TOPDANMARK’S EQUITY STORY The Topdanmark share is a value case – not a growth case
Focused strategy y Danish player y Stable insurance risks y Low expense ratio y Limited financial risk y Efficient capital management y Limited top line growth y Profitable growth - in that order y High net result y Large share buy-back programme y No protection against a take-over in the Articles of Association
(2012: 90.3%) • 452B452BWeather-related claims had a 3.9pp impact on the combined ratio (2012: 0.5pp) • 453B453BPremiums increased 1.5% in non-life insurance and 14.8% in life insurance • 454B454BInvestment return declined to DKK 866m (2012: DKK 1,336m) • 455B455BProfit on life insurance increased to DKK 442m
453m) • 458B458BCombined ratio was 100.4% (Q4 2012: 88.2%) • 459B459BThe two storms in Q4 had an adverse 14.6pp effect on the combined ratio • 460B460BCombined ratio excluding run-off profits was 104.9% (Q4 2012: 91.7%) • 461B461BPremiums increased 2.4% in non-life insurance and 30.9% in life insurance • 462B462BInvestment return declined to DKK 283m (Q4 2012: DKK 343m).
Profit forecast model for 2014 • 464B464BAssumed combined ratio for 2014 unchanged at 91-92% excl. run-off • 465B465BAssumed premium growth in non-life insurance continues at 2-3% • 466B466BPost-tax profit forecast model is DKK 950-1,050m, excluding run-off, corresponding to DKK 9.4 profit per share.
Share buy-back • 463B463BShare buy-back programme for 2014 of DKK 1.7bn representing a buy-back yield of 10.2%.
Webcast 493B493BIn a webcast today Topdanmark's CEO, Christian Sagild, will present the financial highlights and comment on the forecast.
Conference call 494B494BA conference call will be held today at 15:30 (CET) when Christian Sagild, CEO, and Lars Thykier, CFO, will be available for questions based on the annual report and the webcast. The call will be conducted in English.
21B21BPlease direct any queries to: 22B22BChristian Sagild 23B23BChief Executive Officer 24B24BDirect tel.: +45 4474 4450 25B25BLars Thykier 26B26BChief Financial Officer 27B27BDirect tel.: +45 4474 3714 28B28BSteffen Heegaard 29B29BGroup Communications and IR Director 496B496BDirect tel.: +45 4474 4017, mobile: +45 4025 3524
Management’s review 30B30B1 Key features of Annual report 31B31B3 Financial highlights 32B32B4 Profit in 2013 33B33B4 Profit in Q4 2013 34B34B5 Non-life insurance 35B35B9 Life insurance 36B36B11 Investment activities 37B37B13 Parent company etc. 38B38B13 Taxation 39B39B13 Prospects for 2014 40B40B15 Share buy-back 41B41B16 Risk management 42B42B19 Solvency 43B43B21 Capital model 44B44B21 Capital structure and ownership 45B45B21 Board of Directors and Articles of Association 46B46B22 Severance pay 47B47B23 Remuneration structure 48B48B24 Corporate Governance 49B49B24 CSR 50B50B24 Investor Relations 51B51B26 Share split 52B52B26 Annual General Meeting 53B53B26 Financial calendar 54B54B27 Company announcements and trading reports 55B55B28 Board of Directors and Executive Board 56B56B32 Five-year summary – Group
Premiums earned: Non-life insurance 8,665 8,548 8,668 8,759 8,889 2,209 2,263 Life insurance 3,194 3,341 3,242 3,059 3,511 738 965
Total assets, parent company 5,467 5,712 6,408 6,895 6,485 6,895 6,485 Total assets, Group 56,554 57,542 61,013 59,435 61,092 59,435 61,092
Provisions for insurance and investment contracts: Non-life insurance 14,478 15,139 16,228 16,251 16,721 16,251 16,721 Life insurance 28,882 31,166 30,618 32,553 33,640 32,553 33,640
Number of shares end of period ('000) 154,959 144,724 133,319 123,940 112,632 123,940 112,632
503B503BThe technical result declined DKK 303m, particularly due to two storms in Q4 which, after reimbursement from the reinsurance companies etc., cost Topdanmark DKK 330m net. On the other hand, the technical result benefited DKK 105m from higher run-off profits.
505B505BProfit on life insurance increased DKK 232m to DKK 442m, particularly due to a transfer of DKK 171m from the shadow account in 2013, while in 2012 DKK 117m was transferred to the shadow account: see Life insurance.
506B506BProfit of the parent company etc. increased DKK 51m to DKK 73m due to a higher performance allowance in Topdanmark Kapitalforvaltning (asset management) and a DKK 25m write-down of a property in 2012.
511B511BThe technical result declined DKK 270m mostly due to the two storms.
513B513BProfit on life insurance increased DKK 56m to DKK 102m primarily due to a transfer of DKK 22m from the shadow account in Q4 2013, while in Q4 2012 DKK 28m was transferred to the shadow account.
514B514BProfit of the parent company etc. increased DKK 36m to DKK 54m due to, among other factors, the higher performance allowance in Topdanmark Kapitalforvaltning (asset management).
Non-life insurance - Investment return after transfer to technical result etc. 1,036 520 – 570 595 Profit on non-life insurance 2,103 1,240 – 1,340 1,361
Non-life insurance - Investment return after transfer to technical result etc. 266 169 Profit on non-life insurance 529 162 Life insurance 46 102 Parent company etc. 18 54 Pre-tax profit 593 318
516B516BNon-life insurance 517B517BDanish non-life insurance market 518B518BIn 2013 the Danish non-life insurance market was characterised as follows: • 467B467BLower average premium in motor insurance • 468B468BAround 1% growth in premiums • 469B469BIncrease in claims trend for contents insurance • 470B470BTwo storms in Q4 • 471B471BLower interest rates • 472B472BIncrease in the combined ratio from 90% to around 93% • 473B473BRun-off profits had a 3-4pp positive impact on the combined ratio.
519B519BAutomatic price indexation in the personal and SME markets was 1.8%, which is estimated to have an overall effect of around 1.3% for the entire market. Also in 2013 prices in the industrial market were under pressure due to, among other factors, competition from foreign companies.
520B520BThe average premium in motor insurance declined around 3% in 2013 due to new cars being smaller and more roadworthy than old cars and consequently a lower average insurance premium for new cars. At the same time the total number of cars in Denmark increased 2.0% in 2013.
521B521BOverall growth in gross premiums earned is estimated to be around 1%.
522B522BIn contents insurance, the recent years' trend of declining claims frequency but increasing average claims continued into 2013. Efforts by the police to get closer to the public have helped reduce the number of thefts. On the other hand, the size of average claims, primarily for house customers, increased due to, among other factors, more organised burglary behaviour and an increase in the share of more valuable objects such as jewellery, watches, silverware, designer furniture and the like. Overall, the claims trend in contents insurance is estimated to have increased.
523B523BDenmark was not hit by significant rainstorms during the summer, but on the other hand by two storms in Q4. The two storms are estimated to have caused gross expenses of DKK 4-5bn. After reimbursement from the reinsurance companies, the two storms are estimated to have had an adverse effect of around 3pp on the combined ratio. Together with the storm in December, Denmark was hit by a flood, i.e. flooding from seas, lakes and streams. Flood damage is not covered by the insurance policy, but by the national flood scheme. The insurance companies manage the claims handling of flood claims on behalf of the Danish Storm Council. There seems to be a general willingness to increase the cover for this scheme.
526B526BThe run-off profits are estimated to have had a favourable effect of 3-4pp on the combined ratio (2012: 4pp). The run-off profits in 2012 and 2013, which are estimated to be higher than normally, are typically in workers' compensation, accident and motor liability. Here, there are also significant differences between the companies.
Result of non-life insurance in Topdanmark Premiums earned 527B527BPremiums earned increased 1.5 % to DKK 8,889m in 2013, which was in line with the assumed premium growth of 1-2%. The personal segment accounted for 2.4 % of the growth and the SME and Industrial segment for 0.3 %.
528B528BPremiums earned benefited from automatic price indexation of 1.8%, which had an effect of around 1.3% on overall premiums earned.
529B529BIn 2013 Topdanmark held a strong competitive position in the personal market, the agricultural market and the lower SME market partly due to increased market pressure through both own sales channels and Danske Bank, and partly a reduction in the loss of customers.
Claims trend 531B531BThe claims trend deteriorated to 75.4% (2012: 72.2%) primarily due to an increase in weather-related claims. Weather-related claims increased to DKK 350m net of reinsurance in 2013 (2012: DKK 48m,) representing a 3.4pp deterioration of the claims trend. The two storms in Q4 2013 caused just over 50,000 claims generating gross claims expenses of around DKK 1bn. After reimbursement from the reinsurance companies, payment of reinstatement premium and expenses on claims handling etc., net expenses on the two storms were DKK
330m. Topdanmark assumes a normal level of DKK 170m net of reinsurance for weather-related claims. This year weather-related claims were DKK 180m higher than the normal level, with a 2.0pp effect on the claims trend.
Combined ratio 537B537BOverall expenses on claims, reinsurance, sales and administration as a percentage of premiums earned (combined ratio) was 91.5% (2012: 88.0%).
539B539BWeather-related claims in 2013 had a 3.9pp effect on the claims trend, which was 2.0pp higher than the normal level.
542B542BThe claims trend increased to 84.3% (2012: 72.2%). This trend was mainly due to two storms which caused a DKK 326m deterioration of the size of weather-related claims, with a 14.4pp adverse effect on the claims trend. Furthermore, there was an increase in fire claims (0.6pp). On the other hand, the claims trend benefited from higher run-off profits (1.0pp) and an improved trend in the 543B543Bfollowing areas: accident (0.6pp), illness/accident (0.5pp) and motor insurance (0.4pp).
Segment reporting Personal 75B75BThe Personal segment sells policies for individual households in Denmark.
87B87BThe combined ratio deteriorated to 94.8% in 2013 (2012: 86.5%). Excluding run-off profits, it increased to 97.6% (2012: 90.8%).
Life insurance Danish life and pension market 88B88BIn 2013 the Danish life and pension market was characterised as follows: • 89B89BMovement from with-profits to unit-linked schemes • 90B90BNew legislation • 91B91B2012 tax reform 92B92BThere is an increased trend towards new business being written in unit-linked schemes and customers moving their existing pension savings from with-profits to unit-linked schemes. In 2013, several companies offered their customers a share of their unallocated provisions if they chose to move their pension schemes from with-profits to unit-linked schemes.
