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• EPS were DKK 14.4 (2013: DKK 12.5) • Combined ratio: 86.0% (2013: 91.5%) • Combined ratio excluding run-off: 89.8% (2013: 95.0%) • Premium growth was 2.6% in non-life insurance and 26.7% in life insurance • Profit on life insurance declined to DKK 200m
• Share buy-back of DKK 1,716m, representing a buyback yield of 9.6%.
Q4 2014 • Post-tax profit: DKK 304m (Q4 2013: DKK 251m) • EPS: DKK 2.9 (Q4 2013: DKK 2.2) • Combined ratio: 83.6% (Q4 2013: 100.4%) • Combined ratio excluding run-off profits: 87.5%
Profit forecast model for 2015 • The assumed combined ratio for 2015 has improved from around 91% to 90-91%, excluding run-off, in the light of an improved claims trend
• Profit forecast model: DKK 900-1,000m, excluding run-off, representing EPS of DKK 9.5.
Share buy-back • Share buy-back programme of DKK 1.8bn for 2015, representing a buy-back yield of 7.8%.
Søren Thorup Sørensen new Chairman of Board of Directors • Michael Pram Rasmussen, Chairman of
Annual financial statements – Group 32 Income statement 33 Statement of comprehensive income 34 Assets 35 Shareholders’ equity and liability 36 Cash flow statement 37 Statement of changes in equity 38 Notes to the financial statements 69 Accounting policies
Annual financial statements – parent company 78 Income statement 78 Statement of comprehensive income 79 Balance sheet 80 Statement of changes in equity 81 Notes to the financial statements 86 Statement by Management on the Annual Report
Premiums earned: Non-life insurance 8,548 8,668 8,759 8,889 9,116 2,263 2,304 Life insurance 3,341 3,242 3,059 3,511 4,448 965 1,087
Results: Non-life insurance 1,092 1,086 2,103 1,361 1,803 162 386 Life insurance 384 187 210 442 200 102 2 Parent company etc. 31 76 22 73 7 54 16 Pre-tax profit 1,506 1,349 2,335 1,875 2,010 318 404 Tax (338) (326) (512) (407) (452) (67) (100) Profit 1,168 1,023 1,823 1,468 1,558 251 304
Results for 2014 Topdanmark’s post-tax profit was DKK 1,558m (2013: DKK 1,468m ‒ a 6.1% increase. EPS increased 15.2% to DKK 14.4.
Profit in the parent company etc. declined DKK 66m to DKK 7m mainly due to a lower operating result of Topdanmark Kapitalforvaltning (asset management company) and write-downs of properties in Topdanmark Invest.
The profit of DKK 1,558m was better than the DKK 1,3501, 450m assumed in the most recent profit forecast model for 2014 published in the interim report for Q1-Q3 2014. Besides run-off profits in Q4, the improvement was due to a lower than assumed level of weather-related claims and an improved claims trend for, among other lines, theft, fire and travel insurance.
Results for Q4 2014 Post-tax profit increased to DKK 304m in Q4 2014 (Q4 2013: DKK 251m).
The technical result increased DKK 385m. There were two large storms in Q4 2013, and the improvement in the technical result for Q4 2014 was mainly due to weatherrelated claims being DKK 323m lower than in 2013. Additionally, the claims trend improved for, among other lines, theft, fire and travel insurance.
Profit on life insurance declined DKK 100m to DKK 2m due to the combination of a lower investment return, a lower risk return, a transfer to the shadow account and a lower cost result.
Non-life insurance Premiums earned Premiums earned increased 2.6% to DKK 9,116m in 2014, which was in line with the assumed premium growth of 2-3%. The personal segment accounted for 2.9% of the growth and the SME and industrial segment for 2.3%.
During 2014 competition in the Danish market for non-life insurance policies intensified, driven by the existing players in the market. However, Topdanmark continues to hold a strong competitive position due to, among other factors, high customer loyalty.
In 2014 Topdanmark continued its efforts to improve the quality of the customer portfolio. Customer relationships with a profitability which does not meet Topdanmark's return requirements are offered help to improve their claims trends; alternatively individual price increases are effected. This resulted in a loss of some major unprofitable customer relationships in 2014, particularly among industrial customers.
Claims trend The claims trend improved to 70.3% in 2014 (2013: 75.4%).
Gross weather-related claims were DKK 139m, net of reinsurance, in 2014. After reimbursement from the reinsurance companies, weather-related claims were DKK 88m. 2013 was affected by the 3rd and 4th largest storms in recent times, which was one of the reasons why weather-related claims, net of reinsurance, were DKK 350m in 2013. Weather-related claims had a 2.9pp positive impact on the claims trend in 2014 as compared to 2013. Topdanmark assumes DKK 170m, net of reinsurance, as a normal level of weather-related claims. Accordingly, in 2014 the level of weather-related claims was DKK 82m lower than the normal level, representing a 0.9pp effect on the claims trend.
From 2007 up to and including 2013, the claims trend increased due to the trend in claim payments on thefts. However, in 2014 theft claims declined, representing a 0.8pp improvement of the claims trend as compared to 2013. This improvement was due to both a declining claims frequency and a decline in average claims, most significant in the personal segment.
Travel insurance claims declined, representing a 0.3pp improvement of the claims trend. In 2013 the claims level was extraordinarily high, while in 2014 it was back at a more normal level.
Claims on motor insurance policies declined DKK 15m, representing a 0.2pp improvement of the claims trend. The improvement was due to both a lower claims frequency and lower average claims.
Developments in Q4 Premiums earned Premiums earned increased 1.8% to DKK 2,304m, evenly split between the personal segment and the SME and industrial segment.
Claims trend The claims trend improved to 68.2% (Q4 2013: 84.3%).In Q4 2013 the claims trend was affected by the two storms causing weather-related claims, net of reinsurance, of DKK 330m. The rainstorm in Northern Jutland in Q4 2014 caused claims of DKK 7m net of reinsurance. Consequently, weather-related claims were DKK 323m lower in Q4 2014, representing a 14.0pp improvement of the claims trend.
Furthermore, the claims trend benefited from a lower level of theft claims (1.2pp), fire claims (0.9pp) and travel insurance claims (0.9pp). On the other hand, the claims trend was adversely affected by the lower interest rates (0.9pp) and a lower level of run-off profits (0.6pp).
Premiums earned increased 2.9% to DKK 5,021m. The increase was primarily due to house, contents and travel insurance policies (2.2%), while motor insurance contributed 0.4% to the overall growth in the personal segment. Seen in isolation, the growth in motor insurance was 1.1%, adversely impacted by a 1.3% decline in average premium. In Q4 premiums earned increased 1.7% to DKK 1,263m. As announced in the Q1-Q3 2014 interim report, competition intensified during 2014.
Claims incurred (2,581) (1,494) (7,145) (6,320) Expenses (363) (356) (1,438) (1,427) Net reinsurance 672 (77) 445 (88) Technical result (7) 378 765 1,289
The technical result increased DKK 293m to DKK 510m in 2014.
