TOPDANMARK ANNUAL REPORT FOR 2015 2 March 2016 Announcement No. 16/2016
• EPS was DKK 11.3 (2014: DKK 14.4). • Combined ratio was 87.3% (2014: 86.0%). • Combined ratio excluding run-off profits was 91.6%
(2014: 89.8%). • Premiums declined 1.8% in non-life insurance, but increased 42.1% in life insurance. • Impacted by lower investment returns, profit on life insurance declined to DKK 174m (2014: DKK 200m). • Investment return declined to DKK 274m (2014: DKK 711m). • Share buy-back of DKK 1,667m in 2015, representing a buy-back yield of 8.6 %. The buy-back programme of DKK 1,950m for 2015 has been fully concluded.
Q4 2015 • Post-tax profit: DKK 278m (Q4 2014: DKK 304m). • EPS: DKK 2.9 (Q4 2014: DKK 2.9). • Combined ratio: 91.6% (Q4 2014: 83.6%). As compared to Q4 2014, the combined ratio was impacted by weather-related claims in Q4 2015, corresponding to a 5.9pp effect on the combined ratio.
Profit forecast model for 2016 • As compared to the guidance for 2016 in the Q1-Q3 2015 report, the assumed combined ratio for 2016 remains unchanged at around 91% excluding run-off.
Share buy-back • The share buy-back programme for 2016, which will be executed from 12 February 2016 until the announcement of the 2016 Annual report on 23 February 2017, is DKK 1,250m, representing a buyback yield of 7.5%.
Topdanmark appoints two new members to its Executive Board • Kim Bruhn-Petersen, Topdanmark’s COO of non-life insurance, has announced that he wants to resign. When Kim Bruhn-Petersen resigns on 1 March 2016, Marianne Wier and Brian Rothemejer Jacobsen will join the Executive Board, see: company announcement No. 11/2016 of 11 February 2016.
Reduction in capital • At the Company’s Annual General Meeting on 7 April 2016, the Board of Directors will propose to reduce Topdanmark’s share capital by own shares with a nominal value of DKK 10,000,000. The notice convening the Annual General Meeting, including the complete agenda for the meeting, will be published on 9 March 2016.
Annual financial statements ● parent company 81 Income statement 81 Statement of comprehensive income 82 Balance sheet 83 Statement of changes in equity 84 Notes to the financial statements 89 Statement by Management on the Annual Report
Premiums earned: Non-life insurance 8,668 8,759 8,889 9,116 8,956 2,304 2,244 Life insurance 3,242 3,059 3,511 4,448 6,320 1,087 1,749
Results: Non-life insurance 1,086 2,103 1,361 1,803 1,276 386 264 Life insurance 187 210 442 200 174 2 85 Parent company etc. 76 22 73 7 31 16 20 Pre-tax profit 1,349 2,335 1,875 2,010 1,481 404 368 Tax (326) (512) (407) (452) (349) (100) (90) Profit 1,023 1,823 1,468 1,558 1,132 304 278
Run-off profits, net of reinsurance 148 201 306 351 381 90 123
Shareholders' equity of parent company at 1 January 4,900 4,915 5,716 5,490 5,442 5,516 5,072 Profit 1,023 1,823 1,468 1,558 1,132 304 278 Share buy-back (1,159) (1,200) (1,836) (1,716) (1,667) (407) (377) Share-based payments 150 177 142 110 76 26 5 Other movements in shareholders' equity 1 2 0 (1) (3) 2 1 Shareholders' equity of parent company
Total assets, parent company 6,408 6,895 6,485 6,143 5,676 6,143 5,676 Total assets, Group 61,013 59,435 61,092 64,516 67,670 64,516 67,670
Provisions for insurance and investment contracts: Non-life insurance 16,228 16,251 16,721 16,485 16,248 16,485 16,248 Life insurance 30,618 32,553 33,640 36,375 40,537 36,375 40,537
The investment return after transfer to technical result declined DKK 371m to DKK 143m. This was partly due to an extraordinarily high investment return in 2014 and partly due to the impact on the 2015 results of adverse development in the Danish mortgage market and in foreign equities. On the other hand, Topdanmark achieved a profit of DKK 111m on the disposal of two residential properties.
Profit on life insurance declined DKK 26m to DKK 174m mainly due to a lower investment return.
Profit of the parent company etc. increased DKK 24m to DKK 31m.
Results for Q4 2015 Profit for Q4 2015 declined to DKK 278m (Q4 2014: DKK 304m). EPS was DKK 2.9 (Q4 2014: DKK 2.9).
Profit on life insurance increased DKK 83m to DKK 85m. In Q4 2014, profit on life insurance was impacted by a lower investment return due to the increase in credit spreads in that period.
Profit of the parent company increased DKK 4m to DKK 20m.
Non-life insurance - Investment return after transfer to technical result etc. 514 120 – 170 143 Profit on non-life insurance 1,803 1,220 – 1,320 1,276
Non-life insurance - Investment return after transfer to technical result etc. 8 76
In the SME and industrial segment, this focus on profitability has generated a loss of major industrial customers, who did not meet Topdanmark’s return requirements. For example, premiums earned on workers’ compensation declined 8.3% in 2015. On Group basis this loss had a 1.2pp adverse effect on premiums in 2015.
The level of new sales through bank distribution was lower in 2015 than the previous year. The reason is that, due to the low interest rates, Danish banks have allocated more resources to serve customers who want to convert their mortgage credit loans. This has resulted in a declining number of referrals of potential non-life insurance customers. As compared to the first three quarters of 2015, the number of referrals increased in Q4. The number of referrals is expected to increase from 2015 to 2016, when also, the distribution agreement made with Sydbank will have a positive effect.
Gross weather-related claims were DKK 209m in 2015. Storm claims accounted for DKK 171m, rainstorm claims for DKK 24m and snow loading claims for DKK 15m.
After reimbursement from the reinsurance companies, weather related claims were DKK 187m net of reinsurance (2014: DKK 88m). Accordingly, weatherrelated claims had an adverse effect of 1.1pp on the claims trend in 2015 as compared to 2014. Topdanmark assumes a normal level of DKK 170m net of reinsurance for weather-related claims. Accordingly, weather-related claims net of reinsurance were DKK 17m higher for 2015 than the normal level, representing an effect of 0.2pp on the claims trend.
The claims trend for illness/accident insurance had an adverse 0.5pp impact on the overall claims trend due to a larger number of claims than in 2014.
Developments in Q4 2015 Premiums earned declined 2.6% to DKK 2,244m. The decline was 1.8% in the personal segment and 3.4% in the SME segment. The decline in premiums continued to be due to the loss of major SME customers (workers’ compensation insurance) and lower motor premiums.
The claims trend was 75.1% in Q4 2015 (2014: 68.2%). In Q4 2015, the claims trend was affected by weatherrelated claims generating gross expenses of DKK 162m. After reimbursement from the reinsurance companies, weather-related claims were DKK 140m. Weather-related claims were DKK 133m higher in Q4 2015 than in Q4 2014, representing a 5.9pp deterioration of the combined ratio. Topdanmark assumes a normal level of DKK 50m net of reinsurance for weather-related claims in Q4. Accordingly, weather-related claims were DKK 90m higher than the normal level, representing an effect of 4.0pp on the claims trend.
The expense ratio increased to 16.5% in Q4 2015 (Q4 2014: 15.4%) mostly due to lower premiums and non-recurring savings in Q4 2014.
