TOPDANMARK ANNUAL REPORT FOR 2018 21 February 2019 Announcement No. 04/2019
Key features 2018 • Post-tax profit of DKK 1,331m (2017: DKK 1,733m) • The profit of DKK 1,331m was better than assumed in the interim report for Q1-Q3 2018 where the profit forecast model was DKK 1,200-1,300m
(2017: 85.8) • Premiums increased 1.7% in non-life insurance and 18.6% in life insurance • Profit on life insurance was DKK 228m (2017: DKK 249m) • After return and revaluation of non-life insurance provisions, the investment return was DKK 16m (2017: DKK 396m).
Profit forecast model for 2019 • As compared with the profit forecast model for 2019 in the interim report for Q1-Q3 2018, the assumed combined ratio for 2019 remains unchanged at 89-90 excl. run-off and incl. additional expenses of 0.5 to 1pp in connection with investment in increased digitisation and automation
• Despite the termination of the distribution agreement with Danske Bank, a higher premium growth is expected in 2019 compared to actual growth in 2018
• The post-tax profit forecast model for 2019 amounts to DKK 1,000-1,100m, excluding run-off.
Please direct any queries to: Lars Thykier Chief Financial Officer Direct tel.: +45 4474 3714
Annual financial statements ● Group 24 Five-year summary 25 Income statement 26 Statement of comprehensive income 27 Assets 28 Shareholders’ equity and liabilities 29 Cash flow statement 30 Statement of changes in equity 31 Notes to the financial statements 67 Accounting policies
Annual financial statements ● Parent company 78 Income statement 78 Statement of comprehensive income 79 Balance sheet 80 Statement of changes in equity 81 Notes to the financial statements 85 Statement by Management on the Annual Report 86 Internal audit’s report 87 Independent auditor’s report
Premiums earned: Results: Run-off profits, net of reinsurance 351 381 470 344 353 94 143
Other movements in shareholders' equity (1) (3) (1) 0 1 (1) 0 Shareholders' equity of parent company
Combined ratio excl. run-off profits 89.8 91.1 90.4 85.8 87.5 86.3 88.1 *) In 2018, the classification of insurance and investment contracts in life insurance has been subject to reassessment by Topdanmark Group. Comparative figures have been adjusted. Please refer to the comments made under “Accounting policies”.
The technical result decreased by DKK 123m to DKK 1,499m. The primary reason for the decline is that the very low level of fire claims in 2017 did not recur in 2018.
The profit on life insurance declined by DKK 21m to DKK 228m which is primarily due to a deteriorated risk result on disability and premiums waived.
The technical result increased by DKK 10m to DKK 411m. The reason for the increase is that higher run-off profits in Q4 2018 as compared with Q4 2017 more than compensated for a less favourable trend before run-off.
Non-life insurance in 2018 Premiums earned Premiums earned in 2018 increased by 1.7% to DKK 9,135m. The personal segment accounted for a 1.5% increase, and the SME segment accounted for a 1.8% increase.
In 2018, Topdanmark had a continuously growing number of customers in the personal, agricultural and SME markets. The increase in the number of customers is primarily due to improved customer retention.
Also, premiums earned are adversely impacted by accounting adjustments regarding unexpired risk etc. (adjustments related to onerous contracts) corresponding to 0.7%.
Claims trend The claims trend was 67.5 in 2018 (2017: 65.8).
The run-off profits, net of reinsurance, were DKK 353m (2017: DKK 344m), representing a 0.1pp favourable impact on the claims trend. Run-off profits were primarily generated in motor liability, illness/accident and workers’ compensation. A provisional estimate of DKK 50m is included in the run-off in connection with the bankruptcy of Alpha Insurance A/S. The amount represents Topdanmark’s expected share of the industry’s statutory liability related to workers’ compensation claims not being covered by Alpha Insurance A/S as a result of the bankruptcy of the company.
In 2018, weather-related claims amounted to DKK 9m (2017: DKK 33m), representing a 0.3pp improvement of the claims trend. The level of weather-related claims was DKK 161m below normal level of DKK 170m.
The claims trend excl. run-off, weather-related claims, large-scale claims and other positions including change of risk margin deteriorated by 1.1pp to 70.2 in 2018.
The deterioration of the adjusted claims trend of 1.1pp is a consequence of an increased amount of damages caused by fire primarily in Q2 2018. Consequently, the level of damages caused by fire (fire claims of less than DKK 5m by event) increased in line with a 0.8pp deterioration of the claims trend. Furthermore, the claims trend on burst pipes was higher when compared to 2017. Conversely, 2018 saw an improved claims trend on theft.
The relatively weak premium trend in Q4 is a result of the termination of the distribution agreements with Nykredit and Sydbank, which impacted premiums earned by DKK 18m (loss), equivalent to 0.8% and accounting adjustments primarily concerning unexpired risk of DKK 53m (loss) equivalent to 2.4%.
The large-scale claims (fire claims) were DKK 25m in Q4 2018, which was an increase of DKK 20m compared with Q4 2017, representing a deterioration of the claims trend of 0.9pp. Weather-related claims in Q4 2018 amounted to DKK 9m. In Q4 2017, the weather-related claims accounted for DKK 13m and as such the claims trend improved by 0.2pp in Q4 2018.
The claims trend was impacted by run-off profits of DKK 143m, which was an increase of DKK 49m compared to Q4 2017. The run-off profits come from illness/accident, motor liability and workers’ compensation. It represents a 2.2pp improvement of the claims trend. In Q4 2018, DKK 50m was allocated in connection with the bankruptcy of Alpha Insurance A/S.
A change of the risk margin had a positive impact on the claims trend by DKK 13m, representing an impact of 0.6pp.
The claims trend adjusted for run-off, weather-related claims, large-scale claims and change of risk margin deteriorated by 1.7pp to 70.5 in Q4 2018. The adjusted claims trend was extraordinarily low in Q4 2017, whereas the claims trend was slightly better than normal level in Q4 2018.
The expense ratio was 16.7 in Q4 2018 (Q4 2017: 16.5).
The combined ratio was 81.7 in Q4 2018 (Q4 2017: 82.1). Excluding run-off profits, the combined ratio was 88.1 (Q4 2017: 86.3).
Segment reporting Private The Private segment offers insurance policies to individual households in Denmark.
The technical result was DKK 843m in 2018, representing a decline of DKK 39m as compared with 2017.
The expense ratio declined to 15.9 (2017: 16.2). The combined ratio was 83.3 (2017: 82.3).
Investment return after return and revaluations of non-life insurance provisions 13 (157) 277 (85)
The technical result declined by DKK 88m to DKK 656m in 2018.
The claims trend deteriorated by 2.1pp to 67.6. The increase of gross claims is mainly due to more fire claims in the SME segment in Q2 2018 and more fire claims in agriculture in Q3 2018. In Q4 2018, there has been an average number of fire claims. It is pointed out that 2017 was an exceptionally favourable year with only a few fire claims. Weather-related claims represented DKK 5m in 2018 (2017: DKK 18m).
In 2000, Topdanmark took over Danske Bank’s non-life insurance portfolio, and since then Topdanmark has sold non-life insurance policies via the Danske Forsikring brand. At the end of 2018, the Danske Forsikring portfolio represented DKK 2.1bn.
The decline in profit of DKK 21m is mainly due to a drop in the risk result on disability and premiums waived. These results may fluctuate between years as a consequence of new claims for disability and recovery.
In addition to this, the results for 2018 were impacted by the weak financial markets, making it impossible to fully recognise the risk return from with profit products. As a consequence, a risk return of DKK 5m is lost in 2018 against full risk return in 2017.
Regular premiums increased by 1.3% to DKK 2,855m in 2018. Single premiums increased by 27.1% to DKK 7,257m in 2018. The low premium growth within regular premiums is a consequence of the termination of the distribution agreements with Nykredit and Sydbank.
