TOPDANMARK ANNUAL REPORT FOR 2017 22 February 2018 Announcement No. 04/2018
Key features 2017 • Post-tax profit of DKK 1,733m (2016: DKK 1,536m) • EPS: DKK 20.2 (2016: DKK 16.8) • Combined ratio: 82.0% (2016: 85.1%) • Combined ratio excluding run-off profits: 85.8%
Earnings distribution for 2017 • The Board of Directors will recommend to the AGM
Profit forecast model for 2018 • As compared to the profit forecast model for 2018 in the interim report for Q1-Q3 2017, the assumed combined ratio for 2018 remains unchanged at 90-91 excluding run-off and including additional expenses of 0.5 to 1pp due to Topdanmark’s investment in increased digitalisation and automation
• The post-tax profit forecast model for 2018: DKK 9501, 050m excluding run-off.
Contents Management’s review 1 Key features 3 Financial highlights 4 Results for 2017 4 Results for Q4 2017 4 Non-life insurance 8 Life insurance 9 Investment activities 10 Parent company etc. 10 Taxation 10 Profit forecast model 12 Risk management 15 Solvency capital requirements 16 Capital structure and ownership 17 Board of Directors and Articles of Association 18 Severance pay 18 Remuneration structure 19 Earnings distribution for 2017 19 Corporate Governance 19 CSR 20 Investor Relations 21 Annual General Meeting 21 Financial calendar 22 Company announcements 23 Board of Directors 27 Executive Board 29 Five-year summary ● Group
Premiums earned: Results: Run-off profits, net of reinsurance 306 351 381 470 344 206 94
Provisions for insurance and investment contracts: Financial ratios (parent company) Post-tax profit as a % of shareholders'
Number of shares end of period ('000) 112,632 103,623 95,672 87,216 85,876
Average number of shares, diluted ('000) 119,131 108,805 100,461 91,721 85,873 88,551 86,025
To the extent possible, comparative figures are adapted to the new Executive Order on Financial Reports from 2016.
Results for 2017 Topdanmark’s post-tax profit for 2017 was DKK 1,733m (2016: DKK 1,536m).
After return and revaluation of non-life insurance provisions etc., the investment return declined DKK 104m to DKK 288m. As in 2016, the investment return in 2017 is significantly higher than the level assumed in the forecasts.
The profit on life insurance increased DKK 60m to DKK 249m, primarily due to a higher investment result and an improved result for sales and administration.
The DKK 1,733m profit is higher than assumed in the most recent profit forecast for 2017 in the interim report for Q1-Q3 2017, which was a post-tax profit of DKK 1,500-1,600m. The improvement was primarily due to run-off profits for Q4 2017 together with lower expenses for large-scale claims and weather-related claims than assumed.
After return and revaluation of non-life insurance provisions etc., the investment return in non-life insurance declined DKK 91m to DKK 15m.
In 2017, Topdanmark experienced a net increase in the number of customers in the personal, agricultural and SME markets.
In the interim report for Q1-Q3 2017, Topdanmark stated that the last unprofitable large-scale customers had left by the end of 2016. The loss of these industrial customers had a 0.6% adverse effect on premiums earned for the Topdanmark Group.
Claims trend The claims trend improved to 65.8 in 2017 (68.7 in 2016).
2017 was impacted by a low level of large-scale claims. Compared to 2016, the level was DKK 111m lower, improving the claims trend for the Topdanmark Group by 1.2pp.
The claims trend excl. run-off, weather-related claims and large-scale claims improved 2.7pp to 69.1 in 2017.
The improved claims trend in 2017 of 2.7pp is mainly due to an improved claims trend in the SME segment (fire claims below DKK 5m), an improved claims trend in theft, fewer and smaller fire claims and an improved claims trend in workers’ compensation. To this should be added favourable impacts of Topdanmark’s efficiency improvement programme.
Expense ratio In 2017, the expense ratio was 16.1 (2016: 16.4) impacted among other things by a reduction in the number of employees.
The payroll tax imposed on Danish financial businesses increased to 14.1% in 2017 from 13.6% in 2016, which increased the expense ratio by 0.1pp.
Combined ratio The combined ratio was 82.0 in 2017 (2016: 85.1). Excluding run-off profits, the combined ratio was 85.8 (2016: 90.4).
Developments in Q4 2017 Premiums earned increased 1.9% to DKK 2,245m. The personal segment accounted for a 0.2% increase and the SME segment accounted for a 3.9% increase.
The claims trend was 65.6 in Q4 2017 (Q4 2016: 67.6), representing a 2.0pp improvement.
The expense ratio was 16.5 in Q4 2017 (Q4 2016: 16.9). Nominal expenses were almost unchanged despite a higher payroll tax, wage inflation and additional expenses in connection with increased investments in digitalisation and automation.
The combined ratio was 82.1 in Q4 2017 (Q4 2016: 84.6). Excluding run-off profits, the combined ratio was 86.3 (Q4 2016: 93.9).
In 2017, premiums earned increased 1.4% to DKK 4,980m. Premiums earned on motor insurance declined 0.8% impacted by a decline in average premium. In Q4 2017, premiums earned in the personal segment increased 0.2% to DKK 1,224m.
The increase in premiums in Q4 2017 is negatively impacted by accruals in illness/accident (I/A), while other personal insurance inclusive motor increased 0.9%.
The claims trend improved 2.4pp to 66.1 in 2017. As compared to 2016, the claims trend was impacted by lower expenses for theft and weather-related claims.
The technical result increased DKK 149m to DKK 744m in 2017.
Investment return after return and revaluations of non-life insurance provisions 103 13 373 277
Life insurance The result from life insurance was a profit of DKK 249m in 2017 (2016: DKK 189m).
The profit on life insurance activities comprises the profit on life insurance plus the investment return of Liv Holding (Life Holding).
This profit was calculated in accordance with the stated policy on the calculation of profit for the life insurance companies: see www.topdanmark.com → About Topdanmark → Business → Life insurance → Policy for the calculation of profit in life insurance.
The increase in profit of DKK 60m was primarily due to a higher investment return on shareholders’ equity (DKK 38m). However, the result of sales and administration has also improved (DKK 17m). The profit in 2017 was sufficient for full income recognition of the charged risk return of DKK 147m.
Trend in premiums Gross premiums increased 11.0% to DKK 8,250m in 2017 (2016: DKK 7,430). Gross premiums for unit-linked contracts were DKK 6,790m, representing a 17.9% increase compared to 2016. Unit-linked contracts represented 94% of new sales in 2017.
