Read about value creation in Topdanmark on www.topdanmark.com → Investors → Investment case → Value creation
(Q4 2019: 92.1) • Premiums increased by 6.0% in non-life insurance and decreased by 13.9% in life insurance. • Profit on life insurance was DKK 74m (Q4 2019: DKK 36m). • After return on non-life insurance provisions, the investment return was DKK 292m (Q4 2019: DKK 230m).
Dividend distribution for 2020 • The Board of Directors will recommend to the AGM
on 25 March 2021 that a dividend of DKK 1,035m will be distributed for 2020, representing DKK 11.5 per share. This represents a pay-out ratio of 92.1 and a dividend yield of 4.4.
• At the AGM in 2020, it was decided to postpone payout of the second half of the dividend for 2019 until the AGM on 25 March 2021. The Board of Directors will recommend to the AGM that the remaining dividend of DKK 8.5 per share (DKK 765m) will be distributed as an extraordinary dividend.
• Given the AGM approval, the total dividend distributed in connection with the AGM will be DKK 1,800m or DKK 20 per share.
• The post-tax profit forecast model for 2021 amounts to DKK 1,000-1,100m, excluding run-off.
• The gross efficiency gains in 2021 are expected to amount to DKK 120m.
• Compared with 2020, additional costs following the increased level of investments in the efficiency programme will impact costs for 2021 negatively by DKK 100m.
Steffen Heegaard IR Director Direct tel.: +45 4474 4017, mobile tel.: +45 4025 3524
Annual financial statements ● Group 29 Five-year summary 30 Income statement 31 Statement of comprehensive income 32 Assets 33 Shareholders’ equity and liabilities 34 Cash flow statement 35 Statement of changes in equity 36 Notes to the financial statements
Number of shares end of period ('000) 87,216 85,876 86,432 87,067 87,491
Combined ratio excl. run-off profits 90.4 85.8 87.5 88.3 88.2 92.1 87.1
The technical result decreased by DKK 218m to DKK 1,316m. The decrease is caused by lower run-off (DKK 269m), and by a higher claims trend on house insurance (DKK 187m). COVID-19 related issues improved the technical result in 2020 by an estimated amount of DKK 121m of which DKK 22m is run-off loss included above.
The investment return adjusted for return on non-life insurance provisions decreased by DKK 81m to
The profit of DKK 1,124m is better than assumed in the latest model profit forecast in the Q3 Report, showing a post-tax profit of DKK 750-850m. The profit improvement is mainly due to a higher investment return, run-off profits and a lower level of weather-related claims in Q4 2020 than assumed.
Results for Q4 2020 The profit for Q4 2020 was DKK 571m (Q4 2019: DKK 431m).
The technical result increased by DKK 96m to DKK 371m due to, among other things, benign weather conditions (DKK 49m) and COVID-19 related issues, including motor- and travel insurance (DKK 63m).
In the Q3 Report, the impact from COVID-19 on the combined ratio for 2020 was assumed to be positive 0.5-1.0pp. Also in Q4, COVID-19 reduced the number of claims on i.a. travel and motor insurance. Consequently, COVID-19 impacted the combined ratio for 2020 by
Non-life insurance - Investment return after return and revaluations of non-life insurance provisions etc. 66 (300) – (250) (15) Profit on non-life insurance 1,601 850 – 950 1,302
Non-life insurance - Investment return after return and revaluations of non-life insurance provisions etc. 212 277 Profit on non-life insurance 486 648 Life insurance 36 74 Parent company etc. 29 9 Pre-tax profit 551 731
Announcement No. 03/2021 from Topdanmark A/S Page 5 of 94 1.2pp. Including the investment return, the total impact of COVID-19 is assumed to be DKK 21m in 2020.
The growth was impacted by a change in provisions for future losses in illness and accident (0.8%) caused by the strengthening of provisions in Q4 2019 and by price increases in H2 2020.
Topdanmark continues to assume that distribution through Nordea will compensate fully for the terminated distribution agreement with Danske Bank during 2021 in terms of premiums.
The lower level of run-off profits in 2020 compared with previous years was affected by outliers in the short tail business lines with substantial run-off losses on professional liability and property, but also by the steady fall of the risk premium on motor third-party liability and accident, which has characterised the past many years, now levelling off. As stated in the Q2 Report, Topdanmark assumes that the risk premium on motor third-party liability and accident will remain stable in the coming years.
The level of large-scale claims (claims exceeding DKK 5m by event after refund of reinsurance) increased by DKK 34m to DKK 86m in 2020, representing a 0.3pp deterioration of the claims trend. The large-scale claims were DKK 14m below the assumed normal annual level of DKK 100m.
On motor insurance, the claims trend, adjusted for the COVID-19 effect, improved due to higher average premiums. The development on motor improved the claims trend by 0.8pp.
On illness and accident, and workers’ compensation, the claims trend improved due to price increases and more efficient claims handling. The improvements were 1.0pp and 0.3pp respectively.
Announcement No. 03/2021 from Topdanmark A/S Page 6 of 94 pipe and fungus claims, and that Topdanmark was hit by a couple of very large fire claims.
The claims trend adjusted for run-off, weather-related claims, large-scale claims, and other positions including change of risk margin improved by 0.7pp to 70.4 in 2020.
On the other hand, COVID-19 impacted the adjusted claims trend related to income protection insurance negatively by DKK 63m due to the increase in unemployment.
In addition, COVID-19 is assumed to have a negative impact on illness and accident (DKK 10m) and workers’ compensation (DKK 10m). Illness and accident will be affected by a higher level of customers making use of their health insurance getting treatments in private hospitals as the public hospitals have focused on COVID-19 patients.
The underlying claims trend, which is adjusted for the extraordinary rain claims in Q1 and Q3 2020, discounting and COVID-19 impact, improved by 0.1pp to 71.0.
Expense ratio The expense ratio was 16.3 up from 16.0 in 2019.
The level of the expense ratio is also affected by significant investments in digital solutions and automation. Topdanmark expects that these investments will pay off in the coming years through efficiency gains, see “Targeted gross efficiency gains of DKK 500m in 2025” and “Profit forecast model for 2021” on pages 12-14.
Combined ratio The combined ratio was 86.5 in 2020 (2019: 83.7). Excluding run-off, the combined ratio was 88.2 (2019: 88.3).
Run-off loss of DKK 22m related to COVID-19-effects on income protection insurance is included in the line COVID-19.
The growth was positively impacted by a change in provisions for future losses in illness and accident (1.2%).
The claims trend was 68.3 in Q4 2020 down from 71.5 in Q4 2019.
Weather-related claims were DKK 1m in Q4 2020. In Q4 2019, the weather-related claims were DKK 14m, representing an improvement of the claims trend of 0.5pp.
The claims development on motor adjusted for COVID-19 improved due to higher average premiums, improving the claims trend by 1.5pp.
The claims trend was impacted by a DKK 38m deterioration on house insurance (1.5pp) due to an increased claims frequency and an increased average size of claims on burst water pipes and fungus claims.
In Q4 2020, COVID-19 had an assumed positive impact on the adjusted claims trend of DKK 63m (2.5pp).
In Q4 2020, COVID-19 negatively impacted the adjusted claims trend related to income protection insurance by DKK 11m (0.4pp).
The expense ratio was 16.7 in Q4 2020 (Q4 2019: 16.8).
The combined ratio was 85.1 in Q4 2020 (Q4 2019: 88.3). Excluding run-off, the combined ratio was 87.1 (Q4 2019: 92.1).
Announcement No. 03/2021 from Topdanmark A/S Page 8 of 94 is based on the values that the customers already know Topdanmark for.
During Q4 2020, the branding campaign continued on broad channels, albeit with a significant reduction towards December. The campaign still performs well and before the Christmas downturn, there was a significant increase in the level of unaided awareness. Campaign spending resumes in the new year, aiming at improving digital sales.
