The ATP Group Annual Report 2012

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Management's Review Business Model Risk Pension Hedging and Investment Hedging Investment Administration Social Responsibility The ATP Group Financial StatementsOverview of the most significant risks and their managementMost significant risksLongevity risks– guarantee for lifelong pensionsMarket and credit risks– investments in the financial markets– effect of interest-rate development on pension liabilitiesCounterparty risks– liquidity of unlisted financial contractsOperational risks– use of technology for mass paymentsRisk managementUse of life-expectancy model which includes expected future changesin life expectancy.Control of the total investment risk through daily monitoring and dynamicadjustment.Hedging the interest-rate risks relating to pension commitments.Standardised contracts with financial counterparties with high creditratings. Daily collateral with limits on which bonds ATP can receive ascollateral.Business procedures and routines, separation of functions and structuredmethods for IT development and testing. Detailed delivery planand external review with implementation by Udbetaling Danmark.Udbetaling DanmarkIn 2012, the expansion of Udbetaling Danmark continued asplanned with the opening of the organisation’s new regionalcentres in Fredrikshavn, Haderslev, Hillerød, Holstebro andVordingborg as well as temporary branches in Odense andÅrhus. Approximately 1,000 municipal managers and employeeschose to be transferred to ATP.In parallel with this, a comprehensive offering of IT solutionshas been prepared to streamline and modernise businessprocesses and citizen service in the next few years.2012 saw the first two payment types, family benefit andmaternity/paternity benefit, put into operation. The remainingthree payment types, state old-age pension and disabilitypension plus housing benefit, will follow in spring 2013.Implementation is running according to plan.Udbetaling Danmark must pay out a total of DKK 180bn annuallyto two million citizens.RISKSAt the core of ATP’s activities is the provision of as predictableand secure lifelong pensions as possible for members.The risks facing ATP are associated particularly with the responsibilityof managing members’ savings during the oftenextensive period from payment of the first contribution untilfinal payout is made. The continued low interest-rate levels,combined with the members’ increasing life expectancy, isa significant challenge for both ATP and the entire pensionsector.Longer life expectancy means that the lifelong pensionsfor the members must be extended over longer periods. Tomanage this risk, ATP uses a life-expectancy model whichincludes the expected future increases in life expectancy.The expectation here is that the annual life-expectancy updateswill result in only minor changes in provisions.The management of investment risk is of paramount importanceto ATP. Reduced reserves as a result of suddenchanges in interest rates and equity prices are the greatestrisk in the short term. The portfolio is invested in five riskclasses with very different risk profiles to spread the markedrisk. The risk spread is supplemented by hedging strategiesfocusing on preventing catastrophic losses.The ATP Group – Annual Report 201212
Management's Review Business Model Risk Pension Hedging and Investment Hedging Investment Administration Social Responsibility The ATP Group Financial StatementsHedging of pension provisionssafeguards reservesDKK billionIncreasing life expectancy andpension provisions 2001-2012DKK billionAge120100806040200-20-402008 2009 2010 2011 2012Return on hedgingportfolio after taxChange in guaranteedbenefits5040302010001 02 03 04 05 06 07 08 09 10 11 1284838281Live expectancy for65-year-olds(avg. of both genders)Accumulated provisionssince the start of the newmillennium to coverincreases in life expectancyCounterparty risks are largely managed by entering standardisedcontacts with accompanying agreements on collateralof the highest quality.Operational risks, including IT risks associated with masspayments, are managed in the form of routines and businessprocedures as well as structured methods for IT developmentand testing. In connection with the establishment ofUdbetaling Danmark, exposure to operational risks has increased.The Group has an organisational unit whose focusis to manage operational risks.ATP is not covered by the upcoming Solvency II Directive,but has chosen to follow the rules anyway as this enhancesrisk management in the relevant areas and ensures thatATP is at the leading edge of legislative development in thesector. ATP uses a proprietary model to calculate the reserverequirements. The model is also used in day-to-dayrisk management.A poor reputation can affect ATP’s potential earnings. Riskmanagement includes principles for social responsibilityand corporate governance in investments while ATP alsowants to be recognised as a reliable and trustworthy companyby communicating with the outside world in an openmanner.SOCIAL RESPONSIBILITYThe ATP Group’s overall vision is to ensure basic financialsecurity for all of Denmark. ATP practices business-drivensocial responsibility in such a way that the aim of all initiativesis to be conducive to positive results for the benefit ofATP’s members.Social responsibility is continuously incorporated in investmentdecisions to achieve the optimum risk-adjusted returnfor the benefit of members. This objective is expressed, interalia, in the Policies of Social Responsibility in Investmentsand Corporate Governance.The policy for driving social responsibility in investmentsis based on national legislation and international conventions.The six United Nations Principles for Responsible Investment(PRI), adopted by ATP in 2006, prescribe a processfor integrating social responsibility in investments. Noviolations of the Policy of Social Responsibility were notedin 2012.As part of the development of customer service, and in thelight of the growth in administrative tasks, in 2012 ATP decidedto establish a new, independent customer ambassadorfunction. The customer ambassador is tasked withhandling complaints and taking the complainants’ opinionsfurther, so that these can contribute to improvements. Theobjective is to resolve more cases before they reach the appealsystem.For ATP as a company, focus in 2012 was on employee satisfaction,work environment and diversity. The establish-The ATP Group – Annual Report 201213
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The ATP Group Annual Report 2012

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