among other things driven by higher run-off profits and higher investment return
Q4 2016 • Post-tax profit: DKK 421m (Q4 2015: DKK 333m) • EPS: DKK 4.8 (Q4 2015: DKK 3.4) • Combined ratio: 84.6% (Q4 2015: 90.5%) • Combined ratio excluding run-off profits: 93.9%
(Q4 2015: 96.0%) • Premiums declined 1.4% in non-life insurance, but increased 1.9% in life insurance • Profit on life insurance: DKK 54m (Q4 2014: DKK 85m) • After return and revaluation of non-life insurance provisions, Investment return was DKK 148m (Q4 2015: DKK 139m).
Profit forecast model for 2017 • As compared to the profit forecast model for 2017 in the interim report for Q1-Q3 2016, the underlying assumed combined ratio for 2017 remains unchanged at 90-91 excluding run-off. However, the assumed combined ratio for 2017 may increase by 0.5 to 1pp because Topdanmark increasingly invests in digitalisation and automation
• Topdanmark still expects premium growth in non-life insurance of around 0%
Conference call A conference call will be held today at 15:30 (CET) when CEO Christian Sagild and CFO Lars Thykier will be available for questions based on the interim report and the webcast. The call will be conducted in English.
In order to participate in the conference call, please call: UK dial-in number: +44 (0)20 7162 9961 US dial-in number: +1 646 851 2094 10-15 minutes before the conference quoting reference 961400 and ask the operator to connect you to the Topdanmark conference call – or listen to the live transmission of the call.
Contents Management’s review 1 Key features 3 Financial highlights 4 Results for 2016 4 Results for Q4 2016 5 Non-life insurance 2016 9 Life insurance 2016 10 Investment activities 11 Parent company etc. 11 Taxation 11 Profit forecast model 13 Share buy-back 13 Future earnings distribution 14 Risk management 18 Solvency capital requirements 19 Capital structure and ownership 19 Board of Directors and Articles of Association 20 Severance pay 20 Remuneration structure 22 Corporate Governance 22 CSR 22 Investor Relations 23 Annual General Meeting 23 Financial calendar 24 Company announcements and trading reports 26 Board of Directors 30 Executive Board 31 Five-year summary ● Group
Annual financial statements ● parent company 84 Income statement 84 Statement of comprehensive income 85 Balance sheet 86 Statement of changes in equity 87 Notes to the financial statements 93 Statement by Management on the Annual Report 94 Internal audit’s reports 95 Independent auditor’s reports
Results: Non-life insurance 2,103 1,361 1,803 1,325 1,712 334 446 Life insurance 210 442 200 174 189 85 54 Parent company etc. 22 73 7 31 41 20 33 Pre-tax profit 2,335 1,875 2,010 1,530 1,942 439 533 Tax (512) (407) (452) (360) (407) (106) (112) Profit 1,823 1,468 1,558 1,170 1,536 333 421
Post-tax EPS, diluted (DKK) 14.1 12.3 14.3 11.6 16.7 3.4 4.8 Net asset value per share, diluted (DKK) 45.8 48.3 52.2 51.5 57.3 51.5 57.3 Share buy-back per share, diluted (DKK) 9.3 15.4 15.8 16.6 16.6 3.9 4.9 Listed share price end of period 121.3 142.8 200.2 196.0 179.3 196.0 179.3
Number of shares end of period ('000) 123,940 112,632 103,623 95,672 87,216 95,672 87,216
Combined ratio excl. run-off profits 90.3 95.0 89.8 91.1 90.4 96.0 93.9
The technical result increased DKK 136m to DKK 1,320m primarily due to lower expenses on weather-related claims and higher run-off profits.
After return and revaluation of non-life insurance provisions, the investment return increased DKK 251m to DKK 392m, mainly due to a favourable trend in the result for Danish mortgage bonds and in the result for structured credits.
The technical result increased DKK 128m to DKK 340m, due to lower expenses for weather-related claims and higher run-off profits.
Profit on life insurance declined DKK 31m to DKK 54m, primarily because DKK 28m from the shadow account was recognized as income in Q4 2015. There was no recognition of income from the shadow account in Q4 2016.
Non-life insurance - Investment return after return and revaluations non-life insurance provisions 141 300 – 350 392 Profit on non-life insurance 1,325 1,350 – 1,450 1,712
Non-life insurance 2016 Premiums earned declined 1.2% to DKK 8,858m. The personal segment accounted for a 1.3% decline, and the SME segment accounted for a 1.0% decline.
Claims trend The claims trend was 68.7 in 2016 (2015: 70.9).
Run-off profits, net of reinsurance, were DKK 470m (2015: DKK 381m), representing a 1.0pp improvement of the claims trend. Run-off profits were primarily generated in motor liability, workers’ compensation and illness/accident insurance.
The level of fire claims increased in the SME segment but declined in the personal segment. The fire claims trend adversely impacted the overall trend by 0.3pp.
The interest rate curve used to discount the provisions for outstanding claims was lower in 2016 than in 2015. The lower level of interest rates impacted the claims trend adversely by 0.1pp.
The underlying combined ratio (adjusted for run-off, weather-related claims and large-scale claims) was 71.9 (2015: 72.0)
Expense ratio The expense ratio increased to 16.4% in 2016 (2015: 15.9%).
On the other hand, the claims trend was adversely impacted by illness/accident (1.0pp), a lower interest rate level (0.6pp), a slightly higher level of theft claims (0.4pp) and by the fact that Arbejdsmarkeds Erhvervssikring (AES) (Labour Market Insurance) which handles workers’ compensation claims has increased its rates from 2016, corresponding to a 0.4pp adverse impact on the claims trend.
Combined ratio The combined ratio was 84.6 in Q4 2016 (Q4 2015: 90.5). Excluding run-off profits, the combined ratio was 93.9 in Q4 2016 (Q4 2015: 96.0).
Premiums earned declined 1.3% to DKK 4,909m. Premiums earned on motor insurance declined 4.4%, impacted by a decline in average premium (2.6%) and a decline in the number of cars insured (0.9%).
The claims trend improved by 1.5pp to 68.5. Compared to 2015, the claims trend was primarily favourably impacted by lower expenses for weather-related claims (1.2pp), a better claims trend for fire (0.5pp), and higher run-off profits (0.3pp). On the other hand, the claims trend was adversely impacted by increased expenses for motor insurance claims (0.2pp).
Premiums earned declined 1.0% to DKK 3,969m due to defection of a few less profitable industrial customers. Accordingly, premiums earned declined 5.2% in workers’ compensation insurance, where generally profitability is poor. In Q4 2016, premiums earned in the SME segment declined 1.7% to DKK 992m.
The expense ratio increased to 16.0 (2015: 15.4). Besides the increase in the payroll tax imposed on Danish financial businesses, the increase in the expense ratio is due to expenses for the development of a new IT system for the agricultural area.
The combined ratio improved to 85.0 (2015: 87.4). Excluding run-off profits, the combined ratio was 91.0 (2015: 91.4).
Life insurance 2016 The result from life insurance was a profit of DKK 189m (2015: DKK 174m).
(Life Holding). This profit was calculated in accordance with the stated policy on the calculation of profit for the life insurance company, see: www.topdanmark.com → About Topdanmark → Business → Life insurance → Policy for the calculation of profit in life insurance.
The increase in profit was mainly due to the increase in the investment return on shareholders’ equity of DKK 71m (2015: DKK 57m).
The result of sales and administration was a DKK 42m loss (2015: DKK 45m loss).
Regular premiums increased 5.6% to DKK 2,653m in 2016. Single premiums were DKK 4,777m in 2016, representing a 25.5% increase.
Investment return on shareholders' equity 40 34 57 71 Sales and administration (22) (14) (45) (42) Insurance risk 5 (4) 19 13 Risk return on shareholders' equity 36 38 137 147 Risk return transferred to (minus)/from shadow account 28 (0) 7 0 Profit on life insurance 85 54 174 189
Gross premiums increased 1.9% to DKK 1,783 in Q4 2016 of which premiums earned from unit-linked pension schemes were DKK 1,400, representing a 2.3% decline from Q4 2015.
