Annual Report IPF 2021 - Flipbook - Side 30
INDUSTRIENS PENSIONSFORSIKRING A/S
1.
ANNUAL REPORT 2021
NOTES
Accounting Policies
General
This annual report has been prepared in accordance with
the regulations of the Financial Business Act, as well as
the Executive Order from the Danish Financial
Supervisory Authority on Financial Reports for Insurance
Companies and Multi-Employer Occupational Pension
Funds (Executive Order on the Presentation of Financial
Statements).
The accounting policies applied are unchanged compared
with 2020.
All amounts in the financial statements are presented in
whole million DKK. Each figure is rounded separately,
which means that there may be small differences
between the totals stated and the total of the underlying
figures.
Pursuant to section 134(1) of the Executive Order on
Presentation of Financial Statements, no consolidated
financial statements have been prepared for the
company. The company and its subsidiaries, see note 10
of these financial statements, together with the affiliate
Industriens Pension Service A/S, are included in the
consolidated financial statements of IndustriPension
Holding A/S (CVR no. 15 89 32 30).
Accounting estimates and assessments
Preparation of the annual report requires that
management make a number of estimates and
assessments regarding future conditions which could
significantly influence the accounting treatment of assets
and liabilities, and thus the result in the current and
coming years. The most significant estimates and
assessments concern calculation of provisions for
insurance contracts, fair value of unlisted financial
instruments and fair value of the owner-occupied
property.
Assumptions on mortality are based on benchmarks from
the Danish Financial Supervisory Authority, and like other
assumptions, they are set as a best estimate based on
experience with previously held portfolios of insurance
contracts. The provisions are calculated as the present
value of the future benefits discounted by the yield curve
defined in the Executive Order on Presentation of Financial
Statements. This means that the size of provisions is also
affected by the current interest-rate level determining the
discount rate. Provisions with these uncertainties
constitute less than 7% of total provisions.
Fair value of financial investment assets
There are no significant estimates connected with the
valuation of financial instruments with listed prices on an
active market (level 1), or where valuations are based on
accepted valuation models with observable market data
(level 2).
In relation to financial instruments where there is only
limited observable market data on which to base valuation
(level 3), valuation will be affected by estimates. This
applies in particular to holdings in group undertakings and
associated undertakings with investments in investment
properties and wind turbines, to unlisted equity
investments in funds with private equity, real estate and
infrastructure, to unlisted investment units, to unlisted
bonds, and to the owner-occupied property.
Valuation of investment properties and wind
turbines in group undertakings and associated
undertakings is based on the present value of
expected cash flows during a planning period of 10
years for investment properties and up to 30 years
for wind turbines. The method for investment
properties (discounted cash the flow (DCF)) is defined
The most significant estimates concern determination of
the discount rate, which is composed of an individual rate
of return and the expected inflation rate, as well as
certain elements of the budgeted cash flows, in particular
budgeted rental income which depends on the level of
the rent and vacant periods etc., expenses for
maintenance and renovation as well as a so-called
terminal value when the planning period expires. The
determination of the individual rate of return is based on
statistics on actual real estate transactions involving
similar properties and takes into consideration the
location of the property, its age, use and state of
maintenance, etc. As a supplement to this valuation, a
valuation from an external estate agent is obtained every
year concerning the assumptions applied (primarily
individual rates of return), and the fair value is calculated
every three years.
To a great extent, the valuations of unlisted equity
investments in private equity funds and real estate funds
etc., unlisted investment units and unlisted bonds are based
on information from the funds themselves or from capital
managers etc., including information in reports, many of
which were prepared prior to the reporting date. Internal
procedures have been established to ensure the quality of
the information included in measurement of fair value. This
means that temporal differences in accounting data
between the most recent reporting and the reporting date
are taken into account; that additional information is
obtained from selected funds and capital managers; that
internal information on large transactions in individual
funds is continuously collected; that general market
developments since the most recent reporting are
evaluated; and that the quality of the reporting received is
generally followed up on (back test).
The extensive planning period of up to 30 years for wind
turbine investments naturally adds to the uncertainty
concerning future cash flows and consequently also
concerning the current fair value of the wind turbines.
Again, the most significant estimates relate to the
discount rate and to specific elements which have a major
impact on budgeted cash flows, in particular electricity
production, which is based on wind forecasts, idle days
with no generation of electricity, electricity price
developments, costs of maintenance of the wind turbines
and costs of dismantling the wind turbines at the end of
their useful lives. The discount rate is calculated
according to the cost-of-capital method, which combines
a risk-free interest rate with the addition of an illiquidity
premium and the expected inflation rate. The DCF model
is maintained by external experts, and, as a supplement
to their valuation, a statement from another external
expert is obtained every year concerning the market
conformity of the model and the assumptions applied.
The fair value of owner-occupied property is calculated
using a returns model which is also defined in an annex to
the Executive Order on the Presentation of Financial
Statements. According to this model, fair value is calculated
on the basis of the budgeted, normal operating return on
the property, consisting of the market rent less costs of
operation and maintenance, as well as a required rate of
return for the type of property in question. The fair value
calculated is adjusted by any non-recurring income and
expenses not included in the normal return, e.g. deferred
maintenance works. The most significant estimates relate to
the individual required rate of return as well as certain
elements of the normal return, in particular the market rent
and the annual costs of maintenance.
The estimates are by nature uncertain. New information
and/or future events may therefore lead to changes in these
estimates and consequently also in the calculated fair
values.
in an annex to the Executive Order on Presentation of
Financial Statements.
Provisions for insurance and investment
contracts
The calculation of provisions for insurance contracts (excl.
the market-rate scheme) is based on actuarial
calculations, and applies assumptions on e.g. mortality
and disability rates.
30
