Key features 2016 • Post-tax profit of DKK 1,536m (2015: DKK 1,170m)
Buy-back 2016 Of the overall buy-back programme for 2016 of DKK 1,650m, shares at a value of DKK 1,451m have been bought back, It is expected that the remaining shares at a value of DKK 199m should be bought back before the AGM on 4 April 2017.
Premiums earned: Non-life insurance 8,759 8,889 9,116 8,967 8,858 2,235 2,203 Life insurance 3,059 3,511 4,448 6,320 7,430 1,749 1,783
Shareholders' equity of parent company at 1 January 4,915 5,716 5,490 5,371 4,948 4,984 5,002 Profit 1,823 1,468 1,558 1,170 1,536 333 421 Share buy-back (1,200) (1,836) (1,716) (1,667) (1,524) (377) (438) Share-based payments 177 142 110 76 50 5 23 Other movements in shareholders' equity 2 0 (1) (3) (1) 1 (0) Shareholders' equity of parent company
Profit of the parent company etc. increased DKK 13m to DKK 33m due to a higher performance allowance for Topdanmark Kapitalforvaltning (asset management).
The expense ratio was adversely impacted by the increase in the payroll tax imposed on Danish financial businesses (2016: 13.6%, 2015: 12.2%), a 1.8% contractual wage increase, and non-recurring expenses for managerial adjustments, including changes in the Executive Board, cf. company announcement no. 11/2016. Furthermore, the expense ratio was adversely impacted by the lower level of premiums.
The estimated value of the shadow account increased DKK 2m to DKK 14m at the end of 2016. The shadow account results from losses in the expense groups and it is expected that it will be recognised as income in a subsequent period, when profits are generated in the expense groups that have a shadow account.
Taxation The tax charge of DKK 407m represents an effective tax rate of 20.9% (2015: 23.5%) due to a reduction in the corporate tax rate from 23.5 to 22.0 and a prior-year adjustment.
DKK 170m, broken down by quarters: • Q1: DKK 50m • Q2: DKK 25m • Q3: DKK 45m • Q4: DKK 50m
The most important risks are described in the following overview. A more detailed description is available in note 48
Life insurance risks Life insurance contracts with bonus entitlement, unit-linked contracts with no investment guarantees and group life. Most important risks Risk preferences Risk reducing activities Limited loss-absorbing buffers in the event of low interest rates.
Solvency II gives the companies the opportunity to fully or partially develop their own internal risk model for the solvency calculation. Topdanmark uses a partial internal model it has developed in-house to calculate the non-life risk.
Offices held: Member of the Boards of Directors of: • Insurance Europe (Vice President) • Insurance Sweden.
Offices held: Member of the Boards of Directors of: • DSB • DSV A/S • Ratos AB(Sweden) • Blue Square Re (Netherlands) • Skodsborg Kurhotel & Spa A/S • KNI A/S • Østre Gasværk Teater • Ny Carlsberg Glypotek.
Information on the Executive Board's responsibilities, as required by Article 80 of the Danish Financial Business Act, is shown in the Annual Report for Topdanmark Forsikring A/S.
Investment activities related to unit-linked products (5,107) (4,675) Balances with associated companies 123 15
Run-off profits / (losses), net of reinsurance 86 55 (4) (3) 83 113 Claims provisions, net of reinsurance 2,981 3,168 58 68 5,750 5,970
Note 11. Return and revaluations non-life insurance provisions Annual amortisation Provisions for unearned premiums and profit margin (28) (23) Reinsurers' share of provisions for unearned premiums 2 2 Provisions for claims and benefits (135) (115) Risk margin (2) (1) Reinsurers' share of the provisions for claims and benefits 4 4
Calculated tax on profit for the year 22.0% (2015: 23.5%) 359 427 Adjusted for the tax effect of: Returns on shares etc. not liable to tax 5 (6) Non-deductible expenses / income not liable to tax (1) 4 Change in rate of taxation (1) 0 Prior year adjustment (2) (18)
Goodwill The future cash flows are based on three years’ expected technical result and a terminal value of the segment to which goodwill relate. The expected technical results is calculated as part of an ongoing, quarterly forecast process. Primary assumptions: The calculation of premiums earned is based on the insurance portfolio adjusted to reflect the expected effect of business decisions and market development. The portfolio is indexed with the wage and salary index. Claims incurred are based on the current levels adjusted to reflect the normalised level of weather and large-scale claims. Furthermore, in general, the expected development in the level of claims and the effect of loss prevention activities are included. The levels of claims are adjusted to reflect the expected inflation. Expenses are calculated by projecting the expenditure base by the expected changes in activities and pay increases obtained through collective agreement, changes in taxes and duties etc. The result from insurance is calculated in accordance with the current reinsurance programme and adjusted to reflect known and expected changes in prices and the size of cover.
Interest charges 50 59 Costs of raising the loan capital 5 -
Claims paid relating to this year (3,263) (3,317) Expected claims payments relating to this year 6,570 6,440
Due to vacancy of one directorship part of the year, the fee paid is DKK 4,958,000
Return Assets related to products with guarantees and profitsharing 1 January 31 December (%)*
Provisioning risk 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.
Storm and rainstorms Reinsurance covers storm claims of up to DKK 5.1bn with a retention of DKK 100m. Snow loading, snow thawing and rainstorms are also covered. Reinstatement for the proportion of the cover used up is activated by payment of a reinstatement premium. In the event of another storm within the same year, there is cover of a further DKK 5.1bn with a retention of DKK 100m. In the event of a third and fourth storm, there is cover of up to DKK 670m with a retention of DKK 20m if the events occur within the same calendar year. To this should be added the cover not already hit twice by the first two storms. The cover of a third or fourth storm is dependent on the storm programme not having been hit previously by two individual storms each exceeding DKK 3.3bn. The storm programme is renewed on 1 July.
An expected higher future inflation rate would generally be included in the provisions with a certain time delay, while at the same time the result would be impacted by higher future indexation of premiums.
Reinsurance Within insurance the reinsurance companies' ability to pay is the most important risk factor. Topdanmark minimises this risk by spreading and primarily buying reinsurance cover from reinsurance companies with a minimum rating of A-. Accordingly, almost all of its storm cover has been placed with such reinsurance companies.
• Reporting on compliance risks to the Executive Board and the Board of Directors
IFRS A new range of standards, amendments and interpretations which took effect on 1 January 2016 have not resulted in changes in accounting policies.
All financial assets included in "other financial investments assets" and "investment assets related to unit-linked contracts" are measured at fair value with any value adjustment taken to the income statement.
Creditors Amounts due to credit institutions and derivatives are measured at fair value. The fair value of amounts due to credit institutions usually corresponds to their nominal value. The fair value of derivatives is calculated on the same basis as financial assets.
The effect on profits and shareholders’ equity of the transition to the new Executive Order on Financial Reports corresponds to the effect for the entire Group. See the Group note Accounting policies.
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements section of this auditor’s report. We are independent of the Group in accordance with the International Ethics Standards Board of Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and the additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements and the parent financial statements for the financial year 1 January to 31 December 2016. These matters were addressed in the context of our audit of the consolidated financial statements and the parent financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.