Profit on life insurance in Topdanmark 94B94BIn 2013 life insurance made a profit of DKK 442m (2012: DKK 210m) primarily due to the recognition as income of DKK 171m from the shadow account (2012: DKK 117m transfer to the shadow account).
95B95BProfit on life insurance activities comprises the profit on life insurance plus the investment return of Life Holding. This profit was calculated in accordance with the stated policy on the calculation of profit for the life insurance company: see www. topdanmark.com → Investor → Business → Life insurance → Policy for the calculation of profit in life insurance.
Trend in premiums 98B98BGross premiums increased 14.8 % to DKK 3,511m in 2013 (2012: DKK 3,059m).
99B99BRegular premiums declined 1.0% to DKK 2,134m in 2013, which was in line with the decline assumed in the interim report for Q1-Q3 2013.
101B101BOverall premiums included premiums on unit-linked products of DKK 1,881m in 2013 (2012: DKK 1,178m) representing an increase of 59.7 %. This increase was mostly due to an increase in single premiums to DKK 1,166m in 2013 (2012: DKK 607m).
102B102BUnit-linked products represented 70.1 % of new business in 2013 (2012: 60.6 %).
105B105BIn 2014 the rates of interest on policyholders' savings are further differentiated between each interest rate group. The rate of interest on policyholders' savings, before pension return tax, continues to be 2.0% in the new business interest rate group, in the interest rate groups with low guarantees it is between 1.8% and 2.0% and in the interest rate groups with high guarantees up to 6%.
106B106BAs in previous years these rates may be subject to change if the development in the financial markets deviates significantly from expectations.
553B553BDevelopments in Q4 2013 554B554BProfit on life insurance increased to DKK 102m in Q4 2013 (Q4 2012: DKK 46m) mostly due to recognition of income from the shadow account. Overall premiums increased 30.9% to DKK 965m in Q4 due to a 119% growth in single premiums to DKK 434m.
Investment return in Topdanmark Liv Holding and result of Nykredit Livsforsikring have been moved from "Other" to "Investment return". Comparatives have been restated.
107B107BInvestment activities 108B108BTopdanmark Group excluding life insurance 109B109BThe investment return in the Topdanmark Group excluding life insurance was DKK 866m in 2013 including a revaluation of provisions and income from associated companies but before the transfer to the technical result (2012: DKK 1,336m).
489B489BThe post-tax equity exposure was DKK 801m (pre-tax: DKK 1,068m) excluding associated companies but including the impact of derivatives.
The exposure in foreign equities and credit bonds has been adjusted by the use of derivatives. The return percentages are calculated as the ratio between the return on financial instruments and the size of the exposure of the underlying asset. The return on government and mortgage bonds and assets related to I/A
491B491Bbased on OMXCCAP for Danish equities (representing around 30% of the portfolio at 31 December 2013) and MSCI World in the original currency for foreign equities.
112B112BThe Group's investments have no significant concentration of credit risk except for AAA-rated Danish mortgage bonds which are considered to be particularly safe assets according to the Danish Financial Business Act.
557B557BSince 31 October 2008, Danish insurance companies and pension funds have calculated the value of provisions by using a discount rate representing the combined weighting of the swap rate and the option-adjusted Danish mortgage credit rate. With effect from June 2012, the curve was adjusted as convergence towards a fixed forward interest rate of 4.2% was incorporated from the 20-year point. Therefore, the value of long-tail provisions is less sensitive to changes in the market rate for longterm assets.
114B114BCredit bonds with a rating lower than BBB (DKK 130m) comprise high yield bonds, part of which are convertible, and subordinated bank capital issued by EU banks. Credit bonds with a rating of BBB and A (DKK 338m) are ordinary and convertible corporate bonds, subordinated bank capital issued by EU banks and annuity policies.
120B120BThe property portfolio comprises mainly owner-occupied property (DKK 869m), rental property (DKK 367m), rental office property (DKK 68m) and property rented for hotel use (DKK 96m). The tenancies for the residential and hotel properties are subject to a short termination notice. Re-letting of the residential properties is not considered to be a problem, but any re-letting of the hotels could be affected by the state of the market and local conditions. The office property is rented under contracts with no option to terminate prior to 2015. 99% of the property portfolio is currently let. The properties are valued in accordance with the rules of the DFSA i.e. at market value taking into account the level of rent and the terms of the tenancy agreements.
123B123B"Subordinated loan capital" comprises hybrid capital issued by the parent company and subordinated loans issued by Topdanmark Forsikring.
Return AAA and AA 6 1 13 7 Low er than AA 79 53 292 198 Total return 85 54 305 205
560B560BProfit increased from DKK 22m in 2012 to DKK 73m in 2013 due to an improvement in the profit generated by the asset management company and a 25m write-down of a property in 2012.
Prospects for 2014 Expected trend in Danish non-life insurance market 562B562BIt is expected that in 2014 the Danish non-life insurance market will be characterised as follows: • 563B563BIncreasing, but continued low financial growth • 564B564BAutomatic indexation of 1.3% • 565B565BSelective price increases • 566B566BContinued declining average premium in motor insurance
571B571BIn the personal and SME markets, automatic indexation, which allows for claims inflation, is typically 1.3 % (though 3.2% for workers' compensation insurance), which is estimated to have an overall effect of around 0.9% on the overall market.
572B572BSelective measures such as changes in conditions and price increases are expectable in areas, for example, with a poor claims trend such as contents policies, and companies with high combined ratios.
573B573BThe decline in average premium for motor insurance is expected to continue into 2014 because the decline in claims frequency is expected to continue to decline due to, among other things, more roadworthy cars.
574B574BOverall growth in gross premiums earned is estimated to be 1-2%.
576B576BAccordingly, all of the six largest non-life insurance companies, representing a market share of 71%, are quoted on the stock exchange or owned by quoted companies. Additionally, the low interest rates will continue to motivate the companies to ensure profitability of their primary operations.
577B577BA number of factors will have an adverse impact on the combined ratio. The Finance Act Agreement for 2014 expects the municipalities to generate additional income of DKK 100m due to a tightening up of the recourse procedures in respect of insurance companies in the area of cash assistance and unemployment benefits. Furthermore, the two storms in Q4 2013 are expected to increase reinsurance expenses. Finally, the payroll tax will increase from 10.9% to 11.4%. Overall, these factors are expected to have an adverse effect of around 0.5pp on the combined ratio.
579B579BRun-off profits improved the combined ratio by around 3-4pp in 2013. Run-off profits are expected to be lower in 2014 than in 2013.
132B132BThe low returns on pension savings increase the need for saving because the savings do not grow as fast as previously. Therefore, the increase in life expectancy and the lower returns will increase pension customers' need for saving.
133B133BThere is an increased trend towards new business being written in unit-linked schemes and customers moving their pension savings from with-profits to unit-linked schemes.
592B592BSince the Q1-Q3 2013 interim report was published, the following assumptions have changed: • 593B593BAn expense ratio lower than 16% • 474B474BInterest rates have declined corresponding to a marginally higher combined ratio.
594B594BThe assumed growth in premiums continues to be 2-3% and the combined ratio 91-92, excluding run-off.
Life insurance 135B135BThe demand for lifelong pension savings is expected to increase in 2014. Topdanmark's alliance partners are also expected to increase their sales of lifelong pension savings. Given these expectations, growth in regular premiums is assumed to be 0-5% in 2014. At this time of the year it is not appropriate to assume a level of growth in single premiums.
597B597BThe DFSA has announced that the concept of shadow account will be removed. Previously, the change was expected to take effect on 1 January 2014. Now the DFSA expects it to be on 1 January 2015. It is not clear how the shadow account will be removed. One possibility is that the amount of the shadow account balance that could reasonably be expected to be recognised as income in keeping with the relevant rules will be posted to shareholders' equity on 1 January 2015. In such a
scenario, it is assessed that Topdanmark would recognise around DKK 10m as income from the shadow account, while the remaining DKK 90-100m is not assumed to be recognised as income.
Parent company 600B600BThe profit forecast model for the parent company including subsidiaries outside of the insurance group assumes a pre-tax profit of DKK 20-30m.
Total Group profit 603B603BThe overall post-tax profit forecast model is assumed to be DKK 950-1,050m in 2014 representing a profit per share of DKK 9.4.
Share buy-back 606B606BIn the Q1-Q3 interim report for 2013 it was announced that the share buy-back for 2013 had been increased by DKK 50m to DKK 2,250m.
607B607BThe actual buy-back for 2013 was DKK 1,836m, representing a buy-back yield of 11.1%.
611B611BTo date in 2014 Topdanmark has bought back own shares of DKK 218m, which leaves a balance of DKK 1,482m of the 2014 programme. If Topdanmark buys back own shares for less than DKK 1,700m in 2014, the 612B612Bbalance will be transferred to the buy-back programme for 2015.
613B613BOn 21 February 2014 Topdanmark's share capital comprised 125,000,000 shares, of which Topdanmark held 13,900,000 own shares. If before the AGM on 10 April 2014, contrary to expectation, no further shares are bought back, the number of voting shares will be 111,100,000 shares.
615B615BIn the years 2000-2013 the annual average buy-back yield has been 9.5 %.
Non-life insurance - Technical result 765 770 – 820 - Investment return after transfer to technical result etc. 595 250 – 300 Profit on non-life insurance 1,361 1,020 – 1,120 Life insurance 442 200 – 230 Parent company etc. 73 20 – 30 Pre-tax profit 1,875 1,240 – 1,380 Taxation (407) (290) – (330)
617B617BTopdanmark does not buy back own shares in those periods where the Company would be considered an insider and during the three weeks immediately preceding the announcement of interim and annual reports.
Risk management 621B621BTopdanmark's policy is to hedge against risks arising from the Company's activities or to limit such risks to a level that allows the Company to maintain normal operations and implement its planned measures even in the case of highly unfavourable events in the outside world.
624B624BIn order to ensure strict control of the overall risk, the exposures are calculated as often as deemed necessary, i.e. daily, monthly, quarterly or in a few cases annually according to the nature of the exposure.
625B625BThe Board of Directors determines the overall risk policies and limits. The internal auditors report to the Board of Directors and report on, among other things, the observance of these risk policies and limits.
627B627BThe 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.
630B630BThe risk management function has addressed the new executive order on solvency for insurance companies, which sets out new rules for solvency calculation. Furthermore, it has prompted an adjustment of the process for calculation of solvency to ensure that the solvency calculation at the end of 2013 follows the calculation principles of the new executive order on solvency.
