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Photos on cover page: Nicklas Færch fra Damasec, Colourbox og Topdanmark.
(2016: 90.4%) • Trend in premiums: 1.4% increase in non-life insurance and 11.0% increase in life insurance • Profit on life insurance: DKK 249m (2016: DKK 189m) • Investment return after return and revaluation of nonlife insurance provisions: DKK 396m (2016: DKK 487m).
Q4 2017 • Post-tax profit: DKK 379m (Q4 2016: DKK 421m) • EPS: DKK 4.4 (Q4 2016: DKK 4.8) • Combined ratio: 82.1% (Q4 2016: 84.6%) • Combined ratio excluding run-off profits: 86.3%
(Q4 2016: 93.9%) • Trend in premiums: 1.9% increase in non-life insurance, 22.6% increase in life insurance • Profit on life insurance: DKK 42m (Q4 2016: DKK 54m) • Investment return after return and revaluation of nonlife insurance provisions: DKK 65m (Q4 2016: DKK 147m).
that dividend of DKK 1,710m be distributed for 2017 representing DKK 19 per share issued. This represents a pay-out ratio of 98.7% and a dividend yield of 7.4.
• Topdanmark still expects a positive premium growth in non-life insurance
Annual financial statements ● Group 30 Income statement 31 Statement of comprehensive income 32 Assets 33 Shareholders’ equity and liability 34 Cash flow statement 35 Statement of changes in equity 36 Notes to the financial statements 70 Accounting policies
Annual financial statements ● Parent company 80 Income statement 80 Statement of comprehensive income 81 Balance sheet 82 Statement of changes in equity 83 Notes to the financial statements 89 Statement by Management on the Annual Report 90 Internal audit’s reports 91 Independent auditor’s reports
Other movements in shareholders' equity 0 (1) (3) (1) 0 (0) (1) Shareholders' equity of parent company
Post-tax EPS, diluted (DKK) 12.3 14.3 11.6 16.7 20.2 4.8 4.4 Share buy-back per share, diluted (DKK) 15.4 15.8 16.6 16.6 4.8 Dividend per share issued, proposed (DKK) 19.0 Net asset value per share, diluted (DKK) 48.3 52.2 51.5 57.3 75.6 Listed share price end of period 142.8 200.2 196 179.3 268.1
Combined ratio excl. run-off profits 95.0 89.8 91.1 90.4 85.8 93.9 86.3
The technical result increased DKK 302m to DKK 1,622m. The increase was due to an extraordinarily favourable claims trend and efficiency improvement.
Results for Q4 2017 The post-tax profit for Q4 2017 was DKK 379m (Q4 2016: DKK 421m).
The technical result increased DKK 61m to DKK 401m, among other things impacted by fewer theft claims and fewer and smaller fire claims plus a better claims trend for workers’ compensation. To this should be added the favourable impact of Topdanmark’s efficiency improvement programme.
Non-life insurance - Investment return after return and revaluations of non-life insurance provisions etc. 106 15
In motor insurance, the average premium declined 1.1%. Despite an increase in the number of cars insured in 2017, premiums earned in motor insurance declined, reducing the Topdanmark Group’s total earned premiums by 0.1%.
The run-off profits, net of reinsurance, were DKK 344m (2016: DKK 470m), representing a 1.4pp adverse impact on the claims trend. Run-off profits were primarily generated in motor and illness/accident insurance.
The weather-related claims were DKK 33m (DKK 59m in 2016), representing a 0.3pp improvement of the claims trend. The level of weather-related claims was DKK 137m below the assumed normal level of DKK 170m for the year representing 1.5pp.
The claims trend was impacted by lower run-off profits (DKK 112m), representing a 5.0pp deterioration in the claims trend.
The weather-related claims were DKK 13m in Q4 2017, (DKK 28m in Q4 2016), representing a 0.7pp improvement. The weather-related claims were DKK 37m lower than assumed for the quarter.
The level of large scale-claims was also very low in Q4 2017, improving the claims trend by 2.6pp.
The claims trend adjusted for run-off, weather-related claims and large-scale claims improved 3.7pp to 69.0 in Q4 2017.
For 2017 in general, the improved claims trend in Q4 2017 is due to a better trend in the SME segment (fire claims below DKK 5m and property claims), an improved claims trend in theft and a favourable trend in fire claims in the personal segment in Q4 2017. To this should be added the favourable impact of Topdanmark’s efficiency improvement programme.
The technical result increased DKK 155m to DKK 882m in 2017.
The combined ratio was 82.3 (2016: 85.2). Excluding runoff profits, the combined ratio was 87.0 (2016: 89.9).
In 2017, premiums earned increased 1.4% to DKK 4,024m. Premiums earned were favourably impacted by an influx of SME customers and adversely impacted by bonus regulation for the captive business and the defection of the last large-scale industrial customers. The development in Q4 2017 was not impacted by defection of large-scale customers. In Q4 2017, premiums earned increased 3.9% to DKK 1,026m.
The combined ratio was 81.5 (2016: 85.0). Excluding runoff profits, the combined ratio was 84.2 (2016: 91.0).
Investment activities Topdanmark Group excl. life insurance The investment return in the Topdanmark Group excluding life insurance was DKK 539m in 2017, (2016: DKK 910m). Return and revaluation of non-life insurance provisions were DKK 143m (loss) in 2017 (2016: DKK 423m (loss)).
The investment return after return and revaluation of nonlife insurance provisions was DKK 129m higher than the assumed return for the year, calculated using Topdanmark's forecast model at the beginning of 2017. The higher return was primarily due to a very high return on equities and structured credits and a higher return on Danish mortgage bonds as compared to the comparable revaluation of provisions.
