y Denmark’s second largest non-life insurance company. Almost half of all Danish farms, about every fourth person in Denmark and every sixth business is insured with Topdanmark.
y Topdanmark has around 2,600 employees and is one of the financial services companies in Denmark with the highest employee satisfaction rating.
y Channels money back to shareholders by share buy-backs; since the programme was initiated in 1998, has bought back 62% of outstanding shares, with the average annual buy-back yield being 9% since 2000.
2010 • Post-tax profit of DKK 1,168m (2009: DKK 1,446m). • Actual result around DKK 200m higher than assumed in most recent profit forecast model of DKK 900-
• Premiums declined 1.3% in non-life insurance but increased 5.8% in life insurance.
• Topdanmark bought back own shares of DKK 833m. Buy-back programme was DKK 1bn; consequently DKK 167m transferred to the 2011 programme.
Profit forecast model for 2011 • Assumed combined ratio for 2011 adjusted to around 91% from around 92%, excluding run-off profits / losses.
• The share buy-back programme is DKK 1,300m; an 11.8% yield.
In order to participate in the conference call, please phone: UK dial in number: +44 (0) 20 7162 0177 US dial in number: +1 334 323 6203 quoting reference 889198 10-15 minutes before the conference asking the operator to connect you to the Topdanmark conference call – or listen to the live transmission of the call.
Auditors' reports 105 Internal auditor's report 106 Independent auditor's report 107 Group Structure
Other movements in shareholders' equity (5) 1 10 2 1 0 0 Shareholders' equity of parent company
Provisions for insurance and investment contracts: Financial ratios (parent company) Post-tax profit as a % of shareholders' equity 39.4 31.2 (5.6) 36.6 24.1 7.8 10.2 Post-tax profit per share (DKK) 90.9 75.0 (12.1) 92.2 77.2 21.8 33.5 Post-tax profit per share, diluted (DKK) 88.3 73.3 (12.1) 91.7 77.0 21.7 33.5 Net asset value per share (DKK) 244.0 232.3 207.1 288.1 338.6 288.1 338.6 Share buy-back per share (DKK) 74.6 116.8 23.4 23.8 58.8 10.0 14.4 Listed share price end of period 934 734 687 703 738 703 738
Number of shares end of period ('000) 17,896 15,995 15,663 15,496 14,472 15,496 14,472
Non-life insurance - Investment return after transfer to technical result etc. 723 465 Profit on non-life insurance 1,592 1,092 Life insurance 292 384 Parent company etc. (21) 31 Pre-tax profit 1,863 1,506
Profit of DKK 1,168m in 2010 Topdanmark’s post-tax result for 2010 was a profit of DKK 1,168m (2009: DKK 1,446m) representing a profit per share of DKK 77.2 (2009: DKK 92.2).
Pre-tax profit was DKK 1,506m (2009: DKK 1,863m). The technical result, investment return, result of life insurance and result of the parent company Topdanmark A/S were all better than assumed in the profit forecast model for 2010 set out in the Q1-Q3 report.
The technical result declined to DKK 626m in 2010 (2009: DKK 869m) due to weather-related claims being DKK 347m higher than the 2009 level and lower interest rates, which, as compared to 2009, adversely affected the result by just under DKK 100m, thereby demonstrating an underlying improvement in the technical result.
Profit on life insurance increased to DKK 384m (2009: DKK 292m) mostly due to the investment return being sufficiently high to allow recognition as income of the entire shadow account balance of DKK 144m in Life I.
Non-life insurance - Investment return after transfer to technical result etc. 119 137 Profit on non-life insurance 323 377 Life insurance 118 190 Parent company etc. 16 38 Pre-tax profit 457 605
The investment return improved to DKK 137m (Q4 2009: DKK 119m). In contrast to Q4 2009, both an allowance for risk and the shadow account could be fully included in income in Life I.
Non-life insurance Danish non-life insurance market Key features of the Danish non-life insurance market in 2010: • Continued recession in the SME and industrial market • Price increases in personal and SME markets • Continued intense competition in the upper part of the industrial insurance market • 1% growth in premiums • Untypically large number of weather-related claims • Continued increase in claims in workers'
compensation insurance • Slowdown in theft claims • Slowdown in fire claims • Stabilisation of motor insurance prices • Decline in interest rates • Increasing combined ratio
The recession continued into 2010 with an estimated 23pp adverse effect on premiums earned due to a decline in insurable values (fewer vans, reduced stock levels etc.) and fewer employees. It is estimated that the combined ratio was correspondingly adversely impacted by around 0.5pp.
The industrial insurance market is affected by intense competition, particularly from major international companies due to a number of foreign insurance companies endeavouring to improve their position in the Nordic industrial market. This increased competition is predominantly in workers' compensation insurance which is the largest individual product for industrial companies.
Denmark was extraordinarily hard hit by weatherrelated claims in 2010. Severe winter weather caused considerable snow loading claims in Q1. Q3 was affected by significant cloud burst claims and Q4 by road accident and frost claims when winter started early. However, there were no significant storm claims in the year. Overall gross weather-related claims are estimated to be around DKK 3bn. Net of reinsurance cover weather-related claims are estimated to be around DKK 2.5bn corresponding to a 5pp negative effect on the combined ratio, which is estimated to be 3pp higher than a normal level.
Following a significant increase in 2006-2009, the level of theft claims declined slightly in 2010, both in number and the size of average claim. For example, the number of burglaries declined 8% from 2009 to 2010. Developments in 2010 reflected a slowdown in the level of theft claims in the personal market and a decline in both the agricultural and SME markets.
Correspondingly, following an increase in 2006-2009 the level of fire claims declined slightly in 2010. Developments in 2010 reflected a decline in the SME market and an increase in the personal market.
The loss ratio in motor insurance has been on the increase in recent years due to increased competition but during 2010 motor insurance prices stabilised. One of the reasons could be the severe winter weather in Q1 and Q4 which caused an 8% increase from 2009 to 2010 in the number of traffic accidents referred to the police.
Result of non-life insurance Topdanmark's premiums declined 1.3% in 2010 to DKK 8,548m, which was slightly lower than the assumed decline of 1.5% in the profit forecast model for 2010 set out in the Q1-Q3 2010 interim report.
The decline in premiums earned in 2010 was due to the recession and a negative adjustment of premiums for 2009. Topdanmark has a relatively large exposure in the SME segment including tradesmen and small contractors, who have been especially hard hit by the recession.
Competition intensified in the upper part of the industrial market in 2010 in particular from foreign insurance operators. Workers' compensation insurance polices, representing typically 20-30% of the expenses paid on insurance premiums by an average industrial business, is the key product enabling entry into the industrial market. Topdanmark gives priority to profitability over volume and its return requirements were obviously higher than those of a few other players in this market. Due to the recession (business liquidations etc.) and the increase in competition from major and international industrial businesses, Topdanmark has lost 36% of its workers' compensation business since 2007, however, much of this loss was on the industrial market where profitability is very limited. In 2010 premiums earned on workers' compensation declined DKK 150m giving a 1.8pp effect on premiums earned by the Group in 2010.
Topdanmark implemented price increases, which resulted in an impact of DKK 161m in 2010. It was one of the first companies to initiate price increases for SME customers during 2010, and this generated a somewhat higher than expected level of customer migration. Since then other companies have followed suit with similar price increases leading to improved competition in the SME market. The loss of personal customers has been limited. The net effect of the price increases on premiums earned was around 1.2pp, in line with the assumed level of around 1pp.
The claims trend increased to 77.9% in 2010 (2009: 76.2%) representing a deterioration of 1.7pp.
Total weather-related claims, including winter and cloudburst claims, amounted to DKK 410m, 4.1pp higher than the previous year's level and DKK 260m higher than the assumed normal level of DKK 150m for 2010 included in Topdanmark's profit forecast model for 2010. Accordingly, weather-related claims exceeding the assumed normal level had a 3.0pp effect on the claims trend.
Run-off profits net of reinsurance were DKK 204m in 2010 (2009: DKK 214m). As compared to 2009 run-off profits had a 0.1pp adverse effect on the claims trend in 2010.
Claims incurred (1,550) (1,464) (6,337) (6,456) Expenses (338) (350) (1,295) (1,320) Net reinsurance (91) (106) (266) (204) Technical profit 204 240 869 626
Total run-off profits, net of reinsurance 67 86 214 204 See Note 4 for further detail of lines of business
Fire claims declined to DKK 645m in 2010 (2009: DKK 764m) which improved the claims trend by 1.4pp. The Personal segment accounted for 12% of the decline and the SME and Industrial segment for 17%.
The decline in theft claims to DKK 460m in 2010 (2009: DKK 536m) improved the claims trend by 0.9pp reflecting a decline of 7% in the Personal segment and 26% in the SME and Industrial segment.
The expense ratio increased to 15.4% from 14.9% primarily due to the decline in premiums earned but also an increase in expenses on the Solvency II preparations.
Excluding run-off profits the combined ratio increased to 95.7% in 2010 from 93.6 % in 2009. Accordingly, adjusted for weather-related claims exceeding the normal level by 3.0pp the underlying combined ratio was 92.7% excluding run-off profits.
The claims trend improved to 72.9% in Q4 2010 (Q4 2009: 75.5%) primarily due to the implementation of price increases, lower fire and theft claims and higher run-off profits. Weather-related claims were around DKK 30m due to the severe winter weather in Q4 2010, which was in line with Q4 2009. As there were no storm claims that quarter, the DKK 30m was lower than the assumed normal Q4 level of DKK 50m for weather-related claims as assumed in the 2010 profit forecast model set out in the Q1-Q3 interim report.
Competition is strong, particularly in motor insurance, but declining. Premiums earned in this line of business declined around 2.0pp, and in spite of severe winter weather in Q1 and Q4, the claims trend only deteriorated 0.3pp from the previous year.
The technical result increased DKK 22m to DKK 470m in 2010.
