Focused strategy y Danish player y Stable insurance risks y Low expense ratio y Limited financial risk y Synergy between life and non-life insurance y Efficient capital management y Limited top line growth y Profitable growth - in that order y High net result y No protection against take-over in the Articles of Association
• Combined ratio: 83.6 (2017: 82.0) • Combined ratio excluding run-off profits: 87.5
Q4 2018 • Post-tax profit of DKK 259m (Q4 2017: DKK 379m) • Combined ratio: 81.7 (Q4 2017: 82.1) • Combined ratio excluding run-off profits: 88.1
(Q4 2017: 86.3) • Premiums increased 0.2% in non-life insurance and 31.2% in life insurance • Profit on life insurance was DKK 45m (Q4 2017: DKK 42m) • After return and revaluation of non-life insurance provisions, the investment return was DKK 116m (loss) (Q4 2017: DKK 65m).
that a dividend of DKK 1,350m be distributed for 2018 representing DKK 15 per share issued. This represents a payout ratio of 101.5 and a dividend yield of 5.2.
Post-tax EPS, diluted (DKK) 14.3 11.6 16.7 20.2 15.4 4.4 3.0 Share buy-back per share, diluted (DKK) 15.8 16.6 16.6 4.8 Dividend per share issued, proposed (DKK) 19.0 15.0 Net asset value per share, diluted (DKK) 52.2 51.5 57.3 75.6 72.9 Listed share price end of period 200.2 196.0 179.3 268.1 303.0 Number of shares end of period ('000) 103,623 95,672 87,216 85,876 86,432
Average number of shares, diluted ('000) 108,805 100,461 91,721 85,873 86,637 86,025 86,807
Results for 2018 Topdanmark’s post-tax profit for 2018 was DKK 1,331m (2017: DKK 1,733m).
After return and revaluation of non-life insurance provisions, the investment return in non-life insurance decreased by DKK 367m to DKK 79m (loss). The lower investment return is primarily due to a lower investment return on equities and Danish mortgage bonds.
Results for Q4 2018 The profit for Q4 2018 was DKK 259m (Q4 2017: DKK 379m).
The profit on life insurance increased by DKK 3m to DKK 45m.
Non-life insurance - Investment return after return and revaluations of non-life insurance provisions etc. 288 80 – 130 (79) Profit on non-life insurance 1,909 1,280 – 1,380 1,420
Non-life insurance - Investment return after return and revaluations of non-life insurance provisions etc. 15 (155)
The level of large-scale claims (claims exceeding DKK 5m by event after refund of reinsurance) increased by DKK 110m to DKK 128m in 2018, representing a 1.2pp deterioration of the claims trend. The large-scale claims were DKK 28m above the normal level of DKK 100m.
In 2018, other conditions of a non-recurring nature which have had a substantial impact on the claims trend include a reduction of the risk margin regarding claims provisions of DKK 31m equivalent to a positive impact of the claims trend of 0.3%. This is included in the table “Claims trend”, “Other”. Risk margin is calculated as the amount which would be demanded by a purchaser of the company's insurance portfolio for taking on the risk that actual expenses deviate from the carrying amount relating to settlement of the insurance provisions.
Expense ratio The expense ratio was unchanged at 16.1 in 2018 despite the general trend of wages and salaries together with an increased payroll tax rate from 14.1% to 14.5%. This resulted in a total impact on the expense ratio of 0.3pp.
Combined ratio The combined ratio was 83.6 in 2018 (2017: 82.0). Excluding run-off profits, the combined ratio was 87.5 (2017: 85.8).
Non-life insurance in Q4 2018 Premiums earned increased by 0.2% to DKK 2,249m. The personal segment accounted for a 0.5% increase and the SME segment accounted for a 0.2% decline.
The claims trend was 65.0 in Q4 2018 (Q4 2017: 65.6), representing a 0.6pp improvement of the claims trend.
Claims before run-off, weather, large-scale claims and other 68.8 70.5 69.1 70.2
Premiums earned increased by 1.5% to DKK 5,056m in 2018. In Q4 2018, premiums earned increased by 0.5% to DKK 1,230m. In 2018, the increase in premiums was impacted by a decline in premiums in illness/accident (I/A) following the termination of the life insurance distribution agreements with Sydbank and Nykredit. In addition to this, the increase in premiums was adversely impacted by accounting adjustments related to unexpired risk. Adjusting for these two conditions, the increase in premiums in Personal was 3.4% in 2018.
The claims trend increased by 1.3pp to 67.4. Compared with 2017, the claims trend was favourably impacted by an improved development in theft damage and personal injuries in motor insurance. However, increased expenses for fire and burst pipes and claims for comprehensive motor insurance more than compensated for this. Weather-related claims accounted for DKK 4m (2017: DKK 15m).
Premiums earned increased by 1.8% to DKK 4,097m in 2018. In Q4 2018, premiums earned declined by 0.2% to DKK 1,023m. Premiums earned from 2017 to 2018 are impacted by accounting adjustments of DKK 29m (loss) related to unexpired risk. This is equivalent to an adverse impact of 0.7pp.
Furthermore, workers’ compensation in 2018 was adversely impacted by a change in the mortality rate assumptions (longer lifetimes), higher expenses for AES/ ”Arbejdsmarkedets Erhvervssikring” (Labour Market Insurance) and higher wage and salary assumptions.
Termination of distribution agreement with Danske Bank Last autumn, Danske Bank terminated the distribution agreement with Topdanmark. Please refer to company announcement no. 15/2018.
On its own, the termination of the distribution agreement with Danske Bank is expected to have an adverse impact of just under 0.5pp on Topdanmark’s total trend in premiums in 2019. However, Topdanmark has a good sales momentum through its own sales channels and other distribution partners. Despite the termination of the Danske Bank agreement, Topdanmark expects a higher premium growth in 2019 than actual growth in 2018.
Topdanmark wants to further strengthen its cooperation with existing distribution partners. In addition to this, Topdanmark is active on the market for new distribution partners.
Life insurance in 2018 The result from life insurance was a profit of DKK 228m in 2018 (2017: profit of DKK 249m) representing a decrease of DKK 21m.
The profit on life insurance activities comprises the profit on life insurance plus the investment return of Liv Holding (Life Holding). This profit is calculated in accordance with the stated policy for 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.
Trend in premiums Gross premiums amounted to DKK 10,111m in 2018 representing a 18.6% increase from DKK 8,525m in 2017 of which gross premiums on unit-linked contracts were DKK 8,765m, representing a 24.1% increase compared with 2017. 94% of the gross premiums in 2018 can be assigned to the unit-linked contracts.
Gross premiums increased by 31.2% to DKK 2,964m in Q4 2018, of which gross premiums on unit-linked contracts were DKK 2,601m, representing a 32.9% increase compared with Q4 2017.