The claims trend deteriorated by 3.0pp to 73.9. The claims trend was negatively impacted by a lower level of run-off profits (2.0pp), a higher level of weather-related claims and house insurance see pages 5-6.
Excluding run-off, the combined ratio was 92.1 in 2020 (2019: 90.9).
The combined ratio in Q4 2020 was 90.1 compared with 96.2 in Q4 2019. Excluding run-off, the combined ratio improved to 92.0 in Q4 2020 from 98.7 in Q4 2019.
SME The SME segment offers policies to Danish-based SMEs and agricultural businesses.
The technical result decreased by DKK 59m to DKK 789m in 2020.
Excluding run-off, the combined ratio was 83.8 in 2020 (2019: 85.2).
The claims trend in Q4 2020 deteriorated by 0.5pp to 62.8 impacted by a lower level of run-off profits.
In Q4 2020, the combined ratio deteriorated by 0.4pp to 79.6. Excluding run-off, the combined ratio improved by 2.8pp to 81.7 in Q4 2020.
Liv Holding. These profits are calculated in accordance with the stated policy for the calculation of profit for the life insurance company: see www.topdanmark.com → About Topdanmark → Strategy and business → Non-life and Life insurance → Policy for the calculation of profit in life insurance.
The result of sales and administration which decreased by DKK 21m to DKK 43m (loss) derived from costs connected to the implementation of the new core IT system launched in 2019. The insurance risk result has decreased by DKK 33m to DKK 10m (loss). The insurance risk result is quite volatile.
Risk return on shareholders' equity 35 37 141 152 Profit on life insurance 36 74 327 117
Life insurance in Q4 2020 The result in Q4 2020 increased from DKK 36m to DKK 74m, primarily due to an improved investment return on shareholders’ equity.
Regular premiums increased by 1.0% to DKK 882m in Q4 2020, whereas single premiums decreased by 20.1% to DKK 1,693m.
The investment return in 2020 on the most significant asset classes is shown in the table below: Sources of gross premiums Q4 Q4
The equity exposure was DKK 1,159m pre-tax and 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 approx. 20% of the portfolio as of 30 December 2020, and the foreign portfolios are based on MSCI World DC in local currency for foreign equities.
The class “Unlisted equities and hedge funds” includes private equity positions (DKK 75m) and positions in hedge funds where the investment mandates aim at positioning in the credit market (DKK 194m).
The class “Index linked bonds” comprises bonds, primarily Danish mortgage bonds, for which the coupon and principal are index linked.
“Subordinated loan capital” comprises subordinated loans issued by the parent company and by Topdanmark Forsikring.
The main focus areas in the efficiency programme are: • Automation/digitalisation of routine-based processes • Risk and pricing • Procurement and cost
Consequently, the net impact of the efficiency programme will be DKK 20m in 2021, and the DKK 20m are included in the 2021 forecast.
The new core IT systems support Topdanmark’s ambition of increasing the strategic and operational use of datadriven processes for business transformation and optimisation across all business areas in Topdanmark.
Profit forecast model for 2021 Traditionally, Topdanmark does not publish actual profit forecasts, but instead, the expected level of results provided that a number of assumptions about the return in the financial markets are met. The return on financial assets changes on a daily basis, and consequently Topdanmark's profit forecast model will already deviate from actual expectations by the time it is published. Therefore, set out at www.topdanmark.com → Investors → Risk management, we provide additional information on how changes in the assumptions underlying the profit forecast model will affect the results.
The claims trend on house insurance has deteriorated in 2020. In order to improve profitability on house insurance, Topdanmark has launched price increases in 2020 which will be implemented during 2021 and 2022. Furthermore, price increases on illness and accident insurance and income protection insurance have been launched.
Topdanmark still assumes premium growth for 2021 in non-life of just above 3%.
• A negative impact of COVID-19 of 0.6 compared with 2020
• An expense ratio of approx. 16 • A level of interest rates corresponding to the interest rate curve on 30 September 2020 • Efficiency gains of approx. 0.7pp from the efficiency programme • Topdanmark will upscale investments in the efficiency programme and compared with 2020 the increased level of investments will impact the combined ratio for 2021 negatively by approx. 1pp.
• Consequently, the net impact of the efficiency programme is assumed to impact the combined ratio negatively by approx. 0.3pp in 2021.
Since the announcement of the Q3 Report, the assumed efficiency gains in 2021 have been improved by DKK 50m. As a result, the assumed net impact on the combined ratio in 2021 has been improved from negative 0.3pp to positive 0.2pp.
The outbreak of a new COVID-19 mutation has had a positive impact on the 2021 assumptions. It is expected that the new lockdowns will lead to a positive impact on travel and motor insurance and a negative impact on income protection insurance, thus resulting in net improvement of the combined ratio to the tune of 0.3pp.
Finally, discounting rates (including changes in VA) have decreased relatively to the guidance for 2021 in the Q3 Report, representing a 0.5pp deterioration of the combined ratio. Therefore, the assumed combined ratio for 2021 is improved from about 90 to 89-90, excluding run-off.
Life insurance In the Q3 Report, Topdanmark assumed a pre-tax profit in the life division of DKK 50-100m in 2021.
Topdanmark assumes a decrease in regular premiums of 0-5% in 2021. At this time, it is pointless to make assumptions about the level of single premiums.
The result is very sensitive to fluctuations particularly in the investment return. The risk return and shadow account will not be finally determined before year end.
Taxation Given a corporation tax rate of 22%, the tax charge is expected to be DKK 270-330m.
The profit forecast model assumes an annual 7.0% return on equities, and unchanged foreign exchange rates from the level as at 30 December 2020.
At the end of 2020, Topdanmark’s solvency ratio was 170. Topdanmark assesses that with this 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.
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 reduction of the Group’s investment-related risk profile. An element thereof could be to offer life insurance customers having with-profit products to switch to unitlinked products, for which the capital requirement is significantly lower. It is an ongoing consideration process,
The Risk Committee reports and recommends to the Board of Directors via the Executive Board. The Risk Committee has set up the Model Committee, which is responsible for developing and operating Topdanmark's internal model for calculation of results probabilities and risks of the non-life insurance portfolio based on random simulation. The model is used for, among other things, optimising the reinsurance programme, calculation of cost of capital, forecast balancing and calculating 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 register. Additionally, the principles of solvency calculation are reviewed, and the risk management process is updated. An ORSA report has been prepared, which, together with the risk register and risk management process, was considered at a Board Meeting in the autumn of 2020.
This model, approved by the Danish FSA, provides the basis for including non-life risks in Topdanmark's solvency calculations.
Own funds Principal elements of own funds: Shareholders’ equity - Proposed dividend + Deferred tax on security funds + Profit margin - Intangible assets + Tax effect + Usable share, subordinated loan tier 1 (max. 20% of tier 1-capital) + Usable share, subordinated notes (max. 50% of SCR) Own funds
As at 11 December 2020, Topdanmark Forsikring A/S has redeemed subordinated notes of DKK 500m issued in 2015. The subordinated notes were replaced by a new subordinated loan of DKK 500m with provisions in accordance with the requirements of Solvency II as at 30 December. The issue was a private placement subscribed by If P&C Insurance Ltd.
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.
At the end of 2020, Topdanmark’s share capital totalled DKK 90,000,000 divided into shares of DKK 1 each, corresponding to 90,000,000 voting rights. As at 5 February 2021, Topdanmark held 2,403,487 shares representing 2.67% of the share capital.
Board of Directors and Articles of Association Appointment and replacement of members of the Company's Board of Directors The Board of Directors, which is elected at the annual general meeting and by the employees of the Topdanmark Group, is the Company's top level 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.