Return and revaluations of non-life insurance provisions 145 (81) (423) (143) Investment return after return and revaluations . of non-life insurance provisions 147 65 487 396
The class “Unlisted equities and hedge funds” includes private equity positions (DKK 42m) and positions in hedge funds where the investment mandates aim at positioning in the credit market (DKK 175m).
The class of "Assets related to I/A" (Illness/Accident) comprises the investments in Topdanmark Livsforsikring (the life insurance company) corresponding to the size of the illness/accident provisions.
"Money market etc." comprises money market deposits, intra-group balances, the result of currency positions and other returns not included in the other classes.
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. The VA component was 30bp at the end of 2017 and 51bp at the beginning of the year.
The result improved DKK 36m to DKK 77m in 2017 compared to 2016. The improvement is due to a higher performance-related investment management fee for Topdanmark Kapitalforvaltning and lower expenses for the parent company.
Non-life insurance In the interim report for Q1-Q3 2017, Topdanmark expects a positive premium growth for 2018. This profit forecast was based on the following assumptions: • By the end of 2017, Topdanmark has reduced its exposure to the industrial market to almost zero. In 2017, the reduced exposure to the industrial market had an adverse impact of around 0.6pp on the premium growth for the Topdanmark Group
DKK 170m, broken down into quarters: • Q1: DKK 50m • Q2: DKK 25m • Q3: DKK 45m • Q4: DKK 50m.
• An expense ratio of around 16 • A level of interest rates corresponding to the interest rate curve on 29 September 2017 • An annual 7.0% return on equities and unchanged foreign exchange rates from the level on 29 September 2017.
Life insurance The termination of Topdanmark’s distribution agreements with Nykredit and Sydbank within life insurance results in an assumed decline of regular premiums of around 5%. At this time of the year, it is not appropriate to assume the level of growth in single premiums.
Parent company The profit forecast model for the parent company plus subsidiaries outside of the insurance group assumes a pre-tax profit of DKK 40-50m.
Total Group profit Overall, the assumed post-tax profit forecast model for 2018 is DKK 950-1,050m. The assumed profit for 2018 is exclusive of run-off.
The profit forecast model is based on the assumption of an annual 7.0% return on equities and foreign exchange rates unchanged from the level on 29 December 2017. Furthermore, it is assumed that the return on interestbearing assets hedging the discounted provisions is just sufficient to cover discounting and revaluation of the provisions, while the return on the remaining interestbearing assets is assumed to be 1.86% (risk-free interest rate plus 2.0pp).
Parent company etc. 77 40 – 50 Pre-tax profit 2,235 1,230 – 1,370
The internal model has been used in solvency calculations in accordance with the Danish solvency rules in force in 2014 and 2015 and has been amended to meet the EU Solvency II-rules, which took effect on 1 January 2016. The DFSA has approved Topdanmark’s internal model to be used in these new EU solvency calculations.
Overview Topdanmark believes that the Group's most important risks relate to the following main areas: • Non-life insurance • Life insurance • Market • Counterparty • Operational • Compliance • Strategy.
The most important risks are described in the following overview. A more detailed description is available in note 47.
For agreements with bonus entitlement, we aim at balancing return and risk so that ordinary risks are covered by the related bonus potential.
Risk assessment, Information security policy, prioritisation of risks, guidelines, controls and IT Emergency plans based on ISO27001.
The DFSA has permitted Topdanmark to use the volatility adjusted Solvency II interest rate curve.
Using Topdanmark’s internal model for non-life risks implies that capital requirements are DKK 700m or lower than if Topdanmark solely applied the standard model for calculating the solvency capital requirement.
No major changes have been made to the specification of the solvency requirements during 2017.
Topdanmark has redeemed hybrid capital issued in 2007 at a value of EUR 55m on the first possible redemption date, 15 September 2017. The hybrid capital was replaced by a new subordinated tier 1 loan (restricted tier 1 capital notes) of DKK 400m. This loan is perpetual but includes an option enabling Topdanmark to redeem the loan as from 23 November 2022.
Topdanmark Forsikring has previously issued subordinated notes in two tranches: • DKK 500m, call in 2020, expiry in 2025 • DKK 850m, call in 2021, expiry in 2026.
The solvency requirement (SCR) was DKK 3,116m (end of 2016: DKK 3,643m).
Risk scenarios (DKKm) after taxation and pension return tax 2016 2017 Non-life insurance Underwriting risk Combined ratio − 1pp increase (69) (70)
Annual currency loss with an up to 2.5% probability (19) (6)
*35% increase first year, subsequently 25%, coincident with 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.
The size of the necessary solvency capital, i.e. Shareholders’ equity reduced by the value of assets not included in the solvency cover has been calculated at DKK 3,400m. Further solvency cover is ensured through outstanding subordinated notes.
Shareholders As of 1 February 2018, Topdanmark had 37,844 shareholders registered by name.
Topdanmark's Board of Directors comprises nine members, six of them elected by at the Annual General Meeting and three by Topdanmark's employees in accordance with the Danish Companies Act.
In accordance with this Act, the number of Board members elected by employees should be equivalent to no fewer than half the number of those elected by 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.
Severance pay As stated in the remuneration policy adopted at the Annual General Meeting, it is part of the contracts for some members of the Group’s top management team that, under certain circumstances, they will receive compensation in the form of an extended period of notice and an increased severance pay if Topdanmark, and/or the company of the Topdanmark Group with which the person concerned is employed, is taken over by or merges with a company outside of the Group, or if one or more owners take control of Topdanmark, and/or the company of the Topdanmark Group with which the person concerned is employed. The maximum amount of compensation will represent two years' salary.