Review 136B136BTopdanmark believes that the Group's most important risks relate to the following main areas: • 137B137BNon-life insurance • 138B138BLife insurance • 139B139BMarket • 140B140BCredit and counterparty • 141B141BOperational • 142B142BStrategic.
632B632BNon-life insurance risks 633B633BPersonal, liability and property insurance for the personal, SME, industrial and agricultural markets 634B634BMost important risks 635B635BRisk preferences 636B636BRisk reducing activities 637B637BUnderwriting risk • 638B638BAcceptance policy • 639B639BFollow-up policy 640B640BProvisioning risk 641B641BDisaster risks • 642B642BStorm and rainstorm • 643B643BFire • 644B644BTerror • 645B645BCumulative risk • 646B646BWorkers' comp 647B647BProfit on both product and customer level 648B648BSpread of risk on different types of insurance / customer groups 649B649BLimited effect on results from individual damage by using reinsurance 650B650BRisk-based price models allowing for market situation 651B651BClear rules for new business 652B652BRisk equalisation through extensive reinsurance programme 653B653BSystematic follow-up on profitability 654B654BHigh data quality 655B655BUse of statistical models for pricing and calculation of provisions 656B656BLife insurance risks 657B657BLife insurance contracts with bonus entitlement, unit-linked contracts with no investment guarantees and group life 658B658BMost important risks 659B659BRisk preferences 660B660BRisk reducing activities 661B661BLimited loss-absorbing buffers in the event of low interest rates 662B662BDisability, which is the risk of increasing disability intensity or declines in the rates of resumption of work, in that the benefits have been guaranteed until expiry 663B663BLifetime, where customers with life dependent policies, primarily annuities, live longer than expected 664B664BFor agreements with bonus entitlement we aim at balancing return and risk so that ordinary risks are covered by the related bonus potential 665B665BThe calculation of profit is viewed as a risk return on shareholders' equity where fluctuations are adjusted via bonus potential and shadow account 666B666BAll policies are classified by the guaranteed benefit, and the investment policy is intended to ensure the ability to meet the benefits guaranteed 667B667BThe market risk is freely adjustable in relation to each customer group's risk capacity 668B668BNormal fluctuations in investment return and risk results are provided for by the bonus potential per contribution group 669B669BBonus potential on paid-up benefits is protected by loss participation schemes 670B670BReinsurance 671B671BGuaranteed interest rates are hedged in portfolios with high guaranteed benefits. In portfolios with low guaranteed benefits, movements in interest rates are followed and risk reducing actions are performed as required 672B672BMarket risks 673B673BMost important risks 674B674BRisk preferences 675B675BRisk reducing activities 676B676BInterest rate risk 677B677BEquity risk 678B678BProperty risk 679B679BCurrency risk 680B680BInflation risk 681B681BLiquidity risk 682B682BTopdanmark's policy is to accept a certain level of market risk in order to profit from the Group's strong liquid position and its high, stable earnings from insurance operations 683B683BIn order to improve the average investment return and limit the overall market risk Topdanmark invests in a wide range of asset categories 684B684BTopdanmark's Board of Directors has set limits on the acceptance of market risks in the form of risk limits and scenario based requirements on the overall maximum loss 685B685BCompliance with these limits is regularly controlled
144B144BIn the calculation of the effect on the results it is assumed that the bonus reserves and the individual bonus potential in the life insurance group could offset adverse fluctuations at the levels described as the overall collective bonus potential was DKK 1,472m at 31 December 2013 (2012: DKK 768m) and the bonus potential on paid-up benefits DKK 2,364m (2012: 1,849m).
716B716BSolvency 717B717BDanish insurance companies are subject to European and Danish solvency rules ensuring that the companies hold sufficient capital relative to the risks they accept. The most important rule sets are: • 718B718BSolvency I – the current European solvency rules • 719B719BIndividual solvency requirement • 720B720BTraffic light rules.
725B725BOn 1 January 2014 a new executive order on solvency took effect. This new order is based on all Danish insurance companies using the same rules when calculating their solvency, while the method was optional up to and including 2013. The rules of the new executive order are close to the expected future Solvency II rules.
Risk scenarios (DKKm) after taxation and pension return tax 2012 2013 Non-life insurance Underw riting risk Combined ratio − 1pp increase (66) (67)
Provisioning risk Provisions on ow n account − 1% increase (96) (94)
Market risk Interest-bearing assets 1 pp increase (509) (464) Provisions for claims in effective and benefits etc. interest rate 498 441
730B730BSignificant transitional rules which are included in the calculation of capital base: • 477B477BProvision for capital costs, calculated in accordance with the Solvency II principles, is deducted from the capital base
• 478B478BIf the accounting provisions for outstanding claims exceed best estimate, the surplus amount is added to the capital base
734B734BSolvency II 735B735BSolvency II is the future EU regulation for insurance companies setting requirements for solvency calculations, capital base and risk management. In addition there are requirements for detailed reporting on risk management to supervisory authorities and for publication. Solvency II is expected to take effect on 1 January 2016.
738B738BTherefore, Solvency II gives the companies the opportunity to fully or partially develop their own risk model (internal model) for the solvency calculation. However, the DFSA must approve the model that is used for the calculation of Solvency II capital requirements. Today Topdanmark uses a risk model it has developed inhouse to calculate the non-life risk. The inclusion of nonlife risks in Topdanmark's calculation of the individual solvency requirement has been based on this model.
740B740BSo far, the size of the necessary solvency capital has been calculated to be DKK 4,700m. This amount is the forecast solvency requirement under Solvency II plus an adequate buffer, ensuring that usual fluctuations in earnings will not result in insufficient solvency cover.
742B742BTopdanmark Forsikring has already issued additional subordinated loan capital of DKK 500m. This amount is not included in the necessary capital but is a safety margin to the DKK 4,700m.
744B744BTopdanmark's Solvency II project 745B745BTopdanmark is preparing for Solvency II by having employees from claims actuarial services, life actuarial services, asset management, financial and compliance departments, IT, Group Development and others working together on a project reporting to the CFO.
750B750BFurthermore, for the period until the Annual General Meeting in 2015, the Board of Directors is authorised to acquire own shares of up to 15% of the share capital for the purpose of ownership or security. The shares can be acquired at a minimum market price of DKK 1.05 per share and a maximum price of current market value plus 10%. It is a standing authorisation which, subject to the approval of the general meeting, is renewed regularly.
751B751BAt 31 December 2013 Topdanmark’s share capital totalled DKK 125,000,000 divided into 125,000,000 shares of DKK 1 each, corresponding to 125,000,000 voting rights. As of 4 March 2014, Topdanmark holds 13,900,000 of own shares representing 11.1% of the share capital, of which 3,321,736 shares are earmarked to cover Management's share option scheme.
Board of Directors and Articles of Association Appointment and replacement of members of the Company's Board of Directors 1049B1049BThe Board of Directors, which is elected at the general meeting and the Topdanmark Group's employees, is the Company's top threshold of management formulating the Company's objectives, goals and strategies and making decisions on matters that are of high importance or unusual in nature to the Company.
1052B1052BThe age limit for Board members is 70 and the term of office for members elected by shareholders at the general meeting is one year, while in accordance with legislation, it is four years for members elected by employees.
1053B1053BBoard members are elected individually, and no Board member may be appointed by any individual shareholder.
1057B1057BFour of the nine Board members are women, two of them elected at the general meeting and two by Topdanmark's employees. In 2013 the number of female Board members elected at the AGM increased from one to two. Consequently, Topdanmark meets its goal: that the Board members elected at the AGM comprise a minimum of two persons of each gender. Topdanmark meets the statutory definition of an equal gender distribution.
1058B1058BTopdanmark has signed up to the UN Global Compact intended to ensure, among other things, the prevention of discrimination in businesses.
Amendments to the Company's Articles of Association 1060B1060BThe general meeting is Topdanmark's chief decisionmaking vehicle. Decisions at general meetings are made by a simple majority of votes unless a special majority or representation is required by the Danish Companies Act or the Articles of Association. The Articles of Association provide that decisions on the alteration of the Articles of Association are only valid if adopted by an affirmative vote of not less than two thirds of the votes cast as well as of the capital represented at the general meeting. The Articles of Association provide no restrictions on voting rights.
760B760BSeverance pay 761B761BAs stated in the remuneration policy adopted at the AGM it is part of the contracts for the Executive Board and three other members of the top management team that, under certain circumstances, they will receive compensation in the form of an extended period of notice and an increased severance pay if Topdanmark is taken over by or merges with a company outside of the Group, or if one or more owners take control of Topdanmark. The maximum amount of compensation will represent two years' salary.
763B763BOn 23 September 2013, the EU Commission decided that If P & C Insurance Holding Ltd (publ) de facto is in control of Topdanmark. By extension of this decision, the Executive Board earns a compensation representing six months' salary in each of the years 2013-2015. The compensation will be paid on resignation.
764B764BRemuneration structure 148B148BTopdanmark's remuneration policy is intended to optimise long-term value creation at a group level. In accordance with Section 77(d) of the Danish Financial Business Act and Section 139 of the Danish Companies Act, the AGM has adopted "Remuneration policy of the Topdanmark Group including general guidelines for performancerelated pay."
150B150BThe share price reflects expected value creation potential at group level. This is one of the reasons why Topdanmark believes that share options rather than the receipt of individual bonuses encourage the executives to be more holistic in their approach to value creation.
151B151BThe remuneration package of the Executive Board, the Friday Team and significant risk takers is based upon a fixed basic salary, 10% of which is paid as share options. Individual bonuses or other types of variable salary are not paid. The determination of the fixed basic salary paid to the Executive Board and the Friday Team is based on a specific assessment of the employee. In its assessment Topdanmark includes, among other factors, their position, characteristics and performance.
Share options 154B154BFor 2014 Topdanmark has granted 281,436 share options to its Executive Board and a number of executives. The strike price of DKK 157 was fixed at 110% of the market price of Topdanmark's shares on 30 December 2013 (average of all trades).
155B155BBesides the revolving scheme referred to above, a further 200,000 share options have been granted for 2014 to a number of other executives who are expected to make a special effort or otherwise contribute extraordinarily to value creation in the Company.
