Outlook for the medium term

Equity market performance in 2008 impacts the full-year 2008 outlook

The volatile equity markets and the equity losses have caused us to change our outlook for 2008 to profit before tax of DKK 2,100m compared with DKK 3,109m in 2007. The profit outlook comprises a stronger technical result before run-off and a lower investment result, emphasising the importance of maintaining good and stable insurance operations as the  foundation for our earnings in periods of adverse financial markets.

Due to the very unstable equity markets we incurred a loss of around DKK 400m in January and up to 18 February 2008. This loss on equities will have an adverse impact on our effective tax rate, which is attributable to the amount of gains or losses on equities which are taxexempt or non-deductible. We assume an effective tax rate for 2008 of 32% based on the assumptions described and the realised loss on equities.

The equity market performance alone results in an outlook for 2008 at 18 February that provides a return on equity of around 23% before tax and around 16% after tax.

 

Outlook for the medium term

The composition of our business and an assessment of market conditions cause us to upgrade our medium-term expectations from a combined ratio of around 92 to the 89-91 range. About half of the improvement is attributable to a change in our accounting policies on unwinding. A combined ratio of 89-91 results in a targeted improved return on equity from the earlier outlook of 19-21% after tax to 21-23%. Our outlook for the medium-term assumes that we return to having an equity share of 8-10% of total assets, assuming a return on equities of 7%.