ALM. BRAND A/S ANNUAL REPORT 2002 ALM. BRAND A/S ANNUAL REPORT 2002 ALM. BRAND ALM.SUND FORNUFT

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1 ALM. BRAND A/S ANNUAL REPORT 2002 ALM. BRAND A/S ANNUAL REPORT ALM.SUND FORNUFT ALM. BRAND

2 CONTENTS MANAGEMENT GROUP STRUCTURE DIRECTORS REPORT FIVE YEAR HIGHLIGHTS OVERVIEW WELL EN ROUTE TO 2006 NON-LIFE INSURANCE BANKING LIFE INSURANCE OTHER ACTIVITIES EMPLOYEES AND DEVELOPMENT INFORMATION TECHNOLOGY RISK FACTORS INVESTMENTS SHAREHOLDER INFORMATION FINANCIAL REVIEW ACCOUNTS ACCOUNTING POLICIES SIGNATURES AUDITORS REPORT PROFIT AND LOSS ACCOUNT BALANCE SHEET NOTES CASH FLOW STATEMENT FINANCIAL RATIOS DIRECTORSHIPS SENIOR EXECUTIVES GROUP COMPANIES DIRECTORY 1

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4 MANAGEMENT ANNUAL REPORT

5 MANAGEMENT Back row: Jørgen H. Mikkelsen, Else Marie Thorsen, Chr. G. Kjøller, Keld Støvring, Jørgen S. Larsen, Rie Bramsen, Flemming F. Jørgensen, Per Hansen. In the middle: Rolf Dane, Niels Kofoed. Front row: Lone Clausen, Christian N.B. Ulrich, Jørgen Enggaard, Peter Jørgensen MANAGEMENT BOARD BOARD OF DIRECTORS Søren Boe Mortensen, Chief Executive Employed with Alm. Brand since Appointed to the Board of Management in Chief Executive as of December Christian N.B. Ulrich, Chairman Chr. G. Kjøller, Vice Chairman Rie Bramsen, Employee Representative Lone Clausen, Employee Representative Henrik Nordam, Deputy Chief Executive Employed with Alm. Brand since Appointed to the Board of Management 1 January Deputy Chief Executive as of December (CEO of Alm. Brand Bank) Rolf Dane Jørgen Enggaard Per Hansen, Employee Representative Flemming F. Jørgensen AUDITORS Deloitte & Touche Statsautoriseret revisionsaktieselskab KPMG C.Jespersen REGISTRATION Alm. Brand A/S, Skadesforsikringsselskab Registration Number CVR ADDRESS Alm. Brand Huset 7 Midtermolen, DK-2100 Copenhagen Ø Phone: Fax: Web site: almbrand@almbrand.dk Peter Jørgensen Niels Kofoed Jørgen S. Larsen Jørgen H. Mikkelsen Keld Støvring, Employee Representative Else Marie Thorsen, Employee Representative 4

6 GROUP STRUCTURE ALM. BRAND A/S ALM. BRAND FORSIKRING ALM. BRAND LIV OG PENSION ALM. BRAND BANK ALM. BRAND SKADE ALM. BRAND BILKREDIT ALM. BRAND PROVINSFORSIKRING ALM. BRAND PANTEBREVE ALM. BRAND LEASING NON-LIFE INSURANCE LIFE INSURANCE BANKING Dormant or discontinuing activities are not included. GROUP STRUCTURE The Alm. Brand A/S Group is a Danish financial services group consisting of a listed holding company and a number of subsidiaries operating within non-life insurance, banking and life and pension insurance. In addition, the Group operates an investment business in the ordinary course of its operations. 5

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8 DIRECTORS REPORT ANNUAL REPORT

9 FIVE YEAR HIGHLIGHTS 8 GROUP PARENT COMPANY DKK million Total income 5,903 5,892 4,926 4,319 4,235 Underwriting result from life insurance Underwriting result from non-life insurance Profit on banking operations Profit/loss on insurance and banking operations Interest, dividends etc Capital gains and losses Management expenses relating to investment business Transferred investment return on insurance business Profit/loss on investment business after allocation of interest Other ordinary items 76 1, Profit/loss before tax 144 1, Tax Profit/loss after tax 142 1, Minority interests share of profit/loss for the year Profit/loss for the year 136 1, Profit/loss on business in run-off, net of reinsurance Technical provisions, net of reinsurance 13,890 13,475 12,995 10,948 9,241 Shareholders equity 2,885 2,651 3,695 3,677 3,631 Return on equity before tax 5.2% 35.7% 3.4% 3.8% 12.9% Return on equity after tax 5.1% 33.3% 2.8% 3.5% 7.0% Total assets excluding banking operations 18,244 17,877 18,942 18,688 13,963 Assets in banking operations 13,195 12,835 10,703 9,277 10,927 Average number of employees 1,678 1,864 1,790 1,783 1,548 Equity as a percentage of assets excl. banking operations 15.8% 14.8% 19.5% 19.7% 26.0% Profit/loss before tax 136 1, Tax Profit/loss for the year 136 1, Assets 3,395 3,758 5,509 4,849 4,185 Total investment assets 3,085 3,435 4,249 4,064 3,640 Share capital 1,788 1,788 1,788 1,788 1,788 Shareholders equity 2,786 2,594 3,655 3,649 3,620 Debts 586 1,004 1,846 2, Return on equity before tax 5.1% 36.5% 3.4% 3.8% 12.8% Return on equity after tax 5.1% 34.0% 2.8% 3.4% 7.0% Equity as a percentage of assets 82.1% 69.0% 66.3% 75.3% 86.5% Net asset value per share of DKK Dividend per share *) Earnings per share of DKK 80 (rounded to nearest DKK) Share price at year-end *) Price/net asset value *) In the comparative figures , these figures represent the share price and dividend per share, respectively, of the former Alm. Brand Finans A/S. The comparative figures have been restated to reflect the effect of the merger between Alm. Brand Finans A/S and Alm. Brand A/S in 2000 and the acquisition of the non-life portfolios and subsidiaries of Alm. Brand af 1792 G/S in Copenhagen Re is not included in the consolidated figures of the five-year highlights. The company s results are included in other ordinary items.

10 OVERVIEW TOTAL INCOME GROUP PROFIT BEFORE TAX GROUP SHAREHOLDERS EQUITY GROUP DKKm DKKm DKKm Minority interests share Alm. Brand A/S s share RETURN ON EQUITY BEFORE TAX PRICE OF ALM. BRAND A/S SHARES AND NAV PER SHARE MARKET PRICE/NAV 20 % Price/NAV 180 1, NAV per share 0,9 0, ,7 0, , Price 0,4 0, ,2 0, ,

11 OVERVIEW Overview of the key results for 2002 for Alm. Brand A/S, Skadesforsikringsselskab, in this report referred to as Alm. Brand A/S: The Alm. Brand A/S Group posted a pre-tax profit of DKK 144 million as compared with a loss of 1,133 million in The Group s results thus improved substantially relative to The profit was DKK 64 million higher than the profit forecast of DKK 80 million announced at the presentation of the interim accounts. The better-than-expected profit was primarily attributable to value adjustments of bond portfolios and a positive trend in weather conditions in Q Non-life operations reported a pre-tax profit of DKK 5 million. Banking operations reported a pre-tax profit of DKK 101 million. Life insurance operations reported a pre-tax profit of DKK 8 million. The Group s other activities, including reinsurance operations in run-off, activities related to the former Gefion and holding costs, recorded a combined net profit of DKK 30 million. The Group s total income amounted to DKK 5.9 billion. The Group s shareholders equity was DKK 2.9 billion at 31 December Earnings per share was DKK 6, and at a share price of DKK 70 at 31 December 2002 Alm. Brand shares were trading at a price/nav of 56%. The pre-tax profit for the full year 2003 is expected to be around DKK 250 million with a post-tax profit of around DKK 235 million. Turnover is expected to reach DKK 6.3 billion. The Group s non-life operations generated a profit of DKK 5 million. Although better than anticipated taking into account the poor weather, this was, of course, not satisfactory. The profit was adversely affected by approximately DKK 100 million due to the extraordinary weather conditions. In gross figures, the combined ratio was 101, the expense ratio was 26 and the claims ratio was 75. The net combined ratio was 107. The nonlife activities performed favourably with premium income growth at the rate of 6%. The return on equity target is expected to be achieved in The Group s banking operations posted a satisfactory pre-tax profit of DKK 101 million. The performance was affected by considerable growth in the banking group s lending activities, mainly as a result of acquisitions, which improved the interest margin, and increased activity in securities and mortgage deed trading, which drove up fee and commission income. Costs rose 3% relative to Bad and doubtful debts accounted for 0.5% of total loans and guarantees. The Group s life insurance operations yielded a pre-tax profit of DKK 8 million. The life insurance group s profit excludes an amount of DKK 61 million which has been taken directly to equity. DKK 47 million of this amount relates to amounts due in respect of prior years return on equity, whereas the remaining DKK 14 million is a result of changed accounting policies in connection with a change-over to market values. The profit for the year was affected by the very negative equity market trends. However, the life insurance company was in the Danish Financial Supervisory Authority s green risk scenario at 31 December The items in the life and pension company accounts have been stated at market values on the assets side as well as on the liabilities side. Return on the Alm. Brand A/S Group s equity was 5.2% before tax. This was not satisfactory and fell short of the Group s target of achieving a return on equity of at least the money market rate plus 5 percentage points. 10

12 The Group expects a total profit of around DKK 250 million before tax and around DKK 235 million after tax in The expectations include improved results in the Group s non-life and life insurance operations and slightly lower results in banking activities. The expected improved results in non-life activities are partly due to notified premium increases and partly to profitability measures implemented in the commercial and agricultural segments. The earnings forecast of the three business areas may be revised in the event of major changes to economic conditions, interest rate levels, equity prices, bad and doubtful debts, premium levels or the number and frequency of claims. Changes in the competitive environment within the three business areas may also influence profits. GOALS The goals of the Alm. Brand Group are: to create shareholder value each year; to achieve a return on equity before tax of not less than the money market rate plus 5 percentage points; to be among the leading non-life insurers in the Danish market with a market share of at least 13% by 2006; to generate profitable growth in the Alm. Brand Bank Group, enabling the bank to better match the Group s market share in non-life insurance in the longer term; to at least maintain the market share currently held by the Group s life insurance activities; for at least 20% of the Group s customers to be customers of at least two of the Group s principal activities by 2006; for the non-life insurance expense ratio to be below 25% by 2006; to generate an income/cost ratio of 1.50 in the bank; and to at least balance the life insurance expense account; for 90% of customers to say they are satisfied or very satisfied with the Group s service; and for 90% of employees to be satisfied or very satisfied with working at Alm. Brand. 11

13 WELL EN ROUTE TO 2006 BY CHIEF EXECUTIVE SØREN BOE MORTENSEN The year 2002 was in many ways a landmark year for Alm. Brand, offering a challenging beginning for us as members of the new Management Board. NEW STRATEGY One of our first significant initiatives was to define the new Group strategy and goals for where we want the Alm. Brand Group to be in Our new strategy is focused on earnings rather than growth. Accordingly, we have eased our previous growth ambitions and given priority to strong earnings and efficiency. In the future, we will focus on the three Danish business areas: non-life insurance, banking and life insurance. We also decided to wind up Copenhagen Re, our reinsurance arm. This decision entails, among other things, that Alm. Brand A/S will not inject fresh capital into the company. That way, we can prevent any unfavourable developments in this company from adversely affecting the rest of the Group. NEW VALUES The new structure creates the framework for our future. In an effort to ensure that we utilise this framework correctly and efficiently, we launched an in-house project in the summer of 2002 to focus on the Group s values throughout the organisation. The implementation of the new values was initiated in May 2002 with a seminar for managers and executives throughout the Group, and the project has since been rolled out in the entire organisation. It has been a pleasure to experience the enthusiasm with which our employees have taken part in the process and to subsequently receive documentation, by way of surveys, that our employees support these values. We were also very pleased at the outcome of an employee satisfaction survey showing a high degree of satisfaction with Alm. Brand as a place to work. Naturally, there is still room for improvement, but employee satisfaction and enthusiasm are key to achieving our defined goals. And we achieved many good results in In 2002, we changed our legal structure and gathered all of the Group s activities in the listed company to ensure greater transparency and a stronger common foundation for the Group s development. Today, Alm. Brand stands as a united financial business with common goals and strategies. NEW INITIATIVES In addition to making targeted efforts to optimise and to make the Group s existing distribution channels more efficient, we have focused on further developing the distribution of our products and on creating closer and better customer relationships. The new partnership agreement with the Danish Association of Managers and Executives (Ledernes Hovedorganisation) on Internet-based distribution to its members has proved a success and is a concrete example of how we can set up the distribution channels of the future. As regards our partnership with the EDC chain of estate agents, who market our products to their customers, we optimised processes even further in 2002, thereby strengthening the foundation for efficient and customer-friendly distribution. In terms of products, we have 12