Life insurance The result from life insurance was a profit of DKK 200m in 2014 (2013: DKK 442m). The 2013 profit reflected the recognition as income of DKK 171m from the shadow account, while in 2014 DKK 5m was transferred to the shadow account. The shadow account of the interest rate groups was redeemed in 2013.
Profit on life insurance activities comprises the profit on life insurance plus the investment return of Liv Holding (Life Holding). These profits were calculated in accordance with the stated policy on the calculation of profit for the life insurance company: see www.topdanmark.com → Investor → Business → Life insurance → Policy for the calculation of profit in life insurance.
The risk return charged on with-profits pension schemes declined from DKK 164m to DKK 145m due to customers moving away from with-profits to unit-linked schemes.
“Other” comprises primarily the technical result of portfolios which are not subject to contribution – i.e. group life schemes, annuities without bonus entitlement, unitlinked pension schemes and losses incurred by those contribution groups which do not make transfers to a shadow account. The result of “Other” was a DKK 41m loss (2013: DKK 7m profit). The decline was mostly due to an increase in actual costs while the cost fee charged to customers declined.
In 2014 Topdanmark Livsforsikring (life insurance company) started the implementation of a new administration system. External costs are capitalised, while internal resource consumption has an adverse impact on operations as higher costs. Furthermore, selling expenses were higher in 2014 than in 2013.
Regular premiums increased 2.6% to DKK 2,191m, while single premiums increased 63.9% to DKK 2,257m in 2014.
Investment return 29 5 100 101 Risk return 46 35 164 145 Transferred, shadow account 22 (9) 171 (5) Other 5 (29) 7 (41) Profit on life insurance 102 2 442 200
Investment activities Topdanmark Group excl. life insurance The investment return in the Topdanmark Group excluding life insurance was DKK 711m in 2014 including the revaluation of provisions and income from associated companies, but before the transfer to the technical result (2013: DKK 866m).
The post-tax equity exposure was DKK 653m (pre-tax: DKK 865m) 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 30% of the portfolio at the end of 2014) and MSCI World in the original currency for foreign equities.
The exposure in foreign equities and credit bonds has been adjusted by the use of derivatives. The return percentages are calculated as the ratio between the return on financial instruments and the size of the exposure of the underlying asset. The return on government and mortgage bonds and assets related to I/A (illness/accident) includes revaluations of claims provisions. The return on properties includes revaluation and reversed revaluation of owner-occupied property, which has been included in other comprehensive income.
The Group's investments have no significant concentration of credit risk except for AAA-rated Danish mortgage bonds, which are considered to be particularly safe assets according to the Danish Financial Business Act.
The class of “Government and mortgage bonds” comprises primarily Danish government and mortgage bonds and revaluation of technical provisions. In addition, there are foreign government bonds mainly from European core countries, covered bonds and derivatives. Covered bonds are mortgage bonds where the size of the loan may not exceed 70% of the value of the security. If the value of the security declines so much that the requirement is not fulfilled, the issuer will provide further security.
Credit bonds with a rating lower than BBB (DKK 120m) comprise high yield bonds, part of which are convertible, and subordinated bank capital issued by EU banks. Credit bonds with a rating of BBB and A (DKK 296m) are ordinary and convertible corporate bonds, subordinated bank capital issued by EU banks and annuity policies.
The property portfolio comprises mainly owner-occupied property (DKK 857m), rental residential property (DKK 367m) and rental office property (DKK 68m). Except for a single property under reconstruction for other use, 99% of the property portfolio is currently let. The properties are valued in accordance with the rules of the DFSA (Danish Financial Supervisory Authority) i.e. at market value taking into account the level of rent and the terms of the tenancy agreements.
Profit of DKK 73m in 2013 declined to DKK 7m in 2014. The operating result of the asset management company declined by DKK 42m, following an increase in the marketing contribution to the insurance companies. In the Topdanmark Invest companies the continued winding-up of properties generated a loss in 2014, in contrast to a profit in 2013. The difference was DKK 21m.
As can be seen, the investment return forecast model is not based on a specific estimate of the expected investment return for the rest of the year, but solely on a long-term standard assumption of the return.
Non-life insurance In the Q1-Q3 2014 interim report Topdanmark assumed, for 2015, premium growth of 1-2% and a combined ratio of around 91%, excluding run-off profits / losses.
Since the Q1-Q3 2014 interim report was published, the following assumptions have changed for the combined ratio: • Storm Egon on 11 January 2015 assumed to cause claims of DKK 40m net of reinsurance. The assumed weather-related claims continue to be DKK 50m in the remainder of Q1 2015. Therefore, the assumed combined ratio for the full year 2015 has deteriorated 0.4pp
Therefore, the assumed combined ratio for 2015 has been improved from around 91% to 90-91%, excluding run-off profits / losses. The expense ratio is assumed to be in line with 2014.
Life insurance Assumed growth in regular premiums is 0-5% for 2015. At this time of the year it is not appropriate to assume a level of growth in single premiums.
Taxation Given a corporation tax rate of 23.5%, the tax charge is expected to be DKK 280-300m.
Total Group profit Topdanmark’s overall post-tax profit forecast model for 2015 is assumed to be DKK 900-1,000m, representing EPS of DKK 9.5. The assumed profit for 2015 is exclusive of run-off profits / losses.
Share buy-back In the Q1-Q3 interim report for 2014 it was announced that the share buy-back programme for 2014 had been increased by DKK 50m to DKK 2.1bn.
The actual buy-back for 2014 was DKK 1,716m, representing a buy-back yield of 9.6%. The remaining buy-back of DKK 384m will be transferred to 2015 programme.
In 2015 the intention is to buy back own shares of a total of DKK 1.8bn including the buy-back of DKK 384m transferred from 2014. The buy-back of DKK 1.8bn includes also the replacement of shareholders’ equity of DKK 250m by DKK 250m of subordinated loan capital (tier 2 capital) during 2015, see: “Solvency calculation and capital requirements”.
The buy-back of DKK 1.8bn assumes a profit in line with the profit forecast model of DKK 900-1,000m for 2015.
On 5 February 2015 Topdanmark's share capital comprised 115,000,000 shares, of which Topdanmark held 12,119,000 own shares. If before the AGM on 15 April 2015, contrary to expectation, no further shares are bought back, the number of voting shares will be 102,881,000 shares.
Since 1998, when Topdanmark started buying back own shares, it has been decided to cancel DKK 13.3bn of own shares representing a 72.1% write-down of the share capital, with an average price of DKK 44 per share that has been written down.
In the years 2000-2014 the annual average buy-back yield has been 9.5%.
Topdanmark's buy-back programme is managed by Topdanmark Kapitalforvaltning. It is believed that Topdanmark Kapitalforvaltning is able to carry out the buy-back programme at lower prices than by using a safe harbour solution.
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. Below is a table of the periods when Topdanmark is allowed to buy back own shares.
As a consequence of this policy the Company has, for a number of years, identified and reduced or eliminated those risks which could potentially cause losses exceeding what Topdanmark considers to be acceptable. For example, major strategic shareholdings have been sold, the catastrophe cover for weather-related events or terror has been increased significantly and the financial risk reduced.
