DENMARK - Danica Pension, the pensions arm of Danske Bank Group, managed to generate net income of DKK91m (€12.2m) in the first quarter of 2009, despite seeing a decline in total premiums paid.
Figures from Danske Bank's quarterly report showed the value of the assets held by the pension firm dropped slightly from DKK233.2bn to DKK232.9bn as the total premiums declined 7% to DKK 5.2bn.
The decline was driven primarily by a lower number of single premium payments as Danica revealed regular premiums increased by 2% through the sale of its market products - Danica Balance and Danica Link.
That said, the firm suggested the general fall in the level of premiums "should be seen in the light of staff reductions among several of Danica Pension's corporate customers and a sector-wide introduction of a charge on transfer and surrender that reduced transfers of custody accounts".
The report showed Danica Pension's activities outside Denmark also suffered in the first quarter with premium income in Sweden dropping 21%, mainly as a result of depreciation of the Swedish krona.
In contrast, figures showed Danica posted a net income of DKK91m in the first quarter, a considerable improvement from the -DKK565m posted a year earlier, though the firm noted "continuing equity market woes" had a negative impact on the overall result for the group.
This is because Danica Traditional, the policies with guaranteed benefits and a set rate of interest on policyholders' savings, posted an investment return of -1.2% on customer funds, which "made it impossible to book the risk allowance".
The risk allowance is a share of the technical provisions from the traditional business, valued at DKK272m in the first quarter, however it can only be 'booked' as income for the group if it does not exceed a technical basis calculated from investment returns, technical rates of interest and value adjustments.
Falls in equity markets meant the firm was unable to book a risk allowance for the whole of 2008, with a total of DKK 1.1bn being transferred to a 'shadow account' to be booked in at a later date "if the return on investments permits and the bonus potential of paid-up policies is restored".
The final return on customer funds, including changes in technical provisions, was -0.5%, resulting in a collective bonus potential of DKK 1.3bn, but as this was DKK300m lower than in January Danica revealed it had to withdraw another DKK1bn from the bonus potential of paid-up policies to meet the costs, in addition to withdrawals of DKK2.8bn in 2008.
The latest figures from the pension fund follow its decision at the end of 2008 to reduce the net interest rate on Danica Traditional pension plans to 1.5% in an effort to limit the impact of equity falls on the bonus potential. (See earlier IPE article: Danica to cut pension interest to 1.5% in 2009)
Meanwhile, Danske Bank Group admitted the market "is likely to remain difficult as a result of the economic downturn and the introduction of the charge on transfer and surrender".
But it suggested "the Danish spring tax reform will have a positive net effect on the trend in premiums in 2009 as customers are expected to take advantage of the last year of full tax relief on annuity pension contributions at high marginal tax rates".
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