BankNordik P/F - Company Announcement

BankNordik acquires 50% of a life insurance company

BankNordik acquires 50% of the shares in the largest Faroese life insurance
company in connection with a privatisation 

In an announcement to the stock exchange on 21 January 2011 BankNordik
indicated an interest in acquiring 50% of the share capital in Føroya
Lívstrygging (Lív) from the Faroese government. Lív is the largest Faroese life
insurance company with over DKK 3 billion in pension savings from over 18.000
customers. BankNordik has now made an agreement with the Faroese government to
acquire 50% of the share capital in Lív for DKK 35 million. The transaction is
conditioned upon the approval from the Faroese insurance and competition
authorities. 

Valuation of the company

Today, Lív is structured in two life insurance companies, Lív 1 and Lív 2. Lív
2 is a subsidiary of Lív 1. The main difference between the two companies is
that the policy holders in Lív 1 have a performance guarantee from the Faroese
government regarding their pension savings, while the policy holders in Lív 2
do not have such government guarantees. In connection with the sharp decline of
Lív's portfolio of shares and the simultaneous fall in interest rates in 2008,
Lív had to capitalise the value of the government guarantee in the financial
accounts in order to retain a solvent company. In this connection the policy
holders without the government guarantee were transferred to the subsidiary Lív
2. In 2009 and 2010 the government guarantee retained a positive value in the
financial accounts of Lív 1 in order to ensure that Lív 1 fulfilled the capital
requirements. Thus the government guarantee is vital for the capitalisation of
the company with the current structure. 

Prior to the completion of BankNordik's acquisition of 50% of Lív the Faroese
government has agreed to make some changes to the company structure. The policy
holders in Lív 1 are being transferred to a new wholly owned subsidiary. In
this new company the government guarantee to the policy holders is the same as
before and performs the same role with regards to securing a solvent company
being able to meet the insurance liabilities. In this new company structure it
is the value of Lív 2 that is driving the value of the company group. 

The acquisition price corresponds to a total valuation of Lív of DKK 70 million.

The booked equity in Lív 2 at year-end 2010 was DKK 58 million. In 2010 Lív 2
had a pre-tax profit of DKK 35.9 million, which is primarily explained by an
extraordinary income of DKK 31.5 million from a ‘security fund' to the equity.
Exclusive of this extraordinary income the net profit in 2010 would have been
DKK 3.6 million. The valuation of Lív thus corresponds to a P/E ratio of 9.7
and a P/B ratio of 1.2. This is equivalent to the pricing of similar companies
in the Nordic countries. 

Shareholders agreement

Prior to bidding BankNordik made a shareholder agreement with the other new
shareholder in Lív, Ognarfelagið Lív (OL). OL is an organisation representing
the policy holders. OL will receive 50% of the shares in Lív free of charge
based on a broad political agreement in the Faroese parliament. The shareholder
agreement is a good foundation for a fruitful cooperation between the two
shareholders to further develop the life insurance company. OL takes on the
role of representing the policy holders in the board of directors, where OL
elects two board members. BankNordik also elects two board members, while the
two shareholders jointly select the final member of the board. BankNordik as
the strategic investor takes an active role in managing the company at the
operational level. 

The vision of both shareholders is that Lív has a competitive product offering
relative to the Danish pension providers that hitherto have been the providers
for some of the Faroese trade unions. This becomes even more important in
connection with the upcoming pension reform in the Faroe Islands, where all
wage earners will have a mandatory pension savings scheme from 1 January 2012. 

Strategic rationale

BankNordik has pursued strategic initiatives to increase fee income. In recent
years this has in particular been done by focusing on pension savings and asset
management. The acquisition of Lív is a good fit to these strategic
aspirations, since both pension savings and asset management increase
significantly with this acquisition. Lív has a market share of approximately
60% of the paid premiums in life insurance on the Faroes. The managed portfolio
of securities in Lív amounted to DKK 3.0 billion at year-end 2010. The combined
company manages pension savings for DKK 4.5 billion. 

Lív has recently launched individualised pension savings products to meet an
increased demand from customers to be able to choose flexible solutions with
regards to investing the pension savings in mutual funds. BankNordik has the
financial advisors to provide these advisory services in the countrywide
network of bank branches. 

With the upcoming pension reform on the Faroe Islands the acquisition is
strengthening both BankNordik and Lív, since the combined company will be able
to provide the customers with the full product offering at competitive prices. 

Integration

The before mentioned adjustments to the company structure requires the prior
acceptance of the insurance authorities. Also the policy holders will have to
be notified prior to transferring them from Lív 1 to the new subsidiary. 

BankNordik therefore expects closing of the transaction to take place within
the next four months. 

In the time period until closing BankNordik and Lív will do the necessary
detailed preparations for implementing the integration of the companies. 




         For further information:
         Janus Petersen, CEO, phone (+298) 330 340