The Topdanmark share is a value case – not a growth case
Read more about Topdanmark’s equity story on www.topdanmark.com ¬ Share profile.
• Profit per share was DKK 74.4 (2010: DKK 77.2). • Combined ratio improved to 90.3% (2010: 93.3%).
• Combined ratio excluding run-off profits improved to 92.0% (2010: 95.7%).
• Premiums increased 1.4% in non-life insurance but declined 2.7% in life insurance.
• Topdanmark bought back own shares of DKK 1,159m. Buy-back programme was DKK 1,200m; consequently DKK 41m transferred to the 2012 programme.
Q4 2011 • Post-tax profit of DKK 350m (Q4 2010: DKK 488m). • Combined ratio increased to 89.6% (Q4 2010: 89.2%). • Combined ratio excluding run-off profits improved to 91.5% (Q4 2010: 93.2%). • Premiums increased 2.3% in non-life insurance and 16.4% in life insurance.
Profit forecast model for 2012 • Assumed combined ratio for 2012 continues at 91-92%, excluding run-off profits / losses. • Assumed premium growth in non-life insurance continues at 1-2%.
In a webcast today Topdanmark's CEO, Christian Sagild, presents the financial highlights and comments on the forecast.
In order to participate in the conference call, please phone: UK dial in number: +44 (0)20 7162 0125 US dial in number: +1 866 803 8344 quoting reference 912852 10-15 minutes before the conference asking the operator to connect you to the Topdanmark conference call – or listen to the live transmission of the call.
Contents Management’s review 1 2011 key features 3 Financial highlights 4 Profit of DKK 1,023m in 2011 5 Non-life insurance 11 Life insurance 14 Investment activities 16 Parent company etc. 16 Taxation 16 Prospects for 2012 18 Share buy-back 19 Value creation in Topdanmark 21 Risk management 32 Solvency 34 Capital model 35 The process of accounts preparation 36 Corporate Governance 41 Remuneration structure 43 CSR 43 Investor Relations 45 Annual General Meeting 45 Financial calendar 46 List of company announcements and trading reports 47 Board of Directors and Board of Management 51 Five-year summary - Group
Other movements in shareholders' equity 1 10 2 1 1 0 0 Shareholders' equity of parent company
Provisions for insurance and investment contracts: Financial ratios (parent company) Post-tax profit / (loss) as a % of shareholders' equity 31.2 (5.6) 36.6 24.1 21.1 10.2 7.2 Post-tax profit / (loss) per share (DKK) 75.0 (12.1) 92.2 77.2 74.4 33.5 26.0 Post-tax profit / (loss) per share, diluted (DKK) 73.3 (12.1) 91.7 77.0 74.4 33.5 26.0 Net asset value per share (DKK) 232.3 207.1 288.1 338.6 368.7 338.6 368.7 Share buy-back per share (DKK) 116.8 23.4 23.8 58.8 84.3 14.4 13.8 Listed share price end of period 734 687 703 738 895 738 895
Number of shares end of period ('000) 15,995 15,663 15,496 14,472 13,332 14,472 13,332
Pre-tax profit was DKK 1,349m (2010: DKK 1,506m). Trend in pre-tax result
Non-life insurance - Investment return after transfer to technical result etc. 465 179 Profit on non-life insurance 1,092 1,086 Life insurance 384 187 Parent company etc. 31 76 Pre-tax profit 1,506 1,349
Although weather-related claims increased DKK 39m and run-off profit declined DKK 45m from Q4 2010, the underlying technical result declined only DKK 4m to DKK 236m in Q4 2011 primarily due to a favourable underlying trend in the SME and agricultural sector.
Profit on life insurance declined DKK 121m to DKK 69m. In 2010 the investment return was high enough to include in income both the risk allowance and the shadow account balance of the DKK 144m. In Q4 2011 it was possible to include in income the risk allowance in Life V while the risk allowance of DKK 27m in Life I was transferred to the shadow account.
The result of the parent company etc. declined DKK 25m to DKK 13m in Q4 2011 due to an interest rate compensation of DKK 25m in 2010 relating to taxation.
Non-life insurance Danish non-life insurance market Key features of the Danish non-life insurance market in 2011: • Price increases • Premium growth of 1-2% • Weather-related claims • Retirement reform • Increase in payroll tax • Decline in interest rates • Generally improved claims trend in motor insurance etc.
It is estimated that the overall combined ratio for the Danish market was around 96% in 2011.
Most major insurance companies in the Danish market implemented extraordinary price increases in 2010 and 2011, particularly on house, contents and SME policies. Subsequently, a number of small and medium-sized insurance companies announced price increases during the year. It is believed that these price increases will have a positive effect of about 1pp on both gross premiums earned and the combined ratio.
Automatic price indexation in the personal and SME market was 2.6%, which is estimated to have an effect of around 1.5% on all insurance products. Furthermore, there was also the 1pp effect of the price increases. On the other hand, the recession and price pressure in particularly the industrial market had an adverse impact on premiums. Overall it is believed that the growth in gross premiums earned by the market was 1-2%.
It is believed that the overall combined ratio excluding any run-off profits / losses for the entire market in 2011 was around 96. However, the combined ratio for each company differs significantly. Generally, the combined
ratio for major companies was lower than the average whereas the combined ratio for small and medium-sized companies was higher.
Premiums benefitted 1.7pp from automatic price indexation and 1.1pp from price increases. Furthermore, in 2011 premiums benefitted from a lower level of negative premium adjustments for the previous year than in 2010 corresponding to a positive effect of 0.3pp.
As announced in the 2010 Annual Report Topdanmark sold the portfolio of Nykredit Arbejdsskadeforsikring (workers' compensation insurance) to Gjensidige Forsikring with effect from 1 January 2011 having a 0.4pp adverse effect on premiums.
Besides this significant rainstorm there were a number of smaller claims due to lightning strikes and rainstorms totalling DKK 25m.
The claims trend in motor insurance improved 0.6pp due to, among other factors, the mild winter of Q4.
The claims level in I/A before run-off was relatively low which, seen in isolation, improved the claims trend by 0.4pp.
Fire claims, before reimbursement from the reinsurance companies, increased DKK 78m due to an increase in large-scale claims in SME and Industrial, in particular the fire in the KB Hall in Q3 which caused claims estimated to be DKK 95m gross and DKK 25m after reimbursement from the reinsurance companies. Fire claims after reimbursement from the reinsurance companies had a 0.3pp adverse effect on the claims trend.
Expense ratio (combined ratio) improved to 90.3% (2010: 93.3%); excluding run-off profits the combined ratio improved to 92.0% (2010: 95.7%).
Weather-related claims of the year had a 3.3pp effect on the claims trend which was 1.3pp higher than a normal level of DKK 170m. Accordingly, the underlying combined ratio was 90.7% (2010: 92.7%) excluding run-off profits.
Claims incurred (1,464) (1,587) (6,456) (6,773) Expenses (350) (351) (1,320) (1,365) Net reinsurance (106) (35) (204) 312
Two storms in Q4 caused total claims of DKK 69m. In Q4 2010 weather-related claims were DKK 30m.
Premiums earned increased 0.8% to DKK 4,756m in 2011 and in Q4 growth was 0.9%. On the one hand growth was affected by the price increases implemented in house and contents insurance and on the other hand lower sales through banks. Furthermore, it was affected by a decline in premiums earned in I/A due to the termination of the major customer relationship referred to above.
Competition is severe, particularly in motor insurance. Premiums earned declined 2.8pp due to both competition and a general trend towards more small cars.
The claims trend improved 1.3pp to 74.4% in spite of the rainstorm in July which had a 1.0pp adverse effect on the claims trend. Price increases improved the claims trend by 1.5pp while the remaining improvement was seen in motor and I/A insurance.
Run-off profits were DKK 23m in 2011 (2010: DKK 173m) which had a 3.2pp negative effect on the claims trend as compared to 2010. The run-off result in 2011 was a combination of a loss on I/A and profits on, for example, accident and unemployment insurance.
Run-off profits were DKK 125m in 2011 (2010: DKK 31m) giving a 2.4pp positive impact on the claims trend. This run-off profit relates primarily to workers' compensation.
The combined ratio improved to 90.5% in 2011 (2010: 96.7%). Excluding run-off profits it declined to 93.7% (2010: 97.5%.)
Life insurance Danish life and pension market In 2011 the Danish life and pension market was characterised by: • Decline in payments into pension savings due to the financial crisis and limitations on deductibility • Increase in competition between insurance brokers and insurance companies • Historically low interest rates for with-profit schemes • Introduction of a new discount rate curve
After many years experience of a continued increase in payments made into pension savings, in 2010 and 2011 the market was characterised by a decline in payments, primarily due to the consequences of the rules which were introduced in 2009 limiting the deductibility of payments into term life insurance and terminable annuities to DKK 100,000. This both intensified competition in the market and increased the focus on costs, product alignments etc., which, among others, resulted in several companies reducing their indirect expenses on pension schemes.
In the past year the life and pension market was also affected by very low interest rates which challenged the guarantees and were one of the reasons why in 2011 a number of companies were compelled to lower their interest rates for with-profit schemes to an historically low level.
Profit on life insurance activities comprises the sum of the profits generated by Life I and Life V plus the financing result of Life Holding. These profits were calculated in accordance with the stated policy on the calculation of profit for the life insurance companies, see www.topdanmark.com → Investor →Business → Life insurance → Policy for the calculation of profit in life insurance.