Regular premiums increased by 0.3% to DKK 721m in Q4 2018 whereas single premiums increased by 45.6% to DKK 2,243m in Q4 2018.
The investment return in Q4 2018 and full year 2018 on the most significant classes of assets is disclosed in the following table.
The equity exposure was DKK 909m 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 2018, and the foreign portfolios are based on MSCI World DC in the original currency for foreign equities.
Unlisted equities and hedge funds 0.3 0.3 3 0.8 (0) (0.1) 30 9.7 15 4.7
Return and revaluations of non-life insurance provisions (81) (37) (143) (86) Investment return after return and revaluations of non-life insurance provisions 65 (116) 396 16
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. 97% of the property portfolio is currently let when adjusting for properties under construction or being converted for other purposes.
"Subordinated loan capital" comprises subordinated loans issued by the parent company and by Topdanmark Forsikring.
Topdanmark uses the Solvency ll discount curve with volatility adjustment (VA) for an assessment of the technical provisions. The VA component comprises a corrective element for the development in pricing of Danish mortgage bonds, as well as a corrective element for the development in pricing of European business credits. The VA component was 45bp at the end of 2018 and 30bp at the beginning of the year.
Taxation The tax charge was DKK 371m of the pre-tax profit of DKK 1.702m, corresponding to an effective tax rate of 21.8% (2017: 22.5%).
Since the announcement of the interim report for Q1-Q3 2018, Topdanmark’s distribution agreement with Danske Bank has been terminated, cf. the section “Termination of distribution agreement with Danske Bank”.
• An expense ratio of around 16 • On the one hand, additional expenses of 0.5 to 1pp in connection with investments in increased digitisation and automation are still assumed to have an impact on the combined ratio. On the other hand, investments from previous years will result in improved efficiency in 2019. Together with a slightly improved insurance risk in general, this will contribute to an improvement of the assumed combined ratio of approx. 1pp when comparing with 2018
• Interest rates remain unchanged and do not impact the combined ratio.
The assumed combined ratio for 2019 remains unchanged at 89-90, excluding run-off.
Overall, Topdanmark assumes a pre-tax result for non-life insurance of DKK 1,040-1,140m.
Life insurance Topdanmark assumes an increase in regular premiums of 10% in 2019. At this time of the year, it makes no sense to make assumptions on the level of single premiums.
Overall, Topdanmark assumes a pre-tax result for life insurance of DKK 200-230m.
The risk return and shadow account will not be finally calculated until the presentation of the Annual Report for 2019.
Parent company The profit forecast model for the parent company plus subsidiaries outside of the insurance group still assumes a pre-tax profit of DKK 40-50m.
The profit forecast model is based on the assumption of an annual 7.0% return on equities and foreign exchange rates – both unchanged from the level of 28 December 2018.
Furthermore, it is assumed that the return on interestbearing assets hedging the discounted provisions is only sufficient to cover discounting and revaluation of the provisions, while the return on the remaining interestbearing assets is assumed to be 1.72% (risk-free interest rate plus 2.0pp).
The solvency ratio can be adjusted to a certain extent in accordance with the Board of Directors’ wishes. For example, the Board of Directors can choose to increase the solvency ratio by reducing capital requirements via a lowering of the Group’s investment-related risk profile. An element thereof could be to offer life-insurance customers with guaranteed benefits to switch to unit-linked for which the capital requirement is significantly lower. It is an ongoing consideration process because both riskreducing measures will reduce the profitability of the Topdanmark Group.
Topdanmark’s assessment is that the current level of solvency ratio is comfortable considering the wish for a sound own funds base and satisfactory profitability.
The internal model has been used in solvency calculations in accordance with the Danish solvency rules in force since 2014 and has been amended to meet the EU Solvency II-rules in force. The DFSA has approved Topdanmark’s internal model to be used when calculating solvency capital requirements.
The risk management function implements an annual ORSA process identifying risks in the business, quantifying these risks and collecting them in a risk
Please refer to Note 46 for a more detailed description of the above risks.
Solvency calculation and capital requirements Solvency II gives the companies the opportunity to fully or partially develop their own internal risk model for solvency calculation. Topdanmark uses a partial internal model which has been developed in-house to calculate the nonlife risk.
Topdanmark has an outstanding subordinated tier 1 loan (restricted tier 1 capital notes) of DKK 400m. This loan is perpetual but includes an option enabling Topdanmark to redeem the loan as of 23 November 2022.
Risk scenarios (DKKm) after corporation tax and pension return tax 2017 2018 Non-life insurance Underw riting risk Combined ratio − 1pp increase (70) (71)
The size of the necessary solvency capital, i.e. Shareholders’ equity reduced by the value of assets not included in the solvency cover, has been calculated at DKK 3,400m. Further solvency cover is ensured through outstanding subordinated notes.
Shareholders As of 1 February 2019, Topdanmark had 36,799 shareholders registered by name.
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 significant importance or unusual in nature to the Company.
Taking the latest evaluation of the Board into account, it is assessed that Topdanmark's Board of Directors with its current composition possesses the above mentioned skills and qualifications.
Diversity Topdanmark’s current Board of Directors reflects diversity in many areas, including professional background and education, gender 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, competence and rate of attendance on www.topdanmark.com → About Topdanmark → Management → Executive Board and Board of Directors and Board of Directors and Executive Board in this Annual Report.
Any additional directorships undertaken by the Board members including the significance and extent of each duty are part of the evaluation of Topdanmark’s Board of Directors. The evaluation of overboarding is based on the guidelines prepared by ISS and additionally, a subjective evaluation is made. None of Topdanmark’s Board members are considered to be overboarded.
Amendments to the Company's Articles of Association The general meeting is Topdanmark's chief decisionmaking vehicle. Resolutions at general meetings are passed by a simple majority of votes, unless a special majority or representation is required by the Danish Companies Act or the Articles of Association. The Articles of Association provide that resolutions amending the Articles of Association are only valid if adopted by an affirmative vote of not less than two thirds of the votes cast as well as of the capital represented at the general meeting. The Articles of Association provide no restrictions on voting rights.
Severance pay In order to ensure unconditional loyalty, focus and performance for the Topdanmark Group up to a potential takeover, Topdanmark has reached an agreement with some members of the Executive Board according to which, under certain circumstances, they will receive compensation in the form of an extended period of notice and an increased severance pay if they resign or are made redundant or their post is abolished in connection with Topdanmark and/or the company in the Topdanmark Group with which the person concerned is employed being taken over by or merged with a company outside of the Group, or if one or more owners take control of Topdanmark and/or the company in the Topdanmark Group with which the person concerned is employed.
For executive service agreements signed after November 2017, the total value of remuneration for the period of termination including severance pay cannot exceed two years’ salary including all remuneration shares. For executive service agreements signed before November 2017, severance pay cannot exceed the value of the remuneration for the past two years.