The regular premiums increased 2.1% to DKK 2,709m and single premiums increased 16.0% to DKK 5,541m in 2017.
Developments in Q4 2017 The result from life insurance declined DKK 12m to DKK 42m primarily representing a lower investment return on shareholders’ equity of -DKK 24m. Conversely there was an increase of the result of sales and administration (DKK 9m) and risk result (DKK 4m).
Gross premiums increased 22.6% to DKK 2,186m in Q4 2017 of which premiums on unit-linked pension schemes were DKK 1,883m, a 34.6% increase compared to Q4 2016.
Single premiums were DKK 1,504m in Q4 2017, representing a 35.4% improvement.
The return in Q4 and full year 2017 on the most significant classes of assets is disclosed in the following table: The post-tax equity exposure was DKK 782m (pre-tax: DKK 1,003m) 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 31 December 2017, and MSCI World DC in the original currency for foreign equities.
Unlisted equities and hedge funds 0.3 0.3 14 3.8 3 0.8 58 17.6 30 9.7
The exposure in foreign equities and credit bonds has been adjusted by the use of derivatives. The return percentages are calculated as the ratio betwe 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. Also, it comprises covered bonds and derivatives. The assets of the class are interest-rate 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 “Credit bonds” is composed of a portfolio of credit bonds, primarily exposed to businesses in Europe and in the US, predominantly in the investment grade segment.
The property portfolio mainly comprises owner-occupied property (DKK 853m). 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. 98% of the property portfolio is currently let.
Parent company etc. The parent company, Topdanmark, does not perform any independent activities.
Taxation The tax charge was DKK 502m of the pre-tax profit of DKK 2,235m, corresponding to an effective tax rate of 22.5% (2016: 20.9%).
• By the end of 2017, Topdanmark’s distribution agreements with Nykredit and Sydbank within life insurance were terminated. The distribution agreements also comprised sale of illness/accident insurance related to pension schemes but registered as non-life insurance with Topdanmark. The termination of the above distribution agreements will
Announcement No. 04/2018 from Topdanmark A/S Page 11 of 94 have an adverse impact on the premium growth in non-life insurance of around 0.6pp in 2018
• The automatic premium indexing in the personal segment will be 1.6% in 2018 (2017: 1.8%). Approximately 70% of Topdanmark’s premiums earned are comprised by automatic premium indexing. The premium effect of the automatic premium indexing on non-life insurance is approximately 1.1%.
In the interim report for Q1-Q3 2017, Topdanmark also assumed a combined ratio for 2018 of around 90-91, excluding run-off.
• Additional expenses in connection with investments in increased digitalisation and automation representing 0.5-1pp
Overall, the assumed pre-tax profit on non-life insurance is DKK 950-1,050m.
The profit forecast model for life insurance is based on the following assumptions: • Full recognition as income of risk return for shareholders’ equity from all interest rate groups • No recognition of income from the shadow account.
The result is highly sensitive to fluctuations particularly in the investment return. The risk allowance and shadow account will not be finally calculated until the preparation of the 2018 Annual Report.
Taxation Given a corporation tax rate of 22.0%, the tax charge is expected to be DKK 280-320m.
Non-life insurance - Investment return after return and revaluations of non-life insurance provisions etc. 288 100 – 150 Profit on non-life insurance 1,909 950 – 1,050
At the end of 2017, Topdanmark’s solvency ratio was 204. 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.
Provisioning risk: • Provisions for outstanding claims • Provisions for unearned premiums.
All policies are classified by the guaranteed benefit, and the investment policy is intended to ensure the ability to meet the benefits guaranteed.
Market risks Most important risks Risk preferences Risk reducing activities Interest rate risk
In order to improve the average investment return and limit the overall market risk, Topdanmark invests in a wide range of asset categories.
Risk scenarios The Group's risk factors are illustrated in the following table on the most significant risk factors. The given assumptions do not reflect Topdanmark's expected risks but are shown only as examples which could be used as a basis for assessing the Company's exposure to the risks mentioned.
Solvency capital requirements Solvency II took effect on 1 January 2016. By introducing Solvency II, new common EU rules were implemented for calculation of solvency capital requirements and solvency capital base.
A principal objective of Solvency II is to encourage good risk management based on market values and fair risk assessments. Solvency II contains a standard model for calculation of solvency capital requirements, which will be common to all insurance companies within the EU. Even though it opens up for company specific values for some variables, the standard model will not present a true and fair view of all risk-bearing elements in all companies.
As a consequence, Solvency II allows the companies to fully or partially develop their own internal risk model for the solvency calculation. Topdanmark uses a partial internal model it has developed in-house to calculate the non-life risk. This model has been approved by the DFSA for calculation of non-life risks in Topdanmark's solvency calculations.
By the end of 2017, Topdanmark’s own funds were DKK 6,370m (end of 2016: DKK 6,348m). Proposed dividend has been deducted from Topdanmark’s own funds by the end of 2017.
Provisioning risk Provisions on own account − 1% increase (98) (98)
At the end of 2017, shareholders’ equity for solvency was DKK 3,865 (end of 2016: DKK 3,992m).
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 pre-emptive 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 the end of 2017, Topdanmark’s share capital totalled DKK 90,000,000 divided into 90,000,000 shares of DKK 1 each, corresponding to 90,000,000 voting rights. As of 1 February 2018, Topdanmark held 3,825,188 own shares representing 4.25% of the share capital.
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 beforehand 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, its Board members among them ought to possess skills within organisation, strategic management, insurance operations, reinsurance, long-tail business, financial and insurance reporting, general statistics, risk management and assessment, sales to the personal and professional markets, marketing/branding, outsourcing, finance, own funds, solvency and minimum capital requirements, rules for internal models, audit, financing, investment, statutory limits, compliance, IT and IT security, digitalisation and recruitment/HR. With its current composition,
Five of the nine Board members are women, two of them elected at the Annual General Meeting and three by Topdanmark's employees. Consequently, Topdanmark meets its goal: that the Board members comprise a minimum of three persons of each gender. Topdanmark meets the statutory definition of an equal gender distribution.
Topdanmark works to maintain and develop openness in the company culture to counter any form of discrimination due to gender, race, colour, nationality, social and ethnic origin, religion, beliefs, political opinion, disability, age and sexual orientation. Topdanmark believes that diversity provides business value and that it is important that all employees have access to executive positions at all levels. Topdanmark's Board of Directors has adopted a policy for diversity. Detailed information on diversity including “Women in management” is available in the CSR Report.