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 duties. Read more about each Board member’s background, competencies and rate of attendance on www.topdanmark.com → About Topdanmark → Organisation → Executive Board and Board of Directors, and under Board of Directors and Executive Board in this Annual Report.
Topdanmark's Board of Directors has adopted policies on diversity. “Policy on diversity at Board level” and “Policy on diversity and the under-represented gender in the management body of Topdanmark” have been published on Topdanmark’s website. More information on diversity including “Women in management” is available in the CSR Report 2020.
Any additional directorships undertaken by the Board members including the significance and extent of each duty form 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 is considered to be overboarded.
In accordance with the rules in force from time to time, Topdanmark Group can sign agreements on severance pay with directors, Orienteringsforum and other material risk takers. For 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 components. For agreements signed before November 2017, severance pay cannot exceed the value of the remuneration for the past two years.
For two members of the present Executive Board and one member of Orienteringsforum and one member of Topdanmark’s other management level, it was agreed that, in continuation of Sampo Group’s take-over of de facto control of Topdanmark in 2013, they would earn remuneration equivalent to six months' salary per vesting year over a period of three years. The vesting period is over, and the remuneration will be paid when employment ends. The remuneration is regulated annually in relation to the current salary level.
Remuneration structure Topdanmark's remuneration policy is intended to optimise long-term value creation at group level and support
The remuneration policy covers Topdanmark's Board of Directors, Executive Board, other material risk takers and, as provided by legislation, employees involved in control functions and audit. If specifically stated, Topdanmark's remuneration policy also covers its senior management team composed of a number of divisional and service area directors (“Orienteringsforum”) and certain other employees, at the discretion of the Board of Directors. The remuneration policy, as adopted by the annual general meeting, is available on www.topdanmark.com → About Topdanmark → Corporate governance → Remuneration structure.
The overall purpose of Topdanmark’s remuneration policy is to ensure transparency and shareholder influence on Topdanmark’s remuneration. The share price reflects the anticipated value creation at group level. This is one of the reasons why Topdanmark believes that share-based incentive pay, including revolving share options, ensures that management is exposed to the development in share prices and thus encourages individual managers to make decisions which support value creation as much as possible from a holistic perspective.
The determination of the fixed basic remuneration paid to the Executive Board, Orienteringsforum and other material risk takers is based on a specific assessment of each employee. i.a. based on the position, individual characteristics, and performance of the individual. The fixed basic remuneration for the Executive Board and Orienteringsforum is reassessed annually and is determined by individual negotiations with each member of the Executive Board and Orienteringsforum on the basis of a framework set by the Board of Directors.
In addition to options paid to the Executive Board and Orienteringsforum in accordance with the revolving share option scheme, the Executive Board can grant up to a total of 200,000 options to employees, including other material risk takers, who have made special efforts or in other ways contributed extraordinarily to the value creation.
Topdanmark’s STI programme is a cash- and sharebased incentive programme which is tied up with the completion of a number of predefined goals for each member of the programme. STI bonus cannot exceed 40% of the employee’s fixed basic salary including pension.
Orienteringsforum and other material risk takers receive a pension contribution of up to 25% of their cash remuneration. The amount is paid to the pension supplier and consequently, all pension obligations are fully covered by the pension supplier. Reference is also made to the Topdanmark Group's Remuneration Report 2020 and Payment Report 2020
Share options For 2021, Topdanmark has granted 77,684 share options to its Executive Board and 148,279 share options to senior management. The strike price of DKK 291 was
Announcement No. 03/2021 from Topdanmark A/S Page 20 of 94 fixed at 110% of the market price of Topdanmark's shares on 30 December 2020 (average of all trades).
The value of issuing the options amounts to DKK 10m, using the Black and Scholes model assuming a share price of DKK 264.37, an interest rate equivalent to the zero coupon rate based on the swap curve of 30 December 2020, future annual volatility of 22%, a pattern of exercise similar to Topdanmark's previous allocations of share options and otherwise in accordance with IFRS 2 on share-based payments.
Including the granted options for 2021, the exposure of the options held by the Executive Board represented 0.3% of the number of outstanding shares.
Topdanmark’s Remuneration Report for 2020 and Topdanmark’s Payment Report for 2020 provides additional information on remuneration in Topdanmark and Topdanmark’s option scheme. Detailed information is available on www.topdanmark.com → Investors → Reports and presentations → Remuneration reports and Payment reports.
The recommended ordinary dividend distribution represents a dividend yield of 4.4 and a dividend of DKK 11.5 per share.
As a consequence of the COVID-19 situation in 2020, only DKK 8.5 of the previously announced dividend of DKK 17 per share for 2019 was paid out in connection with the AGM on 2 April 2020.
Subject to the approval from the AGM, the distribution of dividend will take place immediately after the AGM on 25 March 2021.
Corporate Governance Topdanmark's "Statutory Corporate Governance Report, see section 131 of Executive Order on Financial Reports for Insurance Companies and Multi-employer Occupational Pension Funds" (”Executive Order on Financial Reports”), is available on www.topdanmark.com → Investors → Reports and presentations → Statutory corporate governance reports.
CSR Topdanmark's "Statutory report on Corporate Social Responsibility, see Sections 132a and 132b of Executive Order on Financial Reports for Insurance Companies and Multi-employer Occupational Pension Funds" is available on www.topdanmark.com → Investors → Reports and presentations → CSR reports.
Annual General Meeting The Annual General Meeting will be held on 25 March 2021, 15:00 (CET) as a virtual AGM according to Executive Order no. 2240 of 29 December 2020 on temporary derogation from provisions on physical attendance at general meetings of companies’ articles of association or similar agreements in the area of the Danish Business Authority and the Danish FSA in connection with COVID-19.
New Head of Investor Relations As at 1 March 2021, Robin Løfgren will take up the position as Head of Investor Relations in Topdanmark. Robin Løfgren comes from a position as Chief IR Officer at Danske Bank. Robin Løfgren will replace Steffen Heegaard who resigned from his position in Topdanmark by the end of August 2020. Steffen Heegaard will continue as Head of IR until 1 March 2021.
2021 22 Jan 02/2021 Topdanmark announcement of 2020 Annual Results 04 Jan 01/2021 Issue of options 2020 29 Dec 14/2020 Topdanmark Forsikring A/S issues DKK 500m of subordinated notes (subordinated loan capital) 04 Dec 13/2020 Mawer Investment Management’s shareholding in Topdanmark exceeds 5% 23 Oct 12/2020 Topdanmark Forsikring A/S – Redemption of subordinated notes 23 Oct 11/2020 Topdanmark Interim Report for Q1-Q3 2020 16 Sep 10/2020 Employee shares 31 Aug 09/2020 Topdanmark’s Group Communications and IR Director Steffen Heegaard has resigned 17 Jul 08/2020 Topdanmark Half-Year Report for 2020 24 Apr 07/2020 Topdanmark Interim Report for Q1 2020 02 Apr 06/2020 Annual General Meeting of Topdanmark – 2 April 2020 23 Mar 05/2020 Suspension of the profit forecast, and proposal that half of the dividend payout for 2019 is postponed 03 Mar 04/2020 Notice convening the Annual General Meeting on 2 April 2020 20 Feb 03/2020 Topdanmark Annual Report for 2019 23 Jan 02/2020 Topdanmark announcement of 2019 Annual Results 02 Jan 01/2020 Issue of options
Current position held: Group Executive Vice President, Chief of Strategy, Sampo plc.
Offices held: Member of the Board of Directors of: • If P&C Insurance Holding Ltd • Nordax Bank AB (publ) • Hastings Group Holdings Ltd, UK (Chairman).
Expertise and qualifications: The Board has defined the required competencies and qualifications for board members of Topdanmark. Among these, Jens Aaløse possesses knowledge and experience of the following: Board assignments in financial businesses, organisation, strategic management, insurance operations, financial and insurance reporting, risk management and risk assessment, sales to the private market, sales to the professional market, marketing and branding, outsourcing, finance, own funds, auditing, financing and investments, regulatory environment, compliance, IT and IT security, digitalisation, recruitment and human resources.