Shadow account end of period 0 0 0 112 2 114
Most of the customers are spread across the three companies, Life I, Life V and Link. Policies written since 1 July 1994 with guaranteed pension benefits of 2.5%, 1.5% and 0.5% are placed in Life I which is also the company for new customers with guaranteed benefits. Unit-linked schemes are written by Topdanmark Link. Schemes written before 1 July 1994 with guaranteed pension benefits of 4.5% are placed in Life V.
The investment return on shareholders' equity was 4.9% in Life I and 4.7% in Life V in 2011. The investment return on shareholders' equity is different from that on customers' funds due to different investment strategies and separate portfolios for each; for example, at present shareholders' equity does not invest in equities nor does use instruments to hedge the guaranteed benefits.
Topdanmark has chosen to use the new interest rate curve adjusted for country spreads. Furthermore, Topdanmark has adjusted the mortality rate to better match expectations, see Accounting policies. The individual and collective bonus potential is affected by these changes but they have only a marginal impact on the result and shareholders' equity.
There was an overall increase of 33.9% in premiums in unit-linked pension schemes. Regular premiums increased 2.9% to DKK 520m in 2011 and single premiums 75.0% to DKK 667m. The share of new business written by unit-linked savings increased to 52.6% in 2011 (2010: 46.2%).
19m was transferred to the shadow account in 2011. However, the investment return on shareholders' equity increased DKK 22m to DKK 28m.
Rate of interest on policyholders’ savings in 2011 and 2012 On 1 December 2011 the rate of interest on policyholders' savings in Life I before pension return tax was reduced to 2.25% from 3.25% while the rate of 4.35% in Life V has been maintained. As in previous years these rates may be subject to change later in the year if the development in the financial markets is different from expectations.
Due to the development in the financial markets with a decline in equity prices and declining interest rates, Life I introduced loss participation in 2011. As long as the loss participation scheme is in force the risk allowance of Life I will be transferred to the shadow account to be included in income in a subsequent period. The loss participation scheme is calculated and adjusted once a month. The most recently calculated loss participation is 1% for the portfolio guaranteed an interest rate of 3%.
Investment activities Topdanmark Group excluding the life insurance group The investment return in the Topdanmark Group excluding life insurance was DKK 622m in 2011 including a revaluation of provisions and income from associated companies but before the transfer to the technical result (2010: DKK 879m).
It is Topdanmark's policy 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 others, equities, properties and CDOs in order to improve the average investment return. The return in Q4 2011 and 2011 on the most significant classes of assets is disclosed in the following table: (DKKm) % (DKKm) % (DKKm) % (DKKm) %
The exposure in foreign equities and credit bonds has been adjusted by use of derivatives. The return percentages are calculated as the ratio between the return on financial instruments and the size of the exposure of the underlying asset. The return on government and mortgage bonds and assets related to I/A (illness/accident) includes revaluations of claims provisions.
The post-tax equity exposure was DKK 615m (pre-tax: DKK 820m) excluding associated companies but including the impact of derivatives.
The class of government and mortgage bonds comprises primarily Danish mortgage bonds and revaluation of technical provisions. In addition, there are government and covered bonds and derivatives. Covered bonds are AAA-rated mortgage bonds where the size of the loan may not exceed 70% of the value of the security. If the value of the security declines so much that the requirement is not fulfilled, the issuer will provide further security.
The underlying assets of CDOs are mostly senior secured bank loans (DKK 524m) while the remainder are primarily CDOs with investment grade investments as the underlying assets.
"Capital base" comprises hybrid capital issued by the parent company and subordinated loans issued by Topdanmark Forsikring. "Interest-bearing debt" comprises other debt.
It is expected that Solvency II 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, when Solvency II has taken effect, 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 financing in excess of its capital base.
However, until Solvency II takes effect, Topdanmark is subject to Solvency I, in accordance with which in its solvency cover it is only allowed to use a small portion of the tier 2 capital issued as solvency resources in relation to Solvency II. As a consequence, some of the planned distribution of dividend from the insurance group needs to be postponed until Solvency II takes effect. In the meantime the parent company Topdanmark continues to have some loan financing via intergroup accounts with the insurance group or in the money market.
Taxation The tax charge was DKK 326m on a pre-tax profit of DKK 1,349m corresponding to an effective tax rate of 24.2% (2010: 22.5%). Most of the tax charge is paid in Denmark, see "Tax payment" in the CSR report on www.topdanmark.com → Investor → Report and presentations → CSR reports.
Prospects for 2012 Expected trend in Danish non-life insurance market It is expected that in 2012 the Danish non-life insurance market will be characterised by: • Continued low economic growth • Positive – but lower impact of price increases • Taxation of health insurance policies • 1.5-2% growth in premiums • Lower interest rates
Overall, excluding any run-off profits / losses, the combined ratio is expected to be around 96.
2012 is expected to be affected by continued low economic growth. It is expected that BNP growth in the Danish economy will be around 1.0%.
The Danish Finance Act for 2012 provides future taxation of the value of health insurance policies, which is expected to have a 10-25% adverse effect on the portfolio of health insurance policies.
In the personal and SME markets automatic price indexation, allowing for claims inflation, is 1.9% which, in turn, is estimated to have an overall increase of around 1.3% on all insurance products. Prices in the industrial market are expected to continue to be under pressure in 2012 due to competition from, among others, foreign insurance companies. Including the effect of price increases growth in gross premiums earned is estimated to be 1.5-2%.
Interest rates declined markedly in 2011, particularly in Q4. If interest rates remain at the low level seen at the turn of the year, the combined ratio will deteriorate by around 1.5pp in 2012 from the previous year.
Assuming a normal level for large-scale claims, it is expected that the combined ratio for the market, excluding any run-off profits / losses, will be around the 2011 level of 96%.
It is expected that overall payments into pension savings in 2012 will not exceed the 2011 payments. The rate of increase is expected to follow wage increases in the future.
Since the most recent profit forecast model was published in the Q1-Q3 2011 report interest rates have declined causing a 0.5pp increase in the combined ratio. None of the other material assumptions have changed.
Life insurance Due to the limitation on deductibility of term life premiums, the sale of term life insurance schemes is expected to be lower in 2012 than in 2011. On the other hand, as a direct consequence of the reduced deductibility, Topdanmark Livsforsikring expects to increase the sale of annuities through its alliance partners Nykredit and Sydbank.
Overall Topdanmark assumes a decline in regular premiums of around 5%.
In the profit forecast model for 2012 it is assumed that the investment return will be sufficiently high to include an allowance for risk in income. It is also assumed that at the end of 2012 a net amount of DKK 90m from the shadow account will be included in income, after which the balance of the shadow account will be around DKK 30m.
from the level on 23 February 2012. Furthermore it is assumed that the return on interest-bearing assets hedging the discounted provisions is just sufficient to cover discounting and revaluation of the provisions while the return on the remaining interest-bearing assets is assumed to be 2.89% (risk-free interest rate plus 2.0pp.)
Overall the pre-tax result of life insurance is assumed to be DKK 380-410m.
Topdanmark's profit forecast model for 2012 is sensitive to changes in the forecast assumptions for investment return in Life I as negative deviations of around DKK 200m will practically, krone for krone, be reflected in Topdanmark's pre-tax result.
Taxation Given a corporation tax rate of 25%, the tax charge is expected to be DKK 370-410m.
This profit forecast model is subject to an annual 7.0% return on equities and unchanged foreign exchange rates
Non-life insurance - Investment return after transfer to technical result etc. 179 350 – 400 Profit on non-life insurance 1,086 1,120 – 1,220
Share buy-back In the Q1-Q3 interim report for 2011 it was announced that the share buy-back for the year was unchanged at DKK 1,200m.
In 2012 it is intended to buy back own shares of DKK 1,300m including the buy-back of DKK 41m transferred from 2011. The buy-back of DKK 1,300m assumes a profit in line with the profit forecast model of DKK 1,150-
In 2011 the actual share buy-back totalled DKK 1,159m representing a buy-back yield of 9.9%. The share buy-back programme for 2012 represents a buy-back yield of 10.6% (calculated on the basis of the price of Topdanmark's shares on 23 February 2012).
Value creation in Topdanmark Topdanmark's focus on value creation is based on its value creation model.
Topdanmark's value creation efforts are intended to increase its current cash flow while at the same time reduce the discount rate used by the market to discount the future cash flow to net present value.
Topdanmark's systematic value creation efforts have built a strong business model which, with relatively limited financial risk, substantially ensures a profit is made even in years with devastating financial markets.
Topdanmark is a significant buyer of work time and materials. Therefore it is focusing on utilising the Company's purchasing power.
• Topdanmark has an internal Lean concept (TRIM) which regularly reviews relevant departments in the Company in order to create efficiency gains.
Activities under customer satisfaction • Topdanmark sponsors "the Golden Four", Denmark's most winning rowing boat ever, having won, among others, gold medals in three of the last four Olympic Games. The sponsorship is aimed internally at Topdanmark's 950 customer-oriented service and claims employees. Based on the working methods used by "the Golden Four", it is intended to motivate and inspire employees to provide even better customer service.
Financial goals Topdanmark's operational goals in non-life insurance are unchanged: Premium growth • To ensure that growth in gross premiums earned is 1pp higher than ordinary indexation, adjusted for any price changes.
Earnings • To ensure a profit margin of 10% which, given the current level of interest rates, corresponds to a combined ratio of around 91% excluding any run-off profits / losses.
In this light it is Topdanmark's opinion that the Company's future annual results would, with a very high probability, be a profit even in the event of, for example, another breakdown in the financial markets as in 2008.
