Key figures 2019 • Post-tax profit of DKK 1,547m (2018: DKK 1,331m) • The profit of DKK 1,547m was better than assumed in the interim report for Q1-Q3 2019 in which the profit from the forecast model was DKK 1,300-1,400m
• EPS was DKK 17.7 (2018: DKK 15.4) • Combined ratio: 83.7 (2018: 83.6) • Combined ratio excluding run-off: 88.3 (2018: 87.5) • Premiums increased by 2.9% in non-life insurance and 9.8% in life insurance • Profit on life insurance was DKK 327m (2018: DKK 228m) • After return on non-life insurance provisions, the investment return was DKK 179m (2018: DKK 16m).
Q4 2019 • Post-tax profit of DKK 431m (Q4 2018: 259m) • EPS was DKK 4.9 (Q4 2018: 3.0) • Combined ratio: 88.3 (Q4 2018: 81.7) • Combined ratio excluding run-off: 92.1
(Q4 2018: 88.1) • Premiums increased by 4.4% in non-life insurance and 0.9% in life insurance • Profit on life insurance was DKK 36m (Q4 2018: DKK 45m) • After return on non-life insurance provisions, the investment return was DKK 230m (Q4 2018: DKK 116m loss).
that a dividend of DKK 1,530m be distributed for 2019, representing DKK 17 per share. This represents a payout ratio of 98.9 and a dividend yield of 5.4.
Profit forecast model for 2020 • Compared with the profit forecast model for 2020 in the interim report for Q1-Q3 2019, the assumed combined ratio for 2020 remains unchanged at about 90 excluding run-off
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Annual financial statements ● Group 26 Five-year summary 27 Income statement 28 Statement of comprehensive income 29 Assets 30 Shareholders’ equity and liabilities 31 Cash flow statement 32 Statement of changes in equity 33 Notes to the financial statements 69 Accounting policies
Annual financial statements ● Parent company 79 Income statement 79 Statement of comprehensive income 80 Balance sheet 81 Statement of changes in equity 82 Notes to the financial statements 86 Statement by Management on the Annual Report 87 Independent auditor’s report
Number of shares end of period ('000) 95,672 87,216 85,876 86,432 87,067
Average number of shares, diluted ('000) 100,461 91,721 85,873 86,637 87,229 86,807 87,367
Results for 2019 Topdanmark’s post-tax profit for 2019 was DKK 1,547m (2018: DKK 1,331m).
The technical result increased by DKK 35m to DKK 1,534m. The increase is impacted by higher run-off (DKK 80m) and, compared with 2018, by an improved claims trend in the SME and agricultural business. On the other hand, the result from illness and accident deteriorated by 87m excluding run-off. Furthermore, the yield curve used for discounting the reserves was lower compared with 2018, thus having a negative effect of DKK 90m. (DKK 60m excluding the impact on illness and accident, which is included in the deterioration mentioned above).
The investment return adjusted for return on non-life insurance provisions increased by DKK 145m to DKK 66m. The investment return was impacted by the change in the method for calculating the volatility adjustment (VA) at the end of Q1 2019 which had a oneoff negative effect of approx. DKK 200m. In Q2-Q4 2019, market conditions increased the VA by 4bp, thus having a positive effect on the investment return of approx. DKK 25m. Consequently, the VA had a negative impact on the investment return for 2019 of approx. DKK 175m.
The profit on life insurance increased by DKK 99m to DKK 327m due to a higher investment return and an improved risk result.
The technical result decreased by DKK 136m to DKK 275m negatively impacted by illness and accident excluding run-off (DKK 18m), and by a higher level of small water claims on houses (DKK 23m), as well as by discounting (DKK 40m/DKK 25m excluding illness and accident) and lower run-off DKK 53m.
After return on non-life insurance provisions, the investment return in non-life insurance increased by DKK 367m to DKK 212m. The higher investment return was primarily due to a higher return on equities (DKK 223m) and due to the VA increasing by 13bp (DKK 60m).
Non-life insurance in 2019 Premiums earned Premiums earned increased by 2.9% to DKK 9,397m. Premiums were negatively impacted by the termination of the distribution agreement with Danske Bank (0.5pp). The private segment accounted for a 1.1% increase, and the SME segment accounted for a 5.0% increase.
The run-off profit, net of reinsurance, was DKK 433m (2018: DKK 353m), representing a 0.8pp favourable effect on the claims trend. Run-off was primarily generated in motor third-party liability, in workers’ compensation, and in illness and accident.
In 2019, weather-related claims defined as such (above DKK 4.5m) amounted to DKK 70m (2018: DKK 9m), representing a 0.6pp deterioration of the claims trend. Thereby the level of weather-related claims in 2019 was DKK 100m below the normal level.
The level of large-scale claims (claims exceeding DKK 5m by event after refund of reinsurance) decreased by DKK 76m to DKK 52m in 2019, representing a 0.8pp improvement of the claims trend. The large-scale claims were DKK 48m below the normal level of DKK 100m.
Compared with 2018, the adjusted claims trend was negatively impacted by illness and accident (0.7pp) and by the yield curve used for discounting the reserves (1.0pp/0.7pp excluding illness and accident).
Illness and accident is the entry product selling pension schemes, and the market participants typically offer the product at loss-making prices. The claims level has increased in recent years while the price level has remained low.
Expense ratio The expense ratio was 16.0 compared with 16.1 in 2018.
Claims before run-off, weather, large-scale claims and other 70.5 73.7 70.2 71.1
The claims trend was 71.5 in Q4 2019 (Q4 2018: 65.0), representing a 6.5pp deterioration.
Large-scale claims amounted to DKK 15m in Q4 2019, which is a decrease of DKK 10m compared with Q4 2018. This represents an improvement of the claims trend of 0.4pp.
Weather-related claims were DKK 14m in Q4 2019. In Q4 2018, the weather-related claims were DKK 9m, representing a deterioration of the claims trend of 0.2pp.
The claims trend was positively impacted by a lower level of claims in the SME segment.
The expense ratio was 16.8 in Q4 2019 (Q4 2018: 16.7).
Segment reporting Private The private segment offers policies to individual households in Denmark.
The technical result was DKK 686m in 2019, representing a decrease of DKK 157m compared with 2018. The technical result was negatively impacted by 183m on illness and accident of which DKK 96m is due to run-off.