14 focused on improving and tailoring our existing products by introducing new, attractive benefits and terms, such as the plus- KUNDE priority policyholder concept and theft by deception cover for the elderly. These initiatives have all been well received, and they have contributed to forging even closer ties with our customers and business partners. In our banking activities, we have made efforts to develop our product range so as to enable us to provide the entire range of financial services demanded by our insurance customers. By offering the right mix of services, we intend to ensure that an increasing number of customers buy all their financial services from the Alm. Brand Group. In addition to continuing to work towards this goal, the bank will defend its position as a savings and investment bank for customers characterised by ordinary common sense. Our segmented customer strategy also comprises an intention of being a provider of financial services to the agricultural segment, but in this area as well we are highly selective and focused on good risk. We need to create better bottom line results in Alm. Brand, and we launched a number of initiatives to this end in As part of these efforts, we carried out a risk assessment of all customer groups in the insurance area on the basis of which selective premium increases were introduced. In this connection, we reviewed our portfolio segments with a view to revising terms and premiums where necessary. The reviews showed that premium increases were necessary in the agricultural and commercial segments. This was not the case for the Group s private segment, and we were thus able to avoid premium increases in this area. RISK MANAGEMENT The Group s risk management is a high-priority area which was further strengthened in The Group made a general review of the non-life portfolio, among other things, to revise the retention/reinsurance ratio. In this connection, we achieved considerable savings, but have also accepted greater retention in several areas. Moreover, the Group established a corporate function to monitor the Group s overall risk. IT We are also in the process of making systematic efficiency improvements in the IT area, and we are continuing the development projects initiated to make the business even more efficient. We started making substantial investments in new technology in 2002 to optimise our business processes and reduce the cost level, and the implementation of the new technology will involve large parts of the organisation in the years ahead. Our IT strategy is based on standard operating systems, as we believe that a company of our size and requirements is better served with competing on customer service and efficient implementation of processes than on developing legacy systems. A simplification of the IT structure will also make it easier and more cost-efficient to outsource parts of the IT function to external IT providers. The housing agreement signed with DMdata in 2002 is a case in point. 13

15 WELL EN ROUTE TO 2006 BY CHIEF EXECUTIVE SØREN BOE MORTENSEN NEW NON-LIFE INSURANCE SYSTEM Tia, our new non-life insurance system, will be implemented in the private customer segment in 2003 and in the other segments and companies by We have strong hopes for the new system, and we look forward to improving our internal processes in step with the implementation, thereby achieving lower costs as well as better customer service. FINANCIAL RESULTS The period until the presentation of the interim report for the six months ended 31 August 2002 was influenced by a number of major weather-related events resulting in a large number of claims. At the same time, the financial markets were negative performers. The exceptional weather conditions adversely affected results from the non-life business by DKK 100 million. Developments in the financial markets significantly impaired results in the non-life business, although the Group s non-life insurance company at no time experienced the so-called red risk scenario as defined by the Danish Financial Supervisory Authority. In connection with the presentation of the Group s interim report for the six months to 30 June 2002, we lowered our profit forecast from DKK 200 million to DKK 80 million as a result of the poor weather conditions and developments in the financial markets. The Group posted a pre-tax profit of DKK 144 million in Owing to a better performance in the non-life insurance segment and handsome capital gains on the Group s bond portfolio at the end of the year, we managed to make good a part of the poor start to the year. In addition to the profit for the year, shareholders equity increased by DKK 61 million relating to amounts due from previous years as a result of the change-over to market values and changed principles for calculating the return on equity. OUTLOOK We will continue to strive to create shareholder value. We retain our strategy of achieving a profit of at least the money market rate plus 5 percentage points. In 2003, we expect to generate a pre-tax profit of around DKK 250 million, some DKK 20 million higher than the above-mentioned return on equity target. We expect a profit after tax of DKK 235 million in In the current year, we will be sharply focused on earnings in every aspect of our business, and we will ensure a high level of profitability in all business areas and segments. On the costs side, we will continue to increase efficiency, and we retain our ambition of reducing our cost level in the non-life segment to below 25% by

16 Tia ensures efficient order processing and enhanced services Tia offers a number of obvious advantages: Our administrative processes have become much more efficient, and the customers will receive a quick and precise service. Carina Holstein, customer consultant with Alm. Brand in the North Zealand city of Hillerød, uses the new management system on a daily basis. If an insurance customer wants to accept an offer on the spot during a house call, she can use her laptop to enter and confirm all relevant information together with the customer. The system then automatically cancels any previous agreements, prints out policies etc. The system makes new demands on the people working at the frontline, such as myself, because everything we put into the system must be 100% correct. But back at the office it saves us a lot of duplicate efforts, which is ultimately for the benefit of all parties involved. We will work on further developing our service concepts and focus on the customer. We aim to increase the share of full-service customers in the Group to the effect that at least 20% of the Group s customers have more than one of the Group s - main products by One of the means to achieve this is to further strengthen our distribution channels, including by establishing additional business partnerships and collective agreements. Our ambition is to enhance our current non-life insurance market share of around 12% en route to 2006, primarily through organic growth. Our aim for the banking area is to better match the Group s share of the non-life insurance market and to support the Group s full-service customer strategy and provide financial products to the Group s vast portfolio of insurance customers. Our ambition for the life insurance area is to retain our current market position, as we expect future growth to take place in Alm. Brand Link. Ongoing improvements of the relationship between products, prices and services will contribute to linking customers even closer with Alm. Brand, thereby making it possible for us to reach our goal of a customer satisfaction rate of more than 90%. These developments will to a large extent be supported by our employees, who are given wide decision-making competences in Alm. Brand s relatively flat organisation structure, enabling us to respond quickly and efficiently to customer requirements. At the same time, we believe that the responsibility thus given to the individual employee contributes to making work more challenging and personally developing, and we will continue to give priority to great employee satisfaction on an equal footing with our other objectives. In the coming year, communication with the company s shareholders and other stakeholders will be a high-priority area. We will continue our efforts to strengthen both the level and frequency of communication concurrently with our other activities. By maintaining a close and active dialogue with the external community, we will also work to optimise the pricing of Alm. Brand shares. We made a large number of important decisions in We are moving in the right direction, and we have the courage and the ambition to continue these developments. I am therefore confident that we will meet our goals. Søren Boe Mortensen Chief Executive 15

17 NON-LIFE INSURANCE Alm. Brand A/S acquired the non-life operations of Alm. Brand af 1792 G/S effective 1 January The acquisition was intended to ensure commercial independence of Alm. Brand af 1792 G/S, to improve the company s business and earnings base, to diversify operational risk, to clarify communication in relation to the company s shares and to enhance the company s ability to attract fresh capital. The new structure and the acquisition of the non-life operations also gave Alm. Brand A/S ownership of the Group s distribution network comprising 42 customer and regional offices, the Group s brands and other assets. The non-life insurance activities are now operated in three companies: Alm. Brand Forsikring A/S and its subsidiaries, Alm. Brand Provinsforsikring A/S and Alm. Brand Skade A/S. The non-life activities comprise the private, commercial and agricultural segments. Alm. Brand Skade A/S writes only personal accident and workers compensation insurance, while Alm. Brand Provinsforsikring A/S primarily writes private insurance. Alm. Brand has built a position as the fourth-largest non-life insurer in Denmark through stable organic and acquisitive growth over a period of several years. The Group seeks to optimise synergies in the performance of all tasks. To this end, sales, customer servicing, product development and similar tasks are solved by common corporate units irrespective of the legal corporate structure. All staff functions serve the entire Alm. Brand A/S Group. GOALS Alm. Brand estimates its market share at 12%. The target for 2006 is to maintain the company s position as one of the biggest non-life insurers in Denmark with a market share of at least 13%. The company aims to achieve this through profitable, organic growth. The earnings target is a return on equity before tax of the money market rate plus 5 percentage points. We expect that a number of cost savings, quality enhancing measures and premium increases already implemented will take full effect from 2003 onwards, enabling us to achieve the earnings target. The target is to reduce the expense ratio to below 25% by This will be achieved, among other things, by expected costs savings from using Tia, our new non-life insurance system, which will be fully implemented by Alm. Brand aims to have satisfied and loyal customers with whom it can develop long-term business relationships. Based on the concept of ordinary common sense, Alm. Brand therefore aims to be known as a trustworthy, reliable and fair insurance company, for the quality of its advisory services and for the speed and fairness with which its handles reported claims. Non-life insurance has some 130,000 private customers under its pluskunde priority policyholder concept, which includes customers who have taken out at least three products with the insurance division. We aim to increase the number of plusk- UNDER by 20% relative to 2002 and to prolong the relationship with such customers by 20%. 16

18 FIVE YEAR HIGHLIGHTS OF NON-LIFE INSURANCE DKK million Gross premiums 3,668 3,465 2,685 2,589 2,482 Premiums, net of reinsurance 3,390 3,227 2,522 2,423 2,369 Investment income on insurance business, net of reinsurance Claims incurred, net of reinsurance 2,692 2,382 2,054 2,318 1,504 Changes in other technical provisions, net of reinsurance Bonus payments and premium discounts Underwriting management expenses, net of reinsurance Change in equalisation provisions Underwriting profit/loss Interest and dividends etc Capital gains/losses Management expenses relating to investment business Transferred investment income on insurance business Profit/loss on investment business after allocation of interest Other ordinary items Profit/loss for the year before tax Tax Profit/loss for the year Profit/loss on business in run-off, net of reinsurance Technical provisions, net of reinsurance 4,170 3,729 3,044 3,369 2,353 Shareholders equity 1, ,196 1,720 Total assets 5,868 7,307 7,266 6,577 6,059 Claims ratio, net of reinsurance 80% 74% 81% 96% 64% Expense ratio, net of reinsurance 27% 27% 32% 30% 27% Net combined ratio 107% 101% 113% 126% 91% Combined ratio net of hurricane 99% 99% Return on equity before tax 1% 10% 3% 15% 19% Return on equity after tax 1% 9% 1% 6% 11% 17

19 NON-LIFE INSURANCE Furthermore, the Group aims for at least 20% of private customers to have products in at least two of the Group s three business areas: banking, life insurance and non-life insurance. Based on customer satisfaction surveys, the Group has defined the target of having at least 90% of customers state they are satisfied with the Group s services. STRATEGY The fierce competition in the insurance market has squeezed prices and faced us with challenges of achieving the targeted organic growth. We are making targeted efforts to contain costs and increase customer loyalty to overcome these difficulties. life insurance customer base and using marketing strategies, product advantages and a changed discount structure. Alm. Brand will primarily benefit from this project in that the estimated life of the customer base will increase. Due to the fierce price competition, Alm. Brand continues to focus on ensuring that prices of products to individual customers are set more accurately and on assuring the quality of new customers. Focus is also on improving claims handling procedures and acceptance policies. In order to reduce distribution costs, the Group seeks to further improve the efficiency of its existing sales channels (sales through brokers, offices and by telephone) and to develop selfservice facilities on the Internet. Means to enhance customer loyalty include making the plus- KUNDE concept more attractive by incorporating additional benefits. At the same time, investing in a new IT system will enable the Group to provide a more pro-active customer service and to automate a number of administrative routines, thereby improving customer service. Less than 10% of the Group s customers are currently full-service customers. In order to achieve the full-service customer target, the Group has implemented a project designed to increase the number of full-service customers based on the non- We expect that Tia, the Group s new non-life insurance system, will make business processes more efficient and improve customer service and product development. The system has been implemented as a customer management system and handles the management of new motor insurance policies. Private insurance products will be transferred to Tia in 2003, and the remaining areas and companies will be finally implemented by When Tia has been implemented, the Group s seven existing insurance systems will have been replaced by one common system. 18