Regular premiums increased 3.7% to DKK 672m in Q4 2016, while single premiums increased to DKK 1,111m, representing a 0.9% improvement.
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 other things, equities, properties and CDOs in order to improve the average investment return. The return in Q4 and the full year 2016 on the most significant classes of assets is disclosed in the following table: Sources of gross premiums Q4 Q4
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 properties includes 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. The class of “Government and mortgage bonds” comprises primarily Danish government and mortgage bonds. The assets of the class are interestrate sensitive - to a significant extent equivalent to the interest-rate sensitivity of the non-life insurance provisions. Consequently, the return on “Government and mortgage bonds” should be assessed in connection with return and revaluation of non-life insurance provisions.
The class “Index linked bonds” comprises bonds – primarily Danish mortgage bonds – for which the coupon and principal are index-linked.
The class of "Assets related to I/A" (illness/accident) comprises the investments in Topdanmark Livsforsikring (the life insurance company) corresponding to the size of the illness/accident provisions.
"Subordinated loan capital" comprises hybrid capital issued by the parent company and subordinated loans issued by Topdanmark Forsikring.
The result of the parent company etc. includes the results of subsidiaries, excluding the insurance business (primarily Topdanmark Kapitalforvaltning, the asset management company) and holding costs.
Profit forecast model Traditionally, Topdanmark does not publish actual profit forecasts, but instead the expected level of results if a number of assumptions about the return in the financial markets are met. The return in the financial markets changes on a daily basis, and Topdanmark's profit forecast model will already deviate from actual expectations by the time it is published.
Therefore, set out in www.topdanmark.com → Investor → Risk management is additional information on how changes in the assumptions underlying the profit forecast model will affect the results.
• A level of interest rates corresponding to the interest rate curve on 4 November 2016
• An annual 7.0% return on equities and unchanged foreign exchange rates from the level on 4 November 2016.
Topdanmark continues to assume a level of premiums earned for 2017 which is practically unchanged, compared to the 2016 level.
As stated in company announcement no. 60/2016, Topdanmark works on increasing the efficiency of and automating a significant part of its business processes in order to offer its customers easy, simple and quick service while maintaining competitive prices.
Underlying combined ratio is maintained at 90-91 excluding run-off in the profit forecast model for 2017. However, the efficiency improvement programme may result in additional expenses of 0.5 to 1pp on the combined ratio. Based on that, combined ratio is increased to 91-92 in the profit forecast model.
The efficiency improvement programme will run over the next years and it is characterized in that expenses are booked before realization of the efficiency savings. However, return on investment is high and consequently, it is expected that additional expenses and gains from efficiency improvement will be offset already during 2018 and 2019.
Overall, the assumed pre-tax profit on non-life insurance is DKK 930-1,030m.
Life insurance Assumed growth in regular premiums is 0-5% for 2017. At this time of the year, it is not appropriate to assume the level of growth in single premiums.
Parent company The profit forecast model for the parent company plus subsidiaries outside of the insurance group assumes a pre-tax profit of DKK 50-60m.
Taxation Given a corporation tax rate of 22.0%, the tax charge is expected to be DKK 260-300m.
Share buy-back In the interim report for Q1-Q3 2016, it was announced that the share buy-back programme for 2016 was DKK 1,650m. It was also stated that the DFSA had approved buy-back of DKK 1,450 for 2016, until 23 February 2017. Finally, it was stated that Topdanmark would apply for DFSA approval of the remaining DKK 200 of the 2016 buy-back programme before 23 February 2017.
For the financial year 2016, the share buy-back was DKK 1,524m, representing a buy-back yield of 9.6%.
If Sampo’s proposal of switch to 100% payment of dividend is not adopted at Topdanmark’s AGM, the Board of Directors will propose a switch to a combination of share buy-back and payment of dividend as future earnings distribution.
Non-life insurance - Technical result 1,320 750 – 800 - Investment return after return and revaluations non-life insurance provisions 392 180 – 230 Profit on non-life insurance 1,712 930 – 1,030 Life insurance 189 180 – 210 Parent company etc. 41 50 – 60 Pre-tax profit 1,942 1,160 – 1,300 Taxation (407) (260) – (300)
In case Sampos proposal of switch to dividend is adopted at the AGM on 4 April 2017, Topdanmark’s Board of Directors elected at the AGM will propose a future earnings dividend policy as soon as possible.
At the end of 2016, Topdanmark’s solvency ratio was 174. It is Topdanmark's opinion that due to that solvency ratio, the Company will be able to maintain normal operations and implement planned measures even in the event of, for example, another collapse in the financial markets as in 2008.
In order to ensure strict control of the overall risk, the exposures are calculated as often as deemed necessary, i.e. daily, monthly, quarterly or in a few cases annually, according to the nature of the exposure.
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.
Provisioning risk. • Provisions for outstanding claims • Provisions for unearned premiums.
Lifetime, where customers with life dependent policies live longer than expected.
In all interest groups, movements in interest rates are followed and risk reducing actions are performed as required.
Operational risks Most important risks Risk preferences Risk reducing activities IT.
Generally, operational risks are to be reduced to an acceptable level.
Generally, the area of compliance risks is to be reduced to an acceptable level.
Own funds Principal elements of own funds: Shareholders’ equity + Deferred tax on security funds + Profit margin - Intangible assets - DFSA-approved share buy-back programme + Tax effect + Usable share, hybrid capital (max. 20% of tier 1) + Usable share, subordinated notes (Max. 50% of SCR) Own funds
Topdanmark has issued EUR 55m hybrid capital without final redemption date with call in 2017.
The size of the necessary solvency capital, i.e. Shareholders’ equity reduced by the value of assets not included in the solvency cover has been calculated at DKK 3,400m. Further solvency cover is ensured through outstanding hybrid capital and subordinated notes.
Storm claims up to DKK 5,100m (77) (78) (Plus reinstatement premium etc.)
Annual currency loss w ith an up to 2.5% probability (19) (21)
At the end of 2016, Topdanmark’s share capital totalled DKK 95,000,000 divided into 95,000,000 shares of DKK 1 each, corresponding to 95,000,000 voting rights. As of 10 February 2017, Topdanmark held 8,695,000 own shares representing 9.2% of the share capital.
Board of Directors and Articles of Association Appointment and replacement of members of the Company's Board of Directors The Board of Directors, which is elected at the general meeting and by the Topdanmark Group's employees, is the Company's top threshold of management formulating the Company's objectives, goals and strategies and making decisions on matters that are of high importance or unusual in nature to the Company.
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, 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 organisation, strategic management, insurance
Announcement No. 11/2017 from Topdanmark A/S Page 20 of 98 operations, reinsurance, long-tail business, financial and insurance reporting, general statistics, risk management and assessment, sales to the personal and professional markets, marketing/branding, finance, own funds, solvency and minimum capital requirements, rules for internal models, audit, financing/investment, statutory limits, compliance, IT and IT security, digitalisation and recruitment/HR. 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 → Management → Executive Board and Board of Directors and Board of Directors and Executive Board in this Annual Report.
Severance pay As stated in the remuneration policy adopted at the Annual General Meeting, it is part of the contracts for the Executive Board and three 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 and an increased severance pay if Topdanmark, and/or the company of the Topdanmark Group with which the person concerned is employed, is taken over by or merges with a company outside of the Group, or if one or more owners take control of Topdanmark, and/or the company of the Topdanmark Group with which the person concerned is employed. The maximum amount of compensation will represent two years' salary.
Remuneration structure Topdanmark's remuneration policy is intended to optimise long-term value creation at a group level. The Annual General Meeting has adopted "Remuneration policy of the Topdanmark Group including general guidelines for performance-related pay."
Besides salary policy, the remuneration policy also includes Topdanmark's general guidelines for performance-related pay, its pension policy and its guidelines for the granting of severance pay. The remuneration policy covers Topdanmark's Board of Directors, Executive Board, significant risk takers and, as provided by legislation, employees involved in control functions and audit work. If specifically stated, Topdanmark's remuneration policy also covers its executive team, comprising a number of the heads of business sectors and administrative departments ("the Friday Team") and certain other employees, at the discretion of the Board of Directors. The remuneration policy etc., as adopted by the Annual General Meeting, is available on www.topdanmark.com → Corporate Governance → Remuneration structure.