The combined ratio increased to 91.6% in Q4 2015 (Q4 2014: 83.6%). Excluding run-off profits, it was 97.1% in Q4 2015 (Q4 2014: 87.5%).
The claims trend deteriorated 2.1p to 70.3% primarily due to weather-related claims (0.9pp) and a poor result of illness/accident insurance before run-off, which had a negative 1.9pp effect on the claims trend. On the other hand, the claims trend benefitted from a better claims trend for fire and theft (0.4pp) and higher run-off profits (0.3pp).
The combined ratio increased to 86.6% (2014: 84.6%). Excluding run-off profits, the combined ratio increased to 91.1% (2014: 88.7%).
Premiums earned declined 2.6% to DKK 4,009m. The reason is a continued loss of less profitable customers. Accordingly, premiums earned declined 9.5% in workers’ compensation insurance alone, where generally profitability is poor. In Q4 premiums earned in the SME and Industrial segment declined 3.4% to DKK 1,009m.
The combined ratio was 88.1% (2014: 87.7%). Excluding run-off profits, the combined ratio was 92.1% (2014: 91.2%).
(Life Holding). This profit was calculated in accordance with the stated policy on the calculation of profit for the life insurance company, see: www.topdanmark.com → Investor → Business → Life insurance → Policy for the calculation of profit in life insurance.
The result of sales and administration improved to a DKK 45m loss (2014: DKK 65m loss) primarily due to non-recurring savings.
The estimated value of the shadow account is DKK 12m, which will be recognised as income in a subsequent period, when profits are generated in those contribution groups which have a shadow account.
Trend in premiums Gross premiums increased 42.1% to DKK 6,320 in 2015, of which premiums on unit-linked pension schemes were DKK 4,868m, an increase of 54.3% from 2014. Unitlinked pension schemes represented 94.0% of new sales in 2015.
Single premiums were DKK 3,807m in 2015, representing a 68.7% increase.
Overall, premiums were DKK 1,749m in Q4 2015, representing a 61.0% increase from Q4 2014. Regular premiums increased 17.0% to DKK 648m, while single premiums increased 106.7% to DKK 1,101m.
Investment activities Topdanmark Group excl. life insurance The investment return in the Topdanmark Group excluding life insurance was DKK 274m in 2015 including the revaluation of provisions and income from associated companies, but before the transfer to the technical result (2014: DKK 711m).
The underlying assets of CDOs are mostly senior secured bank loans, while the remainder are primarily CDOs with investment-grade investments as the underlying assets.
The result was a profit of DKK 31m in 2015 (2014: DKK 7m).
Profit forecast model Traditionally, Topdanmark does not publish actual profit forecasts, but instead the expected level of results if a number of assumptions about the return in the financial markets are met. The return in the financial markets changes on a daily basis, and Topdanmark's profit forecast model will already deviate from actual expectations by the time it is published. Therefore, set out in www.topdanmark.com → Investor → Risk management is additional information on how changes in the assumptions underlying the profit forecast model will affect the results.
This was based on the following assumptions: • A normal year for weather-related claims of
DKK 170m, broken down by quarter: • Q1: DKK 50m • Q2: DKK 25m • Q3: DKK 45m • Q4: DKK 50m
• A level of interest rates corresponding to the interest rate curve on 6 November 2015.
In the interim report for Q1-Q3 2015, it was announced that the assumed non-life premium development for 2016 was a decline of around 1%. The Danish non-life insurance market continues to be competitive. In line with comments in the interim report for Q1-Q3 2015, and keeping the strategy of profitability as the primary target unchanged, Topdanmark still expects negative premium growth in 2016.
The profit forecast model for life insurance is based on the following assumptions: • Due to the lower interest rates and the negative capital markets in January 2016, the investment return on shareholders’ equity is expected to be around DKK 40m in 2016 (2015: DKK 57m).
• No recognition of income from the shadow account is assumed in 2016. In 2015 DKK 7m was recognised as income from the shadow account.
Overall, the assumed pre-tax profit on life insurance is DKK 130-160m.
Taxation Given a corporation tax rate of 22.0%, the tax charge is expected to be DKK 210-250m.
Total Group profit Overall, the post-tax profit forecast model for 2016 is DKK 800-900m, representing EPS of DKK 9.2. The assumed profit for 2016 is exclusive of run-off.
This profit forecast model is based on the assumption of an annual 7.0% return on equities and foreign exchange rates unchanged from the level on 29 January 2016. Furthermore, it is assumed that the return on interestbearing assets hedging the discounted provisions is just sufficient to cover discounting and revaluation of the provisions, while the return on the remaining interestbearing assets is assumed to be 1.96% (risk-free interest rate plus 2.0pp).
Accordingly, given that the profit for 2016 is in line with the profit forecast model of DKK 800-900m, the intention is to buy back own shares of DKK 1,250m in the period from the announcement of the 2015 annual results on 11 February 2016 until the announcement of the 2016 Annual Report on 23 February 2017.
The buy-back programme for 2016 represents a buy-back yield of 7.5% p.a.(calculated on the basis of the price of the share on 29 January 2016).
The number of shares was 105,000,000 at 29 January 2016, of which Topdanmark’s holding of own shares was 10,526,000. If before the Annual General Meeting on 7 April 2016, contrary to expectation, no further shares are bought back, the number of voting shares will be 94,474,000.
Topdanmark's buy-back programme is executed under the European Commission's Regulation No. 2273/2003 of 22 December 2003 (the “Safe Harbour" method). Topdanmark has made an agreement with Danske Bank, which is the lead manager for the share buy-back. The agreement with Danske Bank ensures that trade decisions and the execution of the buy-back will be independent of and without influence from Topdanmark.
Up to 9 May 2016, the maximum amount Topdanmark can pay for shares under the programme is DKK 300m, and a maximum of 3,500,000 shares can be bought, representing 3.3% of the existing share capital in Topdanmark.
As long as the share buy-back programme runs, Topdanmark will, at the beginning of each week, announce the number and the value of the shares bought back in a separate company announcement to Nasdaq Copenhagen.
The risk management function implements an annual ORSA process identifying risks in the business, quantifying these risks and collecting them in a risk register. Additionally, the principles of solvency calculation are reviewed, and the risk management process is updated. An ORSA report has been prepared, which, together with the risk register and risk management process, was considered at a Board seminar in the autumn of 2015.
The calculation of profit is viewed as a risk return on shareholders' equity where fluctuations are adjusted via bonus potential and shadow account.
Guarantees are, to a significant extent, hedged in portfolios with high guaranteed benefits. In portfolios with low guaranteed benefits, movements in interest rates are followed and risk reducing actions are performed as required.
Risk assessment, IT security policy, guidelines, controls and IT emergency plans based on ISO27001.
Therefore, Solvency II gives the companies the opportunity to fully or partially develop their own internal risk model for the solvency calculation. Topdanmark uses a partial internal model it has developed in-house to calculate the non-life risk. This model, approved by the DFSA, provides basis for including non-life risks in Topdanmark's solvency calculations.
In 2015, the solvency capital requirement was calculated on the basis of Solvency I and the special Danish rules of Individual Solvency. The Danish rules, Individual Solvency, were intended as an approximation of SCR, the solvency capital calculation of Solvency II. Therefore, the change from Individual Solvency to SCR has had no significant numerical importance to Topdanmark. For, with effect from 31 December 2015, Topdanmark has, generally speaking, calculated Individual Solvency using the same methods which apply to the SCR calculations in 2016. The DFSA has permitted Topdanmark to use the volatility adjusted Solvency II interest rate curve.