Accounting & Informatics, CBS • Master of Law, University of Copenhagen.
Expertise and qualifications: The Board has defined the required competencies and qualifications for board members of Topdanmark. Among these, Anne Louise Eberhard 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 to the private market, sales to the professional market, marketing and branding, outsourcing, finance, own funds, solvency and minimum capital requirements, rules for internal models, auditing, financing and investments, regulatory environment, compliance, IT and IT security, digitalisation, recruitment and human resources.
Offices held: Member of the Board of Directors of: • Arbejdsmiljørådet (Chairman) • LEO Pharma A/S • LEO Fondet • C.L. Davids Fond • Det Obelske Familiefond.
Expertise and qualifications: The Board has defined the required competencies and qualifications for board members of Topdanmark. Among these, Cristina Lage 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 to the private market, sales to the professional market, marketing and branding, outsourcing, finance, own funds, solvency and minimum capital requirements, rules for internal models, auditing, financing and investments, regulatory environment, compliance, IT and IT security, digitalisation, recruitment and human resources.
Member of: • The Group Executive Committee of Sampo • The Audit Committee of Alma Media Corporation • The Life Insurance Executive Committee of Finance
Finance and Tax Commission • The Council of World Wild Fund for Nature, Finland.
Previous positions held: 1996-2002: Various positions including Associate Partner, McKinsey & Company, Inc., Norway/Europe 2002-2004: Head of Corporate Strategy, If P&C Insurance Ltd. (publ)
2004-2005: Head of Industrial Underwriting and Claims, If P&C Insurance Ltd (publ) 2005-2013: Head of BA Industrial, If P&C Insurance Ltd (publ) 2013-2019: Group Executive Vice President, Head of BA Private, If P&C Insurance Ltd (publ).
Expertise and qualifications: The Board has defined the required competencies and qualifications for board members of Topdanmark. Among these, Morten Thorsrud 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 to the private market, sales to the professional market, marketing and branding, outsourcing, finance, own funds, solvency and minimum capital requirements, rules for internal models, auditing, financing and investments, regulatory environment, compliance, IT and IT security, digitalisation, recruitment and human resources.
Peter Hermann CEO of Topdanmark A/S. Born 1973, joined Topdanmark in 2016, joined Topdanmark’s Executive Board on 5 February 2018.
Managerial responsibilities: • Asset Management • IR • Finance • Accounting • Analytics • Statistical Services • Reinsurance • Tax • Credits.
Thomas Erichsen CTO of Topdanmark A/S. Born 1972, joined Topdanmark in 2018, joined Topdanmark’s Executive Board on 1 October 2018.
Managerial responsibilities: • Business Development • Project & Program Delivery • IT Architecture & Technology • IT Operations • Solution Development • Portfolio & Performance.
NON-LIFE INSURANCE Gross premiums written 3 9,494 9,803 Ceded reinsurance premiums (609) (592) Change in the provisions for unearned premiums 3 1 282 Change in profit margin and risk margin 3 (32) (323) Change in the reinsurers' share of the provisions for unearned premiums 4 3 Premiums earned, net of reinsurance 8,858 9,174
Acquisition costs (949) (1,015) Administrative expenses (534) (550) Reinsurance commission and share of profits 78 81 Insurance operating expenses, net of reinsurance (1,405) (1,484) TECHNICAL RESULT FROM NON-LIFE INSURANCE 5 1,571 1,354
Claims and benefits paid 7 (4,133) (6,393) Reinsurance cover received 4 6 Claims and benefits paid, net of reinsurance (4,129) (6,387)
Change in the life insurance provisions 8 (13,759) (8,839) Change in the reinsurers' share (4) (7) Change in the life insurance provisions, net of reinsurance (13,763) (8,847)
NON-TECHNICAL ACTIVITIES Technical result from non-life insurance 1,571 1,354 Technical result from life insurance (71) (176)
Interest charges (78) (102) Expenses on investment activities (53) (86) Total investment return 9,499 5,986
Total other financial investment assets 51,675 52,928 TOTAL INVESTMENT ASSETS 57,376 58,603
Reinsurers' share of the provisions for unearned premiums 20 95 96 Reinsurers' share of the life insurance provisions 12 5 Reinsurers' share of the provisions for claims 21 478 440 Total reinsurers' share of provisions 585 541
Receivables from policyholders 265 283 Receivables from insurance companies 151 71 Receivables from associates 286 252 Other receivables 225 584 TOTAL RECEIVABLES 1,512 1,731
Debt relating to direct insurance operations 194 165 Debt relating to reinsurance operations 26 23 Amounts due to credit institutions 155 1,350 Current tax liabilities 27 60
Payments on investment contracts 264 145 Interest income etc. 1,487 1,483
Interest charges etc. (133) (184) Corporation tax (414) (313) Other items 42 (332)
Cash and cash equivalents comprise: Liquid funds 550 846 Deposits with credit institutions 2,745 4,989
Shareholders' equity at 31 December previous year 90 14 1,146 67 3,349 1,350 6,016
Shareholders' equity at 31 December previous year 90 0 1,146 72 3,559 1,530 6,397 Reduction of proposed dividend previous year 765 (765) 0
Dividend paid (765) (765) Dividend, own shares 24 24 Share-based payments 70 70 Exercise of share options 33 33
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 the life insurance provisions 8 Income from investment properties 9 Revaluations 10 Return and revaluations of 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-profit products 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 Cash flow statement 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 Group companies 44 Other disclosures 45 Risk factors 46 Accounting policies 47
Net reinsurance (1) (1) Technical result on life insurance (77) 6 (71)
Technical result on non-life insurance 527 789 (0) 1,316 38 1,354
Life insurance Gross premiums written 10,981 10,981 Allocated investment return 5,291 5,291 Pension return tax (617) (617) Benefits and change in provisions (15,270) (15,270)
Equity investments in associates 67 1,601 0 1,668 Other financial investment assets 22,458 29,211 6 51,675 Investment assets related to unit-linked products 0 36,104 0 36,104 Reinsurers' share of provisions 573 12 0 585
Note 4. Claims incurred, net of reinsurance - non-life insurance Run-off result: Gross business 388 201 Reinsurance ceded 45 (38) Run-off result, net of reinsurance (profit) 433 164 Specification of run-off result on business lines see note 5. Claims incurred include revaluation of derivatives hedging the inflation risk in workers' compensation and illness and accident insurance (149) (153)
Note 5. Technical result - non-life insurance 2019 2020 2019 2020 2019 2020
Run-off result, net of reinsurance 211 45 (1) (7) (28) (49) Claims provisions, net of reinsurance 1,014 932 145 114 631 756
Average value of claim (DKK '000) 22 23 9 9 16 18 Frequency of claims (per thousand value) 42 36 204 189 132 126 liability
Average value of claim (DKK '000) 47 53 23 27 24 34 Frequency of claims (per thousand value) 117 111 104 114 86 81
Average value of claim (DKK '000) 10 6 3 4 16 17 Frequency of claims (per thousand value) 83 91 195 195 103 98 Loss ratio and combined ratio have been calculated including internal rent in accordance with the Executive Order on Financial Reports.
Unit-linked products not eligible for bonus 10,027 10,216 With-profit products 1,078 765
Premiums by the policyholders' location: Other EU-countries 65 56 Other countries 11 5
Note 6. Gross premiums written - life insurance - continued Investment contracts (recognised in the balance sheet): Regular premiums 46 38 Single premiums 701 325
Number of policyholders at 31 December: Insurance contracts: Individual policies 89,790 95,384 Policies which are part of a tenure 58,680 59,707 Group life 86,241 83,879 Investment contracts: Individual policies 8,952 8,442 Policies which are part of a tenure 942 838 The investment contracts do not have guarantees.