Besides options, which in accordance with the revolving option scheme are paid to the Executive Board, significant risk takers and the Friday Team, 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.
No special pension contribution is paid to the Executive Board, and, therefore, they are paid a personal allowance of 25% of their cash salary. Consequently, Topdanmark has no pension commitments towards the Executive Board, and no type of pension compensation on retirement is granted. The Friday Team and significant risk takers receive a pension contribution of up to 25% of their cash salary. The amount is paid to the chosen pension provider and consequently all pension obligations are fully covered.
Besides the revolving scheme referred to above, a further 185,000 share options have been granted for 2017 to a number of other executives who have made a special effort or otherwise contributed extraordinarily to value creation in the Company.
The market value of the options for 2017 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 179.44, an interest rate corresponding to the zero coupon rate based on the swap curve on 30 December 2016, 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 2016 the exposure of the options held by the Executive Board represented 0.4% of the number of outstanding shares.
Detailed information on Topdanmark's option scheme is available on www.topdanmark.com → Corporate Governance → Remuneration structure.
Communication to investors and analysts takes place through the following information channels: • Investor meetings • Telephone meetings • Conference calls • Webcasts • Investment and insurance conferences.
Topdanmark shares Topdanmark shares are listed on NASDAQ Copenhagen and included in the following share indices: • C25 • OMXC Large Cap.
Previous distribution policy Topdanmark's policy is to pay out to shareholders all surplus capital by way of share buy-backs.
NASDAQ Copenhagen continues to be the primary stock exchange for trading in Topdanmark's shares with a daily turnover of DKK 47m in 2016 (2015: DKK 45m).
NASDAQ Copenhagen’s market share was 65% in 2016 (2015: 64%). The share of trading on other platforms such as BATS, Chi-x and Turquoise was 35% (2015: 36%).
Annual General Meeting The Annual General Meeting will be held on 4 April 2017, 15:00 (CET) at: Tivoli Hotel & Congress Center Arni Magnussons Gade 2 1577 København V
All of the Board members elected at the Annual General Meeting are up for re-election.
As stated in company announcement no. 08/2017, the Board of Directors proposes election of the following: • Torbjörn Magnusson • Lone Møller Olsen • Petri Niemisvirta • Annette Sadolin • Ricard Wennerklint • Jens Aaløse.
The agenda for the Annual General Meeting will be published in the period 27 February to 13 March 2017.
Company announcements and trading reports Company announcements Topdanmark submits announcements to Nasdaq Copenhagen A/S with information on material and relevant events in the Group which can affect the price of Topdanmark's shares. The announcements are also sent to the press, share analysts, investors and other interested parties.
2017 20 Feb 10/2017 Topdanmark – weekly report on share buy-backs 13 Feb 09/2017 Topdanmark – weekly report on share buy-backs 10 Feb 08/2017 CORRECTION - Sampo wishes to increase its number of members of Topdanmark's Board of Directors and switch to payment of dividends as earnings distribution 10 Feb 08/2017 Sampo wishes to increase its number of members of Topdanmark's Board of Directors and switch to payment of dividends as earnings distribution 06 Feb 07/2017 Topdanmark – weekly report on share buy-backs 30 Jan 06/2017 Topdanmark – weekly report on share buy-backs 23 Jan 05/2017 Topdanmark – weekly report on share buy-backs 16 Jan 04/2017 Topdanmark – weekly report on share buy-backs 09 Jan 03/2017 CORRECTION - Topdanmark – weekly report on share buy-backs 09 Jan 03/2017 Topdanmark – weekly report on share buy-backs 02 Jan 02/2017 Issue of options 02 Jan 01/2017 Topdanmark – weekly report on share buy-backs 2016 27 Dec 73/2016 Topdanmark – weekly report on share buy-backs 19 Dec 72/2016 Topdanmark – weekly report on share buy-backs 12 Dec 71/2016 Topdanmark – weekly report on share buy-backs 05 Dec 70/2016 Topdanmark – weekly report on share buy-backs 28 Nov 69/2016 Topdanmark – weekly report on share buy-backs 21 Nov 68/2016 Topdanmark – weekly report on share buy-backs 15 Nov 67/2016 Topdanmark Interim Report for Q1-Q3 2016 07 Nov 66/2016 Topdanmark – weekly report on share buy-backs 31 Oct 65/2016 Topdanmark – weekly report on share buy-backs 26 Oct 64/2016 Result of the mandatory offer by Sampo plc 24 Oct 63/2016 CORRECTION - Topdanmark – weekly report on share buy-backs 24 Oct 63/2016 Topdanmark – weekly report on share buy-backs 17 Oct 62/2016 Topdanmark – weekly report on share buy-backs 10 Oct 61/2016 Topdanmark – weekly report on share buy-backs 07 Oct 60/2016 Statement by Topdanmark's Board of Directors on the mandatory offer by Sampo plc 07 Oct 59/2016 Topdanmark's profit forecast model for 2016 and assumptions for profit forecast model for 2017 03 Oct 58/2016 Topdanmark – weekly report on share buy-backs 27 Sep 57/2016 Sampo has published Offer Document 26 Sep 56/2016 Topdanmark – weekly report on share buy-backs 21 Sep 55/2016 Employee shares 19 Sep 54/2016 Topdanmark – weekly report on share buy-backs 12 Sep 53/2016 Topdanmark – weekly report on share buy-backs 07 Sep 52/2016 Sampo has acquired 33.34% of the Topdanmark shares and announces a mandatory no-premium offer for
Announcement No. 11/2017 from Topdanmark A/S Page 25 of 98 17 Aug 45/2016 Topdanmark – weekly report on share buy-backs 16 Aug 44/2016 Topdanmark Half-Year Report for 2016 15 Aug 43/2016 CORRECTION - Topdanmark – weekly report on share buy-backs 15 Aug 43/2016 Topdanmark – weekly report on share buy-backs 08 Aug 42/2016 Topdanmark – weekly report on share buy-backs 01 Aug 41/2016 Topdanmark – weekly report on share buy-backs 25 Jul 40/2016 Topdanmark – weekly report on share buy-backs 18 Jul 39/2016 Topdanmark – weekly report on share buy-backs 11 Jul 38/2016 Topdanmark – weekly report on share buy-backs 01 Jul 37/2016 Topdanmark – weekly report on share buy-backs 27 Jun 36/2016 Topdanmark – weekly report on share buy-backs 20 Jun 35/2016 Topdanmark – weekly report on share buy-backs 13 Jun 34/2016 Topdanmark – weekly report on share buy-backs 06 Jun 33/2016 Topdanmark – weekly report on share buy-backs 30 May 32/2016 Topdanmark – weekly report on share buy-backs 23 May 31/2016 Topdanmark – weekly report on share buy-backs 18 May 30/2016 CORRECTION - Topdanmark – weekly report on share buy-backs 17 May 30/2016 Topdanmark – weekly report on share buy-backs 10 May 29/2016 Topdanmark Interim Report for Q1 2016 09 May 28/2016 Topdanmark – weekly report on share buy-backs 02 May 27/2016 Topdanmark – weekly report on share buy-backs 25 Apr 26/2016 Topdanmark – weekly report on share buy-backs 18 Apr 25/2016 Topdanmark – weekly report on share buy-backs 11 Apr 24/2016 Topdanmark – weekly report on share buy-backs 07 Apr 23/2016 Annual General Meeting of Topdanmark − 7 April 2016 06 Apr 22/2016 CORRECTION - Topdanmark resumes buy-back programme for 2016 06 Apr 22/2016 Topdanmark resumes buy-back programme for 2016 04 Apr 21/2016 Topdanmark – weekly report on share buy-backs 29 Mar 20/2016 Topdanmark – weekly report on share buy-backs 21 Mar 19/2016 Topdanmark – weekly report on share buy-backs 14 Mar 18/2016 Topdanmark – weekly report on share buy-backs 09 Mar 18/2016 Notice Convening AGM, 7 April 2016 07 Mar 17/2016 Topdanmark – weekly report on share buy-backs 02 Mar 16/2016 Topdanmark Annual Report for 2015 29 Feb 15/2016 Topdanmark – weekly report on share buy-backs 24 Feb 14/2016 Topdanmark temporarily suspends its buy-back programme for 2016 22 Feb 13/2016 Topdanmark – weekly report on share buy-backs 15 Feb 12/2016 Topdanmark – weekly report on share buy-backs 11 Feb 11/2016 Topdanmark appoints two new members to its Executive Board 11 Feb 10/2016 Topdanmark Announcement of 2015 Annual Results 11 Feb 09/2016 Topdanmark – share buy-back programme concluded 08 Feb 08/2016 Topdanmark – weekly report on share buy-backs 01 Feb 07/2016 Topdanmark – weekly report on share buy-backs 29 Jan 06/2016 Topdanmark increases its holding of own shares 25 Jan 05/2016 Topdanmark – weekly report on share buy-backs 18 Jan 04/2016 Topdanmark – weekly report on share buy-backs 11 Jan 03/2016 Topdanmark – weekly report on share buy-backs 04 Jan 02/2016 Issue of options 04 Jan 01/2016 Topdanmark – weekly report on share buy-backs
Trading Reports 2016 04 Jan 01/2016 Trading in Topdanmark’s shares by insiders
Offices held: Member of the Boards of Directors of: • LEGO A/S • 5 subsidiaries of KIRKBI A/S • Koldingvej 2, Billund A/S • Merlin Entertainments Plc • Falck A/S • Boston Holding A/S • Ole Kirk’s Fund.