Announcement No. 03/2020 from Topdanmark A/S Page 7 of 90 negatively impacted by many small water claims and burst water pipes (1.6pp). Moreover, the discounting effect due to the lower interest rates had a negative impact. Finally, run-off profits of DKK 221m were DKK 14m below 2018, corresponding to a negative impact on the claims trend of 0.3pp.
Premiums earned increased by 5.0% to DKK 4,302m. The growth in premiums was favourably impacted by indexation of premiums in workers’ compensation of approx. 9%. Topdanmark continues to have strong momentum in new sales to SMEs and agricultural businesses.
The technical result increased by DKK 192m to DKK 848m in 2019.
The claims trend improved by 3.8pp to 63.8. The improvement mainly derives from larger run-off profits (2.2pp). The claims trend in the agricultural business returned to a more normal level following 2018, which was negatively impacted by an unusually high level of fire claims due to dry weather. Furthermore, the claims trend in 2019 was favourably impacted by a lower level of large-scale claims. However, the claims trend was adversely impacted by a higher level of weather-related claims, and a lower discounting effect.
Excluding run-off, the combined ratio improved to 85.2 in 2019 (2018: 86.9).
Distribution agreement with Nordea Topdanmark’s previous distribution agreement with Danske Bank was terminated at the end of Q2 2019.
The terminated distribution agreement with Danske Bank is expected to have a negative impact of approx. 1pp on Topdanmark’s total non-life premium growth in 2020.
However, the distribution agreement with Nordea is expected to compensate for the loss in growth by approx. 0.5pp in 2020.
From 2021, it is expected that the Nordea agreement in terms of premiums will compensate fully for the terminated distribution agreement with Danske Bank.
Profit on life insurance activities comprises the profit on life insurance plus the investment return of Topdanmark Liv Holding. These profits were calculated in accordance with the stated policy for the calculation of profit for the life insurance company: see www.topdanmark.com → About Topdanmark → Strategy and business → Non-life and life insurance → Policy for the calculation of profit in life insurance.
Risk return on shareholders' equity 30 35 140 141 Profit on life insurance 45 36 228 327
Life insurance in Q4 2019 The lower result in Q4 2019 is due to a lower result in sales and administration derived from costs connected to the implementation of the new life administration system launched in 2019.
Gross premiums increased by 0.9% to DKK 2,991m in Q4 2019 of which premiums on unit-linked pension schemes were DKK 2,757m, a 6.0% increase compared with Q4 2018.
Regular premiums increased by 21.1% to DKK 874m in Q4 2019 whereas single premiums decreased by 5.6% to DKK 2,118m.
Investment activities Topdanmark Group excl. life insurance The investment return of the Topdanmark Group excluding life insurance was DKK 794m in 2019 (2018: DKK 102m) while return on non-life insurance provisions represented a loss of DKK 616m in 2019 (2018: loss of DKK 86m).
The investment return adjusted for return on non-life insurance provisions was DKK 179m, and thus DKK 117m higher than the assumed return for 2019 when calculated using Topdanmark's forecast model for
Q3 2019. The higher return was primarily due to the VA and the equity portfolios. The mismatch between the mortgage bond portfolio and the liabilities improved results in Q4, and thereby the overall gain in Q4 more than offset the loss in Q3.
The class “Government and mortgage bonds” comprises primarily Danish government and mortgage bonds. The interest rate sensitivity of this asset class is to a significant extent equivalent to the total interest rate sensitivity of the technical provisions in Topdanmark Forsikring, and the illness and accident 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 non-life insurance provisions.
The class “Credit bonds” is composed of a minor share of a well-diversified portfolio of credit bonds, primarily issued from businesses in Europe.
The class “CDOs” primarily comprises positions in CDO equity tranches. The underlying assets of CDOs are mostly senior secured bank loans, while the remainder are primarily investment grade investments.
Topdanmark uses the Solvency ll discount curve with volatility adjustment (VA) for assessing insurance provisions. The VA-component comprises a corrective element for the development in pricing of Danish mortgage bonds, as well as a corrective element for the development in pricing of European business credits. EIOPA revised the methodology for the calculation of the Danish VA commencing at the end of Q1 2019.
Unlisted equities and hedge funds 0.3 0.4 (0) (0.1) 6 1.6 15 4.7 21 6.4 non-life insurance provisions (37) 335 (86) (616) Investment return after return on non-life insurance provisions (116) 230 16 179
Parent company etc. The parent company, Topdanmark, does not perform any independent activities. The profit of the parent company etc. includes the profits of subsidiaries not within the insurance business (primarily Topdanmark Asset Management), finance costs and other expenses.
Taxation The tax charge was DKK 441m of the pre-tax profit of DKK 1,987m, corresponding to an effective tax rate of 22.2% (2018: 21.8%).
As can be seen, the investment return in the forecast model is not based on a specific estimate of the expected investment return for the rest of the year, but solely on a long-term standard assumption regarding the return.
Danske Bank as at the end of Q2 2019 will have a negative impact on the premium growth of approx. 1pp
In the Q3 Report 2019, Topdanmark also assumed a combined ratio for 2020 of about 90, excluding run-off.
• Large-scale claims (large-scale claims of a value exceeding DKK 5m after reinsurance) of DKK 100m
The expected additional costs on the digital investments and the deterioration of the claims trend in illness and accident are expected to more or less balance out the positive discounting effect of 0.7pp.
The overall assumed pre-tax result for non-life insurance is DKK 1,040-1,140m.
Life insurance Topdanmark assumes an increase in regular premiums of about 0% in 2020. At this time of the year, it is pointless to make assumptions about the level of single premiums.
Parent company The profit in the forecast model for the parent company plus subsidiaries outside of the insurance group assumes a pre-tax profit of DKK 40-50m.
Taxation Given a corporation tax rate of 22%, the tax charge is expected to be DKK 270-310m.
Total Group profit Topdanmark’s overall post-tax profit according to the profit forecast model for 2020 is DKK 950-1,050m representing an EPS of DKK 11.5. The assumed profit is exclusive of run-off.
Furthermore, it is assumed that the return on interestbearing assets hedging the discounted provisions exactly suffices to cover discounting and revaluation of the provisions, while the return on the remaining interestbearing assets is assumed to be 1.64% (risk-free interest rate plus 2.0pp).
Risk management Topdanmark's policy is to hedge against risks arising from the Company's activities or to limit such risks to a level that allows the Company to maintain normal operations and implement its planned measures even in the case of highly unfavourable events in the outside world.
