• The assumed combined ratio of 95 - 96% has been extraordinarily affected by the recent winter weatherrelated claims that exceeded a normal level by 3 - 4pp. The underlying assumed combined ratio for 2010 is around 92% excluding any gains on / strengthening of claims provisions.
The DKK 213m reduction in technical result was primarily due to lower gains on the claims provisions, price cuts, the lower interest rates and a deteriorated claims trend.
The technical result declined DKK 165m to DKK 37m in 2009.
Customers are divided primarily between the two companies, Life I and Life V, on the basis of when the policies are written: those written since 1 July 1994 with guaranteed pension benefits of 2.5% and 1.5% are placed in Life I which is also the company for new withprofit customers. Unit-linked schemes are written by Topdanmark Link. Schemes written before 1 July 1994 with guaranteed pension benefits of 4.5% have been placed in Life V.
In 2009 DKK 14m of premium income and DKK 2m of payments into investment contracts were due to transfers from other group companies (2008: DKK 45m and DKK 9m).
Loss participation only applies to with-profit products and furthermore it is not deductible in the event of retirement, death and disability.
Credit bonds with a rating lower than BBB (DKK 377m) comprise senior secured bank loans and high yield bonds, part of which are convertible, and subordinated bank capital issued by EU banks (tier 1: DKK 35m). Credit bonds with a rating of BBB and A (DKK 353m) are ordinary and convertible corporate bonds, annuity policies and subordinated bank capital issued by EU banks (tier 1: DKK 78m, tier 2: DKK 24m). Credit bonds with a rating higher than A (DKK 39m) are corporate bonds.
Most insurance companies in the Danish market have given notice of price increases which will have effect in both 2010 and 2011. They have been implemented primarily in house and contents insurance due to the increase in theft and fire claims. Several companies have
In recent years the insurance sector has seen significant claims inflation particularly in house and contents insurance due to a combination of more organised professional crime, an increase in insurable valuables and higher wages and the cost of materials. It is believed that the growth in claims inflation has peaked and will drop during 2010 because the recession has curbed the pressure on demand for wages and materials. Furthermore the police have stated that they intend to allocate more resources to fight home burglaries. Overall it is believed that the underlying claims inflation for house and contents insurance will be slightly lower than the expected price increases estimated to be 3% in 2010.
In recent years, there has been an increase in interest in taking out pension schemes to ensure a better standard of living, which is a result of the continued increase in life expectancy and the awareness of a need to establish personal pension savings plans. In spite of this it is expected that overall the life insurance and pension fund market will not see the same growth as in those years prior to 2009 due to the effect of the global financial crisis and the resulting increase in unemployment combined with the tax reform's limitations on the deductibility of term life insurance premiums to DKK 100,000. However, in the years leading up to and including 2009 the banks and savings banks traditionally had a large share of the term life insurance market. The tax reform changed the rules
• The recession will continue into 2010 with an adverse effect on premiums of 1 - 2%
DKK 100m of the assumed annual weather-related expenses of DKK 150m relates to storm claims while DKK 50m is assumed to relate to cloudburst claims. Typically the storm season is from November into February while cloudburst claims are primarily in June, July and August. In its future profit forecasts Topdanmark will assume the following level of weather-related claims for coming / current financial years: • At Q1 - Q3 report for coming financial year: DKK
Parent company etc. The parent company's average net financing requirements are expected to be DKK 600 - 800m in 2010. Its expenses are expected to remain practically unchanged.
Provisions for outstanding claims Traditionally, the insurance classes are divided into shorttail (i.e. those lines where the period from notification until settlement is short) and long-tail (those lines where the period from notification until settlement is long).
If there are tests that have not been met, the return will be allocated only to those tranches specified in the Articles
One year's effect of increase in interest rates 133 Non-recurring effect of increase in interest rates (42)
Solvency II The intention is that Solvency II will be based on market values and actual risk calculations. As Solvency II should also be simple to use, it is expected that the Solvency II standard model will generally calculate a much larger solvency requirement than a risk-based precisely calculated requirement, particularly in respect of insurance risks. Therefore Topdanmark uses its own model for non-life insurance risks to calculate this proportion of the risk, which is expected to be approved by the DFSA as an internal Solvency II model by 2012. The inclusion of non-life risks in the individual solvency requirement has been based on this model. Topdanmark will continue to consider whether the internal model should be expanded to include further risk elements.
The Board of Management and Group Finance hold quarterly forecast meetings with each segment and
Corporate Governance Topdanmark's practical approach to Corporate Governance means that it is not sufficient for the Board of Directors and Board of Management to just observe a set of academic rules. Corporate Governance envelops the concept of supporting the trinity between shareholders, customers and employees.