Previous positions held: 1988-1989: Arthur Andersen & Co 1990-1993: Skandia International 1994-1996: Mercantile & General Re, London 1997-1999: Vice President, Skandia P&C 1999-2002: Head of Commercial Division and Head of
Education: • Banking education. • B.Com Degree (HD), International Trade, CBS,
• Valby Maskinfabrik 10-12 ApS • Nimbusparken l ApS • Nimbusparken lll ApS
Education: • M.Sc, Copenhagen Business School, Denmark • State authorised public accountant • IMD leadership courses.
Education: • Law degree, University of Copenhagen • Special law programme, Columbia University, NY,
Managerial responsibilities: • HR • Communications, IR, CSR • Group Secretariat, Corporate Legal Matters.
Managerial responsibilities: • Personal • Partners • Agricultural • SME • Claims handling • Marketing • Topdanmark Livsforsikring (life insurance).
Member of the Board of Directors of: • Bornholms Brandforsikring A/S • Forsikringsakademiet A/S.
Managerial responsibilities: • Asset Management • Finance • Accounting • Statistical Services • Reinsurance • Tax • Credits.
Allocated investment return, net of reinsurance 2,364 2,031 2,691 1,194 3,147
Change in the life insurance provisions and profit margin (1,948) (1,048) (2,550) (3,680) (6,197)
TECHNICAL PROFIT / (LOSS) ON LIFE INSURANCE (389) 25 (477) 19 7
Provisions for insurance and investment contracts: Combined ratio excl. run-off profits (%) 90.3 95.0 89.8 91.1 90.4
** The ratio solvency cover is exempt from the requirement of audit, cf. Executive Order no. 937 of 27 July 2015 on financial reports for insurance companies and Multi-employer Occupational Pension Funds and consequently not revised.
Gross premiums written 3 8,883 8,745 Ceded reinsurance premiums (671) (637) Change in the provisions for unearned premiums 3 28 110 Change in profit margin and risk margin 3 117 51 Change in the reinsurers' share of the provisions for unearned premiums 3 (0) Premiums earned, net of reinsurance 8,361 8,269
Acquisition costs (920) (945) Administrative expenses (484) (487) Reinsurance commission and share of profits 86 88 Total operating expenses, net of reinsurance (1,318) (1,344) TECHNICAL PROFIT ON NON-LIFE INSURANCE 5 1,220 1,361
Gross premiums written 6 6,320 7,430 Ceded reinsurance premiums (10) (6) Premiums, net of reinsurance 6,309 7,424
Acquisition costs (153) (146) Administrative expenses (253) (270) Reinsurance commission and share of profits 1 2 Total operating expenses, net of reinsurance (405) (414) TECHNICAL PROFIT ON LIFE INSURANCE 19 7
Technical profit on non-life insurance 1,220 1,361 Technical profit on life insurance 19 7
Interest charges (61) (78) Expenses on investment business (66) (57) Total investment return 1,421 4,189
Return and revaluations non-life insurance provisions 11 87 (423) Investment return transferred to life insurance business (1,194) (3,147) Other income 20 19
Profit for the year 1,170 1,536 Items which cannot subsequently be reclassified as profit or loss: Revaluation of owner-occupied properties 1 1 Other comprehensive income 1 1 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,171 1,537
Shares in associated companies 18 328 172 1,180 Loans to associated companies 1 0 0 Total investment in associated companies 329 172 1,180
Total other financial investment assets 45,785 43,304 42,434 TOTAL INVESTMENT ASSETS 49,602 47,193 47,061
Accrued interest and rent 372 284 278 Other prepayments and accrued income 201 193 188 TOTAL PREPAYMENTS AND ACCRUED INCOME 573 477 467
Profit carried forward 3,754 3,331 3,392 TOTAL SHAREHOLDERS' EQUITY 5,064 4,640 4,702
Provisions for bonuses and rebates 124 137 143 TOTAL PROVISIONS FOR INSURANCE AND INVESTMENT CONTRACTS 52,946 56,823 63,615
Creditors arising out of direct insurance operations 315 394 329 Creditors arising out of reinsurance operations 34 43 18
Amounts due to credit institutions 1,961 1,346 44 Amounts due to associated companies 3 0 0 Current tax liabilities 11 1 59
Gross premiums written 6,398 7,282 Claims and benefits (3,365) (3,460) Pension return tax (496) (259) Expenses paid (385) (395) Reinsurance ceded (52) (7) Cash flow from life insurance 2,099 3,161
Payments on investment contracts 525 620 Dividends from associated companies 8 0 Interest income and dividends etc. 1,999 1,889 Interest charges etc. (131) (144) Corporation tax (403) (393) Other items (20) (37)
Financing Shares bought back (1,652) (1,533) Exercise of share options 50 34 Sale of own shares 16 0 Redemption of subordinated loan capital (350) (400) Issue of subordinated loan capital 1,345 0 Bond loans (29) 0 Amounts due to credit institutions (615) (1,302)
Cash and cash equivalents comprise: Liquid funds 640 831 Deposits with credit institutions 3,721 1,451
Cancellation of own shares (10) 10 0 Share buy-back (1,667) (1,667) Sale of own shares 16 16 Share-based payments 10 10 Exercise of share options 50 50
Shareholders' equity at 31 December prior year 105 11 1,146 47 3,364 4,673 Effect of new Executive Order on Financial Statements (31) (31) Shareholders' equity beginning of the year according to new Executive Order on Financial Reports 105 11 1,146 47 3,333 4,642
Correction for tax (126) (62) Available share hybrid capital 410 409 Available share subordinated notes 1,597 1,353 Own funds 6,943 6,348
Segment information income statement 1 Segment information balance sheet 2 Gross premiums earned - non-life insurance 3 Claims incurred, net of reinsurance - non-life insurance 4 Technical result - non-life insurance 5 Gross premiums written - life insurance 6 Claims and benefits paid - life insurance 7 Change in life insurance provisions 8 Income from investment properties 9 Revaluations 10 Return and revaluations non-life insurance provisions 11 Other expenses 12 Taxation 13 Profit per share 14 Intangible assets 15 Tangible assets 16 Investment properties 17 Shares in associated companies 18 Investment assets related to unit-linked products 19 Reinsurers' share of the provisions for unearned premiums 20 Reinsurers' share of the provisions for claims 21 Deferred tax 22 Other Subordinated loan capital 23 Provisions for unearned premiums og profit margin - non-life insurance 24 Life insurance provisions with guarantees and profitsharing 25 Life insurance provisions unit-linked products 26 Profit margin, life insurance and investment contracts 27 Provisions for claims 28 Technical basis for risk allowance and shadow account 29 Advanced tax 30 Expenses 31 Auditors' fee 32 Staff costs 33 Related parties 34 Financial assets 35 Financial liabilities 36 Collateral relating to financial assets and liabilities 37 Settlement of assets and liabilities 38 Analysis of assets and their return - life insurance 39 Return and risk - unit-linked products 40 Exposure information 41 Number of shares 42 Own shares 43 Collateral 44 Contingent liabilities 45 Companies 46 Other disclosures 47 Risk factors 48 Accounting policies 49
Provisions for insurance and investment contracts 16,286 40,537 0 56,823 Amounts due to affiliated companies 855 628 46 (1,529) 0
Purchase of tangible and intangible assets 114 82 0 196 Results from associated companies 8 85 0 93
Note 4. Claims incurred, net of reinsurance - non-life insurance Run-off result: Gross business 387 502 Reinsurance ceded (5) (32) Run-off result, net of reinsurance (profit) 381 470
Claims incurred include revaluation of derivatives hedging the inflation risk in workers' compensation and illness / accident insurance 14 50
Note 5. Technical result - non-life - continued 2015 2016 2015 2016 2015 2016
Average value of claim (DKK '000) 38 36 6 6 75 88 Frequency of claims (per thousand value) 24 24 450 414 151 116
Run-off profits / (losses), net of reinsurance 134 220 (8) 3 (17) 4 Claims provisions, net of reinsurance 1,655 1,481 145 140 646 577
Average value of claim (DKK '000) 42 54 46 34 4 4 Frequency of claims (per thousand value) 152 131 80 70 154 161 liability
Individual policies 1,047 1,921 Policies which are part of a tenure 2,760 2,856 Single premiums 3,807 4,777 Gross premiums 6,320 7,430
Gross premiums written, direct business, by the policyholders' location: Other EU-countries 83 96 Other countries 30 28
Proportion of gross premiums represented by premiums related to unit-linked products not eligible for bonus 4,868 5,759 Investment risk is taken by the policyholder. All other gross premiums relate to insurance policies entitled to a bonus.