Premiums on investment contracts which are not included in the gross premiums in the income statement but are recognised in the balance sheet represent DKK 1,415m (2017: DKK 926m), which is an increase of 52.8%.
The total gross premiums within life insurance including premiums on investment contracts represent DKK 11,526m (2017: DKK 9,451m), which is an increase of 22%.
Developments in Q4 2018 The profit in Q4 2018 increased by DKK 3m to DKK 45m.
Topdanmark's policy is to accept a certain level of financial risk, given its strong liquidity position and stable, high earnings from insurance operations. Topdanmark has invested in equities, properties and CDOs, among other things, in order to improve the average investment return.
The class “Unlisted equities and hedge funds” includes private equity positions (DKK 28m) and positions in hedge funds where the investment mandates aim primarily at positioning on the credit market (DKK 209m).
The class of “Government and mortgage bonds” comprises primarily Danish government and mortgage bonds. The assets of this class are interest-rate sensitive, which to a significant extent is equivalent to the total interest-rate sensitivity of the technical provisions in Topdanmark Forsikring and the I/A provisions in Topdanmark Livsforsikring (the life insurance company). Consequently, the return on “Government and mortgage bonds” should be assessed in connection with return and revaluation of the insurance provisions.
The class “Index linked bonds” comprises bonds – primarily Danish mortgage bonds – for which the coupon and principal are index linked.
Parent company etc. The parent company, Topdanmark, does not perform any independent activities. The profits of the parent company etc. include the profits of subsidiaries, excluding the insurance business (primarily Topdanmark Asset Management) and finance costs.
The profits of the parent company etc. decreased by DKK 23m to DKK 54m in 2018. The reduced profit mainly derives from lower performance-related investment management fees in Topdanmark Kapitalforvaltning (Topdanmark Asset Management).
Non-life insurance In the interim report for Q1-Q3 2018 it was disclosed that Topdanmark assumed a positive premium growth for 2019. This was based upon the following assumptions: • In 2018, the termination of the distribution agreements with Nykredit and Sydbank within life insurance had an adverse impact on the premium growth in non-life insurance of approx. 0.5pp. The reason for this is that the distribution agreements with Nykredit and Sydbank within life insurance comprised sale of illness/accident insurance related to pension schemes but registered as non-life insurance with Topdanmark. In 2019, the effect of the terminated distribution agreements is expected to have an adverse impact on premiums earned by 0.2pp when compared with 2018
• The automatic premium indexing in the private segment will be 2.0% in 2019. Approximately 70% of Topdanmark’s premiums earned are comprised of automatic premium indexing. Thus, the premium effect of the automatic premium indexing on non-life insurance is approximately 1.4%.
In the interim report for Q1-Q3 2018, Topdanmark also assumed a combined ratio for 2019 of 89-90, excluding run-off.
This was based on the following assumptions: • A normal year as regards weather-related claims including expenses of DKK 170m. The weatherrelated claims, broken down by quarter are assumed to be as follows: o Q1: DKK 50m o Q2: DKK 25m o Q3: DKK 45m o Q4: DKK 50m
• Large-scale claims (claims of a gross value exceeding DKK 5m) of DKK 100m
The profit forecast model for life insurance is based on the following assumptions: • Full recognition as income of risk return for shareholders’ equity from all interest rate groups • No recognition as income from the shadow account • The profit will be adversely impacted by expenses in connection with the launch of a new IT-system.
The result is very sensitive to fluctuations particularly in the investment return.
Total Group profit Overall, the assumed post-tax profit forecast model for 2019 is DKK 1,000-1,100m. The assumed profit for 2019 is exclusive of run-off.
At the end of 2018, Topdanmark’s solvency ratio was 196. Topdanmark assesses that with this solvency ratio, the Company will be able to maintain normal operations and implement planned measures even in the event of, for example, another collapse in the financial markets as in 2008.
The Risk Committee has set up the Model Committee, which is responsible for developing and operating Topdanmark's internal model for calculation of results probabilities and risks of the non-life insurance portfolio based on random simulation. The model is used for, among other things, optimising the reinsurance programme, calculation of cost of capital, forecast balancing and calculating capital requirements.
Non-life insurance - Investment return after return and revaluations of non-life insurance provisions etc. (79) 90 – 140 Profit on non-life insurance 1,420 1,040 – 1,140
Parent company etc. 54 40 – 50 Pre-tax profit 1,702 1,280 – 1,420
Announcement No. 04/2019 from Topdanmark A/S Page 13 of 90 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 Meeting in the autumn of 2018.
On an ongoing basis, the risk management function addresses the rules for solvency calculation and reporting etc. of the Solvency II Directive in order to ensure that Topdanmark meets this set of rules.
The DFSA has granted Topdanmark approval to use the volatility-adjusted Solvency ll interest rate curve (see above).
Provisioning risk Provisions on ow n account − 1% increase (98) (97)
Market risk Interest-bearing assets 1 pp increase (465) (480) Provisions for claims in effective and benefits etc. interest rate 513 504
Annual currency loss w ith an up to 2.5% probability (VaR) (6) (1)
*35% increase f irst year, subsequently 25%, coincident w ith 20% decline in reactivation rates.
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 means of payment of dividend.
At the end of 2018, Topdanmark’s share capital totalled DKK 90,000,000 divided into shares of DKK 1 each, corresponding to 90,000,000 voting rights. As of 1 February 2019, Topdanmark held 3,459,128 shares representing 3.84% of the share capital.
In accordance with this Act, the number of Board members elected by employees must be at least half the number of those elected by the shareholders at the general meeting. The rights, duties and responsibilities of the Board members elected by employees are the same as those of the Board members elected by shareholders at the general meeting. The term of office for members elected by shareholders at the general meeting is one year, while according to legislation, it is four years for members elected by employees.
The Board of Directors has addressed its composition and qualifications in “Policy on diversity at board level”. The Company believes that, by imposing beforehand very specific requirements on the Board members, it may prevent the election of an evidently qualified Board candidates if they do not fully meet the requirements. Topdanmark wants to make an individual decision 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, its Board members ought to possess combined skills within organisation, strategic management, insurance operations, reinsurance, long-tail business, financial and insurance reporting, general statistics, risk management and assessment, sales to the private and professional markets, marketing/branding, outsourcing, finance, own funds, solvency and minimum capital requirements, rules for internal models, audit, financing, investment, statutory limits, compliance, IT and IT security, digitisation as well as recruitment/HR. Information on the defined competences possessed by each of the Board members elected by shareholders at the general meeting is provided in the section on the Board of Directors in the Annual Report.
Four of the nine Board members are women, two of them elected at the Annual General Meeting and two by Topdanmark's employees. Consequently, Topdanmark meets its goal: that the Board members has a minimum of three persons of each gender. Topdanmark meets the statutory definition of an equal gender distribution.
Evaluation of the Board of Directors On a regular basis, the Board of Directors evaluates the Board assignments, the full Board and the contributions and results made by the individual members, cooperation with the Executive Board, the Chairman’s management of the Board of Directors, the Board composition, the work in the Committees and the set-up of the Committees, the organisation of the work and the quality of the material for the Board of Directors. Based upon anonymous questionnaires on the work in the Board and cooperation
Announcement No. 04/2019 from Topdanmark A/S Page 16 of 90 with the Executive Board, anonymous evaluation of the individual members of the Board of Directors and the Executive Board, individual interviews between the Chairman of the Board and each member of the Board and questionnaires on the expertise of each Board member, the Board of Directors carries out a selfevaluation once a year. The Chairman of the Board is in charge of the evaluation with no assistance by the Executive Board. On the basis of a specific evaluation, the Board of Directors decides if it is necessary and/or relevant to involve external consultants in the evaluation process.
