http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/RSS.ashxFSP PagesWed, 09 Jul 2008 14:53:54 +0200http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=1http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=1Finanssektorens Pensionskasse (FSP) Central Business Reg. no. 49404212 Annual report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=2http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=22008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=3http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=3Finanssektorens Pensionskasse (FSP) 3 CONTENTS Page GENERAL INFORMATION 5-YEAR REVIEW 5-YEAR REVIEW, CONTINUED HIGHLIGHTS IN 2007 Reasonable results in a difficult market in 2007 Top-line growth and considerable inflow of new customers to FSP Pension Respectable returns on investments in a turbulent year FSP Pension leading on deposit interest rate FSP’s customers are very satisfied Improved quality in new pension scheme at market interest rate FSP now a group Extensive work on many new statutory requirements FSP firmly placed in green light category Basic Capital of DKK 3.3 billion and overall balance sheet of DKK 23.1 billion FSP'S MANAGEMENT AND EMPLOYEES The Supervisory Board and the Executive Management Ordinary General Meeting 2007 FSP lives up to good corporate governance FSP’s organisation Focusing on a good working environment CUSTOMER SERVICE Top-line growth and many new customers Satisfied customers at FSP Fast processing times New website improves information for customers FSP homes with preferential rights for customers FSP provides insurance in case of sickness or death Greater dialogue with companies and trade union representatives Proposed temporary disability pension THE ACTUARIAL DEPARTMENT FSP BonusKapital makes the customers direct owners of FSP’s equity Development tasks in 2007 Payment for guarantees INVESTMENTS Reasonable return on investment in a turbulent 2007 FSP WebLink leading on returns Daily trading on FSP WebLink Success outsourcing portfolio administration Commercial collaboration with FSP’s member companies Ethical investments Publishing shares of ownership 2008 investment strategy 5 6 7 8 8 8 9 10 11 11 12 13 14 15 16 16 16 17 17 19 20 20 21 22 22 23 23 24 24 25 25 26 27 29 29 31 31 32 33 33 34 34 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=4http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=4Finanssektorens Pensionskasse (FSP) 4 CONTENTS Page RISK MANAGEMENT AND COMPLIANCE Risk profile Insurance risks Favourable risk process for those in active employment Reinsurance Disputes in 2007 Investment risks The Danish Financial Supervisory Authority's risk scenarios The Danish Financial Supervisory Authority's risk scenarios and Asset Liability Management Statement of individual solvency requirement Operational risks Consolidated income statement for the year Consolidated balance sheet of over DKK 23 billion Income and expenditure Distribution of profits Basic Capital and solvency margin Profit creation analysis Expectations for 2008 SIGNATURES OF THE EXECUTIVE MANAGEMENT AND THE SUPERVISORY BOARD THE INDEPENDENT AUDITOR'S REPORT ACCOUNTING POLICIES BALANCE SHEET INCOME STATEMENT STATEMENT OF CHANGES IN OWNERS’ EQUITY NOTES 35 35 35 36 36 36 37 38 39 39 40 41 41 42 42 43 43 45 46 47 49 52 54 55 56 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=5http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=5Finanssektorens Pensionskasse (FSP) 5 GENERAL INFORMATION Name Finanssektorens Pensionskasse (FSP) Amaliegade 27 DK-1256 Copenhagen K. Central Business Reg. no. 49 40 42 12 Home municipality: Copenhagen Supervisory Board Claus E. Petersen, Chairman Michael Budolfsen, Deputy Chairman Birgitte Hagen Børge Hansen Jan Steen Jensen Ane Marie Holm Nielsen Knud Pedersen Pia Lærke Petersen Steen Pommeritz Hans Erik Rasmussen Tina Rønfeldt Executive Management Steen Jørgensen Appointed Actuary Karin Elbæk Nielsen Auditors Deloitte Statsautoriseret Revisionsaktieselskab Advisory doctor Niels Horwitz, consultant at Bispebjerg Hospital in Copenhagen Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=6http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=6Finanssektorens Pensionskasse (FSP) 6 5-YEAR REVIEW Unless stated otherwise, the following key figures are identical for the Group and the parent company. Pension activities 2007 Accounting figures (DKK million) Member contributions at own account Pension benefits at own account Investment income Pension operating expenses Result from reinsurance Technical result Technical result from sickness and accident insurance Profit and loss for the year Pension provisions Provisions for unit-linked contracts Owners' equity Basic Capital Total assets - Group Total assets - parent company 579.0 -529.7 684.3 -33.1 10.6 -348.0 -2.1 -213.2 17,944.6 109.8 3,083.7 3,295.5 23,060.4 22,975.7 905.8 -501.1 1,090.4 -31.7 10.0 177.1 -1.8 415.8 17,311.3 77.3 3,296.3 3,368.6 21,621.7 523.8 -393.1 2,391.5 -26.9 11.6 807.5 -2.6 1,084.1 16,536.9 50.7 2,880.5 2,864.5 20,419.3 457.7 -363.2 1,200.8 -25.2 14.6 162.8 -0.9 313.0 15,450.3 9.2 1,796.4 1,788.4 17,345.9 445.8 -360.7 1,246.7 -25.5 -0.5 382.0 -0.1 470.4 14,311.0 6.6 1,482.3 1,474.3 15,900.1 2006 2005 2004 2003 2007 Return key ratios Return before pension return tax (%) Return after pension return tax (%) Cost and result ratios Expenses as percentage of premiums (%) Expenses as percentage of provisions (%) Expenses per member (DKK) Expense result (%) Risk result (%) Consolidation key ratios Level of owner capital (%) Level of surplus cover (%) Solvency margin (%) Return key figures Return on owners' equity before tax Return on owners' equity after tax Return on the insurance provisions before tax 3.3 2.9 5.7 0.2 1,961 -0.03 -0.04 17.3 14.6 462 -6.0 -6.7 4.8 2006 5.6 4.9 3.5 0.2 1,985 -0.02 0.00 19.0 15.6 490 13.5 12.3 3.7 2005 13.5 12.0 5.1 0.2 1,729 0.00 0.62 17.4 13.4 437 46.4 44.8 10.5 2004 7.6 6.6 5.5 0.2 1,660 0.00 0.09 11.6 7.7 292 19.1 17.8 6.2 2003 8.5 7.4 5.7 0.2 1,629 -0.01 0.22 10.5 6.1 241 37.7 37.7 5.6 The figures for 2004 have been corrected in accordance with the changed accounting policies in 2005. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=7http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=7Finanssektorens Pensionskasse (FSP) 7 5-YEAR REVIEW, CONTINUED Sickness and accident insurance activities 2007 Accounting figures (DKK million) Gross premium revenue Gross claims expenditure Total insurance expense Investment income after insurance interest Loss for the year Run-off result Total insurance provisions Owners' equity Basic Capital Ratios Gross claims percentage (%) Gross expense percentage (%) Combined ratio Operating ratio Relative alternative result Return on owners' equity (%) Solvency ratio 111.6 6.4 118.1 118.1 -15.2 -3.2 18.9 113.9 6.5 120.4 120.4 0.9 -2.9 16.1 126.1 6.7 132.8 132.8 -18.7 -5.4 13.7 115.2 6.9 122.1 122.1 3.4 -2.8 23.0 100.5 7.0 107.5 107.5 -0.7 -0.2 20.7 11.7 -12.7 -0.8 0.1 -2.1 -1.8 3.6 16.0 16.0 9.6 -10.4 -0.6 0.1 -1.8 0.1 3.1 16.0 16.0 8.6 -9.7 -0.6 0.2 -2.6 -1.6 2.6 16.0 16.0 7.6 -8.7 -0.5 0.1 -0.9 0.3 1.4 8.0 8.0 6.8 -6.8 -0.5 0.2 -0.1 0.0 1.4 8.0 8.0 2006 2005 2004 2003 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=8http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=8Finanssektorens Pensionskasse (FSP) 8 HIGHLIGHTS IN 2007 • Reasonable results in a difficult market in 2007 • Top-line growth and considerable inflow of new customers to FSP Pension • Respectable returns on investment in a turbulent year • FSP Pension leading on deposit interest rate • FSP’s customers are very satisfied • Improved quality in new pension scheme at market interest rate • FSP now a group • Extensive work on many new statutory requirements • FSP firmly placed in green light category • Basic Capital of DKK 3.3 billion and overall balance sheet of DKK 23.1 billion Claus E. Petersen, Chairman of the Board Steen Jørgensen, Managing Director Reasonable results in a difficult market in 2007 FSP Pension once again distinguished itself in 2007 as a pension fund that offers its customers a highly competitive return on savings, the very best in customer service and a high level of security for its customers' finances and prosperity. 2007 was a turbulent year for investments. Nevertheless, FSP Pension was able to produce a return on investment that was higher than the levels achieved by other pension companies – both for customers with an average rate of interest and with market interest rate savings in our new FSP WebLink pension scheme. Throughout the year, FSP Pension continued with the process of modernising this pension scheme with new offers for customers. Amongst other new features, we introduced daily trading in FSP WebLink, and customers were given the opportunity to take out an FSP Gruppeliv (group life insurance) policy individually. Toward the end of 2007, customers responded by once again awarding FSP Pension a high score in a customer survey. Our goal is to maintain a modern pension scheme with a high level of service, and customer surveys provide us with important information about those areas to which customers attach a high priority. Top-line growth and considerable inflow of new customers to FSP Pension The work put in over recent years to market FSP Pension as a modern and competitive pension fund has helped to create top-line growth. Over the last three years FSP Pension has entered into an agreement on a pension scheme with 11 new companies, five of which are new member companies in 2007. During the same period an agreement was entered into for FSP Sundhedssikring (health insurance) with 10 new companies, two of which are entirely new (partial) customers. An agreement was also signed for FSP Gruppeliv (group life insurance) with seven new companies in 2007, and in the same year about 200 customers signed up to FSP Gruppeliv individually. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=9http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=9Finanssektorens Pensionskasse (FSP) 9 The new corporate customers chose FSP Pension because of its high level of service, the freedom of choice and flexibility inherent in the pension scheme, FSP’s independence, the company's proximity to its customers, prompt resolution of cases and the competitive returns on both traditional schemes and FSP WebLink. In 2007, FSP Pension had a gross intake of 664 customers, while the total number of customers increased by 283 to give a total of 16,693 customers at the end of the year. Receipts of pension contributions increased in 2007 by DKK 30 million to a total of DKK 582 million, after correction for the portfolio transfer in 2006 from Sparekassernes Afviklingspensionskasse. Respectable returns on investments in a turbulent year 2007 was a turbulent year for investment, but thanks to FSP's focus on security in its investment policy by diversifying risk over a lot of different assets, FSP achieved a particularly respectable return of 4.3% before interest rate hedging and 3.3% after hedging. This return is amongst the very best achieved within the pensions sector in 2007. Returns for 2007 16% 12% 1 0 .7 % 8% 4 .1 % 4% 0 .5 % 0% - 1 .0 % -4% Eq u it ie s Re a l e s t a t e Bo n d s Re t u r n o n in v e s t m e n t He d g in g T o tal 4 .3 % 3 .3 % FSP achieved a generous return on equities of 10.7%, which was due in particular to the well-timed realisation of a number of investments producing a overall return of 26.3%. In addition, FSP achieved a respectable return on both Danish and international equities, despite the rather negative close to 2007. Despite a property market that was experiencing some pressure, FSP still managed to generate a return of 4.1% on FSP's investments in high-end real estate in Denmark and abroad. Investments in commodities represented another high point, with a generous return of 16.9%, whereas bonds gave a total return of 0.5%. Within FSP WebLink, customers also achieved particularly competitive returns on investments in the three funds where FSP combines its low, medium and high risk investments. Returns on FSP traditional and FSP WebLink 30% 25% 17.5% 20% 12.8% 15% 10% 5% 0% 2003 FSP traditional 2004 FSP W ebLink - Low ris k 2005 2006 2007 FSP W ebLink - High ris k 8.5% 11.0%10.7% 8.0% 7.7% 13.5% 10.6% 13.4% 8.3% 5.5% 5.6% 3.3% 6.1% 2.9% 3.0% 28.0% FSP W ebLink - Medium ris k Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=10http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=10Finanssektorens Pensionskasse (FSP) 10 FSP Pension leading on deposit interest rate In 2007 FSP Pension once again achieved its target of sustaining a high and stable deposit interest rate – a rate which, seen over a number of years, has been the best rate in the entire pensions industry. During the previous years' positive development on the financial markets, those investors in FSP WebLink who were more prepared to take risks were rewarded with returns that were higher than in the traditional pension schemes at average rates and with guaranteed performance. However, the turbulent developments on the financial markets in 2007 did mean that customers with traditional pension schemes in FSP Pension benefited from a higher deposit interest rate than customers in FSP WebLink. This is the strength of the average interest principle, where part of the return on investments from previous good years is put aside, so that it can then be paid out during poor years like 2007 as a steady and stable deposit interest rate. FSP’s deposit interest rate for 2007 of 6.5% before tax and 6.0% after tax was once again amongst the highest in the pensions industry. This means that over the last 10 years, as a result of the interest paid by FSP, a deposit of DKK 100 will have increased in value to DKK 182 by the end of 2007. The competitive deposit interest rate underlines the advantages of a pension fund where the customers are also the owners. In the long run, a leading deposit interest rate will be of considerable importance in terms of the size of the future pension benefits. Deposit interest rates for the last 10 years % p.a. FSP Pension AP Pension Nordea Pension SEB Pension (Codan Pension) Topdanmark PFA Pension Danica Pension 1998 1999 2000 2001 2002 2003 2004 2005 2006 8.50 6.00 8.00 9.00 4.50 4.50 4.50 5.50 5.50 8.00 4.50 6.00 10.50 5.00 4.50 4.50 4.50 5.00 8.50 5.00 6.33 9.50 5.00 4.50 4.50 4.50 4.58 8.50 4.50 5.25 8.50 5.00 4.50 4.50 5.00 * 5.00 * 7.60 4.50 4.50 8.50 5.00 4.50 4.50 4.80 * 5.00 * 8.20 4.50 6.00 8.50 4.50 4.50 4.50 4.50 4.50 8.50 4.50 4.50 8.50 5.00 4.50 4.50 4.50 4.50 2007 DKK 100 has become 6.00 182.28 5.80 175.96 5.50 175.36 5.50 * 172.68 5.50 * 169.71 4.50 169.35 4.50 168.21 * 4.5% on old schemes with a guarantee. The degree to which the deposit interest rate is guaranteed varies from one pension company to another. When comparing the deposit interest rates, it should be noted that some pension companies pay a conditional bonus and/or use the bonus to strengthen the calculation basis – and so do not increase annual pension benefits to the customer. The "marketing battle" between the pension companies and the launch of lots of new products has also resulted in some "analyses" of returns on various schemes resembling comparisons between apples and pears. The decisive factor is whether it is a traditional pension scheme with average interest rate and with a guaranteed performance, or a new product at the market interest rate (unit-linked). Unfortunately some comparisons do not make a clear distinction, and as a result our own non-guaranteed schemes without restrictions on investments are compared with competitors' guaranteed schemes, where returns are affected by statutory limits for active investments (traffic lights) and by payments intended to cover the guarantees. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=11http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=11Finanssektorens Pensionskasse (FSP) 11 FSP’s customers are very satisfied In autumn 2007, FSP conducted a survey of approx. 4,000 out of a little over 16,500 customers. The result showed that FSP was continuing to live up to its promise to provide its customers with better advice and a better life. Approx. 1,200 customers responded to the survey, and the results once again confirmed that FSP is a good choice for employees in the financial sector. On a scale of 1 to 7, with 7 being the top score, the customers gave FSP an overall customer-satisfaction score of almost 6. According to the survey, our customers feel that they are getting value for money with FSP. Their other responses indicate that they also believe the pension scheme to be characterised by high quality, and that FSP is able to give a competitive return on investments. The results show that customers value the fact that FSP provides an efficient customer service with fast caseprocessing, and that the pension products are good and meet the needs of the customer. The survey also shows that FSP Pension could be even better. Amongst other things, customers requested more information on FSP and more offers of advice. Improved quality in new pension scheme at market interest rate As of 1 January 2007, all new customers in FSP Pension have been provided with a new and more up-to-date pension scheme, with all savings with premium capital pensions and instalment pensions being placed in FSP WebLink without any payment for guarantees and with an annual interest payment at the market rate, which can be large or small, positive or negative. As a result, the customers do not get a traditional deposit interest rate, but instead they wield considerable influence over how their pension savings are invested. Customers can themselves choose to invest in a number of selected funds depending on temperament, readiness to accept risk and age, or they can leave it to FSP’s experts to select investments from three risk levels: low, medium and high. FSP Pension selects and continuously adapts the funds that give the most attractive returns over time relative to risk. FSP’s 2007 customer survey confirms that an increasing number of customers – especially younger ones – want a greater degree of influence over their investments. At the same time, a pension scheme at the market interest rate is increasingly living up to the public's requirements in terms of openness and transparency in pensions. Experiences from recent years show that customers in FSP WebLink have, on the whole, earned greater returns on their savings than customers with savings in guaranteed schemes. This is because customers avoided paying for performance guarantees, and were also able to invest more freely without having to take account of the requirements in accordance with the Danish Financial Supervisory Authority's "traffic lights". FSP Pension is continuously developing FSP WebLink so that it can be a modern option for saving in a unit-linked system. In 2007 customers were accordingly given the opportunity to make daily changes to the way their investments were put together. This meant that they were able to react at short notice to developments on the equity and bond markets. At the beginning of 2008, FSP initiated a collaboration with Morningstar to offer customers training in investment. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=12http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=12Finanssektorens Pensionskasse (FSP) 12 FSP has also decided to scrap the annual fee of DKK 180 for using WebLink, and costs are to be further reduced from 2008. This has been possible because, with over 2,000 customers using the scheme and more joining all the time, FSP is able to achieve economies of scale in terms of its costs. These economies of scale will benefit the customers. As part of FSP’s continuous quality improvement of the pension scheme, the Supervisory Board will be presenting a proposal at the Ordinary General Meeting on 24 April 2008 on the introduction of a temporary disability pension. In 2008, FSP will be connected to the common pensions portal, PensionsInfo, which will allow individual customers to view their pension schemes. FSP's decision to pay millions of kroner to participate in PensionsInfo was based partly on the fact that it is a service provided to customers, and that this will allow FSP at the same time to satisfy the requirements for greater openness in the pensions industry. These continued modernisations are intended to ensure that in future FSP Pension continues to live up to the promise it made to its customers to provide better advice and a better life. FSP now a group FSP Pension is always focused on achieving economies of scale in its administration and also on reducing dependence on individuals in a number of extremely specialised roles – something which has seen a marked increase in recent years as the state continues to tighten regulation of the pensions sector. At the beginning of 2007, FSP established the restricted association FSP Invest F.M.B.A. as a 100%owned subsidiary. FSP Invest F.M.B.A. is made up of a number of unit trusts. C o n s o lid a te d a c c o u n ts Com pany P a re n t c o m p a n y F in a n s s e k to re n s P e n s io n s k a s s e (F S P ) S ig n ific a n t a c tiv it ie s - p e n s io n o p e r a tio n s - s ic k n e s s /a c c id e n t in s u r a n c e - in v e s tm e n t o p e ra t io n s 10 0 % ow ne d S u b s id ia r y F S P In v e s t F .M .B .A . ow ne d - in v e s tm e n t o p e r a t io n s 32 % A s s o c ia t e d c o m p a n y B r it a n n ia In v e s t A /S - p r o p e r t y in v . in t h e U K Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=13http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=13Finanssektorens Pensionskasse (FSP) 13 At the same time, all the administrative tasks in FSP Invest F.M.B.A. and most of the fundadministration tasks within FSP Pension have been outsourced to Nykredit Portefølje Administration A/S. This gives FSP access to expertise in a number of areas in which FSP is unable to build up the same level of skills or to achieve the benefits of large-scale operations. This new structure also gives FSP’s Finance Department more time to focus on overall investment strategy and risk management with a view to creating higher returns – to the delight of all of its customers The collaboration with Nykredit Portefølje Administration A/S had a good start, and FSP Pension has high expectations of future collaboration. At the same time, setting up FSP Invest F.M.B.A. has meant that as of 2007 FSP Pension has become a group and it therefore has to present consolidated accounts. The traditional tables of figures are therefore more extensive this year, since this Annual Report contains accounting figures both for the parent company, FSP, and for the group. Extensive work on many new statutory requirements Throughout 2007, FSP Pension has expended considerable resources on a number of necessary tasks resulting from new requirements issued by the Danish Financial Supervisory Authority on statements of individual solvency and a number of other new legislative measures affecting the financial sector. In recent years work has been done within the EU aimed at the introduction of common European solvency requirements, known in the life insurance and pensions sector as Solvency II, and which are expected to be implemented in the course of a few years. The Danish Financial Supervisory Authority has already chosen to introduce a number of the anticipated changes to the solvency requirements as of 1. July 2007. These requirements are commonly referred to as "Solvency 1½". The new requirements mean that all pension funds, regardless of size, have to calculate an individual solvency percentage and draw up documentation to go with it that is far more extensive than what has been required thus far. Furthermore, the work on Compliance (business management by means of satisfactory business routines and inspection procedures aimed at ensuring compliance with regulations, laws, policies, strategies and good ethics) similarly took up a lot of time in 2007. FSP Pension has set up a compliance and risk management function aimed at ensuring that FSP complies with both internal business routines and also the statutory rules applicable to financial business. The many tightened requirements for financial operations mean increased costs in a number of areas, in addition to the actual significant use of resources. Summary of FSP’s risks External risks Control risks Legal risks Insurance risks The company's overall risk profile Financial risks Strategic and organisational Operational risks Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=14http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=14Finanssektorens Pensionskasse (FSP) 14 In 2006, the Danish Insurance Association trade organisation launched a total of 18 initiatives on openness and transparency in the pensions sector. In December 2007, the Danish Insurance Association advised all pension companies to show the total costs for their individual customers. FSP Pension has continued to work on the initiatives so that FSP can comply with the trade organisation's recommendations, and in so doing also with the requirements of the Danish Parliament, the Folketing, and the general public. In the area of costs, FSP's Summary of Accounts & Pensions has for many years more than fulfilled the requirements, and FSP Pension also expects to be connected to PensionsInfo at the end of 2008. FSP Pension has otherwise noted that a lot of pension companies have an approach to the concept of costs that is very convenient for them. Over a number of years, FSP Pension has continued to use a summary of its costs that is calculated as an interest margin on the year's deposit interest rate. This is the same principle used by the banks to work out the costs in pension schemes. As can be seen from the illustration, FSP Pension's costs are extremely competitive if this calculation method is used. Benefits as a member of FSP 5,0% 0,5% 0.5 % 0,7% 0.7 % 4,5% 4.5 % 0,5% 0.5 % 0,2% 0.2 % 4,0% 4,8% 4,8 % 4.8 % 3.8 % 3,8% 3,0% Typist Typical life insurance company livsforsikringsselskab Typisk Typical new ny labour market pension arbejdsmarkedsscheme pensionskasse Omkostninger som rentemarginal Costs as an interest margin FSP FSP Forrentning kunder Return paid totil customers Aflønning ejere Owner remuneration Calculations have been based on an (identical) capital return of 5% after tax FSP firmly placed in green light category At the end of 2007, FSP Pension still had a solid safety margin between it and the Danish Financial Supervisory Authority's amber and red light risk scenarios. FSP maintains its solid position in the green "traffic light" by closely monitoring investments and by means of financial hedging of the service guarantees. FSP therefore continues to have considerable leeway for investing in assets that are more exposed to risk, such as equities, emerging markets bonds and high yield bonds, as well as financial contracts for commodities, which in 2007 both secured a high return and also made a positive contribution to risk diversification. FSP's reserves relative to the D anish Financial Supervisory A uthority’s risk levels R ecovery plan if below solvency m argin requirem ent 31 D ecem ber 2007 Red A m ber G reen Shareholders’ O w n e rs ’ O EE q quity u ity Solvency m argin requirem ent D K K 718 m illion D KK 1.5 billion from am ber light – interest rate fall D K K 2.6 billion from red light – interest rate rise Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=15http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=15Finanssektorens Pensionskasse (FSP) 15 Basic Capital of DKK 3.3 billion and overall balance sheet of DKK 23.1 billion A capital return for the year of 3.3% is not sufficient to cover the deposit interest rate for the customers of 6.0%. The policy of maintaining a stable and even deposit interest rate in the traditional pension scheme in FSP Pension in a lean year such as 2007 therefore meant a deficit for FSP Pension of DKK 213 million. FSP’s total Basic Capital consists of owners’ equity plus FSP’s BonusKapital. FSP's Supervisory Board has decided that the part of the deposit interest rate that exceeds 4.5% is to be distributed to the customers as FSP BonusKapital, which can be included in FSP's risk capital, and which earns the same interest as owners’ equity. FSP BonusKapital is distributed as increased pension benefits as individual customers retire. FSP’s Basic Capital at the beginning of 2007 was just under DKK 3.4 billion. The deficit was covered by FSP's owners’ equity, though at the same time FSP BonusKapital increased by DKK 140 million. By the end of the year, FSP’s total Basic Capital was therefore DKK 3.3 billion. At the end of 2007, both FSP’s owners’ equity and the total Basic Capital therefore had a solid safety margin for the statutory solvency requirement, which is DKK 718 million. FSP’s balance sheet rose by DKK 1.4 billion in 2007 to DKK 23.1 billion by the end of 2007. FSP’s Basic Capital and solvency margin requirement Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=16http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=16Finanssektorens Pensionskasse (FSP) 16 FSP'S MANAGEMENT AND EMPLOYEES The Supervisory Board and the Executive Management FSP's Supervisory Board held nine board meetings in 2007, including an annual board seminar in October. This is in accordance with the recommendations for good corporate governance. The Supervisory Board remains unchanged from the 2006 Annual General Meeting. From left: Steen Pommeritz Tina Rønfeldt Børge Hansen Hans Erik Rasmussen Jan Steen Jensen Birgitte Hagen Michael Budolfsen (Deputy Chairman) Pia Lærke Petersen Claus E. Petersen (Chairman) Ane Marie Holm Nielsen Knud Pedersen In June 2007, board member Ane Marie Holm Nielsen celebrated her 25th year as a member of the Supervisory Board. FSP's Executive Management consists of Steen Jørgensen, who has been Managing Director since the end of 1992/beginning of 1993. Ordinary General Meeting 2007 At FSP’s Ordinary General Meeting, which was held on 18 April 2007, board members Jan Steen Jensen of Spar Nord Bank, Steen Pommeritz of Danske Bank and Hans Erik Rasmussen of Danske Bank, were all re-elected to the Supervisory Board for a three-year period. Christian Christensen of Spar Nord Bank was newly elected as a deputy for Jan Steen Jensen. René Holm of Danske Bank was re-elected as a deputy for Steen Pommeritz and Erik Dreyer of Danske Bank was re-elected as a deputy for Hans Erik Rasmussen. Deloitte Statsautoriseret Revisionsaktieselskab, as represented by chartered accountants Søren Dinesen and Kasper Bruhn Udam as auditor and new deputy auditor respectively, was re-selected as the firm of auditors. At the subsequent opening board meeting, director Claus E. Petersen was re-elected as Chairman of FSP's Supervisory Board, and the Deputy Chairman of Finansforbundet, Michael Budolfsen, was reelected as the Deputy Chairman of FSP’s Supervisory Board. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=17http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=17Finanssektorens Pensionskasse (FSP) 17 FSP lives up to good corporate governance In 2007 the Supervisory Board did further work on the recommendations of the Danish Pension Market Council in its 2004 report on good and effective corporate governance. The Supervisory Board discussed, amongst other things, procedures, openness and increasing requirements made of financial companies. Most of the board members also took part in a two-day seminar for board members. The task of the Supervisory Board is to approve the overall strategies for FSP Pension and to allocate roles between the Supervisory Board and the day-to-day administration, including ensuring that the required written guidelines are drawn up. The Supervisory Board also has the task of considering the risk management, the control tasks and the continuous reporting that is appropriate for the size and complexity of the company. As a part of this task, in 2007 the Supervisory Board reviewed and adapted the decision-making authorities within FSP Pension. As part of its obligations as set out above, the Supervisory Board also discusses the powers that should be in place for the work of the Supervisory Board, and of course follows developments in the outside world, including increasing demands for good corporate governance in listed companies, which amongst other things is expected to lead to requirements on establishing proper board committees, including audit committees. The Supervisory Board has not drawn up any actual recruitment criteria, though it does provide information on the specific powers for the present board members. FSP's Supervisory Board stresses the importance of a broad and open dialogue with all interest groups and in connection with this it has adopted, amongst other things, a policy on communication with customers in accordance with recommendations concerning good and effective corporate governance within labour market pension companies, just as the Supervisory Board in 2007 established a distinct policy aimed at retaining key employees. FSP’s organisation At the end of 2007, FSP had 43 employees (full-time and part-time), which was unchanged from the end of 2006. There was an average of 38 full-time positions in 2007, which is at the same level as in 2006 (measured using contributions to the statutory supplementary pension for employed persons). The average age of the employees at the end of 2007 was 40. FSP organisation chart On 1 January 2007, FSP established a Finance Department, consisting of what had until then been the Investment Department and a number of functions linked to risk management, which had thus far been located in a so-called Midoffice between the Investment Department and the Accounting Department. As part of this re-organisation, Søren Schjødt-Hansen, who had previously been the Investment Manager, became the Finance Manager and, as of 1. January 2008, was appointed Deputy General Manager. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=18http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=18Finanssektorens Pensionskasse (FSP) 18 On 1 July 2007, Karin Elbæk Nielsen, 39, joined FSP as Appointed Actuary and successor to Claes Vestergaard, who had been headhunted for a position as Director of Mathematical at one of the country's largest pension service companies. The Appointed Actuary, who is answerable to the Danish Financial Supervisory Authority, has the task of ensuring that each individual member gets their share of the assets, and that there are sufficient funds with which to pay future pension commitments. Karin Elbæk Nielsen gained a degree in Actuarial Science (MSc) from University of Copenhagen in 1994, and from 1989 up until her arrival at FSP, she was employed at Topdanmark Livsforsikring A/S, where for a number of years she reported to and worked closely with the appointed actuary there. On 1 September, Bo Lund-Kristensen, 33, joined FSP as the new Accounts and IT Manager. He replaced Marianne Omgaard, who had obtained a new position outside the pensions sector. Bo Lund-Kristensen was previously employed at PriceWaterhouseCoopers, Nordisk Film and MTG. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=19http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=19Finanssektorens Pensionskasse (FSP) 19 Focusing on a good working environment FSP's goal is to maintain a good working environment for FSP's employees and to offer them good opportunities for development and further training. In 2007 FSP expanded its HR strategy by the addition of a number of focus areas and by launching initiatives intended to support FSP's commercial goals and to ensure that both customer and employee satisfaction should remain high. At the same time these initiatives mean that FSP is still able to attract and retain skilled and hardworking managers and employees. FSP has implemented a development programme for the management team aimed at clarifying the roles of the individual managers, and also enhancing communication and management of the employees in order to help them towards the same goals in a changing world. FSP has also worked on communication, cooperation and sales training as part of continued skills training for employees. FSP has additionally worked on a new induction programme, aimed at making new employees feel welcome and helping them to quickly fit into their new roles as well as FSP’s values and corporate culture. These initiatives are intended to meet the increasing competition for workers in the finance sector and to provide FSP Pension with good and skilled employees. In November 2007, FSP conducted an employee survey, to which all employees responded. The results revealed a high level of contentment, well-being and loyalty amongst our employees. These factors, together with employees' pride in working for FSP, contentment with the influence they have on their own work, good colleagues and good cooperation, are all important for FSP's ability to attract and retain staff. It is therefore a positive thing to be able to confirm that the staff at FSP score above the industry average in all these areas. In 2007, FSP introduced a general bonus scheme for all permanent staff, which is paid in accordance with the established goals in terms of customer satisfaction, growth in returns, cost-effectiveness and also growth in member contributions. In 2008 FSP will continue to focus on the HR strategy and to profile FSP as a good place to work. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=20http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=20Finanssektorens Pensionskasse (FSP) 20 CUSTOMER SERVICE Top-line growth and many new customers The increased efforts in recent years to market FSP Pension and to improve its profile as a modern and competitive pension fund has resulted in a respectable inflow of new member companies and customers over the last three years. The new corporate customers chose FSP Pension because of its high level of service, the freedom of choice and flexibility inherent in the pension scheme, FSP’s independence, the company's proximity to its customers, prompt resolution of cases and the competitive returns on both traditional schemes and FSP WebLink. In 2007 FSP entered into pension scheme agreements with five new companies. In addition, many of FSP’s corporate customers have experienced considerable growth in recent years, and this has contributed to FSP Pension enjoying continued progress, even though the number of customers with FSP from the two largest corporate customers, Danske Bank and Nordea, are falling away due to these banks offering new employees pension schemes in the group's own pensions company. In 2007, FSP Pension had an inflow of 664 new customers (gross), while the net inflow was 283, giving a total of 16,693 customers in FSP Pension by the end of 2007. In 2007 three new companies signed up with FSP Sundhedssikring (health insurance), and seven new companies joined FSP Gruppeliv (group life insurance). In addition, about 200 customers signed up to the group life insurance scheme individually. The total number of customers in FSP Pension by the end of 2007 (incl. health insurance) was 18,170. Customer developments 1990-2007 incl. health insurance 19,000 18,170 18,000 17,000 16,000 16,693 15,000 14,000 13,000 12,000 11,000 10,000 1990 1992 1994 1996 1998 2000 2002 2004 2006 After correction for the transfer of portfolios from Sparekassernes Afviklingspensionskasse in 2006, pension contribution payments to FSP Pension increased in 2007 by DKK 30.1 million to a total of DKK 582.1 million. In 2007, 163 customers decided to retire, representing an increase of 8% compared to 2006. FSP Pension consequently had 2,230 pensioners at the end of the year. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=21http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=21Finanssektorens Pensionskasse (FSP) 21 Satisfied customers at FSP FSP Pension's aim is to be a good advisor and collaboration partner, and this aim is encapsulated in a promise to its customers to provide better advice and a better life. As a follow-up to this goal, FSP conducted a satisfaction survey amongst selected customers in autumn 2007. Their responses provided FSP with a picture of which new pension products they wanted and needed. The results of the survey will also be used to show where FSP can provide its customers with even better service. About 1,200 customers responded to the questionnaire used in the survey, representing a response rate of 30 per cent. The customers gave FSP Pension an overall satisfaction score of 5.9 on a scale of 1-7, where 7 is the highest score. 4 3 5 "Overall I am satisfied being a customer of FSP Pension" 6 2 Strongly disagree 1 Average for FSP Pension (Total) 7 Strongly agree 1 = Strongly disagree 2 = Do not agree 3 = Mainly disagree 4 = Neither agree nor disagree 5 = Mainly agree 6 = Agree 7 = Strongly agree It is very positive to be able to confirm that customers are of the opinion that they get value for money with FSP. According to the survey, the customers are generally loyal and attach considerable importance to their belief that FSP provides an efficient customer service with fast caseprocessing, and that pension products are good and meet the needs of the customer. The customers also say that FSP provides a competitive return on their investments. The survey also indicates that there is still room to make even more improvements in future and, amongst other things, to improve awareness of FSP and to enhance its advisory role. One in four customers would like a pension savings scheme at the market interest rate. On the whole, all our customers read or skim through the information material they receive from FSP, especially the annual Summary of Accounts & Pensions. "Customer satisfaction largely depends on the level of attention and service that customers expect and receive. The results of the survey provide us with confirmation that FSP’s employees are providing a solid and competent level of service and advice. Our intention in 2008 is of course to continue with our efforts to improve our advisory service and communication with our customers," says Sara Brinks Larsen, Customer Relations Manager. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=22http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=22Finanssektorens Pensionskasse (FSP) 22 Fast processing times In 2007, FSP Pension once again maintained its fast processing times in dealing with its customers. Enquiries related in particular to FSP Sundhedssikring (health insurance) and to adapting the pension scheme in response to changed needs. In the case of applications for processing, the Customer Service Department will try to serve its customers as quickly as possible – and in the vast majority of cases this is done by the next day. 6% Less than or equal to 1 day. 6% 10% Betw een 1 and 7 days. (including 7) Betw een 7 and 14 days. (including 14) More than 14 days. 78% During this period 9,302 cases were processed, of which 94% were processed in less than 14 days. New website improves information for customers In 2007 FSP launched a new and user-friendly website that makes it easier and quicker to find the right information about FSP, the pension scheme and investments. Amongst other things, customers can find information about what they should do in order to change their pension scheme in response to events in their lives, so that they always have the best possible cover. This new website also gives member companies access to more customised information and a new ServicePortal for reporting details of their employees' pension schemes. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=23http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=23Finanssektorens Pensionskasse (FSP) 23 FSP homes with preferential rights for customers The website also contains information about FSP’s properties throughout Denmark. Here there is information on how to become a tenant. There is also continuously updated news about FSP’s construction projects. FSP’s customers and their children have preferential rights to most homes, though they have to pay rent at market levels just like the other occupants. FSP has a total of 21 residential properties consisting of 1,050 tenancies geographically distributed throughout Denmark: FSP homes in Denmark Hjørring Brønderslev Randers Århus Vejle Sorgenfri Ringsted Haderslev Næstved Svendborg Hørsholm FSP provides insurance in case of sickness or death FSP provides a number of schemes that insure its customers and their dependents in case of sickness or death. Critical Sickness Cover pays out tax-free compensation for a number of critical sicknesses. Most of the payments are still made for various forms of cancer and cardiovascular disease. In the event of death, FSP Gruppeliv (group life insurance) provides a financial safety net for the immediate family. Financial sector employees enjoy a good quality of life with fewer deaths than the average for the population. They give rise to fewer pay-outs, allowing FSP Pension to maintain an attractive price for FSP Gruppeliv. FSP Sundhedssikring provides fast access to treatment at private hospitals and clinics, and there has been a continuous growth in use of the scheme since its introduction in 2003. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=24http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=24Finanssektorens Pensionskasse (FSP) 24 Greater dialogue with companies and trade union representatives In 2007 FSP's Customer Service Department re-visited most of the company's member companies. This process also involved a long series of advisory meetings. The Customer Service Department will also contact all new customers to ensure, amongst other things, that they make a decision about who to appoint as beneficiary and that they have their pension arrangements adapted to meet their individual needs. In 2007, FSP Pension also launched a new ServicePortal that provides its member companies with a complete and simple point of access to FSP Pension. At the same time, this portal allows FSP's Customer Service Department to provide its customers with a faster service. In the years ahead, FSP ServicePortal will be expanded with the addition of more functions and access to more information. FSP is keen to improve the pensions knowledge of trade union representatives, and in 2007 it took part in a seminar that the Finansforbundet (Financial Services Union) held in 2007 for the banks' trade union representatives. The benefits of a customer/member-owned pension fund were discussed at this event. FSP will continue with this information activity in the years ahead. Proposed temporary disability pension FSP Pension is constantly striving to develop the pension scheme to ensure that it remains up-todate at all times and meets the needs and wishes of the majority of customers. At the Annual General Meeting in April 2008, the Supervisory Board will be proposing the option of granting a temporary disability pension in the FSP Pension Department for customers whose wageearning ability has been reduced by 2/3. At present entitlement to a disability pension is dependent on a permanent loss of wage-earning ability. According to this proposal, a six-month waiting period without payment will be introduced before the customer is paid a temporary disability pension, as they would generally be in receipt of pay during this period. This could be for example in connection with cancer treatment, a heart attack, mental sickness or a road traffic accident. Temporary disability pension can be paid out for up to three years. As a result, employees can be assured of a stable income and often retain some connection with the workplace, until the employee either becomes healthy or able to work, or if a rehabilitation process unfortunately reveals that the loss of wage-earning ability is permanent. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=25http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=25Finanssektorens Pensionskasse (FSP) 25 THE ACTUARIAL DEPARTMENT FSP BonusKapital makes the customers direct owners of FSP’s equity FSP Pension is keen to make it clearer that the customers "own" FSP's owners’ equity. Therefore FSP's Supervisory Board has decided with effect from 2006 that the part of the deposit interest rate that is in excess of 4.5% is allocated to so-called 'special bonus provisions' – or FSP BonusKapital, which FSP has chosen to name it. In practice, this means that this component of the bonus is deposited on a special account as part of the customer's deposit account, which is then included in FSP’s Basic Capital. This component of the customer's savings is not guaranteed, but on the other hand interest is paid on "FSP BonusKapital" in line with the owners’ equity at that year's market rate of return plus the so-called "risk return". In historic terms, owners’ equity has achieved a rate of return which is better than the annual deposit interest rate, something which will of course benefit customers. In practice FSP BonusKapital is paid out in the form of increased pension benefits when the individual customers retire and start to receive their pension. The deposit interest rate for 2007 has been set at 6.0% after tax. This means that 1.5 per cent gross of the year's deposit interest rate is allocated to FSP BonusKapital. A customer who is engaged in active employment and who has savings of DKK 1.5 million will thus be the owner of as much as DKK 22,500 of FSP’s Basic Capital. In addition there is the return for 2007 on the FSP BonusKapital that was allocated to the customer in 2006. For this customer this amount was DKK 15,000, which for 2007 generates a total interest of 4.8% (FSP’s market rate of return of 3.3% plus 1.5% in risk return) equivalent to DKK 720. For the customer in this example, FSP BonusKapital therefore represents a total of DKK 38,220, once the final return for 2007 has been credited in spring 2008. The total Basic Capital is approx. DKK 3.3 billion, and by the end of 2007 FSP’s customers taken together directly own DKK 227.9 million of FSP's Basic Capital. Over the coming years, FSP Pension will continue with the allocation of FSP BonusKapital. FSP BonusKapital - kunderne og egenkapitalen Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=26http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=26Finanssektorens Pensionskasse (FSP) 26 At the same time, the introduction of FSP BonusKapital represents a step away from the guaranteed pension benefits and the restrictions this implies for FSP's investments. This is because the guarantees entail scrapping the requirements for provisions in passive investments such as bonds and curbing opportunities for actively investing in equities etc. For FSP (and accordingly for all customers) the introduction of FSP BonusKapital means that FSP is free to invest actively and achieving better long-term returns. This is a result of the fact that FSP BonusKapital should not be included in the guaranteed pension provisions. Development tasks in 2007 In 2007 the Actuarial Department worked on a number of major development tasks within FSP Pension. These included the systems for introducing daily trading in FSP WebLink in mid-2007 and also a number of new options in WebLink, which was introduced at the beginning of 2008 together with a newly designed WebLink. Other demanding tasks have included the preparations for FSP’s connection to PensionsInfo in 2008 and also the proposals which will be made at the Annual General Meeting in April 2008. This relates to the proposal for a temporary disability pension, where the Actuarial Department has been involved in calculations and development of IT systems. Since the proposal relates only to customers of FSP Pension, the Actuarial Department has taken part in the preparations for subsequently offering the customers in Departments A and B conversion to the FSP Pension Department. FSP adheres to the initiatives of the Danish Insurance Association industry organisation for creating greater openness and transparency within the insurance and pensions industry. Amongst other things, pension institutions should make clear the link between market returns on investments and deposit interest rates on customers' pension schemes. For FSP, the link between market returns on investments and the allocated deposit interest rates for customers therefore appears as follows: 2007 Gross market return for the year 1) Investment cost 3.5% 0.2% 2006 5.8% 0.2% 2005 13.7% 0.2% Key to Notes 1. Market return for the year achieved on financial markets (equities, bonds , real estate, etc.) 2. Pension return tax for the year, charged by the state on pension savings. 3. The return on risk shows the payment that the owners' equity and other Tier II capital must have. Net market return for the year Pension return tax 2) Risk result Cost result Return on risk, after tax 3) Change in market value adjustment Change in collective bonus potential Result of sickness and accident Guarantee payment 3.3% -0.4% 0.0% 0.0% 1.9% 1.0% 0.0% 0.0% 0.2% 5.6% -0.8% 0.0% 0.0% -1.6% 2.0% 0.0% 0.0% 0.3% 13.5% -1.5% 0.6% 0.0% -5.3% -2.1% 0.0% 0.0% 0.3% Account dividend 6.0% 5.5% 5.5% This allows the customer to see how a result of 13.5 in 2005 "only" generates 5.5% in dividends for the customer. At the same time the example shows how, in 2007, the customer can achieve 6.0% in dividends, even though the result for that year is 3.3%. There is further information on the openness initiatives on the Danish Insurance Association's website: www.forsikringenshus.dk. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=27http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=27Finanssektorens Pensionskasse (FSP) 27 Payment for guarantees Since 2005, FSP customers who have a pension scheme with guaranteed performance have paid for the security that the guarantee gives for future pension benefits. This payment is intended to balance the increased provisions required in order to fulfil customers' guarantees and the financial instruments that have been bought to cover the guarantees. Payment for guarantees applies only to customers of FSP’s traditional schemes with average rates of interest. As of 1 January 2007, all new customers will be included in FSP’s market interest rate scheme, FSP WebLink, where there are no performance guarantees and therefore no payment for such guarantees. The payment for guarantees is distributed based on the size of the various basic interest rates. Expenses are therefore greater for the high guarantees since they require larger provisions and a higher level of interest rate hedging instruments. Account dividend 2007 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Customers included after 1 July 1999 Other customers Customers in dept. B2 Minimum interest credited Maximal payment for service guarantee Deposit interest rate 6.0% Payment for the guarantees is deducted from each customer's bonus. For 2007, FSP’s Supervisory Board has decided to set the following rates: • • • A basic interest rate of 1.75% - 0.10% of savings. A basic interest rate of 2.75% - 0.25% of savings. A basic interest rate of 4.50% - 0.50% of savings. A lot of customers have several basic interest rates for their pension scheme, as a result of which FSP deducts an average of the above payments from the deposit interest rate of 6.00% in 2007. • • • All customers included after 1 July 1999 have a basic interest rate of 1.75% and receive a return of 5.90% in 2007. Customers in Department B2 receive returns on savings of between 5.50% and 5.90% in 2007. Customers in other departments receive a return of between 5.75% and 5.90% in 2007. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=28http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=28Finanssektorens Pensionskasse (FSP) 28 The Supervisory Board finally sets both the guarantee payment and the annual deposit interest rate for 2008 at the end of the year. However, FSP does expect that the guarantee payment for 2008 will increase, and FSP has justified this to the Danish Financial Supervisory Authority by citing the following factors: FSP sets customers' payment for guarantees based on an assessment of the prices for the financial instruments (including insurance policies and swaptions) used to hedge the performance guarantees. In 2008 FSP expects that the market prices for these instruments will rise due, in part, to increased volatility on the market (increased price fluctuations due to turbulence on the financial markets). Furthermore, the numbers of customers and the size of their savings have both increased in recent years, thus increasing the total amount to be hedged against a fall in interest rates. FSP’s principle is that expenses are divided proportionally between its customers. FSP therefore considers it reasonable for customers to pay for hedging in accordance with the basic interest rates for the individual pension schemes. It is the schemes with basic interest rates of 2.75% and 4.50% that most need hedging against a fall in interest rates, and so these schemes pay proportionally more for performance guarantees. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=29http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=29Finanssektorens Pensionskasse (FSP) 29 INVESTMENTS Reasonable return on investment in a turbulent 2007 After almost five years of stable progress on most equities markets, in 2007 things now look rather different. In the second half of 2007 there were considerable volatility, sometimes with marked falls in equities prices, especially in August and November. The year ended down, following continued forecasts for respectable returns at the beginning of the 4th quarter, despite some turbulent periods. FSP's total return on investment in 2007 was 4.3% before interest rate hedging. Throughout the year, FSP had about 30% of its capital invested in equities, and these gave a total return of 10.7%, with the private equities in particular giving a generous return of 26.3% when FSP realised some of its investments at the right time. The rising interest rate in 2007 meant that bonds only produced an overall return of 0.5%. FSP's investments in high-end real estate in Denmark and abroad has, for a number of years, given a stable return; FSP now has 15% of its assets invested in real estate. Real estate produced a positive return of 4.1% in 2007 following adjustment of the market values, which for some listed property companies has resulted in negative returns on real estate. Investment in financial contracts for commodities also produced a respectable return of 16.9%, while at the same time contributing to the diversification of risk in the overall investment strategy. 16% 12% 10.7% 8% 4.1% 4% 0.5% 0% -1.0% -4% Equities Real estate Bonds Return on investm ent Hedging Total 4.3% 3.3% FSP focuses on high and stable long-term returns, and the investment strategy is therefore based on a long-term and prudent diversification of risk. FSP's diversification policy really proves its value in a turbulent year such as 2007. Compared with the other pension companies, FSP got through 2007 with an extremely respectable result without having to compromise on its risk strategy. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=30http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=30Finanssektorens Pensionskasse (FSP) 30 FSP’s diversification of risk across a wide range of assets is illustrated by the following diagram: Diversification via distribution across a range of assets "Balance sheet" as at 31 December 2007 0.1% 14.4% 7.3% 28.5% Danish bonds Foreign bonds High Yield + structural bonds Emerging market bonds Private equities 3.0% Danish equities International equities Hedge funds 15.5% 6.6% 7.9% 4.7% 4.8% 7.2% Real estate Interest hedging (sw aptions) Other assets The chart shows returns on various portfolios relative to the benchmark: Returns on equities in 2007 Type of asset Cash fund Danish bonds Fund EGNS - INVEST LPI Danish/European Nordea Danish/European LPI index bonds Aberdeen - Corporate bonds Nykredit - Eurokredit Return 2007 4.2% 1.0% 0.3% -5.7% 3.7% -1.3% 4.7% 2.8% -8.4% -7.8% -10.8% 1.9% 2.2% 1.1% 26.3% -5.5% 2.6% -5.2% -1.9% -8.3% 26.1% -14.8% 0.1% 1.1% 20.1% 20.1% 15.6% 12.1% 0.5% 7.0% 7.8% -4.5% 1.1% 16.9% Benchmark 4.2% 1.3% 0.9% 1.2% 5.4% -0.8% 4.7% 4.7% 4.0% 4.0% 4.0% 3.3% 1.4% 0.8% 2.7% -2.1% 2.7% -5.1% 0.9% -9.4% 25.7% -14.6% -1.6% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 5.4% 7.2% 7.8% Holding (DKK million) 224 2,464 3,020 390 1,567 86 842 264 106 92 181 696 120 319 1,070 1,038 717 586 455 226 700 355 526 1,854 65 36 267 255 382 258 199 401 291 767 Risk level 0.3% 2.9% 2.8% 8.3% 3.2% 2.6% 7.8% 6.3% 4.5% 7.0% 15.2% 4.1% 4.7% 5.9% 10.0% 13.0% 10.4% 9.8% 10.2% 11.0% 17.4% 16.7% 10.3% 3.7% 11.9% 11.3% 4.7% 11.4% 9.1% 4.0% 7.0% 3.8% 6.2% 18.4% Emerging markets - bonds SEB - Emerging Markets - bonds Sydinvest - Emerging Markets - bonds JP Morgan - Structured bond Hamlet I JP Morgan - Structured bond Hamlet II ING - Structured bond JP Morgan - Structured bond Amalie I TRP Invest - High Yield Danske Bank - High Yield Nykredit LD - Danish equities State Street - European equities State Street - American equities T. Rowe Price - American growth equities Frank Russell -American value equities Frank Russell - Emerging markets equities Frank Russell - Japanese equities Sparinvest - Value equities FSP ejendomme ei invest European retail Foreningen Fast Ejendom Rockspring PanEuropean Property Dansk Ejendomsfond I A/S Britannia Invest (incl. foreign currency hedging) J.P. Morgan US RE (incl. foreign currency hedging) J.P. Morgan EU RE Frank Russell - Hedge funds Nykredit Alpha - Hedge funds Commodities High Yield - bonds Private equities Danish equities International equities Real estate Hedge funds Financial contracts for commodities Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=31http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=31Finanssektorens Pensionskasse (FSP) 31 FSP WebLink leading on returns Within FSP WebLink, customers achieved a respectable return on investment in the three funds where FSP combines low, medium and high risk investments – both compared with other pension companies and taking into account the unrest on the financial markets in 2007. Despite the turbulent investment year, investors who were most prepared to take risks were rewarded with a return of 6.1%, whereas the funds with low and medium risks gave returns of 3.0% and 2.9% respectively. The funds FSP Selector are amongst the unit-linked funds which produced the highest returns in 2007. This was due in particular to FSP ensuring that it selects unit trusts with low costs and historically good returns. During the period 2003-2007, the two FSP Selector funds with medium and high risks gave their investors an overall higher return than that on the traditional pension schemes with guaranteed performance. This is illustrated by the following chart: 2003-2007 returns for FSP traditional and FSP WebLink 30% 25% 17.5% 20% 12.8% 15% 10% 5% 0% 2003 FSP traditional 2004 FSP WebLink - Low risk 2005 2006 2007 FSP WebLink - High risk 8.5% 11.0%10.7% 8.0% 7.7% 13.5% 10.6% 13.4% 8.3% 5.5% 5.6% 3.3% 6.1% 2.9% 3.0% 28.0% FSP WebLink - Medium risk Daily trading on FSP WebLink In 2007, FSP enhanced the service for the little over 2,300 customers who use FSP WebLink in order to have some influence over their investments. In June it became possible for investors to change the composition of their investments on a daily basis. This measure was a part of FSP's continuing improvement of the quality of the pension scheme. Daily trading means that customers are much better able to react to developments in the equity and bond markets. Customers can, at short notice, adjust the composition of their investments and make the most of price increases or avoid falls on selected markets. FSP has also decided to scrap the annual DKK 180 fee for using WebLink. This has been possible because, with over 2,300 customers using the scheme and more joining all the time, FSP is able to achieve economies of scale in terms of its costs. These economies of scale will benefit the customers. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=32http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=32Finanssektorens Pensionskasse (FSP) 32 Returns on WebLink funds in 2007 Type of asset Equities, sector-based Fund BankInvest Bioteknologi (PAL) Bankinvest Teknologi (PAL) ei invest European retail BankInvest Fjernøsten (PAL) Danske Invest Nye Markeder Danske Invest Østeuropa Nykredit Inv. Vækstlande Sydinvest BRIK Akkumulerede Sydinvest Fjernøsten Akkumulerende (from June 07) Sydinvest Latinamerika Bankinvest Japanske aktier (PAL) Danske Invest USA Sparindex US Value Bankinvest Danske aktier LD Invest Danske Aktier (fra juni 07) Danske Invest Danmark (PAL) BankInvest Europæiske aktier (PAL) Equities, Europe Year-to-date return -11.88% -3.23% 11.55% 19.16% 19.51% 19.00% 17.63% 43.65% 33.65% 32.66% -21.00% -5.89% -10.43% -5.41% 3.97% 4.46% 3.40% 0.44% 3.81% 1.52% 16.25% 1.73% 0.28% -1.56% 3.13% 3.54% 2.56% 2.04% 3.23% 0.63% 1.47% -1.97% 2.63% 4.34% 2.97% 2.91% 6.14% Equities, emerging markets Equities, North America and Japan Equities, Denmark Danske Invest Aktier med højt udbytte - akkumulerende (from June 07) Nordea Invest Europa Bankinvest Basis (PAL) Carnegie WorldWide/Globale Egnsinvest Højt Udbytte Sparinvest Value aktier Danske Invest Højrente NI Engr.Emerging Market obl SEB Ashmore Emerging Market Bonds Sydinvest HøjrenteLande TRP-Invest Global High Yield DI afd. Korte Obligatio (DI og BG invest merged on 20-08-2007) Danske Invest Lange Danske Nordea Invest Direct Nykredit Lange Obligationer Sparinvest Korte obl Kontantfond FSP WebLink low risk, return on net asset value FSP WebLink medium risk, return on net asset value FSP WebLink high risk, return on net asset value Equities, global Bonds, global Bonds, Danish Cash FSP WebLink Success outsourcing portfolio administration FSP works continuously on achieving high returns for its customers on pension savings as well as guaranteeing them low costs. From the beginning of 2007, FSP therefore initiated a collaboration with Nykredit Portefølje Administration for administration of FSP's investments. Outsourcing of portfolio administration represents a further streamlining of FSP's administration, and as a result FSP is able to achieve a number of economies of scale via its access to expertise in many different equity categories. Under the terms of the agreement, Nykredit Portefølje Administration monitors FSP’s portfolios to ensure that they keep to the stipulated guidelines. Increasing statutory requirements have meant that this task has become very time-consuming, however outsourcing does allow FSP to achieve simpler reporting and administration of investments. This outsourcing has also meant that FSP’s Finance Department is more able to focus on the new set of regulations for the solvency of pension funds (Solvency 1½) which the Danish Financial Supervisory Authority introduced on 1 July 2007. The introduction of these new rules represented a particular drain on resources in 2007. The significance of the new solvency rules is discussed further in "Risk management and compliance". Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=33http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=33Finanssektorens Pensionskasse (FSP) 33 Commercial collaboration with FSP’s member companies As part of its commercial collaboration with its member companies, FSP has underwritten some "notes" in connection with a number of FSP's member companies raising Tier II capital via an Irish listed structure, Amalie 1 Limited. This writing is a feature of the collaboration with JP Morgan on investing in 'structured bonds' in order to achieve a greater risk diversification for FSP's portfolio of high-yield bonds. This collaboration with the member companies is subject to ordinary market terms and conditions and it is expected to continue in the years ahead. Ethical investments In accordance with Section 98 of the "Executive Order on Financial Reports for Insurance Companies and Lateral Pension Funds", FSP must state that its investment policy takes account of ethical and social matters. As prescribed in the Danish Financial Business Act, FSP invests with the primary goal of securing its members the best possible returns for the selected risk profile. When making investment decisions and as a feature of the general analysis of a company's financial situation, FSP takes account of whether a company is open about its operations, including ethical responsibility. FSP has decided to follow the "Network for Good Business Ethics and Non-financial Reporting" – NVIR’s recommendations such as they were adopted in a report in 2005. FSP Pension is a member of the network together with 50 of the biggest financial and commercial companies in the Danish commercial world. The NVIR report includes a general list of recommendations concerning ethical questions in the following six areas: market conditions, the environment, employees, human rights, social responsibility and governance. FSP applies the NVIR principles in its dialogue with the managers who handle investments for FSP. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=34http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=34Finanssektorens Pensionskasse (FSP) 34 Publishing shares of ownership In accordance with Section 98 of the abovementioned executive order, FSP must also state whether the general public has access to information about the extent of FSP's capital investments in companies. For administrative and other reasons, FSP does not publish a list of all the companies in which it has capital investments, or how big these capital investments are. 2008 investment strategy For 2008, FSP is budgeting for an investment income of 6.0% before tax based on the distribution of assets as shown below, and the returns predictions used by the pensions industry. The investment strategy for 2008 to a large extent follows the investment strategy for 2007, with investments in Danish, international and private equities to a total of about 25% of its assets. Investments in real estate are expected to account for as much as 15% of assets. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=35http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=35Finanssektorens Pensionskasse (FSP) 35 RISK MANAGEMENT AND COMPLIANCE Risk profile The Danish Financial Supervisory Authority, in the Executive Order on Financial Reports for Insurance Companies and Lateral Pension Funds, has laid down requirements for the rules concerning risk management. In view of this, FSP has decided to put all significant information on risk in this section, where we will describe what forms of risk FSP takes on, and also which management models and tools we have chosen. FSP’s risks relate primarily to the pension commitments given to the customers and the financial risks involved with the investments. FSP attaches great importance to monitoring and managing these risks and the interaction between them. As part of the Danish Financial Supervisory Authority's risk scenarios (the traffic lights), FSP must calculate how the most significant risk factors will affect FSP. The risk factors are illustrated by a special sensitivity data table that has been worked out using the Danish Financial Supervisory Authority's guidelines, and which is shown on page 38. Insurance risks Pension provisions The pension commitments made to the customers (the pension provisions) are based on the technical basis as reported by FSP to the Danish Financial Supervisory Authority. According to the Danish Financial Business Act, this basis must be secure and reasonable. The Appointed Actuary must therefore ensure that the pension company sticks to its technical basis etc. and that this complies with the statutory requirements. The calculation of pension provisions at market value must take account of the risk factors present in the area of insurance. This is in part the current interest rate level and FSP's investments in relation to the basic interest rate used, and in part the development of the so-called mortality and disability intensities amongst the customers. The pension provisions come to DKK 17,941 million and these are specified in note 12 to the accounts. Pension provisions DKK m illions 20,000 B onus potential on paid-up policy benfits B onus potential on future premiums 16,000 12,000 Guaranteed benefits 8,000 4,000 0 2003 2004 2005 2006 2007 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=36http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=36Finanssektorens Pensionskasse (FSP) 36 Favourable risk process for those in active employment Financial sector employees represent a favourable risk group, and FSP has therefore been able to allocate DKK 51.8 million in risk bonus in 2007, corresponding to 0.29% of customers' deposits. Risk bonus is a surplus on the pension contributions paid by customers for risk cover (disability and early death). This surplus is the result of fewer people in active employment becoming disabled or dying than had been anticipated in the calculation basis. The risk bonus is credited to customers' deposit accounts individually in proportion to how the funds have been used for covering death and disability. Pensioners do not receive a risk bonus since there is still a deficit in the risk result for these pensioners. This is due to FSP’s customers living longer than had been assumed in the G82 calculation basis. In 2007 there was a risk deficit of DKK 7.2 million following allocation of a risk bonus of DKK 51.8 million. The risk deficit can be divided up into a surplus on disability cover of DKK 34.0 million and a deficit on death cover of DK 41.2 million. Reinsurance In 2006 FSP introduced a reinsurance programme and then renewed the programme in 2007 and 2008. This programme is part of a risk management strategy and it is intended to secure FSP's owners’ equity against major losses on disability and death cover. FSP's owners’ equity and favourable risk group are of such a size and strength that there is no need to cover a major proportion of the loss expenses via reinsurance. The reinsurance programme also includes so-called catastrophe cover, which provides protection for the owners’ equity against events in which a lot of FSP's customers are involved in the same accident. The aim of the reinsurance programme is to secure a stable risk process without any major losses as a consequence of large individual losses or catastrophes. Disputes in 2007 FSP attaches considerable importance to competent and customer-friendly case processing, and this is apparent in the very small number of disputes with its customers. In 2007 FSP was called to the Ankenævnet for Forsikring (the insurance appeals board) for two cases brought before it. During the processing of one case, new information came to light. As a result, FSP conducted a review of the case, which was subsequently concluded. The appeals board ruled fully in favour of FSP in the other case. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=37http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=37Finanssektorens Pensionskasse (FSP) 37 In addition, FSP obtained rulings in three other appeals cases that were brought in 2006, but which were not decided on by the appeals board until 2007. Investment risks Risk analysis for investments As a pension fund with substantial resources, FSP is in a good position to implement the necessary diversifying, thus enabling the company to make long-term investments in order to achieve a good return. There will however always be some risk associated with investing in financial markets. These risks cannot be eliminated, but they must be managed and closely monitored, and this is usually done by establishing limits and benchmarks – both for individual asset categories and the interactions between them. FSP also invests in assets that are able to protect its owners’ equity by providing partial cover for the commitments on the liabilities side. Legislation and the Danish Financial Supervisory Authority set the overall limits for investment opportunities, and in addition to these, FSP’s Supervisory Board has laid down the investment limits for the individual asset categories. FSP’s Supervisory Board will similarly establish a risk tolerance for investments. This risk tolerance is based on being able to give customers a competitive and stable deposit interest rate in the long term, while at the same time protecting FSP's owners’ equity. Based on this tolerance (the risk budget) it is the task of the Finance Department to allocate the investments to the various assets in the best way possible. The Finance Department draws up an investment strategy that is based on the anticipated returns for the year and the risks involved with the various classes of assets, the risk budget. The Finance Department continuously monitors developments in the ratios that determine the risk figures for the individual assets, so that allocation amongst the assets classes can be adjusted to achieve the most effective distribution. Risk figures for the various asset classes are shown in the table on page 30. For 2008, the Supervisory Board has kept to FSP's risk budget for its investments. This is a combination of relatively positive expectation in terms of returns on the equities and a broad degree of latitude as a consequence of the existing owners’ equity/Basic Capital. For 2008, FSP is budgeting on an overall return of 6.0% before tax based on the general assumptions within the industry for returns on the individual asset categories. In the illustration below, these assumptions have also been put into the calculation for 2005-2007 for the purpose of comparison. Efficient margin and FSP’s strategy (using return assumptions for 2008) Anticipated return Risk Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=38http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=38Finanssektorens Pensionskasse (FSP) 38 The Danish Financial Supervisory Authority's risk scenarios As part of the risk management in the Danish Financial Supervisory Authority's risk scenarios, FSP must calculate and continuously report the effect of the most significant financial risk factors for a pension institution, which are as follows: • Interest risks • Equity price risks • Foreign exchange risks and commodities risks • Contracting party/credit risks. Any fluctuation in interest level and structure has an influence on FSP’s returns on bonds and other interest-bearing assets. Following the change-over to the presentation of accounts at market values, the market interest rate has also been of considerable significance for the calculation of pension provisions. In the event of an interest rate fall, FSP will achieve a gain on its portfolio of bonds, though at the same time we will have to increase pension provisions where the pension commitments made are calculated at market value. Conversely, if interest rates rise, then FSP will suffer a loss, while the market value of the pension provisions is reduced. The effect of interest rate changes and a fall in equity prices on FSP's capital based on the Danish Financial Supervisory Authority's amber and red light risk scenarios has been calculated using the current capital structure as at the end of 2007. This is shown in the following sensitivity data table. Sensitivity data table for companies conducting pension activities Event Minimum effect of Basic Capital Maximum effect of collective bonus potential Maximum effect Maximum effect of of bonus potential on applied bonus paid-up policy benefits potential on paidbefore any change to up policy benefits applied bonus potential on paid-up policy benefits 0 1,114 -148 0 -1,247 0 -675 0 -176 0 0 0 0 0 0 -15 -281 -89 0 -3 Interest rate rise of 0.7% Interest rate fall of 0.7% Equity price fall of 12% Property price fall of 8% Exchange rate change of 0.5% Probably over 10 days Loss on contracting parties of 8% Fall in mortality intensity of 10% Increase in mortality intensity of 10% Increase in disability intensity of 10% -69 257 -192 -50 -4 -80 0 58 0 -269 270 -44 FSP’s real estate risks can be regarded in part as an interest rate risk, since real estate is valued on the basis of a market rate of return, and in part as a risk of a fall in prices due to increased vacancy levels or lower demand. In the Danish Financial Supervisory Authority's red and amber light risk levels, 8% and 12% respectively of the market value is used as a risk target. Currency risks associated with FSP's international investments can be divided into bonds and equities respectively. The currency risk associated with investments in foreign bonds is always covered since the currency risk does not make a positive contribution to the relationship between anticipated return and risk. Bonds denominated in euros can be exempted from this principle as a consequence of the historically stable exchange rate between the euro and the Danish krone. For international equities and real estate there may be a positive connection between the currency risk and the anticipated return/risk and this is why FSP only has partial hedging of the floating main currencies: the dollar, the pound and the yen in connection with international equities. This currency risk policy means that FSP’s total currency risk as calculated at both red and amber light levels is low and somewhere in the region of DKK 25 million. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=39http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=39Finanssektorens Pensionskasse (FSP) 39 FSP has credit risks (loss on contracting parties) on bonds other than government and mortgage papers. In recent years FSP has built up portfolios containing company bonds – including High Yield and Emerging Market bonds. In the Danish Financial Supervisory Authority's risk scenarios (traffic lights), these are regarded as less risk-exposed alternatives to investments in equities since the continuous additional income consists of credit spreads which are sufficient payment for the credit risk. The use of financial instruments results in a risk for the contracting party. Where there are particularly large exposures, this risk is covered by the contracting party putting up security. Where this security is put up, it is based on agreements entered into by FSP. These are either the international ISDA agreement or Danish framework agreements in connection with a provision of security. The Danish Financial Supervisory Authority's risk scenarios and Asset Liability Management By the close of 2007, FSP was still firmly in the Danish Financial Supervisory Authority's green light scenario. This position has been maintained by closely following the investments in accordance with the service guarantees and the Danish Financial Supervisory Authority's rules. FSP therefore has a broad latitude for investing in the assets that are more exposed to risks, such as equities, financial contracts for commodities and also Emerging Markets bonds and High Yield bonds. FSP's reserves relative to the Danish Financial Supervisory Authority’s risk levels Recovery plan if below solvency margin requirement 31 December 2007 Red Amber Green Shareholders’ O wners’ O E Equity quity Solvency margin requirement DKK 718 million DKK 1.5 billion from amber light – interest rate fall DKK 2.6 billion from red light – interest rate rise The Supervisory Board has defined the risk tolerance for Asset Liability Management based on the above figures for the Danish Financial Supervisory Authority's traffic light scenarios. This tolerance is calculated and monitored jointly with external collaboration partners. In 2005, FSP decided to change its risk management policy by hedging against the risk of a further fall in interest rates – and thereby protecting FSP's owners’ equity and providing the investment policy with greater freedom. This was done by using swaptions (options on swaps) in euros. This hedging was maintained in 2007. The hedging ensures that owners’ equity is protected against a strengthening of the pension provisions at market value in the event of an interest rate fall. This gives FSP an opportunity, over the next one to two years, to lock in after-tax interest rates (and thereby returns) for the next 20 and 30 years at a level of about 3.25%. The underlying principal sum is equivalent to a little over 70% of FSP’s pension provisions at the end of 2007. Statement of individual solvency requirement The European association of financial supervision authorities is still discussing new draft rules on solvency requirements for insurance and pension, known as Solvency II. In Denmark, new rules on individual solvency requirements were introduced as early as mid-2007 with the first statement at the end of 2007. Over the year the work on the new solvency rules has required considerable input from FSP's employees. The primary goal of stating the individual solvency requirement is to identify and adhere to the Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=40http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=40Finanssektorens Pensionskasse (FSP) 40 company's risks and also to measure the financial effect this has on the company's solvency requirement. Stating the individual solvency requirement is to be regarded as the first step on the way to Solvency II. Solvency I is the solvency requirement that FSP has reported thus far. The introduction of the individual solvency requirement means that FSP must identify and assess the company's individual risks or groups of risks individually. The total of the individual risks then represents FSP’s individual solvency requirement. FSP must report the larger of the two solvency requirements (solvency I and individual solvency requirement). Following identification of FSP’s risks, the management group acted according to the established risks. This includes whether the risks can be covered using existing procedures, whether new procedures need to be worked out, whether capital should be allocated to cover the individual risks, or whether they are irrelevant. The solvency requirement must be reported to the Danish Financial Supervisory Authority at least twice a year and in the event of extraordinary events entailing significant changes to FSP’s risk profile. The statement of FSP’s individual solvency requirement is assessed by an independent auditing institute, PriceWaterhouseCoopers. The assessment of this auditing institute includes the fact that FSP has produced meaningful and valid calculations, that account has been taken of the contribution principle in a reasonable way, and that the documentation satisfies the requirements. Operational risks Business Compliance Assessment of the risk areas also includes operational factors, including FSP’s written guidelines and its IT systems. There is an annual IT audit within FSP, and similarly special statements will have been obtained concerning IT security from FSP's external collaboration partners. In accordance with Section 71 of the Danish Financial Business Act, the Supervisory Board must set out a long series of written guidelines, including business routines, as well as satisfactory control and safety procedures, while at the same time it is the responsibility of the day-to-day administration to ensure that the necessary functional separation is in place within the organisation. These factors are continuously assessed by the Supervisory Board, amongst other things in connection with receipt of the report from the external auditor, and the Appointed Actuary similarly reviews the risks in the area of pensions in her report to the Danish Financial Supervisory Authority, which also forms the basis for consideration within FSP’s Supervisory Board. As a result of the Danish Financial Supervisory Authority's latest enhanced requirements in this area, FSP’s organisational plan was adjusted at the end of 2005/start of 2006 and again at the beginning of 2007. A "Business Compliance" has been established that is intended to ensure implementation of the Danish Financial Supervisory Authority's rules, including the required control routines and functional separations, and a special "Risk Management" has also been set up which, amongst other things, is intended to produce the documentation in accordance with the rules on Individual Solvency (Solvency 1½). In addition FSP has sought, by means of a number of measures, to avoid operational risks and errors. These measures include thoroughly described business routines and control measures with functional separation between the departments. As a fairly small company FSP is vulnerable to staff turnover, so in 2007 the Supervisory Board put in place a special policy for retaining key employees, and faced with a shortage in manpower the management has also directed greater focus on activities aimed at attracting and retaining hardworking and skilled employees, as described in the section on the organisation of FSP. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=41http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=41Finanssektorens Pensionskasse (FSP) 41 FINANCIAL STATEMENTS Presentation of accounts in 2007 In 2007 FSP is presenting consolidated financial statements for the first time. The review of the accounting entries therefore relates primarily to the consolidated financial statements. Consolidated income statement for the year The FSP Group's result for 2007 was a deficit of DKK 213.2 million. The primary reason for this deficit was FSP's adherence to its long-term policy of giving its customers a stable and high deposit interest rate. In 2007 the overall deposit interest rate for the customers was greater than the return on investments. In recent years, however, FSP has built up a solid owners' equity for use as a buffer during years when returns on investments do not completely cover the allocated deposit interest rate. Main accounting figures DKK millions Net profit or loss Total assets Owners' equity Pension provisions Customers 2007 -213 23,060 3,084 17,945 16,693 2006 416 21,622 3,296 17,311 16,410 2005 1,084 20,419 2,881 16,537 15,911 2004 313 17,346 1,796 15,450 15,617 2003 470 15,900 1,482 14,311 15,629 2003 470 15,900 1,482 14,311 15,629 Consolidated balance sheet of over DKK 23 billion FSP’s total (consolidated) balance sheet was DKK 23.1 billion at the end of 2007, making it the highest ever. Of this total balance sheet, investment activities accounted for DKK 22.1 billion without assets in the unit-link scheme, FSP WebLink. On the liabilities side, total provisions came to DKK 18.2 billion, similarly without provisions in the unit-link scheme. At the end of the year, the net asset value of FSP’s subsidiary, FSP Invest F.M.B.A., came to DKK 11.7 billion, as is shown by a separate item under the parent company's assets. B a la nc e s he e t - d e v e lo p m e nt fr o m 1 9 9 0 to 2 0 0 7 D K K m illions 2 5 ,0 0 0 2 0 ,0 0 0 1 5 ,0 0 0 1 0 ,0 0 0 5 ,0 0 0 1992 1994 1996 1998 2004 2005 2007 1990 2000 Annual Report 2007 2002 02008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=42http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=42Finanssektorens Pensionskasse (FSP) 42 Income and expenditure The total net contribution by members was DKK 579 million, representing an increase of 5.6% or DKK 30 million when corrected for FSP's takeover of Sparekassernes Afviklingspensionskasse in 2006. The net income from investment activities fell from DKK 1,090 million in 2006 to DKK 684 million in 2007, though the return can still be described as satisfactory, in view of the conditions in what was a very turbulent investment market in 2007. The increase in the Group's investment expenses was due in part to the growth in the balance sheet, and partly by setting up FSP Invest F.M.B.A. The number of pensioners has continued to grow, with a resultant increase in pension payouts to DKK 530 million in 2007 compared with DKK 501 million in 2006. In 2007, FSP increased provisions for future pensions by DKK 253 million compared with DKK 380 million in 2006. The lower rate of increase in pension provisions was due first and foremost to the increase in interest rates throughout 2007, and the resultant reduction in the strengthening of the provisions at market value. Discount interest rate 4.5% 4.3% 4.1% 3.9% 3.7% 3.5% 07 06 07 07 07 07 20 20 20 20 20 20 pr ug ec ct Fe Ju D A O The total bonus paid to customers was DKK 528 million in 2007, consisting partly of an interest bonus of DKK 389 million, and partly of an increase in FSP BonusKapital (special bonus provision) of DKK 140 million. In 2006 the total bonus was DKK 501 million. FSP's operating costs came to DKK 33 million in 2007 compared with a little under DKK 32 million in 2006. This increase was caused by factors including the continued modernisation of FSP's pension scheme and the increasingly strict statutory requirements. The increase in costs meets the goal of being lower than the increase in customer inflow, balance sheet and the ordinary member contributions, as