Non-life insurance - Investment return after return and revaluations of non-life insurance provisions etc. 66 90 – 140 Profit on non-life insurance 1,601 1,040 – 1,140
The solvency ratio can be adjusted to a certain extent in accordance with the Board of Directors’ wishes. For example, the Board of Directors can choose to increase the solvency ratio by reducing capital requirements via a reduction of the Group’s investment-related risk profile. An element thereof could be to offer life insurance customers having with-profit products to switch to unitlinked products, for which the capital requirement is significantly lower. It is an ongoing consideration process, because both risk-reducing measures will reduce the profitability of the Topdanmark Group.
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 Meeting in the autumn of 2019.
Risk scenarios The Group's risk factors are illustrated in the following table on the most significant risk factors calculated as the post-tax impact on profit and shareholders’ equity. The given assumptions do not reflect Topdanmark's expected risks but are shown only as examples which could be used as a basis for assessing the Company's exposure to the risks mentioned.
Risk scenarios (DKKm) after corporate tax and pension return tax 2018 2019 Non-life insurance Underw riting risk Combined ratio − 1pp increase (71) (73)
Market risk Interest-bearing assets 1 pp increase (480) (521) Provisions for claims in effective and benefits etc. interest rate 504 510
Annual currency loss w ith an up to 2.5% probability (VaR) (1) (6)
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 commercial 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 competencies possessed by each of the Board members elected by shareholders at the annual general meeting is provided in the section on the Board of Directors in the Annual Report. Taking the latest evaluation of the Board into account, it is assessed that Topdanmark's Board of Directors with its current composition possesses the above-mentioned skills and qualifications.
Four of the nine Board members are women, two of them elected by the annual general meeting and two by
Topdanmark's employees. Consequently, Topdanmark meets its goal: that the Board has a minimum of three persons of each gender. Topdanmark meets the statutory definition of an equal gender distribution.
Topdanmark works to maintain and develop openness in the company culture to counter any form of discrimination due to gender, race, colour, nationality, social and ethnic origin, religion, beliefs, political opinion, disability, age and sexual orientation. Topdanmark believes that diversity provides business value, and that it is important that all employees may advance to managerial positions at all levels.
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. Normally the Board evaluation is based upon anonymous questionnaires on the work in the Board and cooperation 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 self-evaluation once a year. As 5 of the 9 members of the Board joined the Board of Directors in April 2019, it has been decided not to use anonymous questionnaires on the work of the Board, and evaluation of the individual members of the Board and the Executive Board for 2019. Questionnaires and evaluation forms will be reintroduced from and after the Board evaluation 2020.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.
Any additional directorships undertaken by the Board members including the significance and extent of each duty are part of the evaluation of Topdanmark’s Board of
Amendments to the Company's Articles of Association The annual general meeting is Topdanmark's chief decision-making vehicle. Resolutions at annual general meetings are passed by a simple majority of votes, unless a special majority or representation is required by the Danish Companies Act or the Articles of Association. The Articles of Association provide that resolutions amending the Articles of Association are only valid if adopted by an affirmative vote of not less than two thirds of the votes cast as well as of the capital represented at the general meeting. The Articles of Association provide no restrictions on voting rights.
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 encourages the executives to be more holistic in their approach to value creation. The authorisation 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 performance goals set by the Board of Directors has in 2019 only been 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.
Share options For 2020, Topdanmark has granted 172,041 share options to its Executive Board and a number of executives. The strike price of DKK 362 was fixed at 110% of the market price of Topdanmark's shares on 30 December 2019 (average of all trades).
Including the granted options for 2020, the exposure of the options held by the Executive Board represented 0.3% of the number of outstanding shares.
Distribution of dividend for 2019 Given Topdanmark’s solid own funds, the Board of Directors will recommend to the annual general meeting that distribution of dividend for DKK 1,530m from this year’s profit of DKK 1,547m will take place representing a payout ratio of 98.9.
Corporate Governance Topdanmark's "Statutory Corporate Governance Report, see Section 131 of Executive Order on Financial Reports for Insurance Companies and Multiemployer Occupational Pension Funds " (”Executive Order on Financial Reports”), is available on www.topdanmark.com → Investors → Reports and presentations → Statutory Corporate Governance Reports.
CSR Topdanmark's "Statutory report on Corporate Social Responsibility, see Sections 132a and 132b of Executive Order on Financial Reports for Insurance Companies and Multi-employer Occupational Pension Funds " is available on www.topdanmark.com → Investors → Reports and presentations → CSR reports.
Furthermore, Topdanmark has prepared its first ESG report. The ESG report is available on www.topdanmark.com → Investors → Reports and presentations → ESG reports.
Annual General Meeting The Annual General Meeting will be held on 2 April 2020, 15:00 (CET) at: Tivoli Hotel & Congress Center Arni Magnussons Gade 2 1577 Copenhagen V
The announcements are available on www.topdanmark.com → Investors → Company announcements.
2020 23 Jan 02/2020 Topdanmark announcement of 2019 Annual Results 02 Jan 01/2020 Issue of options 2019 24 Oct 13/2019 Topdanmark interim report for Q1-Q3 2019 16 Sep 12/2019 Employee shares 16 Aug 11/2019 Topdanmark enters into cooperation agreement with Nordea 18 Jul 10/2019 Topdanmark half-year report for 2019 25 Apr 09/2019 Topdanmark interim report for Q1 2019 03 Apr 08/2019 Annual General Meeting of Topdanmark – 3 April 2019 02 Apr 07/2019 The change in the method for calculation of the volatility adjustment affects Topdanmark’s investment return negatively 22 Mar 06/2019 Employee Election to the Board of Directors of Topdanmark 07 Mar 05/2019 Notice convening the Annual General Meeting on 3 April 2019 21 Feb 04/2019 Topdanmark Annual Report 2018 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
Expertise and qualifications: The Board has defined the required competencies 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, organisation, 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, auditing, financing and investments, regulatory environment, compliance, IT and IT security, digitisation, recruitment and human resources.
Expertise and qualifications: The Board has defined the required competencies 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, insurance operations, financial and insurance reporting, sales for the private market, sales for the professional market, marketing and branding, outsourcing, finances, own funds, auditing, regulatory environment, compliance, IT and IT security, digitisation, recruitment and human resources.