Premiums earned declined 4.9% to DKK 3,849m while the decline in premiums slowed to 2.8% in Q4. The difficult situation of small and medium-sized businesses impacted the SME segment significantly as Topdanmark has a relatively high market share in this segment, in particular with tradesmen and in the construction industry.
Premiums earned declined primarily due to the loss of business in workers' compensation insurance as, among other things, a consequence of the decline in the number of employees in the businesses. The loss of business in workers' compensation corresponded to a 3.6pp decline in premiums from 2009. Furthermore the recessionary effect continues to be felt in other areas by way of fewer vehicles (particularly delivery vans), a reduction in production facilities and more business liquidations etc.
The price increases for small and medium-sized businesses resulted in a slightly larger than expected loss of customers.
The technical result declined DKK 262m to DKK 154m in 2010 mainly due to the severe winter in Q1 with its large number of snow loading claims particularly on farm buildings and cloudburst claims in Q3.
The claims trend increased 4.4pp to 80.8% impacted by winter claims of DKK 250m (6.5pp). However, the size of fire and theft claims declined (2.2pp and 1.3pp). Run-off profits were DKK 31m in 2010 (2009: DKK 103m) giving a 1.7pp effect on the claims trend.
The expense ratio increased 1.4pp to 15.9% reflecting the decline in premiums earned and increased investments in a new sales and administration system TopBiz.
In recent years there has been a greater appreciation by the general public that they need to establish private savings for their old age and not only rely on public funds received as a pension. These needs are reflected in the collective agreements in the labour market where there has been a general increase in pension contributions obtained through collective agreements, which has in previous years created strong growth in pension savings in Denmark. However, this growth slowed significantly in 2009 in line with the after-effects of the financial crisis on people's financial status with the result that their desire to continue spending part of their disposable income on additional pension savings continued to fall into 2010. Their unwillingness increased due to a tax reform passed by the Danish Parliament limiting the deductibility of term life insurance premiums to a maximum of DKK 100,000, with effect from 2010. The tax reform's removal of this deductibility increased the interest for using the unlimited deductibility for the last time in 2009, which is assumed to have brought forward to 2009 those pension contributions which would otherwise have been made in 2010.
In the spring of 2010 the Danish Government and Dansk Folkeparti (The Danish People's Party) agreed to introduce a 6% equalisation tax on payouts exceeding an annual amount of DKK 362,800, which further reduced the desire to make additional pension contributions particularly for those customers who are relatively close to retirement.
As most major businesses have already established corporate pension schemes, competition concentrates on moving existing customers. Labour market mobility is one of the drivers generating sales in the life insurance and pension fund sector as customers' savings are often moved to new pension suppliers when they are changing jobs. The relatively high rate of unemployment and the resulting lack of mobility in the labour market have therefore reduced premiums and deposits in the life insurance and pension fund sector.
Overall it is estimated that total payments into pension schemes reduced by around 5% in 2010.
Result of life insurance Topdanmark's profit on life insurance was DKK 384m in 2010 (2009: DKK 292m).
Transferred to/from shadow account (73) 113 40 144 0 144 Profit in Topdanmark Link 38 33 Profit in Nykredit Life insurance 0 3 Financing charges Life Holding (8) 1 Other (5) (17) Profit on life insurance 292 384
Shadow account end of period 137 0 137 0 0 0
In contrast, the trend in results was affected by a decline in the investment return on shareholders' equity to DKK 91m in 2010 (2009: DKK 102m). Furthermore the profit on Topdanmark Link declined to DKK 33m in 2010 (2009: DKK 38m) primarily due to a lower investment return on shareholders' equity in 2010.
The return on funds owned by customers, before pension return tax, was 7.1% in Life I and 10.5% in Life V. After pension return tax and the change in provisions to strengthen the guarantees the net return was 6.0% in Life I and 6.6% in Life V.
Trend in premiums Due to an increase in single premiums gross premiums increased 5.8% to DKK 3,395m in 2010 (2009: DKK 3,208m) which was slightly higher than the growth of around 5% expected in the interim report for Q1-Q3 2010.
Regular premiums declined 4.9% to DKK 2,572m in 2010 (2009: DKK 2,705m) which was greater than the decline of 2-3% expected in the interim report for Q1-Q3 2010.
Single premiums increased 63.5% to DKK 822m in 2010 (2009: DKK 503m) due to, among other factors, most life insurance and pension fund companies having removed their loss participation schemes. This increased mobility in corporate pensions which in turn caused an increase in the transfer of pension savings between Topdanmark and other life insurance and pension fund companies.
Transferred to/from shadow account (19) 77 58 144 0 144 Profit in Topdanmark Link 6 8 Profit in Nykredit Life insurance 0 0 Financing charges Life Holding (1) 2 Other (3) (2) Profit on life insurance 118 190
There was an overall increase of 55.8% in premiums in unit-linked pension schemes. Regular premiums increased 17.2% to DKK 506m in 2010 (2009: DKK 431m) and single premiums 175.9% to DKK 381m. The share of new business written by unit-linked savings increased to 61.8% in 2010 (2009: 32.5%).
Consequently, overall payments into pension schemes in Topdanmark life insurance – including investment contracts – increased 4.3% to DKK 3,518m in 2010 (2009: DKK 3,372m).
In 2010 DKK 54m of premiums and DKK 6m of payments into investment contracts were due to transfers from other group companies (2009: DKK 14m and DKK 2m).
Developments in Q4 2010 Profit on life insurance increased to DKK 190m in Q4 2010 (Q4 2009: DKK 118m) due to the recognition as income of the shadow account of DKK 144m in Life I. However, the investment return on shareholders' equity declined DKK 19m to DKK 6m.
Rate of interest on policyholders’ savings in 2011 On 31 October 2008 the Danish Ministry of Economic and Business Affairs and the Danish Insurance Association agreed to ensure financial stability in the pension sector. It was a key element of the agreement that the bonus policy and the decision on bonus rates should ensure that generally companies do not accept liabilities other than those with guaranteed pension benefits.
The agreement on financial stability was extended at the end of 2010. However, the extension is not time-limited as the parties have decided that the agreement ensures an appropriate change to the new Solvency II rules in the pension sector. This has influenced the decision on fixing the rate of interest on policyholders' savings for 2011. On 1 May 2010 the rate of interest on policyholders' savings in Life I before pension return tax was raised from 2.65% to 3.25%, which will be maintained for the remainder of 2011. In Life V the rate before pension return tax has been raised from 3.5% to 4.35% for 2011. As in previous years these rates may be subject to change later in the year if the development in the financial markets is different from expectations.
Topdanmark benefitting from future requirement to publicise indirect costs In continuation of the sector's work to increase openness and transparency, life insurance and pension fund companies are required to publicise annual costs both in
Danish kroner and as a percentage with effect from 1 July 2011. These figures are also required to include indirect costs. It is believed that Topdanmark life insurance would benefit competitively, particularly in unit-linked life cycle products, as its indirect costs are among the absolute lowest in the market.
This was just under DKK 50m higher than the level assumed in the profit forecast for 2010 set out in the Q1Q3 report for 2010 calculated using Topdanmark's standard forecast return assumptions (equities: 7% p.a., interest-bearing investment assets: three-month forward rate plus 2% p.a. of the net balance, having deducted discounted provisions), and related primarily to revaluations of subordinated CDO tranches and substantial equity returns in the latter months of the year.
It is Topdanmark's policy to accept a certain level of financial risk, given its strong liquid position and stable, high earnings from insurance operations. Topdanmark has invested in, among others, equities, properties and CDOs in order to improve the average investment return. The return in 2010 on the most significant classes of assets is disclosed in the following table on page 15: Announcement No. 05/2011 from Topdanmark A/S Page 14 of 107
At 31 December 2010 associated companies accounted for DKK 64m of the total equity investment of DKK 1,211m. The post-tax equity exposure was DKK 733m excluding associated companies but including the impact of derivatives.
The equity portfolios are well diversified with no large individual positions. The composition of the portfolios is based on OMXCCAP for Danish equities (representing around 35% of the portfolio at 31 December 2010) and MSCI World in the original currency for foreign equities.
The class of "Assets related to IA" (illness / accident) comprises the investments in Topdanmark Livsforsikring corresponding to the size of the illness / accident provisions. These investments are calculated as a share of Topdanmark Livsforsikring's overall investments, however, equities and equity instruments have, in advance, been allocated to the life insurance customers.
investment assets previously recorded at model price at the end of 2008 have now again been recorded at a publicly available value. Since the end of 2008 it has not been necessary to value further assets by the mark-tomodel method. During Q4 2010 the market pricing for CDO equities changed and it is now possible to record a significant proportion of those assets which at 30 September 2010 were valued at mark-to-model to a publicly available value.
Parent company etc. The parent company Topdanmark does not perform any independent activities. The result of the parent company includes the results of subsidiaries, excluding the insurance business (primarily Topdanmark Kapitalforvaltning, the asset management company), and financing costs. The result was a DKK 31m profit in 2010 (2009: DKK 21m loss) due to higher earnings in subsidiaries outside of the insurance group and the recognition as income of net interest compensation of DKK 25m relating to tax cases.
In the personal and SME markets, automatic price indexation, which allows for claims inflation, is 2.6%. Prices in the industrial market are expected to be under pressure in 2011 also due to competition from, among others, foreign insurance companies. Including the effect of price increases, growth in premiums earned is estimated to be 3%.
The forward interest rate curves for, for example, 3-month and 10-year rates are increasing. Non-life insurance companies will benefit from an increase in interest rates. Companies who prepare their accounts in accordance with Danish accounting rules discount their provisions for outstanding claims to present value, which implies that an increase in interest rates will reduce those companies' loss ratios. If there is a 1pp increase in interest rates, the loss ratio will decline 1.0-1.5pp.