Note 7. Claims and benefits paid - life insurance Claims payable on death 167 148 Claims payable on maturity 176 167 Pension and annuity payments 593 598
Bonuses paid in cash 278 341 Claims and benefits paid 3,240 3,453
Note 10. Revaluations - continued Designated at fair value: Deposits with credit institutions 0 1 Investment assets related to unit-linked products: Unit trusts 59 82
Revaluations of financial assets and liabilities at fair value through profit or loss (709) 2,463 Of which revaluation of derivatives transferred to claims incurred (14) (50) Investment properties 87 56 Shares in associated companies 1 1 Liquid funds 35 (8)
Impairment and amortisation at 31 December 0 (218) (475) 0 (692)
The calculation of the terminal value includes a growth rate of 0% (2015: 0%). The pre-tax discount rate is 9.6% (2015: 9.8%) and the post-tax rate 7.5% (2015: 7.5%). The discount rate is calculated as the risk-free interest rate and a risk allowance.
Note 16. Tangible assets Operating Ownerequip - occupied 2015 ment properties Total
Revalution taken to other comprehensive income 0 1 1 Transferred on revaluation 0 (1) (1) Cost / revaluation at 31 December 424 857 1,281 Impairment and amortisation at 1 January (323) 0 (323) Amortisation for the year (41) (1) (43) Transferred on revaluation 0 1 1 Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year 67 0 67 Impairment and amortisation at 31 December (297) 0 (297)
Revalution taken to other comprehensive income 0 1 1 Transferred on revaluation 0 (1) (1) Cost / revaluation at 31 December 456 856 1,312 Impairment and amortisation at 1 January (297) 0 (297) Amortisation for the year (41) (1) (42) Transferred on revaluation 0 1 1 Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year 14 0 14 Impairment and amortisation at 31 December (324) 0 (324)
Fair value revaluation for the year taken to to revaluations 88 50 Total investment properties 3,868 3,579
Office property 2,673 2,719 Residential and part residential 774 771 Land and buildings under construction 421 89
Investment properties are measured at fair value (level three). The measurement is based on an expected annual return on operations and a rate of return. A general plus/minus 0.5pp change in the rate of return wil have an effect of minus DKK 282m / plus DKK 339m on the fair value (2015: minus DKK 285m / plus DKK 341m). Average rate of return: Office property 5.8% 5.6% Residential and part residential 4.7% 4.7%
Margretheholm P/S, Frederiksberg 50 Property 237 219 Bornholms Brandforsikring A/S, Rønne 27 Insurance 180 25
Property Carlsberg Byen P/S, Copenhagen 23 development 1,793 179 Havneholmen P/S, Kgs. Lyngby 50 Property 992 4 Margretheholm P/S, Frederiksberg 50 Property 303 67 Bornholms Brandforsikring A/S, Rønne 27 Insurance 210 30
Investment properties 151 131 Investment assets related to unit-linked contracts 15,796 21,528
Reinsurers' share at 1 January 67 71 Offset in periodized commissions (1) (0) Ceded reinsurance premiums 671 637 Reinsurance earned (668) (638) Annual amortisation 2 2 Reinsurers' share of the provisions for unearned premiums at 31 December 71 72
Net present value of expected future cashflows (10) (7) Profit margin 81 79
Note 21. Reinsurers' share of the provisions for claims Reinsurers' share at 1 January 646 582
Reinsurers' share of the provisions for claims at 31 December 582 586
Interest rate EURIBOR 3 months Cibor 3 months +1.90% to 2017 6.633% to 2016 2.92% to 2020 +270bp to 2026
Subsequently EURIBOR 3 months Cibor 3 months Cibor 3 months +2.90% +525bp +250bp * Market value calculated on the basis of observervable input, level 2. 2015 2016
Gross premiums written 8,883 8,745 Premiums earned (9,029) (8,906) Change in risk margin (6) 0 Annual amortisation 28 23
Provisions for unearned premiums at 31 December 1,944 1,881 Profit margin at 31 December 772 711 Provisions for unearned premiums and profit margin at 31 December 2,715 2,592
Life insurance provisions direct business at beginning of year 25,524 24,318 Total insurance provisions at beginning of year 25,524 24,318 Collective bonus potential at 1 January (1,677) (1,977) Accumulated revaluation at 1 January (2,392) (1,606) Retrospective provisions at 1 January 21,456 20,735 Gross premiums written 1,451 1,671 Addition of return 595 649 Claims and benefits (2,287) (2,090) Expense loading inclusive of expense bonus (170) (150) Risk gain after allocating policyholders' risk bonus (47) (66)
Provisions at end of 2015 (DKK 24,321m) deviates by DKK 3m from beginning of 2016 (DKK 24,318m), due to recalculation of provisions at beginning of 2016 according to new Executive Order on Financial Reports. See note Accounting policies.
Interest rate group 1 ]1%-2%] 25 29 Interest rate group 3 ]1%-2%] 1 1 Interest rate group 2 ]2%-3%] 9 10 Interest rate group 4 ]2%-3%] 2 3 Interest rate group 5 ]3%-4%] 10 14 Interest rate group 6 ]4%-5%[ 43 43
Return on customer funds after expenses before tax in per cent 0.7 4.4
Gross provisions at 1 January 14,610 1,541 16,151 Profit margin at 1 January 60 5 66 Retrospective provisions at 1 January 14,670 1,546 16,216 Gross premiums written 5,759 841 6,600 Addition of return 1,433 167 1,600 Claims and benefits (1,363) (220) (1,584) Expense loading inclusive of expense bonus (56) (7) (63) Risk gain after addition of risk bonus 10 0 10 Premiums waived transferred to life insurance provisions (30) 0 (30)
Intra-group transfers 114 23 137 Retrospective provisions at 31 December 20,535 2,351 22,886 Profit margin at 31 December (94) (9) (103)
Number of customers with investment contracts: Individual policies 2,657 3,685 Policies which are part of a tenure 3,947 5,264 The contracts written do not have guarantees.