20 Good cover and service to insurance customers Alm. Brand certainly provided a ray of sunshine in the rain. They took care of all the practical matters when our basement was flooded twice last summer because of the torrential rains. Erik and Alba Møller live in Ålborg. Like so many other Danish families, they were personally affected by the unusually poor weather last summer. We had just moved all our insurance policies to Alm. Brand, and today we are happy we took this step. At our age, we have to have things under control, and I can t dare to think what would have happened if we hadn t got all that help. FINANCIAL RESULTS Non-life insurance reported a pre-tax profit of DKK 5 million including health and personal accident insurance. The performance was not satisfactory. We believe that general trends, including intensified competition, will cause insurance customers to switch between insurers more often than before. There were eight weather-related events in 2002, which was an unusually high number, since a normal year has an average of two such events. Apart from the hurricane in 1999, these were the highest weather claims expenses for many years. The extraordinary weather claims had an adverse impact of some DKK 100 million or 3 percentage points on the claims ratio. Premiums Gross premiums were DKK 3,668 million against DKK 3,465 million in 2001, an increase of DKK 203 million or 6%. Adjusted for indexation, portfolio restructuring and notified premium increases, we estimate that we have maintained our market position. Sales performed well in 2002 with a satisfactory volume of business in both the private and the agricultural segments, while the volume of new business in the commercial segment was a disappointment. Sales through Alm. Brand s business partners developed favourably. Although cessation rose slightly, the growth recorded by Alm. Brand is considered satisfactory in a still very competitive market. Claims experience The gross claims ratio was 75% in 2002 and 80% net of reinsurance, which was not satisfactory. Motor insurance saw a satisfactory claims experience, while private insurance and agricultural insurance were affected by large claims and an unusually high number of weather claims. The claims experience in commercial insurance was not satisfactory, among other things because several years of fierce competition has pressured rates to an unacceptably low level, primarily in relation to large customers. Reinsurance costs, which have risen over the past few years, had an adverse impact on the performance. Run-off losses were incurred on the workers compensation portfolio also in Workers compensation insurance, including run-off losses, recorded a gross claims ratio of 89 and of 94 net of reinsurance as compared with a claims ratio, net of reinsurance, of 136 in In the personal accident business, the claims ratio, net of reinsurance, was 59 against 53 in

21 NON-LIFE INSURANCE Expenses The expense ratio, net of reinsurance, was 27, which was unchanged relative to The long-term objective is an expense ratio of less than 25 in Alm. Brand will therefore continue to focus on tight cost control in the years ahead. late The most important distribution channels are still Alm. Brand s brokers, independent brokers and permanent customer servicing staff in the branches. In addition, business partners are important distributors. Combined ratio The gross combined ratio was 101 and 107 net of reinsurance as compared with 97 and 102, respectively, in The combined ratio, net of reinsurance, and net of the extraordinary weather claims, would be 104%. PRIVATE INSURANCE Market conditions The private insurance business maintained a market share of around 12% in 2002, but failed to achieve the targeted growth in the very competitive market. The competitive environment also contributed to unsatisfactory earnings in this business. A number of other players have increased premiums in the segment, effective for Alm. Brand did not increase premiums in this segment in 2002, which we believe will give Alm. Brand a competitive edge in Distribution We succeeded in reaching the sales targets for 2002 despite the adjustments that were made to the distribution power in Customers have not yet begun using the Internet as a major insurance sales channel. However, we believe this channel will develop in the next few years, and we therefore intend to continue to invest in improving the technology and contents of this channel. Premium volume Gross premium income recorded a positive trend considering the competitive market and despite some extraordinary adjustments made to the Alm. Brand Provinsforsikring portfolio to improve earnings. The private insurance business was adversely affected by the large number of weather claims, but otherwise saw a reasonable claims experience. As a consequence of the new legislative rules on liability for damages (EAL), insurers had to increase motor liability insurance premiums effective from 1 July The premium increases offset the higher claims payments which insurers have to make to injured persons under the new legislation. 20

22 Professional claims handling We experienced a very fast and professional claims handling right from our first contact, and even if it was the first time any of us had to cope with a major library fire, everything was under control. Niels Berg, mayor of Hinnerup, a municipality near Århus, was not utterly optimistic when he learnt that the local library had burnt down. An unending number of questions arise once the fire has been put out and clearing starts. How much can we reuse, how much do we have to replace, and what will the price be? We were extremely satisfied with the dialogue we had with and the assistance we got from Alm. Brand. They took control from the start, and problems were solved quickly and satisfactorily. Highlights In 2002, Alm. Brand introduced a senior concept targeting the upper age bracket of the segment. The concept includes Denmark s first theft by deception cover and was very well received. Furthermore, the Group introduced significant enhancements to its pluskunde concept. The Group s business partnerships developed satisfactorily. Highlights included a new partnership agreement between Ledernes Hovedorganisation and Alm. Brand. We expanded our collaboration with the EDC chain of estate agents and invested in web-based support systems to enhance processes and make them more efficient. COMMERCIAL INSURANCE Market conditions Alm. Brand maintained its position in the commercial insurance segment in 2002 despite the tighter customer procedures that were introduced at the start of the year. The small and mediumsized business customer segments recorded low growth while the industrial segment lost market share due to large premium increases. Sales through insurance brokers saw modest, controlled growth after several years of strong growth. Competition remained intense throughout the year. Like most other insurers, Alm. Brand raised premiums in the unprofitable areas of this segment at the end of the year. Alm. Brand aims for profitable growth in the commercial market. Premium increases are tailored specifically to each customer s risk profile and claims performance. Our target of profitable growth is supported partly by a service concept designed to service and thus prolong the life of attractive customer relationships, partly by differentiating prices when writing new business. Alm. Brand has an estimated 10% share of the commercial market. This share is larger for small and medium-sized business customers and smaller for large business customers. Like in previous years, Alm. Brand s strategy does not aim at increasing the share of the industrial market. Distribution Most of Alm. Brand s products to the commercial market are distributed through insurance brokers who also service customers to a large extent. New business written through insurance brokers accounts for just under 20% of the total volume of new commercial business. Products are also distributed through collective agreements and organisations. Premium volume The premium volume developed as expected in In addition to new business and cessation, results in 2002 were especially affected by added premium volume due to premium increases and reduced premium volume due to the restructure of non-profitable business. 21

23 NON-LIFE INSURANCE Highlights We invested many resources in making the commercial segment more profitable in At the start of the year, we gave notice of increased premiums for workers compensation and building/contents cover, and we introduced a general deductible. Furthermore, we adjusted acceptance policies and reviewed major agreements. At the end of the year, we sent out notices of premium increases for AGRICULTURAL INSURANCE Market conditions Historically, Alm. Brand has close ties to agriculture and its organisations, and we seek to maintain and develop these ties through pro-active participation in and dialogue with this industry. With an estimated market share of almost 30%, Alm. Brand is the second-largest provider of insurance to Danish agriculture. The target group includes the entire market segment from hobby farmers and part-time farmers to full-time commercial farmers, specialist farmers and large estates. Distribution The agricultural market is saturated. Alm. Brand is experiencing a high degree of customer satisfaction and thus a high degree of customer loyalty to Alm. Brand. The agricultural market is characterised by sustained, significant structural changes involving a declining number of active farms, which are generally becoming larger and larger. Competitive insurance products, local specialist agricultural insurance brokers and competent claims handling are the reasons why Alm. Brand is perceived as a reliable and professional insurer by the individual farmers as well as by agricultural advisers and associations. Alm. Brand has signed collaboration agreements with producers associations for livestock breeders as well as plant growers. Premium volume The premium volume developed satisfactorily in 2002 considering the competitive market conditions. Highlights At the end of 2002, customers with active farms received notice of premium increases and/or the introduction of a deductible. The primary reasons for these measures were large increases in reinsurance rates and the adverse weather claims performance. A number of measures to improve profitability were also introduced. Like other segments, the agricultural business was affected by many weather claims in The year also saw a number of large fire claims resulting in unusually large claims payments, especially within pig farming. Together, all of these factors resulted in a high claims ratio. 22

24 REINSURANCE CEDED The non-life reinsurance programme for 2002 was entirely based on non-proportional reinsurance. Unlike in previous years, the company increased its retention under several programmes. A higher retention means a lower amount of premiums ceded, but of course also a lower amount of claims collected from reinsurers when losses occur. The programme satisfactorily equalised results for the types of loss reported on individual risks. The part of the programme that protected against large weather claims was not used despite the unusually high weather claims expenses recorded by Alm. Brand in 2002, and all weather claims were thus covered by Alm. Brand s retention. The risk management project provided greater knowledge of Alm. Brand s non-life insurance risks. The analysis showed that Alm. Brand could achieve financial benefits from retaining a larger part of the business without significantly increasing the risk of fluctuations in the underwriting result or the risk of losing capital. As a result, we have changed the reinsurance programme for 2003, generally increasing our retention in all lines. Furthermore, no reinsurance has been taken out for two minor lines. The new reinsurance programme involves significant savings in premiums ceded in 2003 compared with On the other hand, we must expect larger claims expenses, net of reinsurance, if major events occur. Reinsurance rates have risen steeply over the past few years. This has caused Alm. Brand to review its reinsurance programme with a view to optimising its reinsurance strategy relative to the costs involved. For this purpose, Alm. Brand implemented a risk management project for the Group s entire non-life insurance portfolio in the autumn of The project confirmed that large windstorm events involve the greatest risk, and Alm. Brand therefore continues to take out catastrophe cover of up to DKK 3.3 billion under its reinsurance programme. OUTLOOK FOR 2003 We have reported unsatisfactory underwriting results in recent years. A number of measures, including premium increases, portfolio restructuring and new acceptance rules, have been introduced to improve the performance. Furthermore, we have set up a quality assurance function to monitor that all segments, products and distribution channels meet their targets. We expect a pre-tax profit of around DKK 150 million on nonlife insurance operations in 2003 on the assumptions described in the financial review elsewhere in this report. 23

25 BANKING Alm. Brand Bank ranks among the ten largest banks in Denmark. The bank focuses on offering savings, consultancy and financing solutions to selected segments. As part of this goal, the bank offers a wide range of services in car and property finance as well as finance for agricultural customers. The Alm. Brand Bank Group s business activities are distributed on the following areas: Retail banking Wholesale banking Car finance (Alm. Brand Bilkredit A/S) Leasing (Alm. Brand Leasing A/S) STRATEGY The bank aims to retain its position as Denmark s savings and investment bank a position it succeeded in further strengthening in Focus on supporting the Group s strategy of increasing the number of full-service customers, that is, customers who buy both banking and insurance products from Alm. Brand, will be retained. The bank intends to achieve this by expanding the assortment of lending products offered to private and agricultural customers in good financial standing. At the same time, the bank will continue to focus on generating a satisfactory return to the shareholders on the capital invested. In an effort to support this strategy, the bank was restructured in 2002, dividing it into two main areas: retail banking and wholesale banking. As part of the restructuring process, the executives of these two areas were appointed to the bank s Executive Board. In future, the retail bank will concentrate on all the products that form the basis of the bank s share of the full-service customer activities, whereas the wholesale bank will focus on the professional market. The wholesale bank will continue to draw on its expertise within stockbroking, asset management, mortgage deeds and investment properties to contribute to the bank s results, while supporting the retail bank and its subsidiaries, Alm. Brand Bilkredit A/S and Alm. Brand Leasing A/S, to ensure that the bank has a satisfactory loan-to-deposit ratio. FINANCIAL RESULTS The bank performed satisfactorily in 2002, posting a pre-tax profit of DKK 101 million. The results are attributable to several factors. The bank generated profitable growth in its core areas, primarily in the lending area. In addition, the bank s trading activities, that is, trading in mortgage deeds and retail stockbroking, contributed favourably to results. Net interest and fee income rose by 8% from DKK 406 million to DKK 440 million. The increase reflected higher interest income generated by substantially higher lending and sustained growth in activities in the fee and commission-based areas such as trading in securities and mortgage deeds. Costs amounted to DKK 313 million in 2002 relative to DKK 289 million in 2001, equivalent to an increase of 8%. If the 2001 figure is adjusted for the DKK 14 million reversed write-down on properties, the increase would be 3%. Provisions for bad and doubtful debts charged to the profit and loss account totalled DKK 48 million. This was an increase of DKK 30 million over 2001 and reflected an increase in provi- 24