Capital base In 2015, the calculation of the capital base was based on the Danish executive order on solvency, which is an adjustment to reflect Solvency II, but in which a few new elements of the Solvency II capital base were not recognised.
A significant Solvency II element not recognised in the calculation of the capital base for 2015, but which can be recognised in 2016 according to the Solvency II rules, is a higher limit for recognition of subordinated loan capital.
In June 2015, Topdanmark redeemed subordinated notes of DKK 350m (subordinated loan capital) issued in 2010,
Risk scenarios (DKKm) after taxation and pension return tax 2014 2015 Non-life insurance Underw riting risk Combined ratio − 1pp increase (69) (69)
Market risk Interest-bearing assets 1 pp increase (484) (431) Provisions for claims in effective and benefits etc. interest rate 505 465
Annual currency loss w ith an up to 2.5% probability (21) (19)
Capital model Topdanmark pursues a policy of keeping its shareholders' equity at a relatively low level. Any amounts in excess of the conservatively estimated shareholders' equity considered necessary to support the underlying business, are paid out to shareholders by way of buy-back of own shares.
So far, the size of the necessary solvency capital has been calculated at DKK 4,700m. This amount is the forecast solvency requirement under Solvency II plus an adequate buffer ensuring that usual fluctuations in earnings will not result in insufficient solvency cover.
Topdanmark's Solvency II project Solvency II took effect on 1 January 2016. During the years up to the implementation on 1 January 2016, Topdanmark has worked on establishing organisation, data and calculation of solvency requirements accordingly. Consequently, Topdanmark has established the four key functions (compliance, risk management, actuary and internal audit).
Now, the only outstanding issue is working with the new, very detailed external reporting to the DFSA (QRT and RSR) and the reporting for publication on the website (SFCR). The project is going according to plan.
Shareholders At 31 December 2015 Topdanmark had 44,189 shareholders registered by name.
The following shareholder owns more than 5% of the share capital (29.98%): If P & C Insurance Holding Ltd (publ) Barks Väg 15, Solna 10680 Stockholm Sweden
Topdanmark's Board of Directors comprises nine members, six of them elected by at the Annual General Meeting and three by Topdanmark's employees in accordance with the Danish Companies Act. Since 9 December 2015, one of the directorships elected at the Annual General Meeting has been vacant, see: company announcement No. 21/2015. It will be refilled at the Company’s Annual General Meeting on 7 April 2016.
The Board of Directors has made a response to its composition and qualifications in “Policy for diversity in the Board of Directors”. The Company believes that, by imposing very specific requirements on the Board of Directors in advance, it may prevent the election of an evidently qualified Board candidate who does not 100% meet the requirements. Instead, an individual decision will be made on each Board candidate based upon an overall consideration of the candidate's qualifications as compared with the Company's business model and associated risks, present needs and the composition of the rest of the Board of Directors. Topdanmark believes that in a company like Topdanmark, among them its Board members ought to possess skills within insurance operations, reinsurance, long-tail business, financial and insurance reporting, general statistics, risk management and assessment, strategic management, sales in the personal and professional markets, marketing/branding, finance, audit, financing/investment, statutory limits, IT and recruitment. With its current composition Topdanmark's Board of Directors possesses all these skills.
On 23 September 2013, the EU Commission decided that If P & C Insurance Holding Ltd (publ) de facto is in control of Topdanmark. As a consequence of this special situation, it has been agreed that Topdanmark’s Executive Board earns a compensation over three years, representing six months' salary for each qualifying year. Christian Sagild and Lars Thykier have earned this compensation during the years 2013-2015. Marianne Wier and Brian Rothemejer Jacobsen will earn the compensation during the years 2016-2018. The compensation will be paid on resignation.
The share price reflects expected value creation potential at group level. This is one of the reasons why Topdanmark believes that share options rather than the receipt of individual bonuses encourage the executives to be more holistic in their approach to value creation.
No special pension contribution is paid to the Executive Board, and, therefore, they are paid a personal allowance of 25% of their cash salary. Consequently, Topdanmark has no pension commitments towards the Executive Board, 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.
Besides the revolving scheme referred to above, a further 184,000 share options have been granted for 2016 to a number of other executives who are expected to make a special effort or otherwise contribute extraordinarily to value creation in the Company.
The options granted for 2016 may not be exercised any earlier than subsequent to the publication of the 2018 Annual Report in 2019 and no later than subsequent to the publication of the 2020 Annual Report in 2021. 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 value was calculated using the Black and Scholes model based on a share price of DKK 195.41, an interest rate corresponding to the zero coupon rate based on the swap curve on 30 December 2015, future annual volatility of 22% and a pattern of exercise similar to Topdanmark's previous granting of share options: see IFRS 2 on sharebased payments.
Detailed information on Topdanmark's option scheme is available on www.topdanmark.com → Investor Relations → Corporate Governance → Remuneration structure.
CSR Topdanmark's "Statutory report on Corporate Social Responsibility, see Section 132 of Executive Order on Financial Reports for Insurance Companies and Multiemployer Occupational Pension Funds ", is available on www.topdanmark.com → Investor Relations → Reports and presentations → CSR reports (
Topdanmark's shares. • Topdanmark’s shares are not traded at a discount due to lack of liquidity. • There is a high level of confidence in Topdanmark's shares. • The provision of uniform and consistent information helps ensure low volatility in Topdanmark's shares.
Trading in Topdanmark's shares Daily share trading on NASDAQ Copenhagen was DKK 45m in 2015 (2014: DKK 40m). NASDAQ Copenhagen continues to be the primary stock exchange for trading in Topdanmark's shares with a market share of 64% in 2015 (2014: 65%). Consequently, the share of the trading was 26% on other trading platforms such as BATS, Chi-x and Turquoise.
The overall daily share on all platforms was DKK 70m in 2015 (2014: DKK 62m)
Topdanmark is monitored by 19 analysts. Share analysts' recommendations of Topdanmark's shares are available on Topdanmark's investor site www.topdanmark.com → Investor Relations → Share profile → Analysts.
In accordance with Solvency II, insurance provisions are calculated as best estimate of the present value of the expected future cash flow on insurance policies written by the Company.
See below the material accounting changes due to the implementation of Solvency II in the executive order on financial reports.
Expected payments comprise claims incurred and expenses on claims handling and administration, which are assessed each quarter as part of the ongoing forecast process. Furthermore, recognition is made of acquisition costs not yet paid (primarily new business and portfolio commission), and bonuses and rebates.
Up to and including 2015, the provision for unearned premiums was calculated as the proportion of those premiums receivable which, based on the spread of risk during the period of cover, relate to the period after the end of the financial year.
According to the previous accounting rules, the risk margin was not a separate provision in the financial statements.
Most active brokers at NASDAQ Copenhagen A/S in 2015 % Danske Bank 20
Premiums earned As provisions for unearned premiums and the profit margin are calculated on a discounted basis, premiums earned include an element of interest.
Life insurance Life insurance provisions The life insurance provisions are calculated as the present value of the expected cash flow for policies written using best estimate of all relevant parameters such as life expectancy and frequency of disability. As previously, the life insurance provisions include a risk margin reflecting what an independent acquirer of the insurance portfolio would demand to take on the risk of fluctuations in the expected payments. Accordingly, the life insurance provisions are divided into guaranteed benefits, risk margin and individual and collective bonus potential.
As a consequence of the recognition of estimates of the frequencies for surrenders and termination of payment of premium in the guaranteed benefits, the individual bonus potential is no longer split up into bonus potential on future premiums and bonus potential on paid-up benefits.