• Credit risk The Board of Directors determines the overall risk policies and limits. The internal auditors report to the Board of Directors on, among other things, the observance of the risk policies and limits set within them.
Review Topdanmark's acceptance policy is based on a desire to make a profit from both products and customers. Topdanmark varies the pricing of its products depending on the relevant risk criteria and the costs of administering those products.
Topdanmark's risk management relates to the following main areas: • Insurance risk • Market risk
Typically, the claims department operates with day-to-day management of claims notifications and other claims handling in order that the value of the claim does not increase. Simple notification is attended to immediately over the telephone. The time it takes to handle a claim is continuously monitored.
Claims handling supported by a new claims handling system Topdanmark has implemented a new claims handling system intended to support, among other things, professional accuracy. From measurements taken of the system it can be seen that there has been a significant improvement in the quality of claims handling.
The claims organisation has implemented the Lean / TRIM concept in several departments where it has improved the time it takes to handle a claim, the quality of the claims handling and employee satisfaction.
Customers’ satisfaction with telephone and internet contact is monitored daily to act immediately on dissatisfied customers.
Emergency plan Topdanmark has an emergency plan to ensure that prompt, correct and targeted action is taken on a major weather event such as storm, hurricane, rainstorm or flood. The emergency programme is on several levels which enables a proportional response depending on the size of the event. Topdanmark has appointed emergency helpers throughout the company whose claims handling knowledge is regularly kept up-to-date. Furthermore alert drills are held twice a year in order to prepare the employees and improve the emergency programme.
Topdanmark's level of provisions for change of ownership policies is based on statistical analyses of the pattern of claims notifications as compared to the remaining period of the policies.
Examples of short-tail lines are building, personal property and comprehensive motor insurance. Long-tail lines relate to personal injury and liability: workers' compensation, commercial liability, accident and third party insurance.
In the event of a third or fourth storm in the same year there is cover up to DKK 670m with a retention of DKK 20m. Most of the cover of the third and fourth storm is dependent on it not having been hit previously by two individual storms each exceeding DKK 3.8bn.
Unlike other reinsurance cover, which follows the calendar year, the storm programme is renewed annually on 1 July.
Topdanmark has specific reinsurance cover of DKK 100m for rainstorms. This cover takes effect if accumulated annual rainstorm claims exceed DKK 50m. For a claim to be accumulated, the event must exceed DKK 10m. Topdanmark's maximum retention in the event of an extreme rainstorm is DKK 75m plus reinstatement premiums.
A national guarantee scheme of DKK 15bn covering terror claims including an element of NBCR (nuclear, biological, chemical, radiological) was established on 31 March 2010. The Danish Terror Insurance Board decides whether an event is an NBCR event or not. The national guarantee scheme covers any market retention in excess of DKK 5bn. On 1 January 2011 the Danish non-life insurance companies established a terror pool to protect the market retention, with each company's share of the pool being based on its market share of the non-life insurance market.
Unknown cumulative risk is where several policyholders could suffer from the same individual event without the common risk being recognised prior to the event occurring. An example of this is the fireworks disaster in Seest in 2004 when many personal, commercial and
Floods and storm-damaged forests Danish insurance companies do not cover damage arising from floods, including those from lakes and streams, or the cost of replanting forests following storms. These types of claim are covered by the Danish Flood Fund which is a self-sustaining, public fund financed by an annual fee of DKK 30 per fire policy charged on to the customers by the insurance companies.
Interest rate risk Topdanmark's provisions for outstanding claims are recorded net of discount using the DFSA's current adjusted discount rates (however, the new discount rates adjusted for country spreads are used in illness and accident insurance). The resulting interest rate exposure is alleviated by investing in interest-bearing assets in order to reduce the overall interest rate exposure of the assets and liabilities to the desired level. When calculating the interest rate exposure, the Group's debt is included on the same basis as the calculation of the assets.
The interest rate exposure is calculated as the value of the change in the event of a 1pp parallel shift in the interest rate curve ignoring convexity.
Liquidity risk In 2007 the parent company Topdanmark issued EUR 55m (nominal value) of hybrid capital (subordinated notes). This hybrid capital has no defined maturity and in terms of capital management it is considered to be equivalent to shareholders' equity. In the years 20072009 Topdanmark has issued DKK 75m of employee bonds with a five-year maturity. Topdanmark also finances its activities by using its subsidiaries' surplus liquidity via inter-group accounts. If Topdanmark has further financing requirements, they are covered by shortterm money market loans, with a typical maturity of a maximum of one month. Outstanding debt is reduced after receiving dividends from the subsidiaries. To secure a sufficiently liquid base in situations where the possibility of utilising the sources of financing previously used might decline, Topdanmark has purchased an irrevocable right to raise loans on normal terms. This right comprises a loan of up to DKK 500m with expiry no later than in 2013.
The old contribution order treated the elements of interest rates, risk and cost result as one single item in the "insurance technical result before bonus", which allowed for a set-off of losses of one group against profits of another. The new contribution order requires that the "insurance technical result before bonus" be distributed
Looking at it simply, the individual bonus potential is calculated as the difference between the customer’s savings and the market value of the accrued commitment earned by the customers at the time of the calculation. If the market value of the customers’ share of the assets is lower than their savings, the individual bonus potential will be reduced. Thus the individual bonus potential also acts as a buffer against fluctuations in the value of the customers’ share of assets and liabilities. A significant proportion of the individual bonus potential in Life I can be used before its shareholders' equity would be affected. In Life V the adverse fluctuations exceeding the value of the collective bonus potential will be partially covered by a reduction in the individual bonus potential. The remainder will be covered by shareholders’ equity. As the total individual bonus potential was DKK 2,228m in Life I and DKK 78m in Life V at 31 December 2011, together they represent considerable protection of shareholders’ equity.
Hedging / guaranteed benefits The Group has guaranteed that policyholders will receive a pension benefit of 0.5%, 1.5%, 2.5% or 4.5%, according to when the policy was written. These benefit guarantees are linked to the risk of a downturn in the financial markets.
Topdanmark changed its bonus rules in 1998 with the effect that any bonus added to the individual policy would be included to cover the overall pension benefits until expiry. Previously the bonus was used for an annual improvement of the guaranteed pension benefits.
In January 2004 all the 4.5% policies were transferred to a newly established company (Life V), the investment policy of which is intended to ensure that the company can meet the benefits guaranteed. The proportion of equities is low and most of the interest rate risk in liabilities has been hedged.
guaranteed by top-rated European states. The risk of losses is considered to be very small due to the high quality of the issuers and a desired spread on both issuers and issues. To limit the risk on other bond and loan debtors the portfolio is well diversified both geographically and with regard to type of debtor - and therefore the exposure to the concentration of risks is insignificant. To limit the counter-party risk of financial contracts the choice of counter-parties is restrictive and security is required when the value of the financial contracts exceeds the predetermined limits. The size of the limits depends on the counter-party's credit rating and the term of the contract.
CDOs CDO is a general term for a class of independent legal entities established to invest in a portfolio of interestbearing assets and allocate the return in accordance with the investors' risk appetite.
Topdanmark is continuing to develop IT systems, routines and procedures. The responsible business units are also responsible for the risk management of this development. Risk assessments are carried out for all projects to establish the risks, possible consequences and measures to limit these risks, combined with the implementation of new IT systems only being effected after extensive testing.
In order to reduce the probability of breakdowns of the IT systems and limit the duration of them, Topdanmark has invested in, for example, emergency power plants with a diesel generator, disk mirroring, alarms and automatic fire fighting equipment. Critical IT equipment is in duplicate and placed in two physically separated machine rooms.
If all the events of the table occurred at the same time, the losses would to a great extent be covered by the collective and individual bonus potential. The overall effect for Topdanmark would be a loss of DKK 492.1m (2010: DKK 592.2m) representing 10.0% (2010: 12.1%) of the parent company's shareholders' equity.
Life Rest of effect on company's net asset insurance Topdanmark Group sharehold- value
The scenarios above show a "here and now" effect of the events stated.
It is illustrated below: A 1pp parallel shift upwards in the zero-coupon rate structure would have the following overall immediate effect on the results for the investment assets and existing provisions of the Topdanmark Group: However, the higher interest rates would also result in a better return on Topdanmark's interest-bearing assets and a lower loss ratio.
Those rules imposing the greatest requirements on the Topdanmark Group's capital are the rules on individual solvency requirement, and in reality these rules are included in Topdanmark's capital planning.
The companies are to calculate a solvency requirement representing their minimum required capital based on the risks they accept. Additionally the companies are required to provide documentation for how they identify, manage, limit and calculate risks.
The DFSA's guidance prescribes no specific methods to calculate individual solvency requirement, thus companies may choose their own calculation methods but are to address all significant risks.
Topdanmark bases its calculation of individual solvency requirement on the expectations available for the future rules on solvency calculation under Solvency II, specifically the most recent Solvency II test calculation QIS5 from the EU which is not the final calculation model but Topdanmark considers it to be the most relevant, but with significant additions: • For non-life insurance risks Topdanmark uses an internal model with a random simulation of the risk. • For the life insurance companies Topdanmark follows the DFSA's supplementary recommendations for the QIS5 model.
• Alignment of the calculation of individual solvency requirement to expected significant changes in the final set of rules.