In addition to salary policy, the remuneration policy also includes the general guidelines for performance-related pay, its pension policy and its guidelines for the granting of severance pay. Each of these guidelines is applicable for the Topdanmark Group. The remuneration policy covers Topdanmark's Board of Directors, Executive Board, other 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 Senior Management) 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 and the Senior Management, 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.
The options granted for 2019 are not to be exercised any earlier than after the publication of the 2021 Annual Report in 2022 and no later than after the publication of the 2023 Annual Report in 2024. In the intervening period, the options can only be exercised up to three banking days after Topdanmark's publication of its annual, half year and interim reports.
The market value of the options for 2019 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 302.68, an interest rate corresponding to the zero coupon rate based on the swap curve on 28 December 2018, 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 2018, the exposure of the options held by the Executive Board represented 0.2% of the number of outstanding shares.
Topdanmark’s Remuneration Report for 2018 provides additional information on remuneration in Topdanmark and Topdanmark’s option scheme. Detailed information is available on www.topdanmark.com → Investor → Reports & presentations → Remuneration reports.
Distribution of dividend for 2018 Given Topdanmark’s solid own funds, the Board of Directors will recommend to the AGM that distribution of dividend for DKK 1,350m from this year’s profit of DKK 1,331m will take place representing a payout ratio of 101.5.
CSR Topdanmark's "Statutory report on Corporate Social Responsibility, see Sections 132a and 132b of Executive Order on Financial Reports for Insurance Companies and
AGM 03 Apr 2019 Q1 2019 Interim Report 25 Apr 2019 2019 Half-year Report 18 July 2019 Q1-Q3 2019 Interim Report 24 Oct 2019 Announcement of 2019 Annual Results 23 Jan 2020 2019 Annual Report 20 Feb 2020
Offices held: Member of the Board of Directors of: • If P&C Insurance Holding Ltd. (Chairman) • Insurance Europe (Vice President) • Insurance Sweden • Nordea Bank AB.
Expertise and qualifications: The Board has defined the required competences and qualifications for board members of Topdanmark. Among these, Torbjörn Magnusson possesses knowledge and experience of the following: Management experience from other financial businesses, board assignments in financial businesses, organisation, strategic management, insurance operations, reinsurance, long-tail business (premiums, provisions, run-off), financial and insurance reporting, general statistics, risk management and risk assessment, sales for the private market, sales for the professional market, marketing and branding, outsourcing, finances, own funds, solvency and minimum capital requirements, rules of internal models, auditing, financing and investments, regulatory environment, compliance, IT and IT security, digitisation, recruitment and human resources.
Member of: The Remuneration Committee and the Nomination Committee of Topdanmark
(Finland) • Varma Mutual Pension Insurance Company (Finland) • Finland Chamber of Commerce • Alma Media Corporation (Chairman).
Expertise and qualifications: The Board has defined the required competences and qualifications for board members of Topdanmark. Among these, Petri Niemisvirta possesses knowledge and experience of the following: Management experience from other financial businesses, board assignments in financial businesses, organisation, strategic management, insurance operations, risk management and risk assessment, marketing and branding, outsourcing, finances, own funds, solvency and minimum capital requirements, financing and investments, compliance, digitisation, recruitment and human resources.
Expertise and qualifications: The Board has defined the required competences and qualifications for board members of Topdanmark. Among these, Lone Møller Olsen possesses knowledge and experience of the following: Management experience from financial businesses, strategic management, reinsurance, long-tail business (premiums, provisions, run-off), financial and insurance reporting, risk management and risk assessment, outsourcing, finances, own funds, solvency and minimum capital requirements, rules of internal models, auditing, financing and investments, regulatory environment and compliance.
Independence: Lone Møller Olsen meets the definition of independence set out by the Committee on Corporate Governance.
Expertise and qualifications: The Board has defined the required competences and qualifications for board members of Topdanmark. Among these, Annette Sadolin possesses knowledge and experience of the following:
Management experience from other financial businesses, board assignments in financial businesses, organisation, strategic management, insurance operations, reinsurance, long-tail business (premiums, provisions, run-off), financial and insurance reporting, risk management and risk assessment, sales for the professional market, marketing and branding, finances, own funds, solvency and minimum capital requirements, rules of internal models, auditing, financing and investments, regulatory environment, compliance, IT and IT security, recruitment and human resources.
Previous positions held: 1994-1997: Trygg-Hansa 1997-1999: Head of Control, Skandia P&C 1999-2001: Senior Vice President, If P&C Insurance Ltd 2002-2008: CFO, If P&C Insurance Ltd 2008-2019: Deputy CEO, If P&C Insurance Holding Ltd.
Independence: As Ricard Wennerklint represents a controlling shareholder’s interests, he does not meet the definition of independence set out by the Committee on Corporate Governance.
Managerial responsibilities: • HR • Communications, IR, CSR • Group Secretariat, Corporate Legal Matters • Topdanmark Livsforsikring (life insurance).
Managerial responsibilities: • Personal • Partners • Agricultural & SME • Claims handling • Marketing • Customer Service.
Member of the Board of Directors of: • Bornholms Brandforsikring A/S • Forsikringsakademiet A/S • Finanssektorens Arbejdsgiverforening.