Offices held: Member of the Board of Directors of: • Bjatola A/S
Offices held: Member of the Board of Directors of: • FLSmidth A/S • Finansiel Stabilitet • Bavarian Nordic A/S • Knud Højgaards Fond og Højgaard Ejendomme A/S • VL52 ApS.
A/S • Advisory Board of Moneyflow Group ApS • Audit Committee of Topdanmark • Faculty member at Copenhagen Business School,
Expertise and qualifications: The Board has defined the required competencies and qualifications for board members of Topdanmark.
Among these, Cristina Lage possesses knowledge and experience of the following: Management experience from other financial businesses, board assignments in financial businesses, organisation, 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, auditing, financing and investments, regulatory environment, compliance, IT and IT security, digitisation, recruitment and human resources.
(Finland) • BenCo Insurance Holding B.V. (Netherlands) • Kaleva Mutual Insurance Company (Chairman)
Current position held: President and CEO, If P&C Insurance Ltd (publ).
Offices held: Member of the Board of Directors of: • Finans Norge • Euronext N.V.
Member of: • Group Executive Committee of Sampo. • Audit Committee of Euronext N.V.
Expertise and qualifications: The Board has defined the required competencies and qualifications for board members of Topdanmark. Among these, Morten Thorsrud possesses knowledge and experience of the following: Management experience from other financial businesses, board assignments in financial businesses, organisation, 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, auditing, financing and investments, regulatory environment, compliance, IT and IT security, digitisation, recruitment and human resources.
Independence: As Morten Thorsrud represents a controlling shareholder’s interests, he does not meet the definition of independence set out by the Committee on Corporate Governance.
Managerial responsibilities: • Topdanmark Livsforsikring (life insurance) • HR • Communications, IR, CSR • Group Secretariat, Corporate Legal Matters.
Managerial responsibilities: • Private • Agricultural & SME • Claims handling • Marketing • Customer Service.
Managerial responsibilities: • Asset Management • Finance • Accounting • Analytics • Statistical Services • Reinsurance • Tax • Credits.
Allocated investment return, net of reinsurance 1,194 3,147 3,372 (2,326) 8,357
NON-LIFE INSURANCE Gross premiums written 3 9,205 9,494 Ceded reinsurance premiums (617) (609) Change in the provisions for unearned premiums 3 35 1 Change in profit margin and risk margin 3 (43) (32) Change in the reinsurers' share of the provisions for unearned premiums 10 4 Premiums earned, net of reinsurance 8,590 8,858
Acquisition costs (952) (949) Administrative expenses (501) (534) Reinsurance commission and share of profits 78 78 Insurance operating expenses, net of reinsurance (1,375) (1,405) TECHNICAL RESULT FROM NON-LIFE INSURANCE 5 1,534 1,571
LIFE INSURANCE Gross premiums written 6 10,111 11,106 Ceded reinsurance premiums (1) (1) Premiums, net of reinsurance 10,111 11,105
Claims and benefits paid 7 (4,088) (4,133) Reinsurance cover received 3 4 Claims and benefits paid, net of reinsurance (4,086) (4,129)
Change in the life insurance provisions 8 (3,318) (13,759) Change in the reinsurers' share (4) (4) Change in the life insurance provisions, net of reinsurance (3,321) (13,763)
Acquisition costs (143) (166) Administrative expenses (277) (319) Insurance operating expenses, net of reinsurance (420) (485) TECHNICAL RESULT FROM LIFE INSURANCE (48) (71)
NON-TECHNICAL ACTIVITIES Technical result from non-life insurance 1,534 1,571 Technical result from life insurance (48) (71)
Profit for the year 1,331 1,547 Items which cannot subsequently be reclassified as profit or loss: Revaluation / Reversed revaluation owner-occupied properties 1 (18)
Other comprehensive income 1 (14) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,332 1,533
Equity investments in associates 18 1,678 1,668 Total investments in associates 1,678 1,668
Total other financial investment assets 45,010 51,675 TOTAL INVESTMENT ASSETS 50,518 57,376
Reinsurers' share of the provisions for unearned premiums 20 92 95 Reinsurers' share of the life insurance provisions 17 12 Reinsurers' share of the provisions for claims 21 527 478 Total reinsurers' share of provisions 635 585
Current tax assets 39 0 Deferred tax assets 22 17 25 Liquid funds 253 550
Accrued interest and rent 310 388 Other prepayments and accrued income 196 219 TOTAL PREPAYMENTS AND ACCRUED INCOME 506 607 TOTAL ASSETS 83,224 98,442
With-profit products 25 23,134 23,618 Unit-linked products 26 33,117 46,656 Total life insurance provisions 56,252 70,274
Provisions for bonuses and rebates 152 163 TOTAL PROVISIONS FOR INSURANCE AND INVESTMENT CONTRACTS 72,575 86,778
Pensions and similar commitments 27 30 Deferred tax liabilities 22 103 71 Deferred tax on security funds 306 306 TOTAL PROVISIONS 436 407 DEPOSITS RECEIVED FROM REINSURERS 81 69
Other debt 934 1,867 TOTAL DEBT 2,271 2,949 ACCRUALS AND DEFERRED INCOME 98 94 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 83,224 98,442
Reinsurance ceded 1 32 Cash flow from life insurance 5,160 6,257
Sale of affiliate 124 0 Equity investments in associates (249) (0) Dividends from associates 17 175 Equity investments 147 1,412 Unit trusts (11) 7
Investment assets related to unit-linked products (6,537) (1,765) Balances with associates (38) 80
Cash and cash equivalents at 1 January 3,941 4,634 Cash and cash equivalents in sold affiliate (22) 0 Cash and cash equivalents at 31 December 4,634 3,294
Profit for the year 3 (23) 1,350 1,331 Other comprehensive income 1 1 Total comprehensive income for the year 1 3 (23) 1,350 1,332
Shareholders' equity 6,016 6,397 Deferred tax on security funds 306 306 Profit margin 1,005 1,138 Intangible assets (1,091) (1,291) Proposed dividend (1,350) (1,530)
Net reinsurance (1) (1) Technical result on life insurance (54) 6 (48)
Technical result on non-life insurance 686 848 (0) 1,534 36 1,571
Purchase of tangible and intangible assets 191 128 0 320 Assets and liabilities related to illness and accident insurance administered by Topdanmark life are included in non-life.