Topdanmark's Risk management function identifies, assesses and quantifies risks. It reports to the Risk Committee, which is responsible for risk policies, risk limits, solvency calculation, capital plans, Topdanmark's own risk and solvency assessment (ORSA) and Topdanmark's partial, internal model for non-life insurance risks. The members of the Risk Committee are the CFO of the Group and the heads of the primary risk areas, which are: Asset Management, Statistical Services, Reinsurance, Finance, Life Actuarial Services and Life Finance. The Risk Committee reports and recommends to the Board of Directors via the Executive Board.
The Risk committee has set up the Model committee, which is responsible for developing and operating Topdanmark's internal model for calculation of results probabilities and risks of the non-life insurance portfolio based on random simulation.
The internal model has been amended to meet the requirements of use in solvency calculations in accordance with the Danish solvency rules in force in 2014 and 2015 and the future EU Solvency II rules with effect from 2016. The model is used for, among other things, optimising the reinsurance programme, cost of capital, forecast balancing and calculating capital requirements.
The risk management function has addressed the new rules for solvency calculation, reporting etc. of the Solvency II Directive in order to ensure that Topdanmark meets this set of rules no later than when it takes effect in 2016.
The most important risks are described in the following survey. A more detailed description is available in note 50.
Life insurance risks Life insurance contracts with bonus entitlement, unit-linked contracts with no investment guarantees and group life Most important risks Risk preferences Risk reducing activities Limited loss-absorbing buffers in the event of low interest rates
The market risk is freely adjustable in relation to each customer group's risk capacity
In order to improve the average investment return and limit the overall market risk, Topdanmark invests in a wide range of asset categories
Topdanmark's Board of Directors has set limits on the acceptance of market risks in the form of risk limits and scenario based requirements on the overall maximum loss
Counterparty risk on financial contracts is limited by the required security when overall risk on any given counterparty reaches a relatively low threshold value
Risk assessment, IT security policy, guidelines, controls and IT emergency plans based on ISO27001
Topdanmark's business model stands strong against strategic risks. The results of the Company will, with a very high probability, be positive even in the event of another collapse in the financial markets as in 2008. The results of the Company will also be positive if it is hit by a storm like the 1999-hurricane, which was the largest storm event in the Company's history
Solvency Danish insurance companies are subject to European and Danish solvency rules ensuring that the companies hold sufficient capital relative to the risks they accept. The most important rule sets are: • Solvency I – the current European solvency rules • Individual solvency requirement • Traffic light rules.
Those rules imposing the greatest requirements on the Group's capital are the rules on individual solvency requirement, and Topdanmark's capital planning is based on these rules.
For several years Topdanmark's policy for calculating solvency requirements has been to match the rules which are expected under Solvency II, and therefore, the solvency calculation has regularly been aligned with the Solvency II expectations. In this calculation Topdanmark uses a partial, internal model for calculation of the non-life risk.
Significant transitional rules which are included in the calculation of capital base: • Provision for capital costs, calculated in accordance with the Solvency II principles, is deducted from the capital base
Risk scenarios (DKKm) after taxation and pension return tax 2013 2014 Non-life insurance Underw riting risk Combined ratio − 1pp increase (67) (69)
Storm claims up to DKK 5,100m (75) (76) (Plus reinstatement premium etc.)
Annual currency loss w ith an up to 2.5% probability (21) (21)
• Recognition of an expected profit on non-life insurance contracts, concluded for the remaining period of cover.
Therefore, Solvency II gives the companies the opportunity to fully or partially develop their own risk model (internal model) for the solvency calculation. However, the DFSA must approve the model that is used for the calculation of Solvency II capital requirements. Today Topdanmark uses a risk model it has developed in-house to calculate 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.
So far the size of the necessary solvency capital has been calculated at DKK 4,700m. This amount is the forecast solvency requirement under Solvency II plus an adequate buffer ensuring that usual fluctuations in earnings will not result in insufficient solvency cover.
The new rules seem to indicate some easing of the capital requirement as compared to previous expectations. However, in 2015 a solvency capital cover of DKK 4,700m, as a minimum, will be maintained from the solvency capital elements, shareholders' equity reduced by intangible assets (DKK 3,800m), hybrid capital (DKK 400m) and subordinated loan capital (approx. DKK 500m): see www.topdanmark.com → Investor → Capital model. At the end of 2014, the calculated solvency capital was DKK 5,738m.
Topdanmark Forsikring has already issued further subordinated loan capital of DKK 250m. This amount is expected to be included in the cover of the necessary capital with effect from 2016.
Solvency II will take effect at the beginning of 2016. Subsequently, it will be possible to include subordinated loan capital in the solvency cover by up to 50% of the solvency requirement. Topdanmark expects to present its expected future capital structure when the Q1 2015 interim report is published on 20 May 2015.
Topdanmark is well-advanced in its preparations, and areas like organisation, data and calculation of solvency requirements are practically in place.
Detailed information on, among other subjects, Topdanmark's capital structure model and model for calculation of share buy-back potential is available on www.topdanmark.com → Investor Relations → Capital Model.
Capital structure and ownership Topdanmark's Board of Directors has an authorisation granted in the Articles of Association to increase the Company's share capital, to raise convertible loans and / or issue warrants. The issues may be with or without preemptive rights for the Company's shareholders. The authorisations are limited to a total of 2,500,000 shares. They expire on 17 April 2018.
At 31 December 2014 Topdanmark’s share capital totalled DKK 115,000,000 divided into 115,000,000 shares of DKK 1 each, corresponding to 115,000,000 voting rights. As of 5 February 2015, Topdanmark held 12,119,000 of own shares representing 10.5% of the share capital, of which 2,300,966 shares are earmarked to cover Management's share option scheme.
The following shareholder owns more than 5% of the share capital (27.37 %): If P & C Insurance Holding Ltd (publ) Barks Väg 15, Solna 10680 Stockholm Sweden
Topdanmark's Board of Directors comprises nine members, six of them elected by at the AGM and three by Topdanmark's employees in accordance with the Danish Companies Act.
In accordance with this Act, the number of Board members elected by employees should be equivalent to no fewer than half the number of those elected by shareholders in general meeting. The rights, duties and responsibilities of the Board members elected by employees are the same as those of the Board members elected by shareholders at the general meeting.
The Board of Directors has made a response to its composition and qualifications in “Policy for diversity in the Board of Directors”. The Company believes that, by imposing very specific requirements on the Board of Directors in advance, it may prevent the election of an evidently qualified Board candidate who does not 100% meet the requirements. Instead, an individual decision will be made on each Board candidate based upon an overall consideration of the candidate's qualifications as compared with the Company's business model and associated risks, present needs and the composition of the rest of the Board of Directors. Topdanmark believes that in a company like Topdanmark, among them its Board members ought to possess skills within accounting, finance, financing, insurance operations, reinsurance and marketing and sales in the personal and professional markets. With its current composition Topdanmark's Board of Directors possesses all these skills.