A number of external factors will have an adverse impact on the combined ratio of the insurance sector in 2011: • An increase in payroll tax in 2011 from 9.13% to 10.5% • An increase in expenses on terror pool • An increase in motor claims due to changed rules for the vehicle registration fee on written-off cars • An increase in reinsurance expenses on cloudburst cover for those insurance companies who have chosen such cover
Overall it is estimated that these factors will increase the combined ratio by around 0.5-1.0pp in 2011. Additionally there will be expenses on the Solvency II preparations.
In recent years, the continued increase in life expectancy and the awareness of the need to establish personal pension savings have increased the interest for pension saving to ensure an individual's future welfare. In spite of this it is expected that overall the life insurance and pension fund market will not see the same growth as in those years prior to 2009 due to the effect of the global financial crisis and the resulting increase in unemployment combined with the tax reform's limitations on the deductibility of term life premiums to DKK 100,000. Furthermore the 6% surtax on payouts exceeding DKK 362,800 reduced the desire to make additional pension payments particularly for those customers who are relatively close to retirement. At the same time most companies and trade organisations have already made pension scheme agreements. It is estimated that overall pension contributions will increase 3-5% in 2011. It is expected that the future rate of increase will follow wage increases rather than the rate of increase seen before 2009.
On 8 December 2010 the DFSA issued an order requiring companies to use an interest rate of a maximum of 1% in their technical base. As this new maximum capitalisation rate took effect from 1 January 2011, all new business will be written on a 1% basis.
Non-life insurance In the interim report for Q1-Q3 2010 Topdanmark expected premium growth of 1-2% and a combined ratio of around 92% in 2011.
• Competition will continue to be intense in the upper part of the industrial market, particularly in workers' compensation
Since the interim report for Q1-Q3 2010 was published and to date no events have occurred that would change the assumed growth of 1-2% in 2011.
The assumed combined ratio of around 92% in the Q1-Q3 interim report for 2010 was based on: • Price increases of DKK 99m, besides automatic indexation, having a full effect on the combined ratio corresponding to an improvement of 1.1pp for 2011, excluding run-off profits
• More efficient claims handling and improved procurement power having an effect on the combined ratio of 0.5pp
Since the 2010 interim report for Q1-Q3, the assumptions for the combined ratio for 2011 have changed: • Increase in the yield curve (calculated on 25
• Improved claims trend in, among other lines, theft and fire corresponding to a 0.2pp improvement of the combined ratio
Life insurance For 2011 it is assumed that regular premiums will decline 0-5% because the life insurance company lost a major pension customer at the beginning of the year. At this time of the year it is not appropriate to assume a level of growth in single premiums.
Overall the result of life insurance is assumed to be DKK 280-310m.
Total Group profit Overall, the post-tax profit forecast model for 2011 is assumed to be DKK 1,100-1,200m representing a profit per share of DKK 80.
This profit forecast model is subject to an annual 7.0% return on equities and unchanged foreign exchange rates from the level on 25 February 2011. Furthermore it is assumed that the return on interest-bearing assets hedging the discounted provisions is just sufficient to cover discounting and revaluation of the provisions while the return on the remaining interest-bearing assets is assumed to be 3.73% (risk-free interest rate plus 2.0pp).
Parent company etc. 31 10 – 20 Pre-tax profit 1,506 1,430 – 1,580
1,300m including the buy-back of DKK 167m transferred from 2010. The buy-back of DKK 1,300m assumes a profit in line with the profit forecast model of DKK 1,100-
To date in 2011 Topdanmark has bought back own shares of DKK 336m which leaves a balance of DKK 964m of the 2011 programme.
From 2000 to 2010 the average buy-back yield has been around 9%.
Topdanmark does not buy back own shares in those periods where the Company would be considered an insider and during the three weeks immediately preceding the announcement of interim and annual reports. Furthermore, it does not buy back own shares during the period of five banking days after the announcement of a quarterly report as this is the period in which the executives may exercise their share options or warrants. Below is a list of the periods when the share buy-back is and is not allowable.
The maximum acceptable level of risk is a function of Topdanmark's risk capacity, which is dependent both on the current size of its capital base and on the size of the future profit. Up to now Topdanmark has been able to compensate for any changes in risk capacity by adjusting the size of the capital base or adjusting the level of risk. However, the level of capital required by Solvency II is expected to be high taking only limited account of future earnings. Going forward it is therefore expected that the size of the capital base will be a less useful tool to control the risk capacity as the capital base required by Solvency II will typically be greater than the level Topdanmark considers is necessary.
Topdanmark could choose to use the excess capital base to accept financial risk but this is not what is intended. On the contrary Topdanmark has introduced more restrictive limits on its financial positions in order to ensure that, with a very high probability, the Company would generate an overall profit even in the event of further breakdown in the financial markets as in 2008.
Provisions are generally calculated on a monthly basis across all lines of business and with the claims trend being assessed monthly, followed up by any necessary price changes. For example, in both 2009 and 2010, the prices of the house and contents policies and in 2011 the change of ownership policies were adjusted to counteract the unsatisfactory trend in theft, fire and plumbing claims.
Claims handling supported by a new claims system Topdanmark has implemented a new claims handling system intended to support, among other things, professional accuracy. From measurements taken of the system it can be seen that there has been a significant improvement in quality.
Provisioning risk Provisions for unearned premiums The risk on provisions for unearned premiums is relevant particularly within change of ownership insurance where typically the policy covers a period of ten years and the full ten-year payment is made up front.
Reinsurance Topdanmark has a restrictive acceptance policy in its choice of reinsurance companies. Primarily it uses insurance companies which, as a minimum, have a S&P rating of A-. If the reinsurance company does not have an S&P rating, the corresponding minimum rating from AM Best is used.
Weather The reinsurance contracts for storm cover claims up to DKK 5.1bn with a retention of DKK 100m. Events like snow loading, snow thawing and cloudburst are covered by the same contract as the storm cover. However, Topdanmark will have to pay a reinstatement premium proportional to the amount of the reinsurance programme that has been utilised.
Topdanmark has reinsurance cover of DKK 100m for accumulated annual cloudburst claims exceeding DKK 50m. For a claim to be accumulated, it must exceed DKK 10m.
A national guarantee scheme of DKK 15bn covering terror claims including an element of NBCR (nuclear, biological, chemical, radiological) was established on 31 March 2010. The Danish Terror Insurance Board decides whether an event is an NBCR event or not. The national guarantee scheme covers any market event or market retention in excess of DKK 5m. On 1 January 2011 the Danish non-life insurance companies established a terror pool to protect the market retention, with each company's share of the pool being based on its market share of the non-life insurance market.
Floods and storm-damaged forests Danish insurance companies do not cover damage arising from floods, including those from lakes and streams, or the cost of replanting of forests following storms. These types of claim are covered by the Danish Flood Fund which is a self-sustaining, public fund financed by an annual fee of DKK 30 per fire policy charged on to the customers by the insurance companies.
The limits for these financial risks are fixed by Topdanmark's Board of Directors. In practice, Topdanmark Kapitalforvaltning (asset management)
handles the investment, finance and risk alignment processes. It is controlled on a day-to-day basis to ensure that the limits are observed. The result of this is reported to the Board of Directors.
All of the Group's insurance companies may raise money market loans as part of the day-to-day liquidity management. Typically the maturity of such loans is less than a month. Both the subordinated loan raised by Topdanmark Forsikring and any outstanding money
The old contribution order treated the elements of interest rates, risk and cost result as one single item in the "insurance technical result before bonus", which allowed for a set-off of losses of one group against profits of another. The new contribution order requires that the "insurance technical result before bonus" be distributed on basis of the Company's contribution groups and consequently transferred to those policies within those groups. In the event of losses in one of the groups, these losses must be transferred to a shadow account which can only be recognised as income when that group returns to being in profit. Therefore, from now on, shareholders will not be allowed to recognise an allowance for risk as income if there is a balance in the shadow account. Seen in isolation this implies a greater risk for the owners.
The order applies to all life insurance policies entitled to a bonus, with classical saving in with-profit schemes.
Hedging / guaranteed benefits The Group has guaranteed that policyholders will receive a pension benefit of 1.0%, 1.5%, 2.5% or 4.5%, according to when the policy was written. These benefit guarantees are linked to the risk of a downturn in the financial markets.
mortality and the future improvement in life expectancy. The mortality rate used is higher than set out in the G82 life expectancy assumptions previously used by up to five years for men and 6.6 years for women. Such an increase in life expectancy above the existing best estimate will increase the life insurance provisions and will be covered by the collective and individual bonus potential as described above. A significant change of a 20% reduction in the mortality rate assumptions as at 31 December 2010 would reduce the collective bonus potential about DKK 40m in Life I and about DKK 140m in Life V.
Announcement No. 05/2011 from Topdanmark A/S Page 30 of 107 relatively high: in a typical CDO with bank loans as the underlying asset (CLO) the AAA tranche will only suffer if the size of the overall losses, following the sale of securities, exceeds between a third and a quarter of the portfolio value.
Topdanmark is continuing to develop IT systems, routines and procedures. The responsible business units are also responsible for the risk management of this development. Risk assessments are carried out for all projects to establish the risks, possible consequences and measures to limit these risks. New IT systems are only implemented after extensive testing.
In order to reduce the probability of breakdowns of the IT systems and limit the duration of them, Topdanmark has invested in, for example, emergency power plants with a diesel generator, disk mirroring, alarms and automatic fire fighting equipment. Critical IT equipment is in duplicate and placed in two machine rooms 300 metres apart.
Risk factors in the event of realisation of different risk scenarios - after taxation and pension return tax
a: One percentage point increase in effective interest rate b: 5% decline in market price c: Annual loss on foreign exchange, with a 2.5% probability or less d: 10% loss on equity portfolios e: 10% loss on CDOs with ratings lower than AA f: 10% decline in market value of properties g: 1% increase in expenditure h: 1% increase in claims i: Storms generating claims, net of reinsurance, of up to DKK 100m
In a period one year hence, a change in interest rates would cause a compensating change in the current return, implying the net effect in a year's time would be much smaller than the immediate effect.