156B156BThe options granted for 2014 may not be exercised any earlier than subsequent to the publication of the 2016 Annual Report in 2017 and no later than subsequent to the publication of the 2018 Annual Report in 2019. In the intervening period the options can only be exercised up to three banking days subsequent to Topdanmark's publication of annual and interim reports.
158B158BThe value was calculated using the Black and Scholes model based on a share price of DKK 142.95, an interest rate corresponding to the zero coupon rate based on the swap curve on 30 December 2013, 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.
CSR 767B767BTopdanmark's "Statutory report on Corporate Social Responsibility, see Section 132 of Executive Order on Financial Reports for insurance Companies and Lateral Pension Funds", is available on www.topdanmark.com → Investor Relations → Reports and presentations → CSR reports (
Investor Relations 768B768BTopdanmark wishes to openly and sufficiently inform investors, analysts and other stakeholders on the Group's matters in order to ensure that as far as possible: • 769B769BValue creating activities are reflected in a fair price for
Topdanmark's shares • 770B770BTopdanmark’s shares are not traded at a discount due to lack of liquidity • 771B771BThere is a high level of confidence in Topdanmark's shares • 772B772BThe provision of uniform and consistent information helps ensure low volatility in Topdanmark's shares.
773B773BCommunication to investors and analysts is performed through the following information channels: • 774B774BInvestor meetings • 775B775BTelephone meetings • 776B776BConference calls • 777B777BWebcasts • 778B778BInvestment and insurance conferences.
Distribution policy 782B782BTopdanmark's policy is to pay out to shareholders all surplus capital by way of share buy-backs.
Trading in Topdanmark's shares 784B784BDaily share trading on NASDAQ OMX Copenhagen was DKK 52m in 2013 (2012: DKK 33m). NASDAQ OMX Copenhagen continues to be the primary stock exchange for trading in Topdanmark's shares with a market share of 70% in 2013 (2012: 81%). Consequently, the share of the trading was 30% on other trading platforms such as BATS, Chi-x and Turquoise.
786B786BTopdanmark is monitored by 20 analysts. Share analysts' recommendations of Topdanmark's shares are available on Topdanmark's investor site www.topdanmark.com → Investor Relations → Share profile → Analysts.
789B789BAnnual General Meeting 790B790BThe AGM will be held on 10 April 2014, 15:00 (CET) at: 791B791BTivoli Hotel & Congress Center 792B792BArni Magnussons Gade 793B793B1577 Copenhagen V
796B796BThe Board of Directors proposes the election of: • 797B797BAnders Colding Friis • 798B798BTorbjörn Magnusson • 799B799BBirgitte Nielsen • 800B800BMichael Pram Rasmussen • 801B801BAnnette Sadolin • 802B802BSøren Thorup Sørensen
AGM 10 Apr 2014 Q1 2014 Interim Report 20 May 2014 2014 Half-year Report 19 Aug 2014 Q1-Q3 2014 Interim Report 18 Nov 2014
Company announcements and trading reports Company announcements 804B804BTopdanmark submits announcements to Nasdaq OMX, Copenhagen with information on material and relevant events in the Group which can affect the price of Topdanmark's shares. The announcements are also sent to the press, share analysts, investors and other interested parties.
2014 805B805B06 Jan 02/2014: CORRECTION: Topdanmark increases its holding of own shares 806B806B06 Jan 02/2014: Topdanmark increases its holding of own shares 807B807B02 Jan 01/2014: Issue of options 2013 808B808B19 Nov 15/2013: Topdanmark’s Interim Report Q1-Q3 2013 809B809B20 Aug 14/2013: Topdanmark’s 2013 Half-Year Report 810B810B28 Jun 13/2013: Share capital and voting rights in Topdanmark 811B811B24 Jun 12/2013: Letter of notification filed with the EU Commission 812B812B18 Jun 11/2013 If’s shareholding in Topdanmark concentrated in If Holding 813B813B07 Jun 10/2013: Topdanmark’s holding of own shares is 5% 814B814B07 Jun 09/2013: If owns more than 25% of Topdanmark 815B815B07 Jun 08/2013: Write-down of Topdanmark’s share capital – Topdanmark’s holding of own shares below 10% 816B816B21 May 07/2013 Topdanmark’s Interim Report Q1 2013 817B817B17 Apr 06/2013: Annual General Meeting of Topdanmark – 17 April 2013 818B818B20 Mar 05/2013: Notice convening AGM of Topdanmark A/S 819B819B19 Mar 04/2013 Resignation of employee elected to the Boards of Directors 1061B1061B05 Mar 03/2013: Topdanmark Annual Report 2012 1062B1062B03 Jan 02/2013: Topdanmark increases its holding of own shares 820B820B02 Jan 01/2013: Issue of options
Trading Reports 2014 162B162B02 Jan 01/2014: CORRECTION: Trading in Topdanmark’s shares by insiders 163B163B02 Jan 01/2014: Trading in Topdanmark’s shares by insiders 2013 821B821B26 Nov 05/2013: Trading in Topdanmark’s shares by insiders 822B822B27 Aug 04/2013: Trading in Topdanmark’s shares by insiders 823B823B28 May 03/2013: Trading in Topdanmark’s shares by insiders 824B824B13 Mar 02/2013: Trading in Topdanmark’s shares by insiders 825B825B02 Jan 01/2013: Trading in Topdanmark’s shares by insiders
164B164BMichael Pram Rasmussen, Chairman*, ***,****, ***** 165B165BDOB: 14 January 1955 166B166BJoined Topdanmark’s Board of Directors: 2006 167B167BCurrent position held: Chairman 1063B1063BPrevious positions held: 1979-1982: Nye Danske Lloyd A/S
1982-1984: Baltica Forsikring A/S 1984-1986: Deputy General Manager, Baltica Forsikring A/S 1986-1988: General Manager, Baltica Forsikring A/S 1988-1995: Group Managing Director, Baltica Forsikring A/S 1995-1996: Group Managing Director, Tryg-Baltica Forsikring A/S 1996-2006: CEO of Topdanmark A/S and Topdanmark Forsikring A/S
829B829BOffices held: Member of the Boards of Directors of: • 830B830BTDC A/S • 831B831BLEGO A/S • 832B832B4 subsidiaries of KIRKBI A/S • 833B833BKoldingvej 2, Billund A/S • 834B834BKIRKBI AG • 835B835BMerlin Entertainments Plc • 836B836BFalck Holding A/S
838B838BIndependence: Søren Thorup Sørensen meets the definition of independence set out by the Committee on Corporate Governance
10B10Band CEO, House of Prince A/S 1064B1064BEducation: MSc 186B186BOffices held: Member of the Boards of Directors of: • 187B187BMonberg & Thorsen A/S (Chairman) • 11B11BIndustral Employers in Copenhagen (Deputy Chairman) • 482B482BIC Companys A/S (Deputy Chairman) • 12B12BThe Foundation of Ejnar and Meta Thorsen • 13B13BExecutive Committee and Governing Body of DI 14B14B(The Confederation of Danish Industry)
188B188BIndependence: Anders Colding Friis meets the definition of independence set out by the Committee on Corporate Governance 189B189BCharlotte Hougaard** 190B190BDOB: 1 October 1964 191B191BJoined Topdanmark’s Board of Directors: 2007 839B839BCurrent position held: Chairman of Topdanmark's staff association 192B192BJens Maaløe* 193B193BDOB: 10 January 1955 194B194BJoined Topdanmark’s Board of Directors: 2003 195B195BCurrent position held: CEO of TERMA A/S 196B196BPrevious positions held: 1983-1990: Development / Sales Manager, NKT Elektronik A/S
201B201BEducation: MSc (Engineering), DTU 202B202BLicentiate (Tech.), thesis: radar technology and optical communication 203B203BOffices held: Member of the Boards of Directors of: 204B204BThe Research and Education Committee of DI (The Confederation 205B205Bof Danish Industry) (Chairman) 206B206BGrundfos Holding A/S 207B207BThe Poul Due Jensen Foundation 208B208BNKT A/S 209B209BGoverning Body of DI (The Confederation of Danish Industry) 210B210BFAD (Danish Defence and Aerospace Industry) 211B211BPA (Federation of Employers in the Provincial Industry)
Executive Board Christian Sagild 234B234BCEO of Topdanmark A/S 235B235BDOB 1959, joined Topdanmark in 1996, joined Topdanmark's Executive Board on 1 January 2006 236B236BEducation: 237B237BMSc in insurance science 238B238BManagerial responsibilities: • 239B239BLife insurance • 240B240BHR • 241B241BIT • 242B242BGroup Development • 243B243BCommunications, IR, CSR • 244B244BGroup Secretariat, Corporate Legal Matters 857B857BMember of the Boards of Directors of: 858B858BThe Danish Insurance Association (Chairman) 859B859BAmbu A/S 860B860BBruhn Holding ApS 861B861BGoBike International A/S
Change in the life insurance provisions (2,845) (960) 370 (738) 1,635
Change in the provisions for unit-linked contracts (837) (914) (233) (978) (1,968)
Gross premiums written 3 8,851 9,018 Reinsurance ceded (660) (726) Change in the provisions for unearned premiums, gross 3 (29) (56) Change in the reinsurers' share of the provisions for unearned premiums 8 12 Premiums earned, net of reinsurance 8,170 8,248
Gross premiums written 7 3,059 3,511 Reinsurance ceded (4) (5) Premiums, net of reinsurance 3,054 3,506
Income from associated companies 26 57 Income from investment properties 10 200 144 Interest income and dividends etc. 1,877 1,676
Interest charges (89) (78) Expenses on investment business (43) (45) Total investment return 4,261 3,298
Total other financial investment assets 45,803 44,471 TOTAL INVESTMENT ASSETS 50,887 49,731
Creditors arising out of direct insurance operations 95 93 Creditors arising out of reinsurance operations 35 115 Bond loans 74 58 Amounts due to credit institutions 2,007 2,159 Amounts due to associated companies 7 5 Current tax liabilities 54 15
Cash flow from operations Gross premiums written 8,827 8,964 Claims paid (6,596) (6,428) Expenses paid (1,248) (1,343) Reinsurance ceded 99 (55) Cash flow from non-life insurance 1,082 1,137
Gross premiums written 3,050 3,569 Claims and benefits (3,203) (3,852) Expenses paid (318) (320) Reinsurance ceded 33 6 Cash flow from life insurance (438) (599)
Payments made and received on investment contracts 42 39 Dividends from associated companies 65 0 Interest income and dividends etc. 2,181 1,833 Interest charges etc. (131) (120) Pension return tax (227) (322) Corporation tax (506) (472) Other items (28) (32)
Financing Shares bought back (1,200) (1,836) Exercise of share options 123 133 Bond loans 0 (16) Amounts due to credit institutions (3,990) 152
Cash and cash equivalents at 1 January 2,266 2,025 Revaluation of cash and cash equivalents (22) (20) Purchase of associated company 0 15 Cash and cash equivalents at 31 December 2,025 1,467
