that there are larger elements of uncertainty than usual, when it comes to fi nancial outlooks for 2008.

Financial uncertainty may imply large share price Higher interest to PFA’s customers fl uctuations in both directions, depending on the With effect from 1 February 2008, PFA raised the outcome of the fi nancial development. Share markets deposit interest rate to 6.5 per cent before pension The deposit interest in the US and Europe have, however, already priced in yield tax. The rate is applicable until further notice rate was increased to a scenario half-way between a hard and soft landing. and may be changed during the year. The interest on 6.5 per cent before In the long-term, PFA believes that share prices were at CustomerCapital for 2008 is also expected to be fi xed tax on 1 February an attractive price level at the beginning of the year. at 20 per cent before pension yield tax as in 2007. 2008.

On the bond marked, we expect increases in interest Transition to market rate rates when the fi nancial crisis is fi nished, and PFA expects that still more customers will select market fundamental conditions once again prevail in the rate products, even though a smaller interest has been interest rate markets analysis. However, it may take experienced within the latest months, due to great a good while, before the fi nancial crisis passes and US market uncertainty. In order to facilitate the transition economy returns to normal. to market rate, PFA introduced a two per cent transfer allowance as at 1 January 2008, which applies to in- Continued growth in pension contributions house deposit transfers from average interest rate to PFA expects a continued large growth in pension market rate. contributions in 2008, but perhaps not at the entirely same level as in 2007, viewed in the light of expected Changed IT Cooperation decreases in fi nancial growth. With effect from 1 In February 2008, we decided to change our February 2008, PFA renewed the sales organisation cooperation with CSC regarding IT development. With in making the organisation three-stringed. In order to this, the fi nalisation of the development programme to strengthen sales efforts and leadership, a new sales handle our new insurance system will not be based on area has been established to focus exclusively on the AIA, and will therefore be carried into effect by another labour market pension area and sales via insurance system development company. The cooperation with brokers. CSC regarding the operations of the existing IT systems remains unchanged. Slight profi t before tax The profi t or loss for the year will most certainly Events after the end of the fi nancial year depend on the development on the fi nancial markets. In the time after the end of the fi nancial year, there On the assumption that the interest rate level is slightly have not been any circumstances which, in the opinion higher and that return on shares is positive, while non- of the management, have had signifi cant infl uence on life insurance is improved, a slightly more favourable the Company’s fi nancial position. profi t before tax is expected compared to 2007. Total reserves are expected to remain at the same level as Resignation in 2007, in which another element of uncertainty, in Following a mutual agreement, Niels Søbjerg Nielsen, addition to the abovementioned, is life expectancy Group Director, resigned from his position at PFA at development. the end of February 2008.

Temporarily smaller share ratio The investment strategy is currently assessed and adjusted in relation to the market development and development in reserves. With this, PFA temporarily decreased the share ratio from 20 per cent to less than 15 per cent in the fi rst half of January using fi nancial instruments. This reduced the risk in connection with shares in conjunction with the expected US recession, without having to reduce the portfolio.

ANNUAL REPORT • 2007 • PFA PENSION 41 The Executive and Supervisory Boards

Svend Askær, Carsten Bach, Nina Smith, Klavs Andreassen, Chairman, Key Account Manager, Professor, Legal Adviser, Ledernes Hovedorganisation PFA Pension Aarhus Business PFA Pension Chairman Elected by the employees School Elected by the employees

Jørn Neergaard Larsen, Torben Dalby Larsen, Erik G. Hansen, Managing Director, Chief Editor, Director, Dansk Arbejdsgiverforening Managing Director, Rigas Invest Vice-chairman Dagbladet/ Frederiksborg Amts Avis

42 ANNUAL REPORT • 2007 • PFA PENSION Per Jørgensen, Tommy Agerskov Svend-Aage Nielsen, Poul Erik Pedersen, Max Werner Petersen Tonni Nørgaard, Chairman, Thomsen, Chairman, Managing Director, Assistant Director, Chairman, Maskinmestrenes Former chairman, Nielsen & Nielsen Holding A/S Metro Cash & Carry PFA Pension Teknisk Landsforbund Forening CO II Danmark ApS Elected by the employees

Lars Christoffersen, Hanne Jensen, Representative of Team Leader, employee organisation, PFA Pension PFA Pension Elected by the employees Elected by the employees

ANNUAL REPORT • 2007 • PFA PENSION 43 Statements and reports

Statement by the Supervisory and Executive Boards

We have prepared the Annual Report of PFA Pension, and fair view of the development of the Company’s forsikringsaktieselskab on the date written below. activities and fi nancial position and describes the The Annual Report has been prepared in accordance material risks and uncertainty factors, which may with the Danish Financial Business Act. We consider affect the Company. the accounting policies applied adequate. Accordingly, it is our opinion that the Annual Report gives a true We recommend that the Annual Report be approved and fair view of the Company’s assets, equity and by the Annual General Meeting of Shareholders on 24 liabilities, fi nancial position and results of operations. April 2008. In our opinion, the Management’s Review gives a true

Copenhagen, 6 March 2008

Executive Board:

Henrik Heideby CEO

Supervisory Board:

Svend Askær Jørn Neergaard Larsen Chairman Deputy Chairman

Klavs Andreassen Carsten Bach Lars Christoffersen

Erik G. Hansen Hanne Jensen Per Jørgensen

Torben Dalby Larsen Svend-Aage Nielsen Tonni Nørgaard

Poul Erik Pedersen Max Petersen Nina Smith

Tommy Agerskov Thomsen

44 ANNUAL REPORT • 2007 • PFA PENSION Internal auditors’ report

I have audited the Annual Report of PFA Pension, I have participated in the audit of risk and other forsikringsaktieselskab for the fi nancial year 2007 material areas and believe that the audit evidence I prepared in accordance with the Danish Financial have obtained is suffi cient and appropriate to provide Business Act. a basis for my audit opinion.

Basis of opinion The audit has not resulted in any qualifi cation. The audit has been conducted in accordance with the Executive Order of the Danish Financial Supervisory Opinion Authority on Auditing Financial Undertakings etc. as In my opinion, the procedures and internal controls well as Financial Groups and the Danish Standards established, including the risk management organised on Auditing. Those standards require that I plan and by Management relevant to the entity’s reporting perform the audit to obtain reasonable assurance processes and signifi cant business risks, are working whether the Annual Report is free from material satisfactorily. misstatement. In addition, in my opinion, the Annual Report gives a The audit has been performed in accordance with the true and fair view of the Company’s fi nancial position di v ision of dutie s ag re e d with the e x ternal auditor s and at 31 December 2007 and of its fi nancial performance has included an assessment of procedures and internal for the fi nancial year 2007 in accordance with the controls established, including the risk management Danish Financial Business Act. organised by Management relevant to the entity’s reporting processes and signifi cant business risks. Based on materiality and risk, I have examined, on a test Copenhagen, 6 March 2008 basis, the basis of amounts and other disclosures in the Annual Report, including evidence supporting amounts and disclosures in the Annual Report. Furthermore, Jørgen Madsen the audit has included evaluating the appropriateness Audit Manager of the accounting policies applied by Management and the reasonableness of the accounting estimates made by Management, as well as evaluating the overall presentation of the Annual Report.

