Q4/2009 Sector report Nordic Financials The Middle Kingdom ... · PDF fileNordic Financials...

Q4/2009 Sector report Nordic Financials

The Middle Kingdom to the rescue Nordic Financials 03.02.2010 Nordic Financials vs (12m)

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Nordic Financials

Analysts: Odd Weidel +47 22 94 89 49 [email protected] Håkon Fure +47 22 94 89 12 [email protected] Geir Grønseth +47 22 94 89 92 [email protected] Please see the last page for important information.

We find it likely that economic gravitation in the Middle Kingdom will pull us all further out of the recession. Basel III draft proposal is less of a concern than we feared earlier but we still view the regulatory / political risk as high for financials. Company Rec Target Price P/E 10E P/E 11E P/E 12ETop Danmark DKK BUY 731.0 672.5 10.2 10.2 10.4Nordea Bank SEK BUY 85.0 70.8 10.7 8.5 6.7DnB NOR NOK NO REC 67.6 9.4 7.4 6.2Danske Bank DKK HOLD 138.0 133.4 16.0 11.3 6.9Handelsbanken SEK HOLD 193.0 196.0 12.2 10.1 8.1Sampo Oyj EUR BUY 2.6 18.0 10.2 8.5 7.0SEB SEK BUY 54.0 46.2 49.9 21.1 10.8Swedbank SEK BUY 72.0 66.9 28.0 9.5 6.2Trygvesta DKK BUY 400.0 334.9 11.7 9.4 8.2 • The face of the ‘new normal’ is still the, by far, largest risk factor

for banks going forward. Recently exemplified by president Obama’s proposed new regulations "The Volkner rule". The rules would, if approved, prohibit banks from investing in hedge funds, private equity, and more importantly limit proprietary trading. We believe US banks has failed to address the political signals, but see limited impact on the Nordic banks. However the new Basel III landscape will put pressure on RoE but, in our analysis, we find the likely effects to be: (i) sustained high margins (ii) banks must lower cost/income ratios and (iii) this is another catalyst for change. Given these measures we find in our analysis that banks should be able to deliver investor friendly return even in this brave new world.

• … and a prolonged stimuli scenario is still our base case although the fear financial bubbles is more tangible now.

• We initiate coverage of the Nordic Non-life companies Sampo, TopDanmark and TrygVesta. Solvency II leads to less price competition and significant headroom for the strong balance sheet players. We believe that bancassurance and internet sales are becoming increasingly important, and therein companies that have these cost-efficient channels are likely to gain market shares and improve their combined ratios.

o Sampo The 20% share in Nordea is now consolidated and therein greatly stabilizing Sampo’s income. Conglomerate discount to high.

o Topdanmark The cost leader in the Nordic non-life insurance business has more upside in trustworthy ROE and combined ratios.

o TrygVesta appears to be over-capitalized and set for a solid increase in dividends going forward. Based on their long-term capitalization target we estimate the dividend yield to trend above 10% in the next years. Great risk/reward prospects.

• Valuation Nordic banks There is still some 30% upside potential compared to 12 year average P/B (1.7), and we are still semi-bullish as we believe the following factors are not adequately discounted; (i) decreased competition and (ii) the new financial landscape (too negative market perception). Non-life insurance is trading ~25 % below average trading levels. Solvency II as premium increase catalyst.

Sector report > Nordic Financials

03.02.2010

DnB NOR Markets - 2

The investment cases

Danske Bank Sum-of-the-parts valuation We would accredit the Markets division with a higher earnings quality grader than earlier. Potential hybrid conversion is problematic timing vise. We find the equity ratio in the low end though (~3.1%) and, as such, unsure of the impact on Basel III. Recommend HOLD, PT = 138 DKK.

138

0

20

40

60

80

100

120

140

160

BA Markets Pension Capital Other Group

Last= 133.4

DnB NOR Sum-of-the-parts valuation 'Too good to be true' Norwegian macroeconomics is highly supportive for DnB NOR. Moderate hikes in interest rates in 2010 should only increase deposit margins and, we assess, only impact asset quality insignificantly. DnB NORD evaluation process has been initiated and is an uncertainty going forward, although minor. No recommendation.

82

0

20

40

60

80

100

Corporate Retail Markets Life & AM DnB NORD Other Group

Last= 67.55

Handelsbanken Sum-of-the-parts valuation A good example of the power of perception, and of course we like the consistency in Handelsbanken's strategy. Priced in the high brackets compared to its Nordic peers we still see a 15% potential in Handelsbanken placing our recommendation at BUY, PT = 193 SEK.

193

0

50

100

150

200

250

Sw edish Non-Sw edish Markets AM Overhead Group

Last= 196


03.02.2010

DnB NOR Markets - 3

Nordea Sum-of-the-parts valuation Nordea has weathered the crisis in a very good manner and experiences customer growth at acceptable risk levels. Truly diversified and with a scalable platform, we like Nordea although it is already priced in the high brackets. Recommendation is BUY, PT = 85 SEK.

85

0

20

40

60

80

100

Nordic New Markets Financial S, O & I * Other IIB Other Group

Last= 70.8

SEB Sum-of-the-parts valuation Nordic reach in the corporate market but costs in Germany and Swedish macro still of some concern. The high exposure towards the Baltic States is still the key issue though. Recommendation is BUY, PT= 54 SEK.

54

0

10

20

30

40

50

60

Merchant Retail Baltic WM Life Other Group

Last= 46.19

Swedbank Sum-of-the-parts valuation We see the Swedish Banking Division, operating at a cost-income ratio well below 50%, as a counterweight to the high risk international divisions. Our concern is that the bank has lost customers throughout the crisis. Recommendation HOLD, PT = 72 SEK.

72

0

20

40

60

80

Sw edish Baltic International Markets AM&Insurance Other Group

Last= 66.95


03.02.2010

DnB NOR Markets - 4

Contents

NORDIC BANKS - SUMMARY AND VALUATION 5

MORE JUICE IN THE MIDDLE KINGDOM … 7

… AND FURTHER POTENTIAL IN THE EQUITY MARKETS 9 BASEL III 11 RESILIENT NON-LIFE SECTOR 14 DRIVERS ANYONE? 15

NORDIC BANKS 17

DANSKE BANK 18 DNB NOR 24 HANDELSBANKEN 30 NORDEA 36 SEB 42 SWEDBANK 48

NON-LIFE SUMMARY AND VALUATION 54

KEY INDUSTRY POINTS 56 MARKET DYNAMICS 58 MARKET SHARES ARE PERSISTENT 59 REINSURANCE – A RISK REDUCTION AND CAPITALISATION TOOL 60 DISTRIBUTION CHANNELS 61 BIG IS BEAUTIFUL? 63 MARKET DESCRIPTION 65 KEY PRODUCT CATEGORY TRENDS 72 REGULATORY CHALLENGES (AND OPPORTUNITIES) AHEAD 75

CORPORATE GOVERNANCE AND STRATEGIC OWNERSHIP IN NORDIC FINANCIAL INSTITUTIONS 77

NON-LIFE INSURERS 83

SAMPO – UNWARRANTED DISCOUNT 84 TOPDANMARK – TRUSTWORTHY ROE 94 TRYGVESTA – THE SAFE BET 107

APPENDIX 1 – NON-LIFE INSURANCE INDUSTRY RISK ASSESSMENT 123


03.02.2010

DnB NOR Markets - 5

"The changes recommended are profound, and the banking system of the future will be different from that of the last decade." "The Turner Review", Chairman UK FSA Lord Turner

Nordic Banks - Summary and valuation There is still some 30% upside potential compared to 12 year average P/B (1.7), and we are still semi-bullish as we believe the following factors are not adequately discounted; (i) decreased competition and (ii) the new financial landscape (too negative market perception).

Basel III suggestions tolerable Regulatory risk is the unknown

variable for banks going forward. There is widespread fear in the markets that RoE will not return to the levels seen earlier. In our analysis we find it likely that this brave new world will not erode RoE significantly if appropriate measures are taken.

… and a prolonged stimuli scenario is still our base case

although the fear financial bubbles is more tangible now.

Target DnM

Q409 calendar Q409E PT Rec PotentialDnB NOR 11-Feb-10 1.34 No Rec 21%Nordea 10-Feb-10 1.27 85.00 Buy 20%Swedbank 09-Feb-10 - 72.00 Hold 8%SEB 10-Feb-10 (0.03) 54.00 Buy 17%Handelsbanken 18-Feb-10 3.87 193.00 Hold -2%Danske Bank 04-Feb-10 0.09 138.00 Hold 3% Nordic valuations

DnB NOR 2010 estimatesP/E P/B RoE D-yield

DnB NOR 9.36 0.95 10.16% 1.48%Nordea 10.72 1.15 11.21% 2.86%Swedbank 27.96 0.89 3.25% 0.00%SEB 49.88 1.00 2.03% 2.16%Handelsbanken 12.22 1.49 12.16% 2.55%Danske Bank 16.01 0.88 5.65% 0.19%

10-year historical averageP/E P/B RoE D-yield

DnB NOR 9.15 1.34 15.53% 3.79%Nordea 11.05 1.81 17.28% 2.87%Swedbank 11.15 1.88 15.65% 4.82%SEB 11.62 1.67 14.64% 3.48%Handelsbanken 11.42 1.93 16.89% 3.42%Danske Bank 10.45 1.53 14.82% 3.59% Source: DnB NOR Markets, Factset

THE BASE CASES

We find it likely that Nordea will continue its organic growth and recommendation reiterated with BUY (pt=85 SEK). SEB with its Nordic reach in the corporate market are also attractive. As the Swedish election approaches we believe a Nordea-Swedbank solution is too "costly" for Swedish politicians. Therein only one structural candidate left, in the short term, for Nordea? SEB recommendation reiterated, BUY (pt=54 SEK).

THE HARD LANDING CASES

Handelsbanken and Nordea are the clear defensive picks going forward. Diversified portfolios and healthy organic growth is generally hard to dislike. More importantly, in our scenarios, both banks show considerable resilience in a "double dip" scenario.


03.02.2010

DnB NOR Markets - 6

Present ROE and P/B relationships fairly unchanged since last Q3

Arrows indicate development in our scenarios. Green=high case, black=base case and red=low case.

Please view Valuation methodology chapter for further information.

The regression lines represent the best fitting straight line through the respective divisional datasets. Please view appendix 3 for further information.

Historical RoE and P/B relationship

Investment B anking

R etail

C o rpo rate

A sset M anagement

Insurance

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

0% 2% 4% 6% 8% 10% 12% 14%RoE

P/

B

Present RoE and P/B relationship

Investment B anking

R etail

C o rpo rate

A sset M anagement

Insurance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0% 5% 10% 15%RoE

P/

B

Estimated 2009 RoE and P/B

DANSKE

SHB

SEB

SWED

NDA

DnB NOR

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0% 5% 10% 15% 20%RoE

P/B

Source: DnB NOR Markets, Factset


03.02.2010

DnB NOR Markets - 7

More juice in the Middle Kingdom … Macroeconomic outlook The recovery has gained momentum supported by the governmental packages, and arguably China in particular. Looking ahead we believe economic policymakers increasingly face a policy dilemma; being the duality in ensuring a continued recovery-momentum versus balancing asset prices. The worldwide "pedal to the metal" policy from politicians has been successful, but the short-term artificial stimuli must now be replaced by long-term fundamentals. There is no doubt in our minds that demand from Asia, and especially so China, has contributed positively to the economic recovery. Improvement in intra-Asian trade has further helped the turnaround process (as export based countries in Asia has gained by the Chinese stimuli programs). The impact of the large Chinese stimuli package (~14% of GDP) now fades and the key question is then: Can China pull the world economy any further? Chinas economic significance

China USA Japan FrancePopulation (m) 1,328 312 128 62 Workforce (m) 770 145 64 26 Unemployment (m) 78 9 3 2 GDP (US bn) 4,416 14,441 4,909 2,864 - per capita 3,325 46,336 38,444 46,187 GDP (US bn) (PPP) 8,161 14,441 4,333 2,135 - per capita 6,146 46,336 33,937 34,435 Export (US bn) 1,429 1,287 782 603 Import (US bn) 1,133 2,104 762 704 Current account balance (US bn) 426 (706) 157 (53)

2008

Source: IMF, DnB NOR Markets As seen in the table above GDP per capital in China is still only ~16%, of the somewhat arbitrarily chosen peers above, clearly showing the potential. More importantly the current account balance shows China has the capability to do something about it as well. As GDP per capita in the economy moves from 5000 to 15000, the demand for infrastructure rises and therein metal. The rapid urbanization reinforces this demand. According to China Metals Magazine these metal maturing processes has historically been like this: Historical demand for metal

Nr. of years moving from 5'-15'

Country USD/cap Steel top Steel now Copper top Aluminium topUK 130 509 250 7 11US 85 671 420 12 24France 85 515 325 11 13Germany 82 674 450 13 15Japan 25 886 610 13 20Taiwan 27 1161 1050 30 26South Korea 27 988 975 19 25China (estimate) 25 650 ~450

Max kg/cap consumption of

Source: China Metal The maturing process has speeded up. UK, as the first industrialized country, used ~130 year to reach 15.000 USD/cap, but the Asian Tigers managed to do the same in ~25 year. According to China Metals the same process will take some 25 year in China. China Metals estimate China will top metals consumption at around 650 kg/cap.

Will a possible Chinese currency appreciation be a joker?

The expansionary fiscal and monetary policy set in effect to counter the financial tsunami has yielded state budget deficits and rising asset prices – the policy dilemma is getting closer


03.02.2010

DnB NOR Markets - 8

Policy experience from the 1930ies – economic stimuli likely to continue in worldwide … also in China

Monetary contraction

Financial thightening

New downturn

New downturn

New downturn

Source: BCA Research The recent comments from Prime Minister Gordon Brown conforms the continuity of the stimuli packages as he said the Government will continue to invest "willingly and whole heartedly" in Britain's future. He also said the return to strong, sustainable growth would take time. We find these comments as confirmation that our U-shaped recovery estimate is still the base case.

One of the main policy errors from the 1930-ies was a too early tightening which again created a second dip. We believe this lesson is now incorporated into policymaker's memory and mindset. You could argue now that there is a real possibility that new bobbles are in the making, but we would argue that the following two examples will prevent policymaker from withdrawing packages too early.


03.02.2010

DnB NOR Markets - 9

… and further potential in the equity markets Continued good equity markets will benefit banks in a number of ways. E.g. most noticeably companies will get easier excess to capital through issues. One of the key risky sectors for the Nordic banks, Private Equity funds, should experience increased liquidity and obtain better prices for their assets, therein lowering risks for the banks as well. Looking at consensus S&P 500 figures we see that analysts estimate EPS growth from 2009 to 2010 to formidable ~26%. S&P 500 EPS Year EPS Growth Y/Y 1m chg2002 49.53 0.0%2003 55.87 13% 0.0%2004 67.49 21% 0.0%2005 76.80 14% 0.0%2006 88.87 16% 0.0%2007 83.92 -6% 0.0%2008 56.67 -32% 0.0%2009 60.14 6% -0.1%2010 77.30 26% 0.7%2011 92.93 20% 0.1%12m FWD 78.24 1.9% Source: Factset, DnB NOR Markets Can this EPS growth be attainable?

(a) Average EPS in 2009 was 15.2 compared to an estimated EPS in 2010 of 19.24. YoY growth equals 26%, but 8 percentage points of the growth is due to the very low Q109. Assuming this quarter was the same as the average of the other quarters, the growth would fall from 26% to 18%! S&P 500 quarterly earnings

23.224.7

21.9

13.8

17.4

20.2

17.7

2.2

12.1

16.3 16.3 16.317.2

18.720.1

20.9

0

5

10

15

20

25

30

Q107 Q307 Q108 Q308 Q109 Q309 Q110 Q310

Source: Factset, DnB NOR Markets


03.02.2010

DnB NOR Markets - 10

(b) Our main assumption is that the cycle will become self-sustaining and that we will have a period of maintained economic growth, helping to normalize activity levels, capacity utilization and company margins. If we calculate a regression between US corporate profits after tax for non-financial firm and the difference between nominal GDP-growth and the growth of unit labor coast, we get the following equation:

( )growthgrowth ULC-GDP 3.5 + 5.7- = Profits

It can be readily seen that earnings are leveraged on both top line and the big bulk of labor cost. In the current state of the cycle we expect low compensation growth. Assuming unit labor costs fall by 2% - i.e. 3% productivity growth and 1% wage growth – and nominal GDP grow by 5%, the model tell us non-financial earnings can grow by 20% according to historical data. The expected bottom up earnings growth for the SP500 non financial is in this range and absolutely attainable! With a continued cyclical upswing in front of us, earnings growth should be very encouraging and an important driver of continued strong equity market. GDP-ULC and profits after tax (percentage)

-30

-20

-10

0

10

20

30

40

50

1952 1961 1970 1979 1988 1997 2006GDP-ULC Profits

Source: DnB NOR Markets, Ecowin Since 8% +13% equals almost 26% the conclusion would then be that adjusted for the somewhat abnormal Q108 and using, we believe, fairly normalized estimates for labor costs and GDP growth the 26% increase in EPS from 2009 to 2010 forecast does not seem far fetched, but rather a base case.


03.02.2010


Basel III The Basel committee proposed new regulations for capital and liquidity in December last year. The purpose was to improve Basel II shortcomings and therein specifically improve the quantity and quality of capital in banks. A key element is also to regulate the amount of short funding a bank can have at any time. The new Basel regulations are just suggestions but we find it likely that the final document will be fairly unchanged. The Basel III documents list three demands:

1. A common equity ratio 2. A leverage ratio 3. A net stable funding ratio

An accurate analysis of the consequences of the Basel II regulations is difficult, but we would like to focus on the likely shareholder consequences.

Tolerable effect of tighter regulation The group of 20 finance ministers and central bank governors has agreed that banks should raise capital in the months to come in able to make the entire financial system more stable and also maintain an adequate lending capacity. The two questions that immediately pops into our mind is (i) what level of capital will be needed and (ii) will banks ever get back to a "normalized" return on equity?

(i) The level of capital demanded seems to be settling around 4% in equity ratio (or leverage ratio) and 10% in core capital from a market point of view, although we believe the actual regulatory demands will be lower than this.

Capital adequacy ratios

Core capital ratio Equity ratio

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409Danske Bank DnB NOR HandelsbankenNordea SEB Swedbank

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409

Danske Bank DnB NOR HandelsbankenNordea SEB Swedbank

Including the recent DnB NOR and Swedbank rights issues (NOK 14 bn and SEK 15.1 bn respectively).

The equity ratio, or leverage ratio, is increasingly viewed upon as a better way of assessing banks capital need. Especially so since risk-weighted assets (RWA) vary substantially calculation-vice making it difficult to do any cross-border analysis.


03.02.2010


RWA / lending ratio Theoretical capitalization need at Q409E

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409

Danske Bank DnB NOR HandelsbankenNordea SEB Swedbank

PotentialBank Equity ratio Limit Difference cap. needDanske 3.0% 4.0% 1.0% 33,726 DnB NOR 5.8% 4.0% -1.8% (32,667) SHB 3.5% 4.0% 0.5% 10,823 Nordea 4.4% 4.0% -0.4% (2,170) SEB 4.1% 4.0% -0.1% (2,778) Sw ed 4.9% 4.0% -0.9% (16,222)

Surprisingly large differences in the ratios and no sign of any convergence.

In general Nordic banks are slightly overcapitalized also compared to the prevailing market demand.

(ii)

The multiple capital injections and withhold dividend have certainly yielded higher capital ratios and improved overall sector confidence, but the flipside could be lower RoEs going forward. Should investors fear this brave new world? We find it relevant to see RoE in relation to the prevailing interest rate level. Extracting the rather extraordinary years from 2005 until 2007 we get an average of ~9.5% (RoE - 10Y gov. bond spread).

Return on Equity (RoE) Historical RoE

Bank 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Danske Bank 15.7% 14.1% 15.3% 13.0% 16.3% 12.5% 15.3% 13.5% 14.8% 13.8% 17.2% 15.9% 15.2% 4.8%DnB NOR 21.8% 19.8% 17.0% 6.8% 14.4% 16.8% 15.7% 8.9% 12.9% 15.7% 16.4% 17.6% 17.3% 12.5%Handelsbanken 13.8% 18.7% 19.0% 17.6% 17.3% 21.0% 17.3% 14.6% 14.5% 15.9% 17.0% 18.7% 14.6% 15.2%Nordea 25.7% 27.0% 20.1% 14.3% 18.9% 15.6% 13.2% 8.4% 11.9% 14.3% 16.7% 19.5% 17.8% 12.0%SEB 10.7% 22.3% 12.6% 14.3% 14.3% 16.0% 11.4% 11.7% 12.0% 14.0% 14.9% 18.3% 16.8% 11.9%Swedbank 16.3% 18.7% 3.7% 16.0% 14.8% 18.3% 13.9% 12.2% 15.1% 18.8% 20.4% 18.2% 17.7% 16.0%Average 17.3% 20.1% 14.6% 13.7% 16.0% 16.7% 14.5% 11.6% 13.5% 15.4% 17.1% 18.0% 16.5% 12.1%

10Y gov. bond yield*

Bank 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Sweden 10.3% 8.1% 6.6% 5.0% 5.0% 5.4% 5.1% 5.3% 4.6% 4.4% 3.4% 3.7% 4.2% 3.9%Norway 7.4% 6.8% 5.9% 5.4% 5.5% 6.2% 6.2% 6.4% 5.1% 4.4% 3.8% 4.1% 4.8% 4.5%Denmark 8.3% 7.2% 6.2% 4.9% 4.9% 5.6% 5.1% 5.1% 4.3% 4.3% 3.4% 3.8% 4.3% 4.3%

* average

RoE - 10Y gov. bond spread

Bank 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Danske Bank 7.5% 6.9% 9.0% 8.1% 11.4% 6.8% 10.2% 8.4% 10.5% 9.5% 13.8% 12.0% 10.9% 0.5%DnB NOR 14.4% 13.0% 11.1% 1.4% 8.9% 10.6% 9.4% 2.5% 7.9% 11.3% 12.7% 13.5% 12.5% 8.0%Handelsbanken 3.5% 10.6% 12.3% 12.5% 12.3% 15.7% 12.2% 9.3% 9.9% 11.4% 13.6% 15.0% 10.4% 11.4%Nordea 15.4% 18.9% 13.4% 9.3% 13.9% 10.3% 8.1% 3.1% 7.2% 9.9% 13.3% 15.8% 13.6% 8.1%SEB 0.4% 14.2% 6.0% 9.3% 9.4% 10.6% 6.3% 6.4% 7.4% 9.6% 11.5% 14.6% 12.6% 8.0%Swedbank 6.0% 10.6% -3.0% 11.0% 9.8% 12.9% 8.8% 6.9% 10.5% 14.4% 17.0% 14.5% 13.5% 12.1%Average 7.9% 12.4% 8.1% 8.6% 11.0% 11.1% 9.2% 6.1% 8.9% 11.0% 13.6% 14.2% 12.3% 8.0%


03.02.2010


RoE RoE - 10Y gov. bond spread

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Bank 1996 1998 2000 2002 2004 2006Danske Bank DnB NOR HandelsbankenNordea SEB Swedbank

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Bank 1996 1998 2000 2002 2004 2006 2008Danske Bank DnB NOR HandelsbankenNordea SEB Swedbank

Source: Factset, DnB NOR Markets Nordic 10Y governmental bond interest rate is now ~3.5%. If we add that interest rate to the ~9.5% average from above we get a RoE target of ~13%. The Nordic banks are now, on average, slightly overcapitalized (post recent issues), and we adjust income somewhat upwards to adjust for the growth potential. With these assumptions we should be able to calculate RoE in a different loan loss and cost-income scenarios. In our analysis we have aggregated the banks. Income sheet aggregated bank

2009E 2010E 2011E 2012ETotal income 34,746 33,308 34,884 37,442Total expenses 16,956 16,544 16,860 17,317Profit before loan losses 16,135 15,178 16,363 18,342Net loan losses 3,988 4,199 4,523 5,020Gains/losses other 0 0 0 0Operating profit 12,148 10,979 11,840 13,322Taxes 3,037 2,745 2,960 3,330Pension settlement 0 0 0 0Minorities -307 -202 -85 -18Profit for the period 9,418 8,436 8,965 10,009

Equity 73,657 79,472 88,853 100,569 RoE 13% 11% 10% 10%C/I 49% 50% 48% 46% In the above example we have utilized a normalized loan loss ratio of 33 bps. Source: DnB NOR Markets RoE scenario analysis

44% 48% 52% 56%10 14.7% 14.2% 13.8% 13.3%

Normalized bps loan loss 20 13.5% 13.1% 12.6% 12.1%level 33 12.0% 11.5% 11.0% 10.6%

40 11.2% 10.7% 10.2% 9.7%50 10.0% 9.5% 9.0% 8.6%

C/I ratio

In this, simplified, analysis we see that the new regulatory framework will put pressure on banks RoE. With cost cutting efforts and sustained high interest margins however banks should be able to deliver investor friendly return even in a brave new world. Source: DnB NOR Markets


03.02.2010


The new landscape will put pressure on RoE but, in our analysis, we find the likely effects to be:

1. sustained high margins 2. further cost cutting initiatives in banks (lower cost/income ratios is

paramount) 3. … another catalyst for change

With these measures, we find in our analysis, that banks should deliver investor friendly return even in this brave new world.

Resilient non-life sector

Historical data

Swedish economic crisis 1991-1995

23,000

23,500

24,000

24,500

25,000

25,500

26,000

26,500

1991 1993 199554.00%

56.00%

58.00%

60.00%

62.00%

64.00%

66.00%

68.00%

70.00%

72.00%

GWP Risk ratio development

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

1991 1992 1993 1994 1995

GDP development

Steadily decreasing annual GDP in 1991-1993 and still gross premium written (GWP) rose those years.

Internet bobble 1999-2001 (EU27 countries) Internet bobble Norway

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

1998 2000 2002 2004 20060.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Non-life premiums GDP growth

0

10,000

20,000

30,000

40,000

50,000

60,000

1998 2000 2002 2004 20060.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Non-life premiums GDP growth

Aftermath of the financial tsunami is of course difficult to estimate yet but history seems to tell a unanimous story – non-life is a non-cyclical industry. A well-run company can as such be very resistant should for instance a "double dip" recovery occur.

Source: Swedish central bank, Swedish insurance federation, CEA, IMF, OECD, DnB NOR Markets


03.02.2010


Drivers anyone? Tightening standards again

Change in banks' credit standards for approving loans

Net percentage which is defined as the difference between the sum of banks responding credit tightening (considerable and somewhat) and the sum of banks responding eased (considerable and somewhat).

US – corporate sector US – private sector

-40

-20

0

20

40

60

80

100

Q290 Q292 Q294 Q296 Q298 Q200 Q202 Q204 Q206 Q208

Enterprises Commercial real estate

-30

-20

-10

0

10

20

30

40

50

60

70

80

Q290 Q292 Q294 Q296 Q298 Q200 Q202 Q204 Q206 Q208

Residential Other household Credit cards

Still tight … …but light at the end of the tunnel in residential lending?

EU UK

-30-20-10

01020304050607080

Q103 Q403 Q304 Q205 Q106 Q406 Q307 Q208 Q109

Households Actual Households ExpectedEnterprises Actual Enterprises Expected

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309Households Actual Households ExpectedEnterprises Actual Enterprises Expected

Please notice that negative figures show tightening for Norway, UK and Denmark and opposite so for EU/US.

Apositive credit stance in the UK.

Norway – tightening standard again? Denmark

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409

Households Actual Households ExpectedEnterprises Actual Enterprises Expected

-80

-70

-60

-50

-40

-30

-20

-10

0

Q408 Q109 Q209 Q309Households Actual Households ExpectedEnterprises Actual Enterprises Expected

Central Bank surveys show a distinct improvement

Source: Respective Central Banks, DnB NOR Markets


03.02.2010


Scenarios applied throughout the report In able to stress test the banks, we have applied three different scenarios for global economic growth. The optimistic scenario entails relatively quick improvements in credit conditions and economic growth. The base case scenario assumes that thanks to the broad scope of this economic downturn - coupled with the challenging credit conditions - the recession will drag on at least into the first half of 2010. In the pessimistic scenario, the recession becomes deeper and lingers on into 2010, resulting in major loan losses for most banks.

High case: V shaped recovery The financial sector shores up its balance sheets. Credit

markets continue to improve. Powerful effects from monetary and fiscal stimulus once

optimism returns and credit channel heals. US recession ends in October, still the longest recession on record in the postwar period. The Euro zone recession lasts an additional quarter. In sum, a V-shaped recovery and a virtuous cycle marked by a rapid normalization of confidence.

Markets will continue to rise rapidly (40% up). Base case: U shaped recovery

Markets improve but de-leveraging takes time slowing the recovery

The US and Euro zone recessions ends in November. Markets will continue to rise though still volatile. Up ~20% 12

months ahead. Low case: W shaped recovery / double dip scenario

The macro indicators have turned, but are still consistent with negative economic growth.

The credit markets worsen again under the weight of the debt burden, weighing on economic growth. The US recession lasts until the end of the year, and the recovery will be feeble.

The latest rise in equity markets turns out to be nothing but a bear market rally. Sell in October!

Scenario loan losses High case: V-shaped recoveryBank 2009E 2010E 2011E 2012EDnB NOR 0.62% 0.27% 0.12% 0.06%Nordea 0.49% 0.13% 0.07% 0.04%Sw edbank 1.70% 0.30% 0.15% 0.06%SEB 0.82% 0.27% 0.16% 0.06%Handelsbanken 0.21% 0.10% 0.06% 0.03%Danske Bank 1.30% 0.29% 0.17% 0.08%

Base case: U-shaped recoveryBank 2009E 2010E 2011E 2012EDnB NOR 0.74% 0.63% 0.31% 0.16%Nordea 0.61% 0.40% 0.23% 0.12%Sw edbank 1.94% 0.88% 0.42% 0.16%SEB 1.02% 0.81% 0.49% 0.18%Handelsbanken 0.26% 0.29% 0.19% 0.09%Danske Bank 1.54% 0.82% 0.49% 0.24%

Low case: W-shaped "recovery" / double dipBank 2009E 2010E 2011E 2012EDnB NOR 0.90% 1.08% 0.55% 0.30%Nordea 0.76% 0.74% 0.43% 0.22%Sw edbank 2.25% 1.59% 0.74% 0.27%SEB 1.28% 1.50% 0.90% 0.34%Handelsbanken 0.33% 0.54% 0.36% 0.17%Danske Bank 1.85% 1.49% 0.89% 0.43% Source: DnB NOR Markets


03.02.2010


High case: Strong recovery

DnB NOR

NDA

SWEDSEB

SHB

DANSKE

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

-15% -10% -5% 0% 5% 10% 15% 20%RoE

P/B

Base case: Moderate recovery

DnB NOR

NDA

SWEDSEB

SHB

DANSKE

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

-15% -10% -5% 0% 5% 10% 15% 20%RoE

P/B

Low case: No recovery yet

DnB NOR

NDA

SWEDSEB

SHB

DANSKE

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

-15% -10% -5% 0% 5% 10% 15% 20%RoE

P/B

Source: DnB NOR Markets

Nordic Banks


03.02.2010


Danske Bank Measured by size of the balance sheet Danske Bank is ranked second among its Nordic peers with EUR 435 bn in total assets (Q309). In addition to its Danish presence, it’s also represented with large branches in Sweden and Norway (representing 9.7 and 7.9% of total lending respectively). Further international expansion was initiated when Danske Bank bought Northern Bank and National Irish Bank in Ireland from National Australia Bank in December 2004 at a cost of DKK bn 10.4. The acquisition was part of an increased strategic focus on the retail business in the bank. “Part 2” of expansion was buying Sampo bank in 2006 (effect as of 01-February 2007) for DKK bn 30.20 (P/B=3.6). Therein the bank also gained a presence in Finland and the Baltic area as well. Danske Bank is now the third largest bank in the Baltic area, and until recently also the second largest financial institution in the Nordic area in market cap terms. The costs of integrating the international businesses are challenging. Danske Bank communicated continued work on creating a common technological platform as well as improving the overall cost-income ratio. Among the measures taken is a reduction in head office staff functions of 350 full-time employees. The second package (solidity) is more favorable both with regards to overall size and indicated prices. Danske Bank injected DKK 26 bn in state hybrid capital offered in Bank package 2, and although it might be converted into shares (at the prevailing market price -5% discount) we would prefer permanent market based capital. In the case of a W-shaped double dip recovery the probability for an equity issue and/or state involvement would increase. So our objection toward the hybrid capital has been primarily related to the potential unfortunate timing of such a conversion. After the Basel III regulations (suggested) One of the key questions in Q3 will be if the declining loan impairment charges seen the last quarters continue. Quarterly loan impairment charges

1133

109125 120 122

64 31

11 3

0

20

40

60

80

100

120

140

160

180

200

Q208 Q308 Q408 Q109 Q209 Q309

Individual Collective

Source: Company reports

Geographical distribution of lending portfolio

Finland,

Denmark, 58%

Sum Ireland,

7%

Norway

Sweden

Late cycle acquisitions are expensive and integration costs are high First bank and credit package too costly … and cost of hybrid is 625 DKKm per quarter.

… but impairment charges has receded. Denmark was one of the first European countries to enter the crisis. will it be one of the first out as well?