Segment information income statement 1 Segment information balance sheet 2 Gross premiums earned - non-life insurance 3 Technical interest, net of reinsurance - non-life insurance 4 Claims incurred, net of reinsurance - non-life insurance 5 Technical result - non-life insurance 6 Gross premiums written - life insurance 7 Claims and benefits paid - life insurance 8 Change in life insurance provisions 9 Income from investment properties 10 Revaluations 11 Other expenses 12 Taxation 13 Profit per share 14 Intangible assets 15 Tangible assets 16 Investment properties 17 Shares in associated companies 18 Loans to associated companies 19 Investment assets related to unit-linked contracts 20 Reinsurers' share of the provisions for unearned premiums 21 Reinsurers' share of the provisions for claims 22 Deferred tax 23 Subordinated loan capital 24 Provisions for unearned premiums 25 Life insurance provisions 26 Provisions for claims 27 Collective bonus potential 28 Provisions for unit-linked contracts 29 Technical basis for risk allowance and shadow account 30 Expenses 31 Auditors' fee 32 Staff costs 33 Related parties 34 Financial assets 35 Financial liabilities 36 Settlement of assets and liabilities 37 Analysis of assets and their return - life insurance 38 Exposure information 39 Shares analysed by industry and region (%) - life insurance 40 Leasing 41 Core capital and capital base 42 Number of shares 43 Own shares 44 Provision of security 45 Contingent liabilities 46 Comparatives 47 Companies 48 Other disclosures 49 Risk factors 50 Accounting policies 51
Technical profit on non-life insurance 514 552 1 1,068 25 1,092
Life insurance Gross premiums written 3,511 3,511 Allocated investment return 2,031 2,031 Benefits and change in provisions (4,908) (4,908)
Net reinsurance (1) (1) Technical profit on life insurance 291 6 297
Pension return tax 5 (278) (272) Transferred to technical result (182) (2,031) (2,213)
Total provisions for insurance and investment contracts 16,251 32,553 0 48,804 Amounts due to affiliated companies 157 1,368 308 (1,833) 0
Purchase of tangible and intangible assets 87 19 0 106 Results from associated companies 6 52 0 57
Note 6. Technical result - non-life insurance Gross premiums written 8,851 9,018 Gross premiums earned 8,823 8,963 Gross claims incurred (6,122) (7,132) Bonuses and rebates (64) (74) Gross operating expenses (1,372) (1,415) Net reinsurance (193) 445 Technical interest, net of reinsurance 20 14 Technical profit 1,092 801
Run-off profits, net of reinsurance 201 306 Claims provisions, net of reinsurance 12,750 12,494 Number of claims incurred ('000) 393 462 Average value of claim (DKK '000) 16 16 Annual frequency of claims 108 123
The annual frequency of claims has been calculated as a per thousand value.
Technical interest, net of reinsurance 3 2 0 0 2 2
Run-off profits / (losses), net of reinsurance 34 139 (1) (6) 148 63 Claims provisions, net of reinsurance 3,002 2,916 48 49 5,882 5,642
Technical interest, net of reinsurance 2 1 4 3 5 3
Average value of claim (DKK '000) 28 27 9 9 13 12
Average value of claim (DKK '000) 45 43 33 33 4 5 liability
Note 7. Gross premiums written - life insurance Individual policies 365 345 Policies which are part of a tenure 1,392 1,385 Group life 399 404 Regular premiums 2,157 2,134
Gross premiums written, direct business, by the policyholders' location: Other EU-countries 24 27 Other countries 3 4
Note 9. Change in life insurance provisions Guaranteed benefits (1,224) 1,847 Bonus potential on future premiums 29 302 Bonus potential on paid-up benefits 456 (515) Change in life insurance provisions (738) 1,635
Total held for trading 2,230 559 Designated at fair value: Deposits with credit institutions 1 0 Investment assets related to unit-linked contracts: Unit trusts 78 64
Calculated tax on profit for the year (25%) 584 469 Adjusted for the tax effect of: Returns on shares etc. not liable to tax (22) (47) Non-deductible expenses / income not liable to tax (9) (5) Change in rate of taxation 0 (8) Prior year adjustment (40) (2)
Note 14. Profit per share Profit for the year 1,823 1,468 Average number of shares ('000) 128,276 117,904 Diluting impact of options ('000) 1,092 1,227 Average number of shares, diluted ('000) 129,367 119,131 Profit per share, DKK 14.2 12.5 Profit per share, diluted DKK 14.1 12.3
Impairment and amortisation at 1 January 0 (136) (218) 0 (355)
Impairment and amortisation at 31 December 0 (151) (282) 0 (433)
Cost / revaluation at 1 January 479 861 1,340 Additions, including improvements 42 8 50
Revalution taken to other comprehensive income 0 2 2 Transferred on revaluation 0 (2) (2) Cost / revaluation at 31 December 413 869 1,282
A general 0.25pp increase in the return requirement will cause a decline of DKK 40m in the overall fair value of owner-occupied properties.
A general 0.25pp increase in the return requirement will cause a decline of DKK 182m in the overall fair value of investment properties. Average return requirement Non-residential 6.0% 5.8% Residential and part residential 4.7% 4.7%
Note 22. Reinsurers' share of the provisions for claims Non-life insurance Reinsurers' share at 1 January 1,079 683
Hybrid core capital has been fully included in the parent company's capital base 406 407
Life insurance provisions at 1 January 26,257 26,941 Accumulated revaluation at 1 January (897) (1,803) Retrospective provisions at 1 January 25,360 25,138 Gross premiums written 1,880 1,630 Accrued interest 555 563 Claims and benefits (2,478) (3,279) Expense loading inclusive of expense bonus (165) (142) Risk gain after allocating policyholders' risk bonus (28) (95)
Reduction in bonus potential on paid-up benefits when allocating "Technical basis for risk allowance" in Topdanmark Livsforsikring A/S 89 0
Portfolios analysed by capitalisation rates Guaranteed future paid-up 2012 benefits premiums benefits
Claims paid relating to previous years (3,642) (3,130) Change in expected claims payments relating to previous years (201) (387)
Claims paid relating to this year (3,040) (3,379) Expected claims payments relating to this year 6,323 7,519
Non-life insurance, net of reinsurance, at 31 December 12,750 12,494 Life insurance 87 98 Provisions for claims, net of reinsurance 12,837 12,592
Illness / accident insurance, net of reinsurance, administered by the life insurance business 2,020 1,946 Average period of settlement 14 years 14 years
Note 27. Provisions for claims - continued Claims liabilities analysed by claims year
Less paid incl. inf lation hedging 3,382 4,542 5,881 5,740 5,668 5,752 5,725 5,228 6,094 5,314 53,325 Provisions before discounting
Less paid incl. inf lation hedging 3,225 4,303 4,889 5,410 5,425 5,491 5,405 4,969 4,839 4,666 48,622 Provisions before discounting
The table show s the historical development in the estimated f inal liability (the sum of claims payments and provisions) for each claims year from 2004. Signif icant proportions of the liabilities show n have been calculated w ithout discounting w hich to a great extent eliminates changes in discounting rates and methods after the change to IFRS. How ever, w orkers' compensation and illness / accident administered by the life insurance business are included at discounted values.
Risk groups 103 143 Cost groups 6 8 Collective bonus potential 768 1,472
Note 31. Expenses Expenses by their nature: Commission - non-life insurance 228 253 Commission - life insurance 45 47 Staff costs (excl. commission) 1,662 1,718 Other staff costs 107 118 Premises costs etc. 172 153 IT operations and maintenance 156 162 Impairment and amortisation 145 144 Other expenses 120 151 Total expenses 2,634 2,746
These expenses have been disclosed in: Non-life insurance: Acquisition costs 853 947 Administrative expenses 519 468 Claims paid (claims handling and assessment) 793 820
Income from investment properties (administration and operation) 62 75 Expenses on investment business 43 45 Other expenses 40 54 Total expenses 2,634 2,746
Trading takes place under normal market conditions. Shares are disclosed in the balance sheet and specified in the note on shares in associated companies. Balances are disclosed in the balance sheet.
Note 35. Financial assets Financial assets at fair value where the revaluation is taken to the income statement Held for trading: Loans guaranteed by mortgages and other loans 9 6
Total financial assets at fair value where the revaluation is taken to the income statement 50,117 51,144
Loans and receivables at amortised cost Loans to associated companies 173 416 Amounts due from policyholders 390 346 Amounts due from insurance companies 157 65 Other debtors 193 121 Liquid funds 368 420
(DKKbn) Inputs based Inputs not based 2012 Quoted on observable on observable Financial assets recorded at fair value prices market data market data
Allowance account (policyholders and insurance companies): Group companies have agreed to lend equities against security: Book value of equities lent 1,156 1,022 Fair value of bonds received as security for the loan 1,526 1,160
Note 36. Financial liabilities Financial liabilities measured at fair value through profit or loss Held for trading: Designated at fair value: Amounts due to credit institutions 2,007 2,159 Total financial liabilities measured at fair value through profit or loss 2,029 2,329
Note 36. Financial liabilities - continued Financial liabilities payable after five years or more: Subordinated loan capital 406 407 Amounts due to credit institutions 5 4
Note 38. Analysis of assets and their return - life insurance Net Return 1 January 31 December investment (%)* Land and buildings, directly owned 3,425 3,396 39 1.4
Credit bonds investment grade 2,524 2,746 (313) 6.4 Credit bonds non-investment grade and emerging market bonds 2,403 1,599 (26) 20.9
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 foreign shares is adjusted by means of derivatives. After including derivatives the exposure in foreign shares on 31 December 2013 was DKK 4,679m (2012: DKK 4,130m).
Max. effect on before change bonus potential collective in bonus poten- used for 2012 Min. effect on bonus tial used for benefits on Event capital base potential such benefits paid-up policies 0.7-1.0 pp increase in interest rates (148) (106) 1,045 16 0.7-1.0 pp decline in interest rates 84 114 (1,008) (130)
A list of the shares held by the companies can be ordered from the company.