It is illustrated below: A 1pp parallel shift upwards in the zero-coupon rate structure would have the following overall immediate effect on the results for the investment assets and existing provisions of the Topdanmark Group excluding life insurance: However, the higher interest rates would also result in a better return on Topdanmark's interest-bearing assets and a lower loss ratio.
One year's effect of increase in interest rates 112 Non-recurring effect of increase in interest rates (76)
The new European solvency rules, Solvency II, are currently being prepared and are expected to take effect on 1 January 2013.
Individual solvency requirement The individual solvency requirement comprises two key elements: a report in numbers to the DFSA on the solvency capital requirement including a calculation of the capital components for this requirement and written documentation of the companies' risk control methods used to identify and quantify risks, take out risk hedging and apply routines etc.
Topdanmark views the individual solvency requirement as a temporary solution prior to the introduction of the expected principles of Solvency II. Therefore it has chosen to base its calculation of individual solvency requirement on the model for the EU's most recent Solvency II test calculation QIS5 which is expected to be similar to the future Solvency II standard. However, in a few respects Topdanmark has used other methods to make the individual risk calculation more accurate, such as: • For non-life insurance risks Topdanmark uses an internal model with random simulation of the risks • For the life insurance companies Topdanmark has followed the guidelines set by the DFSA to supplement the QIS5 model
Solvency II The intention is that Solvency II will be based on market values and actual risk calculations but as Solvency II is common to all EU countries, it will not give a true and fair view of all risk elements in all companies. Therefore the companies have been given the opportunity to fully or partially develop their own Solvency II risk model. However, the DFSA must approve the model that is used for the Solvency II calculation of capital requirements. Topdanmark uses an in-house-developed model for the calculation of the non-life risk. The inclusion of non-life risks in Topdanmark's calculation of the individual solvency requirement has been based on this model. Topdanmark regularly considers whether the internal model should be expanded to include further risk elements.
250m and issued a new subordinated loan of DKK 350m. The difference of DKK 100m is considered to be a safety margin on the expected capital requirement.
Following its participation in QIS5 Topdanmark continues to believe that solvency capital of DKK 4,500m (before allocation of solvency capital for growth) will be sufficient on the change to Solvency II, if its internal model is approved.
Topdanmark is already in constant dialogue with the DFSA on Topdanmark's own model for calculation of the non-life risk for approval as a partial, internal model in the
Solvency II calculations of capital requirements. Topdanmark will continue this dialogue until the approval by 1 January 2013. The application for using Topdanmark's own model for calculation of the non-life risk will be submitted in the spring of 2012.
Normally, Topdanmark's operations would generate a fairly stable cash flow. To protect against such rarely occurring isolated events Topdanmark has bought significant reinsurance cover of disaster risks, i.e. both major isolated events and combinations of isolated events that would threaten Topdanmark's ability to continue operating at its chosen level of shareholders' equity. Additionally, Topdanmark has invested in derivatives
At the same time Topdanmark believes it is normal to manage shareholders' equity only up to the amount which is deemed necessary to support its primary business. It also believes that most of the Company's shareholders will obtain a tax advantage by owning securities directly instead of indirectly via shareholders' equity in Topdanmark.
However, as Topdanmark is subject to public regulation, it must meet the capital requirements of Solvency II. Initially Solvency II was intended as a risk-based regulation but due to the financial crisis, amongst other factors, a number of additional buffers and requirements have been suggested which are not proportional to the actual risk. As a result of this Topdanmark has been particularly hit by the fact that the solvency requirement is adjusted for profitability only on a restricted basis and consequently the capital requirement on Topdanmark is not much lower than that on a similar company with significantly lower profitability and consequently higher risk.
Finally, for the period until the Annual General Meeting in 2015 the Board of Directors is authorised to acquire own shares up to 15% of the share capital for the purpose of ownership or security. The shares can be acquired at a minimum market price of DKK 10.5 per share and a maximum price of current market value plus 10%. It is a standing authorisation which, subject to the approval of the general meeting, is renewed regularly.
The process of accounts preparation The Board of Directors and the Board of Management have the overall responsibility for the risk management and the organisation of controls of the Topdanmark Group in respect of the process of accounts preparation
including the observance of relevant legislation and other regulations related to the accounts preparation.
The Board of Directors and the Board of Management have adopted a number of policies, manuals, procedures etc. for significant areas of the accounts preparation.
The Board of Management continuously monitors the observance of relevant legislation and other rules and provisions on the accounts preparation and regularly reports on this to the Board of Directors.
• Monitoring of the efficiency of internal risk management and control systems including the checking and assessment of systems for identification, prioritisation and prevention of financial and operational risks, procedures to prevent fraud including accounting manipulation, internal controls of the reliability of the accounts preparation and observance of relevant legislation
Risk assessment The Board of Directors' working plan ensures that at least once a year the Board of Directors, the audit committee and the Board of Management make a general assessment of the risks relating to the accounts preparation process. In this assessment the Board of Directors specifically considers the organisation of the Topdanmark Group in respect of: • Risk measurement and risk management • Accounting and budgetary organisation • Internal controls • Rules governing the authority to bind the company • Division of duties or compensating procedures • IT organisation and IT security • Outsourcing
As part of the risk assessment the Board of Directors makes annual decisions on the risk of fraud and discusses: • Potential incentives / motives for management to manipulate the accounts or undertake other types of fraud
• Management reporting in order to prevent / identify and respond to any accounting manipulation
The accounting department is responsible for the preparation of interim and annual reports. Key contributors are: • Non-life and life actuarial services (technical provisions) • Asset management (financial assets and liabilities) • Finance functions (calculation and distribution of costs etc.)
The Management's Review is prepared by the Investor Relations department (IR) on the basis of information provided by a number of departments such as the accounting and finance functions, Asset Management and business segments.
Information and Communication The risk management and internal controls surrounding the preparation of the accounts are intended to present an annual report which meets International Financial Reporting Standards as adopted by the EU and the additional Danish disclosure requirements of Nasdaq OMX, Copenhagen and the Danish Financial Business Act on annual reports prepared by listed financial services companies.
As part of its regular work to keep up with changes in the rules for accounts presentation (primarily IFRS and the Danish Accounting Order) the accounting department plans and takes initiatives for its future annual reports regularly updating accounting policies and the presentation of the accounts and notes (by using, for example, detailed check lists).
Monitoring The Group's internal control and risk management systems are regularly updated and have been established in order to eliminate misstatement and omissions in the accounts. The internal control and risk management systems do not absolutely ensure that all material misstatement and omissions are found and corrected.
The regular audit reviews made by internal auditors are documented in audit reports, management letters and an audit database to ensure that the recommendations given are regularly acted upon.
General meetings The general meeting is Topdanmark's supreme decisionmaking vehicle. About four weeks before the Annual General Meeting all shareholders registered by name are invited by letter to attend the meeting. The Annual General Meeting is convened in accordance with the provisions of the Danish Companies Act with a notice of between three and five weeks.
Topdanmark has no fixed general selection criteria. It believes that by imposing very specific requirements on the Board of Directors it may prevent the election of an obviously qualified Board candidate who does not fully meet the requirements. Instead an individual decision will be made on each Board candidate based upon an overall consideration of their qualifications, the Company's present needs and the composition of the rest of the Board of Directors. Topdanmark believes that in a company like Topdanmark, between them its Board members ought to possess skills within accounting, finance, financing, insurance operations, reinsurance, agriculture / industry, sales and marketing. With its current composition Topdanmark's Board of Directors possesses all these skills.
Two of the nine Board members are women, one of them elected by the general meeting and one by Topdanmark's employees. The proportion of female board members has been stable since 2004.
and as chairman, deputy chairman and CEO of a number of Danish listed companies, including several OMXC20-companies, he has over many years worked with the preparation and presentation of accounts in accordance with the relevant rules for international and Danish accounting and auditing standards. From 2006 to mid-2008 Anders Knutsen was chairman of the audit committee of Sonaptic LTD - a small UK, VC-funded company which prepared its accounts in accordance with IFRS. He was also chairman of this company until it was sold in mid-2008
example Annette Sadolin is member of the audit committee of the Swedish listed company, Ratos AB. This company presents its accounts in accordance with IFRS, with certain modifications. For many years, until she retired in 2003, Annette Sadolin was employed by General Electric Company Employers Reinsurance Corporation. From 1996 to 2003 she was member of the Board of Management of GE Frankona Rückversicherungs-Aktiengesellschaft and for many years she was chairman of the GE Group's UK company. During these years Annette Sadolin gained specific experience in the preparation of accounts in accordance with IFRS
In this light the Board of Directors firmly believes that both Anders Knutsen and Annette Sadolin possess the qualifications and experience which enable them to make an independent assessment of whether the Topdanmark Group's accounts, internal control, risk management and statutory audit have been prepared and performed in an appropriate way considering its size and complexity.
The audit committee holds at least four meetings a year. On www.topdanmark.com → Corp.Gov. → Internal controls → Audit → Audit committee → The rules of procedure for the audit committee of Topdanmark A/S and the joint audit committee for Topdanmark Forsikring Group are available.
The Committee on Corporate Governance's Recommendations for Corporate Governance At the end of 2001 the Nørby Committee published its first report on Corporate Governance in Denmark. Since then the Board of Directors has made a precise response to each item of the Nørby Committee's recommendations and Topdanmark has met all significant recommendations included in that report.
Furthermore, in accordance with the rules of the Danish Securities Trading Act, Topdanmark regularly discloses information on transactions in Topdanmark's shares, options etc. made by members of the Board of Directors and the Board of Management. The trading reports published on such transactions are saved and available on Topdanmark's website. The Board of Directors believes there is no further need of separate disclosure in the Annual Report of each Board member's holding of and trade in shares, options etc. The Board believes that the market will receive no new relevant information by disclosing this information at an individual level in the Annual Report.