Diversity Topdanmark’s current Board of Directors reflects diversity in many areas including professional background and education, sex and age. Its members have experience from the financial and industrial sectors, nationally and internationally. The Board of Directors believes that this composition enables it to consider a given problem from many different angles which is confirmed by experience from the day-to-day Board work. Read more about each Board member’s background and competence on www.topdanmark.com → About Topdanmark → Executive Board and Board of Directors and Board of Directors and Executive Board in this Annual Report.
Amendments to the Company's Articles of Association The general meeting is Topdanmark's chief decisionmaking vehicle. Decisions at general meetings are made by a simple majority of votes unless a special majority or representation is required by the Danish Companies Act or the Articles of Association. The Articles of Association provide that decisions on the alteration of the Articles of Association are only valid if adopted by an affirmative vote of not less than two thirds of the votes cast as well as of the capital represented at the general meeting. The Articles of Association provide no restrictions on voting rights.
Severance pay As stated in the remuneration policy adopted at the AGM, it is part of the contracts for the Executive Board and five other members of the Group’s top management team that, under certain circumstances, they will receive compensation in the form of an extended period of notice
The remuneration package of the Executive Board, the Friday Team and significant risk takers is based upon a fixed basic salary, 10% of which is paid as share options. Individual bonuses or other types of variable salary are not paid. The determination of the fixed basic salary paid to the Executive Board and the Friday Team is based on a specific assessment of the employee. In its assessment Topdanmark includes, among other factors, their position, characteristics and performance.
Besides options, which in accordance with the revolving option scheme are paid to the Executive Board, significant risk takers and the Friday Team as part of their fixed salaries, the Executive Board may grant a total of up to 200,000 options to employees who are expected to make a special effort or otherwise contribute extraordinarily to value creation in the Company in that year of granting.
Share options For 2015 Topdanmark has granted 211,400 share options to its Executive Board and a number of executives. The strike price of DKK 220 was fixed at 110% of the market price of Topdanmark's shares on 30 December 2014 (average of all trades).
The options granted for 2015 may not be exercised any earlier than subsequent to the publication of the 2017 Annual Report in 2018 and no later than subsequent to the publication of the 2019 Annual Report in 2020. In the intervening period, the options can only be exercised up to three banking days subsequent to Topdanmark's publication of annual and interim reports.
The market value of the options for 2015 has been calculated at DKK 10m at the time of granting.
The value was calculated using the Black and Scholes model based on a share price of DKK 200.28, an interest rate corresponding to the zero coupon rate based on the swap curve on 30 December 2014, future annual volatility of 22% and a pattern of exercise similar to Topdanmark's previous granting of share options: see IFRS 2 on sharebased payments.
At the end of 2014 the exposure of the options held by the Executive Board represented 0.3% of the number of outstanding shares.
Corporate Governance Topdanmark's "Statutory Corporate Governance Report, see Section 131 of Executive Order on Financial Reports for insurance Companies and Lateral Pension Funds" (”Accounting Order”), is available on www.topdanmark.com → Investor Relations → Reports and presentations → Statutory Corporate Governance Reports (
Communication to investors and analysts is performed through the following information channels: • Investor meetings • Telephone meetings • Conference calls • Webcasts • Investment and insurance conferences.
Since the buy-back programme was initiated in 1998, Topdanmark has cancelled DKK 13.3bn of own shares representing a 72.1% write-down of the share capital. In the years 2000-2014 the average buy-back yield has been 9.5%.
Trading in Topdanmark's shares Daily share trading on NASDAQ OMX Copenhagen was DKK 40m in 2014 (2013: DKK 52m). NASDAQ OMX Copenhagen continues to be the primary stock exchange for trading in Topdanmark's shares with a market share of 65% in 2014 (2013: 70%). Consequently, the share of the trading was 35% on other trading platforms such as BATS, Chi-x and Turquoise.
Topdanmark is monitored by 17 analysts. Share analysts' recommendations of Topdanmark's shares are available on Topdanmark's investor site www.topdanmark.com → Investor Relations → Share profile → Analysts.
Most active brokers at NASDAQ OMX Copenhagen in 2014 % Danske Bank 21
Annual General Meeting Michael Pram Rasmussen, Chairman of Topdanmark's Board of Directors since 2006, has chosen not to stand for re-election at the AGM on 15 April 2015. Michael Pram Rasmussen will resign at the next ordinary Board meeting on 4 March 2015, when Søren Thorup Sørensen, Topdanmark's present Deputy Chairman, is expected to take over the role as Chairman. At the same time Torbjörn Magnusson is expected to be appointed as Deputy Chairman. From 4 March until the AGM, Michael Pram Rasmussen will be an ordinary member of the Board of Directors.
At the AGM on 15 April 2015, the Board of Directors will propose that Bjarne Graven Larsen is elected as a new member of the Board. The intention is that the Board of Directors will elect Søren Thorup Sørensen as its Chairman and Torbjörn Magnusson as Deputy Chairman from among its members.
The Board of Directors proposes election of: • Anders Colding Friis • Bjarne Graven Larsen • Torbjörn Magnusson • Birgitte Nielsen • Annette Sadolin • Søren Thorup Sørensen
The agenda for the AGM will be distributed on 18 March 2015.
AGM 15 Apr 2015 Q1 2015 Interim Report 20 May 2015 2015 Half-year Report 19 Aug 2015 Q1-Q3 2015 Interim Report 16 Nov 2015 Announcement of 2015 Annual Results 11 Feb 2016 2015 Annual Report 2 Mar 2016
Company announcements and trading reports Company announcements Topdanmark submits announcements to Nasdaq OMX, Copenhagen with information on material and relevant events in the Group which can affect the price of Topdanmark's shares. The announcements are also sent to the press, share analysts, investors and other interested parties.