The share price reflects the value creation potential at group level. This is one of the reasons why Topdanmark believes that share options rather than the receipt of individual bonuses encourage the executives to be more holistic in their approach to value creation.
The value was calculated using the Black and Scholes model based on a share price of DKK 268.73, an interest rate corresponding to the zero coupon rate based on the swap curve on 29 December 2017, future annual volatility of 22% and a pattern of exercise similar to Topdanmark's previous granting of share options: see IFRS 2 on sharebased payments.
At the end of 2017 the exposure of the options held by the Executive Board represented 0.2% of the number of outstanding shares.
In accordance with the new earnings distribution policy, Topdanmark will maintain its disciplined approach to capital consumption to avoid accumulation of unnecessary capital.
Given Topdanmark’s solid own funds, the Board of Directors will recommend to the AGM that distribution of dividend for DKK 1,710m from this year’s profit of DKK 1,733m will take place representing a payout ratio of 98.7.
The distribution of dividend will take place immediately after the AGM on 12 April 2018.
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 → Investor Relations → Reports and presentations → CSR reports (
The regular contact with investors and analysts is supported by Topdanmark's website www.topdanmark.com.
Topdanmark shares Topdanmark shares are listed on NASDAQ Copenhagen and are included in the OMXC Large Cap share index.
Trading in Topdanmark's shares Daily share trading on all stock exchanges was DKK 48m in 2017 (2016: DKK 72m).
NASDAQ Copenhagen continues to be the primary stock exchange for trading in Topdanmark's shares with a daily turnover of DKK 33m in 2017 (2016: DKK 47m).
Topdanmark is monitored by 23 share analysts. The analysts' recommendations of Topdanmark's shares are available on Topdanmark's investor site www.topdanmark.com → Investor Relations → Share profile → Analysts.
The agenda for the Annual General Meeting will be published in the period 7 to 21 March 2018.
Company announcements Topdanmark submits announcements to Nasdaq Copenhagen A/S with information on material and relevant events in the Group which can affect the price of Topdanmark's shares. The announcements are also sent to the press, share analysts, investors and other interested parties.
Previous positions held: 1994-1997: Trygg-Hansa 1997-1999: Head of Control, Skandia P&C 1999-2001: Senior Vice President, If P&C Insurance Ltd 2002-2008: CFO, If P&C Insurance Ltd.
Member of the Board of Directors of: • Ambu A/S • SDG Invest.
Marianne Wier (Resigned February 2018) COO of Topdanmark A/S. DOB 1963, joined Topdanmark in 2013, joined Topdanmark's Executive Board on 1 March 2016.
Allocated investment return, net of reinsurance 2,031 2,691 1,194 3,147 3,372
Change in the life insurance provisions and profit margin (1,048) (2,550) (3,680) (6,197) (5,957)
Provisions for insurance and investment contracts: Combined ratio excl. run-off profits (%) 95.0 89.8 91.1 90.4 85.8
Gross premiums written 3 8,745 9,050 Ceded reinsurance premiums (637) (617) Change in the provisions for unearned premiums 3 110 44 Change in profit margin and risk margin 3 51 (43) Change in the reinsurers' share of the provisions for unearned premiums (0) 12 Premiums earned, net of reinsurance 8,269 8,446
Acquisition costs (945) (950) Administrative expenses (487) (485) Reinsurance commission and share of profits 88 78 Total operating expenses, net of reinsurance (1,344) (1,358) TECHNICAL PROFIT ON NON-LIFE INSURANCE 5 1,361 1,646
Gross premiums written 6 7,430 8,250 Ceded reinsurance premiums (6) (0) Premiums, net of reinsurance 7,424 8,250
Income from associated companies 18 46 61 Income from investment properties 9 74 54 Interest income and dividends etc. 1,740 1,805
Interest charges (78) (79) Expenses on investment business (57) (39) Total investment return 4,189 4,124
Profit for the year 1,536 1,733 Items which cannot subsequently be reclassified as profit or loss: Revaluation / Reversed revaluation owner-occupied properties 1 0 Other comprehensive income 1 0 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,537 1,733
Operating equipment 132 111 Owner-occupied properties 856 853 TOTAL TANGIBLE ASSETS 16 988 965
Loans guaranteed by mortgages 7 6 Deposits with credit institutions 1,451 3,405
Reinsurers' share of the provisions for unearned premiums 20 72 84 Reinsurers' share of the life insurance provisions 27 20 Reinsurers' share of the provisions for claims and benefits 21 586 470 Total reinsurers' share of provisions 685 574
Accrued interest and rent 278 260 Other prepayments and accrued income 188 173 TOTAL PREPAYMENTS AND ACCRUED INCOME 467 432 TOTAL ASSETS 73,476 80,958
Provisions for bonuses and rebates 143 156 TOTAL PROVISIONS FOR INSURANCE AND INVESTMENT CONTRACTS 63,615 70,289
Cash flow from operations Gross premiums written 8,724 8,965 Claims paid (6,266) (5,838) Expenses paid (1,315) (1,294) Reinsurance ceded (150) (238) Cash flow from non-life insurance 992 1,595
Payments on investment contracts 620 890 Interest income and dividends etc. 1,889 1,855 Interest charges etc. (144) (117) Corporation tax (393) (460) Other items (37) (33)
Investment activities related to unit-linked products (4,675) (2,497) Balances with associated companies 15 39