Note 27. Profit margin, life insurance and investment contracts Profit margin unit-linked products - 103
Note 28. Provisions for claims Gross Provisions at 1 January 13,289 13,121
Claims paid relating to previous years (2,634) (2,748) Change in expected claims payments relating to previous years (381) (470)
Claims paid relating to this year (3,144) (3,115) Expected claims payments relating to this year 6,157 5,984
Provisions for workers' compensation insurance, net of reinsurance 5,750 5,970 Average period of settlement 7 years 7 years
Note 28. Provisions for claims - continued Claims liabilities analysed by claims year
The table show s the historical development in the estimated f inal liability (the sum of claims payments and provisions) for each claims year from 2007. Signif icant proportions of the liabilities show n have been calculated w ithout discounting w hich to a great extent eliminates changes in discounting rates and methods after the change to IFRS. How ever, w orkers' compensation and illness / accident administered by Topdanmark Livsforsikring A/S are included at discounted values.
The allocation of the technical basis for risk allowance to policyholders is in accordance with the executive order on the contribution principle.
Shadow account by interest rate, risk and cost groups (expected future recognition as income): Risk groups 1 0 Cost groups 11 14 Total shadow account 12 14
Note 30. Advanced tax The Company has calculated advanced tax on capital pension schemes for 2015: Paid tax on savings 94 Calculated tax on: Accumulated revaluation 13 Collective bonus potential 6 Total advanced tax 113
Note 31. Expenses Expenses by their nature: Commission - non-life insurance 204 187 Commission - life insurance 76 73 Staff costs (excl. commission) 1,831 1,902 Other staff costs 112 116 Premises costs etc. 154 159 It operations and maintenance 197 191 Impairment and amortisation 100 82 Other expenses 187 226 Total expenses 2,860 2,936
Income from investment properties (administration and operation) 94 114 Expenses on investment business 66 57 Other expenses 42 64 Total expenses 2,860 2,936
There are no special earnings conditions to the option programme than employment in the full year of allocation. Options are allocated at beginning of year and in connection with resignation in the year of allocation a proportinal deduction in the number of allocated options is made.
The table below is categorised by the option holders' current standing: Strike Executive Senior Total number of options ('000) price Board executives Resigned Total
The fair value of the granting for the year has been calculated using the Black and Scholes model assuming a price of DKK 195.41 (2015: DKK 200.28) 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% (2015: 22%) p.a. 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.
Note 34. Related parties The Group has no related parties with controlling influence. Related parties with significant influence comprise Sampo plc, the Board of Directors, the Executive Board and their families.
Note 34. Related parties - continued Remuneration of the Executive Board Salaries etc. 19 26 Share options 2 2 Employee shares - 0 Total remuneration to four (2015 three) members of the Executive Board 21 29
In addition, the Executive Board successively accrues a remuneration corresponding to 18 months' salary. The compensation will be paid on resignation. The Group has no unhedged pension commitments.
Significant risk taker Besides the Executive Board one employee of the Group has significant influence on its risk profile. In accordance with an exemption clause this remuneration is not disclosed.
Shares and subordinated notes held by the Board of Directors and Executive Board The information relates to the Board of Directors and Executive Board notified on 31 December.
Note 35. 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 39 7
Designated at fair value: Deposits with credit institutions 3,721 1,451 Investment assets related to unit-linked products 15,796 21,528
NonQuoted Observable observable 2015 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 39 39
Held for trading: Loans guaranteed by mortgages and other loans 7 7
Investment properties 131 131 Investment assets related to unit-linked products 14,583 6,658 288 21,528 Total financial assets at fair value 25,116 38,133 713 63,962
Foreign exchange adjustment 0 6 Portfolio at 31 December 523 582
The item consists of project financing in Carlsberg Byen (DKK 55m), Skovkvarteret I (DKK 126m) and Vindmøllefarm (wind farm) guaranteed by EKF (DKK 156m) and bonds of DKK 244m, for which current return depends on payment on life annuity contracts. The fair value is equivalent to the cost price in the transaction currency.
Allowance account (policyholders and insurance companies): Group companies have agreed to lend equities against security: Book value of equities lent 1,075 2,470 Fair value of bonds received as security for the loan 1,154 2,910
Financial liabilities measured at amortised cost Other subordinated loan capital 2,154 1,754 Deposits with ceding undertakings 62 64 Creditors arising out of direct insurance operations 394 329 Creditors arising out of reinsurance operations 43 18 Current tax liabilities 1 59 Other creditors 1,133 1,508 Total financial liabilities measured at amortised cost 3,787 3,732 Total financial liabilities 5,660 4,655
Gross Offsetting Book Collateral in Net Derivatives position value liquid assets position
Note 39. Analysis of assets and their return - life insurance
Government and mortgage bonds 10,264 11,866 3.0 Index-linked bonds 1,082 1,112 4.2 Credit bonds and emerging market bonds 2,560 2,611 11.4
Government and mortgage bonds 610 1,120 0.8 Credit bonds and emerging market bonds 4,603 5,352 11.6
Percentage of Return in Selected age periods in relation Years average percentage to time of retirement to retirement provisions before PAL Risk
Event equity 1.0 pp increase in interest rates 32 1.0 pp decline in interest rates (26) 12% decline in equity prices (155) 8% decline in property prices (112) Exchange rate exposure (VaR 99.0%) (46) Loss on counterparties of 8% (188)
Reconciliation of the number of shares ('000) Shares issued at 1 January 115,000 105,000 Own shares at 1 January (11,377) (9,328) Number of shares at 1 January 103,623 95,672
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 Bygmestervej ApS Ballerup Property
Note 47. Other disclosures The five-year summary, in accordance with Section 91(a) of the Danish Executive Order on Financial Reports for Insurance Companies and Multi-employer Occupational Pension Funds, is included in "Management's review". For further details see "Risk management" and "Capital model" in "Management's review".
There have been no events in the period from 31 December 2016 until the presentation of the consolidated financial statements which could change the assessment of the annual report.
Provisions are generally calculated on a monthly basis across all lines of business. The claims trend is assessed monthly and followed up by any necessary price changes.
• The customer is CONFIDENT that Topdanmark helps the customer solve the claims problem.
The claims organisation works with the version of the Lean concept used by the service organisations, based on the customer’s needs and focusing on providing the right help in the first contact with the customer .Besides improved customer satisfaction, the correct assessment of the damage also reduces the claims handling time and the average compensation.
Provisions for outstanding claims (%) 2015 2016 Short-tail 13 13 Annuity provisions in workers' compensation 23 24 Other claims provisions in workers' compensation 25 23
Topdanmark's level of provisions is based on the latest prognosis for the coming 12 months.
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. In 2016, the national guarantee scheme covered any market retention in excess of DKK 13.73bn. With effect from 1 January 2017, the market retention was reduced to DKK 9.9bn.
Market Market risk represents the risk of losses due to changes in the market value of the Group's assets, liabilities and off-balance items as a result of changes in market conditions. Market risk includes interest rate, equity, property, currency, inflation and liquidity risk. 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. Compliance with the limits set by the Board of Directors is regularly controlled. The result of this is reported to the Board of Directors.
Market risks Risk reducing activities Interest rate risk Topdanmark is exposed to interest rate risk due to provisions for outstanding claims in non-life insurance and guaranteed benefits in life insurance.
With regard to cover of interest-bearing assets, supplementary hedging by swaps and standard swaptions have been bought.
Currency risk Topdanmark's currency risk relates in practice only to investments.
Topdanmark's risk assessment, information security policy, prioritisation of risks and IT Emergency strategy, are based on IS027001, revised each year and approved by the Board of Directors.
Periodically, Topdanmark’s critical IT systems are tested to see if they can be compromised from outside and whether the IT systems have vulnerabilities that need to be repaired.
These tests are made by an external company with special expertise in this area. Topdanmark’s IT Security Committee discusses and prioritizes the performance and results of the tests.
Topdanmark's Compliance Function exercises control and provides advice to ensure that the Group's business sectors and administrative departments comply with relevant legislation and internal rules. The Compliance Function's work is part of Topdanmark's overall control environment, which comprises the procedures, control and organisation ensuring observance of rules.
Topdanmark Group's 2016 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 Copenhagen A/S and the Danish Financial Business Act on annual reports prepared by listed financial services companies.