Additionally, Topdanmark offers severance pay in accordance with legislation, as set out in a contract or in specific cases as has been individually agreed upon, but always adhering closely to the guidelines of the Danish Salaried Employees Act. The maximum amount of the overall severance pay will represent two years' salary.
On 23 September 2013, the EU Commission decided that If P&C Insurance Holding Ltd (publ) de facto was in control of Topdanmark. As a consequence of this special situation, it has been agreed that Topdanmark’s Executive Board earns a compensation over three years, representing six months' salary for each qualifying year. Christian Sagild and Lars Thykier have earned this compensation during the years 2013-2015. Marianne Wier and Brian Rothemejer Jacobsen will earn the compensation during the years 2016-2018. The compensation will be paid on resignation.
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.
The remuneration package of the Executive Board and the Friday Team is based upon a fixed basic salary. A fixed share thereof, 10%, is paid as share options. Performance-dependent bonuses 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, the Executive Board may grant a total of up to 200,000 options to employees who have made a special effort or otherwise contributed extraordinarily to value creation in the Company.
Besides the revolving scheme referred to above, a further 125,750 share options have been granted for 2018 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 2018 has been calculated at DKK 11m at the time of granting.
Earnings distribution for 2017 At the AGM on 4 April 2017, it was decided to revoke the authorization granted to the Board of Directors to buy back Topdanmark’s shares.
In the interim report for Q1 2017, the Board of Directors presented a new earnings distribution policy.
It further appears from the earnings distribution policy that distribution of dividends will take place once a year, and that payment of dividends will take place immediately after adoption at the AGM.
Finally, the policy describes that the basis for the dividend scheme is a pay-out ratio of at least 70.
The recommended dividend distribution represents a dividend yield of 7.4 and a dividend of DKK 19 per share of the share capital of DKK 90m.
Investor Relations Topdanmark wishes to openly and sufficiently inform investors, analysts and other stakeholders about the Group's matters in order to ensure that as far as possible: • Value-creating activities are reflected in a fair price for
Most active brokers at NASDAQ Copenhagen A/S in 2017 % Danske Bank 18
Annual General Meeting The Annual General Meeting will be held on 12 April 2018, 15:00 (CET) at: Tivoli Hotel & Congress Center Arni Magnussons Gade 2 1577 København V
2018 05 Feb 03/2018 Peter Hermann has been appointed new CEO of Topdanmark 25 Jan 02/2018 Topdanmark announcement of 2017 Annual Results 02 Jan 01/2018 Issue of options 2017 20 Dec 32/2017 Lars Thykier is acting CEO of Topdanmark 16 Nov 31/2017 Topdanmark A/S issues Restricted Tier 1 Capital Notes 07 Nov 30/2017 Topdanmark A/S plans to issue Restricted Tier 1 Capital Notes 31 Oct 29/2017 Share capital and voting rights at Topdanmark 26 Oct 28/2017 Topdanmark interim report for Q1-Q3 2017 24 Oct 27/2017 Write-down of Topdanmark’s share capital – Topdanmark’s holding of own shares is below 5% 16 Oct 26/2017 Topdanmark upgrades its earnings forecast for 2017 04 Oct 25/2017 Christian Sagild resigns as CEO of Topdanmark at the turn of the year 18 Sep 24/2017 Employee shares 21 Aug 23/2017 Topdanmark’s holding of own shares is below 10 % 15 Aug 22/2017 Topdanmark Half-Year Report for 2017 23 May 21/2017 Topdanmark Interim Report for Q1 2017 04 Apr 20/2017 Annual General Meeting of Topdanmark – 4 April 2017 31 Mar 19/2017 Topdanmark – weekly report on share buy-backs 27 Mar 18/2017 Topdanmark – weekly report on share buy-backs 23 Mar 17/2017 Topdanmark’s holding of own shares exceeds 10 % 20 Mar 16/2017 Topdanmark – weekly report on share buy-backs 13 Mar 15/2017 Topdanmark – weekly report on share buy-backs 06 Mar 14/2017 Topdanmark – weekly report on share buy-backs 03 Mar 13/2017 Notice convening the Annual General Meeting on 4 April 2017 27 Feb 12/2017 Topdanmark – weekly report on share buy-backs 23 Feb 11/2017 Topdanmark Annual Report 2016 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
Education: • Law degree, University of Copenhagen • Special law programme, Columbia University, NY, USA • GE training programmes incl. Six Sigma GB
Offices held: Member of the Board of Directors of: • DSB • DSV A/S • Ratos AB (Sweden) • Blue Square Re (Netherlands) • KNI A/S • Østre Gasværk Teater • Ny Carlsberg Glyptotek.
(Finland) • Varma Mutual Pension Insurance Company (Finland) • Finland Chamber of Commerce • Alma Media Corporation.
Education: • M.Sc., Copenhagen Business School, Denmark • State authorised public accountant • IMD leadership courses.
Independence: Because Lone Møller Olsen has been a partner at Deloitte, Topdanmark’s external auditor, formally she does not meet the definition of independence set out by the Committee on Corporate Governance, when joining the Board of Directors. However, Lone Møller Olsen has not worked with Topdanmark for the last 20 years. Therefore, it is the opinion of the Board of Directors that Lone Møller Olsen meets the definition of independence.
Offices held: Member of the Board of Directors of: • Nobia AB (Sweden).
Offices held: Member of the Board of Directors of: • Dansk Erhverv (The Confederation of Danish
Enterprise) (Deputy Chairman) • The Executive Committee in Dansk Erhverv • Ecosys A/S (Chairman) • FDM Travel A/S • IT-branchen (The Danish ITC Industry Association) • OmniCar AB (Chairman).
Managerial responsibilities: • HR • Communications, IR, CSR • Group Secretariat, Corporate Legal Matters • Development organisation, IT and Group Development.
Christian Sagild (Resigned December 2017) CEO of Topdanmark A/S. DOB 1959, joined Topdanmark in 1996, joined Topdanmark's Executive Board on 1 January 2006.
Information on the Executive Board’s responsibilities, as required by Article 80 of the Danish Financial Business Act, is shown in the Annual Report for Topdanmark Forsikring A/S. .