Note 7. Claims and benefits paid - life insurance Claims payable on death 137 204 Claims payable on invalidity 1 1 Claims payable on maturity 141 185 Pension and annuity payments 592 582
Bonuses paid in cash 179 158 Claims and benefits paid 4,133 6,393
Note 8. Change in the life insurance provisions With-profit products (455) 440 Unit-linked products (13,304) (9,279) Change in life insurance provisions (13,759) (8,839)
Note 10. Revaluations Held for trading: Equity investments 1,087 64 Unit trusts 8 7
Note 11. Return and revaluations of non-life insurance provisions Amortisation Provisions for unearned premiums and profit margin 9 6 Reinsurers' share of provisions for unearned premiums (1) (1) Provisions for claims (40) (25) Reinsurers' share of the provisions for claims 1 0
Revaluations Provisions for unearned premiums and profit margin (27) (22) Provisions for claims (554) (334) Risk margin (7) (1) Reinsurers' share of the provisions for claims 4 2
Note 14. Earnings per share Profit for the year 1,547 1,124 Average number of shares ('000) 86,824 87,266 Diluting impact of options ('000) 405 210 Average number of shares, diluted ('000) 87,229 87,475 EPS (DKK) 17.8 12.9 EPS, diluted (DKK) 17.7 12.9
Impairment and amortisation at 1 January 0 (213) (615) 0 (828)
Impairment and amortisation at 31 December 0 (220) (716) 0 (936)
Goodwill and development projects under construction are subjected to an impairment test at the end of the year. Goodwill: Goodwill relates primarily to the purchase of non-life insurance companies in 1999.
The pre-tax discount rate is 7.7% (2019: 7.7%) and the post-tax rate 6.0% (2019: 6.0%). It is believed that there are no scenarios in which a probable change in the assumptions of the expected technical result or the discount rate will result in a situation where the carrying amount of goodwill exceeds its recoverable amount for the private segment.
Development projects: Completed development projects primarily comprise the new policy administration systems for life, DKK 521m. The remaining expected useful lifetime end of 2020 is 8 years. Completed development projects are assessed for impairment end of year and at indications of impairment. The assessment showed no need for write-downs. Development projects under construction mostly comprise a new customer and core system for non-life. The impairment test did not show any need for write-downs.
Impairment and amortisation at 1 January (211) 0 (211) Amortisation for the year (31) (1) (33) Transferred on revaluation 0 1 1 Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year 7 0 7 Impairment and amortisation at 31 December (236) 0 (236)
Owner-occupied properties are measured at a revalued amount corresponding to fair value (level 3).
The weighted average of the rates of return on which fair value of individual properties was based 5.3% 5.3%
Fair value revaluation for the year taken to revaluations 319 161 Fair value at 31 December 4,932 5,281
The weighted average of the rates of return on which fair value of individual properties was based 4.2% 4.1% 5.4% 5.2%
The basis of the measurement is an expected annual operating return and rate of return. The rate of return used in the valuation spans from 4.0% to 8.0% (2019: 4.0% to 9.0%).
Property Carlsberg Byen P/S, Copenhagen 23 development 2,230 312 Havneholmen P/S, Kgs. Lyngby 50 Property 1,085 98 Margretheholm P/S, Frederiksberg 50 Property 627 116 Bornholms Brandforsikring A/S, Rønne 27 Insurance 237 12 P/S Ejendomsholding Banemarksvej, Odense 40 Property 121 9 P/S Ottilia, Copenhagen 50 Property 564 65 Heap A/S, Copenhagen* 50 Development - -
Carlsberg Byen P/S, Copenhagen 23 development 1,624 169 Havneholmen P/S, Kgs. Lyngby 50 Property 1,170 110 Margretheholm P/S, Frederiksberg 50 Property 735 109 Bornholms Brandforsikring A/S, Rønne 27 Insurance 258 23 P/S Ejendomsholding Banemarksvej, Odense 40 Property 153 32 P/S Ottilia, Copenhagen 50 Property 501 (38) Heap A/S, Copenhagen* 50 Development - -
The financial information is according to the companies' most recent available annual reports. *Heap A/S was founded in 2019 and the first financial year runs until 31 December 2020. The first annual report has not been published at the time of the presentation of Topdanmark's financial statements. Bornholms Brandforsikring A/S has been recognised on the basis of the most recent financial information at 30 September.
Note 19. Investment assets related to unit-linked products Equity investments 21,588 20,844 Unit trusts 541 665
Investment properties 898 1,347 Investment assets related to unit-linked contracts 36,104 44,997
Change in accrued commissions (1) (1) Ceded reinsurance premiums 609 592 Earned reinsurance premiums (605) (589)
Note 23. Other subordinated loan capital Hybrid Subordinated Subordinated Subordinated core capital loan capital loan capital loan capital (redeemed 2020)
Date of issue November 2017 December 2015 December 2020 December 2015 Maturity Bullet 11 December 2025 30 December 2030 11 June 2026
If permitted by the Danish FSA, the borrower can give notice of termination from 23 November 2022 11 December 2020 30 December 2025 11 June 2021
Cibor 3 months 2.92% to Cibor 3 months Cibor 3 months Interest rate +275bp 11 December 2020 +160bp +270bp
Subordinated loan capital is fully included in the Group's own funds (Capital for solvency purposes).
Cost groups Customers' share of administration expenses after addition of expense bonus 64 57 Insurance operating expenses (209) (239) Result of sales and administration (145) (182) Result of sales and administration (%) (0.7) (0.1)
Return on customer funds after expenses before tax (%) 6.2 4.1
Provisions for claims, net of reinsurance 12,593 12,924 Provisions net of reinsurance for business lines being settled in whole or partly as annuities: Workers' compensation insurance 6,112 6,085 Average period of settlement 6 years 6 years Illness and accident insurance, administered by the life insurance business 2,507 2,631 Average period of settlement 13 years 12 years
Provisions relating to previous years at 31 December 2,926 Provisions, net of reinsurance, at 31 December 2020 12,924
Reconciliation: Provisions for claims 13,364 Less reinsurers' share of provisions (440) Provisions, net of reinsurance, at 31 December 2020 12,924 Composition of expected payments, net of reinsurance: Amortisation / revaluation w orkers' compensation
Note 32. Staff costs - continued Share options Topdanmark's share option scheme comprises the Executive Board and senior executives. The strike price has been fixed at 110% of the market price on the last trading date in the prior financial year (average of all trades). The options may be exercised 3-5 years subsequent to the granting. The scheme is settled by shares (equity instruments).
There are no other earnings conditions to the option scheme than employment in the full year of allocation. Options are allocated at the beginning of the year and in connection with resignation in the year of allocation a proportional deduction in the number of allocated options is made.
Per granting: The fair value of the granting for the year has been calculated using the Black and Scholes model assuming a price of DKK 329.05 (2019: DKK 302.68) per share, an interest rate corresponding to the zero coupon rate based on the swap curve end of December the previous year, future volatility of 22% (2019: 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. The stated strike prices for outstanding options are reduced by dividend distributions.
Number of options which could be exercised on 31 December ('000) 106 331
Note 33. Related parties Possessing an ownership interest of 48.00% of the shares outstanding, Sampo plc, Fabianinkatu 27, Helsinki, Finland has a controlling influence on Topdanmark A/S. Related parties with material influence comprise the Board of Directors, the Executive Board and their related parties.
Remuneration of the Executive Board Peter Thomas Brian R. Lars 2020 Hermann Erichsen Jacobsen Thykier Total *Brian R. Jacobsen and Lars Thykier have successively earned a remuneration equivalent to 18 months' salary which is to be paid by the termination of the employment. The stated amount under Remuneration is regulation of the obligation.
