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Nordea sticks with 'capital-light' products despite weak profits

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  • Nordea sticks with 'capital-light' products despite weak profits

EUROPE – Profits in Nordea's life and pensions business dipped in the third quarter of this year, but the Nordic and Baltic banking group said its efforts to change the emphasis in the division towards 'capital-light' products was still paying off.

Operating profit for the July to September period fell 10% from the previous quarter to €66m.

Gross written premiums slipped 9% from the second quarter to €1.2bn in the third quarter – a decline Nordea put down to seasonal effects.

In interim report, the Nordea said: "Life & Pensions' strategy to shift the product portfolio towards capital-light products continued to pay off."

In terms of profit generators for the division, unit-linked and pure risk products contributed 83% of total product-related operating profit in the third quarter.

This percentage is up from 72% reported in the second quarter.

"In the third quarter, 75% of total premiums were channelled into unit-linked, premium guarantee traditional or pure risk products," Nordea said.

This percentage is flat from the previous quarter.

The third quarter's net outflow of €0.2bn of premiums was entirely driven by €0.7bn from traditional products, it said, with unit-linked and premium guarantee products seeing net inflows of €500m.

Although operating profit for the life and pensions division was down quarter-on-quarter, it was €56m higher than the figure reported for the third quarter of last year, Nordea said.

The Q3 2011 profit figure had been heavily affected by a reversal of fee income attributable to part of the traditional portfolio, it explained.

Financial buffers in the traditional portfolios rose €100m during the third quarter to €1.8bn, corresponding to 7.5% of technical provisions and up 0.8% from the end of the second quarter.

In the traditional portfolio, the total average investment return was 2.3% in the July-to-September period.

This reflected "strong asset and liability management efforts on managing the buffers in a continuously challenging financial environment", the group said.

Assets under management at the division rose 2% quarter-on-quarter and 15% year-on-year to €49.8bn.

At the group level, Nordea's operating profit fell 16% from the second quarter to the third to stand at €922m, but was up 63% compared with the third quarter 2011.

Christian Clausen, Nordea's president and group chief executive, said: "The third quarter was affected by declining growth and corresponding low interest rates in our home markets."

Slower economic activity was still hitting consumption and investments, so reducing the demand for loans and other banking services in the Nordic market, he said.

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