can be seen from FSP's key cost figures. The sickness and accident results in 2007 showed a deficit of DKK 2.1 million compared with a deficit in 2006 of DKK 1.8 million. This deficit was due primarily to a higher average age of FSP's customers providing a greater than expected increase in the sickness and accident business. Distribution of profits In accordance with the guidelines issued by the Danish Financial Supervisory Authority, FSP must state that the interest bonus rates for 2007 have been set in arrears for the year, and that in so doing an effort has been made to achieve a calm and stable development, which is in accordance with Sections 20 and 21 of the Danish Financial Business Act. Annual Report 2007 A D ec b n 20 072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=43http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=43Finanssektorens Pensionskasse (FSP) 43 With reference to the Danish Financial Supervisory Authority's rules (the Executive Order on Contributions), the actuary has calculated that the realised net income for the year is DKK 434 million. The Supervisory Board has therefore decided to maintain the objective of paying a stable and high deposit interest rate, which will have the result of the owner equity's shadow account in 2007 being increased by a total of DKK 348 million, as stated in note 11 to the accounts. As note 11 also shows, the year's net deficit of DKK 213 million is covered by the owners’ equity. In accordance with the Executive Order on Contributions, FSP has reported to the Danish Financial Supervisory Authority that the owners’ equity bears interest by return ratio 1 (return before pension return tax) plus a so-called risk return, which in FSP is set at 1.5 percentage points for 2007. For 2007, the return on FSP’s owners’ equity (incl. the owner equity's shadow account) can, in accordance with the contribution principles, be calculated at DKK 135 million plus DKK 0.4 million, as can be seen from note 11 to the annual accounts. Furthermore, results from the sickness/accident business has placed a strain on the owners’ equity, just as the equity is used to cover the establishment of new members. Following revaluation of the shadow account at the end of 2007, the owners’ equity is therefore in arrears by a total of DKK 356 million relative to the insurance portfolio. The owners’ equity may successfully cover this lack of return when the realised result provides the opportunity for this. The owner equity's shadow account DKK thousands Shadow account, opening balance + Transferred from/to owners’ equity + Return on shadow account Shadow account, closing balance 2007 8.5 347.5 0.4 356.4 2006 171.3 -177.1 14.3 8.5 2005 847.1 -807.4 131.6 171.3 2004 924.2 -171.3 94.2 847.1 Basic Capital and solvency margin FSP's Basic Capital, consisting of the owners’ equity and FSP BonusKapital, comes to DKK 3,312 million and corresponds to 18.1% of the provisions for pension agreements etc. of DKK 18,282 million. In accordance with the capital requirements for lateral pension funds, the solvency margin by the end of 2007 must be DKK 718 million, equivalent to approx. 4% of the pension provisions. FSP’s Basic Capital therefore covers the solvency margin requirement 4.6 times. Profit creation analysis Profit creation within a pension fund can be divided up into the following four main areas: 1. The difference between the insurance interest rate (basic interest rate plus interest bonus) that is credited to the customers' accounts, and the actual return on investment after pension return tax and investment expenses – referred to as the interest result. 2. FSP's risk result calculated by FSP's actuary according to the technical basis as the difference between the risk premiums included in the members' contributions, and the actual risk expenses plus any paid out risk bonus. 3. The difference between the costs contribution included in the members' contributions, and the actual administration expenses – referred to as the administration result. 4. Items such as a change in special bonus provision, a change in assessment at market value, the technical result of sickness and accident insurance and the result of reinsurance. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=44http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=44Finanssektorens Pensionskasse (FSP) 44 Profit creation DKK millions Return on investment, net Base rate Interest bonus Interest result Risk premiums Risk expenses Risk bonus Risk result Cost supplement Cost bonus Administration costs Administration result Subtotal Allocated to special bonus provisions Strengthening market value Other (SAP) Result from reinsurance Acquired/released underlying schemes Adjustment of domicile property Result from sickness and accident insurance Total profit or loss for the year 2007 590.7 -510.6 -324.5 -244.4 36.1 8.5 -51.8 -7.2 21.5 6.1 -33.1 -5.5 -257.1 -139.6 171.6 -0.2 10.6 0.0 3.4 -2.1 -213.2 2006 951.7 -424.9 -332.5 194.3 35.3 11.0 -47.0 -0.7 21.7 6.2 -31.7 -3.8 189.8 -88.3 285.8 20.4 10.0 0.0 -0.1 -1.8 415.8 Interest result The interest result shows a deficit of DKK 244.4 million. This is because the return on investment in 2007 (net) was 3.3% and 2.9% before and after pension return tax respectively, while the deposit interest rate was 6.5% before tax and 6.0% after tax. Risk result The risk result shows a deficit of DKK 7.2 million after allocation of risk bonus. The risk result as a percentage of the pension provisions was -0.04% in 2007 compared with 0.00% in 2006. Administration result The administration result shows a deficit of DKK 5.5 million. The administration result as a percentage of the pension provisions was -0.03% in 2007 compared with -0.02% in 2006. The cost percentage of premiums is calculated at 5.7%, while the cost percentage of provisions was 0.2%, which is the percentage of the year's total capital return that goes to cover the operating costs within FSP. Result from sickness and accident insurance The insurance result from sickness and accident insurance (critical sickness) in 2007 was a deficit of DKK 2.1 million. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=45http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=45Finanssektorens Pensionskasse (FSP) 45 Result from reinsurance The result from reinsurance is DKK 10.6 million compared with DKK 10.0 million in 2006. The item relates to the result following adjustment of the value of the underlying policies in other insurance companies. Expectations for 2008 In 2008, FSP will continue its activities in order to further improve customer service and then strengthen FSP's position in the finance sector. FSP will also continue with its business collaboration with FSP's member companies, which is subject to the usual market conditions. FSP is budgeting for a surplus of approx. DKK 270 million in 2008, which is based on the established investment strategy and a competitive deposit interest rate. FSP is budgeting for a return on investments of 6.0% before tax. This expectation is based on the social assumptions issued by the Danish Insurance Association and also the socio-economic assessments obtained from economic observers and advisers and compiled by the Finance Department. In 2008, FSP will pursue the strategy aimed at achieving a top-line growth, amongst other methods via an increase in customer numbers. FSP will focus both on existing customers in the financial sector and on trying to attract new customers. The aim is to create further potential for economies of scale. Costs will therefore continue to increase in 2008 as a result of the new activities that are anticipated as a consequence of the increasing demands from the Danish Financial Supervisory Authority, continued development of the pension scheme and strengthening of FSP’s customer service. There have not been any events after the balance sheet date that have had any significant effect on the assessment of FSP and that have not been stated in the report or in a note to this Annual Report. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=46http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=46Finanssektorens Pensionskasse (FSP) 46 SIGNATURES OF THE EXECUTIVE MANAGEMENT AND THE SUPERVISORY BOARD The Supervisory Board and the Executive Management have today discussed and approved the 2007 Annual Report for Finanssektorens Pensionskasse (FSP). The Annual Report has been presented in accordance with legislation affecting insurance companies, including the Danish Financial Supervisory Authority's executive orders. We consider the selected accounting practice to be appropriate, and the Annual Report accordingly gives an accurate picture of both the Group and the parent company's assets, liabilities, owners’ equity and financial position as at 31 December 2007, and also of the Group and the parent company's activities and the Group's cash flow for the financial year 1 January – 31 December 2007. We are furthermore of the opinion that the Management Report contains a true and fair review of developments within the Group and the parent company's activities and economic conditions, and also a description of the most significant risks and factors of uncertainty which may affect the Group and the parent company. We recommend the Annual Report be adopted by the Annual General Meeting. Copenhagen, 12 March 2008 Executive Management Steen Jørgensen Supervisory Board Claus E. Petersen Chairman Michael Budolfsen Deputy Chairman Børge Hansen Birgitte Hagen Jan Steen Jensen Ane Marie Holm Nielsen Knud Pedersen Pia Lærke Petersen Steen Pommeritz Hans Erik Rasmussen Tina Rønfeldt Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=47http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=47Finanssektorens Pensionskasse (FSP) 47 Auditors selected by the Annual General Meeting. THE INDEPENDENT AUDITOR'S REPORT To the customers of Finanssektorens Pensionskasse We have audited the annual report of Finanssektorens Pensionskasse for the financial year 1 January to 31 December 2007, which comprises the statement by Management on the annual report, Management's review, accounting policies, income statement, balance sheet, statement of changes in equity and the notes for the Group as well as the Parent and the consolidated cash flow statement. The annual report has been prepared in accordance with the Danish Financial Business Act. Management's responsibility for the annual report Management is responsible for the preparation and fair presentation of an annual report in accordance with the Danish Business Act. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of an annual report that is free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditor's responsibility and basis of opinion Our responsibility is to express an opinion on this annual report based on our audit. We conducted our audit in accordance with Danish Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the annual report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of an annual report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the annual report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit has not resulted in any qualification. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=48http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=48Finanssektorens Pensionskasse (FSP) 48 Opinion In our opinion, the annual report gives a true and fair view of the Group’s and the Parent’s financial position at 31 December 2007, and of their financial performance and the consolidated cash flows for the financial year 1 January to 31 December 2007 in accordance with the Danish Financial Statements Act. Copenhagen, 12 March 2008 DELOITTE Statsautoriseret Revisionsaktieselskab Søren Dinesen chartered accountant Kasper Bruhn Udam chartered accountant Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=49http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=49Finanssektorens Pensionskasse (FSP) 49 ACCOUNTING POLICIES General information FSP set up a group structure in 2007, meaning it now presents consolidated accounts. The FSP Group presents consolidated accounts in accordance with the rules in the Danish Financial Business Act and the associated Executive Order on Financial Reports for Insurance Companies and Lateral Pension Funds (Executive Order on Financial Reports). Comparison figures have been adjusted accordingly. Consolidated figures for 2006 are therefore comparable with those for the parent company for 2006. Changes to accounting policies applied There were no changes to the accounting policies in 2007. Accounting estimates, general information Determining the accounting value of certain assets and liabilities involves some estimate of how future events will effect such values. The estimates made are based on assumptions considered by Management to be reasonable, but which are uncertain. The actual results obtained may therefore deviate from the estimates. Producing a statement of pension commitments, real estate and unlisted securities involves a particularly high degree of estimation. These estimates are further described below for each of the individual items. Consolidation The consolidated accounts comprise the parent company FSP and FSP Invest F.M.B.A., which is 100% owned. The consolidated accounts are produced by comparing items of uniform content. Internal transactions and outstanding accounts are eliminated. Transactions within the Group Transactions between companies within the Group are made subject to market conditions or on a cost recovery basis and subject to contractual agreement between the companies, except in the case of insignificant transactions. BALANCE SHEET Tangible fixed assets, operating equipment comprises the purchase of smaller items of equipment, office materials and IT hardware. These purchases are entered as expenditure in the year of acquisition under administrative costs. The operating equipment is valued at its acquisition price and depreciated on a straight-line basis over five years, except for IT hardware, which is depreciated over three years. Investment property is valued at its current value calculated using the yield method. The expected future return and the established return requirement has significant influence on valuation. General interest level developments are therefore of significance for the estimates made when ascertaining return requirements. An external valuer has also contributed to this statement, which has been finally laid down by FSP Management. This is a periodic cooperation, which will be repeated as required. Ongoing construction projects are valued at their acquisition prices. FSP's domicile property at Amaliegade 27, has been measured at a reassessed value. In 2007, DKK 80,000 was written of against the domicile property. The depreciation period is 50 years. Capital investments in affiliated and associated companies are measured at their net asset value. Capital investments that are listed are measured at their current value according to the official prices at the end of the year. Official closing prices from OMX Exchanges, Copenhagen, are used for Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=50http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=50Finanssektorens Pensionskasse (FSP) 50 Danish capital investments. Private equity are measured at their current value using accepted methods, including EVCA standards, and they are affected by estimates more than listed securities are. Information about prices etc. that comes to light after completion of the accounts will only be included if this is essential for assessment of the Annual Report. Unit trust units are measured at their current value according to official closing prices from OMX Exchanges, Copenhagen, and also relevant foreign stock exchanges at the end of the year. Danish and foreign bonds are measured at their current value according to official closing prices from OMX Exchanges, Copenhagen, and also relevant foreign stock exchanges at the end of the year. Derivative financial instruments comprise uncompleted forward contracts, futures and swap contracts. Derivative financial instruments are included on the trading date and then valued at their current value. All market value adjustments are made via the income statement. Investment assets linked to unit-linked insurance policies are those assets corresponding to insurance policies, where the policyholders themselves decide on the content of the investment portfolio and therefore bear the investment risk themselves. The assets are measured at their current value according to the official closing prices from OMX Exchanges, Copenhagen, at the end of the year. All financial investment assets are included in the balance sheet on the trading date. Assets and liabilities in foreign currency are included at the official exchange rates on the balance sheet date. Pension provisions are calculated by FSP's Appointed Actuary based on the technical basis reported to the Danish Financial Supervisory Authority and consist of guaranteed benefits, bonus potential on future contributions and bonus potential on paid-up policy benefits. Guaranteed benefits represent the net present value of the benefits guaranteed to the customer, and also the net present value of the expected future administration costs for the insurance, less the net present value of the agreed future contributions paid by the customers. Guaranteed benefits include an estimated amount for covering future benefits resulting from insurance events that occurred during the financial year, but which had not been reported by the end of the financial year. Bonus potential on future contributions includes the net present value of commitments to pay a bonus for agreed contributions that have not yet become due for payment. Bonus potential on paid-up policy benefits includes the net present value of commitments to pay a bonus for the amounts already paid etc. FSP reports the provisions at their current value based on the Danish Financial Supervisory Authority's lifetime-dependent discount rate less 5%. This risk supplement is intended first and foremost to cover uncertainties/estimates in FSP's risk profile, including in particular the pensioners' expected life expectancy. The statement is also based on assumptions concerning FSP's risk and cost profile. Compared with the customers' deposits (the retrospective provisions) life expectancy has been increased by three years. This means that a strengthening has been calculated for some pensioners. Strengthening is similarly calculated for the customers in department B2 that have a settlement interest rate of 4.5%. For the vast majority of pension schemes, the net present value of the pension benefit is lower than the deposit. This results in a bonus potential on future contributions and a bonus potential on paid-up policy benefits. When calculating the size of the provisions, it is assumed that the administration costs involved in administrating FSP's membership base are covered by the expenses deductions on the policies. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=51http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=51Finanssektorens Pensionskasse (FSP) 51 Outstanding claims provisions comprise benefits due from insurance events that have occurred during the financial year, but that have not been paid out or reported by the end of the financial year. Provisions for unit-linked contracts are initially calculated as the individual policy's proportion of the net present value of the linked investment assets. INCOME STATEMENT Member contributions comprise continuous contributions (incl. contributions to unit-linked policies and transfer from Special Pension Savings) paid by financial institutions as part of conditions of employment, one-off deposits and contributions from own payments. Employer contributions are deducted from the member contributions accounting item. Ceded business comprises member contributions given over to other companies and reinsurance companies' shares of the pension benefits. Income from investment property comprises the properties' operating profits excluding market value adjustments, which are entered under the appropriate items. The operating profits do not include rental income from the domicile property. Positive value adjustments on the domicile property are made directly to the owners’ equity and the members' share is transferred directly from the owners’ equity to the pension provisions. Negative value adjustments are made via the income statement. Interest and dividends etc. comprises the payable and earned interest in the financial year, index revaluation of index-linked bonds and dividends. Market value adjustments comprises value adjustments and gains and losses on the sale of investment assets, including financial instruments. Realised and unrealised gains and losses on securities and foreign currencies from the value adjustment of investment assets are included in the income statement and reported as the difference between the value of the asset at the beginning of the financial year plus the weighted average acquisition total for assets acquired during the financial year, and the net present value at the end of the year. Pension return tax comprises tax on the financial year's calculated tax base and a change in provision for deferred pension return tax. Pension benefits on own account (o.o.a.) comprises one-off payments in case of death and retirement, current pension benefits as well as withdrawal amounts o.o.a. less the pension benefits refunded for reinsurance. Change in pension provisions (o.o.a.) comprises the year's gross change in pension provisions less deductions for the proportion for reinsurance. Total bonus comprises the allocated bonuses for the year plus the changes for the year in special bonus provisions. Pension operating costs comprises the administration expenses that can be allocated to the financial year, including charges paid to public authorities and the accounting depreciation on equipment etc. Administration costs are divided between pension activities, investment activities and non-life insurance activities. The division is based on the actual use of resources. Return on investment brought forward contains the proportion of the return on investment that relates to the return on owners’ equity and a proportion that relates to sickness and accident insurance activities. Ratios are worked out in accordance with the associated Executive Order on Financial Reports for Insurance Companies and Lateral Pension Funds. The return ratios are calculated using a moneyweighted method, whereas return per asset type in the returns table is calculated for investment assets using a time-weighted method. In the returns table, foreign currency hedging is divided amongst the individual investment categories. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=52http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=52Finanssektorens Pensionskasse (FSP) 52 BALANCE SHEET Assets Group 2007 2006 DKK DKK millions millions Tangible assets Operating equipment Domicile property 1 Total tangible assets Investment assets Investment properties Capital investment in affiliated undertakings Capital investments in associated undertakings Other financial investments Capital participation Unit trust units Bonds Secured loans Deposits in credit institutions Other Total other financial investments Total investment assets 9 Investment assets associated with unit-linked contracts Recievables Reinsurance share of pension provisions Accounts recievable from members Total recievables Other assets Current tax assets Cash at bank and in hand Other assets Total other assets Prepayments and accrued income Interest recievable Other prepayments and accrued income Total prepayments and accrued income TOTAL ASSETS Parent company 2007 2006 DKK DKK millions millions Note 0.8 40.3 41.1 1.1 35.6 36.7 0.8 40.3 41.1 1.1 35.6 36.7 2 3 3 4 5 6 7 8 1,814.3 384.7 6,802.7 4,286.9 7,886.3 0.6 916.5 49.6 19,942.6 22,141.6 1,698.7 434.1 4,611.0 5,144.8 8,729.6 1.1 52.4 265.2 18,804.1 20,936.9 1,814.3 11,721.7 384.7 2,755.8 4,260.0 667.6 0.6 692.6 33.3 8,409.9 22,330.6 1,698.7 0.0 434.1 4,611.0 5,144.8 8,729.6 1.1 52.4 265.2 18,804.1 20,936.9 109.8 77.3 0.0 77.3 323.8 0.0 323.8 328.3 5.1 333.4 323.8 0.0 323.8 328.3 5.1 333.4 10 10.7 294.8 47.6 353.1 0.0 74.4 29.5 103.9 10.7 205.5 32.9 249.1 0.0 74.4 29.5 103.9 68.6 22.4 91.0 23,060.4 111.4 22.1 133.5 21,621.7 8.7 22.4 31.1 22,975.7 111.4 22.1 133.5 21,621.7 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=53http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=53Finanssektorens Pensionskasse (FSP) 53 BALANCE SHEET Liabilities Group 2007 2006 DKK DKK millions millions Owners' equity Revaluation reserves Retained profits 11 Total owners' equity Pension provisions Guaranteed benefits Bonus potential on future contributions Bonus potential on paid-up policy benefits 12 Total pension provisions Outstanding claims provisions Outstanding claims provisions for sickness and accident insurance Outstanding claims provision on own account Total outstanding claims provisions Special bonus provisions 14 Provisions for unit-linked contracts Total provisions for pension agreements and investment contracts Debt Debt related to pension agreements etc. Debt to credit institutions Current tax liabilities Other debt Total debt TOTAL LIABILITIES Parent company 2007 2006 DKK DKK millions millions Note 1.8 3,081.9 3,083.7 1.1 3,295.2 3,296.3 1.8 3,081.9 3,083.7 1.1 3,295.2 3,296.3 13,349.2 1,638.0 2,953.8 17,941.0 14,578.4 1,274.1 1,455.4 17,307.9 13,349.2 1,638.0 2,953.8 17,941.0 14,578.4 1,274.1 1,455.4 17,307.9 13 3.6 0.0 3.6 227.9 109.8 3.2 0.2 3.4 88.3 77.3 3.6 0.0 3.6 227.9 109.8 3.2 0.2 3.4 88.3 77.3 18,282.3 17,476.9 18,282.3 17,476.9 15 13.4 904.1 0.0 776.9 1,694.4 23,060.4 14.0 736.1 39.5 58.9 848.5 21,621.7 13.4 904.1 0.0 692.2 1,609.7 22,975.7 14.0 736.1 39.5 58.9 848.5 21,621.7 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=54http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=54Finanssektorens Pensionskasse (FSP) 54 INCOME STATEMENT Group 2007 2006 DKK DKK millions millions Parent company 2007 2006 DKK DKK millions millions Note 16 Member contributions Ceded reinsurance contributions Total member contributions o.o.a. 582.1 -3.1 579.0 -20.0 58.8 820.8 -91.2 -39.0 -45.1 684.3 -93.6 590.7 909.5 -3.7 905.8 197.3 54.4 680.5 222.6 -33.6 -30.8 1,090.4 -138.7 951.7 582.1 -3.1 579.0 909.5 -3.7 905.8 197.3 54.4 680.5 222.6 -33.6 -30.8 1,090.4 -138.7 951.7 17 18 Income from affiliated undertakings Income from associated undertakings Income from investment properties Interest income and dividends etc. Market value adjustments Interest expenses Investment management charges Total investment return Pension return tax Investment return after tax -6.4 -20.0 58.8 437.4 287.4 -39.0 -34.0 684.3 -93.6 590.7 19 20 Distributed pension benefits Reinsurance recoveries Change in outstanding claims provisions Total pension benefits o.o.a. Change in pension provisions Change in reinsurer's share Total change in pension benefits o.o.a Credited bonuses for the year Change in special bonus provisions Total bonuses Change in provisions for unit-linked contracts Total pension operating expenses o.o.a Retained investment return TECHNICAL RESULT Technical result from sickness and accident insurance Investment return on owners' equity PROFIT OR LOSS BEFORE TAX Pension return tax for owners' equity PROFIT OR LOSS FOR THE YEAR -548.2 18.3 0.2 -529.7 -231.2 -4.5 -235.7 -410.2 -139.6 -549.8 -32.5 -33.1 -136.9 -348.0 -2.1 158.5 -191.6 -21.6 -213.2 -523.3 18.1 4.1 -501.1 -375.4 -4.5 -379.9 -412.3 -88.3 -500.6 -26.6 -31.7 -240.6 177.1 -1.8 275.5 450.8 -35.0 415.8 -548.2 18.3 0.2 -529.7 -231.2 -4.5 -235.7 -410.2 -139.6 -549.8 -32.5 -33.1 -136.9 -348.0 -2.1 158.5 -191.6 -21.6 -213.2 -523.3 18.1 4.1 -501.1 -375.4 -4.5 -379.9 -412.3 -88.3 -500.6 -26.6 -31.7 -240.6 177.1 -1.8 275.5 450.8 -35.0 415.8 12 12 14 21 22 23 24 25 Contingent liabilities and pledged securities Cash flow statement FSP's management Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=55http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=55Finanssektorens Pensionskasse (FSP) 55 STATEMENT OF CHANGES IN OWNERS’ EQUITY Group 2007 2006 DKK DKK millions millions Changes in owners' equity Opening owners' equity Profit or loss for the year carried forward from the income statement Revenues and expenses directly included in the owners' equity Pension return tax on this Of which transferred to the members Net effect of sums directly included in owners' equity Total income for the year Closing owners' equity Parent company 2007 2006 DKK DKK millions millions 3,296.3 2,880.5 3,296.3 2,880.5 -213.2 415.8 -213.2 415.8 4.8 -0.7 -3.4 0.6 -212.6 3,083.7 -0.2 0.0 0.1 -0.1 415.7 3,296.3 4.8 -0.7 -3.4 0.6 -212.6 3,083.7 -0.2 0.0 0.1 -0.1 415.7 3,296.3 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=56http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=56Finanssektorens Pensionskasse (FSP) 56 NOTES Group 2007 2006 DKK DKK millions millions 1. Tangible assets Operating equipment Opening cost price of operating equipment Admission during the year Divestment during the year Closing cost price of operating equipment Parent company 2007 2006 DKK DKK millions millions 2.8 0.2 0.0 3.0 2.8 0.0 0.0 2.8 2.8 0.2 0.0 3.0 2.8 0.0 0.0 2.8 Depreciation on operating equipment at start of year Depreciation during the year Reversal of depreciation on sold operating equipment Depreciation on operating equipment at end of year Operating equipment, book value at end of year Domicile property Reassessed value at start of year Value adjustment included in owners' equity Depreciation during the year Reassessed value at end of year Total tangible assets 2. Investment property Net present value at start of year Admission during the year Divestment during the year Value adjustment for the year at net present value Net present value at end of year Return percentages Lowest Mean Highest Return percentage on domicile property Weighted mean of return percentages, commercial Weighted mean of return percentages, residential -1.7 -0.5 0.0 -2.2 0.8 -1.2 -0.5 0.0 -1.7 1.1 -1.7 -0.5 0.0 -2.2 0.8 -1.2 -0.5 0.0 -1.7 1.1 35.6 4.8 -0.1 40.3 41.1 35.9 -0.2 -0.1 35.6 36.7 35.6 4.8 -0.1 40.3 41.1 35.9 -0.2 -0.1 35.6 36.7 1,698.7 168.2 -5.5 -47.1 1,814.3 1,422.8 236.7 -35.9 75.1 1,698.7 1,698.7 168.2 -5.5 -47.1 1,814.3 1,422.8 236.7 -35.9 75.1 1,698.7 3.0 % 4.1 % 6.5 % 4.8 % 4.5 % 3.9 % 3.0 % 4.0 % 6.0 % 5.3 % 4.8 % 3.8 % 3.0 % 4.1 % 6.5 % 4.8 % 4.5 % 3.9 % 3.0 % 4.0 % 6.0 % 5.3 % 4.8 % 3.8 % Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=57http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=57Finanssektorens Pensionskasse (FSP) 57 NOTES Group 2007 2006 DKK DKK millions millions 3. Capital investments in affiliated and associated undertakings Afilliated undertakings Book value at end of year 11,721.7 Parent company 2007 2006 DKK DKK millions millions Finanssektorens Pensionskasse owns 100% of FSP Invest F.M.B.A., which runs unit trust activities. As of 31 December 2007, the company had owners' equity of DKK 11,721.6 million and in 2007 it had a deficit of DKK 6 million. The company is based in Copenhagen. Associated undertakings Book value at end of year 384.7 434.1 384.7 434.1 Finanssektorens Pensionskasse owns 32% of Britannia Invest A/S, which invests in British investment property. As of 31 December 2007, the company had owners' equity of DKK 1,203 million, and in 2007 it had a deficit of DKK 82 million. The company is based in Copenhagen. 4. Capital investments Listed Danish equities Listed international equities Private equities Total capital investments 5. Unit trust units 6. Bonds Nominal bonds Index-linked bonds Bonds in foreign currency Total bonds The bonds portfolio's option-adjusted duration is 5.8 years 7. Deposits in credit institutions Amounts on deposit in connection with fund management agreements Margin accounts, futures Other deposits in banks Total deposits in credit institutions Of deposits in credit institutions, the following fall due later than 1 year from the end of the financial year 4,757.7 0.0 3,128.6 7,886.3 5,020.6 446.3 3,262.7 8,729.6 667.6 0.0 0.0 667.6 5,020.6 446.3 3,262.7 8,729.6 1,793.7 2,408.2 2,600.8 6,802.7 4,286.9 1,684.0 1,171.1 1,755.9 4,611.0 5,144.8 767.1 146.4 1,842.3 2,755.8 4,260.0 1,684.0 1,171.1 1,755.9 4,611.0 5,144.8 0.2 0.0 916.3 916.5 75.0 40.6 2.3 9.5 52.4 0.0 0.2 0.0 692.4 692.6 75.0 40.6 2.3 9.5 52.4 0.0 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=58http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=58Finanssektorens Pensionskasse (FSP) 58 NOTES Group 2007 2006 DKK DKK millions millions 8. Other Interest rate swaptions Financial contracts for raw materials Foreign exchange forward contracts Total other 9. Investment assets linked to unit-linked contracts Unit trust units Total investment assets linked to unit-linked contracts 10. Other assets Property assets etc. Other accounts receivable Total other assets 11. Owners' equity Owners' equity according to the owners' equity statement Revaluation provisions at start of year Adjustment for the year Pension return from this Of which transferred to the members Revaluation provision at end of year Capital base Capital base, sickness and accident insurance Capital base, unit-linked contracts Total capital base Capital base as a % of provisions Calculated solvency margin, life assurance Calculated solvency margin, sickness and accident insurance Total calculated solvency margin Shadow account (return on owners' equity) Balance at start of year Annual return Used/allocated Balance at end of year Calculated return on owners' equity Used/allocated Profit or loss for the year Realised profit for the year Parent company 2007 2006 DKK DKK millions millions 14.2 7.5 27.9 49.6 223.1 0.0 42.1 265.2 14.2 7.5 11.6 33.3 223.1 0.0 42.1 265.2 109.8 109.8 77.3 77.3 0.0 0.0 77.3 77.3 25.5 22.1 47.6 16.2 13.3 29.5 25.5 7.4 32.9 16.2 13.3 29.5 3,083.7 1.1 4.8 -0.7 -3.4 1.8 3,281.5 16.0 14.0 3,311.5 18.1 714.5 3.0 717.5 8.5 0.4 347.5 356.4 134.3 -347.5 -213.2 433.7 3,296.3 1.1 -0.2 0.1 0.1 1.1 3,354.6 16.0 14.0 3,384.6 19.4 688.0 2.6 690.6 171.3 14.3 -177.1 8.5 238.7 177.1 415.8 1,057.0 3,083.7 1.1 4.8 -0.7 -3.4 1.8 3,281.5 16.0 14.0 3,311.5 18.1 714.5 3.0 717.5 8.5 0.4 347.5 356.4 134.3 -347.5 -213.2 433.7 3,296.3 1.1 -0.2 0.1 0.1 1.1 3,354.6 16.0 14.0 3,384.6 19.4 688.0 2.6 690.6 171.3 14.3 -177.1 8.5 238.7 177.1 415.8 1,057.0 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=59http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=59Finanssektorens Pensionskasse (FSP) 59 NOTES Group 2007 2006 DKK DKK millions millions 12. Pension provisions Pension provisions Balance at start of year The year's change in provision Transferred to sickness and accident insurance Balance at end of year 0.00% other 1.75% basic interest rate 2.75% basic interest rate 4.50% basic interest rate Balance at end of year Allocation of basic interest rates at end of 2006 Guaranteed benefits Bonus potential on future premiums Bonus potential on paid-up policy benefits Total allocation of basic interest rates Specification of the changes for the year Provision at start of year Accumulated value adjustment at start of year Value of retrospective provisions at start of year Member contributions Crediting of interest Pension benefits Cost supplement after crediting risk bonus Risk gain after crediting risk bonus Premiums for the sickness and accident insurance Transfer to unit-linked contracts Transferred to BonusKapital Assumed/released schemes Other Value of retrospective provisions at end of year Accumulated value adjustment at end of year Pension provisions at end of year Change for the year in pension provisions Credited bonus for the year Change in provisions for the year Change for the year included in income statement Change for the year included in owners' equity Change for the year in pension provisions Other 0.0 Parent company 2007 2006 DKK DKK millions millions 17,307.9 644.8 17,952.7 -11.7 17,941.0 0.0 449.7 16,509.0 982.3 17,941.0 16,530.0 787.6 17,317.6 -9.6 17,307.9 0.0 318.1 15,931.0 1,058.8 17,307.9 17,307.9 644.8 17,952.7 -11.7 17,941.0 0.0 449.7 16,509.0 982.3 17,941.0 16,530.0 787.6 17,317.6 -9.6 17,307.9 0.0 318.1 15,931.0 1,058.8 17,307.9 Group and parent company 1.75% 2.75% 4.50% -360.8 12,733.2 976.8 628.8 1,004.0 5.2 181.7 2,771.8 0.3 449.7 17,307.9 -317.7 16,990.2 550.7 973.2 -547.3 -28.5 7.5 -11.7 -2.2 -137.2 0.0 0.2 17,794.9 146.1 17,941.0 16,509.0 16,530.0 -603.6 15,926.4 889.1 842.5 -518.6 -27.7 0.8 -9.6 -4.0 -88.3 0.0 -20.4 16,990.2 317.7 17,307.9 982.3 17,307.9 -317.7 16,990.2 550.7 973.2 -547.3 -28.5 7.5 -11.7 -2.2 -137.2 0.0 0.2 17,794.9 146.1 17,941.0 I alt 13,349.2 1,638.0 2,953.8 17,941.0 16,530.0 -603.6 15,926.4 889.1 842.5 -518.6 -27.7 0.8 -9.6 -4.0 -88.3 0.0 -20.4 16,990.2 317.7 17,307.9 0.0 410.2 231.2 641.4 3.4 644.8 412.3 375.4 787.7 -0.1 787.6 410.2 231.2 641.4 3.4 644.8 412.3 375.4 787.7 -0.1 787.6 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=60http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=60Finanssektorens Pensionskasse (FSP) 60 NOTES Group 2007 2006 DKK DKK millions millions 12. Pension provisions (continued) Guaranteed benefits Bonus potential