On 23 September 2013, the EU Commission decided that If P&C Insurance Holding Ltd (publ) de facto was in control of Topdanmark. As a consequence of this special situation, it has been agreed that Topdanmark’s Executive Board and some members of the Senior Management earn a compensation over three years, representing six months' salary for each qualifying year. The earning of compensation has taken place. Two members of the present Executive Board and two members of the Senior Management are covered by this agreement and the compensation will be paid on resignation.
The share price reflects the value creation potential at group level. This is one of the reasons why Topdanmark believes that a general rule on share options rather than the receipt of individual bonuses encourages the executives to be more holistic in their approach to value creation. The authorization granted to the Board of Directors to sign individual agreements with one or more members of the Executive Board on individual bonuses dependent on the director’s fulfilment of a number of
Announcement No. 04/2019 from Topdanmark A/S Page 17 of 90 performance goals set by the Board of Directors is only used to a limited extent and only in cases where the Board of Directors wants to support and promote particular and specific efforts in relation to Topdanmark’s strategy.
The remuneration package of the Executive Board and the Senior Management is based upon a fixed basic salary. A fixed share thereof, 10%, is paid as share options. As a partial alternative or a supplement to the fixed basic salary, the Board of Directors may decide to grant individual bonuses for one or more members of the Executive Board, such bonuses being dependent on the Director’s fulfilment of a number of performance goals set by the Board of Directors. The maximum variable salary for a Director will represent 50% of the Director’s fixed basic salary including pension. Performance-dependent bonuses are not paid on top of this. The determination of the fixed basic salary paid to the Executive Board and the Senior Management 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 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 Senior Management and other 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.
Multi-employer Occupational Pension Funds " is available on www.topdanmark.com → Investor Relations → Reports and presentations → CSR reports (
Annual General Meeting The Annual General Meeting will be held on 3 April 2019, 15:00 (CET) at: Tivoli Hotel & Congress Center Arni Magnussons Gade 2 1577 København V
The agenda for the Annual General Meeting will be published in the period 26 February to 12 March 2019.
2019 07 Feb 03/2019 CORRECTION - Proposal for Election of Members for the Board of Directors in Topdanmark 07 Feb 03/2019 Proposal for Election of Members for the Board of Directors in Topdanmark 24 Jan 02/2019 Topdanmark announcement of 2018 Annual Results 02 Jan 01/2019 Issue of options 2018 12 Nov 15/2018 Topdanmark and Danske Bank terminate co-operation on sales on non-life insurances 22 Oct 14/2018 Topdanmark interim report for Q1-Q3 2018 28 Sep 13/2018 Timing of announcement of Topdanmark interim report for Q1-Q3 2018 11 Sep 12/2018 Employee shares 20 Jul 11/2018 Topdanmark half-year report for 2018 23 Apr 10/2018 Topdanmark interim report for Q1 2018 23 Apr 09/2018 Change of employee representative in Topdanmark’s Board of Directors 12 Apr 08/2018 Annual General Meeting of Topdanmark – 12 April 2018 06 Apr 07/2018 Topdanmark appoints new member of the Executive Board 19 Mar 06/2018 Notice convening the Annual General Meeting on 12 April 2018 26 Feb 05/2018 Topdanmark ─ Financial Calendar 2018 22 Feb 04/2018 Topdanmark Annual Report 2017 05 Feb 03/2018 Peter Hermann has been appointed new CEO of Topdanmark 25 Jan 02/2018 Topdanmark announcement of 2017 Annual Results 02 Jan 01/2018 Issue of options
Current position held: Group CEO and President, Sampo Group (as of 1 January 2020)
Commercial Products, If P&C Insurance Ltd. 2002-2019: CEO and President, If P&C Insurance Ltd.
Independence: As Torbjörn Magnusson represents a controlling shareholder’s interests, he does not meet the definition of independence set out by the Committee on Corporate Governance.
Enterprise) (Deputy Chairman) • The Executive Committee in Dansk Erhverv • FDM Travel A/S • OmniCar AB (Chairman).
Expertise and qualifications: The Board has defined the required competences and qualifications for board members of Topdanmark. Among these, Jens Aaløse possesses knowledge and experience of the following: Board assignments in financial businesses, organisation, strategic management, sales for the private market, sales for the professional market, marketing and branding, outsourcing, finances, auditing, financing and investments, regulatory environment, compliance, IT and IT security, digitisation, recruitment and human resources.
Offices held: Member of the Board of Directors of: • BenCo Insurance Holding B.V. (Netherlands) • Kaleva Mutual Insurance Company (Chairman)
Independence: As Petri Niemisvirta represents a controlling shareholder’s interests, he does not meet the definition of independence set out by the Committee on Corporate Governance.
Offices held: Member of the Board of Directors of: • BankInvest • Karnov Group AB.
Offices held: Member of the Board of Directors of: • DSB (Deputy Chairman) • DSV A/S • Ratos AB (Sweden) • Blue Square Re (Netherlands) • KNI A/S • Østre Gasværk Teater • Ny Carlsberg Glyptotek.
Offices held: Member of the Board of Directors of: • If P&C Insurance Holding Ltd. • If P&C Insurance AS (Estonia) (Chairman) • Nobia AB (Sweden).
Expertise and qualifications: The Board has defined the required competences and qualifications for board members of Topdanmark. Among these, Ricard Wennerklint possesses knowledge and experience of the following: Management experience from other financial businesses, board assignments in financial businesses, strategic management, insurance operations, reinsurance, long-tail business (premiums, provisions, run-off), financial and insurance reporting, general statistics, risk management and risk assessment, sales for the private market, sales for the professional market, marketing and branding, outsourcing, finances, own funds, solvency and minimum capital requirements, rules of internal models, financing and investments, digitisation, recruitment and human resources.
Peter Hermann CEO of Topdanmark A/S. DOB 1973, joined Topdanmark in 2016, joined Topdanmark’s Executive Board on 5 February 2018.
Member of the Board of Directors of: • Forsikring & Pension.
Thomas Erichsen CTO of Topdanmark A/S. DOB 1972, joined Topdanmark in 2018, joined Topdanmark’s Executive Board on 1 October 2018.
Allocated investment return, net of reinsurance 2,691 1,194 3,147 3,372 (2,326)
Change in the life insurance provisions and profit margin (2,550) (3,680) (6,197) (6,232) (3,352)
Relative run-off profits, net of reinsurance (%) 2.8 3.0 3.7 2.7 2.8 * Before deducting bonuses and rebates.
In 2018, the classification of insurance and investment contracts in life insurance has been re-assessed by Topdanmark Group as described in Accounting policies. The accounting policies were also adjusted in connection with a new Executive Order on Financial Reports effective as of 2016. To the extent possible, comparative figures have been restated to the changes implemented.