The Solvency II rules have been divided into three levels. Level 1 is a directive which was adopted in 2009 and is expected to be changed in the spring of 2012. Level 2 is available as a draft regulation. Drafts are only available
for some of the Level 3 rules which will be available as guidelines. The process of adopting the rules of Levels 2 and 3 is awaiting the changed directive. The final rules at all three levels are not expected to be in place until mid2013 at the earliest, creating continued significant uncertainty, in particular, on the specific formulation of the very detailed and cost-intensive reporting to the DFSA as required by Solvency II.
Today Topdanmark uses a risk model it developed inhouse to calculate the non-life risk. The inclusion of nonlife risks in Topdanmark's calculation of the individual solvency requirement has been based on this model.
In its 2009 and 2010 Annual Reports Topdanmark reported that the necessary solvency capital to meet the Solvency II requirements would be in place in 2012. Up to now the necessary solvency capital has been forecast to be DKK 4,500m before allocation of solvency capital for growth in 2009 to 2011. Topdanmark's premium growth in that period has not caused any changes in the forecast but due to declining interest rates, provisions – particularly those for outstanding claims – have increased. As the solvency requirement from the primary business is dominated by the solvency requirement caused by the risk of provisions, the forecast for the necessary solvency capital is being increased from DKK 4,500m to DKK 4,700m in 2012.
The solvency requirement of DKK 4,700m for the Topdanmark Group under Solvency II has been based on an expected approval of Topdanmark's internal model for non-life insurance risk. If it is not approved, the solvency requirement under Solvency II will increase by DKK 600700m. This potential increase in the capital requirement can broadly be covered by the safety margin of DKK 500m referred to above supplemented by a marginal adjustment of the financial risk.
The three most important elements of this project are to prepare new, very detailed external reports to the DFSA and for publication on the website, to adapt data processes and calculation methods in the life insurance business and to adapt Topdanmark's own risk model for non-life insurance risk to be approved as a partial, internal model under Solvency II.
The RSR and QRT reporting to the DFSA and the SFCR reporting for publication on the website are the most resource-demanding part of the Solvency II project. This reporting is extensive.
The externally imposed prudence following the financial crisis has forced Topdanmark to operate with a higher solvency capital than what is required by its risk base. Against this background Topdanmark needs to meet the regulatory requirements in the most cost efficient way through the composition of tier 1, tier 2 and tier 3 solvency capital. The immediate consequence of this is that much of the financing should be by way of tier 2 and tier 3 solvency capital but Topdanmark believes that the uncertainty of the refinancing of such supplementary capital requires some discretion.
At 31 December 2011 Topdanmark’s share capital totalled DKK 148,258,960 divided into 14,825,896 shares of DKK 10 each, corresponding to 14,825,896 voting rights. As of 6 March 2012, Topdanmark holds 1,642,000 of own shares representing 11.1% of the share capital, of which 566,104 shares are earmarked to cover Management's share option scheme.
Control environment The Board of Directors has adopted a working plan to ensure that at least once a year it considers the Group's: • Risk profile and policies • Organisation • Plans and budgets • Risk of fraud • Existence of internal rulings and guidelines
The Board of Directors and the Board of Management have adopted a number of policies, manuals, procedures etc. for significant areas of the accounts preparation. The Board of Directors has adopted, among other things, a risk management policy, a policy and guidelines for operational risks, a data quality policy and a reporting policy.
The working plans adopted for the audit committees include: • Monitoring of the process of accounts preparation including regular checks and assessment of annual and interim reports, schedules for closing of interim accounts, the organisation of and abilities within the accounting function as well as material accounting policies and accounting estimates.
• Monitoring of the efficiency of internal risk management and control systems including the checking and assessment of systems for identification, quantification, prioritisation and prevention of financial and operational risks, checks and assessment of incentive to accounting manipulation or other fraud and management reporting intended to prevent / identify and respond to accounting manipulation.
The Board of Directors regularly and at least quarterly takes a position on budget and forecast, capital, liquidity, material decisions and specific risks.
Control activities The control activities are based on the risk assessment. They are intended to ensure that the policies, manuals, procedures etc. decided by the Boards of Directors and Management are observed and errors and faults are prevented or found and corrected in time.
The Group's two finance functions, Life Finance and Group Finance, prepare internal account reporting, profit forecasts etc. and are responsible for controlling the accounts, including reconciliation of internal accounts and reporting of deviations from forecasts.
The Board of Management and Group Finance hold quarterly forecast meetings with each segment and business sector to review changes in their portfolios, the results of the past period and the forecast for the year.
Information and communication The risk management and internal controls surrounding the preparation of the accounts are intended to present an annual report which meets International Financial Reporting Standards as adopted by the EU and the additional Danish disclosure requirements of NASDAQ OMX, Copenhagen and the Danish Financial Business Act on annual reports prepared by listed financial services companies.
This is done by, among other things, incorporating and maintaining a responsible company culture with good management throughout the organisation. Topdanmark has a decentralised organisational structure based on framework control. In the day-to-day activities homogenous behaviour is supported by a set of management and customer-oriented values, see (in Danish not available in English) www.topdanmark.com → Job og karriere → Vores arbejdsplads → Ledelsesprincipper.
The Board of Directors has been focusing on Corporate Governance for a number of years and has regularly aligned the Company's Articles of Association etc. with the principles of Corporate Governance.
In accordance with this Act the number of Board members elected by employees should be equivalent to no fewer than half the number of those elected by shareholders in general meeting. The rights, duties and responsibility of the Board members elected by employees are the same as those of the Board members elected by shareholders in general meeting.
Topdanmark’s current Board of Directors reflects diversity in many areas including professional background and education, sex and age. Its members have experience from both the financial, industrial and agricultural sectors, nationally and internationally. The Board of Directors believes that this composition enables it to consider a given problem from many different angles which is confirmed by experience from the day-to-day Board work. Read more about each Board member’s background and competence on www.topdanmark.com → About
Four of the nine Board members are women, one of them elected by the general meeting and three by Topdanmark's employees. The proportion of female Board members elected by the AGM has been stable since 2004. In 2011 the number of female Board members elected by employees increased from one to three.
The Board of Directors evaluates its work and its cooperation with the Board of Management as required, without the participation of the Board of Management. Taking this evaluation into account, the Board of Directors
The details of the background, qualifications and occupation of the members of the audit committee are available in Board of Directors and Board of Management in this report. The Board of Directors believes that due to their many years' managerial positions in listed and financial services companies, and in respect of Søren Thorup Sørensen also his educational qualifications as a state authorised public accountant, all three members possess the necessary accounting qualifications to perform the tasks required of the audit committee.
Therefore the Board of Directors firmly believes that all three members of the audit committee possess the qualifications and experience which enable them to make an independent assessment of whether the Topdanmark Group's accounts, internal control, risk management and statutory audit have been prepared and performed in an appropriate way considering its size and complexity.
The Board of Directors believes that due to their many years' managerial positions in listed and financial services companies both members possess the necessary qualifications to make a qualified and independent assessment of whether remuneration in Topdanmark is in accordance with the remuneration policy adopted by the AGM and relevant legislation. The details of the background, qualifications and occupation of the members of the remuneration committee are available in Board of Directors and Board of Management in this report.
The remuneration committee holds two ordinary meetings a year. The objective of the work of the remuneration committee is to make an independent evaluation of whether Topdanmark's remuneration policy and other remuneration matters are appropriate and observed in respect of the Company's and Group's size and complexity and in accordance with relevant legislation. Furthermore, the remuneration committee is in charge of the preparatory work for the decisions to be made by the Board of Directors on remuneration, including the policy on salaries, the relevant rules of procedure and other decisions in this respect which may influence the
In August 2011 the Committee on Corporate Governance published its latest version of recommendations for Corporate Governance in Denmark. They are available to the public on the Committee's website www.corporategovernance.dk.
In accordance with Section 131 of the executive order on financial reporting for insurance companies and lateral pension funds, Topdanmark is liable to outline in its annual report its approach to the recommendations. The outline should follow the "comply or explain" principle which has been decided at EU level and follows from Provision 4.3 of Rules for issuers of shares issued by NASDAQ OMX Copenhagen.
On its website Topdanmark discloses information on holding of shares, options etc. at a group level, for the entire Board of Directors and the entire Board of Management etc., see note.
5.10.7: • The Committee recommends that the supreme governing body establish a nomination committee with at least the following preparatory tasks: Describe the qualifications required in the two governing bodies and for a given position, state the expected time commitment for a position and evaluate the balance of skills, knowledge and experience available in the two governing bodies.
Identify and recommend to the supreme governing body candidates for the governing bodies.
The recommendation does not seem well-founded, particularly considering that the Recommendations say that the tasks of the nomination committee may be performed by the entire 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
Detailed information on Topdanmark's initiatives on Corporate Governance, including a review of its response to each item of the Committee on Corporate Governance's "Recommendations for Corporate Governance, August 2011" is available on www.topdanmark.com → Investor Relations → Corporate Governance → Recommendations. This information is regularly updated.
The remuneration package of the Board of Management, the Friday Team and significant risk takers is based upon a fixed basic salary, 10% of which is paid as share options. Individual bonuses or other types of variable salary are not paid. The fixing of the fixed basic salary paid to the Board of Management and the Friday Team is based on a specific assessment of the employee. In its assessment Topdanmark includes, among other factors, their position, characteristics and performance.
No special pension contribution is paid to the Board of Management, and therefore they are paid a personal allowance of 25% of their cash salary. Consequently Topdanmark has no pension commitments towards the Board of Management and no type of pension compensation on retirement is granted. The Friday Team and significant risk takers receive a pension contribution of up to 25% of their cash salary. The amount is paid to the chosen pension provider and consequently all pension obligations are fully covered by them.