TECHNICAL PROFIT / (LOSS) ON LIFE INSURANCE (477) 19 7 8 (48)
Provisions for insurance and investment contracts: Combined ratio excl. run-off profits (%) 89.8 91.1 90.4 85.8 87.5
NON-LIFE INSURANCE Gross premiums written 3 9,050 9,205 Ceded reinsurance premiums (617) (617) Change in the provisions for unearned premiums 3 44 35 Change in profit margin and risk margin 3 (43) (43) Change in the reinsurers' share of the provisions for unearned premiums 12 10 Premiums earned, net of reinsurance 8,446 8,590
Claims and benefits paid 7 (4,701) (4,088) Reinsurance cover received 4 3 Claims and benefits paid, net of reinsurance (4,697) (4,086)
Change in the life insurance provisions 8 (6,091) (3,318) Change in the reinsurers' share (7) (4) Change in the life insurance provisions, net of reinsurance (6,098) (3,321)
Acquisition costs (148) (143) Administrative expenses (285) (277) Reinsurance commission and share of profits 1 0 Total operating expenses, net of reinsurance (433) (420) TECHNICAL PROFIT / (LOSS) ON LIFE INSURANCE 8 (48)
Return and revaluations non-life insurance provisions 11 (143) (86) Investment return transferred to life insurance business (3,372) 2,326 Other income 23 23
Profit for the year 1,733 1,331 Items which cannot subsequently be reclassified as profit or loss: Revaluation / Reversed revaluation owner-occupied properties 0 1 Other comprehensive income 0 1 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,733 1,332
Operating equipment 111 116 Owner-occupied properties 853 853 TOTAL TANGIBLE ASSETS 16 965 969
Loans guaranteed by mortgages 6 6 Deposits with credit institutions 3,405 4,380
Receivables from policyholders 310 262 Receivables from insurance companies 57 197 Receivables from associates 327 365 Other receivables 170 281 TOTAL RECEIVABLES 1,438 1,740
Accrued interest and rent 260 310 Other prepayments and accrued income 173 196 TOTAL PREPAYMENTS AND ACCRUED INCOME 432 506 TOTAL ASSETS 80,958 83,224
Cash flow from operations Gross premiums 8,965 9,214 Claims paid (5,838) (5,992) Expenses paid (1,294) (1,352) Reinsurance ceded (238) (255) Cash flow from non-life insurance 1,595 1,615
Gross premiums 8,509 10,164 Claims and benefits (4,699) (4,094) Pension return tax (452) (486) Expenses paid (440) (425) Reinsurance ceded 27 1 Cash flow from life insurance 2,946 5,160
Sale of affiliate 0 124 Equity investments in associates (274) (249) Equity investments 27 147 Unit trusts 1 (11)
Investment activities related to unit-linked products (2,497) (6,537) Balances with associates 39 (38)
Cash and cash equivalents at 1 January 2,282 3,941 Revaluation of cash and cash equivalents (24) 0 Cash and cash equivalents in sold affiliate 0 (22) Cash and cash equivalents at 31 December 3,941 4,634
Shareholders' equity at 31 December prior year 95 13 1,146 57 3,392 0 4,702
Profit for the year 7 16 1,710 1,733 Other comprehensive income 0 0 0 Total comprehensive income for the year 7 16 1,710 1,733
Cancellation of own shares (5) 5 0 Share buy-back (410) (410) Share-based payments 54 54 Exercise of share options 108 108
Dividend, own shares 73 73 Share-based payments 48 48 Exercise of share options 79 79
Shareholders' equity 6,191 6,016 Deferred tax on security funds 306 306 Profit margin 925 1,005 Intangible assets (922) (1,091) Proposed dividend (1,710) (1,350)
Correction for tax (77) (63) Usable share, subordinated loan tier 1 400 400 Available share subordinated notes 1,349 1,355 Own funds 6,370 6,509
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 Earnings per share 14 Intangible assets 15 Tangible assets 16 Investment properties 17 Equity investments in associates 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 Sale of affiliate 37 Analysis of assets and their return - life insurance 38 Return and risk - unit-linked products 39 Number of shares 40 Own shares 41 Collateral 42 Contingent liabilities 43 Companies 44 Other disclosures 45 Risk factors 46 Accounting policies 47
Pension return non-life insurance 1 (1) 0 Return and revaluations non-life insurance provisions (143) (143) Transferred to technical result (3,372) (3,372)
Technical profit on non-life insurance 843 656 (0) 1,499 35 1,534
Equity investments in associates 71 1,214 0 1,285 Other financial investment assets 21,099 24,800 6 45,906 Investment assets related to unit-linked products 0 25,791 0 25,791 Reinsurers' share of provisions 554 20 0 574
Note 3. Gross premiums earned - non-life insurance Gross premiums written 9,050 9,205 Change in provisions for unearned premiums 44 35 Change in profit margin and risk margin (43) (43) Gross premiums earned 9,051 9,197
Run-off profits / (loss), net of reinsurance (6) 13 9 8 344 353 Claims provisions, net of reinsurance 40 36 69 75 12,544 12,476
Proportion of gross premiums represented by premiums related to unit-linked products not eligible for bonus 7,065 8,765 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 43 Policies which are part of a tenure 89 91 Group life 174 88
Bonuses paid in cash 306 270 Claims and benefits paid 4,701 4,088
Note 10. Revaluations Held for trading: Equity investments 268 (345) Unit trusts 1 (5)
Total held for trading 579 (1,401) Designated at fair value: Deposits with credit institutions (1) 0 Investment assets related to unit-linked products: Equity investments 943 (1,238) Unit trusts 156 (234)
Note 10. Revaluations - continued Of which revaluation of derivatives transferred to claims incurred (10) 118 Investment properties 21 97 Liquid funds (23) 0
Note 14. Earnings per share Profit for the year 1,733 1,331 Average number of shares ('000) 85,700 86,242 Diluting impact of options ('000) 173 395 Average number of shares, diluted ('000) 85,873 86,637 EPS (DKK) 20.2 15.4 EPS, diluted (DKK) 20.2 15.4
Completed projects IT developm't under con2017 Goodwill software projects struction Total
Impairment and amortisation at 1 January 0 (225) (506) 0 (731)
Impairment and amortisation at 31 December 0 (207) (539) 0 (747)
Development projects under construction primarily comprise new administration system for life-insurance. Completed 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.
Cost / revaluation at 1 January 456 856 1,312 Additions, including improvements 20 1 21
An increased rate of return with averagely 0.5pp will reduce the total fair value by DKK 331m (2017: DKK 320m).
The fair value includes properties under construction by DKK 508m (2017: DKK 272m).
The financial information is according to the companies' most recent available annual reports. *2018 is the first financial year and therefore an annual report has not been published. Bornholms Brandforsikring A/S has been recognised on the basis of the most recent financial information at 30 September.