ANNUAL REPORT • 2007 • PFA PENSION 45 The independent auditors’ report

To the shareholder of PFA Pension, An audit involves performing procedures to obtain forsikringsaktieselskab audit evidence about the amounts and disclosures in We have audited the Annual Report of PFA Pension, the Annual Report. The procedures selected depend forsikringsaktieselskab for the fi nancial year 1 January on the auditors’ judgement, including the assessment – 31 December 2007, which comprises the statement of the risks of material misstatement of the Annual by the Supervisory and Executive Boards on the Annual Report, whether due to fraud or error. In making Report, management’s review, accounting policies, those risk assessments, the auditor considers internal income statement, balance sheet, statement of control relevant to the Company’s preparation and changes in equity and notes. The Annual Report has fair presentation of the Annual Report in order to been prepared in accordance with the Danish Financial design audit procedures that are appropriate in the Business Act. circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s The Supervisory and Executive Boards’ internal control. An audit also includes evaluating the responsibility for the Annual Report appropriateness of accounting policies used and the The Supervisory and Executive Boards are responsible reasonableness of accounting estimates made by the for the preparation and fair presentation of this Supervisory and Executive Boards, as well as evaluating Annual Report in accordance with the Danish Financial the overall presentation of the Annual Report. Business Act. This responsibility includes: designing, implementing and maintaining internal control We believe that the audit evidence we have obtained relevant to the preparation and fair presentation of an is suffi cient and appropriate to provide a basis for our Annual Repor t that is free from material misstatement, audit opinion. whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting Our audit did not result in any qualifi cation. estimates that are reasonable in the circumstances. Opinion Auditors’ responsibility and basis of opinion In our opinion, the Annual Report gives a true and fair Our responsibility is to express an opinion on this view of the Company’s fi nancial position at 31 December Annual Report based on our audit. We conducted our 2007 and of the results of the Company’s operations audit in accordance with Danish Standards on Auditing. for the fi nancial year 1 January – 31 December 2007 in Those standards require that we comply with ethical accordance with the Danish Financial Business Act. requirements and plan and perform the audit to obtain reasonable assurance whether the Annual Report is free from material misstatement.

Copenhagen, 6 March 2008

KPMG C. Jespersen Deloitte Statsautoriseret Revisionsinteressentskab Statsautoriseret Revisionsaktieselskab

Finn L. Meyer Jesper Dan Jespersen Erik Holst Jørgensen Jacques Peronard State Authorised State Authorised State Authorised State Authorised Public Accountant Public Accountant Public Accountant Public Accountant

46 ANNUAL REPORT • 2007 • PFA PENSION Income statement

PFA Pension

Note (DKKm) 2007 2006

Premiums 1 Gross premiums 14,182 12,955 Ceeded reinsurance premiums (161) (154) Total premiums, net of reinsurance 14,021 12,801

Investment return Income from group enterprises (19) 3,411 Income from associates 49 91 Income from investment property (2) (1) 2 Interest income, dividends etc. 8,250 7,394 3 Translation adjustments (5,801) (4,130) Interest expenses (116) (122) 4 Administrative expenses in connection with investment business (324) (229) Total investment return 2,037 6,414

5 Pension yield tax (214) (803)

Investment return after pension yield tax 1,823 5,611

Insurance benefi ts 6 Benefi ts disbursed (11,356) (10,433) Reinsurers’ share 183 113 Change in the provisions for claims (208) (150) Total insurance benefi ts, net of reinsurance (11,382) (10,471)

Change in life insurance provisions Change in life insurance provisions (2,984) (971) Total change in life insurance provisions, net of reinsurance (2,984) (971)

Bonus Change in collective bonus potential 1,286 (4,122) Change in CustomerCapital (464) (669) Total bonus 822 (4,791)

Change in provisions for Unit Linked policies (1,225) (1,155)

Net operating expenses 7 Acquisition costs (393) (378) 7 Administrative expenses (425) (410) Total net operating expenses, net of reinsurance (818) (787)

8 Investment income transferred (61) (183)

BALANCE ON THE TECHNICAL ACCOUNT 197 54

9 Balance on technical account, non-life insurance (175) (7) 8 Investment return on equity 50 148 10 PRE-TAX PROFIT/(LOSS) 72 196 11 Tax (284) (76) NET PROFIT/(LOSS) FOR THE YEAR (212) 120

ANNUAL REPORT • 2007 • PFA PENSION 47 Balance sheet – Assets

PFA Pension

Note (DKKm) 2007 2006

ASSETS

Intangible assets 51 17

12 Equipment 49 50

Total property, plant and equipment 49 50

Investment assets 13 Investment property 35 32

Investments in group enterprises and associates 14 Investments in group enterprises 7,482 7,651 15 Investments in associates 2,114 108 Total investments in group enterprises and associates 9,596 7,760

Other fi nancial investment assets Investments 43,548 40,254 Bonds 142,239 144,297 16 Loans 368 334 Other 2,865 5,387 Total other fi nancial investment assets 189,020 190,272

17 Total investment assets 198,651 198,064

18 Investment assets related to Unit Linked policies 6,051 4,885

Total reinsurers’ share of provisions for insurance policies 1 2

Receivables Receivables from policyholders 628 289 Receivables from insurance companies 26 28 Receivables from group enterprises 3,300 3,318 Other receivables 725 614 Total receivables 4,679 4,249

Other assets Assets in temporary possession 122 0 Current tax assets 78 86 19 Deferred tax assets 2,115 2,402 Cash 1,259 1,197 Total other assets 3,574 3,685

Prepayments Interest receivable and accumulated rent 2,048 2,076 Other prepayments 305 407 Total prepayments 2,353 2,482

TOTAL ASSETS 215,410 213,434

48 ANNUAL REPORT • 2007 • PFA PENSION Balance sheet – Equity and liabilities

PFA Pension

Note (DKKm) 2007 2006

EQUITY AND LIABILITIES

Equity 20 Share capital 100 100 Contingency fund 1,245 1,245 Reserves 1,245 1,245 21 Retained earnings 2,866 3,088 Total equity 4,211 4,433

22 Subordinate loan capital 900 1,800

Provisions for insurance and investment policies Provisions for premiums 45 47

Life insurance provisions Guaranteed benefi ts 122,010 134,118 Bonus potential related to benefi ts on future premiums 33,915 28,413 Bonus potential related to benefi ts on paid-up policies 22,294 12,705 23 Life insurance provisions, net of reinsurance 178,219 175,235 24 Provisions for claims, net of reinsurance 2,192 1,877 25 Collective bonus potential 12,648 13,934 Provisions for bonus and rebates 55 60 26 CustomerCapital 9,769 9,305 27 Provisions for Unit Linked policies 6,051 4,885 Total provisions for insurance and investment policies 208,980 205,344