TECHNICAL PROFIT / (LOSS) ON LIFE INSURANCE 25 (477) 19 7 8
Gross claims paid (6,286) (5,856) Reinsurance cover received 424 258 Change in the provisions for claims 349 342 Change in risk margin (1) 0 Change in the reinsurers' share of the provisions for claims (1) (120) Claims incurred, net of reinsurance 4 (5,516) (5,376)
Claims and benefits paid 7 (3,453) (4,701) Reinsurance cover received 6 4 Claims and benefits paid, net of reinsurance (3,447) (4,697)
Change in the life insurance provisions 8 (6,159) (5,816) Change in the reinsurers' share (5) (7) Change in the life insurance provisions, net of reinsurance (6,164) (5,822)
Acquisition costs (146) (148) Administrative expenses (270) (285) Reinsurance commission and share of profits 2 1 Total operating expenses, net of reinsurance (414) (433) TECHNICAL PROFIT ON LIFE INSURANCE 7 8
Technical profit on non-life insurance 1,361 1,646 Technical profit on life insurance 7 8
Return and revaluations non-life insurance provisions 11 (423) (143) Investment return transferred to life insurance business (3,147) (3,372) Other income 19 23
Shares in associated companies 18 1,180 1,285 Total investment in associated companies 1,180 1,285
Total other financial investment assets 42,434 45,906 TOTAL INVESTMENT ASSETS 47,061 50,834
Amounts due from policyholders 383 310 Amounts due from insurance companies 100 57 Amounts due from associated companies 366 327 Other debtors 226 170 TOTAL DEBTORS 1,761 1,438
Share capital 95 90 Revaluation reserve 13 13 Security fund 1,146 1,146 Other reserves 57 64 Total reserves 1,203 1,210 Profit carried forward 3,392 3,168 Proposed dividend 0 1,710 TOTAL SHAREHOLDERS' EQUITY 4,702 6,191
Products with guarantees and profitsharing 25 24,465 24,063 Unit-linked products 26 22,783 29,891 Total life insurance provisions 47,248 53,954
Pensions and similar commitments 28 28 Deferred tax liabilities 22 59 61 Deferred tax on security funds 306 306 TOTAL LIABILITIES PROVIDED 394 395 DEPOSITS RECEIVED FROM REINSURERS 64 77
Other creditors 1,508 1,293 TOTAL CREDITORS 2,837 2,181 ACCRUALS AND DEFERRED INCOME 109 81 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 73,476 80,958
Gross premiums written 7,282 8,234 Claims and benefits (3,460) (4,699) Pension return tax (259) (452) Expenses paid (395) (440) Reinsurance ceded (7) 27 Cash flow from life insurance 3,161 2,671
Shareholders' equity 4,702 6,191 Deferred tax on security funds 306 306 Profit margin 735 925 Intangible assets (806) (922) Proposed dividend 0 (1,710) DFSA-approved share buy-back programme (210) 0
Correction for tax (62) (77) Usable share, subordinated loan tier 1 409 400 Available share subordinated notes 1,353 1,349 Own funds 6,348 6,370
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 Expenses 30 Auditors' fee 31 Staff costs 32 Related parties 33 Financial assets 34 Financial liabilities 35 Collateral relating to financial assets and liabilities 36 Settlement of assets and liabilities 37 Analysis of assets and their return - life insurance 38 Return and risk - unit-linked products 39 Sensitivities 40 Number of shares 41 Own shares 42 Collateral 43 Contingent liabilities 44 Companies 45 Other disclosures 46 Risk factors 47 Accounting policies 48
Eli- EliPer - min- Parent minsonal SME ated Non-life Life etc. ated Group
Technical profit / (loss) on non-life insurance 882 744 (4) 1,622 25 1,646
Shares in associated companies 64 1,115 0 1,180 Other financial investment assets 17,403 25,024 7 42,434 Investment assets related to unit-linked products 0 21,528 0 21,528 Reinsurers' share of provisions 658 27 0 685 Amounts due from affiliated companies 1,551 60 0 (1,611) 0
Provisions for insurance and investment contracts 16,091 54,198 0 70,289 Amounts due to affiliated companies 1,422 323 0 (1,745) 0
Gross premiums earned, direct business, by location of the risk: Other EU-countries 5 6 Other countries 1 1
Run-off profits / (losses), net of reinsurance 55 98 (3) (3) 113 (0) Claims provisions, net of reinsurance 3,168 3,349 68 68 5,970 6,048
Average value of claim (DKK '000) 36 37 6 5 88 96 Frequency of claims (per thousand value) 24 24 414 441 116 107
Average value of claim (DKK '000) 22 22 9 9 12 13 Frequency of claims (per thousand value) 49 44 194 193 162 143 liability
Average value of claim (DKK '000) 54 38 26 27 34 23 Frequency of claims (per thousand value) 131 119 68 70 70 99
Individual policies 316 309 Policies which are part of a tenure 1,803 1,892 Group life 534 508 Regular premiums 2,653 2,709
Gross premiums written, direct business, by the policyholders' location: Other EU-countries 96 120 Other countries 28 30
Proportion of gross premiums represented by premiums related to unit-linked products not eligible for bonus 5,759 6,790 Investment risk is taken by the policyholder. All other gross premiums relate to insurance policies entitled to a bonus.
Note 6. Gross premiums written - life insurance - continued Number of policyholders at 31 December ('000): Individual policies 46 45 Policies which are part of a tenure 84 84 Group life 181 174
Note 8. Change in life insurance provisions Products with guarantees and profitsharing (284) 195 Unit-linked products (5,875) (6,011) Change in life insurance provisions (6,159) (5,816)
Note 9. Income from investment properties Rental income 188 187 Operating expenses from properties rented out (95) (112) Operating expenses from properties not rented out (10) (13) Gross profit 83 62 Administrative expenses (9) (8) Income from investment properties 74 54
Designated at fair value: Deposits with credit institutions 1 (1) Investment assets related to unit-linked products: Unit trusts 82 156
Revaluations of financial assets and liabilities at fair value through profit or loss 2,463 2,335
Revaluation Provisions for unearned premiums and profit margin (15) 0 Provisions for claims and benefits (272) (24) Risk margin (5) 3 Reinsurers' share of the provisions for claims and benefits 1 1
Goodwill and development projects under construction are subjected to an impairment test at the end of the year. The discounted value of future cash flows is compared with its carrying value.
The calculation of the terminal value includes a growth rate of 0% (2016: 0%). The pre-tax discount rate is 9.6% (2016: 9.6%) and the post-tax rate 7.5% (2016: 7.5%). The discount rate is calculated as the risk-free interest rate and a risk allowance.