26 Benefits to full-service customers We want to give our customers a good experience and because we are a financial business we must be competitive in terms of products, prices and service. Anne Guldborg is a private banking consultant at Alm. Brand Bank. She is in regular contact with customers to provide information on specific financing and investment opportunities. And the personal service is just one of the benefits that make an increasing number of the Group s insurance customers choose Alm. Brand Bank. I regularly receive calls from insurance customers who ve been referred to the bank because they want to schedule an informal meeting to discuss their overall banking and insurance needs. Experience shows that we re quite often able to offer a competitive solution comprising the entire range of Alm. Brand s financial services. sions due both to the acquisition of a loan and leasing portfolio from GE Capital Bank totalling DKK 1.3 billion and to the growth in the bank s portfolio of unsecured consumer loans. Provisions for bad and doubtful debts charged to the profit and loss account in 2002 accounted for 0.5% of total loans and guarantees, an increase of 0.3 percentage points over The bank raised supplementary capital of DKK 300 million in 2002, which substantially strengthened its capital base. At 31 December 2002, the total capital base was DKK 1.1 billion with a solvency ratio of 12.6%. The bank issued commercial paper worth DKK 100 million in Total provisions break down on 81% A provisions (provisions to meet a likely loss) and 19% B provisions (for which a loss is deemed to be unavoidable, but the amount of the loss cannot yet be made up). BALANCE SHEET Loans and advances amounted to DKK 8.7 billion at 31 December 2002 as against DKK 6.8 billion the year before. This reflected an increase of DKK 1.9 billion or 26% attributable to the acquisition of the GE Capital Bank portfolio and to increased lending for investment properties and mortgage deeds. RETAIL BANKING Offering a wide and in recent years gradually expanding range of banking products, the retail bank targets the private and agricultural customer segments. The retail bank offers attractive solutions to customers in good financial standing. The Group has approximately 70,000 private customers. The customers are served through the Alm. Brand Group s 42 customer offices and the bank s customer service centre. In addition, an increasing number of customers use the bank s selfservice facilities: netbanking, mobile banking, ATM and telephone services. Deposits in the bank also grew in 2002, but in a competitive market with very small margins. Deposits rose from DKK 8.2 billion at 31 December 2001 to DKK 9.1 billion at 31 December 2002, equivalent to an increase of DKK 0.9 billion or 10%. Goals and strategies The retail bank aims to contribute to the Alm. Brand Group s overall objective of profitability and growth, for instance, by increasing the number of full-service customers in the Group. The bank made repo/reverse transactions in 2002, and this impacted both lending and deposits in the amount of DKK 0.4 billion. The retail bank is well-positioned in the savings and investment areas. We aim to strengthen the bank s profile in relation to private customer lending and to create strong customer relationships through highly qualified advice. Moreover, we aim for the retail bank to achieve a growth rate that outperforms the general market. 25

27 BANKING FIVE YEAR HIGHLIGHTS OF BANKING DKK million Interest income Interest expenses Net interest income Net fee and commission income, dividends etc. Net interest and fee income Value adjustments Other operating income Profit on financial operations Total costs Net provisions for bad and doubtful debts Value adjustment of participating interests Profit before tax Tax Profit for the year Minority interests share of profit for the year Total assets 8,655 6,848 5,789 5,261 4,947 Loans and advances 9,091 8,244 8,639 7,852 7,680 Minority interests Shareholders equity Subordinated debt Total assets 13,195 12,835 10,703 9,277 10,927 Net interest margin 2.6% 2.5% 2.5% 2.6% 2.4% Return on equity before tax 12.9% 15.0% 8.6% 9.7% 9.1% Return on equity after tax 13.8% 8.3% 5.7% 6.7% 7.8% Income/cost ratio Write-off and provisioning ratio 0.5% 0.2% 0.4% 0.2% 0.1% Solvency ratio 12.6% 9.4% 11.1% 11.2% 10.1% The retail bank s strategy is to provide attractive products offering customers unique benefits in the selected market segments. The retail bank is pursuing a multi-pronged distribution strategy that covers branches, business partners, customer service centres and self-service facilities. deposits in the retail bank totalled DKK 7.4 billion at 31 December In 2002, the retail bank s lending grew by more than DKK 400 million to more than DKK 800 million at 31 December Growth was distributed evenly on a number of lending areas, the most significant increase being recorded on home loans. Highlights The bank launched two major deposit campaigns in The campaigns were successful despite keen competition in the market and the generally very low level of interest rates, and Unsecured consumer loans is a relatively new business area, which also performed satisfactorily in 2002, recording substantial growth and a satisfactory loss ratio. 26

28 The agricultural department The bank set up an agricultural department in 2001 to ensure that Alm. Brand would be capable of offering a full range of financial products to its agricultural customers in the future. The majority of the bank s new agricultural customers are already insurance customers with Alm. Brand. The bank is co-owner of DLR Kredit A/S and provides DLR mortgage loans to agricultural customers. This partnership developed favourably in The wholesale bank s strategy is to provide attractive products offering customer benefits in the selected market segments. We aim to achieve competitive strength in the market by offering competitive products and avoiding unprofitable segments. Alm. Brand Børs Alm. Brand Børs and asset management increased the number of assets under management in 2002, while achieving satisfactory results in share, bond and currency trading. Alm. Brand Invest The investment area remained in focus in 2002, especially the Alm. Brand Invest unit trust, with which the bank collaborates closely. In August 2002, Alm. Brand Børs signed an asset management contract with the other companies of the Alm. Brand Group resulting in a considerable share of the Group s assets now being managed by Alm. Brand Bank. In 2002, Alm. Brand Invest s total assets increased by 37% to DKK 1.4 billion distributed on more than 10,000 members. Growth in Alm. Brand Invest was substantially above the general growth rate in the unit trust market, and it was achieved in a difficult market characterised by falling share prices. The growth rate in Alm. Brand Invest is partly owing to refinancing of the bank s pension pools which were discontinued in 2002 to increase transparency for the pension savers. WHOLESALE BANKING The wholesale bank is responsible for the banking group s activities within bond, share and currency trading and research and asset management. In addition, the wholesale bank handles lending, primarily relating to mortgage deed and investment property commitments. Alm. Brand Børs provides advisory services to professional investors and advisory and other services to private customers. Investors are offered a broad range of products for the active and targeted management of their financial assets. Goals and strategies The wholesale bank aims to be the best wholesale bank in Denmark by providing a unique and different management and service offering. The aim is furthermore to expand the wholesale bank s position through organic growth in 2003 while remaining focused on the savings and investment areas. Alm. Brand Børs has maintained its certification to the Global Investment Performance Standard (GIPS), which was initially obtained in February 2002 for all portfolios under management. The GIPS certification ensures objective assessment and benchmarking of returns etc. Mortgage deeds The bank has specialised in mortgage deed trading, financing and management on behalf of investors, thereby gaining considerable expertise in the area. Today, the bank is one of Denmark s largest players in this area in terms of turnover. The bank recorded substantial turnover in mortgage deed portfolios in Coupled with growth in the volume of financing provided to investors, this has helped to enhance profits. The bank successfully continued to purchase mortgage deeds to an extent enabling it to meet investor needs. The mortgage deeds originate from the bank s partnership with the EDC chain of estate agents and purchases in the wholesale market, respectively. Investment property The investment property department specialises in financing prime-location properties mainly used for retail or residential purposes. During the year, the department expanded its competences in the cooperative residential area, and recorded handsome growth rates in all areas. 27

29 BANKING The selection of investment properties is based on location and the creditworthiness of the customer purchasing the property. Growth was thus achieved while maintaining the bank s restrictive credit policy in the area. ALM. BRAND PANTEBREVE A/S As a result of the continued keen interest in mortgage deed investments, we once again experienced a need to increase the share capital in the listed company Alm. Brand Pantebreve A/S in Accordingly, a share issue was successfully carried through in the spring of The listed B share capital was increased by DKK 35 million nominal value to DKK 85 million, bringing the company s total share capital to DKK 105 million, consisting of DKK 20 million unlisted A shares held by Alm. Brand Bank and DKK 85 million B shares. The capital increase was made with pre-emption rights to existing shareholders at the ratio of 1:2, and the bank saw considerable interest from both existing and new shareholders. The number of registered B shareholders consequently rose to 531 at 31 December The share is preferred by customers demanding professional management and risk diversification on their mortgage deed investments. In 2002, Alm. Brand Pantebreve posted a pre-tax profit of DKK 11 million, equivalent to a return on average shareholders equity of 10%. ALM. BRAND BILKREDIT A/S Alm. Brand Bilkredit is a wholly owned subsidiary of the bank providing car loans to private and corporate customers, primarily through business partners. Recent years growth has been generated through new business and by acquiring various car loan portfolios. The volume of new business is related to the sale of cars in Denmark. After several years of declining car sales, sales of new cars went up in Despite the hike in 2002, sales of new cars remained substantially below the level that prevailed in the late 1990s. Goals and strategies The company aims to consolidate its current position as an important player in the Danish market for car finance. We believe the company s shares provide a good supplement to an existing long-term investment which emphasises an appropriate diversification of the interest-bearing and the sharebased investments in agreement with the customer s individual risk profile. Our strategy is to offer competitive financial solutions to business partners (such as the Semler Group) and customers and to limit credit risk as much as possible through a selective credit policy. 28

30 Agricultural finance a new focal area for the bank Although the agricultural segment has experienced some difficult conditions for a number of years, it s still possible to make a business from offering agricultural finance if you play your cards right. Peter Oscar Christensen, head of agricultural operations at Alm. Brand Bank, amplifies his statement with buzz words such as industry expertise, proximity and competitive prices. Our financial advisors have all worked with the agricultural segment before, and they know what it takes to run a professional agricultural business. We also make a virtue of knowing our customers well, and we always visit the farms before making any further commitments. We focus on the situation of the individual farmer, and our strength is that we offer tailored solutions to farmers. The company s lending increased from DKK 1.9 billion at 31 December 2001 to DKK 2.4 billion at 31 December Highlights In August 2002, Alm. Brand Bilkredit acquired a DKK 1.1 billion car loan portfolio from GE Capital Bank, which increased the company s total assets by approximately 60%. The conversion of the portfolio to Alm. Brand Bilkredit s systems and the subsequent case management proceeded satisfactorily. The portfolio performed in line with expectations. ALM. BRAND LEASING A/S Alm. Brand Leasing is a wholly owned subsidiary of Alm. Brand Bank primarily offering car lease services to corporate customers. Historically, Alm. Brand Leasing has provided car and office equipment leases through business partners. In addition, Alm. Brand Leasing has offered car leases directly to companies with large car fleets. Goals and strategies Alm. Brand Leasing aims to cover the financing requirements of financially sound companies for car lease services and to be an active leasing partner for professional leasing intermediaries. Alm. Brand Leasing extended its close partnership with a number of car suppliers in Direct sales to major car fleet customers were also strengthened and scaled up in Highlights In August 2002, the company acquired a DKK 200 million leasing portfolio from GE Capital Bank, equivalent to an increase in the company s total assets of approximately 26%. The portfolio performed in line with expectations. OUTLOOK FOR 2003 The Alm. Brand Bank Group expects a pre-tax profit of around DKK 85 million for We expect stable growth in deposits in the retail bank in 2003 while continuing the favourable trend in lending to private and agricultural customers. We expect the profit for 2003 to increase over the profit generated in 2002 while making investments in the banking group s full-service customer project. We expect to generate growth in lending in the wholesale bank in 2003 while maintaining our conservative risk profile. At the same time, the stockbroking and asset management areas are expected to yield a satisfactory return to customers. We expect the wholesale bank to generate earnings short of the 2002 level, among other things as a result of lower earnings in the mortgage deed area. Activity in the leasing and car finance areas in 2003 is expected to be on a par with However, we anticipate a higher profit due to increased efficiency. The company s lending fell from DKK 850 million to DKK 825 million at 31 December

31 LIFE INSURANCE The life and pension activities of the Alm. Brand Group are organised under one business unit. Life insurance, pension insurance and health and personal accident insurance activities are handled by the Alm. Brand Liv og Pension A/S insurance company, whereas pension savings activities are handled by Alm. Brand Bank. The pension market consists of three types of schemes: Individual schemes without restrictions that may be paid by companies or by private individuals; Mandatory or voluntary corporate schemes for which employees are covered by a pension agreement between the company and a pension provider; and Labour market-related schemes for which membership of a particular pension company or pension fund is mandatory. FOCUS The life group focuses on individual schemes and partly on corporate schemes. The target groups are private individuals, farmers and owners and employees of small businesses who are offered a targeted corporate pension concept. The life group has opted not to offer actual labour market pensions. Personalised advice, freedom of choice and transparency are key concepts for all target groups. The product range comprises insurance cover and various types of savings, The most important types of insurance are death cover, disability cover and critical illness cover, whereas savings comprise capital pension plans, instalment pensions and annuity schemes. Pension savings may be completely optional in accordance with individual customer needs and requirements and may be placed with the life insurance company or with Alm. Brand Bank. The customer may choose between the bank s individual pension accounts with free investment choice or Alm. Brand Link, Alm. Brand s unitlink-resembling product. DISTRIBUTION The products are distributed partly through insurance brokers and specialists attached to the Alm. Brand Group and partly through a number of business partners. MARKET SHARE In terms of contributions made on tax-deductible insurance contracts, the company s market share in the selected segments is estimated to be almost 5%. In the private customer segment, pension contributions have so far been distributed evenly on banking and insurance products. This picture is changing. The market trend is moving towards increased freedom of choice in pension investments. This means that most insurance providers have introduced unitlink or similar schemes, and interest in these products is growing. We therefore expect to see a shift in market shares towards bank-based and unitlink-based savings. Historically, the share of traditional bank-based savings has been negligible in the market for labour market pension and corporate pension schemes. GOALS The Executive Order on the Contribution Principle issued by the Danish Financial Supervisory Authority lays down the guidelines for return on equity. Based on these guidelines, we aim for a return on equity before tax in Alm. Brand Liv og Pension corresponding to the company s investment return before tax on pension investment returns (equivalent to the official financial ratio) plus a risk premium (entrepreneurial profit) of 4.0 percentage points for equity stakes up to two times the solvency margin and 2.0 percentage points for equity stakes in excess thereof, and 20% of the risk and expense results for portfolios with bonus entitlement. Moreover, the result of portfolios without bonus entitlement is added. These portfolios cover health and personal accident insurance and annuities without bonus entitlement. 30