Trading Reports 2015 26 Feb 04/2015: Trading in Topdanmark’s shares by insiders 24 Feb 03/2015: Trading in Topdanmark’s shares by insiders 23 Feb 02/2015: Trading in Topdanmark’s shares by insiders 02 Jan 01/2015: CORRECTION: Trading in Topdanmark’s shares by insiders 02 Jan 01/2015: Trading in Topdanmark’s shares by insiders 2014 25 Nov 05/2014: Trading in Topdanmark’s shares by insiders 26 Aug 04/2014: Trading in Topdanmark’s shares by insiders 27 May 03/2014: Trading in Topdanmark’s shares by insiders 11 Mar 02/2014: Trading in Topdanmark’s shares by insiders 02 Jan 01/2014: Correction: Trading in Topdanmark’s shares by insiders 02 Jan 01/2014: Trading in Topdanmark’s shares by insiders
Offices held: Member of the Boards of Directors of: • A.P. Møller-Mærsk A/S (Chairman)
– and one subsidiary • Louisiana Museum of Modern Art • Arp-Hansen Hotel Group A/S
Member of: • Advisory Board of Danske Bank • International Council JP Morgan Chase
Offices held: Member of the Boards of Directors of: • TDC A/S • LEGO A/S • 4 subsidiaries of KIRKBI A/S • Koldingvej 2, Billund A/S • KIRKBI AG • Merlin Entertainments Plc • Falck Holding A/S
− and two subsidiaries • Boston Holding A/S • Ole Kirk’s Fund
Current position held: CEO and President of Pandora (Took up office on 1 March 2015)
Offices held: Member of the Boards of Directors of: • Monberg & Thorsen A/S (Chairman) • Industral Employers in Copenhagen (Deputy
Previous positions held: 1986-1989: Dealer, Danske Bank’s arbitrage, commercial paper and liquidity risk management 1989-1990: Danske Bank New York Branch, implementing risk management system 1990-1992: Vice President, Danske Bank, interest rate derivatives trading 1992-1996: Treasury Manager, FLS Industries A/S 1996-1999: Group Financial Officer, Vice President, FLS
Education: • Banking education • B.Com Degree (HD), International Trade, CBS • B.Com Degree (HD), Accounting and Financial
Offices held: Member of the Boards of Directors of: • Kirk Kapital A/S • Finansiel Stabilitet • Arkil A/S • Gigtforeningen (the Danish Rheumatoid Arthritis
Independence: Birgitte Nielsen meets the definition of independence set out by the Committee on Corporate Governance
Christian Sagild CEO of Topdanmark A/S DOB 1959, joined Topdanmark in 1996, joined Topdanmark's Executive Board on 1 January 2006
Managerial responsibilities: • Life insurance • HR • IT • Group Development • Communications, IR, CSR • Group Secretariat, Corporate Legal Matters
Kim Bruhn-Petersen COO of Topdanmark A/S DOB 1956, joined Topdanmark in 1989, joined Topdanmark's Executive Board on 1 January 2006
Member of the Boards of Directors of: • Forsikringsakademiet A/S (Danish Insurance
Academy) • Bornholms Brandforsikring A/S • The Danish Employers’ Association for the Financial
Lars Thykier CFO of Topdanmark A/S DOB 1955, joined Topdanmark in 1986, joined Topdanmark's Executive Board on 1 June 2009
Allocated investment return, net of reinsurance 2,233 579 2,364 2,031 2,691
Change in the life insurance provisions (960) 370 (738) 1,635 831
Gross claims paid (6,510) (7,104) Reinsurance cover received 424 1,185 Change in the provisions for claims, gross (622) 796 Change in the reinsurers' share of the provisions for claims 653 (697) Claims incurred, net of reinsurance 5 (6,055) (5,819)
Acquisition costs (947) (914) Administrative expenses (468) (493) Reinsurance commission and share of profits 83 82 Total operating expenses, net of reinsurance (1,332) (1,325) TECHNICAL PROFIT ON NON-LIFE INSURANCE 6 801 1,321
Gross premiums written 7 3,511 4,448 Reinsurance ceded (5) (7) Premiums, net of reinsurance 3,506 4,441
Change in the life insurance provisions 9 1,635 831 Change in the reinsurers' share (4) (1) Change in the life insurance provisions, net of reinsurance 1,631 830
Acquisition costs (115) (130) Administrative expenses (222) (227) Total operating expenses, net of reinsurance (337) (356) TECHNICAL PROFIT ON LIFE INSURANCE 297 32
Technical profit on non-life insurance 801 1,321 Technical profit on life insurance 297 32
Other comprehensive income 43 (10) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,511 1,548
Loans guaranteed by mortgages 6 12 Deposits with credit institutions 1,047 2,267
Share capital 125 115 Revaluation reserve 20 10 Security fund 1,146 1,146 Other reserves 34 39 Total reserves 1,180 1,185 Profit carried forward 3,860 3,825 TOTAL SHAREHOLDERS' EQUITY 5,184 5,135
Pensions and similar commitments 30 29 Deferred tax liabilities 24 86 74 Deferred tax on security funds 306 306 TOTAL LIABILITIES PROVIDED 422 409 DEPOSITS RECEIVED FROM REINSURERS 143 154
Creditors arising out of direct insurance operations 93 315 Creditors arising out of reinsurance operations 115 34 Bond loans 58 29 Amounts due to credit institutions 2,159 1,961 Amounts due to associated companies 5 3 Current tax liabilities 15 31
Other creditors 1,115 1,446 TOTAL CREDITORS 3,731 4,690 ACCRUALS AND DEFERRED INCOME 96 111 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 61,092 64,516
Cash flow from operations Gross premiums written 8,964 9,069 Claims paid (6,428) (7,053) Expenses paid (1,343) (1,335) Reinsurance ceded (55) 432 Cash flow from non-life insurance 1,137 1,113
Gross premiums written 3,569 4,740 Claims and benefits (3,852) (4,205) Expenses paid (320) (352) Reinsurance ceded 6 (29) Cash flow from life insurance (599) 154
Investment assets related to unit-linked contracts (1,686) (3,042) Balances with associated companies (172) (199)
Total comprehensive income for the year 2 42 5 1,463 1,511
Cancellation of own shares (10) 10 0 Share buy-back (1,716) (1,716) Sale of own shares 38 38 Reclassification of share options (30) (30) Issue of share options 10 10 Exercise of share options 93 93
SME and Eli- EliPer - Indus- min- Parent minsonal trial ated Non-life Life etc. ated Group
Technical profit on non-life insurance 547 217 1 765 36 801
Note 5. Claims incurred, net of reinsurance - non-life insurance Run-off profit: Gross business 387 253 Reinsurance ceded (81) 97 Run-off profit, net of reinsurance 306 351
Technical interest, net of reinsurance 2 1 0 0 2 1
Run-off profits / (losses), net of reinsurance 139 106 (6) (4) 63 52 Claims provisions, net of reinsurance 2,916 3,041 49 52 5,642 6,079
Run-off profits / (losses), net of reinsurance 85 50 7 (9) (7) 43 Claims provisions, net of reinsurance 1,697 1,767 114 133 633 563
Average value of claim (DKK '000) 27 24 9 9 12 12
Technical interest, net of reinsurance 2 1 1 0 1 1
Run-off profits / (losses), net of reinsurance 22 41 (2) 40 4 31 Claims provisions, net of reinsurance 644 564 528 524 272 265
Note 7. Gross premiums written - life insurance Individual policies 345 330 Policies which are part of a tenure 1,385 1,456 Group life 404 404 Regular premiums 2,134 2,191
Individual policies 206 535 Policies which are part of a tenure 1,171 1,721 Single premiums 1,377 2,257 Gross premiums 3,511 4,448
Proportion of gross premiums represented by premiums related to unit-linked contracts not eligible for bonus 1,881 3,155 Investment risk is taken by the policyholder. All other gross premiums relate to bonus eligible insurance contracts.
Bonuses paid in cash 260 228 Claims and benefits paid 3,860 4,200
Surrenders in 2014 includes advanced tax of DKK 761m on capital pension schemes.
