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International Monetary Fund. Monetary and Capital Markets Department
Denmark’s insurance sector is highly developed with a particularly high penetration and density in the life sector. Traditionally, work-related life insurance and pension savings are offered as a combined package, and life insurance companies dominate the market for mandatory pension schemes for employees. The high penetration explains the overall size of the insurance sector, which exceeds those of peers from other Nordic countries and various other EU member states. Assets managed by the insurance industry amounted to 146 percent of the GDP at end-2018, compared to 72 percent for the EU average.
International Monetary Fund. Monetary and Capital Markets Department

, mainly driven by rising stock markets and falling bond spreads, has contributed to positive returns. Market value losses in the equity portfolio and stagnating bond prices temporarily reduced profitability in 2018 resulting in a rather low median return on equity of 2.0 and 1.4 percent in the life and non-life sector, respectively. Figure 4. Denmark: Profitability and Solvency Source: IMF staff calculations based on DFSA data. 15. Solvency ratios have been broadly stable since the Solvency II implementation, but react highly sensitive to technical changes

International Monetary Fund. Monetary and Capital Markets Department

. Regulatory/Accounting and Market-Based Standards Capital definition according to the national implementation by DFSA. Data on combined CET1, including the CCB, SIFI, pillar II and CCyB buffers are available from DFSA for 2020 Q1. RWA behave dynamically according to changes in credit risk parameters. 5. Reporting Format for Results Output presentation Evolution of CET1 capitalization ratios for the consolidated banking groups. Decomposition of the reduction in CET1 capital ratio in terms of drivers (credit risk, market risk, interest rate risk

International Monetary Fund. Monetary and Capital Markets Department
Much of the work of the Financial Sector Assessment Program (FSAP) was conducted prior to the COVID-19 pandemic. Given the FSAP’s focus on medium-term challenges and vulnerabilities, however, many of its findings and recommendations for strengthening policy and institutional frameworks remain pertinent. This report reflects key developments and policy changes since the FSAP mission work was completed, and includes illustrative scenarios to quantify the possible implications of the COVID-19 shock on the solvency of systemically important financial institutions (SIFIs). Prior to the COVID-19 pandemic, the Danish authorities had taken important steps to improve financial system resilience. The authorities had actively used macroprudential tools to bolster the robustness of the financial system. The supervision of the banking and insurance sectors had improved. Likewise, recent legislation has strengthened anti-money laundering and combating the financing of terrorism (AML/CFT) supervision. Major reforms such as a new bank resolution framework had also considerably improved Denmark’s financial safety net and crisis management frameworks.
International Monetary Fund. Monetary and Capital Markets Department

parameters such that PD*LGD = Impairment rate projection. Credit risk- RWAs : We convert the shocks to the PIT PD parameters to through-the-cycle (TTC) PD parameters for projection of RWAs. Market risk : Yields for sovereign and corporate bonds were determined based on historical statistical relationships with the other variables available in the scenario. Regulatory/Accounting and Market-Based Standards Capital definition according to the national implementation by DFSA. Data on combined CET1, including the CCB, SIFI, pillar II and CCyB buffers are

International Monetary Fund. Monetary and Capital Markets Department
The Financial Sector Assessment Program (FSAP) work was conducted prior to the COVID-19 pandemic. This report, however, includes stability analysis and stress tests under updated illustrative scenarios to quantify the possible implications of the COVID-19 shock on bank solvency. An unusually high degree of caution must be exercised in interpreting the stress tests results and their implications or validity at the current juncture, due to heightened uncertainty around post COVID central projections and downside risks. Financial vulnerabilities were elevated on the eve of the COVID-19 pandemic. Key financial vulnerabilities included high household leverage amid high real estate valuations following a long period of loose financial conditions. There were also signs of risk taking in some sectors, such as commercial real estate (CRE), and in addition, there were downside risks to bank profitability amid the low-interest-rate environment.