Note 41. Leasing Finance lease for mainframe CPU: Minimum lease Present Book 2012 payment Interest value liabilities
Operational finance leases: Note 42. Core capital and capital base 2012 2013
Shareholders' equity according to Danish rules * 5,716 5,490 Deferred tax assets (1) (1) Hybrid core capital 406 407 Capital adequacy requirements for insurance companies – 50% (1,521) (1,460) Core capital 4,600 4,436 Capital adequacy requirements for insurance companies – 50% (1,521) (1,460) Capital base 3,078 2,976 Weighted items 4,238 4,001 Core capital as a percentage of weighted items 108.5 110.9 Solvency ratio 72.6 74.4 * Before provisioning for deferred tax on security funds. Solvency has been calculated according to the rules for financial services holding companies. See "Solvency" in Management's Review.
Deposits with credit institutions 1,560 811 Investment assets related to unit-linked contracts 4,278 6,673 Liquid funds 123 18 Accrued interest 348 350 Shares in and amounts due from affiliated companies eliminated in the consolidated accounts 7,464 7,087
Note 46. Contingent liabilities Adjustments to VAT liabilities 33 26 Other liabilities 10 11 Capital commitments made to loan funds and private equity funds etc. 237 509 Share of associated companies' liabilities: Contract liabilities 452 283 The Group companies participate in technical insurance collaboration where they are jointly liable for the insurance liabilities.
Income statement Gross premiums written 3,161 (102) 3,059 Claims and benefits paid (3,248) 103 (3,146) Change in the life insurance provisions (684) (54) (738) Change in provisions for unit-linked contracts (1,032) 53 (978)
Cash flow statment Gross premiums written 3,151 (102) 3,050 Claims and benefits paids (3,251) 48 (3,203) Cash flow from life insurance (384) (53) (438) Total cash flow from insurance business 698 (53) 644
Non-life: Topdanmark Forsikring A/S Ballerup Insurance Danske Forsikring A/S Ballerup Insurance TDP.0007 A/S Ballerup Property Topdanmark EDB A/S Ballerup Internal IT services E. & G. Business Holding A/S Ballerup Holding Topdanmark Holding S.A. Luxembourg Holding Risk & Insurance Services S.A. Luxembourg Administration TDLII.0087 A/S Ballerup Investment
Life: Topdanmark Liv Holding A/S Ballerup Holding Topdanmark Livsforsikring A/S Ballerup Insurance Nykredit Livsforsikring A/S Ballerup Insurance Topdanmark EDB II ApS Ballerup IT services Topdanmark Ejendom A/S Ballerup Property TDE.200 ApS Ballerup Property TDE.201 ApS Ballerup Property
There have been no events in the period from 31 December 2013 until the presentation of the consolidated financial statements which could change the assessment of the annual report.
Follow-up policy 905B905BIn order that both products and customers are profitable, Topdanmark systematically acts upon changes in its customer portfolios.
907B907BGeneral insurance rates are re-calculated at least every three years and motor and workers' compensation rates are reviewed annually.
908B908BProvisions are generally calculated on a monthly basis across all lines of business. The claims trend is assessed monthly, followed up by any necessary price changes.
909B909BTopdanmark 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 claims.
Provisioning risk Provisions for outstanding claims 1075B1075BTraditionally, the insurance classes are divided into shorttail (i.e. those lines where the period from notification until settlement is short) and long-tail (those lines where the period from notification until settlement is long).
1078B1078BDuring such a long period of settlement the levels of compensation could be significantly affected by changes in legislation, case-law or practice in the award of damages adopted by, for example, the Danish National Board of Industrial Injuries which awards compensation for injury and loss of earnings potential in all cases of serious industrial injuries.
1080B1080BThe provisioning risk represents mostly the ordinary uncertainty of calculation and claims inflation, i.e. an increase in the level of compensation due to the annual increase in compensation per policy being higher than the level of general indexation or due to a change in judicial practice / legislation.
910B910BThe sufficiency of the provisions is tested in key lines by calculating the provisions using alternative models as well, and then comparing the compensation with information from external sources, primarily statistical material from the National Board of Industrial Injuries and the Danish Road Sector / Road Directorate.
1083B1083BFor change of ownership insurance the policy covers a period of five or ten years and the full five or ten-year payment is made up front. Topdanmark's level of provisions for change of ownership policies is based on statistical analyses of the pattern of claims notifications as compared to the remaining period of the policies.
1084B1084BFor workers' compensation and motor liability insurance policies, which unlike change of ownership are one-year policies, the need for strengthening the provision for unearned premiums is assessed on the basis of quarterly analyses of the development in premiums and claims.
Storm and rainstorms 912B912BReinsurance covers storm claims of up to DKK 5.1bn with a retention of DKK 100m. Snow loading, snow thawing and rainstorms are also covered. Reinstatement for the proportion of the cover used up is activated by payment of a reinstatement premium. In the event of another storm within the same year, there is cover of a further DKK 5.1bn with a retention of DKK 100m. In the event of a third and fourth storm, there is cover of up to DKK 670m with a retention of DKK 20m if the events occur within the same calendar year. To this should be added the cover not already hit twice by the first two storms. The cover of a third or fourth storm is dependent on the storm programme not having been hit previously by two individual storms each exceeding DKK 3.6bn. The storm programme is renewed on 1 July.
268B268BFire 269B269BTopdanmark has a proportional reinsurance programme for fire with a maximum retention of DKK 25m per claim on any one business.
Workers' compensation 1089B1089BIn workers' compensation up to DKK 1bn is covered with a retention of DKK 50m.
Life insurance Loss absorbing buffers in the event of low interest rates 914B914BBonus potential on paid-up benefits and collective bonus potential are the loss absorbing buffers in life insurance against any losses incurred by customers on investment activities.
losses could, to a larger degree, be absorbed by the bonus potential.
920B920BIn portfolios with low guaranteed benefits, i.e. comprising policies with guaranteed benefits of 2.5%, 1.5% and 0.5%, the movements in interest rates are monitored and risk reducing actions are taken as needed.
Lifetime 924B924BLifetime risk is the risk customers with life dependent policies, primarily annuities, live longer than expected, which will increase provisions for lifetime products.
925B925BExtra costs due to longer lifetimes will be partially covered by collective bonus potential and bonus potential on paidup benefits. The remainder affects profit / loss for the year and consequently shareholders' equity.
Market risk 926B926BMarket risk represents the risk of losses due to changes in the market value of the Group's assets, liabilities and off-balance items as a result of changes in market conditions. Market risk includes interest rate, equity, property, currency, inflation and liquidity risk.
927B927BThe limits for these financial risks are fixed by Topdanmark's Board of Directors. In practice, Topdanmark Kapitalforvaltning (asset management) handles the investment, finance and risk alignment processes. Compliance with the limits set by the Board of Directors is regularly controlled. The result of this is reported to the Board of Directors.
955B955BThe Group uses derivatives to hedge investment risks. The hedging of currency risk in particular often results in significant positive or negative changes to balance sheet values.
956B956BTopdanmark pays or receives cash security for any changes in value. The extent of these daily changes is limited such that there is no challenge to liquidity.
958B958BThe 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.
959B959BFurthermore, the Group has a significant liquidity base of high-quality liquid bonds.
Reinsurance 961B961BWithin 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 all of its storm cover has been placed with such reinsurance companies.
967B967BTopdanmark regularly develops and improves IT systems, routines and procedures. The responsible business units are also responsible for the risk management of this development.
968B968BProjects are to carry out a risk assessment with a description of the risks, possible consequences and measures to limit these risks.
977B977BTopdanmark carried out a major awareness campaign among all employees in 2013. It focused on human behavior towards using our IT assets and had four clear messages: Be aware of what you insert into your computer, what you click on in mails, whom you speak to on the telephone and whom you allow into Topdanmark.
Errors in internal processes, human errors, insurance fraud and deceit 978B978BTopdanmark's well-documented routines, procedures and efficient control environment minimise these risks. It has made emergency plans for the most significant areas.
Notes to the financial statements • Group 980B980BNote 51. Accounting policies 981B981BTopdanmark Group's 2013 Annual Report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and the additional Danish disclosure requirements of NASDAQ OMX, Copenhagen and the Danish Financial Business Act on annual reports prepared by listed financial services companies.
984B984BFollowing the merger of the Group’s life insurance companies, intra-group custody account transfers are no longer included in premiums and benefits in the consolidated financial statements. This amendment has no impact on profit for the year, EPS or shareholders’ equity.
Future accounting regulation 990B990BThe IASB has issued a number of new and revised standards, and interpretations which have not yet taken effect.
Accounting estimates and judgements 271B271BIn the preparation of Topdanmark's financial statements, estimates and judgements have been made, which affect the size of assets and liabilities and consequently the results in this and subsequent financial years.
992B992BProvisions for claims incurred, but not yet paid, have been calculated as the best possible estimate at the end of any given year. As, at this time of the year, all necessary information is not available, there will be deviations between the actual claims paid and the provisions made in the form of either run-off losses (too low provisions) or run-off profits (too high provisions).
274B274BThe five-year summary discloses the most recent financial years' run-off profits/losses. The movement in the provisions for outstanding claims and run-off profits/losses analysed by claims year is shown in the note on provisions for outstanding claims. The note on technical result − non-life specifies run-off profits/losses for the year analysed by line of business. For further details see Management's review.
276B276BThe income statement and balance sheet are presented in accordance with the DFSA's IFRS-compatible accounting order for insurance companies and lateral pension funds.
279B279BProperties owned by the subsidiaries and used by the Group have been re-classified from investment properties to owner-occupied properties.
280B280BIntra-group income and expenses, shareholdings, balances and dividends as well as gains and losses on intra-group transactions have all been eliminated.
Recognition and measurement 282B282BAssets are recognised in the balance sheet, when it is probable that future economic benefits will flow to the Group, and where the asset has a value that can be measured reliably. Liabilities are recognised in the balance sheet, when the Group has a legal or constructive obligation due to a previous event, when it is probable that future economic benefits will flow from the Group, and where the value of the liability can be measured reliably. The recognition and measurement take into consideration predictable losses and risks, which have occurred prior to the presentation of the Annual Report, and which provide evidence of conditions that existed at the balance sheet date.