Note 9. Change in life insurance provisions Guaranteed benefits 1,847 (1,982) Bonus potential on future premiums 302 1,195 Bonus potential on paid-up benefits (515) 1,618 Change in life insurance provisions 1,635 831
Advanced tax on capital pension schemes Accumulated revaluation - 48 Collective bonus potential - 62
Note 11. Income from investment properties Rental income 219 199 Operating expenses from properties rented out (55) (39) Operating expenses from properties not rented out (10) (9) Gross profit 153 152 Administrative expenses (9) (9) Income from investment properties 144 143
Revaluations of financial assets and liabilities at fair value through profit or loss 1,233 2,465 Of which revaluation of derivatives transferred to claims incurred 163 211 Investment properties (64) (11) Shares in associated companies 0 51 Provisions for claims and benefits 231 (663) Reinsurers' share (1) 3 Provisions for unearned premiums 1 (1) Liquid funds (20) 1
Impairment and amortisation at 1 January 0 (151) (282) 0 (433)
Impairment and amortisation at 31 December 0 (173) (347) 0 (520)
Impairment and amortisation at 1 January 0 (173) (347) 0 (520)
Goodwill and development projects under construction are subjected to an impairment test at the end of the financial year. The discounted value of future cash flows is compared with its carrying value. The future cash flows are based on three years' expected technical result and a terminal value of the segments to which goodwill and development projects under constructions relate. The pre-tax discount rate used is 10% (2013: 12%) corresponding to 7.5% (2013: 9.0%) post-tax. Goodwill relates to the personal segment.
A general 0.25pp increase in the return requirement will cause a decline of DKK 40m (2013: 40m) in the overall fair value of owner-occupied properties.
Non-residential 3,124 2,787 Residential and part residential 828 836 Land and buildings under construction 0 206
A general 0.25pp increase in the return requirement will cause a decline of DKK 167m (2013: 182m) in the overall fair value of investment properties. Average return requirement Non-residential 5.8% 5.8% Residential and part residential 4.7% 4.7%
Profit on disposal 0 51 Share of profit 57 193 Dividends received 0 (3) Shares in associated companies 892 340
Note 23. Reinsurers' share of the provisions for claims Non-life insurance Reinsurers' share at 1 January 683 1,337
Reimbursement of claims relating to this year (157) (180) Expected income relating to this year 1,157 392
Reinsurers' share of the provisions for claims at 31 December 1,337 648
Recognised as: Deferred tax assets 20 22 19 Deferred tax liabilities (109) (86) (74)
Non-capitalised balance of equity losses that can be carried forward 131 0
Hybrid core capital has been fully included in the parent company's capital base 407 407
Subordinated loan capital of Topdanmark Forsikring A/S has been included in the Company's capital base at up to 25% of the solvency margin 256 256
Provisions for unearned premiums at 1 January 2,713 2,769 Gross premiums written 9,018 9,121 Premiums earned (8,963) (9,167)
Portfolios analysed by capitalisation rates Guaranteed future paid-up 2014 benefits premiums benefits
Claims paid relating to previous years (2,863) (2,732) Change in expected claims payments relating to previous years (306) (351)
Provisions for workers' compensation insurance, net of reinsurance 5,642 6,079 Average period of settlement 8 years 8 years
Provisions relating to previous years at 31 December 1,709 Gross provisions at 31 December 2014 - non-life insurance 13,637
Less paid incl. inf lation hedging 3,190 4,683 4,718 5,136 5,590 5,557 5,575 5,497 5,036 4,881 49,863 Provisions before discounting
Provisions relating to previous years at 31 December 1,695 Provisions, net of reinsurance, at 31 December 2014 - non-life insurance 12,989
Reconciliation: Provisions for claims 13,723 Less amount relating to life insurance (86) Less reinsurers' share of provisions (648) Provisions, net of reinsurance, at 31 December 2014 - non-life insurance 12,989 Composition of expected payments, net of reinsurance: Discounting / revaluation w orkers' compensation
Insurance Investment 2013 contracts contracts Total Gross provisions at 1 January 4,320 437 4,757 Retrospective provisions at 1 January 4,320 437 4,757 Gross premiums written 1,881 134 2,015
The allocation of the technical basis for risk allowance to policyholders is in accordance with the order on contribution principle.
Note 31. Technical basis for risk allowance and shadow account - continued Shadow account at 1 January 236 72
These expenses have been disclosed in: Non-life insurance: Acquisition costs 947 914 Administrative expenses 468 493 Claims paid (claims handling and assessment) 820 886
Income from investment properties (administration and operation) 75 56 Expenses on investment business 45 56 Other expenses 54 57 Total expenses 2,746 2,819
Note 34. Auditors' fee Fee to the auditors elected at the Annual General Meeting Deloitte: Fee for statutory audit of the annual accounts 4 4 Fee for other assurance engagements 0 0 Fee for tax advice 0 0 Fee for services, other than audit work* 4 4 *Primarily fee for one-off services related to the acquisition of an IT system in the life insurance group. The Group has an internal audit department which carries out most of the audit work.
Social security costs 41 42 Payroll tax 189 203 Share options 7 8
Shares, bonds and subordinated notes held by the Board of Directors and Executive Board Board of Directors Number of shares 29,130 25,970 Bonds, nominal value DKK '000 157 82 Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 12,050 6,050 Executive Board Number of shares 173,430 83,430 Bonds, nominal value DKK '000 1,146 690
Note 37. Financial assets Financial assets at fair value where the revaluation is taken to the income statement Held for trading: Loans guaranteed by mortgages and other loans 6 12
Designated at fair value: Deposits with credit institutions 1,047 2,267 Investment assets related to unit-linked contracts 6,673 10,117
Total financial assets at fair value where the revaluation is taken to the income statement 51,144 55,859
Total financial assets 52,623 57,370 The book value of loans and receivables at amortised cost approximately corresponds to fair value.
Quoted Observable observable 2013 prices inputs inputs Financial assets recorded at fair value Level 1 Level 2 Level 3 Total Held for trading: Loans guaranteed by mortgages and other loans 0.0 0.0
Deposits with credit institutions 0.0 0.0 Investment assets related to unit-linked contracts 4.6 2.1 6.7 Total financial assets at fair value 26.0 25.1 0.1 51.1
Financial assets recorded at fair value Held for trading: Loans guaranteed by mortgages and other loans 0.0 0.0
Note 38. Financial liabilities Financial liabilities measured at fair value through profit or loss Held for trading: Designated at fair value: Amounts due to credit institutions 2,159 1,961 Total financial liabilities measured at fair value through profit or loss 2,329 2,832
Note 38. Financial liabilities - continued Financial liabilities payable after five years or more: Subordinated loan capital 407 407 Amounts due to credit institutions 4 4
Note 39. Settlement of assets and liabilities Except for tangible and intangible assets, investment properties, investments in associated companies and CDOs most other assets are expected to be settled within a year. It is expected that the following significant liabilities will be settled 12 months or more after the balance sheet date: Subordinated loan capital 1,155 1,156 Provisions for unearned premiums 177 178 Guaranteed benefits 16,869 18,523 Bonus potential on future premiums 2,645 1,976 Bonus potential on paid-up benefits 2,016 687 Provisions for claims and benefits 9,871 10,317 Collective bonus potential 1,310 1,525 Provisions for unit-linked contracts 6,200 9,592 Deferred tax on security funds 306 306
Number of shares held to cover the granting of options: 1,938,000 (2013: 2,840,000)
Bonds provided as security for loans in accordance with standard repo-contracts for Danish mortgage and government bonds 611 432 Other provision of security 58 59
Life: Topdanmark Liv Holding A/S Ballerup Holding Topdanmark Livsforsikring A/S Ballerup Insurance Nykredit Livsforsikring A/S Ballerup Insurance Topdanmark EDB II ApS Ballerup IT services Topdanmark Ejendom A/S Ballerup Property TDE.201 ApS Ballerup Property
The following description of risks in the Topdanmark Group elaborates on Risk management in Management’s review.
