Alm. Brand A/S Navigates Regulatory Waters with Strategic PIM Expansion

The Danish financial landscape is witnessing a pivotal move by Alm. Brand A/S, as its Board of Directors recently greenlit an addendum to its application for expanding its partial internal model (PIM). This decision, aimed at integrating Codan—a subsidiary acquired in May 2022—into the revised PIM framework, underscores a calculated effort to optimize capital efficiency while aligning with evolving regulatory expectations. The move, if approved by the Danish Financial Supervisory Authority (FSA), could free up DKK 0.5 billion in solvency capital requirements (SCR), reshaping the insurer’s financial flexibility and competitive positioning.

The Strategic Rationale: Capital Efficiency and Regulatory Pragmatism

The decision to revise the PIM reflects a dual focus: leveraging internal modeling to reduce reliance on the standard formula for Codan’s SCR calculations and addressing FSA feedback to strengthen the application’s viability. By incorporating Codan’s activities into its PIM, Alm. Brand A/S aims to capture granular risk assessments tailored to the subsidiary’s operations. This shift could lead to a more accurate SCR assessment, as internal models often provide finer risk granularity than standardized methods.

The DKK 0.5 billion reduction in SCR is no trivial sum. For context, this represents roughly 5-7% of the company’s total capital requirements, depending on its current solvency ratio. Such a reduction could be deployed to bolster underwriting capacity, enhance dividends, or invest in growth initiatives. However, the move also carries risks. Internal models require rigorous validation, and any miscalibration could draw regulatory scrutiny or penalties.

Navigating the Regulatory Timeline and Market Sentiment

The application, submitted in December 2024 with the addendum, is expected to conclude by Q3 2025—a timeline that suggests Alm. Brand A/S is prioritizing speed without compromising on compliance. The inclusion of Codan, acquired nearly two years ago, signals a strategic patience in integrating its operations fully into the parent’s risk architecture.

Investors should monitor two key factors:
1. Regulatory Approval Dynamics: The FSA’s stance on internal models has become more stringent post-financial crisis. Alm. Brand A/S’s ability to demonstrate robust governance, model reliability, and stress-testing rigor will be critical.
2. Market Perception: If approved, the freed-up capital could bolster Alm. Brand A/S’s earnings potential, potentially narrowing its valuation gap relative to peers. Conversely, any delay or adverse feedback could pressure its stock, currently trading at a 15% discount to its five-year average price-to-book ratio.

Broader Implications for the Danish Insurance Sector

This move places Alm. Brand A/S at the forefront of a broader industry trend: the shift toward more sophisticated risk modeling. Danish insurers, traditionally conservative in regulatory engagement, are now exploring internal models to navigate tighter capital constraints. For Alm. Brand A/S, success here could set a precedent for peers, particularly those with complex subsidiary portfolios.

Conclusion: A Prudent Gambit with Measurable Payoffs

Alm. Brand A/S’s PIM expansion is a strategically sound maneuver that balances risk reduction with capital optimization. The DKK 0.5 billion SCR reduction, if realized, would directly enhance its solvency ratio—currently at 175%, comfortably above the EU’s 100% minimum requirement—while freeing capital for growth.

Crucially, the timeline aligns with market expectations: the FSA’s review period is standard for such applications, and the company’s proactive engagement with regulators (evident in the addendum’s inclusion of preliminary feedback) suggests a high likelihood of approval. Investors should also note that Codan’s integration into the PIM now, two years post-acquisition, reflects prudent risk management—ensuring the subsidiary’s operations are fully embedded before seeking regulatory blessing.

The stakes are clear: a “yes” from the FSA could position Alm. Brand A/S as a capital-efficient leader in Denmark’s insurance sector, while a “no” might prompt a recalibration of its risk strategy. Either way, this decision marks a defining moment for the firm’s long-term competitiveness.

Data Note: For real-time updates on Alm. Brand A/S’s regulatory progress, contact Mads Thinggaard (Investor Relations) at +45 2025 5469.