Liabilities other than provisions Payables, direct insurance operations 44 39 Payables, reinsurance 12 15 22 Payables to credit institutions 77 160 Payables to group enterprises 292 388 Other payables 319 733 Total liabilities other than provisions 745 1,336

Deferred income 574 522

TOTAL EQUITY AND LIABILITIES 215,410 213,434

28 Contingent liabilities

ANNUAL REPORT • 2007 • PFA PENSION 49 Statement of changes in equity and capital structure

PFA Pension

Note (DKKm) 2007 2006

Statement of changes in equity Equity, opening 4,433 4,324 Transfer from the income statement (212) 120 Dividend from previous years (10) (10) Equity, closing 4,211 4,433

Capital base and solvency requirements Equity 4,211 4,433 Intangible assets (51) (17) Subordinate loan capital 900 1,800 Booked tax assets, net (2,115) (2,402) Capital base held in group enterprises 950 835 Equity holding in group enterprises (356) (304) Ownership interest of solvency requirements, subsidiaries (598) (536) CustomerCapital 9,769 9,305 Capital base 12,710 13,114 Solvency requirement (7,246) (8,032) Excess capital base 5,463 5,082

Entrepreneurial profi t receivable, Equity 0 0

Entrepreneurial profi t receivable, CustomerCapital 0 0

50 ANNUAL REPORT • 2007 • PFA PENSION Notes

Accounting policies

General Foreign currency translation The Annual Report is presented in accordance with the rules and Both PFA Pension’s functional currency and presentation cur- regulations of the Danish Financial Business Act and executive rency are in DKK. Transactions in foreign currencies are trans- order no. 1266 concerning fi nancial reporting of insurance com- lated using the exchange rate at the date of transaction. Bal- panies and interdisciplinary pension funds issued by the Danish ance sheet items in foreign currencies are translated using the Financial Supervisory Authority (the Danish Executive Order on exchange rate from Bank of England (MSCI) prevailing at the bal- the Presentation of Financial Statements ‘the executive order’). ance sheet day. Any differences, in connection with translation actions, are recognised in the income statement. The fair value The accounting policies are unchanged from the last year. of forward exchange transactions is calculated by discounting the value to the balance sheet date with relevant money market The Annual Report of PFA Pension exclusively includes the par- interest rate. ent company’s fi nancial statements, PFA Pension, forsikringsak- tieselskab. Group fi nancial statements are prepared separately General principles of recognition and measurement for the ultimate parent company PFA Holding A/S. In the income statement, revenue is recognised as it is earned, and expenses – including insurance benefi ts, changes in provi- Net profi t or loss for the year sions and changes in bonus – as they are settled. PFA Pension has notifi ed the principles of distribution of the an- nual realised results to the Danish Financial Supervisory Author- Assets are recognised in the balance sheet when it is likely that ity in accordance with the Executive Order on the Contribution future benefi ts will fl ow to the company, and when the value of Principle. the assets can be measured reliably. Liabilities are recognised in the balance sheet, when it is likely that future fi nancial benefi ts Shareholder’s equity’s and CustomerCapital’s share of the re- will fl ow from the company, and when the value of the liability alised results before tax in 2007 consist of investment return can be measured reliably. on their separated assets and an entrepreneurial profi t. In addi- tion to this, losses on the expense and risk account concerning average interest rate products in PFA Pension are settled by INCOME STATEMENT shareholders’ equity and CustomerCapital. The rest of the year’s realised results falls to the policyholders. Premiums Premiums and single premiums are recognised in the income Non-life insurance results, Unit Linked policies and other ordi- statement at the recorded due date. Transfers between the nary and extraordinary income will be allocated proportionately individual company’s different insurance portfolios are not rec- to the shareholders’ equity and CustomerCapital. ognised in the premium revenue, unless the transfer is subject to tax-settlement according to the Danish Pension Taxation Act. Collective CustomerCapital covers individual CustomerCapital’s Premiums from investment policies are included directly in the share of the above losses. balance sheet.

The notifi ed policy on equity’s part of the results for the year Investment return may in the individual year be deviated to the benefi t of Custom- Revenue from group enterprises and associates includes PFA erCapital and/or collective bonus potential. Pension’s share of the companies’ results.

Intercompany transactions Investment property revenue includes the net results before PFA Pension entered into administrative agreements with group preferred interest rates. enterprises and manages the entire or part of the companies’ administration on a cost reimbursement basis. Interest, dividend etc. include interest on securities, loans and borrowings, index-linked bonds and return on investments for Other intercompany trades, which are within the companies’ the year. natural area of business, are made on a written basis and are entered into on market based terms. The intercompany balance Translation adjustments consist of the year’s value adjustment carries interest at the rate of the money market interest rate of investments, investment property, bonds and loans. rounded up to the nearest whole percentage.

ANNUAL REPORT • 2007 • PFA PENSION 51 Insurance benefi ts Current tax is distributed among companies with positive tax- Insurance benefi ts include benefi ts disbursed for the year with able incomes, which also refund the tax base of loss to the com- an adjustment of change in the provisions for claims, after the panies with negative taxable incomes. deduction of reinsurers’ shares. Insurance benefi ts concerning investment policies are recognised directly in the balance sheet. Deferred tax is recognised by the temporary differences be- tween accounting and tax values of the assets and liabilities at Bonus the balance sheet date. Change in collective bonus potential is the portion of realised results accruing to the insurance portfolio, in excess of the bo- nus already allocated. Any transfers from shareholders’ equity BALANCE SHEET are added to this. In years where the insurance portfolio’s real- ised results are negative after the deduction of bonus already Assets allocated, the item includes the use of collective bonus potential Intangible assets for which a provision has been made in prior years. Goodwill in connection with the acquisition of equity invest- ments in group enterprises is determined as a positive differ- Change in CustomerCapital partly includes the return on Cus- ence between the total cost and the fair value of the net assets tomerCapital’s allocated assets and partly the net amount at the date of acquisition. Annual impairment tests are made contributed by customers during the year, as well as the year’s and any write-downs are recognised in the income statement. entrepreneurial profi t added, and the share of any losses on the Acquired and self-generated software are recognised in the expense and risk account, the share of results of other activities balance sheet at cost price with the deduction of accumulated and any transfers from the shareholders’ equity. amortisation and accumulated impairment losses. Cost price of self-generated assets includes direct and internal project Operating expenses development expenses. Amortisation is made according to the Under items administrative expenses in connection with invest- straight-line method over the expected useful life, which is be- ment business, net operating expenses and balance on the tween 0 and 8 years. Impairment losses are estimated on the technical account, non-life insurance, a part of the total operat- basis of impairment tests. ing expenses on the basis of direct and estimated resource con- sumption is recognised. Investment assets Investment property is measured at fair value. Fair value is Transferred investment return calculated after the return method in accordance with the prin- Transferred investment return includes the part of investment ciples in the executive order. The method is based on the indi- return related to shareholders’ equity and non-life insurance. In- vidual property’s operating income and a required return related vestment return on equity constitutes the return on investment to the property (required rate of return). Operating income is assets allocated to equity. Return concerning non-life insurance based on future year’s expected return adjusted for exceptional is calculated on the basis of the average recognition in the bal- circumstances. ance sheet at the beginning and at the end of the year. Investments in group enterprises and associates are measured Tax at the accounting equity value in accordance with the latest PFA Pension is taxed jointly with the Group’s Danish subsidiaries available fi nancial statements. and PFA Holding in accordance with the applicable tax rules. PFA has declined to have the joint taxation include the companies’ Financial instruments are measured in the balance sheet at cost foreign properties and PFA Soraarneq. Tax charge for the year is price, not including expenses in connection with the purchase recognised in the income statement regardless of whether part and are measured after the fi rst recognition at fair value. Traded of the profi t for the year is not taxed until in subsequent fi nan- fi nancial instruments are recognised in/deducted from the bal- cial reporting periods. ance sheet on the settlement date. Notional value of traded, but not yet settled, fi nancial instruments is part of the balance The Danish taxable income of the Group’s property companies sheet as an addition to or deduction from the value of corre- forms part of the owning life insurance company’s taxable in- sponding fi nancial instruments. come, provided that at least 90 per cent of the individual prop- erty company’s assets consist of real property. In that case, both Unit trust certifi cates are included in the individual items of the current and deferred tax in the owned company is removed. balance sheet corresponding to the underlying assets.