Forward-looking, the collective bonus potential will be included in the life insurance provisions, but otherwise continue to act as an equalisation of the individual years' payments of bonus in accordance with the contribution rules reported to the DFSA.
In the table below, the insurance provisions at 31 December 2014 and 31 December 2015, have been calculated in accordance with the accounting policies for 2015 and the new accounting policies.
Annual General Meeting The Annual General Meeting will be held on 7 April 2016, 15:00 (CET) at: Tivoli Hotel & Congress Center Arni Magnussons Gade 2 1577 København V
The Board of Directors proposes election of: • Torbjörn Magnusson. • Lone Møller Olsen. • Birgitte Nielsen. • Annette Sadolin. • Søren Thorup Sørensen. • Jens Aaløse.
The agenda for the Annual General Meeting will be published on 9 March 2016.
AGM 7 Apr 2016 Q1 2016 Interim Report 10 May 2016 2016 Half-year Report 16 Aug 2016 Q1-Q3 2016 Interim Report 15 Nov 2016 2016 Annual Report 23 Feb 2017
2016 29 Feb 15/2016 Topdanmark – weekly report on share buy-backs 24 Feb 14/2016 Topdanmark temporarily suspends its buy-back programme for 2016 22 Feb 13/2016 Topdanmark – weekly report on share buy-backs 15 Feb 12/2016 Topdanmark – weekly report on share buy-backs 11 Feb 11/2016 Topdanmark appoints two new members to its Executive Board 11 Feb 10/2016 Topdanmark Announcement of 2015 Annual Results 11 Feb 09/2016 Topdanmark – share buy-back programme concluded 08 Feb 08/2016 Topdanmark – weekly report on share buy-backs 01 Feb 07/2016 Topdanmark – weekly report on share buy-backs 29 Jan 06/2016 Topdanmark increases its holding of own shares 25 Jan 05/2016 Topdanmark – weekly report on share buy-backs 18 Jan 04/2016 Topdanmark – weekly report on share buy-backs 11 Jan 03/2016 Topdanmark – weekly report on share buy-backs 04 Jan 02/2016 Issue of options 04 Jan 01/2016 Topdanmark increases its holding of own shares 2015 28 Dec 24/2015 Topdanmark – weekly report on share buy-backs 21 Dec 23/2015 Topdanmark – weekly report on share buy-backs 14 Dec 22/2015 Topdanmark – weekly report on share buy-backs 10 Dec Topdanmark Forsikring A/S – Final loan terms 09 Dec 21/2015 Bjarne Graven Larsen retires as a member of Topdanmark’s Board of Directors 07 Dec 20/2015 Topdanmark – weekly report on share buy-backs 02 Dec Topdanmark Forsikring A/S issues subordinated notes 30 Nov Topdanmark Forsikring A/S publishes base prospectus 30 Nov 19/2015 Topdanmark – weekly report on share buy-backs 23 Nov 18/2015 CORRECTION: Topdanmark – weekly report on share buy-backs 23 Nov 18/2015 Topdanmark – weekly report on share buy-backs 16 Nov Supplementary / corrective disclosure for the 2014 Annual Report for Topdanmark Forsikring A/S 16 Nov 17/2015 Supplementary / corrective disclosure for the 2014 Annual Report for Topdanmark A/S 16 Nov 16/2015 Topdanmark Interim Report for Q1-Q3 2015 11 Nov Topdanmark Forsikring A/S plans to issue subordinated capital 04 Nov 15/2015 Topdanmark’s internal capital model has been approved 31 Aug 14/2015 Share capital and voting rights in Topdanmark 19 Aug 13/2015 Topdanmark Half-Year Report for 2015 05 Aug 12/2015 Write-down of Topdanmark’s share capital – Topdanmark’s holding of own shares below 10% 05 Aug Updated Articles of Association 18 Jun Topdanmark Forsikring A/S – Redemption of subordinated notes 12 Jun 11/2015 Tier 2 capital Topdanmark 20 May 10/2015 Topdanmark Interim Report for Q1 2015 18 May Topdanmark Forsikring A/S – Redemption of subordinated notes 15 Apr 09/2015 Annual General Meeting of Topdanmark – 15 April 2015 09 Apr 08/2015 Election of employees to Topdanmark’s Board of Directors 18 Mar 07/2015 Notice convening Annual General Meeting of Topdanmark A/S, 15 April 2015 04 Mar 06/2015 Constitution of Board of Directors 04 Mar 05/2015 Topdanmark’s Annual Report for 2014 19 Feb 04/2015 Topdanmark Announcement of 2014 Annual Results 23 Jan 03/2015 Annual General Meeting 2015 05 Jan 02/2015 Topdanmark increases its holding of own shares 02 Jan 01/2015 Issue of options
Trading Reports 2016 04 Jan 01/2016 Trading in Topdanmark’s shares by insiders 2015 26 Feb 04/2015 Trading in Topdanmark’s shares by insiders 24 Feb 03/2015 Trading in Topdanmark’s shares by insiders 23 Feb 02/2015 Trading in Topdanmark’s shares by insiders 02 Jan 01/2015: CORRECTION: Trading in Topdanmark’s shares by insiders 02 Jan 01/2015: Trading in Topdanmark’s shares by insiders
Previous positions held: 1987-2006: KPMG Denmark and UK. 2006-2009: Group CFO and member of Group Executive
Offices held: Member of the Boards of Directors of: • TDC A/S. • LEGO A/S. • 5 subsidiaries of KIRKBI A/S. • Koldingvej 2, Billund A/S. • Merlin Entertainments Plc. • Falck Holding A/S
− and two subsidiaries. • Boston Holding A/S. • Ole Kirk’s Fund.
Gruppen A/S and CEO, Schulstad Brød A/S. 1999-2006: Group Managing Director, Skandinavisk
Offices held: Member of the Boards of Directors of: • Industral Employers in Copenhagen (Deputy
Chairman). • IC Companys A/S (Deputy Chairman). • Executive Committee and Governing Body of The
Education: • Banking education. • B.Com Degree (HD), International Trade, CBS. • B.Com Degree (HD), Accounting and Financial
Society). • Matas A/S. • Chairman of the Audit Committee, Matas A/S. • De Forenede Ejendomsselskaber A/S. • Coloplast A/S.
Offices held: Member of the Boards of Directors of: • DSB. • DSV A/S. • Ratos AB(Sweden). • Blue Square Re (Netherlands). • Skodsborg Kurhotel & Spa A/S. • KNI A/S. • Østre Gasværk Teater. • Ny Carlsberg Glypotek.
Independence: Annette Sadolin meets the definition of independence set out by the Committee on Corporate Governance.
1) Elected at the Annual General Meeting 2) Elected by employees 3) Member of Topdanmark’s Audit committee 4) Member of Topdanmark’s Remuneration committee 5) Member of Topdanmark’s Nomination committee
Managerial responsibilities: • HR. • Communications, IR, CSR. • Group Secretariat, Corporate Legal Matters.
Managerial responsibilities: • Personal. • Partners. • Agricultural. • SME and Industrial. • Marketing. • Topdanmark Livsforsikring (life insurance).
Lars Thykier CFO of Topdanmark A/S. DOB 1955, joined Topdanmark in 1986, joined Topdanmark's Executive Board on 1 June 2009.
Marianne Wier COO of Topdanmark A/S. DOB 1963, joined Topdanmark in 2013, joined Topdanmark's Executive Board on 1 March 2016.