03.02.2010


Q409 preview DKKm Q408 Q409E Q409E

Reported DnB NOR Market* Abs. % 2009E 2010E 2011ENet interest income 7,365 6,716 6,783 -649 -9% 27,475 27,113 27,923Net fee income 1,944 1,913 1,875 -31 -2% 7,514 7,609 7,606Net trading income 2,190 3,778 3,474 1,588 73% 20,061 10,378 6,859Other income 537 1,011 474 88% 4,253 4,081 4,375Total income 12,036 13,417 13,177 1,381 11% 59,302 49,181 46,763Integration expenses 257 190 -67 -26% 787 738 726Staff costs 2,928 3,187 259 9% 13,410 12,904 13,241Other costs 6,779 3,144 -3,635 -54% 14,047 12,977 12,846Operating expenses 9,964 6,520 -6,692 -3,444 -35% 28,243 26,619 26,813Profit before credit loss e 2,072 6,897 6,485 4,825 233% 31,059 22,562 19,950Credit loss expenses 9,199 6,821 5,748 -2,378 -26% 27,516 15,192 9,535Profit before tax -7,127 76 737 7,203 -101% 3,543 7,370 10,416Tax -1,242 17 1,259 -101% 2,176 1,621 2,291Minorities 9 0 -9 -100% -14 0 0Profit -5,894 59 474 5,953 -101% 1,381 5,749 8,124

EPS reported -8.54 0.09 0.68 8.63 n.m 2.00 8.33 11.78ROE -24.0% 0.2% 1.9% 0 n.m 1.4% 5.7% 7.5%Dividend n.a. n.a. n.a. n.a. n.a. 0.00 0.25 2.00

Chg YoY DnB NOR Markets

Estimate changes

Change2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E

Net interest income 27,475 27,113 27,923 27,472 27,059 27,765 3 54 158Net fee income 7,514 7,609 7,606 7,514 7,609 7,606 0 0 0Net trading income 20,061 10,378 6,859 20,061 10,378 6,859 0 0 0Other income 4,253 4,081 4,375 4,253 4,081 4,375 0 0 0Total income 59,302 49,181 46,763 59,300 49,127 46,605 3 54 158Integration expenses 787 738 726 787 738 726 0 0 0Staff costs 13,410 12,904 13,241 13,410 12,904 13,241 0 0 0Other costs 14,047 12,977 12,846 14,047 12,977 12,846 0 0 0Operating expenses 28,243 26,619 26,813 28,243 26,619 26,813 0 0 0Profit before credit loss ex 31,059 22,562 19,950 31,056 22,508 19,793 3 54 158Credit loss expenses 27,516 15,192 9,535 28,241 16,781 10,483 -724 -1,590 -948Profit before tax 3,543 7,370 10,416 2,816 5,727 9,309 727 1,643 1,106Tax 2,176 1,621 2,291 2,016 1,260 2,048 160 362 243Minorities -14 0 0 -14 0 0 0 0 0Profit 1,381 5,749 8,124 814 4,467 7,261 567 1,282 863

EPS reported 2.00 8.33 11.78 1.18 6.48 10.53 0.82 1.86 1.25ROE 1.4% 5.7% 7.5% 0.8% 4.4% 6.9% 0.6% 1.2% 0.7%Dividend 0.00 0.25 2.00 0.00 0.25 2.00 0.00 0.00 0.00

New estimates Old estimates



03.02.2010


Valuation Danske Bank Divisional 2010 estimates

BankingDKKm activities Markets Capital Pension Other GroupNet interest income 26,802 0 307 0 4 27,113Net fee income 6,448 0 1,188 0 -26 7,609Net trading income 1,014 9,015 41 0 308 10,378Other income 2,792 0 84 1,102 103 4,081Total income 37,056 9,015 1,619 1,102 389 49,181Integration expenses 738 0 36 0 0 774Staff costs 7,828 1,459 572 0 3,044 12,904Other costs 14,177 1,107 362 0 -2,705 12,941Operating expenses 22,743 2,566 971 0 339 26,619Profit before w -ds 14,313 6,449 648 1,102 50 22,562Credit loss expenses 14,812 300 80 0 0 15,192Profit before tax -499 6,149 568 1,102 50 7,370

Share of - total income 75% 18% 3% 2% 1% 100% - operating expenses 85% 10% 4% 0% 1% 100% - profit before w -d 63% 29% 3% 5% 0% 100%

Tax 1,029 463 47 79 4 1,621Minorities 0 0 0 0 0 0State guarantee scheme 0 0 0 0 0 0Profit -1,527 5,685 521 1,023 47 5,749 Key divisional data

Bankingactivities Markets Capital Pension Other Group

Allocated equity 63,590 15,898 4,239 6,359 15,898 105,983BVPS 92.19 23.05 6.15 9.22 23.05 153.64 EPS 2.21- 8.24 0.76 1.48 0.07 8.33 RoE -2% 36% 12% 16% 0% 5%P/B 0.87 P/E 16.01

Valuation using present multiplesBenchmark P/B 0.70 1.10 2.22 2.48 0.49 0.90 Value 44,661 17,532 9,432 15,764 7,864 95,253Value pr share 64.74 25.42 13.67 22.85 11.40 138.09

Valuation using historical multiplesHistorical P/B 1.55 2.53 2.22 2.48 1.69 1.80 Value 98,830 40,158 9,432 15,764 26,788 190,971Value pr share 143.27 58.22 13.67 22.85 38.83 276.85 Source: DnB NOR Markets


03.02.2010


Nordic financials share development

Danske Bank

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

-5% 0% 5% 10% 15% 20% 25%One-month performance

One y

ear

perf

orm

ance

Blue lines show OMXC20 index return in same period. Sum-of-the-parts

138

0

20

40

60

80

100

120

140

160

BA Markets Pension Capital Other Group

Last= 133.4

Source: DnB NOR Markets Danske Bank Risk assessment Key risk factor loan loss development in Denmark

Downside risk o Loan losses in Denmark and Ireland o Lending towards real estate/financial sector o Sampo Bank integration costs o Danish bank and credit package

Upside risk o Pro-active loan loss provision early in the cycle could make

Danske a relative winner going forward. o Further cost-cutting initiatives

Fair price In our SOTP we see little value in the large Banking Activities division and with the uncertainty surrounding a potential equity issue we recommend HOLD with a fair price of 138 DKK.

DANSKE BANK (DANSKE.CS)

PROFIT & LOSS DKKm 2006 2007 2008 2009e 2010e 2011eNet Interest Income 19,501 24,493 27,005 27,475 27,113 27,923Tot. other operating income 17,985 20,731 16,038 31,828 22,068 18,840Operating income 37,486 45,224 43,043 59,302 49,181 46,763Personell expenses 10,693 13,084 13,035 13,410 12,904 13,241Administration expensesDepr. and write-downsOther operating expenses 8,792 11,986 15,691 14,834 13,715 13,572Operating expenses 19,485 25,070 28,726 28,243 26,619 26,813Profit before loan losses 18,001 20,154 14,317 31,059 22,562 19,950Loan losses & guarantees -496 693 12,088 27,516 15,192 9,535Net gain/loss long-term inv.Pre tax profit 18,497 19,461 2,229 3,543 7,370 10,416Taxes 4,952 4,436 1,193 2,176 1,621 2,291Net profit 13,557 14,968 1,011 1,381 5,749 8,124

Q2 09 Q3 09 Q4 09 Q1 10e Q2 10e6,907 6,625 6,716 6,709 6,7658,169 6,977 6,702 6,303 6,028

15,076 13,602 13,417 13,012 12,7923,451 3,164 3,187 3,196 3,218

5,038 3,174 3,334 3,298 3,4808,489 6,338 6,520 6,494 6,6986,587 7,264 6,897 6,518 6,0946,550 6,164 6,821 5,341 4,044

37 1,100 76 1,177 2,051865 517 17 259 451

-828 583 59 918 1,599

BALANCE SHEET DKKbnTotal Assets 0 3,350 3,544 3,555 3,610 3,698Gross loans 0 1,701 1,785 1,796 1,851 1,940Deposits 0 798 800 880 907 950Equity 95 104 98 99 104 111

MARGINS, RATIOSNet Interest marg. % nm nm nm nm nm nmOther inc./tot. inc. % 48.0 45.8 37.3 53.7 44.9 40.3Loan loss ratio % nm 0.0 0.7 1.5 0.8 0.5Cost/Income ratio % 52.0 55.4 66.7 47.6 54.1 57.3Deposit/loans ratio % nm 46.9 44.8 49.0 49.0 49.0Revenue growth % 7.4 20.6 -4.8 37.8 -17.1 -4.9Lending growth % nm nm 5.0 0.6 3.1 4.8Deposit growth % nm nm 0.3 10.0 3.1 4.8

VALUATION 2006 2007 2008 2009e 2010e 2011eEPS DKK 19.81 21.90 1.47 2.00 8.33 11.78Dividend ps DKK 7.75 8.50 0.00 0.00 0.25 2.00Book per share DKK 139.1 152.7 142.4 143.4 151.4 161.2Year end shares million 684.3 683.6 689.8 689.8 689.8 689.8Price DKK 251.00 199.75 52.00 118.00 133.40 133.40P/E X 12.7 9.1 35.5 58.9 16.0 11.3Dividend yield % 3.1 4.3 0.0 0.0 0.2 1.5P/Book X 1.8 1.3 0.4 0.8 0.9 0.8

Share price and targetPrice DKK 133.40Price target 12m DKK 138.00Recommendation HOLD

Financial structureMarket cap. DKKm 92,020Shares outst. million 689.8Free float million 454.7Share price performanceAbs. 1/3/12m 13/9/131Rel. 1/3/12m 7/-1/92High/Low 12m DKK 141/34OMXC20 index 358.230days volatility % 30Company attributesReuters ticker DANSKE.CSFinancialsBanksDenmark

ReportingQ1 2010 04.05.2010Q2 2010 10.08.2010

ManagementCEO Peter StraarupCFO Tonny Thierry AndersenAddressDanske BankHolmens kanal 2-121092 Copenhagen, DenmarkH.p.: www.danskebank.comTel +45 3344 0000

Analyst: Odd Weidel+47 22 94 89 [email protected]


03.02.2010


406080

100120140160180200220240260

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb

Danske Bank

Rebased price (12m, DKK)

30

40

50

60

70

80

90

100


Danske Bank

Rebased consensus average forward EPS (12m, DKK)

0

5,000

10,000

15,000

20,000

25,000

30,000

2005 2006 2007 2008 2009e 2010e 2011e-5%

0%

5%

10%

15%

20%

25%

30%

Interest inc. (DKKm) Interest inc. growth

Interest inc. growthInterest inc. (DKKm)

0

5

10

15

20

25

2005 2006 2007 2008 2009e 2010e 2011e0

2

4

6

8

10

12

EPS (DKK) DPS (DKK)

DPS (DKK)EPS (DKK)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2005 2006 2007 2008 2009e 2010e 2011e0%

10%

20%

30%

40%

50%

60%

70%

80%

Costs (DKKm) Cost/income

Cost/incomeCosts (DKKm)

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

2005 2006 2007 2008 2009e 2010e 2011e0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

Loan losses (DKKm) Loan losses (%)

Loan losses (%)Loan losses (DKKm)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2005 2006 2007 2008 2009e 2010e 2011e-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Other income (DKKm) Other income growth

Other income growthOther income (DKKm)

0.00.2

0.40.6

0.81.01.2

1.41.6

1.82.0

2005 2006 2007 2008 2009e 2010e 2011e0%2%

4%6%

8%10%12%

14%16%

18%20%

Price/Book ROE

ROEPrice/Book


03.02.2010


DnB NOR DnB NOR is Norway’s largest financial services group and operates under several brands. DnB NOR is also among the leading international banks within the shipping and fisheries industries. DnB NOR owns 51% of DnB NORD, with NORD/LB (German Landesbank NORD) owning the remaining 49%. All banks are a bet on macroeconomic conditions, and DnB NOR have been almost uniquely placed among its Nordic peers as the leading bank in a high growth, industrialized economy. DnB NOR has, due to this fact, historically been viewed upon as a defensive bank. The downturn in Norway has been very modest to say the least. Unemployment is surprisingly benign and interest rate hikes are now highly likely before year end. Any rate hikes at these levels should only ease pressure on the deposit margins if anything and, as such, should only be interpreted positively for DnB NOR. DnB NORD evaluation process initiated. Energy sector initiative We assess the concentration risk in the lending portfolio to be large due primarily to the 10% exposure towards the shipping sector but also due to the large exposure towards a single nation, Norway (77% of lending). Since many sectors are interlinked through the commodities market and the oil price in particular this creates a definitive concentration of risk. Commodity prices have fallen steeply and Brent oil prices are down almost 70% since peak in July 2008. Lagging effects dampen the immediate feed-back though and in the short term Norway has limited vulnerability shielding DnB NOR. DnB NOR has an “internal” 10% limit towards the shipping sector and this constraint could limit upside potential should the markets improve. DnB NOR initiated the evaluation process of DnB NORD joint venture late December. Although we expect DnB NORD to continue to burden the DnB NOR share losses will be split with NORD/LB, and this is underlined in our SOTP-analysis which shows only a minor negative value contribution. "Too good to be true" Norwegian macroeconomic should provide downside protection, although a slight "dutch disease" worry has popped into our minds lately.

Nordic GDP per capita Brent oil

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Sweden Finland Norway Denmark2007 2008 2009 2010

GDP pr capita

35.00

40.00

45.00

50.00

55.00

60.00

65.00

70.00

75.00

80.00

Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09

High GDP per capita in Norway offer significant down-side protection.

An oil price, at or above, 80 $/b, would be positive

Source: IMF, Reuters, DnB NOR Markets

Main risk factor is concentration …


Sweden 5%

America 6%

Norway 73%

… towards Norway in general and the shipping sector in particular

Sector distribution of lending portfolio

Shipping10%

Retail total 42%

Other 34%

Real estate 15%


03.02.2010


Estimates Q409 preview NOKm Q408 Q409E Q409E Chg YoY

Reported DNM Market* Abs. % 2009E 2010E 2011E

Net interest income 6,195 5,933 5,643 -262 -4% 23,340 24,881 27,294Net other income 4,705 4,040 3,102 -665 -14% 15,833 16,361 16,146Total income 10,900 9,973 8,745 -927 -9% 39,173 41,242 43,440Operating expences 5,619 4,686 4,545 -933 -17% 18,907 19,238 20,222Profit before loan losses 5,281 5,288 4,200 7 0% 20,267 22,004 23,219Loss/gain l.t investm. 6 0 0 -6 -100% 7 0 0Loan losses 2,314 2,654 2,569 340 15% 8,848 7,717 4,242Pre-tax op PL 2,973 2,633 1,631 -340 -11% 11,425 14,286 18,977Taxes 1,321 948 -373 -28% 4,033 3,711 4,549Minorities -402 -498 -96 24% -1,625 -1,181 -506Period PL 2,054 2,184 1,086 130 6% 9,018 11,757 14,934

EPS reported 1.5 1.3 1.1 -0.2 -0.1 5.5 7.2 9.2ROE 10.3% 9.1% -1.2% -11.4% 8.6% 10.2% 11.7%Dividend n.a. n.a. n.a. n.a. 0.0 1.0 2.0

DnB NOR Markets

Estimate changes NOKm

2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E

Net interest income 23,340 24,881 27,294 23,338 24,818 27,087 2 64 207Net other income 15,833 16,361 16,146 15,833 16,364 16,156 0 -3 -10Total income 39,173 41,242 43,440 39,171 41,181 43,243 2 61 198Operating expences 18,907 19,238 20,222 18,907 19,238 20,222 0 0 0Profit before loan losses 20,267 22,004 23,219 20,264 21,943 23,021 2 61 198Loss/gain l.t investm. 7 0 0 7 0 0 0 0 0Loan losses 8,848 7,717 4,242 8,848 7,717 4,242 0 0 0Pre-tax op PL 11,425 14,286 18,977 11,423 14,226 18,779 2 61 198Taxes 4,033 3,711 4,549 4,032 3,695 4,502 1 15 47Minorities -1,625 -1,181 -506 -1,625 -1,182 -511 0 2 5Period PL 9,018 11,757 14,934 9,016 11,713 14,788 1 44 145


New estimates Old estimates Change



03.02.2010


Valuation DnB NOR NOKm Corporate Retail Markets Life & AM DnB NORD Other GroupNet interest income 6,331 16,193 1,301 8 1,580 -531 24,881Net other income 2,427 3,917 4,928 3,939 617 534 16,361Total income 8,758 20,110 6,229 3,947 2,197 2 41,242Total expenses 1,718 10,914 1,879 2,301 1,809 618 19,238Profit before w -d 7,040 9,196 4,350 1,646 388 -616 22,004Net PL on l.t investm. 0 0 0 0 0 0 0Loan losses 1,595 1,759 0 0 3,143 1,220 7,717Operating profit 5,445 7,437 4,350 1,646 -2,755 -1,836 14,286

Share of - total income 21% 49% 15% 10% 5% 0% 100% - operating expenses 9% 57% 10% 12% 9% 3% 100% - profit before w -d 32% 42% 20% 7% 2% -3% 100%

Tax 1,187 1,551 734 278 65 -104 3,711Minorities 0 0 0 0 -1,181 0 -1,181Net Prof it 4,257 5,886 3,617 1,369 -1,640 -1,732 11,757

Source: DnB NOR Markets Key divisional data

Corporate Retail Markets Life & AM DnB NORD Other GroupAllocated equity 46,307 28,942 15,050 13,892 5,788 5,788 115,768BVPS 28.43 17.77 9.24 8.53 3.55 3.55 71.08EPS 2.61 3.61 2.22 0.84 1.01- 1.06- 7.22 RoE 0.09 0.20 0.24 0.10 0.28- 0.30- 0.10 P/B 0.95 P/E 9.36

Valuation using present multiplesBenchmark P/B 1.30 1.34 0.79 1.24 0.34 0.72 1.16 Value 60,248 38,682 11,918 17,218 1,993 4,181 134,239Value pr share 36.99 23.75 7.32 10.57 1.22 2.57 82.42

Valuation using historical multiplesHistorical P/B 1.83 1.78 2.14 1.69 0.94 1.55 1.78 Value 84,653 51,451 32,171 23,502 5,451 8,945 206,173Value pr share 51.97 31.59 19.75 14.43 3.35 5.49 126.58 Source: DnB NOR Markets


03.02.2010



DnB NOR

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Last= 67.55

Source: DnB NOR Markets Risk assessment Concentration risk is our main concern, although that’s a long term issue presently. Exposure towards the Baltic area is approximately the same as for Nordea but the latter has been trading at an average P/B of 0.8 in 2008 (46% above DnB NOR) clearly showing the desirable effects of Nordic diversification.

Downside risk o Shipping sector development o Life insurance operations. Solvency 2, potentially,

putting more pressure on capital adequacy. o 51% owned DnB NORD, Baltic exposure (~NOK 50 after

adjusting for LB/Nord ownership). o 'To good to be true Norwegian macroeconomic' tilting

into a case of Dutch disease Upside risk

o Energy sector initiative Increasing oil price (at or above 80 $/b)

o Shipping, China pulling rates and the world economy o Significant and sustained increases in lending margins.

Fair price No recommendation

DNB NOR (DnBNOR.OL)

PROFIT & LOSS NOKm 2006 2007 2008 2009e 2010e 2011eNet Interest Income 15,289 17,853 21,911 23,340 24,881 27,294Tot. other operating income 13,224 13,710 12,836 15,833 16,361 16,146Operating income 28,513 31,563 34,747 39,173 41,242 43,440Personell expensesAdministration expensesDepr. and write-downsOther operating expensesOperating expenses 14,428 16,452 18,722 18,907 19,238 20,222Profit before loan losses 14,085 15,111 16,025 20,267 22,004 23,219Loan losses & guarantees -243 220 3,510 8,848 7,717 4,242Net gain/loss long-term inv. 364 2,480 53 7 0 0Pre tax profit 14,692 17,371 12,568 11,425 14,286 18,977Taxes 2,882 2,387 3,333 4,033 3,711 4,549Net profit 11,668 14,743 9,528 9,018 11,757 14,934

Q2 09 Q3 09 Q4 09 Q1 10e Q2 10e5,877 5,743 5,933 6,049 6,1472,695 3,951 4,040 4,120 4,0988,572 9,694 9,973 10,169 10,246

4,877 4,651 4,686 4,729 4,7813,695 5,043 5,288 5,441 5,4652,318 2,277 2,654 2,660 2,065

6 -4 0 0 01,383 2,762 2,633 2,781 3,400

503 1,002 948 834 8501,438 2,168 2,184 2,372 2,862

BALANCE SHEET NOKbnTotal Assets 1,320 1,474 1,716 1,860 1,951 2,090Gross loans 828 973 1,194 1,143 1,226 1,354Deposits 475 538 617 606 650 718Equity 66 76 82 105 116 128

MARGINS, RATIOSNet Interest marg. % nm nm nm nm nm nmOther inc./tot. inc. % 46.4 43.4 36.9 40.4 39.7 37.2Loan loss ratio % 0.0 0.0 0.3 0.8 0.6 0.3Cost/Income ratio % 50.6 52.1 53.9 48.3 46.6 46.6Deposit/loans ratio % 57.3 55.3 51.7 53.0 53.0 53.0Revenue growth % 12.6 10.7 10.1 12.7 5.3 5.3Lending growth % 18.7 17.5 22.6 -4.2 7.3 10.4Deposit growth % 15.5 13.4 14.6 -1.8 7.3 10.4

VALUATION 2006 2007 2008 2009e 2010e 2011eEPS NOK 8.73 11.08 7.40 5.54 7.22 9.17Dividend ps NOK 4.00 4.50 0.00 0.00 1.00 2.00Book per share NOK 48.1 56.9 61.4 64.7 71.1 78.5Year end shares million 1335.8 1334.1 1334.1 1628.8 1628.8 1628.8Price NOK 84.04 78.82 25.64 62.75 67.55 67.55P/E X 9.6 7.1 3.5 11.3 9.4 7.4Dividend yield % 4.8 5.7 0.0 0.0 1.5 3.0P/Book X 1.7 1.4 0.4 1.0 1.0 0.9

Share price and targetPrice NOK 67.55Recommendation NO REC

Financial structureMarket cap. NOKm 110,025Shares outst. million 1,628.8Free float million 1,023.9Share price performanceAbs. 1/3/12m 8/9/218Rel. 1/3/12m 9/-2/148High/Low 12m NOK 70/20OSEBX index 369.630days volatility % 34Company attributesReuters ticker DnBNOR.OLFinancialsBanksNorway

ReportingQ1 2010 29.04.2010Q2 2010 09.07.2010

ManagementCEO Rune BjerkeCFO Bjørn Erik NæssAddressDnB NORStranden 210021 Oslo, NorwayH.p.: www.dnbnor.noTel +47 915 03000



03.02.2010


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DnB NOR

Rebased consensus average forward EPS (12m, NOK)

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25%

Interest inc. (NOKm) Interest inc. growth

Interest inc. growthInterest inc. (NOKm)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2005 2006 2007 2008 2009e 2010e 2011e0.00.5

1.01.5

2.02.53.0

3.54.0

4.55.0

EPS (NOK) DPS (NOK)

DPS (NOK)EPS (NOK)

0

5,000

10,000

15,000

20,000

25,000

2005 2006 2007 2008 2009e 2010e 2011e42.0%

44.0%

46.0%

48.0%

50.0%

52.0%

54.0%

56.0%

Costs (NOKm) Cost/income

Cost/incomeCosts (NOKm)

-2,000

0

2,000

4,000

6,000

8,000

10,000

2005 2006 2007 2008 2009e 2010e 2011e-0.10%0.00%

0.10%0.20%

0.30%0.40%0.50%

0.60%0.70%

0.80%0.90%

Loan losses (NOKm) Loan losses (%)

Loan losses (%)Loan losses (NOKm)

0

2,000

4,000

6,000

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2005 2006 2007 2008 2009e 2010e 2011e-10%

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Other income (NOKm) Other income growth

Other income growthOther income (NOKm)

0.00.2

0.40.6

0.81.01.2

1.41.6

1.82.0

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5%

10%

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25%

Price/Book ROE

ROEPrice/Book


03.02.2010


Handelsbanken Handelsbanken is the third largest financial institution in the Nordic area in market cap terms (EUR 8.3 bn). The banks full name Svenske Handelsbanken should not fool anyone as it is diversified and represented in all the Nordic countries. International growth has been pursued for a number of years but on a steady organic growth basis. Handelsbanken is generally looked upon as being conservative and with a distinct decentralized organization. We basically share this view. 4% of its lending exposure to both UK and Denmark should be well within the comfort zone. The banks combined non-Nordic operations sums up to around 10% of total lending and overall exposure to Eastern-Europe is very limited. Although the growth strategy might be slow, it has paid off during this “perfect financial storm”. The share has performed well relative to other Nordic banks and has traded at an average P/B in 2008 at 1.2, which was a staggering 90% above Nordic peer group average. 5-year senior bank CDS development clearly shows that Handelsbanken has no liquidity issues and with regards to the general equity issue speculations (concerning all banks) we would argue these matters are a relative issue and not an absolute one.

IMFs recent GFSR pinpointed UK as an area of tension and where there is a mismatch between lending capacity and demand. We believe Handelsbanken will be able to tap into this market successfully and that the trend seen in Q2 will continue. EPSI Rating is a customer satisfaction measurement company and their recent rating in UK shows an astonishing result for Handelsbanken.

Customer survey UK

68

73

78

83

88

93

Image Expect ProdQ ServQ Value EPSI Loyal

Barclays Lloyds TSB HSBC MidlandRBS Handelsbanken

Source: EPSI UK, DnB NOR Markets


Sweden, 69%

Norway10%

Any potential equity issue speculations should be viewed in relation to the risk level. We believe Handelsbanken has no liquidity or solidity issues and, as a consequence, no risk of equity issues.


03.02.2010


Estimates Q409 preview SEKm Q408 Q409E Q409E Chg YoY

Reported DnB NOR Market* Abs. % 2009E 2010E 2011E

Net interest income 5,474 5,604 130 2% 22,244 22,842 24,977Net fee and commission i 1,694 1,845 151 9% 7,252 7,494 7,743Net f inancial income 2,229 649 -1,580 -71% 2,617 2,239 2,165Other income 115 128 13 11% 493 1,290 1,465Total income 9,512 8,226 -1,286 -14% 32,606 33,865 36,351Staff costs -3,600 -3,743 -143 4% -15,012 -15,387 -16,269Total expenses -3,600 -3,743 -143 4% -15,012 -15,387 -16,269Profit before loan losses 5,912 4,484 -1,428 -24% 17,595 18,478 20,082Net loan losses -696 -1,182 -486 70% -3,891 -4,805 -3,514Loss/gain l.t investm. 0 0 0 0% 1 0 0Operating profit 5,216 3,302 -1,914 -37% 13,705 13,673 16,568Taxes -705 -825 -120 17% -3,583 -3,418 -4,142Pension settlement 0 0 0 0% 0 0 0Minorities 0 0 0 0% 0 0 0Profit for the period 4,511 2,476 -2,035 -45% 10,121 10,254 12,426

EPS reported 7.1 3.9 -3.2 -0.5 15.8 16.0 19.4ROE 24.1% 11.6% -12.4% -51.6% 13.6% 12.2% 12.9%Dividend n.a. n.a. n.a. n.a. 5.0 5.0 7.0

DnB NOR Markets

Estimate changes SEKm

2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E

Net interest income 22,244 22,842 24,977 22,240 22,728 24,606 5 114 371Net fee and commission in 7,252 7,494 7,743 7,252 7,494 7,743 0 0 0Net f inancial income 2,617 2,239 2,165 2,617 2,239 2,165 0 0 0Other income 493 1,290 1,465 493 1,290 1,465 0 0 0Total income 32,606 33,865 36,351 32,602 33,751 35,980 5 114 371Staff costs -15,012 -15,387 -16,269 -15,012 -15,387 -16,269 0 0 0Total expenses -15,012 -15,387 -16,269 -15,012 -15,387 -16,269 0 0 0Profit before loan losses 17,595 18,478 20,082 17,590 18,364 19,711 5 114 371Net loan losses -3,891 -4,805 -3,514 -3,884 -4,768 -3,452 -8 -37 -62Loss/gain l.t investm. 1 0 0 1 0 0 0 0 0Operating prof it 13,705 13,673 16,568 13,708 13,596 16,259 -3 77 309Taxes -3,583 -3,418 -4,142 -3,584 -3,399 -4,065 1 -19 -77Pension settlement 0 0 0 0 0 0 0 0 0Minorities 0 0 0 0 0 0 0 0 0Profit for the period 10,121 10,254 12,426 10,123 10,197 12,194 -2 58 232

EPS reported 15.8 16.0 19.4 15.8 15.9 19.1 (0.0) 0.1 0.4 ROE 13.6% 12.2% 12.9% 13.6% 12.1% 12.7% 0.0% 0.1% 0.2%Dividend 5.0 5.0 7.0 5.0 5.0 7.0 - - -




03.02.2010


Valuation Handelsbanken Divisional 2010 estimatesHandelsbanken Asset Overhead SEK m Swedish Foreign Markets Mgmt & other GroupNet interest income 14,054 7,902 476 152 259 22,842Net fee and com. income 3,543 1,658 1,273 1,009 11 7,494Net f inancial income 557 126 1,180 233 143 2,239Other income 133 -12 -16 193 992 1,290Total income 18,286 9,674 2,913 1,587 1,405 33,865Total expenses -6,695 -4,803 -2,226 -929 -733 -15,387Profit before loan losses 11,591 4,871 686 658 672 18,478Net loan losses -3,608 -1,197 0 0 0 -4,805Net PL on l.t investm. 0 0 0 0 0 0Operating profit 7,983 3,674 686 658 672 13,673Taxes -2,144 -901 -127 -122 -124 -3,418Pension settlement 0 0 0 0 0 0Minorities 0 0 0 0 0 0Profit for the period 5,839 2,773 559 536 547 10,254

Share of - total income 54% 29% 9% 5% 4% 100% - operating expenses 44% 31% 14% 6% 5% 100% - profit before w -d 63% 26% 4% 4% 4% 100%

Banking


Asset Overhead Swedish Foreign Markets Mgmt & other Group

Allocated equity 56,498 11,806 6,746 4,216 5,060 84,325BVPS 90.62 18.94 10.82 6.76 8.12 135.25 EPS 9.36 4.45 0.90 0.86 0.88 16.45 RoE 10% 23% 8% 13% 11% 12%P/B 1.45 P/E 11.92

Valuation using present multiplesBenchmark P/B 1.35 1.45 1.44 2.39 1.36 1.43 Value 76,445 17,137 9,731 10,091 6,864 120,267Value pr share 122.61 27.49 15.61 16.19 11.01 192.90

Valuation using historical multiplesHistorical P/B 1.73 1.79 1.62 2.25 1.73 1.76 Value 97,825 21,159 10,905 9,499 8,772 148,159Value pr share 156.90 33.94 17.49 15.24 14.07 237.64

Banking



03.02.2010



Handelsbanken A

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Source: DnB NOR Markets Risk assessment We believe Handelsbanken’s strategy and track record will lead to substantial lower loan losses than its Nordic peers. It can, and should, be regarded as defensive and retail oriented.

Downside risk o Investment property/real estate exposure o Contracting Swedish economy

Upside risk o Ability to grow during crisis generating higher than

expected earnings Growth in UK operations

o Further cost cutting measures Fair price Excellent strategic track record and history of “lower-than-peers” loan losses, but priced in the high brackets compared to its Nordic peers we see a limited potential in Handelsbanken in the short term placing our recommendation at HOLD, 193 SEK.

HANDELSBANKEN (SHB__A.SS)

PROFIT & LOSS SEKm 2006 2007 2008 2009e 2010e 2011eNet Interest Income 14,679 15,608 19,223 22,244 22,842 24,977Tot. other operating income 11,549 11,518 10,667 10,362 11,022 11,374Operating income 26,228 27,126 29,890 32,606 33,865 36,351Personell expensesAdministration expensesDepr. and write-downsOther operating expensesOperating expenses -11,416 -12,368 -13,229 -15,012 -15,387 -16,269Profit before loan losses 14,812 14,758 16,661 17,595 18,478 20,082Loan losses & guarantees 55 -27 -1,605 -3,891 -4,805 -3,514Net gain/loss long-term inv.Pre tax profit 14,867 14,731 15,056 13,704 13,673 16,568Taxes -4,036 -3,707 -3,382 -3,583 -3,418 -4,142Net profit 10,830 11,023 11,404 10,119 10,254 12,426

Q2 09 Q3 09 Q4 09 Q1 10e Q2 10e5,638 5,609 5,604 5,556 5,6492,582 2,165 2,622 2,676 2,7688,220 7,774 8,226 8,232 8,417

-3,836 -3,749 -3,743 -3,784 -3,8204,384 4,025 4,484 4,448 4,597-947 -866 -1,182 -1,396 -1,437

3,437 3,159 3,302 3,052 3,161-916 -790 -825 -763 -790

2,521 2,369 2,476 2,289 2,371

BALANCE SHEET SEKbnTotal Assets 1,772 1,859 2,159 2,210 2,337 2,533Gross loans 1,278 1,478 1,481 1,490 1,601 1,773Deposits 534 513 544 628 756 955Equity 66 70 75 74 84 96

MARGINS, RATIOSNet Interest marg. % nm nm nm nm nm nmOther inc./tot. inc. % 44.0 42.5 35.7 31.8 32.5 31.3Loan loss ratio % 0.0 0.0 -0.1 -0.3 -0.3 -0.2Cost/Income ratio % nm nm nm nm nm nmDeposit/loans ratio % 41.8 34.7 36.7 42.2 47.2 53.9Revenue growth % -0.4 3.4 10.2 9.1 3.9 7.3Lending growth % nm 15.6 0.2 0.6 7.5 10.7Deposit growth % 31.0 -3.9 6.0 15.5 20.3 26.4

VALUATION 2006 2007 2008 2009e 2010e 2011eEPS SEK 16.84 17.66 17.83 15.82 16.03 19.43Dividend ps SEK 8.00 14.50 7.00 5.00 5.00 7.00Book per share SEK 102.5 112.7 117.2 116.4 131.8 150.6Year end shares million 643.3 624.2 639.6 639.6 639.6 639.6Price SEK 207.00 207.00 126.00 204.20 196.00 196.00P/E X 12.3 11.7 7.1 12.9 12.2 10.1Dividend yield % 3.9 7.0 5.6 2.4 2.6 3.6P/Book X 2.0 1.8 1.1 1.8 1.5 1.3

Share price and targetPrice SEK 196.00Price target 12m SEK 193.00Recommendation HOLD

Financial structureMarket cap. SEKm 122,200Shares outst. million 623.5Free float million 489.4Share price performanceAbs. 1/3/12m -4/7/129Rel. 1/3/12m -6/3/68High/Low 12m SEK 211/93OMXS30 index 971.830days volatility % 20Company attributesReuters ticker SHB__A.SSFinancialsBanksSweden

ReportingQ1 2010 28.04.2010Q2 2010 20.07.2010

ManagementCEO Per BomanCFO Ulf RieseAddressHandelsbankenKungsträdgårdsgatan 2SE-106 70 Stockholm, SwedenH.p.: www.handelsbanken.seTel +46 8701 1000



03.02.2010


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Rebased consensus average forward EPS (12m, SEK)

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Interest inc. (SEKm) Interest inc. growth

Interest inc. growthInterest inc. (SEKm)

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DPS (SEK)EPS (SEK)

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-16,000

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0

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-46.0%

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-39.0%

Costs (SEKm) Cost/income

Cost/incomeCosts (SEKm)

-6,000

-5,000

-4,000

-3,000

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-1,000

0

1,000

2005 2006 2007 2008 2009e 2010e 2011e-0.35%

-0.30%

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-0.20%

-0.15%

-0.10%

-0.05%

0.00%

0.05%

Loan losses (SEKm) Loan losses (%)

Loan losses (%)Loan losses (SEKm)

9,6009,800

10,00010,20010,40010,60010,80011,00011,20011,40011,60011,800

2005 2006 2007 2008 2009e 2010e 2011e-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Other income (SEKm) Other income growth

Other income growthOther income (SEKm)

0.00

0.50

1.00

1.50

2.00

2.50

2005 2006 2007 2008 2009e 2010e 2011e0.0%2.0%

4.0%6.0%

8.0%10.0%12.0%

14.0%16.0%

18.0%20.0%

Price/Book ROE

ROEPrice/Book


03.02.2010


Nordea Nordea was formed during 1997-2000 in a four-way merger between Unibank in Denmark, Meritabank in Finland, Nordbanken in Sweden and Christiania Bank og Kreditkasse in Norway. The combined entity is the leading financial services group in the Nordic and Baltic area, and the Nordea share is listed on all of the OMX Nordic exchanges (except Iceland) with primary listing in Stockholm. Nordea has pursued an organic growth strategy where the primary focus has been on Sweden. Growth has also been sought in the Baltic area but the region is still of minor importance to the bank (~3% of lending). Nordea has a sizeable operation in Russia after acquiring the remaining shares in Russian JSB Orgresbank. Although the bank is small we believe it exemplifies an increasing risk appetite in Nordea. We find the success of this strategy to be only partially voluntarily as the integration between the four banks has been time-consuming. This complex point of departure has not allowed any e.g. costly M&A activity. Due to the prevailing market conditions there have been some inevitable adjustments to the organic growth strategy. Nordea aims towards a "middle of the road" short term strategy in able to balance risk/reward. For banks in general we firmly believe in the logic behind scalability and the positive effects of diversification. In our view Nordea has the best Nordic platform for continued growth and believe that it will be able to utilize it in a cost prudent manner going forward. It therefore our assessment that Nordea will continue to experience strong organic growth and better customer inflow compared to its Nordic peers. In particular we see movement in market shares in Denmark and Sweden. Organization This is our Nordea “hiccup”. Although a matrix organization has several advantages we believe the current organization is too complex and this could hamper growth going forward.