• Annually evaluate the structure, size, composition and performance of the governing bodies and make recommendations to the supreme governing body with regard to any changes.
Topdanmark has chosen to have a small and active Board of Directors. As one of the consequences of this decision Topdanmark has chosen not to set up an independent nomination committee but instead the entire Board of Directors performs those tasks which would be performed by a nomination committee in other companies. This is not contrary to the Recommendations on Corporate Governance which point out that the functions of a board committee may be performed by the entire Board of Directors.
Topdanmark believes that a wide use of board committees could contribute to diluting the Board work in spite of the Recommendations pointing out that the entire Board of Directors should not be deprived of responsibility and insight. The use of board committees removes insight and knowledge from the Board of Directors without depriving it of responsibility. An increased use of board committees could result in increased bureaucracy and much of the work of the Board and particularly its Chairman will be receiving reports from various committees instead of considering and addressing the Board relevant tasks and problems themselves.
• The structure, size, composition and results of the governing bodies.
• The skills, knowledge and experience held by each member of the governing bodies.
• The Committee recommends that the total remuneration granted to each member of the supreme governing body and the board of management by the company and other consolidated companies be disclosed in the (consolidated) financial statements and that the linkage with the remuneration policy be explained.
In its Annual Report Topdanmark discloses information on the principles and size of the cash remuneration at a group level for both the Board of Directors and the Board of Management. This information is also available on the Company's website.
The remuneration package of the Board of Management and a number of the heads of business sectors and administrative departments is based upon a fixed basic salary which, depending on the executive’s expected contribution to value creation in Topdanmark in the year of granting, has been supplemented by the right to purchase options. From 2011 the remuneration package of the Board of Management, a number of the heads of business sectors and administrative departments and "significant risk takers" will be based upon a fixed basic salary, 10% of which is paid as share options. Individual pension schemes have been agreed with each member of the Board of Management and the Company's liabilities for these schemes are fully hedged in Topdanmark Livsforsikring. Individual bonuses are not paid.
In order to ensure full loyalty, focus and performance for Topdanmark during the period until a potential take-over is finalised, Topdanmark has agreed with the Board of Management and four other members of the executive team that under certain circumstances they will receive compensation in the form of an extended period of notice and an increased severance pay if they resign or are dismissed, or if their position is made redundant because Topdanmark is taken over by or merges with a company outside of the Group or if one or more owners take control of Topdanmark. The maximum amount of compensation will represent two years' salary.
The market value of the options for 2011 has been calculated to be DKK 7m at the time of granting.
At the end of 2010 the exposure of the options held by the Board of Management represented 0.9% of shareholders' equity.
Topdanmark will create value by continuously � optimising those factors impacting the discount rate and future cash flow
Topdanmark's responsibility policy It is Topdanmark's intention to be responsible and create value for both the Group's primary stakeholders – shareholders, customers and employees – and society, by handling social and environmental challenges in accordance with internationally recognised principles for corporate social responsibility, including the principles of UN Global Compact.
Global Compact In 2010 Topdanmark decided to join UN Global Compact and started to investigate, among other activities, making socially responsible investments and formulating a procurement policy.
Topdanmark offers all its employees an annual health check and in 2010 1,727 employees participated. To support its employees' health Topdanmark offers, for example: • A canteen service based on the Danish National
Nutrition Council's recommendations • Employee health care insurance programme • Access to a fitness centre
Responsible investments In 2010 Topdanmark started to work with a screening agency to include society and environmental considerations in Topdanmark's investment policy. The collaboration was organised in 2010, and in January 2011 the practical screening of Topdanmark's investments was initiated.
Therefore it: Topdanmark endeavours to be active and outreaching to investors in Denmark and abroad through the use of information channels such as: • Focuses on resource consumption • Imposes environmental requirements on suppliers and alliance partners
Breakdown of those brokers with the highest trading activity in Topdanmark's shares at Nasdaq OMX Copenhagen: In 2010 Topdanmark reviewed all IT equipment in order to promote IT solutions to reduce both its energy consumption and CO2 emission.
Danske Bank 21 Credit Suisse 8 SEB Enskilda 7 Svenska Handelsbanken 6 Morgan Stanley 5 Deutsche Bank 5 Carnegie 5 Nordea 4 UBS 3 Citadel 3
Investor relations Topdanmark wishes to openly and sufficiently inform investors, analysts and other stakeholders on the Group's matters in accordance with regulatory requirements, Corporate Governance standards and recommendations from relevant organisations.
Topdanmark gives a high priority to Investor Relations (IR) in order to ensure that as far as possible: • Value creating activities are reflected in a fair price for Topdanmark's shares
• The liquidity of Topdanmark's shares is high in order that they are not traded at a discount due to a lack of liquidity
The following shareholders own more that 5% of the share capital:
The agenda for the AGM will be published in mid-March 2011.
Financial calendar AGM Q1 2011 Interim Report 2011 Half-year Report Q1-Q3 2011 Interim Report
The announcements are available on www.topdanmark.com → Announcements 2011 28 Feb 04/2011: Share capital and voting rights in Topdanmark 24 Feb 03/2011: Topdanmark's holding of own shares under 10% 24 Feb 02/2011: Write-down of share capital 03 Jan 01/2011: Issue of options 2010 30 Dec 23/2010: Share capital and voting rights in Topdanmark 17 Dec 22/2010: Topdanmark increases its holding of own shares 08 Dec 21/2010: Topdanmark’s Capital Markets Day 2010 07 Dec 20/2010: Topdanmark has been a victim of a URL hacking 01 Dec 19/2010: Exercise of warrants 29 Nov 18/2010: Result of sale of employee shares 23 Nov 17/2010: Extraordinary General Meeting of Topdanmark on 23 November 2010 23 Nov 16/2010: Topdanmark's Interim Report for Q1-Q3 2010 02 Nov 15/2010: Major shareholder information pursuant to Section 29 of the Danish Securities Trading Act 29 Oct 14/2010: Notice convening EGM of Topdanmark – Topdanmark has bought back own shares of DKK 732m 30 Sep 13/2010: Share capital and voting rights in Topdanmark 28 Sep 12/2010: Employee shares 02 Sep 11/2010: Exercise of warrants 25 Aug 10/2010: Topdanmark's 2010 Half Year Report 21 Jun 09/2010: Topdanmark increases its holding of own shares 17 Jun : Topdanmark Forsikring A/S issues subordinated notes 07 Jun : Topdanmark Forsikring A/S – Redemption of subordinated notes 31 May 08/2010: Exercise of warrants 27 May : Topdanmark Forsikring A/S – Redemption of subordinated notes 20 May 07/2010: Topdanmark's Interim Report for Q1 2010 20 Apr 06/2010: Annual General Meeting of Topdanmark on 20 April 2010 31 Mar 05/2010: Share capital and voting rights in Topdanmark 23 Mar 04/2010: Notice convening AGM of Topdanmark 17 Mar 03/2010: Exercise of warrants 09 Mar 02/2010: Topdanmark's Annual Report 2009 04 Jan 01/2010: Issue of options
Trading reports 2011 0 3 Jan 01/2011: Trading in Topdanmark's shares by insiders 2010 21 Dec 06/2010: Trading in Topdanmark's shares by insiders 29 Nov 05/2010: Trading in Topdanmark's shares by insiders 15 Jun 04/2010: Trading in Topdanmark's shares by insiders 26 Mar 03/2010: Trading in Topdanmark's shares by insiders 17 Mar 02/2010: Trading in Topdanmark's shares by insiders 04 Jan 01/2010: Trading in Topdanmark's shares by insiders
Michael Pram Rasmussen, Chairman*, *** DOB: 14 January 1955 Joined Topdanmark’s Board of Directors: 2006 Current position held: Chairman Previous positions held: 1979-1982: Nye Danske Lloyd 1982-1984: Baltica Forsikring A/S 1984-1986: Deputy General Manager, Baltica Forsikring A/S 1986-1988: General Manager, Baltica Forsikring A/S 1988-1995: Group Managing Director, Baltica Forsikring A/S 1995-1996: Group Managing Director, Tryg-Baltica Forsikring A/S 1996-2006: CEO of Topdanmark A/S and Topdanmark Forsikring A/S
• Coloplast A/S (Chairman) • Semler Holding A/S (Chairman) • Louisiana Museum of Modern Art
Anders Knutsen, Deputy Chairman*, *** DOB: 4 May 1947 Joined Topdanmark’s Board of Directors: 1999 Current position held: Chairman Previous positions held: 1977-1983: Factory Manager, Bang & Olufsen A/S
Offices held: Member of the Boards of Directors of: • DI's (The Confederation of Danish Industry) Research and Education Committee (Chairman) • NKT A/S • Ingeniørhøjskolen i Århus (Engineering College of Aarhus) • Danmarks Eksportråd (Trade Council of Denmark) • DI's Executive Committee and Governing Body • FAD (Danish Defence and Aerospace Industry ) • PA (Federation of Employers in the Provincial Industry)
Independence: Annette Sadolin meets the definition of independence set out by the Committee on Corporate Governance
2006-2009: Group CFO og member of Group Executive Board, A.P. Møller-Mærsk A/S
Offices held: Member of the Boards of Directors of: TDC A/S 10 subsidiaries of KIRKBI A/S, including LEGO A/S
Koldingvej 2, Billund A/S KIRKBI AG Merlin Entertainments Ltd. Independence: Søren Thorup Sørensen meets the definition of independence set out by the Committee on Corporate Governance
Independence: As Knud J. Vest has been member of the Board of Directors for more than 12 years, he does not meet the definition of independence set by the Committee on Corporate Governance * Elected by shareholders in general meeting ** Elected by employees *** Member of Topdanmark’s Audit Committee
Gross premiums written 1 8,671 8,661 Reinsurance ceded (624) (644) Change in the provisions for unearned premiums, gross 1 36 (39) Change in the reinsurers' share of the provisions for unearned premiums (28) (8) Premiums earned, net of reinsurance 8,055 7,971
Gross claims paid (6,250) (6,351) Reinsurance cover received 321 260 Change in the provisions for claims, gross (74) (93) Change in the reinsurers' share of the provisions for claims (5) 107 Claims incurred, net of reinsurance 3 (6,008) (6,077)
Gross premiums written 5 3,208 3,395 Reinsurance ceded (10) (7) Premiums, net of reinsurance 3,198 3,388
Technical profit on non-life insurance 905 660 Technical profit on life insurance 123 214
Income from associated companies (11) 59 Income from investment properties 8 255 229 Interest income and dividends etc. 2,048 1,908
Technical interest transferred to non-life insurance business (466) (362) Pension return tax 10 (395) (344) Investment return transferred to life insurance business (2,443) (2,233) Other income 5 1
Profit for the year 1,446 1,168 Revaluation of owner-occupied properties 3 1
Other comprehensive income 2 1 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,448 1,169
Shares in associated companies 17 339 388 Loans to associated companies 18 460 762 Total investment in associated companies 799 1,151
Total other financial investment assets 44,754 44,951 TOTAL INVESTMENT ASSETS 49,639 50,147 INVESTMENT ASSETS RELATED TO UNIT-LINKED CONTRACTS 19 2,486 3,264
Current tax assets 260 58 Deferred tax assets 22 40 19 Liquid funds 259 194
Share capital 169 171 Revaluation reserve 15 16 Security fund 1,104 1,104 Other reserves 16 20 Total reserves 1,120 1,124 Profit carried forward 2,813 3,241 TOTAL SHAREHOLDERS' EQUITY 4,117 4,553 SUBORDINATED LOAN CAPITAL 23 653 752
Collective bonus potential 184 554 Provisions for bonuses and rebates 100 128 Provisions for unit-linked contracts 27 2,821 3,826 TOTAL PROVISIONS FOR INSURANCE AND INVESTMENT CONTRACTS 43,360 46,305
Creditors arising out of direct insurance operations 104 69 Creditors arising out of reinsurance operations 19 59 Bond loans 70 71 Amounts due to credit institutions 6,575 3,840 Amounts due to associated companies 0 11 Current tax liabilities 0 5
Other creditors 743 1,052 TOTAL CREDITORS 7,626 5,274 ACCRUALS AND DEFERRED INCOME 87 85 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 56,554 57,542
Cash flow from operations Gross premiums written 8,572 8,588 Claims paid (6,262) (6,227) Expenses paid (1,083) (1,197) Reinsurance ceded (297) (258) Cash flow from non-life insurance 930 905
The majority of the Group's companies are subject to the relevant legislation on insurance business. Consequently, there are certain restrictions on lending and placement of money.