Note 4. Claims incurred, net of reinsurance - non-life insurance Run-off result: Gross business 319 388 Reinsurance ceded 34 45 Run-off result, net of reinsurance (profit) 353 433 Specification of run-off result on business lines see note 5. Claims incurred include revaluation of derivatives hedging the inflation risk in workers' compensation and illness and accident insurance (118) (149)
Average value of claim (DKK '000) 22 22 9 9 15 16 Frequency of claims (per thousand value) 43 42 199 204 128 132 liability
Average value of claim (DKK '000) 56 47 25 23 23 24 Frequency of claims (per thousand value) 114 117 72 104 92 86
Average value of claim (DKK '000) 10 10 3 3 15 16 Frequency of claims (per thousand value) 85 83 204 195 104 103 Loss ratio and combined ratio have been calculated including internal rent in accordance with the Executive Order on Financial Reports.
Note 6. Gross premiums written - life insurance 2018 2019 Individual policies 304 295 Policies which are part of a tenure 2,228 2,711 Group life 322 269 Regular premiums 2,855 3,275 Individual policies 1,856 2,179 Policies which are part of a tenure 5,401 5,652 Single premiums 7,257 7,831 Gross premiums 10,111 11,106
Unit-linked products not eligible for bonus 8,765 10,027 With-profit products 1,346 1,078
Premiums by the policyholders' location: Other EU-countries 13 65 Other countries 9 11
Bonuses paid in cash 270 179 Claims and benefits paid 4,088 4,133
Note 10. Revaluations Held for trading: Equity investments (345) 1,087 Unit trusts (5) 8
Note 13. Taxation Current tax 338 479 Change in deferred tax 39 (40) Prior year adjustment (9) (1) Tax for the year 368 438 Tax in other comprehensive income (0) 4 Tax in shareholders' equity 3 (1) Tax in the income statement 371 441
Note 14. Earnings per share Profit for the year 1,331 1,547 Average number of shares ('000) 86,242 86,824 Diluting impact of options ('000) 395 405 Average number of shares, diluted ('000) 86,637 87,229 EPS (DKK) 15.4 17.8 EPS, diluted (DKK) 15.4 17.7
Impairment and amortisation at 1 January 0 (207) (539) 0 (747)
Impairment and amortisation at 31 December 0 (213) (615) 0 (828)
The future cash flows are based on three years’ expected technical result and a terminal value of the private 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% (2018: 0%).
The pre-tax discount rate is 7.7% (2018: 8.3%) and the post-tax rate 6.0% (2018: 6.5%). 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 carrying amount of goodwill exceeds its recoverable amount for the private segment.
Development projects: Completed development projects primarily comprise the new policy administrations system for life, DKK 536m. The remaining expected useful lifetime end of 2019 is 9 years. Completed development projects are assessed for impairment end of year and at indications of impairment. The assessment showed no need for write down. Development projects under construction mostly comprise a new customer and core system for non-life. The impairment test did not show any need for write down.
Note 17. Investment properties Fair value at 1 January 3,783 4,137 Additions, acquistions 520 448 Additions, improvements 31 126
Fair value revaluation for the year taken to revaluations 51 319 Fair value at 31 December 4,137 4,932
The weighted average of the rates of return on which fair value of individual properties were based 4.6% 4.2% 5.6% 5.4%
Share of profit 161 165 Dividends received (17) (175) Equity investments in associates 1,678 1,668
Carlsberg Byen P/S, Copenhagen 23 development 2,230 312 Havneholmen P/S, Kgs. Lyngby 50 Property 1,085 98 Margretheholm P/S, Frederiksberg 50 Property 627 116 Bornholms Brandforsikring A/S, Rønne 27 Insurance 237 12 P/S Ejendomsholding Banemarksvej, Odense 40 Property 121 9 P/S Ottilia, Copenhagen 50 Property 564 65 Heap A/S, Copenhagen* 50 Development - -
Change in accrued commissions (3) (1) Ceded reinsurance premiums 617 609 Earned reinsurance premiums (607) (605)
Reimbursement of claims relating to previous years (207) (265) Change in expected income relating to previous years (run-off) 34 45
Reimbursement of claims relating to this year (155) (79) Expected income relating to this year 383 247
Recognised as: Deferred tax assets (14) (17) (25) Deferred tax liabilities 61 103 71
Note 23. Other subordinated loan capital Borrower Topdanmark A/S Topdanmark Topdanmark
Date of issue November 2017 December 2015 December 2015 Maturity Bullet 11 December 2025 11 June 2026
The market valuation of subordinated loans is based on a mark-to-model method. Future cashflows are discounted with the risk free rate and an appropriate credit spread. The solvency II interest rate curve is used for approximation for risk free rates.
Provisions for unearned premiums at 31 December 1,819 1,849 Profit margin at 31 December 807 838 Provisions for unearned premiums and profit margin at 31 December 2,626 2,687
Intra-group transfers (56) (46) Sale of affiliate (115) 0 Retrospective provisions at 31 December 20,118 19,742 Accumulated revaluation at 31 December 1,466 1,994 Collective bonus potential at 31 December 1,632 1,961 Total insurance provisions direct business at 31 December 23,216 23,697 Profit margin at 31 December (82) (79) Life insurance provisions with-profit products 23,134 23,618
Interest rate group 1 ]1%-2%] 26 33 Interest rate group 3 ]1%-2%] 2 2 Interest rate group 2 ]2%-3%] 8 13 Interest rate group 4 ]2%-3%] 4 4 Interest rate group 5 ]3%-4%] 18 19 Interest rate group 6 ]4%-5%[ 32 33
Return on customer funds after expenses before tax (%) (1.2) 6.2
Gross provisions at 1 January 26,993 2,898 29,891 Profit margin at 1 January 141 15 156 Retrospective provisions at 1 January 27,135 2,912 30,047 Gross premiums written 8,765 1,415 10,180 Addition of return (1,969) (260) (2,229) Claims and benefits (2,314) (407) (2,721) Expense loading inclusive of expense bonus (68) (10) (77) Risk gain after addition of risk bonus (25) 0 (25)
Note 26. Life insurance provisions unit-linked products - continued Insurance Investment 2019 contracts contracts Total
Gross provisions at 1 January 29,480 3,637 33,117 Profit margin at 1 January 171 15 186 Retrospective provisions at 1 January 29,651 3,652 33,303 Gross premiums written 10,027 747 10,774 Addition of return 5,205 654 5,859 Claims and benefits (2,490) (483) (2,973) Expense loading inclusive of expense bonus (70) (9) (80) Risk gain after addition of risk bonus (22) 0 (21)
In connection with implemention of a new administration system, the classification of contracts has been changed, thus unit-linked products are classified as insurance, if the aggregated contracts include insurance products. Provisions of DKK 405m have been transferred from investment contracts to insurance contracts.