Source: Nordea internet page In brief Nordea is organized in three different customer areas and two product areas. In our sum-of-the-parts analysis we utilize the customer areas as a divisional basis. If we use the product area Investment Banking as an example you would typically see the income from this division being split into several of the customer areas.


Sweden, 22%

Norway, 13%

Finland, 20%

Denmark, 26%

We find comfort in the “forward looking “ attitude to both CEO Christian Calusen and deputy chairman Wahlroos. We see Nordea both cherry picking customers and potentially buying distressed banks.


03.02.2010


Estimates Q409 preview EURm Q408 Q409E Q409E Chg YoY


Net interest income 1,384 1,336 -48 -3% 5,318 5,438 5,962Net fee and commission i 391 448 57 15% 1,678 1,796 1,870Net gains/losses on items 327 389 63 19% 1,982 1,703 1,763Equity method 45 7 -38 -84% 41 46 43Net other income 105 45 -60 -57% 121 186 178Total operating income 2,252 2,225 -27 -1% 9,140 9,169 9,815Staff costs -656 -645 12 -2% -2,668 -2,656 -2,776Other expenses -461 -401 60 -13% -1,579 -1,651 -1,700Depreciation of assets -34 -31 4 -10% -127 -125 -129Total operating expenses -1,152 -1,077 75 -7% -4,374 -4,432 -4,605Profit before credit losse 1,099 1,148 49 4% 4,766 4,737 5,210Net loan losses -320 -475 -156 49% -1,614 -1,237 -811Net gains tangible and int 0 -1 -1 5715% -1 0 -1Operating prof it 780 672 -107 -14% 3,151 3,500 4,398Tax -144 -168 -24 17% -780 -875 -1,100Minorities -1 0 1 -100% 0 0 0Profit 635 504 -131 -21% 2,371 2,625 3,299

EPS reported 0.2 0.1 -0.1 -0.5 0.6 0.7 0.8ROE 14.3% 9.1% -5.2% -36.5% 11.8% 11.2% 12.6%Dividend n.a. n.a. n.a. n.a. 0 0 0

DnB NOR Markets

Estimate changes EURm

2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E

Net interest income 5,318 5,438 5,962 5,317 5,412 5,874 1 26 88Net fee and commission in 1,678 1,796 1,870 1,678 1,796 1,870 0 0 0Net gains/losses on items 1,982 1,703 1,763 1,982 1,703 1,763 0 0 0Equity method 41 46 43 41 46 43 0 0 0Net other income 121 186 178 121 186 178 0 0 0Total operating income 9,140 9,169 9,815 9,139 9,143 9,727 1 26 88Staff costs -2,668 -2,656 -2,776 -2,668 -2,656 -2,776 0 0 0Other expenses -1,579 -1,651 -1,700 -1,579 -1,651 -1,700 0 0 0Depreciation of assets -127 -125 -129 -127 -125 -129 0 0 0Total operating expenses -4,374 -4,432 -4,605 -4,374 -4,432 -4,605 0 0 0Profit before credit losses 4,766 4,737 5,210 4,764 4,711 5,122 1 26 88Net loan losses -1,614 -1,237 -811 -1,614 -1,232 -799 0 -6 -12Net gains tangible and inta -1 0 -1 -1 0 -1 0 0 0Operating profit 3,151 3,500 4,398 3,150 3,479 4,323 1 21 76Tax -780 -875 -1,100 -780 -870 -1,081 0 -5 -19Minorities 0 0 0 0 0 0 0 0 0Profit 2,371 2,625 3,299 2,370 2,609 3,242 1 16 57





03.02.2010


Valuation Nordea Divisional 2010 estimatesNordeaEURm Nordic N.M. Financial S, O & I Other IIB Other GroupNet interest income 4,188 435 56 299 13 447 5,438Net fee and com. income 1,549 57 130 61 -8 6 1,796Net f inancial income 473 68 155 16 0 992 1,703Net life insurance income 16 0 0 0 10 19 46Net other income 12 12 69 0 0 93 186Total operating income 6,239 572 410 376 14 1,558 9,169Staff costs -1,194 -119 -29 -41 -3 -1,270 -2,656Other expenses -1,880 -122 -151 -8 -12 523 -1,651Depreciation of assets -54 0 0 -2 -1 -69 -125Total operating expenses -3,128 -242 -180 -51 -15 -816 -4,432Profit before loan losses 3,111 331 230 325 -1 742 4,737Net loan losses -903 -237 -12 -92 -19 26 -1,237Net PL on l.t investm. 0 0 0 0 0 0 0Operating profit 2,208 94 218 232 -20 767 3,500

Share of - total income 68% 6% 4% 4% 0% 17% 100% - operating expenses 71% 5% 4% 1% 0% 18% 100% - profit before w rite-dow ns 66% 7% 5% 7% 0% 16% 100%

Tax -717 -35 -44 -35 -17 -26 -875Minorities 0 0 0 0 0 0 0Profit 1,491 59 174 197 -37 741 2,625

Banking I&I Banking


Nordic N.M. Financial S, O & I Other IIB Other GroupAllocated equity 203,995 9,951 12,439 9,951 4,975 7,463 248,774BVPS 50.66 2.47 3.09 2.47 1.24 1.85 61.78 EPS 3.75 0.15 0.44 0.50 0.09- 1.87 6.61 RoE 7.4% 6.0% 14.2% 20.1% -7.6% 100.7% 10.7%P/B 1.15 P/E 10.72


Valuation using historical multiplesHistorical P/B 1.79 1.75 1.95 2.09 1.43 2.15 1.74 Value 364,310 17,438 24,206 20,757 7,123 16,039 433,832Value pr share 90.47 4.33 6.01 5.15 1.77 3.98 111.71

Banking I&I Banking

Source: DnB NOR Markets Divisional abbreviations: N.M. = New Markets (Baltic’s, Poland and Russia) I & I = Institutional and International Division (IIB) S, O & I = Shipping, Offshore and International Division


03.02.2010



Nordea

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%


On

e y

ear

perf

orm

an

ce


85

0

20

40

60

80

100

Nordic New Markets Financial S, O & I * Other IIB Other Group

Last= 70.8

Source: DnB NOR Markets Risk assessment With a diversified portfolio overall concentration risk is low. We are most concerned with its Danish exposure (26%) and the costs of participating in the Danish guarantee scheme.

Downside risk o Loan losses in Denmark and new markets

Late cycle lending growth in the Baltic’s o Private Equity lending exposure o Costs of Danish bank and credit package o M&A

Upside risk o Continued increased customer inflow o M&A

Fair price We expect Nordea to show high growth characteristics at acceptable risk levels. We like Nordea and although it is already priced in the higher brackets our recommendation is BUY, 85 SEK.

NORDEA BANK (NDA__SEK.SS)

PROFIT & LOSS EURm 2006 2007 2008 2009e 2010e 2011eNet Interest Income 3,869 4,282 5,090 5,318 5,438 5,962Tot. other operating income 3,297 3,601 3,120 3,822 3,731 3,853Operating income 7,166 7,883 8,210 9,140 9,169 9,815Personell expenses 2,251 2,388 2,569 2,668 2,656 2,776Administration expensesDepr. and write-downs 86 103 125 127 125 129Other operating expenses 1,485 1,575 1,647 1,579 1,651 1,700Operating expenses 3,822 4,066 4,340 4,374 4,432 4,605Profit before loan losses 3,344 3,817 3,870 4,766 4,737 5,210Loan losses & guarantees 257 62 -461 -1,614 -1,237 -811Net gain/loss long-term inv. 8 1 -4 -1 0 -1Pre tax profit 3,609 3,880 3,405 3,151 3,500 4,398Taxes 655 753 724 780 875 1,100Net profit 2,954 3,147 2,695 2,371 2,625 3,299

Q2 09 Q3 09 Q4 09 Q1 10e Q2 10e1,305 1,321 1,336 1,346 1,3621,054 956 889 902 9202,359 2,277 2,225 2,249 2,282

687 671 645 651 658

37 29 31 31 31392 392 401 408 412

1,116 1,091 1,077 1,090 1,1011,243 1,186 1,148 1,159 1,181-425 -358 -475 -440 -334

0 0 -1 0 0818 828 672 719 847200 206 168 180 212618 622 504 539 635

BALANCE SHEET EURbnTotal Assets 347 389 474 492 520 565Gross loans 214 245 265 286 313 355Deposits 126 142 149 160 175 199Equity 15 17 18 22 25 28

MARGINS, RATIOSNet Interest marg. % nm nm nm nm nm nmOther inc./tot. inc. % 46.0 45.7 38.0 41.8 40.7 39.3Loan loss ratio % 0.1 0.0 -0.2 -0.6 -0.4 -0.2Cost/Income ratio % 53.3 51.6 52.9 47.9 48.3 46.9Deposit/loans ratio % 59.1 58.2 56.1 56.0 56.0 56.0Revenue growth % 9.0 10.0 4.2 11.3 0.3 7.0Lending growth % 13.5 14.3 8.3 7.9 9.4 13.4Deposit growth % 9.4 12.6 4.4 7.8 9.4 13.4

VALUATION 2006 2007 2008 2009e 2010e 2011eEPS EUR 1.14 1.21 1.04 0.59 0.65 0.82Dividend ps EUR 0.49 0.50 0.20 0.20 0.20 0.20Book per share EUR 5.9 6.6 6.9 5.5 6.1 6.9Year end shares million 2591.0 2593.0 2596.0 4027.0 4027.0 4027.0Price SEK 92.18 90.11 39.23 71.96 70.80 70.80Price EUR 9.12 8.91 3.88 7.12 7.00 7.00P/E X 8.0 7.3 3.7 12.1 10.7 8.5Dividend yield % 5.4 5.6 5.2 2.8 2.9 2.9P/Book X 1.5 1.3 0.6 1.3 1.1 1.0

Share price and targetPrice SEK 70.80Price EUR 7.00Price target 12m SEK 85.00Recommendation BUY

Financial structureMarket cap. SEKm 285,112Market cap. EURm 28,196Shares outst. million 4,027.0Free float million 3,990.4Share price performanceAbs. 1/3/12m -2/-4/127Rel. 1/3/12m -5/-11/56High/Low 12m SEK 79/32OMXS30 index 96.130days volatility % 25Company attributesReuters ticker NDA__SEK.SSFinancialsBanksSweden

ReportingQ1 2010 28.04.2010Q2 2010 27.10.2010

ManagementCEO Per BomanCFO Ulf RieseAddressNordea BankSmålandsgatan 17SE-105 71 Stockholm, SwedenH.p.: www.nordea.comTel +46 8614 7000



03.02.2010


80

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Nordea Bank


60

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75

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Nordea Bank

Rebased consensus average forward EPS (12m, EUR)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2005 2006 2007 2008 2009e 2010e 2011e0%2%

4%6%

8%10%12%

14%16%

18%20%

Interest inc. (EURm) Interest inc. growth

Interest inc. growthInterest inc. (EURm)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2005 2006 2007 2008 2009e 2010e 2011e0.00

0.10

0.20

0.30

0.40

0.50

0.60

EPS (EUR) DPS (EUR)

DPS (EUR)EPS (EUR)

0500

1,0001,500

2,0002,5003,000

3,5004,000

4,5005,000

2005 2006 2007 2008 2009e 2010e 2011e42.0%

44.0%

46.0%

48.0%

50.0%

52.0%

54.0%

56.0%

58.0%

Costs (EURm) Cost/income

Cost/incomeCosts (EURm)

-2,000

-1,500

-1,000

-500

0

500

2005 2006 2007 2008 2009e 2010e 2011e-0.60%

-0.50%

-0.40%

-0.30%

-0.20%

-0.10%

0.00%

0.10%

0.20%

Loan losses (EURm) Loan losses (%)

Loan losses (%)Loan losses (EURm)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2005 2006 2007 2008 2009e 2010e 2011e-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Other income (EURm) Other income growth

Other income growthOther income (EURm)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2005 2006 2007 2008 2009e 2010e 2011e0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Price/Book ROE

ROEPrice/Book


03.02.2010


SEB SEB offers banking services in Sweden, Germany and the Baltic countries. The group also operates in the other Nordic countries, as well as in Poland, Ukraine and Russia. SEB is primarily a merchant bank, and therein more exposed to investment banking, large corporate customers and more reliant on commission income than the other Nordic peer banks. This high share of income from market related activities is suffering from the current turmoil in the financial markets.

Like Swedbank, SEB has large exposure towards the Baltic’s with some 15% of its lending portfolio. We are also still concerned with the general economic development in Sweden, and SEB’s exposure towards Private Equity funds.

SEB wrote down all goodwill (SEK 2.4 bn) related to the Baltic's and Russia in Q209. Remaining goodwill is now primarily related to the Life insurance operations totaling SEK ~7.7 bn.

We believe SEB should be accredited with a high earnings quality grade for their investment banking operations due to the high market share, Nordic reach and earnings consistency.

German operations

25%

27%

29%

31%

33%

35%

37%

39%

41%

43%

45%

Q101 Q102 Q103 Q104 Q105 Q106 Q107 Q108 Q109

Source: Company reports, DnB NOR Markets

Geographical distribution of credit portfolio

Baltic's, 11%

Germany, 25%

Sweden, 50%

The high cost/income ratio in Germany are of concern, and the operations lack sufficient scale.


03.02.2010


Estimates

Q409 preview SEKm Q408 Q409E Q409E Chg YoY

Reported DnB NOR Market* Abs. % 2009E 2010E 2011ENet interest income 5,511 4,764 -747 -14% 20,558 17,660 18,293Net fee income 3,788 3,612 -176 -5% 14,180 14,665 14,870Net f inancial income 1,725 876 -849 -49% 4,424 2,527 2,008Net life insurance income 516 580 64 12% 3,246 2,317 2,335Net other income 1,176 154 -1,022 -87% 1,920 611 615Total operating income 12,716 9,986 -2,730 -21% 44,328 37,781 38,120Staff costs -4,597 -3,797 800 -17% -16,184 -15,254 -15,411Other expenses -1,971 -1,902 69 -3% -7,561 -7,651 -7,748Depreciation of assets -397 -382 15 -4% -4,608 -1,537 -1,554Total operating expenses -6,965 -6,082 883 -13% -28,354 -24,442 -24,713Profit before credit losse 5,751 3,905 -1,846 -32% 15,975 13,340 13,407PL on assets 1 2 1 100% 30 8 8Net credit losses -1,723 -3,971 -2,248 130% -13,260 -10,561 -6,929Operating prof it 4,029 -65 -4,094 -102% 2,744 2,787 6,487Tax -519 16 535 -103% -1,907 -697 -1,622Discontinued operations -2 0 2 -100% 9 0 0Minorities 1 15 14 1400% 55 60 60Profit 3,507 -63 -3,570 -102% 792 2,030 4,805

EPS reported 5.1 0.0 -5.1 n.m. 0.4 0.9 2.2ROE 16.8% -0.3% -17.0% n.m. 0.9% 2.0% 4.6%Dividend n.a. n.a. n.a. n.a. 0.0 1.0 2.0

DnB NOR Markets


2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011ENet interest income 20,558 17,660 18,293 20,558 17,660 18,293 0 0 0Net fee income 14,180 14,665 14,870 14,179 14,631 14,766 1 34 104Net f inancial income 4,424 2,527 2,008 4,424 2,522 1,992 0 6 15Net life insurance income 3,246 2,317 2,335 3,246 2,317 2,335 0 0 0Net other income 1,920 611 615 1,920 611 615 0 0 0Total operating income 44,328 37,781 38,120 44,326 37,741 38,001 2 40 119Staff costs -16,184 -15,254 -15,411 -16,184 -15,254 -15,411 0 0 0Other expenses -7,561 -7,651 -7,748 -7,561 -7,651 -7,748 0 0 0Depreciation of assets -4,608 -1,537 -1,554 -4,608 -1,537 -1,554 0 0 0Total operating expenses -28,354 -24,442 -24,713 -28,354 -24,442 -24,713 0 0 0Profit before credit losses 15,975 13,340 13,407 15,973 13,300 13,288 2 40 119PL on assets 30 8 8 30 8 8 0 0 0Net credit losses -13,260 -10,561 -6,929 -13,260 -10,561 -6,929 0 0 0Operating prof it 2,744 2,787 6,487 2,743 2,747 6,368 2 40 119Tax -1,907 -697 -1,622 -1,906 -687 -1,592 0 -10 -30Discontinued operations 9 0 0 9 0 0 0 0 0Minorities 55 60 60 55 60 60 0 0 0Profit 792 2,030 4,805 790 2,000 4,716 1 30 89





03.02.2010


Valuation SEB Divisional 2010 estimates

SEKm Merchant Retail Baltic WM Life Other GroupNet interest income 7,795 6,922 2,631 561 -8 -241 17,660Net fee and com. income 5,403 4,417 909 3,327 0 609 14,665Net f inancial income 2,676 220 136 64 0 -569 2,527Net life insurance income 0 0 0 0 3,316 -998 2,317Net other income 228 124 -20 8 0 272 611Total operating income 16,101 11,683 3,656 3,961 3,307 -928 37,781Staff costs -3,353 -4,113 -704 -1,214 -1,090 -4,780 -15,254Other expenses -3,789 -4,365 -1,240 -1,115 -483 3,342 -7,651Depreciation of assets -141 -169 -68 -117 -636 -406 -1,537Total operating expenses -7,283 -8,647 -2,012 -2,446 -2,208 -1,844 -24,442Profit before loan losses 8,818 3,036 1,644 1,514 1,099 -2,772 13,340Net PL on l.t investm. 0 -4 12 0 0 0 8Net loan losses -1,837 -1,235 -7,430 -41 0 -17 -10,561Operating profit 6,981 1,797 -5,774 1,473 1,099 -2,789 2,787

Share of - total income 43% 31% 10% 10% 9% -2% 100% - operating expenses 30% 35% 8% 10% 9% 8% 100% - profit before w rite-dow n 66% 23% 12% 11% 8% -21% 100%

Tax -461 -159 -86 -79 -57 145 -697Discontinued operations 0 0 0 0 0 0 0Minorities 40 14 7 7 5 -12 60Profit 6,481 1,625 -5,868 1,387 1,037 -2,632 2,030

Banking

Key divisional data

Merchant Retail Baltic WM Life Other GroupAllocated equity 39,368 26,245 16,151 6,057 6,057 7,066 100,944BVPS 17.96 11.97 7.37 2.76 2.76 3.22 46.05 EPS 2.96 0.74 2.68- 0.63 0.47 1.20- 0.93 RoE 16% 6% -36% 23% 17% -37% 2%P/B 1.00 P/E 49.88


Valuation using historical multiplesHistorical P/B 2.00 1.71 1.52 2.10 1.79 1.51 1.81 Value 78,726 44,940 24,481 12,721 10,847 10,680 182,395Value pr share 35.92 20.50 11.17 5.80 4.95 4.87 83.21

Banking



03.02.2010



SEB A

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350%


One y

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ance


54

0

10

20

30

40

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60

Merchant Retail Baltic WM Life Other Group

Last= 46.19

Source: DnB NOR Markets Risk assessment The two key risk factors for SEB going forward is the general macroeconomic development in both the Baltic’s and Sweden.

Downside risk o Further contraction in Sweden and the Baltic’s o Concentration risk (LBO and Swedish large cap. companies) o German operations (costs, lack of scale) o "Two-front" war scenario

Upside risk o Capital markets boosting trading income o Swedish export sectors should benefit from a V-shaped

recovery o Structural focus o Further cost cutting initiatives

Fair price The high exposure towards the Baltic States is the key issue with the German operations on a second place. However we like the Nordic reach in the corporate market and recommendation is BUY, PT=54 SEK.

SEB (SEB__A.SS)

PROFIT & LOSS SEKm 2006 2007 2008 2009e 2010e 2011eNet Interest Income 14,281 15,998 18,709 20,558 17,660 18,293Tot. other operating income 24,466 24,433 22,437 23,770 20,121 19,828Operating income 38,747 40,431 41,146 44,328 37,781 38,120Personell expenses 14,363 14,920 16,242 16,184 15,254 15,411Administration expensesDepr. and write-downs 1,398 1,355 1,523 4,608 1,537 1,554Other operating expenses 6,887 6,911 7,646 7,561 7,651 7,748Operating expenses 22,648 23,186 25,411 28,354 24,442 24,713Profit before loan losses 16,099 17,245 15,735 15,975 13,340 13,407Loan losses & guarantees 718 1,015 3,269 13,260 10,561 6,929Net gain/loss long-term inv. -70 -788 -5 -30 -8 -8Pre tax profit 15,451 17,018 12,471 2,744 2,787 6,487Taxes 2,939 3,376 2,421 1,907 697 1,622Net profit 12,494 13,618 10,041 783 2,030 4,805

Q2 09 Q3 09 Q4 09 Q1 10e Q2 10e5,371 4,521 4,764 4,827 4,2087,806 5,216 5,222 5,233 5,063

13,177 9,737 9,986 10,060 9,2714,262 3,736 3,797 3,802 3,809

2,832 379 382 383 3841,920 1,900 1,902 1,906 1,9109,014 6,015 6,082 6,091 6,1034,163 3,722 3,905 3,969 3,1683,569 3,335 3,971 3,601 2,820

-24 -2 -2 -2 -2618 389 -65 370 349792 350 -16 92 87

-197 24 -63 262 247

BALANCE SHEET SEKbnTotal Assets 1,934 2,344 2,511 2,245 2,342 2,489Gross loans 1,126 1,330 1,563 1,451 1,547 1,694Deposits 1,008 1,172 1,270 1,158 1,212 1,295Equity 67 77 84 99 101 106

MARGINS, RATIOSNet Interest marg. % nm nm nm nm nm nmOther inc./tot. inc. % 63.1 60.4 54.5 53.6 53.3 52.0Loan loss ratio % 0.1 0.1 0.2 0.9 0.7 0.4Cost/Income ratio % 58.5 57.3 61.8 64.0 64.7 64.8Deposit/loans ratio % 89.5 88.1 81.3 79.8 78.4 76.4Revenue growth % 13.2 4.3 1.8 7.7 -14.8 0.9Lending growth % 4.4 18.2 17.5 -7.2 6.6 9.5Deposit growth % 3.9 16.3 8.4 -8.9 4.7 6.8

VALUATION 2006 2007 2008 2009e 2010e 2011eEPS SEK 18.52 19.94 14.66 0.36 0.93 2.19Dividend ps SEK 6.00 6.50 0.00 0.00 1.00 2.00Book per share SEK 99.7 112.3 122.2 45.1 46.1 48.2Year end shares million 674.8 683.0 685.0 2192.0 2192.0 2192.0Price SEK 112.21 85.38 31.34 44.34 46.19 46.19P/E X 6.1 4.3 2.1 nm 49.9 21.1Dividend yield % 5.3 7.6 0.0 0.0 2.2 4.3P/Book X 1.1 0.8 0.3 1.0 1.0 1.0

Share price and targetPrice SEK 46.19Price target 12m SEK 54.00Recommendation BUY

Financial structureMarket cap. SEKm 101,248Shares outst. million 2,192.0Free float million 1,527.8Share price performanceAbs. 1/3/12m 4/5/154Rel. 1/3/12m 2/1/93High/Low 12m SEK 52/16OMXS30 index 971.830days volatility % 27Company attributesReuters ticker SEB__A.SSFinancialsBanksSweden

ReportingQ1 2010 28.04.2010Q2 2010 13.07.2010

ManagementCEO Annika FalkengrenCFO Jan Erik BackAddressSEBKungsträdgårdsgatan 8SE-106 40 Stockholm, SwedenH.p.: www.seb.seTel +46 8763 8000



03.02.2010


80100120140160180200220240260280300


SEB


102030405060708090

100110


SEB


0

5,000

10,000

15,000

20,000

25,000

2005 2006 2007 2008 2009e 2010e 2011e-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%



0

5

10

15

20

25

2005 2006 2007 2008 2009e 2010e 2011e0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

EPS (SEK) DPS (SEK)

DPS (SEK)EPS (SEK)

0

5,000

10,000

15,000

20,000

25,000

30,000

2005 2006 2007 2008 2009e 2010e 2011e52.0%

54.0%

56.0%

58.0%

60.0%

62.0%

64.0%

66.0%

68.0%



0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005 2006 2007 2008 2009e 2010e 2011e0.00%0.10%

0.20%0.30%

0.40%0.50%0.60%

0.70%0.80%

0.90%1.00%



0

5,000

10,000

15,000

20,000

25,000

30,000

2005 2006 2007 2008 2009e 2010e 2011e-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%



0.00

0.20

0.40

0.60

0.80

1.00

1.20

2005 2006 2007 2008 2009e 2010e 2011e0%2%

4%6%

8%10%12%

14%16%

18%20%

Price/Book ROE

ROEPrice/Book


03.02.2010


Swedbank Swedbank started as Sweden’s first savings bank in 1820, and has been acting as central bank for the various savings banks in Sweden. In the aftermath of the financial crisis in the 1990-ies there were several mergers which culminated with the merger between Föreningsbanken and Sparbanken Sweden in 1997. The new entity called FöreningsSparbanken later changed name to Swedbank. In addition to operating large and, what we believe is, a low risk retail business in Sweden, Swedbank has also pursued growth in the Baltic area. Earlier with huge success as the Baltic division delivered 25% of group income and operated at cost-income ratios well below 50% in 2006-2008. This picture has definitely changed in conjuncture with the global financial set backs as annualized loan losses in the Baltic’s soar above ~8%. However, both SEB and Swedbank decreased lending growth early and we assess this fact to be an important factor in estimating the loan losses going forward, although you could argue that this monetary contraction could be part of the problem as well. Swedbank has been the only Swedish bank to utilize the Swedish state guarantee scheme resulting in substantially lower CDS margins and, more importantly, improving the overall preparedness in the event of increased financial turbulence. In October 2008, Swedbank announced an equity issue of preference shares (257 million new shares) adding SEK 12.4 bn in equity. Swedbank’s second issue was announced 17th of august. SEK 15.1 bn in fully underwritten new equity will increase the number of shares with another ~387 million. The largest unknown variable for Swedbank is still, by far, the loan loss level in the Baltic’s. We estimate earnings capacity to remain high, enabling Swedbank to manage throughout this crisis adequately without any further equity issues (three times and then your out?). SEK 13.1 bn in Baltic goodwill is also a disruptive factor and a clear joker going forward. Level of impaired loans

0%

5%

10%

15%

20%

25%

30%

Swedishbanking

Estonia Latvia Lithuania Russia Ukraine

With unemployment in Sweden heading towards 11% our worries are also related to loan loss development in Sweden. Source: Company report

The Swedish activities can be view upon as a large savings bank with the accompanying low risk … but we fear loss of market shares in Sweden

Bonus reversal will raise Q409 with some 400 SEKm


Sweden75% Other

7%

Baltics18%


03.02.2010


Estimates Q409 preview SEKm Q408 Q409E Q409E Chg YoY


Net interest income 5,742 5,115 -627 -11% 21,202 21,085 22,382Net commission income 2,011 2,216 205 10% 7,864 8,718 8,770Net f inancial income 1,379 687 -692 -50% 4,055 2,230 2,318Net other income 1,213 781 -432 -36% 2,686 3,080 3,027Total income 10,345 8,800 -1,545 -15% 35,808 35,113 36,497Staff costs 2,602 2,047 -555 -21% 9,351 9,933 10,210Other expenses 2,004 1,974 -30 -2% 7,598 7,927 8,101Depreciation of assets 1,699 195 -1,504 -89% 2,211 783 808Total expenses 6,305 4,216 -2,089 -33% 19,160 18,644 19,119Profit before loan losses 4,040 4,584 544 13% 16,648 16,469 17,378Net loan losses 1,633 5,307 3,674 225% 24,993 11,669 6,093Operating prof it 0 77 77 #DIV/0! -8,504 4,492 10,977Tax expenses 2,407 -800 -3,207 -133% 941 1,645 2,726Minorities 509 167 -342 -67% 75 71 75Profit for the period -7 18 25 -362% -9,519 2,777 8,176

EPS reported 0.0 0.0 0.0 #DIV/0! -8.2 2.4 7.1ROE 246.4% -85.0% -331.4% n.m. -11.2% 3.2% 9.0%Dividend n.a. n.a. n.a. n.a. 0.0 0.0 1.0

DnB NOR Markets


2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E

Net interest income 21,202 21,085 22,382 21,204 21,131 22,523 -2 -46 -141Net commission income 7,864 8,718 8,770 7,864 8,718 8,770 0 0 0Net f inancial income 4,055 2,230 2,318 4,055 2,230 2,318 0 0 0Net other income 2,686 3,080 3,027 2,686 3,080 3,027 0 0 0Total income 35,808 35,113 36,497 35,810 35,158 36,638 -2 -46 -141Staff costs 9,351 9,933 10,210 9,751 9,935 10,211 -400 -1 -1Other expenses 7,598 7,927 8,101 7,598 7,927 8,101 0 0 0Depreciation of assets 2,211 783 808 2,211 783 808 0 0 0Total expenses 19,160 18,644 19,119 19,560 18,645 19,120 -400 -1 -1Profit before loan losses 16,648 16,469 17,378 16,250 16,513 17,518 398 -44 -140Net loan losses 24,993 11,669 6,093 24,995 11,694 6,139 -2 -25 -46Operating prof it -8,504 4,492 10,977 -8,745 4,820 11,379 241 -328 -402Tax expenses 941 1,645 2,726 841 1,650 2,749 100 -5 -22Minorities 75 71 75 75 71 75 0 0 0Profit for the period -9,519 2,777 8,176 -9,660 3,099 8,555 141 -322 -380

EPS reported -8.2 2.4 7.1 -8.3 2.7 7.4 0.1 -0.3 -0.3ROE -11.2% 3.2% 9.0% -11.3% 3.6% 9.5% 0.2% -0.4% -0.4%Dividend 0.0 0.0 1.0 0.0 0.0 1.0 0.0 0.0 0.0




03.02.2010


Valuation Swedbank Divisional 2010 estimatesSwedbankSEKm Swedish Baltic Int. Markets AM & I Other GroupNet interest income 12,656 3,985 2,178 2,337 -29 -41 21,085Net commission income 4,360 1,870 272 961 1,249 5 8,718Net f inancial income 865 693 208 513 56 -104 2,230Net other income 1,013 1,041 24 104 200 697 3,080Total income 18,894 7,589 2,682 3,915 1,476 557 35,113Staff costs 4,339 1,313 608 1,522 421 1,731 9,933Other expenses 4,821 2,276 743 933 402 -1,248 7,927Depreciation of assets 112 200 88 24 52 308 783Total operating expences 9,272 3,789 1,438 2,479 875 790 18,644Profit before loan losses 9,622 3,800 1,244 1,436 601 -233 16,469Net PL on l.t investm. 0 204 104 0 0 0 308Loan losses 1,668 7,411 2,540 30 0 20 11,669Pre-tax operating prof it 7,954 -3,816 -1,400 1,406 601 -253 4,492Taxes 1,989 -572 -210 351 150 -63 1,645Minorities 10 0 0 60 0 0 71Net prof it 5,955 -3,243 -1,190 994 451 -190 2,777

Share of - total income 54% 22% 8% 11% 4% 2% 100% - operating expenses 50% 20% 8% 13% 5% 4% 100% - profit before w rite-dow ns 58% 23% 8% 9% 4% -1% 100%

Banking

Key divisional data

BankingSwedish Baltic Int. Markets AM & I Other Group

Allocated equity 39,092 21,718 8,687 6,515 2,172 8,687 86,872BVPS 33.71 18.73 7.49 5.62 1.87 7.49 74.92 EPS 5.14 2.80- 1.03- 0.86 0.39 0.16- 2.39 RoE 15% -15% -14% 15% 21% -2% 3%P/B 0.89 P/E 27.96

Valuation using present multiplesBenchmark P/B 1.08 0.78 0.79 1.38 2.49 0.38 0.97Value 42,277 16,988 6,901 8,986 5,409 3,272 83,834Value pr share 36.46 14.65 5.95 7.75 4.66 2.82 72.30

Valuation using historical multiplesHistorical P/B 1.75 1.61 1.62 1.85 2.13 1.56 1.70Value 68,573 35,067 14,076 12,034 4,630 13,514 147,894Value pr share 59.14 30.24 12.14 10.38 3.99 11.65 127.54 Source: DnB NOR Markets

Divisional abbreviations: Int. = International Division (Russia and Ukraine) AM & I = Asset Management and Insurance


03.02.2010



Swedbank

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%


One y

ear

perf

orm

ance


72

0

20

40

60

80

Sw edish Baltic International Markets AM&Insurance Other Group

Last= 66.95

Source: DnB NOR Markets Risk assessment Development in the Baltic area is the key risk factor for Swedbank going forward.

Downside risk o Prolonged economic downturn in the Baltic area o "Two-front" war scenario (both Sweden and Baltic

contraction) Upside risk

o Sweden's export industry gaining from V-shaped recovery o Cost cutting o Further ownership changes and increased structural focus

Fair price The large expected losses in the international divisions Baltic Banking and International Banking clearly burdens Swedbank. Even though, we see considerable value in the Swedish Banking Division counterweighing, to some degree, the high risk in the international divisions. Overall losses are too high tough and recommendation SELL, PT = 54 SEK.