on future premiums Bonus potential on paid-up policy benefits Total pension provisions Increase in bonus potential on future premiums Increase in bonus potential on paid-up policy benefits Retrospective provision Parent company 2007 2006 DKK DKK millions millions 13,349.2 1,638.0 2,953.8 17,941.0 -0.6 -145.5 17,794.9 14,578.4 1,274.1 1,455.4 17,307.9 -7.6 -310.1 16,990.2 13,349.2 1,638.0 2,953.8 17,941.0 -0.6 -145.5 17,794.9 14,578.4 1,274.1 1,455.4 17,307.9 -7.6 -310.1 16,990.2 13. Outstanding claim provision relating to sickness and accident insurance o.o.a. Balance at start of year Change in outstanding claim provision Balance at end of year 3.2 0.4 3.6 2.6 0.6 3.2 3.2 0.4 3.6 2.6 0.6 3.2 14. Provisions for unit-linked contracts Balance at start of year Member contributions Crediting of interest Pension benefits Cost supplement after crediting of cost bonus Risk gain after crediting risk bonus Transferred to BonusKapital Transferred from pension provisions Provisions for unit-linked contracts at end of year 77.3 31.4 -1.0 -0.6 0.9 -0.4 0.0 2.2 109.8 50.7 20.4 3.1 -0.6 -0.2 -0.1 0.0 4.0 77.3 77.3 31.4 -1.0 -0.6 0.9 -0.4 0.0 2.2 109.8 50.7 20.4 3.1 -0.6 -0.2 -0.1 0.0 4.0 77.3 15. Other debt Holiday pay commitment Property creditors Derivative financial instruments Tax and charges payable Cost payable Total other debt All debt items fall due in less than 5 years 3.5 43.5 716.9 1.8 11.2 776.9 2.8 35.8 0.0 0.8 19.5 58.9 3.5 43.5 635.4 1.8 8.0 692.2 2.8 35.8 0.0 0.8 19.5 58.9 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=61http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=61Finanssektorens Pensionskasse (FSP) 61 NOTES Group 2007 2006 DKK DKK millions millions 16. Member contributions Current member contributions, member institutions Current member contributions, self-payers Deposits from special pension savings Deposits from Lønmodtagernes Dyrtidsfond Deposits from Sparekassernes Afviklingspensionskasse Settlement pension fund One-off deposits and repayment schemes Employer contributions Total member contributions Insurance with bonus schemes Unit-linked contracts Group life premiums Parent company 2007 2006 DKK DKK millions millions 548.3 24.0 0.8 0.2 0.0 54.0 -45.2 582.1 550.6 31.3 0.2 582.1 522.4 21.0 0.1 16.2 357.5 35.1 -42.8 909.5 889.1 20.4 0.0 909.5 548.3 24.0 0.8 0.2 0.0 54.0 -45.2 582.1 550.6 31.3 0.2 582.1 522.4 21.0 0.1 16.2 357.5 35.1 -42.8 909.5 889.1 20.4 0.0 909.5 All contracts are pension agreements signed as part of conditions of employment. All member contributions come from Denmark, Faroe Islands og Greenland. Distributions of members Members in employment * Members on retirement pension Members on disability pension Members on spouse's pensions Members on children's pensions Total members * Of which dormant members 14,463 1,355 272 451 152 16,693 5,169 14,337 1,178 266 464 165 16,410 5,070 14,463 1,355 272 451 152 16,693 5,169 14,337 1,178 266 464 165 16,410 5,070 17. Interest and dividends etc. Interest on securities etc. Index-adjustment of index-linked bonds Dividends on capital investments Total interest and dividends etc. 279.7 5.0 536.1 820.8 400.6 10.1 269.8 680.5 66.4 5.0 366.0 437.4 400.6 10.1 269.8 680.5 18. Market value adjustments Investment property Capital investment Unit trust units Bonds Mortgage loans Other market value adjustments Total market value adjustments -45.2 -30.9 45.1 -318.1 0.0 257.9 -91.2 81.7 403.4 183.4 -516.7 -0.1 70.9 222.6 -45.2 165.0 45.1 17.7 0.0 104.9 287.4 81.7 403.4 183.4 -516.7 -0.1 70.9 222.6 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=62http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=62Finanssektorens Pensionskasse (FSP) 62 NOTES Group 2007 2006 DKK DKK millions millions 19. Pension return tax Pension return tax Adjustments for previous years Change in deferred pension return tax Pension return tax in return included in income statement Pension return tax included in owners' equity Total pension return tax Tax-free reserves, cf. Section 7 of the Danish Taxation of Pension Schemes Act, proportion of total reserves Proportion of investment assets, from which the return is included in the pension tax basis Parent company 2007 2006 DKK DKK millions millions 94.1 0.2 0.0 94.3 -0.7 93.6 140.9 -2.2 0.0 138.7 0.0 138.7 94.1 0.2 0.0 94.3 -0.7 93.6 140.9 -2.2 0.0 138.7 0.0 138.7 5.7 % 6.1 % 5.7 % 6.1 % 97.4 % 92.4 % 97.4 % 92.4 % 20. Distributed pension benefits One-off payments in case of death One-off payments for retirement pension Retirement pension Disability pension Spouse's pension Children's pension Withdrawal amounts Payments from SP Payments from LD Single person payment Funeral expenses allowance Total distributed pension benefits 6.3 75.5 242.2 49.2 87.1 3.0 82.4 0.5 0.1 1.8 0.1 548.2 6.0 64.5 214.2 48.7 84.4 3.3 101.6 0.4 0.1 0.0 0.1 523.3 6.3 75.5 242.2 49.2 87.1 3.0 82.4 0.5 0.1 1.8 0.1 548.2 6.0 64.5 214.2 48.7 84.4 3.3 101.6 0.4 0.1 0.0 0.1 523.3 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=63http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=63Finanssektorens Pensionskasse (FSP) 63 NOTES Group 2007 2006 DKK DKK millions millions 21. Pension operating costs Remunerations and salaries Meeting expenses Other administative costs Taxes and charges Administrative fees Total pension operating costs Parent company 2007 2006 DKK DKK millions millions 26.4 0.6 5.2 1.2 33.4 -0.3 33.1 26.8 0.1 3.8 1.2 31.9 -0.2 31.7 26.4 0.6 5.2 1.2 33.4 -0.3 33.1 26.8 0.1 3.8 1.2 31.9 -0.2 31.7 Further specification of the above costs Personnel expenses Salary costs Pension expenses Other social security expenses Payroll tax 23.2 3.0 0.1 2.4 28.7 20.9 2.7 0.1 2.1 25.8 23.2 3.0 0.1 2.4 28.7 20.9 2.7 0.1 2.1 25.8 Average number of employees during the financial year Overall expenses for the Executive Management, the Board of Directors, auditors and consultants are made up as follows: Salaries, pension contributions, cars, holiday allowance, etc. for the Executive Management Directors' fees and allowances External consultants (FDC, IT, deputies, lawyer, doctor, etc.) Auditor's fees - Statutory audit, Deloitte - Consultancy work, Deloitte 38 38 38 38 2.6 0.6 15.8 2.3 0.7 14.5 2.6 0.6 15.8 2.3 0.7 14.5 0.8 0.1 0.5 0.4 0.5 0.1 0.5 0.4 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=64http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=64Finanssektorens Pensionskasse (FSP) 64 NOTES Group 2007 2006 DKK DKK millions millions 22. Technical result from sickness and accident insurance Total member contributions o.o.a. Technical insurance interest Compensation expenditure for critical sickness Change in outstanding claim provisions Total compensation expenditure Total operating costs o.o.a. Return on investment Return on insurance provisions Total technical result from sickness and accident insurance Number of compensation pay-outs Average compensation for losses in DKK thousands Compensation frequency 23. Contingent liabilities and pledged securities Registered assets are worth DKK 19,440 million at the end of the year. FSP is not involved in any legal disputes that couls be expected to disrupt the company's financial position. At the end of the year, FSP Pension has issued undertakings to buy unlisted capital investments to a value of DKK 1,328 million. A mortgage loan has been taken out with a term of 30 years and with security in property. The remaining maturity at the end of 2007 is 27½ years. At the end of 2007 the market value of this loan is DKK 904 million. Of the outstanding sum of DKK 904 million, DKK 731 million becomes due for payment in over 5 years' time. Gross positions for derivative financial instruments at the end of the year come to DKK 3,713 million. Parent company 2007 2006 DKK DKK millions millions 11.7 0.1 -12.7 -0.4 -13.1 -0.8 0.1 -0.1 -2.1 118 138 0.8 % 9.6 0.1 -10.3 -0.6 -10.9 -0.6 0.1 -0.1 -1.8 99 136 0.7 % 11.7 0.1 -12.7 -0.4 -13.1 -0.8 0.1 -0.1 -2.1 118 138 0.8 % 9.6 0.1 -10.3 -0.6 -10.9 -0.6 0.1 -0.1 -1.8 99 136 0.7 % Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=65http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=65Finanssektorens Pensionskasse (FSP) 65 NOTES 24. Cash flow statement Paid-in members' contributions Paid reinsurance premiums Paid pension benefits Paid operating costs Purchase and sale of equipment, EDP facilities, cars, etc. Cash flow from pension activities Paid-in from operation of real estate Interest and dividends etc. Net investment in financial contracts Paid costs Cash flow from investment activities Paid labour market contributions Paid pension return tax Cash flow from taxes and charges Cash flow from all activities Net investment in land and buildings Net investment in capital investments Net investment in unit trust units Net investment in bonds Net investment in secured loans Cash flow from net investments Net proceeds from mortgage credit loans Cash flow from financing activities Change in liquid assets Liquid assets at start of year Liquid assets at end of year Liquid assets at the end of the year are specified as follows: Deposits in credit institutes Liquid assets 2007 DKK millions 631.2 -2.6 -542.8 -51.1 -0.2 34.5 57.2 851.2 1,161.9 -45.1 2,025.2 -44.3 -144.5 -188.7 1,870.9 -164.9 -2,218.3 870.5 529.4 0.4 -982.8 196.7 196.7 1,084.7 126.7 1,211.4 2006 DKK millions 945.5 -3.1 -519.6 -27.7 0.0 395.2 54.1 693.7 384.5 -30.8 1,101.5 -42.5 -165.4 -207.9 1,288.9 -194.2 -603.8 -1,459.4 849.7 0.8 -1,407.0 -28.2 -28.2 -146.3 273.0 126.7 916.5 294.8 1,211.4 52.4 74.4 126.7 Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=66http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=66Finanssektorens Pensionskasse (FSP) 66 NOTES 25. FSP's management Supervisory Board Claus E. Petersen Chairman of the Supervisory Board. Managing director, Den Jyske Sparekasse Chairman of the Supervisory Board of Grindsted/Billund Erhvervsinvest III A/S (currently changing name to DJS Erhvervsinvest A/S) and DJS Leasing A/S. Deputy Chairman of Sparinvest Holding A/S. Board member of ID Sparinvest A/S, Sparinvest Fondsmæglerselskab A/S, Amanah Kredit A/S and Lokale Pengeinstitutter. Elected Chairman of the Supervisory Board in 2004, 46 years. Relevant experience and qualifications: Management experience from a number of financial companies. Sector policy experience from the Supervisory Board for Lokale Pengeinstitutter. Extensive experience of banking, finance and investment and also of management and economics. Michael Budolfsen Deputy Chairman of the Supervisory Board. Deputy Chairman of Finansforbundet. Deputy Chairman of Kobæk Strand Konferencecenter A/S. Board member since 2006, 44 years. Relevant experience and qualifications: Directorship experience gained at Spar Nord Bank, Kobæk Strand Konferencecenter and various commercial funds and associations. Sector policy experience from membership of Finansforbundet's Executive Committee. Strategic and policy management experience as Deputy Chairman of Finansforbundet. Negotiation experience as central negotiator in collective agreement negotiations in the financial sector. Banking experience as an adviser to private customers. Birgitte Hagen Development Director, Fionia Bank A/S Board member since 2003, 58 years. Relevant experience and qualifications: Management experience from public and private enterprises and also an MA in management development. Sector policy experience from negotiating teams and working groups under the Danish Employers' Association for the Financial Sector and the Danish Bankers Association. Experience of banking and finance from working as an inspector with the Danish Financial Supervisory Authority, an adviser and as a staff manager at a bank respectively. Directorship experience. Børge Hansen Bank broker. Chairman of the Boards of Directors for Skandinavisk Brandteknik A/S, Baltic Towing Svendborg ApS, Svendborg Bugser A/S, Paper Fantasies DECO A/S and Amico A/S. Board member since 1977 and Deputy Chairman from 2001 to 2006, 64 years. Relevant experience and qualifications: Directorship experience from a number of Danish companies. Experience and significant knowledge of the financial sector. Jan Steen Jensen Capital Advisor, Spar Nord Bankaktieselskab. Board member since 2002, 49 years. Relevant experience and qualifications: 25 years' experience of insurance and pension consultancy in the financial sector, eight of which as an insurance and pensions manager at Spar Nord. Trained to levels 4 and 5 at Forsikringsakademiet and as an investment advisor. Capital Advisor specialising in investment, tax and pensions. Shop steward at Spar Nord. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=67http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=67Finanssektorens Pensionskasse (FSP) 67 NOTES 25. FSP's management, continued Ane Marie Holm Nielsen Department Manager, Spar Nord Bankaktieselskab. Board member since 1981, 58 years. Relevant experience and qualifications: Directorship experience and trade union experience as a former vice chairman at DSfL and as a board member of Nordisk Bankmanna Union. Several years' experience of management and within the banking industry as a department director at Spar Nord. Knud Pedersen Area Manager, Løkken Sparekasse. Board member since 2000, 58 years. Relevant experience and qualifications: Experience of management and finance at a number of banks. Savings bank training supplemented by BCom degree, basic law studies at university as well as vocational courses. Experience of trade union work and pension policies via previous positions as District Chairman and Executive Committee member within DSfL, the Danish national association of savings bank employees, now known as Finansforbundet. Pia Lærke Petersen HR Consultant, Fionia Bank A/S Board member of Fionia Bank A/S Board member since 2003, 41 years. Relevant experience and qualifications: Directorship experience from Fionia Bank. Sector policy experience from earlier membership of Finansforbundet's Executive Committee. Experience of negotiation and conflict management as former shop steward, SU member and district board member. Experience of banking and finance as a former private and business consultant. Steen Pommeritz Assistant Manager, Danske Bank. District board member, Danske Kreds. Board member since 2001, 60 years. Relevant experience and qualifications: Experience of trade union work as a district board member of the trade union at Danske Bank. Experience of project management and IT development. Hans Erik Rasmussen Head of Section, Danske Bank. Board member since 2001, 56 years. Relevant experience and qualifications: District board member, Danske Kreds. BCom in accounting. Experience of organisational tasks. Tina Rønfeldt Bank clerk, Nordea. District board member, Kreds Nordea. Board member since 2002, 45 years. Relevant experience and qualifications: Directorship experience from the district Supervisory Board at Nordea and also as board member of FTF Region Sjælland. Sector policy experience from the pension and insurance committee within Finansforbundet. Several years' experience as a member of Nordea’s cooperation and security committee. Familiarity with international work from participating in Nordea bank's Consultative Committee for Savings & Life products and Private Banking. Management and consultancy experience from working at Nordea. In addition, Finansskolen level 2 plus training in investment, pensions and insurance. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=68http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=68Finanssektorens Pensionskasse (FSP) 68 NOTES 25. FSP's management, continued Executive Management Steen Jørgensen Managing Director of FSP since 1993, 50 years. Board member of Britannia Invest A/S, the association ei invest european retail (and subsidiaries), Ejendomsinteressentskabet Vestervang III and Eqvitec Technology Fund III General Partner ApS. Member of the Board of Representatives for Lån & Spar Bank A/S and Fionia Bank A/S. Delegate of the Annual General Meeting of Spar Nord Bank A/S. Delegate of Købstædernes Forsikring G/S and also Ejendomsforeningen Danmark. In accordance with Section 80 of the Danish Financial Business Act, the Supervisory Board has approved the above directorships of the Managing Director. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=69http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=69Finanssektorens Pensionskasse (FSP) 69 Specification of assets and their returns at market value (DKK thousands) Market value Start of year 1 Total land and buildings 1.1 Directly-owned land and buildings 1.2 Real estate companies 2,903 1,734 1,169 End of year 3,319 1,855 1,464 Net investments Return in % 452 160 292 4.1% 1.1% 8.8% 2 Other subsidiaries 3 Total other capital investments 3.1 Listed Danish equities 3.2 Unlisted Danish capital investments 3.3 Listed foreign capital investments 3.4 Unlisted foreign capital investments 6,822 1,684 305 4,032 801 7,178 1,688 324 4,275 891 276 -136 18 222 172 9.0% 9.8% 12.0% 6.3% 23.5% 4 Total bonds 4.1 Government bonds (Zone A) 4.2 Mortgage bonds 4.3 Index-linked bonds 4.4 Corporate bonds, Investment grade 4.5 Corporate bonds, Non Investment grade and Emerging Markets 4.6 Other bonds 10,903 2,022 5,618 451 967 1,820 25 10,819 687 5,470 390 1,160 1,550 1,562 -173 -1,340 -202 -25 209 -306 1,491 0.5% 3.5% 0.4% -7.5% -0.7% 2.0% 3.0% 5 Secured loans 1 1 -1 -5.3% 6 Other financial investment assets Derivative financial instruments for hedging the net change in assets 7 and liabilities 232 924 683 4.4% 223 14 38 -93.5% The return percentage is stated with monthly time-weighting of returns. Annual Report 20072008-07-09T14:53:54+02:00http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=70http://innovisio.ipaper-cms.dk/FSP/aarsrapporter/AnnualReport2007/?Page=70Finanssektorens Pensionskasse (FSP) 70 Equities and investment certificate portfolio, shown as percentages of industries and regions Denmark Rest of Europe 1.0% 0.9% 9.1% 1.0% 0.9% 0.9% 2.6% 0.6% 0.8% 0.7% 10.3% 28.8% North America 1.1% 0.3% 2.0% 0.7% 0.8% 1.3% 1.4% 1.4% 0.3% 0.3% 6.8% 16.4% South America 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Japan Rest of Far East 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.2% Other Countries 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Not differentiated 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17.8% 17.8% Total Energy Materials Industry Durables Consumer goods Healthcare Finance IT Telecommunications Utilities Not differentiated Total 1.2% 0.4% 10.1% 0.2% 1.3% 4.4% 11.6% 0.4% 0.0% 0.0% 0.3% 29.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6.9% 6.9% 3.3% 1.6% 21.2% 1.9% 3.0% 6.6% 15.6% 2.4% 1.1% 1.0% 42.3% 100.0% Annual Report 20072008-07-09T14:53:54+02:00