Investment properties 140 307 Investment assets related to unit-linked contracts 25,791 27,890
Reimbursement of claims relating to previous years (200) (207) Change in expected income relating to previous years (50) 34
Reimbursement of claims relating to this year (58) (155) Expected income relating to this year 188 383
Reinsurers' share of the provisions for claims at 31 December 470 527
Recognised as: Deferred tax assets (10) (14) (17) Deferred tax liabilities 59 61 103
Note 23. Other subordinated loan capital Subordinated Subordinated Subordinated loan capital loan capital loan capital
Cibor 3 months 2.92% to Cibor 3 months Interest rate +2.75% 11 December 2020 +270bp
Interest charges 43 47 Costs of raising the loan capital 3 -
Note 24. Provisions for unearned premiums and profit margin - non-life insurance Provisions for unearned premiums at 1 January 1,881 1,856 Profit margin at 1 January 711 751
Intra-group transfers (207) (56) Sale of affiliate - (115) Retrospective provisions at 31 December 20,227 20,118 Accumulated revaluation at 31 December 1,654 1,466 Collective bonus potential at 31 December 2,270 1,632 Insurance provisions direct business at end of year 24,151 23,216 Total insurance provisions at end of year 24,151 23,216 Profit margin at 31 December (88) (82) Life insurance provisions with guarantees and profitsharing 24,063 23,134
Portfolios analysed by guaranteed interest rates Guaranteed Guaran- Individual Collective Life interest teed bonus bonus insurance 2017 rate benefits potential potential provisions
Note 25. Life insurance provisions with guarantees and profitsharing - continued Guaranteed
Interest rate group 1 ]1%-2%] 27 26 Interest rate group 3 ]1%-2%] 1 2 Interest rate group 2 ]2%-3%] 9 8 Interest rate group 4 ]2%-3%] 3 4 Interest rate group 5 ]3%-4%] 16 18 Interest rate group 6 ]4%-5%[ 38 32
Risk groups Risk result after addition of risk bonus 57 51 Risk result after addition of risk bonus in per cent 0.2 0.2
Note 26. Life insurance provisions unit-linked products Insurance Investment 2017 contracts contracts Total
Note 27. Profit margin, life insurance and investment contracts Products with guarantees and profitsharing 88 82 Unit-linked products 156 186 Profit margin, life insurance and investment contracts 244 268
Note 28. Provisions for claims Gross Provisions at 1 January 13,209 13,013 Claims paid relating to previous years (2,796) (2,794) Change in expected claims payments relating to previous years (393) (319) Claims paid relating to this year (3,060) (3,251) Expected claims payments relating to this year 5,907 6,387 Inflation hedging 10 (118)
Net of reinsurance Provisions at 1 January 12,623 12,544 Claims paid relating to previous years (2,596) (2,586) Change in expected claims payments relating to previous years (344) (353) Claims paid relating to this year (3,002) (3,096) Expected claims payments relating to this year 5,720 6,003 Inflation hedging 10 (118)
Net of reinsurance 9 years later 6,198 Less paid incl. inf lation hedging 5,808 5,897 5,508 5,301 5,572 5,285 5,175 4,723 4,247 3,099 50,615 Provisions before discounting
Provisions relating to previous years at 31 December 2,348 Provisions, net of reinsurance, at 31 December 2018 12,476
Note 29. Technical basis for risk allowance and shadow account Customers' share of technical basis for risk allowance 807 (378) Share of technical basis for risk allowance allocated to shareholders' equity 76 58 Insurance technical result 883 (320) The allocation of the technical basis for risk allowance to policyholders is in accordance with the executive order on the contribution principle. Shadow account at 1 January 35 48
Deloitte Young Fee to the auditors elected at the Annual General Meeting 2017 2018 Fee for statutory audit of the annual accounts 4 3 Fee for other assurance engagements* 1 0 Fee for tax advice 0 0 Fee for services, other than audit work 10 0 *Fee for other assurance engagements include submitting statements to public authorities. The Group has an internal audit department which carries out most of the audit work.
Average strike price at 31 December 2017 195 204 196 201
The volatility has been calculated on the basis of previous years' volatility, which continues to be Management's best estimate of future volatility. The stated strike prices for outstanding options are reduced by dividend distributions.
Note 32. Staff costs - continued Number of options which could be exercised on 31 December ('000) 225 163
Employee shares For the period November 2017 to October 2018, Topdanmark has allotted 115,060 shares at a value of DKK 36m for a salary cut. The annual costs amount to DKK 38m. 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.
The fee includes DKK 289,000 (2017: DKK 263,000) concerning Topdanmark Forsikring A/S.
Up to his appointment as CEO of Topdanmark A/S in February 2018, Peter Hermann was CEO of Topdanmark Livsforsikring A/S. In this position, Peter Hermann earned a remuneration of DKK 0.3m in 2018. Consequently, Peter Hermann's total remuneration in the Topdanmark Group represented DKK 7.0m in 2018.
Salary accrued in the notice period*** 10.2 10.2 Accrued anniversary bonuses* (0.6) (0.6)
Significant risk takers Additional to the Executive Board, another 19 (2017: 19) employees have significant influence on Topdanmark’s risk profile. Fixed remuneration 37.1 37.1 Variable remuneration 6.3 5.8
The number of significant risk takers is a calculated weighted average.
Note 33. Related parties - continued Shares held by the Board of Directors and Executive Board The information relates to the Board of Directors and Executive Board notified on 31 December.
Executive Board Number of shares Peter Hermann - 821 Lars Thykier 6,205 450 Brian Rothemejer Jacobsen 44,499 450 Marianne Wier 1,262 Christian Sagild 9,005 -
Designated at fair value: Deposits with credit institutions 3,405 4,380 Investment assets unit-linked products excl. property: Equity investments 12,268 14,560 Unit trusts 3,024 1,758
Designated at fair value, total 29,055 31,964 Total financial assets at fair value through profit and loss 71,557 72,593
Loans and receivables at amortised cost Receivables from policyholders 310 262 Receivables from insurance companies 57 197 Other receivables 170 281 Liquid funds 537 253
Accrued interest and rent 260 310 Total financial assets 73,242 74,461
End of 2018, financial assets for DKK 986m (end of 2017: 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.
The portfolio consists of construction financing of property projects (DKK 214m) and Vindmøllepark (wind farm) guaranteed by EKF (DKK 79m) and bonds (DKK 177m), for which current return depends on payment on life annuity contracts. The fair value is equivalent to the cost price in the transaction currency.
Exchange rate adjustments are recognized in the income statement under revaluations. Of the overall revaluation DKK 9m is unrealized (2017: DKK 26m loss).
Note 35. Financial liabilities Financial liabilities measured at fair value through profit and loss Held for trading: Designated at fair value: Amounts due to credit institutions 43 242 Total financial liabilities measured at fair value (observable inputs level 2) 555 946
Note 38. Analysis of assets and their return - life insurance
* Annual return as a percentage before pension return tax (PAL) and corporation tax.
Assets related to unit-linked products Land and buildings 162 441 7.3 Listed equity investments 9,311 10,265 (10.0) Unlisted equity investments 10 4 22.9 Total equity investments 9,320 10,270 (10.0) Government and mortgage bonds 2,732 3,384 (0.4) Credit bonds and emerging market bonds 6,106 6,418 1.4
Other investment assets 2,788 3,660 0.0 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 equity investments has been adjusted by means of financial derivatives and amounts to: 2017 2018 Guarantees and profitsharing 3,914 3,403 Unit-linked 10,022 12,481
Note 39. Return and risk - unit-linked products Selected age points in relation Percentage of Return in to time of retirement Years average percentage 2017 to retirement provisions before PAL Risk
Note 40. Number of shares Reconciliation of the number of shares ('000) Shares issued at 1 January 95,000 90,000 Own shares at 1 January (7,784) (4,124) Number of shares at 1 January 87,216 85,876 Shares bought back (2,297) 0 Shares sold 957 556 Shares issued at 31 December 90,000 90,000 Own shares at 31 December (4,124) (3,568) Number of shares at 31 December 85,876 86,432
Number of shares held to cover the granting of options: 1,293,000 (2017: 1,444,000). Own shares are held solely by the parent company.
Deposits with credit institutions 2,800 3,450 Investment assets related to unit-linked products 25,288 27,890 Liquid funds 74 173 Accrued interest 257 303 Equity investments in and receivables from affiliates eliminated in the consolidated accounts 6,811 6,541 Registered assets 75,595 77,803 Other provision of security 18 0
Life: Topdanmark Liv Holding A/S Ballerup Holding Topdanmark 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
Other companies: Topdanmark Kapitalforvaltning A/S Ballerup Asset management Topdanmark Invest A/S Ballerup Investment Topdanmark Invest II ApS Ballerup Property Topdanmark Ejendomsadministration A/S Ballerup Property
There have been no events in the period from 31 December 2018 until the presentation of the consolidated financial statements which could change the assessment of the annual report.