Employee shares Topdanmark issued employee shares in 2011. The allocation was effected simultaneous with a reduction in the recipient's cash salary.
Employee shares are not issued in accordance with an on-going published plan for allocation but each issue is specifically decided upon and managed by the Board of Directors at the time.
The options granted for 2012 may not be exercised any earlier than subsequent to the publication of the 2014 Annual Report in 2015 and no later than subsequent to the publication of the 2016 Annual Report in 2017. In the intervening period the options can only be exercised up to three banking days subsequent to Topdanmark's publication of annual and interim reports.
The market value of the options for 2012 has been calculated to be DKK 7m at the time of granting.
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.
At the end of 2011 the exposure of the options held by the Board of Management represented 1.0% of the number of outstanding shares.
Severance pay In order to ensure full loyalty, focus and performance for Topdanmark during the period until a potential take-over is finalised, Topdanmark has agreed with the Board of Management and four other members of the Friday Team that under certain circumstances they will receive compensation in the form of an extended period of notice and an increased severance pay if they resign or are dismissed, or if their position is made redundant because Topdanmark is taken over by or merges with a company outside of the Group or if one or more owners take control of Topdanmark. The maximum amount of compensation will represent two years' salary.
CSR Topdanmark's "Statutory report on Corporate Social Responsibility, see Section 132 of Executive Order on Financial Reports for insurance Companies and Lateral Pension Funds" is available on www.topdanmark.com → Investor Relations → Reports and presentations → CSR reports (
Investor Relations Topdanmark wishes to openly and sufficiently inform investors, analysts and other stakeholders on the Group's matters in order to ensure that as far as possible: • Value creating activities are reflected in a fair price for Topdanmark's shares • The liquidity of its shares is high enough in order that they are not traded at a discount due to lack of liquidity
Topdanmark endeavours to proactively reach out to investors in Denmark and abroad by using information channels such as: • Investor meetings • Telephone meetings • Conference calls • Web casts • Investment and insurance conferences
Accounting award In 2011 Topdanmark received PwC's C20 Accounting Award for its 2010 Annual Report in the category of "Business performance and follow-up on the expectations announced".
2012 02 Jan 01/2012: Issue of options 2011 19 Dec 22/2011: Topdanmark increases its holding of own shares 28 Nov 21/2011: Result of sale of employee shares 15 Nov 20/2011: Topdanmark Interim Report Q1-Q3 2011 04 Oct 19/2011: Employee shares 23 Aug 18/2011: Topdanmark 2011 Half Year Report 21 June : Topdanmark Forsikring A/S issues DKK 400m of subordinated notes (subordinated loan capital) 31 May 17/2011: Share capital and voting rights in Topdanmark 24 May 16/2011: Topdanmark's holding of own shares under 10% 24 May 15/2011: Topdanmark Interim Report for Q1 2011 23 May 14/2011: Write-down of share capital 17 May 13/2011: Capital no longer holds shares in Topdanmark 16 May 12/2011: If owns more than 20% of Topdanmark 12 Apr 11/2011: Annual General Meeting of Topdanmark on 12 April 2011 31 Mar 10/2011: Share capital and voting rights in Topdanmark 29 Mar 09/2011: Election of employees to Topdanmark's Board of Directors 18 Mar 08/2011: Notice convening AGM of Topdanmark 16 Mar 07/2011: Exercise of warrants - Topdanmark increases its holding of own shares 08 Mar 06/2011: Capital's shareholding in Topdanmark exceeds 5% 08 Mar 05/2011: Topdanmark's Annual Report 2010 28 Feb 04/2011: Share capital and voting rights in Topdanmark 24 Feb 03/2011: Topdanmark's holding of own shares under 10% 24 Feb 02/2011: CORRECTION: Write-down of share capital 24 Feb 02/2011: Write-down of share capital 03 Jan 01/2011: Issue of options
Trading reports 2012 02 Jan 01/2012: Trading in Topdanmark's shares by insiders 2011 30 Nov 06/2011: Trading in Topdanmark's shares by insiders 01 Jun 05/2011: Trading in Topdanmark's shares by insiders 26 May 04/2011: Trading in Topdanmark's shares by insiders 25 May 03/2011: Trading in Topdanmark's shares by insiders 16 Mar 02/2011: Trading in Topdanmark's shares by insiders 03 Jan 01/2011: Trading in Topdanmark's shares by insiders
Education: MSc (Economics) Offices held: Member of the Boards of Directors of: • Rossini Caviar A/S (Chairman) • Hersild & Heggov (Chairman) • kaluna Nordic AS (Chairman) • kaluna Norge AS (Chairman) • Purix ApS • Fritz Hansen A/S • Augustinus Fabrikker A/S • kk-group A/S
1991-1993: CEO, NKT Dedicom A/S 1994-1995: Managing Director, DSC Communications A/S 1995-1997: Regional Manager, Tele Danmark A/S 1997-2002: CEO, NetTest Danmark as
Offices held: Member of the Boards of Directors of: • DI's (The Confederation of Danish Industry) Research and Education Committee (Chairman) • Grundfos Holding A/S • The Poul Due Jensen Foundation • NKT A/S • Danmarks Eksportråd (Trade Council of Denmark) • DI's Governing Body • FAD (Danish Defence and Aerospace Industry) • PA (Federation of Employers in the Provincial Industry)
Knud J. Vest* DOB 6 July 1946 Joined Topdanmark’s Board of Directors: 1994 Current position held: Fur breeder, Farmer Education: Farmer Offices held: Member of the Boards of Directors of: • EFBA (Chairman) • Danish Agro • Dansk Pelsdyravlerforening/Danske Pelsauktioner (Danish Fur Breeders Association / Danish Fur Auctions)
Other activities: Member of: • Landbrug og Fødevarers Virksomhedsbestyrelse (Company Board of Danish Agriculture and Food Council) • Landbrug og Fødevarers Fællesbestyrelse (Common Board of Danish Agriculture and Food Council)
Kim Bruhn-Petersen Group Managing Director of Topdanmark A/S DOB 1956, joined Topdanmark in 1989, joined Topdanmark's Board of Management on 1 January 2006
TECHNICAL PROFIT ON NON-LIFE INSURANCE 1,601 1,824 905 660 945 LIFE INSURANCE
Allocated investment return, net of reinsurance 191 (2,143) 2,443 2,233 579
Provisions for insurance and investment contracts: Relative run-off profits, net of reinsurance (%) 3.4 5.0 2.1 1.8 1.3 * Before deducting bonuses and rebates
Gross premiums written 1 8,661 8,734 Reinsurance ceded (644) (703) Change in the provisions for unearned premiums, gross 1 (39) (26) Change in the reinsurers' share of the provisions for unearned premiums (8) 2 Premiums earned, net of reinsurance 7,971 8,008
Gross claims paid (6,351) (6,750) Reinsurance cover received 260 555 Change in the provisions for claims, gross (93) (9) Change in the reinsurers' share of the provisions for claims 107 390 Claims incurred, net of reinsurance 3 (6,077) (5,814)
Acquisition costs (748) (797) Administrative expenses (550) (543) Reinsurance commission and share of profits 80 67 Total operating expenses, net of reinsurance (1,218) (1,273) TECHNICAL PROFIT ON NON-LIFE INSURANCE 4 660 945
Change in the life insurance provisions 7 (900) 435 Change in the reinsurers' share 3 2 Change in the life insurance provisions, net of reinsurance (897) 437
Acquisition costs (120) (108) Administrative expenses (181) (201) Reinsurance commission and share of profits 0 (1) Total operating expenses, net of reinsurance (301) (309) TECHNICAL PROFIT ON LIFE INSURANCE 214 38
Technical profit on non-life insurance 660 945 Technical profit on life insurance 214 38
Income from associated companies 59 29 Income from investment properties 8 229 209 Interest income and dividends etc. 1,908 2,058
Technical interest transferred to non-life insurance business (362) (388) Pension return tax 10 (344) (138) Investment return transferred to life insurance business (2,233) (579)
Profit for the year 1,168 1,023 Revaluation of owner-occupied properties 1 1 Other comprehensive income 1 1 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,169 1,024
Shares in associated companies 18 388 385 Loans to associated companies 19 762 707 Total investment in associated companies 1,151 1,091
Share capital 171 148 Revaluation reserve 16 17 Security fund 1,104 1,104 Other reserves 20 22 Total reserves 1,124 1,126 Profit carried forward 3,241 3,275 TOTAL SHAREHOLDERS' EQUITY 4,553 4,567 SUBORDINATED LOAN CAPITAL 24 752 1,150
Creditors arising out of direct insurance operations 69 89 Creditors arising out of reinsurance operations 59 61 Bond loans 71 72 Amounts due to credit institutions 3,840 5,997 Amounts due to associated companies 11 0 Current tax liabilities 5 3
Other creditors 1,052 952 TOTAL CREDITORS 5,274 7,738 ACCRUALS AND DEFERRED INCOME 85 87 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 57,542 61,013
Cash flow from operations Gross premiums written 8,588 8,648 Claims paid (6,227) (6,641) Expenses paid (1,197) (1,239) Reinsurance ceded (258) 1 Cash flow from non-life insurance 905 770
Investment assets related to unit-linked contracts (396) (385) Balances with associated companies (300) 58
Cash and cash equivalents comprise: Liquid funds 194 241 Deposits with credit institutions 1,011 2,025