Return on customer funds after expenses before tax (%) (7.0) 17.9
Provisions relating to previous years at 31 December 2,634 Provisions, net of reinsurance, at 31 December 2019 12,593
Note 30. Expenses Expenses in the income statement presented by nature: Staff costs (excl. commissions) 1,825 1,821 Executive Board 31 27 Board of Directors 6 6 Other staff costs 60 76 Commissions non-life 195 176 Commissions life 50 45 Premises costs etc. 143 149 IT operations and maintenance 250 318 Impairment and amortisation 72 114 Other expenses 262 267 Total expenses 2,895 2,998
Per granting: The fair value of the granting for the year has been calculated using the Black and Scholes model assuming a price of DKK 302.68 (2018: DKK 268.73) per share, an interest rate corresponding to the zero coupon rate based on the swap curve end of December the previous year, future volatility of 22% (2018: 22%) p.a. and a pattern of exercise similar to Topdanmark's previous granting of share options, resulting in an average life of the options of approximately 4 years. The volatility has been calculated on the basis of previous years' volatility, which continues to be Management's best estimate of future volatility. The stated strike prices for outstanding options are reduced by dividend distributions.
Employee shares For the period November 2018 to October 2019, Topdanmark has allotted 163,870 shares at a value of DKK 49m for a salary cut. The annual costs amount to DKK 41m. For the period November 2017 to October 2018, Topdanmark has allotted 115,060 shares at a value of DKK 36m for a salary cut. The annual costs amount to DKK 38m.
Remuneration of the Board of Directors Directors' fees adopted by the AGM were DKK 5.871m (2018: DKK 5.871m). As the former Chairman of the Board of Directors has renounced a remuneration for attending in the Remuneration Committee, the director's fees amount to DKK 5.839m (2018: DKK 5.775m). The board counts nine members.
The fee includes DKK 289 thousands (2018: DKK 289 thousands) concerning Topdanmark Forsikring A/S.
Ricard Wennerklint 642 1,380 Jens Aaløse 770 963 Elise Bundgaard - 257 Anne Louise Eberhard - 385 Mette Jensen 481 481 Petri Niemisvirta 385 385 Cristina Lage - 385 Ole Lomholt Mortensen - 257 Morten Thorsrud - 257
Former board members: Ann-Jeanette Bakbøl 128 Tina Møller Carlsson 385 128 Torbjörn Magnusson 1,348 449 Lone Møller Olsen 610 193 Annette Sadolin 770 193 Søren Vestergaard 257 128 Total fee paid 5,775 5,839 For foreign board members, social charges of DKK 362 thousands (2018: DKK 412 thousands) have additionally been paid.
Remuneration of the Executive Board Peter Thomas Brian R. Lars 2019 Hermann Erichsen Jacobsen Thykier Total
Note 33. Related parties - continued *Brian R. Jacobsen and Lars Thykier have successively earned a remuneration equivalent to 18 months' salary which is to be paid by the termination of the employment.
**Peter Hermann has been granted performance-dependent bonuses of DKK 0.475m. Performance-related pay is variable remuneration and 40% hereof will be deferred over four years beginning one year after the time of calculation in 2020.
Peter Thomas Brian R. Lars Marianne Hermann Erichsen Jacobsen Thykier Wier
Performance-related pay**** 0.3 0.3 *Up to 5 February 2018, Lars Thykier has been acting CEO and as such earned a bonus of DKK 0.4m which is included in his salary etc. **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 thereof was provided for the financial statements for 2017. ****Peter Hermann has been granted performance-dependent bonuses of DKK 0.250m. Performance-related pay is variable remuneration and 40% thereof will be deferred for four years beginning one year after the time of calculation in 2019.
At 31 December, If P&C Insurance Ltd, a subsidiary in the Sampo Group, held subordinated notes in Topdanmark A/S 130 133
Designated at fair value: Deposits with credit institutions 4,380 2,745 Investment assets unit-linked products excl. property: Equity investments 14,560 21,588 Unit trusts 1,758 541
Loans and receivables at amortised cost Receivables from policyholders 262 265 Receivables from insurance companies 197 151 Other receivables 281 225 Liquid funds 253 550
Accrued interest and rent 310 388 Total financial assets 74,461 88,773
Quoted Observable observable prices inputs inputs 2018 Level 1 Level 2 Level 3 Total Held for trading: Unit trusts 6 6
Financial assets, level 3: Foreign exchange adjustment 9 3 Financial assets, level 3 at 31 December 469 371
Allowance account (policyholders and insurance companies): Group companies have agreed to lend equities against security: Carrying value of equities lent 2,763 1,555 Fair value of bonds received as security for the loan 3,305 1,927 Outline of equity investments can be obtained on application.
Note 35. Financial liabilities Financial liabilities at fair value through profit and loss Held for trading: Designated at fair value: Amounts due to credit institutions 242 155 Total financial liabilities at fair value (observable inputs level 2) 946 835
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 in 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 with-profit products 1 January 31 December (%)* Land and buildings 3,899 3,622 10.5 Listed equity investments 3,172 2,684 30.9 Unlisted equity investments 1,176 1,198 3.7 Total equity investments 4,349 3,883 23.2 Government and mortgage bonds 12,760 15,015 0.4 Index-linked bonds 937 951 7.2 Credit bonds and emerging market bonds 1,823 1,499 6.1
Other investment assets (476) (1,260) 0.0 Derivatives to hedge against the net change in assets and liabilities (101) 77 * Annual return as a percentage before pension return tax (PAL) and corporation tax.
Note 40. Number of shares Reconciliation of the number of shares ('000) Shares issued at 1 January 90,000 90,000 Own shares at 1 January (4,124) (3,568) Number of shares at 1 January 85,876 86,432 Shares sold 556 635 Shares issued at 31 December 90,000 90,000 Own shares at 31 December (3,568) (2,933) Number of shares at 31 December 86,432 87,067
The Group's insurance companies have registered the following assets as security for technical provisions: Equity investments in associates 564 414 Equity investments 4,661 2,682
Deposits with credit institutions 3,450 400 Investment assets related to unit-linked products 27,890 36,104 Liquid funds 173 0 Accrued interest 303 295 Equity investments in and receivables from affiliates eliminated in the consolidated accounts 6,541 6,275 Registered assets 77,803 74,567 From 2019 only life insurance companies are required to register assets as security for technical provisions. Hence assets in Topdanmark Forsikring are no longer registered.