32 FIVE YEAR HIGHLIGHTS OF LIFE INSURANCE DKK million Gross premiums Premiums, net of reinsurance Investment return after allocation of interest Claims incurred, net of reinsurance Change of life insurance provisions, net of reinsurance Change of collective bonus potential 22 1, Underwriting management expenses, net of reinsurance Underwriting profit/loss Transferred investment return Profit before tax Tax Minority interests share of profit for the year Profit for the year Technical provisions, net of reinsurance 9,720 9,470 9,677 7,580 6,888 Group shareholders equity Alm. Brand A/S proportion of shareholders equity Total assets 11,125 10,735 10,898 8,624 7,906 Ratios for the life insurance companies: Return before tax on pension return 3.6% 2.0% 6.6% 6.3% 8.1% Return after tax on pension return 3.3% 1.9% 5.4% 6.3% 7.2% Return after adjusted tax on pension return 3.3% 2.0% 5.3% 6.4% 7.2% Expense ratio 10.2% 10.3% 14.1% 11.8% 11.2% Expenses stated as interest margin 0.7% 0.9% 1.3% 1.0% 1.1% Expenses per insured (rounded to nearest DKK) Expense result 0.23% 0.39% 0.02% 0.09% 0.41% Risk result 0.32% 0.75% 0.50% 0.44% 0.51% Bonus reserve 0.0% 0.3% 13.5% 8.0% 5.7% Equity reserve 4.1% 3.4% 4.5% 5.5% 3.1% Solvency ratio 185% 170% 189% 210% 166% Financial ratios include health and personal accident insurance. It should be noted that the Executive Order on the Contribution Principle issued by the Danish Financial Supervisory Authority comprises guidelines on when the risk premium may be included in the profit for a specific financial year. In simplified terms, the allocation of risk premium requires an investment return in excess of around 3.75%, which is the average rate of interest the pension guarantees provided to customers are based on. If the investment return does not permit allocation of a risk premium, the shortfall in return on equity may be taken to a shadow account. The shadow account may be regarded as an investment return receivable, which may be transferred to shareholders equity as and when permitted by subsequent years financial results. The aim is to at least balance the expense results while keeping the company s expense loading competitive. 31

33 LIFE INSURANCE The aim is furthermore to achieve positive insurance risk results. Over the past five years, the average risk result has been approximately 0.5% relative to life insurance provisions. In order to ensure a positive risk result, we maintain an acceptance policy requiring disclosure of personal health information, while at the same time limiting the subjective risk through limiting the risk at the personal customer level. STRATEGY In 2003, Alm. Brand will seek to expand its position as an attractive pension provider focusing on personal advice and freedom of choice across the traditional lines of business. This expansion will take place through the continued development of product packages with a high degree of automation and accessibility, including via the Internet. The life group continues to write new business and to raise existing insurances on a guaranteed basis, but only based on a 1.5% computation interest. At policy level, reduction of the insurance risk net of reinsurance takes place by reinsuring risks in excess of a predetermined retention. In addition, events are hedged in which several persons may be injured at the same time (cumulative risk). In some areas, the life group has chosen, based on competitive or financial considerations, to use business partners instead of offering the products/services in-house. Hospital insurance, for instance, is offered through International Health Insurance. The life group is co-owner of Forenede Gruppeliv (FG), a management company owned jointly by a large number of insurance companies. FG manages the group life insurance portfolios of the life group, but the life group s share of FG is taken directly to Alm. Brand s profit and loss account and balance sheet. FINANCIAL RESULTS The overall profit before tax amounted to DKK 8 million excluding DKK 10 million relating to health and personal accident insurance. The items in the 2002 accounts have been stated at market values. The financial consequences of these changes are described below and in the accounting policy section. The 2002 profit represents a proportionate share of the company s investment return before tax on pension investment returns plus the result of portfolios without bonus entitlement (excluding health and personal accident insurance). The risk premium for 2002 has been transferred to a shadow account in order for the amount to be recognised after 2002 when permitted by the financial results of the life group. Annuities without bonus entitlement adversely affected results by DKK 23 million, of which a single extraordinary increase in provisions due to increased life expectancy accounted for DKK 12 million. This corresponds to an increase of approximately 4% for this portfolio. Premiums Premium income, net of reinsurance, fell by 6% from DKK 705 million in 2001 to DKK 664 million in The decline is primarily a result of a change in the quota distribution in Forenede Gruppeliv, leading to a DKK 31 million drop in Alm. Brand s share of premium income. Composition of profit The result of the life group is based on the expense result, the risk result and the investment return. The expense result, which expresses the difference between expense loading and expenses incurred, amounted to DKK 22 million. The expense ratio (expenses as a percentage of gross premium income) was 10.2% relative to 10.3% the year before, and the expense per individual insured amounted to DKK 558 against DKK 600 in The overall expense result was satisfactory. The risk result, the difference between risk premiums and claims expenses, amounted to DKK 30 million. The figure consists of the DKK 53 million surplus on death cover and the DKK 23 million loss on disability cover. The overall risk result was satisfactory. 32

34 The reinsurance result amounted to DKK 16 million, which was a direct consequence of the loss in the life portfolio of disability cover. Reinsurance is effected jointly for the life insurance and the health and personal accident insurance portfolios, and therefore the result must be seen together with the reinsurance loss for health and personal accident insurance of DKK 8 million in The return on investment assets before tax on pension investment returns was 3.6%. The overall investment result was unsatisfactory due to the substantial drop in share prices in INVESTMENT RETURN Average amount of Return DKKm capital tied up Return ratio maining effect of the accounting policy change was distributed between shareholders equity and the collective bonus potential at losses of DKK 2 million and DKK 30 million, respectively. With effect from 1 January 2002, insurance provisions have been recorded at market value. The effect of the accounting policy change was distributed between shareholders equity and the collective bonus potential at 1 January The collective bonus potential stood at DKK 0 at 31 December At 1 January 2002, the collective bonus potential was revalued by DKK 48 million as a result of accounting policy changes in insurance provisions. The bonus reserve amounted to 0% at 31 December 2002 as against 0.3% the year before. Bonds 7, % Shares 1, % Property 1, % Other items 20 Total 10, % The rate of interest paid to customers pension savings in 2002 was 4.5% after tax on pension investment returns. Insurance benefits Benefits paid in the year amounted to DKK 619 million against DKK 678 million the year before. The decline in benefits paid was primarily a result of a change in the quota distribution in Forenede Gruppeliv, leading to a DKK 45 million drop in Alm. Brand Liv og Pension s share of benefits paid. The increase in gross life insurance provisions was DKK 373 million. Balance sheet items The change-over to market values for bonds resulted in writedowns totalling DKK 69 million relative to the book value at 31 December Part of these write-downs had been included in the life insurance provisions made in 2001, whereas the re- Shareholders equity As at 31 December 2002, the life group s shareholders equity was DKK 826 million, excluding health and personal accident insurance. Due to accounting policy changes in insurance provisions, shareholders equity was revalued by DKK 16 million at 1 January In connection with the change-over to market values and the adjustment of the rules on the future return on equity, Alm. Brand Liv og Pension can make adjustments to prior years returns on equity. This adjustment amounted to DKK 68 million, of which DKK 47 million was transferred from the shadow account to equity at 1 January Following the adjustment, the shadow account totalled DKK 67 million at 31 December 2002, of which DKK 44 million related to As at 31 December 2002, the equity reserve was 4.1% with a solvency ratio of 185%. 33

35 LIFE INSURANCE BUSINESS ACTIVITIES AND HIGHLIGHTS The year was characterised by negative equity market trends and the falling level of interest rates. In the first half of the year, the shares accounted for just under 15% of investment assets. The very negative trends at the end of July caused a substantial reduction in the proportion of shares standing at approximately 11% at the end of August. In September, the proportion of shares was further reduced, accounting for just under 3% of investment assets at 31 December Concurrently, the proportion of corporate bonds was reduced. The duration of the bond portfolio is determined based on the expected duration of commitments, which is between nine and ten years. Alm. Brand s insurance provisions have a shorter duration than the pension market in general. This is owing to a large share of capital pension plans and only a very limited share of life annuities. customer complaints etc., was considered to be among the best in the industry. The administrative performance was supported by an efficient IT system with low operating and maintenance costs. Merger Effective 1 January 2002, the then life and property companies merged with Alm. Brand Liv og Pension A/S as the continuing company. Following the merger, the life group comprises an insurance company, a newly established property company and a premium financing company. The merger has increased efficiency and optimised capital employed. Bonus allotment The bonus allotment at 31 December 2002, like the year before, was effected so that the life group does not assume additional interest guarantees for the part of the portfolio written with guarantees based on an internal rate of 4.5%. The proportion of property investments increased from around 11% to around 13% in the second half of the year due to the acquisition by Alm. Brand Bank of the properties at Midtermolen 1-3 in Copenhagen. Service and quality Throughout 2002, the life group provided a level of service and quality, which, measured on processing times and number of OUTLOOK FOR 2003 The demographic trend with an ever growing share of older policyholders, a low level of interest rates and a global decline in pension wealth due to recent years negative equity market trends, increases the need for pension savings. The expected market developments with a shift from traditional insurance-based savings to individual bank-based or unitlink- 34

36 Market values add transparency In 2002, we introduced market values for the life insurance provisions, and this clearly provides a more correct picture of the assets and the liabilities sides of our accounts. Claes Vestergaard, chief actuary of Alm. Brand Liv, believes that last year was the right time to make the change-over, although the new Executive Order on Financial Statements made it possible to wait one more year. It has become easier for readers of accounts to understand our commitments and evaluate how well padded we are. And this is an important signal especially in difficult times like these. Internally, the change-over was dealt with in a very efficient process of identifying problems and implementing solutions in a matter of a few months. based savings combined with a selected product and segment strategy is expected to lead to an unchanged level of premium income and a small increase in total assets for the life group. We anticipate continued growth in risk insurance providing disability cover and actual life insurance. The life group is considering to split up investment activities in 2003 on policyholders and shareholders equity, respectively, to facilitate a differentiated investment policy which considers policyholders and shareholders equity in the best possible way. We expect to continue our investment strategy with a low proportion of shares. Moreover, the duration of assets is expected to be retained at a level largely corresponding to the duration of liabilities. Out of prudence and based on the Danish Financial Supervisory Authority s announced revision of its rules as to when risk premiums may be recognised, the 2003 budget does not include attainment of the targeted risk premium. The changeover to market values, the new policies for return on equity and the planned investment policy will come to affect results directly and substantially in case of significant changes in interest rate levels. The rate on policyholders savings for Alm. Brand Liv og Pension for 2003 has been fixed at 4.5% after tax on pension investment returns. If necessary, Alm. Brand Liv og Pension A/S may, however, change the announced rate on policyholders savings during the period. Assuming an unchanged level of interest rates as compared with the beginning of 2003, expectations are for a pre-tax profit at the level of DKK 40 million. 35