Non-life insurance Personal, liability and property insurance for the personal, SME, and agricultural markets. Most important risks Risk preferences Risk reducing activities Underwriting risk • Acceptance policy • Follow-up policy.
In all interest rate groups, movements in interest rates are followed and risk reducing actions are performed as required.
A certain level of counterparty risk is accepted as an element of generation of return.
Counterparty risk is limited by diversification both geographically and in terms of type of debtor.
The Compliance Function issues rules for identification, management and control of compliance risks.
Topdanmark's business model stands strong against strategic risks. The results of the Company will, with a very high degree of probability, be positive even in the event of another collapse in the financial markets as in 2008. The Company’s result will also be positive if it is hit by a storm like the 1999-hurricane, which was the largest storm event in the Company's history.
Danish insurance companies do not cover damage arising from floods or the cost of replanting forests following storms, industrial diseases, war or warlike acts, earthquake or other natural disasters and with certain exceptions damage due to nuclear energy or radioactivity.
Claims handling In order to ensure uniform and efficient claims handling, Topdanmark has grouped the handling of all types of claims into one operational unit.
Topdanmark helps its customers when they require assistance Topdanmark works to ensure that its customers feel “wellhelped ” in every situation during the claims handling process. It is crucial for the customers’ experience that Topdanmark is available when the customers require assistance and that it is easy, prompt and simple being a customer with Topdanmark.
The responsibility for arranging co-operation and purchase agreements has been channelled into one centralised purchasing function to ensure the highest possible discount, quality and security when delivering products and services. Service agreements have been made with, for example, SOS International, Falck Health Care, Scalepoint, Polygon and Bygma, tradesmen and garages.
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.
Disaster risks Topdanmark limits its insurance risk on significant events through a comprehensive reinsurance programme.
A national guarantee scheme of DKK 15bn covering terror claims including an element of NBCR (nuclear, biological, chemical, radiological) has been established. In 2018, the national guarantee scheme covered any market retention in excess of DKK 19.1bn. In 2019, the market retention in excess is DKK 18.4bn.
Cumulative risk Known cumulative risk is where it has been recognised prior to the event that several policyholders could be affected by the same event. In personal lines, Topdanmark's retention is DKK 15m for the first claim, DKK 5m for the second and DKK 15m for any third or subsequent risk. The retention is a maximum of DKK 25m in the SME line. Unknown cumulative risk is where several policyholders could be affected by the same individual event (conflagration damage) without the common risk being recognised prior to the event occurring. The retention is a maximum of DKK 50m.
All policies have been split into contribution groups according to the guaranteed benefit scheme. In each contribution group, the investment policy is intended to ensure the ability to meet the guaranteed benefits, and the market risk is adjusted in accordance with the risk capacity of the contribution groups. The movements in interest rates are followed in order that risk reducing actions may be performed as required.
Extra costs due to a permanent change in disability risk will be partially covered by individual and collective bonus potential. The remainder affects profit/loss for the year and consequently shareholders' equity.
With regard to cover of interest-bearing assets, supplementary hedging by swaps and standard swaptions will be bought as required.
Property risk Topdanmark is exposed to property risk from investments in properties rented out for business or private residence.
Inflation risk Future inflation is implicitly included in a number of the models Topdanmark uses to calculate its provisions.
The Group uses derivatives to hedge investment risks. The hedging of currency risk in particular often results in significant positive or negative balance values.
Life insurance provisions for unit-linked products are covered by investments. The provisions and related bonds are therefore not included.
Cyber-crime risk The general threat from cyber-crime is increasing. In general, Topdanmark handles the risk via an IT Security Committe/Cyber-Security Board that regularly assesses the threat and the measures necessary to secure the required security level.
For several years, new employees have been informed about information security and in 2018, all employees and consultants in Topdanmark have conducted an e-learning course on information security. This course must be carried through once a year.
Errors in internal processes, human errors, insurance fraud and deceit Topdanmark's well-documented routines, procedures and efficient control environment minimise these risks. It has made emergency plans for the most significant areas.
Internal Audit The routines and procedures in all critical areas are regularly checked by the auditors in order to assess the risks and recommend measures to limit each individual risk.
Central Claims Central Claims is a minor department solely dealing with cases where fraud is suspected. Topdanmark believes that honest customers should not have to pay for the dishonest customers. Therefore, we owe it to our customers to examine any suspicion of insurance fraud.
Announcement No. 04/2019 from Topdanmark A/S Page 66 of 90 a tool to register events, which are then collected centrally in an event log and communicated onwards in the management system.
Thus, Topdanmark has been assessed to have the proper rules of procedure and competencies to detect and handle technology related risks.
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 or bad publicity as a consequence of not acting in accordance with the rules. Rules comprise all rules, internal rules of Topdanmark's policies and the relevant guidelines as well as all relevant legislation and its sub-rules. Furthermore, rules comprise fixed business practices for the performance of activity in Topdanmark.
The Compliance Function's work comprises the following principal tasks: • Compliance reviews and annual status meetings with all of the Group's divisions and administrative departments
Change of accounting policies In 2018, the classification of insurance and investment contracts in life insurance has been re-assessed by Topdanmark Group. Thus, classification is now carried out on contract level, not product level as was formerly the case. As such, contracts with related solidary premium waiver or group products are considered insurance contracts in full.
This change has resulted in higher gross premiums in life insurance of DKK 427m for the year and an equivalent effect on “Change in life insurance provisions”. The profit for the year, total comprehensive income and financial position are unaffected. In the cash flow statement, the cash flow from insurance activities and payments related to investment contracts have been adjusted equivalent to the change in gross premiums. The total cash flow from operations is unaffected.
The financial highlights and the five-year summary have been adjusted accordingly.
IFRS 9 “Financial instruments” also came into force on 1 January 2018. However, under certain circumstances, insurance groups may postpone IFRS 9 to 2022 at the time where IFRS 17 “Insurance contracts” will come into force. However, IFRS 17 has not yet been adopted by the EU.
As a consequence, the Topdanmark Group has chosen to postpone the implementation of IFRS 9 to the implementation of IFRS 17, which is expected to take effect on 1 January 2022.
IFRS 9 “Financial instruments” This standard classifies the financial assets based on the company's business model for holding of assets and the cash flow generated by the asset. The standard is not expected to substantially affect the presentation of accounts for the Group.
IFRS 17 “Insurance Contracts” This standard defines the principles for recognition and measurement of insurance contracts. IFRS 17 comes into force on 1 January 2022. However, the standard has not yet been adopted by the EU. Topdanmark has initiated an analysis of the standard. The financial effect has not yet been clarified.