284B284BThe initial recognition of financial instruments is made at fair value on the date of settlement. Any changes in the value between the trade and settlement dates are included in the balance sheet under the heading of derivatives. Direct expenses on the acquisition or issue of financial instruments which are measured at fair value with any revaluation of the fair value taken to the income statement, are included in expenses on investment activities, when incurred. However, financial instruments which, subsequent to the initial recognition, have been measured at amortised cost are recognised at fair value adjusted for direct expenses on the acquisition or issue of the financial instrument.
292B292BLevel 3 293B293BIn certain cases the valuation cannot be based on publicly available market information alone. In these cases valuation models that could imply the use of estimates of both the future and the nature of the current market situation are used.
Insurance and investment contracts – classification 294B294BThe Topdanmark Group writes contracts, which transfer insurance risk, investment risk or both.
296B296BAn investment contract is one, where the amount of insurance risk is not sufficient for it to be classified as an insurance contract. However, if the investment contract entitles the policyholder to receive a bonus, it is treated as an insurance contract. Payments received and made on investment contracts, where the policyholder is not entitled to a bonus, have been taken directly to the balance sheet.
297B297BCurrencies 298B298BAs the predominant rule, DKK is the Group companies' functional currency and the presentation currency of the Annual Report.
300B300BIncome and expenses of foreign companies which prepare their financial statements in functional currencies other than DKK are translated at average exchange rates for the year, while balance sheet items are translated at the closing exchange rates on 31 December. Any translation differences are included in other comprehensive income.
302B302BExpenses 303B303BExpenses are recognised in the Group’s income statement and disclosed classified by function: claims incurred (claims handling), acquisition and administrative expenses, investment return and other expenses. The allocation of expenses, which do not directly relate to a function, is based on an assessment.
Employee shares 304B304BThe fair value, on the date the share is granted, is included as staff costs in the income statement, with the relevant credit shown as a change in equity. The fair value is measured in accordance with IFRS 2 taking into account the specific conditions for the issue of employee shares. No employee shares were granted in the financial year.
308B308BThe unconditional profit elements comprise the return on assets allocated to shareholders' equity, acquisition cost result and the profit on policies outside of contribution.
309B309BThe conditional profit elements comprise the risk return which is calculated for each contribution group. The risk return for each contribution group (cost, risk and interest rate groups) has been based on their estimated risk on shareholders' equity.
312B312BSegment information 313B313BTopdanmark has divided its non-life insurance business into the following two business segments: 997B997BPersonal includes policies for individual households, sold by Topdanmark's own sales channels and its distribution partners.
314B314BSME and Industrial includes policies for agricultural, SME and industrial businesses, sold by Topdanmark's sales organisation and its distribution partners, as well as captive-based policies.
315B315BManagement reporting at this segment level comprises only reporting on the technical result but no reporting on assets and liabilities.
317B317BThe recognition and measurement of the information reported by each segment follow the same accounting policies, as those applied by the Group.
320B320BRatios for non-life insurance are in accordance with the DFSA's accounting order. These calculations, which have been made before elimination of intra-group rent, are disclosed in segment information. Topdanmark has not calculated consolidated ratios for life insurance, as it does not believe that a true and fair view would be achieved by presenting ratios based on an accumulation of completely different portfolios.
321B321BCash flow statement 322B322BThe cash flow statement for the Group has been prepared in accordance with the direct method disclosing cash flow from operations, investments and financing as well as the changes in the Group’s liquid funds between the beginning and the end of the financial year. Investment activities also include amounts received and paid on the purchase and sale of investment, intangible and tangible assets. Cash flows from financing comprise changes in capital, including the purchase and sale of own shares. Furthermore, it includes the raising of loans and repayments on interest-bearing debt. Cash and cash equivalents comprise liquid funds as well as deposits with credit institutions.
324B324BIn life insurance, premiums net of reinsurance comprise those premiums, including single premiums, which are receivable within the year, net of reinsurance, for all insurance contracts and bonus eligible investment contracts.
Bonuses and rebates 329B329BBonuses and rebates include those premium amounts that have been or will be paid back to policyholders, on the basis that the amount of the repayment is calculated with reference to the claims trend of the financial year for each insurance contract or a portfolio of insurance contracts using criteria determined prior to the beginning of the financial year, or when the insurance contracts were written.
Operating expenses 330B330BTechnical operating expenses which relate, either directly or indirectly, to the acquisition and renewal of the portfolios are included in acquisition costs. New business commission is generally recorded in the income statement on the date the insurance takes effect. Administrative expenses comprise other costs incurred in the administration of the portfolios which relate to the financial year, and which have been accounted for on an accruals basis. Commission received from reinsurers has been accounted for on an accruals basis over the policies’ period of cover.
Pension return tax 332B332BPension return tax includes the return tax that arises from the return in life insurance included in the income statement, whether the tax is current or to be paid in subsequent periods.
335B335BTaxation 336B336BThe tax charge for the year comprises the current corporation tax for the year and any changes in deferred tax. The share of the tax charge that relates to the profit for the year is included in the income statement, the share that relates to other comprehensive income items is included in other comprehensive income, and the share that relates to shareholders' equity items is taken to shareholders' equity. The current tax for the year is calculated using the tax rates and rules applicable on 31 December.
337B337BTopdanmark A/S is jointly taxed with all the Danish companies of the Group. As the management company of the joint taxation Topdanmark A/S settles all corporation tax payments with the tax authorities.
338B338BThe jointly taxed companies' joint tax contributions are settled by dividing the current Danish corporation tax between them in proportion to their taxable income. Furthermore, those companies with tax losses receive joint tax contributions from those companies which have been able to use this loss to reduce their own tax gain.
Assets Intangible assets 339B339BGoodwill relates to the acquisition of companies prior to 2004 and is included at the book value on the change to IFRS. Goodwill is not amortised but subjected to an impairment test at the end of the financial year and written down to its recoverable amount, as required.
340B340BAcquired 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 written off over the expected useful life of a maximum of five years. If there is an indication of impairment, the book value is written down to its recoverable amount.
341B341BIntangible assets under construction are subjected to an impairment test at the end of the financial year and written down to their recoverable amount, as required.
Tangible assets Machinery and equipment 342B342BMachinery and equipment is measured at cost less depreciation on a straight-line basis and net of any impairment. Depreciation on a straight-line basis is calculated on the basis of the expected useful life and the residual value, which is annually revalued. If there is
343B343BFinance leases for machinery and equipment are those leases where the Company substantially bears all the risks and benefits of ownership: the relevant assets are shown in the balance sheet at the lower value of their fair value and the present value of future lease payments. Once recognised as a finance lease, the assets are treated as any other type of machinery and equipment. At 31 December 2013, the Group had no assets recognised as a finance lease. IT equipment, other equipment and cars as well as improvements of rental properties are depreciated over their expected useful life of up to five years. Solar cell plants are depreciated over their expected useful life of 25 years.
Owner-occupied properties 344B344BOwner-occupied properties are those properties used for the Group's own operations. The properties are measured at a revalued amount being the fair value on the date of revaluation less accumulated depreciation. The properties are reviewed and assessed annually by the Group's own valuation experts. The buildings are depreciated on a straight-line basis, given an expected life of 50 years and an annually re-assessed residual value. Land is not depreciated. The fair value of the revaluation of owner-occupied properties is assessed on the same basis as investment properties. Any revaluation surplus is included in other comprehensive income unless the revaluation is a reversal of a previous impairment. Impairments are included in the income statement unless the impairment is a reversal of previous revaluation included in other comprehensive income.
Financial assets 348B348BFinancial assets are classified at the time of their initial recognition as: • 349B349BFinancial assets which are measured at fair value with any value adjustment taken to the income statement or,
355B355BReinsurers' share of the provisions for outstanding 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 a structure of interest rates. The reinsurers' share is regularly assessed for
356B356BLiabilities 357B357BShareholders' equity Revaluation reserves 358B358BGains on the revaluation of owner-occupied properties are transferred to the revaluation reserves net of pension return tax, corporation tax and bonus. The reserve will be dissolved if the revaluation is reversed or if the property is sold.
Security fund reserves 359B359BThe security funds are special funds under shareholders' equity. Prior to 1989 they were transferred to shareholders' equity for capital adequacy and were tax-deductible.
Other reserves 361B361BOther reserves comprise a reserve at net asset value relating to non-life insurance.
365B365BThe future payments to be received and made have been based on the assumed incidents of death, disability and resumption of work. The risk of death and disability is dependent on the age, sex and health of the policyholder and is based on the company's experience. This rate is calculated by considering the DFSA's population mortality rate, Topdanmark's own observed mortality rate and the DFSA's assessed improvement in future life expectancy.
15B15BRemaining life expectancy for a 60 year old man and a 60 year old woman is as follows: 16B16B
367B367BThe present value of the expected future payments has been calculated using an interest rate structure, which is calculated by the DFSA and published on its website. For policies subject to pension return tax each interest rate used is reduced by the tax rate of 15.3%.
368B368BThe provisions include an allowance for risk corresponding to the percentage which would be demanded by an arms-length purchaser of the company's portfolio of life insurance policies to compensate for the risk of fluctuations in the expected payments. The overall allowance for risk is an estimate calculated as the interest rate used less 5%.
369B369BGuaranteed benefits have been calculated without taking into account the conversion of insurance contracts into paid-up policies and surrenders.
373B373BBonus potential on paid-up benefits comprises the difference between, on the one hand a policy's savings (retrospective provision) less the present value of the expected future expense result, and on the other hand, the present value of the guaranteed future benefits originating from already paid premiums.
Provisions for claims and benefits 374B374BProvisions for claims and benefits cover future payments of claims incurred and their administration.
375B375BProvisions for claims and benefits are assessed for each line of business, either on a claim by claim basis (individual provisions), or by using statistical methods (collective as well as incurred but not reported (IBNR) and incurred but not enough reported (IBNER) provisions). Claims exceeding a fixed amount, dependent on the line of business, are assessed individually and provisions for smaller claims are assessed collectively. IBNR provisions cover expenses on post-notified large claims. IBNER provisions cover extra expenses on already reported claims for which the individually assessed provisions are not sufficient due to, for example, inadequate information at the time of assessment. The collective provisions are calculated using de Vylder's credibility model adjusted for each line of business. The IBNR and IBNER provisions are calculated using in-house developed models. In agricultural and commercial lines claims are assessed individually. IBNR and IBNER provisions are also included in the total provision. In personal lines, claims not exceeding DKK 100,000 are assessed collectively while larger claims and all claims on change of ownership policies are assessed individually. IBNR and IBNER provisions are also included in the total provision. In motor and accident lines total provisions comprise the sum of the collective and individual provisions. Individual provisions are the result of an assessment where the claims handler has assessed the total claim payment to exceed DKK 1.5m and the case is estimated to exceed the amount paid out. Large claims and claims relating to previous years are individually assessed within personal liability in motor insurance.