The fair value of listed fi nancial instruments is calculated on the basis of the closing rate at the balance sheet date. In the event

52 ANNUAL REPORT • 2007 • PFA PENSION that there is no closing rate at the balance sheet date, another pected future administrative expenses and less the agreed relevant rate at the balance sheet day or the most recently future premiums. Guaranteed benefi ts include an estimated quoted closing rate is used. In the event that there is no relevant amount to cover future insurance benefi ts pertaining to insur- rate, the fair value is estimated based on the offi cial rates of ance events that occurred during the fi nancial year, but had not comparable fi nancial instruments at the balance sheet day. been reported at the balance sheet date.

Listed bonds that have been drawn are measured at present Bonus potential related to benefi ts on future premiums includes value of the drawing amount on discounting with a money mar- commitments to pay bonus on agreed, not yet overdue, premi- ket rate. ums.

Unlisted unit trust certifi cates are measured at fair value of the Bonus potential related to benefi ts on paid-up policies includes underlying net assets. the value of liabilities to pay bonus concerning premiums, etc. already paid. Unlisted derivative fi nancial instruments, OTC derivatives, are calculated on the basis of fair value. Provisions for claims concerning non-life insurance include provisions for administrative expenses in connection with settle- Fair value of other unlisted securities is measured according to ment of claims. recognised methods, including standards determined by the European Private Equity and Venture Capital Association (EVCA). Collective bonus potential is the insurance portfolio’s share of the realised results, for which collective provisions have been Investment assets related to Unit Linked policies made for insurance policies eligible for bonus, in addition to life Investment assets related to Unit Linked policies are measured insurance provisions and provisions for claims. at fair value. CustomerCapital is part of the capital base on equal terms with Receivables shareholders’ equity, but since it accrues, in due course, to the Fair value of receivables is determined in consideration of ex- policyholders, it is part of the insurance provisions. pected losses. Provisions made for Unit Linked insurance policies basically Assets in temporary possession represent the market value of corresponding assets. If the poli- Assets in temporary possession include the share in subsidiaries cies concerned include a liability that at the time of maturity, which await disposal within a shorter period of time. They are benefi ts will be calculated on the basis of a value that is higher measured at lowest value of the subsidiaries’ carrying amount than the current market value of the assets, then provisions will of equity value and fair value. be measured with due regard to this.

Equity and liabilities Payables Provisions for insurance and investment polices Payables are measured at amortised cost which usually corre- Life insurance provisions are measured on every insurance sponds to nominal value. policy by determining the market value of expected, future cash fl ows. Market value is calculated by discounting the individual Key fi gures payments with an interest rate based on the Danish yield curve Return ratios in the 5-year summary are calculated for all as- published by the Danish Financial Supervisory Authority, re- sets and liabilities according to a money-weighted method, duced by pension yield tax for relevant policy parts. Expected, whereas return broken down by asset type in the return table is future cash fl ows are calculated on the basis of life expectancy calculated for investment assets (i.e. excl. payables and various and disability intensity on the basis of own analyses of the assets) after a time-weighted method. Hedging of currency risk Group’s insurance portfolios. is broken down by the nature of investment assets in the return table. Life insurance provisions include a market value margin in which there is an annual decrease in mortality for all ages dependent The capital base covers any losses due to expenses and risk on the estimated future development in mortality. Life insurance which is why we have calculated the customers’ cost ratio in a provisions are calculated in consideration of an age-dependent way that considers this. Therefore, customers’ cost ratios refl ect probability that the individual insured will surrender the policy. the customers’ actual paid costs.

Guaranteed benefi ts represent the market value of benefi ts The 5-year summary in the management’s review both shows guaranteed to the individual insured with the addition of ex- the customers’ and the company’s cost ratios.

ANNUAL REPORT • 2007 • PFA PENSION 53 Notes to the income statement

PFA Pension

Note (DKKm) 2007 2006

1 Gross premiums Total indirect insurance 32 58

Premiums, direct 10,711 10,123 Group life premiums, direct 734 699 Single premiums, direct 2,342 1,913 Pension fund transfers, direct 365 188 Total direct insurance 14,152 12,923

Total premiums, insurance and investment policies 14,184 12,980

Hereof premium relating to investment policies not eligible for bonus (2) (25) Total gross premiums 14,182 12,955

Analysis of direct insurance premiums: Insurance taken out by private individuals 1,218 1,307 Insurance taken out through employer 12,200 10,917 Group life insurance 734 699 Total 14,152 12,923

Policyholders resident in: Denmark 14,152 12,923

Premiums on bonus schemes 12,624 11,633 Premiums on non-bonus schemes 18 16 Unit Linked policies 1,511 1,274 Total 14,152 12,923

Number of insured: Insurance taken out by private individuals 54,856 55,058 Insurance taken out through employer 523,491 511,517 Group life insurance 464,290 458,284

2 Interest, dividend etc. Interest on securities, loans and borrowings 6,627 5,879 Interest on intercompany balance 147 46 Indexation 315 370 Return on investments 1,161 1,100 Total interest, dividend etc. 8,250 7,394

3 Translation adjustments Investment property 3 3 Investments 1,040 4,313 Bonds (6,240) (4,884) Loans (6) (6) Other (599) (3,555) Total translation adjustments (5,801) (4,130)