03.02.2010


SWEDBANK (SWED_A.SS)

PROFIT & LOSS SEKm 2006 2007 2008 2009e 2010e 2011eNet Interest Income 16,304 19,429 21,702 21,202 21,085 22,382Tot. other operating income 13,398 13,846 14,760 14,606 14,028 14,115Operating income 29,702 33,275 36,462 35,808 35,113 36,497Personell expenses 8,716 9,902 10,092 9,351 9,933 10,210Administration expensesDepr. and write-downs 686 726 2,402 2,211 783 808Other operating expenses 6,022 6,303 6,994 7,598 7,927 8,101Operating expenses 15,424 16,931 19,488 19,160 18,644 19,119Profit before loan losses 14,278 16,344 16,974 16,648 16,469 17,378Loan losses & guarantees -96 729 3,156 24,993 11,669 6,093Net gain/loss long-term inv.Pre tax profit 14,374 15,615 13,818 -8,345 4,800 11,285Taxes 3,211 3,450 2,880 941 1,645 2,726Net profit 10,991 12,025 10,886 -9,519 2,777 8,176

Q2 09 Q3 09 Q4 09 Q1 10e Q2 10e5,241 5,017 5,115 5,162 5,2364,036 3,125 3,685 3,541 3,4959,277 8,142 8,800 8,703 8,7322,297 2,448 2,047 2,456 2,479

239 221 195 194 1951,930 1,857 1,974 1,967 1,9764,466 4,526 4,216 4,617 4,6504,811 3,616 4,584 4,086 4,0816,684 6,133 5,307 4,712 3,063

-1,873 -2,517 -723 -626 1,019109 723 167 119 378

-2,001 -3,261 -908 -763 624

BALANCE SHEET SEKbnTotal Assets 1,353 1,608 1,812 1,834 1,951 2,112Gross loans 1,107 1,309 1,416 1,404 1,488 1,617Deposits 400 458 508 527 559 607Equity 60 68 86 84 87 94

MARGINS, RATIOSNet Interest marg. % nm nm nm nm nm nmOther inc./tot. inc. % 45.1 41.6 40.5 40.8 40.0 38.7Loan loss ratio % 0.0 0.1 0.2 1.8 0.8 0.4Cost/Income ratio % 51.9 50.9 53.4 53.5 53.1 52.4Deposit/loans ratio % 36.1 35.0 35.9 37.5 37.5 37.5Revenue growth % 0.8 12.0 9.6 -1.8 -1.9 3.9Lending growth % 13.6 18.2 8.1 -0.9 6.0 8.6Deposit growth % 18.0 14.6 10.9 3.6 6.0 8.6

VALUATION 2006 2007 2008 2009e 2010e 2011eEPS SEK 21.33 23.33 14.08 -8.21 2.39 7.05Dividend ps SEK 7.75 8.50 0.00 0.00 0.00 1.00Book per share SEK 117.0 132.6 111.8 72.5 74.9 81.0Year end shares million 515.4 515.4 773.1 1159.6 1159.6 1159.6Price SEK 205.55 151.37 36.73 71.00 66.95 66.95P/E X 9.6 6.5 2.6 nm 28.0 9.5Dividend yield % 3.8 5.6 0.0 0.0 0.0 1.5P/Book X 1.8 1.1 0.3 1.0 0.9 0.8

Share price and targetPrice SEK 66.95Price target 12m SEK 72.00Recommendation BUY

Financial structureMarket cap. SEKm 77,635Shares outst. million 1,159.6Free float million 929.5Share price performanceAbs. 1/3/12m -6/9/195Rel. 1/3/12m -8/5/134High/Low 12m SEK 76/15OMXS30 index 971.830days volatility % 25Company attributesReuters ticker SWED_A.SSFinancialsBanksSweden

ReportingQ1 2010 27.04.2010Q2 2010 15.07.2010

ManagementCEO Michael WolfCFO Erkki RaasukeAddressSwedbankBrunkebergstorg 8SE-105 34, SwedenH.p.: www.swedbank.comTel +46 8585 9000



03.02.2010


50

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350


Swedbank


-100-80-60-40-20

020406080

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Swedbank


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2005 2006 2007 2008 2009e 2010e 2011e-5%

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25

2005 2006 2007 2008 2009e 2010e 2011e0

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12

EPS (SEK) DPS (SEK)

DPS (SEK)EPS (SEK)

0

5,000

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15,000

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2005 2006 2007 2008 2009e 2010e 2011e45.0%

46.0%

47.0%

48.0%

49.0%

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51.0%

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54.0%



-5,000

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2005 2006 2007 2008 2009e 2010e 2011e-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%



12,500

13,000

13,500

14,000

14,500

15,000

2005 2006 2007 2008 2009e 2010e 2011e-6%

-4%

-2%

0%

2%

4%

6%

8%



0.00.2

0.40.6

0.81.01.2

1.41.6

1.82.0

2005 2006 2007 2008 2009e 2010e 2011e-15%

-10%

-5%

0%

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15%

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Price/Book ROE

ROEPrice/Book


03.02.2010


"Sees Nordic super bank" According to unnamed sources/Dagens Nyheter; Bjørn Wahlroos

Non-life summary and valuation We initiate coverage of Sampo, TrygVesta and Topdanmark. Lagging Nordic financials lately we believe non-life insurers have further potential.

We initiate coverage of Sampo with Buy (pt=21 EUR). An estimated EURm 101 booked by Sampo in the quarter. Our positive stance on Nordea greatly benefits Sampo in our analysis and by 2012 over 50% of Sampo income derives from this ~20% position. Sampo currently trades at 12M FWD P/B 1.2x and P/E 11.1x versus 2004-08 historical averages of 1.6x and 12.3x. DNM recommendation at BUY, pt=22 EUR

We initiate coverage of Topdanmark with Buy (pt=750 DKK). Topdanmark is the cost leader in the Nordic non-life insurance business. Coupled with announced price increases in Denmark, further strong growth in Life premiums and the unwinding of the CDO portfolio we expect further upside in trustworthy ROE and combined ratios going forward. We initiate coverage with a price target of DKK 750, implying a P/B 2010 of 2.6, below the historical 2004-08 average of 3.1.

We initiate coverage of TrygVesta with Buy (pt=400 DKK). TrygVesta has been hoarding capital through the financial crisis, this coupled with profitable operations has led to a strong over-capitalization. We estimate dividend yields north of 10% in the next few years and a dividend of at least DKK 1.5 bn for 2009. This leaves ~ DKK 0.5 bn in unutilized dividend capacity and hence provides potential for even higher dividends both in 2009 and coming years. We initiate coverage with a price target of DKK 400, implying a P/B 2011 of 2.4, below the historical average of 2.5.

Target DnM

Q409 calendar Q409E EPS PT Rec PotentialSampo 11.Feb.10 1.23 21.00 BUY 19 %TopDanmark 09.Mar.10 83.53 750.00 BUY 12 %TrygVesta 25.Feb.10 30.52 0.00 BUY -100 % Nordic valuations

DnB NOR 2010 estim atesP/E P/B RoE D-yield*

Sampo 9.68 1.16 11.95 % 5.88 %TopDanmark 10.02 2.27 22.70 % 5.59 %TrygVesta 11.51 2.10 18.24 % 7.82 %

DnB NOR 2011 estim atesP/E P/B RoE D-yield*

Sampo 8.05 1.08 13.36 % 5.88 %TopDanmark 9.33 2.06 22.10 % 6.18 %TrygVesta 9.26 1.98 21.35 % 9.72 %

10-year historical averageP/E P/B RoE D-yield*

Sampo 9.96 1.54 17.12 % 8.24 %TopDanmark 11.24 2.48 17.96 % 9.23 %TrygVesta n.a. n.a n.a n.a.

4-year historical averageP/E P/B RoE D-yield*

Sampo 11.71 1.78 15.92 % 5.67 %TopDanmark 9.95 3.50 24.13 % 8.40 %TrygVesta 14.20 2.69 22.49 % 6.49 % *) For Tryg Vesta and Topdanmark share buy backs are included Source: DnB NOR Markets, Factset


03.02.2010


2010E RoE, P/B relationship European non-life insurance companies

R2 = 0.7658

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-10 % -5 % 0 % 5 % 10 % 15 % 20 % 25 % 30 % 35 %RoE

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Historical RoE, P/B relationship European non-life insurance companies

R2 = 0.2076

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P/B


03.02.2010


Probable consequences of solvency II: (i) Increased premiums, (ii) sector consolidation and (iii) Organic growth potential for strong balance sheet companies

Key industry points Solvency II The key point in implementing Solvency II is increased capital requirements. When this is coupled with the recent claims inflation and investment losses in 2008, it is obvious that the industry response is and will be higher premiums. The weaker balance sheets in the industry necessitate higher margins in order to adhere to the solvency requirements implemented in October 2012. The second consequence of Solvency II will be, we believe, increased consolidation, leaving significant headroom for the incumbents with strong balance sheets. Topdanmark is singled out as a potential take-over target, with players like Sampo and, probably, Gjensidige eager to enter the Danish market. Even TrygVesta could be interested in solidifying their Danish market presence. Thirdly, for TrygVesta and Sampo this further entails a potential for significant organic growth by using their strong balance sheets to enter into aggressive pricing. Big is Beautiful - Economies of Scale When we look at the benefits of scale we find an ambiguous picture. It appears that the economies of scale are perceived to be great. But when we analyze the cost ratios the findings give a different picture. Albeit we see some geographical diversification where the group average combined ratios and standard deviations are lower on a group-wise comparison than on a country-by-country comparison, but size does not imply lower cost ratios. One of the main issues pointed at when referring to economies of scale is the lack of data in order to price correctly. To us this looks more like a benefit of experience and market participation than economies of scale. Bancassurance Bancassurance is common in the life-insurance industry and have in recent years become an increasingly important distribution channel. It provides an efficient entry point for new market players and makes sense from a customer's view. This should lead to less persistent market shares, but remember that the range of Nordic banks is limited. TrygVesta's strategic partnership with Nordea, where Sampo is the majority owner, looks fragile. The question is whether Sampo intends to oust TrygVesta and insert If as its non-life insurance purveyor or if the Nordea holding is a stand alone strategic investment. Bear in mind that TrygVesta has strong historical ties to Nordea and is Nordea Asset Management's largest client. If TrygVesta were to be ousted in 2013 when the current deal expires, will they try to target Topdanmark's bancassurance arrangement with Danske Bank, or potentially initiate cooperation with Handelsbanken?

Below we look more closely at these, and other, issues.


03.02.2010


The Non-life sector dropped substantially during the financial turmoil, but less than the general Nordic Financial Sector. Current prices are 30% below 2007 range.

The Nordic market has shown an average growth of 4.2% since 2000, slightly higher than the average 2.5% GDP growth.

Non-life industry overview The Nordic general insurance market is relatively mature but we see growth potential in new products, increased asset prices and generally higher premium prices announced across the Nordic markets.

Imperative drivers of growth in the industry are population growth, unemployment, motorization rates and the general business sentiment. On the cost side the industry is characterized by stable operating costs, mainly related to sales, and volatile claim's costs. Claims costs are impacted by the development in average claims and claims frequency. Although these parameters are rather stable, there is also the potential of extreme events leading to major claims expenses. This volatility can be dealt with through reinsurance.

Overview - general insurance

Growth Market concentrationCountry 2005 2006 2007 2008 05-08 (EoY 2008)Denmark 5,572 6,131 5,952 5,988 7.5% 65.0%Norway 4,422 4,502 4,594 4,755 7.5% 86.1%Sweden 6,680 7,696 7,575 7,999 19.7% 81.4%Finland 2,817 3,136 3,129 3,248 15.3% 82.7%

Premium (mEUR)

Sources: CEA, FNH, company reports, Federation of Finnish Financial Services, Swedish insurance Federation

Sector performance since 2008

20

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80

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120

01-01-2007

26-03-2007

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19-05-2008

11-08-2008

03-11-2008

26-01-2009

20-04-2009

13-07-2009

05-10-2009

28-12-2009

Nordic Banks Non-life Life

Sources: Factset, DnB NOR Markets

Non-life insurance products are mainly motor, transport, building, worker's compensation and personal accident insurance. The market has been dominated by direct sales to private and commercial customers, while industrial customers are typically approached by independent insurance brokers.

Due to perceived economies of scale, price competition is a common approach for smaller players to try and gain market shares. As we shall see the evidence of actual economies of scale is ambiguous. The larger players are to a greater extent competing on services, by increasing the services including sales and marketing provided for a particular product or moving into new product markets. Due to entry barriers as data availability and capital requirement the smaller and medium sized players are typically confined to short tail niche segments, with very little room for moving into new markets. For longer tail products reserves has to be build, claims historic and statistics obtained, which further increase the entrance barriers. As the Solvency II directive will impact the smaller players the most, we expect less aggressive price competition and find a general premium price increase probable. The pricing of insurance products is based on estimated claims expenses, operational costs and desired level of profitability. Where


03.02.2010


the main ingredient relates to the claims expenses, obviously correct pricing is highly dependent on risk estimates; the more data the better risk estimation. This is reflected in the market share persistence apparent in the Nordic area.

Market dynamics The general insurance industry participants are diverse as the industry in the Nordic countries are comprised of both publicly listed companies, privately owned companies, banks and mutual companies. The Nordic insurance markets have historically been characterized by the customer’s direct contact to the insurance company and large market players. Thus a variety of distribution channels and scale is important in attaining and retaining customers.

Denmark Norway

0 %

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40 %

45 %

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

TrygVesta TopDanmark CodanAlm Brand If Other

0 %

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40 %

45 %

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

If Gjensidige TrygvestaSpareBank1 Other

'Other' decreasing and further sector consolidation ahead? The Norwegian market has also seen some competition from smaller firms that have led to a loss in market shares for the incumbents since 1997.

Sweden Finland

10 %

15 %

20 %

25 %

30 %

35 %

2004 2005 2006 2007 2008Länsförsäkringer IfTrygg-Hansa FolksamOther

5 %

10 %

15 %

20 %

25 %

30 %

2005 2006 2007 2008OH Pohjola Group IfTapiola Group FenniaLocal Insurance Group Other

Opposite picture in Sweden as other show significant increase in the relatively short timeframe seen above.

Rigid Finish regulations regarding the transfer rights are probably an explanatory factor of the tranquil market

Source: FNH, company reports, Federation of Finnish Financial Services, Swedish insurance Federation


03.02.2010


The market is generally driven by price competition offset by premium hikes to recoup equity. At this point we are seeing premium hikes and with Solvency II upcoming this appears to be the general theme for the next years

Competition – Mainly price The four largest players in each Nordic country control 65%-86% of the market with Denmark and Norway in the low/high end. In general increased market shares are gained through (a) Price competition or (b) Service competition.

Price competition is the main competitive tool in the industry. But is most aggressively utilised by smaller niche players as a means of increasing their market shares in order to attain critical size. As economies of scale are perceived important in non-life insurance cost efficiency, the smaller players are incentivised to price their services at levels which the larger players are unwilling to compete at.

Service competition relates to increasing the depth of the services provided or increasing the product span. E.g. increasing your services provided in relation to auto-insurance or moving into new markets as private health-care coverage, life insurance, assets management and banking.

Market shares are persistent But if the smaller players operate with lower prices for a rather similar product, how come the markets shares display such persistence? This could be due to customers valuing track record and financial stability when choosing insurance provider. We find it likely that a rational client will avoid paying premiums to a company which might not be there to pay the claim when an accident occurs, and, more importantly, we believe non-insurance products to be a low-interest product where the main issue for the client is attainability. It is simply easier to choose a well known service provider than spending time (search costs) collecting different price quotes from the known and unknown firms.

Another important aspect explaining the high market concentrations are the barriers to enter the market. Non-life insurance is characterised by high capital requirements, strict regulative requirements and maybe most importantly a lack of data and personnel. As input data is the most important variable in risk-assessments and hence pricing the services correctly, this data is not easily attainable. The typical procedure of a start-up is to hire seasoned personnel with pricing know-how.

Non-life insurance market players in the Nordic and Baltic region

Company Country (HQ) Norway Sweden Denmark Finland Latvia Estonia LithuaniaIf Finland 29% 20% 5% 26% x x xPohjola Finland 28% xTapiola Finland 19%Fennia Finland 11%Local Insurance Group Finland 9%TrygVesta Denmark 18% x 21%TopDanmark Denmark 20%Codan Denmark 14% x xAlm Brand Denmark 10%Gjensidige Norway 30% 0% x x x xSpareBank1 Norway 10%Länsförsäkringer Sweden 30%Trygg-Hansa Sweden 17%Folksam Sweden 14%

Market share / presence

Source: FNH, company reports, Federation of Finnish Financial Services, Swedish insurance Federation


03.02.2010


According to the European Insurance and Reinsurance Federation (CEA) the premiums in the Nordic market has grown with a CAGR of 4.6% from 1996-2007 totaling a market growth of 65%. This is higher than the GDP growth of 3% during the period. The main market players are If, TrygVesta, Gjensidige and Codan, which between them have a Nordic market share of 46%.

Even though a recession affects the growth drivers adversely, all the Nordic markets still experienced growth in 2008. And still the longer term impact is likely to be increased prices. This is a common event in the insurance market known as the "claims shock theory", where a sudden increase in claims or loss on investment portfolio leads to increased prices across the market in order to recoup the equity lost. The upcoming Solvency II directive and the claims inflation experienced in 2006-2008 further strengthen this assumption.

Finland differs from the other markets with a much lower premium per capita with USD 1,005 relative to a Nordic average of USD 1,604. Also the typical Finnish client is the most loyal (perhaps due to rigid Finnish transfer regulation) in the region, where an average client stays with the same insurer for more than 10 years.

Reinsurance – a risk reduction and capitalisation tool Reinsurance implies a transfer of risk from the insurer to the reinsurer. We will here briefly look at common reinsurance methods and why insurance companies should reinsure.

There are generally two types of reinsurance:

a) Proportional – reinsurer takes x% of each premium and pays x% of each loss. Reinsurer also pays ceding commission to cover a part of the insurer's sales costs. Surplus share: every claim above a certain level is reinsured (less used today).

b) Non-proportional – typically reducing the extreme left-tail risk by reinsuring losses exceeding certain critical levels or specific risks (increased popularity recent years).

The rationale for insurers is:

a) Risk transfer - reducing the extreme tail risk

b) Income smoothing – reducing volatility in claims paid

c) Lowers capital requirements and increase solvency

d) Arbitrage – which can arise due to lower MCR for the insurer, economies of scale, more diversified reinsurers or simply different risk attitude.

The lesser capital needed per premium written when tail risk is reduced/ removed implies that if the cost of reinsurance is less than cost of capital relative to the capital needed, it generates economic value to reinsure.

Cost of reinsurance < Cost of Capital = Economic Value


03.02.2010


We believe internet solutions and banc-assurance is the future with regards to sales distribution for Non-life insurers

Distribution Channels The market can be segmented into private and corporate clients, possibly also dividing corporations into several sub-segments. The two dominant segments have rather different characteristics as to how sales are made.

Example of different distribution channels utilized

Source: TrygVesta Distribution channels Topdanmark Non-life Life

Danske Bank/BG

Bank 9 %

Tele-phone etc.

24 %

Stores 7 %

Brokers 4 %

Danica Pension

5 %

Auto dealers 18 %

Assurer 33 %

Tele-phone

etc. 4 %

Main office 33 %

Brokers 31 %

Assurer 32 %

Source: Topdanmark


03.02.2010


In the retail markets physical presence is the key, this property is clearly depicted in the table above. P&C private sales are dominated by local service centres, affinity groups and bancassurance.

In our view bancassurance will be the main driver of growth in the next years. Bancassurance implies a strategic partnership between an insurance provider and a bank. The banks agree to sell the products through their already established network of bank affiliates and are paid a commission of each premium written. In some cases the products are even marketed under the banks' own brand.

Bancassurance economics

Source: DnB NOR Markets Equity Research

For the banks this entails an immediate increase of services offered to their clients and additional revenues at low costs. For the insurance companies this represents a cost-efficient and rapid way of increasing their geographical presence while also keeping the fixed costs of sales low. And as non-life insurance is a low-interest product it certainly represents the path of least resistance to choose your already established financial service provider as your insurance provider.

It is thus apparent that bancassurance is an efficient mean for growth in the retail market, especially for entering new markets where your brand may be less familiar than in your home market.

Bancassurance can be an attractive, cost efficient way of entering new markets, but ultimately we view this as a question of long-term branding. That is, under which name should the non-life products be sold? And how should one look at the market position sustainability relative to the partnership risks?


03.02.2010


Big is beautiful? A rather ambiguous picture emerges In this section we aim to check whether we can see any apparent trends that indicate strong economies of scale, or whether there are other benefits related to size. We look at Sampo and If and their corresponding spreads of combined ratios. First we look at the quarterly combined ratios by each separate country and then we look at the quarterly combined ratios on a group-basis. Our findings indicate a geographical diversification, the group combined ratios have a lower average and standard deviation than the country-wise combined ratios. Thus increased geographical presence indicates lower costs and less earnings volatility.

Sampo / IF

Country wise volatility Group wise volatility

0

2

4

6

8

10

12

14

70%

74%

77%

81%

84%

88%

91%

94%

98%

102%

105%

109%

112%

116%

119%

123%

126%

130%

133%

137%

140%

0

2

4

6

8

10

12

14

70%

74%

77%

81%

84%

88%

91%

94%

98%

102%

105%

109%

112%

116%

119%

123%

126%

130%

133%

137%

140%

Combined ratio statistics: Average = 92% and standard deviation = 6%

Combined ratio statistics: Average = 92% and standard deviation = 5%, which is slightly below the country-wise figures. In our opinion showing a positive diversification effect. Too big to fail gets another meaning in this context.

TrygVesta

Country wise volatility Group wise volatility

0

1

2

3

4

5

6

7

70%

72%

74%

76%

78%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%

110%

0

1

2

3

4

5

6

7

70%

72%

74%

76%

78%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%

110%

Combined ratio statistics: Average = 131% and standard deviation = 9% as high establishment costs in Sweden and Finland pull the average upwards.

Group figures considerably more comfortable though and combined ratio statistics: Average = 92% and a standard deviation of 5%

Source: DnB NOR Markets, company reports


03.02.2010


We also looked at the cost ratios of Sampo, TrygVesta and Topdanmark. Although all are large players in their markets, Topdanmark is significantly smaller than the others. The graph indicates that scale's effect on costs is rather limited, but the volatility is higher in Topdanmark, further strengthening the geographical diversification assumption made above.

Nordic combined ratio overview (2004-Q309)

Frequency distribution Combined ratio development

0

2

4

6

8

10

12

14

70%

72%

74%

76%

78%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%

110%

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

Q204

Q404

Q205

Q405

Q206

Q406

Q207

Q407

Q208

Q408

Q209

TopDanmark Sampo TrygVesta

Combined ratio statistics: Average = 89% and standard deviation = 3%. The different companies' guidance actually seems credible.

Slight downward pattern

Cost ratios show Topdanmark as sector leader with regards to costs, while IF has remarkable stability

Acquisition premium in P/B multiples likely … distorting any likely scale effects on pricing

0.00

0.05

0.10

0.15

0.20

0.25

0.30

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

If Group TrygVesta Group TopDanmark

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Not any visible scale effect in costs, but rather the opposite seems true…

… and equally so with regards to pricing. No such thing as big is beautiful here. It must be stated though that the volatility is lower in Sampo compared to Topdanmark and TrygVesta.


03.02.2010


Market description Denmark – sustainable high profitability? The profitability seen in recent years have attracted new entrants and led to an increased price competition in many products, although the severity of the price competition has decreased, there is still strong competition especially within the corporate segment and worker's compensation. The Danish market has experienced a sound growth in recent years, with an average growth from 2003-2007 of 2.1%. In 2008 the premium growth slowed down primarily due to price competition from new entrants and smaller players. The financial turmoil in the same year has led to price hike announcements across the board in 2009. These will be implemented fully within the next 18-24 months according to TrygVesta and Topdanmark.

Market size, growth and trends

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Gross Premium growth 6.4 % 5.1 % 3.9 % 18.5 % 0.6 %Claim Ratio 71.0 % 75.2 % 81.1 % 65.8 % 70.7 % 74.6 %Cost Ratio 21.7 % 17.5 % 17.3 % 17.5 % 17.5 % 17.6 %Combined Ratio * 97.6 % 94.7 % 93.5 % 87.1 % 90.3 % 92.7 %Solvency Ratio* The figures are industry averagesP&L 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Gross Written Premium 38,384 40,839 42,911 44,565 52,819 53,130 Premiums Earned 32,642 35,950 37,674 40,777 48,505 49,119 Total Claims 24,106 26,178 27,935 27,401 34,239 36,058 Net Financial Income 3,777 3,868 6,390 7,839 5,754 (1,834) Net Operating ExpensesProfit/loss from normal activity 4,370 5,314 6,897 10,122 7,103 (1,089)

The largest competitors in the Danish general insurance market are TrygVesta, Topdanmark, Codan and Alm Brand, which in 2008 held market shares of 20.9%, 19.6%, 14.1% and 10.4%, respectively. In total there are 202 insurance companies with a total of 15,808 employees active in the market. Worker's compensation represents 9% of the market while the motor segment is the largest product with a 28% market share. Seasonality The third quarter is generally a slow quarter sales-wise, which corresponds to low sales costs and thus Q3 typically represent the most profitable quarter in a normal year. If we look at Sampo, TrygVesta and Topdanmark the average combined ratio in Q3 is 87.28% which is 3.8%p lower than the average for the rest of the year. Price Increases The claims inflation seen recently coupled with the loss of equity in 2008 has led to widespread premium increase announcements. Below we have provided a summary of Topdanmark and TrygVesta's announcements. Topdanmark's premium increases:

• House and contents policies: average increase 12 % • SME: average increase of 9 %.

TrygVesta's premium increases:

• Health care: 15% in january 2009 and another 10% in July • Accident: 10% in April 2009 • Travel: 20% in April 2009 • Agriculture: 10% in July 2009 • House Content: 14% in October 2009


03.02.2010


Norway – Highly seasonal As of September 2009, the Norwegian non-life insurance industry portfolio was NOK 39.75 billion, according to figures from FNH. Motor was by far the largest segment, representing 40% of the total market. The non-life insurance market in Norway is served by an oligopolistic industry where the four largest companies in Norway had an aggregate market share of 86% as of September 2009, the highest in the Nordic region. All four players offer insurance in practically all segments of the general insurance market, excluding marine insurance.


1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Gross Premium growth 7.9 % 10.2 % 21.0 % 2.4 % 13.3 % 6.9 % 5.7 % 3.8 % 4.0 % 2.7 % 3.5 %Claim Ratio 78.5 % 80.7 % 93.2 % 89.1 % 88.0 % 78.2 % 74.1 % 67.4 % 68.2 % 68.2 % 71.7 % 71.2 %Cost Ratio 27.0 % 28.0 % 25.8 % 26.2 % 24.8 % 23.8 % 24.6 % 22.8 % 23.1 % 22.7 % 21.7 % 22.6 %Combined Ratio 105.5 % 108.7 % 119.0 % 115.4 % 112.8 % 102.0 % 98.7 % 90.2 % 91.3 % 90.9 % 93.4 % 93.8 %Solvency Ratio 144.3 % 155.6 % 199.9 % 158.9 % 141.2 % 116.3 % 111.6 % 137.7 % 145.4 % 146.7 % 149.5 % 132.6 %

P&L 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Gross Written Premium 25,349 27,356 30,135 36,465 37,341 42,292 45,194 47,760 49,566 51,561 52,955 54,815 Premiums Earned 20,637 21,728 23,816 26,196 29,223 33,045 36,156 37,994 40,145 43,170 44,665 47,861 Total Claims 16,208 17,536 22,188 23,349 25,725 25,851 26,794 25,622 27,382 29,453 32,035 34,080 Net Financial Income 5,337 3,940 9,338 4,089 775 723 7,891 3,674 7,415 6,792 5,484 (1,555) Net Operating Expenses 5,577 6,092 6,138 6,872 7,243 7,860 8,902 8,655 9,267 9,779 9,708 10,829 Profit/loss from normal activity 2,875 344 5,019 418 (3,481) (1,173) 6,141 2,546 7,708 9,035 4,035 908

Source: FNH, SSB From 1998 to 2004 the industry grew more than the Norwegian economy, but has since then cooled off and is currently growing in line with the economy. As the exhibit above indicates, the profitability in the industry has been strong since 2004. The main reasons are a low incidence of large weather-related claims and more stringent underwriting with more adequate pricing. From 1997 to 2008 the gross premiums have displayed a CAGR of 7.3% compared to a claims cost CAGR of 7.0%.

The cost ratio has shown the same positive trend with a 4.4%p drop from 1997 to 2008. This is driven by increased automatisation and economies of scale. Overall the Norwegian industry has experienced a decreasing combined ratio. Recently the combined ratio has trended upwards due to claims inflation (9% inflation p.a.). This has been met by increased prices which are currently being implemented.

In the same period the Nordic P&C Insurance market appears to have matured, with the major players focusing on cost efficiency and customer satisfaction rather than increased market shares. Gjensidige and If are the market leaders with market shares of 28.8% and 28.1% respectively. Both competitors have a roughly equal market position in the motor segment as seen in the table below. Gjensidige has a strong position in all segments and especially within the fire insurance, small businesses and private, while If has a market share of 58% in the industrial fire insurance market.

Motor insurance is the biggest business line totaling a gross written premium of NOK 16bn as of Q3 2009. The segment has shown a healthy 4.4% CAGR since 2001, but the recent growth rates has seen the same trend as the overall market; slowed down in recent years and stood at 3.3% in 2008.


03.02.2010


Segment market shares

2007 2008 2009Non-life Insurance Total Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3Gjensidige 31.60% 31.40% 30.50% 31.00% 30.60% 30.40% 30.10% 29.60% 29.30% 29.10% 28.80%If 30.20% 30.00% 29.90% 29.80% 29.30% 29.20% 29.10% 28.90% 28.90% 28.50% 28.10%TrygVesta 17.80% 18.00% 18.20% 18.10% 17.80% 17.80% 17.80% 17.80% 18.00% 18.20% 18.10%SpareBank 1 Non-life 10.10% 10.10% 10.00% 10.00% 9.90% 9.90% 9.80% 9.80% 9.90% 10.00% 10.00%Storebrand 0.10% 0.20% 0.30% 0.30% 0.60% 0.70% 0.80% 0.80% 0.90% 1.00% 1.10%Total 89.80% 89.70% 88.90% 89.20% 88.20% 88.00% 87.60% 86.90% 87.00% 86.80% 86.10%

Auto insuranceIf 31.00% 30.80% 30.50% 30.60% 30.30% 30.20% 30.00% 29.90% 29.80% 29.50% 29.00%Gjensidige 31.20% 31.40% 31.40% 31.70% 31.20% 30.80% 30.70% 30.10% 29.40% 29.10% 28.70%TrygVesta 17.70% 17.50% 17.50% 17.40% 17.10% 17.00% 17.00% 17.10% 17.20% 17.20% 17.10%SpareBank 1 Non-life 10.20% 10.10% 10.10% 10.00% 9.90% 9.80% 9.70% 9.60% 9.70% 9.70% 9.80%Storebrand 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80% 0.90% 1.00% 1.10% 1.20%Total 90.30% 90.10% 89.90% 90.20% 89.10% 88.50% 88.20% 87.60% 87.10% 86.60% 85.80%

Fire insurance, privateIf 29.10% 29.00% 28.90% 28.90% 28.80% 28.60% 28.50% 28.30% 27.90% 27.60% 27.30%Gjensidige 24.80% 24.80% 24.60% 25.00% 24.60% 24.20% 24.00% 23.50% 23.10% 22.80% 22.90%SpareBank 1 Skadeforsikring 20.30% 20.30% 20.30% 20.20% 19.80% 19.70% 19.60% 19.40% 19.40% 19.30% 19.30%TrygVesta 16.80% 16.70% 16.70% 16.60% 16.60% 16.60% 16.70% 16.80% 16.70% 16.70% 16.50%Storebrand 0.20% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80% 0.90% 0.90% 1.00%Total 91.20% 91.00% 90.80% 91.10% 90.30% 89.70% 89.50% 88.80% 88.00% 87.30% 87.00%

Fire insurance, small businessesGjensidige 47.90% 48.00% 47.90% 48.70% 48.40% 48.40% 48.50% 48.00% 47.70% 47.70% 47.50%If 27.30% 27.00% 26.80% 26.60% 26.50% 26.20% 26.10% 26.10% 26.00% 25.50% 25.30%TrygVesta 9.00% 9.10% 9.00% 9.00% 9.30% 9.20% 9.70% 9.80% 10.00% 10.00% 10.10%SpareBank 1 Non-life 5.00% 5.10% 5.10% 5.10% 5.30% 5.40% 5.50% 5.60% 5.70% 5.80% 5.90%Storebrand - - - - 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total 89.20% 89.20% 88.80% 89.40% 89.50% 89.20% 89.80% 89.50% 89.40% 89.00% 88.80%

Fire insurance, IndustrialIf 55.50% 55.50% 55.40% 57.30% 57.70% 57.60% 58.10% 56.90% 60.20% 59.80% 58.00%TrygVesta 34.40% 34.80% 33.50% 32.50% 30.90% 30.80% 30.00% 29.80% 31.90% 32.30% 33.10%Gjensidige 6.90% 6.40% 6.20% 6.40% 5.30% 5.20% 5.10% 4.80% 4.90% 4.90% 4.80%SpareBank 1 Non-life 0.60% 0.60% 0.60% 0.60% 0.70% 0.60% 0.70% 0.70% 0.70% 0.70% 0.70%StorebrandTotal 97.40% 97.30% 95.70% 96.80% 94.60% 94.20% 93.90% 92.20% 97.70% 97.70% 96.60%

Worker's compensationGjensidige 40.50% 39.50% 35.10% 34.80% 35.20% 35.70% 34.70% 34.20% 33.80% 34.90% 34.40%TrygVesta 19.90% 20.80% 23.00% 22.40% 21.90% 21.10% 21.10% 20.50% 21.50% 22.30% 22.20%If 21.80% 22.00% 22.00% 21.60% 19.90% 19.30% 19.70% 19.40% 19.00% 19.00% 18.80%SpareBank 1 Non-life 3.90% 3.90% 3.90% 3.80% 3.60% 3.60% 3.70% 3.60% 3.70% 3.70% 3.80%Storebrand - - - - 2.20% 2.40% 2.50% 2.40% 2.40% 2.60% 2.60%Total 86.10% 86.20% 84.00% 82.60% 82.80% 82.10% 81.70% 80.10% 80.40% 82.50% 81.80%

The following table illustrates the trend in the number of claims in selected segments for the period 1997 - 2008. Norway has been impacted by significant claim inflation in recent years, leading to an 18% increase in claims paid from 2006 till 2008. As the average claim size has decreased by 1.3% in the period this is solely related to an increase in claims frequency. The overall claim inflation have been 5%/9%/9% from 2006-2008. This again is mostly related to an adverse development within the motor segment.