Note 45. Other disclosures The five-year summary, in accordance with Section 91(a) of the Danish Executive Order on Financial Reports for Insurance Companies and Multi-employer Occupational Pension Funds is shown on page 26. Sensitivity information according to Section 126 is part of "Risk Scenarios" in Management's review page 13.
Non-life insurance Personal, liability and property insurance for the private, SME, and agricultural markets. Most important risks Risk preferences Risk reducing activities Underwriting risk • Acceptance policy • Follow-up policy.
Counterparty risk is limited by mainly buying hedging from reinsurance companies which, as a minimum, have a rating of A-.
Claims handling In order to ensure uniform and efficient claims handling, Topdanmark has grouped the handling of all types of claim into one operational unit.
Promptness It is important to promptly obtain an overall impression of the size of a claim, implement any damage controlling actions and/or commence the repair. Prompt attention not only reduces the compensation paid but also provides a better experience for the customer.
The overall professionalism is controlled by regular quality assessment of a random sample of claims. For example, it is investigated whether the cover, reason for the claim and provisioning are correct, the recourse
possibilities have been tested and that the excess, VAT etc. have all been charged.
Besides improved customer satisfaction, the correct assessment of the damage also reduces the claims handling time and the average compensation.
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 reduces at the same time its own risk.
Annuity provisions in workers' compensation 24 11 27 11 Other claims provisions in workers' compensation 24 3 22 2
Storm and cloudburst Reinsurance covers storm claims of up to DKK 5.1bn with a retention of DKK 100m. Snow loading, snow thawing and cloudburst 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.
Workers' compensation In workers' compensation, up to DKK 1bn is covered with a retention of DKK 50m.
In order to protect shareholders' equity, it will be relevant to reduce market risks in the event of low interest rates. All policies have been split into contribution groups according to the guaranteed benefit scheme. In each contribution group, the investment policy is intended to ensure the ability to meet the guaranteed benefits, and the market risk is adjusted in accordance with the risk capacity of the contribution groups. The movements in interest rates are followed in order that risk reducing actions may be performed as required.
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 and accident insurance on the basis of the expected net price index.
Counterparty risk Counterparty risk, also known as credit risk is the risk of losses caused by one or more counterparties' full or partial breach of their payment obligations. Topdanmark is exposed to credit risk in both its insurance and investment business.
Investment Topdanmark may suffer losses due to their counterparties’ inability to meet their obligations on bonds, loans and other contracts including derivatives. The majority of Topdanmark’s interest bearing assets comprise of Danish mortgage bonds. In order to minimise the risk to a single debtor, Topdanmark strives to always have a well-diversified portfolio of bonds not only in regard to a debtor but also geographically.
The expected cash f low s 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 borrow er´s option to cause the bond to be redeemed through the mortgage institution af any point in time.
Cyber-crime risk The general threat from cyber-crime is increasing. In general, Topdanmark handles the risk via an IT Security Committee/Cyber-Security Board that regularly assesses the threat and the preventive actions necessary to secure the required security level.
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 Chief Information Security Officer. 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 Technology & Solutions 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 larger business consequences. 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.
Digitisation/automation Topdanmark is working continuously on digitisation and automation to ensure efficient business and a good customer experience. Focus is on automation of a number of processes, which will help to reduce the risk of human error. Digitisation is not only robots of which Topdanmark has introduced some so far. Topdanmark also needs to focus on the future and what it requires to navigate in an increasingly and rapidly changing technological development going forward.
The robot handling bad weather damages is tested regularly to ensure that it works properly in case of major events.
Compliance risk is the risk that Topdanmark does not have sufficient knowledge of current or future rules. Additionally, compliance risk is the risk of violation of rules and the losses this might cause Topdanmark and Topdanmark's customers. Such losses can be direct financial losses or indirect losses in the form of sanctions or bad publicity as a consequence of not acting in accordance with the rules.
Topdanmark's Compliance Function exercises control and provides advice to ensure that the Group's divisions and service departments comply with relevant legislation and internal rules. The Compliance Function's work is part of Topdanmark's overall control environment, which covers the procedures, control and organisation ensuring observance of rules.
IFRS 17 “Insurance Contracts” This standard defines the principles for recognition and measurement of insurance contracts. IFRS 17 is expected to come into force on 1 January 2022. However, the standard has not yet been adopted by the EU. Topdanmark has initiated an analysis of the standard. The financial effect has not yet been clarified.
The provisioning risk is significant, particularly in lines with a long period of claims settlement such as workers' compensation, accident, commercial and motor liability. The levels of compensation could be significantly affected by any changes in legislation, case-law or the practice in the award of damages adopted by, for example, the Danish Labour Market Insurance.
Investment properties A return model based on market-determined net earnings and rates of return with various parameters such as location, idleness, quality of tenants etc. is used for determining the fair value of investment properties.
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 benefits will flow from the Group, and where the value of the liability can be measured reliably. The recognition and measurement take into consideration predictable losses and risks, which have occurred prior to the presentation of the Annual Report, and which provide evidence of conditions that existed at the balance sheet date.
True sale and repurchase transactions and true purchase and resale transactions (repo/reverse transactions) are recognised and measured as secured loans.
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 insurance risk is not sufficient for it to be classified as an insurance contract. Payments received and made on investment contracts have been recognised directly in the life insurance provisions for investment contracts.
Currency As the predominant rule, DKK is the Group companies' functional currency and the presentation currency of the Annual Report.
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 the financial position date, are translated at the closing exchange rates. Translation differences are recognised in Revaluations in the Income Statement.
The conditional profit elements comprise the risk return which is calculated for each contribution group. The risk return for each contribution group (cost, risk and interest
Segment information The Topdanmark Group´s non-life insurance business is divided into two business segments: Private offers insurance policies to individual households in Denmark.
Pension return tax Pension return tax comprise individual tax on pension returns, calculated on the interest accrued on policyholders´ savings, and tax on return allocated to collective bonus potentials and accumulated revaluations etc.