54 ANNUAL REPORT • 2007 • PFA PENSION PFA Pension

Note (DKKm) 2007 2006

4 Investment management charges Trade charges and safe custody fees (62) (53) Allocated expenses (262) (176) Total investment management charges (324) (229)

5 Pension yield tax Pension yield tax for the year (213) (796) Prior year adjustment of pension yield tax (1) (7) Total pension yield tax (214) (803)

6 Benefi ts disbursed Insurance policies, direct Death benefi ts (641) (526) Disability benefi ts (51) (55) Benefi ts at maturity (1,472) (1,136) Retirement and annuity benefi ts (4,724) (4,552) Surrender payments (3,904) (3,529) Bonuses disbursed in cash (552) (553) Total insurance policies, direct (11,344) (10,351) Expenses, indirect insurance (72) (124)

Total benefi ts regarding insurance and investment policies (11,416) (10,475)

Hereof benefi ts regarding investment policies not eligible for bonus 60 42

Total benefi ts disbursed (11,356) (10,433)

7 Acquisition costs and administrative expenses Payroll costs (527) (460) Pension contributions (96) (85) Payroll tax, etc. (63) (54) Total payroll costs (686) (599)

Commission for direct insurance business (9) (2) Salary and remuneration, incl. pension contributions, Executive Board (10) (11) Salary and remuneration, Supervisory Board (3) (2)

Salary and remuneration to the Executive Board includes salary to three directors until 30 April 2007. After that date, salary to two directors is included until 31 December 2007.

Reimbursements from group enterprises 191 196

Fees to auditors appointed by the Annual General Meeting of Shareholders: Audit fee, KPMG C.Jespersen (1) (1) Consultancy fee, KPMG C.Jespersen 0 0 Audit fee, Deloitte (1) (1) Consultancy fee, Deloitte 0 0

Average number of employees (full-time) - life insurance 1,103 1,002 - operation of property 22 21 Total 1,124 1,023

ANNUAL REPORT • 2007 • PFA PENSION 55 PFA Pension

Note (DKKm) 2007 2006

8 Investment return transferred Transferred investment return concerning equity (50) (148) Technical interest concerning non-life insurance (11) (35) Total investment return transferred (61) (183)

9 Balance on the technical account, non-life insurance Gross premiums 435 423 Ceded premiums 0 (1) Change in provisions for gross premiums 1 0 Earned premiums, net of reinsurance 436 422

Technical interest, net of reinsurance 15 49

Gross claims disbursed (408) (355) Reinsurers’ share 0 1 Change in provisions for gross claims (111) (8) Change in provisions for claims due to discounting 34 27 Change in provisions for claims due to yield curve (38) (40) Claims incurred, net of reinsurance (523) (376)

Change in other insurance provisions, net of reinsurance (3) (5) Bonuses and rebates (14) (15)

Acquisition costs (44) (40) Administrative expenses (41) (42) Total net operating expenses, net of reinsurance (85) (82)

Total balance on the technical account, non-life insurance (175) (7)

Gross premiums from policyholders with residence in Denmark 435 422

Claims non-life insurance Number of policies 406,732 479,036 Number of claims 30,064 19,848 Average compensation for claims incurred, in DKK 16,820 20,753 Claims frequency 7.69 % 4.21 %

Gross run-off profi t/(loss) (68) 33 Ceded run-off 0 0 Run-off profi t/(loss) net of reinsurance (68) 33

The run-off profi t/(loss) refl ects the profi t/(loss) on the provisions for claims made in prior years.

Calculation of technical interest: Technical interest, amount 11 35 Discounting, provisions for claims (34) (27) Discounting, increasing risk due to age 38 40 Technical interest, net of reinsurance - after discounting 15 49

The note continues

56 ANNUAL REPORT • 2007 • PFA PENSION PFA Pension

Note

9 Balance on the technical account, non-life insurance (continued)

Ratios relating to non-life insurance:

2003 2004 2005 2006 2007

Gross claims ratio 101.1 % 121.4 % 128.4 % 92.4 % 124.0 % Gross expense ratio 17.3 % 17.7 % 17.3 % 20.1 % 20.2 % Combined ratio, net of reinsurance 119.1 % 139.3 % 145.9 % 112.5 % 144.3 % Operating ratio 104.1 % 111.0 % 104.0 % 103.5 % 140.6 % Comparative run-off profi t/(loss) 4.7 % (10.9 %) (11.2 %) 2.7 % (5.5 %)

(DKKm) 2007 2006

10 Pre-tax profi t/(loss) Realised profi t/(loss) Balance on the interest account before bonus from the income statement (3,947) 445 Balance on the cost account before bonus 676 549 Balance on the claims experience account before bonus 277 39 Changes in restatements at market value 5,492 7,144 Total realised profi t/(loss) 2,498 8,176

Distribution to the customers Distribution to the deposits for the year 2,750 2,383

Transfer to the customers’ reserves from the income statement (1,144) 4,813 Total transfer to collective bonus potential (1,144) 4,813

Total distribution to the customers 1,606 7,196

Transfer to CustomerCapital The customers’ contribution to CustomerCapital 414 351 Return before pension yield tax 101 307 Entrepreneurial profi t before pension yield tax 389 375 CustomerCapital’s coverage of losses on the expense and risk account (165) (258) Total transfer to CustomerCapital 738 775

Total customers’ share 2,344 7,971

The note continues

ANNUAL REPORT • 2007 • PFA PENSION 57 PFA Pension

Note (DKKm) 2007 2006

10 Pre-tax profi t/(loss) (continued)

Transfers to equity via the income statement Return for the year before tax 50 148 Entrepreneurial profi t for the year before tax 182 184 Equity’s coverage of losses on the expense and risk account (77) (127) Equity’s share of the realised profi t/(loss) 154 206

Other activities Non-life insurance, Unit Linked policies and other ordinary and extraordinary income (258) (31) Hereof pro-rata transfer to CustomerCapital 176 21 Equity’s share of other activities (82) (10)

Pre-tax profi t/(loss) from the income statement 72 196

11 Tax Tax for the year 3 0 Prior year adjustment of tax 0 (1) Change in deferred tax (287) (75) Total (284) (76)

Pre-tax profi t/(loss) 72 196 Adjustment of foreign property subsidiaries (134) (21) Profi t/(loss) in group enterprises 209 191 Sundries (6) (43) Taxable profi t 141 322

Hereof 25%/28% tax (35) (90) Adjustment of tax from prior years 0 (1) Adjustment of deferred tax from prior years 8 16 Change in tax percentage (257) 0 Total tax (284) (76)

58 ANNUAL REPORT • 2007 • PFA PENSION Notes to the balance sheet

PFA Pension

Note (DKKm) 2007 2006

12 Equipment Cost, opening 259 311 Additions in the year 16 33 Disposals in the year (8) (84) Cost, closing 267 259

Depreciations and write-downs, opening (210) (255) Write-downs in the year (13) (33) Reversal for the year of prior year’s write-downs 4 78 Depreciations and write-downs, closing (218) (210)