03.02.2010


Claims development in Norway

Breakdown of claims (NOK mn) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Motor Private 5,084 5,666 6,372 6,439 6,639 6,882 7,077 7,429 7,346 8,133 8,484 9,235 Motor Commercial 1,133 1,279 1,481 1,393 1,375 1,350 1,414 1,418 1,281 1,582 1,795 1,883 Fire & Special Perils 2,685 2,681 3,374 3,382 4,081 3,909 4,021 3,621 3,733 4,163 4,359 5,226 Fire & Special Perils Commercial 1,767 1,875 2,242 2,213 2,619 2,494 2,709 2,294 2,158 2,624 3,057 3,773 Fire & Special Perils Industry 1,094 691 1,101 1,422 1,330 993 825 614 876 954 822 1,094 Workmens Compensation 1,347 1,519 1,393 1,461 1,615 1,830 1,931 2,100 2,039 2,095 2,294 2,390 Safety - - - 770 969 1,049 1,085 1,019 961 997 1,003 929 Accident 451 460 556 454 464 480 592 584 640 770 604 544 Leisure travel 405 484 580 595 647 691 702 841 902 1,032 1,149 1,264 Leisure boat 167 148 232 235 225 262 276 243 282 326 371 414 Liability 395 445 461 518 511 550 739 568 600 720 722 839 Fish farming Industry 136 167 92 124 168 123 129 119 88 168 166 240 Other 587 688 769 944 1,037 675 689 387 383 490 476 554 Total 15,249 16,105 18,652 19,951 21,680 21,288 22,189 21,235 21,287 24,054 25,302 28,385

Breakdown of claims (%) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Motor Private 33% 35% 34% 32% 31% 32% 32% 35% 35% 34% 34% 33%Motor Commercial 7% 8% 8% 7% 6% 6% 6% 7% 6% 7% 7% 7%Fire & Special Perils 18% 17% 18% 17% 19% 18% 18% 17% 18% 17% 17% 18%Fire & Special Perils Commercial 12% 12% 12% 11% 12% 12% 12% 11% 10% 11% 12% 13%Fire & Special Perils Industry 7% 4% 6% 7% 6% 5% 4% 3% 4% 4% 3% 4%Workmens Compensation 9% 9% 7% 7% 7% 9% 9% 10% 10% 9% 9% 8%Safety - - - 4% 4% 5% 5% 5% 5% 4% 4% 3%Accident 3% 3% 3% 2% 2% 2% 3% 3% 3% 3% 2% 2%Leisure travel 3% 3% 3% 3% 3% 3% 3% 4% 4% 4% 5% 4%Leisure boat 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%Liability 3% 3% 2% 3% 2% 3% 3% 3% 3% 3% 3% 3%Fish farming Industry 1% 1% 0% 1% 1% 1% 1% 1% 0% 1% 1% 1%Other 4% 4% 4% 5% 5% 3% 3% 2% 2% 2% 2% 2%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Breakdown of claims (Volumes) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Motor Private 483,914 498,477 541,643 541,231 521,384 537,436 528,162 537,148 517,370 535,897 565,666 628,340 Motor Commercial 66,522 61,199 60,100 56,506 49,311 49,119 48,662 46,882 45,611 58,772 60,756 63,363 Fire & Special Perils 183,212 168,473 188,208 191,933 175,253 188,285 177,289 161,985 150,705 161,100 172,279 187,575 Fire & Special Perils Commercial 49,804 63,219 63,013 62,628 58,634 55,035 40,616 38,226 37,355 36,066 37,186 38,859 Fire & Special Perils Industry 5,540 5,244 5,616 6,043 6,115 6,557 5,257 4,360 3,449 11,775 16,681 17,977 Workmens Compensation 7,439 9,020 9,385 7,634 6,510 6,509 8,026 6,566 6,132 6,086 7,483 8,068 Safety - - - - 2,296 3,886 4,034 4,604 3,666 3,345 4,073 4,527 Accident 14,201 16,337 18,110 14,820 13,095 11,797 14,685 14,806 15,093 12,570 12,629 15,788 Leisure travel 84,380 95,031 115,717 114,999 118,887 128,623 139,657 160,104 175,602 190,664 225,904 242,586 Leisure boat 7,542 6,193 8,660 9,304 7,663 8,783 8,979 8,397 8,381 8,371 9,438 10,242 Liability 5,301 5,838 6,934 6,441 5,766 6,359 6,075 5,219 4,767 5,431 5,750 6,380 Fish farming Industry 252 243 168 136 155 158 191 168 127 207 239 276 Other 25,003 25,137 25,409 27,845 31,817 31,512 32,483 33,189 33,950 27,014 31,940 33,471 Total 933,110 954,411 1,042,963 1,039,520 996,886 1,034,059 1,014,116 1,021,654 1,002,208 1,057,298 1,150,024 1,257,452

Average Claim 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Motor Private 10,505 11,366 11,765 11,897 12,734 12,804 13,399 13,830 14,199 15,175 14,999 14,698 Motor Commercial 17,036 20,899 24,639 24,658 27,886 27,486 29,056 30,250 28,077 26,911 29,539 29,719 Fire & Special Perils 14,656 15,916 17,925 17,623 23,287 20,762 22,683 22,352 24,770 25,842 25,301 27,861 Fire & Special Perils Commercial 35,473 29,665 35,578 35,340 44,661 45,320 66,700 60,004 57,767 72,767 82,206 97,097 Fire & Special Perils Industry 197,437 131,770 195,958 235,256 217,436 151,448 157,010 140,711 253,900 80,994 49,302 60,828 Workmens Compensation 181,019 168,392 148,396 191,372 248,095 281,134 240,556 319,784 332,567 344,151 306,521 296,220 Safety - - - - 422,213 269,995 268,939 221,308 262,111 298,146 246,329 205,279 Accident 31,758 28,175 30,718 30,634 35,452 40,666 40,306 39,464 42,377 61,273 47,850 34,476 Leisure travel 4,801 5,097 5,014 5,171 5,439 5,374 5,026 5,252 5,135 5,412 5,086 5,212 Leisure boat 22,076 23,914 26,790 25,290 29,417 29,879 30,783 28,963 33,636 38,896 39,299 40,432 Liability 74,458 76,276 66,455 80,450 88,542 86,429 121,597 108,756 125,886 132,554 125,530 131,489 Fish farming Industry 540,079 686,420 544,643 913,500 1,085,313 780,745 675,393 705,357 691,339 813,527 694,561 869,203 Other 23,465 27,374 30,281 33,909 32,580 21,406 21,223 11,654 11,272 18,154 14,912 16,537 Total 16,343 16,874 17,884 19,193 21,748 20,587 21,880 20,785 21,240 22,750 22,002 22,574

Claim frequency development 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Motor Private 3% 9% 0% -4% 3% -2% 2% -4% 4% 6% 11%Motor Commercial -8% -2% -6% -13% 0% -1% -4% -3% 29% 3% 4%Fire & Special Perils -8% 12% 2% -9% 7% -6% -9% -7% 7% 7% 9%Fire & Special Perils Commercial 27% 0% -1% -6% -6% -26% -6% -2% -3% 3% 4%Fire & Special Perils Industry -5% 7% 8% 1% 7% -20% -17% -21% 241% 42% 8%Workmens Compensation 21% 4% -19% -15% 0% 23% -18% -7% -1% 23% 8%Safety 0% 0% 0% 0% 69% 4% 14% -20% -9% 22% 11%Accident 15% 11% -18% -12% -10% 24% 1% 2% -17% 0% 25%Leisure travel 13% 22% -1% 3% 8% 9% 15% 10% 9% 18% 7%Leisure boat -18% 40% 7% -18% 15% 2% -6% 0% 0% 13% 9%Liability 10% 19% -7% -10% 10% -4% -14% -9% 14% 6% 11%Fish farming Industry -4% -31% -19% 14% 2% 21% -12% -24% 63% 15% 15%Other 1% 1% 10% 14% -1% 3% 2% 2% -20% 18% 5%Total 2% 9% 0% -4% 4% -2% 1% -2% 5% 9% 9%


03.02.2010


Seasonality The Norwegian winter typically impact the claim frequency, leading to a spike in combined ratios in Q1. In 2009 the combined ratios for TrygVesta, If and Gjensidige were 107.4%, 99.5% and 99.1% respectively relative to annual figures of 95.3%, 95% and 93.4%. Thus they experienced 4.5%p-12%p higher combined ratio in the first quarter relative to the annual average. With the exceptionally cold winter we are currently seeing we expect weak figures in Norway for the first quarter. Combined Ratios, Q1

Q103 Q104 Q105 Q106 Q107 Q108 Q109Sampo 94.90 % 92.70 % 93.00 % 93.00 % 95.10 % 95.40 % 99.50 %Average FY 93.10 % 85.63 % 86.83 % 87.00 % 89.85 % 93.35 % 94.97 %TrygVesta 91.25 % 93.35 % 93.35 % 99.67 % 97.29 % 107.36 %Average FY 83.67 % 83.31 % 85.74 % 88.86 % 95.85 % 95.32 %Gjensidige 102.14 % 92.43 % 99.14 %Average FY 93.21 % 90.27 % 93.41 %

Difference Q1 vs Average FY, %pSampo 1.80 % 7.08 % 6.18 % 6.00 % 5.25 % 2.05 % 4.53 %TrygVesta 7.58 % 10.05 % 7.62 % 10.81 % 1.45 % 12.04 %Gjensidige 8.93 % 2.16 % 5.73 %

Premium Increases The claims inflation seen in 2006-2008 coupled with the loss of equity in 2008 has led to widespread premium increase announcements. Below we have provided a summary of TrygVesta's announcements for the Norwegian market. TrygVesta's premium increases:

• House Building: 2% in July 2007, 6% in January 2008, 1.8% in July 2008, 7.4% in January 2009 and an additional 4.5% in July 2009

• Holiday House: 7% in January 2009 and a further 5% in July 2009 • Motor: 4.8% in July 2007, 1.6% in January 2008, 1% in July 2008,

5% in January 2009 and 6.6% in July 2009 • This implies increased House Building premiums of 24%, increased

Holiday House premiums of 12.4% and increased Motor premiums of 20%.

These increases typically take 1-2 years to implement and we will not see the full extent of the premium hikes until 2011


03.02.2010


Sweden – Highly profitable, too profitable? Recently the Swedish market has been characterized by increased price competition, especially within motor and health-care insurance. With Solvency II upcoming we expect the same development as in the rest of the Nordic area:

less price competition smaller players must specialize or go out of business.

Albeit, we do not expect combined ratios in the low 80's to be sustainable. The Swedish market totaled SEK 57.3bn as of Q2 2009. The average annual growth in terms of premium generated was 3.1% from 2005 to 2008. Motor is by far the largest product market representing 26% of total GPW and with a CAGR of 1.5% from 2001-2008. January 2010 motor sales came in at a whopping +31% YoY. A great relief compared to new auto sales in 2008 and 2009, which was down 18% and 17% respectively. This naturally, put a significant dampening on the market growth in 2008-2009. Although the volumes in auto have picked up, the premium growth is hampered by intense price competition. As in most of the Nordic area the claims trend is positive in the motor segment, this could be due to increased safety requirements or, equally likely, just due to less miles driven on the back of the economic downturn. The Swedish market is dominated by domestic players as Folksam and Länsförsäkringer, combined representing 47% of the market, while If represents an additional ~20% market share. If we look at the market leaders' profitability a diverging picture emerges. Folksam's combined ratio has steadily decreased from 100% in 2004 to 89% in 2008. This is driven by a 17%p decrease in claims ratio, while the expense ratio increased by 6%p in the period. Länsförsäkringer and If on the other hand has experienced only slight combined ratio decreases, by 2008 standing at 93% and 92% respectively.


1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Gross Premium growth 3.1 % 5.0 % -1.2 % 5.6 %Claim Ratio 86.6 % 86.6 % 77.0 % 81.6 % 65.6 %Cost Ratio 16.8 % 17.0 % 16.9 % 17.9 % 17.7 %Combined Ratio 103.4 % 103.5 % 94.0 % 99.4 % 83.4 %Solvency Ratio

P&L 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Gross Written Premium 92,681 95,510 100,300 99,080 104,636 Premiums Earned 79,780 84,743 89,305 87,980 92,336 Total Claims 69,125 73,365 68,773 71,748 60,586 Net Financial Income 7,007 6,559 7,671 10,316 11,424 Net Operating Expenses 13,368 14,374 15,134 15,731 16,385 Profit/loss from normal activity 12,280 21,492 11,304 (25) (10,114)

The Swedish market is mainly served by call centers and bancassurance is a rather new concept with great growth potential. This is reflected in both TrygVesta's partnership with Nordea and Folksam's partnership with Swedbank. The economies of scale present in the non-life insurance industry are clearly shown through a quick glance at TrygVesta's Moderna acquisition. TrygVesta's Swedish operations went from a combined ratio of 137.9% in Q1 2009 to making a profit in Q3. In this period the premiums written went from 66 to 402 DKKm, a staggering ~600% growth, whilst the corresponding operating expenses increased by 40 DKKm. Thus 340mn in increased sales only required 40mn in increased operating expenses. Seasonality The Swedish market resembles the Norwegian with a combined ratio spike in Q1 followed by a sharp fall in both Q2 and Q3 QoQ before the combined ratio increases again when moving into Q4.


03.02.2010


Pohjola and If have cost advantages in the Finnish market, Pohjola is utilising this to gain market shares through aggressive pricing

Finland – tranquil market with high customer retention

The Finnish market is highly concentrated with the four largest players comprising 84% of the market. Also the total number of companies in the industry was 63 in 2008, which is 315 less than the Swedish market. The large players are Finnish based companies as Pohjola, If, Tapiola and Fennia. The market appears to be the most mature in the Nordic sector with small changes in market shares and the highest client loyalty, a typical customer stays with the same insurance provider for more than 10 years. Finland has more rigid transfer regulations than the other Nordic countries.


1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Gross Premium growth 6.1 % 4.7 % -0.1 % 3.8 %Claim Ratio 88.6 % 85.8 % 88.2 % 87.3 % 92.4 % 81.4 % 82.9 % 81.9 % 78.0 % 78.8 %Cost Ratio 21.8 % 23.6 % 22.2 % 23.9 % 21.5 % 20.6 % 19.1 % 19.7 % 20.4 % 20.9 %Combined Ratio 110.4 % 109.4 % 110.4 % 111.2 % 113.9 % 102.0 % 102.0 % 101.6 % 98.4 % 99.7 %Solvency Ratio 488.0 % 454.0 % 190.0 % 134.0 % 131.0 % 130.0 % 137.0 % 132.0 % 145.0 % 126.0 %

P&L 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Gross Written Premium 2,957 3,137 3,283 3,280 3,404 Premiums Earned 2,781 2,890 2,881 2,980 Total Claims 2,305 2,367 2,240 2,347 Net Financial IncomeNet Operating Expenses 530 570 586 624 Profit/loss from normal activity 311 282 290 (212)

On the profitability side the Finnish market have not excelled, after more than 8 years of combined ratios above 100%, it is just in the latest years that the industry have been able to attain a combined ratio in the nineties. Although the market is generally struggling with high combined ratios this is not reflected in the results presented by the market leaders; If and Pohjola reported Q3 2009 combined ratios of 78.2% and 83.1%.

Economies of scale proved inconclusive in our Nordic comparison below, this is further confirmed by looking at Tapiola. They have close to a 20% market share but still reported combined ratios of 109.3% and 100.7% in 2008 and 2007. Big is beautiful, but not sufficient.

'Pohjola model'

Pohjola is utilising the cost advantage referred to above to practise aggressive pricing in order to gain market shares. This is predominantely done through bundling, where Pohjola bank clients can buy non-life insurance products with bonus points earned as banking clients. Also "loyal Pohjola clients", those with three or more non-life insurance policies, are given 7-10% discounts. A similar pricing approach is exercised by many of the market players, Eg. Tapiola offer up to 17% discounts in its benefit programme for loyal clients. With combined ratios above 100% this would appear unsustainable, unless the non-life insurance products are offered cheaply in order to attract clients into Tapiola's range of financial services.

Differing from the other Nordic markets bancassurance is an integral part of the industry in Finland, a sales-vehicle we expect to gain traction in the other Nordic countries as well. Both Tapiola and Pohjola also operate banks and while Sampo no longer owns Sampo bank they own 20% of Nordea, although they currently do not distribute If's non-life insurance products via Nordea(!). Furthermore the development of self-service opportunities via internet has been a targeted area of growth, resulting in a wide range of services offered. If reported that internet sales comprised 15% of new sales.

Seasonality The Finnish market resembles the Norwegian market with high claim expenses in the winter and lower combined ratios during the summer.


03.02.2010


Key product category trends Motor – Soft sales in 2008/2009, appears to be picking up The Motor segment is the largest in all the Nordic markets; with new sales down significantly in 2008 and 2009 this adversely affected the industry. But the economic downturn also led to less cars going out of use and thus the overall number of motor policies remained stable. With the economy picking up we expect the sales to gain ground.

New registrations, passenger cars

Denmark Sweden

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1Q 2Q 3Q 4QSpread 2000-2008 Avg. 2000-20082010 2009

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1Q 2Q 3Q 4QSpread 2000-2008 Avg. 2000-20082010 2009

Norway Finland

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1Q 2Q 3Q 4QSpread 2000-2008 Avg. 2000-20082010 2009

0

5,000

10,000

15,000

20,000

25,000

1Q 2Q 3Q 4QSpread 2000-2008 Avg. 2000-20082010 2009

Source: SSB, DST, SCB, Statistics Finland, DnB NOR Markets Equity Research Based on DnB NOR Markets and IMF macroeconomic indicators we estimate improved cars sales in 2010, especially so in Norway. Assuming a market normalization (2010E=2008) we get a 28% growth in new registrations. If we look at the December figures we saw a 31% YoY growth in Norway and a 41% YoY growth in Denmark. In January 2010 we saw a whopping 81% YoY growth in Norway and a solid 32% growth in Sweden.


03.02.2010


Fire – the great unknown We are inclined to say that fires are the main cause of or rationale behind the non-life sector. TrygVesta, Sampo, Alm. Brand and Storebrand (which originally was a non-life company) etc. were all established in able to insure people from the effects of these disasters. The insurer covers the economic loss when e.g. a house burns down.

Number of building fires Fire seasonality

0

2,000

4,000

6,000

8,000

10,000

12,000

1996 1998 2000 2002 2004 2006 2008

Norway Denmark Finland Sweden

0

5

10

15

20

25

30

35

40

Q199 Q100 Q101 Q102 Q103 Q104 Q105 Q106 Q107 Q108

Declining pattern in Norway and Denmark. No. of fires caused by fireworks in Norway shows, naturally, clear seasonality. We believe candlelight and open fire accidents follow the same seasonal fluctuations although dampening the picture somewhat.

Number of fires and fire losses in industries (Norway)

Number of fires and fire losses in private houses (Norway)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1999 2001 2003 2005 2007

Number of fires Losses (NOKm)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1999 2001 2003 2005 2007

Number of fires Losses (NOKm)

47.8% increase in fires and 44% increase in losses which is less impressive compared to …

… the private market at -22% and 44% respectively is.

Source: FNH, DnB NOR Markets


03.02.2010


Fire sources and causes in private houses and industries There can be a magnitude of underlying causes. Electrical equipment malfunctioning, open fire etc. are typical such causes.

Selected fire sources Selected fire causes

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1999 2001 2003 2005 2007

Electric kitchen equipment Unknown fire source

15%

17%

19%

21%

23%

25%

27%

29%

31%

33%

35%

1999 2001 2003 2005 2007

Caused by electrical phenomenon Unknown cause

Most noticeably is the pronounced increase in 'Unknown" sources…

… and likewise with causes. Slight decrease in all 'classical' causes and opposite so for the 'unknown's'.

Source: FNH, DnB NOR Markets Worker's compensation – the long-tail non-life product Worker's compensation is an insurance that provides employees with medical care when injured at work, while relinquishing the employees' right to sue the employer for negligence. The system's main objective is to assist the insured with the financial challenges that occur in the wake of an accident, but also to prevent occupational accidents. The insurance can work as a health-insurance when providing medical care, disability insurance when the medical care did not suffice or in some countries even as a life insurance. Worker's compensation is statutory and part of the social security in the Nordic area, but in Sweden there is no involvement of private insurers. In Denmark and Finland they have had worker's compensation schemes since the 1890'ies while Norway did not introduce it until 1990. This is reflected in the market sizes; the Norwegian market stands at NOK 2,760mn, this is just more than half of the Danish market DKK 4,200mn and less than half of the Finnish market of EUR 590mn. The profitability within the segment is highly variable, in Norway it has never been at acceptable levels, with a high number of new entrants and a lack of consensus as to how the risks should be priced. Certain risks appear to have price differences in the 30-40% range between companies. The premiums vary between industries dependent on line of work and HSE efforts made. Worker's compensation is a long-tailed insurance, where it can take up to 20 years before an incurred claim is actually reported and settled. This explains some of the pricing issues the Norwegian industry is experiencing, as the industry itself is only 20 years old. Worker's compensation comprised 8% of the Norwegian claims in 2008, and stood for 17% of the claims made in Finland.


03.02.2010


Regulatory challenges (and opportunities) ahead Future framework - Solvency II Solvency II is to be implemented at the end of October 2012. The primary objective of the new directive is to align capital requirements to the risk profile of the firm. This is mainly reflected in more sophisticated capital requirement models and the incorporation of a "Total-balance-sheet" risk perspective. Differing from Solvency I the new directive require the insurance companies to take the asset side risks into account as well as the liability side risk. Thus market risk, credit risk and operational risk has to be incorporated into the capital requirement models. Introducing a two-tiered capital requirement regime The firms will be required to conduct their own risk and solvency assessment (ORSA)*. This process will address the new Solvency Capital Required (SCR) and Minimum Capital Required (MCR). SCR is estimated with VaR-estimation at 99.5% of basic own funds over a twelve month period

Risks included: Underwriting risk, Market risk, Credit risk, Operational risk

MCR is estimated with VaR-estimation at 85% of basic own funds over a twelve month period. The MCR will be in the range of 25-45% of SCR.

Basic own funds comprise the excess of assets over liabilities plus subordinated debt (typically: shareholders equity + subordinate debt)

If the basic own funds falls below the SCR threshold the firm will be required to reduce risk or increase their capital base within 6 months. If this is not adhered to the regulators will intervene. If the basic own funds falls below the MCR threshold the regulators will immediately intervene and likely withdraw their insurance authorisation. A European Standard Model will be designed and proposed in relation to the implementation of the directive. It will still be possible to utilise internal models, but these will have to be approved by the regulators. Furthermore the estimates made by the firms will be publicly disclosed. The MCR will be required to be disclosed at least each quarter. Valuation: Assets and liabilities will be valued at an economic market-consistent basis, rather than the current prudent technical provisions and prudent asset valuation. This leads to increased transparency of the balance sheet items but also induces increased balance sheet volatility. In general, the firms already applying IFRS accounting principles will not be impacted significantly. Investments: Regarding investments there will be no demands as to which asset classes the insurers are allowed to invest in. Rather a "Prudent Person" principle will be applied. If an insurer wishes to invest in a new product they need to prove that those responsible for the daily management of the investment have sufficiently understood the risks involved in the given product. Derivative investments and securitization will be allowed. Corporate Governance: Solvency II does not merely address capitalisation, a prime objective is "a change of behaviour"1. The risk management focus will need to be formalised and be implemented throughout the organisation, ensuring

1 Thomas Steffen, Chairman of CEIOPS


03.02.2010


regulators that risk-management is integral in their strategic and operational decision-making. Expected Timetable

Source: European Commission, PWC How will this impact the industry? In general, we believe, this will reduce the riskiness of the insurance industry through a more sophisticated relation between capital requirements and risk profile. For some companies e.g. TrygVesta this will have little or no impact on their business model, but for other, typically smaller, more aggressive insurers the directive may have severe consequences. The directive might require capital infusions, 11% of the participants in the QIS4 were below the SCR, and the implementation will certainly require investments in personnel. Although the directive is designed to be "proportional", hence demand placed on different firms will depend on the size of the business, it still might be too extensive for several of the smaller players to adhere to. Thus leading to increased consolidation activity over the next few years. As it is the smaller players that typically drive the price competition we see this directive as a potential profit trigger in the underwriting business, while at the same time reducing the riskiness and returns in the investment activities. Overall we expect the solvency II, as it is proposed today, to reduce volatility and increase profitability across the industry.


03.02.2010


Corporate Governance and strategic ownership in Nordic financial institutions Even though the shape of the recovery has been v-shaped … so far, we find it likely that the crisis will have significant and permanent consequences for the future relationship between markets and Governments. We foresee a future with not only increasing supervision, but also potentially permanent public ownership in strategic financial institutions and/or increased political pressure. However, we believe the Nordic countries are uniquely positioned as leading mixed economies.

Below we try to evaluate possible CG issues and also evaluate owners. Red arrows indicate bancassurance deals.

Ownership map

Source: Company reports, DnB NOR Markets


03.02.2010


Non-life insurance

Sampo Largest shareholder in Sampo is Solidium Oy with 14%.

Solidium is a holding company wholly owned by the State of Finland, and was established in the autumn 2008, when the Finnish State transferred its non-strategic holdings in Kemira, Metso, Outokumpu, Rautaruukki, Sampo, Sponda, Stora Enso, and TeliaSonera to Solidium (and furthermore Elisa Corporation on 11 June 2009). Guiding principles are:

o Solidium manages its holdings in a way that ensures the best long-term return to the State.

o Solidium’s holdings involve national interests, but its investment decisions are based on financial considerations. Cooperation with other investors is paramount, and the company is an active participant in the Finnish capital market.

o Solidium finances its activities with return from its investments and debt.

Varma and Ilmarinen Mutual insurance companies are second and third largest owners with 8.5% and 2.85% respectively.

On fourth place, rather uniquely, Sampo Chairman Björn Wahlroos with 2.09%

We find Solidium a financially solid and well set-up structure. Solidium should lower the overall political risk level, although Heikki Koskenkyla, former Bank of Finland director, was recently quoted in the Finnish newspaper Talouselämä stating that Solidium should buy back Sampo Bank from Danske Bank. We find such a solution unlikely, but we will not rule it out as foreign banks are holding a market share of 50-60 percent in Finland, whereas in other Nordic countries it is between 10-20 percent. TrygVesta

TrygVesta's main shareholder is TryghedsGruppen which owns 60% of the shares.

o TryghedsGruppen is a holding company that invests in insurance and "peace of mind" related firms. Other companies in Tryghedsgruppens portfolio are SATS (fitness center), Previa (health advisory), Sahva and PreviaSundhed

o Their total capital base stands at ~DKK 28bn. TryghedsGruppen recently announced that they are willing to participate in further strengthening of TrygVesta's capitalization in order to facilitate acquisitions. They would prefer a target of approximately the same size as TrygVesta. There has been some noise around the upcoming elections to the committee of representatives; some candidates are criticizing how the operations are run. One group claims that TryghedsGruppen's assets should be disbursed to its owners, who are the policyholders in TrygVesta and Nordea. 21 out of 70 positions are up for election in primo 2010. Topdanmark

Sampo owns 11.25% of Topdanmark. Looking at If's low market share in Denmark we, like Bjorn Wahlroos, believe a tie-up with Topdanmark is one of the paths IF could take to grow its insurance market share in Denmark. However Topdanmark CEO Poul Almlund has on several occasions stated that he does not see any possibility for a friendly takeover and that a hostile bid is unrealistic.

The Capital Group Companies owns 5.03% (EoY 2009). The group, headquartered in Atlanta US, manages investments of individuals and large institutions through funds.

The combined holding of ATP, DMP and SP (different Danish pension funds) equals 8.43%


03.02.2010


Nordic Banks

DnB NOR The Norwegian Government is the largest shareholder with a

34% position in DnB NOR. The position is originally a remnant from the last banking crisis in the early 90-ies. The Norwegian public finances are almost unique as the annual surplus the latest couple years have been around 300-400 NOK bn. The Governmental Pension Fund – Foreign (commonly known by its old name, The Oil Fund) is even after record losses still at NOK ~2000 bn. We believe the Governmental ownership combined with the excellent public finances should support the DnB NOR share in general and also more specifically in a potential rights issue, which could arise should strategic opportunities emerge.

The Savings Banks Foundation is the second largest owner with 10% of the shares. The new Norwegian Bank Law implemented recently suggested changes which, if approved by the Parliament, will allow the Foundation to deviate from this 10% lower bound increasing the strategic flexibility.

The good public finances in Norway should keep the political risk level low, but as seen in the Aker Holding case not without challenges. Danske Bank The ownership structure of Danske is not fully transparent and we believe this lack of transparency is an additional risk factor for investors. According to Danish law (Danish Companies Act section 28a) only shareholders above 5% must disclose their holdings, and in the annual report two shareholders have reported:

The fund ‘A.P. Møller og Hustru Chastine Mc-Kinney Møllers Fond til almene Formaal’ and the A.P. Møller-Mærsk group are the largest owner in Danske Bank with 22.27% (combined share, apr-09).

The Realdania fund is the seconds largest with 11.81%.

Historically the owners in Danske Bank have been regarded as financially solid and with a long-term view. However, the ongoing challenges in the shipping and energy markets will put pressure on the earnings of A.P. Møller-Mærsk which combined with a rigorous capex program should force the group to put more leverage on their balance sheet.

Handelsbanken Handelsbanken has a diversified shareholder structure with two long term investors in the lead:

The Oktogonen foundation is the largest owner with 10.7%. The foundation is an employee fund established in 1973.

Industrivärden is a holding company founded in 1944 as Handelsbanken demerged its shareholdings in several Swedish industrial companies. Industrivärden defines themselves as a long-term active investor and is currently the second largest owner in Handelsbanken with 10.6% of the shares (which weighs approximately 23% of the total equity portfolio in Industrivärden).

Ownership structure is diversified, fairly solid and long-term.


03.02.2010


Nordea After completing the recent rights issue (raising EUR 2.5 bn) we do not believe Nordea have any further capital need. The main owners are:

Sampo at 20.01%. Sampo is cash rich after selling Sampo Bank to Danske Bank in 2006 (DKK 30.2 bn) and should, as such, have no problems participating in any further equity issues. Indeed Sampo agreed to guarantee above pro-rate share in the issue.

The Swedish parliament has empowered the Government to reduce, or phase out completely, its 19.9% ownership share in Nordea. Due to market conditions we expect the Swedish government to de-facto postpone this privatization process. Political risk is judged to be low in Sweden and we find no reason to apply any system-critical discount to any of the Swedish banks currently.

Our assessment is that the ownership structure is diversified, solid, competent and long-term. Swedbank Ownership structure has changed considerably in Swedbank after two equity issues. The Savings Banks Foundations, which was the largest owner in 2008, was forced to loan from Swedish insurer Folksam, Austrian Erste Bank and Swedish Export Credit (SEK) to be able to subscribe to their pro-rate share in the first rights issue. Unfortunately, in the aftermath the share continued to fall in line with the turbulence in the markets, and reached a low in February 2009. This made the Savings Banks Foundations break their covenants and Folksam subsequently increased its share in Swedbank.

Folksam is now the largest owner with 15.8% (and the Savings Bank Foundation 13%). This is a short term good solution as Folksam is financially solid and better able to support Swedbank.

SEK (Swedish Export Credit Corporation) took a 3.3% share. At the same time Austrian Erste Bank emerged as a new owner

taking over 2.7% from the Foundation.

Other Savings Banks (besides the foundation) owns another 10.5%. Overall we assess the Swedbank owners to be among the weakest, in financial terms, with regards to ability to support Swedbank going forward. SEB Historically closely linked to Investor AB and both could be defined as cornerstones in the Wallenberg family’s financial empire. With a history going back almost 100 years we have no problem defining the Wallenberg sphere a long-term investor.

Investor AB currently holds 21%

The Trygg Foundation is the second largest owner with 9.6%. The foundation was formed when the mutual insurance company Trygg-Hansa Life-insurance transformed into a mutually operated limited company.

Our assessment is that the ownership structure is diversified, solid and long-term. Investor AB is probably the most renowned industrial environment on the Nordic arena and we would define their ownership quality as “top notch”.