• A risk margin corresponding to the amount an acquirer of the Group’s insurance portfolio is expected to demand for taking on the risk of deviations between best estimate and final settlement of future cashflows
• An interest rate curve adjusted to Solvency ll. Topdanmark uses the volatility adjusted interest rate curve
Unlike Solvency ll, the assumed profit at the time when insurance contracts are concluded is included in a separate provision (profit margin) and taken to the profit and loss account over the period of cover of the insurance contracts.
Comparative figures for the Group excluding life insurance are adjusted with effect as from the 2015 opening balance from which time EIOPA published interest rate curves and the Group’s models for calculating premium provisions and profit margin, according to the new accounting policies, have been established.
For life insurance, it has not been practicable to recalculate insurance provisions for the periods before the opening balance of 1 January 2016. Consequently, comparative figures are only corrected due to the changed form of presentation where accounting items have been summarized of moved. In the opening balance of 1 January 2016, the financial value of insurance provisions for life insurance remain almost unchanged. The provisions for life insurance have been reduced by DKK 3m compared to the value in the financial statement for 2015.
The changes in comparative figures for 2015 are specified at the end of the accounting policies.
IFRS 15 takes effect on 1 January 2018. IFRS 16 becomes effective on 1 January 2019. For insurance companies, the implementation date of IFRS 9 is deferred in order that it takes effect at the same time as IFRS 17 “Insurance Contracts” on 1 January 2021. It is expected that the standard for IFRS 17 will be issued in H1 2017.
IFRS 9 replaces the existing IAS 39 and changes the classification of financial assets to the classification being dependent on the company's business model for holding of assets and the cash flow generated by the asset. Furthermore, the IFRS 9 contains changed provisions for hedge accounting and impairment.
Topdanmark expects to implement the new standards on the effective date.
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.
Workers' compensation and motor liability insurance policies are typically one-year policies, whereas change of ownership insurance policies cover a period of five or ten years and the full payment is made up front.
Life insurance provisions The uncertainty related to the value of the life insurance provisions is based on a number of actuarial estimates of disability, lifetime etc., and the frequency concerning repurchase and termination of premiums which may have a significant effect on the size of the life insurance provisions.
The income statement and balance sheet are presented in accordance with the DFSA's IFRS-compatible Executive Order on Financial Reports for Insurance Companies and Multi-employer Occupational Pension Funds.
The IFRS defines a hierarchy of three levels for measurement of fair value: Level 1 The calculation at fair value is based on the listed prices of transactions in active markets. If there is an active market for listed shares, bonds, derivatives etc., the measurement is generally based on the closing price on 31 December.
Level 3 In certain cases, the valuation cannot be based on publicly available market information alone. In these cases, valuation models that could imply the use of estimates of both the future and the nature of the current market situation are used. The accounting policies for measurement of properties, which are the most significant assets of level 3, are described below under “Owneroccupied properties” and “Investment properties” respectively.
As premium provisions and profit margin are calculated at a discounted basis, an interest rate element is included in premiums earned.
Investment activities Income from associated companies comprises a share of the post-tax results of the associated companies calculated in accordance with the Group's accounting policies. Income from investment properties comprises the operating results excluding interest charges and revaluations that have been disclosed separately in the financial statements. Interest, dividends etc. comprise all interest, dividends etc. earned in the financial year. Realised and unrealised gains and losses on investment assets, exchange rate adjustments, and realised gains and losses on owner-occupied properties are included in revaluations. Administrative expenses on investment activities comprise the cost of asset management including transaction costs.
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 reviewed and assessed annually by the Group's own valuation experts. The buildings are depreciated on a straight-line basis, given an expected life of 50 years and an annually re-assessed residual value. Land is not depreciated. The fair value of the revaluation of owneroccupied properties is assessed on the same basis as investment properties. Any revaluation surplus is included in other comprehensive income unless the revaluation is a reversal of a previous impairment. Impairments are included in the income statement unless the impairment is a reversal of previous revaluation included in other comprehensive income.
The calculation of the capital value uses a rate of return which is fixed for each property on the basis of the current market conditions on the balance sheet date for the type of property concerned, the location of the properties, the quality of the tenants etc. with the effect that the rate of return is estimated to reflect the market’s current rates of return for corresponding properties.
Shares held in associated companies are measured at their net asset value, in accordance with the Group's accounting policies with payment of goodwill added.
Financial assets Financial assets are classified at the time of their initial recognition as: • Financial assets which are measured at fair value with any value adjustment taken to the income statement or, • Loans and receivables which are measured at amortised cost.
Security fund reserves The security funds are special funds under shareholders' equity. Prior to 1989, they were transferred to shareholders' equity for capital adequacy and were taxdeductible.
Provisions for insurance and investment contracts Provisions for unearned premiums These provisions are calculated at present value of best estimate of expected payment of future insurance claims covered by insurance policies concluded. Topdanmark’s insurance contracts are usually written for a 1-year period.
Expected payments comprise compensation as well as direct and indirect expenses for administration, claims handling and acquisition. Furthermore, expected bonuses and premium discounts are included and expected return of premiums in connection with customer defection is taken into account.
Changes in provisions due to a change in the interest rate used and reduction of maturity until the expected time of payment are transferred to the item Return and revaluation of non-life insurance provisions.
Profit margin on non-life insurance contracts Profit margin is the expected profit during the remaining part of the period of cover for insurance policies concluded.
Profit margin is calculated as the difference between expected premiums for future periods of cover for insurance policies concluded and the expected payments included in premium provisions.
For profit margin, the share of the risk margin related to settlement of premium provisions is deducted.
Profit margin on life insurance and investment contracts Profit margin is the expected future profit for the company from contracts concluded and when possible, it is financed by the individual bonus potential and secondarily by the collective bonus potential. The value is calculated as an interest margin in accordance with the goingconcern principle where the included profit on future premiums follows the contract terms according to Solvency ll.
Claims provisions Claims Provisions must cover future payments of claims incurred and their administration.
In agricultural and commercial lines, claims are assessed individually. IBNR and IBNER provisions are also included in the total provision. In personal lines, claims not exceeding DKK 100,000 are assessed collectively while larger claims and all claims on change of ownership policies are assessed individually. IBNR and IBNER provisions are also included in the total provision. In motor and accident lines, total provisions comprise the sum of the collective and individual provisions. Individual provisions are the result of an assessment where the claims handler has assessed the total claim payment to exceed DKK 1.5m, and the case is estimated to exceed the amount paid out. Large claims and claims relating to previous years are individually assessed within personal liability in motor insurance.
Topdanmark has purchased derivatives partially hedging the provisions for workers’ compensation and annuities in illness and accident insurance against changes in future wage and price indexation. The revaluation of these derivatives is included in claims incurred.
In illness and accident insurance, which is administered by the life insurance companies, each interest rate used in the interest rate structure is reduced by the tax rate of 15.3%.
Topdanmark Forsikring calculates risk margin by means the “Cost of Capital” model using a cost of capital rate of 6% in addition to the risk-free interest rate. Illness and accident insurance which is administered by Topdanmark Livsforsikring use a proprietary model stressing the biometric risks.
(DKKm) non-life life return return PAL non-life items result Tax Result
Change in valuation of claims provisions net of reinsurance (new interest rate curve) 50 50 (11) 39 Change in valuation of derivatives (new interest rate curve) 3 3 (1) 2
Effect of change in form requirements Item "Technical interest rate" excluded 2 106 (108) Revaluation of insurance provisions moved to new item (195) 195 New item "Pension return tax" under techical result 0 (165) 165
Effect of change in form requirements New item "Pensions return tax" under technical result 165 (165) 0 Change in claims provisions transferred to change in life insurance provisions (20) 20 0 Bonus transferred to "Change in life insurance provisions" (39) 39 0 Change in provisions for unit-linked products transferred to "Change in life insurance provisions" (4,471) 4,471 0
"Change in profit margin" w ill be separated from "Change in life insurance provisions" to individual item in 2016.