Financing Shares bought back (1,533) (417) Exercise of share options 34 108 Redemption of subordinated loan capital (400) (409) Issue of subordinated loan capital 0 397 Amounts due to credit institutions (1,302) (0)
Cash and cash equivalents at 1 January 4,361 2,282 Revaluation of cash and cash equivalents (6) (24) Cash and cash equivalents at 31 December 2,282 3,941
Cash and cash equivalents comprise: Liquid funds 831 537 Deposits with credit institutions 1,451 3,405
Shareholders' equity at 31 December prior year 105 11 1,146 47 3,364 4,673 Effect of new Executive Order on Financial Statements (31) (31) Equity end of year 2015 according to new Executive Order on Financial Statements 105 11 1,146 47 3,333 4,642
Cancellation of own shares (10) 10 0 Share buy-back (1,524) (1,524) Share-based payments 18 18 Exercise of share options 32 32
Shareholders' equity at 31 December prior year 95 13 1,146 57 3,392 4,702
Technical profit / (loss) on non-life insurance 727 595 (3) 1,320 40 1,361
Life insurance Gross premiums written 7,430 7,430 Allocated investment return 3,147 3,147 Pension return tax (501) (501) Benefits and change in provisions (9,649) (9,649)
Net reinsurance (2) (2) Technical profit on life insurance 4 4 8
Purchase of tangible and intangible assets 75 132 0 208 Results from associated companies 11 35 0 46
Shares in associated companies 71 1,214 0 1,285 Other financial investment assets 21,099 24,800 6 45,906 Investment assets related to unit-linked products 0 25,791 0 25,791 Reinsurers' share of provisions 554 20 0 574 Amounts due from affiliated companies 0 1,267 478 (1,745) 0
Purchase of tangible and intangible assets 57 122 0 179 Results from associated companies 7 54 0 61
Note 3. Gross premiums earned - non-life insurance Gross premiums written 8,745 9,050 Change in provisions for unearned premiums 110 44 Change in profit margin and risk margin 51 -43 Gross premiums earned 8,906 9,051
Claims incurred include revaluation of derivatives hedging the inflation risk in workers' compensation and illness / accident insurance 50 10
Note 5. Technical result - non-life - continued 2016 2017 2016 2017 2016 2017
Run-off profits, net of reinsurance 24 29 22 13 24 6 Claims provisions, net of reinsurance 567 424 81 73 457 445
Run-off profits, net of reinsurance 8 3 470 344 Claims provisions, net of reinsurance 116 109 12,623 12,544 Number of claims incurred ('000) 100 102 421 414 Average value of claim (DKK '000) 4 4 15 14 Frequency of claims (per thousand value) 167 166 110 106
The claims ratio and the combined ratio have been calculated in accordance with the Executive Order on Financial Reports before elimination of internal rent.
Individual policies 1,921 1,752 Policies which are part of a tenure 2,856 3,788 Single premiums 4,777 5,541 Gross premiums 7,430 8,250
Bonuses paid in cash 341 306 Claims and benefits paid 3,453 4,701
Tenancy agreements may include a period of non-terminability for the tenant.
Note 10. Revaluations - continued Of which revaluation of derivatives transferred to claims incurred (50) (10) Investment properties 56 21 Shares in associated companies 1 0 Liquid funds (8) (23)
Note 11. Return and revaluations non-life insurance provisions Annual amortisation Provisions for unearned premiums and profit margin (23) (13) Reinsurers' share of provisions for unearned premiums 2 1 Provisions for claims and benefits (115) (112) Risk margin (1) (1) Reinsurers' share of the provisions for claims and benefits 4 3
Note 13. Taxation Current tax 437 503 Change in deferred tax (11) (2) Prior year adjustment (18) (2) Tax in foreign companies 0 (1) Tax for the year 409 498 Tax taken to shareholders' equity (2) 4
Note 14. Profit per share Profit for the year 1,536 1,733 Average number of shares ('000) 91,465 85,700 Diluting impact of options ('000) 256 173 Average number of shares, diluted ('000) 91,721 85,873 EPS (DKK) 16.8 20.2 EPS, diluted (DKK) 16.7 20.2
Revaluation taken to other comprehensive income 0 1 1 Transferred on revaluation 0 (1) (1) Cost / revaluation at 31 December 456 856 1,312
Impairment and amortisation at 1 January (297) 0 (297) Amortisation for the year (41) (1) (42) Transferred on revaluation 0 1 1 Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year 14 0 14 Impairment and amortisation at 31 December (324) 0 (324)
A 0.5pp higher rate of return will reduce the total fair value by DKK 75m (2016: DKK 75m).
Book value if the properties had been valued at cost price with depreciations 716 716
Fair value revaluation for the year taken to to revaluations 50 6 Total investment properties 3,579 3,783
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 10% (2016: 4.5% to 10%).
A higher rate of return with averagely 0.5pp will reduce the total fair value by DKK 290m (2016: DKK 282m).
The fair value includes properties under construction by DKK 272m (2016: DKK 89m).
Share of profit 46 61 Shares in associated companies 1,180 1,285
Property Carlsberg Byen P/S, Copenhagen 23 development 1,793 179 Havneholmen P/S, Kgs. Lyngby 50 Property 932 4 Margretheholm P/S, Frederiksberg 50 Property 303 67 Bornholms Brandforsikring A/S, Rønne 27 Insurance 215 30
The financial information is according to the companies' most recent annual reports. *Latest Annual Report 2016. Bornholms Brandforsikring A/S has been recognised on the basis of the most recent financial information at 30 September.