03.02.2010


Historical pricing data show diverse pattern

P/B

Company 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Avg MedSampo 0.5 0.7 1.0 1.0 0.7 1.6 1.7 1.4 1.3 1.7 1.9 2.2 1.3 1.6 1.3 1.4TrygVesta 2.6 2.9 2.6 2.6 2.7 2.6TopDanmark 1.0 0.9 1.5 1.2 1.5 1.3 1.6 1.6 2.2 2.7 2.9 4.2 3.2 3.7 2.1 1.6Alm. Brand 0.3 0.5 0.5 0.4 0.5 0.5 0.6 0.6 0.9 1.2 1.3 1.7 1.1 0.3 0.7 0.6Pohjola 0.3 0.5 0.6 0.7 1.0 1.1 1.1 1.1 1.2 1.3 1.4 1.4 1.4 1.0 1.0 1.1Average 0.5 0.6 0.9 0.8 0.9 1.1 1.2 1.2 1.4 1.7 2.0 2.5 1.9 1.8 1.3 1.2Median 0.4 0.6 0.8 0.9 0.9 1.2 1.3 1.2 1.2 1.5 1.9 2.2 1.4 1.6 1.2 1.2

Baloise-Holding 0.9 0.8 1.2 1.6 1.1 1.4 1.6 1.0 0.9 0.8 1.0 1.3 1.2 1.0 1.1 1.1Mapfre SA 1.7 1.9 1.8 1.6 1.1 1.1 1.0 1.3 1.9 1.5 1.6 1.7 1.6 1.3 1.5 1.6RSA 0.9 1.0 1.2 1.1 1.2 1.5 1.5 0.6 0.8 1.0 1.4 1.9 1.6 1.2 1.2 1.2Storebrand 1.4 1.4 1.6 1.8 1.6 1.6 1.5 0.8 1.3 1.5 1.6 1.9 1.3 0.5 1.4 1.5Vienna Insurance Group 2.5 2.6 2.5 2.5 0.7 2.2 2.5Fondiaria 1.9 1.5 2.1 2.1 2.1 1.9 1.0 1.2 1.1 1.2 1.4 1.6 1.2 0.7 1.5 1.5Unipol 1.3 1.2 1.3 1.7 1.7 1.2 1.6 1.7 1.2 1.2 1.0 1.2 1.0 0.8 1.3 1.2Old Mutual 1.6 1.3 0.9 1.3 1.2 1.1 1.4 1.3 0.9 0.4 1.1 1.3Prudential 1.1 1.1 1.6 2.0 3.4 2.8 2.5 2.4 2.7 2.1 2.5 3.1 2.8 2.1 2.3 2.4Standard Life 2.4 1.8 1.3 1.8 1.8Zurich Financial Serv 1.5 1.3 1.8 2.7 2.3 2.4 1.1 0.8 1.1 1.1 1.4 1.5 1.5 1.3 1.6 1.4Irish Life & Permanent 1.5 1.6 2.5 2.2 1.4 1.9 1.8 1.6 1.7 1.6 1.7 1.8 1.0 0.2 1.6 1.6Legal & General 1.0 1.1 1.6 2.2 1.6 1.8 1.6 2.1 2.2 1.5 1.9 1.9 1.5 1.3 1.7 1.6AXA 1.5 1.5 2.0 3.2 3.0 2.7 1.6 1.0 1.3 1.3 1.6 1.4 1.2 0.9 1.7 1.5Allianz 1.2 1.3 1.8 3.6 3.0 2.9 2.0 1.0 1.3 1.2 1.3 1.3 1.4 1.0 1.7 1.3Assicurazioni Generali 3.2 2.3 3.4 5.4 4.7 5.8 4.1 3.1 3.2 3.4 2.7 2.5 2.8 2.3 3.5 3.2Aegon 2.1 2.6 2.9 7.7 4.6 4.5 2.7 1.2 1.3 1.1 1.3 1.3 1.4 1.1 2.6 1.7SCOR 0.8 0.8 1.2 1.6 1.2 1.4 1.0 0.3 0.3 0.9 1.0 1.2 0.9 0.9 1.0 0.9Cattolica Assicurazioni 1.7 1.2 1.2 1.3 1.8 1.8 1.9 1.2 1.1 1.5 1.3Swiss Life Holding 1.1 1.1 0.8 1.3 1.1 0.6 1.0 0.8 1.0 1.3 1.3 0.3 1.0 1.0Muenchener Rueck 1.0 1.9 0.9 1.3 2.4 2.9 2.8 1.4 1.2 1.0 1.1 1.1 1.1 1.1 1.5 1.2Aviva 1.1 1.3 1.4 1.4 1.5 1.9 1.6 1.2 1.0 2.2 1.7 1.8 1.3 0.9 1.4 1.4Hannover Rueck 0.6 1.7 2.1 1.8 1.8 1.3 1.4 1.4 1.4 1.4 1.5 1.0 1.0 1.4 1.4BRIT Insurance Holdings 0.8 0.9 1.2 1.3 1.0 1.2 1.2 1.3 86.0 0.8 9.6 1.2CNP Assurances 1.4 1.7 1.8 1.1 1.0 1.1 1.2 1.1 1.2 1.2 0.8 1.2 1.2Average 1.4 1.4 1.7 2.4 2.0 2.1 1.6 1.3 1.4 1.4 1.5 1.7 4.8 1.0 1.8 1.6Median 1.3 1.3 1.6 1.9 1.7 1.8 1.5 1.2 1.2 1.2 1.4 1.5 1.3 1.0 1.4 1.4

Over the cycle

Over the cycle P/B has been between 1.2 and 1.3.

Source: Factset, DnB NOR Markets P/B, RoE relationship

R2 = 0.7591

0.0 x

0.5 x

1.0 x

1.5 x

2.0 x

2.5 x

-5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

High correlation between RoE and P/B. Trust owned insurance companies do not trades at a discount (TrygVesta, Wienener, Mapfre, Alm. Brand). Source: CEA, DnB NOR Markets Equity Research


03.02.2010


P/E

Company 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Avg MedSampo 19.8 19.4 19.6 15.3 9.2 6.3 5.9 11.5 12.8 7.1 8.9 12.0 14.7 11.2 12.4 11.8TrygVesta 10.3 9.3 11.6 25.6 14.2 10.9TopDanmark 16.1 9.8 13.2 5.5 5.4 12.7 18.6 11.2 12.0 9.3 10.6 10.0 11.2 10.9Alm. Brand 2.8 3.7 4.4 8.3 16.1 5.1 17.5 10.2 10.7 8.6 10.8 8.2 8.9 8.5Pohjola 6.5 9.2 6.4 13.2 5.4 8.3 10.8 6.9 11.1 9.3 13.4 12.6 22.2 10.4 9.3Average 12.9 9.8 11.6 8.9 12.8 5.6 9.0 14.6 10.3 10.2 9.3 11.2 11.4 19.7 11.2 10.7Median 16.1 8.1 11.2 7.4 13.2 5.4 8.3 14.5 10.7 10.9 9.3 10.8 11.6 22.2 11.4 10.9

Baloise-Holding 16.3 15.4 20.9 23.5 14.5 15.9 20.9 31.0 13.5 10.5 9.4 7.2 10.7 16.1 15.4Mapfre SA 18.0 22.9 23.6 21.5 14.1 13.4 12.3 12.4 13.8 12.3 13.3 12.2 9.4 7.2 14.7 13.3RSA 7.3 14.5 17.8 20.1 18.6 31.5 18.7 35.3 6.7 10.3 8.0 8.1 16.4 16.2Storebrand 7.1 9.3 14.3 17.2 14.5 31.4 13.6 6.9 10.8 11.0 7.1 13.0 11.0Vienna Insurance Group 11.1 14.8 28.3 14.5 22.6 17.3 23.6 21.4 18.5 7.1 17.9 17.9Fondiaria 33.5 26.5 35.7 29.4 27.2 23.5 11.5 47.8 15.2 7.7 8.2 10.0 7.8 5.7 20.7 19.4Unipol 15.0 19.6 30.5 31.3 33.7 33.8 37.3 19.0 21.4 14.2 21.1 22.7 12.4 27.1 24.2 22.1Old Mutual 13.9 10.7 7.1 7.8 9.2 8.1 6.8 11.5 9.2 4.5 8.9 8.6Prudential 14.5 14.4 22.0 26.9 41.9 29.5 19.0 10.3 17.9 18.6 17.4 19.3 9.5 9.8 19.4 18.2Standard Life 23.7 7.9 7.1 12.9 7.9Zurich Financial Serv 18.0 15.3 18.3 21.3 15.9 21.1 8.9 9.9 9.7 8.7 7.6 9.9 13.7 12.6Irish Life & Permanent 13.6 12.2 17.8 16.9 10.8 13.3 17.0 9.0 11.5 9.3 12.9 15.5 6.1 1.4 11.9 12.6Legal & General 16.9 22.4 26.7 37.1 25.9 27.9 14.9 12.5 12.1 16.0 8.9 6.6 18.3 7.2 18.1 16.4AXA 19.3 17.5 19.6 28.5 25.8 25.5 34.5 16.4 20.7 11.7 12.3 12.0 12.1 8.7 18.9 18.4Allianz 32.0 31.8 48.0 44.4 39.5 41.6 42.3 11.2 17.1 12.4 9.1 8.4 8.7 26.6 31.8Assicurazioni Generali 46.4 26.9 37.1 50.4 41.1 37.9 35.5 26.2 19.1 19.5 17.6 14.7 30.5 31.0 30.5Aegon 12.9 18.3 22.8 48.4 37.5 28.1 17.3 11.3 10.2 9.1 8.4 8.9 8.2 18.6 12.9SCOR 8.3 9.0 11.6 13.4 15.4 16.4 15.4 12.3 7.1 6.3 9.3 11.3 11.6Cattolica Assicurazioni 32.4 21.2 20.3 11.9 18.1 17.9 16.7 51.8 44.9 26.1 20.3Swiss Life Holding 59.0 29.3 18.8 11.1 43.5 17.2 8.4 8.9 10.6 6.8 21.4 14.1Muenchener Rueck 21.5 24.5 34.9 53.4 39.3 38.7 216.2 17.9 99.5 9.5 9.8 8.6 7.4 14.8 42.6 23.0Aviva 11.9 15.7 16.6 23.4 22.0 27.3 15.1 9.2 9.2 11.4 9.7 9.5 13.7 6.3 14.3 12.8Hannover Rueck 8.7 11.3 25.0 23.7 11.2 8.3 187.2 8.8 7.7 11.2 73.0 9.9 5.4 30.1 11.2BRIT Insurance Holdings 29.5 63.2 304.4 21.2 9.8 1.9 3.8 7.7 5.3 10.2 45.7 10.0CNP Assurances 12.9 14.4 12.4 9.0 8.2 9.4 11.3 9.6 10.6 10.9 10.5 10.8 10.6Average 17.5 18.6 28.3 28.0 23.6 36.3 42.3 15.7 19.2 12.1 14.5 12.4 11.2 11.9 20.8 18.0Median 15.0 16.6 23.6 23.7 20.4 27.3 20.0 12.4 12.9 11.4 10.7 10.6 8.2 8.7 15.8 13.9

Over the cycle

Median, over the cycle, P/E has been between 10.9 for the Nordic's compared to 13.9 for tier 2 peers. Importantly tier 2 peers have been considerably more volatile. Changes in accounting principles during the period have affected the ratios.


03.02.2010


RoE

Company 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Avg MedSampo 2.8% 3.6% 5.3% 6.5% 7.5% 24.9% 29.2% 12.0% 9.9% 24.0% 21.7% 18.5% 9.1% 14.3% 13.5% 11.0%TrygVesta 22.0% 25.7% 31.6% 22.6% 10.0% 22.4% 22.6%TopDanmark 6.1% 9.4% 11.7% 21.3% -3.1% 23.4% 12.3% 8.7% 19.4% 22.4% 31.6% 39.9% 31.6% -6.5% 16.3% 15.9%Alm. Brand 9.4% 13.4% 10.6% 4.9% 2.8% 9.9% -42.9% 3.4% 9.2% 11.5% 15.0% 15.8% 13.5% -0.8% 5.4% 9.7%Pohjola -1.9% 7.3% 6.7% 11.5% 7.7% 20.2% 12.8% 9.9% 17.7% 11.8% 14.6% 10.5% 11.3% 4.4% 10.3% 10.9%Average 4.1% 8.4% 8.5% 11.0% 3.8% 19.6% 2.8% 8.5% 14.1% 18.3% 21.7% 23.3% 17.6% 4.3% 11.9% 9.8%Median 4.5% 8.3% 8.6% 9.0% 5.2% 21.8% 12.5% 9.3% 13.8% 22.0% 21.7% 18.5% 13.5% 4.4% 12.4% 10.9%

Baloise-Holding 5.4% 5.5% 5.6% 6.8% 7.5% 8.8% 7.5% -20.6% 2.8% 6.2% 9.3% 14.1% 16.8% 9.7% 6.1% 7.2%Mapfre SA 9.7% 8.2% 7.5% 7.5% 7.8% 8.3% 8.3% 10.5% 13.5% 12.6% 12.1% 14.3% 16.9% 18.5% 11.1% 10.1%RSA 11.7% 7.1% 6.8% 5.3% 6.6% 4.9% -1.5% 3.4% 2.4% -6.6% 20.3% 18.0% 20.4% 15.2% 8.1% 6.7%Storebrand 19.6% 14.9% 11.3% 10.2% 11.1% 5.2% -12.0% -12.0% 9.4% 22.4% 14.9% 16.8% 18.5% -13.7% 8.3% 11.2%Vienna Insurance Group 14.3% 11.1% 11.8% 13.4% 9.9% 12.1% 11.8%Fondiaria 5.6% 5.6% 6.0% 7.1% 7.6% 7.9% 8.9% 2.5% 7.1% 15.8% 17.6% 15.7% 15.9% 13.1% 9.7% 7.7%Unipol 8.7% 6.3% 4.4% 5.5% 5.2% 3.5% 4.2% 8.8% 5.7% 8.6% 4.8% 5.2% 7.8% 2.8% 5.8% 5.4%Old Mutual 206.2% 12.7% 11.4% 11.9% 12.9% 16.7% 13.4% 13.3% 21.2% 11.5% 10.1% 8.0% 29.1% 12.8%Prudential 7.9% 7.7% 7.5% 7.3% 8.1% 9.6% 12.9% 23.3% 14.9% 11.4% 14.4% 16.1% 29.8% 20.9% 13.7% 12.2%Standard Life 24.0% 10.0% 22.7% 18.7% 18.9% 20.7%Zurich Financial Serv 8.2% 8.5% 10.1% 12.6% 14.6% 11.2% -2.2% -19.3% 12.6% 11.4% 14.6% 17.3% 19.3% 13.6% 9.5% 12.0%Irish Life & Permanent 10.7% 13.1% 14.2% 13.0% 13.1% 14.0% 10.5% 17.8% 14.6% 17.2% 13.2% 11.6% 15.8% 11.0% 13.6% 13.2%Legal & General 5.9% 4.9% 6.1% 6.0% 6.3% 6.4% 11.0% 16.6% 18.1% 9.2% 20.9% 28.8% 8.2% 17.4% 11.8% 8.7%AXA 7.6% 8.8% 10.1% 11.2% 11.5% 10.4% 4.8% 5.8% 6.2% 11.0% 12.8% 12.0% 10.3% 10.1% 9.5% 10.2%Allianz 3.7% 3.9% 3.7% 8.2% 7.7% 7.0% 4.8% -4.9% 12.0% 7.0% 10.4% 14.6% 16.7% 11.5% 7.6% 7.4%Assicurazioni Generali 7.0% 8.7% 9.2% 10.7% 11.4% 15.3% 11.4% -9.4% 12.0% 17.8% 13.8% 14.4% 19.2% 7.6% 10.7% 11.4%Aegon 16.3% 14.0% 12.7% 15.8% 12.2% 16.2% 15.8% 10.7% 12.3% 11.9% 15.0% 15.0% 16.9% -23.0% 11.6% 14.5%SCOR 9.2% 9.4% 10.8% 12.0% 8.0% 8.7% -28.1% -42.5% -50.8% 5.6% 7.9% 16.3% 14.0% 9.3% -0.7% 9.0%Cattolica Assicurazioni 3.5% 5.1% 5.6% 5.7% 10.9% 9.7% 9.9% 11.2% 2.4% 2.5% 6.7% 5.7%Swiss Life Holding 1.4% 2.2% 1.8% 3.8% 4.3% 12.1% 2.6% -65.0% 5.6% 9.6% 11.0% 12.0% 18.5% -17.2% 0.2% 4.0%Muenchener Rueck 4.4% 7.6% 2.7% 2.4% 6.1% 7.4% 1.3% 7.8% 1.2% 10.8% 11.1% 13.3% 15.1% 7.2% 7.0% 7.3%Aviva 9.1% 8.0% 8.2% 5.9% 6.7% 6.9% 10.8% 12.9% 10.6% 19.1% 17.9% 19.0% 9.3% 15.0% 11.4% 10.0%Hannover Rueck 5.4% 6.7% 8.8% 16.3% 21.1% 0.7% 15.4% 18.1% 12.1% 1.9% 14.8% 18.4% -4.5% 10.4% 12.1%BRIT Insurance Holdings -0.1% 0.3% -21.7% 6.0% 10.3% 60.1% 32.0% 16.6% 7.8% 12.4% 7.8%CNP Assurances 12.7% 12.3% 11.7% 10.7% 11.7% 14.2% 12.4% 12.7% 11.9% 10.9% 11.8% 11.3% 10.7% 7.3% 11.6% 11.7%Average 8.7% 8.1% 17.3% 8.7% 8.6% 9.4% 3.5% 0.1% 7.6% 13.4% 14.1% 14.5% 15.3% 7.1% 9.8% 8.7%Median 8.2% 7.8% 7.5% 8.2% 7.8% 8.7% 5.6% 6.0% 10.9% 11.4% 13.2% 14.4% 16.3% 9.7% 9.7% 8.4%

Over the cycle

RoE have been higher for the Nordic companies, compared to European peers (11.9% vs. 9.8%). Main rationale is capitalization.

Non-life insurers


03.02.2010


In connection with Sampo's Annual General Meeting in 2009, Björn Wahlroos, Group CEO and President since 2001, is elected as Chairman of the Sampo Board. Long-time deputy CEO Kari Stadigh succeeds Wahlroos.

Excellent M&A track record …

… and, depending on point of view, insurance operations or Nordea exposure at discount

Sampo – unwarranted discount History

Like most financial conglomerates Sampo is the result of a number of mergers and acquisitions. In 2000 Sampo Insurance Company and Leonia, the successor of Postipankki, merged into Sampo-Leonia Financial Group. Furthermore Mandatum Bank was merged into the Group in February 2001, and thereafter Björn Wahlroos enters the scene as group CEO and President of Sampo-Leonia Group.

IF P&C Insurance was formed in 1999 through the merger of the non-life insurance operations of Storebrand in Norway and Skandia in Sweden. In 2001, If and Sampo’s property and casualty insurance operations merged, and in the spring of 2004, Sampo acquired Storebrand’s, Skandia’s and Skandia Liv’s holdings of If shares. If, now a fully owned subsidiary of Sampo, has a market share in the Nordic countries of ~20 percent. If operates in Finland, Sweden, Norway, Denmark and the Baltic countries. Following the transaction, Sampo had three main business areas: property and casualty insurance, banking, life and long-term savings.

Sampo's banking operations are transferred to a Danish ownership in early 2007 when Sampo divests the entire share capital of Sampo Bank to Danske Bank. Sold at P/B=3.6 Sampo realizes a sales gain of ~2.8 bn EUR. After the divestment, Sampo's main business areas are:

1. If - Non-life insurance operations in the Nordic area

2. Mandatum - Life insurance operations in Finland, Estonia, Latvia and Lithuania. Mandatum Life focuses on unit-linked insurance. It has a significant market share in corporate pension policies. The company works in close cooperation with Mutual Insurance Company Kaleva and If.

Strategy

Sampo plc, the parent company of the Group, manages a significant investment portfolio following the divestment of Sampo Bank Group. Sampo plc has increased its ownership in Nordea, the largest Nordic banking group since 2006. In 2009 Sampo's holding in Nordea exceeds 20 per cent. As a result, Nordea becomes Sampo's associated company (effective as of 31-dec-09).

Insurance operations at a discount

0

2,000

4,000

6,000

8,000

10,000

12,000

Sampo (M. cap) Nordea (20% at MV) Debt Implied value ofoperating business

Valuing Nordea at market price you get Sampo's insurance operations at a ~30% discount versus present Nordic peers. Source: DnB NOR Markets


03.02.2010


Sampo discount when using current P/B Book Values Share of Book P/B

Nordea 5,893 0.76 1Mandatum 243 0.12 0.75If 1,578 0.33 1.62 Equity 7,714 1.21 1.21 Sampo discount when using historical P/B

Book Values Share of Book P/BNordea 5,893 0.71 1Mandatum 243 0.09 0.75If 2,124 0.70 2.73 Equity 8,259 1.5 1.5 Source: DnB NOR Markets

Note that Mandatum and If figures are as of Q408 while rest are Q309 distorting the picture somewhat. "Buy Sampo and get IF to ~30% discount vs Nordic peers."

Financial Targets

Sampo Group efficiency is measured by Return on Equity (RoE). RoE measures accurately the efficiency of capital employed the different business areas. RoE is calculated at market values after tax and the equity used is the average for the period.

Both the life- and non-life insurance businesses target a RoE in excess of 17.5%, which is roughly in line with the 2004-2008 historical average of 18.2%.

Underwriting Business Although the macroeconomic picture has been rough Sampo is guiding on a rather unchanged combined ratio (92-93%). Well below the 95% target and as such unaffected the recession. Risk areas are claims inflation in Norway and a possibly return to normalization of combined ratios in Finland (from low levels)? In our analysis we see the combined ratio falling to 88% by 2015 as we believe price increases in a key consequence of the Solvency II framework. The uncertainties are plentiful though both on the up and downside. Most noticeably we find a potential bancassurance deal with Nordea attractive. Investment Activities We have provided a sensitivity analysis of investment return impact on earnings and price target below. In our base scenario we have assumed returns of 8% for equities and an aggregated 3% for the bond portfolio.


03.02.2010


Is bancassurance Sampo rationale for buying shares in Nordea?

TopDanmark - complementing IF perfectly?

2010E P/B-RoE relationship

R2 = 0.7658

0.0 x

0.5 x

1.0 x

1.5 x

2.0 x

2.5 x

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

A RoE target of 17.5 implies a P/B of 1.46. Using theoretical P/B with CoC=8% and 2.5% growth we get a P/B of 2.17. Source: DnB NOR Markets, Factset

Sampo targets a dividend yield of 4-6% and share buy-back are used to complement the dividends. With Sampo's track record and mgnt statements we would argue that the conglomerate discount should be close to zero. What could be a catalyst in that regard? Strategic case 1: Possible bancassurance deal with Nordea? Could IF be a purveyor of Non-life insurance products to Nordea? One of the reasons Sampo has bought over 20% of the shares in Nordea could be that Sampo mgnt views IF as a good purveyor of Non-life insurance products to Nordea. The geographical match is certainly very good, but the problem is that Nordea already has one purveyor – TrygVesta. The current Nordea TrygVesta bancassurance deal lasts until 2013, with renegotiations for an extension until 2016 in primo 2011. Nordea and TrygVesta have strong historical connections so such a deal is not straight forward. Currently our base case is that Sampo will drive Nordea into consolidations with another large Nordic / European bank, but we view the bancassurance plan as an interesting long term option. Strategic case 2: TopDanmark acquisition Sampo is already the largest owner in TopDanmark with 11.25% and we share Bjørn Wahlroos view that TopDanmark is a natural partner for IF. Both as a way for IF to grow market share in Denmark and as a measure to cutting cost in IF's Danish operations. Geographical good match is clearly not enough as former Topdanmark CEO Paul Almlund said he sees "no chance of friendly Sampo deal". Strategic case 3: IF IPO? Divesting IF at P/B = 2 and buying more Nordea shares at lower P/B multiples?

The latter being a more radical solution, but we believe mgnt have both the will and ability to lower/remove the discount.


03.02.2010


Sampo combined ratios Norway – problematic claims inflation Finland below 80%!

0%

20%

40%

60%

80%

100%

120%

140%

Q300

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Risk ratio Cost ratio

0%

20%

40%

60%

80%

100%

120%

140%

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309


Claims inflation in Norway problematic … but Finland excels

Denmark Sweden

0%

20%

40%

60%

80%

100%

120%

140%

160%

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309


0%

20%

40%

60%

80%

100%

120%

140%Q

202

Q402

Q203

Q403

Q204

Q404

Q205

Q405

Q206

Q406

Q207

Q407

Q208

Q408

Q209


Group

0%

20%

40%

60%

80%

100%

120%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009E

2010E

2011E

2012E

2013E

2014E

2015E



03.02.2010


Nordea holding above 20% and Sampo starts accounting the holding with the equity method as of 31st of December 2009. PL effect in Q4=EURm 101 …

Boosting income stability and overall level, but …


Reported DnB NOR Market* Abs. % 2009E 2010E 2011P&C insurance 212 144 0 -68 -32% 620 523 58Life insurance 22 36 0 14 64% 119 157 18Holding 6 -17 0 -23 -382% 23 -67 -6Bank 0 101 0 101 101 528 66Elim 0 0 0 0 0 0Pre-tax profit 240 264 0 24 10% 863 1,141 1,36Tax -67 -41 0 26 -39% -173 -153 -17Minorities 0 0 0 0 0 0Profit 173 223 0 50 29% 690 987 1,18

EPS 0.3 0.4 0 0 29% 1.2 1.8 2RoE 11.1% 11.4% 0 0 3% 8.8% 12.0% 13.4Dividend n.a. n.a. 0.8 1.0 1Combined ratio 90.6% 89.8% 91% 90% 89

DnB NOR Markets

Source: DnB NOR Markets Consolidating Nordea both greatly stabilizes and increases Sampo profit. Bank share of Sampo income

12%

46% 49% 52%

0%

10%

20%

30%

40%

50%

60%

2009E 2010E 2011E 2012E

Source: DnB NOR Markets We accredit Nordea with a high earnings quality grade in our analysis of the Nordic Banks, and Sampo now gains valuable stability in the company income statement.


03.02.2010


Valuation Sustainable Return on Equity Risk-free interest rate 5.0% 5.0% 5.0%Required return 8.4% 8.4% 8.4% 9.4% 9.4% 9.4% 10.4% 10.4% 10.4Sustainable ROE 14.0% 15.0% 16.0% 14.0% 15.0% 16.0% 14.0% 15.0% 16.0

Long-term growth rate 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 Price/book 1.8x 2.0x 2.1x 1.6x 1.7x 1.8x 1.4x 1.5x 1.Implied value 14,963 16,160 17,357 13,069 14,114 15,160 11,600 12,528 13,4



Valuation range - all 11,600 - 21,070 - w ith discount to theoretical P/B 9,280 - 16,856 - per share 16.53 - 30.03 - per share (avg) 23.00

Dividend discount model Risk discount rate 8.4% 9.4% 10.4%Revenue risk discount rate, exit value 8.4% 9.4% 10.4%PV of dividends 2009E-2013E 2,084 2,084 2,084 2,028 2,028 2,028 1,975 1,975 1,975

P/B multiplesExit-multiple on book value 2013E 1.4x 1.5x 1.6x 1.4x 1.5x 1.6x 1.4x 1.5x 1.6xPV exit value 10,139 10,863 11,587 9,684 10,375 11,067 9,253 9,914 10,57Value of equity 12,223 12,947 13,671 11,712 12,404 13,095 11,228 11,889 12,55 - per share 21.8 23.1 24.4 20.9 22.1 23.3 20.0 21.2 22.4Implied multiples -Value of equity / 2009E equity 1.6x 1.7x 1.7x 1.5x 1.6x 1.7x 1.4x 1.5x 1.6x -Value of equity / 2010E equity 1.5x 1.6x 1.7x 1.4x 1.5x 1.6x 1.4x 1.4x 1.5x -Value of equity / 2009E net prof it 17.71 18.75 19.80 16.97 17.97 18.97 16.26 17.22 18.18 -Value of equity / 2010E net prof it 12.38 13.11 13.85 11.86 12.56 13.26 11.37 12.04 12.71

P/E multiplesExit-multiple on 2013E net profit 9.5 10.0 10.5 9.5 10.0 10.5 9.5 10.0 10.5PV exit value 10,308 10,850 11,393 9,845 10,363 10,881 9,407 9,902 10,39Value of equity 12,392 12,934 13,477 11,873 12,392 12,910 11,382 11,877 12,37 - per share 22.07 23.04 24.01 21.15 22.07 23.00 20.28 21.16 22.0 Implied multiples -Value of equity / 2009E equity 1.6x 1.7x 1.7x 1.5x 1.6x 1.6x 1.5x 1.5x 1.6x -Value of equity / 2010E equity 1.5x 1.6x 1.6x 1.4x 1.5x 1.6x 1.4x 1.4x 1.5x -Value of equity / 2009E net prof it 17.95 18.74 19.52 17.20 17.95 18.70 16.49 17.20 17.92 -Value of equity / 2010E net prof it 12.55 13.10 13.65 12.03 12.55 13.08 11.53 12.03 12.53

DDM valuation range, all - all 11,228 - 13,671 - selected range 11,877 - 12,947 - per share 21.16 - 23.06 - per share (avg) 22.00



03.02.2010


Valuation background P/B development

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Average

+2 SD

-2 SD

P/E development

4

6

8

10

12

14

16

Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06

Average

+2 SD

-2 SD



03.02.2010


Sensitivity analysis Combined ratio (2010E)

-3% -1% 0% 1% 3%-3% 91.2% 90.3% 89.8% 89.4% 88.5%-1% 91.2% 90.3% 89.8% 89.4% 88.5%0% 91.2% 90.3% 89.8% 89.4% 88.5%1% 91.2% 90.3% 89.8% 89.4% 88.5%3% 91.2% 90.3% 89.8% 89.4% 88.5%

Premium grow th base 2010E = 5.0%

Per share valuation (Sustainable RoE)

-3% -1% 0% 1% 3%-3% 19.00 21.00 22.00 23.00 26.00-1% 19.00 21.00 22.00 23.00 26.000% 19.00 21.00 22.00 23.00 26.001% 19.00 21.00 22.00 23.00 26.003% 19.00 21.00 22.00 23.00 25.00

Premium growthFi

nanc

ial

retu

rn

Premium growth

Fina

ncia

l re

turn

Per share investment return sensitivity

-3% -1% 0% 1% 3%-10% 20.00 21.00 22.00 22.00 24.00-3% 20.00 21.00 22.00 23.00 24.000% 20.00 21.00 22.00 23.00 24.003% 20.00 22.00 22.00 23.00 25.00

10% 21.00 22.00 23.00 24.00 25.00Equity return base = 8.0%Bond return base = 3.0%

EPS investment return sensitivity (2010E)

-3% -1% 0% 1% 3%-10% 1.33 1.56 1.68 1.80 2.04-3% 1.38 1.62 1.74 1.85 2.100% 1.41 1.64 1.76 1.88 2.123% 1.43 1.66 1.78 1.90 2.14

10% 1.49 1.72 1.84 1.96 2.20

Bond returns

Equi

ty

retu

rns

Bond returns

Equi

ty

retu

rns

Sensitivity tested by varying premium growth and financial return Source: DnB NOR Markets Our positive attitude towards Nordea (BUY, pt=85 SEK) is "contagious", and viewed against this backdrop, we find Sampo attractive as well. Excellent management track record and well placed to participate in both possible consolidation processes and organic growth makes us positive. We believe the conglomerate discount in Sampo should be zero. Risk assessment Upside risk

Structural changes in the Nordic area were Sampo seems to one of the catalysts. Nordea on an acquisition raid?

Reduced Nordea / Sampo discount. Nordea as bancassurance platform

Down side risk Customers are slow to adapt to the new internet platform and

no bancassurance could hamper IF going forward. Solvency II impact on life insurance companies more severe

than for Non-life. Unfortunate combined ratio development in 2009 continues

Fair price We recommend BUY, pt=21 EUR.


03.02.2010


SAMPO OYJ (SAMAS.HE)

PROFIT & LOSS EURm 2006 2007 2008 2009e 2010e 2011eGross premium written 4,019 4,085 4,057 3,837 3,890 4,031Earned premium, net of re. 3,765 3,797 3,807 3,638 3,823 3,968Claims, net of reinsurance -2,750 -2,541 -2,592 -2,478 -2,587 -2,659Net operating expenses -649 -934 -932 -912 -966 -988Underwriting result 366 322 283 249 270 321Net financial income 358 212 269 371 253 264Life pre-tax 295 341 139 119 157 181Bank pre-tax 355 0 0 101 528 663Other income -33 2,952 269 23 -67 -67Associates 0 0 0 0 0 0Pre-tax profit 1,341 3,827 960 863 1,141 1,362Tax -361 -254 -196 -173 -153 -175Minority interest -15 0 0 0 0 0Net profit 965 3,573 764 690 987 1,187

Q1 09 Q2 09 Q3 09 Q4 09e Q1 10e1,422 916 745 754 1,375

891 906 915 926 938-630 -604 -613 -631 -637-216 -224 -227 -227 -230

45 78 75 68 71102 90 93 86 6227 24 32 36 37

0 0 0 101 108102 90 93 86 62

4 5 6 7 8280 287 299 385 350-42 -46 -44 -41 -27

238 241 255 344 323

BALANCE SHEET EURmFinancial assets 15,921 19,575 16,139 21,168 21,595 22,223Other assets 31,699 5,849 5,067 5,757 5,757 5,757Total assets 47,620 25,424 21,206 26,925 27,352 27,980Equity 5,189 7,733 4,631 7,832 8,259 8,887Other liabilities 42,432 17,691 16,572 19,089 19,089 19,089Total liabilities & equity 47,621 25,424 21,203 26,921 27,348 27,976

MARGINS, GROWTH & GEAR 2006 2007 2008 2009e 2010e 2011eROE pre-tax % 18.8 45.9 14.5 8.8 12.0 13.4ROE % 18.6 46.2 16.5 8.8 12.0 13.4DPS EUR 1.2 1.2 0.8 0.8 1.0 1.0Dividend yield % 5.9 6.6 6.0 4.4 5.6 5.6Payout ratio % 69.1 19.4 66.8 61.0 56.9 47.3Claims ratio % 73.9 74.9 74.4 74.2 73.0 72.6Cost ratio % 17.4 17.2 17.4 17.2 16.8 16.6Combined ratio % 91.3 92.1 91.8 91.4 89.8 89.2Ceded reins. % 0.0 0.0 0.0 0.0 0.0 0.0

VALUATION 2006 2007 2008 2009e 2010e 2011eEPS EUR 1.74 6.18 1.20 1.23 1.76 2.12EPS adj EUR 1.74 6.18 1.20 1.23 1.76 2.12Year end shares million 562.8 574.2 561.4 561.4 561.4 561.4Price EUR 20.28 18.08 13.24 17.02 18.00 18.00P/E X 11.7 2.9 11.1 13.8 10.2 8.5P/E adj X 11.7 2.9 11.1 13.8 10.2 8.5Book per share EUR 9.2 13.5 8.2 14.0 14.7 15.8P/Book X 2.2 1.3 1.6 1.2 1.2 1.1

Share price and targetPrice EUR 18.00Price target 12m EUR 22.00Recommendation BUYEPS gr08-11e %cagr 20.9%PE09e/EPS gr X 0.7Financial structureMarket cap. EURm 10,105Shares outst. million 561.4Equity/tot assets % 29.1Share price performanceAbs. 1/3/12m 6/10/49Rel. 1/3/12m 6/10/49High/Low 12m EUR 18/930days volatility % 16Company attributesReuters ticker SAMAS.HEFinancialsInsuranceFinland

ReportingQ4 2009 11.02.2010Q1 2010 05.05.2010

ManagementCEO Kari StadighCFO Peter JohanssonAddressSampo OyjFabianinkatu 2700100 Helsinki, FinlandH.p.: www.sampo.comTel +358 10 516 0100



03.02.2010


70

80

90

100

110

120

130

140

150

feb mar apr mai jun jul aug sep okt nov des jan feb

Sampo Oyj

Rebased price (12m, EUR)

85

90

95

100

105

110

115

120


Sampo Oyj

Rebased consensus average forward EPS (12m, EUR)

3,700

3,750

3,800

3,850

3,900

3,950

4,000

4,050

4,100

4,150

2005 2006 2007 2008 2009e 2010e 2011e-6.0%-5.0%-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%

Premium (EURm) Premium growth

Premium growthPremium (EURm)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2005 2006 2007 2008 2009e 2010e 2011e0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

EPS (EUR) DPS (EUR)

DPS (EUR)EPS (EUR)

0

200

400

600

800

1,000

1,200

2005 2006 2007 2008 2009e 2010e 2011e15.8%16.0%16.2%16.4%16.6%16.8%17.0%17.2%17.4%17.6%17.8%18.0%

Costs (EURm) Cost ratio

Cost ratioCosts (EURm)

2,3002,350

2,4002,450

2,5002,5502,600

2,6502,700

2,7502,800

2005 2006 2007 2008 2009e 2010e 2011e71.5%

72.0%

72.5%

73.0%

73.5%

74.0%

74.5%

75.0%

75.5%

Claims (EURm) Claims ratio

Claims ratioClaims (EURm)

0

50

100

150

200

250

300

350

400

2005 2006 2007 2008 2009e 2010e 2011e87.5%88.0%

88.5%89.0%

89.5%90.0%90.5%

91.0%91.5%

92.0%92.5%

Underwriting result (EURm) Combined ratio

Combined ratioUnderwriting result (EURm)

0.0

0.5

1.0

1.5

2.0

2.5

2005 2006 2007 2008 2009e 2010e 2011e0%5%

10%15%

20%25%30%

35%40%

45%50%

Price/Book ROE

ROEPrice/Book


03.02.2010


Topdanmark – trustworthy ROE

History

Topdanmark was initially founded in 1898. In 1995, after the Nordic bank crisis the firm reconstructed and refinanced as Topdanmark we know today. Topdanmark is the third-largest listed non-life insurer in the Nordic region and second largest in Denmark with 2567 full-time employees. The life insurance division, which was founded in 1972, has emerged as the 7th largest in Denmark. Topdanmark was listed on the Copenhagen stock exchange in 1985.