Segment information Gross premiums earned - non-life insurance 1 Technical interest, net of reinsurance - non-life insurance 2 Claims incurred, net of reinsurance - non-life insurance 3 Technical result - non-life insurance 4 Gross premiums written - life insurance 5 Claims and benefits paid - life insurance 6 Change in life insurance provisions 7 Income from investment properties 8 Revaluations 9 Pension return tax 10 Other income 11 Other expenses 12 Taxation 13 Profit per share 14 Intangible assets 15 Tangible assets 16 Investment properties 17 Shares in associated companies 18 Loans to associated companies 19 Investment assets related to unit-linked contracts 20 Reinsurers' share of provisions for unearned premiums 21 Reinsurers' share of provisions for claims 22 Deferred tax 23 Subordinated loan capital 24 Provisions for unearned premiums 25 Life insurance provisions 26 Provisions for claims 27 Collective bonus potential 28 Provisions for unit-linked contracts 29 Pensions and similar commitments 30 Profit on life insurance 31 Expenses 32 Auditors' fee 33 Staff costs 34 Related parties 35 Financial assets 36 Financial liabilities 37 Settlement of assets and liabilities 38 Analysis of assets and their return - life insurance 39 Exposure information 40 Shares analysed by industry and region - life insurance 41 Leasing 42 Core capital and capital base 43 Number of shares 44 Own shares 45 Credit risk 46 Liquidity risk 47 Provision of security 48 Contingent liabilities 49 Companies 50 Other disclosures 51 Accounting policies 52
Life insurance Gross premiums written 3,303 3,303 Allocated investment return 579 579 Benefits and change in provisions (3,536) (3,536)
Pension return tax (138) (138) Transferred to technical result (388) (579) (966)
Taxation (326) Profit for the year 1,023 Amortisations: * After discounting DKK 323m (2010: DKK 304m)
Calculated interest 362 388 Discounting (annual amortisation) of technical provisions and reinsurers' share (304) (323) Technical interest, net of reinsurance 58 65
Run-off profit: Gross business 258 221 Reinsurance ceded (54) (73) Run-off profit, net of reinsurance 204 148
Technical interest, net of reinsurance 7 8 0 0 7 7
Run-off profits / (losses), net of reinsurance 75 10 7 4 (15) 130 Claims provisions, net of reinsurance 2,432 2,752 49 48 5,370 5,845
Run-off profits / (losses), net of reinsurance 74 (49) (17) 2 30 8 Claims provisions, net of reinsurance 1,748 1,697 166 155 587 597
Average value of claim (DKK '000) 28 26 10 10 13 14
Run-off profits / (losses), net of reinsurance 36 45 (9) (18) 22 16 Claims provisions, net of reinsurance 606 574 531 517 209 197
Individual policies 98 148 Policies which are part of a tenure 724 843 Single premiums 822 991 Gross premiums 3,395 3,303 Gross premiums written, direct business, by the policyholders' location: Other EU-countries 27 25 Other countries 7 5
Claims payable on death 124 135 Claims payable on maturity 245 256 Pension and annuity payments 538 560
Rental income 279 264 Operating expenses from properties rented out (35) (40) Operating expenses from properties not rented out (4) (5) Gross profit 241 219 Administrative expenses (11) (11) Income from investment properties 229 209
Note 11. Other income Gain on sale of workers' compensation portfolio 0 32
Calculated tax on profit for the year (25%) 376 337 Adjusted for the tax effect of: Returns on shares etc. not liable to tax (44) (3) Non-deductible expenses / income not liable to tax 0 ( Prior year adjustment 5 (
Average number of shares ('000) 15,131 13,741 Diluting impact of options ('000) 28 5
Completed development projects included the Group's new claims system. Amortisation of intangible assets is primarily included in claims incurred and operating expenses. Goodwill and development projects under construction are subjected to an impairment test at the end of the financial year. The discounted value of future cash flows is compared with its carrying value.
The future cash flows are based on three years' expected technical result and a terminal value of the segments to which goodwill and development projects under constructions relate. The pre-tax discount rate used is 12% (2010: 12%) corresponding to 9% (2010: 9%) post-tax. Goodwill relates to the personal segment.
Impairment and amortisation at 1 January (365) 0 (365) Amortisation for the year (68) (1) (69) Transferred on revaluation 0 1 1 Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year 23 0 23 Impairment and amortisation at 31 December (409) 0 (409)
Cost / revaluation at 1 January 557 757 1,314 Additions, including improvements 54 61 115
The valuation of the owner-occupied properties has been based on a required average return of: 5.7% 5.3%
The valuation of the properties has been based on a required average return of: Non-residential 6.1% 6.0% Residential and part residential 4.6% 4.6%
Share of profit / (loss) 59 29 Dividends received (10) (28) Shares in associated companies 388 385
In spite of a shareholding of up to 68% the Group has a substantial but not a controlling influence.
Note 19. Loans to associated companies Average effective interest rate 0.3% 1.1%
Note 21. Reinsurers' share of the provisions for unearned premiums Reinsurers' share at 1 January 73 65 Reinsurance ceded 644 703 Reinsurance earned (651) (700) Reinsurers' share of the provisions for unearned premiums at 31 December 65 68
Restriction on deductability 98 11 0 Deferred pension return tax (28) 0 0
Recognised as: Deferred tax assets 40 19 12 Deferred tax liabilities (249) (94) (121)
Interest charges 27 52 Costs of raising the loan 3 2
Subordinated loan capital of Topdanmark Forsikring A/S has been included in the Company's capital base at up to 25% of the solvency margin 241 252
Retrospective provisions at 31 December 25,821 25,360 Accumulated revaluation at 31 December 870 897 Life insurance provisions at 31 December 26,692 26,257
Portfolios analysed by capitalisation rates Guaranteed future paid-up 2010 benefits premiums benefits Topdanmark Livsforsikring A/S: Outside of contribution 99 0 13
Gross Provisions at 1 January 11,777 12,364 Claims paid relating to previous years (3,015) (3,306) Change in expected claims payments relating to previous years (258) (221) Claims paid relating to this year (3,336) (3,444) Expected claims payments relating to this year 6,702 6,980 Inflation swaps (44) 103 Discounting (annual amortisation) 307 329
Topdanmark Livsforsikring V A/S: The provisions include an allowance for risk corresponding to the percentage which would be demanded by an arms-length purchaser of the company's portfolio of life insurance policies to compensate for the risk of fluctuations in the expected payments. The overall allowance for risk is an estimate calculated as the interest rate used less 5%.
Less paid incl. inflation swaps 3,434 4,907 5,137 5,358 5,412 5,028 5,949 5,148 4,692 4,951 4,607 54,622 Provisions before discounting
Provisions relating to previous years at 31 December 1,172 Gross provisions at 31 December 2011 - non-life insurance 12,382
Reconciliation: Provisions for claims 13,545 Less amount relating to life insurance (84) Less reinsurers' share of provisions (1,079) Provisions, net of reinsurance, at 31 December 2011 - non-life insurance 12,382 Composition of expected payments, net of reinsurance: Claims handling etc. at 1 January 2004 127 37 27 19 Discounting / revaluation workers' compensation
Notes to the accounts • Group without discounting which to a great extent eliminates changes in discounting rates and methods after the change to IFRS. However, workers' compensation and illness / accident administered by the life insurance business are included at discounted values.
Topdanmark Livsforsikring V A/S: Interest rate group 3 33 32 Interest rate group 4 33 21 Interest rate group 5 70 76 Interest rate group 6 262 307 Interest rate group 7 8 2 Interest rate group 8 1 0 Risk groups 23 49 Cost groups 7 6
Note 29. Provisions for unit-linked contracts Insurance Investment 2010 contracts contracts Total Gross provisions at 1 January 2,128 693 2,821
Gross provisions at 1 January 2,997 829 3,826 Retrospective provisions at 1 January 2,997 829 3,826
Number of customers with investment contracts 3,660 2,810 The contracts written do not have guarantees.
Allocated to: Composition of result: Profit on policies outside of contribution - - - 6 11 17
Transferred to / from shadow account 144 0 144 (112) (2) (114) Profit / (loss) Topdanmark Link 33 33 (5) (5)
Shadow account by interest rate, risk and cost groups: The allocation of the insurance technical result before bonus to policyholders is in accordance with the order on contribution principle.
Expenses by their nature: Commission - non-life insurance 249 226 Commission - life insurance 61 54 Staff costs (excl. commission) 1,555 1,622 Other staff costs 111 111 Premises costs 173 164 IT operations and maintenance 132 139 Impairment and amortisation 147 160 Other expenses 112 111 Total expenses 2,541 2,587
These expenses have been disclosed in: Non-life insurance: Acquisition costs 748 797 Administrative expenses 550 543 Claims paid (claims handling and assessment) 803 807
Social security costs 36 40 Payroll tax 137 165 Share options 12 6 Employee shares 45 44
has been fixed at 110% of the market price on 31 December the prior year. The options can be exercised 3-5 years subsequent to the granting. The scheme is settled by shares (equity instruments). The table below is categorised by the option holders' current standing.
Employee shares In 2011 Topdanmark issued 68,501 (2010: 83,798) employee shares offset by a reduction in their respective cash salaries. The costs have been calculated to be DKK 46m (2010: DKK 46m) in accordance with IFRS 2.
Note 34. Staff costs - continued Share options Topdanmark's share option scheme is for its Board of Management and senior executives. The strike price y Severance pay is described in Management's Review in "Remunerations structure".