Net present value of expected future cashflows (7) 15 Profit margin 79 69
Reinsurers' share of the provisions for claims at 31 December 586 470
Borrower Topdanmark A/S Topdanmark A/S Topdanmark Topdanmark Forsikring A/S Forsikring A/S
Interest charges 59 43 Costs of raising the loan capital - 3
Provisions for unearned premiums at 1 January 1,944 1,881 Profit margin at 1 January 772 711
Provisions for unearned premiums at 31 December 1,881 1,856 Profit margin at 31 December 711 751 Provisions for unearned premiums and profit margin at 31 December 2,592 2,607
Portfolios analysed by technical interest rates Technical Guaran- Individual Collective Life interest teed bonus bonus insurance 2016 rate benefits potential potential provisions
Note 25. Life insurance provisions with guarantees and profitsharing - continued
Technical Risk margin (share of guaranteed benefits) interest rate 2016 2017
Risk groups Risk result after addition of risk bonus 35 57 Risk result after addition of risk bonus in per cent 0.2 0.2
Cost groups Customers' share of administration expenses after addition of expense bonus 78 76 Operating expenses - insurance 196 198 Result of sales and administration (118) (122)
Return on customer funds after expenses before tax in per cent 4.4 3.7
Gross provisions at 1 January 20,441 2,342 22,783 Profit margin at 1 January 94 9 103 Retrospective provisions at 1 January 20,535 2,351 22,886 Gross premiums written 6,790 1,201 7,991 Addition of return 1,681 216 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)
Intra-group transfers 161 46 207 Retrospective provisions at 31 December 26,555 3,492 30,047 Profit margin at 31 December (141) (15) (156)
Return on customer funds after expenses before tax in per cent 10.1 9.0
Note 28. Provisions for claims Gross Provisions at 1 January 13,121 13,209 Claims paid relating to previous years (2,970) (2,796) Change in expected claims payments relating to previous years (502) (393) Claims paid relating to this year (3,317) (3,060) Expected claims payments relating to this year 6,440 5,907 Inflation hedging 50 10 Annual amortisation 115 112
Net of reinsurance Provisions at 1 January 12,540 12,623 Claims paid relating to previous years (2,748) (2,596) Change in expected claims payments relating to previous years (470) (344) Claims paid relating to this year (3,115) (3,002) Expected claims payments relating to this year 5,984 5,720 Inflation hedging 50 10 Annual amortisation 111 109
Net of reinsurance 9 years later 6,225 Less paid incl. inf lation hedging 5,772 5,747 5,823 5,427 5,234 5,438 5,140 4,941 4,384 3,002 50,909 Provisions before discounting
The table show s the historical development in the estimated f inal liability (the sum of claims payments and provisions) for each claims year from 2008. 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 1 January 26 35 Depreciation over 5 years (5) (5) Provided/(used) 14 18 Shadow account at 31 December 35 48
These expenses have been disclosed in: Non-life insurance: Acquisition costs 945 950 Administrative expenses 487 485 Claims paid (claims handling and assessment) 852 817
The table below is categorised by the option holders' standing end of year: Strike Executive Senior Total number of options ('000) price Board executives Resigned Total
Average current price on date of exercise 2016 167 Average current price on date of exercise 2017 211
** The Executive Board successively accrues a remuneration of eighteen months to be disbursed on expiry of the employment. The remuneration is accumulated over 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.
*** Christian Sagild is entitled to receive salary for 12 months in the period of notice amounting to DKK 10.2m including accrued holiday pay. The amount is disbursed on a continuing basis in 2018. In 2017, Kim Bruhn-Petersen has received salary DKK 0.4m in the notice period.
Thus, salaries and compensations disbursed for present and former members of the Executive Board amount to DKK 36.0m (2016: 28.6m) of which variable salaries amount to DKK 2.2m (2016: 2.2m).
Affiliated companies At 31 December 2017, If P&C Insurance Ltd, a subsidiary in the Sampo Group, holds subordinated notes of a nominal value of DKK 120m in Topdanmark A/S.
Designated at fair value: Deposits with credit institutions 1,451 3,405 Investment assets unit-linked products excl. property 21,397 25,651
Loans and receivables at amortised cost Amounts due from policyholders 383 310 Amounts due from insurance companies 100 57 Other debtors 226 170 Liquid funds 831 537
Investment assets related to unit-linked products 15,269 5,972 156 21,397 Total financial assets at fair value 46,872 16,377 582 63,831
Exchange rate adjustments are recognized in the income statement under revaluations. Of the overall revaluation DKK 26m loss is unrealized (2016: DKK 11m).
Financial liabilities measured at amortised cost Other subordinated loan capital 1,754 1,744 Deposits with ceding undertakings 64 77 Creditors arising out of direct insurance operations 329 270 Creditors arising out of reinsurance operations 18 27 Current tax liabilities 59 35 Other creditors 1,508 1,293 Total financial liabilities measured at amortised cost 3,732 3,447 Total financial liabilities 4,655 4,002 Financial liabilities payable after five years or more: Amounts due to credit institutions 3 2
Note 36. Collateral relating to financial assets and liabilities Gross Book Collateral in Net
Except for tangible and intangible assets, investment properties, investments in associated companies and CDOs most other assets are expected to be settled within a year. It is expected that the following significant liabilities will be settled 12 months or more after the balance sheet date: Other subordinated loan capital 1,346 1,744 Provisions for unearned premiums 174 198 Life insurance provisions 43,324 49,042 Provisions for claims and benefits 9,115 9,307 Risk margin, non-life insurance contracts 221 225 Deferred tax on security funds 306 306
Government and mortgage bonds 11,465 12,019 1.6 Index-linked bonds 1,112 957 6.8 Credit bonds and emerging market bonds 2,611 2,069 8.9
Derivatives to hedge against the net change in assets and liabilities (109) (143)
Government and mortgage bonds 1,120 2,732 0.0 Credit bonds and emerging market bonds 5,352 6,106 7.3
Note 40. Sensitivities Event Effect on shareholders' equity 1.0pp increase in interest rates 32 98 1.0pp decline in interest rates (26) (139) 12% decline in equity prices (155) (159) 8% decline in property prices (112) (125) Exchange rate exposure (VaR 99.0%) (46) (4) Loss on counterparties of 8% (188) (213)
Number of shares held to cover the granting of options: 1,444,000 (2016: 1,783,000).