37 OTHER ACTIVITIES REINSURANCE The disastrous events of 11 September 2001 in New York had a crucial impact on Copenhagen Re, causing the company s equity to plummet and finally leading to a decision to wind up the activities. Copenhagen Re is recognised in the accounts of Alm. Brand A/S as an investment and stated at net asset value, equivalent to DKK 104 million. The estimated effect on the accounts of Alm. Brand A/S of an increase in the liabilities of Copenhagen Re is limited to the loss on the investment up to the DKK 104 million referred to above. Financial results Reinsurance operations recorded a loss of DKK 153 million before tax, as compared with a loss of DKK 1,482 million in At 31 December 2001, the forecast for 2002 was a break-even result. The loss of DKK 153 million was due to higher retrocession rates and quite significant extra costs resulting from the necessary organisational changes. There was a DKK 8 million profit on the gross business in 2002, in particular, because the remaining portfolio was not affected by appreciable major claims/natural catastrophes. As Copenhagen Re is in run-off, the company is not included in the consolidated accounts of the Alm. Brand A/S Group. Goals and strategies In respect of Copenhagen Re, the World Trade Center losses (WTC losses) were estimated at USD 84 million at 31 December 2001, which caused a significant reduction in the company s equity. Copenhagen Re subsequently stopped writing new business and is now in run-off. Copenhagen Re has refocused from customers to capital, and its prime priority is to consolidate the company s weak capital base. This will be achieved by tight cash and cost management and, where possible, by settling existing liabilities on reasonable terms. Copenhagen Re prefers to settle existing liabilities by way of commutation, which is a legally binding contract between two parties to the effect that future insurance liabilities, including developments in claims already reported, are carried back to the original insurance carrier in exchange for an immediate payment from the reinsurer. The company took out retrocession cover to protect the existing portfolio against new claims in As a result of the high retrocession rates, caused, among other factors, by the WTC disaster, the cost of this cover was higher than anticipated and amounted to a total of DKK 157 million. The cost level in 2002 was affected by many non-recurring items in connection with the changed operations and organisation of Copenhagen Re. Major cost items related to severance payments and to closing down foreign offices. Premiums in Copenhagen Re fell steeply by 77% to DKK 725 million from DKK 3,133 million in Premiums related to the business written before 31 December 2001 and providing cover into On 1 July 1999, Copenhagen Re entered into a three-year stop loss policy on market terms with Alm. Brand af 1792 G/S. During the term of the policy, Copenhagen Re has received DKK 217 million. The policy has now expired and will not have any effect on the company s future results. 36

38 The group s investment income rose from DKK 98 million in 2001 to DKK 170 million in 2002, which was slightly better than expected. The investment return was 4.0% on assets invested in Copenhagen Re s shareholders equity fell by 146 million from DKK 250 million at 31 December 2001 to DKK 104 million at 31 December Total provisions amounted to DKK 3.6 billion at 31 December 2002 against DKK 5.5 billion at 31 December Shareholders equity thus made up 4% of total provisions at 31 December Business activities and highlights It was not possible to sell the future activities of Copenhagen Re in the very tight reinsurance market following the WTC disaster. The organisation was therefore reduced to merely handling the portfolio of business in run-off. The number of employees was reduced from 165 in 2001 to 75 at 31 December 2002, and business in run-off is handled exclusively from the four offices in Copenhagen, London, Singapore and Australia. The company s other offices were closed in In the early months of 2002, Copenhagen Re chiefly focused on limiting the activities that affected exposure in 2002, and the company was very successful in doing so. The company then intensified its efforts to settle balances on contracts that were not yet closed, and commutation efforts gathered momentum in the second half of Exposure Copenhagen Re s risk of being affected by new claims events was gradually reduced during 2002, and the risk was limited at 31 December However, due to the fundamental nature of Copenhagen Re s business, the final outcome of events that have already occurred is very uncertain as is the result of contracts in the company s portfolio. After more than a year, there is still great uncertainty as to the total loss affecting the market from the WTC disaster. Recent estimates are between USD 30 and USD 77 billion. The uncertainty as to the size of the loss is due, among other factors, to the large number of legal actions pending in the USA. Some of the actions will be determined in 2003, but decisions may be appealed, thereby further postponing a final determination. Copenhagen Re wrote American casualty business up to the end of the 1980s. This portfolio is exposed to asbestosis and pollution claims. In particular, asbestosis claims have increased in the USA in recent years, and the company is following developments in this portfolio closely. As the amount of damages payable on such claims is to a great extent determined by the US courts, it will take several years before these uncertainties have been finally settled. Copenhagen Re focuses on limiting this exposure by commutation. The company has investment assets of DKK 4 billion. The return on these assets is subject to fluctuations. However, the company pursues a very conservative investment strategy, focusing on bonds. The interest rate risk was approximately DKK 50 million in case of a 1 percentage point change in interest rates. The Copenhagen Re London office holds shares in and leases premises from the London Underwriting Centre (LUC), with which it has commitments until An amount has been expensed in the accounts to cover part of these commitments. 37

39 OTHER ACTIVITIES Outlook for 2003 Copenhagen Re expects to break even in No premiums of any significance are included in the budgets for 2003 and subsequent years. Underwriting activities are expected to break even, and administrative expenses are expected to be generally covered by investment income. This estimate does not, however, take into account any adverse development in the uncertainties described above, nor the effect of commutation. Loans related to Sanexco limited partnerships amounted to DKK 758 million at 31 December The progress of investor payments enabled the company to recognise DKK 56 million in provisions previously taken against the loans in Finansieringsselskabet Balder has provided loan facilities to corporate customers totalling DKK 62 million. Prepayments, dividends and repayments during the year enabled the company to reverse DKK 10 million in provisions previously taken against the loans at 31 December The remaining loans will be repaid over a number of years. MISCELLANEOUS OTHER ACTIVITIES Miscellaneous other activities in the Group made an aggregate pre-tax contribution of DKK 183 million. These activities comprise the activities of the former Gefion, reversed provisions for contingent liabilities relating to Copenhagen Re, corporate and other expenses and a number of dormant companies. Alm. Brand A/S provides debtor follow-up services on behalf of Finansieringsselskabet af 9/ and Finansieringsselskabet Balder regarding amounts due on non-performing loans from the former Gefion. Finansieringsselskabet af 9/ has granted loans relating to Sanexco limited partnerships, which have no commercial activity. These loans are secured exclusively on the remaining liabilities and absolute guarantees of the private individuals involved. Finansieringsselskabet Balder manages facilities awaiting settlement with a number of corporate customers. As expected, this contribution to the Group s results is declining compared with prior years. Based on a preliminary legal and financial assessment, a provision of DKK 150 million was made in the annual accounts for 2001 to cover contingent liabilities in respect of guarantees provided by Alm. Brand A/S to Copenhagen Re s UK subsidiary. At 31 December 2001, it was still uncertain whether these guarantees could crystallise. A final legal and financial assessment of the risk involved in the guarantees was made in the first half of 2002, which resulted in the provision being reversed. Outlook for 2003 All other activities are expected to post a pre-tax loss of DKK 25 million in

40 EMPLOYEES AND DEVELOPMENT ATTITUDES AND CONDUCT At the Alm. Brand Group, we believe that the attitude, conduct and professional competences of our employees are key to our success. Accordingly, satisfied and loyal employees are important if Alm. Brand is to achieve its targets. Likewise, it is important that Alm. Brand is able to continue to attract the best qualified employees. GOALS AND STRATEGIES The Alm. Brand Group aims to offer its employees responsibility, a say in their own situation, challenges and personal development opportunities. Developing the employees will enable Alm. Brand to stand out from the competition. The aim of the Alm. Brand Group is for 90% of the employees to be satisfied or very satisfied with working at Alm. Brand by management s behaviour. The questions were based on the Group s new, common corporate values. Responses showed that 91% of employees were satisfied or very satisfied with their manager. This was satisfactory and reflected the efforts we have made in this area in recent years. ONE COMMON CORPORATE CULTURE - VALUE PROCESS In an effort to support an overall corporate culture, a number of activities were implemented during 2002 to introduce a common set of corporate values for the entire group. The activities proved very successful. The corporate values have been defined by means of a number of conduct watchwords which reflect the way Alm. Brand would like to be perceived by its customers, business partners and the external environment. VALUES AND CONDUCT WATCHWORDS The objectives will be achieved through focused efforts in the following areas: Developing the image of the Alm. Brand Group as a workplace; Focusing on individual development and training of managers; Implementing a common corporate culture; Maintaining targeted, open and honest communication lines to all employees; and Increasing focus on profitability through increased use of performance pay. MANAGEMENT TRAINING In 2002, we worked on a new management development programme based on the fundamental management disciplines, which every manager in the Group should have. At Alm. Brand, a manager s role includes creating results through the employees. To this end, the interaction between manager and employee is vital. We made a survey of management quality in 2002, in which the employees rated ORDINARY COMMON SENSE WE IDENTIFY WITH THE CUSTOMER WE KEEP OUR PROMISES WE MANAGE RULES WITH COMMON SENSE MUTUAL RESPECT WE LISTEN TO EACH OTHER WE RESPECT EACH OTHER S OPINIONS WE DRAW ON EACH OTHER S KNOWLEDGE AND EXPERIENCE HOLISM AND PROXIMITY WE TAKE A HOLISTIC APPROACH WE CARE FOR EACH OTHER WE ARE ACCESSIBLE WILL TO SUCCEED WE SET AMBITIOUS AND REALISTIC GOALS WE STRIVE FOR PROFESSIONAL AND PERSONAL DEVELOPMENT WE CREATE RESULTS TOGETHER 39

41 EMPLOYEES AND DEVELOPMENT The process of embedding the corporate values is a natural part of the daily work in customer servicing, in business projects and in processes of change. EMPLOYEE SATISFACTION SURVEY In the autumn of 2002, we conducted a survey of management quality and of employee satisfaction throughout the Group to create a basis for our future development efforts. As described above, our target for the employee satisfaction survey was for 90% of employees to be satisfied by The response rate was 92%, and the satisfaction index, defined as a weighted average of six questions which together provide a broad picture of satisfaction, was 79. In order to support the implementation of Tia, the Group s new non-life insurance standard system, we have introduced a bonus scheme for all employees working with the new system and the processes implemented in connection with the new system. The bonus scheme covers 700 employees and emphasises that the task should be solved in a joint effort by all groups of employees. Accordingly, all benchmarks have to be met for bonus to crystallise. We plan to draft a new pay model for our insurance brokers in The intention is that the model should be more supportive of our business targets and provide a motivating factor in behaviour towards net portfolio growth and profitability. FULL-TIME EMPLOYEES PERFORMANCE PAY In 2002, we introduced a bonus scheme for the Group s Management Board and senior management employees based on the return on equity recorded for each financial year. The bonus scheme will have no significant effect on the Group s cost level. Some 20 persons are comprised by the scheme, which does not involve stock options. We have for some time had a bonus scheme with both common and individual benchmarks for the Group s other managers and specialists. The scheme covers about 200 persons and is an integral part of the general salary adjustment for this group of employees. 1 January , December ,636 Average Alm. Brand A/S Group 1,678 of which: Non-life 65% Banking 22% Life and Pension 6% Reinsurance 5% Others 2% 40

42 INFORMATION TECHNOLOGY IT STRATEGY AND OVERALL TARGETS The efficient use of information technology, including increased automation, is key to achieving the Group s business targets. The IT strategy has been defined with a view to enhancing the Group s competitive strength by lowering costs and exploiting economies of scale within the Group. The Group s IT strategy aims to innovate systems as well as the underlying infrastructure. This will enhance flexibility while reducing IT costs. Our IT strategy assumes: that the fundamental business systems are based on openinterface standard systems; that standard systems are developed in connection with integration between business areas and in relation to Alm. Brand s distribution channels; and that systems are highly automated, simple and accessible, and have high reliability and security levels. Alm. Brand aims to be among the best to use information technology efficiently within the next few years. Our benchmarks will be cost efficiency, quality and development potential of new products, process optimisation and distribution channels. COMPETENCES AND COLLABORATION IT competences are provided by the corporate IT department and by Bankdata. We do, however, use external resources in special areas where this is deemed appropriate. In late 2002, we signed an agreement with DMdata for large parts of Alm. Brand s infrastructure to be operated in a collaboration between DMdata and Alm. Brand. The central equipment will be placed at DMdata s premises, and DMdata will handle most of the operations, while Alm. Brand will continue to monitor infrastructure. The agreement is intended to enhance the security level, secure critical resources, secure technology and lower costs. NEW NON-LIFE INSURANCE SYSTEM In connection with the development and implementation of new business processes, we have chosen a new standard nonlife insurance system called Tia. Tia will replace the seven existing non-life insurance systems. We expect that the system will improve the efficiency of our business processes significantly. SYSTEMS Our strategic refocus on standard systems increased in Tia, our new non-life insurance system, has been implemented as a common customer system. The former treasury and budget system has been replaced by new standard systems. The leasing business is also supported by a new standard system. Our aim is to reduce the IT budget by 20% over the next two years. This will be achieved by efficiency enhancements and through using standard systems even more than we do today. The final implementation of Tia will also help us attain our target. Our aim is for Alm. Brand to have IT costs per DKK 1 of premiums received (insurance) and per DKK 1 of earnings (banking) that match or are lower than those of our peers. INTERNET, EXTRANET AND INTRANET Efforts in the year focused very much on developing new content for the Group s web site and the extranets that support our collaboration with various business partners. The technology used in these solutions are key components of the intranet solutions used by our employees. ANALYSIS AND REPORTING ENVIRONMENTS We decided in 2002 to implement a data warehousing solution based on a standard model comprising banking, insurance and common customer components. The first components based on the new common model will be supplied in the first half of