General insurance rates are re-calculated at least every three years and motor and workers' compensation rates are reviewed annually.
• The customer is CONFIDENT that Topdanmark helps the customer to solve the claims problem.
Claims handling supported by Topdanmark’s claims handling system Topdanmark’s claims handling system supports professional accuracy. Measurements show that there has been a significant improvement in the quality of claims handling.
The claims organisation has implemented the version of the Lean / TRIM concept used by service organisations in several departments where it has improved the time it takes to handle a claim, the quality of the claims handling and employee satisfaction.
Provisions for outstanding claims (%) 2013 2014 Short-tail 15 13 Annuity provisions in workers' compensation 23 24 Other claims provisions in workers' compensation 22 23
well, and then comparing the compensation with information from external sources, primarily statistical material from the National Board of Industrial Injuries and the Danish Road Sector / Road Directorate.
Storm and rainstorms Reinsurance covers storm claims of up to DKK 5.1bn with a retention of DKK 100m. Snow loading, snow thawing and rainstorms are also covered. Reinstatement for the proportion of the cover used up is activated by payment of a reinstatement premium. In the event of another storm within the same year, there is cover of a further DKK 5.1bn with a retention of DKK 100m. In the event of a third and fourth storm, there is cover of up to DKK 670m with a retention of DKK 20m if the events occur within the same calendar year. To this should be added the cover not already hit twice by the first two storms. The cover of a third or fourth storm is dependent on the storm programme not having been hit previously by two individual storms each exceeding DKK 3.5bn. The storm programme is renewed on 1 July.
Terror With certain restrictions terror is covered by the reinsurance contracts.
A national guarantee scheme of DKK 15bn covering terror claims including an element of NBCR (nuclear, biological, chemical, radiological) has been established. The national guarantee scheme covers any market retention in excess of DKK 5.5bn. The Danish non-life insurance companies have established a terror pool to protect the market retention. Industrial injuries caused by any form of terror are covered by the Government with a few exceptions.
Workers' compensation In workers' compensation up to DKK 1bn is covered with a retention of DKK 50m.
In order to protect shareholders' equity it will be relevant to reduce market risks in the event of low interest rates.
All policies have been split into contribution groups according to the guaranteed benefit scheme. In each contribution group, the investment policy is intended to ensure the ability to meet the guaranteed benefits, and the market risk is adjusted in accordance with the risk capacity of the contribution groups.
Extra costs due to a permanent change in disability risk will be partially covered by collective bonus potential and bonus potential on paid-up benefits. The remainder affects profit / loss for the year and consequently shareholders' equity.
Equity risk Topdanmark is exposed to equity risk from direct investments as well as those investments made via derivatives
The equity risk is alleviated by trades in the market and by derivatives
Currency risk Topdanmark's currency risk relates in practice only to investments
Workers' compensation and illness / accident insurance differ from the general principles regarding the inclusion of an allowance for inflation. The provisions in workers' compensation insurance are calculated on the basis of the expected future indexation of wages and salaries and those in illness / accident insurance on the basis of the expected net price index
An expected higher future inflation rate would generally be included in the provisions with a certain time delay, while at the same time the result would be impacted by higher future indexation of premiums
Topdanmark's liquidity risk is therefore primarily related to the parent company
obligation is met by means of the cash flow from operations.
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 loans raised by Topdanmark Forsikring and any outstanding money market loans will be repaid from the cash generated from operations.
Investment Topdanmark's investment risk is the inability of bond, loan or financial contract counterparties to meet their obligations. Most of Topdanmark's interest-bearing assets comprise Danish mortgage bonds and debt issued or guaranteed by top-rated European states. The risk of losses is considered to be very small due to the high quality of the issuers and a desired spread on both issuers and issues. To limit the risk on other bond and loan debtors, the portfolio is well diversified both geographically and with regard to type of debtor - and therefore, the exposure to the concentration of risks is insignificant.
To limit the counterparty risk of financial contracts the choice of counterparties is restrictive, and security is required when the value of the financial contracts exceeds the predetermined limits. The size of the limits depends on the counterparty's credit rating and the term of the contract.
With effect from 1 January 2014, Topdanmark has implemented various new and revised standards and interpretations, which have not resulted in any changes in the accounting policies.
Accordingly, there have been no changes in accounting policies from those adopted in the 2013 Annual Report.
The five-year summary discloses the most recent financial years' run-off profits/losses. The movement in the provisions for outstanding claims and run-off profits/losses analysed by claims year is shown in the note on provisions for outstanding claims. The note on technical result − non-life specifies run-off profits/losses for the year analysed by line of business. For further details see Management's review.
Recognition and measurement Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to the Group, and where the asset has a value that can be measured reliably. Liabilities are recognised in the balance sheet when the Group has a legal or constructive obligation due to a previous event, when it is probable that future economic benefits will flow from the Group, and where the value of the liability can be measured reliably. The recognition and measurement take into consideration predictable losses and risks, which have occurred prior to the presentation of the Annual Report, and which provide evidence of conditions that existed at the balance sheet date.
The initial recognition of financial instruments is made at fair value on the date of settlement. Any changes in the value between the trade and settlement dates are included in the balance sheet under the heading of Derivatives. Direct expenses on the acquisition or issue of financial instruments which are measured at fair value with any revaluation of the fair value taken to the income statement are included in expenses on investment activities, when incurred. However, financial instruments which, subsequent to the initial recognition, have been measured at amortised cost are recognised at fair value adjusted for direct expenses on the acquisition or issue of the financial instrument.
Valuation methods are based on publicly available market data. If there is no active market for the financial instrument, depending on the nature of the asset or liability, the calculation is based on underlying parameters such as interest and foreign exchange rates, volatility or comparison with the market prices of corresponding instruments.
An investment contract is one where the amount of insurance risk is not sufficient for it to be classified as an insurance contract. However, if the investment contract entitles the policyholder to receive a bonus, it is treated as an insurance contract. Payments received and made on investment contracts where the policyholder is not entitled to a bonus, have been taken directly to the balance sheet.
If there is a negative technical basis for risk allowance, which exceeds the collective bonus potential and the individual bonus potential, the excess will be debited to shareholders' equity.
Segment information Topdanmark 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.
The recognition and measurement of the information reported by each segment follow the same accounting policies, as those applied by the Group.