Gross claims paid (5,856) (6,045) Reinsurance cover received 258 362 Change in the provisions for claims 342 (23) Change in risk margin 0 31 Change in the reinsurers' share of the provisions for claims (120) 56 Claims incurred, net of reinsurance 4 (5,376) (5,619)
Acquisition costs (950) (952) Administrative expenses (485) (501) Reinsurance commission and share of profits 78 78 Total operating expenses, net of reinsurance (1,358) (1,375) TECHNICAL PROFIT ON NON-LIFE INSURANCE 5 1,646 1,534
LIFE INSURANCE Gross premiums written 6 8,525 10,111 Ceded reinsurance premiums (0) (1) Premiums, net of reinsurance 8,525 10,111
NON-TECHNICAL ACTIVITIES Technical profit on non-life insurance 1,646 1,534 Technical profit / (loss) on life insurance 8 (48)
Income from associates 18 61 161 Income from investment properties 9 54 45 Interest income and dividends etc. 1,805 1,803
Equity investments in associates 18 1,285 1,678 Total investments in associates 1,285 1,678
Total other financial investment assets 45,906 45,010 TOTAL INVESTMENT ASSETS 50,834 50,518
Share capital 90 90 Revaluation reserve 13 14 Security fund 1,146 1,146 Other reserves 64 67 Total reserves 1,210 1,213 Profit carried forward 3,168 3,349 Proposed dividend 1,710 1,350 TOTAL SHAREHOLDERS' EQUITY 6,191 6,016
Products with guarantees and profitsharing 25 24,063 23,134 Unit-linked products 26 29,891 33,117 Total life insurance provisions 53,954 56,252
Provisions for bonuses and rebates 156 152 TOTAL PROVISIONS FOR INSURANCE AND INVESTMENT CONTRACTS 70,289 72,575
Pensions and similar commitments 28 27 Deferred tax liabilities 22 61 103 Deferred tax on security funds 306 306 TOTAL PROVISIONS 395 436 DEPOSITS RECEIVED FROM REINSURERS 77 81
Debt relating to direct insurance operations 270 373 Debt relating to reinsurance operations 27 18 Amounts due to credit institutions 43 242 Current tax liabilities 35 1
Other debt 1,293 934 TOTAL DEBT 2,181 2,271 ACCRUALS AND DEFERRED INCOME 81 98 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 80,958 83,224
Payments on investment contracts 615 1,008 Dividends from associates 0 17 Interest income and dividends etc. 1,855 1,806 Interest charges etc. (117) (124) Corporation tax (460) (402) Other items (33) (135)
Financing Dividend paid 0 (1,637) Shares bought back (417) 0 Exercise of share options 108 79 Redemption of subordinated loan capital (409) 0 Issue of subordinated loan capital 397 0 Amounts due to credit institutions (0) 199
Revalu- Profit Share ation Security Other carried Proposed capital reserve fund reserves forward dividend Total
Total comprehensive income for the year 1 3 (23) 1,350 1,332
Per- min- Parent minsonal SME ated Non-life Life etc. ated Group
Technical profit on non-life insurance 882 744 (4) 1,622 25 1,646
Life insurance Gross premiums written 8,525 8,525 Allocated investment return 3,372 3,372 Pension return tax (522) (522) Benefits and change in provisions (10,932) (10,932)
Net reinsurance (1) (1) Technical profit on life insurance (54) 6 (48)
Pension return non-life insurance (4) 4 0 Return and revaluations non-life insurance provisions (86) (86) Transferred to technical result 2,326 2,326
Equity investments in associates 63 1,615 0 1,678 Other financial investment assets 19,448 25,556 6 45,010 Investment assets related to unit-linked products 0 27,890 0 27,890 Reinsurers' share of provisions 619 17 0 635
Gross premiums earned, direct business, by location of the risk: Other EU-countries 6 7 Other countries 1 2
Note 4. Claims incurred, net of reinsurance - non-life insurance Run-off result: Gross business 393 319 Reinsurance ceded (50) 34 Run-off result, net of reinsurance (profit) 344 353 Specification of run-off result on lines in Note 5. Claims incurred include revaluation of derivatives hedging the inflation risk in workers' compensation and illness / accident insurance 10 (118)
Note 5. Technical result - non-life insurance 2017 2018 2017 2018 2017 2018
Run-off profits / (loss), net of reinsurance 157 124 5 0 36 (28) Claims provisions, net of reinsurance 1,361 1,226 139 139 530 605
Average value of claim (DKK '000) 22 22 9 9 13 15 Frequency of claims (per thousand value) 44 43 193 199 143 128 liability
Note 5. Technical result - non-life - continued 2017 2018 2017 2018 2017 2018
Average value of claim (DKK '000) 38 56 27 25 23 23 Frequency of claims (per thousand value) 119 114 70 72 99 92
Average value of claim (DKK '000) 11 10 3 3 14 15 Frequency of claims (per thousand value) 76 85 212 204 106 104 The loss ratio and the combined ratio have been calculated in accordance with the Executive Order on Financial Reports before elimination of internal rent.
Note 6. Gross premiums written - life insurance 2017 2018 Individual policies 335 304 Policies which are part of a tenure 1,973 2,228 Group life 508 322 Regular premiums 2,817 2,855 Individual policies 1,875 1,856 Policies which are part of a tenure 3,833 5,401 Single premiums 5,709 7,257 Gross premiums 8,525 10,111
Note 7. Claims and benefits paid - life insurance Claims payable on death 139 96 Claims payable on invalidity 1 1 Claims payable on maturity 158 137 Pension and annuity payments 604 599
Note 8. Change in life insurance provisions Products with guarantees and profitsharing 195 758 Unit-linked products (6,286) (4,076) Change in life insurance provisions (6,091) (3,318)
Note 9. Income from investment properties Rental income 187 197 Operating expenses from properties rented out (112) (131) Operating expenses from properties not rented out (13) (9) Gross profit 62 57 Administrative expenses (8) (12) Income from investment properties 54 45 Tenancy agreements may include a period of non-terminability for the tenant. Future rental income in the period of non-terminability: Up to 1 year 183 205
Revaluation Provisions for unearned premiums and profit margin 0 2 Provisions for claims and benefits (24) 24 Risk margin 3 0 Reinsurers' share of the provisions for claims 1 (1)
Note 13. Taxation Current tax 503 338 Change in deferred tax (2) 39 Prior year adjustment (2) (9) Tax in foreign companies (1) (0) Tax for the year 498 368 Tax taken to shareholders' equity 4 3
Calculated tax on profit for the year 22% (2017: 22%) 492 374 Adjusted for the tax effect of: Returns on shares etc. not liable to tax 4 (1) Non-deductible expenses / income not liable to tax 7 7 Prior year adjustment (1) (8)
Impairment and amortisation at 31 December 0 (225) (506) 0 (731)
Goodwill The future cash flows are based on three years’ expected technical result and a terminal value of the segment to which goodwill relate. The expected technical results are 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 reinsurance result 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% (2017: 0%). The pre-tax discount rate is 8.3% (2017: 9.6%) and the post-tax rate 6.5% (2017: 7.5%). 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.
Note 16. Tangible assets Operating Ownerequip - occupied 2017 ment properties Total
Impairment and amortisation at 1 January (324) 0 (324) Amortisation for the year (34) (1) (36) Transferred on revaluation 0 1 1 Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year 95 0 95 Impairment and amortisation at 31 December (263) 0 (263)
Cost / revaluation at 1 January 375 853 1,228 Additions, including improvements 44 0 44
Revaluation taken to other comprehensive income 0 1 1 Transferred on revaluation 0 (1) (1) Cost / revaluation at 31 December 327 853 1,180
Impairment and amortisation at 1 January (263) 0 (263) Amortisation for the year (32) (1) (33) Transferred on revaluation 0 1 1 Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year 84 0 84 Impairment and amortisation at 31 December (211) 0 (211)
An 0.5pp increased rate of return will reduce the total fair value by DKK 75m (2017: DKK 75m).
Carrying amount if the properties had been valued at cost price with depreciations 716 715
Note 17. Investment properties Fair value at 1 January 3,579 3,783
Fair value revaluation for the year taken to to revaluations 6 51 Total investment properties 3,783 4,137
The basis of the measurement is an expected annual operating return and rate of return. The rate of return used in the valuation spans from 4.5% to 9.6% (2017: 4.5% to 10%).