378B378BThe assessment of other provisions for claims and benefits relating to injuries, loss of provider and expenses is based on traditional actuarial triangulation models. Due to the special conditions surrounding payments on disability claims, it is not possible to use traditional actuarial triangulation models for this type of provisions. Topdanmark, therefore, uses an in-house developed model, which, among other things, takes into account the stage each claim has reached. The calculation includes an allowance for the expected wage and salary indexation.
380B380BThe provisions for claims and benefits include the amounts that are expected to be included to cover direct and indirect expenses on settlement of the liabilities.
381B381BAll provisions have been measured at present value by discounting the expected future payments using DFSA's interest rate structure.
382B382BIn illness and accident insurance, which is administered by the life insurance companies, each interest rate used in the interest rate structure is reduced by the tax rate of 15.3%.
383B383BThe sufficiency of the provisions is regularly tested on the basis of the current expectations of future cash flow.
384B384BProvisions for claims and benefits in life insurance comprise insurance benefits due but not yet paid.
385B385BProvisions for bonuses and rebates 386B386BProvisions for bonuses and rebates are the amounts payable to policyholders as the result of a favourable claims trend.
387B387BCollective bonus potential 388B388BThe collective bonus potential is used to equalise the individual years' payments of bonus. Amounts will be provided for the collective bonus potential in years where the investment and technical results exceed the bonus promised, while amounts will be transferred from the reserve in years where the result is not sufficient to finance the bonus promised. The collective bonus potential can only be reduced by a transfer to another item under technical provisions or as a result of a negative technical basis for risk allowance relating to bonus eligible insurance contracts.
Provisions for unit-linked contracts 389B389BProvisions for unit-linked schemes are measured at fair value in accordance with the value of the assets linked to the schemes: see the fair value option in IAS 39 on elimination or significant reduction of accounting inconsistency.
Other liabilities Provisions for pensions and similar liabilities 390B390BProvisions 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 Company's experience. The liability is measured at present value by discounting the expected future payments using DFSA's interest rate structure.
Corporation tax and deferred tax 391B391BCurrent tax liabilities and tax receivable, including joint tax contributions, are included in the balance sheet as calculated tax on taxable income for the year adjusted for tax on previous years' taxable income and prepaid tax on account. Deferred tax on temporary differences between the accounting and tax value of assets and liabilities is charged in accordance with the balance sheet liability method. Deferred tax on shares in subsidiaries and associated companies is not included where the Group controls the timing of the reversal of the temporary difference, and where it is probable that the temporary difference will not be reversed within the foreseeable future. The calculation of deferred tax is based on the planned use of each asset and the settlement of each liability using the tax rates expected to be in force when the deferred tax is expected to crystallise as current tax, based on the tax rates and rules in force on 31 December.
392B392BDeferred tax on security funds comprises deferred tax on untaxed amounts transferred to the security funds under shareholders' equity. The security funds will be taxed in the proportion of 10% for every 10pp decline in technical provisions net of reinsurance from the level at 31 December 1994. A decline of 10% from the 1994 level is considered improbable as long as Topdanmark 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.
Creditors 394B394BAmounts due to credit institutions and derivatives are measured at fair value: see the fair value option in IAS 39 on elimination or significant reduction of accounting inconsistency. The fair value of amounts due to credit institutions usually corresponds to their nominal value. The fair value of derivatives is calculated on the same basis as financial assets.
Proposed appropriation of profit for the year: Transfer to net revaluation reserve at net asset value 1,825 1,511 Transfer to profit carried forward (2) (43)
Profit for the year 1,823 1,468 Other comprehensive income in affiliated companies 2 1 Other comprehensive income 2 1 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,825 1,470
Shares in affiliated companies 6 6,714 6,323 Total investment in affiliated companies 6,714 6,323
Amounts due from affiliated companies 172 155 TOTAL DEBTORS 172 155
Other reserves 2,991 2,574 Total reserves 2,991 2,574 Profit carried forward 2,587 2,792 TOTAL SHAREHOLDERS' EQUITY 5,716 5,490
Bond loans 74 58 Amounts due to affiliated companies 630 503 Current tax liabilities 53 11 Other creditors 15 15 TOTAL CREDITORS 773 588 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 6,895 6,485
Related parties 9 Core capital and capital base 10 Own shares 11 Contingent liabilities 12 Other note disclosures 13 Accounting policies 14
Other comprehensive income in affiliated companies 1 0 1 Total comprehensive income for the year 1,455 15 1,470
Topdanmark Invest A/S (17) 7 Topdanmark Kapitalforvaltning A/S 71 88 Income from affiliated companies 1,825 1,511
Note 3. Other expenses Holding expenses 34 42 Other expenses 34 42
Cost at 31 December 4 3 Impairment and amortisation at 1 January 0 (1) Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year 0 1 Impairment and amortisation at 31 December (1) 0 Machinery and equipment 3 3
Note 6. Shares in affiliated companies Topdanmark Forsikring A/S 6,427 6,043 Topdanmark Invest A/S (investment) 173 180 Topdanmark Kapitalforvaltning A/S 82 99 TD.0151 ApS (Investment) 31 -
Shares in affiliated companies 6,714 6,323 The affiliated companies are domiciled in Ballerup.
Note 7. Share capital DKK Share capital at 1 January 148,258,960 137,500,000 Reduction in capital (10,758,960) (12,500,000) Share capital 137,500,000 125,000,000 Each of Topdanmark's 125,000,000 (2012: 137,500,000) shares has a nominal value of DKK 1. No share enjoys any special rights. The shares are freely tradeable. Each share has one vote.
Salaries etc. 16 18 Share options 2 2 Employee shares 1 Total remuneration to three members of the Executive Board 19 20
Christian Sagild 8.3 8.6 Kim Bruhn-Petersen 5.5 5.7 Lars Thykier 5.5 5.6 10% of the fixed salary etc. paid to the Executive Board is paid as share options. Additionally, the Executive Board earns successively a compensation representing six months' salary in each of the years 2013-2015. The compensation will be paid on resignation. The Executive Board receives only a fixed remuneration.
Expenses on investment business are settled on market conditions. Other expenses are charged to cover costs incurred.
Differences from the Group's accounting policies 398B398BThe company's accounting policies for recognition and measurement are in accordance with the Group's accounting policies with the following exceptions: 399B399BShares held in affiliated companies are recognised and measured at their net asset value. If the net asset value 400B400Bexceeds the recoverable amount, the investment is written down to this lower amount. The share of the posttax results of affiliated companies is included in the income statement under income from affiliated companies less any write-downs. Where investments in affiliated companies are revalued to net asset value, the net revaluation reserve is included in shareholders' equity. The share of the changes in equity of affiliated companies is included directly in the shareholders' equity.
1007B1007BThe net asset value of affiliated companies is calculated without providing for deferred tax on security funds, unless it is probable that a situation creating such a tax liability will arise within the foreseeable future.
Other 1008B1008BGenerally 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.
Disclaimer 401B401BThis Annual Report includes statements relating to the future. Such statements are uncertain and involve both general and specific risks.
402B402BMany factors may cause a significant deviation from the forecasts and assumptions set out in the Annual Report. Such factors could be, for example, cyclical movements, changes in the financial markets, the financial effect of nonanticipated events like acts of terror or exceptional weather conditions, changes in Danish and EU rules, competitive factors in the insurance industry and the trend in reinsurance market. See also Risk management.
1009B1009BThis publication is a translation. In case of any divergence, the original Danish text shall prevail.
1010B1010BStatement by Management on the Annual Report 1011B1011BWe have today considered and approved the Annual Report of Topdanmark A/S for 2013.
1012B1012BThe consolidated financial statements are presented in accordance with International Financial Reporting Standards as adopted by the EU, and the annual financial statements for the 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.
1023B1023BCharlotte Hougaard Jens Maaløe Per Mathiesen 1024B1024BBirgitte Nielsen Annette Sadolin Desirée Schultz
Statements by the auditors Internal audit’s reports Report on the consolidated financial statements and annual financial statements 1025B1025BWe have audited the consolidated financial statements and annual financial statements of Topdanmark A/S for the financial year 1 January to 31 December 2013, which comprise the income statement, statement of comprehensive income, balance sheet, statement of changes in equity and notes, including the accounting policies, for the Group as well as the Company, and including cash flow statement for the Group. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial services companies. The annual financial statements have been prepared in accordance with the Danish Financial Business Act.
1026B1026BManagement is responsible for the consolidated financial statements and annual financial statements. Our responsibility is to express an opinion on the consolidated financial statements and annual financial statements.
1028B1028BAn audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements and annual financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatements of the consolidated financial statements and annual financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial statements and annual financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as the overall presentation of the consolidated financial statements and annual financial statements.
Opinion 1031B1031BIn our opinion, the consolidated financial statements give a true and fair view of the Group’s assets, liabilities and financial position at 31 December 2013, and of the results of its activities and cash flows for the financial year 1 January to 31 December 2013 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial services companies.
Statement on the management review 1033B1033BPursuant to the Danish Financial Business Act, we have read the management review. We have not performed any further procedures in addition to the audit of the consolidated financial statements and annual financial statements.
Management’s responsibility for the consolidated financial statements and annual financial statements 1037B1037BManagement is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial services companies as well as the preparation of annual financial statements that give a true and fair view in accordance with the Danish Financial Business Act. Management is also responsible for such internal control as it determines is necessary to enable the preparation of consolidated financial statements and annual financial statements that are free from material misstatement, whether due to fraud or error.
1040B1040BWe believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion 1042B1042BIn our opinion, the consolidated financial statements give a true and fair view of the Group’s assets, liabilities and financial position at 31 December 2013, and of the results of its activities and cash flows for the financial year 1 January to 31 December 2013 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial services companies.
Statement on the management review 1044B1044BPursuant to the Danish Financial Business Act, we have read the management review. We have not performed any further procedures in addition to the audit of the consolidated financial statements and annual financial statements.
1047B1047BDeloitte 1048B1048BStatsautoriseret Revisionspartnerselskab 1092B1092BErik Holst Jørgensen Martin Faarborg 1093B1093BState Authorised Public Accountant State Authorised Public Accountant