The Board of Directors regularly considers, particularly when nominating candidates for the annual election of members to the Board of Directors, whether each candidate has been and will continue to be able to reserve the necessary time and concentration to hold the directorship in Topdanmark.
Remuneration structure Topdanmark's salary policy is intended to optimise longterm value creation at a group level. The General Meeting has adopted general guidelines for performance-related pay in accordance with Section 69b of the Danish Companies Act.
In 2009 Topdanmark sold 47,395 employee shares and employee bonds with a nominal value of DKK 29,337,739.
The value was calculated using the Black and Scholes model assuming a share price of DKK 705.72, an interest rate corresponding to the zero coupon rate based on the swap curve on 30 December 2009, future annual volatility of 22%, corporation tax rate of 25% and a pattern of exercise similar to Topdanmark's previous granting of share options, see IFRS 2 on share-based payments.
However, Topdanmark does not only wish to focus on financial equalisation after the occurrence of an insurance event. It wishes to increase its focus on loss protection in order to prevent the occurrence of an insurance event or to minimise its consequences. For Topdanmark this means responsible insurance operations which help ensure the interest of customers and shareholders go hand in hand.
Gross premiums written 5 3,980 3,208 Reinsurance ceded (9) (10) Premiums on own account 3,971 3,198
Reinsurers' share of the provisions for unearned premiums 20 85 73 Reinsurers' share of the life insurance provisions 32 32 Reinsurers' share of the provisions for claims and benefits 21 534 551 Total reinsurers' share of provisions 651 656
Claims payable on death 133 130 Claims payable on maturity 325 288 Pension and annuity payments 491 512
Completed development projects include the first phases of the Group's new claims system TopPro. Amortisation of intangible assets is primarily included in claims incurred and operating expenses. Goodwill and developm't projects under construction is subjected to an impairment test at the end of the financial year.
Total financial assets 44,438 48,895 The book value of loans and receivables at amortised cost approximately corresponds to fair value.
Financial liabilities recorded at fair value Observable inputs Held for trading: Derivatives: Group excl. life 31 Life insurance 84 Total derivatives 115 Designated at fair value: Amounts due to credit institutions: Group excl. life 2,970 Life insurance 3,605 Total amounts due to credit institutions 6,575 Total financial liabilities recorded at fair value 6,690
Note 38. Profit on life insurance The calculation of profit for those life insurance companies with portfolios of bonus-participating policies (Topdanmark Livsforsikring A/S (Life I) and Topdanmark Livsforsikring V A/S (Life V)) is regulated by the Danish Financial Business Act setting requirements on how the "insurance technical result" (before bonus contribution) should be allocated between the policyholders and the owners of the company. A risk allowance and share of the expense result are only transferred to the shareholders' equity to the extent to which the amounts can be covered by the "insurance technical result" net of the investment return.
In life insurance, premiums on own account comprise those premiums, including single premiums, which are receivable within the year, net of reinsurance, for all insurance contracts and bonus eligible investment contracts.
Debtors that are measured at amortised cost The initial recognition of debtors is made at fair value and subsequent recognitions are made at amortised cost. Amounts due from finance leases are included at the net investment in the lease contract. The debtors are regularly assessed for impairment and written down to their recoverable amount, as required. Such impairments are generally made collectively on the basis of the debtor ageing analysis. When an individual debtor is considered
Reinsurers' share of provisions for outstanding claims has been calculated as the amounts expected to be received from reinsurance companies according to the reinsurance contracts concluded. Expected future payments are discounted using a structure of interest rates. The reinsurers' share is regularly assessed for impairment and written down to its recoverable amount, as required.
Current tax assets 296 260 Deferred tax assets 7 44 1 Liquid funds 3 4 TOTAL OTHER ASSETS 343 265 TOTAL ASSETS 4,819 5,467
The disclosed emoluments paid to the Board of Management comprises the total emoluments paid to the registered Board of Management. Other companies of the Group pay part of the emoluments.
Differences from the Group's accounting policies The company's accounting policies for recognition and measurement is in accordance with the Group's accounting policies with the following exceptions: The net asset value of affiliated companies is calculated without providing for deferred tax on security funds unless it is probable that a situation creating such a tax liability will arise within the foreseeable future.
The management’s review includes a fair view of the development in the Group’s and Parent company’s activities and financial matters as well as the most significant risks and factors of uncertainty which can impact the Group and parent company.