Change in the life insurance provisions 370 (738) 1,635 831 810
Change in the life insurance provisions 9 831 810 Change in the reinsurers' share (1) (1) Change in the life insurance provisions, net of reinsurance 830 809
Income from associated companies 193 93 Income from investment properties 11 143 94 Interest income and dividends etc. 1,786 1,938
Profit for the year 1,558 1,132 Items which cannot subsequently be reclassified as profit or loss: Revaluation of owner-occupied properties 0 1 Reversed revaluation of owner-occupied properties (12) 0
Shares in associated companies 19 340 184 Loans to associated companies 1 0 Total investment in associated companies 341 184
Loans guaranteed by mortgages 12 7 Other loans 0 32 Deposits with credit institutions 2,267 3,721
Total other financial investment assets 45,773 43,292 TOTAL INVESTMENT ASSETS 49,943 47,344
Reinsurers' share of the provisions for unearned premiums 21 89 94 Reinsurers' share of the life insurance provisions 33 32 Reinsurers' share of the provisions for claims and benefits 22 648 584 Total reinsurers' share of provisions 769 709 Amounts due from policyholders 304 328 Amounts due from insurance companies 195 57 Amounts due from associated companies 497 378 Other debtors 114 259 TOTAL DEBTORS 1,879 1,730
Assets held temporarily 3 0 Current tax assets 0 25 Deferred tax assets 23 19 14 Liquid funds 323 640
Accrued interest and rent 372 284 Other prepayments and accrued income 201 193 TOTAL PREPAYMENTS AND ACCRUED INCOME 573 477 TOTAL ASSETS 64,516 67,670
Share capital 115 105 Revaluation reserve 10 11 Security fund 1,146 1,146 Other reserves 39 47 Total reserves 1,185 1,193 Profit carried forward 3,825 3,364 TOTAL SHAREHOLDERS' EQUITY 5,135 4,673
Guaranteed pension benefits 20,824 19,577 Bonus potential on future premiums 2,192 1,879 Bonus potential on paid-up benefits 746 1,101 Total life insurance provisions 26 23,761 22,557
Pensions and similar commitments 29 28 Deferred tax liabilities 23 74 73 Deferred tax on security funds 306 306 TOTAL LIABILITIES PROVIDED 409 407 DEPOSITS RECEIVED FROM REINSURERS 154 62
Other creditors 1,446 1,125 TOTAL CREDITORS 4,690 3,443 ACCRUALS AND DEFERRED INCOME 111 146 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 64,516 67,670
Cash flow from operations Gross premiums written 9,069 8,827 Claims paid (7,053) (6,182) Expenses paid (1,335) (1,314) Reinsurance ceded 432 (12) Cash flow from non-life insurance 1,113 1,319
Payments on investment contracts 295 525 Dividends from associated companies 3 8 Interest income and dividends etc. 1,903 1,999 Interest charges etc. (130) (131) Pension return tax (287) (496) Corporation tax (434) (403) Other items (39) (20)
Cash and cash equivalents at 1 January 1,467 2,590 Revaluation of cash and cash equivalents 1 35 Cash and cash equivalents at 31 December 2,590 4,361
Life insurance Gross premiums written 4,448 4,448 Allocated investment return 2,691 2,691 Benefits and change in provisions (6,750) (6,750)
Technical profit / (loss) on non-life insurance 663 476 (6) 1,133 36 1,169
Pension return tax 4 (169) (165) Transferred to technical result (106) (1,029) (1,135)
Shares in associated companies 57 283 0 340 Loans to associated companies 0 1 0 1 Other financial investment assets 16,255 29,511 7 45,773 Investment assets related to unit-linked contracts 0 10,117 0 10,117 Reinsurers' share of provisions 736 33 0 769 Amounts due from affiliated companies 1,681 27 102 (1,810) 0
Note 4. Technical interest, net of reinsurance - non-life insurance Calculated interest 155 106 Discounting (amortisation) of technical provisions and reinsurers' share (147) (108) Technical interest, net of reinsurance 8 (2)
Note 5. Claims incurred, net of reinsurance - non-life insurance Run-off profit: Gross business 253 387 Reinsurance ceded 97 (5) Run-off profit, net of reinsurance 351 381
Claims incurred include revaluation of derivatives hedging the inflation risk in workers' compensation and illness / accident insurance (211) 12
Note 6. Technical result - non-life insurance Gross premiums written 9,121 8,883 Gross premiums earned 9,167 9,017 Gross claims incurred (6,308) (6,210) Bonuses and rebates (52) (62) Gross operating expenses (1,408) (1,404) Net reinsurance (88) (171) Technical interest, net of reinsurance 8 (2) Technical profit 1,321 1,169
The frequency of claims has been calculated as a per thousand value.
Technical interest, net of reinsurance 1 0 1 0 2 0
Run-off profits, net of reinsurance 41 18 40 21 31 69 Claims provisions, net of reinsurance 564 589 524 511 265 212
Note 7. Gross premiums written - life insurance Individual policies 330 330 Policies which are part of a tenure 1,456 1,650 Group life 404 533 Regular premiums 2,191 2,513
Proportion of gross premiums represented by premiums related to unit-linked contracts not eligible for bonus 3,155 4,868 Investment risk is taken by the policyholder. All other gross premiums relate to insurance policies entitled to a bonus.
Number of policyholders at 31 December ('000): Individual policies 46 45 Policies which are part of a tenure 80 83 Group life 151 190
Note 8. Claims and benefits paid - life insurance Claims payable on death 136 167 Claims payable on maturity 305 176 Pension and annuity payments 589 593
Bonuses paid in cash 228 278 Claims and benefits paid 4,200 3,240
Surrenders in 2015 includes advanced tax of DKK 94m (2014: DKK 761m) on capital pension schemes.
Note 10. Bonus Provisions for collective bonus potential at 1 January 1,472 1,677 Provisions for collective bonus potential at 31 December 1,677 1,697 Change in provisions for collective bonus potential 205 20
Note 11. Income from investment properties Rental income 199 188 Operating expenses from properties rented out (39) (62) Operating expenses from properties not rented out (9) (19) Gross profit 152 106 Administrative expenses (9) (13) Income from investment properties 143 94
Note 14. Taxation Current tax 460 349 Change in deferred tax (9) 5 Prior year adjustment (6) (1) Tax in foreign companies (3) 0 Tax for the year 441 353 Tax taken to other comprehensive income 3 0 Tax taken to shareholders' equity 8 (4)
Goodwill relates primarily to the purchase of non-life insurance portfolios in 1999. Goodwill has been allocated to to the personal segment.
The future cash flows are based on three years’ expected technical result and a terminal value of the segment to which goodwill and development projects under construction relate. The expected technical results is calculated as part of an ongoing, quarterly forecast process. Primary assumptions: The calculation of premiums earned is based on the insurance portfolio adjusted to reflect the expected effect of business decisions and market development. The portfolio is indexed with the wage and salary index. Claims incurred are based on the current levels adjusted to reflect the normalised level of weather and large-scale claims. Furthermore, in general, the expected development in the level of claims and the effect of loss prevention activities are included. The levels of claims are adjusted to reflect the expected inflation. Expenses are calculated by projecting the expenditure base by the expected changes in activities and pay increases obtained through collective agreement, changes in taxes and duties etc. The result from insurance is calculated in accordance with the current reinsurance programme and adjusted to reflect known and expected changes in prices and the size of cover. The calculation of the terminal value includes a growth rate of 0% (2014: 0%). The pre-tax discount rate is 10% (2014: 10%) and the post-tax rate 7.5% (2014: 7.5%). The discount rate is calculated as the risk-free interest rate and a risk allowance.