Note 33. Related parties - continued *Brian R. Jacobsen and Lars Thykier have successively earned a remuneration equivalent to 18 months' salary which is to be paid by the termination of the employment. **Peter Hermann has been granted performance-dependent bonuses of DKK 0.475m. Performance-related pay is variable remuneration and 40% thereof will be deferred over four years beginning one year after the time of calculation in 2020.
Material risk takers In addition to the Executive Board, another 27 (2019: 26) employees have material influence on Topdanmark’s risk profile. Fixed remuneration 54.3 58.6 Variable remuneration 7.6 10.3
The number of material risk takers are calculated as a weighted average.
Number of shares held by the Board of Directors and the Executive Board The information relates to the Board of Directors and the Executive Board notified on 31 December.
If P&C Insurance Ltd, a subsidiary in the Sampo Group, held subordinated notes in Topdanmark Forsikring A/S - 500 If P&C Insurance Ltd, held subordinated notes in Topdanmark A/S 133 133
Note 34. Financial assets Financial assets at fair value through profit and loss Held for trading: Equity investments 5,087 4,751 Unit trusts 6 2
Accrued interest and rent 388 415 Total financial assets 88,773 99,050
Investment assets related to unit-linked products 36,496 1,315 5,839 43,650 Total financial assets at fair value 77,660 11,640 7,278 96,578
Note 34. Financial assets - continued Financial assets recorded at fair value based on non-observable input (level 3): Transferred from level 2 0 6,628
Most significant inputs: Discount rate: AAA 1.0% A & BBB 2.7% BBB and lower 7%
Reasonably Effect on Sensitivities: possible changes market value Discount rate +1% DKK 253m loss Expected recovery -1% DKK 46m loss Reinvestment spread -25bps DKK 120m loss Constant default rate +0.5% DKK 296m loss
Expected loss on receivables from policyholders and insurance companies: Group companies have agreed to lend equities against security: Carrying value of equities lent 1,555 1,596 Fair value of bonds received as security for the loan 1,927 1,888 Outline of equity investments can be obtained on application.
Return Assets related to with-profit products 1 January 31 December (%)* Land and buildings 3,622 3,360 7.0 Listed equity investments 2,684 2,411 9.3 Unlisted equity investments 1,198 1,288 4.1 Total equity investments 3,883 3,699 7.7 Government and mortgage bonds 15,015 15,062 1.1 Index-linked bonds 951 934 3.8 Credit bonds and emerging market bonds 1,499 1,498 1.5
Assets related to unit-linked products Land and buildings 1,345 2,017 7.3 Listed equity investments 13,834 15,772 19.4 Total equity investments 13,834 15,772 19.4 Government and mortgage bonds 4,926 11,941 (0.2) Credit bonds and emerging market bonds 6,664 6,510 (0.2)
Note 40. Number of shares 2019 2020 Reconciliation of the number of shares ('000) Shares issued at 1 January 90,000 90,000 Own shares at 1 January (3,568) (2,933) Number of shares at 1 January 86,432 87,067 Shares sold 635 424 Shares issued at 31 December 90,000 90,000 Own shares at 31 December (2,933) (2,509) Number of shares at 31 December 87,067 87,491
Note 41. Own shares Number of Nominal Percentage Proceeds shares value of share on sale '000 DKKm capital DKKm
The Group's insurance companies have registered the following assets as security for technical provisions: Equity investments in associates 414 382 Unit trusts 0 2 Equity investments 2,682 3,670
Other companies: Topdanmark Kapitalforvaltning A/S Ballerup Asset management Topdanmark Invest A/S Ballerup Investment Topdanmark Ejendomsadministration A/S Ballerup Property
There have been no events in the period from 31 December 2020 until the presentation of the consolidated financial statements which could change the assessment of the annual report.
Reserve risk: • Provisions for outstanding claims • Provisions for unearned premiums.
Catastrophe risks: • Storm and cloudburst • Fire • Terror • Workers' comp.
Limited effect on results from individual claims events by means of reinsurance.
For with-profit insurance contracts, we aim at balancing return and risk so that ordinary risks are covered by the related bonus potential.
The calculation of profit is viewed as a risk return on shareholders' equity where fluctuations are adjusted via bonus potential.
Contingency plan in the event of a pandemic escalating. The contingency plan concerns both Topdanmark internally and in relation to changed risk factors for non-life, life- and market risk.
The Compliance Function exercises control and provides advice to ensure that the Group’s divisions and service departments observe relevant legislation and internal rules.
Climate Most important risks Risk preferences Risk reducing activities Storm and cloudburst
Generally, the area of climate risk is to be reduced to an acceptable level.
Strategic risks Most important risks Risk preferences Risk reducing activities Generally, strategic risks are related to the Company's business model, political conditions, reputation, alliance partners' and competitors' conduct as well as macroeconomic conditions.
Topdanmark's business model stands strong against strategic risks. The results of the Company will, to 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. The COVID-19 pandemic that occurred in 2020 has also shown the robustness of Topdanmark’s business model.
Topdanmark continues to improve its administration systems to achieve more finely meshed data capture, which in turn enables it to identify the claims trends at an earlier point in time and compile information on the constituent parts of the various types of claim.
Topdanmark helps its customers when they require assistance Focus is on the customer experience, ensuring that the single customer finds Topdanmark delivering an excellent service.
Better claims procurement Topdanmark always seeks to optimise procurement for the benefit of both customers and shareholders.
Quality Topdanmark has developed procedures for all major claims processes to ensure that they are handled in a uniform and controlled manner. These are supplemented by rules governing the level of professional and financial competence expected of each of the employees in the claims department.
Contingency plan Topdanmark has a contingency plan to ensure that prompt, correct and targeted action is taken on a major weather event such as storm, hurricane, cloudburst or flood. The contingency programme consists of several levels, and this enables a proportional response depending on the size of the event. Topdanmark has appointed emergency helpers throughout the company whose claims handling knowledge is regularly kept up-todate by training targeted at the knowledge level of the individual emergency helper. Furthermore, automation technology and robot processes are being implemented on an ongoing basis in order to improve the scalability of the contingency programme.
and loss of earnings potential in all cases of serious industrial injuries. The exposure to industrial injuries has been reduced substantially over the past five years.
The actuarial team is continuously in dialogue with the claims departments on any changes in the practices stemming from new legislation, case law or compensation awards as well as the impact of such changes on the routines used to calculate individual provisions.
Provisions for unearned premiums 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 as an increase in the estimated cashflow will be absorbed by the profit margin up to a combined ratio of 100. Financial estimates and assessments with effect on the result of the year and shareholders’ equity are therefore primarily relevant within businesses with combined ratio of 100 or more, where premiums are insufficient for covering expected payments and a risk margin, and consequently provisions to cover losses must be made.
Catastrophe risks Topdanmark limits its insurance risk on significant events through a comprehensive reinsurance programme.
Terrorism With certain restrictions, terrorism is covered by the reinsurance contracts.
The NBCR terrorism risks are covered by a public organisation financed by fees on insurance covers if a claims event take place. This is according to an act on NBCR terror in force as at 1 July 2019.
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 borne by shareholder's equity. If interest rates are high, the same losses could, to a larger degree, be absorbed by the bonus potential.
Declines in the collective bonus potential are most frequently due to the investment return being lower than the addition of interest to deposits. Declines in collective bonus potential are also possible if interest rates are relatively high.
Longevity Longevity risk is the risk that customers with life dependent policies, primarily annuities, live longer than expected, which will increase provisions for lifetime products.
Pandemic risks Extraordinary losses as a result of a pandemic affecting the age groups insured in the company’s group life portfolio must be financed by shareholders equity.