Main strategy, goals, and corporate governance

Topdanmark has a growth strategy primarily based on organic growth and close corporation with alliance-partners, but they say take-overs will be considered if the right opportunity shows up.

Topdanmark underlying belief is value creation true synergies (cross-sale) between non-life and life rather than expansion outside Denmark.

It is Topdanmark's belief that value creation should be from accepting insurance risk rather than investment risk.

The underlying goal of Topdanmark's capital structure is s capital base where shareholders equity and hybrid capital is exactly sufficient to support current operations. Equity in excess is distributed to shareholders by share buy-backs.

Topdanmark has removed all relevant limitation in the articles of associations, but has stated that no shareholder should hold more than 10 %. Topdanmark believes a share price reflecting the future earnings potential is the only real protection against an uninvited take-over.

Overview Topdanmark Source:www.Topdanmark.dk

Value creation and sales strategy

Topdanmark's view of value creation is trough distribution efficiency, declining expenses ratios and proper risk management. They want to attract profitable customers through high customer support.

Topdanmark is cost leading in the Nordic non-life market and they also have a goal being market leader in claims solutions.

The sales strategy is based on multi-distribution by supplementing own sales channels with distribution agreements with a number of alliance partners where they want to be a sub-supplier of both life and non-life.


03.02.2010


Topdanmark products are among others sold in 354 Danske Bank branches, 172 Home (estate agency chain) and 2216 car- and motorcycle dealers.

Distribution channels Non-life Life

Danske Bank/BG

Bank 9%

Tele-phone

etc. 24%

Stores 7%

Brokers 4%

Danica Pension

5%

Auto dealers

18%

Assurer 33%

Tele-phone etc. 4%

Main office 33%

Brokers 31%

Assurer 32%

Source: DnBNOR & Topdanmark annual reports

Markets and segments

Topdanmark was in 2008 the second largest Danish insurance company and they operate in both the non-life and life insurance market. Non-life is approximately 91 % of profit before tax, while life is approximately 8 %. In 2008 their market share in the non-life insurance was 19.6 % and the second largest after TrygVesta which had 20.9 %. The life business market share is 4.4 % and is ranked numbers seven among the Danish commercial companies in 2008. Topdanmark has no operations outside Denmark.

Non-life

The non-life business is divided in 3 segments:

1) Personal insurance

The personal insurance market (mass market) is served by two business sectors; personal and partners. Personal is responsible for sales under the Topdanmark brand while Partners distributes through a number of alliance partners' sales channels, principally the Danske Forsikring brand. Main premium sources are; motor, fire and property and illness and accident insurance.

2) SME insurance

The SME insurance market is served by two business sectors; SME and Agricultura. SME lines serve businesses with 5 to 50 employees and customers with policies written by Industriens Arbejdsskadeforsikring (workers' compensation). Danish farms are served by Agricultural. Main premium sources are; fire and property, and worker's compensation.

3) Industrial insurance

Industrial serves a significant proportion of the largest Danish businesses that have an excess of 50 employees. Main premium sources are; marine, aviation and transport, and fire and property.

SME insuranse

46 %

Industiral 9 %

Personal insurance

45 %

Some Topdanmark's partners

Premiums by segment


03.02.2010


Sources of premiums non-life

Combined ratio by products non-life

400

600

800

1000

1200

1400

1600

1800

2005 2006 2007 2008

DKKm

Ilness and accident Workers' compensation Motor third-party liabilityMotor own damage Fire and property Personal Fire and property Commercial Others

20%

40%

60%

80%

100%

120%

140%

2005 2006 2007 2008

Ilness and accident Workers' compensation Motor third-party liability

Motor own damage Fire and property Personal Fire and property Commercial

Others Total Total premiums growth has have been approximately flat the two recent years. The main reason is lower premium growth in motor third party liability, but the drop is dampened some by increase in others.

In the period 2005-08 workers compensation had a deep decrease, while fire and property had a decrease. In total the combined ratio has dropped in the same period, but we expect in total an increase to about 92 % for 2009.

Premiums growth Topdanmark vs. market Market share Danish non-life market

-5%

0%

5%

10%

15%

20%

2001 2002 2003 2004 2005 2006 2007 2008

TopDanmark Denmark

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008

Tryg Topdanmark Codan Alm. Brand If

Topdanmark's non-life premium growth varies relative to the general growth in Denmark. The two latest years the growth has been lower, while the two previous years before that was higher. Average growth Topdanmark the Danish market 2001-08 was 5.8 % and 6 %, respectively. We expect growth in line with the general growth going forward.

Topdanmark's market share has dropped slightly the last two years. We don't regard this as a permanent trend. We believe Topdanmark's sales power, claims management and low costs role is sufficient to defend their market shares going forward.

Non-life asset portfolio Q3 09 (DKK 16.6 bn) Return on non-life asset portfolio

Shares 7%

Ohters 9%

CDOs 5%

Money market etc.

25%

Bonds & interest

bearing debt 46%

Buildings 8%

-7.0 %

-5.0 %

-3.0 %

-1.0 %

1.0 %

3.0 %

5.0 %

7.0 %

9.0 %

2001 2002 2003 2004 2005 2006 2007 2008

Investment return

Equities was reduced from 10.8 % in 2007 to 6.7 % end Q3 09. We expect shares to be at this level and less going forward due to Solvency II. The CDOs exposure was reduced from 10.8 % in 2007 to 5.4 % end Q3 09. The CDO portfolio book value was end Q3 09 DKKm 879, which of DKKm 433 was of AA grad and lower. The CDO exposure is to be winded out and we regard the risk of further major CDO write downs limited.

Average return 2001-08 was 4.61 %. Return end Q3 09 was 6 %. We expect some lower return going forward due to solvency II and increased weighting of equities.

Source: DnBNOR Markets, Topdanmark annual reports and Danish FSA


03.02.2010


Life

The life insurance business is divided in 4 main areas:

1) Individual schemes

2) Corporate schemes

3) Group life schemes

4) Unit-linked schemes

Offering full product range of life insurance and pension fund schemes to both the individual and corporate pension scheme market, and are among the largest suppliers of illness and accident policies. Expect Unit linked schemes the customers' capital is managed in two separated portfolios; one with schemas before 1994 called Topdanmark I and the other called Topdanmark V. Guaranteed pension benefits are 4.5 % and 2.5 %, respectively. Topdanmark's life insurance business has an investment policy with relatively limited risk and consequently a less volatile return. As a result of the chosen policy the financial return has been below markets in years with high share price appreciation, but above in years with less favorable equity market conditions. Defined benefit has historically been most used, but defined contribution is more and more common. In Denmark the elderly population will increase, and the Danish government has give tax incentives for individual and company pension savings. For example can each Dane save DKK 100 000 with tax deduction each year.

End Q3 09 Topdanmark had shadow account of DKKm 192, which we expect written back during Q3 2009 and 2010 and boost the earnings. In life the conditional profit elements are transferred to shareholders' equity to the extent to which they can be covered by sufficient insurance technical profit before bonus contribution. If the insurance technical loss before bonus contribution exceeds the collective potential bonus reserves (bonus equalization); the excess will be partly debited to shareholders' equity. If the insurance technical result before bonus contribution is insufficient to allow for the allowance for risk to be included, the difference will be disclosed in a shadow account, and will be brought into income (including accrued interest) as soon as there are available insurance technical profits before bonus contribution. Solvency II Solvency II is to be implemented at the end of October 2012. The lasted version requires a further DKKm 450-500 equity to fulfill the new requirements. AS a consequence buy-backs will be reduced with DKKm 225-250 in 2010 and 2011, respectively. Financial Targets Topdanmark's non-life normalized return target implies an after tax ROE of 24 % (26 % before tax) and a combined ratio of 91.5 %. Topdanmark has as a financial target for the non-life insurance of a premium growth higher than the average of the market. For life insurance Topdanmark has a yearly growth target of 10 %. Announced goal for buy-back and in a normal year is 80 %. Except from the growth rate of above market for non-life, where we expect growth in line with market growth we find the financial targets healthy.

Premiums by segment

Group life 9 %

Regular premiums corporate

45 %

Regular premiums personal

11 %

Singel premiums

35 %


03.02.2010


Sources of premiums life Markets shares Danish life

0

200

400

600

800

1000

1200

1400

1600

2004 2005 2006 2007 2008

DKKm

Individual, regular Corporate, regular Group life Unit-linked, regular

Individual, single Corporate, single Unit-linked, single

0%

5%

10%

15%

20%

25%

2003 2004 2005 2006 2007 2008

Danica PFA NordeaPensionDanmark Sampension Industriens PensionSEB Pension Topdanmark PenSam Liv

Average gross premium growth life 2004-08 was 14.6 %, while 2008 growth was 11.9 %.

From 2003 to 2008 Topdanmark's market share has increased from 3.4 % to 4.4 %, and to seventh largest in Denmark.

Premiums growth Topdanmark vs. market Profit distribution

-5%

0%

5%

10%

15%

20%

25%

30%

35%

2001 2002 2003 2004 2005 2006 2007 2008

TopDanmark Denmark

-150

-100

-50

0

50

100

150

200

2003 2004 2005 2006 2007 2008

DKKm

Investment return Risk allowance Transferd to/from shadow account Profit life insurance

Topdanmark's life premium growth varies some relative to the general growth in Denmark, but has been higher the latest 8 years. Average growth 2001-08 was 19 % and 9.9 % for Topdanmark and the Danish market, respectively. We expect Topdanmark's growth to converge towards the general growth in the coming years. We expect two digit growths in the general market going forward.

Profit 2007-08 was destroyed by the financial crises, but the main underlying value creation item; the risk allowance, showed a stable development. A mismatch above 3 % between assets value and provisions must be transferred to shadow accounts, but written back when assets and liabilities are in balance again. In Q3 09 DKKm 42 was written back, and we expect the remaining DKKm 192 to be written back within 2010, boosting the life result.

Life asset portfolio Q3 09 ( DKK 35.2 bn) Accumulated return Danish life portfolios 2000-08

Shares 12%

Ohters 21%

Bonds 56%

Loans & buildings

11%

0.0 %

10.0 %

20.0 %

30.0 %

40.0 %

50.0 %

60.0 %

70.0 %

80.0 %

TopD

anm

ark

I

TopD

anm

ark

V

Alm

. Bra

nd

AP

Pen

sion

Dan

ica

Nor

dea

Liv

&P

ensi

on

PFA

Pen

sion

SE

BP

ensi

on/C

odan

Shares were reduced from 18.9 % in 2007 to 11.7 % end Q3 09. The CDOs exposure was reduced from 8.7 % in 2007 to 4.8 % end Q3 09. The CDO portfolio book value (included in others) was end Q3 09 DKKm 1.56 bn, which of DKKm 689 was of AA grad and lower. The CDO exposure is to be winded out and we regard the risk of further major CDO write downs to be limited.

Return Topdanmark II and V before pension tax was -12.7 % and- 0.7 %, respectively. 2009 looks better and the accumulated return for Topdanmark Liv I and V are competitive in the Danish market.

Source: DnBNOR Markets, Topdanmark annual reports and Danish FSA


03.02.2010


Investment Activities The investment activities will of course be volatile and we leave significant headroom for discretionary views on this matter. But due to solvency II and tougher requirement for shares and property we expect more invested in bonds and less volatility. Investment risks We see 3 minor idiosyncratic investment risks: 1) Solvency II requirement is not yet finalized, and more than the already DKKm 500 identified extra equity may be required. 2) CDOs. Topdanmark had huge write-downs on CDOs during 2008. Topdanmark's is unwinding its CDO exposure and about half of the exposure is taken, but a second dip can cause further write downs, but not at demolishing levels. 3) The strategic partnership with Danske Bank has yearly renegotiations, and changes here may be done. Danske Bank sold their non-life insurance to Topdanmark in 1999 and the ties still seems strong. Overview Topdanmark

• Premium growth non-life in the middle bracket • Premium growth life in the better bracket • Claims ratio in the middle/better bracket • Cost ratio in the better bracket • ROE in the better bracket • Equity and withhold surplus in the lower bracket • Buyback yield in the better bracket • Solvency II in the lower bracket

Topdanmark has done much right the last decade. For non-life we believe Topdanmark sales power coupled with their costs leadership will defend their market shares and generate trustworthy earnings. With the announced price non-life price increases in Denmark by the main insurance companies we expect a nice 5 % growth in non-life premiums. Due to strong tax incentives for pension savings we believe in a continuance of the strong growth in life premiums and two digit-growth rates going forward. The unwinding of the CDO portfolio is expected to bring more stable financial returns. The solvency II will dampen buy-back 2010-11 from 8.2 % to 5.9 % Topdanmark is the only major listed Nordic insurance company which is available and we believe various international and Nordic market players may consider takeovers or partnership, which may give a touch of acquisition premium in the Topdanmark share. We regard a 12m FWD P/B 2.3x versus 2004-08 historical values of 3.1x to be low. We see more a upside in trustworthy ROE and combined ratio and we have a 12 m FWD price target of DKK 750, equalizing a implicit P/B of 2.7.


03.02.2010


Premium growth non-life Premium growth life

-5%

0%5%

10%

15%20%

25%

30%35%

40%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E

Premium growth non-life Average 1999-08 Average 2004-08

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E

Premium growth life Average 1999-08 Average 2004-08

Average growth rate 1999-08 and 2004-08 of 9.6 % and 4.8 %, respectively. We have a growth rate estimate trending against 3 % in the longer run. We believe the Danish life market is more mature and we believe Topdanmark will is able to defend their position going forward due to their cost ratio in the better bracket and their acceptable claims ratio.

Average growth rate 1999-08 and 2004-08 of 14.5 % and 14.6 %, respectively. We have a 10 % growth rate in our estimates going forward. Increasing growth of elderly in the population and strong tax incentives for pension savings make us believe in a strong growth.

Non-life claims and cost ratio Non-life combined ratio

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cost ratio (LS) Avg. claims 2004-08 (RS)Avg. claims 1999-08 (RS) Claims ratio (RS)

70%

75%

80%

85%

90%

95%

100%

105%

110%

115%

120%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E

Combined ratio Average 1999-08 Average 2004-08

Average growth claims rate 1999-08 and 2004-08 of 77 % and 72.4 %, respectively. We regard the development in claim ratio to be approximately stable and without any down or upward tending trends. But we expect claims slightly below 75 % going forward due to claims automatisation. Cost ratio has showed a downward shift since 2004 which we believe will continue going forward. Topdanmark is best in the Nordic region and we believe their cost focus will continue.

Average Combined ratio 1999-08 and 2004-08 of 95.1 % and 87.2 %, respectively. We consider 2006 and 2007 as outliers and the combined ratio until 2004 influenced by higher costs. Going forward we expect combined ratio to converge against 90-91 %. The Nordic region is the most cost-efficient insurance market in Europe, with combined ratios currently at ~90%.

P/B ROE

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

P/B

P/B Average 2004-08 Average 1999-08

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E

ROE

ROE Average 2004-08 Average 1999-08

Average P/B 1999-08 and 2004-08 of 2.4 % and 3.1 %, respectively. In line with the downward shift in the cost ratio after 2004 and thereby also the combined ratio P/B increased. In the 2004-08 period we regard 2006 as outliers but regard ad P/B of the 2.7 to be a fair price target for Topdanmark.

Average ROE 1999-08 and 2004-08 of 18.9 % and 24.0 %, respectively. With some higher equity capital due to solvency II our estimates support an average ROE of around 23 % going forward.

Source: DnBNOR Markets, Topdanmark annual reports


03.02.2010


Estimates Q409 preview DKKm Q408 Q409E Q409E Chg YoY

Reported DnB NOR Market* Abs. % 2009E 2010E 2011ENon-life:Premium income, gross 2,261 2,155 0 -106 -5% 8,649 8,975 9,374Claims incurred, gross -1,413 -1,655 0 -242 17% -6,442 -6,554 -6,785Expenses -346 -357 0 -11 3% -1,314 -1,302 -1,355Net reinsurance -77 -64 0 13 -16% -239 -265 -277Underw riting result 365 79 0 -286 -78% 654 854 957Technical interest 52 20 0 -32 -61% 110 81 82Technical profit 417 99 0 -318 -76% 764 934 1,039Net investment return -375 54 0 429 -114% 643 222 233Other non-life 0 0 0 0 15 20 21Operating profit non-life 42 153 0 111 265% 1,422 1,176 1,293

Profit life insurance 13 106 0 93 713% 280 260 244Parent company -8 -9 0 -1 9% -46 -48 -45Pre-tax profit 47 250 0 203 432% 1,656 1,389 1,492Tax -73 -55 0 18 -25% -352 -347 -373Profit -26 195 0 221 -851% 1,304 1,042 1,119

EPS -2 12 0 14 -853% 84 67 72RoE -3.6 % 18.9 % 0.0 % 22.5 % -626% 37.1 % 23.9 % 23.2 %Combined ratio 83.4 % 96.3 % 0.0 % 12.9 % 15% 92.4 % 90.5 % 89.8 %

DnB NOR Markets


03.02.2010



0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Average

+2 SD

-2 SD

P/E development

4

6

8

10

12

14

16

18

Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09

Average

+2 SD

-2 SD



03.02.2010


Valuation Sustainable Return on Equity Risk-free interest rate 5.0% 5.0% 5.0%Required return 7.6% 7.6% 7.6% 8.6% 8.6% 8.6% 9.6% 9.6% 9.6Sustainable ROE 20.0% 21.0% 22.0% 20.0% 21.0% 22.0% 20.0% 21.0% 22.0




Valuation range - all 9,958 - 19,674 - w ith discount to theoretical P/B 7,967 - 15,739 - per share 510.26 - 1,008.08 - per share (avg) 759.00






03.02.2010


Sensitivity analysis Combined ratio (2010E)

-3% -1% 0% 1% 3%-3% 92.9% 91.3% 90.5% 89.7% 88.2%-1% 92.9% 91.3% 90.5% 89.7% 88.2%0% 92.9% 91.3% 90.5% 89.7% 88.2%1% 92.9% 91.3% 90.5% 89.7% 88.2%3% 92.9% 91.3% 90.5% 89.7% 88.2%

Premium growth base 2010E = 0.0%


-3% -1% 0% 1% 3%-3% 468.00 639.00 729.00 824.00 1,029.00-1% 479.00 650.00 740.00 836.00 1,041.000% 485.00 656.00 745.00 842.00 1,047.001% 491.00 661.00 751.00 848.00 1,053.003% 502.00 672.00 762.00 859.00 1,065.00

Premium growthF

inan

cial

re

turn

Premium growth

Fin

anci

al

retu

rn


-3% -1% 0% 1% 3%-10% 553.00 649.00 698.00 746.00 845.00

-3% 586.00 683.00 731.00 779.00 880.000% 601.00 697.00 745.00 794.00 895.003% 615.00 711.00 760.00 809.00 910.00

10% 648.00 745.00 794.00 844.00 944.00Equity return base = 8.0%Bond return base = 3.0%

EPS investment return sensitivity (2010E)

-3% -1% 0% 1% 3%-10% 40.64 53.60 60.08 66.55 79.51

-3% 45.29 58.24 64.72 71.20 84.160% 47.28 60.23 66.71 73.19 86.153% 49.27 62.22 68.70 75.18 88.14

10% 53.91 66.87 73.35 79.82 92.78

Bond returns

Equ

ity

retu

rns

Bond returns

Equ

ity

retu

rns

Sensitivity tested by varying premium growth and financial return Don’t Copy text after this point

TOP DANMARK (TOP.CO)

PROFIT & LOSS DKKm 2006 2007 2008 2009e 2010e 2011eGross premium written 8,863 9,022 9,010 9,312 8,487 8,509Earned premium, net of re. 8,124 8,233 8,350 8,149 8,086 8,197Claims, net of reinsurance -5,613 -5,555 -5,443 -5,880 -5,553 -5,818Net operating expenses -1,145 -1,186 -1,228 -1,177 -1,201 -1,250Underwriting result 1,233 1,391 1,574 654 854 957Net financial income 676 -9 -1,717 643 222 233Life pre-tax 118 50 -56 280 260 244Bank pre-tax 0 0 0 0 0 0Other income 196 225 176 79 53 58Associates 0 0 0 0 0 0Pre-tax profit 2,223 1,657 -23 1,656 1,389 1,492Tax -531 -386 -165 -352 -347 -373Minority interest 0 0 0 0 0 0Net profit 1,692 1,271 -188 1,304 1,042 1,119

Q1 09 Q2 09 Q3 09 Q4 09e Q1 10e4,014 1,545 1,568 2,185 2,3572,017 2,024 2,021 2,087 2,201

-1,505 -1,513 -1,498 -1,364 -1,366-305 -289 -290 -293 -296187 192 196 79 150

-158 432 315 54 5913 43 118 106 66

0 0 0 0 030 19 19 11 12

0 0 0 0 072 686 648 250 287

-37 -131 -129 -55 -720 0 0 0 0

35 555 519 195 215

BALANCE SHEET DKKmFinancial assets 40,040 40,858 47,490 50,009 54,228 58,880Other assets 3,600 3,787 4,545 4,184 4,184 4,184Total assets 43,640 44,645 52,035 54,193 58,412 63,064Equity 3,977 3,368 2,895 4,131 4,589 5,063Other liabilities 39,663 41,277 49,140 50,062 53,823 58,001Total liabilities & equity 43,640 44,645 52,035 54,193 58,412 63,064

MARGINS, GROWTH & GEAR 2006 2007 2008 2009e 2010e 2011eROE pre-tax % 55.9 49.2 -0.8 40.1 30.3 29.5ROE % 42.5 37.7 nm 31.6 22.7 22.1DPS DKK 0.0 0.0 0.0 0.0 0.0 0.0Dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0Payout ratio % 0.0 0.0 0.0 0.0 0.0 0.0Claims ratio % -67.4 -65.9 -64.6 -74.5 -73.0 -72.4Cost ratio % -14.6 -14.5 -14.7 -15.2 -14.5 -14.5Combined ratio % -86.0 -84.3 -82.4 -92.4 -90.5 -89.8Ceded reins. % -4.0 -3.9 -3.0 -2.8 -3.0 -3.0

VALUATION 2006 2007 2008 2009e 2010e 2011eEPS DKK 94.55 79.46 -12.00 83.53 66.71 71.67EPS adj DKK 94.55 79.46 -12.00 83.53 66.71 71.67Year end shares million 17.9 16.0 15.7 15.6 15.6 15.6Price DKK 934.00 734.00 687.00 703.00 672.50 672.50P/E X 9.9 9.2 nm 8.4 10.1 9.4P/E adj X 9.9 9.2 nm 8.4 10.1 9.4Book per share DKK 222.2 210.6 184.8 264.6 293.9 324.3P/Book X 4.2 3.5 3.7 2.7 2.3 2.1

Share price and targetPrice DKK 672.50Price target 12m DKK 750.00Recommendation BUYEPS gr08-11e %cagr R+PE09e/EPS gr X 0.0Financial structureMarket cap. DKKm ########Shares outst. million 15,613.0Equity/tot assets % 7.6Share price performanceAbs. 1/3/12m -4/-8/-3Rel. 1/3/12m -4/-8/-3High/Low 12m DKK 803/47830days volatility % 18Company attributesReuters ticker TOP.COFinancialsInsuranceDenmark

ReportingQ1 2010 09.03.2010Q1 2010 20.05.2010

ManagementCEO Christian SaglidCFO Lars ThykierAddressTop DanmarkBorupvang 42750 BallerupH.p.: http://www.topdanmark.dkTel (0045) 44 68 33 11

Analyst: Geir Grønseth+47 22 94 89 [email protected]



03.02.2010

65707580859095

100105110115120


Top Danmark


86

88

90

92

94

96

98

100

102


Top Danmark


8,000

8,200

8,400

8,600

8,800

9,000

9,200

9,400

2005 2006 2007 2008 2009e 2010e 2011e-10%

-8%

-6%

-4%

-2%

0%

2%

4%

Premium (DKKm) Premium growth

Premium growthPremium (DKKm)

-20

0

20

40

60

80

100

2005 2006 2007 2008 2009e 2010e 2011e0.00.1

0.20.3

0.40.50.6

0.70.8

0.91.0

EPS (DKK) DPS (DKK)

DPS (DKK)EPS (DKK)

1,080

1,100

1,120

1,140

1,160

1,180

1,200

1,220

1,240

1,260

2005 2006 2007 2008 2009e 2010e 2011e-15.40%

-15.20%

-15.00%

-14.80%

-14.60%

-14.40%

-14.20%

-14.00%

Costs (DKKm) Cost ratio

Cost ratioCosts (DKKm)

5,200

5,300

5,400

5,500

5,600

5,700

5,800

5,900

6,000

2005 2006 2007 2008 2009e 2010e 2011e-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Claims (DKKm) Claims ratio

Claims ratioClaims (DKKm)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2005 2006 2007 2008 2009e 2010e 2011e-94%

-92%

-90%

-88%

-86%

-84%

-82%

-80%

-78%

-76%

Underwriting result (DKKm) Combined ratio

Combined ratioUnderwriting result (DKKm)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2005 2006 2007 2008 2009e 2010e 2011e-10%

0%

10%

20%

30%

40%

50%

Price/Book ROE

ROEPrice/Book



03.02.2010

Trygvesta – The safe bet History

Initially founded in 1731 TrygVesta has emerged as the second largest non-life insurer in the Nordic region. Based in Denmark the firm was listed on the Copenhagen stock exchange in 2005 and has a solid market position in Denmark and Norway with 20.9% and 18.1% market share. Recently TrygVesta has increased its market presence in the Nordic region by divesting its UK business, Chevanstell ltd, and entering into the Swedish (2006) market. The entry is mainly driven by a strategic partnership with Nordea and the acquisition of Moderna in 2008. Furthermore TrygVesta strengthened its international reach through a partnership with AXA, thereby enabling insurance coverage in 94 countries worldwide.

Strategy

TrygVesta has a strategy of profitable growth in the Nordic Region. There will be no growth for the sake of growth and they will not enter into fierce price competition, but rather grow through increased coverage, widening the current services and maintaining a conservative risk profile. This is reflected in the recent entry into private health-care coverage and the new "TrygVæjhjelp" service offering prime services to auto-insurance clients.

Their profitability focus is reflected in their low combined ratio and efficient handling of claims, in an analysis from 20082 TrygVesta was ranked as the 4th most cost-efficient non-life insurer in Europe with a Net Expense Ratio of 17% relative to a market average Net Expense ratio of 25%.

An integral part of TrygVesta's strategy is the increased focus on self-service products to their clients. When clients report claims or add on additional services via internet this is done with close to no costs for TrygVesta. Thus increasing the client traffic via internet may have a significant impact on TrygVesta's cost efficiency going forward. TrygVesta is aiming for 100,000 new sales via internet in 2010, relative to their target of 10,000 in 2009.

Bancassurance through their Nordea partnership is TrygVesta's preferred sales vehicle in the Swedish and Finnish markets. Bancassurance implies low fixed sales costs, immediate geographical coverage and increased customer loyalty.

TrygVesta aims to be the top provider of "peace of mind" for insurance clients, this is reflected in the latest customer loyalty rating done by EPSI. "Among Nordic Insurance groups measured in three or more countries TrygVesta is scored highest by their customers also in 2009."

Segments

Property & Casualty Insurance

The core business with revenues of DKK 17,827mn and a technical result of DKK 2,384mn in 2008

a. Private & Commercial

i. Strong market presence in Norway and Denmark with 18.1% and 20.9% market share.

ii. The Swedish and Finnish markets are targeted growth markets with market shares of 2.6% and 1.4% as of Q3 2009, whereas the long-term targets are 6-8% in both countries.

b. Corporate

i. One segment covering the entire Nordic region. A corporate client has more than 50 employees or more than DKK 900,000 in annual premiums.

2 Arthur D. Little Consultancy



03.02.2010

Investment Activities

The investment activities relate to the management of the premiums collected. The main purpose of the division is risk management in order to ensure adequate capital to cover all future claims and regulatory requirements. Furthermore TrygVesta utilise the surplus capital to attain financial market returns by taking on higher risk. In 2010 the portfolio will be divided in two;

a. Matching portfolio of ~DKK 30bn solely purported of ensuring compliance with regulatory demands, covering policyholders' claims and hedging the interest rate exposure in the insurance provisions.

b. Free portfolio of excess capital, ~DKK 10bn, which will be put to work in order to gain risky returns.

The strategic asset allocation is made internally by TrygVesta while the actual asset management is outsourced to Nordea.

New organization of the investment activities

Source: TrygVesta

Financial Targets

TrygVesta target a ROE of 23-24% versus a historical (2004-2008) ROE after tax of 22.4%. A 23% ROE implies a theoretical P/B of 3.73 given 2.5% growth and 8% CoC. Based on the average historical ROE the theoretical P/B is 3.62 which compared to the average 2005-2009 P/B of 2.7 implies a 35% discount to theoretical P/B. Also if we look at historical ROE vs. historical P/B year by year the average discount is 35%.

TrygVesta has a 50% payout policy and will also consider share buy-backs when the capital exceeds the required capital. This was done in 2007 when the buffer of surplus capital was fully utilised and led to a 10% share buy-back program and a 9.7% dividend yield. In 2009 TrygVesta have indicated a total distribution of 83%, whereof buy-backs comprise 33%p. Average payout ratio (2004-2008) has been 57.3%.



03.02.2010


Reported DnB NOR Market* Abs. % 2009E 2010E 2011EGross Written Premiums 3,409 3,861 18,528 20,234 21,205Claims incurred, net -2,871 -3,458 -12,989 -13,869 -14,215Operating Expenses -813 -862 -3,075 -3,123 -3,191Technical Result 517 366 1,566 2,072 2,599Pre-tax profit 348 499 2,537 2,448 3,044Profit 80 369 1,929 1,811 2,252

EPS 1.2 5.8 30.5 28.7 35.6RoE 1.0 % 3.8 % 20.1 % 18.8 % 23.4 %Dividend 23.7 25.8 32.1Combined ratio 90.4 % 93.1 % 92.5 % 90.5 % 88.6 %

PBT breakdownDenmark 253 181 669 772 936Norway 54 -3 188 261 362Finland -5 -28 -121 -82 -34Sweden -18 38 37 198 274Corporate 237 179 820 924 1,061Investment activities -157 144 1,021 424 492Other -16 -12 -77 -48 -48PBT 348 499 2,537 2,448 3,044

DnB NOR Markets

One of the best dividend cases in the Nordic region TrygVesta's dividend capacity appears to be substantial with estimated dividend yields north of 10%. To give an indication as to the dividend capacity we have looked at three scenarios.

1. Scenario 1 assumes that TrygVesta will fully utilise its capital buffer for dividends and share-buybacks (according to stated policy)

2. Scenario 2 is our base case with 90% payout ratio 3. Scenario 3 assumes that TrygVesta will retain capital in order to

adhere to their 54% TAC/NEP target3, and that all excess capital is distributed to shareholders.

In our full buffer utilisation case we see dividend yields at ~10% in 2010 and 2011 before moving north in the succeeding years. Case 1 (full buffer utilisation) 2010 2011 2012 2013 2014Dividend Capacity 2,020 2,044 2,403 2,616 2,802DPS 32.0 32.3 38.0 41.4 44.3Dividend Yield 9.5 % 9.6 % 11.3 % 12.3 % 13.2 % In our base case we have assumed a 90% payout ratio. In the last line we have provided the estimated buffer capital still remaining. Case 2 (Base Case) 2010 2011 2012 2013 2014PAT 1,811 2,252 2,572 2,771 2,951Payout ratio 90 % 90 % 90 % 90 % 90 %Dividend 1,630.1 2,027.2 2,314.4 2,493.6 2,656.0DPS 25.8 32.1 36.6 39.5 42.0Dividend Yield 7.7 % 9.5 % 10.9 % 11.7 % 12.5 %Buffer 390 407 495 618 764 Although 90% payout ratios may appear optimistic it is in line with the company's history; 71% in 2006 followed by 113% in 2007. Furthermore the company has stated that they will disburse all excess capital, given our left-over buffer our estimate may actually be too conservative. 3 TAC: Total Adjusted Capital, based on S&P Capital Adequacy model for insurance companies NEP: Net Earned Premiums



03.02.2010

If we assume that QIS5 will not include further strengthening of capital requirements over QIS4 and use the 54% TAC/NEP target TrygVesta has announced we see potential for a significant increase in dividends. From estimated 6.3% in 2010 to 8.3% in 2011 and trending above 10% in 2012. Case 3 (TAC/NEP target) 2010 2011 2012 2013 2014NEP 19,111 20,054 20,807 21,505 22,174TAC at 54% 10,320 10,829 11,236 11,612 11,974TAC (estimate) 10,025 10,545 11,086 11,513 11,908Excess capital -295 -284 -150 -100 -66PAT 1,811 2,252 2,572 2,771 2,951ROE 17.6 % 20.8 % 22.9 % 23.9 % 24.6 %Additional dividend -4.7 -4.5 -2.4 -1.6 -1.1Additional dividend yield -1.4 % -1.3 % -0.7 % -0.5 % -0.3 %Regular Dividend 25.8 32.1 36.6 39.5 42.0Regular Dividend Yield 7.7 % 9.5 % 10.9 % 11.7 % 12.5 %Net Dividend Yield 6.3 % 8.2 % 10.2 % 11.3 % 12.2 % Source: DnB NOR Markets Equity Research Below we have summarised the different scenarios and their corresponding dividend yields. Dividend Yield 2010 2011 2012 2013 2014TAC/NEP target case 6.3 % 8.2 % 10.2 % 11.3 % 12.2 %Base Case 7.7 % 9.5 % 10.9 % 11.7 % 12.5 %Full buffer utilisation case 9.5 % 9.6 % 11.3 % 12.3 % 13.2 % In general these dividend yields look to good to be true, and we expect that they will be. We initiate coverage of TrygVesta with a price target of DKK 400 which still yields enticing dividend yields. The impact is shown below. Case 2 (Base Case) 2010 2011 2012 2013 2014PAT 1,811 2,252 2,572 2,771 2,951Payout ratio 90 % 90 % 90 % 90 % 90 %Dividend 1,630.1 2,027.2 2,314.4 2,493.6 2,656.0DPS 25.8 32.1 36.6 39.5 42.0Dividend Yield 6.4 % 8.0 % 9.2 % 9.9 % 10.5 %Buffer 390 407 495 618 764 For 2009 we expect regular dividends of DKK 900mn and a buy-back program of DKK 600mn, implying a dividend yield of 7.2% on current share price. This leaves a buffer of ~DKK 500 mn, if they were to disburse their entire buffer capital in 2009 the dividend yield would increase to 9.6%. The apparent downside risks are

- That the company hoards capital to get set for M&A activity, they have stated that this is not an option and we deem this unlikely.