It is believed that there are no scenarios in which a probable change in the assumptions of the expected technical result or the discount rate will result in a situation where the book value of goodwill exceeds its recoverable amount for the personal segment.
Revalution taken to other comprehensive income 0 (12) (12) Transferred on revaluation 0 (2) (2) Cost / revaluation at 31 December 438 857 1,295
Revalution taken to other comprehensive income 0 1 1 Transferred on revaluation 0 (1) (1) Cost / revaluation at 31 December 424 857 1,281
The measurement is based on an expected annual return on operations and a rate of return A general plus/minus 0.5pp change in the rate of return wil have an effect of minus DKK 76m / plus DKK 92m on the fair value (2014: minus DKK 76m / plus DKK 92m). Average rate of return 5.3% 5.3% Cost of revalued owner-occupied properties 749 749
Fair value revaluation for the year taken to to revaluations (6) 88 Investment properties 3,829 3,868
Office property 2,787 2,673 Residential and part residential 836 774 Land and buildings under construction 206 421
Profit on disposal 51 1 Shares in associated companies 340 184
Reinsurers' share at 1 January 87 89 Reinsurance ceded 661 671 Reinsurance earned (659) (666) Reinsurers' share of the provisions for unearned premiums at 31 December 89 94
Reimbursement of claims relating to previous years (1,006) (357) Change in expected income relating to previous years 97 (5)
Reimbursement of claims relating to this year (180) (119) Expected income relating to this year 392 414
Recognised as: Deferred tax assets (22) (19) (14) Deferred tax liabilities 86 74 73
Date of issue July 2007 June 2011 December 2015 December 2015 Maturity Bullet 24 June 2019 11 December 2025 11 June 2026 If permitted by the DFSA, the borrower can give notice of termination from 15 Sep 2017 24 June 2016 11 December 2020 11 June 2021
Interest rate EURIBOR 3 months 6.633% to 2016 2.92% to 2020 Cibor 3 months+270bp +1.90% to 2017 to 2026
Subsequently EURIBOR 3 months Cibor 3 months Cibor 3 months +2.90% +525bp +625bp
Interest charges 61 50 Costs of raising the loan capital - 5
Hybrid core capital has been fully included in the parent company's capital base 407 409
Provisions for unearned premiums at 1 January 2,769 2,724 Gross premiums written 9,121 8,883 Premiums earned (9,167) (9,017)
Life insurance provisions at 1 January 24,982 23,761 Accumulated revaluation at 1 January (1,445) (2,392) Retrospective provisions at 1 January 23,537 21,370 Gross premiums written 1,293 1,451 Accrued interest 557 595 Claims and benefits (3,442) (2,267) Expense loading inclusive of expense bonus (131) (170) Risk gain after allocating policyholders' risk bonus (77) (47)
Increase in guaranteed benefits as life insurance provisions must not be lower than the guaranteed surrender value 1 2 The increases have been calculated excluding surrender probabilities.
Claims paid relating to this year (3,366) (3,263) Expected claims payments relating to this year 6,561 6,596
Non-life insurance, gross, at 31 December 13,637 13,521 Life insurance 86 67 Provisions for claims and benefits 13,723 13,587
Claims paid relating to previous years (2,732) (2,634) Change in expected claims payments relating to previous years (351) (381)
Provisions for workers' compensation insurance, net of reinsurance 6,079 6,082 Average period of settlement 8 years 7 years
Less paid incl. inf lation hedging 3,263 4,884 6,277 5,264 6,306 6,030 5,887 5,911 5,872 5,322 55,016 Provisions before discounting
Provisions relating to previous years at 31 December 1,804 Gross provisions at 31 December 2015 - non-life insurance 13,521
Less paid incl. inf lation hedging 3,144 4,554 5,080 4,955 5,275 5,690 5,618 5,635 5,552 5,063 50,566 Provisions before discounting
Provisions relating to previous years at 31 December 1,792 Provisions, net of reinsurance, at 31 December 2015 - non-life insurance 12,937
Insurance Investment 2014 contracts contracts Total Gross provisions at 1 January 6,534 554 7,088 Retrospective provisions at 1 January 6,534 554 7,088 Gross premiums written 3,155 374 3,529
Number of customers with investment contracts 4,599 6,604 The contracts written do not have guarantees.
Note 32. Expenses Expenses by their nature: Commission - non-life insurance 228 204 Commission - life insurance 58 76 Staff costs (excl. commission) 1,768 1,831 Other staff costs 131 112 Premises costs etc. 151 154 IT operations and maintenance 190 221 Impairment and amortisation 122 100 Other expenses 171 163 Total expenses 2,819 2,860
These expenses have been disclosed in: Non-life insurance: Acquisition costs 914 920 Administrative expenses 493 484 Claims paid (claims handling and assessment) 886 848
Income from investment properties (administration and operation) 56 94 Expenses on investment business 56 66 Other expenses 57 42 Total expenses 2,819 2,860
Social security costs 42 41 Payroll tax 203 218 Share options 8 8
The fair value of the granting for the year has been calculated using the Black and Scholes model assuming a price of DKK 200.28 (2014: DKK 142.95) per share, an interest rate corresponding to the zero coupon rate based on the swap curve on 31 December the previous year, future volatility of 22% (2014: 22%) p.a. and a pattern of exercise similar to Topdanmark's previous granting of share options. The volatility has been calculated on the basis of previous years' volatility, which continues to be Management's best estimate of future volatility.
Note 35. Related parties The Group has no related parties with controlling influence. Related parties with significant influence comprise If P&C Insurance Holding Ltd (publ), the Board of Directors, the Executive Board and their families.
Remuneration of the Board of Directors Directors' fees were DKK 5,075,000 (2014: DKK 4,712,000) of which DKK 263,000 (2014: 244,000) related to Topdanmark Forsikring A/S. Fee (DKK '000): Søren Thorup Sørensen 975 1,378 Torbjörn Magnusson 217 678 Ann-Jeanette Bakbøl - 233 Tina Møller Carlsson - 233 Anders Colding Friis 325 350 Mette Jensen - 233 Birgitte Nielsen 433 525 Annette Sadolin 488 525
Bjarne Graven Larsen - 233 Per Mathiesen 325 117 Michael Pram Rasmussen 1,192 335 Desiree Schultz 325 117 Aage Nedergaard Smidt 203 117 Charlotte Hougaard 122 Jens Maaløe 108 Total fee paid to nine Board members 4,712 5,075 The Board of Directors receive only a fixed remuneration.
Remuneration of the Executive Board Salaries etc. 19 19 Share options 2 2 Total remuneration to three members of the Executive Board 20 21
Christian Sagild 8.8 8.9 Kim Bruhn-Petersen 5.8 5.9 Lars Thykier 5.7 5.9 10% of the fixed basic salary etc. paid to the Executive Board is paid as share options. In addition, the Executive Board has successively earned severance pay, representing 18 months' pay. The compensation will be paid on resignation. The Executive Board receives only a fixed remuneration. The Group has no unhedged pension commitments.