Share buy-back (892) (892) Sale of employee shares 46 46 Issue of share options 16 16 Exercise of share options / warrants 2 92 94
Segment information Gross premiums earned - non-life insurance 1 Technical interest, net of reinsurance - non-life insurance 2 Claims incurred, net of reinsurance - non-life insurance 3 Technical result - non-life insurance 4 Gross premiums written - life insurance 5 Claims and benefits paid - life insurance 6 Change in life insurance provisions 7 Income from investment properties 8 Revaluations 9 Pension return tax 10 Other expenses 11 Taxation 12 Profit per share 13 Intangible assets 14 Tangible assets 15 Investment properties 16 Shares in associated companies 17 Loans to associated companies 18 Investment assets related to unit-linked contracts 19 Reinsurers' share of provisions for unearned premiums 20 Reinsurers' share of provisions for claims 21 Deferred tax 22 Subordinated loan capital 23 Provisions for unearned premiums 24 Life insurance provisions 25 Provisions for claims 26 Provisions for unit-linked contracts 27 Pensions and similar commitments 28 Expenses 29 Staff costs 30 Auditors' fee 31 Financial assets 32 Financial liabilities 33 Settlement of assets and liabilities 34 Analysis of assets and their return - life insurance 35 Shares analysed by industry and region - life insurance 36 Profit on life insurance 37 Exposure information 38 Leasing 39 Solvency 40 Number of shares 41 Own shares 42 Credit risk 43 Liquidity risk 44 Related parties 45 Provision of security 46 Contingent liabilities 47 Other disclosures 48 Companies 49 Accounting policies 50
Per- Indus- min- Parent min- (DKKm) sonal trial ated Non-life Life etc. ated Group
Net reinsurance (2) (2) Technical profit on life insurance 118 5 123
Pension return tax (395) (395) Transferred to technical result (466) (2,443) (2,909)
Net reinsurance 0 0 Technical profit on life insurance 209 5 214
Pension return tax (344) (344) Transferred to technical result (362) (2,233) (2,595)
Taxation (338) Profit for the year 1,168 Impairment and amortisation: * After discounting DKK 304m (2009: DKK 364m)
Total provisions for insurance and investment contracts 14,478 28,882 0 43,360 Amounts due to affiliated companies 4 953 332 (1,289) 0
Total provisions for insurance and investment contracts 15,139 31,166 0 46,305 Amounts due to affiliated companies 8 338 155 (502) 0
Gross premiums written 8,671 8,661 Change in gross provisions for unearned premiums 36 (39) Gross premiums earned 8,707 8,622
Gross premiums earned, direct business, by location of the risk: Other EU-countries 5 5 Other countries 1 1
Calculated interest 466 362 Discounting (annual amortisation) of technical provisions and reinsurers' share (364) (304) Technical interest, net of reinsurance 102 58
Run-off profit: Gross business 231 258 Reinsurance ceded (17) (54) Run-off profit, net of reinsurance 214 204
Claims incurred include revaluation of inflation swaps hedging the inflation risk in workers' compensation and illness / accident insurance 107 (44)
Claims provisions, net of reinsurance 2,223 2,432 5,153 5,370 1,732 1,748
Run-off profits / (losses), net of reinsurance (1) (17) 10 7 (119) 30 Claims provisions, net of reinsurance 111 166 25 25 649 587
Technical interest, net of reinsurance 15 9 4 1 3 2
Run-off profits / (losses), net of reinsurance 44 36 1 (6) 14 (9) Claims provisions, net of reinsurance 567 606 99 100 523 531
Average value of claim (DKK '000) 38 42 29 24 32 36
Individual policies 415 393 Policies which are part of a tenure 1,892 1,766 Group life 398 413 Regular premiums 2,705 2,572
Individual policies 87 98 Policies which are part of a tenure 416 724 Single premiums 503 822 Gross premiums 3,208 3,395 Gross premiums written, direct business, by the policyholders' location: Other EU-countries 25 27 Other countries 8 7
Proportion of gross premiums represented by premiums related to unit-linked contracts not eligible for bonus 570 887 Investment risk is taken by the policyholder. All other gross premiums relate to bonus eligible insurance contracts.
Number of policyholders at 31 December ('000): Individual policies 64 61 Policies which are part of a tenure 98 99 Group life 198 193
Total designated at fair value 492 385 Revaluations of financial assets and liabilities at fair value through profit and loss account 2,460 1,666 Of which revaluation of inflation swaps transferred to claims incurred (107) 44 Investment properties 88 (3) Provisions for unearned premiums 0 (2) Provisions for claims and benefits (279) (231) Reinsurers' share 10 2 Liquid funds (13) (6)
Current tax 245 435 Change in deferred tax 120 (134) Prior year adjustment 50 25 Tax in foreign companies 0 8 Tax for the year 415 335 Tax taken to shareholders' equity 2 3
Calculated tax on profit for the year (25%) 466 376 Adjusted for the tax effect of: Returns on shares etc. not liable to tax (69) (44) Non-deductible expenses / income not liable to tax 2 0 Prior year adjustment 18 5
Impairment and amortisation at 31 December (12) (117) (140) 0 (269)
Completed development projects include the first phases of the Group's new claims system TopPro. Amortisation of intangible assets is primarily included in claims incurred and operating expenses. Goodwill and development projects under construction are subjected to an impairment test at the end of the financial year.
Cost / revaluation at 1 January 521 737 1,258 Additions, including improvements 86 0 86
The valuation of the owner-occupied properties has been based on a required average return of: 5.7% 5.7%
Cost of revalued owner-occupied properties 618 635 Machinery and equipment includes assets under finance leases of 16 11
The valuation of the properties has been based on a required average return of: Non-residential 6.3% 6.1% Residential and part residential 4.8% 4.6%
Share of profit / (loss) (11) 59 Dividends received 0 (10) Shares in associated companies 339 388
Bornholms Brandforsikring A/S has been recognised on the basis of the most recent financial information at 30 September. The accounting information is according to the companies' most recent annual reports.
Note 20. Reinsurers' share of the provisions for unearned premiums Reinsurers' share at 1 January 85 73 Reinsurance ceded 624 644 Reinsurance earned (652) (651) Other changes 16 0 Reinsurers' share of the provisions for unearned premiums at 31 December 73 65
Reimbursement of claims relating to previous years (202) (163) Change in expected income relating to previous years (17) (54)
This bullet loan has no final maturity date but if permitted by the DFSA, the debtor can give notice of termination as from 15 September 2017 at par. The loan carries a floating interest rate determined as EURIBOR 3 months + 1.90%, currently 2.926% (2009: 2.614%), and as from 15 September 2017 EURIBOR 3 months + 2.90%.
In 2010 Topdanmark Forsikring A/S issued a subordinated loan of DKK 350m. The costs of raising the loan were DKK 3m.
This bullet loan expires on 18 June 2018 but if permitted by the DFSA, the debtor can give notice of termination as from 18 June 2015. The loan carries an interest rate of 7.15% p.a. and in the period from and including 18 June 2015 up to but excluding 18 June 2018 the interest rate is CIBOR 3 months + 6.25%.