Development projects under construction primarily comprise new administration system for life-insurance. Development projects primarily comprise the Group's digital platform for communication with customers. Amortisation of intangible assets is primarily included in claims incurred and operating expenses.
Note 16. Tangible assets Operating Ownerequip - occupied 2016 ment properties Total
Revaluation taken to income statement 0 (2) (2) Transferred on revaluation 0 (1) (1) Cost / revaluation at 31 December 375 853 1,228
Investment properties are included in the balance sheet as: Investment properties 3,448 3,643 Investment assets related to unit-linked products 131 140
Property Carlsberg Byen P/S, Copenhagen* 23 development 1,793 179 Havneholmen P/S, Kgs. Lyngby 50 Property 957 25 Margretheholm P/S, Frederiksberg 50 Property 349 45 Bornholms Brandforsikring A/S, Rønne* 27 Insurance 246 31 P/S Ejendomsholding Banemarksvej, Odense 40 Property 117 6
Investment properties 131 140 Investment assets related to unit-linked contracts 21,528 25,791
Reimbursement of claims relating to previous years (222) (200) Change in expected income relating to previous years (32) (50)
Reimbursement of claims relating to this year (202) (58) Expected income relating to this year 455 188
Recognised as: Deferred tax assets (14) (10) (14) Deferred tax liabilities 73 59 61
Note 23. Other subordinated loan capital Hybrid Subordinated Subordinated Subordinated core capital loan capital loan capital loan capital (redeemed 2017)
Date of issue July 2007 November 2017 December 2015 December 2015 Maturity Bullet Bullet 11 December 2025 11 June 2026
If permitted by the DFSA, the borrower can give notice of termination from 15 September 2017 23 November 2022 11 December 2020 11 June 2021
EURIBOR 3 months Cibor 3 months Cibor 3 months Interest rate +1.90% to 2017 +2.75% 2.92% to 2020 +270bp
Note 24. Provisions for unearned premiums and profit margin - non-life insurance
Gross premiums written 8,745 9,050 Premiums earned (8,906) (9,051) Change in risk margin 0 3 Annual amortisation 23 13
Life insurance provisions direct business at beginning of year 24,318 24,465 Total insurance provisions at beginning of year 24,318 24,465 Collective bonus potential at 1 January (1,977) (1,960) Accumulated revaluation at 1 January (1,606) (1,831) Retrospective provisions at 1 January 20,735 20,674 Gross premiums written 1,671 1,460 Addition of return 649 644 Claims and benefits (2,090) (2,168) Expense loading inclusive of expense bonus (150) (146) Risk gain after allocating policyholders' risk bonus (66) (82)
Intra-group transfers (137) (207) Retrospective provisions at 31 December 20,674 20,227 Accumulated revaluation at 31 December 1,831 1,654 Collective bonus potential at 31 December 1,960 2,270 Insurance provisions direct business at end of year 24,465 24,151 Total insurance provisions at end of year 24,465 24,151 Profit margin at 31 December 0 (88) Life insurance provisions with guarantees and profitsharing 24,465 24,063
Number of customers with investment contracts: Individual policies 3,685 4,921 Policies which are part of a tenure 5,264 8,046 The contracts written do not have guarantees.
Provisions for claims, net of reinsurance 12,623 12,544 Provisions for workers' compensation insurance, net of reinsurance 5,970 6,048 Average period of settlement 7 years 7 years Illness / accident insurance, net of reinsurance, administered by the life insurance business 2,223 2,343 Average period of settlement 13 years 13 years
Note 28. Provisions for claims - continued Claims liabilities analysed by claims year 9 years later 6,511 Less paid incl. inf lation hedging 6,048 6,016 6,182 6,476 5,550 6,690 5,505 5,239 4,688 3,060 55,455 Provisions before discounting
Provisions relating to previous years at 31 December 2,071 Gross provisions at 31 December 2017 13,013
Provisions relating to previous years at 31 December 2,066 Provisions, net of reinsurance, at 31 December 2017 12,544
Reconciliation: Provisions for claims 13,013 Less reinsurers' share of provisions (470) Provisions, net of reinsurance, at 31 December 2017 12,544 Composition of expected payments, net of reinsurance: Discounting / revaluation w orkers' compensation
Note 29. Technical basis for risk allowance and shadow account Customers' share of technical basis for risk allowance 554 807 Share of technical basis for risk allowance allocated to shareholders' equity 44 76 Insurance technical result 598 883
Expected future recognition as income of shadow account - risk groups 0 1
Note 30. Expenses Expenses by their nature: Staff costs (excl. commission) 1,902 1,831 Executive Board 37 44 Board of Directors 5 5 Other staff costs 74 52 Commission - non-life insurance 187 204 Commission - life insurance 73 68 Premises costs etc. 159 156 IT operations and maintenance 191 229 Impairment and amortisation 82 76 Other expenses 226 241 Total expenses 2,936 2,908
Income from investment properties (administration and operation) 114 133 Expenses on investment business 57 39 Other expenses 64 51 Total expenses 2,936 2,908
Note 31. 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 1 Fee for tax advice 0 0 Fee for services, other than audit work* 7 10 *Fee for non-audit services concerns advice regarding system selection, other statements and general accounting- and tax advice and for 2017 reporting for parent company auditor. The Group has an internal audit department which carries out most of the audit work.
Average strike price at 31 December 2016 171 177 165 174
Per granting: Average strike price exercised options 2016 - 104 102 104 Average strike price exercised options 2017 128 139 136 137
Fair value of granting 2016 2 8 10 Fair value of granting 2017 2 8 10
The fair value of the granting for the year has been calculated using the Black and Scholes model assuming a price of DKK 179.44 (2016: DKK 195.41) 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% (2016: 22%) p.a. and a pattern of exercise similar to Topdanmark's previous granting of share options, resulting in an average life of the options of approximately 4 years. The volatility has been calculated on the basis of previous years' volatility, which continues to be Management's best estimate of future volatility.
Note 32. Staff costs - continued Number of options which could be exercised on 31 December ('000) 543 225
Employee shares For the period November 2016 to October 2017, Topdanmark has allotted 169,708 shares at a value of DKK 46m for a salary cut. The annual costs amount to DKK 44m including November and December 2017 concerning allocation in 2018.
Remuneration of the Board of Directors Directors' fees adopted by the AGM were DKK 5,317,000 (2016: DKK 5,075,000) including social charges of DKK 242,000 to Sweden (2016: DKK 0).