Total equipment 49 50

13 Property Investment property Fair value, opening 32 29 Value adjustment to fair value 3 2 Property, closing 35 32

Towards the creditor of the Group’s property companies with properties situated outside Denmark, the parent company guarantees a loan totalling 1,396 1,846

14 Investments in group enterprises

Ownership Profi t Activity Domicile interest (loss) Equity PFA Invest International A/S Holding company Copenhagen 100 % (317) 1,123 PFA Soraarneq, forsikringsaktieselskab Life insurance company Nuuk 100 % 1 14 FunktionærPension Holding Holding company Copenhagen 52 % 4 99 PFA Ejendomme A/S Property company Copenhagen 100 % 504 6,266 PFA IT Service A/S IT company Copenhagen 100 % (210) 25

Lærernes Pension, forsikringsaktieselskab*) Life insurance company Copenhagen 51 % 0 569

*) Investments in Lærernes Pension, forsikringsaktieselskab are included under the item ‘Assets in temporary possession’

15 Investments in associates

Ownership Profi t Activity Domicile interest (loss) Equity ATPFA K/S Property company Copenhagen 50 % 92 4,242 Ejendomsselskabet Norden I K/S Property company Copenhagen 25 % 12 25

ANNUAL REPORT • 2007 • PFA PENSION 59 PFA Pension

Note (DKKm) 2007 2006

16 Loans Secured loans 17 23 Other loans 351 310 Total loans 368 334

17 Investment assets Exemption percentage 6 % 6 %

18 Investment assets related to Unit Linked insurance policies Breakdown, investment fund customers without guarantee Listed Danish investments 253 240 Foreign investments 670 611 Danish bonds 118 107 Foreign bonds 75 50 Index-linked bonds 11 12 Total breakdown, investment fund customers without guarantee 1,127 1,020

Breakdown, investment fund customers with guarantee Listed Danish investments 731 720 Foreign investments 1,797 1,508 Danish bonds 1,651 970 Foreign bonds 707 621 Index-linked bonds 39 45 Total breakdown, investment fund customers with guarantee 4,925 3,864

Total investment assets related to Unit Linked insurance policies 6,051 4,885

19 Deferred tax assets Tax loss 2,304 2,580 Intangible assets and property, plant and equipment (188) (178) Total deferred tax assets 2,115 2,402

20 Share capital The company’s share capital consists of a share certifi cate of DKK 100 million owned by PFA Holding A/S, Sundkrogsgade 4, 2100 Copenhagen O, Denmark.

21 Retained earnings Retained earnings, opening 3,088 2,979 Transfer from the income statement (212) 120 Dividend (10) (10) Retained earnings, closing 2,866 3,088

22 Total liabilities falling due after more than 5 years after the balance sheet date Subordinate loan capital 900 900 Liabilities to credit institutions 0 0 Total liabilities falling due after more than 5 years after the balance sheet date 900 900

Subordinate loan capital Interest rates concerning subordinate loan capital for the year 101 128

Loan repayed in 2007 corresponding to DKK 900 million. A loan of DKK 750 million and a loan of DKK 150 million, which carries an interest at CIBOR plus 4 %, form part of subordinate loans. The loans expire in 2015.

60 ANNUAL REPORT • 2007 • PFA PENSION PFA Pension

Note (DKKm) 2007 2006

23 Life insurance provisions, net of reinsurance Life insurance provisions, opening 175,235 174,264 Accumulated restatement, opening (10,076) (17,220) Retrospective provisions, opening 165,159 157,044

Change in the year due to: Gross premiums 12,673 11,707 Addition of interest 7,800 7,415 Insurance benefi ts (11,213) (10,310) Expense allowance after cost bonus (521) (515) Balance on the claims experience account after risk bonus 100 144 Customers’ contribution to CustomerCapital, net (364) (329) Other changes in the year 0 3 Retrospective provisions, closing 173,635 165,159 Accumulated restatement, closing 4,584 10,076

Life insurance provisions, net of reinsurance, closing 178,219 175,235

Hereof: Gross life insurance provision, indirect insurance, opening 864 916 Change in the year (82) (52) Gross life insurance provision, indirect insurance, closing 782 864

Change in gross life insurance provisions is distributed as below: Change in retrospective provisions 8,476 8,115 Change in accumulated restatement (5,492) (7,144) Change in gross life insurance provisions 2,984 971

Change in guaranteed benefi ts (12,108) 3,223 Change in bonus potential on future premiums 5,503 (5,860) Change in bonus potential on paid-up policy benefi ts 9,589 3,609 Change in gross life insurance provisions 2,984 971

Life insurance provisions taking into consideration the possibility of surrender: Guaranteed benefi ts 106,124 120,857 Bonus potential on future premiums 45,423 43,387 Bonus potential on paid-up policy benefi ts 26,710 10,948 Life insurance provisions taking into consideration the possibility of surrender, closing 178,257 175,192

The probability that the savers surrender or transfer their insurance agreement has been estimated on the basis of savers with at least 10 years’ seniority. The probability is stated as an overall probability of surrender or transfer during the remaining duration of the insurance agreement. The 1 year probability is decreasing from 2.7 % in age 30 to 0.6 % in age 60.

(The note continues)

ANNUAL REPORT • 2007 • PFA PENSION 61 PFA Pension

Note (DKKm)

23 Life insurance provisions, net of reinsurance (continued)

Life insurance provisions, net of reinsurance, broken down into calculation basis and interest rate per balance sheet date

2007 2006 Bonus Bonus Bonus potential on Bonus potential on potential on paid-up potential on paid-up Guaranteed future policy Guaranteed future policy benefi ts premiums benefi ts benefi ts premiums benefi ts

Standard Life 5.0 % 1 0 0 1 0 0

G82 4.5 % 94,097 3,805 4,848 105,638 3,694 1,731 G82 2.51 % 14,400 3,933 5,671 15,607 3,978 3,978 G82 1.51 % 10,125 3,131 2,270 7,548 2,386 1,150 L99 1.8 % 1,175 9 147 935 9 89 Uni98 1.8 % (423) 23,037 9,336 1,630 18,345 5,749 Remaining 973 0 22 1,071 0 7 Other 1,661 0 0 1,688 0 0 122,010 33,915 22,294 134,118 28,413 12,705

Life insurance provisions, net of reinsurance, closing 178,219 175,235

(DKKm) 2007 2006

24 Provisions for claims, net of reinsurance Provisions for claims, life-insurance 809 605 Provisions for claims, non-life-insurance 1,383 1,272 Provisions for claims, net of reinsurance, closing 2,192 1,877

25 Collective bonus potential Collective bonus potential, opening 13,934 9,812 Provision for the year (1,144) 4,813 Pension yield tax (142) (691) Collective bonus potential, closing 12,648 13,934