Remuneration of the Board of Directors Directors' fees were DKK 4,275,000 (2010: DKK 4,275,000) of which DKK 225,000 (2010: 225,000) related to Topdanmark Forsikring A/S. Fees for 2011 (DKK '000): Michael Pram Rasmussen 1,200 Anders Knutsen 725 Charlotte Hougaard 300 Jens Maaløe 300 Annette Sadolin 450 Søren Thorup Sørensen 400 Knud J. Vest 300 Desiree Schultz 217 Trine Zappe 217
From 2011, 10% of the fixed salaries etc. paid to the Board of Management is paid as share options. The share option scheme is disclosed in Note 34. The Board of Management receive only a fixed remuneration. The Group has no unhedged pension commitments.
Significant risk taker Besides the Board of Management one employee of the Group has significant influence on its risk profile. In accordance with an exemption clause this remuneration is not disclosed.
Shares, bonds and subordinated notes held by the Board of Directors and Board of Management Board of Directors Number of shares 6,251 2,908 Bonds, nominal value DKK '000 254 128 Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 10,400 19,610
Board of Management Number of shares 37,691 35,630 Bonds, nominal value DKK '000 1,364 1,364 Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 - 3,850
Total financial assets at fair value where the revaluation is taken to profit and loss account 48,215 51,323
Total financial assets 49,940 53,027 The book value of loans and receivables at amortised cost approximately corresponds to fair value.
Note 36. Financial assets - continued Inputs based Inputs not based 2010 Quoted on observable on observable Financial assets recorded at fair value prices market data market data Total Designated at fair value: Non-life insurance: Deposits with credit institutions 0.4 0.4 Life insurance: Deposits with credit institutions 0.6 0.6
Investment assets related to unit-linked contracts 2.8 0.4 0.1 3.3 Total financial assets at fair value 34.6 13.0 0.6 48.2
Life insurance: Loans guaranteed by mortgages and other loans 0.0 0.0
Designated at fair value: Non-life insurance: Deposits with credit institutions 0.4 0.4
Measurement of fair value In the years 2008-2010 the Group considered that the markets of structured credit products, including CDOs, could not be defined as being active, according to the definition in IAS 39. In this light the portfolio of CDOs was valued using valuation methods where the input was based on observable market data such as interest and foreign exchange rates, volatility or comparison with the market prices of corresponding instruments.
(DKKm) Group companies have agreed to lend equities against security. Book value of equities loaned 2,014 1,591 Fair value of bonds received as security for the loan 3,097 2,881
Financial liabilities measured at fair value through profit and loss Held for trading: Designated at fair value: Amounts due to credit institutions 3,840 5,997 Total financial liabilities measured at fair value through profit and loss 4,007 6,534
Book value of financial liabilities at amortised cost approximately corresponds to fair value, except for hybrid core capital (DKK 404m) with an assumed value significantly lower than nominal value.
Financial liabilities payable after five years or more: Subordinated loan capital 404 404 Amounts due to credit institutions 6 5
Note 39. Analysis of assets and their return - life insurance Net Return 1 January 31 December investment (%)* Land and buildings, directly owned 3,487 3,522 29 5.3
Credit bonds investment grade 1,290 1,841 443 3.4 Credit bonds non-investment grade and emerging market bonds 2,211 2,239 6 11.5
Note 41. Shares analysed by industry and region (%) - life insurance Other North Other Other Not 2011 Denmark Europe America Japan Far East countries analysed Total
Operational finance leases: Note 43. Core capital and capital base 2010 2011
Shareholders' equity according to Danish rules * 4,900 4,915 Deferred tax assets (1) (0) Hybrid core capital 404 404 Capital adequacy requirements for insurance companies – 50% (1,549) (1,540) Core capital 3,754 3,779 Capital adequacy requirements for insurance companies – 50% (1,549) (1,540) Capital base 2,205 2,240 Weighted items 2,935 3,689 Core capital as a percentage of weighted items 127.9 102.4 Solvency ratio 75.1 60.7 * Before provisioning for deferred tax on security funds. Solvency has been calculated according to the rules for financial services holding companies. See "Solvency" in Management's Review.
Note 44. Number of shares Reconciliation of the number of shares ('000)
Shares bought back (1,288) (1,360) Shares issued 180 140 Shares sold 84 80
Shares issued at 31 December 17,087 14,826 Own shares at 31 December (2,615) (1,494) Number of shares at 31 December 14,472 13,332
Number of shares held to cover the granting of options: 498,000 (2010: 587,000)
Deposits with credit institutions 122 1,641 Investment assets related to unit-linked contracts 3,248 3,282 Liquid funds 5 6 Accrued interest 457 408 Shares in and amounts due from affiliated companies eliminated in the consolidated accounts 6,896 7,767
A number of companies have been liquidated by submitting a statement to the authorities.
Note 51. 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. For further details see "Risk management" and "Capital model" in Management's review".
For the financial year 2011 Topdanmark implemented a number of new standards and interpretations and revised others; the impact of this on the recognition and measurement was nil but there were minor clarifications to the notes.
During 2011 and in January 2012 the DFSA updated its Executive Order on financial reporting for insurance companies and lateral pension funds. The Group has implemented this revision which primarily related to disclosure requirements having no impact on recognition and measurement.
There have been no other changes in accounting policies from those adopted in the 2010 Annual Report.
Change in accounting estimates Expected life A new mortality rate has been introduced in life insurance to calculate the life insurance provisions at market value. This new rate is calculated by considering the DFSA's population mortality rate, Topdanmark's own observed mortality rate and the DFSA's assessed improvement in future life expectancy.
DKK 257m of the DKK 354m has been provided for the collective bonus potential while DKK 87m has reduced the use of bonus potential on paid-up benefits due to “an insurance technical loss before bonus contribution”.
Other matters During the years 2008-2010 Topdanmark believed that parts of the markets of structured credit products (e.g. CDOs) could not be defined as being active, according to the definition in IAS 39, and therefore the valuation of these types of assets have been based on models that could imply the use of estimates of both the future and the nature of the current market situation.
Market pricing is now considered to be so strong that it is no longer necessary to record these investments assets at model prices based on estimates.
Future accounting regulation The IASB has issued a number of new and changed standards and interpretations which have not yet taken effect.
Provisions for outstanding claims The provision risk is significant, in particular in lines with a long period of claims settlement such as workers' compensation, commercial liability, accident and motor liability insurance.
Fair value of financial instruments The calculation at fair value has been based on those quoted prices which are the result of the trading in active markets. If there is an active market for quoted shares, bonds, derivatives etc., generally they are measured at the closing price on 31 December.
If no closing price has been quoted, another public price is used which is believed to be the most appropriate. Valuation methods or other publicly available information are used to value quoted securities where the closing price does not reflect the fair value.
For further details see the note on financial assets and the note on financial liabilities measured at fair value.
General Consolidated accounts The consolidated accounts include the parent company Topdanmark A/S and all of the companies that are controlled by the parent company. The parent company is considered to control the companies through direct or indirect ownership of more than 50% of the voting rights or when it can have or has an otherwise controlling influence.
Income is recognised in the profit and loss account when earned. Similarly, all expenses are recognised which relate to the financial year, including amortisation and impairment.
a movement in shareholders' equity. The fair value is calculated using the Black & Scholes model and in accordance with IFRS 2 on share-based payments.
Employee shares The fair value, on the date the share is granted, is included as staff costs in the profit and loss account, with the relevant credit shown as a movement in shareholders' equity. The fair value is measured in accordance with IFRS 2 taking into account the specific conditions for the issue of employee shares.
The unconditional profit elements comprise the return on assets allocated to shareholders' equity including subsidiaries with unit-linked activities, acquisitions cost result and the profit on policies outside of contribution.
The conditional profit elements comprise the risk return which is calculated for each contribution group. The risk return for each contribution group (administration, cost, risk and interest rate groups) has been based on their estimated risk on shareholders' equity.
SME and Industrial include policies for agricultural, SME and industrial businesses, sold by Topdanmark's sales organisation and its distribution partners, as well as captive-based policies.
Ratios The financial ratios have been calculated in accordance with the definitions of ratios issued by the Danish Society of Investment Professionals in 2010, except for profit per share and diluted profit per share which have been calculated in accordance with IAS 33 Earnings per share. These calculations, which have been made before elimination of intra-group rent, are disclosed in segment information. Topdanmark has not calculated consolidated ratios for life insurance, as it does not believe that a true and fair view would be achieved by presenting ratios based on an accumulation of completely different portfolios. Recognising that the interests of different portfolios are different, Topdanmark has established a portfolio-based structure of life insurance companies offering, among other services, different investment strategies to different groups of customers. Each company presents its ratios in its own annual report where further details are available.
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. Furthermore it includes the raising of loans and repayments on interest-bearing debt. Cash and cash equivalents comprise liquid funds as well as deposits with credit institutions.
Profit and loss account Premiums earned Gross premiums in non-life insurance comprise those premiums receivable during the year and an estimate of premiums on insurance contracts written, either directly or indirectly, for which the period of risk has commenced before the end of the financial year. They do not include own risks. Premiums earned net of reinsurance comprise gross premiums for the year adjusted for changes in the provisions for unearned premiums and net of reinsurance. Effectively, this means the premiums are being recognised in line with the distribution of risk over the period of cover.
Operating expenses Technical operating expenses which relate, either directly or indirectly, to the acquisition and renewal of the portfolios are included in acquisition costs. New business commission is generally recorded in the profit and loss account on the date the insurance takes effect. Administrative expenses comprise other costs incurred in the administration of the portfolios which relate to the
financial year and which have been accounted for on an accruals basis. Commission received from reinsurers has been accounted for on an accruals basis over the policies’ period of cover.