(DKK '000): Torbjörn Magnusson 788 1,248 Annette Sadolin 525 817 Ann-Jeanette Bakbøl 350 350 Tina Møller Carlsson 350 350 Mette Jensen 350 350 Petri Niemisvirta - 233 Lone Møller Olsen 233 525 Ricard Wennerklint - 422 Jens Aaløse 233 350
As a consequence of a vacancy in the board of directors for part of 2016, the total fee settled for 2016 amounts to DKK 4,958,000. The Board of Directors receive only a fixed remuneration.
Remuneration of the Executive Board Effective 5 February 2018 Peter Hermann took on the CEO position of Topdanmark A/S. As CEO of Topdanmark Livsforsikring A/S, Peter Hermann in 2017 received a remuneration of DKK 3.2m (8 months 2016: DKK 1.8m).
Salary accrued in the notice period*** 0.4 0.4 * Salary etc. for Christian Sagild includes anniversary bonus of DKK 0.6m earned in previous years.
Board of Directors Number of shares Torbjörn Magnusson 500 500 Annette Sadolin 2,620 2,620 Tina Møller Carlsson 1,270 629 Mette Jensen 1,400 775 Petri Niemisvirta - 500 Lone Møller Olsen 2,425 2,425 Ricard Wennerklint - 2,000 Jens Aaløse 50 50
Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 Søren Thorup Sørensen 3,000 -
Executive Board Number of shares Lars Thykier 14,130 6,205 Brian Rothemejer Jacobsen 68,200 44,499 Christian Sagild 21,160 9,005 Marianne Wier 0 1,262
Note 33. Related parties - continued Sampo plc At 31 December 2017, Sampo plc owned nom. DKK 405m subordinated notes in Topdanmark Forsikring A/S. 31 December 2016 Sampo plc possessed nom. DKK 405m in Topdanmark Forsikring A/S and nom. EUR 33.5m in Topdanmark A/S.
Associated companies Shares are disclosed in the balance sheet and specified in the note on shares in associated companies. Balances are disclosed in the balance sheet.
Note 34. Financial assets 2016 2017 Financial assets at fair value where the revaluation is taken to the income statement Held for trading: Loans guaranteed by mortgages and other loans 7 7
NonQuoted Observable observable 2016 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 7 7
End 2017, financial assets for DKK 490m were transferred from Level 1 to Level 2. By far the majority of the transferred assets are traditional Danish mortgage bonds, which after expiry of new issuing in the series in question do not necessarily have a closing price reflecting the fair value.
Financial assets, level 3: Foreign exchange adjustment 6 (26) Financial assets, level 3 end December 582 692
The item consists of construction financing of property projects (DKK 361m) and Vindmøllepark (wind farm) guaranteed by EKF (DKK 117m) and bonds of DKK 213m, 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 2,470 2,309 Fair value of bonds received as security for the loan 2,910 2,784
Note 35. Financial liabilities Financial liabilities measured at fair value through profit or loss Held for trading: Designated at fair value: Amounts due to credit institutions 44 43 Total financial liabilities measured at fair value (obsevable inputs level 2) 923 555
Cash flow from financing Net redemption/reduction (400) (1,302) Other changes Exchange rate adjustment (2) (0) Annual amortisation 2 0
Assets related to unit-linked products Land and buildings 147 162 2.0
Assets related to unit-linked products do not include assets chosen by policy holders. The return percentages are calculated as the return on derivatives as a percentage of the size of the exposure in the underlying asset.
The exposure in listed shares has been adjusted by means of financial derivatives and amounts to: 2016 2017
Selected age periods in relation Percentage of Return in to time of retirement Years average percentage 2016 to retirement provisions before PAL Risk
Note 41. Number of shares Reconciliation of the number of shares ('000) Shares issued at 1 January 105,000 95,000 Own shares at 1 January (9,328) (7,784) Number of shares at 1 January 95,672 87,216
Shares issued at 31 December 95,000 90,000 Own shares at 31 December (7,784) (4,124) Number of shares at 31 December 87,216 85,876
The Group's insurance companies have registered the following assets as security for technical provisions: Shares in associated companies 404 514
Note 44. Contingent liabilities Contract liabilities 394 611 Adjustments to VAT liabilities 52 80 Other liabilities 21 19 Capital commitments made to loan funds and private equity funds etc. 1,461 1,072
Topdanmark EDB II ApS has entered into a contract with Keylane A/S on procurement and implementation of a new administration system for Topdanmark Livsforsikring A/S. In connection with implementation, Topdanmark Livsforsikring A/S has undertaken to give support in fulfilling Topdanmark EDB II ApS' obligations in accordance with the contract with Keylane A/S.
There have been no events in the period from 31 December 2017 until the presentation of the consolidated financial statements which could change the assessment of the annual report.
The handling of claims is intended to make the customers feel "well-helped" while at the same time ensure efficient management and control of the claims incurred.
Customers should feel ”well-helped” Topdanmark works to ensure that its customers feel “wellhelped ” in every situation during the claims handling process. It is crucial for the customers’ experiences that: • The customer feels LISTENED TO • The customer has an OVERALL VIEW of the entire claims process – particularly who is doing what and when
Topdanmark’s purchasing criteria are as follows: • Quality • Service • Price • Delivery • Digitalisation.
The provisioning risk represents mostly the ordinary uncertainty of calculation and claims inflation, i.e. an increase in the level of compensation due to the annual increase in compensation per policy being higher than the level of general indexation or due to a change in judicial practice/legislation.
A national guarantee scheme of DKK 15bn covering terror claims including an element of NBCR (nuclear, biological, chemical, radiological) has been established. In 2017, the national guarantee scheme covered any market retention in excess of DKK 9.9bn. With effect from 1 January 2018, the market retention was increased to DKK 19.1bn.
Low interest rates mean that the market value of the guarantees granted is high, and that the related bonus potential is low. The lower the bonus potential, the higher the risk of any losses being wholly or partially born by shareholder's equity. If interest rates are high, the same losses could, to a larger degree, be absorbed by the bonus potential.
Equity risk Topdanmark is exposed to equity risk from direct investments as well as investments made via derivatives.
Concentration risk Concentration risk is a risk that increases when investments are consolidated with individual issuers, whereby dependence on these issuers’ solvency grows.
Liquidity risk In insurance companies the liquidity risk is very limited as premiums are paid prior to the beginning of the risk period.