Deposits with credit institutions 280 2,800 Investment assets related to unit-linked products 21,528 25,288 Liquid funds 462 74 Accrued interest 278 257 Shares in and amounts due from affiliated companies eliminated in the consolidated accounts 7,111 6,811 Registered assets 68,008 75,595
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 included in "Management's review". For further details see "Risk management" and "Capital model" in "Management's review".
Topdanmark's pricing has been aligned with the individual markets and types of customers. In the personal and commercial markets, prices are mostly based on standardised rates while major commercial customers are offered more individualised charges.
Efficient management of claims incurred Topdanmark is continuously focusing on making its claims handling processes more efficient under the following three main headings: • Promptness • Better replacement purchasing power • Quality.
The responsibility for arranging co-operation and purchase agreements has been channelled into one centralised purchasing function to ensure the highest possible discount, quality and security when delivering products and services. Service agreements have been made with, for example, SOS International, Falck Health Care, Scalepoint, Bygma, tradesmen, garages and damage service companies.
At Topdanmark the customer always has freedom of choice notwithstanding the fact that Topdanmark uses its purchasing power to reduce expenses for the benefit of the customers. Having secured high quality, service and delivery, Topdanmark’s purchasing agreements must be so favourable that the customers make an active choice of these products.
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, third party insurance and commercial liability.
Composition of Topdanmark’s overall provisions for outstanding claims: Provisions for outstanding claims (%) 2016 2017 Short-tail 13 11 Annuity provisions in workers' compensation 24 23 Other claims provisions in workers' compensation 23 25
The much higher provisioning risk in long-tail than in shorttail lines is due to the longer period of claims settlement. It is not unusual that claims in long-tail lines are settled three to five years after notification and in rare cases up to 10-15 years.
Storm and rainstorms Reinsurance covers storm claims of up to DKK 5.1bn with a retention of DKK 100m. Snow loading, snow thawing and rainstorms are also covered. Reinstatement for the proportion of the cover used up is activated by payment of a reinstatement premium. In the event of another storm within the same year, there is cover of a further DKK 5.1bn with a retention of DKK 100m. In the event of a third and fourth storm, there is cover of up to DKK 670m with a retention of DKK 20m if the events occur within the same calendar year. To this should be added the cover not already hit twice by the first two storms. The cover of a third or fourth storm is dependent on the storm programme not having been hit previously by two individual storms each exceeding DKK 3.2bn. The storm programme is renewed on 1 July.
The Danish non-life companies have established a terror pool. In 2017, the terror pool bought reinsurance, which covered DKK 4,5bn after DKK 0.5bn. In 2018, the cover remains unchanged. Industrial injuries caused by any form of terror are covered by the Government with a few exceptions.
Workers' compensation and illness/accident insurance differ from the general principles regarding the inclusion of an allowance for inflation. The provisions in workers' compensation insurance are calculated on the basis of the expected future indexation of wages and salaries, and those in illness/accident insurance on the basis of the expected net price index.
In order to reduce the risk of inflation within workers' compensation and illness/accident insurance, Topdanmark uses index-linked bonds and derivatives hedging a significant proportion of the expected cash flows.
The liabilities of the Group's insurance companies are primarily technical provisions on which the payment obligation is met by means of the cash flow from operations.
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. A duplicate is kept with an outsourcing partner.
Announcement No. 04/2018 from Topdanmark A/S Page 69 of 94 or bad publicity as a consequence of not acting in accordance with the rules.
Rules comprise all rules, internal rules of Topdanmark's policies and the relevant guidelines as well as all relevant legislation and its sub-rules. Furthermore, rules comprise fixed trade practices for the performance of activity in Topdanmark.
Topdanmark's Compliance Function exercises control and provides advice to ensure that the Group's business sectors and administrative 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.
Change in accounting estimates Profit margin for products with guarantees and profit sharing was at the end of 2016 conservatively estimated at zero in accordance with the interim arrangement agreed with the DFSA following DFSA’s interpretation of 20 May 2016.
In the 2017 annual accounts, the interest margin for calculation of the profit margin for products with guarantees and profit sharing is calculated at 0.05%. The recognized profit margin is calculated on the basis of the expected duration of the insurance contracts.
The profit margin for products with guarantees and profit sharing is financed by the individual bonus potentials and secondarily by the collective bonus potentials, which are part of the life insurance provisions.
IFRS The following amendments, which took effect on 1 January 2017, have not resulted in changes in accounting policies: IAS 7 “Financial Instruments: Disclosures” (note requirement), IAS 12 “Corporate taxes” (recognition of deferred tax assets for unrealized losses) and amendment to IFRS 12 “Information on investments in other companies” (elaboration of the extent of the standard).
IFRS 16 "Leasing” The standard implies that operational lease contracts will be recognized in the balance sheet as a lease asset (right to use the asset) and a lease liability, respectively. IFRS 16 takes effect on 1 January 2019. Topdanmark has not entered into any material lease contracts and therefore does not expect the standard to materially change Topdanmark Group’s accounting policies.
IFRS 9 “Financial instruments” takes effect on 1 January 2018. Topdanmark expects to use the option applicable to insurance groups for concurrent implementation of IFRS 9 and IFRS 17 “Insurance Contracts”. Consequently, IFRS 9 is expected to be implemented from 1 January 2021.