In 2010 the Company redeemed a bullet loan of DKK 250m. At 31 December 2009 the rate of interest was 2.548%, interest charged for the year was DKK 10m, and DKK 235m was included in the capital base.
Note 24. Provisions for unearned premiums Provisions for unearned premiums at 1 January 2,637 2,601 Gross premiums written 8,671 8,661 Premiums earned (8,707) (8,622)
Note 25. Life insurance provisions Life insurance provisions at 1 January 22,962 25,791 Accumulated revaluation at 1 January 732 (392) Retrospective provisions at 1 January 23,694 25,399 Gross premiums written 2,638 2,508 Accrued interest 638 739 Claims and benefits (1,353) (2,623) Expense loading inclusive of expense bonus (199) (204) Risk gain after allocating policyholders' risk bonus (77) (58)
Retrospective provisions at 31 December 25,399 25,821 Accumulated revaluation at 31 December 392 870 Life insurance provisions at 31 December 25,791 26,692
Guaranteed benefits 13,797 16,601 Bonus potential on future premiums 7,298 5,831 Bonus potential on paid-up benefits 4,696 4,260 Life insurance provisions 25,791 26,692
Reduction in bonus potential on paid-up benefits when allocating "the insurance technical result before bonus contribution" in Topdanmark Livsforsikring A/S 185 0
Increase in guaranteed benefits as life insurance provisions must not be lower than the guaranteed surrender value 77 72
Bonus potential utilised on paid-up benefits 0 0 (134) Bonus potential utilised on paid-up benefits 0 0 (51)
Note 26. Provisions for claims 2009 2010 Non-life insurance: Gross Provisions at 1 January 10,940 11,777 Claims paid relating to previous years (3,045) (3,015) Change in expected claims payments relating to previous years (231) (258) Claims paid relating to this year (3,205) (3,336) Expected claims payments relating to this year 6,556 6,702 Inflation swaps 107 (44) Discounting (annual amortisation) 376 307
Provisions for workers' compensation insurance, net of reinsurance 5,153 5,370 Average period of settlement 7 years 7 years Illness / accident insurance, net of reinsurance, administered by the life insurance business 1,314 1,495 Average period of settlement 14 years 14 years
Provisions relating to previous years at 31 December 1,183 Gross provisions at 31 December 2010 - non-life insurance 12,364
Provisions relating to previous years at 31 December 1,169 Provisions, net of reinsurance, at 31 December 2010 - non-life insurance 11,697
Reconciliation: Provisions for claims 12,459 Less amount relating to life insurance (95) Less reinsurers' share of provisions (667) Provisions, net of reinsurance, at 31 December 2010 - non-life insurance 11,697
Other pension commitments 3 3 Pensions and similar commitments 46 42
Income from investment properties (administration and operation) 45 50 Expenses on investment business 45 41 Other expenses 48 47 Total expenses 2,427 2,541
The fair value of the granting for the year has been calculated using the Black and Scholes model assuming a price of DKK 705.72 (2009: DKK 692.31) per share, an interest rate corresponding to the zero coupon rate based on the swap curve on 31 December the previous year, future volatility of 22% (2009: 22%) p.a., corporate tax rate of 25% (2009: 25%) and a pattern of exercise similar to Topdanmark's previous granting of share options. The volatility has been calculated on the basis of previous years' volatility, which continues to be Management's best estimate of future volatility.
Employee shares In 2010 Topdanmark issued 83,798 (2009: 47,395) employee shares offset by a reduction in their respective cash salaries. The costs have been calculated to be DKK 46m (2009: DKK 26m) in accordance with IFRS 2.
Employee bonds In 2009 Topdanmark issued employee bonds with a nominal value of DKK 29m offset by a reduction in their respective cash salaries. The market value, including state tax, was DKK 37m. No employee shares were issued in 2010.
Severance pay Severance pay is described in Management's Review in "Remunerations structure".
Note 32. Financial assets Financial assets at fair value where the revaluation is taken to profit and loss account Held for trading: Loans guaranteed by mortgages and other loans 20 13
Designated at fair value: Deposits with credit institutions 6,830 1,011 Investment assets related to unit-linked contracts 2,486 3,264
Total financial assets at fair value where the revaluation is taken to profit and loss account 47,240 48,215
Total financial assets 48,895 49,940 The book value of loans and receivables at amortised cost approximately corresponds to fair value.
Note 32. Financial assets - continued Inputs based Inputs not based 2009 Quoted on observable on observable Financial assets recorded at fair value prices market data market data Total Designated at fair value: Non-life insurance: Deposits with credit institutions 2.3 2.3 Life insurance: Deposits with credit institutions 4.5 4.5
Life insurance: Designated at fair value: Non-life insurance: Deposits with credit institutions 0.4 0.4
Investment assets related to unit-linked contracts 2.8 0.4 0.1 3.3 Total financial assets at fair value 34.6 13.0 0.6 48.2 *) Assets valued in life insurance by reference to inputs not based on observable market data include an exposure of DKK 0.2bn hedged by a total return swap with non-life insurance.
Assumptions: Proportion of defaulted loans and credit bonds: Recovery: Thereafter 3% p.a. Thereafter 30% The discount rate is 10% irrespective of the currency.
The portfolio is screened for assets where the risk of a loss seems to be high as compared to the model values. These assets are recorded at a lower value at Topdanmark's estimate. In a few cases where the assumptions obviously result in too low a value, Topdanmark may also increase the value. A sensitivity analysis of the valuation is illustrated by comparing the current valuation with a valuation based on repeating the original 2008 scenario, which gives recovery as described above in the standard assumptions and the following assumptions for default: Thereafter 3% p.a.
Financial liabilities measured at fair value through profit and loss Held for trading: Designated at fair value: Amounts due to credit institutions 6,575 3,840 Total financial liabilities measured at fair value through profit and loss 6,690 4,007
Note 33. Financial liabilities - continued Financial liabilities measured at amortised cost Subordinated loan capital 653 752 Deposits with ceding undertakings 68 90 Creditors arising out of direct insurance operations 104 69 Creditors arising out of reinsurance operations 19 59 Bond loans 70 71 Amounts due to associated companies 0 11 Current tax liabilities 0 5 Other creditors 743 1,052 Total financial liabilities measured at amortised cost 1,657 2,108 Total financial liabilities 8,347 6,115
Credit bonds investment grade 1,841 1,290 (427) 6.7 Credit bonds non-investment grade and emerging market bonds 1,875 2,211 (104) 25.2
Derivatives to hedge against the net change in assets and liabilities** 589 720 0 * Annual return as a percentage before pension return and corporation tax.
** Life V has invested in interest rate options - Euro-CMS-floors with a strike rate of 5% - to hedge the guaranteed benefits.
The exposure in foreign shares is adjusted by means of derivatives. After including derivatives the exposure in foreign shares on 31 December 2010 was DKK 3,864m (2009: DKK 3,494m).
Note 37. Profit on life insurance The calculation of profit for those life insurance companies with portfolios of bonus-participating policies (Topdanmark Livsforsikring A/S (Life I) and Topdanmark Livsforsikring V A/S (Life V)) is regulated by the Danish Financial Business Act setting requirements on how the "insurance technical result" (before bonus contribution) should be allocated between the policyholders and the owners of the company.
The risk allowance represents 0.5% in Life I and 0.65% in Life V of the average retrospective provisions.
Allocated to: Composition of result: Transferred to / from shadow account (73) 113 40 144 0 144 Pre-tax profil Topdanmark Link 38 38 33 33 Pre-tax profil Nykredit Livsforsikring - - 3 3 Share of insurance technical result
Max. effect on before change bonus potential collective in bonus poten- used for 2009 Min. effect on bonus tial used for benefits on Event capital base potential such benefits paid-up policies 0.7-1.0 pp increase in interest rates (41) (78) 1,018 (133) 0.7-1.0 pp decline in interest rates 40 112 (1,068) 111
Note 39. Leasing Finance lease for mainframe CPU: Minimum lease Present Book 2009 payment Interest value liabilities
Weighted items 2,531 2,935 Core capital as a percentage of weighted items 131.6 127.9 Solvency ratio 71.0 75.1 * Before provisioning for deferred tax on security funds. Solvency has been calculated according to the rules for financial services holding companies. See "Solvency" in Management's Review.
Shares issued at 1 January 16,686 16,907 Own shares at 1 January (1,023) (1,411) Number of shares at 1 January 15,663 15,496
Shares issued at 31 December 16,907 17,087 Own shares at 31 December (1,411) (2,615) Number of shares at 31 December 15,496 14,472
Number of shares held to cover the granting of options: 587,000 (2009: 767,000)
Financial assets measured at fair value: Loans guaranteed by mortgages and other loans 11 2 13 Deposits with credit institutions 397 614 1,011
Financial assets measured at amortised cost: Loans to associated companies 0 762 762 Amounts due from policyholders 261 156 417 Amounts due from insurance companies 183 0 184
The Group has received cash margin payments securing unrealised gains on derivatives 462 675
Allowance account (policyholders and insurance companies): See "Credit risk" in the report.
Undiscounted expected cash flows for the Group's key liabilities: Book 1 2-6 7-16 17-26 27-36 > 36 value year years years years years years
Nominal value in DKK '000 of 2% Topdanmark bonds held by the Board of Management
Associated companies: Premiums ceded 151 145 Commission received (2) (6) Reimbursed claims (111) (76)
Derivatives: Purchased forward contracts 23,303 19,860 Sold forward contracts 23,722 16,681 Adjustments to VAT liabilities 62 47 Other liabilities 14 10 Capital commitments made to loan funds and private equity funds 188 250 The Group companies participate in technical insurance collaboration where they are jointly liable for the insurance liabilities.
Topdanmark Group's 2010 Annual Report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and the additional Danish disclosure requirements of Nasdaq OMX, Copenhagen and the Danish Financial Business Act on annual reports prepared by listed financial services companies. The Annual Report also meets the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB).