43 RISK FACTORS GROUP POLICY Risk taking is inherent to insurance and banking operations. The board of directors of the individual Group companies have prepared instructions defining maximum limits for the commercial and market risks the companies are prepared to assume in order to ensure that the Group s exposure is in accordance with these limits, and compliance is monitored on an ongoing basis. GOALS AND STRATEGIES An important element of the overall strategy of the Alm. Brand Group is to gradually develop stronger risk management and reporting throughout the organisation by As part of this strategy, the Group set up a corporate risk function in the autumn of This function is responsible for defining overall policies and procedures for the entire Group, for identifying and monitoring risk factors and for the general risk reporting to the Management Board and the Board of Directors. Each business and staff area is responsible for identifying, quantifying and monitoring major risks within their own area and for setting up relevant risk handling controls and strategies. The corporate risk function is, however, responsible for controlling and monitoring market risk. be sufficient. The 1999 hurricane resulted in total claims payments of DKK 2.3 billion for Alm. Brand. Otherwise, the reinsurance programme is in accordance with the risk management project implemented in Alm. Brand always requires that its reinsurers have adequate capital resources. Furthermore, the underwriting result may be materially affected by fluctuations in claims frequencies and average claims, including a higher frequency of large claims such as weather claims. Banking The bank offers a wide range of lending products focusing on providing finance for special types of assets such as real property and mortgage deeds and car finance and leases. A common feature of all the lending products is that the bank focuses on the value of the assets provided as collateral plus a certain amount of excess coverage. In addition, the bank offers a range of lending products to special customer groups based on the desire to collaborate with and retain these customer groups. The most important customer groups are consumer loans to personal customers, who already have a commitment with the Alm. Brand Group, and agricultural customers. The key criterion for accepting this type of commitment is a satisfactory credit assessment of the debtor. RISK FACTORS The Alm. Brand Group operates in highly competitive markets in which earnings margins are under constant pressure. In addition, the results of the three business areas are, in particular, exposed to changes in the economic situation, interest rate levels, legislation, bad and doubtful debts and claims payments. BUSINESS RISKS Non-life insurance Windstorm risk is the largest, single risk for our non-life operations. Alm. Brand has taken out a reinsurance programme providing catastrophe cover of DKK 3.3 billion, which is deemed to In its credit policy, the bank strives to keep its credit losses among the lowest in the industry as this is a prerequisite for the bank to continue to offer competitive products. Life and pension The primary insurance risks in the life and pension group relate to death and disability cover. To manage these risks, the group uses acceptance policies and medical assessments and includes a contingency loading when setting prices. The acceptance policies define limits for the size of risk and protection against subjective risk by such means as limiting disability cover relative to current income. Health information is required for all types of cover. This requirement means that the company has deliberately opted not to write typical labour market pensions, as such pensions may be set up without individual health information. 42

44 Risks in excess of a defined retention level are ceded, and events in which several persons may be injured at the same time are also covered by reinsurance. The life and pension group makes new pension agreements with guarantees based on an average investment return of at least 1.5% after tax on pension investment returns (15%) over the life of the policy. The customer may generally surrender the policy during its term and will in such case only receive the surrender value. Customers who surrender their policy at a time when the investment return is inadequate will be required to pay a charge to protect the other customers and the company against speculation. Policies taken out earlier may have guaranteed returns based on other interest rates. The largest part of the portfolio is based on a guaranteed return of 4.5% and is protected by a charge of around 7%. guaranteed surrender values exceed the allocated values, and policies are actually surrendered. Copenhagen Re The risk relating to Copenhagen Re for the Alm. Brand A/S Group is limited to Copenhagen Re s shareholders equity, which amounts to DKK 104 million. MARKET RISK The Group s investment of surplus liquidity and the bank s exposure to customers in the securities and foreign exchange markets involve an exposure to various kinds of market risk. This exposure arises because fluctuations in interest rates, equity prices and exchange rates may result in a loss to the Group. The long-term financial risk is related to situations in which the company fails to generate the average return required to meet the guarantees over the life of the policies, or in which the The table illustrates market risk in selected areas at 31 December Impact in DKKm before tax Per cent of A/S Non-life Banking Total Group equity SHAREHOLDERS EQUITY AND MARKET VALUE RISK AT GIVEN PARAMETER CHANGES Interest bearing instruments, net, at 1% increase % Equity risk at 10% fall % Foreign exchange risk, all currencies excl. EUR 5% appreciation against DKK % Write-down of properties at 1% increase in target return % Cathastrophe events: one»100-year event« % two»100-year events« % The table lists the most important risks to which the Alm. Brand A/S Group is exposed. The order of the risk factors is not an indication of the size or importance of each risk factor. Risks relating to the life group and Copenhagen Re are described in the text above. 43

45 RISK FACTORS Interest rate risk The interest rate risk on interest-bearing instruments, which reflects the loss the Alm. Brand Group would incur in case of a general 1 percentage point increase in interest rates, was DKK 84 million at 31 December 2002, excluding Copenhagen Re, equivalent to 4% of the Group s shareholders equity. The life group reports a red, amber and green risk scenario to the Danish Financial Supervisory Authority on a semi-annual basis. The company is in the green scenario, which implies that the company could withstand a fall in equity prices of at least 30%, a fall in property prices of at least 12% and a change in long-term interest rates of at least 1 percentage point. Equity risk Most of the Group s equity exposure is in the life company. Due to the adverse trend in equity markets, this exposure is limited. The bank only takes own positions for minor amounts in connection with price-making for transaction purposes and as a market maker for Alm. Brand A/S and Alm. Brand Pantebreve A/S, while the other Group companies have no or insignificant funds tied up in shares. IT RISKS Alm. Brand gives a very high priority to IT security, which is basically about three elements: confidentiality, integrity and accessibility of data. The Management Board has adopted an IT security policy as the bedrock of its IT security. Day-to-day IT security is managed by the IT department headed by the executive in charge of IT and the IT security manager. At the end of 2002, the Group decided to place central IT equipment at the premises of DMdata A/S, an external IT business partner. This decision significantly enhances such factors as operational reliability and physical security. Foreign exchange risk The Group does not have any appreciable own currency positions. 44

46 INVESTMENTS Book value at Non- Alm. Consolidated Banking Alm. Brand A/S 31 December 2002 Life life Brand Group and Re Group DKK million Group Group A/S etc. Per cent Finance Group Per cent INVESTMENT ASSETS Cash and cash equivalents in DKK % 4, ,757 16% Cash and cash equivalents in foreign currency % % Danish bonds 8,352 3, ,759 72% 1, ,922 39% Foreign bonds % 0 2,612 3,490 10% Index-linked bonds % % Loans and mortgage deeds % 8, ,662 24% Danish shares, excl. own % % Foreign shares % % Subsidiaries etc ,085 1,254 8% ,309 4% Property 1, ,466 9% 0 0 1,466 4% Total 11,007 3,957 3,206 16, % 15,575 3,898 35, % Unlike the annual accounts, the table includes cash and cash equivalents in addition to investment assets, whereas deposits with insurance companies have been omitted. GOALS AND STRATEGIES The investment policy focuses on optimising returns while balancing out asset and liability risks in the Alm. Brand Group. With a view to streamlining and reducing costs, we decided in August 2002 to discontinue the finance department. Instead, an investment committee was established on the basis of the guidelines and policies adopted by the respective boards of directors of the Alm. Brand Group to be in charge of the Group s investment activities. In this connection an asset management contract was signed with Alm. Brand Bank comprising the majority of the Group s investment activities. The investment committee is responsible for monitoring the Alm. Brand Group s strategic asset allocation on an ongoing basis. If the committee considers it necessary to make strategic changes to the asset allocation, it submits its recommendations to revise the investment limits to the respective boards of directors of the Group. MARKET DEVELOPMENTS IN 2002 Denmark The market developments in Denmark were strongly impacted by events taking place outside the country. Shares declined for the third consecutive year, while bonds performed very well as a result of the substantial decline in interest rates during the year. This trend did not, however, apply to corporate bonds that fell due to mounting uncertainty as to the companies future earnings and other factors. International markets In early 2002, world economies were expected to return to normal with fair growth rates in the USA and Europe. Most financial markets therefore expected that recovery was close at hand and that this would cause central banks to raise interest rates in the course of Moreover, share prices were expected to gain momentum after two years in the doldrums. In the spring of 2002, a number of strong key indicators were announced, but during the summer companies started to issue profit warnings. The economic recovery failed to materialise, and the fear of war spurred uncertainty. Combined with a number of major financial reporting scandals in the USA, this created doubts about the validity of the financial figures from the major companies. This was one of the reasons why shares fell dramatically in

47 INVESTMENTS The weak key indicators led to several interest rate cuts in the USA, and the European Central Bank also lowered its key lending rates. As a recovery furthermore failed to materialise, the uncertainty made investors turn to bonds resulting in significant price increases and falling bond yields in In 2002, a substantial part of the Alm. Brand Group s bond investments were placed in mortgage bonds. The life group has invested in options to hedge part of the prepayment risk attaching to mortgage bonds in periods of falling interest rates. The life group has not hedged interest rate risk by financial instruments such as CMS-floors or similar instruments. PERFORMANCE The very turbulent developments in the financial markets in 2002 led to reallocation of major investment assets, in particular in the life group. The return and performance generated by the Group s assets, excluding shares, was generally satisfactory in LIFE INSURANCE The investment assets of the life group consist primarily of shares, bonds and property. The equity exposure was reduced on several occasions during 2002 as a result of the gloomy economic outlook and in an effort to limit further losses on shareholdings. The portfolio was most recently reduced in September 2002 from approximately 10% to just under 3% of the life group s investments assets. Up until the late summer of 2002, the duration of the bond portfolio was shorter than the duration of liabilities due to expectations that interest rates would rise. From August onwards, the duration of the bond portfolio largely matched the duration of the liabilities, thereby providing much greater strength with which to deal with the falling interest rates in the second half of In 2002, the life group acquired the property at Midtermolen 1-3, Copenhagen, from Alm. Brand Bank after which the life group s aggregate property investments made up approximately 13% of total investments. It is expected that this level will be retained. The life group s overall return was severely impacted by the poor return on shares in 2002, thereby bringing the overall return on investment assets to 3.6%, which was not satisfactory. THE REST OF THE GROUP A vast majority of the remaining Group s investments are placed in interest-bearing assets, mostly bonds. With a view to limiting the risk of price fluctuations, the duration of assets is relatively short, but reflects the duration of liabilities in the individual companies. Investments generated a satisfactory, positive return in

48 SHAREHOLDER INFORMATION ACQUISITION OF NON-LIFE INSURANCE ACTIVITIES At the general meeting held on 17 April 2002, the shareholders adopted the resolution proposed by the Board of Directors to acquire the non-life insurance activities from Alm. Brand af 1792 G/S. The acquisition was made with retroactive effect from 1 January The non-life insurance portfolio was acquired against a cash consideration of DKK 200 million and through issuance of 3.6 million shares in Alm. Brand A/S directed at Alm. Brand af 1792 G/S, equivalent to a share capital of DKK 288 million nominal value. The acquisition of the non-life insurance portfolio provided the Alm. Brand A/S Group with an activity with a business volume corresponding to the volume the Group lost when Copenhagen Re was put in run-off. The risk exposure of the Group s current business platform has, however, been reduced considerably. Other initiatives In an effort to further strengthen the Group s share price, the Group launched a number of initiatives, including simplifying the organisational structure, abolishing multiple share classes and stepping up the information flow regarding the Group and the company s shares. In addition, the Board of Directors has ongoing discussions on corporate governance. In connection with the upcoming introduction of the two new share segments on the Copenhagen Stock Exchange, Mid Cap and Small Cap, Alm. Brand has been working to meet the admission criteria to become part of one of the new segments. The Alm. Brand A/S shares meet all requirements for admission to the Mid Cap segment, except for the daily turnover requirement. Similarly, Alm. Brand A/S share meets almost all requirements for admission to the Small Cap segment, except for the fact that the volume of freely transferable shares the free float made up in accordance with the rules of the Stock Exchange exceeds the limit of DKK 500 million by less than DKK 50 million. Accordingly, the share is not expected to be admitted to either of the Mid Cap or Small Cap segments. SHARES The company s share capital is DKK 1,788 million nominal value divided into 22,350,000 shares of DKK 80 each. Each share carries one vote. All shares thus carry equal voting rights and other rights. SECURITIES IDENTIFICATION CODE The securities identification code of Alm. Brand A/S shares is DK PRICE MOVEMENTS IN 2002 At 1 January 2002, the price of Alm. Brand A/S shares was DKK 89. At 31 December 2002, the share price was DKK 70. Based on a net asset value per share of DKK 125, Alm. Brand shares traded at a price/nav of 56% at 31 December The market capitalisation of the Group s shares amounted to DKK 1.7 billion at 31 December An average of 7,726 Alm. Brand A/S shares were traded daily on the Copenhagen Stock Exchange during 2002 at an average daily turnover value of DKK 660,000. The Group s share price was affected by the poor 2001 results announced in early March The share was further adversely affected by a profit warning issued in connection with the presentation of the interim report for the six months to 30 June 2002 resulting from the poor weather conditions in 2002 and equity market developments. Finally, the negative developments in equity markets in general in 2002 adversely affected the price of Alm. Brand shares. 47