Note 35. Related parties - continued Associated companies Premiums ceded 92 89 Commission received (6) (6) Reimbursed claims (145) (65) Reinsurers' share of provisions 23 24
Designated at fair value: Deposits with credit institutions 2,267 3,721 Investment assets related to unit-linked contracts 10,117 15,645
Loans and receivables at amortised cost Loans to associated companies 1 0 Amounts due from policyholders 304 328 Amounts due from insurance companies 195 57 Other debtors 114 259 Liquid funds 323 640
Quoted Observable observable 2015 prices inputs inputs Financial assets recorded at fair value Level 1 Level 2 Level 3 Total
The Group's holding of financial assets, which are recorded at fair value using valuation models based on non-observable inputs was DKK 523m. Besides the project financing in Carlsberg Byen (DKK 269m), the item primarily comprises bonds of DKK 238m, the regular return on which depends on payment into annuity contracts. The bonds have been reclassified as this category of financial assets as valuation based on observable inputs has no longer been possible.
Bonds measured by reference to non-observable inputs - Level 3: Portfolio at 1 January 0.1 0.2 Purchases 0.1 0.1 Transferred from level 2 0.0 0.3 Portfolio at 31 December 0.2 0.5
Note 37. Financial liabilities Financial liabilities measured at fair value through profit or loss Held for trading: Designated at fair value: Amounts due to credit institutions 1,961 1,346 Total financial liabilities measured at fair value through profit or loss 2,832 1,880
It is expected that the following significant liabilities will be settled 12 months or more after the balance sheet date: Subordinated loan capital 1,156 1,754 Provisions for unearned premiums 178 172 Guaranteed benefits 18,523 17,896 Bonus potential on future premiums 1,976 1,715 Bonus potential on paid-up benefits 687 1,098 Provisions for claims and benefits 10,317 9,783 Collective bonus potential 1,525 1,566 Provisions for unit-linked contracts 9,592 14,585 Deferred tax on security funds 306 306
Note 39. Analysis of assets and their return - life insurance Net Return 1 January 31 December investment (%)* Land and buildings, directly owned 3,309 3,710 422 1.7
Credit bonds investment grade 2,185 1,461 265 3.4 Credit bonds non-investment grade and emerging market bonds 1,340 1,128 340 2.0
Other financial investment assets 1,155 2,565 1,100 0.0 Derivatives to hedge against the net change in assets and liabilities** 1,697 1,204 * Annual return as a percentage before pension return and corporation tax. ** Topdanmark Livsforsikring has invested in interest rate options - Euro-CMS-floors with a strike rate of 5% – to hedge the guaranteed benefits.
Non-life insurance Event Effect on shareholders' equity 0.7-1.0 pp increase in interest rates 31 33 0.7-1.0 pp decline in interest rates (11) 9 12% decline in equity prices (145) (150) 8% decline in property prices (105) (76) Exchange rate exposure (VaR 99.0%) (6) (5) Loss on counterparties of 8% (138) (156)
Note 43. Number of shares Reconciliation of the number of shares ('000) Shares issued at 1 January 125,000 115,000 Own shares at 1 January (12,368) (11,377) Number of shares at 1 January 112,632 103,623 Shares bought back (10,393) (8,551) Shares sold 1,384 600 Shares issued at 31 December 115,000 105,000 Own shares at 31 December (11,377) (9,328) Number of shares at 31 December 103,623 95,672
Number of shares held to cover the granting of options: 1,701,000 (2014: 1,938,000)
The Group's insurance companies have registered the following assets as security for technical provisions: Shares in associated companies 83 0 Loans to associated companies 1 0
There have been no events in the period from 31 December 2015 until the presentation of the consolidated financial statements which could change the assessment of the annual report.
Efficient management of claims incurred Topdanmark is continuously focusing on making its claims handling processes more efficient under the following three main headings: • Promptness. • Better replacement purchasing power. • Quality.
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. Turnaround times are continuously monitored.
During such a long period of settlement, the levels of compensation could be significantly affected by changes in legislation, case-law or practice in the award of damages adopted by, for example, the Danish National Board of Industrial Injuries which awards compensation for injury and loss of earnings potential in all cases of serious industrial injuries.
Provisions for outstanding claims (%) 2014 2015 Short-tail 13 13 Annuity provisions in workers' compensation 24 23 Other claims provisions in workers' compensation 23 25
Announcement No. 16/2016 from Topdanmark A/S Page 66 of 91 compensation per policy being higher than the level of general indexation or due to a change in judicial practice / legislation.
Provisions for unearned premiums The risk on provisions for unearned premiums is relevant particularly within change of ownership insurance and lines with high levels of compensation, for example, workers' compensation and motor liability insurance. In the event of a change in the level of either premiums or compensation in these lines, the provision for unearned premiums could be insufficient to cover the related expenses. In this case, it will be necessary to strengthen this provision.
For change of ownership insurance, the policy covers a period of five or ten years and the full five or ten-year payment is made up front. 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.
A national guarantee scheme of DKK 15bn covering terror claims including an element of NBCR (nuclear, biological, chemical, radiological) has been established. In 2015, the national guarantee scheme covered any market retention in excess of DKK 5.5bn. With effect from 1 January 2016, the market retention was increased to DKKK 13.73bn.
The Danish non-life companies have established a terror pool. The terror pool has bought reinsurance, which covers DKK 5,425m after DKK 500m. Industrial injuries caused by any form of terror are covered by the Government with a few exceptions.
In order to protect shareholders' equity, it will be relevant to reduce market risks in the event of low interest rates.
In portfolios with high guaranteed benefits, including the portfolio of policies with 4.5% guaranteed benefits, the interest rate risk in interest groups with such schemes has been countered by EURO CMS floors with a strike rate of 5%.
Extra costs due to a permanent change in disability risk will be partially covered by individual and collective bonus potential. The remainder affects profit / loss for the year and consequently shareholders' equity.
Workers' compensation and illness / accident insurance differ from the general principles regarding the inclusion of an allowance for inflation. The provisions in workers' compensation insurance are calculated on the basis of the expected future indexation of wages and salaries, and those in illness / accident insurance on the basis of the expected net price index.
Topdanmark finances its activities and share buy-back programme by using its subsidiaries' surplus liquidity via inter-group accounts, which are reduced by paying dividends.
Operational risk Operational risk includes the risk of errors and deficiencies in internal processes, human errors, system errors, breakdowns of IT systems and losses incurred due to external events.
Tests Periodically, Topdanmark’s critical IT systems are tested to see if they can be compromised from outside and whether the IT systems have vulnerabilities that need to be repaired.
These tests are made by an external company with special expertise in this area. Topdanmark’s IT security committee discusses and prioritizes the performance and results of the tests.
The implementation of new IT systems is only effected after extensive testing procedures.
Accessibility It is Topdanmark's goal that the accessibility of its main systems is no less than 99.5%. In 2015 it was 99.85%.
Central Claims Central Claims is a minor department solely dealing with cases where fraud is suspected. Topdanmark believes that honest customers should not have to pay for the dishonest customers. Therefore, we owe our customers to examine any suspicion of insurance fraud.
Rules comprise all rules, internal rules of Topdanmark's policies and the relevant guidelines as well as all relevant legislation and its subrules. Furthermore, rules comprise fixed trade practices for the performance of activity in Topdanmark.
The Compliance Function's work comprises the following principal tasks: • Compliance reviews and annual current state meetings with all of the Group's business sectors and administrative departments.
• Reporting on compliance risks to the Executive Board and the Board of Directors.
With effect from 1 January 2015, Topdanmark has implemented various new and revised standards and interpretations, which have not resulted in any changes in the accounting policies.