Topdanmark has pre-implemented amendment to IAS 1 Presentation of Annual Financial Statements; as such, the presentation of comprehensive income and movements in shareholders' equity have been restated.
New accounting regulation The IASB has issued a number of standards, amendments and interpretations which have not yet taken effect.
Future changes to the rules are not expected to materially change Topdanmark’s accounting policies.
Accounting estimates and judgements In the preparation of Topdanmark's accounts, estimates and judgements have been used which affect the size of assets and liabilities and consequently the results in this and subsequent financial years.
Fair value of financial instruments The measurement of financial assets can often be based on listed prices or publicly available market data but in certain cases it is necessary to use valuation models in which material inputs are based on estimates. This always applies to certain types of assets like unlisted equities while in other cases it could be due to temporary factors. In particular, when calculating the fair value of financial instruments, Topdanmark believes that parts of the markets of structured credit products (e.g. CDOs) could not be defined as being active, according to the definition in IAS 39, and therefore the valuation of these types of assets is based on valuation methods, models and estimates.
Currencies 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. Debtors, creditors and other monetary items which have not been settled on 31 December are translated at the closing exchange rates on 31 December. Translation differences are disclosed in revaluations in the profit and loss account.
Employee shares The fair value, on the date the share is granted less the subscription proceeds received, is included as staff costs in the profit and loss account, with the relevant credit shown as a movement in shareholders' equity. The fair value is measured in accordance with IFRS 2 taking into account the specific conditions for the issue of employee shares.
Segment information Topdanmark Forsikring has divided its non-life insurance business into the following two business segments: Personal includes policies for individual households sold by Topdanmark's own sales channels and its distribution partners.
Furthermore it includes the raising of loans and repayments on interest-bearing debt. Cash and cash equivalents comprise liquid funds as well as deposits with credit institutions.
Technical interest net of reinsurance in non-life insurance The technical result on non-life insurance includes a return on the technical provisions net of reinsurance. The interest on the provisions is calculated using the relevant interest rate corresponding to the expected date of settlement. The discount expense of the regular revaluation of the present value of the provisions until the expected time of settlement is offset against the interest income. The interest and discount expense on discounted provisions, primarily provisions for outstanding claims net of reinsurance, are calculated on the same basis. Accordingly the interest and discount expense on discounted provisions are exactly netted off each other. For non-discounted provisions, primarily provisions for unearned premiums net of reinsurance, the interest on the average value of the provisions is calculated using the relevant interest rate corresponding to the weighted average date of settlement.
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 technical interest net of reinsurance and revaluations respectively. Topdanmark has entered into swaps partially hedging the provisions for workers’ compensation and annuities in illness and accident insurance against changes in future wage and price indexation provided that the growth in the real value of the payments on claims remains stable. The revaluation of these swaps is included in claims incurred.
Owner-occupied properties Owner-occupied properties are those properties used for the Group's own operations. The properties are measured at a revalued amount being the fair value on the date of revaluation less accumulated depreciation. The properties are assessed annually by the Group's own valuation experts. The buildings are depreciated on a straight-line basis over their expected life of 50 years, although land is not depreciated. The fair value of the revaluation of owner-occupied properties is assessed on the same basis as investment properties. Any revaluation surplus is taken
Financial assets at fair value with any value adjustment taken to the profit and loss account are financial assets which either are included in a trading portfolio, are derivatives or at the time of their first recognition are included in this classification because the assets are managed and measured on a fair value basis or because this eliminates or significantly reduces accounting inconsistency.
Measurement of fair value 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 measuring is generally based on the closing price on 31 December. If there is no closing price, another public price is used which is believed to be the most appropriate. Valuation methods or other publicly available information are used to value listed securities where the closing price does not reflect the fair value.
Debtors that are measured at amortised cost The initial recognition of debtors is made at fair value and subsequent recognitions are made at amortised cost. Amounts due from finance leases are included at the net investment in the lease contract. The debtors are regularly assessed for impairment and written down to their recoverable amount, as required. Such impairments are generally made collectively on the basis of the debtor ageing analysis. When an individual debtor is considered irrevocable, the value of the impairment is transferred out of the account for collective allowances.
Life insurance provisions Life insurance provisions are measured at fair value. Accordingly, the liabilities are calculated on the basis of the market value independent of the original technical base. The fair value of the life insurance provisions is based on the realistically expected future premiums to be received, benefit payments to be made and administrative expenses incurred on the contracts written. The future payments to be received and made have been based on the assumed incidents of death, disability and resumption of work. The risk of death and disability is dependent on the age, sex and health of the policyholder and is based on the company's experience. For all policies in Topdanmark Livsforsikring and Topdanmark Livsforsikring V the mortality rate used is higher by up to five years for men and 6.6 years for women than set out in the G82 life expectancy assumptions. However, for the portfolio of annuities in Topdanmark Livsforsikring II, a reduced rate of mortality has been assumed, corresponding to 55% of G82 for women and 85% for men. G82 is the technical base developed by the industry in the 1980's.
Bonus potential on paid-up benefits Where a policy's savings (retrospective provision) less the expected future expense result exceed the guaranteed paid-up benefits, the amount is measured under the bonus potential on paid-up benefits. The bonus potential on paid-up benefits can be used to cover the proportion of "insurance technical losses before bonus contribution" relating to bonus eligible insurance contracts that cannot be covered by the collective bonus potential.
Provisions for outstanding claims Provisions for outstanding claims cover future payments of claims incurred and their administration.
Topdanmark has entered into swaps partially hedging the provisions for workers’ compensation and annuities in illness and accident insurance against changes in future wage and price indexation provided that the growth in the real value of the payments on claims remains stable. The revaluation of these swaps is included in claims incurred.
Income from affiliated companies 1 1,519 1,184 Interest income and dividends etc. 3 24
Interest charges (43) (19) Expenses on investment business (1) (0) Total investment return 1,479 1,189
Proposed appropriation of profit for the year: Transfer to net revaluation reserve at net asset value 1,519 1,184 Transfer to profit carried forward (73) (16)
Total other financial investment assets 2 2 TOTAL INVESTMENT ASSETS 5,128 5,568
Other reserves 1,411 1,845 Total reserves 1,411 1,845 Profit carried forward 2,885 2,884 TOTAL SHAREHOLDERS' EQUITY 4,465 4,900 SUBORDINATED LOAN CAPITAL 9 403 4
Bond loans 70 71 Amounts due to credit institutions 64 0 Amounts due to affiliated companies 462 327 Other creditors 3 1 TOTAL CREDITORS 599 407 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 5,467 5,712
Topdanmark Forsikring A/S 1,483 1,130 web-postkassen.dk ApS (9) (7) Topdanmark Invest A/S 6 9 Topdanmark Kapitalforvaltning A/S 40 41 TD.0151 ApS (7) 0
Current tax (59) (12) Change in deferred tax 43 (0) Prior year adjustment 18 1
Of which companies with a negative net asset value 2 0 Shares in affiliated companies 5,126 5,567 The affiliated companies are domiciled in Ballerup.
Salaries and emoluments 11 11 Employee shares and employee bonds 1 1 Share options 4 4
Number of shares in Topdanmark A/S held by the Board of Directors 5,131 6,251 Nominal value in DKK '000 of 4% Topdanmark bonds held by the Board of Directors expiring in 2012 50 50 Nominal value in DKK '000 of 4% Topdanmark bonds held by the Board of Directors expiring in 2013 103 103 Nominal value in DKK '000 of 2% Topdanmark bonds held by the Board of Directors expiring in 2014 101 101
Number of shares in Topdanmark A/S held by the Board of Management 28,260 37,691 Nominal value in DKK '000 of 4% Topdanmark bonds held by the Board of Management
Average effective interest rate on balances is 0.55% (2009: 1.79%) Shares are disclosed in the balance sheet and specified in the note on Shares in affiliated companies. Balances are disclosed in the balance sheet.
The DFSA has updated its Executive Order on financial reporting to take effect in 2011, giving the opportunity for full or partial implementation for 2010. In these accounts for 2010 Topdanmark implemented Section 108.
Differences from the Group's accounting policies The company's accounting policies for recognition and measurement is in accordance with the Group's accounting policies with the following exceptions: Shares held in affiliated companies are recognised and measured at their net asset value. If the net asset value exceeds the recoverable amount, the share is written down to this lower amount. The share of the post-tax results of affiliated companies is included in the profit and loss account under income from affiliated companies less any write-downs. The share of the movements in the shareholders' equity of affiliated companies is included directly in the shareholders' equity.
We consider the chosen accounting policies to be appropriate such that the Annual Report gives a true and fair view of the Group’s and the parent company’s assets, liabilities and financial position at 31 December 2010 as well as the result of the Group's and parent company's activities and the Group's cash flows for the financial year 1 January to 31 December 2010.
The management of the Company is responsible for the annual report. Our responsibility is to express an opinion on this annual report based on our audit.
In addition, in our opinion, the consolidated accounts give a true and fair view of the Parent’s assets, liabilities and financial position at 31 December 2010 and of its financial performance for the financial year 1 January to 31 December 2010 in accordance with the Danish Financial Business Act and additional Danish disclosure requirements for listed financial services companies.
Independent auditor’s report To the shareholders of Topdanmark A/S We have audited the consolidated accounts and the annual accounts for Topdanmark A/S for the financial year 1 January to 31 December 2010, which comprises the profit and loss account, the balance sheet, the movements in shareholders’ equity and the notes to the accounts, including accounting policies, as well as Management’s review for both the Group and the Parent and the consolidated statement of comprehensive income and cash flow for the Group. The consolidated accounts have been prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the Parent’s annual accounts and Management’s review have been prepared in accordance with the Danish Financial Business Act. In addition, the consolidated accounts and the annual accounts have been prepared in accordance with additional Danish disclosure requirements for listed financial services companies.