The profit on life insurance declined DKK 12m to DKK 42m subjected to a lower investment result.
The claims trend improved 3.5pp to 65.5 in 2017. Compared to 2016, the claims trend was impacted by fewer large-scale claims, a lower level of weather-related claims and by an overall favourable claims trend. On the other hand, the claims trend was impacted by lower runoff.
The expense ratio remains unchanged at 16.0. Nominally, the expenses increased 1.2% due to an increase in sales commissions generated by an increase in new sales and expenses for development of a new IT-system for Agricultural.
Topdanmark's policy is to accept a certain level of financial risk, given its strong liquid position and stable, high earnings from insurance operations. Topdanmark has invested in, among other things, equities, properties and CDOs in order to improve the average investment return.
Non-life insurance risks Personal, liability and property insurance for the personal, SME, and agricultural markets. Most important risks Risk preferences Risk reducing activities Underwriting risk • Acceptance policy • Follow-up policy.
Market risk Interest-bearing assets 1 pp increase (449) (465) Provisions for claims in effective and benefits etc. interest rate 517 513
Share options For 2018, Topdanmark has granted 185,525 share options to its Executive Board and a number of executives. The strike price of DKK 296 was fixed at 110% of the market price of Topdanmark's shares on 29 December 2017 (average of all trades).
The options granted for 2018 are not to be exercised any earlier than subsequent to the publication of the 2020 Annual Report in 2021 and no later than subsequent to the publication of the 2022 Annual Report in 2023. In the intervening period, the options can only be exercised up to three banking days subsequent to Topdanmark's publication of its annual, half year and interim reports.
Topdanmark's shares • Topdanmark’s shares are not traded at a discount due to lack of information • There is a high level of confidence in Topdanmark's shares • The provision of uniform and consistent information helps ensure low volatility in Topdanmark's shares.
Relative run-off profits, net of reinsurance (%) 2.4 2.8 3.0 3.7 2.7
Creditors arising out of direct insurance operations 329 270 Creditors arising out of reinsurance operations 18 27 Amounts due to credit institutions 44 43 Current tax liabilities 59 35
Life insurance Gross premiums written 8,250 8,250 Allocated investment return 3,372 3,372 Pension return tax (522) (522) Benefits and change in provisions (10,657) (10,657)
Note 5. Technical result - non-life insurance 2016 2017 2016 2017 2016 2017
Future rental income in the period of non-terminability: Up to 1 year 184 183
Calculated tax on profit for the year 22% (2016: 22%) 427 492 Adjusted for the tax effect of: Returns on shares etc. not liable to tax (6) 4 Non-deductible expenses / income not liable to tax 4 7 Prior year adjustment (18) (1)
Cost / revaluation at 1 January 424 857 1,281 Additions, including improvements 52 0 52
Note 27. Profit margin, life insurance and investment contracts Products with guarantees and profitsharing 0 88 Unit-linked products 103 156 Profit margin, life insurance and investment contracts 103 244
Social security costs 41 38 Payroll tax 247 246 Share options 8 8 Employee shares 8 43
Total financial assets at fair value where the revaluation is taken to the income statement 63,831 71,557
Generally, the interest rate risk is limited and controlled by investing in interest-bearing assets in order to reduce the overall interest rate exposure of the assets and liabilities to the desired level.
At the end of 2017, the profit margin for products with guarantees and profit sharing is calculated at DKK 88m, which has been transferred from the life insurance provisions.
Future accounting standards IFRS The IASB has issued a number of new and revised standards and interpretations, which have not yet taken effect and/or been approved by EU of which the most significant ones are: IFRS 15 "Revenue from contracts with customers". The standard is applicable to all contracts with customers not comprised by other standards (e.g. financial contracts or insurance contracts). IFRS 15 takes effect on 1 January 2018. Topdanmark has no material contracts with customers being comprised by IFRS 15. As a consequence, the standard is not expected to materially change Topdanmark Group’s accounting policies.
The fair value, on the date the option is granted, is included in staff costs in the income statement, with the relevant credit shown as a change in equity. The fair value is calculated using the Black & Scholes model.
Allocated investment return net of reinsurance in life insurance The investment return is calculated as the overall investment return in the life insurance group net of the proportion of the investment return relating to illness and accident insurance and the proportion transferred to shareholders' equity in accordance with the definition of profit reported to the DFSA.
All financial assets included in "other financial investments assets" and "investment assets related to unit-linked products" are measured at fair value with any value adjustment taken to the income statement.
Note 4. Taxation Current tax 11 12 Change in deferred tax 0 (2) Taxation (income) 11 11
Note 7. Share capital DKK Share capital at 1 January 105,000,000 95,000,000 Reduction in capital (10,000,000) (5,000,000) Share capital 95,000,000 90,000,000 Each of Topdanmark's 90,000,000 (2016: 95,000,000) shares has a nominal value of DKK 1. No share enjoys any special rights. The shares are freely tradeable. Each share has one vote.
Based on the work we have performed, we conclude that the management commentary is in accordance with the consolidated financial statements and the parent financial statements and has been prepared in accordance with the requirements of the Danish Financial Business Act. We did not identify any material misstatement of the management commentary.