The most significant new standards are: IFRS 9 "Financial instruments", IFRS 15 "Revenue from contracts with customers" and IFRS 16 " Leases". IFRS 9 and IFRS 15 will take effect on 1 January 2018, while IFRS 16 will take effect on 1 January 2019. None of these standards have been adopted by the EU. At present, there are discussions about a specific deferral of the implementation date of IFRS 9 for insurance companies until the same time as IFRS 4, phase II "Insurance contracts" takes effect, expectedly in 2020 or 2021.
IFRS 15 applies to all agreements with customers who are not covered by other standards (for example, financial contracts or insurance contracts).
Future changes to IFRS are not expected to materially change Topdanmark Group’s accounting policies.
Announcement No. 16/2016 from Topdanmark A/S Page 73 of 91 and risk-reducing actions are taken as needed. But shareholders' equity could be affected if the necessary return to meet the guaranteed liabilities is not achieved, on average, over the period of the polices' cover.
Income is recognised in the income statement when earned. Similarly, all expenses are recognised which relate to the financial year, including amortisation and impairment.
The initial recognition of transactions in currencies other than DKK is made at the exchange rates prevailing at the date of the transactions. Debts and receivables, and other monetary items which have not been settled on 31 December, are translated at the closing exchange rates on 31 December. Translation differences are disclosed in Revaluations in the Income Statement.
Income and expenses of foreign companies which prepare their financial statements in functional currencies other than DKK are translated at average exchange rates for the year, while balance sheet items are translated at the closing exchange rates on 31 December. Any translation differences are included in other comprehensive income.
The risk return is transferred to shareholders' equity if it can be covered by a sufficient technical basis for risk allowance within each contribution group. Principally, any surplus risk return is transferred to a shadow account, which will be included as income when the group returns to being in profit.
Ratios The financial ratios have been calculated in accordance with the definitions of ratios issued by the Danish Finance Society in 2015, except for “profit per share” and “diluted profit per share”, which have been calculated in accordance with IAS 33 Earnings per share.
Ratios for non-life insurance are in accordance with the DFSA's Executive Order on Financial Reports for Insurance Companies and Multi-employer Occupational Pension Funds. 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.
The expected cash flow is based on the assumed net earnings for the future year adjusted to reflect normal earnings, including the current market rent. Adjustments are made for factors which are not reflected in normal earnings, for example, major renovation works, expected idleness etc.
The calculation of the capital value uses a rate of return which is fixed for each property on the basis of the current market conditions on the balance sheet date for the type of property concerned, the location of the properties, the quality of the tenants etc. with the effect that the rate of return is estimated to reflect the current rates of return the market for corresponding properties.
Market trends and the rates of return of the market are regularly analysed. Each property is assessed annually by the Group's own valuation experts.
The adjustment for the financial year of the fair value of the properties is recognised in the income statement.
Receivables that are measured at amortised cost The initial recognition of receivables is made at fair value, and subsequent recognitions are made at amortised cost. The receivables are regularly assessed for impairment and written down to their recoverable amount, as required. Such impairments are generally made collectively on the basis of the receivable ageing analysis. When an individual receivable is considered irrevocable, the value of the impairment is transferred out of the account for collective allowances.
Subordinated loan capital The initial recognition of subordinated loan capital is made at fair value less transaction costs and, subsequently, measured at amortised cost. Any difference between the proceeds (less transaction costs) and the nominal value is recognised in the income statement over the loan period based on an effective interest rate.
Guaranteed pension benefits are measured as the present value of current guaranteed benefits plus future administrative expenses less the present value of the agreed premiums. Guaranteed benefits also include provisions for group life policies and provisions for claims incurred but not reported (IBNR). Guaranteed benefits have been calculated without taking into account the conversion of insurance contracts into paid-up policies and surrenders.
Bonus potential on paid-up benefits comprises the difference between, on the one hand, a policy's savings (retrospective provision) less the present value of the expected future expense result, and on the other hand, the present value of the guaranteed future benefits originating from already paid premiums.
Provisions for claims and benefits Provisions for claims and benefits cover future payments of claims incurred and their administration.
Provisions for bonuses and rebates Provisions for bonuses and rebates are the amounts payable to policyholders as the result of a favourable claims trend.
Other liabilities Provisions for pensions and similar liabilities Provisions for anniversary bonuses and retirement benefits are built up on an on-going basis over the period of employment. The liability is calculated taking into account the expected level of staff reduction based on the Company's experience. The liability is measured at present value by discounting the expected future payments using DFSA's interest rate structure.
Amounts due from affiliated companies 102 497 Other debtors 0 4 TOTAL DEBTORS 102 501
Current tax assets 0 25 Deferred tax assets 1 1 Liquid funds 2 2 TOTAL OTHER ASSETS 4 28 TOTAL ASSETS 6,143 5,676
Profit / (loss) for the year 1,599 (41) 1,558 Other comprehensive income in affiliated companies (10) 0 (10) Total comprehensive income for the year 1,590 (41) 1,548
Calculated tax on profit for the year 23.5% (2014: 24.5%) 14 11 Adjusted for the tax effect of: Non-deductible expenses / income not liable to tax 0 (1) Prior year adjustment 3 0
Share of loan included in capital base 407 409 Interest charges 9 8
Remuneration of the Board of Directors Directors' fees were DKK 5,075,000 (2014: DKK 4,712,000) of which DKK 263,000 (2014: 244,000) related to Topdanmark Forsikring A/S.
Salaries etc. 19 19 Share options 2 2 Total remuneration to three members of the Executive Board 20 21
Note 9. Related parties - continued Shares, bonds and subordinated notes held by the Board of Directors and Executive Board The information relates to the Board of Directors and Executive Board notified on 31 December. Board of Directors Number of shares 25,970 14,319 Bonds, nominal value DKK '000 82 0 Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 6,050 4,050
Shareholders' equity 5,442 4,979 Deferred tax assets (2) (2) Deduction related to subsidiaries and associated companies (388) (155) Capital adequacy requirements for insurance companies (2,507) (3,401) Core capital 2,545 1,422 Hybrid core capital 407 409 Capital base 2,952 1,830
The net asset value of affiliated companies is calculated without providing for deferred tax on security funds, unless it is probable that a situation creating such a tax liability will arise within the foreseeable future.
There have been no events in the period from 31 December 2015 until the presentation of the financial statements which could change the assessment of the annual report.
Disclaimer This annual report includes statements relating to the future. Such statements are uncertain and involve both general and specific risks.
Internal audit’s reports Report on the consolidated financial statements and annual financial statements We have audited the consolidated financial statements and annual financial statements of Topdanmark A/S for the financial year 1 January to 31 December 2015, which comprise the income statement, statement of comprehensive income, balance sheet, statement of changes in equity and notes, including the accounting policies, for the Group as well as the parent company, and including cash flow statement for the Group. The consolidated financial statements 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 financial statements have been prepared in accordance with the Danish Financial Business Act.
Management is responsible for the consolidated financial statements and annual financial statements. Our responsibility is to express an opinion on the consolidated financial statements and annual financial statements based on our audit.
Opinion In our opinion, the consolidated financial statements give a true and fair view of the Group’s assets, liabilities and financial position at 31 December 2015, and of the results of its activities and cash flows for the financial year 1 January to 31 December 2015 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial services companies.
Further, in our opinion, the annual financial statements give a true and fair view of the parent company's assets, liabilities and financial position at 31 December 2015, and of the results of its activities for the financial year 1 January to 31 December 2015 in accordance with the Danish Financial Business Act.
Anders O. Gjelstrup Jacques Peronard State Authorised Public Accountant State Authorised Public Accountant