Share of profit 61 161 Dividends received 0 (17) Shares in associates 1,285 1,678
Property Carlsberg Byen P/S, Copenhagen 23 development 1,793 179 Havneholmen P/S, Kgs. Lyngby 50 Property 957 25 Margretheholm P/S, Frederiksberg 50 Property 349 45 Bornholms Brandforsikring A/S, Rønne 27 Insurance 246 31 P/S Ejendomsholding Banemarksvej, Odense 40 Property 117 6
Carlsberg Byen P/S, Copenhagen 23 development 1,918 125 Havneholmen P/S, Kgs. Lyngby 50 Property 986 29 Margretheholm P/S, Frederiksberg 50 Property 510 162 Bornholms Brandforsikring A/S, Rønne 27 Insurance 268 22 P/S Ejendomsholding Banemarksvej, Odense 40 Property 112 10 P/S Ottilia, Copenhagen* 50 Property - -
Note 19. Investment assets related to unit-linked products Equity investments 12,268 14,560 Unit trusts 3,024 1,758
Offset in periodized commissions (0) (3) Ceded reinsurance premiums 617 617 Earned reinsurance premiums (605) (607)
Reinsurers' share of the provisions for unearned premiums at 31 December 84 92
Net present value of expected future cashflows 15 22 Profit margin 69 70
If permitted by the DFSA, the borrower can give notice of termination from 23 November 2022 11 December 2020 11 June 2021
Subordinated loan capital is fully included in the Group's own funds.
Gross premiums written 9,050 9,205 Premiums earned (9,051) (9,197) Change in risk margin 3 9
Provisions for unearned premiums at 31 December 1,856 1,819 Profit margin at 31 December 751 807 Provisions for unearned premiums and profit margin at 31 December 2,607 2,626
Note 25. Life insurance provisions with guarantees and profitsharing Life insurance provisions direct business at beginning of year 24,465 24,063 Profit margin at 1 January 0 88 Total insurance provisions at beginning of year 24,465 24,151 Collective bonus potential at 1 January (1,960) (2,270) Accumulated revaluation at 1 January (1,831) (1,654) Retrospective provisions at 1 January 20,674 20,227 Gross premiums written 1,460 1,346 Addition of return 644 580 Claims and benefits (2,168) (1,774) Expense loading inclusive of expense bonus (146) (100) Risk gain after allocating policyholders' risk bonus (82) (23)
Cost groups Customers' share of administration expenses after addition of expense bonus 76 68 Operating expenses - insurance (198) (196) Result of sales and administration (122) (128) Result of sales and administration in per cent (0.5) (0.6)
Return on customer funds after expenses before tax in per cent 3.7 (1.2)
Gross provisions at 1 January 20,719 2,064 22,783 Profit margin at 1 January 94 9 103 Retrospective provisions at 1 January 20,813 2,073 22,886 Gross premiums written 7,065 926 7,991 Addition of return 1,708 190 1,897 Claims and benefits (2,533) (311) (2,844) Expense loading inclusive of expense bonus (69) (11) (80) Risk gain after addition of risk bonus 6 0 7 Premiums waived transferred to life insurance provisions (23) 0 (23)
Note 26. Life insurance provisions unit-linked products - continued Insurance Investment 2018 contracts contracts Total
Intra-group transfers 56 0 56 Sale of affiliate (1,923) 0 (1,923) Retrospective provisions at 31 December 29,651 3,652 33,303 Profit margin at 31 December (171) (15) (186)
Return on customer funds after expenses before tax in per cent 9.0 (7.0) Number of customers with investment contracts: Individual policies 4,584 6,583 Policies which are part of a tenure 3,165 3,821 The contracts written do not have guarantees.
Provisions for claims, net of reinsurance 12,544 12,476 Provisions net of reinsurance for business lines being settled in whole or partly as annuities: Workers' compensation insurance 6,048 6,033 Average period of settlement 7 years 7 years Illness / accident insurance, administered by the life insurance business 2,343 2,248 Average period of settlement 13 years 13 years
Note 28. Provisions for claims - continued Claims liabilities analysed by claims year 9 years later 6,474 Less paid incl. inf lation hedging 6,076 6,256 6,558 5,630 6,832 5,653 5,497 5,076 4,406 3,254 55,237 Provisions before discounting
Provisions relating to previous years at 31 December 2,357 Gross provisions at 31 December 2018 13,003
Reconciliation: Provisions for claims 13,003 Less reinsurers' share of provisions (527) Provisions, net of reinsurance, at 31 December 2018 12,476 Composition of expected payments, net of reinsurance: Discounting / revaluation w orkers' compensation
The table show s the historical development in the estimated f inal liability (the sum of claims payments and provisions) for each claims year. Signif icant proportions of the liabilities show n have been calculated w ithout discounting w hich to a great extent eliminates changes in discounting rates. How ever, w orkers' compensation and illness / accident administered by Topdanmark Livsforsikring A/S are included at discounted values.
Shadow account at 31 December 48 55 Expected future recognition 1 0
Note 30. Expenses Expenses by their nature: Staff costs (excl. commission) 1,831 1,825 Executive Board 44 31 Board of Directors 5 6 Other staff costs 52 60 Commission - non-life insurance 204 195 Commission - life insurance 68 50 Premises costs etc. 156 143 IT operations and maintenance 229 250 Impairment and amortisation 76 72 Other expenses 200 262 Total expenses 2,867 2,895 These expenses have been disclosed in: Non-life insurance: Acquisition costs 950 952 Administrative expenses 485 501 Claims paid (claims handling and assessment) 776 765
Income from investment properties (administration and operation) 133 152 Expenses on investment activities 39 47 Other expenses 51 58 Total expenses 2,867 2,895
Social security costs 38 36 Payroll tax 246 250 Share options 8 8 Employee shares 43 38
Average strike price at 31 December 2018 213 209 204 208
Note 33. Related parties Possessing an ownership interest of 48.59% of the shares outstanding, Sampo plc, Fabianinkatu 27, Helsinki, Finland has a controlling influence of Topdanmark A/S. Related parties with significant influence comprise the Board of Directors, the Executive Board and their families.
Remuneration of the Board of Directors Directors' fees adopted by the AGM were DKK 5,871,000 (2017: DKK 5,075,000). As the Chairman of the Board of Directors has renounced a remuneration for attending in the Remuneration Committee, the director's fee amounts to DKK 5,775,000.
(DKK '000): Torbjörn Magnusson 1,079 1,348 Jens Aaløse 350 770 Tina Møller Carlsson 350 385 Mette Jensen 350 481 Petri Niemisvirta 233 385 Lone Møller Olsen 525 610 Annette Sadolin 817 770 Søren Vestergaard - 257 Ricard Wennerklint 350 642 Ann-Jeanette Bakbøl 350 128 Birgitte Nielsen 175 Søren Thorup Sørensen 496 Total fee paid to nine Board members 5,075 5,775 For foreign board members, social charges of DKK 412,000 (2017: DKK 296,000) have additionally been paid. The Board of Directors solely receives a fixed remuneration.
Remuneration of the Executive Board Peter Thomas Brian R. Lars Marianne Hermann Erichsen Jacobsen Thykier Wier
Note 33. Related parties - continued *Up to 5 February 2018, Lars Thykier has been acting CEO and as such earned a bonus of DKK 400,000 which is included in his salary etc. **Peter Hermann has been granted performance-dependent bonuses of DKK 250,000. Performance-related pay is variable remuneration and 40% hereof will be deferred for four years beginning one year after the time of calculation in 2019.
***Brian R. Jacobsen, Lars Thykier and Marianne Wier have successively earned a remuneration equivalent to 18 months' salary which to be paid by the termination of the employment. Marianne Wier resigned as of February 2018 with a notice period of one year. Upon expiry of the period in 2019, a remuneration of DKK 8.8m shall be paid. For Christian Sagild who resigned in 2017, was paid a remuneration of DKK 13.2m in 2018. ****Marianne Wier shall receive remuneration in the notice period of one year. In 2019, a remuneration of DKK 1.8m including holiday pay shall be paid. The pay has been charged to the profit and loss account for 2018. Christian Sagild, who resigned end of 2017, has received a remuneration of DKK 10.4m including share options of DKK 0.8m in the notice period in 2018. DKK 10.2m hereof was provided for the financial statements for 2017. Thus, paid remuneration and compensation for present and former members of the Executive Board amount to DKK 50.5m of which variable remuneration accounts for DKK 2.8m.