26 CustomerCapital CustomerCapital, opening 9,305 8,636

Additions, CustomerCapital 738 775 Disbursement of CustomerCapital (50) (22) CustomerCapital’s share of other activities (176) (21) Pension yield tax (49) (64) Total transfer from income statement 464 669

CustomerCapital, closing 9,769 9,305

Entrepreneurial profi t receivable 0 0

62 ANNUAL REPORT • 2007 • PFA PENSION PFA Pension

Note (DKKm) 2007 2006

27 Provisions for Unit Linked policies Unit Linked insurance policies Provisions for Unit Linked insurance policies, opening 4,329 3,192 Accumulated restatement, opening 0 2 Retrospective provisions, opening 4,329 3,194

Change in the year due to: Gross premiums 1,509 1,248 Addition of interest 96 198 Insurance benefi ts (351) (274) Expense loading after cost bonus (29) (25) Balance on claims experience account after risk bonus (7) (7) Other changes in the year (8) (5) Retrospective provisions, closing 5,540 4,329 Accumulated restatement, closing 0 0 Provisions for Unit Linked insurance policies, closing 5,540 4,329

Unit linked investment policies Provisions for Unit Linked investment policies, opening 556 554 Accumulated restatement, opening (1) 0 Retrospective provisions, opening 555 554

Change in the year due to: Gross premiums 2 25 Addition of interest 22 31 Insurance benefi ts (60) (42) Expense loading after cost bonus (3) (3) Balance on claims experience account after risk bonus (4) (10) Retrospective provisions, closing 512 555 Accumulated restatement, closing (1) 1 Provisions for Unit Linked investment policies, closing 511 556

Total provisions for Unit Linked policies 6,051 4,885

Provisions for Unit Linked insurance and investment policies per balance sheet date

2007 2006 Bonus Bonus Bonus potential on Bonus potential on potential on paid-up potential on paid-up Guaranteed future policy Guaranteed future policy benefi ts premiums benefi ts benefi ts premiums benefi ts

Unit Linked portfolio 926 3,438 1,687 644 2,928 1,313

Unit Linked policies, net of reinsurance, closing 6,051 4,885

ANNUAL REPORT • 2007 • PFA PENSION 63 PFA Pension

Note (DKKm) 2007 2006

28 Contingent liabilities As a security for the insurance provisions, assets were registered at year-end at a total carrying amount of 209,666 206,004

Registered assets includes both insurance provisions, net of reinsurance, and provisions for Unit Linked policies.

Rent, lease and operating commitments do not exceed commitment to 217 170 Investments in unlisted securities 4,605 3,524

The company is jointly and severally liable for the total tax charge concerning 2004 and ealier with the other jointly taxed companies in the Group and VAT commitments with the jointly registered companies.

29 Return on investment assets 2007 Market value Yield in % p.a. before pension Net yield tax and Opening Closing investment corporate tax

Land and buildings, directly owned 32 35 0 4.3 % Property companies 7,371 9,504 2,063 3.8 % Land and buildings 7,403 9,540 2,063 3.8 % Other subsidiaries 389 382 199 (49.7 %) Listed Danish shares 14,745 12,822 (2,429) 4.1 % Unlisted Danish investments 581 561 18 3.5 % Listed foreign investments 22,984 26,204 2,836 7.8 % Unlisted foreign investments 1,944 3,960 1,936 16.3 % Total other investments 40,254 43,548 2,361 7.5 % Government bonds (Zone A) 75,979 69,576 (3,221) 1.8 % Mortgage credit bonds 32,164 36,802 5,526 2.3 % Index-linked bonds 16,702 15,839 340 (4.9 %) Credit bonds investment grade 6,285 7,179 1,582 0.7 % Credit bonds non-investment grade and emerging markets bonds 13,167 12,845 62 2.4 % Total bonds 144,297 142,239 4,289 1.3 % Secured loans 23 17 (6) 3.1 % Other fi nancial investment assets 4,825 4,909 86 6.9 % Derivative fi nancial instruments to hedge net change in assets and liabilities 5,387 2,865 357 (60.2 %)

64 ANNUAL REPORT • 2007 • PFA PENSION PFA Pension

Note (DKKm)

30 Percentage breakdown of shareholding by sectors and regions

Other North Other Denmark Europe America Japan countries Total

Energy 0.0 % 1.7 % 2.5 % 0.0 % 1.8 % 6.0 % Materials 0.3 % 1.2 % 0.8 % 0.3 % 2.1 % 4.7 % Industry 12.1 % 5.2 % 2.1 % 0.6 % 1.9 % 21.9 % Durables 0.1 % 1.1 % 1.8 % 0.7 % 1.4 % 5.2 % Consumer goods 1.7 % 1.5 % 1.7 % 0.2 % 1.2 % 6.3 % Healthcare 7.1 % 3.6 % 2.1 % 0.1 % 0.3 % 13.2 % Finance 8.1 % 3.9 % 3.3 % 0.8 % 4.1 % 20.2 % IT 0.0 % 0.5 % 3.1 % 0.6 % 1.1 % 5.4 % Telecommunications 0.0 % 1.1 % 0.4 % 0.0 % 1.0 % 2.5 % Supply 0.0 % 2.1 % 0.4 % 0.0 % 0.8 % 3.3 % Not broken down 1.1 % 5.4 % 1.3 % 0.0 % 3.6 % 11.3 % Total 30.6 % 27.2 % 19.4 % 3.4 % 19.4 % 100.0 %

31 Risk table as at 31 December 2007 Maximum impact on bonus potential on paid-up policy Maximum Maximum benefi ts before impact on Minimum impact on change in applied applied bonus impact on collective bonus bonus potential potential on the capital base potential on paid-up policy paid-up policy Risk in DKKm in DKKm benefi ts in DKKm benefi ts in DKKm

0.7 percentage point increase in the interest rate (411) (4,385) 8,173 0 0.7 percentage point decrease in the interest rate 411 2,997 (7,046) 0 12 per cent decrease in share prices (119) (4,501) 0 0 8 per cent decrease of property values 0 (930) 0 0 Change in the rate of exchange with a 0.5 per cent probability in ten days 0 (330) 0 0 8 per cent loss of counterparties (incl. credit risks) (36) (1,976) 0 0 10 per cent decrease in the mortality rate 0 (1,217) (581) 0 10 per cent increase in the mortality rate 0 1,009 627 0 10 per cent increase in the disability rate 0 (20) (151) 0

The calculations are made in accordance with the rules of fi nancial reporting based on market value. The consequences of the risks stated in the table are stated in DKK million and are calculated as the sum of change in the capital base, collective bonus potential, bonus potential on paid-up policy benefi ts before change in applied bonus potential on paid-up policy ben- efi ts respectively any applied bonus potential on paid-up policy benefi ts. The calculations are made in consideration of the reported rules on distribution of realised results. Furthermore, it is assumed that the risks occur as immediate events, where the effect is calculated using an all-things-being-equal consideration of the balance sheet at the balance sheet date.

