Danica Pension has revealed it made a DKK270m (€36.3m) provision in its accounts for pensions tax it may be forced to pay on its loss-making health and accident insurance business, as the sector remains locked in a dispute with tax officials over the issue.
In its interim report published on Friday, the Danske Bank subsdiary posted a pre-tax profit of DKK1.02bn between January and June, up 14.1% from DKK892m in the same period a year ago, also reporting that premiums had grown by 30% year-on-year to DKK19.88bn.
The firm said: “The improved financial performance was primarily driven by favourable financial market conditions, which meant solid returns for our customers and a sound underlying business.”
However it added: “On the downside, we made a DKK270m provision for possible future payment of pension returns tax on the health and accident business.”
A spokesman for Danica Pension told IPE the provisions were being made because of a “dialogue with the Danish tax authorities about whether PAL (pension returns tax) is to be paid on a loss on the health and accident business.”
Danica Pension did not think tax should be payable on this loss, he said, but he added that the firm had now set the sum aside.
This was an issue across the sector, the spokesman said, adding that there were several firms including the industry association Insurance & Pension Denmark who were involved in the discussion with the authorities about this case.
A spokesman for the Danish Tax Agency (Skattestyrelsen) told IPE the authority could not talk about individual cases or people or companies.
The losses that some Danish commercial pension providers regularly take on their health and accident insurance are a hot topic at the moment, with the Danish FSA having recently proposed new regulation to stop pension firms from making long-term losses on those operations.
This came after the Danish Competition and Consumer Authority repeatedly highlighted the barriers to competition that this business model created.
The contention is that providers use unprofitably cheap insurance as a sweetener to win corporate pension contracts.
However, the Danica Pension spokesman told IPE the tax provisions the company had made had nothing to do with the FSA’s move.
In its first half report, Danica said its health and accident business had made a DKK362m loss in the period, with the shortfall having worsened from the DKK300m loss in the same period in 2020.
The loss had widened purely because of the extra provision made, it said.
The return for the average-rate Danica Traditionel pension product was minus 1.5% in the first half. Regarding market-rate pensions, the return for a customer with Danica Balance Mix, a medium risk profile and 20 years to retirement was 9.6%, as previously reported by IPE.
Danica Pension said its total assets increased to DKK481bn at the end of June, which is up from the DKK466bn it reported at the end of March.