Operating expenses Technical operating expenses which relate, either directly or indirectly, to the acquisition and renewal of the
portfolios are included in acquisition costs. Sales commission is generally recognised in the income statement on the date the insurance contract takes effect. Administrative expenses comprise other costs incurred in the administration of the portfolios which relate to the financial year, and which have been accounted for on accruals basis. Commission received from reinsurers has been accounted for on accruals basis over the reinsurance contracts’ period of cover.
Assets Intangible assets Goodwill relates to the acquisition of companies prior to 2004 and is recognised at the carrying amount on the date of transition to IFRS. Goodwill is not amortised but subjected to an impairment test at the end of the financial year and written down to a lower recoverable amount.
In accordance with the guidelines of the Danish FSA, 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.
The expected cash flow is based on the assumed net earnings for the next 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.
Financial assets Financial assets are classified at the time of their initial recognition as: • Financial assets measured at fair value with any value adjustment through profit and loss or, • Loans and receivables measured at amortised cost.
Liabilities 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.
Premium provisions are calculated based on the prognosis for combined ratio for the next 12 months. The prognosis is based on analyses of the trend in premiums, claims and expenses and for change of ownership also statistical analyses of trend in claims notification in relation to the time the insurance contracts were written.
Changes in provisions due to a change in the interest rate curve used and amortisation are transferred to “Return and revaluation of non-life insurance provisions”.
The provisions include a risk margin corresponding to the percentage which would be demanded by an independent purchaser of the company's portfolio of life insurance
Best estimate for guaranteed benefits is measured as the present value of current, guaranteed benefits plus future administration expenses and deduction of present value of agreed premiums. Guaranteed benefits are calculated considering amendments of the insurance contracts to paid-up policies and surrender.
Collective bonus potential is used for equalisation of each year’s bonus allocations. Thus, in years where the investment and insurance results are better than the allocated bonus, transfer to collective bonus potential will be made, while in years when the result is insufficient to finance the allocated bonus, funds will be transferred from the collective bonus potential.
Profit margin on life insurance and investment contracts Profit margin is the expected future profit for the company from contracts concluded and when possible, profit margin for products with guarantees and profit sharing is financed by the individual bonus potential and secondarily by the collective bonus potential. The value is calculated as an interest margin of 0.05%. Profit margin has been calculated on the basis of the expected duration of the insurance contracts.
special conditions surrounding payments on disability claims, it is not possible to use traditional actuarial triangulation models for this type of provisions. Topdanmark, therefore, uses a model developed inhouse, which, among other things, takes into account the stage each claim has reached. The calculation includes an allowance for the expected wage and salary indexation.
All provisions have been measured at present value by discounting the expected future payments using an interest rate curve determined in Solvency ll (EIOPA interest rate curve). The interest rate curve is volatility adjusted.
In illness and accident administered by the life insurance company, interest rates are reduced by the tax rate of 15.3%.
Topdanmark Forsikring calculates risk margin by means the “Cost of Capital” model using a cost of capital rate of 6% in addition to the risk-free interest rate. For illness and accident insurance administered by the life company a proprietary model stressing the biometric risks is used.
Debt Amounts due to credit institutions and derivatives are measured at fair value. The fair value of amounts due to credit institutions usually corresponds to their nominal value. The fair value of derivatives is calculated on the same basis as financial assets.
Dividend per share issued, proposed (DKK) Proposed dividend Number of shares issued end of year
Post-tax EPS diluted (DKK) Profit for the year Number of shares (average), diluted
Proposed appropriation of profit for the year: Transfer to net revaluation reserve at net asset value 1,372 1,587 Transfer from profit carried forward (1,391) (1,570)
Other reserves 2,439 2,682 Total reserves 2,439 2,682 Profit carried forward 2,443 2,401 Proposed dividend 1,350 1,530 TOTAL SHAREHOLDERS' EQUITY 6,322 6,703 OTHER SUBORDINATED LOAN CAPITAL 7 398 398 Amounts due to affiliates 147 139 Current tax liabilities 0 27 Other debt 6 7 TOTAL DEBT 153 172 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 6,873 7,274
Shareholders' equity at 31 December previous 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 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
Note 1. Income from affiliates Topdanmark Forsikring A/S 1,289 1,501 Topdanmark Kapitalforvaltning A/S 81 90 Topdanmark Invest A/S 2 (4) Income from affiliates 1,372 1,587
Note 3. Taxation Current tax 11 11 Change in deferred tax 0 0 Taxation (income) 12 11 Pre-tax profit excl. income from affiliated companies (53) (52) Calculated tax on profit for the year, 22% 12 11 Tax rate 22 22
Note 5. Equity investments in affiliates Topdanmark Forsikring A/S 6,033 6,269 Topdanmark Kapitalforvaltning A/S 97 108 Topdanmark Invest A/S 58 54
Equity investments in affiliates 6,188 6,431 For detailed information please see note 44 to the financial statements for the Group.
Topdanmark’s statements relating to the future are based solely on information known at the time of the preparation of this annual report.
Opinion We have audited the consolidated financial statements and the parent company financial statements of Topdanmark A/S for the financial year 1 January to 31 December 2019, which comprise income statement, statement of comprehensive income, balance sheet, statement of changes in equity and notes, including accounting policies, for the Group and the Parent Company, and a consolidated cash flow statement. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed financial institutions and the parent company financial statements are prepared in accordance with the Danish Financial Business Act.
Further, in our opinion, the financial statements give a true and fair view of the financial position of the Parent Company at 31 December 2019 and of the results of the Parent Company's operations for the financial year 1 January to 31 December 2019 in accordance with the Danish Financial Business Act.
Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these rules and requirements.
Measurement of unlisted investments Unlisted investments include at 31 December 2019, among other things, investment properties, unlisted securities, loans and derivatives, with a total value corresponding to 18% of the Group’s investment assets.
The audit procedures performed in cooperation with our valuation specialists comprised: • Assessment and test of models and key assumptions applied in measuring investment properties, including test of key controls, parameters and calculations in the valuation process • Assessment and test of key controls in the valuation process for unlisted securities, loans and derivative financial instruments, including recording and monitoring of market information and valuation reports obtained from external parties. In addition, we have tested and verified the calculations of fair values to underlying documentation on a sample basis.
• Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
Based on the matters communicated to those charged with governance, we determine which matters were of most importance in our audit of the financial statements for the current period and therefore are key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.