EUROPE – Profits surged 111% in Nordea’s pensions business in the final quarter of last year on the back of profits from its unit-link products and an accounting technicality.
The Nordic and Baltic banking group reported operating profit for October to December 2012 of €139m for its life and pensions division – up €73m or 111% from the previous quarter and €47m higher than the fourth quarter of 2011.
The company attributed the “exceptionally strong” operating profit largely to recognition of fee income related to previous periods, which was attributable to part of the traditional, with-profits portfolio.
“However,” it added, “the underlying operating profit also increased, by 20% from the third quarter, primarily driven by unit-link products.”
For the full 2012 year, operating profit at the division rose to €335m from €207m in 2011.
Gross written premiums were up 36% from the third quarter to stand at €1.65bn in the fourth quarter because of seasonal effects and strong sales of insurance products through the banking network.
The total average investment return within the traditional portfolio was 1.9%.
“Life & Pensions’ strategy to shift the product portfolio towards capital-light products continued to pay off,” the group said.
In the fourth quarter, 79% of total gross written premiums were channelled into market return or pure risk products, it said.
Because of this, the fourth quarter’s net inflow of €0.5bn was completely driven by market return products, as traditional products saw an outflow of €0.3bn, Nordea said.
In other news, AP Pension said the bankruptcy of local savings bank Spar Lolland added to losses for pension scheme members of the former FSP pension fund, but defended calculated risk taking in investment.
Spar Lolland said last week it would file for bankruptcy.
Its equity and subordinated debt is being written down to zero.
FSP Pension – a labour-market pension scheme for financial sector employees that merged with the larger AP Pension last year – was exposed to Spar Lolland’s debt.
In 2007, FSP invested DKK700m (€94m) in a financial transaction named Amalie 1, whereby a total of DKK1.9bn of finance was offered to 17 financial institutes including Spar Lolland.
The deal was structured so that FSP would absorb the first of any losses but benefit from an attractive return, AP Pension said.
However, several of the borrowing institutions went under in the wake of the financial crisis, leaving FSP Pension with DKK400m in losses plus further unrealised but covered losses.
The loss from Spar Lolland increases the earlier losses on Amalie 1 to DKK600m for FSP, and much of the remaining DKK100m has been set aside as possible losses, AP Pension said.
“It is clear Amalie 1 was a bad investment,” it said, adding that this had been recognised at FSP Pension’s 2012 AGM.
AP Pension acknowledged that the events of the last few years showed that while professional investment in local savings institutions might be profitable, it was also risky and required thorough investigation of the institutions’ individual circumstances.
“It is in the interest of our customers that we at AP Pension work to create the best possible return,” it said.
“This requires us to take calculated risks to a certain extent, which will not always be rewarded.”