Investment activities Income from associated companies comprises a share of the post-tax results of the associated companies calculated in accordance with the Group's accounting policies. Income from investment properties comprises the operating results excluding interest charges and revaluations that have been disclosed separately in the accounts. Interest, dividends etc. comprise all interest, dividends etc. earned in the financial year. Realised and unrealised gains and losses on investment assets and changes in the provisions for outstanding claims net of reinsurance due to changes in the interest rate structure are included in revaluations, which also includes exchange rate adjustments and realised gains and losses on owner-occupied properties. Administrative expenses on investment activities comprise the cost of asset management including transaction costs.
Pension return tax Pension return tax includes the return tax that arises from the return in life insurance included in the profit and loss account, whether the tax is current or to be paid in subsequent periods.
Finance leases for machinery and equipment are those leases where the Company substantially bears all the risks and benefits of ownership: the relevant assets are shown in the balance sheet at the lower of their fair value and the present value of future lease payments. Once recognised as a finance lease, the assets are treated as any other type of machinery and equipment. IT equipment, other equipment and cars as well as improvements of rental properties are depreciated over their expected useful life of up to five years. Solar cell plants are depreciated over their expected useful life of up to 25 years.
Owner-occupied properties Owner-occupied properties are those properties used for the Group's own operations. The properties are measured at a revalued amount being the fair value on the date of revaluation less accumulated depreciation. The properties are reviewed and assessed annually by the Group's own valuation experts. The buildings are depreciated on a straight-line basis over their expected life of 50 years, although land is not depreciated. The fair value of the revaluation of owner-occupied properties is assessed on the same basis as investment properties. Any revaluation surplus is included in other comprehensive income unless the revaluation is a reversal of a previous impairment. Impairments are included in the profit and loss account unless the impairment is a reversal of previous revaluation included in other comprehensive income.
Valuation methods are based, as far as possible, on publicly available market data. If there is no active market for the financial instrument, depending on the nature of the asset or liability, the calculation is based on underlying parameters such as interest and foreign exchange rates, volatility or comparison with the market prices of corresponding instruments.
In certain cases the valuation could only be based on publicly available market data. In these cases the valuation models used could imply the use of estimates of both the future and the nature of the current market situation.
The future payments to be received and made have been based on the assumed incidents of death, disability and resumption of work. The risk of death and disability is dependent on the age, sex and health of the policyholder and is based on the company's experience. This new rate is calculated by considering the DFSA's population mortality rate, Topdanmark's own observed mortality rate and the DFSA's assessed improvement in future life expectancy.
In Life V, for all ages, the mortality rate used is lower than the DFSA's population mortality rate plus the DFSA's assessed improvement in future life expectancy. For example, remaining life expectancy for a 60 year old man is 25 years and for a 60 year old woman 28 years.
The disability risk has been fixed at 90% of G82 allowing for both disability and resumption of work.
The liabilities are disclosed in the balance sheet as follows: Guaranteed benefits The sum of the company's liabilities for each individual policy, calculated on the basis of the agreed premiums and benefits plus an allowance for administration costs, is measured at present value under guaranteed benefits. Guaranteed benefits also include provisions for group life policies and provisions for claims incurred but not reported (IBNR).
Inflation is taken into account when calculating the value of the provisions. Future inflation is implicitly included in a number of the statistical models as the average of the actual inflation in the period of record used. Therefore, an expected higher future inflation rate would generally be included in the provisions with a specific time delay.
All provisions have been measured at present value by discounting the expected future payments using the structure of interest rates. The proportion of the change in provisions for outstanding claims relating to changes in the interest rate structure is included in the profit and loss account under revaluations.
The interest rate structure is calculated as the combined weighting of swap rates and option adjusted mortgage credit rates. It is published as the "adjusted interest rate curve" on the DFSA's website.
The interest rate curve adjusted for country spreads is used in illness and accident insurance, which is administered by the life insurance companies. As illness and accident policies are subject to pension return tax, each interest rate used of the interest rate structure is reduced by the tax rate of 15.3%.
Provisions for outstanding claims in life insurance comprise insurance benefits due but not yet paid.
controls the timing of the reversal of the temporary difference and where it is probable that the temporary difference will not be reversed within the foreseeable future. The calculation of deferred tax is based on the planned use of each asset and the settlement of each liability using the tax rates expected to be in force when the deferred tax is expected to crystallise as current tax, based on the tax rates and rules in force on 31 December.
Income from affiliated companies 1 1,184 1,068 Interest income and dividends etc. 24 0
Profit for the year 1,168 1,023 Other comprehensive income in affiliated companies 1 1 Other comprehensive income 1 1 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,169 1,024
Shares in affiliated companies 6 5,567 6,285 Total investment in affiliated companies 5,567 6,285
Related parties 10 Core capital and capital base 11 Own shares 12 Other note disclosures 13 Accountin g policies 14
Profit / (loss) for the year 1,184 (16) 1,168 Other comprehensive income in affiliated companies 1 0 1 Total comprehensive income for the year 1,185 (16) 1,169
Topdanmark Forsikring A/S 1,130 955 web-postkassen.dk ApS (7) (1) Topdanmark Invest A/S 9 15 Topdanmark Kapitalforvaltning A/S 41 89 Income from affiliated companies 1,184 1,068
Current tax 12 14 Change in deferred tax 0 (1) Prior year adjustment (1) 1
Adjusted for the tax effect of: Non-deductible expenses / income not liable to ta
Note 5. Machinery and equipment Cost at 1 January 5 5 Additions, including improvements 1 0
DKK Share capital at 1 January 169,064,930 170,869,530 Reduction in capital 0 (24,008,570) Increase in capital 1,804,600 1,398,000 Share capital 170,869,530 148,258,960 Each of Topdanmark's 14,825,896 (2010: 17,086,953) shares has a nominal value of DKK 10. No share enjoys any special rights. The shares are freely tradeable. Each share has one vote.
Remuneration of the Board of Directors Directors' fees were DKK 4,275,000 (2010: 4,275,000) of which DKK 225,000 (2010: 225,000) related to Topdanmark Forsikring A/S. Fees for 2011 (DKK '000): Michael Pram Rasmussen 1,200 Anders Knutsen 725 Charlotte Hougaard 300 Jens Maaløe 300 Annette Sadolin 450 Søren Thorup Sørensen 400 Knud J. Vest 300 Desiree Schultz 217 Trine Zappe 217
Deferred tax assets 1 1 0 Changes relating to the year (0) (1)
Board of Management Number of shares 37,691 35,630 Bonds, nominal vaule DKK '000 1,364 1,364 Subordinated notes (subordinated loan capital) Topdanmark forsikring, nominal vaule DKK '000 - 3,850
Affiliated companies: Expenses charged 23 25 Dividends received 740 341 Capital injection 9 0 Interest charged 2 6
Average effective interest rate on balances is 0.90% (2010: 0.55%). Shares are disclosed in the balance sheet and specified in the note on Shares in affiliated companies. Balances are disclosed in the balance sheet.
Note 13. 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 included in financial highlights on page 3. Risk disclosures in accordance with Section 91(b) are included in Management's review for the Group in "Risk management".
We believe that the management review contains a fair review of the development of the Group’s and Company’s activities and financial position, together with a description of the principal risks and uncertainties that the Group and the Company can be affected by.
We recommend the Annual Report for adoption at the Annual General Meeting.
Internal audit’s reports Report on the consolidated accounts and annual accounts We have audited the consolidated accounts and annual accounts of Topdanmark A/S for the financial year 1 January to 31 December 2011, which comprise the profit and loss account, statement of comprehensive income, balance sheet, statement of movements in shareholders' equity and notes, including the accounting policies, for the Group as well as the Company, and including cash flow statement for the Group. The consolidated accounts have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial services companies. The annual accounts have been prepared in accordance with the Danish Financial Business Act.
Management is responsible for the consolidated accounts and annual accounts. Our responsibility is to express an opinion on the consolidated accounts and annual accounts
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated accounts and annual accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatements of the consolidated accounts and annual accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated accounts and annual accounts that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as the overall presentation of the consolidated accounts and annual accounts.
Independent auditor’s report To the shareholders of Topdanmark A/S Report on the consolidated accounts and annual accounts We have audited the consolidated accounts and annual accounts of Topdanmark A/S for the financial year 1 January to 31 December 2011, which comprise the profit and loss account, statement of comprehensive income, balance sheet, statement of movements in shareholders' equity and notes, including the accounting policies, for the Group as well as the Company, and including cash flow statement for the Group. The consolidated accounts have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial services companies. The annual accounts have been prepared in accordance with the Danish Financial Business Act.
Management’s responsibility for the consolidated accounts and annual accounts Management is responsible for the preparation of consolidated accounts that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial services companies as well as the preparation of annual accounts that give a true and fair view in accordance with the Danish Financial Business Act. Management is also responsible for such internal control as it determines is necessary to enable the preparation of consolidated accounts and annual accounts that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility Our responsibility is to express an opinion on the consolidated accounts and annual accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated accounts and annual accounts are free from material misstatement.
Further, in our opinion, the annual accounts give a true and fair view of the Company's assets, liabilities and financial position at 31 December 2011, and of the results of its activities for the financial year 1 January to 31 December 2011 in accordance with the Danish Financial Business Act.