* Salary etc. for Christian Sagild includes anniversary bonus of DKK 0.6m earned in previous years. ** The Executive Board successively accrues a remuneration of eighteen months to be disbursed on expiry of the employment. The remuneration is accumulated through the income statement. Kim Bruhn-Petersen, resigned in 2016, has in 2017 received a remuneration of DKK 8.8m. The remuneration for Christian Sagild amounts to DKK 13.2m to be disbursed by the end of the employment at year-end 2018.
Board of Directors Number of shares Torbjörn Magnusson 500 500 Jens Aaløse 50 50 Tina Møller Carlsson 629 699 Mette Jensen 775 857 Petri Niemisvirta 500 500 Lone Møller Olsen 2,425 2,425 Annette Sadolin 2,620 2,620 Søren Vestergaard - 390 Ricard Wennerklint 2,000 2,000
At 31 Dec 2018, If P&C Insurance Ltd, a subsidiary in the Sampo Group, held subordinated notes in Topdanmark A/S 120 130
Note 34. Financial assets Financial assets at fair value through profit and loss Held for trading: Equity investments 5,904 5,412 Unit trusts 0 6
Investment assets related to unit-linked products 18,436 7,098 117 25,651 Total financial assets at fair value 52,395 18,470 692 71,557
Investment assets related to unit-linked products 19,358 8,140 85 27,583 Total financial assets at fair value 52,887 19,237 469 72,593
Financial assets, level 3: Foreign exchange adjustment (26) 9 Financial assets, level 3 end December 692 469
Allowance account (policyholders and insurance companies): Group companies have agreed to lend equities against security: Carrying amount of equities lent 2,309 2,763 Fair value of bonds received as security for the loan 2,784 3,305 Outline of equity investments can be obtained on application.
Financial liabilities measured at amortised cost Other subordinated loan capital 1,744 1,746 Deposits received from reinsurers 77 81 Debt relating to direct insurance operations 270 373 Debt relating to reinsurance operations 27 18 Current tax liabilities 35 1 Other debt 1,293 934 Total financial liabilities measured at amortised cost 3,447 3,153 Total financial liabilities 4,002 4,098 Financial liabilities payable after five years or more: Amounts due to credit institutions 2 0
Note 36. Collateral relating to financial assets and liabilities Gross Carrying Collateral in Net
Note 37. Sale of affiliate As of 1 April 2018, the Group has disposed of the shares in the subsidiary Nykredit Livsforsikring A/S for DKK 124m cash. As per the time of sale, the balance sheet of the company was compounded as follows: Investment activities related to unit-linked products 1,919 Cash and cash equivalents 22 Other assets 471 Total assets 2,412 Provisions for insurance contracts (2,138) Debt (151) Shareholders' equity 124
Return Assets related to products with guarantees and profitsharing 1 January 31 December (%)* Land and buildings 3,708 3,899 5.2 Listed equity investments 3,642 3,172 (9.1) Unlisted equity investments 1,131 1,176 6.5 Total equity investments 4,772 4,349 (5.6) Government and mortgage bonds 12,019 12,760 0.3 Index-linked bonds 957 937 3.6 Credit bonds and emerging market bonds 2,069 1,823 2.8
Other investment assets (800) (476) 0.0 Derivatives to hedge against the net change in assets and liabilities (143) (101)
Note 41. Own shares Number of Nominal Percentage Bought shares value of share /sold '000 DKKm capital DKKm
The Group's insurance companies have registered the following assets as security for technical provisions: Equity investments in associates 514 564 Equity investments 4,521 4,661
Note 43. Contingent liabilities Contract liabilities 611 398 Adjustments to VAT liabilities 80 105 Other liabilities 19 16 Capital commitments made to loan funds and private equity funds etc. 1,072 609 All companies in the Topdanmark Group and other Danish companies and affiliates in the Sampo Group are jointly taxed with Topdanmark A/S being the management company. Pursuant to the specific rules on corporation taxes etc. in the Danish Companies Act, the companies are liable for the jointly taxed companies and for any obligations to withhold tax from interests, royalties and dividend for companies concerned.
In connection with implementation of a new administration system, Topdanmark Livsforsikring A/S has undertaken to give support in fulfilling Topdanmark EDB II ApS' obligations in accordance with the contract with the supplier.
In connection with implementation of a new customer and core system, Topdanmark Forsikring A/S towards specific suppliers has undertaken to give support in fulfilling Topdanmark EDB IV ApS' obligations in accordance with the contracts.
Disaster risks: • Storm and rainstorm • Fire • Terror • Workers' comp.
Topdanmark's Board of Directors has set limits on the acceptance of market risks in the form of risk limits.
To obtain efficient and secure reinsurance cover which is price competitive, a certain level of counterparty concentration is required.
Counterparty risk on financial contracts is limited by the required security when overall risk on any given counterparty reaches a relatively low threshold value.
The Compliance Function exercises control and provides advice to ensure that the Group’s divisions and administrative departments observe relevant legislation and internal rules.
Customer scoring is used in the personal market. The customers are divided into groups according to the expected level of profitability. The customer scoring helps ensure the balance between each customer's price and risk. This intends to ensure that no customer pays too much to cover losses on customers who pay too little.
Customers’ satisfaction with visits and telephone and internet contact is monitored daily to act immediately on each dissatisfied customer enabling us to help the customer and also learn from the incident.
Topdanmark’s purchasing criteria are as follows: • Quality • Service • Price • Delivery • Digitisation.
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 consists of several levels, and this 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-todate by training targeted at the knowledge level of the individual emergency helper. Furthermore, automation technology and robot processes are being implemented in order to improve the scalability of the emergency programme.
Loss prevention and loss limitation Topdanmark focuses on loss prevention and loss limitation by investing in, among others, IoT-solutions and machine learning. The main objective is to incline customers towards pro-active risk handling so that they themselves can keep abreast of reducing their vulnerability. By doing this, Topdanmark ensures security for the customer and also reduces its own risk.
Examples of short-tail lines are building, personal property and comprehensive motor insurance. Long-tail lines relate to personal injury and liability such as workers' compensation, accident, motor third party insurance and commercial liability. .
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 Labour Market Insurance which awards compensation for injury and loss of earnings potential in all cases of serious industrial injuries. The exposure to industrial injuries has been reduced substantially over the past five years.
Annuity provisions in workers' compensation 23 10 24 11 Other claims provisions in workers' compensation 25 3 24 3
The sufficiency of the provisions is tested in key lines by calculating the provisions using alternative models as well, and then comparing the compensation with information from external sources, primarily statistical material from the Danish Labour Market Insurance and the Danish Road Sector/Road Directorate.
The prognosis is prepared on a quarterly basis, among other things based on analyses in the trend in premiums, claims and expenses and for change of ownership insurance also statistical analyses of claims notification in relation to the time when the policy is written.
Storm and rainstorms Reinsurance covers storm claims of up to DKK 5.1bn with a retention of DKK 100m. Snow loading, snow thawing and rainstorms are also covered. Reinstatement for the proportion of the cover used up is activated by payment of a reinstatement premium. In the event of another storm within the same year, there is cover of a further DKK 5.1bn with a retention of DKK 100m. In the event of a third and fourth storm, there is cover of up to DKK 670m with a retention of DKK 20m if the events occur within the same calendar year. To this should be added the cover not already hit twice by the first two storms. The cover of a third or fourth storm is dependent on the storm programme not having been hit previously by two individual storms each exceeding DKK 2.9bn. The storm programme is renewed on 1 July.