The most significant estimates and judgements are made in the calculation of insurance provisions and investment properties.
The provisioning risk is significant, in particular in lines with a long period of claims settlement such as workers' compensation, accident, commercial and motor liability. The levels of compensation could be significantly affected by any changes in legislation, case-law or the practice in the award of damages adopted by, for example, the Danish Labour Market Insurance.
Premium provisions Premium provisions are measured 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 the 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 are insufficient for covering expected payments and a risk margin, and consequently provisions to cover losses must be made.
Properties owned by the subsidiaries and used by the Group have been re-classified from investment properties to owner-occupied properties.
Announcement No. 04/2019 from Topdanmark A/S Page 69 of 90 benefits will flow from the Group, and where the value of the liability can be measured reliably. The recognition and measurement take into consideration predictable losses and risks, which have occurred prior to the presentation of the Annual Report, and which provide evidence of conditions that existed at the balance sheet date.
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 disability including premium waiver and mortality where the benefit exceeds the total savings of the policy.
The initial recognition of transactions in currencies other than DKK is made at the exchange rates prevailing at the date of the transactions. Debts and receivables, and other monetary items which have not been settled on the financial position date, are translated at the closing exchange rates. Translation differences are recognized in Revaluations in the Income Statement.
The fair value, on the date the option is granted, is included in staff costs in the income statement, with a set-off in shareholders’ equity. The fair value is calculated using the Black & Scholes model.
Calculation of profit in life insurance The calculation of profit for life insurance is regulated by the Danish Financial Business Act. Topdanmark's policy on the calculation of the profit for the year has been reported to the DFSA.
The unconditional profit elements comprise the return on assets allocated to shareholders' equity, acquisition cost result and the profit on contracts outside of contribution.
Claims incurred and benefits paid In non-life insurance, claims incurred net of reinsurance comprise claims paid during the year adjusted for changes in the provisions for outstanding claims and net of the reinsurers' share. Accordingly, claims incurred comprise known and expected claims relating to the year as well as any adjustments to the provisions made in previous years. Furthermore, they comprise direct and indirect expenses on claims handling. However, the proportion of the change in provisions for outstanding claims relating to amortisation and revaluation is included in return and revaluations non-life insurance provisions. Topdanmark has entered into derivatives partially hedging the provisions for workers’ compensation and annuities in illness and accident insurance against changes in future wage and price indexation. The revaluation is included in claims incurred.
Operating expenses Technical operating expenses which relate, either directly or indirectly, to the acquisition and renewal of the portfolios are included in acquisition costs. Sales commission is generally recognised 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 reinsurance contracts’ period of cover.
Investment activities Income from associates comprises a share of the post-tax results of the associates 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 recognised 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 owneroccupied properties are included in revaluations. Administrative expenses on investment activities comprise the cost of asset management including transaction costs.
Return and revaluation of non-life insurance provisions Return and revaluation of non-life insurance provisions includes amortisation and revaluation of premium and claims provisions, profit margin as well as risk margin for non-life insurance.
Taxation The tax charge for the year comprises the current corporation tax for the year and any changes in deferred tax. The share of the tax charge that relates to the profit for the year is included in the income statement, the share that relates to other comprehensive income items is included in other comprehensive income, and the share that relates to shareholders' equity items is taken to shareholders' equity. The current tax for the year is calculated using the tax rates and rules applicable on the financial position date.
Announcement No. 04/2019 from Topdanmark A/S Page 72 of 90 management company of the joint taxation, Topdanmark A/S settles all corporation tax payments with the tax authorities.
The joint tax contributions are distributed to the jointly taxed companies on a proportionate basis relative 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 taxable income.
Assets Intangible assets Goodwill relates to the acquisition of companies prior to 2004 and is recognised at the carrying amount on the date of transition 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 carrying amount.
Acquired software licences are measured at cost and amortised on a straight-line basis over the expected useful life of a maximum of three years. Development projects which are clearly defined and definable are measured at cost at the amount of external costs incurred and depreciated over the expected useful life of a maximum of five years. If there is an indication of impairment, the carrying amount is written down to its recoverable amount.
Tangible assets Operating equipment Operating equipment is measured at cost less depreciation on a straight-line basis and net of any impairment. Depreciation on a straight-line basis is calculated on the basis of the expected useful life and the residual value, which is annually revalued. If there is an indication of impairment, the carrying amount is written down to its recoverable amount.
The revaluation for the financial year of the fair value of the properties is recognised in the income statement.
Equity investments in associates are measured at their net asset value, in accordance with the Group's accounting policies with paid goodwill added.
Reinsurers' share Reinsurers' share of the provisions for unearned premiums represents the proportion of reinsurance premiums paid, net of commission received, which based on the spread of risk during the period of cover, relate to the period after the end of the financial year.
Reinsurers' share of the provisions for claims has been calculated as the amounts expected to be received from reinsurance companies according to the reinsurance contracts concluded. Expected future payments are discounted using an interest rate structure. The reinsurers' share is regularly assessed for impairment and written down to its recoverable amount, as required.
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 contracts were written.
Expected payments comprise compensation as well as direct and indirect expenses for administration, claims handling and acquisition. Furthermore, expected bonuses and rebates are included, and expected return of premiums in connection with customer defection is taken into account.
Life insurance provisions for unit-linked products are calculated at fair value corresponding to the assets related to the insurance contracts less the profit margin.
IBNR provisions for illness and accident insurance are calculated using models developed in-house.
The sufficiency of the provisions is regularly tested on the basis of the current expectations of future cash flow.
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 investments in subsidiaries and associates 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 the financial position date.
Forsikring, in which the transfers were made, continues its current operations. Therefore, the security funds will only be taxed if the insurance portfolio is transferred or the company ceases to conduct insurance business.
Ratios Ratios in Financial highlights and Five-year summary have been calculated in accordance with the DFSA´s Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pensions Funds and in accordance with the definitions issued by the Danish Finance Society.
Financial highlights Post-tax profit as a % of shareholders’ equity Profit for the year * 100_______ Shareholders´ equity (average)
Post-tax EPS diluted (DKK) Profit for the year_______________ Number of shares(average), diluted
Number of shares is shares issued less own shares. Number of shares, diluted, is Number of shares adjusted for the effect of potentially diluting share options.
Combined ratio Gross loss ratio + net reinsurance ratio + gross expense ratio.
Combined ratio excl. run-off result Combined ratio with deduction of the run-off result as a percentage of gross premiums earned.
Gross claims incurred comprise the line items “Gross claims paid”, “Change in the provisions for claims” and “Change in risk margin”.
Claims incurred and operating expenses include intragroup market rent on owner-occupied properties. In the group accounts intra-group rents have been eliminated and replaced by realized costs including depreciations.