- Solvency II and QIS5 have more stringent capital requirements than QIS4 and thus reduces dividend capacity, the industry appear to expect the opposite event.

- That our earnings estimates are too optimistic Note that the above estimates are based on the share price as of February 1st and that the buffer we refer to is the excess capital available relative to the required capital for an S&P A- rating + 5%. Below we have provided our complete capitalisation estimates for 2008-2010.



03.02.2010

Capitalization Estimates Capitalisation 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010DKKm Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410Net Premiums 16,135 16,384 16,573 16,635 16,583 17,446 17,595 17,632 18,217 18,548 18,828 19,111Net reserves (inc annuities) 19,671 19,304 19,872 18,855 19,685 20,180 21,234 21,234 21,234 21,234 21,234 21,234Annuities 1645 1615 1700 1,822 1712 1,672 1772 1772 1772 1772 1772 1772Total Assets 44,383 42,854 42,079 38,445 44,131 45,133 45,996 46,365 46,835 45,788 46,248 46,676

Asset Risk (D * Asset Charge) 2,086 2,228 2,114 1,769 1,944 2,192 2,295 2,314 2,337 2,285 2,308 2,329Liability Risk 6,776 6,765 6,849 6,710 6,908 7,169 7,428 7,431 7,547 7,612 7,668 7,724Diversification -762 -774 -771 -755 -779 -815 -848 -850 -862 -863 -870 -877Required Capital 8,100 8,219 8,192 7,724 8,073 8,546 8,875 8,895 9,022 9,034 9,106 9,176Available Capital (Total Adjusted Capital) 9,187 9,475 9,675 8,951 9,407 10,306 10,987 9,844 11,214 10,767 11,227 10,025Buffer (to A range) 13.4 % 15.3 % 18.1 % 15.9 % 16.5 % 20.6 % 23.8 % 10.7 % 24.3 % 19.2 % 23.3 % 9.3 %

Asset Charge (of total assets) 4.7 % 5.2 % 5.0 % 4.6 % 4.4 % 4.9 % 5.0 % 5.0 % 5.0 % 5.0 % 5.0 % 5.0 %Asset risk 2,086 2,228 2,114 1,769 1,944 2,192 2,295 2,314 2,337 2,285 2,308 2,329

Premium Risk 20.0 % 20.0 % 19.7 % 19.6 % 19.6 % 19.7 % 19.8 % 19.8 % 19.8 % 19.8 % 19.8 % 19.8 %Reserve Risk 18.0 % 18.0 % 18.0 % 18.4 % 18.4 % 18.5 % 18.6 % 18.6 % 18.6 % 18.6 % 18.6 % 18.6 %Life Reserve Risk 0.9 % 0.9 % 0.9 % 0.9 % 0.9 % 0.9 % 0.9 % 0.9 % 0.9 % 0.9 % 0.9 % 0.9 %

Premium Risk (A*E) 3,227 3,277 3,265 3,260 3,250 3,438 3,481 3,491 3,607 3,672 3,728 3,784Reserve Risk ( (B-C)*F) 3,245 3,184 3,271 3,134 3,343 3,413 3,628 3,620 3,620 3,620 3,620 3,620Life Reserve Risk (C*G) 15 15 15 16 15 15 15 16 16 16 16 16Catastrophe 174 174 174 174 174 174 174 174 174 174 174 174Bond Insurance 115 115 124 126 126 129 130 130 130 130 130 130Liability Risk 6,776 6,765 6,849 6,710 6,908 7,169 7,428 7,431 7,547 7,612 7,668 7,724

Required Capital 8,862 8,993 8,963 8,479 8,852 9,361 9,723 9,745 9,884 9,897 9,976 10,053Diversification (%) 8.6 % 8.6 % 8.6 % 8.9 % 8.8 % 8.7 % 8.7 % 8.7 % 8.7 % 8.7 % 8.7 % 8.7 %Diversification (H*I) -762 -774 -771 -755 -779 -815 -848 -850 -862 -863 -870 -877Diversified required capital 8,100 8,219 8,192 7,724 8,073 8,546 8,875 8,895 9,022 9,034 9,106 9,176Diversified required capital + 5% buffer 8,505 8,630 8,602 8,111 8,477 8,974 9,319 9,340 9,473 9,486 9,561 9,635

Equity 10,057 8,846 8,623 8,244 8,256 8,622 9,249 9,618 10,088 9,041 9,501 9,929Hybrid Capital 1,101 1,102 1,103 1,102 1,102 1,586 1,586 1,586 1,586 1,586 1,586 1,586Expected Pay-Out -2,561 -981 -608 -788 -423 0 0 -1,500 -600 0 0 -1,630Deferred Tax 969 948 1,010 843 935 1,023 1,094 1,082 1,082 1,082 1,082 1,082Intangibles -379 -440 -453 -450 -463 -925 -942 -942 -942 -942 -942 -942Total Available Capital (TAC) 9,187 9,475 9,675 8,951 9,407 10,306 10,987 9,844 11,214 10,767 11,227 10,025Basic Own Funds 11,158 9,948 9,726 9,346 9,358 10,208 10,835 11,204 11,674 10,627 11,087 11,515

Buffer (to A range) 1,087 1,256 1,483 1,227 1,334 1,760 2,112 949 2,192 1,733 2,122 849Buffer 682 845 1,073 840 930 1,332 1,668 504 1,741 1,281 1,667 390

2,653 1,318 1,124 1,235 881 1,234 1,516 1,864 2,201 1,141 1,527 1,880

TAC/NEP (target 54%) 56.9 % 57.8 % 58.4 % 53.8 % 56.7 % 59.1 % 62.4 % 55.8 % 61.6 % 58.1 % 59.6 % 52.5 %Solvency Ratio 70.5 % 64.2 % 61.7 % 58.5 % 57.3 % 61.3 % 64.3 % 64.3 % 64.9 % 58.1 % 59.6 % 61.0 %

Source: DnB NOR Markets Equity Research, TrygVesta In our base case we have not assumed complete utilisation of the buffer due to the upcoming Solvency II and potential M&A activity. We have also looked at different scenarios for 2010.

- Low scenario: Decreased equity returns by 3%p and bond returns by 1% and reduced premium growth by 3%

- High scenario: Increased equity returns by 3%p, bond returns by 1%p and increased premium growth by 3%

2010 Low Base HighPAT 933 1,811 2,673 Dividend 840 1,630 2,406DPS 13.3 25.8 38.1Dividend Yield 4.0 % 7.8 % 11.5 %Net payout ratio 90 % 90 % 90 % Even in the rather gloomy low scenario TrygVesta has a 4% dividend yield, in the high scenario the dividend yield moves north of 10% already in 2010.



03.02.2010

Divisional estimates

Non-life insurance divisions Denmark Denmark

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012EPremiums, gross 4666 5191 5660 5,971 6,275 6,390 6,490 6,605 6,847 7,196 7,488 7,715Net income from investments 233 219 147 180 113 145 164 180 73 55 58 61Other operating incomeClaims incurred -3843 -4070 -4194 -4,340 -4,987 -4,232 -4,041 -4,443 -4,981 -5,184 -5,288 -5,395Change in insurance liabilities 14 19 -39Staff costsOther expenses -1183 -1194 -1287 -1,099 -1,114 -1,109 -1,086 -1,155 -1,170 -1,193 -1,217 -1,242Profit /loss on ceded business -10 -180 -167 -99 468 -201 -87 -89 -100 -102 -104 -106Profit before taxes -123 -15 120 613 755 993 1,440 1,098 669 772 936 1,033

Claims ratio (%) 82.4% 78.4% 74.1% 72.7% 79.5% 66.2% 62.3% 67.3% 72.8% 72.0% 70.6% 69.9%Ceded Business (%) 0.2% 3.5% 3.0% 1.7% -7.5% 3.1% 1.3% 1.3% 1.5% 1.4% 1.4% 1.4%Expense ratio (%) 25.4% 23.0% 22.7% 18.4% 17.8% 17.4% 16.7% 17.5% 17.1% 16.6% 16.3% 16.1%Combined ratio (%) 108 % 105 % 100 % 93 % 90 % 87 % 80 % 86 % 91 % 90 % 88 % 87 %Premium Growth 11.3% 9.0% 5.5% 5.1% 1.8% 1.6% 1.8% 3.7% 5.1% 4.1% 3.0% The Danish operations is expected to show a negative trend in 2010 due to adverse weather in Q1 and continued high theft and fire claims. This is offset by higher prices implemented during 2010 and 2011…

Norway

Norway2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E

Premiums, gross 3103 4211 4553 4,373 4,632 4,509 4,490 4,636 4,436 4,662 4,852 4,999Net income from investments 197 263 204 72 93 121 183 123 34 34 36 38Other operating incomeClaims incurred -2465 -3032 -3275 -2,640 -2,845 -2,867 -2,962 -3,372 -3,292 -3,426 -3,495 -3,566Change in insurance liabilities -55 -140 -57Staff costsOther expenses -810 -1136 -1123 -1,000 -953 -922 -936 -1,004 -936 -954 -974 -993Profit /loss on ceded business 240 -228 -93 -85 -60 -77 -83 -67 -54 -55 -56 -58Profit before taxes 210 -62 209 720 867 764 692 316 188 261 362 420

Claims ratio (%) 79.4% 72.0% 71.9% 60.4% 61.4% 63.6% 66.0% 72.7% 74.2% 73.5% 72.0% 71.3%Ceded Business (%) -7.7% 5.4% 2.0% 1.9% 1.3% 1.7% 1.8% 1.4% 1.2% 1.2% 1.2% 1.2%Expense ratio (%) 26.1% 27.0% 24.7% 22.9% 20.6% 20.4% 20.8% 21.7% 21.1% 20.5% 20.1% 19.9%Combined ratio (%) 98 % 104 % 99 % 85 % 83 % 86 % 89 % 96 % 97 % 95 % 93 % 92 %Premium Growth 35.7% 8.1% -4.0% 5.9% -2.7% -0.4% 3.3% -4.3% 5.1% 4.1% 3.0% .. much the same picture expected in Norway.

Sweden Sweden

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012EPremiums, gross 0 0 4 90 221 1,207 1,775 1,935 2,082Net income from investments 0 0 0 3 7 9 13 13 14Other operating incomeClaims incurred 0 0 -6 -80 -214 -924 -1,288 -1,364 -1,433Change in insurance liabilitiesStaff costsOther expenses 0 0 -39 -95 -104 -231 -257 -265 -273Profit /loss on ceded business 0 0 0 0 0 -24 -45 -46 -47Profit before taxes 0 0 -41 -82 -90 37 198 274 343

Claims ratio (%) 150.0% 88.9% 96.8% 76.6% 72.6% 70.5% 68.8%Ceded Business (%) 0.0% 0.0% 0.0% 2.0% 2.5% 2.4% 2.2%Expense ratio (%) 975.0% 105.6% 47.1% 19.2% 14.5% 13.7% 13.1%Combined ratio (%) 1125 % 194 % 144 % 98 % 90 % 87 % 84 %Premium Growth 0.0% 0.0% 2150.0% 145.6% 446.2% 47.1% 9.0% 7.6% The Swedish operations are expected to continue its strong growth and become an increasingly important part of the group's profits.



03.02.2010

Finland Finland

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012EPremiums, gross 2 21 61 97 140 198 252 354 480 583 663 728Net income from investments 0 1 1 3 3 6 14 17 -8 -17 -18 -19Other operating incomeClaims incurred -1 -18 -47 -70 -113 -155 -188 -258 -412 -469 -494 -511Change in insurance liabilitiesStaff costsOther expenses -29 -66 -63 -73 -70 -83 -125 -154 -180 -180 -185 -191Profit /loss on ceded business -1 -4 0 0 -1 0 -2 -1 -1 0 0 0Profit before taxes -29 -66 -48 -43 -41 -34 -49 -42 -121 -82 -34 7

Claims ratio (%) 50.0% 85.7% 77.0% 72.2% 80.7% 78.3% 74.6% 72.9% 85.8% 80.4% 74.5% 70.2%Ceded Business (%) 50.0% 19.0% 0.0% 0.0% 0.7% 0.0% 0.8% 0.3% 0.2% 0.0% 0.0% 0.0%Expense ratio (%) 1450.0% 314.3% 103.3% 75.3% 50.0% 41.9% 49.6% 43.5% 37.5% 30.8% 27.9% 26.2%Combined ratio (%) 1550 % 419 % 180 % 147 % 131 % 120 % 125 % 117 % 124 % 111 % 102 % 96 %Premium Growth 950.0% 190.5% 59.0% 44.3% 41.4% 27.3% 40.5% 35.5% 21.5% 13.7% 9.8% We exercise caution on the Finnish operations due to lack of size and potential downside related to the Nordea bancassurance partnership.

Corporate Corporate

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012EPremiums, gross 3832 5120 5190 4,862 4,667 4,921 5,285 5,512 5,492 5,772 6,006 6,188Net income from investments 251 314 209 128 113 128 137 172 37 30 31 33Other operating incomeClaims incurred -2810 -4368 -3555 -3,417 -3,360 -3,344 -3,904 -3,489 -3,594 -3,740 -3,815 -3,892Change in insurance liabilities -31 -119 -15Staff costsOther expenses -681 -846 -873 -603 -535 -539 -504 -588 -608 -620 -632 -645Profit /loss on ceded business -495 -363 -801 -576 -424 -318 -172 -516 -508 -518 -528 -539Profit before taxes 66 -262 155 394 461 848 842 1,091 820 924 1,061 1,145

Claims ratio (%) 73.3% 85.3% 68.5% 70.3% 72.0% 68.0% 73.9% 63.3% 65.4% 64.8% 63.5% 62.9%Ceded Business (%) 12.9% 7.1% 15.4% 11.8% 9.1% 6.5% 3.3% 9.4% 9.2% 9.0% 8.8% 8.7%Expense ratio (%) 17.8% 16.5% 16.8% 12.4% 11.5% 11.0% 9.5% 10.7% 11.1% 10.7% 10.5% 10.4%Combined ratio (%) 104 % 109 % 101 % 95 % 93 % 85 % 87 % 83 % 86 % 85 % 83 % 82 %Premium Growth 33.6% 1.4% -6.3% -4.0% 5.4% 7.4% 4.3% -0.4% 5.1% 4.1% 3.0% We expect continued strong performance in the Corporate segment with growth corresponding to the market growth

Group Profits Group

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012EPremiums, gross 12,620 15,792 16,702 15,303 15,714 16,022 16,607 17,328 18,462 19,987 20,944 21,712Net income from investments 663 417 1,179 761 1,210 1,628 841 -489 1,167 539 613 702Other operating incomeClaims incurred -9,782 -12,334 -11,940 -10,467 -11,305 -10,604 -11,175 -11,776 -13,204 -14,106 -14,456 -14,797Change in insurance liabilitiesStaff costsOther expenses -3,063 -3,778 -3,761 -2,805 -2,700 -2,691 -2,822 -3,043 -3,201 -3,253 -3,322 -3,392Profit /loss on ceded business -329 -871 -1,135 -760 -16 -596 -345 -672 -687 -720 -735 -749Profit before taxes 109 -774 1,045 2,032 2,903 3,759 3,106 1,348 2,537 2,448 3,044 3,475

Claims ratio (%) 77.5% 78.1% 71.5% 68.4% 71.9% 66.2% 67.3% 68.0% 71.5% 70.6% 69.0% 68.2%Ceded Business (%) 2.6% 5.5% 6.8% 5.0% 0.1% 3.7% 2.1% 3.9% 3.7% 3.6% 3.5% 3.5%Expense ratio (%) 24.3% 23.9% 22.5% 18.3% 17.2% 16.8% 17.0% 17.6% 17.3% 16.3% 15.9% 15.6%Combined ratio (%) 104.4 % 107.5 % 100.8 % 91.7 % 89.2 % 86.7 % 86.4 % 89.4 % 92.6 % 90.5 % 88.4 % 87.2 %Premium Growth 0.0% 25.1% 5.8% -8.4% 2.7% 2.0% 3.7% 4.3% 6.5% 8.3% 4.8% 3.7% In general we expect the core underwriting business to continue it's strong performance while we see lower returns on the investment activities due to further reduction of risk exposure Source: DnB NOR Markets Equity Research, TrygVesta



03.02.2010

Underwriting Business We expect the underwriting results to increasingly improve going forward due to the increased prices and emphasis on cost-efficiency. The Finnish operations will still be impacted by the lack of size and experience combined ratios above 110% while we see the Swedish operations becoming an increasingly important part of TrygVesta's profit generation, representing ~7% of 2010 technical result. The Danish and Norwegian operations on the other hand are expected to be stable, with price increases offset by adverse claims development, particularly in Q1. The corporate segment is expected to be tranquil with a premium growth equal to the market growth, increased auto sales offsetting the adverse development in worker's compensation sales. Increased automatisation steadily improves the profitability within the segment. Overall we see the combined ratio trending towards 88% over the next few years. An important aspect will be the formerly mentioned strategic partnership issues with Nordea, with the renegotiations coming up in primo 2011. Investment Activities The investment activities will of course be volatile and we leave significant headroom for discretionary views on this matter. In the sensitivity section we have provided a sensitivity analysis of investment return impact on earnings and price target. In our base scenario we have assumed returns of 8% for equities and an aggregated 3% for the bond portfolio. In general we expect investment returns from the free-portfolio to generate annual sustainable earnings of ~DKK 400mn after asset management expenses and hybrid capital interests. Thus contributing ~4% to the ROE estimate.

Quarterly Investment Returns

152

322

-90-44

-365

-135

-331

-157

46

499

332

144100 104 108 112

-500

-400

-300

-200

-100

0

100

200

300

400

500

600

Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410

DK

Km

-200.0 %

-150.0 %

-100.0 %

-50.0 %

0.0 %

50.0 %

100.0 %

Annual Investment Returns

378

888

1,228

340

-988

1,021

424 492

-1,500

-1,000

-500

0

500

1,000

1,500

2004 2005 2006 2007 2008 2009E 2010E 2011EDK

Km

-80.0 %

-60.0 %

-40.0 %

-20.0 %

0.0 %

20.0 %

40.0 %

60.0 %



03.02.2010

Combined ratios Combined Ratios by Segment Denmark Norway

82.4% 78.4% 74.1% 72.7% 79.5%66.2% 62.3% 67.3% 72.8% 72.0% 70.6% 69.9%

25.4%23.0%

22.7%18.4%

17.8%

17.4%16.7%

17.5%17.1% 16.6% 16.3% 16.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E

Claims rat io Expense ratio Ceded Business

79.4%72.0% 71.9%

60.4% 61.4% 63.6% 66.0% 72.7% 74.2% 73.5% 72.0% 71.3%

26.1%27.0% 24.7%

22.9% 20.6% 20.4% 20.8%21.7% 21.1% 20.5% 20.1% 19.9%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E

Claims rat io Expense rat io Ceded Business

The Danish market has been highly profitable recent years, expect 2009 profitability to be sustainable..

..while there is more headroom for further efficiency gains in the Norwegian segment

Sweden Finland

150.0%

88.9% 96.8%76.6% 72.6% 70.5% 68.8%

105.6%

47.1%

19.2%14.5% 13.7% 13.1%

-10.0%

10.0%

30.0%

50.0%

70.0%

90.0%

110.0%

130.0%

150.0%

2004 2005 2006 2007 2008 2009E 2010E


72.2% 80.7% 78.3% 74.6% 72.9%85.8% 80.4% 74.5% 70.2%

75.3% 50.0%41.9% 49.6%

43.5%37.5%

30.8%27.9%

26.2%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E


The Moderna acquisition set Sweden up for profitability..

..while Finland still struggles with lack of size

Corporate Segments overview

73.3%85.3%

68.5% 70.3% 72.0% 68.0% 73.9%63.3% 65.4% 64.8% 63.5% 62.9%

17.8%

16.5%

16.8% 12.4% 11.5%11.0%

9.5%

10.7% 11.1% 10.7% 10.5% 10.4%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E


70 %

75 %

80 %

85 %

90 %

95 %

100 %

105 %

110 %

115 %

120 %

2001 2003 2005 2007 2009E 2011E70 %

75 %

80 %

85 %

90 %

95 %

100 %

105 %

110 %

115 %

120 %

Sweden Finland Denmark Norway Corporate

The corporate segment uses reinsurance heavily, reflected in the high ceded business ratio

With the new markets becoming profitable we see group combined ratio trending towards 88%

Source: DnB NOR Markets Equity Research, TrygVesta



03.02.2010

The Nordic region is the most cost-efficient insurance market in Europe and TrygVesta is one of the most cost-efficient firms in the Nordic region with combined ratios as seen below. In Q3 2009 the net combined ratio stood at 92.3%.

-20 %

0 %

20 %

40 %

60 %

80 %

100 %

120 %

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E

Claims ratio Expense ratio Ceded Business

Source: TrygVesta, DnB NOR Markets Equity Research

For 2010 we expect a combined ratio of 90.5%. An increase of 1.3%p from 2008 and decrease of 2%p from our 2009 estimates, which can be broken down to a 0.9%p decrease in the claims ratio and 1.1%p in the expense ratio. This is attributable to the (i) price increases announced and (ii) increased automatisation and self-services reducing operating expenses. TrygVesta – Nordea Bancassurance risks Sampo has become the majority shareholder of Nordea with a ~20% stake which may have an adverse effect on TrygVesta's bancassurance agreements. The current deal lasts until 2013 with renegotiations for an extension until 2016 in primo 2011. TrygVesta state that they find the likelihood of Sampo ousting TrygVesta and replacing them with IF equal to 0. Basing this on Sampo's divestment of Sampo Bank in 2007 and that Sampo appears to be non-believers when it comes to bancassurance. They find it more likely that Sampo will drive Nordea into consolidations with a large European bank which already has bancassurance partnerships in place, thereby ousting TrygVesta and a new European non-life player enters the market. Although this was likely the case a year ago we believe Nordea has gone from being a potential Nordic entry point for European firms to becoming a Nordic based firm that will expand towards continental Europe itself. Thereby reducing the potential for a takeover and increasing the probability of IF replacing TrygVesta as their insurance provider. Furthermore it should be mentioned that TrygVesta have strong historical ties to Nordea; (i) TrygVesta is currently Nordea Asset Management's largest client with close to DKK 40bn under management and (ii) on the 26th of January TrygVesta CEO, Stine Bosse, was proposed re-elected as a board member of Nordea Without the Nordea partnership we think TrygVesta will have to rethink their entry into Sweden and Finland and either acquire other domestic players or divest their current operations, the remaining scale of the business will not allow for profitable business in these markets. This is especially relevant for the Finnish operations.



03.02.2010

Valuation Sustainable Return on Equity

Risk-free interest rate 5.0% 5.0% 5.0%Required return 7.0% 7.0% 7.0% 8.0% 8.0% 8.0% 9.0% 9.0% 9.0%Sustainable ROE 20.0% 21.0% 22.0% 20.0% 21.0% 22.0% 20.0% 21.0% 22.0%

Long-term growth rate 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.5 %Price/book 3.4x 3.5x 3.7x 2.8x 3.0x 3.2x 2.5x 2.6x 2.7xImplied value 33,398 35,203 37,009 28,260 29,788 31,315 24,492 25,816 27,140



Valuation range - all 24,492 - 52,483 - w ith discount to theoretical P/B 15,920 - 34,114 - per share 251.92 - 539.84 - per share (avg) 396.00





Our long term ROE estimate of 21%, 2.5% growth and 8% cost of capital implies a share price of DKK 399. In our dividend discount model we exercise some caution and do not include the full dividend potential depicted earlier, this leads to a share price of DKK 396. We also looked at a target dividend yield approach, where we set the dividend yield = cost of capital in our base case. The share price targets are discounted to end 2010.

2010 2011Dividend 1,811 1,811 1,811 2,252 2,572 2,572Target div yield 7 % 8 % 9 % 7 % 8 % 9 %Mcap 25,875 24,150 20,125 32,178 34,288 28,573Target (implied, discounted to 2010) 409 382 292 476 505 415Current 336 336 336 336 336 336Upside 22 % 14 % -13 % 42 % 50 % 23 % When we combine these estimates we land at a price target of DKK 400.



03.02.2010


0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Oct.05 Apr.06 Oct.06 Apr.07 Oct.07 Apr.08 Oct.08 Apr.09 Oct.09

Average

+2 SD

-2 SD

P/E development

4

6

8

10

12

14

16

Oct.05 Dec.05 Feb.06 Apr.06 Jun.06 Aug.06 Oct.06

Average

+2 SD

-2 SD

Source: Factset, DnB NOR Markets Our 400DKK price target implies a P/B 2011 of 2.4 and P/E 2011 of 11.2, which are both below the historical averages of 2.5 and 11.7.



03.02.2010

Sensitivity analysis Combined ratio

-3 % -1 % 0 % 1 % 3 %-3 % 93.4% 91.5% 90.5% 89.6% 87.7%-1 % 93.4% 91.5% 90.5% 89.6% 87.7%0 % 93.4% 91.5% 90.5% 89.6% 87.7%1 % 93.4% 91.5% 90.5% 89.6% 87.7%3 % 93.4% 91.5% 90.5% 89.6% 87.7%

Premium grow th base 2010E = 5.0%


-3 % -1 % 0 % 1 % 3 %-3 % 121.00 225.00 280.00 338.00 463.00-1 % 193.00 300.00 357.00 418.00 546.000 % 231.00 339.00 399.00 460.00 590.001 % 271.00 382.00 442.00 504.00 636.003 % 355.00 472.00 534.00 598.00 733.00

Premium growthFi

nanc

ial

retu

rn

Premium growth

Fina

ncia

l re

turn


-3 % -1 % 0 % 1 % 3 %-10 % 283.00 348.00 383.00 419.00 495.00-3 % 293.00 359.00 394.00 430.00 507.000 % 297.00 363.00 399.00 435.00 512.003 % 301.00 368.00 403.00 440.00 517.00

10 % 311.00 378.00 414.00 451.00 529.00Equity return base = 8.0%Bond grow th base = 3.0%

EPS investment return sensitivity

-3 % -1 % 0 % 1 % 3 %-10 % 14.36 22.66 26.84 31.04 39.50-3 % 15.62 23.93 28.12 32.32 40.790 % 16.16 24.47 28.66 32.87 41.353 % 16.70 25.02 29.21 33.42 41.90

10 % 17.96 26.29 30.49 34.71 43.20

Bond returns

Equi

ty

retu

rns

Bond returns

Equi

ty

retu

rns



03.02.2010

TRYGVESTA (TRYG.CO)

PROFIT & LOSS DKKm 2007 2008 2009e 2010e 2011e 2012eGross premium written 16,959 17,629 18,528 20,234 21,205 21,987Earned premium, net of re. 15,890 16,635 17,632 19,111 20,054 20,807Claims, net of reinsurance -10,674 -11,647 -12,989 -13,869 -14,215 -14,550Net operating expenses -2,674 -2,931 -3,075 -3,123 -3,191 -3,260Underwriting result 2,820 2,384 1,566 2,072 2,599 2,948Net financial income 340 -988 1,020 424 492 575Life pre-taxBank pre-taxOther income -51 -49 -50 -48 -48 -48AssociatesPre-tax profit 3,109 1,347 2,537 2,448 3,044 3,475Tax -842 -501 -609 -636 -791 -904Minority interestNet profit 2,265 846 1,929 1,811 2,252 2,572

Q1 09 Q2 09 Q3 09 Q4 09e Q1 10e6,496 4,154 4,017 3,861 7,4184,037 4,383 4,527 4,685 4,621

-2,923 -3,220 -3,388 -3,458 -3,299-702 -778 -733 -862 -748427 376 397 366 54746 498 332 144 100

-13 -13 -12 -12 -12

460 861 717 499 635-140 -152 -187 -130 -165

320 710 530 369 470

BALANCE SHEET DKKmFinancial assets 37,847 32,745 39,502 39,813 40,435 40,980Other assets 5,983 14,478 6,863 6,863 6,863 6,863Total assets 43,830 47,223 46,365 46,676 47,298 47,843Equity 10,010 10,476 9,618 9,929 10,551 10,887Other liabilities 33,820 36,747 36,747 36,747 36,747 36,747Total liabilities & equity 43,830 47,223 46,365 46,676 47,298 47,634

MARGINS, GROWTH & GEAR 2007 2008 2009e 2010e 2011e 2012eROE pre-tax % 31.1 12.9 26.4 24.7 28.8 31.9ROE % 22.6 8.1 20.1 18.2 21.3 23.6DPS DKK 37.8 6.5 23.7 25.8 32.1 36.6Dividend yield % 9.7 2.0 6.9 7.7 9.6 10.9Payout ratio % 112.8 49.5 77.8 90.0 90.0 90.0Claims ratio % 69.4 71.9 75.4 74.5 72.9 72.1Cost ratio % 16.7 17.3 17.1 16.0 15.6 15.4Combined ratio % 86.1 89.2 92.5 90.5 88.6 87.5Ceded reins. % 2.1 3.9 3.9 3.9 3.9 3.9

VALUATION 2007 2008 2009e 2010e 2011e 2012eEPS DKK 33.49 13.14 30.52 28.66 35.64 40.69EPS adj DKK 33.52 13.14 30.51 28.66 35.64 40.69Year end shares million 67.6 64.4 63.2 63.2 63.2 63.2Price DKK 388.00 328.00 342.75 334.90 334.90 334.90P/E X 11.6 25.0 11.2 11.7 9.4 8.2P/E adj X 11.6 25.0 11.2 11.7 9.4 8.2Book per share DKK 148.0 162.7 152.2 157.1 167.0 172.3P/Book X 2.6 2.0 2.3 2.1 2.0 1.9

Share price and targetPrice DKK 334.90Price target 12m DKK 400.00Recommendation BUYEPS gr08-11e %cagr 39.5%PE09e/EPS gr X 0.3Financial structureMarket cap. DKKm 21,163Shares outst. million 63.2Equity/tot assets % 20.7Share price performanceAbs. 1/3/12m -2/-9/-3Rel. 1/3/12m -2/-9/-3High/Low 12m DKK 393/27230days volatility % 18Company attributesReuters ticker TRYG.COFinancialsInsuranceDenmark

ReportingQ4 2009 25.02.2010Q1 2010 21.05.2010

ManagementCEO Stine BosseCFO Morten HübbeAddressTrygvestaKlausdalsbrovej 6012750 BallerupH.p.: http://www.trygvesta.com/Tel +45 40 30 00 04

Analyst: Håkon Fure+47 22 94 89 [email protected]



03.02.2010

75

80

85

90

95

100

105

110

115


Trygvesta


75

80

85

90

95

100

105


Trygvesta


0

5,000

10,000

15,000

20,000

25,000

2006 2007 2008 2009e 2010e 2011e 2012e0.0%1.0%

2.0%3.0%

4.0%5.0%6.0%

7.0%8.0%

9.0%10.0%

Premium (DKKm) Premium growth

Premium growthPremium (DKKm)

05

1015

202530

3540

4550

2006 2007 2008 2009e 2010e 2011e 2012e0

5

10

15

20

25

30

35

40

EPS (DKK) DPS (DKK)

DPS (DKK)EPS (DKK)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2006 2007 2008 2009e 2010e 2011e 2012e14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

Costs (DKKm) Cost ratio

Cost ratioCosts (DKKm)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2006 2007 2008 2009e 2010e 2011e 2012e66.0%67.0%

68.0%69.0%

70.0%71.0%72.0%

73.0%74.0%

75.0%76.0%

Claims (DKKm) Claims ratio

Claims ratioClaims (DKKm)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2006 2007 2008 2009e 2010e 2011e 2012e82.0%

84.0%

86.0%

88.0%

90.0%

92.0%

94.0%

Underwriting result (DKKm) Combined ratio

Combined ratioUnderwriting result (DKKm)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2006 2007 2008 2009e 2010e 2011e 2012e0%

5%

10%

15%

20%

25%

30%

35%

Price/Book ROE

ROEPrice/Book



03.02.2010

IMPORTANT/DISCLAIMER This report must be seen as marketing material unless the criteria for preparing investment research, according to the Norwegian Securities Trading Regulation 2007/06/29 no. 876, are met. This report has been prepared by DnB NOR Markets, a division of DnB NOR Bank ASA. The report is based on information obtained from public sources that DnB NOR Markets believes to be reliable but which DnB NOR Markets has not independently verified, and DnB NOR Markets makes no guarantee, representation or warranty as to its accuracy or completeness. Any opinions expressed herein reflect DnB NOR Markets’ judgment at the time the report was prepared and are subject to change without notice. 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03.02.2010

Appendix 1 – Non-life insurance industry risk assessment

New entrants The general insurance market in Norway has seen low combined ratios in the last three years and companies have announced that they will (re) enter the Norwegian market. Incumbents face competition from domestic insurers in each of its markets, but also from global insurance and self-insurance. Additionally, the industry is facing increasing competition from banks and life insurers distributing general insurance products.

Market fluctuations The companies operate in the Nordic area and its growth prospect and success is closely tied to general economic development in these markets.

Natural catastrophes A general insurer frequently experience losses from unpredictable events that affect multiple covered risks. Such events include both natural disasters and man-made disasters. The extent of the losses from catastrophes is a function of the frequency of catastrophic events, the severity of these and the reinsurance arrangements in place.

Changes in regulation The EU-initiated Solvency II project gives benefit for companies with diversification. Domestic companies currently are geographically concentrated and have concentrated business mixes. This may trigger strategic moves by less diversified companies in new business areas.

The industry also faces competition from the implementation of self-insurance in the commercial insurance segments. Enabling corporations to access the reinsurance market without requiring direct insurance from a general insurer may change the situation in the industry significantly.

Technology Internet is increasingly preferred as purchase and payment channel for policyholders. New technology opens up for new entrants that operate at lower costs than traditional operated companies. The incumbents have made large investments in IT and are, as its competitors, dependent on stable operations of these.

Key Personnel The players are dependent on being able to attract and retain qualified individuals and in a tight labor market this can increase cost.

Market risk in financial portfolio Investment returns are an important part of insurers overall profitability. E.g. a proportion of these assets are placed in equities, which are generally subject to higher return volatility than fixed income securities. Fluctuations in long- or short-term interest rates and other market factors such as a decline in economic activity in equity markets and misjudgment by appointed asset managers may adversely affect the value of the investment portfolios.

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