ANNUAL REPORT • 2007 • PFA PENSION 65 Board assignments of the Executive and Supervisory Boards

SUPERVISORY BOARD Erik G. Hansen, Managing Director: Member of the board of directors: Director, Rigas Invest and group Udgiverselskabet Dagbladet af Dansk Arbejdsgiverforening (and Svend Askær, enterprises 27.11.1962 A/S member of DA’s executive committee) Chairman, Age 55 A/S Sjællandske Medier Holding Eurocommerce Ledernes Hovedorganisation Joined the Supervisory Board in 2002 FUHU Age 55 Is up for re-election in 2011 Chairman of the board of directors: Joined the Supervisory Board in 1992 Den Danske Presses Member: Is up for re-election in 2011 Director: Fællesindkøbsforening Det Økonomiske Råd Berco ApS Roskilde Mediecenter Globaliseringsrådet Chairman: E.G. Hansen Advisers ApS Vestsjællandske Distriktsblade Kvalitetsgruppen Ledernes Hovedorganisation (director EGH Private Equity ApS Dagbladenes Bureau and member of the board of directors Sirius Equity ApS Max Werner Petersen, in group enterprises) Member of the board of directors: Assistant Director, Virk.dk Chairman of the board of directors: Danmarks Radio PFA Pension DTU-Innovation A/S Dansk Arbejdsgiverforening (and Age 49 Member of the board of directors: Enxco Invest A/S member of DA’s executive committee) Elected by the employees since 2007 DVU Statsautoriseret Investeringsselskabet Energy Holding Danske Dagblades Forening Is up for re-election in 2011 Revisionsaktieselskab A/S Danske Mediers Arbejdsgiverforening Lønmodtagernes Dyrtidsfond Polaris Management A/S No other board assignments Varelotteriet TTIT A/S and group enterprises Svend-Aage Nielsen, Aktieselskabet af 1. november 1998 Chairman, Nielsen & Nielsen Nina Smith, Other assignments: Holding A/S Professor, Deputy Rector Aarhus Member of the ATP committee Member of the board of directors: Age 67 Universitet Vice president of CEC Bagger-Sørensen & Co. A/S Joined the Supervisory Board in 1999 Age 52 Lokalnettet ApS Resigns in 2009 Joined the Supervisory Board in 2002 Jørn Neergaard Larsen, Polaris Invest II ApS Is up for re-election in 2008 Managing Director, Dansk Director Arbejdsgiverforening Hanne Sneholm Jensen, SAAN Holding A/S Chairman of the board of directors: Age 59 Team Leader, Foreningen Nykredit and group Joined the Supervisory Board in 1996 PFA Pension Chairman of the board of directors: enterprises Is up for re-election in 2011 Age 49 C.C.N. Holding A/S Niras Gruppen A/S Elected by the employees since 2007 Nielsen & Nielsen Holding A/S Chairman: Is up for re-election in 2011 Thrige Holding A/S and group Member: Nordic Employers’ Mutual Insurance enterprises Det Økonomiske Råd Association No other board assignments Terma A/S Skolerådet

Member of the board of directors: Per Jørgensen, Member of the board of directors: Tommy Agerskov Thomsen, ATP Chairman, Maskinmestrenes Forening A.P. Møller - Mærsk A/S Former Chairman, CO II Lønmodtagernes Garantifond Age 48 Entreprenør Marius Pedersens Fond Age 62 Joined the Supervisory Board in 2004 FIH Erhvervsbank A/S Joined the Supervisory Board in 2005 Other assignments: Is up for re-election in 2008 Marius Pedersen/Veolia Miljøservice Is up for re-election in 2009 Member of BusinessEurope’s Holding A/S executive committee Chairman: MP Ejendomsaktieselskab, Ferritslev Member of the board of directors: Member of Forum Europa Fællesrepræsentationen (FR) SAAN Holding A/S Forbrugsforeningen af 1866 and Thomas B. Thriges Fond group enterprises Klavs Andreassen, Member of the board of directors: Legal Adviser, EMUC (Europas Maritime Udviklings Tonni Nørgaard, PFA Pension Center) Chairman, Resignations in 2007: Age 49 Fredericia Maskinmesterskole Teknisk Landsforbund Helle Bokkenheuser Elected by the employees since 1991 IAK (Ingeniørernes Age 63 Irene Damgaard Is up for re-election in 2011 og Maskinmestrenes Joined the Supervisory Board in 2006 arbejdsløshedskasse) Is up for re-election in 2010 No other board assignments Søfartens Arbejdsmiljøråd THE EXECUTIVE BOARD Søfartens Fremme Chairman of the board of directors: Carsten Bach, Teknik & Design A/S Freelancebureau Henrik Heideby, Key Account Manager, Member: CEO PFA Pension Præsidiet, Den Danske Poul Erik Pedersen, Age 43 Vedligeholdelsesforening Managing Director, Metro Cash & Deputy Chairman: Elected by the employees since 1999 Styrelsen IOF (International Offi cers Carry Danmark ApS Forsikring & Pension Is up for re-election in 2011 Forum) Age 60 Joined the Supervisory Board in 2003 Deputy Chairman of the board of No other board assignments Judge: Is up for re-election in 2008 directors: Expert judge of the Copenhagen IC Company A/S Lars Christoffersen, Maritime and Commercial Court Director: Representative of employee Metro Danmark Holding ApS and Member of the board of directors: organisation, Torben Dalby Larsen, group enterprises Unomedical Holding A/S and PFA Pension Chief Editor, Managing Director, Unomedical A/S Age 35 Dagbladet/Frederiksborg Amts Avis Chairman: Elected by the employees since 2003 Age 58 Dansk Erhverv Chairman of the board of directors: Is up for re-election in 2011 Joined the Supervisory Board in 1992 Metro Danmark A/S Hamton Group Is up for re-election in 2010 Member: DFL’s General Council

66 ANNUAL REPORT • 2007 • PFA PENSION Executive employees

Chief Actuary

Nina Christensen

Others

Gorm Arildsen Anette Damgaard Henrik Franck Peter Rosenlind-Nissen Customer Services Legal Department & Payment Services Investments Sales - Policyholders

Frederik Bjørn Lars Ellehave-Andersen Peter Hermann Per Sørensen Executive Staff Sales via Business Partners Actuarial Department Group Development & IT

Vibeke de Stricker Borch Søren P. Espersen Dick Magnussen Michael Willumsen Human Resources Communication & Marketing Direct Sales Real Estate Department

Anne Broeng Finance & Risk Management

ANNUAL REPORT • 2007 • PFA PENSION 67 68 ANNUAL REPORT • 2007 • PFA PENSION

PFA Pension, forsikringsaktieselskab Sundkrogsgade 4 Annual report 2007 DK - 2100 Copenhagen O PFA Pension Telephone (+45) 39 17 50 00 Fax (+45) 39 17 59 50 www.pfa.dk [email protected] CVR: 13594376

Text: Communication & Marketing Design: Kunde & Co Production: Boje & Mobeck

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