49 SHAREHOLDER INFORMATION OWNERSHIP At 31 December 2002, 9,676 of the company s shareholders had caused their names to be entered in the company s register of shareholders. The shareholders listed below have notified Alm. Brand A/S that they hold more than 5% of the company s share capital: Alm. Brand af 1792 fmba (60.1%) Midtermolen 7 DK-2100 Copenhagen Ø, Denmark ATP (9.5%) Kongens Vænge 8 DK-3400 Hillerød, Denmark Købstædernes Forsikring G/S (5.3%) Grønningen 1 DK-1270 Copenhagen K, Denmark DIVIDENDS Pursuant to the Danish Companies Act, resolutions on the declaration of dividends are passed by the shareholders at the annual general meeting upon the recommendation of the Board of Directors based on the adopted financial statements for the most recent financial year. The Board of Directors has defined the dividend policy on the basis of the minimum shareholders equity (core capital, tier 1 capital and supplementary capital) needed to cover the statutory capital requirements. The intention is, over time, to complement this minimum capital by a 30% contingency loading. The contingency loading may be established either as shareholders equity or as subordinated loan capital. Provided these capital requirements are met, the company intends to distribute 75% of the profit for the year by way of dividends or share buy-backs. If the company develops plans for making acquisitions or expects to make acquisitions in the near future, that is, within two years, the capital base may increase further for a limited period of time, without distribution being made to shareholders. In the life insurance business area, the solvency requirement has been increased from 1.5 to 2 times the solvency margin requirement, thereby bringing the contingency margin to approximately 9% of provisions. This increase is due in part to the fact that the rules on life companies have not been laid down yet and in part to the very volatile financial market trends with falling share prices and falling interest rates which increase provisioning needs on the guarantees made. These two circumstances taken together increase uncertainty as to the calculation of the life company s commitments, thereby increasing requirements for a capital buffer in the life company. Given the above-mentioned capitalisation targets for the Alm. Brand Group, the company does not expect to pay dividends or buy back shares in the years ahead. Accordingly, the Board of Directors proposes that no dividend be paid in respect of the financial year ended 31 December In the non-life business area, the objective is for the core capital to correspond to a solvency ratio of 2.0. In banking, the objective is to have a shareholders equity in which the core capital corresponds to a solvency ratio of 8.0. In the life insurance business, the objective is to have a core capital in which the solvency ratio is 2.0. ANNUAL GENERAL MEETING The annual general meeting of Alm. Brand A/S will be held at 11:00 a.m. on 4 April 2003 at Radisson SAS Scandinavia Hotel, Amager Boulevard 70, DK-2300 Copenhagen S. 48

50 FINANCIAL CALENDAR Annual report for the financial year ended 31 December 2002 to be released on 28 February Annual general meeting to be held on 4 April Q1 report to be released on 14 May Interim report for the six months to 30 June to be released on 28 August Q3 report to be released on 18 November Annual report for the financial year ending 31 December 2003 expected to be released at the end of February INVESTOR RELATIONS Alm. Brand A/S intends to provide a strong flow of information with respect to the ongoing development of the Group and its business activities, while endeavouring to further develop and improve information to the company s stakeholders, including in particular the company s shareholders. Alm. Brand A/S communicates regularly with existing and prospective shareholders as well as with financial analysts by preparing financial reports, stock exchange announcements and arranging meetings with investors and analysts to present financial results. As a consequence of the Group s intention of stepping up the information flow regarding the Alm. Brand A/S Group quarterly reports will be released with effect from Q In addition to meetings with analysts and investors in connection with the presentation of interim and full-year reports in 2002, the Group s Management Board and Investor Relations Manager hosted a number of investor meetings to discuss already published material. PER SHARE DATA Share price at year-end Net asset value per share Price/net asset value Dividend per share Earnings per share (EPS) (rounded to nearest DKK) Three or four times a year, the Alm. Brand A/S Group publishes and distributes Alm. Brand Bladet, a magazine in which shareholders may read about the company s developments and business activities. Additional information is available on Alm. Brand s web site at where the company post its annual report, quarterly reports, announcements to the Copenhagen Stock Exchange, group presentation and goals, organisational structure etc. In an effort to further stepping up the information flow, a decision has been made to make all investor presentations available on the Group s web site with effect from

51 FINANCIAL REVIEW The Alm. Brand Group posted a pre-tax profit of DKK 144 million as compared with a loss of 1,133 million in The corresponding figures after tax for 2002 and 2001 were a profit of DKK 142 million and a loss of DKK 1,057 million, respectively. The following key factors influenced the profit for the year: A larger-than-normal number of weather claims in the nonlife insurance division; Stable performance and earnings in the banking division; Falling interest rates and continued falls in the equity markets, affecting, in particular, the Group s life insurance company; A substantial loss in Copenhagen Re; Reversal of a DKK 150 million provision for contingent liabilities in Copenhagen Re; and Furthermore, the recognition of DKK 61 million directly on equity in the life group relating to receivables in prior years resulting from a change-over to market values and changed principles for return on shareholders equity. The parent company s share of the profit before tax amounted to DKK 136 million, bringing the parent company s return on equity before tax to 5.1% in 2002, as against minus 36.5% in No material events have occurred in the period from 1 January 2003 until the date the annual report was signed which would be of material importance to the accounts. At 1 January 2002, the forecast for Alm. Brand A/S for 2002 was a pre-tax profit of approximately DKK 200 million. This forecast was lowered to DKK 80 million at 30 June 2002 due to the large number of weather claims up to August 2002 and the adverse trend in the financial markets, affecting, in particular, the life insurance company. During the second half of the year, the non-life operations recorded substantial gains from market value adjustments of bonds due to the lower interest rates. This was the major reason for the actual result being DKK 64 million higher than expected at 30 June TOTAL INCOME Alm. Brand A/S generated total revenue of DKK 5,903 million in 2002 as compared with DKK 5,892 million in The 0.2% increase was attributable to a 7% fall in the banking division, a DKK 150 million fall in investments, a DKK 38 million fall in the life insurance division, and a DKK 200 million increase in the non-life insurance division. The fall in the bank s total income was attributable to falling interest rates, which impacted the bank s interest income. The total revenue was made up of these contributions: DKK 4,364 million in premiums from insurance, DKK 763 million in revenue from banking and DKK 776 million from investment operations. CASH FLOWS Cash flows from operations amounted to DKK 326 million. The Group reduced its investments in shares by DKK 1,115 million, switching to bonds. CAPITAL BASE Alm. Brand A/S had shareholders equity of DKK 2,786 million at 31 December

52 The Alm. Brand Group is subject to the provisions on capital adequacy set out in section 36 of the Danish Act on Financial Operations. In pursuance of these provisions, the capital base must constitute at least 8% of the risk-weighted assets. At 31 December 2002, the Alm. Brand Group had a solvency ratio of 20%, corresponding to excess cover of DKK 1,137 million relative to the capital adequacy requirement. BANKING The Alm. Brand banking group posted a pre-tax profit of DKK 101 million in 2002 as compared with DKK 114 million in Net interest and fee income rose by 8% from DKK 406 million to DKK 440 million. The increase reflected higher interest income generated by substantially higher lending and sustained growth in activities in the fee and commission-based areas such as trading in securities and mortgage deeds. NON-LIFE INSURANCE Non-life insurance comprises the portfolios of the non-life insurance companies and health/personal accident insurance placed in Alm. Brand Liv og Pension. The banking group s provisions for bad and doubtful debts charged to the profit and loss account in 2002 accounted for 0.5% of total loans and guarantees, an increase of 0.3 percentage point over The underwriting result amounted to a loss of DKK 61 million against a profit of DKK 126 million in Net of investment returns and other ordinary items totalling DKK 66 million, these operations posted a profit for the year of DKK 5 million before tax against DKK 82 million in Gross premiums rose by 6% to DKK 3,668 million from DKK 3,465 million in The claims ratio, net of reinsurance, rose by 6 percentage points to 80% in The expense ratio, net of reinsurance, was unchanged from 2001 at 27%. Overall, the combined ratio, net of reinsurance, was 107%. The claims ratio was affected by a large number of weather claims. The total impact of weather claims is estimated at DKK 140 million as compared with some DKK 40 million in a normal year. The unusually large number of weather claims had an adverse effect of some 3 percentage points on the claims ratio, net of reinsurance. The banking group s portfolio of loans and advances amounted to DKK 8.7 billion at 31 December This reflected an increase of DKK 1.9 billion over 2001 or 26%. The increase was attributable to the substantial loan and leasing portfolio acquired from GE Capital Bank and to increased lending for investment properties and mortgage deeds. The banking group s deposits increased by DKK 0.9 billion to stand at DKK 9.1 billion at 31 December This increase should, however, be adjusted for a repo/reverse transaction, which also had a positive impact of some DKK 0.4 billion on deposits. The bank raised supplementary capital of DKK 300 million in 2002, which substantially strengthened its capital base. At 31 December 2002, the bank s capital base was DKK 1.1 billion with a solvency ratio of 12.6%. Alm. Brand Forsikring A/S had a solvency ratio of

53 FINANCIAL REVIEW LIFE INSURANCE Profit before tax in the life insurance operations amounted to DKK 8 million in 2002, as compared with DKK 139 million in The figures do not include the health and personal accident business, which returned a profit of DKK 10 million in 2002, as compared with DKK 17 million in Health and personal accident insurance is a part of the life company for legislative and management-related reasons, but the financial highlights and key ratios of this activity are included in the nonlife company. The collective bonus potential stood at DKK 0 at 31 December Shareholders equity excluding health and personal accident insurance was DKK 826 million at 31 December 2002, equivalent to an equity reserve of 4.1%. The shadow account totalled DKK 67 million at 31 December 2002, of which DKK 44 million related to The 2002 profit represents a proportionate share of the company s investment return before tax on pension returns plus the result of portfolios without bonus entitlement (excluding health and personal accident insurance). The special risk premium for 2002 for making equity available has been transferred to a shadow account in order for the amount to be recognised at a later date when permitted by the financial results of the life insurance group. Gross premiums from the life insurance business fell to DKK 696 million from DKK 738 million in The decline was primarily a result of a change in the quota distribution in Forenede Gruppeliv, leading to a DKK 48 million drop in Alm. Brand s share of premium income. The expense and risk results for 2002 were satisfactory. The investment result was unsatisfactory due to the substantial drop in equity prices in OTHER AREAS Reinsurance Copenhagen Re recorded a loss of DKK 153 million before tax, as compared with a loss of DKK 1,482 million in The loss was attributable to the performance of the company s gross business, to higher retrocession rates and to extra costs in connection with organisational changes. Gross premiums amounted to DKK 725 million in 2002, as compared with DKK 3,133 million in Investment income was DKK 170 million in 2002 as against DKK 98 million in Shareholders equity stood at DKK 104 million at 31 December The calculation of shareholders equity at 31 December 2002 is subject to substantial uncertainty. 52

54 Other activities Other activities in the Group contributed DKK 183 million. These activities comprise the former Gefion, reversed provisions for contingent liabilities relating to Copenhagen Re and corporate and other expenses. The debts department follows up on non-performing contracts from the former Gefion. The ongoing efforts in this area enabled us to recognise provisions of DKK 66 million previously taken, as compared with DKK 157 million in There was a relatively large inflow of payments in 2001 as a result of a number of lawsuits won in 2000 and As expected, this contribution to the Group s results is declining compared with previous years. OUTLOOK FOR 2003 For 2003, the Alm. Brand Group expects to report profit of around DKK 250 million before tax and DKK 235 million after tax. Turnover is forecast at DKK 6.3 billion. The expected earnings of the three business areas may be revised in the event of major changes in economic conditions, interest rate levels, equity prices, bad and doubtful debts, premium levels and the number and frequency of claims. Changes in the competitive environment within the three business areas may also influence profits. The annual accounts of Alm. Brand A/S for 2001 included a provision of DKK 150 million in respect of contingent liabilities in Copenhagen Re. A final legal and financial assessment of the contingent liabilities subsequently made resulted in the provisions being reversed in

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56 ACCOUNTS ANNUAL REPORT