Fire Topdanmark has a proportional reinsurance programme for fire with a maximum retention of DKK 25m per claim on any one business.
The Danish non-life companies have established a terror pool. In 2018, the terror pool bought reinsurance, which covered DKK 4,5bn after DKK 0.5bn. In 2019, the cover remains unchanged. Industrial injuries caused by any form of terror are covered by the Government with a few exceptions.
Lifetime Lifetime risk is the risk that customers with life dependent policies, primarily annuities, live longer than expected, which will increase provisions for lifetime products.
The limits for these financial risks are set by Topdanmark's Board of Directors. In practice, Topdanmark Kapitalforvaltning (asset management) handles the investment, finance and risk alignment processes. Compliance with the limits set by the Board of Directors is regularly controlled. The result of this is reported to the Board of Directors. .
The equity risk is alleviated by trades in the market and by derivatives.
The risk on the property portfolio is limited by a strategy focusing on Copenhagen and Århus. Topdanmark invests in well-situated properties within the segments of housing and flexible office properties.
Credit Spread risk Topdanmark is exposed to credit spread risk from bonds and other investments where prices are dependent on counterparty creditworthiness.
The credit spread risk is alleviated by focusing on bonds etc. with very high creditworthiness and by a spread on counterparties.
The expected cash flows of the bond portfolio are calculated based on option adjusted durations that are used to measure the duration of the bond portfolio. The option adjustment relates primarily to danish mortgage bonds and reflects the expected duration capturing the shortening effect of the borrower´s option to cause the bond to be redeemed through the mortgage institution at any point in time.
Projects are to carry out a risk assessment with a description of the risks, possible consequences and measures to limit these risks.
New IT-systems will not be put into production until completion of an extensive test procedure.
IT Group IT Security, reporting to the IT Manager, is responsible for information security.
Risk assessment Risk assessments of each operational IT risk are made regularly. Group IT Security reports on risks and events to the Compliance Function on a quarterly basis.
Topdanmark's IT risk assessment, information security policy, prioritisation of risks and IT Emergency strategy, are based on IS027001, revised each year and approved by the Board of Directors.
Two external firms possessing special expertise within cyber-crime are members of Topdanmark’s IT Security Committee/Cyber-Security Board and thus act as advisers to Topdanmark’s IT Security Manager. One of the firms provides consultancy on security solutions to maintain an effective defence against Cyber Crime while the other firm conducts regular tests to verify Topdanmark’s resilience against critical attacks from outside. The firm also gives advice about vulnerabilities which must be fixed. Topdanmark’s IT Security Committee reviews and prioritises the results from these tests.
Topdanmark’s technical IT security is based upon several layers of protection (Defense in Depth) and IT also tests infrastructure and new applications, among others. Relevant employees have been educated to use the tools to conduct such tests.
IT emergency plan The IT emergency plan includes plans for re-establishing the IT environment if the systems suffer breakdowns. The IT emergency plan is tested regularly. Topdanmark's business critical systems can be inaccessible for 24 hours without causing significant business problems. In order to reduce the probability of breakdowns of the IT systems and limit their duration, Topdanmark has invested in, for example, emergency power plants with a diesel generator, disk mirroring, alarms and automatic firefighting equipment. Critical IT equipment is in duplicate and placed in two physically discrete machine rooms. Back-up of systems and data is made and a duplicate of the back-up is kept with an outsourcing partner.
The mainframe platform has a higher average accessibility level than the decentralised systems, because these often depend on the mainframe platform.
Event register Topdanmark monitors and reports on operational risks in order that the organisation will learn from its mistakes. Consequently, a process has been established including
The robots are working according to the specified rules. In case that the correct parameters have not been implemented in the robot enabling it to find and register the required information, the task is channelled to the relevant employee. Subsequently, the employee will ensure that the parameters are updated.
Comparative figures have been corrected. Gross premiums for 2017 have been increased by DKK 275m.
New accounting standards IFRS IFRS 15 “Revenue from contracts with customers” has taken effect on 1 January 2018. The standard has not affected presentation of accounts for the Group.
The Topdanmark Group meets the conditions for postponement given that the Group has not previously implemented IFRS 9-standards and since provisions for insurance and investment contracts represent more than 90% of the total liabilities.
Apart from the above, the accounting policies remain unchanged compared to 2017.
Change of accounting estimates The Group has updated the assumptions for measurement of the life insurance provisions. This comprises rate of mortality including expected future life expectancies, disability, recovery and surrenders. The updated assumptions have merely had a marginal impact on the life insurance provisions, the profit for the year and the shareholders’ equity.
Future accounting standards IFRS The IASB has issued a number of new and revised standards and interpretations, which have not yet taken effect and/or been approved by the EU of which the most significant are: IFRS 16 "Leasing” This standard implies that lease contracts are recognized in the balance sheet as an asset (right of use asset) and a liability, respectively. Intangible assets may be omitted. IFRS 16 takes effect on 1 January 2019. The standard is not expected to affect the presentation of accounts for the Group.
Workers' compensation and motor liability insurance policies are typically one-year policies, whereas change of ownership contracts cover a period of five or ten years and the full payment is made up front.
The income statement and balance sheet are presented in accordance with the DFSA's IFRS-compatible Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds.
Recognition and measurement Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to the Group, and where the asset has a value that can be measured reliably. Liabilities are recognised in the balance sheet, when it is probable that future economic
The IFRS defines a hierarchy of three levels for measurement of fair value: Level 1 The calculation at fair value is based on the listed prices of transactions in active markets. If there is an active market for listed equity investments, bonds, derivatives etc., the measurement is generally based on the closing price end of year.
Insurance and investment contracts – classification The Topdanmark Group writes contracts which transfer insurance risk, investment risk or both.
The classification is carried out on contract level. Contracts with related solidary premium waiver or group products are considered insurance contracts in full.
An investment contract is one where the amount of insurance risk is not sufficient for it to be classified as an insurance contract. However, if the investment contract includes bonus participation it is treated as an insurance contract. Payments received and made on investment contracts without bonus participation, have been taken directly to the balance sheet.
Expenses Expenses are recognised in the Group’s income statement classified by function: claims incurred (claims handling), acquisition costs and administrative expenses, investment return and other expenses. The allocation of expenses, which do not directly relate to a function, is based on an assessment.
Segment information Topdanmark has divided its non-life insurance business into the following two business segments: Private offers insurance policies to individual households in Denmark.
The recognition and measurement of the information reported by each segment follow the same accounting policies as those applied by the Group.
Cash flow statement The cash flow statement 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.
Income statement Premiums earned Gross premiums in non-life insurance comprise those premiums due 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. For onerous insurance contracts, the expected loss is included when the contracts are underwritten.
As premium provisions and profit margin are calculated at a discounted basis, an element of interest is included in premiums earned.
In life insurance, premiums net of reinsurance comprise those premiums, including single premiums, which are due within the year, net of reinsurance, for all insurance contracts and bonus participating investment contracts.
Topdanmark A/S is jointly taxed with all the Danish companies of the Topdanmark Group and all Danish companies and affiliates in the Sampo Group. As the
In accordance with the guidelines of the DFSA, the subsequent measurement of the investment properties is made at fair value representing the estimated amount at which the property could be sold within a reasonable time frame to an independent buyer. The fair value is calculated, using the return model, as the calculated capital value of the expected cash flow from each property.
Other reserves Other reserves comprise a reserve at net asset value relating to non-life insurance.
Other subordinated loan capital The initial recognition of other 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.