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.
Compliance risk is the risk that Topdanmark does not have sufficient knowledge of current or future rules. Additionally, compliance risk is the risk of violation of rules and the losses this might cause Topdanmark and Topdanmark's customers. Such losses can be direct financial losses or indirect losses in the form of sanctions
The Compliance Function's work comprises the following principal tasks: • Compliance reviews and annual status meetings with all of the Group's business sectors and administrative departments
The change has no effect on Topdanmark Group’s result, shareholders’ equity or total shareholders’ equity and liabilities.
Topdanmark expects to implement the new standards on the effective date. Other than below mentioned standards, other new and revised IFRS standards and interpretations are not expected to have a material effect on Topdanmark’s profit.
IFRS 9 “Financial instruments” The standard 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.
An analysis of the standards IFRS 9 and 17 has been initiated. The financial effect has not yet been clarified.
Premium provisions Premium provisions are included based on an estimate of future payments for incidents in the remaining period of cover. A significant uncertain and estimated assessment is involved in the determination thereof. Premium provisions must be seen in connection with profit margin. Financial estimates and assessments with effect on the result of the year and shareholders’ equity are primarily relevant within businesses with combined ratio of 100 or more, e.g. change of ownership, workers’ compensation and motor liability, where premiums earned are insufficient for covering expected payments and a risk margin, and consequently provisions to cover losses must be made.
Announcement No. 04/2018 from Topdanmark A/S Page 72 of 94 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.
Measurement of fair value Fair value is the price which would be achieved on the sale of an asset or paid for the transfer of a liability in a normal transaction between the market players at the time of measurement.
Level 2 If there is no closing price, another public price is used, which is believed to be the most appropriate, in the form of indicative prices from banks/brokers. Assets of this type are, for example CDOs and credit bonds. Valuation methods or other publicly available information are used to value listed securities, where the closing price does not reflect the fair value.
An insurance contract is a contract under which the insurer accepts significant insurance risk from the policyholder by agreeing to compensation if a specified uncertain future event adversely affects the policyholder. Insurance risk is always considered to be material in nonlife insurance. In life insurance, it is considered to be material when it covers the effect of disability including the effect of premiums waived and mortality where the benefit exceeds the total savings of the policy.
Calculation of profit in life insurance The calculation of profit for life insurance is regulated by the Danish Financial Business Act. The definition of Topdanmark's policy on the calculation of the profit for the year has been reported to the DFSA.
The risk return is transferred to shareholders' equity if it can be covered by collective bonus potentials and so much of the profit margin not included in the retrospective provisions.
Segment information Topdanmark has divided its non-life insurance business into the following two business segments: Personal offers policies to individual households in Denmark.
Ratios for non-life insurance are in accordance with the DFSA's Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds. The basis for these calculations, which have been made before elimination of intra-group rent, is disclosed in segment information. Topdanmark has not calculated consolidated ratios for life insurance, as it does not believe that a true and fair view would be achieved by presenting ratios based on an accumulation of completely different portfolios.
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 changes in capital, including the purchase and sale of own shares. Furthermore, it includes the raising of loans
Announcement No. 04/2018 from Topdanmark A/S Page 74 of 94 and repayments on interest-bearing debt. Cash and cash equivalents comprise liquid funds as well as deposits with credit institutions.
Income statement Premiums earned Gross premiums in non-life insurance comprise those premiums receivable during the year and an estimate of premiums on insurance contracts written, either directly or indirectly, for which the period of risk has commenced before the end of the financial year. They do not include own risks. Premiums earned net of reinsurance comprise gross premiums for the year adjusted for changes in the provisions for unearned premiums and net of reinsurance. Effectively, this means the premiums are being recognised in line with the distribution of risk over the period of cover. For loss-making insurance contracts, the expected loss is included when the contracts are concluded.
Operating expenses Technical operating expenses which relate, either directly or indirectly, to the acquisition and renewal of the portfolios are included in acquisition costs. New business commission is generally recorded in the income statement on the date the insurance contract takes effect. Administrative expenses comprise other costs incurred in the administration of the portfolios which relate to the financial year, and which have been accounted for on an accruals basis. Commission received from reinsurers has been accounted for on an accruals basis over the policies’ period of cover.
The jointly taxed companies' joint tax contributions are settled by dividing the current Danish corporation tax between them in proportion to their taxable income. Furthermore, those companies with tax losses receive joint tax contributions from those companies which have been able to use this loss to reduce their own tax gain.
Assets Intangible assets Goodwill relates to the acquisition of companies prior to 2004 and is included at the book value on the change to IFRS. Goodwill is not amortised but subjected to an impairment test at the end of the financial year and written down to its recoverable amount if this is lower than the financial value.
Intangible assets under construction are subjected to an impairment test at the end of the financial year and written down to their recoverable amount, as required.
Financial assets at fair value with any value adjustment taken to the income statement are financial assets which either are included in a trading portfolio, are derivatives or at the time of their first recognition are included in this classification, because the assets are managed and measured on a fair value basis, or because this eliminates or significantly reduces accounting inconsistency.
Premium provisions are calculated on the basis of the latest prognosis for combined ratio for the next 12 months. The prognosis is prepared on a quarterly basis, i.a., based on analyses of the trend in premiums, compensation and expenses and for change of ownership also statistical analyses of trend in claims notification in relation to the time the insurance policies were written.
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.
The future payments to be received and made have been based on the assumed incidents of death, disability, resumption of work, renewal and premium expiry. The mortality rate is calculated by considering the DFSA's population mortality rate and Topdanmark's own observed mortality rate. Furthermore, the DFSA's assessed improvement in future life expectancy is applied. The other parameters stated are best estimates based on Topdanmark’s observations.
Collective bonus potential is used for equalization of each year’s bonus allocations. Thus, in years where the investment and insurance results are better than the allocated bonus, transfer to collective bonus potential will be made, while in years when the result is insufficient to finance the allocated bonus, funds will be transferred from the collective bonus potential.
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.