The limits for these financial risks are set by Topdanmark's Board of Directors. In practice, Topdanmark Kapitalforvaltning (asset management) handles the investment, finance and risk alignment processes. Compliance with the limits set by the Board of Directors is regularly controlled. The result of this is reported to the Board of Directors.
Equity risk Topdanmark is exposed to an equity risk from direct investments as well as investments made via derivatives.
Property risk Topdanmark is exposed to a property risk from investments in properties rented out for business or private residence.
Credit Spread risk Topdanmark is exposed to a credit spread risk from bonds and other investments where prices are dependent on counterparty creditworthiness.
The credit spread risk is alleviated by focusing predo- minantly on bonds etc. with very high creditworthiness and by a spread on counterparties.
The Group's insurance companies may raise money market loans as part of the day-to-day liquidity management. Typically, the maturity of such loans is less than a month. Both the subordinated loans raised by Topdanmark Forsikring and any outstanding money market loans will be repaid from the cash generated from operations.
Reinsurance Within insurance the reinsurance companies' ability to pay is the most important risk factor. Topdanmark minimises this risk by spreading and primarily buying reinsurance cover from reinsurance companies with a minimum rating of A-. Accordingly, almost 100% of its storm cover has been placed with such reinsurance companies.
Investment Topdanmark may suffer losses due to its counterparties’ inability to meet their obligations on bonds, loans and other contracts including derivatives. The majority of Topdanmark’s interest bearing assets comprise of Danish mortgage bonds. In order to minimise the risk to a single debtor, Topdanmark strives to always have a welldiversified portfolio of bonds not only in regard to a debtor but also geographically.
To limit the counterparty risk of financial contracts, including derivative 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.
Operational risk Operational risk includes the risk of losses incurred due to errors and deficiencies in internal processes, human errors, fraud, system errors, breakdowns of IT systems and the risk of losses incurred due to external events.
Topdanmark regularly develops and improves IT systems, routines, and procedures. The responsible business units are also responsible for the risk management of this development.
Two external firms possessing special expertise within cyber-crime are members of Topdanmark’s IT Security Committee/Cyber-Security Board and thus act as advisers to Topdanmark’s Chief Information Security Officer. One of the firms provides consultancy on security solutions to maintain an effective defense against cybercrime while the other firm conducts regular tests to verify Topdanmark’s resilience against critical attacks from outside. The firm also gives advice about vulnerabilities which must be fixed. Topdanmark’s IT Security Committee reviews and prioritises the results from these tests.
New employees are informed about information security and all employees and consultants in Topdanmark must undergo an e-learning course annually on information security.
Outsourcing is increasingly used in Topdanmark. Consequently, Topdanmark investigates and evaluates the information security with new cooperation and service partners. Topdanmark also monitors the information security with existing partners to prevent cybercrime.
Digitisation/automation Topdanmark is working continuously on digitisation and automation to ensure efficient business and a good customer experience. Focus is on automation of a number of processes, which will help to reduce the risk of human errors. Digitisation is not only robots of which Topdanmark has introduced some so far. Topdanmark also needs to focus on the future and what it requires to navigate in an increasingly and rapidly changing technological development going forward.
In order to control the operational risk connected to processes based on algorithms, machine learning and artificial intelligence, robots are tested regularly in order to prevent and eliminate possible programming and system errors. Tests are always carried through prior to new releases and in case of breakdowns of operation.
The robot handling bad weather damage is tested regularly to ensure that it works properly in case of major events.
Incident register Topdanmark monitors and reports on operational risks in order that the organisation will learn from its mistakes. Consequently, a process has been established including a tool to register incidents, which are then collected centrally in an incident log and communicated onwards in the management system.
Compliance risk is the risk that Topdanmark does not have sufficient knowledge of current or future rules. Additionally, compliance risk is the risk of contravention 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.
Compliance Function's work The Compliance Function is intended to: • issue rules for identification, management and control of compliance risks • exercise control and advise the Group on compliance with legislation and internal rules.
Climate risk Risks due to climate change include both insurance and investment risks. Insurance risks in Topdanmark Non-life related to climate are especially storm and cloudburst. The company includes these risks in underwriting and hedges the assumed risk in the reinsurance programme. Stress tests show that a storm event on the company's current insurance portfolio will only, in one out of 900 years, exceed the reinsurance coverage of DKK 5.1 billion.
Stress tests regarding cloudburst events cause significantly less damage, e.g. as a result of the municipalities' efforts against floods. Overall, the company has hedged the climate risks of non-life insurance satisfactorily.
Topdanmark Group's 2020 Annual Report has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and the additional Danish disclosure requirements of the Danish Financial Business Act on annual reports prepared by listed financial services companies.
Topdanmark Group has implemented the IFRS standards and interpretations that take effect from 2020. None of these has affected recognition or measurement in 2020.
Apart from this, the accounting policies remain unchanged compared with 2019.
Future accounting standards IFRS The IASB has issued a number of new and revised standards and interpretations, which have not yet taken effect and/or been approved by the EU of which the most significant are: IFRS 9 “Financial instruments” came into force on 1 January 2018. However, under certain circumstances, insurance groups may postpone IFRS 9 to 2023 at the time where IFRS 17 “Insurance contracts” is expected to 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 2023.
The provisioning risk is significant, particularly 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.
General Consolidated financial statements The consolidated financial statements include the parent company Topdanmark A/S and all of the companies that are controlled by the parent company. The parent company is deemed to control the companies through direct or indirect ownership of more than 50% of the voting rights, or when it otherwise can have or has a controlling influence.
The income statement and balance sheet are presented in accordance with the Danish FSA's IFRS-compatible Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds.
Recognition and measurement Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to the group, and where the asset has a value that can be measured reliably. Liabilities are recognised in the balance sheet, when it is probable that future economic benefits will flow from the group, and where the value of the liability can be measured reliably. The recognition and measurement take into consideration predictable losses and risks, which have occurred prior to the presentation of the annual report, and which provide evidence of conditions that existed at the balance sheet date.
The IFRS defines a hierarchy of three levels for measurement of fair value: Level 1 The calculation of fair value should always be based on the listed prices of transactions in active markets whenever possible. If there is no listed price, another
public price is used, which is believed to be the most appropriate. If the transaction on the open market is limited or if there is no closing price, prices from banks/brokers can be used if these are calculated based on fully updated market data and are deemed to be in accordance with the closing price.
Level 3 If the valuation of the investment asset cannot be based on publicly available market information alone, valuation models that could imply the use of estimates of both the future and the nature of the current market situation are used.
The accounting policies for measurement of properties are described below under “Owner-occupied properties” and “Investment properties” respectively.
An investment contract is one in which the insurance risk is not sufficient for it to be classified as an insurance contract. Payments received and made on investment contracts have been recognised directly in the life insurance provisions for investment contracts.
Employee shares Topdanmark has established an employee share scheme implying a pay cut. The value of the shares is included as staff costs in the income statement with a set-off on shareholders’ equity.
The risk return is transferred to shareholders' equity if it can be covered by individual and collective bonus potentials.
Shareholders’ equity must contribute to the financing of a potential negative result for each contribution group if it cannot be covered by collective bonus potential and
In life insurance, claims and benefits paid comprise payments relating to claims, pensions and annuities, surrenders and cash bonuses.
Bonuses and rebates Bonuses and rebates include those premiums that have been or will be paid back to policyholders where the amount is calculated based on the claims trend using criteria determined prior to the beginning of the financial year, or when the insurance contracts were written.
Return and revaluation of non-life insurance provisions Return and revaluation of non-life insurance provisions include amortisation and revaluation of premium provisions, claims provisions, profit margin and risk margin, net of reinsurance.
Other income and expenses Income and expenses that do not relate to the administration of insurance portfolios or investment assets are included in other income and expenses.