IFRS 17 “Insurance Contracts” defines the principles for recognition and measurement of insurance contracts. IFRS 17 takes effect on 1 January 2021. However, the standard has not yet been approved by the EU.
Companies acquired during the year have been included in the consolidation from the date of assumption of control and those companies sold during the year, until the date of relinquishment of control.
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
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 shares, bonds, derivatives etc., the measurement is generally based on the closing price end of year.
The options are primarily settled with own shares. Any strike amount received on the exercise of the options is taken to shareholders’ equity.
Options, where the holder can choose cash payment, are recorded in the balance sheet under “Creditors” and calculated using the Black & Scholes model. Changes in the fair value are included in the income statement.
Shareholders’ equity must contribute to the financing of a potential negative result for each contribution group if it cannot be covered by collective bonus potential and individual bonus potentials. A deficit which is not covered by the bonus potentials is assigned to a shadow account for the group which can be restored at a later time when bonus potentials are sufficient.
Ratios The financial ratios have been calculated in accordance with the definitions of ratios issued by the Danish Finance Society in 2017, except for “profit per share” and “diluted profit per share”, which have been calculated in accordance with IAS 33 Earnings per share.
The ratio “Dividend per share issued, proposed” is calculated as proposed dividend per share issued end of year.
Pension return tax Pension return tax includes the return tax that arises from the return in life insurance included in the income statement, whether the tax is current or to be paid in subsequent periods.
Claims incurred and benefits paid In non-life insurance, claims incurred net of reinsurance comprise claims paid during the year adjusted for changes in the provisions for outstanding claims and net of the reinsurers' share. Accordingly, claims incurred comprise known and expected claims relating to the year as well as any adjustments to the provisions made in previous years. Furthermore, they comprise direct and indirect expenses on claims handling. However, the proportion of the change in provisions for outstanding claims relating to changes in discounting and revaluation is included in return and revaluations non-life insurance provisions. Topdanmark has entered into derivatives partially hedging the provisions for workers’ compensation and annuities in illness and accident insurance against changes in future wage and price indexation. The revaluation is included in claims incurred.
Return and revaluation of non-life insurance provisions Return and revaluation of non-life insurance provisions includes maturity reduction and revaluation of premium and claims provisions as well as profit margin and risk margin for non-life insurance.
Tangible assets Operating equipment Operating equipment is measured at cost less depreciation on a straight-line basis and net of any impairment. Depreciation on a straight-line basis is calculated on the basis of the expected useful life and the residual value, which is annually revalued. If there is an indication of impairment, the book value is written down to its recoverable amount.
Liabilities Shareholders' equity Revaluation reserves Gains on the revaluation of owner-occupied properties are transferred to the revaluation reserves net of corporation tax. The reserve will be dissolved if the revaluation is reversed or if the property is sold.
The security funds can only be used for strengthening the technical provisions or otherwise for the benefit of policyholders and only if permitted by the DFSA.
Proposed dividend Dividend is recognised as a liability at the time of adoption at the annual general meeting.
The present value of the expected future payments has been calculated using an interest rate curve determined in Solvency ll (EIOPA interest rate curve). The interest rate curve is volatility adjusted and for contracts subject to pension return tax, each interest rate used is reduced by the tax rate of 15.3%.
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. Best estimate for unguaranteed benefits is calculated at contribution group level as the group’s collective bonus potential adjusted for risk allowance and positive values of the difference between, on the one hand, the accumulation of the insurance contracts (retrospective provisions) and on the other hand, best estimate of guaranteed benefits of these insurance contracts.
Claims provisions are assessed for each line of business, either on a claim-by-claim basis (individual provisions), or by using statistical methods (collective as well as incurred but not reported (IBNR) and incurred but not enough reported (IBNER) provisions). Claims exceeding a fixed amount, dependent on the line of business, are assessed individually, and provisions for smaller claims are assessed collectively. IBNR provisions cover expenses on post-notified large claims. IBNER provisions cover extra expenses on already reported claims for which the individually assessed provisions are not sufficient due to, for example, inadequate information at the time of assessment. The collective provisions are calculated using de Vylder's credibility model adjusted for each line of business. The IBNR and IBNER provisions are calculated using models developed in-house.
The assessment of other provisions for claims relating to injuries, loss of provider and expenses is based on traditional actuarial triangulation models. Due to the 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.
The provisions for claims and benefits include the amounts that are expected to be included to cover direct and indirect expenses on settlement of the liabilities.
Profit for the year 1,536 1,733 Other comprehensive income in affiliated companies 1 0 Other comprehensive income 1 0 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,537 1,733
Shares in affiliated companies 6 5,643 6,624 Total investment in affiliated companies 5,643 6,624 TOTAL INVESTMENT ASSETS 5,643 6,624
Deferred tax assets 2 0 Liquid funds 2 3 TOTAL OTHER ASSETS 4 3 TOTAL ASSETS 5,779 7,114
Related parties 9 Own shares 10 Contingent liabilities 11 Other note disclosures 12 Accounting policies 13
Dividends received from subsidiaries (839) 839 0 Other movements in capital of subsidiaries 48 0 48 Cancellation of own shares (5) 5 0 Share buy-back (410) (410) Share-based payments 10 10 Exercise of share options 108 108
Deferred tax assets at 31 December 2016 (DKK 2m) concern subordinated loan capital.
Note 6. Shares in affiliated companies Topdanmark Forsikring A/S 5,383 6,403 Topdanmark Kapitalforvaltning A/S 93 115 Topdanmark Invest A/S 167 105
For detailed information please see Note 45 to the financial statements for the Group.