Proposed appropriation of profit for the year: Transfer to net revaluation reserve at net asset value 1,585 1,771 Transfer from profit carried forward (49) (1,748)
Amounts due from affiliated companies 65 484 Other debtors 65 0 TOTAL DEBTORS 129 484
Other reserves 1,894 2,875 Total reserves 1,894 2,875 Profit carried forward 3,019 1,822 Proposed dividend 0 1,710 TOTAL SHAREHOLDERS' EQUITY 5,009 6,497
Amounts due to affiliated companies 289 183 Current tax liabilities 58 34 Other creditors 16 2 TOTAL CREDITORS 363 219 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 5,779 7,114
Shareholders' equity at 31 December prior year 105 1,395 3,479 4,979 Effect of new Executive Order on Financial Statements (31) (31) Equity end of year 2015 according to new Executive Order on Financial Statements 105 1,364 3,479 4,948
Shareholders' equity at 31 December prior year 95 1,894 3,019 5,009
Profit / (loss) for the year 1,771 (1,748) 1,710 1,733 Other comprehensive income in affiliated companies 0 0 0 Total comprehensive income for the year 1,772 (1,748) 1,710 1,733
Note 1. Income from affiliated companies Topdanmark Forsikring A/S 1,506 1,673 Topdanmark Kapitalforvaltning A/S 79 101 Topdanmark Invest A/S (0) (2) Income from affiliated companies 1,585 1,771
Note 3. Other expenses Holding expenses 53 42 Other expenses 53 42
Calculated tax on profit for the year 22% (2016: 22%) 13 11 Adjusted for the tax effect of: Non-deductible expenses / income not liable to tax (2) (0)
Book value 408 397 Market value (level 2) 409 400 Costs of raising the loan capital - 3 Interest charges 7 6
Related parties with significant influence comprise the Board of Directors, the Executive Board and their families. Remuneration of the Board of Directors Directors' fees adopted by the AGM were DKK 5,317,000 (2016: DKK 5,075,000) including social charges of DKK 242,000 to Sweden (2016: DKK 0).
The fee includes DKK 263,000 (2016: DKK 263,000) concerning Topdanmark Forsikring A/S.
** The Executive Board successively accrues a remuneration of eighteen months to be disbursed by the expiry of the employment. The remuneration is accumulated over the income statement. Kim Bruhn-Petersen, resigned in 2016, has in 2017 received a remuneration of DKK 8.8m. The remuneration for Christian Sagild amounts to DKK 13.2m to be disbursed by the end of the employment at year-end 2018.
Significant risk taker Additional to the Executive Board, another 19 employees have significant influence on Topdanmark’s risk profile.
There are no other earnings conditions to the option scheme 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 proportional deduction in the number of allocated options is made.
Sampo plc At 31 December 2017, Sampo plc owned nom. DKK 405m subordinated notes in Topdanmark Forsikring A/S. 31 December 2016 Sampo plc possessed nom. DKK 405m in Topdanmark Forsikring A/S and nom. EUR 33.5m in Topdanmark A/S.
Number of shares held to cover the granting of options: 1,444,000 (2016: 1,783,000)
The net asset value of affiliated companies is calculated without providing for deferred tax on security funds, unless it is probable that a situation creating such a tax liability will arise within the measurable future.
Other Generally, all the amounts in the report are disclosed in whole numbers of DKKm. The amounts have been rounded and consequently the sum of the rounded amounts and totals may differ slightly.
The Board of Directors and the Executive Board have today considered and approved the Annual Report of Topdanmark A/S for 2017.
Board of Directors: Torbjörn Magnusson Annette Sadolin 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 2017. 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 2017 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 2017 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.
Our conclusion is in accordance with our audit report for the Audit Committee and the Board of Directors.
In connection with our audit of the consolidated financial statements, our responsibility is to consider whether the solvency cover is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on this, we conclude that the solvency cover is materially misstated; we are required to report on this. We have nothing to report in this respect.
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 2017, 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 consolidated cash flow statement. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for issuers of listed shares, and the parent financial statements are prepared in accordance with the Danish Financial Business Act.
In our opinion, the consolidated financial statements give a true and fair view of the Group’s financial position at 31 December 2017 and of its financial performance and cash flows for the financial year 1 January to 31 December 2017 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for issuers of listed shares.
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the “Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements” section of this auditor’s report. We are independent of the Group in accordance with the IESBA Code of Ethics for Professional Accountants and additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We were appointed auditors of Topdanmark A/S for the first time before 1995. We have been reappointed annually by decision of the general meeting for a total contiguous engagement period of more than 23 years up to and including the financial year 2017.
Measurement of insurance provisions How the matter was addressed in our audit At 31 December 2017, provisions for insurance contracts amount to DKK 16,091m for non-life insurance and DKK 54,198m for life insurance (DKK 16,264m at 31 December 2016 for non-life insurance and DKK 47,351m at 31 December 2016 for life insurance).
The calculation of provisions for insurance contracts is complex and to a significant extent subject to accounting estimation that is based on management judgements and assumptions about future events. We believe that the most significant risks relate to changes in assumptions, and the methods and models applied may also have a significant influence on the measurement of provisions for insurance contracts and the technical result. Consequently, there is a risk that provisions for insurance contracts are not measured applying appropriate models and realistic assumptions.
• Independent actuarial assessment of the data, methods, models and assumptions applied compared to generally accepted actuarial standards, historical developments and trends
The following elements are particularly complex and/or to a significant extent subject to management estimation, assessments and methods where even small changes may have a material impact: • Life expectancy, life expectancy improvements and disability (life) • Risk premium • Expected future inflation and salary development (life and industrial injury) • Expected future cash flow from insurance contracts entered into, including profit margin and risk margin • Yield curve plus volatility adjustment • Direct and indirect costs to release claims outstanding provisions • Best estimate of future payments for losses occurred and their maturities, including in particular for large portfolios subject to long-term release.
Statement on the management commentary Management is responsible for the management commentary.
In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to read the management commentary and, in doing so, consider whether the management commentary is materially inconsistent with the consolidated financial statements and the parent financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
As disclosed in the statement of financial highlights and key figures, the solvency cover is exempt from the requirement to be audited. Consequently, our opinion on the parent financial statements does not cover the solvency cover, and we do not express any form of assurance conclusion thereon.
In connection with our audit of the parent financial statements, our responsibility is to consider whether the solvency cover is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
Management’s responsibilities for the consolidated financial statements and the parent financial statements Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for issuers of listed shares, and for the preparation of parent financial statements that give a true and fair view in accordance with the Danish Financial Business Act, and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent’s internal control
• 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 our auditor’s report. However, future events or conditions may cause the Group and the Entity to cease to continue as a going concern
Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and, where applicable, related safeguards.
Anders Oldau Gjelstrup Jacques Peronard State-Authorised Public Accountant State-Authorised Public Accountant MNE no 10777 MNE no 16613