Taxation The tax charge for the year comprises the current corporation tax for the year and any changes in deferred tax. The tax charge related to profit for the year is included in the income statement, and the share related to other comprehensive income and shareholders' equity are taken to other comprehensive income and shareholders' equity respectively. The current tax for the year is calculated using the tax rates and rules applicable on the financial position date.
The calculation of the capital value uses a rate of return which is set for each property on the basis of the current market conditions on the balance sheet date for the type of property concerned, the location of the properties, the quality of the tenants etc. with the effect that the rate of return is estimated to reflect the market’s current rates of return for corresponding properties.
Market trends and the rates of return of the market are regularly analysed. Each property is assessed annually by the Group's own valuers.
Receivables at amortised cost On initial recognition receivables are measured at fair value, and subsequently at amortised cost. The receivables are regularly assessed for impairment and written down to a lower recoverable amount. Such impairments are generally made collectively on the basis of a due date analysis. When an individual receivable is considered irrevocable, the impaired amount is transferred from the account for collective allowances.
Reinsurers' share of the provisions for claims represents 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 a lower recoverable amount.
Shareholders' equity Revaluation reserves Gains on the revaluation of owner-occupied properties are transferred to the revaluation reserves net of corporation tax. The reserve will be dissolved if the revaluation is reversed or the property is sold.
The security funds can only be used for strengthening the technical provisions or otherwise for the benefit of policyholders and only if permitted by the Danish FSA.
Proposed dividend Dividend forms part of shareholders´ equity until the adoption at the annual general meeting. From the time of adoption, the dividend is recognised as a liability.
Provisions for insurance and investment contracts Provisions for unearned premiums Premium provisions are calculated as the best estimate of expected payments for future insurance events covered by insurance contracts concluded.
Changes in the value due to changes in the interest rate curve used and amortisation are transferred to “Return and revaluation non-life insurance provisions”.
The share of the risk margin related to settlement of premium provisions is deducted from the profit margin.
Profit margin for a portfolio of insurance contracts with similar risks cannot be lower than zero.
The present value of the expected future payments has been calculated using an interest rate curve determined in Solvency ll (EIOPA interest rate curve). The interest rate curve is volatility adjusted and for contracts subject to pension return tax - each interest rate used is reduced by the tax rate of 15.3%.
Best estimate for guaranteed benefits is measured as the present value of current, guaranteed benefits plus future administration expenses and deduction of present value
of agreed premiums. Guaranteed benefits are calculated considering amendments of the insurance contracts to paid-up policies and surrender.
Best estimate for unguaranteed benefits is calculated at contribution group level as the group’s collective bonus potential adjusted for risk margin and positive values of the difference between, on the one hand, the accumulation of the insurance contracts (retrospective provisions) and on the other hand, best estimate of guaranteed benefits of these insurance contracts.
Profit margin on life insurance and investment contracts Profit margin is the expected future profit for the company from contracts concluded and when possible, profit margin for products with guarantees and profit sharing is financed by the individual bonus potential and secondarily by the collective bonus potential. The value is calculated as an interest margin of 0.05%. The profit margin has been calculated on the basis of the expected duration of the insurance contracts.
Provisions for claims Claims provisions must cover future payments of claims incurred and their administration.
between the possibility of resumption of work and the period passed since the occurrence of the claim.
Other liabilities Provisions for pensions and similar liabilities Provisions for anniversary bonuses and retirement benefits are built up on an on-going basis over the period of employment. The liability is calculated taking into account the expected level of staff reduction based on the
Deposits received from reinsurers Deposits received from reinsurers represent amounts deposited to cover reinsurers' liabilities to the company.
Share buy-back per share, diluted (DKK) Share buy-back for the year Number of shares (average), diluted
Post-tax EPS (DKK) Profit for the year Number of shares (average)
Net asset value per share, diluted (DKK) Shareholders’ equity end of year Number of shares, diluted
The average Shareholders’ equity is calculated as a time-weighted average. Number of shares is the number of issued shares less the number of own shares. Number of shares, diluted, is adjusted for the effect of potentially diluting share options.
Rate of return related to with-profit products (%) Return with-profit products*100 Life insurance provisions with-profit products (average)
Expense ratio of provisions (%) Insurance operating expenses * 100 Life insurance provisions + profit margin (average)
Rate of return related to unit-link products (%) Return unit-linked products *100 Life insurance provisions unit-linked products (average)
Related parties 8 Own shares 9 Contingent liabilities 10 Other note disclosures 11 Accounting policies 12
Note 1. Income from affiliates Topdanmark Forsikring A/S 1,501 1,098 Topdanmark Kapitalforvaltning A/S 90 73 Topdanmark Invest A/S (4) (3) Income from affiliates 1,587 1,168
Note 2. Other expenses Holding expenses 41 46 Other expenses 41 46
Note 3. Taxation Current tax 11 12 Change in deferred tax 0 0 Taxation (income) 11 12 Pre-tax profit excl. income from affiliated companies (52) (57) Calculated tax on profit for the year, 22% 11 12 Tax rate 22 22
Note 7. Other subordinated loan capital Principal DKK 400m Date of issue November 2017 Maturity Bullet If permitted by the Danish FSA, the debtor can give notice of termination from 23 November 2022 Interest rate Cibor 3 months +275bp
Carrying value 398 399 Market value (level 2) 400 400 Interest charges 10 10
Affiliates At 31 December, Sampo plc held subordinated notes in Topdanmark Forsikring A/S 405 270
If P&C Insurance Ltd, held subordinated notes in Topdanmark Forsikring A/S - 500 Expenses charged 30 32 Dividends received 1,380 840 Expenses are charged to cover costs incurred.
Average effective interest rate on balances is 0.00% (2019: 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.
The company’s accounting policies for recognition and measurement are in accordance with the Group’s accounting policies with the following amendment: Equity investments in affiliates are recognised and measured according to the equity method. If the net asset value exceeds the recoverable amount, the investment is written down to this lower amount. The share of the posttax results of affiliates is included in the income statement under income from affiliates less any write-downs. Where investments in affiliates are revalued to net asset value, the net revaluation reserve is included in shareholders' equity. The share of the changes in other comprehensive income items and equity of affiliated companies is included directly in other comprehensive income items and shareholders' equity respectively.
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 2020.
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 2020 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 2020.
Board of Directors: Ricard Wennerklint Jens Aaløse Elise Bundgaard (Chairman) (Deputy Chairman)
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group at 31 December 2020 and of the results of the Group's operations and cash flows for the financial year 1 January to 31 December 2020 in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed financial institutions.
Further, in our opinion, the financial statements give a true and fair view of the financial position of the Parent Company at 31 December 2020 and of the results of the Parent Company's operations for the financial year 1 January to 31 December 2020 in accordance with the Danish Financial Business Act.
Appointment of auditor At the Annual General Meeting on 12 April 2018, we were elected as auditor for Topdanmark A/S for the first time. We have been reelected annually by the Annual General Meeting for a total period of three years up to and including the financial year 2020.
We have fulfilled our responsibilities described in the "Auditor's responsibilities for the audit of the financial statements" section, including in relation to the key audit matters below. Our audit included the design and performance of procedures to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements.
Measurement of provisions for insurance and investment contracts At 31 December 2020, provisions for insurance and investment contracts amounted to DKK 16.5bn in respect of non-life insurance contracts and DKK 79.3bn in respect of life insurance contracts of these life insurance provisions for unit-linked contracts amounted to DKK 56.1bn.
Our audit of provisions for insurance and investment contracts Based on our risk assessment, we have examined the measurement of provisions for insurance and investment contracts performed by Management.
Significant management estimates include: • Determination of valuation methods and models • Determination of yield assumptions
Statement on the Management's review Management is responsible for the Management's review.
Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
• Evaluate the overall presentation, structure and contents of the financial statements, including the note disclosures, and whether the financial statements represent the underlying transactions and events in a manner that gives a true and fair view