Cash flow statement The cash flow statement for the Group has been prepared in accordance with the direct method disclosing cash flow from operations, investments and financing as well as the changes in the Group’s liquid funds between the beginning and the end of the financial year. Investment activities also include amounts received and paid on the purchase and sale of investment, intangible and tangible assets. Cash flows from financing comprise
Bonuses and rebates Bonuses and rebates include those premium amounts that have been or will be paid back to policyholders, on the basis that the amount of the repayment is calculated with reference to the claims trend of the financial year for each insurance contract or a portfolio of insurance contracts using criteria determined prior to the beginning of the financial year, or when the insurance contracts were written.
expenses on investment activities comprise the cost of asset management including transaction costs.
Taxation The tax charge for the year comprises the current corporation tax for the year and any changes in deferred tax. The share of the tax charge that relates to the profit for the year is included in the income statement, the share that relates to other comprehensive income items is included in other comprehensive income, and the share that relates to shareholders' equity items is taken to shareholders' equity. The current tax for the year is calculated using the tax rates and rules applicable on 31 December.
Tangible assets Machinery and equipment Machinery and equipment is measured at cost less depreciation on a straight-line basis and net of any impairment. Depreciation on a straight-line basis is calculated on the basis of the expected useful life and the residual value, which is annually revalued. If there is an indication of impairment, the book value is written down to its recoverable amount.
Associated companies Shares held in associated companies are measured at their net asset value, in accordance with the Group's accounting policies. Associated companies are companies which are not subsidiaries, although the Group has substantial influence through a significant
The liabilities are disclosed in the balance sheet as follows: Guaranteed pension benefits are measured as the present value of current guaranteed benefits plus future administrative expenses less the present value of the agreed premiums. Guaranteed benefits also include provisions for group life policies and provisions for claims incurred but not reported (IBNR).
Bonus potential on paid-up benefits comprises the difference between, on the one hand a policy's savings (retrospective provision) less the present value of the expected future expense result, and on the other hand, the present value of the guaranteed future benefits originating from already paid premiums.
Inflation is taken into account when calculating the value of the provisions as future inflation is implicitly included in a number of the statistical models used. Therefore, an expected higher future inflation rate would generally be included in the provisions with a specific time delay.
Provisions for claims and benefits in workers' compensation insurance comprise provisions for annuities and other provisions for claims and benefits. The assessment of the future annuities is based on the present annuities including the expected wage and salary indexation and a rate of mortality corresponding to G82 with monthly age write-downs. Workers’ compensation claims are often paid as the capitalised value of an annuity. The capitalisation rate at the time of capitalisation is to be calculated as a moving average of the most recent five years’ interest rate on leading mortgage bonds less tax. The capitalisation rate is calculated as the forward swap rates plus 0.85% p.a. and less a deduction for tax corresponding to the base tax rate.
The assessment of other provisions for claims and benefits relating to injuries, loss of provider and expenses is based on traditional actuarial triangulation models. Due to the special conditions surrounding payments on disability claims, it is not possible to use traditional actuarial triangulation models for this type of provisions. Topdanmark, therefore, uses an in-house developed model, which, among other things, takes into account the stage each claim has reached. The calculation includes an allowance for the expected wage and salary indexation.
Provisions for claims and benefits in life insurance comprise insurance benefits due but not yet paid.
Collective bonus potential The collective bonus potential is used to equalise the individual years' payments of bonus. Amounts will be provided for the collective bonus potential in years where the investment and technical results exceed the bonus promised, while amounts will be transferred from the reserve in years where the result is not sufficient to finance the bonus promised. The collective bonus potential can only be reduced by a transfer to another item under technical provisions or as a result of a negative technical basis for risk allowance relating to bonus eligible insurance contracts.
Corporation tax and deferred tax Current tax liabilities and tax receivable, including joint tax contributions, are included in the balance sheet as calculated tax on taxable income for the year adjusted for tax on previous years' taxable income and prepaid tax on account. Deferred tax on temporary differences between the accounting and tax value of assets and liabilities is charged in accordance with the balance sheet liability method. Deferred tax on shares in subsidiaries and associated companies is not included where the Group controls the timing of the reversal of the temporary difference, and where it is probable that the temporary difference will not be reversed within the foreseeable future. The calculation of deferred tax is based on the planned use of each asset and the settlement of each liability using the tax rates expected to be in force when the deferred tax is expected to crystallise as current tax, based on the tax rates and rules in force on 31 December.
Shares in affiliated companies 6 6,323 6,034 Total investment in affiliated companies 6,323 6,034
Amounts due from affiliated companies 155 102 TOTAL DEBTORS 155 102
Other reserves 2,574 2,285 Total reserves 2,574 2,285 Profit carried forward 2,792 3,042 TOTAL SHAREHOLDERS' EQUITY 5,490 5,442
Dividends received from subsidiaries (1,871) 1,871 0 Other movements in capital of subsidiaries (1) 0 (1) Cancellation of own shares (13) 13 0 Share buy-back (1,836) (1,836) Issue of share options 9 9 Exercise of share options 133 133
Note 4. Taxation Current tax 10 14 Prior year adjustment 2 3 Taxation (income) 12 17
Note 5. Machinery and equipment Cost at 1 January 4 3
Cost at 31 December 3 3 Impairment and amortisation at 1 January (1) 0 Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year 1 0 Impairment and amortisation at 31 December 0 (0) Machinery and equipment 3 3
Note 8. Subordinated loan capital In 2007 Topdanmark A/S issued EUR 55m of hybrid core capital.
Share of loan included in capital base 407 407 Interest charges 9 9
Shares, bonds and subordinated notes held by the Board of Directors and Executive Board Board of Directors Number of shares 29,130 25,970 Bonds, nominal value DKK '000 157 82 Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 12,050 6,050
Shareholders' equity 5,490 5,442 Deferred tax assets (1) (2) Deduction related to subsidiaries and and associated companies (420) (388) Capital adequacy requirements for insurance companies (2,500) (2,507) Core capital 2,569 2,545 Hybrid core capital 407 407 Capital base 2,976 2,952
With effect from 2014 the core capital and capital base are calculated in accordance with the Danish Executive Order on solvency and operating plans for insurance companies. Till then, the capital base was calculated in accordance with the rules for savings banks. The comparatives have been restated.
There have been no other changes in accounting policies from those adopted in the 2013 Annual Report.
Differences from the Group's accounting policies The company's accounting policies for recognition and measurement are 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 investment is written down to this lower amount. The share of the posttax results of affiliated companies is included in the income statement under income from affiliated companies less any write-downs. Where investments in affiliated companies are revalued to net asset value, the net revaluation reserve is included in shareholders' equity. The share of the changes in equity of affiliated companies is included directly in the shareholders' equity.
Audit for the year We conducted our audit on the basis of the Danish Financial Supervisory Authority’s regulation on the preparation of the audit in financial services companies etc. and financial services groups, and in accordance with International Standards on Auditing. This requires that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and annual financial statements are free from material misstatement. We have participated in the audit of the material and risky areas.
Statement on the management review Pursuant to the Danish Financial Business Act, we have read the management review. We have not performed any further procedures in addition to the audit of the consolidated financial statements and annual financial statements.
Erik Holst Jørgensen Per Rolf Larssen State Authorised Public Accountant State Authorised Public Accountant