Operating ratio equals combined ratio when premium provisions have been discounted, and premiums earned therefore include an amount of interest(discounting). Since 2016 premium provisions in Topdanmark have been discounted and operating ratio is therefore equalling combined ratio.
The calculation is the same as for the ratio Post-tax profit as a % of shareholders’ equity in Financial Highlights with the exception, that the calculation in Financial highlights is based on the parent company´s shareholders’ funds, while the calculation in the five-year summary is based on the group´s shareholders’ funds.
TOTAL TANGIBLE ASSETS 3 3 Equity investments in affiliates 5 6,624 6,188 Total investment in affiliated company 6,624 6,188 TOTAL INVESTMENT ASSETS 6,624 6,188 Receivables from affiliates 484 639 Other receivables 0 2 TOTAL RECEIVABLES 484 641 Current tax assets 0 39 Liquid funds 3 2 TOTAL OTHER ASSETS 3 40 TOTAL ASSETS 7,114 6,873
Other reserves 2,875 2,439 Total reserves 2,875 2,439 Profit carried forward 1,822 2,443 Proposed dividend 1,710 1,350 TOTAL SHAREHOLDERS' EQUITY 6,497 6,322 OTHER SUBORDINATED LOAN CAPITAL 7 397 398 Amounts due to affiliates 183 147 Current tax liabilities 34 0 Other debt 2 6 TOTAL DEBT 219 153 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 7,114 6,873
Note 1. Income from affiliates Topdanmark Forsikring A/S 1,673 1,289 Topdanmark Kapitalforvaltning A/S 101 81 Topdanmark Invest A/S (2) 2 Income from affiliates 1,771 1,372
Note 3. Taxation Current tax 12 11 Change in deferred tax (2) 0 Taxation (income) 11 12 Pre-tax profit excl. income from affiliated companies (50) (53) Calculated tax on profit for the year 22% (2017: 22%) 11 12 Effective rate of taxation 22.4 21.9
Note 5. Equity investments in affiliates Topdanmark Forsikring A/S 6,403 6,033 Topdanmark Kapitalforvaltning A/S 115 97 Topdanmark Invest A/S 105 58
Note 6. Share capital DKK Share capital at 1 January 95,000,000 90,000,000 Reduction in capital (5,000,000) 0 Share capital 90,000,000 90,000,000 Each of Topdanmark's 90,000,000 (2017: 90,000,000) shares has a nominal value of DKK 1. No share enjoys any special rights. The shares are freely tradeable. Each share has one vote.
Principal DKK 400m Date of issue November 2017 Maturity Bullet If permitted by the DFSA, the debtor can give notice of termination from 23 November 2022 Interest rate Cibor 3 months +2.75% Subsequently
Note 8. Related parties 2017 2018 Possessing an ownership interest of 48.59% of the shares outstanding, Sampo plc, Fabianinkatu 27, Helsinki, Finland has a controlling influence of Topdanmark A/S. Related parties with significant influence comprise the Board of Directors, the Executive Board and their families.
At 31 Dec 2018, Sampo plc held subordinated notes in Topdanmark Forsikring A/S 405 405
Affiliates At 31 December 2018, If P&C Insurance Ltd, a subsidiary in the Sampo Group, held subordinated notes in Topdanmark A/S 120 130 Expenses charged 35 32 Dividends received 839 1,850 Expenses are charged to cover costs incurred. Average effective interest rate on balances is 0.00% (2017: 0.00%). Equity investments are disclosed in the balance sheet and specified in the note on equity investments in affiliates. Balances are disclosed in the balance sheet.
Note 11. 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 financial highlights on page 3. Risk disclosures in accordance with Section 91(b) are included in "Management's review" page 13 in "Risk management " and in Note 46 "Risk factors".
There have been no events in the period from 31 December 2018 until the presentation of the financial statements which could change the assessment of the annual report.
Topdanmark’s statements relating to the future are solely based on information known at the time of the preparation of this annual report.
The Board of Directors and the Executive Board have today considered and approved the Annual Report of Topdanmark A/S for 2018.
The consolidated financial statements are presented in accordance with International Financial Reporting Standards as adopted by the EU, and the annual financial statements for the parent company are presented in accordance with the Danish Financial Business Act. Further, the Annual Report is presented in accordance with additional Danish disclosure requirements for listed financial services companies.
In our opinion, the consolidated financial statements and annual financial statements give a true and fair view of the Group’s and the parent company's assets, liabilities and financial position at 31 December 2018 as well as of the Group’s and the parent company’s activities and the Group’s cash flow for the financial year 1 January to 31 December 2018.
Board of Directors: Torbjörn Magnusson Jens Aaløse Tina Møller Carlsson (Chairman) (Deputy Chairman)
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 2018 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 2018 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.
Opinion We have audited the consolidated financial statements and the parent company financial statements of Topdanmark A/S for the financial year 1 January to 31 December 2018, which comprise income statement, statement of comprehensive income, balance sheet, statement of changes in equity and notes, including accounting policies, for the Group and the Parent Company, and a consolidated cash flow statement. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed financial institutions and the parent company financial statements are prepared in accordance with the Danish Financial Business Act.
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 company financial statements" (hereinafter collectively referred to as "the financial statements") section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
To the best of our knowledge, we have not provided any prohibited non-audit services as described in article 5(1) of Regulation (EU) no. 537/2014.
Appointment of auditor We were initially appointed by resolution of the general meeting as auditor of Topdanmark A/S on 12 April 2018 for the financial year 2018.
Measurement of provisions for insurance and investment contracts At 31 December 2018, provisions for insurance and investment contracts amounted to DKK 16.1bn in respect of non-life insurance contracts and DKK 56.5bn in respect of life insurance contracts. Life insurance provisions for unit-linked contracts amounted to DKK 33.3bn.
Significant management estimates regarding non-life insurance provisions include: • Determination of calculation methods and models • Future inflation and wage rate development (workers’ compensation) • Expected future cash flows on insurance contracts • Expected future payments for claims that occurred before the balance sheet date and expected closing of claims, especially within workers’ compensation, accident and liability, including claims handling expenses.
Our audit has comprised assessing the models, methods, assumptions and data applied by Management in connection with the calculation of the provisions.
Measurement of unlisted investments involves management estimates which materially affect the carrying amount. Consequently, we consider it to be a key audit matter.
• Expectations of future cash flows • Assessment of data and information obtained from external parties as well as Management's determination of specific risks affect the fair value.
Our audit of unlisted investments Based on our risk assessment, we have examined the measurement of unlisted investments performed by Management.
In connection with our audit of the financial statements, our responsibility is to read the Management's review and, in doing so, consider whether the Management's review is materially inconsistent with the financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated.
Moreover, it is our responsibility to consider whether the Management's review meets the disclosure requirements of the Danish Financial Business Act.
Moreover, Management is responsible for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and communicate to them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Lars Rhod Søndergaard Allan Lunde Pedersen State Authorised State Authorised mne28632 mne34495