Balance sheet at 31 December 2015 SII Premium Other interest provisions/ incl. Adjusted
Balance sheet Reclassif ication rate Best profit Risk tax balance (DKKm) 2015 NON-LIFE LIFE curve estimate margin margin effect 2015 ASSETS
Provisions for unearned premiums 2,590 (646) 1,944 Profit margin, non-life insurance contracts 772 772 Products w ith guarantees and profitsharing 22,557 1,764 24,321 Unit Linked products 16,216 16,216 Provisions for claims and benefits 13,587 (67) (133) (266) 13,121 Risk margin, non-life insurance contracts 313 313 Collective bonus potential 1,697 (1,697) Provisions for bonuses and rebates 137 137 TOTAL PROVISIONS FOR INSURANCE AND INVESTMENT CONTRACTS 56,785 56,823 LIABILITIES PROVIDED 407 407 DEPOSITS RECEIVED FROM REINSURERS 62 62 CREDITORS 3,443 2 3,445 ACCRUALS AND DEFERRED INCOME 146 (23) 123 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 67,670 67,654
Proposed appropriation of profit for the year: Transfer to net revaluation reserve at net asset value 1,208 1,585 Transfer to profit carried forward (38) (49)
Profit for the year 1,170 1,536 Other comprehensive income in affiliated companies 1 1 Other comprehensive income 1 1 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,171 1,537
Current tax assets 34 0 Deferred tax assets 1 2 Liquid funds 2 2 TOTAL OTHER ASSETS 37 4 TOTAL ASSETS 5,653 5,779
Shareholders' equity at 31 December prior year 105 1,395 3,479 4,979 Effect of new Executive Order on Financial Statements (31) (31) Shareholders' equity beginning of the year according to new Executive Order on Financial Reports 105 1,364 3,479 4,948
Note 1. Income from affiliated companies Topdanmark Forsikring A/S 1,148 1,506 Topdanmark Kapitalforvaltning A/S 63 79 Topdanmark Invest A/S (3) (0) Income from affiliated companies 1,208 1,585
Note 3. Other expenses Holding expenses 35 53 Other expenses 35 53
Book value 409 408 Market value 410 409 Interest charges 8 7 Hybrid core capital was fully included in 2015 in company's own funds. From 2016, Topdanmark calculates solvency cover at Group level. The Group's own funds are stated in statement of changes in equity.
Remuneration of the Executive Board Salaries etc. 19 26 Share options 2 2 Employee shares - 0 Total remuneration to four (2015 three) members of the Executive Board 21 29
Kim Bruhn-Petersen resigned from the Executive Board in 2016 5.9 5.9
Shares and subordinated notes held by the Board of Directors and Executive Board The information relates to the Board of Directors and Executive Board notified on 31 December. Board of Directors Number of shares Søren Thorup Sørensen 3,729 3,729 Torbjörn Magnusson 500 500 Jens Aaløse - 50 Ann-Jeanette Bakbøl 0 0 Tina Møller Carlsson 1,270 1,270 Mette Jensen 1,400 1,400 Birgitte Nielsen 350 350 Lone Møller Olsen - 2,425 Annette Sadolin 2,620 2,620 Anders Colding Friis 4,450 -
Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 Søren Thorup Sørensen 4,050 3,000 Executive Board Number of shares Christian Sagild 21,160 21,160 Brian Rothemejer Jacobsen - 68,200 Lars Thykier 14,130 14,130 Marianne Wier - 0 Kim Bruhn-Petersen 14,640 -
Sampo plc At 1 February 2017, Sampo plc holds 39,579,226 shares in Topdanmark A/S. At 31 December 2015, held IF P&C Insurance Holding Ltd (publ) 31,476,920 shares in Topdanmark A/S.
At 31 December 2016, Sampo plc owned nom. EUR 33,5m subordinated notes in Topdanmark A/S (31 December 2015 nom. EUR 33,5m).
The Group's own funds are stated in the statement of changes in equity.
Number of shares held to cover the granting of options: 1,783,000 (2015: 1,701,000)
Topdanmark A/S is the administration company of the Danish joint taxation with the other Danish companies of the Topdanmark Group. Consequently, the company is liable for joint taxation according to the provisions of Executive Order on Corporation tax concerning income tax etc. and for any obligations to include tax at source on interest rates, royalties and profit for these companies.
The five-year summary, in accordance with Section 91(a) of the Danish Executive Order on Financial Reports for Insurance Companies and Multi-employer Occupational Pension Funds, is included in financial highlights on page 3. Risk disclosures in accordance with Section 91(b) are included in "Management's review" for the Group in "Risk management "and in Note on the consolidated financial statements.
There have been no events in the period from 31 December 2016 until the presentation of the financial statements which could change the assessment of the annual report.
Change in accounting policies New Executive Order on Financial Statements In 2016, Topdanmark implemented the new Executive Order on Financial Reports for insurance companies and multi-employer occupational pension funds, which is adapted to Solvency II, the European solvency rules that became effective on 1 January 2016.
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 post-tax results of affiliated companies is included in the income statement under income from affiliated companies less any write-downs. Where investments in affiliated companies are revalued to net asset value, the net revaluation reserve is included in shareholders' equity. The share of the changes in equity of affiliated companies is included directly in the shareholders' equity.
The Board of Directors and the Executive Board have today considered and approved the Annual Report of Topdanmark A/S for 2016.
Executive Board: Christian Sagild Brian Rothemejer Jacobsen Lars Thykier Marianne Wier (CEO)
Board of Directors: Søren Thorup Sørensen Torbjörn Magnusson Ann-Jeanette Bakbøl (Chairman) (Deputy Chairman)
Internal audit’s reports Opinion We have audited the consolidated financial statements and the parent financial statements of Topdanmark A/S for the financial year 1 January to 31 December 2016. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish requirements for listed financial companies. The parent financial statements are prepared in accordance with the Danish Financial Business Act.
In our opinion, the consolidated financial statements and the parent financial statements give a true and fair view of the Group’s and the Company’s financial position at 31 December 2016 and of the results of the Group’s and the Company’s operations and the Group’s cash flows for the financial year 1 January to 31 December 2016 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial companies as regards the Group and for the Company in accordance with the Danish Financial Business Act.
We plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and annual financial statements in general are free from material misstatement. We have participated in the audit of the material and risky areas.
Solvency ratio Management is responsible for the key ratio “Solvency ratio” evident from the five-year summary in the annual report. As disclosed in the five-year summary, the solvency ratio is exempt from the requirement to be audited. Consequently, our opinion on the consolidated financial statements does not cover the solvency ratio, and we do not express any form of assurance conclusion thereon.
If, based on this, we conclude that the solvency ratio is materially misstated; we are required to report on this. We have nothing to report in this respect.
Based on the work we have performed, we conclude that the management commentary is in accordance with the consolidated financial statements and the parent financial statements and has been prepared in accordance with the requirements of the Danish Financial Business Act. We did not identify any material misstatement of the management review.
Independent auditor’s reports To the shareholders of Topdanmark A/S Opinion We have audited the consolidated financial statements and the parent financial statements of Topdanmark A/S for the financial year 1 January to 31 December 2016, which comprise the income statement, statement of comprehensive income, balance sheet, statement of changes in equity and notes, including accounting policies, for the Group as well as the Parent and the cash flow statement of the Group. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish requirements for listed financial companies, and the parent financial statements are prepared in accordance with the Danish Financial Business Act.
We have reviewed the measurement of the provisions for insurance contracts as calculated by Management. Our audit procedures included: • Assessing and testing design, implementation and operating effectiveness of key controls in statistical and actuarial models, including processes for data collection, analysis and determination of assumptions; • Independent actuarial assessment of the data, methods, models and assumptions applied compared to generally accepted actuarial standards, historical developments and trends; • Challenging changes in the assumptions and models applied compared to last year and developments in industry standards and practice; • Recalculating claims outstanding provisions for insurance contracts for selected sectors by means of portfolio data.
Our opinion on the consolidated financial statements and the parent financial statements does not cover the management review, and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to consider whether the solvency ratio is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements and the parent financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing and additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and these parent financial statements.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
• Conclude on the appropriateness of Management’s use of the going concern basis of accounting in the preparation of the consolidated financial statements and the parent financial statements, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Parent’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements and the parent financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of
From the matters communicated with Those Charged with Governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Anders Oldau Gjelstrup Jacques Peronard State-Authorised State-Authorised Public Accountant Public Accountant