y Denmark’s sixth largest commercial life insurance and pension fund company.
• Post-tax profit forecast model is DKK 1,100-1,200m being DKK 80 profit per share.
Non-life insurance - Investment return after transfer to technical result etc. 390 - 430 465 Profit on non-life insurance 890 - 970 1,092
The investment return declined to DKK 465m in 2010 (2009: DKK 723m).
Developments in Q4 Premiums earned in Q4 2010 amounted to DKK 2,153m which was 0.9% lower than the same quarter the previous year.
The improvement in profit to DKK 384m in 2010 (2009: DKK 292m) was mostly due to – unlike 2009 – the "insurance technical result before bonus" in Life I being sufficient to include in income both the risk allowance for the year of DKK 79m and the shadow account, including interest, of DKK 144m. In Life V the "insurance technical result before bonus" was sufficient to include in income a risk allowance of DKK 51m.
The property portfolio comprises mainly owner-occupied property (DKK 757m), rental property (DKK 351m), rental office property (DKK 68m) and property rented for hotel use (DKK 112m). The tenancies for the residential and hotel properties are subject to a short termination notice but re-letting is not considered to be a problem. The office property is rented under contracts with no option to terminate prior to 2015. Over 99% of the property portfolio is currently let. The properties are valued in accordance with the rules of the DFSA i.e. at market value taking into account the level of rent and the terms of the tenancy agreements.
Model prices A side effect of the financial crisis has been that certain of Topdanmark's investment assets are no longer valued at market prices. As it was not immediately possible to record these assets at market value, Topdanmark has chosen to use the mark-to-model method, from Q4 2008, on part of the CDO portfolio and other structured products as well as illiquid loans and credit bonds. In the model it is assumed that the default ratio of loans and credit bonds would be 10% p.a. up to and including Q3 2011, and thereafter the rate would gradually decline to a normal level of 3% p.a. Recovery rates are assumed to be 60% for senior debt, and 20% for subordinated debt in Q1 2011 moving to 30% thereafter. The discount rate used is 10% p.a.
Against this background it is believed that the future regulation of the insurance sector will require a minimum level of solvency capital in insurance holding companies corresponding to the solvency requirements of the underlying group companies. Topdanmark has no intention of accumulating unnecessary capital in the group companies and, therefore, looking forward it is expected that broadly the capital base of the parent company will be sufficient to finance the investments in the group companies. Consequently, the parent company will not need net refinancing in excess of its capital base.
February 2011) corresponding to a 0.8pp improvement of the combined ratio
Currency risk Topdanmark's currency risk relates in practice only to investments and is alleviated by derivatives. The risk is calculated by the value-at-risk method as the size of the loss which, with a 97.5% probability, will not be exceeded.
Provisions for claims and benefits a 87.6 292.9 310.3 6.3 21.4
Topdanmark is preparing for Solvency II by having employees from Non-life Actuarial Services, Life Actuarial Services, Asset Management, financial and compliance departments and others working together on a project reporting to the CFO. The three most important issues of this project are to prepare the new external reporting requirements for the DFSA and for publication on Topdanmark's website, to adapt Topdanmark's own risk model for non-life risks and to adapt data processes and calculation methods in the life insurance business, which has its own complications of, among others, contribution rules and interest rate groups.
The framework of Solvency II is being outlined but there continue to be many specific issues which will need to be settled and parameters to be calibrated before the rules will be finally available. Topdanmark will continue to follow the process to adapt to the expected future rules. Topdanmark will, in good time, implement those measures that are necessary to meet the rules before they take effect in January 2013.
The three members of the audit committee receive the same background material prior to and at the board committee meetings and participate in the meetings on equal terms. The chairman's vote is not decisive and the members of the audit committee receive the same remuneration for performing the duties of the audit committee.
• Annually evaluate the skills, knowledge and experience of the individual members of the governing bodies and report such details to the supreme governing body.
Topdanmark's Board of Directors regularly addresses the following recommendations, at least once a year when assessing itself and the co-operation between it and the Board of Management: • The qualifications required to be a member of
Education: MSc (Engineering), DTU Licentiate (Tech.), thesis: radar technology and optical communication
Education: MSc (Business Administration and Auditing), Copenhagen Business School, Denmark State-authorised public accountant Advanced Management Programme, Harvard Business School, USA
Managerial responsibilities: • Asset Management • Finance • Accounts • Statistical Services • Reinsurance • Tax • Credits
Provisions for insurance and investment contracts: * Before deducting bonuses and rebates
Acquisition costs (125) (120) Administrative expenses (180) (181) Reinsurance commission and share of profits 1 0 Total operating expenses, net of reinsurance (304) (301) TECHNICAL PROFIT ON LIFE INSURANCE 123 214
Total comprehensive income for the year 1 0 4 1,164 1,169
Average value of claim (DKK '000) 41 41 65 60 32 28
Bonuses paid in cash 173 205 Claims and benefits paid 1,428 2,866
Financial assets recorded at fair value Held for trading: Non-life insurance: Government bonds 0.5 0.5
Group companies have agreed to lend equities against security. The accounting value of lent equities is DKK 2,014m (2009: DKK 1,749m). The fair value of bonds received as security for the loan is DKK 3,097m (2009: DKK 1,959m).
Note 35. Analysis of assets and their return - life insurance Net Return 1 January 31 December investment (%)* Land and buildings, directly owned 3,528 3,487 (37) 5.7
Note 40. Solvency Shareholders' equity according to Danish rules * 4,465 4,900 Deferred tax assets (1) (1) Hybrid core capital 403 404 Capital adequacy requirements for insurance companies – 50% (1,535) (1,549) Core capital 3,332 3,754 Capital adequacy requirements for insurance companies – 50% (1,535) (1,549) Capital base 1,797 2,205
Reinsurers' share: Life insurance provisions 0 36 36 Provisions for claims 581 87 667
Note 48. Other disclosures The five-year summary in accordance with Section 91(a) of the Danish executive order on financial reports for insurance companies and lateral pension funds is the last page of Management's review.
Cash flow analysis The cash flow analysis for the Group has been prepared in accordance with the direct method disclosing cash flow from operations, investments and financing as well as the changes in the Group’s liquid funds between the beginning and the end of the financial year. Investment activities also include amounts received and paid on the purchase and sale of investment, intangible and tangible assets. Cash flows from financing comprise changes in capital, including the purchase and sale of own shares.
Note 5. Machinery and equipment Cost at 1 January 6 5 Additions, including improvements 1 1