Note 8. Other subordinated loan capital Hybrid Subordinated core capital loan capital (redeemed 2017)
Principal EUR 55m DKK 400m Date of issue July 2007 November 2017 Maturity Bullet Bullet If permitted by the DFSA, the debtor can give notice of termination from 15 September 2017 23 November 2022 Interest rate EURIBOR 3 months +1.90% to 2017 Cibor 3 months +2.75% Subsequently EURIBOR 3 months +2.9%
Note 9. Related parties Possessing an ownership interest of 48.90% of the shares outstanding, Sampo plc, Fabianinkatu 27, Helsinki, Finland has a controlling influence of Topdanmark A/S. Effective from 30 September 2017, Topdanmark’s financial statements have been included in the consolidated financial statements for Sampo plc in a line by line consolidation.
Anders Colding Friis 117 0 Birgitte Nielsen 525 175 Søren Thorup Sørensen 1,488 496 Total fee paid to nine Board members 4,958 5,317 As a consequence of a vacancy in the board of directors for part of 2016, the total fee settled for 2016 amounts to DKK 4,958,000.
Note 9. Related parties - continued Remuneration of the Executive Board Effective 5 February 2018 Peter Hermann took on the CEO position of Topdanmark A/S. As CEO of Topdanmark Livsforsikring A/S, Peter Hermann in 2017 received a remuneration of DKK 3.2m (8 months 2016: DKK 1.8m).
Kim Bruhn- Christian Brian R. Lars Marianne Petersen Sagild Jacobsen Thykier Wier Total
In 2016, according to the rules in force at that time the Group had one significant risk taker. Pursuant to the exemption clause, the remuneration is not disclosed.
Share options Topdanmark's share option scheme is for its Executive Board and senior executives. The strike price has been fixed at 110% of the market price on the last trading date in the prior financial year (average of all trades). The options may be exercised 3-5 years subsequent to the granting. The scheme is settled by shares (equity instruments).
Note 9. Related parties - continued Shares and subordinated notes held by the Board of Directors and Executive Board The information relates to the Board of Directors and Executive Board notified on 31 December.
Affiliated companies Expenses charged 35 35 Dividends received 1,062 839 Expenses are charged to cover costs incurred.
Average effective interest rate on balances is 0.00% (2016: 0.03%). Shares are disclosed in the balance sheet and specified in the note on Shares in affiliated companies. Balances are disclosed in the balance sheet. At 31 December 2017, If P&C Insurance Ltd, a subsidiary in the Sampo Group, holds subordinated notes of a nominal value of DKK 120m in Topdanmark A/S.
The company’s accounting policies for recognition and measurement are in accordance with the Group’s accounting policies with the following amendment: Shares held in affiliated companies 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 post-tax results of affiliated companies is included in the income statement under income from affiliated companies less any write-downs. Where investments in affiliated companies 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.
All companies in the Topdanmark Group and 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.
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 included in financial highlights on page 3. Risk disclosures in accordance with Section 91(b) are included in "Management's review" for the Group in "Risk management "and in Note on the consolidated financial statements.
There have been no events in the period from 31 December 2017 until the presentation of the financial statements which could change the assessment of the annual report.
The above description of risk factors is not exhaustive. Investors and others, who may base decisions relating to Topdanmark on statements relating to the future, should give their own careful consideration to these and other factors of uncertainty.
In our opinion, the consolidated financial statements and annual financial statements give a true and fair view of the Group’s and the parent company's assets, liabilities and financial position at 31 December 2017 as well as of the Group’s and the parent company’s activities and the Group’s cash flow for the financial year 1 January to 31 December 2017.
Solvency cover Management is responsible for the key ratio “Solvency cover” evident from the five-year summary in the annual report. As disclosed in the five-year summary, the solvency cover is exempt from the requirement to be audited. Consequently, our opinion on the consolidated financial statements does not cover the solvency cover, and we do not express any form of assurance conclusion thereon.
Our opinion is consistent with our audit book comments issued to the Audit Committee and the Board of Directors.
To the best of our knowledge and belief, we have not provided any prohibited non-audit services as referred to in Article 5 (1) of Regulation (EU) No 537/2014.
Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements and the parent financial statements for the financial year 1 January to 31 December 2017. These matters were addressed in the context of our audit of the consolidated financial statements and the parent financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have reviewed the measurement of the provisions for insurance contracts as calculated by Management. Our audit procedures comprised: • Assessing and testing design, implementation and operating effectiveness of key controls in statistical and actuarial models, including processes for data collection, analysis and determination of assumptions
• Challenging changes in the assumptions and models applied compared to last year and developments in industry standards and practice
Management has described the measurement of provisions for insurance contracts, the actuarial calculations and assumptions applied in more detail in note on Accounting policies.
Our opinion on the consolidated financial statements and the parent financial statements does not cover the management commentary, and we do not express any form of assurance conclusion thereon.
Solvency cover Management is responsible for the solvency cover evident from the statement of financial highlights and key figures of the annual report.
If, based on this, we conclude that the solvency cover is materially misstated, we are required to report on this. We have nothing to report in this respect.
In preparing the consolidated financial statements and the parent financial statements, Management is responsible for assessing the Group’s and the Parent’s ability to continue as a going concern, for disclosing, as applicable, matters related to going concern, and for using the going concern basis of accounting in the preparation of the consolidated financial statements and the parent financial statements unless Management either intends to liquidate the Group or the Parent or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements and the parent financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs and additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and these parent financial statements.
As part of an audit 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 consolidated financial statements and the parent 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
• Evaluate the overall presentation, structure and content of the consolidated financial statements and the parent financial statements, including the disclosures in the notes, and whether the consolidated financial statements and the parent financial statements represent the underlying transactions and events in a manner that gives a true and fair view
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the