Premiums for insurance contracts concluded comprise due and undue premiums for insurance contracts for which the Group is committed on the balance sheet day. Undue premiums are composed of the renewal/new policies of the next two months and non-collected instalments for insurance contracts to be paid on a monthly, quarterly or semi-annual basis.
Changes in provisions due to a change in the interest rate curve used and amortisation until the expected time of payment are transferred to “Return and revaluation of non-life insurance provisions”.
Expected payments are calculated at present value discounted by the volatility adjusted interest rate curve.
Life insurance provisions Life insurance provisions for with-profit contracts are measured at fair value. Accordingly, the liabilities are calculated on the basis of the market value independent of the original technical base. The fair value of the life insurance provisions is based on the realistically expected future premiums to be received, benefit payments to be made and administrative expenses incurred on the contracts written.
Remaining 60 year old 60 year old Life expectancy man woman Topdanmark Livsforsikring 27.4 29.5 DFSA's benchmark 26.6 28.8
Provisions for claims in workers' compensation insurance comprise provisions for annuities and other provisions for claims and benefits. The assessment of the future annuities is based on the annuities in force including the expected wage and salary indexation, and a rate of mortality corresponding to G82 with monthly age writedowns on annuities based on the act on accidents and an adjusted G82 rate of mortality on annuities on the act on workers´compensation amended to comply with Topdanmark’s experience base within death intensity for annuitants. Workers’ compensation claims are often paid as the capitalised value of an annuity. The capitalisation rate at the time of capitalisation is to be calculated as a moving average of the most recent five years’ interest rate on leading mortgage bonds less tax. The capitalisation rate is calculated as the forward swap rates plus 0.85% p.a. and less a deduction for tax corresponding to the base tax rate.
Risk margin for non-life insurance contracts Risk margin is calculated as the amount which would be demanded by a purchaser of the company's insurance portfolio for taking on the risk that actual expenses deviate from best estimate relating to settlement of the insurance provisions.
Deferred tax on security funds comprises deferred tax on untaxed amounts transferred to the security funds under shareholders' equity. The security funds will be taxed in the proportion of 10% for every 10pp decline in technical provisions net of reinsurance from the level at 31 December 1994. A decline of 10% from the 1994 level is considered improbable as long as Topdanmark
Share buy-back per share, diluted (DKK) Share buy-back for the year______ Number of shares(average), diluted
Dividend per share issued, proposed (DKK) Proposed dividend_______________ Number of shares issued end of year
Net asset value per share, diluted (DKK) Shareholders’ equity end of year_________ Number of shares issued (average), diluted
Gross loss ratio Gross claims incurred * 100 Gross premiums earned
Gross expense ratio Gross operating expenses * 100 Gross premiums earned
Gross premiums earned comprise the line items “Gross premiums written”, “Change in the provisions for unearned premiums”, “Change in profit margin and risk margin” and “Bonuses and rebates”.
Basis for calculation of these ratios is disclosed in Note 1, Segment information income statement.
The run-off result is due to claims provisions at the beginning of the year being settled or reassessed through the current year at different amounts than expected and provided for in last year´s accounts. The run-off result, gross, is included in claims incurred regardless of income or expense.
Return on shareholders’ equity (%) Profit for the year * 100______ Shareholders´ equity (average)
Ratios life insurance No consolidated ratios for life insurance have been calculated, as Topdanmark does not believe, that a true and fair view would be achieved by presenting ratios based on an accumulation of completely different portfolios.
Income from affiliates 1 1,771 1,372 Interest charges (7) (11) Total investment return 1,764 1,361
Proposed appropriation of profit for the year: Transfer to net revaluation reserve at net asset value 1,771 1,372 Transfer from profit carried forward (1,748) (1,391)
Profit for the year 1,733 1,331 Other comprehensive income from affiliates 0 1 Other comprehensive income 0 1 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,733 1,332
Shareholders' equity at 31 December prior year 90 2,875 1,822 1,710 6,497 Profit / (loss) for the year 1,372 (1,391) 1,350 1,331 Other comprehensive income in affiliates 1 0 1 Total comprehensive income for the year 1,373 (1,391) 1,350 1,332 Dividend paid (1,710) (1,710) Dividend, own shares 73 73 Dividends received from subsidiaries (1,850) 1,850 0 Other movements in capital of subsidiaries 41 41 Share-based payments 11 11 Exercise of share options 79 79
Equity investments in affiliates 6,624 6,188 For detailed information please see Note 44 to the financial statements for the Group.
Carrying amount 397 398 Market value (level 2) 400 400 Costs of raising the loan capital 3 0 Interest charges 6 10
The annual financial statements for the parent company Topdanmark A/S have been prepared in accordance with the Danish Financial Business Act, including the executive order issued by the Danish Financial Supervisory Authority (FDSA) on financial reports for insurance companies and multi-employer occupational pension funds.
The company’s accounting policies for recognition and measurement are in accordance with the Group’s accounting policies with the following amendment: Equity investments in affiliates are recognised and measured at their net asset value. If the net asset value exceeds the recoverable amount, the investment is written down to this lower amount. The share of the posttax results of affiliates is included in the income statement under income from affiliates less any write-downs. Where investments in affiliates are revalued to net asset value, the net revaluation reserve is included in shareholders' equity. The share of the changes in other comprehensive income items and equity of affiliated companies is included directly in other comprehensive income items and shareholders' equity respectively.
Many factors may cause a significant deviation from the forecasts and assumptions set out in the annual report. Such factors could be, for example, cyclical movements, changes in the financial markets, the financial effect of nonanticipated events like acts of terror or exceptional weather conditions, changes in Danish and EU rules, competitive factors in the insurance industry and trends in the reinsurance market.
Opinion We have audited the consolidated financial statements and the parent financial statements of Topdanmark A/S for the financial year 1 January to 31 December 2018. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish requirements for listed financial companies. The parent financial statements are prepared in accordance with the Danish Financial Business Act.
Basis for opinion We conducted our audit based on the Danish Financial Supervisory Authority’s regulation on the preparation of the audit in financial services companies etc. and financial services groups and in accordance with International Standards on Auditing regarding planning and performance of the audit.
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group at 31 December 2018 and of the results of the Group's operations and cash flows for the financial year 1 January to 31 December 2018 in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed financial institutions.
Further, in our opinion, the financial statements give a true and fair view of the financial position of the Parent Company at 31 December 2018 and of the results of the Parent Company's operations for the financial year 1 January to 31 December 2018 in accordance with the Danish Financial Business Act.
Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for the financial year 2018. These matters were addressed during our audit of the financial statements as a whole and in forming our opinion thereon. We do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
Measurement of provisions for insurance and investment contracts involves management estimates and assumptions regarding future events which materially affect the carrying amount. Consequently, we consider it a key audit matter.
The audit procedures performed in cooperation with our actuarial specialists included: • Assessment and test of design, implementation and performance of key controls in the actuarial models, data collection and data analysis as well as processes for determination of assumptions • Assessment of the methods applied using our industry knowledge and experience, focusing on changes compared to last year • Assessment of any significant deviations in the assumptions in relation to statutory and reporting requirements and industry standards • Assessment of assumptions about probability of mortality, disability, reactivation and expected loss experience compared with historical data and market practice • Analysis of the development, especially run-off results (non-life insurance) and interest, risk and cost results (life insurance) • Re-calculation of claims provisions in respect of insurance contracts in selected lines of business • Test of reconciliations of provisions to insurance systems.
Our opinion on the financial statements does not cover the Management's review, and we do not express any form of assurance conclusion thereon.
In preparing the financial statements, Management is responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting in preparing the financial statements unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so.
As part of an audit conducted in accordance with ISAs and additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control
• Obtain an understanding of internal control relevant to the audit 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 Group's and the Parent Company's internal control